Wednesday, January 14, 2009

Understanding Pfizer’s Latest Job Cuts

If you’re afflicted with Alzheimer’s, cancer, schizophrenia, pain, inflammation, or diabetes, help may still be on the way to you from Pfizer. But if your health problem is anemia, bone loss, obesity, a gastrointestinal disorder, osteoarthritis, or cardiovascular and peripheral artery disease, you’d better not count on the world’s largest drug maker. CEO, Jeff Kindler, has been forced to make hard choices ever since he took over from Hank McKinnell at the helm of Pfizer, but none of those choices were as far reaching as this week’s decision to cut 800 research jobs, and to close down the search for therapies to treat some of mankind’s most common diseases.

I don’t have access to Pfizer’s boardroom, but this certainly seems like a departure from Pfizer’s basic business model which has proven extremely successful over the last quarter century. The drug giant’s strategy has always been to invest more than its competitors in research to develop blockbuster therapies, and then to market them more aggressively than the competition. To become a blockbuster, however, a drug needs to treat a disease which is common to a great many patients, and arguably the most common health problem in America is obesity. With new data showing that an alarming one-third of all Americans are obese, and with nearly all post menopausal women justifiably concerned about bone loss, these two maladies unquestionably afflict far more people than schizophrenia. The only explanation for Pfizer’s strange choice of what stays and what goes away seems to be that they are keeping the research intact where the near term results are most likely to bear fruit.

All of this is designed to cut costs in anticipation of the disaster that awaits the company in late 2011. That’s when Lipitor goes off patent, and if the past is any indicator of the future, then 90% of the Lipitor business will fall to the generic replacements. Lipitor accounts for more than a quarter of Pfizer’s total sales volume, so the stakes could not be higher. There might be a strategy in the works, however, to meet this challenge. The rumor on the street, there, in New York at 42nd and Lexington is that Pfizer is preparing to move aggressively into a generic business of its own.

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