($ billions, except per-share amounts) Second Quarter 2006 2005 Revenues
$11.741 $11.452 Reported Net Income $2.415 $3.463 Reported Diluted EPS $.33
$.47 Adjusted Income(1) $3.663 $3.320 Adjusted Diluted EPS(1) $.50 $.45
[see end of text prior to tables for footnotes]
Cholesterol-Lowering Medicine Lipitor Posts 9-Percent Revenue Increase,
Antiarthritic Celebrex 17 Percent, Anti-Psychotic Geodon 14 Percent, New
Epilepsy/ Neuropathic Pain Drug Lyrica Exceeds Expectations
Second-Quarter 2006 Adjusted Diluted EPS(1) Increases 11 Percent to $.50;
Reported Diluted EPS Declines 30 Percent to $.33 Due to 2005 Tax Anomalies
Pfizer Raises 2006 Adjusted Diluted EPS(1) Estimate, Reported Diluted EPS
Now Estimated to Be About $1.60
Chairman and CEO McKinnell Cites Pfizer Consumer Healthcare Divestiture as
Part of Plan to Further Enhance Shareholder Value While Stepping Up
Business- Development Activities
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, primarily related to our
acquisition of Rinat Neurosciences Corp. in May 2006. In 2005, we
expensed $262 million of IPR&D, primarily related to our acquisition of
Idun Pharmaceuticals, Inc. on April 12, 2005.
5. Other (income)/deductions--net in the first quarter 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 $109 million and $97
million related to the Consumer Healthcare business for the three
months ended July 2, 2006 and July 3, 2005 and $211 million and $213
million for the six months ended July 2, 2006 and July 3, 2005. These
amounts do not include a prospective gain on the planned divestiture.
7. Provision/(benefit) for taxes on income in the first quarter of 2006
includes tax benefits associated with the resolution of certain tax
positions ($441 million) and in the second quarter of 2005, includes
tax benefits associated with the resolution of certain tax positions
($586 million) and a revision in the tax provision related to the
repatriation of foreign earnings ($490 million), reflecting revised
U.S. Treasury guidance. The six months ended July 3, 2005 includes the
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)
Second Quarter % Incr./ Six Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Reported net income $2,415 $3,463 (30) $6,526 $3,763 73
Purchase accounting
adjustments --
net of tax 1,085 815 33 1,666 1,436 16
Merger-related costs
-- net of tax 2 172 (99) 5 320 (98)
Discontinued operations
-- net of tax (125) (88) 43 (230) (232) -
Certain significant
items -- net of tax 286 (1,042) (127) 46 1,913 (98)
Adjusted income $3,663 $3,320 10 $8,013 $7,200 11
Reported diluted
earnings per common
share $0.33 $0.47 (30) $0.89 $0.51 75
Purchase accounting
adjustments -- net
of tax 0.15 0.11 36 0.22 0.19 16
Merger-related costs
-- net of tax - 0.02 * - 0.04 *
Discontinued operations
-- net of tax (0.02) (0.01) 100 (0.03) (0.03) -
Certain significant
items -- net of tax 0.04 (0.14) * 0.01 0.26 (96)
Adjusted diluted
earnings per common
share $0.50 $0.45 11 $1.09 $0.97 12
* Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
1. The above reconciliation 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. Adjusted income and Adjusted diluted earnings per common share as shown
above reflect the following items:
(millions of dollars) Second Quarter Six Months
2006 2005 2006 2005
Purchase accounting adjustments,
pre-tax:
In-process research and
development charges (a) $513 $260 $513 $262
Intangible amortization and
other (b) 801 826 1,611 1,676
Sale of acquired inventory
written up to fair value (c) - - - 4
Total purchase accounting
adjustments, pre-tax 1,314 1,086 2,124 1,942
Income taxes (229) (271) (458) (506)
Total purchase
accounting adjustments
-- net of tax 1,085 815 1,666 1,436
Merger-related costs, pre-tax:
Integration costs (d) 3 191 5 293
Restructuring costs (d) 3 52 6 166
Total merger-related costs,
pre-tax 6 243 11 459
Income taxes (4) (71) (6) (139)
Total merger-related
