輝瑞 (PFE) 2004 Q2 法說會逐字稿

Thank you for holding.

Dr. McKinnell, you may begin.

Hello, everyone, and welcome to Pfizer's second quarter 2004 conference call and webcast.

I'm Hank McKinnell, Chairman and CEO.

I'm joined in New York this afternoon by a number of my colleagues you will be hearing from later.

With 3 of our competitors having issued earnings and having had conference calls earlier today, we know it's been a long day already.

Because of that, you have our special thanks for being with us.

Because of that and our 56-page performance report, we'll be devoting the bulk of our time today to your questions.

First, however, these brief observations.

This was another good quarter for Pfizer with us, once again, delivering strong performance.

Revenues were up 24% to nearly 12.3 billion.

Adjusted net income increased 54% and adjusted diluted earnings per share at 47 cents was up 57%.

All of our businesses performed well.

Pfizer Consumer Healthcare is performing ahead of expectations.

Pfizer Animal Health continues to grow rapidly driven by robust performance in the companion animal market.

In human healthcare we had 11 products delivering first-half 2004 revenues of more than half a billion dollars each.

In the second quarter, Lipitor revenues were up 17%, Neurontin up 32%, Zoloft up 25% and Bextra up 49%.

This quarter saw the U.S. launch of 2 new medicines, Caduet and Spiriva, as well as European Union approval for Lyrica to treat neuropathic pain and epilepsy.

We also extended the potential value of our current products with important new clinical data.

Fresh evidence on statins and the U.S. guidelines, it is driven point to more growth potential for Lipitor.

Landmark studies like ASCOT, CARDs, PROVE-IT, REVERSAL, and ALLIANCE have demonstrated the dramatic health benefits of ever-lower LDL levels.

And we filed with I-Tech for U.S. regulatory approval of Macugen, a new treatment for AIDS-related macular degeneration, an enormous poorly met medical need.

In addition, we remain on track to file an industry record, 20 new drug applications in the 5-year period ending in 2006, an accomplishment unprecedented in the industry.

We've already filed 7 of the 20 and expect to file several more NDAs by the end of this year.

Our new drug development portfolio of new compounds is now 20% larger than it was just last year.

Much of this growth reflects a drive into therapeutic categories that are relatively new for us.

In cancer treatments, for example, we've moved from a handful of new molecular entities to some 22 including 2 in late-stage clinical trials.

We are in difficult operating environment.

Tough environments, however, don't last forever.

We remain confident that the cost and quality advantages of modern medicines will overcome the frustrations we all feel about rising healthcare costs of which we are less than 10%, about where we were when Dwight Eisenhower was President.

Last week, as you well know, we adjusted our 2004 revenue estimate from the previous 54 billion to 52.5 to 53 billion.

At the same time, we reconfirmed both our full-year adjusted income estimate of 16.3 billion and our adjusted diluted EPS expectation of 2.13 a share for 2004. 3 factors drove that change in our revenue guidance.

First, we're dealing with a number of fast-changing market conditions, ranging from a milder than predicted cold and flu season, to pricing decisions by governments and other payers.

Growth in global pharmaceutical markets is below the long-range average and this complicates our efforts to grow the top line.

Secondly, there is increased competition in several of our key therapeutic categories.

We all know that competitors are taking dead aim at several of our key franchises.

We, in turn, as we always do, are executing plans to blunt the efforts of those competitors and to continue to expand our markets and our revenues.

I am confident that we have the people, and more importantly, the products to succeed in doing so.

Third, the effects of foreign exchange are now less favorable than we had previously projected.

As an American-headquartered company with huge operations globally, even small variations from our projections can affect our revenue estimates.

For Pfizer, the key to growth is the same as it's always been.

New medicines meeting unmet medical needs and offering clear and compelling advantages over current products.

New offerings such as Caduet, Lyrica and Spiriva clearly fit that mold.

We expect these medicines to emerge as significant contributors to Pfizer's growth.

We are investing heavily behind these new medicines, as well as in medicines on the near horizon, such as Macugen and Exubra, our inhaled insulin product.

Even though I know we have the strongest pipeline in our industry, I also know that we have to build the next waves product by product.

No company is as well prepared as we are to do just that.

Besides research and marketing leadership, we also recognize that we must be leaders in changing people's perceptions about the value we offer to society.

Influencing the external environment means thinking differently, operating differently, and partnering differently, particularly on issues of access to healthcare that are important to all.

We at Pfizer can't supply all the solutions to the problems of healthcare access.

But we can and must take steps in new directions.

Earlier this month in the United States we announced the Helpful Answers initiative.

We hope to help 10s of millions of Americans, without prescription drug insurance coverage, get the medicines they need.

These uninsured patients, regardless of age or income, will pay considerably less, or nothing at all for Pfizer medicines.

International examples of our efforts to address affordability and access problems include Pfizer's Diflucan partnership and the international Tracoma initiative. 2 programs making major strides in treating and eliminating certain devastating preventable diseases in developing countries.

More than a pharmaceutical company, Pfizer is a health company.

We're commit to adding years to life and life to years.

Our work to develop new and better medicines for the future and to make sure that people get access to the medicines they need, demonstrates our belief that good health results in better quality of life for patient and benefits for society as well.

We also believe that ultimately these efforts will build a more positive environment for our business.

So let me sum up in this way.

Continuing challenges and vigorous competition are facts of life in this business, but within Pfizer a lot is going on and going very well indeed.

Our unparalleled product portfolio, unequaled operational capabilities, and substantial financial depth and flexibility provide the Company with a strong platform for growth in 2004, and great resilience going forward.

We remain exceptionally well-positioned to leverage current and future opportunities and exploit our scale and operational flexibility while shaping our company and our future.

Before turning to your questions I need to ask David Shedlarz, our Chief Financial Officer, to make the obligatory legal statement.

Thank you, Hank.

I need to remind you that this afternoon's discussion includes forward-looking statements.

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

The factors that could cause actual results to differ are discussed in the disclosure notice set forth in our performance report of today, our 2003 annual report on Form 10-K and in our periodic reports on Form 10-Q and Form 8-K, if any.

Also in this call we have discussed, and will be discussing financial or other information, as well as some non-GAAP financial measures in talking about Pfizer's performance.

You can find the reconciliation of those measures to the most directly comparable GAAP financial measures in our current report on Form 8-K dated July 21st of 2004.

This report is available on our website at www.pfizer.com, in the Investors SEC filing by Pfizer section.

Back to you, Hank.

Thank you, David.

And now your questions, please.

Thank you.

We will now begin the question-and-answer session.

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

Mara Goldstein you may ask your question and please state your company name.

Thank you very much.

Yes, my first question is on Caduet.

Seems like it's gotten off to a fairly modest launch.

Could you talk a little bit about that product and about plans for it to kind of ramp it up.

Thank you, Mara.

Karen Katen will start and then we may hear from a couple of others.

Thank you.

Well, as you know, we were very excited about the launch of Caduet, we think it's a breakthrough -- we know it's a breakthrough for medicine because it treats 2 very, very important conditions.

Hypertension and hypercholesterolemia.

We did launch this product to cardiologists and primary-care physicians about a month ago.

Although the early awareness is very high, the ability to try it right away has not been that great.

As you all know the diagnosis of hypertension is done almost with every physician visit.

You go to the doctor, they put the cuff on you, measure the blood pressure, but they -- then they either give you an antihypertensive or not.

For cholesterol, it's not routinely measured because it requires a lab test, so the primary advantage of having a medicine that treats both conditions is not easy to deliver on.

So it's going to require an educational process and that's what we're in the midst of doing.

As I said, it's too early to tell, but the cardiologists are very aware, very interested.

Primary care physicians have to get their minds adjusted to the notion of treating 2 conditions with 1 medicine, which is more revolutionary, I guess, than we thought, and it's -- but it certainly offers great advantages to doctors and to patients who have only 1 co-pay, for example, and delivers the best treatments available for these 2 concomitant -- frequently concomitant and co-morbid conditions.

I would only add that the medical rationale for reducing both blood pressure and cholesterol is solid, produces clear reductions in cardiovascular risk and we have very large scale clinical studies to back that up and, ultimately, we'll see the enthusiasm we're seeing in cardiologists come down to general practitioners.

