輝瑞 (PFE) 2005 Q3 法說會逐字稿

(technical difficulty) this third-quarter conference call and webcast.

I'm Jim Gardner, head of Pfizer's investor relations team.

Before we begin, a few housekeeping notes, please.

To avoid any interference with today's conference call, it would be appreciated if you could turn off cellphones, pagers, and Blackberries.

And in the unlikely event of an emergency for those in the room today, please follow the lighted exit signs located at the doorways.

These lead you to 42nd Street; these will take you to the lobby.

In those circumstances, please follow the fire director's advice.

Also before we begin, 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 and Form 10-K, and in our periodic reports on Form 10-Q and Form 8-K.

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

This 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.

Hello; welcome, everyone, and particularly those here on the webcast.

When we announced our results this morning, I sent a letter -- an e-mail to all of our colleagues telling them that the reaction to our third-quarter performance report was likely to be decidedly mixed, quote-unquote.

Mixed is actually a fair description of the quarter.

We posted results of adjusted diluted earnings per share of $0.51, ahead of your expectations and even ours.

Human Health revenues were down 7% in the quarter, due entirely to lost revenues from patent expirations and lower COX-2 sales.

Our adjusted Human Health revenues from products not affected by either COX-2 uncertainties or patent expirations were up 9% in the quarter.

During the past quarter, we continued our wave of new product launches, with Zmax, Revatio, and Lyrica in the United States.

We also completed the acquisition of Vicuron, which has two antiinfectives under U.S. regulatory review.

We saw positive regulatory action on Macugen and Exubera in Europe, and dalbavancin, Exubera, and Sutent in the United States.

And we completed the Phase III studies of varenicline for smoking cessation.

And we continued to use our scientific and medical capabilities to add value to our in-line products, including Lipitor, which now has a supporting wall of science second to none.

As Pfizer's leaders, we share your disappointment in some of the news we reported today.

A quarter with revenue decline is never easy -- not for a Company with a lot of pride in performance.

But beyond the quarterly numbers, we ask today that you look more deeply into the larger picture of a Pfizer in transition.

We ask you to look at a Pfizer making substantial measurable progress in dealing with the greatest magnitude of major product expirations in the shortest time in the history of the industry.

Our strategy isn't a secret.

It's to do what we've always done -- first and foremost, to maximize the value of the products we market today and to discover and develop new products.

We are also making Pfizer more effective and efficient, streamlining our Company and pressing the advantages of an industry-leading global scale.

We are aggressively exploring new ways to add value through our knowledge of health, health-care, prevention, and wellness.

In terms of the patent expirations we are now facing -- well, they're never a surprise.

In fact, you know the date for certain 20 years in advance.

We've been preparing for this period for more than a decade.

And we are on track in executing our plans to deal with these losses of exclusivity.

We understand your concerns in the short-term.

But we're pleased by the positive developments driving our potential for long-term growth.

Our path became a bit steeper in the past quarter, mostly because of lower-than-anticipated prescription growth in some of our key therapeutics markets.

The unknown right now is whether this slowdown is temporary or longer lasting.

That's one of the challenges we face, but that's what we do at Pfizer.

We face and meet challenges.

And meeting this particular challenge doesn't change our longer range strategy for dealing with this period of patent expiration.

Our plans are anchored in long-standing strengths.

These include a leading role in biomedical discovery and development, the best medical marketing organization in the industry, rock-solid financial resources and flexibility, unprecedented global reach, and a track record of creativity and reliability in partnerships.

I know you have a lot of questions, and we're going to address them.

I also know that you would like us to give you guidance today for next year and beyond.

We will do that, but not today.

My first rule of disclosure is that we will communicate after we know, which should be upon completion of our ongoing planning reviews.

So with that, let's get to a few reports from my colleagues on the executive committee here with me, and then to your questions.

First up is Pfizer Vice Chairman, David Shedlarz.

Thank you, Hank, and good afternoon, everyone.

I'll begin by reviewing our current financial performance and full-year 2005 outlook.

And then I will discuss our efforts to leverage Pfizer's financial strength and achieve greater effectiveness, efficiency, and cost savings through our Adapting to Scale productivity initiative.

For the third quarter of 2005, Pfizer revenues declined 5% to $12.2 billion compared to the third quarter of 2004.

Cost of sales continues to remain under pressure this year due to lower production volumes and changes in our geographic, product, and segment mix, among other factors.

Selling, informational, and administrative expenditures and R&D expenses taken together declined by 4% during the quarter, aided by the accelerated results of the Company's Adapting to Scale efforts and reduced operating expense.

And as a result of the change in the product and geographic mix of our income, we now forecast an effective tax rate on adjusted income of 22.3% versus the previous expectation of 23% for the full year.

Our third-quarter results reflect the year-to-date impact of this reduction in the effective tax rate.

For the full year, we continue to project a modest decline in revenues compared to 2004, although a somewhat larger decline than previously anticipated, reflecting lower U.S.

Human Health revenues.

This reflects the impact of the loss of exclusivity on key products, publicity and regulatory actions regarding selective COX-2 inhibitors, and reduced market share growth in the U.S. lipid-lowering and erectile dysfunction markets.

We now forecast 2005 R&D expenditures of about $7.6 billion.

And at current exchange rates, we are now forecasting 2005 adjusted diluted earnings per share of $1.92 to $1.94.

Reported diluted earnings per share in 2005 of $1.02 to $1.04 is now anticipated compared to a previous estimate of $1.24.

This change is due in large part to in-process R&D charges related to the Vicuron acquisition, as well as our reduced 2005 adjusted income outlook.

The forecast ranges for adjusted and reported diluted earnings per share reflect the impact of a number of factors and uncertainties.

These include, for example, changes in prescription growth rates in key therapeutic markets and geographies; our Adapting to Scale restructuring activities; the timing and rate of commercial acceptance of new product launches; changes in geographic, product, and segment mix of both our revenues and income; changes in foreign exchange; the timing of regulatory action; and other factors.

We are currently assessing these factors and other major variables as part of our normal annual planning process, and are now withdrawing our prior financial guidance for 2006 and 2007.

We will provide new forward-looking guidance after the completion of this year's process early next year.

As such, let me reinforce Hank's previous comment that as a result, we will be unable to respond today in the Q&A session to any questions concerning 2006 and 2007 financial expectations.

Pfizer is actively employing its strong, positive cash flow in the long-term interest of our shareholders.

The Company is both investing aggressively in promising new business and product opportunities and returning cash to shareholders through growing dividends.

Our Company has paid an increasing dividend every year for 38 years.

The current quarterly dividend of $0.19 per share continues the Company's commitment to return value to its shareholders.

By year-end, we will have repatriated nearly $37 billion in foreign earnings, thereby enhancing our great balance sheet strength.

Pfizer has purchased nearly 126 million shares of common stock, valued at $3.4 billion during 2005.

During the third quarter, purchases of common stock were reduced due to the competing uses of cash, including the Vicuron acquisition.

We remain committed to completing our currently authorized $5 billion share purchase program.

Pfizer continues to leverage its scale and strength to maximize the value of current products; discover, develop, and deliver new products; and explore new ways to create value.

Our Adapting to Scale productivity initiative seeks to unburden and streamline the organization, while at the same time generating $4 billion in estimated annual cost savings by 2008 and enhancing our ability to fund key investments.

Adapting to Scale spans all functions, processes, and geographies.

Beyond the initial cost savings, it is intended to have a (technical difficulty) impact by instilling fundamental change and how we do business plus strengthening our culture of continuous improvement.

And the initiative is proceeding very well.

I am especially proud of my Pfizer colleagues and the great initiative and courage they have exhibited in aggressively pursuing this difficult, but important, activity.

We are ahead of our target for 2005 cost savings, and now expect more than $600 million of savings this year.

Action plans are in place, and we have moved aggressively into the implementation phase.

Most organizational decisions from this initiative have already been made, or will be announced during the next few months.

With this rapid implementation plan, Pfizer can then focus on growing its business.

Savings will be realized in procurement, operating expenses, facilities, among other sources.