costs -- net of tax 2 172 5 320
Discontinued operations, pre-tax:
Income from discontinued
operations (e) (160) (134) (315) (290)
Gains on sales of discontinued
businesses (e) (26) - (31) (65)
Total discontinued operations,
pre-tax (186) (134) (346) (355)
Income taxes 61 46 116 123
Total discontinued
operations -- net of tax (125) (88) (230) (232)
Certain significant items, pre-tax
Asset impairment charges and other
costs associated with the suspension
of selling Bextra (f) - - - 1,213
Sanofi-aventis research and
development milestone (g) - - (118) -
Restructuring charges - Adapting
to Scale (d) 262 21 556 21
Implementation costs - Adapting
to Scale (h) 180 33 365 33
Gain on disposals of investments
and other (i) (23) - (74) -
Total certain significant items,
pre-tax 419 54 729 1,267
Income taxes (133) (20) (242) (467)
Resolution of certain tax
positions (j) - (586) (441) (586)
Tax impact for the repatriation
of foreign earnings (j) - (490) - 1,699
Total certain significant
items -- net of tax 286 (1,042) 46 1,913
Total purchase accounting
adjustments, merger-related
costs, discontinued
operations, and certain
significant items -- net of tax $1,248 $(143) $1,487 $3,437
(a) Included in Merger-related in-process research and development
charges.
(b) Included primarily in Amortization of intangible assets.
(c) Included in Cost of Sales.
(d) Included in Restructuring charges and merger-related costs.
(e) Discontinued operations--net of tax includes $109 million and $97
million related to the Consumer Healthcare business for the three
months ended July 2, 2006 and July 3, 2005 and $211 million and $213
million for the six months ended July 2, 2006 and July 3, 2005. These
amounts do not include a prospective gain on the planned divestiture.
(f) Included in Cost of sales ($56 million), Selling, informational and
administrative expenses ($5 million) and Other (income)/deductions-net
($1.2 billion) for the six months ended July 3, 2005.
(g) Included in Research and development expenses.
(h) Included in Cost of sales ($104 million), Selling, informational and
administrative expenses ($58 million), Research and development
expenses ($40 million) and in Other (income)/deductions-net ($22
million income) for the three months ended July 2, 2006 and included
in Cost of sales ($228 million), Selling, informational and
administrative expenses ($97 million), Research and development
expenses ($62 million) and in Other (income)/deductions - net ($22
million income) for the six months ended July 2, 2006. Included in
Cost of sales ($1 million), Selling, informational and administrative
expenses ($21 million), and Research and development expenses ($11
million) for the three months and six months ended July 3, 2005.
(i) Included in Other (income)/deductions - net.
(j) Included in Provision/(benefit) for taxes on income.
PFIZER INC AND SUBSIDIARY COMPANIES
RECONCILIATION FROM HUMAN HEALTH REPORTED REVENUES TO HUMAN HEALTH
ADJUSTED REVENUES
(UNAUDITED)
(millions of dollars)
Worldwide
Second Quarter % Incr./ Six Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Human Health
revenues $10,999 $10,723 3 $22,099 $22,236 (1)
Zoloft 706 796 (11) 1,485 1,641 (9)
Zithromax 164 424 (61) 414 1,221 (66)
Neurontin 123 161 (23) 250 343 (27)
Diflucan 110 129 (14) 217 267 (19)
Accupril/Accuretic 69 73 (6) 137 173 (21)
Bextra - (42) * - 14 *
Human Health adjusted
revenues $9,827 $9,182 7 $19,596 $18,577 5
U.S.
Second Quarter % Incr./ Six Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Human Health
revenues $5,781 $5,419 7 $12,121 $11,656 4
Zoloft 620 613 1 1,303 1,274 2
Zithromax 58 293 (80) 184 925 (80)
Neurontin 16 35 (54) 42 91 (53)
Diflucan (4) (2) * (1) 4 *
Accupril/Accuretic 8 3 134 18 32 (45)
Bextra - (34) * - (16) *
Human Health adjusted
revenues $5,083 $4,511 13 $10,575 $9,346 13
International
Second Quarter % Incr./ Six Months % Incr./
2006 2005 (Decr.) 2006 2005 (Decr.)
