a5959163.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
__X__QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 29, 2009
OR
TRANSITION
REPORT PURSUANT TO SECTION 13
OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
COMMISSION
FILE NUMBER 1-3619
----
PFIZER
INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
(State
of Incorporation)
|
13-5315170
(I.R.S.
Employer Identification
No.)
|
235 East
42nd
Street, New York, New York 10017
(Address
of principal executive offices) (zip code)
(212)
573-2323
(Registrant’s
telephone number)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large
Accelerated filer
|
X
|
|
Accelerated
filer
|
|
|
Non-accelerated
filer
|
|
|
Smaller
reporting company
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
At May 5,
2009, 6,747,979,039 shares of the issuer’s voting common stock were
outstanding.
FORM
10-Q
For
the Quarter Ended
March
29, 2009
Table
of Contents
|
Page
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
21
|
|
|
|
|
|
22
|
|
|
|
|
|
51
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
54
|
|
|
|
|
|
55
|
|
|
|
|
|
55
|
|
|
|
|
|
55
|
|
|
|
|
|
57
|
|
|
|
|
|
57
|
|
|
|
58
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
|
|
|
|
|
Three
Months Ended
|
|
(millions,
except per common share data)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales(a)
|
|
|
1,408 |
|
|
|
1,986 |
|
Selling, informational and
administrative expenses(a)
|
|
|
2,876 |
|
|
|
3,492 |
|
Research and development
expenses(a)
|
|
|
1,705 |
|
|
|
1,791 |
|
Amortization of intangible
assets
|
|
|
578 |
|
|
|
779 |
|
Acquisition-related in-process
research and development charges
|
|
|
– |
|
|
|
398 |
|
Restructuring charges and
acquisition-related costs
|
|
|
554 |
|
|
|
178 |
|
Other (income)/deductions –
net
|
|
|
(57 |
) |
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,803 |
|
|
|
3,557 |
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
1,074 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,729 |
|
|
|
2,794 |
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - net of tax
|
|
|
1 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,730 |
|
|
|
2,790 |
|
|
|
|
|
|
|
|
|
|
Less: Net
income attributable to noncontrolling interests
|
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Pfizer Inc.
|
|
$ |
2,729 |
|
|
$ |
2,784 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic:
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc. common shareholders
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
Discontinued operations - net of
tax
|
|
|
– |
|
|
|
– |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share – diluted:
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc. common shareholders
|
|
$ |
0.40 |
|
|
$ |
0.41 |
|
Discontinued operations - net of
tax
|
|
|
– |
|
|
|
– |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.40 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used to calculate earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,723 |
|
|
|
6,739 |
|
Diluted
|
|
|
6,753 |
|
|
|
6,762 |
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.32 |
|
|
$ |
0.32 |
|
(a)
Exclusive of amortization of intangible assets, except as disclosed in
Note 10B. Goodwill and
Other Intangible Assets:Other Intangible
Assets.
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
(millions
of dollars)
|
|
Mar. 29,
2009*
|
|
|
Dec. 31,
2008**
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,247 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
32,805 |
|
|
|
21,609 |
|
Accounts
receivable, less allowance for doubtful accounts
|
|
|
9,596 |
|
|
|
8,958 |
|
Short-term
loans
|
|
|
793 |
|
|
|
824 |
|
Inventories
|
|
|
4,458 |
|
|
|
4,381 |
|
Taxes
and other current assets
|
|
|
5,055 |
|
|
|
5,034 |
|
Assets
held for sale
|
|
|
299 |
|
|
|
148 |
|
Total current
assets
|
|
|
54,253 |
|
|
|
43,076 |
|
Long-term
investments and loans
|
|
|
13,536 |
|
|
|
11,478 |
|
Property,
plant and equipment, less accumulated depreciation
|
|
|
12,936 |
|
|
|
13,287 |
|
Goodwill
|
|
|
21,482 |
|
|
|
21,464 |
|
Identifiable
intangible assets, less accumulated amortization
|
|
|
16,923 |
|
|
|
17,721 |
|
Other
assets, deferred taxes and deferred charges
|
|
|
3,802 |
|
|
|
4,122 |
|
Total
assets
|
|
$ |
122,932 |
|
|
$ |
111,148 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Short-term
borrowings, including current portion of long-term debt
|
|
$ |
7,613 |
|
|
$ |
9,320 |
|
Accounts
payable
|
|
|
1,573 |
|
|
|
1,751 |
|
Dividends
payable
|
|
|
1 |
|
|
|
2,159 |
|
Income
taxes payable
|
|
|
542 |
|
|
|
656 |
|
Accrued
compensation and related items
|
|
|
1,565 |
|
|
|
1,667 |
|
Other
current liabilities
|
|
|
12,046 |
|
|
|
11,456 |
|
Total current
liabilities
|
|
|
23,340 |
|
|
|
27,009 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
21,064 |
|
|
|
7,963 |
|
Pension
benefit
obligations
|
|
|
4,038 |
|
|
|
4,235 |
|
Postretirement
benefit obligations
|
|
|
1,604 |
|
|
|
1,604 |
|
Deferred
taxes
|
|
|
2,849 |
|
|
|
2,959 |
|
Other
taxes payable
|
|
|
6,770 |
|
|
|
6,568 |
|
Other
noncurrent liabilities
|
|
|
2,826 |
|
|
|
3,070 |
|
Total
liabilities
|
|
|
62,491 |
|
|
|
53,408 |
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
69 |
|
|
|
73 |
|
Common
stock
|
|
|
443 |
|
|
|
443 |
|
Additional
paid-in capital
|
|
|
70,201 |
|
|
|
70,283 |
|
Employee
benefit trust, at fair
value
|
|
|
(285 |
) |
|
|
(425 |
) |
Treasury
stock
|
|
|
(57,363 |
) |
|
|
(57,391 |
) |
Retained
earnings
|
|
|
51,863 |
|
|
|
49,142 |
|
Accumulated
other comprehensive expense
|
|
|
(4,673 |
) |
|
|
(4,569 |
) |
Total Pfizer Inc. shareholders’
equity
|
|
|
60,255 |
|
|
|
57,556 |
|
Equity
attributable to noncontrolling interests
|
|
|
186 |
|
|
|
184 |
|
Total shareholders’
equity
|
|
|
60,441 |
|
|
|
57,740 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
122,932 |
|
|
$ |
111,148 |
|
* |
Unaudited. |
** |
Condensed from
audited financial
statements. |
See
accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
Three
Months Ended
|
|
(millions
of dollars)
|
|
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling
interests
|
|
$ |
2,730 |
|
|
$ |
2,790 |
|
Adjustments
to reconcile net income before allocation to noncontrolling interests to
net
cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,008 |
|
|
|
1,487 |
|
Share-based compensation
expense
|
|
|
71 |
|
|
|
101 |
|
Acquisition-related in-process
research and development charges
|
|
|
– |
|
|
|
398 |
|
Deferred taxes from continuing
operations
|
|
|
533 |
|
|
|
544 |
|
Other non-cash
adjustments
|
|
|
(296 |
) |
|
|
213 |
|
Changes in assets and
liabilities (net of businesses acquired and divested)
|
|
|
(899 |
) |
|
|
(2,262 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
3,147 |
|
|
|
3,271 |
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(253 |
) |
|
|
(483 |
) |
Purchases
of short-term investments
|
|
|
(17,724 |
) |
|
|
(10,648 |
) |
Proceeds
from redemptions and sales of short-term investments
|
|
|
6,711 |
|
|
|
6,817 |
|
Purchases
of long-term investments
|
|
|
(3,442 |
) |
|
|
(498 |
) |
Proceeds
from redemptions and sales of long-term investments
|
|
|
889 |
|
|
|
42 |
|
Acquisitions,
net of cash acquired
|
|
|
– |
|
|
|
(610 |
) |
Other
|
|
|
185 |
|
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(13,634 |
) |
|
|
(5,484 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Increase
in short-term borrowings, net
|
|
|
10,774 |
|
|
|
4,899 |
|
Principal
payments on short-term borrowings
|
|
|
(12,100 |
) |
|
|
(1,955 |
) |
Proceeds
from issuances of long-term debt, net
|
|
|
13,392 |
|
|
|
602 |
|
Principal
payments on long-term debt
|
|
|
(303 |
) |
|
|
(561 |
) |
Cash
dividends paid
|
|
|
(2,133 |
) |
|
|
(2,138 |
) |
Stock
option transactions and other
|
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
9,635 |
|
|
|
848 |
|
Effect
of exchange-rate changes on cash and cash equivalents
|
|
|
(23 |
) |
|
|
(28 |
) |
Net
decrease in cash and cash equivalents
|
|
|
(875 |
) |
|
|
(1,393 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
2,122 |
|
|
|
3,406 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
1,247 |
|
|
$ |
2,013 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
454 |
|
|
$ |
640 |
|
Interest
|
|
|
84 |
|
|
|
166 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of
Presentation
We
prepared the condensed consolidated financial statements following the
requirements of the Securities and Exchange Commission (SEC) for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by accounting principles generally
accepted in the United States of America (U.S. GAAP) can be condensed or
omitted. Balance sheet amounts and operating results for subsidiaries operating
outside the U.S. are as of and for the three-month periods ended February 22,
2009, and February 24, 2008.
We made
certain reclassifications to prior-period amounts to conform to the
first-quarter 2009 presentation related to the presentation of noncontrolling
interests as a result of adopting a new accounting standard (See Note 2. Adoption of New Accounting
Policies.)
Revenues,
expenses, assets and liabilities can vary during each quarter of the year.
Therefore, the results and trends in these interim financial statements may not
be representative of those for the full year.
We are
responsible for the unaudited financial statements included in this
document. The financial statements include all normal and recurring
adjustments that are considered necessary for the fair presentation of our
financial position and operating results.
The
information included in this Quarterly Report on Form 10-Q should be read in
conjunction with the consolidated financial statements and accompanying notes
included in Pfizer’s Annual Report on Form 10-K for the year ended December
31, 2008.
On January
26, 2009, we announced that we entered into a definitive merger agreement under
which we will acquire Wyeth in a cash-and-stock transaction valued on that date
at $50.19 per share, or a total of $68 billion. While we have taken actions and
incurred costs associated with the pending transaction that are reflected in our
financial statements, the pending acquisition of Wyeth will not be reflected in
our financial statements until consummation. (See Note 14. Pending Acquisition of
Wyeth.)
Note 2. Adoption of New
Accounting Policies
As of
January 1, 2009, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 141R, Business Combinations, as
amended. SFAS 141R, as amended, retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in purchase accounting. It also changes
the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development costs at fair value and requires the expensing of
acquisition-related costs as incurred. The adoption of SFAS 141R, as amended,
did not impact our consolidated financial statements upon adoption, but does
impact the accounting for future acquisitions, including our pending acquisition
of Wyeth.
As of
January 1, 2009, we adopted FASB Financial Staff Position (FSP) SFAS No. 142-3,
Determination of the Useful
Life of Intangible Assets. FSP SFAS 142-3 amends the factors considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset. Among other things, in the absence of
historical experience, an entity will be required to consider assumptions used
by market participants. The adoption of FSP SFAS 142-3 did not impact our
consolidated financial statements upon adoption, but could impact the accounting
for future acquisitions.
As of
January 1, 2009, we adopted the provisions of FASB SFAS No. 157, Fair Value Measurements, as
amended, that we did not adopt as of January 1, 2008. SFAS 157, as amended,
defines fair value, expands related disclosure requirements and specifies a
hierarchy of valuation techniques based on the nature of the inputs used to
develop the fair value measures. The adoption of the remaining provisions of
SFAS 157, as amended, did not have a significant impact on our consolidated
financial statements upon adoption, but will impact the accounting for future
acquisitions, including our pending acquisition of Wyeth, and other events and
transactions measured at fair value.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of
January 1, 2009, we adopted FASB SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research
Bulletin No. 51, Consolidated
Financial Statements. SFAS 160 provides guidance for the accounting,
reporting and disclosure of noncontrolling interests, previously referred to as
minority interests. A noncontrolling interest represents the portion of equity
(net assets) in a subsidiary not attributable, directly or indirectly, to a
parent. The adoption of SFAS 160 resulted in a number of changes to the
presentation of our consolidated financial statements, but the amounts
associated with noncontrolling interests are not significant. SFAS 160 could
impact our accounting for future acquisitions where we do not acquire 100% of
the entity and our accounting for the deconsolidations of
subsidiaries.
As of
January 1, 2009, we adopted Emerging Issues Task Force (EITF) Issue No. 07-1,
Accounting for Collaborative
Arrangements. EITF 07-1 provides guidance on: determining whether an
arrangement constitutes a collaborative arrangement within the scope of the
Issue; how costs incurred and revenue generated on sales to third parties should
be reported in the income statement; how an entity should characterize payments
on the income statement; and what participants should disclose in the notes to
the financial statements about a collaborative arrangement. The adoption of EITF
07-1 did not have a significant impact on our consolidated financial statements,
and additional disclosures have been provided. (See Note 4. Collaborative
Arrangements.)
As of
January 1, 2009, we adopted EITF Issue No. 08-3, Accounting by Lessees for
Maintenance Deposits. EITF 08-3 provides guidance that maintenance
deposits paid by a lessee and subsequently refunded only if a lessee fulfills a
maintenance obligation will be accounted for as a deposit asset. The adoption of
EITF 08-3 did not have a significant impact on our consolidated financial
statements.
As of
January 1, 2009, we adopted EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations. EITF 08-6 clarifies how to account for certain
transactions involving equity method investments in areas such as how to
determine the initial carrying value of the investment; how to allocate the
difference between the investor’s carrying value and the investor’s share of the
underlying equity of the investment; how to perform an impairment assessment of
underlying intangibles held by the investee; how to account for the investee’s
issuance of additional shares; and how to account for an investment on the cost
method when it had been previously accounted for under the equity method. The
adoption of EITF 08-6 did not have a significant impact on our consolidated
financial statements, but could impact the accounting for future equity method
investments.
As of
January 1, 2009, we adopted EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets. EITF 08-7 clarifies the accounting for certain separately
identifiable assets, which an acquirer does not intend to actively use but
intends to hold to prevent its competitors from obtaining access to them. EITF
08-7 requires an acquirer to account for a defensive intangible asset as a
separate unit of accounting, which should be amortized to expense over the
period the asset diminishes in value. The adoption of EITF 08-7 did not have a
significant impact on our consolidated financial statements, but could impact
the accounting for future acquisitions.
Note 3.
Acquisitions
In the
first quarter of 2008, we acquired CovX, a privately held biotherapeutics
company specializing in preclinical oncology and metabolic research and the
developer of a biotherapeutics technology platform that we expect will enhance
our biologic portfolio. Also in the first quarter of 2008, we acquired all the
outstanding shares of Coley Pharmaceutical Group, Inc., (Coley), a
biopharmaceutical company specializing in vaccines and drug candidates designed
to fight certain cancers, allergy and asthma disorders, and autoimmune diseases,
for approximately $230 million. In connection with these and two smaller
acquisitions related to Animal Health, we recorded approximately $398 million in
Acquisition-related in-process
research and development charges.
Note 4. Collaborative
Arrangements
In the
normal course of business, we enter into collaborative arrangements with respect
to in-line medicines as well as medicines in development that require completion
of research and regulatory approval. Collaborative arrangements are contractual
agreements with third parties that involve a joint operating activity, typically
a research and/or commercialization effort, where both we and our partner are
active participants in the activity and are exposed to the significant risks and
rewards of the activity. Our rights and obligations under each
collaborative arrangement can vary. For example, we have agreements to
co-promote pharmaceutical products discovered by other companies, and we have
agreements where we partner to co-develop and/or participate together in
commercializing, marketing, promoting, manufacturing, or distributing a drug
product.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Payments
to or from our collaboration partners are presented in the statement of income
based on the nature of the arrangement (including its contractual terms), the
nature of the payments and applicable accounting guidance. Under co-promotion
agreements, we record the amounts received from our partners as alliance
revenues, a component of Revenues, when our
co-promotion partners are the principal in the transaction and we receive a
share in their net sales or profits. Alliance revenues are recorded when our
co-promotion partners ship the related product and title passes to their
customer. Expenses for selling and marketing these products are included in
Selling, informational and
administrative expenses. In arrangements where we manufacture product for
our partner, we record revenues when our partner sells the product and title
passes to their customer. All royalty payments to collaboration partners are
recorded as part of Cost of
sales.
The
amounts and classifications of payments (income/(expense)) between us and our
collaboration partners follow:
(millions
of dollars)
|
|
First
Quarter
|
|
|
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
Revenues
– Revenues(a)
|
|
$ |
132 |
|
|
$ |
100 |
|
|
Revenues
– Alliance revenues (b)
|
|
|
582 |
|
|
|
488 |
|
|
Total
Revenues
|
|
|
714 |
|
|
|
588 |
|
|
Cost
of sales (c)
|
|
|
(56 |
) |
|
|
(31 |
) |
|
Selling,
informational and administrative expenses
|
|
|
(17 |
) |
|
|
(7 |
) |
|
Research
and development expenses(d)
|
|
|
(194 |
) |
|
|
(50 |
) |
|
(a)
|
Represents
sales to our partners of products manufactured by
us.
|
(b)
|
Substantially
all related to amounts earned from our partners under co-promotion
agreements.
|
(c)
|
Primarily
related to royalties earned by our partners and cost of sales associated
with inventory purchased from our
partners.
|
(d)
|
Primarily
related to net reimbursements earned by our partners except that the first
quarter of 2009 also includes a $150 million milestone payment to one of
our partners.
|
The
amounts disclosed in the above table do not include transactions with third
parties other than our collaboration partners, or other costs associated with
the products under the collaboration arrangements.
Note 5. Cost-Reduction
Initiatives
We
incurred the following costs in connection with all of our cost-reduction
initiatives which began in 2005:
|
|
First
Quarter
|
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
|
|
Implementation
costs(a)
|
|
$ |
174 |
|
|
$ |
357 |
|
|
Restructuring
charges(b)
|
|
|
157 |
|
|
|
178 |
|
|
Total
costs related to our cost-reduction initiatives
|
|
$ |
331 |
|
|
$ |
535 |
|
|
(a)
|
For
the first quarter of 2009, included in Cost of sales ($76
million), Selling,
informational and administrative expenses ($46 million), Research and development
expenses ($41 million), and Other (income)/deductions –
net ($11 million). For the first quarter of 2008, included in Cost of sales ($138 million), Selling, informational and
administrative expenses ($75 million), Research and development
expenses ($146 million), and Other
(income)/deductions-net ($2 million income).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
From the
beginning of the cost-reduction initiatives in 2005 through March 29, 2009, the
restructuring charges primarily relate to our supply network transformation
efforts and the restructuring of our worldwide marketing and research and
development operations, and the implementation costs primarily relate to
depreciation arising from the shortening of the useful lives of certain assets,
as well as system and process standardization and the expansion of shared
services.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
components of restructuring charges associated with all of our cost-reduction
initiatives follow:
|
|
|
|
|
|
|
|
|
|
|
(millions
of dollars)
|
|
Costs
Incurred
Through
Mar.
29,
2009
|
|
|
Activity
Through
Mar.
29,
2009(a)
|
|
|
Accrual
as
of
Mar.
29,
2009(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination costs
|
|
$ |
5,285 |
|
|
$ |
3,500 |
|
|
$ |
1,785 |
|
|
Asset
impairments
|
|
|
1,311 |
|
|
|
1,311 |
|
|
|
– |
|
|
Other
|
|
|
444 |
|
|
|
412 |
|
|
|
32 |
|
|
Total
restructuring charges
|
|
$ |
7,040 |
|
|
$ |
5,223 |
|
|
$ |
1,817 |
|
|
(a)
|
Includes
adjustments for foreign currency translation.
|
(b)
|
Included in Other current liabilities
($1.240 billion) and Other noncurrent liabilities
($577
million).
|
During the
first quarter of 2009, we expensed $135 million for Employee termination costs,
$18 million for Asset
impairments and $4 million for Other. Through March 29,
2009, Employee termination
costs represent the expected reduction of the workforce by approximately
31,000 employees, mainly in manufacturing, sales and research; and approximately
21,400 of these employees have been terminated. Employee termination costs
are recorded when the actions are probable and estimable and include accrued
severance benefits, pension and postretirement benefits. Asset impairments primarily
include charges to write down property, plant and equipment. Other primarily includes
costs to exit certain activities.
Note 6. Acquisition-Related
Costs
We
incurred the following acquisition-related costs in connection with our pending
acquisition of Wyeth:
|
|
First
Quarter
|
|
|
(millions
of dollars)
|
|
Mar. 29,
2009
|
|
|
|
|
|
|
|
Transaction
costs (a)
|
|
$ |
369 |
|
|
Pre-integration
costs and other(b)
|
|
|
28 |
|
|
Total
acquisition-related costs(c)
|
|
$ |
397 |
|
|
(a)
|
Transaction
costs include banking, legal, accounting and other costs directly related
to our pending acquisition of Wyeth. Substantially all of the costs
incurred to date are fees related to our $22.5 billion bridge term loan
credit agreement entered into with financial institutions on March 12,
2009 (see Note 8C.
Financial Instruments: Long-Term Debt) to partially fund our pending
acquisition of Wyeth. Upon our issuance of $13.5 billion of senior
unsecured notes on March 24, 2009, the commitment under the bridge term
loan credit agreement was reduced by an amount equal to the net proceeds
we received from such issuance, to a current balance of $9.1 billion, and,
accordingly, we expensed the portion of the bridge term loan credit
agreement fees associated with the $13.5 billion
reduction.
|
(b)
|
Pre-integration
costs represent external, incremental costs directly related to our
pending acquisition of Wyeth and include costs associated with preparing
for systems and other integration
activities.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. Comprehensive
Income/(Loss)
The
components of comprehensive income/(loss) follow:
|
|
First
Quarter
|
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
$ |
2,730 |
|
|
$ |
2,790 |
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
and other
|
|
$ |
(384 |
) |
|
$ |
(575 |
) |
|
Net unrealized gains/(losses) on
derivative financial instruments
|
|
|
(23 |
) |
|
|
1 |
|
|
Net unrealized gains/(losses) on
available-for-sale securities
|
|
|
145 |
|
|
|
(14 |
) |
|
Benefit plan
adjustments
|
|
|
159 |
|
|
|
84 |
|
|
Total other comprehensive
loss
|
|
|
(103 |
) |
|
|
(504 |
) |
|
Total
comprehensive income before allocation to noncontrolling
interests
|
|
|
2,627 |
|
|
|
2,286 |
|
|
Less: Comprehensive income
attributable to noncontrolling interests
|
|
|
2 |
|
|
|
8 |
|
|
Comprehensive
income attributable to Pfizer Inc.
|
|
$ |
2,625 |
|
|
$ |
2,278 |
|
|
Note 8. Financial
Instruments
A. Investments in Debt and
Equity Securities
Investments
in debt securities reflect the investment of proceeds on March 24, 2009, when
Pfizer issued $13.5 billion of senior unsecured notes in anticipation of the
acquisition of Wyeth (see Note
8C. Financial Instruments: Long-Term Debt). The note proceeds were generally
invested in short-term available-for-sale investments such as money market
funds, U.S. Treasury notes, and to a lesser extent, corporate debt.
B. Short-Term
Borrowings
Short-term
borrowings include amounts for commercial paper of $6.1 billion as of March 29,
2009.
