UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to_______
COMMISSION FILE NUMBER 1-3619
--
PFIZER INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5315170
(State of incorporation) (I.R.S. Employer
Identification No.)
235 East 42nd Street, New York, New York 10017
(Address of principal executive offices)
(212) 573-2323
(Registrant's telephone number)
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
At July 31, 1998, 1,400,227,335 shares of the issuer's common stock were
outstanding.
PFIZER INC.
FORM 10-Q
For the Quarter Ended
June 28, 1998
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.
Page
Financial Statements:
Condensed Consolidated Statement of Income for
the three months and six months ended June 28, 1998
and June 29, 1997 3
Condensed Consolidated Balance Sheet at
June 28, 1998, December 31, 1997 and June 29, 1997 4
Condensed Consolidated Statement of Cash Flows for
the six months ended June 28, 1998 and June 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 23
Item 6.
Exhibits and Reports on Form 8-K 29
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
(millions, except per share data)
Net sales . . . . . . . . . . . . . . . $3,435 $2,854 $6,624 $5,856
Alliance revenue . . . . . . . . . . . 198 59 348 58
Total revenues. . . . . . . . . . . . . 3,633 2,913 6,972 5,914
Costs and expenses:
Cost of sales . . . . . . . . . . . . 586 510 1,131 1,055
Selling, informational and
administrative expenses . . . . . . . 1,500 1,245 2,832 2,359
Research and development expenses . . 574 461 1,079 874
Other deductions--net. . . . . . . . . 73 61 68 128
Income before provision for taxes
on income and minority interests . . . 900 636 1,862 1,498
Provision for taxes on income . . . . . 271 175 540 434
Minority interests. . . . . . . . . . . 1 4 2 5
Net income. . . . . . . . . . . . . . . $ 628 $ 457 $1,320 $1,059
Earnings per common share
Basic . . . . . . . . . . . . . . $ .50 $ .36 $ 1.05 $ .84
Diluted. . . . . . . . . . . . . . $ .47 $ .35 $ 1.00 $ .81
Weighted average shares used
to calculate earnings per common
share amounts
Basic . . . . . . . . . . . . . . 1,265 1,257 1,263 1,257
Diluted. . . . . . . . . . . . . . 1,320 1,301 1,317 1,300
Cash dividends per common share . . . . $ .19 $ .17 $ .38 $ .34
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
June 28, Dec. 31, June 29,
1998* 1997** 1997*
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . $ 1,089 $ 877 $ 1,514
Short-term investments . . . . . . . . . . 958 712 723
Accounts receivable, less allowances of
$64, $51 and $61 . . . . . . . . . . . . 3,110 2,527 2,525
Short-term loans . . . . . . . . . . . . . 99 115 220
Inventories
Finished goods. . . . . . . . . . . . . . 720 677 641
Work in process . . . . . . . . . . . . . 864 852 743
Raw materials and supplies . . . . . . . 258 244 280
Total inventories . . . . . . . . . . . 1,842 1,773 1,664
Prepaid expenses, taxes
and other assets . . . . . . . . . . . . 1,161 816 697
Total current assets . . . . . . . . . 8,259 6,820 7,343
Long-term loans and investments . . . . . . . 1,315 1,340 1,224
Property, plant and equipment, less
accumulated depreciation of
$2,382, $2,321 and $2,260 . . . . . . . . 4,166 4,137 3,943
Goodwill, less accumulated amortization of
$166, $152 and $129 . . . . . . . . . . . . 1,023 1,294 1,344
Other assets, deferred taxes and
deferred charges . . . . . . . . . . . . . 1,745 1,745 1,878
Total assets . . . . . . . . . . . . . $16,508 $15,336 $15,732
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings, including current
portion of long-term debt of
$4, $6 and $1 . . . . . . . . . . . . $ 2,583 $ 2,255 $ 2,978
Accounts payable . . . . . . . . . . . . . 814 765 971
Income taxes payable . . . . . . . . . . . 752 785 789
Dividends payable . . . . . . . . . . . . . 251 -- 221
Accrued compensation and related items . . 601 511 424
Other current liabilities . . . . . . . . . 1,137 989 1,039
Total current liabilities . . . . . . . 6,138 5,305 6,422
Long-term debt . . . . . . . . . . . . . . . 724 729 731
Postretirement benefit obligation other
than pension plans . . . . . . . . . . . . 391 394 407
Deferred taxes on income . . . . . . . . . . 98 156 263
Other noncurrent liabilities . . . . . . . . 852 819 735
Total liabilities . . . . . . . . . . . 8,203 7,403 8,558
Shareholders'Equity
Preferred stock . . . . . . . . . . . . . . -- -- --
Common stock . . . . . . . . . . . . . . . 70 69 69
Additional paid-in capital . . . . . . . . 4,757 3,239 2,498
Retained earnings . . . . . . . . . . . . . 9,928 9,349 8,415
Accumulated other comprehensive
income/(expense) . . . . . . . . . . . . (162) (85) 7
Employee benefit trusts . . . . . . . . . . (3,974) (2,646) (2,193)
Treasury stock, at cost . . . . . . . . . . (2,314) (1,993) (1,622)
Total shareholders' equity . . . . . . 8,305 7,933 7,174
Total liabilities and
shareholders' equity . . . . . . . . $16,508 $15,336 $15,732
* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(millions of dollars)
Six Months Ended
June 28, June 29,
1998 1997
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $1,320 $1,059
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of business . . . . . . . . . . . . (194) --
Depreciation and amortization of intangibles . . 268 244
Changes in operating assets and
liabilities, net of effect of business
divested and other . . . . . . . . . . . . . . (668) (626)
Net cash provided by operating activities . . . . . 726 677
Investing Activities
Purchases of property, plant and equipment . . . . (487) (420)
Purchases of short-term investments . . . . . . . (1,776) (918)
Proceeds from redemptions of short-term
investments . . . . . . . . . . . . . . . . . . . 1,659 759
Proceeds from sale of business . . . . . . . . . . 425 --
Purchases and redemptions of short-term
investments by financial
subsidiaries and other . . . . . . . . . . . . . (109) (1)
Net cash used in investing activities . . . . . . . (288) (580)
Financing Activities
Repayment of long-term debt . . . . . . . . . . . (7) (269)
Increase in short-term debt . . . . . . . . . . . 406 985
Purchases of common stock . . . . . . . . . . . . (323) (219)
Cash dividends paid . . . . . . . . . . . . . . . (491) (440)
Stock option transactions . . . . . . . . . . . . 168 159
Other financing activities . . . . . . . . . . . . 24 71
Net cash (used in)/provided by
financing activities. . . . . . . . . . . . . . . . (223) 287
Effect of exchange-rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . (3) (20)
Net increase in cash and cash equivalents . . . . . 212 364
Cash and cash equivalents balance at beginning
of period . . . . . . . . . . . . . . . . . . . . . 877 1,150
Cash and cash equivalents balance at end
of period . . . . . . . . . . . . . . . . . . . . . $1,089 $1,514
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . $ 604 $ 584
Interest . . . . . . . . . . . . . . . . . . . . . 67 78
See accompanying Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
We prepared the condensed financial statements following the requirements of
the Securities and Exchange Commission (SEC) for interim reporting. As
permitted under those rules, certain footnotes or other financial information
that are normally required by GAAP (generally accepted accounting principles)
can be condensed or omitted. Certain prior year data have been reclassified
to conform to the 1998 presentation.
