NEW YORK---Pfizer Inc. (NYSE: PFE) reported financial results for second-quarter 2013. As a result of the full disposition of Zoetis(1) on June 24, 2013, the financial results of the Animal Health business are now reported as a discontinued operation in the condensed consolidated statements of income for second-quarter and year-to-date for both 2013 and 2012. Results and guidance are summarized below.

2013 FINANCIAL GUIDANCE(6)

All components of Adjusted financial guidance are reaffirmed. The guidance for Reported Diluted EPS(3) has been updated to reflect the following:

• Gain associated with the full disposition of Zoetis(1)
• Income from a litigation settlement with Teva Pharmaceuticals Industries, Limited (Teva) and Sun Pharmaceutical Industries, Limited (Sun) for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.

EXECUTIVE COMMENTARY

Ian Read, Chairman and Chief Executive Officer, stated, “I am pleased with our recent accomplishments focused on creating greater value for our shareholders, including the completion of the full disposition of Zoetis(1) which generated over $17 billion in value as well as the announcement of our new commercial model. This new model represents the next step in Pfizer’s journey to further revitalize our innovative core, enhance the value of our consumer and off-patent established brands and maximize the use of our capital to create value for Pfizer and our patients, consumers and shareholders.”

“Within our innovative businesses, during second-quarter 2013, revenues in our Oncology business increased 28% operationally due to the uptake of new products, primarily Inlyta and Xalkori in several major markets, and various key products performed well, notably Lyrica, which grew 14% operationally in developed markets, and Celebrex, which grew 13% in the U.S. We continue to expect our Emerging Markets business growth to accelerate in the second half of the year, led by China. From a total company view, we are tracking to our expectations for the full year and continue to capitalize on the investments we are making to better position Pfizer for long-term success,” Mr. Read concluded.

Frank D’Amelio, Chief Financial Officer, stated, “Overall, I am pleased with our financial performance so far this year, despite the continued impact of product losses of exclusivity and a challenging operating environment. We are reaffirming all components of our 2013 adjusted financial guidance, which reflects our performance to date, confidence in the business, financial flexibility and a rigorous expense-management process. We continue to expect to repurchase in the mid-teens of billions of dollars of our common stock this year, with $8.7 billion repurchased through July 29, given our strong operating cash flow and proceeds generated from our portfolio actions.”

QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2013 vs. Second-Quarter 2012)

• Revenues decreased $995 million, or 7%, which reflects an operational decline of $603 million, or 4%, and the unfavorable impact of foreign exchange of $392 million, or 3%. The operational decrease was primarily the result of the losses of exclusivity of Lipitor in developed Europe in second-quarter 2012, as well as the impact of multi-source generic competition for Lipitor in the U.S. beginning in late-May 2012. Additionally, revenues were negatively impacted by other product losses of exclusivity, government purchasing patterns for Prevnar/Prevenar in various markets, and certain other events, primarily within the Emerging Markets unit highlighted below.
• Business unit revenues were impacted by the following:
  • Primary Care: Revenues decreased 15% operationally, primarily due to the shift in the reporting of Lipitor revenues in developed Europe and Australia to the Established Products unit beginning January 1, 2013, as well as the losses of exclusivity of certain other products in various markets and the termination of the co-promotion agreement for Aricept in Japan in December 2012. Additionally, in the U.S., Australia, Canada and certain European countries, the co-promotion agreements for Spiriva are in the final year, which has resulted in a decline in Pfizer’s share of Spiriva revenues per the terms of those agreements. These declines were partially offset by the strong performance of Lyrica in developed markets and Celebrex in the U.S.
  • Specialty Care: Revenues were flat operationally, primarily due to the shift in the reporting of Geodon and Revatio revenues in the U.S. and Xalabrands revenues in developed Europe and Australia to the Established Products unit beginning January 1, 2013, which was essentially offset by growth in Enbrel, Rebif and the hemophilia portfolio (BeneFIX and ReFacto AF/Xyntha) in the U.S. Prevnar/Prevenar revenues continue to be impacted by a large U.S. government purchase in fourth-quarter 2012, which has resulted in fewer purchases so far in 2013, and also were impacted by the end of the supplemental dose program in Asia.
  • Emerging Markets: Revenues grew 4% operationally, primarily due to strong volume growth in China, most notably for Lipitor and Prevenar, which was partially offset by the impact of the transfer of certain product rights to the Pfizer-Hisun joint venture in first-quarter 2013 and the timing of government purchases of Enbrel and Prevenar in certain other emerging markets. Operational revenue growth in emerging markets is expected to accelerate in the second half of the year to a high-single-digit percentage, with the full-year 2013 operational revenue growth now expected to be a mid-single-digit percentage.
  • Established Products: Revenues decreased 7% operationally, primarily due to multi-source generic competition in the U.S. for Lipitor beginning in late-May 2012. This decrease was partially offset by revenues from products in certain markets that were shifted to the Established Products unit from other business units beginning January 1, 2013 and the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan.
  • Consumer Healthcare: Revenues increased 5% operationally, primarily due to strong growth globally for Centrum as a result of several recent product launches in key international markets, as well as increased promotion in the U.S. following the announcement of favorable results from a landmark study that evaluated the long-term health benefits of multivitamins for men age 50 and older.
  • Oncology: Revenues increased 28% operationally, driven by the continued solid uptake of new products, most notably Inlyta and Xalkori in several major markets.

• Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses(2) in the aggregate decreased $241 million, or 3%, primarily reflecting the favorable impact of foreign exchange and, to a much lesser extent, the benefits of cost-reduction and productivity initiatives, including a reduction in the number of colleagues and more streamlined corporate support functions. Adjusted cost of sales(2) as a percentage of revenues was favorably impacted by foreign exchange, while unfavorably impacted by the decline in revenues contributing to a shift in geographic and business mix given the aforementioned products that lost exclusivity in various markets.
• The effective tax rate on adjusted income(2) reflected a 0.6 percentage point decrease, primarily due to the jurisdictional mix of earnings and the extension of the U.S. research and development tax credit that was signed into law in January 2013.
• The diluted weighted-average shares outstanding declined by approximately 420 million shares, primarily due to the company’s ongoing share-repurchase program.
• In addition to the aforementioned factors, second-quarter 2013 reported earnings were favorably impacted by the gain associated with the full disposition of Zoetis(1), income from a litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S. and lower charges related to other legal matters. Reported earnings were unfavorably impacted by a 5.1 percentage point increase in the effective tax rate on reported income(3) from continuing operations, primarily attributable to the tax liability associated with the aforementioned settlement.

RECENT NOTABLE DEVELOPMENTS

Product Developments

• Xeljanz
  • The U.S. Food and Drug Administration (FDA) accepted for review a supplemental new drug application for the Xeljanz moderately-to-severely active rheumatoid arthritis (RA) indication seeking expansion of the label to include inhibition of progression of structural damage. The FDA will review the application and is expected to provide a decision by February 2014.
  • The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) adopted a negative opinion for Xeljanz for the treatment of adult patients with moderate-to-severe active RA. Pfizer appealed this opinion and sought a re-examination of the opinion by the CHMP. Upon re-examination, the CHMP reached a negative opinion. The company is currently evaluating the feedback from the CHMP, will determine next steps to resubmit a Marketing Authorization Application to the EMA and anticipates that this will result in a several-year delay.
  • The phase 3 Xeljanz psoriasis program continues to progress. Due to the large size and complexity of the database, Pfizer has encountered challenges in analyzing the data. As a result, the company now expects to announce the topline results from the first two phase 3 studies by the end of 2013, and the topline results from the two phase 3 pivotal studies in second-quarter 2014. This unexpected delay is not the result of any safety issues.
• Prevenar -- The European Commission (EC) approved Prevenar 13 for an expanded indication to include adults aged 18 to 49 years for active immunization for the prevention of invasive disease caused by vaccine-type Streptococcus pneumoniae. The EC is the first regulatory authority to approve Prevenar 13 to offer protection against invasive disease at all stages of life.
• Eliquis
  • The FDA accepted for review a supplemental new drug application for Eliquis for the prophylaxis of deep vein thrombosis, which may lead to pulmonary embolism, in adult patients who have undergone hip or knee replacement surgery. The FDA will review the application and is expected to provide a decision by March 15, 2014.
  • The phase 3 AMPLIFY trial presented at the 24th Congress of the International Society on Thrombosis and Haemostasis demonstrated that Eliquis as a single-agent achieved the primary efficacy endpoint of noninferiority to current standard of care in the reduction of the composite endpoint of recurrent symptomatic acute venous thromboembolism (VTE) or VTE-related death and met the primary safety endpoint of superiority to current standard of care for major bleeding. Pfizer, along with its partner Bristol-Myers Squibb, plan to file for the initial and long-term treatment of VTE, as well as for extended prevention of recurrent VTE, with the FDA and the EMA by the end of the year.

