On August 2, 2016 Pfizer Inc. (NYSE:PFE) reported financial results for second-quarter 2016 and reaffirmed its 2016 financial guidance for Revenues and Adjusted Diluted EPS(2) (Press release, Pfizer, AUG 2, 2016, View Source [SID:1234514174]).

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On September 3, 2015, Pfizer acquired Hospira, Inc. (Hospira). Consequently, financial results for the second quarter and first six months of 2016 include legacy Hospira global operations while financial results for the second quarter and first six months of 2015 do not include any contribution from legacy Hospira operations.

The Company manages its commercial operations through two distinct businesses: Pfizer Innovative Health (IH)(3) (formerly the Innovative Products business) and Pfizer Essential Health (EH)(3)(4) (formerly the Established Products business). Financial results for each of these businesses are presented in the Operating Segment Information section of the press release located at the hyperlink below.

Some amounts in this press release may not add due to rounding. All percentages have been calculated using unrounded amounts. References to operational variances pertain to period-over-period growth rates that exclude the impact of foreign exchange as well as the negative currency impact related to Venezuela. Results for the second quarter and first six months of 2016 and 2015 are summarized below.

OVERALL RESULTS
($ in millions, except
per share amounts)
Second-Quarter
Six Months
2016

2015
Change

2016

2015
Change
Revenues $13,147 $11,853 11 %

$26,152

$22,717
15 %
Reported Net Income(1) 2,019 2,626 (23 %)
5,036
5,002 1 %
Reported Diluted EPS(1) 0.33 0.42 (21 %)
0.82
0.80 3 %
Adjusted Net Income(2) 3,901 3,525 11 %
8,056
6,721 20 %
Adjusted Diluted EPS(2) 0.64 0.56 14 %
1.30
1.07 21 %



REVENUES
($ in millions) Second-Quarter Six Months
2016 2015

% Change
2016 2015 % Change


Total
Oper. Total Oper.
Innovative Health $7,105 $6,630

7
%
9 %

$14,139
$12,368 14 % 18 %
Essential Health $6,042 $5,223

16
%
19 %

$12,013
$10,348 16 % 22 %
EH Standalone
(Excl. Legacy Hospira)
4,904 5,223

(6
%)
(3 %) 9,676 10,348 (6 %) (1 %)
Legacy Hospira 1,138 —

*

*
2,337 —
*

*
Total Company $13,147 $11,853

11
%
13 %

$26,152
$22,717 15 % 20 %

Pfizer Standalone
(Excl. Legacy Hospira)
$12,009 $11,853

1
%
4 % $ 23,815 $22,717 5 % 9 %

* Indicates calculation not meaningful.

2016 FINANCIAL GUIDANCE(5)

Pfizer’s reaffirmed 2016 financial guidance is presented below:

Revenues $51.0 to $53.0 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues 21.0% to 22.0%
Adjusted SI&A Expenses(2) $13.7 to $14.7 billion
Adjusted R&D Expenses(2) $7.4 to $7.8 billion
Adjusted Other (Income)/Deductions(2) Approximately ($500 million) of income
Effective Tax Rate on Adjusted Income(2) Approximately 24.0%
Adjusted Diluted EPS(2) $2.38 to $2.48

EXECUTIVE COMMENTARY

Ian Read, Chairman and Chief Executive Officer, stated, "Our continued sharp focus on executing against the distinct strategies for both our Innovative Health and Essential Health businesses has delivered a strong financial performance during the second quarter as well as for the first half of 2016. This performance was driven by all areas of the company, reflecting ongoing strength from our recent product launches and key in-line products, the contribution of legacy Hospira products, continued improvement in the revenue profile for our standalone Essential Health business, the advancement of our product pipeline and sound capital allocation choices.

"Furthermore, I see our product pipeline along with the assets obtained from our recent business development initiatives as positioning the Company competitively in those areas where I believe Pfizer’s strengths can generate significant shareholder value over time while also benefiting patients," Mr. Read concluded.