As of
March 29, 2009, we had access to $8.2 billion of lines of credit, of which $6.0
billion expire within one year. Of these lines of credit, $8.1 billion are
unused, of which our lenders have committed to loan us $7.1 billion at our
request. $7.0 billion of the unused lines of credit, of which $5.0 billion
expire in the first quarter of 2010 and $2.0 billion expire in 2013, may be used
to support our commercial paper borrowings. The $5.0 billion of lines of credit
expiring in the first quarter of 2010 are subject to substantially the same
credit covenants as the bridge term loan credit agreement noted below. (See
Note 8G. Financial
Instruments: Credit Covenants.)
On March
12, 2009, we entered into a $22.5 billion bridge term loan credit agreement
(bridge credit agreement) in connection with the
pending acquisition of Wyeth. Upon our issuance of $13.5 billion of senior
unsecured notes in March 2009 (see Note 8C. Financial Instruments:
Long-Term Debt), the commitment under
the bridge credit agreement was reduced by an amount equal to the net proceeds
we received from such issuance, to a current balance of $9.1 billion. As of
March 29, 2009, no amounts have been drawn down under the bridge credit
agreement, and borrowings under the bridge credit agreement can only occur on
the consummation date of the Wyeth transaction. Amounts drawn under the bridge
credit agreement must be used to fund a portion of the Wyeth merger
consideration and certain fees and expenses incurred in connection with the
merger and would mature 364 days after the merger consummation date but may be
extended under certain conditions. The loan interest rate is to be calculated at
the highest of specified common base rates, plus specified fixed-rates. The
bridge credit agreement will terminate upon the earliest to occur of the
following: (i) the consummation of merger, (ii) December 31, 2009, (iii) the
abandonment of the merger, (iv) the termination of the merger agreement or (v)
the date on which the commitments under the bridge credit agreement are
cancelled in full. The pending acquisition of Wyeth is expected to occur at the
end of the third quarter or during the fourth quarter of 2009.
Certain
bridge credit agreement fees have been expensed as Acquisition-related costs in
the income statement caption Restructuring charges and
acquisition-related costs (see Note 6.
Acquisition-related costs), while
other bridge credit agreement fees have been deferred and are included in Other assets, deferred taxes and
deferred charges.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The bridge
credit agreement subjects us to certain covenants until the commitment expires
and all loans under the agreement, if any, have been paid. (See Note 8G. Financial Instruments:
Credit Covenants.)
C. Long-Term
Debt
On March
24, 2009, as part of our financing of the pending acquisition of Wyeth, we
issued $13.5 billion of senior unsecured notes. Information as of March 29, 2009
is as follows:
(millions
of dollars)
|
|
Maturity
Date
|
|
2009
|
|
|
Senior
unsecured notes:
|
|
|
|
|
|
|
Floating rate notes at the
three-month London Interbank
Offering
Rate (LIBOR), plus 1.95%
|
|
March
2011
|
|
$ |
1,250 |
|
|
|
4.45%(a)
|
|
March
2012
|
|
|
3,500 |
|
|
|
5.35%(a)
|
|
March
2015
|
|
|
3,000 |
|
|
|
6.20%(a)
|
|
March
2019
|
|
|
3,250 |
|
|
|
7.20%(a)
|
|
March
2039
|
|
|
2,500 |
|
|
Total
long-term debt issued in connection with the pending acquisition of
Wyeth
|
|
|
|
$ |
13,500 |
|
|
(a)
|
The
fixed-rate debt is callable at any time at the greater of 100% of the
principal amount or the sum of the present
values of principal and interest discounted at the U.S. Treasury rate,
plus
0.50%.
|
D. Derivative Financial
Instruments and Hedging Activities
Foreign Exchange Risk - A
significant portion of our revenues, earnings and net investments in foreign
affiliates is exposed to changes in foreign exchange rates. We seek to manage
our foreign exchange risk in part through operational means, including managing
expected same-currency revenues in relation to same-currency costs and
same-currency assets in relation to same-currency liabilities. Depending on
market conditions, foreign exchange risk is also managed through the use of
derivative financial instruments and foreign currency debt. These financial
instruments serve to protect net income and net investments against the impact
of the translation into U.S. dollars of certain foreign-exchange-denominated
transactions. The aggregate notional amount of foreign exchange derivative
financial instruments hedging or offsetting foreign currency exposures is $35
billion. The derivative financial instruments primarily hedge or offset
exposures in euro, Japanese yen, and Swedish kroner.
All
derivative contracts used to manage foreign currency risk are measured at fair
value and are reported as assets or liabilities on the consolidated balance
sheet. Changes in fair value are reported in earnings or deferred, depending on
the nature and purpose of the financial instrument (offset or hedge
relationship) and the effectiveness of the hedge relationships, as
follows:
·
|
We
defer on the balance sheet the effective portion of the gains or losses on
foreign currency forward-exchange contracts and foreign currency swaps
that are designated as cash flow hedges and reclassify those amounts, as
appropriate, into earnings in the same
period or periods during which the hedged transaction affects
earnings.
|
·
|
We
recognize the gains and losses on forward-exchange contracts and foreign
currency swaps that are used to offset the same foreign currency assets or
liabilities immediately into earnings along with the earnings impact of
the items they generally offset. These contracts essentially take the
opposite currency position of that reflected in the month-end balance
sheet to counterbalance the effect of any currency
movement.
|
·
|
We
recognize the gains and losses impact on foreign currency swaps designated
as hedges of our net investments in earnings in three ways:
over time–for the periodic net swap payments; immediately–to the extent of
any change in the difference between the foreign exchange spot rate and
forward rate; and upon sale or substantial liquidation of our net
investments–to the extent of change in the foreign exchange spot
rates.
|
We defer
on the balance sheet foreign exchange gains and losses related to foreign
exchange-denominated debt designated as a hedge of our net investments and
reclassify those amounts into earnings upon the sale or substantial liquidation
of our net investments.
Any
ineffectiveness is recognized immediately into earnings. There was no
significant ineffectiveness in the first quarter of 2009 or the first quarter of
2008.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Interest Rate Risk - Our
interest-bearing investments, loans and borrowings are subject to interest rate
risk. We invest and loan primarily on a short-term or variable-rate basis;
however, due to the pending acquisition of Wyeth and in light of current market
conditions, we currently borrow primarily on a long-term, fixed-rate basis. From
time to time, depending on market conditions, we will fix interest rates either
through entering into fixed-rate investments or through the use of derivative
financial instruments. The aggregate notional amount of interest rate derivative
financial instruments is $4 billion. The derivative financial instruments
primarily offset euro fixed-rate debt, and to a lesser extent, hedge U.S.
fixed-rate debt.
All
derivative contracts used to manage interest rate risk are measured at fair
value and reported as assets or liabilities on the consolidated balance sheet.
Changes in fair value are reported in earnings, as follows:
·
|
We
recognize the gains and losses on interest rate swaps that are designated
as fair value hedges in earnings upon the
recognition of the change in fair value of the hedged risk. We recognize
the offsetting earnings impact of fixed-rate debt attributable to the
hedged risk also in earnings.
|
Any
ineffectiveness is recognized immediately into earnings. There was no
significant ineffectiveness in the first quarter of 2009 or the first quarter of
2008.
Information
about the fair values of our derivative financial instruments and debt
designated as hedging instruments and the impact on our consolidated balance
sheet follows:
|
March
29, 2009
|
|
|
Assets
|
|
Liabilities
|
|
(millions
of dollars)
|
Balance
Sheet
Location(a)
|
|
Fair
Value(b)
|
|
Balance
Sheet
Location(a)
|
|
Fair
Value (b)
|
|
Derivative
financial instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
OCA
|
|
$ |
1 |
|
OCL
|
|
$ |
– |
|
Interest
rate swaps
|
ONCA
|
|
|
314 |
|
ONCL
|
|
|
9 |
|
Foreign
currency swaps
|
OCA
|
|
|
17 |
|
OCL
|
|
|
6 |
|
Foreign
currency swaps
|
ONCA
|
|
|
143 |
|
ONCL
|
|
|
30 |
|
Foreign
currency forward-exchange contracts
|
OCA
|
|
|
276 |
|
OCL
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments designated as hedging
instruments:
|
|
|
|
751 |
|
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments not designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency swaps
|
ONCA
|
|
|
– |
|
ONCL
|
|
|
139 |
|
Foreign
currency forward-exchange contracts
|
OCA
|
|
|
233 |
|
OCL
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments not designated as hedging
instruments
|
|
|
|
233 |
|
|
|
|
789 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments
|
|
|
$ |
984 |
|
|
|
$ |
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
Nonderivative
financial instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency short-term borrowings
|
|
|
|
|
|
STB
|
|
$ |
1,273 |
|
Foreign
currency long-term debt
|
|
|
|
|
|
LTD
|
|
|
1,927 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonderivative financial instruments designated as hedging
instruments
|
|
|
|
|
|
|
|
$ |
3,200 |
|
(a)
|
The
primary consolidated balance sheet caption indicates the financial
statement classification of the amount associated with the financial
instrument used to hedge or offset risk. The abbreviations used are
defined as follows: OCA = Taxes and other current
assets; ONCA = Other assets, deferred taxes
and deferred charges; OCL = Other current
liabilities; ONCL = Other noncurrent
liabilities; STB = Short-term
borrowings; and LTD = Long-term
debt.
|
(b)
|
See
Note 8E. Financial
Instruments: Fair Value for a description of the valuation
techniques used to determine fair
values.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Certain of
our derivative instruments have credit-risk-related contingent features designed
to reduce our counterparties’ exposure to our risk of defaulting on amounts
owed. The aggregate fair value of these derivative instruments that are in a
liability
position is $315 million, for which we have posted collateral of $230 million in
the normal course of business. These features include the requirement to pay
additional collateral in the event of a debt-rating organization ratings
downgrade. If there had been a downgrade to an A rating, or its equivalent, on
March 29, 2009, we would have been required to post an additional $140 million
of collateral to our counterparties. If there had been a downgrade to below an A
rating, or its equivalent, on March 29, 2009, we would have been required to
post an additional $168 million of collateral to our counterparties. (See Note 8F: Financial Instruments:
Credit Risk.)
Information
about gains and losses on our derivative financial instruments and debt
designated as hedging instruments and the impact on our comprehensive income
follows:
|
|
First
Quarter 2009
|
|
(millions
of dollars)
|
|
Amount
of
Gains/(Losses)
Recognized in
Earnings(b)
|
|
|
Amount
of
Gains/(Losses)
Recognized in
OCI
(Effective
Portion)(a)
(c)
|
|
|
Amount
of
Gains/(Losses)
Reclassified from
OCI
into Earnings
(Effective
Portion)(a)
(b)
|
|
Derivative
financial instruments in fair value hedge relationships:
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$ |
(284 |
) |
|
|
|
|
|
|
Foreign currency
swaps
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments in fair value hedge
relationships
|
|
$ |
(285 |
) |
|
|
|
|
|
|
Derivative
financial instruments in cash flow
hedge
relationships:
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury interest rate
locks
|
|
$ |
(11 |
) |
|
$ |
(15 |
) |
|
$ |
– |
|
Foreign currency
swaps
|
|
|
– |
|
|
|
(19 |
) |
|
|
|
|
Foreign currency forward-exchange
contracts
|
|
|
– |
|
|
|
2 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments in cash flow hedge
relationships
|
|
$ |
(11 |
) |
|
$ |
(32 |
) |
|
$ |
10 |
|
Derivative
financial instruments in net investment hedge
relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
$ |
(2 |
) |
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments in net investment hedge
relationships
|
|
$ |
(2 |
) |
|
$ |
53 |
|
|
|
|
|
Derivative
financial instruments not designated as hedge instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
Foreign currency forward-exchange
contracts
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments not designated as hedge
instruments
|
|
$ |
(260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonderivative
financial instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency short-term borrowings
|
|
$ |
– |
|
|
$ |
110 |
|
|
|
|
|
Foreign
currency long-term debt
|
|
|
– |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonderivative financial instruments designated as hedging
instruments
|
|
$ |
– |
|
|
$ |
268 |
|
|
|
|
|
(a)
|
OCI
= Other Comprehensive
income/(expense).
|
(b)
|
Included
in Other
income/deductions, net.
|
(c)
|
For
derivative financial instruments in cash flow hedge relationships,
included in OCI –
Derivative Financial Instruments. For derivative financial
instruments in net investment hedge relationships and foreign currency
debt designated as hedging instruments, included in OCI – Currency translation
adjustment.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. Fair
Value
Information
about certain of our financial assets and liabilities follows:
(millions
of dollars)
|
|
As
of
Mar.
29,
2009
|
|
|
As
of
Dec.
31,
2008
|
|
|
Financial
assets carried at fair value(a):
|
|
|
|
|
|
|
|
Trading
securities(b)
|
|
$ |
164 |
|
|
$ |
190 |
|
|
Available-for-sale
debt securities(c)
|
|
|
40,257 |
|
|
|
30,061 |
|
|
Available-for-sale
money market funds(d)
|
|
|
4,031 |
|
|
|
398 |
|
|
Available-for-sale
equity securities, excluding money market funds(e)
|
|
|
148 |
|
|
|
319 |
|
|
Derivative
financial instruments(f)
|
|
|
984 |
|
|
|
1,259 |
|
|
Total
|
|
$ |
45,584 |
|
|
$ |
32,227 |
|
|
Other
financial assets:
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
debt securities carried at amortized cost(g)
|
|
$ |
840 |
|
|
$ |
2,349 |
|
|
Short-term
loans carried at cost
|
|
|
793 |
|
|
|
824 |
|
|
Long-term
loans carried at cost(b)
|
|
|
1,404 |
|
|
|
1,568 |
|
|
Non-traded
equity securities carried at cost(b)
|
|
|
181 |
|
|
|
182 |
|
|
Total
|
|
$ |
3,218 |
|
|
$ |
4,923 |
|
|
Financial
liabilities carried at fair value (a):
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments(h)
|
|
$ |
1,100 |
|
|
$ |
1,243 |
|
|
Total
|
|
$ |
1,100 |
|
|
$ |
1,243 |
|
|
Financial
liabilities carried at historical proceeds:
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$ |
7,613 |
|
|
$ |
9,320 |
|
|
Long-term
debt, including adjustments for fair value hedges of interest rate
risk
|
|
|
21,064 |
|
|
|
7,963 |
|
|
Total
|
|
$ |
28,677 |
|
|
$ |
17,283 |
|
|
(a)
|
Fair
values are determined based on valuation techniques categorized as
follows: Level 1 means the use of quoted prices for identical instruments
in active markets; Level 2 means the use of quoted prices for similar
instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active or are directly or indirectly
observable; Level 3 means the use of unobservable inputs. Virtually all of
our financial assets and liabilities carried at fair value use Level 2
inputs in the calculation of fair value, except that included in
available-for-sale equity securities, excluding money market funds, are
$79 million as of March 29, 2009 and $87 million as of December 31, 2008
of investments that use Level 1 inputs in the calculation of fair value.
None of our financial instruments are valued based on Level 3 inputs at
March 29, 2009 or December 31,
2008.
|
(b)
|
Included
in Long-term investments
and loans.
|
(c)
|
As
of March 29, 2009, included in Short-term investments
($28.633 billion) and Long-term investments and
loans ($11.624 billion). As of December
31, 2008, included in Short-term investments
($20.856
billion) and Long-term investments and
loans ($9.205 billion).
|
(d)
|
Included
in Short-term
investments.
|
(e)
|
As
of March 29, 2009, included in Long-term investments and
loans and includes gross unrealized gains ($8 million) and gross
unrealized losses ($36 million). As of December 31, 2008, included in
Long-term investments
and loans and includes gross unrealized gains ($17 million) and
gross unrealized losses ($39
million).
|
(f)
|
As
of March 29, 2009, included in Taxes and other current
assets ($527 million) and Other assets, deferred taxes
and deferred charges ($457 million). As of December 31, 2008,
included in Taxes and
other current assets ($404 million) and Other assets, deferred taxes
and deferred charges ($855
million).
|
(g)
|
As
of March 29, 2009, included in Cash and cash
equivalents ($684 million), Short-term investments
($141 million) and Long-term investments and
loans ($15 million). As of December 31, 2008, included in Cash and cash equivalents
($1.980
billion), Short-term
investments ($355 million) and Long-term investments and
loans ($14 million).
|
(h)
|
As
of March 29, 2009, included in Other current
liabilities ($922 million) and Other noncurrent liabilities ($178
million). As of December 31, 2008, included in Other current
liabilities ($1.1 billion) and Other noncurrent liabilities
($124
million).
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
F. Credit
Risk
On an
ongoing basis, we review the creditworthiness of counterparties to foreign
exchange and interest rate agreements and do not expect to incur a significant
loss from failure of any counterparties to perform under the
agreements.
At March
29, 2009, we have $3.4 billion invested in a major money market fund rated Aaa
by Moody’s Investors Service and AAA by Standard & Poor’s, which invests in
U.S. government and its agencies’ or instrumentalities’ securities and
reverse repurchase agreements involving the same investments held. Also, we had
$3 billion due from a well-diversified, highly-rated group (primarily Standard
& Poor’s rating of AA or better) of bank counterparties around the
world.
G. Credit
Covenants
The bridge
credit agreement (see Note 8B.
Financial Instruments: Short-Term Borrowings) subjects us to certain covenants
until the commitment expires or is terminated and all loans under the agreement,
if any, have been paid. Such covenants require, among other things, that
we:
·
|
maintain
a no more than 2.75:1 ratio of consolidated debt to “Earnings Before
Interest, Taxes, Depreciation and Amortization” (EBITDA), as defined.
EBITDA, as defined, permits add-backs of certain other charges such as
acquisition-related costs, unusual costs or certain non-cash
charges.
|
·
|
reduce
the bridge credit agreement commitment or repay any outstanding
indebtedness under the bridge credit agreement as required in an amount
equal to the net proceeds of certain transactions not in the ordinary
course of business, such as specified asset sales or sales-leaseback
transactions, property loss events, or certain equity or debt
issuances;
|
·
|
not
declare or pay dividends on our common stock in excess of $0.32 per share
per quarter;
|
·
|
not
incur certain types of debt;
|
·
|
not
purchase or redeem our common stock in excess of $250 million dollars in
the aggregate; and
|
·
|
not
purchase U.S. businesses for cash consideration in excess of $500 million
in the aggregate or international businesses for cash consideration in
excess of $2.5 billion in the
aggregate.
|
Also, if
any loan under the bridge credit agreement is funded, we would be required to
cause Wyeth to guarantee our obligation under the bridge facility. In addition,
if the bridge loan is funded and Wyeth guarantees the bridge loan, we would be
required to cause Wyeth to guarantee the $13.5 billion of senior unsecured notes
that we issued on March 24, 2009 (see Note 8C: Financial Investments:
Long-Term Debt) until all loans
under the bridge credit agreement have been paid in full.
In
addition, the bridge credit agreement contains the following conditions, among
others, to any borrowing under the agreement.
·
|
the
absence of material adverse change in the business of Pfizer or Wyeth;
and
|
·
|
Pfizer
must maintain an unsecured long-term obligations rating of at least “A2”
(with stable or better outlook) and a commercial paper credit rating of at
least “P-1” from Moody’s Investors Service, and maintain a long-term
issuer credit rating of at least “A” (with stable or better outlook) and a
short-term issuer credit rating of at least “A-1” from Standard &
Poor’s.
|
At March
29, 2009, we are in compliance with all credit covenants under the bridge credit
agreement.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9.
Inventories
The
components of inventories follow:
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$ |
2,151 |
|
|
$ |
2,024 |
|
Work-in-process
|
|
|
1,483 |
|
|
|
1,527 |
|
Raw
materials and supplies
|
|
|
824 |
|
|
|
830 |
|
Total
inventories(a)
|
|
$ |
4,458 |
|
|
$ |
4,381 |
|
(a)
|
Certain
amounts of inventories are in excess of one year’s supply. There are no
recoverability issues associated with these quantities and the amounts are
not significant.
|
Note 10. Goodwill and Other
Intangible Assets
A.
Goodwill
The
changes in the carrying amount of goodwill by segment for the quarter ended
March 29, 2009, follow:
(millions
of dollars)
|
|
Pharmaceutical
|
|
|
Animal
Health
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$ |
21,317 |
|
|
$ |
129 |
|
|
$ |
18 |
|
|
$ |
21,464 |
|
Additions
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Other(a)
|
|
|
22 |
|
|
|
(4 |
) |
|
|
– |
|
|
|
18 |
|
Balance,
March 29, 2009
|
|
$ |
21,339 |
|
|
$ |
125 |
|
|
$ |
18 |
|
|
$ |
21,482 |
|
(a)
|
Primarily
related to the impact of foreign exchange, except that Pharmaceutical also
includes a reclassification of about $150 million to Assets held for
sale.
|
B. Other Intangible
Assets
The
components of identifiable intangible assets, primarily included in our
Pharmaceutical segment, follow:
|
|
As
of Mar. 29, 2009
|
|
|
As
of Dec. 31, 2008
|
|
(millions
of dollars)
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Identifiable
Intangible
Assets,
less Accumulated Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Identifiable
Intangible
Assets,
less
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
technology rights
|
|
$ |
31,101 |
|
|
$ |
(18,059 |
) |
|
$ |
13,042 |
|
|
$ |
31,484 |
|
|
$ |
(17,673 |
) |
|
$ |
13,811 |
|
Brands
|
|
|
1,016 |
|
|
|
(496 |
) |
|
|
520 |
|
|
|
1,016 |
|
|
|
(487 |
) |
|
|
529 |
|
License
agreements
|
|
|
246 |
|
|
|
(84 |
) |
|
|
162 |
|
|
|
246 |
|
|
|
(78 |
) |
|
|
168 |
|
Trademarks
|
|
|
119 |
|
|
|
(79 |
) |
|
|
40 |
|
|
|
118 |
|
|
|
(78 |
) |
|
|
40 |
|
Other(a)
|
|
|
524 |
|
|
|
(296 |
) |
|
|
228 |
|
|
|
531 |
|
|
|
(291 |
) |
|
|
240 |
|
Total
amortized finite-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangible assets
|
|
|
33,006 |
|
|
|
(19,014 |
) |
|
|
13,992 |
|
|
|
33,395 |
|
|
|
(18,607 |
) |
|
|
14,788 |
|
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
2,860 |
|
|
|
– |
|
|
|
2,860 |
|
|
|
2,860 |
|
|
|
– |
|
|
|
2,860 |
|
Trademarks
|
|
|
68 |
|
|
|
– |
|
|
|
68 |
|
|
|
70 |
|
|
|
– |
|
|
|
70 |
|
Other
|
|
|
3 |
|
|
|
– |
|
|
|
3 |
|
|
|
3 |
|
|
|
– |
|
|
|
3 |
|
Total
indefinite-lived
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangible assets
|
|
|
2,931 |
|
|
|
– |
|
|
|
2,931 |
|
|
|
2,933 |
|
|
|
– |
|
|
|
2,933 |
|
Total
identifiable intangible assets
|
|
$ |
35,937 |
|
|
$ |
(19,014 |
) |
|
$ |
16,923 |
(b) |
|
$ |
36,328 |
|
|
$ |
(18,607 |
) |
|
$ |
17,721 |
|
(a)
|
Includes
patents, non-compete agreements, customer contracts and other intangible
assets.
|
(b)
|
Decrease
from December 31, 2008 as compared to the prior period is primarily
related to amortization and the impact of foreign
exchange.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amortization
expense related to acquired intangible assets that contribute to our ability to
sell, manufacture, research, market and distribute products, compounds and
intellectual property is included in Amortization of intangible
assets as it benefits multiple business functions. Amortization expense
related to acquired intangible assets that are associated with a single function
is included in Cost of sales,
Selling, informational and administrative expenses and Research and development
expenses, as appropriate. Total amortization expense for finite-lived
intangible assets was $610 million for the first quarter of 2009, and $808
million for the first quarter of 2008.
Note 11. Pension and
Postretirement Benefit Plans
The
components of net periodic benefit costs of the U.S. and international pension
plans and the postretirement plans, which provide medical and life insurance
benefits to retirees and their eligible dependents, for the first quarters of
2009 and 2008 follow:
|
|
Pension
Plans
|
|
|
|
|
|
|
U.S.
Qualified
|
|
|
U.S.
Supplemental
(Non-Qualified)
|
|
|
International
|
|
|
Postretirement
Plans
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
59 |
|
|
$ |
61 |
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
45 |
|
|
$ |
63 |
|
|
$ |
8 |
|
|
$ |
9 |
|
Interest
cost
|
|
|
119 |
|
|
|
116 |
|
|
|
13 |
|
|
|
12 |
|
|
|
78 |
|
|
|
99 |
|
|
|
30 |
|
|
|
34 |
|
Expected
return on plan assets
|
|
|
(118 |
) |
|
|
(163 |
) |
|
|
– |
|
|
|
– |
|
|
|
(86 |
) |
|
|
(111 |
) |
|
|
(6 |
) |
|
|
(9 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
|
57 |
|
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
6 |
|
|
|
11 |
|
|
|
4 |
|
|
|
6 |
|
Prior service
costs/(credits)
|
|
|
1 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
– |
|
|
|
(1 |
) |
|
|
– |
|
Curtailments
and settlements – net
|
|
|
24 |
|
|
|
3 |
|
|
|
7 |
|
|
|
112 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
5 |
|
|
|
3 |
|
Special
termination benefits
|
|
|
13 |
|
|
|
7 |
|
|
|
– |
|
|
|
– |
|
|
|
1 |
|
|
|
7 |
|
|
|
12 |
|
|
|
4 |
|
Net
periodic benefit costs
|
|
$ |
155 |
|
|
$ |
33 |
|
|
$ |
32 |
|
|
$ |
138 |
|
|
$ |
45 |
|
|
$ |
67 |
|
|
$ |
52 |
|
|
$ |
47 |
|
The
increase in net periodic benefit costs in the first three months of 2009
compared to the first three months of 2008, for our U.S. qualified plans was
primarily driven by the amortization of actual investment losses incurred in
2008, lower expected returns on plan assets due to the smaller asset base and
the impact of our cost-reduction initiatives.
The
decrease in net periodic benefit costs in the first three months of 2009,
compared to the first three months of 2008, for our U.S. supplemental
(non-qualified) pension plans was largely driven by settlement charges required
to be recognized in 2008 due to the lump sum benefit payments made to certain of
our former executive officers and other former executives in 2008.
For the
first quarter of 2009, we contributed from our general assets $63 million to our
international pension plans, $47 million to our U.S. supplemental
(non-qualified) pension plans and $43 million to our postretirement plans.
Contributions to our U.S. qualified pension plans in the first quarter of 2009
were not significant.
During
2009, we expect to contribute from our general assets, a total of $305 million
to our international pension plans, $151 million to our postretirement plans and
$87 million to our U.S. supplemental (non-qualified) pension plans.
Contributions to our U.S. qualified pension plans are not expected to be
significant. Contributions expected to be made for 2009 are inclusive of amounts
contributed during the first quarter of 2009. The contributions from our general
assets include direct employer benefit payments.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 12. Earnings Per Share
Attributable to Common Shareholders
Basic and
diluted earnings per share (EPS) attributable to Pfizer Inc. common shareholders
were computed using the following data:
|
|
First
Quarter
|
|
(millions)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
EPS
Numerator - Basic:
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
|
|
$ |
2,728 |
|
|
$ |
2,788 |
|
Less: Preferred stock dividends -
net of tax
|
|
|
– |
|
|
|
– |
|
Income from continuing operations
attributable to Pfizer Inc.
common
shareholders
|
|
|
2,728 |
|
|
|
2,788 |
|
Discontinued operations - net of
tax
|
|
|
1 |
|
|
|
(4 |
) |
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,729 |
|
|
$ |
2,784 |
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Basic:
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,723 |
|
|
|
6,739 |
|
|
|
|
|
|
|
|
|
|
EPS
Numerator - Diluted:
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
|
|
$ |
2,728 |
|
|
$ |
2,788 |
|
Less: ESOP contribution - net of
tax
|
|
|
– |
|
|
|
– |
|
Income from continuing operations
attributable to Pfizer Inc.
common
shareholders
|
|
|
2,728 |
|
|
|
2,788 |
|
Discontinued operations - net of
tax
|
|
|
1 |
|
|
|
(4 |
) |
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,729 |
|
|
$ |
2,784 |
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Diluted:
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,723 |
|
|
|
6,739 |
|
Common share equivalents: stock
options, restricted stock units,
stock
issuable under other employee compensation plans and
convertible
preferred stock
|
|
|
30 |
|
|
|
23 |
|
Weighted-average number of common
shares outstanding and
common
share equivalents
|
|
|
6,753 |
|
|
|
6,762 |
|
|
|
|
|
|
|
|
|
|
Stock options that had exercise
prices greater than the average
market
price of our common stock issuable under employee
compensation
plans (a)
|
|
|
475 |
|
|
|
551 |
|
(a)
|
These
common stock equivalents were outstanding during the first quarters of
2009 and 2008, but were not included in the computation of diluted EPS for
those periods because their inclusion would have had an anti-dilutive
effect.
|
In the
computation of diluted EPS, Income from continuing operations
attributable to Pfizer Inc. and Net income attributable to Pfizer
Inc. are reduced by the incremental contribution to the ESOPs, which were
acquired as part of our Pharmacia acquisition. This contribution is the
after-tax difference between the income that the ESOPs would have received in
preferred stock dividends and the dividend on the common shares assumed to have
been outstanding.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 13. Segment
Information
We operate
in the following business segments:
Pharmaceutical
·
|
The
Pharmaceutical segment includes products that prevent and treat
cardiovascular and metabolic diseases, central nervous system disorders,
arthritis and pain, infectious and respiratory diseases, urogenital
conditions, cancer, eye diseases and endocrine disorders, among
others.
|
Animal
Health
·
|
The
Animal Health segment includes products that prevent and treat diseases in
livestock and companion animals.
|
Segment
profit/(loss) is measured based on income from continuing operations before
provision for taxes on income. Certain costs, such as significant impacts of
purchase accounting for acquisitions, acquisition-related costs, and costs
related to our cost-reduction initiatives, are included in Corporate/Other only. This
methodology is utilized by management to evaluate our businesses.
Revenues
and profit/(loss) by segment for the first quarters of 2009 and 2008
follow:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
Revenues
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,102 |
|
|
$ |
10,904 |
|
Animal Health
|
|
|
537 |
|
|
|
619 |
|
Corporate/Other(a)
|
|
|
228 |
|
|
|
325 |
|
Total
revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
|
|
|
|
|
|
|
Segment
profit/(loss)(b)
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
5,407 |
|
|
$ |
5,594 |
|
Animal Health
|
|
|
132 |
|
|
|
145 |
|
Corporate/Other(a)
|
|
|
(1,736 |
)(c) |
|
|
(2,182 |
)(d) |
Total
profit/(loss)
|
|
$ |
3,803 |
|
|
$ |
3,557 |
|
(a)
|
Corporate/Other
includes our gelatin capsules business, our contract manufacturing
business and a bulk pharmaceutical chemicals business, and transition
activity associated with our former Consumer Healthcare business (sold in
December 2006). Corporate/Other under
Segment profit/(loss) also
includes interest income/(expense), corporate expenses (e.g., corporate
administration costs), other income/(expense) (e.g., realized gains and
losses attributable to our investments in debt and equity securities),
certain performance-based and all share-based compensation expenses,
significant impacts of purchase accounting for acquisitions,
acquisition-related costs, intangible asset impairments and costs related
to our cost-reduction initiatives. This methodology is utilized by
management to evaluate our
businesses.
|
(b)
|
Segment profit/(loss)
equals Income
from continuing operations before provision for taxes on
income.
|
(c)
|
For
the first quarter of 2009, Corporate/Other
includes: (i) significant impacts of purchase accounting for
acquisitions of $546 million, including intangible asset amortization and
other charges, primarily related to our acquisition of Pharmacia in 2003;
(ii) acquisition-related costs of $397 million, primarily related to our
pending acquisition of Wyeth; (iii) restructuring charges and
implementation costs associated with our cost-reduction initiatives of
$331 million; and (iv) all share-based compensation
expense.
|
(d)
|
For
the first quarter of 2008, Corporate/Other
includes: (i) significant impacts of purchase accounting for acquisitions
of $1.2 billion, including acquired in-process research and development
intangible asset amortization and other charges; (ii) restructuring
charges and implementation costs associated with our cost-reduction
initiatives of $534 million; (iii) all share-based compensation expense;
and (iv) acquisition-related costs of $1
million.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues
for each group of similar products follow:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACEUTICAL:
|
|
|
|
|
|
|
|
|
|
Cardiovascular
and metabolic diseases
|
|
$ |
3,953 |
|
|
$ |
4,494 |
|
|
|
(12 |
) |
Central
nervous system disorders
|
|
|
1,431 |
|
|
|
1,386 |
|
|
|
3 |
|
Arthritis
and pain
|
|
|
688 |
|
|
|
755 |
|
|
|
(9 |
) |
Infectious
and respiratory diseases
|
|
|
933 |
|
|
|
931 |
|
|
|
– |
|
Urology
|
|
|
767 |
|
|
|
784 |
|
|
|
(2 |
) |
Oncology
|
|
|
552 |
|
|
|
637 |
|
|
|
(13 |
) |
Ophthalmology
|
|
|
413 |
|
|
|
413 |
|
|
|
– |
|
Endocrine
disorders
|
|
|
252 |
|
|
|
258 |
|
|
|
(2 |
) |
All
other
|
|
|
531 |
|
|
|
758 |
|
|
|
(30 |
) |
Alliance
revenues
|
|
|
582 |
|
|
|
488 |
|
|
|
19 |
|
Total
Pharmaceutical
|
|
|
10,102 |
|
|
|
10,904 |
|
|
|
(7 |
) |
ANIMAL
HEALTH
|
|
|
537 |
|
|
|
619 |
|
|
|
(13 |
) |
OTHER
|
|
|
228 |
|
|
|
325 |
|
|
|
(30 |
) |
Total
revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
(8 |
) |
Revenues
by geographic area follow:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
United States(a)
|
|
$ |
4,969 |
|
|
$ |
5,511 |
|
|
|
(10 |
) |
Europe(b)
|
|
|
3,005 |
|
|
|
3,413 |
|
|
|
(12 |
) |
Japan/Asia(c)
|
|
|
1,738 |
|
|
|
1,573 |
|
|
|
11 |
|
Canada/Latin America/AFME(d)
|
|
|
1,155 |
|
|
|
1,351 |
|
|
|
(14 |
) |
Total
Revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
(8 |
) |
(a)
|
Includes
operations in Puerto Rico.
|
(b) |
Includes
France, Italy, Spain, Germany, the U.K., Ireland, Northern Europe and
Central-South Europe. |
(c) |
Includes
Japan, Australia, Korea, China, Taiwan, Thailand, Singapore and
India. |
(d) |
Includes
Canada, South America, Central America, Mexico, Africa and the Middle
East. |
Note 14. Pending Acquisition
of Wyeth
On January
26, 2009, we announced that we signed a definitive Agreement and Plan of Merger
dated as of January 25, 2009 (the “Merger Agreement”) to acquire Wyeth in a
cash-and-stock-transaction valued on that date at approximately $68 billion.
Under terms of the Merger Agreement, which has been approved by the Board of
Directors of each of the companies, each outstanding share of Wyeth common stock
will be converted into the right to receive $33.00 in cash, without interest,
and 0.985 of a share of Pfizer common stock in a taxable transaction, subject to
the terms of the Merger Agreement. Each outstanding Wyeth stock option and each
outstanding share of Wyeth restricted stock, deferred stock unit award and
restricted stock unit award will be exchanged for cash, in accordance with the
terms of the Merger Agreement. On April 23, 2009, Wyeth announced that it will
fully redeem all of its outstanding $2 convertible preferred stock effective
July 15, 2009, pursuant to a request from us made in accordance with the terms
and conditions of the Merger Agreement, and, as a result, we do not expect to
issue any preferred stock in connection with the merger. The merger is subject
to Wyeth shareholder approval, governmental and regulatory approvals, the
satisfaction of certain conditions related to the debt financing for the
transaction, and other usual and customary closing conditions. We expect the
merger will be completed at the end of the third quarter or during the fourth
quarter of 2009.
We expect
to fund the acquisition through a combination of cash, stock, short-term
borrowings and long-term debt. (See Note 8B. Financial Instruments:
Short-Term Borrowings, Note 8C. Financial Instruments: Long-Term Debt and Note 8G. Financial Instruments: Credit
Covenants.)
To the
Shareholders and Board of Directors of Pfizer Inc.:
We have
reviewed the condensed consolidated balance sheet of Pfizer Inc. and Subsidiary
Companies as of March 29, 2009, the related condensed consolidated statements of
income for the three-month periods ended March 29, 2009, and March 30, 2008, and
the related condensed consolidated statements of cash flows for the three-month
periods ended March 29, 2009, and March 30, 2008. These condensed consolidated
financial statements are the responsibility of the Company’s
management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting
principles.
We have
previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
Pfizer Inc. and Subsidiary Companies as of December 31, 2008, and the related
consolidated statements of income, shareholders’ equity, and cash flows for the
year then ended (not represented herein); and in our report dated February 27,
2009, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2008, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
KPMG
LLP
New York,
New York
May 8,
2009
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (MD&A)
Introduction
Our
MD&A is provided in addition to the accompanying condensed consolidated
financial statements and footnotes to assist readers in understanding Pfizer’s
results of operations, financial condition and cash flows. The MD&A is
organized as follows:
·
|
Overview of Our Performance
and Operating Environment. This section, beginning on page 24,
provides information about the following: our business; our performance
during the first quarter of 2009; our operating environment; our strategic
initiatives; and our cost-reduction
initiatives.
|
·
|
Revenues. This section,
beginning on page 29, provides an analysis of our products and revenues
for the first quarters of 2009 and 2008, as well as an overview of
important product developments.
|
·
|
Costs and Expenses.
This section, beginning on page 38, provides a discussion about our costs
and expenses.
|
·
|
Provision for Taxes on
Income. This section, on page 40, provides a discussion of items
impacting our tax provision for the periods
presented.
|
·
|
Adjusted Income. This
section, beginning on page 40, provides a discussion of an alternative
view of performance used by
management.
|
·
|
Financial Condition, Liquidity
and Capital Resources. This section, beginning on page 44, provides
an analysis of our balance sheets as of March 29, 2009 and December 31,
2008 and cash flows for the first quarters of 2009 and 2008, as well as a
discussion of our outstanding debt and commitments that existed as of
March 29, 2009, and December 31, 2008. Included in the discussion of
outstanding debt is a discussion of the amount of financial capacity
available to help fund Pfizer’s future
activities.
|
·
|
Outlook. This section,
beginning on page 48, provides a discussion of our expectations for
full-year 2009.
|
·
|
Forward-Looking Information
and Factors That May Affect Future Results. This section, beginning
on page 49, provides a description of the risks and uncertainties that
could cause actual results to differ materially from those discussed in
forward-looking
statements set forth in this MD&A relating to our financial results,
operations and business plans and prospects. Such forward-looking
statements are based on management’s current expectations about future
events, which are inherently susceptible to uncertainty and changes in
circumstances. Also included in this section is a discussion of Legal
Proceedings and Contingencies.
|
Components
of the Condensed Consolidated Statements of Income follow:
|
|
First
Quarter
|
|
(millions
of dollars, except per common share data)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,408 |
|
|
|
1,986 |
|
|
|
(29 |
) |
% of revenues
|
|
|
13.0 |
% |
|
|
16.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
informational and administrative expenses
|
|
|
2,876 |
|
|
|
3,492 |
|
|
|
(18 |
) |
% of revenues
|
|
|
26.5 |
% |
|
|
29.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
1,705 |
|
|
|
1,791 |
|
|
|
(5 |
) |
% of revenues
|
|
|
15.7 |
% |
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
578 |
|
|
|
779 |
|
|
|
(26 |
) |
% of revenues
|
|
|
5.3 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
in-process research and development charges
|
|
|
– |
|
|
|
398 |
|
|
|
(100 |
) |
% of revenues
|
|
|
– |
% |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges and acquisition-related costs
|
|
|
554 |
|
|
|
178 |
|
|
|
212 |
|
% of revenues
|
|
|
5.1 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income)/deductions – net
|
|
|
(57 |
) |
|
|
(333 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,803 |
|
|
|
3,557 |
|
|
|
7 |
|
% of
revenues
|
|
|
35.0 |
% |
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
1,074 |
|
|
|
763 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
28.2 |
% |
|
|
21.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,729 |
|
|
|
2,794 |
|
|
|
(2 |
) |
% of revenues
|
|
|
25.1 |
% |
|
|
23.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations – net of tax
|
|
|
1 |
|
|
|
(4 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,730 |
|
|
|
2,790 |
|
|
|
(2 |
) |
% of revenues
|
|
|
25.1 |
% |
|
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to noncontrolling interests
|
|
|
1 |
|
|
|
6 |
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Pfizer Inc.
|
|
$ |
2,729 |
|
|
$ |
2,784 |
|
|
|
(2 |
) |
% of revenues
|
|
|
25.1 |
% |
|
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
common
shareholders
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
|
|
– |
|
Discontinued operations - net of
tax
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.41 |
|
|
$ |
0.41 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
common
shareholders
|
|
$ |
0.40 |
|
|
$ |
0.41 |
|
|
|
(2 |
) |
Discontinued operations - net of
tax
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.40 |
|
|
$ |
0.41 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.32 |
|
|
$ |
0.32 |
|
|
|
|
|
*
Calculation not meaningful.
Certain
amounts and percentages may reflect rounding adjustments.
OVERVIEW OF OUR PERFORMANCE
AND OPERATING ENVIRONMENT
Our
Business
We are a
global, research-based company applying innovative science to improve world
health. Our efforts in support of that purpose include the discovery,
development, manufacture and marketing of safe and effective medicines; the
exploration of ideas that advance the frontiers of science and medicine; and the
support of programs dedicated to illness prevention, health and wellness, and
increased access to quality healthcare. Our value proposition is to demonstrate
that our medicines can effectively prevent and treat disease, including the
associated symptoms and suffering, and can form the basis for an overall
improvement in healthcare systems and their related costs. Our revenues are
derived from the sale of our products, as well as through alliance agreements,
under which we co-promote products discovered by other companies.
On January
26, 2009, we announced that we entered into a definitive merger agreement under
which we will acquire Wyeth in a cash-and-stock transaction valued on that date
at $50.19 per share, or a total of $68 billion. While we have taken actions and
incurred costs associated with the pending transaction that are reflected in our
financial statements, the acquisition of Wyeth will not be reflected in our
financial statements until consummation. (See also the “Our Strategic
Initiatives – Strategy and Recent Transactions” and “Costs and Expenses –
Acquisition-Related Costs” sections of this MD&A).
Our First Quarter
Performance
Revenues in the first quarter
of 2009 decreased 8% to $10.9 billion, compared to the same period in 2008. The
significant product and alliance revenue impacts on revenues for the first
quarter of 2009, compared to the same period in 2008, are as
follows:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Increase/
(decrease)
09/08
|
|
|
%
Change
09/08
|
|
|
|
|
|
|
|
|
Lipitor(a)
|
|
$ |
(416 |
) |
|
|
(13 |
) |
Zyrtec/Zyrtec
D(b)
|
|
|
(117 |
) |
|
|
(100 |
) |
Chantix/Champix(c)
|
|
|
(100 |
) |
|
|
(36 |
) |
Camptosar(b)
|
|
|
(83 |
) |
|
|
(43 |
) |
Celebrex
|
|
|
(47 |
) |
|
|
(8 |
) |
Norvasc(d)
|
|
|
(32 |
) |
|
|
(6 |
) |
Detrol/Detrol
LA
|
|
|
(24 |
) |
|
|
(8 |
) |
Geodon/Zeldox
|
|
|
(11 |
) |
|
|
(5 |
) |
Genotropin
|
|
|
(9 |
) |
|
|
(4 |
) |
Viagra
|
|
|
(6 |
) |
|
|
(1 |
) |
Xalatan/Xalacom
|
|
|
2 |
|
|
|
– |
|
Vfend
|
|
|
8 |
|
|
|
5 |
|
Sutent
|
|
|
12 |
|
|
|
7 |
|
Zyvox
|
|
|
24 |
|
|
|
9 |
|
Lyrica
|
|
|
102 |
|
|
|
17 |
|
Alliance
revenues
|
|
|
94 |
|
|
|
19 |
|
(a) |
Lipitor
has been impacted by competitive pressures and other factors. |
(b)
|
Zyrtec/Zyrtec
D lost U.S. exclusivity in late January 2008, at which time we ceased
selling this product. Camptosar lost U.S. exclusivity in February
2008.
|
(c)
|
Chantix/Champix
has been negatively impacted by the changes to its label in
2008.
|
(d)
|
Norvasc
lost U.S. exclusivity in March
2007.
|
Foreign
exchange unfavorably impacted revenues by approximately $640 million, or 5%,
compared to the first quarter of 2008.
In the
U.S., revenues decreased 10% compared to the first quarter 2008, while
international revenues decreased 7% compared to the first quarter of
2008.
The impact
of rebates in the first quarter of 2009 decreased revenues by approximately $950
million, compared to approximately $900 million in the first quarter of 2008.
The increase in rebates was due primarily to the impact of our contracting
strategies with both government and non-government entities in the U.S.
(See
further discussion in the “Revenues – Pharmaceutical Business Revenues” section
of this MD&A).
Income from continuing operations
for the first quarter of 2009 was $2.7 billion, compared to $2.8 billion
in the first quarter of 2008. The decrease was primarily due to:
·
|
the
decrease in total revenues due to the unfavorable impact of foreign
exchange, among other factors;
|
·
|
the
decrease in other
income/deductions;
|
·
|
the
increase in the effective tax rate;
and
|
·
|
costs
incurred in connection with the pending Wyeth
acquisition;
|
partially
offset by:
·
|
savings
related to our cost-reduction initiatives;
and
|
·
|
the
elimination of acquisition-related
in-process research and development charges in 2009 compared
to $398 million
|
|
in
the first quarter of 2008.
|
In the
first quarter of 2008, we expensed Acquisition-related in-process
research and development charges (IPR&D) related to our acquisitions
of CovX and Coley Pharmaceutical Group, Inc. related to our Pharmaceutical
segment and two smaller acquisitions related to our Animal Health segment. (See
further discussion in the “Our Strategic Initiatives – Strategy and Recent
Transactions: Acquisitions, Licensing and Collaborations” section of this
MD&A.) As a result of adopting Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 141R, Business Combinations, as
amended, beginning January 1, 2009, IPR&D related to future acquisitions
will be recorded on our consolidated balance sheet as indefinite-lived
intangible assets. We made no acquisitions in the first quarter of
2009.
We have
also made significant progress with our cost-reduction and transformation
initiatives, launched in early 2005, which are broad-based, company-wide efforts
to improve performance and efficiency. (See further discussion in the “Our
Cost-Reduction Initiatives” section of this MD&A.)
Our Operating
Environment
While the
global recession has affected our business, the impact so far has been
consistent with the expectations reflected in our financial guidance for 2009
(see the “Outlook” section of this MD&A.) The impact on our human
pharmaceutical business has been largely in the U.S. market, where health
insurers and benefit plans are imposing formulary restrictions in favor of
generics, which is affecting products such as Lipitor, Lyrica, Celebrex, and
Geodon; in addition patients, experiencing the effects of the weak economy and
facing increases in co-pays, are sometimes delaying treatments or skipping doses
to reduce their costs. Our Animal Health business also has been impacted by the
recession, which has adversely affected global spending on veterinary
care.
