Pfizer 2007 Annual Report Download - page 71

18. Lease Commitments
We lease properties and equipment for use in our operations. In
addition to rent, the leases may require us to pay directly for taxes,
insurance, maintenance and other operating expenses, or to pay
higher rent when operating expenses increase. Rental expense,
net of sublease income, was $398 million in 2007, $420 million in
2006 and $410 million in 2005. This table shows future minimum
rental commitments under noncancellable operating leases as of
December 31 for the following years:
AFTER
(MILLIONS OF DOLLARS) 2008 2009 2010 2011 2012 2012
Lease commitments $212 $192 $151 $99 $76 $788
19. Insurance
Our insurance coverage reflects market conditions (including
cost and availability) existing at the time it is written, and our
decision to obtain insurance coverage or to self-insure varies
accordingly. Depending upon the cost and availability of insurance
and the nature of the risk involved, the amount of self-insurance
may be significant. The cost and availability of coverage have
resulted in our decision to self-insure certain exposures, including
product liability. If we incur substantial liabilities that are not
covered by insurance or substantially exceed insurance coverage
and that are in excess of existing accruals, there could be a
material adverse effect on our results of operations in any
particular period (see Note 20. Legal Proceedings and
Contingencies).
20. Legal Proceedings and Contingencies
We and certain of our subsidiaries are involved in various patent,
product liability, consumer, commercial, securities, environmental
and tax litigations and claims; government investigations; and
other legal proceedings that arise from time to time in the ordinary
course of our business. We do not believe any of them will have a
material adverse effect on our financial position.
Beginning in 2007 upon the adoption of a new accounting
standard, we record accruals for income tax contingencies to the
extent that we conclude that a tax position is not sustainable
under a ’more likely than not’ standard and we record our
estimate of the potential tax benefits in one tax jurisdiction that
could result from the payment of income taxes in another tax
jurisdiction when we conclude that the potential recovery is
more likely than not. (See Note 1D. Significant Accounting Policies:
New Accounting Standards and Note 8E. Taxes on Income: Tax
Contingencies.) We record accruals for all other contingencies to
the extent that we conclude their occurrence is probable and the
related damages are estimable, and we record anticipated
recoveries under existing insurance contracts when assured of
recovery. If a range of liability is probable and estimable and some
amount within the range appears to be a better estimate than any
other amount within the range, we accrue that amount. If a
range of liability is probable and estimable and no amount within
the range appears to be a better estimate than any other amount
within the range, we accrue the minimum of such probable
range. Many claims involve highly complex issues relating to
causation, label warnings, scientific evidence, actual damages
and other matters. Often these issues are subject to substantial
uncertainties and, therefore, the probability of loss and an
estimation of damages are difficult to ascertain. Consequently, we
cannot reasonably estimate the maximum potential exposure or
the range of possible loss in excess of amounts accrued for these
contingencies. These assessments can involve a series of complex
judgments about future events and can rely heavily on estimates
and assumptions (see Note 1B. Significant Accounting Policies:
Estimates and Assumptions). Our assessments are based on
estimates and assumptions that have been deemed reasonable by
management. Litigation is inherently unpredictable, and excessive
verdicts do occur. Although we believe we have substantial
defenses in these matters, we could in the future incur judgments
or enter into settlements of claims that could have a material
adverse effect on our results of operations in any particular
period.
Patent claims include challenges to the coverage and/or validity
of our patents on various products or processes. Although we
believe we have substantial defenses to these challenges with
respect to all our material patents, there can be no assurance as
to the outcome of these matters, and a loss in any of these cases
could result in a loss of patent protection for the drug at issue,
which could lead to a significant loss of sales of that drug and
could materially affect future results of operations.
Among the principal matters pending to which we are a party are
the following:
A. Patent Matters
We are involved in a number of suits relating to our U.S. patents,
the majority of which involve claims by generic drug
manufacturers that patents covering our products, processes or
dosage forms are invalid and/or do not cover the product of the
generic manufacturer. Pending suits include generic challenges to
patents covering, among other products, atorvastatin (Lipitor),
atorvastatin/amlodipine combination (Caduet), celecoxib
(Celebrex), tolterodine (Detrol and Detrol LA) and donepezil
hydrochloride (Aricept). Also, counterclaims as well as various
independent actions have been filed claiming that our assertions
of, or attempts to enforce, our patent rights with respect to
certain products constitute unfair competition and/or violations
of the antitrust laws. In addition to the challenges to the U.S.
patents on a number of our products that are discussed below,
we note that the patent rights to certain of our products, including
without limitation Lipitor and Celebrex, are being challenged in
various other countries.
Lipitor (atorvastatin)
U.S. – basic patent: In July 2007, a law firm that has represented
Ranbaxy Pharmaceuticals Inc. (Ranbaxy) in Lipitor patent litigation
filed a request for a reexamination of our basic Lipitor patent with
the U.S. Patent and Trademark Office (the Patent Office). The basic
patent, including the six-month pediatric exclusivity period,
expires in March 2010. In August 2007, the Patent Office granted
the request to reexamine the basic patent on the merits. In
January 2008, the Patent Office issued its initial official action,
rejecting the patent’s claims. We will address the issues raised by
the examiner in our response to the Patent Office. An initial
rejection of a patent is not unusual in reexamination proceedings,
and we continue to believe that the basic patent was properly
2007 Financial Report 69
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies