Pfizer Inc, struggling with fierce competition from makers of generic drugs, said it would cut 10,000 jobs and close at least five facilities as part of an effort to slash its annual costs by up to US$2 billion by the end of next year.
The drastic measures announced on Monday by the world's largest drug maker highlight the challenges faced by many pharmaceutical companies recently.
In addition to patent expirations, big drug companies are facing a business climate where insurers and other large purchasers of medicines are demanding lower prices and more evidence of products' worth.
Although big rounds of job cuts typically boost a company's stock prize, shares of Pfizer fell US$0.27, or 1 percent, to close on Monday at US$26.95 on the New York Stock Exchange.
It is the second time in two years the maker of Viagra and Lipitor has announced a major cost-reduction plan to combat the loss of about US$14 billion in revenues from 2005 to this year due to expiring patents.
The company is at risk of losing 41 percent of its sales to generic competition between 2010 and 2012, including the revenue from its top seller Lipitor, Prudential analyst Tim Anderson said.
The latest cuts come on top of a previously announced plan to slash costs by US$4 billion a year by next year. On Monday, Pfizer said it would cut an additional US$500 million to US$1 billion in costs. However, it said some of the savings would be redeployed into the company so the total savings would be between US$1.5 billion and US$2 billion a year.
The 10,000 layoffs amount to about 10 percent of the company's global work force and include the elimination of 2,200 jobs from the US sales force, which Pfizer announced late last year. The company said on Monday it would cut 20 percent of its European sales force but did not say how many jobs that will be.
Pfizer will 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.
Aside from outlining cuts, Pfizer also detailed how it would restructure its business in an effort to become more nimble and flexible. The US commercial business will be divided into five distinct units, each with a general manager responsible for that group's performance. Two research areas are being abandoned while other research and development efforts are being consolidated.
Pfizer also pledged to interact more with potential customers such as insurers to make sure it is developing medicines they deem worthy of purchasing.
"I believe we must transform the way we've done business in the past in order to be more successful in the future," said Jeffrey Kindler, who became Pfizer's CEO last summer and chairman last month. "Incremental evolution is not enough. Fundamental change is imperative -- and it must happen now," he said.
Pfizer reiterated that its revenue would be flat this year and next, but it expects earnings to jump between 6 percent and 9 percent this year and next year.
For the fourth quarter, Pfizer's net income soared to US$9.45 billion, or US$1.32 per share, from US$2.73 billion, or US$0.37 per share, a year ago. Excluding gains from the sale of its consumer health care business last month, earnings totaled US$3.05 billion, or US$0.43 per share, down from an adjusted US$3.59 billion, or US$0.49 a share, a year ago.