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GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 1 OF 15
FRED HASSAN, CHAIRMAN AND CEO, PHARMACIA CORPORATION:
To everyone else who is joining us here, by phone or via video:
All of you by now have read about the transaction that is planned
to occur. This is a merger transaction which will allow Pfizer to
acquire control of Pharmacia via a stock deal [of] 1.4 Pfizer
shares to one share of Pharmacia.
Our Management Committee members, they are all here. Our MC
members. We will later on have an extensive question-and-answer
session. That is really the purpose of us to meet this afternoon.
And I hope, they will also join me in answering some of the
questions.
I wanted to have this meeting today because all of you are very
important to me. It was important today to do some media calls,
to talk to investors, to talk to a lot of people because this is
a major transaction. This is the biggest transaction in the whole
of the global market this year, so far this year. And, I still
asked to be relieved and be here because I wanted to spend the
time today with all of you and to explain to you what happened
here - so you can get it directly from me - and also to give you
a chance to ask any questions that might be on your minds.
First of all, the obvious question you're going to ask is: Fred,
you're a fighter. You always said we were going to make it on our
own. Regardless of whether we are small- or medium-sized, or
whatever. So what happened?
We were going to go our own way. So now, let me take you back to
May of '97, when I joined Pharmacia & Upjohn and it was a pretty
difficult situation at that time. Of course we had internal
challenges, and we managed to put our company together, do a few
good things. But we have always been among the smaller companies
in the industry, always a smaller company. And I got the informal
approaches within my first week at Pharmacia & Upjohn. And ever
since then, there have been informal approaches from many, many
companies who have seen us as a very interesting target. The good
news is that Pharmacia & Upjohn was seen as a pure
takeover-and-strip situation. [But] as we have evolved, and as we
had the merger with Monsanto, we have actually become quite an
interesting company. Unfortunately, still on the small side. But
we are now seen as a very high-quality company.
The informal approaches have been very steady. I'm going to ...
By the way, to all of them, I always said steadily, "We are not
for sale. I'm sitting here as the CEO. We have a plan. We have an
agenda. We have good people. We are bringing in good people.
Leave us alone, keep your distance." That was the overall
attitude. And people actually respected that even though they
really wanted to come much closer and do something with us.
Pfizer - they were looking at Monsanto, even before we got to
Monsanto. The reason they did not do the Monsanto deal is because
they got diverted with the Warner Lambert situation. But they
always thought that they had the first right to the coxibs before
anybody else. The other fact: They started looking at us soon
after the Warner Lambert situation. They had been approaching me,
informally, for more than a year and a half, and I have steadily
said, "We are not for sale. We are on our own course. We're on
our own agenda."
About three months ago, it got more serious. I could sense it.
And I still am trying to put the whole information together. I
don't know if it was the Bextra approval or the Arcoxia
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 2 OF 15
withdrawal or the Eplerenone news that came out at the ACC. I
don't know what was the trigger, but I sense that the interest
picked up dramatically about three months ago.
We still kept our distance, I kept our board fully in the know.
And then early in July, a very serious number got put on the
table. And the number is the number that you see today. It's a
premium where, if we were to say no to this, we have to face our
shareowners, and tell them that this company is going to grow X
percent faster than Pfizer for the next five years in order to
justify this 50 percent [unintelligible] that's on the table at
this time.
Your board of directors is a very loyal board. It is a very
committed board. They've always given me their support. And there
was no interest whatsoever to sell the company. In fact, there
was some concern about size, about bulking up that would cause
some issues down the road. So, we have had very interesting
discussions in our board. But every member of the board - no
matter how they felt personally - when they saw that number, they
had no choice. There was no decision, there was no, I mean there
was no long discussion at that point. There is a number in front
of you. Can we grow X percent per year faster than Pfizer to
justify, to overcome that hurdle?
We actually did our numbers. We actually went through our
options. And while we do have a good growth story, we do not
believe we can grow that fast as to overcome this huge hurdle.
Now, some of you might ask, "Couldn't we have done something with
somebody else that might have prevented this from occurring?" And
I have to admit to you that there have been some discussions
where we could have done a merger of equals, or we could have
even acquired some other company. The problem with that scenario
is that any of those would have been low-premium transactions.
And at that point, let's say that we have a 10-percent premium,
with say an American Home Products. There would be nothing to
stop Pfizer coming in and taking us out for a 20-percent premium.
That is the reason. It is hard to do a merger of equals deal in
this environment. That is the reason other alternatives were
very, very difficult.
Now, in the question-and-answer session, please feel free to ask
that question, because I know all of you are asking this
question: "Could we have done something else to prevent this day
where we are going to be announcing that we are going to sell our
company to Pfizer?" I'm telling you, we did look because we
didn't want to have this transaction occur. This is a very
powerful culture that we have created. It is a young company, but
very powerful culture. Good people, hand-picked people. Good
products. Why would we want to sell it? The only reason is we
have a number that we cannot argue with anymore. That is the
problem.
Now, going forward, there are feelings of concern. There is a
sense that we are going to lose control. And it is true. We are
going to lose control once the transaction occurs. In the
meantime, it is our company, and we will do what we believe is
right for our company.
We are going to be good people. We are going to work well with
Pfizer in the meantime. Take decisions that are the right
decisions. For example, we moved ahead on the AT&T building
before we got this serious offer. So we were honorable people. We
went ahead and closed with AT&T. But it doesn't make sense for us
now to move ahead with our very expensive renovation plans and
[be] moving people into that building when we have this air of
uncertainty about what the integration plans might be. So we are
not going to do anything yet on that subject. On other subjects,
for legal reasons, we are not going to
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 3 OF 15
collaborate with Pfizer, because technically, they are our
competitors until the transaction occurs. So we have to be very
careful how we work with them.
