輝瑞 (PFE) 2005 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon.

Before we begin, there are a few general announcements that I need to make.

First, as a courtesy to other attendees, please turn off and silence cellphones, pagers and BlackBerries.

Thank you.

Second, in the unlikely event of an emergency, please listen to our announcements and follow the lighted exit signs above each doorway.

Security personnel will be in place to direct you to the closest emergency exit.

And third, during the Q&A period, should you ask a question from the floor, please wait for a microphone to be brought to you and then identify yourself, please.

And finally, 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 2004 Annual Report on Form 10-K and in our periodic reports on Form 10-Q and Form 8-K.

Also, in this call, we'll 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 the most directly comparable GAAP financial measures in our current report on Form 8-K dated July 20, 2005.

That report is available on our website at www.Pfizer.com in the for investors, SEC filings by Pfizer section.

And now, Hank McKinnell.

Thank you, Jim, and welcome, everyone, to this conference call.

We've decided to do this a little differently, as you can see.

But this is still a conference call.

There are some 250, 300 on the call in addition to those of you who braved the high temperatures in New York City to come here today.

One of the things we are doing is not using slides, making this very informal, something I'm actually trying to encourage throughout the organization.

What we plan to do is each of us comment briefly on the quarter and then open it up to your questions.

I guess my impression of the quarter is best captured by an awful memorable line from a television series many years ago in the 1970s, I think -- the A-Team -- memorable only because the lead character every episode, usually as they were blowing things up, said, I love it when a plan comes together.

Well, we too love it when a plan comes together, particularly one we've been working on for more than a decade.

My Pfizer colleagues will remember the cliff -- the period right now that we referred to as the cliff because many of the products launched in the early '90s were going off patent.

We are in the second quarter of that period now, and fortunately, it doesn't feel like much of a cliff.

It feels like more a transition to a better place.

And that will take us a few years because of the timing of the patent expirations.

But I think what this quarter shows is that we manage the business quarter to quarter, but we also manage it generation to generation.

And as the 12th Chairman in Pfizer's 156-year history, I feel that very acutely.

But first of all, on the quarter, we did achieve revenue growth this quarter, which was no small feat.

This time last year, Diflucan, Neurontin and Accupril were all exclusive Pfizer products that are now subject to generic competition.

That is $4 billion in revenue we lost this year.

We did withdraw Bextra, another $1.3 billion, and we are in the process of rebuilding Celebrex after the news last year.

So, without all of that, the other products actually grew by something like 20%, which is something Karen is going to talk about very briefly here.

Our consumer business was up 12%.

Our animal health business was up 19%.

And in spite of the adverse effect of exchange, the strengthening of the U.S. dollar, earnings are on track to achieve our estimate of $1.98 in adjusted earnings this year, with double-digit earnings growth next.

So, all of that is no small feat through this period.

We also brought back 36, $37 billion, I guess it is, in cash and have launched a $5 billion share repurchase program.

And that's all in one quarter.

The generation-to-generation part of this is our investment in the future, which is really our research investment every year.

And this quarter was kind of spectacular -- three product approvals -- Revatio, Zmax and Lyrica, the filing of Indiplon and important milestones for Sutent and Exubera.

So, that's quite a list, and we also managed to begin the process of acquiring Vicuron with two promising anti-infectives also under review at the FDA.

So Karen and John will be talking about that a little later.

I would also add that I'm particularly pleased by the progress in our early- and mid-stage pipeline.

Even though we don't talk about those candidates coming forward very often, that is looking certainly better than I have ever seen it in my 35-year career.

David and Karen will talk a little bit about Adapting to Scale, which I actually prefer to think of as winning through scale.

It is designed to make Pfizer an even more formidable competitor, all the way from discovery to development to medical marketing to our industry-leading sales forces, but along with strengthening the organization, unburdening the organization, we are going to add some $4 billion to income.

I know when we first announced that program, you were disappointed in the absence of details.

We had some detail.

We just hadn't fully developed the plans and hadn't communicated those adequately within the organization.

We are now actually a day before the rollout of many of those plans, and we are pleased to share with you today some of the important details, both as to timing and to where the savings come from.

We will give you as many numbers as we can, but I am going to insist that colleagues and affected groups learn first about our plans before we announce them publicly.

So, we'll do the best we can to give you straight answers to any of your questions, but please understand that some of this we're going to have to be a little careful about because I do want the colleagues to know before the public does, and I will be fairly blunt about that where we can't answer a question.

Next, to the external environment, Jeff will discuss a number of very positive developments, from importation to the implementation of Medicare modernization to litigation reform and the new FDA Commissioner.

That's all very good news, something I probably couldn't have said a year ago.

So that's a significant change in the environment.

Finally, I've been so appalled by the quality of the debate around health care in the United States and elsewhere that I've written a book, A Call to Action -- Taking Back Healthcare for Future Generations, and it really starts with the definition of the problem.

We think we have a problem in health care cost.

I think we actually have a problem with the cost of disease.

So, if we work to redefine our system of sick care to a true system of health care, I think we will all be much better off, both financially and in terms of impact on the individual.

So I do believe the solution is greater health, not more health care cost, and we've taken the first step in that direction within Pfizer by launching this quarter also a program we call Healthy Directions, which is really designed to engage our colleagues in their own health, which I think will produce significant reductions in cost, improvements in outcomes, and increased productivity.

So, just as we did with Florida, as we are about to do with the Medicare program with the Green Ribbon Health Initiative, which I'm sure you've read about, we are now trying to create a model here within Pfizer that other employers can use to deal with both the cost and the quality of the health care for their own employees.

So, with that, that's my impression of the quarter.

I'll turn it over to David and Karen and Jeff, and I suggest you all speak from the seats rather than try to bounce up and down to this podium.

Well, thank you, Hank, and let me cover for a few moments the performance in the quarter, an update on the forecasts for both 2005, 2006 and 2007, and then Karen and I will share a discussion of the Adapting to Scale initiative, which is a broad-based, top-to-bottom review of the operations of the Company in the interest of not only efficiency but greater productivity for the Company as well.

As Hank noted, the second quarter was a solid quarter, consistent with our expectations.

Probably the most frequently asked question I get from a financial point of view, so I will try and cover it here and then be glad to answer further questions on it, is cost of sales, my favorite P&L line item.

Clearly that grew at a dramatically higher pace than revenues during the course of the quarter, in fact, for the first half of the year.

And that was primarily due to an unfavorable change in both business, product and geographical mix, lower production volumes attendant to the loss of exclusivity on a number of product lines in the United States, as well as unfavorable foreign exchange.

They were all significant factors in terms of driving cost of sales at a faster pace then revenues.

However, as you note, the expenses of the overall Company were quite restrained and in part is due to the initial benefits of the Adapting to Scale initiative and the attendant cost savings, which we will talk a little bit more about in a few moments.

And for that reason, the bottom line in terms of adjusted diluted earnings per share came in at $0.46.

We spend a few moments looking forward.

Recent strengthening of the U.S. dollar relative to many international currencies has had a negative impact, not only in the quarter but also the prospects going forward.

Despite that, we continue to expect to have a strong year, consistent with bottom-line expectations.

The reason for the modest decline in terms of revenues is relative to our prior forecast and is solely attributable to the change in the prospects for currency relative to the prior time we spoke to you about this.

And despite the unfavorable change in terms of exchange rates, we're continuing to target adjusted diluted earnings per share of $1.98 for the current year.

On a reported basis, as you see from the press release, there's a lot of things happening, and in fact, we've increased that number quite significantly due to the favorable resolution of certain tax provisions, the lower cost of repatriating the $37 billion during the course of the year that Hank spoke to, and as we've refined the Adapting to Scale initiatives, we've also had to refine the cost of achieving those cost savings, and in fact they have come down.