The financial statements include the assets and liabilities and the operating
results of subsidiaries operating outside the U.S. Balance sheet amounts for
these subsidiaries are as of May 24, 1998 and May 25, 1997. The operating
results for these subsidiaries are for the three and six month periods ending
on the same dates.
Note 2: Responsibility for Interim Financial Statements
We are responsible for the unaudited financial statements included in this
document. The financial statements include all normal and recurring
adjustments that are considered necessary for the fair presentation of our
financial position and operating results. As these are condensed financial
statements, one should also read the financial statements and notes in our
company's latest Form 10-K.
Revenues, expenses, assets and liabilities can vary during each quarter of the
year. Therefore, the results and trends in these interim financial statements
may not be the same as those for the full year.
Note 3: New Accounting Pronouncements
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." This Statement
establishes standards for reporting and display of comprehensive income, which
consists of all changes in equity from nonshareholder sources. Prior year
financial statements have been conformed to the requirements of SFAS No. 130
(see Note 5).
Effective January 1, 1998, we adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement requires
us to report information about our operating segments on the same basis as our
internal management reporting. As a result of adopting SFAS No. 131, we split
the previously reported Health Care unit into two segments, Pharmaceuticals
and Medical Technology and combined Consumer Health Care with Pharmaceuticals.
In February 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" which becomes effective for our financial statements for the year
ended December 31, 1998. SFAS No. 132 requires revised disclosures about
pension and other postretirement benefit plans. We are currently assessing
the impact of this Statement on our annual financial reporting disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which becomes effective for our financial
statements beginning January 1, 2000. SFAS No. 133 requires a company to
recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. We are currently evaluating this
Statement and its impact on our existing accounting policies and financial
reporting disclosures.
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and SOP 98-5, "Reporting on
the Costs of Start-up Activities" which are effective for our 1999 financial
statements. We do not expect the adoption of these SOPs to have a material
impact on our financial statements.
Note 4: Derivative Financial Instruments
During the quarter, we added cross-currency interest rate swaps as an
additional method for hedging our net investment in Japan and also extended
the term of the hedge through 2003. Specifically, we entered into an
aggregate of $625 million notional amount of cross-currency interest rate
swaps to hedge our net investment in Japan. They commit us at maturity to
sell Japanese yen for U.S. dollars, essentially a yen payable and a U.S.
dollar receivable.
We will also make interim payments of a fixed rate of 1.1% on the Japanese yen
payable and have interim receipts of a variable rate based on a commercial
paper rate on the U.S. dollar receivable. These cross-currency interest rate
swaps replaced $625 million of Japanese yen debt and related interest rate
swaps which previously served as a hedge of our net investment in Japan.
Accordingly, we terminated $625 million of interest rate swap contracts.
Cross-currency swaps are reported net in our balance sheet in "Other
noncurrent liabilities." Changes in the foreign exchange translation of the
Japanese yen payable are reported in "Accumulated other comprehensive
income/(expense)". Interim receipts and payments under these currency swaps
are allocated primarily to interest, with the remaining amount to foreign
exchange in "Other deductions--net."
We also entered into Japanese yen interest rate swaps to adjust from floating
to fixed rate $267 million of Japanese yen debt also serving as hedges of our
net investment in Japan. They require:
- - Interim payments of a fixed rate of 1.3% to 1.4% and
- - Maturity in 2003
Note 5: Comprehensive Income
Three Months Ended Six Months Ended
(millions of dollars) June 28, June 29, June 28, June 29,
1998 1997 1998 1997
Net income $ 628 $457 $1,320 $1,059
Other comprehensive
(income)/expense*:
Currency translation
adjustment 27 (19) (65) (154)
Net unrealized gain/(loss)
on investment securities (17) 12 (12) 14
Adjustments to minimum
pension liability -- -- -- 2
10 (7) (77) (138)
Total comprehensive income $638 $450 $1,243 $ 921
* Components of other comprehensive income/(expense) were reported separately
in shareholders' equity prior to adoption of SFAS No. 130, "Reporting
Comprehensive Income."
Changes in the currency translation adjustment included in "Accumulated other
comprehensive income/(expense)" for the first six months of 1998 and 1997
were:
(millions of dollars) 1998 1997
Opening balance $ (79) $ 174
Translation adjustments and hedges (65) (154)
Ending balance $(144) $ 20
Note 6: Product Alliance
In the first quarter, we entered into a product arrangement with G.D. Searle &
Co., the pharmaceutical division of Monsanto Company. Under the worldwide
agreements, which exclude only Japan, we are working with Searle to codevelop
and copromote Searle's Celebra (celecoxib) which is initially being developed
for the treatment of rheumatoid arthritis and osteoarthritis. Initial
payments to Searle of $100 million were expensed in the first quarter of 1998
and are included in "Other deductions--net" for the six months ended June 28,
1998.
Note 7: Divestitures and Other
In January 1998, we completed the sale of the Valleylab business--a part of
the Medical Technology Group. In connection with this transaction, we received
$425 million and recorded a $194 million gain included in "Other deductions--
net" for the six months ended June 28, 1998.
In February 1998, we announced that we are exploring strategic options for the
Medical Technology Group (MTG). We have reached agreements to divest the
Schneider Worldwide and American Medical System businesses as outlined below.
We are continuing to explore strategic options, including divestiture in
public or private transactions, for Howmedica, the remaining MTG business. We
have not yet made any decisions about this business.
In June 1998, we announced an agreement to sell Schneider Worldwide--a part of
the Medical Technology Group--to Boston Scientific Corporation for $2.1
billion in cash. The transaction is anticipated to close in the third quarter
of 1998. Schneider manufactures and sells stents for a variety of
applications, angioplasty devices and accessories.
In July 1998, we announced an agreement to sell the American Medical Systems
(AMS) business--a part of the Medical Technology Group--to E.M. Warburg,
Pincus & Co., LLC for $130 million. The transaction, pending the usual
regulatory approvals, is expected to close in 1998. AMS manufactures and
sells urological devices for the treatment of erectile dysfunction, urinary
incontinence and benign prostatic hyperplasia (enlarged prostate).
The net assets of Schneider Worldwide and AMS have been recorded at their net
carrying value as net assets held for sale of $438 million (excluding direct
costs to sell) included in "Prepaid expenses, taxes and other current assets"
at June 28, 1998.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Pfizer Inc.:
We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and
subsidiary companies as of June 28, 1998 and June 29, 1997, and the related
condensed consolidated statements of income for each of the three month and
six month periods then ended and cash flows for the six month periods then
ended. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Pfizer Inc. and subsidiary
companies as of December 31, 1997, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated February 26, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
KPMG Peat Marwick LLP
New York, New York
August 11, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net income increased 38% for the second quarter and 25% for the first six
months of 1998 over the comparable 1997 periods. Components of the Statement
of Income follow:
(millions of dollars,
except per share data)
Second Quarter Six Months
% %
1998 1997 Change* 1998 1997 Change*
Net sales $3,435 $2,854 20 $6,624 $5,856 13
Alliance revenue 198 59 236 348 58 499
Total revenues $3,633 $2,913 25 $6,972 $5,914 18
Cost of sales $ 586 $ 510 15 $1,131 $1,055 7
% of total revenues 16.1% 17.5% 16.2% 17.8%
Selling, informational
and administrative
expenses $1,500 $1,245 20 $2,832 $2,359 20
% of total revenues 41.3% 42.8% 40.6% 39.9%
R&D expenses $ 574 $ 461 25 $1,079 $ 874 24
% of total revenues 15.8% 15.8% 15.5% 14.8%
Other deductions--net $ 73 $ 61 20 $ 68 $ 128 (48)
% of total revenues 2.0% 2.1% 1.0% 2.2%
Income before taxes $ 900 $ 636 42 $1,862 $1,498 24
% of total revenues 24.8% 21.8% 26.7% 25.3%
Taxes on income $ 271 $ 175 54 $ 540 $ 434 24
Effective tax rate 30.0% 27.5% 29.0% 29.0%
Net income $ 628 $ 457 38 $1,320 $1,059 25
% of total revenues 17.3% 15.7% 18.9% 17.9%
Earnings per common share
Basic $ .50 $ .36 39 $ 1.05 $ .84 25
Diluted $ .47 $ .35 34 $ 1.00 $ .81 23
Cash dividends per
common share $ .19 $ .17 12 $ .38 $ .34 12
*Percentages may reflect rounding adjustments.
