Filed by Pfizer Inc.
Pursuant to Rule 425
Under the Securities Act of 1933
Subject Company: Wyeth
Commission File No.: 001-01225
Forward Looking Statements
This transcript includes "forward-looking statements" within the meaning of the
safe harbor provisions of the United States Private Securities Litigation Reform
Act of 1995. Such statements may include, but are not limited to, statements
about the benefits of the proposed merger between Pfizer and Wyeth, including
future financial and operating results, the combined company's plans,
objectives, expectations and intentions and other statements that are not
historical facts. Such statements are based upon the current beliefs and
expectations of Pfizer's and Wyeth's management and are subject to significant
risks and uncertainties. Actual results may differ from those set forth in the
forward-looking statements.
The following factors, among others, could cause actual results to differ from
those set forth in the forward-looking statements: the possibility that the
expected synergies from the proposed merger of Pfizer and Wyeth will not be
realized, or will not be realized within the expected time period, due to, among
other things, the impact of pharmaceutical industry regulation and pending
legislation that could affect the pharmaceutical industry; the ability to obtain
governmental and self-regulatory organization approvals of the merger on the
proposed terms and schedule; the failure of Wyeth stockholders to approve the
merger; the risk that the businesses will not be integrated successfully;
disruption from the merger making it more difficult to maintain business and
operational relationships; the possibility that the merger does not close,
including, but not limited to, due to the failure to satisfy the closing
conditions; Pfizer's and Wyeth's ability to accurately predict future market
conditions; dependence on the effectiveness of Pfizer's and Wyeth's patents and
other protections for innovative products; the risk of new and changing
regulation and health policies in the U.S. and internationally and the exposure
to litigation and/or regulatory actions. Additional factors that could cause
results to differ materially from those described in the forward-looking
statements can be found in Pfizer's 2007 Annual Report on Form 10-K, Wyeth's
2007 Annual Report on Form 10-K and each company's other filings with the
Securities and Exchange Commission (the "SEC") available at the SEC's Internet
site (http://www.sec.gov).
Additional Information
In connection with the proposed merger, Pfizer will file with the SEC a
Registration Statement on Form S-4 that will include a proxy statement of Wyeth
that also constitutes a prospectus of Pfizer. Wyeth will mail the proxy
statement/prospectus to its stockholders. Pfizer and Wyeth urge investors and
security holders to read the proxy statement/prospectus regarding the proposed
merger when it becomes available because it will contain important information.
You may obtain copies of all documents filed with the SEC regarding this
transaction, free of charge, at the SEC's website (www.sec.gov). You may also
obtain these documents, free of charge, from Pfizer's website, www.pfizer.com,
under the tab "Investors" and then under the tab "SEC Filings". You may also
obtain these documents, free of charge, from Wyeth's website, www.wyeth.com,
under the heading "Investor Relations" and then under the tab "Financial
Reports/SEC Filings".
Pfizer, Wyeth and their respective directors, executive officers and certain
other members of management and employees may be soliciting proxies from Wyeth
stockholders in favor of the merger. Information regarding the persons who may,
under the rules of the SEC, be deemed participants in the solicitation of the
Wyeth stockholders in connection with the proposed merger will be set forth in
the proxy statement/prospectus when it is filed with the SEC. You can find
information about Pfizer's executive officers and directors in its definitive
proxy statement filed with the SEC on March 14, 2008. You can find information
about Wyeth's executive officers and directors in its definitive proxy statement
filed with the SEC on March 14, 2008. You can obtain free copies of these
documents from Pfizer and Wyeth using the contact information above.
The following information is available at www.premierbiopharma.com
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Thomson StreetEvents(SM)
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PFE - Pfizer Investor Luncheon
Event Date/Time: Jan. 27. 2009 / 12:30PM ET
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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CORPORATE PARTICIPANTS
Chuck Triano Pfizer - VP, Corporate Client Services
Jeff Kindler
Pfizer - Chairman and CEO
Frank D'Amelio
Pfizer - CFO
Ian Read
Pfizer - Head, Pharmaceuticals
Martin Mackay
Pfizer - Head, R&D
CONFERENCE CALL PARTICIPANTS
Sam Cullen
Steve Cappett
Merritt Capital - Analyst
Bob Hottensen
Olayan - Analyst
Carl Schecter
Diamondback Capital Corp. - Analyst
Marshall Gordon
ClearBridge Advisors - Analyst
Asaad Raman
Mason Capital - Analyst
Kenny Reiner
Julie Burke
Oppenheimer Funds - Analyst
Ken Weights
WC Capital - Analyst
Lee Stever
Drew Figdor
Tiedemann Investment Group - Analyst
PRESENTATION
Chuck Triano - Pfizer - VP, Corporate Client Services
Good afternoon, everybody, and thanks for joining us on short notice. I'm Chuck
Triano from Pfizer Investor Relations, and management team Martin Mackay, Head
of R&D. To his left, Ian Read, Head of Pharmaceuticals; to his left, Jeff
Kindler, Chairman and CEO; Frank D'Amelio, CFO and Rick Passov, Treasurer.
We'll go through a couple of slides today. And for those of you listening on the
webcast, the slides are available on our website, Pfizer.com. They are just a
small subset of the same slides actually we used upon yesterday's conference
call. I would also add
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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for everybody here formal Safe Harbor remarks that there will be forward-looking
statements, and certainly actual events may differ.
With that, I'd asked Jeff to give a few opening remarks here, and then we'll
turn it to some of the others on the dais to get some brief remarks, but mainly
here to answer your questions.
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Jeff Kindler - Pfizer - Chairman and CEO
Thanks, Chuck and good afternoon, everybody. The last time I was sitting at a
table like this in a room like this was my Bar Mitzvah, and on that occasion,
people were handing me envelopes with money in it. And on this occasion, that's
not quite what's happening. Anyway, thank you all for joining us. I'm just going
to make a couple of opening comments. But as Chuck said, we're really interested
more in hearing from you, and Frank will take you through some additional
information. And then, I'm going to ask Martin and Ian.
Let me start by saying that to state the obvious, an acquisition should be in
pursuit of a strategy. An acquisition is not a strategy. And what we've been
doing here, just to give you a little background, is that when this management
team came in at the end of 2006, and then particularly after the torcetrapib
issue in early December of that year, we've been focused on two things above
everything else.
One was to strengthen the Company in a variety of ways to position us in order
to be able to pursue all the strategies we wanted to pursue as successfully as
we can. And I went through that to some extent on the call yesterday. I won't
elaborate on it, other than to say that I think in two years, we made very
significant progress in strengthening the Company so that we were able to take
actions along these lines. And second of all, to identify what kind of Company
we wanted to be that we thought would be most successful in the future operating
environment, both in general and with regard to healthcare in particular.
And so, we went through with our Board and internally -- a lot of thinking about
that. And independent of any business development decisions or acquisition
opportunities, we identified six strategies that we thought were critical to
pursue in order to create the kind of Company that we thought could win and be
successful going forward in this sector. And you've heard me talk about those,
so I'll just tick them off to refresh you.
The first was to focus both our inline and even more so our pipeline investments
in those disease areas where we believe we could invest to win because they had
three characteristics. One, they represented a significant unmet medical need.
Two, there was evidence that the science held promise that we could achieve
success or improve people's lives in that area. And three, and this was
important, there was some reason to believe Pfizer could succeed because there
were disease areas, quite frankly, that met the first two criteria but in which
Pfizer had not been successful for whatever reason.
And so, we embarked on -- quite new for us as a Company process, but also
somewhat difficult, process of going through each and every compound, program,
and project in our portfolio, each and every site, each and every part of our
research organization, to decide where we wanted to invest and where it was time
to either exit or find some alternative approach.
