NEW YORK, Oct. 19 /PRNewswire-FirstCall/ -- Pfizer Inc today reported that revenue in the third quarter of 2006 increased 9 percent, reported diluted EPS grew 109 percent, and adjusted diluted EPS(1) grew 10 percent versus the comparable quarter in 2005.
Pfizer’s Chief Executive Officer Jeffrey B. Kindler said, “We had a solid quarter, with our in-line products performing well in a tough operating environment and many of our new products making important contributions as well. We will continue to be aggressive and focused in maximizing the performance of these products. We remain on track to meet our financial goals for the year.
“Looking ahead, we have great opportunities. There is enormous promise in the science and technology of pharmaceutical research. With an aging population expecting to live longer, healthier lives, there will be growing demand for our products and services. And we are excited about the prospects for our new products as well as those we intend to generate internally or obtain externally.
“At the same time, we continue to face a number of near-term challenges. We are navigating through the loss of exclusivity on several major products. Many of our products continue to face strong competition, including generics, in key markets. Our regulatory and pricing environments have created added challenges.
“And very recently, we have seen a strengthening of the U.S. dollar, as well as actions on access and pricing taken by influential decision makers in several large European markets. As a result, at current exchange rates we are now expecting revenues in 2007 and 2008 to be comparable to 2006, as compared to our previous forecast of modest revenue growth over the period.
“We recognize that the world around us is changing dramatically and that we need to accelerate the scope and speed of change to transform Pfizer. Since August, we have listened to our key constituencies inside and outside the company. The message we have received is quite clear: Pfizer needs to be realistic about its operating environment, embrace necessary changes and turn them to our advantage, for the benefit of our shareholders and everyone with a stake in our future.
“As a critical step in our transformation, we are taking a comprehensive look at our costs, and in 2007 we plan to implement a new company-wide cost- reduction initiative that will lower our cost base in 2007 and 2008, as well as give us greater flexibility to modulate our expenses in the face of changing market conditions. These savings will be over and above the $4 billion projected annual cost savings by 2008 from our Adapting to Scale (AtS) productivity initiative. These and other actions mean we expect to deliver average annual growth in adjusted diluted EPS(1) in high single digits over 2007-08. We will focus on enhancing total return to shareholders, and we will leverage our unsurpassed financial strength to enhance our dividend and buy back our stock. For 2009, we expect a return to revenue growth, as the impact of our major patent expirations recedes and the strong performance of a wide range of new products becomes much more prominent in the marketplace.
“Pfizer is a strong company with a bright future. We will continue to invest in a wide and promising range of opportunities for growth. Our pipeline of new products and new approaches to discovery and development, coupled with our strategy of acquiring attractive new products and technologies externally, promise to deliver strong and renewed growth opportunities over time. By moving quickly now to transform our company, we will enhance our competitive strength and put ourselves in the best possible position to capitalize on all the opportunities available to us.”
David L. Shedlarz, Vice Chairman, said, “We are leaving no stone unturned as we look hard at all aspects of our operations to become more flexible and agile. Our experience to date with Adapting to Scale (AtS) shows we are achieving our goals more quickly than anticipated. In fact, we expect savings from AtS this year of about $2.5 billion, $500 million ahead of guidance we provided earlier in the year. But given market conditions, we will now undertake a comprehensive transformation of how we invest in our business and manage our costs. It is important to note that, at current exchange rates, our new cost-reduction initiative will reduce 2007 operating expenses to a level below that in 2006, and further reduce 2008 operating expenses. Our goal is to create a more flexible cost structure, so that it will be easier and less disruptive to adjust expenditures in light of our circumstances and expectations.
“We will bring our costs in line while we continue to invest in growth opportunities. Advancing our promising new-product pipeline and capitalizing on new growth opportunities through licensing and acquisitions are critical to our future revenue growth.”
