Pfizer Reports First-Quarter 2011 Results

  • First-Quarter 2011 Revenues of $16.5 Billion, excluding $177 Million from Capsugel(3)
  • First-Quarter 2011 Adjusted Diluted EPS(1) of $0.60, excluding Capsugel(3); Reported Diluted EPS(2) of $0.28
  • Reaffirms Full-Year 2011 Financial Guidance and Full-Year 2012 Financial Targets

NEW YORK--(BUSINESS WIRE)--May 3, 2011 - Pfizer Inc. (NYSE: PFE):

 
($ in millions, except per share amounts)
    First-Quarter
    2011     2010     Change
Reported Revenues   $ 16,502     $ 16,576     --  
Adjusted Income(1)     4,808       4,862     (1 %)
Adjusted Diluted EPS(1)     0.60       0.60     --  
Reported Net Income(2)     2,222       2,026     10 %
Reported Diluted EPS(2)     0.28       0.25     12 %
                       
See end of text prior to tables for notes.

 

                     
                       
Pfizer Inc. (NYSE: PFE) today reported financial results for first-quarter 2011. As a result of Pfizer's decision to sell the Capsugel(3) business, Capsugel(3) is presented as a discontinued operation in the consolidated statements of income for first-quarter 2011 and first-quarter 2010. Therefore, all revenues and expenses related to Capsugel(3) in both periods are presented in a single line, Discontinued operations - net of tax. Additionally, due to the acquisition of King Pharmaceuticals, Inc. (King), legacy King operations are reflected in first-quarter 2011 results beginning January 31, 2011 in accordance with Pfizer's domestic and international reporting periods(16), but are not reflected in first-quarter 2010 results.

First-quarter 2011 revenues were $16.5 billion, consistent with the year-ago quarter. Revenues for first-quarter 2011 compared with the year-ago quarter were favorably impacted by $97 million, or 1%, due to foreign exchange, and $224 million, or 1%, due to the addition of legacy King products. First-quarter 2011 revenues were reduced by $166 million, or 1%, due to U.S. healthcare reform.

For first-quarter 2011, U.S. revenues were $7.0 billion, a decrease of 3% compared with the year-ago quarter. International revenues were $9.5 billion, an increase of 2% compared with the prior-year quarter, which reflected 1% operational growth and a 1% favorable impact of foreign exchange. U.S. revenues represented 43% of total revenues in first-quarter 2011 compared with 44% in the year-ago quarter, while international revenues represented 57% of total revenues in first-quarter 2011 compared with 56% in the year-ago quarter.

Financial Performance

 

 

 

      First-Quarter Revenues
($ in millions) Favorable/(Unfavorable)

 

    2011   2010   Change     Foreign

Exchange

 

  Operational
                         
Primary Care(4)     $ 5,441   $ 5,866   (7 %)     --     (7 %)
Specialty Care(5)       3,927     3,521   12 %     --     12 %
Established Products(6)       2,367     2,786   (15 %)     1 %   (16 %)
Emerging Markets(7)       2,178     1,972   10 %     2 %   8 %
Oncology(8)       311     361   (14 %)     (1 %)   (13 %)
Biopharmaceutical       14,224     14,506   (2 %)     --     (2 %)
                         
Animal Health(9)       982     846   16 %     1 %   15 %
Consumer Healthcare(10)       745     663   12 %     1 %   11 %
Nutrition(11)       470     458   3 %     3 %   --  
Other(12)       81     103   (21 %)     --     (21 %)
                         
Total     $ 16,502   $ 16,576   --       1 %   (1 %)
 

 

                       
See end of text prior to tables for notes.

 

                         
Business Highlights

Primary Care(4) unit revenues in first-quarter 2011 were driven by growth from certain patent-protected products, including Lyrica, Spiriva, Pristiq and Celebrex, among others, in key international markets, as well as the addition of legacy King products, and negatively impacted by the loss of exclusivity of Lipitor in Canada and Spain in May and July 2010, respectively, as well as the loss of exclusivity of Aricept in the U.S. in November 2010. Taken together, the loss of exclusivity for these products in those markets reduced Primary Care(4) revenues by approximately $590 million, or 10%, in comparison with first-quarter 2010. Specialty Care(5) unit revenues were positively impacted by strong growth in the Prevnar/Prevenar franchise, Enbrel and Zyvox, notably in the U.S. and Japan. Established Products(6) unit revenues were mainly impacted by the loss of exclusivity and resulting increased competition with respect to Effexor, Protonix and Zosyn/Tazocin, partially offset by the addition of legacy King products. Emerging Markets(7) unit revenues were positively impacted by growth in both innovative brands, such as Enbrel, Lyrica, Sutent and Vfend, as well as established products. Total revenues from established products in both the Established Products(6) and Emerging Markets(7) units were $3.3 billion, with $915 million generated in emerging markets. Animal Health(9) unit revenues were favorably impacted by approximately $50 million, or 6%, due to the addition of legacy King products.

Adjusted Expenses(1), Adjusted Income(1) and Adjusted Diluted EPS(1) Highlights

 

 
      First-Quarter Costs and Expenses
($ in millions) (Favorable)/Unfavorable

 

    2011   2010   Change     Foreign

Exchange

 

  Operational
                         
Adjusted Cost of Sales (1)     $ 3,092     $ 2,831     9 %     2 %   7 %
As a Percent of Revenues       18.7 %     17.1 %   N/

 

A

 

    N/

 

A

 

  N/

 

A

 

Adjusted SI&A Expenses(1)       4,501       4,342     4 %     1 %   3 %
Adjusted R&D Expenses(1)       2,017       2,191     (8 %)     --     (8 %)
                         
Adjusted Total Costs(13)     $ 9,610     $ 9,364     3 %     1 %   2 %
                                       
See end of text prior to tables for notes.

 

                                       
Adjusted total costs(13) were $9.6 billion in first-quarter 2011, an increase of 3% compared with $9.4 billion in first-quarter 2010. Excluding the unfavorable impact of foreign exchange of $101 million, or 1%, the increase in adjusted total costs(13) was attributable primarily to a shift in product mix and business mix, the addition of the legacy King operations and the inclusion of the annual fee provided for under the 2010 U.S. healthcare reform legislation beginning this year, partially offset by savings from cost-reduction initiatives.

The effective tax rate on adjusted income(1) was approximately 28% in first-quarter 2011 compared with approximately 30% in first-quarter 2010. The decrease in the effective tax rate on adjusted income(1) was primarily due to the extension of the U.S. research and development credit that was signed into law in December 2010 as well as the change in the jurisdictional mix of earnings during first-quarter 2011.

As a result of the aforementioned factors, first-quarter 2011 adjusted income(1) was $4.8 billion, a decrease of 1% compared with $4.9 billion in the year-ago quarter, and adjusted diluted EPS(1) was $0.60, comparable with the year-ago quarter.

Reported Net Income(2) and Reported Diluted EPS(2) Highlights

In addition to the aforementioned factors, first-quarter 2011 reported earnings were favorably impacted by lower purchase accounting adjustments and acquisition-related costs associated with the Wyeth acquisition, and unfavorably impacted primarily by a charge related to hormone-replacement therapy litigation and costs incurred to improve innovation and overall productivity in the research and development function.

The effective tax rate on reported results was approximately 29% in first-quarter 2011 compared with approximately 36% in first-quarter 2010. The decrease in the effective tax rate was primarily due to the aforementioned extension of the U.S. research and development credit, the change in the jurisdictional mix of earnings and the tax impact of the legal charge previously mentioned.

As a result of all these factors, first-quarter 2011 reported net income(2) was $2.2 billion, an increase of 10% compared with $2.0 billion in the prior-year quarter, and reported diluted EPS(2) was $0.28, an increase of 12% compared with $0.25 in the prior-year quarter.

Executive Commentary

Ian Read, President and Chief Executive Officer, stated, “I am pleased not only with our solid financial performance during the first quarter despite the loss of exclusivity of several products in the U.S. and other geographies, but also with our ability to enhance shareholder value through various initiatives, including our increased share repurchase activity so far this year. Many of our products, notably the Prevnar/Prevenar franchise and Lyrica, continued to perform well. In addition, our Emerging Markets unit delivered 8% operational growth, driven by many of our priority countries, notably China, and continued to benefit from our ongoing targeted investment.”

“With our strong base of people, platforms and in-line and pipeline compounds combined with our continuing focus on improving returns on investment, I believe we are well positioned to succeed in fixing our innovative core, which, if successful, can lead to greater value in both the near and longer-term. I am pleased to report that during this year we expect to present phase 3 clinical data for tofacitinib in rheumatoid arthritis, axitinib for renal cell carcinoma, Prevnar/Prevenar 13 for the prevention of pneumococcal disease in adults, and Eliquis for stroke prevention in patients with atrial fibrillation, as well as phase 2 clinical data for crizotinib for non-small cell lung cancer, among others. For crizotinib, we remain on-track with our rolling U.S. submission, which began in January. Additionally, we continue to anticipate filings in the U.S. and EU by the end of 2011 for certain other oncology compounds as well as for tofacitinib and Eliquis. Further, we expect to receive actions later this year on our U.S. and EU filings of Prevnar/Prevenar 13 for the prevention of pneumococcal disease in adults.”

