Pfizer 2005 Annual Report Download - page 2

Introduction
Our Financial Review is provided in addition to the accompanying
consolidated financial statements and footnotes to assist readers
in understanding Pfizer’s results of operations, financial condition
and cash flows. The Financial Review is organized as follows:
•Overview of Consolidated Operating Results. This section
provides a general description of Pfizer’s business; an overview
of our 2005 performance; a summary of our new productivity
initiative; information about our operating environment; and
a discussion of our expectations for 2006.
•Accounting Policies. This section, beginning on page 5, discusses
those accounting policies that are considered important in
understanding Pfizer’s financial statements. For additional
accounting policies, including those considered to be critical
accounting policies, see Notes to Consolidated Financial
Statements—Note 1, Significant Accounting Policies.
•Acquisitions and Dispositions. This section, beginning on page
9, discusses significant acquisitions and dispositions made by
Pfizer during 2005, 2004 and 2003.
•Analysis of the Consolidated Statement of Income. This section,
beginning on page 11, provides an analysis of our products and
revenues for the three years ended December 31, 2005; an
overview of important product developments; a discussion
about our costs and expenses; an analysis of the financial
statement impact of our discontinued operations and
dispositions during the period; and a discussion of Adjusted
income, an alternative view of performance used by
management.
•Financial Condition, Liquidity and Capital Resources. This
section, beginning on page 27, provides an analysis of our
balance sheet as of December 31, 2005 and 2004, and cash flows
for the three years ended December 31, 2005, as well as a
discussion of our outstanding debt and commitments that
existed as of December 31, 2005. Included in the discussion of
outstanding debt is a discussion of the amount of financial
capacity available to fund Pfizer’s future commitments.
•Recently Issued Accounting Standards. This section, beginning
on page 30, discusses accounting standards that we have not
yet adopted and the expected impact to Pfizer upon adoption.
•Forward-Looking Information and Factors That May Affect
Future Results. This section, beginning on page 31, provides a
description of the risks and uncertainties that could cause
actual results to differ materially from those discussed in
forward-looking statements set forth in this report relating to
the financial results, operations and business prospects of the
Company. Such forward-looking statements are based on
management’s current expectations about future events, which
are inherently susceptible to uncertainty and changes in
circumstances. Also included in this section are discussions of
Financial Risk Management, Foreign Exchange Risk, Interest
Rate Risk and Legal Proceedings and Contingencies.
Overview of Consolidated Operating Results
Our Business
We are a research-based, global pharmaceutical company that
discovers, develops, manufactures and markets leading
prescription medicines for humans and animals, as well as many
of the world’s best known consumer healthcare products. Our
longstanding value proposition has been to prove that our
medicines cure or treat disease, including symptoms and suffering,
and this remains our core mission. We have expanded our value
proposition to also show that not only can our medicines cure or
treat disease, but that they can also markedly improve health
systems by reducing overall healthcare costs, improving societies’
economic well-being and increasing effective prevention and
treatment of disease. We generate revenue through the sale of
our products, as well as through alliance agreements by co-
promoting products discovered by other companies.
Our Human Health segment represented 86% of our total
revenues in 2005 and, therefore, developments relating to the
pharmaceutical industry can have a significant impact on our
operations.
Our 2005 Performance
Our performance in 2005 was impacted by the loss of exclusivity
in the U.S. of certain key medicines (Diflucan, Neurontin,
Accupril/Accuretic and Zithromax), uncertainty related to Celebrex
and the suspension of Bextra sales, which collectively reduced our
worldwide revenues by $5.7 billion compared with 2004. Partially
offsetting these impacts was the solid aggregate performance of
the balance of our portfolio of patent-protected medicines.
Specifically, in 2005,
•Our total revenues decreased 2% to $51.3 billion from 2004.
Revenues of major products with lost exclusivity in the U.S.
(Diflucan, Neurontin and Accupril/Accuretic during 2004 and
Zithromax in November 2005) declined by 44% from 2004.
These four products represented 8% of our Human Health
revenues and 7% of our total revenues for the year ended
December 31, 2005 compared to 13% of our Human Health
revenues and 12% of our total revenues for the year ended
December 31, 2004. Uncertainty related to Celebrex and the
suspension of Bextra sales have resulted in a significant decline
in prescription volume in the arthritis and pain market, resulting
in a 63% decline in revenues in those products from 2004.
These declines were partially offset by an aggregate revenue
increase of 11% in the balance of our portfolio of our patent-
protected products. Our portfolio of medicines includes four of
the world’s 25 best-selling medicines, with six medicines that
lead their therapeutic areas (see further discussion in the
“Human Health-Selected Product Descriptions” section of this
Financial Review).
•Our net income was $8.1 billion compared with $11.4 billion in
2004. Our 2005 results reflect in-process research and
development (IPR&D) charges of $1.7 billion, primarily related
to our acquisitions of Vicuron Pharmaceuticals, Inc. (Vicuron)
and Idun Pharmaceuticals, Inc. (Idun); asset impairment and
other charges of $1.2 billion associated with the suspension of
sales of Bextra; restructuring charges and merger-related costs
2005 Financial Report 1
Financial Review
Pfizer Inc and Subsidiary Companies