As it relates to 2006 and 2007, despite the unfavorable change in foreign exchange, we expect to generate adjusted diluted earnings per share at double-digit rates for 2006 and accelerated double-digit rates for 2007.

Let me talk a moment about the financial strength of the Company, both from a tactical and strategical perspective.

Let me remind you that we enjoy, in some respects, unprecedented positive cash flow from ongoing operations.

Plus the financial position of the company is going to be further strengthened by the repatriation of overseas earnings of approximately $37 billion by the end of this year.

These funds are being utilized in part to invest at an accelerating pace in new product potential and intellectual property.

I would be glad to expand upon that in terms of the Q&A session later today.

In addition, we're returning cash to shareholders at an accelerating pace, given the growth in dividends and also the recent announcement of a new $5 million share repurchase program.

With that, let me spend a few moments on the Adapting to Scale initiative and highlight the fact that this clearly will lead to some significant cost savings, but also opportunities to improve upon the productivity of the organization.

This initiative is being co-led by Karen and myself.

We made significant progress during the second quarter of this year.

In fact, we completed the top-to-bottom review of all major operations of the Company.

One of the things I would like to focus on and to highlight is not only the confirmation of a $4 billion worth of cost savings, but also the fact that we expect to achieve that fairly quickly, with a commitment of $2 billion of those cost savings emerging in 2006 and $3.5 billion by 2007.

Given your request, we try to provide greater granularity in terms of where these cost savings are coming from.

Procurement is expected to generate about $1.3 billion worth of cost savings.

That's off a base of about $16 billion worth of goods and services that we acquire on an ongoing basis, operating expenses of an equivalent amount and facility costs of $3 billion.

So a rich array of opportunities being pursued, anywhere from supplier rationalization to demand management, strategic purchasing from lower-cost operations to consulting expenses to external services to the rationalization of our manufacturing and other sites.

This is about as broad-based as you can get and it's meant to improve upon both the efficiency as well as the effectiveness of the organization.

And with those few comments, now let me turn things over to Karen, who will be talking to you more about Adapting to Scale from an operational point of view, as well as our Human Health business.

David, before we do that, could you give us the breakdown of procurement savings, operating expense and facilities expense again?

Yes. $1.3 billion in procurement, $1.3 billion in operating expenses -- that's non-compensation-related operating expenses, and $300 million worth of facility costs.

That doesn't add up to $4 billion, but we will explain it.

Thanks, David.

Good afternoon, everyone.

I'll touch on highlights about Human Health performance and this is very -- it's in much more detail, obviously, in the release, which I'm sure you've all read -- the trimmed-down release, we might add.

The Human Health organization, as you may or may not recall, was formed to create a seamless cross-divisional operation and to integrate support functions across discovery, development, manufacture, distribution and commercialization of our pharmaceutical medicine.

We're already realizing some organizational benefits, even though this has been in place for a fairly short period of time -- tearing down silos, speeding decisions; we've actually reduced management time in meetings by 20%, something which we can all appreciate.

And the goal, of course, is to get innovative medicines to doctors and to patients more quickly and to improve our own operations internally.

Adapting to Scale, as David mentioned is an investment, really, in effectiveness and in efficiency.

It's not just a cost-cutting exercise.

About 3 billion of the initial Company-wide $4 billion will come from Human Health, in actuality, with ongoing benefits from streamlining operations, line operations, consolidating enabling functions and support throughout the organization.

I will give you a couple of examples and then John can talk about it some more, and we have our management colleagues here who can address specific questions later.

In R&D, we're eliminating some of the complexity of our R&D operation.

Obviously, it's still a global, huge organization.

We're lowering the cost base of research and development activity.

We're trying to reduce attrition.

We're streamlining our R&D overall processes, the structure, the governance.

We want to increase productivity, reduce attrition and focus resources on projects with a very high likelihood of success.

And John can speak to this.

But as you recall at the last meeting, we talked about the creation of a therapeutic alignment within R&D, which actually cascades down into the commercial operation now.

So we want a system that will allow us to go from discovery through development to the marketplace to patent expiration with continuous oversight and reduced handoff time.

In manufacturing, we're aligning facilities with current and future product supply needs and we expect that those will be substantial given our pipeline.

We're consolidating sites to improve productivity, and we're also -- which will impact results in a reduction of facilities by 25%, included in the ATS.

And we're realigning field organizations and marketing organizations around the world.

In the U.S., as we talked to you last time, we're reorganizing our field organization in response to our customers' feedback about the time limits that they had to spend with representatives.

And also we need to address a new customer base, the new -- created by the MMA rollout, and that is the regionalization of Medicare and the way it will be operationalized post-rollout in the fall.

Having said that, I think that ATS is moving very nicely, as David said.

We're very comfortable with the fact that we are -- we will achieve our objectives over the 3.5 year time-frame and that we will do it, although there is some angst and concern within the organization, we will do it with the full support of our colleagues.

Going onto product performance and performance of Human Health, if you look at the product line, excluding the COX-2 selective inhibitors -- and we all know what's happened there -- and the products that have already experienced loss of exclusivity, Human Health revenues in first half of '05 were up 18% versus first half of '04.

We lead the industry in 11 therapeutic areas.

Nine of the top 10 products showed growth this quarter, as you saw in the release.

And seven of those 10 showed double-digit growth.

Lipitor, of course, is -- continues a very powerful performance of 21% with a second-quarter revenue of 2.9 billion.

Norvasc had another billion-dollar quarter around the world -- was ahead 12%;

Camptosar, 58%;

Detrol, 22%;

Xalatan, 17;

Zyrtec, up 16%;

Zithro, up 14%;

Viagra, up unfortunately only 1; and Zoloft, despite patent expirations in some markets and difficulties on the regulatory side in the U.S., is again up 1%.

We also have seen some of our newer products show continuous performance.

Relpax is up 34% for the quarter.

Geodon is up 32%.

I'm going to interrupt this now because we've already been asked this morning by several people about the status -- the reconciliation of Rx and dollar volume for Lipitor.

And I'm going to ask Peter Brandt to just get this out on the table so everybody doesn't have to ask the same question over and over.

Peter, could you -- Peter is the head of finance for Human Health.

He's also the head of planning, and also the head of Latin America and also the head of PHS.

So, he has a few hats on.

We don't promote people anymore; we just give them more jobs.

(inaudible -- microphone inaccessible) in the U.S. for Lipitor, by way of example.

We also have the same issue with Norvasc.

And the answers are quite similar.

So, you're looking at prescription growth of 9% year-to-date for Lipitor in the U.S. compared to 24% revenue growth.

And an obvious question is what's driving the gap or what fills the gap?

And the first answer to that question is it is not inventory -- it is not an inventory issue at all.

There are a number of components that fill the gap.

One is the following -- and it's a bit arcane, if you will, but if you look at the number of billing and selling and accounting days in the first half of -- or year-to-date in 2005, there are three more days than we had in 2004, and you don't see that reflected in the scrips.

Scrips are apples-to-apples.

The sales days are a little bit of oranges to apples.

So, we get a 3% growth beni (ph) on Lipitor because of those incremental billing and selling days, and that's something that will reverse itself in the fourth quarter of this year.

So, obviously, at year-end, the number of days equal the number of days that we had last year.

So you start with your 9% growth in prescriptions.

You add to it the 3% growth.

Then you get to our price and mix impact, if you will.

And there are really a couple of things inherent in here.

One is the impact on the absolute revenue of the incremental price increases we've taken on Lipitor to date and ones that a carry over from last year.

That plus a mix issue that we've seen in the first half of this year -- in other words, our sales have given package strengths or dosage forms relative to other Lipitor package strengths and dosage forms relative to the same six-month period last year.

So the price and mix impact combined gives us another 7% growth '05 versus '04 year-to-date.

And that 7% is split roughly half between the impact of price increases and the impact of mix changes.

And again, dosage strength and package size.

The final component is also when you take a look at the number of units, or pills, if you will, per prescription.

When we take a look at the first six months of 2005 that's up 2% for Lipitor relative to the first six months of 2004.

So again, when you're looking up the growth of prescriptions versus revenue, now you've got a 2% increase, if you will, in the size of the prescription to add to the equation.

So 9 plus 3 plus 7 plus 2 gets us to 21% compared to the 24% in revenue growth.

So again, bottom-line conclusion for us -- it's not an inventory issue.

When we look at where Lipitor is at the end of the second quarter in 2005, we have 2.2 weeks on hand in the wholesalers, which is for us a very normal, consistent level for a product like that.

And by the way, the same as it was in 2004 -- same inventory, 2.4 weeks.

Everybody got that?

Obviously missing from the list of performers this year vis-a-vis last year and after a declining performance in late '04 are the COX-2s.

Obviously, Bextra has been the strongest in the market.

But we do see that Celebrex's prescription market share is improving.

In addition, we're seeing a growing body of clinical evidence to support the safety of Celebrex and regulatory affirmations around the world.

The year-to-date revenue -- this is not quarter -- year-to-date revenue for Celebrex is more than $800 million.

We've seen an affirmation of support from EMEA and Health Canada for the use of Celebrex with new -- of course, addition of new warnings and contraindications, which you would expect given all the regulatory hoopla around the world.

We're discussing still with the FDA the new labeling for the United States.

Obviously this is still -- this has delayed our ability to have full field force support for Celebrex in the marketplace.

But we are very expectant and positive about our ability to turn the new labeling into an appropriate presentation of Celebrex to the health care decision makers to look at the complete benefit-risk information and to help patients get access to that data and that product.

So in the end, we still believe that science will prevail, and in fact, I think we're seeing more and more evidence that in fact, it is.

Looking at recent launches, obviously we are committed to launching new products and making them as successful as we possibly can and maximizing the value of our medicines for both patients and for shareholders.

The highlights of the first half include Lyrica launch.

Lyrica received FDA approval, as you know, for adjunctive therapy for adults with partial onset seizures -- epilepsy.

And that expands on its approval for the two most common forms of neuropathic pain.

So we will have -- so potentially we have 3 million patients in the U.S. who could benefit from this medicine.

We expect to launch Lyrica in the U.S. as soon as the final DEA scheduling is received.

We have not received it yet, although we expect it will be a 5 -- category 5.

And it will build on the recent success we've experienced in virtually every other market where the product has been launched -- UK, Germany, Mexico -- spectacular launch experiences.

I just was in Spain and they again have had an incredibly powerful launch of the product in that market.

So, these are very, very good, sterling examples, and the U.S., I'm sure, will follow.

The clinical program for Lyrica continues to produce compelling results -- very, very powerful results, including demonstrations that Lyrica reduces neuropathic pain as early as day one following the beginning of the medication.

As you know, Zmax, our single-dose treatment for mild to moderate acute bacterial sinusitis and community-acquired pneumonia is being approved and we will launch it this summer.

Its single-dose demonstration will be obviously the most simple and easily administered antibiotic in the marketplace, and it's administered in the doctor's office, so the compliance is virtually assured.

Macugen has been launched now for three months.

It ranked as the number one medicinal therapy for neovascular age-related macular degeneration, as we've measured by doctors' claim share, which seems to be the only real mechanism we have to make sure that doctors are using it and they are getting reimbursement.

So, those -- that claim share refers to claims submitted by physicians for reimbursement for those products.

And that's the metrics that's used for these in-office-administered medicines in general.

Revatio is going to be available soon for pulmonary arterial hypertension.

As you know, this is a small disease in terms of frequency, but deadly, high medical need, and a very, very important addition to physicians' armamentarium.

Looking at clinical highlights for our products, we've had a very active six months -- many publications, great presence at some of the key meetings in medicine, including the ADA, ASCO and the American Psychiatric Association.

We're also seeing completion and rollout of even more extensive clinical trials and probably the most in the industry.

So, obviously, as you know -- well know, this is the platform for our future growth.

The clinical database, which is broad and deep, is the platform for new growth for our medicines.

With Exubera, we've seen three studies that showed very, very effective sustained glycemic control -- well-tolerated in patients for over two years in adults with Type II diabetes.

A fourth study showed that three months of Exubera was very well-tolerated and as effective as an injectable short-acting insulin and in achieving tight glycemic control for type-1 diabetes.

We have Type II data, extensive data -- we have less data in Type I, but we're moving forward with accumulation of clinical data support.

Sutent, which I will ask John to talk about in a few minutes, as you know, is a very, very promising oncology product.

It looks very, very powerful, very effective.

It prolongs the time to tumor regression in patients with GI stromal cell tumors resistant to Gleevac from 6.3 months on Sutent versus 1.5 months when you're on the control.

So, a dramatic improvement in life extension and reduced risk of death by approximately 50% versus placebo.

This is a very, very impressive and powerful medicine.

We've also seeing evidence it works in other cancers as well.

And John, would you like to talk about it?

Yes, we tend to get this question each one of these sessions, so I guess we'll deal with it right now -- is the Sutent program is a very high-profile program in our portfolio.

I can tell you this team is working very, very hard to get this filed as soon as possible for the obvious benefit to cancer patients, and it is one of the top-priority compounds we have.

And we haven't filed the NDA, but we're working pretty hard to do just that.

And we're prosecuting not just this program, but other programs, like renal cell carcinoma, breast cancer and the like, because we think this compound has got a tremendous potential across the board.

So still a high priority; nothing untoward has happened to this program.

If anything, the news continues to get better and better and we're working pretty hard.

Clearly the oncology is an important part of the future of Pfizer.

Looking at Lipitor, we continue to build the wall of clinical evidence for this incredible product continues to grow based on its efficacy and outstanding demonstration of clinical benefits.

You've probably all heard about the Treating to New Targets study, which looked at the cardiovascular benefits of lowering LDL well below current guidelines.

In fact, the guidelines are being driven down as a result of the work that we've done.

Key to that was the subgroup analysis of TNT, which shows that patients with diabetes -- and this is a supplement to the CARDS data -- who have taken high doses -- 80 milligrams -- of Lipitor lowered HDL -- to lower their cholesterol experienced significant additional cardiovascular benefit.

So it's another example of the effect in these high-risk patients -- diabetic patients have extraordinarily high risk of problems with cholesterol.

An important result this past week was that the Australian government reviewed the data on clinical benefits.

They've looked at the whole database that we submitted to them.

As you may or may not know, they were making a decision relative to creating a reference price to generic Simvastatin.

And they have concluded that Lipitor is more effective than Simvastatin at lowering cholesterol and recommend that it not be subject to a mandatory price reduction, which is going to apply to generic Simvastatin.

In looking at the pipeline, and John will speak more to that in a few minutes, we believe fervently that we have the best pipeline in the industry, and oncology is a growing and important part of our business.

We're still on track to reach the 20 filings by 2006.

Sutent is obviously one of those.

Indiplon is another.

As you've heard, we have submitted for immediate release; that's been accepted.

And action on the NDA for modified release is expected shortly.

Obviously, Indiplon has a broad opportunity for use.

It treats multiple aspects of insomnia and symptoms associated with it.

At least 70 million Americans are candidates for -- have problems with mild or severe insomnia and could be candidates for Indiplon.

Oporia -- we've been asked about this already this morning.

That's lasofoxifene, as you know.

The regulatory review is progressing for this product and we're looking at it for indications of osteoporosis prevention and vaginal atrophy, and that is moving along.

Exubera, partnering with Sanofi and Nektar, as you all remember, it's our inhalable human insulin.

This is actually the first breakthrough in insulin delivery since the invention or creation of an injectable insulin.

So we have seen that -- there is huge market opportunities here, not just with insulin-dependent -- with those patients who are Type II who postpone putting themselves -- or their physicians postpone putting themselves on insulin -- it's because they don't want to take the needle.

It's a very big market sector that -- where inhalable insulin in the form of Exubera would be a very, very promising candidates.

So, there's a great opportunity from a market perspective there.

Maraviroc is our Phase III development product for HIV.

It's a CCR5 co-receptor antagonist, as you know, and it looks very, very strong so far.

John, do you want to talk on that?

I would say that again, that's another high-priority compound for us.

We realize that there is a bit of a competition in the industry, not only with ourselves, but a couple of other companies that have CCR5 antagonists.

We believe we're still in the lead with a superior agent, and we hope we will be the best team to win.

Everyone wants to always know about torcetrapib/atorvastatin.

The only news in this quarter, besides the fact that it's moving along -- the clinical program is moving along quite nicely is that we're now in production at our $90 million plant expansion in Ireland.

So that, obviously, I think gives credence to the fact that we do expect that this will happen.

We're spending the money on manufacturing facilities in order to be sure that we are ready when the product is approved.

And you've all heard about the proposed acquisition of Vicuron with the two promising anti-infectives that are currently in regulatory review already.

So we picked up two very -- potentially very important candidates in anti-infectives with that potential acquisition.

As you know, it has not been approved yet, so it's just a planned acquisition of this company.

In terms of health focus, as we look beyond the discovery, development and distribution of our medicines, we also care about how people get access to our medicines at the price they can afford.

So we have a variety of programs geared towards -- that are geared toward healthy focus, which is in keeping with our overall approach that Hank talked about and talks about it extensively in his book.

But it's very, very important that we move from being a pharmaceutical company only into becoming a health player.

So we have a lot of initiatives that are geared towards that, including Healthy Directions -- you heard about our own employee program;

Know Your Health, which is a program geared toward helping people -- helping translate the arcane and difficult-to-understand doctor, physician and science language into user-friendly consumer-based language.

We also have several partnerships in order to ensure that patients can get access to our medicines.

We partner on Together Rx.

We partner with Pharma and many other partners -- 60 partners at least in partnerships with prescription systems.

As you know, we are one of the Medicare demonstration projects, and in partnership with Humana, called Green Ribbon Health for Medicare patients in Florida, and we hope that again will demonstrate the value of early prevention -- early intervention and in order to better treat these patients -- these Medicare patients who have much concomitant disease and often poor outcomes because they are not treated correctly.

So we are very excited about the outcome of that demonstration project.

And then we have global access programs everywhere for Trachoma, for Diflucan in South Africa, the IDI program in Uganda, which is a training program that allows us to help create a ripple effect -- a ripple of educators and doctors who can diagnose and treat AIDS/HIV on the continent of Africa.

It's been very, very effective so far.

Hank may want to talk to that later.

And we also continue to roll out our Health Fellows program, whereby Pfizer employees can go to the far reaches of the world and actually help on the ground in countries where health status is poor and they need more help and more guidance and consulting and on-the-ground work to get better access to medicines and better outcome for their disease.

So, that program is ongoing.

We have 50 people out there.

They come back; they are very invigorated.

They see the benefit that derives from what we do for living.

And that is a full range of activities.

And now I'm going to turn to Jeff to talk about public policy.

Thank you, Karen.

Good afternoon, everybody.

We obviously always will face challenges in the public policy environment, but as Hank said, there have been a number of positive developments in the last few months, and it's worth emphasizing where we see a lot of improvement in the operating environment and particularly in the legislative and regulatory arenas, and I'm just going to very briefly touch on a few of those.

First and perhaps most importantly, we're seeing substantial progress toward successful implementation of the Medicare prescription drug benefits.

For one thing, the basic premise to let the marketplace work seems to be proving out.

It appears that seniors and the disabled will have many choices of plans.

In Maine, for example, just to pick one state, they are estimating they're going to have 10 to 12 plans available in that state alone.

So the fact that patients are going to have ample choice among plans indicates that the Medicare plan has passed its first, most important hurdle.

The next hurdle, of course, is enrollment, and awareness and support for the program is increasing.

Recent evidence is that 58% of seniors are aware of the new prescription drug plan and are in favor of it.

And that's more than any other segment of the public, but of course, it's the most important.

It's the target audience.

CMS is working with a broad range of advocacy groups to provide seniors and the disabled with information on how they can enroll beginning November 15 in the plan that best suits their needs.

So, we're very encouraged by those developments.

The next bit of good news in this area is that CMS clearly recognizes the importance of broad access in the Medicare prescription drug benefit to critical medications.

For example, they recently announced that they are going to require every plan to cover substantially all drugs in a number of important therapeutic areas like mental health anti-retrovirals and chemotherapy drugs.

But beyond these required categories, as individual plans developed their formularies, we're very optimistic that patients are going to have broad access to Pfizer medicines, and perhaps more importantly, a meaningful benefit in general.

On another subject, the importation debate, I think there is increasing recognition that uninsured Americans can get access to safe and affordable medicines without risking the danger of illegal importation schemes.

In July, for instance, the Canadian Health Minister took actions that reflect their recognition in Canada that they can't become the medicine chest for the United States.

The Health Minister of Canada proposed changes that would ban wholesale drug exports from Canada to the United States and closed a loophole that allows Canadian doctors to countersign prescriptions signed by U.S. physicians.

There is increasing awareness of the safety issues created by cross-border movement of pharmaceuticals and the widespread problem of counterfeiting.

In the same month, in July, the Canadian authorities conducted a raid on a pharmacy in Ontario, for example, and obtained evidence that the pharmacist was selling large quantities of counterfeit Norvasc.

China is stepping up its efforts to deal with the very serious counterfeiting problem in that country.

The Ministry of Public Security there seized almost 2 million units of finished counterfeit product intended for export -- 1 million Lipitor pills, 0.5 million Norvasc and 0.5 million Viagra.

In the last six months, around the world, almost 4 million counterfeit units of Pfizer medicines were seized by law-enforcement and customs officials worldwide.

Clearly, counterfeiting and the safety issues presented by cross-border movement of pharmaceuticals has become too serious a problem for anyone to ignore or to deny.

And, more importantly, there are much better options for patients than risky importation of drugs.

The patient assistance programs that Karen mentioned are cheaper, more convenient and safer for Americans.

Our programs helped over 2 million patients get 10 million prescriptions last year.

And by contrast, many so-called Canadian websites -- websites that go by names like Canadian Rx or have the maple leaf on them -- are in fact importing drugs from a variety of countries around the world that are often produced in very unsafe conditions.

For most uninsured Americans, our patient assistance programs and the ones that we participate in that Karen mentioned give access to safe and effective medicines at prices lower than these illegal websites.

Medicare coverage, which I have already mentioned, is going to be far superior to importation and will go a long way to address the underlying issues of access and affordability.

And when that drug benefit takes effect in January, 14 million seniors who currently lack coverage will be able to participate in the program.

On another front, an area dear to my heart, the litigation environment is beginning to show signs of improvement.

As you know, after 10 years of hard work by the business community, Congress enacted class-action reform legislation, which will give us much more certainty and uniformity in defending the many class actions that target our industry.

In addition, many states with traditionally high concentrations of litigation against pharmaceutical companies, including us, have enacted very significant reforms.

In the last six months alone, West Virginia, South Carolina, Missouri, Texas and Georgia have all enacted significant tort reform.

And finally, clearly a strong, well-resourced expert agency, the FDA is something we very much support and is very much in the interest of American patients.

And we're pleased to note, as you are aware, that on Monday, the Senate confirmed Dr. Lester Crawford as FDA Commissioner.

