輝瑞 (PFE) 2003 Q2 法說會逐字稿

Thank you for holding.

Dr. McKinnell, you may begin.

Thank you.

Hello, everyone and welcome to Pfizer's Second Quarter Conference Call and Webcast.

I'm Hank McKinnell, Pfizer's Chairman and CEO.

Here this morning in New York with members of Pfizer's leadership team.

As always, thank you for being with us.

Given our recent analyst meeting and the very comprehensive nature of our just issued second quarter performance report I'm going to forego my usual opening comments so we can move as quickly as possible to your questions, but I'll ask Karen Katen, President of Pfizer Global Pharmacueticals to review the performance of our major pharmaceutical products and then David Shedlarz, our Chief Financial Officer, to highlight our financial results and future expectations.

Karen, please?

Thank you, Hank.

Pfizer Global Pharmacueticals began its new era of leadership this past quarter with the integration of Pharmacia.

In the face of an increasingly challenging business environment, we recognize that continued success requires more than the portfolio of safe and effective products.

It also requires creating unambiguous value for customers.

Pfizer understands this as you've seen by our ability to meet healthcare needs and deliver strong performance results.

These results include 14 number one products and their respective therapeutic categories, 8 of the world's top 25 medicines and 10 products with over $1 billion each in annual sales.

The majority of our major products experienced double-digit revenue growth again in the second quarter.

These include Lipitor, [Norbac], Zoloft, Neurotin, Aricept, Zithromax, and Zyrtec.

Many new products gained in the Pharmacia acquisition demonstrated growth as well.

For instance the [INAUDIBLE] had strong growth in the quarter in the face of a stagnant arthritis market.

Most Pfizer medicines continued to outpace market growth within their respective therapeutic categories.

The integration of Pharmacia has two significant implications for our business.

As we said last month the harmonization of business practices will follow Pfizer standards.

Pfizer has and will continue to maintain inventory levels of under one month on average, and ensures monthly stocking levels are consistent year to year.

For example, this June, Pfizer had 0.5 months of inventory in the pipeline which was the same level we had in the pipeline last June.

This has been very consistent.

Pharmacia maintained much higher levels of inventory stockings.

During the second quarter inventory levels went from 2.1 to 0.9 months, approaching Pfizer's level.

The harmonization of this practice is expected to be largely completed by the end of the third quarter.

The second expectation is the extension of Pfizer's capacity to meet unmet medical needs for a wide variety of patient population.

Both with leading medicines as well as innovative, access and health management programs.

To improve healthcare delivery and to improve patient outcome.

In the second quarter we introduced our expanded portfolio of specialty medicines to the entire field force, including our oncology and endocrinology products that also reach under-served patients.

The therapeutic reach for our medicines is matched by the breadth and scope of our medical access programs, which are designed to help some of society's most vulnerable populations get access to quality healthcare.

These programs also vividly demonstrate the value of medicines to total healthcare delivery.

For example, Florida, a healthy state program, affirms the value of care management by providing Medicaid [INAUDIBLE] to the state of Florida and improving the health of its Medicaid population.

As of May 2003, more than 113,000 patients are enrolled in the Florida program.

These patients are receiving assistance and tools they need to better manage their own health including blood pressure cuffs, weight scales, and peak flow monitors for their asthma.

Using these tools in conjunction with the health management assistance, patients you see from local hospital programs results are amazing. 52% of patients showed improvement in their physical health score. 48% of hypertensive health patients have lowered their blood pressure.

For asthmatics, there is 161% increase in the use of peak flow monitors resulting in a 34% improvement in severe asthma based on NSA LBI reports.

In addition, a significant reduction in admissions to the emergency room.

Performance milestones for marketed products since the end of first quarter include the following, Lipitor, the world's best-selling medicine realized more than $2 billion in revenue in the second quarter.

The cholesterol lowering market is growing due to the introduction of new products, including Zedia, [Prestor] in Europe and Canada, and more generics.

New prescriptions in this market are up 9% for the year-to-date.

This is down from the double-digit growth experienced informant last two years as you all know.

The reason for this deceleration of growth includes the sheer size of the current market which makes significant incremental growth harder to achieve, physicians have been slow to adopt the adopt the latest NCET-3 guidelines.

And there are still a number of patients reluctant to take medicine for asthmatic conditions when they don't understand the risk benefit trade off.

Despite these challenges we remain more than confident than ever that Lipitor will continue its record of performance based on its ability to safely reduce cholesterol and get patients to go across all dosage levels.

This is particularly important in light of new competition.

This is the powerful cholesterol treatment patients and physicians choose and trust, and trust the most.

And we have the data to prove it and more data coming up.

The data from the Ascould the trial was presented at American College of Cardiology demonstrates patients with mildly elevated cholesterol, with Lipitor led to a 36% reduction in non-fatal myocardial infarctions and fatal coronary heart disease.

It also led to a 27% reduction in strokes and we know this is very, very important to patients and their families.

The Landmark Heart Study was halted two years early because of compelling data showing that Lipitor provides a significant cardiovascular benefit to patients with Type II Diabetes and no previous history of heart disease or stroke.

