EXECUTIVE COMMENTARY

Ian Read, Chairman and Chief Executive Officer, stated, “I am pleased with our operating performance to date. Our recently launched products continued to gain traction during the quarter while our mid- and late-stage pipeline continued to progress with a regulatory submission in the U.S. completed for our meningitis B vaccine candidate and our palbociclib regulatory submission in the U.S. underway. We also look forward to the recently announced meeting in August of the U.S. Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) to evaluate and make a recommendation regarding usage of our Prevnar 13 vaccine in the adult population. In addition, we also announced targeted business development transactions within our Global Oncology⁽³⁾ and GEP⁽³⁾ businesses.”

“I continue to see Pfizer as well positioned to effectively execute on our strategy to further strengthen each of our businesses on a global basis and deliver value to all of our stakeholders,” Mr. Read concluded.

Frank D’Amelio, Chief Financial Officer, stated, “Overall, I am pleased with our second-quarter 2014 financial results despite the continued negative impact from product losses of exclusivity and the termination of certain co-promotion collaborations. We updated our 2014 adjusted revenue⁽²⁾ guidance to reflect the anticipated negative impact associated with expected multi-source generic competition for Celebrex in the U.S. beginning in December 2014. Importantly, we reaffirmed our adjusted diluted EPS⁽²⁾ guidance, absorbing an approximate $0.05 per share anticipated negative impact from this loss of exclusivity and an approximate $0.01 per share negative impact from the planned upfront payment to Cellectis, which reflects our financial flexibility and confidence in the business going forward. Given our strong operating cash flow, we continue to expect to repurchase approximately $5 billion of our shares this year, with $2.9 billion repurchased through July 28. These 2014 repurchases and planned repurchases are expected to reduce total shares outstanding by approximately 100 million shares by the end of the year after factoring in actual and projected dilution related to employee compensation programs.”

QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2014 vs. Second-Quarter 2013)

• Reported revenues⁽¹⁾ decreased $200 million, or 2%, which reflects an operational decline of $113 million, or 1%, and the unfavorable impact of foreign exchange of $87 million, or 1%. 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 termination of the Spiriva collaboration in certain countries 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 in developed markets were favorably impacted by the operational growth of certain key products including: Lyrica, Nexium 24HR in the U.S. as a result of its recent launch, Prevnar, Eliquis, Xeljanz, Celebrex, Xalkori and Inlyta. Additionally, revenues in emerging markets increased 11% operationally, including strong operational growth from Prevenar as well as from Lipitor, primarily in China. Second-quarter 2014 reported revenues⁽¹⁾ included $71 million from the transitional manufacturing and supply agreements with Zoetis.
• GEP⁽³⁾ revenues decreased 5% 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, Viagra in most major European markets in June 2013 as well as Aricept in Canada in December 2013. Additionally, the co-promotion collaboration for Spiriva has terminated in most countries, including the U.S. in April 2014, or has entered its final year in other major markets, which, per the terms of the collaboration agreement, has resulted in a decline in Pfizer’s share of Spiriva revenues. These declines were partially offset by the strong operational performance of Celebrex worldwide, Lyrica in Europe as well as Lipitor, primarily in China.
• GIP⁽³⁾ revenues declined 5% 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, and those royalty payments are and will be included in Other (income)/deductions–net rather than in Revenues. GIP⁽³⁾ revenues were also negatively impacted by certain product losses of exclusivity, primarily for Lyrica in Canada in February 2013. These declines were partially offset by strong operational growth from Lyrica, primarily in the U.S. and Japan, as well as the performance of recently launched products, including Eliquis globally and Xeljanz primarily in the U.S.
• VOC⁽³⁾ revenues increased 15% operationally, reflecting the following:

– Global Vaccines(3) revenues grew 14% operationally. Prevnar 13 revenue in the U.S. increased 12%, driven by government purchasing patterns and increased demand. International sales of the Prevenar family were up 15% on an operational basis, primarily reflecting increased shipments associated with the Global Alliance for Vaccines and Immunization (GAVI) as well as the timing of government purchases in various emerging markets compared with the year-ago quarter.

– Consumer Healthcare(3) revenues increased 15% operationally, primarily due to the launch of Nexium 24HR in the U.S. in late-May 2014.

– Global Oncology(3) revenues increased 16% operationally, primarily driven by the continued strong uptake of Xalkori and Inlyta globally. Xalkori revenues were positively impacted by a greater accumulation of patients on therapy as a result of an increase in the testing rate for the anaplastic lymphoma kinase (ALK) gene abnormality, which has led to more patients being treated, as well as an extended duration of therapy. Inlyta revenues were favorably impacted by continued increases in renal cell carcinoma market share. This growth was partially offset by the timing of purchases for Sutent in China.

Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses⁽²⁾ in the aggregate increased 4% operationally. Overall, they increased $255 million, or 4%, primarily reflecting:

– higher adjusted cost of sales(2), primarily reflecting an unfavorable change in product mix;

– lower adjusted SI&A expense(2) as a result of benefits from cost-reduction and productivity initiatives partially offset by investments to support several recent product launches; and

– higher adjusted R&D expense(2), primarily due to recently initiated Phase 3 programs for bococizumab, ertugliflozin and certain other new drug candidates as well as for studies of Xeljanz and certain other products in potential new indications.

