Pfizer second-quarter revenues decrease 1% to $17.0 billion

Pfizer Inc. (NYSE: PFE) today reported financial results for second-quarter 2011. As a result of Pfizer's decision to sell the Capsugel business, all revenues and expenses related to Capsugel in all periods presented are reflected in a single line, Discontinued operations - net of tax. Additionally, due to the acquisition of King Pharmaceuticals, Inc. (King), legacy King operations are reflected in the 2011 results beginning January 31, 2011, in accordance with Pfizer's domestic and international reporting periods, but are not reflected in the results of the first two quarters of 2010.

Second-quarter 2011 revenues were $17.0 billion, a decrease of 1% compared with the year-ago quarter. Revenues for second-quarter 2011 compared with the year-ago quarter were favorably impacted by $740 million, or 4%, due to foreign exchange, and $357 million, or 2%, due to the addition of legacy King products. Second-quarter 2011 revenues were reduced by $1.5 billion, or 9%, due to the impact of the loss of exclusivity for several products in certain geographies, and $158 million, or 1%, due to U.S. healthcare reform.

For second-quarter 2011, U.S. revenues were $6.7 billion, a decrease of 9% compared with the year-ago quarter. International revenues were $10.3 billion, an increase of 5% compared with the prior-year quarter, which reflected a 3% operational decline and an 8% favorable impact of foreign exchange. U.S. revenues represented 39% of total revenues in second-quarter 2011 compared with 43% in the year-ago quarter, while international revenues represented 61% of total revenues in second-quarter 2011 compared with 57% in the year-ago quarter.

Business Highlights

Primary Care unit revenues in second-quarter 2011 were driven by growth from certain patent-protected products, including Lyrica, Spiriva and Pristiq, among others, as well as the addition of $124 million, or 2%, from legacy King products, and negatively impacted by the loss of exclusivity of Lipitor in Canada and Spain in May and July 2010, respectively, as well as the loss of exclusivity of Aricept in the U.S. in November 2010. Taken together, the loss of exclusivity for these products in those markets reduced Primary Care unit revenues by $586 million, or 10%, in comparison with second-quarter 2010.

Specialty Care unit revenues were positively impacted by strong growth in the Prevenar franchise in Japan and Developed Europe, while Prevnar 13 revenues in the U.S. were negatively impacted by changes in purchasing patterns for the private market. Specialty Care unit revenues were also negatively impacted by the loss of exclusivity of Vfend and Xalatan in the U.S. in February and March 2011, respectively. Collectively, the loss of exclusivity for these products in the U.S. reduced Specialty Care unit revenues by $181 million, or 5%, in comparison with second-quarter 2010.

Emerging Markets unit revenues were positively impacted by growth in certain key innovative brands, primarily Enbrel, the Prevenar franchise, Lyrica and Vfend, and negatively impacted by the loss of exclusivity of Lipitor in Brazil and Mexico in August and December 2010, respectively, and Viagra in Brazil in June 2010. In total, the loss of exclusivity for these products in those markets reduced Emerging Markets unit revenues by $59 million, or 3%, in comparison with second-quarter 2010.

Established Products unit revenues were mainly impacted by the U.S. loss of exclusivity and resulting increased competition with respect to Effexor, Protonix and Zosyn, which taken together, reduced Established Products unit revenues by $631 million, or 23%, in comparison with second-quarter 2010. This decline was partially offset by $146 million, or 5%, from the addition of legacy King products. Total revenues from established products in both the Established Products and Emerging Markets units were $3.3 billion, with $963 million generated in emerging markets.

Notably, for the first time, our Animal Health unit achieved a significant milestone, reporting over $1.0 billion in quarterly revenues. Animal Health unit revenues increased by 18%, in comparison with the same quarter last year, reflecting the positive impact of $87 million, or 10%, due to the addition of legacy King products, the favorable conditions in global livestock markets and the 5% positive impact of foreign exchange. The Consumer Healthcare unit also reported solid revenue growth, primarily driven by Advil Congestion Relief, which launched in third-quarter 2010, Robitussin and a strong cough/cold season in comparison with second-quarter 2010.

Adjusted total costs were $10.3 billion in second-quarter 2011, an increase of 6% compared with $9.7 billion in second-quarter 2010. Excluding the unfavorable impact of foreign exchange of $681 million, or 7%, adjusted total costs decreased 1%, primarily reflecting savings from cost-reduction and productivity initiatives, particularly in the research and development function, partially offset by the addition of costs from legacy King operations and the inclusion of the annual U.S. healthcare reform fee.

