Pfizer Reports First-Quarter 2009 Results; Reaffirms Full-Year 2009 Financial Guidance for Revenues and Adjusted Results

  • First-Quarter 2009 Revenues of $10.9 Billion
  • First-Quarter 2009 Reported Diluted EPS(2) of $0.40
  • First-Quarter 2009 Adjusted Diluted EPS(1) of $0.54
  • Continues to Execute on Strategic and Financial Commitments While Planning for the Pending Wyeth Acquisition Remains On-Track
 

Pfizer Inc (NYSE: PFE):

 
($ in millions, except per share amounts)
    First-Quarter
    2009   2008   Change
Reported Revenues   $ 10,867   $ 11,848   (8%)
Reported Net Income(2)   2,729   2,784   (2%)
Reported Diluted EPS(2)   0.40   0.41   (2%)
Adjusted Income(1)   3,667   4,099   (11%)
Adjusted Diluted EPS(1)   0.54   0.61   (11%)
             
             

See end of text prior to tables for notes.

             

NEW YORK--(BUSINESS WIRE)--Pfizer Inc (NYSE: PFE) today reported financial results for first-quarter 2009. Revenues were $10.9 billion, a decrease of 8% compared with the year-ago quarter. Foreign exchange unfavorably impacted revenues by approximately $640 million or 5%. For first-quarter 2009, U.S. revenues were $5.0 billion, a decrease of 10% compared with the year-ago quarter. International revenues were $5.9 billion, a decrease of 7% compared with the prior-year quarter, and reflected operational growth of 3%, which was more than offset by the unfavorable impact of foreign exchange of 10%. U.S. revenues represented 46%, while international revenues represented 54%, of total revenues, comparable with the year-ago quarter. In addition to foreign exchange, other factors that negatively impacted first-quarter 2009 revenues in comparison with the year-ago quarter included the loss of U.S. exclusivity for Zyrtec in January 2008 and Camptosar in February 2008 as well as the revenue declines for Lipitor, as a result of continued intense competition, and for Chantix, mainly due to label changes.

Business Revenues

Effective January 1, 2009, Pfizer expanded its new operating model within the Pharmaceutical business, which is now comprised of five customer-focused units with clear, single points of accountability to enable the Company to more effectively anticipate and respond to the diverse needs of physicians, customers and patients: Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. In addition to the pharmaceutical business, the Company has a significant Animal Health business.

     
    First-Quarter
($ in millions)   2009   2008   Change    

Foreign

Exchange

  Operational
Primary Care(3)   $ 5,322   $ 5,788   (8%)     (4%)   (4%)
Specialty Care(4)   1,463   1,362   7%     (3%)   10%
Oncology(5)   350   421   (17%)     (6%)   (11%)
Established Products(6)   1,615   1,841   (12%)     (2%)   (10%)
Emerging Markets(7)   1,352   1,492   (9%)     (14%)   5%
                       
Total Pharmaceutical   10,102   10,904   (7%)     (5%)   (2%)
                       
Animal Health(8)   537   619   (13%)     (8%)   (5%)
Other(9)   228   325   (30%)     (3%)   (27%)
                       
Total   $ 10,867   $ 11,848   (8%)     (5%)   (3%)
                       

 

                     

See end of text prior to tables for notes.

 

Primary Care revenues for first-quarter 2009 were $5.3 billion, an 8% decline compared with $5.8 billion in the year-ago quarter. In addition to the unfavorable impact of foreign exchange, the decline in revenues compared with the same period last year was primarily driven by continued pressure on Lipitor from generic competition and by the negative impact of the Chantix label changes, as well as by the loss of U.S. exclusivity for Zyrtec in January 2008.

Specialty Care revenues for first-quarter 2009 were $1.5 billion, a 7% increase compared with $1.4 billion in the same period last year. Despite the unfavorable impact of foreign exchange, revenues increased, primarily driven by the solid operational performance in both the U.S. and international markets from certain products, including Xalatan, Zyvox, Vfend and Revatio.

