Wyeth's 3Q earnings down slightly to US$1.1B due to loss of sales, profits to generic competition

Graziela Medina Shepnick

MADISON, N.J. , October 22, 2008 (press release) – Wyeth (NYSE: WYE) today reported results for the 2008 third quarter and first nine months ending September 30, 2008. Worldwide net revenue increased 4%, to $5.8 billion, for the 2008 third quarter and 5%, to $17.5 billion, for the first nine months of 2008.  Excluding the favorable impact of foreign exchange, worldwide net revenue increased 2% for the 2008 third quarter and increased 1% for the 2008 first nine months.
 
“Wyeth’s results so far this year reflect the continued solid performance of our major growth engines – Enbrel, Prevnar and our Nutritionals franchise,” said Bernard Poussot, Chairman, President and Chief Executive Officer.  “For the first nine months of 2008, our revenues grew five percent despite the launch of Protonix generics last December. Wyeth has become a well diversified global biopharmaceutical company with 43 percent of its revenues represented by vaccines, biotechnology and nutritional products.”

2008 Third Quarter Results

Overall net revenue increased 4% for the 2008 third quarter, primarily driven by Wyeth’s key pharmaceutical franchises, such as ENBREL®, PREVNAR® and Nutritional products, as well as the favorable impact of foreign exchange. Partially offsetting the increases were lower sales of the PROTONIX® family.

Selling, general and administrative expenses, excluding certain significant items, decreased 6% for the 2008 third quarter (7% excluding the impact of foreign exchange) versus the 2007 third quarter, primarily due to the realization of cost savings as a result of Project Impact.

Research and development expenses, excluding certain significant items, decreased 1% for the 2008 third quarter versus the 2007 third quarter. Other (income) expense, net for the 2008 third quarter primarily included costs associated with our foreign exchange hedging program and investment activity, which were partially offset by royalty income and product divestitures.  The investment activity included write-downs of Lehman Brothers and Washington Mutual bonds totaling $68.7 million.

The Company’s tax rate for the 2008 third quarter, excluding certain significant items, increased to 33.2% from 29.6% in the 2007 third quarter.  The increase in the tax rate for the 2008 third quarter versus the 2007 third quarter resulted primarily from certain charges in countries with lower tax rates and the fact that there was no benefit in the 2008 third quarter from the U.S. Research and Development Tax Credit, which had expired in December 2007 but was subsequently renewed on October 3, 2008.  The effect of the U.S.

Research and Development Tax Credit renewal will be reflected in our 2008 fourth quarter tax rate. Our full year effective tax rate range is still expected to be 29% - 31%. Net income and diluted earnings per share for the 2008 third quarter were $1,138.4 million and $0.84, respectively, compared with $1,145.9 million and $0.84 for the 2007 third quarter. The 2008 third quarter results included charges of $115.2 million ($79.8 million after-tax or $0.06 per share-diluted) related to the Company’s productivity initiative. The 2007 third quarter results included productivity initiative charges of $117.1 million ($86.0 million after-tax or $0.06 per share-diluted).  Net income and diluted earnings per share, before these certain significant items, for the 2008 third quarter were $1,218.2 million and $0.90, respectively, compared with $1,231.9 million and $0.90 for the 2007 third quarter.

2008 First Nine Months Results

Net revenue increased 5% for the 2008 first nine months, primarily driven by Wyeth’s key pharmaceutical franchises, such as Enbrel, Prevnar and Nutritional products, and the favorable impact of foreign exchange.  Net revenue from EFFEXOR® and ZOSYN® also increased for the 2008 first nine months due primarily to price increases in the case of Effexor and increased volume in the case of Zosyn.  Partially offsetting the increases were lower sales of the Protonix family. 

Selling, general and administrative expenses, excluding certain significant items, for the first nine months of 2008 increased 2% (and decreased 2% excluding the impact of foreign exchange) versus the first nine months of 2007.
 
Research and development expenses, excluding certain significant items, for the 2008 first nine months increased 3% (2% excluding the impact of foreign exchange) versus the 2007 first nine months due to higher late-stage clinical trial spending. Other (income) expense, net, excluding certain significant items, for the first nine months of 2008 primarily included costs associated with our foreign exchange hedging program and investment activity, which were partially offset by royalty income and product divestitures. The investment activity included write-downs of Lehman Brothers and Washington Mutual bonds totaling $68.7 million.  Royalty income included a one-time royalty milestone payment of $60.0 million related to the previously divested SYNVISC® product line.

The Company’s tax rate for the first nine months of 2008, excluding certain significant items, increased to 31.6% from 29.3% in the first nine months of 2007.  As noted earlier, the tax rate for the first nine months of 2008 does not include any benefit from the U.S.

Research and Development Tax Credit.  

Net income and diluted earnings per share for the first nine months of 2008 were $3,457.4 million and $2.56, respectively, compared with $3,598.5 million and $2.63 for the 2007 first nine months.  Results for the first nine months of 2008 included net charges of $351.4 million ($259.9 million after-tax or $0.19 per share-diluted) related to the Company’s productivity initiative.

Results for the first nine months of 2007 included productivity initiative charges of $209.5 million ($152.5 million after-tax or $0.11 per share-diluted). 

Net income and diluted earnings per share, before these certain significant items, for the first nine months of 2008 were $3,717.4 million and $2.75, respectively, compared with $3,751.0 million and $2.74 for the first nine months of 2007.
 
“In a tough economy, Wyeth delivered a solid quarter,” said Mr. Poussot.  “Based on this performance, we have revised our 2008 full year diluted earnings per share guidance to a range of $3.49 to $3.55, exclusive of certain significant items.” 

To assist in performing third quarter and first nine months comparisons, a presentation, which excludes our productivity initiative, is provided under “Results of Operations – As Adjusted.”

Pharmaceuticals Worldwide Pharmaceuticals net revenue increased 5% for the 2008 third quarter and first nine months due primarily to higher sales of Enbrel, Prevnar and Nutritional products, as well as the favorable impact of foreign exchange.  Net revenue from Effexor and Zosyn also increased for the first nine months of 2008.  Also contributing to net revenue growth were new products such as TYGACIL®, TORISELTM and PRISTIQTM. The increase in Pharmaceuticals net revenue was offset, in part, by lower sales of the Protonix family. 

Excluding the favorable impact of foreign exchange, worldwide Pharmaceuticals net revenue increased 3% for the 2008 third quarter and increased 1% for the 2008 first nine months.

Consumer Healthcare

Worldwide Consumer Healthcare net revenue decreased 5% for the third quarter of 2008 due primarily to a decrease in sales of ROBITUSSIN® and ADVIL®, partially offset by an increase in sales of CENTRUM® and the favorable impact of foreign exchange. 

Worldwide Consumer Healthcare net revenue increased 4% for the first nine months of 2008 due primarily to an increase in sales of Centrum and CALTRATE® and the favorable impact of foreign exchange, partially offset by lower sales of Robitussin. Excluding the favorable impact of foreign exchange, worldwide Consumer Healthcare net revenue decreased 6% for the 2008 third quarter and for the 2008 first nine months was comparable to the 2007 first nine months.

In September 2008, Consumer Healthcare completed the purchase of the THERMACARE® product line, a leading over-the-counter heat wrap, from Procter & Gamble. The transaction is expected to enhance Wyeth’s global position in pain management.

Animal Health

Worldwide Animal Health net revenue increased 11% for the third quarter of 2008 due primarily to higher sales of livestock products, driven by ZULVAC® bluetongue vaccine, equine products and the favorable impact of foreign exchange. For the 2008 first nine months, net revenue increased 8% due primarily to higher sales of livestock, poultry and companion animal products and the favorable impact of foreign exchange, which were offset, in part, by lower sales of equine products.  Excluding the favorable impact of foreign exchange, worldwide Animal Health net revenue increased 9% for the third quarter of 2008 and 3% for the first nine months of 2008.

R&D Update   

Later this month, Wyeth will present Phase 3 pediatric data for its investigational 13-valent pneumococcal conjugate vaccine PREVNAR 13 at the meeting of the Interscience Conference on Antimicrobial Agents and Chemotherapy/Infectious Diseases Society of America in Washington, D.C. The Company expects to complete its U.S. filing for pediatric use of the vaccine in the first quarter of 2009, with other pediatric global filings expected at the same time, or possibly earlier.  Prevnar 13 is also being studied in Phase 3 global clinical trials in adults.

Productivity Initiative

In the 2008 third quarter, the Company continued to realize the benefits of Project Impact, a company-wide program designed to initially address short-term fiscal challenges, particularly the significant loss of sales and profits resulting from the launch of generic versions of Protonix. Longer-term, Project Impact will include strategic actions that will fundamentally change how the Company conducts business as it adapts to the continuously changing business climate.  

When fully implemented, we expect this initiative to generate annual cost savings in a range of $1.0 to $1.5 billion. The charges for the third quarter and first nine months of 2008 included expenses of $115.2 million and $456.1 million, respectively, primarily for severance and other employee-related costs associated with a reduction in workforce of approximately 6%. The expenses in connection with the productivity initiative for the first nine months of 2008 were offset, in part, by a $104.7 million gain on the sale of a manufacturing facility in Japan in the 2008 first quarter. The third quarter and first nine months of 2007 included productivity initiative charges of $117.1 million and $209.5 million, respectively, primarily related to manufacturing site network consolidation initiatives.  

Increase in Common Stock Dividend

As previously announced on September 25, 2008, the Company declared a dividend of thirty cents ($0.30) per share on the outstanding shares of its common stock, payable on December 1, 2008 to stockholders of record at the close of business on November 13, 2008. This quarterly rate represents a 7.1% increase per share from the previous quarter ($0.28).

Wyeth is one of the world’s largest research-driven pharmaceutical and health care products companies. It is a leader in the discovery, development, manufacturing and marketing of pharmaceuticals, vaccines, biotechnology products, nutritionals and non-prescription medicines that improve the quality of life for people worldwide. The Company’s major divisions include Wyeth Pharmaceuticals, Wyeth Consumer Healthcare and Fort Dodge Animal Health.

Additional information regarding Wyeth’s product sales may be accessed on the Company’s Internet Web site at www.wyeth.com by clicking on the “Investor Relations” hyperlink.

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