Pfizer's Chantix Woes Bash High Hopes

Safety issues are erasing the company's hopes for a hit.
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OKLAHOMA CITY -- With

Pfizer's

(PFE) - Get Report

Chantix stop-smoking aid linked to suicide and other serious side effects, some critics question whether the drug works well enough to justify its risks.

Sales of the drug, once viewed as a surefire blockbuster, have already started to fall. Lately, threats of Chantix-related lawsuits have started to surface as well.

At this point, some experts feel, Pfizer looks worse off than it did when announcing its breakthrough smoking treatment three years ago. After all, the company still remains heavily dependent on Lipitor -- which accounts for almost 30% of its total drug sales -- with generic competition just a few short years away.

Last year, Pfizer had to rely on currency benefits just to muster a 1% increase in revenue. By the first quarter of this year, Pfizer saw its revenue actually fall as patients chose cheaper alternatives to some of its most popular drugs. While sales of the company's newer drugs rocketed almost 80%, sales of its older drugs barely budged at all.

Shares of Pfizer have been in a steady downtrend the past 11 months, losing more than one-third of their value to trade recently at $17.66.

To be fair, Pfizer relied on Chantix for just a fraction of last year's $48.6 billion in overall sales. Still, with patents set to expire on so many of its blockbusters, the company needs all of the bestsellers it can get. Moreover, until recently, Chantix ranked as the company's fastest-growing drug franchise of all.

"PFE faces a host of well-known problems, including declines of lead drug Lipitor and a host of future patent expiries that by our analysis puts PFE among the three worst-positioned drug names through 2015," Bernstein Research analyst Tim Anderson wrote late last month. "As if this wasn't enough already, one of PFE's more important newer drugs -- Chantix, for smoking cessation -- is now seeing usage of the product drop sharply."

(One of Anderson's research assistants owns Pfizer's stock; Anderson himself has a tepid market-perform rating on the name.)

Double or Nothing

Early on, Pfizer itself placed a high-stakes bet on Chantix.

For years, Pfizer had operated a big consumer healthcare division that sold (among other things) nicotine gum and patches. Just a month after winning approval of Chantix, however, Pfizer agreed to sell that huge business in 2006. The company became a bit more dependent on Chantix in the process.

Although Pfizer gave up on torcetrapib, a potential replacement for Lipitor, the company did manage to introduce four new drugs in 2006. In addition to Chantix, Pfizer started selling Sutent for cancer patients and Eraxis for serious infections.

It started marketing Exubera -- hailed as a breakthrough for diabetes patients -- as well. With high hopes, Pfizer trained 2,300 salespeople to peddle its new insulin inhalers. Six months after Exubera hit the market, however, critics were already declaring it a disaster.

"I think Pfizer will wish they had never gotten into this," the incoming president of the American Diabetes Association told the

Associated Press

in March of last year. "I doubt they'll regain their investment.

"There is no advantage to Exubera, and there may be a safety risk," he added. "I see it as my job to talk people out of

using it."

At that point, with Exubera likely doomed, Pfizer executives had already begun a six-month insider-selling spree of the company's stock. After they finished, Pfizer finally pulled the plug on its disappointing inhaler.

This April, Pfizer revealed that six patients who took Exubera during clinical trials had gone on to develop lung cancer. While Pfizer stopped short of blaming the drug, pointing to cigarettes as a possible cause instead, only one patient who took placebo pills wound up with the same problem.

Pfizer stopped marketing Exubera for other reasons, however, saying that "it did not meet customers' needs or the company's financial expectations" in the end.

Damaged Goods

By the time Pfizer halted sales of Exubera last fall, taking a multibillion-charge to its earnings, concerns had started to surface about Chantix as well.

In November 2007, after fielding multiple reports of Chantix-related deaths, the Food and Drug Administration issued a suicide alert about the drug. Otherwise, Chantix might have achieved blockbuster status.

Despite that initial warning, issued near the end of 2007, Pfizer still managed to sell $883 million worth of Chantix last year. With sales up a whopping 773% from the previous year, Chantix boasted the fastest growth rate -- by far -- of any drug in Pfizer's portfolio.

Even today, the drug (known as "Champix") continues to fare well outside the U.S. Now available in most major countries throughout the world, Champix has received especially warm welcomes in countries with large numbers of smokers -- such as India -- despite its possible risks.

"We will be partnering with physicians and corporate hospital chains to set up 600 specialized smoking-cessation clinics called 'Champix Clinics,'" Kewel Handa, the chief of Pfizer's India operations, told Delhi-based

Mint

in March. But "we are informing the physicians to recognize the risks ... We will also be doing a vigorous post-marketing study, involving 500 people in the country."

Since India is home to more than 200 million smokers, that might look like a small sample to some. Like many foreign countries, however, India features a much weaker regulatory system than America's own.

Lately, Pfizer has started to focus a lot more on those international markets. Last quarter, in fact, the company generated more revenue outside the country than it did at home. While international demand for Chantix continued to build, domestic sales of the drug actually slipped a bit on a sequential basis.

Here at home, the situation has apparently worsened. Last month, Anderson estimated that U.S. doctors were writing almost 30% fewer prescriptions for Chantix than they were a year ago. If U.S. regulators order a dreaded "black box" warning for Chantix -- a possibility Anderson has actually raised -- that number could plunge even more.

"The worst-case outcome is that the FDA withdraws the product from the market," Anderson wrote. But, he added, "this is not what we currently model."

Still, he wrote, "while Chantix has better efficacy than existing smoking cessation agents ... it is possible that the FDA determines at a later date that the safety issues with Chantix outweigh the benefits" in the end.

For its part, Pfizer continues to express total confidence in Chantix. With problems escalating at home, however, the company now likes to tout Chantix as a "global" opportunity that offers a winning solution for everyone involved.

"From a global perspective, the U.S. is really just the tip of the iceberg," the company insisted a few months ago. "We believe Chantix will have a major role in addressing the smoking epidemic -- worldwide -- and we will continue to expand our partnerships with organizations dedicated to reducing the terrible toll of smoking in society."