Total Human Health
revenues $5,218 $5,304 (2) $9,978 $10,580 (6)
Zoloft 86 183 (53) 182 367 (50)
Zithromax 106 131 (19) 230 296 (22)
Neurontin 107 126 (15) 208 252 (18)
Diflucan 114 131 (12) 218 263 (17)
Accupril/Accuretic 61 70 (12) 119 141 (16)
Bextra - (8) * - 30 *
Human Health adjusted
revenues $4,744 $4,671 2 $9,021 $9,231 2
* Calculation not meaningful.
Certain amounts and percentages may reflect rounding adjustments.
(1) Human Health adjusted revenues, which excludes the revenues of Bextra
and major products which have lost exclusivity in the U.S. since the
beginning of 2004, is an alternative view of our Human Health revenue
performance and we believe that investors' understanding of Human
Health revenue growth is enhanced by disclosing this performance
measure. Zoloft lost its U.S. exclusivity at the end of June 2006.
Zithromax lost its U.S. exclusivity in November 2005 and as is typical
in the pharmaceutical industry, this has resulted in a dramatic
decline in revenues due to generic competition. Neurontin, Diflucan
and Accupril/Accuretic lost their U.S. exclusivity in 2004 and
revenues continue to decline due to the impact of generic competition.
In accordance with requests from applicable regulatory authorities, we
suspended sales of Bextra in the U.S., E.U., Canada and many other
countries. We believe that excluding the impact of these products
assists the reader in understanding the underlying strength of the
balance of our diverse Human Health product portfolio in 2006.
Because of its non-standardized definition, this adjusted Human Health
revenues measure has limitations as it may not be comparable with the
calculation of similar measures of other companies. This additional
revenue measure is not, and should not be viewed as, a substitute for
the U.S. GAAP comparison of Human Health revenue growth.
(2) Human Health International adjusted revenues are also impacted
negatively by the loss of exclusivity of certain additional major
products, including Norvasc, which have lost exclusivity in many key
international markets. In addition, international adjusted revenues
reflect an adverse impact in the second quarter and first six months
of 2006 due to changes in foreign exchange rates.
PFIZER INC
SEGMENT/PRODUCT REVENUES
SECOND QUARTER 2006
(millions of dollars)
QUARTER-TO-DATE
WORLDWIDE U.S. INTERNATIONAL
% % %
2006 2005 Chg 2006 2005 Chg 2006 2005 Chg
TOTAL
REVENUES 11,741 11,452 3 6,094 5,728 6 5,647 5,724 (1)
HUMAN
HEALTH 10,999 10,723 3 5,781 5,419 7 5,218 5,304 (2)
- CARDIOVASCULAR
AND
METABOLIC
DISEASES 4,769 4,471 7 2,557 2,288 12 2,212 2,183 1
LIPITOR 3,123 2,858 9 1,856 1,680 11 1,267 1,178 8
NORVASC 1,158 1,156 - 560 523 7 598 633 (5)
CARDURA 139 155 (10) 2 1 32 137 154 (11)
CADUET 80 41 92 73 40 84 7 1 264
ACCUPRIL/
ACCURETIC 69 73 (6) 8 3 134 61 70 (12)