So we are very confident of the eventual success of Caduet.

Next question, please.

C. J. Sylvester you may ask your question and please state your company name.

Schwab SoundView.

And thanks for taking the question.

Just one thing on the revised top-line guidance and then a question on some of the product.

Why now in terms of top-line guidance?

I think some of the issues you guys spoke about were evident kind of at the first quarter report, so just in terms of timing, what's changed in the past few months to change the top-line number for you?

Then if we can just talk about the cholesterol franchise, you know, Zadiac [ph] keeps gaining momentum and you guys kind of allude to the fact that it looks like it's still coming from the statin intolerant patients, but you said that last quarter and the share keeps going up.

So I'm wondering your thoughts on that and then what you think the profile for Vatorin [ph] looks like going forward.

Thanks.

Thank you, C.J.

The top-line adjustment's obviously pretty modest on a 52 to $53 billion base here.

Exchange rates did change, they change every day, you don't know that until the end of the quarter so we use the latest exchange rates, that's a big piece of it.

And we refined an estimate that we made sometime ago.

Remember the 54 billion was a number that we came up with on the close of Pharmacia.

So we're doing some fine-tuning here.

I would only add that it is an estimate.

If the dollar were to weaken here, the estimate would start to rise again, so it's something we'll look at every quarter, if we think it needs revising we'll revise it, but it's not a very significant change to begin with and it is something we do at every quarter and where we see something that we think is important enough to signal, we'll do that.

On Lipitor, Pat, you want to respond to that?

Sure.

On -- we're quite confident that the growth for Lipitor in the cholesterol business not only continues to be there now, but will continue to be there in the future.

We take heart from the fact that there's been a substantial rebound in primary-care physicians in the U.S. starting their new patients on Lipitor.

That's been mirrored by a decrease in the number of patients that are being started on Zedia or other cholesterol-reducing medications.

So with the profound data that's developing for the benefit that Lipitor provides towards ultimate cardiovascular outcomes, which is data that you'll never see out of one of the absorption inhibitors like Zedia, we think there's nothing but continued upside opportunity for continued growth of Lipitor.

That was Pat Kelly, President of our U.S.

Pharmaceutical business.

I'm looking at the weekly new prescription share number.

If you look at Zedia and Crestor, if you were laying in a hospital bed looking at the screen, you'd be very, very concerned, it looks like a flat line.

Next question, please.

Michael Caster, you may ask your question, and please state your company name.

Hi.

I'm with Bernstein.

I've got 3 financial questions if I can address them to David.

First is, when I do my research and look at intangible amortization, everything is indicating that it's not tax deductible yet in the adjustments that you do, you give an adjustment that's a post-tax number for it.

Can you explain that?

The second is, can you confirm that there was no gain on the sale of the surgical, ophthalmology of the diagnostics businesses?

Lastly, when you do your budgeting, to come up with maintain guidance for the year even after having cut your top-line estimate, it suggests that your costs are going to be about $1 billion less.

So are you cutting back some of your anticipated spending now or how does that end up happening?

David?

Let me start with the gain on the sale of the businesses that have been divested since the beginning of the year.

Both the surgical, ophthalmology business as well as the diagnostics business, the gain was recorded as an adjustment to goodwill that did not go through the statement of income, it's an adjustment to the balance sheet, and any transaction that happens within a month of the close of the transaction we're required to do so.

In terms of the tax treatment on the intangibles, it's pretty much a mixed bag.

Most of them are not tax deductible, but I think you're looking at a line item that includes more than just the amortization of intangibles.

It includes a lot of the certain significant items, as well as merger-related costs which, obviously, are tax deductible.

And on the expense number, be careful there because the foreign exchange which affects the top line also affects expenses, so that's part of it.

Synergies are running ahead of what we expected, and we do have the financial flexibility to manage our business effectively.

So don't jump to the conclusion that we're cutting expenses.

Some of that comes in areas that don't affect the business very much.

I'd reinforce that, that we have opt on a number of occasions the merger-related cost synergies, that's good news in terms of how effectively we've brought the organizations together.

We also continue to work aggressively in terms of enhancing the productivity of what we spend so that doesn't point to doing less, it points to doing more with less, which is important.