Oncology revenues for first-quarter 2009 were $350 million, a 17% decrease compared with $421 million in the prior-year quarter. In addition to the unfavorable impact of foreign exchange, revenues were unfavorably impacted by the loss of U.S. exclusivity for Camptosar in February 2008, which was partially offset by strong international performance, largely driven by Sutent.

Established Products revenues for first-quarter 2009 were $1.6 billion, a 12% decline compared with $1.8 billion in the year-ago quarter. Since the products in this unit generally have lost patent protection or marketing exclusivity, revenues have declined. This unit was created in 2008 with the goal of recapturing value for these products in developed market geographies by progressively slowing the erosion of, and ultimately stabilizing, revenue and profit from established products. Supporting initiatives within the unit include programs designed to expand patient and payor access to this portfolio, to develop product enhancements, to expand the portfolio and to increase promotional efforts for targeted products.

Emerging Markets revenues for first-quarter 2009 were $1.4 billion, a 9% decrease compared with $1.5 billion in first-quarter 2008. Revenues in Emerging Markets, which also includes revenues from established products sold in these geographies, were unfavorably impacted by foreign exchange, which was partially offset by solid operational growth, led by expansion efforts in China.

Animal Health revenues for first-quarter 2009 were $537 million, a 13% decline compared with $619 million in the year-ago quarter. In addition to the unfavorable impact of foreign exchange, revenues were impacted by global macroeconomic conditions, which negatively affected global spending on veterinary care, as well as by a planned change in terms with U.S. distributors resulting in an anticipated, one-time reduction in U.S. distributor inventories.

Reported Net Income(2) and Reported Diluted EPS(2)

For first-quarter 2009, Pfizer posted reported net income(2) of $2.7 billion, a decline of 2% compared with $2.8 billion in the prior-year quarter, and reported diluted EPS(2) of $0.40, a decline of 2% compared with $0.41 in the prior-year quarter. First-quarter 2009 results were unfavorably impacted by the decrease in total revenues and other income, the increase in the effective tax rate as well as costs incurred in connection with the pending Wyeth acquisition. These factors were partially offset by savings from cost-reduction initiatives and the elimination of in-process research and development charges in 2009. The increase in the effective tax rate on reported results to 28% from 22% in the year-ago quarter was primarily due to the increased tax cost associated with certain business decisions executed to finance the pending Wyeth acquisition.

Adjusted Income(1) and Adjusted Diluted EPS(1)

First-quarter 2009 adjusted income(1) was $3.7 billion, a decrease of 11% compared with $4.1 billion in the year-ago quarter, and adjusted diluted EPS(1) was $0.54, a decrease of 11% compared with $0.61 in the year-ago quarter. Both adjusted income(1) and adjusted diluted EPS(1) were negatively impacted by the decrease in total revenues and the increase in the effective tax rate on adjusted income(1) to approximately 30% from 22% in the prior-year quarter, which were partially offset by savings from cost-reduction initiatives.

In first-quarter 2009, adjusted cost of sales(1) as a percentage of revenues was 12.1% compared with 15.3% in first-quarter 2008. This improvement reflects the benefits from cost-reduction initiatives and foreign exchange. Excluding the impact of foreign exchange, adjusted cost of sales(1) as a percentage of revenues was 14.4% in first-quarter 2009.

Adjusted selling, informational and administrative (SI&A) expenses(1) were $2.8 billion in first-quarter 2009, a decrease of 17% compared with $3.4 billion in the prior-year quarter. The decrease was due to the favorable impact of cost-reduction initiatives and, to a lesser extent, certain insurance recoveries. Also, foreign exchange reduced first-quarter 2009 adjusted SI&A expenses(1) by approximately $140 million compared with the year-ago quarter.

Adjusted research and development (R&D) expenses(1) were $1.7 billion in first-quarter 2009, an increase of 2% compared with $1.6 billion in the prior-year period. The increase was due to a $150 million milestone payment to Bristol-Myers Squibb in this year’s first quarter in connection with the collaboration on apixaban, partially offset by the favorable impact of cost-reduction initiatives. Foreign exchange reduced first-quarter 2009 adjusted R&D expenses(1) by approximately $60 million compared with the year-ago quarter.

