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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
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(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
| | 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
235 East 42nd Street
New York, New York 10017-5755
(Address of principal executive offices) (Zip Code)
(212) 573-2323
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Common Stock, $.05 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed by reference to the closing price at which the stock
was sold as of February 26, 1999 was approximately $165.8 billion.
The number of shares outstanding (voting) of each of the registrant's
classes of common stock as of February 26, 1999 was 1,293,175,162 shares of
common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Shareholders Parts I, II and IV
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders
Parts I, III, and IV
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TABLE OF CONTENTS
PAGE
PART I............................................................................................................1
ITEM 1. BUSINESS.................................................................................................1
General........................................................................................................1
Recent Development.............................................................................................1
Business Segments..............................................................................................1
Pharmaceutical Segment......................................................................................1
Animal Health Segment.......................................................................................3
Research and Product Development...............................................................................4
International Operations.......................................................................................5
Marketing......................................................................................................5
Patents and Intellectual Property Rights.......................................................................6
Competition....................................................................................................7
Raw Materials.................................................................................................10
Government Regulation and Price Constraints...................................................................10
Environmental Law Compliance..................................................................................11
Year 2000 Computer Systems Compliance.........................................................................11
Corporate/Financial Subsidiaries..............................................................................13
Tax Matters...................................................................................................13
Employees.....................................................................................................13
Cautionary Factors That May Affect Future Results.............................................................13
ITEM 2. PROPERTIES..............................................................................................17
ITEM 3. LEGAL PROCEEDINGS.......................................................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE.........................................................................25
EXECUTIVE OFFICERS OF THE COMPANY.......................................................................26
PART II..........................................................................................................29
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................29
ITEM 6. SELECTED FINANCIAL DATA.................................................................................29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................30
PART III.........................................................................................................30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................................30
ITEM 11. EXECUTIVE COMPENSATION.................................................................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................30
PART IV..........................................................................................................31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................................31
14(a)(1) Financial Statements................................................................................31
14(a)(2) Financial Statement Schedules.......................................................................31
14(a)(3) Exhibits............................................................................................31
PART I
ITEM 1. BUSINESS
GENERAL
Pfizer Inc. (the COMPANY, which may be referred to as WE, US, or OUR) is a
research-based, global pharmaceutical company. We discover, develop, manufacture
and market innovative medicines for humans and animals.
Our home page on the Internet is at www.pfizer.com. You can learn about us
by visiting that site.
RECENT DEVELOPMENT
In 1998, we exited the medical device business with the sale of our
remaining Medical Technology Group businesses:
o Valleylab to U.S. Surgical Corporation
o Schneider to Boston Scientific Corporation
o American Medical Systems to E.M. Warburg, Pincus & Co., LLC
o Howmedica to Stryker Corporation
Refer to Note 2 to our financial statements, DISCONTINUED OPERATIONS,
on page 45 in our 1998 Annual Report, which is incorporated by reference.
NOTE THAT THROUGHOUT THIS 10-K REPORT, WE "INCORPORATE BY REFERENCE"
CERTAIN INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC). THE SEC ALLOWS US TO DISCLOSE IMPORTANT INFORMATION
BY REFERRING TO IT IN THAT MANNER. PLEASE REFER TO SUCH INFORMATION.
BUSINESS SEGMENTS
We operate in two business segments:
o PHARMACEUTICAL, which includes prescription pharmaceuticals for treating
cardiovascular diseases, infectious diseases, central nervous system
disorders, diabetes, erectile dysfunction, allergies, arthritis and other
disorders, as well as non-prescription self-medications, and;
o ANIMAL HEALTH, which includes antiparasitic, anti-infective and
anti-inflammatory medicines, and vaccines for livestock, poultry and
companion animals.
These businesses derive synergies in certain research and regulatory
matters, but each requires different marketing and distribution strategies.
Comparative segment revenues, profits and related financial information for
1998, 1997 and 1996 are given in the table entitled SEGMENT INFORMATION on page
60 of our 1998 Annual Report. A table captioned PERCENTAGE CHANGE IN TOTAL
REVENUES and a graph captioned TOTAL REVENUES BY BUSINESS SEGMENT on pages 28
and 29 of the Annual Report give segment information over the past three years.
The information from those sections of the Annual Report is considered to be
incorporated in this 1998 10-K report.
Our businesses are heavily regulated in most of the countries where we
operate. In the U.S., the main regulatory authority we deal with is the Food and
Drug Administration (FDA). The FDA regulates the safety and efficacy of the
products we offer, our research quality, our manufacturing processes and our
promotion and advertising. Similar government authorities act in most other
countries, and in many cases also regulate our prices. See GOVERNMENT REGULATION
AND PRICE CONSTRAINTS, below.
PHARMACEUTICAL SEGMENT
Our Pharmaceutical segment is comprised of the Pfizer Pharmaceuticals Group
and the Consumer Health Care Group.
PFIZER PHARMACEUTICALS GROUP
In 1997, we combined our U.S. and international pharmaceutical operations
into a consolidated Pfizer Pharmaceuticals Group.
Most of our pharmaceutical sales come from products in three major
therapeutic classes: cardiovascular diseases, infectious diseases and central
nervous system disorders. We also have products for treatment of diabetes,
erectile
dysfunction, allergies and arthritis. In 1998, prescription pharmaceuticals
contributed 87% of our revenues, as compared to 84% in 1997 and 83% in 1996.
1998 sales of our major pharmaceutical products - NORVASC, PROCARDIA XL,
CARDURA, ZITHROMAX, DIFLUCAN, TROVAN, ZOLOFT, VIAGRA, GLUCOTROL XL and ZYRTEC -
comprised 69% of our revenues. A table captioned NET SALES - MAJOR
PHARMACEUTICAL PRODUCTS on page 29 of the Annual Report is incorporated by
reference.
Cardiovascular disease products that treat problems affecting the heart and
the blood circulatory system are our largest therapeutic product line,
accounting for roughly 31% of our revenues. NORVASC, our largest-selling
product, is a once-a-day medication for hypertension (high blood pressure) and
angina (heart pain). It belongs to the class of drugs known as CALCIUM CHANNEL
BLOCKERS. It is the largest-selling high blood pressure medicine in the world.
Our other cardiovascular products include PROCARDIA XL, also a once-a-day
calcium channel blocker for hypertension and angina, and CARDURA, which is in
the ALPHA BLOCKER class of medications, and is used to treat hypertension and
benign prostatic hyperplasia (enlarged prostate gland). Sales of PROCARDIA XL
continued to decrease during 1998, in part due to the medical community's
increased emphasis on NORVASC.
We participated in the 1997 launch of LIPITOR, for treatment of high lipids
(cholesterol and triglycerides) in the bloodstream, under copromotion and
license arrangements with the Parke-Davis Division of Warner-Lambert Company,
which discovered the drug. Following its introduction, LIPITOR surpassed several
established competitors and, at the end of 1998, is the most-prescribed medicine
in its category in the U.S. At the end of 1998, LIPITOR was being sold in most
major world markets.
In the infectious disease medicine category, our major products are
ZITHROMAX, DIFLUCAN and TROVAN. ZITHROMAX is an oral or injectable antibiotic in
the chemical class known as AZALIDES. In 1998, it was the most prescribed
brand-name oral antibiotic in the U.S in both the adult oral solid and the
pediatric liquid suspension categories. Sales of ZITHROMAX increased in 1998 in
part due to the increasing recognition by physicians of the product's
effectiveness in treating a broad array of infections. DIFLUCAN is used to treat
various fungal infections, including vaginal infections and certain infections
that afflict AIDS and cancer patients with weakened immune systems. In 1998 we
launched TROVAN, a once-daily oral dose antibiotic also available in intravenous
form. It belongs to the class of chemical compounds known as QUINOLONES, and
treats a broad range of infections. TROVAN's profile complements that of
ZITHROMAX.
For treatment of central nervous system disorders, we offer ZOLOFT and
participate in the promotion of ARICEPT. ZOLOFT is used for treatment of
depression, obsessive-compulsive disorder and panic disorder. It is our
second-largest selling product. Sales grew in 1998 in part from recent approvals
for its use to treat obsessive-compulsive disorder and panic disorder as well as
from increased field-force support. We participated in the 1997 launch of
ARICEPT for treatment of mild-to-moderate Alzheimer's disease. ARICEPT
substantially expanded the prior market for pharmaceutical treatment of that
disease. The drug was discovered and developed by Eisai Co., Ltd., a Japanese
company, which contracted with us to license and copromote the product. It is
now sold in the U.S., Canada, the U.K. and several other countries. ARICEPT
accounts for 97.1% of all Alzheimer's disease prescription drug sales in the
U.S. and has increased the number of new prescriptions in this category more
than fivefold.
In 1998, we introduced VIAGRA, our oral medication for the treatment of
erectile dysfunction. Since its introduction in the U.S. in April, more than
200,000 doctors have written over 7 million prescriptions for 50 million tablets
for more than 3 million patients. At the end of 1998, VIAGRA was being sold in
40 countries including the U.S. and the European Union.
Our other major pharmaceutical products include GLUCOTROL XL, for the
treatment of diabetes, and ZYRTEC, which is used for the
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treatment of allergies and related problems. ZYRTEC is licensed to us by the
Belgian company, UCB S.A., for sales in the U.S. and Canada. We copromote
ZYRTEC in the U.S. with a subsidiary of UCB S.A.
In December 1998, the FDA approved CELEBREX for the relief of symptoms of
adult rheumatoid arthritis and osteoarthritis. We will copromote CELEBREX with
G.D. Searle & Co. (Searle), a division of Monsanto Company, the discoverer and
developer of CELEBREX, in all world markets except Japan. In February 1999, we
launched CELEBREX with Searle in the U.S.
Prospective new products under development are discussed in the section
below entitled RESEARCH AND PRODUCT DEVELOPMENT.
CONSUMER HEALTH CARE GROUP
Our Consumer Health Care Group products include non-prescription
over-the-counter (OTC) medications, therapeutic skin care products and personal
care products. Among our better-known brands in the U.S. are:
o VISINE eyedrops
o BENGAY topical analgesics
o CORTIZONE hydrocortisone skin cream
o RID anti-lice products
o UNISOM sleep aids
o DESITIN ointments
o BAIN DE SOLEIL sun care products
o PLAX pre-brushing dental rinse
o BARBASOL shave creams and gels
Several product-line extensions building on these brands have been introduced in
recent years. Other products are sold only in selected international markets.