Mr. Shedlarz cited Pfizer’s recent transactions to illustrate the company’s growth strategy through external sourcing. “In the past five weeks alone, Pfizer made three major new investments -- licensing agreements with TransTech Pharma Inc. and Quark Biotech Inc. and an agreement to acquire PowderMed Ltd.,” Mr. Shedlarz said. “These are only the most recent of 18 major transactions executed during the past 22 months. And they are only the beginning, as we leverage our unmatched therapeutic breadth and seek out opportunities in new areas. However, as aggressively as we are pursuing these opportunities, we are also exercising financial discipline to ensure that every transaction offers a strong rate of return.
“While our business-development efforts will be exhaustive, they will take time to contribute to our top line. Meanwhile, we remain intensely focused on using our financial flexibility to enhance shareholder value. We expect to generate average annual growth in adjusted diluted EPS(1) in the high single digits over 2007-08. We expect to continue to pay a growing dividend, adding to our current record of 39 consecutive years of dividend growth. And we will purchase up to $10 billion of stock in 2007.
“Pfizer continues to have very strong operating cash flow -- more than $16 billion estimated in 2006 -- supplemented by expected cash proceeds, net of taxes, of about $13.5 billion from the pending divestiture of our Consumer Healthcare business,” said Mr. Shedlarz. “Our focus is to use this strong cash flow as efficiently and effectively as possible. Given our scale and outstanding financial and human resources, Pfizer is uniquely positioned to achieve several important goals: to pursue new opportunities for revenue growth both internally and externally, to create a more flexible and efficient organization and cost structure, and to continually enhance shareholder value.”
Worldwide Pharmaceutical Operations Sustaining Momentum
Worldwide pharmaceutical revenues for the third quarter of 2006 were $11.5 billion, an increase of 9 percent compared to the third quarter of 2005. Foreign exchange had a 1-percent favorable impact on revenue growth in the third quarter of 2006. Revenue also benefited from the one-time reversal of a sales deduction accrual related to a favorable development in a pricing dispute in the U.S. of about $170 million. Also in the U.S., wholesaler inventories increased by about two days compared to the level at the end of the second quarter of 2006, resulting in higher revenues across most product lines in the third quarter of 2006. Wholesaler inventory levels in the U.S. ended the third quarter of 2006 at normal levels comparable to those at the end of the third quarter of 2005. Collectively, these two items account for four percentage points of the 9-percent reported revenue growth, with the remaining 5-percent revenue growth driven by our in-line products and new products. The loss of U.S. exclusivity on a number of our major medicines since 2004 (Accupril/Accuretic, Diflucan, Neurontin, Zithromax, and Zoloft), as well as the impact of Bextra, which we voluntarily withdrew in 2005, continue to impact our reported revenue growth. In the third quarter of 2006, excluding the revenues of the major medicines that have lost U.S. exclusivity since 2004 and Bextra, our 9-percent reported revenue growth compared to prior year would be 17 percent.
In the U.S., pharmaceutical revenues were $6.4 billion, an increase of 14 percent. The aforementioned accrual reversal and wholesaler inventory factors represent eight percentage points of that growth. Excluding the revenue of major medicines that have lost U.S. exclusivity since 2004 as well as Bextra, U.S. pharmaceutical revenues grew 27 percent in the third quarter of 2006 compared to prior year, with the accrual reversal and wholesaler inventory items representing nine percentage points of that growth. The favorable U.S. performance in the third quarter of 2006 was driven in part by the continued success of Lyrica; the recent launches of Sutent and Chantix; and the strong performance of core in-line products.
Increasing Contribution of New Products
“We have continued our impressive schedule of product launches in 2006 with two additional innovative new medicines launched in the U.S. this quarter -- Chantix and Exubera,” said Ian Read, President of Worldwide Pharmaceutical Operations. “These products represent not only breakthrough science, but also new approaches to product introductions, with comprehensive physician- and patient-support programs ensuring that our customers receive the assistance they need to use our medicines effectively. New products(2) contributed approximately $450 million in incremental worldwide pharmaceutical revenues in the third quarter of 2006 and demonstrate our success in creating the foundation for Pfizer’s next-generation portfolio.”
Lyrica worldwide sales reached $340 million in the third quarter of 2006. Lyrica has achieved success in all markets where it has been launched, with patients and healthcare providers recognizing its outstanding benefits, including strong efficacy and a favorable safety profile. Lyrica is now approved in more than 60 countries and available to patients in more than 35 markets.
In September 2006, the European Commission approved Lyrica for use as a treatment in central neuropathic pain. This new approval broadens the current range of neuropathic-pain conditions that Lyrica is approved to treat in Europe to include nerve pain associated with conditions such as spinal-cord injury, stroke, and multiple sclerosis.
Exubera, one of the most significant innovations in insulin delivery, represents a medical advance that offers patients a novel method of introducing insulin into their systems through the lungs. Long-term efficacy and safety data in both type 1 and type 2 diabetes support Exubera as a valuable new option that delivers effective blood-glucose control and potentially reduces the debilitating and costly complications associated with the disease.
Since May 2006, Exubera has been launched in Germany, Ireland, the U.K., and, most recently, the U.S., where the Joslin Diabetes Clinic in Boston -- widely recognized as one of the pre-eminent diabetes and research organizations in the world -- has recognized Exubera in their diabetes treatment guidelines. Within the U.S., a comprehensive education and training program for physicians and patients is underway. To further support patients and healthcare professionals, Pfizer also provides a 24-hour-a-day, 7-day-a- week call center staffed by healthcare professionals. Similar programs are also in place in European markets where the product has been launched. An expanded roll-out of Exubera to primary-care physicians in the U.S., previously targeted for November 2006, will begin in January 2007.
Exubera’s innovative and complex manufacturing process requires highly automated, specially engineered Pfizer equipment. As in any large-scale manufacturing process utilizing advanced new technology, we have experienced typical scale-up issues that we have made significant progress in addressing. Over the next few months, we will continue our ramp-up of Exubera to provide sufficient supply for expanded demand based on the January 2007 roll-out.
Early market acceptance of Chantix (which will be called Champix outside the U.S.) has been very strong since its U.S. launch in August 2006, making it the leading product in the smoking-cessation prescription market in share and volume only four weeks post-launch. Pfizer’s growth strategy for Chantix focuses on expanding the underdeveloped prescription market for smoking- cessation products, while setting appropriate expectations regarding what success looks like for this medicine. We are educating physicians and positioning patients for success by addressing this addiction through both a pharmacological and behavior-modification approach.
In September 2006, the European Commission approved Champix. In Europe alone, more than 1.2 million people die each year from smoking-related diseases. As in the U.S., Champix will be offered in Europe with a behavioral support program that can be individually tailored to patients.
Sutent, a new treatment for metastatic renal-cell carcinoma and gastro- intestinal stromal tumors, has achieved strong early market acceptance in the U.S., with more than 7,500 patients having been prescribed the product since its approval earlier this year. Sutent was approved in the EU in July 2006 and has received earlier-than-anticipated approvals in several other countries in Asia and Latin America.
Driving Performance of Key In-Line Products
“We continue to focus our efforts on addressing the challenges from branded and generic agents in the statin market to maintain revenue growth for Lipitor, our top-selling product,” noted Mr. Read.
Worldwide sales of Lipitor in the third quarter of 2006 rose 15 percent, compared to the same quarter in 2005, to reach $3.3 billion, reflecting double-digit increases in the U.S. and Asia as well as solid growth in Europe and Canada. Sales in the U.S. reached $2.1 billion, an increase of 19 percent compared to the third quarter of 2005. This performance was driven by a combination of factors, including the impact of the new Medicare Modernization Act; dosage-form escalation; pricing; as well as other factors, including a favorable development in a pricing dispute in the U.S. and a return to normal wholesaler inventory levels. We continue to see aggressive competition from branded and generic agents, which will further intensify in the fourth quarter of 2006, particularly when additional generic agents become available in the U.S. near the end of the year. For 2007, we expect Lipitor revenues to grow, but at a lower rate than in 2006.
