Pfizer (PFE) at Morgan Stanley Notes

According to a fund comparison with the S&P 500 that PFE performed, spinoffs may be just as unlikely to create value as they are likely to create value

“The key point I was trying to make on the earnings call was that spin-offs, in and of themselves, don’t automatically create value. And we’ve actually looked historically over the last 10 years or so, and quite frankly, in many instances they have created value, and in many instances, they have not created value. There’s actually a fund that we looked at, compared it to the S&P 500, and if you looked at it on a one-year, a five-year, and 10-year return basis, after one year, the S&P performed better. After five years, it was roughly a push and a little bit favorable towards spin-offs. And after 10 years, I forget – 100 basis points – it wasn’t material either way. But if you look at all of them individually, many did and many didn’t in terms of creating incremental value.”  Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer

 

Thus, PFE asks four questions when considering spinoffs or splits

“The same four questions that we talk about all the time in terms of are the companies performing well inside the Company? Would they continue to perform well outside the Company? Is there a trapped value, and can we unlock that trapped value in a tax-efficient way? The answer to all four questions needs to be yes.” Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer

 

Transparency regarding pricing would benefit the pharmaceutical industry, and progress may be made in 2017

“We believe improved transparency into the entire system is a good thing… And we actually believe that that conversation, those discussions, are going to start taking place in the coming months in 2017. We think all players in the industry, whether it’s the providers, the managed care companies, the product manufacturers like ourselves, will benefit from increased transparency. And most importantly, we think patients will benefit as they better understand relative value for the healthcare services that they’re receiving.” Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer

 

PFE has $20-something billion in cash held outside of the United States that is potentially subject to repatriation charges. You can get an estimate for fees by examining the footnotes of their financial statements. It is a big number.

So at the end of the second quarter, we had $34 billion, I believe, in cash and investments. So up to $10 billion of that would be in the U.S., which means the remainder of that would be outside the U.S. If there was a repatriation, how much cash would we bring back? A lot. I’d bring back a whole lot… So you’ve got to read off footnotes. We give information on that. The other thing is you could look at the balance sheet, look at deferred tax liabilities, and you can engineer a number. We don’t give a number, but you can make assumptions about how much of that would be a gross number, basically, that we would bring back, where the liability’s been recorded but the cash hasn’t been paid… So you can make assumptions about what tax rate would be charged that gets you to that, whatever, $20-something billion deferred tax liability and gross that up, and that would give you an estimate of that plus existing cash overseas, gives you a feel for what the number would be. It’s a big number. Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer

 

PFE has been very consistent with the social contract put forth by Allergan regarding pricing and the impact on patients

So obviously, I read the social contract in terms of what was committed to in that. From my perspective, that’s what we do. If you look at Pfizer in terms of what we’ve done over the last several years, very consistent with what Allergan said. But we’ve always done that. I think we’ve always been very good actors in this space. We’ve been very responsible. And it doesn’t just happen by accident. We are very prudent, very diligent in terms of sensitivities to price increases and the impact that that will have on individuals and patients. Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer