Pfizer Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 28, 2020; comparisons are with the quarter ended June 30, 2019. Six-month comparisons are with the six months ended June 30, 2019. Amounts are U.S. dollars unless noted.
Business context
Pfizer reported two segments: Biopharma and Upjohn. The 2019 comparison includes Consumer Healthcare revenue before its July 31, 2019 combination with GSK; 2020 does not. Upjohn was expected to combine with Mylan to form Viatris, with closing anticipated in the fourth quarter of 2020, subject to conditions.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $11.801B | $13.264B | $23.829B | $26.382B |
| Income before tax | $3.953B | $4.141B | $7.838B | $8.463B |
| Net income attributable to Pfizer | $3.426B | $5.046B | $6.828B | $8.929B |
| Diluted EPS | $0.61 | $0.89 | $1.22 | $1.56 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $6.688B | $4.309B |
- Q2 revenue fell 11% reported and 9% operationally; first-half revenue fell 10% reported and 8% operationally. Q2 Biopharma revenue grew 4% reported, while Upjohn revenue declined 32%. The loss of U.S. Lyrica exclusivity was a major drag.
- Q2 cost of sales was 19.3% of revenue (19.4% prior year); SI&A was 25.7% (26.5%); R&D was 18.1% (13.9%). GAAP net margin was 29.0%, versus 38.0%.
- Q2 other income, net, included $732 million of net gains on equity securities, contributing to pretax income despite lower revenue. GAAP net income also compares with a large 2019 tax benefit: the prior-year quarter included about $1.4 billion of tax and interest benefit from an IRS audit settlement. Q2 2020 effective tax rate was 13.1%, versus a 22.1% benefit rate in 2019.
- At June 28, cash and equivalents were $1.801B; short-term investments were $9.581B and restricted short-term investments were $11.412B. Current assets were $46.424B and current liabilities $32.723B; working capital was $13.701B and the current ratio 1.42.
- Total borrowings were $63.613B ($13.084B short-term, including current maturities, and $50.529B long-term), up from $52.150B at year-end 2019. Selected net financial liabilities were $38.450B, compared with $40.062B. Upjohn debt proceeds accounted for $11.4B of restricted investments pending the proposed transaction.
- First-half investing cash outflow was $13.082B, largely reflecting investment of Upjohn debt proceeds; financing cash inflow was $6.959B. Pfizer paid $4.216B in dividends and made no share repurchases under its public program during the first half.
Material changes and notable items
- COVID-19 reduced Q2 revenue by an estimated net $500 million and first-half revenue by about $350 million, mainly through fewer wellness visits and lower demand for certain products in China. Increased demand for some sterile injectables and international adult Prevenar 13 partly offset the impact.
- Biopharma growth in Eliquis, Ibrance, Vyndaqel/Vyndamax and Inlyta was offset in part by lower Prevnar 13 U.S. sales and competition. Upjohn’s first-half revenue decline was driven principally by Lyrica and China’s volume-based procurement program affecting Lipitor and Norvasc.
- R&D expense rose 16% in Q2, including $130 million paid to Valneva for a Lyme disease vaccine collaboration and $72 million paid to BioNTech for COVID-19 vaccine development. Pfizer also invested $113 million in BioNTech shares.
- Pfizer recorded $566 million in first-half costs associated with restructuring and acquisition/productivity initiatives. Its multi-year focused-company program is expected to cost about $1.2B through 2022, with approximately $900 million of gross savings targeted mainly in 2021–2022; a separate legacy cost-reduction effort is expected to cost about $400 million.
- First-half GAAP net income included foreign-currency translation losses in other comprehensive income, including approximately $902 million after tax associated with the GSK Consumer Healthcare investment and hedging program.
Outlook, risks and contingencies
- On July 28, 2020, Pfizer raised full-year 2020 guidance: total-company revenue to $48.6–$50.6B and adjusted diluted EPS to $2.85–$2.95. New Pfizer guidance was revenue of $40.8–$42.4B, adjusted diluted EPS of $2.28–$2.38 and operating cash flow of $10–$11B. Upjohn guidance was revenue of $8.0–$8.5B and adjusted EBITDA of $3.8–$4.2B. These are non-GAAP measures where indicated.
- Guidance assumes gradual recovery in physician visits, vaccinations and elective procedures, continued clinical-trial enrollment, and no material manufacturing or supply-chain disruption. It excludes revenue from a potential COVID-19 vaccine and includes an anticipated $2.4B negative impact from recent and expected generic and biosimilar competition. Pfizer cautions that pandemic effects remain uncertain.
- The BioNTech vaccine and other COVID-19 development efforts were experimental; success, approval, manufacturing scale-up, demand and cost recovery were uncertain. The filing described a planned Phase 2/3 study and potential authorization timing as forward-looking expectations, not assured outcomes.
- Key ongoing risks include patent challenges and generic/biosimilar competition, drug pricing and reimbursement pressure, regulatory and manufacturing compliance, clinical and product-safety outcomes, foreign exchange, and the pending Upjohn–Mylan transaction. Pfizer said it could not estimate reasonably possible legal losses in excess of recorded accruals. A $200 million hormone-therapy consumer class-action settlement was paid in Q2 2020.
- Pfizer stated it believed liquidity was sufficient for foreseeable needs. Its debt ratings were Moody’s A1, under review for downgrade, and S&P AA-, on CreditWatch Negative; ratings could change, including in connection with the planned transaction.
Most important facts for investors to verify
- Whether COVID-19 disruptions and the assumed gradual recovery matched subsequent patient-visit, vaccination and demand trends.
- Whether Biopharma growth could offset Upjohn declines, Lyrica erosion and further competition or pricing pressure.
- Whether the Upjohn–Mylan transaction closed on expected terms and how its debt, $12B payment to Pfizer and separation affected Pfizer’s leverage and cash flow.
- How much reported earnings depended on volatile equity-security gains and other adjustments; compare GAAP results with Pfizer’s non-GAAP adjusted measures.
- Progress, costs, regulatory outcomes and manufacturing capacity for COVID-19 and other pipeline programs, and material developments in litigation, tax audits and regulatory inquiries.