0000078003 pfe:EssentialHealthBusinessMember pfe:PeriLOEProductsMember pfe:AllOtherPeriLOEProductsMember pfe:EssentialHealthSegmentMember 2016-07-04 2016-10-02
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2017September 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 1-3619
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PFIZER INC.
(Exact name of registrant as specified in its charter)
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DELAWARE (State of Incorporation) | 13-5315170 (I.R.S. Employer Identification No.) |
235 East 42nd Street, New York, New York 10017
(Address of principal executive offices) (zip code)
(212) 733-2323
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
Large Accelerated filer X Accelerated filer ___ Non-accelerated filer ___ Smaller reporting company ___ Emerging growth company ___
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
At November 6, 20175, 2018, 5,960,707,3175,780,474,578 shares of the issuer’s voting common stock were outstanding.
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Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and October 1, 2017 and October 2, 2016 | |
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Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and October 1, 2017 and October 2, 2016 | |
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Condensed Consolidated Balance Sheets as of October 1, 2017September 30, 2018 and December 31, 20162017 | |
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Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and October 1, 2017 and October 2, 2016 | |
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GLOSSARY OF DEFINED TERMS
Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q (defined below) refer to Pfizer Inc. and its subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below:
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20162017 Financial Report | Financial Report for the fiscal year ended December 31, 2016,2017, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 |
20162017 Form 10-K | Annual Report on Form 10-K for the fiscal year ended December 31, 2016 |
AAV | Adeno-Associated Virus2017 |
| ACA (Also referred to as U.S. Healthcare Legislation) | U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act |
| ACIP | Advisory Committee on Immunization Practices |
| ALK | anaplastic lymphoma kinase |
Allergan | Allergan plc |
| Alliance revenues | Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us |
| Allogene | Allogene Therapeutics, Inc. |
| AMPA | α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid |
| Anacor | Anacor Pharmaceuticals, Inc. |
| AOCI | Accumulated Other Comprehensive Income |
| Astellas | Astellas Pharma U.S.Inc., Astellas US LLC and Astellas Pharma US, Inc. |
| ASU | Accounting Standards Update |
| ATM-AVI | aztreonam-avibactam |
| Avillion | Avillion LLP |
BambooBain Capital | Bamboo Therapeutics,Bain Capital Private Equity and Bain Capital Life Sciences |
| Biogen | Biogen Inc. |
| BMS | Bristol-Myers Squibb Company |
| BRCA | BReast CAncer susceptibility gene |
| CAR T | chimeric antigen receptor T cell |
| CDC | U.S. Centers for Disease Control and Prevention |
| Cellectis | Cellectis SAS.A. |
| Cerevel | Cerevel Therapeutics, LLC |
| CIAS | cognitive impairment associated with schizophrenia |
| Citibank | Citibank, N.A. |
cGMPsCML | current Good Manufacturing Practiceschronic myelogenous leukemia |
| Developed Markets | U.S., Western Europe, Japan, Canada, Australia, South Korea, Scandinavian countries, Finland and New Zealand |
| EEA | European Economic Area |
| EH | Essential Health |
| EMA | European Medicines Agency |
| Emerging Markets | Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe,Africa, the Middle East, Central Europe and Turkey |
| EPS | earnings per share |
| EU | European Union |
EURIBOR | Euro Interbank Offered Rate |
| Exchange Act | Securities Exchange Act of 1934, as amended |
| FASB | Financial Accounting Standards Board |
| FDA | U.S. Food and Drug Administration |
| GAAP | Generally Accepted Accounting Principles |
| GIST | gastrointestinal stromal tumors |
| GPD | Global Product Development |
| HER2- | human epidermal growth factor receptor 2-negative |
| hGH-CTP | human growth hormone |
| HIS | Hospira Infusion Systems |
Hisun | Zhejiang Hisun Pharmaceuticals Co., Ltd. |
| Hisun Pfizer | Hisun Pfizer Pharmaceuticals Company Limited |
| Hospira | Hospira, Inc. |
| HR+ | hormone receptor-positive |
| ICU Medical | ICU Medical, Inc. |
| IH | Innovative Health |
InnoPharma | InnoPharma, Inc. |
| IPR&D | in-process research and development |
| IRS | U.S. Internal Revenue Service |
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| IV | intravenous |
| Janssen | Janssen Biotech Inc. |
| J&J | Johnson & Johnson |
| King | King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.) |
| LDL | low density lipoprotein |
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| LEP | Legacy Established Products |
| LIBOR | London Interbank Offered Rate |
| Lilly | Eli Lilly & Company |
| LOE | loss of exclusivity |
| MCC | Merkel Cell Carcinoma |
| MCO | Managed Care Organization |
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Medivation | Medivation LLC (formerly Medivation, Inc.) |
| Merck | Merck & Co., Inc. |
| Meridian | Meridian Medical Technologies, Inc. |
| Moody’s | Moody’s Investors Service |
| NDA | new drug application |
| NovaQuest | NovaQuest Co-Investment Fund V, L.P. |
| NSCLC | non-small cell lung cancer |
| NYSE | New York Stock Exchange |
| OPKO | OPKO Health, Inc. |
| OTC | over-the-counter |
| PARP | poly ADP ribose polymerase |
| PBM | Pharmacy Benefit Manager |
| Pharmacia | Pharmacia Corporation |
| PP&E | Property, plant & equipment |
| Quarterly Report on Form 10-Q | Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2017September 30, 2018 |
| RCC | renal cell carcinoma |
| R&D | research and development |
| RPI | RPI Finance Trust |
| Sandoz | Sandoz, Inc., a division of Novartis AG |
Sangamo | Sangamo Therapeutics, Inc. |
| SEC | U.S. Securities and Exchange Commission |
| Servier | Les Laboratoires Servier SAS |
| SFJ | SFJ Pharmaceuticals Group |
| Shire | Shire International GmbH |
| SI&A | Selling, informational and administrative |
| SIP | Sterile Injectable Pharmaceuticals |
| S&P | Standard and Poor’s |
| StratCO | Strategy and Commercial Operations |
| Tax Cuts and Jobs Act or TCJA | Legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 |
| Teuto | Laboratório Teuto Brasileiro S.A. |
| U.K. | United Kingdom |
| U.S. | United States |
| ViiV | ViiV Healthcare Limited |
| WRD | Worldwide Research and Development |
Zoetis | Zoetis Inc. |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS, EXCEPT PER COMMON SHARE DATA) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| �� | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Revenues | | $ | 13,168 |
| | $ | 13,045 |
| | $ | 38,843 |
| | $ | 39,196 |
| | $ | 13,298 |
| | $ | 13,168 |
| | $ | 39,670 |
| | $ | 38,843 |
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| Costs and expenses: | | | | | | | | | | | | | | | | |
Cost of sales(a) | | 2,847 |
| | 3,085 |
| | 7,980 |
| | 9,111 |
| | 2,694 |
| | 2,844 |
| | 8,173 |
| | 7,972 |
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Selling, informational and administrative expenses(a) | | 3,500 |
| | 3,559 |
| | 10,233 |
| | 10,414 |
| | 3,494 |
| | 3,504 |
| | 10,448 |
| | 10,249 |
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Research and development expenses(a) | | 1,859 |
| | 1,881 |
| | 5,346 |
| | 5,360 |
| | 2,008 |
| | 1,865 |
| | 5,549 |
| | 5,367 |
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| Amortization of intangible assets | | 1,177 |
| | 968 |
| | 3,571 |
| | 2,934 |
| | 1,253 |
| | 1,177 |
| | 3,640 |
| | 3,571 |
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| Restructuring charges and certain acquisition-related costs | | 149 |
| | 531 |
| | 377 |
| | 988 |
| | 85 |
| | 114 |
| | 172 |
| | 267 |
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| Other (income)/deductions––net | | 51 |
| | 1,417 |
| | (16 | ) | | 2,815 |
| | (414 | ) | | 79 |
| | (1,143 | ) | | 65 |
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| Income from continuing operations before provision for taxes on income | | 3,585 |
| | 1,604 |
| | 11,351 |
| | 7,575 |
| | 4,177 |
| | 3,585 |
| | 12,831 |
| | 11,351 |
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Provision for taxes on income(b) | | 727 |
| | 249 |
| | 2,287 |
| | 1,109 |
| | 66 |
| | 727 |
| | 1,270 |
| | 2,287 |
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Income from continuing operations(b) | | 2,858 |
| | 1,355 |
| | 9,064 |
| | 6,465 |
| | 4,111 |
| | 2,858 |
| | 11,562 |
| | 9,064 |
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| Discontinued operations––net of tax | | — |
| | — |
| | 1 |
| | — |
| | 11 |
| | — |
| | 10 |
| | 1 |
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Net income before allocation to noncontrolling interests(b) | | 2,858 |
| | 1,355 |
| | 9,066 |
| | 6,465 |
| | 4,122 |
| | 2,858 |
| | 11,571 |
| | 9,066 |
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| Less: Net income attributable to noncontrolling interests | | 18 |
| | — |
| | 32 |
| | 25 |
| | 8 |
| | 18 |
| | 25 |
| | 32 |
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Net income attributable to Pfizer Inc.(b) | | $ | 2,840 |
| | $ | 1,355 |
| | $ | 9,034 |
| | $ | 6,440 |
| | $ | 4,114 |
| | $ | 2,840 |
| | $ | 11,546 |
| | $ | 9,034 |
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Earnings per common share––basic(b): | | |
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Earnings per common share––basic: | | | |
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| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 0.48 |
| | $ | 0.22 |
| | $ | 1.51 |
| | $ | 1.06 |
| | $ | 0.70 |
| | $ | 0.48 |
| | $ | 1.96 |
| | $ | 1.51 |
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| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 0.48 |
| | $ | 0.22 |
| | $ | 1.51 |
| | $ | 1.06 |
| | $ | 0.70 |
| | $ | 0.48 |
| | $ | 1.96 |
| | $ | 1.51 |
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Earnings per common share––diluted(b): | | |
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Earnings per common share––diluted: | | | |
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| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 0.47 |
| | $ | 0.22 |
| | $ | 1.49 |
| | $ | 1.04 |
| | $ | 0.69 |
| | $ | 0.47 |
| | $ | 1.92 |
| | $ | 1.49 |
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| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 0.47 |
| | $ | 0.22 |
| | $ | 1.49 |
| | $ | 1.04 |
| | $ | 0.69 |
| | $ | 0.47 |
| | $ | 1.92 |
| | $ | 1.49 |
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| Weighted-average shares––basic | | 5,951 |
| | 6,066 |
| | 5,972 |
| | 6,095 |
| | 5,875 |
| | 5,951 |
| | 5,899 |
| | 5,972 |
|
Weighted-average shares––diluted(b) | | 6,041 |
| | 6,150 |
| | 6,057 |
| | 6,175 |
| | 5,986 |
| | 6,041 |
| | 5,998 |
| | 6,057 |
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| Cash dividends paid per common share | | $ | 0.32 |
| | $ | 0.30 |
| | $ | 0.96 |
| | $ | 0.90 |
| | $ | 0.34 |
| | $ | 0.32 |
| | $ | 1.02 |
| | $ | 0.96 |
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(a) | Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets. |
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(b)
| Amounts for the three and nine months ended October 2, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards.
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Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
| Net income before allocation to noncontrolling interests | | $ | 2,858 |
| | $ | 1,355 |
| | $ | 9,066 |
| | $ | 6,465 |
|
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| Foreign currency translation adjustments, net | | 878 |
| | 417 |
| | 1,352 |
| | 998 |
|
Reclassification adjustments(a) | | (3 | ) | | — |
| | 110 |
| | — |
|
| | | 875 |
| | 417 |
| | 1,461 |
| | 998 |
|
| Unrealized holding losses on derivative financial instruments, net | | (50 | ) | | (126 | ) | | (149 | ) | | (970 | ) |
Reclassification adjustments for realized (gains)/losses(b) | | 56 |
| | 150 |
| | (393 | ) | | 280 |
|
| | | 6 |
| | 24 |
| | (542 | ) | | (690 | ) |
| Unrealized holding gains on available-for-sale securities, net | | 384 |
| | 261 |
| | 698 |
| | 740 |
|
Reclassification adjustments for realized gains(b) | | (278 | ) | | (112 | ) | | (181 | ) | | (129 | ) |
| | | 106 |
| | 149 |
| | 518 |
| | 611 |
|
| Benefit plans: actuarial losses, net | | (103 | ) | | (82 | ) | | (41 | ) | | (101 | ) |
Reclassification adjustments related to amortization(c) | | 140 |
| | 140 |
| | 448 |
| | 418 |
|
Reclassification adjustments related to settlements, net(c) | | 38 |
| | 28 |
| | 89 |
| | 76 |
|
| Other | | (76 | ) | | 69 |
| | (111 | ) | | 51 |
|
| | | (1 | ) | | 155 |
| | 384 |
| | 444 |
|
| Benefit plans: prior service (costs)/credits and other, net | | — |
| | 95 |
| | (2 | ) | | 182 |
|
Reclassification adjustments related to amortization(c) | | (46 | ) | | (45 | ) | | (138 | ) | | (127 | ) |
Reclassification adjustments related to curtailments, net(c) | | (3 | ) | | (8 | ) | | (14 | ) | | (14 | ) |
| Other | | 1 |
| | 6 |
| | 2 |
| | 12 |
|
| | | (48 | ) | | 48 |
| | (151 | ) | | 54 |
|
| Other comprehensive income, before tax | | 938 |
| | 793 |
| | 1,669 |
| | 1,417 |
|
Tax provision/(benefit) on other comprehensive income(d) | | (80 | ) | | 116 |
| | (218 | ) | | 111 |
|
| Other comprehensive income before allocation to noncontrolling interests | | $ | 1,018 |
| | $ | 677 |
| | $ | 1,888 |
| | $ | 1,306 |
|
| | | | | | | | | |
| Comprehensive income before allocation to noncontrolling interests | | $ | 3,876 |
| | $ | 2,031 |
| | $ | 10,953 |
| | $ | 7,771 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | 19 |
| | — |
| | 48 |
| | 24 |
|
| Comprehensive income attributable to Pfizer Inc. | | $ | 3,857 |
| | $ | 2,032 |
| | $ | 10,906 |
| | $ | 7,747 |
|
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| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Net income before allocation to noncontrolling interests | | $ | 4,122 |
| | $ | 2,858 |
| | $ | 11,571 |
| | $ | 9,066 |
|
| | | | | | | |
| | |
|
| Foreign currency translation adjustments, net | | (567 | ) | | 878 |
| | (507 | ) | | 1,352 |
|
| Reclassification adjustments | | (2 | ) | | (3 | ) | | (22 | ) | | 110 |
|
| | | (569 | ) | | 875 |
| | (530 | ) | | 1,461 |
|
| Unrealized holding gains/(losses) on derivative financial instruments, net | | 222 |
| | (50 | ) | | 236 |
| | (149 | ) |
Reclassification adjustments for (gains)/losses included in net income(a) | | (235 | ) | | 56 |
| | 119 |
| | (393 | ) |
| | | (13 | ) | | 6 |
| | 355 |
| | (542 | ) |
| Unrealized holding gains/(losses) on available-for-sale securities, net | | 149 |
| | 384 |
| | (65 | ) | | 698 |
|
Reclassification adjustments for gains included in net income(a) | | (36 | ) | | (278 | ) | | (67 | ) | | (181 | ) |
Reclassification adjustments for unrealized gains included in Retained earnings(b) | | — |
| | — |
| | (462 | ) | | — |
|
| | | 112 |
| | 106 |
| | (595 | ) | | 518 |
|
| Benefit plans: actuarial gains/(losses), net | | 8 |
| | (103 | ) | | 114 |
| | (41 | ) |
| Reclassification adjustments related to amortization | | 60 |
| | 140 |
| | 183 |
| | 448 |
|
| Reclassification adjustments related to settlements, net | | 42 |
| | 38 |
| | 108 |
| | 89 |
|
| Other | | 49 |
| | (76 | ) | | 69 |
| | (111 | ) |
| | | 158 |
| | (1 | ) | | 474 |
| | 384 |
|
| Benefit plans: prior service costs and other, net | | — |
| | — |
| | — |
| | (2 | ) |
| Reclassification adjustments related to amortization | | (46 | ) | | (46 | ) | | (137 | ) | | (138 | ) |
| Reclassification adjustments related to curtailments, net | | (4 | ) | | (3 | ) | | (18 | ) | | (14 | ) |
| Other | | — |
| | 1 |
| | 1 |
| | 2 |
|
| | | (50 | ) | | (48 | ) | | (154 | ) | | (151 | ) |
| Other comprehensive income/(loss), before tax | | (361 | ) | | 938 |
| | (449 | ) | | 1,669 |
|
| Tax provision/(benefit) on other comprehensive income/(loss) | | 62 |
| | (80 | ) | | 667 |
| | (218 | ) |
| Other comprehensive income/(loss) before allocation to noncontrolling interests | | $ | (422 | ) | | $ | 1,018 |
| | $ | (1,116 | ) | | $ | 1,888 |
|
| | | | | | | | | |
| Comprehensive income before allocation to noncontrolling interests | | $ | 3,700 |
| | $ | 3,876 |
| | $ | 10,455 |
| | $ | 10,953 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | — |
| | 19 |
| | 5 |
| | 48 |
|
| Comprehensive income attributable to Pfizer Inc. | | $ | 3,700 |
| | $ | 3,857 |
| | $ | 10,450 |
| | $ | 10,906 |
|
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(a) | The foreign currency translation adjustments reclassifiedReclassified into Other (income)/deductions—net in the condensed consolidated statements of income primarily result from sale of our 40% ownership investment in Teuto. See Note 2D. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments.
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(b)
| Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income. For additional information on amounts reclassified into Cost of sales, see Note 7F. Financial Instruments: Derivative Financial Instruments and Hedging Activities.
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(c)(b)
| Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension1B. Basis of Presentation and Postretirement Benefit Plans.
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(d)
| See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Income.Significant Accounting Policies: Adoption of New Accounting Standards.
