Pfizer cost-cutting is bid to raise share price

SOME people fear that yesterday’s decision by Pfizer to scale back its Irish operations could prove to be as important as the day when the US pharmaceutical giant decided to set up operations back in 1969.

They worry this could be the beginning of the end of large-scale, foreign direct investment by pharmaceutical companies manufacturing high-cost drugs and delivering well-paid jobs to thousands of Irish workers. However, their understandable anxiety is over-played.

A combination of factors conspired to result in Pfizer, the world’s largest drugmaker, unveiling plans to sell two Irish manufacturing plants and shut down part of a third facility as the company seeks to reduce global costs by as much as €1 billion. Close to 540 Irish jobs are on the line.

Perhaps the most important factor is an insecure 51-year-old Harvard Law School graduate, who hopes his slash-and-burn job-cum-cost-cutting exploits will help raise Pfizer’s share price.

Jeffrey B Kindler has been in the top job at Pfizer for less than one year. The company’s directors installed him as chief executive in July, ousting the 63-year-old Hank McKinnell. The Pfizer share price lost some 40% of its value during McKinnell’s five-year tenure. Kindler knows that share price growth is the key to securing his job and nothing else.

The shares are close to $26, they got a bounce to over $28 the last time Kindler announced cuts in the autumn of 2006. He’s hoping the latest round of job cuts — 10,000 around the globe, mostly in the US — will help push the share price back up.

The high-profile slash-and-burn policy is a diversion to take investors eyes away from the company’s medicine cupboard, which is getting bare.

The former McDonald’s executive knows the drugs he has are nearing the end of the patent-protected lives, and there is very little coming to replace them.

One crucial deadline for Pfizer’s Irish workforce is coming In 2010 Pfizer may lose patent protection for cholesterol-combatant Lipitor, the company’s flagship product. The active ingredient is made in Cork.

Pfizer had a nifty plan. When Lipitor’s patent expired the company was going to combine it with a new drug torcetrapib which raises so-called good cholesterol to make a totally new product. Some 80 million was spent on a new torcetrapib production plant in Ringaskiddy. In December all development of torcetrapib ceased dramatically when the company learned that more patients died taking the drug, in combination with Lipitor, than those taking Lipitor alone.

The share price took a massive hit and Kindler had to respond. Kindler used the only trick he knew would work for sure; he cut jobs.

Kindler does not need to the wield the axe so fiercely, the company is making huge profits, $19bn (€14.57bn) in 2006, and has $21bn cash (€16.1bn) in the bank. He plans to buy back some 10bn in Pfizer shares this year, having spent 7bn on this share-price raising strategy last year.

The money might be better spent buying smaller rivals with viable products in development.

Another small but important factor is the takeover of Capitol Hill by the Democrats.

They enjoy support from unions who don’t like it when US multi-nationals cut jobs at home and expand overseas. This time around the pain had to be seen to be felt everywhere and for once Pfizer cut jobs in Ireland.

Kindler will be hoping that plans to start introducing four new medicines a year starting in 2011 will keep Pfizer at the top. But will he and thousands of Pfizer colleagues still be there to implement those plans in four years’ time?

[e-mail]