a6022539.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 June 28, 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.
YES x NO
o
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).
YES x NO
o
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 o |
Non-accelerated
filer o |
Smaller reporting
company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES o NO
x
At August
4, 2009, 6,749,143,013 shares of the issuer’s voting common stock were
outstanding
For
the Quarter Ended
June
28, 2009
Table
of Contents
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58 |
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58 |
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58 |
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58 |
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59 |
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Item 1.
Financial Statements.
PFIZER
INC. AND SUBSIDIARY COMPANIES
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(MILLIONS,
EXCEPT PER COMMON SHARE DATA)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(a)
|
|
|
1,756 |
|
|
|
2,289 |
|
|
|
3,164 |
|
|
|
4,275 |
|
Selling, informational and
administrative expenses(a)
|
|
|
3,350 |
|
|
|
3,863 |
|
|
|
6,226 |
|
|
|
7,355 |
|
Research and development
expenses(a)
|
|
|
1,695 |
|
|
|
1,966 |
|
|
|
3,400 |
|
|
|
3,757 |
|
Amortization of intangible
assets
|
|
|
583 |
|
|
|
663 |
|
|
|
1,161 |
|
|
|
1,442 |
|
Acquisition-related in-process
research and development
charges
|
|
|
20 |
|
|
|
156 |
|
|
|
20 |
|
|
|
554 |
|
Restructuring charges and
acquisition-related costs
|
|
|
459 |
|
|
|
569 |
|
|
|
1,013 |
|
|
|
747 |
|
Other (income)/deductions –
net
|
|
|
72 |
|
|
|
(167 |
) |
|
|
15 |
|
|
|
(500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,049 |
|
|
|
2,790 |
|
|
|
6,852 |
|
|
|
6,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
786 |
|
|
|
25 |
|
|
|
1,860 |
|
|
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,263 |
|
|
|
2,765 |
|
|
|
4,992 |
|
|
|
5,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - net of tax
|
|
|
3 |
|
|
|
17 |
|
|
|
4 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,266 |
|
|
|
2,782 |
|
|
|
4,996 |
|
|
|
5,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
income attributable to noncontrolling interests
|
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Pfizer Inc.
|
|
$ |
2,261 |
|
|
$ |
2,776 |
|
|
$ |
4,990 |
|
|
$ |
5,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer
Inc.
common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
$ |
0.74 |
|
|
$ |
0.82 |
|
Discontinued
operations - net of tax
|
|
|
–– |
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
Net
income attributable to Pfizer Inc. common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
$ |
0.74 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer
Inc.
common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
$ |
0.74 |
|
|
$ |
0.82 |
|
Discontinued operations - net of
tax
|
|
|
–– |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
$ |
0.74 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used to calculate earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,728 |
|
|
|
6,732 |
|
|
|
6,726 |
|
|
|
6,736 |
|
Diluted
|
|
|
6,752 |
|
|
|
6,748 |
|
|
|
6,752 |
|
|
|
6,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
$ |
0.48 |
|
|
$ |
0.64 |
|
(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.
PFIZER
INC. AND SUBSIDIARY COMPANIES
(UNAUDITED)
|
|
June
28,
2009*
|
|
|
Dec.
31,
2008**
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,244 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
47,403 |
|
|
|
21,609 |
|
Accounts
receivable, less allowance for doubtful accounts
|
|
|
10,446 |
|
|
|
8,958 |
|
Short-term
loans
|
|
|
935 |
|
|
|
824 |
|
Inventories
|
|
|
4,993 |
|
|
|
4,381 |
|
Taxes
and other current assets
|
|
|
5,310 |
|
|
|
5,034 |
|
Assets
held for sale
|
|
|
219 |
|
|
|
148 |
|
Total current
assets
|
|
|
71,550 |
|
|
|
43,076 |
|
Long-term
investments and loans
|
|
|
12,576 |
|
|
|
11,478 |
|
Property,
plant and equipment, less accumulated depreciation
|
|
|
13,194 |
|
|
|
13,287 |
|
Goodwill
|
|
|
21,794 |
|
|
|
21,464 |
|
Identifiable
intangible assets, less accumulated amortization
|
|
|
16,611 |
|
|
|
17,721 |
|
Other
non-current assets, deferred taxes and deferred charges
|
|
|
3,614 |
|
|
|
4,122 |
|
Total
assets
|
|
$ |
139,339 |
|
|
$ |
111,148 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Short-term
borrowings, including current portion of long-term debt
|
|
$ |
7,645 |
|
|
$ |
9,320 |
|
Accounts
payable
|
|
|
2,595 |
|
|
|
1,751 |
|
Dividends
payable
|
|
|
1,081 |
|
|
|
2,159 |
|
Income
taxes payable
|
|
|
607 |
|
|
|
656 |
|
Accrued
compensation and related items
|
|
|
1,549 |
|
|
|
1,667 |
|
Other
current liabilities
|
|
|
12,632 |
|
|
|
11,456 |
|
Total current
liabilities
|
|
|
26,109 |
|
|
|
27,009 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
31,864 |
|
|
|
7,963 |
|
Pension
benefit obligations
|
|
|
4,159 |
|
|
|
4,235 |
|
Postretirement
benefit obligations
|
|
|
1,602 |
|
|
|
1,604 |
|
Deferred
taxes
|
|
|
2,356 |
|
|
|
2,959 |
|
Other
taxes payable
|
|
|
7,029 |
|
|
|
6,568 |
|
Other
non-current liabilities
|
|
|
2,985 |
|
|
|
3,070 |
|
Total liabilities
|
|
|
76,104 |
|
|
|
53,408 |
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
66 |
|
|
|
73 |
|
Common
stock
|
|
|
443 |
|
|
|
443 |
|
Additional
paid-in capital
|
|
|
70,314 |
|
|
|
70,283 |
|
Employee
benefit trust, at fair value
|
|
|
(304 |
) |
|
|
(425 |
) |
Treasury
stock
|
|
|
(57,364 |
) |
|
|
(57,391 |
) |
Retained
earnings
|
|
|
51,965 |
|
|
|
49,142 |
|
Accumulated
other comprehensive expense
|
|
|
(2,079 |
) |
|
|
(4,569 |
) |
Total Pfizer Inc. shareholders’
equity
|
|
|
63,041 |
|
|
|
57,556 |
|
Equity
attributable to noncontrolling interests
|
|
|
194 |
|
|
|
184 |
|
Total shareholders’
equity
|
|
|
63,235 |
|
|
|
57,740 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
139,339 |
|
|
$ |
111,148 |
|
**
|
Condensed
from audited financial
statements.
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER
INC. AND SUBSIDIARY COMPANIES
(UNAUDITED)
|
|
Six
Months Ended
|
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
$ |
4,996 |
|
|
$ |
5,572 |
|
Adjustments
to reconcile net income before noncontrolling interests to net
cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,014 |
|
|
|
2,716 |
|
Share-based
compensation expense
|
|
|
169 |
|
|
|
166 |
|
Acquisition-related
in-process research and development charges
|
|
|
20 |
|
|
|
554 |
|
Deferred
taxes from continuing operations
|
|
|
731 |
|
|
|
439 |
|
Other
non-cash adjustments
|
|
|
(22 |
) |
|
|
497 |
|
Changes
in assets and liabilities (net of businesses acquired and
divested)
|
|
|
(247 |
) |
|
|
(1,631 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating
activities
|
|
|
7,661 |
|
|
|
8,313 |
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(522 |
) |
|
|
(868 |
) |
Purchases
of short-term investments
|
|
|
(38,900 |
) |
|
|
(16,106 |
) |
Proceeds
from sales and redemptions of short-term investments
|
|
|
14,251 |
|
|
|
12,463 |
|
Purchases
of long-term investments
|
|
|
(5,266 |
) |
|
|
(3,856 |
) |
Proceeds
from sales and redemptions of long-term investments
|
|
|
3,484 |
|
|
|
632 |
|
Acquisitions,
net of cash acquired
|
|
|
–– |
|
|
|
(962 |
) |
Other
investing activities
|
|
|
346 |
|
|
|
(251 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing
activities
|
|
|
(26,607 |
) |
|
|
(8,948 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Increase
in short-term borrowings, net
|
|
|
21,754 |
|
|
|
16,310 |
|
Principal
payments on other short-term borrowings, net
|
|
|
(22,493 |
) |
|
|
(14,097 |
) |
Proceeds
from issuances of long-term debt
|
|
|
23,996 |
|
|
|
602 |
|
Principal
payments on long-term debt
|
|
|
(908 |
) |
|
|
— |
|
Purchases
of common stock
|
|
|
–– |
|
|
|
(500 |
) |
Cash
dividends paid
|
|
|
(3,200 |
) |
|
|
(4,277 |
) |
Stock
option transactions and other
|
|
|
(106 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by/(used in) financing activities
|
|
|
19,043 |
|
|
|
(1,929 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange-rate changes on cash and cash equivalents
|
|
|
25 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
122 |
|
|
|
(2,586 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
2,122 |
|
|
|
3,406 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
2,244 |
|
|
$ |
820 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow
Information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$ |
1,109 |
|
|
$ |
1,056 |
|
Interest
|
|
|
299 |
|
|
|
446 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER
INC. AND SUBSIDIARY COMPANIES
(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 and six-month periods ended
May 24, 2009, and May 25, 2008. Subsequent events have been evaluated through
August 6, 2009.
We made
certain reclassifications to prior-period amounts to conform to the
second-quarter and six-month 2009 presentations 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.)
Included in Other
current liabilities at June 28, 2009 are $1.5 billion of deferred income
taxes.
Note 2. Adoption of New
Accounting Policies
As of
March 30, 2009, we adopted Financial Accounting Standards Board (FASB) Staff
Position (FSP) No. Statement of Financial Accounting Standards (SFAS) 115-2 and
SFAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments. FSP SFAS 115-2 and SFAS
124-2 amend the guidance for evaluating and measuring “other-than-temporary”
impairments for available-for-sale or held-to-maturity debt securities. The
adoption of FSP SFAS 115-2 and SFAS 124-2 did not have a significant impact on
our consolidated financial statements.
As of
March 30, 2009, we adopted FSP No. SFAS 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 SFAS
157-4 provides additional guidance for estimating fair value in inactive markets
and the identification of disorderly transactions. FSP SFAS 157-4 was adopted
prospectively and did not have a significant impact on our consolidated
financial statements, but could impact the accounting for acquisitions after
adoption, including our pending acquisition of Wyeth, and other events, balances
and transactions measured at fair value.
As of
January 1, 2009, we adopted 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 will
impact the accounting for acquisitions after adoption, including our pending
acquisition of Wyeth.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of
January 1, 2009, we adopted FSP No. SFAS 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
acquisitions after adoption, including our pending acquisition of
Wyeth.
As of
January 1, 2009, we adopted the provisions of 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
acquisitions after adoption, including our pending acquisition of Wyeth, and
other events, balances and transactions measured at fair value.
As of
January 1, 2009, we adopted 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 acquisitions after adoption, 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 equity method
investments after adoption.
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 acquisitions after adoption.
Note 3.
Acquisitions
In the
second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a
biopharmaceutical company whose main asset is Thelin, which is used for the
treatment of pulmonary arterial hypertension. The cost of acquiring Encysive,
through a tender offer and subsequent merger, was approximately
$200 million, including transaction costs. Upon our acquisition of
Encysive, Encysive's change of control repurchase obligations under its
outstanding $130 million 2.5% convertible notes were triggered and, as a result,
Encysive repurchased the convertible notes in consideration for their par value
plus accrued interest in June 2008. In addition, in the second quarter of 2008,
we acquired Serenex, Inc. (Serenex), a privately held biotechnology company,
whose main asset is SNX-5422, an oral Heat Shock Protein 90 (Hsp90) for the
potential treatment of solid tumors and hematological malignancies and an
extensive Hsp90 inhibitor compound library, which has potential uses in treating
cancer, inflammatory and neurodegenerative diseases. In connection with these
acquisitions, through the second quarter of 2008, we recorded $156 million in
Acquisition-related in-process
research and development charges and approximately $450 million in
intangible assets.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. 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 during the first quarter of 2008. In the second quarter of
2009, we resolved a contingency associated with CovX and recognized $20 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
our collaborative arrangements 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, and/or distributing a drug
product.
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 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 a 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:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
Revenues
– Revenues(a)
|
|
$ |
146 |
|
|
$ |
126 |
|
|
$ |
278 |
|
|
$ |
226 |
|
Revenues
– Alliance revenues (b)
|
|
|
598 |
|
|
|
563 |
|
|
|
1,180 |
|
|
|
1,051 |
|
Total
Revenues from collaborative arrangements
|
|
|
744 |
|
|
|
689 |
|
|
|
1,458 |
|
|
|
1,277 |
|
Cost
of sales (c)
|
|
|
(35 |
) |
|
|
(36 |
) |
|
|
(91 |
) |
|
|
(67 |
) |
Selling,
informational and administrative expenses(d)
|
|
|
14 |
|
|
|
26 |
|
|
|
(3 |
) |
|
|
19 |
|
Research
and development expenses(e)
|
|
|
(50 |
) |
|
|
(46 |
) |
|
|
(244 |
) |
|
|
(96 |
) |
(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)
|
Represents
net reimbursements from our partners and reimbursements to our partners
for Selling, informational and administrative expenses
incurred.
|
(e)
|
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.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Cost-Reduction
Initiatives
We
incurred the following costs in connection with all of our cost-reduction
initiatives, which began in 2005:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars) |
|
|
June
28, 2009 |
|
|
|
June
29, 2008 |
|
|
|
June
28, 2009 |
|
|
|
June
29, 2008 |
|
Implementation
costs(a)
|
|
$ |
156 |
|
|
$ |
405 |
|
|
$ |
330 |
|
|
$ |
762 |
|
Restructuring
charges(b)
|
|
|
174 |
|
|
|
562 |
|
|
|
331 |
|
|
|
739 |
|
Total
costs related to our cost-reduction initiatives
|
|
$ |
330 |
|
|
$ |
967 |
|
|
$ |
661 |
|
|
$ |
1,501 |
|
(a)
|
For
the second quarter of 2009, included in Cost of sales ($45
million), Selling,
informational and administrative expenses ($85 million), Research and development
expenses ($32 million), and Other (income)/deductions -
net ($6 million income). For the second quarter of 2008, included
in Cost of sales
($210 million), Selling,
informational and administrative expenses ($100 million), Research and development
expenses ($94 million) and Other (income)/deductions -
net ($1 million). For the first six months of 2009, included in
Cost of sales
($121 million), Selling,
informational and administrative expenses ($131 million), Research and development
expenses ($73 million), and Other (income)/deductions -
net ($5 million). For the first six months of 2008, included in
Cost of sales
($348 million), Selling,
informational and administrative expenses ($175 million), Research and development
expenses ($240 million) and Other (income)/deductions -
net ($1 million
income).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
From the
beginning of the cost-reduction initiatives in 2005 through June 28, 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.
The
components of restructuring charges associated with all of our cost-reduction
initiatives follow:
(millions
of dollars)
|
|
Costs
Incurred
Through
June
28, 2009
|
|
|
Activity
Through
June
28, 2009(a)
|
|
|
Accrual
as of
June
28, 2009(b)
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination costs
|
|
$ |
5,314 |
|
|
$ |
3,947 |
|
|
$ |
1,367 |
|
Asset
impairments
|
|
|
1,384 |
|
|
|
1,384 |
|
|
|
— |
|
Other
|
|
|
516 |
|
|
|
420 |
|
|
|
96 |
|
Total
restructuring charges
|
|
$ |
7,214 |
|
|
$ |
5,751 |
|
|
$ |
1,463 |
|
(a)
|
Includes
adjustments for foreign currency
translation.
|
(b)
|
Included
in Other current
liabilities ($954 million) and Other noncurrent liabilities
($509 million).
|
During
the second quarter of 2009, we expensed $29 million for Employee termination costs,
$73 million for Asset
impairments and $72 million for Other. During the first six
months of 2009, we expensed $164 million for Employee termination costs,
$91 million for Asset
impairments and $76 million for Other. From June 2005 through
June 28, 2009, Employee
termination costs, net of the impact of a change in estimate, represent the expected
reduction of the workforce by approximately 31,100 employees, mainly in
manufacturing, sales and research, and approximately 25,500 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.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Acquisition-Related
Costs
We
incurred the following acquisition-related costs primarily in connection with
our pending acquisition of Wyeth:
|
|
|
Three
Months Ended
|
|
|
|
Six
Months Ended
|
|
(millions
of dollars) |
|
|
June
28,
2009
|
|
|
|
June
29,
2008
|
|
|
|
June
28,
2009
|
|
|
|
June
29,
2008
|
|
Transaction
costs (a)
|
|
$ |
184 |
|
|
$ |
–– |
|
|
$ |
553 |
|
|
$ |
–– |
|
Pre-integration
costs and other(b)
|
|
|
101 |
|
|
|
7 |
|
|
|
129 |
|
|
|
8 |
|
Total
acquisition-related costs(c)
|
|
$ |
285 |
|
|
$ |
7 |
|
|
$ |
682 |
|
|
$ |
8 |
|
(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 a $22.5 billion bridge term loan
credit agreement entered into with certain financial institutions on March
12, 2009, to partially fund our pending acquisition of Wyeth. The bridge
term loan credit agreement was terminated in June 2009 as a result of our
issuance of approximately $24.0 billion of senior unsecured notes during
the first six months of 2009. All bridge term loan commitment fees have
been expensed, and we are no longer subject to the covenants under that
agreement (see Note 8D:
Financial Instruments: Long-Term
Debt).
|
(b)
|
Pre-integration
costs and other primarily represent external, incremental costs of
integration planning that are 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.
|
Note 7. Comprehensive
Income/(Expense)
The
components of comprehensive income/(expense) follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars) |
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
Net
income before allocation to noncontrolling interests
|
|
$ |
2,266 |
|
|
$ |
2,782 |
|
|
$ |
4,996 |
|
|
$ |
5,572 |
|
Other
comprehensive expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
and other
|
|
|
2,638 |
|
|
|
1,109 |
|
|
|
2,254 |
|
|
|
534 |
|
Net unrealized gains/(losses)
on derivative financial instruments
|
|
|
(144 |
) |
|
|
27 |
|
|
|
(167 |
) |
|
|
28 |
|
Net unrealized gains/(losses)
on available-for-sale securities
|
|
|
81 |
|
|
|
— |
|
|
|
226 |
|
|
|
(14 |
) |
Benefit plan
adjustments
|
|
|
18 |
|
|
|
1 |
|
|
|
177 |
|
|
|
85 |
|
Total other comprehensive
loss
|
|
|
2,593 |
|
|
|
1,137 |
|
|
|
2,490 |
|
|
|
633 |
|
Total
comprehensive income before allocation to
noncontrolling
interests
|
|
|
4,859 |
|
|
|
3,919 |
|
|
|
7,486 |
|
|
|
6,205 |
|
Less: Comprehensive income
attributable to
noncontrolling
interests
|
|
|
12 |
|
|
|
15 |
|
|
|
14 |
|
|
|
23 |
|
Comprehensive
income attributable to Pfizer Inc.
|
|
$ |
4,847 |
|
|
$ |
3,904 |
|
|
$ |
7,472 |
|
|
$ |
6,182 |
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 8. Financial
Instruments
A. Selected Financial Assets
and Liabilities
Information
about certain of our financial assets and liabilities follows:
(millions
of dollars)
|
|
June
28,
2009
|
|
|
Dec.
31,
2008
|
|
Selected
financial assets measured at fair value on a recurring basis (a)
:
|
|
|
|
|
|
|
Trading securities (b)
|
|
$ |
172 |
|
|
$ |
190 |
|
Available-for-sale debt securities
(c)
|
|
|
50,592 |
|
|
|
30,061 |
|
Available-for-sale money market
funds
|
|
|
7,543 |
|
|
|
398 |
|
Available-for-sale equity
securities, excluding money market funds (c)
|
|
|
182 |
|
|
|
319 |
|
Derivative financial instruments
in receivable positions (d)
:
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
283 |
|
|
|
732 |
|
Foreign currency
swaps
|
|
|
85 |
|
|
|
128 |
|
Foreign currency forward-exchange
contracts
|
|
|
640 |
|
|
|
399 |
|
Total
|
|
|
59,497 |
|
|
|
32,227 |
|
Other
selected financial assets (e):
|
|
|
|
|
|
|
|
|
Held-to-maturity debt
securities, carried at amortized cost (c)
|
|
|
953 |
|
|
|
2,349 |
|
Short-term loans, carried at
cost
|
|
|
935 |
|
|
|
824 |
|
Long-term loans, carried at
cost
|
|
|
1,181 |
|
|
|
1,568 |
|
Private equity securities,
carried at cost
|
|
|
168 |
|
|
|
182 |
|
Total
|
|
|
3,237 |
|
|
|
4,923 |
|
Total
selected financial assets
|
|
$ |
62,734 |
|
|
$ |
37,150 |
|
Financial
liabilities measured at fair value on a recurring basis (a):
|
|
|
|
|
|
|
|
|
Derivative financial instruments
in a liability position (f):
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$ |
8 |
|
|
$ |
7 |
|
Foreign currency
swaps
|
|
|
352 |
|
|
|
153 |
|
Foreign currency forward-exchange
contracts
|
|
|
1,381 |
|
|
|
1,083 |
|
Total
|
|
|
1,741 |
|
|
|
1,243 |
|
Other
financial liabilities (e) ,
(g):
|
|
|
|
|
|
|
|
|
Short-term borrowings, carried at
historical proceeds, as adjusted (h)
|
|
|
7,645 |
|
|
|
9,320 |
|
Long-term debt, carried at
historical proceeds, as adjusted (i)
|
|
|
31,864 |
|
|
|
7,963 |
|
Total
|
|
|
39,509 |
|
|
|
17,283 |
|
Total
selected financial liabilities
|
|
$ |
41,250 |
|
|
$ |
18,526 |
|
(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 measured at fair value on a recurring
basis use Level 2 inputs in the calculation of fair value, except that
included in available-for-sale equity securities, excluding money market
funds, are $101 million as of June 28, 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 assets and liabilities measured at fair value
on a recurring basis are valued based on Level 3 inputs at June 28, 2009
or December 31, 2008.
|
(b)
|
Trading
securities are held in trust for legacy Pharmacia severance
benefits.
|
(c)
|
Gross
unrealized gains and losses are not
significant.
|
(d)
|
Designated
as hedging instruments except for certain foreign currency contracts used
as offsets, namely, foreign currency forward-exchange contracts with fair
values of $6 million and foreign currency swaps with fair values of $77
million at June 28, 2009; and foreign currency forward-exchange contracts
with fair values of $175 million and foreign currency swaps with fair
values of $32 million at December 31,
2008.
|
(e)
|
The
differences between the estimated fair values and carrying values of our
financial assets and liabilities not measured at fair value on a recurring
basis were not significant as of June 28, 2009 or December 31,
2008.
|
(f)
|
Designated
as hedging instruments except for certain foreign currency contracts used
as offsets, namely, foreign currency forward-exchange contracts with fair
values of $515 million and foreign currency swaps with
fair values of $32 million at June 28, 2009; and foreign currency
forward-exchange contracts with fair values of $836 million and foreign
currency swaps with fair values of $76 million at December 31,
2008.
|
(g)
|
The
carrying amounts may include adjustments for discount or premium
amortization or for the effect of interest rate swaps designated as
hedges.
|
(h)
|
Includes
foreign currency borrowings with fair values of $1.0 billion at June 28,
2009 and $1.6 billion at December 31, 2008, which are used as hedging
instruments.
|
(i)
|
Includes
foreign currency debt with fair values of $2.0 billion at June 28, 2009
and $2.1 billion at December 31, 2008, which is used as a hedging
instrument.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following methods and assumptions were used to estimate the fair value of our
financial assets and liabilities:
·
|
Trading
equity securities - quoted market
prices.
|
·
|
Trading debt securities
- observable market interest
rates.
|
·
|
Available-for-sale
debt securities - matrix-pricing model using observable market quotes and
credit ratings.
|
·
|
Available-for-sale
money market funds - observable
prices.
|
·
|
Available-for-sale
equity securities, excluding money market funds - pricing services that
principally use a composite of observable
prices.
|
·
|
Derivative
financial instruments (assets and liabilities) - matrix-pricing model
using observable market quotes and credit
ratings.
|
·
|
Held-to-maturity
debt securities - matrix-pricing model using observable market quotes and
credit ratings.
|
·
|
Short-term
and long-term loans - discounted future cash flows using current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining
maturities.
|
·
|
Private
equity securities – application of the implied volatility associated with
an observable biotech index to the carrying amount of our
portfolio.
|
·
|
Short-term
borrowings and long-term debt - matrix-pricing model using observable
market quotes and our own credit
rating.
|
In
addition, we have long-term receivables where fair value uses discounted future
cash flows, using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
These
selected financial assets and liabilities are classified in our Condensed
Consolidated Balance Sheets as follows:
(millions
of dollars)
|
|
June
28,
2009
|
|
|
Dec.
31,
2008
|
|
Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
812 |
|
|
$ |
1,980 |
|
Short-term
investments
|
|
|
47,403 |
|
|
|
21,609 |
|
Short-term loans
|
|
|
935 |
|
|
|
824 |
|
Long-term investments and
loans
|
|
|
12,576 |
|
|
|
11,478 |
|
Other current assets (a)
|
|
|
641 |
|
|
|
404 |
|
Other non-current assets (b)
|
|
|
367 |
|
|
|
855 |
|
Total
|
|
$ |
62,734 |
|
|
$ |
37,150 |
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
7,645 |
|
|
|
9,320 |
|
Other
current liabilities (c)
|
|
|
1,416 |
|
|
|
1,119 |
|
Long-term
debt
|
|
|
31,864 |
|
|
|
7,963 |
|
Other
noncurrent liabilities (d)
|
|
|
325 |
|
|
|
124 |
|
Total
|
|
$ |
41,250 |
|
|
$ |
18,526 |
|
(a)
|
At
June 28, 2009, derivative instruments at fair value comprised of interest
rate swaps ($1 million) and foreign currency forward-exchange contracts
($640 million) and, at December 31, 2008, comprised of interest rate swaps
($4 million), foreign currency swaps ($2 million), and foreign currency
forward-exchange contracts ($398
million).
|
(b)
|
At
June 28, 2009, derivative instruments at fair value comprised of interest
rate swaps ($282 million) and foreign currency swaps ($85 million) and, at
December 31, 2008, comprised of interest rate swaps ($729 million) and
foreign currency swaps ($126
million).
|
(c)
|
At
June 28, 2009, derivative instruments at fair value comprised of foreign
currency swaps ($35 million) and foreign currency forward-exchange
contracts ($1.4 billion) and, at December 31, 2008, comprised of foreign
currency swaps ($36
million) and foreign currency forward-exchange contracts ($1.1
billion).
|
(d)
|
At
June 28, 2009, derivative instruments at fair value comprised of interest
rate swaps ($8 million) and foreign currency swaps ($317 million) and, at
December 31, 2008, comprised of interest rate swaps ($7 million) and
foreign currency swaps ($117
million).
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
We
regularly evaluate all of our financial assets for impairment. For investments
in debt and equity securities, when a decline in fair value, if any, is
determined to be other-than-temporary, an impairment charge is recorded and a
new cost basis in the investment is established. For loans, an
impairment charge is recorded if it is probable that we will not be able to
collect all amounts due according to the loan agreement. There were no
significant impairments recognized in 2009 or 2008.
B. Investments in Debt and
Equity Securities
Investments
in debt securities reflect the investment of proceeds obtained through the
issuance of $13.5 billion of senior unsecured notes on March 24, 2009 and
approximately $10.5 billion of senior unsecured notes on June 3, 2009, virtually
all of which will be used to partially fund the pending acquisition of Wyeth
(see Note 8D. Financial
Instruments: Long-Term Debt).
Details
of our investments follow:
|
|
Contractual
Maturity (in years)
|
|
|
|
|
(millions
of dollars)
|
|
Within
1
|
|
|
Over
1
to
5
|
|
|
Over
5
to
10
|
|
|
Over
10
|
|
|
Total
as of
June
28, 2009
|
|
Available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government Federal Deposit
Insurance
Corporation guaranteed
debt
|
|
$ |
— |
|
|
$ |
1,717 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,717 |
|
Western European
and other government debt
|
|
|
22,892 |
|
|
|
2,579 |
|
|
|
— |
|
|
|
— |
|
|
|
25,471 |
|
Corporate debt
|
|
|
1,815 |
|
|
|
2,076 |
|
|
|
— |
|
|
|
— |
|
|
|
3,891 |
|
Western European and other
government agency debt
|
|
|
13,922 |
|
|
|
802 |
|
|
|
— |
|
|
|
— |
|
|
|
14,724 |
|
Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association and Government National
Mortgage
Association asset-backed securities
|
|
|
200 |
|
|
|
3,208 |
|
|
|
— |
|
|
|
— |
|
|
|
3,408 |
|
Supranational debt
|
|
|
648 |
|
|
|
381 |
|
|
|
— |
|
|
|
— |
|
|
|
1,029 |
|
Other asset-backed
securities
|
|
|
226 |
|
|
|
125 |
|
|
|
— |
|
|
|
— |
|
|
|
351 |
|
Certificates of
deposit
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Held-to-maturity
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and
other
|
|
|
949 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
953 |
|
Total
debt securities
|
|
$ |
40,653 |
|
|
$ |
10,892 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
51,545 |
|
Trading
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172 |
|
Available-for-sale
money market funds
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,543 |
|
Available-for-sale
equity securities, excluding money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182 |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
59,442 |
|
(a)
|
Securities
issued by the U.S. government and its agencies or instrumentalities and
reverse repurchase agreements involving the same investments
held.
|
C. Short-Term
Borrowings
Short-term
borrowings include amounts for commercial paper of $7.1 billion as of June 28,
2009. As of June 28, 2009, we had access to $8.3 billion of lines of credit, of
which $6.1 billion expire within one year. Of these lines of credit, $8.1
billion are unused, of which our lenders have committed to loan us $7.0 billion
at our request. Unused lines of credit of $7.0 billion, of which $5.0 billion
expire in 2010 and $2.0 billion expire in 2013, may be used to support our
commercial paper borrowings.
As a
result of the issuances of senior unsecured notes in March and June 2009, the
$22.5 billion bridge term loan credit agreement, which we entered into on March
12, 2009 to partially finance our pending acquisition of Wyeth, was terminated,
and we are no longer subject to the covenants under that agreement.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. Long-Term
Debt
We issued
long-term debt in the first six months of 2009, virtually all of the proceeds of
which will be used to partially finance our pending acquisition of Wyeth. The
following table sets forth the amounts outstanding related to those
issuances:
(millions
of dollars)
|
Maturity
Date
|
|
Outstanding
on
June
28,
2009
|
|
Senior
unsecured notes:
|
|
|
|
|
Issued on March 24,
2009:
|
|
|
|
|
Floating
rate notes at the three-month London Interbank Offering Rate (LIBOR), plus
1.95%
|
March
2011
|
|
$ |
1,250 |
|
4.45%(a)
|
March
2012
|
|
|
3,498 |
|
5.35%(a)
|
March
2015
|
|
|
2,996 |
|
6.20%(a)
|
March
2019
|
|
|
3,247 |
|
7.20%(a)
|
March
2039
|
|
|
2,529 |
|
Issued on June 3,
2009:
|
|
|
|
|
|
3.625%
euro (b)
|
June
2013
|
|
|
2,597 |
|
4.75%
euro (b)
|
June
2016
|
|
|
2,808 |
|
5.75%
euro (b)
|
June
2021
|
|
|
2,806 |
|
6.50%
U.K. pound
(b)
|
June
2038
|
|
|
2,455 |
|
Total
long-term debt issued in the first six months of 2009
|
|
|
$ |
24,186 |
|
(a)
|
Instrument
is callable at any time at the greater of 100% of the principal amount or
the sum of the present values of the remaining scheduled payments of
principal and interest discounted at the U.S. Treasury rate, plus 0.50%
plus,
in each case, accrued and unpaid
interest.
|
(b)
|
Instrument
is callable at any time at the greater of 100% of the principal amount or
the sum of the present values of the remaining scheduled payments of
principal and interest discounted at a comparable government bond rate,
plus 0.20%, plus accrued and unpaid
interest.
|
Long-term
debt outstanding as of June 28, 2009, excluding the current portion of $54
million, matures in the following years:
(millions
of dollars)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
After
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
31,864 |
|
|
$ |
–– |
|
|
$ |
2,525 |
|
|
$ |
3,517 |
|
|
$ |
2,610 |
|
|
$ |
23,212 |
|
E. Derivative Financial
Instruments and Hedging Activities
On a
regular basis, we seek to minimize the impact of foreign exchange rate movements
and interest rate movements on our earnings. We manage these exposures through
operational means and through the use of various financial
instruments.
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 $55.0
billion. The derivative financial instruments primarily hedge or offset
exposures in euro, Swedish kroner, U.K. pound and Japanese yen.
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:
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
·
|
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 gain and loss 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 second quarter and the first six months of
2009 or the second quarter and the first six months of 2008.
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 change the profile of our
outstanding debt by entering into derivative financial instruments like interest
rate swaps. The aggregate notional amount of interest rate derivative financial
instruments is $5.4 billion. The derivative financial instruments hedge U.S.
fixed-rate debt and euro 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 second quarter and the first six months of
2009 or the second quarter and the first six months of 2008.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Information
about gains/(losses) incurred to hedge or offset operational foreign exchange or
interest rate risk is as follows:
|
|
Gains
/ (Losses)
|
|
(millions
of dollars)
|
|
Three
Months
Ended
June
28, 2009
|
|
|
Six
Months
Ended
June
28, 2009
|
|
Derivative
Financial Instruments in Fair Value Hedge Relationships
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
(3 |
) |
|
$ |
(7 |
) |
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
1 |
|
|
|
–– |
|
Derivative
Financial Instruments in Cash Flow Hedge Relationships
|
|
|
|
|
|
|
|
|
U.S. Treasury interest rate
locks
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
(11 |
) |
Recognized in OCI (a),
(b)
|
|
|
–– |
|
|
|
(15 |
) |
Reclassified from OCI to
OID (a),
(b)
|
|
|
–– |
|
|
|
–– |
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(221 |
) |
|
|
(240 |
) |
Reclassified from OCI to OID
(a),
(b)
|
|
|
–– |
|
|
|
–– |
|
Foreign currency forward exchange
contracts
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
5 |
|
|
|
8 |
|
Reclassified from OCI to OID
(a),
(b)
|
|
|
4 |
|
|
|
14 |
|
Derivative
Financial Instruments in Net Investment Hedge
Relationships
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
(1 |
) |
Recognized in OCI (a),
(b)
|
|
|
(15 |
) |
|
|
38 |
|
Derivative
Financial Instruments Not Designated as Hedges
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
18 |
|
|
$ |
13 |
|
Foreign currency forward-exchange
contracts
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
(185 |
) |
|
|
(441 |
) |
Non-Derivative
Financial Instruments Designated as Hedges
|
|
|
|
|
|
|
|
|
Foreign currency short-term
borrowings
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(23 |
) |
|
|
88 |
|
Foreign currency long-term
debt
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(46 |
) |
|
|
111 |
|
(a)
|
OCI
= Other comprehensive
income / (expense), a balance sheet account. OID = Other (income)/deductions –
net.
|
(b)
|
Amounts
presented represent the effective portion of the gain or loss. For
derivative financial instruments in cash flow hedge relationships, the
effective portion is included in Other comprehensive
income/(expense) – Net unrealized gains/(losses) on derivative financial
instruments. For derivative financial instruments in net investment
hedge relationships and for foreign currency debt designated as hedging
instruments, the effective portion is included in Other comprehensive
income/(expense) – Currency translation
adjustment.
|
For
information about the fair value of our derivative financial instruments, and
the impact on our consolidated balance sheet, see Note 8A. Financial Instruments:
Selected Financial Assets and Liabilities.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Certain
of our derivative instruments are covered by associated credit-support
agreements that 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 $1.0 billion, for which we have posted collateral of $353 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
June 28, 2009, we would have been required to post an additional $160 million of
collateral to our counterparties. If there had been a downgrade to below an A
rating, or its equivalent, on June 28, 2009, we would have been required to post
an additional $192 million of collateral to our counterparties.
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 June
28, 2009, we have $7.1 billion invested in a major money market fund rated Aaa
by Moody’s Investors Service and AAA by Standard & Poor’s, which invests in
securities issued by the U.S. government and its agencies or instrumentalities
and reverse repurchase agreements involving the same investments held. This fund
participates in the U.S. Treasury Department Temporary Guarantee Program for
Money Market Funds, which guarantees $290 million of our
investment.
Note 9.
Inventories
The
components of inventories follow:
(millions
of dollars)
|
|
June
28,
2009
|
|
|
Dec.
31,
2008
|
|
Finished
goods
|
|
$ |
2,237 |
|
|
$ |
2,024 |
|
Work-in-process
|
|
|
1,897 |
|
|
|
1,527 |
|
Raw
materials and supplies
|
|
|
859 |
|
|
|
830 |
|
Total
inventories(a)
|
|
$ |
4,993 |
|
|
$ |
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
The
changes in the carrying amount of goodwill by segment for the six months ended
June 28, 2009, follow:
(millions
of dollars)
|
|
Pharmaceutical
|
|
|
Animal
Health
|
|
|
Other
|
|
|
Total
|
|
Balance,
December 31, 2008
|
|
$ |
21,317 |
|
|
$ |
129 |
|
|
$ |
18 |
|
|
$ |
21,464 |
|
Additions
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
Other(a)
|
|
|
316 |
|
|
|
13 |
|
|
|
1 |
|
|
|
330 |
|
Balance,
June 28, 2009
|
|
$ |
21,633 |
|
|
$ |
142 |
|
|
$ |
19 |
|
|
$ |
21,794 |
|
(a)
|
Primarily
related to the impact of foreign exchange, except that Pharmaceutical also
includes a reclassification of approximately $150 million to Assets held for
sale.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Other Intangible
Assets
The
components of identifiable intangible assets, primarily included in our
Pharmaceutical segment, follow:
|
|
June
28, 2009
|
|
|
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
|
|
$ |
31,974 |
|
|
$ |
(19,237 |
) |
|
$ |
12,737 |
|
|
$ |
31,484 |
|
|
$ |
(17,673 |
) |
|
$ |
13,811 |
|
Brands
|
|
|
1,016 |
|
|
|
(505 |
) |
|
|
511 |
|
|
|
1,016 |
|
|
|
(487 |
) |
|
|
529 |
|
License
agreements
|
|
|
252 |
|
|
|
(90 |
) |
|
|
162 |
|
|
|
246 |
|
|
|
(78 |
) |
|
|
168 |
|
Trademarks
|
|
|
124 |
|
|
|
(84 |
) |
|
|
40 |
|
|
|
118 |
|
|
|
(78 |
) |
|
|
40 |
|
Other(a)
|
|
|
520 |
|
|
|
(292 |
) |
|
|
228 |
|
|
|
531 |
|
|
|
(291 |
) |
|
|
240 |
|
Total
|
|
|
33,886 |
|
|
|
(20,208 |
) |
|
|
13,678 |
|
|
|
33,395 |
|
|
|
(18,607 |
) |
|
|
14,788 |
|
Indefinite-lived
intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
2,863 |
|
|
|
— |
|
|
|
2,863 |
|
|
|
2,860 |
|
|
|
— |
|
|
|
2,860 |
|
Trademarks
|
|
|
68 |
|
|
|
— |
|
|
|
68 |
|
|
|
70 |
|
|
|
— |
|
|
|
70 |
|
Other
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Total
|
|
|
2,933 |
|
|
|
— |
|
|
|
2,933 |
|
|
|
2,933 |
|
|
|
— |
|
|
|
2,933 |
|
Total
identifiable intangible assets
|
|
$ |
36,819 |
|
|
$ |
(20,208 |
) |
|
$ |
16,611 |
(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 is primarily related to amortization and the impact
of foreign exchange.
|
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 $615 million for the second quarter of 2009, $694 million
for the second quarter of 2008, $1.2 billion for the first six months of 2009
and $1.5 billion for the first six months of 2008.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, follow:
|
|
Pension
Plans
|
|
|
|
|
|
|
U.S.
Qualified
|
|
|
U.S. Supplemental
(Non-Qualified)
|
|
|
International
|
|
|
Postretirement
Plans
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
For the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
52 |
|
|
$ |
59 |
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
42 |
|
|
$ |
65 |
|
|
$ |
7 |
|
|
$ |
11 |
|
Interest
cost
|
|
|
116 |
|
|
|
115 |
|
|
|
12 |
|
|
|
9 |
|
|
|
77 |
|
|
|
101 |
|
|
|
31 |
|
|
|
37 |
|
Expected
return on plan assets
|
|
|
(116 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
— |
|
|
|
(86 |
) |
|
|
(111 |
) |
|
|
(7 |
) |
|
|
(9 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
losses
|
|
|
53 |
|
|
|
8 |
|
|
|
8 |
|
|
|
6 |
|
|
|
6 |
|
|
|
11 |
|
|
|
5 |
|
|
|
9 |
|
Prior
service costs/(credits)
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
1 |
|
Curtailments
and settlements – net
|
|
|
30 |
|
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
6 |
|
|
|
— |
|
|
|
3 |
|
Special
termination benefits
|
|
|
6 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
6 |
|
|
|
3 |
|
|
|
4 |
|
Net
periodic benefit costs
|
|
$ |
141 |
|
|
$ |
31 |
|
|
$ |
31 |
|
|
$ |
22 |
|
|
$ |
38 |
|
|
$ |
78 |
|
|
$ |
38 |
|
|
$ |
56 |
|
For the Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
111 |
|
|
$ |
120 |
|
|
$ |
10 |
|
|
$ |
12 |
|
|
$ |
87 |
|
|
$ |
128 |
|
|
$ |
15 |
|
|
$ |
20 |
|
Interest
cost
|
|
|
235 |
|
|
|
231 |
|
|
|
25 |
|
|
|
21 |
|
|
|
155 |
|
|
|
200 |
|
|
|
61 |
|
|
|
71 |
|
Expected
return on plan assets
|
|
|
(234 |
) |
|
|
(325 |
) |
|
|
— |
|
|
|
— |
|
|
|
(172 |
) |
|
|
(222 |
) |
|
|
(13 |
) |
|
|
(18 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
losses
|
|
|
110 |
|
|
|
16 |
|
|
|
16 |
|
|
|
15 |
|
|
|
12 |
|
|
|
22 |
|
|
|
9 |
|
|
|
15 |
|
Prior
service costs/(credits)
|
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
1 |
|
Curtailments
and settlements – net
|
|
|
54 |
|
|
|
4 |
|
|
|
13 |
|
|
|
113 |
|
|
|
1 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
Special
termination benefits
|
|
|
19 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
13 |
|
|
|
15 |
|
|
|
8 |
|
Net
periodic benefit costs
|
|
$ |
296 |
|
|
$ |
64 |
|
|
$ |
63 |
|
|
$ |
160 |
|
|
$ |
83 |
|
|
$ |
145 |
|
|
$ |
90 |
|
|
$ |
103 |
|
The
increase in net periodic benefit costs in the first six months of 2009, compared
to the first six months of 2008, for our U.S. qualified plans was primarily
driven by the amortization of actual investment losses incurred in 2008, lower
than expected returns on plan assets due to the smaller asset base and the
impact of our settlement losses due to our ongoing cost-restructuring
efforts.
The
decrease in net periodic benefit costs in the first six months of 2009, compared
to the first six 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.
The
decrease in net periodic benefit costs in the first six months of 2009, compared
to the first six months of 2008, for our international pension plans was largely
driven by strengthening of the U.S. dollar during the first six months of 2009
and differences in actuarial assumptions.
For the
first six months of 2009, we contributed from our general assets $141 million to
our international pension plans, $83 million to our postretirement plans and $67
million to our U.S. supplemental (non-qualified) pension plans. Contributions to
our U.S. qualified pension plans in the first six months of 2009 were not
significant.
During
2009, we expect to contribute from our general assets a total of $320 million to
our international pension plans, $167 million to our postretirement plans, $110
million to our U.S. supplemental (non-qualified) pension plans, and $2 million
to our U.S. qualified pension plans. Contributions expected to be made for 2009
are inclusive of amounts contributed during the first six months of 2009. The
international pension plan 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:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(in
millions)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
EPS
Numerator - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
|
|
$ |
2,258 |
|
|
$ |
2,759 |
|
|
$ |
4,986 |
|
|
$ |
5,547 |
|
Less: Preferred stock dividends -
net of tax
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
Income from continuing operations
attributable to Pfizer Inc. common
shareholders
|
|
|
2,257 |
|
|
|
2,757 |
|
|
|
4,985 |
|
|
|
5,545 |
|
Discontinued operations - net of
tax
|
|
|
3 |
|
|
|
17 |
|
|
|
4 |
|
|
|
13 |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,260 |
|
|
$ |
2,774 |
|
|
$ |
4,989 |
|
|
$ |
5,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,728 |
|
|
|
6,732 |
|
|
|
6,726 |
|
|
|
6,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Numerator - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
|
|
$ |
2,258 |
|
|
$ |
2,759 |
|
|
$ |
4,986 |
|
|
$ |
5,547 |
|
Less: ESOP contribution - net of
tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Income from continuing operations
attributable to Pfizer Inc. common
shareholders
|
|
|
2,258 |
|
|
|
2,759 |
|
|
|
4,986 |
|
|
|
5,547 |
|
Discontinued operations - net of
tax
|
|
|
3 |
|
|
|
17 |
|
|
|
4 |
|
|
|
13 |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,261 |
|
|
$ |
2,776 |
|
|
$ |
4,990 |
|
|
$ |
5,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,728 |
|
|
|
6,732 |
|
|
|
6,726 |
|
|
|
6,736 |
|
Common share equivalents: stock
options, restricted stock units, stock
issuable under other employee
compensation plans and convertible
preferred stock
|
|
|
24 |
|
|
|
16 |
|
|
|
26 |
|
|
|
18 |
|
Weighted-average number of common
shares outstanding and common
share equivalents
|
|
|
6,752 |
|
|
|
6,748 |
|
|
|
6,752 |
|
|
|
6,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options that had exercise
prices greater than the average market price
of our common stock issuable under
employee compensation plans (a)
|
|
|
422 |
|
|
|
542 |
|
|
|
422 |
|
|
|
542 |
|
(a)
|
These
common stock equivalents were outstanding during the three months and six
months ended June 28, 2009 and June 29, 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. is reduced by the incremental contribution to
the Employee Stock Ownership Plans (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.
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.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 three months and six months ended June 28,
2009 and June 29, 2008 follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars) |
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,063 |
|
|
$ |
11,053 |
|
|
$ |
20,165 |
|
|
$ |
21,957 |
|
Animal Health
|
|
|
648 |
|
|
|
715 |
|
|
|
1,185 |
|
|
|
1,334 |
|
Corporate/Other(a)
|
|
|
273 |
|
|
|
361 |
|
|
|
501 |
|
|
|
686 |
|
Total
revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit/(loss) (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
4,960 |
|
|
$ |
5,068 |
|
|
$ |
10,367 |
|
|
$ |
10,662 |
|
Animal Health
|
|
|
164 |
|
|
|
175 |
|
|
|
296 |
|
|
|
320 |
|
Corporate/Other(a)
|
|
|
(2,075 |
)(c) |
|
|
(2,453 |
)(e) |
|
|
(3,811 |
)(d) |
|
|
(4,635 |
)(f) |
Total
segment profit/(loss)
|
|
$ |
3,049 |
|
|
$ |
2,790 |
|
|
$ |
6,852 |
|
|
$ |
6,347 |
|
(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.
|
(b)
|
Segment profit/(loss)
equals Income
from continuing operations before provision for taxes on
income.
|
(c)
|
For
the three months ended June 28, 2009, Corporate/Other
includes: (i) significant impacts of purchase accounting for
acquisitions of $581 million, including intangible asset amortization and
other charges, primarily related to our acquisition of Pharmacia in 2003;
(ii) restructuring charges and implementation costs associated with our
cost-reduction initiatives of $330 million; (iii) acquisition-related
costs of $285 million, primarily related to our pending acquisition of
Wyeth; and (iv) all share-based compensation
expense.
|
(d)
|
For
the six months ended June 28, 2009, Corporate/Other
includes: (i) significant impacts of purchase accounting for
acquisitions of $1.1 billion, including intangible asset amortization and
other charges, primarily related to our acquisition of Pharmacia in 2003;
(ii) acquisition-related costs of $682 million, primarily related to our
pending acquisition of Wyeth; (iii) restructuring charges and
implementation costs associated with our cost-reduction initiatives of
$661 million; and (iv) all share-based compensation
expense.
|
(e)
|
For
the three months ended June 29, 2008, Corporate/Other
includes: (i) restructuring charges and implementation costs
associated with our cost-reduction initiatives of $967 million; (ii)
significant impacts of purchase accounting for acquisitions of $788
million, including acquired in-process research and development,
intangible asset amortization and other charges; (iii) all share-based
compensation expense; and (iv) acquisition-related costs of
$7 million.
|
(f)
|
For
the six months ended June 29, 2008, Corporate/Other
includes: (i) significant impacts of purchase accounting for acquisitions
of $1.9 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 $1.5
billion; (iii) all share-based compensation expense; and (iv)
acquisition-related costs of $8
million.
