The fall in profits was largely caused by a spike in costs relating to restructuring and legal matters. However, the company is continuing its cost-reduction drive, laying-off staff in sales, R&D and manufacturing and reducing the company’s facility square footage by 15 per cent.
In addition Pfizer is to reduce the number of manufacturing facilities it operates from 46 to 41. Pfizer has not revealed which facilities it will be closing, with the company assessing areas of overlap with newly acquired Wyeth before making a decision.
These restructuring efforts will result in costs of $6bn, of which $1.5bn has already been incurred. This forms part of the significant drain on Pfizer’s profits in the fourth quarter, with the $1.5bn paid out dwarfing the $250m in the corresponding period of 2007.
However, Pfizer’s legal costs were even greater, with the company paying out over $2.3bn in the fourth quarter to settle investigations into its marketing practices.
Despite these difficulties CEO Jeff Kindler remained upbeat, highlighting that Pfizer had exceeded its cost reduction target and achieved its financial objectives.
He added: “We made significant progress by: Establishing customer-focused business units; reprioritising and refocusing our research on the greatest opportunities for scientific, medical and commercial success; and increasing our Phase III portfolio by approximately 60 per cent, from 16 to 26 programmes at year-end.”
Generic competition begins to bite
Over the past year Pfizer got a small taste of how generic competition is going to impact its revenues. Norvasc came off patent in 2007 and generic alternatives resulted in the revenues it generated in the US falling by 87 per cent last year.
This amounted to over $500m but compared with the succession of patent losses Pfizer is facing this is small change. The big one is Lipitor which is due to come off patent in 2011.
Revenues generated by Lipitor in the US fell by 12 per cent in 2008 but growth in international markets meant the product still brought in $12.4bn, a dip of 2 per cent.
This amounts to about 25 per cent of Pfizer’s total revenues for 2008 and filling the Lipitor shaped hole that will appear in the company’s balance sheet in 2011 has been a priority for Kindler.
He now believes this problem has been resolved, stating that the deal with Wyeth will “definitely” address the loss of patent protection for Lipitor.
Kindler said in a conference call that the company resulting from the merger will not rely on any one product for more than 10 per cent of its revenues by 2012.