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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
(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
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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. /X/
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 28, 1997 was approximately $59.1 billion.
The number of shares outstanding of each of the registrant's classes of
common stock as of February 28, 1997 was 646,441,139 shares of common stock, all
of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders Parts I, II and IV
Portions of the Proxy Statement for the 1997
Annual Meeting of Shareholders Parts I, III, and IV
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PART I
ITEM 1. BUSINESS
General
Pfizer Inc. (the "Company") is a research-based global health care
company. The Company discovers, develops, manufactures and sells innovative
technology-intensive products in three business segments: Health Care, which
includes a broad range of prescription pharmaceuticals, orthopedic implants,
medical devices and surgical equipment; Animal Health, which includes animal
health products and feed supplements; and Consumer Health Care, which includes a
variety of nonprescription drugs and personal care products.
Business Segments
The Company's operations include three business segments: Health Care,
Animal Health and Consumer Health Care. The Company's businesses offer
complementary synergies in research, manufacturing and regulatory oversight,
which helps leverage the Company's investments and expertise in each area. A
description of the three business segments is set forth on page 58 of the
Company's 1996 Annual Report to Shareholders. Comparative segment sales, income
and related financial information for 1996, 1995 and 1994 are set forth in the
table entitled "Segment Information" on page 39 of that same Annual Report. A
graph captioned "Net Sales by Business Segment" and a table captioned
"Percentage Change in Net Sales" on pages 30 and 31, respectively, of the Annual
Report present segment sales information over the same three years. All such
sections from the Annual Report are incorporated herein by reference.
Health Care
The Health Care segment is comprised of two business groups: the Pfizer
Pharmaceuticals Group and the Hospital Products Group.
Pfizer Pharmaceuticals Group
Effective January 1997, the Company combined its previously separate
U.S. and international pharmaceutical organizations into a single integrated
organization called "Pfizer Pharmaceuticals Group." Management is in the process
of bringing together the operations of the two formerly separate groups.
The Company's worldwide pharmaceutical products are comprised primarily
of drugs in the following major therapeutic classes: cardiovascular diseases,
infectious diseases and central nervous system disorders. The Company also has
significant products for treatment of diabetes, allergies and
arthritis/inflammation. In 1996, pharmaceuticals contributed 72% of the
Company's consolidated revenues, as compared to 71% in 1995 and 73% in 1994.
Pharmaceutical revenues in 1996 were principally from products launched since
the late 1980s, including Norvasc (amlodipine besylate), Cardura (doxazosin
mesylate), Diflucan (fluconazole), Zithromax (azithromycin) and Zoloft
(sertraline).
Cardiovascular disease products are the Company's largest therapeutic
product line, accounting for roughly 30% of the Company's consolidated net sales
for each of the past three years. Sales of both Norvasc, a once-a-day calcium
channel blocker for hypertension and angina, as well as Cardura, an alpha
blocker for hypertension and benign prostatic hyperplasia, grew substantially in
1996. Sales of Procardia XL, a once-a-day calcium channel blocker for
hypertension and angina, decreased during 1996, reflecting the product's
maturity and the Company's increasing emphasis on Norvasc, but still exceeded
one billion dollars.
Worldwide infectious disease product sales increased mainly on the
strength of Diflucan and Zithromax. Diflucan, an anti-fungal agent, is indicated
for use in a variety of fungal infections including vaginal candidiasis and
certain infections that afflict AIDS and immunosuppressed cancer patients.
Zithromax is an oral antibiotic which drew significant growth in 1996 from its
approval for use in new indications.
2
Zoloft, for treatment of depression and obsessive compulsive disorder,
experienced substantial growth again in 1996. During 1996, the Company
introduced Zyrtec in the U.S. for the treatment of seasonal and perennial
allergic rhinitis and chronic urticaria. Zyrtec, the most widely-prescribed
antihistamine in Europe, has been marketed worldwide by the Belgian company, UCB
S.A. Zyrtec is licensed to the Company for sales in the U.S. and Canada, and the
Company and a subsidiary of UCB S.A. copromote Zyrtec in the U.S.
Hospital Products Group
The Hospital Products Group consists of two divisions - Howmedica and
the Medical Devices Division. Howmedica manufactures and markets orthopedic
implants and related reconstructive products. The Medical Devices Division
consists of three core businesses - Schneider/NAMIC, Valleylab and American
Medical Systems. The Group's four major business lines are musculoskeletal
products, interventional cardiology and radiology products, surgical
instrumentation and urology products. In each of 1996 and 1995, the sales of the
Hospital Products Group accounted for thirteen percent of the Company's
consolidated net sales, compared with fourteen percent in 1994.
Howmedica's musculoskeletal products, including reconstructive hip and
knee implants, bone cement, trauma products and internal and external fixation
devices, were complemented by the 1996 acquisition of the Leibinger companies.
Leibinger produces implantable devices used in oral and craniomaxillofacial
surgery and specialty surgical instruments. Schneider/NAMIC is a worldwide
manufacturer and supplier of angioplasty catheters, stents for vascular and
non-vascular applications and single-patient-use medical products, primarily for
use in the diagnosis and treatment of atherosclerotic cardiovascular disease.
Valleylab manufactures electrosurgical and ultrasonic surgical equipment used in
open and minimally invasive surgical procedures. American Medical Systems
manufactures impotence and incontinence implants.
The Hospital Products Group was also strengthened by the 1996
acquisitions of Corvita Corporation and Vesta Medical, Inc. Corvita develops,
manufactures and markets synthetic vascular grafts and is developing stent-graft
devices for diseased or damaged arteries. Vesta Medical, Inc. has developed
technology for treatment of dysfunctional uterine bleeding.
Animal Health
The Animal Health Group discovers, develops, manufactures and sells
animal health products for the prevention and treatment of diseases in
livestock, poultry, companion animals and other animals. The Company is a
significant manufacturer of antibiotics, antiparasitics and anticoccidial
products for food animals, as well as vaccines and various companion animal
products. In 1995, the Company acquired the SmithKline Beecham Animal Health
business, a major producer of animal vaccines and companion animal products.
This operation essentially doubled the revenues of the Animal Health Group and
complemented the Company's existing animal health business in terms of product,
species and geographic sales coverage. In 1996, Animal Health Group sales
accounted for eleven percent of the Company's consolidated net sales, compared
with twelve percent in 1995 and eight percent in 1994.
In 1996, the Company received U.S. Food and Drug Administration ("FDA")
approval of Dectomax (doramectin), a treatment for internal and external
parasites, primarily in cattle. Dectomax was already available in many countries
outside the U.S. and is a major Animal Health Group product. It provides a
long duration of activity against a broader spectrum of parasites than other
currently available injectable products. Also in 1996, the Company received U.S.
regulatory approval for Rimadyl, a non-steroidal anti-inflammatory for treatment
of osteo-arthritis in dogs, Domitor and Antisedan, a sedative and reversing
agent for use in dogs, and Aviax, an ionophore anticoccidial for poultry.
The principal products of the Animal Health Group are Dectomax; Stafac
(virginiamycin), a feed additive anti-infective for poultry, cattle and swine;
Terramycin LA-200 (oxytetracycline), an injectable version of the Terramycin
broad spectrum antibiotic used for a variety of animal diseases; the Banminth
(pyrantel tartrate), Nemex (pyrantel pamoate), Valbazen (albendazole) and
Paratect (morantel tartrate) anthelmintics for internal parasites; Coxistac
(salinomycin) and Aviax (semduramicin) anticoccidials primarily for poultry;
Mecadox (carbadox), an antibacterial for pigs; and Advocin (danofloxacin), for
treating respiratory and enteric diseases in livestock and poultry. The Company
also manufactures and sells an extensive line of cattle, swine and companion
animal vaccines including BoviShield, Leukocell, RespiSure and Vanguard.
3
Consumer Health Care
The Company's Consumer Health Care products include proprietary
non-prescription health items, baby care products and toiletries, and a number
of products sold only in selected international markets. Among the Group's
better-known over-the-counter ("OTC") brands in the U.S. are Visine eyedrops,
Ben-Gay topical analgesics, Desitin ointments, Unisom sleep aids, Plax
pre-brushing dental rinse, Rid anti-lice products, Bain de Soleil skin care
products and Barbasol shave creams and gels. Several line extensions building on
these brands have been introduced in recent years. In 1996, the Company acquired
the Cortizone and Hemorid brands to expand this product portfolio. Cortizone is
a hydrocortisone skin care product and Hemorid is the only brand of hemorrhoidal
preparation expressly designed for women. In both 1996 and 1995, sales of the
Consumer Health Group accounted for four percent of the Company's consolidated
net sales, compared with five percent in 1994.
The Consumer Health Care business provides a platform for expanded
commercialization of certain prescription medications through the evolution to
OTC medications. For example, an OTC formulation of Feldene for treatment of
chronic shoulder and back pain was launched under the brand name "Juscoat" in
Japan in February 1996. Similarly, Diflucan One was marketed in the U.K. as a
treatment for vaginal candidiasis and Zyrtec is sold in Canada under the
Reactine brand name. Also in 1996, the Company acquired the rights to an
antihistimine eye drop formulation that previously had been available only by
prescription. Using that technology, the Company launched a new product,
OcuHist, as an extension of its OTC ophthalmic product line. Subject to
applicable regulatory approval and market conditions, the Company expects to
pursue similar launches for other products over time.
Research and Product Development
Innovation fueled by the Company's research and development operations
is key to the continued commercial success of all its businesses. The Company's
strategic focus on discovering, developing and bringing to market innovative
products that address major unmet health care needs has been supported by
substantial research and development investments. The Company spent
approximately $1.7 billion in 1996, $1.4 billion in 1995, and $1.1 billion in
1994 on Company-sponsored research and development. For 1997, the Company has
increased its annual worldwide research and development budget to approximately
$2.0 billion.
The Company conducts research internally, through contracts with third
party researchers, through collaborations with organizations such as
universities and biotechnology companies, and in cooperation with other
pharmaceutical and medical products firms. The Company also seeks out innovative
technologies developed by third parties to acquire or incorporate into Company
product lines through licensing or other arrangements.
Drug and medical product development is time consuming, expensive and
unpredictable. On average, only one out of several thousand chemical compounds
discovered by researchers proves to be both medically effective and safe enough
to receive regulatory approval. The process from discovery to regulatory
approval can take more than ten years. Efficiency in the development process so
as to be the first to market with an innovative new pharmaceutical compound or
medical product is important. As a result, the management of the Company's
research and development organization strives for efficient handling of product
candidates as a potential competitive advantage.
The Company currently has a number of pharmaceutical compounds and new
therapies in all stages of development that is unprecedented in its history. In
1996, the Company's discovery scientists delivered seventeen new drug candidates
to the early development stage. While each of those candidates is far from
regulatory approval and faces a number of hurdles, these and other drug
candidates are the foundation for potential new products in coming years. A
table and discussion of existing major pharmaceutical products, supplemental
filings for those products, and drug candidates in late and early stage
development is set out under the heading "Major Pfizer Products and Selected
Candidates in Development" on pages 8 and 9 of the Company's 1996 Annual Report
to Shareholders. That table and discussion are incorporated herein by reference.
The Company's research operations also strive to add extra value to
existing products. The 1996 FDA approval of Zoloft for the treatment of
obsessive compulsive disorder is one example. Also in 1996, the FDA approved a
new once-a-week form of Zithromax for prevention of Mycobacterium avium
infections in AIDS patients and a pediatric dosage form of Zyrtec. Altogether,
the Company has filed more than twenty Supplemental New Drug Applications with
the FDA in the past five years to expand markets for its existing products.
4
The Company's competitors also devote substantial resources to research
and development. This competition can result in product obsolescence for the
Company as patient therapies improve. Consequently, the continual development of
new and innovative products is important to the Company's businesses.
Marketing
In the Company's global prescription pharmaceuticals and hospital
products businesses, products are promoted to health care providers as well as
to Managed Care Organizations ("MCOs"). The Company also devotes significant
resources to marketing directly to consumers in the United States, primarily
through direct-to-consumer print and TV advertising. The Company's U.S.
operations have several pharmaceutical and hospital products sales organizations
that represent different groups of products. In 1996, an additional U.S.
pharmaceutical sales organization was created to help market the portfolio of
existing products and represent new products. This raised the number of U.S.
pharmaceutical sales representatives to more than 3,300. Similar sales
organizations are used in overseas operations. Through these marketing
organizations, the Company endeavors to gain access to MCO formularies by
demonstrating unique qualities of its pharmaceutical and hospital products. The
Company also works with MCOs to assist them with disease management and other
tools.
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 basic clinical trials required by regulatory
authorities to show they are safe and effective for treating a particular
medical problem. A manufacturer may choose, however, to undertake additional
studies in order to demonstrate additional advantages of a compound, such as a
better safety profile or improved cost effectiveness, but such studies can be
costly and take years to complete. Decisions about whether and when to undertake
such additional studies can have a major impact on later marketing claims and
strategies.
Separate sales organizations are used by the Company's Animal Health
and Consumer Health Care businesses to promote their particular products. The
Animal Health business' advertising and promotion are generally targeted to
health professionals, directly and through medical journals. The Consumer Health
Care business uses substantial consumer advertising to promote its brand-name
products. In addition, the Company sponsors general advertising to educate the
public about the Company's innovative medical research.
The Company's pharmaceutical products are sold principally to wholesale
resellers, but the Company also sells directly to retailers, including
hospitals, clinics, government agencies and pharmacies. Hospital products are
generally sold directly to medical institutions, but distributors and dealers
provide a supplementary channel. Animal health and nutrition products are sold
through veterinarians, drug wholesalers, distributors, retail outlets and
directly to users, including feed manufacturers and animal producers. Consumer
health care products are promoted by heavy consumer advertising and sold through
a variety of retailers.
Apart from the Consumer Health Care Group's sales to WalMart, which
represents more than fifteen percent of its U.S. business, none of the Company's
business segments is dependent on a single customer, or a few customers, such
that a loss of any one or more would have a material adverse effect on the
particular business segment. No customer accounted for ten percent or more of
the Company's consolidated revenues in 1996. See, however, the discussion below
in the sections entitled "Competition" and "Government Regulation and Price
Constraints."
International Operations
Outside the United States, the Company has significant operations, both
direct and through distributors that, in general, parallel its United States
businesses. In 1996, the Company had net sales in excess of $100 million in each
of thirteen foreign countries and in excess of ten million dollars in each of 32
additional countries, with no single country other than the U.S. contributing
more than ten percent of total net sales. Japan is the Company's second largest
national market, with 1996 sales again exceeding one billion dollars, although
declining slightly from 1995 results due to lower valuations of the Japanese yen
versus the U.S. dollar. Growth in some European markets exceeded twenty percent,
while in selected emerging market nations, the growth rate was even higher. If
the world economy continues to grow and bring prosperity to more people in
emerging markets, the Company expects it could see the greatest rate of growth
of its health care businesses
5
in those markets. The table "Geographic Data" on page 40 of the 1996 Annual
Report to Shareholders gives a breakdown of sales and other data by major
geographic areas, and is incorporated herein by reference.
The Company's international businesses are subject, in varying degrees,
to a number of risks inherent in carrying on business in certain countries,
including possible nationalization, expropriation and other restrictive
government actions such as capital regulations. In addition, the values of
currencies change and can either favorably or unfavorably affect the Company's
financial position and results of operations. It is impossible to predict future
changes in foreign exchange values or the effect they will have on the Company.
Further information with respect to the financial instruments used in the
Company's risk management programs is incorporated by reference from the Notes
entitled "Financial Instruments and Risk Management" and "Fair Value of
Financial Instruments" beginning on page 46 of the 1996 Annual Report to
Shareholders.
Patents and Intellectual Property Rights
Patent protection is of material importance in the Company's marketing
in the United States and in most major foreign markets. Various patents owned by
or licensed to the Company cover pharmaceutical and hospital products,
pharmaceutical formulations, processes for manufacturing products, and
intermediates useful in such manufacturing. Patent protection for individual
products extends for varying periods in accordance with the date of patent
filing or grant and the legal term of patents in the various countries where
patent protection is secured. The protection afforded, which may also vary from
country to country, depends upon the type of patent and the scope of its
coverage.
While the expiration of a product patent normally results in the loss
of marketing exclusivity for the covered product and a resulting dramatic
reduction in sales, in some cases commercial benefits may continue to be derived
from: (i) trade secret advantages pertaining to the manufacture of the product;
(ii) subsequent patents on processes and intermediates related to the economical
manufacture of the active ingredients; (iii) patents relating to special
formulations of the product or delivery mechanisms; and (iv) adaptation of the
active ingredient to over-the-counter products. The effect of product patent
expiration also depends upon other factors such as the nature of the market and
the position of the product in it, the growth of the market, the complexities
and economics of manufacture of the product, and the requirements of generic
drug laws administered by the Food and Drug Administration and similar laws in
other countries.
The Company owns or is licensed under a number of U.S. and foreign
patents relating to its products and manufacturing processes which, in the
aggregate, are of material importance in its businesses. Based on current
product sales, and in view of the vigorous competition with products sold by
others, the Company does not consider any single patent or related group of
patents to be significant in relation to its business as a whole, except for the
Procardia XL, Zithromax, Diflucan, Zoloft and Norvasc patents. Procardia XL
(nifedipine GITS) employs a novel drug delivery system developed and patented by
Alza Corporation. The Company holds an exclusive license to use this delivery
system with nifedipine until 2003. Other forms of sustained-release nifedipine
using different delivery systems from the patented technology used in Procardia
XL have been approved or are reported to be in various stages of development by
other companies. The one drug that has been approved has not been AB-rated by
the FDA as therapeutically equivalent to Procardia XL. It is not possible to
predict the timing and impact on sales of Procardia XL of competition from such
products. Zithromax (azithromycin) is a novel, broad spectrum macrolide
antibiotic patented by and sourced in crude bulk form from Pliva, a Croatian
company that is one of the largest pharmaceutical companies in eastern Europe.
Zithromax is exclusively licensed to the Company for sales and marketing in all
major countries of the world. Pliva's U.S. patent on Zithromax expires in 2005.
The Company's basic patents relating to Diflucan, Zoloft and Norvasc expire in
the U.S. between 2004 and 2007. The patent on Cardura, the Company's alpha
blocker for hypertension and benign prostatic hyperplasia, expires in 2000.
The Company's products are sold around the world under brand-name
trademarks that are considered in the aggregate to be of material importance.
Trademark protection continues in some countries as long as used; in other
countries, as long as registered. Registrations generally are for fixed, but
renewable, terms.
Competition in research, involving the development of new products and
processes and the improvement of existing products and processes, is intense,
and can result from time to time in unforecast patented product and process
obsolescence as patient treatment therapies improve. The ongoing development of
innovative new products, and the protection of the intellectual property behind
those products, are important to the Company's success in all areas of its
business.
6
Under international agreements over recent years, protection of
intellectual property rights has been improving somewhat in emerging market
nations. As noted above, the Company is experiencing the greatest rates of
growth in its business in some of those nations. Its continued business in those
countries is dependent to a large degree on continuing improvement of
intellectual property rights. Pursuant to the North American Free Trade
Agreement, Mexico improved its patent law to provide patent protection to
pharmaceutical products. The General Agreement on Tariffs and Trade ("GATT")
also requires countries to amend their intellectual property laws to provide
patent protection for pharmaceutical products by the end of no more than a
ten-year transition period. A number of countries are in this process of
amending their patent laws. The Company is hopeful this will result eventually
in strong enforcement of intellectual property rights in more international
markets.
