Market Overview

PFIZER REPORTS SECOND-QUARTER 2018 RESULTS

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  • Second-Quarter 2018 Revenues of $13.5 Billion, Reflecting 2%
    Operational Growth
  • Second-Quarter 2018 Reported Diluted EPS(1) of $0.65,
    Adjusted Diluted EPS(2) of $0.81
  • Raised 2018 Financial Guidance for Adjusted Diluted EPS(2)
    by $0.05 to a Range of $2.95 to $3.05
  • Lowered Midpoint of 2018 Revenue Guidance Range by $500 Million Solely
    to Reflect Recent Unfavorable Changes in Foreign Exchange Rates

Pfizer Inc. (NYSE:PFE) reported financial results for second-quarter
2018 and raised 2018 financial guidance for Adjusted diluted EPS(2).

Results for the second quarter and first six months of 2018 and 2017(3)
are summarized below.

OVERALL RESULTS
                         
($ in millions, except

per share amounts)

Second-Quarter Six Months
2018     2017     Change 2018     2017     Change
Revenues $ 13,466 $ 12,896 4% $ 26,373 $ 25,675 3%
Reported Net Income(1) 3,872 3,073 26% 7,432 6,194 20%
Reported Diluted EPS(1) 0.65 0.51 28% 1.24 1.02 21%
Adjusted Income(2) 4,827 4,063 19% 9,495 8,255 15%
Adjusted Diluted EPS(2)         0.81       0.67     21%       1.58       1.36     16%
               
REVENUES                        
                 
($ in millions) Second-Quarter Six Months
 

 2018

 

 2017

% Change  

 2018

 

 2017

% Change
        Total     Oper.         Total     Oper.
Innovative Health $ 8,273 $ 7,671 8% 5% $ 16,102 $ 15,086 7% 4%
Essential Health   5,193       5,226     (1%)     (4%)   10,271       10,590     (3%)     (7%)
Total Company $ 13,466     $ 12,896     4%     2% $ 26,373     $ 25,675     3%    
                                                           

On February 3, 2017, Pfizer completed the sale of its global infusion
therapy net assets, Hospira Infusion Systems (HIS). Therefore, financial
results for the first six months of 2018 do not reflect any contribution
from legacy HIS operations, while the first six months of 2017 reflect
approximately one month of legacy HIS domestic operations and
approximately two months of legacy HIS international operations(3).

Some amounts in this press release may not add due to rounding. All
percentages have been calculated using unrounded amounts. References to
operational variances pertain to period-over-period growth rates that
exclude the impact of foreign exchange(4).

2018 FINANCIAL GUIDANCE(5)

Pfizer's updated 2018 financial guidance is presented below.

  • Revenue guidance was updated solely to reflect recent unfavorable
    changes in foreign exchange rates in relation to the U.S. dollar from
    mid-April 2018 to mid-July 2018, primarily the weakening of the euro,
    Chinese yuan and Japanese yen.
  • Guidance for Adjusted R&D expenses(2) was updated
    primarily to reflect higher anticipated spend in the second half of
    2018 than previously projected, largely related to our late-stage
    development programs.
  • Guidance for Adjusted other (income)/deductions(2) was
    updated primarily to reflect unrealized net gains on equity
    securities, one-time milestone payments from certain collaborations
    and out-licensing arrangements and a gain on the sale of certain
    compound/product rights in the first-half of 2018.
  • Guidance for the effective tax rate on Adjusted income(2),(6)
    was updated primarily to reflect Pfizer's evolving understanding of
    the impact of the Tax Cuts and Jobs Act ("TCJA")(6) on its
    business. Although these estimates continue to be subject to further
    analysis, interpretation and clarification of the TCJA, Pfizer's
    current expectation is that this tax rate guidance will be sustainable
    beyond 2018.
       
Revenues     $53.0 to $55.0 billion
    (previously $53.5 to $55.5 billion)
Adjusted Cost of Sales(2) as a Percentage of Revenues     20.5% to 21.5%
Adjusted SI&A Expenses(2)     $14.0 to $15.0 billion
Adjusted R&D Expenses(2) $7.7 to $8.1 billion
    (previously $7.4 to $7.9 billion)
Adjusted Other (Income)/Deductions(2) Approximately $1.0 billion of income
    (previously approximately $400 million of income)
Effective Tax Rate on Adjusted Income(2),(6) Approximately 16.0%
    (previously approximately 17.0%)
Adjusted Diluted EPS(2) $2.95 to $3.05
    (previously $2.90 to $3.00)
 

Financial guidance for Adjusted diluted EPS(2) reflects share
repurchases totaling approximately $6.1 billion already completed in
2018. Dilution related to share-based employee compensation programs is
expected to offset by approximately half the reduction in shares
associated with these share repurchases.

CAPITAL ALLOCATION

  • During the first six months of 2018, Pfizer returned $10.1 billion
    directly to shareholders, through a combination of:
    • $4.0 billion of dividends, composed of $0.34 per share of common
      stock in each of the first and second quarters of 2018; and
    • $6.1 billion of share repurchases, composed of $2.1 billion of
      open-market share repurchases in first-quarter 2018 and a $4.0
      billion accelerated share repurchase agreement executed in March
      2018.
  • As of July 31, 2018, Pfizer's remaining share repurchase authorization
    was $10.3 billion.

EXECUTIVE COMMENTARY

Ian Read, Chairman and Chief Executive Officer, stated, "We reported
solid second-quarter 2018 financial results, with total company revenues
up 2% operationally, driven by the continued growth of key brands such
as Eliquis, Ibrance and Xeljanz, as well as biosimilars and emerging
markets. The performance of these growth drivers was partially offset by
product losses of exclusivity, a decline in legacy Established Products
in developed markets and ongoing legacy Hospira supply shortages.

"Regarding our investment in innovation, we continue to advance our
pipeline, which we believe currently has the largest and most promising
array of late-stage prospects it has had in decades. We are looking
ahead to several potential near-term opportunities in core therapeutic
areas, and continue to see the potential for approximately 25-30
approvals through 2022, of which up to 15 have the potential to be
blockbusters. We continue to believe our pipeline positions us to
deliver life-changing medicines to patients while enhancing shareholder
value.