Frank D’Amelio, Chief Financial Officer, stated, "Overall, I am pleased with our second-quarter 2016 financial results and with our ability to continue delivering shareholder value through prudent capital allocation. We grew revenues by 4% operationally, excluding the impact of foreign exchange and legacy Hospira operations. We also continued to deliver significant value directly to shareholders by returning $8.7 billion to shareholders through dividends and share repurchases in the first half of 2016, including the completion of a $5 billion accelerated share repurchase agreement in June 2016. Additionally, we announced and completed the acquisition of Anacor Pharmaceuticals, Inc. (Anacor) in the second quarter of 2016. We also reaffirmed our 2016 financial guidance for Revenues and Adjusted Diluted EPS(2), reflecting the overall strength of our businesses and our confidence in their outlooks going forward."

QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2016 vs. Second-Quarter 2015)

Revenues totaled $13.1 billion, an increase of $1.3 billion, or 11%, which reflects operational growth of $1.6 billion, or 13%, partially offset by the unfavorable impact of foreign exchange of $302 million, or 3%. Excluding the contribution of legacy Hospira operations of $1.1 billion and foreign exchange, Pfizer-standalone revenues increased by $458 million operationally, or 4%.

Revenues in developed markets grew $1.5 billion, or 17%, operationally, driven primarily by the inclusion of $1.1 billion of revenues from legacy Hospira operations and continued strong performance of several key products, notably Ibrance in the U.S., Eliquis, as well as Xeljanz and Lyrica, both primarily in the U.S. Operational revenue growth in developed markets was partially offset primarily by lower revenues for Prevnar 13 in the U.S., the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica in certain developed Europe markets, as well as the December 31, 2015 expiration of the collaboration agreement to co-promote Rebif in the U.S.

In emerging markets, revenues increased $116 million, or 4%, operationally, reflecting the favorable impact of the addition of legacy Hospira operations, which contributed $78 million and the performance of certain Essential Health products primarily in China partially offset primarily by lower revenues for Prevenar 13.

Innovative Health Highlights

IH revenues increased 9% operationally, primarily due to continued strong momentum from Ibrance in the U.S., strong operational growth from Eliquis globally as well as Lyrica and Xeljanz, both primarily in the U.S. This growth was partially offset by the expected decline in revenues for Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining "catch up" opportunity compared to the prior-year quarter. International revenues for the pediatric indication for Prevenar 13 declined, primarily in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year quarter. Additionally, IH revenues were impacted by the expiration of the collaboration agreement to co-promote Rebif in the U.S., which expired at the end of 2015.

Essential Health Highlights

EH revenues increased 19% operationally, primarily due to the inclusion of legacy Hospira operations, which contributed $1.1 billion, partially offset by the loss of exclusivity and associated generic competition for certain Peri-LOE Products(6), primarily Zyvox in the U.S. and certain developed Europe markets as well as Lyrica in certain developed Europe markets. Revenues excluding the contribution from the legacy Hospira portfolio (EH Standalone) declined 3% operationally, reflecting a 19% operational decline from the aforementioned Peri-LOE Products portfolio, partially offset by 11% operational growth from the EH Standalone Sterile Injectable Pharmaceuticals(6) portfolio and 2% operational growth from EH Standalone Legacy Established Products(6). EH revenues in emerging markets increased 8% operationally, primarily driven by the inclusion of legacy Hospira operations and operational growth from the EH Standalone Sterile Injectable Pharmaceuticals portfolio.
GAAP Reported(1) Income Statement Highlights

SELECTED TOTAL COMPANY REPORTED COSTS AND EXPENSES(1)

($ in millions)
(Favorable)/Unfavorable
Second-Quarter Six Months
2016 2015 % Change 2016 2015 % Change
Total Oper. Total Oper.
Cost of Sales(1) $3,174 $2,180 46 % 37 % $6,026 $4,018 50 % 46 %
Percent of Revenues 24.1 % 18.4 %
N/A
N/A
23.0 % 17.7 %
N/A
N/A
SI&A Expenses(1) 3,471 3,386 2 % 5 % 6,856 6,491 6 % 9 %
R&D Expenses(1) 1,748 1,734 1 % 1 % 3,478 3,620 (4 %) (3 %)
Total $8,392 $7,301 15 % 14 % $16,359 $14,129 16 % 16 %

Effective Tax Rate(1) 15.6 % 25.6 % 15.2 % 24.3 %

The diluted weighted-average shares outstanding declined by 106 million shares compared to the prior-year quarter due to Pfizer’s share repurchase program, primarily reflecting the impact of a $5 billion accelerated share repurchase agreement executed in March 2016 and completed in June 2016.

Adjusted(2) Income Statement Highlights

SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2)

($ in millions)
(Favorable)/Unfavorable
Second-Quarter Six Months
2016 2015 % Change 2016 2015 % Change
Total Oper. Total Oper.
Adjusted Cost of Sales(2) $3,062 $2,123 44 % 35 % $5,627 $3,930 43 % 39 %
Percent of Revenues 23.3 % 17.9 %
N/A
N/A
21.5 % 17.3 %
N/A
N/A
Adjusted SI&A Expenses(2) 3,443 3,372 2 % 5 % 6,811 6,449 6 % 9 %
Adjusted R&D Expenses(2) 1,740 1,732 — 1 % 3,463 3,609 (4 %) (4 %)
Total $8,246 $7,226 14 % 13 % $15,901 $13,988 14 % 14 %

Effective Tax Rate on
Adjusted Income(2)
23.2 % 25.6 % 23.5 % 25.0 %

A full reconciliation of Reported(1) to Adjusted(2) financial measures and associated footnotes can be found starting on page 17 of the press release located at the hyperlink below.

RECENT NOTABLE DEVELOPMENTS

Product Developments

Chantix/Champix (varenicline) — Pfizer announced in May 2016 that the European Summary of Product Characteristics and Package Leaflet for Champix have been updated to include safety and efficacy data from the EAGLES (Evaluating Adverse Events in a Global Smoking Cessation Study) trial. As part of the update, the black triangle symbol, which indicated that additional safety monitoring for Champix in the EU was required, has been removed.

Ibrance (palbociclib) — In June 2016, Pfizer presented final results from the Phase 3 PALOMA-2 trial for Ibrance, an oral, first-in-class inhibitor of cyclin-dependent kinases 4 and 6, as an oral presentation at the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) 2016 Annual Meeting (ASCO 2016). The study met its primary endpoint by demonstrating an improvement in progression-free survival (PFS) for the combination of Ibrance plus letrozole compared with letrozole plus placebo in post-menopausal women with estrogen receptor-positive, human epidermal growth factor receptor 2-negative (ER+, HER2-) advanced or metastatic breast cancer who had not received previous systemic treatment for their advanced disease. The PALOMA-2 trial provides confirmatory evidence for Ibrance in combination with letrozole in the first-line setting, which was first evaluated in the Phase 2 PALOMA-1 trial. These data will support additional planned global regulatory submissions and a request for conversion of the accelerated approval for Ibrance to regular approval in the U.S.

Prevnar 13 (Pneumococcal 13-valent Conjugate Vaccine [Diphtheria CRM197 Protein]) — Pfizer announced in July 2016 that it received U.S. Food and Drug Administration (FDA) approval for an expanded age indication for Prevnar 13 to include adults 18 through 49 years of age, in addition to the already approved indications for adults 50 years and older for the prevention of pneumococcal pneumonia and invasive disease caused by 13 Streptococcus pneumoniae strains in the vaccine and for children 6 weeks through 17 years of age (prior to the 18th birthday) for the prevention of invasive disease caused by the 13 Streptococcus pneumoniae strains in the vaccine.

Sutent (sunitinib malate) — Pfizer announced in July 2016 positive top-line results from the S-TRAC (Sunitinib Trial in Adjuvant Renal Cancer) trial, a Phase 3 study of Sutent versus placebo in the adjuvant setting. The study met its primary endpoint of improving disease-free survival (DFS) in patients with renal cell carcinoma (RCC) who are at high risk for recurrence after surgery. The S-TRAC trial is the first RCC trial of a tyrosine kinase inhibitor to prolong DFS in the adjuvant setting. Full efficacy and safety data will be submitted for presentation at the European Society for Medical Oncology (ESMO) (Free ESMO Whitepaper) 2016 Congress in October 2016.

