Pfizer CEO Jeffrey Kindler has opened the door to sales force reductions as part of the firm's latest cost-cutting initiative, announced Oct. 19

During a same-day quarterly earnings call, Kindler was asked whether a reduction in sales force size was a potential component of the cost-cutting initiative.

"The answer is everything is on the table. We're looking at every aspect of our business. We're looking for ways to do it better, more effectively, more efficiently....There are no sacred cows," Kindler responded.

Kindler spoke during his first earnings call as Pfizer's chief exec. The former Pfizer General Counsel took over as CEO in July (¹ Also see "Pfizer Set For “Fundamental And Sustained” Change Under New CEO Kindler" - Pink Sheet, 7 August, 2006., p. 3).

The cost-cutting initiative is Kindler's second major announcement since he assumed the CEO post; a corporate restructuring was announced in August, just weeks after he assumed the new position (² Also see "“One Pfizer” Restructuring Initiative Divides R&D And Sales Operations" - Pink Sheet, 21 August, 2006., p. 3).

While withholding specifics, the CEO explained that the initiative "will be a thoughtful exercise, not arbitrary, across the board cuts, but focused on areas where we can do things more efficiently without sacrificing effectiveness."

"We need to look at all aspects of our business and in the process drive lasting change and improved efficiency through every part of our company, as well as seek ways to achieve those savings as quickly as possible," he said.

In addition to improving efficiency, Kindler emphasized that the program will improve Pfizer's flexibility. The need to create a more flexible company to more quickly respond to the evolving marketplace has been a theme of Kindler's early statements as the firm's top exec (³ Also see "McKindler? New Pfizer CEO Echoes McKinnell’s Views On Payers, Scale" - Pink Sheet, 25 September, 2006., p. 5).

"Over the coming years, we must be able to quickly shift our resources based on our needs and our opportunities in today's fast moving markets," he said during the Oct. 19 call.

The cost cuts will be designed to further "streamline the company," he said. "As a first step toward creating a leaner and more flexible cost base, we're reducing layers in bureaucracy across the company."

"We've already eliminated numerous committees and cross functional groups that were slowing us down and that don't have a place in a company that needs to change as fast as we do," he noted.

"We will be agile. We will be fast. We will be innovative and entrepreneurial," he declared.

"The realities of our business and operating environment require that we become that kind of company. Our colleagues want to work in that kind of company and our owners deserve that kind of company," he added.

When asked to provide greater clarity on specific components of the initiative, Kindler compared the program to the firm's ongoing Adapting to Scale initiative, which is expected to yield $4 bil. in annual savings by 2008 (⁴ Also see "Synergies Without The Merger: Pfizer Sees $4 Bil. In Cost Cutting By 2008" - Pink Sheet, 11 April, 2005., p. 10).

AtS' "focus was on ensuring that we reallocated the expenses of those combined businesses and lower value-added activities to those that directly support product development and product sales and invest in future growth of our business."

Kindler explained that "AtS was basically a product of the Warner-Lambert and Pharmacia integrations. The first phase of those integrations was to bring those companies into ours and then to review those combined businesses and AtS was ultimately a part of rationalizing what we had there."

Kindler emphasized that Pfizer is "tracking ahead of schedule" with regard to meeting its cost saving goals under AtS.

However, with the new initiative, "what we're talking, now, in terms of cost reductions is really quite different," he maintained. "We're going well beyond AtS."

Other than emphasizing the cost-cutting initiative's difference from AtS, Kindler provided little insight into the details of the program, which is scheduled to be unveiled in January.

"I can assure you that our leadership team is hard at work, with a strong sense of urgency, developing a very robust set of concrete and specific action plans. These plans will be fully developed and adopted in the 2007 operating plan process that is currently underway and that will be concluded at the end of the year," Kindler said.

Kindler did allude to the intended longevity of the initiative: "Our objective is not simply to achieve a one time reduction in costs. Going forward, Pfizer will be a company that focuses on continuous improvement and ongoing productivity."

The chief exec reassured investors that cutting costs will not interfere with R&D.

"Of course research and development is a central element to our plans and key to our future," he said.

"We're going to invest in R&D as well as in the business development...the promotion and marketing of our inline and new products. That's the future of the business and we are going to invest and we are going to grow."

The chief exec emphasized that "in addition to internal R&D, we are dramatically revamping our approach to licensing and business development," noting that the August restructuring consolidated mergers & acquisitions, licensing and copromotion responsibilities under Vice Chairman David Shedlarz.

However, in keeping with the theme that there are "no sacred cows," Kindler said there is room to eliminate waste in the firm's research activities as well.

"One of the keys points here in terms of the transformation is this is not just about lowering cost base to the company, but enhancing productivity of what we're looking to do," he said.

In "all parts of the company - including R&D - there are support costs that we should be taking a hard look at," he said. "They range anywhere from facility costs to information technology costs."

Kindler expects the initiative to lead to a reduction in operating expenses in 2007 and 2008. "Let me be very clear, the results of these activities will be to reduce 2007 operating expenses to a level below that of 2006, and then further reduce 2008 operating expenses."

Kindler said the additional cost-cutting is necessary given expected contraints on Pfizer's revenue growth in the short-term.

"Let's be realistic," Kindler told investors. "We're facing a pretty tough operating environment."

"We're continuing to navigate through a period in which we face loss of exclusivity on major products and in which our new products...cannot entirely offset these lost sales."

"In the very near term, revenue growth is constrained. Accordingly, we must and we will take aggressive actions on costs," Kindler said.

Pfizer reported third quarter worldwide pharmaceutical revenues of $11.5 bil., up 9% from the year-ago period.

However, the 2005 third quarter is not a strong comparison point. Lower than anticipated sales and earnings led the company to revise its guidance downward and pull forecasts for 2006 and 2007 (⁵ Also see "Pfizer Parecoxib, Oporia Setbacks Reflect Tougher FDA Stance, CEO Says" - Pink Sheet, 24 October, 2005., p. 17).

Pfizer also announced revised guidance for 2007 and 2008, projecting flat revenues. The firm now expects to return to growth in 2009. The guidance does not include potential sales of the company's headline cholesterol candidate torcetrapib/atorvastatin (see ⁶ Also see "Pfizer Torcetrapib Filing To Start ‘Dialogue,’ Not Necessarily Standard Review" - Pink Sheet, 23 October, 2006.).

With regard to mergers, Kindler reiterated recent statements by Shedlarz saying that the firm will consider both "tuck-in" and large-scale opportunities.

"Regarding small versus large, we're looking at everything," Kindler said. "We want to make strategic acquisitions. We want to do things that actually add to our product opportunities and that make sense from the point of view of growing the business."

Pfizer has been held up as a potential suitor for Bristol-Myers Squibb, which has been reeling from the launch of generics of its top-selling product Plavix (clopidogrel) (⁷ Also see "Pfizer May Be Regaining Appetite For Large M&A; Is Bristol On The Menu?" - Pink Sheet, 18 September, 2006., p. 5).

Kindler said further divestitures will not be part of the initiative; the firm announced plans to sell its consumer unit to J&J in June (⁸ Also see "Pfizer To Use Cash From Sale Of OTC Unit To J&J For Biotech, Specialty Deals" - Pink Sheet, 3 July, 2006., p. 14).

- Mary Bruce

Pfizer Cost-Cutting: Details Are Sketchy, But Sales Force Is On The Table

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