Pipeline Developments

• Palbociclib received Breakthrough Therapy designation by the FDA for the potential treatment of patients with breast cancer.
• A phase 3 study evaluating the safety and efficacy of inotuzumab ozogamicin in patients with relapsed or refractory CD22+ aggressive non-Hodgkin lymphoma who are not candidates for intensive high-dose chemotherapy was discontinued due to futility. This compound continues to be studied in adult acute lymphoblastic leukemia and other hematological malignancies.

Business Development/Portfolio Review

• Pfizer accepted 405.1 million shares of its common stock valued at $11.4 billion in exchange for its remaining 80.2% stake in Zoetis(1)pursuant to a registered exchange offer to Pfizer’s shareholders. As a result, Pfizer no longer has an ownership interest in Zoetis(1) and recorded a gain of $10.5 billion (pre-tax) on the disposition. As of June 24, 2013, those 405.1 million shares are no longer outstanding, which will have a favorable impact on earnings per share over time.
• Pfizer entered into a worldwide (except Japan) collaboration agreement with Merck & Co., Inc. to develop and commercialize ertugliflozin and ertugliflozin-containing fixed-dose combinations with metformin and Januvia® (sitagliptin) tablets. Ertugliflozin is Pfizer’s investigational medicine for type 2 diabetes, with phase 3 trials expected to begin later in 2013.

Other Developments

• Pfizer announced plans to move forward to internally separate its commercial operations into three business segments, two of which will include Innovative business lines and a third which will include the Value business line. Each of the three segments will include developed markets and emerging markets. The changes will be implemented in fiscal 2014 in countries that do not require a consultation with works councils or unions, and will be implemented in countries that require consultation after the successful conclusion of those processes. Beginning with the first-quarter 2014 financial results, the company will provide greater financial transparency for each of these three business segments, which will include a 2014 baseline management view of profit and loss for each segment.
• The Board of Directors authorized a new $10 billion share repurchase program to be utilized over time. This new program is in addition to the $3.1 billion of authorization currently remaining under the previous share repurchase program.
• Pfizer and Nycomed (now part of Takeda), the owner of the U.S. patent, reached a $2.15 billion litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S. prior to the January 2011 expiry of the patent for the active ingredient. Pfizer and Takeda will divide the proceeds of the settlement, with Pfizer receiving $1.4 billion (pre-tax).

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

• The financial results of the Animal Health business from January 1, 2013 to June 24, 2013, as well as the gain on disposal of Zoetis(1), are presented as a discontinued operation. As a result, they have been excluded from all components of the financial guidance except Reported Diluted EPS(3). Reported Diluted EPS(3) guidance includes the gain on disposal of Zoetis(1), as well as the financial results of the Animal Health business as follows:
  • January 1, 2013 to February 6, 2013: 100% of Zoetis(1) financial results are included
  • February 7, 2013 to June 24, 2013: 80.2% of Zoetis(1) financial results are included; 19.8% of Zoetis(1) financial results are excluded, as this interest in Zoetis(1) was no longer owned by Pfizer
  • June 24, 2013 through December 31, 2013: no actual or projected financial results of Zoetis(1) are included

• The weighted-average shares outstanding used in the computation of Adjusted(2) and Reported(3) Diluted EPS guidance reflects the reduction in shares of Pfizer’s outstanding common stock as a result of the Zoetis(1) exchange offer. Since this reduction occurred on June 24, 2013, Pfizer will only recognize a partial-year benefit to its Adjusted(2) and Reported(3) Diluted EPS guidance.
• Reported Diluted EPS(3) guidance includes the income from a litigation settlement with Teva and Sun for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.
• Does not assume the completion of any business development transactions not completed as of June 30, 2013, including any one-time upfront payments associated with such transactions.
• Excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of June 30, 2013.
• Exchange rates assumed are a blend of the actual exchange rates in effect through June 2013 and the mid-July 2013 exchange rates for the remainder of the year.
• Reconciliation of the 2013 Adjusted Income(2) and Adjusted Diluted EPS(2) guidance to the 2013 Reported Net Income Attributable to Pfizer Inc. and Reported Diluted EPS Attributable to Pfizer Inc. common shareholders guidance: