Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PFE > SEC Filings for PFE > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for PFIZER INC

Form 10-Q for PFIZER INC


8-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

Introduction

Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer's results of operations, financial condition and cash flows. The MD&A is organized as follows:
Overview of Our Performance, Operating Environment, Strategy and Outlook. This section, beginning on page 53 provides information about the following: our business; our performance during the third quarter and first nine months of 2013 and 2012; our operating environment; our strategy; our business development initiatives, such as acquisitions, dispositions, licensing and collaborations; and our financial guidance for 2013.

Analysis of the Condensed Consolidated Statements of Income. This section begins on page 64 and consists of the following sub-sections:

Revenues. This sub-section, beginning on page 64, provides an analysis of our revenues and products for the third quarter and first nine months of 2013 and 2012, as well as an overview of research and development (R&D) expenses and important biopharmaceutical product developments.

Costs and Expenses. This sub-section, beginning on page 78, provides a discussion about our costs and expenses.

Provision for Taxes on Income. This sub-section, on page 82, provides a discussion of items impacting our tax provisions.

Discontinued Operations. This sub-section, beginning on page 83, provides an analysis of the financial statement impact of our discontinued operations.

Adjusted Income. This sub-section, beginning on page 83, provides a discussion of an alternative view of performance used by management.

Analysis of the Condensed Consolidated Statements of Comprehensive Income. This section, on page 88, provides a discussion of changes in certain components of other comprehensive income.

Analysis of the Condensed Consolidated Balance Sheets. This section, on page 89, provides a discussion of changes in certain balance sheet accounts.

Analysis of the Condensed Consolidated Statements of Cash Flows. This section, beginning on page 90, provides an analysis of our cash flows for the first nine months of 2013 and 2012.

Analysis of Financial Condition, Liquidity and Capital Resources. This section, beginning on page 91, provides an analysis of selected measures of our liquidity and of our capital resources as of September 29, 2013 and December 31, 2012, as well as a discussion of our outstanding debt and other commitments that existed as of September 29, 2013 and December 31, 2012. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future activities.

New Accounting Standards. This section, beginning on page 94, discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted.

Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 95, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this MD&A relating to, among other things, our anticipated financial and operating performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, business-development plans, and plans relating to share repurchases and dividends. Such forward-looking statements are based on management's current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances.


Table of Contents

The following table provides the components of the condensed consolidated statements of income:

                                              Three Months Ended                                  Nine Months Ended
(MILLIONS OF DOLLARS, EXCEPT PER      September 29,       September 30,           %       September 29,       September 30,          %
COMMON SHARE DATA)                             2013                2012      Change                2013                2012     Change
Revenues                            $        12,643     $        12,953          (2 )   $        38,026     $        40,766         (7 )

Cost of sales                                 2,287               2,309          (1 )             6,792               7,068         (4 )
% of revenues                                  18.1 %              17.8  %                         17.9 %              17.3 %

Selling, informational and
administrative expenses                       3,395               3,491          (3 )            10,203              10,834         (6 )
% of revenues                                  26.9 %              27.0  %                         26.8 %              26.6 %

Research and development expenses             1,627               1,887         (14 )             4,867               5,461        (11 )
% of revenues                                  12.9 %              14.6  %                         12.8 %              13.4 %

Amortization of intangible assets             1,117               1,211          (8 )             3,476               3,889        (11 )
% of revenues                                   8.8 %               9.3  %                          9.1 %               9.5 %

Restructuring charges and certain
acquisition-related costs                       233                 312         (25 )               547               1,085        (50 )
% of revenues                                   1.8 %               2.4  %                          1.4 %               2.7 %

Other (income)/deductions--net                  411                 937         (56 )              (514 )             3,264          *
Income from continuing operations
before provision for taxes on
income                                        3,573               2,806          27              12,655               9,165         38
% of revenues                                  28.3 %              21.7  %                         33.3 %              22.5 %

