Pfizer Reports Second-Quarter 2008 Results

NEW YORK--(BUSINESS WIRE)--Pfizer Inc (NYSE: PFE):

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Pfizer Inc (NYSE: PFE) today reported financial results for the second-quarter 2008. The Company recorded revenues of $12.1 billion, an increase of 9% compared with $11.1 billion in the year-ago quarter. In the U.S., revenues were $4.8 billion, a decrease of 2%, while international revenues were $7.4 billion, an increase of 18%. Revenues reflect the positive impact of foreign exchange, which increased revenues by approximately $800 million or 7%, as well as the solid performance of many key products. These factors more than offset the revenue declines due to the loss of U.S. exclusivity for Zyrtec, which Pfizer ceased selling in late January 2008, and for Camptosar in February 2008. Zyrtec and Camptosar second-quarter 2008 revenues decreased by $377 million and $104 million, respectively, compared with the year-ago quarter.

For the second-quarter 2008, Pfizer posted reported net income of $2.8 billion, an increase of 119% compared with $1.3 billion in the prior-year quarter, and reported diluted EPS of $0.41, an increase of 128% compared with $0.18 in the prior-year quarter. These increases were primarily attributable to lower restructuring charges from cost-reduction initiatives, as well as savings generated by those initiatives, the positive impact of foreign exchange and favorable income tax adjustments; these positive factors were partially offset by increased in-process research and development expenses associated with the acquisitions of Serenex, Inc. and Encysive Pharmaceuticals Inc., which closed in the second-quarter 2008.

For the first-half 2008, Pfizer recorded revenues of $24.0 billion, an increase of 2% compared with $23.6 billion in the same period in 2007, despite the loss of U.S. exclusivity of Norvasc (March 2007), Zyrtec (January 2008) and Camptosar (February 2008), which collectively decreased revenues by $1.4 billion during the first-half 2008. The 2% increase reflects the favorable impact of foreign exchange, which increased revenues by approximately $1.4 billion or 6%, in addition to the solid performance of many key products. In the U.S., revenues were $10.3 billion, a decrease of 12%, while international revenues were $13.7 billion, an increase of 15%.

For the first-half 2008, the Company posted reported net income of $5.6 billion, an increase of 19% compared with $4.7 billion in the prior-year period, and reported diluted EPS of $0.82, an increase of 24% compared with $0.66 in the prior-year period. These increases were primarily attributable to the favorable impact of foreign exchange and lower restructuring charges associated with cost-reduction initiatives, mainly employee-related costs, as well as the savings generated by those initiatives.

Adjusted Income⁽¹⁾ and Adjusted Diluted EPS⁽¹⁾ Results

For the second-quarter 2008, Pfizer posted adjusted income⁽¹⁾ of $3.7 billion, an increase of 26% compared with $2.9 billion in the year-ago quarter, and adjusted diluted EPS⁽¹⁾ of $0.55, an increase of 31% compared with $0.42 in the year-ago quarter. For the first-half 2008, Pfizer posted adjusted income⁽¹⁾ of $7.8 billion, an increase of 1% compared with $7.7 billion in the first-half 2007, and adjusted diluted EPS⁽¹⁾ of $1.15, an increase of 5% compared with $1.10 in the first-half 2007. In both periods, adjusted income⁽¹⁾ and adjusted diluted EPS⁽¹⁾ reflect the positive impact of foreign exchange, the non-recurrence of the one-time 2007 payment to Bristol-Myers Squibb Company in connection with our collaboration to develop and commercialize apixaban, favorable income tax adjustments as well as the savings associated with cost-reduction initiatives.

Reported and adjusted diluted EPS⁽¹⁾ were also positively impacted by the full benefit of Pfizer’s purchase of $10.0 billion of the Company’s common stock in 2007.

Executive Commentary

“We are pleased with the financial results we delivered this quarter, which were driven in part by the solid performance in our Pharmaceutical and Animal Health businesses,” stated Chairman and Chief Executive Officer Jeff Kindler. “Many of our key products continued to perform well both in the U.S. and international markets, including Lyrica, Celebrex, Viagra and Geodon, as well as Lipitor in the face of a highly competitive statin market. The benefit of our broad-based portfolio of products, our geographic reach and our diverse strategies for growth was evident in this quarter’s financial results, which clearly demonstrate our ability to continue to deliver solid performance in an increasingly challenging environment.”

“During the quarter, we entered into an important agreement with Ranbaxy Laboratories Ltd. that provided substantial certainty to patients and our shareholders regarding the availability of a generic version of Lipitor in the U.S. after November 30, 2011. We are pleased with the resolution of this issue with Ranbaxy, as it reaffirms the value and importance of intellectual property for Pfizer and the pharmaceutical industry as a whole,” continued Kindler.

Frank D’Amelio, Chief Financial Officer, commented, “Based on our year-to-date performance and outlook for the remainder of 2008, we are reaffirming our full-year 2008 revenue and adjusted diluted EPS⁽¹⁾ guidance as well as our plan to reduce absolute adjusted total costs⁽²⁾ by at least $1.5 to $2.0 billion at the end of 2008 compared with 2006 on a constant currency basis⁽³⁾. We expect the remainder of this reduction to gain momentum throughout the second half of the year, with much of the remaining savings to be realized in the fourth quarter.”

“Given the continued strength of our balance sheet and significant operating cash flow, we remain confident that we have the financial wherewithal to successfully execute our strategies and continue to meet our financial objectives,” D'Amelio continued. “During the second quarter, we repurchased approximately $500 million, or 26.4 million shares, of our common stock.”

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Pharmaceutical

Pharmaceutical revenues for the second-quarter 2008 were $11.1 billion, an increase of 9% compared with the prior-year quarter, including the favorable impact of foreign exchange, which increased revenues by approximately $730 million or 7%. Second-quarter 2008 revenues from in-line and new products⁽⁶⁾ increased 16% compared with the year-ago quarter; this excludes the impact of the loss of U.S. exclusivity of Norvasc, Zyrtec and Camptosar, which collectively resulted in a revenue decline of $496 million or 39% compared with the year-ago quarter.

Lipitor revenues in the second-quarter 2008 were $3.0 billion, an increase of 9% compared with the prior-year quarter, reflecting the favorable impact of foreign exchange, which increased revenues by approximately $170 million or 6%. In the U.S., Lipitor revenues increased 1% compared with the prior-year quarter, while revenues from international markets rose 18%, due to the favorable impact of foreign exchange of 13% and operational growth of 5%. The global statin market continues to be highly competitive, with both branded and generic competition in an increasingly cost-sensitive environment. Pfizer continues to respond to these market dynamics with an integrated, multi-channel effort, emphasizing Lipitor’s strong clinical profile demonstrated in over 400 completed or ongoing clinical trials including more than 80,000 patients and in more than 151 million patient years of experience over 15 years.

Lyrica revenues in the second-quarter 2008 were $614 million, an increase of 52% compared with the prior-year quarter, driven by strong efficacy and high patient and physician satisfaction in managing nerve pain associated with diabetes and nerve pain after shingles, the June 2007 U.S. approval for the management of fibromyalgia, a branded and unbranded advertising strategy focused on increasing both Lyrica and fibromyalgia awareness as well as the favorable impact of foreign exchange. In the U.S., Lyrica revenues rose to $335 million, an increase of 55% compared to the prior-year quarter, while international revenues grew to $279 million, an increase of 48%.

Celebrex revenues in the second-quarter 2008 were $589 million, an increase of 23% compared with the year-ago quarter, primarily driven by the continued educational and promotional efforts supporting the risk-benefit proposition of this medicine, as well as the favorable impact of foreign exchange. In the U.S., Celebrex revenues rose to $416 million, an increase of 22% compared with the prior-year quarter, while international revenues grew to $173 million, an increase of 27%.

Sutent revenues in the second-quarter 2008 continued to demonstrate strong performance and market leadership in its approved indications, advanced renal cell carcinoma (RCC) and gastrointestinal stromal tumor (GIST), with revenues of $211 million, an increase of 45% compared with the year-ago quarter. In the U.S., Sutent revenues were $60 million, a decrease of 2% compared with the prior-year quarter, while international revenues grew to $151 million, an increase of 80%. To date, Sutent has launched in 61 countries, with four in the second-quarter 2008 including Japan, China and Russia, and six planned in the next 12 months. As part of Pfizer’s robust life cycle plan, clinical trials continue for potential additional indications where Sutent shows promise and where there is a need for additional treatments, most notably breast, colorectal and lung cancers.

Chantix (known as Champix outside the U.S.) revenues in the second-quarter 2008 were $207 million, an increase of 3% compared with the second-quarter 2007. In the U.S., Chantix revenues declined to $109 million, a decrease of 35% compared with the prior-year quarter, while international revenues grew to $98 million, an increase of 197%. U.S. results were negatively impacted by the recent updates to the Chantix U.S. label to include additional safety information, as well as certain external events relating to Chantix. Pfizer continues its educational and promotional efforts focused on the Chantix risk-benefit proposition, the significant health consequences of smoking and the importance of the physician-patient dialogue to help patients effectively use Chantix to reach their health goal of becoming smoke free. Since its approval in the U.S. in May 2006, Chantix/Champix has been approved in 76 countries and has been used by more than six million patients, an increasing number of whom are covered by third-party payers. In the second-quarter 2008, Champix launched in Japan, which has more than 30 million smokers, as well as Malaysia and Singapore, with nine launches planned in the next 12 months, including Russia, Turkey and China.

