Updated from 11:38 a.m. EDT

Pfizer

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shares fell Thursday after the drugmaker agreed to a Food and Drug Administration request to withdraw its controversial arthritis drug Bextra.

Regulators also called for a so-called black box warning on the drugmaker's Celebrex, a bigger part of Pfizer's arthritis franchise. The black-box warning is the most serious warning required by the FDA, and it greatly limits a drug's usage and appeal as well as a company's advertising efforts.

The FDA action on Bextra is a result of the agency's conclusion that "the overall risk vs. benefit profile for the drug is unfavorable," the FDA said. Pfizer has agreed to the request, even though it disagrees with the finding.

"Today's actions protect and advance the health of the millions of Americans who rely on these drugs every day," said Dr. Steven K. Galson, acting director of FDA's Center for Drug Evaluation and Research. "FDA is providing the public information based on the latest available scientific data to guide the careful and appropriate use of these drugs aimed at maximizing their potential benefits and minimizing their risks."

Pfizer said it "respectfully disagrees" with the FDA's assessment of Bextra's risks vs. benefits. Pfizer said it "will explore options" with the agency to determine under what circumstances Bextra might be returned to the market.

Pfizer said it will talk to the FDA about the precise wording of the new Celebrex label. "Pfizer has accumulated extensive Celebrex clinical data over the past 10 years involving more than 40,000 patients," the company said. As it noted last year, Pfizer repeated Thursday that it plans to conduct additional long-term clinical studies on the risks and benefits of Celebrex.

The announcement will clearly have an impact on Pfizer's bottom line. Celebrex produced $3.30 billion in sales last year while Bextra added $1.29 billion. Still, analysts had discounted the future sales impact of both products, with many figuring the drugs would produce perhaps half the sales in 2005 that they did in 2004. Now, analysts will have to revise their economic models again as they speculate if Pfizer will have to cut more costs to make up for lost revenue.

Bextra and Celebrex belong to a class of pain relievers known as Cox-2 inhibitors. The FDA's announcement comes after three days of FDA advisory committee hearings in February examining the risk-reward profile of the drugs, which also include

Merck's

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Vioxx, a top-selling drug that Merck voluntarily pulled from the market Sept. 30.

The FDA began looking at cardiovascular risks of Cox-2 drugs and older so-called NSAIDs, or non-steroidal anti-inflammatory drugs, after Merck pulled Vioxx. This drug had been criticized by some physicians and researchers for several years; but didn't pull the drug until it received the results of a company-sponsored study that showed a great risk of heart-related problems among people who took Vioxx for more than 18 months.

At the end of three days of hearings, two advisory panels of medical experts, meeting in a joint session, recommended that Pfizer's two main Cox-2 painkillers be allowed for sale. Bextra was endorsed by a narrow vote, as was Merck's Vioxx. In contrast, Celebrex garnered widespread support from the same panel.

The FDA said Thursday it will "carefully review any proposal from Merck for resumption of marketing of Vioxx." Merck said it looked forward to discussing the issues with the FDA.

On Thursday, shares of Pfizer dropped 44 cents, or 1.6%, to $26.42. Shares of Merck lost 32 cents, or 1%, to $32.57. Both were off session lows.

More Than Cox-2 Drugs

During those February hearings, the FDA's panels of experts also took up reviews of older arthritis-pain relievers known as non-steroidal anti-inflammatory drugs, or NSAIDs. In prescription form, they include ibuprofen and naproxen; in over-the-counter form, they include brand names such as Motrin and Aleve.

On Thursday, the FDA told manufacturers of both prescription and non-prescription NSAIDs to put more information on product labels. For prescription strength NSAIDs, that includes a black box warning on cardiovascular risk as well as a warning of increased risk of gastrointestinal bleeding.

"Manufacturers of Celebrex and all other prescription NSAIDs will be asked to revise their labeling to include a medication guide for patients to help make them aware of the potential for cardiovascular and gastrointestinal adverse events" associated with the drugs, the FDA said.

The request for strict labels applies to prescription drugs, but the FDA also is asking manufacturers of over-the-counter NSAIDs to add more information about cardiovascular risks and gastrointestinal bleeding. The FDA says they also should add to their drug labels a warning about potential skin reactions; labels of prescription NSAIDs already include such warnings.

Bextra has a black box warning for a rare but potentially lethal skin infection known as Stevens-Johnson Syndrome. This side effect has been linked to other pain medications; but Pfizer has noted previously that this syndrome has been reported at a greater rate for Bextra vs. other Cox-2 drugs.

According to Pfizer's statement Thursday, the FDA told the company that "Bextra's cardiovascular risk could not be differentiated from other NSAIDs." Pfizer added that the FDA "has concluded that the additional, increased risk of

Stevens-Johnson syndrome, which is already described in its label, warrants its withdrawal from the market."

Pfizer also said it will suspend sales of Bextra in the European Union at the request of European health regulators Thursday. "The company is in contact with other regulatory agencies around the world about appropriate treatment options," Pfizer said.

European regulators in February

announced restrictions on all Cox-2 drugs, saying the whole class poses an increased risk of heart-related injury. Pfizer has frequently said that each Cox-2 drug is different.

Pfizer said it received notice from the FDA Wednesday afternoon following its Tuesday meeting with financial analysts, when it offered lower guidance for 2005 and outlined a target of $4 billion in annualized cost savings by 2008.

Pfizer also said Thursday it will "work closely with the FDA to develop a guide to assist patients and their health care professionals in making the best decisions for treating their arthritis pain."

Financial Impact

The FDA's announcement didn't immediately affect any ratings on Wall Street, where analysts give Pfizer's stock 19 buy recommendations and 12 hold ratings, according to Thomson First Call.

Although the suspension of Bextra might knock a few cents from 2005 EPS predictions, analysts say the FDA's action could prompt Pfizer to do more cost-cutting that the company indicated during a Tuesday meeting with investors.

"In light of this development and in contrast with our perception of Tuesday's investor meeting, we would now expect Pfizer to consider more substantive cost-cutting measures," says Winton Gibbons, of William Blair & Co., in a Thursday report to clients.

Pfizer executives said Tuesday that any job cuts would come through attrition. Gibbons says there may be a greater need to cut payroll, especially among sales representatives, "thus mitigating some of the revenue lost."

If the company cuts jobs aggressively, Gibbons, who has an outperform rating, might raise his newly-revised estimates. Right now, he has cut his 2005 EPS from $2 - the figure Pfizer predicted on Tuesday - to $1.98. He cut his previous 2006 EPS estimate by 3 cents to $2.20. (He doesn't own shares; his firm doesn't have an investment banking relationship).

The latest Cox-2 news "is at odds" with Pfizer's comments Tuesday that Cox-2 sales would accelerate, from currently depressed levels, in late 2005, says David R. Risinger of Merrill Lynch. "This will raise questions regarding the company's earnings guidance."

Risinger told clients in a Thursday research report that investors must beware of potential liability claims against Bextra because "trial lawyers usually pursue product liability cases more aggressively when products are withdrawn from the market." Risinger adds that the legal risk might be mitigated because the FDA cited the rare skin infection rather than cardiovascular risk as the reason for recommending Bextra's suspension.

The good news for Pfizer, says Risinger, is that all prescription and nonprescription arthritis drugs and pain relievers will carry the same new warnings about cardiovascular safety. "Adding this warning to traditional NSAIDs may help Celebrex's relative profile," says Risinger, who has a neutral rating on Pfizer. (His firm has had an investment banking relationship; his research report says 'one or more analysts' covering Pfizer owns shares.)