#1 Pfizer

235 E. 42nd St.
New York, NY 10017-5755
Tel: (212) 573-2323
Fax: (212) 573-7851
www.pfizer.com

Drugs Approved/Launched
Drug	Indication
zmax	antibiotic
revatio	pulmonary arterial hypertension
sutent	renal cell carcinoma and malignant gastrointestinal tumors
exubera	inhaled insulin for types 1 and 2 diabetes
eraxis	candidemia and invasive candidiasis
lyrica	epilepsy
zmax	acute bacterial sinusitis and community acquired pneumonia
macugen	(wet) age-related macular degeneration
aromasin	breast caner in post-menopausal women
lipitor	reduction of risk of stroke and myocardial infarction in patients with type 2 diabetes
norvasc	angiographically documented coronary artery disease
celebrex	ankylosing spondylitis
champix	smoking cessation

Drugs Pending approval
Drug	Indication
aricept	severe Alzheimer’s disease
genotropin	short stature and growth problems resulting from Turner’s syndrome
vfend	pediatric filing, fungal infection
zeven	bacterial infections
norvasc	reduction of CV risk and strokes
fragmin	reduction of cardiac toxicity associated with chemotherapy

Drugs in Phase IIb and Beyond
Drug	Indication
maraviroc	HIV/AIDS
asenapine	schizophrenia/bipolar disorder
ticilimumab	cancer
torcetrapib/atorvastatin	heart disease, cholesterol
parecoxib	pain
edotecarin	colorectal cancer and glioma
varenicline	smoking cessation
zithromax-chloroquine	malaria
asenapine	schizophrenia and bipolar disorder
uk-427,857	HIV/AIDS

Drugs Coming Off Patent
Drug	Indication
zoloft	depression
zithromax	antibiotic

Top Selling Drugs
Drug	Indication	Sales	(+/-%)
lipitor	cholesterol	$12,187	12%
norvasc	antihypertensive	$4,706	5%
zoloft	antidepressant	$3,256	-3%
zithromax	bacterial infections	$2,025	9%
celebrex	rheumatoid arthritis	$1,730	-48%
viagra	erectile dysfunction	$1,645	-2%
xalatan	glaucoma	$1,372	12%
zyrtec	allergy	$1,362	6%
detrol	overactive bladder	$988	9%
camptosar	colorectal cancer	$910	64%
genotropin	HGH deficiency	$808	10%
neurontin	epilepsy	$639	-77%
zyvox	bacterial infections	$618	33%
geodon	schizophrenia	$589	26%
cardura	hypertension, prostatic hyperplasia	$586	-7%
diflucan	antifungal	$498	-47%
Alliance Revenues*		$1,065	48%
aricept	Alzheimer’s disease
macugen	wet macular degeneration
mirapex	Parkinson’s disease
olmetec	hypertension
rebif	multiple sclerosis
spiriva	COPD
*   Listed as Alliance Revenues: Aricept revenues are shared with Eisai, Macugen revenues are shared with OSI, Mirapex and Spiriva revenues are shared with Boehringer-Ingelheim, Olmetec revenues are shared with Daiichi Sankyo, and Rebif revenues are shared with Serono

  
Account for 79% of total pharma sales, up from 78% in 2004.

PROFILE

In his 2005 letter to shareholders, Pfizer chairman and chief executive officer Hank A. McKinnell, Jr. wrote, "The Pfizer built in the 1990s is fading away as some of our prominent, current medicines lose patent protection. This transformation process—this cycle of renewal—is not unexpected. We have been planning for it for years, understanding that while renewal brings challenges, it also creates numerous opportunities."

That's an understatement on many levels. Last year, we pointed out that many of Pfizer's top sellers are going to lose patent protection in the next five years. The company got a feel for what's on the way when epilepsy treatment Neurontin went generic during 2005; the drug's sales dropped from $2.7 billion to $640 million. Antifungal treatment Diflucan did the same, falling $445 million in sales.

With $1.3 billion of Bextra sales vaporized in 2005, and Celebrex shedding another $1.6 billion, Pfizer needed to add $6.1 billion in sales last year just to keep pace. That's more revenue than any of the bottom three companies on our list generated in 2005. And with Zithromax facing its first full year without U.S. patent protection ($2.0 billion in 2005 sales, after its patent expired in 4Q2005), Zoloft ($3.3 billion) going generic in June 2006, and Norvasc ($4.7 billion, the company's #2 seller) and Zyrtec ($1.3 billion) set to lose protection in 2007, Pfizer needs to generate huge amounts of new revenues.