For many of you, this is a time of great concern, and a sense of
"what is going to happen?" And I fully understand that feeling,
because nobody likes to be unsettled, or see a lot of changes
occur, especially when they have grown to like the company they
work for. And they have grown to like the people around them. So,
I know it is not going to be easy for the next few months.
I have been through seven or eight of these transactions. In
fact, today, we were having an interview with one of the
newspapers and I probably can say that I have had more experience
with transactions than any other CEO in the pharmaceutical
industry. Just by the nature ... I've been with companies that
have had a lot of transactions. And of course, Pharmacia & Upjohn
and our heritage companies, there is a whole story of systematic
transactions over a large number of years.
I can tell you, in all these that I have seen, there is a lot of
fear, a lot of concern. In the end, the vast majority of people
come out okay. They find ways to take care of themselves and
their own lives. So I am very confident about what's gonna happen
here. Especially when I'm so confident about the people at
Pharmacia. Again, I want to go back to the point we have
handpicked people in our company. Good people. Good people
usually can handle change and deal with it whenever it occurs.
Also, I was talking to Hank McKinnell, the Chief Executive
Officer of Pfizer about his plans. He assured me that while his
immediate senior management team is likely to be more heavily
tilted towards Pfizer, they are going to have very open mind when
it comes to the other people. Not quite the same as the Warner
Lambert situation, where there was a lot of in - there was a lot
of longevity that had been built up in that company. Because they
respect our people and they know that there is a lot of special
people who joined this company, there is in fact a certain
openness to how we are going to integrate this company. On my way
out of the building, and I was with Tim Cost [Senior Vice
President, Corporate Affairs, Pharmacia Corporation], his
counterpart asked him in front of me, "Please tell me the names
of good people, because we are looking for good people, and we
want to find an excuse to get rid of our mediocre people via this
transaction."
So, let's see what happens. I cannot promise anything to anybody.
But, I would not assume what, given a read in the Star-Ledger
tomorrow or some of the other horror stories about what happened
to Warner Lambert. Let's keep our minds open, and see what
happens. And if things don't go the way ...they will ... than we
have a whole world out there to look at, and to plan our careers
going forward. That's all I want to say at this time. I'd like to
use this opportunity for you to ask the questions that you may
have. So, we will ask Tim Cost to be the moderator. And let's
have a good Q & A.
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 4 OF 15
TIMOTHY COST, SENIOR VICE PRESIDENT, CORPORATE AFFAIRS, PHARMACIA CORPORATION:
Thanks, Fred. We have got a lot of questions that were sent in in
advance. Obviously, a lot of interest and emotion around this.
Let me go over the process of how we will do the Q & A. Those of
you in the room bear with me a minute because I have to give out
a few telephone numbers. There are operators standing by. If you
are at a video-conference location, please use the phones in the
conference room that you are in to call in your questions. Let me
give you those phone numbers at least twice. From the United
States: 800-399-8209. In England, Scotland and Wales, it is
0800-953-0406. And in all other locations, it is 44 145-256-0299.
If you're participating and listening to this via an audio [or]
webcast, you should use the phone at your desk. Dial the same
phone numbers depending on where you are located. I will do them
quickly again. US: 800-399-8209. England, Scotland, Wales:
0800-953-0406. And any other location: 44-145-256-0299.
If you're participating via an audio conference, obviously we
have lots of ways to get into this call. You stay on the line
when you want to ask your question. You press "star 1" on the
telephone you are using.
For anyone here, now, in the auditorium, you write your question
down on a card. We are not supposed to do much editing. We are
supposed to pass all these questions on to Fred. I already have
about a dozen here. So please jot your question down on a card
and we will pick them up.
Now in no particular order I'm told, Fred, I'll go to the first
question, and I'll read these emotionless. Why this change in
direction? Why didn't we acquire or merge with another company
and maintain control over our own destiny?
FRED HASSAN: I think I have answered this question to some extent. We would
have liked to have kept growing by ourselves. We were growing
double digits and we plan to grow double digits into the future.
But I have explained to you already, that because of this very
unique, COX-2 situation with Pfizer, I don't think we were
afforded that opportunity. We would have preferred to have gone
that route.
TIM COST: If the Pharmacia Way is "building trust," this action seems out
of line with our culture. There is no question. That is just an
observation.
FRED HASSAN: It is a good point, but just keep in mind that I did not start
this, and I resisted this for as long as I could. But in the end
there was that number in front of us, and even if I'd been
against it, my board would have gone forward with it without me.
TIM COST: This one references your own personal past. How many jobs will be
lost in your experience with this kind of deal? For instance, at
American Home Products, where you led a major acquisition, what
parts of our company do you think will be most affected?
FRED HASSAN: I cannot speculate what is going to happen. They have mentioned
two-and-a-half billion dollars in synergy. The earlier numbers
were much higher. But we have talked to them. Goran [Goran Ando,
Executive Vice President and President, R&D, Pharmacia
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 5 OF 15
Corporation] and Phil [Philip Needleman, Chief Scientific
Officer, Senior Executive Vice President, and Chairman, R&D,
Pharmacia Corporation] have talked to them about being careful
with very aggressive numbers. And they have brought the numbers
to two-and-a-half billion, which is a good sign that they are at
least listening here. They are taking a hit on their stock.
