Pfizer Reports Second-Quarter 2009 Results; Increases Full-Year 2009 Adjusted Diluted EPS(1) Guidance

For first-half 2009, revenues were $21.9 billion, a decrease of 9% compared with the same period in 2008 and a decrease of 2% on a constant currency basis. Foreign exchange unfavorably impacted revenues by approximately $1.7 billion or 7%. U.S. revenues were $9.5 billion, a decrease of 7% compared with first-half 2008. International revenues were $12.4 billion, a decrease of 10% compared with the same period last year, and reflected operational growth of 2%, which was more than offset by the unfavorable impact of foreign exchange of 12%. U.S. revenues represented 43% of the total and international revenues represented 57% of the total, comparable with first-half 2008. In addition to foreign exchange, other factors that negatively impacted first-half 2009 revenues in comparison with first-half 2008 included the loss of U.S. exclusivity for Zyrtec in January 2008 and Camptosar in February 2008, the loss of exclusivity in Japan for Norvasc in July 2008, as well as the revenue declines for Lipitor, as a result of continued intense competition, and for Chantix/Champix, mainly due to label changes.

Business Revenues

Effective January 1, 2009, Pfizer expanded its operating model within the Pharmaceutical business to include five customer-focused units, in addition to its Animal Health business. During second-quarter 2009, all Pharmaceutical units and Animal Health generated revenue growth on a constant currency basis with the exception of the Established Products unit, which manages a portfolio of products that have generally lost patent protection or marketing exclusivity and that have an expected decline in revenues at this stage in their lifecycle.

Primary Care revenues for second-quarter 2009 were $5.1 billion, a 6% decline compared with $5.5 billion in the year-ago quarter. Operational growth of 1%, primarily driven by the strong international performance of Lyrica, was more than offset by the unfavorable impact of foreign exchange.

Specialty Care revenues for second-quarter 2009 were $1.4 billion, a 5% decrease compared with $1.5 billion in the same period last year. Operational growth of 2%, largely driven by the solid U.S performance of certain products, including Revatio and Geodon, was more than offset by the unfavorable impact of foreign exchange.

Oncology revenues for second-quarter 2009 were $352 million, an 8% decrease compared with $384 million in the prior-year quarter. Operational growth of 4%, due primarily to the strong performance in international markets of Sutent and Aromasin, was more than offset by the unfavorable impact of foreign exchange.

Established Products revenues for second-quarter 2009 were $1.6 billion, a 20% decline compared with $2.0 billion in the year-ago quarter, comprised of a 13% operational decline and a 7% foreign exchange decline. Since the products in this unit generally have lost patent protection or marketing exclusivity, revenues have declined. This unit was created in 2008 with the goal of recapturing value for these products in developed market geographies by progressively slowing the erosion of, and ultimately stabilizing, revenue and profit from established products. Supporting initiatives within the unit include programs designed to expand patient and payor access to this portfolio, to develop product enhancements, to expand the portfolio and to increase promotional efforts for targeted products.

Emerging Markets revenues for second-quarter 2009 were $1.5 billion, an 8% decrease compared with $1.7 billion in second-quarter 2008. These revenues include the revenue from both established products and patent-protected products sold in emerging markets. Operational growth of 9%, largely attributable to double-digit growth in high-priority countries, notably China and Turkey, was more than offset by the unfavorable impact of foreign exchange.

Animal Health revenues for second-quarter 2009 were $648 million, a 9% decline compared with $715 million in the year-ago quarter. Operational growth of 2%, primarily driven by the solid performance in emerging markets and for certain new products worldwide, was more than offset by the negative impact of foreign exchange.

Reported Net Income(2) and Reported Diluted EPS(2)

For second-quarter 2009, Pfizer posted reported net income(2) of $2.3 billion, a decline of 19% compared with $2.8 billion in the prior-year quarter, and reported diluted EPS(2) of $0.34, a decline of 17% compared with $0.41 in the prior-year quarter. For first-half 2009, Pfizer posted reported net income(2) of $5.0 billion, a decline of 10% compared with $5.6 billion in first-half 2008, and reported diluted EPS(2) of $0.74, a decline of 10% compared with $0.82 in the prior-year period. Results were unfavorably impacted by foreign exchange and an increase in the effective tax rate as well as costs incurred in connection with the pending Wyeth acquisition. These factors were partially offset by savings from cost-reduction initiatives, lower costs associated with those initiatives and lower in-process research and development charges in 2009. The increase in the effective tax rate on reported results to approximately 26% in second-quarter 2009 from approximately 1% in second-quarter 2008, and to approximately 27% in first-half 2009 from approximately 12% in first-half 2008, was primarily due to the increased tax cost associated with certain business decisions executed to finance the pending Wyeth acquisition as well as favorable income tax adjustments in 2008.