We expect the cost of implementing this initiative through 2008 to be approximately 4 to $5 billion.

As a transforming process, Adapting to Scale will bring significant changes.

And we are committed to making those changes in keeping with Pfizer's values.

Now, it's my pleasure to introduce Karen Katen.

Thank you, David.

Hello, everybody.

I am here to discuss the recent performance of our Human Health operation.

Last year, I told you that the market is tough, but we're tougher.

Since then, the market has gotten tougher still, but let me assure you -- so have we.

I urge you to look beyond the headline number -- and I know that everyone focuses on that one number -- to consider the events and complex activities that go beyond the surface.

And those are undertaken by thousands of colleagues around the world to address the present, and more importantly to all of us, the future of our organization.

As we have been saying for sometime now, the reality is losses of exclusivity and the COX-2 situation have had a significant impact on revenues.

These two factors alone account for a total worldwide revenue loss of roughly $4.4 billion year to date compared to the first nine months of last year.

There's no way around those facts.

But there is a way beyond them.

Beyond the headline is the fact that we have offset 90%, or roughly $4 billion of that decline, through strong organic growth in our core portfolio.

We achieved these third record results while asking our colleagues to maintain performance, despite the loss of exclusivity and the COX-2 situation and simultaneously retooling Pfizer for our future.

We have identified and implemented profound changes which we have called the Adapting to Scale initiative.

Adapting to Scale means virtually every aspect of our business is undergoing significant evolution.

As David mentioned, we are ahead of our AtS targets in the overall corporation and in Human Health, where the bulk of the changes are actually occurring.

Along with David, I am proud of what our colleagues have accomplished in research and development, in manufacturing, and the pharmaceutical business as announced in our release.

Considering the amazing efforts these Adapting to Scale activities demand, we are especially pleased that our portfolio has shown strength under tough conditions during this past quarter.

Excluding the LOE and the COX-2 factors, Human Health worldwide reported revenues grew 15% worldwide and 16% in the U.S. through the first three quarters of 2005 compared to the same period in '04.

Under these same conditions, third-quarter reported revenues grew 9% worldwide and 7% in the United States.

A host of our top products showed strong worldwide growth year-to-date.

Lipitor is still the world's top-selling prescription medicine by far, and is ahead 16%.

It's also a medicine that leads in a category that is demonstrably improving human health.

Current epidemiology data show that levels of LDL cholesterol have fallen 4.5% in the U.S. over the past decade due to statins, due to healthier diets, and other things -- but mostly, I think, led by statins.

Use of statins have tripled among all adults, and quadrupled among men over 60.

At the same time, the death rate due to cardiovascular causes has fallen sharply.

We believe that Lipitor has been the major driver behind this change.

Other Pfizer medicines have shown strength as well.

Norvasc is ahead 8% -- another $1 billion quarter.

Norvasc is ahead 38%.

Zyrtec is ahead 10%.

Xalatan is ahead 16%.

Detrol is ahead 14%;

Camptosar, up 85%;

Vfend, up 40%.

And Caduet is ahead 249%.

The medicines we launched more recently are now ramping up and growing as well -- Aromasin, ahead 88%;

Zyvox, ahead 38%;

Relpax, ahead 49%;

Geodon, ahead 33%.

We're working to extend this performance by advancing a number of new opportunities to drive growth.

In September, we launched Lyrica in the U.S., Canada, and Italy.

It's already been one of the most successful launches ever in Europe.

Lyrica is the first new medicine in recent years for epilepsy and two of the most common forms of neuropathic pain.

And in its first two weeks in the U.S., it was the most frequently detailed product among high-writing primary care physicians.

Its strength rests, as with all of our products, on strong clinical data.

Anecdotal results from the field confirm that data, and indicate that Lyrica can significantly reduce pain as early as day one in its regimen.

Other studies show it to be among the best in class of treatment of drug-resistant epilepsy.

Initial U.S. market data suggests a strong uptake for this powerful new medicine, with more than 50,000 new prescriptions since it was introduced, as I mentioned, in early September.

Macugen continues to perform well since we launched it in the U.S. in January and in Canada just last month.

Macugen, as you know, helps slow the vision loss that patients experience with neovascular acute macular degeneration.

Zithromax remains the number-one prescribed oral antibiotic in the U.S., although I must remind you that the patent for Zithro in the U.S. expires in November of this year.

We have a new one-dose preparation called Zmax, which has surpassed all other recent antibiotic launches in prescription volume.

So it's already doing well.

Zmax should and will dramatically improve compliance, and as a result, reduce resistance rate.

And in addition to that, of course -- all those are true, we continue to support our in-line portfolio with new clinical insight.

And we believe this is fundamental to the success of the past Pfizer and the future Pfizer.

Lipitor continues to go where other medicines cannot.

The FDA recently approved Lipitor for reduction in the risk of stroke and MI in patients with type 2 diabetes.

This approval was based on findings from the CARDS study, a landmark trial, as most of you know, of more than 2,800 patients with type 2 diabetes that had near normal cholesterol and at least one other risk factor, such as high blood pressure or smoking.

The CARDS study showed that patients using Lipitor experienced 48% fewer strokes than those on placebo.

Although these data -- and many times as you know, the data -- we lag the data in terms of our ability to talk about it with doctors -- these data were available -- the CARDS data were available a year ago.

Only now with the FDA label change have our reps been able to discuss it with physicians.

These and other findings mean that Lipitor will command a strong presence at the annual American Heart Association meeting next month.

We have more than 15 abstracts accepted for presentation on Lipitor alone.

The FDA has also approved indications for other Pfizer medicines, including Norvasc, which was labeled to reduce the risk of hospitalization from angina and to reduce the risk of coronary revascularization for patients with coronary artery disease -- those who don't have heart failure -- based on data from the landmark CAMELOT study.

We'll use this new Lipitor and Norvasc data to further reinforce and demonstrate the clinical value of Caduet.

Caduet represents a treatment paradigm shift that brings the benefits of the world's leading therapies for high cholesterol and high blood pressure to patients in a single medicine -- single copay also.

As for Celebrex, our U.S. field force optimization allowed us to begin its resurgence in September, immediately after we received the long-awaited relabeling from the FDA.

We're now rebuilding the U.S.

COX-2 arthritis and pain market doctor by doctor and patient by patient, assisted by the recent FDA approval of a new Celebrex indication, ankylosing spondylitis.

Ank spond (ph), as it noted by clinicians, is a painful and hard-to-treat form of spinal arthritis that affects more than 1 million people in the United States alone.

The approval for Celebrex for this indication was at the 400-milligram dose, reaffirming both the efficacy and the safety of this important medical option for millions of patients.

Now, just to talk for a minute about what's in store for our future, through our own development and through our aggressive acquisition strategy, we have developed one of the strongest pipelines in the industry.

I'll mention just a few highlights.

First, in oncology -- I hope that you all know by now that we are emerging as a major force in new cancer treatment.

And Sutent, a novel, multitargeted oral compound, is a potentially groundbreaking treatment for certain types of hard-to-treat cancers like GI stromal cell tumors and metastatic renal cell carcinoma.

The FDA has granted priority review status to the Sutent application.

With the completion of Sutent's filing, we are now 80% of the way toward our goal of filing 20 NDA's in the five-year period ending in 2006.

Diabetics and their doctors will have a new, easily administered form of inhalable insulin with Exubera.

This is being developed in partnership, as you know, with Santa Fe and Nektar Therapeutics.

And this also has received the support of key advisory groups, both in the U.S. and overseas.

The need is enormous.

Over 11 million Americans are treated for type 2 diabetes, yet 58% are not at the American Diabetes Association goal of glycemic control, despite all the available treatment.

Exubera is an important advance in diabetic treatment, because patients are three times more likely to accept insulin therapy when it's administered in an inhaled version than in an injection.

Just this week, a study in the annals of internal medicines showed that adults with type 2 diabetes who take Exubera, either alone or with existing oral diabetes medication, showed significant improvement in blood sugar levels compared to patients taking oral diabetes medicines alone.

