Second-Quarter 2011 Revenues of $17.0 Billion, excluding $214 Million from Capsugel(1)
Second-Quarter 2011 Adjusted Diluted EPS(2) of $0.60, excluding Capsugel(1); Reported Diluted EPS(3) of $0.33
Reaffirms Full-Year 2011 Financial Guidance and Full-Year 2012 Financial Targets
Repurchases $2.2 Billion, or 109.2 Million Shares, of Common Stock During Second-Quarter 2011

$ in millions, except per share amounts)
Second-Quarter Year-to-Date
2011 2010 Change 2011 2010 Change
Reported Revenues $ 16,984 $ 17,132 (1 %) $ 33,486 $ 33,708 (1 %)
Adjusted Income(2) 4,726 4,927 (4 %) 9,534 9,789 (3 %)
Adjusted Diluted EPS(2) 0.60 0.61 (2 %) 1.19 1.21 (2 %)
Reported Net Income(3) 2,610 2,475 5 % 4,832 4,501 7 %
Reported Diluted EPS(3) 0.33 0.31 6 % 0.61 0.56 9 %

See end of text prior to tables for notes.

Pfizer Inc. (NYSE: PFE) today reported financial results for second-quarter 2011. As a result of Pfizer’s decision to sell the Capsugel(1) business, all revenues and expenses related to Capsugel(1) 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(4), 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.

Financial Performance

Second-Quarter Revenues
($ in millions)
Favorable/(Unfavorable)
2011 2010 Change Foreign
Exchange
Operational

Primary Care(5) $ 5,870 $ 5,923 (1 %) 4 % (5 %)
Specialty Care(6) 3,699 3,769 (2 %) 5 % (7 %)
Emerging Markets(7) 2,415 2,250 7 % 4 % 3 %
Established Products(8) 2,317 2,730 (15 %) 5 % (20 %)
Oncology(9) 339 349 (3 %) 6 % (9 %)
Biopharmaceutical 14,640 15,021 (3 %) 4 % (7 %)

Animal Health(10) 1,055 893 18 % 5 % 13 %
Consumer Healthcare(11) 721 678 6 % 4 % 2 %
Nutrition(12) 493 476 4 % 5 % (1 %)
Other(13) 75 64 17 % 2 % 15 %

Total $ 16,984 $ 17,132 (1 %) 4 % (5 %)

See end of text prior to tables for notes.



Business Highlights

Primary Care(5) 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(5) unit revenues by $586 million, or 10%, in comparison with second-quarter 2010.

Specialty Care(6) 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(6) 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(6) unit revenues by $181 million, or 5%, in comparison with second-quarter 2010.

Emerging Markets(7) 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(7) unit revenues by $59 million, or 3%, in comparison with second-quarter 2010.

Established Products(8) 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(8) 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(8) and Emerging Markets(7) units were $3.3 billion, with $963 million generated in emerging markets.

Notably, for the first time, our Animal Health(10) unit achieved a significant milestone, reporting over $1.0 billion in quarterly revenues. Animal Health(10) 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(11) 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 Expenses(2), Adjusted Income(2) and Adjusted Diluted EPS(2) Highlights

Second-Quarter Costs and Expenses
($ in millions)
(Favorable)/Unfavorable
2011 2010 Change Foreign Exchange Operational

Adjusted Cost of Sales (2) $ 3,257 $ 2,841 15% 16% (1%)

As a Percent of Revenues 19.2% 16.6% N/A N/A N/A
Adjusted SI&A Expenses(2) 4,950 4,694 5% 4% 1%
Adjusted R&D Expenses(2) 2,059 2,176 (5%) 2% (7%)
Adjusted Total Costs(14) $ 10,266 $ 9,711 6% 7% (1%)

See end of text prior to tables for notes.

Adjusted total costs(14) 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(14) 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(2) 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(2) 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(2) 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(2) was $4.7 billion, a decrease of 4% compared with $4.9 billion in the year-ago quarter, and adjusted diluted EPS(2) was $0.60, a decrease of 2% compared with $0.61 in the year-ago quarter.

Reported Net Income(3) and Reported Diluted EPS(3) 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(3) was $2.6 billion, an increase of 5% compared with $2.5 billion in the prior-year quarter, and reported diluted EPS(3) 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.

2011 Financial Guidance(15)

For full-year 2011, Pfizer’s financial guidance, at current exchange rates(16), is summarized below.

Reported Revenues $65.2 to $67.2 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues 19.5% to 20.5%
Adjusted SI&A Expenses(2) $19.2 to $20.2 billion
Adjusted R&D Expenses(2) $8.0 to $8.5 billion
Adjusted Other (Income)/Deductions(2) Approximately $1.0 billion
Effective Tax Rate on Adjusted Income(2) Approximately 29%
Reported Diluted EPS(3) $1.09 to $1.24
Adjusted Diluted EPS(2) $2.16 to $2.26


2012 Financial Targets(15)

As previously stated, given the longer-term nature of these targets, they are subject to greater variability and less certainty as a result of potential material impacts related to foreign exchange fluctuations, macroeconomic activity including inflation, and industry-specific challenges including changes to government healthcare policy, among others.

For full-year 2012, Pfizer’s financial targets, at current exchange rates(16), are summarized below.

Reported Revenues $62.2 to $64.7 billion

Adjusted SI&A Expenses(2) $17.5 to $18.5 billion

Adjusted R&D Expenses(2) $6.5 to $7.0 billion

Adjusted Other (Income)/Deductions(2) Approximately $1.0 billion
Adjusted Operating Margin(2) High 30%s to low 40%s
Effective Tax Rate on Adjusted Income(2) Approximately 29%
Reported Diluted EPS(3) $1.58 to $1.73
Adjusted Diluted EPS(2) $2.25 to $2.35
Operating Cash Flow At least $19.0 billion



For additional details, please see the attached financial schedules, product revenue tables, supplemental information and disclosure notice.

