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Pfizer Reports Second-Quarter 2012 Results

  • Second-Quarter 2012 Revenues of $15.1 Billion, excluding Discontinued Operations Revenues of $581 Million from the Nutrition(1) business
  • Second-Quarter 2012 Adjusted Diluted EPS(2) of $0.62; Second-Quarter 2012 Reported Diluted EPS(3) of $0.43
  • Reaffirms 2012 Financial Guidance
  • Repurchased $1.3 Billion of Common Stock in Second-Quarter 2012; Continue to Expect to Repurchase Approximately $5 Billion of Common Stock in 2012
  • Company Anticipates Filing a Registration Statement with the U.S. Securities and Exchange Commission by Mid-August for a Potential Initial Public Offering of up to a 20% Ownership Stake in the Animal Health Business, Zoetis

NEW YORK--(BUSINESS WIRE)--Jul 31, 2012 - Pfizer Inc. (NYSE: PFE):

 
($ in millions, except per share amounts)
    Second-Quarter     Year-to-Date
2012     2011(4)     Change 2012     2011(4)     Change
Reported Revenues $ 15,057 $ 16,485 (9%) $ 29,942 $ 32,509 (8%)
Adjusted Income(2) 4,671 4,650 -- 9,015 9,359 (4%)
Adjusted Diluted EPS(2) 0.62 0.59 5% 1.19 1.17 2%
Reported Net Income(3) 3,253 2,610 25% 5,047 4,832 4%
Reported Diluted EPS(3) 0.43 0.33 30% 0.67 0.61 10%
 
See end of text prior to tables for notes.
 
Pfizer Inc. (NYSE: PFE) today reported financial results for second-quarter 2012. Second-quarter 2012 revenues were $15.1 billion, a decrease of 9% compared with $16.5 billion in the year-ago quarter, which reflects an operational decline of $977 million, or 6%, and the unfavorable impact of foreign exchange of $451 million, or 3%.

For second-quarter 2012, U.S. revenues were $5.7 billion, a decrease of 15% compared with the year-ago quarter. This decrease was primarily the result of the U.S. loss of exclusivity of Lipitor on November 30, 2011. International revenues were $9.3 billion, a decrease of 5% compared with the prior-year quarter, primarily due to the unfavorable impact of foreign exchange. U.S. revenues represented 38% of total revenues in second-quarter 2012 compared with 41% in the year-ago quarter, while international revenues represented 62% of total revenues in second-quarter 2012 compared with 59% in the year-ago quarter.

Financial Performance(5)
      Second-Quarter Revenues
($ in millions)             Foreign    
Favorable/(Unfavorable) 2012 2011 Change Exchange Operational
 
Primary Care $ 4,018 $ 5,870 (32%) (1%) (31%)
Specialty Care 3,497 3,699 (5%) (3%) (2%)
Established Products 2,681 2,317 16% (2%) 18%
Emerging Markets 2,620 2,415 8% (6%) 14%
Oncology 323 339 (5%) (3%) (2%)
Biopharmaceutical 13,139 14,640 (10%) (3%) (7%)
 
Animal Health 1,085 1,055 3% (4%) 7%
Consumer Healthcare 768 714 8% (3%) 11%
Other(6) 65 76 (14%) (1%) (13%)
 
Total $ 15,057 $ 16,485 (9%) (3%) (6%)
 
See end of text prior to tables for notes.
 
Business Highlights

Primary Care unit revenues decreased 31% operationally in comparison with the same period last year, primarily due to the loss of exclusivity of Lipitor in the U.S. in November 2011 and the resulting shift in the reporting of U.S. Lipitor revenues to the Established Products unit beginning January 1, 2012. U.S. branded Lipitor revenues, as reported by the Established Products unit, decreased to $296 million, from $1.4 billion reported by the Primary Care unit in second-quarter 2011, due to the aforementioned loss of exclusivity and the entry of multi-source generic competition in May 2012. Collectively, the decline in worldwide revenues for Lipitor and for certain other Primary Care unit products that lost exclusivity in various markets in 2012 and 2011, as well as the resulting shift in the reporting of certain product revenues to the Established Products unit, reduced Primary Care unit revenues by approximately $2.0 billion, or 34%, in comparison with second-quarter 2011. The impact of these declines was partially offset by the strong growth of Lyrica and Celebrex.

Specialty Care unit revenues declined 2% operationally in comparison with second-quarter 2011. Revenues were positively impacted by the growth of Enbrel, as well as the Prevenar franchise in Japan and Australia, while U.S. Prevnar 13 revenues were essentially flat and developed Europe Prevenar 13 revenues were slightly lower than in the prior-year quarter since most patients eligible to receive the pediatric catch-up dose have already been vaccinated and utilization in adults is minimal at this time. Additionally, Specialty Care unit revenues were negatively impacted by the losses of exclusivity of Vfend and Xalatan in the U.S. in February and March 2011, respectively, and the resulting shift in the reporting of Vfend and Xalatan U.S. revenues to the Established Products unit beginning January 1, 2012, as well as the loss of exclusivity of Xalatan in developed Europe in January 2012 and Geodon in the U.S. in March 2012. Collectively, these developments relating to Vfend, Xalatan and Geodon reduced Specialty Care unit revenues by approximately $265 million, or 7%, in comparison with second-quarter 2011.

Established Products unit revenues increased 18% operationally in comparison with the prior-year period, primarily reflecting $433 million of U.S. and Japan branded Lipitor revenues, contribution from the sales of the authorized generic version of Lipitor in the U.S. by Watson Pharmaceuticals, Inc. and launches of generic versions of other Pfizer branded primary care and specialty care products. Second-quarter 2012 revenues were negatively impacted in comparison with second-quarter 2011 by the entry of multi-source generic competition in the U.S. for donepezil (Aricept) in May 2011, as well as the continuing decline of U.S. revenues of certain products that previously lost exclusivity. Total revenues from established products in both the Established Products and Emerging Markets units were $3.8 billion, with $1.1 billion generated in emerging markets.

Emerging Markets unit revenues grew 14% operationally in comparison with second-quarter 2011, primarily due to volume growth mainly in China and Russia as a result of more targeted promotional efforts for key products, including Lipitor, Norvasc and Lyrica. Additionally, growth was driven by the timing of government purchases of Prevenar 13 in Turkey and Enbrel in Brazil compared with the year-ago quarter. Growth was partially offset by the timing of government purchases of Prevenar 13 and certain other products in Mexico in comparison with the year-ago period.

Animal Health unit revenues increased 7% operationally in comparison with the same quarter last year, largely due to increased demand across the companion animal and global livestock portfolios in key geographies. Consumer Healthcare unit revenues increased 11% operationally in comparison with second-quarter 2011, primarily due to the addition of products from the acquisitions of Ferrosan Consumer Health in December 2011 and Alacer Corp. in February 2012.

Adjusted Expenses(2), Adjusted Income(2) and Adjusted Diluted EPS(2) Highlights
      Second-Quarter Selected Costs and Expenses
($ in millions)             Foreign    
(Favorable)/Unfavorable 2012 2011 Change Exchange Operational
 
Adjusted Cost of Sales (2) $ 2,665 $ 3,025 (12%) (9%) (3%)
As a Percent of Revenues 17.7% 18.3% N/A N/A N/A
Adjusted SI&A Expenses(2) 3,937 4,777 (18%) (2%) (16%)
Adjusted R&D Expenses(2) 1,664 2,050 (19%) (1%) (18%)
 
Total $ 8,266 $ 9,852 (16%) (4%) (12%)
 
See end of text prior to tables for notes.
 
