01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2016 Form 10-K (filed February 23, 2017) reports revenues of $52.8 billiona, up 8% from $48.9 billion in 2015 (an 11% operational increase partly offset by a 3% foreign exchange headwind).
The growth was driven largely by the full-year inclusion of Hospira (about $3.1 billionb of acquisition-related growth), continued momentum in key brands such as Ibrance, Xeljanz, Eliquis and Chantix, and the Medivation and Anacor acquisitions. Reported earnings were weaker: income from continuing operations before taxes fell 7% to $8.4 billion, and diluted EPS was $1.17 versus $1.11 in 2015, with the increase in net income helped by a lower effective tax rate of 13.4%. Results were pressured by a $1.7 billion write-down of the Hospira Infusion Systems (HIS) net assets, higher restructuring and acquisition-related costs, and asset impairments.
On a non-GAAP adjusted basis, diluted EPS was $2.40c versus $2.20. The outlook is a key focus for investors. For 2017, Pfizer guided to revenues of $52.0 to $54.0 billion and adjusted diluted EPS of $2.50 to $2.60.
Management cited an expected $2.4 billiond revenue hit from generic and biosimilar competition, including Viagra, Pristiq and Lyrica, and a $0.9 billion foreign exchange headwind. The company also launched a new cost-reduction program targeting about $1.2 billion of savings by 2020, and completed the sale of HIS to ICU Medical for up to about $900 million on February 3, 2017. Pfizer is also returning capital, with a $5 billion accelerated share repurchase agreement entered into February 2, 2017 and a dividend increase to $0.32 per quarter.
The risk profile is heavily weighted toward loss of exclusivity and pricing pressure. Eight products generating more than $1 billion in direct sales, plus Eliquis alliance revenues, together accounted for 43% of 2016 revenues.
Pfizer also flagged U.S. healthcare reform uncertainty (repeal or replacement of the ACA), a February 2017 FDA warning letter for the Hospira McPherson, Kansas facility, and ongoing litigation such as the Lipitor and Effexor matters. Management stated that it is not pursuing a split into two companies at this time, and it continues to operate Innovative Health and Essential Health as two distinct segments.
02—Key points
Key Highlights
- Revenue of $52.8B in 2016, up 8% reported and 11% operationally, supported by the full-year Hospira contribution (+$3.1B) and growth in Ibrance, Xeljanz, Eliquis and Chantix
- GAAP diluted EPS of $1.17 vs. $1.11 in 2015; non-GAAP adjusted diluted EPS of $2.40 vs. $2.20, with the GAAP effective tax rate falling to 13.4% from 22.2%
- Pre-tax income declined 7% to $8.4B, reflecting a $1.7B HIS impairment, $1.7B in restructuring and acquisition-related charges, and $1.4B in asset impairments
- 2017 guidance: revenue of $52.0–54.0B and adjusted diluted EPS of $2.50–2.60, including a $2.4B revenue headwind from generic and biosimilar competition
- Major portfolio exposure: eight $1B+ products plus Eliquis alliance revenue represented 43% of 2016 revenue; Viagra (U.S. generic entry Dec 2017), Pristiq (Mar 2017) and Lyrica face near-term LOE
- Capital return: $5B accelerated share repurchase announced Feb 2017, $11.4B remaining authorization at year-end, and quarterly dividend raised to $0.32 from $0.30
- Strategic moves: completed the $14.3B Medivation and $4.9B Anacor acquisitions in 2016, sold HIS to ICU Medical (Feb 2017), and launched a new cost program targeting $1.2B in savings by 2020
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Pfizer Inc kept $0.14.
- Revenue$52.82B100.0%
- Cost of revenue−$12.33B23.3%
- Gross profit$40.49B76.7%
- Operating costs−$33.30B63.0%
- Operating income$7.20B13.6%
- Interest, other & tax$17.0M0.0%
- Net income$7.21B13.7%
Where FY2016 revenue went
$52.82B- Other operating costs: $18.45B, 35% of revenue
- SG&A: $14.84B, 28% of revenue
- Cost of revenue: $12.33B, 23% of revenue
- Operating income: $7.20B, 14% of revenue
Kept 14% as operating incomeOperating income $7.20B · 14%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $52.82B$48.85B | +8.1% |
| Cost of Revenue | $12.33B$9.65B | +27.8% |
| Gross Profit | $40.49B$39.20B | +3.3% |
| SG&A Expenses | $14.84B$14.81B | +0.2% |
| Operating Income | $7.20B$6.95B | +3.6% |
| Interest Expense | $1.19B$1.20B | −1.1% |
| Net Income | $7.21B$6.96B | +3.7% |
| EPS (Basic) | $1.18$1.13 | +4.4% |
| EPS (Diluted) | $1.17$1.11 | +5.4% |
| Shares Outstanding (Basic) | 6.09B6.18B | −1.4% |
| Shares Outstanding (Diluted) | 6.16B6.26B | −1.6% |
05—Questions
Frequently Asked Questions
How did Pfizer perform financially in 2016?
Revenue rose 8% to $52.8 billion, driven mainly by the full-year Hospira contribution and growth in key brands. GAAP net income attributable to Pfizer was $7.2 billion, or $1.17 diluted EPS, up from $1.11. Pre-tax income fell 7% due to a $1.7 billion HIS write-down, restructuring costs and asset impairments, though a 13.4% effective tax rate helped EPS.
What is Pfizer's 2017 guidance?
Pfizer guided to 2017 revenues of $52.0 to $54.0 billion and adjusted diluted EPS of $2.50 to $2.60. The guidance includes a $2.4 billion revenue impact from generic and biosimilar competition and a $0.9 billion foreign exchange headwind, and assumes about 6.1 billion diluted shares after the $5 billion ASR.
What are the biggest risks to Pfizer's revenue?
The largest risk is loss of exclusivity. Several major products face generic or biosimilar competition in the near term, including Viagra in the U.S. (December 2017), Pristiq (March 2017) and Lyrica (U.S. basic patent expiry December 2018). Eight products with over $1 billion in sales, plus Eliquis alliance revenue, represented 43% of 2016 revenue. Other risks include U.S. healthcare reform and drug pricing pressure, manufacturing compliance (including an FDA warning letter for the Hospira McPherson, Kansas plant), and foreign exchange exposure, since 50% of revenue comes from outside the U.S.
What did Pfizer do with its capital in 2016 and early 2017?
Pfizer paid $7.3 billion in dividends and repurchased $5.0 billion of stock in 2016, including a $5 billion accelerated share repurchase. It also entered into a new $5 billion ASR with Citibank on February 2, 2017, and raised its quarterly dividend to $0.32 per share, its 313th consecutive quarterly dividend. Pfizer ended 2016 with about $11.4 billion remaining under its repurchase authorization.
Is Pfizer planning to split into separate companies?
No. In September 2016, Pfizer decided not to pursue a separation of its Innovative Health and Essential Health businesses into two publicly traded companies at that time. Instead, it is operating both as distinct segments, with a focus on growth and operating efficiency, and it launched new enterprise-wide cost-reduction initiatives to be completed by the end of 2019.
06—Continue