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On December 02, 2006, Pfizer Inc. (Pfizer), the world's largest pharmaceutical company, informed the US Food and Drug Administration1 (FDA) that it was suspending a Phase 3 clinical trial2 of its developmental drug torcetrapib. This drug was in the trial stage in combination with atorvastatin (Lipitor) to be used for the treatment of cholesterol. Pfizer had to suspend the trial after it found that deaths in patients who received the combination were 60 percent higher when compared to those who were treated only with atorvastatin.
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Torcetrapib was a promising drug in Pfizer's product development pipeline. The drug was different from other popular statin drugs3 because it increased the level of good cholesterol or HDL while other statins primarily reduced the level of bad cholesterol or LDL.
Moreover, Pfizer was dependant on Torcetrapib to counter the anticipated drop in sales when Lipitor, its blockbuster cholesterol drug with over US$ 12 billion in annual sales, was expected to go off-patent in 2010 or 2011.
Some analysts had projected the annual sales of Torcetrapib to be around US$15 billion.4 Pfizer had reportedly spent around US$ 800 million in the development of Torcetrapib.5
The announcement had a severe impact on Pfizer's share price. On December 04, 2006, the price of Pfizer's stock fell by around 11 percent, which resulted in a loss of around US$ 21 billion in market value.6
Pfizer's long term debt ratings were also downgraded one notch by Moody's from Aaa to Aa1. Some analysts were surprised at the announcement because on November 30, 2006, during a meeting with analysts, Jeffrey B. Kindler (Kindler), chief executive, Pfizer, had allayed concerns regarding the Torcetrapib drug trial and said that it could be "one of the most important drugs in a generation."7
During this meeting, Kindler raised the company's earnings outlook for 2006 and said that Pfizer had 242 research programs in 11 therapeutic areas.
He also highlighted some of the company's new product development initiatives to bolster it new product pipeline.8
Analysts opined that even though Pfizer's current financial position was strong, its long term performance outlook was less optimistic.
David Risinger, an analyst at Merrill Lynch, said, "They have their work cut out for them. They're going to have to pursue a lot of initiatives over the next few years to rebuild the pipeline. There's no quick fix."9
Michael Levesque, senior credit officer, Moody's, said, "Despite the expectation of excellent cash flow to debt ratios over the near term, Pfizer's weak pipeline could lead to more aggressive in-licensing [of new drugs], acquisitions, or shareholder strategies that increase financial risk."10
On December 18, 2006, Pfizer increased its quarterly dividend by 21 percent so as to improve investor confidence. It also announced the finalization of various restructuring initiatives such as the sale of its consumer products division to Johnson & Johnson and the sales force restructuring.
Pfizer had already announced on November 28, 2006, that it would reduce its sales force by 20 percent.11 This was expected to translate into job cuts for more than 2,000 employees.12
Analysts opined that Pfizer may also have to acquire pharmaceutical companies or products in order to meet the loss in revenues for Lipitor due to generic competition, when it goes off patent.
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1] FDA or the Food and Drug Administration of the US is the government agency responsible for regulating food (human and animal), dietary supplements, drugs (human and animal), cosmetics, medical devices (human and animal), biologics, and blood products in the US. It approves drugs for certain indications and provides guidelines for use of the drugs.
2] A clinical trial is a research study that evaluate new drugs, medical devices, biologics, or other interventions to patients in strictly scientifically controlled settings, and are required for regulatory authority approval of new therapies. Normally, drugs become widely used as treatments for patients only when a well-designed clinical trial finds that the drug is safe and effective for patients of the same type and age.
3] Commonly prescribed statins include: Atorvastatin (Lipitor), Fluvastatin (Lescol), Lovastatin (Mevacor), Pravastatin (Pravachol), Rosuvastatin Calcium (Crestor) andSimvastatin (Zocor).
4] Alex Berenson, Andrew Pollack "Drug Failure Wipes $26b off Pfizer in Trade Frenzy," http://www.smh.com, December 06, 2006.
5] "Pfizer CEO Plans Acquisitions after Failure of Cholesterol Drug," www.msnbc.msn.com, December 04, 2006.
6] Shannon Pettypiece and Michelle Fay Cortez, "Drug's Failure Batters Pfizer," Bloomberg News, December 05, 2006.
7] Matthew Herper, "Behind Pfizer's Failure," www.forbes.com, December 04, 2006.
8] Theresa Agovino, "Pfizer Increases 2006 Earnings Outlook," www.boston.com, November 30, 2006.
9] Alex Berenson and Andrew Pollack, "Pfizer Shares Plummet on Loss of a Promising Heart Drug," http://www.nytimes.com, December 05, 2006.
10] "Moody's Downgrades Pfizer Debt Ratings," http://news.moneycentral.msn.com, December 19, 2006.
11] Theresa Agovino, "Pizer to Cut U.S. Sales Force 20 Pct," http://biz.yahoo.com, November 28, 2006.
12] Scott Hensley, "Pfizer to Cut 20% of U.S. Sales Force, Signaling End of Era," www.wsj.com.
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