Beyond the clinical research we're working to educate physicians and hope to increase diagnosis rates and utilization staff therapy with obvious benefits for patients and for Lipitor.

Programs targeted to help healthcare providers patients and plans include disease management initiatives like counting cholesterol down and close to the heart after care have touched nearly half a million patients.

We are also sponsoring physician education for the National Lipid Education Council and the Vascular Working Group.

Our objective with programs like these is to expand the market.

To reach those millions of undiagnosed and untreated patients rather than focus on the narrow perspective of shifting share.

Outside the U.S.

Cresstor is being launched and poses a new competitive challenge.

It does stimulate overall growth of statin markets.

In the UK, Lipitor continues to be the fastest growing statin in the market, with 33% audited sales growth through April of this year.

Compared to 27% total branded market growth.

Although Cresstor is getting a lower market share at 14% versus Lipitor of 19% based on comparable post-launched time frames, their -- furthermore the market is expanding.

It's larger than at the time of Lipitor '97 launch.

Lipitor will maintain its status as statin of choice.

It's got an excellent safety and efficacy profile.

A proven track record of getting patients to goal. and the data and more data to come.

While Lipitor is our largest market product our portfolio, as you know, includes other important medicines, including our two products, Celebrex and Bextro.

Significant developments in the last quarter will continue to build momentum for these important products.

The committee for proprietary medicinal medicines in the EU adopted a positive opinion recommending marketing authorization of celecoxib, using the brand name [Parnsinol] for treatment of familial and multitous politosis..

While there is a low incidence of this condition, this recommendation is extremely important in demonstrating this product's efficacy.

An independent analysis that included our entire Celebrex arthritis clinical trial database, found no evidence in increased cardiovascular risk for Celebrex, relative to both conventional, non-psoriatal anti-inflammatory drugs and placebo.

As you know there continues to be a shadow of safety concerns about these compounds.

So this should eliminate that concern.

Another study also documented the significant erosion in the small intestine by a combination of [INAUDIBLE] and protons [INAUDIBLE] inhibitity as compared with Celebrex.

Extra received marketing approval for rheumatoid arthritis, osteoarthritis, and primary [getseneria] in the EU and has been launched in several European markets including the UK and Germany.

Turning to Viagra, which continues to grow at double-digit rates around the world.

The efficacy and safety of this product has been demonstrated more than 120 clinical trials in over five years of real world experience.

These data represent a collective track record at best that cannot be matched by new product entries.

Our market research study is an opinion poll can be useful when designed accurately.

Clinical trials are the gold standard for aggravating end points in relation to a medicine.

In a recent 30 year open label flexible dose clinical study of over 2400 patients, 95% of Viagra patients remain satisfied with Viagra and their improvement in achieving erection.

Be assured that we know that when asked about what some will try new products they often will say yes, so these one-on-one questionnaires give us a profile of the product can give, always give a very positive reaction but can be misleading in terms of how the market will perform when it achieves the real market status.

It's impossible to use this information to project what will actually happen in the market until that happens.

In Germany and the UK where [Syalos] has been on the market since January, Viagra remains the majority of the total market based on sales.

In fact, Viagra grew its share and Syalos share declined in both markets from March to May.

Anecdotal reports from physicians in these markets support this experience.

In markets where we captured early description dynamics such as Australia, we see that at least 20% of patients who have tried a competitive agent are quickly returning to Viagra.

In other product developments, earlier this week the FDA approved the anti-biotic Zibox, for treatment of diabetic foot infection, which as you know is a difficult condition to treat and a marker of efficacy in the anti-infective arena.

The FDA approved new label changes that reflect three [big] advantages over Avenex in helping multiple sclerosis patients remain relapse free after 48 weeks and with the added convenience of storage that allows the products to be stored at room temperature for up to 30 days, another patient convenience advantage.

Phenotropine, the world's top growth selling common growth hormone indicated for the children and adults for hormone deficiency, was approved in Europe for children born small for gestational age, who failed to show catch up growth by age four.

And Pfizer filed with the FDA of Zyrtec chewable believe tablets for children ages six to twelve.

Adding momentum to our portfolio, broad indications and a wide range of dosage forms for this valuable medicine.

Among the quarter's new product development milestones were Intrex, filed with the FDA for the indication of prevention of congestive heart failure after myocardial infarction.

This has received priority review status by the agency.

The therapeutic profile for Indicloen, our promising new treatment for insomnia, encoded with it's originator Nuecren Biosciences, was strengthened by newly released clinical data showing no rebound insomnia or withdrawal effects upon discontinuation of therapy.

Ranacline, our promising new compound for smoking cessation, advanced in Phase Three testing, and in the agreement with Diechi Pharmacueticals, we obtain an exclusive license for DK507K, a novel, extended sector quinelone antibiotic in Phase One of oral and and IV administration to treat respiratory tract and other antibiotic infections.

We know there's concern, we know you're all concerned about the encroachment of competitive products on our leading products.

We believe and we know we are well-positioned to continue the growth and success of our products despite any new challenges.

This strength comes from our unmatched foundations of patients currently using our medicine, our large assessment and participation rates in clinical trials.

Right now we have tens of thousands of patients in clinical trials for Lipitor. 8,000 in the TNT trial alone.

We have a substantial, a huge database actually on product safety on efficacy, on dosing, and patient satisfaction.

And we believe these fundamental data will carry the day.

Our ability to meet evolving healthcare needs is unmatched and will continue to grow.

We fully recognize the tough road ahead, but we're fully confident that we'll be able to successfully make our way down the road to reach the roads of achievement.

The fundamentals are in our favor.

And now David Shedlarz.

Thank you, Karen.

At our recently analyst meeting we characterized 2003 as a year with many moving parts reflecting the timing, dynamics and the impact of Pharmacia acquisition.

The second quarter has unfolded as expected, our expectations were discussed and diluted earnings-per-share for 2003 and 2004 are unchanged.

Second quarter revenues grew 37%, almost $10 billion compared to the same period in the prior year.

As the acquisition has been accounted for using the purchase method of accounting, and as we highlighted at our June 17th analyst meeting the second quarter reflects three months of financial results for legacy Pfizer and Pharmacia results as of April 16 close of the transaction.

Resulting about 2 1/2 months results for Pharmacia U.S. operations, and about 1 1/2 months results for Pharmacia international operations.

Let me emphasize again that the reported revenue number for the quarter contains only a portion of a full three-month quarter of Pharmacia products because of the timing of the close of the acquisition.

Revenue growth was driven by the inclusion of Pharmacia results, strong performance by a broad range of products and businesses, and the weakening of the U.S. dollar relative to other currencies.

Prior year revenues used for comparative purposes reflect results of legacy Pfizer only.

Pfizer reported a net loss in the quarter of approximately $3.6 billion or 48 cents loss for diluted share.

This result includes non-cash related to purchase accounting for the Pharmacia accusation of $5.9 million after tax, as well as merger related costs of $178 million after tax and certain significant items of $73 million of income net of tax.

Excluding these items adjusted diluted earnings-per-share was 30 cents.

The result reflects growth, operational performance, offset in part by the increase in shares outstanding resulting from the Pharmacia acquisition as well as the impact of harmonizing legacy Pfizer and legacy Pharmacia trade and internal inventory practices which negatively impacted revenues by approximately $300 million and diluted earnings per share by approximately 3 cents in the quarter.

Pfizer is moving rapidly to harmonize Pharmacia's trade inventory practices with its own and this process is expected to be largely completed by the end of the third quarter.

Looking forward, we continue to anticipate adjusted diluted earnings-per-share in 2003 of $1.73 and of $2.13 in 2004.

As a reminder, adjusted income and adjusted through diluted earnings-per-share are defined as reported net income or loss and reported diluted earnings or loss per share, excluding the impact of purchase accounting of the Pharmacia acquisition, certain significant items, merger related cost and the cumulative effect of a change in accounting principle.

Our long-term financial performance is characterized by four marks.

Strong revenue growth driven by existing and new products, ongoing investment in support of marketed and prospective products, profit margin expansion stemming from operating leverage and productivity initiatives and strong earnings growth.

We expect Pfizer to perform well by all of these measures.

In relation to proforma 2002, Pfizer-Pharmacia combined revenues of $45 billion anticipated 2004 revenue of $54 billion represents 10% compounded annual revenue growth.

Strong investments will be made in support of our marketed products and pipeline casualties with 2003 R&D expenditures expected to be about $7.1 billion.

Margin expansion is anticipated through ongoing cost saving initiatives and achievement of merger related cost synergies which are expected to approach $4 billion in 2005.

Adjusted diluted earnings-per-share of $2.13 in 2004 represents 16% compounded annual growth of the adjusted diluted earnings-per-share for legacy Pfizer of $1.59 in 2000.

The 2004 earnings-per-share forecast reflects accretion of six cents and adjusted dilute earnings-per-share relative to our expectations for Pfizer without the acquisition of Pharmacia.

All and all, our unique financial strength and operating flexibility enable us to marshall the resources necessary to deliver major lifesaving medicines to patients and strong financial performance to investors.

Of course, I need to remind you that this morning's discussion includes forward-looking statements.

Actual results could differ materially from those projected in those forward-looking statements.

Factors that could cause actual results to differ are discussed in our 2002 annual report on 10-K and our periodic reports on Form 10-Q and Form EK, if any.

Also we have discussed financial and other information as well as some non-GAAP financial measures in talking about Pfizer's performance.

You can find reconciliation of those measures to the most directly comparable GAAP financial measures in our press release as well as current reports on 8-K dated June 17th and July 25th, 2003.

These reports are available on our website at www.pfizer.com in the Foreign Investors/SEC Filing by Pfizer section.

Thank you, David.

Thank you, Karen.

While he focused on performed which is a Pfizer Hallmark, we also accept our leadership responsibilities on importance to patients, customers, business partners and the communities where we live and work.

