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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1225
Wyeth
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(Exact name of registrant as specified in its charter)
Delaware 13-2526821
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Five Giralda Farms, Madison, NJ 07940-0874
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (973) 660-5000
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Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ----------------------------------------- --------------------------------
$2 Convertible Preferred Stock, $2.50 New York Stock Exchange
par value
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Common Stock, $0.33 - 1/3 par value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently
completed second fiscal quarter.
Aggregate market value at June 30, 2004 $48,227,194,281
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Outstanding at
March 1, 2005
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Common Stock, $0.33 - 1/3 par value 1,336,053,758
Documents incorporated by reference: List hereunder the following documents
if incorporated by reference and the Part of the Form 10-K into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statements; and (3) Any prospectus filed pursuant to
Rule 424(b) or (c) under the Securities Act of 1933. The listed documents
should be clearly described for identification purposes.
(1) 2004 Annual Report to Stockholders - In Parts I, II and IV
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(2) Proxy Statement to be filed on or about March 16, 2005 - In Part III
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PART I
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ITEM 1. BUSINESS
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General
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Unless stated to the contrary, or unless the context otherwise
requires, references to the Company in this report include Wyeth
and subsidiaries.
Wyeth, a Delaware corporation (the "Company") organized in 1926, is
currently engaged in the discovery, development, manufacture,
distribution and sale of a diversified line of products in three
primary businesses: Wyeth Pharmaceuticals ("Pharmaceuticals"),
Wyeth Consumer Healthcare ("Consumer Healthcare") and Fort Dodge
Animal Health ("Animal Health"). Pharmaceuticals include branded
human ethical pharmaceuticals, biologicals, vaccines and
nutritionals. Principal products include neuroscience therapies,
cardiovascular products, nutritionals, gastroenterology drugs,
anti-infectives, vaccines, oncology therapies, musculoskeletal
therapies, hemophilia treatments, immunological products and
women's health care products. Consumer Healthcare products include
analgesics, cough/cold/allergy remedies, nutritional supplements,
and hemorrhoidal, asthma and personal care items sold
over-the-counter. Principal Animal Health products include
vaccines, pharmaceuticals, parasite control and growth implants.
In October 2000, the Company had an approximately 55% ownership in
Immunex Corporation ("Immunex"), subsequently acquired by Amgen
Inc. ("Amgen"). In November 2000, through a public equity
offering, the Company sold 60.5 million shares of Immunex common
stock with proceeds to the Company of approximately $2.405 billion
resulting in a pre-tax gain on the sale of $2.061 billion. As a
result of the reduction in ownership below 50%, the Company
included the financial results of Immunex on an equity basis
retroactive to January 1, 2000. In July 2002, Amgen completed its
acquisition of Immunex. Under the terms of the acquisition
agreement, the Company received 98,286,358 shares of Amgen common
stock and $1.005 billion in cash in exchange for all of its shares
of Immunex common stock. The Company began selling its Amgen
shares in the 2002 fourth quarter and completed the sale of all
such shares as of January 21, 2003 for aggregate net proceeds of
$4.831 billion. The Company and Amgen continue to co-promote
ENBREL in the United States and Canada with the Company having
exclusive rights to ENBREL outside of North America.
Additional information relating to the Immunex/Amgen common stock
transactions is set forth in Note 2 of the Notes to Consolidated
Financial Statements in the Company's 2004 Annual Report to
Stockholders and is incorporated herein by reference. The
following are also described in Note 2:
o The 2004, 2003 and 2002 net gains on sales of assets;
o The co-development and co-commercialization agreement
entered into between the Company and Solvay Pharmaceuticals
to co-develop and co-commercialize four neuroscience
compounds;
o The equity purchase agreement between the Company and Takeda
Chemical Industrial Co., Ltd. (Takeda), whereby the Company
will buy out the 40%
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minority interest of the Company's affiliate in Japan
presently held by Takeda; and
o The 2002 first quarter sale of the Company's Rhode Island
facility to Immunex (subsequently acquired by Amgen).
On June 30, 2000, the Company completed the sale of its Cyanamid
Agricultural Products business, a manufacturer, distributor, and
seller of crop protection and pest control products worldwide, to
BASF Aktiengesellschaft ("BASF") for $3.800 billion in cash and the
assumption of certain debt. The Company recorded an after-tax loss
on the sale of this business and reflected this business as a
discontinued operation in the 2000 first quarter. The loss on the
sale was determined based on the difference in the book value of
the net assets sold compared with the price received for these net
assets. The sale of the Cyanamid Agricultural Products business
produced a gain for tax purposes and a loss for book purposes, as
the Company did not get a step-up in cost basis for tax purposes.
This divergence, primarily caused by goodwill, was included in the
basis for book purposes but was not included in the basis for tax
purposes. The lower tax basis created a taxable gain that required
a tax provision of approximately $855.2 million. This tax
provision was combined with the pre-tax book loss of approximately
$717.8 million for a total after-tax loss on the sale of the
business of $1.573 billion.
Reportable Segments
-------------------
Financial information, by reportable segment, for each of the three
years ended December 31, 2004 is set forth in Note 15 of the Notes
to Consolidated Financial Statements in the Company's 2004 Annual
Report to Stockholders and is incorporated herein by reference.
The Company has four reportable segments: Pharmaceuticals, Consumer
Healthcare, Animal Health and Corporate. The Company's
Pharmaceuticals, Consumer Healthcare and Animal Health reportable
segments are strategic business units that offer different products
and services. Beginning in the 2003 fourth quarter, the Company
changed its reporting structure to include the Animal Health
business as a separate reportable segment. The Animal Health
business was previously reported within the Pharmaceuticals
segment. Prior period information presented in Note 15 of the
Notes to Consolidated Financial Statements in the Company's 2004
Annual Report to Stockholders was restated to be on a comparable
basis. The reportable segments are managed separately because they
manufacture, distribute and sell distinct products and provide
services, which require differing technologies and marketing
strategies. The Company sells its diversified line of products to
wholesalers, pharmacies, hospitals, physicians, retailers and other
health care institutions located in various markets in more than
145 countries throughout the world. Wholesale distributors and
large retail establishments account for a large portion of the
Company's net revenue and trade receivables, especially in the
United States. The Company's top three customers accounted for
25%, 23% and 25% of the Company's net revenue in 2004, 2003 and
2002, respectively. The Company's largest customer accounted for
10% of net revenue in 2004, 2003 and 2002. The Company
continuously monitors the creditworthiness of its customers and has
established internal policies regarding customer credit limits.
The product designations appearing in differentiated type herein
are trademarks.
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PHARMACEUTICALS SEGMENT
The Pharmaceuticals segment manufactures, distributes, and sells
branded human ethical pharmaceuticals, biologicals, vaccines and
nutritionals. These products are promoted and sold worldwide
primarily to wholesalers, pharmacies, hospitals, physicians,
retailers, and other human health care institutions. Some of these
sales are made to large buying groups representing certain of these
customers. Principal product categories and their respective
products are: neuroscience therapies including EFFEXOR (marketed as
EFEXOR internationally) and EFFEXOR XR; cardiovascular products
including ALTACE (co-marketed with King Pharmaceuticals, Inc.) and
INDERAL; nutritionals including S-26, 2ND AGE PROMIL and 3RD AGE
PROGRESS (international markets only); gastroenterology drugs
including ZOTON (international markets only) and PROTONIX (U.S.
market only); anti-infectives including ZOSYN (marketed as TAZOCIN
internationally); vaccines including PREVNAR (marketed as PREVENAR
internationally); oncology therapies; musculoskeletal therapies
including ENBREL; hemophilia treatments including BENEFIX
Coagulation Factor IX (Recombinant) and REFACTO albumin-free
formulated Factor VIII (Recombinant); immunological products
including RAPAMUNE; and women's health care products including
PREMARIN, PREMPRO, PREMPHASE, and ALESSE (marketed as LOETTE
internationally). The Company manufactures these products in the
United States and Puerto Rico, and in 15 foreign countries.
Accounting for more than 10% of net revenue in 2004, 2003 and 2002
were sales of neuroscience therapies of $3.546 billion, $2.923
billion and $2.290 billion, respectively. Neuroscience therapies
include 2004, 2003 and 2002 sales related to the EFFEXOR family of
products of $3.347 billion, $2.712 billion and $2.072 billion,
respectively. In addition, sales of gastroenterology drugs of
$2.038 billion and $1.857 billion, which include sales of $1.591
billion and $1.493 billion related to PROTONIX also exceeded 10% of
net revenue in 2004 and 2003, respectively. Sales of women's
health care products totaling $1.865 billion and $2.456 billion
accounted for more than 10% of net revenue in 2003 and 2002,
respectively, which include sales of the PREMARIN family of
products of $1.275 billion and $1.880 billion, respectively.
Except as noted above, no other single pharmaceutical product or
category of products accounted for more than 10% of net revenue in
2004, 2003 or 2002.
CONSUMER HEALTHCARE SEGMENT
The Consumer Healthcare segment manufactures, distributes and sells
over-the-counter health care products. Principal Consumer
Healthcare product categories and their respective products are:
analgesics including ADVIL; cough/cold/allergy remedies including
ROBITUSSIN, DIMETAPP and ALAVERT; nutritional supplements including
CENTRUM products, CALTRATE and SOLGAR products; and hemorrhoidal,
asthma and personal care items including CHAPSTICK. These products
are generally sold to wholesalers and retailers and are promoted
primarily to consumers worldwide through advertising. These
products are manufactured in the United States and Puerto Rico, and
in nine foreign countries.
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No single Consumer Healthcare product or category of products
accounted for more than 10% of net revenue in 2004, 2003 or 2002.
ANIMAL HEALTH SEGMENT
The Animal Health segment manufactures, distributes and sells
animal biological and pharmaceutical products. Principal Animal
Health product categories include pharmaceuticals, vaccines
including WEST NILE - INNOVATOR and parasite control including
CYDECTIN, and growth implants. These products are sold to
wholesalers, veterinarians and other animal health care providers.
The Company manufactures these products in the United States and in
seven foreign countries.
No single Animal Health product or category of products accounted
for more than 10% of net revenue in 2004, 2003 or 2002.
CORPORATE SEGMENT
Corporate is responsible for the treasury, tax and legal operations
of the Company's businesses and maintains and/or incurs certain
assets, liabilities, income, expenses, gains and losses related to
the overall management of the Company which are not allocated to
the other reportable segments. These items include interest
expense and interest income, gains on the sales of investments and
other corporate assets, gains relating to Immunex/Amgen common
stock transactions, certain litigation provisions, including the
REDUX and PONDIMIN litigation charges, special charges and other
miscellaneous items. See Note 15 of the Notes to Consolidated
Financial Statements in the Company's 2004 Annual Report to
Stockholders for Corporate segment information, as well as
additional disclosure relating to certain significant items listed
above.
Sources and Availability of Raw Materials
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Generally, raw materials and packaging supplies are purchased in
the open market from various outside vendors. The loss of any one
source of supply would not have a material adverse effect on the
Company's future results of operations. However, certain raw
materials for BENEFIX, REFACTO, RAPAMUNE, ZOTON, ZOSYN and oral
contraceptives are sourced from sole third-party suppliers.
Patents and Trademarks
----------------------
Patent protection is, in the aggregate, considered to be of
material importance in the Company's marketing of pharmaceutical
products in the United States and in most major foreign markets.
Patents may cover products, formulations, processes for, or
intermediates useful in the manufacture of products or the uses of
products. The Company owns, has applied for, or is licensed under,
a large number of patents, both in the United States and other
countries. Protection for individual products extends for varying
periods in accordance with the date of grant and the legal life of
patents in countries in which patents are granted. The protection
afforded, which may also vary from country to country, depends upon
the type of patent, its scope of coverage, and the availability of
legal remedies in the country. There is no assurance that the
patents the
I-4
Company is seeking will be granted or that the patents the Company
has been granted would be found valid if challenged. Moreover,
patents relating to particular products, uses, formulations, or
processes do not preclude other manufacturers from employing
alternative processes or from marketing alternative products or
formulations that might successfully compete with the Company's
patented products.
Patent portfolios developed for products introduced by the Company
normally provide market exclusivity. The Company considers patent
protection for certain products, processes, and uses to be
important to its operations. For many of its products, in addition
to compound patent protection, the Company holds other patents on
manufacturing processes, formulations, or uses that may extend
exclusivity beyond the expiration of the compound patent. Patents
are in effect for the following major products in the United
States. The anti-infective ZOSYN has patent protection until at
least 2007. ENBREL has patent protection until at least 2014. The
anti-depressants EFFEXOR and EFFEXOR XR have patent protection
until at least 2008. (Below is a discussion of a lawsuit filed by
the Company against Teva Pharmaceuticals USA, Inc. ("Teva") in
connection with Teva's filing of an Abbreviated New Drug
Application ("ANDA") relating to EFFEXOR XR.) PREMPRO, a
combination estrogen and progestin product, has patent protection
until at least 2015. BENEFIX Coagulation Factor IX (Recombinant),
a blood-clotting factor for hemophilia B, has patent protection
until at least 2011. REFACTO, a recombinant factor VIII product
without human serum albumin, has patent protection until at least
2010. PREVNAR, the Company's 7-valent pneumococcal conjugate
vaccine has patent protection until at least 2007. PROTONIX, the
Company's product for the treatment and maintenance of healing of
erosive esophagitis, has patent protection until at least 2010.
(Below is a discussion of a lawsuit filed by the Company and Altana
Pharma AG ("Altana") against Teva in connection with the filing of
an ANDA relating to PROTONIX.) RAPAMUNE, an immunological product,
has patent protection until at least 2009 and patent term
extension, if granted, would extend protection until 2013. BMP-2,
a protein therapy that induces bone growth, has patent protection
until at least 2014. CYDECTIN, the Company's Animal Health
parasite control product, has patent protection until at least 2007
and an application for patent extension has been filed which could
extend exclusivity until 2012. ZOTON, a gastroenterology product,
which is sold by the Company exclusively outside the United States,
has patent protection in its principal markets until at least
December 2005.
The Company has other patent rights covering additional products
that have smaller net revenues. Patents on some of its newest
products and late-stage product candidates could become significant
to the Company's business in the future.
While the expiration of a product patent normally results in a loss
of market exclusivity for the covered product, commercial benefits
may continue to be derived from later-expiring patents on processes
and intermediates, patents relating to the use of products, patents
relating to novel compositions and formulations; manufacturing
trade secrets; trademark use; and marketing exclusivity that may be
available under pharmaceutical regulatory laws. The effect of
product patent expiration also depends upon many other factors such
as the nature of the market and the position of the product in it,
the growth of the market, the complexities and economics of the
process for manufacture of the active
I-5
ingredient of the product and the requirements of new drug provisions
of the Federal Food, Drug and Cosmetic Act or similar laws and
regulations in other countries.
Extensions to market exclusivity are sought in the United States
and other countries through all relevant laws, including laws
increasing patent life. Some of the benefits of increases in
patent life have been partially offset by a general increase in the
number of incentives for and use of generic products. In addition,
improvements in intellectual property laws are sought in the United
States and other countries through reform of patent and other
relevant laws and implementation of international treaties.
Outside the United States, the standard of intellectual property
protection for pharmaceuticals varies widely. While many countries
have reasonably strong patent laws, other countries currently
provide little or no effective protection for inventions or other
intellectual property rights. Under the Trade-Related Aspects of
Intellectual Property Agreement administered by the World Trade
Organization, over 140 countries have now agreed to provide
non-discriminatory protection for most pharmaceutical inventions
and to assure that adequate and effective rights are available to
all patent owners. However, in many countries, this agreement will
not become fully effective for many years. It is possible that
changes to this agreement will be made in the future that will
diminish or further delay its implementation in developing
countries. It is too soon to assess how much, if at all, the
Company will benefit commercially from these changes.
The Drug Price Competition and Patent Term Restoration Act of 1984,
commonly known as "Hatch-Waxman," made a complex set of changes to
both patent and new-drug-approval laws in the United States.
Before Hatch-Waxman, no drug could be approved without providing
the U.S. Food and Drug Administration ("FDA") complete safety and
efficacy studies, i.e., a complete New Drug Application ("NDA").
Hatch-Waxman authorizes the FDA to approve generic versions of
innovative medicines without such information by filing an ANDA.
In an ANDA, the generic manufacturer must demonstrate only
pharmaceutical equivalence and bioequivalence between the generic
version and the NDA-approved drug - not safety and efficacy.
Absent a successful patent challenge, the FDA cannot approve an
ANDA until after the innovator's patents expire. However, after
the innovator has marketed its product for four years, a generic
manufacturer may file an ANDA alleging that one or more of the
patents listed in the innovator's NDA are invalid or not
infringed. This allegation is commonly known as a "Paragraph IV
certification." The innovator must then file suit against the
generic manufacturer to protect its patents. If one or more of the
NDA-listed patents are successfully challenged, the first filer of
a Paragraph IV certification may be entitled to a 180-day period of
market exclusivity over all other generic manufacturers. In recent
years, generic manufacturers have used Paragraph IV certifications
extensively to challenge patents on a wide array of innovative
pharmaceuticals, and the Company expects this trend to continue.
The Company has filed a suit against Teva alleging that the filing
of an ANDA by Teva seeking FDA approval to market 37.5 mg, 75 mg
and 150 mg venlafaxine HCl extended-release capsules infringes
certain of the Company's patents. Venlafaxine HCl is the active
ingredient used in EFFEXOR XR. This matter is more fully described
in Item 3. Legal Proceedings, which discussion is incorporated
herein by reference.
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Aventis Pharma Deutschland ("Aventis") and King Pharmaceuticals,
Inc. ("King") have filed suit against Cobalt Pharmaceuticals
("Cobalt"). The complaint alleges that the filing of an ANDA by
Cobalt seeking FDA approval to market generic 1.25 mg, 2.5 mg, 5
mg, and 10 mg ramipril capsules infringes an Aventis patent
expiring October 2008. The Company co-promotes ALTACE (ramipril)
together with King. This matter is more fully described in Item 3.
Legal Proceedings, which discussion is incorporated herein by
reference.
The Company and Altana have filed a suit against Teva alleging that
the filing of an ANDA seeking FDA approval to market generic
pantoprazole tablets infringes a patent owned by Altana, the
Company's licensing partner. Pantoprazole is the active ingredient
used in PROTONIX. This matter is more fully discussed in Item 3,
Legal Proceedings, which discussion is incorporated herein by
reference.
The Company expects that its Pharmaceuticals royalty income will
decrease due primarily to the ending of royalty payments in certain
countries at the end of 2005, relating to patents held by the
Company and licensed to a third party for its marketed products.
Royalty income recognized by the Company in all markets related to
this royalty agreement approximated $139.0 million and $132.0
million in 2004 and 2003, respectively.
Sales in the Consumer Healthcare business are largely supported by
the Company's trademarks and brand names. These trademarks and
brand names are a significant part of the Company's business and in
some countries have a perpetual life as long as they remain in
use. In some other countries, trademark protection continues as
long as registered. Registration is for a fixed term and can be
renewed indefinitely. In the aggregate, the value of these
trademarks and brand names are important to the Company's operation.
Seasonality
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Sales of Consumer Healthcare products are affected by seasonal
demand for cough/cold products and, as a result, second quarter
results for these products tend to be lower than results in other
quarters.
Competition
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PHARMACEUTICALS SEGMENT
The Company operates in the highly competitive pharmaceutical
industry. The Company has many major multinational competitors and
numerous smaller U.S. and foreign competitors. Based on net
revenue, the Company believes it ranks within the top 10
competitors in the global pharmaceutical industry.
