Pfizer Inc. Fourth-Quarter And Full-Year 2005 Financial Results Reflect Operating And Financial Strength
NEW YORK, Jan. 19 /PRNewswire-FirstCall/ -- Pfizer reported fourth-quarter and full-year 2005 financial results today that reflect operating and financial strength, with performance exceeding expectations, driven by in-line medicines, new medicines, and accelerated cost savings, all while promising candidates continue to advance through the company's pipeline.
"We are supporting our key in-line and newly launched medicines, driving important new medicines through the pipeline and taking a series of specific actions to build Pfizer's value," said Hank McKinnell, chairman and chief executive officer. "We completed the year with positive news on many fronts -- including double-digit full-year worldwide growth of Lipitor; an exceptional Lyrica launch in the U.S.; priority-review status for two potential breakthrough medicines, Sutent for cancer and Champix for smoking cessation; favorable decisions in Lipitor patent cases; and a 26-percent dividend increase for the first quarter of 2006. Our strategy of driving growth in our in-line medicines and investing in promising new medicines is the essence of the new Pfizer. We will continue to focus on enhancing value for our shareholders and meeting patients' needs worldwide."
Dr. McKinnell said there were two primary drivers for Pfizer's better- than-expected performance in the quarter: better revenue performance in the Human Health business; and operating expense savings, coupled with the acceleration of the "Adapting to Scale" (AtS) cost savings to $800 million in 2005, which is double the goal for the year.
"While we are pleased that Pfizer's performance in 2005 exceeded previous expectations, investors should be aware that the factors driving Pfizer's performance may differ materially in 2006," Dr. McKinnell added. "We look forward to providing a full briefing on our 2006 financial guidance, strategy, products, and pipeline at our analyst meeting in New York on February 10. We enter the new year with renewed determination to capitalize on all the opportunities we see to bring our innovative medicines to those who need them."
Portfolio, Pipeline Position Human Health for Future Success
"2005 has been a challenging year for Pfizer Human Health," said Karen Katen, vice chairman of Pfizer Inc and president of Pfizer Human Health. "However, fourth-quarter and full-year 2005 results indicate that we are well-positioned for the future, with a solid in-line portfolio and a rich pipeline of innovative new medicines."
Loss of exclusivity in the U.S. of certain key medicines, uncertainty related to Celebrex, and the suspension of Bextra sales cumulatively reduced 2005 worldwide revenue by $5.7 billion. As a result, total Pfizer Human Health revenue declined $1.8 billion, or 4 percent, for full-year 2005 compared to full-year 2004. In the U.S., Human Health revenue declined 12 percent for the full-year 2005 compared to the same period in 2004.
Excluding the major medicines that lost exclusivity in the U.S. in 2004 and 2005 and the selective COX-2 inhibitors, Human Health adjusted revenues(2) grew 11 percent worldwide and 10 percent in the U.S. for full-year 2005 compared to 2004. The successful launches of seven new medicines over the past two years are enabling Pfizer to replenish our portfolio. The combined sales of these products (Inspra, Caduet, Olmetec, Macugen, Revatio, Zmax, and Lyrica) generated $284 million in fourth-quarter 2005 revenue and $632 million in full-year 2005 revenue worldwide.
Many of Pfizer's top medicines achieved double-digit growth worldwide in 2005 compared to 2004 across many therapeutic areas, including cardiovascular/metabolic diseases (Lipitor up 12 percent, Caduet up 272 percent); central nervous system disorders (Geodon up 26 percent, Relpax up 38 percent); infectious and respiratory diseases (Zyvox up 33 percent, Vfend up 38 percent); oncology (Aromasin up 73 percent); and ophthalmology (Xalatan/Xalacom up 12 percent).
Fourth-Quarter Portfolio Highlights
The cardiovascular portfolio continues to perform well. Cardiovascular sales include another billion-dollar quarter for Norvasc and continued momentum for Caduet, which achieved 323-percent revenue growth worldwide in the fourth quarter to $65 million. Worldwide sales of Lipitor totaled $3.4 billion in the fourth quarter, reflecting growth of 3 percent over the previous year's quarter, a difficult comparison in light of Lipitor's 23- percent revenue growth in the fourth quarter of 2004, exacerbated by four fewer business days in the 2005 quarter. Full-year sales of $12.2 billion reflected 12-percent growth over 2004.
