PFIZER REPORTS SECOND-QUARTER 2014 RESULTS
Second-Quarter 2014 Reported Revenues(1) of $12.8 Billion
Second-Quarter 2014 Adjusted Diluted EPS(2) of $0.58, Reported Diluted EPS(1) of $0.45
Repurchased $2.9 Billion of Common Stock to Date in 2014
Reaffirmed 2014 Adjusted Diluted EPS(2) Guidance; Updated Certain Other 2014 Financial Guidance Components
Expects to Complete U.S. Regulatory Submission for Palbociclib in Advanced Breast Cancer in August 2014
Pfizer Inc. (NYSE:PFE) reported financial results for second-quarter 2014. At the beginning of fiscal year 2014, the company began managing its commercial operations through a new global commercial structure consisting of three operating segments: the Global Innovative Pharmaceutical segment (GIP)(3); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC)(3); and the Global Established Pharmaceutical segment (GEP)(3). Financial results for each of these segments are presented in the Operating Segment Information section. As a result of the full disposition of Zoetis Inc. (Zoetis) on June 24, 2013, the financial results of the Animal Health business are reported as a discontinued operation in the consolidated statements of income for the second-quarter and first six months of 2013. Results are summarized below.
($ in millions, except
|Adjusted Diluted EPS(2)||0.58||0.56||4||%||1.15||1.08||6||%|
|Reported Net Income(1)||2,912||14,095||(79||%)||5,241||16,845||(69||%)|
|Reported Diluted EPS(1)||0.45||1.98||(77||%)||0.81||2.34||(65||%)|
($ in millions)
|2014||2013||% Change||2014||2013||% Change|
* Calculation not meaningful.
SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2)
($ in millions)
|2014||2013||% Change||2014||2013||% Change|
|Cost of Sales(2)||$||2,320||$||2,194||6||%||6||%||$||4,306||$||4,423||(3||%)||—|
|Percent of Revenues(2)||18.3||%||16.9||%|
|Effective Tax Rate(2)||27.9||%||27.9||%||26.5||%||27.4||%|
2014 FINANCIAL GUIDANCE(5)
Certain financial guidance components have been updated to reflect performance in the first six months of the year as well as the following factors:
- Adjusted Revenues(2): The expected negative impact from anticipated multi-source generic competition for Celebrex in the U.S. beginning in December 2014. In addition to the approximate one month of multi-source generic competition, Celebrex revenues also are expected to be negatively impacted in fourth-quarter 2014 by associated wholesaler and retailer destocking.
- Adjusted SI&A Expenses(2): The expected reduction in promotional spending for Celebrex in second-half 2014 attributable to the aforementioned anticipated multi-source generic competition in the U.S. beginning in December 2014.
- Adjusted R&D Expenses(2): The impact from the planned $80 million upfront payment to Cellectis SA (Cellectis) associated with the recently announced global strategic collaboration as well as higher expected expenses related to the planned acceleration of certain late-stage clinical programs, including palbociclib and bococizumab, among other programs.
- Adjusted Other (Income)/Deductions(2): The favorable impacts of lower expected net interest expense over the remainder of 2014 as well as gains realized in the first six months of 2014 on sales of product rights and of investments in equity securities, among various other factors.
- Reported Diluted EPS(1): The negative impact from charges related to certain legal matters, primarily related to Neurontin, incurred in first-quarter 2014.
|Adjusted Revenues(2)||$48.7 to $50.7 billion|
|(previously $49.2 to $51.2 billion)|
|Adjusted Cost of Sales(2) as a Percentage of Adjusted Revenues(2)||19.0% to 20.0%|
|Adjusted SI&A Expenses(2)||$13.3 to $14.3 billion|
|(previously $13.5 to $14.5 billion)|
|Adjusted R&D Expenses(2)||$6.7 to $7.2 billion|
|(previously $6.4 to $6.9 billion)|
|Adjusted Other (Income)/Deductions(2)||Approximately ($200 million) of income|
|(previously approx. $100 million of deductions)|
|Effective Tax Rate on Adjusted Income(2)||Approximately 27.0%|
|Reported Diluted EPS(1)||$1.47 to $1.62|
|(previously $1.57 to $1.72)|
|Adjusted Diluted EPS(2)||$2.20 to $2.30|
Ian Read, Chairman and Chief Executive Officer, stated, “I am pleased with our operating performance to date. Our recently launched products continued to gain traction during the quarter while our mid- and late-stage pipeline continued to progress with a regulatory submission in the U.S. completed for our meningitis B vaccine candidate and our palbociclib regulatory submission in the U.S. underway. We also look forward to the recently announced meeting in August of the U.S. Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) to evaluate and make a recommendation regarding usage of our Prevnar 13 vaccine in the adult population. In addition, we also announced targeted business development transactions within our Global Oncology(3) and GEP(3) businesses.”
“I continue to see Pfizer as well positioned to effectively execute on our strategy to further strengthen each of our businesses on a global basis and deliver value to all of our stakeholders,” Mr. Read concluded.
Frank D’Amelio, Chief Financial Officer, stated, “Overall, I am pleased with our second-quarter 2014 financial results despite the continued negative impact from product losses of exclusivity and the termination of certain co-promotion collaborations. We updated our 2014 adjusted revenue(2) guidance to reflect the anticipated negative impact associated with expected multi-source generic competition for Celebrex in the U.S. beginning in December 2014. Importantly, we reaffirmed our adjusted diluted EPS(2) guidance, absorbing an approximate $0.05 per share anticipated negative impact from this loss of exclusivity and an approximate $0.01 per share negative impact from the planned upfront payment to Cellectis, which reflects our financial flexibility and confidence in the business going forward. Given our strong operating cash flow, we continue to expect to repurchase approximately $5 billion of our shares this year, with $2.9 billion repurchased through July 28. These 2014 repurchases and planned repurchases are expected to reduce total shares outstanding by approximately 100 million shares by the end of the year after factoring in actual and projected dilution related to employee compensation programs.”
QUARTERLY FINANCIAL HIGHLIGHTS (Second-Quarter 2014 vs. Second-Quarter 2013)
– Global Vaccines(3) revenues grew 14% operationally. Prevnar 13 revenue in the U.S. increased 12%, driven by government purchasing patterns and increased demand. International sales of the Prevenar family were up 15% on an operational basis, primarily reflecting increased shipments associated with the Global Alliance for Vaccines and Immunization (GAVI) as well as the timing of government purchases in various emerging markets compared with the year-ago quarter.
– Consumer Healthcare(3) revenues increased 15% operationally, primarily due to the launch of Nexium 24HR in the U.S. in late-May 2014.
– Global Oncology(3) revenues increased 16% operationally, primarily driven by the continued strong uptake of Xalkori and Inlyta globally. Xalkori revenues were positively impacted by a greater accumulation of patients on therapy as a result of an increase in the testing rate for the anaplastic lymphoma kinase (ALK) gene abnormality, which has led to more patients being treated, as well as an extended duration of therapy. Inlyta revenues were favorably impacted by continued increases in renal cell carcinoma market share. This growth was partially offset by the timing of purchases for Sutent in China.
Adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses(2) in the aggregate increased 4% operationally. Overall, they increased $255 million, or 4%, primarily reflecting:
– higher adjusted cost of sales(2), primarily reflecting an unfavorable change in product mix;
– lower adjusted SI&A expense(2) as a result of benefits from cost-reduction and productivity initiatives partially offset by investments to support several recent product launches; and
– higher adjusted R&D expense(2), primarily due to recently initiated Phase 3 programs for bococizumab, ertugliflozin and certain other new drug candidates as well as for studies of Xeljanz and certain other products in potential new indications.
– the non-recurrence in second-quarter 2014 of income from discontinued operations in the year-ago quarter attributable to the company’s Animal Health business, including the gain associated with the full disposition of Zoetis; and
– the non-recurrence in second-quarter 2014 of income in the year-ago quarter from a litigation settlement with Teva Pharmaceuticals Industries Ltd. and Sun Pharmaceutical Industries Ltd. for patent-infringement damages resulting from their “at-risk” launches of generic Protonix in the U.S.
– lower acquisition-related costs, purchase accounting adjustments and asset impairment charges compared to the prior-year quarter; and
– a lower effective tax rate, primarily due to the favorable impact of the resolution in second-quarter 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, a favorable change in the jurisdictional mix of earnings as well as the non-recurrence of the unfavorable tax liability attributable to the income associated with the aforementioned patent litigation settlement.
RECENT NOTABLE DEVELOPMENTS
– Pfizer discussed with the CDC's ACIP at their scheduled June meeting the results of the Community-Acquired Pneumonia Immunization Trial in Adults (CAPiTA) as well as other considerations regarding a potential expanded recommendation for Prevnar 13 use in adults. Pfizer looks forward to continued dialogue with the ACIP as well as its decision on a potential expanded recommendation at a meeting scheduled for August 13, 2014.
– Pfizer announced that Prevenar 13 was approved in Japan for adults 65 years of age and older for the prevention of pneumococcal disease caused by 13 S. pneumoniae serotypes covered by the vaccine.
– In June 2014, Pfizer announced that it submitted a Biologics License Application (BLA) to the FDA for rLP2086, the company’s vaccine candidate for the prevention of invasive meningococcal disease caused by Neisseria meningitidis serogroup B in 10 to 25 year olds. The FDA has a 60-day filing review period from the date of the BLA submission to determine whether the BLA is complete and acceptable for filing. Pfizer will communicate the FDA’s decision once available.