Trumenba (Meningococcal Group B vaccine) — Pfizer announced in May 2016 that the European Medicines Agency has accepted the Marketing Authorization Application for Trumenba for review. Trumenba has been developed for the prevention of invasive meningococcal disease caused by Neisseria meningitidis serogroup B in individuals aged 10 years and older and was approved in the U.S. in October 2014.

Xalkori (crizotinib) — In July 2016, the Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion recommending extension of the current indication of Xalkori in the EU to also include the treatment of adults with ROS1-positive advanced non-small cell lung cancer (NSCLC). The CHMP recommendation will now be reviewed by the European Commission, which is expected to issue a decision on whether to extend the EU indication in the coming months. This recommendation is based on efficacy and safety data from the Phase 1 PROFILE 1001 trial of crizotinib.
Xeljanz (tofacitinib citrate)

Pfizer announced in July 2016 positive top-line results from Oral Clinical Trials for tofAcitinib in ulceratiVE colitis (OCTAVE) Sustain, the third Phase 3 study of Xeljanz being investigated in patients with moderately to severely active ulcerative colitis (UC). OCTAVE Sustain is a 52 week study that evaluated oral tofacitinib 5 mg and 10 mg twice daily (BID) as a maintenance treatment in adult patients with moderately to severely active UC who previously completed and achieved clinical response in either the OCTAVE Induction 1 or OCTAVE Induction 2 studies. Top-line results from the OCTAVE Sustain study showed that the proportion of patients in remission at week 52, the primary efficacy endpoint, was significantly greater in both the tofacitinib 5 mg and 10 mg BID groups compared to placebo. No new or unexpected safety findings for tofacitinib were observed in the study. Detailed analyses of OCTAVE Sustain, including additional efficacy data, will be submitted for presentation at a future scientific meeting.
Pfizer recently withdrew all pending regulatory applications seeking approval of tofacitinib for the treatment of adult patients with moderate to severe chronic plaque psoriasis, including its supplemental new drug application in the U.S. following the October 2015 Complete Response Letter from the FDA. The withdrawal of these filings will allow Pfizer more time to determine the path forward for tofacitinib in this indication. Pfizer remains committed to advancing the tofacitinib clinical development program for rheumatoid arthritis, psoriatic arthritis (PsA) and UC.

Pfizer announced in June 2016 positive top-line results from its second Phase 3 study investigating tofacitinib for the treatment of PsA in adult patients, Oral Psoriatic Arthritis triaL (OPAL) Beyond. The study met its primary efficacy endpoints with tofacitinib 5 mg BID and 10 mg BID compared to placebo treatment.
Pipeline Developments

A comprehensive update of Pfizer’s development pipeline was published today and is now available at www.pfizer.com/pipeline. It includes an overview of Pfizer’s research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for candidates from Phase 2 through registration.

ALO-02 (oxycodone hydrochloride and naltrexone hydrochloride) — In June 2016, Pfizer announced that the FDA Anesthetic and Analgesic Drug Products Advisory Committee and Drug Safety and Risk Management Advisory Committee voted (9 to 6) in favor of approval of ALO-02 extended-release capsules for its proposed indication, "management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate." The Committees recommended the inclusion of abuse-deterrent labeling for intranasal (11 to 4) and intravenous (9 to 6) routes of abuse. They voted against inclusion of abuse-deterrent labeling for the oral route (6 to 9). The FDA will take the Committees’ recommendations into consideration before taking action on the New Drug Application (NDA) for ALO-02.
Avelumab (MSB0010718C)

In July 2016, Merck KGaA, Darmstadt, Germany (Merck KGaA) and Pfizer announced the initiation of a Phase 3 study, JAVELIN Ovarian 100, to evaluate the efficacy and safety of avelumab in combination with, and/or as follow-on (maintenance) treatment to, platinum-based chemotherapy in patients with locally advanced or metastatic disease (Stage 3 or Stage 4) with previously untreated epithelial ovarian cancer. JAVELIN Ovarian 100 is the first Phase 3 study evaluating the addition of an immune checkpoint inhibitor to standard-of-care in first-line treatment for this aggressive disease.