In the recently published IDEAL study, Lipitor was shown to be numerically superior to Zocor in the secondary prevention of cardiovascular events. This difference fell just short of statistical significance (p=0.07 vs. significance at p=0.05). Lipitor did achieve statistically significant improvements in major secondary endpoints, including a 13-percent reduction in major cardiovascular events and a 17-percent reduction in non-fatal heart attacks for patients taking Lipitor 80 mg compared to patients taking simvastatin (Zocor) 20 and 40 mg. These results affirm that intensive lipid- lowering with Lipitor 80 mg can safely provide benefits beyond the most commonly prescribed doses of Zocor (20 and 40 mg) in patients with coronary artery disease.
The performance of the central nervous system portfolio was fueled by the launch of Lyrica. Since its September launch, more than 500,000 prescriptions have been written for Lyrica in the U.S. as of December 23, 2005. Lyrica had already gained more than a 7-percent new-prescription share of the U.S. anti- epileptic market as of December 23, continuing its performance as one of Pfizer's most successful pharmaceutical launches. This mirrors the outstanding launch performance seen globally. On a worldwide basis, Geodon exhibited strong full-year growth of 26 percent. This performance far outpaced the rate of market growth. In the U.S., Geodon is the second- fastest-growing atypical anti-psychotic oral medication in new-prescription volume as of November year-to-date. Its balance of powerful efficacy and a favorable metabolic profile positions it for further growth.
In the ophthalmology portfolio, the 9-percent worldwide growth in audited sales of Xalatan/Xalacom outpaced market growth (IMS MIDAS data for the twelve months ending November 2005). These medicines continue to lead the worldwide glaucoma market with a 35.7-percent share of revenues during the same period. Pfizer recently launched the first fully validated glaucoma risk calculator, which will help physicians identify patients with ocular hypertension who are most likely to progress to glaucoma, and determine whether to initiate earlier therapy. Macugen has become an important treatment in the U.S. for wet age- related macular degeneration, the leading cause of blindness in people over 60. While new competitors are expected to enter the market, Macugen has a strong foothold with more than 40,000 patients treated to date. Macugen's favorable safety profile has been maintained for more than two years of clinical testing and marketing.
Despite decreased usage in prescription pain medications, Celebrex continues to be a leader in this field with a 46-percent share of U.S. anti- inflammatory sales and a 22-percent share worldwide for November 2005. In the fourth quarter of 2005, Celebrex was the fastest-growing medicine in the U.S. anti-inflammatory market. Pfizer is currently supporting the Cleveland Clinic's 20,000-patient prospective study to definitively evaluate the relative safety of Celebrex and two older pain medications in patients with heart disease or at high risk of heart disease.
Worldwide full-year 2005 Viagra sales declined 2 percent. Fourth-quarter 2005 sales declined 8 percent, versus the comparable period in 2004, reflecting slower growth in the overall erectile-dysfunction (ED) market and competition from other products. Viagra continues to lead the ED market and is capturing six out of ten new prescriptions for ED in the U.S. through November 2005 year-to-date. Pfizer is supporting consumer ED education with the recent launch of a new unbranded educational campaign in the U.S.
Rich Pipeline of New Medicines Continues to Advance
"We continue to make excellent progress toward our goal of filing 20 major new medicines in the U.S. in the five-year period ending in 2006," said Dr. John LaMattina, President of Pfizer Global Research and Development.
In addition to the seven products launched in 2004 and 2005, six additional products are under review by the FDA. Priority review has been granted for three of these -- Sutent (sunitinib), Champix (varenicline), and Eraxis (anidulafungin).