And as a result of that effort, which is ongoing by the way, this is not a
one-shot deal, this is a dynamic portfolio. We significantly narrowed, but at
the same time strengthened, our focus on these invest to win disease areas. So,
that was the first thing, and I think in many ways the most important, the
recognition that we needed to do what we could be successful at and do best and
not try to do all things for all people.
The second was that we wanted to become a leader in biotherapeutics and
vaccines, an area that we had, like many others, identified as holding out great
promise from the perspective both of science and patients, but also growth
opportunities for our shareholders, and areas in which we felt we had
significant opportunities to do better in.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Third, we felt that we had, and we do feel that we have today, a significant
advantage in emerging markets. The high-growth areas of the world where there
are millions of people suffering unmet medical needs, and where we believe our
scale, our reach, our historical presence, our relationship with decision makers
and policy makers, our reputation, and our brand combines to put us in a
position for success that we think is second to none in just about every
important developing and developed country in the world. But we thought there
was greater opportunity there, as well.
Next, we wanted to expand our opportunities in established products. That is,
products that had gone off patent or perhaps never had patent protection, but
which represents a multi-billion dollar business and portfolio, but which quite
frankly had not been the focus of a lot of management attention in the past for
historical reasons, but which happens to be the single fastest growing part of
the biopharmaceutical sector of any around the world. Again, enormous
opportunity that we thought could be further exploited, an area where there's
enormous growth ahead and our share was relatively modest. And we thought we
could do much better.
And next, we said we wanted to invest in complementary businesses. This was the
fifth of the sixth strategic priorities we identified. And we were careful to
articulate that complementary didn't mean that we were going to go into all
kinds of businesses that we had no particular expertise and competence in, but
businesses that were closely adjacent to our core competencies, our core and
fundamental mission of applying innovative science to improve world health, and
areas where we thought we could add something and create value.
And then sixth, we wanted to continue the ongoing project of creating a lower,
more flexible cross space. So, those were the six strategies that we identified
and articulated for you and other stakeholders and set about pursuing. And as we
considered ways to accelerate these various strategies, there came a point in
time where it became very clear that we had a unique opportunity in a single
transaction to advance each and every one of these six strategies in a very
meaningful way, while at the same time addressing the significant challenge of
Lipitor's loss of exclusivity in 2012.
And that is what led us to where we are today. And we're very excited about the
opportunity this presents across a number of dimensions. And Chuck, if you could
pull up that one slide I wanted to show. This is one of the slides from
yesterday's call, and it's the only one I want to reference right now because I
think on one page -- I'd like to hope that this one page provides you with a
picture of all of the elements that, in my judgment, make this deal very unique
and very powerful.
And I won't go through and read the slide, but just from a top line basis it, on
the one -- in one transaction establishes preeminence across human, animal, and
consumer health. We will be -- we are now, but we'll continue to be the number
one primary care company in the world. We will be the number two specialty care
company in the world, the number three or four, depending on how you look at it,
biotech company in the world, and the number four vaccines company in the world,
and the number one animal health company in the world. We will be the leader in
just about every single market in which we compete.
We also believe that the business model that we've taken pains to create, which
is really representative of an entirely different paradigm in at least our
business and has already shown a lot of signs of potential for helping us run a
very, very large complex business in a way that remains close to science and the
customers and has many of the elements of agility and speed that you look for in
smaller enterprises.
That business model, which you've heard us talk about, and we can certainly get
into more if you're interested, allows us to scale up much more readily and
effectively than perhaps we've done in the past. And I think this is a very
important characteristic of this deal, and that may differentiate it from prior
deals.
This is not a case of simply taking one big monolithic company with a fairly
narrow focus on, let's say, primary care, chronic care, and a few large
blockbusters, and then putting another one on top of that. This is a case of
having created a business model with six strong but diverse business units, each
lead -- led by a world class business leader with full authority and the
accountability for his or her business, and then introducing into that structure
in a focused and intelligent way, additional assets that the combination brings
us.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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This approach will enable us to conclude integration, I believe, in a much
faster, more effective, and less disruptive way. Although any integration has
disruption and risk, this will allow us to do that much more effectively. And it
will allow us to run the business at this much larger scale in a more effective
way.
And going down to the second line there and on the left, we believe that this
diversified portfolio of businesses and the ability that it gives us to continue
to make progress on our established -- on our lower, more flexible cost base
will improve both our top line and our bottom line performance as we move
forward.
And finally and ultimately, I think the ultimate mission of the Company is that
this range of businesses, the people that it will attract, the ability to meet
stakeholder needs across the world, will put us in a position, I think, pretty
much unique in healthcare of meeting stakeholder needs and ultimately improving
patient health. And as I said at the outset, we have done this transaction not
because a transaction is a strategy, but because it perfectly achieves and
advances the six strategies we had identified for success.
So with that framing of at least the way I think about this deal, I'd like to
turn it over to Frank, who will take you through some numbers and give you some
more colored commentary around some aspects of the deal. And then, I'm going to
ask Martin and Ian to give you their thoughts.
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Frank D'Amelio - Pfizer - CFO
Good afternoon, everybody. Good afternoon, everybody. So, what I'll do is just
quickly run through a few of the charts that I ran through yesterday, just hit a
couple of highlights and maybe make a couple of additional clarifications based
on some of the questions that I've been getting in some meetings.
So, this first chart is the '09 Financial Guidance Chart that I presented on
yesterday's call. And the items to point out, because I'll give some more detail
in the next chart, the revenue number $44 billion to $46 billion, the adjusted
diluted EPS number at $1.85 to $1.95, and the effective tax rate at
approximately 30%, and I'll talk to that. And obviously, we talked about the
dividend going to $0.16 per quarter. Next chart, please.
So, all this chart was intended to do was to provide a bridge from '08 actuals
to the '09 guidance. So, let me spend a minute or two on that. So on the revenue
number, in 2008 we printed a number of about $48.4 billion. And you can see here
$44 billion to $46 billion, and $3 billion is a negative impact of foreign
exchange.
So, if you look at the rates when we announced earnings, so basically the day
before the current rate, and you compare that to what the '08 average actual
rates were, foreign exchange would adversely affect our revenues year-over-year
by $3 billion. If we didn't have that foreign exchange effect, the $44 billion
to $46 billion would go up by $3 billion, and we'd be at $47 billion to $49
billion. And if you chose to use the midpoint, not that you would, but if you
chose to, we'd be roughly flat year-over-year.
The other thing I mentioned in that range is we gave that number a haircut. I
mentioned this on the earnings call yesterday. And I've been getting asked,
"Frank, can you quantify what a haircut means?" And a haircut means low single
digits on a percentage basis off of the '08 actual number, and I thought a
haircut would translate to low single digits. But think low single digits, all
right, so haircut is one, two, three, four, based on the macroeconomic
conditions.
Then, on the earnings per share, we have that number at $1.85 to $1.95. And
then, you see the other three items that basically drove that. And let's frame
the numbers again. In 2008, we printed $2.42 a share on an adjusted basis. We're
showing here $1.85 to $1.95, so there's the $0.21 due to FX, which I just
referenced, which was the $3 billion on the top line. Another $0.21 on -- due to
the effective tax rate. I'll come back to that in a minute. Pension expense
going up to the tune of $0.04 a year, and then lower other income -- lower
interest income to the tune of $0.04.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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On the tax rate, that's based on taking the tax rate from what is 22% in 2008 to
30% in 2009. And one question I've been getting asked is, "Frank, would you have
been taking that rate up to 30% if you were not doing the transaction with
Wyeth?" I didn't cover this on the call yesterday. The answer is no. We would
not be taking the rate up to 30% if we weren't doing the transaction with Wyeth.
Okay. I'll just quickly run through some of the deal terms, very quickly in
terms of financial terms. You all see the purchase price. It was currently
valued when we announced yesterday of $50.19, $33.00 a share in cash. On the
equity, it was $17.19 per share, and that was based on our closing price on
Friday at $17.45 times 0.985 exchange ratio.
