Pfizer's Core Leaders Outline Drive To Downsize In U.S., Europe While Expanding In BRIC Countries Including China

BEIJING - The core leaders of one of the globe's top pharmaceutical players - Pfizer Inc - told shareholders this week that they would push forward with a worldwide operation to reduce costs by downsizing in the West while ramping up sales forces in China and the other BRIC emerging markets.

The lawyer who heads Pfizer and charted out its $68-billion merger with Wyeth, Jeff Kindler, told investors in an earnings call this week that the combined concern aims to generate gross cost reductions of approximately $7 billion, resulting in net cost reductions of approximately $4 billion to $5 billion, by the end of 2012.

"First, we continue to drive costs out of the business and improve our productivity in everything we do," said Kindler. Ye he added that Pfizer would step up investments in emerging markets.

Kindler alluded to the expiration of patents and market exclusivity on blockbuster drugs - or the patent cliff - along with the economic storms that continue to whip the West, in outlining the challenges Pfizer is facing.

"Only a couple of years ago we faced a significant clip in revenue and earnings in 2012 due to the coming loss of exclusivity for Lipitor," he explained. "Today, thanks to the changes that we have made, the Wyeth acquisition and the hard work of thousands of people, our targets for 2012 project adjusted earnings per share that are higher than both our 2009 actual results and our 2010 guidance."

Since the formal closing of Pfizer's mega-merger with Wyeth on October 15, the outfit's combined workforce has been cut from 120,700 people to 116,500, and Pfizer has begun "exiting" research outposts and manufacturing sites in the U.S.

These preemptive moves to cut costs were launched before Pfizer was actually hit by a decline in earnings, despite losing $1.8 billion in 2009 due to unfavorable foreign currency fluctuations.

Kindler reported this week that revenues for 2009 reached $50.0 billion, a rise of 4 percent compared with the $48.3 billion posted in 2008. U.S. revenues were $21.7 billion last year, while international revenues inched up to $28.3 billion.

For 2009, Pfizer posted reported net income of $8.6 billion, an incline of 7 percent compared with $8.1 billion in net income for 2008.

"In emerging markets," Kindler said, "for the first time we saw double-digit revenue growth, led by China, India, Brazil and Russia."

"That is why our emerging markets business has increased the size of our field force in China," he added. Kindler likely approved the expansion during a whirlwind tour of China last summer, when he also christened an array of scholarly partnerships with Chinese scientists (Also see "As Merger With Wyeth Hangs In The Balance Of Beijing's Hands, Pfizer CEO Tours China To Launch Scholarly Partnerships" - Scrip, 30 Jul, 2009.).

Pfizer's chief financial officer, Frank D'Amelio, stated during the earnings call that emerging markets revenues jumped 25 percent year-over-year, with "double-digit growth in priority markets such as Brazil, Russia, India and China."

"In 2010," he said, "we currently expect for the combined company reported revenues in the range of $67 billion to $69 billion, [with] adjusted R&D expenses in the range of $9.1 billion to $9.6 billion."

D'Amelio also forecast that the post-merger Pfizer would chalk up revenues in the range of $66 billion to $68.5 billion in the year 2012, with research expenditures slated to be cut to between $8 billion and $8.5 billion by that time.

Despite the potential dip in revenues over the next two years, Pfizer will channel more funds and forces into new markets.

Ian Read, group president of Pfizer BioPharmaceutical Businesses, stated: "Emerging markets are projected in 2010 to represent 27 percent of the worldwide growth."

"So these markets are hugely important to us in the future, as they create a middle class that can pay out of pocket for medicines," he said.

"We have in the last two to three years been very deliberately shifting resources out of the United States and Western Europe and putting those resources into the emerging markets," Read explained.

Asked to compare Pfizer's progress in the Asian giants of India and China, Read responded: "In India I would say we are really at the very beginning of our investments. And it is a market that is difficult to develop."

Pfizer's presence in China is expanding at a more rapid speed.

"China is a huge opportunity," he said. "We've got a reasonably large field force. But we will continue to aggressively grow that field force to maximize opportunities and tailor it to the developments of the marketplace."

Asked to provide more details on Pfizer's strategy in China, Read said the country is "in large part an out-of-pocket market, so brand loyalty and quality is really important."

"So we compete with a portfolio that we have accumulated over many years, and products that are still growing, products like Norvasc and Lipitor and Zithromax," he said. "So frankly our total portfolio is growing, and it is not as impacted as the United States or Europe is by LOEs," or loss of exclusivity due to patent expiration.

"This requires what I would call a traditional investment thesis, feet on the street, field force, relationships with physicians, maintain your quality, be visible, invest in the market, invest with key opinion leaders, and that is what we intend to do," he added.

Martin Mackay, who heads Pfizer's therapeutics R&D division, provided shareholders with a snapshot of advances made in the drive to develop innovative drugs in China. "We established a R&D center in 2006," he said.

"Initially it was to form collaborations with academics and some biotech companies," said Mackay, who oversees Pfizer's international network of scientists in pharmaceutical research.

"But more recently we have started our own portfolio, particularly in China, really dedicated to diseases that are prevalent in those areas," he said. "And I must say that the speed of progress is quite astounding in that timeframe."

- Kevin Holden ([email protected])