輝瑞 (PFE) 2004 Q3 法說會逐字稿

Hello, everyone, and welcome to Pfizer's third quarter 2004 conference call and web site.

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

I'm joined this afternoon by many of my colleagues in New York from whom you will be hearing during this conference call.

I'm speaking to you today from Kampala, the capitol of Uganda, where we are dedicating the Infectious Diseases Institute at McKary University Medical School.

Pfizer contributed the time, talent, and money to build this modern teaching hospital, the first in Uganda in 35 years.

Our non-governmental organizational partners will staff and operate it, helping Africa's medical provisions to learn the latest thinking on HIV/AIDS care and prevention.

The hundreds of medical professionals to be trained here each year will go on to train thousands more, and those thousands will treat millions of patients and prevent millions of new infections.

This effort reflects our drive to improve access to medicines worldwide.

And it demonstrates, once again, that when it comes to healthcare, Pfizer is definitely part of the solution.

Such recognition of Pfizer's role and the value -- and its value is important for all the stakeholders we serve, including our investors.

And it's especially important in this time of significant business challenges, including continuing pricing pressures, new branded competition, generic competition resulting from the loss of patent exclusivity and difficult political, legal, and regulatory environments.

Our financial results for the third quarter reflect these challenges, but they also reflect our fundamental strength and resilience.

We've once again delivered strong earnings performance.

Adjusted net income for the quarter increased 13% to over $4 billion.

And adjusted diluted earnings per share at 55 cents was up 15%.

All the Pfizer's businesses performed well.

Pfizer Consumer Healthcare is performing ahead of expectations.

Pfizer Animal Health continues to grow quickly driven by robust performance in its companion animal segment and the introduction of new products.

In human healthcare, we have 13 category leading products with clear and substantial potential for further growth.

Our new product pipeline is the strongest in our history and we expect to submit 20 major U.S. regulatory filings during the five-year period ending in 2006.

We also continue to achieve important milestones in advancing the next generation of Pfizer medicines to patients.

I'll now ask Karen Katen, President of Pfizer Global Pharmaceuticals to provide her perspective on the quarter to be followed by comments from our Chief Financial Officer, David Shedlarz.

Karen.

Thank you, Hank.

In the third quarter and throughout the year, Pfizer's pharmaceutical business has performed, once again, in a challenging global environment.

Our goals are on target, our portfolio is strong, the environment is tough, but we're tougher.

We're attending to both the top line and the bottom line with discipline.

Year-to-date revenue growth in human pharmaceuticals has been driven largely by the strong global growth of Lipitor up 15%, Neurontin up 17%, Zoloft up 8%, Norvasc up 4%, Geodon up 31%, VFEND up 47% and Relpax up 102%.

As well as several key products added in the Pharmacia acquisition, Celebrex, Bextra, Balitan, Detrol and Zyvox.

Specifically in the third quarter, revenue growth was led by Lipitor up 11%, Celebrex up 14%, Bextra up 37%, Neurontin up 10%, and Zyvox up 97%.

These and other strong product performances offset some declines in other products during the quarter.

13 Pfizer medicines lead the respective therapeutic categories and 6 of the world's 25 top-selling medicines are marketed by Pfizer. 5 of our products have delivered more than $2 billion in sales so far this year, while 2 others have delivered 1 billion or more each, and Zyrtec has approached $1 billion in sales in the U.S. alone so far in 2004.

In addition to managing our existing portfolio, we grew our pharmaceutical business during the third quarter with new launches, new indications and newly completed clinical trials.

I'll get to some highlights in a moment.

But first let me touch on product highlights.

In the third quarter and throughout this year, we've managed changing circumstances to maintain category leadership for products in key therapeutic areas.

Lipitor, for example.

Despite the launches of new competitors, Lipitor is still the world's top-selling medicine with revenues of $2.74 billion in the third quarter of 2004 alone, up 11% over the comparable period last year.

And it has sustained strong double-digit growth over recent months.

In the United States, Lipitor showed 10% growth in new prescriptions, while maintaining more than a 43% share of total cholesterol reduction prescription volume this year through September, that is.

It showed similar growth in other markets around the world.

One reason for this impressive growth, off an existing huge base, is a consistent wall of new clinical data we're building for this important product, Lipitor.

New data showing how safe and effective this remarkable medicine is for so many people, new data regarding its mortality benefits, new data showing the benefits of using Lipitor early, new data that's led to a new indication for primary prevention of cardiovascular disease and new label revisions to reflect that.

New data so strong that it's long support to the new NCEP treatment guidelines for hyperlipidemia.

Zoloft is another example of a medicine that's faced recent challenges, yet remains the world's most prescribed antidepressant up 8% on a year-to-date basis to $2.4 billion.

Zoloft has continued to -- continued to grow in spite of media and government focus on the use of antidepressants in children and adolescents.

On Friday, this attention came to a head when the FDA issued a recommendation that all antidepressant labels include a black box warning regarding suicidal thoughts and behaviors in young patients, a warning that will emphasize the need for doctors to closely monitor these patients and to balance risk with clinical need.

We at Pfizer continue to believe that physicians and patients must communicate more and work together to determine the best course of treatment of any kind.

That's a bedrock of our philosophy.

We also support the FDA's efforts to responsibly address the serious medical issue of depression and we'd like to point out that it's very serious indeed.

Depression is responsible for more than a half million suicide attempts by children and adolescents every year.

Because adolescent suicide is clearly such an urgent public health issue, we cannot lose sight of the importance of treating depression.

We support the position of the American Psychiatric Association that, quote, Antidepressants save lives, end quote, and that, quote, The biggest stress to a depressed child's well-being is to receive no care at all, end quote.

