(BUSINESS WIRE)--Pfizer:

Pfizer Inc posted third-quarter 2007 revenues of $12.0 billion, a 2% decline from the same period last year. The Company’s reported net income was $761 million in the third quarter of 2007, a decrease of 77% from the same period last year, primarily reflecting pre-tax charges of $2.8 billion related to the decision to exit Exubera, our inhaled insulin product to treat diabetes. Adjusted income⁽¹⁾ for the third quarter of 2007 increased 1% to $4.0 billion compared to the third quarter of 2006.

“We are encouraged by our operating results in the third quarter, and we remain on track to achieve our full-year 2007 revenues and adjusted diluted EPS⁽¹⁾ goals. Meanwhile, we made an important decision regarding Exubera, a product for which we initially had high expectations,” said Jeff Kindler, Chairman and Chief Executive Officer. “Despite our best efforts, Exubera has failed to gain the acceptance of patients and physicians. We have therefore concluded that further investment in this product is unwarranted.”

“We will work with physicians to transition Exubera patients to other treatment options in the next three months. We remain committed to investing significant resources in the development of new and innovative medicines to manage diabetes, including monitoring inhalation technologies and other innovative delivery systems for insulin and other medicines.”

Frank D’Amelio, Chief Financial Officer, added, “The Exubera pre-tax charges of $2.8 billion related primarily to the write-off of assets associated with this product, as well as the accrual of other exit costs. More specifically, these charges are comprised of approximately $1.1 billion of intangible assets, $661 million of inventory, $454 million of fixed assets and $584 million of other exit costs.”

Commenting on the financial performance in the just-ended quarter, Mr. Kindler said, “We are achieving our operational goals in the face of major revenue losses due to patent expirations in the U.S. Most of our new products⁽³⁾ along with the favorable impact of foreign exchange are contributing significantly toward offsetting these losses as evidenced by our year-to-date results.”

Mr. Kindler continued, “While optimizing revenues from our in-line products⁽²⁾ and generating strong growth from our new products⁽³⁾, we remain focused on driving a series of fundamental changes in the Company to improve our performance and achieve a lower, more flexible cost base. We are making substantial progress on these priorities. For example, our reduction in adjusted selling, informational and administrative expenses⁽¹⁾ this year is expected to exceed our previous forecast on a constant currency basis⁽⁸⁾.”

“However, we need to deliver better results, continue to make tough decisions about allocating our capital wisely, and bring more new products to the market as quickly as possible. Doing all of this will put Pfizer on the right course and build value for our shareholders.”

Financial Results

In the third quarter of 2007, Pfizer posted revenues of $12.0 billion, a decline of 2% from $12.3 billion in the same period last year. This decline reflects the loss of U.S. exclusivity for Zoloft in June 2006 (with generic competition entering the market in August 2006) and for Norvasc in March 2007, six months earlier than expected. Both products were major contributors to revenue last year. Further, the decline in revenues was also the result of a one-time reversal of a sales deduction accrual recorded in the third quarter of 2006 related to a favorable development in a pricing dispute in the U.S. These adverse factors were substantially offset by revenues from new products⁽³⁾ and the favorable impact of foreign exchange of approximately $300 million.

Revenues in the first nine months of 2007 were $35.5 billion, a decline of 1% from $35.8 billion in the same period in the previous year, primarily a result of the loss of U.S. exclusivity for Zoloft and Norvasc, once again largely offset by the revenues from new products⁽³⁾ and the favorable impact of foreign exchange of approximately $860 million.

Reported net income in the third quarter of 2007 was $761 million compared with $3.4 billion in the third quarter of 2006, a decline of 77%. Reported diluted EPS of $0.11 in the third quarter of 2007 declined 76% from $0.46 in the prior year period. In addition to the $2.8 billion of pre-tax charges related to Exubera, loss of U.S. exclusivity for Zoloft and Norvasc, and the one-time reversal of a sales deduction accrual of about $170 million recorded in the third quarter of 2006, the decrease in both reported net income and reported diluted EPS reflects increased restructuring and implementation expenses associated with our cost-reduction initiatives, and the non-recurrence of prior year income from discontinued operations as a result of the divestiture of our former Consumer Healthcare business in December 2006. The impact of these factors was partially offset by the growth in revenues from new products⁽³⁾, lower operating expenses, increased interest income, and the favorable impact of foreign exchange. Reported diluted EPS was also favorably impacted by our share purchase program.

