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THE FORMULA AT PFIZER: DON'T RUN WITH THE CROWDIt's ironic. With the explosive launch of Viagra, Pfizer Chairman William C. Steere Jr. now finds himself at the center of a cultural phenomenon. And yet Steere's leadership at Pfizer Inc. has been based largely on avoiding the latest fad. When a number of drug-industry giants struck merger deals in the late 1980s and early 1990s, Steere passed on dealmaking. And as giants such as Merck & Co. and Eli Lilly & Co. acquired companies that manage pharmacy benefits, again Pfizer took a pass. Instead, Steere continued to pump billions into developing new drugs and expanding Pfizer's sales force--investments that for years put a drag on earnings and drew the scorn of analysts. ''We went counter to some trends,'' says Steere, ''and we took a lot of beatings.'' Any bruises from those years have long since healed. Thanks in large part to its heavy investment in research and marketing, Pfizer is poised to become the new drug-industry leader. The Viagra juggernaut is just one of a host of hot products driving Pfizer's sales and earnings growth. Cowen & Co. analyst Stephen M. Scala figures the company's sales will ratchet up 16% annually over the next several years while net income soars at nearly a 20% annual clip. Revenues last year grew 11%, to $12.5 billion, and net income was up 15%, to $2.2 billion. Merck ranked first, with pharmaceuticals revenues of $14 billion. Steere's biggest challenge: how to deploy the vast wealth Pfizer's hits will generate. He says it will flow into new research and marketing, and to shareholders through the bottom line or via stock buybacks or higher dividends. Few can rival Pfizer's drug portfolio. The Viagra rollout, with more than 350,000 prescriptions written in the first three weeks, has blown past Wall Street estimates and is shaping up to be the strongest drug launch ever. But Pfizer also is capitalizing on drugs that didn't come out of its own labs. The fastest launch before Viagra was for Lipitor, a cholesterol-reducing drug developed by Warner-Lambert Co. that hit the market in '97. Pfizer is co-marketing Lipitor, which could ring up annual global sales of $6 billion by 2002. Steere landed yet another expected blockbuster when Monsanto Co.'s G.D. Searle unit chose Pfizer to co-market its upcoming arthritis treatment, Celebra. Those three drugs--Lipitor, Viagra, and Celebra--make for a potent combination. ''It's like the Yankees fielding Babe Ruth, Lou Gehrig, and Joe DiMaggio in one season,'' says Salomon Smith Barney analyst Christina Heuer. No surprise, then, that some analysts expect Pfizer to hit a home run with its stock. Despite its huge runup, the stock could, says Cowen's Scala, hit $135 in the next 18 months, up from $113 on Apr. 28. Much of Pfizer's success stems from Steere's relentless focus on medical breakthroughs. Pfizer now spends nearly 16% of sales--$1.9 billion last year--on research and development. That's up from 11% in 1990 and among the top levels of spending by the industry's big players. But throwing money at the company's labs hardly assures research success. What has distinguished Pfizer is its speed and flexibility. That ability to adapt helped the company seize on the Viagra opportunity. Pfizer originally tested the drug, sildenafil citrate, as a treatment for angina. But when it also produced an unexpected side effect--improved sexual performance--the company quickly shifted gears and began developing the drug for impotence. Pfizer's research team goes all out to get its winners to market quickly. With Viagra, for example, Pfizer began preparing for large-scale manufacture when the drug was still in early testing. While that would have backfired if the drug fizzled in later testing, it let the company hit the ground running when it got government approval to sell Viagra. Pfizer has also been aggressive in striking partnerships with smaller development operations to speed testing. While some big drugmakers, such as Merck, prefer to do most of the important clinical trials in-house, Pfizer Executive Vice-President John F. Niblack says more than half the trials on Viagra and the recently launched antibiotic Trovan were handled by outside testing outfits. That move helped to greatly cut development time on those products. ''They aren't bound with the 'not-invented-here' syndrome,'' says Chris A. Kuebler, chairman of Covance Inc., a Princeton (N.J.) company that helps develop drugs for large companies. Just as critical has been the company's massive marketing muscle. Pfizer now boasts the largest U.S. pharmaceuticals sales force, with 4,500 sales reps calling on doctors. That's the third-largest sales force globally, just behind Glaxo Wellcome PLC and Bristol-Myers Squibb Co. Pfizer's marketing reach helped it nab the Celebra and Lipitor deals, which could bring the company a combined $4 billion in revenues by 2002, according to Salomon's Heuer. PRAGMATISM. Pfizer's rising fortunes mean it can keep powering its research engine. The company is boosting ''discovery'' facilities in the U.S., Britain, and Japan by 50%, which will help lift the number of early-stage compounds in its pipeline. And Pfizer has a number of promising products beyond Viagra. Next year, Pfizer will launch a new migraine treatment and a drug for atrial fibrillation, an irregular heartbeat condition. Analysts also are buzzing about an inhaled insulin product for diabetes. It could hit the market as early as 2002. But don't look for Pfizer to radically bulk up its R&D based on the company's newfound wealth. ''If you build a workforce that outstrips your ability to manage it, you're wasting your time,'' says Pfizer's Niblack. That sort of discipline and pragmatism should go a long way toward ensuring that Wall Street's romance with Pfizer is more than just a momentary thrill.
By Amy Barrett in Philadelphia RELATED ITEMS
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Updated Apr. 30, 1998 by bwwebmaster
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