Sales of the Consumer Health Care Group accounted for 3%, 4% and 5% of our total
revenues in 1998, 1997 and 1996.
Our Consumer Health Care Group can expand sales of some of our prescription
medications by converting them to OTC medications. For example, an OTC
formulation of DIFLUCAN, known as DIFLUCAN ONE, is sold in the U.K. as a
treatment for vaginal candidiasis. Similarly, ZYRTEC is sold as an OTC product
in Canada under the brand name REACTINE. As market conditions permit, and when
we have necessary approval from drug regulatory authorities, we plan to pursue
similar launches for other products.
ANIMAL HEALTH SEGMENT
Our Animal Health Group discovers, develops, manufactures and sells
products for the prevention and treatment of diseases in livestock, poultry and
companion animals. We are a significant manufacturer of antibiotics,
antiparasitics, anti-inflammatories, vaccines and related products for livestock
and companion animals. Animal Health sales accounted for approximately 10% of
our total revenues in 1998 and 12% of our total revenues in both 1997 and 1996.
Our leading Animal Health product in 1998 was DECTOMAX, a treatment for
internal and external parasites, primarily in cattle. While there is substantial
generic competition, sales of DECTOMAX increased due to the growth of the
injectable formulation, and the introduction of the pour-on formulation in some
international markets. It provides longer protection against a broader spectrum
of parasites than many other products. RIMADYL, a non-steroidal
anti-inflammatory for treatment of osteoarthritis in dogs, is one of the
top-selling animal health care products in the U.S. In 1998, we launched ANIPRYL
in the U.S. as a treatment for dogs suffering from Cushing's disease, an
endocrine disorder. It has also recently been approved and launched in the U.S.
and Canada for treatment of canine cognitive dysfunction syndrome.
The other principal products of our Animal Health Group are TERRAMYCIN
LA-200, an injectable version of the Terramycin broad-spectrum antibiotic used
for various animal diseases; our BANMINTH, NEMEX, VALBAZEN and PARATECT products
to treat internal parasites; COXISTAC and AVIAX anticoccidials to treat
parasitic infection in poultry; and MECADOX, an antibacterial for pigs. We also
manufacture and sell an extensive line of cattle, swine and companion animal
vaccines including BOVISHIELD, RESPISURE, LEUKOCELL and VANGUARD.
3
In December 1998, the Council of European Agricultural Ministers voted to
ban the use of our antibiotic feed additive, STAFAC (virginiamycin), throughout
the European Union. The ban becomes effective at the end of June, 1999. We are
seeking a reversal of this decision through legal action. We do not expect any
ban on sales of STAFAC to have a material effect on future results of the
Company's operations.
RESEARCH AND PRODUCT DEVELOPMENT
Innovation by our research and development operations is very important to
the success of our businesses. Our goal is to discover, develop and bring to
market innovative products that address major unmet medical needs. This goal has
been supported by our substantial research and development investments. We spent
approximately $2.3 billion in 1998, $1.8 billion in 1997 and $1.6 billion in
1996 on Company-sponsored research and development.
We are planning for future growth of our research operations. Current
construction at our three major research centers will add approximately one
million square feet of laboratory space. Other research facilities are also
being added or expanded.
We conduct research internally, and also through contracts with third
parties, through collaborations with universities and biotechnology companies,
and in cooperation with other pharmaceutical firms. We also seek out innovative
technologies developed by third parties to acquire or incorporate into our
product lines through licensing or other arrangements.
Drug development is time consuming, expensive and unpredictable. On
average, only one out of many thousands of chemical compounds discovered by
researchers proves to be both medically effective and safe enough to become an
approved medicine. The process from discovery to regulatory approval can take
more than ten years. Candidates can fail at any stage of the process, and even
late-stage product candidates could fail to receive regulatory approval.
In view of the limited period of patent protection, and to gain the
marketing advantage of being first to market in a particular therapeutic
category, we try to be efficient as well as careful in our new product
development. We strive to minimize delays in handling new product candidates and
look for opportunities, such as contracting studies to outside researchers, to
move development forward efficiently.
We feel that our investments in research have been rewarded by the number
of pharmaceutical compounds and new therapies we have in all stages of
development. In recent years, our discovery scientists have delivered dozens of
new chemical compounds to early evaluation drug development stages. While each
new candidate is far from regulatory approval, new drug candidates are the
foundation for future products. A table and discussion of supplemental filings
for existing products and drug candidates in development is set out under the
heading PRODUCT DEVELOPMENTS on page 30 of our 1998 Annual Report. That table
and discussion are incorporated by reference.
Our research operations add value to our existing products by improving
their effectiveness and by discovering new uses for them. In 1998, for example,
the FDA approved the additional use of ZYRTEC for the treatment of allergies in
children two to five years of age.
Our competitors also devote substantial sums and resources to research and
development. In addition, the consolidation that has occurred in our industry
has created additional companies with substantial research and development
resources. The competition fostered by the fruits of this research could result
in erosion of sales and unanticipated product obsolescence.
4
INTERNATIONAL OPERATIONS
We have significant operations outside the United States. They are
conducted both through our subsidiaries and through distributors, and involve
the same business segments - pharmaceutical and animal health - as our U.S.
operations.
Japan is our second-largest single national market, with revenues of 7%. No
other single country outside the U.S. had revenues approaching 10% of our total
revenues.
For a breakdown of revenues by major country areas, see the table
GEOGRAPHIC DATA on page 60 of our 1998 Annual Report. That information is
incorporated by reference.
Our international businesses are subject, in varying degrees, to a number
of risks inherent in carrying on business in other countries. These include:
o currency fluctuations
o capital and exchange control regulations
o expropriation and nationalization
o other restrictive government actions
Our international businesses are also subject to government-imposed constraints,
including laws on pricing or reimbursement for use of products. See the section
below GOVERNMENT REGULATION AND PRICE CONSTRAINTS for discussion of those
matters.
In 1998, currency movements relative to the U.S. dollar reduced our
reported revenues in many countries. Depending on the direction of change
relative to the U.S. dollar, foreign currency values can either improve or
reduce the reported dollar value of our net assets and results of operations. We
cannot predict with certainty future changes in foreign exchange rates or the
effect they will have on us. We attempt to anticipate such changes, however, and
try to mitigate their effects. See Note 5-D to our financial statements,
DERIVATIVE FINANCIAL INSTRUMENTS, on pages 47 to 48 in our Annual Report. That
discussion is incorporated by reference. Related information about valuation and
risks associated with such financial instruments in parts E and F of that same
Note is also incorporated by reference.
MARKETING
In our global pharmaceuticals business, we promote our products to health
care providers such as doctors, nurse practitioners and hospitals, Pharmacy
Benefit Managers and Managed Care Organizations (MCOs). We also market directly
to consumers in the United States through direct-to-consumer print and
television advertising. In addition, we sponsor general advertising to educate
the public about our innovative medical research.
Our operations include several pharmaceutical sales organizations. Each
sales organization markets a distinct group of products. We increased our sales
force over the past several years so that our recently introduced products and
late-stage candidates will reach their full potential. Our U.S. pharmaceutical
sales representatives total approximately 5,400. This number reflects the
creation of a new primary-care sales force, and a specialty sales force
dedicated largely to rheumatology, as well as the expansion of other specialty
sales forces in the U.S. Overseas operations employ about 12,300 sales
representatives.
Our prescription pharmaceutical products are sold principally to
wholesalers, but we also sell directly to retailers, including hospitals,
clinics, government agencies and pharmacies.
Through our marketing organizations, we explain the approved uses and
advantages of our products to medical professionals. We work to gain access to
MCO formularies (lists of recommended or approved medicines and other products
compiled by pharmacists and physicians) by demonstrating the qualities and
treatment benefits of our products. We also work with MCOs to assist them with
disease management, patient education and other tools that help their medical
treatment routines.
Marketing of prescription pharmaceuticals depends to a degree on complex
decisions about the scope of clinical trials made years before product approval.
All drugs must complete
5
clinical trials required by regulatory authorities to show they are safe and
effective for treating one or more particular medical problems. A manufacturer
may choose, however, to undertake additional studies to demonstrate additional
advantages of a compound, including comparative clinical trials with competitive
products.
Those studies can be costly, the results are uncertain, and they can take
years to complete. Balancing these considerations makes it difficult to decide
whether and when to undertake such additional studies. But, when they are
successful, such studies can have a major impact on approved claims and
marketing strategies.
Our Consumer Health Care Group uses its own representatives to promote its
products. We use substantial print and television consumer advertising for our
consumer health care products. Those products are sold through various
retailers.
Separate sales organizations also are used by our Animal Health business to
promote its products. Its advertising and promotion are generally targeted to
health professionals, directly and through medical journals. Animal health and
nutrition products are sold through veterinarians, drug wholesalers,
distributors, retail outlets and directly to users, including feed manufacturers
and animal producers. Where appropriate, these products are also marketed
through print and television advertising.
During 1998, pharmaceutical sales to our three largest pharmaceutical and
consumer health care products wholesalers were:
o McKesson Corporation - 14% of our total revenues;
o Cardinal Health, Inc. - 12% of our total revenues; and
o Bergen Brunswig Corporation - 10% of our total revenues.
Those sales were concentrated in the Pharmaceutical segment. Apart from
these instances, none of our business segments is dependent on any one or group
of related customers.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our products are sold around the world under brand-name trademarks we
consider in the aggregate to be of material importance. Trademark protection
continues in some countries as long as the mark is used; in other countries, as
long as it is registered. Registrations generally are for fixed, but renewable,
terms.
We own or license a number of U.S. and foreign patents. These patents cover:
o pharmaceutical products
o pharmaceutical formulations
o product manufacturing processes
o intermediate chemical compounds used in manufacturing
Patents for individual products extend for varying periods according to the
date of patent filing or grant and the legal term of patents in the various
countries where patent protection is obtained. The actual protection afforded by
a patent, which can vary from country to country, depends upon the type of
patent, the scope of its coverage, and the availability of legal remedies in the
country.