Now, it's important to remember that Zoloft is not approved for pediatric depression, but we've certainly studied the issue.

And in fact, there were no suicides at all in Zoloft's pediatric clinical program.

The bottom line is that we're confident in the proven safety and efficacy of Zoloft to treat millions of patients with mood and anxiety disorders.

Viagra has also responded well to recent market challenges.

This medicine was the object of intense new competition, as you all know, and is one of the world's most recognized pharmaceutical brands.

Viagra, today, commands more than a 70% worldwide dollar market share in its therapeutic category according to our latest numbers.

Meanwhile, its two new major competitors have plateaued.

Our market research and a wealth of clinical studies show that patients either stay with Viagra or return to it because it is safe, effective, and delivers what patients and their partners want.

Finally, our COX-2-specific inhibitor medicines are responding to new challenges as well.

Both Celebrex and Bextra continue to perform well by exceeding year-to-date sales projections, and we fully expect this trend to continue as more doctors and patients consider them as effective, appropriate treatment alternatives.

No other prescription medicine is as widely used for arthritis and pain relief as is Celebrex, thanks to its outstanding efficacy, long-term safety profile and broad range of use.

In a recent FDA-sponsored analysis of 1.4 million patients and in additional clinical studies where patients have been treated for up to four years, patients using Celebrex showed no increased risk of cardiac events.

This past Monday, we announced response from a major clinical study to further evaluate the potential cardiovascular benefit of Celebrex in osteoarthritis patients at high risk for cardiovascular disease.

This new global study will begin in early '05 and will further explore evidence that certain properties of Celebrex may improve vascular function in patients with established coronary artery disease.

You may also recall a previous discussion we've had about capsule endoscopy, a new technology we've used to further explore the COX-2 inhibitor benefit in the GI tract.

This is essentially, as you may recall, a camera in a capsule that patients swallow and the capsule takes pictures as it travels through the GI tract.

Just yesterday we released the results of a study using this new technology.

It studied Celebrex versus a combination of the commonly taken pain reliever Ibuprofen with the popular acid reducer, Ametrosol.

Results were reported yesterday at the American College of Rheumatology in San Antonio and, once again, Celebrex proved that its GI safety was comparable to placebo, while the widely used Ibuprofen, Ametrosol combination showed significant small bowel damage.

You could see, actually, in the pictures where it showed up as breaks in the lining of the digestive tract.

And now a word about our other COX-2, Bextra.

Its clinical efficacy has been well established by studies in more than 11,000 patients, and it's used by more than approximately 10 million patients around the world.

It is indicated for osteoarthritis, rheumatoid arthritis, and primary dysmenorrhea.

Its efficacy is also apparent in osteoarthritis and rheumatoid arthritis players, which makes it a valuable therapeutic option for tough-to-treat patients.

Available clinical evidence for Bextra, based on nearly 8,000 patients, suggest no increased risk of cardiovascular thrombolic events in patients with OA and RA.

We made this an additional information about the safety profile of Bextra available to healthcare professionals just last week.

I mentioned that our portfolio has benefited from recent new clinical evidence.

For instance, from the Ascot and the CARDS trial, which contributed to a new labeling and new indications for Lipitor.

These findings have also supported the effectiveness of other Pfizer medicines, specifically Caduet.

Recent Pfizer entries are also contributing with their performance, notably Geodon, Spiriva and Relpax.

We fully expect Caduet and Intra to continue to grow as their power to help patients in new ways and their unique therapeutic value become more widely known, and as further clinical evidence underscores their very apparent value.

Finally, let me mention our licensing activities, always a strength for our great company.

In early October, for example, we acquired Broad and Dry Tricanto, also known as Camptosar.

Camptosar is a first-line treatment for advanced colon cancer and is central to the survival of patients suffering from this disease.

This acquisition is a natural fit with our oncology portfolio, which is strong and getting stronger, with products from Pharmacia and, of course, our own promising compounds in our pipeline.

Less than a decade ago, the average survival time for patients with this cancer was about nine months.

Today, thanks to Camptosar-based regimens, that's been extended, on average, to more than 20 months.

Beyond maximizing our existing portfolio and launching new medicines and indications in the third quarter and throughout the year, we're also protecting our portfolio against patent challenges.

These are particularly significant now, as you know, and will continue to be as several patents on key medicines will expire in upcoming years.

Our patent protection strategies are straightforward and very appropriate.

First, we'll diligently defend our patents before loss of exclusivity, as we did recently with Viagra in China.

We'll defend our patents after loss of exclusivity too through Green Stone, our generic subsidiary acquired with Pharmacia, as we did with Phlebiside XL and Fluconosol this past year.

Our strategies were brought to bear less than two weeks ago when we launched generic Gabotenton through our Green Stone subsidiary in a swift response to the at-risk launch of generic versions of Neurontin by generic manufacturers.

I'd like to close with a quick thought about a broader future scope for human health at Pfizer.

Looking beyond our portfolio of leading medicines, we have an expanded vision of our role in serving the public's health needs more fully.

Not just through cheating disease, but maybe more importantly, through promoting health.

This includes advocating education, early intervention, compliance with treatment guidelines and better dialogue among doctors, patients, and families.

We're also addressing the issues of access and affordability through several innovative Pfizer programs.

That's because we're committed to doing more than discovering, developing, and bringing to market innovative medicines.

We also have to make sure that the people who need those medicines can get them when and where they need them.

We put that commitment into action with our programs such as the newly launched Helpful Answers initiative, the two-year success of the Florida Healthy State program and the establishment of the Infectious Diseases Institute in Uganda.