• The effective tax rate on adjusted income⁽²⁾ was 27.9%, consistent with the prior-year quarter, primarily reflecting the favorable impact of the resolution in second-quarter 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, offset by an unfavorable change in the jurisdictional mix of earnings.
• The diluted weighted-average shares outstanding declined by 673 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, second-quarter 2014 reported earnings were primarily impacted by the following:

Unfavorable impacts:

– the non-recurrence in second-quarter 2014 of income from discontinued operations in the year-ago quarter attributable to the company’s Animal Health business, including the gain associated with the full disposition of Zoetis; and

 – the non-recurrence in second-quarter 2014 of income in the year-ago quarter from a litigation settlement with Teva Pharmaceuticals Industries Ltd. and Sun Pharmaceutical Industries Ltd. for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.

Favorable impacts:

– lower acquisition-related costs, purchase accounting adjustments and asset impairment charges compared to the prior-year quarter; and

 – a lower effective tax rate, primarily due to the favorable impact of the resolution in second-quarter 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, a favorable change in the jurisdictional mix of earnings as well as the non-recurrence of the unfavorable tax liability attributable to the income associated with the aforementioned patent litigation settlement.

RECENT NOTABLE DEVELOPMENTS

Product Developments

• Prevnar 13/Prevenar 13

– Pfizer discussed with the CDC's ACIP at their scheduled June meeting the results of the Community-Acquired Pneumonia Immunization Trial in Adults (CAPiTA) as well as other considerations regarding a potential expanded recommendation for Prevnar 13 use in adults. Pfizer looks forward to continued dialogue with the ACIP as well as its decision on a potential expanded recommendation at a meeting scheduled for August 13, 2014.

 – Pfizer announced that Prevenar 13 was approved in Japan for adults 65 years of age and older for the prevention of pneumococcal disease caused by 13 S. pneumoniae serotypes covered by the vaccine.

• Xeljanz (tofacitinib) -- Pfizer announced positive top-line results from two pivotal Phase 3 clinical trials of tofacitinib in adults with moderate-to-severe chronic plaque psoriasis. Pfizer intends to submit a supplemental New Drug Application (sNDA) to the U.S. Food and Drug Administration (FDA) seeking approval of tofacitinib 5 mg and 10 mg twice-daily for the treatment of adults with moderate-to-severe chronic plaque psoriasis by early 2015.
• Eliquis -- The European Commission approved Eliquis for the treatment of deep vein thrombosis (DVT) and pulmonary embolism (PE), and the prevention of recurrent DVT and PE in adults.
• BeneFIX -- Pfizer announced positive top-line results of a Phase 3 study comparing a prophylaxis regimen of BeneFIX Coagulation Factor IX (Recombinant) 100 IU/kg once-weekly to on-demand treatment in people with moderately severe to severe hemophilia B. The top-line results of the study showed that the primary study endpoint was met and hemophilia B patients taking once-weekly BeneFIX (100 IU/kg) showed a statistically significant reduction in the annualized bleeding rate relative to on-demand treatment with BeneFIX. Adverse events observed in the study, for both the prophylaxis and on-demand periods, were consistent with the known adverse event profile of BeneFIX. Complete results from this study will be submitted for presentation at upcoming medical congresses and submitted for publication in a peer-reviewed journal.
• Embeda -- Pfizer recently received notification from the FDA that the July 2014 Prescription Drug User Fee Act date was extended by three months to October 2014 with respect to an sNDA for Embeda (morphine sulfate and naltrexone hydrochloride) extended-release capsules. Pfizer submitted the sNDA in September 2013 seeking to update the Embeda label to include data from abuse-deterrent studies.
• Celebrex -- In March 2014, the U.S. District Court for the Eastern District of Virginia granted summary judgment invalidating Pfizer's reissue patent (U.S. Patent No. RE44,048), covering methods of treating osteoarthritis and other approved conditions with celecoxib, the active ingredient in Celebrex. Pfizer has appealed this decision. Several generic drug companies previously filed abbreviated new drug applications with the FDA seeking approval to market their generic forms of celecoxib in the U.S. beginning on May 30, 2014, when Pfizer’s basic Celebrex compound patent (including the six-month pediatric exclusivity period) expired. This was 18 months prior to the December 2, 2015 expiration of the reissue patent (including the six-month pediatric exclusivity period). Since the court's decision, Pfizer has entered into settlement agreements with Teva Pharmaceuticals USA, Inc., Watson Laboratories, Inc. (a subsidiary of Actavis plc), and Mylan Pharmaceuticals, Inc. granting them licenses to launch generic versions of celecoxib in the U.S. beginning in December 2014, or earlier under certain circumstances. Under certain conditions, the licenses may be royalty-bearing through the remaining term of the reissue patent. The FDA approved the first generic versions of celecoxib in May 2014.
• Nexium 24HR -- Pfizer introduced Nexium 24HR (esomeprazole, 20 mg) for over-the-counter use in the U.S. for the treatment of frequent heartburn in adults 18 years of age and older. In 2012, Pfizer acquired exclusive global rights from AstraZeneca to market non-prescription Nexium.

Pipeline Developments

• Palbociclib (PD-0332991) -- In June 2014, Pfizer initiated its rolling submission of a New Drug Application (NDA) to the FDA seeking approval for palbociclib, combined with letrozole, as a first-line systemic treatment for post-menopausal women with estrogen receptor positive (ER+), human epidermal growth factor receptor 2 negative (HER2-) locally advanced or metastatic breast cancer. The submission is based on the final results of PALOMA-1, a randomized, Phase 2 clinical trial comparing the combination of palbociclib plus letrozole versus letrozole alone in this population of patients. Pfizer expects to complete its submission in August 2014.
• rLP2086 (Meningococcal Serogroup B Bivalent Recombinant Lipoprotein Vaccine)