Pfizer is demonstrating the efficacy and safety value that Lipitor provides, including through consumer-education campaigns in the U.S. to promote awareness of its benefits. New branded and unbranded television advertisements, launched in the U.S. over the summer of 2006, extend our consumer-education efforts to promote awareness of the Lipitor value proposition. Additional print and electronic materials are available to educate consumers on the difference between Lipitor and generic alternatives.
As a result of our focused contracting efforts, approximately 70 percent of U.S. commercial contracted and Medicare Part D lives currently have unrestricted tier-two access to Lipitor. We are aggressively working to ensure that our formulary position in 2007 is consistent with our current position.
Worldwide sales of Celebrex reached $537 million in the third quarter of 2006, representing growth of 20 percent compared to the same period last year. Pfizer is continuing its efforts to address physicians’ and patients’ questions by clearly communicating the risks and benefits of Celebrex. In addition, the Prospective Randomized Evaluation of Celecoxib Integrated Safety vs. Ibuprofen or Naproxen (PRECISION) study, which began enrolling patients this month, will provide further understanding of the comparative cardiovascular safety of Celebrex and some common non-steroidal anti- inflammatory drugs in arthritis patients at risk for, or already suffering from, heart disease. In August 2006, Celebrex was granted pediatric exclusivity in the U.S., extending its patent protection until May 2014.
Mr. Read added, “Despite unprecedented market challenges for some of our key in-line brands, Pfizer is committed to achieving its full-year 2006 product revenue targets: Lipitor sales of about $13 billion, Celebrex sales of about $2 billion, Lyrica sales of more than $1 billion, and Geodon sales of about $800 million.
Pfizer to Discuss New-Product Pipeline in Detail at November 30 R&D Analyst Meeting
“In the third quarter of 2006, we achieved several significant milestones in the advancement of Pfizer’s new-product pipeline,” commented Dr. John LaMattina, president of Pfizer Global Research and Development. “In addition to approvals for Sutent and Champix in Europe, we made new regulatory filings there for Eraxis and for additional indications for Sutent and Spiriva Respimat.”
The American Heart Association has accepted for presentation at its annual meeting in November 2006 the torcetrapib/atorvastatin program’s study results in patients with heterozygous familial hypercholesterolemia. In this relatively uncommon condition, which is found in one of every 500 people in the general population and is characterized by high LDL-cholesterol levels, the study primarily investigated the drug’s lipid efficacy and safety in comparison to matching doses of Lipitor in 437 patients who were treated for 24 weeks. The study met its primary efficacy objectives (higher HDL cholesterol and lower LDL cholesterol) versus Lipitor. We expect to present the results of the intravascular ultrasound (IVUS) and carotid intima-media thickness (IMT) imaging studies at the American College of Cardiology meeting in March 2007.
In August 2006, Pfizer submitted a European regulatory filing for use of Sutent as first-line therapy in metastatic renal-cell carcinoma (mRCC). Sutent has already been approved in the EU as second-line treatment, and in the U.S. as both first-line and second-line treatment, of mRCC. More than 50 Phase 1, 2, and 3 clinical trials for Sutent are ongoing or completed in a wide range of tumor types, reflecting the future potential for Sutent, as well as Pfizer’s commitment to expand its presence in oncology.
During the third quarter of 2006, a regulatory filing for Spiriva Respimat in Europe was submitted by our co-promotion partner Boehringer Ingelheim (BI). This new, second-generation inhaler, developed by BI and to be co-promoted by Pfizer and BI, provides a new form of inhalation, known as “soft mist,” that permits multiple doses lasting around 30 days, rather than a single dose administered by a powder capsule.
In September 2006, Pfizer submitted a regulatory filing for Eraxis in Europe for the treatment of candidemia and candidiasis.
