Pfizer Reports Second-Quarter 2007 Results, Reconfirms Full-Year 2007 and 2008 Financial Guidance and Updates Progress on Immediate Business Priorities
Pfizer Inc today reported second-quarter 2007 results, reconfirmed its previously announced full-year financial guidance for 2007 and 2008 revenue and adjusted diluted EPS(1), and detailed progress on its immediate business priorities announced in January 2007. The company said it is building on that progress by developing longer-range plans for the rapidly changing healthcare marketplace.
"While there's no question that we faced difficult challenges in the second quarter of 2007 -- including the impact of the loss of U.S. exclusivity for Zoloft and Norvasc, the timing of some expenses and Lipitor's performance in the U.S. -- we're still on track to meet our previously announced 2007 and 2008 revenue and adjusted diluted EPS(1) goals. This underscores our ability to meet our goals despite a highly competitive and complex environment," said Jeffrey Kindler, Pfizer Chairman and Chief Executive Officer.
"Notwithstanding the second quarter, our year-to-date 2007 revenues were comparable to the same period in 2006 and our adjusted diluted EPS(1) increased 1% despite the substantial impact of Zoloft and Norvasc loss of U.S. exclusivity. In particular, Chantix, Sutent and Lyrica, all innovative medicines gaining wider acceptance in their markets, performed well and delivered better-than-expected results. And I am encouraged by the progress we are making on the immediate priorities we outlined last January to strengthen our near and long-term performance."
Kindler continued, "The decline in second-quarter 2007 adjusted earnings was due to two main factors: a difficult comparison to the year-ago period, given the Zoloft and Norvasc loss of U.S. exclusivity since that time, as well as our payments to Bristol-Myers Squibb in connection with our collaboration to develop and commercialize apixaban, an important opportunity in cardiovascular medicine where we have a strong presence.
"In addition, Lipitor, our most prescribed product, did not meet our expectations for the quarter. Worldwide Lipitor sales declined 13% in the second quarter of 2007 as compared to the same quarter last year, as a 5% growth in the international markets was more than offset by a 25% decline in the U.S. Our U.S. Lipitor performance in the second quarter was negatively impacted by two factors we had highlighted in the first quarter of 2007 as positively impacting the brand. These two factors, changes in the U.S. wholesaler inventory levels and differences in reconciliation of internal and external data that are normally seen each quarter to varying degrees, accounted for approximately 50% of the revenue decline in the U.S. second-quarter 2007 results and are not expected to have a negative impact on U.S. performance over the second half of the year. Other contributing factors to the second quarter's performance include the decreased level of prescriptions as well as increased rebates associated with our more flexible contracting activity.
"Lipitor worldwide sales in the first half of 2007 were down 2% as compared to the same period last year. As it relates to our current forecast of full-year global Lipitor revenues, we have incorporated a moderation in the level of decline of prescriptions in the U.S. market relative to the second quarter, reflecting extensive promotional and contracting efforts. In addition, we have incorporated an increase in the level of contracting rebates consistent with our current, more flexible contracting policy. With all of these factors taken together, we now expect full-year 2007 global Lipitor revenues of flat to a 5% decline relative to the prior year. We will continue to drive Lipitor's value and its differentiation with newly approved indications, an effective TV, radio and print campaign featuring Dr. Robert Jarvik, field force execution and our focus on optimizing Tier 2 access."
Company Reports Progress on Immediate Priorities and Development of Longer-range Plans for Changing Marketplace
"In January 2007, we were clear with all of our stakeholders about the scope and substance of our significant challenges and opportunities," Kindler said. "We said we would get leaner and quicker, and do it with a sense of urgency and intensity. We acknowledged that the healthcare industry is changing and we are committed to changing with it, starting with five immediate priorities - maximizing our near- and long-term revenues; establishing a lower and more flexible cost base; creating smaller, more focused and more accountable operating units; engaging more productively with customers, patients, physicians and other collaborators; and making Pfizer a great place to work.
