Shares plummeted Monday after the company halted work on its highly touted cholesterol drug, throwing future growth into question

Pfizer's (PFE) hopes for the new cholesterol treatment torcetrapib have been dashed at a terrible time for the New York pharmaceutical giant.

The company said Dec. 2 that it's abandoning its study of torcetrapib, at the recommendation of the independent Data Safety Monitoring Board (DSMB), because of increased deaths and heart problems associated with the drug.

The company had been spending close to $1 billion on torcetrapib, which was supposed to help people fend off the risk of heart attacks by boosting levels of HDL (good) cholesterol -- and insulate Pfizer from its generic competition. Investors dumped the stock Monday Dec. 4, with the shares shedding more than 13% to $24.22 in early trading on the New York Stock Exchange.

Now Pfizer is asking all clinical investigators who are doing trials of torcetrapib to tell their patients to stop taking the medication immediately. The company has also stopped developing the compound.

"With regard to our business, we understand the challenge that this represents and we will respond quickly and aggressively to it," CEO Jeffrey Kindler said in a press release Dec. 2. "It is important to put this information in the context of both our commitment to transform Pfizer and our overall product and financial strength."

Kindler, who was named CEO in July after having served previously as Pfizer's general counsel, was already bracing himself for an uphill battle in the coming years. He's under pressure to find a replacement for his company's blockbuster cholesterol drug Lipitor, which generated $12 billion in 2005 and could face generic competition by 2010.

Meanwhile other important Pfizer drugs, such as Zoloft, Norvasc, and Zyrtec, have patents expiring next year. Patent expirations will cost Pfizer $14 billion in annual sales between 2005 and 2007, according to Lehman Brothers. Former CEO Hank McKinnell had forecast that torcetrapib could bring in a potential $30 billion in annual revenue.

Lehman Analyst C. Anthony Butler downgraded Pfizer to underweight from overweight, explaining that torcetrapib "has received its burial rites and been laid to rest." Butler now thinks Pfizer's revenue growth may not return for the next seven years with the exception of 2009, given that now there's nothing to compensate for the loss of Lipitor, according to a research note. (Lehman has done business with Pfizer in the past 12 months.)

There had been earlier hints of trouble with torcetrapib. Data released on Oct. 31 showed that the drug also hikes blood pressure more than expected (see BusinessWeek, 11/13/06, "Blockbuster Blues").

Kindler has already begun reorganizing his company in an effort to make it more efficient and able against generic rivals. In mid-October Kindler announced a plan in the works to save more than $4 billion in projected annual cost savings by 2008. Then Kindler said on Nov. 28 that he's going to slash his company's U.S. sales force by 20%.

Pfizer said Dec. 2 that it's keeping previous revenue forecasts, including a return to revenue growth for 2009, but its plan for transforming the company "will now be accelerated." Kindler wants to keep investing in a wide range of new potential products, capitalizing on the largest pipeline in his company's history. Pfizer is still aiming to introduce around six new products a year starting in 2010.

Market players remain cautious. JP Morgan analyst Chris Shibutani on Dec. 4 downgraded Pfizer to neutral from overweight, noting that the abandonment of torcetrapib "engenders a litany of challenging questions and uncertainties that we expect to tether share performance for the near to intermediate term."

Meanwhile, Standard & Poor's equity analyst Herman Saftlas also lowered his rating on the shares on Dec. 4, to hold from strong buy. Saftlas called it a "major setback" for Pfizer and thinks the company will accelerate cost cutting programs, stock repurchases, and acquisition activity.

Analyst speculation on such moves may be answered soon. Kindler had announced in October a plan to present a long-term outlook in January, as well as additional steps to transform the company.

Business Week