Pfizer Announces Priorities to Drive Improved Performance, Position Company for Future Success and Enhance Total Shareholder Return
Company's Plan Focuses On:
> Maximizing Revenues from Current Product Portfolio
> Investing in Medium- and Long-Term Growth Opportunities through Internal Pipeline and Externally Sourced Products
> Establishing Lower, More Flexible Cost Base
> Creating Smaller, More Focused and Accountable Operating Units
NEW YORK -- Pfizer Chairman and Chief Executive Officer Jeffrey B. Kindler today announced the company's immediate priorities to drive improved performance, position Pfizer for future success and enhance total shareholder return. Executing on those priorities will mark the beginning of an ongoing process to change the way Pfizer does business.
"Pfizer is a great company with a great future," Kindler said. "We are facing significant challenges, however, in a profoundly changing business environment. I believe we must fundamentally change the way we run our company to meet these challenges and to take advantage of the diverse and attractive opportunities that we see in the marketplace.
"We need to maximize near- and long-term revenues from our current product portfolio, from our pipeline and from external opportunities," he added. "We must reduce our absolute costs and put in place a more flexible cost structure. We are establishing smaller operating units that can enhance innovation and accountability while still drawing on the advantages that our scale and resources provide. We also are taking steps to enhance our collaborations with patients, customers, scientists and business partners, as well as to make Pfizer an even better place to work for our people. We believe executing against these key priorities will help Pfizer continue as a market and industry leader in the 21st century, and in the process, deliver superior shareholder returns over the short, medium and long term."
PFIZER'S IMMEDIATE PRIORITIES
In a meeting with financial analysts today, Kindler and several other members of Pfizer's leadership team -- including David Shedlarz, Vice Chairman; Ian Read, the head of Worldwide Pharmaceutical Operations; and Dr. John LaMattina, the head of Pfizer Global Research and Development -- discussed the challenges and opportunities facing the company and summarized Pfizer's most immediate priorities.
Priority One: Maximize revenues in both the short and the long term.
> Pfizer plans to maximize revenues from its current in-line portfolio and new products. In 2007, the company will further highlight Lipitor's unique package of benefits, build on an outstanding 2006 for Celebrex, continue Lyrica's momentum, and introduce campaigns in support of newer medicines. In pursuing these efforts, Pfizer plans to work differently with its customers - listening better, testing new approaches, scaling up what's working and, in the process, making the company's medicines even more valuable.
> To expand future revenues, Pfizer is taking a number of actions to deliver more products of greater value more quickly. The company will step up its Research and Development investment in areas that are especially promising. In biotherapeutics, Pfizer will strengthen its capabilities in vaccines and antibodies. It is also dramatically simplifying the organizational structure of R&D to increase accountability, flexibility, innovation and entrepreneurship. In addition, the company will complement its accelerated internal efforts with business development activities that will secure new medicines as well as related products and services designed to enhance the value of its medicines.
David Shedlarz said, "We recognize that business development is critical to our ability to drive revenue growth in the medium to long term, along with growing our core products, successfully launching new products, and developing and accelerating our internal R&D pipeline. We are making the changes needed to our strategy, approach and capital allocation to best ensure our success in this area." Pfizer plans to launch two new externally sourced products each year beginning in 2010.
Priority Two: Establish a smaller and more flexible cost base.
> Pfizer will generate cost savings through site rationalization in research and manufacturing, streamlined organizational structures, staff function reductions, increased outsourcing and procurement savings. The company will reallocate many of these cost savings to more value-added activities. After making those investments, Pfizer plans to achieve an absolute net reduction in the pre-tax total expense component of adjusted income(1) of between $1.5 billion and $2 billion by the end of 2008, while continuing to invest in R&D, business development, emerging markets and new marketing approaches.
> The company's cost reduction initiatives will result in the elimination of about 10,000 positions or about 10 percent of Pfizer's total worldwide workforce by the end of next year. This includes the U.S. sales organization reductions announced previously. In Europe, Pfizer will take steps to streamline its operations, with a proposed reduction to its European field force by more than 20 percent -- subject to consultation with works councils and local labor law -- while maintaining a competitive share of voice for its medicines and a strong organization going forward.
> Pfizer will continue to consolidate its worldwide manufacturing operations with the closure of two additional manufacturing sites -- Brooklyn, NY and Omaha, NE. In addition, the company will pursue the sale of a third site in Feucht, Germany, subject to consultation with works councils and local labor law. From 2003 to 2008, Pfizer will have reduced its network of manufacturing plants around the world from 93 to 48, including sites announced today. Pfizer manufacturing has achieved and will continue to achieve substantial cost savings while maintaining its high-quality manufacturing standards.
> In Research and Development, the company is planning to close three research sites in the United States -- Ann Arbor, MI, Esperion (also in Ann Arbor) and Kalamazoo, MI (where the company will continue to maintain a large manufacturing and Animal Health presence) -- and is proposing to close research sites in Nagoya, Japan and Amboise, France, subject to consultation with works councils and local labor law.
"These and other actions will allow us to reduce costs in support services and 'bricks and mortar' and to redeploy hundreds of millions of dollars into the discovery and development work of our scientists," said Dr. LaMattina.
Pfizer said it will do everything it can to offer support and benefits to all colleagues affected by these difficult actions, and said it was committed to working with community leaders to mitigate the impact of these closures in whatever way it can.
"These are, of course, complex issues where we must balance many different considerations, and they are, without doubt, among the most difficult decisions we have to make," said Kindler. "We have thought long and hard about these steps, because we are acutely aware of their impact on colleagues and the communities where we are located."
Priority Three: Create smaller, more focused and entrepreneurial business units that will enhance innovation and draw on the advantages of our scale and resources.
> Pfizer is restructuring U.S. Pharmaceutical Operations into four distinct business units, each led by a general manager with profit-and- loss accountability, and a fifth business unit responsible for customer support and specifically focused on managed care and access. No change in the field force organization will be required as these units mirror the existing structure. Each unit will have the dedicated resources needed to drive the business, including medical, marketing and sales.
> Pfizer said it will simplify its R&D organization and improve productivity by consolidating each of the research teams focused on any given therapeutic area (TA) -- currently distributed in multiple locations around the globe, in many cases -- to one of four major sites. Each TA will be run by a single leader with more responsibility, authority and accountability, as well as more control over resource decisions. Pfizer plans to exit discovery research in gastroenterology and dermatology, but will continue to develop compounds already in the pipeline and to seek external opportunities in these areas.
"Our simplified structure will help drive the growth of our expanding pipeline -- including our goal to deliver four new internally generated products per year by 2011 -- while maintaining current R&D investment levels," said Dr. LaMattina. "This will give us the 'best of both worlds' -- the entrepreneurial spirit of a small company, aligned with the world-class technologies, platforms and capabilities that only a company of Pfizer's size can provide."
Priority Four: Actively and more meaningfully engage with customers, patients, physicians and other collaborators to provide them with greater value.
> Pfizer said it will experiment with new approaches to bringing its products to market, seeking new and more effective ways of communicating with physicians and patients, inviting payers earlier into the development process, and enhancing its collaboration with academic and other research institutions.
> Pfizer is also committed to playing a more significant role in the national dialogue on improving the delivery of care and patient access. "We must be a constructive voice with our stakeholders on healthcare policy and regulation of our products," said Kindler. "We must be seen as a responsible and active company that is focused on solutions that work for everyone - not just for Pfizer."
Priority Five: Make Pfizer a great place to work.
> Pfizer said that, as part of an ongoing effort to cut down on bureaucracy and reduce management layers, it has eliminated many unnecessary committees and cross-functional teams and is in the process of cutting at least three to four layers of management in its pharmaceutical, R&D and manufacturing divisions, as well as company-wide support functions.
"By reducing middle management and increasing spans of control, we're getting leaders closer to colleagues and customers and giving colleagues a clearer line of sight to those aspects of the business for which they are accountable. As a result, our managers will delegate, empower and focus on developing colleagues more than ever, and our colleagues will grow and take on more responsibility than ever," said Kindler.
Kindler concluded, "I am convinced that products and services that contribute meaningfully to the public's health -- and that address areas of major unmet medical need -- will always be highly valued. But I believe Pfizer must transform the way we've done business in the past in order to be successful in the future."
"Obviously, this change won't happen overnight. It will take time, it will take discipline, and it will take determination to turn these aspirations into reality," Kindler said. "But at Pfizer today, our goals are clear. Our leadership understands both our challenges and our opportunities. And we are committed to providing the value our customers need, the working environment our employees want and the results our owners deserve."
Financial Guidance for 2007 and 2008
Pfizer provided the following financial guidance, at current foreign exchange rates.
For 2007:
> Revenues Comparable to 2006
> SI&A Pre-tax Component of Adjusted Income(1) Decreases by about $500 Million
> R&D Pre-tax Component of Adjusted Income(1) Essentially Flat from 2006 Expenditures
> Effective Tax Rate of 22.5% on Adjusted Income(1) before Taxes
> Reported Diluted EPS of $1.45 to $1.55
> Adjusted Diluted EPS(1) of $2.18 to $2.25, Representing Growth of 6% to 9%
> Up to $10 Billion in Common Stock Purchases
> Cash Flow from Operations of $12.5 Billion to $13.5 Billion
For 2008:
> Revenues Comparable to 2006
> Total Cost as a Pre-tax Component of Adjusted Income(1) About $1.5 Billion to $2.0 Billion Lower than 2006
> Reported Diluted EPS of $1.75 to $1.93
> Adjusted Diluted EPS(1) of $2.31 to $2.45, Representing Growth of 6% to 9%
Long Term Outlook -- 2009-10
> Resumption of Revenue Growth Given Contribution of New and In-Line Products and Dissipation of Loss of Exclusivity Impact
For additional details, please see the attached supplemental financial information and Disclosure Notice.
(1) "Adjusted income" and "adjusted diluted earnings per share (EPS)" are defined as reported net income and reported diluted EPS excluding purchase- accounting adjustments, acquisition-related costs, discontinued operations, cumulative effect of a change in accounting principles, and certain significant items. 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 quarterly period ended October 1, 2006, 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 forecasted full-year 2007 and 2008 adjusted income and adjusted diluted EPS to forecasted reported net income and reported diluted EPS are provided in the materials accompanying this report. The adjusted income and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and diluted EPS.
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