The Company's competitive position is affected by many factors
including prices; costs and resources available to develop, enhance
and promote products; customer acceptance; product quality and
efficacy; patent protection; development of alternative therapies
by
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competitors; scientific and technological advances; the
availability of generic substitutes; and governmental actions
affecting drug importation, pricing and generic substitutes. In
the United States, the growth of managed care organizations, such
as health maintenance organizations and pharmaceutical benefit
management companies, has resulted in increased competitive
pressures. Moreover, the continued growth of generic substitutes
is further promoted by legislation, regulation and various
incentives enacted and promulgated in both the public and private
sectors.
PREMARIN, the Company's principal conjugated estrogens product
manufactured from pregnant mare's urine, and related products
PREMPRO and PREMPHASE (which are single tablet combinations of the
conjugated estrogens in PREMARIN and the progestin
medroxyprogesterone acetate) are the leaders in their categories
and contribute significantly to net revenue and results of
operations. PREMARIN's natural composition is not subject to
patent protection (although PREMPRO has patent protection).
PREMARIN, PREMPRO and PREMPHASE are indicated for the treatment of
certain menopausal symptoms. They also are approved for the
prevention of osteoporosis, a condition involving a loss of bone
mass in postmenopausal women. Their use for that purpose in women
without symptoms should be limited to cases where non-hormonal
treatments have been seriously considered and rejected.
Estrogen-containing products manufactured by other companies have
been marketed for many years for the treatment of menopausal
symptoms. During the past several years, other manufacturers have
introduced products for the treatment and/or prevention of
osteoporosis. New products containing different estrogens and/or
different progestins from those found in PREMPRO and PREMPHASE,
utilizing various forms of delivery and having many forms of the
same indications, have been introduced. Some companies also have
attempted to obtain approval for generic versions of PREMARIN.
These products, if approved, would be routinely substitutable for
PREMARIN and related products under many state laws and third-party
insurance payer plans. In May 1997, the FDA announced that it
would not approve certain synthetic estrogen products as generic
equivalents of PREMARIN given known compositional differences
between the active ingredient of these products and PREMARIN.
Although the FDA has not approved any generic equivalent to
PREMARIN to date, PREMARIN will continue to be subject to
competition from existing and new competing estrogen and other
products for its approved indications and may be subject to generic
competition from either synthetic or natural conjugated estrogens
products in the future. One other company had announced that it
had applied for FDA approval of a generic version of PREMARIN
derived from the same natural source. Following a bench trial in
November 2002, a federal court found, in an order issued on October
2, 2003, that the company which had developed the estrogens to be
used in this product, Natural Biologics, Inc., had misappropriated
certain of the Company's trade secrets relating to the manufacture
of PREMARIN. The court has entered a permanent injunction that,
inter alia, bars Natural Biologics, Inc. from using the
misappropriated trade secrets and from engaging in the research,
development, production or manufacture of estrogens from urine.
Wyeth v. Natural Biologics, Inc., et al., No. 98-2469 (JNE/JGL),
U.S.D.C., D. Minn. The trial court's injunction has been affirmed
by the U.S. Court of Appeals for the Eighth Circuit. The company
that had applied for FDA approval of a generic version of PREMARIN
based on Natural Biologics, Inc.'s material has announced that it
has withdrawn the application. The
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Company cannot predict the timing or outcome of any other efforts to
seek FDA approval for generic versions of PREMARIN.
Two of the Company's largest products, EFFEXOR XR and PROTONIX, are
the subject of pending patent litigation involving potential
generic competition. In the case of EFFEXOR XR, the Company has
patent protection in the United States until at least June 2008,
when the patent covering the active ingredient in EFFEXOR,
venlafaxine, will expire. The pending litigation involves the
infringement by a potential generic competitor of the Company's
patents relating to extended-release venlafaxine that expire in
2017. In the event that the Company is not successful in this
action, EFFEXOR XR may face generic competition as early as June
2008. In the case of PROTONIX, the Company and its partner,
Altana, have patent protection until at least July 2010, when the
patent covering the active ingredient in PROTONIX, pantoprazole,
will expire. That patent is being asserted against a potential
generic competitor. In the event the Company is not successful in
this action, PROTONIX may face generic competition prior to July
2010. Although the Company believes that its patents are valid,
there can be no assurance as to the outcome of these matters, which
could materially affect future results of operations. These
matters (together with a discussion of the ANDA filing being
submitted by generic competitors related to ALTACE) are more fully
described in Item 3. Legal Proceedings, which discussion is
incorporated herein by reference.
Eli Lilly has received approval in the United States and in the
European Union for its new antidepressant, Cymbalta, which, like
EFFEXOR XR, inhibits the uptake of serotonin and norepinephrine in
the brain. In addition, growth in overall usage of antidepressants
in the United States appears to be slowing for a variety of
reasons.
The FDA has recommended new class labeling for antidepressants that
will, among other things, more prominently highlight the already
labeled risk of suicide in children and adolescents in a "black
box" warning. The Company already has implemented the labeling
change for EFFEXOR. The FDA also has requested that data regarding
suicidality from clinical trials in adults be re-examined using the
same approach developed for evaluating the pediatric data. The
Company will respond to the FDA's request.
In addition, the regulatory authority in the United Kingdom
recently has completed a review of the safety and efficacy of the
selective serotonin reuptake inhibitor class of antidepressants as
well as EFFEXOR. New class labeling for antidepressants as well as
restrictions on the use of EFFEXOR in the United Kingdom have been
implemented. The Company is appealing this decision. The Company
expects further regulatory scrutiny of the drugs in this
therapeutic area, including EFFEXOR.
The Company cannot predict the level of impact these issues may
have on future global usage of EFFEXOR.
The proton pump inhibitor category is highly competitive. PROTONIX
is subject to discounting demands by managed care and state
organizations and price competition from generic omeprazole and
other branded proton pump inhibitor products. This pricing
pressure may have an effect on future net sales.
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Market demand for ENBREL continued its strong growth in 2004.
North American net revenue increased by over 50% compared with
2003, while sales outside North America more than doubled. During
this strong growth in demand, worldwide manufacture for ENBREL
improved, delivering unconstrained supply for the first full year.
Improvements in the existing Rhode Island and Boehringer Ingelheim
facilities' performance, combined with the FDA approval of a second
Boehringer Ingelheim facility in June 2004 and the October 2004 FDA
approval of a Genentech, Inc. facility, were key contributors to
the enhanced manufacturing capacity in 2004. While continued
process improvements and the inclusion of Genentech material will
once again contribute to the supply of ENBREL in 2005, market
demand has continued to grow, and additional manufacturing supply
is expected to be required.
The anticipated approval of two new manufacturing facilities in
2005 will help to ensure uninterrupted supply and support the
continued growth of ENBREL. Wyeth's application for approval of
its Grange Castle, Ireland, facility was filed with the European
Medicines Agency in January 2005. Additionally, Amgen anticipates
approval of a second facility in Rhode Island in 2005.
As is typical for new biological manufacturing facilities,
manufacturing throughput from these new facilities is not expected
to be at optimal levels during at least the initial year of
production. The per unit costs of ENBREL produced during at least
the first year of production at these facilities will be
substantially higher than current per unit costs, which is likely
to reduce the Company's alliance revenue and margins. The timing
and magnitude of this revenue and margin effect will depend on a
number of factors, some of which are outside the Company's
control. These factors include the timing of approval of these new
facilities and the timing of sale of the resulting inventory.
As a result of delays in product availability of PREVNAR due to a
late 2003 shutdown of the filling lines at the Company's Pearl
River, New York, facility as well as other manufacturing and
testing issues, product availability was constrained in all markets
through the first half of 2004. During the first quarter of 2004,
the Centers for Disease Control and Prevention ("CDC") issued
interim recommendations to defer administration of the third and
fourth doses for healthy children. Due to increased product
availability, the CDC revised these recommendations in early July
2004 and again in September 2004 to recommend that health care
providers return to the four-dose schedule for healthy children and
initiate efforts to vaccinate those children who had the doses
deferred. In March of 2004, the European Agency for the Evaluation
of Medicinal Products issued interim dosing recommendations to
reduce usage. In September 2004, these recommendations were
revised to reinstate pre-shortage recommendations. Capacity was
enhanced overall in 2004 due to internal improvements and the FDA
approval of a third-party filling facility in the second quarter of
2004. The Company exceeded its 2004 production goal of 20 - 23
million doses.
Management continually reviews the Company's supply chain structure
with respect to utilization of production capacities as well as
manufacturing efficiencies. Changes in product demand periodically
create capacity imbalances within the manufacturing network. When
such imbalances result in overcapacity, which management considers
to
I-10
be other than temporary, the network is restructured to gain
optimal efficiency and to reduce production costs. As a result,
additional restructuring charges may occur in future periods.
The Company is in discussion with various regulatory authorities
regarding manufacturing process issues at certain of the Company's
European manufacturing sites. The Company is working with the
authorities to resolve these issues but cannot predict the outcome
of those discussions and what impact, if any, these issues will
have on supply of the Company's products manufactured at these
facilities. However, based on information currently available, the
Company believes the impact, if any, on its consolidated statements
of operations will not be material.
CONSUMER HEALTHCARE SEGMENT
The Consumer Healthcare business has many competitors. Based on
sales, the Company believes it ranks within the top five major
competitors in the global consumer health care industry. The
Company's competitive position is affected by several factors
including resources available to develop, enhance and promote
products; customer acceptance; product quality; development of
alternative therapies by competitors; growth of generic store
brands; and scientific and technological advances.
ANIMAL HEALTH SEGMENT
The Company competes with many major multinational competitors and
numerous other producers of animal health products worldwide.
Based on net revenue, the Company believes it ranks within the top
five competitors in the worldwide animal health marketplace.
Important competitive factors include price and cost effectiveness;
development of new products and processes; customer acceptance;
quality and efficacy; patent protection; innovation; scientific and
technological advances; and promotion to distributors, veterinary
professionals and consumers.
Research and Development
------------------------
Worldwide research and development activities are focused on
discovering, developing and bringing to market new products to
treat and/or prevent some of the most serious health care
problems. During 2004, several major collaborative research and
development arrangements were initiated or continued with other
pharmaceutical and biotechnology companies including an agreement
entered into between the Company and Solvay Pharmaceuticals to
co-develop and co-commercialize four neuroscience compounds, most
notably, bifeprunox. Research and development expenditures totaled
approximately $2.461 billion in 2004, $2.094 billion in 2003 and
$2.080 billion in 2002 with approximately 94%, 93% and 93% of these
expenditures in the Pharmaceuticals segment in 2004, 2003 and 2002,
respectively.
I-11
During 2004, Pharmaceuticals entered 12 new compounds into
development for the fourth year in a row. The Company also entered
two new molecular entities and one life cycle management program
into Phase 3, the final stage of drug development.
At December 31, 2004, the Company's significant new product
opportunities included two New Drug Applications and nine biologics
license applications filed with the FDA for review, and 73 active
Investigational New Drug Applications. Additionally, the Company
has filed six Supplemental Drug Applications seeking approval for
new uses of existing products.
Late in 2004, the Company submitted a global registration filing
for TYGACIL, an innovative broad-spectrum antibiotic for serious,
hospital-based infections. Early in 2005, this application was
given priority review status by the FDA, which could lead to its
approval and market introduction later in 2005.
During 2004, ENBREL received approval in the United States and in
Europe for the treatment of psoriasis. Also, in the United States
ENBREL received approval for a new, 50 mg pre-filled syringe dosage
form. In January 2005, ENBREL received market clearance in Japan
for the treatment of rheumatoid arthritis.
Regulation
----------
The Company's various health care products are subject to
regulation by government agencies throughout the world. The
primary emphasis of these regulatory requirements is to assure the
safety and effectiveness of the Company's products. In the United
States, the FDA, under the Federal Food, Drug and Cosmetic Act and
the Public Health Service Act, regulates many of the Company's
health care products, including human and animal pharmaceuticals,
vaccines, and consumer health care products. The Federal Trade
Commission ("FTC") has the authority to regulate the promotion and
advertising of consumer health care products including
over-the-counter drugs and dietary supplements. The U.S.
Department of Agriculture regulates the Company's domestic animal
vaccine products. The FDA's enforcement powers include the
imposition of criminal and civil sanctions against companies,
including seizures of regulated products, and criminal sanctions
against individuals. The FDA's enforcement powers also include its
inspection of the numerous facilities operated by the Company. To
facilitate compliance, the Company from time to time may institute
voluntary compliance actions such as product recalls when it
believes it is appropriate to do so. In addition, many states have
similar regulatory requirements. Most of the Company's
pharmaceutical products, and an increasing number of its consumer
health care products, are regulated under the FDA's new drug or
biologics approval processes, which mandate pre-market approval of
all new drugs. Such processes require extensive time, testing and
documentation for approval, resulting in significant costs for new
product introductions. The Company's U.S. Pharmaceuticals business
is also affected by the Controlled Substances Act, administered by
the Drug Enforcement Administration, which regulates strictly all
narcotic and habit-forming drug substances. In addition, in the
countries where the Company does business outside the United
States, it is subject to regulatory and legislative climates that,
in many instances, are similar to or more restrictive than that
described above. The Company
I-12
devotes significant resources to dealing with the extensive federal,
state and local regulatory requirements applicable to its products in
the United States and internationally.
Federal law also requires drug manufacturers to pay rebates to
state Medicaid programs in order for their products to be eligible
for federal matching funds under the Social Security Act.
Additionally, a number of states are, or may be, pursuing similar
initiatives for rebates and other strategies to contain the cost of
pharmaceutical products. The federal Vaccines for Children
entitlement program enables states to purchase vaccines at federal
vaccine prices and limits federal vaccine price increases in
certain respects. Federal and state rebate programs are expected
to continue.
The FDA Modernization Act, which was passed in 1997, as extended by
the Best Pharmaceuticals for Children Act, which was passed in
2002, includes a Pediatric Exclusivity Provision that may provide
an additional six months of market exclusivity in the United States
for new or currently marketed drugs, if certain pediatric studies
requested by the FDA are completed by the applicant. The Company
is considering seeking exclusivity based on pediatric studies for
certain of the Company's products.
The Company's Wyeth Pharmaceuticals division, a related subsidiary,
and certain employees (including an executive officer of the
Company) are subject to a consent decree entered into with the FDA
in October 2000 following the seizure in June 2000 from the
Company's distribution centers in Tennessee and Puerto Rico of a
small quantity of certain of the Company's products then
manufactured at the Company's Marietta, Pennsylvania facility. The
seizures were based on FDA allegations that products were not
manufactured in accordance with current Good Manufacturing
Practices. The consent decree, which has been approved by the U.S.
District Court for the Eastern District of Tennessee, does not
represent an admission by the Company or the employees of any
violation of the Federal Food, Drug and Cosmetic Act or its
regulations. The consent decree allows the continued manufacture
of all of the products that the Company intends to manufacture at
its Marietta, Pennsylvania, facility, as well as the Company's
Pearl River, New York, facility, subject to review by independent
consultants of manufacturing records prior to distribution of
individual lots. In addition, as provided in the consent decree,
an expert consultant has conducted a comprehensive inspection of
the Marietta and Pearl River facilities and the Company has
identified various actions to address the consultant's
observations. The Company is in an ongoing process of completing
these actions and obtaining verification of the Company's actions
by the expert consultant. The verification process is subject to
review by the FDA. As of the end of 2004, the Company had ceased
manufacturing operations at the Marietta facility and is in the
process of decommissioning the facility.
Health care costs will continue to be the subject of attention in
both the public and private sectors in the United States.
Similarly, health care spending, including pharmaceutical pricing,
is subject to increasing governmental review in international
markets. The Company cannot predict whether future health care
initiatives will be adopted or the extent to which the Company's
business may be affected by these initiatives or other potential
future legislative or regulatory developments.
I-13
Environmental
-------------
Certain of the Company's operations are affected by a variety of
federal, state and local environmental protection laws and
regulations and the Company has, in a number of instances, been
notified of its potential responsibility relating to the
generation, storage, treatment and disposal of hazardous waste. In
addition, the Company has been advised that it may be a responsible
party in several sites on the National Priority List created by the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), commonly known as Superfund (See Item 3. Legal
Proceedings). In connection with the spin-off in 1993 by American
Cyanamid Company (now known as Wyeth Holdings Corporation)
("Cyanamid") of Cytec Industries Inc. ("Cytec"), Cyanamid's former
chemicals business, Cytec assumed the environmental liabilities
relating to the chemicals businesses, except for the former
chemical business site at Bound Brook, New Jersey, and certain
sites for which there is shared responsibility between Cyanamid and
Cytec. This assumption is not binding on third parties, and if
Cytec were unable to satisfy these liabilities, they would, in the
absence of other circumstances, be enforceable against Cyanamid.
The Company has no reason to believe that it has any practical
exposure to any of the liabilities against which Cytec has agreed
to assume and indemnify Cyanamid. Cyanamid was acquired by the
Company in 1994.
Additional information on environmental matters is set forth in
Note 7 of the Notes to Consolidated Financial Statements in the
Company's 2004 Annual Report to Stockholders and is incorporated
herein by reference.
Employees
---------
At December 31, 2004, the Company had 51,401 employees worldwide,
with 27,617 employed in the United States including Puerto Rico.
Approximately 14% of the Company's worldwide employees are
represented by various collective bargaining groups. Relations
with most organized labor groups remain relatively stable.
Financial Information about the Company's U.S. and International
----------------------------------------------------------------
Operations
----------
Financial information about U.S. and international operations for
each of the three years ended December 31, 2004 is set forth in
Note 15 of the Notes to Consolidated Financial Statements in the
Company's 2004 Annual Report to Stockholders and is incorporated
herein by reference.
The Company's operations outside the United States are conducted
primarily through subsidiaries. International net revenue in 2004
amounted to 43% of the Company's total worldwide net revenue.
The Company's international businesses are subject to risks of
currency fluctuations, governmental actions and other governmental
proceedings, which are inherent in conducting business outside of
the United States. The Company does not regard these factors as
deterrents to maintaining or expanding its non-U.S. operations.
Additional information about international operations is set forth
under the caption Quantitative and Qualitative Disclosures about
Market Risk in Management's Discussion and Analysis of
I-14
Financial Condition and Results of Operations in the Company's 2004
Annual Report to Stockholders and is incorporated herein by
reference.
Availability of Information
---------------------------
The annual report on Form 10-K and all other Company periodic
reports (including quarterly reports on Form 10-Q, current reports
on Form 8-K and all amendments thereto) are available promptly
after filing with the Securities and Exchange Commission ("SEC") on
the Company's Internet website at www.wyeth.com. Copies are also
available, without charge, by contacting Wyeth Investor Relations
at (877) 552-4744.
ITEM 2. PROPERTIES
----------
The Company's corporate headquarters and the headquarters of its
Consumer Healthcare business are located in Madison, New Jersey.
The Company's U.S. and international Pharmaceuticals operations are
headquartered in owned facilities in Collegeville and Great Valley,
Pennsylvania. The Company's Animal Health business is
headquartered in Overland Park, Kansas, a leased facility. The
Company's international subsidiaries and affiliates, which
generally own their properties, have manufacturing facilities in 17
countries outside the United States.
The properties listed below are the principal manufacturing plants
(M) and research laboratories (R) of the Company as of December 31,
2004, listed in alphabetical order by state or country. All of
these properties are owned except certain facilities in Guayama,
Puerto Rico, which are under lease. The Company also owns or
leases a number of other smaller properties worldwide, which are
used for manufacturing, research, warehousing and office space.
