Pfizer Reports Fourth-Quarter and Full-Year 2008 Results and 2009 Financial Guidance

  • Fourth-Quarter 2008 Reported Revenues of $12.3 Billion Compared with $12.9 Billion in the Year-Ago Quarter
  • Fourth-Quarter 2008 Reported Diluted EPS of $0.04 Compared with $0.40 in the Year-Ago Quarter, Reflecting a $2.3 Billion Charge Resulting from an Agreement in Principle to Resolve Previously Disclosed Investigations
  • Fourth-Quarter 2008 Adjusted Diluted EPS(1) of $0.65 Compared with $0.50 in the Year-Ago Quarter
  • Achieves Full-Year 2008 Revenue and Adjusted Diluted EPS(1) Guidance; Reports $2.8 Billion in Adjusted Total Cost(2) Reductions During 2007 and 2008, Exceeding Target
  • Announces New Cost-Reduction Program Targeting Additional Net Savings of $2 Billion by 2011; New Program plus Just-Completed Program have Potential to Yield Cost Savings of about $4.8 Billion

NEW YORK--(BUSINESS WIRE)--Jan 26, 2009 - Pfizer Inc (NYSE: PFE):

 
($ in millions, except per share amounts)
  Fourth-Quarter   Full-Year
  2008   2007   Change   2008   2007   Change
Reported Revenues $ 12,346   $ 12,870   (4%)   $ 48,296   $ 48,418   --
Reported Net Income 266   2,724   (90%)   8,104   8,144   --
Reported Diluted EPS 0.04   0.40   (90%)   1.20   1.17   3%
Adjusted Revenues(1) 12,311   12,795   (4%)   48,341   48,209   --
Adjusted Income(1) 4,389   3,402   29%   16,366   15,113   8%
Adjusted Diluted EPS(1) 0.65   0.50   30%   2.42   2.18   11%
                       
See end of text prior to tables for notes.

 

 
Pfizer Inc (NYSE: PFE) today reported financial results for fourth-quarter and full-year 2008. For fourth-quarter 2008, the Company recorded reported revenues of $12.3 billion, a decrease of 4% compared with the year-ago quarter. This decrease was primarily attributable to the negative impact of the loss of U.S. exclusivity for Zyrtec in January 2008, and for Camptosar in February 2008, as well as the loss of exclusivity for Norvasc in Korea and Japan in February 2008 and July 2008, respectively. Zyrtec, Camptosar and Norvasc fourth-quarter 2008 revenues decreased by $515 million ($263 million, $144 million and $108 million, respectively), compared with the year-ago quarter. In addition, foreign exchange unfavorably impacted reported revenues by approximately $380 million or 3%, partially offset by the solid performance of key products.

U.S. reported revenues were $5.3 billion in fourth-quarter 2008, a decrease of 8% compared with the year-ago quarter. International reported revenues were $7.1 billion, a decrease of 1% compared with the year-ago quarter, and reflect operational growth of 5%, which was more than offset by the unfavorable impact of foreign exchange of 6%. U.S. reported revenues accounted for 43% of the total compared with 44% in the year-ago quarter, while international reported revenues accounted for 57% of the total compared with 56% in the year-ago quarter.

For fourth-quarter 2008, Pfizer posted reported net income of $266 million, a decline of 90% compared with the prior-year quarter, and reported diluted EPS of $0.04, a decrease of 90% compared with the prior-year quarter. Fourth-quarter 2008 results were impacted by a $2.3 billion pre-tax and after-tax charge resulting from an agreement in principle with the Office of Michael Sullivan, the United States Attorney for the District of Massachusetts, to resolve previously disclosed investigations regarding allegations of past off-label promotional practices concerning Bextra, as well as other open investigations. In addition, results were unfavorably impacted by an increased effective tax rate, as well as an increase in pre-tax charges of $1.2 billion ($700 million after-tax) associated with cost-reduction initiatives, which were partially offset by savings from those initiatives.

For full-year 2008, Pfizer recorded reported revenues of $48.3 billion, essentially flat compared with 2007 full-year revenues of $48.4 billion, despite the loss of exclusivity of Norvasc, Zyrtec and Camptosar, which collectively decreased revenues by $2.6 billion. Full-year revenues were favorably impacted by foreign exchange of approximately $1.6 billion, or 3%, and the solid performance of many key products. U.S. reported revenues were $20.4 billion, a decrease of 12% year over year, while international reported revenues were $27.9 billion, an increase of 10%, reflecting the favorable impact of foreign exchange of 6% and operational growth of 4%. U.S. reported revenues accounted for 42% of the total compared with 48% in the year-ago period, while international reported revenues accounted for 58% of the total compared with 52% in the year-ago period.