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues
for each group of similar products follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
Pharmaceutical:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular and metabolic
diseases
|
|
$ |
3,902 |
|
|
$ |
4,467 |
|
|
|
(13 |
)
% |
|
$ |
7,781 |
|
|
$ |
8,961 |
|
|
|
(13 |
)
% |
Central nervous system
disorders
|
|
|
1,388 |
|
|
|
1,484 |
|
|
|
(6 |
) |
|
|
2,810 |
|
|
|
2,870 |
|
|
|
(2 |
) |
Arthritis and
pain
|
|
|
623 |
|
|
|
756 |
|
|
|
(18 |
) |
|
|
1,262 |
|
|
|
1,511 |
|
|
|
(16 |
) |
Infectious and respiratory
diseases
|
|
|
841 |
|
|
|
1,000 |
|
|
|
(16 |
) |
|
|
1,709 |
|
|
|
1,931 |
|
|
|
(11 |
) |
Urology
|
|
|
714 |
|
|
|
765 |
|
|
|
(7 |
) |
|
|
1,481 |
|
|
|
1,549 |
|
|
|
(4 |
) |
Oncology
|
|
|
558 |
|
|
|
650 |
|
|
|
(14 |
) |
|
|
1,082 |
|
|
|
1,287 |
|
|
|
(16 |
) |
Ophthalmology
|
|
|
404 |
|
|
|
444 |
|
|
|
(9 |
) |
|
|
817 |
|
|
|
857 |
|
|
|
(5 |
) |
Endocrine
disorders
|
|
|
263 |
|
|
|
305 |
|
|
|
(14 |
) |
|
|
512 |
|
|
|
563 |
|
|
|
(9 |
) |
All other
|
|
|
772 |
|
|
|
619 |
|
|
|
25 |
|
|
|
1,531 |
|
|
|
1,377 |
|
|
|
11 |
|
Alliance
revenues
|
|
|
598 |
|
|
|
563 |
|
|
|
6 |
|
|
|
1,180 |
|
|
|
1,051 |
|
|
|
12 |
|
Total
Pharmaceutical
|
|
|
10,063 |
|
|
|
11,053 |
|
|
|
(9 |
) |
|
|
20,165 |
|
|
|
21,957 |
|
|
|
(8 |
) |
Animal
Health
|
|
|
648 |
|
|
|
715 |
|
|
|
(9 |
) |
|
|
1,185 |
|
|
|
1,334 |
|
|
|
(11 |
) |
Other
|
|
|
273 |
|
|
|
361 |
|
|
|
(24 |
) |
|
|
501 |
|
|
|
686 |
|
|
|
(27 |
) |
Total revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
|
(9 |
) |
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
(9 |
) |
Revenues
by geographic area follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
United
States(a)
|
|
$ |
4,524 |
|
|
$ |
4,756 |
|
|
|
(5 |
)
% |
|
$ |
9,493 |
|
|
$ |
10,260 |
|
|
|
(7 |
)
% |
Europe(b)
|
|
|
3,300 |
|
|
|
3,925 |
|
|
|
(16 |
) |
|
|
6,305 |
|
|
|
7,358 |
|
|
|
(14 |
) |
Japan/Asia(c)
|
|
|
1,836 |
|
|
|
1,929 |
|
|
|
(5 |
) |
|
|
3,574 |
|
|
|
3,503 |
|
|
|
2 |
|
Canada/Latin
America/AFME(d)
|
|
|
1,324 |
|
|
|
1,519 |
|
|
|
(13 |
) |
|
|
2,479 |
|
|
|
2,856 |
|
|
|
(13 |
) |
Total revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
|
(9 |
) |
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
(9 |
) |
(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. In July 2009, pursuant to a request from us made
in accordance with the terms and conditions of the Merger Agreement, all of
Wyeth’s outstanding $2 convertible preferred stock that was not previously
converted to Wyeth common stock at the option of the holders of such stock was
redeemed by Wyeth, and as a result, we will not issue any preferred stock in
connection with the merger. The merger was approved by Wyeth’s shareholders in
July 2009. Also in July 2009, the European Commission approved the transaction,
a decision that included our commitment to divest certain animal-health assets
in the European Union. The merger remains subject to other governmental and
regulatory approvals 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 issued
$13.5 billion of senior unsecured notes on March 24, 2009 and approximately
$10.5 billion of senior unsecured notes on June 3, 2009, of which virtually all
of the proceeds will be used to partially finance our pending acquisition of
Wyeth.
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 June 28, 2009, the related condensed consolidated statements of
income for the three-month and six-month periods ended June 28, 2009, and June
29, 2008, and the related condensed consolidated statements of cash flows for
the six-month periods ended June 28, 2009, and June 29, 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
August 6,
2009
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 26,
provides information about the following: our business; our performance
during the second quarter and first six months of 2009; our operating
environment; our strategic initiatives; and our cost-reduction
initiatives.
|
·
|
Revenues. This section,
beginning on page 31, provides an analysis of our products and revenues
for the three-and six-month periods ended June 28, 2009 and June 29, 2008,
as well as an overview of important product
developments.
|
·
|
Costs and Expenses.
This section, beginning on page 40, provides a discussion about our costs
and expenses.
|
·
|
Provision for Taxes on
Income. This section, beginning on page 42, provides a discussion
of items impacting our tax provision for the periods
presented.
|
·
|
Adjusted Income. This
section, beginning on page 43, provides a discussion of an alternative
view of performance used by
management.
|
·
|
Financial Condition, Liquidity
and Capital Resources. This section, beginning on page 47, provides
an analysis of our balance sheets as of June 28, 2009 and December 31,
2008 and cash flows for the first six months of 2009 and 2008, as well as
a discussion of our outstanding debt and commitments that existed as of
June 28, 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,
on page 51, 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 52, 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:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(MILLIONS
OF DOLLARS, EXCEPT PER COMMON SHARE DATA)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June,
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
Revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
|
(9 |
)
% |
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
(9 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,756 |
|
|
|
2,289 |
|
|
|
(23 |
) |
|
|
3,164 |
|
|
|
4,275 |
|
|
|
(26 |
) |
%
of revenues
|
|
|
16.0
|
% |
|
|
18.9
|
% |
|
|
|
|
|
|
14.5
|
% |
|
|
17.8
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
informational and administrative expenses
|
|
|
3,350 |
|
|
|
3,863 |
|
|
|
(13 |
) |
|
|
6,226 |
|
|
|
7,355 |
|
|
|
(15 |
) |
%
of revenues
|
|
|
30.5
|
% |
|
|
31.8
|
% |
|
|
|
|
|
|
28.5
|
% |
|
|
30.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
1,695 |
|
|
|
1,966 |
|
|
|
(14 |
) |
|
|
3,400 |
|
|
|
3,757 |
|
|
|
(9 |
) |
%
of revenues
|
|
|
15.4
|
% |
|
|
16.2
|
% |
|
|
|
|
|
|
15.6
|
% |
|
|
15.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
583 |
|
|
|
663 |
|
|
|
(12 |
) |
|
|
1,161 |
|
|
|
1,442 |
|
|
|
(19 |
) |
%
of revenues
|
|
|
5.3
|
% |
|
|
5.5
|
% |
|
|
|
|
|
|
5.3
|
% |
|
|
6.0
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
in-process research and development charges
|
|
|
20 |
|
|
|
156 |
|
|
|
(87 |
) |
|
|
20 |
|
|
|
554 |
|
|
|
(96 |
) |
%
of revenues
|
|
|
0.2
|
% |
|
|
1.3
|
% |
|
|
|
|
|
|
0.1
|
% |
|
|
2.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges and acquisition-related costs
|
|
|
459 |
|
|
|
569 |
|
|
|
(19 |
) |
|
|
1,013 |
|
|
|
747 |
|
|
|
36 |
|
%
of revenues
|
|
|
4.2
|
% |
|
|
4.7
|
% |
|
|
|
|
|
|
4.6
|
% |
|
|
3.1
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income)/deductions - net
|
|
|
72 |
|
|
|
(167 |
) |
|
|
* |
|
|
|
15 |
|
|
|
(500 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,049 |
|
|
|
2,790 |
|
|
|
9 |
|
|
|
6,852 |
|
|
|
6,347 |
|
|
|
8 |
|
%
of revenues
|
|
|
27.8
|
% |
|
|
23.0
|
% |
|
|
|
|
|
|
31.4
|
% |
|
|
26.5
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
786 |
|
|
|
25 |
|
|
|
* |
|
|
|
1,860 |
|
|
|
788 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
25.8
|
% |
|
|
0.9
|
% |
|
|
|
|
|
|
27.1
|
% |
|
|
12.4
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,263 |
|
|
|
2,765 |
|
|
|
(18 |
) |
|
|
4,992 |
|
|
|
5,559 |
|
|
|
(10 |
) |
%
of revenues
|
|
|
20.6
|
% |
|
|
22.8
|
% |
|
|
|
|
|
|
22.8
|
% |
|
|
23.2
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - net of tax
|
|
|
3 |
|
|
|
17 |
|
|
|
(85 |
) |
|
|
4 |
|
|
|
13 |
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,266 |
|
|
|
2,782 |
|
|
|
(19 |
) |
|
|
4,996 |
|
|
|
5,572 |
|
|
|
(10 |
) |
%
of revenues
|
|
|
20.6
|
% |
|
|
22.9
|
% |
|
|
|
|
|
|
22.9
|
% |
|
|
23.2
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to
noncontrolling interests
|
|
|
5 |
|
|
|
6 |
|
|
|
(28 |
) |
|
|
6 |
|
|
|
12 |
|
|
|
(51 |
) |
Net
income attributable to Pfizer Inc.
|
|
$ |
2,261 |
|
|
$ |
2,776 |
|
|
|
(19 |
) |
|
$ |
4,990 |
|
|
$ |
5,560 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of revenues
|
|
|
20.6
|
% |
|
|
22.9
|
% |
|
|
|
|
|
|
22.8
|
% |
|
|
23.2
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to Pfizer Inc. common
shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
|
(17 |
) |
|
$ |
0.74 |
|
|
$ |
0.82 |
|
|
|
(10 |
) |
Discontinued
operations - net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
|
|
(100 |
) |
Net
income attributable to Pfizer Inc. common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
|
(17 |
) |
|
$ |
0.74 |
|
|
$ |
0.83 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to Pfizer Inc. common
shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
|
(17 |
) |
|
$ |
0.74 |
|
|
$ |
0.82 |
|
|
|
(10 |
) |
Discontinued
operations - net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
income attributable to Pfizer Inc. common shareholders
|
|
$ |
0.34 |
|
|
$ |
0.41 |
|
|
|
(17 |
) |
|
$ |
0.74 |
|
|
$ |
0.82 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.48 |
|
|
$ |
0.64 |
|
|
|
|
|
*
|
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 2009
Performance
Revenues decreased 9% for
both the second quarter and for the first six months of 2009, compared to the
same periods in 2008. The significant human pharmaceutical product, alliance
revenue and Animal Health impacts on revenues for the second quarter and first
six months of 2009, compared to the same periods in 2008, are as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28, 2009 vs.
June
29, 2008
Increase/
(decrease)
|
|
|
%
Change
|
|
|
June
28, 2009 vs.
June
29, 2008
Increase/
(decrease)
|
|
|
%
Change
|
|
Lipitor(a)
|
|
$ |
(291 |
) |
|
|
(10 |
)
% |
|
$ |
(707 |
) |
|
|
(12 |
)
% |
Norvasc(b)
|
|
|
(109 |
) |
|
|
(17 |
) |
|
|
(141 |
) |
|
|
(12 |
) |
Camptosar(b)
|
|
|
(52 |
) |
|
|
(38 |
) |
|
|
(135 |
) |
|
|
(41 |
) |
Zyrtec/Zyrtec
D(b)
|
|
|
(8 |
) |
|
|
(100 |
) |
|
|
(125 |
) |
|
|
(100 |
) |
Chantix/Champix(c)
|
|
|
(15 |
) |
|
|
(7 |
) |
|
|
(115 |
) |
|
|
(24 |
) |
Celebrex
|
|
|
(41 |
) |
|
|
(7 |
) |
|
|
(88 |
) |
|
|
(7 |
) |
Viagra
|
|
|
(40 |
) |
|
|
(9 |
) |
|
|
(46 |
) |
|
|
(5 |
) |
Xalatan/Xalacom
|
|
|
(41 |
) |
|
|
(9 |
) |
|
|
(39 |
) |
|
|
(5 |
) |
Revatio
|
|
|
21 |
|
|
|
30 |
|
|
|
62 |
|
|
|
42 |
|
Lyrica
|
|
|
15 |
|
|
|
2 |
|
|
|
116 |
|
|
|
10 |
|
Alliance
revenues
|
|
|
35 |
|
|
|
6 |
|
|
|
129 |
|
|
|
12 |
|
Animal
Health
|
|
|
(67 |
) |
|
|
(9 |
) |
|
|
(149 |
) |
|
|
(11 |
) |
(a) |
Lipitor
was unfavorably impacted primarily by foreign exchange, as well as
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.
Norvasc lost exclusivity in Japan in July
2008.
|
(c)
|
Chantix/Champix
has been negatively impacted by the changes to its label in 2008.
Additional label changes were made in July 2009 (see “Revenues –
Pharmaceutical – Selected Product Descriptions” section of this
MD&A).
|
Foreign
exchange unfavorably impacted revenues by approximately $1.1 billion, or 9%, in
the second quarter of 2009 and approximately $1.7 billion, or 7%, during the
first six months of 2009, compared to the same periods in 2008.
In the
U.S., revenues decreased 5% in the second quarter of 2009 and 7% in the first
six months of 2009, compared to the same periods in 2008, while international
revenues decreased 12% in the second quarter of 2009 and 10% in the first six
months of 2009, compared to the same periods in 2008.
The
impact of rebates in the second quarter of 2009 decreased revenues by
approximately $920 million, compared to approximately $759 million in the
prior-year second quarter. The impact of rebates in the first six months of 2009
decreased revenues by approximately $1.9 billion, compared to approximately $1.7
billion for the first six months of 2008. The increase in rebates in each of the
periods 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 second quarter of 2009 was $2.3 billion, compared to $2.8 billion
in the second quarter of 2008, and $5.0 billion in the first six months of 2009,
compared to $5.6 billion in the first six months of 2008.
The
decreases were primarily due to:
·
|
the
unfavorable impact of foreign
exchange;
|
·
|
the
increase in the effective tax rate attributable mainly to increased tax
costs associated with certain business decisions executed to finance the
pending acquisition of Wyeth;
|
·
|
the
decrease in Other (income)/deductions –
net attributable mainly to lower interest income and to higher
interest expense; and
|
·
|
costs
incurred in connection with the pending Wyeth
acquisition;
|
partially
offset by:
·
|
savings
related to our cost-reduction
initiatives;
|
·
|
lower
costs associated with implementing our-cost reduction initiatives;
and
|
·
|
lower
acquisition-related in-process research and development charges of $20
million in the second quarter and first six months of 2009 compared to
$156 million in the second quarter of 2008 and $554 million in the first
six months of 2008.
|
We have
made significant progress with our cost-reduction 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).
During
the first six months of 2009 and 2008, we expensed Acquisition-related in-process
research and development charges (IPR&D) of $20 million related to a
2008 acquisition (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 (FASB) Statement of Financial Accounting Standards (SFAS) 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. No acquisitions were consummated in the
first half of 2009.
Our Operating
Environment
General
Economic Conditions
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, affecting products
such as Lipitor, Lyrica, Celebrex, Xalatan and Geodon. Health insurers and
benefit plans continue to impose formulary restrictions in favor of generics. We
believe that patients, experiencing the effects of the weak economy and facing
increases in co-pays, are sometimes switching to generics, delaying treatments
or skipping doses to reduce their costs. And the recession has increased the
number of patients in the Medicaid program, under which sales of pharmaceuticals
are subject to substantial rebates and, in many states, to formulary
restrictions limiting access to brand-name drugs. 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, 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 (see further discussion in the “Financial Condition,
Liquidity and Capital Resources” section of this MD&A).
Industry-Specific
Challenges
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
exclusivity for Camptosar in the U.S. in February 2008 and for Norvasc in the
U.S. in March 2007 and in Japan in July 2008 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 our
significant products, see discussion in the “Revenues – Pharmaceutical –
Selected Product Descriptions” section of this MD&A. Also, 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.
U.S.
Policy Issues
Healthcare
reform in the U.S., if enacted, could have a significant impact on our business.