The funding is a combination of cash, debt, and equity. Pfizer shareowners will
own 84% of the new Company. We expect the deal to be accretive in the second
full year following close. So, if the deal closes as we expect in Q3 or Q4 of
this year, we expect accretion in 2011. And then finally, as I said, we expect
the deal to close in Q3 or Q4 of this year.
In terms of how we're funding the transaction, and I'm on the next chart, think
about it as kind of three different pieces to the funding. There's cash of $22.5
billion, debt of $22.5 billion, Pfizer's stock of $23 billion for a total
transaction value of $68 billion. We listed on here, and with the banks -- who
the banks are that are involved in the $22.5 billion of debt.
And then, we laid out what we believe the anticipated credit ratings would be.
And you saw Moody's and S&P issue releases yesterday that pretty much confirmed
these in terms of what they were projecting at close. Please understand these
ratings are notches above on what's required in the financing, and we can get
into that if you'd like in the Q&A.
And then, the last chart I'll talk about quickly is just the targets we put out
for 2012 in terms of revenues being comparable to 2008. Think about that as our
$48 billion and change. In Wyeth, it's $22 billion. Operating margins in the
high 30%s to low 40%s. Adjusted diluted EPS comparable to the '08 number.
I alluded to the $2.42 a share. Operating cash flow is at a $20 billion plus a
year. Cash position being net positive, and we can get into this in some detail
if you'd like in the Q&A. And then, no product being projected to be more than
10% of our overall revenues. Where today, for example, if you look at Pfizer
revenues, Lipitor is about 25% of the revenues, give or take about a quarter of
our revenues.
That's -- those are just quickly my comments, Jeff.
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Jeff Kindler - Pfizer - Chairman and CEO
Thanks, Frank. And what I'd like to do before we get to the questions is ask
first Ian and then Martin to share a little bit more for you about how we're
thinking about the opportunities in the Company. I want to say that we have put
out no revenue synergies assumptions because I think it's not prudent to do that
until you actually achieve them. But having said that, we do think there are
tremendous opportunities, both in the pipeline and in the inline products to --
whereby the combination of the two companies can advance growth in these
businesses.
And I thought it would be useful for you to get a little thinking about that
first from -- who's going to go first? Martin or Ian?
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Ian Read - Pfizer - Head, Pharmaceuticals
I'll go first. So, these opportunities are just the beginning. We just -- we
started working with Wyeth management, and I'm sure as we get into the
organization we'll see lots of different opportunities that we can leverage. But
I'll start with -- I'll come at it from the point of view of animal health,
where we're already number one. We've got a $3 billion business. They have a $1
billion plus business. We put that together. We have the infrastructure, both in
the US and internationally, in livestock and in companion animals.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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What we're missing is vaccines. They complement that perfectly. They have the
[Psychovert] virus. They have the Bluetongue. They have West Nile. They have a
great research capability in vaccines, so it'll make our animal health business
a real powerhouse. I think you can look at the growth from animal health over
the next few years comparable to what you'd think of a launch of a
pharmaceutical NCE. So, that's one sort of hidden jewel, I think, when you look
at the strength it gives us in animal health.
And then, what's happening, I believe, is that the center of gravity for
pharmaceutical market is moving out of the United States. Certainly over the
next decade, it will do, as you have huge populations in Asia and emerging
markets that have purchasing power to buy out of pocket.
We have huge infrastructure there. We've been there. Wyeth has [not a dated]
structure. We have contacts with the customers, with the positions. We have
public policy. We have corporate outreach. We have been there a long time. We
will be able to leverage their product portfolio far better in those markets,
Turkey, China, Korea, Russia, Latin America. And I think it's a real opportunity
for percentages in revenue.
For instance, take Prevnar, which is Prevnar-13, where in China it's virtually
untouched. It's a mainly done vaccination through the equivalent of the CDC in
large clinical centers. They have no outreach to pediatricians. We have that
infrastructure. We have both the outreach to governments to make -- to ensure
vaccination occurs, and we have sort of the feet on the street to make sure that
these vaccinations occur through the pediatricians. Huge opportunity with the --
with that.
On the adult side, I mean, we have the infrastructure to leverage the adult
indication, both in the States and internationally. And that, I think, is an
underappreciated opportunity as we get into the adult area for vaccines.
Leveraging their pharma care access, leveraging the Alzheimer's segment as it
comes through or Aprela, which I think are high risk, is an underappreciated
asset in the pipeline. If approved, we will be able to leverage it far better
than Wyeth would have been on its own.
Oncology -- we have built -- we are building a premium oncology division with
really good leaders. We've got a lot of assets, good pipeline, and Wyeth has
assets, which we will leverage, I think, better in the combination than they
would have done on themselves -- by themselves. So, that's just a quick sort of
run-through.
The last thing I would mention is in inflammation. Wyeth has a great Enbrel
franchise, deep expertise, contacts with customers. They understand that market.
We have the JAK3 coming. It will allow us to leverage the JAK3 and penetrate
that market faster and better than we could have done on our own. So, I am
really excited about the opportunity that this represents for us to generate
additional revenues.
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Martin Mackay - Pfizer - Head, R&D
Well, thanks again, and good afternoon. And we're very keen to get to your
questions, so I'll keep my comments brief. Since taking this job around 15
months ago, our number one priority in R&D has been to improve productivity,
which we know within Pfizer and across the industry isn't where we want it to
be. As a first step to doing that, we said we would deliver the late-stage
portfolio. Although we're far from declaring victory in this respect, if you go
back to the beginning of 2007 where we had eight entities in Phase 3 compared to
a 26 today.
So, we've started to make real inroads in to increasing that productivity, and
pushing through that late-stage portfolio. And of course at the same time, Wyeth
were doing the exact same thing. I have enormous respect for the Wyeth R&D group
and their pipeline. I know it very well. I've had the privilege to work with
[Michael Dolston], the Wyeth Head of R&D over a number of years now. And he's a
really terrific R&D leader, so we're looking forward to working together to
integrate these R&D organizations.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Having lived through the acquisition of Warner-Lambert and Pharmacia, I know
it's tough in an R&D environment to do that. But we've learned a great deal over
that time period, and I think there's three key elements to making this a
success. The first is to be extremely decisive -- what we will work on, the
people, the sites, how we will organize, how we will structure. The second piece
is to implement that. I would say with Warner-Lambert we were two years post
close, and we were still implementing the changes we wanted to make. I'm now
looking at something closer to 30 days after close to implement the new
structure.
And then, the third piece and key to where I started is to maintain
productivity. We've allowed distractions to hurt our productivity in R&D over a
period, and that just cannot be tolerated in this reorganization. And one thing
that gives me a good feel that we can do this is last year when we moved to the
business unit structure. In the past, that would have been a perfect recipe for
missing some targets or milestones. Throughout the move to the new organization,
we did not miss a goal, did not miss a milestone, and kept at pace with the
commitments that we've made externally.
Lastly, in terms of the combination of the pipeline, I think both Jeff and Ian
alluded to this amazing [complementarity] between the pipelines, Wyeth on
excellent vaccine capabilities, excellent in biotherapeutics. I think when you
put the oncology therapeutic area, the infectious disease therapeutic area,
Alzheimer's together with our portfolio, I'm really very confident that we've
got a cracking portfolio to deliver here.
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Jeff Kindler - Pfizer - Chairman and CEO
Thank you, Martin. So, we'll open it up now for questions. Are there mics out
there, Chuck? So, if you could wait for somebody to bring a mic, and when you --
if you don't mind standing up and saying who you are and who you're with, we'll
get right into the questions. Thank you.
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QUESTIONS AND ANSWERS
Jeff Kindler - Pfizer - Chairman and CEO
There's one up here.
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Chuck Triano - Pfizer - VP, Corporate Client Services
Sam right up in front.
