Fitch Ratings has affirmed and subsequently withdrawn Pfizer, Inc.'s, Wyeth LLC's and Pharmacia Corp.'s (collectively, Pfizer) ratings, including their 'A' Issuer Default Ratings (IDRs) and senior unsecured debt ratings at 'A'.
In addition, Fitch has affirmed and subsequently withdrawn Pfizer Investment Enterprises Pte. Ltd.'s senior unsecured debt ratings at 'A'. Fitch has also affirmed and subsequently withdrawn Pfizer, Inc.'s Short-Term IDR at 'F1'. The Rating Outlooks were Stable at the time of affirmation and withdrawal.
Fitch has chosen to withdraw Pfizer's ratings for commercial reasons.
Key Rating Drivers
COVID-Related Revenues in Flux: COVID-related revenues have significantly underperformed original forecasts. Fitch recognizes the uncertainty regarding what the eventual revenue run rates would be of Comirnaty (COVID-19 vaccine) and Paxlovid (Active COVID-19 infections treatment). The company continues to modify the vaccine to address new variants of the virus. The mRNA technology used to develop the vaccine is also being used to create other vaccines and therapies unrelated to the coronavirus.
Meaningful Increase in Leverage Post-Seagen: Fitch views Pfizer's $43 billion acquisition of Seagen as strategically constructive. The acquisition increased Pfizer's presence in the growing area of oncology, particularly with Seagen's antibody drug conjugate technological platform. Pfizer should be able leverage its commercial and R&D infrastructure with Seagen's marketed therapies and pipeline products. The transaction was funded with $31 billion in long-term debt and increases EBITDA leverage in the intermediate term, exceeding its Negative Rating Sensitivity in 2024.
Fitch expects leverage will return to a level near its current Rating Sensitivities by year-end 2025 through additional EBITDA growth and without assuming additional debt repayment. Leverage should be comfortably below the Negative Rating Sensitivity should Pfizer repay additional debt and/or EBITDA exceed Fitch's expectations but could remain outside if and when Pfizer engages is meaningful M&A.
Manageable Patent Expiries: The company's intermediate-term patent cliff is manageable, with less than 15% of revenues at risk during the next three years. In addition, Pfizer's Eliquis (for blood clots), which accounts for roughly 7.3% of revenues (and 13.4% when excluding Comirnaty), is expected to face generic competition in April 2028 (assuming no pediatric exclusivity extension). However, higher growth rates in newer therapies over the next four years are likely to reduce this concentration.
Advancing Pipeline: During the past two years, Pfizer received regulatory approvals for Comirnaty (its COVID-19 vaccine), TicoVac (a tick-borne encephalitis vaccine), Paxlovid (its COVID-19 treatment), Tivdak (cervical cancer) and Beqvez (haemophilia B). Additionally, the company currently has several candidates in Phase III development to treat cancer, immunological disorders, bacterial infections and cardiovascular disease. Pfizer is also conducting clinical trials that could expand the market for certain of its currently-approved products. Fitch sees further growth opportunities in Pfizer's collaborations on certain external pipeline projects and via potential acquisitions.
Consistent FCF Generator: Despite a significant cash dividend burden, FCF has remained consistently positive with manageable capex requirements. Fitch expects continued positive FCF generation, supported by relatively stable margins and eventual return to revenue growth. Pfizer needs to reduce debt in order to bring leverage back within its Rating Sensitivity range. In addition, the company is likely to allocate FCF to acquisitions and share repurchases. Fitch also expects Pfizer's Board to increase its dividend annually.
Pressure from Payers: The defensibility of pricing power is always a top-of-mind issue affecting the sales outlook for pharmaceutical firms, including Pfizer. In its current form, the 'Inflation Reduction Act' (IRA) threatens the profitability of companies that manufacture and market some of the top-selling, older drugs in the Medicare Part D program. While Pfizer has products that may be targeted by the IRA, including Eliquis which is on the 2026 list, the precise products that may become subject to price negotiation thereafter remain unknown. Fitch will continue monitoring developments related to the IRA to better assess this risk including the forthcoming disclosure of the prices for the first cohort.