These also demonstrate our active engagement in finding solutions to the pressing public health issues relating to access and quality affordable healthcare.

You can see the full details in our written release and in its supporting materials, where we trust it's clear that we have a strong commitment to preserving and maintaining health for everyone, regardless of means, regardless of location.

We believe this is a proper vision for the future of health, for Pfizer and for the people we serve.

And now, David Shedlarz.

Thank you, Karen.

Pfizer continues to demonstrate remarkable resilience in the face of a challenging business environment.

Full year 2004, we expect to achieve adjusted diluted earnings per share of $2.12 to $2.14 and GAAP reported diluted earnings per share of $1.58 to $1.60.

The difference is between targeted GAAP reported diluted earnings per share and adjusted diluted earnings per share are attributable to projected incremental purchase accounting related intangible amortization of 29 cents per share, merger-related costs of 9 cents per share, in-process research and development expenses from Experion and two animal health business acquisitions of 13 cents per share, and certain significant items, which includes a charge relating to the resolution objective court approval and approval by claimants of certain asbestos-related litigation matters of 4 cents a share.

This is offset by income from continued operations of 1 cent per share.

We continue to expect merger-related cost synergies in 2004 of about $3.5 billion reflecting rapid integration of Pharmacia.

We plan to spend about $7.5 billion in R&D during the current year.

While it's too early in our annual planning process to project Pfizer's 2005 financial performance, a number of directional factors are known or emerging.

The company expects a substantial impact from the loss of exclusivity of certain major products.

Four products, Diflucan, Neurontin, Acupril and Zithromax with U.S. sales for the 12 months ending September of 2004 totaling more than $5 billion faced reduced revenue in 2005 through the past or possible future loss of marketing exclusivity.

Expense synergies associated with Pfizer's acquisition of Pharmacia will continue to contribute to growth, but to a lesser degree than in 2004.

We currently estimate that merger-related synergies will increase from $1.3 billion in 2003 to about $3.5 billion in 2004 and to about $4 billion in 2005.

The weakening of the dollar relative to major currencies is projected at current exchange rates to favorably affect 2004 revenue growth by approximately $1.3 billion or 3%.

If current exchange rates remained unchanged, foreign exchange, on the other hand, will have no material impact on 2005 revenue growth.

These factors expected to impact both revenue and income growth in 2005; however, several factors will partially offset these pressures.

The upcoming year is expected to bring continued growth of major in-line products.

The company will also realize the initial benefits of the introduction of several new products with substantial commercial potential.

And the company's operating expense flexibility and capacity to achieve additional cost efficiencies will further improve prospect for income growth.

While Pfizer's revenue and income growth will likely be tempered in the near term due to patent expirations and other factors, the company will continue to make the investments necessary to sustain strong longer term growth, the prospects for which remain excellent.

We expect to be able to provide more specific guidance on Pfizer's 2005 financial performance at our analyst meeting planned for the first quarter of next year in New York.

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 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/or will be discussing financial and 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 most directly comparable GAAP financial measures in our current report on Form 8-K, dated October 20th, 2004.

This report is available on our web site at www.pfizer.com.

In the for investors SEC filings by Pfizer section.

Now, Hank, back to you.

Thank you, David.

Thank you, Karen.

So let me sum all this up in this way.

Continuing challenges and vigorous competition are facts of life in our business.

But as Karen said, the market's tough, but we're tougher.

We clearly have the most experienced, successful management team in the pharmaceutical industry.

Our 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 to exploit our scale and operational flexibility while shaping our company and our future.

We'll now turn to your questions, but because of the uncertainty of communication links from Kampala, Uganda, I'll ask David to direct the question-and-answer session from this point forward.

Thank you for being with us.

We'll take the first question.

At this time, if you would like to ask a question, please press star 1 on your touchtone phone.

Our first question comes from Michael Caster from Bernstein.

Thank you, sir, you may ask your question.

Thanks very much.

I'll ask two, please.

First, intangible amortization in the press release has a tax effect of 306 million.

Is there any cash benefit with that, or is that purely an accounting tax benefit?

There is no cash benefit to that.

That has to do with the basic purchase accounting treatment, which is necessary to record a tax liability up-front, but we amortize that over the amortization of the intangibles at the same time.

But your point's well-taken, there is no cash benefit to the company.

The second question was, you book about 80 million in royalties every quarter.

What is the top three or so products that you earn royalties on and what percent of your royalty income is due to those?

The royalties involve both certain pharmaceutical products as well as consumer healthcare products.

And it's pretty evenly distributed, about, I would say probably about eight to ten individual products, both on the consumer healthcare and also in the pharmaceutical side of the business.

So there is no single one significant contributor to the royalty income of the company.

Thanks.

Thank you.

David Bucks from Buckingham Research, you may ask your question.

Yes.

Two questions, if I may.

First, for David, can you talk about the -- some of the reasons for the large sequential jump in gross margin this past quarter, whether it was mix related, and just comment on the sustainability of that into the fourth quarter?

And secondly, this is, I guess, for Karen Katen or, perhaps, somebody in R&D, can you talk about what you're hearing from the FDA in terms of additional trial requirements?

There was an announcement recently about an advisory committee on COX-2, potentially in early '05 that give us the latest thinking that you're hearing from the agency on the class of drugs themselves.

Thanks.

Okay.

As it relates to the gross margin issue, and I know this is somewhat complex, so there are probably two factors that I should highlight.

One, the dramatic decline relative to the third quarter of last year.

Then that notwithstanding, an improvement in gross margin nonetheless.

The dramatic decline is purely attributable to the vagueries of purchase accounting and the fact that in the third quarter last year we had to record a cost of goods the sales price of the acquired Pharmacia product.

And so that contributed about $1.3 billion to cost of goods in the third quarter of last year.

In terms of the improvements in gross margin, that notwithstanding, there are three primary contributing factors.

One of the synergies we're realizing, and we'll continue to realize in the manufacturing side of the business, from the integration of Pharmacia, and we always knew that would have a long tail to it because of the regulatory requirements before dealing with some of the integration opportunities.

The other factors relate to mix, favorable mix, with the product lines growing the fastest having the lowest cost of goods.

Lipitor is a perfect example of that.

And lastly, foreign exchange, which is also favorable.

Okay.

That relates to the COX-2?

I'll ask Dr. Fetchco, whose our Chief Medical Officer, to talk about that.

Yes, David, this is Joe Fetchco.

David, we talked at the ACR meeting the other night, we alluded to the fact there would probably be an advisory committee meeting coming up, and she also took the opportunity to review data that we've submitted for Celebrex and also on Bextra.

And what we're -- at this point in time, there is no -- while we're in discussions with them about what our plans are, we've announced already that we will be working with them to ensure that they have the data on an ongoing basis or, at least, contact with our DSMV's for many of the long-term ongoing studies that we have ongoing.

And we've already announced that we will be doing a study with Celebrex in patients with osteoarthritis and underlying coronary artery disease.

So that's already being planned.

I'm not aware of what kind of requirements they will be asking the other COX-2 -- the other pharmaceutical companies that have COX-2's in development and under regulatory review.

But it did -- she did imply that there would be a hard look at their database that they have right now, and there may be additional requirements.

But we -- but we have not been asked to do anything additional compared to what we've already stated publicly.

Great.

Just one quick follow-up to that answer.

Had you had any discussion with the agency on your Celebrex study and coronary artery disease?

We haven't had a detailed discussion with them.

We've had -- this has been something we've addressed with expert -- an expert advisory committee that we pulled together to help design the study.

This has been going on, actually, for several months and was something that we had been thinking about for some time based on some other mechanism of action studies that we've been doing over the last year, year and a half.

So they're aware that we're interested in doing it.

We've just -- they know just that a general thrust of the study, but we do have to review it with them to ensure it meets any requirements that they may have.

Okay.

Thank you.

Thank you.

George Graphic from Smith Barney.

You may ask your question.

Thanks for taking my question.

First, with the Celebrex filing under review in Japan, what have the regulatory authorities communicated to each of you there regarding the safety data, and is it still on track for (inaudible) approval?

And secondly, the Spiriva launch has been relatively flat over the past three or four months, at around 20,000 you stretched for a week.

In your mind, why has this been the case, since it seems to have an excellent clinical profile, and what will change this dynamic going forward?

Thank you.

We'll ask Joe Fetchco to answer first question, and Greg Duncan, who is the Vice President of Marketing for the U.S. to answer the Spiriva question.

Yeah.

Celebrex in Japan is under active review by the ministry of health.

We -- at this point in time, I'm not aware of specific questions; however, we are sending out, just routinely, an update on the cardiovascular data that we have and in informing the Japanese authorities of the same type of data that we've sent to the FDA and the European authorities, which is, again, a summary of the epidemiological studies, a summary of the ongoing long-term studies we have with looking at cancer prevention and polyp prevention, so they're aware of that.

We haven't had any specific requests for them, and it's still under active review.

I don't want to speculate on an approval time on that.

As you're aware ,they've just reemerged and reorganized totally their review body over there in Japan, but it is moving along through the review process.

Okay.

George, as relates to your question about Spiriva, we actually feel that Spiriva's off to a terrific start.

We have broad access on a number of formularies.

There is, in fact, Spiriva was noted as a must-add on several key formularies including Medco, and we're on the majority of state formulary -- state Medicaid formularies to date.

We've had early excellent usage.

What you've seen over the most recent months is a slowdown in NRX's, and that corroborates with a slow down in overall market growth during the summer months.

As you may know, there's some seasonality for COPD, so we would expect that seasonality to pick up towards the fourth quarter of this year.

It's important to note that within that performance, total prescriptions continue to grow and our refill rate growth each and every month, which is a good marker of patient and physician satisfaction with the product.

And we're extraordinarily excited about the opportunities going forward given the ATS guidelines recommending increased usage of Spiriva going forward.

We're working with (inaudible) to come up with measures to enable managed care organizations to systematically evaluate the quality of care for COPD, and we think there's a terrific opportunity to expand usage to primary care as well as to upgrade patients from Combovent, Atrovent and Advair.

So we're very bullish on those prospects for Spiriva moving forward.

Can you also tell us what the U.S.

Spiriva sales were in the quarter?

That's part of alliance revenue.

Next question?

Mario Korso from Summer Street Research, you may ask your question.

Yes.

Just going forward, looking into the fourth quarter, can you talk a little bit about how the expense trends may look in terms of fourth quarter last year, the numbers were, you know, kind of disproportionately high if you compare them to any quarter this year.

Should we -- expecting -- should we be expecting the same type of jump in the fourth quarter of this year?

And then in terms of Torceptorfib, is there any indication or are you able to say when enrollment in the IVA Study might be completed?

Thank you.

In terms of the seasonalization of expenditures, I guess the one item I can give you, which you already have, is the $7.5 million worth of R&D spend, which will give the indication that there will be a slight uptick in spend during the latter part of the year.

But for the rest of it, pretty much leaving you up to your forecasting capabilities.

This is John -- we completed the screening program randomization in August, so we're recruited.

