a6090863.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 September 27, 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)
733-2323
(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
___
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
___
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large
Accelerated filer
X Accelerated
filer ___ Non-accelerated
filer ___
Smaller reporting company ___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES ___
NO X
At
November 2, 2009, 8,069,536,059 shares of the issuer’s voting common stock were
outstanding.
FORM
10-Q
For
the Quarter Ended
September
27, 2009
Table
of Contents
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Page
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3
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4
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5
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6
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25
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26
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57
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57
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58
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61
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61
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62
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62
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62
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62
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63
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions,
except per common share data)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
11,621 |
|
|
$ |
11,973 |
|
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(a)
|
|
|
1,789 |
|
|
|
2,122 |
|
|
|
4,953 |
|
|
|
6,397 |
|
Selling, informational and
administrative expenses(a)
|
|
|
3,282 |
|
|
|
3,523 |
|
|
|
9,508 |
|
|
|
10,878 |
|
Research and development
expenses(a)
|
|
|
1,632 |
|
|
|
1,885 |
|
|
|
5,032 |
|
|
|
5,642 |
|
Amortization of intangible
assets
|
|
|
594 |
|
|
|
621 |
|
|
|
1,755 |
|
|
|
2,063 |
|
Acquisition-related in-process
research and development charges
|
|
|
–– |
|
|
|
13 |
|
|
|
20 |
|
|
|
567 |
|
Restructuring charges and
acquisition-related costs
|
|
|
193 |
|
|
|
366 |
|
|
|
1,206 |
|
|
|
1,113 |
|
Other (income)/deductions –
net
|
|
|
160 |
|
|
|
721 |
|
|
|
175 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,971 |
|
|
|
2,722 |
|
|
|
10,823 |
|
|
|
9,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
1,092 |
|
|
|
463 |
|
|
|
2,952 |
|
|
|
1,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,879 |
|
|
|
2,259 |
|
|
|
7,871 |
|
|
|
7,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - net of tax
|
|
|
2 |
|
|
|
25 |
|
|
|
6 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,881 |
|
|
|
2,284 |
|
|
|
7,877 |
|
|
|
7,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
income attributable to noncontrolling interests
|
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Pfizer Inc.
|
|
$ |
2,878 |
|
|
$ |
2,278 |
|
|
$ |
7,868 |
|
|
$ |
7,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer
Inc.
common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
$ |
1.17 |
|
|
$ |
1.16 |
|
Discontinued
operations - net of tax
|
|
|
–– |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
income attributable to Pfizer Inc. common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
$ |
1.17 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer
Inc.
common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.33 |
|
|
$ |
1.16 |
|
|
$ |
1.16 |
|
Discontinued operations - net of
tax
|
|
|
–– |
|
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
$ |
1.16 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares used to calculate earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,730 |
|
|
|
6,718 |
|
|
|
6,727 |
|
|
|
6,730 |
|
Diluted
|
|
|
6,762 |
|
|
|
6,736 |
|
|
|
6,758 |
|
|
|
6,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
$ |
0.64 |
|
|
$ |
0.96 |
|
|
(a)
Exclusive of amortization of intangible assets, except as disclosed in
Note 10B. Goodwill and
Other Intangible Assets:Other Intangible
Assets.
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(millions
of dollars)
|
|
Sept.
27,
2009*
|
|
|
Dec.
31,
2008**
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,234 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
48,239 |
|
|
|
21,609 |
|
Accounts
receivable, less allowance for doubtful accounts.
|
|
|
10,552 |
|
|
|
8,958 |
|
Short-term
loans
|
|
|
791 |
|
|
|
824 |
|
Inventories
|
|
|
5,058 |
|
|
|
4,381 |
|
Taxes
and other current assets
|
|
|
4,679 |
|
|
|
5,034 |
|
Assets
held for sale
|
|
|
231 |
|
|
|
148 |
|
Total current
assets
|
|
|
73,784 |
|
|
|
43,076 |
|
Long-term
investments and loans
|
|
|
12,166 |
|
|
|
11,478 |
|
Property,
plant and equipment, less accumulated depreciation
|
|
|
13,173 |
|
|
|
13,287 |
|
Goodwill
|
|
|
21,796 |
|
|
|
21,464 |
|
Identifiable
intangible assets, less accumulated amortization
|
|
|
16,125 |
|
|
|
17,721 |
|
Deferred
taxes and other non-current assets
|
|
|
4,250 |
|
|
|
4,122 |
|
Total
assets
|
|
$ |
141,294 |
|
|
$ |
111,148 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Short-term
borrowings, including current portion of long-term debt
|
|
$ |
6,954 |
|
|
$ |
9,320 |
|
Accounts
payable
|
|
|
2,481 |
|
|
|
1,751 |
|
Dividends
payable
|
|
|
1 |
|
|
|
2,159 |
|
Income
taxes payable
|
|
|
485 |
|
|
|
656 |
|
Accrued
compensation and related items
|
|
|
1,678 |
|
|
|
1,667 |
|
Deferred
taxes
|
|
|
1,816 |
|
|
|
414 |
|
Other
current liabilities
|
|
|
10,577 |
|
|
|
11,042 |
|
Total current
liabilities
|
|
|
23,992 |
|
|
|
27,009 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
32,402 |
|
|
|
7,963 |
|
Pension
benefit obligations
|
|
|
4,647 |
|
|
|
4,235 |
|
Postretirement
benefit obligations
|
|
|
1,605 |
|
|
|
1,604 |
|
Deferred
taxes
|
|
|
2,419 |
|
|
|
2,959 |
|
Other
taxes payable
|
|
|
6,843 |
|
|
|
6,568 |
|
Other
non-current liabilities
|
|
|
3,136 |
|
|
|
3,070 |
|
Total liabilities
|
|
|
75,044 |
|
|
|
53,408 |
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
64 |
|
|
|
73 |
|
Common
stock
|
|
|
443 |
|
|
|
443 |
|
Additional
paid-in capital
|
|
|
70,373 |
|
|
|
70,283 |
|
Employee
benefit trust, at fair value
|
|
|
(298 |
) |
|
|
(425 |
) |
Treasury
stock
|
|
|
(57,364 |
) |
|
|
(57,391 |
) |
Retained
earnings
|
|
|
54,835 |
|
|
|
49,142 |
|
Accumulated
other comprehensive expense
|
|
|
(1,896 |
) |
|
|
(4,569 |
) |
Total Pfizer Inc. shareholders’
equity
|
|
|
66,157 |
|
|
|
57,556 |
|
Equity
attributable to noncontrolling interests
|
|
|
93 |
|
|
|
184 |
|
Total shareholders’
equity
|
|
|
66,250 |
|
|
|
57,740 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
141,294 |
|
|
$ |
111,148 |
|
* Unaudited.
** Condensed
from audited financial statements.
See
accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
$ |
7,877 |
|
|
$ |
7,856 |
|
Adjustments
to reconcile net income before noncontrolling interests to net
cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,983 |
|
|
|
3,912 |
|
Share-based
compensation expense
|
|
|
258 |
|
|
|
263 |
|
Acquisition-related
in-process research and development charges
|
|
|
20 |
|
|
|
567 |
|
Deferred
taxes from continuing operations
|
|
|
1,121 |
|
|
|
580 |
|
Other
non-cash adjustments
|
|
|
25 |
|
|
|
631 |
|
Changes
in assets and liabilities (net of businesses acquired and
divested)
|
|
|
(522 |
) |
|
|
(1,544 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
11,762 |
|
|
|
12,265 |
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(783 |
) |
|
|
(1,312 |
) |
Purchases
of short-term investments
|
|
|
(57,148 |
) |
|
|
(22,369 |
) |
Proceeds
from sales and redemptions of short-term investments
|
|
|
31,747 |
|
|
|
20,642 |
|
Purchases
of long-term investments
|
|
|
(6,053 |
) |
|
|
(5,292 |
) |
Proceeds
from sales and redemptions of long-term investments
|
|
|
4,824 |
|
|
|
639 |
|
Acquisitions,
net of cash acquired
|
|
|
–– |
|
|
|
(962 |
) |
Other
investing activities
|
|
|
508 |
|
|
|
(1,401 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(26,905 |
) |
|
|
(10,055 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Increase
in short-term borrowings, net
|
|
|
28,473 |
|
|
|
31,035 |
|
Principal
payments on other short-term borrowings, net
|
|
|
(29,976 |
) |
|
|
(28,518 |
) |
Proceeds
from issuances of long-term debt
|
|
|
23,997 |
|
|
|
605 |
|
Principal
payments on long-term debt
|
|
|
(910 |
) |
|
|
(561 |
) |
Purchases
of common stock
|
|
|
–– |
|
|
|
(500 |
) |
Cash
dividends paid
|
|
|
(4,268 |
) |
|
|
(6,409 |
) |
Other
financing activities
|
|
|
(101 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by/(used in) financing activities
|
|
|
17,215 |
|
|
|
(4,307 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange-rate changes on cash and cash equivalents
|
|
|
40 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
2,112 |
|
|
|
(2,141 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
2,122 |
|
|
|
3,406 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
4,234 |
|
|
$ |
1,265 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow
Information
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$ |
1,748 |
|
|
$ |
1,707 |
|
Interest
|
|
|
723 |
|
|
|
541 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of
Presentation
We
prepared the condensed consolidated financial statements following the
requirements of the Securities and Exchange Commission (SEC) for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by accounting principles generally
accepted in the United States of America (U.S. GAAP) can be condensed or
omitted. Balance sheet amounts and operating results for subsidiaries operating
outside the U.S. are as of and for the three-month and nine-month periods ended
August 23, 2009, and August 24, 2008. Subsequent events have been evaluated
through November 4, 2009.
On
October 15, 2009, we completed our acquisition of Wyeth in a cash-and-stock
transaction valued, based on the closing market price of Pfizer’s common stock
on that date, at $50.40 per share of Wyeth common stock, or a total of
approximately $68 billion. We have taken certain actions and incurred certain
costs associated with the transaction prior to the acquisition closing date that
are reflected in our financial statements. However, the assets acquired and
liabilities assumed from Wyeth, the consideration paid to acquire Wyeth, as well
as the results of Wyeth’s operations, are not reflected in our Condensed
Consolidated Financial Statements as of and for the three and nine month periods
ended September 27, 2009. See Note 14. Subsequent Event –
Acquisition of Wyeth for additional information.
We made
certain reclassifications to prior-period amounts to conform to the
third-quarter and nine-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.
Note 2. Adoption of New
Accounting Policies
The
Financial Accounting Standards Board (FASB) has issued FASB Statement
No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (Statement 168). Statement 168
establishes the FASB Accounting Standards Codification (Codification) as a
source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. As a result, these changes will have a significant
impact on how companies reference U.S. GAAP in their financial statements and in
their accounting policies for financial statements issued for interim and annual
periods ending after September 15, 2009. We have begun the
process of implementing the Codification in this quarterly report by providing
references to the Codification topics, as appropriate.
As of
July 1, 2009, we adopted the provisions of FASB Accounting Standards Update
(ASU) No. 2009-5 that provides additional guidance on measuring the fair value
of liabilities in the absence of observable market information, transfer
restrictions and non-performance risk assessment. The adoption of
these provisions did not have a significant impact on our consolidated financial
statements.
As of
March 30, 2009, we adopted the provisions of a new accounting standard issued by
the FASB that amends the guidance for evaluating and measuring
“other-than-temporary” impairments for available-for-sale or held-to-maturity
debt securities. The adoption of these provisions did not have a significant
impact on our consolidated financial statements.
As of
March 30, 2009, we adopted the provisions of a new accounting standard issued by
the FASB that provide additional guidance for estimating fair value in inactive
markets and the identification of disorderly transactions. We adopted these
provisions prospectively and they did not have a significant impact on our
consolidated financial statements, but could impact the accounting for
acquisitions after adoption, including our acquisition of Wyeth, and other
events, balances and transactions measured at fair value.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of
January 1, 2009, we adopted several new accounting standards issued by the FASB.
The adoption of these new standards did not have a significant impact on our
consolidated financial statements. In summary, these
provisions:
●
|
retain
the purchase method of accounting for acquisitions, but require a number
of changes, including changes in the way assets and liabilities are
recognized in purchase accounting. They also change the recognition of
assets acquired and liabilities assumed arising from contingencies,
require the capitalization of in-process research and development costs at
fair value and require the expensing of acquisition-related costs as
incurred. The adoption of these provisions will impact the accounting for
acquisitions after adoption, including our acquisition of
Wyeth.
|
|
amend
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 these provisions could impact the accounting for acquisitions after
adoption, including our acquisition of
Wyeth.
|
|
expand
the use of fair value, and related disclosure requirements and specify a
hierarchy of valuation techniques used to develop the fair value measures.
The adoption of these provisions will impact the accounting for
acquisitions after adoption, including our acquisition of Wyeth, and other
events, balances and transactions measured at fair
value.
|
|
provide
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 these
provisions resulted in a number of changes to the presentation of our
consolidated financial statements, but the amounts associated with
noncontrolling interests are not significant. The adoption of these
provisions 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.
|
|
provide
guidance on determining whether an arrangement constitutes a collaborative
arrangement within the scope of the provisions; how costs incurred and
revenues 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. Accordingly,
additional disclosures are provided in Note 4. Collaborative
Arrangements.
|
|
provide
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.
|
|
clarify
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 these provisions could impact the accounting for
equity method investments after
adoption.
|
|
clarify
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. These provisions require 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 these provisions could impact the
accounting for acquisitions after adoption, including our acquisition of
Wyeth.
|
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 third quarter of 2008, we recorded approximately $170
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 nine months of
2008. In the first nine
months of 2009, we resolved a contingency associated with CovX and recorded $20
million in Acquisition-related
in-process research and development charges. We did not consummate any
acquisitions in the first nine months of 2009.
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 customers.
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 its 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
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Revenues
– Revenues(a)
|
|
$ |
131 |
|
|
$ |
143 |
|
|
$ |
409 |
|
|
$ |
369 |
|
Revenues
– Alliance revenues (b)
|
|
|
692 |
|
|
|
571 |
|
|
|
1,872 |
|
|
|
1,622 |
|
Total
Revenues from collaborative arrangements
|
|
|
823 |
|
|
|
714 |
|
|
|
2,281 |
|
|
|
1,991 |
|
Cost
of sales (c)
|
|
|
(40 |
) |
|
|
(62 |
) |
|
|
(131 |
) |
|
|
(129 |
) |
Selling,
informational and administrative expenses(d)
|
|
|
27 |
|
|
|
38 |
|
|
|
24 |
|
|
|
57 |
|
Research
and development expenses(e)
|
|
|
(58 |
) |
|
|
(51 |
) |
|
|
(302 |
) |
|
|
(147 |
) |
(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 nine months of 2009 also includes a $150 million milestone payment
to one of our partners.
|
For the
three months and nine months ended September 27, 2009, Other
(income)/deductions-net, includes income of $20 million paid to us for
the termination of a collaboration agreement.
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 collaborative arrangements.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Pfizer
Cost-Reduction Initiatives
The
following costs were incurred in connection with all of our Pfizer
cost-reduction initiatives, which began in 2005, and do not include any amounts
related to Wyeth:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Implementation
costs(a)
|
|
$ |
80 |
|
|
$ |
378 |
|
|
$ |
410 |
|
|
$ |
1,140 |
|
Restructuring
charges(b)
|
|
|
61 |
|
|
|
338 |
|
|
|
392 |
|
|
|
1,077 |
|
Total
costs related to our Pfizer cost-reduction initiatives
|
|
$ |
141 |
|
|
$ |
716 |
|
|
$ |
802 |
|
|
$ |
2,217 |
|
(a)
|
For
the third quarter of 2009, included in Cost of sales ($23
million), Selling,
informational and administrative expenses ($51 million), Research and development
expenses ($5 million), and Other (income)/deductions -
net ($1 million). For the third quarter of 2008, included in Cost of sales ($172
million), Selling,
informational and administrative expenses ($95 million), Research and development
expenses ($108 million) and Other (income)/deductions -
net ($3 million). For the first nine months of 2009, included in
Cost of sales
($144 million), Selling,
informational and administrative expenses ($182 million), Research and development
expenses ($78 million), and Other (income)/deductions -
net ($6 million). For the first nine months of 2008, included in
Cost of sales
($520 million), Selling,
informational and administrative expenses ($270 million), Research and development
expenses ($348 million) and Other (income)/deductions -
net ($2
million).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
From the
beginning of the Pfizer cost-reduction initiatives in 2005 through September 27,
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
following components of restructuring charges are associated with all of our
Pfizer cost-reduction initiatives, which began in 2005, and do not include any
amounts related to Wyeth:
(millions
of dollars)
|
|
Costs
Incurred
Through
Sept.
27, 2009
|
|
|
Activity
Through
Sept.
27, 2009(a)
|
|
|
Accrual
as of
Sept.