"In addition, we recently announced a new organizational structure. The
new structure is a natural evolution of our business as we transition to
a period post-2020 where we expect a higher and more sustained revenue
growth profile driven by this new structure, the ongoing success of our
in-market products, our advancing pipeline and a dramatic reduction in
loss of exclusivity impacts," Mr. Read concluded.

Frank D'Amelio, Executive Vice President, Business Operations and Chief
Financial Officer, stated, "I am pleased with our results over the
first-half of 2018, which keep us on track to deliver a solid financial
performance this year. We are raising our 2018 guidance range for
Adjusted diluted EPS(2), which at the midpoint implies 13%
growth compared to last year. Additionally, in the first half of 2018,
we returned $10.1 billion directly to shareholders through dividends and
share repurchases, demonstrating our continued commitment to returning
capital to our shareholders."

QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2018 vs.
Second-Quarter 2017)

Second-quarter 2018 revenues totaled $13.5 billion, an increase of $570
million, or 4%, compared to the prior-year quarter, reflecting the
favorable impact of foreign exchange of $377 million, or 3%, and
operational growth of $194 million, or 2%.

Innovative Health (IH) Highlights

  • IH revenues increased 5% operationally in second-quarter 2018,
    primarily driven by continued growth from key brands including
    Eliquis, Ibrance and Xeljanz globally, Prevnar 13/Prevenar 13
    primarily in emerging markets and the U.S., as well as Xtandi in the
    U.S. Operational revenue growth for Eliquis, Ibrance, Xeljanz and
    Xtandi was 42%, 19%, 37% and 21%, respectively.
  • Second-quarter 2018 IH operational revenue growth was negatively
    impacted primarily by the loss of exclusivity of Viagra in the U.S. in
    December 2017 and the resulting shift in the reporting of Viagra
    revenues in the U.S. and Canada to the Essential Health business at
    the beginning of 2018(3). IH operational revenue growth was
    also negatively impacted by lower revenues for Enbrel in most
    developed Europe markets due to continued biosimilar competition.
  • Global Prevnar 13/Prevenar 13 revenues increased 7% operationally in
    second-quarter 2018.
    • Prevenar 13 revenues in international markets increased 8%
      operationally, primarily due to the overall favorable impact of
      timing associated with government purchases for the pediatric
      indication in certain emerging markets compared with the
      prior-year quarter, as well as the launch of the pediatric
      indication in China in the second quarter of 2017.
    • In the U.S., Prevnar 13 revenues increased 6%, primarily due to
      higher government purchases in second-quarter 2018 compared to
      second-quarter 2017 for the pediatric indication, partially offset
      by the continued decline in revenues for the adult indication due
      to a smaller remaining "catch up" opportunity compared to the
      prior-year quarter.

Essential Health (EH) Highlights

  • Second-quarter 2018 EH revenues declined 4% operationally, negatively
    impacted primarily by:
    • a 12% operational decline in the Legacy Established Products
      portfolio in developed markets;
    • a 17% operational decline in the Sterile Injectable
      Pharmaceuticals portfolio in developed markets, primarily due to
      continued legacy Hospira product shortages in the U.S.; and
    • an 11% operational decline in the Peri-LOE Products portfolio in
      developed markets, primarily due to expected declines in Lyrica in
      developed Europe, partially offset by the addition of Viagra
      revenues from the U.S. and Canada that were previously recorded in
      the IH business,

    partially offset by:

    • 10% operational growth in emerging markets, reflecting growth
      across all portfolios; and
    • 44% operational growth from Biosimilars, primarily from Inflectra
      in certain channels in the U.S. as well as in developed Europe.

GAAP Reported(1) Income Statement Highlights

SELECTED TOTAL COMPANY REPORTED COSTS AND EXPENSES(1)
                                 
($ in millions)

(Favorable)/Unfavorable

Second-Quarter Six Months
2018 2017 % Change 2018 2017 % Change
        Total     Oper.         Total     Oper.
Cost of Sales(1) $ 2,916 $ 2,660 10% 5% $ 5,479 $ 5,128 7%
Percent of Revenues 21.7 % 20.6 % N/A N/A 20.8 % 20.0 % N/A N/A
SI&A Expenses(1) 3,542 3,430 3% 1% 6,954 6,745 3%
R&D Expenses(1)   1,797         1,787       1%       3,540         3,502       1%    
Total $ 8,255       $ 7,877       5%     2% $ 15,973       $ 15,375       4%    
 

Other (Income)/Deductions––net(1)

($551 ) ($ 75 ) *

*

($728 ) ($ 14 ) * *
Effective Tax Rate on Reported Income(1),(6)         14.3 %       19.4 %                   13.9 %       20.1 %            
 

* Indicates calculation not meaningful or result is equal to or
greater than 100%.

Pfizer recorded higher other income––net(1) in second-quarter
2018 compared with the prior-year quarter, primarily due to:

  • unrealized net gains on equity securities, primarily from gains on
    shares of ICU Medical, Inc. stock held by Pfizer that was received as
    part of the consideration for the sale of HIS net assets (the
    recording of these unrealized net gains on equity securities reflects
    the adoption of a new accounting standard in first-quarter 2018; prior
    to the adoption of the new standard, net unrealized gains and losses
    on virtually all equity securities with readily determinable fair
    values were reported in Accumulated other comprehensive income);
  • higher income from collaborations, out-licensing arrangements and sale
    of compound/product rights; and
  • lower charges for certain legal matters, primarily reflecting the
    reversal of a legal accrual in second-quarter 2018 where a loss was no
    longer deemed probable.

Pfizer's effective tax rate on Reported income(1) for
second-quarter 2018 was favorably impacted by the December 2017
enactment of the TCJA(6).

Adjusted(2) Income Statement Highlights

SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2)
                                 
($ in millions)

(Favorable)/Unfavorable

Second-Quarter Six Months
2018 2017 % Change 2018 2017 % Change
        Total     Oper.         Total     Oper.
Adjusted Cost of Sales(2) $ 2,876 $ 2,592 11% 6% $ 5,413 $ 5,024 8%

Percent of Revenues 21.4 % 20.1 % N/A N/A 20.5 % 19.6 % N/A N/A
Adjusted SI&A Expenses(2) 3,507 3,390 3% 1% 6,793 6,685 2% (1%)
Adjusted R&D Expenses(2)   1,789         1,777       1%    

  3,528         3,490       1%    

Total $ 8,173       $ 7,759       5%     2% $ 15,733       $ 15,199       4%    

 
Adjusted Other (Income)/Deductions––net(2) ($519 ) ($179 ) * * ($841 ) ($279 ) * *
Effective Tax Rate on Adjusted Income(2),(6)         15.8 %       22.9 %                   16.1 %       22.6 %            
 

* Indicates calculation not meaningful or result is equal to or
greater than 100%.

