Pfizer Reports Third-Quarter 2012 Results

• Third-Quarter 2012 Revenues of $14.0 Billion, excluding Discontinued Operations Revenues of $564 Million from the Nutrition⁽¹⁾ Business
• Third-Quarter 2012 Adjusted Diluted EPS⁽²⁾ of $0.53 and Reported Diluted EPS⁽³⁾ of $0.43, Both Reflecting Previously Announced $0.02 Reduction Related to Over-the-Counter Nexium Agreement
• Narrows Ranges for 2012 Financial Guidance Components

• Board of Directors Authorizes New $10 Billion Share Repurchase Program Upon Sale of the Nutrition⁽¹⁾ Business
• Repurchased $1.8 Billion of Common Stock in Third-Quarter 2012; Repurchased $5.9 Billion through October 31, 2012

NEW YORK--(BUSINESS WIRE)--Nov 1, 2012 - Pfizer Inc. (NYSE: PFE):

($ in millions, except per share amounts)
				Third-Quarter															Year-to-Date
					2012					2011(4)				Change						2012					2011(4)				Change
Reported Revenues				$	13,976				$	16,609				(16	%)				$	43,918				$	49,118				(11	%)
Adjusted Income(2)					3,949					4,696				(16	%)					12,964					14,055				(8	%)
Adjusted Diluted EPS(2)					0.53					0.60				(12	%)					1.72					1.77				(3	%)
Reported Net Income(3)					3,208					3,738				(14	%)					8,255					8,570				(4	%)
Reported Diluted EPS(3)					0.43					0.48				(10	%)					1.09					1.08				1	%
See end of text prior to tables for notes.

Pfizer Inc. (NYSE: PFE) today reported financial results for third-quarter 2012. Third-quarter 2012 revenues were $14.0 billion, a decrease of 16% compared with $16.6 billion in the year-ago quarter, which reflects an operational decline of $1.9 billion, or 12%, and the unfavorable impact of foreign exchange of $699 million, or 4%.

For third-quarter 2012, U.S. revenues were $5.6 billion, a decrease of 18% compared with the year-ago quarter. This decrease was primarily the result of the loss of exclusivity of Lipitor on November 30, 2011. International revenues were $8.3 billion, a decrease of 14% compared with the prior-year quarter, mainly due to the losses of exclusivity of Lipitor in developed Europe during second-quarter 2012 and the unfavorable impact of foreign exchange. U.S. revenues represented 40% of total revenues in third-quarter 2012 compared with 41% in the year-ago quarter, while international revenues represented 60% of total revenues in third-quarter 2012 compared with 59% in the year-ago quarter.

Financial Performance(5)
				Third-Quarter Revenues
($ in millions)																			Foreign
Favorable/(Unfavorable)					2012					2011				Change					Exchange					Operational
Primary Care				$	3,610				$	5,948				(39	%)				(2	%)				(37	%)
Specialty Care					3,406					3,799				(10	%)				(5	%)				(5	%)
Established Products					2,383					2,230				7	%				(4	%)				11	%
Emerging Markets					2,389					2,438				(2	%)				(8	%)				6	%
Oncology					329					332				(1	%)				(5	%)				4	%
Biopharmaceutical					12,117					14,747				(18	%)				(4	%)				(14	%)
Animal Health					1,017					1,041				(2	%)				(6	%)				4	%
Consumer Healthcare					780					767				2	%				(4	%)				6	%
Other(6)					62					54				15	%				(4	%)				19	%
Total				$	13,976				$	16,609				(16	%)				(4	%)				(12	%)
See end of text prior to tables for notes.

Business Commentary

Primary Care unit revenues decreased 37% operationally in comparison with the same period last year, primarily due to the losses of exclusivity of Lipitor in the U.S. in November 2011, developed Europe during second-quarter 2012 and Japan in June 2011, as well as the resulting shift in the reporting of U.S. and Japan Lipitor revenues to the Established Products unit beginning January 1, 2012. These factors negatively impacted Primary Care unit revenues by approximately $2.0 billion, or 34%, operationally. Collectively, the decline in 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 $2.4 billion, or 40%, in comparison with third-quarter 2011. The impact of these declines was slightly offset by continued strong operational growth of Lyrica and Celebrex in developed markets and Viagra in the U.S.

Specialty Care unit revenues declined 5% operationally in comparison with third-quarter 2011. Revenues were positively impacted by the operational growth of Enbrel, Rebif and Benefix, and negatively impacted by the decline in the Prevnar/Prevenar franchise, primarily in the U.S. and developed Europe, as the pediatric catch-up dose opportunity in third-quarter 2011 was no longer available in third-quarter 2012 since all eligible patients have been vaccinated. Additionally, utilization of Prevnar/Prevenar in adults remains minimal at this time. Specialty Care unit revenues were also negatively impacted by approximately $260 million, or 7%, in comparison with third-quarter 2011 by the losses of exclusivity of Xalatan in developed Europe in January 2012 and Geodon in the U.S. in March 2012.

Established Products unit revenues increased 11% operationally in comparison with the prior-year period, primarily reflecting the inclusion of $320 million of U.S. and Japan branded Lipitor revenues in third-quarter 2012, as well as launches of generic versions of other Pfizer branded primary care and specialty care products. These increases were partially offset by the continuing decline of revenues of certain products that previously lost exclusivity and the impact of ongoing pricing pressures, primarily in South Korea and developed Europe. Total revenues from established products in both the Established Products and Emerging Markets units were $3.4 billion, with $1.0 billion generated in emerging markets.

Emerging Markets unit revenues grew 6% operationally in comparison with third-quarter 2011, primarily due to volume growth in China, Mexico and Russia as a result of more targeted promotional efforts for key innovative and established products, including Lipitor, Norvasc and Lyrica. Growth was partially offset by the timing of government purchases of Prevenar 13 in Turkey in comparison with the year-ago period.

Animal Health unit revenues increased 4% 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 6% operationally in comparison with third-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
				Third-Quarter Selected Costs and Expenses
($ in millions)																		Foreign
(Favorable)/Unfavorable					2012					2011				Change				Exchange				Operational
Adjusted Cost of Sales(2)				$	2,565				$	3,057				(16%)				(9%)				(7%)
As a Percent of Revenues					18.4%					18.4%				N/A				N/A				N/A
Adjusted SI&A Expenses(2)					3,729					4,397				(15%)				(4%)				(11%)
Adjusted R&D Expenses(2)					1,935					2,023				(4%)				(1%)				(3%)
Total				$	8,229				$	9,477				(13%)				(5%)				(8%)
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 $8.2 billion in third-quarter 2012, a decrease of 13% compared with $9.5 billion in third-quarter 2011. Excluding the favorable impact of foreign exchange of $440 million, or 5%, these costs decreased 8%, primarily reflecting the benefits of cost-reduction and productivity initiatives as well as the impact of lower revenues. Savings in adjusted R&D expenses⁽²⁾ were generated in third-quarter 2012 by the discontinuation of certain therapeutic areas and R&D programs in connection with our previously announced initiatives, which were partially offset by a $250 million payment to AstraZeneca to obtain the exclusive global over-the-counter rights to Nexium. 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, and more streamlined corporate support functions, as well as the favorable impact of foreign exchange. Adjusted cost of sales⁽²⁾ and adjusted cost of sales⁽²⁾ as a percent of revenues were favorably impacted by the benefits generated from the ongoing cost-reduction and productivity initiatives to streamline the manufacturing network and by foreign exchange, while 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 third-quarter 2012, the effective tax rate on adjusted income⁽²⁾ was 28.3%, compared with 31.2% in the third-quarter 2011. The third-quarter 2012 rate reflects the favorable impact of the change in the jurisdictional mix of earnings as well as the resolution of foreign audits pertaining to multiple tax years, partially offset by the unfavorable impact of the expiration of the U.S. research and development tax credit.

The diluted weighted-average shares outstanding for third-quarter 2012 were 7.5 billion shares, a reduction of approximately 302 million shares compared with third-quarter 2011. This decline was primarily due to the Company's ongoing share-repurchase program.

As a result of the aforementioned factors, third-quarter 2012 adjusted income⁽²⁾ was $3.9 billion, a decrease of 16% compared with $4.7 billion in the year-ago quarter, and adjusted diluted EPS⁽²⁾ was $0.53, a decrease of 12% compared with $0.60 in third-quarter 2011.

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

In addition to the aforementioned factors, third-quarter 2012 reported earnings in comparison with the same period in 2011 were favorably impacted by lower purchase accounting adjustments, lower costs related to cost-reduction and productivity initiatives, lower acquisition-related costs and lower impairment charges. Third-quarter 2012 reported earnings in comparison with the year-ago quarter were unfavorably impacted by a $491 million charge resulting from an agreement-in-principle with the U.S. Department of Justice to resolve an investigation into Wyeth's historical promotional practices in connection with Rapamune, higher costs associated with the potential separation of the Animal Health business as well as the non-recurrence of the gain on the sale of Capsugel⁽⁴⁾ recorded in third-quarter 2011.

In third-quarter 2012, the effective tax rate on reported results was favorably impacted by a settlement with the U.S. Internal Revenue Service related to audits for multiple tax years. The settlement resulted in a favorable impact on net income of $1.1 billion representing tax and interest. The effective tax rate on reported results was also favorably impacted by the resolution of foreign audits as mentioned above and the change in jurisdictional mix of earnings, partially offset by the unfavorable impact of the non-deductibility of the aforementioned charge related to Rapamune, as well as the expiration of the U.S. research and development tax credit.

As a result of all these factors, third-quarter 2012 reported net income⁽³⁾ was $3.2 billion, a decrease of 14% compared with $3.7 billion in the prior-year quarter, and reported diluted EPS⁽³⁾ was $0.43, a decrease of 10% compared with $0.48 in third-quarter 2011.

Executive Commentary

Ian Read, Chairman and Chief Executive Officer, stated, “Overall, our results this quarter reflect continued product losses of exclusivity, most notably Lipitor in all major markets. Despite a challenging and dynamic environment, worldwide revenues from many of our key medicines, including Enbrel, Celebrex and Lyrica, continued to grow operationally. Additionally, we continued to perform well in emerging markets, most notably in China, given the breadth of our portfolio and focused investment.”

“With regard to our innovative core, I am very pleased with the recent U.S. Food and Drug Administration approval of Bosulif (bosutinib) for chronic myelogenous leukemia, as well as approval of Inlyta (axitinib) for advanced renal cell carcinoma and conditional marketing authorization of Xalkori (critzotinib) for advanced non-small cell lung cancer, both in the EU. I also look forward to regulatory action for tofacitinib in moderate-to-severe rheumatoid arthritis and Eliquis (apixaban) in atrial fibrillation in the U.S., EU and Japan as well as Bosulif in key international markets.”

“Additionally, we filed a registration statement with the Securities and Exchange Commission for the potential initial public offering of a minority stake in our Animal Health business, Zoetis. Given our demonstrated ability to advance our strategic initiatives, I believe we are well-positioned to deliver attractive returns for our shareholders over time,” Mr. Read concluded.

Frank D'Amelio, Chief Financial Officer, stated, “Given our financial performance to date, we are narrowing the ranges for certain components of our 2012 financial guidance. Further, the Board of Directors has authorized a new $10 billion share repurchase program to be utilized over time, upon the sale of the Nutrition⁽¹⁾ business to Nestlé, which we now expect to close in the next few months. This new program is in addition to the $4.1 billion authorization remaining under our current share repurchase program. So far this year, we have repurchased approximately $5.9 billion, or 255.1 million shares, of our common stock.”

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 $59.0 billion (previously $58.0 to $60.0 billion)
Adjusted Cost of Sales(2) as a Percentage of Revenues				18.7% to 19.2% (previously 19.5% to 20.5%)
Adjusted SI&A Expenses(2)				$16.3 to $16.8 billion (previously $16.3 to $17.3 billion)
Adjusted R&D Expenses(2)				$7.0 to $7.25 billion (previously $6.75 to $7.25 billion)
Adjusted Other (Income)/Deductions(2)				Approximately $900 million (previously approximately $1.0 billion)
Effective Tax Rate on Adjusted Income(2)				Approximately 29%
Reported Diluted EPS(3)				$1.30 to $1.38 (previously $1.21 to $1.36)
Adjusted Diluted EPS(2)				$2.14 to $2.17 (previously $2.12 to $2.22)
Operating Cash Flow				Approximately $18.5 billion (previously 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 in the next few months, 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 July 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 third quarter and first nine 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 ne

Posted: November 2012

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