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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-3619
PFIZER INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-5315170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
235 East 42nd Street
New York, New York 10017-5755
(Address of principal executive offices) (Zip Code)
(212) 573-2323
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Common Stock, $.05 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the closing price at which the stock was
sold as of February 29, 2000 was approximately $120.6 billion.
The number of shares outstanding (voting) of each of the registrant's
classes of common stock as of February 29, 2000 WAS 3,849,002,705 shares of
common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Shareholders Parts I, II and IV
Portions of the joint proxy statement/prospectus for
the 2000 Annual Meeting of Shareholders Parts I and III
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TABLE OF CONTENTS
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PAGE
PART I ...................................................................... 1
ITEM 1. BUSINESS ........................................................... 1
General .................................................................. 1
Recent Development ....................................................... 1
Business Segments ........................................................ 1
Pharmaceutical Segment ................................................ 2
Animal Health Segment ................................................. 3
Research and Product Development ......................................... 4
International Operations ................................................. 5
Marketing ................................................................ 6
Patents and Intellectual Property Rights ................................. 7
Competition .............................................................. 8
Raw Materials ............................................................ 10
Government Regulation and Price Constraints .............................. 11
Environmental Law Compliance ............................................. 12
Year 2000 ................................................................ 12
Corporate/Financial Subsidiaries ......................................... 12
Tax Matters .............................................................. 13
Employees ................................................................ 13
Cautionary Factors That May Affect Future Results ........................ 13
ITEM 2. PROPERTIES ......................................................... 17
ITEM 3. LEGAL PROCEEDINGS .................................................. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE .................................... 27
EXECUTIVE OFFICERS OF THE COMPANY ........................................ 28
PART II ..................................................................... 31
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS ........................................ 31
ITEM 6. SELECTED FINANCIAL DATA ............................................ 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...................... 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .................................................. 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ........................ 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ............................. 32
PART III .................................................................... 32
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY .................... 32
ITEM 11. EXECUTIVE COMPENSATION ............................................. 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..................................................... 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 32
PART IV ..................................................................... 33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K ............................................ 33
14(a)(1) Financial Statements .......................................... 33
14(a)(2) Financial Statement Schedules ................................. 33
14(a)(3) Exhibits ...................................................... 33
14(b) Reports on Form 8-K ........................................... 34
PART I
ITEM 1. BUSINESS
GENERAL
Pfizer Inc. (the COMPANY, which may be referred to as WE, US, or OUR) is a
research-based, global pharmaceutical company. We discover, develop, manufacture
and market innovative medicines for humans and animals.
Our home page on the Internet is at www.pfizer.com. You can learn about us
by visiting that site.
NOTE THAT THROUGHOUT THIS 1999 10-K REPORT, WE "INCORPORATE BY REFERENCE"
CERTAIN INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC). THE SEC ALLOWS US TO DISCLOSE IMPORTANT INFORMATION
BY REFERRING TO IT IN THAT MANNER. PLEASE REFER TO SUCH INFORMATION.
RECENT DEVELOPMENT
On February 7, 2000, we announced an agreement to merge with Warner-Lambert
Company (Warner-Lambert). Under the terms of the merger agreement, which has
been approved by the Board of Directors of both Pfizer and Warner-Lambert, we
will exchange 2.75 shares of Pfizer voting common stock for each outstanding
share of Warner-Lambert voting common stock in a tax-free transaction valued at
$98.31 per Warner-Lambert share, or an equity value of $90 billion based on the
closing price of our stock on February 4, 2000 of $35.75 per share. Customary
and usual provisions will be made for outstanding options and warrants.
The combined company, which will be called Pfizer Inc., is expected to have
(excluding any impact of anticipated restructuring charges and transaction fees
of $1.7 billion to $2.2 billion):
o compounded annual revenue growth of 13% and earnings growth of 25% through
2002
o $4.7 billion in annual research and development expenses in 2000
o anticipated annual cost savings and efficiencies totaling $1.6 billion by
2002 ($200 million of these savings are expected to be achieved in 2000, $1
billion in 2001 and $1.6 billion in 2002)
o diluted earnings per share of $.98 on a pro forma basis in 2000, $1.27 for
2001 and $1.56 for 2002 (these numbers include the $1.6 billion of cost
savings phased in over this time period, but do not include any increased
sales from collaborative activities and the $1.8 billion termination fee
paid by Warner-Lambert to American Home Products Corporation).
This transaction is subject to customary conditions, including the use of
pooling-of-interests accounting, qualifying as a tax-free reorganization,
shareholder approval at both companies and usual regulatory approvals. The
transaction is expected to close in mid-2000.
BUSINESS SEGMENTS
We operate in two business segments:
o PHARMACEUTICAL, which includes prescription pharmaceuticals for treating
cardiovascular diseases, infectious diseases, central nervous system
disorders, diabetes, erectile dysfunction, allergies, arthritis and other
disorders, as well as non-prescription self-medications, and;
o ANIMAL HEALTH, which includes antiparasitic, anti-infective and
anti-inflammatory medicines, and vaccines for livestock, poultry and
companion animals.
These businesses derive synergies in certain research and regulatory
matters, but each requires different marketing and distribution strategies and
sales organizations. Comparative segment revenues, profits and related financial
information for 1999, 1998 and 1997 are given in the table entitled SEGMENT
INFORMATION on page 60 of our 1999 Annual report. A table captioned PERCENTAGE
CHANGE IN TOTAL REVENUES
and a graph captioned TOTAL REVENUES BY BUSINESS SEGMENT on page 29 of our 1999
Annual Report give segment information over the past three years. The
information from those sections of our Annual Report is considered to be
incorporated in this 1999 10-K report.
Our businesses are heavily regulated in most of the countries where we
operate. in the U.S., the main regulatory authority we deal with is the Food and
Drug Administration (FDA). The FDA regulates the safety and efficacy of the
products we offer, our research quality, our manufacturing processes and our
promotion and advertising. Similar Government authorities act in most other
countries, and in many cases also regulate our prices. See GOVERNMENT REGULATION
AND PRICE CONSTRAINTS, below.
PHARMACEUTICAL SEGMENT
Our Pharmaceutical segment is comprised of the Pfizer Pharmaceuticals Group
and the Consumer Health Care Group.
PFIZER PHARMACEUTICALS GROUP
Most of our pharmaceutical sales come from products in three major
therapeutic classes: cardiovascular diseases, infectious diseases and central
nervous system disorders. We also have products for treatment of diabetes,
erectile dysfunction and allergies, as well as a co-promoted product for
arthritis. In 1999, prescription pharmaceuticals contributed 88% of our
revenues, as compared to 86% in 1998 and 83% in 1997. In 1999, we had seven
products, including alliance products, with sales to third parties in excess of
$1 billion each. Sales of our major in-line pharmaceutical products - NORVASC,
CARDURA, ZITHROMAX, DIFLUCAN, ZOLOFT, VIAGRA AND ZYRTEC - comprised 60% of our
revenues. A table captioned NET SALES - MAJOR PHARMACEUTICAL PRODUCTS on page 29
of our 1999 Annual Report is incorporated by reference.
Cardiovascular disease products that treat problems affecting the heart and
the blood circulatory system are our largest therapeutic product line. NORVASC,
our largest-selling product, is a once-a-day medication for hypertension (high
blood pressure) and angina (heart pain). It is the largest-selling high blood
pressure medicine in the world. Our other cardiovascular products include
PROCARDIA XL, also a once-a-day product for hypertension and angina, and
CARDURA, which is used to treat hypertension and benign prostatic hyperplasia
(enlarged prostate gland). Sales of PROCARDIA XL continued to decrease during
1999, due, at least in part, to the medical community's increasing emphasis on
NORVASC.
Also included in our cardiovascular disease product line is our alliance
product, LIPITOR, for treatment of high LIPIDS (cholesterol and, triglycerides)
in the bloodstream. We participated in the 1997 launch of LIPITOR under
co-promotion and licensing arrangements with the Parke-Davis Division of
Warner-Lambert Company, which discovered and developed the drug. Pfizer and
Warner-Lambert are continuing a broad clinical program for LIPITOR, as well as
planning the development of a single product that contains the cholesterol and
high blood pressure lowering medications in LIPITOR and NORVASC, respectively.
We will add to our cardiovascular product line with the first-quarter 2000
launch of Tikosyn. This product is used for the treatment of atrial fibrillation
(rapid and irregular heartbeats in the atria or upper chambers of the heart).
In the infectious disease medicine category, our major products are
ZITHROMAX and DIFLUCAN. ZITHROMAX is an oral or injectable antibiotic. During
1999, ZITHROMAX continued to be the most prescribed brand-name oral antibiotic
in the U.S. sales of ZITHROMAX increased in 1999 due to the increasing
recognition by physicians of the product's effectiveness in treating a broad
array of infections. DIFLUCAN is used to treat various fungal infections,
including vaginal infections and certain infections that afflict AIDS and cancer
patients with weakened immune systems.
In June 1999, the European Union's Committee for Proprietary Medicinal
Products suspended the European Union ("EU") licenses of the oral and
intravenous formulations of our
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antibiotic TROVAN for 12 months. In the rest of the world, including the U.S.,
the use of TROVAN is limited to serious infections in institutionalized patients
(see Item 3, LEGAL PROCEEDINGS, below).
For treatment of central nervous system disorders, we offer ZOLOFT and
co-promote ARICEPT. ZOLOFT is used for treatment of depression,
obsessive-compulsive disorder, panic disorder and posttraumatic stress disorder.
In 1999, Zoloft became the second Pfizer-developed product to achieve $2 billion
in annual sales. We participated in the 1997 launch of ARICEPT for treatment of
mild-to-moderate Alzheimer's disease. ARICEPT substantially expanded the prior
market for pharmaceutical treatment of that disease. The drug was discovered and
developed by Eisai Co., Ltd. which contracted with us to license and co-promote
the product in the U.S. and several other countries.
In October 1999, we received an approvable letter from the FDA for RELPAX,
for the treatment of migraine. Regulatory review is continuing in Europe.
In 1998, we introduced VIAGRA, our oral medication for the treatment of
erectile dysfunction. Since launch, doctors have written over 17 million
prescriptions for Viagra tablets for more than 6 million patients in the U.S.
alone. More than 150 million tablets have been dispensed worldwide.
Our other major pharmaceutical products include GLUCOTROL XL, for the
treatment of diabetes, and ZYRTEC, which is used for the treatment of allergies
and related problems. ZYRTEC is licensed to us by the Belgian company UCB S.A.
for sales in the U.S. and Canada. We co-promote ZYRTEC in the U.S. with a
subsidiary of UCB S.A.
In February 1999, we participated in the launch of CELEBREX with G.D.
Searle & Co. (Searle), a division of Monsanto Company, the discoverer and
developer of CELEBREX. CELEBREX is used for the relief of symptoms of adult
rheumatoid arthritis and osteoarthritis. We co-promote CELEBREX with Searle in
all world markets except Japan.
CONSUMER HEALTH CARE GROUP
Our Consumer Health Care Group products include non-prescription
over-the-counter (OTC) medications, therapeutic skin care products and personal
care products. Among our better-known brands in the U.S. are:
o VISINE eye care
o BENGAY topical analgesics
o CORTIZONE hydrocortisone skin cream
o RID anti-lice products
o UNISOM sleep aids
o DESITIN ointments for treatment of diaper rash
o PLAX pre-brushing dental rinse
o BARBASOL shave creams and gels
Several product-line extensions building on these brands have been introduced in
recent years. Other products are sold only in selected international markets.
Sales of the Consumer Health Care Group accounted for about 4% of our total
revenues in 1999 and 1998 and 5% in 1997.
Our Consumer Health Care Group can extend the life of some of our
prescription medications by converting them to OTC medications. For example, an
OTC formulation of DIFLUCAN, known as DIFLUCAN ONE, is sold in the U.K. as a
treatment for vaginal candidiasis. Similarly, ZYRTEC is sold as an OTC product
in Canada under the brand name REACTINE. As market conditions permit, and when
we have necessary approval from drug regulatory authorities, we plan to pursue
similar launches for other products.
ANIMAL HEALTH SEGMENT
Pfizer's Animal Health Group discovers, develops, manufactures and sells
products for the prevention and treatment of diseases in livestock, poultry and
companion animals. Among the products we produce are antibiotics,
antiparasitics, anti-inflammatories, vaccines and related products for livestock
and companion animals. Our Animal Health Group
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revenues grew 2% to $1.3 billion in 1999, in part due to the successful launch
of the new antiparasitic for dogs and cats, REVOLUTION (marketed as STRONGHOLD
in Europe), and continued growth from the canine anti-arthritic Rimadyl. These
benefits were offset by continuing weakness in the livestock market in the U.S.
and Europe. Animal Health sales accounted for approximately 8% of our total
revenues in 1999, 10% of our total revenues in 1998 and 12% of our total
revenues in 1997.
The $1.3 billion worldwide pet antiparasitic market consists of medicines
for external parasites such as fleas and ticks, treatments for gastrointestinal
worms, and heartworm preventatives. Our product REVOLUTION is the first product
to treat all three problems. This once-a-month, simple-to-administer, topical
liquid protects against internal and external parasites, including heartworm,
fleas, and ear mites in both dogs and cats; American dog ticks and sarcoptic
mange in dogs; and hookworm and roundworm in cats. The U. S. launch of
REVOLUTION was one of the most successful in the history of animal health.