Although we cannot predict the outcome of pending and possible future U.S.
healthcare reform initiatives, we remain committed and actively engaged in
discussions to reform healthcare in a way that expands coverage for those
currently uninsured, does not erode coverage for those currently insured,
improves quality, rewards innovation and provides value for patients. During the
second quarter of 2009, the Pharmaceutical Research and Manufacturers of America
(PhRMA), of which we are a member, announced an $80 billion commitment over the
next decade to support healthcare reform in the U.S. Among other things, that
commitment includes reducing the cost of medicines for seniors and disabled
Americans who are affected by the coverage gap in the Medicare prescription drug
program. The PhRMA commitment is intended to be part of any federal healthcare
reform legislation in the U.S.
Comprehensive
tax reform in the U.S., if enacted, also could have a significant impact on our
business. Although we cannot predict the outcome of pending and possible future
U.S. tax reform proposals, we remain engaged in discussions with policymakers.
Specifically, if legislation were enacted that ends the deferral of U.S.
taxation of income earned overseas by U.S. companies, it may adversely impact
our ability to compete against other companies in our industry, many of which
are not based in the U.S.
These and
other 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 more
significant business-development transactions during the first six months 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 second quarter of 2008, we acquired Encysive Pharmaceuticals Inc.
(Encysive), a biopharmaceutical company whose main asset is Thelin, which
is used for the treatment of pulmonary arterial hypertension. The cost of
acquiring Encysive, through a tender offer and subsequent merger, was
approximately $200 million, including transaction costs. Upon our
acquisition of Encysive, Encysive's change of control repurchase
obligations under its outstanding $130 million 2.5% convertible notes were
triggered and, as a result, Encysive repurchased the convertible notes in
consideration for their par value plus accrued interest in June 2008. In
addition, in the second quarter of 2008, we acquired Serenex, Inc.
(Serenex), a privately held biotechnology company, whose main asset is
SNX-5422, an oral Heat Shock Protein 90 (Hsp90) for the potential
treatment of solid tumors and hematological malignancies and an extensive
Hsp90 inhibitor compound library, which has potential uses in treating
cancer, inflammatory and neurodegenerative diseases. In connection with
these acquisitions, through second-quarter 2008, we recorded $156 million
in Acquisition-related
in-process research and development charges and approximately $450
million in intangible assets.
|
·
|
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. 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 in the first quarter of 2008. In
the second quarter of 2009, we resolved a contingency associated with CovX
and recognized $20 million in Acquisition-related in-process
research and development
charges.
|
The
following transactions were not completed as of the end of the second quarter of
2009, and our consolidated financial statements as of June 28, 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 certain 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 are 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, in July 2009, pursuant to a
request from us made in accordance with the terms and conditions of the
merger agreement, all of Wyeth’s outstanding $2 convertible preferred
stock that was not previously converted to Wyeth common stock at the
option of the holders of such stock was redeemed by Wyeth. 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. We issued $13.5 billion of senior unsecured notes on
March 24, 2009 and approximately $10.5 billion of senior unsecured notes on June
3, 2009, of which virtually all of the proceeds will be used to partially
finance our pending acquisition of Wyeth (see Notes to Condensed Consolidated
Financial Statements Note
8D. Financial
Instruments: Long-Term Debt). As a result of these issuances, we
terminated the bridge term loan credit agreement in June 2009 that we and
certain financial institutions had entered into in March 2009 in connection with
the transaction. In July 2009, Wyeth’s shareholders approved the acquisition.
Also in July 2009, the European Commission approved the transaction, a decision
that included our commitment to divest certain animal-health assets in the
European Union. The merger remains subject to other governmental and regulatory
approvals 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.
Unless we
have Wyeth’s specific consent, we cannot make acquisitions prior to the
completion of the merger, except for acquisitions for which cash consideration
does not exceed $750 million in the aggregate.
Our Cost-Reduction
Initiatives
During
2008, we completed the cost-reduction 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% from the year-end 2008 level. Reductions span
sales, manufacturing, research and development, and administrative
organizations. In the second quarter of 2009, we reduced our workforce by
approximately 3,750 employees and, in the first six months of 2009, we reduced
our workforce by approximately 5,400 employees. These declines were net of new
employees hired in expanding areas of our business. 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. During the second quarter of 2009, we
incurred costs related to this new cost-reduction initiative of $330 million
and, in the first six months of 2009, we incurred costs related to this new
cost-reduction initiative of $661 million. For additional details on amounts
incurred related to our cost-reduction initiatives, see the “Costs and Expenses
– Cost-Reduction Initiatives” section of this MD&A.
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 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
are 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 through 2011.
We
continue to focus on reduced cycle time and improved compound survival in the
drug discovery and development process. Over the next two years, our goal is to
realize 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 second quarter of 2009, we have reduced
our internal network of plants from 93 in 2003 to 45, 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, offset modestly by increased
investment in certain emerging markets. Between 2004 and the end of the
second quarter of 2009, we reduced our global field force by approximately
20%, with approximately 18% of the total reductions occurring since the
beginning of 2007.
|
REVENUES
Worldwide
revenues by segment and geographic area for the second quarter and first six
months of 2009 and 2008 follow:
|
|
|
|
|
|
|
|
|
|
|
%
Change in Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
World-
|
|
|
|
|
|
Inter-
|
|
|
|
Worldwide
|
|
|
U.S.
|
|
|
International
|
|
|
wide
|
|
|
U.S.
|
|
|
national
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June 28,
|
|
|
June
29,
|
|
|
|
|
|
|
|
|
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
09/08
|
|
|
09/08
|
|
|
09/08
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,063 |
|
|
$ |
11,053 |
|
|
$ |
4,190 |
|
|
$ |
4,372 |
|
|
$ |
5,873 |
|
|
$ |
6,681 |
|
|
|
(9 |
) |
|
|
(4 |
) |
|
|
(12 |
) |
Animal
Health
|
|
|
648 |
|
|
|
715 |
|
|
|
261 |
|
|
|
269 |
|
|
|
387 |
|
|
|
446 |
|
|
|
(9 |
) |
|
|
(3 |
) |
|
|
(13 |
) |
Other
|
|
|
273 |
|
|
|
361 |
|
|
|
73 |
|
|
|
115 |
|
|
|
200 |
|
|
|
246 |
|
|
|
(24 |
) |
|
|
(37 |
) |
|
|
(19 |
) |
Total
Revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
$ |
4,524 |
|
|
$ |
4,756 |
|
|
$ |
6,460 |
(a)
|
|
$ |
7,373 |
(a)
|
|
|
(9 |
) |
|
|
(5 |
) |
|
|
(12 |
) |
Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
20,165 |
|
|
$ |
21,957 |
|
|
$ |
8,899 |
|
|
$ |
9,506 |
|
|
$ |
11,266 |
|
|
$ |
12,451 |
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(10 |
) |
Animal
Health
|
|
|
1,185 |
|
|
|
1,334 |
|
|
|
455 |
|
|
|
509 |
|
|
|
730 |
|
|
|
825 |
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(12 |
) |
Other
|
|
|
501 |
|
|
|
686 |
|
|
|
139 |
|
|
|
245 |
|
|
|
362 |
|
|
|
441 |
|
|
|
(27 |
) |
|
|
(43 |
) |
|
|
(18 |
) |
Total
Revenues
|
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
$ |
9,493 |
|
|
$ |
10,260 |
|
|
$ |
12,358 |
(b) |
|
$ |
13,717 |
(b) |
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(10 |
) |
(a)
|
Includes
revenues from Japan of $1.0 billion (9.1% of total revenues) for the
second quarter of 2009, and $1.0 billion (8.5% of total revenues) for the
second quarter of 2008.
|
(b)
|
Includes
revenues from Japan of $2.0 billion (9.1% of total revenues) for the first
six months of 2009, and $1.8 billion (7.5% of total revenues) for the
first six months of 2008.
|
Worldwide
revenues by segment, and by business unit within the Pharmaceutical segment, for
the second quarter and first six months of 2009 and 2008 follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June 28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June 28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
Pharmaceutical:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary care
|
|
$ |
5,135 |
|
|
$ |
5,487 |
|
|
|
(6 |
)
% |
|
$ |
10,457 |
|
|
$ |
11,275 |
|
|
|
(7 |
)
% |
Specialty care
|
|
|
1,416 |
|
|
|
1,485 |
|
|
|
(5 |
) |
|
|
2,879 |
|
|
|
2,847 |
|
|
|
1 |
|
Oncology
|
|
|
352 |
|
|
|
384 |
|
|
|
(8 |
) |
|
|
702 |
|
|
|
805 |
|
|
|
(13 |
) |
Established
products
|
|
|
1,634 |
|
|
|
2,038 |
|
|
|
(20 |
) |
|
|
3,249 |
|
|
|
3,879 |
|
|
|
(16 |
) |
Emerging
markets
|
|
|
1,526 |
|
|
|
1,659 |
|
|
|
(8 |
) |
|
|
2,878 |
|
|
|
3,151 |
|
|
|
(9 |
) |
Total
Pharmaceutical
|
|
|
10,063 |
|
|
|
11,053 |
|
|
|
(9 |
) |
|
|
20,165 |
|
|
|
21,957 |
|
|
|
(8 |
) |
Animal
Health
|
|
|
648 |
|
|
|
715 |
|
|
|
(9 |
) |
|
|
1,185 |
|
|
|
1,334 |
|
|
|
(11 |
) |
Other
|
|
|
273 |
|
|
|
361 |
|
|
|
(24 |
) |
|
|
501 |
|
|
|
686 |
|
|
|
(27 |
) |
Total
revenues
|
|
$ |
10,984 |
|
|
$ |
12,129 |
|
|
|
(9 |
) |
|
$ |
21,851 |
|
|
$ |
23,977 |
|
|
|
(9 |
) |
Pharmaceutical Business
Revenues
Worldwide
Pharmaceutical revenues decreased 9% for the second quarter of 2009 and 8% for
the first six months of 2009, primarily due to:
·
|
the
strengthening of the U.S. dollar relative to other currencies, primarily
the euro, U.K. pound, Canadian dollar and Australian dollar, which
unfavorably impacted Pharmaceutical revenues by $964 million, or 9%, in
the second quarter of 2009 and $1.5 billion, or 7%, in the first six
months of 2009;
|
·
|
an
operational decrease in worldwide revenues for Lipitor of $27 million in
the second quarter of 2009 and $257 million in the first six months of
2009, primarily resulting from competitive pressures from generics, among
other factors;
|
·
|
an
aggregate decrease in revenues for Zyrtec/Zyrtec D, Camptosar and Norvasc
of $169 million in the second quarter of 2009 and $401 million in the
first six months of 2009, due to the loss of U.S. exclusivity and
cessation of selling of Zyrtec/Zyrtec D in January 2008, the loss of U.S.
exclusivity of Camptosar in February 2008 and the loss of Norvasc
exclusivity in Japan in July 2008;
and
|
·
|
a
decrease in worldwide revenues for Chantix/Champix of $15 million in the
second quarter of 2009 and $115 million in the first six months 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 and
Revatio, and higher alliance
revenue.
|
Geographically,
·
|
in
the U.S., Pharmaceutical revenues decreased 4% in the second quarter of
2009 and 6% in the first six months of 2009, compared to the same periods
of 2008, primarily due to lower sales of Lipitor, Celebrex and Caduet as a
result of continued generic pressures, the effect of the loss of
exclusivity of Norvasc, Zyrtec/Zyrtec D and Camptosar and increased
rebates as a result of the impact of certain contract changes and
increased pricing pressures. These decreases were partially offset by the
solid performance from certain products, including Revatio, Viagra and
Geodon, during the current quarter;
and
|
·
|
in
our international markets, Pharmaceutical revenues decreased 12% in the
second quarter of 2009 and 10% in the first six months of 2009, compared
to the same periods of 2008, primarily due to the unfavorable impact of
foreign exchange on international revenues of $964 million, or 14%, in the
second quarter of 2009 and $1.5 billion, or 12%, in the first six months
of 2009, and lower sales of Norvasc, Champix and Camptosar, partially
offset by operational growth, with higher revenues from certain products,
including Lyrica and Sutent.
|
During
the second quarter of 2009, international Pharmaceutical revenues represented
58.4% of total Pharmaceutical revenues, compared to 60.4% in the second quarter
of 2008. During the first six months of 2009, international Pharmaceutical
revenues represented 55.9% of total Pharmaceutical revenues, compared to 56.7%
in the first six months of 2008.
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. These deductions primarily represent
rebates and discounts to government agencies, wholesalers, distributors and
managed care organizations with respect to our pharmaceutical products. As these
deductions represent estimates of the related obligations, 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 $158 million in
the second quarter of 2009, compared to $65 million in the second quarter of
2008, and by $308 million in the first six months of 2009, compared to $243
million in the first six months of 2008. The increases in rebates under Medicaid
and related state programs were due primarily to increased rates for Lyrica and
a favorable adjustment recorded during the second quarter of 2008 to adjust for
the
estimated impact of the Deficit Reduction Act.
Rebates
under Medicare reduced revenues by $214 million in the second quarter of 2009,
compared to $201 million in the second quarter of 2008, and by $444 million in
the first six months of 2009, compared to $422 million in the first six months
of 2008, due primarily to increased rebates for Celebrex.
Performance-based
contract and other rebates reduced revenues by $549 million in the second
quarter of 2009, compared to $493 million in the second quarter of 2008, and by
$1.2 billion in the first six months of 2009, compared to $1.0 billion in the
first six months of 2008. The increases in performance-based contract and other
rebates were due primarily to the impact of certain contract changes which
resulted in increased rates related to Lipitor. 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 $523 million in the second quarter of 2009,
compared to $438 million in the second quarter of 2008, and by $1.0 billion in
the first six months of 2009, compared to $945 million in the first six months
of 2008. The increases in chargebacks were due primarily to increased sales that
are subject to chargebacks.
Our
accruals for Medicaid and related state programs rebates, Medicare rebates,
performance-based contract and other rebates and chargebacks totaled $1.8
billion as of June 28, 2009, an increase from $1.6 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:
(millions
of dollars)
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
Product+
|
Primary
Indications
|
|
June
28,
2009
|
|
|
%
Change
From
2008
|
|
|
June
28,
2009
|
|
|
%
Change
From
2008
|
|
Cardiovascular
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
metabolic
diseases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lipitor
|
Reduction
of LDL cholesterol
|
|
$ |
2,685 |
|
|
|
(10 |
)
% |
|
$ |
5,406 |
|
|
|
(12 |
)
% |
Norvasc
|
Hypertension
|
|
|
518 |
|
|
|
(17 |
) |
|
|
999 |
|
|
|
(12 |
) |
Chantix/Champix
|
An
aid to smoking cessation
|
|
|
192 |
|
|
|
(7 |
) |
|
|
369 |
|
|
|
(24 |
) |
Caduet
|
Reduction
of LDL cholesterol and hypertension
|
|
|
128 |
|
|
|
(12 |
) |
|
|
262 |
|
|
|
(11 |
) |
Cardura
|
Hypertension/Benign
prostatic hyperplasia
|
|
|
114 |
|
|
|
(14 |
) |
|
|
221 |
|
|
|
(13 |
) |
Revatio
|
Pulmonary
arterial hypertension
|
|
|
94 |
|
|
|
30 |
|
|
|
208 |
|
|
|
42 |
|
Central
nervous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
system
disorders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyrica
|
Epilepsy,
post-herpetic neuralgia and diabetic
peripheral neuropathy,
fibromyalgia
|
|
|
629 |
|
|
|
2 |
|
|
|
1,312 |
|
|
|
10 |
|
Geodon/Zeldox
|
Schizophrenia
and acute manic or mixed episodes
associated with bipolar
disorder
|
|
|
231 |
|
|
|
- |
|
|
|
461 |
|
|
|
(3 |
) |
Zoloft
|
Depression
and certain anxiety disorders
|
|
|
125 |
|
|
|
(18 |
) |
|
|
240 |
|
|
|
(12 |
) |
Aricept(a)
|
Alzheimer’s
disease
|
|
|
108 |
|
|
|
(11 |
) |
|
|
203 |
|
|
|
(10 |
) |
Neurontin
|
Epilepsy
and post-herpetic neuralgia
|
|
|
82 |
|
|
|
(21 |
) |
|
|
160 |
|
|
|
(17 |
) |
Relpax
|
Migraine
headaches
|
|
|
75 |
|
|
|
(7 |
) |
|
|
153 |
|
|
|
(2 |
) |
Xanax/Xanax XR
|
Anxiety/Panic
disorders
|
|
|
74 |
|
|
|
(19 |
) |
|
|
149 |
|
|
|
(16 |
) |
Arthritis
and pain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celebrex
|
Arthritis
pain and inflammation, acute pain
|
|
|
548 |
|
|
|
(7 |
) |
|
|
1,112 |
|
|
|
(7 |
) |
Infectious
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
respiratory
diseases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zyvox
|
Bacterial
infections
|
|
|
257 |
|
|
|
(12 |
) |
|
|
540 |
|
|
|
(2 |
) |
Vfend
|
Fungal
infections
|
|
|
180 |
|
|
|
(4 |
) |
|
|
359 |
|
|
|
- |
|
Zithromax/Zmax
|
Bacterial
infections
|
|
|
100 |
|
|
|
(8 |
) |
|
|
214 |
|
|
|
(7 |
) |
Diflucan
|
Fungal
infections
|
|
|
74 |
|
|
|
(24 |
) |
|
|
151 |
|
|
|
(19 |
) |
Urology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Viagra
|
Erectile
dysfunction
|
|
|
423 |
|
|
|
(9 |
) |
|
|
877 |
|
|
|
(5 |
) |
Detrol/Detrol LA
|
Overactive
bladder
|
|
|
273 |
|
|
|
(6 |
) |
|
|
562 |
|
|
|
(7 |
) |
Oncology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sutent
|
Advanced
and/or metastatic renal cell carcinoma
(mRCC)
and refractory gastrointestinal
stromal
tumors (GIST)
|
|
|
223 |
|
|
|
5 |
|
|
|
425 |
|
|
|
6 |
|
Aromasin
|
Breast
cancer
|
|
|
114 |
|
|
|
(2 |
) |
|
|
224 |
|
|
|
1 |
|
Camptosar
|
Metastatic
colorectal cancer
|
|
|
85 |
|
|
|
(38 |
) |
|
|
194 |
|
|
|
(41 |
) |
Ophthalmology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xalatan/Xalacom
|
Glaucoma
and ocular hypertension
|
|
|
395 |
|
|
|
(9 |
) |
|
|
802 |
|
|
|
(5 |
) |
Endocrine
disorders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genotropin
|
Replacement
of human growth hormone
|
|
|
207 |
|
|
|
(13 |
) |
|
|
404 |
|
|
|
(9 |
) |
All
other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zyrtec/Zyrtec D
|
Allergies
|
|
|
- |
|
|
|
(100 |
) |
|
|
- |
|
|
|
(100 |
) |
Alliance
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aricept, Exforge,
Rebif and Spiriva
|
Alzheimer’s
disease (Aricept), hypertension
(Exforge),
multiple sclerosis (Rebif) and chronic
obstructive
pulmonary disease (Spiriva)
|
|
|
598 |
|
|
|
6 |
|
|
|
1,180 |
|
|
|
12 |
|
+
|
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.
