Analysts Speculate on Pfizer Cuts

Jan 21, 2009
By Pharmaceutical Executive Editors

Word spread early this week that Pfizer is considering eliminating a third of its US sales force in reaction to looming patent expirations. According to Bloomberg (citing anonymous sources), the pharma giant could shed up to 2,400 of its domestic salespeople. This news comes just a week after Pfizer announced that it will release about 800 global R&D employees.

Pfizer was tight-lipped about the Bloomberg piece. “As you know, we don't comment on rumors or speculation,” the company stated in an email. “However, as we have stated, our plan is to re-shape our company into smaller, more focused units to best deploy our valuable resources and drive decision-making closer to our customers and to the markets in which we operate.”

In an investor call on Tuesday, Deutsche Bank Analyst Barbara Ryan said that the possible layoffs would be in line with Pfizer’s plans to maintain margins “into the cliff” when patent protection for Lipitor expires.

“Lipitor represents 30 percent of the company’s US pharma business,” Ryan said. “If we look at the rumored 2,400 sales reps [to be laid off], that’s exactly 30 percent of the 8,000 reps Pfizer currently has. They can’t just eliminate 30 percent of the sales force in the short run. Maybe they will eliminate it as part of their fixed core, and employ a CRO to pick up the slack.”

To date, Merck is the only pharma company to cut its sales force and move to a contract model, using Inventiv for temporary sales support. Contract sales reps cost about 25 percent less than an internal sales force.

Bracing for Change
This isn’t the first time Pfizer has cut costs by red lining reps. Just months after former general counsel Jeffrey Kindler became the company’s CEO, he eliminated 2,200 sales positions, signaling the end of an era for bloated sales divisions.

Pfizer’s plan of attack—trim the fat and reorganize—has since become the industry standard. Ryan said that most pharma companies felt they had a viable strategy: cut costs, buy time in the near term to improve earnings, and work to improve the R&D productivity and manage through the cliff with an improving pipeline.

The bad news is that while Big Pharma has improved its bottom line with sweeping cuts, the market hasn’t rewarded their efforts. For one thing pending patent expirations are hard to ignore. Even worse, half of the major products in the pipeline just a few years ago have either been shelved or rejected by FDA, according to Ryan.

For now, the next big release from Pfizer is Toviaz (fesoterodine fumarate), an overactive bladder treatment approved in October 2008 and slated for launch in the first half of 2009. Pfizer will release its fourth quarter 2008 report on January 28.

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