Because had they had the bigger numbers, maybe their stock would
not have been so badly hit today. But these numbers, the
two-and-a-half billion dollar number, is much, much lower than
the standard in the industry that we have seen. Generally, when
transactions of this magnitude occur, the overall cost reduction
of the combined selling, general and R & D expenses is about 13.4
percent. Is that correct, Dick Van Dyne [Senior Vice President,
Business Development, Pharmacia Corporation]? Yes. And with
two-and-a-half billion dollars, we are well below that number. I
believe that the total expense base of the two companies is $27
billion. So we are well below that 13.4 percent number. So our
hope is that the overall job losses will not be very large.
I also heard Hank say today that both companies have very
ambitious expansion plans at head count. And some of those
head-count plans could be held off so that some people who get
displaced will be offered other opportunities for jobs.
TIM COST: I think on that point, after we go forward or stop, the question
is: "Should we keep working on all our projects until we hear
stop, or should we stop until we hear go?"
FRED HASSAN: That's...I am very glad that somebody asked that question because
I've been on the other side, where things stopped because that
company did not have any pride. That there was just no confidence
or pride in that company. We are a different company. We are not
going to stop. We are on our own path. We are [an] independent
company until the last day the transaction occurs. We are going
to use good common sense and judgment, such as holding off and
moving into the AT&T building. But my advice is, let's not cut
down on the initiative, the energy and the drive that we have in
our company. It is something very special. Let's keep going and
let's see what happens. Remember, this deal has to be approved by
the regulators, not only in the U.S., but also in Europe and
elsewhere. And then finally, it has to be voted in by the
shareholders of both companies. So there are a lot of issues
right now. Let's keep going where we are going and focus on our
work, because we have a big, ambitious goal to meet this year.
Let's just go for it.
TIM COST: This is a three-part question. You may want to pick two of them.
The first one: "What will you do at Pfizer? How long will you
stay? And how much are you being paid for your new role?"
FRED HASSAN: I was with Hank McKinnell today, and a very strange question got
asked by somebody from the media. I was embarrassed. They said,
"Mr. Hassan, since you are kind of moving up, I think you were
listening, to that question. Are you going to take over Mr.
McKinnell's job?" So, I said, "Look, I am running Pharmacia. My
goal is to run Pharmacia. I am not out here, and I do not have
any hierarchical ambitions in this company. I am just going to do
my job at this time. So, here is the deal: I have promised him
[to] stay back one year as vice chairman. If we both agree, I
might stay another year, unlikely, one year and then I am going
to have a consulting relationship with him. That is all that I
have promised at this time. My compensation, it will be published
in the proxy statement. It is the base salary that I have, more
or less, and some options, which are less than the option[s] I
get at this time, and no other stock plan. So, in fact, my
compensation for this one year will be significantly less than my
annual compensation that I have as CEO of Pharmacia.
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 6 OF 15
TIM COST: This question comes in lots of different forms - there are some
people's names. I'll give you one version of it - generic. What
will happen to other top management of the Management Committee
and the Operating Committee?
FRED HASSAN: I would think that many people in the Management Committee will
probably not stay back. Not necessarily because Pfizer does not
want them, but they may not want to work there for various
reasons. Or, they may not get the same jobs that they have at
Pharmacia. I do not anticipate too many people from the
Management Committee being a part of the new, combined company.
Beyond that, I am very optimistic. I think they are very
appreciative of our company. That is why they paid the premium,
because we are good. If we are not good, why are they paying so
much for this company? I think we will be surprised how well our
people are going to do in this combined company.
TIM COST: The question is "Does Pfizer have a 'Pfizer culture'? And if so,
how does it differ from Pharmacia?"
FRED HASSAN: Pfizer, every company has its own culture, and then there are
differences which people observe. I do not know Pfizer too well.
I have heard some folklore about them. I, I think sometimes you
have to have an open mind and see them as you get to know them. I
actually sat in today in their group as they were trying to feel
these investor calls. It is a pretty anxious group because their
stock was down more than they had expected. And I thought that
the team worked pretty well. There were a couple of disagreements
with Hank and people spoke up and I was pretty encouraged by
that. I, I think, let's give them a chance to show us what they
really are like. There was a speech made this morning by Hank to
all the senior leadership team there. And I was there as well.
And the three things that he talked about are things that we
probably would talk about in our company, as well. The three
things were integrity, teamwork and respect for the individual. I
think these three are very good values. In fact, I am sure they
are part of the Pharmacia values, as well. Now, going forward,
let's see, let's see what we see. We do know it is a very tightly
run company. Very high-quality professionals in their functional
jobs. It is an old culture - 153-year-old company with very good
systems. And I think they are going to do fine. The challenge for
them is, and I have said this to Hank McKinnell, is do not treat
this merger the way you did the Warner Lambert merger because
this is a different company. There is a lot more sophistication
and complexity here. Warner Lambert was two major products:
Lipitor and Neurontin, and the rest was a pretty simple
operation. Here, there is complexity. Go carefully, and go with a
lot of listening. And I have reason to believe that they will be
careful because they have paid a lot of money to make this
offer...well, they are going to pay a lot of money if they manage
to complete this deal.
TIM COST: What will we do about in-licensing opportunities that are
currently being reviewed?
FRED HASSAN: I would urge common sense and judgment. I think there are some
which I hate to lose. Opportunities, let's not let those go.