And also, part of the contribution of the bottom line is a lowering of the effective tax rate of the Company at the same time, which is obviously not compromising the investment in future as well.

It's not expense reduction in the classic sense.

Next question, please.

Mario Corso you may ask your question and please state your company name.

Summer Street Research Partners. 2 quick ones.

Number 1 on Spriva, it looks like it's off to a very good start and I hear good physician feedback.

I'm just wondering how significant you think that can be in terms of your operation and financial impact.

And then also, Exubra in the U.S. what can be said about the FDA process at this point?

Thank you.

Okay.

Pat Kelly on Spiriva which we do expect to be a significant product and it is off to a great start.

And the significance I think is realizing the fact that the market has responded so well to this product, because it is a unique product, it's the first ever once a day inhaled bronchodilator.

It treats the condition that has now risen to become the fastest growing and the third largest cause of death in the United States, and a single -- and the largest -- one of the largest causes of death worldwide, so we think there will be profound benefits to patients struggling with chronic lung disease from Spiriva.

And Exubra was -- sorry, Karen.

I would just add that I think the quick ramp-up of Spiriva indicates the market need in this previously really defined area.

So there's huge demand here so that's the reason it's taken off such a great start.

We only launched it in June if you recall.

As we described in the Q&A in the press release, we are enthusiastic about Exubra and are looking forward to the filing.

Next question, please.

Tim Anderson you may ask your question and please state your company name.

Tim Anderson from Prudential.

Just one macro question for Hank, maybe, and then a guidance question.

In terms of the overall environment for drug companies in general from a financial perspective relative to the last several years worth of history, you're pretty clearly saying that the environment has become more challenging.

My question is, what's your forecast for the next 3 to 5 years kind of on these same financial metrics; is it going to get worse, is it going to get better, or maybe stay about the same?

Then on the decrement to the revenue guidance, qualitatively you've described the various factors that are in this, and I'm wondering if you can put numbers behind those, so what portion is attributable to foreign exchange versus Viagra, versus Zyrtec, shortfalls relative to what you used to forecast.

Okay.

On the overall -- on the overall environment there's 2 factors here.

One is slow down in prescription growth, which is almost global and continuing pressure on price almost everywhere.

The future really depends on how successful we are in convincing payers that some of the measures they are employing to shift cost to consumers are actually resulting in higher cost to them.

It sounds a little paradoxical, but the RAN study that was published, JAMA, whatever it was, just published recently, shows that increasing co-pays result in poorer compliance and which brings higher costs back to the managed care plans.

So the better job we do of convincing people that some of these cost-control measures may actually be causing costs to go up, is really the challenge going forward.

I think we're going to be successful in that.

We've got a number of examples now and are certainly working on others.

Which show what we all know, which is the cost effectiveness of modern pharmaceuticals.

David, on the impact of the various factors, we haven't actually broken that out publicly but --.

The operational factors, the more dominant [inaudible] foreign exchange is a player, it probably is in the range of about 20 to 30% in terms of the adjustment as it relates to the top-line forecast.

Next question.

David Moskowitz you may ask your question and please state your company name.

Good afternoon.

It's Friedman, Billings, Ramsey.

Couple questions on the neurology portfolio.

Zoloft and Neurontin sales huge increases in these products.

Not complaining, but can you explain the significant growth of these products on a year-over-year basis?

Question 2 would be, there's product from Pharmacia called Sumanurol [ph].

Can you talk about whether or not that product is still alive and what the lead indication for that product will be, whether it's Parkinsons or restless leg?

And then lastly, could you just update us on the timeline for the approval of Lyrica in the U.S.

Thank you.

I'll handle the last one.

That's easy.

We don't forecast approval dates because that's not within our control.

You should ask the FDA that question.

John LaMattina on Sumanurol.

Sumanurol is still in development for both indications that you mentioned and we're still working on it.

The high growth of Zoloft and Neurontin reflects the quality of the products and the experience of the Pfizer team.

Unless, Pat, you have something else to add?

No [Laughter].

We'll take that.

Take that.

Okay, next question.

Steve Scala, you may ask your question and please state your company name.

Thank you.

S.G.