– Pfizer announced results from two Phase 2 studies of rLP2086. In both studies, rLP2086 was observed to generate bactericidal responses, a measurement of functional immune response, against diverse meningococcal serogroup B test strains following either two or three doses. Also, in the study evaluating co-administration of rLP2086 and a diphtheria, tetanus, pertussis and inactivated polio vaccine (dTaP-IPV), no impact was observed on the immune response to the dTaP-IPV vaccine. The most common local reaction observed in both studies was mild-to-moderate injection site pain; headache and fatigue were the most common systemic events in both studies. The data were presented at the 32nd Annual Meeting of the European Society for Paediatric Infectious Diseases (ESPID 2014).
- Pfizer announced on May 26, 2014 that it did not intend to make an offer for AstraZeneca. The announcement was made in accordance with Rule 2.8 of the U.K. City Code on Takeovers and Mergers (the “Code”). As a result of this announcement, Pfizer, together with any party acting in concert with Pfizer, is bound by the restrictions contained in Rule 2.8 of the Code.
- Pfizer and Cellectis announced that they have entered into a global strategic collaboration to develop Chimeric Antigen Receptor T-cell (CAR-T) immunotherapies in the field of oncology directed at select cellular surface antigen targets. Cellectis will receive an upfront payment of $80 million, as well as funding for research and development costs associated with Pfizer-selected targets and the four Cellectis-selected targets within the collaboration. Cellectis is eligible to receive development, regulatory and commercial milestone payments of up to $185 million per Pfizer product. Cellectis is also eligible to receive tiered royalties on net sales of any products that are commercialized by Pfizer. Additionally, Pfizer entered into an agreement to acquire approximately 10% of the Cellectis capital through the purchase of newly issued shares at 9.25 Euro per share, subject to approval by Cellectis’ shareholders. In the event the sale of equity is not approved by the Cellectis shareholders, Pfizer has the option to terminate the collaboration agreement.
- Pfizer and InnoPharma, Inc. (InnoPharma), a privately held pharmaceutical development company, announced that they have entered into an agreement under which Pfizer will acquire InnoPharma. Under the terms of the agreement, Pfizer will acquire InnoPharma for an upfront cash payment of $225 million and up to $135 million of contingent milestone payments. InnoPharma’s current portfolio includes 10 generic products approved by the FDA. InnoPharma also has a pipeline of 19 products filed with the FDA and more than 30 injectable and ophthalmic products under development. The closing of the transaction is subject to U.S. regulatory approval and is expected to occur during third-quarter 2014.
Please find Pfizer’s press release and associated financial tables, including reconciliations of certain GAAP reported to non-GAAP adjusted information, at the following hyperlink:http://www.pfizer.com/system/files/Q2_2014_PFE_Earnings_Press_Release_gpjte7kbxgpj4.pdf
(Note: If clicking on the above link does not open up a new web page, you may need to cut and paste the above URL into your browser's address bar.)
For additional details, see the associated financial schedules and product revenue tables attached to the press release located at the hyperlink referred to above and the attached disclosure notice.
|(1)||“Reported Revenues” is defined as revenues in accordance with U.S. generally accepted accounting principles (GAAP). “Reported Net Income” is defined as net income attributable to Pfizer Inc. in accordance with U.S. GAAP. “Reported Diluted EPS” is defined as reported diluted EPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.|
“Adjusted Income” and its components and “Adjusted Diluted Earnings Per Share (EPS)” are defined as reported U.S. GAAP net income(1) and its components and reported diluted EPS(1) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Adjusted Revenues, Adjusted Cost of Sales, Adjusted Selling, Informational and Administrative (SI&A) expenses, Adjusted Research and Development (R&D) expenses and Adjusted Other (Income)/Deductions are income statement line items prepared on the same basis as, and therefore components of, the overall adjusted income measure. As described under Adjusted Income in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of Pfizer’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2014, management uses adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. We believe that investors’ understanding of our performance is enhanced by disclosing this measure. See the accompanying reconciliations of certain GAAP reported to non-GAAP adjusted information for the second quarter and first six months of 2014 and 2013, as well as reconciliations of full-year 2014 guidance for adjusted income and adjusted diluted EPS to full-year 2014 guidance for reported net income(1) and reported diluted EPS(1). The adjusted income and its components and adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.
For a description of the revenues in each business, see the “Our Strategy––Commercial Operations” sub-section in the Overview of Our Performance, Operating Environment, Strategy and Outlooksection of Pfizer's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2014.
|(4)||Other includes revenues generated from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization, and also includes, in 2014, the revenues related to our transitional manufacturing and supply agreements with Zoetis.|
The 2014 financial guidance reflects the following:
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