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Drug's failure costs Pfizer

With its new cholesterol medicine dumped, the drug giant has a void to fill.

By ASSOCIATED PRESS
Published December 5, 2006

NEW YORK - Pfizer Inc.'s decision to scrap development of a crucial medicine sent its shares plummeting Monday as analysts fretted about its future and speculated about which companies it might purchase to shore up its pipeline.

Shares of Pfizer fell $2.96, or 10.6 percent, to close Monday at $24.90 on the New York Stock Exchange.

On Saturday, Pfizer said it had halted development of cholesterol treatment torcetrapib because of an unexpected number of deaths and other complications in the trial.

Torcetrapib was supposed to fill the void when Pfizer's best-selling drug, cholesterol treatment Lipitor, loses patent protection, possibly as early as 2010. Other patent expirations will rob Pfizer of $14-billion in revenues annually between 2005 and 2007.

Now the revenue gap is looming larger than ever. Analysts said Pfizer has some interesting products in its pipeline but none that come close to torcetrapib's promise, intensifying the pressure to find new medicines.

One avenue is for Pfizer to buy smaller drug companies to gain the drugs they're developing. Pfizer can fund a substantial shopping spree: It has roughly $13-billion in cash and short-term assets, and will reap $13.5-billion from the sale of its consumer products division to Johnson & Johnson, expected to close by year's end.

As much as analysts believe Pfizer will act swiftly to bring new products into the fold, they caution it is no panacea. This year, Pfizer canceled at least two drug development deals. Last month, it pulled out of its deal with drugmaker Organon to develop schizophrenia treatment asenapine and over the summer returned its development and marketing rights on sleeping pill Indiplon to Neurocrine Biosciences Inc.

Last week, Pfizer and Scripps Research Institute unveiled a $100-million partnership that gives Pfizer first rights to license a portion of the discoveries that come out of Scripps' labs in both Florida and California.

Pfizer is in a tough spot because it want to show investors it is taking actions to improve its fortunes, but purchasing another company or licensing products is also very risky, said Jason Napodano, an analyst at Zacks Independent Research, who downgraded Pfizer stock to "sell" from "hold" on Monday.

Napodano acknowledges that Pfizer pays an attractive dividend and has a stock buyback program that bolsters shares. Still he said, "Those aren't long-term strategies."

Most analysts don't believe Pfizer will acquire a major drugmaker because it would be expensive and difficult to integrate. Plus, with $51.3-billion in annual revenues Pfizer already needs numerous blockbusters to fuel sales growth, a challenge that would only be compounded by purchasing another drugmaker.

"Pfizer is already too big," said Napodano.

Last week, Pfizer showcased its pipeline at a meeting where it told analysts it would introduce six new drugs per year beginning in 2011. But analysts noted that drug development is fraught with problems, as highlighted by torcetrapib's failure. At that meeting for example, Pfizer executives heralded torcetrapib's future, only to have it blow up two days later.

Additionally, Pfizer isn't known for its research and development prowess. All companies have products fail, but Pfizer hasn't introduced a blockbuster drug (one with more than $1-billion in annual sales) that it discovered since Viagra in 1998.

"They've lost more credibility in the research and development area," said Les Funtleyder, an analyst at Miller Tabak & Co.

Pfizer is slated to introduce three new drugs next year, but only one, an AIDS compound, is believed to hold blockbuster potential. Recently, it has introduced Exubera and Chantix, a smoking cessation drug, which is off to a promising start. Sutent, a cancer treatment, is also selling well.

But the void left by torcetrapib won't be easy to fill and some investment houses downgraded the stock, including Morgan Stanley, Merrill Lynch and Lehman Brothers.

[Last modified December 4, 2006, 23:32:21]