Cowen & Company.

Hank, you mentioned and the release states that we expect to file self more NDAs by the end of the year, now the release specifically mentions Parcoxic [ph] as likely to be filed by the end of 2004 can you tell us what other ones you plan to file by the end of this year.

Secondly, could you detail for us any price increases in the quarter?

Okay.

On filing, just as we don't forecast approvals, filings are within our control, but our policy is -- has been to announce the filing when accepted by the FDA, but I can tell you you'll be pleased by the end of the year.

On price in the quarter?

Zero.

Thank you.

Next question.

Carl Seiden, you may ask your question and please state your company name.

Thanks very much.

I'm with UBS.

Couple of questions on the revenue side.

Hank, you talked about the different contributors as to why you had to modestly lower the revenue guidance.

I'm wondering if you could reflect on over the last year what elements of revenue have been positive surprises, what's coming in better over that time period than you expected?

Secondly, can you tell us specifically for Neurontin what the current assumptions are vis-a-vis your current guidance, as to whether or not you're assuming you will or will not have generic competition in the back half of this year, whether or not you would view that as legally appropriate?

And if I could just follow up on Zoloft and Neurontin although the figures were very, very strong in the U.S. specifically they were running meaningfully ahead of what prescription trends would have implied, and I know you get this question every quarter, but is there anything specific about those products that is unusual in terms of their stocking levels or is there anything else that you could explain?

Thanks.

Okay.

Let me do them in reverse order.

There are every quarter minor changes in individual product inventory levels.

Our policy is always to manage to target numbers which stay the same constantly.

If you undershoot a little bit in the quarter a year ago and you overshoot a little bit in the quarter this year you do get a change, and it works the other way as well.

So I'm not too upset about minor changes in prescription numbers versus inventory numbers.

In fact, we make these decisions based on 2 months' data.

We don't see the third month of the quarter until later.

I haven't even seen it this month, whether we have it or not.

We don't even know what the prescription growth in the quarter was because we'll have that in a few days I'm sure, but it's always lagging by a month or so.

In total, there was no significant change in inventories is what you need to know.

Whether there was a 1 or 2-day difference product by product, we won't know until we see the prescription data.

On Neurontin yes we will have generic competition by 2017, but I'll let Jeff Kindler provide some additional color.

Carl, there's nothing new on the litigation.

The summary judgment motions remain pending, we have no trial date, so it's all status quo and we're proceeding accordingly.

And the assumptions for the forecast for this year does assume no generic competition in 2004.

And on the revenue side, we are pleased by the strength in the revenue growth, particularly our top 5 products.

Is there anything, Pat, you'd like to highlight?

I'd point to the performance in the U.S. of products like Relpax, Geodon, ZYVOX and Vfend, all of which are in their second year or so of launch and are beginning to really see some acceleration in their market progress reflective of the strong benefits those products provide.

That's a very good point and one that may not be well understood.

That we're kind of all out of this era where the first 6 months sets the trajectory for the life of the product and we expect to be gaining share very rapidly in the first year.

The current market is different.

We're seeing much slower up-take and the acceleration in the growth of products that were launched a year or more ago is very positive for us, because, frankly, we'd been expecting, given the historical models, to see that growth at this point starting to slow down.

Where as currently the curve seems to be shaped the other way and that's very positive for the future.

Next question, please.

Ken your line is open.

Please state your company name.

Nomura Securities.

Thank you for taking my questions.

I have 2 questions.

First of all, your recent initiatives for "Helpful Answers" program, what's the impact for you bottom line income?

A significant negative or no essential impact?

Second question is Caduet.

According to today's release, approximately 80% of prescription Caduet is new business.

The remaining 20% could you please introduce a little bit detail of the character, for example, the Norvasc monotherapy, the Lipitor monotherapy or let's see, use of Lipitor and Norvasc?

Thank you.

On Helpful Answers, as we said on the launch this is an American solution to an American problem.

With many in Congress inclined to vote for illegal importation for political benefit, which exposes those receiving drugs over the Internet to just enormous safety risks.

We really thought that we needed to do something to address what is an American problem, which is the uninsured, probably the least able to afford to pay for their medicines, because of the absence of managed care discounts are paying the highest prices.