- CENTRAL
NERVOUS
SYSTEM
DISORDERS 1,643 1,537 7 1,051 873 20 592 664 (11)
ZOLOFT 706 796 (11) 620 613 1 86 183 (53)
LYRICA 271 38 606 172 - * 99 38 157
GEODON/
ZELDOX 165 145 14 136 119 14 29 26 16
NEURONTIN 123 161 (23) 16 35 (54) 107 126 (15)
ARICEPT** 88 86 3 - - - 88 86 3
XANAX/XR 79 104 (24) 16 35 (54) 63 69 (9)
RELPAX 67 50 35 42 28 50 25 22 15
- ARTHRITIS
AND PAIN 627 549 14 394 324 22 233 225 3
CELEBREX 471 401 17 355 306 16 116 95 22
- INFECTIOUS
AND
RESPIRATORY
DISEASES 835 1,102 (24) 271 520 (48) 564 582 (3)
ZYVOX 167 153 9 110 106 3 57 47 22
ZITHROMAX/
ZMAX 166 424 (61) 60 294 (80) 106 130 (19)
VFEND 118 91 30 37 31 19 81 60 36
DIFLUCAN 110 129 (14) (4) (2) * 114 131 (12)
- UROLOGY 660 626 6 358 320 12 302 306 (1)
VIAGRA 394 391 1 178 174 3 216 217 (1)
DETROL/
DETROL LA 255 222 15 176 142 24 79 80 (2)
- ONCOLOGY 540 513 5 211 178 19 329 335 (2)
CAMPTOSAR 238 233 2 130 123 6 108 110 (1)
ELLENCE 86 96 (11) 15 20 (22) 71 76 (8)
AROMASIN 75 58 31 25 18 39 50 40 27
SUTENT 36 - * 33 - * 3 - *
- OPHTHALMOLOGY 352 341 3 109 102 7 243 239 2
XALATAN/
XALACOM 351 341 3 109 102 7 242 239 2
- ENDOCRINE
DISORDERS 232 263 (12) 53 82 (36) 179 181 (1)
GENOTROPIN 191 201 (5) 49 56 (12) 142 145 (3)
- ALL
OTHER *** 1,017 1,073 (5) 588 598 (2) 429 475 (9)
ZYRTEC/
ZYRTEC D 377 355 6 377 355 6 - - -
- ALLIANCE
REVENUE
(Aricept,
Macugen,
Mirapex,
Olmetec,
Rebif
and
Spiriva) 324 248 31 189 134 41 135 114 19
ANIMAL
HEALTH 583 578 1 262 263 - 321 315 2
OTHER **** 159 151 6 51 46 9 108 105 4
* - Calculation not meaningful.
** - Represents direct sales under license agreement with Eisai Co.,
Ltd.
*** - Includes Pfizer CenterSource.
**** - Capsugel.
Certain amounts and percentages may reflect rounding adjustments.
Certain prior year data have been reclassified to conform to the current
year presentation.
PFIZER INC
SEGMENT/PRODUCT REVENUES
SIX MONTHS 2006
(millions of dollars)
YEAR-TO-DATE
WORLDWIDE U.S. INTERNATIONAL
% % %
2006 2005 Chg 2006 2005 Chg 2006 2005 Chg
TOTAL
REVENUES 23,488 23,595 - 12,710 12,228 4 10,778 11,367 (5)
HUMAN
HEALTH 22,099 22,236 (1) 12,121 11,656 4 9,978 10,580 (6)
- CARDIOVASCULAR
AND
METABOLIC
DISEASES 9,517 9,197 3 5,308 4,854 9 4,209 4,343 (3)
LIPITOR 6,230 5,932 5 3,830 3,593 7 2,400 2,339 3
NORVASC 2,341 2,331 - 1,186 1,063 12 1,155 1,268 (9)
CARDURA 265 309 (14) 4 3 38 261 306 (15)
CADUET 157 73 116 146 69 110 11 4 243
ACCUPRIL/
ACCURETIC 137 173 (21) 18 32 (45) 119 141 (16)
- CENTRAL
NERVOUS
SYSTEM
DISORDERS 3,287 3,129 5 2,138 1,827 17 1,149 1,302 (12)
ZOLOFT 1,485 1,641 (9) 1,303 1,274 2 182 367 (50)
LYRICA 463 58 693 286 - * 177 58 203
GEODON/
ZELDOX 347 282 23 286 231 24 61 51 21
NEURONTIN 250 343 (27) 42 91 (53) 208 252 (18)
ARICEPT** 170 170 - - - - 170 170 -
XANAX/XR 161 206 (22) 39 69 (43) 122 137 (11)
RELPAX 133 103 29 86 60 44 47 43 9