Pharmaceuticals (P), Consumer Healthcare (C) and Animal Health (A):
United States: Reportable Segment
-------------- ------------------
Charles City, Iowa (M) (A)
Fort Dodge, Iowa (M, R) (A)
Andover, Massachusetts (M, R) (P)
Cambridge, Massachusetts (R) (P)
Princeton, New Jersey (R) (P)
Chazy, New York (R) (P)
Pearl River, New York (M, R) (P) (C)
Rouses Point, New York (M, R) (P) (C)
Sanford, North Carolina (M, R) (P)
Collegeville, Pennsylvania (R) (P)
Carolina, Puerto Rico (M) (P)
Guayama, Puerto Rico (M) (P) (C)
Richmond, Virginia (M, R) (P) (C)
International: Reportable Segment
-------------- ------------------
St. Laurent, Canada (M, R) (P) (C)
Suzhou, China, (M) (P) (C)
Havant, England (M, R) (P) (C)
I-15
International: Reportable Segment
-------------- ------------------
Askeaton, Ireland (M, R) (P)
Grange Castle, Ireland (M)* (P)
Newbridge, Ireland (M) (P)
Catania, Italy (M, R) (P) (A)
Aprilia, Italy (M) (P) (C)
Shiki, Japan (M, R) (P)
Vallejo, Mexico (M) (P) (C)
Cabuyao, Philippines (M) (P)
Tuas, Singapore (M) (P)
Gerona, Spain (M, R) (A)
Hsin-Chu Hsien, Taiwan (M) (P) (C) (A)
* Wyeth's application for approval of this facility was filed with
the European Medicines Agency in January 2005.
The Company is working to support larger scale manufacturing in
Sanford, North Carolina, Guayama, Puerto Rico and Newbridge,
Ireland.
The Company believes its properties to be adequately maintained and
suitable for their intended use. The facilities generally have
sufficient capacity for existing needs and expected near-term
growth and expansion projects are undertaken as necessary to meet
future needs.
I-16
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and its subsidiaries are parties to numerous lawsuits
and claims arising out of the conduct of its business, including
product liability and other tort claims.
The Company has been named as a defendant in numerous legal actions
relating to the diet drugs PONDIMIN (which in combination with
phentermine, a product that was not manufactured, distributed or
sold by the Company, was commonly referred to as "fen-phen") or
REDUX, which the Company estimated were used in the United States,
prior to their 1997 voluntary market withdrawal, by approximately
5.8 million people. These actions allege, among other things, that
the use of REDUX and/or PONDIMIN, independently or in combination
with phentermine, caused certain serious conditions, including
valvular heart disease and primary pulmonary hypertension ("PPH").
On October 7, 1999, the Company announced a nationwide class action
settlement (the "settlement") to resolve litigation brought against
the Company regarding the use of the diet drugs REDUX or PONDIMIN.
The settlement covered all claims arising out of the use of REDUX
or PONDIMIN, except for PPH claims, and was open to all REDUX or
PONDIMIN users in the United States. As originally designed, the
settlement was comprised of two settlement funds. Fund A (with a
value at the time of settlement of $1 billion plus $200.0 million
for legal fees) was created to cover refunds, medical screening
costs, additional medical services and cash payments, education and
research costs, and administration costs. Fund A has been fully
funded by contributions by the Company. Fund B (which was to be
funded by the Company on an as-needed basis up to a total of $2.55
billion) would compensate claimants with significant heart valve
disease. Any funds remaining in Fund A after all Fund A
obligations were met were to be added to Fund B to be available to
pay Fund B injury claims. In December 2002, following a joint
motion by the Company and plaintiffs' counsel, the Court approved
an amendment to the settlement agreement which provided for the
merger of Funds A and B into a combined Settlement Fund which now
will cover all expenses and injury claims in connection with the
settlement. The merger of the two funds took place in January
2003. Payments in connection with the nationwide settlement were
$822.7 million in 2002. There were no payments made in 2003.
Payments in connection with the nationwide settlement were $26.4
million in 2004. Payments may continue, if necessary, until 2018.
On January 18, 2002, as collateral for the Company's financial
obligations under the settlement, the Company established a
security fund in the amount of $370.0 million. In April 2002,
pursuant to an agreement among the Company, class counsel and
representatives of the settlement trust (the "Trust"), an
additional $45.0 million (later reduced to $35.0 million) was added
to the security fund. In February 2003, as required by an
amendment to the settlement agreement, an additional $535.2 million
was added by the Company to the security fund, bringing the total
amount in the security fund to $940.2 million, which is primarily
included in Other assets including deferred taxes, at December 31,
2004. The amounts in the security fund are owned by the Company
and will earn interest income for the Company while residing in the
security fund. The Company will be required to deposit an
additional $180.0 million in the security fund if
I-17
the Company's credit rating, as reported by both Moody's and S&P,
falls below investment grade.
The Company recorded litigation charges of $4.5 billion in 2004, $2
billion in 2003 and $1.4 billion in 2002. Total pre-tax charges
recorded to date amount to $21.1 billion.
Payments to the nationwide class action settlement funds,
individual settlement payments, legal fees and other items were
$850.2 million, $434.2 million and $1.307 billion for 2004, 2003
and 2002, respectively.
As noted above, in 2004 the Company increased its reserves in
connection with the REDUX and PONDIMIN diet drug matters by $4.5
billion, bringing the total of the charges taken to date to $21.1
billion. The $7.166 billion reserve at December 31, 2004
represents management's best estimate, within a range of outcomes,
of the aggregate amount required to cover diet drug litigation
costs, including payments in connection with the nationwide
settlement (as it would be amended by the proposed Seventh
Amendment, discussed below), initial opt outs, PPH claims,
downstream opt out cases and the Company's legal fees related to
the diet drug litigation. The latest charge takes into account
the Company's decision to proceed with the proposed Seventh
Amendment, its settlement discussions with plaintiffs' attorneys
representing a number of individuals who have opted out of the
nationwide settlement, its experiences with the downstream opt out
cases that have been litigated or settled to date and its
projected expenses in connection with the diet drug litigation.
However, due to the need for Court approval of the proposed
Seventh Amendment, the preliminary status of the Company's
settlement discussions with attorneys representing certain
downstream opt out plaintiffs, the uncertainty of the Company's
ability to consummate settlements with the downstream opt out
plaintiffs, the number and amount of any future verdicts that may
be returned in downstream opt out and PPH litigation, and the
inherent uncertainty surrounding any litigation, it is possible
that additional reserves may be required in the future and the
amount of such additional reserves may be significant.
The Company intends to vigorously defend itself and believes it can
marshal significant resources and legal defenses to limit its
ultimate liability in the diet drug litigation. However, in light
of the circumstances discussed above, it is not possible to predict
the ultimate liability of the Company in connection with its diet
drug legal proceedings. It is therefore not possible to predict
whether, and if so when, such proceedings will have a material
adverse effect on the Company's financial condition, results of
operations and/or cash flows and whether cash flows from operating
activities and existing and prospective financing resources will be
adequate to fund the Company's operations, pay all liabilities
related to the diet drug litigation, pay dividends, maintain the
ongoing programs of capital expenditures, and repay both the
principal and interest on its outstanding obligations without the
disposition of significant strategic core assets and/or reductions
in certain cash outflows.
I-18
Recent Developments
-------------------
The Proposed Seventh Amendment to the Nationwide Settlement
On August 26, 2004, U.S. District Judge Harvey Bartle III, the
federal judge overseeing the settlement, granted a motion for
preliminary approval of the proposed Seventh Amendment to the
settlement. If approved by the District Court and upheld on any
appeals that might be taken, the proposed Seventh Amendment would
include the following key terms:
o The amendment would create a new Supplemental Fund, to be
administered by a Fund Administrator who will be appointed
by the District Court and who will process most pending
Level I and Level II matrix claims (as defined below);
o After District Court approval, the Company would make
initial payments of up to $50.0 million to facilitate the
establishment of the Supplemental Fund and to begin
reviewing claims. Following approval by the District Court
and any Appellate Courts, the Company would make an initial
payment of $400.0 million to enable the Supplemental Fund to
begin paying claims. The timing of additional payments would
be dictated by the rate of review and payment of claims by
the Fund Administrator. The Company would ultimately deposit
a total of $1.275 billion, net of certain credits, into the
Supplemental Fund;
o All participating matrix Level I and Level II claimants who
qualify under the Seventh Amendment, who pass the Settlement
Fund's medical review and who otherwise satisfy the
requirements of the settlement ("Category One" class
members) would receive a pro rata share of the $1.275
billion Supplemental Fund, after deduction of certain
expenses and other amounts from the Supplemental Fund. The
pro rata amount would vary depending upon the number of
claimants who pass medical review, the nature of their
claims, their age and other factors. A participating
Category One class member who does not qualify for a payment
after such medical review would be paid $2,000 from the
Supplemental Fund;
o Participating class members who might in the future have
been eligible to file Level I and Level II matrix claims
("Category Two" class members) would be eligible to receive
a $2,000 payment from the Trust; such payments would be
funded by the Company apart from its other funding
obligations under the nationwide settlement;
o If the participants in the Seventh Amendment have heart
valve surgery or other more serious medical conditions on
Levels III through V of the nationwide settlement matrix by
the earlier of 15 years from the date of their last diet
drug ingestion or by December 31, 2011, they would remain
eligible to submit claims to the existing Trust and be paid
the current matrix amounts if they qualify for such payments
under terms modified by the Seventh Amendment. In the event
the existing Trust is unable to pay those claims, the
Company would guarantee payment; and
I-19
o All class members who participate in the Seventh Amendment
would give up any further opt out rights as well as the
right to challenge the terms of and the binding effect of
the nationwide settlement. Approval of the Seventh Amendment
also would preclude any lawsuits by the Trust or the Company
to recover any amounts previously paid to class members by
the Trust, as well as terminate the Claims Integrity Program
(discussed below) as to all claimants who do not opt out of
the Seventh Amendment.
