Pfizer CEO Plans Acquisitions After Failure of Cholesterol Drug
Pfizer CEO Jeffrey Kindler expressed disappointment about the failure of the company's new cholesterol drug but said Pfizer plans to continue growing through strategic acquisitions.
In an exclusive interview on CNBC's "Power Lunch," Kindler also touted the pharmaceutical giant's existing pipeline and its focus on containing costs.
"We know we need to have a lower cost base and a more flexible cost structure," he said. "Second of all, we are relentlessly focused on total shareholder value which includes earnings growth, dividend and share buybacks."
Shares of Pfizer fell sharply, erasing nearly $30 billion of market value, on news that a key cholesterol drug, torcetrapib, would not make it to market due to safety concerns.
Kindler said Pfizer's management is fully aware of the challenges ahead. They plan to accelerate the company's restructuring program, under which they've already announced plans to slash their sales force.
He also said that the company plans to explore some key acquisitions.
"There Are Opportunities"
"We're not looking for some short-term financial benefit from an acquisition," Kindler said. "We want to strategically grow our business. We think there are opportunities in biotechnology, in vaccines, in specialty areas like oncology. We will be both aggressive, but I might add financially disciplined, in finding strategic opportunities."
Kindler expressed optimism about Pfizer's early- to mid-stage pipeline, which he described as the strongest in the company's history. Beginning in 2011, they "have made a target of four new products annually from internal development," which will be supplemented by two additional products from business development.
"It's important to remember that this is a financially very strong and profitable company," he added. "This gives us an opportunity to address these issues."
Morgan Stanley, Lehman Brothers and JPMorgan Chase all cut their ratings on Pfizer this morning.
Deutsche Bank cut its price target on Pfizer to $28 per share from $33 per share, noting that the company would need more "transforming initiatives," such as new big drugs in its pipeline, before the stock could more forward. But Deutsche Bank kept its "buy" rating on the stock. Pfizer closed at $27.86 on the New York Stock Exchange on Friday.
The world's largest pharmaceutical company said Saturday that an independent board monitoring a study for cholesterol treatment torcetrapib recommended that the work end because of an unexpected number of deaths.
The news is devastating to Pfizer, which had been counting on the drug to revitalize stagnant sales that have been hurt by numerous patent expirations on key products. It has said it was spending around $800 million to develop torcetrapib, which was supposed to fill the void when its best-selling drug, cholesterol treatment Lipitor, loses patent protection in either 2010 or 2011.
"When you live by the blockbuster, you can be badly hurt when the blockbuster fails to materialize," Steve Brozak, an analyst with WBB Securities, told Reuters.
For some of Pfizer's rivals, the problems facing the New York-based giant are good news.
Industry analysts at Morgan Stanley said the failure of torcetrapib was an "important positive" for AstraZeneca since the product had been the biggest potential competitor to AstraZeneca's fast-growing cholesterol drug Crestor. AstraZeneca shares , which have been punished recently following setbacks for its own drugs in development, were trading higher.
Switzerland's Roche Holding might also benefit among European pharmaceutical companies, since it is developing a rival to torcetrapib licensed from Japan Tobacco.
But some investors are wary that the problems with torcetrapib could turn out to be a class effect. Roche stock fell slightly after an early advance.
Another potential winner from Pfizer's woes is expected to be Abbott Laboratories, which is acquiring Kos Pharmaceuticals. Kos markets Niaspan, part of an older class of niacin medicines that also raise HDL, or what's commonly known as "good" cholesterol. Abbott shares were up in early trading.
Merck is conducting trials of its own long-acting form of niacin and of a separate drug that would be combined with it to prevent facial flushing -- a side effect of niacin. Merck shares also rose.
Big Layoffs Likely
Pfizer may lay off as many 10,000 people in near future, said Deutsche Bank analyst Barbara Ryan. Pfizer employs roughly 100,000 people. Last week it announced it was cutting 2,200 people from its U.S. sales force by the end of the year as part of efforts to streamline the company.
Last year, Pfizer announced a program to slash $4 billion in expenses by 2008. But two months ago, Pfizer said it would cut even more costs and promised details in January. Patent expirations will cost the company $14 billion annually between 2005 and 2007.
Ryan added that she expects Pfizer to hike its annual dividend from 96 cents to $1.10 per share in the next few weeks in the hopes of putting a floor on the stock.
Beyond that, Ryan expects Pfizer to act swiftly to bring new products into the fold, either through acquisition or licensing. The company has several new products in development, including cancer and obesity treatments, but they are still years away from the market.
Ryan told CNBC's "Morning Call" that she also believes the onus is on Pfizer to do a "transformational deal" to replace the $5 billion in revenue it will lose when Lipitor faces generic competition in 2010.