Pfizer Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended October 2, 2022. Pfizer’s non-U.S. subsidiaries report on a quarter ended August 28, 2022. Financial amounts below are in U.S. dollars; unless stated otherwise, amounts are in millions.
Business context and reporting period
Pfizer is a global biopharmaceutical company. Biopharma is its only reportable segment; Pfizer CentreOne (PC1), its contract development, manufacturing and active pharmaceutical ingredient business, is included in other business activities. Results include continuing operations unless noted.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $22.638 billion | $24.035 billion | $76.040 billion | $57.450 billion |
| Income from continuing operations | $8.645 billion | $8.171 billion | $26.400 billion | $18.881 billion |
| Net income attributable to Pfizer | $8.608 billion | $8.146 billion | $26.378 billion | $18.586 billion |
| Diluted GAAP EPS | $1.51 | $1.42 | $4.60 | $3.27 |
| Gross margin, calculated from revenue and cost of sales | 73.2% | 58.7% | 67.5% | 63.3% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $20.685 billion | $26.666 billion |
Adjusted results: Non-GAAP adjusted diluted EPS was $1.78 for Q3 and $5.44 for the first nine months, versus $1.27 and $3.28, respectively, in 2021. Pfizer’s adjusted measures exclude specified items and are not substitutes for GAAP results.
Cash, liquidity and debt: At October 2, cash and cash equivalents were $1.298 billion and short-term investments were $34.825 billion. Current assets were $70.403 billion and current liabilities $44.314 billion. Short-term borrowings, including current maturities, were $4.040 billion; long-term debt was $32.629 billion. Total assets were $195.350 billion and total equity was $92.891 billion. The company cited operating cash flow, financial assets and access to credit as sources of liquidity; its $7 billion committed U.S. revolving credit facility was essentially unused.
For the first nine months, investing cash outflow was $11.373 billion and financing cash outflow was $9.819 billion. Pfizer paid $6.738 billion in dividends and repurchased $2.0 billion of stock during the period. Operating cash flow declined from 2021, mainly reflecting changes in BioNTech-related payments and timing of operating receipts and payments.
Key product revenue: Q3 Comirnaty revenue was $4.402 billion, down 65% operationally; Paxlovid generated $7.514 billion. For the first nine months, Comirnaty revenue was $26.477 billion and Paxlovid revenue $17.099 billion. Q3 revenue also included Eliquis of $1.464 billion, Prevnar family of $1.607 billion and Vyndaqel/Vyndamax of $602 million.
Material changes versus the prior comparable period
- Q3 revenue fell 6% year over year, including a 2% operational decline and a 4% adverse foreign-exchange impact. Lower Comirnaty sales drove the operational decline; Paxlovid growth partly offset it. Excluding Comirnaty and Paxlovid, revenue increased 2% operationally.
- Q3 income before tax rose to $9.001 billion from $7.843 billion, despite lower revenue. Pfizer attributed the increase mainly to lower cost of sales and restructuring/acquisition-related costs, partly offset by lower revenue, weaker pension benefit credits, equity-security losses versus gains, and higher selling expenses.
- For the first nine months, revenue rose 32% (38% operational growth, partly offset by foreign exchange), primarily on Comirnaty and Paxlovid. Income before tax increased to $29.498 billion from $20.484 billion.
- Q3 cost of sales fell 39%, chiefly because Comirnaty sales were lower; cost of sales as a share of revenue declined to 26.8% from 41.3%. Nine-month cost of sales increased 17%, but its share of revenue decreased to 32.5% from 36.7%.
- Nine-month operating cash flow was down about $6.0 billion year over year. The balance sheet showed lower long-term debt than at December 31, 2021, while short-term borrowings increased.
Outlook, management commentary, risks and unusual items
- As of November 1, 2022, Pfizer forecast approximately $34 billion of 2022 Comirnaty revenue and $22 billion of Paxlovid revenue. These are forecasts, not reported results, and depend on deliveries, contracts and demand.
- Pfizer expected U.S. Comirnaty sales to move to the commercial market in 2023 as government contracts expire and purchased doses are depleted; it anticipated a later transition in international markets. The filing describes pandemic-related demand, supply and contract assumptions as uncertain.
- Unusual items included a $400 million Q3 cost-of-sales charge for excess Paxlovid raw materials; a $450 million first-half write-off of COVID-19 product inventory that had expired or was expected to expire before use; and a $200 million impairment of an R&D asset after a Phase 3 trial reached futility at interim analysis.
- Pfizer acquired Arena in March 2022 for $6.6 billion in consideration ($6.2 billion net of cash acquired) and ReViral in June for upfront consideration of approximately $436 million, with up to $100 million in future milestones. After the quarter, Pfizer completed its Biohaven acquisition on October 3 for approximately $11.5 billion, plus specified debt and preferred-stock payments, and acquired GBT on October 5 for approximately $5.3 billion net of cash acquired, plus repayment of debt.
- Risks highlighted include COVID-19 product demand and excess inventory; product safety, regulatory and manufacturing issues; patent challenges and generic competition; global pricing pressure and the U.S. Inflation Reduction Act; currency and geopolitical volatility; and extensive litigation and government inquiries. Management said it could not estimate the range of reasonably possible legal losses in excess of accrued amounts.
- Pfizer stated that it did not expect the Russia-Ukraine conflict to have a significant negative business impact at that time, but noted that future effects were difficult to predict. It also identified possible product recalls related to nitrosamines and ongoing supply-chain risks.
- The board declared a $0.40 per-share dividend payable December 5, 2022. Management expected cost savings from restructuring and productivity initiatives, while noting those programs entail costs and execution risk. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Comirnaty and Paxlovid delivery schedules, contract volumes and demand support the stated 2022 revenue forecasts, and how commercial-market transitions affect future sales.
- COVID-19 product inventory levels, shelf-life exposure and any further write-offs or excess-material charges.
- Acquisition funding, integration, purchase-accounting impacts and the expected contribution of Biohaven and GBT, both acquired after the reporting date.
- How the Inflation Reduction Act, payer actions, patent outcomes and generic competition may affect product pricing, access and revenue.
- Developments in product-liability, patent and government matters, including any changes to accruals or potential cash exposure.
- Whether cash generation, investment balances, debt and shareholder distributions remain consistent with Pfizer’s stated liquidity and capital-allocation plans.