Analysts Differ on How Hard Pfizer’s Stock May Fall Today
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Pfizer Inc. will likely slash staff and accelerate merger and licensing deals as the pressure on it to improve its financial performance intensified after the weekend’s announcement that the company ended development of a key drug.
Analysts differed on how much they believed Pfizer stock would fall when it opens today. Barbara Ryan, an analyst at Deutsche Bank, said she believed the dividend yield of roughly 4% would keep shares from a free fall, but another analyst estimated the stock could plunge to $20 a share. Pfizer shares closed Friday at $27.86 on the New York Stock Exchange.
The world’s largest drugmaker 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. Lipitor sales totaled $12.2 billion last year.
“This is obviously unfortunate because this was the biggest opportunity in their pipeline,” Ms. Ryan said. “Clearly there is more pressure on them to do cost cutting.”
Ms. Ryan said Pfizer may lay off as many 10,000 people in near future. 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.
Pfizer’s world research and development headquarters are in the Connecticut towns of New London and Groton.
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.
Ms. 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, Ms. Ryan said she 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 many are still years away from the market.
Torcetrapib was designed to raise levels of HDL, or what’s commonly known as good cholesterol. Pfizer has two other products in early development to raise HDL, using the same method as torcetrapib. It is too soon say where they will be affected by compound’s demise because it still unclear what caused the patient deaths in the trial.
In a statement issued yesterday, the U.S. Food and Drug Administration said it supported Pfizer’s decision to suspend the trial and that it will work with the company and other drugmakers developing similar products to ensure there are procedures in place to identify any safety problems quickly.
A Pfizer spokesman, Paul Fitzhenry, said 82 patients taking the combination of torcetrapib died, compared to 51 deaths in the arm of the study where patients were taking Lipitor alone. Each arm of the study had 7,500 patients. Pfizer said that the study didn’t raise any questions about Lipitor’s safety.