Next question.

Mara Goldstein, from CIBC World Markets.

You may ask your question.

Yes.

Thank you very much.

You mentioned in the positive offset factors for financial -- the financial next year, growth of in line products, but we saw weakness among a number of in line products, including Zoloft and Norvasc.

So I'm wondering if maybe you could talk to us about what factors in the quarter, other than the antidepressants issue in suicide in kids affected those -- how we should think about these on a go forward basis.

Well, we do think that the noise in the market around -- the concerns about pediatric use is problematic for the whole sector, and that's been the source of some blunting of script activity.

But -- Greg, you want to add some more?

Sure.

As regards Zoloft's performance, Zoloft's performance has actually mirrored that of the entirety of the category.

Remember that while the FDA made a statement on Friday, there has been ongoing advisory committees and congressional hearings investigating this and we've seen growth abatement during the third quarter for the entirety of the class.

Zoloft has followed with that abatement and there's been a decrease in prescription growth down to about 1% during the quarter.

That plus a little bit of destocking explains the decreased sales for the quarter.

On a Norvasc basis, from time to time we do get a discrepancy between sales and prescription, and this quarter is one of those quarters with Norvasc.

If you take a look at the demand base for Norvasc, you'll note that Norvasc prescriptions have actually grown 5% through the year.

Total prescription growth of 5% in its 12th year on the market.

And in the month of September, we actually reached a 52-week high of 6% in the U.S. marketplace.

So we're --the underlying demand for Norvasc is quite solid.

This just happens to be one of those times where the prescription sales data are not lining up.

We have also have an addition by Peter Brant.

In addition to what Greg just said on Norvasc in the U.S., when you take a look at Norvasc in international markets, it is weighted down or brought down, if you will, by a number of the European markets where we've lost exclusivity.

So if you look at our Norvasc performance internationally in the quarter, our revenues are down 8%, but if you separate out those markets where we've experienced our loss of exclusivity, we're down quite a bit, actually 58%, as you would expect in those markets.

In markets internationally where we retain our exclusivity, we're up 7% internationally.

Okay.

Thank you.

We'll take the next question.

John Boris from the Bank of Montreal.

Y You may ask your question.

Thanks for taking my questions.

I have two quick financial questions, and then one product-related question to the COX-2 inhibitors.

The financial questions: In recent years, Pfizer's generated about 40% of its annual operating cash flow in the first half of the year.

In essence, you generated about 5.7 billion, and if you do the math and you apply the fact that you may generate the additional 60% or 7.83 billion, that would be about 13 billion that you would generate for the full year.

That seems to be below where a lot of analysts are actually projecting your operating cash flow from.

Can you give us some visibility on what's going on there?

Secondly, can you just talk about share buyback?

You indicate that you completed your current 5 million share buyback in October.

What other prospects for another share buyback, and can you comment on the magnitude of that share buyback?

And then just on the product side, on the COX-2 inhibitors, can you just talk about, mechanisticly, with Celebrex, what's actually going on as you've seen in animal models that gives you the conviction that it improves vascular function?

And on Bextra, where do we stand with the initial pain studies that you completed, and can we expect the filing for Bextra in the treatment of acute pain in the back half of this year?

Thank you.

Okay.

Tall order, John.

Let me take them, the two financial questions first.

The cash flow from ongoing operations is still expected to be about $17 billion for the year, although it obviously has a preference for the latter part of the year -- or, excuse me.

In terms of the share buyback, we did complete that early.

We're currently looking at options in terms of additional share buyback, and that decision will take, hopefully, in the near future.

We continue to see the investment in the company stock as something very positive to the company, and so this is an option we're currently and continue to take a look at on an ongoing basis.

Celebrex, Joe?

Yeah.

This is Joe Fetchco.

When Fitzgerald first came out with his hypothesis, we decided to start taking a look at some of the differences between the COX-2's, and what we found with Celebrex in a variety of different models, and some of it has been published, some of it has been submitted, there's a variety of models, these are invitro or animal models looking at different kind of membranes, protection of Celebrex on -- someone protected against oxidative processes that can damage cellular structure, there's an increased nitric oxide and a variety of things that, overall, in various animal models, show protection and improvement on endothelial dysfunction in animal models who have coronary artery disease where the endothelial function is improved.

We also know that Celebrex, as opposed to Vioxx, penetrates the cells very differently, so that's probably another reason why it has an effect on improvement of endothelial dysfunction.

And -- so last, but not least, we also see consistently across the board, whether it's a comparative study in -- previously to Vioxx or through larger epidemiologic studies, we don't have the changes in high blood pressure that's been associated clinically with Vioxx.

We definitely, also served points towards that.

And some of the epidemiological studies we have, large scale, epi studies out in Kaiser Permanent, for instance, showed a relative risk of coronary complications, which Celebrex is actually below the placebo -- or the age match control.

So it tended toward to cardio protective.

So -- well, we're not saying in cardio protective, we're pretty confident that we can look at this in some detail.

Actually, we're still looking -- in light of everything that's been going on, we've got studies ongoing, we've got studies that have completed, but we're still evaluating what we should do with the acute pain filings for the future.

Thank you.

Next question.

Timothy Anderson from Prudential.

You may ask your question.

Hi.

Couple of questions.

The first one is just a very broad non-Pfizer macro question either for Hank, if he's still on, or Karen, which is, in terms of the presidential election, do you think it makes a material difference to the outlook of the drug industry over the next few years whether it is a Kerry or a Bush win in November?