Provision/(benefit) for taxes on
income                                          985                (183 )         *               3,876               1,622          *
Effective tax rate                             27.6 %              (6.5 )%                         30.6 %              17.7 %

Income from continuing operations             2,588               2,989         (13 )             8,779               7,543         16
% of revenues                                  20.5 %              23.1  %                         23.1 %              18.5 %

Discontinued operations--net of
tax                                              11                 225         (95 )            10,719                 734          *

Net income before allocation to
noncontrolling interests                      2,599               3,214         (19 )            19,498               8,277          *
% of revenues                                  20.6 %              24.8  %                         51.3 %              20.3 %

Less: Net income attributable to
noncontrolling interests                          9                   6          50                  63                  22          *
Net income attributable to Pfizer
Inc.                                $         2,590     $         3,208         (19 )   $        19,435     $         8,255          *
% of revenues                                  20.5 %              24.8  %                         51.1 %              20.2 %

Earnings per common
share--basic(a):
Income from continuing operations
attributable to Pfizer Inc.
common shareholders                 $          0.39     $          0.40          (3 )   $          1.26     $          1.00         26
Discontinued operations--net of
tax                                               -                0.03           *                1.54                0.10          *
Net income attributable to Pfizer
Inc. common shareholders            $          0.39     $          0.43          (9 )   $          2.80     $          1.10          *

Earnings per common
share--diluted(a):
Income from continuing operations
attributable to Pfizer Inc.
common shareholders                 $          0.39     $          0.40          (3 )   $          1.25     $          1.00         25
Discontinued operations--net of
tax                                               -                0.03           *                1.52                0.10          *
Net income attributable to Pfizer
Inc. common shareholders            $          0.39     $          0.43          (9 )   $          2.77     $          1.09          *

Cash dividends paid per common
share                               $          0.24     $          0.22           9     $          0.72     $          0.66          9

* Calculation not meaningful.
(a) EPS amounts may not add due to rounding.

Certain amounts and percentages may reflect rounding adjustments.


Table of Contents

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Our Business

We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development and manufacture of healthcare products. Our global portfolio includes medicines and vaccines, as well as many of the world's best-known consumer healthcare products. We work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our products, as well as through alliance agreements, under which we co-promote products discovered by other companies (Alliance revenues).

On June 24, 2013, we completed the full disposition of our Animal Health business (Zoetis). The operating results of this business are reported as Income from discontinued operations--net of tax in the condensed consolidated statements of income for the nine months ended September 29, 2013 and for the three and nine months ended September 30, 2012. In addition, in the condensed consolidated balance sheet as of December 31, 2012, the assets and liabilities associated with this business are classified as Assets of discontinued operations and other assets held for sale and Liabilities of discontinued operations, as appropriate. For additional information, see Notes to Condensed Consolidated Financial Statements--Note 2B. Acquisitions, Divestitures, Collaborative Arrangement and Equity-Method Investments: Divestitures and see the "Our Business Development Initiatives", "Discontinued Operations" and "Analysis of Financial Condition, Liquidity and Capital Resources" sections of this MD&A.

On November 30, 2012, we completed the sale of our Nutrition business. The operating results of this business are reported as Income from discontinued operations--net of tax in the condensed consolidated statements of income for the three and nine months ended September 30, 2012. For additional information, see Notes to Condensed Consolidated Financial Statements--Note 2B. Acquisitions, Divestitures, Collaborative Arrangement and Equity-Method Investments:
Divestitures and see the "Our Business Development Initiatives" and "Discontinued Operations" sections of this MD&A.

Our 2013 Performance

Revenues in the third quarter of 2013 were $12.6 billion, a decrease of 2% compared to the same period in 2012, which reflects an operational decline of $38 million, or less than 1%. The operational decrease was primarily the result of:
the continued erosion for branded Lipitor in the U.S., developed Europe and certain other markets (approximately $239 million);

other product losses of exclusivity (approximately $276 million);

the ongoing expiration of the Spiriva collaboration in certain countries (approximately $163 million); and

decreased government purchases of the Prevnar family of products and Enbrel in certain emerging markets (approximately $48 million),

partially offset by:
the growth of certain products, including Lyrica, Enbrel, Inlyta, Xalkori, Celebrex and Xeljanz (approximately $361 million) as well as various other biopharmaceutical products (approximately $162 million) in developed markets;

the overall growth in the rest of the Emerging Markets business unit (approximately $166 million), excluding the aforementioned decrease in the government purchases of the Prevnar family of products and Enbrel;

the overall growth in the Consumer Healthcare business unit (approximately $8 million); and

revenues from the transitional manufacturing and supply agreements with Zoetis (approximately $67 million).

In addition, Revenues were unfavorably impacted by foreign exchange by approximately $272 million, or 2%, in the third quarter of 2013 compared to the same period in 2012.

Revenues in the first nine months of 2013 were $38.0 billion, a decrease of 7% compared to the same period in 2012, which reflects an operational decline of $1.9 billion, or 5%. The operational decrease was primarily the result of:


Table of Contents

the continued erosion for branded Lipitor in the U.S., developed Europe and certain other markets (approximately $1.7 billion);

the loss of exclusivity for Geodon in March 2012 in the U.S (approximately $184 million);

other product losses of exclusivity (approximately $900 million);

the ongoing expiration of the Spiriva collaboration in certain countries (approximately $341 million);

lower revenues from atorvastatin (approximately $162 million); and

decreased government purchases of the Prevnar family of products and Enbrel in certain emerging markets (approximately $130 million),

partially offset by:
the growth of certain products, including Lyrica, Enbrel, Inlyta, Celebrex, Xalkori and Xeljanz (approximately $1.0 billion) in developed markets;

the overall growth in the rest of the Emerging Markets business unit (approximately $493 million), excluding the aforementioned decrease in the government purchases of the Prevnar family of products and Enbrel;

the overall growth in the Consumer Healthcare business unit (approximately $127 million); and

revenues from the transitional manufacturing and supply agreements with Zoetis (approximately $67 million).

In addition, Revenues were unfavorably impacted by foreign exchange of approximately $793 million, or 2%, in the first nine months of 2013 compared to the same period in 2012.

Income from continuing operations for the third quarter of 2013 was $2.6 billion, compared to $3.0 billion in the third quarter of 2012, primarily reflecting, among other items:
lower revenues, primarily due to the continued erosion of branded Lipitor in the U.S., developed Europe and certain other markets, other product losses of exclusivity, the ongoing expiration of the Spiriva collaboration in certain countries, decreased government purchases of the Prevnar family of products in certain emerging markets and the unfavorable impact of foreign exchange;

higher asset impairments and related charges (up approximately $429 million, pre-tax) (see also the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 4. Other (Income)/Deductions--Net); and

a higher effective tax rate, primarily due to (i) a favorable settlement in 2012 with the U.S. Internal Revenue Service (IRS) related to audits for multiple tax years; specifically, we recorded a tax benefit of approximately $1.1 billion (representing tax and interest), as well as (ii) a tax benefit recorded for the resolution of foreign audits pertaining to multiple tax years (see also the "Costs and Expenses--Provision for Taxes on Income" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 5. Tax Matters),

partially offset by:
lower net charges for legal matters (down approximately $726 million, pre-tax) (see also the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 4. Other (Income)/Deductions--Net);

additional benefits generated from our global cost-reduction/productivity initiatives, partially offset by spending to support new product launches; and

the non-recurrence of a $250 million (pre-tax) payment to AstraZeneca in the third quarter of 2012 to obtain the exclusive over-the-counter rights to Nexium.

See also the "Discontinued Operations" section of this MD&A.