Adjusted income⁽¹⁾ of $4.0 billion in the third quarter of 2007 increased 1% over the same period last year, while adjusted diluted EPS⁽¹⁾ of $0.58 increased 7% from $0.54 in 2006, primarily as a result of the revenue items previously discussed as well as lower operating expenses, increased interest income, and the favorable impact of foreign exchange. Adjusted diluted EPS⁽¹⁾ was also favorably impacted by our share purchase program. Through the first nine months of 2007, we purchased $7.5 billion of our stock as part of our previously announced plan to repurchase up to $10.0 billion of our stock in 2007.

(2) (3) (4) (5) (6) See end of text prior to tables for notes.

Pharmaceuticals

Worldwide pharmaceutical revenues for the third quarter of 2007 were down 4% from the same quarter a year ago. In-line and new products⁽⁴⁾ revenues increased 5% in the third quarter of 2007 compared to the same period in 2006. Revenues for products that lost U.S. marketing exclusivity in 2006 and 2007, Zoloft and Norvasc, declined 54% in the third quarter of 2007 compared to last year.

Lipitor revenues in the third quarter of 2007 were $3.2 billion, a 5% decline from the same period in 2006. In the U.S., Lipitor revenues declined 13%, while revenues in international markets rose 9%, due primarily to the favorable impact of foreign exchange and, to a lesser extent, operating growth. We estimate full-year 2007 worldwide Lipitor revenues to be 3% to 5% lower than 2006. The U.S. statin market in particular continues to be highly competitive, with both branded and generic competition in an increasingly cost-sensitive environment. We continue to respond to this competition with an integrated multi-channel effort.

Celebrex revenues rose 8% to $577 million in the third quarter of 2007 compared to the same period last year. In the U.S., we are continuing to focus on our direct-to-consumer advertising campaign aimed at further stimulating patient interest and initiating a valuable dialogue between patients and physicians.

Lyrica revenues grew 37% to $465 million in the third quarter of 2007 compared to the same period last year. Lyrica’s growth continues to be fueled by strong efficacy as well as high patient and physician satisfaction in the marketplace. Lyrica was approved in the U.S. in June 2007 for the management of fibromyalgia, one of the most common chronic, widespread pain conditions, and was launched for this indication in July 2007.

Chantix, our treatment to aid smoking cessation, continued its strong performance with revenues of $241 million in the third quarter of 2007 compared to $33 million in the third quarter of 2006. Within the last month, we launched a direct-to-consumer campaign in the U.S. aimed at further increasing awareness of Chantix and how it can help smokers who want to quit.

Animal Health

Third-quarter 2007 revenues increased 13% to $636 million, compared to $562 million in the same period last year. For the first nine months of 2007, revenues increased 12% to $1.9 billion compared to $1.7 billion in the same period last year. The increase in both periods is largely attributed to strong product performance in the companion animal and international livestock businesses; the acquisition of Embrex, a company with a unique vaccine delivery system that vaccinates chicks while inside their eggs; and the favorable impact of foreign exchange.

Expenses

In the third quarter of 2007, adjusted cost of sales⁽¹⁾ as a percentage of revenues was 15.1%, compared to 15.4% in the third quarter of 2006 despite adverse geographic and product mix as compared to the same period a year ago. This reflects our ongoing cost-base reduction efforts. “Given ongoing pressures associated with geographic and product mix, we now forecast adjusted cost of sales⁽¹⁾ to be about 15.5% of revenues for the full-year of 2007 versus our previous estimate of 15.0%,” said Mr. D’Amelio.

Adjusted Selling, Informational and Administrative (SI&A) expenses⁽¹⁾ of $3.6 billion in the third quarter of 2007 decreased 1% compared to the third quarter of 2006, due primarily to savings from our cost-reduction initiatives, partially offset by the unfavorable impact of foreign exchange. We previously projected adjusted SI&A expenses⁽¹⁾ for the full-year 2007 to decrease by more than $500 million absent the impact of foreign exchange relative to the full-year 2006. We now project a year-over-year decrease in adjusted SI&A expenses⁽¹⁾ of about $600 million on a constant currency basis⁽⁸⁾ as the benefits of our cost-reduction initiatives are materializing.

Adjusted research and development (R&D) expenses⁽¹⁾ were $1.7 billion in the third quarter of 2007, a decrease of 5% compared to the third quarter of 2006, due primarily to the realization of savings associated with our cost-reduction initiatives and the non-recurrence of a licensing payment in the prior year partially offset by the unfavorable impact of foreign exchange. We continue to project the full-year 2007 adjusted R&D expenses⁽¹⁾ to be approximately $7.5 billion.