Others, which are real long shots, and which might be overlap
with their work, let's check out. I think over the next several
weeks and months we are going to learn a little more about them,
and let's be sure that we do those things carefully because it is
a disservice to future partners if they start working with new
people after six months. So, it is better that we be careful on
some of these long-term licensing deals. But some immediate
deals, I think we should go ahead. But I believe, Rick Collier,
that our contract stipulates that we must check with Pfizer. Go
ahead Rick. Yes. Rick Collier is the General Counsel of
Pharmacia.
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 7 OF 15
RICHARD T. COLLIER, SENIOR VICE PRESIDENT AND GENERAL COUNSEL,
PHARMACIA CORPORATION:
Yes. Just so everyone knows. There is a tension here. On the one
hand, there is a desire to start the integration process. On the
other hand, we, as Fred mentioned, are competitors. So in a
situation like this, we entered into our contract with certain
restrictions. There are some things that we have put on a
schedule and said that we are going to do these things, we are
going to go forward. We have agreement with respect to that. In
other areas, we have certain thresholds built in. So that if a
given transaction that we are contemplating might exceed a
certain threshold, that would be precluded under our contract. So
that about a-hundred-page document that governs our relationship
with Pfizer in this interim period between signing and closing.
The best advice I can give is if you have questions, work through
your supervisor and consult your local sheriff, and we will let
you know whether something falls into a restriction or whether it
is okay.
TIM COST: Thanks, Rick. Question is, "Why is SMART and our additional
cost-cutting now necessary? Do we keep travel and other
reductions in place? Or should we travel the globe?"
FRED HASSAN: As I said earlier, we are a very proud company. And if there is
one thing we can point to, it is a steady record of meeting our
goals, meeting our numbers, strong results. I would ask us, let's
stay that course. Let's do the right thing. The reason we have to
cut costs is because our sales are going to slow down. They
already have slowed down because of Ambien and some other issues.
That those actions that we are taking have very little to do with
this transaction. Let's stay our course and then see what happens
going forward. Was that the only question, or were there, were
there any other questions.
TIM COST: That was about travel and other reductions.
FRED HASSAN: So nothing changes. We stay on track here.
TIM COST: Speaking of staying on track, the question is "Should we stop our
competitive activity against Pfizer?"
FRED HASSAN: Absolutely not. So we go ahead. We are their collaborators on
COX-2's. That[is] the legal thing. If we do anything else, that
is illegal. We are competitors. Let's not change anything. And
remember the deal is not done yet. So, let's just keep doing what
we have been doing in the past. I am not aware of any major
arenas where we are directly competing. Carrie [Carrie S. Cox,
Executive Vice President and President, Global Prescription
Business, Pharmacia Corporation], are you aware of anything?
Darifenacin. So this Darifenacin issue was brought up repeatedly
today in calls with analysts, and Hank McKinnell chose not to
answer that question because, I understand Rick Collier, that is
something that the FTC, the Federal Trade Commission, is going to
get to, and it is probably not the practice to volunteer
conflicts ahead of time. Yes.
TIM COST: Good. Several questions on stock options. I will just try to pull
them all together. "How does this merger affect stock options
granted for performance. Will anything be done to address the
fact that some of our stock options have no value. Will we get
our options if they are granted at a higher amount?"
FRED HASSAN: Yes, it is unfortunate that the overall market is so jittery at
this time. This is an unusual situation. A couple of, well, some
bad apples, some CEOs and some other senior executives have not
behaved appropriately and that coupled with an election year
where this has become an election issue is causing the stock
markets to be very jittery. The
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 8 OF 15
index, the S & P 500 Index, is below where it was five years ago.
Am I right Chris? You are the expert in that
CHRISTOPHER J. COUGHLIN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
PHARMACIA CORPORATION:
Yes. Absolutely. It is obviously well below even where it was
right after the September 11th bombings.
FRED HASSAN: So, we are hitting all kinds of lows. And on top of that, because
the drug industry usually becomes the favorite for people in
election time to beat up on, we are selling as an industry at a
discount from the S&P 500. So, that is the reason why people's
options are underwater. We actually are doing rather well. If you
look at the performance of stocks this year, stock number one is
Johnson & Johnson, stock number two is Pfizer, stock number three
is Pharmacia. Once us three are looked at, the other five are
having a terrible time this year. It is a real difficult
situation in our industry. And Johnson & Johnson, as you know, is
a diversified stock. So, really, pure pharma's...only Pfizer and
Pharmacia are doing well this year. So in spite of the fact that
our own stock performance compared to the drug index is doing
well, the overall indices are down. And, my hope is that in due
course the stock will come back, and people will get some value
out of their options that are underwater. I am not sure if we are
able to tell people how much time there will be in the
eventuality - I mean in the event they are no longer with the
company - how long they would be able to keep those options
before they have to give up. Are we able to talk about that yet,
or is it too early at this time?
TIM COST: The non-head of HR will address that issue.
FRED HASSAN: Okay.
TIM COST: My understanding is that, well, stock options will be governed by
the terms of the grant document. My understanding - and this is
painting with a broad brush - so let me just characterize it that
way, and we're going to have to look at the grant document for
specific questions. For those whose options come from the
Pharmacia & Upjohn, there will be three years on the other side
of the closing date. So three years in which to exercise those
stock options. I believe in the case of those who may have
options that date from the Monsanto plan, you could have as many
as five years. Okay, so if you are over 50, you have five years
to exercise Monsanto heritage stock options, and one year if you
are under 50. Paul or Ron, you want to supplement that at all?