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Jeff Kindler - Pfizer - Chairman and CEO
Can you just hang on for the mic? It's coming.
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Sam Cullen
Sam Cullen. First in hand -- first with respect to the tax rate, as we look out
beyond 2009 where you are repatriating cash, and that might bump up the tax
rate, why have you given guidance for a 30% tax rate? That seems like a very big
bump for the going forward years.
Second, with respect to the balance sheet, can you give us some sense as to all
the lending consortium in the US? You're borrowing in US dollars. What is the
time frame over which you think you can pay that back based on US cash flows?
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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And finally, can you discuss whatever further detail there is with respect to
the breakup fee in the event that there was someone else that was interested in
Wyeth or if Wyeth's credit rating were to go below a certain level because of a
product recall or another issue?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So Martin, unless you want to take this, I'm going to try --
--------------------------------------------------------------------------------
Martin Mackay - Pfizer - Head, R&D
I think I can handle those.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
I think you could, too. So, first question on the tax rate. As I said, 22% this
past year, up to 30%. And then, your question was, "Frank, why 30% beyond '09?"
So, let me talk to that. So first, the reason we're increasing the tax rate is
to be able to repatriate more cash, and I'll call it current operational cash.
And if you look, one of the targets we put out there for 2012 was to be net
cash.
When we close the transaction, we'll have about $50 billion of debt. So, if you
look at our balance sheet today, we have $16 billion to $17 billion of debt.
We're going to add another $22.5 billion, and then we're going to add the Wyeth
debt to our balance sheet. When you add that all in, we'll have about $50
billion of debt. So, why beyond 2009 is to continue to pay that debt down. And
that's the way I think about it, to continue to pay that debt down.
In terms of the second part of the question relative to paying down the loan, my
reaction is -- kind of ties to the first question, what we're doing with the
repatriation of the cash and even the dividend cut. And I'll come back to the
dividend cut. It's freeing up the ability to generate US cash flow or free cash
flow in the US to pay down the debt level. And, quite frankly, to have some
financial flexibility to do other things if need be. So, let me just kind of
quantify the dividend cut as well, because in my mind it's all related.
At $1.28 today, we have 6.75 billion shares outstanding. That dividend
translates to $8.6 billion a year. If you look at Wyeth, they have 1.33 billion
shares outstanding and an annual dividend of above [20%]. If you do the math on
that, that's another $1.5 billion dollars. So, the two companies combined have
dividends of $10 billion.
When we take the dividend from $1.28, our dividend, to $0.64, and then you have
to add back to our 6.7 billion shares the Pfizer shares we're exchanging for the
Wyeth shares and giving it's almost one for one, that will increase our shares
to about 8 billion shares. If you take the 8 billion shares times $0.64, it's
about $5 billion. So, that dividend adjustment frees up about $5 billion a year
in US free cash flow, which will obviously help us in terms of servicing the
debt and having some flexibility to do some bolt-ons and things of that nature.
In terms of the breakup fee, it's a two-tiered breakup fee. There's a -- I'll
call it there's a first 30-day fee, and then there's a beyond 30-day fee. The
beyond 30-day fee is about 3% of the value of the transaction.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Thank you. Next question.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Jeff Kindler - Pfizer - Chairman and CEO
Right there.
--------------------------------------------------------------------------------
Steve Cappett - Merritt Capital - Analyst
Okay, [Steve Cappett], Merritt Capital. Can you hear all right?
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Yes. Just say hi.
--------------------------------------------------------------------------------
Steve Cappett - Merritt Capital - Analyst
Just wondered if you could just give us an idea of the drivers of you and your
team's compensation over the next five years?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, we have a set of objectives that we agree with the Compensation Committee
about. It's all laid out in the proxy, and clearly, we'll be including going
forward objectives closely associated with value creation of -- in connection
with this deal. You want to be more specific in --?
--------------------------------------------------------------------------------
Steve Cappett - Merritt Capital - Analyst
No, I'm -- is it driven by cash flow generation, EPS growth, sales growth --?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
We have three criteria, which are basically revenues, EPS, and cash flow --
operating cash flow. And all of us have -- the majority, I think, of our
compensation based on that. And then, we have strategic objectives on top of
those. That's all laid out, Steve, in the proxy. And I'd be happy to answer any
specific questions, but all the details of that are in the proxy.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
But those are the three metrics, and not just an income statement metric, but
the operating cash flow metric, as well.
--------------------------------------------------------------------------------
Steve Cappett - Merritt Capital - Analyst
And just one follow-up question on the tax question before. So, are you making
the assumption that all of the $22.5 billion that you're bringing back is --
there's no ability to actually buy foreign assets with foreign cash? Or does
that take that into account?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, the assumption is that is I call it, a significant amount of the $22.5
billion is coming from cash flow that's overseas, a significant amount.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Steve Cappett - Merritt Capital - Analyst
But the structure of the transaction does or does not assume a fair amount of
foreign cash being used to buy foreign assets, and therefore not --?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
The answer is no. It doesn't assume that.
--------------------------------------------------------------------------------
Steve Cappett - Merritt Capital - Analyst
Is that a possibility?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
I'd say no.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Next question?
--------------------------------------------------------------------------------
Unidentified Audience Member
Hi. Do I really have to stand up?
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
No, but just tell us who you are.
--------------------------------------------------------------------------------
Unidentified Audience Member
Okay. I'm Martha. I'm from [DeShaw].
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Hi.
--------------------------------------------------------------------------------
Unidentified Audience Member
First of all, I was just curious if we were going to get a DMA anytime soon?
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
A what?
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Unidentified Audience Member
A definitive merger agreement?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
I think it's going to be filed, as these always are, within a few days. Do you
know?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
I don't know the exact, date. No. I don't know the exact date, but within the
filing requirements.
--------------------------------------------------------------------------------
Unidentified Audience Member
Okay. Well, ask [Ked Walliter] to get a move-on. I guess my other question is --
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
He's been a little busy the last couple of days.
--------------------------------------------------------------------------------
Unidentified Audience Member
Well, I know. They do need some sleep.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Exactly.
--------------------------------------------------------------------------------
Unidentified Audience Member
I guess my other question is just regarding sort of the general structure of the
financing [for third, third], why did you end up coming to that decision? I
mean, obviously there's a significant increase in the cost of using cash because
of the repatriation tax. Does that imply that you couldn't have gotten
additional debt? Does that mean that this is sort of the ceiling? Why did you
come to this structure? And also, do you plan to syndicate any of the debt
before you close or are you going to just have a $22.5 billion bridge when you
close?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Sure. I can answer to that. Sure. So, let me answer the second question first.
The loan -- so it's five banks and $22.5 billion, $4.5 billion a bank. We laid
out who the five banks were on my charts. I won't repeat that. I won't waste
your time. They are clearly syndicating. Quite frankly, if the syndication goes
successfully, they'll have less paper by the end of the week, and then even less
paper in the next 30 days.
So, it will be syndicated. It is being syndicated, and that's a good thing for
many reasons, by the way. And please understand, when we agreed to the pricing
and the terms and conditions of the financing, part of that was to ensure that
it would be successfully syndicated. So, think of -- that was all part of the
process.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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And you understand from my perspective, given everything that's going on in the
financial world today, I don't want any one bank sitting on too much paper
because just in case they're not around, I need to be able to step in and fill
the financing void. So, successfully syndicating is part of our strategy. We put
the syndication together, and part of why we agreed to the terms and conditions
that we did. We wanted to make sure it would clear the market, and we obviously
feel confident it will. And we'll have a much better feel for that, quite
frankly, by the end of the week.
All right, so that's -- in terms of the first question, tell me what you want me
to hit on in the first part of the question?
--------------------------------------------------------------------------------
Unidentified Audience Member
Why not more debt?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Okay. So --
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Did everybody hear because --?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes, I'll repeat.