Table of Contents

Income from continuing operations for the first nine months of 2013 was $8.8 billion compared to $7.5 billion in the first nine months of 2012, primarily reflecting, among other items:
patent litigation settlement income recorded in 2013 (approximately $1.3 billion, pre-tax) (see also the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 4. Other (Income)/Deductions--Net);

lower net charges for other legal matters (down approximately $2.1 billion, pre-tax) (see also the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 4. Other (Income)/Deductions--Net);

additional benefits generated from our global cost-reduction/productivity initiatives, partially offset by spending to support new product launches;

a gain recorded in 2013 (approximately $459 million, pre-tax) associated with the transfer of certain product rights to our equity-method investment in China, Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer) (see also the "Our Business Development Initiatives" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 2D. Acquisitions, Divestitures, Collaborative Arrangement and Equity-Method Investments:
Equity-Method Investments); and

lower amortization of intangible assets (down approximately $413 million, pre-tax),

partially offset by:
lower revenues, primarily due to the continued erosion for branded Lipitor in the U.S., developed Europe and certain other markets, other product losses of exclusivity, the ongoing expiration of the Spiriva collaboration in certain countries, the loss of exclusivity for Geodon in the U.S, decreased government purchases of the Prevnar family of products in certain emerging markets and the unfavorable impact of foreign exchange;

higher asset impairments and related charges (up approximately $444 million, pre-tax) (see also the "Costs and Expenses--Other (Income)/Deductions--Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 4. Other (Income)/Deductions--Net); and

a higher effective tax rate, primarily due to (i) a favorable settlement in 2012 with the IRS related to audits for multiple tax years; specifically, we recorded a tax benefit of approximately $1.1 billion (representing tax and interest), as well as (ii) a tax benefit recorded for the resolution of foreign audits pertaining to multiple tax years (see also the "Costs and Expenses--Provision for Taxes on Income" section of this MD&A and Notes to Condensed Consolidated Financial Statements--Note 5. Tax Matters).

See also the "Discontinued Operations" section of this MD&A.

Our Operating Environment

Industry-Specific Challenges

The majority of our revenues come from the manufacture and sale of biopharmaceutical products. As explained more fully in our 2012 Annual Report on Form 10-K/A, the biopharmaceutical industry is highly competitive and we face a number of industry-specific challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights, pipeline productivity and the regulatory environment, pricing and access pressures and competition among branded products.

Intellectual Property Rights and Collaboration/Licensing Rights

The loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights can have a significant adverse effect on our revenues. Our 2013 financial guidance reflects the anticipated impact in 2013 of the loss of such rights as described below (see the "Our Financial Guidance for 2013" section of this MD&A for additional information).

Our financial results have been and/or will be adversely impacted by the following:
Lipitor in the U.S.--We lost exclusivity for Lipitor in the U.S. in November 2011. The entry of multi-source generic competition in the U.S. began in May 2012, with attendant increased competitive pressures.


Table of Contents

Lipitor in international markets--Lipitor lost exclusivity in Australia in April 2012 and most of developed Europe in March 2012 and May 2012, and now faces multi-source generic competition in those markets. Lipitor has lost exclusivity in all major markets.
Other recent loss of exclusivity impacts--In the U.S., we lost exclusivity for Geodon in March 2012 and Revatio tablet in September 2012. We lost exclusivity for Xalatan and Xalacom in the majority of European markets in January 2012 and Australia in July 2012. We lost exclusivity for Aricept in the majority of European markets in February 2012 and April 2012. Caduet lost exclusivity in the majority of European markets in March and May 2012. We lost exclusivity in the U.S. for Detrol IR in June 2012. Detrol IR and Detrol LA lost exclusivity in most European markets in September 2012. Viagra lost exclusivity in most major EU markets in June 2013. We lost exclusivity for Lyrica in Canada in February 2013.

Spiriva-Our collaboration with Boehringer Ingelheim (BI) for Spiriva expires on a country-by-country basis between 2012 and 2016, including the expiration in certain EU markets, Canada and Australia in early 2013 and in the U.S. and certain other EU markets in early 2014, which is adversely impacting our 2013 results. We expect to experience a graduated decline in revenues from Spiriva through 2016.

Aricept-Our rights to Aricept in Japan returned to Eisai Co., Ltd. in December 2012. The Aricept 23mg tablet lost exclusivity in the U.S. in July 2013.

Enbrel-Our U.S. and Canada collaboration agreement with Amgen Inc. for Enbrel expired on October 31, 2013. While we are entitled to royalties for 36 months thereafter, we expect that those royalties will be significantly less than our previous share of Enbrel profits from U.S. and Canada sales. In addition, while our share of the profits from this collaboration previously was included in Revenues, our royalties after October 31, 2013 will be included in Other (income)/deductions--net, in our consolidated statements of income. Outside the U.S. and Canada, our exclusive rights to Enbrel continue in perpetuity.

Rebif-Our collaboration agreement with EMD Serono Inc. to co-promote Rebif in the U.S. will expire at the end of 2015.

For additional information, including with regard to the expiration of the patents and of co-promotion and licensing rights for various products in the U.S., EU and Japan in 2013 and subsequent years, see the "Patents and Intellectual Property Rights" section of our 2012 Annual Report on Form 10-K/A and the "The Loss or Expiration of Intellectual Property Rights" section of our 2012 Financial Report, which was filed as Exhibit 13 to our 2012 Annual Report on Form 10-K/A.

We will continue to aggressively defend our patent rights whenever we deem appropriate. For more detailed information about our significant products, see the discussion in the "Revenues--Selected Revenues from Biopharmaceutical Products" section of this MD&A. See Notes to Condensed Consolidated Financial Statements--Note 12A1. Commitments and Contingencies: Legal Proceedings--Patent Litigation for a discussion of certain recent developments with respect to patent litigation.

Regulatory Environment/Pricing and Access--U.S. Healthcare Legislation

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the U.S. Healthcare Legislation, and also known as the Affordable Care Act or ACA), was enacted in the U.S. As explained more fully in our 2012 Annual Report on Form 10-K/A, this legislation has resulted in both current and longer-term impacts on us.

We recorded the following amounts as a result of the U.S. Healthcare Legislation:
$133 million in the third quarter of 2013 and $179 million in the third quarter of 2012, and $364 million in the first nine months of 2013 and $413 million in the first nine months of 2012, recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare "coverage gap" discount provision; and

$78 million in the third quarter of 2013 and $75 million in the third quarter of 2012, and $209 million in the first nine months of 2013 and $256 million in the first nine months of 2012, recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.


Table of Contents

Regulatory Environment/Pricing and Access--Certain Other U.S. Federal Government Matters

In August 2011, the federal Budget Control Act of 2011 (the Budget Control Act) was enacted in the U.S. The Budget Control Act includes provisions to raise the U.S. Treasury Department's borrowing limit, known as the debt ceiling, and provisions to reduce the federal deficit by $2.4 trillion between 2012 and 2021. Initial deficit-reduction targets included $900 billion of discretionary spending reductions associated with the Department of Health and Human Services and various agencies charged with national security, but those discretionary spending reductions did not include programs such as Medicare and Medicaid or direct changes to pharmaceutical pricing, rebates or discounts. The Office of Management and Budget (OMB) was responsible for identifying the remaining $1.5 trillion of deficit reductions, which were divided evenly between defense and non-defense spending. Under this OMB review process, Social Security, Medicaid, Veteran Benefits and certain other spending categories were excluded from consideration, but reductions in payments to Medicare providers were made, although these reductions were prohibited by law from exceeding 2% of the originally budgeted amount. Additionally, certain payments to Medicare Part D plans, such as low-income subsidy payments, were exempt from reduction as was all patient cost-sharing under Medicare. As a result, we do not expect that the Budget Control Act will have a material adverse impact on our results of operations. However, any significant spending reductions affecting Medicare, . . .

  Add PFE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PFE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.