TOTAL REVENUES
The components of the total revenue increase were as follows:
% Change from 1997
Second Quarter Six Months
Volume 26.5% 20.1%
Price 1.6 1.7
Currency (3.4) (3.9)
Total revenue increase 24.7% 17.9%
Wider acceptance of our major pharmaceutical products and our copromotion
products as well as the introduction of Viagra in April contributed to the
volume increases. Total revenues for the second quarter of 1998 by segment
and the changes from last year were as follows:
% of % of
Total Total %
(millions of dollars) 1998 Revenues 1997* Revenues** Change**
Pharmaceuticals
U.S. $1,888 52.0 $1,187 40.8 59
International 1,104 30.4 1,050 36.0 5
Worldwide 2,992 82.4 2,237 76.8 34
Medical Technology 321 8.8 362 12.4 (12)~
Animal Health 320 8.8 314 10.8 2
Total $3,633 100.0 $2,913 100.0 25
* Certain 1997 data have been reclassified to agree to the 1998 presentation.
**Percentages may reflect rounding adjustments.
~ Decline is attributable to the divestitures of the Valleylab and
Strato/Infusaid businesses.
Total revenues for the first six months of 1998 by segment and the changes
from last year were as follows:
% of % of
Total Total %
(millions of dollars) 1998 Revenues** 1997* Revenues** Change**
Pharmaceuticals
U.S. $3,620 51.9 $2,582 43.7 40
International 2,119 30.4 2,045 34.5 4
Worldwide 5,739 82.3 4,627 78.2 24
Medical Technology 623 8.9 678 11.5 (8)~
Animal Health 610 8.8 609 10.3 0
Total $6,972 100.0 $5,914 100.0 18
* Certain 1997 data have been reclassified to agree to the 1998 presentation.
**Percentages may reflect rounding adjustments.
~ Decline is attributable to the divestitures of the Valleylab and
Strato/Infusaid businesses.
The following is a discussion of total revenues by business segment:
Pharmaceuticals
Worldwide pharmaceutical revenues were as follows:
Second Quarter Six Months
(millions of dollars) 1998 1997* % Change 1998 1997* % Change**
Cardiovascular $ 983 $ 873 13 $1,953 $1,795 9
Infectious diseases 567 567 0 1,324 1,249 6
Central nervous system 417 333 25 893 737 21
Viagra 411 -- -- 411 -- --
Alliance revenue 198 59 236 348 58 499
Consumer health care 120 135 (11) 240 267 (10)
Other 296 270 10 570 521 9
Total $2,992 $2,237 34 $5,739 $4,627 24
* Certain 1997 data have been reclassified to agree to the 1998 presentation.
**Percentages may reflect rounding adjustments.
Sales of our eight major pharmaceutical products accounted for 74% of
pharmaceutical revenues and 61% of total revenues in the second quarter of
1998. Individual product sales in the second quarter of 1998 and a brief
discussion of each follow:
% Change from 1997
Excluding Effects
Product Category (millions) Actual of Foreign Exchange
Norvasc Cardiovascular $618 18 23
Procardia XL Cardiovascular 157 (6) (6)
Cardura Cardiovascular 159 7 11
Zithromax Infectious Diseases 163 3 6
Diflucan Infectious Diseases 211 (3) 0
Viagra Impotence 411 -- --
Zoloft Central Nervous System 398 23 25
Zyrtec Allergy 105 51 51
- - Norvasc continues to benefit from the increased acceptance by the worldwide
medical community.
- - Sales of Procardia XL have declined due in part to the increased emphasis
on and broad medical acceptance of Norvasc.
- - Cardura's sales continue to grow as alpha blockers are recognized as
effective therapy for the treatment of hypertension and enlarged prostate.
Cardura XL, a dosage form that uses the GITS delivery system, was launched
for hypertension in Germany in the first quarter.
- - Sales of Zithromax in the quarter were tempered by changes in wholesaler
stocking patterns in the U.S. and a weaker than usual flu season in Europe.
- - Sales growth of Diflucan continues to be impacted by the lower incidence of
fungal infections in AIDS patients being treated with protease inhibitors.
- - Viagra, the first effective oral treatment for erectile dysfunction, was
introduced in April. In the second quarter, Viagra was our second-largest
selling product worldwide and our largest selling U.S. product with U.S.
sales of $409 million. The initial rate of sales reflects prescriptions
and substantial trade stocking, which we expect will adjust to be
consistent with underlying demand over the remainder of the year. Viagra
has been filed with regulatory authorities in Europe, Japan and many other
parts of the world.
- - Zoloft continues to benefit from introductions in international markets,
new indications and increased field-force support.
- - Zyrtec was approved for a new use by the FDA in the second quarter as the
first once-daily prescription antihistamine for the treatment of seasonal
and perennial allergic rhinitis and hives in children age 2 to 5.
We started shipping Trovan, a broad spectrum quinolone antibiotic, to
customers in the U.S. in January 1998 with second quarter sales reaching $22
million. Trovan received European approval in July.
"Alliance revenue" reflects copromotion contractual revenues we earned from
sales of Lipitor and Aricept.
Product launches of Lipitor, the cholesterol-lowering medication, have taken
place in most major world markets, including the U.S., the United Kingdom,
Germany, Italy, Canada, Spain, Australia and Brazil and generated strong
revenue in the second quarter. Worldwide sales of Lipitor are primarily
recorded by the Parke-Davis Research Division of Warner-Lambert Company, the
company that discovered and developed the compound. In July, the FDA expanded
the approved indications for Lipitor to include use with diet changes by
patients with high triglyceride levels. Lipitor was also indicated as a
treatment for patients who have not responded adequately to dietary changes in
treating a condition which causes people to have extremely high amounts of
cholesterol and other fats in their blood streams.
Product launches of Aricept have taken place in 17 countries, including the
U.S., the United Kingdom, Canada, Germany, Italy, Spain, France and Australia.
Worldwide sales of Aricept totaled $79 million in the second quarter of 1998.
These sales are primarily recorded by Eisai Co., Ltd., the company that
discovered and developed the compound. Global prescriptions for the treatment
of Alzheimer's disease have increased roughly sixfold since the introduction
of Aricept. Aricept accounts for about 97% of all Alzheimer's disease
prescription drug sales in the U.S.
