- First-Quarter 2010 Revenues of $16.8 Billion
- First-Quarter 2010 Reported Diluted EPS of $0.25, Adjusted Diluted EPS of $0.60
- Reaffirms 2010 Financial Guidance and 2012 Diluted EPS Target Ranges
- Continues to Make Solid Progress on the Wyeth Integration
Pfizer Inc. (NYSE: PFE) today reported financial results for first-quarter 2010. Since the acquisition of Wyeth was completed on October 15, 2009, legacy Wyeth operations are reflected in first-quarter 2010 results, but not in first-quarter 2009 results. First-quarter 2010 revenues were $16.8 billion, an increase of 54% compared with $10.9 billion in the year-ago quarter. Revenues for first-quarter 2010 compared with the year-ago quarter were favorably impacted by $5.3 billion, or 48%, due to the addition of the legacy Wyeth products, and $733 million, or 7%, due to foreign exchange. Revenues were unfavorably impacted by $137 million, or 1%, due to legacy Pfizer products. Revenues for first-quarter 2010 reflect a reduction of $56 million due to the recently enacted U.S. healthcare legislation. For first-quarter 2010, U.S. revenues were $7.3 billion, an increase of 47% compared with the year-ago quarter. International revenues were $9.4 billion, an increase of 60% compared with the prior-year quarter, which reflected 48% operational growth and a 12% favorable impact of foreign exchange. U.S. revenues represented 44% of total revenues in first-quarter 2010 compared with 46% in the year-ago quarter, while international revenues represented 56% of total revenues in first-quarter 2010 compared with 54% in the year-ago quarter.
Pfizer operates two distinct commercial organizations: Biopharmaceutical and Diversified. Biopharmaceutical includes the Primary Care, Specialty Care, Established Products, Emerging Markets and Oncology customer-focused units, while Diversified includes Animal Health, Consumer Healthcare, Nutrition and Capsugel.
For first-quarter 2010, revenues from Biopharmaceutical were $14.5 billion, an increase of 44% compared with $10.1 billion in the year-ago quarter. Operationally, revenues increased $3.8 billion, or 38%, which included $4.1 billion, or 41% attributable to legacy Wyeth products, primarily Premarin in the Primary Care unit, Enbrel and the Prevnar/Prevenar franchise in the Specialty Care unit, Effexor and Zosyn/Tazocin in the Established Products unit as well as Enbrel and Prevenar in the Emerging Markets unit. In addition, foreign exchange favorably impacted Biopharmaceutical revenues by 6% or $617 million.
Within the Biopharmaceutical units, legacy Pfizer operational performance was impacted in first-quarter 2010 compared to the year-ago quarter both by the loss of exclusivity of certain products and by the reclassification of certain revenues among the various units. Legacy Pfizer Oncology unit revenues in first-quarter 2010 no longer include Camptosar's European revenues due to its loss of exclusivity in July 2009. Camptosar's European revenues are included in the Established Products unit beginning in first-quarter 2010. This reclassification of revenues negatively impacted the Oncology unit's performance by 24% in first-quarter 2010 compared with the prior-year quarter. Additionally, revenues from South Korea were included in the Emerging Markets unit in 2009, but are included in the developed markets units, as appropriate, beginning in first-quarter 2010, which negatively impacted the legacy Pfizer Emerging Markets unit's revenues by 5%. Further, legacy Pfizer Established Products unit revenues in first-quarter 2010 were adversely impacted by 5% due to the loss of exclusivity for Norvasc in Canada in July 2009, offset by the favorable impact due to the addition of Camptosar's European revenues as well as the reclassification of revenues from South Korea.
For first-quarter 2010, revenues from Diversified were $2.1 billion, an increase of 210% compared with $691 million in the year-ago quarter. Operationally, revenues increased $1.3 billion, or 194%, which was primarily attributable to legacy Wyeth products, principally Centrum, Advil and Caltrate in Consumer Healthcare and certain Nutrition products. Additionally, foreign exchange favorably impacted Diversified revenues by 16% or $111 million.
Reported Net Income and Reported Diluted EPS
For first-quarter 2010, Pfizer posted reported net income of $2.0 billion, a decrease of 26% compared with $2.7 billion in the prior-year quarter, and reported diluted EPS of $0.25, a decrease of 38% compared with $0.40 in the prior-year quarter. Results for first-quarter 2010 reflect the first full quarter of the legacy Wyeth products and operations. In comparison with the same period in 2009, first-quarter 2010 was favorably impacted by revenues from legacy Wyeth products, which was more than offset by the expenses associated with the legacy Wyeth operations as well as purchase accounting adjustments associated with the acquisition, higher net interest expense primarily due to the borrowings used to partially fund the acquisition of Wyeth and an increase in the effective tax rate.
Additionally, reported diluted EPS in first-quarter 2010 was impacted by the increased number of shares outstanding in comparison with the corresponding period in 2009 resulting from shares issued to partially fund the Wyeth acquisition.
The effective tax rate on reported results increased to approximately 36% in first-quarter 2010 from approximately 28% in first-quarter 2009. This increase primarily is the result of two factors: first, higher amortization charges, primarily related to intangible assets, incurred as a result of the acquisition of Wyeth and the mix of jurisdictions in which those charges were incurred; and second, the write-off of the deferred tax asset of approximately $270 million related to the Medicare Part D subsidy for retiree prescription drug coverage resulting from changes in the recently enacted U.S. healthcare legislation. These factors were partially offset by the favorable impact of the resolution of certain tax positions pertaining to prior years with various foreign tax authorities.
Adjusted Income and Adjusted Diluted EPS
First-quarter 2010 adjusted income was $4.9 billion, an increase of 33% compared with $3.7 billion in the year-ago quarter, and adjusted diluted EPS was $0.60, an increase of 11% compared with $0.54 in the year-ago quarter. In comparison with the same period in 2009, first-quarter 2010 was favorably impacted by revenues from legacy Wyeth products, which was partially offset by the expenses associated with the legacy Wyeth operations as well as higher net interest expense primarily due to the borrowings used to partially fund the acquisition of Wyeth. The effective tax rate on adjusted income for both first-quarter 2010 and first-quarter 2009 was approximately 30%.
Additionally, adjusted diluted EPS in first-quarter 2010 was impacted by the increased number of shares outstanding in comparison with the corresponding period in 2009 resulting from shares issued to partially fund the Wyeth acquisition.
In first-quarter 2010, adjusted cost of sales as a percentage of revenues was 17.5% compared with 12.1% in first-quarter 2009. This increase primarily reflects the change in the mix of products and businesses as a result of the Wyeth acquisition. Excluding the impact of foreign exchange, adjusted cost of sales as a percentage of revenues was 16.7% in first-quarter 2010.
Adjusted SI&A expenses were $4.4 billion in first-quarter 2010, an increase of 54% compared with $2.8 billion in the prior-year quarter. This increase was attributable to the addition of the legacy Wyeth operations. Foreign exchange increased first-quarter 2010 adjusted SI&A expenses by $156 million compared with the year-ago quarter.
Adjusted R&D expenses were $2.2 billion in first-quarter 2010, an increase of 32% compared with $1.7 billion in the prior-year period. This increase was attributable to the addition of the legacy Wyeth operations and continued investment in the late-stage development portfolio. Foreign exchange increased first-quarter 2010 adjusted R&D expenses by $28 million compared with the year-ago quarter.
Overall, foreign exchange increased adjusted total costs(13) by $450 million, or 8%, in first-quarter 2010 compared with the prior-year period.
The Company remains on-track to achieve the cost-reduction target of approximately $4 to $5 billion, by the end of 2012, at 2008 average foreign exchange rates, in comparison with the 2008 pro-forma adjusted total costs(13) of Pfizer and the legacy Wyeth operations. This quarter, operational cost improvements were driven partially by a reduction in workforce. At the end of first-quarter 2010, the workforce totaled approximately 113,800, a decrease of 2,700 from year-end 2009. Since the closing of the Wyeth acquisition on October 15, 2009, the workforce has declined by 6,900, primarily in the U.S. Primary Care field force, manufacturing and research and development operations.
"Our results this quarter demonstrate the ability of our colleagues to deliver solid operational performance in a challenging environment as well as to extract value for shareholders from the acquisition of Wyeth. During the quarter, many of our in-line products performed well, including key legacy Wyeth assets such as Enbrel, Effexor, the Prevnar/Prevenar franchise, and the Consumer Healthcare and Nutrition businesses," stated Jeff Kindler, Chairman and Chief Executive Officer. "We are excited about our more diverse in-line product portfolio, including Prevnar/Prevenar 13 for infants and toddlers, which has been approved in more than 40 markets, and our expanded pipeline. We expect to receive phase three clinical results for numerous compounds in our pipeline during the remainder of 2010."
Frank D'Amelio, Chief Financial Officer, stated, "After considering the performance of first-quarter 2010, the anticipated financial impact of the recently enacted U.S. healthcare legislation of approximately $300 million on revenues in 2010 as well as the strengthening of the U.S. dollar, we are reaffirming our previous 2010 financial guidance. We are reducing our 2012 target revenue range by $800 million due to the anticipated impact of that legislation. However, we expect to offset the impact on earnings from the anticipated decline in revenue through spending reductions and other means, as necessary, and are reaffirming our 2012 reported and adjusted diluted EPS target ranges."
2010 Financial Guidance
For full-year 2010, Pfizer's financial guidance, at current exchange rates(14), is summarized below.
2012 Financial Targets
Pfizer is updating its target revenue range for 2012 to reflect the anticipated financial impact of the recently enacted U.S. healthcare legislation. In comparison to the range provided on February 3, 2010, the updated target revenue range has been reduced by $800 million. The Company is reaffirming all other elements of its 2012 financial targets, including the 2012 reported and adjusted diluted EPS target ranges. Given the longer-term nature of these targets, they are subject to greater variability and less certainty as a result of potential material impacts related to foreign exchange fluctuations, macroeconomic activity including inflation, and industry-specific challenges including changes to government healthcare policy, among others.
For 2012, at current exchange rates(14), Pfizer is targeting reported revenue between $65.2 and $67.7 billion, reported diluted EPS between $1.58 and $1.73, adjusted diluted EPS between $2.25 and $2.35, adjusted R&D expenses between $8.0 and $8.5 billion, adjusted operating margin in a range of the high 30%s to low 40%s and adjusted other (income)/deductions between $1.0 and $1.2 billion in deductions. The effective tax rate on adjusted income is targeted at approximately 30%, while operating cash flow is expected to be at least $19.0 billion.