|
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 or a decrease of 10% in the
second quarter of 2009 and $5.4 billion or a decrease of 12% in the first
six months of 2009, compared to the same periods in 2008. These results in
part reflect the negative impact of foreign exchange, which decreased
revenues by $264 million, or 9%, in the second quarter of 2009, and $450
million, or 7%, in the first six months of 2009, compared to the same
periods in 2008. In the U.S., revenues were $1.3 billion or a decrease of
6% in the second quarter of 2009 and $2.8 billion or a decrease of 12% in
the first six months of 2009, compared with the same periods in 2008.
Internationally, Lipitor revenues were $1.4 billion or a decrease of 13%
in the second quarter of 2009 and $2.6 billion or a decrease of 11% in the
first six months of 2009, compared to the same periods in 2008. The
unfavorable impact of foreign exchange more than offset operational growth
of 4% in international markets in both the second quarter and first six
months of 2009, compared to the same periods last
year.
|
The
decrease in Lipitor worldwide revenues in the second quarter and first six
months of 2009 compared to the same periods in 2008 was driven by a combination
of factors, including the following:
|
·
|
primarily,
the unfavorable impact of foreign exchange; as well
as
|
|
·
|
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;
|
|
·
|
operational
growth internationally.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent and
product 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, including
Japan in July 2008. Norvasc worldwide revenues in the second quarter of
2009 decreased by 17% and in the first six months of 2009 decreased by
12%, compared to the same periods 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, has been launched in all major markets. Chantix/Champix has been
prescribed to more than ten million patients globally since its launch.
Chantix/ Champix worldwide revenues decreased 7% in the second quarter of
2009 and 24% in first six months of 2009, compared to the same periods in
2008. Year-to-date prescription trends and revenues for Chantix have
declined compared to last year following the changes to the product’s
label 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.
|
|
|
|
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. |
|
In
July 2009, we further updated the Chantix label to highlight reports of
serious neuropsychiatric events in a boxed warning; updated the warning
about reports of neuropsychiatric symptoms and suicidality; added warnings
about reports of allergic reactions and serious skin reactions; and
updated precautionary information about driving or operating machinery to
include details about reports of accidental injury. The boxed warning
about reports of serious neuropsychiatric events was also added to the
labels of prescription smoking cessation aids produced by other
pharmaceutical companies. These updates will help further enhance
discussions between physicians and patients about the benefits and risks
of Chantix. |
|
|
·
|
Caduet, a single-pill
therapy combining Norvasc and Lipitor, recorded decreases in worldwide
revenues of 12% in the second quarter of 2009 and 11% in the first six
months of 2009, compared to the same periods 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), fibromyalgia, and as adjunctive therapy for adult
patients with partial onset seizures in the U.S., and for neuropathic
pain, adjunctive treatment of epilepsy and general anxiety disorder (GAD)
outside the U.S., recorded increases in worldwide revenues of 2% in the
second quarter of 2009 and 10% in the first six months of 2009, compared
to the same periods in 2008. In the U.S., revenue has been adversely
affected by increased generic
competition.
|
|
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 labels for Lyrica, Neurontin and certain
older epilepsy medications to include this new warning. We are confident
in the efficacy and safety profile of all of our products for their
approved indications.
|
·
|
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. Geodon worldwide
revenues were flat in the second quarter of 2009 and decreased 3% in the
first six months of 2009, compared to the same periods 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 a decrease in worldwide revenues of 7%
in both the second quarter and first six months of 2009, compared to the
same periods in 2008, due to increased generic competition. Celebrex is
supported by continued educational and promotional efforts highlighting
its efficacy and safety profile for appropriate
patients.
|
·
|
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 hospital-acquired 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 makes cross-resistance unlikely. To date, more than
three million patients have been treated worldwide. Zyvox worldwide
revenues decreased 12% in the second quarter of 2009 and 2% in the first
six months of 2009, compared to the same periods in 2008, mainly due to a
decrease in the number of patients treated for pneumonia and to increased
generic competition in the U.S. as well as competition from recently
launched agents in certain high-volume international markets such as the
U.K.
|
·
|
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 9% in the second quarter of 2009 and 5% in the
first six months of 2009, compared to the same periods in 2008. In the
U.S., revenues increased 4% in the second quarter of 2009 and 11% in the
first six months of 2009, compared to the same periods in 2008.
Internationally, Viagra revenues decreased by 18% in both the second
quarter of 2009 and in the first six months of 2009, compared to the same
periods in 2008, due primarily to the unfavorable impact of foreign
exchange.
|
·
|
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
6% in the second quarter of 2009 and 7% in the first six months of 2009,
compared to the same periods 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 stromal 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
worldwide revenues increased 5% in the second quarter of 2009 and 6% in
the first six months of 2009, compared to the same periods in 2008. We
continue to drive total revenue and prescription growth, 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 access and health care coverage. As of June 28, 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 and major European countries in July 2009. 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 decreased 38% in the second quarter
of 2009 and 41% in the first six months of 2009, compared to the same
periods 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.
Xalacom, a fixed
combination prostaglandin (Xalatan) and beta blocker (timolol), is
available outside the U.S. Xalatan/Xalacom worldwide revenues decreased 9%
in the second quarter of 2009 and 5% in the first six months of 2009,
compared to the same periods in 2008, due to the unfavorable impact of
foreign exchange.
|
·
|
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 13% in
the second quarter of 2009 and 9% in the first six months of 2009,
compared to the same periods 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. Vfend
worldwide revenues decreased 4% in the second quarter of 2009 and were
flat in the first six months of 2009, compared to the same periods in
2008, reflecting the unfavorable impact of foreign
exchange.
|
·
|
Revatio, for the
treatment of pulmonary arterial hypertension, recorded an increase in
worldwide revenues of 30% in the second quarter of 2009 and 42% in the
first six months of 2009, compared to the same periods in 2008, primarily
due to the recent FDA approval of enhanced labeling and market trends
toward earlier diagnosis and
treatment.
|
Animal
Health
Our
Animal Health business is one of the largest in the world. Revenues from our
Animal Health business follow:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
products
|
|
$ |
361 |
|
|
$ |
430 |
|
|
|
(16 |
)
% |
|
$ |
685 |
|
|
$ |
815 |
|
|
|
(16 |
)
% |
Companion
animal products
|
|
|
287 |
|
|
|
285 |
|
|
|
1 |
|
|
|
500 |
|
|
|
519 |
|
|
|
(4 |
) |
Total
Animal Health
|
|
$ |
648 |
|
|
$ |
715 |
|
|
|
(9 |
) |
|
$ |
1,185 |
|
|
$ |
1,334 |
|
|
|
(11 |
) |
Animal
Health revenues decreased 9% in the second quarter of 2009, and 11% in the first
six months of 2009, compared to the same periods in 2008, due to the unfavorable
impact of foreign exchange.
Animal
Health year-to-date revenue performance was also negatively impacted by the
following:
·
|
the
global recession, which negatively affected global spending on veterinary
care;
|
·
|
historically
low milk prices, which have hurt the profitability of dairy farmers and
negatively impacted our livestock business;
and
|
·
|
a
planned change in terms with U.S. distributors resulting in an
anticipated, one-time reduction in U.S. distributor inventories in the
first quarter of 2009.
|
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 and give higher priority to the following disease areas:
Alzheimer’s disease, diabetes, inflammation/immunology, oncology, pain and
psychoses (schizophrenia). We will also 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 through 2011. 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.
We remain
on track to achieve the R&D goals that we announced in March 2008. We now
expect to advance 15 new molecular entities and new indications to Phase 3
during the 2008-2009 period; our original target was 15-20 such advancements
during that period. We continue to expect to have a total of 24 to 28 programs
in Phase 3 by the end of 2009 and to make 15 to 20 regulatory submissions during
the 2010-2012 period.
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
|
|
|
|
Lyrica
|
Adjunctive
treatment for generalized anxiety disorder
Generalized
anxiety disorder – Monotherapy
|
July
2009
June
2009
|
|
|
|
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 and sinusitis – Pediatric
filing
|
November
2006
|
|
|
|
Vfend
|
Treatment
of fungal infections – Pediatric filing
|
June
2005
|
|
|
|
Thelin
|
Treatment
of pulmonary arterial hypertension
|
May
2005
|
In June
2009, we resubmitted a data package to the FDA for Lyrica for the treatment of
generalized anxiety disorder (GAD) monotherapy in response to a “not-approvable”
letter issued by the FDA in August 2004.
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).
In June
2009, an FDA advisory committee concluded that Geodon is effective for the
treatment of bipolar disorders in children ages 10 to 17. Eight members of the
committee also concluded that Geodon is acceptably safe for that indication,
with one committee member disagreeing and nine additional committee members
abstaining.
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 out-licensing or sale.
In
September 2008, Boehringer Ingelheim (BI), our alliance partner, received a
“complete response” letter from the FDA for the Spiriva Respimat submission. The
FDA is seeking additional data, and we are coordinating with BI, which is
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 acute otitis media
(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 initiation of an additional pharmacokinetics study in
November 2008.
In June
2008, we completed the acquisition of Encysive Pharmaceuticals Inc. (Encysive),
whose main asset is Thelin. In June 2007, Encysive received a third “approvable”
letter from the FDA for Thelin for the treatment of pulmonary arterial
hypertension (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
|
|
|
|
|
|
Caduet
|
Approval
in Japan for concomitant hypertension and
hypercholesterolemia
|
July
2009
|
|
––
|
|
|
|
|
|
Celebrex
|
Approval
in Japan for treatment of low back pain
|
June
2009
|
|
––
|
|
|
|
|
|
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
|
|
|
|
|
|
Xalacom
|
Application
submitted in Japan for the treatment of glaucoma
|
––
|
|
February
2008
|
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 out-licensing or sale.
In April,
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. On July 23,
2009, the CHMP confirmed the negative opinion for the treatment of fibromyalgia
for Lyrica. As a result, this indication will not be added to the marketing
authorization for Lyrica in the EU. Lyrica remains approved in Europe for the
indications of neuropathic pain, adjunctive treatment of epilepsy and
GAD.
Late-Stage Clinical Trials
for Additional Uses and Dosage Forms for In-Line Products:
Product
|
Indication
|
|
|
Celebrex
|
Acute
gouty arthritis
|
|
|
Eraxis/Vfend
Combination
|
Aspergillosis
fungal infections
|
|
|
Lyrica
|
Epilepsy
monotherapy; post-operative pain; restless legs
syndrome
|
|
|
Macugen
|
Diabetic
macular edema
|
|
|
Revatio
|
Pediatric
pulmonary arterial hypertension
|
|
|
Sutent
|
Breast
cancer; non-small cell lung cancer; prostate cancer; liver
cancer
|
|
|
Zmax/chloroquine
|
Malaria
|
In early
2009, we had four Phase 3 studies evaluating Sutent in advanced breast cancer.
In March 2009, we discontinued a Phase 3 trial of single-agent Sutent versus
Xeloda (capecitabine) for treatment of advanced breast cancer. In June 2009, we
discontinued another Phase 3 trial that compared Sutent plus Taxol (paclitaxel)
to Avastin (bevacizumab) plus Taxol as first-line treatment of advanced breast
cancer. Both studies were discontinued due to futility. We continue to study
Sutent in advanced breast cancer in two other Phase 3 trials, which have
completed enrollment. In June 2009, we discontinued a Phase 3 trial of Sutent
for first-line treatment of metastatic colorectal cancer due to
futility.
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
and Huntington’s disease;
|
·
|
figitumumab
(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).
|
The Phase
3 clinical trial of apixaban for the prevention of stroke in patients with
atrial fibrillation, a potentially significant indication, is event driven. As
such, it is not possible to predict with certainty when the results of this
trial will be available. BMS currently expects to have data from this
trial in mid-2011 and to file for U.S. regulatory approval for this indication
later in 2011 depending on the results of the trial.
Additional
product-related programs are in various stages of discovery and development.
Also, see the 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 23% in the second quarter of 2009, compared to the same period
in 2008, and 26% in the first six months of 2009, compared to the same period in
2008. Revenues decreased 9% in both the second quarter and first six months of
2009, compared to the same periods in 2008. Cost of sales as a percentage of
revenues decreased 2.9 percentage points in the second quarter of 2009, compared
to the same period in 2008, and 3.3 percentage points in the first six months of
2009, 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 $45 million in the second quarter of 2009, compared to $210
million in the second quarter of 2008, and $121 million in the first six
months of 2009, compared to $348 million in the first six months of
2008.
|
Selling, Informational and
Administrative Expenses
Selling,
informational and administrative (SI&A) expenses decreased 13% in the second
quarter of 2009, compared to the same period of 2008, and 15% in the first six
months of 2009, compared to the same period of 2008, which
reflects:
·
|
the
favorable impact of foreign exchange on
expenses;
|
·
|
savings
related to our cost-reduction
initiatives;
|
·
|
the
impact of lower implementation costs associated with our cost-reduction
initiatives of $85 million in the second quarter of 2009, compared to $100
million in the second quarter of 2008, and $131 million in the first six
months of 2009, compared to $175 million in the first six months of 2008;
and
|
·
|
certain
insurance recoveries of $165 million in the first six months of 2009,
related to legal-defense
costs.
|
Research and Development
Expenses
Research
and development (R&D) expenses decreased 14% in the second quarter of 2009,
compared to the same period in 2008, and 9% in the first six months 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 $32 million in the second quarter of 2009, compared to $94
million in the second quarter of 2008, and $73 million in the first six
months of 2009, compared to $240 million in the first six months of
2008;
|
partially
offset by:
·
|
a
$150 million milestone payment to BMS recorded in the first six months 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 $156 million was recorded in the second quarter of 2008,
primarily related to our acquisitions of Encysive and Serenex. 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 SFAS 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. No acquisitions were consummated in the first six months of
2009. In the second quarter of 2009, we resolved a contingency associated with
CovX and recognized $20 million in Acquisition-related in-process
research and development charges.
Cost-Reduction
Initiatives
During
2008, we completed the cost-reduction 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.
The
strengthening of the dollar relative to the euro, U.K. pound, Canadian dollar,
Australian 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 all of our cost-reduction
initiatives, which began in 2005:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
Implementation
costs(a)
|
|
$ |
156 |
|
|
$ |
405 |
|
|
$ |
330 |
|
|
$ |
762 |
|
Restructuring
charges(b)
|
|
|
174 |
|
|
|
562 |
|
|
|
331 |
|
|
|
739 |
|
Total
costs related to our cost-reduction initiatives
|
|
$ |
330 |
|
|
$ |
967 |
|
|
$ |
661 |
|
|
$ |
1,501 |
|
(a)
|
For
the second quarter of 2009, included in Cost of sales
($45 million), Selling, informational and
administrative expenses ($85 million), Research and development
expenses ($32 million), and Other (income)/deductions -
net ($6 million income). For the second quarter of 2008, included
in Cost of sales
($210 million), Selling,
informational and administrative expenses ($100 million), Research and development
expenses ($94 million) and Other (income)/deductions -
net ($1 million). For the first six months of 2009,
included in Cost of
sales ($121 million), Selling, informational and
administrative expenses ($131 million), Research and development
expenses ($73 million), and Other (income)/deductions -
net ($5 million). For the first six months of 2008, included in
Cost of sales
($348 million), Selling, informational and
administrative expenses ($175 million), Research and development
expenses ($240 million) and Other (income)/deductions -
net ($1 million
income).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
Acquisition-Related
Costs
We
incurred the following acquisition-related costs primarily in connection with
our pending acquisition of Wyeth:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
Transaction
costs (a)
|
|
$ |
184 |
|
|
$ |
–– |
|
|
$ |
553 |
|
|
$ |
–– |
|
Pre-integration
costs and other(b)
|
|
|
101 |
|
|
|
7 |
|
|
|
129 |
|
|
|
8 |
|
Total
acquisition-related costs(c)
|
|
$ |
285 |
|
|
$ |
7 |
|
|
$ |
682 |
|
|
$ |
8 |
|
(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 a $22.5 billion bridge term loan
credit agreement entered into with certain financial institutions on March
12, 2009, to
partially fund our pending acquisition of Wyeth. The bridge term loan
credit agreement was terminated in June 2009 as a result of our issuance
of approximately $24.0 billion of senior unsecured notes during the first
six months of 2009. All bridge term loan commitment fees have been
expensed, and we are no longer subject to the covenants under that
agreement. (See Note 8D:
Financial Instruments: Long-Term
Debt).
|
(b)
|
Pre-integration
costs and other in the 2009 periods primarily represent external,
incremental costs of integration planning that are 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
Other
(income)/deductions - net decreased $239 million in the second quarter of 2009
and $515 million in the first six months of 2009, compared to the same periods
in 2008. In the second quarter of 2009 we recorded net interest expense of $66
million, compared to $99 million net interest income in the same period in 2008,
and in the first six months of 2009, we recorded net interest income of $49
million, compared to $302 million net interest income in the same period in
2008. The lower net interest income for the second quarter and first six months
ended June 28, 2009 is primarily due to net interest expense associated with the
$13.5 billion of senior unsecured notes that we issued in March 2009 and the
approximately $10.5 billion of senior unsecured notes that we issued in June
2009 primarily related to the pending acquisition of Wyeth. In addition, lower
interest rates, partially offset by higher cash balances, contributed to the
lower net interest income compared to the prior-year periods.
PROVISION FOR TAXES ON
INCOME
Our
effective tax rate for continuing operations was 25.8% for the second quarter of
2009, compared to 0.9% for the second quarter of 2008, and 27.1% for the first
six months of 2009, compared to 12.4% for the first six months of 2008. The
higher tax rates for the second quarter and first six months of 2009 are
primarily due to the increased tax costs associated with certain business
decisions executed to finance the pending Wyeth acquisition, partially offset by
the change in geographic mix of expenses incurred to execute our cost-reduction
initiatives, as well as the decrease in IPR&D charges, which generally are
not deductible for tax purposes. The lower tax rates in the second quarter and
first six months of 2008 reflect tax benefits of $305 million related to
favorable tax settlements for multiple tax years and $426 million related to the
sale of one of our biopharmaceutical companies, which were both recorded in the
second quarter of 2008.
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, 2009 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, 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; net
interest expense incurred through the consummation date of the pending
acquisition of Wyeth on acquisition-related borrowings made prior to that date;
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
The
reconciliation between Net
income attributable to Pfizer Inc., as reported under U.S. GAAP, and
Adjusted income follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net income attributable to Pfizer Inc.
|
|
$ |
2,261 |
|
|
$ |
2,776 |
|
|
|
(19 |
)
% |
|
$ |
4,990 |
|
|
$ |
5,560 |
|
|
|
(10 |
)
% |
Purchase accounting adjustments -
net of tax
|
|
|
416 |
|
|
|
604 |
|
|
|
(31 |
) |
|
|
770 |
|
|
|
1,538 |
|
|
|
(50 |
) |
Acquisition-related costs - net
of tax
|
|
|
185 |
|
|
|
5 |
|
|
|
* |
|
|
|
437 |
|
|
|
6 |
|
|
|
* |
|
Discontinued operations - net of
tax
|
|
|
(3 |
) |
|
|
(17 |
) |
|
|
82 |
|
|
|
(4 |
) |
|
|
(13 |
) |
|
|
69 |
|
Certain significant items - net of
tax
|
|
|
390 |
|
|
|
330 |
|
|
|
18 |
|
|
|
723 |
|
|
|
706 |
|
|
|
2 |
|
Adjusted
income
|
|
$ |
3,249 |
|
|
$ |
3,698 |
|
|
|
(12 |
) |
|
$ |
6,916 |
|
|
$ |
7,797 |
|
|
|
(11 |
) |
*
|
Calculation
not meaningful.
|
|
Certain
amounts and percentages may reflect rounding
adjustments.
|
Adjusted
income as shown above excludes the following items:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(millions
of dollars)
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization and
other(a)
|
|
$ |
561 |
|
|
$ |
632 |
|
|
$ |
1,107 |
|
|
$ |
1,390 |
|
In-process research and
development charges(b)
|
|
|
20 |
|
|
|
156 |
|
|
|
20 |
|
|
|
554 |
|
Total purchase accounting
adjustments, pre-tax
|
|
|
581 |
|
|
|
788 |
|
|
|
1,127 |
|
|
|
1,944 |
|
Income taxes
|
|
|
(165 |
) |
|
|
(184 |
) |
|
|
(357 |
) |
|
|
(406 |
) |
Total purchase accounting
adjustments - net of tax
|
|
|
416 |
|
|
|
604 |
|
|
|
770 |
|
|
|
1,538 |
|
Acquisition-related
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs(c)
|
|
|
184 |
|
|
|
— |
|
|
|
553 |
|
|
|
— |
|
Pre-integration costs and
other(c)
|
|
|
101 |
|
|
|
7 |
|
|
|
129 |
|
|
|
8 |
|
Total acquisition-related costs,
pre-tax
|
|
|
285 |
|
|
|
7 |
|
|
|
682 |
|
|
|
8 |
|
Income taxes
|
|
|
(100 |
) |
|
|
(2 |
) |
|
|
(245 |
) |
|
|
(2 |
) |
Total acquisition-related costs -
net of tax
|
|
|
185 |
|
|
|
5 |
|
|
|
437 |
|
|
|
6 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations -
net of tax
|
|
|
(3 |
) |
|
|
(17 |
) |
|
|
(4 |
) |
|
|
(13 |
) |
Certain
significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges –
cost-reduction initiatives(c)
|
|
|
174 |
|
|
|
562 |
|
|
|
331 |
|
|
|
739 |
|
Implementation costs –
cost-reduction initiatives(d)
|
|
|
156 |
|
|
|
405 |
|
|
|
330 |
|
|
|
762 |
|
Certain legal matters(e)
|
|
|
(2 |
) |
|
|
— |
|
|
|
130 |
|
|
|
— |
|
Net interest expense – pending
Wyeth acquisition(f)
|
|
|
206 |
|
|
|
— |
|
|
|
229 |
|
|
|
— |
|
Other
|
|
|
76 |
|
|
|
77 |
|
|
|
63 |
|
|
|
84 |
|
Total certain significant items,
pre-tax
|
|
|
610 |
|
|
|
1,044 |
|
|
|
1,083 |
|
|
|
1,585 |
|
Income taxes
|
|
|
(220 |
) |
|
|
(714 |
) |
|
|
(360 |
) |
|
|
(879 |
) |
Total certain significant items -
net of tax
|
|
|
390 |
|
|
|
330 |
|
|
|
723 |
|
|
|
706 |
|
Total
purchase accounting adjustments, acquisition-related
costs, discontinued operations and
certain significant
items - net of tax
|
|
$ |
988 |
|
|
$ |
922 |
|
|
$ |
1,926 |
|
|
$ |
2,237 |
|
(a)
|
Included
primarily in Amortization of intangible
assets.
|
(b)
|
In
the second quarter of 2009, we recorded $20 million of Acquisition-related in-process
research and development charges (IPR&D) due to the resolution
of a contingency associated with our 2008 acquisition of CovX. In the
second quarter of 2008, we expensed $156 million of IPR&D, primarily
related to our acquisitions of Serenex, Inc. and Encysive Pharmaceuticals,
Inc. In the first quarter 2008 we expensed $398 million of IPR&D,
primarily related to our acquisitions of CovX and Coley Pharmaceutical
Group, Inc. and two smaller acquisitions related to Animal Health. As a
result of adopting SFAS 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. No acquisitions were consummated in
the first or second quarters of
2009.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
(d)
|
For
the second quarter of 2009, included in Cost of sales ($45
million), Selling,
informational and administrative expenses ($85 million), Research and development
expenses ($32 million) and Other (income)/deductions -
net ($6 million income). For the first six months of 2009, included
in Cost of sales
($121 million), Selling
informational and administrative expenses ($131 million), Research and development
expenses ($73 million) and Other (income)/ deductions –
net ($5 million). For the second quarter of 2008, included in Cost of sales ($210
million), Selling,
informational and administrative expenses ($100 million), Research and development
expenses ($94 million) and Other (income)/ deductions -
net ($1 million). For the first six months of 2008,
included in Cost of
Sales ($348 million), Selling Informational and
administrative expenses ($175 million), Research and development
expenses ($240 million) and Other (income)/deductions –
net ($1 million
income).
|
(e)
|
Included
in Other
(income)/deductions -
net.
|
(f)
|
Included
in Other
(income)/deductions - net. Includes interest expense on the senior
unsecured notes issued in connection with our pending acquisition of Wyeth
less interest income earned on the proceeds of those
notes.
|
FINANCIAL CONDITION,
LIQUIDITY AND CAPITAL RESOURCES
Net Financial Assets, as
shown below
(millions
of dollars)
|
|
June
28,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
2,244 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
47,403 |
|
|
|
21,609 |
|
Short-term loans
|
|
|
935 |
|
|
|
824 |
|
Long-term investments and
loans
|
|
|
12,576 |
|
|
|
11,478 |
|
Total
select financial assets
|
|
|
63,158 |
|
|
|
36,033 |
|
Debt:
|
|
|
|
|
|
|
|
|
Short-term borrowings, including
current portion of long-term debt
|
|
|
7,645 |
|
|
|
9,320 |
|
Long-term debt
|
|
|
31,864 |
|
|
|
7,963 |
|
Total
debt
|
|
|
39,509 |
|
|
|
17,283 |
|
Net financial
assets
|
|
$ |
23,649 |
|
|
$ |
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 overall increase in Net financial assets, as
shown above, reflects cash flows from operating activities partially offset by
dividend payments. The significant changes in the components of Net financial
assets, as shown above, are as follows:
·
|
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 issued $13.5 billion of senior unsecured notes on March 24,
2009 and approximately $10.5 billion of senior unsecured notes on June 3,
2009, of which virtually all of the proceeds will be used to partially
finance our pending acquisition of Wyeth. The note proceeds were generally
invested in short-term available-for-sale investments. Our long-term debt
increased in the first six months of 2009 primarily as a result of the
issuances of these senior unsecured
notes.
|
·
|
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 six months 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) and
Standard & 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).
Following
our issuances of senior unsecured notes in March and June 2009 to partially
finance the pending acquisition of Wyeth, we terminated the bridge term loan
credit agreement that we had entered into with certain financial institutions in
March 2009 in connection with the Wyeth transaction. As the result of the
termination of that agreement, we no longer are subject to the financial
covenants that were included therein, including the requirement that we maintain
specified minimum credit ratings.
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 June 28, 2009, we had access to $8.3 billion of
lines of credit, of which $6.1 billion expire within one year. Of these lines of
credit, $8.1 billion are unused, of which our lenders have committed to loan us
$7.0 billion at our request. Unused lines of credit of $7.0 billion, 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 order to partially
finance our pending acquisition of Wyeth, we issued $13.5 billion of senior
unsecured notes under this registration statement.
On June
3, 2009, also in order to partially finance the pending Wyeth acquisition, we
issued approximately $10.5 billion of senior unsecured notes in a private
placement pursuant to Regulation S under the Securities Act of 1933, as amended.
The notes were offered overseas and may not be sold in the United States. As a
result of the issuances of the senior unsecured notes during the first six
months of 2009, the $22.5 billion bridge term loan credit agreement, which we
entered into on March 12, 2009, to partially fund our pending acquisition of
Wyeth, was terminated.
For
additional information related to our long-term debt, see Notes to Condensed
Consolidated Financial Statements - Note 8D. Financial Instruments:
Long-Term Debt.
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
June 28, 2009, Goodwill
totaled $21.8 billion (16% of our total assets) and Identifiable intangible assets, less
accumulated amortization, totaled $16.6 billion (12% of our total
assets). As of June 28, 2009, finite-lived intangible assets, net, include $12.7
billion related to developed technology rights and $511 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 second quarter and first six months of 2009 or
2008. None of our goodwill is impaired as of June 28, 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)
|
|
June
28,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and short-term investments and loans
|
|
$ |
50,582 |
|
|
$ |
24,555 |
|
|
|
|
|
|
|
|
|
|
Working
capital(a)
|
|
$ |
45,441 |
|
|
$ |
16,067 |
|
|
|
|
|
|
|
|
|
|
Ratio
of current assets to current liabilities
|
|
2.74:1
|
|
|
1.59:1
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity per common share(b)
|
|
$ |
9.36 |
|
|
$ |
8.56 |
|
(a)
|
Working
capital includes Assets held for
sale of $219 million as of June 28, 2009, and $148 million as of
December 31, 2008.
|
(b)
|
Represents
total Pfizer Inc. 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
June 28, 2009, compared to December 31, 2008, were primarily due to the
investment of the proceeds from our issuance of $13.5 billion of senior
unsecured notes in the first quarter of 2009 and our issuance of approximately
$10.5 billion of senior unsecured notes in the second quarter of 2009, primarily
in anticipation of our acquisition of Wyeth, as well as the timing of accruals,
cash receipts and payments in the ordinary course of business. The increase in
accounts receivable, less allowance for doubtful accounts, reflects an increase
in alliance-related receivables, as a result of higher associated revenues, an
increase in certain government receivables and an increase due to foreign
currency impacts; no collectibility issues have been identified.
Net Cash Provided by
Operating Activities
During
the first six months of 2009, net cash provided by operating activities was $7.7
billion, compared to $8.3 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.
The cash
flows statement line item Other non-cash adjustments
reflects approximately $400 million of asset write-downs in the first six months
of 2008, mainly associated with Assets held for
sale.
Net Cash Used in Investing
Activities
During
the first six months of 2009, net cash used in investing activities was $26.6
billion, compared to $8.9 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 $26.4 billion in the first six months of 2009,
primarily reflecting the investment of proceeds from our issuance of $13.5
billion of senior unsecured notes in the first quarter of 2009 and the proceeds
from our issuance of approximately $10.5 billion of senior unsecured notes in
the second quarter of 2009, compared to $6.9 billion in the same period in
2008.
Net Cash Provided by/(Used
in) Financing Activities
During
the first six months of 2009, net cash provided by financing activities was
$19.0 billion, compared to net cash used of $1.9 billion in the same period in
2008. The increase in net cash provided by financing activities was primarily
attributable to:
·
|
net
borrowings of $22.3 billion in the first six months of 2009, primarily
reflecting the proceeds from our issuance of $13.5 billion of senior
unsecured notes in the first quarter of 2009 and our issuance of
approximately $10.5 billion of senior unsecured notes in the second
quarter of 2009, compared to $2.8 billion in the same period in
2008;
|
·
|
lower
dividend payments in 2009;
and
|
·
|
no
open market purchases of common stock in
2009.
|
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 without
Wyeth’s consent prior to the completion of the transaction.
CONTRACTUAL
OBLIGATIONS
During
the first six months of 2009, we issued approximately $24.0 billion in senior
unsecured notes. Virtually all of the proceeds of the notes will be used to
partially finance our pending acquisition of Wyeth. The table below presents our
long-term debt obligations by fiscal year as of June 28, 2009. There were no
other significant changes to our contractual obligations as reported in our Form
10-K for the year ended December 31, 2008.