Adjusted Income(1) and Adjusted Diluted EPS(1)

Second-quarter 2009 adjusted income(1) was $3.2 billion, a decrease of 12% compared with $3.7 billion in the year-ago quarter, and adjusted diluted EPS(1) was $0.48, a decrease of 13% compared with $0.55 in the year-ago quarter. First-half 2009 adjusted income(1) was $6.9 billion, a decrease of 11% compared with $7.8 billion in first-half 2008, and adjusted diluted EPS(1) was $1.03, a decrease of 10% compared with $1.15 in the year-ago period. Both adjusted income(1) and adjusted diluted EPS(1) were negatively impacted by foreign exchange and an increase in the effective tax rate on adjusted income(1) to approximately 28% in second-quarter 2009 from approximately 20% in second-quarter 2008, and to approximately 29% in first-half 2009 from approximately 21% in first-half 2008, primarily due to the increased tax cost associated with certain business decisions executed to finance the pending Wyeth acquisition as well as a favorable income tax adjustment in 2008. These factors were partially offset by savings from cost-reduction initiatives.

In second-quarter 2009, adjusted cost of sales(1) as a percentage of revenues was 15.4% compared with 16.9% in second-quarter 2008. This improvement reflects the benefits from cost-reduction initiatives and foreign exchange. Excluding the impact of foreign exchange, adjusted cost of sales(1) as a percentage of revenues was 16.2% in second- quarter 2009.

Adjusted selling, informational and administrative (SI&A) expenses(1) were $3.3 billion in second-quarter 2009, a decrease of 12% compared with $3.7 billion in the prior-year quarter. The decrease was due to the favorable impact of cost-reduction initiatives, as well as foreign exchange which reduced second-quarter 2009 adjusted SI&A expenses(1) by $253 million compared with the year-ago quarter.

Adjusted research and development (R&D) expenses(1) were $1.7 billion in second-quarter 2009, a decrease of 11% compared with $1.9 billion in the prior-year period. The decrease was due to the favorable impact of cost-reduction initiatives, as well as foreign exchange which reduced second-quarter 2009 adjusted R&D expenses(1) by $68 million compared with the year-ago quarter.

Overall, operational improvements resulting from cost-reduction initiatives decreased adjusted total costs(10) by approximately $410 million or 5% in second-quarter 2009 compared with the prior-year period, and foreign exchange decreased adjusted total costs (10) by $585 million or 8%. The operational improvements were driven partially by the reduction in workforce to approximately 76,500 at the end of second-quarter 2009, a decline of 3,750 compared with the end of the first-quarter 2009, and a decline of 10,100 since the beginning of 2008, as well as manufacturing and research and development site exits. Throughout the remainder of 2009, a portion of the operational cost reductions achieved in first-half 2009 is expected to be reinvested to further execute strategies, primarily in emerging markets and established products, and to support the late-stage development portfolio.

Executive Commentary

“Our results this quarter demonstrate our ability to continue to deliver solid operational performance despite a challenging and dynamic economic and operating environment. On a constant currency basis, all of our Pharmaceutical units and Animal Health generated revenue growth during the quarter, with the exception of the Established Products unit, which manages a portfolio of products that have an expected decline in revenues at this stage of their lifecycle,” stated Jeff Kindler, Chairman and Chief Executive Officer.

Kindler continued, “Additionally, significant progress was made in connection with our pending Wyeth acquisition by achieving several key milestones, including approval of the acquisition by the European Commission, which included our commitment to divest certain animal health assets in the EU; the submission of regulatory filings in other important international markets; the approval of the acquisition by Wyeth shareholders; and further development of our post-closing integration plans. At the same time, we remain focused on meeting our commitments - generating revenues consistent with our expectations and continuing to streamline our cost structure.”

Frank D’Amelio, Chief Financial Officer, stated, “We remain committed to delivering on our 2009 financial goals and today, are increasing our guidance for adjusted diluted EPS (1) to a range of $1.90 to $2.00 from a range of $1.85 to $1.95 as well as narrowing our revenue guidance to a range of $45.0 to $46.0 billion from a range of $44.0 to $46.0 billion. We are also improving our guidance on many of our expense line items. Additionally, we’ve made substantial progress on our cost-reduction initiative with an operational decrease of approximately $740 million in adjusted total costs(10) realized during first-half 2009, a portion of which we expect will fund increased activity in support of business opportunities, primarily in emerging markets and established products, and in support of our late-stage development portfolio, among other things, during second-half 2009. In connection with the pending Wyeth acquisition, we replaced our bridge loan facility with permanent financing and are making substantial progress in planning for a successful and rapid integration of Wyeth following the closing.”

Financial Guidance

For full-year 2009, Pfizer’s financial guidance, at current exchange rates(11) has been updated and is summarized below. Guidance for adjusted diluted EPS(1) has been increased to a range of $1.90 to $2.00 from $1.85 to $1.95 and guidance for reported revenues has been narrowed to a range of $45.0 to $46.0 billion from a range of $44.0 to $46.0 billion. Guidance for reported diluted EPS(2) has increased to a range of $1.30 to $1.45 from a range of $1.20 to $1.35, primarily due to lower than anticipated costs to be incurred in 2009 in connection with our cost-reduction initiatives. In addition, guidance for other line items, adjusted SI&A expenses(1), adjusted R&D expenses(1) and adjusted other (income)/deductions(1), has been either narrowed or improved as detailed below. We continue to expect to achieve net savings compared to 2008 adjusted total costs(10) of $2 billion by the end of 2011 at 2008 foreign exchange rates.