Financial Guidance

Our financial guidance for full-year 2007, at current exchange rates⁽⁷⁾ except as otherwise noted, is summarized below and compared to prior communications.

We have raised the lower end of the ranges for revenues and adjusted diluted EPS⁽¹⁾. In addition, as a result of progress in our cost-reduction initiatives, we now expect adjusted SI&A expenses⁽¹⁾ to decrease about $100 million more than our previous guidance. We have also changed our guidance on adjusted cost of sales⁽¹⁾ as a percent of revenues from 15.0% to 15.5%, largely due to geographic and product mix. Further, given the charges we recorded related to Exubera, we have decreased our guidance on reported diluted EPS. Guidance regarding adjusted R&D expenses⁽¹⁾, the effective tax rate on adjusted income⁽¹⁾, and cash flows from operations remains consistent with prior communications.

Our financial guidance for full-year 2008, at current exchange rates⁽⁷⁾ except as otherwise noted, is summarized below.

For additional details, please see the attached financial schedules, product revenue tables, supplemental financial 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 AdjustedIncome 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 1, 2007, 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 and nine-month 2007 and 2006 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 2007 and 2008 adjusted income and adjusted diluted EPS guidance to full-year 2007 and 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 worldwide revenues for all pharmaceutical products, excluding revenues included in notes (3) and (5).

(3) Represents worldwide revenues for pharmaceutical products launched in the U.S. since 2005: Chantix, Eraxis, Exubera, Lyrica, Macugen, Revatio, Selzentry, Sutent, and Zmax.

(4) Total worldwide pharmaceutical revenues excluding the revenues of major products that have lost exclusivity in the U.S. in 2006 and 2007 as described in note (5). See the table accompanying this report.

(5) Represents worldwide revenues for pharmaceutical products that have lost exclusivity in the U.S. in 2006 and 2007: Zoloft and Norvasc.

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

(7) Current exchange rates approximate rates at the time of our third quarter earnings press release (October 2007).

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

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

PFIZER INCSUPPLEMENTAL INFORMATION

1) Impact of Foreign Exchange on Revenues

The weakening of the U.S. dollar relative to other currencies, primarily the euro and British pound, favorably impacted our revenues by approximately $300 million, or 2.5%, in the third quarter of 2007, compared to the same period in 2006, and approximately $860 million, or 2.4%, in the first nine months of 2007, compared to the same period in 2006.

2) Charges Related to Exubera

After carefully assessing the financial performance of Exubera, an inhaled-insulin product, we decided to exit Exubera. Despite our best efforts, Exubera has failed to gain the acceptance of patients and physicians. In the third quarter of 2007, we recorded total pre-tax charges of $2.8 billion, which includes charges for asset impairments, exit and disposal costs.

Our Exubera-related exit plans will include working with physicians over the next three months to transition patients to other treatment options, evaluating redeployment options for colleagues, working with our partners and vendors with respect to transition and exit activities and exploring asset disposal opportunities, among other activities.

In the third quarter of 2007, we recorded the following charges related to our decision to exit Exubera:

These charges are included in Cost of sales ($2.6 billion), Selling, informational and administrative expenses ($83 million), Research and development expenses ($131 million) and Revenues ($10 million for an estimate of customer returns) in the third quarter of 2007.

The asset write-offs (intangibles, inventory and fixed assets) represent non-cash charges. The other exit costs, which includes contract termination charges, among other things, will result in future cash expenditures. During the implementation of the exit strategy, certain additional cash costs will be incurred and reported in future periods, such as, maintenance-level operating costs and demolition; however, at this time, those future costs are not expected to be material.

3) Change in Cost of Sales

Cost of sales increased 135% in the three months ended September 30, 2007, compared to the same period in 2006, and 59% in the nine months ended September 30, 2007, compared to the same period in 2006. These increases reflect charges of $2.6 billion associated with Exubera, unfavorable product mix, reflecting the loss of U.S. exclusivity on low manufacturing cost products, like Zoloft and Norvasc, the unfavorable impact of foreign exchange, as well as the impact of higher 2007 implementation costs associated with our cost-reduction initiatives, partially offset by the savings impact of our cost-base reduction efforts. Charges in cost of sales related to our cost-reduction initiatives were $173 million for the three months ended September 30, 2007, and $50 million for the three months ended October 1, 2006, and $437 million for the nine months ended September 30, 2007, and $278 million for the nine months ended October 1, 2006.