PAUL MATSON, SENIOR VICE PRESIDENT, HUMAN RESOURCES, PHARMACIA CORPORATION:
Another way of saying that is: For post the merger with Monsanto,
the options granted as Pharmacia, if the person is terminated
will have three, you will have three years to exercise from the
termin..., your termination date if that happens. For, in the
history of the others, the heritage of the other two companies,
it is based on the verbiage in the plan. But if we think of
Pharmacia as three years going forward, if someone remains
employed by Pfizer, you would have the remainder - your shares,
your options would be converted to Pfizer options, and you would
have the remainder of your existing term, 5, 6, 7, 8, 9 years.
FRED HASSAN: Now remember, we are looking at these things as the world is
today. I am telling all of you these are unusual times for the
stock market. It has to get better going forward. Also, as you
know, the road show is going to improve the outlook for both
stocks, Pfizer and Pharmacia. And remember, if people are going
to get terminated, they may not
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 9 OF 15
necessarily get terminated right after the merger transactions.
So, we're looking at a pretty long period before these options
expire.
TIM COST: Question is: "What is the plan for Pharmacia's Consumer
Healthcare business in the new Pfizer?"
FRED HASSAN: It is too early to tell. We know that the fit is pretty good.
Maybe, Steve, you may want to comment on the overall fit here,
and also on the Animal Health business.
STEPHEN P. MACMILLAN, SECTOR VICE PRESIDENT, GLOBAL SPECIALTY OPERATIONS,
PHARMACIA CORPORATION:
Sure. I think from a business standpoint, it is going to be a
great opportunity for both. Animal Health - this will now become
the world's largest animal-health company and the world's largest
OTC company, just like on prescription side. Obviously there are
some great fits in terms of Nicorette and Rogaine going into
their organization. I think Hank even mentioned this morning on
the call that you were with, Fred, saying that they have got
great respect, especially for our Animal Health business. They
have looked at that business for a long time. There are very
strong relationships between the leadership of their Animal
Health business and our Animal Health business. We have some
things in our pipeline that, frankly, we did not have the
commercial organization to bring to market, particularly around
companion animal products and everything else. It is going to be
great to feed those right into their sales organization and will
allow us to compete with the Fort Dodges [Fort Dodge, the Animal
Health division of Wyeth] of the world and other people very
well. On the consumer side, they have also got, frankly, a
stronger commercial organization in a lot of countries to be able
to merge our organizations into and our products into. So there
will be changes, you know, just like there will be on the
prescription side. But ultimately, it creates real powerhouses.
Whereas our current organizations, frankly, are pretty far down
the league table.
TIM COST: "If another party makes an offer for Pharmacia, does Pfizer gain
control over the COX-2 franchise? How does that work?" And that
question comes from something Hank McKinnell said on the investor
call today.
FRED HASSAN: Yes, this was a concession that we made during the negotiations
in return for two major concessions from them. And I think once I
describe the concessions, you will agree with me that this was
worth it. They said that if there is a hostile, topping offer,
over the number that they have put on the table here, they are
going to end up with a partner they do not know. Whereas they
have been here, on the COX-2 franchise, for the last
three-and-a-half years. So, they believe that that would cause
major disruption and damage to the COX-2 franchise if some
unexpected company moves in and gets into the situation where
they have the tie-breaking vote. Secondly, the contract is such
that you have to have both sides agreeing on a lot of minutiae, I
mean all kinds of issues, like, price increases, press releases,
promotional campaigns. It is a very cumbersome process. And if
people don't agree among themselves, it goes all the way up to
the Chief Executive Officers who then try to agree. And then if
they disagree, then finally the Pharmacia CEO gets to make the
final call. In the last three-and-a-half year, I do not believe
that we have formally triggered that process, although the fact
that we had that opportunity allowed us to take some good
decisions, such as moving along with the Bextra launch, on time.
So it is a good thing to have, and it is a valuable rub that we
can use if we need to. Now going forward, they wanted this
concession from us. We thought about it very carefully and we
know who the other companies are. Their value is $200 billion.
The second highest company is Johnson & Johnson at $150 billion.
After that it may really
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PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 10 OF 15
surprise you. It drops all the way down to Lilly, at $56 billion.
There is no one around them to top them. Johnson & Johnson
possibly could, but we know the company very well, and we do not
believe there is a credible opportunity to stop the deal. So, by
giving this up we got the following. Number one, we got our
premium because that was clearly very high and they knew that
they were going to come under stress because of the high premium.
And number two, if they walk away from this deal for any reason,
we have a two-year standstill. We would love to go back to our
old company ways and have them not bother us. So if they chose
not to do the deal for any reason, then they have to go away for
at least two years.
TIM COST: Okay. It is a research-related question. "Would you expect the
development committee approach for R&D to persist in the new
Pfizer?"
FRED HASSAN: Goran, you know the company very well. You are also an ex-Pfizer
person. Maybe you can comment on this.
GORAN ANDO, EXECUTIVE VICE PRESIDENT AND PRESIDENT, RESEARCH & DEVELOPMENT,
PHARMACIA CORPORATION:
How did I get involved here? It is far too early to say what the
governance system will be. In fairness, theirs is not very
different from ours. They do not have the decentralized
development committees as we have, otherwise, the product flow
system is quite similar. So, we will get about it in due course
and obviously look at the pros and cons in a new company.
FRED HASSAN: And of course, in the meantime, we go ahead with the new system
that Goran has announced. And we will just proceed as we have
planned.