In the aggregate, our patent and related rights are of material importance
to our businesses in the United States and most other countries. Based on
current product sales, and considering the vigorous competition with products
sold by others, the patent rights we consider significant in relation to our
business as a whole are those for NORVASC, CARDURA, ZITHROMAX, ZOLOFT, DIFLUCAN,
GLUCOTROL XL, VIAGRA, and TROVAN. Our basic U.S. patents relating to NORVASC,
ZOLOFT, DIFLUCAN, GLUCOTROL XL, TROVAN and VIAGRA expire between 2004 and 2011.
The U.S. patent on CARDURA expires in 2000.
PROCARDIA XL employs a novel sustained-release drug-delivery system
developed and patented by Alza Corporation. We hold an exclusive license to use
this delivery system
6
with the active ingredient in PROCARDIA XL. The patents on the system run until
2003. Other companies also offer sustained-release forms of that ingredient or
have filed applications with the FDA seeking approval of such products. One such
product that has been approved has not been rated by the FDA to be appropriate
for substitution in place of PROCARDIA XL. Another product filed with the FDA
for approval in 1997 uses a form of the active ingredient that we believe
infringes our patents, and we have sued to prevent that improper use. Additional
products were filed for FDA approval in 1998, and also appear to infringe our
patents. (See the discussion of these matters in Item 3 below. Also see the
discussion below about PROCARDIA XL sales in the section CAUTIONARY FACTORS
THAT MAY AFFECT FUTURE RESULTS.) It is not possible to predict the timing and
impact on sales of PROCARDIA XL of competition from other products.
ZITHROMAX is patented by Pliva, a Croatian pharmaceutical company. The drug
is licensed exclusively to us by Pliva for sales and marketing in major
countries, and we purchase the compound in bulk crude form from Pliva. Pliva's
U.S. patent on ZITHROMAX expires in 2005.
We have other patent rights covering additional products that have smaller
sales revenues. The U.S. patent for one such product, UNASYN, expires in 1999.
We expect that the patents on some of our newest products and late-stage
product candidates could become significant to our business as a whole in the
future.
The expiration of a product patent normally results in significant
competition from generic products against the covered product and, particularly
in the U.S., can result in a dramatic reduction in sales of the pioneering
product. In some cases, however, we can continue to obtain commercial benefits
from:
o product manufacturing trade secrets
o patents on processes and intermediates for the economical manufacture
of the active ingredients
o patents for special formulations of the product or delivery mechanisms
o conversion of the active ingredient to over-the-counter products
The effect of product patent expiration also depends upon:
o the nature of the market and the position of the product in it
o the growth of the market
o the complexities and economics of manufacture of the product
o the requirements of generic drug laws
One of the main limitations on our operations in some countries outside the
U.S. is the lack of effective intellectual property protection of our products.
Under international agreements in recent years, global protection of
intellectual property rights is improving. Under the North American Free Trade
Agreement, Mexico improved its patent law to provide patent protection to
pharmaceutical products. The General Agreement on Tariffs and Trade requires
participant countries to amend their intellectual property laws to provide
patent protection for pharmaceutical products by the end of a ten-year
transition period. A number of countries are doing this. We have experienced
significant growth in our businesses in some of those nations and our continued
business expansion in those countries depends to a large degree on further
patent protection improvement.
COMPETITION
Competition is intense in all of our businesses, and includes many large
and small competitors.
The principal means of competition varies among product categories and
business groups. Technological innovations affecting:
o efficacy
o safety
o patients' ease of use, and
o cost effectiveness
7
are important to success in all of our businesses. Our businesses also focus on
unmet medical needs and therapeutic improvements. Our emphasis on innovation has
led to our multi-billion dollar research and development investments over the
past decade.
Our pharmaceutical business competes with worldwide research-based drug
companies, many smaller research companies with more limited therapeutic focus,
and generic drug manufacturers. Our pharmaceutical operations are among the
largest in the world.
In recent years, a comparison of the total cost of medical treatments using
pharmaceuticals versus alternative treatments for the same condition has become
an important basis of competition. Managed Care Organizations and Pharmacy
Benefit Managers look to cost advantages as well as medical benefits in making
their drug formulary decisions.
Our pharmaceutical sales and marketing organization is a valuable
competitive asset. Our salespeople's ability to reach medical professionals with
information about our products helps us respond to competitive efforts and
launch new products.
Many other companies, large and small, manufacture and sell one or more
products that are similar to our consumer health care products. Sources of
competitive advantage in the OTC market include:
o product quality and efficacy
o brand identity
o advertising and promotion
o product innovation
o broad distribution capabilities
o customer satisfaction
o price
Heavy expenditures for advertising, promotion and marketing are generally
required to achieve consumer acceptance of consumer health care products.
We have a significant presence in the animal health marketplace, but many
other companies offer competitive products. Altogether, there are hundreds of
producers of animal health products throughout the world. The principal methods
of competition vary somewhat depending on the particular product. They include:
o product innovation
o service
o price
o quality
o effective promotion to veterinary professionals and consumers
We promote our products directly through our sales representatives as well as
through advertising.
In the current environment of competitive pressures on profit margins, we
continue efforts to control the growth of our expenses. Although research and
development budgets have grown significantly, we have kept our costs down in
other areas such as manufacturing, distribution and sales administration by
restructuring and consolidating facilities. These measures have brought us new
efficiencies and reduced or contained our operating expenses.
MANAGED CARE ORGANIZATIONS
The growth of Managed Care Organizations (MCOs) in the U.S. has been a
major factor in the competitive make-up of the health care marketplace. Over
half the U.S. population now participates in some version of managed care.
Because of the size of the patient population covered by MCOs, marketing of
prescription drugs to them and the Pharmacy Benefit Managers (PBMs) that serve
many of those organizations has become important to our business.
MCOs can include medical insurance companies, medical plan administrators,
health-maintenance organizations, alliances of hospitals and physicians and
other physician organizations. The purchasing power of MCOs has been increasing
in recent years due to their growing numbers of enrolled patients. At the same
time, those organizations have been consolidating into fewer, even larger
entities.
8
This enhances their purchasing strength and importance to us.
A major objective of MCOs is to contain and, where possible, reduce health
care expenditures. They typically use volume purchases and long-term contracts
to negotiate discounts from pharmaceutical providers. They use their purchasing
power to bargain for lower supplier prices. They also emphasize primary and
preventive care, out-patient treatment, and procedures performed at doctors'
offices and clinics. Hospitalization and surgery, typically the most expensive
forms of treatment, are carefully managed.
As discussed above in MARKETING, MCOs and PBMs typically develop
formularies to reduce their cost for medications. Formularies can be based on
the prices and therapeutic benefits of the available products. Due to their
lower cost, generic medicines are often favored. The breadth of the products
covered by formularies can vary considerably from one MCO to another, and many
formularies include alternative and competitive products for treatment of
particular medical problems. MCOs use a variety of means to encourage patients'
use of products listed on their formularies.
Exclusion of a product from a formulary can lead to its sharply reduced
usage in the MCO patient population. Consequently, pharmaceutical companies
compete aggressively to have their products included. Where possible, companies
compete for inclusion based upon unique features of their products, such as
greater efficacy, better patient ease of use or fewer side effects. A lower
overall cost of therapy is also an important factor. Products that demonstrate
fewer therapeutic advantages must compete for inclusion based primarily on
price.
The growth of MCOs also appears to have led to greater usage of some drugs.
The use of certain drugs can prevent the need for more costly treatments such as
hospitalization, professional therapy, or even surgery. Because of these
advantages, such drugs can become favored first-line treatments. In addition,
the current trend of some patients to opt for managed care alternatives to
Medicare may increase overall pharmaceutical usage among that elderly
population. Medicare generally does not pay for medicines, so the patients must
bear that cost. MCOs, however, often offer significant drug benefits for their
participants.
These developments have not only created pressure on prices, but also have
increased sales of products on formularies. We have been generally, although not
universally, successful in having our major products included on MCO
formularies.
Another way we address the interests of MCOs is by developing disease
management programs. These programs can be attractive to MCOs by improving
patient communications and compliance with dosage directions, which are
important for effective disease treatment. They can help MCOs address various
aspects of disease management, such as prevention, diagnosis and treatment of
certain diseases, including use of pharmaceutical products. This comprehensive
approach can improve the quality of care and lower costly complications of
chronic diseases.
GENERIC PRODUCTS
One of the biggest competitive challenges we face in the U.S. is from
generic pharmaceutical manufacturers. Upon the expiration of U.S. patent
protection on an important product, we can lose the major portion of U.S. sales
of the product within a year. Generic competitors operate without our large
research and development expenses and our costs of conveying medical information
about the product to the medical community. In addition, the FDA approval
process exempts generics from costly and time-consuming clinical trials to
demonstrate their safety and efficacy, and allows generic manufacturers to rely
on the safety and efficacy of the pioneer product. Generic products need only
demonstrate a level of availability in the blood stream equivalent to that of
the pioneer product. This means that after we have borne the
9
expenses of discovering, developing and testing a medicine for safety and
efficacy, obtaining regulatory approval and informing the medical community
about its therapeutic benefits, generic competitors can charge much less for a
competing version of our product and still be profitable.
As noted above, MCOs that focus primarily on the immediate cost of drugs
may favor generics over brand-name drugs. Many governments also encourage the
use of generics as alternatives to brand-name drugs in their health care
programs, including Medicaid in the U.S. Laws in the U.S. generally allow, and
in some cases require, pharmacists to substitute generic drugs that have been
rated under government procedures to be therapeutically equivalent to a
brand-name drug. The substitution must be made unless the prescribing physician
expressly forbids it.
Some of our competitors who produce patented pharmaceuticals have entered
the generic market; in some cases offering generic versions of their own
brand-name products. We have not followed that strategy. Instead, we focus our
resources on developing and marketing innovative new products and treatments.
RAW MATERIALS
Raw materials essential to our businesses are purchased worldwide in the
ordinary course of business from numerous suppliers. In general, these materials
are widely available from multiple sources. No serious shortages or delays were
encountered in 1998, and none are expected in 1999.
GOVERNMENT REGULATION AND PRICE CONSTRAINTS
Pharmaceutical companies are subject to heavy regulation by a number of
national, state and local agencies. Of particular importance is the FDA in the
United States. It has jurisdiction over all our businesses and administers
requirements covering the testing, safety, effectiveness, approval,
manufacturing, labeling and marketing of our pharmaceutical products. In some
cases, FDA requirements and/or reviews have increased the amount of time and
money necessary to develop new products and bring them to market.