27, 2009(b)
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination costs
|
|
$ |
5,350 |
|
|
$ |
4,245 |
|
|
$ |
1,105 |
|
Asset
impairments
|
|
|
1,401 |
|
|
|
1,401 |
|
|
|
— |
|
Other
|
|
|
524 |
|
|
|
438 |
|
|
|
86 |
|
Total
restructuring charges
|
|
$ |
7,275 |
|
|
$ |
6,084 |
|
|
$ |
1,191 |
|
(a)
|
Includes
adjustments for foreign currency
translation.
|
(b)
|
Included
in Other current
liabilities ($712 million) and Other non-current liabilities
($479
million).
|
During
the third quarter of 2009, we expensed $36 million for Employee termination costs,
$17 million for Asset
impairments and $8 million for Other. During the first nine
months of 2009 we expensed $200 million for Employee termination costs,
$108 million for Asset
impairments and $84 million for Other. From June 2005 through
September 27, 2009, Employee
termination costs, net of the impact of a change in estimate, represent the expected
reduction of the workforce by approximately 30,900 employees, mainly in
manufacturing, sales and research, and approximately 26,300 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 acquisition of Wyeth:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended |
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Transaction
costs (a)
|
|
$ |
19 |
|
|
$ |
–– |
|
|
$ |
572 |
|
|
$ |
–– |
|
Pre-integration
costs and other(b)
|
|
|
113 |
|
|
|
28 |
|
|
|
242 |
|
|
|
36 |
|
Total
acquisition-related costs(c)
|
|
$ |
132 |
|
|
$ |
28 |
|
|
$ |
814 |
|
|
$ |
36 |
|
(a)
|
Transaction
costs include banking, legal, accounting and other costs directly related
to our 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 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 in the first half 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 2009 primarily represent external, incremental costs of
integration planning that are directly related to our acquisition of Wyeth
and include costs associated with preparing for systems and other
integration activities. 2008 amounts relate to other restructuring
charges.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
Note 7. Comprehensive
Income/(Expense)
The
components of comprehensive income/(expense) follow:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Net
income before allocation to noncontrolling interests
|
|
$ |
2,881 |
|
|
$ |
2,284 |
|
|
$ |
7,877 |
|
|
$ |
7,856 |
|
Other
comprehensive income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
and other
|
|
|
599 |
|
|
|
(1,766 |
) |
|
|
2,853 |
|
|
|
(1,232 |
) |
Net unrealized gains/(losses)
on derivative financial instruments
|
|
|
(43 |
) |
|
|
13 |
|
|
|
(210 |
) |
|
|
41 |
|
Net unrealized gains/(losses)
on available-for-sale securities
|
|
|
86 |
|
|
|
(25 |
) |
|
|
312 |
|
|
|
(39 |
) |
Benefit plan
adjustments
|
|
|
(459 |
) |
|
|
159 |
|
|
|
(282 |
) |
|
|
244 |
|
Total other comprehensive
gains/(loss)
|
|
|
183 |
|
|
|
(1,619 |
) |
|
|
2,673 |
|
|
|
(986 |
) |
Total
comprehensive income before allocation to
noncontrolling
interests
|
|
|
3,064 |
|
|
|
665 |
|
|
|
10,550 |
|
|
|
6,870 |
|
Comprehensive (income)/loss
attributable to
noncontrolling
interests
|
|
|
3 |
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
(31 |
) |
Comprehensive
income attributable to Pfizer Inc.
|
|
$ |
3,067 |
|
|
$ |
657 |
|
|
$ |
10,539 |
|
|
$ |
6,839 |
|
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)
|
|
Sept.
27,
2009
|
|
|
Dec.
31,
2008
|
|
Selected
financial assets measured at fair value on a recurring basis (a)
:
|
|
|
|
|
|
|
Trading securities (b)
|
|
$ |
181 |
|
|
$ |
190 |
|
Available-for-sale debt securities
(c)
|
|
|
50,915 |
|
|
|
30,061 |
|
Available-for-sale money market
funds
|
|
|
7,581 |
|
|
|
398 |
|
Available-for-sale equity
securities, excluding money market funds (c)
|
|
|
252 |
|
|
|
319 |
|
Derivative financial instruments
in receivable positions (d)
:
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
370 |
|
|
|
732 |
|
Foreign currency
swaps
|
|
|
670 |
|
|
|
128 |
|
Foreign currency forward-exchange
contracts
|
|
|
489 |
|
|
|
399 |
|
Total
|
|
|
60,458 |
|
|
|
32,227 |
|
Other
selected financial assets (e):
|
|
|
|
|
|
|
|
|
Held-to-maturity debt
securities, carried at amortized cost (c)
|
|
|
3,779 |
|
|
|
2,349 |
|
Short-term loans, carried at
cost
|
|
|
791 |
|
|
|
824 |
|
Long-term loans, carried at
cost
|
|
|
1,194 |
|
|
|
1,568 |
|
Private equity securities,
carried at cost
|
|
|
150 |
|
|
|
182 |
|
Total
|
|
|
5,914 |
|
|
|
4,923 |
|
Total
selected financial assets
|
|
$ |
66,372 |
|
|
$ |
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
|
|
|
647 |
|
|
|
153 |
|
Foreign currency forward-exchange
contracts
|
|
|
1,020 |
|
|
|
1,083 |
|
Total
|
|
|
1,675 |
|
|
|
1,243 |
|
Other
financial liabilities (e) ,
(g):
|
|
|
|
|
|
|
|
|
Short-term borrowings, carried at
historical proceeds, as adjusted (h)
|
|
|
6,954 |
|
|
|
9,320 |
|
Long-term debt, carried at
historical proceeds, as adjusted (i)
|
|
|
32,402 |
|
|
|
7,963 |
|
Total
|
|
|
39,356 |
|
|
|
17,283 |
|
Total
selected financial liabilities
|
|
$ |
41,031 |
|
|
$ |
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 $159 million as of September 27, 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 September 27, 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 swaps with fair values of $159
million and foreign currency forward-exchange contracts with fair values
of $67 million at September 27, 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 September 27, 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 $160 million at September 27, 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 $1.1 billion at September
27, 2009 and $1.6 billion at December 31, 2008, which are used as hedging
instruments.
|
(i)
|
Includes
foreign currency debt with fair values of $2.1 billion at September 27,
2009 and 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, and,
to a lesser extent, performance multiples of comparable securities
adjusted for company-specific
information.
|
●
|
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)
|
|
Sept.
27,
2009
|
|
|
Dec.
31,
2008
|
|
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,647 |
|
|
$ |
1,980 |
|
Short-term
investments
|
|
|
48,239 |
|
|
|
21,609 |
|
Short-term loans
|
|
|
791 |
|
|
|
824 |
|
Long-term investments and
loans
|
|
|
12,166 |
|
|
|
11,478 |
|
Other current assets (a)
|
|
|
495 |
|
|
|
404 |
|
Other non-current assets (b)
|
|
|
1,034 |
|
|
|
855 |
|
Total
|
|
$ |
66,372 |
|
|
$ |
37,150 |
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
6,954 |
|
|
|
9,320 |
|
Other
current liabilities (c)
|
|
|
1,102 |
|
|
|
1,119 |
|
Long-term
debt
|
|
|
32,402 |
|
|
|
7,963 |
|
Other
non-current liabilities (d)
|
|
|
573 |
|
|
|
124 |
|
Total
|
|
$ |
41,031 |
|
|
$ |
18,526 |
|
(a)
|
At
September 27, 2009, derivative instruments at fair value comprised of
foreign currency forward-exchange contracts ($489 million) and foreign
currency swaps ($6 million) and, at December 31, 2008, comprised of
foreign currency forward-exchange contracts ($398 million), interest rate
swaps ($4 million), and foreign currency swaps ($2
million).
|
(b)
|
At
September 27, 2009, derivative instruments at fair value comprised of
foreign currency swaps ($664 million) and interest rate swaps ($370
million) and, at December 31, 2008, comprised of interest rate swaps ($729
million) and foreign currency swaps ($126
million).
|
(c)
|
At
September 27, 2009, derivative instruments at fair value comprised of
foreign currency forward-exchange contracts ($1 billion) and foreign
currency swaps ($82 million) and, at December 31, 2008, comprised of
foreign currency forward-exchange contracts ($1.1 billion) and foreign
currency swaps ($36 million).
|
(d)
|
At
September 27, 2009, derivative instruments at fair value comprised of
foreign currency swaps ($565 million) and interest rate swaps ($8 million)
and, at December 31, 2008, comprised of foreign currency swaps ($117
million) and interest rate swaps ($7
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 from 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 were
used to partially finance our acquisition of Wyeth on October 15, 2009 (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
Sept.
27,
2009
|
|
Available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government Federal Deposit
Insurance
Corporation
guaranteed debt
|
|
$ |
— |
|
|
$ |
1,760 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,760 |
|
Western European
and other government debt
|
|
|
33,924 |
|
|
|
2,432 |
|
|
|
— |
|
|
|
— |
|
|
|
36,356 |
|
Corporate debt
|
|
|
3,071 |
|
|
|
1,914 |
|
|
|
— |
|
|
|
— |
|
|
|
4,985 |
|
Western European and other
government agency debt
|
|
|
2,771 |
|
|
|
786 |
|
|
|
— |
|
|
|
— |
|
|
|
3,557 |
|
Federal Home Loan Mortgage
Corporation, Federal
National Mortgage
Association and Government National
Mortgage Association asset-backed
securities
|
|
|
200 |
|
|
|
2,995 |
|
|
|
— |
|
|
|
— |
|
|
|
3,195 |
|
Supranational debt
|
|
|
328 |
|
|
|
388 |
|
|
|
— |
|
|
|
— |
|
|
|
716 |
|
Other asset-backed
securities
|
|
|
220 |
|
|
|
125 |
|
|
|
— |
|
|
|
— |
|
|
|
345 |
|
Certificates of
deposit
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
Held-to-maturity
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and
other
|
|
|
3,775 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
3,779 |
|
Total
debt securities
|
|
$ |
44,290 |
|
|
$ |
10,404 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
54,694 |
|
Trading
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181 |
|
Available-for-sale
money market funds
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,581 |
|
Available-for-sale
equity securities, excluding money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252 |
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
62,708 |
|
(a)
|
Consisting
of 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 $6.3 billion as of September
27, 2009. As of September 27, 2009, we had access to $8.3 billion of lines of
credit, of which $6.2 billion expire within one year. Of these lines of credit,
$8.2 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 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 and second quarters of 2009, virtually all of the
proceeds of which were used to partially finance our acquisition of Wyeth on
October 15, 2009. The following table sets forth the amounts outstanding related
to those issuances:
(millions
of dollars)
|
|
Maturity
Date
|
|
|
Outstanding
on
Sept.
27,
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
|
|
|
|
3,510
|
|
5.35%(a)
|
|
March
2015
|
|
|
|
2,997
|
|
6.20%(a)
|
|
March
2019
|
|
|
|
3,247
|
|
7.20%(a)
|
|
March
2039
|
|
|
|
2,552
|
|
Issued on June 3, 2009:
|
|
|
|
|
|
|
|
3.625%
euro (b)
|
|
June
2013
|
|
|
|
2,702
|
|
4.75%
euro (b)
|
|
June
2016
|
|
|
|
2,920
|
|
5.75%
euro (b)
|
|
June
2021
|
|
|
|
2,919
|
|
6.50%
U.K. pound
(b)
|
|
June
2038
|
|
|
|
2,371
|
|
Total
long-term debt issued in 2009
|
|
|
|
|
$
|
24,468
|
|
(a)
|
Instrument
is callable by us 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 by us 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 September 27, 2009, excluding the current portion of $50
million, matures in the following years:
(millions
of dollars)
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
After
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
32,402 |
|
|
$ |
–– |
|
|
$ |
2,600 |
|
|
$ |
3,529 |
|
|
$ |
2,709 |
|
|
$ |
23,564 |
|
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 $62.5
billion. The derivative financial instruments primarily hedge or offset
exposures in euro, Japanese yen, U.K. pound and Canadian dollar.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All
derivative contracts used to manage foreign currency risk are measured at fair
value and are reported as assets or liabilities on the consolidated balance
sheet. Changes in fair value are reported in earnings or deferred, depending on
the nature
and purpose of the financial instrument (offset or hedge relationship) and the
effectiveness of the hedge relationships, as follows:
●
|
We
defer on the balance sheet the effective portion of the gains or losses on
foreign currency forward-exchange contracts and foreign currency swaps
that are designated as cash flow hedges and reclassify those amounts, as
appropriate, into earnings in the same
period or periods during which the hedged transaction affects
earnings.
|
●
|
We
recognize the gains and losses on forward-exchange contracts and foreign
currency swaps that are used to offset the same foreign currency assets or
liabilities immediately into earnings along with the earnings impact of
the items they generally offset. These contracts essentially take the
opposite currency position of that reflected in the month-end balance
sheet to counterbalance the effect of any currency
movement.
|
●
|
We
recognize the 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 third quarter and the first nine months of
2009 or the third quarter and the first nine 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 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 $6.5 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 third quarter and the first nine months of
2009 or the third quarter and the first nine 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
Sept.
27, 2009
|
|
|
Nine
Months
Ended
Sept.
27, 2009
|
|
Derivative
Financial Instruments in Fair Value Hedge Relationships
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
5 |
|
|
$ |
(2 |
) |
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
(2 |
) |
|
|
(2 |
) |
Derivative
Financial Instruments in Cash Flow Hedge Relationships
|
|
|
|
|
|
|
|
|
U.S. Treasury interest rate
locks
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
(11 |
) |
Recognized in OCI (a),
(b)
|
|
|
–– |
|
|
|
(16 |
) |
Reclassified from OCI to
OID (a),
(b)
|
|
|
–– |
|
|
|
–– |
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
185 |
|
|
|
100 |
|
Reclassified from OCI to OID
(a),
(b)
|
|
|
245 |
|
|
|
400 |
|
Foreign currency forward exchange
contracts
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(2 |
) |
|
|
5 |
|
Reclassified from OCI to OID
(a),
(b)
|
|
|
2 |
|
|
|
17 |
|
Derivative
Financial Instruments in Net Investment Hedge
Relationships
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
(1 |
) |
Recognized in OCI (a),
(b)
|
|
|
(40 |
) |
|
|
(1 |
) |
Derivative
Financial Instruments Not Designated as Hedges
|
|
|
|
|
|
|
|
|
Foreign currency
swaps
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
3 |
|
|
$ |
17 |
|
Foreign currency forward-exchange
contracts
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
(354 |
) |
|
|
(795 |
) |
Non-Derivative
Financial Instruments Designated as Hedges
|
|
|
|
|
|
|
|
|
Foreign currency short-term
borrowings
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
$ |
–– |
|
|
$ |
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(62 |
) |
|
|
26 |
|
Foreign currency long-term
debt
|
|
|
|
|
|
|
|
|
Recognized in OID (a)
|
|
|
–– |
|
|
|
–– |
|
Recognized in OCI (a),
(b)
|
|
|
(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 $813 million, for which we have posted collateral of $461 million in
the normal course of business. These features include the requirement to pay
additional collateral in the event of a downgrade in our debt ratings. If there
had been a downgrade to an A rating by Standard & Poor’s (S&P), or the
equivalent rating by Moody’s Investors Service (Moody’s), on September 27, 2009,
we would have been required to post an additional $140 million of collateral to
our counterparties. If there had been a downgrade to below an A rating by
S&P or the equivalent rating by Moody’s, on September 27, 2009, we would
have been required to post an additional $168 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
September 27, 2009, we have over $7 billion invested in a major money market
fund rated Aaa by Moody’s and AAA by S&P, which invests in securities issued
by the U.S. government and its agencies or instrumentalities and reverse
repurchase agreements involving the same investments held.
Note 9.
Inventories
The
components of inventories follow:
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Dec.
31,
2008
|
|
Finished
goods
|
|
$ |
2,101 |
|
|
$ |
2,024 |
|
Work-in-process
|
|
|
2,114 |
|
|
|
1,527 |
|
Raw
materials and supplies
|
|
|
843 |
|
|
|
830 |
|
Total
inventories(a)
|
|
$ |
5,058 |
|
|
$ |
4,381 |
|
(a)
|
Certain
amounts of inventories are in excess of one year’s supply. There are no
recoverability issues associated with these quantities, and the amounts
are not significant.
|
Note 10. Goodwill and Other
Intangible Assets
A.
Goodwill
The
changes in the carrying amount of goodwill by segment for the nine months ended
September 27, 2009 follow:
(millions
of dollars)
|
|
Pharmaceutical
|
|
|
Animal
Health
|
|
|
Other
|
|
|
Total
|
|
Balance,
December 31, 2008
|
|
$ |
21,317 |
|
|
$ |
129 |
|
|
$ |
18 |
|
|
$ |
21,464 |
|
Additions
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
Other(a)
|
|
|
312 |
|
|
|
19 |
|
|
|
1 |
|
|
|
332 |
|
Balance,
September 27, 2009
|
|
$ |
21,629 |
|
|
$ |
148 |
|
|
$ |
19 |
|
|
$ |
21,796 |
|
(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:
|
|
Sept.
27, 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
|
|
$ |
32,312 |
|
|
$ |
(20,040 |
) |
|
$ |
12,272 |
|
|
$ |
31,484 |
|
|
$ |
(17,673 |
) |
|
$ |
13,811 |
|
Brands
|
|
|
1,016 |
|
|
|
(513 |
) |
|
|
503 |
|
|
|
1,016 |
|
|
|
(487 |
) |
|
|
529 |
|
License
agreements
|
|
|
252 |
|
|
|
(95 |
) |
|
|
157 |
|
|
|
246 |
|
|
|
(78 |
) |
|
|
168 |
|
Trademarks
|
|
|
125 |
|
|
|
(87 |
) |
|
|
38 |
|
|
|
118 |
|
|
|
(78 |
) |
|
|
40 |
|
Other(a)
|
|
|
524 |
|
|
|
(304 |
) |
|
|
220 |
|
|
|
531 |
|
|
|
(291 |
) |
|
|
240 |
|
Total
|
|
|
34,229 |
|
|
|
(21,039 |
) |
|
|
13,190 |
|
|
|
33,395 |
|
|
|
(18,607 |
) |
|
|
14,788 |
|
Indefinite-lived
intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
2,865 |
|
|
|
— |
|
|
|
2,865 |
|
|
|
2,860 |
|
|
|
— |
|
|
|
2,860 |
|
Trademarks
|
|
|
68 |
|
|
|
— |
|
|
|
68 |
|
|
|
70 |
|
|
|
— |
|
|
|
70 |
|
Other
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
Total
|
|
|
2,935 |
|
|
|
— |
|
|
|
2,935 |
|
|
|
2,933 |
|
|
|
— |
|
|
|
2,933 |
|
Total
identifiable
intangible
assets
|
|
$ |
37,164 |
|
|
$ |
(21,039 |
) |
|
$ |
16,125 |
(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, partially
offset by 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 these intangible assets benefit 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 $626 million for the third quarter of 2009, $652 million
for the third quarter of 2008, $1.9 billion for the first nine months of 2009
and $2.2 billion for the first nine 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
|
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
For the Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
51 |
|
|
$ |
59 |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
46 |
|
|
$ |
63 |
|
|
$ |
7 |
|
|
$ |
10 |
|
Interest
cost
|
|
|
116 |
|
|
|
115 |
|
|
|
12 |
|
|
|
9 |
|
|
|
85 |
|
|
|
100 |
|
|
|
30 |
|
|
|
35 |
|
Expected
return on plan assets
|
|
|
(115 |
) |
|
|
(162 |
) |
|
|
— |
|
|
|
— |
|
|
|
(96 |
) |
|
|
(111 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
losses
|
|
|
51 |
|
|
|
8 |
|
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
|
|
10 |
|
|
|
4 |
|
|
|
6 |
|
Prior
service costs/(credits)
|
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
–– |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
–– |
|
Curtailments
and settlements – net
|
|
|
47 |
|
|
|
9 |
|
|
|
2 |
|
|
|
8 |
|
|
|
1 |
|
|
|
–– |
|
|
|
2 |
|
|
|
–– |
|
Special
termination benefits
|
|
|
5 |
|
|
|
5 |
|
|
|
–– |
|
|
|
— |
|
|
|
3 |
|
|
|
6 |
|
|
|
2 |
|
|
|
3 |
|
Net
periodic benefit costs
|
|
$ |
156 |
|
|
$ |
34 |
|
|
$ |
25 |
|
|
$ |
28 |
|
|
$ |
45 |
|
|
$ |
69 |
|
|
$ |
38 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
162 |
|
|
$ |
179 |
|
|
$ |
15 |
|
|
$ |
17 |
|
|
$ |
133 |
|
|
$ |
191 |
|
|
$ |
22 |
|
|
$ |
30 |
|
Interest
cost
|
|
|
351 |
|
|
|
346 |
|
|
|
37 |
|
|
|
30 |
|
|
|
240 |
|
|
|
300 |
|
|
|
91 |
|
|
|
106 |
|
Expected
return on plan assets
|
|
|
(349 |
) |
|
|
(487 |
) |
|
|
–– |
|
|
|
— |
|
|
|
(268 |
) |
|
|
(333 |
) |
|
|
(19 |
) |
|
|
(26 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
losses
|
|
|
161 |
|
|
|
24 |
|
|
|
23 |
|
|
|
22 |
|
|
|
18 |
|
|
|
32 |
|
|
|
13 |
|
|
|
21 |
|
Prior
service costs/(credits)
|
|
|
2 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
(3 |
) |
|
|
1 |
|
Curtailments
and settlements – net
|
|
|
101 |
|
|
|
13 |
|
|
|
15 |
|
|
|
121 |
|
|
|
2 |
|
|
|
4 |
|
|
|
7 |
|
|
|
6 |
|
Special
termination benefits
|
|
|
24 |
|
|
|
21 |
|
|
|
–– |
|
|
|
— |
|
|
|
5 |
|
|
|
19 |
|
|
|
17 |
|
|
|
11 |
|
Net
periodic benefit costs
|
|
$ |
452 |
|
|
$ |
98 |
|
|
$ |
88 |
|
|
$ |
188 |
|
|
$ |
128 |
|
|
$ |
214 |
|
|
$ |
128 |
|
|
$ |
149 |
|
The
increase in net periodic benefit costs in the first nine months of 2009,
compared to the first nine 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 Pfizer cost-reduction
initiatives.
The
decrease in net periodic benefit costs in the first nine months of 2009,
compared to the first nine 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 nine months of 2009,
compared to the first nine months of 2008, for our international pension plans
was largely driven by differences in actuarial assumptions, which were partially
offset by lower expected-return-on-plan-assets assumptions.
For the
first nine months of 2009, we contributed from our general assets $283 million
to our international pension plans, $116 million to our postretirement plans,
$77 million to our U.S. supplemental (non-qualified) pension plans and $2
million to our U.S. qualified pension plans.
During
2009, we expect to contribute from our general assets a total of $423 million to
our international pension plans, $154 million to our postretirement plans, $109
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 nine months of 2009. The
international pension plan, postretirement plan and U.S. supplemental
(non-qualified) 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
|
|
|
Nine
Months Ended
|
|
(in
millions)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
EPS
Numerator - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc.
|
|
$ |
2,876 |
|
|
$ |
2,253 |
|
|
$ |
7,862 |
|
|
$ |
7,800 |
|
Less: Preferred stock dividends -
net of tax
|
|
|
–– |
|
|
|
–– |
|
|
|
2 |
|
|
|
2 |
|
Income from continuing operations
attributable to Pfizer Inc. common
shareholders
|
|
|
2,876 |
|
|
|
2,253 |
|
|
|
7,860 |
|
|
|
7,798 |
|
Discontinued operations - net of
tax
|
|
|
2 |
|
|
|
25 |
|
|
|
6 |
|
|
|
38 |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,878 |
|
|
$ |
2,278 |
|
|
$ |
7,866 |
|
|
$ |
7,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,730 |
|
|
|
6,718 |
|
|
|
6,727 |
|
|
|
6,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Numerator - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to Pfizer Inc. common
shareholders
|
|
$ |
2,876 |
|
|
$ |
2,253 |
|
|
$ |
7,862 |
|
|
$ |
7,800 |
|
Discontinued operations - net of
tax
|
|
|
2 |
|
|
|
25 |
|
|
|
6 |
|
|
|
38 |
|
Net income attributable to Pfizer
Inc. common shareholders
|
|
$ |
2,878 |
|
|
$ |
2,278 |
|
|
$ |
7,868 |
|
|
$ |
7,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Denominator - Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
6,730 |
|
|
|
6,718 |
|
|
|
6,727 |
|
|
|
6,730 |
|
Common share equivalents: stock
options, restricted stock units, stock
issuable under
other employee compensation plans and convertible
preferred
stock
|
|
|
32 |
|
|
|
18 |
|
|
|
31 |
|
|
|
20 |
|
Weighted-average number of common
shares outstanding and common
share
equivalents
|
|
|
6,762 |
|
|
|
6,736 |
|
|
|
6,758 |
|
|
|
6,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options that had exercise
prices greater than the average market price
of our common
stock issuable under employee compensation plans (a)
|
|
|
406 |
|
|
|
499 |
|
|
|
406 |
|
|
|
499 |
|
(a)
|
These
common stock equivalents were outstanding during the three months and nine
months ended September 27, 2009 and September 28, 2008, but were not
included in the computation of diluted EPS for those periods because their
inclusion would have had an anti-dilutive
effect.
|
Note 13. Segment
Information
We
operate in the following business segments:
Pharmaceutical
●
|
The
Pharmaceutical segment includes products that prevent and treat
cardiovascular and metabolic diseases, central nervous system disorders,
arthritis and pain, infectious and respiratory diseases, urogenital
conditions, cancer, eye diseases and endocrine disorders, among
others.
|
Animal
Health
●
|
The
Animal Health segment includes products that prevent and treat diseases in
livestock and companion animals.
|
Segment
profit/(loss) is measured based on income from continuing operations before
provision for taxes on income. Certain costs, such as significant impacts of
purchase accounting for acquisitions, restructuring charges and
acquisition-related costs, and certain significant items, are included in Corporate/Other only. This
methodology is utilized by management to evaluate our businesses.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues
and profit/(loss) by segment for the three months and nine months ended
September 27, 2009 and September 28, 2008 follow:
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
|
Sept.
28,
2008
|
|
|
|
Sept.
27,
2009
|
|
|
|
Sept.
28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,677 |
|
|
|
$ |
10,976 |
|
|
|
$ |
30,842 |
|
|
|
$ |
32,933 |
|
|
Animal Health
|
|
|
678 |
|
|
|
|
708 |
|
|
|
|
1,863 |
|
|
|
|
2,042 |
|
|
Corporate/Other(a)
|
|
|
266 |
|
|
|
|
289 |
|
|
|
|
767 |
|
|
|
|
975 |
|
|
Total
revenues(b)
|
|
$ |
11,621 |
|
|
|
$ |
11,973 |
|
|
|
$ |
33,472 |
|
|
|
$ |
35,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit/(loss)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
5,501 |
|
|
|
$ |
5,335 |
|
|
|
$ |
15,868 |
|
|
|
$ |
15,997 |
|
|
Animal Health
|
|
|
187 |
|
|
|
|
192 |
|
|
|
|
483 |
|
|
|
|
512 |
|
|
Corporate/Other(a)
|
|
|
(1,717 |
) |
(d)
|
|
|
(2,805 |
) |
(f)
|
|
|
(5,528 |
) |
(e)
|
|
|
(7,440 |
) |
(g)
|
Total
segment profit/(loss)
|
|
$ |
3,971 |
|
|
|
$ |
2,722 |
|
|
|
$ |
10,823 |
|
|
|
$ |
9,069 |
|
|
(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 Pfizer cost-reduction
initiatives.
|
(b)
|
For
the three-and nine-months ended September 28, 2008, includes a $217
million reduction to adjust prior years’ liabilities for product
returns.
|
(c)
|
Segment profit/(loss)
equals Income
from continuing operations before provision for taxes on
income.
|
(d)
|
For
the three months ended September 27, 2009, Corporate/Other
includes: (i) significant impacts of purchase accounting for
acquisitions of $564 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
Pfizer cost-reduction initiatives of $141 million; (iii)
acquisition-related costs of $132 million, primarily related to our
acquisition of Wyeth; and (iv) all share-based compensation
expense.
|
(e)
|
For
the nine months ended September 27, 2009, Corporate/Other
includes: (i) significant impacts of purchase accounting for
acquisitions of $1.7 billion, including intangible asset amortization and
other charges, primarily related to our acquisition of Pharmacia in 2003;
(ii) acquisition-related costs of $814 million, primarily related to our
acquisition of Wyeth; (iii) restructuring charges and implementation costs
associated with our Pfizer cost-reduction initiatives of $802 million; and
(iv) all share-based compensation
expense.
|
(f)
|
For
the three months ended September 28, 2008, Corporate/Other
includes: (i) charges associated with the resolution of certain
litigation involving our non-steroidal anti-inflammatory (NSAID) pain
medicines of approximately $900 million; (ii) restructuring charges and
implementation costs associated with our Pfizer cost-reduction initiatives
of $716 million; (iii) significant impacts of purchase accounting for
acquisitions of $604 million, including acquired in-process research and
development, intangible asset amortization and other charges; (iv) all
share-based compensation expense; (v) other restructuring costs of $28
million; and (vi) transition activity associated with our former Consumer
Healthcare business ($9 million).
|
(g)
|
For
the nine months ended September 28, 2008, Corporate/Other
includes: (i) significant impacts of purchase accounting for acquisitions
of $2.5 billion, including acquired in-process research and development,
intangible asset amortization and other charges; (ii) restructuring
charges and implementation costs associated with our Pfizer cost-reduction
initiatives of $2.2 billion; (iii) charges associated with the resolution
of certain NSAID litigation of approximately $900 million; (iv) all
share-based compensation expense; (v) other restructuring costs of $36
million; and (vi) transition activity associated with our former Consumer
Healthcare business ($3 million
income).
|
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenues
for each group of products follow:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
Pharmaceutical:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular and metabolic
diseases
|
|
$ |
4,024 |
|
|
$ |
4,537 |
|
|
|
(11 |
)
% |
|
$ |
11,805 |
|
|
$ |
13,498 |
|
|
|
(13 |
)
% |
Central nervous system
disorders
|
|
|
1,504 |
|
|
|
1,556 |
|
|
|
(3 |
) |
|
|
4,314 |
|
|
|
4,426 |
|
|
|
(3 |
) |
Arthritis and
pain
|
|
|
684 |
|
|
|
768 |
|
|
|
(11 |
) |
|
|
1,946 |
|
|
|
2,279 |
|
|
|
(15 |
) |
Infectious and respiratory
diseases
|
|
|
877 |
|
|
|
989 |
|
|
|
(11 |
) |
|
|
2,586 |
|
|
|
2,920 |
|
|
|
(11 |
) |
Urology
|
|
|
773 |
|
|
|
820 |
|
|
|
(6 |
) |
|
|
2,254 |
|
|
|
2,369 |
|
|
|
(5 |
) |
Oncology
|
|
|
575 |
|
|
|
645 |
|
|
|
(11 |
) |
|
|
1,657 |
|
|
|
1,932 |
|
|
|
(14 |
) |
Ophthalmology
|
|
|
444 |
|
|
|
459 |
|
|
|
(3 |
) |
|
|
1,261 |
|
|
|
1,316 |
|
|
|
(4 |
) |
Endocrine
disorders
|
|
|
293 |
|
|
|
294 |
|
|
|
(1 |
) |
|
|
805 |
|
|
|
857 |
|
|
|
(6 |
) |
All other
|
|
|
811 |
|
|
|
337 |
|
|
|
140 |
|
|
|
2,342 |
|
|
|
1,714 |
|
|
|
37 |
|
Alliance
revenues
|
|
|
692 |
|
|
|
571 |
|
|
|
21 |
|
|
|
1,872 |
|
|
|
1,622 |
|
|
|
15 |
|
Total
Pharmaceutical
|
|
|
10,677 |
|
|
|
10,976 |
|
|
|
(3 |
) |
|
|
30,842 |
|
|
|
32,933 |
|
|
|
(6 |
) |
Animal
Health
|
|
|
678 |
|
|
|
708 |
|
|
|
(4 |
) |
|
|
1,863 |
|
|
|
2,042 |
|
|
|
(9 |
) |
Other
|
|
|
266 |
|
|
|
289 |
|
|
|
(8 |
) |
|
|
767 |
|
|
|
975 |
|
|
|
(21 |
) |
Total revenues
|
|
$ |
11,621 |
|
|
$ |
11,973 |
|
|
|
(3 |
) |
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
|
(7 |
) |
Revenues
by geographic area follow:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
United
States(a)
|
|
$ |
4,816 |
|
|
$ |
4,901 |
|
|
|
(2 |
)
% |
|
$ |
14,309 |
|
|
$ |
15,161 |
|
|
|
(6 |
)
% |
Europe(b)
|
|
|
3,555 |
|
|
|
3,847 |
|
|
|
(8 |
) |
|
|
9,860 |
|
|
|
11,205 |
|
|
|
(12 |
) |
Japan/Asia(c)
|
|
|
1,864 |
|
|
|
1,779 |
|
|
|
5 |
|
|
|
5,438 |
|
|
|
5,282 |
|
|
|
3 |
|
Canada/Latin
America/AFME(d)
|
|
|
1,386 |
|
|
|
1,446 |
|
|
|
(4 |
) |
|
|
3,865 |
|
|
|
4,302 |
|
|
|
(10 |
) |
Total revenues
|
|
$ |
11,621 |
|
|
|
11,973 |
|
|
|
(3 |
) |
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
|
(7 |
) |
(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. Subsequent Event –
Acquisition of Wyeth
A. Description of the
Transaction
On
October 15, 2009 (the acquisition date), we acquired all of the outstanding
equity of Wyeth in a cash-and-stock transaction, valued at approximately $68
billion, in which each share of Wyeth common stock outstanding, with certain
limited exceptions, was cancelled and converted into the right to receive $33.00
in cash without interest and 0.985 of a share of Pfizer common stock. The stock
component was valued at $17.40 per share of Wyeth common stock based on the
closing market price of Pfizer’s common stock on the acquisition date, resulting
in a total merger consideration value of $50.40 per share of Wyeth common stock.
While Wyeth is now a wholly owned subsidiary of Pfizer, the merger of local
Pfizer and Wyeth entities may be pending or delayed in various jurisdictions and
integration in these jurisdictions is subject to completion of various local
legal and regulatory obligations. We have taken certain actions and incurred
certain costs associated with the transaction prior to the acquisition date that
are reflected in our financial statements. However, the assets acquired and
liabilities assumed from Wyeth, the consideration paid to acquire Wyeth, as well
as the results of Wyeth’s operations, are not reflected in our Condensed
Consolidated Financial Statements as of and for the three and nine month periods
ended September 27, 2009.
Wyeth’s
core business was the discovery, development, manufacture and sale of
prescription pharmaceutical products for humans. Other operations of Wyeth
included consumer health care products (over-the-counter products), vaccines,
nutritionals and animal health products. With the acquisition of Wyeth, we are
now a more diversified health care company, with product offerings in human,
animal, and consumer health, including vaccines, biologics, small molecules and
nutrition across developed and emerging markets. The acquisition of
Wyeth also strengthens our pipeline of biopharmaceutical development projects to
help patients in critical areas, including Alzheimer’s disease, oncology, pain,
neuroscience, diabetes and inflammation.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Divestiture
of Certain Animal Health Assets
We are
required to divest certain animal health assets in connection with the
regulatory approval process associated with our acquisition of
Wyeth. Certain animal health assets have been divested, and the
divestitures of certain other animal health assets are pending or planned. These
assets will be accounted for at fair value, less costs to sell.
Guarantee
of Certain Wyeth Debt
On October 30, 2009, Pfizer Inc.
guaranteed $10.3 billion in aggregate principal amount of certain Wyeth debt.
Such debt has a weighted-average maturity in 2021, ranging from 2011 through
2037. The guarantee is an unconditional and irrevocable guarantee of the
prompt payment, when due, of any amounts owed in respect of such debt. It is an
unsecured unsubordinated obligation of Pfizer Inc.