"I am encouraged by the progress we have made in the last six months. Many of the initiatives are resulting in overall cost reductions and improved operational efficiency, which are a major ongoing focus of the organization as part of our previously declared goal to reduce the total expense pre-tax component of adjusted income(1) by at least $1.5 billion to $2.0 billion in 2008 as compared to 2006."
-- We completed our field force reorganization, including a 20% reduction in our U.S. field force, and are taking similar measures in the international markets. The restructured U.S. field force was operational starting in April 2007 and productivity per sales representative has returned to the levels before the reorganization, retaining our competitiveness and share of voice. Globally, we have reduced our workforce by approximately 8% so far this year. Additional savings are being generated from de-layering, eliminating duplicative work, and strategically re-aligning various functions.
-- We continue to outsource where it makes sense. For instance, we recently partnered with a single strategic service provider for certain information technology activities which are now performed by Pfizer and contractors. By consolidating 11 third-party providers and reducing labor cost, we expect to generate considerable annual savings and higher quality services.
-- We continue to transform our global manufacturing network to improve efficiency and reduce overall cost. We have reduced our network of plants to 60 from 93 four years ago. We have also announced significant additional closures and divestitures. The cumulative impact will be a more focused, streamlined and competitive manufacturing operation, with less than 50% of our plants and a reduction of 35% of our manufacturing employees compared to 2003. Further, we currently outsource the manufacture of approximately 17% of our products on a cost basis and plan to increase this substantially by 2010.
-- In R&D, we are actively balancing the actions required to achieve our cost savings targets with those required to ensure enhanced R&D productivity. In January, we announced plans to close five R&D sites as part of our efforts to rationalize our facilities footprint. To date, approximately two-thirds of the portfolio projects that are moving between sites have been transferred and are being actively pursued in their new site. The remainder of the early-stage portfolio projects will be transferred by the end of the third quarter of 2007; and the late-stage project transfers will be complete by the end of 2007, with minimal interruption in the progress of development. Further, the vast majority of colleagues in scientific and technical roles from sites that are closing or in therapeutic areas that are consolidating who have been offered the opportunity to transfer to another site have agreed to relocate.
-- We recently received FDA approval for Lyrica for the management of fibromyalgia, one of the most common chronic pain conditions. Within weeks of approval, we launched the new indication with our specialty field force and a nationwide public service announcement in collaboration with the National Fibromyalgia Association, the leading national organization for fibromyalgia patient education and advocacy. This fast-to-market approach reflects how our new U.S. business structure is giving us more speed and agility in the marketplace.
-- We are delivering on our goal to secure external sources of revenue and innovative alliances to supplement our pipeline. In addition to the collaboration with Bristol-Myers Squibb to develop and commercialize apixaban, we have expanded our efforts in securing early-stage product candidates and technology, particularly with the establishment of the Pfizer Incubator in La Jolla, California, and the signing of an agreement with Fabrus LLC to be the first tenant in the Incubator. During the two-year term, Fabrus will work to develop novel antibody libraries and ways to screen them against biological targets.
-- We are demonstrating our capacity to successfully collaborate with our customers, payers, regulators and the larger medical community. Our recent agreement with Express Scripts, Inc. that adds Lipitor to the U.S. pharmacy benefits manager's preferred drug list will increase patient access to this leading medicine. With the expertise and knowledge we have in marketing Chantix, one of the most successful new-product launches, we have partnered with regulators and independent medical organizations to support a smoke-free environment and to support the expansion of coverage to include uninsured patients.
"As we continue to put our foundation for the future in place, the entire management team is working tirelessly to identify ways to improve the performance and outlook for Pfizer," said Kindler. "We're examining a whole range of possibilities that will shape the company over the next five to 10 years as accelerating change drives the worldwide healthcare market in new and important ways. Here are some of the strategic elements that build on our immediate priorities while providing a framework for our longer-term opportunities.
