On January 29, 2019 Pfizer Inc. (NYSE: PFE) reported financial results for fourth-quarter and full-year 2018 and provided 2019 financial guidance (Press release, Pfizer, JAN 29, 2019, View Source [SID1234532936]).
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Some amounts in this press release may not add due to rounding. All percentages have been calculated using unrounded amounts. References to operational variances pertain to period-over-period growth rates that exclude the impact of foreign exchange(5).
2019 FINANCIAL GUIDANCE(6)
Pfizer’s 2019 financial guidance is presented below. Financial guidance reflects a full year of revenue and expense contributions from Consumer Healthcare(3).
Revenues $52.0 to $54.0 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues 20.8% to 21.8%
Adjusted SI&A Expenses(2) $13.5 to $14.5 billion
Adjusted R&D Expenses(2) $7.8 to $8.3 billion
Adjusted Other (Income)/Deductions(2) Approximately $100 million of income
Effective Tax Rate on Adjusted Income(2) Approximately 16.0%
Adjusted Diluted EPS(2) $2.82 to $2.92
Financial guidance for Adjusted diluted EPS(2) reflects anticipated share repurchases totaling approximately $9 billion in 2019. Dilution related to share-based employee compensation programs is currently expected to offset the reduction in shares associated with these share repurchases by approximately half.
Financial guidance for Adjusted Other (Income)/Deductions(2) and Adjusted Diluted EPS(2) now excludes the impact of realized and unrealized gains and losses on investments in equity securities. In 2018, Pfizer’s 2018 financial results included net gains on investments in equity securities, which favorably impacted Adjusted Other (Income)/Deductions(2) by $586 million and Adjusted Diluted EPS(2) by approximately $0.08.
A reconciliation of Pfizer’s full-year 2018 financial results to certain components of its 2019 financial guidance, including certain significant factors impacting 2018 financial results and 2019 financial guidance, is below:
Full-Year
2018 Results
2018 (Gains)
on Equity
Investments
2018 Results
Excluding (Gains)
on Equity Investments
2019 Financial
Guidance at
2018 FX Rates
Impact of
Mid-January 2019
FX Rates
Compared to
2018 FX Rates
2019 Financial
Guidance
Revenues ($ in billions) $53.6 – $53.6 $52.9 to $54.9 ($0.9) $52.0 to $54.0
Adjusted Diluted EPS(2) $3.00 ($0.08) $2.92 $2.88 to $2.98 ($0.06) $2.82 to $2.92
CAPITAL ALLOCATION
During 2018, Pfizer returned $20.2 billion directly to shareholders, through a combination of:
$8.0 billion of dividends, composed of quarterly dividends of $0.34 per share of common stock; and
$12.2 billion of share repurchases, composed of $8.2 billion of open-market share repurchases and a $4.0 billion accelerated share repurchase agreement executed in March 2018 and completed in September 2018.
The full-year 2018 diluted weighted-average shares used to calculate earnings per common share was 5,977 million shares, a reduction of 81 million shares compared to full-year 2017.
In 2019, Pfizer anticipates quarterly dividend payments of $0.36 per share of common stock in addition to approximately $9 billion of share repurchases, of which $1.4 billion have been repurchased through January 29, 2019.
As of January 29, 2019, Pfizer’s remaining share repurchase authorization was $12.8 billion, which includes a new $10.0 billion share repurchase program that was authorized by Pfizer’s board of directors in December 2018 and reflects the aforementioned shares already repurchased in 2019.
EXECUTIVE COMMENTARY
Dr. Albert Bourla, Pfizer’s Chief Executive Officer, stated, "2018 was highlighted by solid financial performance, shareholder-friendly capital allocation, the strengthening of our pipeline and the formation of our new commercial structure designed to transition the company to a period post-2020 where we expect a higher and more sustained revenue growth profile.
"We enter 2019 with confidence in the competitive positioning of our businesses, the prospects for our recently launched products and product line extensions, as well as the strength and breadth of our research pipeline. Our focus remains on advancing science and innovation in areas that we believe will serve the unmet needs of patients and also create the most attractive opportunities for value creation.
Dr. Bourla continued, "2019 is expected to be a busy year with important clinical data readouts across our early-, mid- and late-stage pipeline. In the near term, we expect to report pivotal top-line results for tanezumab in chronic lower back pain as well as additional data in osteoarthritis following today’s announcement of a second positive Phase 3 trial. Later in the year, we anticipate reporting pivotal results for rivipansel in vaso-occlusive crisis from sickle cell disease as well as the results of the first Phase 3 trials for abrocitinib (PF-04965842), our Janus kinase-1 (JAK1) inhibitor in development for moderate-to-severe atopic dermatitis. In our earlier stage pipeline, we anticipate generating data for two nonalcoholic steatohepatitis candidates (PF-05221304 and PF-06865571), psoriasis data for two tyrosine kinase 2 (TYK2) inhibitor candidates (PF-06826647 and PF-06700841, a TYK2/JAK1 dual inhibitor) and immune response data for our respiratory syncytial virus infection (PF-06928316) and pentavalent meningococcal (PF-06886992) vaccine candidates. We also expect to provide early clinical data for our mini-dystrophin gene therapy candidate (PF-06939926) in boys with Duchenne muscular dystrophy, and for our gene therapy program for Hemophilia A (PF-07055480), in collaboration with Sangamo Therapeutics, Inc.
