PFE

Pfizer Inc. 10-Q Filing Summary

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended September 30, 2007. Pfizer Inc. is a global, research-based pharmaceutical company. The reporting period is significantly impacted by the strategic decision to exit the Exubera product line, the sale of the Consumer Healthcare business in late 2006, and ongoing cost-reduction initiatives.

Key Financial Metrics

Note: Cost of sales increased 135% in the third quarter and 59% in the nine-month period primarily due to Exubera-related write-offs.

Material Changes vs. Prior Period

• Exubera Exit: Pfizer recorded pre-tax charges of $2.8 billion ($2.1 billion net of tax) in the third quarter to exit the Exubera inhalable insulin product. This included $1.1 billion in intangible asset impairments, $661 million in inventory write-offs, and $454 million in fixed asset impairments.
• Revenue Decline: Revenues decreased 2% in Q3 and 1% in the first nine months compared to 2006. This was driven by the loss of U.S. exclusivity for Zoloft and Norvasc, and competitive pressures on Lipitor, partially offset by growth in new products like Chantix, Lyrica, and Sutent.
• Profitability Impact: Net income dropped 77% in Q3 and 45% in the nine-month period year-over-year, largely attributable to the Exubera charges and higher restructuring costs.
• Restructuring: Total costs related to cost-reduction initiatives were $810 million in Q3 and $3.1 billion for the nine months ended Sept 30, 2007, compared to $427 million and $1.3 billion in the prior year periods.

Guidance, Outlook, and Risks

• 2007 Guidance Revision:
  • Revenues: $47.5 billion to $48.0 billion.
  • Reported Diluted EPS: $1.01 to $1.10 (revised down from $1.30-$1.41 due to Exubera charges).
  • Adjusted Diluted EPS: $2.10 to $2.15.
  • Lipitor: Full-year revenues expected to be 3% to 5% lower than 2006.
• 2008 Outlook: Revenues forecast at $46.5 billion to $48.5 billion; Reported Diluted EPS $1.75 to $1.93; Adjusted Diluted EPS $2.31 to $2.45.
• Cost Reduction: Management expects a net reduction of the pre-tax total expense component of Adjusted income of at least $1.5 billion to $2.0 billion in 2008 compared to 2006.
• Risks and Contingencies:
  • Patent Litigation: Ongoing challenges to Lipitor patents (basic and enantiomer) in the U.S. and Canada; Neurontin patent litigation reversed on appeal; Detrol LA patent challenges.
  • Product Liability: Significant litigation regarding Rezulin (settled favorably), Asbestos (Quigley subsidiary bankruptcy plan pending), Trovan (Nigeria), and Mirapex (impulse-control disorders).
  • Tax Matters: Adoption of FIN 48 resulted in a reclassification of approximately $4.0 billion of uncertain tax positions from current to non-current liabilities.

Investor Verification Checklist

• Verify the magnitude of the $2.8 billion Exubera charge and its specific impact on intangible assets and inventory.
• Monitor the trajectory of Lipitor sales given the 3-5% full-year decline guidance and competitive pressures from generic simvastatin.
• Assess the progress of cost-reduction initiatives and the realization of the projected $1.5-$2.0 billion expense reduction in 2008.
• Review the status of patent litigation for key products (Lipitor, Neurontin, Detrol LA) which could impact future revenue streams.
• Confirm the timeline for the Quigley asbestos bankruptcy plan and potential future liabilities.
• Track the performance of new growth drivers: Chantix, Lyrica, Sutent, and Caduet.