In the first quarter, we entered into a product arrangement with G.D. Searle &
Co., the pharmaceutical division of Monsanto Company. Under the worldwide
agreements, which exclude only Japan, we are working with Searle to codevelop
and copromote Searle's Celebra (celecoxib) which is initially being developed
for the treatment of rheumatoid arthritis and osteoarthritis. Initial
payments to Searle of $100 million were expensed in the first quarter of 1998
and are included in "Other deductions--net" for the six months ended June 28,
1998.
Medical Technology
Second quarter sales decreased 12% from last year's level. Excluding sales of
the divested Valleylab and Strato/Infusaid businesses, sales increased by 3%
(6% excluding the impact of foreign exchange). Sales of musculoskeletal
products increased by 2% in the second quarter to $210 million; interventional
products increased 13% to $91 million; and urological products continued to
decline (14% to $19 million). In June, we announced that we had agreed to
sell Schneider Worldwide to Boston Scientific Corporation for $2.1 billion.
The transaction is anticipated to close in the third quarter of 1998.
In July 1998, we announced an agreement to sell the American Medical Systems
(AMS) business--a part of the Medical Technology Group (MTG)--to E.M. Warburg,
Pincus & Co., LLC for $130 million. The transaction, pending the usual
regulatory approvals, is expected to close in 1998.
Total net sales and income before taxes for Strato/Infusaid, Valleylab,
Schneider Worldwide and AMS were as follows:
Three Months Ended Six Months Ended
Full Year June 28, June 29, June 28, June 29,
(millions of dollars) 1997 1998 1997 1998 1997
Net sales:
Strato/Infusaid $ 8 $-- $ 4 $ -- $ 8
Valleylab 198 -- 48 20 88
Schneider Worldwide 331 91 81 166 150
AMS 92 19 22 37 41
Income/(loss)before taxes:
Strato/Infusaid $(14) $-- $(2) $ -- $ (3)
Valleylab 32 -- 8 2 13
Schneider Worldwide 86 29 19 48 34
AMS 20 (2) 3 (1) 5
We are continuing to explore strategic options, including divestiture in
public or private transactions, for Howmedica, the remaining MTG business. We
have not yet made any decisions about this business. Total net sales of
Howmedica were $821 million for the full year 1997. Total income before taxes
for MTG was $221 million for the full year 1997.
Animal Health
Animal Health sales for the second quarter increased 2%. Animal Health was
particularly affected by foreign exchange as more than 58% of the segment's
sales in the quarter were made abroad. Excluding the impact of foreign
exchange, sales increased 7%. Sales of Dectomax grew 58% over last year,
reaching $46 million in the quarter.
Rimadyl, a non-steroidal anti-inflammatory medicine for osteoarthritis in
dogs, and RespiSure, a vaccine for respiratory infections in swine, continued
to grow in the second quarter.
Revenues by Geographic Area
Total revenues in the U.S. increased largely due to the introduction of Viagra
and sales growth of our other pharmaceutical products, particularly Norvasc,
Zyrtec and Zoloft, as previously described, as well as alliance revenue.
Total revenues by geographic area were as follows:
(millions of dollars)
Second Quarter
% of % of
Total Total
1998 Revenues 1997* Revenues % Change
$2,181 60.0 $1,497 51.4 United States 46
279 7.7 278 9.5 Japan --
1,173 32.3 1,138 39.1 All Other 3
$3,633 100.0 $2,913 100.0 Consolidated 25
(millions of dollars)
Six Months
% of % of
Total Total
1998 Revenues** 1997* Revenues % Change
$4,186 60.0 $3,165 53.5 United States 32
538 7.7 532 9.0 Japan 1
2,248 32.3 2,217 37.5 All Other 1
$6,972 100.0 $5,914 100.0 Consolidated 18
* Certain 1997 data have been reclassified to agree to the 1998 presentation.
**Percentages may reflect rounding adjustments.
Exchange rates affect the revenues we record in foreign markets. The U.S.
dollar's strength against foreign currencies decreases total revenues when
translated into their U.S. dollar equivalent. For example, international
pharmaceutical revenues increased 13% in the second quarter excluding the
impact of foreign exchange as compared with 6% reported. The currency impact
was most pronounced in Japan, Germany, France and Italy as the value of the
U.S. dollar strengthened relative to the prior year.
The Japanese yen has weakened substantially year-over-year versus the U.S.
dollar, and declines in the values of various Southeast Asian currencies
relative to the dollar added to this adverse effect. The Asian countries most
impacted by recent economic events--Korea, Indonesia, Thailand, Malaysia, the
Philippines, and Taiwan--combine to account for approximately 1% of total
company revenues.
COSTS AND EXPENSES
Cost of Sales
Cost of sales for the second quarter and first six months of 1998 declined as
a percentage of net sales mainly due to favorable product mix and improvements
in manufacturing efficiencies.
Selling, Informational and Administrative Expenses
Selling, informational and administrative expenses in both the second quarter
and first six months of 1998 increased 20% over the 1997 levels. Support for
previously introduced products and launches of new products contributed to the
increase.
Research and Development Expenses
Research and development expenses increased 25% in the second quarter over the
prior year period. In the first six months, Pharmaceutical R&D expenses,
expressed as a percentage of Pharmaceutical net sales, were 17% in 1998 and
18% in 1997. We expect total spending to be about $2.3 billion in 1998 to
discover new chemical compounds and advance others in development which
include:
- - Tikosyn (dofetilide), for treatment of a heart rhythm disorder. U.S. and
European regulatory filings for this product were submitted in the first
quarter of 1998;
- - eletriptan, for treatment of migraine headaches. European and U.S.
regulatory filings for this product are planned in the third and fourth
quarters of 1998;
- - Alond (zopolrestat), for treatment of nervous system, kidney and
cardiovascular disorders related to diabetes;
- - voriconazole, for the treatment of fungal infections;
- - an inhalable form of insulin under development with Inhale Therapeutics;
and
- - darifenacin, for the treatment of irritable bowel syndrome and urinary urge
incontinence.
We are also developing new uses or dosages for Norvasc, Zyrtec, Zoloft,
Cardura, Zithromax, Trovan and Viagra. During the second quarter, we
announced that we had received a non-approvable letter from the FDA for the
antipsychotic Zeldox. We are planning to discuss the parameters of a new
clinical study with the FDA and we anticipate the New Drug Application would
be able to be refiled in late 1999. We do not plan to launch Zeldox elsewhere
in the world until the new clinical study is completed. We have decided not
to pursue the development of candoxatril, a drug candidate for the treatment
of congestive heart failure. In the second quarter of 1998, we expensed
candoxatril inventory of $5.5 million.
Other Deductions--Net
The following components were included in "Other deductions--net" in the
second quarter and first six months of 1998 and 1997.
Second Quarter % Six Months %
(millions of dollars) 1998 1997 Change 1998 1997 Change*
Interest income $(40) $(38) 5 $(76) $(72) 6
Interest expense 34 37 (8) 61 74 (18)
Gain on sale of
Valleylab -- -- -- (194) -- --
Copromotion payments
to Searle -- -- -- 100 -- --
Amortization of
goodwill and other
intangibles 16 16 0 32 34 (6)
Foreign exchange 5 3 67 -- 9 --
Other, net 58 43 35 145 83 75
Other deductions--net $ 73 $ 61 20 $ 68 $128 (48)
*Percentages may reflect rounding adjustments.