And we've continued our commitment through innovative public-private partnerships to improve patient access to medicines world-wide.

Our colleagues at Pfizer are helping to improve the lives of millions of people around the world.

We will continue to deliver outstanding business results while helping expand access to innovative medicines and demonstrating good corporate [INAUDIBLE].

And now we're ready to respond to any questions you may have.

Thank you.

At this time we are ready to begin the question-and-answer session.

If you would like to ask a question, please press star 1 on your touch-tone phone.

You will be announced prior to asking your question.

David Risinger, your line is open and please state your company name.

Thanks very much.

From Merrill Lynch.

Congratulations on the quarter.

Could you please comment on Lipitor and Zoloft reported U.S. growth.

It appeared to me to be slightly below the scrip trends plus the list price increases and when you comment could you also discuss what you're seeing in terms of net pricing for Lipitor and Zoloft year-over-year?

Thank you.

Thank you, David.

Let me ask Karen to start and we may have somebody else help out here.

I need a little help on what the question is again.

It started like a lot of things in one question.

Lipitor, Zoloft, last quarter sales growth and the impact on present.

Okay.

We're scrambling for numbers here.

You know that weekly scrips are looking better, you saw that.

We have, in total Rx growth, looking at May and June you see an uptick in the market, you see an uptick in Lipitor.

I don't happen to have Zoloft on our chart.

If I can stick with Lipitor for for a moment, you if you look at the numbers for the first six months of 2003, you're looking at 5% revenue growth and 4% new prescription growth.

So I guess we look at that saying those are quite consistent with one another.

In turning to Zoloft, on the prescription side through the first six months, new prescriptions again up 2%, and we're looking at U.S. revenues in that same period of time up 1%, so again the dislocation between the revenue growth and the prescription growth we think is quite minimal.

And in both cases you're looking at the June prescriptions for both Lipitor and for Zoloft being substantially higher than, growth substantially higher than the previous five months of the year.

And pricing.

Impact on pricing, Peter?

The impact on pricings the recent announced price increases have not had an impact.

They're going out to the second half of this year.

They were a series of price increases taken early in the year and the impact of those increases on a full year basis is approximately 2%.

So you're seeing about half that in the first six months.

Okay, is that it, David?

Yes, thank you very much.

Thank you.

Thank you.

Barbara Ryan, your line is open and please state your company name.

Deutsche Banc, thanks for taking the call.

The question is really for Karen.

Karen, I'm just wondering if we look at the data that you've given us for Cresstor in various markets, given the low-level of new Rx's versus the totals, could you comment for us?

You gave us some indications of Cresstor's 14 versus 19.

I'm sorry, I didn't hear the last part.

You gave us an indication of where Cresstor was today versus Lipitor at the same time during its introduction.

Right.

And I'm wondering if we look at the level of new Rx's that are stated by your competitor after Zeneca in this case, how look at those as playing out the total scrips.

If they were to stabilize at the current levels?

You can look at the totals and say that the level is low, you can look at the news and say it's high.

They're sort of the same data.

Is the product tracking at a level where, we just have to get up to 40% of new prescriptions to reach, you know, 15% share, if you could just try to --

Well, you know they launch in three markets.

The Netherlands you can't [INAUDIBLE].

Right.

Ian Reed is here, who is in charge of Europe and he'll talk about performance.

We see it at fairly flat and not achieving the level I think they expected and maybe a little more in a couple markets than we would have liked.

Canada they don't have reimbursement so it's difficult to read, they had reimbursement in the UK and Netherlands, and then new Rx share is around 14% three months post launch, which is lower than what Lipitor achieved on the same number of months post launch.

So I would say the performance has been modest.

Probably too early to say, Barbara, and I guess the UK example might be interesting.

The market actually picked up to 27% growth and Lipitor's up 33.

So, you know, share is one thing, share of a growing market is equally important.

You would expect a new product to be in the market and any market will pick up new prescriptions.

There's always a willingness to try.

Right.

And the good news it accelerates market growth.

Right.

Can you tell us, Hank what that number was the 27% prior to the launch of Cresstor.

No, it's 27% through the latest data we have the in the UK.

It was after the Cresstor launch, so growth jumped to 27% and we were up 33.

Right.

Yeah, I was wondering what the growth rate acceleration was from the benefit.

The old growth rate.

It would be modest.

Uk is not a high growth market for statin.

Single-digit.

Maybe higher than single-digit.

Certainly not 27.

Thank you.

Mara Goldstein, your line is open and please state your company name.

It's CBIC World Markets.

A follow-up to Barbara's questions, there's been a lot of noise level around the private pain market in some of these territories where Cresstor has been launched and I'm wondering if you might clarify what you think the relationship is in private pain to the U.S. market.

The private market in Canada is -- the data they have is on relatively small portion of the marketplace.

When you run through the data only covered 50% of the scripts in the private market and the new share is around about 20% that have so Cresstor share comes up at 4%.

I don't think we can read anything into that.

It's probably too early to tell much of anything.

Until they get reimbursed in Canada you won't know how the products are growing.

Thank you.

Thank you.

