Pfizer Reports Fourth-Quarter and Full-Year 2010 Results; Provides 2011 Financial Guidance and Updates 2012 Financial Targets
- Fourth-Quarter 2010 Revenues of $17.6 Billion; Full-Year 2010 Revenues of $67.8 Billion
- Fourth-Quarter 2010 Adjusted Diluted EPS(1) of $0.47, Reported Diluted EPS(2) of $0.36; Full-Year 2010 Adjusted Diluted EPS(1) of $2.23, Reported Diluted EPS(2) of $1.02
- Achieves Full-Year 2010 Financial Guidance; Provides Full-Year 2011 Financial Guidance
- Maintains Full-Year 2012 Adjusted Diluted EPS(1) Target; Reduces Full-Year 2012 Revenue Target
- Announces Significant Increase in Planned Share Repurchases and Significant Decrease in Planned R&D Spending
|($ in millions, except per share amounts)|
|Reported Revenues||$||17,561||$ 16,537||6||%||$ 67,809||$ 50,009||36||%|
|Reported Net Income(2)||2,890||767||277||%||8,257||8,635||(4||%)|
|Reported Diluted EPS(2)||0.36||0.10||260||%||1.02||1.23||(17||%)|
|Adjusted Diluted EPS(1)||0.47||0.49||(4||%)||2.23||2.02||10||%|
|See end of text prior to tables for notes.|
For full-year 2010, revenues were $67.8 billion, an increase of 36% compared with $50.0 billion in full-year 2009. Revenues for full-year 2010 compared with full-year 2009 were favorably impacted by $18.1 billion, or 37%, due to legacy Wyeth products, and by $1.1 billion, or 2%, due to foreign exchange, and negatively impacted by $1.4 billion, or 3%, due to legacy Pfizer products. U.S. revenues were $29.0 billion, an increase of 34% compared with full-year 2009. International revenues were $38.8 billion, an increase of 37% compared with full-year 2009, which reflected 33% operational growth and a 4% favorable impact of foreign exchange. U.S. revenues represented 43% and international revenues represented 57% of total revenues for full-year 2010, comparable with full-year 2009.
Pfizer operates two distinct commercial organizations: Biopharmaceutical and Diversified. Biopharmaceutical includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology customer-focused units, while Diversified includes Animal Health, Consumer Healthcare, Nutrition and Capsugel.
|($ in millions)||2010||2009(13)||Change||Exchange||Total||Pfizer|
|See end of text prior to tables for notes.|
|N/A – Not applicable|
Within the Biopharmaceutical units, legacy Pfizer operational performance was impacted in fourth-quarter 2010 compared with the year-ago quarter primarily by the loss of exclusivity of certain products and European pricing pressures, among other factors. Legacy Pfizer Primary Care unit revenues in fourth-quarter 2010 were negatively impacted by the loss of exclusivity of Lipitor in Canada and Spain in May 2010 and July 2010, respectively, as well as Aricept in the U.S. in November 2010. Taken together, the loss of exclusivity for these products reduced legacy Pfizer Primary Care revenues by approximately $500 million, or 8%. Additionally, legacy Pfizer Primary Care revenues were negatively impacted by Developed Europe pricing pressures and U.S. healthcare reform and positively impacted by growth from select brands, including Lyrica, Champix and Celebrex, among others, in key international markets, most notably Japan. Legacy Pfizer Specialty Care unit revenues were also negatively impacted by Developed Europe pricing pressures and U.S. healthcare reform as well as an overall decline in certain therapeutic markets. Legacy Pfizer Established Products unit revenues were mainly impacted by the loss of exclusivity of Norvasc in Canada in July 2009. Lastly, legacy Pfizer Emerging Markets unit revenues were negatively impacted by the loss of exclusivity of Lipitor in August 2010 and Viagra in June 2010, both in Brazil, as well as Emerging Europe pricing pressures, but positively impacted by growth in key markets, including China and Brazil.
For fourth-quarter 2010, revenues from Diversified were $2.4 billion, an increase of 34% compared with $1.8 billion in the year-ago quarter. This increase of $624 million was primarily attributable to legacy Wyeth products, principally Advil, Caltrate and Centrum in Consumer Healthcare and infant and toddler Nutrition products. The impact of foreign exchange on Diversified revenues was immaterial.