Pfizer's effective tax rate on Adjusted income(2) for
second-quarter 2018 was favorably impacted by the aforementioned
December 2017 enactment of the TCJA(6).

Second-quarter 2018 diluted weighted-average shares outstanding used to
calculate Reported(1) and Adjusted(2) diluted EPS
declined by 85 million shares compared to the prior-year quarter
primarily due to Pfizer's ongoing share repurchase program, reflecting
the impact of share repurchases during first-quarter 2018, partially
offset by dilution related to share-based employee compensation programs.

A full reconciliation of Reported(1) to Adjusted(2)
financial measures and associated footnotes can be found starting on
page 21 of the press release located at the hyperlink below.

RECENT NOTABLE DEVELOPMENTS (Since May 1, 2018)

Product Developments

  • Bavencio (avelumab) and talazoparib -- In July 2018, the first
    patient was enrolled in the Phase 3 JAVELIN Ovarian PARP trial
    evaluating avelumab in combination with talazoparib in patients with
    previously untreated advanced ovarian cancer. JAVELIN Ovarian PARP is
    an open-label, international, multi-center, randomized study designed
    to evaluate the efficacy and safety of avelumab in combination with
    chemotherapy followed by maintenance therapy of avelumab in
    combination with talazoparib in treatment naïve patients with locally
    advanced or metastatic ovarian cancer (Stage III or Stage IV). This
    trial further explores the potential of novel combinations with
    avelumab, which is being developed as part of the alliance between
    Merck KGaA, Darmstadt, Germany, and Pfizer.
  • Ibrance (palbociclib) -- In June 2018, Pfizer announced the
    receipt of overall survival (OS) results from the Phase 3 PALOMA-3
    trial, which evaluated Ibrance in combination with fulvestrant
    compared to placebo plus fulvestrant in women with hormone
    receptor-positive (HR+), human epidermal growth factor receptor
    2-negative (HER2-) metastatic breast cancer whose disease has
    progressed after prior endocrine therapy. The results demonstrated a
    positive trend in the hazard ratio favoring the Ibrance combination,
    although this trend did not reach statistical significance. OS is a
    secondary endpoint of the PALOMA-3 trial and, as such, the trial
    design was not optimized to detect a statistically significant
    difference in OS. Pfizer expects to present the detailed OS data at an
    upcoming medical meeting.
  • Lyrica (pregabalin) -- In May 2018, Pfizer announced positive
    top-line results of a Phase 3 study examining the use of Lyrica Oral
    Solution CV as adjunctive therapy for partial onset seizures in
    pediatric epilepsy patients one month to less than four years of age.
    Results showed that adjunctive treatment with Lyrica 14 mg/kg/day
    resulted in a statistically significant reduction in seizure frequency
    versus placebo, the primary efficacy endpoint. Treatment with Lyrica
    at the lower dose (7 mg/kg/day) did not result in a statistically
    significant reduction in seizure frequency versus placebo. The study
    was a post-marketing requirement by the U.S. Food and Drug
    Administration (FDA). Lyrica is not approved as adjunctive therapy for
    partial onset seizures in pediatric epilepsy patients one month to
    less than four years of age. Complete study results are expected to be
    submitted for publication in a peer-reviewed medical journal and to
    the FDA for pediatric exclusivity determination.
  • Nivestym (filgrastim-aafi) -- In July 2018, Pfizer announced
    that the FDA approved Nivestym, a biosimilar to Neupogen®(7)
    (filgrastim), for all eligible indications of the reference product.
  • Prevnar 13 / Prevenar 13 (pneumococcal 13-valent conjugate vaccine
    [diphtheria CRM197 Protein])
    -- In May 2018, Pfizer announced
    results from a study analyzing real-world effectiveness data that
    found that Prevnar 13 reduced the risk of hospitalization from
    vaccine-type pneumococcal community-acquired pneumonia by 73% (95% CI:
    12.8-91.5%) in adults aged 65 and older. Importantly, Prevnar 13
    worked under real-world conditions where people received pneumococcal
    vaccination as advised by their health care providers, and many had
    underlying medical conditions that increase the risk for pneumococcal
    pneumonia. The results were published in Clinical Infectious
    Diseases
    .
  • Retacrit (epoetin alfa-epbx) -- In May 2018, Pfizer announced
    that the FDA approved Retacrit, a biosimilar to Epogen® and
    Procrit® (epoetin alfa)(8), for all indications
    of the reference product. Pfizer has entered into an agreement with
    Vifor Pharma Inc. for the commercialization of Retacrit in certain
    channels.
  • Vyndaqel (tafamidis) -- In May 2018, Pfizer announced that the
    FDA granted Breakthrough Therapy designation for tafamidis for the
    treatment of patients with transthyretin cardiomyopathy (TTR-CM), a
    rare, fatal, and underdiagnosed condition associated with progressive
    heart failure. This decision is supported by topline results from the
    Phase 3 TTR-CM study, ATTR-ACT, in which tafamidis demonstrated a
    statistically significant reduction in the combination of all-cause
    mortality and frequency of cardiovascular-related hospitalizations.
    Currently, there are no approved pharmacological treatments
    specifically indicated for this disease, and the average life
    expectancy for people with TTR-CM is 3 to 5 years from diagnosis. The
    FDA's Breakthrough Therapy designation is intended to expedite the
    development and review of a medicine if it is intended to treat a
    serious or life-threatening disease and preliminary clinical evidence
    indicates that the drug may demonstrate substantial improvement over
    existing therapies. Pfizer expects results of the Phase 3 ATTR-ACT
    trial to be presented as a late-breaker at the European Society of
    Cardiology Congress 2018 in Munich, Germany on August 27, 2018.
  • Xalkori (crizotinib) -- In May 2018, Pfizer announced that the
    FDA granted Breakthrough Therapy designation for Xalkori for the
    treatment of patients with metastatic non-small cell lung cancer
    (NSCLC) with MET exon 14 alterations with disease progression on or
    after platinum-based chemotherapy. The FDA also granted Breakthrough
    Therapy designation for Xalkori for the treatment of patients with
    relapsed or refractory systemic anaplastic large cell lymphoma that is
    anaplastic lymphoma kinase (ALK)-positive.
  • Xeljanz (tofacitinib)
    • In June 2018, Pfizer announced that the European Commission (EC)
      approved Xeljanz 5 mg twice daily (BID) in combination with
      methotrexate for the treatment of active psoriatic arthritis in
      adult patients who have had an inadequate response or who have
      been intolerant to a prior disease-modifying antirheumatic drug
      therapy.
    • In June 2018, Pfizer initiated a Phase 3, randomized,
      double-blind, placebo-controlled, investigational study evaluating
      the efficacy and safety of Xeljanz 5 mg BID compared to placebo in
      adult patients with active ankylosing spondylitis (AS). The study
      is being conducted in adult patients who have had an inadequate
      response or who have been intolerant to a nonsteroidal
      anti-inflammatory drug therapy. Xeljanz is not approved for the
      treatment of AS in any market.
    • In May 2018, the Committee for Medicinal Products for Human Use
      (CHMP) of the European Medicines Agency (EMA) adopted a positive
      opinion, recommending marketing authorization for Xeljanz for the
      treatment of adult patients with moderately to severely active
      ulcerative colitis (UC). The CHMP's opinion will now be reviewed
      by the EC, which has the authority to approve medications for the
      European Union (EU).
    • In May 2018, Pfizer announced that the FDA approved Xeljanz 10 mg
      BID for at least eight weeks, followed by Xeljanz 5 mg BID or 10
      mg BID, for the treatment of adult patients in the U.S. with
      moderately to severely active UC.
  • Xtandi (enzalutamide) -- In July 2018, Pfizer and Astellas
    Pharma Inc. (Astellas) announced that the FDA approved a supplemental
    New Drug Application for Xtandi. The FDA action broadens the
    indication for Xtandi to men with castration-resistant prostate cancer
    (CRPC), now including men with non-metastatic CRPC. This approval
    makes Xtandi the first and only oral medication FDA-approved for both
    non-metastatic and metastatic CRPC.