CJ Sylvester, your line is open and please state your company name.

Hi, it's UBS.

Hank, I was wondering if you could talk about the continued rhetoric coming out of FDA with regard to pushing some of the non-sedating antihistamines that are still prescription over-the-counter and what action you're taking to counteract that.

We're fairly close to that as you might imagine.

No decision has been made by the FDA.

If the FDA makes a recommendation, it will have to be the decision of the Secretary and they are in that process.

But at a fairly early stage.

We have as you might imagine submitted a number of condition papers.

In fact, we are recommending that we try to learn what the financial outcome of the Claritin Rx OTC switch has been.

Our estimation is patients are out-of-pocket as a result of this switch.

The manufacturer sharing, is obviously a loser.

And it's the health plans that are the big winners here so this is a commercial issue that should be dealt with in the private market and gaining some traction with the FDA.

But as we've said I guess more than a year ago, even if there's been an eventual adverse decision here to us, which I don't expect, but even if there was, our expectation would be to litigate this through the end of the Zertek patent expiries in '07.

But I think it would be a bad precedent for pharmaceuticals in general.

Thanks.

Thank you.

Tim Anderson, your line is open and please state your company name.

Tim Anderson at Prudential.

A couple of Lipitor questions.

The -- I guess safety and outcome data didn't work too well for Zokor in 1997, they had four [Fs] and also a proven track record.

And I'm wondering what makes you think it will work for Lipitor versus Cresstor.

It seems this is primarily an efficacy-driven market unless there is genuine safety concerns on Cresstor, that product may do well.

On the topic of safety my second question is can you comment on your perceptions of the potential kidney effects of Cresstor?.

Is that [Protinurea] that we've seen worrisome?

Is it unique to Cresstor or could it be common to the class?

I don't think '97 is a particularly good bench mark, that happens to be the year we launched Lipitor, so impact of new data on Zokor clearly was muddied by the impact of the Pfizer Warner-Lambert launch of Lipitor.

Any adverse side-effect difference from other statins is going to be a big disadvantage in this market.

Especially since withdrawal of [Daycol].

The market has been intensified by that.

So every safety issue regardless of the scope of it has an impact in the market.

So there is a safety concern out there.

The [protinurea], with Cresstor could be a problem for them, we don't -- we have to see what it looks like in the labeling, but it probably is a concern.

And the data that we've accumulated since the launch of Lipitor is so far more powerful than anything in the market and also it's across the dosing range.

So the dosing range has been cleared for Lipitor.

There are no safety concerns at any dosage strength.

They can start at any dose level without any concern.

Be careful how you interpret potency.

It certainly is true that on a milligram to milligram basis these two drugs are not the same.

However, as Karen's just said the Lipitor dosing range is up to 80 milligrams and Cresstor is not even going to come close to that in terms of clinically relevant potency.

Physicians get concerned about titrating up when they're worried about the next dose so that causes some reluctance to titrate which would reduce the efficacy of the product.

In the real world I don't think Lipitor is at any potency disadvantage here at all.

All right.

Great, thank you very much.

Thank you.

Tony Butler, your line is open and please state your company name.

Lehman Brothers and thank you for the question.

You mentioned next year's revenue approximating $54 billion.

Can you comment, is that on an constant currency basis.

And Hank, just a couple of political questions if I may.

Can you comment on the change in reference pricing that I think appears to be occurring in Germany from 6 to I guess 16% and also any thoughts that you may have on re-importation as it applies to the Medicare drug benefit.

Thanks for your time.

David.

With regard to the $54 billion estimate, it is taking into consideration the current FX and the relationship of the dollar to key currencies.

As you know there's been a little volatile in the recent past.

It's moved up and down especially relative to the revenue to the Euro.

But it is on the expectation of the FX rates staying constant where they are today.

Germany seems to be moving from bad to worse.

We've beaten reference pricing before but it seems to be back.

Ian, do you have any thing to comment?

Well, it's not actually reference pricing.

They're asking for a rebate, so it'll have no impact across Europe versus the other countries and it is a temporary measure until they put in place the way they want to handle patented products.

And the legislation allows differentiated patented products to be price free, so we're not too concerned on that side of it.

On reimportation, I would like to comment on that, Tony.

The House bill passed by a vote of 243-186.

But, of course, that was after the last-minute vote switching.

We needed 218 votes to defeat that bill.

We had 208 before it was recognized the bill was not going to be defeated in a number of House members then switched their vote.

Of the 8 house conferees in the Medicare bill conference, five voted against importation last night and 53 I think it was senators have written this morning saying that they opposed the House language on importation and would only accept Secretary of HHS Approval that importation would not represent a safety risk to safety of the United States drug supply and would, in fact, save money for consumers.

The FDA and the administration believe the opposite.

So I don't think this bill, while it does have some political impact certainly, this bill certainly does not get past into law and I don't think it'll even have must have impact on the Medicare conference.

Remember the Bush administration, the FDA, the American Medical Association and more than 200 patient groups, senior groups, physician groups, business associations, think tanks and others oppose this legislation.

