Pfizer Earnings Call Insights: Tax Rate Guidance and Bolt-On Acquisitions
Tax Rate Guidance
Tim Anderson – Sanford Bernstein: On your tax rate guidance in 2013, can you say will it be without (certain) accounting of R&D tax credit and you had a one-time – excess time the life merger suggested a long term rate of maybe 30% seeing what Bristol Myer’s has done on lowering its tax rate remarkably, I’m wondering if you have any ability to restructure any of your legal entities as well? Then a second question and obviously a one that you get asked about a lot, but can you give us your latest thoughts on potentially carving out the drug side of the business in the two truly separate companies like you’re doing with Zoetis, you’ve been alluding this for – for this possibility for quite some time now but I think investors don’t really know what sort of odds to do it. So would you say it’s higher probability, is it (indiscernible)?
Ian Read – Chairman and CEO: I’d ask Frank to take care of the tax rate guidance and explain the 30% tax rate and any other comments you want to make on tax.
Frank D’Amelio – EVP, CFO and Business Operations: Sure. So, Tim on the 28% which is down from 29.3% in 2012, even if we didn’t have I’ll call it the double benefit of the R&D tax credit in 2013 our tax rate would be closer to 28% then to 29%. So, that’s the way to think about it. By the way what will happen in 2013 is we will record the 2012 benefit in Q1 and then 2013 benefit will record throughout the year just in terms of the accounting mechanics of the R&D tax credit. In terms of the legal entity restructuring the way I think about that is our tax planning. We do tax planning all the time. If you look at our tax rate over the last couple of years it’s gone from 30% to last year’s slightly higher than 29% and now our guidance for this year is approximately 28%. We’ll obviously continue to do tax planning but the one thing I will say is trying to project tax rates beyond 2013 giving everything that’s going on and with the uncertainty which is corporate tax reform, I think is not a prudent thing to do. So, our current guidance is approximately 28% and obviously we will do everything we can to meet or exceed that guidance.
Ian Read – Chairman and CEO: Tim, on your additional question on the business models, I think I’ve been talking for some time now when discussing this with investors that I see that we have two models or two businesses within Pfizer today, major segments, one being the innovative core and one being what we call value which is basically post LOE products. We have made that operational separation in the developed markets, in the U.S., in Europe and in Japan, in Australia, or in Korea and places like that. We haven’t made that separation in Emerging Markets where we run it from a geographic basis. Although in the major markets, we are moving towards creating units within those geographies that specialize in oncology or primary care or Established Products. I believe at some point the markets will separate globally and there will be an innovative market distinct from an established market, and I think Pfizer will continue to evolve into being managed that away. So I hope that answers your question. Right now, as I – I think I said in my opening comments, Emerging Markets is working well; structure in the developed markets is working well. We are focused on the new launches, the pipeline, our capital allocation, expense discipline, and we will continue to evolve our model as we see value opportunities.
Chris Schott – JPMorgan: Just two questions here. Maybe one just to kind of following up on Tim’s questions. I think you’ve talked about the Emerging Markets evolve that we might see the business model evolve. Just following up on that, does it make sense for Pfizer to keep both a value and innovative core under the same umbrella, if we get to a point where the Emerging Markets that structure doesn’t, the current regional structure does not make sense. Second question is coming back to the bolt-on acquisitions. Can you remind us how large a bolt-on acquisition you’ve considered, you would consider at this point. What are the priorities for you and when the Company – if a larger deal were to come along with the right fit, is that an opportunity for Pfizer or is that really not in the cards as we can serve a couple of deployment over the next couple of years?
Ian Read – Chairman and CEO: Going back to the possibilities of EM and why would it make sense for Pfizer to have those two businesses. I think there is not really a lot of point on speculating over this. Today, we have both businesses, you certainly in an innovative side need to be careful that you have – it tends to be more volatile and the Established Products. I will ask you to take short term movements and volatile in the business, but that being said, we will look at it, we will I believe move towards a separate management and that point we’ll be able to evaluate whether shareholders would prefer to have the option to invest in distinct companies or not. I don’t think that is a short term priority right now us. The priority is to evolve our internal model and measure how successful those businesses are and what management and leadership they require and are they distinct enough to go further. On the bolt-on acquisitions we’ve said that we are focused on generating shareholder return and I’m going to make a few comments and ask Frank to add to if he wants to. So, we used we look at bolt-on acquisitions as a way of adding high-value businesses or intellectual property of the Pfizer that can generate positive returns to shareholders above what we see is the opportunity for share buybacks. Bolt-ons I don’t want to give you a precise number we begin with 3.7 so what’s a bolt-on middle multiples of that number, you pick it where – our market caps $180 billion what would you consider bolt-on for that size of Company. Now as regards larger opportunities, we look at everything from a point of view does it add value to Pfizer shareholders if it adds value we never say never, we consider opportunities. But right now we continue to be focused on running our internal business and looking to those bolt-on opportunities.
Frank D’Amelio – EVP, CFO and Business Operations: I’ll just maybe three items to Ian’s comments. I think first the way we think about this dev in general is it’s not a strategy in of itself it’s an enabler of our strategy, so that would be point number one. I think the second thing in terms of bolt-ons I think Ian sized it perfectly. King was — several billion dollars we view that as a bolt-on is the way to think about that. In terms of the priorities which is something in U.S. no changes, I think our priorities remain on focused therapeutic in disease areas, including the emerging markets. That’s clearly where we’re advising and I think that’s where we’ve been biasing and I think that’s where we will continue to bias. And then in terms of the large deals, just to punctuate what Ian said and there’s no new news here. We always say ‘we never say never’ but our focus has been and continues to be on bolt-on acquisitions.
Chris Schott – JPMorgan: Well, it continues to be on bolt-on acquisitions and those acquisitions that add value to our shareholders.
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