Pfizer Inc posted third-quarter 2007 revenues of $12.0 billion, a 2% decline from the same period last year. The Company’s reported net income was $761 million in the third quarter of 2007, a decrease of 77% from the same period last year, primarily reflecting pre-tax charges of $2.8 billion related to the decision to exit Exubera, our inhaled insulin product to treat diabetes. Adjusted income(1) for the third quarter of 2007 increased 1% to $4.0 billion compared to the third quarter of 2006.
“We are encouraged by our operating results in the third quarter, and we remain on track to achieve our full-year 2007 revenues and adjusted diluted EPS(1) goals. Meanwhile, we made an important decision regarding Exubera, a product for which we initially had high expectations,†said Jeff Kindler, Chairman and Chief Executive Officer. “Despite our best efforts, Exubera has failed to gain the acceptance of patients and physicians. We have therefore concluded that further investment in this product is unwarranted.â€
“We will work with physicians to transition Exubera patients to other treatment options in the next three months. We remain committed to investing significant resources in the development of new and innovative medicines to manage diabetes, including monitoring inhalation technologies and other innovative delivery systems for insulin and other medicines.â€
Frank D’Amelio, Chief Financial Officer, added, “The Exubera pre-tax charges of $2.8 billion related primarily to the write-off of assets associated with this product, as well as the accrual of other exit costs. More specifically, these charges are comprised of approximately $1.1 billion of intangible assets, $661 million of inventory, $454 million of fixed assets and $584 million of other exit costs.â€
Commenting on the financial performance in the just-ended quarter, Mr. Kindler said, “We are achieving our operational goals in the face of major revenue losses due to patent expirations in the U.S. Most of our new products(3) along with the favorable impact of foreign exchange are contributing significantly toward offsetting these losses as evidenced by our year-to-date results.â€
Mr. Kindler continued, “While optimizing revenues from our in-line products(2) and generating strong growth from our new products(3), we remain focused on driving a series of fundamental changes in the Company to improve our performance and achieve a lower, more flexible cost base. We are making substantial progress on these priorities. For example, our reduction in adjusted selling, informational and administrative expenses(1) this year is expected to exceed our previous forecast on a constant currency basis(8).â€
“However, we need to deliver better results, continue to make tough decisions about allocating our capital wisely, and bring more new products to the market as quickly as possible. Doing all of this will put Pfizer on the right course and build value for our shareholders.â€
Financial Results
In the third quarter of 2007, Pfizer posted revenues of $12.0 billion, a decline of 2% from $12.3 billion in the same period last year. This decline reflects the loss of U.S. exclusivity for Zoloft in June 2006 (with generic competition entering the market in August 2006) and for Norvasc in March 2007, six months earlier than expected. Both products were major contributors to revenue last year. Further, the decline in revenues was also the result of a one-time reversal of a sales deduction accrual recorded in the third quarter of 2006 related to a favorable development in a pricing dispute in the U.S. These adverse factors were substantially offset by revenues from new products(3) and the favorable impact of foreign exchange of approximately $300 million.
Revenues in the first nine months of 2007 were $35.5 billion, a decline of 1% from $35.8 billion in the same period in the previous year, primarily a result of the loss of U.S. exclusivity for Zoloft and Norvasc, once again largely offset by the revenues from new products(3) and the favorable impact of foreign exchange of approximately $860 million.
Reported net income in the third quarter of 2007 was $761 million compared with $3.4 billion in the third quarter of 2006, a decline of 77%. Reported diluted EPS of $0.11 in the third quarter of 2007 declined 76% from $0.46 in the prior year period. In addition to the $2.8 billion of pre-tax charges related to Exubera, loss of U.S. exclusivity for Zoloft and Norvasc, and the one-time reversal of a sales deduction accrual of about $170 million recorded in the third quarter of 2006, the decrease in both reported net income and reported diluted EPS reflects increased restructuring and implementation expenses associated with our cost-reduction initiatives, and the non-recurrence of prior year income from discontinued operations as a result of the divestiture of our former Consumer Healthcare business in December 2006. The impact of these factors was partially offset by the growth in revenues from new products(3), lower operating expenses, increased interest income, and the favorable impact of foreign exchange. Reported diluted EPS was also favorably impacted by our share purchase program.
Adjusted income(1) of $4.0 billion in the third quarter of 2007 increased 1% over the same period last year, while adjusted diluted EPS(1) of $0.58 increased 7% from $0.54 in 2006, primarily as a result of the revenue items previously discussed as well as lower operating expenses, increased interest income, and the favorable impact of foreign exchange. Adjusted diluted EPS(1) was also favorably impacted by our share purchase program. Through the first nine months of 2007, we purchased $7.5 billion of our stock as part of our previously announced plan to repurchase up to $10.0 billion of our stock in 2007.
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After carefully assessing the financial performance of Exubera, an inhaled-insulin product, we decided to exit Exubera. Despite our best efforts, Exubera has failed to gain the acceptance of patients and physicians. In the third quarter of 2007, we recorded total pre-tax charges of $2.8 billion, which includes charges for asset impairments, exit and disposal costs.
Our Exubera-related exit plans will include working with physicians over the next three months to transition patients to other treatment options, evaluating redeployment options for colleagues, working with our partners and vendors with respect to transition and exit activities and exploring asset disposal opportunities, among other activities.