- ARTHRITIS
AND PAIN 1,268 1,188 7 830 652 27 438 536 (18)
CELEBREX 962 813 18 746 571 31 216 242 (10)
- INFECTIOUS
AND
RESPIRATORY
DISEASES 1,772 2,585 (31) 681 1,403 (51) 1,091 1,182 (8)
ZITHROMAX/
ZMAX 425 1,221 (65) 194 926 (79) 231 295 (22)
ZYVOX 353 296 19 247 210 17 106 86 24
VFEND 235 179 32 83 65 28 152 114 34
DIFLUCAN 217 267 (19) (1) 4 * 218 263 (17)
- UROLOGY 1,323 1,328 - 745 735 2 578 593 (3)
VIAGRA 784 829 (5) 375 403 (7) 409 426 (4)
DETROL/
DETROL LA 515 474 9 361 321 12 154 153 1
- ONCOLOGY 1,010 992 2 390 341 14 620 651 (5)
CAMPTOSAR 450 445 1 242 227 6 208 218 (5)
ELLENCE 159 186 (15) 28 38 (24) 131 148 (12)
AROMASIN 145 113 29 53 38 41 92 75 23
SUTENT 52 - * 49 - * 3 - *
- OPHTHALMOLOGY 689 674 2 232 206 12 457 468 (2)
XALATAN/
XALACOM 688 673 2 232 206 12 456 467 (2)
- ENDOCRINE
DISORDERS 478 521 (8) 130 170 (24) 348 351 (1)
GENOTROPIN 388 404 (4) 113 119 (5) 275 285 (4)
- ALL
OTHER *** 2,107 2,132 (1) 1,270 1,192 6 837 940 (11)
ZYRTEC/
ZYRTEC D 798 697 15 798 697 15 - - -
- ALLIANCE
REVENUE
(Aricept,
Macugen,
Mirapex,
Olmetec,
Rebif and
Spiriva) 648 490 32 397 276 44 251 214 18
ANIMAL
HEALTH 1,094 1,073 2 491 482 2 603 591 2
OTHER **** 295 286 4 98 90 9 197 196 1
* - Calculation not meaningful.
** - Represents direct sales under license agreement with Eisai Co.,
Ltd.
*** - Includes Pfizer CenterSource.
**** - Capsugel.
Certain amounts and percentages may reflect rounding adjustments.
Certain prior year data have been reclassified to conform to the current
year presentation.
PFIZER INC
SUPPLEMENTAL FINANCIAL INFORMATION
1) Impact of Foreign Exchange on Revenues
The strength of the U.S. dollar relative to other currencies, primarily
the euro, Japanese yen, and British pound, in the second quarter of 2006
relative to the same period in the prior year, unfavorably impacted
revenues of Pfizer Inc by $203 million, or 2%. The strength of the U.S.
dollar relative to other currencies, primarily the euro and Japanese yen,
in the first six months of 2006 compared to the same period in 2005
unfavorably impacted revenues of Pfizer Inc. by $561 million, or 2%.
2) Change in Cost of Sales
Cost of sales as a percentage of revenues improved to 15.2% in the
second quarter of 2006 from 15.4% in the second quarter of 2005. The
improvement in the cost of sales margin in part reflects a favorable
geographic mix, representing a greater portion of sales in the U.S. versus
the prior-year period.
Cost of sales as a percentage of revenues improved to 14.7% for the
first six months of 2006 from 15.4% for the first six months of 2005. The
improvement reflects favorable geographic mix and the favorable impact of
foreign exchange on expenses in 2006, as well as the impact in the
prior-year period of inventory write-offs of $56 million related to the
suspension of Bextra sales.