Then on the COX category again, you guys seem pretty confident in the cardiovascular profile of Bextra, so I'm wondering why there is not a Bextra arm in this Celebrex trial you've announced, being as we really don't have any long-term data with that product.

Then on para-COX, I'm wondering when and where we can expect to see the full results of that second cabbage study.

This is Hank, if I'm still on I'll try to answer the first part of this question.

You're on.

You're on.

Okay.

Thank you.

Really, I think it doesn't matter whether we have a second Bush administration or a Kerry administration.

Both administrations will face the same problems.

To me, the critical issue is whether we focus on the cost of healthcare, which leads us down the path of rationing and price controls, or if we focus on the value of health and the cost of disease, which leads us quite a different direction.

It leads us into early detection, early treatment, compliance with treatment.

It ends us in a place where I think Pfizer and other research-based pharmaceuticals are much better positioned.

So what I've recommended to both campaigns is that after the election, no matter who is elected, we launch a national debate of the alternatives, and I think when people understand what the options are here, they will not favor rationing and price control, they will favor health and wellness over the other alternatives, and that ultimately benefits Pfizer and other companies in the industry.

Thanks, Hank.

Joe, do you want to talk to --

Yeah.

Couple things there.

We are -- we will be working with the FDA on talking about what kind of data they want on Bextra.

The Celebrex cardiovascular study had been in the makings for quite a long time now, and was based on looking at -- based on a lot of the epidemiological studies we had that actually showed a trend toward some kind of beneficial effects seen on vasculature.

So as part of what we're doing here -- this isn't strictly a safety study, we're looking at improvement in inflammatory markers for cardiovascular disease and another aspect that improve its function.

We don't have the same kind of data right at this point with Bextra, we'd have to generate more.

It wouldn't be appropriate.

It really gets complicated to throw an extra arm just for the sake of doing that.

But there would probably be some need to do some kind of separate study on Bextra that we still have to work through to design.

As far as the para-COX, I think you asked about the cabbage 2, that has been shared with the FDA, manuscripts, it's been in several months ago now, manuscripts nearing completion and it will be published.

I don't have any kind of timeframe on that at this point.

Okay.

Thank you very much.

But it's -- just to reinforce, there's nothing new there that hasn't been represented really in the first publication.

Okay.

Thank you.

It's pointed out in our letter.

Yeah.

Next question.

Simon Elliott from Lehman Brothers.

You may ask your question.

I have -- thank you for taking my question.

I have a question actually on Viagra.

I noticed in your press release you talk about Viagra going into additional indications, quite definitely including pulmonary arterial hypertension.

I was wondering whether you could give us some idea as to when you intend to file that?

You say you've got some data coming out quite soon.

And also what you think the market potential is for Viagra?

We'll ask Dr. Lomatina to answer the first question.

Yeah.

So as you know, we don't normally comment on our filings, and we continue that process even today.

We are very excited about the clinical results we've seen.

We're working very closely with the FDA, the FDA is also excited by the kind of data we're generating.

And so we're very optimistic about the profile of this compound to feel the benefit of PHT.

Well, may I -- potential for, you know, in its use of the drug which is extremely important for the persons who have these problems.

There are so few options, and really that's the reason why this drug is being deadlocked.

In terms of market sizes, it's a limited market, but is very important to put the drug on the market and make it available for patients who need it.

That's right.

The medical need is hugh.

The market size is small.

Thank you.

Next question.

CJ Sylvester from Schwab Soundview.

You may ask your question.

Yeah.

Hi, thanks.

A couple questions just in terms of the leverage and the model.

Clearly, a lot of your competitors, and you guys get asked this pretty much every quarter, a lot of your competitors are cutting back on their U.S. sales bases.

Is that something you think about going forward when you talk about leverage -- financial leverage in the models, say '05 and '06?

And then the second question is on Liraka, would you guys be willing to launch this product without the generalized anxiety indication?

Thanks.

I think the leverage of the model speaks to two primary elements.

One, we're not finished with the integration and the cost savings.

They will linger for some period of time, especially on the manufacturing side of the business.

And two, something that's been missed is we've been going full steam on integration cost-related items is the normal ongoing and robust efforts to become more effective and efficient as an organization.

If you stare at our P&L on an annual basis, we spend about $30 billion.

There's always opportunities to do that more effectively, but each and every organization is taking a very hard look at.

By no means are we going to pull back on any resource, including the field force if there is an opportunity.

They are the primary force that allows us to support our current in line portfolio, as well as new product lines, and particularly, we'd be cautious about pulling back on the high-value activities like research, like promotional activity on behalf of the company.

Exactly.

The field force is clearly the closest to the customer resource we have and we treasure the field force and they're very critical to our communication efforts in getting the information and knowledge about our medicines from healthcare providers to their patients.

But I have to add, we do monitor market dynamics and we keep looking at how the to most appropriately use this critical resource sot that we get the best return from that substantial investment.

So we will continue to track that and -- so far it's -- there's a great return.

Next question.

Thank you.

David Moskowitz from Friedman, Billings & Ramsey.

You may ask your question.

Yes.

Thanks.

Good afternoon.

Could you comment on the conversion from Vioxx to Pfizer products outside the U.S., and could you also include in that discussion a comment on what's going on with the R COX product, how that's fitting in?

Also, could you talk about the new repatriation laws that could affect bringing cash over from it's U.S. subsidiaries?

I think you guys have about $38 billion in unremitted earnings.

Can you talk about where those might be on the balance sheet?

Are they in cash or in other subsidiaries?

Can you just give us a lesson on that?

And lastly, I think a follow-up to the previous question, could you give us X U.S. sales for Lyrica and also talk about the status on timing for U.S. approval of that product?