The facts are Canada is now tracking more than 50 terrorist organizations, organizations that would love to profit from the illegal traffic in medicines.

And could very well use this as a channel to disrupt all of us in the United States.

So we are at war.

We're at war with terrorists and we should be strengthening our borders, not weakening it.

So this is not going to been acted into law, and I'm kind of disappointed, frankly, the vote was even this close.

Thanks for the time.

Thank you.

James Kelly, your line is open and please state your company name.

Goldman, Sachs and good morning.

My question is for David and it relates to the inventory work down.

Back at the meeting in June, we talked about how the inventory levels are coming down from over two months to Pfizer normal levels.

We've gone down from 2.1 to about .9 and that has been for 3 cents according to the press release, and about $300 million.

If back in June we said the full reduction back to normal would be about 7 cents I was trying to figure out why the next increment cost me four cents or what else I might be missing here.

Thanks.

They're really two factors in play in terms of adjusting the trade inventories but I should highlight.

One has to do with dealing with the impact on revenues which we have ourselves part of the way through.

You've highlighted, Jim.

The other one is also recognizing that this will lead to lower manufacturing through put as a result of having to pull down the inventories internally.

So you've seen the initial hit in terms of getting ourselves pretty far down the road as it relates to adjusting the trade inventories but we have yet to feel that full impact.

And we will probably feel the impact of the remaining amount of money in both the third and fourth quarter in terms of manufacturing variants or low volume of through put as well.

So it is those factors driving the remaining four cents.

Finishing up the adjustment in trade inventories and and dealing with the manufacturing variants implicit in lower through-put because of the need for less internal inventories.

If I may just follow up briefly.

So we'll see that with a little bit lower gross margin in the back half of the year.

That's correct.

Mostly behind us by the end of the fourth quarter.

Richard Evans, your line is open and please state your company name.

Sanford, Bernstein.

Thanks for taking the question.

How many Lipitor prescriptions do you I think were filled with counterfeit product in the first half of the year, or I should say and over what time period, and is this over?

And obviously what I'm after here, is if there was any effect whatsoever of the counterfeit product in the first half of the year that wouldn't its elimination have a positive impact on reported growth in the second half.

And the second question is can you characterize where you stand with managed care contracts for '04.

To what extent do you have firm Lipitor commitments for '04 that we could counts on being relatively solid accounts that would be difficult for Cresstor to gain entry into it?

Thank you.

The counterfeit question is a good one.

We, to be honest, don't really know the full extent of it.

We think we understand most of it.

Our current estimate is 200,000 bottles or prescriptions during the first half.

We think we tracked it all down.

We're continuing to get new data from our own legal activities but this pretty clearly was an extensive effort to introduce counterfeit Lipitor, the largest selling product in the United States and in the world, into the U.S. drug supply which I think kind of underscores my comments on the dangers of importation here.

But our estimate at the moment is about 200,000 scrips in the first half, and we're pretty sure we're going to have it shut down within a matter of a month or so here.

On contracting, Peter?

The position for Lipitor as it is for virtually all of the Pfizer products in the U.S. is quite strong and perhaps the strongest in the industry.

As you know, there's a continual cycle of negotiations with the different managed care plans with the PBMs and we can tell you quite openly that the more recently concluded ones continue to have all Pfizer products or the majority of Pfizer products as well as in particular Lipitor well-positioned on the formularies.

Do those commitments extend into 2004?

They usually are two year contracts.

Some cases three year contracts.

Are those --

It's revolving cycles.

I guess what I'm after, what proportion of the managed care demand would an [INAUDIBLE] account manager find is already booked for 2004 based on your position?

I guess it's hard to divide it up as if it's a zero sum game because they could be added a new product to the formularies.

Just putting it into a different tier perhaps.

They don't kick one off to bring a new product on but they may give it a different status.

Does that conclude your question, sir?

Yes, thank you.

Thank you.

David Moskowitz, your line is open and please state your company name.

Freeman billings, Ramsey.

A couple questions.

A key area of focus here is obviously Lipitor and the sales back half of the year and growth beyond.

Are you able to give some sort of a guidance or some sort of range on what you're expecting in your model for Lipitor this year and next year and I believe that you guys had talked about the product getting $10 billion over some period of time, I believe it was by 2004.

Second question, Zoloft, patent expiry is in 2006.

During your analyst day I did not see any following products in the pipeline.

Could you talk about your succession strategy to that product area?

And question three would be on the gross-margin level.

The level that we saw this quarter, 84% given the work downs and timing of merger-related activity, that an is that a fair level to use going forward?

Thank you,.

On Lipitor we don't publish our financial forecast, we leave that to all of you.

We have said several times that they're two to three times more patients than are being treated that would benefit from treatment, and we're busy documenting that in extensive clinical studies and ultimately that potential market for the benefit of patients, for the benefit of healthcare cost overall should be under treatment and that is our challenge to bring those people into the treated market.

The Zoloft patent does expire 2006, 2007 I forget where.

We don't necessarily replace products with similar products.

Peter, is there anything in the pipeline?

We have a number of compounds that we're looking at that are earlier in the process going forward and whether we will achieve that to the marketplace by the expiry of Zoloft isn't clear at this point.

We have a number of short-goals, so to speak,.

And the gross margin question is addressed in the press release.

It's a complicated answer.

David, could you summarize it briefly.

A number of trends towards factors in terms of the gross margin which point to improvements going forward.

Obviously being impacted in part by purchase accounting and having to record as part of purchase accounting the acquired inventory at the market price rather than its cost that's a $480 million dislocation.

You also have foreign exchange, while it favorably impact the top line, it is unfavorably impacting cost of goods at this point in time.

And lastly margin is being impacted by the mix of legacy Pfizer, legacy Pharmacia product lines.

And the Pharmacia product lines offered lower margin than Pfizer.

In there lies an opportunity for the company and, in fact, we'll drive cost synergies throughout the company including manufacturing.

We will will help that margin as well.

The shorter version is we expect margins to improve going forward.

Thanks very much.

Thank you.

Thank you.

Ken Kulju, your line is open and please state your company name.

Credit Suisse First Boston.

I was wondering if you could just quantify the pricing increases that went into place July 10th.

Did those apply both to Pharmacia as well as Pfizer product lines and if you could identify those.

And also second question, just in terms of as we've come through the second quarter reporting period we've seen fairly -- we've seen a bias of spending assumptions for SG&A moving higher across the industry.

Is that something that we should say expect at Pfizer as we obviously look at some of these competitive encroachments as well as your new product launches?

Peter, pricing.

It did cover a number of full Pfizer legacy products as well as the legacy Pharmacia products and they range from on many of the products 0% on some of the dosage forms up to 7 or 8%.

In total you're probably looking at a weighted average closer to the 4 or 5% range.

On SG&A spending I don't expect to be higher across the industry.

It will be higher in those companies launching new products pretty clearly.

Our own numbers will reflect our traditional aggressive support of new products seeking opportunities.

But, of course, will be offset by the cost synergies going forward here.

So our own pattern of SGA spending will be natural increases seeking new opportunities for products, but really masked by the synergy intact as the quarters roll by here.

Karen, did you want to add to that.

We as you expect we deploy resource where we need it.

We've seen a 15% increase in field force against Lipitor since May and obviously a way for that to kick in.

A lot of new programs for all the products in times of competitive pressure.

So we have the flexibility to move our resources so people and dollar resources to whatever products are in need or whatever products we're about to launch.

We also know from our own experience that the realignment and retraining of the sales force following an integration causes some disruption for two to three months.

We think the integration in this case was extremely successful, the field force has been realigned and retrained and they're back to work, and we're looking for increased productivity in the second half of the year.

Great, thank you.

Thank you.

John Moran, your line is open and please state your company name.

Hi, it's SG Cowen.

Just a follow-up question on reimportation.

I realize that there's opposition from the Senate and also President Bush, but if reimportation were ultimately to come to pass, what steps could you take to mitigate the impact?

I imagine that you have a good idea of what you ship to Canadian pharmacies, why wouldn't you be able to limit excess purchasing?

Well, number one, it's not reimportation.

The drugs sold in Canada are not all made in the United States.

In fact, they're made all over the world many times in plants not approved by the FDA.

Products sold in Canada is licensed under our patents and trademarks for sales in can a Canada.

Export to sale in the United States, which by the way is currently illegal, create shortages in Canada so ultimately you would see if this brought to the significant level the Canada government acting in their own interest to limit exports.

Number one, I don't think this piece of legislation voted on last night will ever make it into law.

And if it did I suspect the impact over the industry would be relatively modest.

In fact, the FDA has estimated that if this bill was passed into law, this legislation actually became law, it would increase cost in the United States by $2 billion.

This is not going to happen.

Thanks.

Thank you.

Jami Rubin, your line is open and please state your company name.

Thanks for giving me the opportunity to ask a question.

Karen, I'm just curious to know the value proposition of Lipitor Norvasc combination, do you see that product actually achieving incremental use or do you see it cannibalizing Lipitor and Norvasc sales?

And second question, Hank, your comments on the citizens petition you filed on Norvasc timing on when we can hear the outcome of that proceeding?

Karen is digging for data.

Jeff, do you want to comment on the case?

First I think you referenced a citizens petition which concerns the Dr. Ready application.

I'm sorry, right, right.

Is that what you were inquiring about?

Yes, I'm sorry about that.

We have two proceedings going on with respect to Dr. Ready's proposed marketing of [Vamlodipine].

One is a citizens petition at the FDA objecting to their use of our data and that is pending, and the other is the appeal of the district court decision that would have permitted Dr. Ready to market [Amodipine Malliae].

That appeal was fully briefed, it was argued, I think about two weeks ago.

July 9 or so, and it's under submission to the court and we expect a decision in the next several months.

And the application that Dr. Ready has pending at the FDA is still pending and subject to our citizens petition which the FDA will rule on at some point.

Karen, on --

Both.