Pipeline Developments

A comprehensive update of Pfizer's development pipeline was published
today and is now available at www.pfizer.com/science/drug-product-pipeline.
It includes an overview of Pfizer's research and a list of compounds in
development with targeted indication and phase of development, as well
as mechanism of action for some candidates in Phase 1 and all candidates
from Phase 2 through registration.

  • Dacomitinib (PF-00299804) -- In June 2018, Pfizer announced OS
    data from the ARCHER 1050 trial evaluating dacomitinib as a first-line
    treatment for patients with locally advanced or metastatic NSCLC with
    EGFR-activating mutations compared to gefitinib. The trial showed a
    median OS of 34.1 months for patients receiving dacomitinib (95% CI:
    29.5, 37.7), representing a more than seven-month improvement compared
    to 26.8 months with gefitinib (95% CI: 23.7, 32.1). The OS data from
    ARCHER 1050 were presented as an oral presentation at the 54th
    Annual Meeting of the American Society of Clinical Oncology and were
    published simultaneously in the Journal of Clinical Oncology.
  • Fidanacogene elaparvovec (PF-06838435, SPK-9001)
    • In July 2018, Pfizer and Spark Therapeutics (Spark) announced that
      Pfizer initiated a Phase 3 open-label, multi-center, lead-in study
      to evaluate the efficacy and safety of current factor IX
      prophylaxis replacement therapy in the usual care setting. The
      factor IX prophylaxis efficacy data obtained in the lead-in study
      will serve as the within-subject control group for those patients
      that enroll into the next part of the Phase 3 study, which will
      evaluate the investigational gene therapy fidanacogene elaparvovec
      for the treatment of hemophilia B. The Phase 3 program was
      initiated following the recent transfer of the responsibility for
      Spark's hemophilia B gene therapy program to Pfizer. Fidanacogene
      elaparvovec is a novel, investigational vector that contains a
      bio-engineered adeno-associated virus capsid and a high-activity
      human coagulation factor IX gene. It enables patients to produce
      factor IX themselves, rather than having to regularly inject
      factor IX.
    • In May 2018, Pfizer and Spark announced that, with a cumulative
      follow-up of more than 18 patient years of observation (5 to 121
      weeks), all 15 participants in the ongoing Phase 1/2 clinical
      trial of investigational SPK-9001 for severe or moderately severe
      (FIX:C < 2 percent) hemophilia B, had discontinued routine
      infusions of factor IX concentrates. Annualized bleeding rates for
      all 15 participants was reduced by 98%, while annualized infusion
      rate was reduced by 99%. None of the 15 participants experienced
      serious adverse events, and there were no thrombotic events or
      factor IX inhibitors, as of the May 7, 2018 data cutoff. Full
      results of the study were presented at the World Federation of
      Hemophilia World Congress on May 22, 2018.
  • Glasdegib (PF-04449913) -- In June 2018, Pfizer announced that
    the FDA accepted the company's New Drug Application (NDA) and granted
    Priority Review status for glasdegib, an investigational oral
    smoothened inhibitor, being evaluated for the treatment of adult
    patients with previously untreated acute myeloid leukemia in
    combination with low-dose cytarabine, a type of chemotherapy. The
    Prescription Drug User Fee Act (PDUFA) goal date for a decision by the
    FDA is in December 2018. The FDA grants Priority Review to medicines
    that may offer significant advances in treatment or may provide a
    treatment where no adequate therapy exists.
  • Lorlatinib (PF-06463922) -- In July 2018, the FDA notified
    Pfizer that the review period for the NDA for lorlatinib has been
    extended by three months to allow time to review additional
    information recently submitted by Pfizer in response to an FDA
    information request. The submission of the additional information was
    determined by the FDA to constitute a major amendment to the NDA,
    resulting in an extension of the PDUFA goal date by three months, from
    August 2018 to November 2018. The FDA previously granted Priority
    Review status to the lorlatinib NDA in February 2018. Lorlatinib is
    Pfizer's investigational next-generation ALK/ROS1 tyrosine kinase
    inhibitor under regulatory review for the treatment of patients with
    ALK-positive metastatic NSCLC, previously treated with one or more ALK
    inhibitors.
  • PF-06482077 -- In second-quarter 2018, Pfizer achieved
    proof-of-concept for PF-06482077, Pfizer's next-generation
    multi-valent pneumococcal conjugate vaccine candidate. Results from
    the recently-completed Phase 2 trial demonstrated that the vaccine
    candidate was safe and well-tolerated and induced functional immune
    responses that could kill all twenty serotypes. PF-06482077 is being
    developed to potentially extend coverage beyond the thirteen serotypes
    covered by Prevnar 13 to include seven additional serotypes prevalent
    in causing pneumococcal disease in adults and children. Pfizer is
    currently planning its Phase 3 program for PF-06482077.
  • Rivipansel (GMI-1070) -- In July 2018, Pfizer updated the
    estimated completion date for the Rivipansel
    Evaluating Safety,
    Efficacy and Time
    to Discharge (RESET) Phase 3 trial. Investigators in the U.S. and
    Canada continue to enroll sickle cell disease (SCD) patients and study
    completion is now expected in the second quarter of 2019. The study
    was previously expected to be completed in late 2018. This update was
    calculated based on historical enrollment over the last 12 months.
    Rivipansel is being studied for the treatment of vaso-occlusive crisis
    in hospitalized subjects with SCD.
  • Talazoparib (MDV3800) -- In June 2018, Pfizer announced that
    the FDA accepted for filing and granted Priority Review status to the
    company's NDA for talazoparib, an investigational, once-daily, oral
    poly ADP ribose polymerase (PARP) inhibitor, for the treatment of
    germline (inherited) BRCA-mutated, HER2- locally advanced or
    metastatic breast cancer. The PDUFA goal date for a decision by the
    FDA is in December 2018. The EMA has also accepted the Marketing
    Authorization Application for talazoparib in this patient population.
  • Tanezumab (PF-4383119, RN624) -- In July 2018, Pfizer and Eli
    Lilly and Company (Lilly) announced that a 16-week Phase 3 study in
    patients with osteoarthritis (OA) pain evaluating subcutaneous
    administration of tanezumab, an investigational humanized monoclonal
    antibody, met all three co-primary endpoints. The study demonstrated
    that patients who received two doses of tanezumab separated by eight
    weeks experienced a statistically significant improvement in pain,
    physical function and the patients' overall assessment of their OA,
    compared to those receiving placebo. Preliminary safety data showed
    that tanezumab was generally well tolerated, with approximately 1% of
    patients discontinuing treatment due to adverse events. Rapidly
    progressive OA was observed in tanezumab-treated patients at a
    frequency of less than 1.5%, and was not observed in the placebo arm.
    There were no events of osteonecrosis observed in the trial. No new
    safety signals were identified. Tanezumab is part of an
    investigational class of pain medications known as nerve growth factor
    inhibitors and in addition to OA pain, is being evaluated for chronic
    low back pain and cancer pain (due to bone metastases). Pfizer and
    Lilly expect to present the detailed efficacy and safety data for
    tanezumab at an upcoming medical meeting.
  • Trazimera (biosimilar trastuzumab) -- In July 2018, Pfizer
    announced that the European Commission has approved Trazimera, a
    biosimilar to Herceptin(9), for the treatment of HER2
    overexpressing breast cancer and HER2 overexpressing metastatic
    gastric or gastroesophageal junction adenocarcinoma. This approval
    follows the recommendation from the CHMP in May 2018.