Despite
the challenging financial markets, Pfizer maintains a strong financial position.
We have a strong balance sheet and excellent liquidity that provides us with
financial flexibility. Our long-term debt is rated high quality and investment
grade by both Standard & Poor’s and Moody’s Investors Service. As market
conditions change, we continue to monitor our liquidity position. We have and
will continue to take a conservative approach to our investments. Both
short-term and long-term investments consist primarily of high-quality, highly
liquid, well-diversified, investment-grade available-for-sale debt securities.
As a result, we continue to believe that we have the ability to meet our
financing needs for the foreseeable future. (For further discussion of our
financial condition, see the “Financial Condition, Liquidity and Capital
Resources” section of this MD&A.)
In
addition to general economic conditions, we and other pharmaceutical companies
continue to face significant industry-specific challenges in a profoundly
changing business environment, as explained more fully in Pfizer’s Annual Report
on Form 10-K for the year ended December 31, 2008. Industry-wide factors,
including pharmaceutical product pricing and access, intellectual property
rights, product competition, the regulatory environment, pipeline productivity
and the changing business environment, can significantly impact our businesses.
In order to meet these challenges and capitalize on opportunities in the
marketplace, we are taking steps to change the way we operate our Pharmaceutical
and other businesses. Effective January 1, 2009, we changed our operating model
within the Pharmaceutical segment, which is now comprised of five
customer-focused units—Primary Care, Specialty Care, Oncology, Established
Products and Emerging Markets—with clear, single points of accountability to
enable the segment to more effectively anticipate and respond to the diverse
needs of physicians, customers and patients. As in the past, the Pharmaceutical
segment continues to be managed inclusive of our research and manufacturing
organizations and supported by administrative functions.
Generic
competition and patent expirations significantly impact our business. We lost
U.S. exclusivity for Camptosar in February 2008 and Norvasc in March 2007 and,
as expected, significant revenue declines followed. Zyrtec/Zyrtec D lost its
U.S. exclusivity in late January 2008, at which time we ceased selling this
product. Lipitor began to face competition in the U.S. in 2006 from generic
pravastatin (Pravachol) and generic simvastatin (Zocor), in addition to other
competitive pressures. The volume of patients who start on or switch to generic
simvastatin continues to negatively impact Lipitor prescribing trends,
particularly in the managed-care environment.
We will
continue to aggressively defend our patent rights against increasing incidents
of infringement whenever appropriate. (For more detailed information about
Lipitor, Norvasc, Zyrtec, Camptosar and other significant products, see further
discussion in the “Revenues – Pharmaceutical – Selected Product Descriptions”
section of this MD&A). (See Part II – Other Information; Item 1.
Legal Proceedings, of
this Form 10-Q for a discussion of certain recent developments with respect to
patent litigation.)
These and
other industry-wide factors that may affect our businesses should be considered
along with information presented in the “Forward-Looking Information and Factors
That May Affect Future Results” section of this MD&A.
Our Strategic Initiatives –
Strategy and Recent Transactions
Acquisitions,
Licensing and Collaborations
We are
committed to capitalizing on new growth opportunities by advancing our
new-product pipeline and maximizing the value of our in-line products, as well
as through opportunistic licensing, co-promotion agreements and acquisitions.
Our business-development strategy targets a number of growth opportunities,
including biologics, vaccines, oncology, diabetes, Alzheimer’s disease,
inflammation/immunology, pain, psychoses (schizophrenia) and other products and
services that seek to provide valuable healthcare solutions. Some of our most
significant business-development transactions during the first quarter of 2009
and 2008 are described below:
·
|
In
the first quarter of 2009, we entered into a five-year agreement with
Bausch & Lomb to co-promote prescription pharmaceuticals in the U.S.
for the treatment of ophthalmic conditions. The agreement
covers prescription ophthalmic pharmaceuticals, including our Xalatan
product and Bausch & Lomb’s Alrex®, Lotemax® and Zylet® products, as
well as Bausch & Lomb’s investigational anti-infective eye drop,
besifloxacin ophthalmic suspension, 0.6%, which is currently under review
by the U.S. Food and Drug Administration
(FDA).
|
·
|
In
the first quarter of 2008, we acquired CovX, a privately held
biotherapeutics company specializing in preclinical oncology and metabolic
research and the developer of a biotherapeutics technology platform that
we expect will enhance our biologic portfolio. Also in the first quarter
of 2008, we acquired all the outstanding shares of Coley Pharmaceutical
Group, Inc. (Coley), a biopharmaceutical company specializing in vaccines
and drug candidates designed to fight cancers, allergy and asthma
disorders, and autoimmune diseases, for approximately $230 million. In
connection with these and two smaller acquisitions related to Animal
Health, we recorded approximately $398 million in Acquisition-related in-process
research and development
charges.
|
The
following transactions were not completed as of the end of the first quarter of
2009, and our consolidated financial statements as of March 29, 2009 do not
assume their completion. However, we have incurred costs related to the pending
acquisition of Wyeth that are reflected in our financial
statements.
·
|
On
April 16, 2009, we announced that we entered into an agreement with
GlaxoSmithKline plc (GSK) to create a new company focused solely on
research, development and commercialization of HIV medicines. We and GSK
will contribute product and pipeline assets to the new company. The new
company will have a broad product portfolio of 11 marketed products,
including innovative leading therapies such as GSK’s Combivir and Kivexa products and our Selzentry/Celsentri
(maraviroc) product. The company will have a pipeline of six
innovative and targeted medicines, including four compounds in Phase 2
development. The new company will contract R&D and manufacturing
services directly from GSK and us and will also enter into a new research
alliance agreement with GSK and us. Under this new alliance, the new
company will invest in our and GSK’s programs for discovery research and
development into HIV medicines. The new company will have exclusive rights
of first negotiation in relation to any new HIV-related medicines
developed by either GSK or us. We will initially hold a 15% equity
interest in the new company, and GSK will hold an 85% equity interest. The
equity interests will be adjusted in the event that specified sales and
regulatory milestones are achieved. Our equity interest in the new company
could vary from 9% to 30.5%, and GSK’s equity interest in the new company
could vary from 69.5% to 91%, depending upon the milestones achieved with
respect to the original pipeline assets contributed by us and by GSK to
the new company. Each company may also be entitled to preferential
dividend payments to the extent that specific sales thresholds are met in
respect of the marketed products and pipeline assets originally
contributed. We will account for our share of the new company as an equity
method investment. The closing of
the transaction and commencement of the new company’s business is
conditional upon certain matters, including receiving certain regulatory
and tax clearances, and no material adverse change occurring in respect of
either GSK’s or our
HIV business prior to closing. We and GSK will conduct consultations with
works councils in accordance with applicable employment legislation. The
transaction is expected to close in the fourth quarter of
2009.
|
·
|
On
January 26, 2009, we announced that we entered into a definitive merger
agreement under which we will acquire Wyeth in a cash-and-stock
transaction valued on that date at $50.19 per share, or a total of $68
billion. The Boards of Directors of both Pfizer and Wyeth have approved
the transaction. Under the terms of the merger agreement, each outstanding
share of Wyeth common stock will be converted into the right to receive
$33 in cash and 0.985 of a share of Pfizer common stock, subject to
adjustment as set forth in the merger agreement. Each outstanding Wyeth
stock option, and each outstanding share of Wyeth restricted stock,
deferred stock unit award and restricted stock unit award, will be
exchanged for cash in accordance with the terms of the merger agreement.
In addition, the merger agreement provides that each share of Wyeth $2
convertible preferred stock will be exchanged for a newly created class of
Pfizer preferred stock having substantially the same rights as the Wyeth
$2 convertible preferred stock. However, on April 23, 2009, Wyeth
announced that it will affect a full redemption of its outstanding $2
convertible preferred stock effective on July 15, 2009. As a result, we
will not issue any preferred stock in connection with the
merger.
|
|
|
|
We
expect the Wyeth transaction will close at the end of the third quarter or
during the fourth quarter of 2009, subject to Wyeth shareholder approval,
governmental and regulatory approvals, the satisfaction of the conditions
related to the debt financing for the transaction, and other usual and
customary closing conditions. We believe that the combination of Pfizer
and Wyeth will create the world’s premier biopharmaceutical company and
will meaningfully deliver on Pfizer’s strategic priorities in a single
transaction. The combined entity will be one of the most
diversified in the industry and will enable us to offer patients a
uniquely broad and diversified portfolio of biopharmaceutical innovation
through patient-centric units. |
|
|
|
We
expect to achieve annual cost savings of approximately $4 billion by the
end of 2012 related solely to this transaction. We expect we will incur
acquisition-related restructuring charges and integration costs associated
with the expected cost savings, which we estimate could be in the range of
approximately $6 billion to $8 billion, and which will be expensed as
incurred. |
|
|
|
We
expect to fund the acquisition through a combination of cash, stock,
short-term borrowings and long-term debt. (See Notes to Condensed
Consolidated Financial Statements - Note 8B. Financial
Instruments: Short-Term Borrowings, Note 8C. Financial Instruments: Long-Term
Debt and Note 8G. Financial
Instruments: Credit Covenants.)
|
|
|
|
The
merger agreement with Wyeth prohibits us from making acquisitions, except
for acquisitions for which cash consideration does not exceed $750 million
in the aggregate prior to the completion of the transaction without
Wyeth’s consent. In addition, the 364-day bridge term loan credit
agreement that we entered into on March 12, 2009 (bridge credit agreement)
in connection with the pending Wyeth acquisition prohibits us from
purchasing U.S. domestic businesses for cash consideration in excess of
$500 million in the aggregate or international businesses for cash
consideration in excess of $2.5 billion in the aggregate until the
commitment expires or is terminated and all loans under the agreement, if
any, have been paid. (For further discussion of the bridge credit
agreement, see the “Financial Condition, Liquidity and Capital Resources”
section of this MD&A and Notes to the Condensed Consolidated Financial
Statements – Note 8B.
Financial Instruments: Short-Term Borrowings and Note 8G. Financial
Instruments: Credit
Covenants).
|
Our Cost-Reduction
Initiatives
During
2008, we completed the cost-reduction and transformation initiatives that were
launched in early 2005, broadened in October 2006 and expanded in January 2007.
These initiatives were designed to increase efficiency and streamline
decision-making across the company and change the way we run our businesses to
meet the challenges of a changing business environment, as well as take
advantage of the diverse opportunities in the marketplace.
We have
generated net cost reductions through site rationalization in R&D and
manufacturing, streamlining organizational structures, sales force and staff
function reductions, and increased outsourcing and procurement savings. These
and other actions have allowed us to reduce costs in support services and
facilities.
On January
26, 2009, we announced the implementation of a new cost-reduction initiative
that we anticipate will achieve a reduction in adjusted total costs of
approximately $3 billion, based on the actual foreign exchange rates in effect
during 2008, by the end of 2011, compared with our 2008 adjusted total costs. We
expect that this program will be completed by the end of 2010, with full savings
to be realized by the end of 2011. We plan to reinvest approximately $1 billion
of these savings in the business, resulting in an expected $2 billion net
decrease compared to our 2008 adjusted total costs. (For an understanding of
Adjusted income, see the “Adjusted income” section of this
MD&A.)
As part of
this new cost-reduction initiative, we intend to reduce our total worldwide
workforce by approximately 10%. Reductions will span sales,
manufacturing, research and development, and administrative organizations. In
the first quarter of 2009, we reduced our workforce by approximately 1,650
colleagues. This decline was net of new colleagues hired in expanding areas of
our business, primarily in emerging markets. We also intend to reduce our
facilities square footage by approximately 15%. We expect to incur costs related
to this new cost-reduction initiative of approximately $6 billion, pre-tax, of
which $1.5 billion was recorded in 2008 and $331 million was recorded in the
first quarter of 2009.
Projects
in various stages of implementation include:
Pfizer
Global Research and Development (PGRD)
·
|
Creating a More Agile and
Productive Organization—In January 2009, we announced that we plan
to reduce our global research staff. We expect these reductions, which are
part of the planned 10% total workforce reduction discussed above, will be
completed during 2009.
|
After a
review of all our therapeutic areas, in 2008, we announced our decision to exit
certain disease areas—anemia, atherosclerosis/hyperlipidemia, bone
health/frailty, gastrointestinal, heart failure, liver fibrosis, muscle,
obesity, osteoarthritis (disease-modifying concepts only) and peripheral
arterial disease—and give higher priority to the following disease areas:
Alzheimer's disease, diabetes, inflammation/immunology, oncology, pain and
psychoses (schizophrenia). We also will continue to work in many other disease
areas, such as asthma, chronic obstructive pulmonary disorder, genitourinary,
infectious diseases, ophthalmology, smoking cessation, thrombosis and
transplant, among others. With a smaller, more focused research portfolio, we
will be able to devote our resources to the most valuable opportunities. These
decisions did not affect our portfolio of marketed products, the development of
compounds then in Phase 3 or any launches planned over the next three
years.
We
continue to focus on reduced cycle time and improved compound survival in the
drug discovery and development process. Over the next two years, we expect to
see a 25% to 33% reduction in cycle time in the period from Final Approved
Protocol to Last Subject-First Visit, as new processes and procedures are
adopted for newly initiated Phase 2, 3 and 4 clinical trials. In the past couple
of years, a number of steps have been taken to improve compound survival, such
as rigorous analyses of the successful and unsuccessful projects in the entire
portfolio to ensure that results are captured and applied to ongoing programs
and to portfolio decisions.
Pfizer
Global Manufacturing (PGM)
·
|
Supply Network Transformation - We are
transforming our global manufacturing network into a global strategic
supply network, consisting of our internal network of plants together with
strategic external manufacturers, and including purchasing, packaging and
distribution. As of the end of the first quarter of 2009, we have reduced
our internal network of plants from 93 in 2003 to 46, which includes the
acquisition of seven plants and the sites sold in 2006 as part of our
Consumer Healthcare business. We plan to reduce our internal network of
plants around the world to 41. We expect that the cumulative impact will
be a more focused, streamlined and competitive manufacturing operation,
with less than 50% of our former internal plants and more than 53% fewer
manufacturing employees, compared to 2003. As part of the transformation
to a global strategic supply network, we currently expect to increase
outsourced manufacturing from approximately 24% of our products, on a cost
basis, to approximately 30% over the next two
years.
|
Worldwide
Pharmaceutical Operations (WPO)
·
|
Reorganization of our Field
Force - As part of Pfizer’s overall restructuring into smaller,
more focused business units, we have changed our global field force
operations to enable us to adapt to changing market dynamics and respond
to local customer needs more quickly and with more flexibility. This
process, which began in 2007, is generating savings from de-layering,
eliminating duplicative work, and utilizing our sales representatives more
efficiently through targeted deployment based on sophisticated
segmentation analyses, offset modestly by increased investment in certain
emerging markets. Between 2004 and the end of the first quarter of 2009,
we reduced our global field force by approximately 12%, with a substantial
portion of those reductions occurring since the beginning of
2007.
|
REVENUES
Worldwide
revenues by segment and geographic area for the first quarters of 2009 and 2008
follow:
|
|
Three
Months Ended
|
|
|
%
Change in Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
World-
|
|
|
|
|
|
Inter-
|
|
|
|
Worldwide
|
|
|
U.S.
|
|
|
International
|
|
|
wide
|
|
|
U.S.
|
|
|
national
|
|
(millions of |
|
Mar.
29,
|
|
|
Mar.
30,
|
|
|
Mar.
29,
|
|
|
Mar.
30,
|
|
|
Mar.
29,
|
|
|
Mar.
30,
|
|
|
|
|
|
|
|
|
|
|
dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
09/08
|
|
|
09/08
|
|
|
09/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,102 |
|
|
$ |
10,904 |
|
|
$ |
4,709 |
|
|
$ |
5,141 |
|
|
$ |
5,393 |
|
|
$ |
5,763 |
|
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(7 |
) |
Animal
Health
|
|
|
537 |
|
|
|
619 |
|
|
|
194 |
|
|
|
240 |
|
|
|
343 |
|
|
|
379 |
|
|
|
(13 |
) |
|
|
(19 |
) |
|
|
(10 |
) |
Other
|
|
|
228 |
|
|
|
325 |
|
|
|
66 |
|
|
|
130 |
|
|
|
162 |
|
|
|
195 |
|
|
|
(30 |
) |
|
|
(49 |
) |
|
|
(17 |
) |
Total
Revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
$ |
4,969 |
|
|
$ |
5,511 |
|
|
$ |
5,898 |
(a) |
|
$ |
6,337 |
(a) |
|
|
(8 |
) |
|
|
(10 |
) |
|
|
(7 |
) |
|
|
(a)
|
Includes
revenues from Japan of $993 million (9.1% of total revenues) for the first
quarter of 2009, and $765 million (6.5% of total revenues) for the first
quarter of 2008.
|
Revenues
by segment, and by business unit within the Pharmaceutical segment, for the
first quarters of 2009 and 2008 follow:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACEUTICAL:
|
|
|
|
|
|
|
|
|
|
Primary
care
|
|
$ |
5,322 |
|
|
$ |
5,788 |
|
|
|
(8 |
) |
Specialty
care
|
|
|
1,463 |
|
|
|
1,362 |
|
|
|
7 |
|
Oncology
|
|
|
350 |
|
|
|
421 |
|
|
|
(17 |
) |
Established
products
|
|
|
1,615 |
|
|
|
1,841 |
|
|
|
(12 |
) |
Emerging
markets
|
|
|
1,352 |
|
|
|
1,492 |
|
|
|
(9 |
) |
Total
Pharmaceutical
|
|
|
10,102 |
|
|
|
10,904 |
|
|
|
(7 |
) |
ANIMAL
HEALTH
|
|
|
537 |
|
|
|
619 |
|
|
|
(13 |
) |
OTHER
|
|
|
228 |
|
|
|
325 |
|
|
|
(30 |
) |
Total
revenues
|
|
$ |
10,867 |
|
|
$ |
11,848 |
|
|
|
(8 |
) |
Pharmaceutical Business
Revenues
Worldwide
Pharmaceutical revenues for the first quarter of 2009 were $10.1 billion, a
decrease of 7% compared to the first quarter of 2008, primarily due
to:
·
|
the
strengthening of the U.S. dollar relative to other currencies, primarily
the euro, UK pound and Canadian dollar, which unfavorably impacted
Pharmaceutical revenues by $574 million, or 5%, in the first quarter of
2009;
|
·
|
an
aggregate decrease in revenues for Zyrtec/Zyrtec D and Camptosar of $200
million in the first quarter of 2009, due to the loss of U.S. exclusivity
and cessation of selling of Zyrtec/Zyrtec D in January 2008 and the loss
of U.S. exclusivity of Camptosar in February
2008;
|
·
|
a
decrease in worldwide revenues for Lipitor of $416 million in the first
quarter of 2009, primarily resulting from competitive pressures from
generics, among other factors; and
|
·
|
a
decrease in worldwide revenues for Chantix/Champix of $100 million in the
first quarter of 2009, primarily resulting from changes to the Chantix
label during 2008, among other
factors;
|
partially
offset by:
·
|
solid
operational performance from certain products, including Lyrica,
Xalatan/Xalacom, Zyvox, Sutent and
Vfend.
|
Geographically,
·
|
in
the U.S., Pharmaceutical revenues decreased 8% in the first quarter of
2009, compared to the same period of 2008, primarily due to lower sales of
Lipitor, the effect of the loss of exclusivity of Zyrtec/Zyrtec D and
Camptosar, and lower sales of Chantix, which was negatively impacted by
the changes to its label in 2008 and other factors, partially offset by
the solid performance from certain products, including Lyrica, Viagra,
Zyvox and Xalatan; and
|
|
|
·
|
in
our international markets, Pharmaceutical revenues decreased 7% in the
first quarter of 2009, compared to the same period of 2008, due to the
unfavorable impact of foreign exchange on international revenues of $574
million, or 10%, partially offset by operational growth, including higher
revenues from certain products, including Lyrica, Zyvox and
Sutent.
|
During the
first quarter of 2009, international Pharmaceutical revenues grew to represent
53.4% of total Pharmaceutical revenues, compared to 52.9% in the first quarter
of 2008. This increase reflects the slightly higher percentage decline in
Pharmaceutical revenues in the U.S. compared to international markets, where
overall operational growth partially offset the adverse impact of foreign
exchange.
Effective
January 3, 2009, August 1, 2008, May 2, 2008 and January 1, 2008, we increased
the published prices for certain U.S. pharmaceutical products. These price
increases had no material effect on wholesaler inventory levels in comparison to
the prior year.
As is
typical in the pharmaceutical industry, our gross product sales are subject to a
variety of deductions, that are generally estimated and recorded in the same
period that the revenues are recognized, and primarily represent rebates and
discounts to government agencies, wholesalers, distributors and managed care
organizations with respect to our pharmaceutical products. These deductions
represent estimates of the related obligations and, as such, judgment and
knowledge of market conditions and practice are required when estimating the
impact of these sales deductions on gross sales for a reporting period.
Historically, our adjustments to actual results have not been material to our
overall business. On a quarterly basis, our adjustments to actual results
generally have been less than 1% of Pharmaceutical net sales and can result in
either a net increase or a net decrease in income. Product-specific rebate
charges, however, can have a significant impact on year-over-year individual
product growth trends.
Rebates
under Medicaid and related state programs reduced revenues by $150 million in
the first quarter of 2009, compared to $178 million in the first quarter of
2008. The decreases in rebates under Medicaid and related state programs were
due primarily to lower sales of Zyrtec/Zyrtec D and Zoloft, which have lost
exclusivity in the U.S.
Rebates
under Medicare reduced revenues by $230 million in the first quarter of 2009,
compared to $221 million in the first quarter of 2008. The increase in Medicare
rebates was due primarily to a shift in the mix of Lipitor sales volume toward
Medicare plans with higher rates.
Performance-based
contract rebates reduced revenues by $573 million in the first quarter of 2009,
compared to $506 million in the first quarter of 2008. The increases in
performance-based contract rebates were due primarily to the impact of certain
contract changes which resulted in increased rates related to Lipitor, partially
offset by lower sales of Zyrtec/Zyrtec D, Viagra and Caduet. These contracts are
with managed care customers, including health maintenance organizations and
pharmacy benefit managers, who receive rebates based on the achievement of
contracted performance terms for products. Rebates are product-specific and,
therefore, for any given period are impacted by the mix of products
sold.
Chargebacks
(primarily reimbursements to wholesalers for honoring contracted prices to third
parties) reduced revenues by $486 million in the first quarter of 2009, compared
to $507 million in the first quarter of 2008. Chargebacks were impacted by the
launch of certain generic products.
Our
accruals for Medicaid and related state programs rebates, Medicare rebates,
performance-based contract rebates and chargebacks totaled $1.7 billion as of
March 29, 2009, an increase from $1.5 billion as of December 31, 2008, due
primarily to the impact of certain contract changes and increased pricing
pressures.
Pharmaceutical – Selected
Product Revenues
Revenue
information for several of our major Pharmaceutical products
follows:
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
%
Change
|
|
(millions
of dollars)
|
|
|
Mar.
