01—Abstract
Summary
Summary of the 10-K filed February 28, 2014. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2013 Form 10-K (filed February 28, 2014) shows a year defined by patent cliffs and portfolio reshaping.
Revenues fell 6% to $51.6 billiona, with a 4% operational decline driven mainly by Lipitor erosion (about $1.7 billion) and other losses of exclusivity. Biopharmaceutical revenues were $47.9 billion, and international markets generated 61% of total revenue. Reported net income attributable to Pfizer rose 51% to $22.0 billion, but that figure is inflated by the roughly $10.4 billion pre-tax gain on the Zoetis (Animal Health) disposition, and income from continuing operations rose 26% to $11.4 billion mainly because of a $1.3 billion patent litigation settlement and lower legal charges.
Non-GAAP Adjusted income fell 3% to $15.3 billionb, and Adjusted diluted EPS rose 6% to $2.22. The company is restructuring its commercial organization into three global businesses effective 2014: the Global Innovative Pharmaceutical business (GIP), the Global Vaccines, Oncology and Consumer Healthcare business (VOC), and the Global Established Pharmaceutical business (GEP). Management expects about $2.9 billion in annual cost savings by the end of 2016.
The 2014 guidance projects adjusted revenues of $49.2 to $51.2 billionc, reported diluted EPS of $1.57 to $1.72, and adjusted diluted EPS of $2.20 to $2.30. Guidance excludes unannounced business development deals and pending litigation resolutions. Capital returns remain substantial.
Pfizer repurchased about $16.3 billiond of stock in 2013 and paid $6.6 billion in dividends, with about $5.5 billion remaining on the share-purchase authorization at year-end. The quarterly dividend was raised to $0.26 for Q1 2014. Long-term obligations are heavy, and the company still faces significant exposure to loss of exclusivity for Lipitor, Celebrex, Viagra and others, along with U.S. healthcare reform pricing pressure and European reimbursement cuts.
02—Key points
Key Highlights
- Revenues declined 6% to $51.6 billion; operational decline of 4% driven primarily by Lipitor (about $1.7 billion lost) and other exclusivity losses (about $1.3 billion).
- Net income attributable to Pfizer rose 51% to $22.0 billion, but was boosted by the $10.4 billion pre-tax gain on the Zoetis disposition (Discontinued operations).
- Income from continuing operations grew 26% to $11.4 billion, helped by a $1.3 billion patent litigation settlement (Protonix) and roughly $2.2 billion lower net legal charges.
- Non-GAAP Adjusted income fell 3% to $15.3 billion; Adjusted diluted EPS rose 6% to $2.22 (vs. $2.10 in 2012).
- 2014 guidance: adjusted revenues $49.2–51.2 billion, reported diluted EPS $1.57–1.72, adjusted diluted EPS $2.20–2.30, with a new three-business commercial structure.
- Returned substantial capital: about $16.3 billion in share repurchases and $6.6 billion in dividends in 2013; quarterly dividend raised to $0.26 for Q1 2014.
- Lipitor has lost exclusivity in all major markets, and several key products (Celebrex, Viagra, Lyrica, Zyvox) face generic or biosimilar pressure ahead, including U.S. Medicaid and MCO pricing pressure from the ACA.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Pfizer Inc kept $0.43.
- Revenue$51.58B100.0%
- Cost of revenue−$9.59B18.6%
- Gross profit$42.00B81.4%
- Operating costs−$30.62B59.4%
- Operating income$11.38B22.1%
- Interest, other & tax$10.62B20.6%
- Net income$22.00B42.7%
Where FY2013 revenue went
$51.58B- Other operating costs: $16.26B, 32% of revenue
- SG&A: $14.36B, 28% of revenue
- Operating income: $11.38B, 22% of revenue
- Cost of revenue: $9.59B, 19% of revenue
Kept 22% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 28, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $51.58B$54.66B | −5.6% |
| Cost of Revenue | $9.59B$9.82B | −2.4% |
| Gross Profit | $42.00B$44.84B | −6.3% |
| SG&A Expenses | $14.36B$15.17B | −5.4% |
| Operating Income | $11.38B$8.99B | +26.5% |
| Interest Expense | $1.41B$1.52B | −7.1% |
| Net Income | $22.00B$14.57B | +51.0% |
| EPS (Basic) | $3.23$1.96 | +64.8% |
| EPS (Diluted) | $3.19$1.94 | +64.4% |
| Shares Outstanding (Basic) | 6.81B7.44B | −8.5% |
| Shares Outstanding (Diluted) | 6.89B7.51B | −8.2% |
05—Questions
Frequently Asked Questions
Is Pfizer's 2013 earnings growth real operating improvement?
Not entirely. Reported net income rose 51%, but about $10.4 billion of pre-tax gain from the Zoetis disposition is classified as discontinued operations. Income from continuing operations grew 26%, but that was helped by a $1.3 billion Protonix patent settlement and lower legal charges. On the company's Adjusted basis, which excludes these items, income fell 3%.
What are the main risks to Pfizer's revenue over the next few years?
Loss of exclusivity is the dominant risk. Lipitor is already off patent in major markets, and Celebrex, Viagra, Lyrica, Zyvox, Norvasc and others face generic competition in 2014 and beyond. Pricing pressure from U.S. healthcare reform (the ACA), Medicaid rebates, and government price cuts in Europe and Japan also weigh on results, and the Alliance revenue from Spiriva, Enbrel and Aricept is declining as co-promotion agreements expire.
What is the new commercial structure and why does it matter?
Starting in 2014, Pfizer manages commercial operations through three global businesses: GIP (patent-protected innovative medicines), VOC (vaccines, oncology and consumer health) and GEP (off-patent established products and biosimilars). Emerging markets are fully integrated into each business. The goal is to lower costs and improve market access and value demonstration, with roughly $2.9 billion in targeted annual savings by 2016. Historical results are not restated, so comparisons will be made once 2014 quarterly reporting begins.
How strong is Pfizer's balance sheet and cash generation?
Operating cash flow was $17.8 billion in 2013. Cash and short-term/long-term investments totaled about $48.8 billion against $36.5 billion of debt, giving net financial assets of about $12.3 billion. Long-term debt is rated A1 by Moody's and AA by S&P. Shareholders' equity per share was $11.93. Liquidity is described as sufficient for the foreseeable future, and the dividend is not restricted by debt covenants.
What do the 2014 guidance figures imply for investors?
Management guides to adjusted revenue of $49.2–51.2 billion and adjusted diluted EPS of $2.20–2.30, implying further top-line decline. Reported diluted EPS of $1.57–1.72 is well below adjusted EPS because of roughly $2.8 billion of purchase accounting charges and restructuring costs. Guidance excludes unannounced business development deals and unresolved litigation, so results could move materially if those are resolved.
06—Continue