So basically what we did is gave the uninsured access to our best managed care prices, then for the low income uninsured went to greater discounts and for the very low income went to free access to our medicines.

We think it's the right thing to do.

It has had, we think, a significant impact on the political debate here and something I think that is part of our efforts to influence the external environment.

Pat Kelly on Caduet?

So the calculation that we provided was not compared to any monotherapy.

It was a comparison to dual therapy for these 2 conditions.

So the 20% that is not new patients to this therapy were coming from a mix of other antihypertensives and other cholesterol reducers, as well as some Norvasc and some Lipitor, but used in combination, not as single therapies.

Thank you.

Okay.

Next question, please.

Jami Rubin you may ask your question and please state your company name.

Thank you.

Morgan Stanley.

Hank, a question on the new R&D guidance this year, you're dropping it by 300 million.

A cynic would say you're doing it to make the number this year, an optimist would say you're starting to focus on efficiencies, operating returns, can you kind of give of us a picture of how you now look at R&D and how we should think about the R&D budget going forward?

Thanks.

Jami, 2 things.

One is I am an optimist and the foreign exchange impact that's having a negative impact on the top line, of course has a positive impact on the bottom line -- sorry, on expenses.

So the same factors which are reducing our revenue estimates slightly are also reducing our R&D estimates slightly.

The second factor is we're getting more out of synergies than we thought and, you know, these are programs ongoing, some spend money at a faster rate, some spend money at a slower rate.

I don't know what the net of all that is, John, but that can't be a very big factor.

No, I would also add that we were very aggressive during the integration to get the organization on track as soon as possible.

Not unlike everybody else, but for us we really made our changes a year ago and the synergies which we initially calculated we achieved sooner and more so we've been -- in a large organization getting a lot more streamlined and I think having beneficial effect overall.

Okay, thank you.

Next question, please.

Neil Sweig you may ask your question and please state your company name.

Fulcrum Partners.

Thank you for taking the question.

I have 3 questions.

If you take a look at the foreign currency rates now that you have 5% in the first quarter, 4% benefit in the second quarter, what would you expect the benefit to sales be from FX in the third and fourth quarter?

Second question, why did U.S. sales of Norvasc fall by 3% and when does the Norvasc patent expire in Italy and France?

Last question, when will you complete the European rights acquisition for Camdesar [ph], when will those sales enter into your U.S. sales for Camdesar?

Thank you.

Okay, on the foreign exchange impact, what we assume is that the end of the quarter rate is constant for the rest of the year.

It's not a very good forecast, but it's the one we use and it's served us pretty well over time.

The impact of that, of course depends on what the exchange rate was last year, so the answer to that question is you'd have to compare the third quarter and fourth quarter rates last year to the current rate and the net of that, David, is 2 or 3%, I would guess.

Approximately 2%.

2% if the rates stay where they are today, which of course, they won't, but it will be about 2% in the third and fourth quarter.

Camdesar, I think is on closing, isn't it?

Right.

When did they close, I don't know?

They haven't closed yet.

They haven't closed yet, so whenever the merger closes we then obtain rights to Camdesar, we'll start recording sales at that point.

The Norvasc patent in Italy in France?

We, I think, it's the basic patent is about '04 and the [inaudible] patent is about '07.

I think there's solid coverage in Italy and France through 2007 at least.

Okay, through 2007.

There are several patents involved here.

And the minus 3% Norvasc growth in the quarter?

Nothing to be worried about.

For the year to date, full 6 months, it's up 5%, so, again, I think that's just a quarter-to-quarter anomaly.

Okay.

Next question, please.

Simon Elliott you may ask your question and please state your company name.

Thank you for taking my question.

I'm from Lehman Brothers.

Quick question on Viagra and PAH [ph].

Just wondering whether you knew what the data was yet from some of the trials that you're enduring and what the status is of those trials and when you think we will be able to see that data and, also finally, when do you expect, if you do, to file PAH?

Good question, Simon.

Let me ask Joe Feczko to explain both the question and see what guidance we can give you.

We're looking at pulmonary arterial hypertension in -- pulmonary hypertension in both adults and children and those studies are ongoing, basically, so while we have preliminary studies, preliminary data has been reported out of meetings and I think in the press to a large extent, the main studies are actually ongoing right now.