Pursuant to the terms of the proposed Seventh Amendment, the
Company retained the right to withdraw from the Seventh Amendment
if participation by class members was inadequate or for any other
reason. Less than 5% of the class members who would be affected by
the proposed Seventh Amendment (approximately 1,900 of the Category
One class members and approximately 5,100 of the Category Two class
members) elected to opt out of the Seventh Amendment and remain
bound by the current settlement terms. On January 10, 2005, the
Company announced that it would not exercise its right to withdraw
from the proposed Seventh Amendment. The terms of the Seventh
Amendment were thereupon reviewed by the District Court at a
fairness hearing, which took place on January 18-19, 2005. The
parties now are awaiting a decision by the District Court on
approval of the proposed Seventh Amendment. There can be no
assurance that the amendment will be approved by the Court and
upheld on appeal.
Challenges to the Nationwide Settlement
Counsel representing approximately 8,600 class members have filed
a motion with the District Court seeking a ruling that the
nationwide settlement agreement is void. The motion asserts that
there was inadequate representation of the class when the
settlement agreement was negotiated, that the parties and their
experts made mutual mistakes in projecting the amount of money
that would be needed to pay all valid claims, that the original
notice to the class was inadequate and that the Court had lacked
subject matter jurisdiction over some of the class members'
claims. The motion seeks an opportunity for all class members to
decide a second time whether or not to be included in the class
and therefore bound by the settlement agreement. The District
Court has stayed briefing and consideration of the motion until
after its decision on approval of the proposed Seventh Amendment,
which as discussed above would preclude such claims on behalf of
class members who participate. Counsel for the plaintiff class
supported the stay but have stated that if the Seventh
Amendment is not approved by the District Court, they intend to
seek similar relief from the preclusive effect of the settlement
agreement for uncompensated matrix claimants.
Certain class members also have filed a number of other motions and
lawsuits attacking both the binding effect of the settlement and
the administration of the Trust, some of which have been decided
against class members and currently are on appeal. The Company
cannot predict the outcome of any of these motions or lawsuits.
Downstream Opt Out Cases
During 2004, the claims of approximately 200 class members who
had taken advantage of the Intermediate and Back-End opt out
rights created in the nationwide settlement reached the trial
stage. Many of these cases were settled, dismissed or adjourned
to a later date. The claims of approximately 34 of these
plaintiffs went to verdict. Twelve of
I-20
those verdicts were defense verdicts in favor of the Company. The
remaining verdicts were returned in favor of the plaintiffs, with
awards ranging from a low of less than $1,000 to a high of $1.25
million. All of the plaintiffs' verdicts in excess of $250,000
(and certain of the verdicts below that level) are being
challenged by the Company on post-trial motions or appeal. On
February 23, 2005, the Court hearing one such post-trial motion
entered judgment in favor of the Company, dismissing a case in
which a jury had returned a $780,000 verdict in favor of the
plaintiff. Additional Intermediate and Back-End opt out trials
are scheduled throughout 2005 and 2006.
On January 18, 2005, the Company and counsel representing certain
downstream opt out plaintiffs filed a motion with the District
Court advising the Court that those parties had developed a
proposed process by which large numbers of the downstream opt out
cases might be negotiated and settled. On February 28, 2005, the
Company disclosed that lawyers representing a substantial number of
downstream opt out plaintiffs had agreed to participate in the
process and that the Company would move forward with settlement
discussions with those attorneys. However, the Company cannot
predict the number of cases that might be settled as a result of
such a process.
PPH Cases
On April 27, 2004, a jury in Beaumont, Texas, hearing the case of
Coffey, et al. v. Wyeth, et al., No. E-167,334, 172nd Judicial
District Court, Jefferson Cty., TX, returned a verdict in favor of
the plaintiffs for $113.4 million in compensatory damages and
$900.0 million in punitive damages for the wrongful death of the
plaintiffs' decedent, allegedly as a result of PPH caused by her
use of PONDIMIN. On May 17, 2004, the Trial Court entered judgment
on behalf of the plaintiffs for the full amount of the jury's
verdict, as well as $4.2 million in pre-judgment interest and
$188,737 in guardian ad litem fees. On July 26, 2004, the Trial
Court denied in their entirety the Company's motions for a new
trial or for judgment notwithstanding the verdict, including the
Company's request for application of Texas' statutory cap on
punitive damage awards. The Company has filed an appeal from the
judgment entered by the Trial Court and believes that it has strong
arguments for reversal or reduction of the awards on appeal due to
the significant number of legal errors made during trial and in the
charge to the jury and due to a lack of evidence to support aspects
of the verdict. In connection with its appeal, the Company was
required by Texas law to post a bond in the amount of $25.0
million. The appeal process is expected to take one to two years
at a minimum.
As of December 31, 2004, the Company was a defendant in
approximately 350 lawsuits in which the plaintiff alleges a claim
of PPH, alone or with other alleged injuries. Almost all of these
claimants must meet the definition of PPH set forth in the
national settlement agreement in order to pursue their claims
outside of the national settlement (payment of such claims, by
settlement or judgment, would be made by the Company and not by
the Trust). Approximately 130 of these cases appear to be
eligible to pursue a PPH lawsuit under the terms of the national
settlement. In approximately 20 of the 350 cases, the Company
expects the PPH claims to be voluntarily dismissed by the
claimants (although they may continue to pursue other claims). In
approximately 100 of these cases, the Company has filed or
expects to file motions under the terms of the national
settlement to preclude plaintiffs from proceeding with their PPH
claims. For the balance of these cases, the Company currently has
insufficient medical information to assess whether or
I-21
not the claimants meet the definition of PPH under the national
settlement. The Company continues to work toward resolving the
claims of individuals who allege that they have developed PPH as
a result of their use of the diet drugs and intends to vigorously
defend those PPH cases that cannot be resolved prior to trial.
Background to Recent Developments
---------------------------------
The number of individuals who have filed claims within the
nationwide settlement that allege significant heart valve disease
(known as "matrix" claims) has been higher than had been
anticipated. The proposed Seventh Amendment to the nationwide
settlement was negotiated in 2004 by the Company, counsel for the
plaintiff class in the nationwide settlement and counsel for a
number of individual class members. It is designed to create a new
claims processing structure, funding arrangement and payment
schedule for most of the Level I and Level II matrix claims, the
most numerous, but least serious, claims in the nationwide
settlement. Should the proposed Seventh Amendment not be approved
by the District Court and upheld in the event of any appeal from a
District Court approval, the pending matrix claims would be
processed under the terms of the existing settlement agreement and
under the procedures that have been adopted by the Settlement Trust
and the District Court, all as described below.
Nationwide Settlement Matrix Claim Data
The settlement agreement grants the Company access to claims data
maintained by the Trust. Based on its review of that data, the
Company understands that, as of December 29, 2004, the Trust had
recorded approximately 120,910 matrix claim forms. Approximately
33,200 of these forms were so deficient, incomplete or duplicative
of other forms filed by the same claimant that, in the Company's
view, it is unlikely that a significant number of these forms will
result in further claims processing.
The Company's understanding of the status of the remaining
approximately 87,710 forms, based on its analysis of data received
from the Trust through December 29, 2004, is as follows.
Approximately 24,220 of the matrix claims had been processed to
completion, with those claims either paid (approximately 3,720
payments, totaling $1.360 billion, had been made to approximately
3,560 claimants), denied or in show cause proceedings
(approximately 18,880) or withdrawn. Approximately 2,290 claims
were in some stage of the 100% audit process ordered in late 2002
by the Federal Court overseeing the national settlement. An
additional approximately 18,120 claims alleged conditions that, if
true, would entitle the claimant to receive a matrix award; these
claims had not yet entered the audit process. Another
approximately 24,000 claims with similar allegations have been
purportedly substantiated by physicians or filed by law firms whose
claims are now subject to the outcome of the Trust's Claims
Integrity Program, discussed below. Approximately 18,980 claim
forms did not contain sufficient information even to assert a
matrix claim, although some of those claim forms could be made
complete by the submission of additional information and could
therefore become eligible to proceed to audit in the future. The
remaining approximately 100 claims were in the data entry process
and could not be assessed.
In addition to the approximately 120,910 matrix claims filed as of
December 29, 2004, additional class members may file matrix claims
if they develop a matrix condition by
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2015, have registered with the Trust by May 3, 2003, and have
demonstrated FDA+ regurgitation (i.e., mild or greater aortic
regurgitation, or moderate or greater mitral regurgitation) or
mild mitral regurgitation on an echocardiogram conducted after
diet drug use and obtained either outside of the Trust by January
3, 2003 or within the Trust's screening program. A claimant who
has demonstrated a matrix condition by 2015 may progress to
advanced levels of the matrix beyond 2015.
The Company's understanding, based on data received from the Trust
through December 29, 2004, is that audits had produced preliminary
or final results on 4,531 of the claims that had begun the 100%
audit process since its inception. Of these, 1,640 were found to
be payable at the amount claimed, and 161 were found to be payable
at a lower amount than had been claimed. The remaining claims were
found ineligible for a matrix payment, although the claimants may
appeal that determination to the Federal Court overseeing the
settlement. Because of numerous issues concerning the audit
process raised in motions and related proceedings now pending
before the Federal Court, the Company cannot predict the ultimate
outcome of the audit process.
Both the volume and types of claims seeking matrix benefits
received by the Trust to date differ materially from the
epidemiological projections on which the Court's approval of the
settlement agreement was predicated. Based upon data received from
the Trust, over 95% of the 42,120 matrix claimants who allege
conditions that, if true, would entitle them to an award seek an
award under Level II of the five-level settlement matrix. (Level
II covers claims for moderate or severe mitral or aortic valve
regurgitation with complicating factors; depending upon the
claimant's age at the time of diagnosis, and assuming no factors
are present that would place the claim on one of the settlement's
reduced payment matrices, awards under Level II range from $199,872
to $669,497 on the settlement agreement's current payment matrix.)
The Settlement Trust Claims Integrity Program
An investigation that the Company understands was conducted by
counsel for the Trust and discovery conducted to date by the
Company in connection with certain Intermediate and Back-End opt
out cases (brought by some of the same lawyers who have filed these
Level II claims and supported by some of the same cardiologists who
have certified the Level II claims) cast substantial doubt on the
merits of many of these matrix claims and their eligibility for a
matrix payment from the Trust. Therefore, in addition to the 100%
audit process, the Trust has embarked upon a Claims Integrity
Program, which is designed to protect the Trust from paying
illegitimate or fraudulent claims.
Pursuant to the Claims Integrity Program, the Trust has required
additional information concerning matrix claims purportedly
substantiated by 18 identified physicians or filed by two law
firms in order to determine whether to permit those claims to
proceed to audit. Based upon data obtained from the Trust, the
Company believes that approximately 24,000 matrix claims were
purportedly substantiated by the 18 physicians and/or filed by
the two law firms covered by the Claims Integrity Program as of
December 29, 2004. It is the Company's understanding that
additional claims substantiated by additional physicians or filed
by additional law firms might be subjected to the same
requirements of the Claims Integrity Program in the future. As an
initial step in the integrity review process, each of the
identified physicians has been asked to complete a comprehensive
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questionnaire regarding each claim and the method by which the
physician reached the conclusion that it was valid. The ultimate
disposition of any or all claims that are subject to the Claims
Integrity Program is at this time uncertain. Counsel for certain
claimants affected by the program have challenged the Trust's
authority to implement the Claims Integrity Program and to
require completion of the questionnaire before determining
whether to permit those claims to proceed to audit. While that
motion was denied by the Court, additional challenges to the
Claims Integrity Program and to the Trust's matrix claim
processing have been filed.
In late 2003, the Trust adopted a program to prioritize the
handling of those matrix claims that it believed were least likely
to be illegitimate. Under the program, claims under Levels III, IV
and V were to be processed and audited on an expedited basis.
(Level III covers claims for heart valve disease requiring surgery
to repair or replace the valve or conditions of equal severity.
Levels IV and V cover complications from, or more serious
conditions than, heart valve surgery.) The program also
prioritized the processing and auditing of, inter alia, Level I
claims, all claims filed by a claimant without counsel (i.e., on a
pro se basis) and Level II claims substantiated by physicians who
have attested to fewer than 20 matrix claims.
On April 15, 2004, the Trust announced that it would indefinitely
suspend the payment and processing of claims for Level I and Level
II matrix benefits. The Trust stated that it would continue to
initiate audits with respect to Levels III, IV and V matrix claims
and would continue to act on the results of audits of Levels III,
IV and V claims. It also announced that "[d]ue to concerns about
the manner in which echocardiograms have been taken, recorded and
presented, the Trust is reviewing all echocardiograms and related
materials prior to payment of claims on which they are based and,
where possible, prior to initiation of a medical audit. This will
result in a temporary delay in initiating audits and in payments
following audit. Where the review of the echocardiogram reveals
substantial evidence of an intentional, material misrepresentation
that calls into question the validity of a claim, the Trust will
not pay the claim."
The Trust has indicated that one of the goals of the Claims
Integrity Program referenced above is to recoup funds from those
entities that caused the Trust to pay illegitimate claims, and the
Trust has filed two lawsuits to that end. The Trust has filed a
suit alleging violations of the Racketeer Influenced and Corrupt
Organizations ("RICO") Act against a Kansas City cardiologist who
attested under oath to the validity of over 2,500 matrix claims.
The suit alleges that the cardiologist intentionally engaged in a
pattern of racketeering activity to defraud the Trust. The Trust
also has filed a lawsuit against a New York cardiologist who
attested under oath to the validity of 83 matrix claims, alleging
that the cardiologist engaged in, among other things,
misrepresentation, fraud, conspiracy to commit fraud and gross
negligence. As indicated above, approval of the Seventh Amendment
would result in the dismissal of these lawsuits.
The Trust has filed a number of motions directed at the conduct
of the companies that performed the echocardiograms on which many
matrix claims are based. In a pair of motions related to the
activities of a company known as EchoMotion, the Trust has asked
the Court to stay payment of claims already audited and found
payable in whole or in part if the echocardiogram was performed
by EchoMotion and to disqualify all
I-24
echocardiograms by EchoMotion that have been used to support
matrix claims that have not yet been audited. In addition, the
Trust has filed a motion seeking discovery of 14 specific
companies whose echocardiograms support a large number of claims
to determine whether their practices violate the settlement. The
Trust also has moved to stay and/or disqualify claims brought by
claimants represented by certain law firms or attested to by
certain physicians. The Company has joined in certain of these
motions and has filed its own motions addressing the abuse of the
matrix claims process and seeking an emergency stay of claim
processing. All of these motions, as well as the Trust lawsuits
referenced above, also have been stayed pending the resolution of
the outstanding issues involving the proposed Seventh Amendment.
As indicated above, approval of the Seventh Amendment would
result in the withdrawal of these motions as to all class members
participating in the Seventh Amendment.
The order entered by the District Court on August 26, 2004 that
preliminarily approved the proposed Seventh Amendment also stayed
certain matrix claim processing and certain aspects of the Claims
Integrity Program, as specified in that order. The order stayed
the processing of all claims for matrix Level I and Level II
benefits (except such claims that have been the subject of a Trust
determination after audit as of a specified date) until the end of
the opt out/objection period and thereafter for all claimants who
participate in the Seventh Amendment. In addition, the order
stayed the Claims Integrity Program as to all class members who are
eligible to participate in the Seventh Amendment until the end of
the opt out/objection period and thereafter for all such claimants
who participate in the Seventh Amendment. This stay of the Claims
Integrity Program does not prohibit the Trust from investigating
whether there have been any material misrepresentations of fact in
connection with claims for Levels III through V matrix benefits, as
described in the order. The order further stays the motions
described in the previous paragraph and the two lawsuits against
physicians brought by the Trust that are described above, as well
as any future legal actions similar to those two lawsuits, as
defined in the Seventh Amendment. All of these stays will be
discontinued if the Seventh Amendment is not approved by the Court
and upheld on any appeal that may be filed.
Certain Level I and Level II claims that had been found to have a
reasonable medical basis following a Trust audit that was conducted
prior to May 6, 2004 will continue to be processed as set forth in
a District Court order also dated August 26, 2004. The Claims
Integrity Program is stayed as to these claims, except that the
Trust will have the right to investigate whether there has been
intentional manipulation of the claim, as defined in that order.
In addition to the specific matters discussed herein, the District
Court overseeing the national settlement has issued rulings
concerning the processing of matrix claims that are being
challenged on appeal. The U.S. Court of Appeals for the Third
Circuit has postponed deciding those appeals pending decision on
whether the proposed Seventh Amendment would be approved, and the
appealing plaintiffs have agreed to dismiss those appeals in the
event of such approval. The Company cannot predict the outcome of
any of these motions or lawsuits.
The Company continues to monitor the progress of the Trust's audit
process and its Claims Integrity Program. Even if substantial
progress is made by the Trust, through its
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Claims Integrity Program or other means, in reducing the number of
illegitimate matrix claims, a significant number of the claims which
proceed to audit might be interpreted as satisfying the matrix
eligibility criteria, notwithstanding the possibility that the
claimants may not in fact have serious heart valve disease. If the
proposed Seventh Amendment is not approved by the District Court and
upheld on any appeal that may be filed, matrix claims found eligible
for payment after audit may cause total payments to exceed the $3.750
billion cap of the Settlement Fund.
Nationwide Settlement Opt Out Terms and Data
Diet drug users choosing to opt out of the settlement class were
required to do so by March 30, 2000. The settlement agreement also
gave class members who participate in the settlement the
opportunity to opt out of the settlement at two later stages,
although they remain members of the class and there are
restrictions on the nature of claims they can pursue outside of the
settlement. Class members who were diagnosed with certain levels
of valvular regurgitation within a specified time frame could opt
out following their diagnosis and prior to receiving any further
benefits under the settlement ("Intermediate opt outs"). Class
members who are diagnosed with certain levels of regurgitation and
who elect to remain in the settlement, but who later develop a more
severe valvular condition, may opt out at the time the more serious
condition develops ("Back-End opt outs"). Under either of these
latter two opt out alternatives, class members may not seek or
recover punitive damages, may sue only for the condition giving
rise to the opt out right, and may not rely on verdicts, judgments
or factual findings made in other lawsuits. The Sixth Amendment to
the settlement agreement also gave certain class members an
additional opt out right, which is discussed below. The
Intermediate, Back-End and Sixth Amendment opt out rights are
collectively referred to as the "downstream" opt out rights.
Should the Settlement Fund be exhausted, most of the matrix
claimants who filed their matrix claim on or before May 3, 2003 and
who pass the audit process at a time when there are insufficient
funds to pay their claim may pursue an additional opt out right
created by the Sixth Amendment to the settlement agreement unless
the Company first elects, in its sole discretion, to pay the matrix
benefit after audit. Sixth Amendment opt out claimants may then
sue the Company in the tort system, subject to the settlement's
limitations on such claims. In addition to the limitations on all
Intermediate and Back-End opt outs (such as the prohibition on
seeking punitive damages and the requirement that the claimant sue
only on the valve condition that gave rise to the claim), a Sixth
Amendment opt out may not sue any defendant other than the Company
and may not join his or her claim with the claim of any other opt
out. The Company cannot predict the ultimate number of individuals
who might be in a position to elect a Sixth Amendment opt out or
who may, in fact, elect to do so, but that number could be
substantial. Several class members affected by the terms of the
Sixth Amendment opposed the approval of the amendment on the
grounds that, should the Settlement Fund be exhausted, they should
be entitled to pursue tort claims, including a claim for punitive
damages, without the limitations imposed by the Sixth Amendment.
The District Court overruled those objections and approved the
amendment. The District Court's order approving the Sixth
Amendment has been affirmed by the U.S. Court of Appeals for the
Third Circuit.
I-26
Some individuals who registered to participate in the settlement by
May 3, 2003, who had demonstrated either FDA+ level regurgitation
or mild mitral regurgitation on an echocardiogram completed after
diet drug use and conducted either outside of the settlement prior
to January 3, 2003 or within the settlement's screening program,
and who subsequently develop (at any time before the end of 2015) a
valvular condition that would qualify for a matrix payment may
elect to pursue a Back-End opt out. Such individuals may pursue a
Back-End opt out within 120 days of the date on which they first
discover or should have discovered their matrix condition. The
Company cannot predict the ultimate number of individuals who may
be in a position to elect a Back-End opt out or who may, in fact,
elect to do so, but that number also could be substantial.
The Company's current understanding is that approximately 76,000
Intermediate opt out forms were submitted by May 3, 2003, the
applicable deadline for most class members (other than qualified
class members receiving echocardiograms through the Trust after
January 3, 2003, who may exercise Intermediate opt out rights
within 120 days after the date of their echocardiogram). The
number of Back-End opt out forms received as of December 31, 2004
is estimated to be approximately 20,000, although certain
additional class members may elect to exercise Back-End opt out
rights in the future (under the same procedure as described above)
even if the Settlement Fund is not exhausted. After eliminating
forms that are duplicative of other filings, forms that are filed
on behalf of individuals who already have either received payments
from the Trust or settlements from the Company, and forms that are
otherwise invalid on their face, it appears that approximately
75,000 individuals had filed Intermediate or Back-End opt out forms
as of December 31, 2004.
Purported Intermediate or Back-End opt outs (as well as Sixth
Amendment opt outs) who meet the settlement's medical eligibility
requirements may pursue lawsuits against the Company but must prove
all elements of their claims - including liability, causation and
damages - without relying on verdicts, judgments or factual
findings made in other lawsuits. They also may not seek or recover
punitive, exemplary or multiple damages and may sue only for the
valvular condition giving rise to their opt out right. To
effectuate these provisions of the settlement, the District Court
overseeing the settlement had issued orders in several cases
limiting the evidence that could be used by plaintiffs in such
cases. Those orders, however, were challenged on appeal and were
in large part reversed (certain portions of the District Court
orders were upheld) by a panel of the U.S. Court of Appeals for the
Third Circuit in May 2004. The Company's petition to the Third
Circuit for a rehearing or rehearing en banc was subsequently
denied, as was the Company's petition to the U.S. Supreme Court for
a writ of certiorari. The District Court subsequently issued
revised injunctions requiring some of the plaintiffs subject to the
earlier injunctions to litigate causation and damages in a separate
initial trial, with a subsequent trial on liability. The Court has
declined to impose such a requirement on a class-wide basis, at
least at this time. The plaintiffs affected by those revised
injunctions filed an appeal with the U.S. Court of Appeals for the
Third Circuit, which upheld the District Court's order (while
modifying the language of the injunction in certain respects).
As of December 31, 2004, approximately 62,000 individuals who had
filed Intermediate or Back-End opt out forms had pending lawsuits
against the Company. The claims of approximately 48% of the
plaintiffs in the Intermediate and Back-End opt out cases
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served on the Company are pending in Federal Court, with
approximately 39% pending in State Courts. The claims of
approximately 13% of the Intermediate and Back-End opt out
plaintiffs have been removed from State Courts to Federal Court
but are still subject to a possible remand to State Court. In
addition, a large number of plaintiffs have asked the U.S. Court
of Appeals for the Third Circuit to review and reverse orders
entered by the Federal Court overseeing the settlement which had
denied the plaintiffs' motions to remand their cases to State
Court. The Third Circuit has not determined whether or not it
will hear that challenge.
The Company expects to vigorously challenge all Intermediate and
Back-End opt out claims of questionable validity or medical
eligibility, and a number of cases already have been dismissed on
eligibility grounds. However, the total number of filed lawsuits
that meet the settlement's opt out criteria will not be known for
some time. As a result, the Company cannot predict the ultimate
number of purported Intermediate or Back-End opt outs that will
satisfy the settlement's opt out requirements, but that number
could be substantial. As to those opt outs who are found eligible
to pursue a lawsuit, the Company also intends to vigorously defend
these cases on their merits. As of December 31, 2004,
approximately 2,500 Intermediate or Back-End opt out plaintiffs
have had their lawsuits dismissed for procedural or medical
deficiencies or for various other reasons.
The Company has resolved the claims of all but a small percentage
of the "initial" opt outs (i.e., those individuals who exercised
their right to opt out of the settlement class) and continues to
work toward resolving the rest. The Company intends to vigorously
defend those initial opt out cases that cannot be resolved prior to
trial.
The Company is a party to various lawsuits involving alleged
injuries as a result of the use of the NORPLANT SYSTEM, the
Company's implantable contraceptive containing levonorgestrel. In
March 2003, the Louisiana Court of Appeals for the Fourth Circuit
affirmed a lower court's certification of a statewide class of
Louisiana NORPLANT users and the Louisiana Supreme Court refused to
hear a further appeal. Davis v. American Home Products
Corporation, No. CDC 94-11684, Orleans Parish. The matter was
returned to the trial court level for further proceedings, but
there has been no further activity in the matter since that time.
The Company continues to believe that it has compelling arguments
against class certification, which has been denied in all other
federal and state cases. The Company continues to defend several
pending cases consisting of pro se plaintiffs alleging disparate
injuries, including complications stemming from the removal of
NORPLANT capsules, miscarriage and stroke. These matters are
subject to being dismissed for want of prosecution and the Company
is moving to do so when appropriate.
In July 2002, the hormone therapy ("HT") subset of the Women's
Health Initiative ("WHI") study, involving women who received a
combination of conjugated estrogens and medroxyprogesterone acetate
(PREMPRO), was stopped early (after the patients were followed in
the study for an average of 5.2 years) because, according to the
predefined stopping rule, certain increased risks exceeded the
specified long-term benefits. Additional analyses of data from the
HT subset of the WHI study were released during 2003, and further
analyses of WHI data may be released in the future.
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In early March 2004, the National Institutes of Health ("NIH")
announced preliminary findings from the estrogen-only arm of the
WHI study and that it had decided to stop the study because they
believed that the results would not likely change during the period
until completion of the study in 2005 and the increased risk of
stroke seen in the treatment arm could not be justified by what
could be learned in an additional year of treatment. NIH concluded
that estrogen alone does not appear to affect (either increase or
decrease) coronary heart disease and did not increase the risk of
breast cancer. In addition, NIH found an association with a
decrease in the risk of hip fracture. This increased risk of
stroke was similar to the increase seen in the HT subset of the WHI
study. NIH also stated that analysis of preliminary data from the
separate Women's Health Initiative Memory Study ("WHIMS") showed an
increased risk of probable dementia and/or mild cognitive
impairment in women age 65 and older when data from both the
PREMARIN and PREMPRO arm were pooled. The study also reported a
trend towards increased risk of possible dementia in women treated
with PREMARIN alone. WHIMS data published in The Journal of
American Medical Association (JAMA) in June 2004 and in a separate
report published in JAMA at the same time indicated that HT did not
improve cognitive impairment and may adversely affect it in some
women. The Company is working with the FDA to update the labeling
for its HT products to include the latest data.
The Company is currently defending eight state putative court
medical monitoring class action lawsuits relating to PREMPRO:
Albertson, et al. v. Wyeth, No. 002944, Ct. Comm. Pleas, Phil.
Cty., PA; Balita, et al v. Wyeth, No. ATL-L-2138-04, Sup. Ct.,
Atlantic Cty., NJ; Gottlieb, et al. v. Wyeth, No. 02-18165CA 27,
Cir. Ct., 11th Jud. Cir., Dade Cty., FL; Katzman, et al. v. Wyeth,
No. L-1285-03, Sup. Ct., Morris Cty., NJ; Luikart, et al. v. Wyeth,
No. 04-C-127, Cir. Ct., Putnam Cty., WV; Phillips, et al. v. Wyeth,
No. CV-03-005, Cir. Ct., Jefferson Cty., AL; Tiedemann, et al. v.
Wyeth, No. 110063/04, Supreme Ct., NY; and Vitanza, et al. v.
Wyeth, No. ATL-L-2093-04, Superior Ct., Atlantic Cty., NJ. The
plaintiffs in these cases seek to represent statewide classes of
women who have ingested the drug and seek purchase price refunds
and medical monitoring expenses on their behalf. Plaintiffs in the
Albertson, Gottlieb, Luikart, Phillips and Tiedemann cases are
seeking this relief on behalf of putative classes of Pennsylvania,
Florida, West Virginia, Alabama and New York, users of PREMPRO,
respectively. The Balita, Katzman and Vitanza cases all seek this
relief on behalf of New Jersey PREMPRO users. On February 1, 2005,
in the Gottlieb case, the Florida Circuit Court certified a
statewide medical monitoring class of asymptomatic PREMPRO users
who have used the product for longer than six months. The Company
plans to appeal this decision. A class certification hearing in
the Albertson matter took place on January 10-13, 2005 in the
Pennsylvania Court of Common Pleas, Philadelphia County. That case
is now under consideration. A class action hearing in the New
Jersey cases, Katzman, Balita and Vitanza, will likely not take
place until mid-2005. The remaining cases remain inactive.
Two putative medical monitoring class actions have now been
dismissed: Gallo, et al. v. Wyeth, No. 02857, Ct. Comm. Pleas,
Phil. Cty., PA and Lewers, et al. v. Wyeth, No. 02C 4970, U.S.D.C.,
N.D. Ill.
I-29
The Company is also defending two putative personal injury class
actions. The plaintiff in Michael, et al. v. Wyeth, No. 2:04-0435,
U.S.D.C., S.D., WV, seeks to represent a nationwide class of
PREMPRO users who have suffered injuries from the product. The
plaintiff in Barker, et al. v. Wyeth, No. 04-C-1932, Cir. Ct.,
Kanawha Cty., WV, seeks to represent a class of West Virginia users
who have suffered personal injuries. Both of these cases have been
transferred to the federal multi-district litigation ("MDL")
proceedings in Little Rock, Arkansas.
Finally, the federal Judicial Panel on MDL has ordered that all
federal PREMPRO cases be transferred for coordinated pretrial
proceedin