Pfizer Inc. 10-Q Summary
Reporting period: Quarter ended July 2, 2023; the six-month comparison is against the period ended July 3, 2022. Pfizer’s non-U.S. subsidiaries report on a quarter ending May 28, 2023. Amounts are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First six months 2023 | First six months 2022 |
|---|---|---|---|---|
| Revenue | $12.734B | $27.742B | $31.015B | $53.402B |
| Net income attributable to Pfizer | $2.327B | $9.906B | $7.870B | $17.769B |
| Diluted EPS | $0.41 | $1.73 | $1.38 | $3.10 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $4M | $14.711B |
Q2 cost of sales was 25.4% of revenue versus 31.2% a year earlier, implying gross margins of approximately 74.6% and 68.8%, respectively. Pretax income was $2.269B, or about 17.8% of revenue, compared with $11.447B, or about 41.3%. The Q2 2023 tax benefit was $71M; the effective tax rate was negative 3.1%, primarily reflecting tax resolutions and a favorable change in earnings mix.
For the first six months, operating cash flow fell to $4M, largely reflecting lower earnings and timing of operating receipts and payments, including payments to BioNTech and lower advance payments for COVID-19 products. Capital expenditures were $2.053B; operating cash flow less capital expenditures was approximately negative $2.049B.
At July 2, 2023, cash and cash equivalents were $2.632B and short-term investments were $42.153B. Total current assets were $73.347B against current liabilities of $34.647B. Short-term borrowings, including current maturities, were $3.985B and long-term debt was $61.356B. Total debt was therefore approximately $65.3B, up from approximately $35.8B at year-end 2022. The increase chiefly reflects $31B of notes issued to help finance the proposed Seagen acquisition.
Changes versus prior comparable periods
- Q2 revenue fell 54%; first-half revenue fell 42%. Management attributed the declines primarily to lower Comirnaty and Paxlovid sales. Excluding those products, revenue grew 5% operationally in both periods.
- Q2 Comirnaty revenue was $1.488B, down 82% operationally; Paxlovid was $143M, down 98%. First-half revenue was $4.552B for Comirnaty, down 78%, and $4.212B for Paxlovid, down 54%.
- Growth outside COVID-19 products included Vyndaqel family revenue of $782M in Q2, up 43% operationally, and Eliquis revenue of $1.762B, up 2%. Ibrance revenue declined 4% operationally to $1.247B.
- Q2 selling, informational and administrative expense rose 15% to $3.497B; R&D expense fell 6% to $2.648B. Amortization rose 44% to $1.184B, mainly reflecting acquired Biohaven and GBT intangible assets.
- First-half operating cash flow decreased from $14.711B to $4M. Investing cash outflow was $22.170B, while financing cash inflow was $24.403B, including proceeds from the debt issuance.
Outlook, commentary and risks
- As of August 1, 2023, Pfizer forecast 2023 revenue of $67B–$70B, with an expected operational decline of 31% at the midpoint from 2022. Management expects lower COVID-19 product sales to be partly offset by growth in the non-COVID portfolio, launches and acquired products.
- 2023 forecasts were approximately $13.5B for Comirnaty and $8B for Paxlovid. Pfizer expects both products to transition toward commercial markets in the U.S. in the second half of 2023; the Paxlovid U.S. transition plan had not yet been agreed with the government. Forecasts depend on uncertain demand, variants, vaccination and treatment rates, market share, and transition timing.
- The proposed Seagen acquisition, announced at an enterprise value of approximately $43B, was expected to close in late 2023 or early 2024, subject to customary conditions and regulatory approvals. Pfizer had issued $31B of financing debt. The filing notes a potential approximately $2.22B reverse termination fee in specified circumstances and risks from increased leverage, integration and failure to close.
- A July 2023 tornado damaged Pfizer’s Rocky Mount, North Carolina facility and warehouse. The site produces nearly 25% of Pfizer’s sterile injectables and nearly 8% of sterile injectables used in U.S. hospitals. Pfizer was assessing repair costs, inventory losses, supply effects and possible insurance recoveries; the financial impact was not yet clear.
- Management cited patent expirations, generic competition, pricing and reimbursement pressure, regulatory and clinical-trial uncertainty, supply risks, and legal proceedings as significant risks. It expects a moderate revenue impact from patent expiries in 2023–2025 and a more significant impact in 2026–2030. Management stated it could not estimate reasonably possible legal losses above accrued amounts.
- Pfizer reported a $248M first-half intangible-asset impairment, including charges related to unfavorable trial results, updated forecasts and a discontinued study. Its restructuring program was expected to incur remaining costs substantially through 2023; R&D optimization savings were expected primarily during 2023–2025.
Key facts investors should verify
- COVID-19 product demand, inventory exposure and the timing and economics of the transition to commercial markets.
- Seagen regulatory clearance, closing timing, final funding needs, resulting leverage and expected strategic benefits.
- The operational and financial effects of the Rocky Mount tornado, including any supply disruption, inventory write-offs, rebuilding costs and insurance recovery.
- Whether non-COVID product growth and pipeline launches can offset COVID-19 declines and upcoming patent expirations.
- Cash generation, debt-service capacity, and the impact of legal, tax, pricing and regulatory developments.