Pfizer Inc. — 2020 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020, filed February 25, 2021. Pfizer is a global biopharmaceutical company. Following the November 16, 2020 spin-off and combination of Upjohn with Mylan to form Viatris, Pfizer operates as a focused innovative medicines and vaccines business. Upjohn and the Mylan-Japan collaboration are presented as discontinued operations for all periods; prior-period information was restated accordingly. Pfizer retained a 32% equity interest in the GSK Consumer Healthcare joint venture.
Key financial metrics
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Revenue | $41.908 billion | $41.172 billion | Up 2% reported; up 3% operationally. COVID-19 reduced revenue by an estimated $700 million. |
| Income from continuing operations | $7.021 billion | $10.867 billion | Down about 35%; 2019 included a substantial gain on the Consumer Healthcare JV transaction. |
| Net income attributable to Pfizer shareholders | $9.616 billion | $16.273 billion | Down about 41%; includes discontinued operations. |
| Diluted EPS | $1.71 | $2.87 | Down 40%. Adjusted diluted EPS, a non-GAAP measure, was $2.22, up 16%. |
| Cash provided by operating activities | $14.403 billion | $12.588 billion | Up 14%; continuing-operations operating cash flow was $10.586 billion versus $7.011 billion. |
| Cash and cash equivalents | $1.784 billion | $1.121 billion | Short-term investments were $10.437 billion. |
| Debt, including current portion | $39.835 billion | $52.150 billion | Reduced substantially, principally after using Upjohn transaction proceeds to repay borrowings. |
| Liquidity | Working capital $9.147 billion; current ratio 1.35:1 | Working capital $(4.501) billion; current ratio 0.88:1 | Improved, primarily from using Upjohn cash proceeds to pay down commercial paper. |
| Dividend declared per common share | $1.53 | $1.46 | Annual dividend increased; Board retains discretion over future payments. |
Cost of sales was 20.7% of revenue, implying a gross margin of approximately 79.3%, compared with 80.0% in 2019. Research and development expense rose 12% to $9.405 billion; selling, informational and administrative expense fell 9% to $11.615 billion. Pfizer recorded $1.691 billion in asset impairment charges, primarily for certain oncology in-process R&D assets, Eucrisa and generic sterile injectables.
Revenue growth reflected strong performance from Eliquis ($4.949 billion, up 18% operationally), Ibrance ($5.392 billion, up 9%), Vyndaqel/Vyndamax ($1.288 billion), Xtandi ($1.024 billion, up 22%), Inlyta (up 66%) and biosimilars (up 68%). Enbrel internationally, U.S. Prevnar 13 and Chantix declined. Alliance revenues were $5.418 billion, versus $4.648 billion in 2019.
Material changes versus the prior comparable period
- The Upjohn separation reshaped Pfizer’s business and financial statements; 2020 includes Upjohn results only through the separation date as discontinued operations.
- Reported earnings fell sharply, partly because 2019 included an $8.1 billion pre-tax gain from formation of the Consumer Healthcare JV and favorable tax items. Adjusted diluted EPS increased 16%.
- Revenue increased modestly despite the estimated $700 million COVID-19-related headwind. Disruptions to patient visits and lower demand for certain products were partly offset by demand for some sterile injectables, international adult pneumococcal vaccination and initial COVID-19 vaccine sales.
- Pfizer received $12.0 billion in cash as partial consideration for Upjohn and used proceeds in part to repay commercial paper and redeem debt. Long-term ratings were lowered one notch after the separation, to Moody’s A2 and S&P A+, both with stable outlooks.
Outlook, management commentary, risks and unusual items
As of February 2, 2021, Pfizer forecast approximately $15 billion of 2021 revenue from the Pfizer-BioNTech COVID-19 vaccine, with gross margin shared equally with BioNTech. The estimate was based primarily on supply agreements then in place and could change with additional agreements and other developments. The companies estimated they could potentially manufacture at least 2 billion doses by the end of 2021. These are forward-looking estimates, not guarantees.
Pfizer expected approximately $700 million of net cost savings from corporate enabling-function changes, primarily over 2021–2022, and approximately $300 million of net savings from manufacturing-network optimization, primarily over 2020–2022. It expected about $3.0 billion of 2021 capital spending. Management stated that operating cash flow, financial assets, capital-market access and credit facilities should support liquidity needs for the foreseeable future.
Key risks include uncertainty around COVID-19 vaccine effectiveness, safety, variants, regulatory status, manufacturing scale-up and demand; patent challenges and generic or biosimilar competition; pricing and reimbursement pressure; clinical and regulatory uncertainty; product concentration (seven products represented 53% of 2020 revenue); legal and tax contingencies; and supply, cyber-security and third-party collaboration risks. Pfizer also disclosed continuing litigation and investigations, including patent disputes, product-related claims and government inquiries. It stated it could not estimate the range of reasonably possible legal losses beyond amounts accrued.
Other notable items: Pfizer incurred $896 million of acquisition and cost-reduction/productivity initiative costs in 2020 and expected total costs of about $1.6 billion for its focused-company program, plus about $500 million for manufacturing optimization. The auditor issued unqualified opinions on the financial statements and internal controls. Fourth-quarter 2020 revenue was $11.684 billion and diluted EPS was $0.10; the quarter included $791 million of asset impairment charges.
Important facts for investors to verify
- Confirm the effect of the Upjohn spin-off and discontinued-operations restatement when comparing historical revenue, earnings and cash flow.
- Assess the assumptions, contract coverage and realized sales underlying the approximately $15 billion 2021 COVID-19 vaccine revenue forecast, including the equal profit-sharing arrangement with BioNTech.
- Review product-level growth, COVID-19 demand effects, revenue deductions and the exposure of major products to patent challenges and loss of exclusivity.
- Track whether planned restructuring and manufacturing savings are achieved and how associated costs, capital spending and R&D investment evolve.
- Review liquidity and debt after the spin-off, rating changes, the company’s dividend plans, and the status of significant legal, tax and regulatory matters.