It fell short in that mission in 2005, with drug sales falling $2.0 billion in 2005. They're down $394 million in 1Q2006 (-4%).

Even the company's—and the industry's—top seller, Lipitor, is showing signs of its age. The drug was up 12% in 2005 revenues to $12.1 billion, but it posted only 1% growth in 1Q2006. With the introduction of generic Zocor in July 2006, Lipitor could be under more price pressure for the rest of the year. And this is after its September 2005 approval to reduce stroke and heart attack risks in adults with diabetes!

THE LOWE DOWN I've said plenty of unkind things over the last few years about Pfizer and its business strategy, but there's the counterargument: number one, with the number one drug. I still think that it's possible for an R&D organization to get too huge, especially when it's a publicly traded one that has to promise earnings growth to its shareholders, but still, here they are at number one. But while it's their amazing success in selling Lipitor that's put them there, the statin market is not a relaxing place to be. First there's generic Zocor to deal with, and it hasn't been too early, not for quite a while now, to wonder how things are going to be when Lipitor itself goes off-patent in a few years. Pfizer's been working like mad to deal with that issue, but no one's ever tried to replace a revenue stream of that size before. I still don't quite see how they're going to do it. The problem, I've long thought, is that while being gigantic will definitely help you sell drugs, it doesn't necessarily help you find them. You'd expect someone from research to say this, but market cap and sales figures don't impress the cells in the culture tubes or the rats in their cages. And the deal-making that Pfizer's used to keep things going is just going to keep getting more expensive. It'll be interesting to watch. . . --Derek Lowe

Historic Change

As Mr. McKinnell said, the company's been planning for this transition for years. The implosion of the COX-2 class knocked the plan off its axis, as Celebrex was primed to become the company's #2 product, with Bextra following it up the sales ranks. Without that franchise, the company would have had far less reason to acquire Pharmacia, so we're looking at a recall that changed the history of the drug industry.

The company's acquisitions gave it unprecedented size and breadth, but Pfizer is still working to digest it all. The company's restructuring plan, called Adapting to Scale (AtS), is meant to generate $4.0 billion in annual savings by 2008; Pfizer claims to have shaved $800 million in annual costs during 2005, and projects $2.0 billion in 2006, $3.5 billion in 2007. The cost of AtS: $4.0 to $5.0 billion, pre-tax, by 2008. So it'll take a while for the savings to carry through.

During the evaluation phase of AtS, Pfizer identified 14 sites for "rationalization." In addition, Pfizer reduced staff in other plants in the U.S. and UK, and "reorganized the U.S. [sales] force," according to a company statement, which gave no indication of whether (and how many) sales reps were fired or reassigned. Pfizer Global R&D also came under AtS scrutiny, and has been reorganized into 11 therapeutic areas, each of which will have three co-leaders: Research, Development and Commercial. Research will have six drug candidate discovery sites, while Development will get "single sites for most therapeutic areas," says the company. Got that?

Along with those AtS moves, Pfizer raised a massive war-chest for itself by selling off its consumer healthcare division to Johnson & Johnson in June 2006 for $16.6 billion. That unit brought in $3.9 billion in 2005 sales. The move simultaneously affirms Pfizer's focus on the prescription drug market and gives the company plenty of cash for acquisitions, in-licensing, and raising its dividend to keep shareholders happy.

ACQUISITIONS Target: Vicuron Pharmaceuticals Price: $1.9 billion Announced: June 2005 What they said: “This transaction builds on Pfizer’s extensive experience in anti-infectives and demonstrates our commitment to strengthen and broaden our pharmaceutical business through strategic product acquisitions.” —Hank McKinnell, chairman and chief executive officer, Pfizer Target: Bioren Price: Undisclosed Announced: August 2005 What they said: “The acquisition of Bioren strengthens Pfizer’s commitment to the antibody space. The ability to use and develop these technologies will help Pfizer identify new antibody leads as well as improve current antibodies in development.” —Nick Saccomano, Ph.D., senior vice president for Worldwide Research Technology Target: Rinat Neurosciences Price: Undisclosed Announced: April 2006 What they said: “Combining Rinat’s potential product portfolio with Pfizer’s capabilities is a further step in our strategy to enhance Pfizer’s internal R&D efforts with high-potential, externally sourced product candidates and technologies.” —John LaMattina, president, Pfizer Global R&D

Said Mr. McKinnell, "We will now be in an even stronger position to capitalize on the many opportunities we see in our core pharmaceuticals business, as well as enhance returns to our shareholders. With [. . .] approximately $34 billion, we will focus on our key priorities: leveraging our internal R&D and strong pipeline of new medicines; continuing to acquire products and technology that will drive long-term growth of the business; and improving shareholder returns [through a $5 billion share repurchase]."

