Pfizer Plans Additional Cost Cutting - Pharmaceutical Technology

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Pfizer Plans Additional Cost Cutting


ePT--the Electronic Newsletter of Pharmaceutical Technology

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New York, NY (Oct. 19)—Pfizer, Inc. (www.pfizer.com) plans to implement a new company-wide cost-cutting initiative in 2007 as part of strategy to improve operating performance. The cuts are in addition to a previous cost-reduction program that Pfizer launched in 2005.

“As a critical step in our transformation, we are taking a comprehensive look at our costs, and in 2007 we plan to implement a new company-wide cost-reduction initiative that will lower our cost base in 2007 and 2008 as well as give us greater flexibility to modulate our expenses in the face of changing market conditions. These savings will be over and above the $4 billion projected annual cost savings by 2008 from our Adapting to Scale (AtS) productivity initiative,” said Pfizer CEO Jeffrey B. Kindler, in reporting on the company's third quarter results.

Pfizer launched AtS in 2005, with the goal of achieving annual cost savings of $4 billion by 2008. The initiative targeted savings through the reorganization of Pfizer's global manufacturing network, cost reductions in procurement in its global supply chain, and restructuring of its research and development and sales and marketing organizations (1).

Pfizer Vice Chairman David L. Shedlarz reported that the company expects savings from AtS this year of about $2.5 billion, $500 million ahead of the company's earlier guidance.

“But given market conditions, we will now undertake a comprehensive transformation of how we invest in our business and manage our costs,” said Shedlarz in a company release. “It is important to note that, at current exchange rates, our new cost-reduction initiative will reduce 2007 operating expenses to a level below that in 2006, and further reduce 2008 operating expenses. Our goal is to create a more flexible cost structure, so that it will be easier and less disruptive to adjust expenditures in light of our circumstances and expectations.”

Pfizer reported worldwide pharmaceutical revenues for the third quarter of 2006 of $11.5 billion, a 9% gain year over year. US pharmaceutical revenues were $6.4 billion, an increase of 14%.

While not disclosing the specifics of the cost reductions, Kindler said that the cuts are necessary in an increasingly competitive environment. “We continue to face a number of near-term challenges. We are navigating through the loss of exclusivity on several major products. Many of our products continue to face strong competition, including generics, in key markets. Our regulatory and pricing environments have created added challenges.”

Pfizer expects its revenues to be flat in 2007 and 2008 based on these factors and the impact of current exchange rates. “And very recently, we have seen a strengthening of the US dollar, as well as actions on access and pricing taken by influential decision makers in several large European markets,” said Kindler. “As a result, at current exchange rates we are now expecting revenues in 2007 and 2008 to be comparable to 2006, as compared to our previous forecast of modest revenue growth over the period.”

1. P. Van Arnum, “Outsourcing Strategies: A New Paradigm,” Pharmaceutical Technology Sourcing and Management 2 (4), e 14  2006, www.nxtbook.com/nxtbooks/advanstar/ptsm0406/.

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