"First, we're revitalizing our internal R&D productivity. We've focused R&D to improve productivity and give discovery and development teams more flexibility and clearer goals. We are committing considerable resources to promising therapeutic areas including oncology, diabetes, and neurological disorders, among others. And we're working hard to identify the next scientific leader for our R&D organization, which is one of the world's exceptional medical research organizations.
"The second is focused business development. We've undergone a thorough assessment of every therapeutic area and prioritized them. We are now in the process of looking at the gaps we've identified and accelerating programs we already have. We intend to be opportunistic on the best products, product candidates and technologies, as you've seen with apixaban, our collaboration with the Scripps Institute and the Pfizer Incubator - among other recent actions.
"Third is building a major presence in biotherapeutics. The majority of our drugs will continue to consist of small molecules; this has always been a core strength of our company. But large molecules must also be a very important part of our future -- they involve some of the most promising R&D technology and cutting-edge science in medical research. We are looking to integrate our investments, R&D and existing internal capabilities with disciplined business development.
"The fourth is driving innovation in product life cycle management. We're challenging our business model and examining it from all angles. We see opportunities to better manage our products' growth and development through their entire time on the market, and to innovate our "go to market" promotional and commercial strategies. We also see ways to further enhance the value of mature products as well as those close to losing their exclusivity, and to create product line extensions. And we are also looking at new ways to accelerate our high-quality, low cost manufacturing initiatives.
"Fifth is stepping up our focus and investments in emerging markets, especially in Eastern Europe and Asia, where changing demographics and economics will drive growing demand for high-quality healthcare and offer a great deal of potential for our products.
"And finally, we see complementary opportunities in products and technologies that have the potential to add value to our core pharmaceutical offerings. There are many possible ways for us to take our new pharmaceutical products and enhance them with the medical technologies of the future, so that we help advance the practice of medicine and increase the value of our products for patients."
Worldwide pharmaceutical revenues for the second quarter of 2007 were $10.1 billion, a decrease of 7% from a year ago, while revenues for the first half of 2007 were $21.7 billion, a decrease of 1% from last year. Excluding the revenues of Zoloft and Norvasc, worldwide pharmaceutical revenues grew 3%(4) in the second quarter of 2007 and 9%(4) in the first half of 2007 from the same periods last year. Contributing to this growth were revenues for the following products for the second quarter 2007 compared with the second quarter 2006 as well as the first half of 2007 compared to the first half of 2006, respectively: Celebrex, 1% and 12%; Lyrica, 49% and 73%; Detrol/Detrol LA, 5% and 11%; Zyvox, 21% and 30%; Geodon/Zeldox, 8% and 14%; Caduet, 50% and 69%; Vfend, 23% and 25%; and Aromasin, 22% and 27%. Additionally, Chantix/Champix and Sutent, two key new products, delivered strong revenues.
Worldwide sales of Lipitor totaled $2.7 billion for the second quarter of 2007, a decline of 13% compared to the second quarter of 2006. The revenue growth of 5% in the international markets resulting primarily from the favorable impact of foreign exchange was more than offset by a 25% decline in the U.S. The statin market is intensely competitive, with increased payer pressure and competition from branded and generic products. For the first half of the year, Lipitor sales were $6.1 billion worldwide, a decrease of 2%, reflecting international growth of 6% more than offset by an 8% decline in the U.S. Lipitor's performance reflects a complex interplay of prescription trends, market-growth dynamics, branded and generic competition dynamics and payer pressures.
We continue to focus customer-by-customer to secure unrestricted access to Lipitor. Our agreement with Express Scripts, Inc. represents an important example of our commitment to improving patient access and to meaningful engagement with our customers. We have also launched an adherence program that operates in partnership with large pharmacy chains which we expect to support patient utilization.
Worldwide sales of Celebrex totaled $478 million for the second quarter of 2007 and $1.1 billion for the first half of 2007, representing growth of 1% and 12%, respectively, from the comparable periods in the prior year. In the U.S., revenues declined in the second quarter 2007 compared to the second quarter 2006 driven by a modest decline in volume. The direct-to-consumer TV ad campaign launched in April 2007 in the U.S. is helping to stimulate patient interest and initiate a productive dialogue between physicians and patients. The number of weekly visits to the Celebrex website has doubled and the number of calls to the patient 800 phone number has increased since the introduction of the ad. We are also starting to see an increase in new prescription share coming from new-to-market and switch patients. Coupled with our renewed field force, we expect to see an impact later this year.
Worldwide sales of Lyrica totaled $405 million for the second quarter of 2007 and $800 million for the first half of 2007, representing growth of 49% and 73%, respectively, over the comparable periods last year. Lyrica growth continues to be fueled by strong efficacy as well as high physician and patient satisfaction. In June 2007, Lyrica was approved in the U.S. for the management of fibromyalgia, one of the most common chronic, widespread pain conditions. This approval represents a breakthrough for the more than six million Americans who suffer from this debilitating condition who previously had no FDA-approved treatment.
Chantix continues its strong performance, with nearly 2.5 million U.S. patients having filled a prescription as of June 15, 2007, representing slightly more than 5% of adult smokers in the U.S. We continue to focus on increasing adherence and have introduced tools to physicians that provide data behind the benefit of a full 12-week course of therapy. In addition, we are conducting several pilot programs to reach patients in their first month of therapy through pharmacy programs as well as through our GetQuit behavior modification program.
Sales of Exubera continue to be disappointing, with $4 million of worldwide revenues in the second quarter of 2007. We are continuing to execute on our 2007 action plan, including the efforts of diabetes educators who have been engaging in clinical discussions with physicians and office personnel. We began direct-to-consumer.
Update on New Product Candidates
In collaboration with Bristol-Myers Squibb, apixaban is under development for the prevention and treatment of a broad range of venous and arterial thrombotic conditions. The recently announced Phase 2 findings with apixaban and the Phase 3 findings with another company's Factor Xa inhibitor in development provides support for the mechanism of action of these agents, namely inhibition of Factor Xa for the prevention and treatment of thrombosis. Our Phase 3 trials in venous thromboembolism prevention in patients undergoing total knee replacement surgery will seek to demonstrate superiority to enoxaparin. In addition, the profile of apixaban, characterized by lower peak-trough ratio, less dependency upon renal excretion and absence of food effects, makes for a potentially best in class compound. Late stage clinical trials are underway and Bristol-Myers Squibb expects to file for approval of the first indication in the U.S. in the second half of 2009.
In June 2007, the FDA issued an approvable letter for maraviroc, which is under review as a therapy for treatment-experienced patients infected with CCR5-tropic HIV-1. We are continuing our discussions with the FDA to address outstanding questions and to finalize the product labeling as soon as possible. Pfizer has established an expanded access program in 30 countries prior to approval to provide maraviroc to patients who have limited treatment options.
Also in June 2007, we re-submitted our registration filing for dalbavancin, our cell wall synthesis inhibitor to treat skin and skin structure infections. We anticipate FDA approval by year-end 2007.
Pfizer Animal Health
Pfizer Animal Health's second quarter revenue grew 9% to $632 million in the second quarter of 2007, and 11% to $1.2 billion in the first half of 2007 compared to the year-ago periods, bolstered by new companion animal product launches. The new products included Convenia, a first-in-class single treatment antibiotic for dogs and cats; Slentrol, a weight-management drug for dogs; and Cerenia, a first-in-class product for the treatment and prevention of vomiting in dogs. In addition to a strong performance by its in-line products, foreign exchange also favorably impacted the second quarter results.