We continue our history of success in the antiinfective arena with the acquisition of Vicuron Pharmaceuticals.

We now have anidulafungin, an antifungal medicine of the echinocandin class, that is now under priority review for invasive candidiasis by the FDA.

Another medicine we acquired in the Vicuron acquisition is the antiinfective dalbavancin, a promising next-generation glycopeptide antibiotic for Gram-positive infection for which we have received an approvable letter.

As you know, smoking is a contributing factor to many serious medical conditions.

Our new treatment for smoking cessation, varenicline, should offer a powerful and unprecedented tool for millions who need to stop smoking.

Its Phase III development program is now complete.

The data is being prepared for global registration, and has been accepted for presentation during a latebreaking clinical trial session at the American Heart Association meeting next month.

In partnership with Neurocrine, were also making strides in treating insomniac with indiplon.

This new medicine recently cleared an important regulatory hurdle, when our NDAs for more immediate release and for modified release were both accepted.

The immediate release formulation is now under active review.

Finally, maraviroc, this novel CCR5 antagonist, prevents the HIV virus from entering, and thus infecting the white blood cells that spread the disease throughout the body.

It truly is a breakthrough.

In July, and again in September, the independent data safety monitoring board recommended that four Phase IIb/III clinical trials continue as currently designated.

That's an important decision.

Further good news is that this important clinical program has been granted fast-track designation by the FDA.

The progress of all of these medicines from laboratory bench to patient bedside, as well as the continued opportunity for growth in our pacesetting in-line product portfolio -- and I assure you, we are absolutely focused on that -- highlights the strong platform from which we can help patients around the world live happier, healthier, and more productive lives.

And I think it's a tribute to our Company.

Now, I'd like to hand this over to Jeffrey Kindler.

Thank you, Karen.

Good afternoon, everybody.

I would like to comment briefly on recent developments on the legal, policy, and legislative fronts.

First, we are obviously very pleased with last week's court decision in the United Kingdom on the challenge to our Lipitor patent.

We prevailed in our position that the basic UK patent is valid and would be infringed by Ranbaxy's generic product.

That basic patent provides longer exclusivity than the enantiomer patent, which the court held invalid.

So the result means the Lipitor's exclusivity will be protected in the UK through November 2011, assuming this result is upheld on appeal.

We have ongoing generic challenges to our Lipitor patents in Canada, and a number of countries in Europe, and we were vigorously contest those challenges in those countries as well.

Now, with respect to the U.S. case, as you know, it's been fully briefed and argued, and is awaiting a decision by the District Court in Delaware.

I have no information when the Court might rule.

A decision is certainly possible by the end of the year, but that's entirely up to the Court, and the judge has not given us any indication as to when he will issue his judgment.

Whatever the outcome in the U.S., there will undoubtedly be an appeal, which we expect would take at least a year.

Now, there's been some speculation regarding what, if any bearing the UK decision has on the U.S. case.

UK and U.S. law differ in a number of areas, and the U.S. judge will obviously make his decision based on U.S. law and will not be governed by the UK decision.

Now, having said that, our UK victory on the basic patent is encouraging, because the key issue as to whether or not the basic racimade (ph) patent covers different enantiomers is very similar in the UK and the U.S.

We were therefore very pleased that the UK court sustained our position that the basic patent disclosing the racimade does indeed cover Lipitor, one of the racimade's enantiomer forms.

With respect to the enantiomer patent, the UK decision turned on the application of certain UK legal principles -- obvious to try, irrelevance of post-filing data, and others -- that have no counterpart in U.S. law.

On the other hand, Ranbaxy has made a claim in the U.S. that it could not make in the UK, that the enantiomer patent was obtained by inequitable conducts.

We believe we have a very strong defense to that claim.

Moreover, with respect to all of Ranbaxy's claims that the enantiomer patent is invalid or unenforceable, whether due to obviousness or inequitable conduct, Ranbaxy's burden of proof is subject to a higher standard in the United States as compared to the United Kingdom.

In the U.S., unlike the UK, a duly issued patent is presumed valid, and the burden of proving obviousness or inequitable conduct, and therefore, invalidity or unenforceability, is squarely on Ranbaxy.

And Ranbaxy must prove these things by clear and convincing evidence, a very high standard of proof, in order to prevail.

Now turning to the legislative and policy front, we are seeing substantial progress toward successful implementation of the Medicare prescription drug benefit.

The plan is fulfilling its objective of encouraging market competition.

In every region of the country, multiple plans are available to Medicare beneficiaries who had the opportunity to select the best plan for them.

CMS recently noted that average monthly premiums for drug coverage are lower than expected, and that some plans may not even have a deductible.

The competition we are seeing among plans means the beneficiaries will be paying lower costs -- $32 for the average monthly premium compared to earlier estimates of $37.

So the fact that patients are going to have ample and affordable choices among plans indicates that the Medicare prescription drug benefit has passed several important milestones.

The next step, of course, is enrollment.

On this front, there is a broad-based effort underway to provide older Americans and people with disabilities information on how they can enroll in the plan of their choice beginning on November 15th.

While it's too early for us to tell exactly what the business impact of the new Medicare prescription drug benefit will be, we expect that Medicare beneficiaries will have broad access to medicines when this historic expansion of Medicare takes effect in January.

On another subject -- importation.

There is increasing awareness of the safety issues created by crossborder movement of pharmaceuticals and the growing threat posed by counterfeit medicines.

In fact, a report issued just last month determined that counterfeits are growing at twice the rate of sales of legitimate pharmaceutical products, the total revenues from counterfeit medicines expected to reach $75 billion by the year 2010.

Law-enforcement agencies are working to tackle the increasingly sophisticated activities of counterfeiters with several recent successes of note.

For example, just last month, 11 Chinese citizens and one American were charged in a counterfeiting scheme that spanned 11 countries and involved millions of dollars worth of fake drugs including Viagra and Lipitor.

Pfizer is working closely with law-enforcement agencies around the world to address this important problem.

As attention increasingly turns to the need for measures to safeguard our medicine supply here in the United States, we believe that efforts to legalize importation in medicines to the U.S. maybe starting to lose momentum.

Clearly, the counterfeiting and safety issues presented by crossborder movement of pharmaceutical laws are too serious a problem to ignore or to deny.

And more importantly, between the new Medicare drug benefit and pharmaceutical assistance programs such as the partnership for prescription assistance and Pfizer Helpful Answers, safe and affordable medicines are available for all uninsured Americans without risking importation from abroad.

Finally, on regulatory matters, Pfizer is providing patients and physicians with additional information on our clinical trials.

We've posted results for more than 300 clinical studies, involving 35 medicines as well as enrollment information for 265 ongoing studies.

Pfizer will continue to post data from the Company's late-stage clinical trials for marketed medicines.

We also believe that it is important to continue to further public understanding of the benefits and risks inherent in all medicines.

We believe that the process leading up to the Prescriptions Drug User Fee Act reauthorization, PDUFA, in 2007 is the most likely form for Congress to take a thoughtful approach to these important issues, and we are supporting efforts in that regard.

Thank you.

And now, I'll turn it back over to Hank.

Thank you, David, Karen, and Jeff.

Before I get to your questions, let me just clarify two numbers that Karen gave you.

For the year to date, Norvasc is ahead 8%.

Zithromax is ahead 38%.

All of the other numbers were correct.

Now for your questions.

Merrill Lynch.

A couple of questions.

First, in terms of the guidance for 2005, I think it implies that the fourth-quarter EPS will be down $0.09 sequentially from $0.51 in the third quarter that you just reported.

That's despite the fact that seasonally, revenues are typically stronger in the fourth quarter.

So what are the key drivers of the EPS declining so much sequentially?

Second, can you talk about the timing for torcetrapib results to be disclosed, and whether there will be any secondary endpoint data to give us a sense for morbitidy and mortality trends?

On the question of the fourth quarter, the one thing I suggest you focus on -- well, two things actually, in doing your own analysis of the fourth quarter, is first of all, the third quarter included $0.02 from the tax adjustment catch-up which won't repeat in the fourth.