Since its introduction in 1997, nearly five million arthritic dogs
worldwide have been treated with RIMADYL to relieve acute and chronic pain
associated with osteoarthritis, a condition that afflicts about 15% of all dogs.
The new chewable form provides the pet owner with greater convenience of
administration.
Other important Pfizer companion animal products include VANGUARD vaccines
for canine enteric disease, LEUKOCELL vaccines for feline leukemia,
CLAVAMOX/SYNULOX anti-infectives, and ANIPRYL for Cushing's disease and
Cognitive Dysfunction Syndrome in dogs.
Our Animal Health Group produces leading antiparasitic products, vaccines
and anti-infectives for cattle, swine and poultry. Among these are DECTOMAX to
protect cattle, swine and sheep from internal and external parasites, and
RESPISURE/STELLAMUNE vaccines to prevent a type of pneumonia and the related
problems of slow weight gains, decreased feed efficiency, and lack of uniformity
in size in swine.
Other products for livestock include TERRAMYCIN LA-200, an injectable
version of the TERRAMYCIN broad-spectrum antibiotic used for various animal
diseases; VALBAZEN and PARATECT products to treat internal parasites and
BOVISHIELD vaccine for cattle respiratory disease.
The council of European Agricultural Ministers voted to ban the use of our
antibiotic feed additive STAFAC (virginiamycin) throughout the European Union
after June 1999. We do not expect the ban on sales of STAFAC to have a material
effect on the Company's future results of operations.
RESEARCH AND PRODUCT DEVELOPMENT
Innovation by our research and development operations is very important to
the success of our businesses. Our goal is to discover, develop and bring to
market innovative products that address major unmet medical needs. This goal has
been supported by our substantial research and development investments. We spent
approximately $2.8 billion in 1999, $2.3 billion in 1998 and $1.8 billion in
1997 on research and development.
We are planning for future growth of our research operations. Current
construction at our three major research centers will add approximately two
million square feet of laboratory space. Other research facilities are also
being added or expanded.
We conduct research internally, and also through contracts with third
parties, through collaborations with universities and biotechnology companies
and in cooperation with other pharmaceutical firms. We also seek out innovative
technologies developed by third parties to acquire or incorporate into our
product lines through licensing or other arrangements.
Drug development is time consuming, expensive and unpredictable. On
average, only one out of many thousands of chemical compounds discovered by
researchers proves to be both medically effective and safe enough to become an
approved medicine. The process from discovery to regulatory approval can take
more than ten years. Candidates can fail at any
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stage of the process, and even late-stage product candidates could fail to
receive regulatory approval.
In view of the limited period of patent protection, and to gain the
marketing advantage of being first to market in a particular therapeutic
category, we try to be efficient as well as careful in our new product
development. We strive to minimize delays in handling new product candidates and
look for opportunities such as contracting studies to outside researchers, to
move development forward effectively and efficiently.
We feel that our investments in research have been rewarded by the number
of pharmaceutical compounds and new therapies we have in all stages of
development. In recent years, our discovery scientists have delivered dozens of
new chemical compounds to early development. While each new candidate is far
from regulatory approval, new drug candidates are the foundation for future
products. A table and discussion of supplemental filings for existing products
and drug candidates in development are set out under the heading PRODUCT
DEVELOPMENTS beginning on page 30 of our 1999 Annual Report. That discussion is
incorporated by reference.
Our research operations add value to our existing products by improving
their effectiveness and by discovering new uses for them. In 1999, for example,
the FDA approved the additional use of ZOLOFT for the treatment of posttraumatic
stress disorder.
Our competitors also devote substantial sums and resources to research and
development. In addition, the consolidation that has occurred in our industry
has created companies with substantial research and development resources. The
competition fostered by the fruits of this research could result in erosion of
sales and unanticipated product obsolescence.
INTERNATIONAL OPERATIONS
We have significant operations outside the United States. They are
conducted both through our subsidiaries and through distributors, and involve
the same business segments - pharmaceutical and animal health - as our U.S.
operations.
Japan is our second-largest single national market, with 8% of our total
revenues in 1999, 7% in 1998 and 9% in 1997. No single country outside the U.S.
had revenues of 10% of our total revenues.
For a geographic breakdown of revenues, see the table GEOGRAPHIC DATA on
page 60 of our 1999 Annual Report. That information is incorporated by
reference.
Our international businesses are subject, in varying degrees, to a number
of risks inherent in carrying on business in other countries. These include:
o currency fluctuations
o capital and exchange control regulations
o expropriation and nationalization
o other restrictive government actions
Our international businesses are also subject to government-imposed constraints,
including laws on pricing or reimbursement for use of products. See the section
under the heading GOVERNMENT REGULATION AND PRICE CONSTRAINTS for discussion of
those matters.
Revenue growth in 1999 was not significantly impacted by foreign exchange.
In 1998, currency movements relative to the U.S. dollar reduced our reported
revenues in many countries. Depending on the direction of change relative to the
U.S. dollar, foreign currency values can either improve or reduce the reported
dollar value of our net assets and results of operations. We cannot predict with
certainty future changes in foreign exchange rates or the effect they will have
on us. We attempt to anticipate such changes, however, and try to mitigate their
effects. See Note 4-D to our financial statements, DERIVATIVE FINANCIAL
INSTRUMENTS, on pages 46 and 47 in our 1999 Annual Report. That discussion is
incorporated
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by reference. Related information about valuation and risks associated with such
financial instruments in parts E and F of that same Note is also incorporated by
reference.
MARKETING
In our global pharmaceuticals business, we promote our products to health
care providers such as doctors, nurse practitioners and hospitals, Pharmacy
Benefit Managers and Managed Care Organizations (MCOs). We also market directly
to consumers in the United States through direct-to-consumer print and
television advertising. In addition, we sponsor general advertising to educate
the public about our innovative medical research.
Our operations include several pharmaceutical sales organizations. Each
sales organization markets a distinct group of products. We increased our sales
force over the past several years so that our recently introduced products and
late-stage candidates will reach their full potential. Our U.S. pharmaceutical
sales representatives total approximately 5,400. This number reflects the
creation of a new primary-care sales force and a specialty sales force dedicated
largely to rheumatology, as well as the expansion of other specialty sales
forces in the U.S. Overseas operations employ about 11,300 sales
representatives.
Our prescription pharmaceutical products are sold principally to
wholesalers, but we also sell directly to retailers, including hospitals,
clinics, government agencies and pharmacies.
Through our marketing organizations, we explain the approved uses and
advantages of our products to medical professionals. We work to gain access to
MCO formularies (lists of recommended or approved medicines and other products
compiled by pharmacists and physicians) by demonstrating the qualities and
treatment benefits of our products. We also work with MCOs to assist them with
disease management, patient education and other tools that help their medical
treatment routines.
Marketing of prescription pharmaceuticals depends to a degree on complex
decisions about the scope of clinical trials made years before product approval.
All drugs must complete clinical trials required by regulatory authorities to
show they are safe and effective for treating one or more particular medical
problems. A manufacturer may choose, however, to undertake additional studies to
demonstrate additional advantages of a compound, including comparative clinical
trials with competitive products.
Those studies can be costly, can take years to complete and the results are
uncertain. Balancing these considerations makes it difficult to decide whether
and when to undertake such additional studies. But, when they are successful,
such studies can have a major impact on approved marketing claims and
strategies.
Our Consumer Health Care Group uses its own representatives to promote its
products. We use print and television consumer advertising for our consumer
health care products. Those products are sold through various retailers.
Separate sales organizations also are used by our Animal Health business to
promote its products. Its advertising and promotion are generally targeted to
health professionals, directly and through medical journals. Animal health and
nutrition products are sold through veterinarians, drug wholesalers,
distributors, retail outlets and directly to users. Where appropriate, these
products are also marketed through print and television advertising.
During 1999, pharmaceutical sales to our three largest pharmaceutical and
consumer health care products wholesalers were:
o McKesson HBOC, Inc. - 14% of our total revenues;
o Cardinal Health, Inc. - 12% of our total revenues; and
o Bindley Western Industries, Inc. - 7% of our total revenues.
Those sales were concentrated in the Pharmaceutical segment. Apart from
these
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instances, none of our business segments is dependent on any one or group of
related customers.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our products are sold around the world under brand-name trademarks we
consider in the aggregate to be of material importance. Trademark protection
continues in some countries as long as the mark is used; in other countries, as
long as it is registered. Registrations generally are for fixed, but renewable,
terms.
We own or license a number of U.S. and foreign patents. These patents
cover:
o pharmaceutical products and their uses
o pharmaceutical formulations
o product manufacturing processes
o intermediate chemical compounds used in manufacturing
Patents for individual products extend for varying periods according to the
date of patent filing or grant and the legal term of patents in the various
countries where patent protection is obtained. The actual protection afforded by
a patent, which can vary from country to country, depends upon the type of
patent, the scope of its coverage and the availability of legal remedies in the
country.
In the aggregate, our patent and related rights are of material importance
to our businesses in the United States and most other countries. Based on
current product sales, and considering the vigorous competition with products
sold by others, the patent rights we consider significant in relation to our
business as a whole are those for NORVASC, CARDURA, ZYRTEC, ZITHROMAX, ZOLOFT,
DIFLUCAN, GLUCOTROL XL and VIAGRA. Our basic U.S. patents relating to NORVASC,
ZOLOFT, DIFLUCAN, GLUCOTROL XL and VIAGRA expire between 2004 and 2011. The U.S.
patent on CARDURA expires in 2000.
PROCARDIA XL employs a novel sustained-release drug-delivery system
developed and patented by Alza Corporation. We hold an exclusive license to use
this delivery system with the active ingredient in PROCARDIA XL. The patents on
the system run until 2003. Other companies also offer sustained-release forms of
that ingredient or have filed applications with the FDA seeking approval of such
products. One such product that has been approved has not been rated by the FDA
to be appropriate for substitution in place of PROCARDIA XL. Another product was
approved by the FDA in December, 1999, and rated therapeutically equivalent.
Additional products were filed for FDA approval in 1998 which appear to infringe
our patents (see the discussion of all of these matters in Item 3, LEGAL
PROCEEDINGS, below. Also see the discussion below about PROCARDIA XL sales in
the section CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS). It is not
possible to predict the timing and impact on sales of PROCARDIA XL of
competition from other products.
ZITHROMAX is patented by Pliva, a Croatian pharmaceutical company. The drug
is licensed exclusively to us by Pliva for sales and marketing in major
countries, and we purchase the compound in bulk crude form from Pliva. Pliva's
U.S. patent on ZITHROMAX expires in 2005.
ZYRTEC is patented by the Belgian company, UCB S.A. The drug is licensed
exclusively to us for sales in the U.S. and semi-exclusively with UCB S.A. For
sales in Canada. The U.S. patent on ZYRTEC held by UCB S.A. expires in 2007.
We have other patent rights covering additional products that have smaller
sales revenues.
We expect that the patents on some of our newest products and late-stage
product candidates could become significant to our business as a whole in the
future.
The expiration of a product patent normally results in significant
competition from generic products against the covered product and, particularly
in the U.S., can result in a dramatic
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reduction in sales of the pioneering product. In some cases, however, we can
continue to obtain commercial benefits from:
o product manufacturing trade secrets
o patents on uses for products
o patents on processes and intermediates for the economical manufacture of
the active ingredients
o patents for special formulations of the product or delivery mechanisms
o conversion of the active ingredient to over-the-counter products
The effect of product patent expiration also depends upon:
o the nature of the market and the position of the product in it
o the growth of the market
o the complexities and economics of manufacture of the product
o the requirements of generic drug laws
One of the main limitations on our operations in some countries outside the
U.S. is the lack of effective intellectual property protection of our products.
Under international agreements in recent years, global protection of
intellectual property rights is improving. The General Agreement on Tariffs and
Trade requires participant countries to amend their intellectual property laws
to provide patent protection for pharmaceutical products by the end of a
ten-year transition period. A number of countries are doing this. We have
experienced significant growth in our businesses in some of those nations and
our continued business expansion in those countries depends to a large degree on
further patent protection improvement.
COMPETITION
Competition is intense in all of our businesses, and includes many large
and small competitors. The principal means of competition varies among product
categories and business groups. Technological innovations affecting:
o efficacy
o safety
o patients' ease of use
o cost effectiveness
are important to success in all of our businesses. Our businesses also focus on
unmet medical needs and therapeutic improvements. Our emphasis on innovation has
led to our multi-billion-dollar research and development investments over the
past decade.
Our pharmaceutical business competes with worldwide research-based drug
companies, many smaller research companies with more limited therapeutic focus
and generic drug manufacturers. Our pharmaceutical operations are among the
largest in the world.
In recent years, a comparison of the total cost of medical treatments using
pharmaceuticals versus alternative treatments for the same condition has become
an important basis of competition. Managed Care Organizations and Pharmacy
Benefit Managers look to cost advantages as well as medical benefits in making
their drug formulary decisions.
Our pharmaceutical sales and marketing organization is a valuable
competitive asset. Our salespeople's ability to reach medical professionals with
information about our products helps us respond to competitive efforts and
launch new products.