The FDA also regulates our consumer health care products and, along with
the U.S. Department of Agriculture and the Environmental Protection Agency, our
animal health products. Some regulatory actions pertaining to our products are
discussed in Item 3 of this report.
Since the beginning of 1998, the approval of new drugs across the European
Union (EU) is possible only using the European Medicines Evaluation Agency's
(EMEA) mutual recognition or central approval processes. The use of either of
these procedures should provide a more rapid and consistent approval across all
fifteen member states than was the case when the approval processes were
operating independently within each member state. In addition, the agreement
between the EU and ten Eastern European states to base their approvals on the
centralized EU approval will significantly speed the regulatory process in those
countries. The EMEA does not have jurisdiction over patient reimbursement or
pricing matters in EU member countries, however. We will continue to deal with
individual countries on such issues.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that would bring about major changes in
the affected health care systems. Some states have passed such legislation, and
further federal and state proposals are possible. These could include price or
patient reimbursement constraints on medicines and restrictions on access to
certain products. Similar issues exist in many foreign countries where we do
business. We cannot predict the outcome of such initiatives, but we will work to
maintain patient access to our products and to oppose price constraints.
Also in the U.S., proposals have called for substantial changes in the
Medicare and Medicaid programs. If such changes are
10
enacted, they may require significant reductions from currently projected
government expenditures for these programs. Driven by budget concerns, Medicaid
managed care systems have been under consideration in several states. If the
Medicare and Medicaid programs implement changes that restrict the access of a
significant population of patients to our innovative medicines, our business
could be materially affected. On the other hand, relatively little
pharmaceutical use is currently covered by Medicare. As noted above, if changes
to these programs shift patients to MCOs that cover pharmaceuticals, usage of
pharmaceuticals could increase.
Legislation in the U.S. requires us to give rebates to state Medicaid
agencies based on each state's reimbursement of pharmaceutical products under
the Medicaid program. We also must give discounts or rebates on purchases or
reimbursements of pharmaceutical products by certain other federal and state
agencies and programs. See the discussion regarding rebates on page 29 of our
1998 Annual Report for details on the cost to us of such discounts and rebates,
which is incorporated by reference.
We encounter similar regulatory and legislative issues in most other
countries. For example, in 1997, Japan announced a price reduction on drugs. In
Europe and some other international markets, the government provides health care
at low direct cost to consumers, and regulates pharmaceutical prices or patient
reimbursement levels to control costs for the government-sponsored health care
system.
This international patchwork of price regulation has led to inconsistent
prices and some third-party trade in our products from markets with low prices.
Such trade exploiting price differences between countries can undermine our
sales in markets with higher prices.
We are also subject to the jurisdiction of various other regulatory and
enforcement departments and agencies, such as the Federal Trade Commission and
the Department of Justice in the U.S., and are, therefore, subject to possible
administrative and legal proceedings and actions by those organizations. Such
actions may include product recalls, seizures and other civil and criminal
sanctions. In some cases, we have initiated product recalls voluntarily.
It is difficult to predict the future impact of the broad and expanding
legislative and regulatory requirements affecting us.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and certain research operations are affected by
federal, state and local environmental laws. We have made, and intend to
continue to make, necessary expenditures for compliance with applicable laws. We
are also cleaning up environmental contamination from past industrial activity
at certain sites (see Item 3, LEGAL PROCEEDINGS, below). As a result, we
incurred capital and operational expenditures in 1998 for environmental
protection and clean-up of certain past industrial activity as follows:
o environmental-related capital expenditures- $51 million
o other environmental-related expenses-$76 million
While we cannot predict with certainty the future costs of such clean up
activities, capital expenditures, or operating costs for environmental
compliance, we do not believe they will have a material effect on our capital
expenditures, earnings or competitive position.
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, or another year instead. If not corrected, those programs could cause
date-related or operational transaction failures. We developed a Compliance
Assurance Process to address the Year 2000 issue in four phases: Inventory,
Assessment and Planning, Implementation and Certification. No significant
information technology projects
11
have been deferred as a result of our efforts on Year 2000.
The Inventory phase included preliminary problem determination, an
inventory of information technology (IT) and non-IT hardware and software and an
inventory of our key business systems and material vendors and business
processes. Such systems relate to our research and development, production,
distribution, financial, administrative and communication operations. This phase
was substantially completed at the end of 1998. We have requested our critical
vendors, major customers, service suppliers, communication providers, product
alliance partners and banks to verify their Year 2000 readiness and are
currently evaluating their responses. This evaluation is complete for all of our
critical trading partners, but continues for non-critical partners.
During our Assessment and Planning phase each inventoried item is assessed
to evaluate its risk, to decide whether to remediate or replace, to identify its
priority and to develop a plan for the system. Systems are prioritized based on
their importance to the business, risk of failure, time horizon to failure and
dependency on other critical items. This phase was 90% complete at December 31,
1998, and will be finished by the first quarter of 1999.
The plans developed during the Assessment and Planning phase are being
executed in the Implementation phase. Remediation and replacement of non-Year
2000 compliant systems is in process and we expect our critical systems to be
substantially remediated or replaced by March 31, 1999. The remaining systems,
including embedded systems, will be modified by the end of the third quarter of
1999. While our Implementation efforts are approximately 65% complete, this
phase will overlap with the Certification phase.
During the Certification phase, we will be testing and certifying the
results of our remediation efforts. Testing begins as systems are remediated and
will continue throughout 1999. Testing attempts to verify that all of our
systems function correctly and extend to all interfaces with key business
partners. We expect to substantially complete testing of critical systems by
March 31, 1999, and the testing of the remaining systems and key third-party
systems by the end of the third quarter of 1999.
Because the Company's year 2000 compliance is dependent upon key third
parties also being Year 2000 compliant on a timely basis, there can be no
guarantee that the Company's efforts will prevent a material adverse impact on
its results of operations, financial condition or cash flows. If our systems or
those of key third parties are not fully Year 2000 functional, we estimate that
up to a two-week disruption in operations could occur. Such a disruption could
result in delays in the distribution of finished goods or receipt of raw
materials, errors in customer order taking, disruption of clinical activities or
delays in product development. These consequences could have a material adverse
impact on our results of operations, financial condition and cash flows if we
are unable to substantially conduct our business in the ordinary course. We
believe that our efforts, including the development of a contingency plan, will
significantly reduce the adverse impact that any disruption in business might
have.
As part of the contingency plan being developed, Business Continuity Plans
(the Plans) will address critical areas of our business. The Plans will be
designed to mitigate serious disruptions to our business flow beyond the end of
1999 and operate independent of our external providers' Year 2000 compliance.
The Plans will likely provide for maintaining increased inventory to meet
customer needs, protecting the integrity of ongoing activities, identifying and
securing alternate sources of critical services, materials and utilities when
possible and establishing crisis teams to address unexpected problems. We expect
to complete the preliminary Plans by the end of the first quarter of 1999 and
the final Plans by the end of the second quarter of 1999.
12
We estimate that the total cost involved in our Year 2000 program is
approximately $127 million of which $36 million has been incurred as of the end
of 1998. Costs for 1999 are estimated to be approximately $91 million, which
reflect changes in estimates and the inclusion of accelerated replacement costs
as a result of a clarification in disclosure guidelines of the Securities and
Exchange Commission. These costs are expensed as incurred, except for
capitalizable hardware of $5 million in 1998 and $15 million estimated for 1999
and are being funded through operating cash flows. Such costs do not include
normal system upgrades and replacements.
Both our cost estimates and completion timeframes will be influenced by our
ability to successfully identify Year 2000 problems, the nature and amount of
programming required to fix the programs, the availability and cost of personnel
trained in this area and the Year 2000 compliance success that key third parties
attain. As the development of contingency plans continues, the costs to complete
our Year 2000 program may increase. While these and other unforeseen factors
could have a material adverse impact on our results of operations or financial
condition, we believe that our ongoing efforts to address the Year 2000 issue
will minimize the possible negative consequences to our Company.
CORPORATE/FINANCIAL SUBSIDIARIES
We conduct international banking operations through a subsidiary, Pfizer
International Bank Europe (PIBE), based in Dublin, Ireland. PIBE, incorporated
under the laws of Ireland, operates under a banking license from the Central
Bank of Ireland. It makes loans and accepts deposits in several currencies in
international markets. PIBE is an active Euromarket lender to high quality
corporations and governments through its portfolio of loans and money market
instruments. Loans are made primarily on a short and medium term basis,
typically with floating interest rates.
We also own an insurance operation, The Kodiak Company Limited, which
reinsures certain assets, inland transport and marine cargo of our international
operations. Financial data for these subsidiaries are set out in Note 3 to our
financial statements, FINANCIAL SUBSIDIARIES, on page 45 in our 1998 Annual
Report, which is incorporated by reference.
TAX MATTERS
The discussion of tax-related matters (including certain proceedings
involving proposed tax adjustments relating to prior years) in Note 8 to our
financial statements, TAXES ON INCOME, on pages 50 through 51 in the Annual
Report is incorporated by reference.
