Pfizer Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter ended July 3, 2022; six-month comparison is against the six months ended July 4, 2021. Pfizer’s non-U.S. subsidiaries report on a different quarter-end calendar. Amounts below are in U.S. dollars; financial statements are unaudited.
Business context and performance
Pfizer operates through Biopharma, its sole reportable segment, and Pfizer CentreOne (PC1), its contract development and manufacturing business. Q2 growth was dominated by COVID-19 products Comirnaty and Paxlovid. Excluding those products, revenue grew 1% operationally in both Q2 and the first half.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $27.742B | $18.899B | $53.402B | $33.415B |
| Income from continuing operations | $9.877B | $5.825B | $17.756B | $10.710B |
| Net income attributable to Pfizer common shareholders | $9.906B | $5.563B | $17.769B | $10.440B |
| Diluted GAAP EPS | $1.73 | $0.98 | $3.10 | $1.84 |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $14.711B | $15.837B |
| Capital expenditures | Not separately stated for quarter | Not separately stated for quarter | $1.394B | $1.091B |
Q2 revenue increased 47% reported (53% operationally); first-half revenue increased 60% reported (66% operationally). Foreign exchange reduced revenue growth by $1.3B in Q2 and $2.0B in the first half. Revenue from Comirnaty was $8.848B in Q2 and $22.075B in the first half; Paxlovid contributed $8.115B and $9.585B, respectively.
Cost of sales was 31.2% of revenue in Q2 versus 37.0% a year earlier; for the first half it was 34.9% versus 33.4%. Net margin, calculated as net income attributable to Pfizer shareholders divided by revenue, was approximately 35.7% in Q2 versus 29.4%, and 33.3% for the first half versus 31.2%. Non-GAAP adjusted diluted EPS was $2.04 in Q2 and $3.66 for the first half, compared with $1.06 and $2.01, respectively; this measure excludes specified items and is not a GAAP substitute.
At July 3, 2022, cash and cash equivalents were $1.780B and short-term investments were $31.524B, compared with $1.944B and $29.125B at year-end 2021. Current assets were $67.466B and current liabilities $47.410B (current ratio approximately 1.42). Short-term borrowings, including current maturities, were $5.990B; long-term debt was $34.294B, for total reported debt of about $40.3B. Six-month operating cash flow declined to $14.711B; operating cash flow less capital expenditures was approximately $13.3B, calculated from the filing.
Material changes and notable items
- Q2 continuing-operations pretax income rose to $11.447B from $6.949B. Higher revenue was partly offset by higher cost of sales and R&D, pension costs instead of prior-year credits, and net equity-security losses instead of gains.
- Other income/deductions included net equity-security losses of $541M in Q2 and $1.241B in the first half, versus gains of $800M and $1.200B in the comparable 2021 periods. The filing also records a $450M write-off of COVID-19 product inventory that had exceeded, or was expected to exceed, approved shelf lives before use.
- Pfizer acquired Arena in March for $6.6B ($6.2B net of cash acquired), recording provisional acquired intangible assets and goodwill. It acquired ReViral in June for consideration of up to $525M. The proposed Biohaven acquisition, announced in May, involved approximately $11.6B in cash consideration and was expected to close by early 2023, subject to conditions.
- After quarter-end, GSK completed the Consumer Healthcare JV demerger on July 18, creating Haleon. Pfizer retained a 32% interest, received a $4.2B dividend, repaid its JV loan, and said it intends to exit its stake in a disciplined manner.
- Pfizer paid $4.493B in dividends during the first half and repurchased $2.0B of shares in Q1; no shares were bought under the public plan in Q2. The declared dividend was $0.40 per share for each of the second and third quarters.
Outlook, management commentary, and risks
As of July 28, Pfizer forecast approximately $32B of 2022 Comirnaty revenue and $22B of Paxlovid revenue, based primarily on deliveries under contracts signed or committed by mid-July. Comirnaty gross profit is shared evenly with BioNTech. These are product forecasts; the supplied filing text does not provide a clear updated full-company revenue or EPS guidance figure.
Management cited continued demand and supply uncertainty for COVID-19 products, including the risk that disease severity or prevalence, competition, or changing demand could reduce sales or leave excess inventory. Other stated risks include pricing and payer pressure, patent challenges and loss of exclusivity, product recalls related to nitrosamines (including the ongoing Chantix shipment pause), manufacturing and supply disruption, regulatory and clinical-trial uncertainty, foreign exchange and geopolitical conditions, and litigation and tax contingencies. Management stated that it did not expect the Russia-Ukraine conflict to have a significant negative business impact at that time, but noted that broader effects remained difficult to predict.
The company reported that it believed its liquidity was adequate for foreseeable needs, citing operating cash flow, financial assets, capital-market access and credit facilities. It had a $7B committed U.S. revolving credit facility, essentially unused at quarter-end. Pfizer stated it did not believe pending legal matters would materially adversely affect its financial position, but acknowledged that outcomes could materially affect results or cash flows and that it could not estimate reasonably possible losses above accrued amounts.
Most important facts for investors to verify
- Whether Comirnaty and Paxlovid delivery volumes, contract timing, pricing, and inventory levels support the stated 2022 product forecasts.
- How much of reported growth and earnings depends on COVID-19 products, and whether non-COVID product growth can offset any decline.
- The realization, integration costs, and financing implications of Arena, ReViral, and the pending Biohaven transaction; also the timing and value of any future Haleon stake sale.
- Developments in product and patent litigation, tax audits, regulatory reviews, product recalls, and clinical programs, including the consequences for revenues, costs, and cash flows.
- Changes in debt, cash generation, capital returns, and the use of the remaining share-repurchase authorization.