Many other companies, large and small, manufacture and sell one or more
products that are similar to our consumer health care products. Sources of
competitive advantage in the OTC market include:
o product quality and efficacy
8
o brand identity
o advertising and promotion
o product innovation
o broad distribution capabilities
o customer satisfaction
o price
Significant expenditures for advertising, promotion and marketing are generally
required to achieve consumer acceptance of consumer health care products.
We have a significant presence in the animal health marketplace, but many
other companies offer competitive products. Altogether, there are hundreds of
producers of animal health products throughout the world. The principal methods
of competition vary somewhat depending on the particular product. They include:
o product innovation
o service
o price
o quality
o effective promotion to veterinary professionals and consumers
We promote our products directly through our sales representatives as well as
through advertising.
In the current environment of competitive pressures on profit margins, we
continue efforts to control the growth of our expenses. Although research and
development budgets have grown significantly, we have kept our costs down in
other areas such as manufacturing, distribution and sales administration by
restructuring and consolidating facilities. These measures have brought us new
efficiencies and reduced or contained our operating expenses.
MANAGED CARE ORGANIZATIONS
The growth of Managed Care Organizations in the U.S. has been a major
factor in the competitive make-up of the health care marketplace. Over half the
U.S. population now participates in some version of managed care. Because of the
size of the patient population covered by MCOs, marketing of prescription drugs
to them and the Pharmacy Benefit Managers (PBMs) that serve many of those
organizations has become important to our business.
MCOs can include medical insurance companies, medical plan administrators,
health-maintenance organizations, alliances of hospitals and physicians and
other physician organizations. The purchasing power of MCOs has been increasing
in recent years due to their growing numbers of enrolled patients. At the same
time, those organizations have been consolidating into fewer, even larger
entities. This enhances their purchasing strength and importance to us.
A major objective of MCOs is to contain and, where possible, reduce health
care expenditures. They typically use formularies, volume purchases and
long-term contracts to negotiate discounts from pharmaceutical providers. They
use their purchasing power to bargain for lower supplier prices. They also
emphasize primary and preventive care, out-patient treatment, and procedures
performed at doctors' offices and clinics. Hospitalization and surgery,
typically the most expensive forms of treatment, are carefully managed.
As discussed above in MARKETING, MCOs and PBMs typically develop
formularies to reduce their cost for medications. Formularies can be based on
the prices and therapeutic benefits of the available products. Due to their
lower cost, generic medicines are often favored. The breadth of the products
covered by formularies can vary considerably from one MCO to another, and many
formularies include alternative and competitive products for treatment of
particular medical problems. MCOs use a variety of means to encourage patients'
use of products listed on their formularies.
Exclusion of a product from a formulary can lead to its sharply reduced
usage in the MCO patient population. Consequently, pharmaceutical companies
compete aggressively to have their products included. Where possible,
9
companies compete for inclusion based upon unique features of their products,
such as greater efficacy, better patient ease of use or fewer side effects. A
lower overall cost of therapy is also an important factor. Products that
demonstrate fewer therapeutic advantages must compete for inclusion based
primarily on price.
The growth of MCOs also appears to have led to greater usage of some drugs.
The use of certain drugs can prevent the need for more costly treatments such as
hospitalization, professional therapy or even surgery. Because of these
advantages, such drugs can become favored first-line treatments. In addition,
the current trend of some patients to opt for managed care alternatives to
Medicare may increase overall pharmaceutical usage among that elderly
population. Medicare generally does not pay for medicines, so patients who do
not have another source of prescription drug coverage must bear that cost. MCOs,
however, often offer drug benefits for their participants.
These developments have not only created pressure on prices, but also have
increased sales of products on formularies. We have been generally, although not
universally, successful in having our major products included on MCO
formularies.
Another way we address the interests of MCOs is by developing disease
management programs. These programs can be attractive to MCOs by improving
patient communications and compliance with dosage directions, which are
important for effective disease treatment. They can help MCOs address various
aspects of disease management, such as prevention, diagnosis and treatment of
certain diseases, including use of pharmaceutical products. This comprehensive
approach can improve the quality of care and lower costly complications of
chronic diseases.
GENERIC PRODUCTS
One of the biggest competitive challenges we face in the U.S. is from
generic pharmaceutical manufacturers. Upon the expiration of U.S. patent
protection on an important product, we can lose the major portion of U.S. sales
of the product within a year. Generic competitors operate without our large
research and development expenses and our costs of conveying medical information
about the product to the medical community. In addition, the FDA approval
process exempts generics from costly and time-consuming clinical trials to
demonstrate their safety and efficacy, and allows generic manufacturers to rely
on the safety and efficacy of the pioneer product. Generic products need only
demonstrate a level of availability in the blood stream equivalent to that of
the pioneer product. This means that after we have borne the expenses of
discovering, developing and testing a medicine for safety and efficacy,
obtaining regulatory approval and informing the medical community about its
therapeutic benefits, generic competitors can charge much less for a competing
version of our product and still be profitable.
As noted above, MCOs that focus primarily on the immediate cost of drugs
may favor generics over brand-name drugs. Many governments also encourage the
use of generics as alternatives to brand-name drugs in their health care
programs, including Medicaid in the U.S. Laws in the U.S. generally allow, and
in some cases require, pharmacists to substitute generic drugs that have been
rated under government procedures to be therapeutically equivalent to a
brand-name drug. The substitution must be made unless the prescribing physician
expressly forbids it.
RAW MATERIALS
Raw materials essential to our businesses are purchased worldwide in the
ordinary course of business from numerous suppliers. In general, these materials
are available from multiple sources. No serious shortages or delays were
encountered in 1999, and none are expected in 2000.
10
GOVERNMENT REGULATION AND PRICE CONSTRAINTS
Pharmaceutical companies are subject to heavy regulation by a number of
national, state and local agencies. Of particular importance is the FDA in the
United States. It has jurisdiction over all our businesses and administers
requirements covering the testing, safety, effectiveness, approval,
manufacturing, labeling and marketing of our pharmaceutical products. In some
cases, FDA requirements and/or reviews have increased the amount of time and
money necessary to develop new products and bring them to market.
The FDA also regulates our consumer health care products and, along with
the U.S. Department of Agriculture and the Environmental Protection Agency, our
animal health products. Some regulatory actions pertaining to our products are
discussed in Item 3, LEGAL PROCEEDINGS, below.
Since the beginning of 1998, the approval of new drugs across the EU is
possible only using the European Medicines Evaluation Agency's (EMEA) mutual
recognition or central approval processes. The use of either of these procedures
should provide a more rapid and consistent approval across all fifteen member
states than was the case when the approval processes were operating
independently within each member state. Further, on January 1, 2000, Norway and
Iceland became full participants in the EU central approval processes. In
addition, the agreement between the EU and ten Eastern European states to base
their approvals on the centralized EU approval will significantly speed the
regulatory process in those countries. The EMEA does not have jurisdiction over
patient reimbursement or pricing matters in EU member countries, however. We
will continue to deal with individual countries on such issues.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that would bring about major changes in
the affected health care systems. Some states have passed such legislation, and
further federal and state proposals are possible. These could include price or
patient reimbursement constraints on medicines and restrictions on access to
certain products. Similar issues exist in many foreign countries where we do
business. We cannot predict the outcome of such initiatives, but we will work to
maintain patient access to our products and to oppose price constraints.
Also in the U.S., proposals have called for substantial changes in the
Medicare and Medicaid programs. If such changes are enacted, they may require
significant reductions from currently projected government expenditures for
these programs. Driven by budget concerns, Medicaid managed care systems have
been implemented in several states. If the Medicare and Medicaid programs
implement changes that restrict the access of a significant population of
patients to our innovative medicines, our business could be materially affected.
On the other hand, relatively little pharmaceutical use is currently covered by
Medicare. As noted above, if changes to these programs shift patients to MCOs
that cover pharmaceuticals, or drug coverage for Medicare beneficiaries is
expanded, usage of pharmaceuticals could increase.
Legislation in the U.S. requires us to give rebates to state Medicaid
agencies based on each state's reimbursement of pharmaceutical products under
the Medicaid program. We also must give discounts or rebates on purchases or
reimbursements of pharmaceutical products by certain other federal and state
agencies and programs. See the discussion regarding rebates on page 30 of our
1999 Annual Report for details on the cost to us of such discounts and rebates,
which is incorporated by reference.
We encounter similar regulatory and legislative issues in most other
countries. For example, in 1997, Japan announced a price reduction on drugs. In
Europe and some other international markets, the government provides health care
at low direct cost to consumers and regulates pharmaceutical prices or patient
11
reimbursement levels to control costs for the government-sponsored health care
system.
This international patchwork of price regulation has led to inconsistent
prices and some third-party trade in our products from markets with low prices.
Such trade exploiting price differences between countries can undermine our
sales in markets with higher prices.
We are also subject to the jurisdiction of various other regulatory and
enforcement departments and agencies, such as the Department of Health and Human
Services, the Federal Trade Commission and the Department of Justice in the
U.S., and are, therefore, subject to possible administrative and legal
proceedings and actions by those organizations (see Item 3, LEGAL PROCEEDINGS,
below). Such actions may include product recalls, seizures and other civil and
criminal sanctions. In some cases, we have initiated product recalls
voluntarily.
It is difficult to predict the future impact of the broad and expanding
legislative and regulatory requirements affecting us.
ENVIRONMENTAL LAW COMPLIANCE
Most of our manufacturing and certain research operations are affected by
federal, state and local environmental laws. We have made, and intend to
continue to make, necessary expenditures for compliance with applicable laws. We
are also cleaning up environmental contamination from past industrial activity
at certain sites (see Item 3, LEGAL PROCEEDINGS, below). As a result, we
incurred capital and operational expenditures in 1999 for environmental
protection and clean-up of certain past industrial activity as follows:
o environmental-related capital expenditures -- $66 million
o other environmental-related expenses -- $88 million
While we cannot predict with certainty the future costs of such clean-up
activities, capital expenditures, or operating costs for environmental
compliance, we do not believe they will have a material effect on our capital
expenditures, earnings or competitive position.
YEAR 2000
We have not experienced any operational problems as a result of Year 2000
issues, and Year 2000 had no material effect on our revenues. Although the
transition from 1999 to 2000 did not adversely impact our Company, there can be
no assurances that we will not experience any negative effects or disruptions in
our businesses in the future as a result of Year 2000 issues.
The total cost of our Year 2000 Program was $130 million, of which we
incurred $94 million in 1999, $31 million in 1998 and $5 million in 1997. These
costs were expensed as incurred, except for capitalizable hardware of
approximately $8 million in 1999, $4 million in 1998 and $1 million in 1997, and
were funded through operating cash flows. Such costs did not include normal
system upgrades and replacements.
CORPORATE/FINANCIAL SUBSIDIARIES
We conduct international banking operations through a subsidiary, Pfizer
International Bank Europe (PIBE), based in Dublin, Ireland. PIBE, incorporated
under the laws of Ireland, operates under a banking license from the Central
Bank of Ireland. It makes loans and accepts deposits in several currencies in
international markets. PIBE is an active Euromarket lender to high quality
corporations and governments through its portfolio of loans and money market
instruments. Loans are made primarily on a short and medium term basis,
typically with floating interest rates.
We also own an insurance operation, The Kodiak Company Limited, which
reinsures certain assets, inland transport and marine cargo of our international
operations. Financial data for these subsidiaries are set out in Note 3 to our
financial statements, FINANCIAL SUBSIDIARIES, on pages 44 and 45 in our 1999
Annual Report, which is incorporated by reference.
12
TAX MATTERS
The discussion of tax-related matters (including certain proceedings
involving proposed tax adjustments relating to prior years) in Note 9 to our
financial statements, TAXES ON INCOME, on pages 49 and 50 in our 1999 Annual
Report is incorporated by reference.
EMPLOYEES
In our innovation-intensive business, our employees are vital to our
success. We believe we have good relationships with our employees. As of
December 31, 1999, we employed approximately 50,900 people in our operations
throughout the world. Geographically, this total breaks down as follows:
o United States, 19,300
o Europe, 14,400
o Asia, 6,600
o Canada/Latin America, 5,900
o Africa/Middle East, 4,700
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENTS UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995)
OUR DISCLOSURE AND ANALYSIS IN THIS REPORT AND IN OUR 1999 ANNUAL REPORT TO
SHAREHOLDERS CONTAIN SOME FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
GIVE OUR CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. YOU CAN IDENTIFY
THESE STATEMENTS BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR
CURRENT FACTS. THEY USE WORDS SUCH AS "ANTICIPATE," "ESTIMATE," "EXPECT,"
"PROJECT," "INTEND," "PLAN," "BELIEVE," AND OTHER WORDS AND TERMS OF SIMILAR
MEANING IN CONNECTION WITH ANY DISCUSSION OF FUTURE OPERATING OR FINANCIAL
PERFORMANCE. IN PARTICULAR, THESE INCLUDE STATEMENTS RELATING TO FUTURE ACTIONS,
PROSPECTIVE PRODUCTS OR PRODUCT APPROVALS, FUTURE PERFORMANCE OR RESULTS OF
CURRENT AND ANTICIPATED PRODUCTS, SALES EFFORTS, EXPENSES, THE OUTCOME OF
CONTINGENCIES SUCH AS LEGAL PROCEEDINGS, ANTICIPATED EFFECTS OF THE MERGER WITH
WARNER-LAMBERT DISCUSSED UNDER THE HEADING RECENT DEVELOPMENTS AND FINANCIAL
RESULTS. FROM TIME TO TIME, WE ALSO MAY PROVIDE ORAL OR WRITTEN FORWARD-LOOKING
STATEMENTS IN OTHER MATERIALS WE RELEASE TO THE PUBLIC.
