================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number 1-1225
September 30, 2004
Wyeth
-----
(Exact name of registrant as specified in its charter)
Delaware 13-2526821
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Giralda Farms, Madison, N.J. 07940
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (973) 660-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
------ --
The number of shares of Common Stock outstanding as of the close of business on
October 29, 2004:
Number of
Class Shares Outstanding
Common Stock, $0.33-1/3 par value 1,334,195,705
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WYETH
INDEX
Page No.
--------
Part I - Financial Information (Unaudited) 2
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 2004 and December 31, 2003 3
Consolidated Condensed Statements of Operations -
Three and Nine Months Ended September 30, 2004
and 2003 4
Consolidated Condensed Statements of Changes in
Stockholders' Equity - Nine Months Ended
September 30, 2004 and 2003 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2004 and 2003 6
Notes to Consolidated Condensed Financial Statements 7-27
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 28-51
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 52
Item 4. Controls and Procedures 52
Part II - Other Information 53
Item 1. Legal Proceedings 53-59
Item 6. Exhibits and Reports on Form 8-K 60
Signature 61
Exhibit Index EX-1
Items other than those listed above have been omitted because they are not
applicable.
1
Part I - Financial Information
------------------------------
WYETH
The consolidated condensed financial statements included herein have been
prepared by Wyeth (the Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations; however,
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the consolidated
condensed financial statements reflect all adjustments, including those that are
normal and recurring, considered necessary to present fairly the financial
position of the Company as of September 30, 2004 and December 31, 2003, the
results of its operations for the three and nine months ended September 30, 2004
and 2003, and changes in stockholders' equity and cash flows for the nine months
ended September 30, 2004 and 2003. It is suggested that these consolidated
condensed financial statements and management's discussion and analysis of
financial condition and results of operations be read in conjunction with the
financial statements and the notes thereto included in the Company's 2003 Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q for the quarters ended March
31, 2004 and June 30, 2004 and information contained in Current Reports on Form
8-K filed since the filing of the 2003 Form 10-K.
We make available through our Company Internet website, free of charge, our
Company filings with the SEC as soon as reasonably practicable after we
electronically file them with, or furnish them to, the SEC. The reports we make
available include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, proxy statements, registration statements, and any
amendments to those documents. The Company's Internet website is www.wyeth.com.
2
WYETH
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
(Unaudited)
September 30, December 31,
2004 2003
------------- ------------
ASSETS
Cash and cash equivalents $4,501,937 $6,069,794
Marketable securities 1,604,109 1,110,297
Accounts receivable less allowances 2,841,429 2,529,613
Inventories:
Finished goods 739,187 821,637
Work in progress 1,312,081 1,141,916
Materials and supplies 333,980 448,631
------------- ------------
2,385,248 2,412,184
Other current assets including deferred taxes 2,721,901 2,840,354
------------- ------------
Total Current Assets 14,054,624 14,962,242
Property, plant and equipment 12,344,109 11,686,252
Less accumulated depreciation 3,373,320 3,025,201
------------- ------------
8,970,789 8,661,051
Goodwill 3,821,152 3,817,993
Other intangibles, net of accumulated amortization
(September 30, 2004-$156,818 and December 31, 2003-$128,137) 225,201 133,134
Other assets including deferred taxes 3,526,946 3,457,502
------------- ------------
Total Assets $30,598,712 $31,031,922
============= ============
LIABILITIES
Loans payable $336,205 $1,512,845
Trade accounts payable 815,211 1,010,749
Dividends payable 306,840 -
Accrued expenses 5,236,305 5,461,835
Accrued federal and foreign taxes 492,458 444,081
------------- ------------
Total Current Liabilities 7,187,019 8,429,510
Long-term debt 7,812,764 8,076,429
Accrued postretirement benefit obligations other than pensions 1,029,339 1,007,540
Other noncurrent liabilities 3,452,839 4,224,062
Contingencies and commitments (Note 7)
STOCKHOLDERS' EQUITY
$2.00 convertible preferred stock, par value $2.50 per share 41 42
Common stock, par value $0.33-1/3 per share 444,685 444,151
Additional paid-in capital 4,782,016 4,764,390
Retained earnings 5,883,159 4,112,285
Accumulated other comprehensive income (loss) 6,850 (26,487)
------------- ------------
Total Stockholders' Equity 11,116,751 9,294,381
------------- ------------
Total Liabilities and Stockholders' Equity $30,598,712 $31,031,922
============= ============
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ --------------------------
2004 2003 2004 2003
---------- ---------- ----------- -----------
Net revenue $4,471,836 $4,081,609 $12,709,830 $11,517,222
---------- ---------- ----------- -----------
Cost of goods sold 1,162,664 1,126,356 3,390,613 3,074,555
Selling, general and administrative expenses 1,419,842 1,313,870 4,201,546 3,967,362
Research and development expenses 525,855 502,758 1,815,412 1,517,123
Interest expense, net 26,585 24,304 85,413 77,182
Other expense (income), net 9,941 (5,732) (117,072) (269,299)
Diet drug litigation charge - 2,000,000 - 2,000,000
Gain on sale of Amgen common stock - - - (860,554)
---------- ---------- ----------- --------
Income (loss) before federal and foreign taxes 1,326,949 (879,947) 3,333,918 2,010,853
Provision (benefit) for federal and foreign taxes (94,343) (453,589) 335,578 294,924
---------- ---------- ----------- -----------
Net income (loss) $1,421,292 $(426,358) $2,998,340 $1,715,929
========== ========== =========== ===========
Basic earnings (loss) per share $1.07 $(0.32) $2.25 $1.29
========== ========== =========== ===========
Diluted earnings (loss) per share $1.06 $(0.32) $2.24 $1.29
========== ========== =========== ===========
Dividends paid per share of common stock $0.23 $0.23 $0.69 $0.69
========== ========== =========== ===========
Dividends declared per share of common stock $0.23 $0.23 $0.92 $0.92
========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Amounts)
(Unaudited)
Nine Months Ended September 30, 2004:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Income (Loss) Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2004 $42 $444,151 $4,764,390 $4,112,285 $(26,487) $9,294,381
Net income 2,998,340 2,998,340
Currency translation adjustments 12,333 12,333
Unrealized gains on derivative contracts, net 31,370 31,370
Unrealized losses on marketable securities, net (10,366) (10,366)
-------------
Comprehensive income, net of tax 3,031,677
-------------
Cash dividends declared (1) (1,226,939) (1,226,939)
Common stock issued for stock options 436 32,992 33,428
Other exchanges (1) 98 (15,366) (527) (15,796)
----------- -------- ---------- ---------- ------------- -------------
Balance at September 30, 2004 $41 $444,685 $4,782,016 $5,883,159 $6,850 $11,116,751
=========== ======== ========== ========== ============= =============
Nine Months Ended September 30, 2003:
$2.00 Accumulated
Convertible Additional Other Total
Preferred Common Paid-in Retained Comprehensive Stockholders'
Stock Stock Capital Earnings Loss Equity
----------- -------- ---------- ---------- ------------- -------------
Balance at January 1, 2003 $46 $442,019 $4,582,773 $3,286,645 $(155,571) $8,155,912
Net income 1,715,929 1,715,929
Currency translation adjustments 413,008 413,008
Unrealized gains on derivative contracts, net 24 24
Unrealized gains on marketable securities, net 2,413 2,413
Realized gain on sale of Amgen stock
reclassified to net income (515,114) (515,114)
-------------
Comprehensive income, net of tax 1,616,260
-------------
Cash dividends declared (2) (1,223,091) (1,223,091)
Common stock issued for stock options 1,807 104,380 106,187
Other exchanges (3) 61 20,177 (2,191) 18,044
----------- -------- ---------- ---------- ------------- -------------
Balance at September 30, 2003 $43 $443,887 $4,707,330 $3,777,292 $(255,240) $8,673,312
=========== ======== ========== ========== ============= =============
(1) Included in cash dividends declared were the following dividends payable at September 30, 2004:
- Common stock cash dividend of $0.23 per share ($306,832 in the aggregate) declared on September 30, 2004 and payable
on December 1, 2004; and
- Preferred stock cash dividends of $0.50 per share ($8 in the aggregate)declared on June 16, 2004 and paid on October 1, 2004.
(2) Included in cash dividends declared were the following dividends payable at September 30, 2003:
- Common stock cash dividend of $0.23 per share ($306,281 in the aggregate) declared on September 25, 2003 and paid
on December 1, 2003; and
- Preferred stock cash dividends of $0.50 per share ($9 in the aggregate) declared on June 25, 2003 and paid on October 1, 2003.
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
WYETH
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months
Ended September 30,
-----------------------------
2004 2003
---------- ----------
Operating Activities
- --------------------
Net income $2,998,340 $1,715,929
Adjustments to reconcile net income to net cash
provided by operating activities:
Diet drug litigation charge - 2,000,000
Gain on sale of Amgen shares - (860,554)
Gains on sales of assets (185,048) (289,561)
Depreciation and amortization 447,564 398,064
Change in deferred income taxes 167,979 (727,809)
Income tax adjustment (407,600) -
Diet drug litigation payments (507,351) (336,059)
Security fund deposit - (535,200)
Changes in working capital, net (631,402) 451,425
Other items, net (24,794) (24,398)
---------- ----------
Net cash provided by operating activities 1,857,688 1,791,837
---------- ----------
Investing Activities
- --------------------
Purchases of property, plant and equipment (869,600) (1,245,673)
Proceeds from sale of Amgen common stock - 1,579,917
Proceeds from sales of assets 348,089 332,956
Proceeds from sales and maturities of marketable securities 1,024,129 775,674
Purchases of marketable securities (1,533,157) (1,059,125)
---------- ----------
Net cash provided by (used for) investing activities (1,030,539) 383,749
---------- ----------
Financing Activities
- --------------------
Net repayments of commercial paper - (2,996,030)
Proceeds from issuance of long-term debt - 1,800,000
Repayments of long-term debt (1,500,000) -
Other borrowing transactions, net (4,899) (25,159)
Dividends paid (920,099) (916,801)
Exercises of stock options 33,428 106,187
---------- ----------
Net cash used for financing activities (2,391,570) (2,031,803)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents (3,436) 19,894
---------- ----------
Increase (decrease) in cash and cash equivalents (1,567,857) 163,677
Cash and cash equivalents, beginning of period 6,069,794 2,943,604
---------- ----------
Cash and cash equivalents, end of period $4,501,937 $3,107,281
========== ==========
Supplemental Information
- ------------------------
Interest payments $256,571 $275,940
Income tax payments, net of refunds 552,834 395,371
The accompanying notes are an integral part of these consolidated condensed financial statements.
6
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
------------------------------------------
The following policies are required interim updates to those disclosed
in Footnote 1 of the 2003 Annual Report on Form 10-K:
Stock-Based Compensation: The Company has three Stock Incentive Plans
that it accounts for using the intrinsic value method in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees. All
options granted under these plans have an exercise price equal to the
market value of the underlying common stock on the date of grant.
Accordingly, no stock-based employee compensation cost is reflected in
net income other than for the Company's restricted stock awards. The
following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, Amendment of SFAS No. 123,
to stock-based employee compensation:
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
(In thousands except per share amounts) 2004 2003 2004 2003
------------------------------------------ ---------- --------- ---------- ----------
Net income (loss), as reported $1,421,292 $(426,358) $2,998,340 $1,715,929
Add: Stock-based employee compensation
expense included in reported net income,
net of tax 5,237 3,725 11,605 11,804
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for all
awards, net of tax (73,787) (81,690) (235,115) (245,322)
---------- --------- ---------- ----------
Adjusted net income (loss) $1,352,742 $(504,323) $2,774,830 $1,482,411
========== ========= ========== ==========
Earnings (loss) per share:
Basic - as reported $1.07 $(0.32) $2.25 $1.29
========== ========= ========== ==========
Basic - adjusted $1.01 $(0.38) $2.08 $1.12
========== ========= ========== ==========
Diluted - as reported $1.06 $(0.32) $2.24 $1.29
========== ========= ========== ==========
Diluted - adjusted $1.01 $(0.38) $2.07 $1.11
========== ========= ========== ==========
7
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Goodwill and Other Intangibles: In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, the changes in the carrying
amount of goodwill by reportable segment for the nine months ended
September 30, 2004 are as follows:
Consumer Animal
(In thousands) Pharmaceuticals Healthcare Health Total
-------------------------------- --------------- ---------- -------- ----------
Balance at December 31, 2003 $2,691,772 $592,526 $533,695 $3,817,993
Currency translation adjustments 3,190 (63) 32 3,159
---------- -------- -------- ----------
Balance at September 30, 2004 $2,694,962 $592,463 $533,727 $3,821,152
========== ======== ======== ==========
The Company's other intangibles consist primarily of license
agreements and acquired patents, which are being amortized over their
estimated useful lives ranging from three to 10 years. Amortization of
intangibles is predominantly recorded within Selling, general and
administrative expenses in the Consolidated Condensed Statements of
Operations and was $7.3 million and $20.4 million for the 2004 third
quarter and first nine months, respectively. During the 2004 third
quarter, the Company acquired certain licenses and patents related to
a product currently marketed by the Company. The cost of $104.6
million has been recorded within Other intangibles and will be
amortized over the respective lives of the license agreements and
patents.
Recently Issued Accounting Standards: On September 30, 2004, the
Emerging Issues Task Force (EITF) reached a final consensus on Issue
04-08, Accounting Issues Related to Certain Features of Contingently
Convertible Debt and the Effect on Diluted Earnings Per Share (EITF
No. 04-08), which would amend the guidance in SFAS No. 128, Earnings
Per Share currently followed for diluted earnings per share (EPS)
calculations. EITF No. 04-08 will require contingently convertible
debt instruments with a market price contingency, such as the
Company's outstanding $1,020.0 million aggregate principal amount of
Floating Rate Convertible Senior Debentures due 2024, to be treated
the same as traditional convertible debt instruments for EPS purposes
(i.e., using the "if-converted" method). Traditional convertible debt
reflects shares in diluted EPS (if dilutive) even if the stock price
is below the conversion price. EITF No. 04-08 is effective for all
periods ending after December 15, 2004 with restatement of previously
reported diluted EPS calculations. Application of this EITF is
expected to result in the inclusion of an additional 16,890,180 shares
outstanding, or 1.0% to 1.3% of total shares outstanding, for purposes
of calculating the Company's 2004 full year diluted earnings per
share.
8
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Earnings (Loss) per Share
-------------------------
The following table sets forth the computations of basic earnings
(loss) per share and diluted earnings (loss) per share:
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
(In thousands except per share amounts) 2004 2003 2004 2003
------------------------------------------ ---------- --------- ---------- ----------
Net income (loss) less preferred dividends $1,421,292 $(426,358) $2,998,316 $1,715,902
Denominator:
Weighted average common shares
outstanding 1,333,866 1,331,958 1,333,434 1,329,492
---------- --------- ---------- ---------
Basic earnings (loss) per share $1.07 $(0.32) $2.25 $1.29
========== ========= ========== ==========
Net income (loss) $1,421,292 $(426,358) $2,998,340 $1,715,929
Denominator:
Weighted average common shares
outstanding 1,333,866 1,331,958 1,333,434 1,329,492
Common stock equivalents of
outstanding stock options and
deferred contingent common stock
awards* 3,082 - 3,848 5,823
---------- --------- ---------- ----------
Total shares* 1,336,948 1,331,958 1,337,282 1,335,315
---------- --------- ---------- ----------
Diluted earnings (loss) per share* $1.06 $(0.32) $2.24 $1.29
========== ========= ========== ==========
* At September 30, 2004 and 2003, approximately 124,261 and 85,809
of common shares, respectively, related to options outstanding
under the Company's Stock Incentive Plans were excluded from the
computation of diluted earnings (loss) per share, as the effect
would have been antidilutive.
9
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Marketable Securities
---------------------
The Company has marketable debt and equity securities, which are
classified as either available-for-sale or held-to-maturity, depending
on management's investment intentions at the time of purchase relating
to these securities.