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Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | December 31,
2016 |
| | September 30,
2018 |
| | December 31,
2017 |
|
| | | (Unaudited) | | | | (Unaudited) | | |
| Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 2,779 |
| | $ | 2,595 |
| | $ | 3,559 |
| | $ | 1,342 |
|
| Short-term investments | | 14,146 |
| | 15,255 |
| | 13,680 |
| | 18,650 |
|
| Trade accounts receivable, less allowance for doubtful accounts: 2017—$590; 2016—$609 | | 10,002 |
| | 8,225 |
| |
| Trade accounts receivable, less allowance for doubtful accounts: 2018—$567; 2017—$584 | | | 10,024 |
| | 8,221 |
|
| Inventories | | 7,925 |
| | 6,783 |
| | 8,184 |
| | 7,578 |
|
| Current tax assets | | 3,263 |
| | 3,041 |
| | 3,686 |
| | 3,050 |
|
| Other current assets | | 2,158 |
| | 2,249 |
| | 2,450 |
| | 2,301 |
|
| Assets held for sale | | 16 |
| | 801 |
| |
| Total current assets | | 40,291 |
| | 38,949 |
| | 41,583 |
| | 41,141 |
|
| Long-term investments | | 7,311 |
| | 7,116 |
| | 6,444 |
| | 7,015 |
|
| Property, plant and equipment, less accumulated depreciation: 2017—$15,906; 2016—$14,807 | | 13,505 |
| | 13,318 |
| |
| Property, plant and equipment, less accumulated depreciation: 2018—$17,078; 2017—$16,172 | | | 14,036 |
| | 13,865 |
|
| Identifiable intangible assets, less accumulated amortization | | 49,721 |
| | 52,648 |
| | 45,306 |
| | 48,741 |
|
| Goodwill | | 56,078 |
| | 54,449 |
| | 55,614 |
| | 55,952 |
|
| Noncurrent deferred tax assets and other noncurrent tax assets | | 1,858 |
| | 1,812 |
| | 1,875 |
| | 1,855 |
|
| Other noncurrent assets | | 3,388 |
| | 3,323 |
| | 2,980 |
| | 3,227 |
|
| Total assets | | $ | 172,151 |
| | $ | 171,615 |
| | $ | 167,838 |
| | $ | 171,797 |
|
| | | | | | | | | |
| Liabilities and Equity | | |
| | |
| | |
| | |
|
| Short-term borrowings, including current portion of long-term debt: 2017—$3,072; 2016—$4,225 | | $ | 9,448 |
| | $ | 10,688 |
| |
| Short-term borrowings, including current portion of long-term debt: 2018—$4,255; 2017—$3,546 | | | $ | 7,385 |
| | $ | 9,953 |
|
| Trade accounts payable | | 3,480 |
| | 4,536 |
| | 4,297 |
| | 4,656 |
|
| Dividends payable | | 1,909 |
| | 1,944 |
| | 1,963 |
| | 2,029 |
|
| Income taxes payable | | 1,003 |
| | 437 |
| | 2,781 |
| | 477 |
|
| Accrued compensation and related items | | 1,932 |
| | 2,487 |
| | 2,096 |
| | 2,196 |
|
| Other current liabilities | | 10,446 |
| | 11,023 |
| | 10,490 |
| | 11,115 |
|
| Total current liabilities | | 28,217 |
| | 31,115 |
| | 29,013 |
| | 30,427 |
|
| | | | | | | | | |
| Long-term debt | | 34,503 |
| | 31,398 |
| | 33,652 |
| | 33,538 |
|
| Pension benefit obligations, net | | 5,531 |
| | 6,406 |
| | 4,886 |
| | 5,926 |
|
| Postretirement benefit obligations, net | | 1,687 |
| | 1,766 |
| | 1,455 |
| | 1,504 |
|
| Noncurrent deferred tax liabilities | | 30,411 |
| | 30,753 |
| | 5,512 |
| | 3,900 |
|
| Other taxes payable | | 4,304 |
| | 4,000 |
| | 15,289 |
| | 18,697 |
|
| Other noncurrent liabilities | | 6,388 |
| | 6,337 |
| | 6,367 |
| | 6,149 |
|
| Total liabilities | | 111,041 |
| | 111,776 |
| | 96,174 |
| | 100,141 |
|
| | | | | | | | | |
| Commitments and Contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | |
| Preferred stock | | 22 |
| | 24 |
| | 20 |
| | 21 |
|
| Common stock | | 463 |
| | 461 |
| | 466 |
| | 464 |
|
| Additional paid-in capital | | 83,827 |
| | 82,685 |
| | 85,828 |
| | 84,278 |
|
| Treasury stock | | (89,421 | ) | | (84,364 | ) | | (96,574 | ) | | (89,425 | ) |
| Retained earnings | | 75,043 |
| | 71,774 |
| | 91,995 |
| | 85,291 |
|
| Accumulated other comprehensive loss | | (9,164 | ) | | (11,036 | ) | | (10,417 | ) | | (9,321 | ) |
| Total Pfizer Inc. shareholders’ equity | | 60,770 |
| | 59,544 |
| | 71,319 |
| | 71,308 |
|
| Equity attributable to noncontrolling interests | | 340 |
| | 296 |
| | 346 |
| | 348 |
|
| Total equity | | 61,110 |
| | 59,840 |
| | 71,664 |
| | 71,656 |
|
| Total liabilities and equity | | $ | 172,151 |
| | $ | 171,615 |
| | $ | 167,838 |
| | $ | 171,797 |
|
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(UNAUDITED)
|
| | | | | | | | |
| | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
|
| Operating Activities | | | | |
Net income before allocation to noncontrolling interests(a) | | $ | 9,066 |
| | $ | 6,465 |
|
| Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | | |
| | |
|
| Depreciation and amortization | | 4,695 |
| | 4,208 |
|
| Asset write-offs and impairments | | 326 |
| | 1,146 |
|
| Loss on sale of HIS net assets | | 52 |
| | 1,422 |
|
| Deferred taxes from continuing operations | | 241 |
| | (1,335 | ) |
| Share-based compensation expense | | 595 |
| | 532 |
|
| Benefit plan contributions in excess of expense | | (1,042 | ) | | (775 | ) |
| Other adjustments, net | | (561 | ) | | 68 |
|
Other changes in assets and liabilities, net of acquisitions and divestitures(a) | | (3,644 | ) | | (1,582 | ) |
Net cash provided by operating activities(a) | | 9,728 |
| | 10,151 |
|
| | | | | |
| Investing Activities | | |
| | |
|
| Purchases of property, plant and equipment | | (1,256 | ) | | (1,134 | ) |
| Purchases of short-term investments | | (6,469 | ) | | (15,170 | ) |
| Proceeds from redemptions/sales of short-term investments | | 5,783 |
| | 20,685 |
|
| Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less | | 2,758 |
| | 6,485 |
|
| Purchases of long-term investments | | (2,526 | ) | | (4,771 | ) |
| Proceeds from redemptions/sales of long-term investments | | 2,417 |
| | 6,915 |
|
| Acquisitions of businesses, net of cash acquired | | (1,000 | ) | | (17,679 | ) |
| Acquisitions of intangible assets | | (188 | ) | | (96 | ) |
| Other investing activities, net | | 519 |
| | 60 |
|
| Net cash provided by/(used in) investing activities | | 38 |
| | (4,704 | ) |
| | | | | |
| Financing Activities | | |
| | |
|
| Proceeds from short-term borrowings | | 7,003 |
| | 6,397 |
|
| Principal payments on short-term borrowings | | (7,691 | ) | | (3,321 | ) |
| Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less | | 555 |
| | (963 | ) |
| Proceeds from issuance of long-term debt | | 5,273 |
| | 5,031 |
|
| Principal payments on long-term debt | | (4,474 | ) | | (4,317 | ) |
| Purchases of common stock | | (5,000 | ) | | (5,000 | ) |
| Cash dividends paid | | (5,750 | ) | | (5,496 | ) |
| Proceeds from exercise of stock options | | 656 |
| | 946 |
|
Other financing activities, net(a) | | (223 | ) | | (192 | ) |
Net cash used in financing activities(a) | | (9,650 | ) | | (6,915 | ) |
| Effect of exchange-rate changes on cash and cash equivalents | | 67 |
| | (79 | ) |
| Net increase/(decrease) in cash and cash equivalents | | 184 |
| | (1,547 | ) |
| Cash and cash equivalents, beginning | | 2,595 |
| | 3,641 |
|
| Cash and cash equivalents, end | | $ | 2,779 |
| | $ | 2,094 |
|
| | | |
| | |
|
| Supplemental Cash Flow Information | | | | |
| Non-cash transactions: | | | | |
Receipt of ICU Medical common stock(b) | | $ | 428 |
| | $ | — |
|
Promissory note from ICU Medical(b) | | 75 |
| | — |
|
| Cash paid (received) during the period for: | | |
| | |
|
| Income taxes | | $ | 1,424 |
| | $ | 1,430 |
|
| Interest | | 1,101 |
| | 1,177 |
|
| Interest rate hedges | | (183 | ) | | (356 | ) |
|
| | | | | | | | |
| | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
|
| Operating Activities | | | | |
| Net income before allocation to noncontrolling interests | | $ | 11,571 |
| | $ | 9,066 |
|
| Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | | |
| | |
|
| Depreciation and amortization | | 4,743 |
| | 4,695 |
|
| Asset write-offs and impairments | | 88 |
| | 326 |
|
| Adjustments to loss on sale of HIS net assets | | (1 | ) | | 52 |
|
TCJA impact(a) | | (410 | ) | | — |
|
| Deferred taxes from continuing operations | | (974 | ) | | 241 |
|
| Share-based compensation expense | | 682 |
| | 595 |
|
Benefit plan contributions in excess of income––2018 and expense––2017 | | (1,000 | ) | | (1,042 | ) |
| Other adjustments, net | | (1,169 | ) | | (604 | ) |
| Other changes in assets and liabilities, net of acquisitions and divestitures | | (2,441 | ) | | (3,616 | ) |
| Net cash provided by operating activities | | 11,089 |
| | 9,713 |
|
| | | | | |
| Investing Activities | | |
| | |
|
| Purchases of property, plant and equipment | | (1,357 | ) | | (1,256 | ) |
| Purchases of short-term investments | | (7,364 | ) | | (6,469 | ) |
| Proceeds from redemptions/sales of short-term investments | | 12,752 |
| | 5,778 |
|
| Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less | | 385 |
| | 2,758 |
|
| Purchases of long-term investments | | (1,503 | ) | | (2,526 | ) |
| Proceeds from redemptions/sales of long-term investments | | 2,174 |
| | 2,403 |
|
| Acquisitions of businesses, net of cash acquired | | — |
| | (1,000 | ) |
| Acquisitions of intangible assets | | (47 | ) | | (188 | ) |
| Other investing activities, net | | 248 |
| | 519 |
|
| Net cash provided by investing activities | | 5,289 |
| | 19 |
|
| | | | | |
| Financing Activities | | |
| | |
|
| Proceeds from short-term borrowings | | 1,945 |
| | 7,003 |
|
| Principal payments on short-term borrowings | | (4,239 | ) | | (7,659 | ) |
| Net (payments on)/proceeds from short-term borrowings with original maturities of three months or less | | (973 | ) | | 566 |
|
| Proceeds from issuance of long-term debt | | 4,974 |
| | 5,273 |
|
| Principal payments on long-term debt | | (3,104 | ) | | (4,474 | ) |
| Purchases of common stock | | (7,168 | ) | | (5,000 | ) |
| Cash dividends paid | | (6,015 | ) | | (5,750 | ) |
| Proceeds from exercise of stock options | | 1,099 |
| | 656 |
|
| Other financing activities, net | | (553 | ) | | (223 | ) |
| Net cash used in financing activities | | (14,034 | ) | | (9,607 | ) |
| Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | (116 | ) | | 67 |
|
| Net increase in cash and cash equivalents and restricted cash and cash equivalents | | 2,227 |
| | 193 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, beginning | | 1,431 |
| | 2,666 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, end | | $ | 3,658 |
| | $ | 2,858 |
|
| | | |
| | |
|
| Supplemental Cash Flow Information | | | | |
| Non-cash transactions: | | | | |
Receipt of ICU Medical common stock(b) | | $ | — |
| | $ | 428 |
|
Promissory note from ICU Medical(b) | | — |
| | 75 |
|
Equity investment in Cerevel Therapeutics, Inc. in exchange for Pfizer’s portfolio of clinical and preclinical neuroscience assets(b) | | 343 |
| | — |
|
Equity investment in Allogene received in exchange for Pfizer's allogeneic CAR T developmental program assets(b) | | 92 |
| | — |
|
| Cash paid (received) during the period for: | | |
| | |
|
| Income taxes | | $ | 1,666 |
| | $ | 1,424 |
|
| Interest | | 968 |
| | 1,101 |
|
| Interest rate hedges | | (104 | ) | | (183 | ) |
| |
(a) | AmountsAs a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for the three and nine months ended October 2, 2016 have been revisedSeptember 30, 2018 was favorably impacted by approximately $410 million, primarily related to certain tax initiatives associated with the TCJA, as well as favorable adjustments to the provisional estimates of the legislation. See Note 5A. Tax Matters: Taxes on Income from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards.Continuing Operations.
|
| |
(b) | In connection with the sale of HIS net assets to ICU Medical, on February 3, 2017, Pfizer received 3.2 million newly issued shares of ICU Medical common stock initially valued at $428 million and a promissory note in the amount of $75 million. For additional information, see Note 2B. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Acquisition, Divestitures, Licensing Arrangements, Collaborative ArrangementArrangements and Equity-Method Investments: Sale of Hospira Infusion Systems Net Assets.Privately Held Investment: Divestitures.
|
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Significant Accounting Policies
A. Basis of Presentation
See the Glossary of Defined Terms at the beginning of this Quarterly Report on Form 10-Q for terms used throughout the condensed consolidated financial statements and related notes ofin this Quarterly Report on Form 10-Q.
We prepared the condensed consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted.
The financial information included in our condensed consolidated financial statements for subsidiaries operating outside the U.S. is as of and for the three and nine months ended August 27, 201726, 2018 and August 28, 2016.27, 2017. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 30, 2018 and October 1, 2017 and October 2, 2016.
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.
We are responsible for the unaudited financial statements included in this Quarterly Report on Form 10-Q. The interim financial statements include all normal and recurring adjustments that are considered necessary for the fair statement of our condensed consolidated balance sheets and condensed consolidated statements of income. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2016 Form 10-K.2017 Financial Report.
We manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). For additional information, see Note 13 and Notes to Consolidated Financial Statements––Note 18. Segment, Geographic and Other Revenue Information in Pfizer’s 20162017 Financial Report.
Certain amounts in the condensed consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
In the first quarter of 2018, as of January 1, 2018, we adopted eleven new accounting standards. See Note 1B for further information.
Our recent significant business development activities include:
| |
• | On February 3, 2017, we completed the sale of our global infusion therapy net assets, HIS, to ICU Medical. The operating results of HIS are included in our condensed consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the third quarter of 2017 do not reflect any contribution from HIS global operations, while our financial results, and EH’s operating results, for the third quarter of 2016 reflect three months of HIS global operations. Our financial results, and EH’s operating results, for the first nine months of 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations, while our financial results, and EH’s operating results, for the first nine months of2016 reflect nine months of HIS global operations. Assets and liabilities associated with HIS are presented as held for sale in the condensed consolidated balance sheet as of December 31, 2016. The HIS assets held for sale are reported in Assets held for sale and HIS liabilities held for sale are reported in Other current liabilities.
|
| |
• | On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of this business, and, in accordance with our international reporting period, our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2017 reflect approximately three months and eight months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca.
|
| |
• | On September 28, 2016, we acquired Medivation for $81.50 per share. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Medivation. Therefore, Medivation operations are reflected in our financial results, IH’s operating results, and cash flows for the third quarter and first nine months of 2017. In accordance with our domestic and international reporting periods, our consolidated financial statements for the third quarter and first nine months of 2016 reflect three business days of Medivation operations, which were immaterial.
|
On December 22, 2016, which fell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of this business, and, in accordance with our international reporting period, our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2017 reflect approximately three months and eight months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca. Our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2018 reflect three months and nine months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca.
For additional information, see Note 2 and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment inPfizer’s 2017 Financial Report.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
• | On June 24, 2016, we acquired Anacor for $99.25 per share. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Anacor. Therefore, Anacor operations are reflected in our financial results, IH’s operating results, and cash flows for the third quarter and first nine months of 2017. In accordance with our domestic and international reporting periods, our consolidated financial statements for the third quarter and first nine months of 2016 reflect approximately three months of Anacor operations.
|
For additional information, see Note 2 and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments inPfizer’s 2016 Financial Report.
B. Adoption of New Accounting Standards
InOn January 1, 2018, we adopted eleven new accounting standards. The quantitative impacts on our prior period condensed consolidated financial statements of adopting the fourth quarter of 2016, wefollowing new standards are summarized in the tables within the section titled Impacts to our Condensed Consolidated Financial Statements, further below.
Revenues––We adopted a new accounting standard for certain elementsrevenue recognition and changed our revenue recognition policies accordingly. Generally, the previous revenue recognition standards permitted recognition when persuasive evidence of a contract existed, delivery had occurred, and the accounting for share-based payments as of January 1, 2016. Specifically,seller's price to the buyer was fixed or determinable. Under the new standard, requires excess tax benefitsrevenue is recognized upon transfer of control of the product to our customer in an amount that reflects the consideration we expect to receive in exchange. We adopted the new accounting standard utilizing the modified retrospective method, and, therefore, no adjustments were made to amounts in our prior period financial statements. We recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $584 million on a pre-tax basis ($450 million after-tax). This amount includes $500 million (pre-tax) related to the timing of recognizing Other (income)/deductions––net primarily for upfront and milestone payments on our collaboration arrangements ($394 million, pre-tax) and, to a lesser extent, product rights and out-licensing arrangements, and $84 million (pre-tax) related to the timing of recognizing Revenues and Cost of sales on certain product shipments. The impact of adoption did not have a material impact to our condensed consolidated statements of income for the three and nine months ended September 30, 2018 or deficiencies (including tax benefitsour condensed consolidated balance sheet as of dividend equivalents)September 30, 2018. For additional information, see Note 1C.