ANY OR ALL OF OUR FORWARD-LOOKING STATEMENTS IN THIS REPORT, IN THE 1999 ANNUAL
REPORT AND IN ANY OTHER PUBLIC STATEMENTS WE MAKE MAY TURN OUT TO BE WRONG. THEY
CAN BE AFFECTED BY INACCURATE ASSUMPTIONS WE MIGHT MAKE OR BY KNOWN OR UNKNOWN
RISKS AND UNCERTAINTIES. MANY FACTORS MENTIONED IN THE DISCUSSION ABOVE - FOR
EXAMPLE, GOVERNMENT REGULATIONS AROUND THE WORLD, YEAR 2000 SYSTEMS COMPLIANCE,
GENERIC PRODUCT COMPETITION AND THE COMPETITIVE ENVIRONMENT - WILL BE IMPORTANT
IN DETERMINING FUTURE RESULTS. CONSEQUENTLY, NO FORWARD-LOOKING STATEMENT CAN BE
GUARANTEED. ACTUAL FUTURE RESULTS MAY VARY MATERIALLY.
WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. YOU ARE
ADVISED, HOWEVER, TO CONSULT ANY FURTHER DISCLOSURES WE MAKE ON RELATED SUBJECTS
IN OUR 10-Q AND 8-K REPORTS TO THE SEC. ALSO NOTE THAT WE PROVIDE THE FOLLOWING
CAUTIONARY DISCUSSION OF RISKS, UNCERTAINTIES AND POSSIBLY INACCURATE
ASSUMPTIONS RELEVANT TO OUR BUSINESSES. THESE ARE FACTORS THAT WE THINK COULD
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTED AND HISTORICAL
RESULTS. OTHER FACTORS BESIDES THOSE LISTED HERE COULD ALSO ADVERSELY AFFECT THE
COMPANY. THIS DISCUSSION IS PROVIDED AS PERMITTED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
^ Balancing current growth and investment for the future remains a major
challenge. Our ongoing investments in new product introductions and research and
development for future products could exceed corresponding sales growth. This
could produce higher costs without a proportional increase in revenues.
^ In the U.S., many of our pharmaceutical products are subject to increasing
pricing pressures, which could be significantly impacted
13
by the outcome of the current national debate over Medicare reform. If the
Medicare program provided outpatient pharmaceutical coverage for its
beneficiaries, the federal government, through its enormous purchasing power
under the program, could demand discounts from pharmaceutical companies that may
implicitly create price controls on prescription drugs. On the other hand, a
Medicare drug reimbursement provision may increase the volume of pharmaceutical
drug purchases, offsetting, at least in part, these potential price discounts.
In addition, managed care organizations, institutions and other government
agencies continue to seek price discounts. Government efforts to reduce Medicare
and Medicaid expenses are expected to increase the use of managed care
organizations. This may result in managed care influencing prescription
decisions for a larger segment of the population. International operations are
also subject to price and market regulations. As a result, it is expected that
pressures on pricing and operating results will continue.
^ Thirty-nine percent of our 1999 revenues arose from international operations,
and we expect revenue and net income growth in 2000 to be impacted by changes in
foreign exchange rates. Revenues from Asia comprised approximately 11% of total
revenues in 1999, including 8% from Japan.
These international-based revenues as well as our substantial international
assets result in our exposure to currency exchange rate changes. In addition,
our interest-bearing investments, loans and borrowings are subject to interest
rate change risk. The risks of such changes and the measures we have taken to
help contain those risks are discussed in the section entitled FINANCIAL RISK
MANAGEMENT on page 36 in our 1999 Annual Report. For additional details, see
Note 4-D to our financial statements, DERIVATIVE FINANCIAL INSTRUMENTS, on pages
46 and 47 in our 1999 Annual Report. Those sections of the Annual Report are
incorporated by reference.
Notwithstanding our efforts to foresee and mitigate the effects of changes
in fiscal circumstances, we cannot predict with certainty all changes in
currency and interest rates, inflation or other related factors affecting our
businesses. These factors could affect future results.
^ A new European currency (euro) was introduced in January 1999 to replace the
separate currencies of eleven individual countries. The major changes during its
first year of existence have occurred in the banking and financial sectors. The
impact at the commercial and retail level has been limited but is expected to
increase during the next two years through December 31, 2001, when the separate
currencies will cease to exist. We are modifying systems and commercial
arrangements to deal with the new currency, including the availability of dual
currency processes to permit transactions to be denominated in the separate
currencies, as well as the euro. The cost of this effort is not expected to have
a material effect on our businesses or results of operations. We continue to
evaluate the economic and operational impact of the euro, including its impact
on competition, pricing and foreign currency exchange risks. There is no
guarantee, however, that all problems have been foreseen and corrected, or that
no material disruption will occur in our businesses.
^ International operations could be affected by changes in intellectual property
legal protections and remedies, trade regulations and procedures and actions
affecting approval, production, pricing, reimbursement and marketing of
products, as well as by unstable governments and legal systems,
intergovernmental disputes and possible nationalization.
^ Cost-containment measures employed by governments that have the effect of
limiting patient access to medicines and related issues described above in
GOVERNMENT REGULATION AND PRICE CONSTRAINTS affect the growth and profitability
of our operations in some countries. Those factors could affect future results.
^ Business combinations among our competitors could affect our competitive
position in the pharmaceutical, consumer health care and animal health
businesses. Similarly,
14
combinations among our major customers could increase their purchasing power in
dealing with us. In addition, our proposed merger with Warner-Lambert could
affect our business, finances and capital structure. While we anticipate
earnings and revenues growth, as well as substantial cost savings and operating
efficiencies to be achieved in connection with the merger with Warner-Lambert,
we cannot give any assurance that these results will be realized in the combined
company within the time periods contemplated or even if they will be realized at
all.
^ Generic competition is a major challenge in the U.S. Loss of patent
protection typically leads to dramatic loss of sales in the U.S. market and
could affect future results.
^ Risks and uncertainties particularly apply with respect to product-related
forward-looking statements. The outcome of the lengthy and complex process of
identifying new compounds and developing new products is inherently uncertain.
Prospective products can fail to receive regulatory approval. There are also
many considerations that can affect marketing of pharmaceutical products around
the world. Regulatory delays, the inability to successfully complete clinical
trials, claims and concerns about safety and efficacy, new discoveries, patents
and products by competitors and related patent disputes and claims about adverse
side effects are a few of the factors that could adversely affect the
realization of research and development and product-related forward-looking
statements.
^ As discussed above in MARKETING, decisions about research studies made early
in the development process of a drug candidate can have a substantial impact on
the marketing strategy once the drug receives approval. More detailed studies
may demonstrate additional benefits that can help in the marketing, but they
consume time and resources and can delay submitting the drug candidate for
initial approval. We try to plan clinical trials prudently, but there is no
guarantee that a proper balance of speed and testing will be made in each case.
The quality of our decisions in this area can affect our future results.
^ Difficulties or delays in product manufacturing or marketing, including, but
not limited to, the inability to build up production capacity commensurate with
demand, or the failure to predict market demand for or to gain market acceptance
of approved products could affect future results.
^ We currently have seven products with annual sales to third parties exceeding
one billion dollars. In this group are five medicines discovered by PFIZER -
NORVASC, ZITHROMAX, ZOLOFT, VIAGRA and DIFLUCAN - and our alliance products
LIPITOR and CELEBREX. Those products accounted for more than half of our 1999
revenues. If these or any of our other major products were to become subject to
a problem such as loss of patent protection, unexpected side effects, regulatory
proceedings, publicity affecting doctor or patient confidence or pressure from
competitive products, or if a new, more effective treatment should be
introduced, the impact on our revenues could be significant.
^ We cannot always predict with accuracy the timing or impact of possible future
competition on sales of our products. for example, PROCARDIA XL, our patented
form of sustained-release nifedipine, has been an important product for us, but
its sales have been declining, and we expect that to continue. Sales of
PROCARDIA XL were $822 million in 1997, $714 million in 1998 and $521 million in
1999. This decline has been due, at least in part, to the medical community's
increased emphasis on our more advanced product, NORVASC. It is also partly
attributable to the fact that there has been another form of sustained-release
nifedipine available on the market since 1993, although it is not approved for
treatment of all the same indications as PROCARDIA XL. Additional potentially
competitive products have been filed for FDA approval, one of which was approved
by the FDA in December, 1999 (see the discussion in Item 3, LEGAL PROCEEDINGS,
below). This indicates that the number of medicines that compete with PROCARDIA
XL may increase, and
15
the sales of competing products may affect our expected results.
^ During 1995, the authors of some non-clinical studies questioned the safety of
calcium channel blockers (CCBs). Although the clinical evidence supported the
safety of this class of medications, the FDA convened an advisory panel to
review their safety. In 1996, that advisory panel found no data to support
challenges to the safety of newer sustained-release and intrinsically
long-acting CCBs (such as NORVASC and PROCARDIA XL - products for treatment of
hypertension and angina).
Questions about this class of products continued throughout 1997, however,
and included scientific publications and presentations asserting that these
products were associated with various serious medical conditions.
During 1997, data from newly conducted studies and reviews and decisions by
two national regulatory authorities, plus newly published National Institutes of
Health guidelines, were all supportive of the safety of long-acting CCBs like
NORVASC AND PROCARDIA XL and of their appropriateness as first-line medications
in the treatment of hypertension.
We continue to believe that the safety and effectiveness of NORVASC and
PROCARDIA XL are supported by a large body of data from numerous studies and the
daily clinical experiences of physicians around the world. It is not possible,
however, to predict the impact on our future sales, if any, of existing or
future studies, regulatory agency actions or a continuing debate regarding CCBs.
^ Growth in costs and expenses, changes in product mix and the impact of
divestitures, restructuring and other unusual items that could result from
evolving business strategies, evaluation of asset realization and organizational
restructuring could affect future results. For example, we may be unable to
maintain or further enhance those margin improvements achieved in recent years,
which would affect future results.
^ In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133. This pronouncement requires us to adopt SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, on January 1,
2001. SFAS No. 133 requires a company to recognize all derivative instruments as
assets or liabilities in its balance sheet and measure them at fair value.
Such new or revised accounting standards and rules are issued from time to
time. Although the standard mentioned above is not expected to have a material
impact on our reported financial results, future standards and rules could have
such an effect.
^ As described above in the section YEAR 2000, we have not experienced any
operational problems as a result of Year 2000 issues, and Year 2000 had no
material effect on our revenues. Although the transition from 1999 to 2000 did
not adversely impact our Company, there can be no assurances that we will not
experience any negative effects or disruptions in our businesses in the future
as a result of Year 2000 issues.
^ Changes in the U.S. Tax Code and the tax laws of other countries can affect
our net earnings. For example, pursuant to the Small Jobs Protection Act of 1996
(the ACT), Section 936 of the Internal Revenue Code was repealed for tax years
beginning after December 31, 1995. Section 936 had created the U.S. possessions
corporation income tax credit, which gave us tax benefits for certain operations
in Puerto Rico. The Act provided that as an existing credit claimant, we are
eligible to continue using the credit against the tax arising from our
manufacturing income earned in Puerto Rico for an additional ten-year period.
The amount of manufacturing income eligible for the credit during this
additional period is subject to a cap based on income earned prior to 1996 in
Puerto Rico. This ten-year extension does not apply to investment income earned
in Puerto Rico, the credit on which expired as of
16
July 1, 1996. The Act did not affect the amendments made to Section 936 by the
Omnibus Budget Reconciliation Act of 1993, which provided for a five-year
phase-down of the U.S. possession tax credit from 100% to 40%. In addition, the
Act permitted the extension of the R&D tax credit through June 30, 1998. In
1998, this credit was again extended to June 30, 1999, and in 1999, it was
further extended to June 30, 2004.
^ Claims have been brought against us and our subsidiaries for various legal,
environmental and tax matters, and additional claims arise from time to time. In
addition, our operations are subject to international, federal, state and local
environmental laws and regulations. It is possible that our cash flows and
results of operations could be affected by the one-time impact of the resolution
of these contingencies. We believe that the ultimate disposition of current
matters to the extent not previously provided for will not have a material
impact on our financial condition or cash flows and results of operations,
except where specifically commented upon in the discussion of such matters in
LEGAL PROCEEDINGS in Item 3 in this report, in TAX MATTERS above and in Note 9
to our financial statements, TAXES ON INCOME, on pages 49 and 50 in our 1999
Annual Report, which is incorporated by reference.
ITEM 2. PROPERTIES
Our world headquarters is located in several buildings in New York City. We
own two of these buildings, including our main 33-story office tower, and rent
space in others nearby. The 33-story office tower is located on a site we have
leased under a long-term ground lease. Altogether, our headquarters operations
occupy over 1.6 million square feet of owned and leased office space in New York
City.