The cost, gross unrealized gains (losses) and fair value of
available-for-sale and held-to-maturity securities by major security
type at September 30, 2004 and December 31, 2003 were as follows:
Gross Gross
(In thousands) Unrealized Unrealized Fair
At September 30, 2004 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $72,370 $19 $(386) $72,003
Commercial paper 45,508 - (3) 45,505
Certificates of deposit 77,194 6 (89) 77,111
Corporate debt securities 199,308 121 (108) 199,321
Other debt securities 4,373 - (11) 4,362
Equity securities 47,875 7,932 (8,622) 47,185
Institutional fixed income fund 531,427 15,990 - 547,417
---------- ---------- ---------- ----------
Total available-for-sale 978,055 24,068 (9,219) 992,904
---------- ---------- ---------- ----------
Held-to-maturity:
U.S. Treasury securities $6,809 - - $6,809
Commercial paper 560,266 - - 560,266
Certificates of deposit 42,130 - - 42,130
Other debt securities 2,000 - - 2,000
---------- ---------- ---------- ----------
Total held-to-maturity 611,205 - - 611,205
---------- ---------- ---------- ----------
$1,589,260 $24,068 $(9,219) $1,604,109
========== ========== ========== ==========
Gross Gross
(In thousands) Unrealized Unrealized Fair
At December 31, 2003 Cost Gains (Losses) Value
---------------------------------- ---------- ---------- ---------- ----------
Available-for-sale:
U.S. Treasury securities $152,851 $44 $(23) $152,872
Commercial paper 42,964 4 (4) 42,964
Certificates of deposit 63,643 22 (27) 63,638
Corporate debt securities 212,198 252 (32) 212,418
Other debt securities 4,296 - (11) 4,285
Equity securities 21,078 13,158 (188) 34,048
Institutional fixed income fund 522,847 16,868 - 539,715
---------- ---------- ---------- ----------
Total available-for-sale 1,019,877 30,348 (285) 1,049,940
---------- ---------- ---------- ----------
Held-to-maturity:
Commercial paper 60,107 - - 60,107
Certificates of deposit 250 - - 250
---------- ---------- ---------- ----------
Total held-to-maturity 60,357 - - 60,357
---------- ---------- ---------- ----------
$1,080,234 $30,348 $(285) $1,110,297
========== ========== ========== ==========
10
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The contractual maturities of debt securities classified as
available-for-sale at September 30, 2004 were as follows:
Fair
(In thousands) Cost Value
---------------------------------------- -------- --------
Available-for-sale:
Due within one year $220,182 $220,028
Due after one year through five years 161,973 161,699
Due after five years through 10 years 2,598 2,568
Due after 10 years 14,000 14,007
-------- --------
$398,753 $398,302
======== ========
All held-to-maturity debt securities are due within one year and had
aggregate fair values of $611.2 million at September 30, 2004.
Note 4. New Credit Facility
-------------------
In February 2004, the Company replaced its $1,350.0 million, 364-day
credit facility entered into in March 2003 with a $1,747.5 million,
five-year facility. The new facility contains substantially identical
financial and other covenants, representations, warranties, conditions
and default provisions as the replaced facility.
11
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Pensions and Other Postretirement Benefits
------------------------------------------
In accordance with SFAS No. 132 (revised 2003), Employers' Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statement Nos. 87, 88, and 106, the following pension and other
postretirement benefit plan disclosures are now required in interim
financial statements.
Net periodic benefit cost for the Company's defined benefit plans for
the three and nine months ended September 30, 2004 and 2003
(principally for the U.S.) was as follows:
Pensions
-----------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
(In thousands) ------------------- ---------------------
Components of Net Periodic Benefit Cost 2004 2003 2004 2003
--------------------------------------- ------- ------- -------- --------
Service cost $36,980 $29,837 $110,523 $89,217
Interest cost 64,187 62,211 192,376 186,646
Expected return on plan assets (77,607) (67,610) (232,754) (202,656)
Amortization of prior service cost 2,834 2,761 8,511 8,276
Amortization of transition obligation (398) (388) (1,225) (1,140)
Recognized net actuarial loss 25,066 26,071 75,220 78,199
Settlement loss - - - 13,034
------- ------- -------- --------
Net periodic benefit cost $51,062 $52,882 $152,651 $171,576
======= ======= ======== ========
Other Postretirement Benefits
----------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
(In thousands) ------------------- --------------------
Components of Net Periodic Benefit Cost 2004 2003 2004 2003
--------------------------------------- ------- ------- ------- --------
Service cost $8,560 $9,525 $30,255 $28,564
Interest cost 18,256 23,574 64,429 70,692
Amortization of prior service cost (3,325) (562) (11,512) (1,687)
Recognized net actuarial loss 4,144 4,676 15,755 14,023
------- ------- ------- --------
Net periodic benefit cost $27,635 $37,213 $98,927 $111,592
======= ======= ======= ========
As of September 30, 2004, $258.0 million and $77.9 million of
contributions have been made in 2004 to the Company's defined benefit
pension plans and other postretirement benefit plans, respectively.
The Company presently anticipates total contributions to be made
during 2004 to fund its defined benefit pension and other
postretirement benefit plans will approximate $265.0 million and $90.0
million, respectively.
The Financial Accounting Standards Boards (FASB) Staff Position No.
106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, was
recently issued to provide guidance on the accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the Medicare Act). The Medicare Act provides for a federal
subsidy to sponsors of retiree health care benefit plans that provide
a benefit that is at
12
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
least actuarially equivalent to Medicare Part D. The federal subsidy
is based on 28% of an individual beneficiary's annual prescription
drug costs between $250 and $5,000 (subject to indexing and the
provisions of the Medicare Act as to "allowable retiree costs"). Wyeth
provides prescription drug coverage to retirees meeting certain age
and service requirements. For retirees covered under the plan, the
Company's management believes the coverage provided by Wyeth affords
retirees lower out-of-pocket costs than would result if coverage were
provided under Medicare Part D. As such, the Company's management has
concluded that Wyeth's plan is at least actuarially equivalent to
Medicare Part D.
The Company adopted FASB Staff Position No. 106-2 during the 2004
second quarter. Accordingly, the Company's postretirement benefit
obligation has been remeasured as of January 1, 2004 in order to
reflect the impact of the Medicare Act. As a result of the
remeasurement, an unrecognized actuarial gain was realized during the
2004 second quarter, which reduced the Company's accumulated
postretirement benefit obligation by approximately $195.4 million.
This unrecognized actuarial gain is being amortized over the average
working life (which approximates 10 years) of the Company's employees
eligible for postretirement benefits beginning January 1, 2004. The
effect of the Medicare Act decreased the Company's 2004 third quarter
and first nine months postretirement benefits expense by approximately
$7.7 million and $23.1 million, respectively.
Note 6. Restructuring Program
---------------------
2003 Restructuring Charge and Related Asset Impairments
In December 2003, the Company recorded a special charge for
manufacturing restructurings and related asset impairments of $487.9
million. The Company recorded these restructuring charges, including
personnel and other costs, in accordance with SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, and its asset
impairments in accordance with SFAS No. 144, Accounting for the
Impairment of Long-Lived Assets. The restructuring charges and related
asset impairments impacted only the Pharmaceuticals segment and were
recorded to recognize the costs of closing certain manufacturing
facilities, as well as the elimination of certain positions at the
Company's facilities. Payments of $15.3 million and $38.6 million were
made in the 2004 third quarter and first nine months, respectively. As
of September 30, 2004, the 2003 restructuring reserve balance of $27.2
million consists primarily of contract settlement costs, which, based
on the contractual terms of the agreements, will be paid through 2005.
2002 Restructuring Charge and Related Asset Impairments
In December 2002, the Company recorded a special charge for
restructuring and related asset impairments of $340.8 million to
recognize the costs of closing certain
13
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
manufacturing facilities and two research facilities, as well as the
elimination of certain positions at the Company's facilities. The
Company recorded these asset impairments in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
and its restructuring charges, including personnel and other costs, in
accordance with EITF No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
The restructuring resulted in the elimination of approximately 3,150
positions worldwide. As of September 30, 2004, the Company is
continuing with the 2002 restructuring program. The timing of the
remaining personnel costs to be paid has been delayed since, in many
instances, the terminated employees elected or were required to
receive their severance payments over an extended period of time.
However, substantially all of the payments are expected to be made
during 2004. The activity in the restructuring accruals was as
follows:
Payments/
Reserve at Non-cash Reserve at
(In thousands) Total December 31, Charges September 30,
2002 Restructuring Charges 2003 in 2004 2004
------------------------ -------- ------------ --------- -------------
Personnel costs $194,600 $36,800 $(20,400) $16,400
Asset impairments 68,700 - - -
Other closure/exit costs 77,500 27,900 (15,000) 12,900
-------- ------------ --------- -------------
$340,800 $64,700 $(35,400) $29,300
======== ============ ========= =============
Note 7. Contingencies and Commitments
-----------------------------
The Company is involved in various legal proceedings, including
product liability and environmental matters, of a nature considered
normal to its business. It is the Company's policy to accrue for
amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability
of the Company in connection with its legal proceedings (other than
the diet drug litigation discussed immediately below) will not have a
material adverse effect on the Company's financial position but could
be material to the results of operations or cash flows in any one
accounting period.
The Company has been named as a defendant in numerous legal actions
relating to the diet drugs PONDIMIN (which in combination with
phentermine, a product that was not manufactured, distributed or sold
by the Company, was commonly referred to as "fen-phen") or REDUX,
which the Company estimated were used in the United States, prior to
their 1997 voluntary market withdrawal, by approximately 5.8 million
people. These
14
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
actions allege, among other things, that the use of REDUX and/or
PONDIMIN, independently or in combination with phentermine, caused
certain serious conditions, including valvular heart disease.
On October 7, 1999, the Company announced a nationwide class action
settlement (the settlement) to resolve litigation brought against the
Company regarding the use of the diet drugs REDUX or PONDIMIN. The
settlement covered all claims arising out of the use of REDUX or
PONDIMIN, except for claims of primary pulmonary hypertension (PPH),
and was open to all REDUX or PONDIMIN users in the United States.
The number of individuals who have filed claims within the settlement
that allege significant heart valve disease (known as "matrix" claims)
has been higher than had been anticipated. The settlement agreement
grants the Company access to claims data maintained by the settlement
trust (the Trust). Based on its review of that data, the Company
understands that, as of October 13, 2004, the Trust had recorded
approximately 117,370 matrix claim forms. Approximately 31,880 of
these forms were so deficient, incomplete or duplicative of other
forms filed by the same claimant that, in the Company's view, it is
unlikely that a significant number of these forms will result in
further claims processing.
The Company's understanding of the status of the remaining
approximately 85,490 forms, based on its analysis of data received
from the Trust through October 13, 2004, is as follows. Approximately
19,775 of the matrix claims had been processed to completion, with
those claims either paid (approximately 3,620 payments, totaling
$1,314.3 million, had been made to approximately 3,430 claimants),
denied or in show cause proceedings (approximately 14,510) or
withdrawn. Approximately 2,415 claims were in some stage of the 100%
audit process ordered in late 2002 by the federal court overseeing the
national settlement. Approximately 17,140 claims alleged conditions
that, if true, would entitle the claimant to receive a matrix award;
these claims had not yet entered the audit process. Another
approximately 23,775 claims with similar allegations have been
purportedly substantiated by physicians or filed by law firms whose
claims are now subject to the outcome of the Trust's Claims Integrity
Program, discussed below. Approximately 22,210 claim forms did not
contain sufficient information even to assert a matrix claim, although
some of those claim forms could be made complete by the submission of
additional information and could therefore become eligible to proceed
to audit in the future. The remaining approximately 175 claims were in
the data entry process and could not be assessed.
In addition to the approximately 117,370 matrix claims filed as of
October 13, 2004, additional class members may progress to the matrix
stage through 2015 if they develop a matrix condition in the future,
have registered with the Trust by May 3, 2003, and have demonstrated
FDA+ regurgitation (i.e., mild or greater aortic regurgitation, or
moderate or greater mitral regurgitation) or mild mitral regurgitation
on an echocardiogram conducted after diet drug use and obtained either
outside of the Trust by January 3, 2003
15
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
or within the Trust's screening program. Once a claimant has
demonstrated a matrix condition, the claimant may progress to advanced
levels of the matrix beyond 2015.
The Company's understanding, based on data received from the Trust
through October 13, 2004, is that audits had produced preliminary or
final results on 4,501 of the claims that had begun the 100% audit
process since its inception. Of these, 1,625 were found to be payable
at the amount claimed and 147 were found to be payable at a lower
amount than had been claimed. The remaining claims were found
ineligible for a matrix payment, although the claimants may appeal
that determination to the federal court overseeing the settlement.
Because of numerous issues concerning the audit process raised in
motions and related proceedings now pending before the federal court,
the Company cannot predict the ultimate outcome of the audit process.
Both the volume and types of claims seeking matrix benefits received
by the Trust to date differ materially from the epidemiological
projections on which the court's approval of the settlement agreement
was predicated. Based upon data received from the Trust, approximately
94% of the approximately 17,140 matrix claimants who allege conditions
that, if true, would entitle them to an award (and approximately 99%
of the approximately 23,775 claims certified by physicians and/or law
firms currently subject to the Trust's Claims Integrity Program) seek
an award under Level II of the five-level settlement matrix. (Level II
covers claims for moderate or severe mitral or aortic valve
regurgitation with complicating factors; depending upon the claimant's
age at the time of diagnosis, and assuming no factors are present that
would place the claim on one of the settlement's reduced payment
matrices, awards under Level II range from $199,872 to $669,497 on the
settlement agreement's current payment matrix.)
An investigation that the Company understands was conducted by counsel
for the Trust and discovery conducted to date by the Company in
connection with certain Intermediate and Back-End opt out cases
(brought by some of the same lawyers who have filed these Level II
claims and supported by some of the same cardiologists who have
certified the Level II claims) cast substantial doubt on the merits of
many of these matrix claims and their eligibility for a matrix payment
from the Trust. Therefore, in addition to the 100% audit process, the
Trust has embarked upon a Claims Integrity Program, which is designed
to protect the Trust from paying illegitimate or fraudulent claims.
Pursuant to the Claims Integrity Program, the Trust has required
additional information concerning matrix claims purportedly
substantiated by 18 identified physicians or filed by two law firms in
order to determine whether to permit those claims to proceed to audit.
Based upon data obtained from the Trust, the Company believes that
approximately 23,775 matrix claims were purportedly substantiated by
the 18 physicians and/or filed by the two law firms covered by the
Claims Integrity Program as of October 13, 2004. It is the Company's
understanding that additional claims substantiated by additional
physicians or filed by additional law firms might be subjected to the
same requirements of the Claims Integrity Program in the future. As an
initial step in the integrity review process, each of the identified
physicians has been asked to complete a
16
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
comprehensive questionnaire regarding each claim and the method by
which the physician reached the conclusion that it was valid. The
ultimate disposition of any or all claims that are subject to the
Claims Integrity Program is at this time uncertain. Counsel for
certain claimants affected by the program have challenged the Trust's
authority to implement the Claims Integrity Program and to require
completion of the questionnaire before determining whether to permit
those claims to proceed to audit. While that motion was denied by the
court, additional challenges to the Claims Integrity Program and to
the Trust's matrix claim processing have been filed.
In late 2003, the Trust adopted a program to prioritize the handling
of those matrix claims that it believed were least likely to be
illegitimate. Under the program, claims under Levels III, IV and V
were to be processed and audited on an expedited basis. (Level III
covers claims for heart valve disease requiring surgery to repair or
replace the valve, or conditions of equal severity. Levels IV and V
cover complications from, or more serious conditions than, heart valve
surgery.) The program also prioritized the processing and auditing of,
inter alia, Level I claims, all claims filed by a claimant without
counsel (i.e., on a pro se basis) and Level II claims substantiated by
physicians who have attested to fewer than 20 matrix claims.
On April 15, 2004, the Trust announced that it would indefinitely
suspend the payment and processing of claims for Level I and Level II
matrix benefits. The Trust stated that it would continue to initiate
audits with respect to Level III, IV and V matrix claims and would
continue to act on the results of audits of Level III, IV and V
claims. It also announced that "[d]ue to concerns about the manner in
which echocardiograms have been taken, recorded and presented, the
Trust is reviewing all echocardiograms and related materials prior to
payment of claims on which they are based and, where possible, prior
to initiation of a medical audit. This will result in a temporary
delay in initiating audits and in payments following audit. Where the
review of the echocardiogram reveals substantial evidence of an
intentional, material misrepresentation that calls into question the
validity of a claim, the Trust will not pay the claim."
In a joint motion filed in the U.S. District Court for the Eastern
District of Pennsylvania on May 4, 2004, the Company, counsel for the
plaintiff class in the nationwide settlement and counsel for a number
of individual class members moved to stay for 60 days the processing
and payment of Level I and Level II matrix claims and certain
associated court proceedings. That motion was granted by the court on
May 10, 2004. The stay was intended to provide the parties with an
opportunity to draft and submit to the court a Seventh Amendment to
the settlement agreement that would create a new claims processing
structure, funding arrangement and payment schedule for these claims.
The stay was eventually extended beyond its original expiration date,
July 9, 2004, until August 10, 2004. On August 10, 2004, the parties
filed a joint motion seeking preliminary approval of the proposed
Seventh Amendment. By the terms of the court's orders, the filing
automatically extended the stay of Level I and Level II claim
processing until the court granted or denied preliminary approval.
17
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On August 26, 2004, United States District Judge Harvey Bartle III
granted the motion for preliminary approval of the proposed Seventh
Amendment. In addition to other terms of the court's order, the order
directed that notice of the Seventh Amendment be provided to
potentially affected class members beginning on September 10, 2004 (to
be completed by September 15, 2004), established November 9, 2004 as
the date by which class members could opt out of the proposed Seventh
Amendment (and remain bound by the original settlement terms), or
object to it, and scheduled a fairness hearing for January 18, 2005.
Pursuant to the terms of the proposed Seventh Amendment, the Company
retains the right to withdraw from the Seventh Amendment if
participation by class members is inadequate or for any other reason.
The Company must do so within 60 days of the end of the opt
out/objection period (i.e., by January 8, 2005).
If approved by the court following the fairness hearing and upheld on
any appeals that might be taken, the proposed Seventh Amendment would
include the following key terms:
o The amendment would create a new Supplemental Fund, to be
administered by a Fund Administrator who will be appointed
by the District Court and who will process the Level I and
Level II matrix claims;
o After trial court approval, the Company would make initial
payments of up to $50.0 million to facilitate the
establishment of the Supplemental Fund and to begin
reviewing claims. Following approval by the federal court
overseeing the settlement and any appellate courts, the
Company would make an initial payment of $400.0 million to
enable the Supplemental Fund to begin paying claims. The
timing of additional payments would be dictated by the rate
of review and payment of claims by the Fund Administrator.
The Company would ultimately deposit a total of $1,275.0
million, net of certain credits, into the Supplemental Fund;
o All current matrix Level I and II claimants who qualify
under the Seventh Amendment, who pass the Settlement Fund's
medical review and who otherwise satisfy the requirements of
the settlement would receive a pro rata share of the
$1,275.0 million Supplemental Fund, after deduction of
certain expenses and other amounts from the Supplemental
Fund. The pro rata amount would vary depending upon the
number of claimants who pass medical review, the nature of
their claims, their age and other factors. A Seventh
Amendment participant who does not qualify for a payment
after such medical review would be paid $2,000 from the
Supplemental Fund;
o Participating class members who might in the future have
been eligible to file Level I and Level II matrix claims
would be eligible to receive a $2,000 payment from the
settlement Trust; such payments would be funded by the
Company apart from its other funding obligations under the
national settlement;
o If the participants in the Seventh Amendment have heart
valve surgery or other more serious medical conditions on
Matrix Levels III through V by the earlier of fifteen years
from the date of their last diet drug ingestion or by
December 31, 2011, they would remain eligible to submit
claims to the existing settlement Trust
18
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
and be paid the current matrix amounts if they qualify for
such payments under terms modified by the Seventh Amendment.
In the event the existing settlement Trust is unable to pay
those claims, the Company would guarantee payment; and
o All class members who participate in the Seventh Amendment
would give up any further opt out rights. Approval of the
Seventh Amendment would also preclude any lawsuits by the
Trust or the Company to recover any amounts previously paid
to class members by the Trust, as well as terminate the
Claims Integrity Program as to all claimants who do not opt
out of the Seventh Amendment.
There can be no assurance that the Company will ultimately proceed
with the amendment (based upon the level of participation in the
amendment or for other reasons), or that the amendment will be
approved by the court and upheld on appeal.
The Trust has indicated that one of the goals of the Claims Integrity
Program referenced above is to recoup funds from those entities that
caused the Trust to pay illegitimate claims and the Trust has filed
two lawsuits to that end. The Trust has filed a suit alleging
violations of the Racketeer Influenced and Corrupt Organizations
(RICO) Act against a Kansas City cardiologist who attested under oath
to the validity of over 2,500 matrix claims. The suit alleges that the
cardiologist intentionally engaged in a pattern of racketeering
activity to defraud the Trust. The Trust has also filed a lawsuit
against a New York cardiologist who attested under oath to the
validity of 83 matrix claims, alleging that the cardiologist engaged
in, among other things, misrepresentation, fraud, conspiracy to commit
fraud, and gross negligence.
The Trust has filed a number of motions directed at the conduct of the
companies that performed the echocardiograms on which many matrix
claims are based. In a pair of motions related to the activities of a
company known as EchoMotion, the Trust has asked the court to stay
payment of claims already audited and found payable in whole or in
part if the echocardiogram was performed by EchoMotion and to
disqualify all echocardiograms by EchoMotion that have been used to
support matrix claims that have not yet been audited. In addition, the
Trust has filed a motion seeking discovery of 14 specific companies
whose echocardiograms support a large number of claims to determine
whether their practices violate the settlement. The Trust has also
moved to stay and/or disqualify claims brought by claimants
represented by certain law firms or attested to by certain physicians.
The Company has joined in certain of these motions and has filed its
own motions addressing the abuse of the matrix claims process and
seeking an emergency stay of claim processing. All of these motions,
as well as the Trust lawsuits referenced above, have also been stayed
pending the resolution of the outstanding issues involving the
proposed Seventh Amendment. As indicated above, approval of the
Seventh Amendment would result in the withdrawal of these motions as
to claimants who do not opt out of the Seventh Amendment.
The order entered by the District Court on August 26, 2004 that
preliminarily approved the proposed Seventh Amendment also stayed
certain matrix claim processing and certain aspects of the Claims
Integrity Program, as specified in that order. The order stays the
19
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
processing of all claims for Matrix Level I and Level II benefits
(except such claims that have been the subject of a Trust
determination after audit as of a specified date) until the end of the
opt out/objection period (i.e., January 8, 2005), and thereafter for
all claimants who participate in the Seventh Amendment. In addition,
the order stays the Claims Integrity Program as to all Class Members
who are eligible to participate in the Seventh Amendment until the end
of the opt out/objection period (i.e., January 8, 2005), and
thereafter for all such claimants who participate in the Seventh
Amendment. This stay of the Claims Integrity Program does not prohibit
the Trust from investigating whether there have been any material
misrepresentations of fact in connection with claims for Level III
through V Matrix benefits, as described in the order. The order
further stays the motions described in the previous paragraph and the
two lawsuits against physicians brought by the Trust that are
described above, as well as any future legal actions similar to those
two lawsuits, as defined in the Seventh Amendment. All of these stays
will be discontinued if Wyeth decides to withdraw from the Seventh
Amendment or the Seventh Amendment is not approved by the court and
upheld on appeal.
Certain Level I and Level II claims that had been found to have a
reasonable medical basis following a Trust audit that was conducted
prior to May 6, 2004 will continue to be processed as set forth in a
District Court order also dated August 26, 2004. The Claims Integrity
Program is stayed as to these claims, except that the Trust will have
the right to investigate whether there has been intentional
manipulation of the claim, as defined in that order.
The Company continues to monitor the progress of the Trust's audit
process and its Claims Integrity Program. Even if substantial progress
is made by the Trust, through its Claims Integrity Program or other
means, in reducing the number of illegitimate matrix claims, a
significant number of the claims which proceed to audit might be
interpreted as satisfying the matrix eligibility criteria,
notwithstanding the possibility that the claimants may not in fact
have serious heart valve disease. If so, notwithstanding any agreement
to, or approval of, the Seventh Amendment described above, matrix
claims found eligible for payment after audit may cause total payments
to exceed the $3,750.0 million cap of the settlement fund.
Should the settlement fund be exhausted, most of the matrix claimants
who filed their matrix claims on or before May 3, 2003 and who pass
the audit process at a time when there are insufficient funds to pay
their claims may pursue an additional opt out right created by the
Sixth Amendment to the settlement agreement, unless the Company first
elects, in its sole discretion, to pay the matrix benefit after audit.
Sixth Amendment opt out claimants may then sue the Company in the tort
system, subject to the settlement's limitations on such claims. In
addition to the limitations on all Intermediate and Back-End opt outs
(such as the prohibition on seeking punitive damages and the
requirement that the claimant sue only on the valve condition that
gave rise to the claim), a Sixth Amendment opt out may not sue any
defendant other than the Company and may not join his or her claim
with the claim of any other opt out. The Company cannot predict the
ultimate number of individuals who might be in a position to elect a
Sixth Amendment
20
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
opt out or who may in fact elect to do so, but that number could be
substantial. Several class members affected by the terms of the Sixth
Amendment opposed the approval of the amendment on the ground that,
should the settlement fund be exhausted, they should be entitled to
pursue tort claims, including a claim for punitive damages, without
the limitations imposed by the Sixth Amendment. The District Court
overruled those objections and approved the amendment. The District
Court's order approving the Sixth Amendment has been affirmed by the
United States Court of Appeals for the Third Circuit.
Some individuals who registered to participate in the settlement by
May 3, 2003, who had been diagnosed with either FDA+ level
regurgitation or mild mitral regurgitation on an echocardiogram
completed after diet drug use and conducted either outside of the
settlement prior to January 3, 2003 or within the settlement's
screening program, and who subsequently develop (at any time before
the end of 2015) a valvular condition that would qualify for a matrix
payment may elect to pursue a Back-End opt out. Such individuals may
pursue a Back-End opt out within 120 days of the date on which they
first discover or should have discovered their matrix condition. The
Company cannot predict the ultimate number of individuals who may be
in a position to elect a Back-End opt out or who may in fact elect to
do so, but that number could also be substantial.
The Company's current understanding is that approximately 76,000
Intermediate opt out forms were submitted by May 3, 2003, the
applicable deadline for most class members (other than qualified class
members receiving echocardiograms through the Trust after January 3,
2003, who may exercise Intermediate opt out rights within 120 days
after the date of their echocardiogram). The number of Back-End opt
out forms received as of October 27, 2004 is estimated to be
approximately 20,000, although certain additional class members may
elect to exercise Back-End opt out rights in the future (under the
same procedure as described above) even if the settlement fund is not
exhausted. After eliminating forms that are duplicative of other
filings, forms that are filed on behalf of individuals who have
already either received payments from the Trust or settlements from
the Company, and forms that are otherwise invalid on their face, it
appears that approximately 77,000 individuals had filed Intermediate
or Back-End opt out forms as of October 27, 2004.
Purported Intermediate or Back-End opt outs (as well as Sixth
Amendment opt outs) who meet the settlement's medical eligibility
requirements may pursue lawsuits against the Company, but must prove
all elements of their claims - including liability, causation and
damages - without relying on verdicts, judgments or factual findings
made in other lawsuits. They also may not seek or recover punitive,
exemplary or multiple damages and may sue only for the valvular
condition giving rise to their opt out right. To effectuate these
provisions of the settlement, the federal court overseeing the
settlement had issued orders in several cases limiting the evidence
that could be used by plaintiffs in such cases. Those orders, however,
were challenged on appeal and were reversed by a panel of the U.S.
Court of Appeals for the Third Circuit in May 2004. The Company's
petition to the Third Circuit for a rehearing or rehearing en banc was
subsequently
21
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
denied, as was the Company's petition to the United States Supreme
Court for a writ of certiorari. The federal court overseeing the
settlement has issued revised injunctions requiring some of plaintiffs
subject to the earlier injunctions to litigate damages in a separate
initial trial, with a subsequent trial on liability. That court has
declined to impose such a requirement on a class-wide basis, at least
at this time. The plaintiffs affected by those revised injunctions
have filed an appeal with the United States Court of Appeals for the
Third Circuit.
In addition to the specific matters discussed herein, the federal
court overseeing the national settlement has issued rulings concerning
the processing of matrix claims that are being challenged on appeal.
The United States Court of Appeals for the Third Circuit has postponed
deciding those appeals pending decision on whether the proposed
Seventh Amendment would be approved, and the appealing plaintiffs have
agreed to dismiss those appeals in the event of such approval. Certain
class members have also filed a number of motions and lawsuits
attacking both the binding effect of the settlement and the
administration of the Trust, some of which have been decided against
class members and are currently on appeal. The Company cannot predict
the outcome of any of these motions or lawsuits.
As of October 27, 2004, approximately 63,000 individuals who had filed
Intermediate or Back-End opt out forms had served lawsuits on the
Company. The claims of approximately 50% of the plaintiffs in the
Intermediate and Back-End opt out cases served on the Company are
pending in federal court, with approximately 40% pending in state
courts. The claims of approximately 10% of the Intermediate and
Back-End opt out plaintiffs have been removed from state courts to
federal court, but are still subject to a possible remand to state
court. In addition, a large number of plaintiffs have asked the United
States Court of Appeals for the Third Circuit to review and reverse
orders entered by the federal court overseeing the settlement which
had denied the plaintiffs' motions to remand their cases to state
court. The appellate court has not determined whether or not it will
hear that challenge.
The Company expects to vigorously challenge all Intermediate and
Back-End opt out claims of questionable validity or medical
eligibility and a number of cases have already been dismissed on
eligibility grounds. However, the total number of filed lawsuits that
meet the settlement's opt out criteria will not be known for some
time. As a result, the Company cannot predict the ultimate number of
purported Intermediate or Back-End opt outs that will satisfy the
settlement's opt out requirements, but that number could be
substantial. As to those opt outs who are found eligible to pursue a
lawsuit, the Company also intends to vigorously defend these cases. As
of October 27, 2004, approximately 1,700 Intermediate or Back-End opt
out plaintiffs have had their lawsuits dismissed for procedural or
medical deficiencies or for various other reasons.
The Company has resolved the claims of all but a small percentage of
the "initial" opt outs (i.e., those individuals who exercised their
right to opt out of the settlement class)
22
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
and continues to work toward resolving the rest. The Company intends
to vigorously defend those initial opt out cases that cannot be
resolved prior to trial.
In addition to verdicts previously reported, on August 12, 2004, a
Philadelphia jury in the Pennsylvania Court of Common Pleas, First
Judicial District, hearing the Back-End opt out cases of Steward v.
Wyeth, et al., No. 021002340, Ford v. Wyeth, et al., No. 020704036,
Hargrove v. Wyeth, et al., No. 020800684, and Nixon v. Wyeth, et al.,
No. 021101759 returned a defense verdict, finding that plaintiffs had
not been damaged by their use of PONDIMIN and/or REDUX and that the
Company had not been negligent in its marketing of PONDIMIN or REDUX.
On August 20, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the Intermediate opt
out cases of Bernston v. Wyeth, et al., No. 021202304, and Connell v.
Wyeth, et al., No. 021202454, returned a verdict finding that
plaintiff Bernston had not been damaged by her use of PONDIMIN and
that plaintiff Connell had been damaged in the amount of $50,000 by
the use of PONDIMIN and REDUX. The Bernston case was thereupon
dismissed and the parties resolved the Connell case. On October 22,
2004, a Philadelphia jury in the Pennsylvania Court of Common Pleas,
First Judicial District, hearing the Intermediate opt out cases of
Feagins v. Wyeth, et al., No. 021202424, and Dupree v. Wyeth, et al.,
No. 021202429, returned a verdict finding that plaintiff Feagins had
not been damaged by her use of PONDIMIN and that plaintiff Dupree had
been damaged in the amount of $41,195.12 by the use of PONDIMIN. The
Feagins case was thereupon dismissed; the Company agreed not to
contest liability in the Dupree case, but may pursue an appeal. On
October 27, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the Back-End opt out
cases of Fernandez v. Wyeth, et al., No. 020704037, Joel Taylor v.
Wyeth, et al., No. 020802581, and Ruby Taylor v. Wyeth, et al., No.
021102104, returned a verdict finding that plaintiffs Joel Taylor and
Ruby Taylor had not been damaged by their use of PONDIMIN and that
plaintiff Fernandez had been damaged in the amount of $50,000 by her
use of PONDIMIN. The two Taylor cases were thereupon dismissed and the
parties resolved the Fernandez case. On November 2, 2004, a Norwalk,
California jury in the California Superior Court, Los Angeles County,
hearing the Intermediate opt out case of Hines v. Wyeth, et al., No.
DD001645, returned a verdict finding that plaintiff had been damaged
in the amount of $115,000 by his use of PONDIMIN. The
Bernston/Connell, Feagins/Dupree, Fernandez/Taylor, and Hines cases
were tried under a reverse bifurcation procedure, in which the parties
first try the issue of the plaintiff's alleged injury and damages, and
only proceed to a trial of the Company's liability for the jury's
award if any damages are found. Because no damages were found in the
Bernston, Feagins and two Taylor cases, because the Connell,
Fernandez, and Hines cases were resolved after the damages phase and
because the Company did not contest liability in the Dupree case, none
of these cases proceeded to the liability phase.
On October 6, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the combined
Intermediate opt out cases of Hansen v. Wyeth, et al., No. 021201063,
Jensen v. Wyeth, et al., No 0021201202, Hill v. Wyeth, et al., No.
021201207, and McMurdie v. Wyeth, et al., No. 021201386, in a reverse
23
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
bifurcation format found that plaintiffs had been damaged in the
aggregate amount of $2.135 million by their use of PONDIMIN and/or
REDUX. The verdict dealt solely with the issue of damages. The trial
resumed on October 25, 2004 and on November 3, 2004 the jury returned
a verdict finding the Company liable for the damages determined in the
earlier phase. The Company plans to appeal the verdict.
In addition to the Intermediate and Back-End opt out cases that have
gone to verdict, other such cases set for trial have been settled,
dismissed or adjourned to a later date.
On April 27, 2004, a jury in Beaumont, Texas hearing the case of
Coffey, et al. v. Wyeth, et al., No. E-167,334, 172nd Judicial
District Court, Jefferson Cty., TX, returned a verdict in favor of the
plaintiffs for $113.353 million in compensatory damages and $900.0
million in punitive damages for the wrongful death of the plaintiffs'
decedent, allegedly as a result of PPH caused by her use of PONDIMIN.
On May 17, 2004, the trial court entered judgment on behalf of the
plaintiffs for the full amount of the jury's verdict, as well as $4.2
million in pre-judgment interest and $188,737 in guardian ad litem
fees. On July 26, 2004, the trial court denied in their entirety the
Company's motions for a new trial or for judgment notwithstanding the
verdict, including the Company's request for application of Texas's
statutory cap on punitive damage awards. The Company has filed an
appeal from the judgment entered by the trial court and believes that
it has strong arguments for reversal or reduction of the awards on
appeal due to the significant number of legal errors made during trial
and in the charge to the jury and due to a lack of evidence to support
aspects of the verdict. In connection with its appeal, the Company was
required by Texas law to post a bond in the amount of $25.0 million.
