Pfizer Inc. (which may be referred to as Pfizer, the Company, we, us or our) is a research-based, global biopharmaceutical company. We apply science and our global resources to improve health and well-being at every stage of life. We strive to set the standard for quality, safety and value in the discovery, development and manufacture of medicines for people and animals. Our diversified global health care portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as nutritional products and many of the world’s best-known consumer health care products. Every day, we work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. Consistent with our responsibility as the world’s leading biopharmaceutical company, we also collaborate with other biopharmaceutical companies, health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world.
The Company was incorporated under the laws of the State of Delaware on June 2, 1942. On October 15, 2009, we completed our acquisition of Wyeth. The acquisition was a cash-and-stock transaction valued, based on the closing market price of Pfizer’s common stock on the acquisition date, at $50.40 per share of Wyeth common stock, or a total of approximately $68 billion.
In response to the challenging operating environment, we have taken many steps to strengthen our Company and better position ourselves for the future. The most important of these steps was the acquisition of Wyeth, which has transformed us into a more diversified health care company, with product offerings in human and animal health, including vaccines, biologics, small molecules and nutrition across developed and emerging markets. We believe that our acquisition of Wyeth meaningfully advances, in a single transaction, each of the strategic priorities that we have identified and pursued over the last two years, including:
• Enhancing the in-line and patent-protected pipeline portfolio in key “invest to win” areas of research where there exist significant unmet medical needs and significant opportunities for innovation and market leadership, such as oncology, pain, inflammation, Alzheimer’s disease, psychoses and diabetes as well as the critical technologies of vaccines and biologics;
• Becoming a top-tier player in biotherapeutics by 2015;
• Accelerating growth in emerging markets;
• Creating new opportunities for established products;
• Investing in complementary businesses; and
• Creating a lower, more flexible cost base for the combined company.
Business Segments
Effective with the acquisition of Wyeth, we have operated two distinct commercial organizations which constitute our two business segments: Biopharmaceutical and Diversified. Biopharmaceutical includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology customer-focused units, which include products that prevent and treat cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye disease and endocrine disorders, among others. Diversified includes Animal Health products that prevent and treat diseases in livestock and companion animals; Consumer Healthcare products that include over-the-counter health care products such as pain management therapies, cough/cold/allergy remedies, dietary supplements, hemorrhoidal care and personal care items; Nutrition products such as infant and toddler formula products; and Capsugel, which represents our gelatin capsules business.
Comparative segment information for 2009, 2008 and 2007 is presented in the tables captioned Segment Revenue and Profit, Segment Assets, Property, Plant and Equipment Additions and Depreciation and Amortization, Geographic and Revenues by Product in Note 20 to our consolidated financial statements, Segment, Geographic and
Revenue Information, in our 2009 Financial Report. The information from those tables in our 2009 Financial Report is incorporated by reference in this 2009 Form 10-K.
Our businesses are heavily regulated in most of the countries in which we operate. In the U.S., the principal authority regulating our operations is the Food and Drug Administration (FDA). The FDA regulates the safety and efficacy of the products we offer and our research quality, manufacturing processes, product promotion, advertising and product labeling. Similar regulations exist in most other countries, and in many countries the government also regulates our prices. See Government Regulation and Price Constraints below.
Biopharmaceutical
Revenues from the Biopharmaceutical segment contributed approximately 91% of our total revenues in 2009 and 2008, and 92% of our total revenues in 2007.
We recorded direct product sales of more than $1 billion for each of nine legacy Pfizer products in 2009, each of nine products in 2008 and each of eight products in 2007. These products represented 56% of our Biopharmaceutical revenues in 2009, 60% of our Biopharmaceutical revenues in 2008 and 58% of our Biopharmaceutical revenues in 2007. We did not record more than $1 billion in revenue for any individual legacy Wyeth product in 2009 since the Wyeth acquisition date of October 15, 2009.
Worldwide Biopharmaceutical revenues in 2009 were $45.4 billion, an increase of 3% compared to 2008, primarily due to revenues from legacy Wyeth products of approximately $2.5 billion, solid operational performance from certain legacy Pfizer products, including Lyrica, Sutent and Revatio, and higher legacy Pfizer alliance revenues, partially offset by the strengthening of the U.S. dollar relative to other currencies, primarily the euro, U.K. pound, Canadian dollar, Australian dollar and Brazilian real, which unfavorably impacted Biopharmaceutical revenues by approximately $1.7 billion, or 4%, in 2009, and a decrease in revenues from certain legacy Pfizer products, including Lipitor, Norvasc, Camptosar and Chantix/Champix.