Animal Health

Animal Health revenues for the second-quarter 2008 were $715 million, an increase of 13% compared with $632 million in the year-ago quarter. The increase was driven by the favorable impact of foreign exchange, which increased revenues by approximately $50 million or 8%, in addition to strong global livestock and companion animal product performance.

Costs and Expenses

In the second-quarter 2008, adjusted cost of sales⁽¹⁾ as a percentage of revenues was 16.9% compared with 17.0% in the second-quarter 2007. This reflects the impact of foreign exchange on cost of sales in addition to unfavorable changes in geographic mix, which were slightly more than offset by the favorable effect of our cost-reduction initiatives.

Adjusted selling, informational and administrative (SI&A) expenses⁽¹⁾ were $3.7 billion in the second-quarter 2008, a decrease of 1% compared with the prior-year quarter. The favorable impact of our cost-reduction initiatives was partially offset by the unfavorable impact of foreign exchange on expenses compared with the year-ago period.

Adjusted research and development (R&D) expenses⁽¹⁾ were $1.9 billion in the second-quarter 2008, a decrease of 8% compared with the year-ago quarter, due primarily to the non-recurrence of the one-time 2007 payment to Bristol-Myers Squibb Company in connection with our collaboration to develop and commercialize apixaban in addition to the realization of savings associated with our cost-reduction initiatives.

Overall, foreign exchange increased adjusted total costs⁽²⁾ by approximately $440 million or 6% in the second-quarter 2008 compared with the prior-year period. Excluding the impact of foreign exchange, our adjusted total costs⁽²⁾ decreased by $475 million or 6% compared with the year-ago quarter. The operational improvement was driven primarily by the reduction in overall workforce level to 84,500 at the end of second-quarter 2008, a reduction of 13,500 over the past 18 months. Manufacturing and research and development site exits have also contributed to the operational improvement.

Pfizer continues to make progress on its target to reduce absolute adjusted total costs⁽²⁾ by at least $1.5 to $2.0 billion at the end of 2008 compared with 2006 on a constant currency basis⁽³⁾. These initiatives span essentially all divisions, functions, markets and sites. As of the end of second-quarter 2008, Pfizer had achieved $1.2 billion of the target. The Company expects to achieve much of the remaining reduction in the fourth-quarter 2008, which will favorably impact fourth-quarter earnings.

Financial Guidance

For the full-year 2008, Pfizer’s financial guidance, at current exchange rates⁽⁹⁾ is summarized below. The guidance on adjusted cost of sales⁽¹⁾ as a percentage of revenue has been tightened to 15.0% - 15.5% from 14.5% - 15.5%. Additionally, guidance on the range for the effective tax rate on adjusted income⁽¹⁾ has been reduced to 21.5% - 22.0% from 22.0% - 22.5%.

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

(1) "Adjusted income" and its components and "adjusted diluted earnings per share (EPS)" are defined as reported net income and its components and reported diluted EPS excluding purchase-accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted SI&A expenses and Adjusted R&D expenses are income statement line items prepared on the same basis, and therefore, components of the overall Adjusted Income measure. 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 fiscal quarter ended March 30, 2008, 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 2008 and 2007, first-half 2008 and 2007, and full-year 2007 adjusted income and its components and adjusted diluted EPS to reported net income and its components and reported diluted EPS, as well as reconciliations of full-year 2008 adjusted income and adjusted diluted EPS guidance to full-year 2008 reported net income and reported diluted EPS guidance, are provided in the materials accompanying this report. The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and diluted EPS.

(2) Represents primarily the total of Adjusted Cost of Sales⁽¹⁾, Adjusted SI&A expenses⁽¹⁾ and Adjusted R&D expenses⁽¹⁾.

(3) Constant currency basis means that the applicable projected financial measure is based upon the actual foreign exchange rates in effect during 2006.

(4) Represents worldwide revenues for all pharmaceutical products, excluding revenues included in notes (5) and (7).

(5) Represents worldwide revenues for pharmaceutical products launched since 2006: Chantix/Champix, Eraxis, Selzentry/Celsentri, Sutent and Thelin.

(6) Total worldwide pharmaceutical revenues excluding the revenues of major products that have lost exclusivity in the U.S. in 2007 and 2008 as described in note (7). See the table accompanying this report.

(7) Represents worldwide revenues for pharmaceutical products that lost exclusivity in the U.S. in 2007 and 2008: Camptosar, Norvasc and Zyrtec.

(8) Includes Consumer Healthcare business transition activity, Capsugel and Pfizer Centersource.

(9) Current exchange rates approximate rates at the time of the second-quarter earnings press release (July 2008).

(10) Excludes the charges associated with business development transactions not completed as of June 29, 2008.