This confirmation caps a year of his leadership through a very difficult time.

But it now allows the agency to provide stronger focus on its key mission, which is to make sure patients get innovative and safe prescription drugs and appropriate balancing of benefits and risks are made and that patients and their physicians have appropriate, meaningful information in making prescribing decisions.

So across those areas, as well as many others, we see a lot of significant improvements in the public policy environment in which we're operating and we're optimistic that will continue.

Now we turn to the important part of this meeting, which is your questions.

We do have some 250, 300 on the conference call, but I will start with two questions here and then go to those on the telephone conference.

Down front, Steve.

Steve Scala, SG Cowen.

First, a question for David.

At the analyst meeting in April, I recall you provided an expectation for sales growth in 2006, and I did not see that repeated in today's release, although there is cautionary comments on currency impacts.

Can you remind us of the revenue expectation you provided in April for '06, whether that has changed and what it has changed to?

And then secondly, a question for Dr. LaMattina.

You said at the April meeting that a morbidity and mortality study of torcetrapib may be required if the imaging data was not stunning.

Should we conclude that this is still the case and could you define stunning in the context of plaque?

For instance, is 1/10th of a millimeter at 18 months a stunning outcome in your view?

First, David.

Steve, as it relates to the sales growth, first I will confirm that operationally, nothing has changed.

Obviously, foreign exchange is fickle, and the current exchange rates negatively impacting 2005 and would impact 2006 and 2007.

Strategically, we talked about and we still believe strongly in the fact that we're going to turn the tide here in terms of loss of exclusivity versus the contributions being made by both the growth of inline products and the contribution from new products.

While we're looking at double-digit growth in terms of adjusted diluted earnings per share for 2006 and 2007, productivity initiatives will be a key driver in 2006, along with the contribution of revenues, but the primary driver in terms of growth will quickly turn to revenue growth, not cost efficiency, over the planning period.

We're not looking askew at the cost savings that we expect from Adapting to Scale, but we know well that longer-term, this has to be a topline-driven company and we fully expect that that in fact will happen.

Just to add to that, David is correct in splitting his answer between operational, meaning at constant -- at current exchange rates versus exchange, and it's certainly true the dollar has strengthened significantly since we last met.

But we are seeing strength in underlying operations, and what we haven't seen yet is the approval of the new Celebrex labeling and our relaunch of Celebrex and the launch of Lyrica here very shortly.

So there's some reason for optimism here on the operational side here.

What the exchange rate is 18 months from now, I have no idea, which is why we do everything at constant exchange rates.

So, clearly, at this point, weakness in exchange is certainly at the income line being offset by overall strength in operations.

So long-term, that should be good news since I'm assuming the dollar won't strengthen forever.

John, what is stunning?

It's in the eye of the beholder, actually.

And unfortunately, we're not the beholder here; it's the FDA.

What I was trying to do, Steve, in April was moderate some things I was beginning to read in various analyst reports about the eye of the (ph) studies will simply be enough to get approval.

And we don't have a guarantee in that regard.

A lot will depend on the results we see and how meaningful that is.

Remember, we're comparing with Lipitor, which itself is a pretty good compound and will provide some beneficial effect there.

We don't have any agreement that says if it's 10% improvement over Lipitor -- 20, 30, 50%, whatever, that we would need to have the morbidity and mortality studies as well.

So we'll have to wait and see what the results are and then work with the FDA to move forward.

The epidemiology and the theory is strongly on our side, but the FDA wants more data than that.

Hopefully, an advisory panel of physicians who treat real patients will see this for what it is, as a major opportunity to reduce cardiovascular risk.

Okay, one more from here and then go to the phones.

Tony?

Tony Butler, Lehman Brothers.

Thank you, Hank.

David, two questions and then one follow-up for Dr. LaMattina.

When you consider the ATS program, does this imply a permanent cost reduction, which I think when you run a 4 billion is a 12% reduction in overall cost?

And secondly, when you consider the overall cost to implement, you're alluding to something around $5 billion.

Is that cash?

Is that all cash or is it part of non-cash or all for asset impairments?

And then for Dr. LaMattina.

Again, when we consider double-digit earnings growth, clearly one of those factors is very strong Lipitor growth next year and beyond.

But the real issue, then, that many people question is how does Lipitor fare when Medicare in particular thinks about generic Simvastatin?

And with IDEAL coming on board I think later this year, how do you think that this product is positioned today and will be different next year when you witness generic Simvastatin?

Thank you.

Tony, handling the second part of your question, in terms of the cost to implement.

First, I would like to highlight the fact that we've reduced that pretty significantly from our first guesstimate on the basis of having a lot more tangible an understanding of exactly what we're about to embark upon, and in a quickly -- quick time frame.

I'd expect the vast majority of the 4 to $5 billion, although not exclusively to be cash cost when the day is out.

As it relates to the ATS cost savings, I think it's important to parse this.

There's a certain level of activity we need to carry on on behalf of the Company.

And we expect to be able to reduce the cost of carrying that out, all other things being equal, by the $4 billion on an annual basis by 2008.

And again, let me reinforce the fact that the vast majority of that is going to come in 2006 and 2007.

As a separate exercise, we need to take a look at the ups and downs in terms of what we need to finance the ongoing operations.

That doesn't mean that overall expenditures will go down by $4 billion.

How much it will go down or up will be a product of the cost savings for carrying out the current activity and then combining that with the investments we have to make in terms of supporting especially the inline product portfolio and its growth and the new product potential.

Maybe just let me restate that a little bit.

I'm very skeptical of what I call phantom savings -- expenses you save because you would've spent them and now you're not going to spend them.

We're actually tracking this back to our 2005 base.

This is $4 billion out of the base.

Now, from there, we do plan to grow expenditures on marketing support, on research, probably more or less in line with our revenue growth.

We manage our business that way every year.

That won't change.

But these are real savings.

These are not phantom savings.

This is money out of the base and it will grow over time.

And on Lipitor versus simvastatin, we've already run that experiment.

We face generic simvastatin in a number of parts of the world and we're doing just fine, thank you.

The one exception is Germany, where the government made a bad decision, and we're hoping to get that reversed in time.

Australia, to the contrary, just confirmed that Lipitor has significant benefits over simvastatin, and we will end up with a price premium in Australia.

But there is also new clinical data coming, which is a head-to-head study, which John, maybe you want to talk about.

Well, I would say that since 1997, when Lipitor was first approved and marketed, we've spent over $700 million in clinical programs to differentiate that Lipitor shows, in fact, the best statin.

And studies like TNT and CARDS have proven that dramatically, such that there are now editorials in various leading medical journals talking about based on TNT, should now the national cholesterol guidelines not be 100 for LDL, but be 80?

Based on the CARDS results, should all diabetics now be on Lipitor as a result of what we've seen?

So, to a certain extent, I feel we've already done that.

I think the data, hopefully, that we continue to generate will continue to support that difference.

I don't know if there's anything you'd like to --

Do you want to talk about the Medicare change that roll out and that may change that (multiple speakers)

Well, I think it's recognized that Lipitor is most commonly used medication -- branded medication in the Medicare population today, even before the benefit.

And as a result, most of the plans, all of which we have been in serious negotiations with, have actually been asking us to make sure that Lipitor is available on their formulary for marketing purposes because that is going to be a primary attractant of these Medicare eligibles to their particular plan.

You heard Jeff talk about how maybe in Maine, which is part of the northeastern Medicare region, that there may be 10 to 12 different plan sponsors competing against each other for the Medicare eligibles in that area, and all of them are competing for us to give them Lipitor so that they can market that as one of their primary available offerings.

I'd also point out, too, that much like Hank stated, we actually already face generic simvastatin in the U.S. market.