Reported Net Income(2) and Reported Diluted EPS(2)
For fourth-quarter 2010, Pfizer posted reported net income(2) of $2.9 billion, an increase of 277% compared with $767 million in the prior-year quarter, and reported diluted EPS(2) of $0.36, an increase of 260% compared with $0.10 in the prior-year quarter. For full-year 2010, Pfizer posted reported net income(2) of $8.3 billion, a decline of 4% compared with $8.6 billion in full-year 2009, and reported diluted EPS(2) of $1.02, a decline of 17% compared with $1.23 in full-year 2009. Fourth-quarter 2010 results were favorably impacted by revenues from legacy Wyeth products and substantially lower restructuring charges associated with the Wyeth acquisition, and negatively impacted primarily by lower revenues from legacy Pfizer products, expenses associated with the legacy Wyeth operations and an additional charge for asbestos litigation related to our wholly owned subsidiary Quigley Company, Inc. For full-year 2010, results were impacted by the aforementioned items as well as the favorable impact of foreign exchange and the unfavorable impact of impairment charges related to certain intangible assets acquired in connection with the Wyeth acquisition, higher purchase accounting adjustments and integration charges associated with the Wyeth acquisition as well as higher net interest expense primarily due to borrowings used to partially fund the Wyeth acquisition.
Additionally, in fourth-quarter 2010, Pfizer reached a settlement with the U.S. Internal Revenue Service related to issues the Company was appealing regarding the audits of the Pfizer Inc. and Pharmacia tax returns for multiple years. As a result of this settlement, the Company reduced its unrecognized tax benefits by approximately $1.4 billion in tax and approximately $600 million in interest and recorded a corresponding tax benefit to its income tax provision in fourth-quarter 2010, resulting in a favorable impact on net income.
Further, reported diluted EPS(2) in full-year 2010 was impacted by the increased number of shares outstanding in comparison with full-year 2009 resulting from shares issued to partially fund the Wyeth acquisition.
Adjusted Income(1) and Adjusted Diluted EPS(1)
Fourth-quarter 2010 adjusted income(1) was $3.8 billion, comparable with the year-ago quarter, and adjusted diluted EPS(1) was $0.47, a decrease of 4% compared with $0.49 in the year-ago quarter. For full-year 2010, Pfizer posted adjusted income(1) of $18.0 billion, an increase of 27% compared with $14.2 billion in full-year 2009, and adjusted diluted EPS(1) of $2.23, an increase of 10% compared with $2.02 in full-year 2009. Results were favorably impacted by revenues from legacy Wyeth products, and unfavorably impacted by expenses associated with the legacy Wyeth operations as well as lower revenues from legacy Pfizer products and, particularly in full-year 2010, higher net interest expense primarily due to borrowings used to partially fund the acquisition of Wyeth. For full-year 2010, results were favorably impacted by foreign exchange.
In addition, the effective tax rate on adjusted income(1) decreased to approximately 26% in fourth-quarter 2010 compared with approximately 28% in fourth-quarter 2009, and was approximately 30% in both full-year 2010 and 2009. The decrease in the effective tax rate on adjusted income(1) in fourth-quarter 2010 compared with fourth-quarter 2009 was primarily due to the extension of the U.S. research and development credit signed into law in December 2010 and the change in the jurisdictional mix of earnings in the respective periods.
Additionally, adjusted diluted EPS(1) in full-year 2010 was impacted by the increased number of shares outstanding in comparison with full-year 2009 resulting from shares issued to partially fund the Wyeth acquisition.
In fourth-quarter 2010, adjusted cost of sales(1) as a percentage of revenues was 21.5% compared with 17.5% in fourth-quarter 2009. This increase primarily reflects the change in the mix of products and businesses as a result of the Wyeth acquisition. Excluding the impact of foreign exchange, adjusted cost of sales(1) as a percentage of revenues was 20.7% in fourth-quarter 2010.
Adjusted SI&A expenses(1) were $5.7 billion in fourth-quarter 2010, an increase of 7% compared with $5.3 billion in the prior-year quarter. This increase was attributable primarily to the legacy Wyeth operations. Foreign exchange decreased fourth-quarter 2010 adjusted SI&A expenses(1) by $15 million compared with the year-ago quarter.
Adjusted R&D expenses(1) were $2.8 billion in fourth-quarter 2010, essentially flat compared with the prior-year period. This was attributable primarily to cost reductions that were offset by legacy Wyeth operations and continued investment in the late-stage development portfolio. Foreign exchange decreased fourth-quarter 2010 adjusted R&D expenses(1) by $9 million compared with the year-ago quarter.
Overall, foreign exchange increased adjusted total costs(14) by $96 million, or 1%, in fourth-quarter 2010 compared with the prior-year.
Ian Read, President and Chief Executive Officer, stated, “I am pleased with our solid financial performance again this quarter and this year despite continued challenging market conditions. Pfizer has a strong asset base across various therapeutic areas and geographies in addition to a promising late-stage product pipeline, which I believe positions us well going forward.”