B. Fair Value of
Consideration Transferred
The table
below details the consideration transferred to acquire Wyeth:
(In
millions, except per share amounts)
|
|
Conversion
Calculation
|
|
|
Fair
Value
|
|
Form
of
Consideration
|
Wyeth
common stock outstanding as of the acquisition date
|
|
|
1,339.6 |
|
|
|
|
|
Multiplied
by Pfizer’s stock price as of the acquisition date multiplied by
the
exchange
ratio of 0.985 ($17.66(a)
x 0.985)
|
|
$ |
17.40 |
|
|
$ |
23,303 |
|
Pfizer
common
stock (a),
(b)
|
|
|
|
|
|
|
|
|
|
|
Wyeth
common stock outstanding as of the acquisition date
|
|
|
1,339.6 |
|
|
|
|
|
|
Multiplied
by cash consideration per common share outstanding
|
|
$ |
33.00 |
|
|
|
44,208 |
|
Cash
|
|
|
|
|
|
|
|
|
|
|
Wyeth
stock options cancelled for a cash payment(c)
|
|
|
|
|
|
|
405 |
|
Cash
|
|
|
|
|
|
|
|
|
|
|
Wyeth
restricted stock/restricted stock units and other equity-based
awards
cancelled
for a cash payment
|
|
|
|
|
|
|
320 |
|
Cash
|
|
|
|
|
|
|
|
|
|
|
Total
fair value of consideration transferred
|
|
|
|
|
|
$ |
68,236 |
|
|
(a)
|
The
fair value of Pfizer’s common stock used in the conversion calculation
represents the closing market price of Pfizer’s common stock on the
acquisition date.
|
(b)
|
Approximately
1.3 billion shares of Pfizer common stock were issued to former Wyeth
shareholders.
|
(c)
|
Each
Wyeth stock option, whether or not vested and exercisable on the
acquisition date, was cancelled for a cash payment equal to the excess of
the per-share value of the merger consideration (on the basis of the
volume-weighted average of the per-share price of Pfizer common stock on
the NYSE Transaction Reporting System for the five consecutive trading
days ending two days prior to the acquisition date) over the per-share
exercise price of the Wyeth stock
option.
|
C. Allocation of
Consideration Transferred
The
transaction will be accounted for using the acquisition method of accounting
under existing U.S. generally accepted accounting principles (GAAP
standards). The acquisition method of accounting requires, among other things,
that most assets acquired and liabilities assumed be recognized at their fair
values as of the acquisition date and that the fair value of acquired in-process
research and development be recorded on the balance sheet.
Due to
the significant limitations on access to Wyeth information prior to the
acquisition date, and the limited time since the acquisition date, the initial
accounting for the business combination is incomplete at this
time. As a result, we are unable to provide the amounts recognized as
of the acquisition date for the major classes of assets acquired and liabilities
assumed, including the information required for accounts receivables,
pre-acquisition contingencies and goodwill. We will include this information in
our 2009 Annual Report on Form 10-K.
PFIZER
INC. AND SUBSIDIARY COMPANIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. Pro Forma
Impact of the Transaction
Because
the initial accounting for the business combination is incomplete at this time
(see Note 14C. Subsequent
Event – Acquisition of Wyeth: Allocation of Consideration Transferred),
we are unable to provide the pro forma revenues and earnings of the combined
entity. We will include this information in our 2009 Annual Report on Form
10-K.
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 September 27, 2009, the related condensed consolidated
statements of income for the three-month and nine-month periods ended September
27, 2009, and September 28, 2008, and the related condensed consolidated
statements of cash flows for the nine-month periods ended September 27, 2009,
and September 28, 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
November
5, 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 28,
provides information about the following: our business; our performance
during the third quarter and first nine months of 2009; our operating
environment; our strategic initiatives; and our cost-reduction
initiatives.
|
●
|
Revenues. This section,
beginning on page 34, provides an analysis of our products and revenues
for the three- and nine- month periods ended September 27, 2009 and
September 28, 2008, as well as an overview of important product
developments.
|
●
|
Costs and Expenses.
This section, beginning on page 43, provides a discussion about our costs
and expenses.
|
●
|
Provision for Taxes on
Income. This section, on page 46, provides a discussion of items
impacting our tax provision for the periods
presented.
|
●
|
Adjusted Income. This
section, beginning on page 46, provides a discussion of an alternative
view of performance used by
management.
|
●
|
Financial Condition, Liquidity
and Capital Resources. This section, beginning on page 50, provides
an analysis of our balance sheets as of September 27, 2009 and December
31, 2008 and cash flows for the first nine months of 2009 and 2008, as
well as a discussion of our outstanding debt and commitments that existed
as of September 27, 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 our future
activities.
|
●
|
Outlook. This section,
beginning on page 54, provides a discussion of our expectations for
full-year 2009, among other things.
|
●
|
Forward-Looking Information
and Factors That May Affect Future Results. This section, beginning
on page 55, 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
|
|
|
Nine
Months Ended
|
|
(MILLIONS
OF DOLLARS, EXCEPT PER COMMON SHARE
DATA)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
Revenues
|
|
$ |
11,621 |
|
|
$ |
11,973 |
|
|
|
(3 |
)
% |
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
|
(7 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,789 |
|
|
|
2,122 |
|
|
|
(16 |
) |
|
|
4,953 |
|
|
|
6,397 |
|
|
|
(23 |
) |
%
of revenues
|
|
|
15.4
|
% |
|
|
17.7
|
% |
|
|
|
|
|
|
14.8
|
% |
|
|
17.8
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
informational and administrative expenses
|
|
|
3,282 |
|
|
|
3,523 |
|
|
|
(7 |
) |
|
|
9,508 |
|
|
|
10,878 |
|
|
|
(13 |
) |
%
of revenues
|
|
|
28.2
|
% |
|
|
29.4
|
% |
|
|
|
|
|
|
28.4
|
% |
|
|
30.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
1,632 |
|
|
|
1,885 |
|
|
|
(13 |
) |
|
|
5,032 |
|
|
|
5,642 |
|
|
|
(11 |
) |
%
of revenues
|
|
|
14.0
|
% |
|
|
15.7
|
% |
|
|
|
|
|
|
15.0
|
% |
|
|
15.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
594 |
|
|
|
621 |
|
|
|
(4 |
) |
|
|
1,755 |
|
|
|
2,063 |
|
|
|
(15 |
) |
%
of revenues
|
|
|
5.1
|
% |
|
|
5.2
|
% |
|
|
|
|
|
|
5.2
|
% |
|
|
5.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
in-process research and development charges
|
|
|
–– |
|
|
|
13 |
|
|
|
(100 |
) |
|
|
20 |
|
|
|
567 |
|
|
|
(96 |
) |
%
of revenues
|
|
|
––
|
% |
|
|
0.1
|
% |
|
|
|
|
|
|
0.1
|
% |
|
|
1.6
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges and acquisition-related costs
|
|
|
193 |
|
|
|
366 |
|
|
|
(47 |
) |
|
|
1,206 |
|
|
|
1,113 |
|
|
|
8 |
|
%
of revenues
|
|
|
1.7
|
% |
|
|
3.1
|
% |
|
|
|
|
|
|
3.6
|
% |
|
|
3.1
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income)/deductions - net
|
|
|
160 |
|
|
|
721 |
|
|
|
(78 |
) |
|
|
175 |
|
|
|
221 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for taxes on
income
|
|
|
3,971 |
|
|
|
2,722 |
|
|
|
46 |
|
|
|
10,823 |
|
|
|
9,069 |
|
|
|
19 |
|
%
of revenues
|
|
|
34.2
|
% |
|
|
22.7
|
% |
|
|
|
|
|
|
32.3
|
% |
|
|
25.2
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for taxes on income
|
|
|
1,092 |
|
|
|
463 |
|
|
|
136 |
|
|
|
2,952 |
|
|
|
1,251 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
27.5
|
% |
|
|
17.0
|
% |
|
|
|
|
|
|
27.3
|
% |
|
|
13.8
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,879 |
|
|
|
2,259 |
|
|
|
27 |
|
|
|
7,871 |
|
|
|
7,818 |
|
|
|
1 |
|
%
of revenues
|
|
|
24.8
|
% |
|
|
18.9
|
% |
|
|
|
|
|
|
23.5
|
% |
|
|
21.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations - net of tax
|
|
|
2 |
|
|
|
25 |
|
|
|
(90 |
) |
|
|
6 |
|
|
|
38 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before allocation to noncontrolling interests
|
|
|
2,881 |
|
|
|
2,284 |
|
|
|
26 |
|
|
|
7,877 |
|
|
|
7,856 |
|
|
|
–– |
|
%
of revenues
|
|
|
24.8
|
% |
|
|
19.1
|
% |
|
|
|
|
|
|
23.5
|
% |
|
|
21.9
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to
noncontrolling interests
|
|
|
3 |
|
|
|
6 |
|
|
|
(44 |
) |
|
|
9 |
|
|
|
18 |
|
|
|
(49 |
) |
Net
income attributable to Pfizer Inc.
|
|
$ |
2,878 |
|
|
$ |
2,278 |
|
|
|
26 |
|
|
$ |
7,868 |
|
|
$ |
7,838 |
|
|
|
–– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of revenues
|
|
|
24.8
|
% |
|
|
19.0
|
% |
|
|
|
|
|
|
23.5
|
% |
|
|
21.8
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to
Pfizer
Inc.
common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
|
26 |
|
|
$ |
1.17 |
|
|
$ |
1.16 |
|
|
|
1 |
|
Discontinued
operations - net of tax
|
|
|
–– |
|
|
|
— |
|
|
|
— |
|
|
|
–– |
|
|
|
— |
|
|
|
–– |
|
Net
income attributable to Pfizer Inc. common
shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
|
26 |
|
|
$ |
1.17 |
|
|
$ |
1.16 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations attributable to
Pfizer
Inc.
common shareholders
|
|
$ |
0.43 |
|
|
$ |
0.33 |
|
|
|
30 |
|
|
$ |
1.16 |
|
|
$ |
1.16 |
|
|
|
–– |
|
Discontinued
operations - net of tax
|
|
|
–– |
|
|
|
0.01 |
|
|
|
(100 |
) |
|
|
–– |
|
|
|
— |
|
|
|
–– |
|
Net
income attributable to Pfizer Inc. common
shareholders
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
|
26 |
|
|
$ |
1.16 |
|
|
$ |
1.16 |
|
|
|
–– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.64 |
|
|
$ |
0.96 |
|
|
|
|
|
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
October 15, 2009, we completed our acquisition of Wyeth in a cash-and-stock
transaction valued, based on the closing market price of Pfizer’s common stock
on that date, at $50.40 per share of Wyeth common stock, or a total of
approximately $68 billion. We have taken certain actions and incurred certain
costs associated with the transaction prior to the acquisition closing date that
are reflected in our financial statements. However, the assets acquired and
liabilities assumed from Wyeth, the consideration paid to acquire Wyeth, as well
as the results of Wyeth’s operations, are not reflected in our Condensed
Consolidated Financial Statements as of and for the three and nine month periods
ended September 27, 2009. For additional information see the “Our Strategic
Initiatives – Strategy and Recent Transactions” and “Costs and Expenses –
Acquisition-Related Costs” sections of this MD&A.
Our 2009
Performance
Revenues in the third quarter
of 2009 decreased 3% to $11.6 billion compared to the same period in 2008.
Revenues in the first nine months of 2009 decreased 7% to $33.5 billion compared
to the same period in 2008. The significant human pharmaceutical product,
alliance revenue and Animal Health impacts on revenues for the third quarter and
first nine months of 2009, compared to the same periods in 2008, are as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27, 2009 vs.
Sept.
28, 2008
Increase/
(decrease)
|
|
|
%
Change
|
|
|
Sept.
27, 2009 vs.
Sept.
28, 2008
Increase/
(decrease)
|
|
|
%
Change
|
|
Lipitor(a)
|
|
$ |
(289 |
) |
|
|
(9 |
)
% |
|
$ |
(996 |
) |
|
|
(11 |
)
% |
Norvasc(b)
|
|
|
(74 |
) |
|
|
(13 |
) |
|
|
(215 |
) |
|
|
(13 |
) |
Camptosar(b)
|
|
|
(40 |
) |
|
|
(33 |
) |
|
|
(175 |
) |
|
|
(39 |
) |
Chantix/Champix(c)
|
|
|
(27 |
) |
|
|
(15 |
) |
|
|
(142 |
) |
|
|
(21 |
) |
Zyrtec/Zyrtec
D(b)
|
|
|
–– |
|
|
|
–– |
|
|
|
(125 |
) |
|
|
(100 |
) |
Celebrex
|
|
|
(23 |
) |
|
|
(4 |
) |
|
|
(111 |
) |
|
|
(6 |
) |
Viagra
|
|
|
(43 |
) |
|
|
(8 |
) |
|
|
(89 |
) |
|
|
(6 |
) |
Detrol/Detrol
LA
|
|
|
(15 |
) |
|
|
(5 |
) |
|
|
(56 |
) |
|
|
(6 |
) |
Xalatan/Xalacom
|
|
|
(14 |
) |
|
|
(3 |
) |
|
|
(53 |
) |
|
|
(4 |
) |
Sutent
|
|
|
20 |
|
|
|
9 |
|
|
|
44 |
|
|
|
7 |
|
Revatio
|
|
|
16 |
|
|
|
18 |
|
|
|
78 |
|
|
|
33 |
|
Lyrica
|
|
|
33 |
|
|
|
5 |
|
|
|
149 |
|
|
|
8 |
|
Alliance
revenues
|
|
|
121 |
|
|
|
21 |
|
|
|
250 |
|
|
|
15 |
|
Animal
Health
|
|
|
(30 |
) |
|
|
(4 |
) |
|
|
(179 |
) |
|
|
(9 |
) |
(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 and
in Europe in July 2009. Norvasc lost exclusivity in Japan in July
2008.
|
(c)
|
Chantix/Champix
has been negatively impacted by changes to its label in 2008 and
additional label changes in July 2009 (see “Revenues – Pharmaceutical –
Selected Product Descriptions” section of this
MD&A).
|
Foreign
exchange unfavorably impacted revenues by approximately $610 million, or 5%, in
the third quarter of 2009 and approximately $2.3 billion, or 6%, during the
first nine months of 2009, compared to the same periods in 2008. Revenues in the
third quarter and first nine months of 2009 compared to the year-ago periods
were favorably impacted by a $217 million adjustment in the third quarter and
first nine months of 2008 related to prior years’ liabilities for product
returns.
In the
U.S., revenues decreased 2% in the third quarter of 2009 and 6% in the first
nine months of 2009, compared to the same periods in 2008, reflecting, in part,
continued generic competition, loss of exclusivity for certain products and
increasing managed care pricing pressures and formulary restrictions.
International revenues decreased 4% in the third quarter of 2009 and 8% in the
first nine months of 2009, compared to the same periods in 2008, reflecting the
negative impact of foreign exchange, partially offset by operational growth in
these markets.
The
impact of rebates in the third quarter of 2009 decreased revenues by
approximately $898 million, compared to approximately $825 million in the
prior-year third quarter. The impact of rebates in the first nine months of 2009
decreased revenues by approximately $2.8 billion, compared to approximately $2.5
billion for the first nine 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.
For
further discussion of our pharmaceutical products and revenues, see the
“Revenues – Pharmaceutical Business Revenues” section of this
MD&A.
Income from continuing operations
for the third quarter of 2009 was $2.9 billion, compared to $2.3 billion
in the third quarter of 2008, and $7.9 billion in the first nine months of 2009,
compared to $7.8 billion in the first nine months of 2008.
The
increases were primarily due to:
●
|
the
after-tax charge of $640 million resulting from agreements to resolve
certain litigation involving the Company’s non-steroidal
anti-inflammatory (NSAID) pain medicines in the year-ago
quarter;
|
●
|
lower
costs associated with implementing our Pfizer cost reduction
initiatives;
|
●
|
savings
related to our Pfizer cost-reduction initiatives;
and
|
●
|
lower
acquisition-related in-process research and development charges of $20
million in the first nine months of 2009 compared to $567 million in the
first nine months of 2008;
|
partially
offset by:
●
|
the
decrease in revenues reflecting, in particular, the unfavorable impact of
foreign exchange;
|
●
|
the
increase in the effective tax rate, net of a $174 million favorable income
tax adjustment in the third quarter of 2009, attributable mainly to
increased tax costs associated with certain business decisions executed to
finance the acquisition of Wyeth as well as the non-recurrence of
favorable income tax adjustments that were recorded during the first nine
months of 2008;
|
●
|
higher
interest expense, mainly due to the issuance of approximately $24 billion
in senior unsecured notes in the first half of 2009 to partially finance
the acquisition of Wyeth, as well as lower interest income;
and
|
●
|
costs
incurred in connection with the Wyeth
acquisition.
|
We have
made significant progress with our Pfizer 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 nine months of 2009, 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 the provisions of a new
accounting standard issued by the Financial Accounting Standards Board (FASB)
related to business combinations, beginning January 1, 2009, IPR&D related
to acquisitions after adoption will be recorded on our consolidated balance
sheet as indefinite-lived intangible assets. No acquisitions were consummated in
the first nine months 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, Celebrex and Lyrica. 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. The recession has also 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 taken
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 operations.
In order to meet these challenges and capitalize on opportunities in the
marketplace, we have taken, and continue to take steps to change the way we
operate our Pharmaceutical and other operations.
Effective
January 1, 2009, we changed our operating model within the Pharmaceutical
segment, which during the first nine months of 2009 was 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 in Europe in July
2009 and for Norvasc in the U.S. in March 2007 and in Japan in July 2008. 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. Generic competition is also adversely impacting
revenues in the U.S. for certain other products, including Celebrex and
Lyrica.
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 nine 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 third-quarter 2008, we recorded approximately
$170 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 nine months of 2008.
In the first nine months of 2009, we resolved a contingency associated
with CovX and recorded $20 million in Acquisition-related in-process
research and development
charges.
|
The
following transactions were not completed as of the end of the third quarter of
2009, and our consolidated financial statements as of September 27, 2009 do not
assume their completion. However, we have incurred certain costs related to the
acquisition of Wyeth that are reflected in our financial
statements:
●
|
On
October 15, 2009 (the acquisition date), we acquired all of the
outstanding equity of Wyeth in a cash-and-stock transaction, valued at
approximately $68 billion, in which each share of Wyeth common stock
outstanding, with certain limited exceptions, was cancelled and converted
into the right to receive $33.00 in cash without interest and 0.985 of a
share of Pfizer common stock. The stock component was valued at $17.40 per
share of Wyeth common stock based on the closing market price of Pfizer’s
common stock on the acquisition date, resulting in a total merger
consideration value of $50.40 per share of Wyeth common stock. While Wyeth
is now a wholly owned subsidiary of Pfizer, the merger of local Pfizer and
Wyeth entities may be pending or delayed in various jurisdictions and
integration in these jurisdictions is subject to completion of various
local legal and regulatory obligations. We have taken certain actions and
incurred certain costs associated with the transaction prior to the
acquisition date that are reflected in our financial statements. However,
the assets acquired and liabilities assumed from Wyeth, the consideration
paid to acquire Wyeth, as well as the results of Wyeth’s operations, are
not reflected in our Condensed Consolidated Financial Statements as of and
for the three and nine month periods ended September 27,
2009.
|
Wyeth’s
core business was the discovery, development, manufacture and sale of
prescription pharmaceutical products for humans. Other operations of Wyeth
included consumer health care products (over-the-counter products), vaccines,
nutritionals and animal health products. With the acquisition of Wyeth, we are
now a more diversified health care company, with product offerings in human,
animal, and consumer health, including vaccines, biologics, small molecules and
nutrition across developed and emerging markets. The acquisition of
Wyeth also strengthens our pipeline of biopharmaceutical development projects to
help patients in critical areas, including Alzheimer’s disease, oncology, pain,
neuroscience, diabetes and inflammation.
