NEW YORK, July 20 /PRNewswire-FirstCall/ -- Pfizer posted strong second- quarter 2006 financial results, driven by higher sales of both in-line and new products.
"We achieved strong operating performance in the face of increased generic competition and revenue losses due to patent expirations," said Hank McKinnell, chairman and chief executive officer. "Our latest results show that we are consistently and successfully meeting the challenges we face, in particular offsetting loss of exclusivity for several of our products with solid growth from in-line and new products.
"We said in the beginning of the year that 2006 would be the year when we begin to substantially offset loss of revenue due to patent expirations with growth from in-line and new products. We understood the scope of the challenges we were facing, and we realized that we had set ambitious revenue targets for the full year for some of our key products, in particular Lipitor and Celebrex. We said we expected a return to revenue and adjusted diluted EPS(1) growth in 2007 and beyond. I'm pleased to report that we are making substantial progress in creating the next-generation Pfizer.
"Our second-quarter 2006 performance is quite encouraging. Lipitor, the largest-selling medicine in the world, achieved 9-percent revenue growth in a very dynamic market, as we continued to demonstrate the medical and economic benefits of Lipitor derived from its excellent efficacy and safety profile. Celebrex, Geodon, and six other major in-line products each delivered double-digit revenue growth in the quarter. Particularly impressive was the robust performance of two of our new products, Lyrica and Sutent, evidencing their rapid acceptance by physicians and patients.
"Second-quarter 2006 performance exceeded our expectations. Our outlook for the full year has similarly improved. Previously we had projected full-year 2006 adjusted diluted EPS(1) for Pfizer Inc of about $2.00, which, after reclassifying earnings from our Consumer Healthcare business to Discontinued Operations, is now equivalent to about $1.93. We now estimate that even with the sale of the Consumer business and notwithstanding the dynamics of our operating environment, we will achieve our previous expectation, in effect about a seven-cent improvement in our projected full-year adjusted diluted EPS(1). At current exchange rates, we continue to target a return to revenue growth in 2007 and average annual growth in adjusted diluted EPS(1) over 2007 and 2008 in the high single digits.
"During this transition period, we have taken a number of important measures to enhance shareholder value. The recent agreement to sell our Consumer Healthcare business is one more component of that overall strategy. This divestiture will help us to focus on what we do best -- discovering and developing innovative medicines. We see enormous potential in healthcare as a growth industry in the long term. A large amount of our projected cash flow, including the proceeds from the sale of the Consumer Healthcare business, has been earmarked for investment in business-development opportunities, further bolstering the enormous resources we are bringing to bear on our core business.
"We have a broad presence in the healthcare industry, with important medicines in many major therapeutic areas. We continue to look for the most innovative products to fill gaps in our portfolio. In the last 12 months alone, we have signed agreements with nine companies to license or acquire late- and early-stage candidates or technologies to find treatments for diseases ranging from diabetes and infection to ophthalmic disorders and diseases of the central nervous system. We plan to step up our business- development activities with targeted acquisitions to supplement the strong pipeline of products we already have.
"Pfizer is losing about one third of its Human Health revenue due to patent expirations between 2004 and 2008. Many companies could not survive such a profound loss of revenue. The strong performance of our in-line product portfolio and the large potential of our new-product pipeline demonstrate our ability to generate substantial new revenues to create the next-generation Pfizer," Dr. McKinnell said.
Human Health Reports Double-Digit Revenue Growth in Many Key Products, Growing
Momentum in New Products
Commenting on second-quarter 2006 performance, Karen Katen, vice chairman of Pfizer and president, Pfizer Human Health, said, "This is a year when performance requires strategic balance and operational execution, and I am pleased to report that things are going well. Performances of many of our in-line products are impressive, and the newest products are delivering robust revenue growth, offsetting ongoing revenue declines due to patent expirations."
Ms. Katen attributed the second-quarter 2006 performance to a number of factors. "We realigned our Human Health business along therapeutic areas last year, and we are beginning to see the benefits. Since the reorganization of our U.S. field force, we are seeing renewed focus, enthusiasm, and activity. We have devoted significant attention to operational excellence, and this helps our performance when our products are already supported by vast amounts of clinical data establishing their efficacy and safety."
Impact on Human Total Health Human Health 2Q06 2Q06/2Q05 ($ billions, except % growth) Revenues % Growth In-Line Products(2) and New Products(2) $10.003 +8% Loss-of-Exclusivity Products and Bextra (Withdrawn)(2) 1.191 (3%) Impact of Foreign Exchange (.195) (2%) Total Human Health Revenues $10.999 +3%
Worldwide Human Health revenues for the second quarter of 2006 were $11.0 billion, an increase of 3 percent compared to the second quarter of 2005. In the U.S., Human Health revenues were $5.8 billion, an increase of 7 percent. Excluding the revenues of major medicines that have lost exclusivity in the U.S. since 2004 as well as the revenues of Bextra, which we voluntarily withdrew in 2005, Human Health adjusted revenues(3) grew 7 percent worldwide and 13 percent in the U.S. for the second quarter of 2006 compared to the same period in 2005. In addition, the unfavorable impact of foreign exchange on Human Health revenues was $195 million, or 2 percent. Excluding the impact of foreign exchange, Human Health adjusted revenues(3) increased 9 percent worldwide.
Worldwide sales of Lipitor in the second quarter rose 9 percent to $3.1 billion, reflecting solid growth in Europe/Canada and double-digit increases in Asia. In the U.S., sales reached $1.9 billion, representing 11-percent growth over the same period last year.
"We are targeting Lipitor sales of about $13 billion this year, a stretch goal in light of the recent introduction of generic simvastatin in the U.S. as well as other competitive pressures. While our Lipitor sales target remains ambitious," said Ms. Katen, "we believe we can achieve it. We have a strong clinical platform that clearly differentiates Lipitor from all other agents."
Most recently, data from the Stroke Prevention by Aggressive Reduction in Cholesterol Levels (SPARCL) clinical trial in stroke prevention were presented at the European Stroke Congress in Brussels, with publication pending in a major medical journal. Based on evolving clinical evidence, including landmark Lipitor studies (ASCOT-LLA, TNT, and IDEAL), the American Heart Association and the American College of Cardiology now state that it is reasonable to bring LDL-cholesterol levels to below 70 mg/dL for very high- risk patients, levels that Lipitor has been proven to achieve within a favorable safety profile along with providing incremental cardiovascular benefits for patients. In addition, a pre-specified pharmacoeconomic analysis of the IDEAL study showed that one out of every six heart attacks, strokes, or cardiovascular procedures could be avoided for heart-disease patients treated with intensive Lipitor therapy (80 mg) instead of standard doses of Zocor (20- 40 mg). These data make a compelling case for looking at the value of Lipitor in a way that transcends pill-to-pill cost comparisons with generic statins.
"We are working with our customers -- payers, healthcare providers, and patients themselves -- to ensure patients get the best medicine and have broad access to Lipitor. We live with market realities on a daily basis, and patients are very much our focus," said Ms. Katen.
Celebrex worldwide sales reached $471 million in the second quarter of 2006, representing growth of 17 percent over the same period last year. Sales in the U.S. reached $355 million for the second quarter, with 16-percent growth. We continue to expect full-year Celebrex revenues of at least $2 billion, an ambitious target given the ongoing pressures in the arthritis market.
Worldwide sales of Geodon increased 14 percent in the quarter to $165 million, driven by the better understanding by clinicians of its efficacy, increased benefits from optimal dosing, and favorable metabolic profile. We continue to expect full-year Geodon revenues of about $800 million.
Ms. Katen said that the performance of new products in the second quarter of 2006 is demonstrating the company's success in creating the foundation for Pfizer's next-generation portfolio. "The performances of many of our new products exceeded expectations," she said.
For example, Lyrica worldwide sales reached $271 million in the second quarter of 2006, reflecting strong market acceptance by physicians and patients since its initial launch nearly two years ago. In the U.S., Lyrica had $172 million in revenues for the second quarter of 2006. The product is on track to exceed its original revenue target, with worldwide revenues now expected to be more than $1 billion in 2006.