“Lastly, we remain focused on continuing the evaluation of our business portfolio to determine the optimal mix of businesses to maximize our return. We expect to complete this evaluation during the second half of 2011,” Mr. Read concluded.

Frank D'Amelio, Chief Financial Officer, stated, “Given our performance during the first quarter as well as our continued confidence in the business, we are reaffirming our 2011 financial guidance and 2012 financial targets. Additionally, reflecting the continued confidence in our business, the strength of our balance sheet and our view that our shares represent a good investment for our stakeholders at the current valuation, we repurchased approximately $1.4 billion, or 73.5 million shares, of our common stock during the first quarter of 2011 and a total of approximately $2.2 billion, or 110.5 million shares, through April 30, 2011. We now expect to repurchase between $5 billion and $7 billion of our common stock this year as we plan to redeploy the after-tax proceeds from the sale of Capsugel(3), once completed, into share repurchases and/or opportunistic business development transactions that are expected to meet or exceed the return on investment of share repurchases. In the first quarter of this year, we returned approximately $3.0 billion to our shareholders through dividends and share repurchases, clearly demonstrating our commitment to provide greater shareholder return.”

2011 Financial Guidance(15)

For full-year 2011, Pfizer's financial guidance, at current exchange rates(14), is summarized below.

Reported Revenues     $65.2 to $67.2 billion
Adjusted Cost of Sales(1) as a Percentage of Revenues     19.5% to 20.5%
Adjusted SI&A Expenses(1)     $19.2 to $20.2 billion
Adjusted R&D Expenses(1)     $8.0 to $8.5 billion
Adjusted Other (Income)/Deductions(1)     Approximately $1.0 billion
Effective Tax Rate on Adjusted Income(1)     Approximately 29%
Reported Diluted EPS(2)     $1.09 to $1.24
Adjusted Diluted EPS(1)     $2.16 to $2.26
       
2012 Financial Targets(15)

As previously stated, given the longer-term nature of these targets, they are subject to greater variability and less certainty as a result of potential material impacts related to foreign exchange fluctuations, macroeconomic activity including inflation, and industry-specific challenges including changes to government healthcare policy, among others.

At current exchange rates(14), Pfizer is targeting reported revenues between $62.2 and $64.7 billion, adjusted SI&A expenses(1) between $17.5 and $18.5 billion, adjusted R&D expenses(1) between $6.5 and $7.0 billion, adjusted other (income)/deductions(1) of approximately $1.0 billion in deductions, effective tax rate on adjusted income(1) of approximately 29%, adjusted operating margin(1) in a range of the high 30%s to low 40%s, adjusted diluted EPS(1) between $2.25 and $2.35, reported diluted EPS(2) between $1.58 and $1.73, and operating cash flow of at least $19.0 billion.

For additional details, please see the attached financial schedules, product revenue tables, supplemental information and disclosure notice.

(1)

 

  "Adjusted Income" and its components and "Adjusted Diluted Earnings Per Share (EPS)" are defined as reported net income(2) and its components and reported diluted EPS(2) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (R&D) expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis, and, therefore, components of the overall adjusted income measure. As described under Adjusted Income in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer's Form 10-K for the year ended December 31, 2010, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors' understanding of our performance is enhanced by disclosing this measure. Reconciliations of first-quarter 2011 and 2010 adjusted income and its components and adjusted diluted EPS to reported net income(2) and its components and reported diluted EPS(2), as well as reconciliations of full-year 2011 guidance and 2012 targets for adjusted income and adjusted diluted EPS to full-year 2011 guidance and 2012 targets for reported net income(2) and reported diluted EPS(2), are provided in the materials accompanying this report. The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted EPS.

 

     
(2)   “Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
     
(3)   Capsugel provides capsule products and related services to the pharmaceutical and associated healthcare industries. On April 4, 2011, Pfizer announced that it entered into an agreement whereby an affiliate of Kohlberg Kravis Roberts & Co. L.P. will acquire Capsugel. The transaction is expected to close in third-quarter 2011, assuming the receipt of the required regulatory clearances and the satisfaction of other closing conditions.
     
(4)   The Primary Care unit includes revenues from human pharmaceutical products primarily prescribed by primary-care physicians, and may include, but are not limited to, products in the following therapeutic and disease areas: Alzheimer's disease, diabetes, cardiovascular (excluding pulmonary arterial hypertension), major depressive disorder, genitourinary, osteoporosis, pain and respiratory. Examples of products in this unit include, but are not limited to, Celebrex, Lipitor, Lyrica, Premarin, Pristiq and Viagra. All revenues for such products are allocated to the Primary Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(6) unit.
     
(5)   The Specialty Care unit includes revenues from human pharmaceutical products primarily prescribed by physicians who are specialists, and may include, but are not limited to, products in the following therapeutic and disease areas: antibacterials, antifungals, antivirals, bone, inflammation, growth hormones, multiple sclerosis, ophthalmology, pulmonary arterial hypertension, psychosis and vaccines. Examples of products in this unit include, but are not limited to, Enbrel, Genotropin, Geodon, the Prevnar/Prevenar franchise, Xalatan and Zyvox. All revenues for such products are allocated to the Specialty Care unit, except those generated in emerging markets(7) and those that are managed by the Established Products(6) unit.
     
(6)   The Established Products unit generally includes revenues from human prescription pharmaceutical products that have lost patent protection or marketing exclusivity in certain countries and/or regions. Typically, products are transferred to this unit in the beginning of the fiscal year following losing patent protection or marketing exclusivity. In certain situations, products may be transferred to this unit at a different point than the beginning of the fiscal year following losing patent protection or marketing exclusivity in order to maximize their value. This unit also excludes revenues generated in emerging markets(7). Examples of products in this unit include, but are not limited to, Arthrotec, Effexor, Medrol, Norvasc, Protonix, Relpax and Zosyn/Tazocin.
     
(7)   The Emerging Markets unit includes revenues from all human prescription pharmaceutical products sold in emerging markets, including, but not limited to, Asia (excluding Japan and South Korea), Latin America, Middle East, Africa, Central and Eastern Europe and Turkey.
     
(8)   The Oncology unit includes revenues from human oncology and oncology-related products. Examples of products in this unit include, but are not limited to, Aromasin, Sutent and Torisel. All revenues for such products are allocated to the Oncology unit, except those generated in emerging markets(7) and those that are managed by the Established Products(6) unit.
 

 

   
(9)   Animal Health includes worldwide revenues from products to prevent and treat disease in livestock and companion animals, including vaccines, paraciticides and anti-infectives.
     
(10)   Consumer Healthcare generally includes worldwide revenues from non-prescription medicines and vitamins and may include, but are not limited to, products in the following therapeutic categories: GI-topicals, nutritionals, pain management and respiratory. Examples of products in Consumer Healthcare include, but are not limited to, Advil, Caltrate, Centrum, ChapStick and Robitussin.
     
(11)   Nutrition generally includes revenues from a full line of infant and toddler nutritional products sold outside of North America. Examples of products in Nutrition include, but are not limited to, the S-26 and SMA product lines as well as formula for infants with special nutritional needs.
     
(12)   Includes revenues generated primarily from Pfizer Centersource.
     
(13)   Represents the total of Adjusted Cost of Sales(1), Adjusted SI&A expenses(1) and Adjusted R&D expenses(1).
     
(14)   The current exchange rates assumed in connection with the 2011 financial guidance are a blend of the actual exchange rates in effect during first-quarter 2011 and the mid-April 2011 exchange rates for the remainder of the year. The current exchanges rates assumed in connection with the 2012 financial targets are the mid-April 2011 exchange rates.
     
(15)   Includes revenues and expenses related to the Capsugel(3) business as a discontinued operation in 2011 and 2012, but does not include any gain on the sale of Capsugel(3). Does not assume the completion of any business-development transactions not completed as of April 3, 2011. Also excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of April 3, 2011.
     
(16)   Legacy King operations are reflected in first-quarter 2011 results beginning January 31, 2011. Therefore, in accordance with Pfizer's domestic and international reporting periods, first-quarter 2011 results reflect approximately two months of King's U.S. operations and approximately one month of King's international operations.
     
 

 

   

 

     
 

 

   

 

PFIZER INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(millions, except per common share data)
                         
        First Quarter     % Incr. /

(Decr.)

 

        2011     2010    
Revenues     $ 16,502     $ 16,576     -  
Costs and expenses:                      
  Cost of sales (a)                    

Posted: May 2011


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