It's not hard to be overwhelmed by the sheer volume of numbers included in Pfizer's (PFE +1.73%) financial reports. From the company's accumulated post-retirement benefit obligation to Zoloft revenue, there are a lot of numbers involved in understanding Pfizer's business.
But I think that there are three numbers that are most important to Pfizer. What are the numbers? $15.9 billion, 96, and 2. Here's why Pfizer's future hinges on these numbers and what they represent.
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$15.9 billion
This number is way too low to be Pfizer's revenue for last year. And it's too high to reflect the company's net income. Instead, $15.9 billion is the amount of operating cash flow generated by Pfizer in 2016. This number is enormously critical for the company.
Without this cash flow, Pfizer wouldn't be able to pay out its dividend. Let's face it, without the juicy dividend yield, the stock wouldn't be nearly as attractive as it is. Even though Pfizer didn't produce quite enough in earnings to fully cover paying out $7.3 billion in dividends last year, it wasn't a big problem thanks to the robust operating cash flow generated.
And although Pfizer's total debt of $42 billion puts the drugmaker at the top of the list among big pharma companies with lots of debt, no one is worried about paying the debt back. Why would they for a company that produced $15.9 billion in operating cash flow?
Neither does anyone experience much heartburn when Pfizer's executives publicly state that the company is still looking to make more acquisitions. A strong cash flow goes a long way to keeping everyone content.
93
This number should play a key role in ensuring that the first number doesn't decrease. Pfizer's pipeline includes 93 clinical programs. The more success it gets out of these programs, the better its cash flow will be -- and the greater any dividend increases investors see down the road will be.
Although Pfizer still shows 96 clinical programs in its pipeline on its website, this number is now a little lower thanks to several positive developments in March. The company received European regulatory approval Xeljanz for treating rheumatoid arthritis. The U.S. Food and Drug Administration (FDA) approved Bavencio (avelumab) as a first-line treatment for metastatic Merkel cell carcinoma. Ibrance also received regular approval in the U.S. as a first-line treatment of breast cancer, replacing an earlier accelerated approval.
What's especially remarkable about Pfizer's pipeline is that 34 programs are in late-stage clinical studies. More than a quarter of them are late-stage studies evaluating Bavencio in additional cancer indications. The drug holds the potential to become another big winner for Pfizer.
2
Pfizer has two business segments: innovative health and essential health. The former gets most of the public attention with new and growing drugs, while the latter is stuck with Pfizer's drugs that have lost patent exclusivity (and are therefore seeing sales decline).
Many investors weren't too happy last year when Pfizer decided to keep both business units instead of splitting into two companies. Pfizer must now live with that decision and prove that it was a good one.
The essential health unit still generated nearly 45% of total revenue and contributes to Pfizer's solid operating cash flow. Pfizer has also made some acquisitions in recent years that could make the segment a growth engine once sales stabilize for some of the legacy drugs facing generic challengers.
There's also the possibility that Pfizer revisits its decision to remain one company with two business segments at some point down the road. For now, though, it's two segments inside one company -- and that will drive Pfizer's decision making.
One other important number
There's one other important number for Pfizer that relates to all three of the figures already mentioned. That number is $4.2 billion. It reflects the total sales for Lyrica in 2016.
Pfizer faces a generic challenger to the pain drug in 2018. By then, Lyrica will have shifted over from the company's innovative health segment to its essential health segment. Without increased revenue generated from the clinical programs in its pipeline, Pfizer will face a decrease in its cash flow.
Because the pipeline is so promising, though, I don't think Pfizer will lose ground. Bavencio should be a major success. More indications could be on the way for other cancer drugs Ibrance and Xtandi. Another pain drug, tanezumab, has solid potential. Recently approved atopic dermatitis drug Eucrisa should pick up some slack as well. Look for all of these drugs to rack up even bigger numbers for Pfizer in the years to come.