The appeal process is expected to take one to two years at a minimum.
As of October 14, 2004, the Company was a defendant in approximately
340 lawsuits in which the plaintiff alleges a claim of PPH, alone or
with other alleged injuries. Almost all of these claimants must meet
the definition of PPH set forth in the national settlement agreement
in order to pursue their claims outside of the national settlement
(payment of such claims, by settlement or judgment, would be made by
the Company and not the Trust). Approximately 70 of these cases appear
to be eligible to pursue a PPH lawsuit under the terms of the national
settlement. In approximately 45 of the approximately 340 cases, the
Company expects the PPH claims to be voluntarily dismissed by the
claimants (although they may continue to pursue other claims). In
approximately 55 of these cases the Company has filed or expects to
file motions under the terms of the national settlement to preclude
plaintiffs from proceeding with their PPH claims. For the balance of
these cases, the Company currently has insufficient medical
information to assess whether or not the claimants meet the definition
of PPH under the national settlement. The Company continues to work
toward resolving the claims of individuals who allege that they have
developed PPH as a result of their use of the diet drugs and intends
to vigorously defend those PPH cases that cannot be resolved prior to
trial.
In 2003, the Company increased its reserves in connection with the
REDUX and PONDIMIN diet drug matters by $2,000.0 million, bringing the
total of the charges
24
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
taken to date to $16,600.0 million. The $3,009.2 million reserve
balance at September 30, 2004 represents management's best estimate of
the minimum aggregate amount anticipated to cover payments in
connection with the Trust, up to its cap, initial opt outs, PPH
claims, Intermediate, Back-End or Sixth Amendment opt outs
(collectively, the "downstream" opt outs), and the Company's legal
fees related to the diet drug litigation. Due to its inability to
estimate the ultimate number of valid downstream opt outs, and the
merits and value of their claims, as well as the inherent uncertainty
surrounding any litigation, the Company is unable to estimate the
amount of any additional financial exposure represented by the
downstream opt out litigation. However, the amount of financial
exposure beyond that which has been recorded could be significant. In
analyzing its reserve requirements, the Company has not considered
final implementation of the proposed Seventh Amendment to be more
likely than not because there can be no assurance that the Company
will ultimately proceed with the amendment (based upon the level of
participation in the amendment or for other reasons), or that the
amendment will be approved by the court and upheld on appeal. However,
if the proposed Seventh Amendment is implemented, it is likely that
additional reserves will be required. Any such additional reserves
cannot be estimated at this time, but the amount of such additional
reserves could be significant.
The Company intends to vigorously defend itself in the diet drug
litigation and believes it can marshal significant resources and legal
defenses to limit its ultimate liability. However, in light of the
circumstances discussed above, including the unknown number of valid
matrix claims and the unknown number and merits of valid downstream
opt outs, and the effect, if any, of the proposed Seventh Amendment
referred to above, it is not possible to predict the ultimate
liability of the Company in connection with its diet drug legal
proceedings. It is therefore not possible to predict whether, and if
so when, such proceedings will have a material adverse effect on the
Company's financial condition, results of operations and/or cash flows
and whether cash flows from operating activities and existing and
prospective financing resources will be adequate to fund the Company's
operations, pay all liabilities related to the diet drug litigation,
pay dividends, maintain the ongoing programs of capital expenditures,
and repay both the principal and interest on its outstanding
obligations without the disposition of significant strategic core
assets and/or reductions in certain cash outflows.
Note 8. Company Data by Segment
-----------------------
The Company has four reportable segments: Wyeth Pharmaceuticals
(Pharmaceuticals), Wyeth Consumer Healthcare (Consumer Healthcare),
Fort Dodge Animal Health (Animal Health) and Corporate. The Company's
Pharmaceuticals, Consumer Healthcare and Animal Health reportable
segments are strategic business units that offer different products
and services. Beginning in the 2003 fourth quarter, the Company
changed its reporting structure to include the Animal Health business
as a separate reporting segment. The Animal Health business was
previously reported within the Pharmaceuticals segment. Prior period
information presented herein has been restated to be on a
25
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
comparable basis. The reportable segments are managed separately
because they manufacture, distribute and sell distinct products and
provide services that require various technologies and marketing
strategies. The Company's Corporate segment is responsible for the
treasury, tax and legal operations of the Company's businesses and
maintains and/or incurs certain assets, liabilities, income, expense,
gains and losses related to the overall management of the Company
which are not allocated to the other reportable segments.
Net Revenue
----------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
(In thousands) ------------------------- ---------------------------
Segment 2004 2003 2004 2003
------------------- ---------- ---------- ----------- -----------
Pharmaceuticals $3,622,263 $3,211,615 $10,222,826 $9,166,201
Consumer Healthcare 651,100 660,835 1,830,853 1,745,924
Animal Health 198,473 209,159 656,151 605,097
---------- ---------- ----------- -----------
Total $4,471,836 $4,081,609 $12,709,830 $11,517,222
========== ========== =========== ===========
Income (Loss) Before Taxes
--------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
(In thousands) ------------------------- -------------------------
Segment 2004 2003 2004 2003
------------------- ---------- ---------- ---------- ----------
Pharmaceuticals(1) $1,252,897 $956,365 $3,090,850 $2,919,252
Consumer Healthcare 175,740 191,424 389,833 420,628
Animal Health 32,651 41,298 120,686 105,659
Corporate(2) (134,339) (2,069,034) (267,451) (1,434,686)
---------- ---------- ---------- ----------
Total(3) $1,326,949 ($879,947) $3,333,918 $2,010,853
========== ========= ========== ==========
(1) Pharmaceuticals for the 2004 first nine months included a first
quarter charge of $145,500 within Research and development
expenses related to the upfront payment to Solvay Pharmaceuticals
in connection with the co-development and co-commercialization of
four neuroscience compounds, most notably, bifeprunox, a late
stage compound in Phase 3 development for schizophrenia and other
possible uses.
(2) Corporate for the 2003 first nine months included a first quarter
gain of $860,554 related to the sale of Amgen shares. In
addition, Corporate for the 2003 third quarter and first nine
months included an additional charge of $2,000,000 related to the
litigation brought against the Company regarding the use of the
diet drugs REDUX or PONDIMIN.
(3) Income before taxes for the 2004 and 2003 first nine months
included $165,000 and $293,500, respectively, related to gains
from the divestiture of certain Pharmaceuticals and Consumer
Healthcare products. The 2004 divestitures included product
rights to indiplon, DIAMOX (in Japan), and the Company's
nutritionals products in France. The 2003 divestitures included
product rights in various territories to ATIVAN, ISORDIL, DIAMOX
(excluding Japan), ZIAC, ZEBETA, AYGESTIN, ANACIN and SONATA.
Gains from product divestitures were not significant in the third
quarter of either 2004 or 2003.
26
WYETH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Immunex/Amgen Transactions
--------------------------
During the first quarter of 2003, the Company completed the sale of
31,235,958 shares of Amgen common stock held by the Company at
December 31, 2002. These shares netted proceeds of $1,579.9 million
and resulted in a gain of $860.6 million ($558.7 million after-tax or
$0.42 per share-diluted).
Note 10. Income Taxes
------------
During the 2004 third quarter, the Company recorded a favorable income
tax adjustment of $407.6 million ($0.30 per share-diluted) within the
Provision (benefit) for federal and foreign taxes as a result of
settlements of audit issues offset, in part, by a provision related to
developments in the third quarter in connection with a prior year tax
matter.
On October 11, 2004, Congress passed the American Jobs Creation Act of
2004 (the Act). The Act includes a temporary incentive for U.S.
multinationals to repatriate foreign earnings, a domestic
manufacturing deduction and international tax reforms designed to
improve the global competitiveness of U.S. businesses. Wyeth is in the
process of evaluating the impact of the Act and has not yet determined
the effects of the Act on its effective tax rate and deferred tax
assets and liabilities.
27
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Item 2. Results of Operations
---------------------
Overview
--------
Wyeth is one of the world's largest research-based pharmaceutical and
health care products companies and is a leader in the discovery,
development, manufacturing and marketing of pharmaceuticals, vaccines,
biopharmaceuticals, non-prescription medicines and animal health care.
The Company has four reportable segments: Wyeth Pharmaceuticals
(Pharmaceuticals), Wyeth Consumer Healthcare (Consumer Healthcare),
Fort Dodge Animal Health (Animal Health) and Corporate, which are
managed separately because they manufacture, distribute and sell
distinct products and provide services which require various
technologies and marketing strategies. These segments reflect how
senior management reviews the business, makes investing and resource
allocation decisions, and assesses operating performance.
Our Pharmaceuticals segment, which provided 81% of our consolidated
net revenue for the first nine months of 2004 and 80% for the first
nine months of 2003, manufactures, distributes and sells branded human
ethical pharmaceuticals, biologicals and nutritionals. Principal
products include neuroscience therapies, cardiovascular products,
nutritionals, gastroenterology drugs, anti-infectives, vaccines,
oncology therapies, musculoskeletal therapies, hemophilia treatments,
immunological products and women's health care products. These
products are promoted and sold worldwide primarily to wholesalers,
pharmacies, hospitals, physicians, retailers and other human health
care institutions.
The Consumer Healthcare segment, which provided 14% of our
consolidated net revenue for the first nine months of 2004 and 15% for
the first nine months of 2003, manufactures, distributes and sells
over-the-counter health care products, which include analgesics,
cough/cold/allergy remedies, nutritional supplements, and
hemorrhoidal, asthma and other relief items. These products generally
are sold to wholesalers and retailers and are promoted primarily to
consumers worldwide through advertising.
Our Animal Health segment, which provided 5% of our consolidated net
revenue for the first nine months of both 2004 and 2003, manufactures,
distributes, and sells animal biological and pharmaceutical products,
including vaccines, pharmaceuticals, parasite control and growth
implants. These products are sold to wholesalers, retailers,
veterinarians and other animal health care institutions.
The Corporate segment is responsible for the treasury, tax and legal
operations of the Company's businesses. It maintains and/or incurs
certain assets, liabilities, income, expenses, gains and losses
related to the overall management of the Company that are not
allocated to the other reportable segments.
Wyeth exhibited strong revenue growth for the 2004 first nine months,
achieving a 10% increase in worldwide net revenue compared with the
first nine months of 2003.
28
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Pharmaceuticals had net revenue growth of 12% to $10,222.8 million in
the 2004 first nine months, which was spurred by the strong
performance of several key products:
o EFFEXOR (a neuroscience therapy) - up 33% to $2,500.2 million
o PROTONIX (a gastroenterology drug) - up 9% to $1,177.9 million
o ZOSYN/TAZOCIN (an infectious disease drug) - up 22% to $560.5
million
o ENBREL (a musculoskeletal therapy) - up 140% (internationally,
where the Company has exclusive marketing rights) to $464.4
million
o RAPAMUNE (an immunology product) - up 47% to $182.9 million
Collectively, sales of these products increased 31% for the first nine
months of 2004 compared with the first nine months of 2003.
Other areas of revenue growth for the Pharmaceuticals segment for the
2004 first nine months included ZOTON, BENEFIX and rhBMP-2 and
alliance revenue from sales of ENBREL (in North America) and the
CYPHER* stent.
The combined revenue increase from the Company's growth products more
than offset the loss of revenue from the decline in sales of PREVNAR
and the PREMARIN family of products in the 2004 first nine months. In
September 2004, the U.S. Centers for Disease Control and Prevention
(CDC) issued an updated recommendation for the use of PREVNAR
reinstating the full, four-dose vaccination schedule. Net revenue of
PREVNAR for the 2004 first nine months was $713.3 million, a decrease
of 3% compared with the prior year, however, net revenue for the 2004
third quarter was $320.8 million, an increase of 32% compared with the
2003 third quarter.
Both Consumer Healthcare and Animal Health posted increases in net
revenue for the 2004 first nine months, but posted decreases in the
2004 third quarter. Consumer Healthcare net revenue decreased 1% for
the 2004 third quarter and increased 5% to $1,830.8 million for the
2004 first nine months. Animal Health net revenue decreased 5% for the
2004 third quarter reflecting the impact of the voluntary recall of
PROHEART 6 in the U.S. market in September. For the 2004 first nine
months, however, Animal Health net revenue increased 8% to $656.2
million.
On a combined basis, Pharmaceuticals and Consumer Healthcare realized
aggregate pre-tax gains from product divestitures amounting to
approximately $165.0 million for the first nine months of 2004,
compared with $293.5 million from product divestitures for the first
nine months of 2003.
* The active ingredient in RAPAMUNE, sirolimus, coats the CYPHER
coronary stent marketed by Johnson & Johnson.
29
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
In order to continue to succeed, the Company must overcome some
significant challenges over the next few years. One of the biggest
challenges is to defend the Company in the ongoing diet drug
litigation (see Note 7 to the consolidated condensed financial
statements). In this regard, we continue to support the appropriate
handling of valid claims under the national class action settlement,
which would be impacted by the implementation of the Seventh Amendment
(see Note 7 to the consolidated condensed financial statements). At
the same time, we are committed to vigorously defending the Company
and aggressively eliminating fraud and abuse in the settlement.
In order for us to sustain the growth of our core group of products,
we must continue to meet the global demand of our customers. Two of
our important core products are PREVNAR and ENBREL, both
biopharmaceutical products that are extremely complicated and
difficult to manufacture. We continue to seek to improve manufacturing
processes and overcome production issues. Necessary upgrades and
improvements to the Company's PREVNAR filling line, which extended the
planned plant shutdown in late 2003 and early 2004, have been
completed and that line is now operational. During the 2004 second
quarter, additional vial filling capacity became available through a
third party filler and a second Wyeth bulk vaccine formulation suite
became operational. Overall, the Company expects to meet its
production goal of 20 - 23 million doses.
The construction of the Company's Grange Castle facility in Ireland,
which remains on schedule to begin production in 2005, is critical to
further expand the production of ENBREL and enable this important
product to reach even more patients throughout the world.
In July 2002, the National Institutes of Health (NIH) announced that
it was discontinuing a portion of its Women's Health Initiative (WHI)
study assessing the value of combination estrogen plus progestin
therapy, and in early March 2004, the portion of the study addressing
estrogen-only therapy also was discontinued. The Company remains
committed to women's health care and stands behind the PREMARIN family
of products as the standard of therapy to help women address serious
menopausal symptoms. We have continued our efforts to inform
physicians and patients of the appropriate role of hormone therapy
(HT) for the short-term treatment of menopausal symptoms, concomitant
osteoporosis prevention and introduced low-dose versions of PREMARIN
and PREMPRO in 2003. Despite these efforts, sales of the PREMARIN
family of products declined from approximately $1,025.3 million for
the first nine months of 2003 to $662.8 million for the first nine
months of 2004. The launch of low-dose PREMARIN and PREMPRO has helped
to moderate the decrease in sales.
In November 2004, the Company entered into an agreement with Genzyme
Corp. (Genzyme) for the sale of the Company's marketing rights to
SYNVISC in the U.S. and five European countries. Under the terms of
the agreement, Genzyme will pay upfront payments of $121.0 million as
well as a series of milestone payments, based on the volume of SYNVISC
sales, which could extend out to June 2012. The transaction is
expected to close in the first quarter 2005.
30
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
In April 2004, the Company announced the dissolution of our
collaboration with MedImmune, Inc. (MedImmune) for the nasal flu
vaccine FLUMIST (Influenza Virus Vaccine Live, Intranasal) and an
investigational second-generation liquid formulation, Cold Adapted
Influenza Vaccine-Trivalent (CAIV-T). As a result of the dissolution,
MedImmune has worldwide rights to these products and will assume full
responsibility for the manufacturing, marketing, and selling of
FLUMIST. As part of the dissolution process, MedImmune acquired
Wyeth's distribution facility in Louisville, Kentucky. The Company is
providing bulk manufacturing materials and will transfer clinical
trial data, as well as provide manufacturing services, during a
transition that the companies expect to complete in large part by
fourth quarter 2004.
The Company entered into inventory management agreements with the
majority of its full-line wholesalers in the 2004 second quarter.
Pursuant to these agreements, the wholesalers have agreed to provide
data to Wyeth on wholesalers' inventory levels and to maintain
inventory at certain targeted levels and, in return, the Company has
agreed that the wholesalers will receive the opportunity to buy
specific amounts of product at pre-price increase prices whenever
Wyeth implements a price increase. As a result, we expect that both
Wyeth and our wholesaler partners will be able to manage product flow
and inventory levels in a way that more closely follows trends in
prescriptions.
Wyeth's focus is on maximizing the strong growth potential of our core
group of patent protected innovative products that we have introduced
in recent years as well as actively pursuing in-licensing
opportunities. In March 2004, we announced an important alliance with
Solvay Pharmaceuticals (Solvay) to co-develop and co-commercialize
four neuroscience compounds, most notably, bifeprunox. This alliance
is intended to supplement new product introductions expected to begin
primarily in the 2007 time period.
The Company's principal strategy for success is based on R&D
innovations. The Company intends to leverage its breadth of knowledge
and resources across three development platforms (traditional
pharmaceuticals, biopharmaceuticals and vaccines) to produce
first-in-class and best-in-class therapies for significant unmet
medical needs around the world.
Generally, the Company faces the same difficult challenges that all
research-based pharmaceutical companies are confronting, including
political pressures in countries around the world to reduce
prescription drug prices; increasingly stringent regulatory
requirements that are raising the cost of drug development and
manufacturing; and uncertainties about the outcome of key political
issues in the United States regarding drug importation.
31
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Net Revenue
-----------
Worldwide net revenue increased 10% for both the 2004 third quarter
and first nine months compared with prior year levels. The increase in
worldwide net revenue in the 2004 third quarter was due to increases
in the Pharmaceuticals segment, offset in part, by decreases in the
Consumer Healthcare and Animal Health segments. The increase in
worldwide net revenue for the 2004 first nine months was due to
increases in the Pharmaceuticals, Consumer Healthcare and Animal
Health segments. Excluding the favorable impact of foreign exchange,
worldwide net revenue increased 7% for both the 2004 third quarter and
first nine months.
The following table sets forth worldwide net revenue results by
reportable segment together with the percentage changes from the
comparable period in the prior year:
Net Revenue
---------------------
Three Months
Ended September 30,
(Dollars in millions) --------------------- % Increase/
Segment 2004 2003 (Decrease)
--------------------- -------- -------- -----------
Pharmaceuticals $3,622.2 $3,211.6 13%
Consumer Healthcare 651.1 660.8 (1%)
Animal Health 198.5 209.2 (5%)
-------- -------- -----------
Total $4,471.8 $4,081.6 10%
======== ======== ===========
Net Revenue
-----------------------
Nine Months
Ended September 30,
(Dollars in millions) -----------------------
Segment 2004 2003 % Increase
--------------------- --------- --------- ----------
Pharmaceuticals $10,222.8 $9,166.2 12%
Consumer Healthcare 1,830.8 1,745.9 5%
Animal Health 656.2 605.1 8%
--------- --------- ----------
Total $12,709.8 $11,517.2 10%
========= ========= ==========
32
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Pharmaceuticals
---------------
Worldwide Pharmaceuticals net revenue increased 13% for the 2004 third
quarter and 12% for the 2004 first nine months. The increases in net
revenue were due primarily to higher sales of EFFEXOR XR, ENBREL
(internationally), ZOSYN/TAZOCIN and RAPAMUNE (each reflecting growth
in the U.S. and internationally), ZOTON, BENEFIX and rhBMP-2 offset,
in part, by lower sales of the PREMARIN family of products as a
result of lower prescription volume and a reduction of inventory
levels at one wholesaler. Increases in net revenue were also
attributable to higher sales of PREVNAR for the 2004 third quarter as
a result of increased manufacturing and filling capacity. Higher sales
of EFFEXOR XR reflect growth resulting primarily from higher volume
and price increases for the 2004 first nine months compared with the
prior year. Strong prescription volume growth contributed to the
increase in PROTONIX net revenue for the 2004 first nine months
despite the impact of discounting in this product category.
Additionally, alliance revenue increased 29% and 24% for the 2004
third quarter and first nine months, respectively, as a result of
increased sales of ENBREL (in North America) and the CYPHER stent.
Excluding the favorable impact of foreign exchange, worldwide
Pharmaceuticals net revenue increased 10% and 9% for the 2004 third
quarter and first nine months, respectively.
The following table sets forth the significant worldwide
Pharmaceuticals net revenue by product for the three and nine months
ended September 30, 2004 compared with the same periods in the prior
year:
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
(In millions) 2004 2003 2004 2003
--------------------- -------- -------- --------- --------
EFFEXOR $892.7 $645.3 $2,500.2 $1,875.2
PROTONIX 378.2 407.0 1,177.9 1,077.4
PREVNAR 320.8 242.5 713.3 736.2
Nutritionals 247.1 214.5 691.2 632.6
PREMARIN family 174.2 346.0 662.8 1,025.3
ZOSYN / TAZOCIN 196.8 173.5 560.5 458.6
ENBREL 173.4 85.9 464.4 193.3
Oral Contraceptives 154.7 144.0 438.5 432.9
ZOTON 121.0 93.2 347.7 252.3
BENEFIX 72.6 64.1 223.6 185.2
REFACTO 61.2 57.8 185.5 166.6
RAPAMUNE 68.5 38.9 182.9 124.4
ATIVAN 51.3 48.4 150.6 158.4
SYNVISC 48.1 55.0 149.7 165.1
rhBMP-2 41.5 17.8 118.1 40.2
Alliance revenue 237.9 184.1 539.3 435.3
Other 382.2 393.6 1,116.6 1,207.2
-------- -------- --------- --------
Total Pharmaceuticals $3,622.2 $3,211.6 $10,222.8 $9,166.2
======== ======== ========= ========
33
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Consumer Healthcare
-------------------
Worldwide Consumer Healthcare net revenue decreased 1% for the 2004
third quarter and increased 5% for the 2004 first nine months. The
decrease in Consumer Healthcare net revenue for the 2004 third quarter
was due primarily to lower sales of ALAVERT, as compared to the prior
year when the product launch was underway, and lower sales of ADVIL
due to timing of promotional programs offset, in part, by higher sales
of ROBITUSSIN. The 2004 first nine months included higher sales of
CENTRUM, ADVIL, CALTRATE and ROBITUSSIN. Excluding the favorable
impact of foreign exchange, worldwide Consumer Healthcare net revenue
decreased 3% for the 2004 third quarter and increased 2% for the 2004
first nine months.
The following table sets forth significant worldwide Consumer
Healthcare net revenue by product for the three and nine months ended
September 30, 2004 compared with the same periods in the prior year:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- ---------------------
(In millions) 2004 2003 2004 2003
------------------------- ------ ------ -------- --------
CENTRUM $150.1 $148.3 $444.6 $402.3
ADVIL 117.9 126.9 355.3 335.3
ROBITUSSIN 73.7 68.7 151.0 135.7
CALTRATE 46.3 44.1 131.3 113.0
ADVIL COLD & SINUS 37.2 35.3 88.8 87.8
SOLGAR 26.8 26.9 82.0 82.1
CHAPSTICK 30.7 29.9 74.2 69.3
DIMETAPP 26.8 26.8 61.6 56.8
ALAVERT 15.7 25.8 49.2 77.5
Other 125.9 128.1 392.8 386.1
------ ------ -------- --------
Total Consumer Healthcare $651.1 $660.8 $1,830.8 $1,745.9
====== ====== ======== ========
34
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Animal Health
-------------
Worldwide Animal Health net revenue decreased 5% for the 2004 third
quarter and increased 8% for the 2004 first nine months. The decrease
in Animal Health net revenue for the 2004 third quarter was due
primarily to decreases in equine products related to lower sales of
WEST NILE-INNOVATOR (dosing transition and product competition) and
decreases in companion animal products impacted by product returns
resulting from the voluntary recall of PROHEART 6 in the U.S. market
in September. A FDA advisory panel to review post-marketing safety
data and to make recommendations regarding future use of PROHEART 6 is
expected to convene early next year. The increase in Animal Health net
revenue for the 2004 first nine months was due primarily to higher
sales of companion animal and livestock products offset, in part, by
lower sales of equine products as a result of decreases in sales of
WEST NILE-INNOVATOR. PROHEART products, the largest contributor to the
companion animal products sales growth for the 2004 first nine months,
had net revenue of $33.8 million compared with $28.4 million for the
similar period in the prior year. PROHEART products for the 2004 third
quarter had negative net revenue of $1.8 million as a result of
product returns due to the voluntary recall, as noted above, compared
with net revenue of $7.2 million for the similar period in the prior
year. Excluding the favorable impact of foreign exchange, worldwide
Animal Health net revenue decreased 7% for the 2004 third quarter and
increased 5% for 2004 first nine months.
The following table sets forth worldwide Animal Health net revenue by
product category for the three and nine months ended September 30,
2004 compared with the same periods in the prior year:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In millions) 2004 2003 2004 2003
------------------------- ------ ------ ------ ------
Livestock products $89.1 $92.0 $265.3 $243.3
Companion animal products 60.8 65.7 202.4 173.0
Equine products 25.9 29.0 117.7 123.8
Poultry products 22.7 22.5 70.8 65.0
------ ------ ------ ------
Total Animal Health $198.5 $209.2 $656.2 $605.1
====== ====== ====== ======
35
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
The following table sets forth the percentage changes in worldwide net
revenue by reportable segment and geographic area compared with the
prior year, including the effect volume, price and foreign exchange
had on these percentage changes:
% Increase (Decrease) % Increase (Decrease)
Three Months Ended September 30, 2004 Nine Months Ended September 30, 2004
--------------------------------------------- ---------------------------------------------
Foreign Total Foreign Total
Volume Price Exchange Net Revenue Volume Price Exchange Net Revenue
------ ----- -------- ----------- ------ ----- -------- -----------
Pharmaceuticals
-------------------
United States - 8% - 8% (1%) 6% - 5%
International 14% - 7% 21% 15% - 7% 22%
--- -- -- --- --- -- -- ---
Total 5% 5% 3% 13% 5% 4% 3% 12%
=== == == === === == == ===
Consumer Healthcare
-------------------
United States (6%) 1% - (5%) - - - -
International (3%) 4% 5% 6% 3% 3% 7% 13%
--- -- -- --- --- -- -- ---
Total (5%) 2% 2% (1%) 1% 1% 3% 5%
=== == == === == == == ==
Animal Health
-------------------
United States (20%) 4% - (16%) (3%) 7% - 4%
International 1% 2% 5% 8% 4% 1% 8% 13%
--- -- -- --- -- -- -- ---
Total (10%) 3% 2% (5%) - 5% 3% 8%
=== == == === == == == ==
Total
-------------------
United States (2%) 6% - 4% (1%) 5% - 4%
International 11% 1% 6% 18% 12% 1% 7% 20%
--- -- -- --- --- -- -- ---
Total 3% 4% 3% 10% 4% 3% 3% 10%
=== == == === === == == ===
The Company deducts certain items from gross revenue, which primarily
consist of provisions for product returns, cash discounts,
chargebacks, rebates, customer allowances and consumer sales
incentives. Chargebacks and rebates are the only deductions from gross
revenue that are considered significant by the Company and
approximated $589.9 million and $1,769.7 million for the 2004 third
quarter and first nine months, respectively, compared with $463.5
million and $1,249.1 million for the 2003 third quarter and first nine
months. The increase in chargebacks and rebates for the 2004 third
quarter and first nine months was due primarily to higher rebate rates
and increased volumes of PROTONIX.
Operating Expenses
------------------
Cost of goods sold, as a percentage of Net revenue, decreased to 26.0%
for the 2004 third quarter compared with 27.6% for the 2003 third
quarter due primarily to lower inventory and manufacturing losses in
the Pharmaceuticals segment. The increase in gross margin was also due
to an increase in alliance revenue offset, in part, by an increase in
royalty costs (higher sales of ENBREL and PREVNAR in Europe) in the
Pharmaceuticals segment. Cost of goods sold, as a percentage of Net
revenue, remained constant at 26.7% for the 2004 and 2003 first nine
months. Gross margin for the 2004 first nine months was
36
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
impacted by an increase in alliance revenue (higher sales of ENBREL in
North America), with no corresponding costs of goods sold, and lower
cost of goods sold, as a percentage of net revenue, in the Consumer
Healthcare and Animal Health segments. These increases were offset, in
part, by an increase in costs of goods sold, as a percentage of net
revenue, in the Pharmaceuticals segment due primarily to higher
royalty costs (higher sales of ENBREL in Europe) and a less profitable
product mix caused by lower sales of higher margin products, including
the PREMARIN family of products, and higher sales of lower margin
products such as PROTONIX, ZOSYN/TAZOCIN and ENBREL (internationally)
offset, in part, by higher sales of higher margin EFFEXOR XR.
Selling, general and administrative expenses, as a percentage of Net
revenue, decreased to 31.8% for the 2004 third quarter and 33.1% for
the 2004 first nine months compared with 32.2% for the 2003 third
quarter and 34.4% for the 2003 first nine months due primarily to net
revenue increasing at a higher rate than expenses (10% vs. 8% for the
2004 third quarter and 10% vs. 6% for the 2004 first nine months). The
2004 third quarter and first nine months were impacted by higher
selling expenses related to an expansion in the Pharmaceuticals
contract sales force to support the continued promotion of PROTONIX
and EFFEXOR.
Research and development expenses increased 5% for the 2004 third
quarter and 20% for the 2004 first nine months primarily due to higher
clinical grant spending in the Pharmaceuticals segment as a result of
the initiation of several Phase 3 programs offset, in part, by lower
other research operating expenses (including lower licensing
expenses). The increase in research and development expenses for the
2004 first nine months also reflects the impact of the upfront payment
and charge in the 2004 first quarter of $145.5 million made in
connection with the agreement entered into between the Company and
Solvay to co-develop and co-commercialize four neuroscience compounds,
most notably, bifeprunox.
Interest Expense and Other Income
---------------------------------
Interest expense, net for the three and nine months ended September
30, 2004 and 2003 consisted of the following:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In millions) 2004 2003 2004 2003
---------------------------- ----- ----- ------ ------
Interest expense $77.5 $73.8 $223.7 $217.6
Interest income (28.4) (19.5) (73.2) (57.9)
Less: amount capitalized for
capital projects (22.5) (30.0) (65.1) (82.5)
----- ----- ------ ------
Total interest expense, net $26.6 $24.3 $85.4 $77.2
===== ===== ====== ======
37
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Interest expense, net increased 9% for the 2004 third quarter and 11%
for the 2004 first nine months due primarily to lower capitalized
interest offset, in part, by higher interest income. Weighted average
debt outstanding during the 2004 third quarter and first nine months
was $7,999.7 million and $8,283.2 million, respectively, compared with
prior year levels of $7,079.2 million and $7,142.3 million,
respectively. The impact of higher weighted average debt outstanding
on interest expense was offset by increases in interest income earned
on higher cash balances in 2004 versus 2003. The lower capitalized
interest resulted from lower interest rates used for capitalization
purposes applied against the spending for long-term capital projects
in process. These projects include the new Grange Castle facility in
Ireland, as well as the expansion of an existing manufacturing
facility in Ireland.
Other income, net decreased $15.7 million for the 2004 third quarter
and $152.2 million for the 2004 first nine months primarily as a
result of decreases in gains from the divestiture of certain
Pharmaceuticals and Consumer Healthcare products. The 2004
divestitures included product rights to indiplon, DIAMOX (in Japan),
and the Company's nutritionals products in France. The 2003
divestitures included product rights in various territories to ATIVAN,
ISORDIL, DIAMOX (excluding Japan), ZIAC, ZEBETA, AYGESTIN, ANACIN and
SONATA. The sales, profits and net assets of these divested products,
individually or in the aggregate, were not material to either business
segment or the Company's consolidated financial position or results of
operations.
Income (Loss) Before Taxes
--------------------------
The following table sets forth worldwide income (loss) before taxes by
reportable segment together with the percentage changes from the
comparable periods in the prior year:
Income (Loss) Before Taxes
---------------------------------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------- -------------------------------------
(Dollars in millions) % Increase/ % Increase/
Segment 2004 2003 (Decrease) 2004 2003 (Decrease)
--------------------- -------- -------- ----------- -------- -------- -----------
Pharmaceuticals(1) $1,252.9 $956.4 31% $3,090.9 $2,919.2 6%
Consumer Healthcare 175.7 191.4 (8%) 389.8 420.6 (7%)
Animal Health 32.7 41.3 (21%) 120.7 105.7 14%
Corporate(2) (134.4) (2,069.0) (94%) (267.5) (1,434.6) (81%)
-------- -------- ---- -------- -------- ----
Total(3) $1,326.9 $(879.9) - $3,333.9 $2,010.9 66%
======== ======== ==== ======== ======== ====
(1) Pharmaceuticals for the 2004 first nine months included a first
quarter charge of $145.5 within Research and development expenses
related to the upfront payment to Solvay in connection with the
co-development and co-commercialization of four neuroscience
compounds. Excluding the upfront payment from the 2004 first nine
months results, but including Pharmaceuticals product divestiture
38
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
gains discussed in footnote 3 below, Pharmaceuticals income
before taxes increased 11%.
(2) Corporate for the 2003 first nine months included a first quarter
gain of $860.6 related to the sale of Amgen shares. In addition,
Corporate for the 2003 third quarter and first nine months
included a charge of $2,000.0 related to the REDUX and PONDIMIN
diet drug litigation. Excluding these items from the 2004 and
2003 first nine months, Corporate expenses decreased 9%.
(3) Income before taxes included $165.0 and $293.5 for the 2004 and
2003 first nine months, respectively, related to gains from the
divestiture of certain Pharmaceuticals and Consumer Healthcare
products. The 2004 divestitures included product rights to
indiplon, DIAMOX (in Japan), and the Company's nutritionals
products in France. The 2003 divestitures included product rights
in various territories to ATIVAN, ISORDIL, DIAMOX (excluding
Japan), ZIAC, ZEBETA, AYGESTIN, ANACIN and SONATA. Gains from
product divestitures were not significant in the third quarter of
either 2004 or 2003.
Worldwide Pharmaceuticals income before taxes for the 2004 third
quarter and first nine months increased 31% and 6%, respectively. The
increase for the 2004 third quarter was due primarily to higher net
revenue, increased gross profit margins earned on worldwide sales of
Pharmaceuticals products and lower selling and general expenses, as a
percentage of net revenue. The increase for the 2004 first nine months
was due primarily to higher net revenue offset, in part, by higher
research and development expenses related to the upfront payment to
Solvay, and lower other income, net related to product divestiture
gains.
Worldwide Consumer Healthcare income before taxes decreased 8% for the
2004 third quarter and 7% for the 2004 first nine months, while
Consumer Healthcare net revenue decreased 1% for the 2004 third
quarter and increased 5% for the 2004 first nine months. The
difference between the decrease in income before taxes and net revenue
growth for the 2004 first nine months is primarily attributable to
lower other income, net related to product divestiture gains and
higher selling and general expenses offset, in part, by higher gross
profit margins earned on worldwide sales of Consumer Healthcare
products.
Worldwide Animal Health income before taxes decreased 21% for the 2004
third quarter and increased 14% for the 2004 first nine months. The
decrease for the 2004 third quarter was due primarily to lower net
revenue and higher selling and general expenses. The increase in the
2004 first nine months results was primarily due to higher net revenue
and increased gross profit margins earned on worldwide sales of Animal
Health products.
Corporate expenses for the 2004 third quarter were $134.4 million
compared with $2,069.0 million for the 2003 third quarter. Corporate
expenses for the 2004 first nine months were $267.5 million compared
with $1,434.6 million for the 2003 first nine months. Corporate
expenses for the 2003 third quarter and first nine months included a
charge of $2,000.0 million to increase the reserve related to the
REDUX and PONDIMIN diet drug litigation. Corporate expenses for the
2003 first nine months also included a gain of $860.6 million from the
sale of the Company's Amgen shares. Excluding these items, Corporate
expenses would have increased 95% for the 2004 third quarter and
decreased 9% for the 2004 first nine months. The increase for the 2004
third quarter was due primarily to the non-recurrence of certain 2003
items, while the decrease
39
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
for the 2004 first nine months was due primarily to lower general and
administrative expenses related to decreased pension and employee
benefit costs.
Income Taxes
------------
Excluding the impact of the items discussed below under "Consolidated
Net Income (Loss) and Diluted Earnings (Loss) Per Share Results", the
effective tax rate increased to 23.6% for the 2004 third quarter and
22.8% for the 2004 first nine months compared with 22.0% for both the
2003 third quarter and first nine months. The 2004 third quarter and
first nine months rates were calculated assuming the benefit of
certain research and development tax credits. Since the law allowing
such credits expired in June 2004 and was reinstated after September
30, 2004, only one-half of the annualized benefit was included in the
effective tax rate calculation for the 2004 third quarter and first
nine months. The annualized benefit will be included in the effective
tax rate calculation for the 2004 fourth quarter and full year.
Consolidated Net Income (Loss) and Diluted Earnings (Loss) Per Share
--------------------------------------------------------------------
Results
-------
Net income and diluted earnings per share for the 2004 third quarter
were $1,421.3 million and $1.06, respectively, compared with net loss
and diluted loss per share of $426.4 million and $0.32 in the prior
year. Net income and diluted earnings per share for the 2004 first
nine months were $2,998.3 million and $2.24, respectively, compared
with net income and diluted earnings per share of $1,715.9 million and
$1.29 in the prior year, increases of 75% and 74%, respectively.
The Company's management uses various measures to manage and evaluate
the Company's performance and believes it is appropriate to
specifically identify certain items included in net income (loss) and
diluted earnings (loss) per share to assist investors with analyzing
ongoing business performance and trends. In particular, the Company's
management believes that comparisons between 2004 and 2003 results of
operations are influenced by the impact of the following items that
are included in net income (loss) and diluted earnings (loss) per
share:
o 2004 third quarter favorable income tax adjustment of $407.6
million ($0.30 per share-diluted) related to settlements of audit
issues, offset, in part, by a provision related to developments
in the third quarter in connection with a prior year tax matter;
o 2004 first quarter upfront payment of $145.5 million ($94.6
million after-tax or $0.07 per share-diluted) to Solvay;
o 2003 first quarter gain of $860.6 million ($558.7 million
after-tax or $0.42 per share-diluted) related to the Company's
liquidation of Amgen shares received in connection with Amgen's
acquisition of Immunex; and
40
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
o 2003 third quarter diet drug litigation charge of $2,000.0
million ($1,300.0 million after-tax or $0.98 per share-diluted).
The income tax adjustment relates to certain prior tax years and has
been identified by the Company's management when evaluating the
Company's performance due to its nature and magnitude. The significant
upfront payment related to the co-development and co-commercialization
of the four neuroscience compounds being developed with Solvay, which
was immediately expensed and included in Research and development
expenses, has also been identified. Additionally, the Amgen gain and
previous gains related to the Immunex/Amgen common stock transactions
has been identified due to the fact that the Company had not
previously nor does it currently hold a position for investment
purposes in an entity that, if acquired by another entity, would
impact the Company's financial position or results of operations to
the significant extent of the Immunex/Amgen common stock transactions.
Finally, the 2003 third quarter diet drug charge increased the reserve
balance for a continuing legal matter that first resulted in a charge
in 1999 and has been identified due to its magnitude. Isolating these
items when reviewing the Company's results provides a more appropriate
view of operations for these accounting periods.
Excluding the items noted above, the increases in net revenue and
diluted earnings per share for the 2004 third quarter and first nine
months were due primarily to higher net revenue and lower selling,
general and administrative expenses, as a percentage of net revenue,
offset, in part, by higher research and development spending and lower
other income, net related to product divestiture gains.
Gains from product divestitures constitute an integral part of the
Company's analysis of divisional performance and are important to
understanding changes in our reported net income. Gains from product
divestitures for the 2004 first nine months were $165.0 million
($109.3 million after-tax or $0.08 per share-diluted) compared with
$293.5 million ($190.9 million after-tax or $0.14 per share-diluted)
for the 2003 first nine months. Gains from product divestitures were
not significant in the third quarter of either 2004 or 2003.
Liquidity, Financial Condition and Capital Resources
----------------------------------------------------
Cash flows provided by operating activities totaling $1,857.7 million
during the 2004 first nine months were generated primarily by net
earnings of $2,998.3 million offset, in part, by payments of $631.4
million for working capital requirements and payments of $507.4
million relating to the diet drug litigation (see Note 7 to the
consolidated condensed financial statements). Cash provided by
deferred taxes of $168.0 million, as of September 30, 2004, primarily
consisted of a decrease in deferred tax assets of $177.6 million
related to current year diet drug payments. Cash used for deferred
taxes of $727.8 million, as of September 30, 2003, resulted
principally from an increase in deferred tax assets of $700.0 million
during the 2003 third quarter related to the $2,000.0 million diet
drug litigation charge. The change in working capital, which used
$631.4 million of cash as of September 30, 2004, excluding the effects
of foreign exchange,
41
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
primarily consisted of a decrease in accounts payable and accrued
expenses of $373.7 million relating to timing of payments and an
increase in accounts receivable of $297.9 million relating to
increased sales. The change in working capital, which provided $451.4
million of cash as of September 30, 2003, excluding the effects of
foreign exchange, primarily consisted of an increase in accrued
federal and foreign taxes of $635.4 million relating to an increase in
the income tax provision mainly due to the gain on sale of Amgen
shares and an increase in accounts payable and accrued expenses of
$106.5 million due to timing of payments offset, in part, by an
increase in inventories of $329.8 million resulting from higher
production levels of key products such as EFFEXOR, PROTONIX, REFACTO
and PREVNAR.
During the 2004 first nine months, the Company used $869.6 million of
cash for investments in property, plant and equipment and $1,533.2
million of cash for purchases of marketable securities. In addition,
the Company received investment proceeds through the sales and
maturities of marketable securities of $1,024.1 million and the sales
of assets totaling $348.1 million. The capital expenditures made
during the 2004 first nine months were consistent with the Company's
commitment to expand existing manufacturing and research and
development facilities worldwide, and to build new biotechnology
facilities.
The Company's financing activities in the 2004 first nine months
included repayments of debt totaling $1,504.9 million and dividend
payments of $920.1 million.
At September 30, 2004, the Company had outstanding $8,149.0 million in
total debt, which consisted of notes payable and other debt.
Maturities of the Company's obligations as of September 30, 2004 are
set forth below.
Less than Over
(In millions) Total 1 year 1-3 years 4-5 years 5 years
------------- -------- --------- --------- --------- --------
Total debt $8,149.0 $336.2 $312.5 $18.1 $7,482.2
The following represents the Company's credit ratings as of September
30, 2004 and as of November 5, 2004:
Moody's S&P Fitch
---------------- ---------------- ----------------
Short-term debt P-2 A-1 F-2
Long-term debt Baa1 A A-
Outlook Negative Negative Negative
Last rating update December 4, 2003 December 8, 2003 December 4, 2003
In light of the circumstances discussed in Note 7 to the consolidated
condensed financial statements, including the unknown number of valid
matrix claims and the unknown number and merits of valid downstream
opt outs, it is not possible to predict the ultimate liability of the
Company in connection with its diet drug legal proceedings. It is
therefore
42
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
not possible to predict whether, and if so when, such proceedings will
have a material adverse effect on the Company's financial condition,
results of operations and/or cash flows and whether cash flows from
operating activities and existing and prospective financing resources
will be adequate to fund the Company's operations, pay all liabilities
related to the diet drug litigation, pay dividends, maintain the
ongoing programs of capital expenditures, and repay both the principal
and interest on its outstanding obligations without the disposition of
significant strategic core assets and/or reductions in certain cash
outflows.
Certain Factors that May Affect Future Results
----------------------------------------------
Prempro / Premarin - HT Studies
In July 2002, the HT subset of the WHI study, involving women who
received a combination of conjugated estrogens and medroxyprogesterone
acetate (PREMPRO), was stopped early (after the patients were followed
in the study for an average of 5.2 years) because, according to the
predefined stopping rule, certain increased risks exceeded the
specified long-term benefits. Additional analyses of data from the HT
subset of the WHI study were released during 2003, and further
analyses of WHI data may be released in the future.
In early March 2004, the NIH announced preliminary findings from the
estrogen-only arm of the WHI study and that it had decided to stop the
study because they believed that the results would not likely change
during the period until completion of the study in 2005 and the
increased risk of stroke seen in the treatment arm could not be
justified by what could be learned in an additional year of treatment.
NIH concluded that estrogen alone does not appear to affect (either
increase or decrease) coronary heart disease and did not increase the
risk of breast cancer. In addition, NIH found an association with a
decrease in the risk of hip fracture. This increased risk of stroke
was similar to the increase seen in the HT subset of the WHI study.
NIH also stated that analysis of preliminary data from the separate
Women's Health Initiative Memory Study (WHIMS) showed an increased
risk of probable dementia and/or mild cognitive impairment in women
age 65 and older when data from both the PREMARIN and PREMPRO arm were
pooled. The study also reported a trend towards increased risk of
possible dementia in women treated with PREMARIN alone. WHIMS data
published in the Journal of American Medical Association (JAMA) in
June 2004 and in a separate report published in JAMA at the same time
indicated that HT did not improve cognitive impairment and may
adversely affect it in some women. The Company will continue to work
with the FDA to update the labeling for its HT products to include the
latest data.
Sales of PREMPRO and other PREMARIN family products have been and will
continue to be adversely affected by the WHI results. Based on the
most recent available market data, average weekly prescriptions
written for PREMPRO and PREMARIN decreased approximately 77% and 56%,
respectively, compared with the average weekly
43
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
prescriptions written during the eight-week period preceding the 2002
termination of the study subset.
Set forth below are individual product operating results for
PREMPRO/PREMPHASE and PREMARIN for the three and nine months ended
September 30, 2004 and 2003:
Prempro/Premphase
-----------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In millions) 2004 2003 2004 2003
----------------- ------ ------ ------ ------
Net revenue $51.2 $66.0 $168.2 $231.0
Gross profit 42.9 47.1 133.1 162.2
Premarin
-----------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In millions) 2004 2003 2004 2003
----------------- ------ ------ ------ ------
Net revenue $123.0 $280.0 $494.6 $794.3
Gross profit 97.2 236.3 407.2 693.0
The Company recorded a $60.0 million reserve in the 2003 second
quarter for anticipated returns in connection with a projected shift
in prescriptions toward the approved lower dosage forms of PREMPRO.
This $60.0 million reserve was calculated by reviewing wholesalers'
inventory levels as of September 30, 2003, after deducting projected
PREMPRO sales by wholesalers using the first-in, first-out (FIFO)
method and excluding "out of date" inventory (it is the Company's
policy to accept returns of product with expiration dates of six
months or less). Due to higher than anticipated sales of the original
formulations of PREMPRO, a portion of the inventory previously
reserved was sold by wholesalers. Based on current demand forecasts,
wholesalers' inventory levels and expiration dating of the remaining
inventory held by the wholesalers, the Company reduced the reserve by
$20.0 million in the 2004 second quarter. The remaining reserve is
considered adequate to cover expected returns for the PREMARIN family
of products.
Competition
The Company operates in the highly competitive pharmaceutical and
consumer health care industries. PREMARIN, the Company's principal
conjugated estrogens product manufactured from pregnant mare's urine,
and related products PREMPRO and PREMPHASE (which are single tablet
combinations of the conjugated estrogens in PREMARIN and the progestin
medroxyprogesterone acetate) are the leaders in their categories and
contribute significantly to net revenue and results of operations.
PREMARIN's natural composition is not subject to patent protection
(although PREMPRO has patent protection). PREMARIN, PREMPRO and
PREMPHASE are
44
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
indicated for the treatment of certain menopausal symptoms. They also
are approved for the prevention of osteoporosis, a condition involving
a loss of bone mass in postmenopausal women. Their use for that
purpose in women without symptoms should be limited to cases where
non-hormonal treatments have been seriously considered and rejected.
Estrogen-containing products manufactured by other companies have been
marketed for many years for the treatment of menopausal symptoms.
During the past several years, other manufacturers have introduced
products for the treatment and/or prevention of osteoporosis. New
products containing different estrogens and/or different progestins
than those found in PREMPRO and PREMPHASE, utilizing various forms of
delivery and having many forms of the same indications, also have been
introduced. Some companies have also attempted to obtain approval for
generic versions of PREMARIN. These products, if approved, would be
routinely substitutable for PREMARIN and related products under many
state laws and third-party insurance payer plans. In May 1997, the FDA
announced that it would not approve certain synthetic estrogen
products as generic equivalents of PREMARIN given known compositional
differences between the active ingredient of these products and
PREMARIN. Although the FDA has not approved any generic equivalent to
PREMARIN to date, PREMARIN will continue to be subject to competition
from existing and new competing estrogen and other products for its
approved indications and may be subject to generic competition from
either synthetic or natural conjugated estrogens products in the
future. One other company has announced that it has applied for FDA
approval of a generic version of PREMARIN derived from the same
natural source. Following a bench trial in November 2002, a federal
court found, in an order issued on October 2, 2003, that the company
which had developed the estrogens to be used in this product, Natural
Biologics, Inc., had misappropriated certain of the Company's trade
secrets relating to the manufacture of PREMARIN. The court has entered
a permanent injunction that, inter alia, bars Natural Biologics, Inc.
from using the misappropriated trade secrets and from engaging in the
research, development, production or manufacture of estrogens from
urine. Wyeth v. Natural Biologics, Inc., et al., No. 98-2469
(JNE/JGL), U.S.D.C., D. Minn. Natural Biologics, Inc. has filed an
appeal from the court's injunction. The Company cannot predict the
timing or outcome of the appeal or other efforts by any other company
to seek FDA approval for generic versions of PREMARIN.
On August 4, 2004, Eli Lilly received FDA approval for its new
antidepressant, CYMBALTA, which, like EFFEXOR XR, inhibits the uptake
of serotonin and norepinephrine in the brain. In addition, growth in
overall usage of antidepressants in the United States appears to be
slowing for a variety of reasons. EFFEXOR continues to outperform the
overall category, but the Company cannot be certain that trend will
continue.
The FDA is in the process of implementing class labeling for
antidepressants that will, among other things, more prominently
highlight the already labeled risk of suicide in adolescents in a
"black box" warning. That final labeling is expected in the first
quarter of 2005. In addition, the regulatory authority in the United
Kingdom is currently reviewing certain safety issues regarding EFFEXOR
and other antidepressants. The
45
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Company is currently communicating with the regulatory authority
regarding their concerns. The Company expects continuing regulatory
scrutiny of the drugs in this therapeutic area, including EFFEXOR.
The Company cannot predict the level of impact these issues may have
on future global usage of EFFEXOR.
Product Supply
Market demand for ENBREL is strong; however, the sales growth had been
constrained by limits on the existing source of supply. In December
2002, the retrofitted Rhode Island facility owned by Amgen was
completed and manufacturing production was approved by the FDA.