Corporate Developments

  • In July 2018, Pfizer announced that it will increase its commitment to
    U.S. manufacturing with a $465 million investment to build one of the
    most technically advanced sterile injectable pharmaceutical production
    facilities in the world in Portage, Michigan. This U.S. investment
    will strengthen Pfizer's capability to produce and supply critical,
    life-saving injectable medicines for patients around the world. Known
    as Modular Aseptic Processing, the new, multi-story,
    400,000-square-foot production facility will also support the area
    economy by creating an estimated 450 new jobs over the next several
    years. This expands Pfizer's presence in Portage, located in Kalamazoo
    County, where the company now employs more than 2,200 people at one of
    its largest plants.
  • In July 2018, Pfizer announced that it will organize the company into
    three businesses, including:
    • a science-based Innovative Medicines business, which will include
      all of the current Innovative Health business units (except for
      Consumer Healthcare) as well as biosimilars and a new Hospital
      Medicines business unit that will commercialize Pfizer's global
      portfolio of sterile injectable and anti-infective medicines;
    • an off-patent branded and generic Established Medicines business
      operating with substantial autonomy within Pfizer; and
    • a Consumer Healthcare business, for which Pfizer continues to
      evaluate strategic alternatives, with a decision expected in 2018.

These changes will be effective at the beginning of the company's 2019
fiscal year. Pfizer will provide financial reporting to reflect this
reorganization beginning with the issuance of first-quarter 2019
earnings.

  • In June 2018, the FDA informed Pfizer that it has completed an
    evaluation of corrective actions and closed out the February 2017
    Warning Letter issued to Pfizer's McPherson, Kansas manufacturing
    facility after determining that Pfizer has addressed the violations
    contained in the Warning Letter. Future FDA inspections and regulatory
    activities will further assess the adequacy and sustainability of
    these corrections. The site remains in Voluntary Action Indicated
    (VAI) status.
  • In June 2018, Pfizer announced that it plans to invest $600 million in
    biotechnology and other emerging growth companies through Pfizer
    Ventures, the company's venture investment vehicle. In addition to
    increased funding, Pfizer will extend its leadership as a venture
    capital investor with an expanded team that leverages expertise across
    venture capital investing, business development, drug discovery and
    clinical development.

Please find Pfizer's press release and associated financial tables,
including reconciliations of certain GAAP reported to non-GAAP adjusted
information, at the following hyperlink: https://investors.pfizer.com/files/doc_financials/Quarterly/2018/q2/Q2-2018-PFE-Earnings-Release.pdf

(Note: If clicking on the above link does not open up a new web page,
you may need to cut and paste the above URL into your browser's address
bar.)

For additional details, see the associated financial schedules and
product revenue tables attached to the press release located at the
hyperlink referred to above and the attached disclosure notice.

(1)     Revenues is defined as revenues in accordance with U.S. generally
accepted accounting principles (GAAP). Reported net income is
defined as net income attributable to Pfizer Inc. in accordance with
U.S. GAAP. Reported diluted earnings per share (EPS) is defined as
reported diluted EPS attributable to Pfizer Inc. common shareholders
in accordance with U.S. GAAP.
 
