There are only two ways to drive profits: bring in more revenue or spend less. The former is going to be tough for Pfizer
The Wall Street Journal puts the level at $1 billion next year. Bloomberg says $2.1 billion. Whatever the case, it's a substantial sum even for a company that registers nearly $68 billion in revenue last year. Remember, unlike revenue from a new drug, every dollar not spent is captured directly in the income line. Over the past four quarters, Pfizer had net income of $8.5 billion. A $1 billion increase would be a 12% boost to profits.
The cuts are mostly administrative. Everything from redundant activities at headquarters and local sites to travel, entertainment, and even electronic gear is on the table. Sounds like it'll be a blast to work there -- if you still have a job.
I understand the rationale. Pfizer has a huge patent cliff. Not as bad as Eli Lilly
These cuts are on top of the previously announced slashes to research and development. Where's the future growth going to come from if there are fewer new drugs being developed? I prefer Merck's
The problem with relying on cuts versus launching new drugs is that there's no room for growth. If you launch a drug and it brings in $1 billion this year, there's an opportunity for it to sell $1.1 billion next year. Make $1 billion in cuts, and they'll be there next year, but that's all you have.
There's a fine line between reinvesting in a company and wasteful spending of cash that should just be returned to shareholders. But I worry that Pfizer might be giving up long-term growth just to make shareholders happy today.
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