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Pfizer To Slash 10,000 Jobs

Pfizer Inc. announced Monday it will cut 10,000 jobs, as the world's largest drugmaker seeks to cut costs by up to $2 billion a year amid fierce competition from generic drugs.

The company plans to close three research sites in Michigan and two manufacturing plants in New York and Nebraska. It may also sell another manufacturing site in Germany and close research sites in Japan and France.

It's the second time in two years that Pfizer has announced a major cost-reduction plan in order to combat the loss of about $14 billion in revenues this year due to expiring patents on key drugs. The company is at risk of losing 41 percent of its sales to generic competition between 2010 and 2012, according to one analyst.

Analysts are skeptical that Pfizer's crop of current and pipeline products can generate enough sales to compensate for the lost revenue. Pressure on Pfizer has intensified since safety issues forced it to halt development of the star drug in its pipeline, which was slated to replace Pfizer's best-selling drug Lipitor as it loses patent protection as early as 2010.

"You can't cost cut your way to prosperity," said Les Funtleyder, an analyst at Miller Tabak & Co.

Still, the cuts do help shore up business and remain a good short-term strategy as the company seeks acquisitions to boost revenue, said Barbara Ryan, an analyst at Deutsche Bank.

The latest cuts come on the heels of Pfizer's announcement two months ago that it was laying off about 20 percent of its U.S. sales representatives, around 2,200 people. Those cuts are included in the 10,000 layoffs announced Monday.

Analysts estimated that move would save between $400 million and $500 million annually.

Two years ago, Pfizer announced it was slashing $4 billion in costs by 2008, and that effort is ongoing.

Pfizer Inc. said it will close its human health research and development facilities in Ann Arbor and Kalamazoo, affecting about 2,400 jobs.

The Ann Arbor facility has about 2,100 employees. Also affected are approximately 250 workers in downtown Kalamazoo and another 60 in western Wayne County's Plymouth Township.

But the world's largest drugmaker said it will continue to maintain manufacturing and animal-health research operations in the Kalamazoo area, preserving about 3,800 jobs.

Michigan Gov. Jennifer Granholm planned an afternoon news conference in Ann Arbor to discuss Pfizer's announcement.

In July 2005, the company announced a three-year global-restructuring plan aimed at cutting costs and increasing efficiency. At the time, Pfizer had about 8,500 employees in Michigan, including around 5,000 in the Kalamazoo area and 2,500 in Ann Arbor.

Pfizer's fourth-quarter earnings report, issued earlier Monday, illustrated the company's woes. Net income for the period rose sharply because of the $16.6 billion sale of its consumer health-care business last month, resulting in an after-tax gain of $7.9 billion. However, after adjusting for that gain and other items, Pfizer's earnings fell 15 percent on flat sales, depressed by the patent expiration of antidepressant Zoloft last year.

Meanwhile, U.S. sales of Lipitor, Pfizer's top-selling drug, slipped 6 percent to $1.95 billion. Last summer, Zocor, a rival cholesterol treatment made by Merck & Co., lost patent protection, and insurers have been pushing the cheaper versions of that drug over Lipitor when appropriate.

Pfizer's struggle with patent expirations comes as insurers and the government are pressuring drugmakers to keep prices down and refusing to pay for new treatments that are essentially the same as those they are intended to replace.

That means drugmakers are taking bigger risks to find new types of medicines. But their attempts can fail. Last year, safety issues forced Pfizer to scrap its drug torcetrapib, a novel cholesterol treatment, after spending $800 million on its development.

Overall, Pfizer's own labs haven't been very productive. It hasn't introduced a blockbuster since it came up with the erectile dysfunction drug Viagra in 1998.

Meanwhile, some recent deals to bolster its pipeline haven't produced new treatments. Last year, Pfizer killed at least two development agreements after the drugs didn't live up to expectations.

At the same time, key drugs are losing patent protection. This year, Pfizer will face generic competition on blood pressure medicine Norvasc, which brought in $4.9 billion in sales last year and allergy treatment Zyrtec, with $1.6 billion in revenue in 2006.

Analysts differ on the approach they believe Pfizer will take to bolster revenues. Funtleyder thinks Pfizer will continue to ink development deals with companies that have products that will be ready for market by the time Lipitor loses patent protection. He thinks it won't be forced into a mega-merger unless many of those deals falter.

Ryan believes Pfizer will buy a company with a product flow so it can use the revenue to add to its earnings.

For the fourth quarter, net income soared to $9.45 billion, or $1.32 per share, from $2.73 billion, or 37 cents per share, a year ago. Excluding the gain from the sale of the consumer division, earnings totaled $3.05 billion, or 43 cents per share, down from an adjusted $3.59 billion, or 49 cents a share, a year ago. The earnings beat the consensus estimate of analysts surveyed by Thomson Financial by a penny per share.

Revenue was essentially flat at $12.60 billion compared with $12.55 billion a year ago. Analysts expected sales of $12.62 billion.

Zoloft sales sank 79 percent to $166 million. In the United states, Zoloft sales plunged 88 percent to $76 million.

For the year, Pfizer earned $19.34 billion, or $2.66 a share, up from $8.09 billion, or $1.09 a share, in 2005. Revenue rose to $48.37 billion, up from $47.41 billion a year earlier, driven by strong U.S. sales of Lipitor, Norvasc and Celebrex, a pain reliever.

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