Pfizer Reports First-Quarter 2010 Results; Reaffirms 2010 Financial Guidance

(BUSINESS WIRE)--Pfizer Inc. (NYSE:PFE):

• First-Quarter 2010 Revenues of $16.8 Billion
• First-Quarter 2010 Reported Diluted EPS(1) of $0.25, Adjusted Diluted EPS(2) of $0.60
• Reaffirms 2010 Financial Guidance and 2012 Diluted EPS Target Ranges
• Continues to Make Solid Progress on the Wyeth Integration

Pfizer Inc. (NYSE:PFE) today reported financial results for first-quarter 2010. Since the acquisition of Wyeth was completed on October 15, 2009, legacy Wyeth operations are reflected in first-quarter 2010 results, but not in first-quarter 2009 results. First-quarter 2010 revenues were $16.8 billion, an increase of 54% compared with $10.9 billion in the year-ago quarter. Revenues for first-quarter 2010 compared with the year-ago quarter were favorably impacted by $5.3 billion, or 48%, due to the addition of the legacy Wyeth products, and $733 million, or 7%, due to foreign exchange. Revenues were unfavorably impacted by $137 million, or 1%, due to legacy Pfizer products. Revenues for first-quarter 2010 reflect a reduction of $56 million due to the recently enacted U.S. healthcare legislation. For first-quarter 2010, U.S. revenues were $7.3 billion, an increase of 47% compared with the year-ago quarter. International revenues were $9.4 billion, an increase of 60% compared with the prior-year quarter, which reflected 48% operational growth and a 12% favorable impact of foreign exchange. U.S. revenues represented 44% of total revenues in first-quarter 2010 compared with 46% in the year-ago quarter, while international revenues represented 56% of total revenues in first-quarter 2010 compared with 54% in the year-ago quarter.

Business Revenues

Pfizer operates two distinct commercial organizations: Biopharmaceutical and Diversified. Biopharmaceutical includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology customer-focused units, while Diversified includes Animal Health, Consumer Healthcare, Nutrition and Capsugel.

For first-quarter 2010, revenues from Biopharmaceutical were $14.5 billion, an increase of 44% compared with $10.1 billion in the year-ago quarter. Operationally, revenues increased $3.8 billion, or 38%, which included $4.1 billion, or 41% attributable to legacy Wyeth products, primarily Premarin in the Primary Care unit, Enbrel and the Prevnar/Prevenar franchise in the Specialty Care unit, Effexor and Zosyn/Tazocin in the Established Products unit as well as Enbrel and Prevenar in the Emerging Markets unit. In addition, foreign exchange favorably impacted Biopharmaceutical revenues by 6% or $617 million.

Within the Biopharmaceutical units, legacy Pfizer operational performance was impacted in first-quarter 2010 compared to the year-ago quarter both by the loss of exclusivity of certain products and by the reclassification of certain revenues among the various units. Legacy Pfizer Oncology unit revenues in first-quarter 2010 no longer include Camptosar's European revenues due to its loss of exclusivity in July 2009. Camptosar's European revenues are included in the Established Products unit beginning in first-quarter 2010. This reclassification of revenues negatively impacted the Oncology unit's performance by 24% in first-quarter 2010 compared with the prior-year quarter. Additionally, revenues from South Korea were included in the Emerging Markets unit in 2009, but are included in the developed markets units, as appropriate, beginning in first-quarter 2010, which negatively impacted the legacy Pfizer Emerging Markets unit's revenues by 5%. Further, legacy Pfizer Established Products unit revenues in first-quarter 2010 were adversely impacted by 5% due to the loss of exclusivity for Norvasc in Canada in July 2009, offset by the favorable impact due to the addition of Camptosar's European revenues as well as the reclassification of revenues from South Korea.

For first-quarter 2010, revenues from Diversified were $2.1 billion, an increase of 210% compared with $691 million in the year-ago quarter. Operationally, revenues increased $1.3 billion, or 194%, which was primarily attributable to legacy Wyeth products, principally Centrum, Advil and Caltrate in Consumer Healthcare and certain Nutrition products. Additionally, foreign exchange favorably impacted Diversified revenues by 16% or $111 million.