Cost of sales as a percentage of revenues for the second quarter and
first half of 2006 also benefited from the realization of savings
associated with the Adapting to Scale (AtS) productivity initiative. Cost
of sales also includes charges of $105 million and $228 million related to
AtS implementation costs in the three months and six months ended July 2,
2006. Cost of sales included charges of $1 million related to AtS
implementation costs in the second quarter of 2005.
Cost of sales as a percentage of revenues for the pre-tax component of
adjusted income(1) is expected to be higher in the second half of the year
relative to the prior year due to changes in geographic mix as well as
production variances. We expect that full-year 2006 cost of sales as a
percentage of revenues, as a pre-tax component of adjusted income(1), will
reflect a modest improvement over the prior year.
3) Savings and Costs Relating to Adapting-to-Scale (AtS) Productivity
Initiative
This initiative, launched in the first quarter of 2005, involves a
comprehensive, multi-year review of our processes, organizations, systems,
and decision making to identify and capitalize on opportunities to make the
company more effective and efficient. Savings realized during the second
quarter and first six months of 2006 total approximately $500 million and
$1 billion, respectively. We continue to expect annual savings of at least
$2 billion in 2006, growing to about $4 billion in 2008, consistent with
prior estimates, notwithstanding the divestiture of Pfizer Consumer
Healthcare and the expense reductions associated with that business.
Costs relating to the AtS productivity initiative were $442 million and
$922 million for the second quarter and first six months of 2006,
respectively, with full-year 2006 costs now projected to be about $1.7
billion ($1.1 billion, after tax), versus the prior estimate of $1.8 to
$2.2 billion ($1.1 billion to $1.4 billion, after tax). We continue to
expect the costs associated with this multi-year effort to continue through
2008 and to total $4 billion to $5 billion, pre-tax.
4) Change in Selling, Informational & Administrative (SI&A) Expenses and
Research & Development (R&D) Expenses
SI&A expenses and R&D expenses, inclusive of Merger-related in-process
research and development charges (IPR&D), increased 3% and 8%,
respectively, in the second quarter of 2006 compared to the prior year. The
R&D increase reflects IPR&D charges of $513 million, primarily related to
the acquisition of Rinat Neuroscience Corp. (Rinat) as compared to $262
million recorded in the first six months of 2005, primarily related to our
acquisition of Idun Pharmaceuticals, Inc. The level of growth of SI&A
expenses and R&D expenses, inclusive of IPR&D, is also impacted by savings
related to the AtS productivity initiative.
SI&A expenses declined 2% and R&D expenses, inclusive of IPR&D, were
flat in the first six months of 2006 versus the prior year. Reflected in
these results are savings related to the AtS productivity initiative. Our
calculation of R&D expenses, inclusive of IPR&D, in 2006 also includes an
R&D milestone payment due to us from sanofi-aventis (approximately $118
million, pre-tax). In addition, just as changes in foreign-exchange rates
reduced revenues, it also reduced expenses in the second quarter and first
six months of 2006.
Reflecting primarily the reclassification of Pfizer Consumer Healthcare
results to Discontinued Operations, we now expect 2006 expenditures
representing the R&D and SI&A pre-tax components of adjusted income(1) to
approximate $7.6 billion and $15.4 billion, respectively.
5) Other Income and Other Deductions
($ millions) Second Quarter Six Months
2006 2005* 2006 2005*
Net Interest (Income)/Expense $(106) $(54) $(158) $(70)
Impairment of Bextra-Related
Long-Lived Assets -- (3) -- 1,152
Royalties (102) (77) (184) (143)
Gains on Disposals of
Investments/Product Lines (37) (52) (114) (53)
Other, Net (114) (12) (159) (32)
Other (Income)/Deductions-Net $(359) $(198) $(615) $854
* Certain 2005 amounts were reclassified to conform to the 2006
presentation.
In connection with the decision to suspend sales of Bextra in the first
quarter of 2005, we recorded a charge of $1.1 billion relating to the
impairment of Bextra's intangible assets for developed technology rights
and the write-off of machinery and equipment of $7 million.
