Pfizer Spending Twice As Much On Selling Than Research?

Pfizer (NYSE:PFE) spends nearly twice the money on selling, general & administrative (SG&A) expenses than it does on research & development (R&D). SG&A Accounted for 34% of the company’s total expenditure in 2018, while it was 19% for R&D. This can partly be attributed to the promotional expenses incurred on certain drugs. Over the recent years, Pfizer has seen stable revenues of around $53 billion, while its expenses having fluctuated. However, its total expenses as a percentage of revenue have largely declined. The decline seen in 2017 can be attributed to the tax reforms. In this note we discuss the key drivers of Pfizer’s total expenses. You can look at our interactive dashboard analysis ~ How Does Pfizer Spend Its Money? ~ for more details.

Pfizer’s Total Expenses As Percentage of Revenue Has Declined In Recent Years

Breaking Down Pfizer’s Total Expenses

SG&A

• SG&A, or selling, general & administrative expenses, includes salary, benefit costs, professional and marketing fees, shipping and handling costs, advertising and product promotions, among others. It accounted for 34% of the company’s total expense in 2018.
• SG&A as % of revenue declined from 28.1% in 2016 to 26.9% in 2018. Trefis estimates the metric to decline slightly to 26.7% in 2020. The decline in recent years can be attributed to lower promotional spending on some of the products, including Prevnar.

COGS

• COGS, or cost of goods sold, accounted for 26% of the company’s total expense in 2018.
• COGS as % of revenue declined from 23.3% in 2016 to 21.0% in 2018. Trefis estimates the metric to hover around the 21% mark in the near term.

R&D

• R&D, or research & development expenses, includes the costs of research on drugs, their development, early as well as late stage clinical trials, and drug formulation, among other related expenses. It accounted for 19% of the company’s total expense in 2018.
• R&D as % of revenue has remained stable at around 15% in recent years, and we expect this trend to continue going forward.

Amortization of Intangible Assets

• Amortization of Intangible Assets, which refers to expensing the cost of intangible assets over their projected life, accounted for 11% of the company’s total expense in 2018.
• Amortization of Intangible Assets as % of revenue has hovered around the 9% mark in recent years, and we estimate it to remain around similar levels going forward.

Other Operating Expenses

• Other Operating Expenses accounted for 5% of the company’s total expenses in 2018.
• Other Operating Expenses as % of revenue declined from 6.9% in 2016 to 3.9% in 2018, and we estimate it to see modest growth to 4.3% in 2020.

Restructuring Charges

• Restructuring Charges accounted for 3% of the company’s total expenses in 2018.
• Restructuring Charges as % of revenue declined from 3.3% in 2016 to 1.9% in 2018, and we estimate it to see modest growth to 2.1% in 2020.

Income Taxes

• Income Taxes saw a sharp decline in 2017, due to the impact of the tax reform. The effective tax rate for Pfizer stood at 6% in 2018, and we estimate it to remain under 20% in the near term.

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