"We see attractive opportunities globally to deliver value to patients, payors and other stakeholders through a combination of innovative biopharmaceutical medicines, vaccines, biosimilars, legacy brands and sterile injectable pharmaceutical products. I believe we have the business structure, leadership team and financial capability firmly in place to drive continued success," Dr. Bourla concluded.
Frank D’Amelio, Chief Financial Officer and Executive Vice President, Business Operations and Global Supply , stated, "Overall, I was pleased with our 2018 financial performance. We were able to achieve 2% operational revenue growth for the year. We also delivered Adjusted diluted EPS(2) growth of 13% in 2018, primarily reflecting a lower effective tax rate on adjusted income(2) due to tax reform, higher adjusted other income(2), strong performance of certain key products and the net impact of our share repurchases. Regarding capital allocation decisions in 2018, we returned $20.2 billion directly to shareholders through share repurchases and dividends and also announced a new joint venture for Pfizer Consumer Healthcare with GlaxoSmithKline plc (GSK)(3), delivering on our commitment to complete the strategic review for our Consumer Healthcare business in 2018.
"Our 2019 financial guidance anticipates continued strong growth from key product franchises, including Ibrance, Eliquis, Xeljanz and Xtandi as well as the expected loss of exclusivity of Lyrica in the U.S. in June 2019. The midpoint of our 2019 revenue guidance range implies comparable operational performance to 2018 while absorbing an anticipated $2.6 billion revenue headwind due to products that have recently lost or are expected to soon lose marketing exclusivity. Additionally, the midpoint of our 2019 guidance range for Adjusted diluted EPS(2) also implies comparable operational performance to 2018 when excluding the anticipated $0.06 unfavorable impact of foreign exchange on 2019 guidance as well as the $0.08 favorable impact on 2018 Adjusted diluted EPS(2) from net gains on equity investments, which will no longer be included in Adjusted(2) financial results. Notably, our guidance for adjusted diluted EPS(2) anticipates share repurchases totaling approximately $9 billion in 2019, which is currently expected to be offset by approximately half due to dilution related to share-based employee compensation programs," Mr. D’Amelio concluded.
QUARTERLY FINANCIAL HIGHLIGHTS (Fourth-Quarter 2018 vs. Fourth-Quarter 2017)
Fourth-quarter 2018 revenues totaled $14.0 billion, an increase of $274 million, or 2%, compared to the prior-year quarter, reflecting operational growth of $657 million, or 5%, partially offset by the unfavorable impact of foreign exchange of $383 million, or 3%.
Innovative Health (IH) Highlights
IH revenues increased 10% operationally, primarily driven by continued growth from key brands including:
Ibrance outside the U.S. grew significantly operationally, primarily driven by continued uptake in developed Europe and the December 2017 launch in Japan as well as the non-recurrence of a one-time price adjustment to full-year 2017 revenues, recorded in fourth-quarter 2017, related to finalizing reimbursement agreements in certain developed Europe markets;
Eliquis globally, up 31% operationally, primarily driven by continued increased adoption in non-valvular atrial fibrillation as well as oral anti-coagulant market share gains;
Xeljanz globally, up 37% operationally, primarily driven by continued uptake in the rheumatoid arthritis indication and, to a lesser extent, from the launches of the psoriatic arthritis and ulcerative colitis indications in the U.S.; and
Prevenar 13 in emerging markets, up 13% operationally, primarily due to continued momentum from the launch of the pediatric indication in China in the second quarter of 2017,
partially offset primarily by lower revenues for:
Viagra in the U.S. due to its December 2017 loss of exclusivity and the resulting shift in the reporting of Viagra revenues in the U.S. and Canada to the Essential Health business at the beginning of 2018(4);
Enbrel in most developed Europe markets, primarily due to continued biosimilar competition; and
Xalkori globally, primarily due to competitive pressures.
Essential Health (EH) Highlights
EH revenues declined 3% operationally, negatively impacted primarily by:
a 13% operational decline in the Legacy Established Products (LEP) portfolio in developed markets, primarily driven by industry-wide pricing challenges in the U.S. and generic competition;
a 14% operational decline in the Sterile Injectable Pharmaceutical (SIP) portfolio in developed markets, primarily due to increased competition across the portfolio and continued legacy Hospira product shortages in the U.S.; and
a 10% operational decline in the Peri-LOE Products portfolio in developed markets, primarily due to expected declines in Lyrica in developed Europe and Pristiq, partially offset by the addition of Viagra revenues from the U.S. and Canada that were previously recorded in the IH business,
partially offset primarily by:
10% operational growth in emerging markets, primarily reflecting growth across the LEP and SIP portfolios in China; and
31% operational growth from Biosimilars in developed markets, primarily from Inflectra in certain channels in the U.S.
The increase in fourth-quarter 2018 other deductions––net(1) compared with the prior-year quarter was primarily driven by:
higher asset impairments charges, primarily associated with generic sterile injectable products acquired in connection with Pfizer’s 2015 acquisition of Hospira, Inc.; and
higher charges for certain legal matters,
partially offset primarily by:
the non-recurrence of net losses on the retirement of certain outstanding debt securities that were recorded in fourth-quarter 2017; and
higher net gains on asset disposals.
Pfizer’s effective tax rate on Reported income(1) for fourth-quarter and full-year 2018 compared to the prior year periods was unfavorably impacted primarily by:
the non-recurrence of a $10.7 billion tax benefit recorded in fourth-quarter 2017 to reflect the December 2017 enactment of the Tax Cut and Jobs Act (TCJA),
partially offset primarily by:
a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
Pfizer’s effective tax rate on Adjusted income(2) for fourth-quarter 2018 was unfavorably impacted primarily by:
the non-recurrence of tax benefits recorded in fourth-quarter 2017 related to the enactment of the TCJA, primarily reflecting the remeasurement of U.S. deferred tax liabilities on deemed repatriated earnings of foreign subsidiaries that were accrued during 2017 prior to the enactment of the TCJA,
partially offset primarily by:
the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
Pfizer’s effective tax rate on Adjusted income(2) for full-year 2018 was favorably impacted primarily by:
the December 2017 enactment of the TCJA;
the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
Fourth-quarter 2018 diluted weighted-average shares outstanding used to calculate Reported(1) and Adjusted(2) diluted EPS declined by 152 million shares compared to the prior-year quarter primarily due to Pfizer’s ongoing share repurchase program, reflecting the impact of share repurchases during 2018, partially offset by dilution related to share-based employee compensation programs.
A full reconciliation of Reported(1) to Adjusted(2) financial measures and associated footnotes can be found starting on page 23 of the press release located at the hyperlink below.
FULL-YEAR REVENUE SUMMARY (Full-Year 2018 vs. Full-Year 2017)
Full-year 2018 revenues totaled $53.6 billion, an increase of $1.1 billion, or 2%, compared to full-year 2017, reflecting operational growth of $791 million, or 2%, and the favorable impact of foreign exchange of $310 million, or less than 1%.
Full-year 2018 operational revenue growth of $791 million, or 2%, was primarily driven by:
certain key products, including Ibrance, Eliquis and Xeljanz globally, Prevnar 13/Prevenar 13 primarily in emerging markets, as well as Inflectra primarily in the U.S. and developed Europe; and
emerging markets operational growth of $1.5 billion, or 13% (inclusive of the performance of the aforementioned products),
partially offset primarily by lower revenues for:
products that recently lost marketing exclusivity, which negatively impacted 2018 revenues by $1.7 billion operationally, primarily Viagra in the U.S., Enbrel and Lyrica in developed Europe as well as Relpax and Pristiq in the U.S.;
the LEP portfolio in developed markets, primarily driven by industry-wide pricing challenges in the U.S. and generic competition; and
the SIP portfolio, primarily due to increased competition and legacy Hospira product shortages in the U.S.
RECENT NOTABLE DEVELOPMENTS (Since October 30, 2018)
Product Developments
Bavencio (avelumab)
In December 2018, Merck KGaA, Darmstadt, Germany (Merck KGaA), and Pfizer announced that data from a planned interim analysis of the Phase 3 JAVELIN Ovarian 100 study of avelumab did not support the study’s initial hypothesis, and therefore the alliance made the decision to terminate the trial in alignment with the independent Data Monitoring Committee (DMC). Top-line results showed that the study, which evaluated avelumab in combination with and/or following platinum-based chemotherapy in previously untreated patients with ovarian cancer, would not achieve superiority in the pre-specified primary endpoint of progression-free survival (PFS).
In November 2018, Merck KGaA and Pfizer announced that the Phase 3 JAVELIN Ovarian 200 trial evaluating avelumab alone or in combination with pegylated liposomal doxorubicin (PLD), a type of chemotherapy, compared with PLD did not meet the pre-specified primary endpoints of overall survival (OS) or PFS in patients with platinum-resistant or -refractory ovarian cancer. No new safety signals were observed for avelumab alone or in combination with PLD, and the safety profile for avelumab in this trial was consistent with that observed in the overall JAVELIN clinical development program. The data are currently being analyzed, and detailed results will be shared with the scientific community.