Our pharmaceutical business owns and leases space for sales and marketing,
administrative support and customer service functions around the world.
Our major research and development facilities are located in
manufacturing/R&D complexes that we own containing multiple buildings in Groton,
Connecticut; Sandwich, England and Nagoya, Japan. The buildings at our Groton
facility currently contain approximately 3.5 million square feet of floor space.
Approximately 1 million square feet is used for manufacturing, and the rest is
used for research and development. The Company also began construction in 1998
on an additional 750,000 square-foot facility on a 24-acre site in nearby New
London, Connecticut, to initially house 1,300 employees from the Company's
research operations.
Buildings on our 334-acre Sandwich, England campus house research, our U.K.
pharmaceutical sales office and a production plant. These facilities contain
almost 2 million square feet of floor space, approximately half of which is used
for research and development. An additional 900,000 square feet of new research
space is under construction.
At our facility in Nagoya, Japan, the buildings contain 790,000 square feet
of floor space, of which 300,000 square feet is used for research.
We own other important research facilities in Amboise, France and Terre
Haute, Indiana. A number of smaller research and development operations around
the world focus principally on their local markets. As discussed above, we have
been expanding our research and development facilities in recent years to meet
the challenges of handling growing research activities. In 1999, over 2.3
million square feet of research facilities was under construction at our sites
in Groton, Sandwich and Nagoya.
Our Global Manufacturing Division operates 32 plants that produce products
for our pharmaceutical, consumer and animal health businesses around the world.
Twenty of these are major facilities. These plants handle one or more of three
basic types of production processes:
o fermentation
o organic synthesis
o product production
17
We have four major fermentation plants:
o Rixensart, Belgium
o Sao Paulo, Brazil
o Nagoya, Japan
o Sandwich, England, U.K.
Our major organic synthesis facilities are in four locations:
o Barceloneta, Puerto Rico, U.S.
o Groton, Connecticut, U.S.
o Ringaskiddy, Ireland
o Sandwich, England, U.K.
We have major product production plants at seventeen sites in eleven
countries:
o Amboise, France
o Barceloneta, Puerto Rico, U.S.
o Brooklyn, New York, U.S.
o Dalian, China
o Illertissen, Germany
o Latina, Italy
o Lee's Summit, Missouri, U.S.
o Lincoln, Nebraska, U.S.
o Louvain-la-Neuve, Belgium
o Nagoya, Japan
o Parsippany, New Jersey, U.S.
o Sandwich, England, U.K.
o San Jose Iturbide, Mexico
o Sao Paulo, Brazil
o Terre Haute, Indiana, U.S.
o Toluca, Mexico
o Valencia, Venezuela
Our Consumer Health Care and Animal Health Groups have their principal
executive offices in leased facilities one block away from the Company's world
headquarters.
Consumer Health Care has its principal research operations in Parsippany,
New Jersey. Consumer Health Care's sales and marketing offices are generally
leased and shared with local pharmaceutical sales offices, except in Mexico and
the U.K., where Consumer Health has separate offices.
Animal Health owns its North American headquarters in Exton, Pennsylvania,
and leases some additional space in a nearby office building. It also owns
office space in Zaventem, Belgium, for support of its international operations.
Most of Animal Health's research facilities are shared with our
pharmaceutical business.
Our distribution operations in the U.S. include our large, state-of-the-art
distribution and order fulfillment operation in a 450,000 square-foot building
on a 20-acre site in Memphis, Tennessee, a new 190,000 square-foot distribution
center at our plant site in Parsippany, New Jersey, and a facility in Irvine,
California. A new West Coast distribution facility is under construction in
Reno, Nevada. The Animal Health Group also operates its own distribution
facilities. We also operate distribution facilities in major markets around the
world.
In general, our properties are well maintained, adequate and suitable to
their purposes. The growth of our businesses has created space pressures for
certain operations, however. We have responded to such challenges with plans to
provide appropriate facilities as needs are demonstrated. Note 7 to our
financial statements, PROPERTY, PLANT AND EQUIPMENT on page 48 in our 1999
Annual Report, which discloses amounts invested in land, buildings and
equipment, and the discussion of investing activities under the heading SUMMARY
OF CASH FLOWS on page 34 of our Annual Report, which describes our capital
expenditures, are incorporated by reference. See also the discussion under Note
11 entitled LEASE COMMITMENTS on page 52 of our Annual Report, which is also
incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of claims and litigations,
including product liability claims and litigations considered normal in the
nature of its businesses. These include suits involving various pharmaceutical
and
18
hospital products that allege either reaction to or injury from use of the
product. In addition, from time to time the Company is involved in, or is the
subject of, various governmental or agency inquiries or investigations relating
to its businesses.
FORMER FOOD SCIENCE DIVISION
In 1999, the Company pleaded guilty to one count of price fixing of sodium
erythorbate from July 1992 until December 1994, and one count of market
allocation of maltols from December 1989 until December 1995, and paid a total
fine of $20 million. The activities at issue involved the Company's former Food
Science Group, a division that manufactured food additives and that the Company
divested in 1996. The Department of Justice has stated that no further antitrust
charges will be brought against the Company relating to the former Food Science
Group, that no antitrust charges will be brought against any current director,
officer or employee of the Company for conduct related to the products of the
former Food Science Group, and that none of the Company's current directors,
officers or employees was aware of any aspect of the activity that gave rise to
the violations. Five purported class action suits involving these products have
been filed against the Company; two in California State Court, and three in New
York Federal Court. The Company does not believe that this plea and settlement,
or civil litigation involving these products, will have a material effect on its
business or results of operations.
NIFEDIPINE PATENTS
On June 9, 1997, the Company received notice of the filing of an
Abbreviated New Drug Application (ANDA) by Mylan pharmaceuticals for a
sustained-release nifedipine product asserted to be bioequivalent to PROCARDIA
XL. Mylan's notice asserted that the proposed formulation does not infringe
relevant licensed Alza and Bayer patents and thus that approval of their ANDA
should be granted before patent expiration. On July 18, 1997, the Company,
together with Bayer AG and Bayer Corporation, filed a patent-infringement suit
against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United
States District Court for the Western District of Pennsylvania with respect to
Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446,
licensed to the Company, relating to nifedipine of a specified particle size
range. On March 16, 1999, the United States District Court granted Mylan's
motion to file an amended answer and antitrust counterclaims. On December 17,
1999, Mylan received final approval from the FDA for its 30 mg. extended-release
nifedipine tablet. On February 28, 2000, a settlement agreement was entered into
between Mylan and the Company under which the litigation was terminated and
Mylan will market a generic sustained-release nifedipine product manufactured by
the Company under its own trademark.
On or about February 23, 1998, Bayer AG received notice that Biovail
Laboratories Incorporated had filed an ANDA for a sustained-release nifedipine
product asserted to be bioequivalent to one dosage strength (60 mg.) of
PROCARDIA XL. The notice was subsequently received by the Company as well. The
notice asserts that the Biovail product does not infringe Bayer's U.S. Patent
No. 5,264,446. On March 26, 1998, the Company received notice of the filing of
an ANDA by Biovail Laboratories of a 30 mg. dosage formulation of nifedipine
alleged to be bioequivalent to PROCARDIA XL. On April 2, 1998, Bayer and Pfizer
filed a patent-infringement action against Biovail, relating to their 60 mg.
nifedipine product, in the United States District Court for the District of
Puerto Rico. On May 6, 1998, Bayer and Pfizer filed a second patent infringement
action in Puerto Rico against Biovail under the same patent with respect to
Biovail's 30 mg. nifedipine product. These actions have been consolidated for
discovery and trial. On April 24, 1998, Biovail Laboratories Inc. brought suit
in the United States District Court for the Western District of Pennsylvania
against the Company and Bayer seeking a declaratory judgment of invalidity of
and/or non-infringement of the 5,264,446 nifedipine patent as well as a finding
of violation of the antitrust laws. Biovail has also moved to
19
transfer the patent infringement actions from Puerto Rico to the Western
District of Pennsylvania. Pfizer has opposed this motion to transfer and on June
19, 1998, moved to dismiss Biovail's declaratory judgment action and antitrust
action in the Western District of Pennsylvania, or in the alternative, to stay
the action pending the outcome of the infringement actions in Puerto Rico. On
January 4, 1999, the District Court in Pennsylvania granted Pfizer's motion for
a stay of the antitrust action pending the outcome of the infringement actions
in Puerto Rico. On January 29, 1999, the District Court in Puerto Rico denied
Biovail's motion to transfer the patent infringement actions from Puerto Rico to
the Western District of Pennsylvania. On April 12, 1999, Biovail filed a motion
for summary judgment also based in part on the summary judgment motion granted
to Elan in the Bayer v. Elan litigation in the Northern District of Georgia.
Pfizer and Bayer's response was filed on April 26, 1999. On September 20, 1999,
the United States District Court in Puerto Rico denied Biovail's motion for
summary judgment without prejudice to their refiling after completion of
discovery in the PROCARDIA XL patent-infringement litigation. The court set an
expedited discovery schedule with a deadline of December 30, 1999, to complete
discovery of parties and fact witnesses and February 29, 2000, to complete
discovery of expert witnesses. On December 20, 1999, the court extended the date
to complete fact discovery to January 28, 2000, and that of expert discovery to
March 15, 2000. A status conference with the court scheduled for March 17, 2000,
has been postponed and a new date is awaited.
On April 2, 1998, the Company received notice from Lek U.S.A. Inc. of its
filing of an ANDA for a 60 mg. formulation of nifedipine alleged to be
bioequivalent to PROCARDIA XL. On May 14, 1998, Bayer and Pfizer commenced suit
against Lek for infringement of Bayer's U.S. Patent No. 5,264,446, as well as
for infringement of a second Bayer patent, No. 4,412,986 relating to
combinations of nifedipine with certain polymeric materials. On September 14,
1998, Lek was served with the summons and complaint. Plaintiffs amended the
complaint on November 10, 1998, limiting the action to infringement of U.S.
Patent 4,412,986. On January 19, 1999, Lek filed a motion to dismiss the
complaint alleging infringement of U.S. Patent 4,412,986. Pfizer responded to
this motion and oral argument has been held in abeyance pending a settlement
conference. In September 1999, a settlement agreement was entered into among the
parties staying this litigation until the expiration of U.S. Patent No.
4,412,986 on November 2, 2000.
On February 10, 1999, the Company received a notice from Lek U.S.A. of its
filing of an ANDA for a 90 mg. formulation of nifedipine alleged to be
bioequivalent to PROCARDIA XL. On March 25, 1999, Bayer and Pfizer commenced
suit against Lek for infringement of the same two Bayer patents originally
asserted against Lek's 60 mg. formulation. This case was also the subject of a
settlement conference. In September, 1999, a settlement agreement was entered
into among the parties staying this litigation until the expiration of U.S.
Patent No. 4,412,986 on November 2, 2000.
On November 9, 1998, Pfizer received an ANDA notice letter from Martec
Pharmaceutical, Inc. for generic versions (30 MG., 60 MG., 90 MG.) OF PROCARDIA
XL. On or about December 18, 1998, Pfizer received a new ANDA certification
letter stating that the ANDA had actually been filed in the name of Martec
Scientific, Inc. On December 23, 1998, Pfizer brought an action against Martec
Pharmaceutical, Inc. and Martec Scientific, Inc. in the Western District of
Missouri for infringement of Bayer's patent relating to nifedipine of a specific
particle size. On January 26, 1999, a second complaint was filed against Martec
Scientific in the Western District of Missouri based on Martec's new ANDA
certification letter. Martec filed its response to this complaint on February
26, 1999. A hearing to determine claim scope is scheduled for June 1, 2000.
20
Pfizer filed suit on July 8, 1997, against the FDA in the United States
District Court for the District of Columbia, seeking a declaratory judgment and
injunctive relief enjoining the FDA from processing Mylan's ANDA or any other
ANDA submission referencing PROCARDIA XL that uses a different extended-release
mechanism. Pfizer's suit alleges that extended-release mechanisms that are not
identical to the osmotic pump mechanism of PROCARDIA XL constitute different
dosage forms requiring the filing and approval of suitability petitions under
the Food Drug and Cosmetics Act before the FDA can accept an ANDA for filing.
Mylan intervened in Pfizer's suit. On March 31, 1998, the U.S. District Judge
granted the government's motion for summary judgment against the Company. On
July 16, 1999, the D.C. Court of Appeals dismissed the appeal on the ground that
since the FDA had not approved any ANDA referencing PROCARDIA XL that uses a
different extended-release mechanism than the osmotic pump mechanism of
PROCARDIA XL, it was premature to maintain this action, stating that Pfizer has
the right to bring such an action if, and when, the FDA approves such an ANDA.
Subsequent to FDA's final approval of Mylan's ANDA, on December 18, 1999 Pfizer
filed suit against FDA in the United States District Court for the District of
Delaware. The suit alleges that FDA unlawfully approved Mylan's 30 mg. extended
release product because FDA had not granted an ANDA suitability petition
reflecting a difference in dosage form from PROCARDIA XL. As a result of the
settlement agreement with Mylan, Pfizer and the FDA have agreed to dismiss this
suit without prejudice.