Financial Results
In the second quarter 2007, cost of sales (as a pre-tax component of adjusted income(1)), as a percentage of revenues was 17% compared to 14% for the second quarter of 2006, reflecting unfavorable product and geographic mix changes in our portfolio as well as the impact of efforts to reduce the cost of new products. For the full-year of 2007, we continue to forecast the cost of sales pre-tax component of adjusted income(1) at about 15% of revenues, reflecting an improvement in this measure over the balance of the year, in part driven by the impact of our ongoing cost-reduction initiatives.
Selling, Informational and Administrative (SI&A) expenses, as a pre-tax component of adjusted income(1), were $3.7 billion, a decrease of 2%, compared to the second quarter of 2006. Absent the impact of foreign exchange, we continue to target -- and are on track to achieve --a year over year absolute reduction of more than $500 million in SI&A expenses associated with our efforts to restructure our cost base. However, the impact of foreign exchange, while favorable at the top line, has had an adverse impact on our expenses, and the strengthening of the euro and other currencies relative to the dollar is mitigating the reported impact of these cost reduction efforts. At current exchange rates(7), we anticipate that the SI&A pre-tax component of adjusted income(1) will approximate $15.2 billion this year.
Research and development expenses, as a pre-tax component of adjusted income (1), were $2.0 billion, an increase of 20% compared to the second quarter of 2006 principally due to the timing of our payments to Bristol-Myers Squibb in connection with our collaboration to develop and commercialize apixaban. We continue to project the full-year 2007 R&D pre-tax component of adjusted income(1) at approximately $7.5 billion.
Restructuring charges and acquisition-related costs were $1.1 billion, a significant increase compared to the second quarter of 2006, reflecting our commitment to numerous cost reduction initiatives, including the reduction in our global sales force as well as the rationalization of our manufacturing network, administrative functions, and our R&D infrastructure.
Quarterly revenue patterns are subject to a degree of variability in light of the timing of loss of U.S. exclusivity on key product lines (among other factors) and are especially apparent in the U.S., where loss of exclusivity generally results in a rapid decline in revenues with the advent of competition from lower-priced generic agents. We expect this to mitigate over the second half of the year, given the timing of Zoloft's loss of exclusivity in the U.S. mid-last year. Quarterly expense patterns will also exhibit a degree of variability this year, reflecting, among other factors, the timing of payments associated with business development activities, the impact on cost of sales from mix changes in our product sales, the timing of investments in promotional and R&D programs during the second half of the year relative to the first half, and the timing of savings realized as part of our overall productivity initiatives.
Through the first half of 2007, we have purchased $5.0 billion of stock, and we plan to purchase up to an additional $5.0 billion in stock in the second half of the year. Additionally, we have declared a third quarter dividend of $0.29, a 21% increase over the third quarter of last year.
We reaffirm the following additional elements of our financial guidance for 2007 at current exchange rates(7):
-- Revenues of between $47 billion and $48 billion
-- Effective tax rate on adjusted income(1) of 22%
-- Reported diluted EPS of $1.30 to $1.41
-- Adjusted diluted EPS(1) of $2.08 to $2.15
-- Cash flow from operations of $12 billion to $13 billion
We also reaffirm the following financial guidance for 2008 at current exchange rates(7):
-- Revenues of between $46.5 billion to $48.5 billion
-- Total expense pre-tax component of adjusted income(1) at least $1.5 to $2 billion lower than 2006
-- Effective tax rate on adjusted income(1) of 22% to 22.5%
-- Reported diluted EPS of $1.75 to $1.93
-- Adjusted diluted EPS(1) of $2.31 to $2.45
-- Cash flow from operations of $18 billion to $19 billion
"We will continue to focus on our immediate priorities with a high level of intensity while we also identify a broad range of opportunities for pharmaceutical products and technologies that will advance the practice of medicine and the value we bring to patients," said Kindler.
For additional details, please see the attached financial schedules, product revenue tables, supplemental financial information, and Disclosure Notice.