29,
|
|
|
From
|
|
Product+
|
Primary
Indications
|
|
2009
|
|
|
2008
|
|
Cardiovascular
and
|
|
|
|
|
|
|
|
metabolic
diseases:
|
|
|
|
|
|
|
|
Lipitor
|
Reduction
of LDL cholesterol
|
|
$ |
2,721 |
|
|
|
(13 |
) |
Norvasc
|
Hypertension
|
|
|
481 |
|
|
|
(6 |
) |
Chantix/Champix
|
An
aid to smoking cessation
|
|
|
177 |
|
|
|
(36 |
) |
Caduet
|
Reduction
of LDL cholesterol and hypertension
|
|
|
134 |
|
|
|
(9 |
) |
Cardura
|
Hypertension/Benign
prostatic hyperplasia
|
|
|
107 |
|
|
|
(11 |
) |
Central
nervous
|
|
|
|
|
|
|
|
|
|
system
disorders:
|
|
|
|
|
|
|
|
|
|
Lyrica
|
Epilepsy,
post-herpetic neuralgia and diabetic
peripheral neuropathy,
fibromyalgia
|
|
|
684 |
|
|
|
17 |
|
Geodon/Zeldox
|
Schizophrenia
and acute manic or mixed
episodes
associated with bipolar disorder
|
|
|
230 |
|
|
|
(5 |
) |
Zoloft
|
Depression
and certain anxiety disorders
|
|
|
115 |
|
|
|
(6 |
) |
Aricept(a),(b)
|
Alzheimer’s
disease
|
|
|
95 |
|
|
|
(9 |
) |
Relpax
|
Migraine
headaches
|
|
|
79 |
|
|
|
2 |
|
Neurontin
|
Epilepsy
and post-herpetic neuralgia
|
|
|
78 |
|
|
|
(12 |
) |
Xanax/Xanax XR
|
Anxiety/Panic
disorders
|
|
|
75 |
|
|
|
(13 |
) |
Arthritis
and pain:
|
|
|
|
|
|
|
|
|
|
Celebrex
|
Arthritis
pain and inflammation, acute pain
|
|
|
564 |
|
|
|
(8 |
) |
Infectious
and
|
|
|
|
|
|
|
|
|
|
respiratory
diseases:
|
|
|
|
|
|
|
|
|
|
Zyvox
|
Bacterial
infections
|
|
|
283 |
|
|
|
9 |
|
Vfend
|
Fungal
infections
|
|
|
179 |
|
|
|
5 |
|
Zithromax/Zmax
|
Bacterial
infections
|
|
|
114 |
|
|
|
(5 |
) |
Diflucan
|
Fungal
infections
|
|
|
78 |
|
|
|
(13 |
) |
Selzentry/Celsentri
|
HIV
infection
|
|
|
18 |
|
|
|
189 |
|
Urology:
|
|
|
|
|
|
|
|
|
|
Viagra
|
Erectile
dysfunction
|
|
|
454 |
|
|
|
(1 |
) |
Detrol/Detrol LA
|
Overactive
bladder
|
|
|
289 |
|
|
|
(8 |
) |
Oncology:
|
|
|
|
|
|
|
|
|
|
Sutent
|
Advanced
and/or metastatic renal cell carcinoma
(mRCC) and refractory
gastrointestinalstromal tumors (GIST)
|
|
|
202 |
|
|
|
7 |
|
Aromasin
|
Breast
cancer
|
|
|
110 |
|
|
|
6 |
|
Camptosar
|
Metastatic
colorectal cancer
|
|
|
109 |
|
|
|
(43 |
) |
Ophthalmology:
|
|
|
|
|
|
|
|
|
|
Xalatan/Xalacom
|
Glaucoma
and ocular hypertension
|
|
|
407 |
|
|
|
– |
|
Endocrine
disorders:
|
|
|
|
|
|
|
|
|
|
Genotropin
|
Replacement
of human growth hormone
|
|
|
197 |
|
|
|
(4 |
) |
All
other:
|
|
|
|
|
|
|
|
|
|
Zyrtec/Zyrtec D
|
Allergies
|
|
|
– |
|
|
|
(100 |
) |
Alliance
revenues:
|
|
|
|
|
|
|
|
|
|
Aricept(b),,
Macugen,
Exforge,
Olmetec,
Rebif and Spiriva
|
Alzheimer’s
disease (Aricept), neovascular (wet)
age-related
macular degeneration (Macugen),
hypertension
(Exforge and Olmetec), multiple
sclerosis
(Rebif) and chronic obstructive
pulmonary
disease (Spiriva)
|
|
|
582 |
|
|
|
19 |
|
+
|
Revenues
are presented by therapeutic area.
|
|
Certain
amounts and percentages may reflect rounding
adjustments.
|
(a)
|
Represents
direct sales under license agreement with Eisai Co.,
Ltd.
|
(b)
|
See
the discussion under “Aricept Strategic Alliance and Development
Agreement” in Part II – Other Information; Item
1. Legal
Proceedings. |
Pharmaceutical – Selected
Product Descriptions:
·
|
Lipitor, for the
treatment of elevated LDL-cholesterol levels in the blood, is the most
widely used prescription treatment for lowering cholesterol and the
best-selling pharmaceutical product of any kind in the world. Lipitor
recorded worldwide revenues of $2.7 billion in the first quarter of 2009,
a decrease of 13% compared to the same period in 2008. These results
reflect the negative impact of foreign exchange, which decreased revenues
by $186 million, or 6%. In the U.S., revenues of $1.5 billion in the first
quarter of 2009 declined 17%, compared with the same period in 2008.
Internationally, Lipitor revenues in the first quarter of 2009 decreased
9%, compared to the same period in 2008, with 13% due to the unfavorable
impact of foreign exchange.
|
The
decrease in Lipitor worldwide revenues in the first quarter of 2009 compared to
the same period in 2008, was driven by a combination of factors, including the
following:
·
|
the
unfavorable impact of foreign
exchange;
|
·
|
the
impact of an intensely competitive lipid-lowering market with competition
from multi-source generic simvastatin and branded products in the
U.S.;
|
·
|
increased
payer pressure in the U.S.; and
|
·
|
slower
growth in the lipid-lowering market, due in part to a slower rate of
growth in the Medicare Part D population and, reflecting the global
recession, heightened overall patient cost-sensitivity in the U.S. and
adoption of non-prescription treatment options like nutraceuticals and
functional foods;
|
·
|
operating
growth internationally.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent
litigation relating to Lipitor.
·
|
Norvasc, for treating
hypertension, lost exclusivity in the U.S. in March 2007. Norvasc has also
experienced patent expirations in most other major markets, with the
exception of Canada, where the amlodipine besylate patent expires in 2010.
Norvasc worldwide revenues in the first quarter of 2009 decreased 6%
compared to the same period in
2008.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent
litigation relating to Norvasc.
·
|
Chantix/Champix, the
first new prescription treatment to aid smoking cessation in nearly a
decade, became available to patients in the U.S. in August 2006 and in
select EU markets in December 2006 and has been launched in all major
markets. Chantix/Champix has been prescribed to more than ten million
patients globally since its launch. Chantix/ Champix recorded worldwide
revenues of $177 million in the first quarter of 2009, a decrease of 36%,
compared to the same period in 2008. In the U.S., revenues of $112 million
in the first quarter of 2009 declined 42% compared to the same period in
2008, following changes to the Chantix label in 2008 and other factors.
Internationally, revenues of $65 million in the first quarter of 2009
decreased 22% compared to the same period in 2008, following the label
changes and reflecting the negative impact of foreign exchange, which
decreased revenues by 14%.
|
In January
2008, we added a warning to Chantix’s label that patients who are attempting to
quit smoking by taking Chantix should be observed by a physician for
neuropsychiatric symptoms like changes in behavior, agitation, depressed mood,
suicidal ideation and suicidal behavior. A causal relationship between Chantix
and these reported symptoms has not been established. There are also confounding
factors that limit interpretation of neuropsychiatric symptoms in smokers. For
example, quitting smoking has been associated with symptoms of nicotine
withdrawal, such as depressed mood and anxiety. In addition, research has shown
that smokers have a higher rate of depression and suicide-related events than
non-smokers.
In May
2008, we updated the Chantix label to provide further guidance about the safe
use of Chantix. The updated label advises that patients should stop taking
Chantix and contact their healthcare provider immediately if agitation,
depressed mood, or changes in behavior that are not typical for them are
observed, or if they develop suicidal thoughts or suicidal
behavior.
U.S.
prescription trends and U.S. revenues for Chantix have declined year-over-year
following the changes to the product’s label in the U.S. and other factors. We
are continuing our educational and promotional efforts, which are focused on the
Chantix benefit-risk proposition, the significant health consequences of smoking
and the importance of the physician-patient dialogue in helping patients quit
smoking.
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain product
litigation relating to Chantix/Champix.
·
|
Caduet, a single-pill
therapy combining Norvasc and Lipitor, recorded worldwide revenues of $134
million, a decrease of 9% for the first quarter of 2009, compared to the
same period in 2008, primarily due to increased generic competition as
well as an overall decline in U.S. hypertension market
volume.
|
·
|
Lyrica, indicated for
the management of post-herpetic neuralgia (PHN), diabetic peripheral
neuropathy (DPN), and fibromyalgia, and as adjunctive therapy for adult
patients with partial onset seizures in the U.S., and for neuropathic pain
and general anxiety disorder (GAD) outside the U.S., recorded worldwide
revenues of $684 million in the first quarter of 2009, an increase of 17%,
compared to the same period in 2008. Lyrica’s prescription volume in the
U.S. has been adversely affected by increased generic competition
reflecting the global recession. In June 2007, Lyrica was approved in the
U.S. for the management of fibromyalgia, one of the most common chronic
widespread pain conditions, which affects more than five million
Americans. Lyrica is the leading branded agent for neuropathic pain
worldwide and for DPN/PHN and fibromyalgia in the
U.S.
|
In July
2008, an FDA advisory committee concurred with the FDA’s finding of a potential
increased signal regarding suicidal thoughts and behavior for the class of 11
epilepsy drugs reviewed, including Lyrica and Neurontin. In April 2009, we
updated the Lyrica and Neurontin labels to include this new warning. We are
confident in the efficacy and safety profile of Lyrica and Neurontin for their
approved indications.
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent
litigation relating to Lyrica.
·
|
Geodon/Zeldox, a
psychotropic agent, is a dopamine and serotonin receptor antagonist
indicated for the treatment of schizophrenia and acute manic or mixed
episodes associated with bipolar disorder. It is available in both an oral
capsule and rapid-acting intramuscular formulation. In the first quarter
of 2009, Geodon worldwide revenues decreased 5%, compared to the same
period in 2008, due to increased generic competition, slow growth in the
antipsychotic market in the U.S. as well as the unfavorable impact of
foreign exchange. Geodon is supported by Pfizer’s recently launched
psychiatric field force and Geodon’s efficacy and favorable tolerability
and metabolic profiles.
|
·
|
Celebrex, a treatment
for the signs and symptoms of osteoarthritis and rheumatoid arthritis and
acute pain in adults, experienced an 8% decrease in worldwide revenues to
$564 million for the first quarter of 2009, due to increased generic
competition. Celebrex is supported by continued educational and
promotional efforts highlighting its efficacy and safety profile for
appropriate patients.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain product
litigation relating to Celebrex.
·
|
Zyvox is the world’s
best-selling branded agent for the treatment of certain serious
Gram-positive pathogens, including Methicillin-Resistant
Staphylococcus-Aureus (MRSA). MRSA remains a serious and
growing threat in hospitals and the community. Zyvox is an excellent
first-line choice for the treatment of adults and children with
complicated skin and skin structure infections and nosocomial pneumonia
due to known or suspected MRSA. Zyvox is the only FDA-approved agent for
MRSA that offers intravenous and oral formulations for these indications.
Its unique mechanism of action minimizes the potential for
cross-resistance. To date, more than three million patients have been
treated worldwide. Zyvox worldwide sales grew 9% to $283 million in the
first quarter of 2009.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent
litigation relating to Zyvox.
·
|
Selzentry/Celsentri,
(maraviroc tablets), a CCR5 antagonist, is the first in a new class of
oral HIV medicines in more than a decade known as CCR5 antagonists.
Selzentry/Celsentri was approved in the U.S. and Europe in 2007 and in
Japan in 2008, and is indicated for combination anti-retroviral treatment
of treatment-experienced adults infected with only CCR5-tropic HIV-1, who
have evidence of viral replication and have HIV-1 strains resistant to
multiple anti-retroviral agents. A diagnostic test confirms whether a
patient is infected with CCR5-tropic HIV-1, which is also known as
“R5-virus.” On April 16, 2009, we announced that we entered into an
agreement with GSK to form a new, HIV company that will develop and market
our combined portfolio of HIV assets, including Selzentry/Celsentri. (See
the “Our Strategic Initiatives - Strategy and Recent Transactions” section
of this MD&A.)
|
·
|
Viagra remains the
leading treatment for erectile dysfunction and one of the world’s most
recognized pharmaceutical brands after more than a decade. Viagra
worldwide revenues declined 1% to $454 million in the first quarter of
2009 compared to the same period in 2008. In the U.S., revenues of $258
million in the first quarter of 2009 increased 16% compared with the same
period in 2008. Internationally, Viagra revenues of $196 million in the
first quarter of 2009 decreased 18% compared to the same period in 2008
due to the unfavorable impact of foreign exchange, increased competition
and the loss of market exclusivity in a number of countries in
Europe.
|
·
|
Detrol/Detrol LA, a
muscarinic receptor antagonist, is the most prescribed branded medicine
worldwide for overactive bladder. Detrol LA is an extended-release
formulation taken once a day. Detrol/Detrol LA worldwide revenues declined
8% to $289 million in the first quarter of 2009, compared to the same
period in 2008 primarily due to increased competition from other branded
medicines.
|
·
|
Sutent, for the treatment
of advanced renal cell carcinoma, including metastatic renal cell
carcinoma, and gastrointestinal stomach tumors (GIST) after disease
progression on, or intolerance to, imatinib mesylate, was launched in the
U.S. in January 2006. It has now been launched in all major markets,
including Japan, where it was approved in April 2008 for the treatment of
GIST, after failure of imatinib treatment due to resistance, and for renal
cell carcinoma not indicated for curative resection and mRCC. Sutent
recorded worldwide revenues of $202 million in the first quarter of 2009,
an increase of 7% compared to the same period in 2008. We continue to
drive growth in the U.S. and internationally, supported by
cost-effectiveness data and efficacy data in first-line mRCC – including
2-year survival data, which represents the first time overall survival of
two years has been seen in the treatment of advanced kidney cancer, as
well as through the promotion of access and health care coverage. As of
March 29, 2009, Sutent was the best-selling medicine in the world for the
treatment of first-line mRCC.
|
·
|
Camptosar, indicated as
first-line therapy for metastatic colorectal cancer in combination with
5-fluorouracil and leucovorin, lost exclusivity in the U.S. in February
2008. It is also indicated for patients in whom metastatic colorectal
cancer has recurred or progressed following initial fluorouracil-based
therapy. Camptosar is for intravenous use only. Camptosar worldwide
revenues in the first quarter of 2009 decreased 43% to $109 million,
compared to the same period in 2008, primarily as a result of the loss of
exclusivity.
|
·
|
Xalatan, a
prostaglandin, is the world’s leading branded agent to reduce elevated eye
pressure in patients with open-angle glaucoma or ocular hypertension.
Xalatan's proven clinical benefits and studies demonstrating long-term
safety should support the continued growth of this important medicine.
Xalacom, a fixed
combination prostaglandin (Xalatan) and beta blocker (timolol), is
available outside the U.S. Xalatan/Xalacom worldwide revenues were flat in
the first quarter of 2009, compared to the same period in
2008.
|
·
|
Genotropin, the world’s
leading human growth hormone, is used in children for the treatment of
short stature with growth hormone deficiency, Prader-Willi Syndrome,
Turner Syndrome, Small for Gestational Age Syndrome, Idiopathic Short
Stature (in the U.S. only) and Chronic Renal Insufficiency (outside the
U.S. only), as well as in adults with growth hormone deficiency.
Genotropin is supported by a broad platform of innovative
injection-delivery devices. Genotropin worldwide revenues decreased 4% in
the first quarter of 2009 to $197 million, compared to the same period in
2008 primarily due to the unfavorable impact of foreign
exchange.
|
·
|
Vfend, as the only
branded agent available in intravenous and oral forms, continues to build
on its position as the best selling systemic, antifungal agent worldwide.
Vfend’s overall global sales continue to be driven by its acceptance as an
excellent broad spectrum agent for treating yeast and moulds. In the U.S.,
Vfend’s growth continues to outpace the overall market driven by the oral
form which has gained solid positioning as a step-down agent that
facilitates discharge from the hospital. Vfend recorded
worldwide revenues of $179 million in the first quarter of 2009, an
increase of 5% compared to the same period in 2008. In the U.S., revenues
of $62 million in the first quarter of 2009 increased 18% compared to the
same period in 2008, reflecting solid growth. Internationally,
Vfend revenues were $117 million in the first quarter of 2009, a 1%
decrease compared to the same period in 2008, due to the unfavorable
impact of foreign exchange.
|
Animal
Health
Revenues
of our Animal Health business follow:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
products
|
|
$ |
322 |
|
|
$ |
385 |
|
|
|
(16 |
) |
Companion
animal products
|
|
|
215 |
|
|
|
234 |
|
|
|
(8 |
) |
Total
Animal Health
|
|
$ |
537 |
|
|
$ |
619 |
|
|
|
(13 |
) |
Our Animal
Health business is one of the largest in the world.
The
decrease in Animal Health revenues in the first quarter of 2009, compared to the
same period in 2008, was primarily due to the impact of foreign exchange, which
decreased revenues by 8%.
Our
revenue performance was also negatively impacted by the following:
·
|
the
global recession, which negatively affected global spending on veterinary
care; and
|
·
|
a
planned change in terms with U.S. distributors resulting in an
anticipated, one-time reduction in U.S. distributor
inventories.
|
Product
Developments
We
continue to invest in R&D to provide future sources of revenues through the
development of new products, as well as through additional uses for existing
in-line and alliance products, and we have taken important steps to prioritize
our research and development portfolio to maximize value. After a review of all
our therapeutic areas, in 2008, we announced our decision to exit certain
disease areas - anemia, atherosclerosis/hyperlipidemia, bone health/frailty,
gastrointestinal, heart failure, liver fibrosis, muscle, obesity, osteoarthritis
(disease-modifying concepts only) and peripheral arterial disease - and give
higher priority to the following disease areas: Alzheimer’s disease, diabetes,
inflammation/immunology, oncology, pain and psychoses (schizophrenia). We also
will continue to work in many other disease areas, such as asthma, chronic
obstructive pulmonary disorder, genitourinary, infectious diseases,
ophthalmology, smoking cessation, thrombosis and transplant, among others. These
decisions did not affect our portfolio of marketed products, the development of
compounds then in Phase 3 or any launches planned over the next three years.
Notwithstanding our efforts, there are no assurances as to when, or if, we will
receive regulatory approval for additional indications for existing products or
any of our other products in development.
Below are
significant regulatory actions by, and filings pending with, the FDA and
regulatory authorities in the EU and Japan.
Pending U.S. New Drug
Applications (NDAs) and Supplemental Filings:
Product
|
Indication
|
Date
Submitted
|
|
|
|
Selzentry
(maraviroc)
|
HIV
in treatment-naïve patients
|
December
2008
|
|
|
|
Geodon
|
Maintenance
treatment of bipolar mania
|
December
2008
|
|
|
|
Geodon
|
Treatment
of bipolar disorders – Pediatric filing
|
October
2008
|
|
|
|
Fablyn
(lasofoxifene)
|
Treatment
of osteoporosis
|
December
2007
|
|
|
|
Spiriva
|
Respimat
device for chronic obstructive pulmonary disease
|
November
2007
|
|
|
|
Zmax
|
Treatment
of bacterial infections—sustained release—acute otitis
media
(AOM) and sinusitis – Pediatric filing
|
November
2006
|
|
|
|
Vfend
|
Treatment
of fungal infections – Pediatric filing
|
June
2005
|
|
|
|
Thelin
|
Treatment
of pulmonary arterial hypertension (PAH)
|
May
2005
|
In April
2009, we and GSK announced that we entered into an agreement to create a new
company focused solely on research, development and commercialization of HIV
medicines. We will contribute Selzentry/Celsentri (maraviroc), among other
assets, to that company. (See further discussion in the “Our Strategic
Initiatives - Strategy and Recent Transactions: Acquisitions, Licensing and
Collaborations” section of this MD&A.)
We
received “not-approvable” letters from the FDA for Fablyn (lasofoxifene) for the
prevention of post-menopausal osteoporosis in September 2005 and for the
treatment of vaginal atrophy in January 2006. We submitted a new NDA for the
treatment of osteoporosis in post-menopausal women in December 2007, including
the three-year interim data from the Postmenopausal Evaluation And
Risk-reduction with Lasofoxifene (PEARL) study in support of the new NDA. In
September 2008, nine of the 13 members of an FDA advisory committee concluded
that there is a population of women with post-menopausal osteoporosis for which
the benefit of treatment with Fablyn is likely to outweigh the risks. We
received a “complete response” letter from the FDA in January 2009.
Subsequently, following a strategic review, we decided to explore strategic
options for Fablyn, including outlicensing or sale.
In
September 2008, we received a “complete response” letter from the FDA for the
Spiriva Respimat submission. The FDA is seeking additional data and we are
working with the FDA to provide the additional information. A full response will
be submitted to the FDA upon the completion of ongoing studies.
In
September 2007, we received an “approvable” letter from the FDA for Zmax that
sets forth requirements to obtain approval for the pediatric AOM indication
based on pharmacokinetic data. A supplemental filing for pediatric AOM and
sinusitis remains under review.
In
December 2005, we received an “approvable” letter from the FDA for our Vfend
pediatric filing, which sets forth the additional requirements for approval. We
have been systematically working through these requirements and addressing the
FDA’s concerns, including initiating an additional pharmacokinetics study in
November 2008.
In June
2008, we completed the acquisition of Encysive Pharmaceuticals Inc. (Encysive),
whose main product is Thelin. In June 2007, Encysive received a third
“approvable” letter from the FDA for Thelin for the treatment of PAH. We began
an additional Phase 3 clinical trial in patients with PAH during the fourth
quarter of 2008 to address the concerns of the FDA regarding efficacy as
reflected in that letter.
Regulatory Approvals and
Filings in the EU and Japan:
Product
|
Description
of Event
|
Date
Approved
|
Date
Submitted
|
|
|
|
|
Fablyn
(lasofoxifene)
|
Approval
in the EU for the treatment of osteoporosis
|
February
2009
|
––
|
|
|
|
|
Zithromac
|
Approval
in Japan for bacterial infections
|
January
2009
|
––
|
|
|
|
|
Celsentri
(maraviroc)
|
Application
submitted in the EU for HIV in treatment-naïve patients
|
––
|
January
2009
|
|
|
|
|
Geodon
|
Application
submitted in the EU for pediatric bipolar disorders
|
––
|
October
2008
|
|
|
|
|
Lyrica
|
Application
submitted in Japan for the treatment of pain associated with post-herpetic
neuralgia
|
––
|
May
2008
|
|
|
|
|
|
Application
submitted in the EU for the treatment of fibromyalgia
|
––
|
March
2008
|
|
|
|
|
Xalacom
|
Application
submitted in Japan for the treatment of glaucoma
|
––
|
February
2008
|
|
|
|
|
Caduet
|
Application
submitted in Japan for hypertension
|
––
|
November
2007
|
|
|
|
|
Celebrex
|
Application
submitted in Japan for treatment of lower-back pain
|
––
|
February
2007
|
In
February 2009, Fablyn received approval in Europe for the treatment of
osteoporosis. Subsequently, following a strategic review, we decided to explore
strategic options for Fablyn, including outlicensing or sale.
