Pfizer reports first-quarter 2014 results

PfizerPfizer Inc. (NYSE: PFE) reported financial results for first-quarter 2014. At the beginning of fiscal year 2014, the company began managing its commercial operations through a new global commercial structure consisting of three operating segments: the Global Innovative Pharmaceutical segment (GIP); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC); and the Global Established Pharmaceutical segment (GEP). As a result of the full disposition of Zoetis Inc. (Zoetis) on June 24, 2013, the financial results of the Animal Health business are reported as a discontinued operation in the consolidated statements of income for first-quarter 2013.

Due to the applicability of the UK Takeover Code to our proposed combination with AstraZeneca PLC (AstraZeneca), pending reports from our reporting accountants and financial advisers in accordance with the UK Takeover Code, Pfizer is not currently permitted to confirm or update its 2014 reported diluted EPS guidance in accordance with its customary quarterly practice. Preparation of these reports is underway. Because Pfizer has recorded a number of charges during first-quarter 2014 relating to the resolution of litigation-related matters, Pfizer's previously-issued 2014 reported diluted EPS guidance is no longer valid. Updated reported diluted EPS guidance will be provided as soon as practicable.

As required by the UK Takeover Code, the Pfizer Responsible Officers confirm that the adjusted financial guidance provided above has been properly compiled based on the same assumptions set out in the adjusted financial guidance issued on January 28, 2014; and has been prepared in accordance with the accounting policies of Pfizer.

Ian Read, Chairman and Chief Executive Officer, stated, "We recently implemented our new commercial structure and I see each segment as comprised of an attractive mix of marketed products and new product opportunities with strong management teams and financial discipline. I believe this new commercial structure and the additional financial transparency for each segment will foster a heightened level of strategic focus and discipline within each business. The new commercial structure will facilitate appropriate focus and investment, whether in pursuit of developing innovative new products or further strengthening brands with high physician and patient loyalty. With this new commercial structure, our strategic priorities for the company and our shareholders remain focused on driving innovation, productively allocating capital and enhancing a strong culture of ownership and accountability."

First-Quarter 2014 vs. First-Quarter 2013
Reported revenues decreased $1.1 billion, or 9%, which reflects an operational decline of $693 million, or 6%, and the unfavorable impact of foreign exchange of $364 million, or 3%. The operational decrease was primarily due to the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada, the ongoing expiration of the Spiriva collaboration in certain countries, the continued erosion of branded Lipitor in the U.S. and most other developed markets due to generic competition, as well as the loss of exclusivity and subsequent multi-source generic competition for Detrol LA in the U.S. and other product losses of exclusivity in certain markets. Revenues were favorably impacted primarily by the strong operational growth of Lyrica, Xalkori and Inlyta globally, Enbrel outside of the U.S. and Canada, recently launched products, Eliquis and Xeljanz, primarily in the U.S., as well as the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan. In addition, first-quarter 2014 reported revenues included $57 million from the transitional manufacturing and supply agreements with Zoetis.

Revenues were impacted by the following:

  • GEP: Revenues decreased 10% operationally, primarily due to the loss of exclusivity and subsequent launch of multi-source generic competition for Detrol LA in the U.S. in January 2014 and for Viagra in most major European markets in June 2013, a decline in branded Lipitor revenues in the U.S. and most other developed markets as a result of continued generic competition, as well as the termination of the co-promotion agreement for Aricept in Japan in December 2012. Additionally, in Japan and certain European countries, the co-promotion collaboration for Spiriva is in its final year, which, per the terms of the collaboration agreement, has resulted in a decline in Pfizer’s share of Spiriva revenues; the agreement has terminated in certain other countries, including the U.S. in April 2014. These declines were partially offset by the strong operational performance of Lyrica in Europe as well as the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan.
  • GIP: Revenues declined 4% operationally, primarily due to the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada on October 31, 2013; for a 36-month period thereafter, Pfizer is entitled to royalty payments that have been and are expected to continue to be significantly less than the share of Enbrel profits prior to the expiration of the co-promotion term of the collaboration agreement, and those royalty payments are and will be included in Other (income)/deductions–net rather than in Revenues. Revenues were also negatively impacted by the loss of exclusivity for Lyrica in Canada in February 2013 and the performance of Champix internationally and Genotropin, primarily in the U.S. These declines were partially offset by strong operational growth from Lyrica, primarily in the U.S. and Japan, Enbrel outside the U.S. and Canada as well as the performance of recently launched products, Eliquis and Xeljanz, primarily in the U.S.
  • Global Vaccines: Revenues grew 2% operationally due to the performance of Prevnar 13 in the U.S., primarily reflecting government purchasing patterns partially offset by lower demand due to adverse weather conditions in first-quarter 2014. Sales of the Prevenar family were flat internationally on an operational basis, which primarily reflects the timing of purchases by various governments in first-quarter 2014 compared with the year-ago quarter.
  • Consumer Healthcare: Revenues declined 3% operationally, negatively impacted by a decrease in revenues for respiratory products in the U.S. and Canada due to a less severe cold and flu incidence, and for pain management products in the U.S., primarily due to increased competition resulting from the return to the market of certain competing analgesic brands. These declines were partially offset by operational growth in certain emerging markets.
  • Global Oncology: Revenues increased 10% operationally, driven by the continued solid uptake of new products, most notably Xalkori and Inlyta globally. Revenues were negatively impacted by the performance of Sutent in the U.S. and certain emerging markets primarily due to the timing of purchases.

Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses in the aggregate decreased 3% operationally. Overall, they decreased $407 million, or 6%, primarily reflecting the favorable impact of foreign exchange and the benefits of cost-reduction and productivity initiatives, partially offset by investments to support several new product launches.

The effective tax rate on adjusted income declined 1.8 percentage points to 25.0% from 26.8%. This decline was primarily due to the favorable impact of the resolution in first-quarter 2014 of certain tax positions, pertaining to prior years, primarily with various foreign tax authorities, partially offset by the expiration of the U.S. research and development (R&D) tax credit on December 31, 2013.

The diluted weighted-average shares outstanding declined by 793 million shares, due to the company’s ongoing share repurchase program and the impact of the Zoetis exchange offer, which was completed on June 24, 2013.

In addition to the aforementioned factors, first-quarter 2014 reported earnings were unfavorably impacted by the non-recurrence of income from discontinued operations attributable to the company's Animal Health business and of the gain associated with the transfer of certain product rights to Pfizer's joint venture with Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun) in China in the year-ago quarter as well as by higher legal charges in first-quarter 2014 compared to last year. Reported earnings were favorably impacted by lower restructuring and asset impairment charges compared to the prior-year quarter. The effective tax rate on reported income was lower in first-quarter 2014 in comparison with the year-ago quarter primarily due to the favorable impact of the resolution in first-quarter 2014 of certain tax positions, pertaining to prior years, primarily with various foreign tax authorities and the non-recurrence of an unfavorable tax impact associated with the aforementioned transfer of certain product rights to Pfizer's joint venture with Hisun in China in the year-ago quarter, partially offset by the expiration of the U.S. R&D tax credit on December 31, 2013.

Pfizer Inc.: Working together for a healthier world™
At Pfizer, we apply science and our global resources to bring therapies to people that extend and significantly improve their lives. We strive to set the standard for quality, safety and value in the discovery, development and manufacture of health care products. Our global portfolio includes medicines and vaccines as well as many of the world's best-known consumer health care products. Every day, Pfizer colleagues work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. Consistent with our responsibility as one of the world's premier innovative biopharmaceutical companies, we collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world. For more than 150 years, Pfizer has worked to make a difference for all who rely on us.

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