19-in-5

Pfizer's in no danger of falling out of its #1 slot—unless those GSK/AZ merger rumors turn out to be true—but it'll take more than cost-cutting to recover from the current cycle of expirations and untimely withdrawals. The company posted several major product approvals in the past year, as it closes in on the end of its "20-in-5" strategy of 20 new drug filings in the five-year period between 2001 and 2006. At the end of 2005, Pfizer was on pace to hit its unprecedented target, but a significant cancellation means that the company will have to content itself with 19 filings in that span.

The most celebrated approval in the past year was Exubera, the inhaled insulin for the treatment of type 1 and type 2 diabetes. Pfizer labored for years on this project and worked extensively with drug delivery partner Nektar Therapeutics to develop a formulation and delivery system. Pfizer is predicting $2 billion in annual sales for Exubera, even though some analysts feel that the benefit (inhalation instead of injection) won't warrant the changeover from diabetes patients, especially as Lilly's Byetta prefilled pen runs wild.

Will Exubera inhaled insulin (above, co-developed with Nektar Therapeutics) be the hit Pfizer needs it to be?

Still, Pfizer tightened its grip on Exubera's fate (and revenues) by exercising its option to buy the full rights from for the drug from Sanofi-Aventis for $1.3 billion in March 2006. The purchase price includes the insulin-production facilities. Sanofi wasn't happy about the transaction, but Pfizer's original development deal with Aventis included a change-of-control provision triggered by Sanofi's merger. That's due diligence for you.

Approvals and Lifecycles

In the past year, Pfizer also gained approvals for Lyrica (epilepsy), Sutent (two forms of cancer), Chantix (smoking cessation), Eraxis (candidemia), and Revatio (pulmonary arterial hypertension). Lyrica has made a very strong showing. After posting $291 million in 2005 sales, the drug recorded $192 million in 1Q2006. It won't make up all the ground lost by Neurontin right away, but it looks ready to make the blockbuster ranks by next year.

It's all about lifecycle management, of course. If Lyrica can regain Neurontin's territory, and Eraxis can reclaim some of Diflucan's dollars (not exactly an apples-to-apples comparison, but stick with it), Pfizer will find its recovery less painful. It's key to find ways to maintain existing businesses while branching into new, lucrative fields.

The company is also working another angle on lifecycle management: combination products. Pfizer got its Caduet combo (Norvasc + Lipitor) approved in January 2004 to treat patients with hypertension and high cholesterol, just after Dr. Reddy's got approval for a generic Norvasc (subsequently blocked). Caduet hasn't been a huge hit ($185 million in 2005 sales, $77 million in 1Q2006), but it creates a market for a "protected" Norvasc after the drug's patent expires.

Similarly, Pfizer is continuing to develop its HDL-booster, torcetrapib, only as a combination drug with Lipitor. Cynically, we can interpret this as a lifecycle-manager to keep Lipitor sales going after its expiration in 2011. After all, some analysts project the combo drug to reach around $8 billion in sales (if it works), which would salvage a good portion of Lipitor's revenues after the drug goes generic. According to BusinessWeek reporter Amy Barrett, Mr. McKinnell recently remarked that Pfizer would consider making torcetrapib available with other statins. I'm not sure how that would work, since Pfizer would need to partner with each statin-maker to build a semi-competitor to its key product. More likely, Pfizer may be willing to make the HDL-booster a stand-alone drug. And then market the heck out of its benefits when paired with Lipitor.

What's To Come?

Not all of the FDA news has been good for Pfizer. In June 2006, development partner Neurocrine Biosciences learned that the FDA would likely require additional trials for insomnia drug Indiplon. Pfizer terminated the partnership, likely considering the trials too much of a burden for the product. In September 2005, Pfizer received a "not approvable" letter for Oporia for prevention of post-menopausal osteoporosis, then got another one for the indication of vaginal atrophy. The company said it is still developing Oporia and is talking with the FDA about how get it approved.

Pfizer continues to prove that we should all be careful for what we wish for. The biggest company in our industry is at a pivotal point in its history, managing drug development on a scale never attempted. With a combination of a massive R&D effort and enormous amounts of cash at hand for licensing deals, can Pfizer come up with enough blockbuster hits to survive the 2011 patent expiration of Lipitor? With direct-to-consumer marketing under scrutiny and the sales reps getting less face-time with doctors, can Pfizer's commercialization machine come through as it did in the past decade?

As Mr. McKinnell wrote, "[W]hile renewal brings challenges, it also creates numerous opportunities."