In the fourth, and I think Alan, this is correct -- actually had six days less than the same fourth quarter last year because of the way the monthly closings fell in our accounting cycle.

We've been talking about this for quite some time, but I still see in your forecast that you still haven't quite got the seasonalization right.

So I think those two factors probably account for 90% of it.

Do they, Alan?

The additional -- the fewer days in the fourth quarter -- there are six fewer days in the fourth quarter, which account for about a 6% reduction in revenues which is comparable to the 5% incremental revenues that we had in the first quarter that we discussed when we released earnings for the first quarter in April.

So it's a seasonalizaton consideration.

I'm told, however, there will still be 365 days in the year.

John, could you comment on the torcetrapib timing?

The torcetrapib program continues to go as we outlined each quarter.

Basically, the Phase III program is well underway.

We'll have when the program completes over 25,000 patients in the study.

We anticipate the imaging studies -- IVUS studies, for example, will come down about a year from now, so we will know when comparing the combination to Lipitor itself.

So we will have a good sense of the results there.

And the mobility/mortality studies are trailing behind that by at least a couple of years.

In anticipation of the question we always get, no, we have no further insights as to whether or not the FDA would approve a torcetrapib/atorvastatin combination on the IVUS and imaging data alone.

And obviously, it will depend on the outcome of those studies and how profound those results are.

And not as determined -- we think they're profound, but that's if the FDA determines that they're profound.

Goldman Sachs.

Coming at David's question a slightly different way, if we think about what the fourth-quarter expectations were before today's reports, they've moved down given the change in guidance and the amount that this quarter beat by $0.08, or even if I take out the tax, by $0.06.

And I'm interested in what changed so profoundly going from our understanding yesterday to today if the only revenue disappointments were due to COX-2s and generics versus what we knew in the second quarter of '05.

Well, it wasn't a change yesterday to today.

It was a change during the third quarter which we then reanalyzed at the end of the third quarter.

It was the slowing in the prescriptions growth of the overall pharmaceutical market, and in our case, specifically, the lipid-lowering market where the growth rate fell by half from the first half of the year -- 14 to 17, I think it was -- and in the erectile dysfunction market, which actually declined in the third quarter.

So it's that slowdown in the third quarter overall market demand that concerned us.

Now, the key question is whether that's a temporary effect or a longer-term effect.

And we are looking at that very closely, as you might imagine.

And we -- with a couple more months' data, I think were going to get a pretty good insight to that.

I would remind you in doing your analysis that the second half last year, specifically in the lipid-lowering market, was exceptionally strong.

There were some unusual factors, such as the CARDS data being announced, President Clinton having had a heart attack for probably discontinuing his statin therapy.

There was competitive product launches.

There was a lot of activity last year.

And that led to a very rapid growth of the market in the second half.

And now we are suffering a little bit from a tough comparison this year versus last year.

The fourth-quarter estimates is below our expectations.

But if you factor out the six fewer days and the effect of the tax rate, which doesn't repeat, it's not by as much as it appears on first analysis.

But in totaling that apart yourself, take a hard look at the market growth in the third quarter.

Hank, can I just expand on that one point in terms of seasonalization?

Not to confuse the full year, but I think it's important to distinguish consensus estimate for the full year between the third and the fourth quarter relative to the internal forecast that we had.

I'm going to reinforce a point that Hank made.

So when you are looking at the $0.08 dislocation vis-a-vis Street expectations, the Street never quite got right the seasonalization between the third and the fourth quarter, underappreciating the number of days that we're reducing in the fourth quarter.

So the dislocation, at least relative to our internal forecast, is less than that $0.08.

Saying it another way, we had higher expectations for the third quarter than the Street had, and lower expectations for the fourth quarter.

And that's an important factor, because you're looking at consensus which was fine at the time for the full year, but not between the third and the fourth quarter.

If you look at the full year, you'll be fine. (technical difficulty) I'll go to the back in a second here.

And at some point, I should go to those on the webcast, but David first, and then I'll --

Lehman. (technical difficulty) if I may.

One really relates to if there was some salesforce optimization in the third quarter -- that is a realignment.

The question is whether the 9% total cholesterol growth was really driven by the fairly anemic Lipitor growth, because as you've been able to show some fairly robust growth, the whole market would have grown.

So if in fact that's true, was it because of the share of voice (ph) was in fact down?

And if that's true, is that going to rebound, or is this another sort of managed care of a (ph) pushback?

Now let me just move to the second question, if I may, and it really relates to -- and I'm respectful of the '06, '07 guidance, but one other point, David, I think that you had mentioned in April was around the gross margins with respect to the patent expiry period.

And so the question is are you also rescinding that sort of flattish gross margin comment you made at that time as well?

Well, on the second question, on '06, '07, we'd prefer to answer all of those questions when we have all of the answers, which will be after we complete our review.

Lipitor in the third quarter most definitely was affected by the restructuring of our salesforce.

We lost a large number of days by reassignment of sales territories and retraining -- a number of our sales reps had to be retrained.

And I suspect you're right.

That was part of the reason the market growth slowed down -- certainly the reason Lipitor slowed down, and we're a big part of the market.

As to the recovery, let me ask Pat Kelly to comment on what our plans and expectations are here.

So as Hank has indicated, that is certainly a factor in what occurred in the third quarter.

But it's important to note that we completed all of the activities that are necessary to put our field force into action for the fourth quarter and going forward.

As they go forward, they are focused on a lot of very important, and we think, beneficial trends for Lipitor.

One is, as has already been mentioned by Karen, is that we have significant new data about the impact that Lipitor can have on cardiovascular risk now in the label, which means that the representatives who are now going out there into their territories to detail the product can carry that message forward.

And that message is all around how there are new data that demonstrate that there are new patients populations that have heretofore not been thought of around Lipitor -- i.e. diabetics -- that might get a significant reduction in their overall cardiovascular risk.

CARDS data showed that that risk reduction could be upwards of almost 50% in terms of stroke in the diabetic patients.

So that will be an important key message now in the Lipitor label, now being carried forward by this re-energized field force.

The second thing is that we have new consumer ad campaigns coming out in the fourth quarter which will be oriented both towards promoting the cardiovascular risk reduction benefit of Lipitor, as well as unbranded campaigns that are oriented towards generating market growth.

There's still a significant number of patients that have elevated cholesterol that have not yet sought treatment, so we will be making significant advertising pushes to drive patients into the doctor's office.

The third thing is to note that we continue to carry with Lipitor best in class formulary access.

There is no other patent in the market that enjoys the formulary access the Lipitor does.

That will be carried forward very importantly into Medicare.

As Medicare comes on-line in January, we'll continue to be able to have accessed to greater patients that any other statin by virtue of our best-in-class formulary status.

All of those factors give up us a great deal of optimism that we will be able to regenerate Lipitor growth as well as lipid-lowering market growth.

Just to hammer that point home, we don't really believe there is any long-term systemic problem in the lipid-lowering market, such as managed care, in the third quarter.

We do expect that market to recover, and we expect to gain share for two reasons.

One is we've consistently gained share against the older agents, because we lower LDL better.

We don't have that advantage against the few newer agents.

But we really need to communicate that this is not only about LDL lowering.

It's about risk lowering.

And there, Lipitor is unique.

So we're not ready yet to pull all of that together into a forecast.

But if we see that belief start to roll out in the 10th, 11th, 12th periods here, then we'll be much more optimistic about Lipitor's future.

Shall I go to the -- I'll get right back to you, and then I'll take one from the listening audience.

(OPERATOR INSTRUCTIONS).

Prudential Securities.

A couple of questions.

You talked about really a broader market slowdown beyond just cholesterol in terms of script trends.

And I'm wondering if you can just rank order what you think might be driving the dropping demand between variables like restructuring of sales forces for managed care or maybe things like pushback by consumers or physicians.

And then the second question relates to your cash and your repatriated earnings.

I'm wondering how much of that repatriated funds are actually in relatively liquid vehicles or short-term investments that are readily accessible?

And when I look at that, as I understand it, you can't do share buybacks.

You can't do dividends.

It seems like you're not growing the infrastructure through your restructuring program.

So it seems to me like corporate acquisition is kind of the one logical choice here.

So I'm wondering what sort of things are you considering -- big pharma acquisitions, small company acquisitions, everything in between or what exactly?

First, correct a misunderstanding embedded within your questions.

We did repatriate funds to the United States, and we immediately paid down debt.

So it's not really sitting in liquid assets.

We do have the ability to leverage our balance sheet, obviously.

So that turns out to be the same thing.

But there are no constraints on our ability to pay dividends.

And we certainly are intending to complete the $5 billion repurchase of shares.

And we do have very strong cash flow.

So what we do with the cash flow is the key issue, and all options are open.

It's repurchasing shares.

It's paying dividends.

It's acquisitions.

We don't feel in any way the only option here is some big acquisition.

In fact, I don't think that's necessary.

We do see lots of opportunities, such as Vicuron and a few others before that, which are exactly in our sweet spot.

They're organizations that bring both research capability and products in the short-term, and we do that better than anybody.

So in terms of financial flexibility, I think all options are open.

What we intend to do, I think, depends on opportunities as they come along.

But any acquisition that somehow crowded out our ability to repurchase shares would, by definition, be better than repurchasing shares.

And I suspect we'll be doing a little bit of all of the above.

On your overall market slowdown issue, I again don't think there's any systemic issue here.

Our belief is we will see a recovery in the fourth quarter.

But before we start putting plans in place for next year, we do want to see what occurs over the next month or two.

Pat, can you add to that at all?

I just would add one thing, which is to remind everyone of the fundamentals of the U.S. marketplace at this point -- is that while the overall prescriptions pharmaceutical market continues to grow modestly at this point year to date, all of that growth is in the generic sector.

The branded sector of the pharmaceutical market overall in the U.S. is down this year.

If you take a look at Pfizer, in particular, and focus only on our brands, you will see that our brands are growing in context of a market for brands that is declining.

So we are continuing to bring whatever growth is available.

But in general, we need to restart branded growth as much as we need to restart market growth overall.

Exactly.

Morgan Stanley.

If we can go back to the Lipitor question, I'm wondering if you could respond to Express Scripts' recent decision -- why actions like that would not spread throughout other HMOs and PBMs?

And the second question relates -- I'm still puzzled by the Lipitor performance this quarter, given 4% script growth, and your reported revenues were 1%.

And if I look back at the first and the second quarter, it was sort of the reverse.

Revenue growth was very strong, up in the 20% range; script growth up around 9%.

And there were reasons for that.

But I'm wondering if you could walk through what's going on, why we're seeing this sharp slowdown?

And I'm wondering if you could comment too on the value per prescription.

It seems like that's what might be changing here.

Well, I will ask Peter Brandt, once we've addressed the Express Scripts issue, to once again deal with this issue.

But frankly, we're willing to do it.

It's just not terribly helpful, because the answer always is the comparison of this year versus last year, the fact that IMS (ph) scripts are not on the same accounting cycle as we are, and the fact that we do this with three months of sales data and two months -- sorry, three months of script data -- the wholesaler inventory numbers lag.

We are always within 1% of our target inventory numbers.

So sure, the month-to-month -- because of what happened last year, you will see sometimes stronger sales growth and script growth.

But at the end of every month, we are within 1% on our target inventories, which probably are the lowest in the industry and have been for a decade.

So there is not a dislocation in this.

If you want us to spend your time going through the reconciliation every meeting, we're happy to do that.

But I think you'll find that there's a very rational reason.

And if you'd like us to lay that out for you, we will do that.

Pat, on Express Scripts -- number one, nobody else has.

So it's not a question of if they will.

They haven't.

But Pat, specifically on Express Scripts?

That has been publicly disclosed by Express Scripts.

They've made a decision to reveal the fact that we were unable to come to contract terms with Express Scripts.

And as a result, what they announced was that they would no longer be providing Lipitor on their preferred formulary.

We can't really speak any further than what Express Scripts has disclosed about that.

I would point you to the fact that they have their third-quarter earnings report on October 27th.

And if you wish to ask them this question as to why this occurred, you will probably get an answer that is more forthcoming than I can give you.

In general, what I would say though is that since they have announced that, we have been approached by many of Express Scripts' major customers -- i.e., the health plans, local and regional, that Express Scripts supplies to -- with a willingness to talk to us about contracting directly with them, because they are still intent upon making sure that their patients still receive the best care possible.

And that best care in this case includes Lipitor.

At the same time, many other Pfizer products remain on the Express Scripts formulary.

So we will continue to work with anyone who wants to ensure access to our first-in-class products.

And remember that the competitive nature of the Medicare prescription drug benefit clearly helps us.

There are 12 plans in Maine alone, for example.

And if you are one of those plans that does not have Lipitor available to Medicare beneficiaries, you're not going to be competitive.

So I think there's a factor here where competition and the need to have a competitive plan and competitive benefits really helps us.

So whether we do that directly or through Express Scripts -- either way is fine with us.

(Inaudible question - microphone inaccessible).

Yes, sorry.

Peter?

Sure.

The best way we think to look at this is on the year-to-date basis, because as we've said before, certainly quarter to quarter, there are dislocations that as we now look at it for Lipitor in the U.S., when we look through nine months, many of the dislocations begin to go away.

Total Rx's -- not new Rx's -- if I can start there, total Rx's grew 7% on a year-to-date basis for the first nine months in the U.S. for Lipitor.

Obviously, that compares to a 16% net sales growth.

So what fills in the gap?

There are three areas that we look at when we try to explain that internally.

The first one has to do with price.

So on the price side, you've obviously got the price increases, but you've also got any changes in the rebate structure or the rebate amounts that happen on the product in a given quarter.

So that combined adds 2% to the TRx growth on a year-to-date basis for Lipitor.

So total price impact including rebates of 2%.

The next thing we take a look at is taking a look at the mix, if you will, of the package sizes or, in some cases, the units per prescriptions that are going out.

And on a year-to-date basis, that has also added 4 percentage growth points to the Lipitor Rx number.

And then finally, it's that same issue that both David and Hank have talked about before which is the number of days that we have seen year to date this year versus last year, which are up -- primarily because of the first quarter, but it carries through on a year-to-date basis.

And that adds 2% to the number as well.

So we get to a number that is quite close, if you will, to the total net sales growth of 16%.

When you add the 7, the 2, the 4, and the 2, you get to about 15.

(Inaudible question - microphone inaccessible).

How has the price component changed (inaudible question - microphone inaccessible)?

I think in the third quarter, we did see a higher level of rebating in the U.S. on Lipitor.

So that has, indeed, gone the other way.

Okay.

Let's go to the phones, and then we'll come back to the room.

Carl Seiden, UBS.

Hank, I fully understand how you describe the inability to talk about guidance going forward.

But on the guidance issue, maybe more theoretically, the Company multiple times in the past has said that although they rarely get the guidance exactly how they thought they would, they always make the guidance.

And obviously, at least for 2005, that's now changed.

I also understand the inability to give guidance in '06 and '07 given all of the uncertainties.

But this has been a pretty uncertain market, and you gave that guidance initially last April.

So as a result, I have three questions.

One is how would you suggest investors reconcile those things I just mentioned?

Second, can you comment on your cost-cutting flexibility beyond the $4 billion that you've already talked about?

And third, is there any evidence in the immediate term that the cost-cutting you have done is part of the immediate term shortfall?

Thanks.

Let me just remind you what the process here is.

We do forecasts at certain periods of the year.

We told you earlier this year when we completed our '04 planning cycle that our expectation was growth of double digits in '06 and more aggressive double digits in '07.

Lots of things have changed.

You're right.

And we're now going into that planning period once again.

And when it's complete, we will be able to provide the guidance for the next period.

So it's not unexpected that we would be in a period here where we're not able to confirm what we said a year ago because -- not quite a year ago; eight months, I guess -- -- what we said some time ago, because we haven't completed that analysis which we had completed last time.

Beyond that, I think we really are going to wait until we have answers to all of your questions.

And did I miss part of that, David? (multiple speakers) No?