Daurismo (glasdegib) — In November 2018, Pfizer announced that the U.S. Food and Drug Administration (FDA) approved Daurismo, a once-daily oral medicine, for the treatment of newly-diagnosed acute myeloid leukemia in adult patients who are 75 years or older or who have comorbidities that preclude use of intensive induction chemotherapy. Daurismo is taken in combination with low-dose cytarabine, a type of chemotherapy. Daurismo has not been studied in patients with severe renal impairment or moderate-to-severe hepatic impairment.
Lorbrena (lorlatinib) — In November 2018, Pfizer announced that the FDA approved Lorbrena, a third-generation anaplastic lymphoma kinase (ALK) tyrosine kinase inhibitor for patients with ALK-positive metastatic non-small cell lung cancer (NSCLC) whose disease has progressed on crizotinib and at least one other ALK inhibitor for metastatic disease; or whose disease has progressed on alectinib or ceritinib as the first ALK inhibitor therapy for metastatic disease. This indication is approved under accelerated approval based on tumor response rate and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial.
Lyrica (pregabalin) — In November 2018, Pfizer announced that the FDA granted pediatric exclusivity for Lyrica. This grant extends the period of U.S. market exclusivity for Lyrica by an additional six months, to June 30, 2019. The pediatric exclusivity determination was based on data from the Lyrica Pediatric Epilepsy Program, which were submitted in response to the FDA’s written request to Pfizer to evaluate the use of Lyrica as adjunctive therapy for partial onset seizures in pediatric epilepsy patients. These were also required post-marketing studies.
Xtandi (enzalutamide) — In December 2018, Astellas Pharma Inc. (Astellas) and Pfizer announced that the Phase 3 ARCHES trial evaluating Xtandi plus androgen deprivation therapy (ADT) in men with metastatic hormone-sensitive prostate cancer met its primary endpoint, significantly improving radiographic progression-free survival versus ADT alone. The preliminary safety analysis of the ARCHES trial appears consistent with the safety profile of Xtandi in previous clinical trials in castration-resistant prostate cancer.
Pipeline Developments
A comprehensive update of Pfizer’s development pipeline was published today and is now available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of Pfizer’s research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.
PF-05280586 (proposed biosimilar rituximab) — In December 2018, Pfizer announced at the American Society of Hematology (ASH) (Free ASH Whitepaper) Annual Meeting that the REFLECTIONS B328-06 study, a comparative safety and efficacy study of PF-05280586 versus Rituxan/MabThera(7) (rituximab-EU), met its primary endpoint of overall response rate (ORR) at week 26 of the 52-week study. 26-week data from the ongoing 52-week REFLECTIONS B328-06 study (n=394) demonstrated no clinically meaningful differences in efficacy, in terms of ORR at week 26, between PF-05280586 and MabThera(7), for the first-line treatment of patients with CD20-positive, low tumor burden, follicular lymphoma. ORR at week 26 was 75.5% for PF-05280586 compared to 70.7% (rituximab-EU), within the pre-specified equivalence margin. Additionally, estimated rates of one-year PFS were similar across groups (76.4% vs. 81.2% in the PF-05280586 and MabThera(7) groups, respectively). The results also showed that PF-05280586 had a similar safety profile to MabThera(7).
PF-06290510 (Staphylococcus aureus multi-antigen vaccine) — In December 2018, Pfizer announced that the Phase 2b trial STRIVE (STaphylococcus aureus SuRgical Inpatient Vaccine Efficacy) evaluating the company’s investigational Staphylococcus aureus (S. aureus) multi-antigen vaccine is being discontinued due to futility. This decision is based on a recommendation from an independent DMC, composed of external experts, after conducting a pre-planned interim analysis. The DMC concluded from these data that the study reached futility, meaning that there is low statistical probability for the study to meet the pre-defined primary efficacy objective in adults undergoing elective spinal fusion surgery after completing a planned Phase 3 expansion of the study. A safety review by the DMC indicated that the investigational vaccine has been safe and well tolerated. STRIVE trial participants who are enrolled in the study will complete the study’s follow-up evaluations.
PF-06410293 (proposed biosimilar adalimumab) — In January 2019, the FDA accepted for review a Biologics License Application for PF-06410293, a proposed biosimilar to Humira(8). The Biosimilar User Fee Act goal date for a decision by the FDA is in fourth-quarter 2019.
PF-06439535 (proposed biosimilar bevacizumab) — In December 2018, Pfizer announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive opinion, recommending marketing authorization for Zirabev (PF-06439535), a proposed biosimilar to Avastin(9).
PF-06482077 (20-Valent Pneumococcal Conjugate Vaccine) — In December 2018, Pfizer announced the initiation of a Phase 3 program for its 20-valent pneumococcal conjugate vaccine (20vPnC) candidate, PF-06482077, for the prevention of invasive disease and pneumonia caused by Streptococcus pneumoniae serotypes in the vaccine in adults aged 18 years and older. This first Phase 3 trial will enroll an estimated 3,880 adults and is designed to compare immune responses after 20vPnC administration to responses in control subjects ≥60 years old receiving 13-valent pneumococcal conjugate vaccine and 23-valent pneumococcal polysaccharide vaccine; evaluate the immunogenicity of 20vPnC in adults 18-59 years of age; and describe the 20vPnC safety profile in adults ≥18 years old.
PF-06651600 (JAK3) — In January 2019, Pfizer announced the initiation of a pivotal Phase 2b/3 clinical trial for its oral JAK3 inhibitor, PF-06651600, for the treatment of patients with moderate to severe alopecia areata, a chronic autoimmune skin disease that causes hair loss on the scalp, face, or body, and currently has no approved therapies. The trial will enroll an estimated 660 patients and will be a double-blind, placebo-controlled, dose-ranging study to evaluate the safety and effectiveness of PF-06651600 in adults and adolescents (12 years and older) who have 50% or greater scalp hair loss.
Tafamidis — In January 2019, Pfizer announced that the FDA accepted for filing the company’s New Drug Applications (NDAs) for tafamidis for the treatment of transthyretin amyloid cardiomyopathy. Pfizer submitted two NDAs based on two forms of tafamidis: meglumine salt and free acid. The NDA for tafamidis meglumine (20 mg capsule) was granted Priority Review designation and has a Prescription Drug User Fee Act (PDUFA) goal date for a decision by the FDA in July 2019. The tafamidis free acid form (61 mg capsule) will undergo a standard review and has a PDUFA goal date for a decision by the FDA in November 2019. The free acid form is bioequivalent to the 80 mg tafamidis meglumine dose, which was administered as four 20 mg capsules in the pivotal trial and was developed for patient convenience to enable a single capsule for daily administration.
Tanezumab (PF-4383119, RN624) — Pfizer and Eli Lilly and Company reported positive top-line results from a Phase 3 study evaluating tanezumab 2.5 mg or 5 mg in patients with moderate-to-severe osteoarthritis (OA) pain. The tanezumab 5 mg treatment arm met all three co-primary endpoints at 24 weeks, demonstrating a statistically significant improvement in pain, physical function and the patients’ overall assessment of their OA compared to those receiving placebo. The tanezumab 2.5 mg treatment arm met two of the three protocol-defined co-primary efficacy endpoints compared to placebo, demonstrating a statistically significant improvement in pain and physical function, while patients’ overall assessment of their OA was not statistically different than placebo. Patients enrolled in the study had experienced inadequate pain relief from or intolerance to at least three different classes of analgesics, and on average had OA for more than six years.
Preliminary safety data showed that tanezumab was generally well tolerated during the 24-week treatment period, with similarly low rates of treatment discontinuations due to adverse events observed among patients taking tanezumab and placebo. The trial also included a 24-week safety follow-up period, for a total of 48 weeks of observation. Overall, rapidly progressive osteoarthritis (RPOA) was observed in 2.1% of tanezumab-treated patients and was not observed in the placebo arm. The ratio of RPOA type 1 (accelerated joint space narrowing) to RPOA type 2 (damage or deterioration of the joint) was 2:1, consistent with the ratio from the previously reported subcutaneous Phase 3 study in OA pain (A4091056). There was one event of osteonecrosis and one event of subchondral insufficiency fracture observed in tanezumab-treated patients, and no events were observed in the placebo arm. The rate of total joint replacement was similar across the tanezumab treatment groups and placebo. Detailed efficacy and safety results from this study will be submitted to a future medical congress.
Corporate Developments
At the start of the 2019 fiscal year(4), Pfizer began operating in its previously-announced new commercial structure, reorganizing operations into three businesses:
Pfizer Biopharmaceuticals Group (PBG), a science-based innovative medicines business, which includes all of the Innovative Health business units (except Consumer Healthcare) as well as a new Hospital business unit that commercializes Pfizer’s global portfolio of sterile injectable and anti-infective medicines. Pfizer also incorporated its biosimilar portfolio into its Oncology and Inflammation & Immunology business units.
Upjohn, a global, off-patent branded and generic established medicines business, which includes the majority of Pfizer’s off-patent solid oral dose legacy brands, including Lyrica, Lipitor, Norvasc, Viagra and Celebrex as well as certain generic medicines. To allow this business to act with speed and flexibility, it has distinct and fully-dedicated manufacturing, marketing, regulatory and, with some exceptions, enabling functions, which enhances its autonomy and positions it to operate as a true stand-alone business within Pfizer.
Consumer Healthcare, which includes Pfizer’s over-the-counter medicines(6).
Pfizer will provide financial reporting to reflect this reorganization beginning in first-quarter 2019.
