Pfizer's CEO Discusses Q3 2012 Results - Earnings Call Transcript

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Executives

Chuck Triano – SVP, IR

Ian Read – Chairman, President and CEO

Frank D’Amelio – EVP and CFO

Mikael Dolsten – President, Worldwide Research and Development

Geno Germano – President and General Manager, Specialty Care

Analysts

Jami Rubin – Goldman Sachs

Tim Anderson – Sanford Bernstein

Mark Schoenebaum – ISI

Tony Butler – Barclays Capital

David Risinger – Morgan Stanley

Steve Scala – Cowen & Company

Seamus Fernandez – Leerink Swann

Jeffrey Holford – Jefferies

Mark – TBS

Draft version. An edited version will be posted soon.

Operator

Good day everyone and welcome to Pfizer’s third quarter 2012 earnings conference call. Today’s call is being recorded. At this time I would like to turn the call over to Mr. Chuck Triano, Senior Vice President Of Investor Relations. Please go ahead Sir.

Chuck Triano

Good morning everyone and thank you for joining us today to review Pfizer’s third quarter 2012 performance. I’m joined by our Chairman and CEO, Ian Read, Frank D’Amelio our CFO, in Libya branded court President and General Manager of the emerging markets and establish products, Mikael Dolsten, President of worldwide research and development who is joining us remotely due to the storm situation, Geno Germano President and General Manager of specialty care in oncology, Amy Schulman, General Counsel at President and Gen. manager of Pfizer nutrition and John Young President and Gen. manager primary care. The slides that will be presented on this call can be viewed at Pfizer.com by clicking on the link for Pfizer quarterly corporate performance, third quarter 2012 located in the investor presentations section in the lower right-hand corner of this page.

Before we start, I’d like to remind you that our discussions during this conference call will include forward-looking statements and that actual results could differ materially from those projected in forward-looking statements. Factors that could cause actual results to differ are discussed in Pfizer’s 2011 annual report on Form 10-K and in our reports on forms 10-Q and 8K. Discussion during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Reconciliation of those non-GAAP financial measures to the most reckless comparable cap financial measures can be found in Pfizer’s current report on form eight cave dated today, November 1, 2011. In addition we will offer brief comments regarding our preparation and target timeline for the potential IPO of the minority stake in our animal health business and as I’m sure you understand were not going to be able to respond to questions on that subject in light of the quiet period imposed by securities laws.

With that, I’ll turn the call over to Ian Read.

Ian Read

Thank you during my remarks this morning I will discuss the quarter and touch on some noteworthy events that happened offer our performance is in line with full year guidance financial performance near-term will continue to be impacted by the loss of exclusivity. Notably Lipitor in all major developed countries. Year-to-date we have absorbed approximately $5.5 billion in Eloise. I would note them a significant impact on revenues from L. a we’ve will be in 2012 in this impact will decline significantly in subsequent years.

To mitigate the impact to earnings per share we are producing growth from keep in mind that and the products including (inaudible) in the US. We are seeing growth in emerging markets most notably in China Mexico and Russia on a year-to-date basis our merging market business has delivered solid performance with 10% growth on an operational basis.

We have been effectively managing cost structure in war using the strength of the balance sheet. For example, while revenue for the quarter declined 12% on an operational basis, our adjusted cost of sales at by a expenses and R&D expenses in total decreased operationally by 8%. If you exclude the $250 million payment to Astros and except for the exclusive worldwide rights to the next the M. they declined 11% operationally. Bringing costs down in line or the revenue decline you saw this quarter.

We continue to execute share repurchase program during the quarter we repurchased $1.8 billion of common stock and year-to-date repurchase are almost $6 billion. The board has authorized an additional $10 billion in share repurchases to be utilized over time upon completion of the sale of (inaudible) to Nestlé. We now anticipate in the next few months. And potential IPO animal health remains on track and depending on market conditions, we continue to expect the IPO to happen during the first half of 2013.

As for our regular practice, I expect the board to set the dividend rate for 2013 added meeting in December.

Turning to recent noteworthy events. I remain confident that the quality of the assets in the progress I see in the pipeline. We have a robust set of potential high-value assets across key therapeutic areas. They include early and mid stages for diabetes pain and (inaudible) diseases vaccines for it and adolescence and late stage compounds and recent advances to keep pipeline assets.

Concerning that, we are looking forward to hearing from the FDA about our NDA owner before the upcoming PDUFA date this month. Discovered by Pfizer scientists in the labs in Connecticut and if approved will be the first new oral disease modifying therapies for moderate to severe rheumatoid arthritis in more than 10 years. It has the potential to change the way healthcare providers to read. It will be the first RA treatment and new cost of drugs known as (inaudible) jacket inhibitors.

If approved it will be a first in class product we believe offer a compelling clinical profile and in fact of the new treatment option for patients. Regarding outlook was, the FDA has resumed its review of the Eliquis in the eighth and set a new action data March 17, 2013. We in the alliance partners Bristol-Myers Squibb remain confident in Eliquis and that we can receive FDA approval by the new PDUFA date.

Turning to oncology, we just received conditional marketing authorization in the EU for previously treated advance non-small cell cancer lung patients. Conditional marketing authorization in EU is a similar to approval from the United States. They are granted to medical products with positive risk-benefit assessment and address unmet medical needs and availability would result in a significant public health benefit.

Pfizer will submit data to the NEA from the recently completed study which primary endpoint and previously treated advance non-small cell lung cancer patients for a review of this data European commission will convert additional marketing authorization to a full marketing authorization.

Coming consumer business we are incurred by positive news that multi-vitamins resulting in physician health study to conducted by investigators at woman’s Hospital a teaching hospital at Harvard University. We are pleased with the study investigators chose the Centrum Silver based on quality and consistent a much other factors. For the duration of the 11 years study tested the role of multivitamins in relation to long-term health benefits.

I would note Centrum is the sixth largest OTC brand in the world and center and silver is the world’s number one selling multivitamin for adults 50 and over. We have recently launched new products in light in Europe (inaudible) in the US and we will soon launch in Europe. I remain confident we have a strong pipeline focused in the therapeutic areas where we have strengths and can deliver our next wave of innovative products. I am pleased with how we are executing on decisions we have made to create incremental shareholder value to the potential animal health IPO and nutrition sale.

We see good results from the actions we are taking to manage costs across the business. We continue to make shareholder friendly capital allocation decisions and we have make decisions we believe that it intends to drive future earnings per share growth. Now alternative Frank.

Frank D’Amelio

Good day everyone. As always the chart number being are included in the webcast. 20 remind you that the nutrition business is presented as discontinued operation consolidated statements of income for all periods presented. As you know this can just continued operations are excluded from adjusted financial results comes up only throughout 2012 the results of the nutrition business have been excluded from adjusted results.

But move on to the financials. Third-quarter 2012 revenues that were 14 billion decreased 16% year-over-year reflecting a 4% negative impact from foreign exchange and an operational decline of approximately 12% driven mainly by the loss of exclusivity of several key products in certain geographies notably Lipitor in all major markets.

Adjusted diluted EPS of $.53 decrease 12% primarily due to the previously mentioned decrease in revenues which was partially offset by an aggregate operational decrease of 8% and adjusted cost of sales and adjusted as a night expenses and R&D expenses resulting in cost reduction productivity initiatives.

A lower adjusted tax rate of 28.3% and fewer weighted average shares outstanding due to continued share repurchases.

Reported diluted EPS of $.43 decrease 10%. In addition to the factors previously mentioned, reported EPS was favorably impacted by it you S. tax settlement and negatively impacted primarily from the non-recurrence of gain on the sale of capsid gel in the year ago quarter.

Foreign exchange negatively impacted third quarter revenues by 4% or $699 million and favorably impacted adjusted cost of sales adjusted as R&D expenses by 440 million or 5%. Negative impact was primarily driven by the euro and to a lesser extent the Brazilian reality versus the US dollar. As a result, foreign exchange negatively impacted third quarter adjusted diluted EPS by approximately 2 cents.

In the third quarter of 2012, a emerging markets biopharmaceutical revenues were approximately 2.4 billion. Richard Lex operational growth of 6% and a negative impact of foreign exchange of 8%. I want to point out the volatility in emerging markets quarterly revenues which driven primarily by Prevnar patent specifically the timing of government purchases of Prevnar 13 in Turkey compared to year ago quarter.

Volume growth of 8% in emerging markets was partially offset by price reductions of 2% resulting in 6% operational growth. Of the third quarter a emerging markets biopharmaceutical revenues approximately 41% was generated by a stab which products, 33% by specialty and oncology products and 26% by primary care products.

Third quarter biopharmaceutical revenues in the BRIC-MT markets were 1.1 billion which reflects operational growth of 9% and unfavorable impact of foreign exchange 10%. Of the third quarter brick and T. brought biopharmaceutical revenues 42% was generated by a stab was products, 30% by specialty and oncology products, and 28% by primary care products.

During the third quarter biopharmaceutical growth of 10% in the BRIC-MT markets most notably in China Mexico and Russia was partially offset by price reductions of 1% resulting and operational growth of 9%. Year-to-date, operational growth in the BRIC-MT markets with 13% versus a year ago quarter reflecting volume growth of 16% partially offset by price reductions of 3%.