Cost of sales also includes $41 million for the three months ended September 30, 2007, and $121 million for the nine months ended September 30, 2007, related to business transition activities associated with the sale of our Consumer Healthcare business, completed in December 2006. These expenses are transitional in nature and generally result from agreements that seek to facilitate the orderly transfer of operations of our former Consumer Healthcare business to the new owner.

Cost of sales as a percentage of revenues increased 22.5 percentage points to 38.5% in the third quarter of 2007, reflecting charges of $2.6 billion associated with Exubera, unfavorable geographic and product mix in our portfolio, and the impact of higher 2007 implementation costs associated with our cost-reduction initiatives, compared to the same period in 2006, partially offset by the savings impact of our cost-base reduction efforts.

4) Change in Selling, Informational & Administrative (SI&A) Expenses and Research & Development (R&D) Expenses

Reported SI&A expenses in the three months and nine months ended September 30, 2007 were comparable to the same periods in 2006, reflecting the savings impact of our cost-reduction initiatives, offset by charges of $83 million associated with Exubera and the unfavorable impact of foreign exchange on expenses. Reported SI&A expense includes charges of $70 million for the three months ended September 30, 2007 and $63 million for the three months ended October 1, 2006, related to our cost-reduction initiatives, and $198 million for the nine months ended September 30, 2007 and $160 million for the nine months ended October 1, 2006.

Reported R&D expenses, excluding acquisition-related in-process research and development charges (IPR&D), increased 5% in the third quarter of 2007 compared to the same period in 2006, and increased 12% in the first nine months of 2007 compared to the same period in 2006. The third-quarter increase is primarily due to charges of $131 million associated with Exubera and higher costs associated with our cost-reduction initiatives, partially offset by lower milestone payments. The increase in the first nine-months is primarily due to collaboration payments made to Bristol-Myers-Squibb Company in the second quarter of 2007 for the development and commercialization of apixaban, as well as charges of $131 million associated with Exubera recorded in the third quarter of 2007. Reported R&D expenses includes charges of $130 million for the three months ended September 30, 2007, and $70 million for the three months ended October 1, 2006, related to our cost-reduction initiatives, and $292 million for the nine months ended September 30, 2007, and $132 million for the nine months ended October 1, 2006.

IPR&D charges of $283 million, primarily related to the acquisitions of BioRexis Pharmaceutical Corp. and Embrex, Inc., were recorded in the first quarter of 2007 and $513 million, primarily related to the acquisition of Rinat Neuroscience Corp., was recorded in the second quarter of 2006.

5) Other Income and Other Deductions

*Certain 2006 amounts were reclassified to conform to the 2007 presentation.

(a) Increases in net interest income in the third quarter and first nine months of 2007 compared to the same periods in 2006 were due primarily to higher interest rates and an increase in our net financial assets, reflecting proceeds of $16.6 billion from the sale of our Consumer Healthcare business in late December 2006.

6) Effective Tax Rate

The effective tax rates on reported Income from continuing operations before provision for taxes on income and minority interest for the third quarter of 2007 was a 25.4% benefit compared to an 18.1% cost in the third quarter of 2006, primarily reflecting the impact of charges associated with Exubera, among other factors. The effective tax rates on reported Income from continuing operations before provision for taxes on income and minority interest for the first nine months of 2007 was 12.7% compared to 15.6% in the first nine months of 2006, primarily reflecting the impact of charges associated with Exubera, the impact of a $283 million charge in the first nine months of 2007 compared to a $513 million charge for the same period in 2006 for acquired IPR&D, which is not deductible for tax purposes, as well as the volume and geographic mix of restructuring charges in the first nine months of 2007 compared to the same period in 2006, partially offset by certain one-time tax benefits in 2006 associated with favorable tax legislation and the resolution of certain tax positions in the first quarter of 2006. The effective tax rates on adjusted income¹ for the third quarter and first nine months of 2007 were 21.7% and 21.8% compared to 23.2% and 22.1% for the same periods in 2006.

7) Reconciliation of 2007 and 2008 Adjusted Income⁽¹⁾ and Adjusted Diluted EPS⁽¹⁾ Guidance to 2007 and 2008 Reported Net Income and Reported Diluted EPS Guidance