--------------------------------------------------------------------------------
Unidentified Audience Member
Why not more debt?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes, so --
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Thank you, because -- for the people on the phone.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes. So, I think in terms of how we composed the financing, there's really many
factors that went into that. I think we looked at capital structure. We looked
at credit ratings because there is, by the way, a minimum hurdle on the
financing. We can't go -- if we hit -- if we go below a certain rating and the
financing is not available. So, capital structure, which included debt, and
quite frankly EPS, what was available in the market, our own cash, what we
thought we could bring to bear in an effective way. So, it was really all those
factors that led to this.
And clearly, with our equity where it is we had a bias against equity. We feel
-- if we feel our equity value is low, so we didn't want to use too much equity
because it would have been very diluted. But if you look -- we're trading at a P
of seven. They're
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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a P of 12. So to do an equity deal would have been, quite frankly, incredibly
dilutive. So, we had to bias against equity, and then based on that and all the
other factors I just alluded to, we came up with the structure that we did.
--------------------------------------------------------------------------------
Unidentified Audience Member
Just one more follow-up, which is you listed a number of reasons for going with
the amount of debt that you did. I'd just like to drill down a little bit more
on what was available. So, let's assume that credit ratings weren't a factor,
EPS dilution wasn't a factor, whatever, could you have gotten $35 billion worth
of debt?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, I don't want to speak for the banks. You can obviously speak for the banks
themselves. The way I'll answer the question is biased because all the things
that you said not to consider I had to consider. So just to be clear, so, it's a
hypothetical question. But what I would say is there were some other banks that
I think were -- would have been interested in being in the syndicate. I think
that's the best I can do with your question.
--------------------------------------------------------------------------------
Unidentified Audience Member
Yes. That's helpful. Thank you.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Fair enough? I'm sorry, and just the proof of that, in a sense, is the
syndication process that's taken place.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
So, thank you very much. We'll start over here, and then --
--------------------------------------------------------------------------------
Bob Hottensen - Olayan - Analyst
Do you think this transaction --?
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Sir, could you just state your name?
--------------------------------------------------------------------------------
Bob Hottensen - Olayan - Analyst
Bob Hottensen with Olayan.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Thank you.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Bob Hottensen - Olayan - Analyst
Do you think this transaction puts pressure on others in the industry to combine
and merge? And then secondly, you mentioned that once the new business paradigm
is up and running, it's possible that you would do bolt-on. Do you see a certain
kind of bolt-on, just characterizing in general, that would make the most sense
given the new business model that you have?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Thanks, Bob. First, I'm not going to speculate on what other people might do.
That's for them to decide. I am very pleased that we were able to combine with
the one company that I think that, for all the reasons I said earlier, so
perfectly matches our strategy. So, in so far as there may be future activity,
there is such a thing as personal [over] advantage, and I'm very pleased we were
able to make this work.
With regard to potential bolt-ons, as we've said all along we have set forward
our strategies, the six I mentioned, and where there's opportunities to enhance
those strategies through acquisitions, as well as -- and one of those
strategies, key one, is advancing the pipeline in the disease areas I've talked
about. So, anything from research and technology opportunities through
commercial that makes sense for us over time, we're certainly always open to
look at that and be opportunistic about it as we always have.
I think you had one right here.
--------------------------------------------------------------------------------
Unidentified Audience Member
Why is the transaction subject to financing? Because when I look at the credit
statistics, and they're very strong even on the pro forma basis, and as you
pointed out, you thought other banks would be interested. So, has there been any
indication that that financing may not be there?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So in terms of the latter part of the question, the answer is no. Just kind of
no with an exclamation point. In terms of why was it subject to this credit
rating hurdle, let me give you a little of the detail on that. And then, I'll do
my best without, once again, speaking on behalf of the banks, all right.
So, the hurdle that's required, just so everyone understands, is that on
long-term paper it's A2A long term stable, stable. So, A2 is Moody's. A is S&P.
And then on the commercial paper short-term, it's A1p1 confirmed affirmed. And
once again, S&P and then Moody's and getting all the language.
So, we obviously went to the rating agencies before the announcement yesterday
to make sure they saw everything we were doing, projections on our financial
statements, our balance sheet, our cash flow, everything we were planning to do
with our financial policies, including the dividend and the tax rate, which
we've talked about in this meeting. And then, had them get back to us what they
thought the rating would be come close. And they both issued releases yesterday
that I'm sure everyone looked at.
But basically S&P was AA, I believe, on the long term paper, and Moody's was an
A1, I believe, on the long term paper. We have to go below at A2A, so we've got
multiple notches of cushing relative to the ratings. Which, by the way, we
thought we would have. But still, we went to Moody's and S&P and worked with
those folks collaboratively.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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In terms of why the banks required financing, I think quite frankly that's
easily answered. I think in terms of the banks putting risk on their balance
sheets right now, giving the environment that the banking industry is in and
what they've been through, they're just -- they're very, very cautious right now
to lending money.
--------------------------------------------------------------------------------
Unidentified Audience Member
So, is that to say that it was more the banks' request that the deal be subject
to financing, rather than Pfizer?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Oh, yes.
--------------------------------------------------------------------------------
Unidentified Company Representative
Just, if you would clarify terminology, the financing is subject to maintaining
certain credit ratings.
--------------------------------------------------------------------------------
Unidentified Company Representative
Right.
--------------------------------------------------------------------------------
Unidentified Audience Member
Okay.
--------------------------------------------------------------------------------
Unidentified Company Representative
I just wanted to make sure we're all using the same --
--------------------------------------------------------------------------------
Unidentified Audience Member
Oh, so you're saying the deal itself isn't subject to financing?
--------------------------------------------------------------------------------
Unidentified Company Representative
Well, I'll say it my way.
--------------------------------------------------------------------------------
Unidentified Audience Member
Okay.
--------------------------------------------------------------------------------
Unidentified Company Representative
The deal requires financing from the banks. The financing is subject to our not
hitting that --
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Unidentified Audience Member
Understood. Okay.
--------------------------------------------------------------------------------
Unidentified Company Representative
That's the way -- it's just very simple.
--------------------------------------------------------------------------------
Unidentified Audience Member
Got it.
--------------------------------------------------------------------------------
Unidentified Company Representative
So, let me say it in my way. I didn't suggest this to the banks. Does that help
you?
--------------------------------------------------------------------------------
Unidentified Audience Member
Yes. One last follow-up with the banks --
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
I'm sorry. One other thing. If we had tried to do a transaction like this eight
months ago, this would have never been a conversation. You understand my balance
sheet hasn't changed any from eight months ago, so this isn't something that
changed with Pfizer. This is something that changed outside of Pfizer, and it's
really what's going on in the banking world right now, as you all know.
--------------------------------------------------------------------------------
Unidentified Audience Member
And then, the releases from Moody's and S&P yesterday, for these are the
ratings, AA, A1, if the deal closes as contemplated. What exactly does that
mean? Does that take into consideration any of the vestitures that may need to
happen? Or is it just combining the companies today, taking into consideration
the synergies that the companies have proposed, and slapping on a rating?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes, I think, and once again I don't want to speak for them, but I think it's
based on the plans that we laid out for them between now and close. And for
example, two of the items in that were the tax rate and the dividend policy.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
And no divestitures were contemplated in that plan.
--------------------------------------------------------------------------------
Unidentified Audience Member
Right. Okay.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Jeff Kindler - Pfizer - Chairman and CEO
Was that helpful?
--------------------------------------------------------------------------------
Unidentified Audience Member
Yes.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Okay. Thank you. Let's see. Over here, yes.