Consequently, manufacturing capacity for ENBREL significantly
increased in 2003. Market demand has continued to grow and additional
manufacturing supply is projected to be required. Productivity
improvements and process enhancements at existing facilities continue
to improve the supply capacity for ENBREL. In April 2002, Immunex
(prior to being acquired by Amgen) announced it entered into a
manufacturing agreement with Genentech, Inc. to produce ENBREL
beginning in 2004, subject to FDA approval. In October 2004, the FDA
approved the manufacture of ENBREL bulk drug substance by Genentech.
The current plan for the longer term includes an additional
manufacturing facility, which is being constructed by the Company in
Grange Castle, Ireland, and increased capacity at the Rhode Island
facility, both of which are expected to be completed during 2005.
As a result of delays in product availability of PREVNAR due to a late
2003 shutdown of the filling lines at the Company's Pearl River, New
York facility as well as other manufacturing and testing issues,
product availability was constrained in all markets through the first
half of 2004. During the first quarter of 2004, the Centers for
Disease Control and Prevention (CDC) issued interim recommendations to
defer administration of the 3rd and 4th doses for healthy children.
Due to increased product availability, the CDC revised these
recommendations in early July and again in September to recommend that
Health Care Providers return to a three and then four-dose schedule,
respectively, for healthy children and initiate efforts to vaccinate
those children who had had doses deferred. In March of 2004, the
European Agency for the Evaluation of Medicinal Products issued
interim dosing recommendations to reduce usage. In September these
recommendations were revised to reinstate pre-shortage
recommendations. Capacity should be enhanced overall in 2004 due to
internal improvements and the FDA approval of a third party filling
facility in the second quarter of 2004. The Company expects to meet
its 2004 production goal of 20 - 23 million doses.
The Company is in discussions with the European Medicines Agency
regarding manufacturing and quality issues at a manufacturing site for
PREVNAR. The Company is working with the authority to resolve these
issues and cannot predict what impact, if any, this will have on
PREVNAR sales.
46
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
Supply Chain
Management continually reviews the Company's supply chain structure
with respect to utilization of production capacities as well as
manufacturing efficiencies. Changes in product demand periodically
create capacity imbalances within the manufacturing network. When such
imbalances result in overcapacity, which management considers to be
other than temporary, the network is restructured to gain optimal
efficiency and to reduce production costs. As a result, additional
restructuring charges may occur in future periods.
Research and Development Pipeline
The Company previously discussed at its June 2004 R&D Analyst Meeting,
among other R&D projects, tanaproget, a nonsteroidal oral
contraceptive. The Company has suspended active development of
tanaproget while the scope of its commercial profile is further
evaluated. Strategic alternatives for advancing tanaproget into Phase
3 development are under consideration, including external partnering
or out-licensure.
Litigation and Contingent Liabilities
The Company is involved in various legal proceedings, including
product liability and environmental matters that arise from time to
time in the ordinary course of business, the most significant of which
are described in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003, the Company's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2004 and June 30, 2004, interim
Current Reports filed on Form 8-K, and this Quarterly Report on Form
10-Q. These include allegations of injuries caused by drugs, vaccines
and over-the-counter products, including PONDIMIN (which in
combination with phentermine, a product that was not manufactured,
distributed or sold by the Company, was commonly referred to as
"fen-phen"), REDUX, the prior formulation of DIMETAPP, the prior
formulation of ROBITUSSIN, PREMPRO, PREMARIN and EFFEXOR, among
others. In addition, the Company has responsibility for environmental,
safety and cleanup obligations under various local, state and federal
laws, including the Comprehensive Environmental Response, Compensation
and Liability Act, commonly known as Superfund.
The estimated costs that the Company expects to pay are accrued when
the liability is considered probable and the amount can be reasonably
estimated (see Note 7 to the consolidated condensed financial
statements for a discussion of the costs associated with the REDUX and
PONDIMIN diet drug litigation). In many cases, future
environmental-related expenditures cannot be quantified with a
reasonable degree of accuracy. As investigations and cleanups proceed,
environmental-related reserves are reviewed and adjusted as additional
information becomes available. Prior to November 2003, the Company was
self-insured for product liability risks with excess coverage on a
claims-made basis from various insurance carriers in excess of the
self-insured amounts and subject to certain policy limits. Effective
November 2003, the Company became
47
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
completely self-insured for product liability risks. It is not
possible to predict whether any potential liability that might exceed
amounts already accrued will have a material adverse effect on the
Company's financial condition, results of operations and/or cash
flows. This is discussed in greater detail in Note 7 to the
consolidated condensed financial statements.
Cautionary Statements Regarding Forward-Looking Information
-----------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Forward-looking statements may
appear in periodic reports filed with the Securities and Exchange
Commission (including the Company's Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q), in press releases, in the Company's
Annual Report to Stockholders and other reports to stockholders, and
in other communications made by the Company. These forward-looking
statements can be identified by their use of words such as
"anticipates," "expects," "is confident," "plans," "could," "will,"
"believes," "estimates," "forecasts," "projects" and other words of
similar meaning. These forward-looking statements address various
matters including:
o our anticipated results of operations, liquidity position,
financial condition and capital resources;
o the benefits that we expect will result from our business
activities and certain transactions we announced or completed,
such as increased revenues, decreased expenses, and avoided
expenses and expenditures;
o statements of our expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are
not historical facts;
o the timing and successfulness of research and development
activities;
o trade buying patterns;
o the impact of competitive or generic products;
o the impact of changes in generally accepted accounting
principles;
o costs related to product liability, patent protection, government
investigations and other legal proceedings;
o our ability to protect our intellectual property, including
patents;
o the impact of legislation or regulation affecting pricing,
reimbursement or access, both in the United States and
internationally;
o the impact of managed care or health care cost-containment;
o governmental laws and regulations affecting our U.S. and
international businesses, including tax obligations and results
of tax audits;
o the impact of regulatory action and public discussion of
suicidality in usage of EFFEXOR;
o environmental liabilities;
o the accuracy of our estimates and assumptions utilized in our
critical accounting policies;
48
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
o the future impact of presently known trends, including those with
respect to product performance and competition;
o future demand for our products;
o anticipated changes in product mix;
o anticipated developments relating to sales of PREMPRO/PREMARIN
family of products, as well as ENBREL and PREVNAR product supply;
o anticipated amounts of future contractual obligations; and
o the potential impact of litigation including litigation, inter
alia, relating to PREMPRO, PREMARIN, the prior formulation of
ROBITUSSIN and the prior formulation of DIMETAPP; the nationwide
class action settlement relating to REDUX and PONDIMIN; and
additional litigation charges related to REDUX and PONDIMIN,
including those for opt outs from the national settlement.
All forward-looking statements address matters involving numerous
assumptions, risks and uncertainties, which may cause actual results
to differ materially from those expressed or implied by us in those
statements. Accordingly, we caution you not to place undue reliance on
these forward-looking statements, which speak only as of the date on
which they were made. From time to time, we also may provide oral or
written forward-looking statements in other materials we release to
the public. Additionally, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result
of new information, future developments or otherwise. As permitted by
the Private Securities Litigation Reform Act of 1995, the Company is
hereby filing the following cautionary statements identifying
important factors, which among others, could cause the Company's
actual results to differ materially from expected and historical
results:
Economic factors over which we have no control such as changes in
business and economic conditions, including, but not limited to,
inflation and fluctuations in interest rates, foreign currency
exchange rates and market value of our equity investments and any
impacts of war or threatened or actual terrorist activity;
Interruptions of computer and communication systems including computer
viruses, that could impair the Company's ability to conduct business
and communicate internally or with its customers;
Increasing pricing pressures, both in and outside the United States,
resulting from continued consolidation among health care providers,
rules and practices of managed care groups and institutional and
governmental purchasers, judicial decisions and governmental laws and
regulations relating to Medicare, Medicaid and health care reform,
pharmaceutical reimbursement and pricing in general;
Competitive factors, such as (i) new products developed by our
competitors that have lower prices or superior performance features or
that are otherwise competitive with our current products; (ii)
technological advances and patents attained by our competitors; (iii)
49
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
changes in promotional regulations or practices; (iv) development of
alternative therapies; (v) potential generic competition for PREMARIN
and for other health care products as such products mature and patents
or marketing exclusivity expire on such products; (vi) problems with
licensors, suppliers and distributors; (vii) business combinations
among our competitors and major customers; and (viii) ability to
attract and retain management and other key employees;
Government laws and regulations affecting U.S. and international
operations, including (i) trade, monetary and fiscal policies and
taxes; (ii) price controls, or reimbursement or access policies; (iii)
drug importation legislation; (iv) changes in governments and legal
systems; (v) tax obligations and results of tax audits; (vi)
regulatory approval processes affecting approvals of products and
licensing, including, without limitation, uncertainties of the FDA
approval process that may delay or prevent the approval of new
products and result in lost market opportunity; and (vii) regulatory
action affecting labeling of products and impact on usage of such
product;
Difficulties and delays inherent in pharmaceutical research, product
development, manufacturing and commercialization, such as, (i) failure
of new product candidates to reach market due to efficacy or safety
concerns, inability to obtain necessary regulatory approvals and the
difficulty or excessive cost to manufacture; (ii) the inability to
identify viable new chemical compounds; (iii) difficulties in
successfully completing clinical trials; (iv) difficulties in
manufacturing complex products, particularly biological products, on a
commercial scale; (v) difficulty in gaining and maintaining market
acceptance of approved products; (vi) seizure or recall of products;
(vii) the failure to obtain, the imposition of limitations on the use
of, or loss of patent and other intellectual property rights; (viii)
failure to comply with current Good Manufacturing Practices and other
applicable regulations and quality assurance guidelines that could
lead to temporary manufacturing shutdowns, product shortages and
delays in product manufacturing; and (ix) other manufacturing or
distribution problems;
Difficulties or delays in product manufacturing or marketing,
including but not limited to, the inability to build up production
capacity commensurate with demand, the inability of our suppliers to
provide raw material, or the failure to predict market demand for or
to gain market acceptance of approved products;
Unexpected safety or efficacy concerns arising with respect to
marketed products, whether or not scientifically justified, leading to
product recalls, withdrawals, regulatory action on the part of the FDA
(or foreign counterparts) or declining sales;
Growth in costs and expenses, changes in product mix, and the impact
of any acquisitions or divestitures, restructuring and other unusual
items that could result from evolving business strategies, evaluation
of asset realization and organizational restructuring;
Legal difficulties, any of which can preclude or delay
commercialization of products or adversely affect profitability, such
as (i) product liability litigation related to our products
50
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months and Nine Months Ended September 30, 2004
including, without limitation, litigation associated with the prior
formulation of DIMETAPP, the prior formulation of ROBITUSSIN, PREMPRO,
PREMARIN, EFFEXOR and our former diet drug products, REDUX and
PONDIMIN; (ii) claims asserting violations of antitrust, securities,
or other laws; (iii) tax matters; (iv) intellectual property disputes
or changes in intellectual property legal protections and remedies;
(v) environmental matters, including obligations under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund; and (vi) complying with the consent
decree with the FDA;
Fluctuations in buying patterns of major distributors, retail chains
and other trade buyers which may result from seasonality, pricing,
wholesaler buying decisions or other factors;
Changes in accounting standards promulgated by the Financial
Accounting Standards Board, the Emerging Issues Task Force, the
Securities and Exchange Commission, and the American Institute of
Certified Public Accountants, which may require adjustments to our
financial statements; and
The other factors identified above under "Certain Factors that May
Affect Future Results."
This list should not be considered an exhaustive statement of all
potential risks and uncertainties.
51
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The market risk disclosures appearing on page 70 of the Company's 2003
Annual Report as incorporated by reference in the Form 10-K have not
materially changed from December 31, 2003. At September 30, 2004, the
fair values of the Company's financial instruments were as follows:
Carrying Fair
Notional/ Value Value
(In millions) Contract ------------------------
Description Amount Assets (Liabilities)
--------------------- ----------------------------------------
Forward contracts (1) $1,628.4 $(3.2) $(3.2)
Interest rate swaps 5,300.0 171.1 171.1
Outstanding debt (2) 7,977.9 (8,149.0) (8,218.0)
(1) If the U.S. dollar were to strengthen or weaken by 10%, in
relation to all hedged foreign currencies, the net payable on the
forward contracts would decrease or increase by approximately
$87.4.
(2) If the interest rates were to increase or decrease by one
percentage point, the fair value of the outstanding debt would
decrease or increase by approximately $654.8.
The estimated fair values approximate amounts at which these financial
instruments could be exchanged in a current transaction between
willing parties. Therefore, fair values are based on estimates using
present value and other valuation techniques that are significantly
affected by the assumptions used concerning the amount and timing of
estimated future cash flows and discount rates that reflect varying
degrees of risk. Specifically, the fair value of forward contracts and
interest rate swaps reflects the present value of the future potential
loss if settlement were to take place on September 30, 2004 and the
fair value of outstanding debt instruments reflects a current yield
valuation based on observed market prices as of September 30, 2004.
Item 4. Controls and Procedures
-----------------------
As of September 30, 2004, the Company carried out an evaluation, under
the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are reasonably effective in design and
practice to alert them, in a timely manner, to material information
relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings. During
the 2004 third quarter, there were no changes in the Company's
internal control over financial reporting or in other factors that
could materially affect the Company's internal control over financial
reporting, nor were any corrective actions required to be taken by the
Company with regard to significant deficiencies or material weaknesses
in internal control over financial reporting.
52
Part II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The Company and its subsidiaries are parties to numerous lawsuits and
claims arising out of the conduct of its business, including product
liability and other tort claims, the most significant of which have
been described in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2004 and June 30, 2004 and items filed in
Current Reports on Form 8-K in 2004.
The REDUX and PONDIMIN diet drug litigation is discussed in greater
detail in Note 7 to the consolidated condensed financial statements,
under the caption "Contingencies and Commitments."
Through September 30, 2004, payments into the REDUX and PONDIMIN
national settlement funds, individual settlement payments, legal fees
and other costs totaling $13,590.8 million were paid and applied
against the litigation accrual. At September 30, 2004, $3,009.2
million of the litigation accrual remained.
In a joint motion filed in the U.S. District Court for the Eastern
District of Pennsylvania on May 4, 2004, the Company, counsel for the
plaintiff class in the nationwide settlement and counsel for a number
of individual class members moved to stay for 60 days the processing
and payment of Level I and Level II matrix claims and certain
associated court proceedings. That motion was granted by the court on
May 10, 2004. The stay was intended to provide the parties with an
opportunity to draft and submit to the court a Seventh Amendment to
the settlement agreement that would create a new claims processing
structure, funding arrangement and payment schedule for these claims.
The stay was eventually extended beyond its original expiration date,
July 9, 2004, until August 10, 2004. On August 10, 2004, the parties
filed a joint motion seeking preliminary approval of the proposed
Seventh Amendment. By the terms of the court's orders, the filing
automatically extended the stay of Level I and Level II claim
processing until the court granted or denied preliminary approval.
On August 26, 2004, United States District Judge Harvey Bartle III
granted the motion for preliminary approval of the proposed Seventh
Amendment. In addition to other terms of the court's order, the order
directed that notice of the Seventh Amendment be provided to
potentially affected class members beginning on September 10, 2004 (to
be completed by September 15, 2004), established November 9, 2004 as
the date by which class members could opt out of the proposed Seventh
Amendment (and remain bound by the original settlement terms), or
object to it, and scheduled a fairness hearing for January 18, 2005.
Pursuant to the terms of the proposed Seventh Amendment, the Company
retains the right to withdraw from the Seventh Amendment if
participation by class members is inadequate or for any other reason.
The Company must do so within 60 days of the end of the opt
out/objection period (i.e., by January 8, 2005).
53
If approved by the court following the fairness hearing and upheld on
any appeals that might be taken, the proposed Seventh Amendment would
include the following key terms:
o The amendment would create a new Supplemental Fund, to be
administered by a Fund Administrator who will be appointed
by the District Court and who will process the Level I and
Level II matrix claims;
o After trial court approval, the Company would make initial
payments of up to $50.0 million to facilitate the
establishment of the Supplemental Fund and to begin
reviewing claims. Following approval by the federal court
overseeing the settlement and any appellate courts, the
Company would make an initial payment of $400.0 million to
enable the Supplemental Fund to begin paying claims. The
timing of additional payments would be dictated by the rate
of review and payment of claims by the Fund Administrator.
The Company would ultimately deposit a total of $1,275.0
million, net of certain credits, into the Supplemental Fund;
o All current matrix Level I and II claimants who qualify
under the Seventh Amendment, who pass the Settlement Fund's
medical review and who otherwise satisfy the requirements of
the settlement would receive a pro rata share of the
$1,275.0 million Supplemental Fund, after deduction of
certain expenses and other amounts from the Supplemental
Fund. The pro rata amount would vary depending upon the
number of claimants who pass medical review, the nature of
their claims, their age and other factors. A Seventh
Amendment participant who does not qualify for a payment
after such medical review would be paid $2,000 from the
Supplemental Fund;
o Participating class members who might in the future have
been eligible to file Level I and Level II matrix claims
would be eligible to receive a $2,000 payment from the
settlement Trust; such payments would be funded by the
Company apart from its other funding obligations under the
national settlement;
o If the participants in the Seventh Amendment have heart
valve surgery or other more serious medical conditions on
Matrix Levels III through V by the earlier of fifteen years
from the date of their last diet drug ingestion or by
December 31, 2011, they would remain eligible to submit
claims to the existing settlement Trust and be paid the
current matrix amounts if they qualify for such payments
under terms modified by the Seventh Amendment. In the event
the existing settlement Trust is unable to pay those claims,
the Company would guarantee payment; and
o All class members who participate in the Seventh Amendment
would give up any further opt out rights. Approval of the
Seventh Amendment would also preclude any lawsuits by the
Trust or the Company to recover any amounts previously paid
to class members by the Trust, as well as terminate the
Claims Integrity Program as to all claimants who do not opt
out of the Seventh Amendment.
