Bitter Pill to Swallow
January 25, 2007
New York-based Pfizer said this week it will cut at least 10,000 jobs and close several manufacturing and research sites in a cost-cutting drive aimed at bolstering earnings reeling from strong competition by makers of generic drugs.
The layoffs, which amount to about 10 percent of Pfizer's total workforce, will take place by the end of 2008, it said. The company will also close production sites in the US and Germany -- reducing its manufacturing plants from 93 to 48 -- as well as shut down research centers in Japan and France.
Pfizer chief executive Jeffrey Kindler said the company needed to cut costs because it expected its profits to stagnate over the next two years and be roughly comparable to the $48.4 billion (37 billion euros) it reported for 2006. Analysts predict that profits will drop by almost 40 percent.
"We are facing significant challenges in a profoundly changing business environment," Kindler said in a statement. "I believe we must fundamentally change the way we run our company to meet these challenges."
Boom time over for Pfizer?
Things weren't always this way for Pfizer. The drug giant can look back on an illustrious past. The company has long been considered a shining model of a successful multinational.
Founded by German chemist Karl Pfizer in New York in 1849, the company became the world leader, especially in "blockbuster" drugs, which refers to medicines that rake in earnings worth over a billion dollars a year.
In its heyday, the company's product palette was largely associated with superlatives.
Pfizer created the world's most famous pill, the erectile dysfunction drug Viagra. Its number one drug, Lipitor, which is used to lower blood cholesterol, is the world's most lucrative pill.
In 2004, Pfizer had a yearly turnover of $52.52 billion, the world's biggest research and development budget and a 38,000-strong sales army.
No new blockbuster drugs in sight
But that golden age is past. Over the next few years, patent protection for a number of its drugs -- which once earned Pfizer billions -- is set to expire. That means that Pfizer will then lose its monopoly, usually set for a period of 20 years, over producing those drugs -- much to the joy of makers of generic medicines.
Pfizer has been suffering from the loss of patent protection on key drugs like the antidepressant Zoloft and the antibiotic Zithromax. Sales of both drugs plunged more than 70 percent in the fourth quarter of 2006, the company said.
The company's problems are compounded by the fact that Pfizer's labs have not produced a single hit despite an annual research budget of $7 billion.
Even Viagra, Pfizer's last big success, is almost a decade old. In December, Pfizer had to stop development of Torcetrapib, a promising cardiovascular drug, because of dangerous side-effects. Torcetrapib was meant to bring Pfizer $10 billion yearly.
Cut-throat competition
Pfizer's problems aren't new in the pharmaceutical industry. Competition from makers of generic drugs remains a problem for most big drug companies. But streamlining operations doesn't seem to hold all the answers.
Pfizer's current belt-tightening is the second time in two years that the drug giant has embarked on a serious cost-cutting strategy.
Many experts forecast a takeover war in the pharmaceutical industry, with big players forgoing producing new drugs and instead looking to buy innovative biotechnology competitors who could develop new medicines.
Markus Preissner, head of the Research Division for Drug Distribution at the University of Cologne, said that competition between the producers of original drugs and those of generic drugs was absolutely cut-throat.
"If there are copycat products, the original drug is much more difficult to sell," Preissner said.
Compromising on quality
Preissner warned that the bargain-hunting mentality of consumers didn't augur well for the quality of future drugs.
"When drugs don't cost much, they can't be of high quality," he said.
Tido von Schön-Angerer from the German chapter of aid organization Doctors Without Borders said that hugely expensive product marketing was largely responsible for the high costs of original drugs. Thus, research and development often falls by the wayside as in the case of Pfizer, von Schön-Angerer pointed out.
"Even patent protection is no guarantee for urgently needed innovation," he said, adding that it was particularly true when it came to developing drugs for diseases in poor countries.