01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Pfizer's 2018 Form 10-K shows a company in transition: revenues rose 2% to $53.6 billiona, but reported diluted EPS fell 47% to $1.87, largely because 2017 included a $10.7 billion U.S. tax benefit from the Tax Cuts and Jobs Act and 2018 included about $3.1 billion of intangible asset impairments.
On an adjusted (non-GAAP) basis, diluted EPS rose 13% to $3.00b. Revenue growth came from key brands such as Ibrance, Eliquis, Xeljanz and Prevnar 13, offset by $2.5 billion of declines from Viagra's loss of exclusivity, Lyrica, Enbrel biosimilar competition and sterile injectables. The most consequential strategic event is the agreement to combine Consumer Healthcare with GSK's consumer business into a joint venture in which Pfizer receives a 32% stake, expected to close in the second half of 2019.
Pfizer also reorganized into three businesses (Biopharma, Upjohn and Consumer Healthcare) effective January 2019, and guided 2019 revenue to $52-54 billion and adjusted diluted EPS to $2.82c-2.92, reflecting roughly $2.6 billion of expected generic and biosimilar erosion, with Lyrica's U.S. exclusivity ending in mid-2019. Capital return is substantial: $12.2 billion of share repurchases in 2018, with a further roughly $6.8 billion accelerated repurchase in February 2019, and a dividend raised to $0.36 per quarter. Key risks flagged include the FDA's OAI status at the Hospira McPherson, Kansas plant, a possible ACIP vote on Prevnar 13 recommendations for adults 65 and older, pending U.S. drug-pricing rule changes that would alter rebate economics, and ongoing patent and product litigation.
02—Key points
Key Highlights
- Revenue of $53.6B (+2% y/y), with operational growth of $791M offset by $2.5B of declines from Viagra, Lyrica, Enbrel, sterile injectables and legacy brands
- Reported diluted EPS fell 47% to $1.87 versus 2017's tax-benefit-inflated $3.52; adjusted diluted EPS rose 13% to $3.00
- Consumer Healthcare JV with GSK: Pfizer contributes its business for a 32% equity stake, with closing expected in 2H 2019
- 2019 guidance: revenue $52-54B and adjusted diluted EPS $2.82-2.92, including about $2.6B of anticipated generic and biosimilar erosion
- Large impairments of about $3.1B in 2018 (mainly Hospira-related sterile injectable intangibles), which depressed GAAP earnings
- Aggressive capital return: $12.2B of 2018 buybacks, about $9B planned for 2019 (completed through February 28), and a dividend increase to $0.36 per quarter
- Ongoing exposure: McPherson plant under FDA OAI status, possible ACIP changes to Prevnar 13 adult recommendations, and proposed rebate safe-harbor rule changes
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Pfizer Inc kept $0.27.
- Revenue$40.83B100.0%
- Cost of revenue−$8.99B22.0%
- Gross profit$31.84B78.0%
- Operating costs−$28.01B68.6%
- Operating income$3.83B9.4%
- Interest, other & tax$7.33B17.9%
- Net income$11.15B27.3%
Where FY2018 revenue went
$40.83B- Other operating costs: $15.40B, 38% of revenue
- SG&A: $12.61B, 31% of revenue
- Cost of revenue: $8.99B, 22% of revenue
- Operating income: $3.83B, 9.4% of revenue
Kept 9.4% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $40.83B$52.55B | −22.3% |
| Cost of Revenue | $8.99B$11.24B | −20.0% |
| Gross Profit | $31.84B$41.31B | −22.9% |
| SG&A Expenses | $12.61B$14.80B | −14.8% |
| Operating Income | $3.83B$21.31B | −82.0% |
| Interest Expense | $1.32B$1.27B | +3.6% |
| Net Income | $11.15B$21.31B | −47.7% |
| EPS (Basic) | $1.90$3.57 | −46.8% |
| EPS (Diluted) | $1.87$3.52 | −46.9% |
| Shares Outstanding (Basic) | 5.87B5.97B | −1.6% |
| Shares Outstanding (Diluted) | 5.98B6.06B | −1.3% |
05—Questions
Frequently Asked Questions
Why did Pfizer's EPS fall sharply in 2018 if revenue grew?
The 2017 result included a roughly $10.7 billion net tax benefit from the TCJA, which lifted GAAP diluted EPS to $3.52. In 2018, the tax provision was only $706 million (5.9% effective rate), and GAAP earnings absorbed about $3.1 billion of intangible asset impairments and $1.0 billion of restructuring costs. Adjusted diluted EPS, which excludes these items, grew 13% to $3.00.
What is the GSK Consumer Healthcare joint venture and what does Pfizer get out of it?
Pfizer and GSK agreed on December 19, 2018 to combine their consumer healthcare businesses into a new joint venture operating under the GSK Consumer Healthcare name. Pfizer contributes its Consumer Healthcare business (brands such as Centrum, Advil and Caltrate) and receives a 32% equity stake, with GSK holding 68%. Closing is expected in the second half of 2019, subject to GSK shareholder and regulatory approvals. Pfizer will account for the stake as an equity-method investment and will record a gain on deconsolidation.
How much revenue is at risk from patent expirations and generic competition?
Pfizer estimates a $2.6 billion negative revenue impact in 2019 from recent and expected generic and biosimilar competition. Lyrica's U.S. basic patent expires in June 2019 after pediatric exclusivity, and Lipitor, Norvasc and Viagra have already lost exclusivity in key markets. Pfizer's Organizing for Growth plan and the new Upjohn business are partly intended to manage this erosion, and the company expects a period of reduced patent-expiry impact after 2020.
What are the main regulatory and operational risks disclosed?
Key risks include FDA OAI status at Hospira's McPherson, Kansas sterile injectable plant, which can block approvals and export certificates until re-inspection succeeds; a possible 2019 ACIP vote that could weaken the 65-and-older recommendation for Prevnar 13, a major revenue product; and proposed HHS rules that would remove safe-harbor protection for PBM rebates, potentially reshaping the rebate model. Pfizer also faces antitrust investigations related to its Greenstone generics business and several product liability suits, including Lipitor, Viagra and Docetaxel.
How is Pfizer returning capital to shareholders?
Pfizer repurchased $12.2 billion of stock in 2018 and paid $8.0 billion in dividends. In February 2019 it executed a roughly $6.8 billion accelerated share repurchase, and its guidance assumes about $9 billion of 2019 buybacks, with roughly $5.3 billion of authorization remaining after February 2019. The Board raised the quarterly dividend to $0.36 from $0.34 and noted that Pfizer's debt covenants do not restrict dividends.
06—Continue