Pfizer Inc. (NYSE:PFE) announced it's cutting its sales force by 20%. Only a few weeks ago, in mid-October, it said a comprehensive review of its operations were in order and underway. Look for more announcements in January, the company stated. Then it will present a long-term outlook and additional actions the company has in mind.
Pfizer is adjusting to reality. Quickly. Pfizer's CEO, Jeffrey B. Kindler, said:
"The changes we are making today will better align our sales organization to our overall customer and business needs. This is an important step toward making Pfizer a more agile and effective company."
Translated: we don't need as many salespeople since we're not selling as many products and look for more cuts coming in January so we can continue to be profitable. But the company made a point of saying that it would maintain strong support for major drugs such as Lipitor and Celebrex, as well as important new products such as Lyrica and Chantix.
Just speculating here, but a few possibilities behind the cut: It may be a precursor to the company buying a biotech or other smaller pharmaceutical that has a good pipeline but needs capital to bring new drugs to market. Pfizer has plenty of capital and experience to make that happen.
It might also mean that management is sensitive to shareholders expecting a certain profitability, good times and bad, as well as the dividend continuing. To preserve profits and the dividend, expenses have to be cut.
Either way, the stock is reacting positively to the news. This is a surprise to many, since the company delivered good earnings in the last report, the September quarter. Sales were better than expected against generics but management warned against rougher times ahead. In particular, Lipitor, the best selling drug for cholesterol control, is holding up well against its generic competition. Zoloft, an antidepressant, was helped by the delay of a generic version. Both will see continued sieges by generics.
It's the generics that are eating into Pfizer's future. And now with Wal-Mart (NYSE:WMT) offering certain prescriptions at $4, the writing is clearly on the wall: prices for drugs are coming down. Any big pharmaceutical firm has to deal with that fact. Pfizer seems to be the first to see and respond to this new world by cutting some of its work force.
Look for more positive actions that will make the company align with this new challenge in January as this CEO seems to be in good touch with reality.
PFE 1-yr chart