In April
2009, we and GSK announced that we entered into an agreement to create a new
company focused solely on research, development and commercialization of HIV
medicines. We will contribute Selzentry/Celsentri (maraviroc), among other
assets, to that company. (See further discussion in the “Our Strategic
Initiatives - Strategy and Recent Transactions: Acquisitions, Licensing and
Collaborations” section of this MD&A.)
On April
23, 2009, the European Medicines Agency’s Committee for Medicinal Products for
Human Use (CHMP) issued a negative opinion, recommending that the European
Commission not add an indication for the treatment of fibromyalgia to the
marketing authorization for Lyrica. The CHMP was of the opinion that the
benefits of Lyrica in the treatment of fibromyalgia did not outweigh its risks.
Lyrica remains approved in Europe for the indications of neuropathic pain,
epilepsy and generalized anxiety disorder.
Ongoing or planned clinical
trials for additional uses and dosage forms for our in-line products
include:
Product
|
Indication
|
|
|
Celebrex
|
Acute
gouty arthritis
|
|
|
Eraxis/Vfend
Combination
|
Aspergillosis
fungal infections
|
|
|
Lyrica
|
Epilepsy
monotherapy; post-operative pain; GAD; restless legs
syndrome
|
|
|
Macugen
|
Diabetic
macular edema
|
|
|
Revatio
|
Pediatric
pulmonary arterial hypertension
|
|
|
Sutent
|
Breast
cancer; colorectal cancer; non-small cell lung cancer; prostate cancer;
liver cancer
|
|
|
Zithromax/chloroquine
|
Malaria
|
In April
2009, we terminated one of four ongoing Phase 3 trials of Sutent for the
treatment of advanced breast cancer for futility. The trial evaluated
single-agent Sutent versus single-agent capecitabine for the treatment of a
broad range of patients with advanced breast cancer after failure of standard
treatment. We are continuing to evaluate Sutent as a single agent and in
combination with standard-of-care chemotherapy in specific patient populations
with advanced breast cancer through three additional Phase 3 and two Phase 2
trials.
New drug
candidates in late-stage development include: CP-690550, a JAK-3 kinase
inhibitor for the treatment of rheumatoid arthritis; axitinib, a multi-targeted
kinase inhibitor for the treatment of renal cell carcinoma; Dimebon, a novel
mitochondrial protectant and enhancer being developed in partnership with
Medivation, Inc. for the treatment of Alzheimer’s disease; CP-751871, an
anti-insulin-like growth factor receptor 1 (IGF1R) human monoclonal antibody for
the treatment of non-small cell lung cancer; dalbavancin for treatment of skin
and skin structure infections; tanezumab, an anti-nerve growth factor monoclonal
antibody for the treatment of pain; and apixaban, for acute coronary syndrome,
the prevention and treatment of venous thromboembolism and prevention of stroke
in patients with atrial fibrillation, which is being developed in collaboration
with Bristol-Myers Squibb Company (BMS).
In
September 2008, we announced that we would globally withdraw all dalbavancin
marketing applications for the treatment of complicated skin and skin structure
gram-positive bacterial infections in adults, including the U.S. NDA and the
European marketing authorization application. A pediatric pharmacokinetic
pediatric study with dalbavancin was initiated in the first quarter of 2009 and
remains in progress.
In
February 2009, we terminated the development programs for PD-332334, an
alpha2delta ligand compound for the treatment of GAD, and esreboxetine, for the
treatment of fibromyalgia, because it was considered unlikely that either
compound would provide meaningful benefit to patients beyond the current
standard of care.
In January
2009, we terminated the development program for axitinib, a multi-targeted
kinase inhibitor, for the treatment of pancreatic cancer, after the review of
interim data showed that the trial would not demonstrate superiority to the
current standard of care.
Additional
product-related programs are in various stages of discovery and development.
Also, see our discussion in the “Our Strategic Initiatives – Strategy and Recent
Transactions: Acquisitions, Licensing and Collaborations” section of this
MD&A.
COSTS AND
EXPENSES
Cost of
Sales
Cost of
sales decreased 29% in the first quarter of 2009, while revenues decreased 8% in
the first quarter of 2009, compared to the same period in 2008. Cost of sales as
a percentage of revenues in the first quarter of 2009 decreased 3.8 percentage
points compared to the same period in 2008, reflecting:
·
|
savings
related to our cost-reduction
initiatives;
|
·
|
the
favorable impact of foreign exchange on expenses;
and
|
·
|
the
impact of lower implementation costs associated with our cost-reduction
initiatives of $76 million in the first quarter of 2009, compared to $138
million in the first quarter of
2008.
|
Selling, Informational and
Administrative Expenses
Selling,
informational and administrative (SI&A) expenses decreased 18% in the first
quarter of 2009, compared to the first quarter of 2008, which
reflects:
·
|
savings
related to our cost-reduction
initiatives;
|
·
|
the
favorable impact of foreign exchange on
expenses;
|
·
|
the
impact of lower implementation costs associated with our cost-reduction
initiatives of $46 million in the first quarter of 2009, compared to $75
million in the first quarter of 2008;
and
|
·
|
certain
insurance recoveries of $165 million related to legal-defense
costs.
|
Research and Development
Expenses
Research
and development (R&D) expenses decreased 5% in the first quarter of 2009,
compared to the same period in 2008, which reflects:
·
|
savings
related to our cost-reduction
initiatives;
|
·
|
the
favorable impact of foreign exchange on expenses;
and
|
·
|
the
impact of lower implementation costs associated with our cost-reduction
initiatives of $41 million in the first quarter of 2009, compared to $146
million in the first quarter of
2008;
|
partially
offset by:
·
|
a
$150 million milestone payment to BMS recorded in the first quarter of
2009 in connection with the collaboration on
apixaban.
|
Acquisition-Related
In-Process Research and Development Charges
As
required through December 31, 2008, the estimated fair value of Acquisition-related in-process
research and development charges (IPR&D) was expensed at acquisition
date. IPR&D of $398 million was recorded in the first quarter of 2008,
primarily related to our acquisitions of CovX and Coley and two smaller
acquisitions related to Animal Health. As a result of adopting Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 141R,
Business Combinations,
as amended, beginning January 1, 2009, IPR&D related to future acquisitions
will be recorded on our consolidated balance sheet as indefinite-lived
intangible assets. We made no acquisitions in the first quarter of
2009.
Cost-Reduction
Initiatives
During
2008, we completed the cost-reduction and transformation initiatives which were
launched in early 2005, broadened in October 2006 and expanded in January 2007.
These initiatives were designed to increase efficiency and streamline
decision-making across the company and change the way we run our businesses to
meet the challenges of a changing business environment, as well as take
advantage of the diverse opportunities in the marketplace.
We have
generated net cost reductions through site rationalization in R&D and
manufacturing, streamlining organizational structures, sales force and staff
function reductions, and increased outsourcing and procurement savings. These
and other actions have allowed us to reduce costs in support services and
facilities.
On January
26, 2009, we announced the implementation of a new cost-reduction initiative
that we anticipate will achieve a reduction in adjusted total costs of
approximately $3 billion, based on the actual foreign exchange rates in effect
during 2008, by the end of 2011, compared with our 2008 adjusted total costs. We
expect that this program will be completed by the end of 2010, with full savings
to be realized by the end of 2011. We plan to reinvest approximately $1 billion
of these savings in the business, resulting in an expected $2 billion net
decrease compared to our 2008 adjusted total costs. (For an understanding of
Adjusted income, see the “Adjusted Income” section of this
MD&A.)
The
actions associated with our cost-reduction initiatives resulted in restructuring
charges, such as asset impairments, exit costs and severance costs (including
any related impacts to our benefit plans, including settlements and
curtailments) and associated implementation costs, such as depreciation arising
from the shortening of the useful lives of certain assets, primarily associated
with supply network transformation efforts and expenses associated with system
and process standardization and the expansion of shared services worldwide. (See
Notes to Condensed Consolidated Financial Statements - Note 5. Cost-Reduction
Initiatives.) The strengthening
of the dollar relative to the euro, UK pound, Canadian dollar and other
currencies, while unfavorable on Revenues, has had a positive
impact on our total expenses (Cost of sales, Selling,
informational and administrative expenses, and Research and development
expenses), including the reported
impact of these cost-reduction efforts.
We
incurred the following costs in connection with our cost-reduction
initiatives:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
Implementation
costs(a)
|
|
$ |
174 |
|
|
$ |
357 |
|
Restructuring
charges(b)
|
|
|
157 |
|
|
|
178 |
|
Total
costs related to our cost-reduction initiatives
|
|
$ |
331 |
|
|
$ |
535 |
|
(a)
|
For
the first quarter of 2009, included in Cost of sales ($76
million), Selling, informational and
administrative expenses ($46 million), Research and development
expenses ($41 million) and Other (income)/deductions -
net ($11 million). For the first quarter of 2008, included in Cost of sales ($138
million), Selling,
informational and administrative expenses ($75 million), Research and development
expenses ($146 million) and Other (income)/deductions –
net ($2 million income).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs. |
Acquisition-Related
Costs
We
incurred the following acquisition-related costs, in connection with our pending
acquisition of Wyeth:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
|
|
|
Transaction
costs(a)
|
|
$ |
369 |
|
Pre-integration
costs and other(b)
|
|
|
28 |
|
Total
acquisition-related costs(c)
|
|
$ |
397 |
|
(a)
|
Transaction
costs include banking, legal, accounting and other costs directly related
to our pending acquisition of Wyeth. Substantially all of the costs
incurred to date are fees related to our $22.5 billion bridge credit
agreement entered into with financial institutions on March 12, 2009 (see
Notes to Condensed Consolidated Financial Statements - Note 8C. Financial
Instruments: Long-Term Debt) to partially fund our pending
acquisition of Wyeth. Upon our issuance of $13.5 billion of senior
unsecured notes on March 24, 2009, the commitment under the bridge credit
agreement was reduced by an amount equal to the net proceeds we received
from such issuance, to a current balance of $9.1 billion, and,
accordingly, we expensed the portion of the bridge credit agreement fees
associated with the $13.5 billion
reduction.
|
(b)
|
Pre-integration
costs represent external, incremental costs directly related to our
pending acquisition of Wyeth and include costs associated with preparing
for systems and other integration
activities.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
Other (Income)/Deductions -
Net
In the
first quarter of 2009, we recorded lower net interest income of $116 million,
compared to $203 million in the first quarter of 2008, due primarily to lower
interest rates, partially offset by higher cash balances in first-quarter 2009.
The lower net interest income included $23 million of net interest expense in
the first quarter of 2009 associated with the $13.5 billion of senior unsecured
notes that we issued in March 2009 related to the pending acquisition of Wyeth.
In addition, we recorded litigation charges of $95 million in the first quarter
of 2009 compared to no such charges in the first quarter of 2008.
PROVISION FOR TAXES ON
INCOME
Our
effective tax rate for continuing operations was 28.2% for the first quarter of
2009, compared to 21.5% for the first quarter of 2008. The higher tax rate for
the first quarter of 2009 is primarily due to the increased tax costs associated
with certain business decisions executed to finance the pending acquisition of
Wyeth, partially offset by the change in geographic mix of expenses incurred to
execute our cost-reduction initiatives, as well as the elimination of IPR&D
charges, which generally are not deductible for tax purposes.
ADJUSTED
INCOME
General Description of
Adjusted Income Measure
Adjusted
income is an alternative view of performance used by management, and we believe
that investors’ understanding of our performance is enhanced by disclosing this
performance measure. We report Adjusted income in order to portray the results
of our major operations––the discovery, development, manufacture, marketing and
sale of prescription medicines for humans and animals–prior to considering
certain income statement elements. We have defined Adjusted income as Net income
attributable to Pfizer Inc. before the impact of purchase accounting for
acquisitions, acquisition-related costs, discontinued operations and certain
significant items. The Adjusted income measure is not, and should not be viewed
as, a substitute for U.S. GAAP Net income.
The
Adjusted income measure is an important internal measurement for Pfizer. We
measure the performance of the overall Company on this basis, in conjunction
with other performance metrics. The following are examples of how the Adjusted
income measure is utilized.
·
|
Senior
management receives a monthly analysis of our operating results that is
prepared on an Adjusted income
basis;
|
·
|
Our
annual budgets are prepared on an Adjusted income basis;
and
|
·
|
Senior
management’s annual compensation is derived, in part, using this Adjusted
income measure. Adjusted income is one of the performance metrics utilized
in the determination of bonuses under the Pfizer Inc. Executive Annual
Incentive Plan that is designed to limit the bonuses payable to the
Executive Leadership Team (ELT) for purposes of Internal Revenue Code
Section 162(m). Subject to the Section 162(m) limitation, the bonuses are
funded from a pool based on the achievement of three financial metrics,
including adjusted diluted earnings per share, which is derived from
Adjusted income. These metrics derived from Adjusted income account for
(i) 17% of the target bonus for ELT members and (ii) 33% of the bonus pool
made available to ELT members and other members of senior
management.
|
Despite
the importance of this measure to management in goal setting and performance
measurement, we stress that Adjusted income is a non-GAAP financial measure that
has no standardized meaning prescribed by U.S. GAAP and, therefore, has limits
in its usefulness to investors. Because of its non-standardized definition,
Adjusted income (unlike U.S. GAAP Net income) may not be comparable to the
calculation of similar measures of other companies. Adjusted income is presented
solely to permit investors to more fully understand how management assesses our
performance.
We also
recognize that, as an internal measure of performance, the Adjusted income
measure has limitations and we do not restrict our performance-management
process solely to this metric. A limitation of the Adjusted income measure is
that it provides a view of our operations without including all events during a
period, such as the effects of an acquisition or amortization of purchased
intangibles, and does not provide a comparable view of our performance to other
companies in the pharmaceutical industry. We also use other specifically
tailored tools designed to ensure the highest levels of our performance. For
example, our R&D organization has productivity targets, upon which its
effectiveness is measured. In addition, Performance Share Awards grants made in
2006, 2007, 2008 and future years will be paid based on a non-discretionary
formula that measures our performance using relative total shareholder
return.
Purchase Accounting
Adjustments
Adjusted
income is calculated prior to considering certain significant
purchase-accounting impacts, such as those related to business combinations and
net asset acquisitions (see Notes to Condensed Consolidated Financial Statements
– Note 3. Acquisitions). These impacts can include charges
for purchased in-process R&D (prior to January 1, 2009), the incremental
charge to cost of sales from the sale of acquired inventory that was written up
to fair value and the incremental charges related to the amortization of
finite-lived intangible assets for the increase to fair value. Therefore, the
Adjusted income measure includes the revenues earned upon the sale of the
acquired products without considering the aforementioned significant
charges.
Certain of
the purchase-accounting adjustments associated with a business combination, such
as the amortization of intangibles acquired in connection with our acquisition
of Pharmacia in 2003, can occur for up to 40 years (these assets have a
weighted-average useful life of approximately nine years), but this presentation
provides an alternative view of our performance that is used by management to
internally assess business performance. We believe the elimination of
amortization attributable to acquired intangible assets provides management and
investors an alternative view of our business results by trying to provide a
degree of parity to internally developed intangible assets for which research
and development costs have been previously expensed.
However, a
completely accurate comparison of internally developed intangible assets and
acquired intangible assets cannot be achieved through Adjusted income. This
component of Adjusted income is derived solely from the impacts of the items
listed in the first paragraph of this section. We have not factored in the
impacts of any other differences in experience that might have occurred if we
had discovered and developed those intangible assets on our own, and this
approach does not intend to be representative of the results that would have
occurred in those circumstances. For example, our research and development costs
in total, and in the periods presented, may have been different; our speed to
commercialization and resulting sales, if any, may have been different; or our
costs to manufacture may have been different. In addition, our marketing efforts
may have been received differently by our customers. As such, in total, there
can be no assurance that our Adjusted income amounts would have been the same as
presented had we discovered and developed the acquired intangible
assets.
Acquisition-Related
Costs
Adjusted
income is calculated prior to considering integration and restructuring costs
associated with business combinations because these costs are unique to each
transaction and represent costs that were incurred to restructure and integrate
two businesses as a result of the acquisition decision. For additional clarity,
only transaction costs and restructuring and integration activities that are
associated with a purchase business combination or a net-asset acquisition are
included in acquisition-related costs. We have made no adjustments for the
resulting synergies.
We believe
that viewing income prior to considering these charges provides investors with a
useful additional perspective because the significant costs incurred in a
business combination result primarily from the need to eliminate duplicate
assets, activities or employees – a natural result of acquiring a fully
integrated set of activities. For this reason, we believe that the costs
incurred to convert disparate systems, to close duplicative facilities or to
eliminate duplicate positions (for example, in the context of a business
combination) can be viewed differently from those costs incurred in other, more
normal business contexts.
The
integration and restructuring costs associated with a business combination may
occur over several years, with the more significant impacts ending within three
years of the transaction. Because of the need for certain external approvals for
some actions, the span of time needed to achieve certain restructuring and
integration activities can be lengthy. For example, due to the highly regulated
nature of the pharmaceutical business, the closure of excess facilities can take
several years, as all manufacturing changes are subject to extensive validation
and testing and must be approved by the FDA and/or other global regulatory
authorities.
Discontinued
Operations
Adjusted
income is calculated prior to considering the results of operations included in
discontinued operations as well as any related gains or losses on the sale of
such operations. We believe that this presentation is meaningful to investors
because, while we review our businesses and product lines periodically for
strategic fit with our operations, we do not build or run our businesses with an
intent to sell them.
Certain Significant
Items
Adjusted
income is calculated prior to considering certain significant items. Certain
significant items represent substantive, unusual items that are evaluated on an
individual basis. Such evaluation considers both the quantitative and the
qualitative aspect of their unusual nature. Unusual, in this context, may
represent items that are not part of our ongoing business; items that, either as
a result of their nature or size, we would not expect to occur as part of our
normal business on a regular basis; items that would be non-recurring; or items
that relate to products we no longer sell. While not all-inclusive, examples of
items that could be included as certain significant items would be a major
non-acquisition-related restructuring charge and associated implementation costs
for a program which is specific in nature with a defined term, such as those
related to our cost-reduction initiatives; charges related to certain sales or
disposals of products or facilities that do not qualify as discontinued
operations as defined by U.S. GAAP; amounts associated with transition service
agreements in support of discontinued operations after sale; certain intangible
asset impairments; adjustments related to the resolution of certain tax
positions; the impact of adopting certain significant, event-driven tax
legislation, such as adjustments associated with charges attributable to the
repatriation of foreign earnings in accordance with the American Jobs Creation
Act of 2004; net interest expense associated with acquisition-related borrowings
in advance of the consummation date of the pending acquisition of Wyeth; or
possible charges related to legal matters, such as certain of those discussed in
Legal Proceedings in
our Form 10-K and in Part II: Other Information; Item 1.
Legal Proceedings,
included in our Form 10-Q filings. Normal, ongoing defense costs of the Company
or settlements and accruals on legal matters made in the normal course of our
business would not be considered certain significant items.
Reconciliation
A
reconciliation between Net
income attributable to Pfizer Inc., as reported under U.S. GAAP, and
Adjusted income follows:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
%
Incr./
(Decr.)
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net income attributable to Pfizer Inc.
|
|
$ |
2,729 |
|
|
$ |
2,784 |
|
|
|
(2 |
) |
Purchase
accounting adjustments - net of tax
|
|
|
354 |
|
|
|
934 |
|
|
|
(62 |
) |
Acquisition-related
costs - net of tax
|
|
|
252 |
|
|
|
1 |
|
|
|
251 |
|
Discontinued
operations - net of tax
|
|
|
(1 |
) |
|
|
4 |
|
|
|
* |
|
Certain
significant items - net of tax
|
|
|
333 |
|
|
|
376 |
|
|
|
(11 |
) |
Adjusted
income
|
|
$ |
3,667 |
|
|
$ |
4,099 |
|
|
|
(11 |
) |
* Calculation
not meaningful.
Certain amounts and percentages may reflect rounding
adjustments.
Adjusted
income as shown above excludes the following items:
|
|
First
Quarter
|
|
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Mar.
30,
2008
|
|
|
|
|
|
|
|
|
Purchase
accounting adjustments:
|
|
|
|
|
|
|
Intangible amortization and
other(a)
|
|
$ |
546 |
|
|
$ |
758 |
|
In-process research and
development charges(b)
|
|
|
– |
|
|
|
398 |
|
Total purchase accounting
adjustments, pre-tax
|
|
|
546 |
|
|
|
1,156 |
|
Income taxes
|
|
|
(192 |
) |
|
|
(222 |
) |
Total purchase accounting
adjustments - net of tax
|
|
|
354 |
|
|
|
934 |
|
Acquisition-related
costs:
|
|
|
|
|
|
|
|
|
Transaction costs(c)
|
|
|
369 |
|
|
|
– |
|
Pre-integration costs and
other(c)
|
|
|
28 |
|
|
|
1 |
|
Total acquisition-related costs,
pre-tax
|
|
|
397 |
|
|
|
1 |
|
Income taxes
|
|
|
(145 |
) |
|
|
– |
|
Total acquisition-related costs -
net of tax
|
|
|
252 |
|
|
|
1 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Total discontinued operations -
net of tax
|
|
|
(1 |
) |
|
|
4 |
|
Certain
significant items:
|
|
|
|
|
|
|
|
|
Restructuring charges –
cost-reduction initiatives(c)
|
|
|
157 |
|
|
|
177 |
|
Implementation costs –
cost-reduction initiatives(d)
|
|
|
174 |
|
|
|
357 |
|
Certain legal matters(e)
|
|
|
132 |
|
|
|
– |
|
Other
|
|
|
10 |
|
|
|
7 |
|
Total certain significant items,
pre-tax
|
|
|
473 |
|
|
|
541 |
|
Income taxes
|
|
|
(140 |
) |
|
|
(165 |
) |
Total certain significant items -
net of tax
|
|
|
333 |
|
|
|
376 |
|
Total
purchase accounting adjustments, acquisition-related
costs, discontinued operations and
certain significant
items - net of tax
|
|
$ |
938 |
|
|
$ |
1,315 |
|
(a)
|
Included
primarily in Amortization of intangible
assets.
|
(b)
|
As
required through December 31, 2008, included in Acquisition-related in-process
research and development charges, primarily related to our
acquisitions of CovX, Coley and two smaller acquisitions related to Animal
Health in the first quarter of 2008. As a result of adopting Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
141R, Business
Combinations, as amended, beginning January 1, 2009, IPR&D
related to future acquisitions will be recorded on our consolidated
balance sheet as indefinite-lived intangible assets. We made no
acquisitions in the first quarter of
2009.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
(d)
|
For
the first quarter of 2009, included in Cost of sales ($76
million), Selling,
informational and administrative expenses ($46 million), Research and development
expenses ($41 million) and Other (income)/deductions -
net ($11 million). For the first quarter of 2008, included in Cost of sales ($138
million), Selling,
informational and administrative expenses ($75 million), Research and development
expenses ($146 million) and Other (income)/deductions -
net ($2 million income).
|
(e)
|
Included
in Other
(income)/deductions - net.
|
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net
Financial Assets
Our net
financial asset position follows:
(millions
of dollars)
|
|
Mar.
29,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
1,247 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
32,805 |
|
|
|
21,609 |
|
Short-term loans
|
|
|
793 |
|
|
|
824 |
|
Long-term investments and
loans
|
|
|
13,536 |
|
|
|
11,478 |
|
Total
financial assets
|
|
|
48,381 |
|
|
|
36,033 |
|
Debt:
|
|
|
|
|
|
|
|
|
Short-term borrowings, including
current portion of long-term debt
|
|
|
7,613 |
|
|
|
9,320 |
|
Long-term debt
|
|
|
21,064 |
|
|
|
7,963 |
|
Total
debt
|
|
|
28,677 |
|
|
|
17,283 |
|
Net
financial assets
|
|
$ |
19,704 |
|
|
$ |
18,750 |
|
We rely
largely on operating cash flow, short-term investments, short-term commercial
paper borrowings and long-term debt to provide for the working capital needs of
our operations, including our R&D activities. We believe that we have the
ability to obtain both short-term and long-term debt to meet our financing needs
for the foreseeable future. The significant changes in the components
of Net financial assets are described below.