* Sutent is an oral agent with anti-angiogenic and anti-tumor activity that may offer significant advantage to physicians treating patients with metastatic renal cell carcinoma and Gleevec-resistant gastrointestinal stromal tumors. * Champix, a novel partial nicotinic agonist for smoking cessation, has been shown to be more effective than the only other oral anti-smoking prescription medicine. * In a recent study, the antifungal agent Eraxis has shown significant benefit over fluconazole in the treatment of candidemia and invasive candidiasis and has received an approvable letter from the FDA for esophageal candidiasis. Three other products are currently under review by the FDA: * Exubera, the inhaled insulin drug for type 1 and type 2 diabetes, represents the first non-injectable form of insulin available for diabetics. It has been recommended for approval by the FDA advisory committee and for marketing authorization by the Committee for Medicinal Products in Europe. Pfizer has reached an agreement to acquire sanofi- aventis's share of worldwide rights to Exubera, as well as the insulin production facilities located in Frankfurt previously jointly owned by the two companies. * Indiplon is filed for two NDAs for the treatment of adult insomnia, in immediate-release and modified-release formulations. * We have received an approvable letter from the FDA for Zeven (dalbavancin), a once-weekly intravenous antibiotic for the treatment of complicated skin and skin-structure infections caused by Gram- positive bacteria, including methicillin-resistant Staphylococcus aureus. This is Pfizer's second major product filing resulting from the recent acquisition of Vicuron.
"And we reached several important milestones during the fourth quarter in our ongoing efforts to bring new innovative therapies to patients around the world," said Dr. LaMattina.
Ticilimumab (CP-675,206), an anti-CTLA4 receptor antagonist, began Phase 3 testing in December. The compound is a monoclonal antibody and another addition in Pfizer's growing pipeline of large-molecule biologics. Ticilimumab may offer an important new option for treating metastatic melanoma, which has a five-year survival rate of less than 10 percent.
In 2005, Pfizer extended our long history of successful alliances and acquisitions with a series of agreements with Angiosyn, BioRen, Coley, Idun, Incyte, Renovis, Rigel, and Vicuron, several of which are already demonstrating strong results. In the fourth quarter of 2005, Pfizer began two Phase 3 trials for non-small-cell lung cancer using a novel anti-cancer agent PF-3512676 (formerly CpG 7909), licensed from Coley Pharmaceutical Group. Based on Phase 2 survival data, this compound may offer a significant advancement over current therapies in treating non-small-cell lung cancer.
Pfizer also entered a global collaborative research and licensing agreement with Incyte Corporation in the fourth quarter of 2005, giving us exclusive worldwide development and commercialization rights to a portfolio of CCR2 antagonist compounds for the potential treatment of inflammation. The most advanced compound is currently in Phase 2a studies in rheumatoid arthritis and insulin-resistant obese patients.
Leveraging Financial Strength
"Pfizer is undertaking a series of actions to employ the company's strong positive cash flow for the short- and long-term benefit of shareholders," said David Shedlarz, vice chairman. "Given the strength of our operations, in December 2005 we increased our dividend for the first quarter of 2006 by 26 percent to 24 cents per share, while continuing to invest for long-term growth. With this increase, Pfizer will have increased dividends every year for 39 consecutive years. In 2005, we repatriated nearly $37 billion in foreign earnings, which Pfizer is using to enhance its balance sheet and invest in business opportunities. In addition, the company purchased nearly $4 billion in common stock in 2005, and it will continue to buy back its stock in 2006. Pfizer's sterling triple-A credit rating was also reaffirmed by Standard & Poor's and Moody's.
"With these and other actions, we are demonstrating to shareholders our commitment to work to enhance the value of their investment in Pfizer," Mr. Shedlarz concluded.
"Pfizer's earnings performance in the fourth quarter reflected operational flexibility, exceeding the estimate we announced in October 2005 for a number of reasons," said Alan Levin, senior vice president and chief financial officer. "Human Health revenues were stronger than previously forecast, reflecting an unexpected two-week delay in the introduction of azithromycin (Zithromax) generics in the U.S., strong early market acceptance of Lyrica, and better-than-anticipated performance in certain key markets (Japan and Germany) and in certain key products (Zyrtec and Norvasc). The fourth quarter of 2005 had four fewer business days than the fourth quarter of 2004; this is reflected in more tempered revenues and operating expenditures for the quarter. Full-year 2005 figures reflect a comparable number of days to 2004.
