01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2010 Form 10-K (filed February 28, 2011) reports full-year 2010 revenues of $67.8 billiona, up 36% from $50.0 billion in 2009, driven mainly by a full year of legacy Wyeth products following the October 2009 Wyeth acquisition (~$68 billion).
Reported net income attributable to Pfizer fell 4% to $8.3 billionb and reported diluted EPS was $1.02 (vs. $1.23), held down by $4.3 billion of other deductions (including $2.1 billion of intangible impairments, a $1.3 billion asbestos charge tied to Quigley, and higher interest expense) and roughly $8.3 billion of purchase accounting charges. Non-GAAP Adjusted diluted EPS rose 10% to $2.23, and the effective tax rate fell to 11.9% on a one-time $1.4 billion IRS audit settlement benefit. Looking ahead, the filing signals a challenging period.
Lipitor, the world's best-selling drug at $10.7 billionc in 2010, faces U.S. loss of exclusivity in November 2011, and several other major products (Xalatan, Caduet, Aricept 5/10mg, Effexor, Protonix, Vfend tablets) are losing exclusivity. Management guided 2011 revenues of $66.0-68.0 billion and reported diluted EPS of $1.09-1.24 (Adjusted $2.16-2.26), and targeted 2012 Adjusted EPS of $2.25-2.35. It also announced a February 2011 R&D productivity initiative that narrows focus to five therapeutic areas and reduces R&D spending to roughly $8.0-8.5 billion in 2011, with $1.1-1.3 billion of impairment and restructuring charges, including the planned exit from the Sandwich, U.K. site.
Capital allocation remains shareholder-friendly. The quarterly dividend rises to $0.20d per share (from $0.18), and the board authorized a new $5 billion buyback, bringing total authorization to $9 billion, with about $5 billion expected to be repurchased in 2011.
Pfizer ended 2010 with $28.5 billion in cash and short-term investments and maintained AA (S&P) and A1 (Moody's) long-term ratings. Pending items include the approximately $3.6 billion King Pharmaceuticals acquisition (closing around February 28, 2011, with about 92.5% already tendered), the Ferrosan consumer healthcare purchase, and a review of strategic options for Capsugel.
02—Key points
Key Highlights
- 2010 revenues of $67.8B, up 36% year over year, primarily from the full-year inclusion of legacy Wyeth products (~$18.1B contribution); legacy Pfizer revenues declined $1.4B.
- Reported diluted EPS fell to $1.02 from $1.23, while Adjusted diluted EPS rose 10% to $2.23, reflecting large purchase accounting charges, $2.1B of impairments, and a $1.3B asbestos charge.
- Lipitor (~$10.7B, ~18% of Biopharma revenue) loses U.S. exclusivity in November 2011, a major revenue cliff; Xalatan, Caduet, Aricept and others also face generic erosion in 2011.
- 2011 guidance: revenues of $66.0-68.0B and reported diluted EPS of $1.09-1.24; 2012 Adjusted EPS target of $2.25-2.35 with $4-5B of targeted Wyeth cost savings by end-2012.
- Feb 2011 R&D productivity initiative narrows focus to five therapeutic areas and cuts adjusted R&D spend to ~$8.0-8.5B in 2011, with $1.9-2.3B of related charges over 2011-2012.
- Shareholder returns: quarterly dividend raised to $0.20 from $0.18; new $5B buyback (total $9B authorization), with ~$5B expected to be repurchased in 2011.
- Balance sheet: $28.5B of cash and short-term investments, total debt of $44.0B, AA/A1 credit ratings, and a pending ~$3.6B King Pharmaceuticals acquisition expected to close around February 28, 2011.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Pfizer Inc kept $0.13.
- Revenue$65.17B100.0%
- Cost of revenue−$14.79B22.7%
- Gross profit$50.38B77.3%
- Operating costs−$42.09B64.6%
- Operating income$8.29B12.7%
- Interest, other & tax−$30.0M0.0%
- Net income$8.26B12.7%
Where FY2010 revenue went
$65.17B- Other operating costs: $23.12B, 35% of revenue
- SG&A: $18.97B, 29% of revenue
- Cost of revenue: $14.79B, 23% of revenue
- Net income: $8.26B, 13% of revenue
Kept 13% as net incomeNet income $8.26B · 13%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $65.17B$49.27B | +32.3% |
| Cost of Revenue | $14.79B$8.46B | +74.8% |
| Gross Profit | $50.38B$40.81B | +23.4% |
| SG&A Expenses | $18.97B$14.75B | +28.6% |
| Operating Income | $8.29B$8.52B | −2.7% |
| Interest Expense | $1.80B$1.23B | +45.9% |
| Net Income | $8.26B$8.63B | −4.4% |
| EPS (Basic) | $1.03$1.23 | −16.3% |
| EPS (Diluted) | $1.02$1.23 | −17.1% |
| Shares Outstanding (Basic) | 8.04B7.01B | +14.7% |
| Shares Outstanding (Diluted) | 8.07B7.04B | +14.6% |
05—Questions
Frequently Asked Questions
How did Pfizer perform in 2010 and why did reported earnings decline?
Revenues grew 36% to $67.8B, mostly from a full year of legacy Wyeth products. Reported net income attributable to Pfizer fell 4% to $8.3B because of heavy purchase accounting charges (about $8.3B pre-tax), $2.1B of asset impairments, a $1.3B asbestos litigation charge at Quigley, and higher interest expense. Adjusted EPS, which excludes these items, rose 10% to $2.23.
What is the biggest risk to Pfizer's revenues over the next few years?
Loss of exclusivity. Lipitor, which generated $10.7B in 2010, is expected to lose U.S. exclusivity in November 2011, and a substantial share of its U.S. revenue is likely to disappear shortly afterward. Several other large products, including Xalatan, Caduet, Effexor, and Protonix, also face generic competition, and pricing pressure from U.S. healthcare reform and European government price cuts adds to the pressure.
What is Pfizer's 2011 financial guidance?
Management forecast 2011 revenues of $66.0-68.0B, reported diluted EPS of $1.09-1.24, and Adjusted diluted EPS of $2.16-2.26. The guidance assumes completion of the King Pharmaceuticals acquisition and reflects R&D cost reductions and the impact of the U.S. healthcare legislation.
How is Pfizer returning capital to shareholders?
The quarterly dividend rises to $0.20 per share from $0.18 in 2010. The board added a $5B share repurchase authorization on February 1, 2011, bringing the total available to $9B, and management expects to repurchase about $5B of stock during 2011. Pfizer paid $6.1B in dividends and bought back $1.0B of stock in 2010.
What did Pfizer do to its R&D strategy and what does it cost?
On February 1, 2011, Pfizer announced it would concentrate research on five areas: immunology and inflammation, oncology, cardiovascular and metabolic diseases, neuroscience and pain, and vaccines. It estimates $1.9-2.3B of restructuring and implementation charges across 2011-2012, including $1.1-1.3B of impairment and accelerated depreciation tied mainly to the Sandwich, U.K. site, and expects annual R&D spending to fall meaningfully.
06—Continue