(2)

Adjusted income and its components and Adjusted diluted EPS are
defined as reported U.S. GAAP net income(1) and its
components and reported diluted EPS(1) excluding
purchase accounting adjustments, acquisition-related costs,
discontinued operations and certain significant items (some of
which may recur, such as restructuring or legal charges, but which
management does not believe are reflective of ongoing core
operations). Adjusted cost of sales, Adjusted selling,
informational and administrative (SI&A) expenses, Adjusted
research and development (R&D) expenses and Adjusted other
(income)/deductions are income statement line items prepared on
the same basis as, and therefore components of, the overall
Adjusted income measure. As described in the Financial
Review––Non-GAAP Financial Measure (Adjusted Income)
section
of Pfizer's 2017 Financial Report, which was filed as Exhibit 13
to Pfizer's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, management uses Adjusted income, among other
factors, to set performance goals and to measure the performance
of the overall company. Because Adjusted income is an important
internal measurement for Pfizer, management believes that
investors' understanding of our performance is enhanced by
disclosing this performance measure. Pfizer reports Adjusted
income, certain components of Adjusted income, and Adjusted
diluted EPS in order to portray the results of the company's major
operations––the discovery, development, manufacture, marketing and
sale of prescription medicines, vaccines and consumer healthcare
(OTC) products––prior to considering certain income statement
elements. See the accompanying reconciliations of certain GAAP
Reported to Non-GAAP Adjusted information for the second quarter
and first six months of 2018 and 2017. The Adjusted income and its
components and Adjusted diluted EPS measures are not, and should
not be viewed as, substitutes for U.S. GAAP net income and its
components and diluted EPS.

 
(3) Pfizer's fiscal year-end for international subsidiaries is November
30 while Pfizer's fiscal year-end for U.S. subsidiaries is December
31. Therefore, Pfizer's second quarter and first six months for U.S.
subsidiaries reflect the three and six months ending on July 1, 2018
and July 2, 2017 while Pfizer's second quarter and first six months
for subsidiaries operating outside the U.S. reflect the three and
six months ending on May 27, 2018 and May 28, 2017.
 
(4) References to operational variances in this press release pertain to
period-over-period growth rates that exclude the impact of foreign
exchange. The operational variances are determined by multiplying or
dividing, as appropriate, the current period U.S. dollar results by
the current period average foreign exchange rates and then
multiplying or dividing, as appropriate, those amounts by the
prior-year period average foreign exchange rates. Although exchange
rate changes are part of Pfizer's business, they are not within
Pfizer's control. Exchange rate changes, however, can mask positive
or negative trends in the business; therefore, Pfizer believes
presenting operational variances provides useful information in
evaluating the results of its business.
 
(5) The 2018 financial guidance reflects the following:
 

Pfizer does not provide guidance for GAAP Reported financial
measures (other than revenues) or a reconciliation of
forward-looking non-GAAP financial measures to the most directly
comparable GAAP Reported financial measures on a forward-looking
basis because it is unable to predict with reasonable certainty
the ultimate outcome of pending litigation, unusual gains and
losses, acquisition-related expenses and potential future asset
impairments without unreasonable effort. These items are
uncertain, depend on various factors, and could have a material
impact on GAAP Reported results for the guidance period.

 

Does not assume the completion of any business development
transactions not completed as of July 1, 2018, including any
one-time upfront payments associated with such transactions.

 

Guidance for Adjusted other (income)/deductions(2) does
not attempt to forecast unrealized net gains or losses on equity
securities. Pfizer is unable to predict with reasonable certainty
unrealized gains or losses on equity securities in a given period.
Net unrealized gains and losses on equity securities are now
recorded in Adjusted other (income)/deductions(2)
during each quarter, reflecting the adoption of a new accounting
standard in the first quarter of 2018. Prior to the adoption of
the new standard, net unrealized gains and losses on virtually all
equity securities with readily determinable fair values were
reported in Accumulated other comprehensive income.

 

Exchange rates assumed are a blend of the actual exchange rates in
effect through second-quarter 2018 and mid-July 2018 exchange
rates for the remainder of the year.

 

Reflects an anticipated negative revenue impact of $1.9 billion
due to recent and expected generic and biosimilar competition for
certain products that have recently lost or are anticipated to
soon lose patent protection. Assumes no generic competition for
Lyrica in the U.S. until June 2019, which is contingent upon a
six-month patent-term extension granted by the FDA for pediatric
exclusivity, which the company is currently pursuing.

 

Reflects a full year contribution from Consumer Healthcare. Pfizer
continues to expect that any decision regarding strategic
alternatives for Consumer Healthcare will be made during 2018.

 

Reflects the anticipated favorable impact of approximately $500
million on revenues and approximately $0.03 on Adjusted diluted EPS(2)
as a result of favorable changes in foreign exchange rates
relative to the U.S. dollar compared to foreign exchange rates
from 2017.

 

Guidance for Adjusted diluted EPS(2) assumes diluted
weighted-average shares outstanding of approximately 6.0 billion
shares, which reflects share repurchases totaling approximately
$6.1 billion already completed in 2018. Dilution related to
share-based employee compensation programs is expected to offset
by approximately half the reduction in shares associated with
these share repurchases.

 
(6) Given the significant changes resulting from and complexities
associated with the Tax Cuts and Jobs Act (TCJA), the estimated
financial impacts associated with the TCJA that were recorded in
fourth-quarter 2017 are provisional and subject to further analysis,
interpretation and clarification of the TCJA, which could result in
changes to these estimates during 2018.
 
(7) Neupogen® is a registered trademark of Amgen Inc.
 
(8) Epogen® is a registered U.S. trademark of Amgen Inc.;
Procrit® is a registered U.S. trademark of Johnson &
Johnson.
 
(9) Herceptin® is a registered U.S. trademark of Genentech,
Inc.
 

DISCLOSURE NOTICE: Except where otherwise noted, the information
contained in this earnings release and the related attachments is as of
July 31, 2018. We assume no obligation to update any forward-looking
statements contained in this earnings release and the related
attachments as a result of new information or future events or
developments.

