(Reuters) - Pfizer Inc, the world's largest drugmaker, said it was shrinking its operations to deliver on its profit forecast for 2012 -- the first full year its $10 billion Lipitor cholesterol fighter faces cheaper U.S. generics.

Newly appointed Chief Executive Ian Read said he would slash the company's research and development budget in 2012 and announced an additional $5 billion share buyback.

Both steps were long-awaited by investors, who have worried that Pfizer had grown too large after three mega-mergers to sustain earnings growth. Shares in the company rose 3 percent.

Read, who stepped into the CEO role in early December after the abrupt departure of his predecessor, Jeffrey Kindler, suggested further downsizing may be in store.

"During 2011 we expect to complete our ongoing review of the composition of our business portfolio to determine the optimal mix of businesses that we can appropriately fund and manage in order to achieve consistent growth and maximum return on investment," Read said in a statement.

Pfizer faces an unprecedented challenge in November, when Lipitor loses U.S. marketing exclusivity. Pfizer bought Wyeth last year for $67 billion to replace vanishing Lipitor revenue, but has failed to sufficiently bolster its drug portfolio.

More than a half dozen other Pfizer drugs also lose U.S. patent protection in the next few years, including impotence treatment Viagra and Xalatan for glaucoma.

Moreover, many of the company's most important medicines had flat or declining sales in its fourth quarter, according to results released on Tuesday.

Pfizer said it still expected 2012 earnings, excluding special items, of $2.25 to $2.35 per share. But the company said it now expected revenue that year of $63 billion to $65.5 billion, compared with its earlier view of $65.2 billion to $67.7 billion.

Pfizer said its preserved 2012 earnings forecast hinged in part on a cut in its research and development spending, to between $6.5 billion and $7 billion, from its previous target of $8 billion to $8.5 billion.

"Driving this decline is the planned reduction in the number of disease areas the company will focus on," Pfizer said in a release. The company said it would leave its research site in Sandwich, England, where it employs 2,400 people. It will instead enhance its operations in Cambridge, Massachusetts.

A number of Pfizer's most widely used drugs were discovered by British scientists at Sandwich, including Viagra, hypertension drugs Norvasc and Cardura, and the anti-fungal Diflucan.

QUARTERLY RESULTS TOP EXPECTATIONS

Pfizer also said it had earned $2.89 billion, or 36 cents per share, in the fourth quarter, compared with $767 million, or 10 cents per share, a year earlier.

Excluding special items, Pfizer earned 47 cents per share, beating the analysts' average forecast of 46 cents.

Quarterly revenue rose 6 percent to $17.56 billion, topping Wall Street expectations of $16.96 billion.

Global sales of prescription drugs rose 3 percent to $15.1 billion. Revenue in emerging markets, where the company is pinning its hopes for earningsgrowth, rose 25 percent to $2.37 billion, a marked improvement from flat sales in the third quarter.

Pfizer said it remains on track to achieve cost reductions from the Wyeth deal of $4 billion to $5 billion by the end of 2012, and said it had achieved more than $2 billion of the expected reductions last year.

The drugmaker said it had approved an additional share repurchase program for up to $5 billion, boosting its current authorization to $9 billion. It aims to repurchase about $5 billion of its common shares this year.

It said the stock buybacks would not limit its ability to continue dividend increases or to pursue small to medium sized acquisitions.

Global fourth-quarter Lipitor sales tumbled 17 percent to $2.63 billion, hurt by cheaper generics recently introduced in Canada and Spain. Sales of Lyrica, used to treat neuropathic pain and a longtime growth driver for the company, were flat at $821 million.

Viagra sales slumped 9 percent to $499 million, hurt by competition from Eli Lilly's longer-acting Cialis. And sales of Effexor, a leading depression drug obtained in the Wyeth merger, plunged 60 percent to $206 million, battered by cheaper U.S. generic versions launched last summer.

Sales of Chantix, to help smokers quit, rose 32 percent to $233 million.

Shares of Pfizer were up 3.1 percent at $18.77.

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