NET profits exceeding $8 billion last year, and $3 billion in the latest quarter alone, are not usually an indicator of a firm in serious trouble. Yet things are going from bad to worse at Pfizer, the world's biggest drugs company. In July it abruptly fired its widely respected chief executive, Hank McKinnell, after the board concluded that the firm needed the sort of reviving medicine that only a new leader could administer. One bitter pill announced last week was a cut of one-fifth, or 2,000 jobs, in Pfizer's American sales force, the industry's largest.

That much was welcomed by the stock market, as a sign that the firm was on the mend. Alas, such a positive prognosis was to prove short-lived. On Saturday 2nd December Pfizer decided to end clinical trials of torcetrapib, a drug that promotes the creation of the good variety of cholesterol, known as HDL. Initial results had shown that the drug was associated with an unacceptably high rate of death among users. Only two days earlier Pfizer's research chief, John LaMattina, had described the drug as “the most important new development in cardiovascular medicine in years.” On Monday investors, who had hoped that torcetrapib would be a commercial blockbuster, knocked more than $25 billion off Pfizer's stockmarket capitalisation, reducing the firm's value by one-eighth.

Like other big drug companies, Pfizer has been struggling hard to stop its product pipeline running dry. It can ill afford to lose such a promising prospect as torcetrapib, which could have helped to offset the losses of revenue that Pfizer is almost bound to suffer when some of its most lucrative drugs lose their patent protection in the years to come, and users switch to cheaper generic alternatives. Between 2004 and 2007 Pfizer is due to lose patent protection for drugs with combined annual revenues, at their peak, of $14 billion. Sanford Bernstein, an independent research firm, forecasts that Pfizer's revenues will drop from over $47 billion this year to under $42 billion in 2008.

AP

Cold comfort pharma

Health campaigners had criticised Pfizer for testing torcetrapib by bundling it together with Lipitor, the firm's highly successful drug for lowering bad cholesterol. This bundling was viewed as a none too subtle attempt, in effect, to extend patent protection for Lipitor that is due to end in 2010.

The 50m Americans believed to have low levels of good cholesterol, and the far larger numbers in the rest of the world, must hope now that alternative drugs being tested by Roche and Merck fare better than torcetrapib did. Alas, neither product is due to be ready for the market within the timeframe originally set for Pfizer's drug. Even so, their existence is a salutary message to those who complain that the big drug firms focus too much on developing similar, “me too”, drugs. If the original drug does not work, the “me too” may be all a patient has got.

The failure of torcetrapib is also a reminder that drug development is an extremely high cost, high-risk activity, and that the most promising new drugs can go wrong even at a late stage. In 2004 Pfizer pledged to spend $800m getting torcetrapib to market, an investment that may now be worthless. And such failures are hardly unusual. In the heart disease area, recent disappointing examples include AstraZeneca's blood-thinner, Exanta, and Bristol-Myers Squibb's blood-pressure-reducing drug, Vanlev. Merck is caught up in a costly legal battle following the withdrawal of its pain-killer, Vioxx, in 2004. Side-effects were discovered after Vioxx had gone to market. That failure cost Merck's then-boss, Raymond Gilmartin, his job.

This high failure rate explains why drug firms need to earn huge profits, for a while, on those drugs that do reach the market successfully. It explains why anyone who wants the drugs industry to be as innovative as possible―which is all of us, surely?―should oppose moves to impose limits on the pricing of new drugs, an idea now being actively considered in Washington, DC, by politicians who seem more desperate to cut the cost of health care than to improve its quality.

Currently America does not impose controls on the price of new drugs, in sharp contrast to Europe. It is surely no coincidence that most of the exciting innovations in drugs nowadays take place in America, not in Europe. Torcetrapib failed, but at least Pfizer thought its development was a risk worth taking. Under a system of price controls, Pfizer might not even have got that far.