There can be no assurance that the Company will ultimately proceed
with the amendment (based upon the level of participation in the
amendment or for other reasons), or that the amendment will be
approved by the court and upheld on appeal.
54
As of October 27, 2004, approximately 63,000 individuals who had filed
Intermediate or Back-End opt out forms had served lawsuits on the
Company. The claims of approximately 50% of the plaintiffs in the
Intermediate and Back-End opt out cases served on the Company are
pending in federal court, with approximately 40% pending in state
courts. The claims of approximately 10% of the Intermediate and
Back-End opt out plaintiffs have been removed from state courts to
federal court, but are still subject to a possible remand to state
court. In addition, a large number of plaintiffs have asked the United
States Court of Appeals for the Third Circuit to review and reverse
orders entered by the federal court overseeing the settlement which
had denied the plaintiffs' motions to remand their cases to state
court. The appellate court has not determined whether or not it will
hear that challenge.
The Company expects to vigorously challenge all Intermediate and
Back-End opt out claims of questionable validity or medical
eligibility and a number of cases have already been dismissed on
eligibility grounds. However, the total number of filed lawsuits that
meet the settlement's opt out criteria will not be known for some
time. As a result, the Company cannot predict the ultimate number of
purported Intermediate or Back-End opt outs that will satisfy the
settlement's opt out requirements, but that number could be
substantial. As to those opt outs who are found eligible to pursue a
lawsuit, the Company also intends to vigorously defend these cases. As
of October 27, 2004, approximately 1,700 Intermediate or Back-End opt
out plaintiffs have had their lawsuits dismissed for procedural or
medical deficiencies or for various other reasons.
In addition to verdicts previously reported, on August 12, 2004, a
Philadelphia jury in the Pennsylvania Court of Common Pleas, First
Judicial District, hearing the Back-End opt out cases of Steward v.
Wyeth, et al., No. 021002340, Ford v. Wyeth, et al., No. 020704036,
Hargrove v. Wyeth, et al., No. 020800684, and Nixon v. Wyeth, et al.,
No. 021101759 returned a defense verdict, finding that plaintiffs had
not been damaged by their use of PONDIMIN and/or REDUX and that the
Company had not been negligent in its marketing of PONDIMIN or REDUX.
On August 20, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the Intermediate opt
out cases of Bernston v. Wyeth, et al., No. 021202304, and Connell v.
Wyeth, et al., No. 021202454, returned a verdict finding that
plaintiff Bernston had not been damaged by her use of PONDIMIN and
that plaintiff Connell had been damaged in the amount of $50,000 by
the use of PONDIMIN and REDUX. The Bernston case was thereupon
dismissed and the parties resolved the Connell case. On October 22,
2004, a Philadelphia jury in the Pennsylvania Court of Common Pleas,
First Judicial District, hearing the Intermediate opt out cases of
Feagins v. Wyeth, et al., No. 021202424, and Dupree v. Wyeth, et al.,
No. 021202429, returned a verdict finding that plaintiff Feagins had
not been damaged by her use of PONDIMIN and that plaintiff Dupree had
been damaged in the amount of $41,195.12 by the use of PONDIMIN. The
Feagins case was thereupon dismissed; the Company agreed not to
contest liability in the Dupree case, but may pursue an appeal. On
October 27, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the Back-End opt out
cases of Fernandez v. Wyeth, et al., No. 020704037, Joel Taylor v.
Wyeth, et al., No. 020802581, and Ruby Taylor v. Wyeth, et al., No.
021102104, returned a verdict finding that plaintiffs Joel Taylor and
Ruby Taylor had not been damaged by their use of PONDIMIN and that
55
plaintiff Fernandez had been damaged in the amount of $50,000 by her
use of PONDIMIN. The two Taylor cases were thereupon dismissed and the
parties resolved the Fernandez case. On November 2, 2004, a Norwalk,
California jury in the California Superior Court, Los Angeles County,
hearing the Intermediate opt out case of Hines v. Wyeth, et al., No.
DD001645, returned a verdict finding that plaintiff had been damaged
in the amount of $115,000 by his use of PONDIMIN. The
Bernston/Connell, Feagins/Dupree, Fernandez/Taylor, and Hines cases
were tried under a reverse bifurcation procedure, in which the parties
first try the issue of the plaintiff's alleged injury and damages, and
only proceed to a trial of the Company's liability for the jury's
award if any damages are found. Because no damages were found in the
Bernston, Feagins and two Taylor cases, because the Connell,
Fernandez, and Hines cases were resolved after the damages phase and
because the Company did not contest liability in the Dupree case, none
of these cases proceeded to the liability phase.
On October 6, 2004, a Philadelphia jury in the Pennsylvania Court of
Common Pleas, First Judicial District, hearing the combined
Intermediate opt out cases of Hansen v. Wyeth, et al., No. 021201063,
Jensen v. Wyeth, et al., No 0021201202, Hill v. Wyeth, et al., No.
021201207, and McMurdie v. Wyeth, et al., No. 021201386, in a reverse
bifurcation format found that plaintiffs had been damaged in the
aggregate amount of $2.135 million by their use of PONDIMIN and/or
REDUX. The verdict dealt solely with the issue of damages. The trial
resumed on October 25, 2004 and on November 3, 2004, the jury returned
a verdict finding the Company liable for the damages determined in the
earlier phase. The Company plans to appeal the verdict.
In addition to the Intermediate and Back-End opt out cases that have
gone to verdict, other such cases set for trial have been settled,
dismissed or adjourned to a later date.
On April 27, 2004, a jury in Beaumont, Texas hearing the case of
Coffey, et al. v. Wyeth, et al., No. E-167,334, 172nd Judicial
District Court, Jefferson Cty., TX, returned a verdict in favor of the
plaintiffs for $113.353 million in compensatory damages and $900.0
million in punitive damages for the wrongful death of the plaintiffs'
decedent, allegedly as a result of PPH caused by her use of PONDIMIN.
On May 17, 2004, the trial court entered judgment on behalf of the
plaintiffs for the full amount of the jury's verdict, as well as $4.2
million in pre-judgment interest and $188,737 in guardian ad litem
fees. On July 26, 2004, the trial court denied in their entirety the
Company's motions for a new trial or for judgment notwithstanding the
verdict, including the Company's request for application of Texas's
statutory cap on punitive damage awards. The Company has filed an
appeal from the judgment entered by the trial court and believes that
it has strong arguments for reversal or reduction of the awards on
appeal due to the significant number of legal errors made during trial
and in the charge to the jury and due to a lack of evidence to support
aspects of the verdict. In connection with its appeal, the Company was
required by Texas law to post a bond in the amount of $25.0 million.
The appeal process is expected to take one to two years at a minimum.
As of October 14, 2004, the Company was a defendant in approximately
340 lawsuits in which the plaintiff alleges a claim of PPH, alone or
with other alleged injuries. Almost all of these claimants must meet
the definition of PPH set forth in the national settlement
56
agreement in order to pursue their claims outside of the national
settlement (payment of such claims, by settlement or judgment, would
be made by the Company and not the Trust). Approximately 70 of these
cases appear to be eligible to pursue a PPH lawsuit under the terms of
the national settlement. In approximately 45 of the approximately 340
cases, the Company expects the PPH claims to be voluntarily dismissed
by the claimants (although they may continue to pursue other claims).
In approximately 55 of these cases the Company has filed or expects to
file motions under the terms of the national settlement to preclude
plaintiffs from proceeding with their PPH claims. For the balance of
these cases, the Company currently has insufficient medical
information to assess whether or not the claimants meet the definition
of PPH under the national settlement. The Company continues to work
toward resolving the claims of individuals who allege that they have
developed PPH as a result of their use of the diet drugs and intends
to vigorously defend those PPH cases that cannot be resolved prior to
trial.
In the litigation involving PREMARIN and PREMPRO, the Company's
estrogen and estrogen/progestin therapies, respectively, two
additional putative class action lawsuits have been filed. The
putative class representative in Tiedemann, et al. v. Wyeth, et al.,
No. 110063/04 (N.Y. Sup. Ct., New York Cty.), seeks to represent a
class of all New York women who ingested prescription hormone therapy
(HT) medication "on a regular basis" and allegedly suffered personal
injury as a result. Medical monitoring and compensatory and punitive
damages are also sought. The putative class representative in Lesser,
et al. v. Wyeth, et al., No. 04110280 (N.Y. Sup. Ct., New York Cty.),
seeks to represent a class of all New York residents who used HT and
were prescribed the product by a physician licensed and practicing in
New York. Compensatory damages, medical monitoring costs and punitive
damages are sought. The Company is currently defending approximately
2,560 actions in various courts for personal injuries allegedly
arising out of the use of PREMARIN or PREMPRO, including breast
cancer, stroke and heart disease. Together, these cases assert claims
on behalf of approximately 4,100 women allegedly injured by PREMPRO or
PREMARIN.
In the litigation involving the Company's cough/cold products that
contained the ingredient phenylpropanolamine (PPA), the Company is
currently a named defendant in approximately 685 lawsuits (on behalf
of a total of approximately 1,100 plaintiffs).
In the litigation alleging that the administration of one or more
vaccines containing thimerosal, a preservative used in certain
vaccines manufactured and distributed by the Company as well as by
other vaccine manufacturers, causes severe neurological damage,
including autism, the Company has been served with 370 lawsuits in
various state and federal courts involving 949 vaccine recipients. Of
those 949 vaccine recipients, 484 have also filed petitions for
compensation in the United States Court of Federal Claims under the
provisions of the federal Vaccine Compensation Act (the Vaccine
Court). Of these 484 Vaccine Court petitioners, 43 have withdrawn from
Vaccine Court (33 of whom are currently proceeding with lawsuits
against the Company), and 414 of those currently proceeding in Vaccine
Court have had their petitions in that Court pending for over 240
days. Absent a Vaccine Court judgment, Vaccine Court petitioners are
first eligible to withdraw from Vaccine Court 240 days after they file
their petitions. Currently there are over 4,300 petitions pending as
part of an Omnibus Autism
57
Proceeding in Vaccine Court, but it is unknown how many of those
petitioners received one or more vaccines manufactured and distributed
by the Company.
The Company has been named as a defendant in a putative class action
(filed, but not yet served upon the Company) brought on behalf of all
former or present EFFEXOR patients who, after August 20, 1997,
suffered from an alleged dependency or withdrawal syndrome following
the reduction or termination of their dosage of EFFEXOR. Carolina, et
al. v. Wyeth, et al., No. 04CV-608P, U.S.D.C., N.D. Ok. The complaint
asserts causes of action for strict liability, failure to warn,
negligent failure to warn, fraud, intentional infliction of emotional
distress and violations of the federal Food, Drug & Cosmetic Act and
seeks compensatory and punitive damages on behalf of the class.
A putative class action lawsuit has been filed involving the
veterinary product PROHEART 6, which the Company's Fort Dodge Animal
Health subsidiary voluntarily recalled from the market in September
2004. The putative class representative in Dill, et al. v. American
Home Products, et al., No. CJ 1004 05879 (Dist. Ct., Tulsa Cty., OK)
seeks to represent a class of all Oklahoma individuals whose canines
have been injured or died as a result of being injected with PROHEART
6. Compensatory and punitive damages are sought.
In the litigation against the Company and other pharmaceutical
manufacturers alleging that the defendant companies violated federal
antitrust statutes and certain state laws by unlawfully agreeing to
engage in conduct to prevent U.S. consumers from purchasing
defendants' prescription drugs from Canada, the plaintiffs have filed
an amended complaint that consolidates what were seven separate
actions into a single purported class action, now entitled In re
Canadian Import Antitrust Litigation, Civ. No. 04-2724 (JNE/JGL),
U.S.D.C., D. Minn. Additionally, another action, Clayworth v. Pfizer,
et al., No. RG04172428, Calif. Super. Ct., Alameda Cty, has been filed
against the Company in California state court alleging certain
violations of California state law. This action is brought on behalf
of California pharmacies and alleges that the defendant pharmaceutical
manufacturers engaged in a price-fixing conspiracy in the United
States that was carried out by, among other allegations, efforts to
restrict Canadian drugs from coming into the United States. The
California action alleges that, as a result of the claimed conspiracy,
the pharmacy plaintiffs paid higher prices for the defendants'
pharmaceutical products than they otherwise would have paid. The
Company intends to vigorously defend these actions.
Broadview Pharmacy, a retail pharmacy located in Toronto, Canada,
filed an application for leave to file a private application for
remedial relief with Canada's Competition Tribunal against Wyeth
Canada under Section 75 of Canada's Competition Act, alleging that
Wyeth Canada refused to supply the pharmacy with Wyeth Canada's
prescription pharmaceutical products. On September 20, 2004, the
Competition Tribunal denied Broadview's petition.
In connection with the antitrust multi-district litigation proceedings
in which direct and indirect purchasers of K-Dur 20 allege that the
Company's settlement of certain patent infringement litigation with
Schering-Plough unlawfully delayed the market entry of
58
generic competition for K-Dur 20, the district court has preliminarily
approved the Company's settlement with a putative class of direct
purchaser plaintiffs. The Company anticipates that a final approval
hearing will occur within the next several months.
In the litigation involving allegations that the Company violated
federal and state antitrust laws through the use of alleged exclusive
contracts and "disguised exclusive contracts" with managed care
organizations and pharmacy benefit managers concerning PREMARIN, the
United States Court of Appeals for the Sixth Circuit has recently
denied the Company's appeal of the district court's decision to grant
the indirect-purchasers' motion for class certification in Ferrell, et
al. v. Wyeth-Ayerst Labs., Inc., Civ. A. No. C-1-01-447, U.S.D.C.,
S.D. Oh. In addition, the Company has appealed to the California Court
of Appeals, First Appellate District, the Superior Court's decision to
grant an indirect purchaser's motion for class certification in
Blevins v. Wyeth-Ayerst Labs., Inc., et al., Case No. 324380, Cal.
Super. Ct., San Francisco Cty. The Company intends to vigorously
defend the antitrust lawsuits involving PREMARIN.
Medtronic Sofamor Danek (Medtronic) is Wyeth's licensee for certain
products utilizing Wyeth's recombinant BMP-2 protein, in particular
the INFUSE Bone Graft/LT-CAGE Lumbar Tapered Fusion Device System
(Infuse). In a case involving technology agreements, Medtronic Sofamor
Danek, Inc. vs. Gary K. Michelson, M.D. and Karlin Technology, Inc.,
Civ. Action No. 01-2373 (U.S. District Court for the Western District
of Tennessee), a jury found Medtronic liable for $109.0 million in
compensatory damages and $400.0 million in punitive damages. Wyeth was
not a party to that action and is not liable for the damages awarded.
As part of its verdict, the jury found that Infuse infringed U.S.
patents 6,080,155, 6,270,498 and 6,210,412 and awarded royalties at a
rate of 10%. The patent owner has not requested an injunction as to
sales of Infuse. If an injunction were to be issued, Wyeth's sales of
BMP-2 could be impacted. Medtronic has advised Wyeth that it intends
to appeal.
The Company intends to continue to defend all of the foregoing
litigation vigorously.
In the opinion of the Company, although the outcome of any legal
proceedings cannot be predicted with certainty, the ultimate liability
of the Company in connection with pending litigation (other than the
litigation involving REDUX and PONDIMIN, the potential effects of
which are discussed in Note 7 to the consolidated condensed financial
statements, "Contingencies and Commitments") will not have a material
adverse effect on the Company's financial position but could be
material to the results of operations or cash flows in any one
accounting period.
59
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
(12) Computation of Ratio of Earnings to Fixed Charges.
(31.1) Certification of disclosure as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of disclosure as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(32.2) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
The following Current Reports on Form 8-K were filed or furnished
by the Company:
o July 21, 2004 relating to furnishing Wyeth's earnings
results for the 2004 second quarter (Item 12 disclosure).
o July 22, 2004 relating to furnishing information on Wyeth's
diet drug litigation (Items 5 and 7 disclosure).
o August 11, 2004 relating to furnishing information on
Wyeth's diet drug litigation (Item 9 disclosure).
o September 30, 2004 relating to the election of Frances D.
Fergusson, Ph.D. to Wyeth's Board of Directors (Items 5.02
and 9.01 disclosure).
o October 20, 2004 relating to furnishing Wyeth's earnings
results for the 2004 third quarter (Item 2.02 disclosure).
60
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Wyeth
-----
(Registrant)
By /s/ Paul J. Jones
-----------------------
Paul J. Jones
Vice President and Controller
(Duly Authorized Signatory
and Chief Accounting Officer)
Date: November 9, 2004
61
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
(12) Computation of Ratio of Earnings to Fixed Charges.
(31.1) Certification of disclosure as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of disclosure as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(32.2) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
EX-1