01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2008 10-K reports essentially flat results: revenues of $48.3 billiona (vs. $48.4 billion in 2007), net income of $8.1 billion ($1.20 diluted EPS), and Adjusted income of $16.4 billion ($2.42 Adjusted EPS per the filing's framework).
Reported profitability was pressured by roughly $8.1 billionb in pre-tax certain significant items, including a $2.3 billion charge to resolve a Department of Justice investigation into past off-label Bextra promotion, roughly $900 million in Celebrex/Bextra and NSAID litigation charges, $4.2 billion in cost-reduction costs, and $633 million in acquired IPR&D. Revenue was held flat by foreign exchange (+$1.6 billion) and strong patent-protected products such as Lyrica (+41%), Sutent (+46%), and Xalatan, which offset the loss of U.S. exclusivity on Norvasc, Camptosar, and Zyrtec, and the weakening of Lipitor (down 2% to $12.4 billion, with U.S. sales down 12%). The defining event is the pending $68 billion cash-and-stock acquisition of Wyeth, announced January 26, 2009, at $50.19 per share ($33 cash plus 0.985 Pfizer shares per Wyeth share).
Pfizer plans to fund it with about $22.5 billionc of cash, $22.5 billion of new acquisition debt, and about $23 billion of stock, and expects closing in late Q3 or Q4 2009. The filing signals meaningful balance-sheet and shareholder-return changes: Moody's and S&P have placed Pfizer on review for downgrade, the quarterly dividend will be cut from $0.32 to $0.16 starting Q2 2009, and buybacks are capped at $500 million pending closing. Management also announced a new cost-reduction program targeting about $3 billion in adjusted cost savings by 2011 (net $2 billion after reinvestment), with a roughly 10% workforce reduction and about $6 billion in related pre-tax costs.
For investors, the 2009 guidance of reported diluted EPS of $1.34 to $1.49d and Adjusted EPS of $1.85 to $1.95 reflects purchase-accounting drag and restructuring costs. The key debates are the pace of the Lipitor and Norvasc erosion, the value of the Wyeth combination and its accretion timeline (expected in 2011), the scale of ongoing litigation, and the dividend reset and leverage increase that accompany the deal.
02—Key points
Key Highlights
- Revenue flat at $48.3 billion in 2008; net income $8.1 billion ($1.20 diluted EPS) versus $8.1 billion in 2007, with Adjusted income of $16.4 billion.
- Pending $68 billion Wyeth acquisition ($33 cash plus 0.985 Pfizer shares per Wyeth share), funded by about $22.5B cash, $22.5B new debt, and about $23B in stock, expected to close late 2009.
- Dividend cut from $0.32 to $0.16 per quarter from Q2 2009, and buybacks limited to $500 million pending the Wyeth deal; Moody's and S&P placed ratings on review or watch for downgrade.
- $2.3 billion charge to resolve a DOJ investigation into past off-label Bextra promotion, plus about $900 million for Celebrex/Bextra and NSAID litigation.
- Lipitor remains the largest product at $12.4 billion (down 2%, U.S. down 12%), accounting for about 28% of Pharmaceutical revenue; $1 billion-plus products include Lipitor, Norvasc, Lyrica, Celebrex, and Viagra.
- New cost-reduction program targets about $3 billion in adjusted cost savings by end-2011 (net $2 billion after reinvestment), with a ~10% workforce reduction and ~$6 billion in pre-tax costs.
- 2009 guidance: revenues of $44.0 to $46.0 billion, reported diluted EPS of $1.34 to $1.49, and Adjusted diluted EPS of $1.85 to $1.95.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Pfizer Inc kept $0.17.
- Revenue$48.30B100.0%
- Cost of revenue−$8.11B16.8%
- Gross profit$40.18B83.2%
- Operating costs−$32.16B66.6%
- Operating income$8.03B16.6%
- Interest, other & tax$78.0M0.2%
- Net income$8.10B16.8%
Where FY2008 revenue went
$48.30B- Other operating costs: $17.62B, 36% of revenue
- SG&A: $14.54B, 30% of revenue
- Cost of revenue: $8.11B, 17% of revenue
- Operating income: $8.03B, 17% of revenue
Kept 17% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $48.30B$48.42B | −0.3% |
| Cost of Revenue | $8.11B$11.24B | −27.8% |
| Gross Profit | $40.18B$37.18B | +8.1% |
| SG&A Expenses | $14.54B$15.63B | −7.0% |
| Operating Income | $8.03B— | — |
| Interest Expense | $516.00M— | — |
| Net Income | $8.10B$8.14B | −0.5% |
| EPS (Basic) | $1.20$1.18 | +1.7% |
| EPS (Diluted) | $1.20$1.17 | +2.6% |
| Shares Outstanding (Basic) | 6.73B6.92B | −2.7% |
| Shares Outstanding (Diluted) | 6.75B6.94B | −2.7% |
05—Questions
Frequently Asked Questions
How did Pfizer perform financially in 2008?
Revenues were $48.3 billion, essentially flat versus 2007, helped by a $1.6 billion favorable foreign exchange effect and growth in launched and in-line products such as Lyrica and Sutent. Reported net income was $8.1 billion, or $1.20 per diluted share, roughly flat year over year. Results absorbed about $8 billion in pre-tax certain significant items, including the $2.3 billion DOJ settlement charge and about $4.2 billion of cost-reduction costs. Adjusted income, a non-GAAP measure, was $16.4 billion.
What are the terms and financing of the Wyeth acquisition?
Pfizer agreed on January 26, 2009 to acquire Wyeth for $50.19 per share, or about $68 billion. Each Wyeth share receives $33 in cash and 0.985 Pfizer shares, with the stock portion valued at $17.19 based on January 23 pricing. Financing is planned as about $22.5 billion of cash, $22.5 billion of acquisition debt (backed by a bank commitment), and about $23 billion of stock. Closing is expected in late Q3 or Q4 2009, subject to Wyeth shareholder approval, regulatory clearances, and financing conditions.
How will the Wyeth deal affect Pfizer's balance sheet and shareholder returns?
Pfizer will take on substantially more debt, and the filing warns that covenants and a higher debt-to-equity ratio could reduce flexibility and raise borrowing costs. Moody's placed Pfizer on review for possible downgrade and S&P placed it on watch negative, with long-term ratings potentially moving to A1 and AA respectively. The quarterly dividend drops to $0.16 from $0.32 starting in Q2 2009, and the merger agreement caps buybacks at $500 million before closing. Management expects the deal to be accretive to EPS in 2011.
What are the biggest risks to Pfizer's revenue outlook?
Patent expirations are the main threat. Norvasc lost U.S. exclusivity in 2007 and Camptosar and Zyrtec in early 2008, with significant revenue declines. Lipitor faces generic simvastatin and pravastatin competition, and its basic U.S. patent expires in March 2010, with the enantiomer patent (June 2011) under legal challenge. Other products with patents expiring by 2012 include Aricept, Viagra, Detrol, and Geodon, and Celebrex faces challenges. Pricing pressure from managed care, government price controls, and Medicare reform debates also weigh on results, and litigation remains a significant uncertainty.
What is the 2009 outlook and cost plan?
Management guided 2009 revenues of $44.0 to $46.0 billion, reported diluted EPS of $1.34 to $1.49, and Adjusted diluted EPS of $1.85 to $1.95, reflecting higher pension expense, lower interest income, a higher tax rate tied to Wyeth financing, and about $1.5 billion of cost-reduction charges. The new program aims for about $3 billion in adjusted cost reductions by end-2011 (net $2 billion after reinvestment), including reducing the workforce by roughly 10%. Pfizer's guidance assumes exchange rates near January 2009 spot levels and excludes unannounced business development deals.
06—Continue