EMPLOYEES
In our innovation-intensive business, our employees are vital to our
success. We believe we have good relationships with our employees. As of
December 31, 1998, we employed approximately 46,400 people in our operations
throughout the world. Geographically, this total breaks down as follows:
o United States, 18,200
o Europe, 13,300
o Asia, 7,800
o Canada/Latin America, 5,600
o Africa/Middle East, 1,500
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995)
OUR DISCLOSURE AND ANALYSIS IN THIS REPORT AND IN OUR 1998 ANNUAL REPORT TO
SHAREHOLDERS 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 HISTORICAL OR
CURRENT FACTS. THEY USE WORDS SUCH AS "ANTICIPATE," "ESTIMATE," "EXPECT,"
"PROJECT," "INTEND," "PLAN," "BELIEVE," AND OTHER WORDS AND TERMS
13
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, IN THE 1998 ANNUAL
REPORT AND IN ANY OTHER PUBLIC STATEMENTS WE MAKE MAY TURN OUT TO BE WRONG. THEY
CAN BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN
RISKS AND UNCERTAINTIES. MANY FACTORS MENTIONED IN THE DISCUSSION ABOVE - FOR
EXAMPLE, GOVERNMENT REGULATIONS AROUND THE WORLD, YEAR 2000 SYSTEMS COMPLIANCE,
GENERIC PRODUCT COMPETITION AND THE COMPETITIVE ENVIRONMENT - WILL BE IMPORTANT
IN DETERMINING FUTURE RESULTS. CONSEQUENTLY, NO FORWARD-LOOKING STATEMENT CAN BE
GUARANTEED. ACTUAL FUTURE 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. ALSO NOTE THAT WE PROVIDE THE
FOLLOWING CAUTIONARY DISCUSSION OF RISKS, UNCERTAINTIES AND POSSIBLY INACCURATE
ASSUMPTIONS RELEVANT TO OUR BUSINESSES. THESE ARE FACTORS THAT WE THINK COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTED AND HISTORICAL
RESULTS. OTHER FACTORS BESIDES THOSE LISTED HERE COULD ALSO ADVERSELY AFFECT THE
COMPANY. THIS DISCUSSION IS PROVIDED AS PERMITTED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
o Balancing current growth and investment for the future remains a major
challenge. Our ongoing investments in new product introductions and
research and development for future products could exceed corresponding
sales growth. This could produce higher costs without a proportional
increase in revenues.
o In the U.S., many of our pharmaceutical products are subject to increasing
price pressures as managed care groups, pharmacy benefit managers and
government agencies seek price discounts. Government efforts to reduce
Medicare and Medicaid expenses are expected to increase the use of managed
care. This may result in managed care influencing prescription decisions
for a larger segment of the population. International operations are also
subject to price and marketing regulations. As a result, it is expected
that pressures on pricing and operating results will continue and could
affect future results.
o Thirty-nine percent of our 1998 revenues arise from international
operations, and we expect revenue and net income growth in 1999 to be
impacted by changes in foreign exchange rates. Revenues from Asia comprised
approximately 12% of total revenues in 1998 (although revenues from the
Asian markets most impacted by recent economic events - Korea, Indonesia,
Thailand, Malaysia, the Philippines and Taiwan - comprised only 1% of 1998
total revenues). Revenues from Latin America comprised 5% of our total
revenues in 1998, including 2% from Brazil.
These foreign-based revenues as well as our substantial international
assets result in our exposure to currency exchange rate changes. In
addition, our interest-bearing investments, loans and borrowings are
subject to interest rate change risk. The risks of such changes and the
measures we have taken to help contain those risks are discussed in the
section entitled FINANCIAL RISK MANAGEMENT on pages 36 and 37 in our 1998
Annual Report. For additional details, see Note 5-D to our financial
statements, DERIVATIVE FINANCIAL INSTRUMENTS, on pages 47 and 48 in our
1998 Annual Report. Those sections of the Annual Report are incorporated by
reference.
Notwithstanding our efforts to foresee and mitigate the effects of changes
in fiscal
14
circumstances such as these, we cannot predict with certainty all changes
in currency and interest rates, inflation or other related factors
affecting our businesses. These factors could affect future results.
o A new European currency (Euro) was introduced in January 1999 to eventually
replace the separate currencies of eleven individual countries. This
entails changes in our operations as we modify systems and commercial
arrangements to deal with the new currency. Modifications are necessary in
operations such as payroll, benefits and pension systems, contracts with
suppliers and customers and internal financial reporting systems. Although
there is a three-year transition period during which transactions may be
made in the old currencies, this may require dual currency processes for
our operations. We have identified 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 have been foreseen and corrected, or
that no material disruption will occur in our business. The conversion to
the Euro may have competitive implications on our pricing and marketing
strategies; however, the full impact is not known at this time.
o International operations could be affected by changes in intellectual
property legal protections and remedies, trade regulations, and procedures
and actions affecting approval, production, pricing, reimbursement and
marketing of products, as well as by unstable governments and legal
systems, intergovernmental disputes and possible nationalization.
o Cost-containment measures employed by governments that have the effect of
limiting patient access to medicines and related issues described above in
GOVERNMENT REGULATION AND PRICE CONSTRAINTS affect the growth and
profitability of our operations in some countries. Those factors could
affect future results.
o Business combinations among our competitors could affect our competitive
position in the pharmaceutical, consumer health care and animal health
businesses. Similarly, combinations among our major customers could
increase their purchasing power in dealing with us. And, of course, if we
ourselves should enter into one or more business combinations, our
business, finances and capital structure could be affected.
o Generic competition is a major challenge in the U.S. Loss of patent
protection typically leads to dramatic loss of sales in the U.S. market and
could affect future results.
o Risks and uncertainties particularly apply with respect to product-related
forward-looking statements. The outcome of the lengthy and complex process
of identifying new compounds and developing new products is inherently
uncertain. Prospective products can fail to receive regulatory approval.
There are also many considerations that can affect marketing of
pharmaceutical products around the world. Regulatory delays; the inability
to successfully complete clinical trials; claims and concerns about safety
and efficacy; new discoveries; patents and products by competitors and
related patent disputes; and claims about adverse side effects are a few of
the factors that could adversely affect the realization of research and
development and product-related forward-looking statements.
o As discussed above in MARKETING, decisions about research studies made
early in the development process of a drug candidate can have a substantial
impact on the marketing strategy once the drug receives approval. More
detailed studies may demonstrate additional benefits that can help in the
marketing, but they consume time and resources and can delay submitting the
drug candidate for initial approval. We try to plan clinical trials
prudently, but there is no guarantee that a proper balance of speed and
testing will be made in each case. The quality of our decisions in this
area can affect our future results.
o Difficulties or delays in product manufacturing or marketing, including,
but not limited to, the inability to build up production
15
capacity commensurate with demand, or the failure to predict market demand
for or gain market acceptance of approved products could affect future
results.
o We currently have three products, NORVASC, ZITHROMAX and ZOLOFT, with
annual sales exceeding one billion dollars. Those products accounted for
approximately 40% of our 1998 revenues. If these or any of our other major
products were to become subject to a problem such as loss of patent
protection, unexpected side effects, regulatory proceedings, publicity
affecting doctor or patient confidence or pressure from competitive
products, or if a new, more effective treatment should be introduced, the
impact on our revenues could be significant.
o We cannot always predict with accuracy the timing or impact of possible
future competition on sales of our products. For example, PROCARDIA XL, our
patented form of sustained-release nifedipine, has been an important
product for us, but its sales have been declining, and we expect that to
continue. Sales of PROCARDIA XL were $1,005 million in 1996, $822 million
in 1997, and $714 million in 1998. This decline has been due, at least in
part, to the medical community's increased emphasis on our more advanced
product, NORVASC. It is also partly attributable to the fact that there has
been another form of sustained-release nifedipine available on the market
since 1993, although it is not approved for treatment of all the same
indications as PROCARDIA XL. Additional potentially competitive products
have been filed for FDA approval. This indicates that the number of
medicines that compete with PROCARDIA XL may increase, and the sales of
competing products may affect our expected results.
o During 1995, the authors of some non-clinical studies questioned the safety
of calcium channel blockers (CCBs). Although the clinical evidence
supported the safety of this class of medications, the FDA convened an
advisory panel to review their safety. In 1996, that advisory panel found
no data to support challenges to the safety of newer sustained-release and
intrinsically long-acting CCBs (such as NORVASC and PROCARDIA XL - products
for treatment of hypertension and angina).
Questions about this class of products continued throughout 1997, however,
and included scientific publications and presentations asserting that these
products were associated with various serious medical conditions.
During 1997, data from newly conducted studies and reviews and decisions by
two national regulatory authorities, plus newly published National
Institutes of Health (NIH) guidelines, were all supportive of the safety of
long-acting CCBs like NORVASC and PROCARDIA XL and of their appropriateness
as first-line medications in the treatment of hypertension.
We continue to believe that the safety and effectiveness of NORVASC and
PROCARDIA XL are supported by a large body of data from numerous studies
and the daily clinical experiences of physicians around the world. It is
not possible, however, to predict the impact on our future sales, if any,
of existing or future studies, regulatory agency actions or a continuing
debate regarding CCBs.
o Growth in costs and expenses, changes in product mix and the impact of
divestitures, restructuring and other unusual items that could result from
evolving business strategies, evaluation of asset realization, and
organizational restructuring could affect future results. For example, we
may be unable to maintain or further enhance those margin improvements
achieved in recent years, which would affect future results.
o In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 do not expect the
adoption of this Statement to have a material impact on our
16
financial statements. The American Institute of Certified Public
Accountants 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.
Such new or revised accounting standards and rules are issued from time to
time. Although the standards mentioned above are not expected to have a
material impact on our reported financial results, future standards and
rules could have such an effect.
o As described above in the section YEAR 2000 COMPUTER SYSTEMS COMPLIANCE, we
are working to address "Year 2000" problems. If we should fail to identify
or fix all such problems in our own operations, or if we are affected by
the inability of a sole-source supplier or a major customer (such as a
large drug wholesaler or distributor) to continue operations due to such a
problem, our operations and/or cash flows could be affected.
o Changes in the U.S. Tax Code and the tax laws of other countries can affect
our net earnings. For example, pursuant to the Small Jobs Protection Act of
1996 (the ACT), Section 936 of the Internal Revenue Code was repealed for
tax years beginning after December 31, 1995. Section 936 had created the
U.S. possessions corporation income tax credit, which gave us tax benefits
for certain operations in Puerto Rico. The Act provided that as an existing
credit claimant, we are eligible to continue using the credit against the
tax arising from our manufacturing income earned in Puerto Rico for an
additional ten-year period. The amount of manufacturing income eligible for
the credit during this additional period is subject to a cap based on
income earned prior to 1996 in Puerto Rico. This ten-year extension does
not apply to investment income earned in Puerto Rico, the credit on which
expired as of July 1, 1996. The Act did not affect the amendments made to
Section 936 by the Omnibus Budget Reconciliation Act of 1993, which
provided for a five-year phase-down of the U.S. possession tax credit from
100% to 40%. In addition, the Act permitted the extension of the R&D tax
credit through June 30, 1998. In 1998, this credit was again extended to
June 30, 1999.
o Claims have been brought against us and our subsidiaries for various legal,
environmental and tax matters, and additional claims arise from time to
time. In addition, our operations are subject to international, federal,
state and local environmental laws and regulations. It is possible that our
cash flows and results of operations could be affected by the one-time
impact of the resolution of these contingencies. We believe that the
ultimate disposition of current matters to the extent not previously
provided for will not have a material impact on our financial condition or
cash flows and results of operations, except where specifically commented
upon in the discussion of such matters in LEGAL PROCEEDINGS in Item 3 in
this report, and in TAX MATTERS above.
