01—Abstract
Summary
Summary of the 10-K filed February 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2015 Form 10-K (filed February 29, 2016) describes a year of heavy portfolio reshaping.
Revenues fell 2% to $48.9 billiona, as roughly $3.8 billion of unfavorable foreign exchange offset a 6% operational increase. Reported net income attributable to Pfizer declined 24% to $7.0 billion, or $1.11 diluted EPS, driven by Hospira integration costs, purchase accounting charges, a $806 million Venezuela currency loss, and a $784.6 million agreement in principle on Protonix Medicaid rebate claims. Non-GAAP Adjusted diluted EPS was $2.20, down from $2.26.
Key growth drivers were Prevnar 13 (up 40% to $6.2 billionb), Ibrance (a $723 million launch), Eliquis, Xeljanz and Lyrica in the U.S., while Celebrex (down 69%) and Zyvox (down 35%) suffered generic erosion. The defining strategic events were the September 2015 acquisition of Hospira for about $16.1 billion in cash, which added sterile injectables and biosimilars to the Established Products business, and the November 2015 agreement to combine with Allergan in a stock transaction with an enterprise value of about $160 billion. Under the Allergan terms, Pfizer shareholders would own roughly 56% of the combined company and could elect up to $12 billion in cash, and the combined company would be domiciled in Ireland.
Completion is expected in the second half of 2016, subject to U.S. and EU regulatory approval and Allergan's pending divestiture of its generics business to Teva. Pfizer also notes that a termination fee of up to $3.5 billionc could apply and that lenders may accelerate credit lines upon the merger. Capital returns remain substantial: $6.2 billion in buybacks and $6.9 billion in dividends in 2015, with the quarterly dividend raised to $0.30 for Q1 2016.
Guidance for 2016 calls for reported revenues of $49.0 to $51.0 billiond and Adjusted diluted EPS of $2.20 to $2.30, excluding the pending Allergan transaction. Investors should weigh the 2016 loss-of-exclusivity headwind of about $2.3 billion, the $2.3 billion currency headwind, and the Allergan execution risk.
02—Key points
Key Highlights
- Revenues declined 2% to $48.9B; operational growth of 6% was more than offset by an 8% foreign exchange drag of $3.8B.
- GAAP diluted EPS fell to $1.11 from $1.42 (2014); Non-GAAP Adjusted diluted EPS was $2.20 vs. $2.26, excluding purchase accounting, acquisition costs and significant items.
- Prevnar family revenue rose 40% to $6.2B, driven by U.S. adult uptake, while Celebrex fell 69% to $830M after generic entry in December 2014.
- Acquired Hospira for ~$16.1B cash (Sept. 2015); targets $800M annual cost synergies by 2018 and ~$1B in one-time integration costs.
- Agreed to combine with Allergan in a stock deal valued at ~$160B enterprise value; expected close 2H 2016, with up to $3.5B termination fee exposure.
- Returned ~$13.1B to shareholders in 2015 ($6.2B buybacks, $6.9B dividends); new $11B buyback authorized, with ~$5B accelerated repurchase planned for 1H 2016.
- 2016 guidance: reported revenue $49–51B, Adjusted diluted EPS $2.20–2.30, with ~$2.3B generic-erosion and ~$2.3B FX headwinds.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Pfizer Inc kept $0.14.
- Revenue$48.85B100.0%
- Cost of revenue−$9.65B19.7%
- Gross profit$39.20B80.3%
- Operating costs−$32.25B66.0%
- Operating income$6.95B14.2%
- Interest, other & tax$11.0M0.0%
- Net income$6.96B14.2%
Where FY2015 revenue went
$48.85B- Other operating costs: $17.45B, 36% of revenue
- SG&A: $14.81B, 30% of revenue
- Cost of revenue: $9.65B, 20% of revenue
- Operating income: $6.95B, 14% of revenue
Kept 14% as operating incomeOperating income $6.95B · 14%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 29, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $48.85B$49.60B | −1.5% |
| Cost of Revenue | $9.65B$9.58B | +0.7% |
| Gross Profit | $39.20B$40.03B | −2.1% |
| SG&A Expenses | $14.81B$14.10B | +5.1% |
| Operating Income | $6.95B$9.09B | −23.5% |
| Interest Expense | $1.20B$1.36B | −11.8% |
| Net Income | $6.96B$9.13B | −23.8% |
| EPS (Basic) | $1.13$1.44 | −21.5% |
| EPS (Diluted) | $1.11$1.42 | −21.8% |
| Shares Outstanding (Basic) | 6.18B6.35B | −2.7% |
| Shares Outstanding (Diluted) | 6.26B6.42B | −2.6% |
05—Questions
Frequently Asked Questions
Why did reported EPS fall so sharply in 2015 when revenues were relatively stable?
Reported diluted EPS was $1.11 versus $1.42 in 2014. The drop reflects a $1.15B increase in restructuring and acquisition-related costs (largely Hospira), a $806M Venezuela foreign currency loss, a $784.6M Protonix settlement accrual in Other deductions, $491M in pension settlement charges, and higher intangible asset impairments. Adjusted diluted EPS, which excludes these items, was $2.20 versus $2.26.
What does the Allergan combination mean for Pfizer shareholders?
Pfizer shareholders can elect to receive one combined-company share per Pfizer share or cash for some shares, with cash capped between $6B and $12B and prorated if elections exceed those limits. Existing Pfizer holders are expected to own about 56% of the combined company on a fully diluted basis. The combined company would be Irish-domiciled and renamed Pfizer plc, and Pfizer expects it to be treated as a non-U.S. tax resident, though the IRS may challenge that treatment.
What are the main revenue risks heading into 2016?
Management expects about $2.3B of reported revenue pressure from generic competition, including Lyrica in Europe, Zyvox, Enbrel in Europe and Japan (biosimilar approval in January 2016), and Relpax and Tygacil in the U.S. Currency is an additional $2.3B headwind, including roughly $0.8B from Venezuela. Pricing pressure from U.S. payers, the ACA rebate burden ($977M in 2015 revenue reductions), and the Medicaid rebate changes are also flagged as ongoing risks.
How strong is Pfizer's balance sheet and liquidity?
At year-end 2015, Pfizer held $39.3B in cash and investments against $39.0B of debt, leaving net financial assets of about $0.3B, down from $17.0B a year earlier after the Hospira purchase and buybacks. Working capital fell to $14.4B. Long-term debt is rated A1 by Moody's (stable) and AA by S&P (negative watch, placed November 2015). Pfizer has $8.1B in credit lines, but a substantial majority may be terminated or accelerated upon the Allergan merger.
06—Continue