For full-year 2008, the Company posted reported net income of $8.1 billion, essentially flat compared with the prior year, and reported diluted EPS of $1.20, an increase of 3% compared with $1.17. This was primarily attributable to savings associated with our cost-reduction initiatives, the 2007 after-tax charges of $1.8 billion related to the decision to exit Exubera and the favorable impact of foreign exchange, offset by the aforementioned charge related to Bextra and other open investigations in fourth-quarter 2008, as well as the after-tax charge of $640 million resulting from the agreements in principle to resolve certain litigation involving the Company's non-steroidal anti-inflammatory (NSAID) pain medicines in third-quarter 2008 and an increased effective tax rate.

Adjusted Revenues(1), Adjusted Income(1) and Adjusted Diluted EPS(1) Results

For fourth-quarter 2008, Pfizer posted adjusted revenues(1) of $12.3 billion, a decrease of 4% compared with $12.8 billion in the year-ago quarter. For full-year 2008, Pfizer posted adjusted revenues(1) of $48.3 billion, essentially flat compared with $48.2 billion in full-year 2007. Adjusted revenues(1) in both periods were positively impacted by the solid performance of key products, and negatively impacted by the loss of exclusivity of Norvasc, Zyrtec and Camptosar. In addition, foreign exchange unfavorably impacted fourth-quarter 2008 revenues compared with the year-ago period by $389 million, but favorably impacted full-year 2008 revenues by $1.6 billion compared with the prior year.

Fourth-quarter 2008 adjusted income(1) was $4.4 billion, an increase of 29% compared with $3.4 billion in the year-ago quarter, and adjusted diluted EPS(1) was $0.65, an increase of 30% compared with $0.50 in the year-ago quarter. Both adjusted income(1) and adjusted diluted EPS(1) were positively impacted by savings associated with our cost-reduction initiatives and higher fourth-quarter 2007 spending levels in comparison with fourth-quarter 2008, partially offset by an increase in the effective tax rate. Full-year 2008 adjusted income(1) was $16.4 billion, an increase of 8% compared with $15.1 billion in the year-ago period, and adjusted diluted EPS(1) was $2.42, an increase of 11% compared with $2.18. Full-year 2008 adjusted income(1) and adjusted diluted EPS(1) were primarily impacted by the favorable impact of foreign exchange and savings from cost-reduction initiatives.

Reported and adjusted diluted EPS(1) were also positively impacted by the full benefit of Pfizer's purchase of $10.0 billion of the Company's common stock in 2007.

Executive Commentary

“We are pleased with our performance in 2008,” said Chairman and Chief Executive Jeff Kindler. “We achieved our financial objectives, including exceeding our cost-reduction target, despite the tumultuous global economy. Notwithstanding an extremely competitive and increasingly challenging environment in 2008, we made significant progress by: establishing customer-focused business units; reprioritizing and refocusing our research on the greatest opportunities for scientific, medical and commercial success; and increasing our Phase 3 portfolio by approximately 60%, from 16 to 26 programs at year-end. These successes have provided the ideal platform from which we're advancing Pfizer forward.”

“As part of this advancement, today we announced that we have entered into an agreement to acquire Wyeth to create the world's premier biopharmaceutical company. The combination of Pfizer and Wyeth will meaningfully deliver Pfizer's strategic priorities in a single transaction. Our combined company will be one of the most diversified in the industry and will benefit from complementary patient-centric units that match speed with the benefits of a global company's scale and resources,” continued Kindler.

Frank D'Amelio, Chief Financial Officer, stated, “In 2008, we exceeded our cost-reduction target by decreasing our adjusted total costs(2) by $2.8 billion in comparison to 2006 on a constant currency basis(3). In addition, we are implementing a new cost-reduction initiative that will drive a lower, more variable cost structure to achieve anticipated incremental savings of approximately $3 billion by the end of 2011 compared with our 2008 adjusted total costs(2) level. After allocating approximately $1 billion of investment to high-growth opportunities, we anticipate net savings of about $2 billion compared with our 2008 adjusted total costs(2) at 2008 average foreign exchange rates. The anticipated net savings from this new initiative in addition to the savings we achieved at year-end 2008 under our previous cost-reduction initiative total approximately $4.8 billion.”

“Further, as part of the proposed acquisition of Wyeth, we expect to achieve synergies of approximately $4 billion by the end of 2012, which will be in addition to the savings from our previous cost-reduction initiatives,” continued D'Amelio.

“In 2009, Pfizer expects to generate revenues of $44.0 to $46.0 billion, and adjusted diluted EPS(1) of $1.85 to $1.95, which includes most of the anticipated $1 billion investment intended to create new sources of revenue. This also assumes a reduction in revenues of approximately $3.0 billion compared with 2008 directly related to the strengthening of the U.S. dollar,” stated D'Amelio.

New Cost-Reduction Initiative

Pfizer will implement a new cost-reduction initiative, which is expected to achieve incremental cost savings of approximately $3 billion, at 2008 average foreign exchange rates, compared with 2008 adjusted total costs(2) of $28.6 billion. The program will be substantially complete by the end of 2010, with the full savings to be realized by the end of 2011. Approximately $1 billion of these savings will be reinvested in the business, resulting in an expected $2 billion net decrease. With this initiative and our recently completed initiative, the Company expects to reduce adjusted total costs(2) by about $4.8 billion while absorbing inflation and compensation increases.

As part of this cost-reduction initiative, Pfizer intends to reduce its workforce by approximately 10%. Reductions will span sales, manufacturing, research and development, and administrative organizations. The Company also intends to reduce the number of manufacturing sites to 41 from 46 today, as well as reduce its facilities square footage by approximately 15%. In conjunction with this program, Pfizer expects to incur costs of approximately $6 billion on a pre-tax basis, of which $1.5 billion has been incurred.

 
Product Performance
($ in millions, except percentages)
 
  Fourth-Quarter   Full-Year
  2008   2007   Change   2008   2007   Change
In-Line Products(4) $10,132   $10,061   1%   $ 39,635   $ 37,424   6%
New Products(5) 451   468   (4%)   1,820   1,489   22%
                       
Total In-Line and New Products(6) 10,583   10,529   1%   41,455   38,913   7%
                       
Loss of Exclusivity Products(7) 658

 

  1,173

 

      2,936

 

  5,511

 

  (47%)

 

(44%)                      
                       
Returns Adjustment --   --   --   (217)   --   *
                       
Total Pharmaceutical 11,241   11,702   (4%)   44,174   44,424   (1%)
                       
Animal Health 783   785   --   2,825   2,639   7%
Other(8) 322   383   (16%)   1,297   1,355   (4%)
                       
Total Revenues $ 12,346   $12,870   (4%)   $ 48,296   $ 48,418   --
                       
See end of text prior to tables for notes.
* Calculation not meaningful.
 
Pharmaceutical

Pharmaceutical revenues for fourth-quarter 2008 were $11.2 billion, a decrease of 4% compared with the prior-year quarter, including the unfavorable impact of foreign exchange of approximately $340 million or 3%. Fourth-quarter 2008 revenues were unfavorably impacted by the aforementioned loss of exclusivity of Norvasc, Zyrtec and Camptosar, partially offset by revenues from in-line products(4), which increased 1% compared with the year-ago quarter.

Pharmaceutical revenues for full-year 2008 were $44.2 billion, a decrease of 1% compared with the prior year, including the favorable impact of foreign exchange of approximately $1.5 billion or 3%. Full-year 2008 revenues were unfavorably impacted by the aforementioned loss of exclusivity of Norvasc, Zyrtec and Camptosar, partially offset by revenues from in-line and new products(6), which increased 7% from the prior year. In addition, full-year 2008 pharmaceutical revenues were negatively impacted by a $217 million adjustment to the prior years' product returns liabilities recorded in third-quarter 2008.

Lipitor revenues in fourth-quarter 2008 were $3.1 billion, a decrease of 8% compared with the prior-year quarter. In the U.S., Lipitor revenues were $1.6 billion, a decrease of 13% compared with the prior-year quarter. Revenues from international markets were $1.5 billion, a decrease of 2%, reflecting the unfavorable impact of foreign exchange of approximately $124 million, or 8%, which more than offset operational growth of 6%.

Lyrica revenues in fourth-quarter 2008 were $702 million, a year-over-year increase of 25%, driven by strong physician prescribing patterns and patient satisfaction, as well as increased use of Lyrica for fibromyalgia in the U.S., where the product continues to build on its leadership position for this indication. In the U.S., Lyrica revenues were $384 million, a year-over-year increase of 20%, while international revenues were $318 million, an increase of 31%, reflecting operational growth of 42% and the unfavorable impact of foreign exchange of 11%.

Celebrex revenues in fourth-quarter 2008 were $664 million, an increase of 4% compared with the year-ago quarter, supported by continued educational and promotional efforts highlighting the benefit-risk proposition of Celebrex. In the U.S., Celebrex revenues were $489 million, an increase of 4% compared with the prior-year quarter, while international revenues were $175 million, an increase of 4%.

Sutent revenues in fourth-quarter 2008 were $220 million, a year-over-year increase of 21%, demonstrating continued strong performance and market leadership in its approved indications. In the U.S., Sutent revenues were $66 million, an increase of 5% year over year, while international revenues were $154 million, an increase of 30%. Sutent is available in all major markets and is supported by efficacy, survival and cost-effectiveness data. Further, its robust life cycle plan currently includes Phase 3 clinical trials in cancers with unmet medical need, such as breast, lung, colorectal, liver and prostate cancers.

Chantix (known as Champix outside the U.S.) revenues in fourth-quarter 2008 were $180 million, a decrease of 36% year over year. In the U.S., Chantix revenues were $91 million, a decline of 55% compared with the prior-year quarter, while international revenues were $89 million, an increase of 13%. Fourth-quarter 2008 U.S. results continued to be negatively impacted by the changes to the Chantix U.S. label in prior quarters. Pfizer continues its educational and promotional efforts with physicians and patients, focused on Chantix's benefit-risk proposition given the significant negative health consequences of smoking, as well as the importance of physician-patient dialogue in helping patients quit smoking. Chantix has now been launched in all major markets, with nine launches planned in 2009 in emerging markets.

Animal Health

Animal Health revenues for fourth-quarter 2008 were $783 million, essentially flat compared with $785 million in the year-ago quarter. Full-year 2008 Animal Health revenues were $2.8 billion, an increase of 7% compared with $2.6 billion in 2007, driven by strong global livestock and companion animal product performance. In fourth-quarter 2008, foreign exchange unfavorably impacted revenues by approximately $35 million or 4%, while in full-year 2008, foreign exchange positively impacted revenues by approximately $80 million or 3%, compared with the prior-year respective periods.

Costs and Expenses

In fourth-quarter 2008, adjusted cost of sales(1) as a percentage of revenues was 11.7% compared with 17.7% in fourth-quarter 2007. For the full-year 2008, adjusted cost of sales(1) as a percentage of revenues was 14.6% compared with 16.0% in 2007, an improvement from our previous guidance of 15.0% to 15.5%. This improvement reflects the benefits from our cost-reduction initiatives and foreign exchange. Excluding the impact of foreign exchange, adjusted cost of sales(1) as a percentage of revenues was 15.6% in fourth-quarter 2008 and 15.2% for the full-year 2008.

Adjusted selling, informational and administrative (SI&A) expenses(1) were $3.5 billion in fourth-quarter 2008, a decrease of 23% compared with the prior-year quarter. For the full-year 2008, adjusted SI&A expenses(1) were $14.0 billion, a decrease of 8% compared with 2007. These decreases were primarily due to the favorable impact of our cost-reduction initiatives. In addition, higher fourth-quarter 2007 spending levels contributed to the quarter-over-quarter decline in adjusted SI&A expenses(1). Foreign exchange positively impacted fourth-quarter 2008 by $103 million and negatively impacted full-year 2008 by $379 million compared with the respective year-ago periods.

Adjusted research and development (R&D) expenses(1) were $2.2 billion in fourth-quarter 2008, an increase of 2% compared with the prior-year period. For full-year 2008, adjusted R&D expenses(1) were $7.5 billion, a decrease of 1% compared with 2007. The increase in fourth-quarter 2008 is primarily the result of up-front payments totaling $300 million related to the licensing agreements with Medivation, Inc. and Auxilium Pharmaceuticals, Inc. Both periods also benefited from the favorable impact of our cost-reduction initiatives.