Lyrica continues to perform strongly in markets around the world, with a 13-percent share of total anti-epileptic-drug sales in Europe as of April 2006 (IMS). In the U.S., Lyrica performance has been robust, with new prescriptions continuing to grow steadily through the second quarter of 2006 to reach a 9.8-percent share of the total anti-epileptic drug market in June 2006 (IMS). Lyrica also holds around 30 percent of new prescriptions within the U.S. market for diabetic peripheral neuropathy and post-herpetic neuralgia as of May 2006, and contributed significantly to the approximately 30-percent growth of this market since the Lyrica launch.
During the first half of 2006, Pfizer's oncology portfolio achieved robust growth in the U.S., driven by the successful introduction of Sutent in January 2006. Early market acceptance for Sutent in the U.S. has been strong based on its compelling clinical value, with more than 6,000 patients already prescribed Sutent in the five months following its approval. Sutent has received accelerated regulatory reviews and earlier-than-anticipated approvals or registration in several countries in Asia and Latin America and is expected to launch in many more markets worldwide over the coming months.
Pfizer has launched or will launch three new products this summer in the U.S. -- Eraxis, Exubera, and Chantix.
Eraxis, an antifungal agent for candidemia and other forms of Candida infections as well as esophageal candidiasis, was made available to patients in mid-June 2006. Eraxis is an important addition to Pfizer's array of anti- infective agents.
Exubera, one of the most significant innovations in insulin delivery since the introduction of insulin 85 years ago, represents a profound medical advance that offers patients a novel method of introducing insulin into their systems via the lungs. Long-term efficacy and safety data in both type 1 and type 2 diabetes support Exubera as a valuable new option that, when used as directed, could lead to better blood glucose control and potentially reduce the debilitating and costly complications associated with the disease. Exubera was launched in Germany and Ireland in May 2006.
In the U.S., the comprehensive physician and patient education and training program for this landmark innovation in diabetes treatment will begin on July 24, 2006, and will be rolled out in phases. This will include training and demonstration of the proper use of the insulin delivery device and drug for physicians, diabetes educators, and other healthcare professionals. To further support patients and healthcare professionals in the treatment of diabetes and the appropriate use of Exubera, Pfizer is also providing a 24-hour-a-day, 7-day-a-week call center staffed by healthcare professionals.
The manufacturing process for Exubera is extremely complex, and working at production capacity at its manufacturing facilities, Pfizer continues to build inventory. "Our education programs and manufacturing preparations are time- consuming, but we are taking the time necessary to do the job right," said Ms. Katen. "We are working to meet not only initial demand for the medicine, but also continued demand from prescription refills. Earlier this week, we held our nationwide launch meeting with our field force. Initial supplies of Exubera will be available across the U.S. beginning in September."
Chantix, the first new prescription treatment for smoking cessation in nearly a decade, will become available to patients in the U.S. in early August 2006, following accelerated review by the FDA. Chantix will be distributed with a comprehensive patient-support program designed to help address the behavioral components of smoking dependence, including personalized on-line and telephone interactions to support smokers through their efforts to quit. Clinical studies show that Chantix significantly increases the likelihood that smokers will quit, compared with the most commonly used prescription medication and placebo.
On June 21, 2006, Pfizer received an FDA approvable letter for Zeven (dalbavancin). Pfizer is working with the FDA to resolve an open issue with the CMC (Chemistry, Manufacturing, and Controls) section of the New Drug Application that was filed by Vicuron Pharmaceuticals. We now expect approval and launch of Zeven in 2007.
Rich Pipeline Continues to Advance
"As part of our ongoing efforts to bring innovative new medicines to patients around the world, we achieved some significant milestones during the second quarter of 2006," commented Dr. John LaMattina, president of Pfizer Global Research and Development.
In addition to the four new products already approved this year, Pfizer is on track to expand its portfolio with additional new filings and advancement of late-stage compounds. These include fesoterodine, a new drug candidate for treating overactive bladder, which is under review by both the FDA and the European Medicines Evaluation Agency. Pfizer recently completed the acquisition of worldwide rights to fesoterodine from Schwarz Pharma AG. Fesoterodine is expected to provide an additional choice for managing the symptoms of overactive bladder, a debilitating condition that affects up to 100 million people around the world.
Maraviroc is an HIV entry inhibitor that selectively binds to the CCR5 receptor -- the primary gateway that HIV uses to enter uninfected cells. Clinical trials in both antiretroviral-naïve and antiretroviral-experienced patients are ongoing, and we continue to target an NDA submission in treatment-experienced patients by year-end 2006.
Work continues on the $800 million clinical development program for torcetrapib/atorvastatin. We anticipate completion of three ongoing imaging trials by the end of this year. Assuming that we see the expected improvements over the comparative agent -- Lipitor -- in these imaging studies, we will file the torcetrapib/atorvastatin NDA in 2007. The clinical program also includes a comprehensive array of lipid-effect studies to better understand the CETP mechanism and its impact on HDL-cholesterol function, and a traditional morbidity and mortality study.
Pfizer has also entered into an agreement to acquire exclusive worldwide rights to Bayer Pharmaceutical's DGAT-1 inhibitors, an innovative class of compounds that modify lipid metabolism. The lead compound in the class, BAY 74-4113, is a potential treatment for obesity, type 2 diabetes, and other related disorders. The compound is currently in Phase 1 clinical development.
The integration of Rinat Neuroscience Corp., Pfizer's latest biologics acquisition, is proceeding rapidly. Development projects include RN1219, a humanized monoclonal antibody for Alzheimer's disease, and RN624, a monoclonal antibody for chronic pain that inhibits binding to nerve growth factor.
More than 100 studies from Pfizer's extensive oncology portfolio were presented at the 2006 American Society of Clinical Oncology meeting in June. Data were highlighted on several oncology products in the pipeline, including two immunotherapy agents, CP-675,206, an anti-CTLA4 monoclonal antibody in Phase 3 testing for metastatic melanoma, and CP-870,893, a CD40-agonist monoclonal antibody. Both of these pipeline compounds work through enhancing the immune system to better fight tumor cells. Other pipeline agents presented during the meeting include axitinib (AG-13,736), a novel oral anti-angiogenesis inhibitor, and CP-751,871, a monoclonal antibody that blocks the insulin-like growth-factor 1 receptor and is being studied in multiple myeloma and other forms of cancer.
"We continue to pursue new opportunities for growth," Dr. LaMattina said. "Our goal is to complement Pfizer's internal research and development efforts with high-potential, externally sourced product candidates and technologies. We have a very strong presence in many major therapeutic areas, but there are gaps in our portfolio that we are looking to fill. A new area where we are expanding aggressively is in biologics, large-molecule approaches to treating disease where small molecules are not available or effective."
In just the past twelve months, Pfizer has acquired one recently launched product (Eraxis) and one late-stage product candidate (Zeven) through the acquisition of Vicuron Pharmaceuticals, obtained full worldwide rights including patent rights and production technology to manufacture and sell Exubera from sanofi-aventis, obtained worldwide rights to fesoterodine from Schwarz Pharma, acquired Rinat Neuroscience Corp. with several new central- nervous-system product candidates, acquired Bioren with its unique capabilities in discovery of monoclonal antibodies, and reached agreement to acquire several compounds for treatment of obesity and diabetes from Bayer. We have also entered into promising research collaborations with NicOx S.A. in ophthalmic disorders, NOXXON Pharma AG in obesity, and Incyte for CCR2 antagonists for use in a broad range of diseases.
Increasing Shareholder Value Now and For the Long Term
David Shedlarz, vice chairman, noted that the strong second-quarter 2006 operational performance was complemented by ongoing initiatives on behalf of shareholders. "The Company continues to achieve strong cash flow from operations, which is expected to exceed $16 billion in 2006. At the same time, we are taking significant steps to enhance Pfizer's financial flexibility to successfully unlock shareholder value, such as our agreement to sell the Pfizer Consumer Healthcare (PCH) business to Johnson & Johnson for $16.6 billion.