Overall, operational improvements resulting from cost-reduction initiatives and, to a much lesser extent, certain insurance recoveries decreased adjusted total costs(10) by approximately $500 million or 7% in first-quarter 2009 compared with the prior-year period, and foreign exchange decreased adjusted total costs(10) by approximately $540 million or 8%. The operational improvements were driven partially by the reduction in workforce to approximately 80,250 colleagues at the end of first-quarter 2009, a decline of 1,650 compared with year-end 2008, and a decline of 6,350 since the beginning of 2008, as well as manufacturing and research and development site exits. The decline of 1,650 colleagues in first-quarter 2009 was net of new colleagues hired in expanding areas across the Company, primarily in emerging markets.

Executive Commentary

“During the quarter, we continued our ongoing efforts to reshape our operating model, made substantial progress in planning for the Wyeth integration, and faced a challenging and dynamic economic and competitive environment. Yet, we remained focused on meeting our commitments - generating revenues consistent with our expectations and continuing to streamline our cost structure. We remain on-track to deliver on our full-year 2009 guidance for revenues and adjusted results(1),” stated Jeff Kindler, Chairman and Chief Executive Officer.

Kindler continued, “Even as we achieve our short-term objectives, we continue to lay the groundwork to increase long-term shareholder value through the pending combination with Wyeth. Our recent announcement on the planned leadership and organizational structure for the company’s combined research and commercial operations demonstrates our intention to advance strong scientific capabilities and to retain top scientific and commercial talent from both organizations as we build the world’s premier biopharmaceutical company.”

Frank D’Amelio, Chief Financial Officer, stated, “We achieved several significant milestones in this quarter in planning for the Wyeth acquisition, making substantial progress in a short period of time. We remain committed to a rapid and successful integration, while at the same time delivering on our 2009 financial goals, which remains a top priority. Today, we’re reaffirming our full-year 2009 financial guidance for revenues and adjusted results(1), and updating our reported diluted EPS(2) guidance to include certain costs associated with the pending acquisition of Wyeth.”

Financial Guidance

For full-year 2009, Pfizer’s financial guidance, at current exchange rates(11) is summarized below. This guidance is unchanged from the guidance provided on January 26, 2009, except for reported diluted EPS(2), which has been reduced to a range of $1.20 to $1.35 from $1.34 to $1.49 to reflect certain costs incurred and expected to be incurred in connection with the pending Wyeth acquisition. These costs include, but are not limited to, transaction costs, pre-integration costs and financing costs. We also continue to expect to achieve net savings compared to 2008 adjusted total costs(10) of $2 billion by the end of 2011 at 2008 foreign exchange rates.

     
    2009 Guidance(12)
Reported Revenues   $44.0 to $46.0 billion
Adjusted Cost of Sales(1) as a Percentage of Revenues   14.5% to 15.5%
Adjusted SI&A Expenses(1)   $13.5 to $14.0 billion
Adjusted R&D Expenses(1)   $7.1 to $7.5 billion
Adjusted Other (Income)/Deductions(1)   ($500 to $700 million)
Effective Tax Rate on Adjusted Income(1)   Approx. 30%
Reported Diluted EPS(2)   $1.20 to $1.35
Adjusted Diluted EPS(1)   $1.85 to $1.95
     

For additional details, please see the attached financial schedules, product revenue table, supplemental information and disclosure notice.

     
(1)  

"Adjusted income" and its components and "adjusted diluted earnings per share (EPS)" are defined as reported net income(2) and its components and reported diluted EPS(2) excluding purchase-accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted SI&A expenses, Adjusted R&D expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis, and therefore, components of the overall adjusted income measure. As described under Adjusted Income in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Form 10-K for the year ended December 31, 2008, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. Reconciliations of first-quarter 2009 and 2008 adjusted income and its components and adjusted diluted EPS to reported net income(2) and its components and reported diluted EPS(2), as well as reconciliations of full-year 2009 adjusted income and adjusted diluted EPS guidance to full-year 2009 reported net income(2) and reported diluted EPS(2) guidance, are provided in the materials accompanying this report. The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.

 
(2)  

“Reported Net Income” is defined as net income attributable to Pfizer Inc in accordance with U.S. generally accepted accounting principles. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc common shareholders in accordance with U.S. generally accepted accounting principles.

 
(3)   The Primary Care business unit includes revenues from human pharmaceutical products primarily prescribed by primary-care physicians, and may include, but is not limited to, products in the following therapeutic and disease areas: Alzheimer’s disease, anxiety, cardiovascular (excluding pulmonary arterial hypertension), diabetes, pain, genitourinary, obesity, osteoporosis and respiratory. Examples of products in this business unit include, but are not limited to, Lipitor, Lyrica, Celebrex and Viagra. All revenues for such products are allocated to the Primary Care business unit, except those generated in emerging markets(7), and those that are managed by the Established Products(6) business unit.
 
(4)   The Specialty Care business unit includes revenues from human pharmaceutical products primarily prescribed by physicians who are specialists, and may include, but is not limited to, products in the following therapeutic and disease areas: antibacterials, antifungals, antivirals, bone, inflammation, gastrointestinal, growth hormones, multiple sclerosis, ophthalmology, pulmonary hypertension and psychosis. Examples of products in this business unit include, but are not limited to, Xalatan, Zyvox, Geodon and Genotropin. All revenues for such products are allocated to the Specialty Care business unit, except those generated in emerging markets(7), and those that are managed by the Established Products(6) business unit.
 
(5)  

The Oncology business unit includes revenues from human oncology and oncology-related products. Examples of products in this business unit include, but are not limited to, Sutent and Aromasin. All revenues for such products are allocated to the Oncology business unit, except those generated in emerging markets(7), and those that are managed by the Established Products(6) business unit.

 
(6)   The Established Products business unit generally includes revenues from human pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. In certain situations, products may be transferred to this unit before losing patent protection or marketing exclusivity in order to maximize their value. This unit also excludes revenues generated in emerging markets(7). Examples of products in this business unit include, but are not limited to, Norvasc, Relpax, Medrol and Arthrotec.
 
(7)   The Emerging Markets business unit includes revenues from all human pharmaceutical products sold in emerging markets, including, but not limited to, Asia (excluding Japan), Latin America, Middle East, Africa, Central and Eastern Europe, Russia and Turkey.
 
(8)   The Animal Health business includes revenues from products to treat livestock and companion animals.
 
(9)   Includes Consumer Healthcare business-transition activity, Capsugel and Pfizer Centersource.
 
(10)   Represents the total of Adjusted Cost of Sales(1), Adjusted SI&A expenses(1) and Adjusted R&D expenses(1).
 
(11)   Current exchange rates approximate rates at the time of the first-quarter 2009 earnings press release (April 2009).
 
(12)   Does not assume the completion of any business-development transactions not completed as of March 29, 2009, and excludes the potential effects of litigation-related matters not substantially resolved as of March 29, 2009, as we do not forecast those matters. However, reported diluted EPS(2) full-year 2009 financial guidance does reflect certain costs incurred and expected to be incurred in connection with the pending Wyeth acquisition. These costs include, but are not limited to, transaction costs, pre-integration costs and financing costs.
     

 

PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
                         
                         
(millions of dollars, except per common share data)
                         
          First Quarter   % Incr. /
          2009   2008   (Decr.)
  Revenues     $ 10,867     $ 11,848     (8)
  Costs and expenses:                    
    Cost of sales (a)       1,408       1,986     (29)
    Selling, informational and administrative expenses (a)       2,876       3,492     (18)
    Research and development expenses (a)       1,705       1,791     (5)
    Amortization of intangible assets       578       779     (26)
    Acquisition-related in-process research and development charges       -       398     (100)
    Restructuring charges and acquisition-related costs       554       178     212
    Other (income)/deductions--net       (57 )     (333 )   (82)
  Income from continuing operations before provision                    
    for taxes on income       3,803       3,557     7
  Provision for taxes on income       1,074      

Posted: April 2009


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