(millions
of dollars)
|
|
Total
|
|
|
Through
2010
|
|
|
2011
to 2012
|
|
|
2013
to 2014
|
|
|
After
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and associated interest (a)
|
|
$ |
49,226 |
|
|
$ |
2,123 |
|
|
$ |
8,708 |
|
|
$ |
5,697 |
|
|
$ |
32,698 |
|
(a)
|
Our
long-term debt obligations include both our expected principal and
interest obligations. Our calculation of expected interest payments
incorporates only current-period assumptions for interest rates, foreign
currency translation rates and hedging strategies. (See Notes to
Consolidated Financial Statements—Note 8D. Financial
Instruments: Long-Term Debt). Long-term debt consists of senior,
fixed-rate and floating-rate, unsecured notes, foreign currency
denominated notes, and other borrowings and
mortgages.
|
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 June 28,
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
January 2009, in connection with the pending acquisition of 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 June
2009, the Board of Directors declared a third-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.
NEW ACCOUNTING
STANDARDS
Recently Adopted Accounting
Standards
See Notes
to Condensed Consolidated Financial Statements - Note 2. Adoption of New Accounting
Policies.
Recently Issued Accounting
Standards, Not Adopted as of June 28, 2009
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140. SFAS 166 amends
the recognition and measurement guidance for the transfers of financial assets.
The provisions of this Statement will be adopted January 1, 2010. We do not
expect the adoption of the provisions of SFAS 166 to have a significant impact
on our consolidated financial statements.
In June
2009, the FASB issued SFAS No, 167, Amendments to FASB Interpretation
No. 46(R), Consolidation of Variable Interest Entities. SFAS 167 amends
the guidelines for determining the existence of a variable interest entity and
the related primary beneficiary. The provisions of this Statement will be
adopted January 1, 2010. We do not expect the adoption of the provisions of SFAS
167 to have a significant impact on our consolidated financial
statements.
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.
On July
22, 2009, at current exchange rates, we narrowed our guidance for 2009 revenues
to a range of $45.0 billion to $46.0 billion from $44.0 billion to $46.0
billion, and we increased our guidance for 2009 Adjusted diluted earnings per
common share (EPS) to a range of $1.90 to $2.00 from $1.85 to $1.95. We also
increased our guidance for 2009 reported diluted EPS attributable to Pfizer Inc.
common shareholders to a range of $1.30 to $1.45 from $1.20 to $1.35, primarily
due to lower than anticipated costs to be incurred in 2009 in connection with
our cost-reduction initiatives.
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 $2 billion net decrease by the end of 2011 compared to our 2008
adjusted total costs. For an understanding of Adjusted income, see the “Adjusted
income” section of this MD&A.
As
referenced in this section, “current exchange rates” is defined as rates
approximating foreign currency spot rates in July 2009.
Given
these and other factors, a reconciliation, at current exchange rates and
reflecting management’s current assessment, of 2009 Adjusted income and Adjusted
diluted EPS guidance to 2009 reported Net income attributable to Pfizer Inc. and
reported diluted EPS attributable to Pfizer Inc. common shareholders guidance,
follows:
|
|
Previous
Full-Year 2009
Guidance
|
|
|
Revised
Full-Year 2009
Guidance
|
|
($
billions, except per share amounts)
|
|
Net Income(a)
|
|
|
Diluted EPS(a)
|
|
|
Net Income(a)
|
|
|
Diluted EPS(a)
|
|
Adjusted
income/diluted EPS(b)
guidance
|
|
~$12.5-$13.2
|
|
|
~$1.85-$1.95
|
|
|
~$12.8-$13.5
|
|
|
~$1.90-$2.00
|
|
Purchase
accounting impacts of business- development
transactions completed as of 12/31/08
|
|
|
(1.5)
|
|
|
|
(0.23)
|
|
|
|
(1.5)
|
|
|
|
(0.23)
|
|
Costs
related to cost-reduction initiatives |
|
|
(1.3-1.6)
|
|
|
|
(0.20-0.23)
|
|
|
|
(0.9-1.2)
|
|
|
|
(0.14-0.17)
|
|
Wyeth
acquisition-related costs
|
|
|
(1.1-1.2)
|
|
|
|
(0.16-0.18)
|
|
|
|
(1.1-1.2)
|
|
|
|
(0.16-0.18)
|
|
Certain
legal matters
|
|
|
(.1)
|
|
|
|
(0.01)
|
|
|
|
(.1)
|
|
|
|
(0.01)
|
|
Other,
net
|
|
|
––
|
|
|
|
––
|
|
|
|
(.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
|
|
|
~$8.7-$9.8
|
|
|
~$1.30-$1.45
|
|
(a)
|
Does
not assume the completion of any business-development transactions not
completed as of June 28, 2009, and excludes the potential effects of
litigation-related matters not substantially resolved as of June 28, 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 does 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 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, including legislation or regulatory
action that may result from pending and possible future healthcare reform
proposals, 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 and changes affecting the taxation by the U.S. of income
earned outside of the U.S. that may result from pending and possible
future proposals;
|
·
|
Changes
in U.S. generally accepted accounting
principles;
|
·
|
Uncertainties
related to general economic, political, business, industry, regulatory and
market conditions including, without limitation, uncertainties related to
the impact on us, our lenders, our customers, our suppliers and
counterparties to our foreign-exchange and interest-rate agreements of 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.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
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.
Item 4.
Controls and Procedures
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.
Item 1.
Legal Proceedings
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; and Part II, Item 1, of
our Quarterly Report on Form 10-Q for the quarter ended March 29, 2009. The
following discussion is limited to certain recent developments concerning our
legal proceedings and should be read in conjunction with those earlier Reports.
Unless otherwise indicated, all proceedings discussed in those earlier Reports
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)
In May
2009, Matrix Laboratories Limited (Matrix), a subsidiary of Mylan Inc. (Mylan),
notified us that it had filed an abbreviated new drug application with the FDA
seeking approval to market a generic version of Lipitor. Matrix
asserts the non-infringement of our patent covering the crystalline form of
atorvastatin, which (including the six-month pediatric exclusivity period)
expires in 2017, and the non-infringement of two formulation patents. Matrix is
not challenging our basic patent, which (including the six-month pediatric
exclusivity period) expires in March 2010, or our enantiomer patent, which
(including the six-month pediatric exclusivity period) expires in June 2011. In
June 2009, we filed actions against Matrix, Mylan and another Mylan subsidiary
in the U.S. District Court for the District of Delaware and the U.S. District
Court for the Northern District of West Virginia asserting the infringement of
the crystalline patent and two process patents that expire in 2016.
In July
2009, Genpharm Inc. (Genpharm) served notice of a regulatory submission with
Health Canada that seeks approval to market a generic version of Lipitor in
Canada and includes challenges to our Lipitor patents in that country. Genpharm
asserts the invalidity of our enantiomer patent, which expires in 2010 in
Canada, and the non-infringement and/or invalidity of certain other
later-expiring Lipitor patents. We will file an action in the Canadian Federal
Court in Toronto asserting the validity and infringement of our patents and
seeking to prevent approval of Genpharm's proposed generic product.
Norvasc
(amlodipine)
As
previously reported, certain generic manufacturers are seeking to market generic
amlodipine products in Canada and are challenging our Norvasc patents in that
country, including our amlodipine besylate patent. In July 2009, in a case
brought by generic manufacturer Ratiopharm, the Canadian Federal Court in
Toronto declared our amlodipine besylate patent invalid and, as a result, Health
Canada granted marketing approval for several generic manufacturers’ amlodipine
besylate products. We have appealed the decision to the Federal Court of Appeal
of Canada. Other challenges by generic manufacturers to our Norvasc patents in
Canada remain outstanding.
Product
Litigation
Trovan
As
previously reported, in 2007, the Attorney General of the State of Kano,
Nigeria, filed civil and criminal actions in the High Court of Kano State
against Pfizer, one of our Nigerian subsidiaries and several current and former
employees in connection with a 1996 pediatric clinical study of Trovan that was
conducted during a severe meningitis epidemic in Kano. On July 30, 2009, the
parties entered into a settlement agreement pursuant to which Kano State agreed
to dismiss the civil and criminal actions and Pfizer agreed to (i) establish a
healthcare/meningitis fund from which participants in the 1996 study can receive
financial support in an aggregate amount up to $35 million; (ii) fund, in the
amount of $30 million within a two-year period, various healthcare initiatives
chosen by the Kano State government for the benefit of the people of Kano State;
and (iii) reimburse Kano State for $10 million in legal costs incurred in
connection with the litigation. Pfizer denies any wrongdoing or liability in
connection with the study and believes that it was conducted with proper
government authorization and with the informed consent of the parents or
guardians of the participants and was consistent with Nigerian
laws.
The
previously reported civil and criminal actions in federal court in Nigeria and
civil actions in the U.S. relating to the 1996 Trovan pediatric clinical study
remain outstanding.
Neurontin
As
previously reported, in August 2007, the U.S. District Court for the District of
Massachusetts, overseeing a Multi-District Litigation involving alleged claims
arising from the promotion and sale of Neurontin, denied without prejudice the
plaintiffs’ motion to certify a nationwide class of all consumers and
third-party payers who allegedly purchased or reimbursed patients for the
purchase of Neurontin for “off-label” uses from 1994 through 2004. In December
2007, the plaintiffs filed a renewed motion for class certification. In May
2009, the court denied the plaintiffs’ renewed motion for class certification.
Plaintiffs have filed a motion for reconsideration.
Lipitor
As
previously reported, in 2004, a former employee filed a “whistleblower” action
against us in the U.S. District Court for the Eastern District of New York
alleging claims primarily related to the promotion of Lipitor. In May 2009, the
court dismissed without prejudice the claims alleging violations of the Federal
Civil False Claims Act and the false claims acts of various states. Plaintiff’s
claim for compensation as a whistleblower and his wrongful termination claims
remain.
Commercial
and Other Matters
Merger
Agreement Between Pfizer and Wyeth
As
previously reported, beginning in late January 2009, several purported class
action complaints were filed by Wyeth shareholders challenging Wyeth’s proposed
merger with Pfizer. The actions were filed in federal court in New Jersey (the
Federal Action) and in state courts in New Jersey and Delaware.
Subsequently, the actions filed in state court in New Jersey were consolidated
(the New Jersey Action), and the actions filed in state court in Delaware were
consolidated (the Delaware Action). The complaints in all of the actions name as
defendants the members of Wyeth’s board of directors and Wyeth. The complaints
in the Federal Action and the Delaware Action also name Pfizer as a
defendant. The plaintiffs allege that (i) each of the members of Wyeth’s
board of directors breached his or her fiduciary duties to Wyeth and its
shareholders by authorizing the sale of Wyeth to Pfizer for what plaintiffs deem
“inadequate” consideration; (ii) Wyeth directly breached and/or aided and
abetted the other defendants’ alleged breaches of fiduciary duties; and (iii) in
the actions in which Pfizer is a defendant, that Pfizer aided and abetted the
alleged breaches of fiduciary duties by Wyeth and its directors. The
plaintiffs sought, among other things, to enjoin the defendants from
consummating the merger on the agreed-upon terms.
On June
10, 2009, Wyeth, Wyeth’s directors and Pfizer entered into a memorandum of
understanding with the plaintiffs in the Delaware Action reflecting an agreement
in principle to settle the Delaware Action based on their agreement to include
in the Pfizer/Wyeth registration statement/proxy statement on Form S-4 certain
additional disclosures relating to the transaction. Wyeth, Wyeth’s directors and
Pfizer each have denied that they have committed or aided and abetted in the
commission of any violation of law or engaged in any of the wrongful acts
alleged in the Delaware Action, and expressly maintain that they diligently and
scrupulously complied with their fiduciary and other legal duties.
If the
settlement is consummated, the Delaware Action will be dismissed with prejudice,
and the defendants will receive – from or on behalf of all persons who were
Wyeth shareholders at any time between the announcement of the merger agreement
on January 26, 2009 and the closing of the merger – a release of all claims
related to the merger, including the claims asserted in the Federal Action and
the New Jersey Action. Members of the purported plaintiff class will be
sent notice of the proposed settlement, and a hearing before the Delaware Court
of Chancery will be scheduled regarding approval of the proposed
settlement.
Pharmacia
Cash Balance Pension Plan
As
previously reported, in 2006, several current and former employees of Pharmacia
Corporation filed a purported class action in the U.S. District Court for the
Southern District of Illinois against the Pharmacia Cash Balance Pension Plan
(the Plan), Pharmacia Corporation, Pharmacia & Upjohn Company and Pfizer
Inc. alleging that the Plan violates the age discrimination provisions of the
Employee Retirement Income Security Act of 1974. In June 2009, the court granted
our motion for summary judgment and dismissed the claims against the Plan,
Pfizer Inc. and the two Pfizer subsidiaries.
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 alleging 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 March 2009, the
court awarded prejudgment interest but declined to award punitive damages. On
July 30, 2009, the court granted our motion for a new trial and vacated the jury
verdict.
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.
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
factors:
·
|
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.
Reference
is made to the discussion above in Part II – Other Information; Item 1.
Legal Proceedings, of
this Form 10-Q, regarding an agreement in principle to settle the actions
pending in state court in Delaware, which settlement would include a release of
all claims related to the merger, including the claims asserted in the actions
challenging the merger that are pending in other
jurisdictions.
·
|
Healthcare
and tax reform proposals in the
U.S.
|
As
discussed in Part I, Item 1A, of our 2008 Form 10-K, U.S. and foreign
governmental regulations mandating price controls and limitations on patient
access to our products impact our business, and our future results could be
adversely affected by changes in such regulations. In that connection,
legislation or regulatory action that may result from pending and possible
future healthcare reform proposals in the U.S. could have a significant adverse
effect on our business.
Also as
discussed in Part I, Item 1A, of our 2008 Form 10-K, our future results could be
adversely affected by changes in taxation requirements in the U.S. and other
countries. In that connection, changes affecting the taxation by the U.S. of
income earned outside the U.S. that may result from pending and possible future
proposals could have a significant adverse effect on our
business.
This
table provides certain information with respect to our purchases of shares of
Pfizer’s common stock during the fiscal second 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)
|
|
March
30, 2009, through
April
30, 2009
|
|
|
207,054 |
|
|
|
$12.41 |
|
|
|
— |
|
|
|
$5,033,723,295 |
|
May
1, 2009, through
May
31, 2009
|
|
|
99,489 |
|
|
|
$13.71 |
|
|
|
— |
|
|
|
$5,033,723,295 |
|
June
1, 2008, through
June
28, 2009
|
|
|
66,563 |
|
|
|
$14.61 |
|
|
|
— |
|
|
|
$5,033,723,295 |
|
Total
|
|
|
373,106 |
|
|
|
$13.15 |
|
|
|
— |
|
|
|
|
|
(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 without Wyeth’s consent prior
to the completion of the
transaction.
|
(b)
|
These
columns reflect the following transactions during the fiscal second
quarter of 2009: (i) the surrender to Pfizer of 199,562 shares of common
stock to satisfy tax withholding obligations in connection with the
vesting of restricted stock and restricted stock units issued to
employees, (ii) the surrender to Pfizer of 40,074 shares of common stock
to satisfy tax withholding obligations in connection with the vesting of
performance-contingent share awards issued to employees, and (iii) the
open-market purchase by the trustee of 133,470 shares of common stock in
connection with the reinvestment of dividends paid on common stock held in
trust for employees who were granted performance-contingent share awards
and who deferred receipt of such
awards.
|
Reference
is made to Part II – Other
Information; Item 4. Submission of Matters to a Vote of
Security Holders in the Company’s Form 10-Q for the fiscal quarter ended
March 29, 2009.
None
|
1)
Exhibit 4.1
|
-
|
First
Supplemental Indenture, dated as of March 24, 2009, between the Company
and
The
Bank of New York Mellon, as Trustee, to Indenture dated as of January 30,
2001
|
|
|
|
|
|
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
|
|
|
|
|
8)
Exhibit 101:
|
|
|
EX-101.INS
EX-101.SCH
EX-101.CAL
EX-101.LAB
EX-101.PRE
EX-101.DEF
|
XBRL
Instance Document
XBRL
Taxonomy Extension Schema
XBRL
Taxonomy Extension Calculation Linkbase
XBRL
Taxonomy Extension Label Linkbase
XBRL
Taxonomy Extension Presentation Linkbase
XBRL
Taxonomy Extension Definition
Document
|
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: August
6, 2009
|
/s/
Loretta V. Cangialosi
|
|
|
|
Loretta
V. Cangialosi, Senior Vice President and
Controller
(Principal
Accounting Officer and
Duly
Authorized Officer)
|