"Cost of sales for the quarter remained under pressure, although the impact of changes in the geographic, product, and segment mix of our products was partially mitigated by the favorable impact of foreign exchange during the quarter. The modest rate of growth in Selling, Informational and administrative expenses and the decline in Research and Development expenditures is due in part to greater savings associated with our Adapting to Scale (AtS) initiative. For the full year, AtS savings of approximately $800 million were realized, double our original goal for the year. We also achieved approximately $4.2 billion in synergies through 2005 in connection with our acquisition and integration of Pharmacia Corporation.
"Relative to prior expectations, fourth-quarter and full-year reported net income and diluted EPS reflect our enhanced operating performance during the quarter, partially offset by higher AtS implementation costs," Mr. Levin concluded.
Pfizer Continues Aggressive Defense of Intellectual Property
With Important Lipitor, Norvasc Victories
In December 2005, Pfizer prevailed in a U.S. court decision involving a patent challenge to Lipitor, the world's most popular cholesterol-lowering medicine. The U.S. District Court for the District of Delaware determined that two U.S. patents covering atorvastatin, the active ingredient in Lipitor, are valid and infringed by the product of generic manufacturer Ranbaxy Labs LTD (Ranbaxy), thus protecting Lipitor's exclusivity until June 2011.
The U.S. decision marked one more major victory over Ranbaxy, which is using legal challenges in an attempt to overturn Pfizer's atorvastatin patents in the U.S. and many other markets. In October 2005, the United Kingdom's High Court upheld the exclusivity of the basic patent covering atorvastatin. The ruling prohibits Ranbaxy from introducing a generic version of atorvastatin in the U.K. until the patent expires in November 2011. Both the U.S. and U.K. decisions have been appealed.
"Lipitor represents nothing less than one of the most important medical breakthroughs from pharmaceutical research, and the courts are sending a clear message that the legal system should support and encourage this kind of innovation," said Jeffrey Kindler, vice chairman and general counsel. "We continue to believe that policymakers should examine a system in which generic companies can take as many 'shots on goal' as they wish, employing lawyers, not medical researchers, around the world to undermine confidence in research- based companies and the jobs they support. Our only course is to aggressively defend our patents and stand for principles we believe in, on behalf of the patients we serve and the future of medical innovation."
In a separate case, Pfizer announced yesterday that the U.S. District Court for the Northern District of Illinois upheld Pfizer's U.S. patent covering amlodipine besylate, the active ingredient in Norvasc, which had been challenged by the generic manufacturer Apotex.
Disaster Relief Efforts, Access Initiatives Highlight Corporate Citizenship
Pfizer continues to make progress in its initiatives to expand access to medicines and healthcare resources and to demonstrate excellence in corporate citizenship.
During 2005, the company made substantial contributions to the relief and recovery efforts in response to an unprecedented series of natural disasters, including the Asian tsunami, Hurricanes Katrina and Rita in the U.S. Gulf States, and the earthquake that struck Pakistan and India. In partnership with relief organizations and local authorities in the affected regions, Pfizer and its colleagues donated funds, medicines, and healthcare supplies and supported the rebuilding of critical healthcare infrastructure.
The company also advanced healthcare programs and partnerships in the developing world during 2005, including a program to train medical professionals across Africa in diagnosis and management of patients with HIV, malaria, and tuberculosis; a multi-country initiative to eliminate trachoma, the world's leading cause of preventable blindness; and a program in 42 developing countries to train healthcare providers in the treatment of opportunistic infections associated with HIV/AIDS.
Pfizer Changing to Meet Changing Times
"While 2005 was one of the most difficult years in memory, it ended well," Dr. McKinnell concluded. "2005 will be seen as a pivotal year in Pfizer's history -- the last year of the old Pfizer. We are once again doing what every generation of Pfizer colleagues has had to do since the late 1800s -- change our company to meet changing times."
For additional details, please see the attached financial schedules, product revenue tables, supplemental financial information, and Disclosure Notice.