Geographically, in the U.S., Biopharmaceutical revenues increased 6% in 2009, primarily due to revenues from legacy Wyeth products of approximately $1.6 billion, or 9% and by the solid performance from certain legacy Pfizer products, including Lyrica, Viagra, Revatio, Xalatan and Sutent, and higher alliance revenue in 2009 which was partially offset by lower revenues from certain legacy Pfizer products including Lipitor and Celebrex, compared to 2008, as a result of continued generic pressures. Legacy Pfizer revenues also were adversely affected by the loss of exclusivity of Camptosar and Zyrtec/Zyrtec D, lower sales of Chantix following changes to the product label, increased rebates partly as a result of the impact of certain contract changes, and increased pricing pressures.
In our international markets, Biopharmaceutical revenues were flat in 2009, compared to 2008. Higher revenues due to the addition of legacy Wyeth products of $931 million, or 4%, and higher operational revenues from legacy Pfizer products of $854 million, or 3%, were offset by the unfavorable impact of foreign exchange on international revenues of $1.7 billion, or 7%. The increase in operational revenues of legacy Pfizer products was due to operational growth from Lipitor, Lyrica, Zyvox, Vfend, Sutent and higher alliance revenues, partially offset by lower revenues from Norvasc and Camptosar, among others.
Biopharmaceutical—Selected Product Descriptions:
• Lipitor, for the treatment of elevated LDL-cholesterol levels in the blood, is the most widely-used branded prescription treatment for lowering cholesterol and the best-selling pharmaceutical product of any kind in the world.
• Norvasc, for treating hypertension, lost exclusivity in the U.S. in March 2007 and has also experienced patent expirations in most other major markets, including Japan in July 2008 and, most recently, Canada, in the third quarter of 2009.
• Caduet is a single pill therapy combining Lipitor and Norvasc for the prevention of cardiovascular events.
• Chantix/Champix, the first new prescription treatment to aid smoking cessation in nearly a decade, has been launched in all major markets. We are continuing our educational and promotional efforts, which are focused on the Chantix benefit-risk proposition, the significant health consequences of smoking and the importance of the physician-patient dialogue in helping patients quit smoking. For further information on Chantix/Champix, including label changes, see the discussion under the heading Biopharmaceutical-Selected Product Descriptions, Chantix/Champix in the Financial Review section of our 2009 Financial Report, which is incorporated by reference.
• Lyrica is indicated for the management of post-herpetic neuralgia (PHN), diabetic peripheral neuropathy (DPN), fibromyalgia, and as adjunctive therapy for adult patients with partial onset seizures in the U.S., and for neuropathic pain, adjunctive treatment of epilepsy and general anxiety disorder (GAD) outside the U.S.
• Revatio is for the treatment of pulmonary arterial hypertension.
• Geodon/Zeldox, a psychotropic agent, is a dopamine and serotonin receptor antagonist indicated for the treatment of schizophrenia, acute manic or mixed episodes associated with bipolar disorder and maintenance treatment of bipolar mania.
• Aricept, discovered and developed by Eisai Co., Ltd., is the world’s leading medicine to treat symptoms of Alzheimer’s disease. We co-promote Aricept with Eisai in the U.S. and several other countries and have an exclusive license to sell this medicine in certain other countries.
• Celebrex is for the treatment of the signs and symptoms of osteoarthritis and rheumatoid arthritis and acute pain in adults. Celebrex is supported by continued educational and promotional efforts highlighting its efficacy and safety profile for appropriate patients.
• Zyvox is the world’s best-selling branded agent for the treatment of certain serious Gram-positive pathogens, including Methicillin-Resistant Staphylococcus-Aureus.
• Viagra remains the leading treatment for erectile dysfunction and one of the world’s most recognized pharmaceutical brands after more than a decade.
• Detrol/Detrol LA, a muscarinic receptor antagonist, is the most prescribed branded medicine worldwide for overactive bladder. Detrol LA is an extended-release formulation taken once a day.
• Sutent is for the treatment of advanced renal cell carcinoma, including metastatic renal cell carcinoma (mRCC), and gastrointestinal stromal tumors (GIST) after disease progression on, or intolerance to, imatinib mesylate. We continue to drive total revenue and prescription growth, supported by cost-effectiveness data and efficacy data in first-line mRCC—including 2-year survival data, which represents the first time overall survival of two years has been seen in the treatment of advanced kidney cancer, as well as through access and health care coverage. As of December 31, 2009, Sutent was the best-selling medicine in the world for the treatment of first-line mRCC.