Thank you.

Let's take one more from the satellite.

Al Rauch, A.G. Edwards.

I didn't here any updates on your atypical antipsychotic.

Is that still going to be filed at the end of this year?

Asenapine? (multiple speakers) John Lamattina?

Now, as normal, we don't comment on plannings for our compounds.

Having said that, I would say that the asenapine Phase III program continues to go well, and we haven't found any glitches or anything like that in there.

So it proceeds well.

But again, we don't comment on filing data.

And what the CATIE studied tells us is good news for Geodon.

It also tells us there's a great medical need in this area.

So we're looking forward to a new product in this field.

CIBC.

First, a somewhat theoretical question, and that is that it would certainly appear that the market over the last few years has changed at a much faster rate than individual companies or the industry as a whole has been able to respond to that.

And so, while you certainly say that patent expirations are known issues and you've been planning for that, there's obviously lots of things that have occurred over the past few years that make it difficult to change operating plans or to implement that.

Do you believe at the juncture that we are at now that perhaps the marketplace has become stable enough so that operating plans can be changed and implemented?

And then just a question for David on the charges expected over the next years -- how much of that is cash?

Well, I've only been in the business 35 years, but I've never experienced a period of stability.

So I suspect that will continue to change.

And when you're in a business of high-risk, high-reward product development, it's just kind of natural that the market continues to change, and the structure of the market -- the distribution side of the market continues to change.

The best example of what you are getting to, the biggest change we will see next year, is the Medicare prescription drug benefit.

It will affect more than half of this market, I guess it would be fair to say.

And there, we're ahead of the curve, I really believe.

And Pat, do you want to comment a little bit on how we prepared for that -- the implementation of the Medicare prescription drug benefit, and why we think we're going to have a major competitive advantage next year through the restructuring of our sales force?

So what we've done is to redeploy and reorganize our field force to match on a fairly consistent basis the regions that CMS has defined as the Medicare drug benefit regions, so that all of our representatives that will be working with doctors in that area as well as the plans that themselves are administering this drug benefit will be working in the same geography.

So we think that's an important point for us going forward.

The other thing that we have done was mentioned by Jeff is that we have worked very hard, and perhaps -- I would say perhaps harder than any other company to work with CMS to make sure that all of the potential enrollees of the Medicare drug benefit get all of the information they need in order to make the most informed choice possible.

In fact, we have information that we have put out into the marketplace that is now in -- over half of the U.S. pharmacies are carrying brochures about the Medicare drug benefit that we put together and put forward.

So I think the combination of realigning our field force structure to help support doctors in the areas of the Medicare drug plans as well as our support for the drug plan in general puts us in a competitively sound position.

Credit Suisse.

First of all, David, could you clarify where the 600 million of realized savings is coming from in 2005?

And I was wondering, John, if you could speak to maraviroc in regards to the four studies that are advancing, and if there were other studies that did not advance, and why?

And then the last question is for Hank.

Obviously, investors looking at your stock have to look at two scenarios -- your comfort with growth going forward as well as the downside scenario.

And I think the clear question that I have heard is -- in a downside scenario, how would you manage the Company differently, and how could you employ cash differently?

If you could give a couple of examples of that, I think that would be helpful.

John, do you want to deal with the first while thinking about the others?

About the maraviroc program, we've got four different studies ongoing -- two in treatment-naive, two in treatment-experienced.

And you've obviously followed what's happened to competitor compounds, like GlaxoSmithKline.

When we had our normally scheduled data safety monitoring board visit in July and that went as planned -- or went well and the phase (ph) continued, it was after that that the GSK results broke.

And they came in again unexpectedly in late September to review programs -- all four, I believe, with a specific eye on looking at liver function abnormalities -- and obviously, we're blind to the results, but they basically reviewed that and gave us the go ahead to continue all four studies.

All of those are proceeding.

We thought we were about a month or two ahead of the Glaxo program to begin with.

So we've got even longer exposure so far in the program, and no sign of any untoward effects.

So it's proceeding -- keep our fingers crossed -- proceeding very well.

Good news for us and good news for millions of patients around the world.

David, on the reconciliation?

I think two answers.

One, I think, Mara, you asked about the 4 to $5 billion and how much of that would likely be cash.

The vast majority of it will be cash.

In terms of the $600 million which has been realized to date, it's pretty prototypical of what's going to drive the $4 billion worth of cost savings.

It's coming from lower operating expenditures, anywhere from travel and entertainment expenses to consulting expenses.

It's coming from a dramatic reduction in procurement expenses, and especially as it relates to anywhere from raw materials straight through IT purchases.

It's coming from dramatic rationalization of facilities, which is clearly moving quite rapidly in our manufacturing organization.

And it is coming -- and this is the hard part of it -- it's coming from lower labor costs, as well.

That's the tough stuff, for us.

But we are reducing rather significantly the number of people in certain organizations.

I would just add that it's also coming from across the organization.

We're touching every unit, every division, every location in order to identify these cost reductions and productivity improvements.

And there had been in number of plant closures already announced.

And clearly, there's more to come.

So I'd say it is from pretty (ph) across the organization.

And when you look for $4 billion, you have to go pretty deep.

In terms of -- I think you put it "downside option" -- we are executing, and I think executing exceptionally well against a very clear strategy.

The problem all of you have is the patent expirations are for certain.

They are sitting right there.

Everything else we are doing in terms of maximizing the value of our in-lines and introducing the new products are uncertain.

So you are looking at the certainty of patent expirations and the uncertainty of what our strategy is, which is growing the in-lines and launching new products, and also, as you've heard a couple of times, making the organization more efficient and effective in taking $4 billion out of expenses.

I think that's still the right strategy.

So it's not as if we have a kind of downside scenario here.

We are executing, and I think -- as far as I'm concerned, executing exceptionally well against the right strategy, admittedly in a difficult time.

Let me take one or two from those on the webcast, and then I'll come back here.

John Schaetzl, GE Asset Management.

I think Jami in many ways asked my question.

I just wanted to make sure that I understood the answer appropriately.

When you reconcile sales rates to script rates on a year to date basis, is it possible that this is kind of an anomalous quarter, and that those ebbs and flows kind of made the first two quarters look better for Lipitor, and those same ebbs and flows reversing now make the third quarter look orders for Lipitor?

Because what I'm really trying to get it is a way of looking at Lipitor's growth rate going forward.

And I'm pretty sure it's not as bad as it was, at least in revenue, this quarter.

But I don't know where it falls in there.

Okay, well, let me ask Peter to try again.

But look at TRX, not new prescriptions.

And net sales, of course, is more than just prescriptions.

It's the value of those prescriptions.

I think the quick answer to your question is yes.

On a year-to-date basis, we think things are fairly well in sync at this point in time, but that does mean that some of the factors that were more positive as we mentioned before, even the overall pricing impact in the first half of this year, went a little bit the other direction in the third quarter.

And again, I'm sorry we're all sounding like a broken record -- we will remind you of those number of days still to hit us in the fourth quarter, which will be a final reconciling item for the year to date through the full year relative to what you've seen in the first three quarters.

I know you been burned by other companies on loading.

We don't do that.

So we are happy to do these reconciliations.

But this is not -- at least two companies I could name.

Okay, back in the room?

Hank, I'm wondering if you could reconfirm the statement you made last quarter at this meeting, that the 4 billion in cost reduction that you expect through '08 is a net cost reduction off of an '04 base?

And if that's true, in light of the sum -- I think it was $1 billion in net cost reduction, your net cost increase year to date on the '04 base, it makes the '06 through '08 period more like a 5 billion-plus type of cost reduction program.

Is that the way we should be looking at this?

You should think of it as we have described it, which is a 4 billion reduction from the base.

But then thing going forward, we will manage our business based on sales, expectations, and opportunities for investment.

And I don't know what that's going to be.

But a fair assumption is we will grow expenses more or less in lines with sales.

We been doing that for 30 years, I guess.

But that also may change.

But it is not that 4 suddenly becomes 5.

It's 4 off the base.

And sure, that will grow over time.

The 600 million this year is not 600 million next year.