It's a matter of when we -- hard to predict when those will be finished because of the ongoing recruitment, it's not a real common disease but they're ongoing.

Joe, would it be fair to characterize the preliminary data as positive?

Yeah, positive.

We're seeing good results, we're optimistic about this.

We had some early studies that let us down, now we've got a more formal plan with both the European Union and the FDA.

Thank you.

Next question, please.

Karen Colter, you may ask your question and please state your company name.

Hi, it's Flae Lewis at Waybossit Research & Management.

I just wonder if you would respond to some matters you see in the press periodically that have to do with this guy who runs the health plan in this town or a guy in a state will head for Canada and start buying drugs for his health plan there.

What does that mean to us?

I mean, gets in the newspapers, but this is increasingly the case and a politically popular thing to do, what does it mean to Pfizer over the longer haul?

Well, the impact currently of illegal importation from Canada is 20 million, 30 million.

It's not a big number.

What concerns us more is most of these importations come from Internet websites, and we know more than 50% of those, even though they claim to be Canadian, are registered in Belize and Pakistan and about half of them are fictitious persons and fictitious addresses in the United States.

The FDA customs has now done 2 samples of pharmaceuticals coming into the United States and they find almost 9 out of 10 to be fake or substandard.

The importation issue is not so much the financial impact on us, that's a very modest number, it exposes patients to safety risks that, frankly are unnecessary, which is why we launched the Helpful Answers program.

So when the Mayor of Springfield, Massachusetts drives up to Canada to buy drugs for, you know, the employees of Springfield, is he getting Pakistani drugs or -- I mean, is there any impact or any future of that for Pfizer?

Well, the drugs sold by pharmacists in Canada that have been received from us are probably as safe as drugs in the United States.

The problem is, when the pharmacist fills an order from somebody in the United States, we don't know where those drugs come from, because we supply Canadian pharmacists what they need for Canadian demand.

And there has been a dramatic increase in imports into Canada being trans-shipped into the United States, so the impact on us financially isn't significant ,but there is a major risk to patients' safety here in the United States.

And I would only point out the Mayor of Springfield is breaking United States federal law.

Thank you.

Next question, please.

George Grofik, you may ask your question and please state your company name.

Smith Barney.

Thanks for taking my question.

First, is it your expectation that Lipitor TNT trial could complete later in 2004 or is that a 2005 event?

And secondly, can you just comment generally on the formulary acceptance for Caduet?

Thank you.

The TNT is treat to new targets.

It's end-point driven so we're just following along.

it's end-point driven.

The more events there are in the control group the sooner it will conclude.

It could be a very significant result, this is one that we have high expectations for and could somebody comment on formulary acceptance of Caduet?

So far, so good.

In today's new U.S. market it takes awhile to schedule the meetings and to get the decisions from those various accounts, but we've had tremendous formulary up-take from the national PBM accounts already on Caduet and we're looking forward to many more positive decisions going forward.

Thank you.

Next question.

Bert Hazlett, you may ask your question and please state your company name.

Thanks.

It's SunTrust.

My question is on Geodon, which showed particular strength in the states this quarter.

Could you remind us of any additional clinical studies underway to such port that product, and can you give us a sense of where the status of the labeling modification regarding the metabolic AE's is for that product?

Thank you, Bert.

That's a very good question.

Joe.

Yeah, the metabolic work we've submitted a very large supplemental filing to the FDA on that and we're in discussion with them right now on trying to finalize some preliminary labeling and do a review of that supplemental filing.

As far as ongoing studies, we're doing -- always doing ongoing work.

I'm trying to think right what we -- bipolar has been filed, bipolar acute mania, but there's just continued work going on to profile versus other agents.

Our belief on labeling is that the labeling should be the most useful possible to the physician and the patient and in the case of Geodon we think that would be enormously beneficial to Geodon.

You're correct that Geodon is experiencing strong growth.

We attribute it to increased switching from other products and movement to the appropriate dose, because there is a strong dose correlation with efficacy in this product so that they're getting to the right dose, right numbers of doctors, the right number of patients, and the use in bipolar disorder which represents a new area and important area [inaudible] for Geodon.