• Xalatan, a prostaglandin, is the world’s leading branded agent to reduce elevated eye pressure in patients with open-angle glaucoma or ocular hypertension. Xalacom, a fixed combination prostaglandin (Xalatan) and beta blocker (timolol), is available outside the U.S. In the first quarter of 2009, we entered into a five-year agreement with Bausch & Lomb to co-promote prescription pharmaceuticals in the U.S. for the treatment of ophthalmic conditions, including our Xalatan product and certain Bausch & Lomb products.
• Genotropin, the world’s leading human growth hormone, is used in children for the treatment of short stature with growth hormone deficiency, Prader-Willi Syndrome, Turner Syndrome, Small for Gestational Age Syndrome, Idiopathic Short Stature (in the U.S. only) and Chronic Renal Insufficiency (outside the U.S. only), as well as in adults with growth hormone deficiency. Genotropin is supported by a broad platform of innovative injection-delivery devices.
• Vfend, as the only branded agent available in intravenous and oral forms, continues to build on its position as the best-selling systemic, antifungal agent worldwide. Vfend’s overall global sales continue to be driven by its acceptance as an excellent broad-spectrum agent for treating yeast and molds. In October 2009, we settled certain patent litigation involving Vfend by entering into an agreement granting two subsidiaries of Mylan Inc. the right to market voriconazole tablets in the U.S. beginning in the first quarter of 2011.
• Effexor is our antidepressant for treating adult patients with major depressive disorder, generalized anxiety disorder, social anxiety disorder and panic disorder. See Patents and Intellectual Property Rights for further information on Effexor.
• Prevnar/Prevnar7 is our vaccine for preventing invasive pneumococcal disease in infants and young children.
• Enbrel is our treatment for rheumatoid arthritis, juvenile rheumatoid arthritis, psoriatic arthritis, plaque psoriasis and ankylosing spondylitis, arthritis affecting the spine. The approval of a number of competing products for the treatment of psoriasis is expected to increase competition with respect to Enbrel in 2010. We have exclusive rights to Enbrel outside the U.S. and Canada and co-promote Enbrel with Amgen Inc. (Amgen) in the U.S. and Canada. Our co-promotion agreement with Amgen expires in 2013, and we are entitled to a royalty stream for 36 months thereafter, which is significantly less than our current share of Enbrel profits from U.S. and Canadian sales. Our rights to Enbrel outside the U.S. and Canada will not be affected by the expiration of the co-promotion agreement.
• Zosyn (Tazocin internationally), our broad-spectrum intravenous antibiotic, faces generic competition in the U.S. and certain other markets.
• Our Premarin family of products remains the leading therapy to help women address moderate to severe menopausal symptoms.
• Our Hemophilia family of products, which includes BeneFIX, ReFacto AF and Xyntha, provides state-of-the-art products that offer patients with this lifelong bleeding disorder the potential for a near-normal life.
• Protonix (pantoprazole sodium) is our proton pump inhibitor for the treatment and maintenance of healing of erosive esophagitis with associated gastroesophageal reflux disease symptoms. Sales of Protonix are affected by the December 2007/January 2008 “at risk” launches of generic pantoprazole tablets in the United States. In response, we sell our own generic version of Protonix tablets.
• Spiriva is our inhaled maintenance prescription treatment for breathing problems associated with chronic obstructive pulmonary disease (COPD), a lung condition that includes chronic bronchitis, emphysema, or both. We co-promote Spiriva in the U.S. with Boehringer Ingelheim Pharmaceuticals, Inc.
Diversified
Worldwide Diversified revenues in 2009 were $4.2 billion, an increase of 17% compared to 2008 due to revenues from legacy Wyeth products of approximately $764 million, primarily from the addition of legacy Wyeth Consumer Healthcare and Nutrition operations partially offset by a decrease in revenues due to the unfavorable impact of foreign exchange on the legacy Pfizer Animal Health and Capsugel units.
Animal Health
Our Animal Health unit is one of the largest in the world. We discover, develop and sell products for the prevention and treatment of diseases in livestock and companion animals. Revenues from animal health products decreased 2% in 2009 compared to 2008, reflecting the unfavorable impact of foreign exchange of 5%, flat operational performance of legacy Pfizer animal health products partially offset by the revenue increase from the addition of legacy Wyeth animal health products of 3%. The following factors impacted 2009 results:
• the global recession, which negatively affected global spending on veterinary care;
• historically low milk prices, which have hurt the profitability of dairy farmers and negatively impacted our livestock business; and
• a planned change in terms with U.S. distributors resulting in an anticipated, one-time reduction in U.S. distributor inventories in the first quarter of 2009. Among the products we market are antibiotics, anti-inflammatories, antiemetics, parasiticides, and vaccines, including the following products:
• Improvac is a novel gonadotropin releasing factor (GnRF) vaccine for swine that prevents boar taint. Improvac transforms the way male pigs are reared, replacing conventional physical castration with a more animal welfare-friendly alternative.
• Palladia is a treatment of mast cell tumors, a common form of cancer that affects dogs. It works by killing tumor cells and by cutting off the blood supply to the tumor.
• Convenia is an antibiotic for dogs and cats that delivers an assured full course of therapy from a single injection. Assured therapy means that veterinarians no longer need to worry about owner compliance issues and pet owners have the convenience of having a complete treatment administered by the veterinarian.
• Cerenia is a selective NK-1 receptor antagonist for the treatment and prevention of vomiting in dogs and for the prevention of motion sickness.
• Revolution/Stronghold is our largest-selling parasiticide for dogs and cats. Parasiticides constitute the largest segment of the animal health market for
companion animals, consisting mainly of medicines for the control of parasites such as fleas and heartworm.
• Rimadyl relieves pain and inflammation associated with canine osteoarthritis and soft tissue orthopedic surgery. Rimadyl is the only arthritis pain medication prescribed by veterinarians available in chewable tablets, regular caplets and in an injectable formulation.
• Draxxin is an effective and convenient single dose antibiotic used to treat infections in cattle and swine.
• Excede is an effective and convenient single-dose antibiotic used to treat infections in dairy cows, beef cattle and swine.
• Suvaxyn PCV2 is an effective vaccine for healthy pigs three weeks of age or older as an aid in the prevention of viremia and as an aid in the control of lymphoid depletion caused by Porcine Circovirus Type 2.
• Zulvac provides a highly effective vaccination program for cattle against bluetongue. It not only immunizes the animal against the virus but also blocks or significantly reduces viremia, which means that the risk of virus transfer is reduced, helping to prevent the spread of bluetongue.
Consumer Healthcare
Consumer Healthcare, which is a legacy Wyeth unit, is the fifth-largest over-the-counter (OTC) health care products company in the world and sells two of the ten largest selling OTC brands in the world. Revenues of $494 million for 2009 reflect revenue generated by Consumer Healthcare subsequent to the close of the Wyeth acquisition on October 15, 2009. It holds strong positions in the U.S. and various international markets. Major categories and product lines are:
• Dietary Supplements: Centrum Franchise (including Centrum, Silver/Select 50+, Ultra Men’s and Women’s, Performance, Cardio and Kids), Caltrate, Polase, Vitasprint;
• Pain Management: Advil, Advil PM, ThermaCare, Anadin, Robax, Spalt;
• Respiratory: Robitussin, Advil Cold & Sinus, Dimetapp;
• Topicals/Gastro-intestinal: ChapStick, Preparation H, Anbesol, Fibercon.
Nutrition
Pfizer Nutrition, which is a legacy Wyeth unit, is a leader in infant nutritionals in the markets in which we operate. We have a focused presence in key markets throughout Asia, the Middle East, Europe and Latin America with China, the Philippines, the UK, Mexico and Australia being among our top markets. As part of Pfizer, Nutrition will have enhanced opportunities to grow in new and existing markets, as well as to leverage strengths from the combined company to accelerate innovation and develop new products. Revenues of $191 million for 2009 reflect revenue generated by Pfizer Nutrition after the close of the Wyeth acquisition on October 15, 2009.
Nutrition products include our S26 Preterm Feeding System, specialty formulas such as S26 PE Gold and a range of age-specific products that include S26 PE Gold, Progress, Promil and Promise.
Capsugel
Capsugel has a diverse product line that includes not only hard gelatin capsules, but also liquid, softgel, non-animal, and fish gelatin capsules, all for use in pharmaceutical and dietary supplement dosage delivery.
Research and Development
Innovation by our research and development operations is very important to the Company’s success. Our goal is to discover, develop and bring to market innovative products that address major unmet medical needs. This goal has been supported by our substantial research and development investments. We spent $7.8 billion in 2009, $7.9 billion in 2008 and $8.1 billion in 2007 on research and development.
We conduct research internally and also through contracts with third parties, through collaborations with universities and biotechnology companies and in cooperation with other pharmaceutical firms. We also seek out promising compounds and innovative technologies developed by third parties to incorporate into our discovery or development processes or projects, as well as our product lines, through acquisition, licensing or other arrangements.
Drug discovery and development is time consuming, expensive and unpredictable. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), out of 5,000-10,000 screened compounds, only 250 enter preclinical testing, five enter human clinical trials and one is approved by the FDA. The process from early discovery or design to development to regulatory approval can take more than ten years. Drug candidates can fail at any stage of the process. Candidates may not receive regulatory approval even after many years of research.