On January
26, 2009, we announced that we entered into a definitive merger agreement under
which we will acquire Wyeth in a cash-and-stock transaction valued on that date
at $50.19 per share, or a total of $68 billion. We plan to finance this
acquisition with a combination of cash, debt financing and common stock. On
March 12, 2009, we entered into the bridge credit agreement with certain lenders
under which the lenders agreed to provide loans of up to an aggregate principal
amount of $22.5 billion. The proceeds of such loans are required to be used to
fund a portion of the merger consideration and certain fees and expenses
incurred in connection with the merger. The financing commitment is subject to
certain covenants, which include, but are not limited to, a requirement that
there be no material adverse change with respect to Pfizer or Wyeth and Pfizer
maintaining credit ratings of at least A2/A long-term stable/stable and A1/P1
short-term. (See Notes to Condensed Consolidated Financial Statements - Note 8G. Financial
Instruments: Credit
Covenants.)
On March
24, 2009, Pfizer issued $13.5 billion of senior unsecured notes in anticipation
of the acquisition of Wyeth. The note proceeds were generally invested in
short-term available-for-sale investments such as money market funds, U.S.
Treasury notes and, to a lesser extent, corporate debt. Upon our issuance of the
notes, the bridge credit agreement commitment was reduced by an amount equal to
the net proceeds received from such issuance, to a current balance of $9.1
billion.
Investments
Our
short-term and long-term investments consist primarily of high-quality,
investment-grade available-for-sale debt securities. Wherever possible, cash
management is centralized and intercompany financing is used to provide working
capital to our operations. Where local restrictions prevent intercompany
financing, working capital needs are met through operating cash flows and/or
external borrowings. Our portfolio of financial assets increased in the first
quarter of 2009 as a result of the proceeds of the notes issued in anticipation
of the acquisition of Wyeth.
Credit
Ratings
Two major
corporate debt-rating organizations, Moody’s Investors Service (Moody’s) &
Standard and Poor’s (S&P), assign ratings to our short-term and long-term
debt. The following chart reflects the current ratings assigned by these rating
agencies to our commercial paper and senior unsecured non-credit enhanced
long-term debt issued by us:
|
|
Long-Term-Debt
|
Date
of
Last
Action
|
Name
of Rating Agency
|
Commercial
Paper
|
Rating
|
Outlook
|
|
|
|
|
|
Moody’s
|
P-1
|
Aa2
|
Negative
|
March
2009
|
S&P
|
A1+
|
AAA
|
Negative
|
December
2006
|
On January
26, 2009, after our announcement that we had entered into a definitive merger
agreement under which we will acquire Wyeth, Moody’s put us on review for
possible downgrade and S&P put us on credit watch with negative outlook
implications. On March 11, 2009, Moody’s downgraded our long-term-debt credit
rating to Aa2, its third-highest investment grade rating. The downgrade reflects
Moody’s assessment that Pfizer’s stand-alone credit quality had deteriorated
based on the approaching Lipitor patent expiration. We do not expect the Wyeth
acquisition to impact our credit ratings for commercial paper, but we do expect
a possible reduction in our long-term debt ratings, from Aa2/Negative to
A1/Stable long term (Moody’s) and from AAA/Negative to AA/Stable long term
(S&P).
Debt
Capacity
We have
available lines of credit and revolving-credit agreements with a group of banks
and other financial intermediaries. We maintain cash and cash equivalent
balances and short-term investments in excess of our commercial paper and other
short-term borrowings. As of March 29, 2009, we had access to $8.2 billion of
lines of credit, of which $6.0 billion expire within one year. Of these lines of
credit, $8.1 billion are unused, of which our lenders have committed to loan us
$7.1 billion at our request. $7.0 billion of the unused lines of credit, of
which $5.0 billion expire in 2010 and $2.0 billion expire in 2013, may be used
to support our commercial paper borrowings.
In March
2007, we filed a securities registration statement with the Securities and
Exchange Commission. This registration statement was filed under the automatic
“shelf registration” process available to “well-known seasoned issuers” and is
effective for three years. We can issue securities of various types under that
registration statement at any time, subject to approval by our Board of
Directors in certain circumstances. On March 24, 2009, in connection with
financing our pending acquisition of Wyeth, we issued $13.5 billion of senior
unsecured notes under this registration statement. (See Notes to Condensed
Consolidated Financial Statements - Note 8C. Financial Instruments:
Long-Term Debt.)
On March
12, 2009, we entered into the bridge credit agreement with certain lenders under
which the lenders agreed to provide up to $22.5 billion in connection with our
pending acquisition of Wyeth. Upon our issuance of $13.5 billion of senior
unsecured notes on March 24, 2009, the bridge credit agreement commitment was
reduced by an amount equal to the net proceeds received from such issuance, to a
current balance of $9.1 billion. (See Notes to Condensed Consolidated Financial
Statements - Note 8B.
Financial Instruments: Short-Term Borrowings.) The bridge credit
agreement subjects us to certain covenants, including a prohibition on incurring
certain types of debt, until the commitment expires or is terminated and all
loans under the agreement, if any, have been paid. (See Notes to Condensed
Consolidated Financial Statements - Note 8G. Financial Instruments:
Credit Covenants.)
Financial Risk
Management
Due to the
pending acquisition of Wyeth and in light of current market conditions, we
currently borrow primarily on a long-term, fixed-rate basis. We may change this
practice as market conditions change.
Changes in Global Financial
Markets
Towards
the end of the third quarter of 2008, dramatic changes in the global financial
markets weakened global economic conditions. These changes have not had, nor do
we anticipate they will have, a significant impact on our liquidity. Due to our
significant operating cash flow, financial assets, access to the capital markets
and available lines of credit and revolving credit agreements, we continue to
believe that we have the ability to meet our financing needs for the foreseeable
future. As markets change, we continue to monitor our liquidity
position.
Goodwill and Other
Intangible Assets
As of
March 29, 2009, Goodwill
totaled $21.5 billion (17% of our total assets) and Identifiable intangible assets, less
accumulated amortization, totaled $16.9 billion (14% of our total
assets). As of March 29, 2009, finite-lived intangible assets, net, include
$13.0 billion related to developed technology rights and $520 million related to
brands. Indefinite-lived intangible assets include $2.9 billion related to
brands.
At least
annually, we review all of our intangible assets, including goodwill, for
impairment. For goodwill, volatility in securities markets and changes in
Pfizer’s market capitalization can impact these calculations. We had no
significant impairments in the first quarter of 2009 or 2008. None of our
goodwill is impaired as of March 29, 2009.
SELECTED MEASURES OF
LIQUIDITY AND CAPITAL RESOURCES
The
following table sets forth certain relevant measures of our liquidity and
capital resources:
(millions
of dollars, except ratios and per common share data)
|
|
Mar.
29,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and short-term investments and loans
|
|
$ |
34,845 |
|
|
$ |
24,555 |
|
|
|
|
|
|
|
|
|
|
Working
capital(a)
|
|
$ |
30,913 |
|
|
$ |
16,067 |
|
|
|
|
|
|
|
|
|
|
Ratio
of current assets to current liabilities
|
|
2.32:1
|
|
|
1.59:1
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity per common share(b)
|
|
$ |
8.96 |
|
|
$ |
8.56 |
|
(a)
|
Working
capital includes assets held for sale of $299 million as of March 29,
2009, and $148 million as of December 31,
2008.
|
(b)
|
Represents
total shareholders’ equity divided by the actual number of common shares
outstanding (which excludes treasury shares and shares held by our
employee benefit trust).
|
The
increases in cash and cash equivalents and short-term investments and loans,
working capital and the ratio of current assets to current liabilities, as of
March 29, 2009, compared to December 31, 2008, were primarily due to the
investment of the proceeds from our issuance of $13.5 billion of long-term debt
in anticipation of our acquisition of Wyeth and the timing of accruals, cash
receipts and payments in the ordinary course of business.
Net Cash Provided by
Operating Activities
During the
first quarter of 2009, net cash provided by operating activities was $3.1
billion, compared to $3.3 billion in the same period of 2008. The slightly lower
net cash provided by operating activities was primarily attributable
to:
·
|
the
timing of receipts and payments in the ordinary course of
business.
|
Net Cash Used in Investing
Activities
During the
first quarter of 2009, net cash used in investing activities was $13.6 billion,
compared to $5.5 billion in the same period in 2008. The increase in net cash
used in investing activities was primarily attributable to:
·
|
net
purchases of investments of $13.6 billion in the first quarter of 2009
primarily reflecting the investment of proceeds from our issuance of $13.5
billion of senior unsecured notes compared to $4.3 billion in the same
period in 2008.
|
Net Cash Provided by
Financing Activities
During the
first quarter of 2009, net cash provided by financing activities was $9.6
billion, compared to $848 million in the same period in 2008. The increase in
net cash provided by financing activities was primarily attributable
to:
·
|
net
borrowings of $11.8 billion in the first quarter of 2009 primarily
reflecting the proceeds from our issuance of $13.5 billion of senior
unsecured notes compared to $3.0 billion in the same period in
2008.
|
In June
2005, we announced a $5 billion share-purchase program. In June 2006, the Board
of Directors increased the share purchase authorization from $5 billion to $18
billion. In January 2008, we announced a new $5 billion share-purchase program,
to be funded by operating cash flows, that may be utilized from time to time. On
January 26, 2009, we announced that we entered into a definitive merger
agreement under which we will acquire Wyeth in a cash-and-stock transaction. The
merger agreement limits our stock purchases to a maximum of $500 million prior
to the completion of the transaction without Wyeth’s consent. The bridge credit
agreement limits our stock purchases and redemptions to a maximum of $250
million until the commitment expires or is terminated, and all loans under the
agreement, if any, have been paid.
OFF-BALANCE SHEET
ARRANGEMENTS
In the
ordinary course of business and in connection with the sale of assets and
businesses, we often indemnify our counterparties against certain liabilities
that may arise in connection with a transaction or that are related to
activities prior to a transaction. These indemnifications typically pertain to
environmental, tax, employee and/or product-related matters, and patent
infringement claims. If the indemnified party were to make a successful claim
pursuant to the terms of the indemnification, we would be required to reimburse
the loss. These indemnifications are generally subject to threshold amounts,
specified claim periods and other restrictions and limitations. Historically, we
have not paid significant amounts under these provisions and, as of March 29,
2009, recorded amounts for the estimated fair value of these indemnifications
are not significant.
Certain of
our co-promotion or license agreements give our licensors or partners the rights
to negotiate for, or in some cases to obtain under certain financial conditions,
co-promotion or other rights in specified countries with respect to certain of
our products.
DIVIDENDS ON COMMON
STOCK
In
December 2008, our Board of Directors declared a first-quarter 2009 dividend of
$0.32 per share. In January 2009, in connection with the pending merger between
Pfizer and Wyeth, the Board of Directors determined that, effective with the
dividend to be paid in the second quarter of 2009 and in accordance with the
terms of the merger agreement, it would reduce our quarterly dividend per share
of common stock to $0.16. In April 2009, the Board of Directors declared a
second-quarter dividend of $0.16 per share. The merger agreement prohibits us
from declaring a quarterly dividend on our common stock in excess of $0.16 per
share without Wyeth’s consent prior to the completion of the transaction. The
bridge credit agreement prohibits us from declaring and paying a quarterly
dividend on our common stock in excess of $0.32 per share until the commitment
expires or is terminated and all loans under the agreement, if any, have been
paid.
NEW ACCOUNTING
STANDARDS
Recently Adopted Accounting
Standards
As of
January 1, 2009, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 141R, Business Combinations, as
amended. SFAS 141R, as amended, retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in purchase accounting. It also changes
the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development costs at fair value and requires the expensing of
acquisition-related costs as incurred. The adoption of SFAS 141R, as amended,
did not impact our consolidated financial statements upon adoption, but does
impact the accounting for future acquisitions, including our pending acquisition
of Wyeth.
As of
January 1, 2009, we adopted FASB Financial Staff Position (FSP) SFAS No. 142-3,
Determination of the Useful
Life of Intangible Assets. FSP SFAS 142-3 amends the factors considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset. Among other things, in the absence of
historical experience, an entity will be required to consider assumptions used
by market participants. The adoption of FSP SFAS 142-3 did not impact our
consolidated financial statements upon adoption, but could impact the accounting
for future acquisitions.
As of
January 1, 2009, we adopted the provisions of FASB SFAS No. 157, Fair Value Measurements, as
amended, that we did not adopt as of January 1, 2008. SFAS 157, as amended,
defines fair value, expands related disclosure requirements and specifies a
hierarchy of valuation techniques based on the nature of the inputs used to
develop the fair value measures. The adoption of the remaining provisions of
SFAS 157, as amended, did not have a significant impact on our consolidated
financial statements upon adoption, but will impact the accounting for future
acquisitions, including our pending acquisition of Wyeth, and other events and
transactions measured at fair value.
As of
January 1, 2009, we adopted FASB SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research
Bulletin No. 51, Consolidated
Financial Statements. SFAS 160 provides guidance for the accounting,
reporting and disclosure of noncontrolling interests, previously referred to as
minority interests. A noncontrolling interest represents the portion of equity
(net assets) in a subsidiary not attributable, directly or indirectly, to a
parent. The adoption of SFAS 160 resulted in a number of changes to the
presentation of our consolidated financial statements, but the amounts
associated with noncontrolling interests are not significant. SFAS 160 could
impact our accounting for future acquisitions where we do not acquire 100% of
the entity and our accounting for the deconsolidations of
subsidiaries.
As of
January 1, 2009, we adopted Emerging Issues Task Force (EITF) Issue No. 07-1,
Accounting for Collaborative
Arrangements. EITF 07-1 provides guidance on: determining whether an
arrangement constitutes a collaborative arrangement within the scope of the
Issue; how costs incurred and revenue generated on sales to third parties should
be reported in the income statement; how an entity should characterize payments
on the income statement; and what participants should disclose in the notes to
the financial statements about a collaborative arrangement. The adoption of EITF
07-1 did not have a significant impact on our consolidated financial statements,
and additional disclosures have been provided. (See Notes to Condensed
Consolidated Financial Statements – Note 4. Collaborative
Arrangements.)
As of
January 1, 2009, we adopted EITF Issue No. 08-3, Accounting by Lessees for
Maintenance Deposits. EITF 08-3 provides guidance that maintenance
deposits paid by a lessee and subsequently refunded only if a lessee fulfills a
maintenance obligation will be accounted for as a deposit asset. The adoption of
EITF 08-3 did not have a significant impact on our consolidated financial
statements.
As of
January 1, 2009, we adopted EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations. EITF 08-6 clarifies how to account for certain
transactions involving equity method investments in areas such as how to
determine the initial carrying value of the investment; how to allocate the
difference between the investor’s carrying value and the investor’s share of the
underlying equity of the investment; how to perform an impairment assessment of
underlying intangibles held by the investee; how to account for the investee’s
issuance of additional shares; and how to account for an investment on the cost
method when it had been previously accounted for under the equity method. The
adoption of EITF 08-6 did not have a significant impact on our consolidated
financial statements, but could impact the accounting for future equity method
investments.
As of
January 1, 2009, we adopted EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets. EITF 08-7 clarifies the accounting for certain separately
identifiable assets, which an acquirer does not intend to actively use but
intends to hold to prevent its competitors from obtaining access to them. EITF
08-7 requires an acquirer to account for a defensive intangible asset as a
separate unit of accounting, which should be amortized to expense over the
period the asset diminishes in value. The adoption of EITF 08-7 did not have a
significant impact on our consolidated financial statements, but could impact
the accounting for future acquisitions.
Recently Issued Accounting
Standards, Not Adopted as of March 29, 2009
In April
2009, the FASB issued FSP No. 115-2, Recognition and Presentation of
Other than Temporary Impairments. FSP 115-2 amends how one determines
that an impairment of an available-for-sale or held-to-maturity debt security is
other than temporary. Also, the standard amends how one determines the amount of
the impairment that would be recorded as a reduction in net income or an
increase in other comprehensive expense. The provisions of FSP 115-2 will be
adopted when required in the second quarter of 2009. We do not expect the
adoption of the provisions of FSP 115-2 to have a significant impact on our
consolidated financial statements.
In April
2009, the FASB issued FSP No. 157-4 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that are Not Orderly. FSP 157-4
provides additional guidance for estimating fair value. The provisions of FSP
157-4 will be adopted prospectively when required in the second quarter of 2009.
We do not expect the adoption of the provisions of FSP 157-4 to have a
significant impact on our consolidated financial statements, but may impact the
accounting for future acquisitions, including our pending acquisition of Wyeth,
and other events and transactions measured at fair value.
OUTLOOK
While our
revenues and income will continue to be tempered in the near term due to patent
expirations and other factors, we will continue to make the investments
necessary to sustain long-term growth. We remain confident that Pfizer has the
organizational strength and resilience, as well as the strategies, financial
depth and flexibility, to succeed in the long term. However, no assurance can be
given that the factors described above under “Our Operating Environment” or
below under “Forward-Looking Information and Factors That May Affect Future
Results” or other significant factors will not have a material adverse effect on
our business and financial results.
Our 2009
guidance reflects the projected impact of the strengthening of the U.S. dollar,
increased pension expenses and lower interest income. It also reflects an
increase in the effective tax rate associated with certain business decisions
executed to finance the pending Wyeth acquisition.
At current
exchange rates, we forecast 2009 revenues of $44.0 billion to $46.0 billion, and
Adjusted diluted earnings per common share (EPS) of $1.85 to $1.95. We reduced
our guidance for 2009 reported diluted EPS attributable to Pfizer Inc. common
shareholders to a range of $1.20 to $1.35 from $1.34 to $1.49 to reflect certain
costs incurred and expected to be incurred in connection with the pending
acquisition of Wyeth.
On January
26, 2009, we announced the implementation of a new cost-reduction initiative
that we anticipate will achieve a reduction in adjusted total costs of
approximately $3 billion, based on the actual foreign exchange rates in effect
during 2008, by the end of 2011, compared with our 2008 adjusted total costs. We
expect that this program will be completed by the end of 2010, with full savings
to be realized by the end of 2011. We plan to reinvest approximately $1 billion
of these savings in the business, resulting in an expected $2 billion net
decrease compared to our 2008 adjusted total costs. (For an understanding of
Adjusted income, see the “Adjusted income” section of this
MD&A.)
As
referenced in this section, “current exchange rates” is defined as rates
approximating foreign currency spot rates in April 2009.
Given
these and other factors, a reconciliation, at current exchange rates and
reflecting management’s current assessment, of 2009 Adjusted income and Adjusted
diluted EPS guidance to 2009 reported Net income attributable to Pfizer Inc. and
reported diluted EPS attributable to Pfizer Inc. common shareholders guidance,
follows:
|
|
Full-Year
2009 Guidance
|
|
($ billions, except per share
amounts)
|
|
Net
Income(a)
|
|
|
Diluted
EPS(a)
|
|
Adjusted
income/diluted EPS(b)
guidance
|
|
~$12.5-$13.2
|
|
|
~$1.85-$1.95
|
|
Purchase
accounting impacts of business-development transactions completed as of
12/31/08
|
|
(1.5)
|
|
|
|
(0.23)
|
|
Costs
related to cost-reduction initiatives
|
|
(1.3-1.6)
|
|
|
|
(0.20-0.23)
|
|
Wyeth
acquisition-related costs
|
|
(1.1-1.2)
|
|
|
|
(0.16-0.18)
|
|
Certain
legal matters
|
|
(.1)
|
|
|
|
(0.01)
|
|
Reported
Net income attributable to Pfizer Inc./diluted EPS attributable to Pfizer
Inc. common shareholders guidance
|
|
~$8.1-$9.2
|
|
|
~$1.20-$1.35
|
|
(a)
|
Does
not assume the completion of any business-development transactions not
completed as of March 29, 2009, and excludes the potential effects of
litigation-related matters not substantially resolved as of March 29,
2009, as we do not forecast those matters. However, full-year 2009
financial guidance for reported net income attributable to Pfizer Inc. and
reported diluted EPS attributable to Pfizer Inc. common shareholders do
reflect certain costs incurred, and expected to be incurred, in connection
with the pending Wyeth acquisition, including, but not limited to,
transaction costs, pre-integration costs and financing
costs.
|
(b)
|
For
an understanding of Adjusted income, see the “Adjusted Income” section of
this MD&A.
|
Our 2009
forecasted financial performance guidance is subject to a number of factors and
uncertainties, as described in the “Forward-Looking Information and Factors That
May Affect Future Results” section of this MD&A.
FORWARD LOOKING INFORMATION
AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The
Securities and Exchange Commission (SEC) encourages companies to disclose
forward-looking information so that investors can better understand a company’s
future prospects and make informed investment decisions. This report and other
written or oral statements that we make from time to time contain such
forward-looking statements that set forth anticipated results based on
management’s plans and assumptions. Such forward-looking statements involve
substantial risks and uncertainties. We have tried, wherever possible, to
identify such statements by using words such as “will,” “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,”
“forecast,” and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance or business plans and
prospects. In
particular,
these include statements relating to future actions, business plans and
prospects, prospective products or product approvals, future performance or
results of current and anticipated products, sales efforts, expenses, interest
rates, foreign exchange rates, the outcome of contingencies, such as legal
proceedings, and financial results. Among the factors that could cause actual
results to differ materially are the following:
·
|
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;
|
·
|
Speed
with which regulatory authorizations, pricing approvals and product
launches may be achieved;
|
·
|
Success
of external business-development
activities;
|
·
|
Competitive
developments, including those with respect to competitor drugs and drug
candidates that treat diseases and conditions similar to those treated by
our in-line drugs and drug
candidates;
|
·
|
Ability
to successfully market both new and existing products domestically and
internationally;
|
·
|
Difficulties
or delays in manufacturing;
|
·
|
Ability
to meet generic and branded competition after the loss of patent
protection for our products and competitor
products;
|
·
|
Impact
of existing and future legislation and regulatory provisions on product
exclusivity;
|
·
|
Trends
toward managed care and healthcare cost
containment;
|
·
|
U.S.
legislation or regulatory action affecting, among other things,
pharmaceutical product pricing, reimbursement or access, including under
Medicaid, Medicare and other publicly funded or subsidized health
programs; the importation of prescription drugs from outside the U.S. at
prices that are regulated by governments of various foreign countries;
direct-to-consumer advertising and interactions with healthcare
professionals; and the use of comparative effectiveness methodologies that
could be implemented in a manner that focuses primarily on the cost
differences and minimizes the therapeutic differences among pharmaceutical
products and restricts access to innovative
medicines;
|
·
|
Impact
of the Medicare Prescription Drug, Improvement, and Modernization Act of
2003;
|
·
|
Legislation
or regulatory action in markets outside the U.S. affecting pharmaceutical
product pricing, reimbursement or
access;
|
·
|
Contingencies
related to actual or alleged environmental
contamination;
|
·
|
Claims
and concerns that may arise regarding the safety or efficacy of in-line
products and product candidates;
|
·
|
Significant
breakdown, infiltration or interruption of our information technology
systems and infrastructure;
|
·
|
Legal
defense costs, insurance expenses, settlement costs and the risk of an
adverse decision or settlement related to product liability, patent
protection, governmental investigations, ongoing efforts to explore
various means for resolving asbestos litigation, and other legal
proceedings;
|
·
|
Ability
to protect our 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 U.S. generally accepted accounting
principles;
|
·
|
Uncertainties
related to general economic, political, business, industry, regulatory and
market conditions including, without limitation, uncertainties related to
the impact on us, our lenders, our customers, our suppliers and
counterparties to our foreign-exchange and interest-rate agreements of the
global recession and recent and possible future changes in global
financial markets;
|
·
|
Any
changes in business, political and economic conditions due to actual or
threatened terrorist activity in the U.S. and other parts of the world,
and related U.S. military action
overseas;
|
·
|
Growth
in costs and expenses;
|
·
|
Changes
in our product, segment and geographic
mix;
|
·
|
Our
ability and Wyeth’s ability to satisfy the conditions to closing our
merger agreement; and
|
·
|
Impact
of acquisitions, divestitures, restructurings, product withdrawals and
other unusual items, including our ability to realize the projected
benefits of our pending acquisition of Wyeth and of our cost-reduction
initiatives.
|
We cannot
guarantee that any forward-looking statement will be realized, although we
believe we have been prudent in our plans and assumptions. Achievement of
anticipated results is subject to substantial risks, uncertainties and
inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results
could vary materially from past results and those anticipated, estimated or
projected. Investors should bear this in mind as they consider forward-looking
statements.