--------------------------------------------------------------------------------
Carl Schecter - Diamondback Capital Corp. - Analyst
Hi. It's [Carl Schecter], Diamondback Capital Corp. You described the product
set as very complementary. I'm just wondering on the antitrust front, are you
guys hesitating any divestitures and to the extent that you are, does your
agreement have any revenue caps or are there limitations on your willingness to
do that? And then secondly, as far as venues beyond the US and the EU, other
countries such as China have newly-adopted antitrust regimens. Aren't you going
to have to go through a Chinese and other antitrust reviews? Thank you.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
So, number one, we think there's minimal overlap. And obviously, we'll work
collaboratively with the relevant regulatory agencies, but we do not anticipate
any significant issues. The agreement does provide for a required -- an amount
by which you have to divest and still proceed, and I don't even remember what
that is. Do you?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
It's -- the hurdle? In terms of -- I think it's $3 billion. In fact, I know it's
$3 billion.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
And -- but we don't see a significant amount of overlap. And then, with regard
to other regulatory authorities, including China, yes, we will obviously get
approval wherever we have to get approval. We've done this before. We've done it
often, our people are really good at it. And they have good working relations
with regulatory authorities, and I'm not overly concerned about this issue.
Here's one right here in the middle.
--------------------------------------------------------------------------------
Marshall Gordon - ClearBridge Advisors - Analyst
Hi. I'm Marshall Gordon from ClearBridge Advisors. I have two questions. First
of all, if you look at this free consensus for the combined companies, the
revenues are roughly sort of $65 billion, $66 billion in 2012. You guys have, I
think, roughly $70 billion. What's the $4 billion difference? And number two, in
terms of the cash portion, are you going to have any one-time tax items to bring
back, say, $20 billion? Or is all of that taken care of in the permanent raise
in the tax rate to 30%?
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Frank D'Amelio - Pfizer - CFO
So, I'll let Ian help on the revenue piece. Ian, if that's okay.
--------------------------------------------------------------------------------
Ian Read - Pfizer - Head, Pharmaceuticals
Yes.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So if you look at Street consensus for 2012, they've got us at about $43
billion, $44 billion. And then, Wyeth at about $23 billion. So, to just
punctuate your number, that's how you get to the $66 billion, $67 billion,
right, versus the $70 billion we put out there.
So, let me take a couple of shots at this, and then Ian will jump in. We see
lots of opportunities, quite frankly, to generate new sources of revenue that we
don't believe are in The Street's numbers. Well, one of the examples I always
use with them -- with you all is if you look at Asia Pacific, you take out
Japan, Australia, and New Zealand, that's a $50 billion addressable market for
us today. We have 4% share of that market.
So, 4% of $50 billion is $2 billion. We see that market growing between now and
2012 to $80 billion. If we just kept our 4% share on $80 billion, that's $3.2
billion. That's $1.2 billion of incremental revenue. If we can grow share, say
grow it from 4% to 6%, that's $4.8 billion on $2 billion. That's almost $3
billion of incremental revenue.
Now, the question becomes why do we think we can do that? The answer is we
believe we can execute and do that because of our infrastructure, our field
force, our capabilities, our relationships in these countries, in these regions.
We've been there a long time. We know key opinion leaders. We have good
relationships with the governments. Ian'll keep me honest on these numbers. In
China alone, I believe we have almost 2,000 sales reps, about 1,800 or so. I
mean, we've been working on this proactively as a strategy now for a while, and
we think all of that capability gives us the ability to win in the execution
game.
But that's one example in one market where if we just go from 4% to 6%, and ride
the wave with the market increase, there's $3 billion of incremental money --
incremental revenue. And in terms of what's in models and what's not in models,
I'm not here to talk about that. But what I am here to talk about is what we see
as incremental opportunities for our business. That's one alone that's $3
billion.
Ian, you want to add something?
--------------------------------------------------------------------------------
Ian Read - Pfizer - Head, Pharmaceuticals
I think you articulated it well, Frank. I think it's great to cross all of these
sort of lines of revenue generation. It comes from what we see in emerging
markets in our established products. Established products, as Jeff said, are
post LOE, it's a $250 billion market today. It will be a $500 billion market by
the end of '12. Our share in there right now is about 20.5%, so we've got to
focus business units, make sure we maintain, at minimum, our share in that
market as a gross.
So, I think that there are opportunities there. I mean, there are the new
products we probably are [slightly more voice] then The Street animal health.
Just talked about the huge opportunities there. Nutritionals, consumer, so I
think the gap between the models and ours is reasonably small. When you look at
it, you look at the opportunities that we have to leverage the business.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Frank D'Amelio - Pfizer - CFO
And then, on the tax question, and I think I understand the question correctly,
in terms of how we're financing it and the cash we're bringing back, there's a
portion of the cash we're bringing back where there will not be an income
statement hit, not a book hit, where we've already charges to the income
statement through deferred tax liabilities. So, there'll be a cash hit, but not
a book hit relative to earnings. And then, there's obviously a portion that we
will bring back that will impact the P&L, and that's basically what's driving
the 30%.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Okay, I think there's somebody over here who's been very patient. Could you
bring the mic over there? Thank you.
--------------------------------------------------------------------------------
Asaad Raman - Mason Capital - Analyst
It's Asaad Raman from Mason Capital. I was wondering, going back to the debt,
what is the cost of debt that the banks have agreed to? And is that something
which is open to revision if circumstances change?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, I got asked this question on the earnings call yesterday, and someone asked
me -- I said it was market rates, and obviously I didn't get away with that. So,
someone asked me, "Frank, does market rates mean it's about 7% to 9%?" And I
said that I wouldn't dispute that. So, quite frankly, the rates we're paying are
in that range. Not above that range, in that range.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Okay, back there. Way back. Do you mind standing up just so I can see you? Thank
you.
--------------------------------------------------------------------------------
Unidentified Audience Member
With the new administration and the new Congress, are you at all concerned over
the coming year any changes that might be proposed? And have you in the contract
carved out those changes, whether you're concerned or not?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, obviously we always pay a great deal of attention to what goes on in
Washington and in other capitols that govern our business. I have to tell you. I
put a tremendous amount of personal time into this in the last year or so, and
I'm actually fairly optimistic that the kinds of changes that are likely to be
adopted will on balance be good for -- certainly good for patients and good for
the country, and ultimately, I think good for us as well.
I'm very encouraged by the consensus that's forming around certain fundamental
issues, such as the fact that in this country today, we're spending $0.03 of
every dollar on prevention and wellness, and there's an obvious consensus that
that's exactly backwards. And the more focus there is on prevention and wellness
and early treatment and early diagnosis, the better it is obviously for
patients.
It's also better in terms of costs, and ultimately it's better for us because we
play a very significant role in prevention and wellness. And actually, some of
these additional businesses we're acquiring as a result of Wyeth contribute to
that, like the nutritionals business, for example.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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So, I actually think that obviously there are always potential challenges
presented by government policies, but some of the ones that people have been
most concerned about historically I don't think -- frankly, I don't see as being
on the table. There's nobody in a responsible position that I am aware of that's
advocating the single payer system. There's nobody that's advocating price
controls.
Obviously, there'll be some debate about the non-interference clause in
Medicare, but I think that ultimately my guess is that it's very likely that
we'll take on this issue in a comprehensive way, as opposed to single subject
legislation. And when we do, it will be done in a way that I think is quite
balanced. And we've been gratified at the fact that we have been well-heard. We
feel that our views are being considered. It doesn't mean that everything that
necessarily we would want to see happen will. Everybody's going to be
compromising.
But there's a real serious sense of purpose that I've seen. And of course, we're
talking about politics, so I don't know whether it will last. But at the moment,
at least, there's a seriousness of purpose on both sides of the aisle to getting
something done in a thoughtful way.
And if you talk to some of the people in the Obama administration, they are
acutely aware of why prior efforts, particularly in the early Clinton
administration, were not successful. And one of the reasons that they weren't
was because all the stakeholders weren't at the table. Today, there's an
absolute openness and willingness on the part of all the policy makers, both in
the administration on both sides of Capitol Hill to encourage participation and
expertise and input from people like ourselves.
And again, I don't mean to suggest that we get everything we want or that there
won't be things that we don't like, but I'm really quite optimistic that on
balance, we'll have a very thoughtful and positive comprehensive healthcare
policy approach. And as far as it pertains to the deal, there's risks in any
business, environmental risks, operational risks, macroeconomic risks -- and we
do our best, and I believe Wyeth does as well, to model that into our
projections and to put sensitivities where it's prudent to do so.
Frank mentioned earlier that the '09 guidance that we provided reflects -- I
think the word he used was a haircut of -- what did you say? A couple of points
to account for the macroeconomic conditions that we're expecting to see in 2009.
And so, we're always prudent about things like that, and I think that's
well-considered in all these models.
Go ahead. You have a follow-up?
--------------------------------------------------------------------------------
Marshall Gordon - ClearBridge Advisors - Analyst
But just on the contract itself, are legislative changes or proposals carved out
as a material adverse change?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
No, no, no. There's no provision in the contract that would result in an out
based on legislative changes. There are the classic material adverse change
provisions that you see in any merger agreement, and I suppose one could conjure
up certain circumstances in the legislative environment that could create such
an event. But there's no specific provisions conditioned on legislative
activities. Does that answer your question?
--------------------------------------------------------------------------------
Marshall Gordon - ClearBridge Advisors - Analyst
Right. I guess I was looking at it from the other way, that it's not carved out,
saying that legislative provisions are carved out as a material adverse change.
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Jeff Kindler - Pfizer - Chairman and CEO
No. They're not. I hope I'm clear.
--------------------------------------------------------------------------------
Marshall Gordon - ClearBridge Advisors - Analyst
Okay. Thank you.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Okay.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
They're not -- if you're asking are they separately carved out --
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
No. They are not.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes, the answer is they are not.
--------------------------------------------------------------------------------
Unidentified Audience Member
(inaudible question - microphone inaccessible)
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Right, correct.
--------------------------------------------------------------------------------
Unidentified Company Representative
Over there, please?
--------------------------------------------------------------------------------
Kenny Reiner
Hi. It's [Kenny Reiner] with two questions, please. Firstly, if we do come
across this credit downgrade to where we've reached the credit downgrade, or
what are the requirements to fix the problem? What kind of best efforts language
in the merger agreement might there be?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, the answer is we can cure. The financing is available to a certain period.
We have the ability to cure through that period.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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--------------------------------------------------------------------------------
Kenny Reiner
Cure in which way?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
In terms of getting the rating back to the minimum level.
--------------------------------------------------------------------------------
Kenny Reiner
Can you be more specific at all?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
No.
--------------------------------------------------------------------------------
Unidentified Company Representative
I'm sorry?
--------------------------------------------------------------------------------
Kenny Reiner
Any more specifics on --?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, let me suggest -- the details of this are laid out in the merger
agreement, but I think what's important to understand is we have the ability
under the agreement within a reasonable time frame to address issues of that
nature should they occur and secure them.
--------------------------------------------------------------------------------
Kenny Reiner
Thank you. Second question. You mentioned the after 30-day break -- after 30-day
fee. What's the pre 30-day?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, the 30-day fee is $1.5 billion, and then after 30 days, it's 3%.
--------------------------------------------------------------------------------
Kenny Reiner
Thank you.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
You're welcome.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Chuck Triano - Pfizer - VP, Corporate Client Services
Okay. Back there, please?
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Hi. It's Julie Burke from Oppenheimer Funds.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Julie, could you just --
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
You want me to stand up?
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Just so I can see where you are. I just --
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Okay, I'm right here.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
-- like to look at somebody when I'm talking to them. Thank you.
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Can you talk about the leverage ability of the two manufacturing bases? That's
the first question. And then, the second question is when you look at the large
deals that you've done in the past, what -- Pharmacia or Warner-Lambert, what
percent of the total SG&A and R&D were eliminated or [eliminatable]?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, let's see. On the manufacturing, I think the best way to answer that
question is we think there's clearly opportunities for synergies but also for
leverage. And let me see if I can answer this question, which is they have the
grand castle biologics operation in Ireland. We were actually thinking of
building a very large manufacturing capability for biologics, which we believe
we will not have to do now because of their operation and their current
capability.
That in and of itself is a significant opportunity for us from a cash
perspective and from a cost avoidance perspective. So, we see opportunities like
that clearly -- the leverage --
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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Ian Read - Pfizer - Head, Pharmaceuticals
Or if we do, we'll make it complementary to leverage.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Right, absolutely. So, we clearly see opportunities there. What was the second
part of the question?
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
If you look at Pharmacia or Warner-Lambert, just other large deals, and this
one'll presumably be different, but what percent of the SG&A or R&D was either
eliminated or eliminatable?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Just bear with me. I'm running numbers in my head.
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Okay.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, what we did is -- let me -- I want to bump it up a level, and then I'll
answer the question. So, when we looked at the synergies here for this
transaction, we looked at them in three ways, just in terms of how we thought
about this. One was we looked at them in terms of what we had done with the
Pharmacia acquisition. One was what was done with Market Comps, and not just the
deal that we did with Pharmacia, but the other deals that were done in the
industry. And then, we also looked at our own pro forma financials. So, we came
at them in those three ways.
If you look at the synergies we talked about yesterday, we said $4 billion in
synergies for the combined Company, and then we laid it out 50% was SG&A and the
other half was R&D and manufacturing. Those percentages are what I'm going to
call consistent with what we had done with Pharmacia, but also blending in other
deals and, by the way, some of the differences in this transaction. I want to
spend a minute or two on that. Which is, if you look at this transaction -- and
bless you.
If you look at this transaction, there's certain parts where there won't be a
lot of synergies because we're not in that business. So, if you look at
consumers and nutritionals, for example. That'll be one area. Vaccines,
biologics -- there's many other parts where there's lots of synergy
opportunities. That was all blended in to the numbers that we printed yesterday.
The reason I'm calling that out is it's not a straight compare because it's not
a straight -- it's not an identical transaction. But we use that as one of the
factors determining the synergies. And then obviously, we went through this when
we did Diligence. We obviously confirmed our assumptions, learned certain
things, and all that was factored into the numbers that we printed yesterday for
you all.
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Okay, so it's going to be -- part of it's going to be the same, and part of it's
going to be different? Is that what you're saying?
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes, and like I said, and hopefully I explained why that is.
--------------------------------------------------------------------------------
Julie Burke - Oppenheimer Funds - Analyst
Okay. Great. Thanks.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
You're welcome.
--------------------------------------------------------------------------------
Unidentified Company Representative
Here please?
--------------------------------------------------------------------------------
Unidentified Company Representative
Oh, I'm sorry, go ahead. (inaudible)
--------------------------------------------------------------------------------
Unidentified Audience Member
During the call, you were using the end of the third quarter as a closing date.
It seems like antitrust would be the gating issue. Can you talk a little bit
about the antitrust issues and why you're leaving eight months to close the
deal, given that's longer than other large deals?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, yes, actually I don't believe that antitrust is the reason for that
timeframe. And I believe you said end of the third quarter or in the fourth
quarter -- and I'll let you elaborate on why that time [frame], but as far as
antitrust is concerned as I was suggesting earlier, we see very little overlap,
and we do not see any major issues in that regard. It is a time-consuming
process. And as an earlier questioner pointed out, you had many sovereignties to
deal with. But that is not really the driver behind the time frame.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
No, in fact it's really nothing more than what Jeff just said. It's basically
February already. This is a very large transaction with lots to do, and end of
third quarter, fourth quarter, seems like just a prudent date. What we don't
want to do is give you a date and miss it. We want to make sure we give you a
date and meet it. So, that's what we did.
--------------------------------------------------------------------------------
Unidentified Company Representative
Okay. Over here.