We expect the market to expand and because of the ability to treat two highly prevalent conditions with one medicine, we expect some canal balance sayings obviously cannibalization of Lipitor and Norvasc, that in aggregate, it should be a huge product because of the advantages it offers to patients.

And [Raye Caroline Sampine], as the worldwide marketing director can tell you more about the specifics.

We do expect the markets to grow because the both conditions are often concomitant, but it is very rare, it's only about 10% of the patients where both conditions actually treated for both.

So there is a huge upside in treating those patients more aggressively.

And the AsScott study, which was terminated early, shows that treating both has benefits in treating coronary artery risk so that's a powerful platform for the combination of the two.

Are there clinical benefits to combining the two pills or is it more of a convenience benefit.

The clinical benefit of treating both the high blood pressure and the high lipid levels which is what AsScott was all about.

And you would know, you're very aware of the compliance problems in every category, especially in asymptomatic conditions, so this should greatly enhance compliance.

We have a lot of strong compliance going toward Lipitor patients to encourage them to stay on their medicine with one pill will make it easier for people to comply.

So we also know in hypertensive patients with what is considered normal cholesterol level, treating for both has significant benefits.

That's right.

That was the card study coming out of the UK where they had a fairly modest, well, it was fairly modest cholesterol elevation.

Actually was considered fairly normal level in the U.K. guidelines and slightly elevated.

They had mean cholesterol levels of 115 milligrams per deciliter and there was a significant cardiovascular benefit there as lowering the cholesterol.

That was part of AsScott also.

The concept of global risk is more and more recognized, and is part of the WHO guidelines now.

Looking at the total cardiovascular risk and treating the total risk is being more privilege lent rather than looking at lipids and hypertension and diabetes in isolation.

Thank you.

Thank you.

Scott Kay, your line is open and please state your company name.

Banc of America Securities, thanks for taking the call.

One on the political front regarding the Healthy State Program.

I know you've had some good success in Florida and I guess they've kind of followed on this year.

I've kind of gotten some particular thoughts and voice outside of Florida that it might be happening in other states and you may be able to mitigate some of the concerns in some of the other Medicaid and state budgetary constraints.

So potentially is that going to happen in other states?

And just kind of a quick product follow on to Indoclon and timing in the EUs, filing, any sort of information around that.

Thanks.

On the Healthy State type programs, these management programs, the approach is pretty simple.

That the Medicaid programs in the total spending, pharmaceuticals account for 7 to 12% depending on the state.

So our approach here is to either argue about discounts on the 7 to 12% or to work together on the hundred percent to vote improve outcomes and reduce cost.

That seems to us to be a pretty compelling alternative.

It's working very well in Florida.

And, yes, we are talking to other states, although we don't have anything to announce just yet.

But virtually every state has a Medicaid problem as you know so there's room there.

And this clearly is the better solution for the state and for patients and for us than arguing over discounts.

And the Indoclon filing in the EU, Joe?

We have aren't projected filing dates.

We are in Phase three, the results are coming in pretty well right now.

So we are looking at strategies both for the U.S. and EU filings.

The guidelines are slightly different in both areas for the hypnotics so we're looking at our options.

But the program that is ongoing covers the program necessary for both, for worldwide filings.

We have a lot of enthusiasm for this one as you know.

Yeah.

Does that conclude your question, sir.

Yes, thank you very much.

Thank you.

Mario Corso, your line is open and please state your company name.

It's Leerink Swan, and thanks for the question.

In the second quarter, can you talk a little bit about the make up of the alliance revenue line.

And then also in the other sales line, for those that aren't broken out, it worked out to about $1.4 billion but given the Pharmacia inventory issues, the fact that international sales were a month lag, is it fair to assume that that's closer to $2 billion on a quarterly basis?

And then finally, Inspa, potentially coming later this year, are you looking at this as a potential blockbuster or more of a complimentary product to slot alongside Norvasc.

Well let me do those in reverse order.

CHF is an enormous unmet medical need.

We certainly would hope to make that a blockbuster.

Alliance revenue is getting simpler.

David, do you want to take the other two?

Yeah, obviously alliance revenue no longer includes the Pharmacia related products.

The comparisons for this year to the quarter the same quarter last year obviously are complicated on that basis.

Both of the products, most the of the products I should say in fairness in terms of Pharmacia were implicated in terms of the adjustment of trade inventories.

I would suggest that number you're suggesting seems very, very high to me but I don't have another one to offer to you.

But the number you're suggesting is probably out of the realm of possibility.

Thank you.

And now for our final question.

Thank you.

Ken Araki, your line is open and please state your company name.

Nomura Securities, thank you for taking my question.

I have two questions.

First of all, could you please indicate the second quarter legacy Pfizer-only prescription drug division growth and also as you know, we could not find the result of Pharmacia side.

Can you suggest me the you know underlying growth trend for Pharmacia, legacy Pharmacia side.

Thank you.

Thank you.

We are not reporting legacy Pfizer any more so that was not reported in the second quarter.

And because of the April closing Pharmacia never actually reported their first quarter so you will not find either one.

With that question we conclude today's conference call.

Thank you for being with us.