This earnings release and the related attachments contain
forward-looking statements about our anticipated future operating and
financial performance, business plans and prospects, in-line products
and product candidates, including anticipated regulatory submissions,
data read-outs, study starts, approvals, performance, timing of
exclusivity and potential benefits of Pfizer's products and product
candidates, strategic reviews, capital allocation, business-development
plans, the benefits expected from our plans to organize our commercial
operations into three businesses effective at the beginning of the
company's 2019 fiscal year, our acquisitions and other business
development activities, manufacturing and product supply and plans
relating to share repurchases and dividends, among other things, that
involve substantial risks and uncertainties. You can identify these
statements by the fact that they use future dates or use words such as
"will," "may," "could," "likely," "ongoing," "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," "assume," "target,"
"forecast," "guidance," "goal," "objective," "aim" and other words and
terms of similar meaning. Among the factors that could cause actual
results to differ materially from past results and future plans and
projected future results are the following:

  • the outcome of research and development activities, including, without
    limitation, the ability to meet anticipated pre-clinical and clinical
    trial commencement and completion dates, regulatory submission and
    approval dates, and launch dates for product candidates, as well as
    the possibility of unfavorable pre-clinical and clinical trial
    results, including unfavorable new clinical data and additional
    analyses of existing clinical data;
  • decisions by regulatory authorities regarding whether and when to
    approve our drug applications, which will depend on the assessment by
    such regulatory authorities of the benefit-risk profile suggested by
    the totality of the efficacy and safety information submitted;
    decisions by regulatory authorities regarding labeling, ingredients
    and other matters that could affect the availability or commercial
    potential of our products; uncertainties regarding our ability to
    address the comments received by us from regulatory authorities such
    as the U.S. Food and Drug Administration (FDA) and the European
    Medicines Agency with respect to certain of our drug applications to
    the satisfaction of those authorities; and recommendations by
    technical or advisory committees, such as the Advisory Committee on
    Immunization Practices, that may impact the use of our vaccines;
  • the speed with which regulatory authorizations, pricing approvals and
    product launches may be achieved;
  • the outcome of post-approval clinical trials, which could result in
    the loss of marketing approval for a product or changes in the
    labeling for, and/or increased or new concerns about the safety or
    efficacy of, a product that could affect its availability or
    commercial potential;
  • risks associated with preliminary, early stage or interim data,
    including the risk that final results of studies for which
    preliminary, early stage or interim data have been provided and/or
    additional clinical trials may be different from (including less
    favorable than) the preliminary, early stage or interim data results
    and may not support further clinical development of the applicable
    product candidate or indication;
  • the success of external business-development activities, including the
    ability to satisfy the conditions to closing of announced transactions
    in the anticipated time frame or at all or to realize the anticipated
    benefits of such transactions;
  • competitive developments, including the impact on our competitive
    position of new product entrants, in-line branded products, generic
    products, private label products, biosimilars and product candidates
    that treat diseases and conditions similar to those treated by our
    in-line drugs and drug candidates;
  • the implementation by the FDA and regulatory authorities in certain
    other countries of an abbreviated legal pathway to approve biosimilar
    products, which could subject our biologic products to competition
    from biosimilar products, with attendant competitive pressures, after
    the expiration of any applicable exclusivity period and patent rights;
  • risks related to our ability to develop and launch biosimilars,
    including risks associated with "at risk" launches, defined as the
    marketing of a product by Pfizer before the final resolution of
    litigation (including any appeals) brought by a third party alleging
    that such marketing would infringe one or more patents owned or
    controlled by the third party, and access challenges for our
    biosimilar products where our product may not receive appropriate
    formulary access or remains in a disadvantaged position relative to
    the innovator product;
  • the ability to meet competition from generic, branded and biosimilar
    products after the loss or expiration of patent protection for our
    products or competitor products;
  • the ability to successfully market both new and existing products
    domestically and internationally;
  • difficulties or delays in manufacturing, including delays caused by
    natural events, such as hurricanes; supply shortages at our
    facilities; and legal or regulatory actions, such as warning letters,
    suspension of manufacturing, seizure of product, debarment,
    injunctions or voluntary recall of a product;
  • trade buying patterns;
  • the impact of existing and future legislation and regulatory
    provisions on product exclusivity;
  • trends toward managed care and healthcare cost containment, and our
    ability to obtain or maintain timely or adequate pricing or formulary
    placement for our products;
  • the impact of any significant spending reductions or cost controls
    affecting Medicare, Medicaid or other publicly funded or subsidized
    health programs or changes in the tax treatment of employer-sponsored
    health insurance that may be implemented;
  • the impact of any U.S. healthcare reform or legislation, including any
    replacement, repeal, modification or invalidation of some or all of
    the provisions of the U.S. Patient Protection and Affordable Care Act,
    as amended by the Health Care and Education Reconciliation Act;
  • U.S. federal or state legislation or regulatory action and/or policy
    efforts affecting, among other things, pharmaceutical product pricing,
    reimbursement or access, including under Medicaid, Medicare and other
    publicly funded or subsidized health programs; patient out-of-pocket
    costs for medicines, manufacturer prices and/or price increases that
    could result in new mandatory rebates and discounts or other pricing
    restrictions; the importation of prescription drugs from outside the
    U.S. at prices that are regulated by governments of various foreign
    countries; restrictions on direct-to-consumer advertising; limitations
    on interactions with healthcare professionals; or the use of
    comparative effectiveness methodologies that could be implemented in a
    manner that focuses primarily on the cost differences and minimizes
    the therapeutic differences among pharmaceutical products and
    restricts access to innovative medicines; as well as pricing pressures
    for our products as a result of highly competitive insurance markets;
  • legislation or regulatory action in markets outside the U.S. affecting
    pharmaceutical product pricing, reimbursement or access, including, in
    particular, continued government-mandated reductions in prices and
    access restrictions for certain biopharmaceutical products to control
    costs in those markets;
  • the exposure of our operations outside the U.S. to possible capital
    and exchange controls, expropriation and other restrictive government
    actions, changes in intellectual property legal protections and
    remedies, as well as political unrest, unstable governments and legal
    systems and inter-governmental disputes;
  • contingencies related to actual or alleged environmental contamination;
  • claims and concerns that may arise regarding the safety or efficacy of
    in-line products and product candidates;
  • any significant breakdown, infiltration or interruption of our
    information technology systems and infrastructure;
  • legal defense costs, insurance expenses and settlement costs;
  • the risk of an adverse decision or settlement and the adequacy of
    reserves related to legal proceedings, including patent litigation,
    such as claims that our patents are invalid and/or do not cover the
    product of the generic drug manufacturer or where one or more third
    parties seeks damages and/or injunctive relief to compensate for
    alleged infringement of its patents by our commercial or other
    activities, product liability and other product-related litigation,
    including personal injury, consumer, off-label promotion, securities,
    antitrust and breach of contract claims, commercial, environmental,
    government investigations, employment and other legal proceedings,
    including various means for resolving asbestos litigation, as well as
    tax issues;
  • the risk that our currently pending or future patent applications may
    not result in issued patents, or be granted on a timely basis, or any
    patent-term extensions that we seek may not be granted on a timely
    basis, if at all;
  • our ability to protect our patents and other intellectual property,
    both domestically and internationally;
  • interest rate and foreign currency exchange rate fluctuations,
    including the impact of possible currency devaluations in countries
    experiencing high inflation rates;
  • governmental laws and regulations affecting domestic and foreign
    operations, including, without limitation, tax obligations and changes
    affecting the tax treatment by the U.S. of income earned outside the
    U.S. that may result from pending and possible future proposals,
    including further clarifications and/or interpretations of the
    recently passed Tax Cuts and Jobs Act;
  • any significant issues involving our largest wholesale distributors,
    which account for a substantial portion of our revenues;
  • the possible impact of the increased presence of counterfeit medicines
    in the pharmaceutical supply chain on our revenues and on patient
    confidence in the integrity of our medicines;
  • the end result of any negotiations between the U.K. government and the
    EU regarding the terms of the U.K.'s exit from the EU, which could
    have implications on our research, commercial and general business
    operations in the U.K. and the EU, including the approval and supply
    of our products;
  • any significant issues that may arise related to the outsourcing of
    certain operational and staff functions to third parties, including
    with regard to quality, timeliness and compliance with applicable
    legal requirements and industry standards;
  • any significant issues that may arise related to our joint ventures
    and other third-party business arrangements;
  • changes in U.S. generally accepted accounting principles;
  • further clarifications and/or changes in interpretations of existing
    laws and regulations, or changes in laws and regulations, in the U.S.
    and other countries;
  • uncertainties related to general economic, political, business,
    industry, regulatory and market conditions including, without
    limitation, uncertainties related to the impact on Pfizer, our
    customers, suppliers and lenders and counterparties to our
    foreign-exchange and interest-rate agreements of challenging global
    economic conditions and recent and possible future changes in global
    financial markets; the related risk that our allowance for doubtful
    accounts may not be adequate; and the risks related to volatility of
    our income due to changes in the market value of equity investments;
  • any changes in business, political and economic conditions due to
    actual or threatened terrorist activity in the U.S. and other parts of
    the world, and related U.S. military action overseas;
  • growth in costs and expenses;
  • changes in our product, segment and geographic mix;
  • the impact of purchase accounting adjustments, acquisition-related
    costs, discontinued operations and certain significant items;
  • the impact of acquisitions, divestitures, restructurings, internal
    reorganizations, including our plans to organize our commercial
    operations into three businesses effective at the beginning of the
    company's 2019 fiscal year, and cost-reduction and productivity
    initiatives, each of which requires upfront costs but may fail to
    yield anticipated benefits and may result in unexpected costs due to
    organizational disruption;
  • the impact of product recalls, withdrawals and other unusual items;
  • the risk of an impairment charge related to our intangible assets,
    goodwill or equity-method investments;
  • risks related to internal control over financial reporting;
  • risks and uncertainties related to our acquisitions of Hospira, Inc.
    (Hospira), Anacor Pharmaceuticals, Inc. (Anacor), Medivation, Inc.
    (Medivation) and AstraZeneca's small molecule anti-infectives
    business, including, among other things, the ability to realize the
    anticipated benefits of those acquisitions, including the possibility
    that expected cost savings related to the acquisition of Hospira and
    accretion related to the acquisitions of Hospira, Anacor and
    Medivation will not be realized or will not be realized within the
    expected time frame; the risk that the businesses will not be
    integrated successfully; disruption from the transactions making it
    more difficult to maintain business and operational relationships;
    risks related to our ability to grow revenues for Xtandi; significant
    transaction costs; and unknown liabilities; and
  • risks and uncertainties related to our evaluation of strategic
    alternatives for our Consumer Healthcare business, including, among
    other things, the ability to realize the anticipated benefits of any
    strategic alternatives we may pursue for our Consumer Healthcare
    business, the potential for disruption to our business and diversion
    of management's attention from other aspects of our business, the
    possibility that such strategic alternatives will not be completed on
    terms that are advantageous to Pfizer, the possibility that we may be
    unable to realize a higher value for Pfizer Consumer Healthcare
    through strategic alternatives, and unknown liabilities.