Adjusted Other (Income)/Deductions - Net in second-quarter 2011 was $13 million of deductions, compared with $159 million of deductions in the prior-year quarter. This change was primarily the result of a favorable legal settlement and higher royalty income, among other factors.

The effective tax rate on adjusted income was approximately 29% in second-quarter 2011 compared with approximately 32% in second-quarter 2010. The decrease in the effective tax rate on adjusted income was primarily due to the extension of the U.S. research and development credit that was signed into law in December 2010 and the change in the jurisdictional mix of earnings.

The diluted weighted-average shares outstanding for second-quarter 2011 was 7.9 billion shares, a reduction of approximately 137 million shares compared with second-quarter 2010, primarily due to the Company's ongoing share repurchase program.

As a result of the aforementioned factors, second-quarter 2011 adjusted income was $4.7 billion, a decrease of 4% compared with $4.9 billion in the year-ago quarter, and adjusted diluted EPS was $0.60, a decrease of 2% compared with $0.61 in the year-ago quarter.

Reported Net Income and Reported Diluted EPS Highlights

In addition to the aforementioned factors, second-quarter 2011 reported earnings were favorably impacted by lower acquisition-related costs and purchase accounting adjustments associated with Wyeth and negatively impacted by higher expenses incurred to implement various cost-reduction and productivity initiatives.

The effective tax rate on reported results was approximately 30% in second-quarter 2011 compared with approximately 38% in second-quarter 2010. The decrease in the effective tax rate was primarily due to the previously mentioned extension of the U.S. research and development credit and the change in the jurisdictional mix of earnings.

As a result of all these factors, second-quarter 2011 reported net income was $2.6 billion, an increase of 5% compared with $2.5 billion in the prior-year quarter, and reported diluted EPS was $0.33, an increase of 6% compared with $0.31 in the prior-year quarter.

Executive Commentary

Ian Read, President and Chief Executive Officer, stated, "Our performance this quarter was in-line with our expectations. Although results were impacted by losses of exclusivity of several key products in certain geographies, most notably in our Established Products business, I am pleased that many of our core products, primarily Lyrica, Enbrel and the Prevnar/Prevenar franchise, continued to perform well overall and the fundamentals of our business remain strong. We will continue to invest in areas that will enhance our presence, expand the breadth of our portfolio and position our businesses to better capitalize on high-growth opportunities."

"In addition, as we recently announced, we have completed our business portfolio review which resulted in the decision to explore strategic alternatives for our Animal Health and Nutrition businesses. We are currently evaluating the best structure for each of these businesses to deliver the greatest after-tax return for our shareholders. Throughout this process, we will remain focused on strengthening our innovative core and delivering novel medicines to patients," Mr. Read continued.

"I am encouraged by the significant progress we've made this quarter to advance our late-stage pipeline. Most notably, we completed U.S. and Japanese filings for crizotinib in ALK-positive non-small cell lung cancer and U.S. and EU filings for axitinib in advanced renal cell carcinoma. We also reported positive top-line phase 3 clinical data for tofacitinib in rheumatoid arthritis and for Eliquis in stroke prevention in patients with atrial fibrillation, with full data presentations anticipated later this year. We continue to expect regulatory submissions for both of these medicines in these indications in the U.S. and EU by the end of 2011. We also look forward to regulatory actions on our U.S. and EU filings of Prevnar 13/Prevenar 13 for the prevention of pneumococcal disease in adults aged 50 years and older. Finally, we received FDA approval of Sutent for advanced pancreatic neuroendocrine tumors and Oxecta for the management of acute and chronic moderate-to-severe pain where the use of an opioid analgesic is appropriate," Mr. Read concluded.

Frank D'Amelio, Chief Financial Officer, stated, "Given our performance during the second quarter as well as our continued confidence in the business, we are reaffirming our 2011 financial guidance and 2012 financial targets. Additionally, we returned approximately $3.8 billion to our shareholders during the quarter through $1.6 billion in dividends and $2.2 billion in share repurchases, as we believe our shares continue to represent a good investment at the current valuation. So far in 2011, we repurchased $4.3 billion of our shares, and we continue to anticipate repurchasing a total of between $5 billion and $7 billion of our common stock this year.

Source: Pfizer Inc.

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