TAXES ON INCOME
We now project a 1998 effective tax rate of 29%. The tax rate recorded in the
second quarter of approximately 30% also reflects an adjustment of first
quarter results, which were previously recorded using a 28% rate. The rate
increase from 28% to 29% for the full year is mainly due to a greater portion
of our company's taxable income being derived from the U.S.
OUTLOOK
Factoring in our major investments for the future and despite our increased
effective tax rate and the unfavorable impact of foreign exchange on revenues
and income, we are comfortable with the current range of the majority of
analysts' diluted earnings-per-share estimates of $2.05 and $2.10 for the
year. This assessment excludes impacts from acquisitions, divestitures,
licensing fees, legal settlements and other unusual items. This estimate
cannot be guaranteed. Actual results may differ materially.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The net financial assets/(debt) position was as follows:
June 28, Dec. 31, June 29,
(millions of dollars) 1998 1997 1997
Financial assets* $3,461 $3,044 $3,681
Short-term borrowings and
long-term debt 3,307 2,984 3,709
Net financial assets/(debt) $ 154 $ 60 $ (28)
* Consists of cash and cash equivalents, short-term investments and loans and
long-term loans and investments.
To fund investing and financing activities, commercial paper and short-term
borrowings are used to complement operating cash flows. In maintaining this
financial flexibility, levels of debt and investments will vary depending on
operating results.
Selected measures of our financial strength are as follows:
June 28, Dec. 31, June 29,
1998 1997 1997
Working capital (millions of dollars) $ 2,121 $ 1,515 $ 921
Current ratio 1.35:1 1.29:1 1.14:1
Debt to total capitalization
(percentage)* 28% 27% 34%
Shareholders' equity per
common share** $ 6.57 $ 6.30 $ 5.70
* Represents total short-term borrowings and long-term debt divided by the
sum of total short-term borrowings, long-term debt and total shareholders'
equity.
** Represents total shareholders' equity divided by the actual number of
common shares outstanding which excludes treasury shares and those held by the
employee benefit trusts.
The increase in working capital from June 29, 1997 to June 28, 1998 was
primarily due to the reclassification to current assets of the Schneider
Worldwide and AMS assets held for sale as well as alliance revenue receivables
and higher receivable and inventory levels related to new products. The
increase from December 31, 1997 was due to the Schneider and AMS
reclassifications mentioned above as well as higher receivables including
those for new products.
Net Cash Provided by Operating Activities
During the first six months of 1998, operating activities provided net cash of
$726 million, an increase of $49 million from the 1997 period. The change was
primarily due to higher net income in the first six months of 1998 versus
1997.
Net Cash Used in Investing Activities
In the first six months of 1998, investing activities used net cash of $288
million, a decrease of $292 million from the 1997 period. This change was
primarily attributable to proceeds from the sale of the Valleylab business.
Net Cash Used in/Provided by Financing Activities
In the first six months of 1998, net cash used in financing activities was
$223 million. We received less cash from net borrowings, repurchased more
common stock at a higher average price and paid higher cash dividends in the
first six months of 1998. During the first six months of 1998, we repurchased
approximately 3.5 million shares of common stock on the open market at an
average price of about $92 per share. Dividends paid increased due to the
increase in the dividend rate approved earlier this year.
In September 1996, Pfizer's board authorized the repurchase of up to $2
billion of the company's common stock over 18-24 months. Between September
1996 and the end of June 1998, Pfizer purchased 15.6 million shares at a cost
of about $936.5 million.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Many older computer software programs refer to years in terms of their final
two digits only. Such programs may interpret the year 2000 to mean the year
1900 instead. If not corrected, those programs could cause date-related
transaction failures.
We developed a Compliance Assurance Process to address this concern. A
project team has performed a detailed assessment of all internal computer
systems and, as discussed below, is developing and implementing plans to
correct the problems. We expect these projects to be successfully completed
during 1999.
Year 2000 problems could affect many of our research and development,
production, distribution, financial, administrative and communication
operations. Systems critical to our business which have been identified as
non-Year 2000 compliant are either being replaced or corrected through
programming modifications. In addition, a separate team is looking at Year
2000 readiness from other aspects of our business, including customer order-
taking, manufacturing, raw materials supply and plant process equipment. Our
goal is to have our remediated and replaced systems operational by the first
quarter of 1999 to allow time for testing and verification. In addition to
our in-house efforts, we are asking vendors, major customers, service
suppliers, communications providers and banks whose systems failures
potentially could have a significant impact on our operations to verify their
Year 2000 readiness. We are testing such systems where appropriate and
possible.
As part of our Contingency Plan, we are developing Business Continuity Plans
for those areas that are critical to Pfizer's business. These Business
Continuity Plans will be designed to mitigate serious disruptions to our
business flow beyond the end of 1999, and will operate independent of our
external providers' Year 2000 compliance. The major drive for contingency
planning will be in the last quarter of 1998 and the first half of 1999, with
the expectation that our business groups will have plans in place by the end
of the second quarter of 1999. Based on our current plans and efforts to date,
we do not anticipate that Year 2000 problems will have a material effect on
our results of operations or financial condition.
External and internal costs specifically associated with modifying internal
use software for Year 2000 compliance are expensed as incurred. To date, we
have spent $15 million on this project. Costs to be incurred in the remainder
of 1998 and 1999 to fix Year 2000 problems are estimated at approximately $45
million. Such costs do not include normal system upgrades and replacements.
We do not expect the costs relating to Year 2000 remediation to have a
material effect on our results of operations or financial condition.
The above expectations are subject to uncertainties. For example, if we are
unsuccessful in identifying or fixing all Year 2000 problems in our critical
operations, or if we are affected by the inability of suppliers or major
customers (such as a large drug wholesaler or distributor) to continue
operations due to such a problem, our results of operations or financial
condition could be materially impacted.
The total costs that we incur in connection with the Year 2000 problems will
be influenced by our ability to successfully identify Year 2000 systems'
flaws, the nature and amount of programming required to fix the affected
programs, the related labor and/or consulting costs for such remediation, and
the ability of third parties with whom we have business relationships to
successfully address their own Year 2000 concerns. These and other unforeseen
factors could have a material adverse effect on our results of operations or
financial condition.
NEW EUROPEAN CURRENCY
A new European currency (Euro) is planned for introduction in January 1999 to
replace the separate currency of several individual countries. This will
entail changes in our operations as we modify systems and commercial
arrangements to deal with the new currency. Modifications will be necessary
in operations such as payroll, benefits and pension systems, contracts with
suppliers and customers and internal financial reporting systems. Although a
three-year transition period is expected during which transactions can be made
in the old currencies, this may require dual currency processes for our
operations. We have attempted to identify issues involved and are developing
and implementing solutions. The cost of this effort is not expected to have a
material effect on our business or results of operations. There is no
guarantee, however, that all problems will be foreseen and corrected, or that
no material disruption of our business will occur. The conversion to the Euro
may have competitive implications on our pricing and marketing strategies;
however, any such impact is not known at this time.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Our disclosure and analysis in this report contain some "forward-looking
statements". Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact
that they do not relate strictly to historic or current facts. They use words
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance. In particular, these
include statements relating to future actions, prospective products or product
approvals, future performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies, such as legal
proceedings, and financial results. From time to time, we also may provide
oral or written forward-looking statements in other materials we release to
the public. Any or all of our forward-looking statements in this report and
in any other public statements we make may turn out to be incorrect. They can
be affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Consequently, no forward-looking statement can be
guaranteed. Actual results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the SEC. Our Form 10-K filing
for the 1997 fiscal year listed various important factors that could cause
actual results to differ materially from expected and historic results.
We note these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. Readers can find them in Part I of that filing
under the heading "Cautionary Factors That May Affect Future Results." We
incorporate that section of that Form 10-K in this filing and investors should
refer to it. You should understand that it is not possible to predict or
identify all such factors. Consequently, you should not consider any such
list to be a complete set of all potential risks or uncertainties. In
addition, we are continuing to explore strategic options, including
divestiture in a public or private transactions, for Howmedica, the remaining
MTG business.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
The Company is involved in a number of claims and litigations, including
product liability claims and litigations considered normal in the nature of
its businesses. These include suits involving various pharmaceutical and
hospital products that allege either reaction to or injury from use of the
product. In addition, from time to time the Company is involved in, or is the
subject of, various governmental or agency inquiries or investigations
relating to its businesses.
On June 9, 1997, the Company received notice of the filing of an
Abbreviated New Drug Application (ANDA) by Mylan Pharmaceuticals for a
sustained release nifedipine product asserted to be bioequivalent to Procardia
XL. Mylan's notice asserted that the proposed formulation does not infringe
relevant licensed Alza and Bayer patents and thus that approval of their ANDA
should be granted before patent expiration. On July 18, 1997, the Company,
together with Bayer AG and Bayer Corporation, filed a patent infringement suit
against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United
States District Court for the Western District of Pennsylvania with respect to
Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446,
licensed to the Company, relating to nifedipine of a specified particle size
range. Mylan has filed its answer denying infringement and a scheduling order
has been entered. Discovery is in progress. On or about February 23, 1998,
Bayer AG received notice that Biovail Laboratories Incorporated had filed an
ANDA for a sustained release nifedipine product asserted to be bioequivalent
to one dosage strength (60 mg) of Procardia XL. The notice was subsequently
received by the Company as well. The notice asserts that the Biovail product
does not infringe Bayer's U.S. Patent No. 5,264,446. On March 26, 1998 the
Company received notice of the filing of an ANDA by Biovail Laboratory of a 30
mg dosage formulation of nifedipine alleged to be bioequivalent to Procardia
XL. On April 2, 1998 Bayer and Pfizer filed a patent infringement action
against Biovail, relating to their 60 mg nifedipine product, in the United
States District Court for the District of Puerto Rico. On May 6, 1998 Bayer
and Pfizer filed a second patent infringement action in Puerto Rico against
Biovail under the same patent with respect to Biovail's 30 mg. nifedipine
product. These actions have been consolidated for discovery and trial. On
April 24 Biovail Laboratories Inc. brought suit in the United States District
Court for the Western District of Pennsylvania against the Company and Bayer
seeking a declaratory judgment of invalidity of and/or non-infringement of the
5,264,446 nifedipine patent as well as a finding of violation of the antitrust
laws. Biovail has also moved to transfer the patent infringement actions from
Puerto Rico to the Western District of Pennsylvania. Pfizer has opposed this
motion to transfer and on June 19, 1998 moved to dismiss Biovail's declaratory
judgment action and antitrust action in the Western District of Pennsylvania,
or in the alternative to stay the action pending the outcome of the
infringement actions in Puerto Rico. On April 2, 1998 the Company received
notice from Lek U.S.A Inc. of its filing of an ANDA for a 60 mg formulation of
nifedipine alleged to be bioequivalent to Procardia XL. On May 14, 1998 Bayer
and Pfizer commenced suit against Lek for infringement of Bayer's U.S. Patent
No. 5,264,446, as well as for infringement of a second Bayer patent, No.
4,412,986 relating to combinations of nifedipine with certain polymeric
materials.
Pfizer filed suit on July 8, 1997, against the FDA in the United States
District Court for the District of Columbia, seeking a declaratory judgment
and injunctive relief enjoining the FDA from processing Mylan's ANDA or any
other ANDA submission referencing Procardia XL that uses a different extended
release mechanism. Pfizer's suit alleges that extended release mechanisms that
are not identical to the osmotic pump mechanism of Procardia XL constitute
different dosage forms requiring the filing and approval of suitability
petitions under the Food Drug and Cosmetics Act before the FDA can accept an
ANDA for filing. Mylan intervened in Pfizer's suit. On March 31, 1998 the
U.S. District Judge granted the government's motion for summary judgment
against the Company. Pfizer has appealed that decision to the D.C. Court of
Appeals.
As previously disclosed, a number of lawsuits and claims have been
brought against the Company and Shiley Incorporated, a wholly owned
subsidiary, alleging either personal injury from fracture of 60 degrees or 70
degrees Shiley Convexo Concave ("C/C") heart valves, or anxiety that properly
functioning implanted valves might fracture in the future, or personal injury
from a prophylactic replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly
functioning valves might fracture in the future, the Company entered into a
settlement agreement in January 1992 in Bowling v. Shiley, et al., a case
brought in the United States District Court for the Southern District of Ohio,
that established a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elect to exclude themselves. The
settlement provided for a Consultation Fund of $90 million, which was fixed by
the number of claims filed, from which valve recipients are receiving payments
that are intended to cover their cost of consultation with cardiologists or
other health care providers with respect to their valves. The settlement
agreement established a second fund of at least $75 million to support C/C
valve-related research, including the development of techniques to identify
valve recipients who may have significant risk of fracture, and to cover the
unreimbursed medical expenses that valve recipients may incur for certain
procedures related to the valves. The Company's obligation as to coverage of
these unreimbursed medical expenses is not subject to any dollar limitation.
Following a hearing on the fairness of the settlement, it was approved by the
court on August 19, 1992 and all appeals have been exhausted.
Generally, the plaintiffs in all of the pending heart valve litigations
seek money damages. Based on the experience of the Company in defending these
claims to date, including insurance proceeds and reserves, the Company is of
the opinion that these actions should not have a material adverse effect on
the financial position or the results of operations of the Company. Litigation
involving insurance coverage for the Company's heart valve liabilities has
been resolved.
The Company's operations are subject to federal, state, local and
foreign environmental laws and regulations. Under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA" or "Superfund"), the Company has been designated as a potentially
responsible party by the United States Environmental Protection Agency with
respect to certain waste sites with which the Company may have had direct or
indirect involvement. Similar designations have been made by some state
environmental agencies under applicable state superfund laws. Such
designations are made regardless of the extent of the Company's involvement.
There are also claims that the Company may be a responsible party or
participant with respect to several waste site matters in foreign
jurisdictions. Such claims have been made by the filing of a complaint, the
issuance of an administrative directive or order, or the issuance of a notice
or demand letter. These claims are in various stages of administrative or
judicial proceedings. They include demands for recovery of past governmental
costs and for future investigative or remedial actions. In many cases, the
dollar amount of the claim is not specified. In most cases, claims have been
asserted against a number of other entities for the same recovery or other
relief as was asserted against the Company. The Company is currently
participating in remedial action at a number of sites under federal, state,
local and foreign laws.
To the extent possible with the limited amount of information available
at this time, the Company has evaluated its responsibility for costs and
related liability with respect to the above sites and is of the opinion that
the Company's liability with respect to these sites should not have a material
adverse effect on the financial position or the results of operations of the
Company. In arriving at this conclusion, the Company has considered, among
other things, the payments that have been made with respect to the sites in
the past; the factors, such as volume and relative toxicity, ordinarily
applied to allocate defense and remedial costs at such sites; the probable
costs to be paid by the other potentially responsible parties; total projected
remedial costs for a site, if known; existing technology; and the currently
enacted laws and regulations. The Company anticipates that a portion of these
costs and related liability will be covered by available insurance.
The United States Environmental Protection Agency_Region I and the
Department of Justice have informed the Company that the federal government is
contemplating an enforcement action arising primarily out of a December 1993
multimedia environmental inspection, as well as certain state inspections, of
the Company's Groton, Connecticut facility. The Company is engaged in
discussions with the governmental agencies and does not believe that an
enforcement action, if brought, will have a material adverse effect on the
financial position or the results of operations of the Company.
Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley
Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of
one construction product and several refractory products containing some
asbestos. These sales were discontinued thereafter. Although these sales
represented a minor market share, the Company has been named as one of a
number of defendants in numerous lawsuits. These actions, and actions related
to the Company's sale of talc products in the past, claim personal injury
resulting from exposure to asbestos-containing products, and nearly all seek
general and punitive damages. In these actions, the Company or Quigley is
typically one of a number of defendants, and both are members of the Center
for Claims Resolution (the "CCR"), a joint defense organization of twenty
defendants that is defending these claims. The Company and Quigley are
responsible for varying percentages of defense and liability payments for all
members of the CCR. A number of cases alleging property damage from asbestos-
containing products installed in buildings have also been brought against the
Company, but most have been resolved.
On January 15, 1993, a class action complaint and settlement agreement
were filed in the United States District Court for the Eastern District of
Pennsylvania involving all personal injury claims by persons who have been
exposed to asbestos-containing products but who have not yet filed a personal
injury action against the members of the CCR (Future Claims Settlement). The
District Court determined that the Future Claims Settlement was fair and
reasonable. Subsequently, the United States Court of Appeals for the Third
Circuit reversed the order of the District Court and on June 27, 1997, the
U.S. Supreme Court affirmed the Third Circuit's order and decertified the
class. The overturning of the settlement is not expected to have a material
impact on the Company's exposure or on the availability of insurance for the
vast majority of such cases. It is expected, too, that the CCR will attempt to
resolve such cases in the same manner as heretofore.
At approximately the time it filed the Future Claims Settlement class
action, the CCR settled approximately 16,360 personal injury cases on behalf
of its members, including the Company and Quigley. The CCR has continued to
settle remaining and opt-out cases and claims on a similar basis to past
settlements. As of June 27, 1998, there were 62,756 personal injury claims
pending against Quigley (excluding those which are inactive or have been
settled in principle), 27,572 such claims against the Company, and 69 talc
cases against the Company.
The Company believes that its costs incurred in defending and ultimately
disposing of the asbestos personal injury claims, as well as the property
damage and talc claims, will be largely covered by insurance policies issued
by several primary insurance carriers and a number of excess carriers that
have agreed to provide coverage, subject to deductibles, exclusions,
retentions and policy limits. Litigation is pending against several excess
insurance carriers seeking damages and/or declaratory relief to secure their
coverage obligations. Based on the Company's experience in defending the
claims to date and the amount of insurance coverage available, the Company is
of the opinion that the actions should not ultimately have a material adverse
effect on the financial position or the results of operations of the Company.
The Company has been named, together with numerous other manufacturers
of brand name prescription drugs and certain companies that distribute brand
name prescription drugs, in suits in federal and state courts brought by
various groups of retail pharmacy companies. The federal cases consist
principally of a class action by retail pharmacies (including approximately 30
named plaintiffs) (the "Federal Class Action"), as well as additional actions
by approximately 3,500 individual retail pharmacies and a group of chain and
supermarket pharmacies (the "individual actions"). These cases, which have
been transferred to the United States District Court for the Northern District
of Illinois and coordinated for pretrial purposes, allege that the defendant
drug manufacturers violated the Sherman Act by unlawfully agreeing with each
other (and, as alleged in some cases, with wholesalers) not to extend to
retail pharmacy companies the same discounts allegedly extended to mail order
pharmacies, managed care companies and certain other customers, and by
unlawfully discriminating against retail pharmacy companies by not extending
them such discounts. On November 15, 1994, the federal court certified a class
(the Federal Class Action) consisting of all persons or entities who, since
October 15, 1989, bought brand name prescription drugs from any manufacturer
or wholesaler defendant, but specifically excluding government entities, mail
order pharmacies, HMOs, hospitals, clinics and nursing homes. Fifteen
manufacturer defendants, including the Company, agreed to settle the Federal
Class Action subject to court approval. The Company's share pursuant to an
Agreement as of January 31, 1996, was $31.25 million, payable in four annual
installments without interest. The Company continues to believe that there was
no conspiracy and specifically denied liability in the Settlement Agreement,
but had agreed to settle to avoid the monetary and other costs of litigation.
The settlement was filed with the Court on February 9, 1996 and went through
preliminary and final fairness hearings. By orders of April 4, 1996, the
Court: (1) rejected the settlement; (2) denied the motions of the
manufacturers (including the Company) for summary judgment; (3) granted the
motions of the wholesalers for summary judgment; and (4) denied the motion to
exclude purchases by other than direct purchasers. On August 15, 1997, the
Court of Appeals (1) reversed the denial of summary judgment for the
manufacturers excluding purchases by other than direct purchasers; (2)
reversed the grant of summary judgment dismissing the wholesalers; and (3)
took action regarding Alabama state cases, and DuPont Merck. The District
Court has now set a trial date of September 1998 for the trial of the class
case against the non-settlers, and has permitted the opt-out plaintiffs to add
the wholesalers as named defendants in their cases.
In May 1996, thirteen manufacturer defendants, including the Company,
entered into an Amendment to the Settlement Agreement which was filed with the
Court on May 6, 1996. The Company's financial obligations under the Settlement
Agreement will not be increased. The Settlement Agreement, as amended,
received final approval June 21, 1996. Appeals from this decision were
dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Retail pharmacy cases have also been filed in state courts in Alabama,
California, Minnesota, Mississippi and Wisconsin. Pharmacy classes have been
certified in California. The Company's motion to dismiss was granted in the
Wisconsin case, and that dismissal is under appeal.
Consumer class actions have been filed in Alabama, Arizona, California,
the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee, Washington and Wisconsin alleging injury to
consumers from the failure to give discounts to retail pharmacy companies. The
New York and Washington state cases were dismissed, and an appeal is pending
in New York. A case filed in Colorado state court was dismissed without
appeal. A consumer class has been certified in California, and a limited
consumer class has been certified in the District of Columbia. Class
certification was denied in the Michigan state case, and plaintiffs'
subsequent petition for review was denied. Class certification also was denied
in the Maine case.
In addition to its settlement of the retailer Federal Class Action (see
above), the Company has also settled several major opt-out retail cases, and
along with other manufacturers, has entered into an agreement to settle all
outstanding consumer class actions (except Alabama and California). That
overall settlement is awaiting approval in the various courts in which the
actions are pending.
The Company believes that these brand name prescription drug antitrust
cases, which generally seek damages and certain injunctive relief, are without
merit.
The Federal Trade Commission is conducting an investigation focusing on
the pricing practices at issue in the above pharmacy antitrust litigation. In
July 1996, the Commission issued a subpoena for documents to the Company,
among others, to which the Company has responded. A second subpoena was issued
to the Company for documents in May 1997 and the Company has responded. This
investigation continues.
FDA administrative proceedings relating to Plax are pending, principally
an industry-wide call for data on all anti-plaque products by the FDA. The
call for data notice specified that products that have been marketed for a
material time and to a material extent may remain on the market pending FDA
review of the data, provided the manufacturer has a good faith belief that the
product is generally recognized as safe and effective and is not misbranded.
The Company believes that Plax satisfied these requirements and prepared a
response to the FDA's request, which was filed on June 17, 1991. This filing,
as well as the filings of other manufacturers, is still under review and is
currently being considered by an FDA Advisory Committee.
On January 15, 1997, an action was filed in Circuit Court, Chambers
County, Alabama, purportedly on behalf of a class of consumers, variously
defined by the laws or types of laws governing their rights and encompassing
residents of up to 47 states. The complaint alleges that the Company's claims
for Plax were untrue, entitling them to a refund of their purchase price for
purchases since 1988. A hearing on Plaintiff's motion to certify the class
was held on June 2, 1998. We are awaiting the Court's decision. The Company
believes the complaint is without merit.
In April 1996, the Company received a Warning Letter from the FDA
relating to the timeliness and completeness of required post marketing reports
for pharmaceutical products. The letter did not raise any safety issue about
Pfizer drugs. The Company has been implementing remedial actions designed to
remedy the issues raised in the letter. During 1997, the Company met with the
FDA to apprise them of the scope and status of these activities.
In July 1997, the Company resolved all issues with the FDA related to an
August 1996 Warning Letter from the FDA relating to certain promotional
materials used in the marketing of Zoloft. Consumer class actions were filed
in 1996 and 1997 in San Diego and in Dallas and Brownsville, Texas. The
complaints alleged that Pfizer's promotional materials improperly implied that
the FDA had approved Zoloft as safe and effective for certain indications, and
that patients for whom Zoloft was prescribed as a result of the promotion were
entitled to a refund of their purchase price. These actions have been
voluntarily discontinued.
A number of cases against Howmedica Inc. (some of which also name the
Company) allege that P.C.A. one-piece acetabular hip prostheses sold from 1983
through 1990 were defectively designed and manufactured and pose undisclosed
risks to implantees. The Company believes that most if not all of these cases
are without merit.
Between 1994 and 1996, seven class actions alleging various injuries
arising from implantable penile prostheses manufactured by American Medical
Systems were filed and ultimately dismissed or discontinued. Thereafter, in
late 1996 and 1997, approximately 600 former members of one or more of the
purported classes, represented by some of the same lawyers who filed the class
actions, filed individual suits in Circuit Court in Minneapolis alleging
damages from their use of implantable penile prostheses. The Company believes
that most if not all of these cases are without merit.
In June 1993, the Ministry of Justice of the State of Sao Paulo, Brazil
commenced a civil public action against the Company's Brazilian subsidiary,
Laboratories Pfizer Ltd. ("Pfizer Brazil") asserting that during a period in
1991, Pfizer Brazil withheld sale of the pharmaceutical product Diabinese in
violation of antitrust and consumer protection laws. The action seeks the
award of moral, economic and personal damages to individuals and the payment
to a public reserve fund. On February 8, 1996, the trial court issued a
decision holding Pfizer Brazil liable. The award of damages to individuals and
the payment into the public reserve fund will be determined in a subsequent
phase of the proceedings. The trial court's opinion sets out a formula for
calculating the payment into the public reserve fund which could result in a
sum of approximately $88 million. The total amount of damages payable to
eligible individuals under the decision would depend on the number of persons
eventually making claims. Pfizer Brazil is appealing this decision. The
Company believes that this action is without merit and should not have a
material adverse effect on the financial position or the results of operations
of the Company.
Tax Matters
The Internal Revenue Service (IRS) has completed its examination of the
Company's federal income tax returns through 1992.
In November 1994, Belgian tax authorities notified Pfizer Research and
Development Company N.V./S.A. ("PRDCO"), an indirect wholly-owned subsidiary
of the Company, of a proposed adjustment to the taxable income of PRDCO for
fiscal year 1992. The proposed adjustment arises from an assertion by the
Belgian tax authorities of jurisdiction with respect to income resulting
primarily from certain transfers of property by our non-Belgian subsidiaries
to the Irish branch of PRDCO. In January 1995, PRDCO received an assessment
from the tax authorities for additional taxes and interest of approximately
$432 million and $97 million, respectively, relating to these matters. In
January 1996, PRDCO received an assessment from the tax authorities, for
fiscal year 1993, for additional taxes and interest of approximately $86
million and $18 million, respectively. The new assessment arises from the same
assertion by the Belgian tax authorities of jurisdiction with respect to all
income of the Irish branch of PRDCO. Based upon the relevant facts regarding
the Irish branch of PRDCO and the provisions of Belgian tax laws and the
written opinions of outside legal counsel, the Company believes that the
assessments are without merit.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
1) Exhibit 10 - Stock and Asset Purchase Agreement dated as of
June 15, 1998 among Pfizer Inc., Pfizer
Holdings Ireland, the Asset Selling Corporation
(named therein) and Boston Scientific
Corporation.
2) Exhibit 15 - Accountants' Acknowledgment
2) Exhibit 27 - Financial Data Schedule
3) Exhibit 27.1 - Financial Data Schedule restated for
period ended June 29, 1997
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 17, 1998 during the second quarter
ended June 28, 1998 concerning the agreement to sell Schneider Worldwide to
Boston Scientific Corporation.
PFIZER INC. AND SUBSIDIARY COMPANIES
SIGNATURES
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 thereto duly authorized.
Pfizer Inc.
(Registrant)
Date: August 11, 1998
/s/H. V. Ryan
H. V. Ryan, Vice President; Controller
(Principal Accounting Officer and
Duly Authorized Officer)
Exhibit 15
ACCOUNTANTS' ACKNOWLEDGMENT
To the Shareholders and Board of Directors of Pfizer Inc.:
We hereby acknowledge the incorporation by reference of our report dated
August 11, 1998, included within the Quarterly Report on Form 10Q of Pfizer
Inc. for the quarter ended June 28, 1998, in the following Registration
Statements:
- - Form S-15 dated December 13, 1982 (File No. 2-80884),
- - Form S-8 dated October 27, 1983 (File No. 2-87473),
- - Form S-8 dated March 22, 1990 (File No. 33-34139),
- - Form S-8 dated January 24, 1991 (File No. 33-38708),
- - Form S-8 dated November 18, 1991 (File No. 33-44053),
- - Form S-3 dated May 27, 1993 (File No. 33-49629),
- - Form S-8 dated May 27, 1993 (File No. 33-49631),
- - Form S-8 dated May 19, 1994 (File No. 33-53713),
- - Form S-8 dated October 5, 1994 (File No. 33-55771),
- - Form S-3 dated November 14, 1994 (File No. 33-56435),
- - Form S-8 dated December 20, 1994 (File No. 33-56979),
- - Form S-4 dated February 14, 1995 (File No. 33-57709),
- - Form S-8 dated March 29, 1996 (File No. 33-02061),
- - Form S-8 dated September 25, 1997 (File No. 333-36371), and
- - Form S-8 dated April 23, 1998 (File No. 333-50899).
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
New York, New York
August 11, 1998