Pfizer Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended July 4, 2021; comparisons are to periods ended June 28, 2020. Amounts are U.S. dollars unless stated otherwise.
Business context
Pfizer reports as a single operating segment focused on innovative biopharmaceuticals. The Upjohn business and Mylan-Japan collaboration are presented as discontinued operations following the 2020 spin-off and combination with Mylan to form Viatris. COVID-19 vaccine BNT162b2, developed with BioNTech, was the principal driver of revenue growth.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $18.977B | $9.864B | $33.559B | $19.947B |
| Income from continuing operations | $5.565B | $2.604B | $10.443B | $5.087B |
| Net income attributable to Pfizer common shareholders | $5.563B | $3.489B | $10.440B | $6.843B |
| Diluted EPS | $0.98 | $0.62 | $1.84 | $1.22 |
| Adjusted diluted EPS (non-GAAP) | $1.07 | $0.62 | $2.00 | $1.25 |
- Q2 revenue rose 92% reported (86% operationally); six-month revenue rose 68% (64% operationally). Excluding BNT162b2, operational revenue growth was 10% and 9%, respectively.
- BNT162b2 direct sales and alliance revenue was $7.838B in Q2 and $11.300B year to date. Q2 vaccine-area revenue totaled $9.234B.
- Cost of sales was 37.1% of revenue in Q2, versus 18.5% a year earlier, implying gross margin of 62.9% versus 81.5%. The increase largely reflects BNT162b2’s BioNTech gross-profit share and royalties, as well as product mix and foreign-exchange effects.
- Continuing-operations pretax income was $6.609B in Q2 and $12.291B for six months. Effective tax rates were 15.8% and 15.0%, respectively, above the comparable 14.0% and 13.3%, primarily reflecting earnings mix related to BNT162b2.
- Six-month operating cash flow was $15.828B from continuing operations ($15.837B including discontinued operations); investing cash outflow was $9.884B and financing cash outflow was $5.364B. Cash, cash equivalents and restricted cash ended the period at $2.418B.
- At July 4, cash and cash equivalents were $2.372B, short-term investments $19.328B, and total debt including current maturities $39.242B. Selected net financial liabilities were $13.709B; working capital was $13.150B and the current ratio was 1.37:1. Long-term debt was $35.354B.
Material changes versus the prior comparable period
- Revenue gains were led by BNT162b2, alongside growth in Eliquis, Vyndaqel/Vyndamax, Inlyta, Xtandi, biosimilars and the Hospital area. Excluding BNT162b2, Pfizer cited 10% operational growth in Q2.
- Q2 2020 included $893M of after-tax discontinued-operations income, compared with $24M in Q2 2021; this contributes to the difference between growth in continuing income and total net income.
- Higher revenue and equity-security gains lifted earnings, while cost of sales, R&D, SI&A and legal charges also increased. Unrealized equity-security gains included gains associated with BioNTech and Cerevel investments.
- Short-term investments increased to $19.328B from $10.437B at year-end 2020, while total debt declined to $39.242B from $39.835B.
Outlook, management commentary, risks and unusual items
- As of July 28, Pfizer and BioNTech forecast approximately $33.5B of 2021 BNT162b2 revenue, based on 2.1B doses expected to be delivered under agreements signed through mid-July. Gross profit is split evenly with BioNTech. The forecast excluded an additional 200M U.S. doses announced July 23; the forecast could change with further agreements and circumstances.
- The companies projected capacity to manufacture up to 3B doses by year-end 2021, subject to supply, process improvements and other execution assumptions. The filing gives no clear consolidated full-year revenue or EPS guidance in the supplied text.
- BNT162b2 had U.S. emergency authorization, not full FDA approval, at the filing date. The FDA granted Priority Review to the vaccine’s BLA; the stated PDUFA goal date was January 2022. Pfizer noted clinical, regulatory, manufacturing and demand uncertainty.
- Pfizer reported continued monitoring of COVID-related supply constraints, pricing and payer pressure, competition and patent expirations. Chantix was subject to a U.S. voluntary recall of 12 lots over elevated nitrosamine levels and a distribution hold pending testing. Enbrel faced biosimilar competition; Pfizer also cited potential generic competition for Chantix and Sutent.
- The FDA’s review of Xeljanz safety data from the ORAL Surveillance study affected product demand and delayed regulatory decisions. Pfizer stated that the outcome and implications remained uncertain.
- Pfizer recorded a $345M EpiPen antitrust litigation settlement, subject to court approval. Management said it did not expect pending matters to materially affect financial position, but outcomes could materially affect results or cash flows; the company could not estimate reasonably possible losses above accrued amounts.
- Other notable items include a $186M R&D charge for in-process R&D from an asset acquisition, and an accounting-policy change to immediately recognize pension and postretirement actuarial remeasurement gains and losses. Retrospective adoption reduced retained earnings by $6.3B as of January 1, 2020, with an offset to accumulated other comprehensive loss.
- Pfizer announced a July 2021 Arvinas collaboration, including a $650M upfront payment and a planned $350M equity investment subject to closing conditions, plus potential milestone payments. Pfizer also acquired Amplyx in April 2021.
- Management stated that the $0.39 quarterly dividend declared in June was payable in September and that it believed future annual dividend increases were supportable absent significant unforeseen events. The $7B U.S. revolving facility was largely unused; the filing reported approximately $5.3B of remaining share-repurchase authorization and no repurchases under the public plan in the first half.
Important facts for investors to verify
- Whether BNT162b2 delivery volumes, contract terms and the 2021 revenue forecast are achieved, and how the BioNTech profit split affects margins and cash conversion.
- Regulatory decisions and safety developments for BNT162b2 and Xeljanz, including the BLA timetable and the consequences of ORAL Surveillance.
- Chantix recall, testing and supply status, and the commercial impact of generic competition and other product exclusivity losses.
- Final court approval and payment timing for the EpiPen settlement, plus developments in tax audits and other legal proceedings.
- The sustainability of earnings excluding volatile investment gains, unusual legal and restructuring items, and changes from the pension accounting policy.
- Debt, working-capital and liquidity trends, including the timing of BioNTech payments and recognition of $4.3B of BNT162b2 deferred revenue as doses are delivered.