Okay.

Next question, please.

Steve slaughter, you may ask your question and please state your company name.

UBS Global Asset Management.

Question on Diflucan and Norvasc.

You reference in the press release European patent expirees affecting both products, yet both product held up quite well on the quarter.

Just wondering, is it a situation where other country growth is going to prop up those sales despite losses in Europe or have we not fully reflected in this particular quarter the effects of those expirees?

Well, 2 things.

Diflucan is doing exceptionally well in the United States which is offsetting slow growth in Europe, but the international markets, because of government price control, do not have the very rapid conversion to generics that we see in the United States.

So you will see in European countries when a product goes generic, the originator continues to sell at approximately the same price, that's changing a little bit, but historically the impact of government price control has been to suppress competition and you don't see anything like the generic penetration or the reduction in price that you see here in the United States.

Norvasc is continuing to grow in the international markets.

We've been through patent expiration in a couple of small countries and we're protected through 2007 in general in Europe.

And Italy and France.

We've seen some erosion in other countries, modest in the second quarter.

Okay.

Next question.

Tony Butler, you may ask your question.

Please state your company name.

Thank you.

Yes, Lehman Brothers.

Hank, while I respect your comment about being an optimist, again if we look at Europe demand may be less than optimistic.

For example, if you take Germany, the concept of reference pricing, Lipitor and other -- or potentially other brand statins I would suspect is being watched by the health ministers of a number of countries.

What are you doing, and more importantly, what is Pfizer doing to address that, because this could really be a much bigger issue with respect to sales in Europe, not only this year but certainly next year and beyond.

Thanks.

Tony, that's a good point to raise.

There's at least 2 things going on here.

One is reference prices of an innovative patent protected product to something that is patent expired is clearly a bad idea, it kills innovation.

We believe and we believe that the health minister will overturn this recommendation as the minister very well should.

So we don't think there will be reference pricing of all statins within Germany, that would be a very bad idea.

But there is an increasing swing now to European voters and also now European governments to suddenly start bemoaning the very logical, predictable result of their own policies which is to continue to seek cost reductions over investments and jobs.

And we're seeing a very accelerating now rapid undoing of the European research base and there's been some 200,000 jobs lost out of Germany this year alone, so I think we're going to start seeing a little broader view of some of that Draconian price control measures.

Ian, do you want to add to that in any way?

Just that the recommendation, which is what it is from the working group, was not unexpected.

It is managed by the sick funds but as this gets into the minister of health we expect to see that decision reversed.

Yeah, we expect the minister will have to overturn it.

Thank you.

With that, we'll go to our final question.

Jessica Hanover you may ask your question.

Please state your company name.

Hi.

Robert Baird & Company.

Thanks for taking my question.

Just had some questions on Viagra.

I notice in your press release you reference the fact that the ED market continues to grow at a rate of about 25%.

I just want to know what basis that number is on.

Is that a year-over-year basis?

Also, wondering how that number compares to previous years and then if you think that kind of growth is sustainable in the out years.

Pat Kelly.

Well, so the market is in the U.S. again where it is the most recent launches of the other two erectile dysfunction agents.

The market is growing nicely, but frankly, not as much as one would anticipate given the profound number of men with erectile dysfunction that still have yet to present for treatment.

It's unfortunately our [inaudible] competitors have taken the tact of trying to grab share of the existing market as opposed to extending it to those that are in need of these treatments.

So I think market growth is okay in the ED market, but we would like to see more and we look forward to being able to restart even more significant market growth going forward.

And Ian Read from the European?

Market growth in Europe is 21% year to date, that's about 8 points above what we saw historically and it's not as aggressive as we expected given the new entrants, and they're also trying to cannibalize Viagra.

You'll find a comment on this question on page 11 of our press release.

We know in that any market category new entrants do raise the noise level and they succeeds -- that then succeeds in convincing men to see doctors.

When they do that 73% of those end up on Viagra according to current numbers and we're hoping that the unrivaled track record of safety and efficacy of Viagra will continue to take advantage of this faster growing market.

With that, we conclude today's conference call.

Thank you for being with us.