Pfizer 2006 Annual Report Download - page 24

22 2006 Financial Report
Financial Review
Pfizer Inc and Subsidiary Companies
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for companion animal products, the continued good
performance of Revolution (a parasiticide for dogs and cats);
partially offset by:
•
a decline in U.S. Rimadyl (for treatment of pain and
inflammation associated with canine osteoarthritis and soft-
tissue orthopedic surgery) revenues due to intense branded
competition, as well as increased generic competition in the
European companion animal market.
The increase in Animal Health revenues in 2005, as compared to
2004, was attributable to:
•
for livestock products, the good performance of Excede (long
acting anti-infective) in the U.S. and Draxxin in Europe and in
the U.S., as well as Spectramast (antibiotic formulated to treat
clinical mastitis), which was launched in the U.S. in May 2005;
•
for companion animal products, increased promotional activities
throughout our markets resulted in Revolution and Clavamox
(an antibiotic for dogs and cats) growing at double-digit rates
in 2005, and the launch of Simplicef (small animal anti-infective)
in the U.S. in the fourth quarter of 2004; and
•
the favorable impact of the weakening of the U.S. dollar
relative to many foreign currencies.
Costs and Expenses
Cost of Sales
Cost of sales increased 6% in 2006 and increased 13% in 2005,
while revenues increased 2% in 2006 and decreased 3% in 2005.
Cost of sales as a percentage of revenues increased in 2006
compared to 2005 and in 2005 compared to 2004.
Cost of sales in 2006, compared to 2005, increased as a result of:
•
higher costs of $268 million related to our AtS productivity
initiative;
•
the timing of implementation of inventory management
initiatives;
•
the unfavorable impact on expenses of foreign exchange; and
•
charges related to certain inventory and manufacturing
equipment write-downs,
partially offset by:
•
changes in sales mix;
•
operational efficiencies, reflecting savings related to our AtS
productivity initiative; and
•
$73 million in write-offs of inventory and exit costs in 2005
related to suspension of sales and marketing of Bextra.
Cost of sales in 2005, compared to 2004, increased as a result of:
•
unfavorable geographic, segment and product mix, and adverse
changes in production volume, among other factors, which
reflected the loss of U.S. exclusivity for certain of our
pharmaceutical products and the uncertainty regarding the
selective COX-2 inhibitors;
•
$124 million related to our AtS productivity initiative; and
•
$73 million in write-offs of inventory and exit costs related to
suspension of sales and marketing of Bextra.
Selling, Informational and Administrative (SI&A)
Expenses
SI&A expenses increased 2% in 2006, which reflects:
•
higher promotional investments in new product launches and
in-line product promotional programs;
•
expenses related to share-based payments; and
•
higher costs of $92 million related to our AtS productivity
initiative,
partially offset by:
•
the favorable impact on expenses of foreign exchange; and
•
savings related to our AtS productivity initiative.
SI&A expenses were flat in 2005 compared to 2004, which reflects:
•
the unfavorable impact on expenses of foreign exchange; and
•
$151 million in expenses related to our AtS productivity
initiative,
offset by:
•
an increase in acquisition-related synergies;
•
savings from our AtS productivity initiative; and
•
lower marketing expenses for our pharmaceutical products
compared to 2004, due primarily to lower spending on products
which have lost exclusivity and the withdrawal of Bextra.
Research and Development (R&D) Expenses
R&D expenses increased 5% in 2006, which reflects:
•
higher costs of $126 million related to our AtS productivity
initiative;
•
expenses related to share-based payments;
•
timing considerations associated with the advancement of
development programs for pipeline products; and
•
higher payments for intellectual property rights, discussed
below, among other factors,
partially offset by:
•
an R&D milestone due to us from sanofi-aventis (approximately
$118 million); and
•
savings related to our AtS productivity initiative.
R&D expenses decreased 3% in 2005, which reflects:
•
the initial benefits associated with the AtS productivity initiative,
partially offset by:
•
increased portfolio support; and
•
$50 million in expenses related to our AtS productivity initiative.