Based on year-to-date performance and outlook for the remainder of the year, we are narrowing the range of our full-year guidance components. We are narrowing the reporter revenue range to $58 billion from $60 billion. We are decreasing narrowing the range of adjusted cost of sales as a percent of revenues to 18.7% to 19.2%. We are decreasing narrowing the adjusted SA and I expenses range to 16.3 to 16.8 million we are narrowing R&B guidance range to seven to 7.2 5 billion and I want to point out R&D guidance includes 250 million a payment to Astros and ago for the exclusive global overcome our rights to next the M. which were recorded in the third quarter.

We expect other deductions to be approximately $900 million and continue to expect tax it rate on adjusted income to be 29%. We are increasing and narrowing the range of reported diluted EPS to $1.30 to $1.38 and narrowing our adjusted EPS range to $2.14 to $2.17. Finally, we expect operating cash flow to be approximately 18.5 billion which reflects the charge related to settlement recorded in the third quarter.

Our third quarter results continue to reflect the loss of exclusivity with certain products mainly Lipitor in all major markets and that said that we are continuing to mitigate the impact of Lipitor a lowly with expense discipline and share repurchases. We received it you S. regulatory approval for (inaudible). We filed a registration statement in mid August for potential initial public offering of up to 20% ownership stake in the animal health business to be named the web is an addition we filed an amendment to the us one on October 10 which included updated financial statements through the second quarter of 2012.

We remain on track to did complete a potential IPO in the first half of 2013 and as we continue to work toward a separation of the business, we remain open to all alternatives to maximize after tax returns for shareholders.

We continue to create shareholder value for prudent capital allocation with approximately 5.9 billion or 255 million shares repurchased through October 31 of approximately 4.1 billion of authorization remains on the and they’re the current repurchase program.

The board of directors also just recently authorized new program of on the sale of the nutrition business to repurchase up to 10 billion of shares over time. We now expect to complete the sale of new tradition business to Nestlé in the next few months.

Finally, we expect to return more than 12 billion to shareholders through dividends and share repurchases during 2012.

Now I will turn it back to Chuck.

Chuck Triano

Thanks for the review. At this point operator of a good poll for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jami Rubin with Goldman Sachs.

Jami Rubin – Goldman Sachs

Ian Anne Frank a question for you both, if you could give us some sort of granularity and color on what the revenue outlook for this company might look like 2013 and beyond that? Obviously, 2012 we were in the (inaudible) patent expirations with the Lipitor but how should we think about directionally revenue outlook going forward? And also, to follow-up on Tova, you expect the FDA to a act on or before the Paducah date, can you share your expectations were what kind of label you might receive? Thank you. A

Frank D’Amelio

Thank you Jamie. Revenue outlook, I’ll make a few comments and then let Frank add if he wants to in all as Gina to answer on the topo question. That peak year of patent expiration for us as far as we can see is 2012 approximately $8 billion. Subsequent to that, 13, 14 and 15 will be continue to face with a lowly is an alliance revenue losses.

There will be substantially lower than not probably a peak of 4 billion in one of the years that between 3.5 and four and the subsequent three years. Still subject to alteration them fluctuations as patents expire. Caring that of course, we will have in line growth from our patent products in a merging market growth. We will have the launch we expect of (inaudible) and Eliquis and we expect to also have the launch of adult vaccine. So those are the two currents I would say that would be affecting our revenue over those years. So, Frank Ewan at any think we

Ian Read

I would add in addition to everything you’ve said we will also continue to manage our cost archer and we will continue to do share repurchases and all those things will be to study consistent earnings growth over time.

Jami Rubin – Goldman Sachs

A couple comments. On topo, we are nearing I think the end of the review process. We expect we will have an action by the Paducah date this month and with regard to the expectations, I think you know we have a very robust data set behind Tova with five large pivotal trials. Showing a good advocacy and safety in both the pre-TNF and post the enough setting. We think the results that we have seen across this broad range of trials and broad range of patient types show very consistent response and we are expecting to have a competitive label.

Jami Rubin – Goldman Sachs

Thank you.

Operator

Your next question comes from the line of Tim Anderson with Sanford Bernstein.

Tim Anderson – Sanford Bernstein

Thank you. Ian, you mentioned this earlier about all strategic options being on the table for Pfizer. So last year in July of 2011, you disavowed splitting of the drug side of the business when you give your strategic update. That language in 2012 has changed subtly and I wonder if you can provide any more specifics on potentially splitting of the drug side? What can that look like look at the structure be an important, when would we hear more? On Tulsa if I can just ask one question, do you expect you will give up to five and 10 mg doses approved on the first go round?

Ian Read

All take the overall question and reply on Tova. I think a tidy be clear on as I see putting consumers one side which fits with the theirs of the two remaining businesses, I see as having to businesses going forward once we finish if we do complete separation nutritional and animal health. I see as having a growth business or related business field by the pipeline that I discussed earlier in my comments today and I see a value business which is depending on post-LOA or other products very broad geographical capabilities large capabilities in reimbursement and managing the global business.

Those two businesses I think our core businesses for us. We will we already have in the development is separated those businesses out so we have an innovative business and then establish products business which equates roughly to those two segments. In emerging markets we continue to manage the most organizations. Once we get through the changes of animal health and nutritional, we will continue to look at how to structure those two businesses so they can maximize the value to Pfizer.

Frank D’Amelio

Tim, regarding the five and 10, as you know, in all five of the pivotal trials that we conducted we tested both the 5 mg and 10 mg doses. The results were very consistent across the board across the patient types in the trials that were done. We believe the benefit risk is a verbal for the five and 10 mg and at this point in our discussions with the FDA? Won’t comment any further on what we expect the final outcome to be.

Operator

Your next question comes from the line of Mark Schoenebaum with ISI.

Mark Schoenebaum – ISI

Thanks guys. Thanks for taking the question. Maybe if I could first build on Tim’s question, will you report out separately at any point in the next year or so the establish products P&L versus the branded products P&L? Not breaking the company up the giving us more disclosure in the case and queues around those business operations? And I have a question for Dolsten, for Mikael Dolsten, sorry, I wonder if you could update us on timeline and make sure everything is on track Prevnar capita trial and bring us up to speed on that and that vaccine programs. Thank you.

Ian Read

I will as bring to answer the question on the reporting structure in the Michael if you could take the questions on the capita trial.

Mikael Dolsten

On reporting, we provide revenue detailed today by individual business units of the charts I walk through, there’s clearly revenue detailed by business unit. In terms of the on revenue detail I think the way to think about this is the establish products business has lower gross margin than the two additional pharmaceutical business that has comparable operating margins because it requires less expense which is something we talked about previously. Going forward we do a way always do witches we will see where there’s opportunities to improve transparency of the company to the extent we see those opportunities to be more transparent we will incorporate those into external reporting.

Geno Germano

Thank you for your interest in our vaccine pipeline. The Prevnar capita trial is an event and pending the severity of the amount yes often treated by cold and flu seasons we have in our projections capital may have sufficient events and 2013 to allow us to aggregate data part of that year. This has gone through very productive dialogues with regulatory agencies in the US and Europe and we anticipate starting and plan to start before the end of this year. This contains two studies that are in phase 2 with a readout do next year.

Operator

Your next question comes from Tony Butler with Barclays Capital.

Tony Butler – Barclays Capital

Banks and good morning. Two housekeeping questions and won our and the question please. What were the sales for the quarter and second, if you look at could we argue it might be slowing if you simply look at it sequentially, has that totally maxed is potential and for Dr. Dolsten, and earlier stage product and PCS canine, Pfizer seems to be a little bit behind two competitors given the phase to be just started from a dosing perspective and what not begun pleaded to next year suggesting phase 3 trial would not necessarily start up until sometime later next year or later than that. The question really is how would you envision this emerging is a year behind not that big of a deal a more important way do you think that there is a unique characteristic for your molecule that may be different from others? Thank you very much.

Ian Read

Frank can you address the sales of Zocor and (inaudible) and Geno wants to comment on (inaudible) and I will make it couple of comments on PCS canine and as Michael comment further.

Geno Germano

On Zocor revenues for the third quarter 40 million for (inaudible) revenues for the third quarter were 30 million so approximately $40 million and $30 million for those two drugs respectively.

Mikael Dolsten

40 10, it is doing very well it remains the number one choice in first-line metastatic RCC and frankly it issuing allotted durability it so we are looking forward to continuing our leadership position in RCC now with (inaudible). It is a strong franchise for us.

Frank D’Amelio

On Zocor a, the testing has gone up from 11% I think at the beginning of year to 55% which is very encouraging because I required a change in physician practice and if that occurs it makes us more optimistic about the potential for Zocor eight unfolding. What of course we now have the launch coming in Europe. On PA on PCS canine I believe we may be behind some of our competitors. It is an issue of a differentiation and if we don’t have first in class do we believe we potentially have best in class asset and clearly the development of this asset has several strategic options. Michael be one at anything on the signs of that?

Ian Read

Let me add a few words. We are very excited about this drug class. We think there may be differences between antibodies in (inaudible) and in the dosing regimen. It is important to have the optimum dose regimen two hello sustained relevant cholesterol levels in a convenient manner to be a calm place.

Chuck Triano

Thank you Michael.

Operator

The next question comes from David Risinger with Morgan Stanley.

David Risinger – Morgan Stanley

To pipeline questions. The first is a specific, I’m hoping to better understand that (inaudible) the development program. As I see it on clinical trials.gov you are running a phase 3 safety study involving 7500 patients and since that has the word safety in the title, I’m assuming the drug or the vaccine cannot be filed out there that trial that there will need to be additional phase 3 trial work that I may be wrong so just wondering if that trial successfully conclude can you file or do you need to do a additional phase 3 work in the second question is, for Mikael Dolsten, Michael, can you just highlight the key phase 2 product readouts that we should be watching in the next 12 to 18 months? Besides the PCS canine which you’ve already discussed.

Ian Read

Thank you David Michael can you handle the (inaudible) question and then address the pipeline?

Mikael Dolsten

Yes. So, in managing the program it is correct we have a phase 2 study ongoing. But we are planning this year to start and also early next year several other studies that include large as it is these studies and different batch a lot consistent studies and potentially comment on vaccine studies. So it will be a broad program that will be aimed to show effectiveness to raise the relevant responses end up with ability for young and adolescent patients to use the vaccine. When it comes to the pipeline, what should be the next wave to watch?

Let me briefly mention some opportunities to carry us. In oncology, I would mention (inaudible) for and PD 91 our exciting CDK inhibitor for dance breast cancer. We are planning to present phase 2 data at the San Antonio breast Cancer symposium in December. In vaccines we have already spoke about manage be vaccine and vaccine which we will have a readout during next year. (Inaudible) is of course the flagship in our immunology area with a portfolio of opportunities beyond our eight.

We are in a phase 3% rises and collide is studying additional indications in phase 2 including implements and supplementing our inflammatory bowel activity with PC studies with med can and I’ll six and two bodies it which we have readouts in the next 12 to 18 months. The antibody will have utility and there is a study ongoing on lupus. Finally, in the cardiovascular metabolic area in addition to (inaudible) we also have an exciting pancreatic acting – so as you can see I have selected some key opportunities a very rich and diverse pipeline of 90 projects. Thank you.

Ian Read

I would add to that that clearly we started the safety program because those trials take longer in the efficacy programs and clearly as we started on phase 3 trials we now have been agreed upon development program with the FDA we believe will lead to approval.

Chuck Triano

Thank you, next question please?

Operator

Your next question comes from David Risinger with Morgan Stanley. And

David Risinger – Morgan Stanley

Emerging market growth, it looks like no year-to-date year-over-year growth a nice step up the 2011 results. Your thoughts on the longer-term growth opportunity in these markets? Do you think you can sustain low double-digit growth in the emerging markets over time or is enough changed in the macro of our Mayor that’s no longer reasonable target? Second question was on the commercial opportunity for our look was, any thoughts on your expectations for the label you might receive there and how you’re thinking about that market and how it has evolved so far with your competitors? And finally can you give an update on this data is of (inaudible) and how we should think about those? Thank you.

Ian Read

Okay thank you. I’ll ask (inaudible) to comment on emerging market growth potential. And John Young on outlook was.

Geno Germano

We think we can continue to perform in line with our goals of high single digit growth over the period. The macro trends continue to be favorable increase amount of spending on healthcare and pharmaceutical market which is growing at 12 to 15% in the next few years. Again, we think we can maintain a high single digit and again if you look at the 6% we achieved during the quarter, it is very much influenced by the Prevnar and Amber ale institutional sales to government and if you take out that cadence, you look at the base business, during Q1 2012, we grew by 9%, the second quarter of 2012 and this quarter is still a lemon percent. So all of that indicates we have a pretty strong position and we can continue to build on it.

Frank D’Amelio

I would add also we are very pleased about the presence in the BRIC-MT markets with accelerated growth there and the strength of our organizations we are the number one multinational in China and we have impressive positions and the other BRIC-MT markets so with that Geno would you like to take the other questions?

Geno Germano

Thanks for your questions quest that may take Alec was first and say obviously as you are where can we announced previously on 26 September, the FDA and knowledge our receipt of the outlook was resubmission. For our atrial for deletion indication. That discussion between Pfizer and EFTA our ongoing and we continue to work closely with them and as you know the target date for the FDA to complete their review is 17 March 2013 which is when the PDUFA date occurs. In terms of your question about do we see the potential?

Clearly, we believe outlook with his demonstrated superior at that as the leading all mortality to offer in a single dose. We believe we should have a compelling profile with cardiologists as well as primary care physicians and we are working very closely with our partners to finalize this strategy and plans and make sure we are prepared for launch. If I turn now to remodel see and (inaudible) if I take stomach first of all, we meant with the FDA in May of this year to discuss our proposal for reintroduction into the market.

The acquired stability programs are under way. We anticipate a submission in prior approval supplement in the first half of 2013. If I turn to remarks he as you probably know from previous calls it has been a challenging asset that our teams have been working very diligently since the acquisition of King.

As a result of that work, and extensive insights we have gained around the formulation, we have initiated comp availability studies to assess the pharmacokinetic or PK profile of modified (inaudible) formulation composition. We expect those studies early in 2013. We think the results of those studies will provide a much greater clarity on whether or not we can adequately address the questions raised and complete response letter we received from the FDA.

We are targeting a late March meeting with the FDA to discuss and agree on the net go or no go decision. One last comment to make and I think it’s important to remember our commitment to this area is very strong and as such we continue to invest in our compound 8002 which is an extended release oxycodone which is in (inaudible) platform technology and it is currently in phase 3.

Operator

Your next question comes from Steve Scala with Cowen and Co.

Steve Scala – Cowen & Company

Frank, would you dissect the strength in gross profit margin how much was currency and how much were efficiencies and how much was mixed and also how much of the narrowing of the range in sales and EPS guidance for the year is due to adverse currency fluctuations and one for Dr. Dolsten, what is your postmortem on the (inaudible) was that it molecule which could you study their patients or is than that and as him in your view on likely to be effective? Thank you.

Frank D’Amelio

Let me hit the two questions you asked me Steve. On efficiencies foreign exchange relative to the quarter, let me run the numbers which is if you look at total adjusted cost for the quarter they were down and this includes cost of goods sold, R&D were down 1.3 billion so from to 8.2 billion this year foreign exchange help that by 440 million Soviet take the $1.3 billion to $440 million you get roughly $850 million that was down 8% operationally. If you also add back where does for the next the them payment we made a percent becomes 11% which is what Ian mentioned in his opening remarks.

In terms of foreign exchange the bottom line, foreign exchange hurt the quarter by two cents by the way in terms of rhythm of the numbers if you look last year in Q3 it actually hurt helped Q3 by 4%. Four cents it was a four cent good guy last quarter of two cents that guy this quarter. In terms of the revenue guidance, with the updated guidance is within the guidance we provided for the year we said 58 to 60 week tightened it this quarter let the lower end of the range and lower the top end of the range from 60 to 59 that decrease if you look the midpoint to midpoint is really primarily driven by foreign exchange.

You can’t just look at the euro which is typically what we do and that’s a big visit our revenues it team percent of revenues are euro at the yen and the Brazilian reality in moving against us is the beginning of the year there recall more recently when we tighten the ranges that has a more pronounced effect which is why we lower the range from 58 to 60 to 58 to 69 so the short answer is foreign exchange is the driver relative to our revenue guidance.

Ian Read

Thank you Frank within the euro being roughly 18% of sales, the yen represents 10 and the Riau represents for so basically while traditionally people look at the euro you’ve got a look at that mix to model impact of exchange on Pfizer. I’m been asked Olivier to answer the question on (inaudible) and Michael to add anything if he thinks he wants to do that after Olivier’s comments.

Mikael Dolsten

Steve, we are currently closing out this (inaudible) program as you know. We have not seen any evidence of clinical activity in an eight of the relevance study. We reported results earlier. In October and as we speak, at the clinical trial meeting this week in Monte Carlo. The only study which is remaining with (inaudible) formulation study which is called the (inaudible) it’s actually fully enrolled at this point and we are expecting to see results during the first quarter of 13.

I’d like to mention it is only a biomarker study not an efficacy or his safety study at this point. The alliance is going to look at all the biomarker we have not only coming from what we have already but additional product (inaudible) and also (inaudible) and that information will actually inform future work regarding potential for (inaudible). With any of those candidates we have in our pipeline. We continue to believe in the pathway and committed to research in (inaudible) into that point I would like as Michael to mention a few.

Ian Read

I would assume anything you say would be speculation but go ahead.

Frank D’Amelio

I think Olivia summarize in an excellent manner and we do continue as many in the field to believe that in effect of intervention with and allayed formation at the early stage of the disease is a value way forward to explore. We have a broad 80 pipeline modifying and systematic approaches that may mention our (inaudible) antagonist that has completed phase 1 and is conceded for further studies. We have other ways to interfere with (inaudible) formation such as base and gamma dosing preclinical and as all of you mentioned, we are assessing different antibody approaches to modulate the (inaudible) and this reflects our continued interest to research in (inaudible) disease.

Chuck Triano

Thank you Michael.

Operator

Your next question comes from Seamus Fernandez with Leerink Swann.

Seamus Fernandez – Leerink Swann

I have a question. Wondering can we get a little bit more color on how we should be thinking about the growth drivers of Prevnar 13 particularly in the pediatric indications going forward? What percentage of an IP’s are now kind of filled given the fact that we are seeing a slowdown in the US? And separately, as we think about some of the 2013 days three catalyst, Michael, maybe you could give us a little bit of your thoughts on the catalyst you are most the most focused on? I think historically, there has been talk about I know I guess that (inaudible) product for the antibody drug as well as (inaudible) on the oncology side. Those are two that jump out at me. Thanks a lot.

Ian Read

Geno would you like to comment?

Geno Germano

Between pediatric and adult and Michael will comment on 13.

Ian Read

I think Prevnar the pediatric we are seeing now primarily the effect of the success we had with the ketchup opportunity where we added over $1 billion of value to the company by taking full advantage of the ketchup opportunity we introduced the 13 and now we are reaching a point where it is the base cohort that is driving the pediatric business. We have very strong and IP performance across most of the developed world. We are growing in Japan.

I think future growth for the pediatric business will come from growth in emerging markets and in markets where we have not introduced that ¥13 billion which includes Japan and China and in a USB you get a little bit from price each year but it’s fundamentally a strong base of business we think we can grow to some extent but probably not dramatically in the development is. The growth opportunity to really comes from the adult business.

As you know, without the formal recommendations, in place yet, the adult business is slow to develop. In the US we recently gotten an ASIC recommendation for compromise patients and CDC has indicated they will make Prevnar a recommended vaccine as part of the hospital quality measures. These are things that will help bring attention to the use of conjugate vaccine in the adult population but we think the real lift an opportunity for growth in the franchise comes when we have a broader set of recommendations from the major recommending bodies around the world which will occur post-capital.

Chuck Triano

Banks do know. Michael?

Mikael Dolsten

Let me remind a couple interesting conferences end of this year already starting with the ACR rheumatology conference where we will have several abstract on (inaudible) including oral start study on structure in the point in (inaudible) treated patients. American Heart Association, we will have peace 59 and Eliquis studies. I briefly mentions San Antonio breast Cancer symposium and December we will report phase 2 data from (inaudible) in advanced breast cancer.

As you mentioned, (inaudible) we will have two phase 3 studies that are expected to be presented at the conference in 2013. We will also show a final analysis at relevant medical conference and 13 on (inaudible) and we will continue to generate important data on (inaudible) answer rises in oxycodone compound.

Chuck Triano

Thank you Michael.

Operator

Your next question comes from Jeffrey Holford with Jefferies.

Jeffrey Holford – Jefferies

Thanks for taking my questions. Firstly, can you comment on your review regarding M&A opportunities out there? Business authorization of share repurchase program and ply any change in view from the attractiveness of bolt on opportunities and acquisitions that may or may not be out there? Secondly, the cost savings does appear to run ahead of expectations.

I’m wondering from your point of view faster delivery than you originally anticipated or do you think you can go beyond what you have previously guided in terms of cost-saving efficiencies in the business and lastly, I wonder he to make some sort of comment about the tax rate be on this year in case you may be seeing some structural mix changes in your tax rate and if you could talk a little bit about that in terms of the tax rate thank you.

Ian Read

Thank you for the questions. On the bolt on opportunities, we don’t seeing the increased authorization provide backs in any way diminishes our ability of M&A transactions find cases that can be share back. Share buyback. Our last spring to talk about the cost savings and tax rate

Frank D’Amelio

On the tax rate, we reiterate our guidance for the year approximately 29% of thing going forward with all the uncertainty around tax reform we should assume 29% and the one thing I will say is relative to tax reform, we support any tax reform that will enhance the global competitive US company operating internationally. I think going forward given the uncertainty around as we will continue to assume approximately 29%.

In terms of the cost savings, I think the way I will answer this is all most in terms of what ending we are in relative to a baseball game if you think about a nine inning game we are clearly not in the early innings. I don’t think were in the late innings we are toward the end of the middle innings so there still opportunity but clearly the absolute size of the opportunity isn’t the size of the opportunity was a few years ago given the billions of dollars we’ve already taken out of our cost richer.

Ian Read

I would say the changes going forward if it ever was easy some of the targets have already been taken care of and now it’s going to be cost reductions or increases efficiency is coming from exactly that looking at those as models and structure and as Frank says the targets that were available taking care of.

Chuck Triano

With that, we’ll move on.

Operator

Your next question comes from (inaudible)

Unidentified Analyst

Good morning thanks for taking my question. Enbrel and (inaudible) seems to be weaker in Europe this quarter. We’ve heard about cost containment measures focused on (inaudible). To what extent do you see this as an opportunity for toe but as a cheaper option efficacy and as a follow-up, (inaudible) is lighter operation that what we’ve seen with some your peers is there anything that was unique to this quarter we should be aware of?

Chuck Triano

Thank you. Geno if you could do in Enbrel and Franken do and will help.