We believe that the effect of our significant investments in research is reflected in the number of robust pharmaceutical candidates we have in all stages of development. As of January 27, 2010, we had about 500 projects in development, ranging from discovery through registration, of which 133 programs are from Phase 1 through registration. The projects within our “invest to win” areas include 30 compounds for various oncology indications, 10 compounds for Alzheimer’s disease, eight compounds for pain, 11 compounds for inflammation, six vaccines and 27 biologics. At year-end 2009, our Phase III portfolio contained 34 programs. While these new candidates may or may not eventually receive regulatory approval, new drug candidates entering development are the foundation for future products.
In addition to discovering and developing new products, our research operations seek to add value to our existing products by improving their effectiveness and by discovering new uses for them.
Information concerning several of our drug candidates in development, as well as supplemental filings for existing products, is set forth under the heading Product Developments in our 2009 Financial Report. That information is incorporated by reference.
Our competitors also devote substantial funds and resources to research and development. We also compete against numerous small biotechnology companies in developing potential drug candidates. The extent to which our competitors are successful in their research could result in erosion of the sales of our products and unanticipated product obsolescence.
International Operations
We have significant operations outside the United States. They are managed through the same segments as our U.S. operations—Biopharmaceutical and Diversified.
Revenues from operations outside the U.S. of $28.3 billion accounted for 57% of our total revenues in 2009. Revenues exceeded $500 million in each of 13 countries outside the U.S. in 2009. The U.S. was the only country to contribute more than 10% of our total revenues, comprising 43% of total revenues in 2009, 42.3% of total revenues in 2008 and 47.8% of total revenues in 2007. Japan is our second-largest national market, with 8.5% of total revenues in 2009, 7.7% of total revenues in 2008 and 7.0% of total revenues in 2007.
For a geographic breakdown of revenues and changes in revenues, see the table captioned Geographic in Note 20 to our consolidated financial statements, Segment, Geographic and Revenue Information, in our 2009 Financial Report and the table captioned Change in Revenues by Segment and Geographic Area in our 2009 Financial Report. Those tables are incorporated by reference.
Our international businesses are subject, in varying degrees, to a number of risks inherent in carrying on business in other countries. These include currency fluctuations, capital and exchange control regulations, expropriation and other restrictive government actions. Our international businesses are
also subject to government-imposed constraints, including laws on pricing, reimbursement and access to our products. See Government Regulation and Price Constraints below for a discussion of these matters.
Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. In 2009, both revenues and net income were unfavorably impacted by foreign exchange in general, as foreign currency movements relative to the U.S. dollar decreased our revenues and net income in many countries. While we cannot predict with certainty future changes in foreign exchange rates or the effect they will have on us, we attempt to mitigate their impact through operational means and by using various financial instruments. See the discussion under Note 9-E to our consolidated financial statements, Financial Instruments: Derivative Financial Instruments and Hedging Activities in our 2009 Financial Report. That discussion is incorporated by reference. Related information about valuation and risks associated with such financial instruments in part F of that Note is also incorporated by reference.
Marketing
In our global Biopharmaceutical segment, we promote our products to health care providers and patients. Through our marketing organizations, we explain the approved uses, benefits and risks of our products to health care providers, such as doctors, nurse practitioners, physician assistants, pharmacists, hospitals, Pharmacy Benefit Managers (PBMs), Managed Care Organizations (MCOs), employers and government agencies. We also market directly to consumers in the U.S. through direct-to-consumer advertising that communicates the approved uses, benefits and risks of our products while continuing to motivate people to have meaningful conversations with their doctors. In addition, we sponsor general advertising to educate the public on disease awareness, prevention and wellness, important public health issues, and our patient assistance programs.
In January 2009, we announced the creation of customer-focused units within our Biopharmaceutical segment to better meet the diverse needs of physicians, patients and our customers while maximizing value for our Company and our shareholders.
The Biopharmaceutical segment includes five human health, customer-focused units: Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. Upon the closing of the Wyeth acquisition on October 15, 2009, our Specialty Care customer-focused unit expanded to include vaccines.
In April 2009 in the U.S., we also restructured into regional units in order to create a more flexible organization empowered to identify and address local market dynamics and customer needs. Our structure aligns the sales, marketing, and medical functions to work closely to meet the needs of key customer segments while ensuring common coordination, focus and accountability across the organizations.
Our prescription pharmaceutical products are sold principally to wholesalers, but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies. We seek to gain access to health authority, PBM and MCO formularies (lists of recommended, approved, and/or reimbursed medicines and other products). We also work with MCOs, PBMs, employers and other appropriate health care providers to assist them with disease management, patient education and other tools that help their medical treatment routines.