We cannot guarantee that any forward-looking statement will be realized.
Achievement of anticipated results is subject to substantial risks,
uncertainties and inaccurate assumptions. Should known or unknown risks
or uncertainties materialize or should underlying assumptions prove
inaccurate, actual results could vary materially from past results and
those anticipated, estimated or projected. Investors should bear this in
mind as they consider forward-looking statements, and are cautioned not
to put undue reliance on forward-looking statements. A further list and
description of risks, uncertainties and other matters can be found in
our Annual Report on Form 10-K for the fiscal year ended December 31,
2017 and in our subsequent reports on Form 10-Q, in each case including
in the sections thereof captioned "Forward-Looking Information and
Factors That May Affect Future Results" and "Item 1A. Risk Factors", and
in our subsequent reports on Form 8-K.

The operating segment information provided in this earnings release and
the related attachments does not purport to represent the revenues,
costs and income from continuing operations before provision for taxes
on income that each of our operating segments would have recorded had
each segment operated as a standalone company during the periods
presented.

This earnings release may include discussion of certain clinical studies
relating to various in-line products and/or product candidates. These
studies typically are part of a larger body of clinical data relating to
such products or product candidates, and the discussion herein should be
considered in the context of the larger body of data. In addition,
clinical trial data are subject to differing interpretations, and, even
when we view data as sufficient to support the safety and/or
effectiveness of a product candidate or a new indication for an in-line
product, regulatory authorities may not share our views and may require
additional data or may deny approval altogether.

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