(1) "Adjusted income" and "adjusted diluted earnings per share (EPS)" are defined as reported net income and reported diluted EPS, excluding discontinued operations, cumulative effect of a change in accounting principles, purchase accounting adjustments, merger- related costs, and certain significant items. As described under Adjusted Income in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Form 10-Q for the quarterly period ended October 2, 2005, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. A reconciliation to reported net income and reported diluted EPS is provided in the table accompanying this report. The adjusted income and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and diluted EPS. (2) Human Health adjusted revenues are defined as total Human Health revenues excluding the revenues of selective COX-2 inhibitors and major products that have lost exclusivity in the U.S. since the beginning of 2004. See the table accompanying this report. PFIZER INC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (millions of dollars, except per common share data) Fourth Quarter %Incr./ Full Year %Incr./ 2005 2004 (Decr.) 2005 2004 (Decr.) Revenues $13,592 $14,924 (9) $51,298 $52,516 (2) Costs and expenses: Cost of sales 2,346 2,356 - 8,525 7,541 13 Selling, informational and administrative expenses 4,755 4,676 2 16,997 16,903 1 Research and development expenses 2,020 2,328 (13) 7,442 7,684 (3) Amortization of intangible assets 833 868 (4) 3,409 3,364 1 Merger-related in- process research and development charges - 116 * 1,652 1,071 54 Restructuring charges and merger- related costs 596 467 28 1,392 1,193 17 Other (income)/deductions --net (323) 614 * 347 753 (54) Income from continuing operations before provision for taxes on income, minority interests and cumulative effect of a change in accounting principles 3,365 3,499 (4) 11,534 14,007 (18) Provision for taxes on income 610 625 (2) 3,424 2,665 28 Minority interests 7 3 121 16 10 59 Income from continuing operations before cumulative effect of a change in accounting principles 2,748 2,871 (4) 8,094 11,332 (29) Discontinued operations: Income/(loss) from discontinued operations--net of tax 6 (49) * (31) (22) 42 Gains on sales of discontinued operations--net of tax 3 3 - 47 51 (8) Discontinued operations--net of tax 9 (46) * 16 29 (45) Income before cumulative effect of a change in accounting principles 2,757 2,825 (2) 8,110 11,361 (29) Cumulative effect of a change in accounting principles--net of tax (25) - * (25) - * Net income $2,732 $2,825 (3) $8,085 $11,361 (29) Earnings per common share - Basic: Income from continuing operations before cumulative effect of a change in accounting principles $0.37 $0.39 (5) $1.10 $1.51 (27) Discontinued operations -- net of tax - (0.01) * - - * Income before cumulative effect of a change in accounting principles 0.37 0.38 (3) 1.10 1.51 (27) Cumulative effect of a change in accounting principles -- net of tax - - * - - * Net income $0.37 $0.38 (3) $1.10 $1.51 (27) Earnings per common share - Diluted: Income from continuing operations before cumulative effect of a change in accounting principles $0.37 $0.39 (5) $1.09 $1.49 (27) Discontinued operations -- net of tax - (0.01) * - - * Income before cumulative effect of a change in accounting principles 0.37 0.38 (3) 1.09 1.49 (27) Cumulative effect of a change in accounting principles--net of tax - - * - - * Net income $0.37 $0.38 (3) $1.09 $1.49 (27) Weighted-average shares used to calculate earnings per common share: Basic 7,327 7,461 7,361 7,531 Diluted 7,368 7,511 7,411 7,614 * Calculation not meaningful. Certain amounts and percentages may reflect rounding adjustments. (1) The above financial statement presents the three-month and twelve- month periods ended December 31 of each year. Subsidiaries operating outside the United States are included for the three-month and twelve- month periods ended November 30 of each year. (2) As required, the estimated value of Merger-related in-process research and development charges (IPR&D) is expensed at acquisition date. In 2005, we expensed $1.7 billion of IPR&D, of which $1.4 billion related to our acquisition of Vicuron