Pfizer ( PFE) is the top seller of pharmaceuticals in the U.S. and the world, but there's a drawback to its massive size and scale -- a pronounced lack of efficiency.

For many years, Pfizer has been about big, from making giant acquisitions like Warner-Lambert and Pharmacia to marketing Lipitor, the world's best-selling drug. Now it's time for another big move, only this time it's a downsizing.

On Monday, investors will learn just how many jobs management has decided to cut in order to better control the company's costs and eliminate operational excess.

The scope of the payroll reduction has been a source of Wall Street speculation ever since Jeffrey Kindler, the CEO and chairman, said in October that all operations were under review.

Sales positions overseas and manufacturing jobs are cited by analysts as the most logical targets that might save an extra $1 billion to $2 billion a year.

Already, the number of manufacturing plants Pfizer runs has dropped to 61 from 93 since the end of 2003. And two months ago, Kindler said 20%, or approximately 2,200 members, of the U.S. sales force would lose their jobs. The company characterized the move as an "initial step" in restructuring.

The next step will be revealed as Pfizer issues fourth-quarter and full-year 2006 results. The Wall Street consensus calls for earnings of 42 cents a share, excluding one-time items, for the fourth quarter on sales of $12.2 billion.

Pfizer already has warned investors that sales will be flat through 2008 and that earnings growth will be in the "high-single-digit" range, excluding special items. Analysts polled by Thomson First Call predict revenue will decline from $48.2 billion in 2006 to $47 billion in 2008. Earnings per share should rise to $2.30 in 2008 from $2.05 for 2006, stripping out items.

The new Pfizer began to take shape in 2005 when former CEO Hank McKinnell announced a multiyear cost-cutting plan. Also, Pfizer trimmed 7,000 jobs when it sold its consumer-products division to Johnson & Johnson, ( JNJ) in December.

Kindler's presentation next week will be in stark contrast to McKinnell's letter to shareholders just three years ago, which noted Pfizer had added approximately 80,000 employees in four years. "We hope you share our pride in our growth and success," McKinnell said in his February 2004 letter.

At the end of 1999, Pfizer had 50,900 employees. By the end of 2003, the number had ballooned to 122,000. Since then, the payroll has shrunk -- 115,000 in 2004 and 106,000 in 2005 -- and last year's final tally should be roughly 96,000.

However, the build-up in people and products didn't translate into stock price gains. Since McKinnell issued his 2004 letter, Pfizer's stock is off about 28%. By contrast, the S&P 500 is up 25% and the Amex index of large pharmaceutical stocks, which includes Pfizer, is higher by about 4%.

Cutting costs is only part of the strategy for Pfizer, which must find new drugs to offset the revenue lost to generic competition. For instance, the antidepressant Zoloft, whose U.S. patent expired last year, was long a stalwart.

Zoloft had been Pfizer's third-biggest drug, with sales of $3.26 billion in 2005. In September, the second-biggest drug, Norvasc for high blood pressure, loses U.S. patent protection. It contributed $4.7 billion to sales in 2005. By year end, the U.S. patent will expire for the allergy drug Zyrtec, whose 2005 sales were $1.36 billion.

"Pfizer's fundamental challenge is a lack of top line growth," says UBS analyst Roopesh Patel in a Jan. 17 research report. Patel says patent expirations through 2012 will knock out $25 billion worth of sales that Pfizer had last year.

Pfizer has cut its cost base by $8.5 billion since 2000, and it has another $1.5 billion in reductions on the way, he says. Patel, who has a neutral rating, says Pfizer could announce a strategy to squeeze out another $1 billion to $2 billion. His firm has had an investment banking relationship with Pfizer.

Barbara Ryan of Deutsche Bank Securities predicts Pfizer will try to save $1 billion by firing 4,000 to 5,000 foreign sales representatives and save perhaps $500 million via manufacturing cutbacks. "Efficiencies in R&D" could yield another $350 million, she says in a Jan. 16 report. Ryan has a buy rating. Her firm has had an investment banking relationship.

Although analysts are looking ahead, they also will examine 2006's results to assess building blocks for the future. They'll learn if Pfizer executives were prescient in having predicted $13 billion in sales for Lipitor and $2 billion in revenue for the arthritis drug Celebrex. After that, projections might start to get a little murkier.

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