Maraviroc remains on track for an NDA submission in treatment-experienced patients by year-end 2006. The compound blocks entry of HIV virus into white blood cells by binding to the CCR5 co-receptor. Maraviroc is currently in Phase 2b/3 trials in combination with standard HIV/AIDS therapies for both treatment-experienced and treatment-naïve individuals and has completed Phase 2 studies aimed at exploring its efficacy and safety as monotherapy in HIV/AIDS patients.
The Phase 3 program for asenapine, a product candidate for schizophrenia and bipolar disorder under co-development with Akzo Nobel’s Organon healthcare unit, is almost complete. Data from the final Phase 3 study for schizophrenia will be reported to Organon and Pfizer in the next few weeks. Based on the mixed study results for schizophrenia to date, Pfizer does not believe that an NDA filing with the FDA will be made in 2007. Following receipt of the final study results, we will discuss the complete Phase 3 data set with Organon, and an announcement will be made concerning the next steps for asenapine.
“We look forward to hosting the upcoming R&D analyst meeting on November 30, 2006, in Groton, CT, where we will highlight the emerging Pfizer new- product pipeline and licensing and business-development strategy,” Dr. LaMattina continued. “We believe we are on the verge of a new age of drug discovery, one that promises to turncancer, diabetes, and other debilitating illnesses into manageable conditions.”
Pfizer on Target to Achieve Full-Year 2006 Financial Goals
In reviewing third-quarter 2006 results and the full-year 2006 forecast, Alan Levin, chief financial officer, said, “Pfizer’s third-quarter 2006 performance was characterized by solid product revenue performance as well as the favorable impact of several factors. Our previously projected full-year 2006 financial performance remains on target and, at current exchange rates, we expect revenues this year to be comparable to 2005.
“Partially offsetting our favorable revenue growth in the third quarter of 2006, cost of sales grew 22 percent compared to the third quarter of 2005, primarily due to the unfavorable impact of foreign exchange on expenses and a concerted focus on inventory-reduction initiatives and plant rationalizations. We expect the cost of sales pre-tax component of adjusted income(1) as a percentage of revenues to remain under pressure in the fourth quarter of 2006, and we now expect the cost of sales pre-tax component of adjusted income(1) as a percentage of revenues this year to be comparable to 2005.
“Operating expenses in the third quarter of 2006 reflect higher investments in R&D and promotional programs during the second half of this year relative to the first half of 2006, as well as expenses related to share- based payments, partially offset by continued, accelerated achievement of savings from AtS, our broad-based productivity initiative. These factors will continue to affect our results in the fourth quarter of 2006. AtS savings for the third quarter of 2006 were more than $600 million. As noted, we now expect full-year 2006 savings from the AtS initiatives of about $2.5 billion, substantially ahead of our original guidance of about $2 billion.
“We continue to expect the SI&A pre-tax component of adjusted income(1) to be about $15.4 billion in 2006. We now expect the R&D pre-tax component of adjusted income(1) to be about $7.4 billion. Pfizer remains on target to achieve its goal of full-year 2006 adjusted diluted EPS(1) of about $2.00. Reported diluted EPS is now forecast at about $1.63, reflecting the impact of certain equity sales this quarter as well as a revision of the estimated tax costs related to the repatriation of foreign earnings in 2005.”
