Shares of Pfizer Inc., the world's largest drug maker, sank Monday on news that the company had halted development of a key new cholesterol treatment.

The stock fell $2.96 US, or 10 per cent, to $24.90 US on the NYSE.

The company said Saturday that an independent board monitoring a study for cholesterol treatment torcetrapib recommended that the work end because of an unexpected number of deaths.

'Losing asenapine was a hole in the boat. Now they have hit an iceberg.'— Analyst Jason Napodano

The news is devastating to Pfizer, which had been counting on the drug to revitalize stagnant sales that have been hurt by numerous patent expirations on key products. It has said it was spending around $800 million US to develop torcetrapib, which was supposed to fill the void when its bestselling drug, cholesterol treatment Lipitor, loses patent protection in either 2010 or 2011.

Lipitor sales totalled $12.2 billion US last year.

"This is obviously unfortunate because this was the biggest opportunity in their pipeline," said Barbara Ryan, an analyst at Deutsche Bank. "Clearly there is more pressure on them to do cost cutting."

Pfizer will likely slash staff and accelerate merger and licensing deals as the pressure on it to improve its financial performance intensifies after the announcement.

Two months ago, Pfizer said it would detail plans in January to turn the company into a more nimble organization that would go beyond the program announced last year to cut $4 billion in expenses by 2008. Patent expirations will cost the company $14 billion annually between 2005 and 2007.

Even more job cuts expected

In the statement Pfizer issued Saturday, chief executive officer Jeff Kindler said the company's pace of transformation will be expedited because of the loss of torcetrapib although he didn't give any specifics.

Last week, Pfizer announced it was cutting 20 per cent, or 2,200 jobs, of its U.S. sales force.

Ryan said Pfizer may lay off as many 10,000 people in the near future. Pfizer employs roughly 100,000 people. Ryan added that she expects Pfizer to hike its annual dividend from 96 cents to $1.10 US per share in the next few weeks in the hopes of putting a floor on the stock.

But Jason Napodano, an analyst at Zacks Independent Research, doesn't think the dividend will be enough to prop up the shares. He points out that at the end of last month, Pfizer pulled out of its deal with drug maker Organon to develop schizophrenia treatment asenapine.

Napodano said he expected that drug to add $500 million US in sales by 2010 while by that time torcetrapib's sales would total $3 billion US.

"Losing asenapine was a hole in the boat. Now they have hit an iceberg," said Napodano.

82 patients died during tests

Torcetrapib was designed to raise levels of HDL, commonly known as good cholesterol. Pfizer has two other products in early development to raise HDL, using the same method as torcetrapib. It is too soon say where they will be affected by the compound's demise because it still unclear what caused the patient deaths in the trial.

Torcetrapib had been shown to raise blood pressure in some patients but the other two compounds haven't displayed such a side-effect, according to Pfizer.

Pfizer spokesman Paul Fitzhenry said 82 patients taking torcetrapib died, compared to 51 deaths in the arm of the study where patients were taking Lipitor alone. Each arm of the study had 7,500 patients. Pfizer said that the study didn't raise any questions about Lipitor's safety.

New products in the works, Pfizer says

Pfizer reiterated it hopes to introduce six new products to the market by 2010, but Napodano said its pipeline just doesn't have another drug that offers the sales potential of torcetrapib.

Ryan and Napodano both expect Pfizer to act swiftly to bring new products into the fold, either through acquisition or licensing. But Napodano said that until investors see what those products are, he sees little reason to buy the stock. He said he intends to review his "hold" rating on the stock.