Neither the amounts paid by the Company for license rights, nor amounts
received by the Company in connection with licenses granted by it to third
parties, are considered material to the operations of the Company as a whole.
Competition
The competition is intense in all of the Company's business segments
and includes many competitors. No single entity competes with the Company in all
of its businesses, but each of the Company's businesses faces substantial
competition in its respective markets. The principal methods of competition vary
from one product category and business group to another, but technological
innovation in efficacy, safety, patients' ease of use and cost effectiveness are
the foundations of competitive advantage. The industry is noteworthy for its
technological focus on unmet medical needs and improving therapies. This has led
to the Company's multi-billion dollar research and development investments over
the past decade.
In recent years, the comparison of the total cost of treatment
therapies incorporating pharmaceuticals versus treatments for the same condition
using other therapies has become an important basis of competition. Even
breakthrough technologies are often marketed by comparing their total treatment
cost with the costs of alternative therapies.
The Company's pharmaceutical sales organization has proven to be a
valuable competitive asset. The ability of the Company's product representatives
to reach the medical community and communicate information about the Company's
products is important in responding to competitive efforts and launching new
products.
The Company's Hospital Products Group faces intense competition in its
markets. Many companies of various sizes and with various resources compete
against practically all of the Company's products. Consolidations of
complementary firms in this business have increased the market position of some
competitors in recent years, but the Company has also broadened its product
lines.
The principal methods of competition with respect to animal health
products vary somewhat, but include product innovation, service, price, quality
and effective transfer of technological advances to veterinary professionals and
consumers through advertising and promotion. A substantial number of other
companies manufacture and sell one or more competitive products. There are
hundreds of producers of animal health products throughout the world.
Many other companies, large and small, manufacture and sell one or more
products that are similar to the Company's consumer health products. The Company
is a competitor in the OTC market, and its principal methods of competition
include product quality, product innovation, customer satisfaction, broad
distribution capabilities, significant advertising and promotion efforts and
price. In general, achieving consumer acceptance of the Company's consumer
products involves heavy expenditures for advertising, promotion and marketing.
In this environment of growing competitive pressures on profit margins,
the Company has continued measures to control its expenses. Although research
and development budgets have grown significantly, in other areas such as
manufacturing, distribution and sales administration, the Company has
restructured and consolidated facilities. These measures have been designed to
adopt new manufacturing and logistics efficiencies and reduce or contain
operating expenses. See the Note, "Restructuring Program" in the Notes to
Consolidated Financial Statements on page 49 and the discussion in the second
paragraph under the heading "Operating Activities" on page 35 of the 1996 Annual
Report to Shareholders, which are incorporated herein by reference. In
furtherance of such efforts, in 1996 the Company announced the consolidation of
its previously separate U.S. and international pharmaceutical sales and
operating divisions into a single unified "Pfizer Pharmaceuticals Group" and
combined certain businesses in its Hospital Products Group.
7
Managed Care Organizations
The growth of Managed Care Organizations ("MCOs") in the past decade
has been a major factor in the changing health care marketplace. Well over half
the U.S. population now participates in some version of managed care. Marketing
of prescription drugs to MCOs and Pharmacy Benefit Managers ("PBMs") that serve
many of those organizations have become more and more important to the Company's
business.
MCOs include medical insurance companies, health-maintenance
organizations, alliances of physicians, and medical plan administrators. The
market power of MCOs has been increasing in recent years due to the growing
numbers of patients enrolled in these organizations. At the same time, these
organizations have been consolidating into fewer, even larger entities. This
further enhances their bargaining strength and importance as sales channels for
the Company.
A major objective of MCOs is to contain and, where possible, reduce
health care expenditures. Among other measures, they typically use volume and
long-term contracts to negotiate discounts from pharmaceutical and medical
device providers. They control cost by using their purchasing power to bargain
for lower supplier prices, and by emphasizing 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 a means of reducing their cost for medications and hospital
products, MCOs and PBMs develop formularies, which are lists of products
compiled by boards of physicians and pharmacists. Formularies can be based on
the prices and therapeutic benefits of the available products. Due to their
lower basic price, generic medicines may be favored. The breadth of the products
covered by their formularies can vary considerably from one MCO to another, and
many formularies include alternative and competitive products for treatment of
particular medical problems. MCOs employ a variety of means to encourage the use
of products listed on their formularies.
Exclusion of a product from a formulary can lead to sharply reduced
usage of the product in the MCO patient population. Consequently, pharmaceutical
and hospital products companies compete aggressively to have their products
included on these formularies. Where possible, 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 a method of competition. Products that demonstrate fewer therapeutic
advantages must compete for inclusion based primarily on price.
In contrast to the effect MCOs have had on prices, they have also led
to greater usage of some drugs. Certain drugs can avert the need for more costly
treatments such as hospitalization, professional therapy, or even surgery, and
become favored first-line treatments for MCOs. In addition, the trend of
Medicare patients to opt for alternatives to those traditional programs and
convert to forms of managed care may increase overall pharmaceutical usage among
that population.
The effect of these developments has not only created pressure on
prices, but also has raised volumes for products that are successful in being
included on formularies. To date, the Company has been generally, although not
universally, successful in having its products included on MCO formularies.
As another means of addressing the interests of MCOs, some
pharmaceutical manufacturers, including the Company, have been developing
disease management programs, which aid MCOs in managing their patient
populations. These programs can help MCOs effectively address various aspects of
certain disease categories, including prevention, diagnosis and treatment
concomitant with pharmaceutical use. The programs can provide a comprehensive
treatment program, including pharmaceutical products and communication tools for
patients, that not only improves the quality of care but lowers costly
complications of chronic diseases. Disease management programs can be attractive
to MCOs by enhancing patient communications and compliance, which is important
to effective treatment.
Generic Products
One of the biggest competitive challenges faced by the Company in the
United States is posed by generic pharmaceutical manufacturers. Upon the
expiration of patents on important products (such as Feldene in the U.S. in
1992) the Company can lose the major portion of U.S. sales of such products
within a year. Generic competitors operate without the large research and
development expenses that the Company bears. For example, the approximately $2
billion the Company expects to spend in 1997 on research to develop new and
better medical treatments will constitute a significant
8
portion of its total expenses. Generic manufacturers do not incur most of these
expenses, and generally can afford to charge much less for those products whose
U.S. patent protection has expired.
As noted above, MCOs that focus merely on the immediate cost of drugs
may favor generics to brand-name drugs. Governments also encourage the use of
generics as alternatives to brand-name drugs for their Medicaid and Medicare
programs. Laws in the U.S. generally allow, and in some cases require,
pharmacists to substitute a generic drug that has been rated under appropriate
government procedures to be therapeutically equivalent for a branded drug unless
the prescribing physician expressly forbids the substitution in accordance with
applicable procedures.
Further supporting generic competition, the FDA approval process often
exempts generic drugs from costly and time-consuming clinical trials. Generics
typically do not have to demonstrate their safety or efficacy, and need only
demonstrate bio-equivalence to the pioneer drug to obtain approval. Some
pharmaceutical firms that had concentrated solely on the manufacture of patented
drugs have entered the generic market in recent years. Some offer generic
versions of their own brand-name products. The Company has not followed that
strategy, choosing instead to focus on developing and marketing innovative new
products and treatments.
Raw Materials
Raw materials essential to the Company's businesses are purchased
worldwide in the ordinary course of business from numerous suppliers. In
general, these materials are widely available from multiple sources and no
serious shortages or delays have been encountered, nor are any anticipated in
1997. There is a trend towards the development and use of more complicated
pharmaceutical compounds, however, which may tend to increase manufacturing
costs and plant and process development in the future.
Government Regulation and Price Constraints
Pharmaceutical and hospital products companies are subject to heavy
regulation by a number of country, state and local agencies. Of particular
importance is the Food and Drug Administration ("FDA") in the United States,
which has jurisdiction bearing on all the Company's businesses. The FDA
administers requirements covering the testing, approval, safety, effectiveness,
manufacturing, labeling and marketing of pharmaceuticals and medical 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 in the
United States. Such requirements can be costly and extend the time it takes to
launch innovative new products.
The FDA also regulates consumer health and, along with the U.S.
Department of Agriculture and the Environmental Protection Agency, animal health
products. Certain regulatory actions pertaining to Company products are
discussed in Item 3 herein.
In 1995, the new European Medicines Evaluation Agency ("EMEA")
instituted a new "centralized" drug-approval process for the member states of
the European Union ("EU"). This centralized procedure supplements the
traditional decentralized approach and allows for a single central approval that
is valid in all EU member countries. While it is expected that it will take
several years for the EMEA to be fully operational, a harmonized, centralized
regulatory agency in Europe could benefit the Company's businesses.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that would effect major changes in the
health care system. Some states have passed such legislation, and further
federal and state proposals are expected. These could include pharmaceutical
price constraints and restrictions on access to certain products. Similar issues
have also arisen in recent years in various foreign countries. The Company
cannot predict the outcome of such initiatives, but will work to maintain
patient access to its products and to oppose unwarranted pricing constraints.
Also in the U.S., additional 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 expenditures. Driven
by budget concerns, Medicaid managed care systems have been under consideration
in several states. If the Medicare and Medicaid programs implement changes that
severely restrict the access of a significant population of program participants
to innovative new medicines, this could have a significant adverse effect on the
Company. 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, patient usage of pharmaceuticals potentially
could increase.
9
Under existing legislation in the U.S. applicable to pharmaceutical
companies, the Company is obliged to extend rebates to state Medicaid agencies
based on each state's reimbursement of pharmaceutical products under the
Medicaid program. The Company is also obliged to provide discounts on purchases
of pharmaceutical products by the Department of Veterans Affairs and by certain
entities funded by the Public Health Service. See the discussion regarding
rebates on page 31 of the Company's 1996 Annual Report for details on the cost
to the Company of such discounts and rebates, which is incorporated herein by
reference.
The Company encounters similar regulatory and legislative issues in
most of the foreign countries where it does business. Moreover, in many
international markets, prices of pharmaceuticals are controlled by the
government. As in the U.S., the primary thrust of governmental inquiry and
action is toward determining drug safety and effectiveness, but also with
mechanisms for controlling the prices of prescription drugs and the profits of
prescription drug companies. The EU has adopted directives concerning the
classification, labeling, advertising and wholesale distribution of medical
products for human use. The Company's policies and procedures are already
consistent with the substance of these directives. Consequently, it is believed
that they will not have any material effect on the Company's business.
The Company is also subject to the jurisdiction of various other
regulatory agencies, such as the Federal Trade Commission in the U.S., and is,
therefore, subject to potential administrative proceedings and actions by those
agencies. Such actions may include product recalls and seizures and other civil
and criminal sanctions. Under certain circumstances, the Company has deemed it
advisable to initiate product recalls voluntarily.
Although it is difficult to predict the future effect of these broad
and expanding legislative and regulatory requirements, the Company believes that
its development of new and improved products should enable it to compete
effectively within this environment. See, also, the discussion below under the
heading "Environmental Law Compliance."
Environmental Law Compliance
Most of the Company's manufacturing and certain research operations are
affected by federal, state and local laws relating to the discharge of materials
into the environment or otherwise relating to the protection of the environment.
The Company has made and intends to continue to make the necessary expenditures
for compliance with these laws. The Company is also remediating environmental
contamination resulting from past industrial activity at certain sites (see Item
3, "Legal Proceedings"). As a consequence, the Company incurred capital and
operational expenditures in 1996 for environmental protection and remediation of
certain past industrial activity as follows: environment-related capital
expenditures, $42 million; other environmental-related expenses, $56 million.
While it is not feasible to predict with certainty the future costs related to
such remediation activities or capital expenditures and operating costs for such
environmental compliance, the Company does not believe that they will have a
material effect on the capital expenditures, earnings or competitive position of
the Company.
Corporate/Financial Subsidiaries
The Company conducts 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 a
number of currencies in international markets. PIBE is an active Euromarket
lender through its portfolio of loans and money market instruments to high
quality corporations and sovereigns. Loans are made on a short and medium term
basis, typically with floating market-based interest rates. The Company also
owns an insurance operation, The Kodiak Company Limited, which reinsures certain
assets, inland transport and marine cargo of the Company's international
operations. Combined financial data and segment information for these
subsidiaries are set out in the Note "Financial Subsidiaries" on page 46 of the
Company's 1996 Annual Report to Shareholders, and are incorporated herein by
reference.
Tax Matters
The discussions of tax-related matters (including certain U.S. and
overseas assessments relating to prior years) set out under the heading "Tax
Legislation" in the Financial Review section on page 37 of the Company's 1996
Annual Report to
10
Shareholders and under the Note therein entitled "Taxes on Income" in the Notes
to the Consolidated Financial Statements on pages 49 and 50 of the Annual Report
are incorporated herein by reference. The proposed IRS adjustments relating to
the tax accounting treatment of certain swaps and related transactions
undertaken by the Company in 1987 and 1988 have been settled with no material
effect on the financial position or the results of operations of the Company.
Employees
In the Company's innovation-intensive business, the performance of its
employees is the foundation to its success. As of December 31, 1996, the Company
employed approximately 46,500 persons in its operations throughout the world.
Geographically, this total breaks down as follows: United States, 19,400;
Europe, 13,300; Asia, 7,300; Canada/Latin America, 5,000; and Africa/Middle
East, 1,500. The Company has a good relationship with its employees.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(Cautionary Statements Under the Private Securities Litigation Reform Act
of 1995)
The disclosure and analysis set forth herein and in the Company's 1996
Annual Report to Shareholders contain certain forward-looking statements,
particularly statements relating to future actions, performance or results of
current and anticipated products, sales efforts, expenditures, and financial
results. From time to time, the Company also provides forward-looking statements
in other publicly-released materials, both written and oral. Forward-looking
statements provide current expectations or forecasts of future events such as
new products, product approvals, revenues and financial performance. These
statements are identified as any statement that does not relate strictly to
historical or current facts. They use words such as "plans", "expects", "will"
and other words and phrases of similar meaning. In all cases, a broad variety
of risks and uncertainties, both known and unknown, as well as inaccurate
assumptions can affect the realization of the expectations or forecasts in those
statements. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially.
The Company undertakes no obligation to update any forward-looking
statements, but investors are advised to consult any further disclosures by the
Company on this subject in its subsequent filings pursuant to the Securities
Exchange Act of 1934. Furthermore, as permitted by the Private Securities
Litigation Reform Act of 1995, the Company provides these cautionary statements
identifying factors that could cause the Company's actual results to differ
materially from expected and historical results. It is not possible to foresee
or identify all such factors. Consequently, this list should not be considered
an exhaustive statement of all potential risks, uncertainties and inaccurate
assumptions.
In the U.S., many of the Company's pharmaceutical products are subject
to increasing price pressures as managed care groups, institutions and
government agencies seek price discounts. Federal and state government efforts
to reduce Medicare and Medicaid expenses are expected to increase the use of
managed care and to offer incentives to beneficiaries to join these plans. This
may result in managed care influencing prescription decisions for a larger
segment of the population. International operations are also subject to
increasing degrees of government regulations. It is expected that pressures on
pricing and operating results will continue in 1997 as a result of market
competition and environment.
The Company's products Feldene and Glucotrol have been subject to
generic competition since 1992 and 1994, respectively. The combined U.S. net
sales of these products were $59, $95 and $203 million in 1996, 1995 and 1994,
respectively.
In mid-1993, the FDA approved a New Drug Application for a competitor's
sustained-release form of nifedipine for the treatment of hypertension. This
product uses a different delivery system from the patented technology used in
Procardia XL, the Company's product, which is approved for the treatment of
hypertension and angina and has a delivery system that is patent-protected until
2003. Other forms of sustained-release nifedipine have been reported to be in
various stages of development by other companies. It is not possible to predict
the timing and impact of possible future competition on sales of Procardia XL.
Net sales of Procardia XL were $1,005 million in 1996, $1,133 million in 1995,
and $1,177 million in 1994.
During 1995, the authors of several nonclinical studies questioned the
safety of calcium channel blockers, including the Company's immediate-release
nifedipine capsules. Although the clinical evidence supported the safety of
these medications, the FDA convened an advisory panel to review their safety. In
January 1996, the advisory panel recommended that labeling for immediate-release
nifedipine capsules (approved only to treat a form of angina) be clarified.
However, the advisory panel specifically noted that there were no data which
questioned the safety of the newer sustained-release and intrinsically
11
long-acting calcium channel blockers, such as the Company's Procardia XL and
Norvasc, which are approved for both hypertension and angina and are prescribed
for the vast majority of American patients on calcium channel blockers. The
safety and effectiveness of these new long-acting calcium channel blockers in
lowering blood pressure and controlling angina 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 to predict the impact, if any, of these
nonclinical studies or the FDA panel's findings and recommendations on its
future sales, but the Company does not believe that any impact will have a
material adverse effect on its financial position or results of operations.
Sales and earnings growth could be impacted by changes in foreign
exchange rates. The Company manages its foreign exchange risk through a variety
of techniques. For further details, see the footnote "Financial Instruments and
Risk Management" beginning on page 46 of the 1996 Annual Report to Shareholders.
Pursuant to the Small Jobs Protection Act of 1996, Section 936 of the
Internal Revenue Code (the possessions corporation income tax credit) was
repealed for tax years beginning after December 31, 1995. That Act provided that
existing credit claimants, such as the Company, are eligible to continue using
the credit against the tax arising from manufacturing income earned in a U.S.
possession 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 prior years' income earned by the Company in Puerto Rico. This ten-year
extension period does not apply to investment income earned in a possession, the
credit on which expired as of July 1, 1996. This legislation does 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 possession tax credit from 100%
to 40%. In addition, the 1996 Act extended the R&D tax credit for eleven months
effective July 1, 1996.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, Environmental Remediation Liabilities, which will be effective in
1997. SOP 96-1 provides guidance on accounting for the recognition, measurement,
display and disclosure of environmental liabilities. The Company's adoption of
SOP 96-1 is not expected to have a material impact on its financial position,
results of operations, or cash flows.
In July 1996, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue 96-14, Accounting for
the Costs Associated with Modifying Computer Software for the Year 2000, which
provides that costs associated with modifying computer software for the year
2000 be expensed as incurred. The Company is assessing the extent of the
necessary modifications to its computer software.
Issuance of new or revised accounting standards and rules in addition
to those specified above could affect reported financial results.
Risks and uncertainties particularly apply with respect to
product-related forward-looking statements. In view of the many considerations
that bear upon regulatory approval and marketing of pharmaceutical and hospital
products around the world, it is always possible that current expectations in
these areas may not be realized. The outcome of the lengthy and complex process
of new product development is inherently uncertain. A candidate can fail at any
stage of the process and one or more late-stage product candidates could fail to
receive regulatory approval. Regulatory delays, the inability to identify viable
new chemical compounds or successfully complete clinical trials, claims and
concerns about safety and efficacy, new discoveries and products by competitors,
and claims about adverse side effects are a few of the factors that could
adversely affect the realization of product-related forward-looking statements.