Financial Assets and Liabilities––The new accounting standard related to the recognition and measurement of share-based compensationfinancial assets and liabilities makes the following changes to prior guidance and requires:
certain equity investments to be measured at fair value with changes in fair value now recognized as a componentin net income. However, equity investments that do not have readily determinable fair values may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the Provision for taxessame issuer;
a qualitative assessment of equity investments without readily determinable fair values to identify impairment; and
separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on income, whereas excess tax benefitsthe balance sheet or deficiencies previouslyin the accompanying notes to the financial statements.
We adopted the new accounting standard utilizing the modified retrospective method, and, therefore, no adjustments were recognizedmade to amounts in Additional paid-in capital. Theour prior period financial statements. We recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $462 million on a pre-tax basis ($419 million after-tax) related to the net tax benefit for the Company was $35 million forimpact of unrealized gains and losses primarily on available-for-sale equity securities, restricted stock and private equity securities. In the third quarter of 20162018, we recorded net unrealized gains on equity securities of $8 million and $85 million forin the first nine months of 20162018, we recorded net unrealized gains on equity securities of $344 million, in Other (income)/deductions––net. Also,For additional information, see Note 4 and Note 7.
Presentation of Net Periodic Pension and Postretirement Benefit Cost––We adopted a new accounting standard that requires the net periodic pension and postretirement benefit costs other than the service costs be presented in Other (income)/deductions––net, and that the dilutedpresentation be applied retrospectively. We adopted the presentation of the net periodic benefit costs other than service costs by reclassifying these costs from Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Restructuring charges and certain acquisition-related costs to Other (income)/deductions––net. We elected to apply the practical expedient as it is impracticable to determine the disaggregation of the cost components for amounts capitalized within Inventories and property, plant and equipment and amortized in each of those periods. We have therefore reclassified the prior period net periodic benefit costs/(credits) disclosed in Note 10 to apply the retrospective presentation for comparative periods.
As of January 1, 2018, only service costs will be included in amounts capitalized in Inventories or property, plant and equipment, while the other components of net periodic benefit costs will be included in Other (income)/deductions––net. For additional information, see Note 4 and Note 10.
Income Tax Accounting––The new guidance removes the prohibition against recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to a third party, unless the asset transferred is inventory. We adopted the standard utilizing the modified retrospective method, and, therefore, no adjustments were made to amounts in our prior period financial statements. We recorded the cumulative effect of adopting the standard as an adjustment to decrease the opening balance of Retained earnings by $189 million.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounting for Hedging Activities––The standard includes the following changes:
Permits hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk;
Changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk;
No longer requires the separate measurement and reporting of hedge ineffectiveness, but requires the income statement presentation of the earnings per share calculation, when applyingeffect of the treasury stock method for shareshedging instrument with the earnings effect of the hedged item;
Permits us to exclude the portion of the change in fair value of a currency swap that could be repurchased,is attributable to a cross-currency basis spread from the assumed proceeds no longer include the amountassessment of excess tax benefit.hedge effectiveness; and
Another element ofSimplifies hedge effectiveness testing.
We early adopted the new accounting standard requires that we now present excess tax benefits as operating activities in our consolidated statement of cash flows. We elected to adopt this presentationon January 1, 2018 on a prospective basis asbasis. In the third quarter of January 1, 2016. Additionally, cash paid by us when directly withholding shares for tax-withholding purposes is now a cash outflow from financing activities. This reclassification was required to be adopted retrospectively. As a result, $872018, we recorded income of $23 million of cash outflows forand in the first nine months of 20162018, we recorded income of $68 million in Other (income)/deductions––net, whereas this item would have been classified in interest income in prior periods. For additional information, see Note 7F.
Reclassification of Certain Tax Effects from AOCI––We early adopted a new accounting standard that provides guidance on the reclassification of certain tax effects from AOCI. Under the new guidance, we elected to reclassify the stranded tax amounts related to the TCJA from AOCI to Retained earnings. We adopted the new accounting standard utilizing the modified retrospective method, and recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $495 million, primarily due to the effect of the change in the U.S. Federal corporate tax rate. The impact on other stranded tax amounts related to the application of the TCJA was reclassified from operating activitiesnot material to financing activitiesour condensed consolidated financial statements.
Classification of Certain Transactions in the Statement of Cash Flows––We retrospectively adopted an accounting standard that changed the presentation of certain information in the condensed consolidated statementstatements of cash flows, including the classification of:
debt prepayment and extinguishment costs, resulting in an increase in Operating activities––Other adjustments, net and a decrease in Financing activities––Other financing activities, net of $7 million for the nine months ended September 30, 2018; and
accreted interest on the settlement of commercial paper debt instruments, resulting in a decrease in Operating activities––Other adjustments, net, and an increase in Financing activities––Other financing activities, net of $69 million for the nine months ended September 30, 2018.
The new standard also establishes guidance on the classification of certain cash flows related to contingent consideration in a business acquisition. Cash payments made soon after a business acquisition date will be classified as Investing activities, while payments made thereafter will be classified as Financing activities. Payments made in excess of the amount of the original contingent consideration liability will be classified as Operating activities. The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.
Presentation of Restricted Cash in the Statement of Cash Flows––We adopted, on a retrospective basis, the new accounting standard, which requires that restricted cash and restricted cash equivalents be included with Cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the condensed consolidated statements of cash flows. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of PresentationAs a result, for the nine months ended September 30, 2018, $10 million is presented as an increase in Cash, cash equivalents, restricted cash and Significant Accounting Policies:Adoption of New Accounting Standards included in our 2016 Financial Report.restricted cash equivalents.
We adopted a new standard as of January 1, 2017 that amended guidance on the assessment of whether an entity is the primary beneficiaryDefinition of a variable interest entity. Under this new guidance, when evaluatingBusiness––We prospectively adopted the standard for determining whether an entitybusiness development transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired is the primary beneficiary,concentrated in a single decision makeridentifiable asset, the transaction will not qualify for treatment as a business. To be considered a business, a set of integrated activities and assets must consider its indirect interest held through related parties under common control proportionately. Thereinclude, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs, without regard as to whether a purchaser could replace missing elements. In addition, the definition of the term “output” has been narrowed to make it consistent with the updated revenue recognition guidance. In the third quarter and first nine months of 2018, there was no material impact to our condensed consolidated financial statements from adoptingthe adoption of this new standard.
Derecognition of Nonfinancial Assets––We prospectively adopted a newthe standard, aswhich applies to the full or partial sale or transfer of January 1, 2017 related tononfinancial assets, including intangible assets, real estate and inventory. The new guidance requiresstandard provides that inventory be measured at the lowergain or loss is determined by the difference between the consideration received and the carrying value of cost or net realizable value, which is defined as the estimated selling prices inasset. In the ordinary coursethird quarter and
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
first nine months of business, less reasonably predictable costs of completion, disposal, and transportation. There2018, there was no material impact to our condensed consolidated financial statements from the adoption of this new standard.
Accounting for Modifications of Share-Based Payment Awards––We prospectively adopted the standard, which clarifies that certain changes in the terms or conditions of a share-based payment award be accounted for as a modification. There was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Impacts to our Condensed Consolidated Financial Statements––The impacts on our prior period condensed consolidated financial statements of adopting the new standards described above are summarized in the following tables:
|
| | | | | | | | | | | | |
| Adoption of the standard related to pension and postretirement benefit costs impacted our prior period condensed consolidated statements of income as follows: |
| | | Three Months Ended October 1, 2017 |
| (MILLIONS OF DOLLARS) | | As Previously Reported |
| | Effect of Change Higher/(Lower) |
| | As Restated |
|
| Cost of sales | | $ | 2,847 |
| | $ | (3 | ) | | $ | 2,844 |
|
| Selling, informational and administrative expenses | | 3,500 |
| | 4 |
| | 3,504 |
|
| Research and development expenses | | 1,859 |
| | 6 |
| | 1,865 |
|
| Restructuring charges and certain acquisition-related costs | | 149 |
| | (35 | ) | | 114 |
|
| Other (income)/deductions––net | | 51 |
| | 28 |
| | 79 |
|
| Income from continuing operations before provision for taxes on income | | 3,585 |
| | — |
| | 3,585 |
|
| | | | | | | |
| | | Nine Months Ended October 1, 2017 |
| (MILLIONS OF DOLLARS) | | As Previously Reported |
| | Effect of Change Higher/(Lower) |
| | As Restated |
|
| Cost of sales | | $ | 7,980 |
| | $ | (9 | ) | | $ | 7,972 |
|
| Selling, informational and administrative expenses | | 10,233 |
| | 16 |
| | 10,249 |
|
| Research and development expenses | | 5,346 |
| | 21 |
| | 5,367 |
|
| Restructuring charges and certain acquisition-related costs | | 377 |
| | (110 | ) | | 267 |
|
| Other (income)/deductions––net | | (16 | ) | | 81 |
| | 65 |
|
Income from continuing operations before provision for taxes on income | | 11,351 |
| | — |
| | 11,351 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Adoption of the standards impacted our condensed consolidated balance sheet as follows: |
| | | | | Effect of New Accounting Standards Higher/(Lower) | | |
| (MILLIONS OF DOLLARS) | | As Previously Reported Balance at December 31, 2017 |
| | Revenues |
| | Financial Assets and Liabilities |
| | Income Tax Accounting |
| | Reclassification of Certain Tax Effects from AOCI |
| | Balance at January 1, 2018 |
|
| Trade accounts receivable | | $ | 8,221 |
| | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,234 |
|
| Inventories | | 7,578 |
| | (11 | ) | | — |
| | — |
| | — |
| | 7,567 |
|
| Current tax assets | | 3,050 |
| | (11 | ) | | — |
| | (3 | ) | | — |
| | 3,036 |
|
| Noncurrent deferred tax assets and other noncurrent tax assets | | 1,855 |
| | (17 | ) | | — |
| | — |
| | — |
| | 1,838 |
|
| Other noncurrent assets | | 3,227 |
| | — |
| | — |
| | (204 | ) | | — |
| | 3,023 |
|
| Other current liabilities | | 11,115 |
| | (123 | ) | | — |
| | — |
| | — |
| | 10,992 |
|
| Noncurrent deferred tax liabilities | | 3,900 |
| | 106 |
| | — |
| | (18 | ) | | — |
| | 3,988 |
|
| Other noncurrent liabilities | | 6,149 |
| | (459 | ) | | — |
| | — |
| | — |
| | 5,690 |
|
| Retained earnings | | 85,291 |
| | 450 |
| | 419 |
| | (189 | ) | | 495 |
| | 86,466 |
|
| Accumulated other comprehensive loss | | (9,321 | ) | | — |
| | (419 | ) | | — |
| | (495 | ) | | (10,235 | ) |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| Adoption of the standards related to the classification of certain transactions in the statement of cash flows and the presentation of restricted cash in the statement of cash flows impacted our condensed consolidated statement of cash flows as follows: |
| | | Nine Months Ended October 1, 2017 |
| | | | | Effect of New Accounting Standards Inflow/(Outflow) | | |
| (MILLIONS OF DOLLARS) | | As Previously Reported |
| | Cash Flow Classification |
| | Restricted Cash |
| | As Restated |
|
| Operating Activities | | | | | | | | |
| Other adjustments, net | | $ | (561 | ) | | $ | (43 | ) | | $ | — |
| | $ | (604 | ) |
| Other changes in assets and liabilities, net of acquisitions and divestitures | | (3,644 | ) | | — |
| | 28 |
| | (3,616 | ) |
| Investing Activities | | | | | | | | |
| Proceeds from redemptions/sales of short-term investments | | 5,783 |
| | — |
| | (5 | ) | | 5,778 |
|
| Proceeds from redemptions/sales of long-term investments | | 2,417 |
| | — |
| | (14 | ) | | 2,403 |
|
| Financing Activities | | | | | | | | |
| Principal payments on short-term borrowings | | (7,691 | ) | | 33 |
| | — |
| | (7,659 | ) |
| Net proceeds from short-term borrowings with original maturities of three months or less | | 555 |
| | 10 |
| | — |
| | 566 |
|
| Net increase in cash and cash equivalents and restricted cash and cash equivalents | | 184 |
| | — |
| | 9 |
| | 193 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, beginning | | 2,595 |
| | — |
| | 70 |
| | 2,666 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, ending | | 2,779 |
| | — |
| | 79 |
| | 2,858 |
|
|
| | | | | | | | |
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows: |
| (MILLIONS OF DOLLARS) | | September 30, 2018 |
| | December 31,
2017 |
|
| Cash and cash equivalents | | $ | 3,559 |
| | $ | 1,342 |
|
Restricted cash and cash equivalents in Short-term investments | | 40 |
| | — |
|
Restricted cash and cash equivalents in Long-term investments | | 59 |
| | — |
|
Restricted cash and cash equivalents in Other current assets | | — |
| | 14 |
|
Restricted cash and cash equivalents in Other noncurrent assets | | — |
| | 75 |
|
| Total cash and cash equivalents and restricted cash and cash equivalents shown in the condensed consolidated balance sheets | | $ | 3,658 |
| | $ | 1,431 |
|
Amounts included in restricted cash represent those required to be set aside by a contractual agreement in connection with ongoing litigation or to secure delivery of Pfizer medicines at the agreed upon terms. The restriction will lapse upon the resolution of the litigation or the proper delivery of the medicines.
C. Revenues
On January 1, 2018, we adopted a new accounting standard for revenue recognition. For further information, see Note 1B.
We recorded direct product sales and/or alliance revenues of more than $1 billion for each of nine products in 2017. These direct products sales and/or alliance product revenues represented 46% of our revenues in 2017. The loss or expiration of intellectual property rights can have a significant adverse effect on our revenues as our contracts with customers will generally be at lower selling prices due to added competition and we generally provide for higher sales returns during the period in which individual markets begin to near the loss or expiration of intellectual property rights. Our Consumer Healthcare business includes OTC brands with a focus on dietary supplements, pain management, gastrointestinal and respiratory and personal care. According to Euromonitor International’s retail sales data, in 2017, our Consumer Healthcare business was the fifth-largest branded multi-national, OTC consumer healthcare business in the world and produced two of the ten largest selling consumer
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
healthcare brands (Centrum and Advil) in the world. We sell biopharmaceutical products after patent expiration, and under patent, and, to a much lesser extent, consumer healthcare products worldwide to developed and emerging market countries.
Revenue Recognition––We record revenues from product sales when there is a transfer of control of the product from us to the customer. We determine transfer of control based on when the product is shipped or delivered and title passes to the customer.
Customers––Our biopharmaceutical products are sold principally to wholesalers but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies, and, in the case of our vaccine products in the U.S., we primarily sell directly to the CDC, wholesalers and individual provider offices. Our consumer healthcare customers include retailers and, to a lesser extent, wholesalers and distributors.
Biopharmaceutical products that ultimately are used by patients are generally covered under governmental programs, managed care programs and insurance programs, including those managed through pharmacy benefit managers, and are subject to sales allowances and/or rebates payable directly to those programs. Those sales allowances and rebates are generally negotiated, but government programs may have legislated amounts by type of product (e.g., patented or unpatented).
Our Sales Contracts––Sales on credit are typically under short-term contracts. Collections are based on market payment cycles common in various markets, with shorter cycles in the U.S. Salesare adjusted for sales allowances, chargebacks, rebates and sales returns and cash discounts. Sales returns occur due to loss of exclusivity, product recalls or a changing competitive environment.
Deductions from Revenues––Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment is required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Specifically:
In the U.S., we sell our products to distributors and hospitals under our sales contracts. However, we also have contracts with managed care or pharmacy benefit managers and legislatively mandated contracts with the federal and state governments under which we provide rebates to them based on medicines utilized by the lives they cover. We record provisions for Medicare, Medicaid, and performance-based contract pharmaceutical rebates based upon our experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. We estimate discounts on branded prescription drug sales to Medicare Part D participants in the Medicare “coverage gap,” also known as the “doughnut hole,” based on the historical experience of beneficiary prescriptions and consideration of the utilization that is expected to result from the discount in the coverage gap. We evaluate this standard.estimate regularly to ensure that the historical trends and future expectations are as current as practicable. For performance-based contract rebates, we also consider current contract terms, such as changes in formulary status and rebate rates.
Outside the U.S., the majority of our pharmaceutical sales allowances are contractual or legislatively mandated and our estimates are based on actual invoiced sales within each period, which reduces the risk of variations in the estimation process. In certain European countries, rebates are calculated on the government’s total unbudgeted pharmaceutical spending or on specific product sales thresholds and we apply an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals.
Provisions for pharmaceutical chargebacks (primarily reimbursements to U.S. wholesalers for honoring contracted prices to third parties) closely approximate actual amounts incurred, as we settle these deductions generally within two to five weeks of incurring the liability.
Provisions for pharmaceutical sales returns are based on a calculation for each market that incorporates the following, as appropriate: local returns policies and practices; historical returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as loss of exclusivity, product recalls or a changing competitive environment. Generally, returned products are destroyed, and customers are refunded the sales price in the form of a credit.
We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs to predict customer behavior.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled $5.5 billion as of September 30, 2018 and $4.9 billion as of December 31, 2017. |
| | | | | | | | |
| The following table provides information about the balance sheet classification of these accruals: |
| (MILLIONS OF DOLLARS) | | September 30, 2018 |
| | December 31, 2017 |
|
Reserve against Trade accounts receivable, less allowance for doubtful accounts | | $ | 1,297 |
| | $ | 1,352 |
|
| | | | | |
Other current liabilities: | | | | |
| Accrued rebates | | 3,235 |
| | 2,674 |
|
| Other accruals | | 641 |
| | 512 |
|
| | | | | |
| Other noncurrent liabilities | | 374 |
| | 385 |
|
| Total accrued rebates and other accruals | | $ | 5,548 |
| | $ | 4,923 |
|
Amounts recorded for revenue deductions can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in Revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from Revenues.