Pharmaceuticals, Inc. in the third quarter and $250 million related to our acquisition of Idun Pharmaceuticals, Inc. in the second quarter. In 2004, we expensed $1.1 billion of IPR&D, of which $920 million related to our acquisition of Esperion Therapeutics, Inc. in the first quarter. (3) Other (income)/deductions -- net in the fourth quarter of 2004 includes a charge of $691 million in connection with an intangible asset impairment related to Depo-Provera. Other (income)/deductions -- net in 2005 includes an impairment charge of $1.2 billion related to the developed technology rights and the write-off of machinery and equipment for Bextra, a selective COX-2 inhibitor. Other (income)/deductions -- net in 2004 includes a charge of $691 million in connection with an intangible asset impairment related to Depo-Provera and $369 million in connection with certain litigation- related charges. (4) Provision for taxes on income in 2005 includes tax benefits associated with the resolution of certain tax positions ($586 million) and taxes on the repatriation of foreign earnings ($1.7 billion). (5) In December 2005, we adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47), a new accounting interpretation issued in March 2005. As a result, we recorded a non-cash pre-tax charge of $40 million ($25 million, net of tax) for costs associated with the eventual retirement of certain facilities. This charge is reported as a one-time cumulative effect of a change in accounting principle in the fourth quarter of 2005. PFIZER INC AND SUBSIDIARY COMPANIES RECONCILIATION FROM REPORTED NET INCOME AND REPORTED DILUTED EARNINGS PER SHARE TO ADJUSTED INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (UNAUDITED) (millions of dollars, except per common share data) Fourth Quarter %Incr./ Full Year %Incr./ 2005 2004 (Decr.) 2005 2004 (Decr.) Reported net income $2,732 $2,825 (3) $8,085 $11,361 (29) Purchase accounting adjustments -- net of tax 572 831 (31) 3,973 3,389 17 Merger-related costs -- net of tax 227 323 (30) 624 786 (21) Discontinued operations -- net of tax (9) 46 * (16) (29) (45) Cumulative effect of a change in accounting principles -- net of tax 25 - * 25 - * Certain significant items -- net of tax 218 360 (39) 2,310 629 268 Adjusted income $3,765 $4,385 (14) $15,001 $16,136 (7) Reported diluted earnings per common share $0.37 $0.38 (3) $1.09 $1.49 (27) Purchase accounting adjustments -- net of tax 0.08 0.10 (20) 0.54 0.45 20 Merger-related costs -- net of tax 0.03 0.04 (25) 0.08 0.10 (20) Discontinued operations -- net of tax - 0.01 * - - * Cumulative effect of a change in accounting principles -- net of tax - - * - - * Certain significant items -- net of tax 0.03 0.05 (40) 0.31 0.08 288 Adjusted diluted earnings per common share $0.51 $0.58 (12) $2.02 $2.12 (5) * Calculation not meaningful. Certain amounts and percentages may reflect rounding adjustments. (1) The above reconciliation presents the three-month and twelve-month periods ended December 31 of each year. Subsidiaries operating outside the United States are included for the three-month and twelve-month periods ended November 30 of each year. (2) Adjusted Income and Adjusted diluted earnings per common share as shown above reflect the following items: (millions of dollars) Fourth Quarter Full Year 2005 2004 2005 2004 Purchase accounting adjustments, pre-tax: In-process research and development charges (a) $- $116 $1,652 $1,071 Intangible amortization and other (b) 805 835 3,295 3,285 Sale of acquired inventory written up to fair value (c) - 40 4 40 Total purchase accounting adjustments, pre-tax 805 991 4,951 4,396 Income taxes (233) (160) (978) (1,007) Total purchase accounting adjustments -- net of tax 572 831 3,973 3,389 Merger-related costs, pre-tax: Integration costs (d) 160 129 550 496 Restructuring costs (d) 161 338 393 697 Total merger-related costs, pre-tax 321 467 943 1,193 Income taxes (94) (144) (319) (407) Total merger-related costs -- net of tax 227 323 624 786 Discontinued operations, pre-tax: (Gain)/loss from discontinued operations (e) (11) 81 33 39 Gains on sales of discontinued operations (e) (5) (7) (77) (75) Total discontinued operations, pre-tax (16)