They just call it Vitorin and try to add Zetia to it as a way to make a cent (ph).

Pat is the President of Pfizer U.S.

We will go to the phones and I guess we know how to do that.

David Buck, Buckingham Research Group.

Thanks.

You mentioned a little bit about Exubera.

Can you give us the status of where the negotiations with Sanofi stand in terms of the -- who will be doing the marketing and the actual promotion of it?

And what is the wish of Pfizer?

Would you prefer to have full rights to that?

Is it just still in negotiation?

Give us an update there.

Thanks.

Well, David, as both parties here have announced, there is a change of control agreement between what was then Aventis and Pfizer which provided us a number of options in the event of a change of control.

A New York court has just determined that a change of control has occurred.

So, we do have rights now under that change of control agreement.

We are in discussions with Sanofi, as Sanofi has confirmed.

And when we reach any decision there, we of course will announce it.

We're not going to comment on the negotiations as they go along.

But maybe it would be worthwhile, John or Karen or Joe, updating us on the regulatory status of Exubera.

I would simply say the regulatory process is going very well.

You have to remember, this is probably the most complicated filing we've ever made because we're dealing with three different agencies -- metabolic, allergy and respiratory and devices.

And so, this is not going to be a trivial review process.

This is going to be pretty involved and take some time.

Now, having said that, things both in Europe and in the U.S. are proceeding well and there haven't been any hiccups that we've seen to date.

One more from the phone.

David Moskowitz, Friedman, Billings Ramsey & Co.

Appreciate it and good afternoon.

Number one, could you guys talk about the rationale of the Vicuron acquisition? $1.9 billion for products that we calculate somewhere around 500 million in peak -- a price of 75% above the market price.

Some feel that you paid too much.

Can you talk about that, number one?

Number two, the Medicare drug benefit -- last quarter, Hank, I believe you said that the Medicare benefit would have a neutral effect.

And based on the comments I heard, it sounds like it's moved to be a little bit more positive for the business.

And then lastly, the gross margin, I have to ask one question -- in the quarter, did Bextra have an impact in terms of any write-offs?

Thank you.

Okay.

On Vicuron, yes, it was a high price, certainly compared to the price the day before the announcement.

It was not actually that much of a premium to where Vicuron was a year ago.

It was competitive.

We won by a very small margin, and we're very pleased to have it.

These two products, as I'm sure many of you realize, are right in our sweet spot.

These are products that we know the opinion leaders; we know the customers.

We're marketing products in those categories already.

We're going to do just fine with those, and I think just as we surprised with Diflucan a decade ago and just as we're surprising people with Vfend currently, I think you're going to see a lot more revenue potential from these two products than your estimate applies.

On the Medicare prescription drug benefit, it's frankly too early to tell.

Any time more people get more access to modern medicine, I think that's a win for all of us.

We're going to have to wait and see the first-quarter, second-quarter enrollment and update numbers, but almost certainly, this is a positive for the marketplace.

There's more money coming into the market.

We do expect more people to have access to medicine, and that, I think, will result in significant improvements in health; therefore, lower health care costs for the government long-term.

So this is one I think we're going to see a very positive impact from, for everybody -- patients, payers and providers.

And David, your favorite question on gross margin?

Well, as it relates to the asset write-off impact related to Bextra on gross margin, the answer is no, it didn't have an impact on the quarter.

On the other hand, the lower production volumes attendant to losing the sales and obviously the production activity of Bextra did have an impact and will have an impact in 2005.

So, no write-offs, but a volume effect.

Okay, we'll come back to the room.

Yes?

Dave Risinger from Merrill Lynch.

Two questions.

The first is on -- it's an FTC question regarding settling litigation.

With respect to major U.S. patent litigation, specifically Lipitor, if you changed your mind and you did want to settle with Ranbaxy, could you do so on reasonable terms, or would the FTC preclude that?

And then second, could you just comment on the upcoming FDA Drug Watch safety website that's going to be established, and provide some thoughts on that?

Thank you.

Do you want me to take the first one?

It's very speculative.

The law in this area is changing all the time.

There have been some new cases recently.

I think you may have written about -- or others have here.

It's an evolving area.

The law, it depends, frankly, on what part of the country you are in because different circuit courts have come out with different results and you'd have to look at any given deal and exactly what its elements are and analyze it on that basis.

So it's really a pretty speculative question.

And there's really no value in saying in the absolute terms whether it would or wouldn't work.

It would depend on the deal and the specifics, what court you're in and so forth.

Hypothetical question.

On the FDA Drug Watch list question, I'm going to ask Peter Corr to give you a little background on the specifics here.

But the principal is any information of relevance to a prescribing physician we're going to make available.

And I do think with respect to the safety data, I think the media has a special responsibility here and what I'm afraid of is they're going to dredge through all those studies and focus in on the small number of cases of side effects, and frankly scare a lot of people.

So I do think the media needs to recognize that they have an important responsibility and they should be informing the public, but not in a way that terrorizes the public.

I think Hank has answered most of the question.

But there has been on their website for the past several months a listing of products that they have concerns about.

And in some cases, those haven't been discussed with the sponsor until after they've been posted.

I think going forward, what Secretary Levitt indicated and I believe, although I'm not certain that this is agreed to by the new commissioner, Lester Crawford, that new drugs that there were concerns about that there would be a discussion with the sponsor, and then it would be listed there.

And to Hank's point, I think it can be a positive if there is true data that indicates that there may be a problem.

But there shouldn't be speculation based upon signals and then that put out to the public, because that will concern people in the wrong direction.

What is not well understood is for decades, all pharmaceutical companies have been under a legal obligation to file the results of all studies with the FDA.

So the presumption was that the FDA was the arbiter of safety and efficacy with access to all the information and the medical experts at the FDA.

We seem to be transitioning now to that becoming the role of the media, and we are okay with that.

We are prepared to defend our products in the public domain.

But there is a special responsibility on the media here to act responsible.

David?

I just wanted to confirm your statement you hadn't filed both for Gist and Ferino (ph) or were you talking about (multiple speakers)

We haven't filed anything yet.

We're working very hard to file for everything as the data roles in and we're ready to do so, but we're not there yet.

Do you imagine it will be a simultaneous filing for both (multiple speakers)?

We -- sorry.

We understand that many of these questions are directed to smaller companies with competitive products, and number one, we're not going to announce our filing plans.

Once the application has been filed and accepted, if there's no other unusual circumstances, we will announce an accepted filing.

But we're not going to speculate on future filings -- not particularly material to us, but we understand it is very material to smaller competitive companies.

Why go there?

We would rather surprise them.

Yes, Nile, down front.

Neil.

Sorry.

Neil Sweig at Caris.

What catalyst should we look forward to in '06 or '07 that might tell us that you need more than $4 billion in cost savings?

Because when we run through the numbers, given the huge size of this Company, it just seems to me that considerably more than $4 billion can be done for this Company and not waiting until '08 to come to that decision.

I think that is your retirement here, is it not, Hank?

Possibly.

So, not looking out too far -- let's say 12 months or second half of '06, what should we be aware of that is going wrong as you announce that we're going to -- the Company is going to add more to the $4 billion in anticipated cost savings '05 into '08?

Well, Neil, a couple of things.

One is our plans do not indicate we need more than $4 billion to achieve our announced goals.

We also recognize that sustainable greatness doesn't come from cost reduction.

It comes from the topline -- something that we are particularly good at doing.

And I do think that the opportunity in this pipeline is far greater than maybe we needed to offset the products that are off patent.

And having said that, some of the world's biggest products are going off patent here.

So, it's the strength of our pipeline that drives our confidence.

Watch the launches.

We're launching three in the next -- well, launching two and relaunching one in the next few months.

The uptake of Lyrica is going to be a clear indicator, and based on what we've seen elsewhere, that will be -- that should be a good positive indicator.