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 July 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 third-quarter, nine-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 third-quarter 2006 worldwide pharmaceutical revenues of products launched in 2004-06: Caduet, Chantix, Eraxis, Exubera, Inspra, Lyrica, Macugen, Olmetec, Onsenal, Revatio, Sutent, and Zmax. PFIZER INC AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (millions of dollars, except per common share data) Third Quarter % Incr./ Nine Months % Incr./ 2006 2005 (Decr.) 2006 2005 (Decr.) Revenues $12,280 $11,263 9 $35,768 $34,858 3 Costs and expenses: Cost of sales 1,962 1,611 22 5,423 5,250 3 Selling, informational and administrative expenses 3,751 3,526 6 11,027 10,958 - Research and development expenses 1,902 1,739 9 5,187 5,287 (2) Amortization of intangible assets 798 833 (4) 2,446 2,569 (5) Merger-related in- process research and development charges - 1,390 (100) 513 1,652 (69) Restructuring charges and merger-related costs 249 303 (18) 816 782 4 Other (income)/deductions -- net (343) (151) 127 (958) 703 * Income from continuing operations before provision for taxes on income and minority interests 3,961 2,012 97 11,314 7,657 48 Provision for taxes on income 717 530 35 1,769 2,642 (33) Minority interests 5 3 69 10 6 68 Income from continuing operations 3,239 1,479 119 9,535 5,009 90 Discontinued operations: Income from discontinued operations -- net of tax 120 107 12 330 299 10 Gains on sales of discontinued operations -- net of tax 3 3 - 23 44 (48) Discontinued operations -- net of tax 123 110 11 353 343 3 Net income $3,362 $1,589 112 $9,888 $5,352 85 Earnings per common share - Basic: Income from continuing operations $0.45 $0.20 125 $1.31 $0.68 93 Discontinued operations -- net of tax 0.02 0.02 - 0.05 0.05 - Net income $0.47 $0.22 114 $1.36 $0.73 86 Earnings per common share - Diluted: Income from continuing operations $0.44 $0.20 120 $1.30 $0.67 94 Discontinued operations -- net of tax 0.02 0.02 - 0.05 0.05 - Net income $0.46 $0.22 109 $1.35 $0.72 88 Weighted-average shares used to calculate earnings per common share: Basic 7,228 7,333 7,275 7,372 Diluted 7,251 7,382 7,306 7,424 * Calculation not meaningful. Certain amounts and percentages may reflect rounding adjustments. 1. The above financial statement presents the three-month and nine-month periods ended October 1, 2006 and October 2, 2005. Subsidiaries operating outside the United States are included for the three-month and nine-month periods ended August 27, 2006 and August 28, 2005. 2. In June 2006, we announced an agreement to sell our Consumer Healthcare business 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 nine-month periods ended October 1, 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, primarily related to our acquisition of Rinat Neurosciences Corp. in May 2006. 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 $262 million related primarily to our acquisition of Idun Pharmaceuticals, Inc. in the second quarter. 5. Other (income)/deductions--net in the first nine months of 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. 6. Discontinued operations--net of tax includes $124 million and $123 million related to the Consumer Healthcare business for the three months ended October 1, 2006 and October 2, 2005 and $335 million and $336 million for the nine months ended October 1, 2006 and October 2, 2005. These amounts do not include a prospective gain on the planned divestiture. 7. Provision for taxes on income in the third quarter of 2006 includes a downward revision ($124 million) of the estimated tax costs related to repatriation of foreign earnings in 2005 and the first quarter of 2006 includes tax benefits associated with the resolution of certain tax positions ($441 million). The first nine months of 2005 includes tax benefits associated with the resolution of certain tax positions ($586 million) and a tax provision related to the repatriation of foreign earnings of $1.7 billion. 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) Third Quarter % Incr./ Nine Months % Incr./ 2006 2005 (Decr.) 2006 2005 (Decr.) Reported net income $3,362 $1,589 112 $9,888 $5,352 85 Purchase accounting adjustments -- net of tax 566 1,962 (71) 2,232 3,398 (34) Merger-related costs -- net of tax 4 65 (95) 9 385 (98) Discontinued operations -- net of tax (123) (110) 11 (353) (343) 3 Certain significant items -- net of tax 113 172 (35) 159 2,085 (92) Adjusted income $3,922 $3,678 7 $11,935 $10,877 10 Reported diluted earnings per common share $0.46 $0.22 109 $1.35 $0.72 88 Purchase accounting adjustments -- net of tax 0.08 0.26 (69) 0.31 0.46 (33) Merger-related costs --