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ken Weights - WC Capital - Analyst
Hi, [Ken Weights], WC Capital. In regards to the financing, is it -- a couple of
questions. Is it in the form of a definitive document or is it a commitment
letter? Also, I think you alluded to this before, but if one of the banks, given
the credit environment, failed, would the other banks have to step up or would
that be on your watch to fill that?
And also, is there any type of market MAC provision in the debt agreement saying
that if general market conditions change, the banks can get out? And then, my
other question is in terms of looking at the deal, is there any sort of pipeline
drugs or other products in Wyeth's pipeline that if it didn't get approval or if
it sort of fell by the wayside, that it would cause you to take a step back and
question whether or not you still wanted to go forward with the deal?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, on the first question, it's in the [mid-letters]. On -- if a bank fails, do
the banks have to step up? The answer is no. So, I want to be crystal clear. The
answer to that is no. But remember what I said maybe earlier in the -- very
early in the Q&A with I think it was Martha here, where one of things that's
going on is that banks are syndicating this loan as we speak.
So, where when we announced the deal yesterday, each bank had $4.5 billion,
we're hopeful that by the end of the week, they have -- I don't know, a third of
that. Within 30 days, they have a third of that, so that nobody would be sitting
on more than $1.5 billion, $2 billion of this paper within 30 days. So, if a
bank were to not be available, we believe we could solve that problem. So,
that's how I'd answer the second part of the question. And then in terms of the
market MAC, no. The banks do not have a market MAC in this financing.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
And there's no pipeline drug that is one that would change our view of the deal,
the economics, or the strategic value of it. In fact, to the contrary. Our whole
thinking is around the importance of creating a Company that is not dependent on
either a single inline product, a la Lipitor, or hopes for a single pipeline
product, a la torcetrapib. And one of the important facts about this transaction
is that by 2012, no single drug will represent more than 10% of revenues. So,
the deal is not dependent on any particular pipeline candidate.
But did you have a follow up on that?
--------------------------------------------------------------------------------
Ken Weights - WC Capital - Analyst
Yes, just a quick follow-up. In terms of the thinking about a definitive credit
document versus --
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
If I may jump in on that for a minute, I should have added in it'll be converted
to a credit agreement within about two weeks. I was answering your question as
of today. The commitment letters today are due to be converted to a credit
agreement in about two weeks.
--------------------------------------------------------------------------------
Ken Weights - WC Capital - Analyst
Thank you.
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
You're welcome. Yes? Yes, ma'am? Go ahead.
--------------------------------------------------------------------------------
Lee Stever
Hi. I'm [Lee Stever] from (inaudible) Management. Would it be right in assuming
that given that you've pulled the trigger on this transaction now, the result of
lobbying and people you know in Washington is that you don't believe the
government is going to open up the window for another tax-free repatriation of
cash?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, I don't think it's prudent to determine strategy or operate your business
based on what you hope or expect Congress may or may not do. At least that's my
point of view on that. I certainly hope that Congress will enact legislation
that will permit companies to repatriate funds and establish a tax policy that
would create greater incentives to invest in the United States.
But -- and there's certainly discussions about that going on, and I intend to
continue, and Frank will, to advance that point of view. But the transaction and
anything else we do in our business is not a function of how we might see the
drift of a particular legislative issue in Washington at any given point in
time.
--------------------------------------------------------------------------------
Lee Stever
You could save a lot of money if you thought it --
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
I'm sorry?
--------------------------------------------------------------------------------
Lee Stever
You might save a lot of money if you [put it in imminent], but assuming you
didn't think about --
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Please, one more time. I didn't hear the question.
--------------------------------------------------------------------------------
Lee Stever
I was assuming you didn't think it was imminent. I just wanted to --
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
No, I don't think it's imminent, if that's what you're asking. Not imminent.
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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--------------------------------------------------------------------------------
Lee Stever
Right. One quick follow-up question. Am I right in assuming you're not able to
net Wyeth's ex-US cash [being for] ex-US cash in the transaction, and because of
that, you end up then acquiring back some of the cash. You're going to have to
repatriate. You will acquire kind of ex-US cash with Wyeth?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
Yes. So, Wyeth has about $14 billion to $14.5 billion of cash as of the end of
last quarter. So, part of what I'm doing is, in a sense, almost bridging myself
to the close, at which point I'll get my hands on the Wyeth cash. So, I've
clearly factored the Wyeth cash into the financing of the transaction.
So, the way to almost think about it on a high level is the cash we're using, so
the $22.5 billion, assume that's cash I'm bringing to the table, offset by the
cash I'll get from Wyeth. Then, the cash taxes I'm paying to use my cash offset
by the cash I generate between now and close. When you work through that, that's
roughly what you get. And at close, if I were to estimate how much cash we'd
have, it would be about $25 billion or so, roughly half of the debt level that I
alluded to before.
But the four pieces are basically the cash I bring to the table, offset by the
Wyeth cash, the cash I have to pay for cash taxes due to the repatriation,
offset by the operating cash I bring to the table between now and close. Those
numbers all get me to roughly that $25 billion. And if you looked at my cash
today, total cash including short and long-term investments today -- well, at
the end of last quarter. We haven't given our -- about $35 billion, $36 billion.
So, when you move those parts the way I just did, we'll land at about $25
billion at close.
--------------------------------------------------------------------------------
Unidentified Company Representative
Okay, I'm told we have time for one more. Here's one right up front.
--------------------------------------------------------------------------------
Drew Figdor - Tiedemann Investment Group - Analyst
Drew Figdor. My question to ask was just if you've got the -- were able to
repatriate -- got a bill passed where could repatriate in cash, could you
quantify what you would save versus your current plan? And then, a follow-up to
the last one, which was the $25 billion is post closing?
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Well, first -- I'm sorry. On the first question, it's hard to answer that
without knowing what the legislation says in terms of what it contemplates with
regard to tax rate differences, with regards to conditions associated, so it's
very speculative to guess what that might imply.
And I just want to reiterate that, as I said in a response to an earlier
question, it doesn't seem prudent to us to be planning or assuming that any
particular action will take place. We're running our business based on the
status quo, and if something changes, we'll address it as appropriate. But I
can't quantify what that might look like without knowing what the bill is.
--------------------------------------------------------------------------------
Drew Figdor - Tiedemann Investment Group - Analyst
I guess I was looking at the last time they did it, a couple of years ago when
they did it.
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
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--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
Yes, but again, I think one thing I -- I hesitate to make predictions, but I
would be surprised if it were done exactly the same way the next time.
--------------------------------------------------------------------------------
Drew Figdor - Tiedemann Investment Group - Analyst
Okay.
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
So, to Jeff's point, we've assumed nothing. And anything that I've said today
relative to some repatriation window opening up -- I guess the last time this
happened was part of the American Job Creations Act. The company repatriated --
I think it was like $37 billion. Of course, it was a really big number when this
happened the last time. But we're not assuming any favorable opportunity in
anything that we've talked about today. If it happens, something happens, then
we'll obviously evaluate it and see what's the prudent thing to do.
--------------------------------------------------------------------------------
Jeff Kindler - Pfizer - Chairman and CEO
And what was your second?
--------------------------------------------------------------------------------
Drew Figdor - Tiedemann Investment Group - Analyst
$25 billion is post closing the deal with cash?
--------------------------------------------------------------------------------
Frank D'Amelio - Pfizer - CFO
The answer is my estimate, post close. The answer is yes.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Okay. Thanks, everybody, for joining us today.
--------------------------------------------------------------------------------
Drew Figdor - Tiedemann Investment Group - Analyst
Thank you.
--------------------------------------------------------------------------------
Chuck Triano - Pfizer - VP, Corporate Client Services
Thank you.
--------------------------------------------------------------------------------
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Jan. 27. 2009 / 12:30PM, PFE - Pfizer Investor Luncheon
--------------------------------------------------------------------------------
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