Thanks.

We're trying to count all the questions you asked.

The first question, I believe, was happened -- has happened to the Vioxx prescriptions post-withdrawal in Europe?

That's right.

We do not have enough data yet to comment on that.

We're just starting to get early data in now from Europe.

In terms of cash repatriation, this is something we're taking a hard look at and hope is an opportunity for the company to repatriate funds from abroad in an efficient manner.

We've been able to do that through other vehicles over an extended timeframe, but like any of these regulations that's fairly complex, the devil can be in the details.

So we'd have to carefully go through exactly what will qualify -- what will qualify in terms of reinvestment opportunities on behalf of the company.

And that's something we'll take a look at early next year because you know, the opportunity to repatriate those funds runs through 2005.

But my best bet when the day is out, although we haven't been able to dive through all of the details, is this will be an opportunity to improve upon and further improve upon what already is an excellent financial structure for our company.

You had a question about R COX.

We really can't comment on R COX, It's not our medicine so it wouldn't be appropriate.

And we don't know the data.

So you should ask the company that owns the product.

No problem.

The last question was on Lyrica.

Could you give out -- outside U.S. sales for Lyrica so far and can you talk about status on the timing of approval?

Lyrica has just been launched in the U.K. and Germany, so it's very early and there's no data coming in on the part of the field forces launching it.

There's no data.

Next question.

Carl Seiden from UBS.

You may ask your question.

Thanks very much.

Two topics if I could, first on the COX-2's again.

I suppose it's for Karen.

Karen, can you talk about -- since the Vioxx withdrawal, how has your strategy behind Bextra and Celebrex changed, both on a relative basis, I mean, there's certainly some messages coming out of the company that imply that Celebrex is kind of the lead product.

And also in terms of actual spending, I guess, beyond all the full-page ads we've seen, but do you have more feed on the street behind these products right now or not?

And given that, are you surprised, I mean, I think the data as recently as Monday prescription trends still imply that Bextra and Celebrex are picking up new volume equally.

So that's topic number one.

Number two is the international pharmaceutical sales were certainly much weaker than trend.

I think they were up only 5%.

That's not fully explained by the weakening foreign exchange comparison, and it seems to be across the board.

And I'm wondering, you know, I know these things are lumpy, but do you think that is a fair reflection of your actual underlying business strength internationally, or is that an anomaly on the down side for some reason?

Thanks.

The first question is where the Vioxx scrips are going.

And as you've seen yourself in the very small data that's accumulated since the withdrawal of Vioxx, both Celebrex and Bextra have picked up prescriptions.

Obviously, the database is very tiny.

There has been no growth in the market since the withdrawal of Vioxx.

It's basically maintained the same levels as prior to the withdraw.

We have not increased the number of people washing these products.

We have yet to see which way it will go.

We have not increased the number of people working these products.

We -- because we haven't changed our numbers in the last week and a half.

But they are -- they are both candidates for picking up new prescriptions and new patients from the entire market.

The -- we firmly believe that Celebrex has the largest most substantial database to warn it as a strong consideration for patients who are taking -- or any new patient start in the market.

So we are actively engaged in the discussion of Celebrex with physicians who have the decision to take on new patients from whatever source in the market.

And Bextra, as I said before, is a very good candidate, very effective and particularly appropriate in tough-to-treat arthritis patients.

Just one thing to add.

Both products are certainly benefited from switches to Vioxx.

The claim structure for Celebrex is one that most closely mirrors that of Vioxx.

So it is approved for acute pain, as well as osteoarthritis and rheumatoid arthritis, which is a reason for the natural orientation, if you will, from a switch from Vioxx to Celebrex.

Does that answer your call?

It does, thanks.

And the international trends?

Again, I think when you look at that international numbers for third quarter of this year, in particular, you have to factor in what we're beginning to see with the loss of exclusivity impact on Norvasc alone.

So you're absolutely right that our growth is 5%.

Again, one thing is, is that this is the first quarter we are seeing an actual apples-to-apples comparison on a full product line basis relative to the Pharmacia acquisition.

So the 5% gets you to something north of 7% when you make the adjustment for Norvasc loss of exclusivity in the handful of markets where we're seeing it.

And that 7% is being driven by products such as Lipitor, which is still up 13% in the quarter in international markets.

So we don't really think that that 7% or 8% is, if you will, indicative of a lessening of a robust trend in our international markets.

And related to Pharmacia, if I could, they had a tremendous number, especially internationally, of kind of tail products that were always categorized as all other.

Are you guys divesting any of those products yet?

Is that part of the performance that we're seeing any place on the P&L, or prospectively, are there plans to do that?

We haven't announced any plans in terms of any of the tailed product, but your observation that there are a number of tail products, which are further constraining growth, is a good one.

They tend not to be growing very robustly.

So Peter's point is a good one.

It's being driven by some of the major products and some of the temporing in the quarter as a product of the Norvasc situation.

Thank you.

I think, Carl, are still there?

Yep.

It's important that the whole change that's taken place in the market in the last couple of weeks, obviously, has created a lot of noise and concern.

We have a tremendous concern that patients are not alarmed by this and that the physicians are involved in discussions with them about which medicine they should be on.

It also, I think, is a strong affirmation that all products are not -- all medicines are not created equal, regardless of the class, and that has been our premise forever about the difference from one medicine to another.

So I think those are the fundamental conclusions we would take from this -- very couple of exciting weeks.

Great.

Thanks very much.

Okay.

Next question, please.

David Reissinger with Merrill Lynch.

You may ask your question.

Thanks very much.

I have two question.