We
undertake no obligation to publicly update forward-looking statements, whether
as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related subjects in our
Form 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission.
Our Form
10-K filing for the 2008 fiscal year listed various important factors that could
cause actual results to differ materially from projected and historic results.
We note these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that
filing under the heading “Risk Factors.” We incorporate that section of that
Form 10-K in this filing and investors should refer to it. You should understand
that it is not possible to predict or identify all such factors. Consequently,
you should not consider any such list to be a complete set of all potential
risks or uncertainties.
This
report 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.
Legal Proceedings and
Contingencies
We and
certain of our subsidiaries are involved in various patent, product liability,
consumer, commercial, securities, environmental and tax litigations and claims;
government investigations; and other legal proceedings that arise from time to
time in the ordinary course of our business. We do not believe any of them will
have a material adverse effect on our financial position.
We record
accruals for income tax contingencies to the extent that we conclude that a tax
position is not sustainable under a “more likely than not” standard, and we
record our estimate of the potential tax benefits in one tax jurisdiction that
could result from the payment of income taxes in another tax jurisdiction when
we conclude that the potential recovery is more likely than not. We record
accruals for all other contingencies to the extent that we conclude their
occurrence is probable and the related damages are estimable, and we record
anticipated recoveries under existing insurance contracts when assured of
recovery. If a range of liability is probable and estimable and some amount
within the range appears to be a better estimate than any other amount within
the range, we accrue that amount. If a range of liability is probable and
estimable and no amount within the range appears to be a better estimate than
any other amount within the range, we accrue the minimum of such probable range.
Many claims involve highly complex issues relating to causation, label warnings,
scientific evidence, actual damages and other matters. Often these issues are
subject to substantial uncertainties and, therefore, the probability of loss and
an estimation of damages are difficult to ascertain. Consequently, we cannot
reasonably estimate the maximum potential exposure or the range of possible loss
in excess of amounts accrued for these contingencies. These assessments can
involve a series of complex judgments about future events and can rely heavily
on estimates and assumptions. Our assessments are based on estimates and
assumptions that have been deemed reasonable by management. Litigation is
inherently unpredictable, and excessive verdicts do occur. Although we believe
we have substantial defenses in these matters, we could in the future incur
judgments or enter into settlements of claims that could have a material adverse
effect on our results of operations in any particular period.
Patent
claims include challenges to the coverage and/or validity of our patents on
various products or processes. Although we believe we have substantial defenses
to these challenges with respect to all our material patents, there can be no
assurance as to the outcome of these matters, and a loss in any of these cases
could result in a loss of patent protection for the drug at issue, which could
lead to a significant loss of sales of that drug and could materially affect
future results of operations.
Information
required by this item is incorporated by reference from the discussion under the
heading Financial Risk
Management in our 2008 Financial Report, which is filed as exhibit 13 to
our 2008 Form 10-K.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)). Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be disclosed in our periodic reports filed with the
SEC.
During our
most recent fiscal quarter, there has not occurred any change in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
However, we do wish to highlight some changes which, taken together, are
expected to have a favorable impact on our controls over a multi-year period. We
continue to pursue a multi-year initiative to outsource some
transaction-processing activities within certain accounting processes and are
migrating to a consistent enterprise resource planning system across the
organization. These are enhancements of ongoing activities to support the growth
of our financial shared service capabilities and standardize our financial
systems. None of these initiatives is in response to any identified deficiency
or weakness in our internal control over financial reporting.
Certain
legal proceedings in which we are involved are discussed in Note 19 to the
consolidated financial statements included in our 2008 Financial Report, which
is incorporated by reference in Part I - Item 3 of our Annual Report
on Form 10-K for the year ended December 31, 2008. The following discussion
is limited to certain recent developments concerning our legal proceedings and
should be read in conjunction with our 2008 Financial Report. Unless otherwise
indicated, all proceedings discussed in our 2008 Financial Report remain
outstanding. Reference also is made to the Legal Proceedings and Contingencies
section in Part I - Item 2 of this Form 10-Q.
Patent
Matters
Lipitor
(atorvastatin)
As
previously reported, in April 2007, Teva Pharmaceuticals USA, Inc. (Teva)
notified us that it had filed an abbreviated new drug application with the FDA
seeking approval to market a generic version of Lipitor. Teva asserts the
invalidity of our patent covering the enantiomer form of atorvastatin, which
(including the six-month pediatric exclusivity period) expires in June 2011, and
the non-infringement of certain later-expiring patents. Teva is not challenging
our basic patent, which (including the six-month pediatric exclusivity period)
expires in March 2010. In June 2007, we filed suit against Teva in the U.S.
District Court for the District of Delaware asserting the validity and
infringement of the enantiomer patent. In April 2009, the parties entered into
an agreement in principle to resolve this litigation on terms we believe are
favorable to the Company.
In
February 2009, Pharmascience Inc. (Pharmascience) served notice of its
application with Health Canada that seeks approval to market a generic version
of Lipitor in Canada and includes challenges to our Lipitor patents.
Pharmascience asserts the invalidity of our enantiomer patent, which expires in
July 2010 in Canada, and the non-infringement of certain other later-expiring
Lipitor patents. In April 2009, we filed two actions in the Canadian Federal
Court in Toronto asserting the validity and infringement of our patents and
seeking to prevent approval of Pharmascience’s generic product.
Norvasc
(amlodipine)
As
previously reported, certain generic manufacturers are seeking to market their
own generic amlodipine products in Canada and are challenging our Norvasc
patents in that country, including our amlodipine besylate patent. In April
2008, the Canadian Federal Court in Toronto upheld the validity of our
amlodipine besylate patent in our action against Pharmascience and issued an
order preventing approval of Pharmascience's generic product containing
amlodipine besylate, which is the salt form used in Norvasc, until the
expiration of our amlodipine besylate patent in 2010. In May 2008, Pharmascience
appealed the decision to the Federal Court of Appeal of Canada.
In
addition, in February 2008, Pharmascience notified us that it is alleging the
non-infringement of our Norvasc patents in connection with its application with
Health Canada seeking approval to market in Canada a product containing an
amlodipine salt form other than amlodipine besylate. In April 2008, we filed an
action against Pharmascience in the Canadian Federal Court in Toronto asserting
the infringement of certain of our Norvasc patents.
In March
2009, we entered into an agreement to settle all of our litigation with
Pharmascience with respect to our patents for Norvasc in Canada on terms we
believe are favorable to the Company. As part of the settlement, the lawsuits
between Pfizer and Pharmascience referred to above regarding our Norvasc patents
in Canada have been withdrawn. Challenges by certain other generic manufacturers
to our Norvasc patents in Canada remain outstanding.
Lyrica
(pregabalin)
In March
and April 2009, several generic manufacturers notified us that they had filed
abbreviated new drug applications with the FDA seeking approval to market
generic versions of Lyrica. Each of the generic manufacturers is challenging one
or more of three patents for Lyrica: the basic patent, which expires in 2018,
and two other patents, which expire in 2013 and 2018. Each of the generic
manufacturers asserts the invalidity and/or the non-infringement of the patents
subject to challenge. In April 2009, we filed an action against each of the
generic manufacturers in the U.S. District Court for the District of Delaware
asserting the infringement and validity of our patents for Lyrica.
Zyvox
(linezolid)
In April
2009, Gate Pharmaceuticals (Gate) notified us that it had filed an abbreviated
new drug application with the FDA seeking approval to market a generic version
of Zyvox. Gate asserts the non-infringement of two patents that expire in 2021,
but it is not challenging our basic patent, which (including the six-month
pediatric exclusivity period) expires in 2015.
Product
Litigation
Celebrex
and Bextra
As
previously reported, purported shareholder derivative actions were filed in
various federal courts and in state court in New York alleging that certain of
Pfizer's current and former officers and directors breached fiduciary duties by
causing Pfizer to misrepresent the safety of Celebrex and, in certain cases,
Bextra. In June 2005, the federal actions were transferred for consolidated
pre-trial proceedings to a Multi-District Litigation (In re Pfizer Inc. Securities,
Derivative and "ERISA" Litigation MDL-1688) in the U.S. District Court
for the Southern District of New York. In July 2007, the purported federal
shareholder derivative action was dismissed with prejudice by the court in the
Multi-District Litigation. In January 2009, the U.S. Court of Appeals for the
Second Circuit affirmed the dismissal order. In addition, the purported
shareholder derivative action in the Supreme Court of the State of New York, New
York County, was dismissed with prejudice in March 2008. In April 2008, the
plaintiff filed a notice of appeal with the Appellate Division of the Supreme
Court of the State of New York, First Department. The plaintiff failed to
perfect the appeal by the due date in January 2009 and filed a notice of
voluntary dismissal in April 2009.
Chantix/Champix
As
previously reported, in December 2008, a purported class action was filed
against us in the Ontario Superior Court of Justice (Toronto office) on behalf
of all individuals and third-party payers in Canada who have purchased and
ingested Champix or reimbursed patients for the purchase of Champix. This action
asserts claims under Canadian product liability law, including with respect to
the safety and efficacy of Champix, and, on behalf of the putative class, seeks
monetary relief, including punitive damages. In April 2009, a substantially
similar purported class action was filed against us in the Superior Court of
Quebec (Montreal Division).
Commercial
and Other Matters
Aricept
Strategic Alliance and Development Agreement
We
recently received a letter from Eisai Co., Ltd., with whom we have exclusive
rights to co-promote Aricept in the U.S. and several other countries, and from
whom we also have an exclusive license to sell Aricept in certain other
countries; all of these agreements also include the rights to line extensions
for Aricept. Eisai has indicated to us that, in its view, upon consummation of
the Wyeth acquisition, Eisai will have the right to terminate our Aricept
Strategic Alliance and Development Agreement. We do not believe that Eisai has
any legal basis to terminate the Strategic Alliance and Development Agreement
and will oppose any effort by Eisai to do so.
Trade
Secrets Action in California
As
previously reported, in 2004, Ischemia Research and Education Foundation (IREF)
and its chief executive officer brought an action in California Superior Court,
Santa Clara County, against a former IREF employee and Pfizer. Plaintiffs allege
that defendants conspired to misappropriate certain information from IREF’s
allegedly proprietary database in order to assist Pfizer in designing and
executing a clinical study of a Pfizer drug. In December 2008, the jury rendered
a verdict for compensatory damages of approximately $38.7 million. In February
2009, the judge held a hearing on plaintiffs’ motions seeking punitive damages
(which, under applicable law, may not exceed two times compensatory damages) as
well as prejudgment interest. In March 2009, the court awarded prejudgment
interest for the period from March 2002 through the date on which the judgment
will be signed, but declined to award punitive damages. We will be filing
motions for judgment notwithstanding the verdict and for a new
trial.
Tax
Matters
The United
States is one of our major tax jurisdictions. We are currently appealing two
issues related to the IRS’ audits of the Pfizer Inc. tax returns for the years
2002 through 2005. The 2006, 2007 and 2008 tax years are currently under audit
as part of the IRS Compliance Assurance Process, a real-time audit process. The
2009 tax year is not yet under audit. All other tax years in the U.S. for Pfizer
Inc. are closed under the statute of limitations. With respect to Pharmacia
Corporation, the IRS is currently conducting an audit for the year 2003 through
the date of merger with Pfizer (April 16, 2003). In addition to the open audit
years in the U.S., we have open audit years in other major tax jurisdictions,
such as Canada (1998-2008), Japan (2006-2008), Europe (1997-2008, primarily
reflecting Ireland, the U.K., France, Italy, Spain and Germany) and Puerto Rico
(2004-2008).
We
regularly reevaluate our tax positions based on the results of audits of
federal, state and foreign income tax filings, statute of limitations
expirations, and changes in tax law that would either increase or decrease the
technical merits of a position relative to the ‘more-likely-than-not’ standard.
We believe that our accruals for tax liabilities are adequate for all open
years. Many factors are considered in making these evaluations, including past
history, recent interpretations of tax law and the specifics of each matter.
Because tax laws and regulations are subject to interpretation and tax
litigation is inherently uncertain, these evaluations can involve a series of
complex judgments about future events and can rely heavily on estimates and
assumptions. Our evaluations are based on estimates and assumptions that have
been deemed reasonable by management. However, if our estimates and assumptions
are not representative of actual outcomes, our results could be materially
impacted.
Item 1A.
Risk Factors
There have
been no material changes from the risk factors disclosed in Part I, Item 1A, of
our 2008 Form 10-K except for the addition of the following risk factor related
to our pending acquisition of Wyeth:
Several
lawsuits have been filed against Wyeth, the members of the Wyeth board of
directors, Pfizer and/or Wagner Acquisition Corp. challenging the pending
acquisition, and an adverse judgment in such lawsuits may prevent the
acquisition from becoming effective or from becoming effective within the
expected timeframe.
Wyeth, the
members of the Wyeth board of directors, Pfizer and/or Wagner Acquisition Corp.
are named as defendants in purported class action lawsuits brought by Wyeth
stockholders challenging the pending acquisition, seeking, among other things,
to enjoin the defendants from consummating the acquisition on the agreed-upon
terms.
One of the
conditions to the closing of the acquisition is that no judgment, order,
injunction (whether temporary, preliminary or permanent), decision, opinion or
decree issued by a court or other governmental entity in the United States or
the European Union that makes the acquisition illegal or prohibits the
consummation of the acquisition shall be in effect. As such, if the plaintiffs
are successful in obtaining an injunction prohibiting the defendants from
consummating the acquisition on the agreed-upon terms, then such injunction may
prevent the acquisition from becoming effective, or from becoming effective
within the expected timeframe.
This table
provides certain information with respect to our purchases of shares of Pfizer’s
common stock during the fiscal first quarter of 2009:
Issuer’s
Purchases of Equity Securities(a)
Period
|
|
Total
Number of
Shares
Purchased(b)
|
|
|
Average
Price
Paid
per Share(b)
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plan(a)
|
|
|
Approximate
Dollar
Value
of Shares That
May
Yet Be Purchased Under the Plan(a)
|
|
January
1, 2009, through
January
31, 2009
|
|
|
17,104 |
|
|
$
|
17.44 |
|
|
|
–– |
|
|
$
|
5,033,723,296 |
|
February
1, 2009, through
February
28, 2009
|
|
|
246,173 |
|
|
$
|
14.71 |
|
|
|
–– |
|
|
$
|
5,033,723,296 |
|
March
1, 2009, through
March
29, 2009
|
|
|
2,022,781 |
|
|
$
|
13.16 |
|
|
|
–– |
|
|
$
|
5,033,723,296 |
|
Total
|
|
|
2,286,058 |
|
|
$
|
13.36 |
|
|
|
–– |
|
|
|
|
|
(a)
|
On
June 23, 2005, we announced that the Board of Directors authorized a $5
billion share-purchase plan (the “2005 Stock Purchase Plan”). On June 26,
2006, we announced that the Board of Directors increased the authorized
amount of shares to be purchased under the 2005 Stock Purchase Plan from
$5 billion to $18 billion. On January 23, 2008, we announced that the
Board of Directors had authorized a new $5 billion share-purchase plan to
be utilized from time to time. On January 26, 2009, we announced that we
entered into a definitive merger agreement under which we will acquire
Wyeth in a cash-and-stock transaction. The merger agreement limits our
stock purchases to a maximum of $500 million prior to the completion of
the transaction without Wyeth’s consent. The bridge credit agreement
limits our stock purchases and redemptions to a maximum of $250 million
until the commitment expires or is terminated and all loans under the
agreement, if any, have been paid.
|
(b)
|
These
columns reflect the following transactions during the fiscal first quarter
of 2009: (i) the surrender to Pfizer of 1,355,317 shares of common stock
to satisfy tax withholding obligations in connection with the vesting of
restricted stock and restricted stock units issued to employees, and (ii)
the surrender to Pfizer of 930,741 shares of common stock to satisfy tax
withholding obligations in connection with the vesting of
performance-contingent share awards issued to
employees.
|
Item 3.
Defaults Upon Senior Securities
Item 4.
Submission of Matters to a Vote of Security Holders
The
shareholders of the Company voted on seven items at the Annual Meeting of
Shareholders held on April 23, 2009:
1.
|
the
election of 14 directors to terms ending in 2010
|
2.
|
a
proposal to ratify the appointment of KPMG LLP as independent registered
public accounting firm for 2009
|
3.
|
approval
of the Pfizer Inc. 2004 Stock Plan, as amended and
restated
|
4.
|
a
shareholder proposal regarding stock options
|
5.
|
a
shareholder proposal regarding an advisory vote on executive
compensation
|
6.
|
a
shareholder proposal regarding cumulative voting
|
7.
|
a
shareholder proposal regarding special shareholder
meetings
|
The
nominees for director were elected based upon the following
votes:
Nominee
|
Votes
For
|
Votes
Against
|
Abstentions
|
|
|
|
|
Dennis
A. Ausiello
|
5,201,941,232
|
308,751,860
|
55,436,790
|
Michael
S. Brown
|
5,169,482,271
|
340,577,108
|
56,070,503
|
M.
Anthony Burns
|
5,295,735,762
|
212,774,071
|
57,620,049
|
Robert
N. Burt
|
5,314,113,752
|
196,587,043
|
55,429,087
|
W.
Don Cornwell
|
5,103,262,059
|
406,471,929
|
56,395,894
|
William
H. Gray III
|
5,234,292,957
|
275,099,348
|
56,737,577
|
Constance
J. Horner
|
5,297,372,751
|
213,198,572
|
55,558,559
|
James
M. Kilts
|
5,317,414,134
|
193,839,720
|
54,876,028
|
Jeffrey
B. Kindler
|
5,241,672,193
|
268,976,411
|
55,481,278
|
George
A. Lorch
|
5,305,923,413
|
204,102,707
|
56,103,762
|
Dana
G. Mead
|
5,289,798,672
|
220,216,581
|
56,114,629
|
Suzanne
Nora Johnson
|
5,326,586,335
|
187,016,149
|
52,527,398
|
Stephen
W. Sanger
|
5,338,458,344
|
172,943,405
|
54,728,133
|
William
C. Steere, Jr.
|
5,223,460,981
|
288,223,733
|
54,445,168
|
The
proposal to ratify the appointment of KPMG LLP as independent registered public
accounting firm for 2009 received the following votes:
•
|
5,396,191,550
|
Votes
for approval
|
•
|
142,934,333
|
Votes
against
|
•
|
27,003,999
|
Abstentions
|
•
|
There were no broker non-votes
for this item.
|
The
proposal regarding approval of the Pfizer Inc. 2004 Stock Plan, as amended and
restated, received the following votes:
•
|
3,980,633,127
|
Votes
for approval
|
•
|
461,873,577
|
Votes
against
|
•
|
36,094,349
|
Abstentions
|
•
|
1,087,528,829
|
Broker
non-votes
|
The
shareholder proposal regarding stock options received the following
votes:
•
|
265,487,403
|
Votes
for approval
|
•
|
4,171,333,834
|
Votes
against
|
•
|
41,739,241
|
Abstentions
|
•
|
1,087,569,404
|
Broker
non-votes
|
The
shareholder proposal regarding an advisory vote on executive compensation
received the following votes:
•
|
2,227,207,105
|
Votes
for approval
|
•
|
2,023,711,784
|
Votes
against
|
•
|
227,643,569
|
Abstentions
|
•
|
1,087,567,424
|
Broker
non-votes
|
The
shareholder proposal regarding cumulative voting received the following
votes:
•
|
1,661,553,030
|
Votes
for approval
|
•
|
2,777,743,690
|
Votes
against
|
•
|
39,316,323
|
Abstentions
|
•
|
1,087,516,839
|
Broker
non-votes
|
The
shareholder proposal regarding special shareholder meetings received the
following votes:
•
|
2,283,037,913
|
Votes
for approval
|
•
|
2,152,978,799
|
Votes
against
|
•
|
42,596,331
|
Abstentions
|
•
|
1,087,516,839
|
Broker
non-votes
|
Item 5.
Other Information
On May 5,
2009, the Company entered into Amendment No. 2 (“Amendment No. 2”) to the
364-Day Bridge Term Loan Credit Agreement, dated as of March 12, 2009 (the
“Bridge Agreement”), among the Company, the institutions from time to time party
thereto as lenders and JPMorgan Chase Bank, N.A., in its capacity as
administrative agent for the Lenders. As previously disclosed,
pursuant to the Bridge Agreement, the Company agreed that it would maintain a
ratio of no more than 2.75 to 1 of consolidated debt to earnings before
interest, taxes, depreciation and amortization (“EBITDA”). Amendment
No. 2 modified and clarified certain components of the definition of “EBITDA”,
the effects of which are to conform the definition of EBITDA to the manner in
which the Company has historically reported net income. The description of Amendment No. 2 is a summary and is qualified in
its entirety by reference to Amendment No. 2, a copy of which is attached as
Exhibit 10.1 to this report and incorporated herein by reference. The
Company had previously entered into an amendment to the Bridge Agreement to fix
the unused commitment fee at 0.375% per annum.
Item 6.
Exhibits
|
1)
Exhibit 10.1 |
-
|
Amendment
No. 2 dated as of May 5, 2009, to the 364-Day Bridge Term Loan Credit
Agreement, dated
as
of March 12, 2009, among Pfizer Inc., the institutions from time to time
party thereto as Lenders and
JPMorgan
Chase Bank, N.A., in its capacity as administrative agent for the
Lenders.
|
|
2)
Exhibit 12
|
-
|
Computation
of Ratio of Earnings to Fixed Charges
|
|
3)
Exhibit 15
|
-
|
Accountants’
Acknowledgement
|
|
4)
Exhibit 31.1
|
-
|
Certification
by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
5)
Exhibit 31.2
|
-
|
Certification
by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002
|
|
6)
Exhibit 32.1
|
-
|
Certification
by the Chief Executive Officer Pursuant to 18 U.S.C. Section
1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
7)
Exhibit 32.2
|
-
|
Certification
by the Chief Financial Officer Pursuant to 18 U.S.C. Section
1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Under the
requirements of the Securities Exchange Act of 1934, this report was signed on
behalf of the Registrant by the authorized person named below.
|
Pfizer
Inc.
|
|
(Registrant)
|
|
|
|
|
Dated: May
8, 2009
|
/s/
Loretta V. Cangialosi
|
|
|
|
Loretta
V. Cangialosi, Senior Vice President and
Controller
(Principal
Accounting Officer and
Duly
Authorized Officer)
|
58