We were
required to divest certain animal health assets in connection with the
regulatory approval process associated with our acquisition of
Wyeth. As a result, in October 2009 we sold certain products,
research and manufacturing facilities located primarily in Fort Dodge, Iowa, as
well as related assets and intellectual property, primarily from Wyeth’s Fort
Dodge Animal Health portfolio in the U.S. and Canada to Boehringer Ingelheim
(BI). The products primarily included cattle and small animal vaccines and some
animal health pharmaceuticals. BI also acquired certain animal health
assets in other jurisdictions, including companion animal vaccines in Australia,
and cattle vaccines in South Africa, all of which are primarily manufactured at
the Fort Dodge, Iowa site. BI has agreed to acquire certain cattle vaccines in
the European Union, pending approval from the European Commission. In the
European Union, Switzerland, Mexico, China, and Australia, in connection with
the regulatory approval process associated with our acquisition of Wyeth, we are
also required to divest certain other animal health assets for which we have not
yet identified a buyer. It is possible that additional divestitures
of animal health assets may be required based on ongoing regulatory reviews in
other jurisdictions worldwide.
Due to
the significant limitations on access to information relating to Wyeth prior to
the acquisition date, and the limited time since the acquisition date, the
initial accounting for the business combination is incomplete at this
time. We will include this information in our 2009 Annual Report on
Form 10-K. Additional information, such as the unaudited pro forma condensed
combined financial statements of Pfizer and Wyeth as of and for the six months
ended June 28, 2009 and for the year ended December 31, 2008, can be found in
Pfizer’s Current Report on Form 8-K filed with the U.S. Securities and Exchange
Commission on October 21, 2009.
Also, for
additional information, see Note 14. Subsequent Event –
Acquisition of Wyeth in the Notes to the Condensed Consolidated 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. The transaction closed on October 30, 2009 and the
new company, ViiV Healthcare Limited (ViiV) began operations on November
2, 2009. We and GSK have contributed or will contribute certain
product and pipeline assets to the new company. ViiV has a broad product
portfolio of 11 marketed products, including innovative leading therapies
such as Combivir
and Kivexa
products and
Selzentry/Celsentri
(maraviroc). ViiV has a pipeline of six innovative and
targeted medicines, including four compounds in Phase 2
development. ViiV has contracted research and development
(R&D) and manufacturing services directly from GSK and us and has also
entered into a new research alliance agreement with GSK and us. Under this
new alliance, ViiV will invest in our and GSK’s programs for discovery
research and development into HIV medicines. ViiV has exclusive
rights of first negotiation in relation to any new HIV-related medicines
developed by either GSK or us. We initially hold a 15% equity
interest and GSK holds 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 ViiV could vary
from 9% to 30.5%, and GSK’s equity interest 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 ViiV. 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 interest
in ViiV as an equity method
investment.
|
Our Cost-Reduction
Initiatives
We
acquired Wyeth on October 15, 2009, and, as a result, we are focusing on the
cost structure of the combined company. Through the integration of Wyeth, which
began on the day after the acquisition date, and our Pfizer cost-reduction
initiatives, we expect to generate significant cost reductions for the combined
company.
Overall,
we expect to achieve total annual cost savings of approximately $6 billion by
the end of 2012. These targeted savings include $2 billion in net cost
reductions from Pfizer cost-reduction initiatives, of which we have achieved
approximately $950 million through September 27, 2009, and an additional $4
billion in expected synergies related to the integration of Wyeth.
We have
incurred and will continue to incur costs associated with these cost-reduction
activities and estimate that these costs could be in the range of approximately
$11.5 billion to $13.5 billion through 2012, of which we have incurred $2.3
billion through September 27, 2009. These costs will be expensed as
incurred.
We expect
to achieve these cost savings through:
●
|
the
closing of duplicative facilities and other site rationalization actions
company-wide, including research and development facilities, manufacturing
plants, sales offices and other corporate
facilities;
|
●
|
workforce
reductions and other organizational
changes;
|
●
|
the
increased use of shared services;
and
|
Pfizer
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. 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 Pfizer cost-reduction
initiative that we anticipate will achieve a reduction in adjusted total costs
of approximately $3 billion, on a constant currency basis at 2008 exchange
rates, by the end of 2011, compared with our 2008 adjusted total costs. 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. As stated above, these targeted savings will now be considered in the
context of the newly combined company for a total target of $6 billion in
reductions by the end of 2012. For an understanding of Adjusted income, see the
“Adjusted income” section of this MD&A.
As part
of the Pfizer cost-reduction initiative announced in January 2009, and without
consideration of synergies expected to be achieved in connection with the Wyeth
acquisition, 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 third quarter of 2009,
we reduced our workforce by approximately 1,100 employees and, in the first nine
months of 2009, we reduced our workforce by approximately 6,500 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 cost-reduction initiative of approximately
$5.5 billion, pre-tax, of which $1.5 billion was recorded in 2008. During the
third quarter of 2009, we incurred costs related to this cost-reduction
initiative of $141 million and, in the first nine months of 2009, we incurred
costs related to this cost-reduction initiative of $802 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
related to Pfizer cost-reduction initiatives, without consideration of any
impacts in connection with the acquisition of Wyeth, 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. 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,
without consideration of any impacts in connection with the acquisition of
Wyeth, 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 third quarter of 2009, we have reduced
our internal network of plants from 93 in 2003 to 43, 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, without consideration of plants acquired in the Wyeth acquisition,
around the world to 41, resulting in 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, without consideration of products acquired in the
Wyeth acquisition.
|
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
third quarter of 2009, we reduced our global field force by approximately
21%, with approximately 19% of the total reductions occurring since the
beginning of 2007.
|
REVENUES
Worldwide
revenues by segment and geographic area for the third quarter and first nine
months of 2009 and 2008 follow:
|
|
|
|
|
|
|
|
|
|
|
|
%
Change in Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
World-
|
|
|
|
|
|
Inter-
|
|
|
|
Worldwide
|
|
|
U.S.
|
|
|
International
|
|
|
|
wide
|
|
|
U.S.
|
|
|
national
|
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
|
Sept.
27,
|
|
|
Sept.
28,
|
|
|
Sept.
27,
|
|
|
|
Sept.
28,
|
|
|
|
|
|
|
|
|
|
|
|
(millions
of dollars)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
09/08 |
|
|
|
09/08 |
|
|
|
09/08 |
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
10,677 |
|
|
$ |
10,976 |
|
|
$ |
4,448 |
|
|
$ |
4,518 |
|
|
$ |
6,229 |
|
|
|
$ |
6,458 |
|
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
Animal
Health
|
|
|
678 |
|
|
|
708 |
|
|
|
294 |
|
|
|
303 |
|
|
|
384 |
|
|
|
|
405 |
|
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
Other
|
|
|
266 |
|
|
|
289 |
|
|
|
74 |
|
|
|
80 |
|
|
|
192 |
|
|
|
|
209 |
|
|
|
|
(8 |
) |
|
|
(8 |
) |
|
|
(8 |
) |
Total
revenues
|
|
$ |
11,621 |
|
|
$ |
11,973 |
|
|
$ |
4,816 |
|
|
$ |
4,901 |
|
|
$ |
6,805 |
|
(a)
|
|
$ |
7,072 |
|
(a)
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical
|
|
$ |
30,842 |
|
|
$ |
32,933 |
|
|
$ |
13,347 |
|
|
$ |
14,024 |
|
|
$ |
17,495 |
|
|
|
$ |
18,909 |
|
|
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(7 |
) |
Animal
Health
|
|
|
1,863 |
|
|
|
2,042 |
|
|
|
749 |
|
|
|
812 |
|
|
|
1,114 |
|
|
|
|
1,230 |
|
|
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(9 |
) |
Other
|
|
|
767 |
|
|
|
975 |
|
|
|
213 |
|
|
|
325 |
|
|
|
554 |
|
|
|
|
650 |
|
|
|
|
(21 |
) |
|
|
(34 |
) |
|
|
(15 |
) |
Total
revenues
|
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
$ |
14,309 |
|
|
$ |
15,161 |
|
|
$ |
19,163 |
|
(b)
|
|
$ |
20,789 |
|
(b)
|
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
(a)
|
Includes
revenues from Japan of $968 million (8.3% of total revenues) for the third
quarter of 2009, and $899 million (7.5% of total revenues) for the third
quarter of 2008.
|
(b)
|
Includes
revenues from Japan of $3.0 billion (8.9% of total revenues) for the first
nine months of 2009, and $2.7 billion (7.5% of total revenues) for the
first nine months of 2008.
|
Worldwide
revenues by segment, and by business unit within the Pharmaceutical segment, for
the third quarter and first nine months of 2009 and 2008 follow:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
Pharmaceutical:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary care
|
|
$ |
5,511 |
|
|
$ |
5,769 |
|
|
|
(4 |
)
% |
|
$ |
15,968 |
|
|
$ |
17,044 |
|
|
|
(6 |
)
% |
Specialty care
|
|
|
1,573 |
|
|
|
1,529 |
|
|
|
3 |
|
|
|
4,452 |
|
|
|
4,376 |
|
|
|
2 |
|
Oncology
|
|
|
371 |
|
|
|
389 |
|
|
|
(5 |
) |
|
|
1,073 |
|
|
|
1,194 |
|
|
|
(10 |
) |
Established
products
|
|
|
1,618 |
|
|
|
1,834 |
|
|
|
(12 |
) |
|
|
4,867 |
|
|
|
5,713 |
|
|
|
(15 |
) |
Emerging
markets
|
|
|
1,604 |
|
|
|
1,672 |
|
|
|
(4 |
) |
|
|
4,482 |
|
|
|
4,823 |
|
|
|
(7 |
) |
Returns
adjustment
|
|
|
–– |
|
|
|
(217 |
) |
|
|
* |
|
|
|
–– |
|
|
|
(217 |
) |
|
|
* |
|
Total
Pharmaceutical
|
|
|
10,677 |
|
|
|
10,976 |
|
|
|
(3 |
) |
|
|
30,842 |
|
|
|
32,933 |
|
|
|
(6 |
) |
Animal
Health
|
|
|
678 |
|
|
|
708 |
|
|
|
(4 |
) |
|
|
1,863 |
|
|
|
2,042 |
|
|
|
(9 |
) |
Other
|
|
|
266 |
|
|
|
289 |
|
|
|
(8 |
) |
|
|
767 |
|
|
|
975 |
|
|
|
(21 |
) |
Total
revenues
|
|
$ |
11,621 |
|
|
$ |
11,973 |
|
|
|
(3 |
) |
|
$ |
33,472 |
|
|
$ |
35,950 |
|
|
|
(7 |
) |
*
|
Calculation
not meaningful
|
Pharmaceutical Business
Revenues
Worldwide
Pharmaceutical revenues decreased 3% for the third quarter of 2009 and 6% for
the first nine 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, Australian dollar and Brazilian
real, which unfavorably impacted Pharmaceutical revenues by approximately
$555 million, or 5%, in the third quarter of 2009 and by approximately
$2.1 billion, or 6%, in the first nine months of
2009;
|
●
|
an
operational decrease in worldwide revenues for Lipitor of $137 million in
the third quarter of 2009 and $394 million in the first nine months of
2009, primarily resulting from competitive pressures from generics, among
other factors;
|
●
|
an
aggregate decrease in revenues for Norvasc and Camptosar of $114 million
in the third quarter of 2009 and for Norvasc, Camptosar and Zyrtec/Zyrtec
D of $515 million in the first nine months of 2009, due to the loss of
Norvasc exclusivity in Japan in July 2008, the loss of exclusivity of
Camptosar in the U.S. in February 2008 and in Europe in July 2009, and the
loss of U.S. exclusivity and cessation of selling of Zyrtec/Zyrtec D in
January 2008; and
|
●
|
a
decrease in worldwide revenues for Chantix/Champix of $27 million in the
third quarter of 2009 and $142 million in the first nine months of 2009,
primarily resulting from changes to the Chantix label during 2008 and in
July 2009, among other factors;
|
partially
offset by:
●
|
solid
operational performance from certain products, including Lyrica and
Sutent, and higher alliance revenues;
and
|
●
|
a
$217 million adjustment in the third quarter and first nine months of 2008
related to the prior years’ liabilities for product
returns.
|
Geographically,
●
|
in
the U.S., Pharmaceutical revenues decreased 2% in the third quarter of
2009 primarily due to lower sales of Lipitor, Celebrex and Lyrica and 5%
in the first nine months of 2009, primarily due to lower sales of Lipitor
and Celebrex, compared to the respective year-ago periods, as a result of
continued generic pressures. Revenues also were adversely affected by the
loss of exclusivity of Camptosar and Zyrtec/Zyrtec D, lower sales of
Chantix following the changes to the product label, increased rebates as a
result of the impact of certain contract changes, and increased pricing
pressures. These factors were partially offset by the solid performance
from certain products, including Revatio, Xalatan and Sutent, and higher
alliance revenue in the third quarter and first nine months of 2009;
and
|
●
|
in
our international markets, Pharmaceutical revenues decreased 4% in the
third quarter of 2009 and 7% in the first nine months of 2009, compared to
the same periods of 2008, primarily due to the unfavorable impact of
foreign exchange on international revenues of $555 million, or 9%, in the
third quarter of 2009 and $2.1 billion, or 11%, in the first nine months
of 2009, and lower sales of Norvasc, Camptosar and Viagra, partially
offset by operational growth from certain products, including Lipitor,
Lyrica, Zyvox, Vfend and Sutent, and higher alliance
revenues.
|
During
the third quarter of 2009, international Pharmaceutical revenues represented
58.3% of total Pharmaceutical revenues, compared to 58.8% in the third quarter
of 2008. During the first nine months of 2009, international Pharmaceutical
revenues represented 56.7% of total Pharmaceutical revenues, compared to 57.4%
in the first nine months of 2008.
Effective
August 14, 2009 and January 3, 2009, 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 $133 million in
the third quarter of 2009, compared to $113 million in the third quarter of
2008, and by $441 million in the first nine months of 2009, compared to $356
million in the first nine months of 2008. The increases in rebates under
Medicaid and related state programs were due primarily to increased rates for
certain products and a favorable adjustment recorded in the first nine months of
2008 to adjust for the estimated impact of the Deficit Reduction
Act.
Rebates
under Medicare reduced revenues by $209 million in the third quarter of 2009,
compared to $201 million in the third quarter of 2008, and by $653 million in
the first nine months of 2009, compared to $623 million in the first nine months
of 2008, due primarily to increased rebates for certain products.
Performance-based
contract and other rebates reduced revenues by $556 million in the third quarter
of 2009, compared to $510 million in the third quarter of 2008, and by $1.7
billion in the first nine months of 2009, compared to $1.5 billion in the first
nine 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 $495 million in the third quarter of 2009, compared
to $431 million in the third quarter of 2008, and by $1.5 billion in the first
nine months of 2009, compared to $1.4 billion in the first nine months of 2008.
The increases in chargebacks were due primarily to increased sales that are
subject to chargebacks in addition to increased competitive pricing
factors.
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 September 27, 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
|
|
|
Nine
Months Ended
|
|
Product+
|
Primary
Indications
|
|
Sept.
27,
2009
|
|
|
%
Change
From
2008
|
|
|
Sept.
27,
2009
|
|
|
%
Change
From
2008
|
|
Cardiovascular
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
metabolic
diseases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lipitor
|
Reduction
of LDL cholesterol
|
|
$ |
2,853 |
|
|
|
(9 |
)
% |
|
$ |
8,259 |
|
|
|
(11 |
)
% |
Norvasc
|
Hypertension
|
|
|
488 |
|
|
|
(13 |
) |
|
|
1,487 |
|
|
|
(13 |
) |
Chantix/Champix
|
An
aid to smoking cessation
|
|
|
155 |
|
|
|
(15 |
) |
|
|
524 |
|
|
|
(21 |
) |
Caduet
|
Reduction
of LDL cholesterol and hypertension
|
|
|
130 |
|
|
|
(12 |
) |
|
|
392 |
|
|
|
(11 |
) |
Cardura
|
Hypertension/Benign
prostatic hyperplasia
|
|
|
109 |
|
|
|
(14 |
) |
|
|
330 |
|
|
|
(13 |
) |
Revatio
|
Pulmonary
arterial hypertension
|
|
|
111 |
|
|
|
18 |
|
|
|
319 |
|
|
|
33 |
|
Central
nervous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
system
disorders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyrica
|
Epilepsy,
post-herpetic neuralgia and diabetic
peripheral neuropathy,
fibromyalgia
|
|
|
708 |
|
|
|
5 |
|
|
|
2,020 |
|
|
|
8 |
|
Geodon/Zeldox
|
Schizophrenia
and acute manic or mixed episodes
associated with bipolar
disorder
|
|
|
252 |
|
|
|
(2 |
) |
|
|
713 |
|
|
|
(3 |
) |
Zoloft
|
Depression
and certain anxiety disorders
|
|
|
128 |
|
|
|
(5 |
) |
|
|
368 |
|
|
|
(10 |
) |
Aricept(a)
|
Alzheimer’s
disease
|
|
|
108 |
|
|
|
(17 |
) |
|
|
311 |
|
|
|
(12 |
) |
Neurontin
|
Epilepsy
and post-herpetic neuralgia
|
|
|
82 |
|
|
|
(20 |
) |
|
|
242 |
|
|
|
(18 |
) |
Relpax
|
Migraine
headaches
|
|
|
81 |
|
|
|
(2 |
) |
|
|
234 |
|
|
|
(2 |
) |
Xanax/Xanax XR
|
Anxiety/Panic
disorders
|
|
|
81 |
|
|
|
(11 |
) |
|
|
230 |
|
|
|
(14 |
) |
Arthritis
and pain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celebrex
|
Arthritis
pain and inflammation, acute pain
|
|
|
602 |
|
|
|
(4 |
) |
|
|
1,714 |
|
|
|
(6 |
) |
Infectious
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
respiratory
diseases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zyvox
|
Bacterial
infections
|
|
|
271 |
|
|
|
(3 |
) |
|
|
811 |
|
|
|
(2 |
) |
Vfend
|
Fungal
infections
|
|
|
196 |
|
|
|
3 |
|
|
|
555 |
|
|
|
1 |
|
Zithromax/Zmax
|
Bacterial
infections
|
|
|
85 |
|
|
|
(7 |
) |
|
|
299 |
|
|
|
(7 |
) |
Diflucan
|
Fungal
infections
|
|
|
93 |
|
|
|
(1 |
) |
|
|
244 |
|
|
|
(13 |
) |
Urology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Viagra
|
Erectile
dysfunction
|
|
|
466 |
|
|
|
(8 |
) |
|
|
1,343 |
|
|
|
(6 |
) |
Detrol/Detrol LA
|
Overactive
bladder
|
|
|
283 |
|
|
|
(5 |
) |
|
|
845 |
|
|
|
(6 |
) |
Oncology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sutent
|
Advanced
and/or metastatic renal cell carcinoma
(mRCC)
and refractory gastrointestinal
stromal
tumors (GIST)
|
|
|
246 |
|
|
|
9 |
|
|
|
671 |
|
|
|
7 |
|
Aromasin
|
Breast
cancer
|
|
|
123 |
|
|
|
1 |
|
|
|
347 |
|
|
|
1 |
|
Camptosar
|
Metastatic
colorectal cancer
|
|
|
82 |
|
|
|
(33 |
) |
|
|
276 |
|
|
|
(39 |
) |
Ophthalmology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xalatan/Xalacom
|
Glaucoma
and ocular hypertension
|
|
|
436 |
|
|
|
(3 |
) |
|
|
1,238 |
|
|
|
(4 |
) |
Endocrine
disorders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genotropin
|
Replacement
of human growth hormone
|
|
|
232 |
|
|
|
3 |
|
|
|
636 |
|
|
|
(5 |
) |
All
other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zyrtec/Zyrtec D
|
Allergies
|
|
|
–– |
|
|
|
–– |
|
|
|
–– |
|
|
|
(100 |
) |
Alliance
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aricept,
Exforge,
Rebif
and Spiriva
|
Alzheimer’s
disease (Aricept), chronic obstructive pulmonary disease (Spiriva),
multiple sclerosis (Rebif) and hypertension (Exforge)
|
|
|
692 |
|
|
|
21 |
|
|
|
1,872 |
|
|
|
15 |
|
+
|
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 branded prescription treatment for lowering cholesterol and
the best-selling prescription pharmaceutical product of any kind in the
world. Lipitor recorded worldwide revenues of $2.9 billion or a decrease
of 9% in the third quarter of 2009 and $8.3 billion or a decrease of 11%
in the first nine 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 $153 million, or 5%, in the third quarter of
2009, and $603 million, or 6%, in the first nine months of 2009, compared
to the same periods in 2008. In the U.S., revenues were $1.4 billion or a
decrease of 12% in the third quarter of 2009 and $4.1 billion or a
decrease of 12% in the first nine months of 2009, compared with the same
periods in 2008. Internationally, Lipitor revenues were $1.5 billion or a
decrease of 6% in the third quarter of 2009 and $4.1 billion or a decrease
of 9% in the first nine months of 2009, compared to the same periods in
2008. The unfavorable impact of foreign exchange more than offset
operational growth of 3% in international markets in the third quarter of
2009 and 4% in the first nine months of 2009, compared to the same periods
last year.
|
The
decrease in Lipitor worldwide revenues in the third quarter and first nine
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 generics 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
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 decreased by 13% in both
the third quarter and in the first nine months of 2009 compared to the
same periods in 2008.
|
●
|
Chantix/Champix, the
first new prescription treatment to aid smoking cessation in nearly a
decade, has been launched in all major markets. Chantix/ Champix worldwide
revenues decreased 15% in the third quarter of 2009 and 21% in the first
nine months of 2009, compared to the same periods in 2008. Year-to-date
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 taking
Chantix should be observed by a physician for neuropsychiatric symptoms. 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. Additionally,
the boxed warning communicates that the health benefits of quitting smoking are
immediate and substantial, the risk of Chantix should be weighed against the
benefit of its use, and that Chantix has been demonstrated to increase the
likelihood of quitting for as long as one year compared to placebo. 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 third quarter of 2009 and 11% in the first nine
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.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain patent
litigation relating to Caduet.
●
|
Revatio, for the
treatment of pulmonary arterial hypertension, recorded an increase in
worldwide revenues of 18% in the third quarter of 2009 and 33% in the
first nine 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.
|
●
|
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 5% in the
third quarter of 2009 and 8% in the first nine months of 2009, compared to
the same periods in 2008. In the U.S., revenues have been adversely
affected by increased generic competition as well as managed care pricing
and formulary pressures.
|
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. Geodon recorded decreases in
worldwide revenues of 2% in the third quarter of 2009 and 3% in the first
nine 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.
|
●
|
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 4%
in the third quarter of 2009 and 6% in the first nine 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.
|
See Part
II – Other Information;
Item 1. Legal
Proceedings, of this Form 10-Q for a discussion of certain product
litigation relating to Celebrex.
●
|
Zyvox is the world’s
best-selling branded agent for the treatment of certain serious
Gram-positive pathogens, including Methicillin-Resistant
Staphylococcus-Aureus (MRSA). MRSA remains a serious and growing threat in
hospitals and the community. Zyvox is an excellent first-line choice for
the treatment of adults and children with complicated skin and skin
structure infections and 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. Zyvox worldwide
revenues decreased 3% in the third quarter of 2009 and 2% in the first
nine 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 8% in the third quarter of 2009 and 6% in the
first nine months of 2009, compared to the same periods in 2008. In the
U.S., revenues decreased 1% in the third quarter of 2009 and increased 6%
in the first nine months of 2009, compared to the same periods in 2008.
Internationally, Viagra revenues decreased by 14% in the third quarter of
2009 and 17% in the first nine 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
5% in the third quarter of 2009 and 6% in the first nine 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.
Sutent worldwide revenues increased 9% in the third quarter of 2009 and 7%
in the first nine 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 September 27, 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 33% in the third quarter
of 2009 and 39% in the first nine 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 3%
in the third quarter of 2009 and 4% in the first nine 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 increased 3% in
the third quarter of 2009 and decreased 5% in the first nine months of
2009. The unfavorable impact of foreign exchange was more than
offset by the operational revenue increases in the third quarter of 2009
and partially offset by the operational revenue increases in the first
nine months of 2009, compared to the same periods in
2008.
|
●
|
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 molds. Vfend
worldwide revenues increased 3% in the third quarter of 2009 and 1% in the
first nine months of 2009, 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 Vfend.
●
|
Alliance Revenues increased 21%
in the third quarter of 2009 and 15% in the first nine months of 2009,
compared to the same periods last year. The growth was due to the strong
performance of Aricept, Spiriva and
Rebif.
|
Animal
Health
Our
Animal Health business is one of the largest in the world. Revenues from our
Animal Health business follow:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Livestock
products
|
|
$ |
417 |
|
|
$ |
436 |
|
|
|
(4 |
)
% |
|
$ |
1,102 |
|
|
$ |
1,251 |
|
|
|
(12 |
)
% |
Companion
animal products
|
|
|
261 |
|
|
|
272 |
|
|
|
(4 |
) |
|
|
761 |
|
|
|
791 |
|
|
|
(4 |
) |
Total
Animal Health
|
|
$ |
678 |
|
|
$ |
708 |
|
|
|
(4 |
) |
|
$ |
1,863 |
|
|
$ |
2,042 |
|
|
|
(9 |
) |
Animal
Health revenues decreased 4% in the third quarter of 2009, compared to the same
period last year, primarily due to the unfavorable impact of foreign exchange of
6% and decreased 9% in the first nine months of 2009, compared to the same
period in 2008, due to the unfavorable impact of foreign exchange. In addition,
year-to-date revenues were impacted by:
●
|
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 2008-2009 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. We continue to expect to have a total of 24 to 28
programs in Phase 3 by the end of 2009. Early in 2010, we plan to update our
target range for regulatory submissions during the 2010-2012 period to reflect
the Wyeth acquisition.
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
|
|
|
|
Genotropin
|
Adult
growth hormone deficiency (Mark VII multidose disposable
device)
|
October
2009
|
|
|
|
Celebrex
|
Chronic
Pain
|
August
2009
|
|
|
|
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 mania – 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.
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. The transaction closed on October
30, 2009 and the new company, ViiV began operations on November 2,
2009. We have contributed Selzentry/Celsentri (maraviroc), among
other assets, to ViiV (see further discussion in the “Our Strategic Initiatives
- Strategy and Recent Transactions: Acquisitions, Licensing and Collaborations”
section of this MD&A). In
October 2009, an FDA advisory committee voted (10 to 4) to recommend the
approval by the FDA of Selzentry (maraviroc) tablets for use in treatment-naïve
adult patients with CCR5-tropic HIV-1 virus as part of combination
therapy.
In June
2009, an FDA advisory committee concluded that Geodon is effective for the
treatment of bipolar mania 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. On October 30, 2009, we received a “complete response” letter from
the FDA with respect to this NDA. The FDA is seeking additional information and
is requesting that we take certain actions with regard to the submission. We are
working with the FDA to address its requests and recommendations.
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 second 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.
BI, our
alliance partner, holds the U.S. NDA for Spiriva. In September 2008, BI 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
|
|
|
|
|
|
Geodon
|
Approval
in the EU for pediatric bipolar disorders
|
September
2009
|
|
––
|
|
|
|
|
|
Toviaz
|
Application
submitted in Japan for overactive bladder
|
––
|
|
September
2009
|
|
|
|
|
|
Genotropin
|
Application
submitted in the EU for adult growth hormone deficiency (Mark
VII
multidose
disposable device)
|
––
|
|
September
2009
|
|
|
|
|
|
Lyrica
|
Application
submitted in Japan for neuropathic pain
|
––
|
|
August
2009
|
|
|
|
|
|
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
|
|
––
|
|
|
|
|
|
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.
We are no
longer seeking approval in the EU for Celsentri (maraviroc) for the treatment of
HIV in treatment-naïve patients. Celsentri (maraviroc), remains approved in the
EU for use in combination with other antiretroviral medicinal
products for treatment-experienced adult patients with
only CCR5-tropic HIV-1 detectable.
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 in the U.S. include:
●
|
PF-02341066,
an oral c-Met and ALK inhibitor for the treatment of advanced non-small
cell lung cancer;
|
●
|
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 16% in the third quarter of 2009, compared to the same period in
2008, and 23% in the first nine months of 2009, compared to the same period in
2008. Revenues decreased 3% in the third quarter and 7% in the first nine months
of 2009, compared to the same periods in 2008. Cost of sales as a percentage of
revenues decreased 2.3 percentage points in the third quarter of 2009, compared
to the same period in 2008, and 3.0 percentage points in the first nine months
of 2009, compared to the same period in 2008, reflecting:
●
|
savings
related to our Pfizer cost-reduction
initiatives;
|
●
|
the
impact of lower implementation costs associated with our Pfizer
cost-reduction initiatives of $23 million in the third quarter of 2009,
compared to $172 million in the third quarter of 2008, and $144 million in
the first nine months of 2009, compared to $520 million in the first nine
months of 2008; and
|
●
|
the
favorable impact of foreign exchange in the first nine months of
2009;
|
partially
offset by;
●
|
the
unfavorable impact of foreign exchange in the third quarter of
2009.
|
Selling, Informational and
Administrative Expenses
Selling,
informational and administrative expenses decreased 7% in the third quarter of
2009, compared to the same period of 2008, and 13% in the first nine months of
2009, compared to the same period of 2008, which reflects:
●
|
savings
related to our Pfizer cost-reduction
initiatives;
|
●
|
the
favorable impact of foreign
exchange;
|
●
|
the
impact of lower implementation costs associated with our Pfizer
cost-reduction initiatives of $51 million in the third quarter of 2009,
compared to $95 million in the third quarter of 2008, and $182 million in
the first nine months of 2009, compared to $270 million in the first nine
months of 2008; and
|
●
|
certain
insurance recoveries of $165 million in the first nine months of 2009,
related to legal-defense costs.
|
Research and Development
Expenses
Research
and development expenses decreased 13% in the third quarter of 2009, compared to
the same period in 2008, and 11% in the first nine months of 2009, compared to
the same period in 2008, which reflects:
●
|
savings
related to our Pfizer cost-reduction
initiatives;
|
●
|
the
favorable impact of foreign exchange;
and
|
●
|
the
impact of lower implementation costs associated with our Pfizer
cost-reduction initiatives of $5 million in the third quarter of 2009,
compared to $108 million in the third quarter of 2008, and $78 million in
the first nine months of 2009, compared to $348 million in the first nine
months of 2008;
|
partially
offset by:
●
|
a
$150 million milestone payment to BMS recorded in the first nine 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 $567 million was recorded in the first nine months of 2008,
primarily related to our acquisitions of Encysive, Serenex, CovX, Coley and two
smaller acquisitions related to Animal Health. As a result of adopting the
provisions of a new accounting standard related to business combinations issued
by the FASB, beginning January 1, 2009, IPR&D related to acquisitions after
adoption will be recorded on our consolidated balance sheet as indefinite-lived
intangible assets. In the first nine months of 2009, we resolved a contingency
associated with CovX and recorded $20 million in Acquisition-related in-process
research and development charges. No acquisitions were consummated in the
first nine months of 2009.
Cost-Reduction
Initiatives
We
acquired Wyeth on October 15, 2009 and, as a result, we are focusing on the cost
structure of the combined company. Through the integration of Wyeth, which began
on the day after the acquisition date, and our Pfizer cost-reduction
initiatives, we expect to generate significant cost reductions for the combined
company.
Overall,
we expect to achieve total annual cost savings of approximately $6 billion by
the end of 2012. These targeted savings include $2 billion in net cost
reductions from Pfizer cost-reduction initiatives, of which we have achieved
approximately $950 million through September 27, 2009, and an additional $4
billion in expected synergies related to the integration of Wyeth.
We have
incurred and will continue to incur costs associated with these cost-reduction
activities and estimate that these costs could be in the range of approximately
$11.5 billion to $13.5 billion through 2012, of which we have incurred $2.3
billion through September 27, 2009. These costs will be expensed as
incurred.
We expect
to achieve these cost savings through:
●
|
the
closing of duplicative facilities and other site rationalization actions
company-wide, including research and development facilities, manufacturing
plants, sales offices and other corporate
facilities;
|
●
|
workforce
reductions and other organizational
changes;
|
●
|
the
increased use of shared services;
and
|
Pfizer
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. 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 Pfizer cost-reduction
initiative that we anticipate will achieve a reduction in adjusted total costs
of approximately $3 billion, on a constant currency basis at 2008 exchange
rates, by the end of 2011, compared with our 2008 adjusted total costs. 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. As stated above, these targeted savings will now be considered in the
context of the newly combined company for a total target of $6 billion in
reductions by the end of 2012. For an understanding of Adjusted income, see the
“Adjusted income” section of this MD&A.
The
actions associated with our Pfizer 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
following costs were incurred in connection with all of our Pfizer
cost-reduction initiatives, which began in 2005, and do not include any amounts
related to Wyeth:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Implementation
costs(a)
|
|
$ |
80 |
|
|
$ |
378 |
|
|
$ |
410 |
|
|
$ |
1,140 |
|
Restructuring
charges(b)
|
|
|
61 |
|
|
|
338 |
|
|
|
392 |
|
|
|
1,077 |
|
Total
costs related to our cost-reduction initiatives
|
|
$ |
141 |
|
|
$ |
716 |
|
|
$ |
802 |
|
|
$ |
2,217 |
|
(a)
|
For
the third quarter of 2009, included in Cost of sales ($23
million), Selling,
informational and administrative expenses ($51 million), Research and development
expenses ($5 million), and Other (income)/deductions -
net ($1 million). For the third quarter of 2008, included in Cost of sales ($172
million), Selling,
informational and administrative expenses ($95 million), Research and development
expenses ($108 million) and Other (income)/deductions -
net ($3 million). For the first nine months of 2009, included in
Cost of sales
($144 million), Selling,
informational and administrative expenses ($182 million), Research and development
expenses ($78 million), and Other (income)/deductions -
net ($6 million). For the first nine months of 2008, included in
Cost of sales
($520 million), Selling,
informational and administrative expenses ($270 million), Research and development
expenses ($348 million) and Other (income)/deductions -
net ($2 million).
|
(b)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
Acquisition-Related
Costs
We
incurred the following acquisition-related costs primarily in connection with
our acquisition of Wyeth:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
Transaction
costs (a)
|
|
$ |
19 |
|
|
$ |
–– |
|
|
$ |
572 |
|
|
$ |
–– |
|
Pre-integration
costs and other(b)
|
|
|
113 |
|
|
|
28 |
|
|
|
242 |
|
|
|
36 |
|
Total
acquisition-related costs(c)
|
|
$ |
132 |
|
|
$ |
28 |
|
|
$ |
814 |
|
|
$ |
36 |
|
(a)
|
Transaction
costs include banking, legal, accounting and other costs directly related
to our 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 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 half 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
acquisition of Wyeth and include costs associated with preparing for
systems and other integration activities. 2008 amounts relate to other
restructuring charges.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
Other (Income)/Deductions -
Net
Other
(income)/deductions - net changed favorably by $561 million in the third quarter
of 2009 and $46 million in the first nine months of 2009, compared to the same
periods in 2008. The year-over-year improvements were due mainly to
litigation-related charges in the year-ago periods of approximately $900 million
related to the resolution of certain litigation involving our non-steroidal
anti-inflammatory (NSAID) pain medicines.
These
improvements were partially offset by higher net interest expense in the third
quarter and first nine months of 2009 compared to the same periods in 2008. In
the third quarter of 2009 we recorded net interest expense of $198 million,
compared to $186 million of net interest income in the same period in 2008, and
in the first nine months of 2009, we recorded net interest expense of $149
million, compared to $488 million of net interest income in the same period in
2008. The lower net interest income for the third quarter and first nine months
ended September 27, 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 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 27.5% for the third quarter of
2009, compared to 17.0% for the third quarter of 2008, and 27.3% for the first
nine months of 2009, compared to 13.8% for the first nine months of 2008. The
higher tax rates for the third quarter and first nine months of 2009 are
primarily due to the increased tax costs associated with certain business
decisions executed to finance the Wyeth acquisition and the change in the
geographic mix of expenses incurred to execute our cost-reduction initiatives,
partially offset by a tax benefit of $174 million recorded in the third quarter
of 2009 related to the final resolution of a previously disclosed
agreement-in-principle with the U.S. Department of Justice to settle
investigations of past promotional practices and certain other
matters. This resulted in the receipt of information that raised our
assessment of the likelihood of prevailing on the technical merits of our tax
position. The higher tax rates were also partially offset by the
decrease in IPR&D charges, which generally are not deductible for tax
purposes. The lower tax rate in the first nine months of 2008 reflects 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 first half 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, the earn-out of Performance Share Award
grants is determined 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 Pfizer 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
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
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net income attributable to Pfizer Inc.
|
|
$ |
2,878 |
|
|
$ |
2,278 |
|
|
|
26
|
% |
|
$ |
7,868 |
|
|
$ |
7,838 |
|
|
|
––
|
% |
Purchase accounting adjustments -
net of tax
|
|
|
397 |
|
|
|
460 |
|
|
|
(14 |
) |
|
|
1,167 |
|
|
|
1,998 |
|
|
|
(42 |
) |
Acquisition-related costs - net
of tax
|
|
|
87 |
|
|
|
24 |
|
|
|
* |
|
|
|
524 |
|
|
|
30 |
|
|
|
* |
|
Discontinued operations - net of
tax
|
|
|
(2 |
) |
|
|
(25 |
) |
|
|
92 |
|
|
|
(6 |
) |
|
|
(38 |
) |
|
|
84 |
|
Certain significant items - net of
tax
|
|
|
101 |
|
|
|
1,443 |
|
|
|
(93 |
) |
|
|
824 |
|
|
|
2,149 |
|
|
|
(62 |
) |
Adjusted
income
|
|
$ |
3,461 |
|
|
$ |
4,180 |
|
|
|
(17 |
) |
|
$ |
10,377 |
|
|
$ |
11,977 |
|
|
|
(13 |
) |
*
|
Calculation not
meaningful.
|
|
Certain
amounts and percentages may reflect rounding
adjustments.
|
Adjusted
income as shown above excludes the following items:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
Sept.
27,
2009
|
|
|
Sept.
28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization and
other(a)
|
|
$ |
564 |
|
|
$ |
591 |
|
|
$ |
1,671 |
|
|
$ |
1,981 |
|
In-process research and
development charges(b)
|
|
|
–– |
|
|
|
13 |
|
|
|
20 |
|
|
|
567 |
|
Total purchase accounting
adjustments, pre-tax
|
|
|
564 |
|
|
|
604 |
|
|
|
1,691 |
|
|
|
2,548 |
|
Income taxes
|
|
|
(167 |
) |
|
|
(144 |
) |
|
|
(524 |
) |
|
|
(550 |
) |
Total purchase accounting
adjustments - net of tax
|
|
|
397 |
|
|
|
460 |
|
|
|
1,167 |
|
|
|
1,998 |
|
Acquisition-related
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs(c)
|
|
|
19 |
|
|
|
–– |
|
|
|
572 |
|
|
|
–– |
|
Pre-integration costs and
other(c)
|
|
|
113 |
|
|
|
28 |
|
|
|
242 |
|
|
|
36 |
|
Total acquisition-related costs,
pre-tax
|
|
|
132 |
|
|
|
28 |
|
|
|
814 |
|
|
|
36 |
|
Income taxes
|
|
|
(45 |
) |
|
|
(4 |
) |
|
|
(290 |
) |
|
|
(6 |
) |
Total acquisition-related costs -
net of tax
|
|
|
87 |
|
|
|
24 |
|
|
|
524 |
|
|
|
30 |
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations -
net of tax
|
|
|
(2 |
) |
|
|
(25 |
) |
|
|
(6 |
) |
|
|
(38 |
) |
Certain
significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges –
cost-reduction initiatives(c)
|
|
|
61 |
|
|
|
338 |
|
|
|
392 |
|
|
|
1,077 |
|
Implementation costs –
cost-reduction initiatives(d)
|
|
|
80 |
|
|
|
378 |
|
|
|
410 |
|
|
|
1,140 |
|
Certain legal matters(e)
|
|
|
40 |
|
|
|
936 |
|
|
|
170 |
|
|
|
936 |
|
Net interest expense – Wyeth
acquisition(f)
|
|
|
299 |
|
|
|
— |
|
|
|
528 |
|
|
|
— |
|
Returns liabilities
adjustment(g)
|
|
|
–– |
|
|
|
217 |
|
|
|
–– |
|
|
|
217 |
|
Other(h)
|
|
|
(67 |
) |
|
|
162 |
|
|
|
(4 |
) |
|
|
246 |
|
Total certain significant items,
pre-tax
|
|
|
413 |
|
|
|
2,031 |
|
|
|
1,496 |
|
|
|
3,616 |
|
Income taxes(i)
|
|
|
(312 |
) |
|
|
(588 |
) |
|
|
(672 |
) |
|
|
(1,467 |
) |
Total certain significant items -
net of tax
|
|
|
101 |
|
|
|
1,443 |
|
|
|
824 |
|
|
|
2,149 |
|
Total
purchase accounting adjustments, acquisition-related
costs, discontinued operations and
certain significant
items - net of tax
|
|
$ |
583 |
|
|
$ |
1,902 |
|
|
$ |
2,509 |
|
|
$ |
4,139 |
|
(a)
|
Included
primarily in Amortization of intangible
assets.
|
(b)
|
In
the first nine months 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
first nine months of 2008, we expensed $567 million of IPR&D,
primarily related to our acquisitions of Serenex, Inc., Encysive
Pharmaceuticals, Inc., CovX, Coley Pharmaceutical Group, Inc., and two
smaller acquisitions related to Animal Health. As a result of adopting the
provisions of a new accounting standard for business combinations issued
by the FASB, beginning January 1, 2009, IPR&D related to acquisitions
after adoption will be recorded on our consolidated balance sheet as
indefinite-lived intangible assets. No acquisitions were consummated in
the first nine months of 2009.
|
(c)
|
Included
in Restructuring charges
and acquisition-related
costs.
|
(d)
|
For
the third quarter of 2009, included in Cost of sales ($23
million), Selling,
informational and administrative expenses ($51 million), Research and development
expenses ($5 million) and Other (income)/deductions -
net ($1 million). For the first nine months of 2009, included in
Cost of sales
($144 million), Selling
informational and administrative expenses ($182 million), Research and development
expenses ($78 million) and Other (income)/ deductions –
net ($6 million). For the third quarter of 2008, included in Cost of sales ($172
million), Selling,
informational and administrative expenses ($95 million), Research and development
expenses ($108 million) and Other (income)/deductions -
net ($3 million). For the first nine months of 2008, included in
Cost of Sales
($520 million), Selling Informational and
administrative expenses ($270 million), Research and development
expenses ($348 million) and Other (income)/deductions –
net ($2 million).
|
(e)
|
Included
in Other
(income)/deductions – net and, for the third quarter and first nine
months of 2008, includes approximately $900 million related to the
resolution of certain NSAID litigation.
|
(f)
|
Included
in Other
(income)/deductions - net. Includes interest expense on the senior
unsecured notes issued in connection with our acquisition of Wyeth less
interest income earned on the proceeds of those
notes.
|
(g)
|
Included
in Revenues and
reflects an adjustment to the prior years’ liabilities for product
returns.
|
(h)
|
Included
in the three-month and nine-month periods ended September 28, 2008 are
$115 million in asset impairment charges and other associated
costs.
|
(i)
|
Included
in Provision for taxes
on income and includes a tax benefit of approximately $174 million
in the three and nine-month periods ended September 27, 2009 related to
the final resolution of a previously disclosed agreement-in-principle with
the U.S. Department of Justice to settle investigations of past
promotional practices and certain other matters. This resulted in the
receipt of information that raised our assessment of the likelihood of
prevailing on the technical merits of our tax position. Also includes a
tax benefit of approximately $426 million in the first nine months of 2008
related to the sale of one of our biopharmaceutical companies (Esperion
Therapeutics Inc.).
|
FINANCIAL CONDITION,
LIQUIDITY AND CAPITAL RESOURCES
Net Financial Assets, as
shown below:
(millions
of dollars)
|
|
Sept.
27,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
4,234 |
|
|
$ |
2,122 |
|
Short-term
investments
|
|
|
48,239 |
|
|
|
21,609 |
|
Short-term loans
|
|
|
791 |
|
|
|
824 |
|
Long-term investments and
loans
|
|
|
12,166 |
|
|
|
11,478 |
|
Total select financial
assets
|
|
|
65,430 |
|
|
|
36,033 |
|
Debt:
|
|
|
|
|
|
|
|
|
Short-term borrowings, including
current portion of long-term debt
|
|
|
6,954 |
|
|
|
9,320 |
|
Long-term debt
|
|
|
32,402 |
|
|
|
7,963 |
|
Total
debt
|
|
|
39,356 |
|
|
|
17,283 |
|
Net financial
assets
|
|
$ |
26,074 |
|
|
$ |
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:
●
|
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 were used to partially finance our
acquisition of Wyeth on October 15, 2009. As of September 27, 2009, prior
to the close of the Wyeth acquisition, the note proceeds were generally
invested in short-term available-for-sale investments. Our long-term debt
increased in the first nine 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 nine months of 2009 as a result of
the proceeds of the notes issued in anticipation of the acquisition of
Wyeth.
|
On
October 15, 2009, we completed our acquisition of Wyeth. The cash portion of the
purchase price totaled approximately $44.9 billion and was funded with available
cash, cash equivalents and short-term investments. For additional information on
our acquisition of Wyeth, see Note 14. Subsequent Event –
Acquisition of Wyeth in the Notes to Condensed Consolidated Financial
Statements.
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
|
A1
|
Stable
|
October
2009
|
S&P
|
A1+
|
AA
|
Stable
|
October
2009
|
As
expected, on October 15, 2009, Moody’s downgraded our long-term-debt credit
rating to A1, its fifth-highest investment grade rating. Moody’s indicated that
the downgrade reflects the strategic benefits of the Wyeth acquisition offset by
higher financial leverage in the transaction. Also as expected, on October 16,
2009, S&P downgraded our long-term-debt credit rating to AA, its
third-highest investment grade rating. S&P indicated that the downgrade
reflects the challenge to realize earnings and cash flow in light of pending
patent expirations offset by the addition of Wyeth products to our
portfolio. Both Moody’s and S&P reaffirmed our commercial paper
ratings at their highest respective 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 September 27, 2009, we had access to $8.3 billion
of lines of credit, of which $6.2 billion expire
within one year. Of these lines of credit, $8.2 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 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 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 half of 2009, the
$22.5 billion bridge term loan credit agreement, which we entered into on March
12, 2009, to partially fund our 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, and for additional information on our acquisition of
Wyeth, see Note 14. Subsequent
Event – Acquisition of Wyeth.
Financial Risk
Management
Due to
the 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
September 27, 2009, Goodwill
totaled $21.8 billion (15% of our total assets) and Identifiable intangible assets, less
accumulated amortization, totaled $16.1 billion (11% of our total
assets). As of September 27, 2009, finite-lived intangible assets, net, include
$12.3 billion related to developed technology rights and $503 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 third quarter and first nine months of 2009 or
2008. None of our goodwill is impaired as of September 27, 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)
|
|
Sept.
27,
2009
|
|
|
Dec.
31,
2008
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and short-term investments and loans
|
|
$ |
53,264 |
|
|
$ |
24,555 |
|
|
|
|
|
|
|
|
|
|
Working
capital(a)
|
|
$ |
49,792 |
|
|
$ |
16,067 |
|
|
|
|
|
|
|
|
|
|
Ratio
of current assets to current liabilities
|
|
3.07:1
|
|
|
1.59:1
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity per common share(b)
|
|
$ |
9.83 |
|
|
$ |
8.56 |
|
(a)
|
Working
capital includes Assets
held for sale of $231 million as of September 27, 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
September 27, 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 significant collectibility issues have been
identified.
Net Cash Provided by
Operating Activities
During
the first nine months of 2009, net cash provided by operating activities was
$11.8 billion, compared to $12.3 billion in the same period of 2008. The 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 $520 million of asset write-downs in the first nine
months of 2008, mainly associated with Assets held for
sale.
Net Cash Used in Investing
Activities
During
the first nine months of 2009, net cash used in investing activities was $26.9
billion, compared to $10.1 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 $26.6 billion in the first nine 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 $6.4 billion in the same period in
2008.
Net Cash Provided by/(Used
in) Financing Activities
During
the first nine months of 2009, net cash provided by financing activities was
$17.2 billion, compared to net cash used of $4.3 billion in the same period in
2008. The increase in net cash provided by financing activities was primarily
attributable to:
●
|
net
borrowings of $21.6 billion in the first nine 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 the proceeds from our
issuance of approximately $10.5 billion of senior unsecured notes in the
second quarter of 2009, compared to $2.6 billion 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.
Contractual
Obligations
During
the first nine months of 2009, we issued approximately $24.0 billion in senior
unsecured notes. Virtually all of the proceeds of the notes were used to
partially finance our acquisition of Wyeth on October 15, 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. The table below presents our
long-term debt obligations by fiscal year as of September 27, 2009:
(millions
of dollars)
|
|
Total
|
|
|
Through
2010
|
|
|
2011
to 2012
|
|
|
2013
to 2014
|
|
|
After
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and associated interest (a)
|
|
$ |
49,372 |
|
|
$ |
1,726 |
|
|
$ |
8,797 |
|
|
$ |
5,822 |
|
|
$ |
33,027 |
|
(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 September
27, 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 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
October 2009, the Board of Directors declared a fourth-quarter dividend of $0.16
per share.
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 September 27, 2009
In
September 2009, the FASB issued ASU No. 2009-12, which provides guidance on
using the net asset value per share provided by the investee to measure the fair
value of an alternative investment. The provisions of the new standard were
adopted as of September 28, 2009 and did not have a significant
impact on our consolidated financial statements.
The
provisions of the following new accounting standards will be adopted as of
January 1, 2010 and we do not expect the adoption to have a significant impact
on our consolidated financial statements:
●
|
An
amendment to the recognition and measurement guidance for the transfers of
financial assets.
|
●
|
An
amendment to the guidelines for determining the existence of a variable
interest entity and the related primary
beneficiary.
|
OUTLOOK
While our
revenues and income following the acquisition of Wyeth 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.
On
October 20, 2009, we revised our guidance for 2009, at current exchange rates,
to reflect the acquisition of Wyeth on October 15, 2009. This guidance
incorporates the projected impact of Wyeth’s operations from the acquisition
closing date through Pfizer’s international and domestic year-ends (see note (a)
to the table below). In addition, our guidance reflects the projected
impact of the strengthening of the U.S. dollar, increased pension expenses and
lower interest income compared to 2008. It also reflects an increase in the
effective tax rate associated with certain business decisions executed to
finance the Wyeth acquisition. We revised our guidance for 2009 revenues to a
range of $49.0 billion to $50.0 billion from $45.0 billion to $46.0 billion, and
we increased our guidance for 2009 Adjusted diluted earnings per common share
(EPS) to a range of $2.00 to $2.05 from $1.90 to $2.00. We also increased our
guidance for 2009 reported diluted EPS attributable to Pfizer Inc. common
shareholders to a range of $1.45 to $1.50 from $1.30 to $1.45.
On
January 26, 2009, we announced the implementation of a new Pfizer cost-reduction
initiative that we anticipate will achieve a reduction in adjusted total costs
of approximately $3 billion, on a constant currency basis at 2008 exchange
rates, by the end of 2011, compared with our 2008 adjusted total costs. We plan
to reinvest approximately $1 billion of these savings in the business, resulting
in an expected $2 billion net decrease by the end of 2011 compared to our 2008
adjusted total costs. For an understanding of Adjusted income, see the “Adjusted
income” section of this MD&A.
As
referenced in this section, “current exchange rates” is defined as rates
approximating foreign currency spot rates in October 2009.
Given
these and other factors, a reconciliation, at current exchange rates and
reflecting management’s current assessment, of 2009 Adjusted income and Adjusted
diluted EPS guidance to 2009 reported Net income attributable to Pfizer Inc. and
reported diluted EPS attributable to Pfizer Inc. common shareholders guidance,
follows:
|
|
Previous
Full-Year 2009
Guidance
|
|
|
Revised
Full-Year 2009
Guidance
|
|
($
billions, except per share amounts)
|
|
Net
Income
|
|
|
Diluted
EPS
|
|
|
Net
Income(a)
|
|
|
Diluted
EPS(a)
|
|
Adjusted
income/diluted EPS(1)
guidance
|
|
~$12.8-$13.5
|
|
|
~$1.90-$2.00
|
|
|
~$14.1-$14.4
|
|
|
~$2.00-$2.05
|
|
Purchase
accounting impacts from Wyeth acquisition
and
business-development transactions completed as
of
12/31/08
|
|
|
(1.5) |
|
|
|
(0.23) |
|
|
|
(2.5)(b) |
|
|
|
(0.36)(b) |
|
Costs
related to cost-reduction initiatives
|
|
|
(0.9-1.2) |
|
|
|
(0.14-0.17) |
|
|
|
(0.6)(c) |
|
|
|
(0.08)(c) |
|
Wyeth
acquisition-related costs (d)
|
|
|
(1.1-1.2) |
|
|
|
(0.16-0.18) |
|
|
|
(0.9) |
|
|
|
(0.12) |
|
Certain
legal matters
|
|
|
(.1) |
|
|
|
(0.01) |
|
|
|
–– |
|
|
|
–– |
|
Other,
net
|
|
|
(.1) |
|
|
|
(0.01) |
|
|
|
0.1 |
|
|
|
0.01 |
|
Reported
Net income attributable to Pfizer
Inc./diluted
EPS attributable to Pfizer Inc. common
shareholders
guidance
|
|
~$8.7-$9.8
|
|
|
~$1.30-$1.45
|
|
|
~$10.2-$10.5
|
|
|
~$1.45-$1.50
|
|
(a)
|
The
revised guidance in the table above includes projected results of
operations for Wyeth, in accordance with Pfizer’s international and
domestic year-ends. Therefore, the guidance includes approximately
one-and-a-half months of the fourth calendar quarter of 2009 in the case
of Wyeth’s international operations and approximately two-and-a-half
months of the fourth calendar quarter of 2009 in the case of Wyeth’s U.S.
operations. This guidance does not assume the completion of any other
business-development transactions, including divestitures, not completed
as of September 27, 2009, and excludes the potential effects of
litigation-related matters not substantially resolved as of September 27,
2009.
|
(b)
|
Includes
estimated amounts that are dependent upon certain valuations and other
studies of the assets acquired and liabilities assumed from Wyeth that
have yet to commence or progress to a stage where there is sufficient
information for a definitive measurement. Accordingly, the
estimated purchase accounting impacts are preliminary and may not be
indicative of actual amounts that will be recorded as additional
information becomes available and as additional analyses are performed.