It's probably more like 1 billion.

So it will accumulate over time.

But it is off the base of this year.

And we're reconciling that very carefully.

There's a whole program office that's doing that reconciliations for reporting purposes.

Nina Parell (ph), Lord Abbett.

The relatively surprising move of pulling '06 and '07 guidance that that you basically just gave us has created a crisis of confidence among investors.

So my question is if you all are confident in your Company, why haven't you announced a fairly substantial and more aggressive share repurchase?

Well, we have announced a very aggressive share repurchase, and we're busy executing it.

As to a crisis of confidence, this is a normal part of a planning cycle.

We completed our planning cycle last year, announced our expectations for '05, '06, and '07, which is kind of unprecedented.

We are now entering into that planning cycle again.

And we will tell you what our expectations are when we've completed the cycle.

There should not be a crisis of confidence here.

You should have as much confidence in us last week as you do this week.

There are some uncertainties here, for sure.

But that will roll itself out over the next few months.

Let's take one from the listening audience.

George Grofik, Citigroup.

Thanks for taking my questions.

In your guidance, you state the Adapting to Scale initiative will yield $200 million in incremental cost saves relative to your previous expectations.

However, the R&D budget is being cut by 400 million, implying potential cuts beyond identifying streamlining opportunities.

Can you just give us a sense for where the reduced R&D spend is coming from?

John Lamattina, head of research?

Yes, as you know, we are the amalgamation now of a number of different companies.

And I will give you one example, which you can then translate along the whole R&D organization.

Many years ago, we simply had Research Labs in England and in the United States here in Groton, Connecticut.

And basically, they were self-sustained units.

Then we added Warner-Lambert in Michigan; that was a self-sustaining unit.

And the same thing was true with the former Agouron, and then later on the Pharmacia acquisition.

Each one of these places had a full cast of resources that they need to do their job.

We sat down with the challenge of trying to find the necessary cuts, because as Karen and Hank have said, this came across the board.

We began to realize that we didn't need to do every single thing at each site.

We didn't need to have three pilot plans for our organization, when one operating more fully would do.

We didn't need to have high throughput screening at every single site if we could centralize this and have this in a number of locations.

We didn't need to have imaging centers at each site, which is a pretty expensive cost to run each one of these things.

So this was the power of one (ph) of the scale that we were able to bring to these things.

We we're able to began to start centralizing a lot of these activities, and as a result, need less equipment and unfortunately, fewer people to be able to execute against all of this.

So I said at the last meeting, we had when we began to do this, we found the capacity for a tremendous amount of savings.

Now let me add one other thing.

In this quarter and this year, will be running somewhat behind what we expected in our budget.

But interestingly, that also includes our ability to have invested $50 million more in our clinical programs around maraviroc, torcetrapib, and Exubera.

So not only have we taken costs out, but we have been able to redirect some of those costs to keep programs.

I think it's a great way of using our R&D budget more effectively in meeting the goals of the Corporation.

David, anything to add?

No?

Okay, back to the audience.

Brian Hinsker (ph), JPMorgan.

I guess given your stock performance over the last five years, why wouldn't you be more aggressive in settling the Lipitor patent and not putting the risk to shareholders if they could take one more big hit on those significant value disruptions (ph)?

I understand that you are confident in winning the patent court case, but is the risk of losing worth the risk of taking the case all the way through the final end here?

Why it's just settled with Teva on their Effexor patent?

And I just -- I'm wondering why you're taking the risk of this court case (ph) decision.

Well, clearly, our judgment is it is worth the risk of losing to take this all of the way to the end.

We believe that, obviously, very strongly.

But there's a principle here too.

This is not the way medical science should advance.

The patent system is designed to protect and encourage medical innovators, not punish them.

So we think -- both on the facts of the case and on the fundamental principles here, we think this is worth the risk of a possible loss.

Jeff, do you want to add to that in any way? (multiple speakers) Okay.

JPMorgan.

Two questions, one, on the -- I'm not sure you answered completely before.

Do you think any of the Adapting to Scale initiatives which previously you had outlined, including with the realignment of the sales force, maybe reducing the number of salespeople, and detailing individual physicians -- it appears that has been implemented.

Is that having an impact in terms of topline performance?

And then secondly, on the Lipitor patent, I know you can't guess when the decision will come.

Can you provide us any reassurance in terms of how the decision will be delivered once the decision is available?

Will it be done with a prior announcement?

Will there be a time outside of market trading hours, etc.?

That's been the case with some of the other major announcements, where at least the uncertainty has been mollified somewhat with some parameter around and when and how that decision will be announced.

Well, I think the answer is we don't know.

But Jeff, do you --

We don't know.

Every judge does this differently.

And the judge in our case has not given us any indication of when he's going to rule or whether he's going to do what the judge in the UK did, which was announce in advance when he's going to rule.

So we just don't know.

An answer to the first question is that we certainly did take a deceleration of our activities relative to bringing the field force back in to retrain them and retarget them and then redeploy them back out there.

But I don't think that that has -- or will have any sustained impact on the ability to generate sales, or more importantly, the ability to generate call activity in front of the physician.

The example I would give to you of that is that the first product that we have launched under this new configuration is Lyrica.

And for the last two weeks, which are the first two weeks of Lyrica's launch, it is the most detailed product in the industry to the high-writing primary care doctor.

So think we will be more than able to deliver what we need to in order to secure the topline growth we're after.

And a number of us who are here were at that launch, which is both the launch of Lyrica and the research in Celebrex.

And I can assure you, there's no problem with enthusiasm in our salesforce.

They are ready to go.

In fact, they're already out the gate in the new configuration.

Yes.

Just a very minor clarification.

You talked about the planning process taking place at this point in the year, so that's why guidance was withdrawn.

Should we expect guidance to be withdrawn at this time of the year every year because of the planning process?

Or is something truly different?

Well, those statements are correct.

There will be a cycle to this, when we know and when we don't know.

And you're not going to know before we know.

So the natural cycle --

(multiple speakers) was guidance withdrawn because of the planning process period, end of sentence, or because of greater uncertainty in this particular planning process?

No, listen to my statement -- the cycle comment is correct.

There's periods when we know and there's periods when we don't know, and you'll know when we know.

But it's certainly true there's been some major uncertainties introduced this year, both positive and negative.

And until we've done that analysis and made a judgment of -- okay, how does this look next year, we're not going to come out with any half answers to possible questions.

But we'll be back -- probably in January, I suspect; we complete this in December -- with our new comments on what we think next year will be.

But it will be a summation of a lot of things.

It will be an answer to the question -- was the third-quarter slowdown short-term or long-term?

We will know by them.

If we take a ruler and put on these two weeks of Lyrica, we'll own the world.

That's probably not going to happen.

But there's a lot of things going on here, including new product approvals and introductions next year.

So there's -- I don't know -- a list of 50 things here that we're going to have to make some judgments on.

And it will be the net of that that we announce.

So both statements are correct.

There is a cycle.

We do planning the same way every year.

And there's also a lot of -- I wouldn't call them uncertainties; just things that we need to reach judgments on.

And we haven't reached it with all of these.

But I would just emphasize that the uncertainties we're dealing with are positive and negative.

It's not just all bad news.

If you understood that, I'll try again.

I just want an update on two programs -- first, Oporia, following the nonapprovable letter -- kind of what the next step we should be looking for there?

And second, on Exubera, just the timing in terms of when we should expect some decisions on the snowpea JP (ph) buyout.

John or Joe?

Dr. Joe Feczko, our Chief Medical Officer.

Timing on Exubera?

Yes.

We got the positive opinion this past month in EU from the CHMP, so that's been -- basically, their approval and we're waiting then for the administrative sign off on that, which usually takes a couple of months, probably about three months -- usually in their centralized process.

In the U.S., we have the FDA advisory panel which, again, gave very positive go-ahead in both type 1 and type 2 diabetes as far as safety and efficacy.

Right now, it's under review.

And it's progressing along well.

We don't have a -- clearly, a time just right now.

We have to remember it's an inhaled product, and inhaled products in the U.S. are -- just go through extra review processes by different divisions.

