PFE

Pfizer Inc. 10-Q Summary: Quarter Ended July 2, 2006

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended July 2, 2006, and the six-month period ended July 2, 2006. Pfizer Inc. is a research-based global pharmaceutical company. The reporting period is significantly impacted by the strategic decision to sell the Consumer Healthcare business to Johnson & Johnson for approximately $16.6 billion, which is now classified as a discontinued operation. The company is also navigating the loss of U.S. exclusivity for major products including Zoloft, Zithromax, and Neurontin, while launching new products such as Sutent, Eraxis, and Chantix.

Key Financial Metrics

Note: Total Debt includes short-term borrowings of $3,779 million and long-term debt of $5,450 million as of July 2, 2006.

Material Changes vs. Prior Period

• Revenue: Total revenues increased 3% in the quarter and were flat year-to-date compared to 2005. Human Health revenues grew 3% in the quarter but declined 1% year-to-date, primarily due to the loss of exclusivity for Zithromax and Zoloft, partially offset by growth in Lipitor, Celebrex, and new product launches.
• Net Income: Net income decreased 30% in the quarter ($2,415 million vs. $3,463 million) but increased 73% year-to-date ($6,526 million vs. $3,763 million). The year-to-date increase is largely driven by a lower effective tax rate (14.3% vs. 37.4%) due to tax benefits from resolved IRS matters and the absence of the $1.7 billion repatriation tax charge recorded in 2005.
• Discontinued Operations: The Consumer Healthcare business results are now reported separately. Income from discontinued operations was $125 million for the quarter and $230 million for the six months.
• Acquisitions: Pfizer recorded $513 million in merger-related in-process R&D charges, primarily related to the acquisition of Rinat Neuroscience Corp. and the Exubera rights from sanofi-aventis.

Guidance, Outlook, and Risks

Outlook: Management expects 2006 aggregate revenues to be comparable to 2005. Key growth drivers include Lipitor (targeting ~$13 billion), Celebrex (targeting at least $2 billion), Lyrica (expecting >$1 billion), and Geodon (expecting ~$800 million). The company forecasts 2006 Adjusted income of approximately $14.7 billion and Adjusted diluted EPS of ~$2.00. Reported Net income is forecasted at ~$11.8 billion with diluted EPS of ~$1.60.

Capital Allocation: Pfizer expects cash flow from operations to exceed $16 billion in 2006. Combined with expected after-tax proceeds of ~$13.5 billion from the Consumer Healthcare sale, the company has allocated ~$17 billion for potential acquisitions and plans to purchase up to $7 billion of stock in 2006 and an additional $10 billion in 2007.

Risks and Contingencies:

• Patent Expirations: Continued revenue pressure from the loss of exclusivity for major products (Norvasc, Zyrtec, Camptosar, Inspra) in 2007 and 2008.
• Legal Proceedings: Ongoing patent litigation regarding Lipitor (Ranbaxy) and Norvasc (Synthon), and product liability matters including asbestos claims related to Quigley Company.
• Regulatory: Uncertainty regarding COX-2 inhibitors and potential impacts of healthcare legislation on pricing and reimbursement.

Investor Verification Checklist

• Verify the closing conditions and regulatory approvals for the $16.6 billion sale of the Consumer Healthcare business to Johnson & Johnson.
• Monitor the impact of generic competition on Zoloft following its U.S. exclusivity loss in June 2006.
• Review the progress of the "Adapting to Scale" productivity initiative and the realization of projected cost savings.
• Assess the commercial launch and market uptake of new products: Sutent, Eraxis, Chantix, and Exubera.
• Track the status of patent litigation concerning Lipitor and Norvasc, which could affect future revenue streams.
• Confirm the execution of the expanded $18 billion share repurchase program.