In June 2016, Merck KGaA and Pfizer presented data for avelumab across seven different cancers at ASCO (Free ASCO Whitepaper) 2016. The avelumab presentations, from the JAVELIN clinical development program, included results from a number of difficult-to-treat cancers, including data from the pivotal Phase 2 trial of avelumab as a potential second-line treatment for metastatic Merkel cell carcinoma. Additional avelumab data was presented in mesothelioma, adrenocortical carcinoma, NSCLC, and urothelial bladder, gastric and ovarian cancers, as well as updated safety data.

Bococizumab (PF-04950615, RN316) — In June 2016, Pfizer announced positive top-line results for two additional Phase 3 trials, SPIRE-HR (High Risk) and SPIRE-FH (Familial Hypercholesterolemia). Both studies met their primary endpoint, demonstrating a significant reduction in the percent change from baseline in low-density lipoprotein cholesterol (LDL-C) at 12 weeks compared to placebo among adults at high and very high risk for cardiovascular events who were receiving a maximally tolerated dose of a statin. SPIRE-HR and SPIRE-FH are the third and fourth of six Phase 3 lipid-lowering studies to complete and demonstrate positive top-line results. The two remaining Phase 3 lipid-lowering studies are anticipated to complete later in 2016.

Crisaborole Topical Ointment, 2% (AN2728) — In July 2016, Pfizer announced that the findings from two pivotal Phase 3 studies of investigational crisaborole were published in the online issue of the Journal of the American Academy of Dermatology. The detailed results from the AD-301 and AD-302 studies showed that crisaborole achieved statistically significant results on primary and secondary endpoints for the treatment of atopic dermatitis in children two years of age and up and in adults compared to vehicle ointment alone. Crisaborole was obtained by Pfizer as part of the acquisition of Anacor, which was completed in June 2016.

Ertugliflozin (PF-04971729) — Pfizer and Merck, known as MSD outside the U.S. and Canada, announced in June 2016 that two Phase 3 studies (VERTIS Mono and VERTIS Factorial) of ertugliflozin, an investigational oral SGLT-2 inhibitor for the treatment of patients with type 2 diabetes, both met their primary endpoints. Full results from the VERTIS clinical development program of ertugliflozin were presented for the first time in June 2016 at the Scientific Sessions of the American Diabetes Association. The companies also reaffirmed their plans to submit NDAs to the FDA for ertugliflozin and the two fixed-dose combination tablets (ertugliflozin plus Januvia(7) and ertugliflozin plus metformin) by the end of 2016.

Inotuzumab Ozogamicin — Pfizer announced in June 2016 the final results from the Phase 3 INO-VATE ALL study evaluating the safety and efficacy of inotuzumab ozogamicin as compared with investigator choice chemotherapy in adult patients with relapsed or refractory CD22-positive acute lymphoblastic leukemia. Results were presented as a late-breaking oral presentation (#LB2233) at the 21st Congress of the European Hematology Association (EHA) (Free EHA Whitepaper) 2016 Annual Meeting. Final results were also published in the June 12, 2016 online issue of The New England Journal of Medicine.

Lorlatinib (PF-06463922) — In June 2016, Pfizer presented encouraging new data from a Phase 1/2 study of lorlatinib (the proposed non-proprietary name for PF-06463922), an investigational, next-generation ALK/ROS1 tyrosine kinase inhibitor, in an oral presentation at ASCO (Free ASCO Whitepaper) 2016. The study showed clinical response in patients with ALK-positive or ROS1-positive advanced NSCLC, including patients with brain metastases. The ongoing Phase 2 study is expected to enroll a total of 240 patients across six cohorts (five for ALK-positive and one for ROS1-positive patients with NSCLC), with enrollment defined by degree and type of prior treatment.