While the political environment in the U.S. has recently cast a spotlight on risks related to Medicare drug price negotiation, drug companies have engaged in negotiations on drug pricing and accessibility with health insurers and pharmacy benefit managers for many years. Fitch's ratings case forecasts for Pfizer and its peers generally assume better price defensibility for newer, truly innovative products and that revenues from more commoditized products are likely over time to face escalating headwind
Derivation Summary
Pfizer's 'A'/Stable rating reflected the company's operating profile, which is well-positioned relative to its peer Amgen (BBB/Stable) in terms of scale, breadth, depth, geographic reach and patent risk. Relatively manageable intermediate-term patent risk, an advancing pipeline and a broad product portfolio further supports its prospects for operational and financial stability. Fitch considered EBITDA leverage (total debt/EBITDA) at or below 2.75x to be consistent with Pfizer's 'A' rating.
Pfizer is similar in scale diversified product portfolio and geographic reach to AstraZeneca PLC's (A-/Stable) and Roche Holdings, Inc. (AA/Stable). Roche operates with significantly stronger leverage than Pfizer, Amgen and AstraZeneca. Fitch views Pfizer's and Roche's (AA/Stable) operating profile and pipeline as similar. Roche operates with significantly stronger leverage than Pfizer, Amgen and AstraZeneca. Fitch views Pfizer's and Roche's pipeline moderately stronger than AstraZeneca's.
Parent-Subsidiary Linkage
Fitch applies a Weak Parent/Strong Subsidiary approach to the Parent-Subsidiary Linkage criteria. Both Wyeth LLC and Pharmacia Corp. subsidiaries have open Ring-fencing and Access & Control, which leads to both being consolidated at the same IDR as that assigned to their parent, Pfizer, Inc.
Key Assumptions
Revenue to advance in 2024 and thereafter at low single-digit rates;
Operating EBITDA margins of 38% to 43% during the forecast period;
FCF to remain positive over the forecast period, trending to 5%-7% of revenues. Fitch believes that Pfizer is likely to prioritize cash deployment for dividends and debt repayment in the near- to intermediate term;
EBITDA leverage to decline to around 2.6x about 24 months after the Seagen acquisition assuming additional debt repayment and 2.8x assuming none beyond the amounts in 1Q24.
RATING SENSITIVITIES
Fitch does not contemplate an upgrade in the intermediate term. However, the factors that could, individually or collectively, have lead to positive rating action/upgrade prior to withdrawal include:
Gross debt leverage (total debt/EBITDA) expected to be sustained at or below 2.25x;
Strong operational performance sustained over the forecast period, including stable-to-positive trends in revenues, margins and FCF.
Factors that could have, individually or collectively, lead to negative rating action/downgrade:
Gross debt leverage (total debt/EBITDA) expected to be sustained at or above 2.75x, potentially driven by marketplace pressures,
adverse regulatory actions, unfavorable clinical developments or continued aggressive capital allocation policy;
Pursuit of additional significant transactions (including debt-funded acquisitions.
Liquidity and Debt Structure
Adequate Liquidity and Manageable Maturities: At March 31, 2024, liquidity included $719 million in cash and cash equivalents and $15.0 billion of availability on two revolving credit facilities, consisting of an $8.0 billion facility maturing in November 2024 (which is excluded from the liquidity calculations due to it being short term) and a $7 billion facility maturing in November 2028. Pfizer also has $11.2 billion in short-term investments, and Fitch expects Pfizer's liquidity to remain adequate over the rating horizon, further supported by FCF generation. In addition, Pfizer's debt maturities are manageable, with $3.8 billion due in 2025, $6 billion due in 2026 and $1 billion due in 2027. The company disclosed that it paid down $1.25 billion of debt this year.
Issuer Profile
Pfizer is one of the world's largest pharmaceutical companies. The company develops, manufactures and markets therapeutics that compete in the vast majority of treatment categories and major geographic markets. Its top five selling products accounted for roughly 54% of the first nine months of 2023 revenues.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Pfizer Inc. has an ESG Relevance Score of '4' for Exposure to Social Impacts due to due to societal and regulatory pressures to constrain growth in healthcare spending in the U.S. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Following the withdrawal of ratings for Pfizer Fitch will no longer be providing the associated ESG Relevance Scores.
PFIZER, INC. 
