With many of the drugs in Pfizer's (NYSE:PFE) medicine cabinet approaching their patent expiration dates, the pharmaceuticals giant hosted a research and development briefing last week to reassure Wall Street that it has a strong pipeline of new drugs in development. Just days later, the company was forced to retreat from that optimistic view by announcing it would end development of the cholesterol drug torcetrapib.

Over the weekend, Pfizer scientists received new data that indicates a higher death rate for participants taking torcetrapib in the drug's late-stage trials. The failure of torcetrapib is a crushing disappointment for Pfizer and its investors, as well as for patients who suffer from cardiovascular disease. The drug's effect of raising a patient's levels of HDL, or good cholesterol, promised to make torcetrapib the leading treatment for heart disease. Pfizer currently markets Lipitor to treat heart disease, but this $12 billion medication -- the world's best-selling drug -- is scheduled to lose patent protection in 2010. In spectacularly bad timing, Pfizer's executives had spent much of last week's R&D presentation enthusiastically describing the therapeutic and market potential of a torcetrapib medication used in combination with Lipitor.

The turnaround in torcetrapib's fortunes is casting a predictably dark shadow over Pfizer's stock today. Nevertheless, Pfizer executives describe its pipeline of drugs in development as the largest in the industry. Pfizer is currently engaged in more than 240 development programs, with 10 drugs in either the registration process or phase 3 trials. Jeff Kindler, the new CEO, has also announced aggressive productivity goals to be realized by Pfizer's R&D labs in coming years, stating that the company would bring to market four internally developed drugs each year beginning in 2011. Pfizer spent $7.4 billion on R&D last year.

The market has been eager for good news from Pfizer. R&D output has been disappointing for several years -- Pfizer has not launched a big product since Celebrex and Viagra came to market in the late '90s. In addition, some of the company's most important drugs will soon face generic competition when their patents expire over the next few years. In addition to Lipitor, Pfizer is going to lose patent protection next year on its second-best seller, Norvasc.

Amidst this challenging strategic outlook, Pfizer's recent financial performance has also weighed heavily on the stock. The company's revenue in 2005 declined to $51.2 billion from $52.5 billion in the previous year, and net income fell to $8 billion from $11.4 billion. On Thursday, the company raised this year's EPS guidance to $2.05, largely the result of lower expenses, including a 20% reduction in the size of the sales force. In spite of the subsequent torcetrapib news, the company has reaffirmed that higher guidance.

Raising Pfizer's share price, however, will require generating significant top-line growth instead of reducing costs. To that end, Pfizer's research efforts are focused on the huge market opportunities that exist in the pharmaceutical space. Company executives estimate that the global market for neurological disease medications is $91 billion. Worldwide sales of infectious disease medications total $58 billion, and the market for oncology drugs is $30 billion. Pfizer's ability to capture significant shares of these markets will depend on whether the company can demonstrate the efficacy of the drugs now in development. Here is the status of some of those drugs:

  • Maraviroc: Pfizer just announced plans to move this viral-disease medication into phase 3 trials to treat HIV-infected patients. Unlike currently available medications that fight HIV inside the structure of white blood cells, maraviroc is designed to block the cell's receptors and prevent the virus from entering the cell. Pfizer expects to receive regulatory approval, and, in the next few months, to begin enrolling patients in a study of the drug's effectiveness.

  • CP-945,598: Phase 3 trials were begun in October to test this obesity-treating medication. The compound is engineered to inhibit a patient's desire to eat, and initial results have been successful and statistically significant. Pfizer is also researching compounds that treat obesity by limiting fat absorption and increasing calorie expenditure. Pfizer estimates that the market opportunity for obesity drugs is $35 billion.

  • CP-675,206: This compound is in phase 3 trials to treat metastatic melanoma. It belongs to the immunotherapy class of oncology drugs, which are designed to reawaken the patient's immune system to attack cancerous cells. In addition to treating melanoma, which is responsible for 3% of all cancer-related deaths, CP-675,206 may ultimately prove effective in treating other forms of cancer, including lung, breast, and colorectal.

The abrupt and surprising news about torcetrapib only reinforced the substantial uncertainty that surrounds Pfizer's prospects. Pfizer has not yet shown that its new drug therapies would attain regulatory approval or be superior to existing medications. Nevertheless, last week's presentation -- the first such meeting in two years to discuss the company's pipeline -- revealed that Pfizer's huge R&D investment is generating an impressive volume of potential products. With strong cash flows, a healthy dividend yield, unparalleled scale, and a discounted share price, Pfizer's risk/reward profile might look attractive to investors willing to bet that big payoffs lie at the end of the R&D pipeline.

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Fool contributor Michael Leibert welcomes your feedback. He owns shares of Pfizer. The Fool has a disclosure policy.