TIM COST: A couple that are the opposite of the Basking Ridge question.
First one is: "Is it true that Pfizer has no intention of
relocating their headquarters to New Jersey?" And the other is:
"Do you know if Pfizer has extra capacity in Manhattan to take in
Pharmacia employees?"
FRED HASSAN: I do not know Pfizer very well, but here is what I know about
what I have heard so far. This company made a commitment during
the crisis that New York faced in 1975 not to leave New York
City. It was one of those promises that they made and they
actually bought the building that they are in at this time. At
that time it was rented, but just to show their solidarity with
New York City, they bought the building. Since that time, they
have expanded. They are buying a lot of buildings in the area. I
have no reason to believe that they are interested in moving
their corporate headquarters to New Jersey. I do not think they
will do that. What was the second question?
TIM COST: About is there room in Manhattan.
FRED HASSAN: Yes. They, from what I am hearing, they do not have room in
Manhattan. They are looking for new spaces. I do understand that
they are either buying or moving into a new building across from
the Grand Hyatt. So, clearly, they are trying to get new space.
And I also heard today that their space in Morris Plains is
pretty full. In fact, they have expanded head count since the
Warner Lambert merger in New Jersey.
TIM COST: A couple of questions on integration. "When should we expect to
hear something about the integration process? Who will be
involved on the integration teams?" And then more specifically,
"What is the integration processes for sales forces?" There are
several
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PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 11 OF 15
questions here that say: "We are addressing what is happening at
kind of upper management levels, what about at sales force
levels?"
FRED HASSAN: Chris Coughlin, would you like to try to answer that? Based on
what you know. Chris is our Chief Financial Officer and he has
worked very closely with David Shedlarz, the Chief Financial
Officer at Pfizer.
CHRIS COUGHLIN: Yes, I think, as we have said in a lot of other cases here
today, it is a little bit too early to talk about the
integration plan. Both companies, both Pfizer as well as
ourselves, have done this before and know how to do integration.
So I think that right now the teams have been working on getting
the contracts done. We have to go through the process of getting
regulatory approval and I think that we will be hearing some
more, but it may take a week or two before we hear how the
integration will be completed. They will have teams that will
cover each area. There will be representatives from both Pfizer
and Pharmacia on those teams, but it is too early to say when
they will start and how that will be rolled out. So, we will be
hearing something in the next week or two.
FRED HASSAN: One reason that they gave us such a high premium is because the
deal turned friendly at some point in the discussions. And one
benefit of a friendly deal is that we can talk to them and work
with them. So we will work with them in making sure there is a
proper, organized integration process.
TIM COST: Question is, "How does this effect the Eplerenone launch? Are we
still moving forward with our programs on that product?"
FRED HASSAN: Carrie, would you like to try to answer? I know you don't have
all the answers, but do the best you can.
CARRIE S. COX, EXECUTIVE VICE PRESIDENT AND PRESIDENT, GLOBAL PRESCRIPTION
BUSINESS, PHARMACIA CORPORATION:
Thank you, I will. I think while it is very disappointing to
many of us that Pharmacia is not likely to be the company to
have the chance to launch Eplerenone, we need to recognize that
Pfizer is the premier cardiovascular house in the industry. So,
from the point of view of Eplerenone, this is probably going to
maximize that brand in the best way that we could hope for, and
so obviously that is something that we want to continue to plan
for. So, in the near term, essentially, in the course of 2002,
we will continue on the track that we have already established
for planning for the Eplerenone launch. But obviously by the
time the deal closes, the actual launch will be conducted by the
new company, which I do think, being, by no comparison being the
strongest company in the industry, will do an extraordinarily
good job. There is not a competitive situation with the Pfizer
cardiovascular line. In fact, I think there is some positive
momentum that will be created by that combination.
FRED HASSAN: Tim, would you like to comment on the Japan situation with
Eplerenone, also. I understand they are ramping up and we are
ramping up, and there maybe some cost avoidance here?
TIMOTHY G. ROTHWELL, EXECUTIVE VICE PRESIDENT AND PRESIDENT, GLOBAL
PRESCRIPTION BUSINESS, PHARMACIA CORPORATION:
Yes. As you may or may not know, we were actually in a position
where we had to postpone - or probably postpone - our Eplerenone
launch for maybe up to six months simply because we did not have
the ability to ramp up our field force which is so critical
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 12 OF 15
in Japan. Pfizer has 2,300 representatives in Japan,. We have
750 by the way. They have just finished adding 800, and they are
in a position to launch together with our people, I think,
almost immediately upon approval.
FRED HASSAN: From a business-logic point of view, there are big positives
with this thing. Even though we do not want to hear this, the
reality is there are some good business logics here.
TIM COST: A couple of different questions that go like: "What are the
chances of the merger not being approved, or being turned down,
what are the chances that the FTC will not approve the merger,
and what is the general time frame of shareholder votes by both
companies?"
FRED HASSAN: Would you like to comment on the FTC situation? Also, do you
want to talk about the overall environment with the politics of
the election year and also the European politics?
RICK COLLIER: Go ahead and get into religion while you are at it.
FRED HASSAN: Yes, right.
RICK COLLIER: Okay, can we have dinner brought in? Let me just deal with the
regulatory process first, and then we can go to the political
process. First of all, in terms of the regulatory process, this
transaction will go to the antitrust enforcement authorities
around the world. The particular, particularly important
antitrust authorities will view and analyze and vet this
transaction and ultimately approve it such that we can close it
are the United States, where the Federal Trade Commission that
has developed expertise in the pharmaceutical industry, as well
as the European Union. Other jurisdictions that are interested,
we will make filings. But for all intents and purposes, those
are the two that we are really going to be concentrated,
concentrating upon in the coming days and weeks. Now, in
the...with respect to the U.S., we will make what is called a
Hart-Scott-Rodino
(End of side one of tape)
RICK COLLIER: The mere fact that this creates the number one company, as you
saw in the press release, is not really all that important. It
is one fact but it is not the most important fact. What the FTC
does is they focus upon therapeutic areas. They look at how many
people compete in that therapeutic area, what are the products
that these companies have in overlap, what kind of research do
they have that might be feeding in from the pipeline to create
additional product opportunities, who else might enter in the
near term. So those are the kinds of things that they look at.
Similarly, in Europe, it is a similar analysis. So, we will be
educating ourselves, with respect to our product overlap,
although we have done a good bit of work thus far. And we will
also be educating the antitrust authorities so that they
understand these markets and these market dynamics. Based upon
our initial view, there maybe some things where the companies
need to make an undertaking or a commitment to divestiture. That
is a possibility. However, I can represent to you that the FTC
has never blocked a merger in the pharmaceutical industry in the
modern era, and I do not think in their history. Rather, this is
an unconcentrated industry, there are many, many players, so
instead what they look at are given therapeutic areas and
sometime requires divestitures before you can close the deal. So
realistically, looking at this transaction, we think we will
gain the approval of the antitrust authorities and there may be
- and I'll underscore the may - there may be some undertaking or
divestiture requirement that we need to make as a condition of
closing. I have spoken so long that I do not think I remember
the rest...
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PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 13 OF 15
FRED HASSAN: Any comments on Mario Monti, the European competition
commissioner?
RICK COLLIER: Europe has come under a lot of criticism as a result of the
GE/Honeywell deal, which did not get approved when most of the
American experts on antitrust thought that that was a deal that
should have gotten approved. So there is a modestly different
approach. In stark terms, the U.S. tends to be an area where
shareholder capitalism is dominant. They just look at things not
in terms of communities and employees, but rather they look at
market shares, and along those lines. Europe tends to be more
stakeholder capitalism oriented. They look at effect on
communities and nations and things along those lines. So the
analysis in Europe will be a little more complicated. I would
not say it is more political but we have to be sensitive to
that. But we do believe that there is still, this activity is
governed by a rule of law. There are regulations that govern it,
and when the authorities look at this transaction in the cold,
hard light of day, look at the markets in which we operate, look
at the areas in which we overlap, this will be a transaction
that again I think will be subject, will be approved by the
antitrust authorities subject to the possibility that there may
be some modest divestiture undertakings that we will have to
make.
FRED HASSAN: For our audiences overseas that was Rick Collier, the General
Counsel.
TIM COST: Question is: "It seems that other necessary consolidations will
occur in our industry, which company, somebody going to play the
market, which companies according to you, are most likely to
merge in the near future?"
FRED HASSAN: There was some speculation this morning that the ones who were
going to buy, their stocks were going to go down, and the ones
that are going to get bought, their stocks are going to go up. I
do not know if that happened or not.
TIM COST: J & J went down quite a bit, Bristol went up. I'll just leave it
there.
FRED HASSAN: Okay (laughter).
TIM COST: It is okay. Assume we have no additional comment on that
question.
FRED HASSAN: No.
TIM COST: Okay. Several versions of a question of a more personal nature:
"When and where will information be available on severance
packages, will you be bringing in career counselors, what about
our 401(k) programs, etc..."
FRED HASSAN: Very brief answer from Paul Matson, head of HR.
PAUL MATSON: We have already begun populating the web and there has been a
rev [revision] 1 and a rev 2 of information. So instead of going
at it plan by plan, what I would prefer us to do is use that as
a frequent update, and as we get questions in from this session
and others, we will publish those on an ongoing basis and we'll
get a consistent, full answer in all areas.
FRED HASSAN: Will there also be a network of HR professionals in various
countries, in various outside ... various outlying sites that
they could, that people could talk to?
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 14 OF 15
PAUL MATSON: In the, in the U.S., if a person has concerns, and I am sure we
all do, the first person to talk with is your supervisor. The
next in the sequence would be your HR representative, and if
there is, if it is a particular stress-related outcome or
situation, we have the Employee Assistance Program, and that
number has already been published on the web. On a worldwide
basis, I would, the first two are the...the approach that we
would suggest: supervisor first, the management of a unit, and
then their HR representative. On a...as we go forward, will
Pfizer have a global net, Fred, that will be more on the Pfizer
side of the equation. But we believe as a company, our inside
resources can help address that, if a particular situation
develops, we will approach, attack that at that time.
TIM COST: We have just a couple of minutes left, so I'll ask one last
question. There are obviously a pretty good-sized handful we did
not get to. We are going to provide written answers to those on
the intranet, they will be posted for everyone. And I will ask
this last question; it may lead to your final remarks. But let
me just say that this morning Hank McKinnell, their Chairman and
CEO, had a virtually identical meeting as this, in a room just
like this. And he introduced Fred to what I thought was a long
and very warm ovation. So I hope that at some point we can do
the same. Today, the last question is: "Why do you feel Pfizer
was so anxious to purchase us?"
FRED HASSAN: One reason: Their stocks been hit harder than it should have
been hit. Just to give you the map, they are paying $20 billion
more than our market price on Friday, and their total market cap
is $200 million. So their stock should not have dropped more
than 10 percent at the most today. But it dropped more than 10
percent. I don't know what the latest numbers are, but it was
down more than 10 percent. My feeling is that one reason the
stock dropped more is that there is some concern in the
financial community, why did Pfizer have to do this? Are there
some problems? And I think, in this jittery market people sell
first and ask questions later. So, there is a bit of that going
on. I cannot tell you for sure why, I mean what their overall
situation is. We have looked at their numbers, and their numbers
look pretty sound. But we have no idea what their real situation
is going forward.
Just a few closing comments. First, thank you very much for
staying back, this is an important day. And we also thank our
audiences overseas. I know many of you are in different time
zones. So we would thank you for paying attention to this very
important event that we just described. We promise you one
thing. We don't have all the answers, and you saw that today. We
will keep you informed, regularly. Through TAOB [Talking About
Our Business], through meetings of this type, we will find
opportunities to reach out to all of you. Also, the functional
unit heads, the business unit heads will find various
opportunities to reach out to all of you. If you have concerns,
anxiety, whatever, please reach out. Do not hesitate to send me
an email directly if you feel that you need [of] an answer
directly from me. I will be very happy to get back to you.
So just a few comments. Number one, I am sad, because we were
having fun together. And somehow I feel we have been stopped,
because we were on a great journey. But that is all I can say
about that. You know how I feel. I have tremendous pride in all
of you. Hand-picked people, good people. I think we can all be
proud of the great company we have achieved here. And let us
keep up the good work going forward. I am optimistic about the
combined company that will be formed here. As I said earlier,
the business logic is good. I am optimistic about it. But I am
much more optimistic about our people because we have good
people. I am optimistic about you. Whether you stay here or you
land elsewhere, we are going to be fine because we are good
people. Each one of you has demonstrated what you can do through
your passion, your courage and your tenacity.
GLOBAL EMPLOYEE BROADCAST
PHARMACIA CORPORATION
PEAPACK, NEW JERSEY
JULY 15, 2002
PAGE 15 OF 15
Today I'd like to use another word, because I have used that
before when we went through some difficult times, especially in
the former Pharmacia & Upjohn company. And that word is
resilience. Our company has been through some difficult times in
the past. One thing that makes us special is that our people
have resilience. And I know that you are going to deal with this
situation very well as we go forward. Whatever happens, we have
grown together. We have a learning here that will never leave
us. We have feelings for each other that will never leave us. So
let's take pride in what we have achieved. I hope to be in touch
with you again. You have been a great audience. Thank you very
much. (Applause).
FORWARD-LOOKING INFORMATION
Certain statements contained in this document are "forward-looking statements"
about anticipated financial or operating results, business prospects, future
product performance, future research and development results, anticipated
regulatory filings and approvals, and other matters that are not historical
facts, which are subject to many risks and uncertainties. As a result, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Examples of forward-looking statements are
statements such as: "believes", "expects", "anticipates", "intends", "plans",
"estimates", or similar expressions. The Company does not undertake any
obligation to update any forward-looking statements in this Report or in any
other communications of the Company, whether as a result of new information,
future events, changed assumptions or otherwise, and all such forward-looking
statements should be read as of the time when the statements were made, and with
the recognition that these forward-looking statements may not be complete or
accurate at a later date.
Many factors may cause or contribute to actual results or events being
materially different from those expressed or implied by such forward-looking
statements. Although it is not possible to predict or identify all such factors,
they may include the following: competition for our products; pharmaceutical
pricing, price constraints and other restrictions on the marketing of products
imposed by governmental agencies or by managed care groups, institutions and
other purchasing agencies; product discovery and approval; product recalls or
withdrawals; manufacturing quality issues with respect to our products;
compliance with Current Good Manufacturing Practices and other applicable
regulations and quality assurance guidelines; the company's ability to secure
and defend its intellectual property rights; product liability claims, antitrust
litigation, environmental concerns, and commercial disputes; social, legal,
political and governmental developments; changes in foreign currency exchange
rates or in general economic or business conditions including inflation and
interest rates; acquisitions, divestitures, mergers, restructurings or strategic
initiatives that change the Company's structure; business combinations among the
Company's competitors and major customers; changes to accounting standards or
GAAP.
Readers are also urged to carefully review and consider the various disclosures
in Pharmacia's various SEC filings, including but not limited to Pharmacia's
Annual Report on Form 10-K for the year ended December 31, 2001, and Pharmacia's
Quarterly Reports on Form 10-Q.
This release may be deemed to be solicitation material in respect of Pfizer's
proposed merger with Pharmacia. Pfizer will be filing a registration statement
on Form S-4, containing a joint proxy statement/prospectus for Pfizer and
Pharmacia, and other documents with the Securities and Exchange Commission
("SEC"). INVESTORS AND SECURITYHOLDERS ARE URGED TO READ THE REGISTRATION
STATEMENT CONTAINING THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders
will be able to receive the registration statement containing the joint proxy
statement/prospectus and other documents free of charge at the SEC's web site,
www.sec.gov or from Pharmacia Investor Relations at 100 Route 206 North,
Peapack, New Jersey 07977. Pharmacia and its directors and executive officers
and other members of management and employees may be deemed to be participants
in the solicitation of proxies in respect of the proposed transaction.
Information regarding the interests of Pharmacia's directors and executive
officers in the proposed merger will be included in the final joint proxy
statement/prospectus.