ITEM 2. PROPERTIES
Our world headquarters is located in several buildings in New York City. We
own two of these buildings, including our main 33-story office tower, and rent
space in others nearby. The 33-story office tower is located on a site we have
leased under a long-term ground lease. Altogether, our headquarters operations
occupy over one million square feet of owned and leased office space in New York
City.
Our pharmaceutical business owns and leases space for sales and marketing,
administrative support, and customer service functions around the world.
Our major research and development facilities are located in
manufacturing/R&D complexes that we own containing multiple buildings in Groton,
Connecticut, and Sandwich, England. The buildings at our Groton facility
currently contain approximately three million
17
square feet of floor space. Approximately 1.2 million square feet is used for
manufacturing, and the rest is used for research and development. An additional
550,000 square foot laboratory building, which is expected to house
approximately 700 new research employees, is currently under construction. The
Company also began construction in 1998 on an additional 400,000 square foot
facility on a 24-acre site in nearby New London, Connecticut, to house an
initial 1,300 employees from the Company's research operations.
Buildings on our 340 acre Sandwich, England campus house research, our U.K.
pharmaceutical sales office and a production plant. These facilities contain
almost two million square feet of floor space, approximately half of which is
used for research and development. An additional 540,000 square feet of new
research space is under construction.
We own other important research facilities in Nagoya, Japan; Amboise,
France; and Terre Haute, Indiana. A number of smaller research and development
operations around the world focus principally on their local markets. As
discussed above, we have been expanding our research and development facilities
in recent years to meet the challenges of handling growing research activities.
In 1998, over 1.4 million square feet of research facilities was under
construction at our sites in Amboise, Groton, Sandwich and Nagoya.
We have 35 production plants serving our pharmaceutical, consumer and
animal health operations around the world. Sixteen of these are major
facilities. These plants handle one or more of three basic types of production
processes:
o fermentation
o organic synthesis
o product production
We have four major fermentation plants:
o Rixensart, Belgium
o Sao Paulo, Brazil
o Nagoya, Japan
o Sandwich, England, U.K.
Our major organic synthesis facilities are in three locations:
o Groton, Connecticut
o Ringaskiddy, Ireland
o Barceloneta, Puerto Rico
We have major product production plants at thirteen sites in ten countries:
o Sao Paulo, Brazil
o Dalian, China
o Amboise, France
o Illertissen, Germany
o Latina, Italy
o Nagoya, Japan
o Toluca, Mexico
o Sandwich, England, U.K.
o Barceloneta, Puerto Rico, U.S.
o Brooklyn, New York, U.S.
o Parsippany, New Jersey, U.S.
o Terre Haute, Indiana, U.S.
o Valencia, Venezuela
Our Consumer Health Care Group has its principal executive offices in the
Company's world headquarters in New York. Its products are manufactured in a
450,000 square foot U.S. facility in Parsippany, New Jersey, which also houses
its principal research operations, and a plant in San Jose Iturbide, Mexico,
producing hair care products primarily for the Mexican market. Consumer Health
Care's sales and marketing offices are generally leased and shared with local
pharmaceutical sales offices, except in Mexico and the U.K., where Consumer
Health has separate offices.
Our Animal Health business has new world headquarters in leased offices one
block away from the Company's corporate headquarters in New York City. Animal
Health owns its North American headquarters in Exton, Pennsylvania, and leases
some additional space in a nearby office building. It also owns office space in
Zaventem, Belgium for support of its international operations.
Most of Animal Health's research and manufacturing facilities are shared
with our pharmaceutical business. We own major manufacturing facilities
producing animal health products in:
18
o Lincoln, Nebraska
o Lee's Summit, Missouri
o Louvain la Neuve, Belgium
Our distribution operations are serviced by our large, state-of-the-art
distribution and order fulfillment operation in a 280,000 square foot building
on a 20 acre site in Memphis, Tennessee. This centrally located U.S. facility
services the Company's pharmaceutical and consumer health care operations and
also houses some customer service operations. Other U.S. distribution facilities
for those operations are located in Clifton and Parsippany, New Jersey, and
Irvine, California. The Animal Health Group operates its own distribution
facilities.
In general, our properties are well maintained, adequate and suitable to
their purposes. The growth of our businesses has created space pressures for
certain operations, however. We have responded to such challenges with plans to
provide appropriate facilities as needs are demonstrated. Note 6 to our
financial statements, PROPERTY, PLANT AND EQUIPMENT on page 49 in our 1998
Annual Report, which discloses amounts invested in land, buildings and
equipment, and the discussion of investing activities under the heading SUMMARY
OF CASH FLOWS on page 34 of the Annual Report, which describes our capital
expenditures, are incorporated by reference. See, also, the discussion under
Note 11 entitled LEASE COMMITMENTS on page 53 of the Annual Report, which is
also incorporated by reference.
ITEM 3. 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.
Final discovery has been extended to May 3, 1999, with dispositive motions to be
filed by May 21, 1999. On March 15, 1999, the FDA issued a tentative approval
for Mylan's 30 mg. extended release nifedipine tablet. The tentative approval
states that final approval cannot be granted until resolution of the instant
patent litigation, patent expiration or expiration of the statutory stay
provisions, and that the FDA is assured that there is no new information that
would affect final approval.
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 Laboratories 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, 1998, Biovail Laboratories Inc. brought suit
in the United States District Court for the Western District of Pennsylvania
against the Company and Bayer
19
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 January 4, 1999, the District Court in Pennsylvania
granted Pfizer's motion for a stay of the antitrust action pending the outcome
of the infringement actions in Puerto Rico. On January 29, 1999, the District
Court in Puerto Rico denied Biovail's motion to transfer the patent infringement
actions from Puerto Rico to the Western District of Pennsylvania.
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. On September 14,
1998, Lek was served with the summons and complaint. Plaintiffs amended the
complaint on November 10, 1998, limiting the action to infringement of U.S.
Patent 4,412,986. On January 19, 1999, Lek filed a motion to dismiss the
complaint alleging infringement of U.S. Patent 4,412,986. Pfizer's response to
this motion was filed on February 25, 1999.
On November 9, 1998, Pfizer received an ANDA notice letter from Martec
Pharmaceutical, Inc. for generic versions (30 mg., 60 mg., 90 mg.) of Procardia
XL. On or about December 18, 1998, Pfizer received a new ANDA certification
letter stating that the ANDA had actually been filed in the name of Martec
Scientific, Inc. On December 23, 1998, Pfizer brought an action against Martec
Pharmaceutical, Inc. and Martec Scientific, Inc. in the Western District of
Missouri for infringement of Bayer's patent relating to nifedipine of a specific
particle size. On January 26, 1999, a second complaint was filed against Martec
Scientific in the Western District of Missouri based on Martec's new ANDA
certification letter.
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 and arguments in the
case were heard on February 1, 1999. We are awaiting the decision.
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-degree or 70-degree 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 elected to
20
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 received 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 Company has entered into a consent decree settling all matters with the
United States Environmental Protection Agency--Region I and the Department of
Justice arising primarily out of a December 1993 multimedia environmental
inspection, as well as certain state inspections, of the Company's Groton,
Connecticut facility. The consent decree provides for the payment of $625,000 in
fines, undertaking of an environmental project at a cost of $150,000 and certain
other operational provisions, the implementation of which will not have a
material adverse effect on the 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
21
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 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 December 28, 1998, there were 57,819 personal injury claims pending
against Quigley (excluding those which are inactive or have been settled in
principle), 33,185 such claims against the Company, and 68 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 was 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 were 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
22
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. 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 were not increased. The Settlement Agreement, as amended,
received final approval on June 21, 1996. Appeals from this decision were
dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997.
Trial began in September 1998 for the class case against the non-settlers, and
the District Court also permitted the opt-out plaintiffs to add the wholesalers
as named defendants in their cases. The District Court dismissed the case at the
close of the plaintiffs' evidence. The plaintiffs have appealed.
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: (1) has entered into an agreement to settle all
outstanding consumer class actions (except Alabama and California), which
settlement is going through the approval process in the various courts in which
the actions are pending; and (2) has entered into an agreement to settle the
California consumer case.
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
23
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. The Committee has issued a draft report
recommending that plaque removal claims should not be permitted in the absence
of data establishing efficacy against gingivitis. The process of incorporating
the Advisory Committee recommendations into a final monograph is expected to
take several years. If the draft recommendation is ultimately accepted in the
final monograph, although it would have a negative impact on sales of Plax, it
will not have a material adverse effect on the sales, financial position or
operations of the Company.
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 Plaintiffs' 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.
The Federal Trade Commission conducted an investigation of the advertising
of Rid, which was resolved by a Consent Decree made final in December, 1998. At
the same time, the New York State Attorney General's office is investigating the
same or similar matters.
Since December 1998, three actions have been filed in the state courts in
Houston, San Francisco, and Chicago, purportedly on behalf of statewide
(California) or nationwide (Houston and Chicago) classes of consumers who allege
that the Company's and other manufacturers' advertising and promotional claims
for RID and other pediculicides were untrue, entitling them to refunds, other
damages and/or injunctive relief. The Houston case has been removed to federal
court; no proceedings have yet occurred in the other cases. The Company believes
the complaints are 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. A full examination of
the progress made by the Company in this area will occur in 1999.
During 1998, the Company completed the sale of all of the businesses and
companies that were part of the Medical Technology Group ("MTG"). As part of the
sale provisions, the Company has retained responsibility for certain items
including matters related to the sale of MTG products sold by the Company before
the sale of the MTG businesses. A number of cases have been brought against
Howmedica Inc. (some of which also name the Company) alleging 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
24
were filed and ultimately dismissed or discontinued. Thereafter, between late
1996 and early 1998, approximately 700 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,
Laboratorios Pfizer Ltda. ("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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
25
EXECUTIVE OFFICERS OF THE COMPANY
As of March 10, 1999, the following executive officers of the Company
hold the offices indicated until their successors are chosen and qualified
after the next annual meeting of shareholders.