Reported Net Income(1) and Reported Diluted EPS(1)

For first-quarter 2010, Pfizer posted reported net income(1) of $2.0 billion, a decrease of 26% compared with $2.7 billion in the prior-year quarter, and reported diluted EPS(1) of $0.25, a decrease of 38% compared with $0.40 in the prior-year quarter. Results for first-quarter 2010 reflect the first full quarter of the legacy Wyeth products and operations. In comparison with the same period in 2009, first-quarter 2010 was favorably impacted by revenues from legacy Wyeth products, which was more than offset by the expenses associated with the legacy Wyeth operations as well as purchase accounting adjustments associated with the acquisition, higher net interest expense primarily due to the borrowings used to partially fund the acquisition of Wyeth and an increase in the effective tax rate.

Additionally, reported diluted EPS(1) in first-quarter 2010 was impacted by the increased number of shares outstanding in comparison with the corresponding period in 2009 resulting from shares issued to partially fund the Wyeth acquisition.

The effective tax rate on reported results increased to approximately 36% in first-quarter 2010 from approximately 28% in first-quarter 2009. This increase primarily is the result of two factors: first, higher amortization charges, primarily related to intangible assets, incurred as a result of the acquisition of Wyeth and the mix of jurisdictions in which those charges were incurred; and second, the write-off of the deferred tax asset of approximately $270 million related to the Medicare Part D subsidy for retiree prescription drug coverage resulting from changes in the recently enacted U.S. healthcare legislation. These factors were partially offset by the favorable impact of the resolution of certain tax positions pertaining to prior years with various foreign tax authorities.

Adjusted Income(2) and Adjusted Diluted EPS(2)

First-quarter 2010 adjusted income(2) was $4.9 billion, an increase of 33% compared with $3.7 billion in the year-ago quarter, and adjusted diluted EPS(2) was $0.60, an increase of 11% compared with $0.54 in the year-ago quarter. In comparison with the same period in 2009, first-quarter 2010 was favorably impacted by revenues from legacy Wyeth products, which was partially offset by the expenses associated with the legacy Wyeth operations as well as higher net interest expense primarily due to the borrowings used to partially fund the acquisition of Wyeth. The effective tax rate on adjusted income(2) for both first-quarter 2010 and first-quarter 2009 was approximately 30%.

Additionally, adjusted diluted EPS(2) in first-quarter 2010 was impacted by the increased number of shares outstanding in comparison with the corresponding period in 2009 resulting from shares issued to partially fund the Wyeth acquisition.

In first-quarter 2010, adjusted cost of sales(2) as a percentage of revenues was 17.5% compared with 12.1% in first-quarter 2009. This increase primarily reflects the change in the mix of products and businesses as a result of the Wyeth acquisition. Excluding the impact of foreign exchange, adjusted cost of sales(2) as a percentage of revenues was 16.7% in first-quarter 2010.

Adjusted SI&A expenses(2) were $4.4 billion in first-quarter 2010, an increase of 54% compared with $2.8 billion in the prior-year quarter. This increase was attributable to the addition of the legacy Wyeth operations. Foreign exchange increased first-quarter 2010 adjusted SI&A expenses(2) by $156 million compared with the year-ago quarter.

Adjusted R&D expenses(2) were $2.2 billion in first-quarter 2010, an increase of 32% compared with $1.7 billion in the prior-year period. This increase was attributable to the addition of the legacy Wyeth operations and continued investment in the late-stage development portfolio. Foreign exchange increased first-quarter 2010 adjusted R&D expenses(2) by $28 million compared with the year-ago quarter.

Overall, foreign exchange increased adjusted total costs(13) by $450 million, or 8%, in first-quarter 2010 compared with the prior-year period.

The Company remains on-track to achieve the cost-reduction target of approximately $4 to $5 billion, by the end of 2012, at 2008 average foreign exchange rates, in comparison with the 2008 pro-forma adjusted total costs(13) of Pfizer and the legacy Wyeth operations. This quarter, operational cost improvements were driven partially by a reduction in workforce. At the end of first-quarter 2010, the workforce totaled approximately 113,800, a decrease of 2,700 from year-end 2009. Since the closing of the Wyeth acquisition on October 15, 2009, the workforce has declined by 6,900, primarily in the U.S. Primary Care field force, manufacturing and research and development operations.

Executive Commentary

"Our results this quarter demonstrate the ability of our colleagues to deliver solid operational performance in a challenging environment as well as to extract value for shareholders from the acquisition of Wyeth. During the quarter, many of our in-line products performed well, including key legacy Wyeth assets such as Enbrel, Effexor, the Prevnar/Prevenar franchise, and the Consumer Healthcare and Nutrition businesses," stated Jeff Kindler, Chairman and Chief Executive Officer. "We are excited about our more diverse in-line product portfolio, including Prevnar/Prevenar 13 for infants and toddlers, which has been approved in more than 40 markets, and our expanded pipeline. We expect to receive phase three clinical results for numerous compounds in our pipeline during the remainder of 2010."

Frank D'Amelio, Chief Financial Officer, stated, "After considering the performance of first-quarter 2010, the anticipated financial impact of the recently enacted U.S. healthcare legislation of approximately $300 million on revenues in 2010 as well as the strengthening of the U.S. dollar, we are reaffirming our previous 2010 financial guidance. We are reducing our 2012 target revenue range by $800 million due to the anticipated impact of that legislation. However, we expect to offset the impact on earnings from the anticipated decline in revenue through spending reductions and other means, as necessary, and are reaffirming our 2012 reported(1) and adjusted(2) diluted EPS target ranges."

2010 Financial Guidance

For full-year 2010, Pfizer's financial guidance, at current exchange rates(14), is summarized below.

2012 Financial Targets

Pfizer is updating its target revenue range for 2012 to reflect the anticipated financial impact of the recently enacted U.S. healthcare legislation. In comparison to the range provided on February 3, 2010, the updated target revenue range has been reduced by $800 million. The Company is reaffirming all other elements of its 2012 financial targets, including the 2012 reported(1) and adjusted(2) diluted EPS target ranges. Given the longer-term nature of these targets, they are subject to greater variability and less certainty as a result of potential material impacts related to foreign exchange fluctuations, macroeconomic activity including inflation, and industry-specific challenges including changes to government healthcare policy, among others.

For 2012, at current exchange rates(14), Pfizer is targeting reported revenue between $65.2 and $67.7 billion, reported diluted EPS(1) between $1.58 and $1.73, adjusted diluted EPS(2) between $2.25 and $2.35, adjusted R&D expenses(2) between $8.0 and $8.5 billion, adjusted operating margin(2) in a range of the high 30%s to low 40%s and adjusted other (income)/deductions(2) between $1.0 and $1.2 billion in deductions. The effective tax rate on adjusted income(2) is targeted at approximately 30%, while operating cash flow is expected to be at least $19.0 billion.

For additional details, please see the attached financial schedules, product revenue tables, supplemental information and disclosure notice.

Certain amounts and percentages may reflect rounding adjustments.

Certain amounts and percentages may reflect rounding adjustments.

PFIZER INC.

SUPPLEMENTAL INFORMATION

1. Change in Reported Revenues

The weakening of the U.S. dollar relative to other currencies, primarily the euro, Australian dollar, Canadian dollar and Brazilian Real, favorably impacted our revenues by $733 million, or 7%, in first-quarter 2010, compared to the same period last year. Operationally, reported revenues increased 47% in first-quarter 2010, compared to the same period in 2009, due to the favorable impact of $5.3 billion, or 48%, due to the addition of legacy Wyeth products, partially offset by a decline in revenues from legacy Pfizer products of $137 million, or 1%.

2. Change in Reported Cost of Sales

Reported cost of sales increased 206% in first-quarter 2010, compared to the same period in 2009. The increase primarily reflects purchase accounting adjustments associated with the Wyeth acquisition, the addition of Wyeth manufacturing costs, as well as the change in the mix of products and businesses as a result of the Wyeth acquisition. In addition, the impact of foreign exchange had an unfavorable impact on reported cost of sales in the current quarter.

Reported cost of sales as a percentage of revenues increased 12.7 percentage points to 25.7% in first-quarter 2010, compared to the same period in 2009, reflecting the aforementioned factors.

3. Change in Reported Selling, Informational & Administrative (SI&A) Expenses and Reported Research & Development (R&D) Expenses and Reported In-Process R&D Charges (IPR&D)

Reported SI&A expenses increased 54% in first-quarter 2010, compared to the same period in 2009. The increase primarily reflects the addition of Wyeth operating costs and the unfavorable impact of foreign exchange.

Reported R&D expenses increased 31% in first-quarter 2010, compared to the same period in 2009. The increase is primarily due to the addition of Wyeth operating costs, continued investment in the late-stage development portfolio and the unfavorable impact of foreign exchange.

Reported IPR&D charges of $74 million in 2010 relate to the resolution of contingencies associated with our 2008 acquisition of CovX.

4. Other (Income)/Deductions - Net

5. Effective Tax Rate

The effective tax rate on reported Income from continuing operations before provision for taxes on income for first-quarter 2010 was 36.0% compared to 28.2% in first-quarter 2009. The increase in the effective tax rate is the result of an increase in amortization charges, primarily related to intangible assets, incurred as a result of our acquisition of Wyeth and the mix of jurisdictions in which those charges were incurred. In addition, the increase in the effective tax rate was impacted by the expiration of the U.S. research tax credit, the increase in non-deductible IPR&D charges, as well as the write-off of the deferred tax asset of approximately $270 million related the Medicare Part D subsidy for retiree prescription drug coverage resulting from changes in the recently enacted U.S. healthcare legislation concerning the tax treatment of that subsidy effective for tax years beginning after December 31, 2012, partially offset by $410 million in tax benefits for the resolution of certain tax positions pertaining to prior years with various foreign tax authorities.

The effective tax rate on adjusted income(1) was 30.1% in first-quarter 2010 and 29.7% in first-quarter 2009. The tax rate on adjusted income(1) in 2010 takes into account the expiration of the U.S. research tax credit, the write-off of the deferred tax asset of approximately $270 million related the Medicare Part D subsidy for retiree prescription drug coverage resulting from changes in the recently enacted U.S. healthcare legislation concerning the tax treatment of that subsidy effective for tax years beginning after December 31, 2012, largely offset by $410 million in tax benefits for the resolution of certain tax positions pertaining to prior years with various foreign tax authorities.

6. Reconciliation of 2010 Adjusted Income(1) and Adjusted Diluted EPS(1) Guidance to 2010 Reported Net Income Attributable to Pfizer Inc. and Reported Diluted EPS Attributable to Pfizer Inc. Common Shareholders Guidance (a)

7. Reconciliation of 2012 Adjusted Income(1) and Adjusted Diluted EPS(1) Targets to 2012 Reported Net Income Attributable to Pfizer Inc. and Reported Diluted EPS Attributable to Pfizer Inc. Common Shareholders Targets (a)

(1) "Adjusted income" and "adjusted diluted earnings per share (EPS)" are defined as reported net income attributable to Pfizer Inc. and reported diluted EPS attributable to Pfizer Inc. common shareholders excluding purchase accounting adjustments, acquisition-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-K for the fiscal year ended December 31, 2009, 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. 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.

DISCLOSURE NOTICE: The information contained in this earnings release and the attachments is as of May 4, 2010. The Company assumes no obligation to update forward-looking statements contained in this earnings release or the attachments as a result of new information or future events or developments.

This webcast contains forward-looking information about the Company's financial results and estimates, business plans and prospects, in-line products and product candidates that involves substantial risks and uncertainties. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "forecast" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans and prospects. Among the factors that could cause actual results to differ materially are the following: the success of research and development activities; decisions by regulatory authorities regarding whether and when to approve our drug applications as well as their decisions regarding labeling, ingredients and other matters that could affect the availability or commercial potential of our products; the speed with which regulatory authorizations, pricing approvals and product launches may be achieved; the success of external business-development activities; competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates; the ability to meet generic and branded competition after the loss of patent protection for our products or competitor products; the ability to successfully market both new and existing products domestically and internationally; difficulties or delays in manufacturing; trade buying patterns; the impact of existing and future legislation and regulatory provisions on product exclusivity; trends toward managed care and healthcare cost containment; the impact of U.S. healthcare legislation enacted in 2010 - the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act; U.S. legislation or regulatory action affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs, the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries, direct-to-consumer advertising and interactions with healthcare professionals, and the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access; contingencies related to actual or alleged environmental contamination; claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates; significant breakdown, infiltration, or interruption of our information technology systems and infrastructure; legal defense costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related to product liability, patent protection, governmental investigations, ongoing efforts to explore various means for resolving asbestos litigation, and other legal proceedings; the Company's ability to protect its patents and other intellectual property both domestically and internationally; interest rate and foreign currency exchange rate fluctuations; governmental laws and regulations affecting domestic and foreign operations, including tax obligations and changes affecting the taxation by the U.S. of income earned outside of the U.S. that may result from pending and possible future proposals; changes in U.S. generally accepted accounting principles; uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our lenders, our customers, our suppliers and counterparties to our foreign-exchange and interest-rate agreements of weak global economic conditions and recent and possible future changes in global financial markets; any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas; growth in costs and expenses; changes in our product, segment and geographic mix; and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items, including our ability to realize the projected benefits of our acquisition of Wyeth and of our cost-reduction initiatives. A further list and description of risks, uncertainties and other matters can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and in its reports on Forms 10-Q and 8-K.

This earnings release may include discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data.