I would also add, don't be surprised if we do exceed the $4 billion.

I've always said around this place, be careful what you ask for because you're going to get a lot of it.

And we are really getting some very innovative proposals coming forward from the organization in terms of doing things faster, better, cheaper or doing things in quite different ways to transform the way we do business.

We're not forecasting anything over $4 billion.

But if this effort yields over 4 billion, I would not be surprised by that.

But it's not going to come from kind of nervousness about the future and we're going to be targeting more now.

But I think we've got that on the topline.

That's really the way to build a great company.

Yes, and then I'll go there.

Chris Shibutani from J.P. Morgan.

Two questions tied to comments you've made using the word realignment.

One is on the R&D side and the other is on the spending.

On the R&D side, you talk about realigning how the development and the research occurs more around disease areas.

Forgive me if this seems very oversimplified, but that seems very fundamental.

How much does that represent a change and how does that actually improve sort of the platonic question of R&D productivity?

And then on the sales side, you comment about a realignment around the proposed districting tied to Medicare Modernization Act.

I guess my impression is that we're not hearing that from competitors.

Again, how does that realignment give you sort of a strategic or competitive advantage and kind of -- I might be missing it, but why are you doing that?

Those are actually insightful questions.

Like every other pharmaceutical company, we have discovery sites.

We do development on a global basis.

We have medical departments; we have marketing; we have sales forces.

And as a product moves through its lifecycle, there is multiple handovers from the discovery organization to development, development to marketing and sales -- manufacturing is in there somewhere, obviously.

There are a large number of handovers as product moves through the lifecycle.

We're not exactly turning the organization on its side, but we are organizing by therapeutic areas so that the metabolic disease area -- we have six or eight.

I forget now -- how many do we have?

We've got two more than that, actually.

Okay, whatever the number is.

A big number.

We're aligning all the way from discovery to development to marketing to sales, so that as we do planning -- as we do acquisitions, for example, we have in the room people from discovery who understand competitive patent filings and where the technology is to the medical and marketing people, who understand the medical need, and we do that by therapeutic area.

It's not yet an organizational change, which is why we call it a realignment.

We're aligning our resources the way the work is done.

So we think it's an important step forward.

We're generating an enormous amount of excitement and innovation in the organization, and it's really working.

It's early days, but it's something we've been working at for quite some time, and we just kind of formally launched it internally this time.

On the realignment of the field force, that is a realignment.

People are moving.

We're changing districts.

Medicare -- and Pat, I will ask you to comment a little further -- Medicare will have regions on in January.

We want our sales force to match those regions.

We also want to align or realign our sales effort to individual doctors, so they see fewer sales representatives and we actually end up delivering more details as a result of this alignment.

We think both are going to be major competitive advantages.

Pat, on sales force?

Not much more to add except that the other benefit is, as Hank earlier stated, is that that alignment will not only occur to Medicare regions, so a geographic alignment, but it will also occur, as he just stated, to a customer level.

So we're realigning how many representatives we have calling on any given primary care physician.

And then the third way is we're also realigning into therapeutic area clusters, which sets us up to be in line with the entirety of the rest of the organization.

All of these things I think are a further extension of our already pre-existing competitive advantage in this area.

Pfizer's field force has been rated number one by these same physician customers for the last 10 years in a row, and a lot of that has been because we have made these kinds of adjustments to better meet their needs.

This reflects a further extension of that effort.

And this sales force will be in place by the end of August.

So we are a formidable -- a formidable competitor is becoming more formidable.

Yes, right behind here.

Catherine Arnold from Credit Suisse.

You have told us that you plan to decrease your manufacturing facilities by 25% and you tell us of progress in the press release today.

Would you give us a sense for what contingent of that 25% you have already accomplished as of now and where you will be at the end of next year?

Is Matt here?

I guess -- I didn't see him -- no.

Our head of manufacturing is probably off closing plants somewhere.

We have announced a large number of plant closings.

As you might imagine, that takes time, because to move -- to close a plant, you have to move the production somewhere.

And we're not just going to start stop producing stuff.

So, moving the production means reregistration in a new location in a new approved plant.

That usually is a two- to three-year process.

So we have the network drafted.

What we haven't done is announced the whole network, because that would mean announcing to the public before people in those locations already know.

But so far this year we must have announced, what, seven or eight?

And we're going from -- already closed four; we've announced another four or five.

I think we're going from 93 to 70?

Is that the order of magnitude numbers?

So it's -- yes, it's about 25%, that's right.

But what we'll end up with are more modern plants, more dedicated plants so we don't have as many different products.

It will be a much more efficient manufacturing network than we have currently, which should improve profitability over this period as well.

Way in the back.

It's Jami Rubin with Morgan Stanley.

The comments in your press release targeted towards the Pfizer Global Research & Development division would suggest that you are targeting significant cuts in R&D spending going forward after 2005, streamlining decision-making, concentrating your resources on products with the highest probability of success.

That all tells me that you are going to significantly reduce the amount you spend in your R&D going forward.

Is that the right way to look at this?

What are you trying to tell us?

Thanks.

No.

What we are actually doing, and I will ask John to comment on this, we are reducing the cost of doing research quite significantly, and if we are successful in what we call ATF2, the Attrition Task Force, second version, we're going to have a dramatic impact on productivity, which will lower the cost of research.

The activity level, which is what you should be worried about, is actually going to be far higher.

John, could you add a little flesh to those bones?

Yes, I thought that this question might come up as you read that we're cutting R&D as a result of trying to make cost savings.

And in fact, as Hank said, what we did was we went to our organization and asked, are there better ways of doing things?

Not even just simply, but more efficiently that we can do more with the existing budget that we have, which having over $7 billion in R&D is sort of a nice luxury in many ways and enabled us to do an awful lot of things.

Coming back to Chris' earlier question, one of the things we found by the reorganization that we're doing is previously we were really site-focused, with all sites having all aspects of R&D, and by going to a therapeutic area focus and going to centers of emphasis, where we have certain centers that will do certain support work for the entire organization across the globe, we found tremendous savings that can be envisioned -- doing our clinical trials somewhat differently; also going through a different philosophy in terms of our bulk production.

You know, bulk production in terms of early clinical trials.

We had a philosophy that every compound was going to make it and every team was pretty bullish, and we tried to do as much as we can upfront.

As excited as we are about all of our programs, we realized that there is some certain degree of attrition going forward and so we've tempered our -- how much we invest in programs early on to get something as rapidly as possible to proof of concept.

And once we've gotten proof of concept, then let in the resources to move things more quickly.

It is stunning how much money we can actually save by doing things in that nature.

We refer to it more as a biotech paradigm, so to speak.

And I think we've already started to adopt that and I think we'll see some greater savings along the way.

One more point in all of this.

People talk about size and scale, and sometimes it's looked at in terms of slowness or plodding.

I can't begin to tell you how much savings there are that you can take out in scale as you begin to take a number of companies down and focus and the like.

I find it hard to believe that the kind of savings we're seeing and generating as a result of our scale won't translate to others in the industry trying to do the same thing.

I think the amount that we'll be able to spend -- the amount that we will be able to use in our spend far more efficiently than we did even before the pharmacy acquisition is amazing.

And I think that's the way to go in the future, for at least big pharma.

The way I think of division of adapting to -- or adapting -- the efficient task force is that we can take our 98% failure rate to 96%, we will have doubled productivity.

Now, the heart of your question -- does that mean we're going to cut our costs in half?

The answer is no.

Our goal is to double the output from research, spending what we now spend and more.

So the goal of all this is not cost savings.

It's to make the organization more efficient, more effective and get more product out the door, which is what -- those products that patients are waiting for.

So the goal here is not just cost reduction.

You will see some cost impact on the P&L.

But a lot of that is going to come through in greater survivability of the candidates we take into development.

And in fact, one of I guess my fears here is if we are successful, we're going to see a lot more spending on the early- to mid-stage pipeline than we're even now anticipating.

And if that happens, I'm going to let it happen, because I think that is our future, and if we end up for a year or two with not a big number -- maybe 1 or $200 million of additional spending in research because we have even more candidates surviving than we had planned for, that's a really good thing.

It's a bad thing in that year, but that's the way you build a great business.

Will you all write that down for me, please? (multiple speakers) I can remind you of that (multiple speakers)

I said a little more, John.

I used to kid John that he had an unlimited budget, and every year he overspent it, but probably not true anymore.

Let's go to the phones and see if we have any questions there.

Michael Caster (ph), Sanford Bernstein.

Thanks very much.

When I listen to you talk about the productivity initiatives that are going on, they strike me as things that should go on in the normal course of business.

Can you talk a little bit more as to why the 4 to 5 billion that you're going to spend getting these productivity initiatives are not included in the earnings and why there won't be continued spending to continue to maximize your margin going forward beyond 2008?

Well, you're right.

These to some extent are normal course of business.

You're always looking for ways to do things faster, better and cheaper.

I would only remind you that over the last five years, during the Warner-Lambert integration, we took out $4 billion; during the Pharmacia integration, we took out $6 billion.

So, we've taken a lot of expense out of the system already.

The reason we've made this a special initiative is yes, in part we need the cost savings to produce reasonable profit growth during these two years of transition, but more importantly, we see a great opportunity, having been through two massive integrations, going back in now with people who have now had a number of years in this restructured organization who have just seen better ways of doing things.

This is something that was not really driven top-down.

It did bubble up from the bottom.

And I don't know what the count is on the website requesting or suggesting improvements now; a month or so ago it was 2000.

We're getting enormous input from the organization, telling us there's a better way to do this.

And the significance of what we do is not lost on our colleague.

They do see, for example, our national sales manager in the United States, having died of cancer last week after a two-month struggle with cancer -- 63 years of age.

It's clear what this organization is all about -- it's helping people like that live a longer, happier life.

And the ideas that are coming forward are very powerful.

Do you know the latest number, David or Karen?

One of the things I would like to reinforce here, and maybe this is getting missed in the message that we're putting out externally, is we're asking the organization not to just get better.

We expect that on an ongoing basis.

What we're recognizing and what we're accommodating is for the organization to do things in some respects dramatically different than it is today.

We can't scale up and continue to scale up the way we've done in the past to accommodate the growth potential of this company.

That's why we will reorganize.

That's why we will realign various major functions.

That's why we will dramatically reduce the infrastructure.

That's why we will drive regionalization and standardization of what we're doing in the Company so that we can bolt-on and bolt-off the things that we have to bring into the Company.

So this is not business as usual.

It's well understood by the colleagues.

I think they are energized by the fact this is an opportunity to change in a direction which can have a dramatic impact on the Company as a whole.

Jon talked to you about some of the things in research -- reducing the number of data centers from 17 to four.

That's not business as usual.

Reducing the number of manufacturing operations to over 90 to less than 70.

That's not business as usual.

And you can't accommodate this unless you change the way you operate.

The great benefit of our Company is not only our scale, but the great talent and enthusiasm and courage we have in the colleagues of the Company who are willing to do this and in fact are enthusiastic despite the fact that this is emotional and difficult to accomplish.

And I want to make sure that's not being missed in terms of what we're looking to achieve here, and in fact, the plan that we've put together clearly has that implicit.

Okay, phone.

Robert Hazlett, SunTrust.

My question is on Celebrex.

Regarding the field for support and the label negotiations, if you can give us any additional clarity as to the timing of your discussions and the potential for resolution with regard to the label, so you can reengage the field force, and if you could also remind us as to the additional clinical data that is coming out in support of that franchise over the long term?

Thank you.

Karen, do you want Susan Silverman to handle that?

I will speak to the label.

We're negotiating as we speak on the label for Celebrex.

And we don't have a final labeling, but we know what the issues are, and so we frankly are disappointed that it has taken so long because we wanted to do it immediately after the advisory.

But it's moving along and we will have the label very soon.

And I would like to ask Susan Silverman to talk about the clinical data that we're seeing coming out, which again I think portends well for the future of Celebrex.

Good afternoon, everyone.

We're working on revising our entire clinical plan for Celebrex.

Obviously the data and the information that we have received over the past 10 months have made us rethink our clinical program, so we can use the strength of the science we have to move forward in pain and inflammation.

One thing I can say is in the last 10 months, the number of people that have arthritis haven't changed.

So, they definitely need drugs, and we're doing the best, as Karen said earlier, to make science prevail.

We're doing a lot of work to make sure we have data to support our package.

We're relooking at the data we have.

We have tens of thousands of patients in the database.

I think you'll be seeing new data soon.

Our major studies will probably kick off towards the end of this year, once we have the label final.

So those won't have data for a number of years.

But we will have other smaller studies that we'll be starting -- we'll be reading out over the next four to six quarters.

Yes, there is some reason for optimism here.

Remember what has happened already -- the FDA found no difference in cardiovascular risk between Celebrex and the traditional nonsteroidals -- naproxen and ibuprofen and diclofenac.

The FDA also concluded that the benefits of Celebrex outweigh its risks and that Celebrex is an important treatment option for patients with pain.

All of that will be reflected in the label.

Celebrex also, according to the FDA, does not cause heart attacks and strokes.

So all of that will be in the label that will give us the chance with the new data that is now available or shortly to become available to relaunch Celebrex.

And I think there is some real reason for optimism here, not only for our revenue line but the patients suffering from rheumatoid arthritis and osteoarthritis.

I'll take one or two more from inside, and then our time is up.

Yes?

When we think about your cost base and the 4 billion that you're going to take out, how should we think about just normal inflation on that cost base, not associated with any topline growth you expect to achieve?

Well, inflation is not the key variable in the cost base.

We write checks for that cost base, so it's under our control.

The costs do go up a little bit year by year.

The complicating factor is this happens over a three-year period.

But if we're able to do it in the current year, it would be easy to understand, because costs would go down by $4 billion and then we would grow those costs over the next three to five years as we decide, which would be more or less in line with revenue and the opportunities for investment that we have.

So you will see the $4 billion reconciled back to this year's cost savings.

But we will then manage what's remaining based on the opportunities available for us to invest.

And you know, as kind of a rule of thumb, it will probably be pretty close to our revenue growth.

I guess another way to ask it -- if there is no topline growth between now and '08, and I know that's not your plan, but would your cost base at that point be $4 billion lower?

Yes.

Well, again, we would manage it, but yes, if we had no revenue growth, we probably would manage it so there was no cost growth.

But that is not our expectation.

We expect accelerating revenue growth through this period.

Okay, one more, I think, and then we're done.

We exhausted you.

Great.

Okay, Steve again.

I know you said that the Oporia review is progressing, but what exactly happened on the PDUFA date?

Presumably you got an approvable blotter pending something, but what is it pending?

So this is why we don't like to reveal what filing dates are because then stuff like this -- and I read various reports that start questioning something must have happened untoward in the program and like.

This is a pretty big filing, also another complicated one.

There are a number of questions that the FDA had.

We were very thorough in our responses to these questions -- so thorough and provided so much data that the FDA decided that this was now -- added far more data that constituted a new review cycle.

And so they've added three months to the review period.

And so no -- and again, this comes back to our reason for being somewhat less open about these, because this is the review -- common review things that happened in the course of these programs, and that's where we are.

So again, nothing untoward has happened just yet, but there's a lot more data that's been provided to the FDA and they need more time to review it.

Thank you all.

That concludes the session.

Thank you.