Pfizer Inc 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.” -Pfizer