SPK-9001 — Spark Therapeutics and Pfizer announced in July 2016 that the FDA has granted breakthrough therapy designation to SPK-9001, the lead investigational candidate in the companies’ SPK-FIX program, in development for the treatment of hemophilia B. SPK-9001, a novel bio-engineered adeno-associated virus (AAV) capsid expressing a codon-optimized, high-activity human factor IX variant, is being investigated in an ongoing Phase 1/2 trial as a potential one-time therapy.

Utomilumab (PF-05082566) — In June 2016, Pfizer presented results from a Phase 1b trial of Pfizer’s investigational immunotherapy agent utomilumab (the proposed non-proprietary name for PF-05082566), a 4-1BB (also called CD137) agonist, in combination with pembrolizumab, a PD-1 inhibitor, in patients with advanced solid tumors. This is the first reported study of a 4-1BB agonist combined with a checkpoint inhibitor. Encouraging safety data from the study were shared in an oral presentation at ASCO (Free ASCO Whitepaper) 2016. Pfizer is investigating utomilumab as a single agent in certain solid tumors and in combinations across multiple solid tumors and hematological malignancies, including with rituximab in lymphoma and with other immunotherapies, including Pfizer’s OX40 agonist (PF-04518600), Kyowa Hakko Kirin’s anti-CCR4 (mogamulizumab) and avelumab (Merck KGaA and Pfizer alliance).

Corporate Developments

In August 2016, Pfizer acquired all remaining equity in Bamboo Therapeutics, Inc. (Bamboo), a privately held biotechnology company based in Chapel Hill, N.C., that is focused on developing gene therapies for the treatment of patients with certain rare diseases, for an upfront payment of $150 million plus potential milestone payments to Bamboo’s selling shareholders of up to $495 million, contingent upon the progression of key assets through development, regulatory approval and commercialization. Pfizer had previously acquired a 22% stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. This acquisition will provide Pfizer with several clinical and pre-clinical assets that complement Pfizer’s rare disease portfolio, an advanced AAV vector design and production technology, and a fully functional Phase 1/2 gene therapy manufacturing facility. Following the acquisition, Bamboo is now a wholly-owned subsidiary of Pfizer.

In July 2016, Pfizer and Western Oncolytics announced that the companies have entered into a development collaboration, license and option agreement to advance Western Oncolytics’ novel oncolytic vaccinia virus, WO-12. Oncolytic viruses are viruses engineered to kill cancer cells while sparing healthy cells, which subsequently elicits anti-cancer immune responses. This collaboration in oncolytic virus development adds another novel technology platform to Pfizer’s cancer vaccine efforts and provides an additional tool to bolster its immuno-oncology portfolio. Under the terms of the agreement, Pfizer and Western Oncolytics will collaborate on preclinical and clinical development of WO-12 through Phase 1 trials. Following completion of Phase 1 trials, Pfizer has an exclusive option to acquire WO-12. Financial terms of the agreement were not disclosed.

In June 2016, Pfizer announced that it completed its acquisition of Anacor for $99.25 in cash (without interest but subject to required withholding of taxes) per share of Anacor common stock, for a total transaction value, net of cash and cash equivalents, of approximately $5.2 billion.

Pfizer announced in March 2016 that it entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. (GS&Co.) to repurchase $5 billion of Pfizer’s common stock. Pursuant to the terms of the agreement, on March 10, 2016, Pfizer paid $5 billion to GS&Co. and received an initial delivery of approximately 136 million shares of Pfizer common stock from GS&Co. Upon settlement of the agreement in June 2016 and pursuant to the agreement’s settlement terms, GS&Co. delivered approximately 18 million additional shares of Pfizer common stock to Pfizer. After giving effect to the accelerated share repurchase agreement, Pfizer’s remaining share-purchase authorization was approximately $11.4 billion as of August 2, 2016.

Please find Pfizer’s press release and associated financial tables, including reconciliations of certain GAAP reported to non-GAAP adjusted information, at the following hyperlink:

View Source

(Note: If clicking on the above link does not open up a new web page, you may need to cut and paste the above URL into your browser’s address bar.)

For additional details, see the associated financial schedules and product revenue tables attached to the press release located at the hyperlink referred to above and the attached disclosure notice.