“After evaluating our operating plans and capital allocation opportunities, we have adjusted our 2012 revenue target to exclude the projected contribution from future business development transactions and have reallocated funding to support an attractive, near-term opportunity to significantly increase our share repurchase activity. As announced today, the Board has authorized an additional share repurchase program for up to $5 billion, which increases our total current authorization to $9 billion. During 2011, we anticipate repurchasing approximately $5 billion of our common stock, with the remaining authorized amount available in 2012 and beyond. These repurchases are not expected to constrain our ability to continue dividend increases or to pursue bolt-on acquisitions.”
“We continue to closely evaluate our global research and development function and will accelerate our current strategies to improve innovation and overall productivity. Key steps in this process include greater focus in disease areas of greatest scientific, medical and commercial opportunity, a realigned global R&D footprint to increase our presence in key biomedical innovation hubs, and an increased level of outsourcing for services that do not drive competitive advantage for Pfizer. Furthermore, we plan to enhance internal programs that are designed to strengthen pipeline delivery and differentiated innovation. As a result of these actions, we expect to reduce adjusted R&D expenses(1) to between approximately $6.5 to $7.0 billion in 2012 compared with our previous target of $8.0 to $8.5 billion.”
“We believe that the planned increase in share repurchases and the decrease in research and development spending will serve to provide a greater degree of certainty and a more clearly defined path for us to achieve our 2012 adjusted diluted EPS(1) target of between $2.25 and $2.35.”
Mr. Read concluded, “In addition, during 2011 we expect to complete our ongoing review of the composition of our business portfolio to determine the optimal mix of businesses that we can appropriately fund and manage in order to achieve consistent growth and maximum return on investment. We believe these decisions, taken together, will continue to improve our business profile and provide both near-term and longer-term financial benefit.”
Frank D'Amelio, Chief Financial Officer, stated, “Our continued confidence in the business and our ability to meet our commitments and capitalize on near- to mid-term growth opportunities are clearly reflected in the achievement of our 2010 financial guidance, including our projected cost savings from the Wyeth integration, of which more than $2.0 billion was achieved in 2010, our 11% dividend increase announced in December 2010, our additional share repurchase program and recent business development transactions. Further, our 2011 financial guidance as well as our updated 2012 financial targets reflect our confidence to successfully navigate through challenging market conditions and significant events in the company, most notably the loss of exclusivity of Lipitor in many major markets later this year.”
2011 Financial Guidance(16)
For full-year 2011, Pfizer's financial guidance, at current exchange rates(15), is summarized below.
|Reported Revenues||$66.0 to $68.0 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|
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.
The Company is updating certain elements of its 2012 financial targets and is providing for the first time a target for adjusted SI&A expenses(1). At current exchange rates(15), Pfizer is now targeting reported revenues between $63.0 and $65.5 billion, compared with the previous target of between $65.2 and $67.7 billion. This decrease primarily reflects the elimination of the projected revenue contribution from future business development transactions previously included in the target as well as certain changes in market conditions. Additionally, adjusted R&D expenses(1) are now expected to be between $6.5 and $7.0 billion, compared with the previous target of between $8.0 and $8.5 billion. Driving this decline is the planned reduction in the number of disease areas the Company will focus on based upon where the greatest medical and commercial impact can be achieved as well as a realigned R&D footprint, including a planned exit from the Sandwich, U.K. site, subject to customary requirements, shift of selected resources from Groton, CT to Cambridge, MA and outsourcing of certain functions. Additionally, the Company is planning to enhance its presence in Cambridge, MA to complement research teams in other hubs like San Francisco, New York, La Jolla and Cambridge, U.K. Further, adjusted other (income)/deductions(1) are now expected to be approximately $1.0 billion in deductions, compared with the previous target of between $1.0 and $1.2 billion in deductions, and the effective tax rate on adjusted income(1) is now targeted at approximately 29%, down from approximately 30%. All other elements of the 2012 financial targets remain unchanged, including adjusted operating margin(1) in a range of the high 30%s to low 40%s, reported diluted EPS(2) between $1.58 and $1.73, adjusted diluted EPS(1) between $2.25 and $2.35, and operating cash flow of at least $19.0 billion. In addition, the Company is now providing a target range for adjusted SI&A expenses(1) of between $17.5 and $18.5 billion.
The Company also remains on-track to achieve its cost-reduction target associated with the Wyeth acquisition of approximately $4 to $5 billion, by the end of 2012, at 2008 average foreign exchange rates, in comparison with the 2008 pro-forma adjusted total costs(14) of the legacy Pfizer and legacy Wyeth operations. This cost-reduction target does not include the impact of the planned reduction in R&D spending announced today. In 2010, the Company met its target of achieving more than $2 billion of these cost reductions.
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|
Posted: February 2011
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