Adjusted cost of sales(2), adjusted SI&A expenses(2) and adjusted R&D expenses(2) in the aggregate were $8.3 billion in second-quarter 2012, a decrease of 16% compared with $9.9 billion in second-quarter 2011. Excluding the favorable impact of foreign exchange of $396 million, or 4%, these costs decreased 12%, primarily reflecting the benefits of cost-reduction and productivity initiatives. Savings in adjusted R&D expenses(2) were generated in second-quarter 2012 by the discontinuation of certain therapeutic areas and R&D programs in connection with our previously announced initiatives. Lower adjusted SI&A expenses(2) compared with the year-ago period reflect a reduction in the field force and a decrease in promotional spending, both partially in response to product losses of exclusivity, as well as more streamlined corporate support functions. Adjusted cost of sales(2) and Adjusted cost of sales(2) as a percent of revenues were favorably impacted by foreign exchange and the benefits generated from the on-going productivity initiatives to streamline the manufacturing network and unfavorably impacted by the decline in revenues contributing to a shift in geographic and business mix. Additionally, lower adjusted cost of sales(2) compared with the same period last year reflects reduced manufacturing volumes given the aforementioned products that lost exclusivity in various markets.

In second-quarter 2012, the effective tax rate on adjusted income(2) was 29%, comparable with second-quarter 2011. The second-quarter 2012 rate reflects the favorable impact of the change in the jurisdictional mix of earnings and the unfavorable impact of the expiration of the U.S. research and development tax credit.

The diluted weighted-average shares outstanding for second-quarter 2012 were 7.5 billion shares, a reduction of approximately 398 million shares compared with second-quarter 2011. This decline was primarily due to the Company's ongoing share-repurchase program.

As a result of the aforementioned factors, second-quarter 2012 adjusted income(2) was $4.7 billion, comparable with the year-ago quarter, and adjusted diluted EPS(2) was $0.62, an increase of 5% compared with $0.59 in second-quarter 2011.

Reported Net Income(3) and Reported Diluted EPS(3) Highlights

In addition to the aforementioned factors, second-quarter 2012 reported earnings in comparison with the same period in 2011 were favorably impacted by lower purchase accounting adjustments, lower costs related to our cost-reduction and productivity initiatives, lower acquisition-related costs and lower impairment charges. Second-quarter 2012 reported earnings were unfavorably impacted by higher charges related to certain legal matters.

The effective tax rate on reported results was 29% in second-quarter 2012 compared with 30% in second-quarter 2011. The decrease was primarily due to the change in the jurisdictional mix of earnings, partially offset by the impact of the expiration of the U.S. research and development tax credit.

As a result of all these factors, second-quarter 2012 reported net income(3) was $3.3 billion, an increase of 25% compared with $2.6 billion in the prior-year quarter, and reported diluted EPS(3) was $0.43, an increase of 30% compared with $0.33 in second-quarter 2011.

Executive Commentary

Ian Read, Chairman and Chief Executive Officer, stated, “We delivered solid results this quarter. This performance was achieved despite the $1.8 billion, or 11%, negative impact on revenues of product losses of exclusivity compared with the year-ago period, primarily Lipitor in most major markets. Worldwide revenues from many of our key medicines, including Celebrex, Enbrel, Lyrica and the Prevnar/Prevenar franchise, increased and our Emerging Markets unit generated 14% operational revenue growth, driven primarily by our targeted investments in China and Russia. Overall, I am confident that Pfizer is well-positioned for long-term success given the potential of our innovative late-stage and emerging pipeline, strong operating cash flow, streamlined organization and disciplined approach to capital allocation.”

“We are committed to keeping our capital allocation priorities aligned with the best interests of our shareholders. The pending sale of our Nutrition business and potential separation of our Animal Health business as a stand-alone public company to be named Zoetis remain on track. We anticipate filing a registration statement with the Securities and Exchange Commission by mid-August for a potential initial public offering (IPO) of up to a 20% ownership stake in Zoetis. If the IPO is successfully completed, which we are targeting for the first half of 2013, we will have a variety of options to achieve a potential full separation of Zoetis. As we continue to work toward a separation of this business, we remain open to all alternatives to maximize the after-tax return for our shareholders,” concluded Mr. Read.

Frank D'Amelio, Chief Financial Officer, stated, “We are reaffirming our 2012 financial guidance, reflecting our solid performance year-to-date, our continued confidence in the business, our financial flexibility and the significant cost savings generated by our cost-reduction and productivity initiatives. We also continue to expect to repurchase approximately $5 billion of our common stock this year, with $3 billion repurchased through July 30.”

2012 Financial Guidance(7)

Pfizer's financial guidance, at current exchange rates(8), is summarized below. Since the Nutrition(1) business is presented as a discontinued operation, the full-year results of that business only impact the Reported Diluted EPS(3) and operating cash flow components of our 2012 financial guidance.

         
Reported Revenues       $58.0 to $60.0 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues       19.5% to 20.5%
Adjusted SI&A Expenses(2)       $16.3 to $17.3 billion
Adjusted R&D Expenses(2)       $6.5 to $7.0 billion
Adjusted Other (Income)/Deductions(2)       Approximately $1.0 billion
Effective Tax Rate on Adjusted Income(2)       Approximately 29%
Reported Diluted EPS(3)       $1.23 to $1.38
Adjusted Diluted EPS(2)       $2.14 to $2.24
Operating Cash Flow       Approximately $19.0 billion
     
For additional details, please see the attached financial schedules, product revenue tables, supplemental information and disclosure notice.
(1)   On April 23, 2012, Pfizer announced that it entered into an agreement to sell the Nutrition business to Nestlé. The transaction is expected to close by the first half of 2013, assuming the receipt of the required regulatory clearances and the satisfaction of other closing conditions. As a result of Pfizer's decision to divest this business, the operating results of the Nutrition business are reported as Discontinued Operations – net of tax in the consolidated statements of income for all periods.
 
(2) "Adjusted Income" and its components and "Adjusted Diluted Earnings Per Share (EPS)" are defined as reported U.S. generally accepted accounting principles (GAAP) net income(3) and its components and reported diluted EPS(3) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (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-Q for the fiscal quarter ended April 1, 2012, 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 certain GAAP reported to non-GAAP adjusted information for the second quarter and first six months of 2012 and 2011, as well as reconciliations of full-year 2012 guidance for adjusted income and adjusted diluted EPS to full-year 2012 guidance for reported net income(3) and reported diluted EPS(3), 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.
 
(3) “Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
 
(4) On August 1, 2011, Pfizer completed the sale of Capsugel to an affiliate of Kohlberg Kravis Roberts & Co. L.P. The operating results associated with Capsugel are reported as Discontinued operations – net of tax in the consolidated statements of income for the three and six months ended July 3, 2011. Additionally, due to the acquisition of King Pharmaceuticals, Inc. (King), legacy King operations are reflected in the results beginning January 31, 2011. Therefore, in accordance with Pfizer's domestic and international reporting periods, the operating results for the first six months of 2011 reflect approximately five months of King's U.S. operations and approximately four months of King's international operations.
 
(5) For a description of each business unit, see Note 13A to Pfizer's condensed consolidated financial statements included in Pfizer's Form 10-Q for the fiscal quarter ended April 1, 2012.
 
(6) Other includes revenues generated primarily from Pfizer CentreSource, Pfizer's contract manufacturing and bulk pharmaceutical chemical sales organization.
 
(7) The 2012 financial guidance includes the revenues and expenses related to the Nutrition business, which is reflected as a discontinued operation, but does not include the gain on the pending sale of the Nutrition business. Does not assume the completion of any business-development transactions not completed as of July 1, 2012, including any one-time upfront payments associated with such transactions. Also excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of July 1, 2012.
 
(8) The current exchange rates assumed in connection with the 2012 financial guidance are a blend of the actual exchange rates in effect during the first six months of 2012 and the mid-July 2012 exchange rates for the remainder of the year.
 
PFIZER INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME(a)
(UNAUDITED)
(millions, except per common share data)
                         
Second Quarter % Incr. / Six Months % Incr. /
2012 2011 (Decr.) 2012 2011 (Decr.)
Revenues $ 15,057 $ 16,485 (9) $ 29,942 $ 32,509 (8)
Costs and expenses:

Posted: July 2012


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