During 2009, Pfizer revenues generated from our three largest biopharmaceutical wholesalers were as follows:
• McKesson, Inc.—17% of our total revenues;
• Cardinal Health, Inc.—11% of our total revenues; and
• AmerisourceBergen Corporation—10% of our total revenues.
Sales to these wholesalers were concentrated in the Biopharmaceutical segment. Apart from these instances, neither of our business segments is dependent on any one customer or group of related customers.
Our global Diversified segment consists of four global units: Animal Health, Consumer Healthcare, Nutrition and Capsugel. Each unit utilizes its own sales and marketing organization to promote its products, and occasionally uses distributors in smaller markets.
Our Animal Health unit’s advertising and promotions are generally targeted to health care professionals, directly and through veterinary journals. Animal Health products are sold through veterinarians, distributors and retail outlets as well as directly to users.
Our Consumer Healthcare unit’s advertising and promotions are generally targeted to consumers through television, print and other media advertising, as well as through in-store promotion. Consumer Healthcare products are sold through a wide variety of channels, including distributors, pharmacies and retail chains.
Our Nutrition unit supports and adheres to the World Health Organization code and national codes on the marketing of breast milk substitutes. Nutrition encourages breastfeeding as the best nutrition for infants, and provides important products for infants who are not exclusively breastfed. Advertising and promotion of our Nutrition products for older children and adults generally target consumers and health care professionals through print and media advertising and television. Our Nutrition products are sold through a wide variety of channels, including distributors, pharmacies, hospitals and retail chains.
Patents and Intellectual Property Rights
Our products are sold around the world under brand-name, logo and certain product design trademarks that we consider in the aggregate to be of material importance. Trademark protection continues in some countries for as long as the mark is used and, in other countries, for as long as it is registered. Registrations generally are for fixed, but renewable, terms.
We own or license a number of U.S. and foreign patents. These patents cover pharmaceutical and other products and their uses, pharmaceutical formulations, product manufacturing processes and intermediate chemical compounds used in manufacturing.
Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
Aricept is patented by Eisai Co., Ltd. We co-promote Aricept with Eisai in the U.S. and several other countries and have an exclusive license to sell the drug in certain other countries.
We have exclusive rights to Enbrel outside the U.S. and Canada and we co-promote Enbrel with Amgen in the U.S. and Canada.
In addition to our U.S. basic product patent for Lipitor, which (including the pediatric exclusivity period) expires in March 2010, we have a patent covering specifically the enantiomeric form of the drug, which (including the pediatric exclusivity period) expires in June 2011. See Note 19 to our consolidated financial statements, Legal Proceedings and Contingencies, in our 2009 Financial Report regarding pending legal challenges to our Lipitor patents in the U.S.
The basic patent for venlafaxine, the active ingredient in Effexor and the extended release product, Effexor XR, expired in 2008. However, we hold several patents expiring as late as 2017 relating to extended release formulations and methods of using extended release formulations of venlafaxine HCI. In 2005, Wyeth entered into a settlement of patent litigation against Teva Pharmaceuticals USA, Inc. (Teva USA) and Teva Pharmaceutical Industries, Ltd. (Teva Industries) pursuant to which Teva USA and Teva Industries are permitted to launch generic versions of Effexor XR in the U.S. beginning on July 1, 2010, subject to possible earlier launch based on specified market conditions or developments regarding the applicable patent rights, including the outcome of other generic challenges to such patent rights. Since the settlement with Teva USA and Teva Industries, Wyeth settled patent suits against certain other generic companies that generally grant licenses permitting the generic companies to launch generic versions of Effexor XR in the U.S. on or after June 1, 2011, subject to possible earlier launch in limited circumstances, but in no event earlier than January 1, 2011. See Note 19 to our consolidated financial statements, Legal Proceedings and Contingencies, in our 2009 Financial Report regarding pending legal proceedings related to our Effexor patent.
In October 2009, we settled certain patent litigation involving Vfend by entering into an agreement granting two subsidiaries of Mylan Inc. the right to market voriconazole tablets in the U.S. beginning in the first quarter of 2011.
Zosyn (Tazocin) and Protonix face generic competition in the U.S.
Companies have filed applications with the FDA seeking approval of products that we believe infringe our patents covering, among other products, Lipitor, Caduet, Detrol/Detrol LA, Lyrica, Tygacil and Zyvox.
In addition, a company has filed an application with the FDA seeking approval to market a generic version of Aricept, which is patented by Eisai Co., Ltd. Wyeth and a subsidiary of Wyeth are defendants in a lawsuit alleging that their ReFacto and Xyntha products infringe the patents of another company.
We also have other patent rights covering additional products that have lesser revenues than most of the products set forth in the table above.
The expiration of a basic product patent or loss of patent protection resulting from a legal challenge normally results in significant competition from generic products against the originally patented product and can result in a significant reduction in sales of that product in a very short period. In some cases, however, we can continue to obtain commercial benefits from product manufacturing trade secrets; patents on uses for products; patents on processes and intermediates for the economical manufacture of the active ingredients; patents for special formulations of the product or delivery mechanisms; and conversion of the active ingredient to over-the-counter products.
Our biotechnology products, including Enbrel and Prevnar 7, may face competition from biosimilars (also referred to as “follow-on biologics”). Such biosimilars would reference biotechnology products already approved under the U.S. Public Health Service Act. Abbreviated legal pathways for the approval of biosimilars exist in certain international markets. In the U.S., there is not currently an abbreviated legal pathway to approve biosimilars; however, legislation to establish such a pathway is being considered in Congress. Additionally, the FDA has approved a biosimilar recombinant human growth hormone that referenced a biotechnology product approved under the U.S. Federal Food, Drug, and Cosmetic Act.
In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. If competitors are able to obtain marketing approval for biosimilars referencing our biotechnology products, our biotechnology products may become subject to competition from biosimilars, with the attendant competitive pressure. Expiration or successful
challenge of applicable patent rights could generally trigger this competition, assuming any relevant data exclusivity period has expired.
We expect that we may face more litigation with respect to the validity and/or scope of patents relating to our biotechnology products with substantial revenue.
One of the main limitations on our operations in some countries outside the U.S. is the lack of effective intellectual property protection for our products. Under international and U.S. free trade agreements in recent years, global protection of intellectual property rights has been improving. The World Trade Organization Agreement on Trade Related Aspects of Intellectual Property (WTO-TRIPs) required participant countries to amend their intellectual property laws to provide patent protection for pharmaceutical products by 2005 with an extension until 2016 for least-developed nations. A number of countries have made improvements. We have experienced significant growth in our businesses in some of those nations, and our continued business expansion in other participant countries depends to a large degree on further patent protection improvement.
Competition
Our businesses are conducted in intensely competitive and often highly regulated markets. Many of our human prescription pharmaceutical products face competition in the form of branded drugs or generic drugs that treat similar diseases or indications. The principal forms of competition include efficacy, safety, ease of use, and cost effectiveness. Though the means of competition vary among product categories and business groups, demonstrating the value of our products is a critical factor for success in all of our principal businesses.
Our acquisition of Wyeth in October 2009 created a broader, more diverse portfolio and pipeline with industry-leading positions in potential high-growth areas, further strengthened by new capabilities in biotechnology and vaccines. The combined company not only strengthens our presence in the United States and Europe, but also enhances our abilities to provide emerging markets in China, Latin America, Africa, and the Middle East with high-quality, innovative medicines.
Our competitors include other worldwide research-based drug companies, smaller research companies with more limited therapeutic focus, and generic drug and consumer health care manufacturers. We compete with other companies that manufacture and sell products that treat similar diseases or indications as our major products.
Such competition affects our core product business, which is focused on applying innovative science to discover and market products that satisfy unmet medical needs and provide therapeutic improvements. Our emphasis on innovation is underscored by our multi-billion-dollar investment in research and development, as well as our emphasis on business development over the past decade, all resulting in a strong product pipeline. Our investment in research does not stop with a drug approval; we continue to invest in further understanding the value of our products for the conditions they treat as well as potential new applications. We seek to protect the health and well-being of patients by ensuring that medically sound knowledge of the benefits and risks of our medicines is understood and communicated to patients, physicians and global health authorities. We also continue to enhance the organizational effectiveness of all of our Biopharmaceutical functions, including coordinating support for our salespeople’s efforts to accurately and ethically launch and promote our products to our customers.
Operating conditions have become more challenging under the mounting global pressures of competition, industry regulation and cost containment. We continue to take measures to evaluate, adapt and improve our organization and business practices to better meet customer and public needs. For instance, we restructured into regional units in order to create a more flexible organization empowered to identify and address local market dynamics and customer needs. We have taken an industry-leading role in evolving our approaches to U.S. direct-to-consumer advertising, interactions with, and payments to, health care professionals and medical education grants. We also continue to sponsor programs to address patient affordability and access barriers, as we strive to advance fundamental health system change through support for better health care solutions.
While our Animal Health unit is one of the largest in the world, many other companies offer
competing products. Altogether, there are hundreds of producers of animal health products throughout the world. The principal methods of competition vary somewhat depending on the particular product. They include product innovation, quality, price, service and effective promotion to veterinary professionals and consumers.
Our Consumer Healthcare unit faces competition from OTC business units in other major pharmaceutical and consumer packaged goods companies as well as retailers who carry their own private label brands. Our competitive position is affected by several factors, including the amount of resources, relative to competitors, deployed to develop, enhance and promote products; the effectiveness of our promotional efforts; customer acceptance; product quality; new product launches; development of alternative therapies by competitors; growth of lower cost private label brands; regulatory and legislative issues; and scientific and technological advances.
Our Nutrition unit has many competitors, including several multinational companies, as well as numerous local, privately-owned brands. Our competitive position is affected by several factors, including the amount of resources deployed to develop, enhance and promote products; the effectiveness of our promotional efforts; customer acceptance; product quality; new product launches; development of alternative products by competitors; growth of lower-cost private label brands; regulatory and legislative issues; and scientific and technological advances.
Managed Care Organizations
The growth of MCOs in the U.S. has been a major factor in the competitive makeup of the health care marketplace. Approximately 250 million people in the U.S. now participate in some version of managed care. Because of the size of the patient population covered by MCOs, the marketing of prescription drugs to them and the PBMs that serve many of those organizations continues to grow in importance.
MCOs can include medical insurance companies, medical plan administrators, health maintenance organizations, alliances of hospitals and physicians and other physician organizations. The purchasing power of MCOs has increased in recent years due to the growing numbers of patients enrolled in MCOs. At the same time, those organizations have been consolidating into fewer, even larger entities. This consolidation enhances their purchasing strength and importance to us.
The growth of MCOs has increased pressure on drug prices. One objective of MCOs is to contain and, where possible, reduce health care expenditures. They typically use formularies, volume purchases and long-term contracts to negotiate discounts from pharmaceutical providers. They use their purchasing power to bargain for lower supplier prices. They also emphasize primary and preventive care, out-patient treatment and procedures performed at doctors’ offices and clinics. Hospitalization and surgery, typically the most expensive forms of treatment, are carefully managed. Since the use of certain drugs can prevent the need for hospitalization, professional therapy or even surgery, such drugs can become favored first-line treatments for certain diseases.
As discussed above in Marketing, MCOs and PBMs typically develop formularies. Formularies can be based on the prices and therapeutic benefits of the available products. Due to their generally lower cost, generic medicines are often favored. The breadth of the products covered by formularies can vary considerably from one MCO to another and many formularies include alternative and competitive products for treatment of particular medical problems. MCOs use a variety of means to encourage patients’ use of products listed on their formularies.
Exclusion of a product from a formulary or other restrictions, such as requiring prior authorizations, can lead to its sharply reduced usage in the MCO patient population. Consequently, pharmaceutical companies compete aggressively to have their products included. 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 an important factor. Products that demonstrate fewer therapeutic advantages must compete for inclusion based primarily on price. We have been generally, although not universally, successful in having our major products included on most MCO formularies.
The impact of MCOs on drug prices and volumes has increased as the result of their role in
negotiating on behalf of Medicare beneficiaries in connection with the Medicare out-patient Prescription Drug Benefit, Medicare Part D, that took effect January 1, 2006. MCOs and PBMs negotiate on behalf of the federal government as Prescription Drug Plans (PDPs). We have been generally, although not universally, successful in having our major products that are used by the senior population included on the formularies of the new Medicare PDPs for 2009.
Generic Products
One of the biggest competitive challenges that we face is from generic pharmaceutical manufacturers. Upon the expiration or loss of patent protection for a product, especially a small molecule product, we can lose the major portion of sales of that product in a very short period. Several such competitors make a regular practice of challenging our product patents before their expiry. Generic competitors operate without our large research and development expenses and our costs of conveying medical information about our products to the medical community. In addition, the FDA approval process exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers to rely on the safety and efficacy data of the innovator product. Generic products need only demonstrate a level of availability in the bloodstream equivalent to that of the innovator product. This means that generic competitors can market a competing version of our product after the expiration or loss of our patent and charge much less.
In addition, our patent-protected products can face competition in the form of generic versions of branded products of competitors that lose their market exclusivity. For example, Lipitor began to face competition from generic pravastatin (Pravachol) and generic simvastatin (Zocor) during 2006.
As noted above, MCOs that focus primarily on the immediate cost of drugs often favor generics over brand-name drugs. Many governments also encourage the use of generics as alternatives to brand-name drugs in their health care programs, including Medicaid in the U.S. Laws in the U.S. generally allow, and in some cases require, pharmacists to substitute generic drugs that have been rated under government procedures to be therapeutically equivalent to brand-name drugs. The substitution must be made unless the prescribing physician expressly forbids it. In the U.S., Pfizer’s Greenstone subsidiary sells generic versions of Pfizer’s as well as certain of our competitors’ pharmaceutical products upon loss of exclusivity, as appropriate.