6) Effective Tax Rate
The effective tax rate used in calculating reported income from
continuing operations and adjusted income(1) for the second quarter of 2006
is 25.6% and 24.0%, respectively. The effective tax rate used in
calculating reported income from continuing operations and adjusted
income(1) for the first six months of 2006 is 14.3% and 21.5%,
respectively. The effective tax rates used in calculating both adjusted
income(1) and reported income from continuing operations for the first six
months of 2006 were impacted by a favorable tax-law change that affects
certain restructuring activity undertaken in prior years. Under generally
accepted accounting principles, the full-year impact of this change in tax
law has been recognized in the first quarter of 2006. We continue to expect
an effective tax rate on adjusted income(1) of 22.5% for the full year.
In the first quarter of 2006, we reached a resolution of certain open
tax positions. As a result, we recognized a tax benefit of $441 million in
our reported net income in the first quarter of 2006.
Pfizer Effective Tax Rate Excluding Consumer Healthcare
First Second Second Full
Quarter Quarter Half (est.) Year (est.)
2005 Reported(a) 94.2%(c) (15.9%)(c,d) 20.7% 29.4%
2005 Adjusted(b) 22.6% 22.7% 20.9% 21.8%
2006 Reported(a) 6.1%(d,e) 25.6% 22.6%(f) 18.4%(f)
2006 Adjusted(b) 19.4%(e) 24.0% 23.6%(f) 22.5%(f)
(a) 2005 and 2006 Reported are based on income from continuing operations.
(b) Used in the development of adjusted income(1).
(c) The increased tax rate in the first quarter of 2005 was due to tax
costs associated with our program in 2005 to repatriate foreign
earnings under the American Jobs Creation Act (AJCA). The reduced tax
rate in the second quarter of 2005 was due in part to a revision in
the tax cost of repatriation of foreign earnings under the AJCA,
reflecting revised U.S. Treasury guidance.
(d) The reduced tax rate in these respective quarters reflects audit
settlements.
(e) The reduced tax rate reflects a favorable tax-law change.
(f) The rates for second-half and full-year 2006 are forecasted, subject
to the cautionary factors cited in our accompanying Disclosure Notice,
as well as those listed in our Form 10-K, and therefore are subject to
change.
7) Seasonality Considerations in 2006 P&L Quarterly Results
Following is a summary of seasonality considerations affecting
anticipated results in 2006:
Revenues: A number of factors affect Pfizer's quarterly revenue
patterns in 2006. As previously noted, the adverse effect of foreign
currencies reduced reported revenue growth by $203 million, or 2%, in the
second quarter of 2006, and reduced reported revenue growth by $561
million, or 2%, in the first six months of 2006. At current exchange rates,
we anticipate that this adverse impact will turn favorable over the
remainder of the year. Revenues will be adversely impacted by the U.S.
patent expiration of Zoloft at the end of the second quarter of 2006.
Revenues are expected to increasingly benefit over the course of the year
from recent and upcoming new-product launches. We continue to expect 2006
revenues to be comparable to those in 2005.
Cost of sales: See item 2.
Operating Expenses: SI&A and R&D expenses, inclusive of IPR&D, reflect
increases of 3% and 8% in the second quarter of 2006 and a decline of 2% in
SI&A and no change in R&D, inclusive of IPR&D, during the first six months
of 2006 compared to the same periods in 2005, due to expense constraint,
AtS- related savings, and the favorable impact of foreign exchange on
expenses. As savings from our AtS initiatives first began to be realized in
the third quarter of 2005, operating-expense comparisons during the first
half of the year benefit from savings in SI&A expenses and R&D expenses,
inclusive of IPR&D, associated with AtS productivity initiatives. We expect
that the favorable effect of foreign exchange on operating expenses will
reverse in the second half of the year. Higher spending is anticipated
during the second half of the year for the SI&A and R&D pre-tax components
of adjusted income(1), reflecting the timing of promotional investments
associated with new-product launches, as well as the timing of research and
development programs.
Effective Tax Rate: See item 6.
8) Reconciliation of Forecasted 2006 Adjusted Income(1) and Adjusted
Diluted EPS(1) to Forecasted 2006 Reported Net Income and Reported
Diluted EPS
Full-Year 2006 Forecast
($ billions, except per-share amounts) Net Income(a) Diluted EPS(a)
Income/(Expense)
Forecasted Adjusted Income/Diluted EPS(1) ~$14.7 ~$2.00
Purchase Accounting Impacts, Net of Tax (b) (2.9) (0.40)
Adapting-to-Scale Costs, Net of Tax (1.1) (0.15)
Income From Discontinued Operations, Net
of Tax (c) 0.5 0.07
Equity Sales / Other 0.2 0.02
Resolution of Certain Tax Positions 0.4 0.06
Forecasted Reported Net Income/Diluted EPS ~ $11.8 ~$1.60
(a) Forecasts in the table above do not include the effects of business-
development transactions not completed as of the end of the second
quarter of 2006. Forecasts in the table do not include the potential
impact from a substantial prospective gain on the divestiture of
Pfizer Consumer Healthcare.
(b) Increase in purchase accounting impacts versus the prior estimate
reflects Merger-related in-process research & development charges
associated primarily with the Rinat acquisition.
(c) Primarily reflects the reclassification of Pfizer Consumer Healthcare
to discontinued operations.
9) Consumer Healthcare
Consumer Healthcare revenues and net income were $1.0 billion and $109
million, respectively, for the three months ended July 2, 2006. Consumer
Healthcare revenues and net income were $1.9 billion and $211 million,
respectively, for the six months ended July 2, 2006.
10) Share-Purchase Program
In total, the Company purchased approximately 80 million shares at a
total cost of about $2 billion during the first six months of 2006. Given
the expected after-tax proceeds from the sale of Pfizer Consumer Healthcare
and projected cash flows from operations, we expect to purchase up to $7
billion of the Company's stock in 2006 and up to $10 billion in 2007. In
June 2006, the Board of Directors increased our share-purchase
authorization from $5 billion to $18 billion.
(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.
DISCLOSURE NOTICE: The information contained in this document and the
attachments is as of July 20, 2006. The Company assumes no obligation to
update any forward-looking statements contained in this document or the
attachments as a result of new information or future events or
developments.
This document and the attachments contain forward-looking information
about the Company's financial results and estimates, business prospects,
in- line products, and product candidates that involve substantial risks
and uncertainties, including, without limitation, information about the
Company's agreement to sell its Consumer Healthcare business to Johnson &
Johnson and the use of the sale proceeds as well as about the Company's
stock-purchase plans. 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 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 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; competitive developments
affecting our current growth products; the ability to successfully market
both new and existing products domestically and internationally;
difficulties or delays in manufacturing; trade buying patterns; the ability
to meet generic and branded competition after the loss of patent protection
for our products and competitor products; the impact of existing and future
regulatory provisions on product exclusivity; trends toward managed care
and health care cost containment; possible U.S. legislation or regulatory
action affecting, among other things, pharmaceutical pricing and
reimbursement, including under Medicaid and Medicare, the importation of
prescription drugs that are marketed outside the U.S. and sold at prices
that are regulated by governments of various foreign countries, and the
involuntary approval of prescription medicines for over-the-counter use;
the potential impact of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003; legislation or regulations in markets outside
the U.S. affecting 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; 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; changes in generally accepted accounting principles; any
changes in business, political, and economic conditions due to the threat
of future 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 Adapting to Scale multi-year productivity initiative and the ability of
the Company and Johnson & Johnson to satisfy the conditions to closing the
sale of the Company's Consumer Healthcare business, including receiving the
required regulatory approvals. A further list and description of these
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, 2005, and
in its reports on Forms 10-Q and 8-K.
This document includes 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.
SOURCE Pfizer Inc
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CONTACT:
Media, Andy McCormick, +1-212-733-5469, or
Paul Fitzhenry, +1-212-733-4637, or Investors, Ron Aldridge,
+1-212-573-3685, or Carol Schimmelpfenneg, +1-212-573-2718, all
of Pfizer Inc
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