DOXAZOSIN PATENT
On March 31, 1999, the Company received notice from TorPharm of its filing,
through its U.S. agent Apotex Corp., of an ANDA for 1 mg., 2 mg., 4 mg. and 8
mg. tablets alleged to be bioequivalent to CARDURA (doxazosin mesylate). The
notice letter alleges that Pfizer's patent on doxazosin is invalid in view of
certain prior art references. Following a review of these allegations, suit was
filed in the United States District Court for the Northern District of Illinois
against TorPharm and Apotex Corp. on May 14, 1999. The defendants requested a
90-day period in which to file their answer. The request was granted and
TorPharm/Apotex's answer was filed by August 19, 1999. Discovery is in progress.
On June 2, 1999, FDA was notified that given the patent litigation and pursuant
to provisions of the Federal Food Drug and Cosmetic Act, the FDA may not approve
the TorPharm application for thirty months from filing or resolution of the
litigation.
DRUG SCREENING PATENTS
On May 5, 1999, the Company filed an action against Sibia Neurosciences,
Inc. in the United States District Court for the District of Delaware seeking a
declaratory judgment that two Sibia patents claiming reporter gene drug
screening assays are invalid, not infringed by the Company, and unenforceable
due to Sibia's misuse of its patent rights in seeking certain license terms. On
May 27, 1999, Sibia Neurosciences, Inc. filed an answer to the Company's
declaratory judgment action in which Sibia denies that a prior case or
controversy existed, but admits that a case or controversy does now exist
regarding at least one patent in suit, denies the invalidity, unenforceability
and non-infringement of the patents in suit, and asserts various jurisdictional
and equitable defenses, affirmative defenses, and lack of standing by the
Company to assert patent misuse. Sibia Neurosciences also filed a counterclaim
alleging willful infringement by the Company of one of the patents in suit. A
reply to that counterclaim denying Sibia's allegation has been filed. The
parties submitted a joint status report to the court on December 14, 1999, in
which the parties agreed to complete fact discovery by August 21, 2000, and
commence trial on January 8, 2001.
TROVAFLOXACIN PATENT
On May 19, 1999, Abbott Laboratories filed an action against the
Company in the United States District Court of the Northern District of Illinois
alleging that the Company's use, sale or manufacture of trovafloxacin infringes
Abbott's United States Patent No.
21
4,616,019 claiming naphthyriding antibiotics and seeking a permanent injunction
and damages. An answer denying these allegations was filed on June 9, 1999.
Discovery is in progress.
ZOLOFT PATENTS
On December 17, 1999, the Company received notice of the filing of an ANDA
by Zenith Goldline Pharmaceuticals for 50 mg. and 100 mg. tablets of sertraline
hydrochloride alleged to be bioequivalent to ZOLOFT. Zenith has certified to the
FDA that it will not engage in the manufacture, use or sale of sertraline
hydrochloride until the expiration of Pfizer's U.S. Patent 4,536,518, which
covers sertraline per se and expires December 30, 2005. Zenith has also alleged
in its certification to the FDA that the manufacture, use and sale of Zenith's
product will not infringe Pfizer's U.S. Patent 4,962,128, which covers methods
of treating an anxiety-related disorder or Pfizer's U.S. Patent 5,248,699, which
covers a crystalline polymorph of sertraline hydrochloride. These patents expire
in November 2009 and August 2012, respectively. On January 28, 2000 the Company
filed a patent infringement action against Zenith Goldline and its parent Ivax
Corporation in the United States District Court for the District of New Jersey
for infringement of the `128 and `699 patents.
FLUCONAZOLE PATENT
On February 1, 2000 the Company received notice of the filing of an ANDA by
Novopharm Limited for 50 mg, 100 mg, 150 mg and 200 mg tablets of fluconazole
alleged to be bioequivalent to DIFLUCAN. Novopharm has certified to the FDA its
position that the Company's U.S. Patent 4,404,216, which covers fluconazole, is
invalid. This patent expires in January 2004. On March 10, 2000, the Company
filed a patent infringement action under the '216 patent against Novopharm in
the United States District Court for the Northern District of Illinois.
HYBRID CORN SEED LITIGATION
In pre-existing litigation between Pioneer Hi-Bred International, Inc. and
DeKalb Genetics Corporation in the United States District Court for the Southern
District of Iowa, the court granted on October 8, 1999 Pioneer's motion to add
additional parties, including Pfizer Inc. and Monsanto Co. (the present owner of
DeKalb Genetics Corporation), as codefendant parties. The amended complaint,
which claims violations of the federal Lanham Act and Iowa state law stemming
from the codefendants' alleged use of Pioneer's corn seed germplasm in the
development of competitive corn seed products, was served on the Company on
October 19. The Company filed its answer on December 15, 1999.
TROVAN TRADEMARK
On September 22, 1999, the jury in a trademark-infringement litigation
brought against the Company by Trovan Ltd. and Electronic Identification
Devices, Ltd. relating to use of the TROVAN mark for trovafloxacin issued a
verdict in favor of the plaintiffs with respect to liability, holding that the
Company had infringed Trovan Ltd.'s mark and had acted in bad faith. Following a
further damage trial, on October 12, 1999, the jury awarded Trovan Ltd. a total
of $143 million in damages, comprised of $5 million actual damages, $3 million
as a reasonable royalty and $135 million in punitive damages. The court held a
hearing on December 27, 1999, on whether to award the plaintiffs profits based
on the company's sales of TROVAN and, if so, the amount of same. On February 24,
2000, the court entered judgment on the jury verdict and enjoined the company's
use of the TROVAN mark effective October 16, 2000. The plaintiff's request to be
awarded the company's profits from TROVAN sales and for treble damages was
denied. The Company's motion for mistrial remains outstanding and will be
considered with additional post-trial motions to overturn the jury verdicts and
the damage award.
22
SHILEY INCORPORATED
As previously disclosed, a number of lawsuits and claims have been brought
against the Company and Shiley Incorporated, a wholly owned subsidiary, alleging
either personal injury from fracture of 60 degree or 70 degree Shiley Convexo
Concave ("C/C") heart valves, or anxiety that properly functioning implanted
valves might fracture in the future, or personal injury from a prophylactic
replacement of a functioning valve.
In an attempt to resolve all claims alleging anxiety that properly
functioning valves might fracture in the future, the Company entered into a
settlement agreement in January 1992 in Bowling v. Shiley, et al., a case
brought in the United States District Court for the Southern District of Ohio,
that established a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elected to exclude themselves. The
settlement provided for a Consultation Fund of $90 million, which was fixed by
the number of claims filed, from which valve recipients received payments that
are intended to cover their cost of consultation with cardiologists or other
health care providers with respect to their valves. The settlement agreement
established a second fund of at least $75 million to support C/C valve-related
research, including the development of techniques to identify valve recipients
who may have significant risk of fracture, and to cover the unreimbursed medical
expenses that valve recipients may incur for certain procedures related to the
valves. The Company's obligation as to coverage of these unreimbursed medical
expenses is not subject to any dollar limitation. Following a hearing on the
fairness of the settlement, it was approved by the court on August 19, 1992, and
all appeals have been exhausted.
Generally, the plaintiffs in all of the pending heart valve litigations
seek money damages. Based on the experience of the Company in defending these
claims to date, including insurance proceeds and reserves, the Company is of the
opinion that these actions should not have a material adverse effect on the
financial position or the results of operations of the Company. Litigation
involving insurance coverage for the Company's heart valve liabilities has been
resolved.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
environmental laws and regulations. Under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended ("CERCLA" or
"Superfund"), the Company has been designated as a potentially responsible party
by the United States Environmental Protection Agency with respect to certain
waste sites with which the Company may have had direct or indirect involvement.
Similar designations have been made by some state environmental agencies under
applicable state Superfund laws. Such designations are made regardless of the
extent of the Company's involvement. There are also claims that the Company may
be a responsible party or participant with respect to several waste site matters
in foreign jurisdictions. Such claims have been made by the filing of a
complaint, the issuance of an administrative directive or order, or the issuance
of a notice or demand letter. These claims are in various stages of
administrative or judicial proceedings. They include demands for recovery of
past governmental costs and for future investigative or remedial actions. In
many cases, the dollar amount of the claim is not specified. In most cases,
claims have been asserted against a number of other entities for the same
recovery or other relief as was asserted against the Company. The Company is
currently participating in remedial action at a number of sites under federal,
state, local and foreign laws.
To the extent possible with the limited amount of information available at
this time, the Company has evaluated its responsibility for costs and related
liability with respect to the above sites and is of the opinion that the
Company's liability with respect to these sites should not have a material
adverse effect on the financial position or the results of operations of
23
the Company. In arriving at this conclusion, the Company has considered, among
other things, the payments that have been made with respect to the sites in the
past; the factors, such as volume and relative toxicity, ordinarily applied to
allocate defense and remedial costs at such sites; the probable costs to be paid
by the other potentially responsible parties; total projected remedial costs for
a site, if known; existing technology; and the currently enacted laws and
regulations. The Company anticipates that a portion of these costs and related
liability will be covered by available insurance.
ASBESTOS MATTERS
Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley
Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of
one construction product and several refractory products containing some
asbestos. These sales were discontinued thereafter. Although these sales
represented a minor market share, the Company has been named as one of a number
of defendants in numerous lawsuits. These actions, and actions related to the
Company's sale of talc products in the past, claim personal injury resulting
from exposure to asbestos-containing products, and nearly all seek general and
punitive damages. In these actions, the Company or Quigley is typically one of a
number of defendants, and both are members of the Center for Claims Resolution
(the "CCR"), a joint defense organization of sixteen defendants that is
defending these claims. The Company and Quigley are responsible for varying
percentages of defense and liability payments for all members of the CCR. A
number of cases alleging property damage from asbestos-containing products
installed in buildings have also been brought against the Company, but most have
been resolved.
As of January 29, 2000, there were 57,328 personal injury claims pending
against Quigley and 26,890 such claims against the Company (excluding those that
are inactive or have been settled in principle), and 68 talc cases against the
Company.
The Company believes that its costs incurred in defending and ultimately
disposing of the asbestos personal injury claims, as well as the property damage
and talc claims, will be largely covered by insurance policies issued by several
primary insurance carriers and a number of excess carriers that have agreed to
provide coverage, subject to deductibles, exclusions, retentions and policy
limits. Litigation against excess insurance carriers seeking damages and/or
declaratory relief to secure their coverage obligations has now been largely
resolved, although claims against several of such insureds do remain pending.
Based on the Company's experience in defending the claims to date and the amount
of insurance coverage available, the Company is of the opinion that the actions
should not ultimately have a material adverse effect on the financial position
or the results of operations of the Company.
BRAND-NAME PRESCRIPTION DRUGS ANTITRUST LITIGATION
In 1993, the Company was named, together with numerous other manufacturers
of brand-name prescription drugs and certain companies that distribute
brand-name prescription drugs, in suits in federal and state courts brought by
various groups of retail pharmacy companies, alleging that the manufacturers
violated the Sherman Act by agreeing not to give retailers certain discounts and
that the failure to give such discounts violated the Robinson Patman Act. A
class action was brought on the Sherman Act claim, as well as additional actions
by approximately 3,500 individual retail pharmacies and a group of chain and
supermarket pharmacies (the "individual actions") on both the Sherman Act and
Robinson Patman Act claims. A retailer class was certified in 1994 (the "Federal
Class Action"). In 1996, fifteen manufacturer defendants, including the Company,
settled the Federal Class Action. The Company's share was $31.25 million,
payable in four annual installments without interest. Trial began in September
1998 for the class case against the non-settlers, and the District Court also
permitted the opt-out plaintiffs to add the
24
wholesalers as named defendants in their cases. The District Court dismissed the
case at the close of the plaintiffs' evidence. The plaintiffs appealed and, on
July 13, 1999, the Court of Appeals upheld most of the dismissal but remanded on
one issue, while expressing doubts that the plaintiffs could prove any damages.
The District Court has since opined that the plaintiffs cannot prove such
damages.
Retail pharmacy cases also have been filed in state courts in five states,
and consumer class actions were filed in state courts in fourteen states and the
District of Columbia alleging injury to consumers from the failure to give
discounts to retail pharmacy companies.
In addition to its settlement of the retailer Federal Class Action (see
above), the Company has also settled several major opt-out retail cases, and
along with other manufacturers: (1) has entered into an agreement to settle all
outstanding consumer class actions (except Alabama, California, New Mexico,
North Dakota, South Dakota and West Virginia), which settlement is going through
the approval process in the various courts in which the actions are pending; and
(2) has entered into an agreement to settle the California consumer case, which
has been approved by the Court there.
The Company believes that these brand-name prescription drug antitrust
cases, which generally seek damages and certain injunctive relief, are without
merit.
The Federal Trade Commission opened an investigation focusing on the
pricing practices at issue in the above pharmacy antitrust litigation. In July
1996, the Commission issued a subpoena for documents to the Company, among
others, to which the Company responded. A second subpoena was issued to the
Company for documents in May 1997 and the Company again responded. We are not
aware of any further activity.
PLAX
FDA administrative proceedings relating to PLAX are pending, principally an
industry-wide call for data on all anti-plaque products by the FDA. The
call-for-data notice specified that products that have been marketed for a
material time and to a material extent may remain on the market pending FDA
review of the data, provided the manufacturer has a good faith belief that the
product is generally recognized as safe and effective and is not misbranded. The
Company believes that PLAX satisfied these requirements and prepared a response
to the FDA's request, which was filed on June 17, 1991. This filing, as well as
the filings of other manufacturers, is still under review and is currently being
considered by an FDA Advisory Committee. The Committee has issued a draft report
recommending that plaque removal claims should not be permitted in the absence
of data establishing efficacy against gingivitis. The process of incorporating
the Advisory Committee recommendations into a final monograph is expected to
take several years. If the draft recommendation is ultimately accepted in the
final monograph, although it would have a negative impact on sales of PLAX, it
will not have a material adverse effect on the sales, financial position or
operations of the Company.
On January 15, 1997, an action was filed in Circuit Court, Chambers County,
Alabama, purportedly on behalf of a class of consumers, variously defined by the
laws or types of laws governing their rights and encompassing residents of up to
47 states. The complaint alleges that the Company's claims for PLAX were untrue,
entitling them to a refund of their purchase price for purchases since 1988. A
hearing on Plaintiffs' motion to certify the class was held on June 2, 1998. We
are awaiting the Court's decision. The Company believes the complaint is without
merit.
RID
Since December 1998, four actions have been filed, in state courts in
Houston, San Francisco, Chicago and New Orleans, purportedly on behalf of
statewide (California) or nationwide (Houston, Chicago and New Orleans) classes
of consumers who allege that
25
the Company's and other manufacturers' advertising and promotional claims for
RID and other pediculicides were untrue, entitling them to refunds, other
damages and/or injunctive relief. The Houston case has been voluntarily
dismissed and proceedings in the San Francisco, Chicago and New Orleans cases
are still in early stages of the proceedings. The Company believes the
complaints are without merit.
DESITIN
In December, 1999 and January, 2000, two suits were filed in California
state courts against the Company and other manufacturers of zinc
oxide-containing powders. The first suit was filed by the Center for
Environmental Health and the second was filed by an individual plaintiff on
behalf of a purported class of purchasers of baby powder products. The suits
generally allege that the label of DESITIN powder violates California's
"Proposition 65" by failing to warn of the presence of lead, which is alleged to
be a carcinogen. In January, 2000, the Company received a notice from a
California environmental group alleging that the labeling of DESITIN ointment
and powder violates Proposition 65 by failing to warn of the presence of
cadmium, which is alleged to be a carcinogen. Several other manufacturers of
zinc oxide-containing topical baby products have received similar notices. The
Company believes that the labeling for DESITIN complies with applicable legal
requirements.
FDA REQUIRED POST-MARKETING REPORTS
In April 1996, the Company received a Warning Letter from the FDA
relating to the timeliness and completeness of required post-marketing reports
for pharmaceutical products. The letter did not raise any safety issue about
Pfizer drugs. The Company has been implementing remedial actions designed to
remedy the issues raised in the letter. During 1997, the Company met with the
FDA to apprise them of the scope and status of these activities. A review of the
Company's new procedures was undertaken by FDA in 1999. The Company and Agency
met to review the findings of this review and agreed that commitments and
remedial measures undertaken by the Company related to the Warning Letter have
been accomplished. The Company agreed to keep the Agency informed of its
activities as it continues to modify its processes and procedures.
TROVAN
During May and June, 1999, the FDA and the European Union's Committee for
Proprietary Medicinal Products (CPMP) reconsidered the approvals to market
Trovan, a broad-spectrum antibiotic, following post-market reports of severe
adverse liver reactions to the drug. On June 9, the company announced that,
regarding the marketing of TROVAN in the United States, it had agreed to
restrict the indications, limit product distribution, make certain other
labeling changes and to communicate revised warnings to health care
professionals in the United States. On July 1, Pfizer received the opinion of
the CPMP recommending a one-year suspension of the licenses to market TROVAN in
the European Union. The CPMP opinion has been finalized in a Final Decision by
the European Commission. Since June, 1999, three suits and several claims have
been received by the Company alleging liver injuries due to the ingestion of
TROVAN. The majority of these claims have been resolved without litigation. In
June and July, 1999, two of the lawsuits were filed in the Circuit Court,
Hampton County, South Carolina on behalf of a purported class of all persons who
received TROVAN, seeking compensatory and punitive damages and injunctive
relief. One of the suits, seeking injunctive relief, has been dismissed. No
substantive proceedings have yet occurred in the other suit and the Company
believes that it is not properly maintainable as a class action, and will defend
against it accordingly.
RIMADYL
In October 1999 the Company was sued in an action seeking unspecified
damages, costs and attorney's fees on behalf of a purported class of people
whose dogs had suffered injury or death after ingesting RIMADYL, an
antiarthritic medication for older dogs. The suit, which was filed in state
court in South Carolina, is in the
26
early pretrial stages. The Company believes it is without merit.
MEDICAL TECHNOLOGY GROUP
During 1998, the Company completed the sale of all of the businesses and
companies that were part of the Medical Technology Group. As part of the sale
provisions, the Company has retained responsibility for certain items, including
matters related to the sale of MTG products sold by the Company before the sale
of the MTG businesses. A number of cases have been brought against Howmedica
Inc. (some of which also name the Company) alleging that P.C.A. one-piece
acetabular hip prostheses sold from 1983 through 1990 were defectively designed
and manufactured and pose undisclosed risks to implantees. These cases have now
been resolved. Between 1994 and 1996, seven class actions alleging various
injuries arising from implantable penile prostheses manufactured by American
Medical Systems were filed and ultimately dismissed or discontinued. Thereafter,
between late 1996 and early 1998, approximately 700 former members of one or
more of the purported classes, represented by some of the same lawyers who filed
the class actions, filed individual suits in Circuit Court in Minneapolis
alleging damages from their use of implantable penile prostheses. Most of these
claims, along with a number of filed and unfiled claims from other
jurisdictions, have now been resolved. The Company believes that most if not all
of these cases are without merit.
DIABINESE (BRAZIL)
In June, the Ministry of Justice of the State of Sao Paulo, Brazil,
commenced a civil public action against the Company's Brazilian subsidiary,
Laboratorios Pfizer Ltda. ("Pfizer Brazil") asserting that during a period in
1991 Pfizer Brazil withheld sale of the pharmaceutical product DIABINESE in
violation of antitrust and consumer protection laws. The action sought the award
of moral, economic and personal damages to individuals and the payment to a
public reserve fund. In February 1996, the trial court issued a decision holding
Pfizer Brazil liable. The trial court's opinion also established the amount of
moral damages for individuals who might make claims later in the proceeding and
set out a formula for calculating the payment into the public reserve fund which
could have resulted in a sum of approximately $88 million. Pfizer Brazil
appealed this decision. In September 1999, the appeals court issued a ruling
upholding the trial court's decision as to liability. However, the appeals court
decision overturned the trial court's decision concerning damages, ruling that
criteria to apply in the calculation of damages, both as to individuals and as
to payment of any amounts to the reserve fund, should be established only in a
later stage of the proceeding. The Company believes that this action should not
have a material adverse effect on the financial position or the results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
27
EXECUTIVE OFFICERS OF THE COMPANY
As of March 10, 2000, the following executive officers of the Company hold
the offices indicated until their successors are chosen and qualified after the
next annual meeting of shareholders.
NAME AGE POSITION
Brian W. Barrett........ 60 Vice President; President - Animal Health Group
M. Kenneth Bowler....... 57 Vice President - Federal Government Relations
Loretta V. Cangialosi... 41 Vice President; Corporate Controller
C. L. Clemente.......... 62 Executive Vice President, Corporate Affairs;
Secretary and Corporate Counsel; Member of the
Corporate Management Committee
Gary N. Jortner......... 54 Vice President; Senior Vice President, Product
Development- Pfizer Pharmaceuticals Group
Karen L. Katen.......... 51 Senior Vice President; Executive Vice President
- Pfizer Pharmaceuticals Group and President -
U.S. Pharmaceuticals; Member of the Corporate
Management Committee
J. Patrick Kelly........ 42 Vice President; Senior Vice President -
Worldwide Marketing - Pfizer Pharmaceuticals
Group
Alan G. Levin........... 37 Vice President; Treasurer
Henry A. McKinnell...... 57 President and Chief Operating Officer;
President - Pfizer Pharmaceuticals Group;
Member of the Corporate Management Committee
Paul S. Miller.......... 60 Executive Vice President; General Counsel;
Member of the Corporate Management Committee
George M. Milne, Jr..... 56 Senior Vice President; President - Central
Research; Member of the Corporate Management
Committee
John F. Niblack......... 61 Vice Chairman; Member of the Corporate
Management Committee
William J. Robison...... 64 Executive Vice President - Corporate Employee
Resources; Member of the Corporate Management
Committee
Craig Saxton............ 57 Vice President; Executive Vice President -
Central Research
David L. Shedlarz....... 51 Executive Vice President and Chief Financial
Officer; Member of the Corporate Management
Committee
Mohand Sidi Said........ 61 Vice President; Senior Vice President - Pfizer
Pharmaceuticals Group and Area President -
Asia/Africa/Middle East
William C. Steere, Jr... 63 Chairman of the Board and Chief Executive
Officer; Chair of the Corporate Management
Committee
Frederick W. Telling.... 48 Vice President, Corporate Strategic Planning
and Policy
28
Information concerning Messrs. Steere, Clemente and Miller and Drs. McKinnell
and Niblack is incorporated by reference from the discussion under the captions
NOMINEES FOR DIRECTORS WHOSE TERMS EXPIRE IN 2003, DIRECTORS WHOSE TERMS EXPIRE
IN 2001 AND NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS in Chapter Five of
our joint proxy statement/prospectus for the 2000 Annual Meeting of
Shareholders.
BRIAN W. BARRETT
Mr. Barrett joined us in 1966 and has held various financial positions,
including Chief Financial Officer of Pfizer Canada. In 1971, he was appointed
Assistant Controller of Pfizer International in New York; in 1973, Director of
International Planning and in 1976, Director of Planning. In 1980, Mr. Barrett
was appointed Vice President - Corporate Strategic Planning; in 1983, he became
Vice President - Finance for Pfizer International; in 1985, President
- -Africa/Middle East; and in 1991, President - Asia/Canada. In 1992, Mr. Barrett
was elected one of our Vice Presidents and in 1993, became President, Northern
Asia, Australasia and Canada - International Pharmaceuticals Group. Mr. Barrett
was named Executive Vice President, International Pharmaceuticals Group, in 1995
and President - Animal Health Group in April 1996.
M. KENNETH BOWLER
Dr. Bowler joined us in 1989 and was elected Vice President - Federal Government
Relations in 1990. He formerly served as Staff Director for the House Ways and
Means Committee. Dr. Bowler also was on the faculty of the University of
Maryland as an Assistant Professor in the Political Science Department.
LORETTA V. CANGIALOSI
Ms. Cangialosi joined us in 1993 as Assistant Manager, Corporate Ledger in the
Controllers Division. In 1995 she was named Manager, External Financial
Reporting and in 1997 became Director, Accounting Advisory Services. Ms.
Cangialosi was named Senior Director, Corporate Accounting in January 1999, and
in September 1999 was elected our Vice President; Corporate Controller.
GARY N. JORTNER
Mr. Jortner joined us in 1973 as a Systems Analyst for Pfizer Pharmaceuticals.
In 1974, he transferred to product management and progressed through a series of
promotions that resulted in his being named Group Product Manager for Pfizer
Labs in 1978. In 1981, he became Vice President of Marketing for Pfizer Labs. In
1986, he was promoted to Vice President of Operations for Pfizer Labs. In 1991,
he was named Vice President and General Manager, Pfizer Labs Division. In 1992,
Mr. Jortner was elected one of our Vice Presidents. In 1994, he was named Vice
President; Group Vice President, Disease Management - U.S. Pharmaceuticals
Group. In 1997, he became Vice President, Product Development -Pfizer
Pharmaceuticals Group, and in 1998, he was promoted to Senior Vice President,
Product Development - Pfizer Pharmaceuticals Group.
KAREN L. KATEN
Ms. Katen joined us in 1974 as a Marketing Associate for Pfizer Pharmaceuticals.
Beginning in 1975, she progressed through a number of positions of increasing
responsibility in the Roerig product management group which resulted in her
being named Group Product Manager in 1978. In 1980, she transferred to Pfizer
Labs as a Group Product Manager and later became Director, Product Management.
In 1983, she returned to Roerig as Vice President-Marketing. In 1986, she was
named Vice President and General Manager-Roerig Division. In 1992, she was
elected one of our Vice Presidents, and in 1993, became Executive Vice President
of the U.S. Pharmaceuticals Group. In 1995 Ms. Katen was named President of the
U.S. Pharmaceuticals Group, and in 1997 became Executive Vice President - Pfizer
Pharmaceuticals Group. In May 1999 Ms. Katen was elected a Senior Vice President
of the Company.
Ms. Katen is a Director of General Motors Corporation and Harris Corporation and
serves
29
on the International Council of J.P. Morgan & Co.