(1) Revenues is defined as revenues in accordance with U.S. generally accepted accounting principles (GAAP). Reported net income is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. Reported diluted earnings per share (EPS) is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.

(2) Adjusted income and its components and Adjusted diluted EPS are defined as reported U.S. GAAP net income(1) and its components and reported diluted EPS(1) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items (some of which may recur, such as restructuring or legal charges, but which management does not believe are reflective of our ongoing core operations). Adjusted cost of sales, Adjusted selling, informational and administrative (SI&A) expenses, Adjusted research and development (R&D) expenses and Adjusted other (income)/deductions are income statement line items prepared on the same basis as, and therefore components of, the overall Adjusted income measure. As described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations––Non-GAAP Financial Measure (Adjusted Income) section of Pfizer’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2016, management uses Adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. Because Adjusted income is an important internal measurement for Pfizer, we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted income, and certain components of Adjusted income, in order to portray the results of our major operations––the discovery, development, manufacture, marketing and sale of prescription medicines, vaccines, medical devices and consumer healthcare (OTC) products––prior to considering certain income statement elements. See the reconciliations of certain GAAP Reported to Non-GAAP Adjusted information for the second quarter and first six months of 2016 and 2015 at the press release located at the hyperlink above. The Adjusted income and its components and Adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.

(3) Effective in second-quarter 2016, Pfizer’s operating structure was reorganized from three segments to two to reflect changes to how the innovative pharmaceutical, vaccine and consumer healthcare operations are managed. Pfizer Innovative Health was previously known as the Innovative Products business, which was comprised of the Global Innovative Pharmaceutical (GIP) and Global Vaccines, Oncology and Consumer Healthcare (VOC) segments. Additionally, the name of Pfizer’s Established Products business, which consisted of the Global Established Pharmaceutical (GEP) segment, was changed to Pfizer Essential Health. For a description of the revenues in each business, see the Notes to Operating Segment Information section, which can be found on page 23 of the press release located at the hyperlink above.

(4) Effective as of the beginning of 2016, Pfizer’s entire contract manufacturing business, Pfizer CentreOne, is now part of Pfizer Essential Health. Pfizer CentreOne consists of (i) legacy Pfizer’s contract manufacturing and active pharmaceutical ingredient sales operation, including manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) legacy Hospira’s One-2-One sterile injectables contract manufacturing operation. Prior to 2016, PCS was managed outside of Pfizer’s operating segments and its revenues were reported as other business activities. Prior period PCS operating results have been reclassified to conform to the current period presentation as part of Essential Health.

(5) The 2016 financial guidance reflects the following:
Pfizer does not provide guidance for GAAP Reported financial measures (other than Revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.

Does not assume the completion of any business development transactions not completed as of July 3, 2016, including any one-time upfront payments associated with such transactions.

Exchange rates assumed are a blend of the actual exchange rates in effect through second-quarter 2016 and mid-July 2016 exchange rates for the remainder of the year.

Guidance for 2016 revenues reflects the anticipated negative impact of $2.3 billion due to recent and expected generic competition for certain products that have recently lost or are anticipated to soon lose patent protection.

Guidance for 2016 revenues also reflects the anticipated negative impact of $1.4 billion as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2015, including $0.8 billion due to the estimated significant negative currency impact related to Venezuela. The anticipated negative impact on adjusted diluted EPS(2) resulting from unfavorable changes in foreign exchange rates compared to foreign exchange rates from 2015 is approximately $0.10, including $0.07 due to the estimated significant negative currency impact related to Venezuela.

Guidance for adjusted diluted EPS(2) assumes diluted weighted-average shares outstanding of approximately 6.2 billion shares.

(6) The following are certain product categories within Essential Health:
Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products).
Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products primarily include Lyrica in certain developed Europe markets, Pristiq globally, Celebrex, Zyvox and Revatio in most developed markets, Vfend and Viagra in certain developed Europe markets and Japan, and Inspra in the EU.
Legacy Established Products include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products).
Definitions for all Essential Health product categories can be found in the footnotes to the product revenue tables on page 32 of the press release located at the hyperlink above.

(7) Januvia is a registered trademark of Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc.