Pfizer Inc. (PFE) on Tuesday forecast double-digit profit growth in 2006 and 2007 on aggressive cost-cutting and revenue from new medicines, but the world's biggest drugmaker said generic competition and falling arthritis drug sales would drag down 2005 earnings.

The better-than-expected 2007 forecast helped spark a 3.7 percent rise in Pfizer shares, which remain near seven-year lows due to concerns about the safety of its Celebrex (search) and Bextra (search) arthritis medicines and patent expirations for key drugs.

Company executives told an analysts' conference in New York that earnings in the "transition year" of 2005, including charges totaling over $6 billion, will fall 22 percent. Excluding special items, profit will fall 6 percent.

"We are not satisfied with the 2005 expected performance; on the other hand, we feel it will be short-lived," Chief Financial Officer David Shedlarz said.

Pfizer's downturn this year will be largely due to cheaper generic forms of its anti-fungal drug Diflucan, epilepsy treatment Neurontin and antibiotic Zithromax.

Pfizer said annual cost savings of $4 billion by 2008, including reductions in its 38,000-member sales force and plant closings, would restore profit growth beginning in 2006.

The company did not specify how many jobs would be lost but said many would be from retirements and not filling vacant positions.

New York-based Pfizer gave Wall Street its initial earnings view for 2005 and beyond, but investors focused on expectations for a return to double-digit profit growth in 2006, driven by cost cuts, and accelerating growth in 2007, driven by growing sales of old and new drugs.

"The big news here is that the 2007 profit guidance is very good -- perhaps 15 percent higher than expected," said Sam Isaly, portfolio manager of OrbiMed Advisors' Eaton Vance Worldwide Healthcare Fund. "That appears to be healing the entire drugs group today."

The American Stock Exchange (search) pharmaceutical index rose 2.3 percent, and the Dow Jones industrial average (search), of which Pfizer is a component, posted a modest gain.

Many analysts, who had expected little or no profit growth in 2007, said Pfizer gave few specifics on how it would achieve its goals.

Pfizer forecast 2005 earnings of $2 per share excluding one-time items, compared with expectations of $1.99 to $2.35 a share among analysts polled by Reuters Estimates. Last year the company earned $2.12 per share before special items.

Weighing on 2005 results are plunging sales of Celebrex and Bextra after studies linked them to increased risk of heart attack and stroke. The drugs have also been hurt by the recall of Merck & Co.'s (MRK) Vioxx, which works the same way as Pfizer's products.

The company forecast first-quarter earnings of 53 cents per share before items, in line with Wall Street estimates, but did not give specific earnings-per-share forecasts beyond 2005.

Some cost-cutting will come from reorganizing sales regions and assigning fewer sales representatives to each doctor.

The restructuring initiative will cost between $5 billion and $6 billion through 2008. The annual cost savings of $4 billion represent about 12 percent of Pfizer's current costs.

Chief Executive Hank McKinnell said acquisitions of new drugs and biotechnology companies would help fuel growth. "We are not constrained in terms of what we can do in acquisitions. Prices are down. You will see us doing more there in the next couple of months," he said.

Pfizer said it would speed up completion of a $5 billion share repurchase program started in 2004, which came as a surprise to some analysts.

Pfizer shares closed up 97 cents to $26.90 on Tuesday on the New York Stock Exchange (search).