Geno Germano

I think that TNF inhibitors and frankly the whole pharmaceutical portfolio has experienced some challenging cost containment measures in Europe our TNF business has been impacted more than the southern European countries in the North but there is some of that there. The volume growth remains fairly strong so I think the place for TNF inhibitors is really secure. In terms of toe for, we will announce our pricing strategy once we have approval in ready to introduce the product.

Ian Read

On animal health let me run the numbers that I will go commentary. To your point outlets, the quarter year-to-date growth was 4% but if you look at it on a year-to-date basis the operating growth was 6% so we will get volatility quarter to quarter but on 89 months year-to-date basis 6%. If you drill down a little bit with the increased demand across the global livestock portfolio, increased demand across the animal portfolio and increased demand in certain key geographies and I think the watch items are clearly the drought in the US Midwest and Southwest and what’s going on in Europe in particular southern Europe relative to the economy but net net year-to-date basis 6% operating growth which we view as nice for that business.

Operator

Your next question comes from the line of (inaudible).

Unidentified Analyst

Thanks for taking the question most of my questions have been asked I wanted to follow up on the management of the cost structure and continue the baseball analogy it depends I guess when you start the analogy but you look at towards the end of middle innings might suggest anywhere in the neighborhood of $1 billion to $2 billion in annual cost savings to mid pulled out from Pfizer I wonder if you could characterize within that number fits in the scheme and when you look at managing the cost structure are you largely balancing cost that could be saved from products losing exclusivity versus cost might be needed to launch new products and lastly, I was wondering if you could comment on the variable costs for Celebrex. Thank you

Frank D’Amelio

When we look at our cost, you obviously look at a company that has had grown by acquisitions which has allowed us to take out costs as we do the acquisitions. If you look at our global position we carefully analyze what is our share of voice and what is our share of mind against competitors and we analyze that and the context of an industry that in itself restructuring and faced with headwinds on pricing and access so this band you need up in the marketplace depends to a large extent on the competitive U. are again so we tend to look at the spending of competitors and what we need to make competitive as a benchmark. I want to be clear here that we are looking up cost always with a view to remaining competitive in the marketplace.

Ian Read

Maybe I’ll give a little detail relative to what I said relative to where we are the sum the opportunities going forward. First, if you think about manufacturing, we said previously we still have to give or take 10 manufacturing facilities we plan to exit over the next several years in the US Puerto Rico and Ireland, 10 facilities that represents a significant opportunity.

We continue to streamline our corporate center and enabling function services. We continue to believe additional opportunities there and we are looking at all of our functions everything we do in terms of where there are opportunities be more efficient and productive we have been doing that we will continue to do that so those are some of the areas relative to what we can do on a go forward basis and why I said where we are relative to the continuum.

Chuck Triano

You know, we don’t really release very both fixed cost on products for competitive reasons. Thank you.

Operator

Your final question comes from the line of Mark and what TBS.

Mark – TBS

Hi. Ian, in the past you talked about cost cutting in Europe and how you are really focused on taking more cost out of Europe and changing the business model little bit. I was wondering if you’re prepared to talk about that little bit in the second question is on gross margin, once we eat lemon eight these 10 plants and get through a couple more years patent asked by reason what is the sustainable gross margins to around 80%?

Ian Read

Europe the opportunities in Europe center around as the European Union moves toward a more centralized in buyer man, what you need to do on a country by country basis to maintain a commercially competitive organization and what you need to do to maintain your marketing and medical and infrastructure. It’s easy to compare Europe at the US which is a lot simpler because it is federal and one regulation but as Europe moves towards that and we tend to look at treatment of Europe while not identical but more similar to a structure you have in the US but I would ask John Young if you want to add anything to do to that since these managing Europe to some considerable time.

Frank D’Amelio

The only add I would give is that obviously as we do in all the regions with all her businesses around the world one of the things we will continue to do is make sure we deploy our resources in line with the opportunity to generate revenue growth and value for shareholders. That is something we have been doing very actively as you know over the last 3 to 4 years. In line with the continued evolution of the pipeline we will continue to bully resources appropriately in Europe to maximize shareholder value as the portfolio continues to evolve.

Chuck Triano

Thank you Frank you want to try to answer the gross margin question?

Frank D’Amelio

Sure. I think clearly there will be down a pressure on gross margin on a go forward basis when you think about how the mix of our revenues is changing but I think the thing to focus on his operating margins we continued to generate cost reduction and productivity improvements to keep the operating margin relatively constant on a go forward basis.

Chuck Triano

Thanks. Thank you everybody for being flexible with the date change. Thanks for your time this morning.

Operator

Ladies and gentlemen, this concludes the Pfizer’s third quarter 2012 earnings conference call. You may now disconnect.

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