Difficulties or delays in pharmaceutical product manufacturing or
marketing including, but not limited to, the inability to build up production
capacity commensurate with demand, or the failure to gain market acceptance of
approved products could affect future results. Similar difficulties or delays
can also affect the development of the Company's other businesses, namely
hospital products, animal health and consumer health care.
The Company currently has several products whose annual sales approach
or exceed one billion dollars. Three products alone (Norvasc, Procardia XL and
Zoloft) accounted for approximately half of the Company's 1996 pharmaceutical
sales. If any of the Company's major products were to become subject to a
controversy that affects doctor or patient confidence, or subject to increased
pressure from competitive products, or if a new, more effective treatment
regimen should be introduced, the impact on the Company's revenues could be
significant.
12
As discussed above under the heading "Marketing", decisions about
research studies made early in the development process of a drug candidate can
have a substantial impact on marketing strategy once it receives approval. The
Company endeavors to plan clinical trials prudently, but there is no guarantee
that a proper balance of speed and testing will be made in each case.
Factors mentioned in the discussions above about product obsolescence,
generic competition, marketing issues, government regulations and the
competitive environment generally will be important to future results.
Changing business conditions, including inflation and fluctuations in
interest rates and foreign currency exchange rates, in the many countries where
the Company does business directly or through subsidiaries will affect future
results. For example, in 1997, in accordance with generally accepted accounting
principles, the Company will change the functional currency of its Mexican
operations to the U.S. dollar since the cumulative rate of Mexico's inflation
exceeded 100% for the three-year period ending December 31, 1996. This change is
not expected to have a material effect on the Company's financial position or
results of operations.
Competitive factors including managed care organizations, institutions,
government agencies and retailers seeking price discounts, technological
advances attained by competitors, patents granted to competitors, and generic
competition as the Company's products mature, could affect prices, revenues and
expenses.
Government laws and regulations affecting domestic and international
operations, including trade, monetary and fiscal policies, taxes, price
controls, unstable governments and legal systems and intergovernmental disputes,
possible nationalization, as well as actions affecting approvals of products and
licensing could affect revenue opportunities, expenses and capital movements.
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, the
Company may be unable to continue or maintain the margin improvements achieved
in recent years.
Changing governmental or social conditions could affect utilization of
some Company products.
Claims have been brought against the Company and its subsidiaries for
various legal, environmental and tax matters. In addition, the Company's
operations are subject to international, federal, state and local environmental
laws and regulations. See the discussion of "Legal Proceedings" in Item 3 and
the tax assessment discussion in Item 1 under the caption "Tax Matters", and
updates of such matters in subsequent reports to the SEC.
Business combinations among the Company's competitors could affect the
Company's competitive position in the pharmaceutical, hospital products, animal
health and consumer health care businesses. Similarly, combinations among the
Company's major customers could increase their purchasing power in dealing with
the Company.
Investments in new product introductions and research could exceed
corresponding sales growth, thereby producing higher costs without a
proportional increase in revenues.
ITEM 2. PROPERTIES
The Company's world headquarters are located in New York City,
comprised of a 33-story office building plus adjacent and nearby buildings.
Altogether, they include over one million square feet of office space, the
majority of which is owned.
The Company's major research and development facilities are located in
manufacturing/R&D complexes containing multiple buildings in Groton, Connecticut
and Sandwich, England. The Groton and Sandwich facilities, respectively, contain
over three million square feet and several hundred thousand square feet of floor
space. Other important research facilities are located in Japan and France. A
number of smaller research and development operations around the world focus
principally on their local markets. Research and development facilities have
been expanding in recent years.
13
Principal manufacturing facilities within the United States and its
territories are located in Groton, Connecticut; Brooklyn, New York; Vigo County,
Indiana; Barceloneta, Puerto Rico; Lee's Summit, Missouri; Lincoln, Nebraska and
Parsippany and Rutherford, New Jersey. Outside the U.S., major manufacturing
facilities are located in a number of locations in Europe, Latin America, Asia,
Australia and Canada. Smaller plants in the U.S. and various countries serve
local or specialized markets. The Company's manufacturing facilities have
capacities that the Company considers appropriate to its needs.
The Company also owns and leases space for distribution,
customer-service, sales and marketing and administrative operations around the
world. Most facilities housing research and manufacturing are owned. In general,
the Company's properties are well maintained, adequate and suitable to their
purposes. For example, a modern distribution facility in Memphis, Tennessee
consolidated that function and serves the U.S. through advanced systems. The
Note "Property, Plant and Equipment" on page 48 of the Company's Annual Report
to Shareholders, which discloses amounts invested in land, buildings and
equipment, and the discussion in the third paragraph under the heading
"Investing Activities" on page 35 of that Report, which describes capital
expenditures of the Company, are incorporated herein by reference. See, also,
the discussion under the Note entitled "Lease Commitments" on page 52 of the
Company's 1996 Annual Report to Shareholders, which is also incorporated herein
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 hospital products that allege either reaction to or injury from use of the
product.
As previously disclosed, numerous 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 establishes a worldwide settlement class of people with C/C heart valves
and their spouses, except those who elect to exclude themselves. The settlement
provides for a Consultation Fund of $90 to $140 million (depending on the number
of claims filed) from which valve recipients who make claims will receive
payments that are intended to cover their cost of consultation with
cardiologists or other health care providers with respect to their valves. The
number of claims filed fixes the fund amount at $90 million. The settlement
agreement establishes 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. An appeal of the court's approval of the settlement
was dismissed on December 21, 1993 by the United States Court of Appeals for the
Sixth Circuit. A motion for rehearing en banc was denied on March 4, 1994, and
the U.S. Supreme Court denied a writ of certiorari on October 3, 1994. On August
8, 1994, the Sixth Circuit dismissed an appeal from the denial of a motion by
the same appellants to vacate the judgment approving the settlement, and the
U.S. Supreme Court denied a writ of certiorari on January 9, 1995. Another
appeal to the Sixth Circuit by the same appellants regarding the denial of their
earlier motion to intervene affirmed the denial and all judgments entered by the
District Court, and denied all pending motions, on December 16, 1996. A motion
for a rehearing en banc before the Sixth Circuit filed by the same appellants
was denied. It is expected that most of the costs arising from the Bowling class
settlement will be covered by insurance and the proceeds of the sale of certain
product lines of the Shiley businesses in 1992. Of approximately 900 implantees
(and spouses of some of them) who opted out of the Bowling settlement class,
eight have cases pending; approximately 792 have been resolved; and
approximately 100 have never filed a case or claim.
Several claims relating to elective reoperations of valve recipients
are currently pending. Some of these claims relate to elective reoperations
covered by the Bowling class settlement described above, and, therefore, the
claimants are entitled to certain benefits in accordance with the settlement.
Such claimants, if they irrevocably waive all of the benefits of the settlement,
may pursue separate litigation to recover damages in spite of the class
settlement. The Company is defending these claims.
14
Generally, the plaintiffs in all of the pending heart valve litigations
discussed above seek money damages. Based on the experience of the Company in
defending these claims to date, including available insurance 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.
On September 30, 1993, Dairyland Insurance Co., a carrier providing
excess liability coverage ("excess carrier") in the early 1980s, commenced an
action in the California Superior Court in Orange County, seeking a declaratory
judgment that it was not obligated to provide insurance coverage for Shiley
heart valve liability claims. On October 8, 1993, the Company filed
cross-complaints against Dairyland and filed third-party complaints against 73
other excess carriers who sold excess liability policies covering periods from
1979 to 1985, seeking damages and declaratory judgments that they are obligated
to pay for defense and indemnity to the extent not paid by other carriers. A
significant portion of such claims has been resolved and the remainder is
involved in pretrial discovery. On April 26, 1996, the trial court entered an
order stating that implanting an allegedly defective heart valve is not an
appropriate trigger of insurance coverage in at least one and perhaps all
working valve lawsuits. This decision, even if it is applied to all claims
alleging anxiety that properly functioning valves might fracture in the future,
does not deal with fracture claims, which are also part of the Company's claims,
and as to which a further motion by the carriers is pending.
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 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.
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 twenty 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. Prior to September
1990, the cases involving talc products were defended by the CCR, but the
Company is now overseeing its own defense of these actions. A number of cases
alleging property damage from asbestos-containing products installed in
buildings have also been brought against the Company.
On January 15, 1993, a class action complaint and settlement agreement
were filed in the United States District Court for the Eastern District of
Pennsylvania involving all personal injury claims by persons who have been
exposed to asbestos-containing products but who have not yet filed a personal
injury action against the members of the CCR (Future Claims Settlement). The
Future Claims Settlement agreement establishes a claims-processing mechanism
that will provide historic settlement values upon proof of impaired medical
condition as well as claims-processing rates over ten years. In addition,
15
the shares allocated to the CCR members eliminate joint and several liability.
The court has determined that the Future Claims Settlement is fair and
reasonable. Subsequently, the court entered an injunction enforcing its
determination. Plaintiffs filed an appeal from that injunction in the United
States Court of Appeals for the Third Circuit and on May 10, 1996, a panel of
the Third Circuit reversed the order of the District Court and directed that the
preliminary injunction be vacated. Although the Third Circuit subsequently
denied the motion of the CCR members including the Company and Quigley, for
rehearing of that determination, it agreed to stay its mandate while review is
sought in the United States Supreme Court. On November 1, 1996, the United
States Supreme Court granted a writ of certiorari to hear the appeal, which was
argued February 18, 1997. In the event that the Future Claims Settlement is not
upheld, it is not expected to have a material impact on the Company's exposure
or on the availability of insurance for the vast majority of such cases. It is
expected, too, that the CCR will attempt to resolve such cases outside of the
Future Claims Settlement in the same manner as heretofore.
At approximately the time it filed the Future Claims Settlement class
action, the CCR settled approximately 16,360 personal injury cases on behalf of
its members, including the Company and Quigley. The CCR has continued to settle
remaining and opt-out cases and claims on a similar basis to past settlements.
The total pending number of active personal injury claims, exclusive of those
covered by the Future Claims Settlement preliminary injunction and those which
are inactive or have been settled in principle as of December 28, 1996, is
11,415 asbestos cases against Quigley; 3,882 asbestos cases against the Company;
and 68 talc cases against the Company.
Costs incurred by the Company in defending the asbestos personal injury
claims and the property damage claims, as well as settlements and damage awards
in connection therewith, are largely insured against under policies issued by
several primary insurance carriers and a number of excess carriers.
The Company believes that its costs incurred in defending and
ultimately disposing of the asbestos personal injury claims, whether or not the
Future Claims Settlement is eventually upheld, as well as the property damage
claims, will be largely covered by insurance policies issued by carriers that
have agreed to provide coverage, subject to deductibles, exclusions, retentions
and policy limits. In connection with the Future Claims Settlement, the
defendants commenced a third-party action against their respective excess
insurance carriers that have not agreed to provide coverage seeking a
declaratory judgment that (a) the Future Claims Settlement is fair and
reasonable as to the carriers; (b) the carriers had adequate notice of the
Future Claims Settlement; and (c) the carriers are obligated to provide coverage
for asbestos personal injury claims. Even if the Future Claims Settlement is not
eventually upheld, it is expected that the insurance coverage action against the
insurance carriers that have not agreed to provide coverage for asbestos
personal injury claims will be pursued. 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.
The United States Environmental Protection Agency - Region I and the
Department of Justice have informed the Company that the federal government is
contemplating an enforcement action arising primarily out of a December 1993
multimedia environmental inspection, as well as certain state inspections, of
the Company's Groton, Connecticut facility. The Company is engaged in
discussions with the governmental agencies and does not believe that an
enforcement action, if brought, will have a material adverse effect on the
financial position or the results of operations of the Company.
The Company has been 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. The federal cases consist principally of a
class action by retail pharmacies (including approximately 30 named
plaintiffs)(the "Federal Class Action"), as well as additional actions by
approximately 3,500 individual retail pharmacies and a group of chain and
supermarket pharmacies (the "individual actions"). These cases, which have been
transferred to the United States District Court for the Northern District of
Illinois and coordinated for pretrial purposes, allege that the defendant drug
manufacturers violated the Sherman Act by unlawfully agreeing with each other
(and, as alleged in some cases, with wholesalers) not to extend to retail
pharmacy companies the same discounts allegedly extended to mail order
pharmacies, managed care companies and certain other customers, and by
unlawfully discriminating against retail pharmacy companies by not extending
them such discounts. On November 15, 1994, the federal court certified a class
(the Federal Class Action) consisting of all persons or entities who, since
October 15, 1989, bought brand name prescription drugs from any manufacturer or
wholesaler defendant, but specifically excluding government entities, mail order
pharmacies, HMOs, hospitals, clinics and nursing homes. Fifteen manufacturer
defendants, including the Company, agreed to settle the Federal Class Action
subject to court approval. The Company's share pursuant to an Agreement as of
January 31, 1996, was $31.25 million, payable in four annual installments
without interest. The Company continues to believe that there was no conspiracy
and specifically denied liability in the Settlement Agreement,
16
but had agreed to settle to avoid the monetary and other costs of litigation.
The settlement was filed with the Court on February 9, 1996 and went through
preliminary and final fairness hearings. By orders of April 4, 1996, the Court:
(1) rejected the settlement; (2) denied the motions of the manufacturers
(including the Company) for summary judgment; (3) granted the motions of the
wholesalers for summary judgment; and (4) denied the motion to exclude purchases
by other than direct purchasers. The decision on the wholesalers has been made
final, and been appealed. The decision on the indirect purchasers has been
certified, and accepted, for appeal. The Court has put off setting a trial date
while these matters are pending.
In May 1996, thirteen manufacturer defendants, including the Company,
entered into an Amendment to the Settlement Agreement which was filed with the
Court on May 6, 1996. The Company's financial obligations under the Settlement
Agreement will not be increased. The Settlement Agreement, as amended, received
final approval June 21, 1996. An appeal of that approval is pending.
In addition, consumer class actions have been filed in state courts and
the District of Columbia, alleging injury to consumers as well as retail
pharmacies from the failure to give discounts to retail pharmacy companies. Both
a consumer class and a retailer class have been certified in separate California
actions. Consumer class actions filed in Colorado, New York and Washington have
been dismissed; Washington and New York are now on appeal. The Company was
dismissed from a consumer class action in Wisconsin. Consumer class actions are
also pending in Alabama, Arizona, Florida, Kansas, Maine, Michigan, Minnesota
and the District of Columbia. On February 3, 1997, the District Court for the
District of Columbia certified a limited consumer class. Retailer class actions
are also pending in Alabama and Minnesota.
The Company believes that these brand name prescription drug antitrust
cases, which generally seek damages and certain injunctive relief, are without
merit, and has moved to have them dismissed.
The Federal Trade Commission is conducting 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 has responded.
Schneider (USA) Inc. and Schneider (Europe) AG have been named,
together with Advanced Cardiovascular Systems, Inc., in a federal antitrust
action brought on January 2, 1996, by Boston Scientific Corporation and SciMed
Life Systems, Inc. (a subsidiary of Boston Scientific) in the U.S. District
Court, District of Massachusetts. The suit alleges that the defendants
unlawfully obtained and enforced certain patents covering rapid exchange
angioplasty catheters and conspired against the plaintiffs by, among other
allegations, their settlement of patent infringement litigation in December of
1991. The suit seeks unspecified treble damages and injunctive relief. The
Company believes that the case is without merit, and has moved to have it
dismissed.
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.
On January 15, 1997, an action was filed in Circuit Court, Chambers
County, Alabama, and certified by an ex parte order as a class action,
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. The
action was removed to the U.S. District Court for the Northern District of
Alabama, which vacated the class certification order. A motion to remand to
state court is pending. The Company believes the complaint is without merit.
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.
In August 1996, the Company received a Warning Letter from the FDA
relating to certain promotional materials used in the marketing of Zoloft. The
Company has been in communication with the FDA on this matter and the
discussions are proceeding. Two purported consumer class actions involving
Zoloft were filed, in Circuit Court, Dallas County, Texas, on
17
December 3, and in Superior Court, San Diego County, California, on December 26,
1996. Each complaint alleges that Pfizer's promotional materials improperly
implied that the FDA had approved Zoloft as safe and effective for certain
indications, and that patients for whom Zoloft was prescribed as a result of the
promotion were entitled to a refund of their purchase price. Both suits have
been removed to federal court; the plaintiffs in the Texas suit have moved to
remand the case to state court. The Company believes the suits are without
merit.
A consolidated class action on behalf of persons who allegedly
purchased Pfizer common stock during the March 24, 1989 through February 26,
1990 period is pending in the U.S. District Court for the Southern District of
New York. This lawsuit, which commenced on July 13, 1990, alleges that the
Company and certain officers and former directors and officers violated federal
securities law by failing to disclose potential liability arising out of
personal injury suits involving Shiley heart valves and seeks damages in an
unspecified amount. Even though it is believed that this suit is without merit,
in order to avoid the monetary and other costs of litigation, the Company has
entered into an agreement to settle this action for $9.75 million, subject to a
court determination of the fairness of the settlement. Following a fairness
hearing held December 13, 1996, the court affirmed the settlement and dismissed
the action. A derivative action commenced on April 2, 1990 against certain
directors and officers and former directors and officers alleging breaches of
fiduciary duty and other common law violations in connection with the
manufacture and distribution of Shiley heart valves is pending in the Superior
Court, Orange County, California. The complaint seeks, among other forms of
relief, damages in an unspecified amount. Even though it is believed that the
suit is without merit, in order to avoid the monetary and other costs of
litigation, the Company has entered into an agreement to settle this action by
way of a $15 million payment by the Company's insurance carrier to the Company
with an attorneys' fee to be paid by the Company out of the proceeds of the
settlement to the shareholders' attorneys who brought the case. The settlement
is subject to court approval and a fairness hearing is scheduled for April 11,
1997.
A purported class action entitled Bradshaw v. Pfizer Inc. and Howmedica
Inc. is pending in the U.S. District Court, Northern District of Ohio. The
action sought monetary and injunctive relief, including medical monitoring, on
behalf of patients implanted with the Howmedica P.C.A. one-piece acetabular hip
component, which was manufactured by Howmedica from 1983 to 1990. The complaint
alleges that the prostheses were defectively designed and manufactured and posed
undisclosed risks to implantees. The federal magistrate judge has recommended
that the district court deny the plaintiffs' motion to certify the case as a
class action. The Company believes that the suit is without merit. On February
4, 1997, the Company was served with fifteen separate actions in the United
States District Court for the District of New Jersey, brought by some of the
same individuals previously identified as members of the purported class in the
Bradshaw action, represented by the same lawyers, and making the same
allegations. The Company believes that most if not all of these cases are
without merit.
The Company and/or Howmedica, along with other device manufacturers and
numerous orthopedic surgeons, have been named as defendants in approximately 700
cases (among over 1,600 pending) in numerous state and federal courts seeking
damages relating to alleged improper design, manufacture, and/or promotion of
bone screws for unapproved use in spinal pedicles. Neither Howmedica nor the
Company manufactured or sold pedicle screws in the U.S., but the claims allege a
conspiracy among all of the defendants to over-promote the devices. The federal
cases have been consolidated by the Multidistrict Panel in the U.S. District
Court in Philadelphia, which ruled on April 8, 1996 that all claims against the
manufacturers except express warranty and improper promotion are preempted. The
recent decisions of the United States Supreme Court in Lohr v. Medtronic may
impact the availability of the pre-emption defense in this case (and in other
medical device cases). The Company believes the cases are without merit and
during the fourth quarter over 150 of the cases against Howmedica and/or the
Company have been dismissed, leaving a year-end total of 617.
From 1994 to 1995, seven purported class actions were filed against
American Medical Systems ("AMS") in federal courts in South Carolina
(subsequently transferred to Minnesota), California, Minnesota (2), Indiana,
Ohio and Louisiana. The California, Ohio and Indiana suits and one Minnesota
suit also name Pfizer Inc. as a defendant, based on its ownership of AMS. The
suits seek monetary and injunctive relief on the basis of allegations that
implantable penile prostheses are prone to unreasonably high rates of mechanical
failure and/or various autoimmune diseases as a result of silicone materials. On
September 30, 1994, the federal Judicial Panel on Multidistrict Litigation
denied the various plaintiffs' motions to consolidate or coordinate the cases
for pretrial proceedings. On February 28, 1995, the Court in the Ohio suit
conditionally granted plaintiffs' motion for class certification; on March 3,
1995, the court in the California suit denied plaintiffs' motion for class
certification; and on October 25, 1995, the court in the Indiana suit denied
plaintiffs' motion for class certification; on February 15, 1996, the United
States Court of Appeals for the Sixth Circuit reversed the Ohio Court's
conditional certification; on May 15, 1996, the purported Minnesota class
actions were dismissed without prejudice (following which plaintiffs' counsel
have filed several actions in Minnesota State Court on behalf of over 200
individuals); and a motion to
18
strike the class allegations in the Louisiana case was granted by the Court on
July 23, 1996. The Company believes the suits are without merit.
During late 1996, over 300 individual suits alleging injuries from
penile implants were filed in Circuit Court in Minneapolis by individuals who
were allegedly members of one or more of the discontinued purported class
actions described above and/or who are represented by the same lawyers. The
Company believes that most if not all of these cases are without merit.
In June 1993, 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 seeks the award
of moral, economic and personal damages to individuals and the payment to a
public reserve fund. On February 8, 1996, the trial court issued a decision
holding Pfizer Brazil liable. The award of damages to individuals and the
payment into the public reserve fund will be determined in a subsequent phase of
the proceedings. The trial court's opinion sets out a formula for calculating
the payment into the public reserve fund which could result in a sum of
approximately $88 million. The total amount of damages payable to eligible
individuals under the decision would depend on the number of persons eventually
making claims. Pfizer Brazil is appealing this decision. The Company believes
that this action is without merit and 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.
19
EXECUTIVE OFFICERS OF THE COMPANY
The following executive officers of the Company as of March 10, 1997
hold the offices indicated until their successors have been chosen and qualified
after the next annual meeting of shareholders.
Name Age Position
- ---- --- --------
Brian W. Barrett 57 Vice President; President - Animal Health Group
M. Kenneth Bowler 54 Vice President, Federal Government Relations
C. L. Clemente 59 Senior Vice President, Corporate Affairs; Secretary and Corporate
Counsel; Member of the Corporate Management Committee
Donald F. Farley 54 Vice President; President, Consumer Health Care Group
George A. Forcier 58 Vice President, Quality Control
P. Nigel Gray 58 Vice President; President - Hospital Products Group
Gary N. Jortner 51 Vice President; Vice President, Product Development-Pfizer
Pharmaceuticals Group
Karen L. Katen 48 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group and President - U.S. Pharmaceuticals; Member of the
Corporate Management Committee
J. Patrick Kelly 39 Vice President; Senior Vice President, Disease Management - U.S.
Pharmaceuticals
Alan G. Levin 34 Vice President; Treasurer
Henry A. McKinnell 54 Executive Vice President; President - Pfizer Pharmaceuticals Group;
Member of the Corporate Management Committee
Brower A. Merriam 62 Vice President - Animal Health Policy
Victor P. Micati 57 Vice President; Executive Vice President - Pfizer Pharmaceuticals
Group and Area President, Europe; Member of the Corporate
Management Committee
Paul S. Miller 57 Senior Vice President; General Counsel; Member of the Corporate
Management Committee
George M. Milne, Jr. 53 Vice President; President, Central Research; Member of the Corporate
Management Committee
John F. Niblack 58 Executive Vice President; Member of the Corporate Management
Committee
William J. Robison 61 Senior Vice President - Employee Resources; Member of the Corporate
Management Committee
Herbert V. Ryan 59 Vice President; Controller
Craig Saxton 54 Vice President; Executive Vice President, Central Research
David L. Shedlarz 48 Senior Vice President and Chief Financial Officer; Member of the
Corporate Management Committee
Mohand Sidi Said 58 Vice President; Senior Vice President - Pfizer Pharmaceuticals Group
and Area President, Asia/Africa/Middle East
William C. Steere, Jr. 60 Chairman of the Board and Chief Executive Officer; Chair of the
Corporate Management Committee
Frederick W. Telling 45 Vice President, Corporate Strategic Planning and Policy
Information concerning Messrs. Steere and Miller and Drs. McKinnell and Niblack
is contained in, and incorporated herein by reference from, the discussion under
the captions "Directors Whose Terms Expire in 1998" and "Named Executive
Officers Who Are Not Directors" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders.
20
Brian W. Barrett
Mr. Barrett joined Pfizer Canada in 1966, where he served in various financial
positions, including Chief Financial Officer of the Canadian subsidiary. 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 Vice President of the Company 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
Mr. Bowler joined the Company in 1989, and has been Vice President - Federal
Government Relations since 1990. He formerly served as Staff Director for the
House Ways and Means Committee.
C. L. Clemente
Mr. Clemente joined the Company in 1964 and has served in a number of domestic
and international positions, including Vice President; General Counsel and
Secretary, Pfizer International, Inc. and Vice President of Coty, formerly
Pfizer's fragrance and cosmetic division. In 1983, he was named Associate
General Counsel of Pfizer Inc. In 1986, he was elected Vice President; General
Counsel and Secretary of the Company. He became a member of the Corporate
Management Committee of the Company in 1991. In 1992, he was elected Senior Vice
President - Corporate Affairs; Secretary and Corporate Counsel.
Donald F. Farley
Mr. Farley joined the Company in 1965 as Production Engineer for the Chemical
Division. After serving in a number of positions of increasing responsibility
within the Chemical Division, he was named its Vice President, Operations in
1982. In 1986, he became Senior Vice President of the Division, and in 1988,
Executive Vice President - Specialty Chemicals. In 1992, Mr. Farley was named
President of the Specialty Chemicals Group, later named the Food Science Group.
In 1993 he was elected a Vice President of the Company. In 1996, Mr. Farley was
named President of the Company's Consumer Health Care Group.
George A. Forcier
Dr. Forcier joined the Company in 1966 as Analytical Research Chemist for the
Company's Medical Research Laboratories. In 1970, he was named Project Leader,
in 1979 Manager, and in 1981, Assistant Director, of the Analytical Research
Department. In 1986 he was named Director of the Analytical Research and
Development Department and in 1991, he became Group Director. In 1994, Dr.
Forcier became Vice President - Quality Control of the Company.
P. Nigel Gray
Mr. Gray joined the Company in 1975 as Export Sales Manager for Howmedica U.K.,
Ltd. in England, and progressed through a number of positions of increasing
responsibility before being named Vice President, Marketing for Howmedica Europe
in 1983. In 1987, Mr. Gray became Senior Vice President and General Manager of
Howmedica International in Staines, England, then President of Howmedica
International in 1992. In 1993, he came to New York as Executive Vice President
of the Company's Hospital Products Division and President of the Medical Devices
Division, and in 1994, he was elected a Vice President of the Company. In 1995,
Mr. Gray assumed his current position as President of the Company's Hospital
Products Group.
Gary N. Jortner
Mr. Jortner joined the Company 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 Vice President of the Company.
In 1994, he was named Vice President; Group Vice President, Disease Management -
U.S. Pharmaceuticals Group. Effective January 1, 1997, he was named Vice
President, Product Development - Pfizer Pharmaceuticals Group.
Karen L. Katen
Ms. Katen joined the Company 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 Vice President of the Company. In 1993, Ms. Katen became
Executive Vice President of the U.S. Pharmaceuticals Group and, in 1995, Ms.
Katen assumed her present position as
21
President of the U.S. Pharmaceuticals Group. Effective January 1, 1997, she was
named Executive Vice President - Pfizer Pharmaceuticals Group.
J. Patrick Kelly
Mr. Kelly joined Pfizer 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 in
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 a Vice President of the Company.
Alan G. Levin
Mr. Levin joined the Company in 1987 as Senior Operations Auditor for the
Controllers 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 Treasurer of the Company.
In 1997, he was elected Vice President, Treasurer.
Brower A. Merriam
Mr. Merriam joined the Company in 1969 as Country Manager for Peru, and in 1971,
he was appointed Country Manager for Argentina. In 1973, he was appointed
President of Pfizer Latin America. He was appointed Director of Pfizer
International in 1984, and in 1988 assumed the position of President for Latin
America, Southeast Asia, Indo-Pacific and Canada. In 1990, he was appointed
Executive Vice President of Pfizer International. In 1991, he became Executive
Vice President of the Animal Health Group and in 1992 was appointed its
President. Mr. Merriam was elected a Vice President of the Company in 1992. In
1996, Mr. Merriam was named Vice President - Animal Health Policy.
Victor P. Micati
Mr. Micati joined the Company in 1965 as a Management Candidate for Pfizer Labs.
Beginning in 1966, he progressed through a number of positions of increasing
responsibility in the Pfizer Labs division, which resulted in his being named
Vice President - Marketing in 1971. In 1972, he became Vice President of
Pharmaceutical Development for International Pharmaceuticals. In 1980, he was
named Executive Vice President of Pfizer Europe. Mr. Micati returned to the
International Pharmaceutical Division in 1984 as Senior Vice President, and in
1990 was named President, Europe. In 1992, he was elected Vice President of the
Company. Mr. Micati was named Executive Vice President, International
Pharmaceuticals Group, in 1996, and in 1997 was named Executive Vice President
of the newly-created Pfizer Pharmaceuticals Group.