First, can you comment on your assumption for generic when Acupril in '05 when you recently won some patent litigation.

And second, the street took the lack of a price increase in July as a significant negative, but clearly, Pfizer is still planning on delivering, at least at the midpoint of your range, the 2.13 that you had assumed at the beginning of 2004.

So should the street have taken he unchanged EPS guidance as the glass being half full rather than half empty?

Or is there a comment that could make on that?

Thank you.

David, this is Jeff Kindler.

Let me take the Acupril issue.

We have a commercial formulation patent that expires in 2007 that was challenged by Teva, and we did prevail in the lower court.

That's on appeal.

The appeal will probably be decided sometime in '05.

If Teva wins the appeal, they will be able to launch their product and have 180 days of marketing exclusivity.

On the other hand, if the lower court decision is affirmed and we prevail, they will lose their exclusivity status and other -- and applicants that are out there that have filed generic formulations of Acupril, that they claim do not infringe our patents, may have the opportunity to launch, depending on the circumstances at that time.

With regard to the 2.12 to 2.14, I think it's probably most attributable to the fact that a lot of variables at work in the fourth quarter, but I think it's also important to recognize, even with some of the issues which have arisen, even with the changes that are implicit in running the business on an ongoing basis, the great strength and resilience of the company in its diversity.

And we are able to make a commitment and to deliver on it during the course of the year.

And the range still embraces that.

So I think it speaks very strongly to the performance and the innovation and the flexibility of the entire organization in terms of being able to do -- deal with change on an ongoing basis.

Next question, please.

Chris [Chipatone] from JP Morgan.

You may ask your question.

Thanks very much.

Two if I could approach one on the COX's and another on R&D strategy.

I noticed in the supplemental information in the second quarter for para-COX's, you had mentioned that there was a resubmission planned by the end of the year that's absent in this quarter's additional information.

I'm wondering if you can comment there?

I'm reminding us that the clinical trial data that you mentioned was for acute pain, so I'm thinking that there'd be less likely an issue in terms of longer term data.

But if you could just provide clarification for whether your plans are still to submit or whether things have changed.

And secondly, on R&D strategy, based upon the budgeting guidance gone from 7.9 billion down to 7.5 billion progressively through the year back into what's been spent and what's left of the quarter, that leaves zero growth, I believe, for the fourth quarter year-on-year.

Within R&D, as you're looking to where to allocate the spending, is the belt tightening occurring sort of all across the board or is it a relative one between discovery development?

Maybe comment a little bit about how that's being approached.

Thank you.

It's Joe Fetchco.

Para-COX, we're still planning on pulling the data together and filing.

It is on the market in many European countries and approved there.

We are still anticipating a filing going forward.

The chronic -- the -- any kind of acute -- the answer I had before with acute pain and chronic pain, we're just relooking at our needs there and whether or not it's appropriate to file that going forward based on the current environment that we're in.

Yeah.

Before I ask John to answer a question on R&D, it's important to put that in perspective.

Because we've lowered the number doesn't mean we have fundamentally changed the activity on behalf of the organization.

It means this organization, like many others in Pfizer, has been very good and, in fact, has exceeded expectations in terms of cost synergies and also in being very sensitive to improving upon the cost efficiency and the operation as a whole.

So this is a very, very positive outcome and not attributable to the company pulling back in any substantive way in terms of its investments in R&D.

So, David, you just said what I -- I'll just echo what you said, in fact, we're seeing excellent synergies, but even higher productivity.

One point I'd like to make is, a lot of times you read now, particularly smaller companies saying they're small, agile and nimble.

We are finding eye-opening examples of where size brings tremendous savings in terms of cost and creating centers of excellence that enable us to really capitalize on the mere $7.5 billion we're spending right now on R&D.

So this is, I think, a lot of what you've heard about smaller is better is, in fact, a lot of bunk, particularly going into the future where a lot of the types of studies we have to do to things like Lipitor and Bextra and the like are going to be long term, very expensive studies and things that only, I think, a company with our resources can in fact do.

And now for our final question.

And that will come from Al Rauch from A.G. Edwards.

Thank you.

I just have two questions.

Number one has to do with your plans for Green Stone.

It seems to be getting a lot more active.

I was wondering if you plan on developing generics to other companies brands.

And then the second one, if you could give us sort of an update on the litigation status in regards to Zithromax.

Peter Brandt will talk about Green Stone.

In terms of our Green Stone strategy, it is very much an important part of our business strategy going forward.

It is -- to date, it is something though that we -- confining to Pfizer entities and when they -- loss of exclusivity coming out with our generic versions.

Regarding Zithromax, the basic patent expires in November of 2005.

There are some follow-on formulation patents and the like, but Zithromax is an antibiotic, so it doesn't generate the paragraph 4 and the challenges that you see in our other pharmaceuticals products.

So we expect that there is a substantial possibility of generic competition after the basic patent expires in November '05.

I'm assuming that what will happen is the generic companies will try to launch, and then you'll file an injunction, and then there will be litigation after that.

Is that --

No.

No.

No.

Because if the patent expires, the patent's expired and we've lost the exclusivity and there's nothing to litigate.

Well, you'll have those formulation patents.

Well, depending on the products that they launch, they may or may not infringe those formulation patents, but I think it's a reasonable assumption that there will be generics that will find opportunities to create product that don't violate those patents.

Are you thinking about launching an extended released version of Zithromax?

Yeah.

Well, we will -- Al, if you come back to your old home in Groton, we will show you a little bit about this at our analyst presentation on November 3rd.

I'll be there.

Thank you.

Okay.

With that ,we conclude today's conference call and thank you, folks, for being with us today.