And if you look back on any inhaled product, it's not just handled by the reviewing division that handles that aspect.

So in this case, it's metabolic plus the device division.

And in case of asthma drugs and things, it's respiratory plus the device division.

So there's always an extra step in that process that we're working through right now.

We have a quicker approval always in Europe, because they don't have that second step.

So as I said, right now, it's progressing well.

We had positive feedback from the advisory committee meeting, and we don't anticipate any problems.

Oporia -- I think Oporia and Dynastat both got caught up I think in a -- this tighter, risk-averse environment that we're dealing with at the FDA.

We do have meetings planned with the FDA coming up to review their nonapproval for Oporia.

We're going to work through that with them.

We do have a lot more data coming up over the next year or so from long-term fracture studies that have been ongoing.

So we will be discussing that with them.

So we haven't had that meeting yet.

I guess more of housekeeping question, but Bextra recorded another quarter of really big negative sales.

I guess I thought that process might have ended in the second quarter.

So can you just clarify that?

And is there any residual negative sales to occur in the fourth quarter in that product?

I think that's is.

Are we done, Peter?

Yes, that should be about it.

David Moskowitz, Friedman Billings Ramsey.

Yes, thanks for taking my question.

I'm hearing a lot about executing and reconciling data with sales -- pluses and minuses next year, and certainly six fewer days in the fourth quarter, which was known already and now has become the reason for the downturn in fourth quarter expectations.

I think investors and analysts deserve a real explanation, an upfront explanation on what has really happens to make you pull the guidance.

Something dramatic has obviously happened.

You didn't just lower; you removed it.

Can you at least give us a range or some explanation?

Well, let me correct a misstatement.

The six extra days was in our forecast.

I'm not sure it was in yours.

So that's a very important point.

The six -- I said extra.

I meant fewer.

The six fewer days in the fourth quarter has always been in our forecast.

And as David explained, we had more in the third and less in the fourth than at least the consensus.

I'm sure a number of you were in different places.

What changed in the fourth was the third.

The third clearly came in below our expectations in terms of underlying script growth.

And that will translate, possibly -- we could see a resurgence in that script growth.

But the overall market was slower in the third quarter than it was in the fourth.

Whether that's a short-term effect or a long-term effect we're going to see here.

But clearly we've lost the incremental revenue we expected in the third.

And there's probably 10 other things that have changed as well.

But it was a roll-up of the forecast which got us not to $1.98, but $1.92, 94 based on performance in the fourth quarter.

David, anything to add to that?

From the listening audience?

Steve Scala, SG Cowen.

Previously, Pfizer had indicated that it believed Celebrex would return to growth at the end of 2005.

To my knowledge, that view was not reiterated in today's release.

Is that something you could comment on now?

And perhaps we need a clarification of statements made in April.

Were you referring to quarter-over-quarter growth or year-over-year growth when you said that it would return to growth?

And then secondly, are there any legal efforts underway to prevent a generic Zithromax launch next month?

Okay, let me have Pat address the misunderstanding, obviously, that exists with respect to Lipitor.

We do expect to return (multiple speakers) -- sorry, Celebrex.

We do expect to return to growth.

Pat, could you provide a little color there?

So I guess the quick way to say this is that we did and do expect to return to growth with Celebrex.

It's important to note that we just in September received the final label for the product after we had waited for -- basically for three quarters to get that final label.

And so now is when our folks can get out into the field and begin reselling the product to our potential customers.

So that, in effect, is a two-quarter delay in the resurgence or the return to growth of Celebrex.

And I think it would be much more appropriate, given the overall hit that the COX-2s took to be looking at this on a quarter-by-quarter basis as opposed to on a year-by-year basis.

Jeff, any reasons to expect a delay in generic Zithromax?

No.

Okay.

Simple.

Back to the listening audience, and then we'll take a final one or two here.

Scott Henry, Oppenheimer.

With regards to the IDL data, specifically the Zocor versus Lipitor head-to-head, when can we expect presentation of that data, if there is any certainty on that issue?

Dr. Joe Feczko?

Yes, there's going to be a presentation at the AHA meeting in November.

So, soon.

A couple of final question from here?

I have a theoretical question for you, Hank.

Can I give you a theoretical answer?

If you look at the Company's pipeline -- products that have been filed, products that have been apparently moved from Phase II to Phase III, products that have been filed with the FDA -- there have been an uncanny number of setbacks, whether approvable letters, nonapprovables, products terminated.

And in comparing -- obviously, the market is more -- the regulatory environment is more tough with the FDA.

But if I look at your level of R&D spending relative to the output compared to other global companies in the industry, Pfizer has a major issue with R&D productivity.

That has not turned around.

And I'm just wondering if you could comment on what you think is going on.

Is this a structural issue?

Is size an impediment to improving productivity?

Or are these just a lot of -- products that have been dealt with a lot of bad luck?

I'm just wondering if you can kind of explain to us what is going on.

Well, I don't think bad luck is ever a good reason.

Having lucky research directors are always good.

Having confident ones is obviously better.

I'm not in any way disappointed with research productivity.

It certainly is a more difficult regulatory environment.

Joe has mentioned already Dynastat and Oporia.

Two years ago, they would not have received nonapprovable letters.

Now both of them, we think, meet clear medical needs, and will eventually be approved.

How long it takes to do that is at the moment unknown until we've had the discussions with the FDA.

But they may look like disappointments.

But it was a pretty aggressive regulatory strategy on certainly Oporia.

And in this environment, it's going to come later rather than sooner.

Overall productivity -- we're going to be filing for 20 new products in five years.

I know of no other company that's done that.

Our scale helps.

Spending more money helps.

But as John Lamattina will tell you in a minute, I really believe, and we believe, that scale is the biggest advantage we have.

And it does allow us to be much more efficient in what I call the industrial side of this -- John mentioned more efficient screening, for example; that is an industrial process -- while at the same time, keeping the creativity and the risk-taking at the 240 or so development teams that we have.

John?

Thanks for asking the question, Jamie.

You know, when you -- if I ask anybody in this audience how long it takes to go through the whole process, you all know -- it's 10 to 12 years.

If you look back at the amount we're investing, as all of the companies that now make up Pfizer, it's actually relatively small compared to we're doing now.

So the first point is I think we're going to be in a golden age of the end of this decade and the beginning of next decade -- not just Pfizer, but perhaps the whole industry -- with the amount of money that's being invested in R&D.

I think that's when you'll start seeing the payoff.

That's point one.

Point two is on scale, there are tremendous hurdles being set, as Hank and Joe have already spoken to today, about -- be it by regulators, be it by payors and the like.

One of the great things about our scale is we are able to do some things I think that competitors are going to have difficulties doing.

So when you look at all of the studies we've done in Lipitor -- you've heard about CARDS.

You heard about TNT;

IDL is coming up, et cetera.

We spent now -- we must be closing into about $800 million on those trials.

That's going to be important and continuing to differentiate Lipitor from other things.

When you look the torcetrapib Lipitor program that we have ongoing, the Phase III program is about $800 million -- again, proving scientific concept and the like, that's going to be, again, difficult for others to do.

If you look at what we've promised to do in terms of follow-up on Exubera, one of the requirements we're going to have in the new world going forward is we'll have a 15-year follow-up on patients for Exubera looking for potential detrimental effects in the lung and lung cancer (ph).

That's the kind of funds you're going to need in R&D to be successful in the future.

And I think size it's what's going to be necessary.

And I would predict there will be further consolidation in the industry in order to be able to do these kinds of things and going forward.

And if you're in a high-risk business, diversification helps you.

You talk about bad luck in research -- the CCR5 group of compounds that are now being developed clearly are the most innovative new generation of medicines for those with HIV and AIDS.

And ours is in full development and doing fine, and Glaxo is in the process of losing theirs.

So there is an example of where Pfizer research actually brought home a whole new generation of HIV medicines which others have not been successful in doing.

So with that, we will thank you for being here.

I do think the real answer to this question is three years from now, you will looking back saying, those guys really had it right.

Thank you.