Prescription for profits: Hand out pink slips

Helen Palmer Nov 29, 2006

BOB MOON: The world’s biggest pharmaceutical company is downsizing. Connecticut based Pfizer will slash its U.S. sales force, giving pink slips to some 2,200 drug reps. This may not be the best news for them, especially at the start of the holiday season. But as Helen Palmer reports from the Health desk at WGBH, plenty of others are cheering this move to boost profitability.

HELEN PALMER: “It’s about time” was the reaction of several industry analysts to the news that Pfizer was planning to ax 20 percent of its U.S. drug reps. Morgan Stanley’s Jami Rubin says it’s the end of the drug-sales-force arms race.

JAMI RUBIN: As Pfizer kept adding reps, other companies had to keep pace with Pfizer and add reps as well, so Pfizer started the arms race. Pfizer is now declaring an end to the amrs race, which I think is a huge relief to everybody else in the industry.

Rubin reckons all the drug companies will be glad to follow suit. The cuts, she says, will save Pfizer $300-$400 million. Cowen and Company’s Steve Scala says the cuts will help, but they aren’t enough.

STEVE SCALA: I’m sure they’re looking under all rocks, looking at all opportunities to cut costs, which is what they should be doing.

He says the new management team promised they would clean house — and they’re starting the sweep. He says they might even trim their massive $8 billion R&D budget — it’s big but it hasn’t delivered much bang for all those bucks. That’s a view shared by Miller Tabac analyst Les Funtleyder.

LES FUNTLEYDER: Pfizer is lagging a lot of the rest of the industry in terms of developing new drugs internally.

He says there are some solid, maybe even exciting, drugs in development. But in the short-term, growth prospects don’t measure up to the rest of the industry.

Part of Pfizer’s problems come from losing patents on a couple of its big sellers, antibiotic Zithromax and antidepressant Zoloft. Together those drugs earned about $4 billion a couple of years ago, which is just about what Pfizer plans to save by 2008.

In Boston, I’m Helen Palmer for Marketplace.

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