Overall, operational improvements decreased adjusted total costs(2) by $1.1 billion or 12% in fourth-quarter 2008 compared with the prior-year period, and foreign exchange decreased adjusted total costs(2) by $702 million or 8%. Foreign exchange increased full-year 2008 adjusted total costs(2) by $312 million or 1% compared with 2007. Excluding the impact of foreign exchange, full-year 2008 adjusted total costs(2) decreased by approximately $2.2 billion, or 7%, compared with 2007. The operational improvement was driven partially by the reduction in workforce to approximately 81,900 at year-end 2008, a decline of 4,700 compared with the year-end 2007, as well as manufacturing and research and development site exits.

At the end of fourth-quarter 2008, Pfizer exceeded its goal to reduce absolute adjusted total costs(2) by at least $2.0 billion by the end of 2008 compared with 2006 on a constant currency basis(3), realizing a total reduction of $2.8 billion.

Financial Guidance

For full-year 2009, Pfizer's financial guidance, at current exchange rates(9) is summarized below. The 2009 financial guidance, in comparison with 2008 financial results, reflects the projected impact of the strengthening of the U.S. dollar, increased pension expenses and lower interest income. It also reflects an increase in the effective tax rate resulting from financial strategies in connection with the proposed acquisition of Wyeth. These factors contributed to a reduction in our Adjusted Diluted EPS(1) of approximately $0.50.

             
      2008 Actual     2009 Guidance
Adjusted Revenues(1)     $48.3 billion     $44.0 to $46.0 billion
Adjusted Cost of Sales(1) as a Percentage of Revenues     14.6%

 

    14.5% to 15.5%

 

Adjusted SI&A Expenses(1)     $14.0 billion     $13.5 to $14.0 billion
Adjusted R&D Expenses(1)     $7.5 billion     $7.1 to $7.5 billion
Adjusted Other (Income)/Deductions(1)     ($1.4 billion)     ($500 to $700 million)
Effective Tax Rate on Adjusted Income(1)     22.0%     Approx. 30%
Reported Diluted EPS(10)     $1.20     $1.34 to $1.49

 

Adjusted Diluted EPS(1)     $2.42     $1.85 to $1.95
             
For additional details, please see the attached financial schedules, product revenue tables, supplemental information and disclosure notice.
     
(1)

 

  "Adjusted income" and its components and "adjusted diluted earnings per share (EPS)" are defined as reported net income and its components and reported diluted EPS excluding purchase-accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Revenues, Adjusted Cost of Sales, Adjusted SI&A expenses, Adjusted R&D expenses and Adjusted Other (Income)/Deductions-net 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-Q for the fiscal quarter ended September 28, 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 fourth-quarter 2008 and 2007 and full-year 2008 and 2007 adjusted income and its components and adjusted diluted EPS to reported net income and its components and reported diluted EPS, as well as reconciliations of full-year 2009 adjusted income and adjusted diluted EPS guidance to full-year 2009 reported net income and reported diluted EPS 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)

 

  Represents primarily the total of Adjusted Cost of Sales(1), Adjusted SI&A expenses(1) and Adjusted R&D expenses(1).

 

     
(3)

 

  Constant currency basis means that the applicable financial measure is based upon the actual foreign exchange rates in effect during 2006.

 

     
(4)

 

  Represents worldwide revenues for all pharmaceutical products, excluding revenues included in notes (5) and (7).

 

     
(5)

 

  Represents worldwide revenues for pharmaceutical products launched since 2006: Chantix/Champix, Eraxis, Selzentry/Celsentri, Sutent, Thelin and Toviaz.

 

     
(6)

 

  Total worldwide pharmaceutical revenues excluding the revenues of major products that have lost exclusivity in the U.S. in 2007 and 2008 as described in note (7). See the table accompanying this report.

 

     
(7)

 

  Represents worldwide revenues for pharmaceutical products that lost exclusivity in 2007 and 2008: Camptosar, Norvasc and Zyrtec.

 

     
(8)

 

  Includes Consumer Healthcare business transition activity, Capsugel and Pfizer Centersource.

 

     
(9)

 

  Current exchange rates approximate rates at the time of the fourth-quarter 2008 earnings press release (January 2009).

 

     
(10)

 

  Does not assume the completion of any business development transactions not completed as of December 31, 2008, and excludes the potential effects of litigation-related matters not substantially resolved as of December 31, 2008, as we do not forecast those items.

 

     
PFIZER INC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
   

Posted: January 2009


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