"Pfizer's strong projected cash flow from continuing operations over the next 30 months and the expected after-tax proceeds from the PCH sale of about $13.5 billion will together amount to approximately $34 billion, after capital expenditures and dividends. We will use those resources to focus on our key strategies. Our highest priority will be to acquire products and technologies that will drive long-term growth of the business. Pfizer has allocated over $17 billion over the next 30 months for such acquisitions. We will deploy our vastly enhanced financial resources to respond to the fast-changing healthcare market, where our future depends not only on discovering and developing new medicines, but also on how we communicate and reach out to physicians and patients to ensure their access to our products, and on providing treatment solutions -- from enhanced diagnosis through treatment to behavioral support programs for patients.
"At the same time, we will work to improve shareholder returns through actions such as our recently expanded share-purchase program of up to $17 billion in 2006 and 2007. We strongly believe that the purchase of our stock is a compelling investment opportunity. We expect to purchase up to $7 billion of the Company's stock in 2006 and up to an additional $10 billion in 2007.
"Pfizer continues to improve its profitability through cost reductions and the Company's broad-based Adapting to Scale (AtS) productivity initiative. AtS cost savings in the second quarter of 2006 approximated $500 million. We continue to expect cost savings in excess of $2 billion for full-year 2006, rising to about $4 billion in 2008, notwithstanding the prospective divestiture of Pfizer Consumer Healthcare," Mr. Shedlarz concluded.
In reviewing second-quarter 2006 results and the full-year forecast, Alan Levin, chief financial officer, said, "This quarter's results reflect a solid operating performance with robust revenue growth of many key in-line and new products, further leveraged by tempered operating expenses in adjusted income(1). Second-quarter and year-to-date results benefited as well from a number of seasonalization factors, including the impact of production variances and geographic mix on cost of sales, the timing of promotional expenditures for new-product launches and of expenditures for research and development programs, as well as the effective tax rate. In the second half of 2006, some of these factors are expected to reverse direction: We anticipate higher operating expenses during the next six months. And our effective tax rate on adjusted income(1), which for the full year is expected to be 22.5 percent, reflects a higher rate in the second half of 2006 compared to the first half of 2006, when we benefited from certain favorable changes in the tax law.
"Reported diluted EPS of $.33 for the second quarter of 2006 declined relative to the second quarter of 2005, reflecting approximately $1.1 billion ($.15 per share) in prior-year, nonrecurring tax adjustments, which were composed of a reduction in the tax provision related to the repatriation of foreign earnings resulting from revised U.S. Treasury guidance, as well as tax benefits in 2005 from the resolution of certain tax positions.
"Our full-year financial outlook for 2006 remains largely consistent with, or favorable to, the performance benchmarks we established at the beginning of the year, adjusting for the treatment of PCH as a discontinued operation. Of particular note are our expectations for 2006 adjusted diluted EPS(1). Our prior guidance of "about $2.00" is equivalent to about $1.93 of adjusted diluted EPS(1) after reclassifying earnings from PCH to Discontinued Operations. At current exchange rates, our current outlook for adjusted diluted EPS(1) (excluding PCH) is now about $2.00, an improvement of about $.07. This improved expectation reflects the strengthening of major foreign currencies relative to the U.S. dollar, reduced full-year expenses, and an increased level of share purchases. At current exchange rates, we are targeting achievement of our revenue goals for Lipitor, Celebrex, Geodon, and Lyrica and continue to expect 2006 aggregate revenues to be comparable to overall revenues in 2005. We continue to target a modest improvement in cost of sales as a percentage of revenues as a pre-tax component of adjusted income(1) this year. Also, primarily reflecting the reclassification of PCH results to Discontinued Operations, we now expect expenditures representing the R&D and SI&A pre-tax components of adjusted income(1) to approximate $7.6 billion and $15.4 billion, respectively. We now expect reported diluted EPS of about $1.60, excluding a substantial, prospective gain on the sale of PCH.
"At current exchange rates, we continue to target that revenue growth will resume in 2007 and that the average annual growth in adjusted diluted EPS(1) will be in the high single digits over 2007 and 2008. Of course, our guidance is subject to the cautionary factors cited in our accompanying Disclosure Notice, as well as those listed in our Form 10-K," Mr. Levin concluded.
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 purchase-accounting adjustments, merger-related costs, discontinued operations, 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 April 2, 2006, 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. Reconciliations of second-quarter, six- month, and forecasted full-year adjusted income and adjusted diluted EPS to reported net income and reported diluted EPS are provided in the materials 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) New Products is defined as second-quarter 2006 worldwide revenues (excluding the impact of foreign exchange) of products launched in 2004-06: Caduet, Eraxis, Exubera, Inspra, Lyrica, Macugen, Olmetec, Onsenal, Revatio, Sutent, and Zmax. Loss-of-Exclusivity Products and Bextra are defined as second-quarter 2006 worldwide revenues (excluding the impact of foreign exchange) of products that have lost U.S. exclusivity in 2004-06: Accupril/Accuretic, Diflucan, Neurontin, Zithromax, and Zoloft, and of Bextra, sales of which were suspended in 2005. In-Line Products is defined as second-quarter 2006 worldwide revenues (excluding the impact of foreign exchange) of all other Human Health products. (3) Human Health adjusted revenues are defined as total Human Health revenues excluding the revenues of major products that have lost exclusivity in the U.S. since the beginning of 2004 and the revenues of Bextra, which Pfizer voluntarily withdrew in 2005. See the table accompanying this report. PFIZER INC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (millions of dollars, except per common share data) Second Quarter % Incr./ Six Months % Incr./ 2006 2005 (Decr.) 2006 2005 (Decr.) Revenues $11,741 $11,452 3 $23,488 $23,595 - Costs and expenses: Cost of sales 1,790 1,762 2 3,461 3,639 (5) Selling, informational and administrative expenses 3,881 3,766 3 7,276 7,431 (2) Research and development expenses 1,742 1,830 5 3,285 3,547 (7) Amortization of intangible assets 823 856 (4) 1,648 1,736 (5) Merger-related in- process research and development charges 513 260 97 513 262 96 Restructuring charges and merger-related costs 268 264 2 567 480 18 Other (income)/deductions -- net (359) (198) 81 (615) 854 (172) Income from continuing operations before provision/(benefit) for taxes on income and minority interests 3,083 2,912 6 7,353 5,646 30 Provision/(benefit) for taxes on income 790 (464) * 1,052 2,111 (50) Minority interests 3 1 154 5 4 67 Income from continuing operations 2,290 3,375 (32) 6,296 3,531 78 Discontinued operations: Income from discontinued operations--net of tax 108 88 23 210 191 10 Gains on sales of discontinued operations -- net of tax 17 - * 20 41 (51) Discontinued operations -- net of tax 125 88 43 230 232 - Net income $2,415 $3,463 (30) $6,526 $3,763 73 Earnings per common share - Basic: Income from continuing operations $0.31 $0.46 (33) $0.86 $0.48 79 Discontinued operations -- net of tax 0.02 0.01 100 0.03 0.03 - Net income $0.33 $0.47 (30) $0.89 $0.51 75 Earnings per common share - Diluted: Income from continuing operations $0.31 $0.46 (33) $0.86 $0.48 79 Discontinued operations -- net of tax 0.02 0.01 100 0.03 0.03 - Net income $0.33 $0.47 (30) $0.89 $0.51 75 Weighted-average shares used to calculate earnings per common share: Basic 7,282 7,366 7,298 7,391 Diluted 7,305 7,418 7,330 7,445 * Calculation not meaningful. Certain amounts and percentages may reflect rounding adjustments. 1. The above financial statement presents the three-month and six-month periods ended July 2, 2006 and July 3, 2005. Subsidiaries operating outside the United States are included for the three-month and six- month periods ended May 28, 2006 and May 29, 2005. 2. In June 2006, we announced an agreement to sell our Consumer Healthcare business to Johnson & Johnson for approximately $16.6 billion. The above financial statement reflects this business as discontinued operations for all periods presented. 3. The financial results for the three-month and six-month periods ended July 2, 2006 are not necessarily indicative of the results which ultimately might be achieved for the current year. 4. As required, the estimated value of Merger-related in-process research and development charges (IPR&D) is expensed at acquisition date. In 2006, we expensed $513 million of IPR&D
