Pfizer Inc. Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 29, 2009. Pfizer Inc. is a global research-based pharmaceutical company. The reporting period is significantly defined by the announcement on January 26, 2009, of a definitive merger agreement to acquire Wyeth in a cash-and-stock transaction valued at approximately $68 billion. The company is currently in the process of financing this acquisition and implementing new cost-reduction initiatives.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenues | $10,867 million | $11,848 million |
| Net Income (Attributable to Pfizer) | $2,729 million | $2,784 million |
| Diluted EPS | $0.40 | $0.41 |
| Operating Cash Flow | $3,147 million | $3,271 million |
| Total Debt | $28,677 million | $17,283 million |
| Cash & Short-Term Investments | $34,052 million | $23,731 million |
| Effective Tax Rate | 28.2% | 21.5% |
Note: Total Debt increased significantly due to the issuance of $13.5 billion in senior unsecured notes to fund the Wyeth acquisition.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 8% year-over-year. This was driven by a 5% unfavorable impact from foreign exchange, the loss of exclusivity for Zyrtec and Camptosar, and competitive pressures on Lipitor (down 13%).
- Cost Reductions: Cost of sales decreased 29% and Selling, Informational, and Administrative (SI&A) expenses decreased 18%, aided by cost-reduction initiatives and favorable foreign exchange impacts on expenses.
- Acquisition Costs: The company incurred $397 million in acquisition-related costs primarily related to the pending Wyeth transaction, compared to $1 million in the prior year. Conversely, there were no in-process research and development (IPR&D) charges in Q1 2009, compared to $398 million in Q1 2008.
- Debt Financing: Long-term debt increased from $7.96 billion to $21.06 billion following the March 24, 2009, issuance of $13.5 billion in senior unsecured notes.
Guidance, Outlook, and Risks
2009 Guidance:
- Revenues: Forecasted at $44.0 billion to $46.0 billion.
- Adjusted Diluted EPS: Forecasted at $1.85 to $1.95.
- Reported Diluted EPS: Reduced to a range of $1.20 to $1.35 (previously $1.34 to $1.49) to reflect costs associated with the Wyeth acquisition.
- Wyeth Acquisition: Expected to close in Q3 or Q4 2009. The company anticipates $4 billion in annual cost savings by 2012 but expects to incur $6 billion to $8 billion in restructuring and integration costs.
- Cost-Reduction Initiative: A new initiative announced in January 2009 aims to reduce adjusted total costs by approximately $3 billion by the end of 2011, including a 10% reduction in the global workforce.
- Dividend: The quarterly dividend was reduced from $0.32 to $0.16 per share effective Q2 2009, in accordance with the merger agreement.
- Patent Expirations: Continued pressure from generic competition, particularly for Lipitor (patent expiration expected 2011) and Norvasc.
- Legal Proceedings: Ongoing litigation regarding Chantix/Champix (neuropsychiatric side effects), Celebrex, and patent challenges for Lyrica and Zyvox.
- Merger Risks: The Wyeth acquisition is subject to regulatory approvals and shareholder votes; lawsuits challenging the deal could delay or prevent consummation.
Investor Verification Checklist
- Verify the status of regulatory approvals for the Wyeth merger and any potential litigation delays.
- Monitor the impact of the $13.5 billion debt issuance on future interest expenses and credit rating outlooks (Moody's downgraded to Aa2).
- Assess the execution of the new cost-reduction program and the associated $6 billion in expected restructuring charges.
- Track the sales trajectory of Lipitor as it faces increasing generic competition prior to its 2011 patent expiration.
- Review the progress of the HIV joint venture with GlaxoSmithKline (GSK) announced in April 2009.