J. PATRICK KELLY
Mr. Kelly joined us in 1981 as a Marketing Research Associate in the
Pharmaceuticals Division. He became Product Analyst in 1982 and, in 1983, was
made Marketing Associate in the Roerig Division. He progressed through a series
of positions of increasing responsibility and became Group Product Manager for
Roerig in 1989. In 1992, he was named Vice President-Marketing, Roerig in the
U.S. Pharmaceuticals Group and, in 1994, became its Group Vice President,
Disease Management. In 1996, he was elected one of our Vice Presidents and, in
1997, was named Senior Vice President, Disease Management U.S. Pharmaceuticals,
and later that year became Vice President - Pfizer Pharmaceuticals Group and
Senior Vice President - U.S. Pharmaceuticals. In 1998, Mr. Kelly was named
Senior Vice President-Worldwide Marketing - Pfizer Pharmaceuticals Group.
ALAN G. LEVIN
Mr. Levin joined us in 1987 as Senior Operations Auditor for the Controller's
Division. In 1988, he joined the Treasurer's Division as Controller of the
Pfizer International Bank in San Juan, Puerto Rico. He returned to New York in
1991 as Director-Finance, Asia, and in 1993 was named Senior Director-Finance,
Asia. In 1995, Mr. Levin was elected our Treasurer. In 1997, he was elected Vice
President; Treasurer.
GEORGE M. MILNE, JR.
Dr. Milne joined us in 1970 as a Research Scientist and was promoted to Senior
Research Scientist and then Project Manager in 1973 and 1974, respectively. In
1978, Dr. Milne became a Discovery Manager with responsibility for research
programs targeting inflammation, pain and mental disease. Following additional
postdoctoral training and research in pharmacology, he was promoted to Director
and then Executive Director of the Department of Immunology and Infectious
Diseases. In 1985, Dr. Milne was appointed the Vice President of global Research
and Development Operations before becoming the Senior Vice President of Research
and Development in 1988. In 1993, Dr. Milne was elected one of our Vice
Presidents and, since that same year, has been President of our Central Research
Division. In May 1999 Dr. Milne was elected a Senior Vice President of the
Company. Dr. Milne is a Director of Mettler-Toledo Corporation, Inc.
WILLIAM J. ROBISON
Mr. Robison joined us in 1961 as a Sales Representative for Pfizer Labs. After
serving in a number of positions of increasing responsibility in the Labs
division, he was appointed Vice President of Sales in 1980, and Senior Vice
President - Pfizer Labs in 1986. In 1990, he was appointed Vice President and
General Manager of Pratt Pharmaceuticals. In 1992, he was named President of the
Consumer Health Care Group, and was elected one of our Vice Presidents. In 1996,
Mr. Robison was elected Senior Vice President - Corporate Employee Resources,
and in May 1999 was elected an Executive Vice President of the Company.
CRAIG SAXTON
Dr. Saxton joined us in 1976 as Clinical Projects Director for the Central
Research Division of Pfizer Limited in Sandwich, England. In 1981, he was named
Senior Associate Medical Director for the International Division of Pfizer Inc
and, in 1982, became the Division's Vice President, Medical Director. Dr. Saxton
became Senior Vice President, Clinical Research and Development for the Central
Research Division in 1988. In 1993, he was named Executive Vice President -
Central Research and was elected one of our Vice Presidents.
DAVID L. SHEDLARZ
Mr. Shedlarz joined us in 1976 as Senior Financial Analyst in the
Pharmaceuticals Division. Following a series of positions of increasing
responsibility, including service as financial manager and controller of the
Marketing/Sales/Production, Diagnostics
30
Division, he was promoted to Production Controller of the U.S. Pharmaceuticals
Division in 1979. He was appointed Assistant Group Controller - U.S.
Pharmaceuticals Division in 1981. In 1984, Mr. Shedlarz assumed responsibilities
as Group Controller and was promoted to Vice President of Finance of the U.S.
Pharmaceuticals Group in 1989. He was elected our Vice President - Finance in
1992, and was named our Chief Financial Officer in 1995. Mr. Shedlarz became our
Senior Vice President in 1997, and in May 1999 was elected an Executive Vice
President of the Company.
MOHAND SIDI SAID
Mr. Sidi Said joined us in 1965 as a professional sales representative. During
his career, he has held a variety of management assignments in Algeria, Morocco,
Kenya, Egypt, France, Belgium and the United States. In 1996, he was elected one
of our Vice Presidents and was also named Senior Vice President - Pfizer
Pharmaceuticals Group and Area President -Asia/Africa/Middle East.
FREDERICK W. TELLING
Dr. Telling joined Pfizer Pharmaceuticals and Diagnostic Products Group in 1977
and progressed through a number of positions of increasing responsibility before
being named Director of Planning for the Pharmaceuticals Division in 1981. In
1987, he was named Vice President of Planning and Policy and, in 1994, Senior
Vice President of Planning and Policy for the U.S. Pharmaceuticals Group. In
October 1994, Dr. Telling was elected our Vice President, Corporate Strategic
Planning and Policy.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for our Common Stock is the New York Stock Exchange.
It is also listed on the London, Paris, Brussels and Swiss Stock Exchanges and
is traded on various United States regional stock exchanges. Additional
information required by this item is incorporated by reference from the table
QUARTERLY CONSOLIDATED FINANCIAL DATA on page 61 of our 1999 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the
FINANCIAL SUMMARY on page 62 of our 1999 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from the
FINANCIAL REVIEW on pages 28 through 37 of our 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference from the
discussion under the heading FINANCIAL RISK MANAGEMENT on page 36 of our 1999
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from the
INDEPENDENT AUDITORS' REPORT found on page 38 and from the consolidated
financial statements, related notes and supplementary data on pages 39 through
61 of our 1999 Annual Report.
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about our Directors is incorporated by reference from the
discussion under Item 3 in Chapter Five of our joint proxy statement/prospectus
for the 2000 Annual Meeting of Shareholders. The balance of the response to this
item is contained in the discussion entitled EXECUTIVE OFFICERS OF THE COMPANY
in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from
the discussion under the heading EXECUTIVE COMPENSATION OF PFIZER in Chapter
Five of our joint proxy statement/prospectus for the 2000 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
SECURITY OWNERSHIP OF PFIZER'S OFFICERS AND DIRECTORS in Chapter Five of our
joint proxy statement/prospectus for the 2000 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated by reference from the discussion under the heading
RELATED TRANSACTIONS in Chapter Five of our joint proxy statement/prospectus for
the 2000 Annual Meeting of Shareholders.
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14 (a)(1) FINANCIAL STATEMENTS The following consolidated financial
statements, related notes and independent auditors' report from the 1999 Annual
Report to Shareholders are incorporated by reference into Item 8 of Part II of
this report:
PAGE(S) IN OUR 1999
ANNUAL
REPORT
Independent Auditors' Report..................................... 38
Segment Information.............................................. 60
Geographic Data.................................................. 60
Consolidated Statement of Income................................. 39
Consolidated Balance Sheet....................................... 40
Consolidated Statement of Shareholders' Equity................... 41
Consolidated Statement of Cash Flows............................. 42
Notes to Consolidated Financial Statements....................... 43-60
Quarterly Consolidated Financial Data (unaudited)................ 61
14(a)(2) FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they
are not required or the information is given elsewhere in the financial
statements. The financial statements of unconsolidated subsidiaries are omitted
because, considered in the aggregate, they would not constitute a significant
subsidiary.
14(a)(3) EXHIBITS THESE EXHIBITS ARE AVAILABLE UPON REQUEST. REQUESTS
SHOULD BE DIRECTED TO C.L. CLEMENTE, SECRETARY, PFIZER INC., 235 EAST 42ND
STREET, NEW YORK, NY 10017-5755.
3(i) - Our Restated Certificate of Incorporation as of April 22, 1999,
is incorporated by reference from our 10-Q report for the
period ended April 4, 1999.
3(ii) - Our By-laws as amended June 24, 1999, are incorporated by
reference from Exhibit 3(ii) of our 10-Q report for the period
ended July 4, 1999.
4(i) - Our Rights Agreement dated as of October 6, 1997, with
ChaseMellon Shareholders Services, L.L.C. is incorporated by
reference from our report on Form 8-K dated October 6, 1997.
10(i) - Stock and Incentive Plan as amended through July 1, 1999.
10(ii) - Pfizer Retirement Annuity Plan as amended through November 6,
1997 is incorporated by reference from our 1997 10-K report.
10(iii) - The form of severance agreement with the Named Executive
Officers identified in our Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated by reference from
33
our 1994 10-K report.
10(iv) - Nonfunded Deferred Compensation and Supplemental Savings Plan
is incorporated by reference from our 1996 10-K report.
10(v) - Executive Annual Incentive Plan is incorporated by reference
from the exhibit to our Proxy Statement for the 1997 Annual
Meeting of Shareholders.
10(vi) - Performance-Contingent Share Award Program is incorporated by
reference from Exhibit 10.3 to our 10-Q report for the period
ended September 29, 1996.
10(vii) - Nonfunded Supplemental Retirement Plan is incorporated by
reference from our 1996 10-K report.
10(viii) - The form of Indemnification Agreement with Directors is
incorporated by reference from our 1996 10-K report.
10(ix) - The form of Indemnification Agreement with Named Executive
Officers is incorporated by reference from our 1997 10-K
report.
10(x) - Non-Employee Directors' Retirement Plan (frozen as of October
1996) is incorporated by reference from our 1996 10-K report.
10(xi) - Annual Retainer Unit Award Plan (for Non-Employee Directors) is
incorporated by reference from Exhibit 10.1 to our 10-Q report
for the period ended September 29, 1996.
10(xii) - Nonfunded Deferred Compensation and Unit Award Plan for
Non-Employee Directors is incorporated by reference from
Exhibit 10.2 to our 10-Q report for the period ended September
29, 1996.
10(xiii) - Restricted Stock Plan for Non-Employee Directors is
incorporated by reference from our 1996 10-K report.
10(xiv) - Deferred Compensation Plan is incorporated by reference from
our 1997 10-K report.
10(xv) - Summary of Annual Incentive Plan.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a) - The 1999 Annual Report to Shareholders, which, except for those
portions incorporated by reference, is furnished solely for the
information of the Commission and is not to be deemed "filed."
21 - Subsidiaries of the Company.
23 - Consent of KPMG LLP, independent certified public accountants.
27.1 - Financial Data Schedule for Period Ended December 31, 1999.
27.2 - Financial Data Schedule for Period Ended December 31, 1998.
27.3 - Financial Data Schedule for Period Ended December 31, 1997.
14(b) REPORTS ON FORM 8-K
The Company filed reports on Form 8-K during the last quarter of 1999 dated
November 8, 1999; November 12, 1999; November 16, 1999; December 1, 1999;
December 8, 1999; December 14, 1999 and December 15, 1999. All reports include
information reportable under Item 5 of Form 8-K that related to our proposed
merger with Warner-Lambert.
34
SIGNATURES
Under the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report was signed on behalf of the Registrant by the
authorized person named below.
Pfizer Inc.
BY: /S/ C.L. CLEMENTE
Dated: March ___, 2000 -------------------------------------
C.L. Clemente, Executive Vice President,
Secretary and Corporate Counsel
Under the requirements of the Securities Exchange Act of 1934, this report
was signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/S/ WILLIAM C. STEERE, JR. Chairman of the Board, Director March 24, 2000
- --------------------------
(William C. Steere, Jr.) (Principal Executive Officer)
/S/ DAVID L. SHEDLARZ Executive Vice President March 24, 2000
- -------------------------- and Chief Financial Officer
(David L. Shedlarz) (Principal Financial Officer)
/S/ LORETTA V. CANGIALOSI Vice President - Controller March 24, 2000
- -------------------------- (Principal Accounting Officer)
(Loretta V. Cangialosi)
/S/ MICHAEL S. BROWN Director March 24, 2000
- --------------------------
(Michael S. Brown)
Director March 24, 2000
- --------------------------
(M. Anthony Burns)
/S/ W. DON CORNWELL Director March 24, 2000
- --------------------------
(W. Don Cornwell)
SIGNATURES TITLE DATE
---------- ----- ----
Director March 24, 2000
- --------------------------
(George B. Harvey)
/S/ CONSTANCE J. HORNER Director March 24, 2000
- --------------------------
(Constance J. Horner)
/S/ STANLEY O. IKENBERRY Director March 24, 2000
- --------------------------
(Stanley O. Ikenberry)
/S/ HARRY P. KAMEN Director March 24, 2000
- --------------------------
(Harry P. Kamen)
/S/ THOMAS G. LABRECQUE Director March 24, 2000
- --------------------------
(Thomas G. Labrecque)
/S/ DANA G. MEAD Director March 24, 2000
- --------------------------
(Dana G. Mead)
/S/ HENRY A. MCKINNELL President, Chief Operating March 24, 2000
- -------------------------- Officer and Director
(Henry A. McKinnell)
/S/ JOHN F. NIBLACK Vice Chairman and Director March 24, 2000
- --------------------------
(John F. Niblack)
/S/ FRANKLIN D. RAINES Director March 24, 2000
- --------------------------
(Franklin D. Raines)
36
SIGNATURES TITLE DATE
---------- ----- ----
/S/ RUTH J. SIMMONS Director March 24, 2000
- --------------------------
(Ruth J. Simmons)
/S/ JEAN PAUL VALLES Director March 24, 2000
- --------------------------
(Jean-Paul Valles)