Differences between the preliminary estimates reflected in this guidance
and the final acquisition accounting will likely occur and could have a
material impact on the guidance presented
above.
|
(c)
|
Includes
restructuring and implementation costs incurred for Pfizer legacy
cost-reduction initiatives through the closing date of the Wyeth
acquisition. Does not reflect an estimate for subsequent restructuring and
implementation costs associated with Pfizer legacy cost-reduction
initiatives. The Company will include an estimate for acquisition-related
restructuring and integration costs in its full-year 2010 financial
guidance in conjunction with its fourth-quarter 2009 earnings release in
January 2010.
|
(d)
|
Includes
certain costs incurred in connection with the Wyeth acquisition from the
announcement of the agreement to acquire Wyeth on January 26, 2009 through
the acquisition closing date including, but not limited to,
pre-integration, transaction and financing costs. Due to the recent timing
of the acquisition closing, the guidance does not reflect an estimate for
any restructuring or integration charges expected to be incurred in
connection with the acquisition of Wyeth. The Company will include an
estimate for acquisition-related restructuring and integration costs in
its full-year 2010 financial guidance in conjunction with its
fourth-quarter 2009 earnings release in January
2010.
|
(1)
|
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;
and
|
●
|
Impact
of acquisitions, divestitures, restructurings, product withdrawals and
other unusual items, including our ability to successfully integrate Wyeth
and realize the projected benefits of our 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 and our other filings with the Securities and
Exchange Commission.
Our Form
10-K filing for the 2008 fiscal year listed various important factors that could
cause actual results to differ materially from projected and historic results.
We note these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that
filing under the heading “Risk Factors.” We incorporate that section of that
Form 10-K in this filing and investors should refer to it. You should understand
that it is not possible to predict or identify all such factors. Consequently,
you should not consider any such list to be a complete set of all potential
risks or uncertainties.
This
report includes discussion of certain clinical studies relating to various
in-line products and/or product candidates. These studies typically are part of
a larger body of clinical data relating to such products or product candidates,
and the discussion herein should be considered in the context of the larger body
of data.
Legal Proceedings and
Contingencies
We and
certain of our subsidiaries are involved in various patent, product liability,
consumer, commercial, securities, environmental and tax litigations and claims;
government investigations; and other legal proceedings that arise from time to
time in the ordinary course of our business. We do not believe any of them will
have a material adverse effect on our financial position.
We record
accruals for income tax contingencies to the extent that we conclude that a tax
position is not sustainable under a “more likely than not” standard, and we
record our estimate of the potential tax benefits in one tax jurisdiction that
could result from the payment of income taxes in another tax jurisdiction when
we conclude that the potential recovery is more likely than not. We record
accruals for all other contingencies to the extent that we conclude their
occurrence is probable and the related damages are estimable, and we record
anticipated recoveries under existing insurance contracts when assured of
recovery. If a range of liability is probable and estimable and some amount
within the range appears to be a better estimate than any other amount within
the range, we accrue that amount. If a range of liability is probable and
estimable and no amount within the range appears to be a better estimate than
any other amount within the range, we accrue the minimum of such probable range.
Many claims involve highly complex issues relating to causation, label warnings,
scientific evidence, actual damages and other matters. Often these issues are
subject to substantial uncertainties and, therefore, the probability of loss and
an estimation of damages are difficult to ascertain. Consequently, we cannot
reasonably estimate the maximum potential exposure or the range of possible loss
in excess of amounts accrued for these contingencies. These assessments can
involve a series of complex judgments about future events and can rely heavily
on estimates and assumptions. Our assessments are based on estimates and
assumptions that have been deemed reasonable by management. Litigation is
inherently unpredictable, and excessive verdicts do occur. Although we believe
we have substantial defenses in these matters, we could in the future incur
judgments or enter into settlements of claims that could have a material adverse
effect on our results of operations in any particular period.
Patent
claims include challenges to the coverage and/or validity of our patents on
various products or processes. Although we believe we have substantial defenses
to these challenges with respect to all our material patents, there can be no
assurance as to the outcome of these matters, and a loss in any of these cases
could result in a loss of patent protection for the drug at issue, which could
lead to a significant loss of sales of that drug and could materially affect
future results of operations.
Information
required by this item is incorporated by reference from the discussion under the
heading Financial Risk
Management in our 2008 Financial Report, which is filed as Exhibit 13 to
our 2008 Form 10-K.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)). Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be disclosed in our periodic reports filed with the
SEC.
During
our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting. However, we do wish to highlight some changes which, taken together,
are expected to have a favorable impact on our controls over a multi-year
period. We continue to pursue a multi-year initiative to outsource some
transaction-processing activities within certain accounting processes and are
migrating to a consistent enterprise resource planning system across the
organization. These are enhancements of ongoing activities to support the growth
of our financial shared service capabilities and standardize our financial
systems. None of these initiatives is in response to any identified deficiency
or weakness in our internal control over financial reporting.
Certain
legal proceedings in which we are involved are discussed in Note 19 to the
consolidated financial statements included in our 2008 Financial Report, which
is incorporated by reference in Part I, Item 3, of our Annual Report
on Form 10-K for the year ended December 31, 2008; and Part II, Item 1, of
our Quarterly Reports on Form 10-Q for the quarters ended March 29, 2009 and
June 28, 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.
Because
we completed our acquisition of Wyeth after September 27, 2009, the following
discussion does not include legal proceedings involving Wyeth.
We will include a discussion of material legal proceedings involving Wyeth in
our Annual Report on Form 10-K for the year ended December 31,
2009.
Patent
Matters
Lipitor
(atorvastatin)
In
October 2009, Dr. Reddy's Laboratories Ltd. and Dr. Reddy’s Laboratories, Inc.
(Dr. Reddy's) notified us that they had filed an abbreviated new drug
application with the FDA seeking approval to market a generic version of
Lipitor. Dr. Reddy's asserts the invalidity and/or non-infringement of three
patents for Lipitor which, including the six-month pediatric exclusivity period,
expire between 2013 and 2017. Dr. Reddy's is not challenging our enantiomer
patent which, including the six-month pediatric exclusivity period, expires in
June 2011.
In
October 2009, Kremers Urban Development Company (Kremers) notified us that it
had filed an abbreviated new drug application with the FDA seeking approval to
market a generic version of Lipitor. Kremers asserts the invalidity and
non-infringement of three patents for Lipitor which, including the six-month
pediatric exclusivity period, expire between 2013 and 2017. Kremers is not
challenging our enantiomer patent which, including the six-month pediatric
exclusivity period, expires in June 2011.
As
previously reported, in April 2009, we filed two actions against Pharmascience
Inc. (Pharmascience) in the Canadian Federal Court in Toronto asserting the
validity and infringement of our Lipitor patents in Canada and seeking to
prevent approval of Pharmascience’s generic atorvastatin product in that
country. In addition, as previously reported, in July 2009, Genpharm Inc.
(Genpharm) served notice of a regulatory submission with Health Canada that
sought approval to market a generic version of Lipitor in Canada and included
challenges to our Lipitor patents in that country. In August and September 2009,
we settled these patent challenges by Pharmascience and Genpharm, respectively,
on terms we believe are favorable to the Company.
Caduet
(atorvastatin/amlodipine combination)
In August
2009, Sandoz Inc., a division of Novartis AG (Sandoz), notified us that it had
filed an abbreviated new drug application with the FDA seeking approval to
market a generic version of Caduet. In that filing and in a declaratory judgment
action brought by Sandoz in October 2009 in the U.S. District Court for the
District of Colorado, collectively, Sandoz asserts the invalidity of our patent
covering the atorvastatin/amlodipine combination, which expires in 2018, and the
invalidity and non-infringement of three patents for Lipitor which, including
the six-month pediatric exclusivity period, expire between 2013 and 2017. Sandoz
is not challenging our enantiomer patent for Lipitor which, including the
six-month pediatric exclusivity period, expires in June 2011. In October 2009,
we filed suit against Sandoz in the U.S. District Courts for the District of
Delaware and the District of Colorado asserting the infringement of the
atorvastatin/amlodipine combination patent.
Vfend
(voriconazole)
As
previously reported, in July 2008, Matrix Laboratories Limited (Matrix), a
subsidiary of Mylan Inc. (Mylan), notified us that it had filed an abbreviated
new drug application with the FDA challenging four of our patents relating to
Vfend and seeking approval to market a generic version of Vfend. In October
2009, we settled this matter by entering into an agreement granting Matrix and
another subsidiary of Mylan the right to market voriconazole tablets in the U.S.
beginning in the first quarter of 2011. The agreement, which is subject to
review by the U.S. Department of Justice and the Federal Trade Commission, is
limited to the tablet form of Vfend. It does not apply to the intravenous or
oral suspension forms of Vfend which, as previously reported, are the subject of
an abbreviated new drug application filed with the FDA by Sandoz.
Product
Litigation
Trovan
As
previously reported, in 2007, the Federal Government of Nigeria filed civil and
criminal actions in the Federal High Court in Abuja against Pfizer, one of our
Nigerian subsidiaries, several former U.S. and Nigerian employees and a current
Pfizer director in connection with a 1996 pediatric clinical study of Trovan
that was conducted during a severe meningitis epidemic in Nigeria. In
October 2009, the parties entered into a settlement agreement pursuant to which
the Federal Government of Nigeria agreed to dismiss the civil and criminal
actions with prejudice and Pfizer agreed to pay the legal fees and
expenses incurred by the Federal Government in connection with the
litigation.
The
previously reported civil actions in the U.S. relating to the 1996 Trovan
pediatric clinical study remain outstanding.
Bextra
and Celebrex
As
previously reported, in October 2008, we reached agreements in principle to
settle the pending U.S. consumer fraud purported class action cases against us
related to Bextra and Celebrex, subject to court approval. In September 2009,
that settlement was approved by the U.S. District Court for the Northern
District of California, which oversaw the Multi-District Litigation that
included these cases. As previously reported, we recorded a pre-tax charge to
earnings of approximately $89 million in the third quarter of 2008 related to
this settlement. No additional charge will be recorded in connection with this
matter.
Bextra
and Certain Other Drugs
Beginning
in September 2009, a number of shareholder derivative actions were filed in the
U.S. District Court for the Southern District of New York and in the Supreme
Court of the State of New York, County of New York, against certain current and
former Pfizer officers and directors. Pfizer is named as a nominal
defendant. These actions allege that the individual defendants breached
fiduciary duties by causing or allowing Pfizer to engage in
off-label promotion of certain drugs, including Bextra. Damages in
unspecified amounts are sought on behalf of Pfizer.
Various
Drugs
In
September 2009, a number of purported nationwide class actions were filed
against us in the U.S. District Courts for the District of Massachusetts and the
Eastern District of Pennsylvania alleging off-label promotion of certain drugs.
In each case, the plaintiffs seek monetary and injunctive relief on behalf of
the purported class, including the recovery of amounts paid for the drugs,
treble damages and punitive damages.
Commercial
and Other Matters
Acquisition
of Wyeth
In August
2009, a number of retail pharmacies in California brought an action against
Pfizer and Wyeth in the U.S. District Court for the Northern District of
California. The plaintiffs allege, among other things, that our acquisition of
Wyeth violates various federal antitrust laws by creating a monopoly in the
manufacture, distribution and sale of prescription drugs in the U.S. The
plaintiffs’ request for a temporary restraining order preventing consummation of
the acquisition was denied, and the court granted our motion to dismiss the case
on October 14, 2009. On the day following the consummation of the acquisition,
October 16, 2009, the plaintiffs filed an amended complaint. We believe that
this action has no merit and are seeking dismissal of the amended
complaint.
Aricept
Strategic Alliance and Development Agreement
In
September 2009, we and Eisai Co., Ltd. (Eisai) resolved our previously reported
dispute. Under our redefined alliance with Eisai, the two companies will
continue to co-promote Aricept in the U.S., Japan and key markets in Europe, and
we will continue to have an exclusive license to sell Aricept in the other
countries where we have rights. We will maintain our rights in all countries
where we currently commercialize Aricept until July 2022, with the exception of
Japan. We now will return the rights to Aricept in Japan to Eisai on December
31, 2012. The two companies also entered into a new agreement to co-promote
Lyrica in Japan. Lyrica is under regulatory review in Japan and, assuming
approval is granted, this new agreement will remain in force until July
2022.
Pharmacia
Cash Balance Pension Plan
As
previously reported, in June 2009, the U.S. District Court for the Southern
District of Illinois dismissed a purported class action 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 October 2009, the plaintiffs filed a notice of appeal of that decision
with the U.S. Court of Appeals for the Seventh Circuit.
Government
Investigations and Requests for Information
In
September 2009, we finalized our previously reported agreement-in-principle with
the U.S. Department of Justice (DOJ) to settle an investigation regarding past
off-label promotional practices concerning Bextra. The final agreement also
resolved other DOJ investigations involving alleged past off-label promotional
practices concerning Zyvox, Geodon and Lyrica, allegations related to certain
payments to healthcare professionals involving these and nine other Pfizer
drugs, and several related qui tam actions. As previously reported, we recorded
a $2.3 billion charge to earnings in the fourth quarter of 2008 related to this
settlement. No additional charge will be recorded in connection with this
matter. As part of the settlement agreement, a subsidiary of Pfizer pled guilty
to one criminal count of violating the U.S. Food, Drug and Cosmetic Act related
to its past promotion of Bextra.
In
addition, in September 2009, we reached agreements with attorneys general in 42
states and the District of Columbia to settle state civil consumer protection
allegations related to our past promotional practices concerning Geodon. We will
pay a total of $33 million to the settling states, and we recorded a charge to
earnings in that amount in the third quarter of 2009.
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). Finalizing audits with
the relevant taxing authorities can include formal administrative and legal
proceedings and, as a result, it is difficult to estimate the timing and range
of any possible change to our uncertain tax positions.
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
factor:
●
|
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.
(a) Sales
of Equity Securities That Were Not Registered Under the Securities Act During
the Quarter Ended September 27, 2009
On July
1, 2009, we issued shares of Pfizer common stock to the following non-employee
directors: Anthony M. Burns – 27,950 shares; George A. Lorch – 22,376 shares;
and William C. Steere, Jr. – 36,988 shares. In 2008, Section 409A of the
Internal Revenue Code (Section 409A) provided a one-time opportunity to
accelerate the payment of compensation that had been deferred during the period
from 2005 through 2008 (together with any related earnings). The Pfizer shares
were issued pursuant to an election made in December 2008 under Section 409A by
each of the specified non-employee directors to accelerate the payment, in the
form of Pfizer common stock, of compensation that the director had deferred, in
the form of phantom units of Pfizer common stock, during the period from 2005
through 2008 (including dividend equivalents thereon) under certain plans for
non-employee directors. The issuance of the shares was not registered under the
Securities Act of 1933, as amended (the Securities Act), pursuant to the
exemption under Section 4(2) of the Securities Act for transactions not
involving any public offering. No underwriters participated in this transaction,
and the Company did not receive any proceeds in connection with this
transaction.
(b)
Purchases of Equity Securities During the Quarter Ended September 27,
2009
This
table provides certain information with respect to our purchases of shares of
Pfizer’s common stock during the fiscal third 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)
|
|
June
29, 2009 through
July
26, 2009
|
|
|
93,621 |
|
|
$ |
14.96 |
|
|
|
— |
|
|
$ |
5,033,723,295 |
|
July
27, 2009 through
August
23, 2009
|
|
|
22,945 |
|
|
$ |
18.93 |
|
|
|
— |
|
|
$ |
5,033,723,295 |
|
August
24, 2009 through
September
27, 2009
|
|
|
165,512 |
|
|
$ |
16.24 |
|
|
|
— |
|
|
$ |
5,033,723,295 |
|
Total
|
|
|
282,078 |
|
|
$ |
16.03 |
|
|
|
— |
|
|
|
|
|
(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.
|
(b)
|
These
columns reflect the following transactions during the fiscal third quarter
of 2009: (i) the open-market purchase by the trustee of 114,301 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, (ii) the surrender to Pfizer of 102,948 shares of common stock to
satisfy tax withholding obligations in connection with vesting of
restricted stock units issued to employees and (iii) the surrender to
Pfizer of 64,829 shares of common stock to satisfy tax withholding
obligations in connection with the vesting of performance-contingent share
awards issued to employees.
|
None
None
|
1)
Exhibit 4.1
|
- |
Eighth
Supplemental Indenture, dated October 30, 2009, among Wyeth, Pfizer and
The Bank of New York Mellon, is incorporated by reference from our 8-K
report filed on November 3, 2009.
|
|
|
|
|
|
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: November
5, 2009
|
/s/
Loretta V. Cangialosi
|
|
|
|
Loretta
V. Cangialosi, Senior Vice President and
Controller
(Principal
Accounting Officer and
Duly
Authorized Officer)
|
63