In December 2018, Pfizer entered into a definitive agreement with GSK under which the two companies have agreed to combine their respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name. In exchange for contributing its Consumer Healthcare business, Pfizer will receive a 32% equity stake in the new company and GSK will own the remaining 68% of the new company. Upon the closing of the transaction, which is expected to occur in the second half of 2019, subject to customary closing conditions including GSK shareholder approval and required regulatory approvals, Pfizer anticipates deconsolidating its Consumer Healthcare business and will begin to receive its pro rata share of the joint venture’s earnings and dividends, which will be paid on a quarterly basis. Pfizer will have the right to appoint three out of the nine members of the joint venture’s board. The transaction is expected to deliver $650 million in peak cost synergies and to be slightly accretive for Pfizer in each of the first three years after the close of the transaction.
In December 2018, Pfizer’s board of directors declared a 36-cent first-quarter 2019 dividend on the company’s common stock, representing an increase of approximately 6% compared to the company’s first-quarter 2018 dividend. The first-quarter 2019 dividend is payable on March 1, 2019 to shareholders of record at the close of business on February 1, 2019. Additionally, the board of directors also authorized a new $10 billion share repurchase program to be utilized over time. As of January 29, 2019, Pfizer’s remaining share repurchase authorization was $12.8 billion, including this new share repurchase program and reflecting the $1.4 billion of shares repurchased to date in 2019.
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:
View Source
(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) Revenues is defined as revenues in accordance with U.S. generally accepted accounting principles (GAAP). Reported net income/(loss) is defined as net income/(loss) attributable to Pfizer Inc. in accordance with U.S. GAAP. Reported diluted earnings per share (EPS) and reported loss per share (LPS) are defined as diluted EPS or LPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
(2)
Adjusted income and its components and Adjusted diluted 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 (some of which may recur, such as restructuring or legal charges, but which management does not believe are reflective of ongoing core operations). 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 in the Financial Review––Non-GAAP Financial Measure (Adjusted Income) section of Pfizer’s 2017 Financial Report, which was filed as Exhibit 13 to Pfizer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, management uses Adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. Because Adjusted income is an important internal measurement for Pfizer, management believes that investors’ understanding of our performance is enhanced by disclosing this performance measure. Pfizer reports Adjusted income, certain components of Adjusted income, and Adjusted diluted EPS in order to portray the results of the company’s major operations––the discovery, development, manufacture, marketing and sale of prescription medicines, vaccines and consumer healthcare (OTC) products––prior to considering certain income statement elements. See the accompanying reconciliations of certain GAAP Reported to Non-GAAP Adjusted information for the fourth quarter and full year of 2018 and 2017. 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.
(3) In December 2018, Pfizer entered into a definitive agreement with GSK under which the two companies have agreed to combine their respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name. In exchange for contributing its Consumer Healthcare business, Pfizer will receive a 32% equity stake in the new company and GSK will own the remaining 68% of the new company. Upon the closing of the transaction, which is expected to occur in the second half of 2019, subject to customary closing conditions including GSK shareholder approval and required regulatory approvals, Pfizer anticipates deconsolidating its Consumer Healthcare business and will begin to receive its pro rata share of the joint venture’s earnings and dividends, which will be paid on a quarterly basis. For additional information regarding the proposed transaction, please see the Corporate Developments section of this press release.
(4) Pfizer’s fiscal year-end for international subsidiaries is November 30 while Pfizer’s fiscal year-end for U.S. subsidiaries is December 31. Therefore, Pfizer’s fourth quarter and full year for U.S. subsidiaries reflect the three and twelve months ending on December 31, 2018 and December 31, 2017 while Pfizer’s fourth quarter and full year for subsidiaries operating outside the U.S. reflect the three and twelve months ending on November 30, 2018 and November 30, 2017.
(5) References to operational variances in this press release pertain to period-over-period growth rates that exclude the impact of foreign exchange. The operational variances are determined by multiplying or dividing, as appropriate, the current period U.S. dollar results by the current period average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the prior-year period average foreign exchange rates. Although exchange rate changes are part of Pfizer’s business, they are not within Pfizer’s control. Exchange rate changes, however, can mask positive or negative trends in the business; therefore, Pfizer believes presenting operational variances provides useful information in evaluating the results of its business.
(6) The 2019 financial guidance reflects the following:
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Pfizer does not provide guidance for GAAP Reported financial measures (other than revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses, net gains or losses on equity securities and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.
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Does not assume the completion of any business development transactions not completed as of December 31, 2018, including any one-time upfront payments associated with such transactions.
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Reflects a full year of revenue and expense contributions from Consumer Healthcare(3).
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Reflects an anticipated negative revenue impact of $2.6 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection.
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Exchange rates assumed are as of mid-January 2019. Reflects the anticipated unfavorable impact of approximately $0.9 billion on revenues and approximately $0.06 on Adjusted diluted EPS(2) as a result of changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2018.
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Guidance for Adjusted diluted EPS(2) assumes diluted weighted-average shares outstanding of approximately 5.7 billion shares, which reflects share repurchases totaling $12.2 billion in 2018 and the weighted-average impact of an anticipated approximately $9 billion of share repurchases in 2019. Dilution related to share-based employee compensation programs is currently expected to offset the reduction in shares associated with these share repurchases by approximately half.
(7) Rituximab is marketed in the U.S. under the brand name Rituxan and marketed in the E.U. and other regions under the brand name MabThera. Rituxan is a registered trademark of Biogen MA Inc. MabThera is a registered trademark of F. Hoffman-La Roche AG.
(8) Humira is a registered U.S. trademark of Abbvie Biotechnology Ltd.
(9) Avastin is a registered U.S. trademark of Genentech, Inc.
DISCLOSURE NOTICE: Except where otherwise noted, the information contained in this earnings release and the related attachments is as of January 29, 2019. We assume no obligation to update any forward-looking statements contained in this earnings release and the related attachments as a result of new information or future events or developments.
This earnings release and the related attachments contain forward-looking statements about our anticipated future operating and financial performance, business plans and prospects, in-line products and product candidates, including anticipated regulatory submissions, data read-outs, study starts, approvals, performance, timing of exclusivity and potential benefits of Pfizer’s products and product candidates, strategic reviews, capital allocation, business-development plans, the benefits expected from the reorganization of our commercial operations into three businesses effective at the beginning of our 2019 fiscal year, our acquisitions and other business development activities, our proposed transaction with GSK to combine our respective consumer healthcare businesses into a new consumer healthcare joint venture, our ability to successfully capitalize on growth opportunities or prospects, manufacturing and product supply and plans relating to share repurchases and dividends, among other things, that involve substantial risks and uncertainties. You can identify these statements by the fact that they use future dates or use words such as "will," "may," "could," "likely," "ongoing," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "assume," "target," "forecast," "guidance," "goal," "objective," "aim," "seek" and other words and terms of similar meaning. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:
the outcome of research and development activities, including, without limitation, the ability to meet anticipated pre-clinical or clinical endpoints, commencement and/or completion dates for our pre-clinical or clinical trials, regulatory submission dates, regulatory approval dates and/or launch dates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including the possibility of unfavorable further analyses of existing clinical data;
the risk we may not be able to successfully address all of the comments received from regulatory authorities such as the U.S. Food and Drug Administration (FDA) or the European Medicines Agency (EMA), or obtain approval from regulators, which will depend on myriad factors, including such regulator making a determination as to whether a product’s benefits outweigh its known risks and a determination of the product’s efficacy; regulatory decisions impacting labeling, manufacturing processes and/or other matters; and recommendations by technical or advisory committees, such as the Advisory Committee on Immunization Practices, that may impact the use of our vaccines;
the speed with which regulatory authorizations, pricing approvals and product launches may be achieved;
the outcome of post-approval clinical trials, which could result in the loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of, a product that could affect its availability or commercial potential;
the success of external business-development activities, including the ability to identify and execute on potential business development opportunities, the ability to satisfy the conditions to closing of announced transactions in the anticipated time frame or at all, the ability to realize the anticipated benefits of any such transactions, and the potential need to obtain additional equity or debt financing to pursue these opportunities which could result in increased leverage and impact our credit ratings;
competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products, biosimilars and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates;
the implementation by the FDA and regulatory authorities in many other countries of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products, with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights;
risks related to our ability to develop and launch biosimilars, including risks associated with "at risk" launches, defined as the marketing of a product by Pfizer before the final resolution of litigation (including any appeals) brought by a third party alleging that such marketing would infringe one or more patents owned or controlled by the third party, and access challenges for our biosimilar products where our product may not receive appropriate formulary access or remains in a disadvantaged position relative to the innovator product;
the ability to meet competition from generic, branded and biosimilar products after the loss or expiration of patent protection for our products or competitor products;
the ability to successfully market both new and existing products domestically and internationally;
difficulties or delays in manufacturing, including delays caused by natural events, such as hurricanes; supply shortages at our facilities; and legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, injunctions, debarment, voluntary recall of a product or failure to secure product approvals;
trade buying patterns;
the impact of existing and future legislation and regulatory provisions on product exclusivity;
trends toward managed care and healthcare cost containment, and our ability to obtain or maintain timely or adequate pricing or favorable formulary placement for our products;
the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented;
the impact of any U.S. healthcare reform or legislation, including any replacement, repeal, modification or invalidation of some or all of the provisions of the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act;
U.S. federal or state legislation or regulatory action and/or policy efforts affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; patient out-of-pocket costs for medicines, manufacturer prices and/or price increases that could result in new mandatory rebates and discounts or other pricing restrictions; general budget control actions; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; revisions to reimbursement of biopharmaceuticals under government programs; restrictions on U.S. direct-to-consumer advertising; limitations on interactions with healthcare professionals; or the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures for our products as a result of highly competitive insurance markets;
legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets;
the exposure of our operations outside the U.S. to possible capital and exchange controls, economic conditions, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes;
contingencies related to actual or alleged environmental contamination;
claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates;
any significant breakdown, infiltration or interruption of our information technology systems and infrastructure;
legal defense costs, insurance expenses and settlement costs;
the risk of an adverse decision or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, such as claims that our patents are invalid and/or do not cover the product of the generic drug manufacturer or where one or more third parties seeks damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities, product liability and other product-related litigation, including personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, commercial, environmental, government investigations, employment and other legal proceedings, including various means for resolving asbestos litigation, as well as tax issues;
the risk that our currently pending or future patent applications may not result in issued patents, or be granted on a timely basis, or any patent-term extensions that we seek may not be granted on a timely basis, if at all;
our ability to protect our patents and other intellectual property, both domestically and internationally;
interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates;
governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals, including further clarifications and/or interpretations of the Tax Cuts and Jobs Act enacted in 2017;
any significant issues involving our largest wholesale distributors, which account for a substantial portion of our revenues;
the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines;
the end result of any negotiations between the U.K. government and the EU regarding the terms of the U.K.’s exit from the EU, which could have implications on our research, commercial and general business operations in the U.K. and the EU, including the approval and supply of our products;
any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal or regulatory requirements and industry standards;
any significant issues that may arise related to our joint ventures and other third-party business arrangements;
changes in U.S. generally accepted accounting principles;
further clarifications and/or changes in interpretations of existing laws and regulations, or changes in laws and regulations, in the U.S. and other countries;
uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on Pfizer, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; the related risk that our allowance for doubtful accounts may not be adequate; and the risks related to volatility of our income due to changes in the market value of equity investments;
any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas;
growth in costs and expenses;
changes in our product, segment and geographic mix;
the impact of purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items;
the impact of acquisitions, divestitures, restructurings, internal reorganizations, including the reorganization of our commercial operations into three businesses effective at the beginning of the company’s 2019 fiscal year, any other corporate strategic initiatives, and cost-reduction and productivity initiatives, each of which requires upfront costs but may fail to yield anticipated benefits and may result in unexpected costs or organizational disruption;
the impact of product recalls, withdrawals and other unusual items;
the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;
risks related to internal control over financial reporting;
risks and uncertainties related to acquisitions, including, among other things, the ability to realize the anticipated benefits of those acquisitions, including the possibility that the expected cost savings and/or accretion related to certain of those acquisitions will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; disruption from the transactions making it more difficult to maintain business and operational relationships; risks related to our ability to grow revenues for certain acquired products; significant transaction costs; and unknown liabilities; and
risks and uncertainties related to our proposed transaction with GSK to combine our respective consumer healthcare businesses into a new consumer healthcare joint venture, including, among other things, risks related to the satisfaction of the conditions to closing the transaction (including the failure to obtain necessary regulatory and GSK shareholder approvals) in the anticipated timeframe or at all and the possibility that the transaction does not close, risks related to the ability to realize the anticipated benefits of the transaction, including the possibility that the expected benefits and cost synergies from the proposed transaction will not be realized or will not be realized within the expected time period, the risk that the businesses will not be integrated successfully, the possibility that a future separation of the joint venture may not occur, disruption from the transaction making it more difficult to maintain business and operational relationships, negative effects of the announcement or the consummation of the proposed transaction on the market price of Pfizer’s common stock and on Pfizer’s operating results, significant transaction costs, unknown liabilities, the risk of litigation and/or regulatory actions related to the proposed transaction, other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange and interest rates, changes in tax and other laws, regulations, rates and policies, future business combinations or disposals and competitive developments.
We cannot guarantee that any forward-looking statement will be realized. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements, and are cautioned not to put undue reliance on forward-looking statements. A further list and description of risks, uncertainties and other matters can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in our subsequent reports on Form 10-Q, in each case including in the sections thereof captioned "Forward-Looking Information and Factors That May Affect Future Results" and "Item 1A. Risk Factors", and in our subsequent reports on Form 8-K.
The operating segment information provided in this earnings release and the related attachments does not purport to represent the revenues, costs and income from continuing operations before provision for taxes on income that each of our operating segments would have recorded had each segment operated as a standalone company during the periods presented.
This earnings release may include discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data. In addition, clinical trial data are subject to differing interpretations, and, even when we view data as sufficient to support the safety and/or effectiveness of a product candidate or a new indication for an in-line product, regulatory authorities may not share our views and may require additional data or may deny approval altogether.