(1)
Capsugel provides capsule products and related services to the pharmaceutical and associated healthcare industries. On April 4, 2011, Pfizer announced that it entered into an agreement to sell Capsugel to an affiliate of Kohlberg Kravis Roberts & Co. L.P. This transaction closed on August 1, 2011.


(2)
"Adjusted Income" and its components and "Adjusted Diluted Earnings Per Share (EPS)" are defined as reported net income(3) and its components and reported diluted EPS(3) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (R&D) expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. As described under Adjusted Income in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Form 10-Q for the fiscal quarter ended April 3, 2011, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. Reconciliations of second-quarter 2011 and 2010 and first-half 2011 and 2010 adjusted income and its components and adjusted diluted EPS to reported net income(3) and its components and reported diluted EPS(3), as well as reconciliations of full-year 2011 guidance and 2012 targets for adjusted income and adjusted diluted EPS to full-year 2011 guidance and 2012 targets for reported net income(3) and reported diluted EPS(3), are provided in the materials accompanying this report. The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted EPS.


(3)
“Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.


(4)
Legacy King operations are reflected in 2011 results beginning January 31, 2011. Therefore, in accordance with Pfizer’s domestic and international reporting periods, first-half 2011 results reflect approximately five months of King’s U.S. operations and approximately four months of King’s international operations.


(5)
The Primary Care unit includes revenues from human pharmaceutical products primarily prescribed by primary-care physicians, and may include, but are not limited to, products in the following therapeutic and disease areas: Alzheimer’s disease, diabetes, cardiovascular (excluding pulmonary arterial hypertension), major depressive disorder, genitourinary, osteoporosis, pain and respiratory. Examples of products in this unit include, but are not limited to, Celebrex, Lipitor, Lyrica, Premarin, Pristiq and Viagra. All revenues for such products are allocated to the Primary Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.


(6)
The Specialty Care unit includes revenues from human pharmaceutical products primarily prescribed by physicians who are specialists, and may include, but are not limited to, products in the following therapeutic and disease areas: antibacterials, antifungals, antivirals, bone, inflammation, growth hormones, multiple sclerosis, ophthalmology, pulmonary arterial hypertension, psychosis and vaccines. Examples of products in this unit include, but are not limited to, Enbrel, Genotropin, Geodon, the Prevnar/Prevenar franchise, Xalatan and Zyvox. All revenues for such products are allocated to the Specialty Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.


(7)
The Emerging Markets unit includes revenues from all human prescription pharmaceutical products sold in emerging markets, including, but not limited to, Asia (excluding Japan and South Korea), Latin America, Middle East, Africa, Central and Eastern Europe and Turkey.


(8)
The Established Products unit generally includes revenues from human prescription pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. Typically, products are transferred to this unit in the beginning of the fiscal year following losing patent protection or marketing exclusivity. In certain situations, products may be transferred to this unit at a different point than the beginning of the fiscal year following losing patent protection or marketing exclusivity in order to maximize their value. This unit also excludes revenues generated in emerging markets(7). Examples of products in this unit include, but are not limited to, Arthrotec, Effexor, Medrol, Norvasc, Protonix, Relpax and Zosyn/Tazocin.


(9)
The Oncology unit includes revenues from human oncology and oncology-related products. Examples of products in this unit include, but are not limited to, Aromasin, Sutent and Torisel. All revenues for such products are allocated to the Oncology unit, except those generated in emerging markets(7) and those that are managed by the Established Products(8) unit.


(10)
Animal Health includes worldwide revenues from products to prevent and treat disease in livestock and companion animals, including vaccines, paraciticides and anti-infectives. On July 7, 2011, the Company announced that it is exploring strategic alternatives for Animal Health, which may include, among others, a full or partial separation from Pfizer through a spin-off, sale or other transaction.


(11)
Consumer Healthcare generally includes worldwide revenues from non-prescription medicines and vitamins and may include, but are not limited to, products in the following therapeutic categories: GI-topicals, nutritionals, pain management and respiratory. Examples of products in Consumer Healthcare include, but are not limited to, Advil, Caltrate, Centrum, ChapStick and Robitussin.


(12)
Nutrition generally includes revenues from a full line of infant and toddler nutritional products sold outside of North America. Examples of products in Nutrition include, but are not limited to, the S-26 and SMA product lines as well as formula for infants with special nutritional needs. On July 7, 2011, the Company announced that it is exploring strategic alternatives for Nutrition, which may include, among others, a full or partial separation from Pfizer through a spin-off, sale or other transaction.


(13)
Includes revenues generated primarily from Pfizer Centersource.


(14)
Represents the total of Adjusted Cost of Sales(2), Adjusted SI&A expenses(2) and Adjusted R&D expenses(2).


(15)
Does not assume the completion of any business-development transactions not completed as of July 3, 2011. Also excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of July 3, 2011. The 2011 financial guidance includes revenues and expenses related to the Capsugel(1) business as a discontinued operation through July 31, 2011, but does not include the gain on the sale of Capsugel(1), which closed on August 1, 2011.


(16)
The current exchange rates assumed in connection with the 2011 financial guidance are a blend of the actual exchange rates in effect during first-half 2011 and the mid-July 2011 exchange rates for the remainder of the year. The current exchanges rates assumed in connection with the 2012 financial targets are the mid-July 2011 exchange rates.