George M. Milne, Jr.
Dr. Milne joined the Company in 1970 as a Research Scientist. In 1973, he was
named Senior Research Scientist and progressed through a number of positions of
increasing responsibility which resulted in his being named Vice President,
Research and Development Operations in 1985. In 1988, Dr. Milne became Senior
Vice President, Research and Development, and in 1993, he was elected Vice
President of the Company and President, Central Research.
William J. Robison
Mr. Robison joined the Company 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 Vice President of the Company. In
1996, Mr. Robison was elected Senior Vice President - Employee Resources.
Herbert V. Ryan
Mr. Ryan joined Pfizer in 1962 as Supervisor, Capital Assets. In 1964 he was
named Supervisor, Corporate Ledger, and in 1966 became Director, Corporate
Accounting. In 1981 he was appointed Assistant Controller, Corporate Accounting,
and in 1993, Mr. Ryan was elected Corporate Controller. In 1997, Mr. Ryan was
elected Vice President; Controller.
Craig Saxton
Dr. Saxton joined the Company 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 a Vice President of the Company.
22
David L. Shedlarz
Mr. Shedlarz joined the Company in 1976 as Senior Financial Analyst for the
Pharmaceuticals Division. After serving in a number of positions of increasing
responsibility, he was named Production Controller in 1979 and Assistant Group
Controller in 1981. In 1984, he became Group Controller and in 1989 was named
Vice President of Finance for the Pharmaceuticals Group. In 1992, Mr. Shedlarz
was elected Vice President - Finance of the Company. In 1995, Mr. Shedlarz
became Chief Financial Officer of the Company. In 1996, Mr. Shedlarz was made
Senior Vice President and Chief Financial Officer effective January 1, 1997 with
responsibility for the worldwide Hospital Products Group.
Mohand Sidi Said
Mr. Sidi Said first joined Pfizer in Algeria in 1965 as a professional sales
representative. During his career with the Company, he has held a variety of
management assignments in Morocco, Kenya, Egypt, France, Belgium, and the United
States. He was elected an executive officer of the Company in 1996, when he
became a Vice President of the Company and was also named Senior Vice President
- - Pfizer Pharmaceuticals Group and Area President - Asia/Africa/Middle
East/Japan.
Frederick W. Telling
Dr. Telling joined the Company in 1977 as Associate Personnel Manager for the
Pharmaceuticals Division, 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 USPG. In 1994, Dr. Telling was elected Vice President, Corporate Strategic
Planning and Policy.
23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market for the Company's Common Stock is the New York Stock
Exchange. It is also listed on the London, Paris, Brussels, and Swiss Stock
Exchanges. The Company's Common Stock is also traded on various United States
regional stock exchanges. Additional information required by this item is
incorporated by reference from the table "Quarterly Consolidated Statement of
Income" found on page 59 of the 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the
"Financial Summary" on page 60 of the 1996 Annual Report to Shareholders.
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 30 through 37 of the 1996 Annual Report to
Shareholders.
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 and supplementary data found on pages 39 through 58 of the
1996 Annual Report to Shareholders.
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 REGISTRANT
Information with regard to the Directors of the Company is incorporated
herein by reference from the discussion under Item 1 of the Company's Proxy
Statement for its 1997 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 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information with regard to executive compensation is incorporated herein by
reference from the discussion under the heading "Compensation of Executive
Officers" in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with regard to security ownership of certain beneficial owners
and management is incorporated by reference from the discussion under the
heading "Security Ownership of Management" and the following tables in the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with regard to certain relationships and related transactions
is incorporated herein by reference from the discussion under the heading
"Related Transactions" in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders.
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 1996 Annual Report to Shareholders, are
incorporated herein by reference into Item 8 of Part II of this report:
Page in the 1996
Annual Report to
Shareholders
------------
Independent Auditors' Report......................... 38
Segment Information.................................. 39
Geographic Data...................................... 40
Consolidated Statement of Income..................... 41
Consolidated Statement of Shareholders' Equity....... 42
Consolidated Balance Sheet........................... 43
Consolidated Statement of Cash Flows................. 44
Notes to Consolidated Financial Statements........... 45-58
Quarterly Consolidated Statement of Income........... 59
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
3(i) - Restated Certificate of Incorporation of the Company as of
April 28, 1995 is incorporated herein by reference from the
Company's quarterly report on form 10-Q for the period ended
April 2, 1995. The Certificate of Correction thereto filed with
the Secretary of State of Delaware on May 12, 1995 is filed
herewith.
3(ii) - By-laws of the Company as amended June 23, 1994 are incorporated
herein by reference from Exhibit 3(ii) of the Company's Form 8-K
Current Report dated June 23, 1994.
4(i) - The Rights Agreement dated as of September 24, 1987 between
the Company and The Chase Manhattan Bank, N.A. and the First
Amendment thereto dated as of May 25, 1989 are filed herewith.
10(i) - Stock and Incentive Plan is filed herewith.
10(ii) - Pfizer Retirement Annuity Plan is filed herewith.
10(iii) - The form of severance agreement with the Company's Named
Executive Officers disclosed in the Proxy Statement for its 1997
Annual Meeting of Shareholders is incorporated herein by
reference from Exhibit 10.1 to the Company's Report on Form 10-K
for its 1994 fiscal year.
10(iv) - Nonfunded Deferred Compensation and Supplemental Savings Plan is
filed herewith.
10(v) - Executive Annual Incentive Plan (proposed) is incorporated
herein by reference from the exhibit to the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders.
10(vi) - Performance-Contingent Share Award Program is incorporated
herein by reference from Exhibit 10.3 to the Company's Report on
form 10-Q for the period ended September 29, 1996.
10(vii) - Nonfunded Supplemental Retirement Plan is filed herewith.
10(viii) - The form of Indemnification Agreement with Directors is filed
herewith.
10(ix) - The form of Indemnification Agreement with Named Executive
Officers is filed herewith.
25
10(x) - Non-Employee Directors' Retirement Plan [frozen as of
October 1996] is filed herewith.
10(xi) - Annual Retainer Unit Award Plan (for non-employee Directors) is
incorporated herein by reference from Exhibit 10.1 to the
Company's Report on form 10-Q for the period ended September 29,
1996.
10(xii) - Pfizer Inc. Nonfunded Deferred Compensation and Unit Award
Plan for Non-Employee Directors is incorporated herein by
reference from Exhibit 10.2 to the Company's Report on Form 10-Q
for the period ended September 29, 1996.
10(xiii) - Restricted Stock Plan for Non-Employee Directors is filed
herewith.
11 - Computation of Earnings Per Common Share and Fully Diluted
Earnings Per Common Share.
12 - Computation of Ratio of Earnings to Fixed Charges.
13(a) - The 1996 Annual Report to Shareholders, which, except for
those portions expressly incorporated herein by reference, is
furnished solely for the information of the Commission and is
not to be deemed "filed".
13(b) - Annual Report of the Pfizer Savings and Investment Plan on Form
11-K for the fiscal year ended December 31, 1996.
13(c) - Annual Report of the Pfizer Savings and Investment Plan for
Employees Resident in Puerto Rico on Form 11-K for the fiscal
year ended December 31, 1996.
21 - Subsidiaries of the Registrant.
23 - Consent of KPMG Peat Marwick LLP, independent certified public
accountants.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no report on Form 8-K during the last quarter of 1996.
Exhibits to the Form 10-K are available upon request at a charge of ten
cents per page. Requests should be directed to C. L. Clemente, Secretary, Pfizer
Inc., 235 East 42nd Street, New York, NY 10017.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Pfizer Inc.
By /s/ C.L. Clemente,
-------------------------------------------
Dated: March 27, 1997 C.L. Clemente, Senior Vice President,
Secretary and Corporate Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below 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 (Principal Executive Officer) March 27, 1997
- -----------------------------------
(William C. Steere, Jr.)
/s/ (David L. Shedlarz) Senior Vice President and Chief Financial Officer (Principal
----------------------------------- Financial Officer) March 27, 1997
(David L. Shedlarz)
/s/ (Herbert V. Ryan)
- ------------------------------------ Vice President - Controller (Principal Accounting Officer) March 27, 1997
(Herbert V. Ryan)
/s/ (Michael S. Brown)
- ------------------------------------ Director March 27, 1997
(Michael S. Brown)
/s/ (M. Anthony Burns)
- ------------------------------------ Director March 27, 1997
(M. Anthony Burns)
/s/ (W. Don Cornwell)
- ------------------------------------ Director March 27, 1997
(W. Don Cornwell)
/s/ (George B. Harvey)
- ------------------------------------ Director March 27, 1997
(George B. Harvey)
/s/ (Constance J. Horner)
- ------------------------------------ Director March 27, 1997
(Constance J. Horner)
/s/ (Stanley O. Ikenberry)
- ------------------------------------ Director March 27, 1997
(Stanley O. Ikenberry)
/s/ (Harry P. Kamen)
- ------------------------------------ Director March 27, 1997
(Harry P. Kamen)
/s/ (Thomas G. Labrecque)
- ------------------------------------ Director March 27, 1997
(Thomas G. Labrecque)
/s/ (Felix G. Rohatyn)
- ------------------------------------ Director March 27, 1997
(Felix G. Rohatyn)
/s/ (Ruth J. Simmons)
- ------------------------------------ Director March 27, 1997
(Ruth J. Simmons)
/s/ (Jean-Paul Valles)
- ------------------------------------ Director March 27, 1997
(Jean-Paul Valles)