NAME AGE POSITION
Brian W. Barrett........... 59 Vice President; President - Animal Health Group
M. Kenneth Bowler.......... 56 Vice President, Federal Government Relations
C. L. Clemente............. 61 Senior Vice President, Corporate Affairs; Secretary and Corporate
Counsel; Member of the Corporate Management Committee
P. Nigel Gray.............. 60 Vice President
Gary N. Jortner............ 53 Vice President; Senior Vice President, Product Development - Pfizer
Pharmaceuticals Group
Karen L. Katen............. 50 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group and President - U.S. Pharmaceuticals; Member of the Corporate
Management Committee
J. Patrick Kelly........... 41 Vice President; Senior Vice President - Worldwide Marketing -
Pfizer Pharmaceuticals Group
Alan G. Levin.............. 36 Vice President; Treasurer
Henry A. McKinnell......... 56 Executive Vice President; President - Pfizer Pharmaceuticals Group;
Member of the Corporate Management Committee
Victor P. Micati........... 59 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group
Paul S. Miller............. 59 Senior Vice President; General Counsel; Member of the Corporate
Management Committee
George M. Milne, Jr........ 55 Vice President; President, Central Research; Member of the
Corporate Management Committee
John F. Niblack............ 60 Executive Vice President; Member of the Corporate Management
Committee
William J. Robison......... 63 Senior Vice President - Corporate Employee Resources; Member of the
Corporate Management Committee
Herbert V. Ryan............ 61 Vice President; Controller
Craig Saxton............... 56 Vice President; Executive Vice President, Central Research
David L. Shedlarz.......... 50 Senior Vice President and Chief Financial Officer; Member of the
Corporate Management Committee
Mohand Sidi Said........... 60 Vice President; Senior Vice President - Pfizer Pharmaceuticals
Group and Area President, Asia/Africa/Middle East
William C. Steere, Jr...... 62 Chairman of the Board and Chief Executive Officer; Chair of the
Corporate Management Committee
Frederick W. Telling....... 47 Vice President, Corporate Strategic Planning and Policy
26
Information concerning Messrs. Steere, Clemente and Miller and Drs. McKinnell
and Niblack is incorporated by reference from the discussion under the captions
NOMINEES FOR DIRECTORS WHOSE TERMS EXPIRE IN 2001, DIRECTORS WHOSE TERMS EXPIRE
IN 2000 and NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS in our Proxy
Statement for the 1999 Annual Meeting of Shareholders.
BRIAN W. BARRETT
Mr. Barrett joined us in 1966 and has held various financial positions,
including Chief Financial Officer of Pfizer Canada. In 1971, he was appointed
Assistant Controller of Pfizer International in New York; in 1973, Director of
International Planning and in 1976, Director of Planning. In 1980, Mr. Barrett
was appointed Vice President - Corporate Strategic Planning; in 1983, he became
Vice President - Finance for Pfizer International; in 1985, President -
Africa/Middle East; and in 1991, President - Asia/Canada. In 1992, Mr. Barrett
was elected one of our Vice Presidents and in 1993, became President, Northern
Asia, Australasia and Canada International Pharmaceuticals Group. Mr. Barrett
was named Executive Vice President, International Pharmaceuticals Group, in 1995
and President - Animal Health Group in April 1996.
M. KENNETH BOWLER
Mr. Bowler joined us in 1989 and has been Vice President - Federal Government
Relations since 1990. He formerly served as Staff Director for the House Ways
and Means Committee.
P. NIGEL GRAY
Mr. Gray joined us in 1975 as Export Sales Manager for Howmedica U.K., Ltd., in
England, and progressed through a number of positions of increasing
responsibility before being named Vice President, Marketing for Howmedica Europe
in 1983. In 1987, Mr. Gray became Senior Vice President and General Manager of
Howmedica International in Staines, England, then President of Howmedica
International in 1992. In 1993, he was named Executive Vice President of our
Hospital Products Division and President of the Medical Devices Division, and in
1994, he was elected one of our Vice Presidents. In 1995, Mr. Gray became
President of our former Medical Technology Group.
GARY N. JORTNER
Mr. Jortner joined us in 1973 as a Systems Analyst for Pfizer Pharmaceuticals.
In 1974, he transferred to product management and progressed through a series of
promotions that resulted in his being named Group Product Manager for Pfizer
Labs in 1978. In 1981, he became Vice President of Marketing for Pfizer Labs. In
1986, he was promoted to Vice President of Operations for Pfizer Labs. In 1991,
he was named Vice President and General Manager, Pfizer Labs Division. In 1992,
Mr. Jortner was elected one of our Vice Presidents. In 1994, he was named Vice
President; Group Vice President, Disease Management - U.S. Pharmaceuticals
Group. In 1997, he became Vice President, Product Development - Pfizer
Pharmaceuticals Group, and in 1998, he was promoted to Senior Vice President,
Product Development - Pfizer Pharmaceuticals Group.
KAREN L. KATEN
Ms. Katen joined us in 1974 as a Marketing Associate for Pfizer Pharmaceuticals.
Beginning in 1975, she progressed through a number of positions of increasing
responsibility in the Roerig product management group which resulted in her
being named Group Product Manager in 1978. In 1980, she transferred to Pfizer
Labs as a Group Product Manager and later became Director, Product Management.
In 1983, she returned to Roerig as Vice President-Marketing. In 1986, she was
named Vice President and General Manager-Roerig Division. In 1992, she was
elected one of our Vice Presidents. In 1993, Ms. Katen became Executive Vice
President of the U.S. Pharmaceuticals Group and, in 1995, Ms. Katen was named
President of the U.S. Pharmaceuticals Group. In January 1997, she became
Executive Vice President - Pfizer Pharmaceuticals Group.
27
Ms. Katen is a Director of General Motors Corporation and Harris Corporation,
and serves on the International Council of J.P. Morgan & Co.
J. PATRICK KELLY
Mr. Kelly joined us in 1981 as a Marketing Research Associate in the
Pharmaceuticals Division. He became Product Analyst in 1982 and, in 1983, was
made Marketing Associate in the Roerig Division. He progressed through a series
of positions of increasing responsibility and became Group Product Manager for
Roerig in 1989. In 1992, he was named Vice President-Marketing, Roerig in the
U.S. Pharmaceuticals Group and, in 1994, became its Group Vice President,
Disease Management. In 1996, he was elected one of our Vice Presidents and, in
1997, was named Senior Vice President, Disease Management - U.S.
Pharmaceuticals, and later that year became Vice President - Pfizer
Pharmaceuticals Group and Senior Vice President - U.S. Pharmaceuticals. In 1998,
Mr. Kelly was named Senior Vice President-Worldwide Marketing-Pfizer
Pharmaceuticals Group.
ALAN G. LEVIN
Mr. Levin joined us in 1987 as Senior Operations Auditor for the Controller's
Division. In 1988, he joined the Treasurer's Division as Controller of the
Pfizer International Bank in San Juan, Puerto Rico. He returned to New York in
1991 as Director-Finance, Asia, and in 1993 was named Senior Director-Finance,
Asia. In 1995, Mr. Levin was elected our Treasurer. In 1997, he was elected Vice
President; Treasurer.
VICTOR P. MICATI
Mr. Micati joined us in 1965 as a Management Candidate for Pfizer Labs.
Beginning in 1966, he progressed through a number of positions of increasing
responsibility in the Pfizer Labs division, which resulted in his being named
Vice President - Marketing in 1971. In 1972, he became Vice President of
Pharmaceutical Development for International Pharmaceuticals. In 1980, he was
named Executive Vice President of Pfizer Europe. Mr. Micati returned to the
International Pharmaceutical Division in 1984 as Senior Vice President, and from
1990 to 1997 was Area President, Europe. In 1992, he was elected one of our Vice
Presidents. Mr. Micati was named Executive Vice President, International
Pharmaceuticals Group in 1996, and in 1997 was named Executive Vice President of
the Pfizer Pharmaceuticals Group.
GEORGE M. MILNE, JR.
Dr. Milne joined us in 1970 as a Research Scientist and was promoted to Senior
Research Scientist and then Project Manager in 1973 and 1974, respectively. In
1978, Dr. Milne became a Discovery Manager with responsibility for research
programs targeting inflammation, pain and mental disease. Following additional
postdoctoral training and research in pharmacology, he was promoted to Director
and then Executive Director of the Department of Immunology and Infectious
Diseases. In 1985, Dr. Milne was appointed the Vice President of global Research
and Development Operations before becoming the Senior Vice President of Research
and Development in 1988. In 1993, Dr. Milne was elected one of our Vice
Presidents and, since that same year, has been President of our Central Research
Division.
WILLIAM J. ROBISON
Mr. Robison joined us in 1961 as a Sales Representative for Pfizer Labs. After
serving in a number of positions of increasing responsibility in the Labs
division, he was appointed Vice President of Sales in 1980, and Senior Vice
President Pfizer Labs in 1986. In 1990, he was appointed Vice President and
General Manager of Pratt Pharmaceuticals. In 1992, he was named President of the
Consumer Health Care Group, and was elected one of our Vice Presidents. In 1996,
Mr. Robison was elected Senior Vice President Corporate Employee Resources.
HERBERT V. RYAN
Mr. Ryan joined us in 1962 as Supervisor, Capital Assets. In 1964, he was named
Supervisor, Corporate Ledger and, in 1966,
28
became Director, Corporate Accounting. In 1981, he was appointed Assistant
Controller, Corporate Accounting, and in 1993, Mr. Ryan was elected Corporate
Controller. In 1997, Mr. Ryan was elected Vice President; Controller.
CRAIG SAXTON
Dr. Saxton joined us in 1976 as Clinical Projects Director for the Central
Research Division of Pfizer Limited in Sandwich, England. In 1981, he was named
Senior Associate Medical Director for the International Division of Pfizer Inc.
and, in 1982, became the Division's Vice President, Medical Director. Dr. Saxton
became Senior Vice President, Clinical Research and Development for the Central
Research Division in 1988. In 1993, he was named Executive Vice President -
Central Research and was elected one of our Vice Presidents.
DAVID L. SHEDLARZ
Mr. Shedlarz joined us in 1976 as Senior Financial Analyst in the
Pharmaceuticals Division. Following a series of positions of increasing
responsibility, including service as financial manager and controller of
Marketing/Sales/Production, Diagnostics Division, he was promoted to Production
Controller of the U.S. Pharmaceuticals Division in 1979. He was appointed
Assistant Group Controller, U.S. Pharmaceuticals Division in 1981. In 1984, Mr.
Shedlarz assumed responsibilities as Group Controller and was promoted to Vice
President of Finance of the U.S. Pharmaceuticals Group in 1989. He was elected
our Vice President - Finance in 1992, and he was named our Chief Financial
Officer in 1995. Mr. Shedlarz assumed his responsibilities as our Senior Vice
President in January 1997.
MOHAND SIDI SAID
Mr. Sidi Said joined us in 1965 as a professional sales representative. During
his career, he has held a variety of management assignments in Algeria, Morocco,
Kenya, Egypt, France, Belgium, and the United States. In 1996, he was elected
one of our Vice Presidents and was also named Senior Vice President - Pfizer
Pharmaceuticals Group and Area President - Asia/Africa/Middle East.
FREDERICK W. TELLING
Dr. Telling joined Pfizer Pharmaceuticals and Diagnostic Products Group in 1977
and progressed through a number of positions of increasing responsibility before
being named Director of Planning for the Pharmaceuticals Division in 1981. In
1987, he was named Vice President of Planning and Policy and, in 1994, Senior
Vice President of Planning and Policy for the U.S. Pharmaceuticals Group. In
October 1994, Dr. Telling was elected our Vice President, Corporate Strategic
Planning and Policy.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange.
It is also listed on the London, Paris, Brussels, and Swiss Stock Exchanges and
is traded on various United States regional stock exchanges. Additional
information required by this item is incorporated by reference from the table
QUARTERLY CONSOLIDATED FINANCIAL DATA on page 61 of the 1998 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the
FINANCIAL SUMMARY on page 62 of the 1998 Annual Report to Shareholders.
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from the
FINANCIAL REVIEW on pages 28 through 38 of the 1998 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from the
discussion under the heading FINANCIAL RISK MANAGEMENT on pages 36 and 37 of the
1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the
INDEPENDENT AUDITORS' REPORT found on page 39 and from the consolidated
financial statements and supplementary data on pages 40 through 61 of the 1998
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about our Directors is incorporated by reference from the
discussion under Item 1 of our Proxy Statement for the 1999 Annual Meeting of
Shareholders. The balance of the response to this item is contained in the
discussion entitled EXECUTIVE OFFICERS OF THE COMPANY in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from
the discussion under the heading EXECUTIVE COMPENSATION in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS in Item 1 of our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated by reference from the discussion under the heading
RELATED TRANSACTIONS in our Proxy Statement for the 1999 Annual Meeting of
Shareholders.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14 (a)(1) FINANCIAL STATEMENTS The following consolidated financial
statements, related notes and independent auditors' report, from the 1998 Annual
Report to Shareholders, are incorporated by reference into Item 8 of Part II of
this report:
PAGE(S) IN THE 1998 ANNUAL
REPORT TO SHAREHOLDERS
Independent Auditors' Report....................... 39
Segment Information................................ 60
Geographic Data.................................... 60
Consolidated Statement of Income................... 40
Consolidated Balance Sheet......................... 41
Consolidated Statement of Shareholders' Equity..... 42
Consolidated Statement of Cash Flows............... 43
Notes to Consolidated Financial Statements......... 44 - 60
Quarterly Consolidated Financial Data.............. 61
14(a)(2) FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they
are not required or the information is given elsewhere in the financial
statements. The financial statements of unconsolidated subsidiaries are omitted
because, considered in the aggregate, they would not constitute a significant
subsidiary.
14(a)(3) EXHIBITS THESE EXHIBITS ARE AVAILABLE UPON REQUEST. REQUESTS
SHOULD BE DIRECTED TO C.L. CLEMENTE, SECRETARY, PFIZER INC., 235 EAST 42ND
STREET, NEW YORK, NY 10017.
3(i) - Our Restated Certificate of Incorporation as of October 29,
1997, is incorporated by reference from our 10-Q report for
the period ended September 28, 1997.
3(ii) - Our By-laws as amended June 23, 1994, are incorporated by
reference from Exhibit 3(ii) of our report
on Form 8-K dated June 23, 1994.
4(i) - Our Rights Agreement dated as of October 6, 1997, with
ChaseMellon Shareholders Services, L.L.C. is incorporated by
reference from our report on Form 8-K dated October 6, 1997.
10(i) - Stock and Incentive Plan as amended through January 28, 1999.
10(ii) - Pfizer Retirement Annuity Plan as amended through November 6,
1997 is incorporated by reference from
our 1997 10-K report.
10(iii) - The form of severance agreement with the Named Executive
Officers identified in our Proxy
31
Statement for the 1999 Annual Meeting of Shareholders is
incorporated by reference from our 1994 10-K report.
10(iv) - Nonfunded Deferred Compensation and Supplemental Savings Plan
is incorporated by reference from our 1996 10-K report.
10(v) - Executive Annual Incentive Plan is incorporated by reference
from the exhibit to our Proxy Statement
for the 1997 Annual Meeting of Shareholders.
10(vi) - Performance-Contingent Share Award Program is incorporated by
reference from Exhibit 10.3 to our
10-Q report for the period ended September 29, 1996.
10(vii) - Nonfunded Supplemental Retirement Plan is incorporated by
reference from our 1996 10-K report.
10(viii) - The form of Indemnification Agreement with Directors is
incorporated by reference from our 1996 10-K report.
10(ix) - The form of Indemnification Agreement with Named Executive
Officers is incorporated by reference from our 1997 10-K
report.
10(x) - Non-Employee Directors' Retirement Plan [frozen as of October
1996] is incorporated by reference from our 1996 10-K report.
10(xi) - Annual Retainer Unit Award Plan (for non-employee Directors)
is incorporated by reference from Exhibit 10.1 to our 10-Q
report for the period ended September 29, 1996.
10(xii) - Nonfunded Deferred Compensation and Unit Award Plan for
Non-Employee Directors is incorporated by reference from
Exhibit 10.2 to our 10-Q report for the period ended
September 29, 1996.
10(xiii) - Restricted Stock Plan for Non-Employee Directors is
incorporated by reference from our 1996 10-K report.
10(xiv) - Deferred Compensation Plan is incorporated by reference from
our 1997 10-K report.
10(xv) - Summary of Annual Incentive Plan.
10(xvi) Amendment to the August 13, 1998, Stock and Asset Purchase
Agreement between Pfizer Inc. and Stryker Corporation dated
as of October 22, 1998.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a) - The 1998 Annual Report to Shareholders, which, except for
those portions incorporated by reference, is furnished solely
for the information of the Commission and is not to be deemed
"filed".
21 - Subsidiaries of the Company.
23 - Consent of KPMG LLP, independent certified public accountants.
27.1 - Financial Data Schedule for Period Ended December 31, 1998.
27.2 - Financial Data Schedule for Period Ended December 31, 1997.
27.3 - Financial Data Schedule for Period Ended December 31, 1996.
(b) Reports on Form 8-K
The Company filed reports on Form 8-K during the last quarter of 1998 dated
October 2, and December 8, 1998.
32
SIGNATURES
Under the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report was signed on behalf of the Registrant by the
authorized person named below.
Pfizer Inc.
By: /s/C.L. Clemente
Dated: March 25, 1999 C.L. Clemente, Senior Vice President,
Secretary and Corporate Counsel
Under the requirements of the Securities Exchange Act of 1934, this report
was signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/William C. Steere, Jr.
----------------------------------- Chairman of the Board, Director March 25, 1999
(William C. Steere, Jr.) (Principal Executive Officer)
/s/David L. Shedlarz
----------------------------------- Senior Vice President and Chief Financial
(David L. Shedlarz) Officer (Principal Financial Officer) March 25, 1999
/s/Herbert V. Ryan
----------------------------------- Vice President - Controller (Principal March 25, 1999
(Herbert V. Ryan) Accounting Officer)
/s/Michael S. Brown Director
-----------------------------------
(Michael S. Brown) March 25, 1999
/s/M. Anthony Burns Director March 25, 1999
-----------------------------------
(M. Anthony Burns)
/s/W. Don Cornwell Director March 25, 1999
-----------------------------------
(W. Don Cornwell)
SIGNATURES TITLE DATE
---------- ----- ----
/s/George B. Harvey Director March 25, 1999
-----------------------------------
(George B. Harvey)
/s/Constance J. Horner Director March 25, 1999
-----------------------------------
(Constance J. Horner)
/s/Stanley O. Ikenberry Director March 25, 1999
-----------------------------------
(Stanley O. Ikenberry)
/s/Harry P. Kamen Director March 25, 1999
-----------------------------------
(Harry P. Kamen)
/s/Thomas G. Labrecque Director March 25, 1999
-----------------------------------
(Thomas G. Labrecque)
/s/Dana G. Mead Director March 25, 1999
-----------------------------------
(Dana G. Mead)
/s/Henry A. McKinnell Executive Vice President and Director March 25, 1999
-----------------------------------
(Henry A. McKinnell)
/s/John F. Niblack Executive Vice President and Director March 25, 1999
-----------------------------------
(John F. Niblack)
/s/Franklin D. Raines Director March 25, 1999
-----------------------------------
(Franklin D. Raines)
/s/Ruth J. Simmons Director March 25, 1999
-----------------------------------
(Ruth J. Simmons)
/s/Jean-Paul Valles Director March 25, 1999
-----------------------------------
(Jean-Paul Valles)
INDEX TO EXHIBITS
Exhibit Page Number in Sequential
No. Number System
- - ------ -------------------------
10(i) Stock and Incentive Plan as amended through January 28, 1999.
10(xv) Summary of Annual Incentive Plan.
10(xvi) Amendment to the August 13, 1998, Stock and Asset Purchase
Agreement between Pfizer Inc. and Stryker Corporation dated
as of October 22, 1998.
12 Computation of Ratio of Earnings to Fixed Charges.
13(a) The 1998 Annual Report to Shareholders, which, except for
those portions incorporated by reference, is furnished solely
for the information of the Commission and is not to be deemed
"filed".
21 Subsidiaries of the Company.
23 Consent of KPMG LLP, independent certified public accountants.
27.1 Financial Data Schedule for the Period Ended December 31, 1998.
27.2 Financial Data Schedule for the Period Ended December 31, 1997.
27.3 Financial Data Schedule for the Period Ended December 31, 1996.