D. Collaborative Arrangements
Payments to and from our collaboration partners are presented in our condensed consolidated statements of income based on the nature of the arrangement (including its contractual terms), the nature of the payments and applicable accounting guidance. Under co-promotion agreements, we record the amounts received from our collaboration partners as alliance revenues, a component of Revenues, when our collaboration partners are the principal in the transaction and we receive a share of their net sales or profits. Alliance revenues are recorded as we perform co-promotion services for the collaboration and the collaboration partners sell the products to their customers within the applicable period. The related expenses for selling and marketing these products are included in Selling, informational and administrative expenses. In collaborative arrangements where we manufacture a product for our collaboration partners, we record revenues when we transfer control of the product to our collaboration partners. All royalty payments to collaboration partners are included in Cost of sales. Royalty payments received from collaboration partners are included in Other (income)/deductions—net.
Reimbursements to or from our collaboration partners for development costs are recorded net in Research and development expenses. Upfront payments and pre-approval milestone payments due from us to our collaboration partners in development stage collaborations are recorded as Research and development expenses. Milestone payments due from us to our collaboration partners after regulatory approval has been attained for a medicine are recorded in Identifiable intangible assets—Developed technology rights. Upfront and pre-approval milestone payments earned from our collaboration partners by us are recognized in Other (income)/deductions—net over the development period for the collaboration products, when our performance obligations include providing R&D services to our collaboration partners. Upfront, pre-approval and post-approval milestone payments earned by us may be recognized in Other (income)/deductions—net immediately when earned or over other periods depending upon the nature of our performance obligations in the applicable collaboration. Where the milestone event is regulatory approval for a medicine, we generally recognize milestone payments due to us in the transaction price when regulatory approval in the applicable jurisdiction has been attained. We may recognize milestone payments due to us in the transaction price earlier than the milestone event in certain circumstances when recognition of the income would not be probable of a significant reversal.
On January 1, 2018, we adopted a new accounting standard on revenue recognition (see Note 1B). As a result of the adoption, we recognized the following cumulative effect adjustments related to collaboration arrangements to Retained earnings:
$394 million (pre-tax) for collaborative arrangements where upfront, pre-approval and regulatory approval milestone payments received from our collaboration partners are recognized in Other (income)/deductions—net over a reduced period. Under the new standard, the income from upfront and pre-approval milestone payments due to us is typically recognized over the development period for the collaboration when our performance obligation, in addition to granting a license, is to provide research and development services to our collaboration partners, and major regulatory approval milestones are typically recognized immediately when earned as the related development period has ended. The income from upfront and milestone payments is typically recognized immediately as earned if our performance obligation, in addition to granting a license, is
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
only for commercialization activities. Under the old standard, this income was recognized over the combined development and estimated commercialization (including co-promotion) period for the collaboration products.
$82 million (pre-tax) for collaborative arrangements where we manufacture products for our collaboration partners and recognize Revenues and Cost of sales for product shipments at an earlier point in time. Under the new standard, revenue is recognized when we transfer control of the products to our collaboration partners. Under the old standard, revenue was recognized when our collaboration partners sell the products and transfer title to their third party customers.
Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets,Acquisition, Divestitures, Licensing Arrangements, Collaborative ArrangementArrangements and Equity-Method InvestmentsPrivately Held Investment
A. AcquisitionsAcquisition
AstraZeneca’s Small Molecule Anti-Infectives Business (EH)
On December 22, 2016, which fallsfell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S., including the commercialization and development rights to the newly approved EU drug Zavicefta™ (ceftazidime-avibactam), the marketed agents Merrem™/Meronem™ (meropenem) and Zinforo™ (ceftaroline fosamil), and the clinical development assets ATM-AVI and CXL (ceftaroline fosamil-AVI). UnderIn 2017, under the terms of the agreement, we made an upfront paymentpayments of approximately $552$605 million to AstraZeneca uponrelated to the close of the transaction and an additional $3 million payment for a contractual purchase price adjustment in the second quarter of 2017.transaction. We also made a $50 million milestone payment in the second quarter of 2017, we expect to make an additional milestone payment of $125 million in our first fiscal quarter of 2018 and we will make a deferred payment of $175 million to AstraZeneca in January 2019. In addition, AstraZenecawe may be eligiblerequired to receivepay an additional milestone payment of $75 million if the related milestone is achieved prior to December 31, 2021, and up to $600 million if sales of Zavicefta™ exceed certain thresholds prior to January 1, 2026, as well as tiered royalties on sales of Zavicefta™ and ATM-AVI in certain markets for a period ending on the later of ten10 years from first commercial sale or the loss of patent protection or loss of regulatory exclusivity. The total royalty payments are unlimited during the royalty term and the undiscounted payments are expected to be in the range of approximately $250$292 million to $425$512 million. The total fair value
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of consideration transferred for AstraZeneca’s small molecule anti-infectives business was approximately $1,045$1,040 million which includes $555 million ininclusive of cash pluspaid and the fair value of contingent consideration of $490 million (which is composed of the deferred payment, the $50 million milestone payment made in the second quarter of 2017 and the future expected milestone and royalty payments).consideration. In connection with this acquisition, we provisionally recorded $879$894 million in Identifiable intangible assets, primarily consisting of $660$728 million in Developed technology rights and $219$166 million in IPR&D. We also recorded $92 million in Other current assets related to the economic value of inventory which was retained by AstraZeneca for sale on our behalf, $92$73 million in Goodwill and $17 million of net deferred tax liabilities. The allocation of the consideration transferred to the assets and the liabilities assumed has not yet been finalized.
Medivation, Inc. (IH)
On September 28, 2016, we acquired Medivation for $81.50 per share. The total fair value of consideration transferred for Medivation was approximately $14.3 billion in cash ($13.9 billion, net of cash acquired). Of this consideration, approximately $365 million was not paid as of December 31, 2016, and was recorded in Other current liabilities. Substantially all of the remaining consideration was paid as of October 1, 2017. Medivation is now a wholly-owned subsidiary of Pfizer. Medivation is a biopharmaceutical company focused on developing and commercializing small molecules for oncology. Medivation’s portfolio includes Xtandi (enzalutamide), an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within tumor cells. Xtandi is being developed and commercialized through a collaboration with Astellas. Astellas has exclusive commercialization rights for Xtandi outside the U.S. In addition, Medivation has a development-stage oncology asset in its pipeline, talazoparib, which is currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer. In connection with this acquisition, we recorded $12.2 billion in Identifiable intangible assets, primarily consisting of $8.1 billion of Developed technology rights with an average useful life of approximately 12 years and $4.1 billion of IPR&D, and recorded $6.1 billion of Goodwill, $4.0 billion of net income tax liabilities, and $259 million of assumed contingent consideration. In 2017 and 2016, we recorded measurement period adjustments to the estimated fair values initially recorded in 2016, which resulted in a reduction in Identifiable intangible assets of approximately $1.0 billion with a corresponding change to Goodwill and net income tax liabilities. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The third quarter and first nine months of 2017 results include a decrease of approximately $38 million to Amortization of intangible assets which reflects the cumulative pre-tax impact of the measurement period adjustments to Identifiable intangible assets that were amortized to the income statement since the acquisition date. The measurement period adjustments did not result from intervening events subsequent to the acquisition date. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed.
Bamboo Therapeutics, Inc. (IH)
On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately-held biotechnology company focused on developing gene therapies for the potential treatment of patients with certain rare diseases relating to neuromuscular conditions and those affecting the central nervous system, for $150 million, plus potential milestone payments of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. The total fair value of the consideration transferred for Bamboo was approximately $343 million, including cash of $130 million ($101 million, net of cash acquired), contingent consideration of $167 million, consisting of milestone payments, and the fair value of Pfizer’s previously held equity interest in Bamboo of $45 million. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. Upon acquiring the remaining interest in Bamboo in the third quarter of 2016, we recognized a gain of $2 million on our existing investment in Other (income)/deductions––net over the one- year allocation period. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant AAV vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility. Bamboo is now a wholly-owned subsidiary of Pfizer. In connection with this acquisition, we recorded $330 million of Identifiable intangible assets, consisting entirely of IPR&D. We also recorded $142 million of Goodwill and $94$19 million of net deferred tax liabilities. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed.
Anacor Pharmaceuticals, Inc. (IH)
On June 24, 2016, we acquired Anacor for $99.25 per share. The total fair value of consideration transferred for Anacor was approximately $4.9 billion in cash ($4.5 billion net of cash acquired), plus $698 million debt assumed. Anacor is now a wholly-owned subsidiary of Pfizer. Anacor is a biopharmaceutical company focused on novel small-molecule therapeutics derived from its boron chemistry platform. Anacor’s crisaborole, a non-steroidal topical PDE-4 inhibitor with anti-inflammatory properties, was approved by the FDA on December 14, 2016 under the trade name, Eucrisa. In connection with this acquisition, we recorded $698 million as the fair value of notes payable in cash, and recorded $4.9 billion in Identifiable intangible assets,
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
primarily consisting of $4.8 billion of IPR&D, and recorded $646 million of Goodwill and $346 million of net income tax liabilities. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed.
B. Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)
On October 6, 2016, we announced that we entered into a definitive agreement under which ICU Medical wouldagreed to acquire all of our global infusion therapysystems net assets, HIS, for approximately $1 billion in cash and ICU Medical common stock. HIS includes IV pumps, solutions, and devices.As a result of the performance of HIS relative to ICU Medical’s expectations, on January 5, 2017, we entered into a revised agreement with ICU Medical under which ICU Medical would acquire HIS for up to approximately $900 million, composed of cash and contingent cash consideration, ICU Medical common stock and seller financing.
The revised transaction closed on February 3, 2017. At closing, under the terms of the revised agreement, we received 3.2 million newly issued shares of ICU Medical common stock (as originally agreed), which we initially valued at approximately $428 million (based upon the closing price of ICU Medical common stock on the closing date less a discount for lack of marketability) and which are reported as available-for-sale equity securities at fair value in Long-term investments on the condensed consolidated balance sheetsheet. In August 2018, we sold 700,000 shares of ICU Medical common stock for which we recognized a gain during the period of $50 million, reflecting the increase in fair value of the equity investment since the beginning of the year, most of which was previously recognized as 2018 unrealized gains. In addition, we continue to hold 2.5 million shares of October 1, 2017,ICU Medical common stock and we recognized unrealized gains of $24 million in the third quarter of 2018 and unrealized gains of $229 million in the first nine months of 2018 related to these remaining shares. We also received a promissory note in the amount of $75 million, which is reportedwas repaid in Other noncurrent assets on the condensed consolidated balance sheetfull as of October 1,December 31, 2017, and net cash of approximately $200 million before customary adjustments for net working capital, which is reported in Other investing activities, net on the condensed consolidated statement of cash flows for the nine months ended October 1, 2017.2017. In addition, we are entitled to receive a contingent amount of up to an additional $225 million in cash based on ICU Medical’s achievement of certain cumulative performance targets for the combined company through December 31, 2019. After receiptour recent sale of the ICU Medical shares, we own approximately 16%12% of ICU Medical. We have agreed to certain restrictions on transfer of our ICU Medical shares for 18 months after the closing date. The promissory note from ICU Medical has a term of three years and bears interest at LIBOR plus 2.25% for the first year and LIBOR plus 2.50% for the second and third years. We recognized pre-tax income of approximately$2 million in the third quarter of 2018 and pre-tax income of $1 million in the first nine months of 2018, and
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
we recognized pre-tax income of $12 million in the third quarter of 2017 and pre-tax losses of approximately $52 million in the first nine months of 2017 in Other (income)/deductions––net, representing adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell. For additional information, see Note 4 and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Research and Development and Collaborative Arrangement andArrangements, Equity-Method Investments and Cost-Method Investment inPfizer’s 20162017 Financial Report.
While we have received the full purchase price excluding the contingent amount as of the February 3, 2017 closing, the sale of the HIS net assets was not fully completed in certain non-U.S. jurisdictions as of the third quarter of 2018 due to temporary regulatory or operational constraints. In these jurisdictions, which represent a relatively small portion of the HIS net assets, we have continued to operate the net assets for the net economic benefit of ICU Medical, and we arewere indemnified by ICU Medical against risks associated with such operations during the interim period, subject to our obligations under the definitive transaction agreements. Sales of the HIS net assetsWe have occurred in certain of these jurisdictions as of October 1, 2017 and we expect the sale of the HIS net assets in the remaining jurisdictions to be fully completed by the first quarter of 2018. As such, and as we have already received all of the non-contingent proceeds from the sale and ICU Medical is contractually obligated to complete the transaction, we havepreviously treated these jurisdictions as sold for accounting purposes.
In connection with the sale transaction, we entered into certain transitional agreements designed to facilitate the orderly transition of the HIS net assets to ICU Medical. These agreements primarily relate to administrative services, which are generally to be provided for a period of up to 24 months after the closing date. We will also manufacture and supply certain HIS products for ICU Medical and ICU Medical will manufacture and supply certain retained Pfizer products for us after closing, generally for a term of five years. These agreements are not material to Pfizer and none confers upon us the ability to influence the operating and/or financial policies of ICU Medical subsequent to the sale.
Contribution Agreement Between Pfizer and Allogene Therapeutics, Inc. (WRD)
In April 2018, Pfizer and Allogene announced that the two companies entered into a contribution agreement for Pfizer’s portfolio of assets related to allogeneic CAR T therapy, an investigational immune cell therapy approach to treating cancer. Under this agreement, Allogene received from Pfizer rights to pre-clinical and clinical CAR T assets, all of which were previously licensed to Pfizer from French cell therapy company, Cellectis, beginning in 2014 and French pharmaceutical company, Servier, beginning in 2015. Allogene assumed responsibility for all potential financial obligations to both Cellectis and Servier. Pfizer will continue to participate financially in the development of the CAR T portfolio through an ownership stake in Allogene. Separately, Pfizer continues to maintain its approximate 7% ownership stake in Cellectis that was obtained in 2014 as part of the licensing agreement in which Pfizer obtained exclusive rights to pursue the development and commercialization of certain Cellectis CAR T therapies in exchange for an upfront payment of $80 million, as well as potential future development, regulatory and commercial milestone payments and royalties. In connection with the Allogene transaction, Pfizer recognized a non-cash $50 million pre-tax gain in Other (income)/deductions––net in the second quarter of 2018, representing the difference between the $127 million fair value of the equity investment received and the book value of assets transferred (including an allocation of goodwill) (see Note 4).
In October 2018, Allogene consummated an initial public offering of new shares of its common stock, which resulted in Pfizer’s preferred stock converting into common stock and a decrease in our ownership percentage from approximately 25% to approximately 19%. The closing price on the day of the initial public offering was $25 per share. Beginning as of the date of the initial public offering, our investment in Allogene, which is reported at $127 million in Long-term investments on the condensed consolidated balance sheet as of September 30, 2018, will be measured at fair value with changes in fair value recognized in net income.
Sale of Phase 2b Ready AMPA Receptor Potentiator for CIAS to Biogen Inc. (WRD)
In April 2018, we sold our Phase 2b ready AMPA receptor potentiator for CIAS to Biogen. We received $75 million upfront and have the opportunity to receive up to $515 million in future development and commercialization milestones, as well as tiered royalties in the low-to-mid-teen percentages. We recognized $75 million in Other (income)/deductions––net in the second quarter of 2018 (see Note 4). We will record the milestones and royalties to Other (income)/deductions––net when due, or earlier if we have sufficient experience to determine such amounts are not probable of significant reversal.
Divestiture of Neuroscience Assets (WRD)
In September 2018, we and Bain Capital entered into a transaction to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system including Parkinson’s disease, epilepsy, Alzheimer’s disease, schizophrenia and addiction. These assets were part of the neuroscience discovery and early development efforts, which we announced we were ending in January 2018. In connection with this transaction, we out-licensed the portfolio to Cerevel in exchange for a 25% ownership stake in Cerevel’s parent company, Cerevel Therapeutics, Inc., and potential future regulatory and commercial milestone payments and royalties. Bain Capital has committed to invest $350 million to develop the portfolio, with the potential for additional funding as the assets advance. In connection with the transaction, we recognized a non-cash $343 million pre-tax gain in Other (income)/
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
deductions––net, representing the fair value of the equity investment received as the assets transferredhad a book value of $0 (see Note 4). Our investment in Cerevel Therapeutics, Inc. is reported in Long-term investments on the consolidated balance sheet as of September 30, 2018.
C. Licensing Arrangements
Shire International GmbH (IH)
In 2016, we out-licensed PF-00547659, an investigational biologic being evaluated for the treatment of moderate-to-severe inflammatory bowel disease, including ulcerative colitis and Crohn’s disease, to Shire for an upfront payment of $90 million, up to $460 million in development and sales-based milestone payments and potential future royalty payments on commercialized products. The $90 million upfront payment was initially deferred and recognized in Other (income)/deductions––net ratably through December 2017. In the first quarter of 2018, we recognized $75 million in Other (income)/deductions––net for a milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of the compound for the treatment of ulcerative colitis, and in the third quarter of 2018, we recognized $35 million in Other (income)/deductions––net for a milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of the compound for the treatment of Crohn’s disease (see Note 4).
BionTech AG (WRD)
In August 2018, a multi-year R&D arrangement went into effect between BionTech AG (BionTech), a privately held company, and Pfizer to develop mRNA-based vaccines for prevention of influenza (flu). In September 2018, we made an upfront payment of $50 million to BionTech, which was recorded in Research and development expenses, and BionTech is eligible to receive up to an additional $325 million in future development and sales based milestones and future royalty payments associated with worldwide sales. As part of the transaction, we also purchased 169,670 newly-issued ordinary shares of BionTech for $50 million in the third quarter of 2018, which are reported in Long-term investments in the condensed consolidated balance sheet as of September 30, 2018.
D. Collaboration Arrangement
Collaboration with Merck & Co., Inc. (IH)
In 2013, we entered intoUnder a worldwide collaboration agreement, except for Japan, collaboration agreement with Merck for the development and commercialization of ertugliflozin (PF-04971729), our oral sodium glucose cotransporter (SGLT2) inhibitor for the treatment of type 2 diabetes currently under regulatory review. Under the agreement, we are collaboratingcollaborated with Merck on the clinical development of ertugliflozin and ertugliflozin-containing fixed-dose combinations with metformin and Januvia (sitagliptin) tablets.tablets, which were approved by the FDA in December 2017 and the European Commission in March 2018 as Steglatro, Segluromet and Steglujan. Merck will exclusively promote Steglatro and the two fixed-dose combination products and we will share revenues and certain costs with Merck on a 60%/40% basis, with Pfizer having the 40% share. Pfizer records its share of the collaboration revenues as product sales as we supply the ertugliflozin active pharmaceutical ingredient to Merck for use in the alliance products.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the first quarter of 2017, we received a $90 million milestone payment from Merck upon the FDA’s acceptance for review of the NDAs for ertugliflozin and two fixed-dose combinations (ertugliflozin plus Januvia (sitagliptin) and ertugliflozin plus metformin), which, has beenas of December 31, 2017, was deferred and primarily reported in Other noncurrent liabilities, and isthrough December 31, 2017, was being recognized in Other (income)/deductions––net over a multi-year period. As of December 31, 2017, we were due a $60 million milestone payment from Merck, which we received in the first quarter of 2018, in conjunction with the approval of ertugliflozin by the FDA. As of December 31, 2017, the $60 million due from Merck was deferred and primarily reported in Other noncurrent liabilities. In the first quarter of 2018, in connection with the approval of ertugliflozin in the EU, we recognized a $40 million milestone payment from Merck in Other (income)/deductions––net (see Note 4). We are eligible for additional payments associated with the achievement of future clinical,commercial milestones. In the first quarter of 2018, in connection with the adoption of a new accounting standard, as of January 1, 2018, the $60 million of deferred income and approximately $85 million of the $90 million of deferred income associated with the above-mentioned milestone payments were recorded to and included in the $584 million cumulative effect adjustment to Retained earnings. See Note 1B for additional information.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Collaboration with Eli Lilly & Company (IH)
In 2013, we entered into a collaboration agreement with Lilly to jointly develop and globally commercialize Pfizer’s tanezumab, which provides that Pfizer and Lilly will equally share product-development expenses as well as potential revenues and certain product-related costs. We received a $200 million upfront payment from Lilly in accordance with the collaboration agreement between Pfizer and Lilly, which was deferred and primarily reported in Other noncurrent liabilities, and through December 31, 2017, was being recognized in Other (income)/deductions––net over a multi-year period beginning in the second quarter of 2015. Pfizer and Lilly resumed the Phase 3 chronic pain program for tanezumab in July 2015. The FDA granted Fast Track designation for tanezumab for the treatment of chronic pain in patients with osteoarthritis and chronic low back pain in June 2017. Under the collaboration agreement with Lilly, we are eligible to receive additional payments from Lilly upon the achievement of specified regulatory and commercial milestones. We share potential revenues
In the first quarter of 2018, in connection with the adoption of a new accounting standard, as of January 1, 2018, approximately $107 million of deferred income associated with the above-mentioned upfront payment was recorded to and certain costs with Merck on a 60%/40% basis, with Pfizer having the 40% share.
D. Equity-Method Investments
Investment in Hisun Pfizer Pharmaceuticals Company Limited
In 2016,we determined that we had other-than-temporary declinesincluded in the value$584 million cumulative effect adjustment to Retained earnings. See Note 1B for additional information. Approximately $33 million of Hisun Pfizer, our 49%-owned equity-method investmentthe upfront payment continues to be deferred, of which approximately $24 million is reported in China,Other current liabilities and therefore, weapproximately $9 million is reported in Other noncurrent liabilities as of September 30, 2018. This amount is expected to be recognized a loss of $211 million for the first nine months of 2016inOther (income)/deductions––net(see Note 4). The declines in value resulted from lower expectations as to over the future cash flows to be generated by Hisun Pfizer, primarily as a result of an increase in risk due toremaining development period for the continued slowdown in the Chinese economyproduct between 2018 and changes in the expected timing and number of new product introductions by Hisun Pfizer. As of October 1, 2017, the carrying value of our investment in Hisun Pfizer is $270 million, which is included in Long-term investments. We are continuing to evaluate strategic alternatives with Hisun. These strategic alternatives could impact the value of our investment in Hisun Pfizer in future periods.2020.
AM-Pharma B.V. (WRD)
In valuing our investmentApril 2015, we acquired a minority equity interest in Hisun Pfizer, we used discounted cash flow techniques, reflecting our best estimate of the various risks inherent in the projected cash flows, andAM-Pharma B.V., a nominal terminal year growth factor. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forcesprivately-held Dutch biopharmaceutical company focused on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long-term;development of human recombinant Alkaline Phosphatase (recAP) for inflammatory diseases, and the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, including country risk.
Investment in Laboratório Teuto Brasileiro S.A.
We entered intosecured an agreement on June 30, 2017 to exit our investment in Teuto, a 40%-owned generics company in Brazil, and sell our 40% interest in Teuto to the majority shareholders. As part of the agreement, we have waived ourexclusive option to acquire the remaining 60% of Teuto, and Teuto’s other shareholders have waived their option to sell their 60% stakeequity in the companycompany. The option became exercisable after completion of a Phase 2 trial of recAP for the treatment of Acute Kidney Injury related to us. As a result,sepsis in the first quarter of 2018. We declined to exercise the option and the option expired unexercised during the second quarter of 2017, we recognized a net loss of approximately $30 million in Other (income)/deductions––net (see Note 4), which included the impairment of our equity-method investment in Teuto, the reversal of a contingent liability associated with the majority shareholders’ option to sell their 60% stake in the company to us, and the recognition in earnings of the currency translation adjustment associated with the Teuto investment. The transaction closed on August 16, 2017.
In 2016, we determined that we had an other-than-temporary decline in the value of Teuto, and, therefore, we recognized a loss of $50 million for the first nine months of 2016 in Other (income)/deductions––net (see Note 4) related to our equity-method investment. The decline in value resulted from lower expectations as to the future cash flows to be generated by Teuto, primarily due to a slowdown in Brazilian economic conditions, which have been impacted by political risk, higher inflation, and the depreciation of the Brazilian real.
In valuing our investment in Teuto, we used discounted cash flow techniques, reflecting our best estimate of the various risks inherent in the projected cash flows, and a nominal terminal year growth factor. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long-term; and the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, including country risk.2018.
Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction/productivity initiatives. For example:
In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.
All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as groups such as information technology, shared services and corporate operations.
In connection with our acquisition of Hospira in September 2015, we are focusingfocused our efforts on achieving an appropriate cost structure for the combined company. For up to a three-year period post-acquisition, weWe expect to incur costs of approximately $1 billion(not including costs of $215 million for full-year 2015 associated with the return of acquired IPR&D rights as described in the Current-Period Key Activities section of Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives in our 20162017 Financial Report) associated with the integration of Hospira. The majority of these costs were incurred within the three-year period post-acquisition.
In 2016, we substantially completed previously disclosed cost-reduction initiatives begun in 2014 associated with our global commercial structure reorganization, manufacturing plant network rationalization and optimization initiatives, and additional cost-reduction/productivity initiatives across the enterprise.
As a result of the evaluation performed in connection with our decision in September 2016 to not pursue, at that time, splitting IH and EH into two separate publicly-traded companies, we identified new opportunities to potentially achieve greater optimization and efficiency to become more competitive in our business. Therefore, in early 2017, we initiated new enterprise-wide cost reduction/productivity initiatives, which we expect to substantially complete by the end of 2019. These initiatives will encompass all areas of our cost base and will include:
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Optimization of our manufacturing plant network to support IH and EH products and pipelines. During 2017-2019, we expect to incur costs of approximately $800$700 million related to this initiative. Through October 1, 2017,September 30, 2018, we incurred approximately $122$322 million associated with this initiative.
Activities in non-manufacturing related areas, which include further centralization of our corporate and platform functions, as well as other activities where opportunities are identified. During 2017-2019, we expect to incur costs of approximately $200$450 million related to this initiative. Through October 1, 2017,September 30, 2018, we incurred approximately $131$252 million associated with this initiative.
The costs expected to be incurred during 2017-2019, of approximately $1.0$1.2 billion for the above-mentioned programs (but not including expectedthe costs associated with the Hospira integration), include restructuring charges, implementation costs and additional depreciation––asset restructuring. Of this amount, we expect that about 20% of the total charges will be non-cash.
Current-Period Key Activities
For the first nine months of 20172018, we incurred costs of $253$226 million associated with the 2017-2019 program, $238$186 million associated with the integration of Hospira and $110$35 million associated with all other acquisition-related initiatives.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
Restructuring charges(a): | | |
| | |
| | |
| | |
|
| Employee terminations | | $ | (20 | ) | | $ | 347 |
| | $ | 9 |
| | $ | 464 |
|
Asset impairments(b) | | 101 |
| | 27 |
| | 126 |
| | 45 |
|
| Exit costs | | 10 |
| | 29 |
| | 16 |
| | 64 |
|
| Total restructuring charges | | 91 |
| | 404 |
| | 150 |
| | 574 |
|
Transaction costs(c) | | (14 | ) | | 54 |
| | 4 |
| | 114 |
|
Integration costs(d) | | 73 |
| | 74 |
| | 224 |
| | 300 |
|
| Restructuring charges and certain acquisition-related costs | | 149 |
| | 531 |
| | 377 |
| | 988 |
|
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(e): | | |
| | |
| | |
| | |
|
| Cost of sales | | 39 |
| | 46 |
| | 74 |
| | 145 |
|
| Research and development expenses | | — |
| | 1 |
| | — |
| | 5 |
|
| Total additional depreciation––asset restructuring | | 39 |
| | 47 |
| | 74 |
| | 151 |
|
Implementation costs recorded in our condensed consolidated statements of income as follows(f): | | |
| | |
| | |
| | |
|
| Cost of sales | | 26 |
| | 46 |
| | 77 |
| | 127 |
|
| Selling, informational and administrative expenses | | 22 |
| | 23 |
| | 46 |
| | 56 |
|
| Research and development expenses | | 9 |
| | 8 |
| | 26 |
| | 17 |
|
| Other (income)/deductions––net | | — |
| | 1 |
| | — |
| | 2 |
|
| Total implementation costs | | 57 |
| | 78 |
| | 150 |
| | 202 |
|
| Total costs associated with acquisitions and cost-reduction/productivity initiatives | | $ | 245 |
| | $ | 655 |
| | $ | 601 |
| | $ | 1,341 |
|
|
| | | | | | | | | | | | | | | | |
| The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Restructuring (credits)/charges: | | |
| | |
| | |
| | |
|
| Employee terminations | | $ | (24 | ) | | $ | (55 | ) | | $ | (53 | ) | | $ | (113 | ) |
Asset impairments(a) | | 12 |
| | 101 |
| | 8 |
| | 126 |
|
| Exit costs | | 14 |
| | 10 |
| | 14 |
| | 16 |
|
Restructuring charges/(credits)(b) | | 1 |
| | 56 |
| | (32 | ) | | 28 |
|
Transaction costs(c) | | 1 |
| | (14 | ) | | 1 |
| | 4 |
|
Integration costs(d) | | 82 |
| | 73 |
| | 202 |
| | 235 |
|
| Restructuring charges and certain acquisition-related costs | | 85 |
| | 114 |
| | 172 |
| | 267 |
|
Net periodic benefit costs recorded in Other (income)/deductions––net(e) | | 41 |
| | 35 |
| | 103 |
| | 110 |
|
Additional depreciation––asset restructuring, virtually all of which is recorded in Cost of sales(f) | | 12 |
| | 39 |
| | 43 |
| | 74 |
|
Implementation costs recorded in our condensed consolidated statements of income as follows(g): | | |
| | |
| | |
| | |
|
| Cost of sales | | 21 |
| | 26 |
| | 57 |
| | 77 |
|
| Selling, informational and administrative expenses | | 17 |
| | 22 |
| | 51 |
| | 46 |
|
| Research and development expenses | | 9 |
| | 9 |
| | 22 |
| | 26 |
|
| Total implementation costs | | 48 |
| | 57 |
| | 130 |
| | 150 |
|
| Total costs associated with acquisitions and cost-reduction/productivity initiatives | | $ | 186 |
| | $ | 245 |
| | $ | 447 |
| | $ | 601 |
|
| |
(a) | The asset impairment charges for the three and nine months ended October 1, 2017 are largely associated with our acquisitions of Hospira and Medivation. |
| |
(b) | In the third quarter and first nine months of 20172018, restructuring charges are primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs. In the first nine months of 2018, restructuring credits are mostly related to the reversal of previously recorded accruals for employee termination costs. In the three and nine months ended October 1, 2017, restructuring charges were mainly associated with our acquisitions of Hospira and Medivation, as well as cost-reduction and productivity initiatives not associated with acquisitions. In the third quarter and first nine months of 2016, restructuring charges are largelypartially offset by credits associated with cost-reduction and productivity initiatives not associated with acquisitions as well as our acquisitionsthat mostly related to the reversal of Hospira and Medivation. In the third quarter and first nine months ended October 1, 2017, previously recorded accruals for employee termination costs. Employee terminations primarily include revisions of our estimates of severance benefits. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The restructuring activities for 20172018 are associated with the following:
For the third quarter of 2018, IH ($13 million credit); EH ($7 million charge); manufacturing operations ($1 million charge); WRD/GPD ($3 million charge); and Corporate ($3 million charge).
For the first nine months of 2018, IH ($25 million credit); EH ($5 million credit); WRD/GPD ($1 million charge); manufacturing operations ($16 million charge); and Corporate ($19 million credit).
The restructuring activities for 2017 are associated with the following:
For the third quarter of 2017, IH ($1 million charge); EH ($1 million charge); WRD/GPD ($2 million charge); manufacturing operations ($40 million charge); and Corporate ($12 million charge).
For the first nine months of 2017, IH ($1 million credit); EH ($11 million credit); WRD/GPD ($24 million credit); manufacturing operations ($48 million charge); and Corporate ($15 million charge).
| |
• | For the third quarter of 2017, IH ($4 million); EH ($1 million); WRD/GPD ($15 million); manufacturing operations ($47 million); and Corporate ($25 million).
|
| |
• | For the first nine months of 2017, IH ($10 million); EH ($9 million income); WRD/GPD ($29 million); manufacturing operations ($70 million); and Corporate ($51 million).
|
The restructuring activities for 2016 are associated with the following:
| |
• | For the third quarter of 2016, IH ($148 million); EH ($28 million); WRD/GPD ($52 million); manufacturing operations ($108 million); and Corporate ($67 million).
|
| |
• | For the first nine months of 2016, IH ($162 million); EH ($19 million); WRD/GPD ($104 million); manufacturing operations ($181 million); and Corporate ($107 million).
|
| |
(b)
| The asset impairment charges for the third quarter and the first nine months of 2017 are largely associated with our acquisitions of Hospira and Medivation.
|
| |
(c) | Transaction costs represent external costs for banking, legal, accounting and other similar services, which in the third quarter of 2017 reflect the reversal of an accrual related to the acquisition of Medivation. Transaction costs for the first nine months of 2017 are were directly related to our acquisitions of Hospira, Anacor and Medivation. Transaction costs in the third quarter of 2016 were mostly related to the Medivation acquisition, and in the first nine months of 2016, were mostly related to the Medivation and Anacor acquisitions, and our terminated transaction with Allergan. |
| |
(d) | Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the third quarter and first nine months of 2018, integration costs were primarily related to our acquisition of Hospira. In the third quarter and first nine months of 2017,, integration costs primarily relate to our acquisitions of Hospira and Medivation. The first nine months of 2017 also include a net gain of $12 million related to the settlement of the Hospira U.S. qualified defined benefit pension plan (see Note 10). In the third quarter of 2016, integration |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
costs were mostly related to our acquisition of Hospira, and in the first nine months of 2016, integration costs were mostly related to our acquisition of Hospira and our terminated transaction with Allergan.
| |
(e) | In the three and nine months ended September 30, 2018, primarily represents the net pension curtailments and settlements included in Other (income)/deductions––net upon the adoption of a new accounting standard in the first quarter of 2018. In the three and nine months ended October 1, 2017, primarily represents the net pension curtailments and settlements, partially offset by net periodic benefit credits, excluding service costs, related to our acquisition of Hospira, both of which were reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. These credits included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. For additional information, see Note 1B and Note 10. |
| |
(f) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
| |
(f)(g)
| Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives. |
|
| | | | | | | | | | | | | | | | |
| The following table provides the components of and changes in our restructuring accruals: |
| (MILLIONS OF DOLLARS) | | Employee Termination Costs |
| | Asset Impairment Charges |
| | Exit Costs |
| | Accrual |
|
Balance, December 31, 2016(a) | | $ | 1,547 |
| | $ | — |
| | $ | 36 |
| | $ | 1,583 |
|
| Provision | | 9 |
| | 126 |
| | 16 |
| | 150 |
|
Utilization and other(b) | | (401 | ) | | (126 | ) | | (24 | ) | | (551 | ) |
Balance, October 1, 2017(c) | | $ | 1,154 |
| | $ | — |
| | $ | 28 |
| | $ | 1,182 |
|
|
| | | | | | | | | | | | | | | | |
| The following table provides the components of and changes in our restructuring accruals: |
| (MILLIONS OF DOLLARS) | | Employee Termination Costs |
| | Asset Impairment Charges |
| | Exit Costs |
| | Accrual |
|
Balance, December 31, 2017(a) | | $ | 1,039 |
| | $ | — |
| | $ | 66 |
| | $ | 1,105 |
|
| Provision/(Credit) | | (53 | ) | | 8 |
| | 14 |
| | (32 | ) |
Utilization and other(b) | | (235 | ) | | (8 | ) | | (34 | ) | | (277 | ) |
Balance, September 30, 2018(c) | | $ | 750 |
| | $ | — |
| | $ | 46 |
| | $ | 796 |
|
| |
(a) | Included in Other current liabilities ($863643 million) and Other noncurrent liabilities ($720462 million). |
| |
(b) | Includes adjustments for foreign currency translation. |
| |
(c) | Included in Other current liabilities ($533397 million) and Other noncurrent liabilities ($650399 million). |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. Other (Income)/Deductions—Net
| | The following table provides components of Other (income)/deductions––net: | The following table provides components of Other (income)/deductions––net: | The following table provides components of Other (income)/deductions––net: |
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | September 30,
2018 |
|
| October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
Interest income(a) | | $ | (99 | ) | | $ | (123 | ) | | $ | (275 | ) | | $ | (357 | ) | | $ | (82 | ) | | $ | (99 | ) | | $ | (240 | ) | | $ | (275 | ) |
Interest expense(a) | | 320 |
| | 291 |
| | 940 |
| | 889 |
| | 310 |
| | 320 |
| | 946 |
| | 940 |
|
| Net interest expense | | 220 |
| | 168 |
| | 666 |
| | 532 |
| | 228 |
| | 220 |
| | 706 |
| | 666 |
|
Royalty-related income(b) | | (140 | ) | | (233 | ) | | (331 | ) | | (695 | ) | | (143 | ) | | (140 | ) | | (360 | ) | | (331 | ) |
Certain legal matters, net(c) | | 183 |
| | (40 | ) | | 194 |
| | 494 |
| |
Net gains on asset disposals(d) | | (155 | ) | | (47 | ) | | (349 | ) | | (81 | ) | |
Loss on sale and impairment on remeasurement of HIS net assets(e) | | (12 | ) | | 1,422 |
| | 52 |
| | 1,422 |
| |
Certain asset impairments(f) | | 130 |
| | 133 |
| | 143 |
| | 1,080 |
| |
Business and legal entity alignment costs(g) | | 16 |
| | 69 |
| | 54 |
| | 180 |
| |
Other, net(h) | | (191 | ) | | (55 | ) | | (445 | ) | | (117 | ) | |
Net gains on asset disposals(b) | | | (4 | ) | | (13 | ) | | (19 | ) | | (36 | ) |
Net gains recognized during the period on investments in equity securities(c) | | | (94 | ) | | (45 | ) | | (460 | ) | | (111 | ) |
| Net realized (gains)/losses on sales of investments in debt securities | | | 8 |
| | (23 | ) | | 12 |
| | (45 | ) |
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d) | | | (139 | ) | | (78 | ) | | (455 | ) | | (163 | ) |
Net periodic benefit costs/(credits) other than service costs(e) | | | (65 | ) | | 28 |
| | (231 | ) | | 81 |
|
Certain legal matters, net(f) | | | 37 |
| | 183 |
| | (70 | ) | | 194 |
|
Certain asset impairments(g) | | | (1 | ) | | 130 |
| | 40 |
| | 143 |
|
Adjustments to loss on sale of HIS net assets(h) | | | (2 | ) | | (12 | ) | | (1 | ) | | 52 |
|
Business and legal entity alignment costs(i) | | | — |
| | 16 |
| | 4 |
| | 54 |
|
Other, net(j) | | | (239 | ) | | (186 | ) | | (309 | ) | | (439 | ) |
| Other (income)/deductions––net | | $ | 51 |
| | $ | 1,417 |
| | $ | (16 | ) | | $ | 2,815 |
| | $ | (414 | ) | | $ | 79 |
| | $ | (1,143 | ) | | $ | 65 |
|
| |
(a) | Interest income decreased in the third quarter and first nine months of 2017,2018, primarily driven by a lower investment balance. Interest expense increaseddecreased in the third quarter of 2018, primarily as a result of refinancing activity that occurred in the fourth quarter of 2017 and a credit to interest expense due to settlement of a tax indemnification case. Interest expense increased for the first nine months of 2017, 2018, primarily as a result of higher short-term interest rates, offset, in part, by refinancing activity that occurred in the retirementfourth quarter of high-coupon debt2017. |
| |
(b) | In the first nine months of 2017, primarily includes a realized gain on sale of property of $52 million, partially offset by a realized net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest. |
| |
(c) | The net gains on investments in equity securities for the third quarter of 2018 include unrealized net gains on equity securities of $8 million and, for the issuancefirst nine months of 2018, include unrealized net gains on equity securities of $344 million, reflecting the adoption of a new low-coupon debtaccounting standard in the first quarter of 2018. We continue to hold 2.5 million shares of ICU Medical common stock and we recognized unrealized gains of $24 million in the third quarter of 2018 and unrealized gains of $229 million in the first nine months of 2018 related to these remaining shares. Prior to the adoption of a new accounting standard in the first quarter of 2018, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income. For additional information, see Note 1B,Note 2B and Note 7B. |
| |
(b)(d)
| Royalty-relatedIncludes income decreasedfrom upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the third quarter of 2018, primarily includes, among other things, (i) $40 million in milestone income from a certain licensee, (ii) a $35 million milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of Crohn’s disease and (iii) $45 million in gains related to sales of compound/product rights. In the first nine months of 2018, primarily includes, among other things, (i) approximately $128 million in milestone income from multiple licensees, (ii) an upfront payment to us of $75 million for the sale of an AMPA receptor potentiator for CIAS to Biogen, (iii) $110 million in milestone payments received from Shire, of which $75 million was received in the first quarter of 2018 related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of ulcerative colitis and $35 million was received from Shire related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of Crohn’s disease, (iv) a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU and (v) $45 million in gains related to sales of compound/product rights. In the third quarter of 2017, primarily includes, among other things, $50 million in milestone income from a certain licensee and a $15 million gain related to the sale of compound/product rights. In the first nine months of 2017, primarily includes, among other things, approximately $81 million in milestone income from multiple licensees and a $43 million gain related to the sale of compound/product rights. For additional information, see Note 2B, Note 2C and Note 2D.
|
| |
(e) | Represents the net periodic benefit costs/(credits), excluding service costs, as a result of the adoption of a new accounting standard in the first quarter of 2018. Effective January 1, 2018, the U.S. Pfizer Consolidated Pension Plan was frozen to future benefit accruals and for the third quarter and first nine months of 2017, primarily2018, resulted in the recognition of lower net periodic benefit costs due to lower royalty income for Enbrel of $139 million and $414 million, respectively, resulting from the expiration on October 31, 2016extension of the 36-month royaltyamortization period underfor the collaboration agreement for Enbrel inactuarial losses. There was also a greater than expected gain on plan assets due to a higher plan asset base compared to the U.S.third quarter and Canada (the collaboration period under the agreement expired on October 31, 2013), partially offset by the additionfirst nine months of Xtandi royalty-related income of $73 million 2017. For additional information, see Note 1B and $160 million, respectively. Note 10. |
| |
(c)(f)
| For the first nine months of 2018, the net credits primarily represent the reversal of a legal accrual where a loss was no longer deemed probable. In the third quarter and first nine months of 2017,, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which is subject towas approved by the negotiation of a final settlement agreement and court approval,in April 2018, and a $79 million charge to reflect damages awarded by a jury in a patent matter. In the first nine months of 2016, primarily includes amounts to resolve a Multi-District Litigation relating to Celebrex and Bextra that was pending against the Company in New York federal court for $486 million, partially offset by the reversal of a legal accrual where a loss was no longer deemed probable. In addition, the first nine months of 2016 includes a settlement related to a patent matter. |
| |
(d)(g)
| In the third quarter of 2017, primarily includes gains on sales/out-licensing of product and compound rights (approximately $71 million) and gains on sales and redemptions of investments in equity and debt securities (approximately $66 million). In the first nine months of 20172018, primarily includes gains on sales and redemptionsa $31 million intangible asset impairment charge recorded in the second quarter of investments in equity and debt securities (approximately $183 million), gains on sales/out-licensing of product and compound rights (approximately $141 million) and a gain on sale of property (approximately $52 million), partially offset by a net loss2018 related to the salean IH finite-lived developed technology right, acquired in connection with our acquisition of our 40% ownership investment in Teuto, including the extinguishment of a put optionAnacor, for the remaining 60% ownership interest (approximately $30 million)treatment for toenail fungus marketed in the U.S. market only. InThe impairment charge recorded in the first nine monthssecond quarter of 20162018 related to IH reflects, includes gains on sales/out-licensing of product and compound rights (approximately $49 million).
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(e)
| among other things, updated commercial forecasts. In the third quarter and first nine months of 2017,, represents adjustments to amounts previously recorded to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical. In the third quarter and first nine months of 2016, represents a charge related to the write-down of the HIS net assets to fair value less estimated costs to sell. |
| |
(f)
| In the third quarter and first nine months of 2017, primarily includes an intangible asset impairment charge of $127 million related to developed technology rights, acquired in connection with our acquisition of Hospira, for a generic sterile injectable product for the treatment of edema associated with certain conditions.
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The intangible asset impairment charge for the third quarter and first nine months of 2017 is associated with EH and reflects, among other things, updated commercial forecasts and an increased competitive environment. In the third quarter of 2016, primarily includes intangible asset impairment charges of $126 million, reflecting $97 million of sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma and $29 million of other IPR&D assets acquired in connection with our acquisition of King in 2011. The intangible asset impairment charges for the third quarter of 2016 are associated with the following: EH ($97 million) and IH ($29 million). In the first nine months of 2016, primarily includes intangible asset impairment charges of $767 million, reflecting (i) $331 million related to developed technology rights for a generic injectable antibiotic product for the treatment of bacterial infections; and (ii) $265 million related to an IPR&D compound for the treatment of anemia, both acquired in connection with our acquisition of Hospira; (iii) $97 million of sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma; and (iv) $74 million of other IPR&D assets, $45 million of which were acquired in connection with our acquisition of Hospira and $29 million of which were acquired in connection with our acquisition of King in 2011. The intangible asset impairment charges for the first nine months of 2016 are associated with the following: EH ($738 million) and IH ($29 million). In addition, the first nine months of 2016 includes an impairment loss of $211 million related to Pfizer’s 49%-owned equity-method investment with Hisun in China, Hisun Pfizer, and an impairment loss of $50 million related to Pfizer’s 40%-owned equity-method investment in Teuto. For additional information concerning Hisun Pfizer and Teuto, see Note 2D.
The intangible asset impairment charge for 2016 for the IPR&D compound for the treatment of anemia acquired in connection with our acquisition of Hospira reflects, among other things, the impact of regulatory delays, including delays resulting from a court ruling, which required a 180-day waiting period after approval before a biosimilar product can be launched. The intangible asset impairment charges for 2016 for the sterile injectable IPR&D compounds acquired in connection with our acquisition of InnoPharma reflect, among other things, the impact of portfolio prioritization decisions and decreased commercial profiles of certain compounds. The intangible asset impairment charges for 2016 for developed technology rights and other IPR&D assets acquired in connection with our acquisition of Hospira reflect, among other things, the impact of new scientific findings, updated commercial forecasts, changes in pricing, and an increased competitive environment. The intangible asset impairment charges for 2016 for other IPR&D assets acquired in connection with our acquisition of King reflect changes in the competitive environment.
| |
(g)(h)
| InRepresents adjustments to amounts previously recorded in 2016 to write down the third quarter and first nine monthsHIS net assets to fair value less costs to sell related to the sale of 2017 and 2016, representsHIS net assets to ICU Medical on February 3, 2017. For additional information, see Note 2B.
|
| |
(i) | Represents expenses for changes to our infrastructure to align our commercial operations of our current segments, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business. |
| |
(h)(j)
| In the third quarter and first nine months of 2018, includes a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system (see Note 2B). The third quarter and first nine months of 2018 also include, among other things, dividend income of $91 million and $226 million, respectively, from our investment in ViiV, and charges of $122 million and $257 million, respectively, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also include a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T therapy development program assets obtained from Cellectis and Servier in connection with our contribution agreement entered into with Allogene in which Pfizer obtained a 25% ownership stake in Allogene (see Note 2B), and a non-cash $17 million pre-tax gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg (see Note 7E). In the third quarter and first nine months of 2017,, includes, among other things, dividend income of $54 million and $211 million, respectively, from our investment in ViiV and income of $62 million from resolution of a contract disagreement. In the first nine months of 2016, includes, among other things, $150 million paid to Allergan for reimbursement of Allergan’s expenses associated with the terminated transaction and income of $116 million from resolution of a contract disagreement. |
|
| | | | | | | | | | | | | | | | | | | | |
The following table provides additional information about the intangible assets that were impaired during 2017 in Other (income)/deductions––net: |
| | | Fair Value(a) | | Nine Months Ended October 1, 2017 |
| (MILLIONS OF DOLLARS) | | Amount | | Level 1 | | Level 2 | | Level 3 | | Impairment |
Intangible assets––Developed technology rights(b) | | $ | 50 |
| | $ | — |
| | $ | — |
| | $ | 50 |
| | $ | 127 |
|
|
| | | | | | | | | | | | | | | | | | | | |
The following table provides additional information about the intangible asset that was impaired during 2018 in Other (income)/deductions: |
| | | Fair Value(a) | | Nine Months Ended September 30, 2018 |
| (MILLIONS OF DOLLARS) | | Amount | | Level 1 | | Level 2 | | Level 3 | | Impairment |
Intangible assets––Developed technology right, finite-lived(b) | | $ | 35 |
| | $ | — |
| | $ | — |
| | $ | 35 |
| | $ | 31 |
|
| |
(a) | The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis. |
| |
(b) | Reflects an intangible assetsasset written down to fair value in the third quarterfirst nine months of 2017.2018. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. |
Note 5. Tax Matters
A. Taxes on Income from Continuing Operations
In the fourth quarter of 2017, we recorded an estimate of certain tax effects of the TCJA, including the impact on deferred tax assets and liabilities from the reduction in the U.S. Federal corporate tax rate from 35% to 21%, the impact on valuation allowances and other state income tax considerations, the $15.2 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect payment over eight years through 2026 (with the first of eight installments due in April 2019) that is reported primarily in Other taxes payable, and deferred taxes on basis differences expected to give rise to future taxes on global intangible low-taxed income. In addition, we had provided deferred tax liabilities in the past on foreign earnings that were not indefinitely reinvested. As a result of the TCJA, we reversed an estimate of the deferred taxes that are no longer expected to be needed due to the change to the territorial tax system. The estimated amounts recorded may change in the future due to uncertain tax positions. With respect to the aforementioned repatriation tax liability related to the TCJA repatriation tax, our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.
The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We have elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years. However, given the complexity of these provisions, we have not finalized our analysis. We were able to make a reasonable estimate of the deferred taxes on the temporary differences expected to reverse in the future and provided a provisional deferred tax liability of approximately $1 billion as of December 31, 2017. The provisional amount is based on the evaluation of certain temporary differences inside each of our foreign subsidiaries that are expected to reverse as global intangible low-taxed income. However, as we continue to evaluate the TCJA’s global intangible low-taxed income provisions during the measurement period, we may revise the methodology used for determining the deferred tax liability associated with such income.
We believe that we have made reasonable estimates with respect to each of the above items, however, all of the amounts recorded remain provisional as we have not completed our analysis of the complex and far reaching effects of the TCJA. Further, we continue to consider our assertions on any remaining outside basis differences in our foreign subsidiaries as of
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Tax MattersSeptember 30, 2018 and have not completed our analysis. In the third quarter of 2018, we recorded a favorable adjustment to the provisional estimate of the impact of the legislation, primarily related to the remeasurement of deferred tax assets and liabilities as well as revised estimates of benefits related to certain tax initiatives. Under guidance issued by the staff of the SEC, we expect to finalize our accounting related to the tax effects of the TCJA on deferred taxes, valuation allowances, state tax considerations, the repatriation tax liability, global intangible low-taxed income, and any remaining outside basis differences in our foreign subsidiaries during the fourth quarter of 2018, as we complete the remainder of our tax return filings and as any interpretations or clarifications of the TCJA occur through further legislation or U.S. Treasury actions or other means.
A. Taxes on Income from Continuing Operations
Our effective tax rate for continuing operations was 1.6% for the third quarter of 2018, compared to 20.3% for the third quarter of 2017 and was 9.9% for the first nine months of 2018, compared to 15.5% for the third quarter of 2016 and was 20.1% for the first nine months of 2017, compared to 14.6% for the first nine months of 2016.
The higherlower effective tax rate for the third quarter and first nine months of 20172018 in comparison with the same periodperiods in 20162017 was primarily due to:
an unfavorablethe adoption of a territorial system and the lower U.S. tax rate as a result of the December 2017 enactment of the TCJA as well as favorable adjustments to the provisional estimate of the impact of the legislation;
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business,
partially offset by:
the non-recurrence of the unfavorable tax effects of an impairment charge related to the write-down of the HIS net assets to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, and the jurisdictional mix of intangible assets.
The higher effective tax rate for the first nine months of 2017 in comparison with the same period in 2016 was primarily due to:
the non-recurrence of benefits related to the final resolution of an agreement in principle reached in February 2016 and finalized in April 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our initial assessment in 2015 of the likelihood of prevailing on the technical merits of our tax position;
the non-recurrence of benefits associated with our Venezuela operations;business; as well as
a decreasean increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations,limitations.
partially offset by:B. Deferred Taxes
We have not completed our analysis of the changeTCJA on our prior assertion of indefinitely reinvested earnings. Accordingly, we continue to evaluate our assertion with respect to our accumulated foreign earnings subject to the deemed repatriation tax and we also continue to evaluate the amount of earnings that are indefinitely reinvested. Additionally, we continue to evaluate our assertions on any remaining outside basis differences in our foreign subsidiaries as of September 30, 2018 as we have not finalized our analysis of the effects of all of the new provisions in the jurisdictional mixTCJA. As of September 30, 2018, it is not practicable to estimate the additional deferred tax liability that would be recorded if the earnings as a result of operating fluctuations in the normal course of business; as well as
the non-recurrence of the unfavorable tax effects of an impairment charge relatedsubject to the write-downdeemed repatriation tax and any remaining outside basis differences as of HIS net assetsSeptember 30, 2018 are not indefinitely reinvested. In accordance with the authoritative guidance issued by the SEC Staff Accounting Bulletin 118, we expect to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, andcomplete our analysis within the jurisdictional mix of intangible assets.measurement period.
B.C. Tax Contingencies
We are subject to income tax in many jurisdictions, and a certain degree of estimation is required in recording the assets and liabilities related to income taxes. All of our tax positions are subject to audit by the local taxing authorities in each tax jurisdiction. These tax audits can involve complex issues, interpretations and judgments and the resolution of matters may span multiple years, particularly if subject to negotiation or litigation. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution.
The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS:
With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-20132011-2015 are currently under audit. Tax years 2014-20172016-2018 are open but not under audit. All other tax years are closed.
With respect to Hospira, the federal income tax audit forof tax years 2012-2013year 2014 through short-year 2015 was effectively settled in the thirdsecond quarter of 2017. The IRS is currently auditing tax year 2014 through short-year 2015.2018. All other tax years are closed. The tax years under audit for Hospira are not considered material to Pfizer.
With respect to Anacor and Medivation, the open tax years are not considered material to Pfizer.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2010-2017)(2013-2018), Japan (2015-2017)(2017-2018), Europe (2011-2017,(2011-2018, primarily reflecting Ireland, the United Kingdom, France, Italy, Spain and Germany), Latin America (1998-2017,(1998-2018, primarily reflecting Brazil) and Puerto Rico (2010-2017)(2011-2018).
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C.D. Tax Provision/(Benefit) on Other Comprehensive IncomeIncome/(Loss)
|
| | | | | | | | | | | | | | | | |
The following table provides the components of Tax provision/(benefit) on other comprehensive income: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
Foreign currency translation adjustments, net(a) | | $ | (62 | ) | | $ | — |
| | $ | (192 | ) | | $ | (15 | ) |
| Unrealized holding losses on derivative financial instruments, net | | 28 |
| | — |
| | 30 |
| | (192 | ) |
| Reclassification adjustments for realized (gains)/losses | | (29 | ) | | 32 |
| | (169 | ) | | 81 |
|
| | | (1 | ) | | 32 |
| | (139 | ) | | (112 | ) |
| Unrealized holding gains on available-for-sale securities, net | | 37 |
| | 40 |
| | 93 |
| | 106 |
|
| Reclassification adjustments for realized gains | | (49 | ) | | (14 | ) | | (45 | ) | | (16 | ) |
| | | (12 | ) | | 26 |
| | 47 |
| | 90 |
|
| Benefit plans: actuarial losses, net | | (37 | ) | | (31 | ) | | (15 | ) | | (39 | ) |
| Reclassification adjustments related to amortization | | 60 |
| | 47 |
| | 152 |
| | 140 |
|
| Reclassification adjustments related to settlements, net | | 22 |
| | 10 |
| | 30 |
| | 27 |
|
| Other | | (33 | ) | | 14 |
| | (46 | ) | | 5 |
|
| | | 11 |
| | 40 |
| | 121 |
| | 133 |
|
| Benefit plans: prior service (costs)/credits and other, net | | — |
| | 35 |
| | — |
| | 66 |
|
| Reclassification adjustments related to amortization | | (17 | ) | | (17 | ) | | (50 | ) | | (47 | ) |
| Reclassification adjustments related to curtailments, net | | (1 | ) | | (3 | ) | | (5 | ) | | (5 | ) |
| Other | | 1 |
| | 2 |
| | 1 |
| | 1 |
|
| | | (17 | ) | | 18 |
| | (55 | ) | | 15 |
|
| Tax provision/(benefit) on other comprehensive income | | $ | (80 | ) | | $ | 116 |
| | $ | (218 | ) | | $ | 111 |
|
|
| | | | | | | | | | | | | | | | |
The following table provides the components of Tax provision/(benefit) on other comprehensive income/(loss): |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
Foreign currency translation adjustments, net(a) | | $ | 14 |
| | $ | (62 | ) | | $ | 82 |
| | $ | (192 | ) |
| Unrealized holding gains/(losses) on derivative financial instruments, net | | 35 |
| | 28 |
| | 39 |
| | 30 |
|
| Reclassification adjustments for (gains)/losses included in net income | | (28 | ) | | (29 | ) | | 36 |
| | (169 | ) |
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | 1 |
| | — |
|
| | | 7 |
| | (1 | ) | | 77 |
| | (139 | ) |
| Unrealized holding gains/(losses) on available-for-sale securities, net | | 20 |
| | 37 |
| | (8 | ) | | 93 |
|
| Reclassification adjustments for gains included in net income | | (6 | ) | | (49 | ) | | (8 | ) | | (45 | ) |
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c) | | — |
| | — |
| | (45 | ) | | — |
|
| | | 14 |
| | (12 | ) | | (62 | ) | | 47 |
|
| Benefit plans: actuarial gains/(losses), net | | 2 |
| | (37 | ) | | 27 |
| | (15 | ) |
| Reclassification adjustments related to amortization | | 15 |
| | 60 |
| | 43 |
| | 152 |
|
| Reclassification adjustments related to settlements, net | | 10 |
| | 22 |
| | 25 |
| | 30 |
|
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | 637 |
| | — |
|
| Other | | 11 |
| | (33 | ) | | 18 |
| | (46 | ) |
| | | 38 |
| | 11 |
| | 750 |
| | 121 |
|
| Benefit plans: prior service costs and other, net | | — |
| | — |
| | — |
| | — |
|
| Reclassification adjustments related to amortization | | (11 | ) | | (17 | ) | | (33 | ) | | (50 | ) |
| Reclassification adjustments related to curtailments, net | | (1 | ) | | (1 | ) | | (4 | ) | | (5 | ) |
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | (144 | ) | | — |
|
| Other | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| | | (11 | ) | | (17 | ) | | (179 | ) | | (55 | ) |
| Tax provision/(benefit) on other comprehensive income/(loss) | | $ | 62 |
| | $ | (80 | ) | | $ | 667 |
| | $ | (218 | ) |
| |
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. |
| |
(b) | For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Note 1B. |
| |
(c) | For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Note 1B. |
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides the changes, net of tax, in Accumulated other comprehensive loss: |
| | | Net Unrealized Gains/(Losses) | | Benefit Plans | | |
| (MILLIONS OF DOLLARS) | | Foreign Currency Translation Adjustments |
| | Derivative Financial Instruments |
| | Available-For-Sale Securities |
| | Actuarial Gains/(Losses) |
| | Prior Service (Costs)/Credits and Other |
| | Accumulated Other Comprehensive Income/(Loss) |
|
| Balance, December 31, 2016 | | $ | (6,659 | ) | | $ | 348 |
| | $ | (131 | ) | | $ | (5,473 | ) | | $ | 879 |
| | $ | (11,036 | ) |
Other comprehensive income/(loss)(a) | | 1,638 |
| | (403 | ) | | 470 |
| | 263 |
| | (96 | ) | | 1,872 |
|
| Balance, October 1, 2017 | | $ | (5,021 | ) | | $ | (55 | ) | | $ | 339 |
| | $ | (5,210 | ) | | $ | 783 |
| | $ | (9,164 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides the changes, net of tax, in Accumulated other comprehensive loss: |
| | | Net Unrealized Gains/(Losses) | | Benefit Plans | | |
| (MILLIONS OF DOLLARS) | | Foreign Currency Translation Adjustments |
| | Derivative Financial Instruments |
| | Available-For-Sale Securities |
| | Actuarial Gains/(Losses) |
| | Prior Service (Costs)/Credits and Other |
| | Accumulated Other Comprehensive Income/(Loss) |
|
| Balance, December 31, 2017 | | $ | (5,180 | ) | | $ | (30 | ) | | $ | 401 |
| | $ | (5,262 | ) | | $ | 750 |
| | $ | (9,321 | ) |
Other comprehensive income/(loss) due to the adoption of new accounting standards(a) | | (2 | ) | | (1 | ) | | (416 | ) | | (637 | ) | | 144 |
| | (913 | ) |
Other comprehensive income/(loss)(b) | | (589 | ) | | 279 |
| | (116 | ) | | 361 |
| | (118 | ) | | (183 | ) |
| Balance, September 30, 2018 | | $ | (5,772 | ) | | $ | 248 |
| | $ | (131 | ) | | $ | (5,538 | ) | | $ | 776 |
| | $ | (10,417 | ) |
| |
(a) | Amounts represent the cumulative effect adjustments as of January 1, 2018 from the adoption of new accounting standards related to (i) financial assets and liabilities and (ii) the reclassification of certain tax effects from AOCI. For additional information, see Note 1B. |
| |
(b) | Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $16$20 million incomeloss for the first nine months of 20172018. |
As of October 1, 2017, September 30, 2018, with respect to derivative financial instruments, the amount of unrealized pre-tax net lossesgains on derivative financial instruments estimated to be reclassified into income within the next 12 months is approximately $154$177 million, which is expected to be offset primarily by gains related to available-for-sale securities and gainsnet losses resulting from reclassification adjustments related to net losses related to foreign currency exchange-denominated forecasted intercompany inventory sales.sales and available-for-sale debt securities.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. Financial Instruments
A. Selected Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
On January 1, 2018, we adopted a new accounting and disclosure standard related to accounting for the recognition of financial assets and liabilities. For additional information see Note 1B.
|
| | | | | | | | |
| The following table provides additional information about certain of our financial assets and liabilities: |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | December 31,
2016 |
|
Selected financial assets measured at fair value on a recurring basis(a) | | | | |
Trading funds and securities(b) | | $ | 347 |
| | $ | 325 |
|
Available-for-sale debt securities(c) | | 16,598 |
| | 18,632 |
|
| Money market funds | | 1,824 |
| | 1,445 |
|
Available-for-sale equity securities(c) | | 1,032 |
| | 540 |
|
Derivative financial instruments in a receivable position(d): | | |
| | |
|
| Interest rate swaps | | 630 |
| | 625 |
|
| Foreign currency swaps | | 92 |
| | 79 |
|
| Foreign currency forward-exchange contracts | | 110 |
| | 551 |
|
| | | 20,631 |
| | 22,198 |
|
| Other selected financial assets | | |
| | |
|
Held-to-maturity debt securities, carried at amortized cost(c), (e) | | 1,464 |
| | 1,242 |
|
Restricted stock and private equity securities, carried at cost or at equity-method(e) | | 719 |
| | 735 |
|
| | | 2,183 |
| | 1,977 |
|
| Total selected financial assets | | $ | 22,815 |
| | $ | 24,175 |
|
Selected financial liabilities measured at fair value on a recurring basis(a) | | |
| | |
|
Derivative financial instruments in a liability position(f): | | |
| | |
|
| Interest rate swaps | | $ | 154 |
| | $ | 148 |
|
| Foreign currency swaps | | 710 |
| | 1,374 |
|
| Foreign currency forward-exchange contracts | | 309 |
| | 143 |
|
| | | 1,173 |
| | 1,665 |
|
| Other selected financial liabilities | | |
| | |
|
| Short-term borrowings: | | | | |
| Principal amount | | 9,460 |
| | 10,674 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 2 |
| | 24 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (15 | ) | | (11 | ) |
Total short-term borrowings, carried at historical proceeds, as adjusted(e) | | 9,448 |
| | 10,688 |
|
| Long-term debt: | | | | |
| Principal amount | | 33,671 |
| | 30,529 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 981 |
| | 998 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (149 | ) | | (130 | ) |
Total long-term debt, carried at historical proceeds, as adjusted(g) | | 34,503 |
| | 31,398 |
|
| | | 43,951 |
| | 42,085 |
|
| Total selected financial liabilities | | $ | 45,124 |
| | $ | 43,750 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the financial assets and liabilities measured at fair value using a market approach on a recurring basis by balance sheet categories and fair value hierarchy level as defined in Notes to Consolidated Financial Statements––Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value in Pfizer’s 2017 Financial Report: |
| | | September 30, 2018 | | December 31, 2017 |
| (MILLIONS OF DOLLARS) | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
| Financial assets measured at fair value on a recurring basis: | | | | | | | | | | | | |
| Short-term investments | | | | | | | | | | | | |
| Classified as equity securities: | | | | | | | | | | | | |
| Money market funds | | $ | 1,184 |
| | $ | — |
| | $ | 1,184 |
| | $ | 2,115 |
| | $ | — |
| | $ | 2,115 |
|
Equity(a) | | 29 |
| | 17 |
| | 12 |
| | 35 |
| | 16 |
| | 19 |
|
| | | 1,213 |
| | 17 |
| | 1,196 |
| | 2,150 |
| | 16 |
| | 2,134 |
|
| Classified as available-for-sale debt securities: | | | | | | | | | | | | |
| Government and agency—non-U.S. | | 8,336 |
| | — |
| | 8,336 |
| | 12,242 |
| | — |
| | 12,242 |
|
| Corporate | | 2,890 |
| | — |
| | 2,890 |
| | 2,766 |
| | — |
| | 2,766 |
|
| Government—U.S. | | 8 |
| | — |
| | 8 |
| | 252 |
| | — |
| | 252 |
|
| Agency asset-backed—U.S. | | 17 |
| | — |
| | 17 |
| | 23 |
| | — |
| | 23 |
|
| Other asset-backed | | 5 |
| | — |
| | 5 |
| | 79 |
| | — |
| | 79 |
|
| | | 11,256 |
| | — |
| | 11,256 |
| | 15,362 |
| | — |
| | 15,362 |
|
| Total short-term investments | | 12,469 |
| | 17 |
| | 12,452 |
| | 17,512 |
| | 16 |
| | 17,496 |
|
| Other current assets | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | |
| Interest rate contracts | | 88 |
| | — |
| | 88 |
| | 104 |
| | — |
| | 104 |
|
| Foreign exchange contracts | | 488 |
| | — |
| | 488 |
| | 234 |
| | — |
| | 234 |
|
| Total other current assets | | 576 |
| | — |
| | 576 |
| | 337 |
| | — |
| | 337 |
|
| Long-term investments | | | | | | | | | | | | |
| Classified as equity securities: | | | | | | | | | | | | |
Equity(a) | | 1,563 |
| | 1,527 |
| | 36 |
| | 1,440 |
| | 1,398 |
| | 42 |
|
| Classified as trading securities: | | | | | | | | | | | | |
| Debt | | 50 |
| | 50 |
| | — |
| | 73 |
| | 73 |
| | — |
|
| | | 1,612 |
| | 1,577 |
| | 36 |
| | 1,514 |
| | 1,472 |
| | 42 |
|
| Classified as available-for-sale debt securities: | | | | | | | | | | | | |
| Government and agency—non-U.S. | | 106 |
| | — |
| | 106 |
| | 387 |
| | — |
| | 387 |
|
| Corporate | | 3,210 |
| | — |
| | 3,210 |
| | 4,172 |
| | 36 |
| | 4,136 |
|
| Government—U.S. | | 421 |
| | — |
| | 421 |
| | 495 |
| | — |
| | 495 |
|
| Other asset-backed | | 4 |
| | — |
| | 4 |
| | 35 |
| | — |
| | 35 |
|
| | | 3,742 |
| | — |
| | 3,742 |
| | 5,090 |
| | 36 |
| | 5,054 |
|
| Total long-term investments | | 5,354 |
| | 1,577 |
| | 3,778 |
| | 6,603 |
| | 1,507 |
| | 5,096 |
|
| Other noncurrent assets | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | |
| Interest rate contracts | | 246 |
| | — |
| | 246 |
| | 477 |
| | — |
| | 477 |
|
| Foreign exchange contracts | | 220 |
| | — |
| | 220 |
| | 7 |
| | — |
| | 7 |
|
| Total other noncurrent assets | | 467 |
| | — |
| | 467 |
| | 484 |
| | — |
| | 484 |
|
| Total assets | | $ | 18,866 |
| | $ | 1,594 |
| | $ | 17,272 |
| | $ | 24,937 |
| | $ | 1,523 |
| | $ | 23,414 |
|
| | | | | | | | | | | | | |
| Financial liabilities measured at fair value on a recurring basis: | | | | | | | | | | | | |
| Other current liabilities | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | |
| Interest rate contracts | | $ | 9 |
| | $ | — |
| | $ | 9 |
| | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Foreign exchange contracts | | 80 |
| | — |
| | 80 |
| | 201 |
| | — |
| | 201 |
|
| Total other current liabilities | | 89 |
| | — |
| | 89 |
| | 201 |
| | — |
| | 201 |
|
| Other noncurrent liabilities | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | |
| Interest rate contracts | | 653 |
| | — |
| | 653 |
| | 177 |
| | — |
| | 177 |
|
| Foreign exchange contracts | | 432 |
| | — |
| | 432 |
| | 313 |
| | — |
| | 313 |
|
| Total other noncurrent liabilities | | 1,085 |
| | — |
| | 1,085 |
| | 490 |
| | — |
| | 490 |
|
| Total liabilities | | $ | 1,174 |
| | $ | — |
| | $ | 1,174 |
| | $ | 691 |
| | $ | — |
| | $ | 691 |
|
| |
(a) | We use a market approach in valuing financial instruments on a recurring basis. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except 5% that use Level 1 inputs. |
| |
(b)
| As of October 1, 2017, trading funds andSeptember 30, 2018, short-term equity securities are composed of $274 million of trading equity funds and $74 million of trading debt funds. As of December 31, 2016, trading funds and securities are composed of $236 million of trading equity funds and $89 million of trading debt funds. As of October 1, 2017 and December 31, 2016, trading equity funds of $63$12 million and $71long-term equity securities of $35 million respectively, are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. |
| |
(c)
| Gross unrealized gains and losses are not significant, except asAs of October 1,December 31, 2017 available-for-sale, short-term equity securities’ unrealized gains are $406securities of $19 million and unrealized losses are $119 million. |
| |
(d)
| Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $40 million as of October 1, 2017; and foreign currency forward-exchange contracts with fair values of $162 million as of December 31, 2016.
|
| |
(e)
| The differences between the estimated fair values and carrying values of held-to-maturity debt securities, restricted stock and privatelong-term equity securities at cost, and short-term borrowings not measured at fair value on a recurring basis were not significant as of October 1, 2017 or December 31, 2016. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings$42 million are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities carried at cost are based on Level 3 inputs.held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(f)
| Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $60 million as of October 1, 2017; and foreign currency swaps with fair values of $269 million and foreign currency forward-exchange contracts with fair values of $113 million as of December 31, 2016.
|
| |
(g)
| Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis | | | | | | | | | | | | | | | | | | | | | | | | | | | The following table presents the financial liabilities not measured at fair value on a recurring basis, including the carrying values and estimated fair values: | | | | September 30, 2018 | | December 31, 2017 | | | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | (MILLIONS OF DOLLARS) | | | | Total | | Level 2 | | | | Total | | Level 2 | | Financial Liabilities | | | | | | | | | | | | | | Long-term debt, excluding the current portion | | $ | 33,652 |
| | $ | 36,243 |
| | $ | 36,243 |
| | $ | 33,538 |
| | $ | 37,253 |
| | $ | 37,253 |
|
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, restricted stock and private equity securities at cost, and short-term borrowings not measured at fair value on a recurring basis were not significant as of September 30, 2018 or December 31, 2017, except for our investment in Allogene (see Note 2B). The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs. The fair value measurements of our private equity securities carried at cost, which represent investments in the life sciences sector, are based on Level 3 inputs.
In addition, as of September 30, 2018 and December 31, 2017, we had long-term receivables whose fair value is based on Level 3 inputs. As of September 30, 2018 and December 31, 2017, the differences between the estimated fair values and carrying values of these receivables were not significant. Total Short-Term and Long-Term Investments | | | | | | | | | | | The following table represents our investments by classification type: | | (MILLIONS OF DOLLARS) | | September 30, 2018 |
| | December 31, 2017 |
| | Short-term investments | | | | | | Equity securities | | $ | 1,213 |
| | $ | 2,150 |
| | Available-for-sale debt securities | | 11,256 |
| | 15,362 |
| | Held-to-maturity debt securities | | 1,211 |
| | 1,138 |
| | Total Short-term investments | | $ | 13,680 |
| | $ | 18,650 |
| | | | | | | | Long-term investments | | | | | | Equity securities | | $ | 1,563 |
| | $ | 1,440 |
| | Trading debt securities | | 50 |
| | 73 |
| | Available-for-sale debt securities | | 3,742 |
| | 5,090 |
| | Held-to-maturity debt securities | | 63 |
| | 4 |
| | Private equity investments carried at equity-method or cost | | 1,027 |
| | 408 |
| | Total Long-term investments | | $ | 6,444 |
| | $ | 7,015 |
| | Held-to-maturity cash equivalents | | $ | 237 |
| | $ | 719 |
|
Fair Value Methodology The following inputs and valuation techniques were used to estimate the fair value of our long-term debt (not including the current portion of long-term debt) was $39.0 billion as of October 1, 2017 and $34.9 billion as of December 31, 2016. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Long-term debt includes foreign currency long-term borrowings with fair values of $4.7 billion as of October 1, 2017, which are used as hedging instruments. |
|
| | | | | | | | |
| The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets: |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | December 31,
2016 |
|
| Assets | | | | |
| Cash and cash equivalents | | $ | 526 |
| | $ | 547 |
|
| Short-term investments | | 14,146 |
| | 15,255 |
|
Other current assets(a) | | 288 |
| | 567 |
|
| Long-term investments | | 7,311 |
| | 7,116 |
|
Other noncurrent assets(b) | | 543 |
| | 689 |
|
| | | $ | 22,815 |
| | $ | 24,175 |
|
| Liabilities | | |
| | |
|
| Short-term borrowings, including current portion of long-term debt | | $ | 9,448 |
| | $ | 10,688 |
|
Other current liabilities(c) | | 277 |
| | 443 |
|
| Long-term debt | | 34,503 |
| | 31,398 |
|
Other noncurrent liabilities(d) | | 896 |
| | 1,222 |
|
| | | $ | 45,124 |
| | $ | 43,750 |
|
| |
(a)
| As of October 1, 2017, derivative instruments at fair value include interest rate swaps ($97 million), foreign currency swaps ($86 million) and foreign currency forward-exchange contracts ($105 million) and, as of December 31, 2016, include interest rate swaps ($26 million), foreign currency swaps ($43 million) and foreign currency forward-exchange contracts ($497 million).
|
| |
(b)
| As of October 1, 2017, derivative instruments at fair value include interest rate swaps ($532 million), foreign currency swaps ($6 million) and foreign currency forward-exchange contracts ($5 million) and, as of December 31, 2016, include interest rate swaps ($599 million), foreign currency swaps ($36 million) and foreign currency forward-exchange contracts ($54 million).
|
| |
(c)
| As of October 1, 2017, derivative instruments at fair value include foreign currency forward-exchange contracts ($276 million) and interest rate swaps ($1 million) and, as of December 31, 2016, include interest rate swaps ($1 million), foreign currency swaps ($300 million) and foreign currency forward-exchange contracts ($143 million).
|
| |
(d)
| As of October 1, 2017, derivative instruments at fair value include interest rate swaps ($153 million), foreign currency swaps ($710 million) and foreign currency forward-exchange contracts ($33 million) and, as of December 31, 2016, include interest rate swaps ($147 million) and foreign currency swaps ($1.1 billion).
|
There were no significant impairments of financial assets recognized in any period presented.and liabilities:
Available-for-sale debt securities—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and credit-adjusted interest rate yield curves. Mortgage-backed, loan-backed and receivable-backed securities are valued by third-party models that use significant inputs derived from observable market data like prepayment rates, default rates, and recovery rates.
Equity securities—quoted market prices.
Derivative assets and liabilities (financial instruments)—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data. Where applicable, these models discount future cash flow amounts using market-based observable inputs, including interest rate yield curves, and forward and spot prices for currencies. The credit risk impact to our derivative financial instruments was not significant.
Money market funds—observable net asset value prices.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
We periodically review the methodologies, inputs and outputs of third-party pricing services for reasonableness. Our procedures can include, for example, referencing other third-party pricing models, monitoring key observable inputs (like LIBOR interest rates) and selectively performing test-comparisons of values with actual sales of financial instruments.
B. Investments in Debt Securities
|
| | | | | | | | | | | | | | | | | | | | |
| The following table provides the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: |
| | | Years | | October 1,
2017 |
|
| (MILLIONS OF DOLLARS) | | Within 1 |
| | Over 1 to 5 |
| | Over 5 to 10 |
| | Over 10 |
| | Total |
|
| Available-for-sale debt securities | | | | | | | | | | |
Corporate debt(a) | | $ | 2,741 |
| | $ | 2,591 |
| | $ | 1,525 |
| | $ | 17 |
| | $ | 6,874 |
|
Western European, Asian, and other government debt(b) | | 6,071 |
| | 268 |
| | — |
| | — |
| | 6,339 |
|
Western European, Scandinavian and other government agency debt(b) | | 1,955 |
| | 42 |
| | — |
| | — |
| | 1,998 |
|
Supranational debt(b) | | 387 |
| | 195 |
| | — |
| | — |
| | 582 |
|
| Government National Mortgage Association and other U.S. government guaranteed asset-backed securities | | 42 |
| | 424 |
| | — |
| | — |
| | 466 |
|
Other asset-backed debt(c) | | 161 |
| | 61 |
| | 3 |
| | — |
| | 226 |
|
| U.S. government debt | | — |
| | 112 |
| | — |
| | — |
| | 112 |
|
| Held-to-maturity debt securities | | | | | | |
| | | | |
|
| Time deposits and other | | 1,133 |
| | — |
| | 3 |
| | — |
| | 1,137 |
|
Western European government debt(b) | | 326 |
| | — |
| | — |
| | — |
| | 326 |
|
| Total debt securities | | $ | 12,818 |
| | $ | 3,694 |
| | $ | 1,532 |
| | $ | 18 |
| | $ | 18,061 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At September 30, 2018, the investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt and equity securities at September 30, 2018 and December 31, 2017 is as follows, including, as of September 30, 2018, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: |
| | | September 30, 2018 | | December 31, 2017 |
| | | | | Gross Unrealized | | | | Maturities (in Years) | | | | | Gross Unrealized | | | |
| (MILLIONS OF DOLLARS) | | Amortized Cost |
| | Gains |
| | Losses |
| | Fair Value |
| | Within 1 |
| | Over 1 to 5 |
| | Over 5 |
| | Total |
| | Amortized Cost |
| | Gains |
| | Losses |
| | Fair Value |
|
| Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
Government and agency––non-U.S. | | $ | 8,476 |
| | $ | 9 |
| | $ | (43 | ) | | $ | 8,442 |
| | $ | 8,336 |
| | $ | 106 |
| | $ | — |
| | $ | 8,442 |
| | $ | 12,616 |
| | $ | 61 |
| | $ | (48 | ) | | $ | 12,629 |
|
Corporate(a) | | 6,192 |
| | 2 |
| | (94 | ) | | 6,100 |
| | 2,890 |
| | 2,356 |
| | 854 |
| | 6,100 |
| | 6,955 |
| | 15 |
| | (33 | ) | | 6,938 |
|
| Government––U.S. | | 451 |
| | — |
| | (23 | ) | | 428 |
| | 8 |
| | 421 |
| | — |
| | 428 |
| | 765 |
| | — |
| | (19 | ) | | 747 |
|
| Agency asset-backed––U.S. | | 18 |
| | — |
| | (1 | ) | | 18 |
| | 17 |
| | — |
| | — |
| | 18 |
| | 24 |
| | — |
| | (1 | ) | | 24 |
|
Other asset-backed(b) | | 9 |
| | — |
| | — |
| | 9 |
| | 5 |
| | 3 |
| | 2 |
| | 9 |
| | 114 |
| | — |
| | — |
| | 114 |
|
| Held-to-maturity debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
| Time deposits and other | | 734 |
| | — |
| | — |
| | 734 |
| | 670 |
| | 23 |
| | 40 |
| | 734 |
| | 1,091 |
| | — |
| | — |
| | 1,091 |
|
| Government and agency––non-U.S. | | 778 |
| | — |
| | — |
| | 778 |
| | 778 |
| | — |
| | — |
| | 778 |
| | 770 |
| | — |
| | — |
| | 770 |
|
| Total debt securities | | $ | 16,658 |
| | $ | 11 |
| | $ | (160 | ) | | $ | 16,509 |
| | $ | 12,704 |
| | $ | 2,909 |
| | $ | 896 |
| | $ | 16,509 |
| | $ | 22,337 |
| | $ | 77 |
| | $ | (100 | ) | | $ | 22,313 |
|
Available-for-sale equity securities(c) | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market funds | | | | | | | | | | | | | | | | | | $ | 2,115 |
| | $ | — |
| | $ | — |
| | $ | 2,115 |
|
| Equity | | | | | | | | | | | | | | | | | | 728 |
| | 586 |
| | (124 | ) | | 1,190 |
|
| Total available-for-sale equity securities | | | | | | | | | | | | | | | | | | $ | 2,843 |
| | $ | 586 |
| | $ | (124 | ) | | $ | 3,304 |
|
| |
(a) | Issued by a diverse group of corporations, with a significant concentration in the technology sector, virtually all of which are investment-grade.corporations. |
| |
(b) | Issued by governments, government agencies or supranational entities, as applicable, all of which are high quality. |
| |
(c)
| Includes receivable-backed,mortgage-backed, loan-backed and mortgage-backedreceivable-backed securities, all of which are high quality and in senior positions in the capital structure of the security. Receivable-backedMortgage-backed securities are collateralized by credit cards receivables, loan-backeddiversified pools of residential and commercial mortgages. Loan-backed securities are collateralized by senior secured obligations of a diverse pool of companies or student loans, and mortgage-backedloans. Receivable-backed securities are collateralized by diversified pools of residential and commercial mortgages. |
C. Short-Term Borrowings
Short-term borrowings include amounts for commercial paper of $6.1 billion as of October 1, 2017 and $5.8 billion as of December 31, 2016.
D. Long-Term Debt
|
| | | | | | | | | | |
| The following table provides the amounts of senior unsecured long-term debt issued in the first quarter of 2017: |
| | | | | Principal |
| | | | | As of October 1, 2017 |
| (MILLIONS) | | Maturity Date | | Euro |
| | U.S. Dollar |
|
| 3-month EURIBOR + 0.20% floating rate notes (0% floor) | | March 6, 2019 | | € | 1,250 |
| | $ | 1,479 |
|
0.00% euro notes(a) | | March 6, 2020 | | 1,000 |
| | 1,183 |
|
0.25% euro notes(a) | | March 6, 2022 | | 1,000 |
| | 1,183 |
|
1.00% euro notes(a) | | March 6, 2027 | | 750 |
| | 887 |
|
Total euro long-term debt issued in the first quarter of 2017(b) | | | | € | 4,000 |
| | $ | 4,732 |
|
4.20% notes(c) | | March 17, 2047 | | | | 1,065 |
|
Total long-term debt issued in the first quarter of 2017(d) | | | | | | $ | 5,797 |
|
| |
(a)
| Redeemable at any time, in whole, or in part, at our option prior to 30 to 90 days of maturity date at the comparable German government bond rate, plus 0.15%; plus, in each case, accrued and unpaid interest. The fixed rate euro notes are also redeemable at our option, in whole, or in part, within 30 to 90 days of maturity date.credit cards receivables. |
| |
(b)(c)
| Upon the 2018 adoption of a new accounting standard related to financial assets and liabilities, available-for-sale equity securities were classified as equity securities. For additional information see Note 1B. |
|
| | | | | | | |
| The following table presents the net unrealized gains and losses for the period that relates to equity securities still held at the reporting date, calculated as follows: |
| (MILLIONS OF DOLLARS) | | Three Months Ended September 30, 2018 |
| Nine Months Ended September 30, 2018 |
|
Net gains recognized during the period on investments in equity securities(a) | | $ | 94 |
| $ | 460 |
|
| Less: Net gains recognized during the period on equity securities sold during the period | | (54 | ) | (90 | ) |
Net unrealized gains during the reporting period on equity securities still held at the reporting date(b) | | $ | 40 |
| $ | 370 |
|
| |
(a) | The weighted-average effective interest ratenet gains on investments in equity securities are reported in Other (income)/deductions––net and, for the euro notes at issuance was 0.23%third quarter and first nine months of 2018, include unrealized net gains on equity securities reflecting the adoption of a new accounting standard in the first quarter of 2018. For additional information, see Note 4. |
| |
(c)(b)
| The notes, issuedthird quarter of 2018 includes $8 million of unrealized net gains in U.S. dollars in Taiwan, are redeemable, at our option, in whole but not in part, on each March 17 on or after March 17, 2020. |
| |
(d)
| The aggregate amount at issuance date was $5,279 million. The increaseOther (income)/deductions––net reflecting the adoption of a new accounting standard in the amount sincefirst quarter of 2018 and $32 million of unrealized gains on other equity securities. The first nine months of 2018 includes $344 million of unrealized net gains in Other (income)/deductions––net reflecting the dateadoption of issuance is due to foreign currency exchange.a new accounting standard in the first quarter of 2018 and $26 million of unrealized gains on other equity securities. For additional information, see Note 1B and Note 4. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. Short-Term Borrowings
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides the maturity schedule of our Long-term debt outstanding as of October 1, 2017: |
| (MILLIONS OF DOLLARS) | | 2018 | | 2019 | | 2020 | | 2021 | | After 2021 | | Total |
| Maturities | | $ | 481 |
| | $ | 4,825 |
| | $ | 1,534 |
| | $ | 4,502 |
| | $ | 23,162 |
| | $ | 34,503 |
|
|
| | | | | | | | |
| Short-term borrowings include: |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | December 31,
2017 |
|
| Commercial paper | | $ | 2,600 |
| | $ | 6,100 |
|
| Current portion of long-term debt, principal amount | | 4,260 |
| | 3,532 |
|
Other short-term borrowings, principal amount(a) | | 537 |
| | 320 |
|
| Total short-term borrowings, principal amount | | 7,396 |
| | 9,951 |
|
| Net fair value adjustments related to hedging and purchase accounting | | (5 | ) | | 14 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (7 | ) | | (12 | ) |
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted | | $ | 7,385 |
| | $ | 9,953 |
|
| |
(a) | Other short-term borrowings primarily include cash collateral. For additional information, see Note 7F. |
D. Long-Term Debt
|
| | | | | | |
| In the third quarter of 2018, we issued the following senior unsecured notes: |
| | | | | Principal |
| (MILLIONS OF DOLLARS) | | Maturity Date | | As of September 30, 2018 |
3.000% notes(a) | | September 15, 2021 | | $ | 1,000 |
|
Floating rate notes (LIBOR plus 0.33%)(b) | | September 15, 2023 | | 300 |
|
3.200% notes(a) | | September 15, 2023 | | 1,000 |
|
3.600% notes(a) | | September 15, 2028 | | 1,000 |
|
4.100% notes(a) | | September 15, 2038 | | 700 |
|
4.200% notes(a) | | September 15, 2048 | | 1,000 |
|
| Total long-term debt issued in the third quarter of 2018 | | | | $ | 5,000 |
|
| |
(a) | Fixed rate notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. |
| |
(b) | Floating rate notes may not be redeemed by their terms prior to maturity. |
|
| | | | | | | | |
| The following table provides the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt: |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | December 31,
2017 |
|
| Total long-term debt, principal amount | | $ | 33,658 |
| | $ | 32,783 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 129 |
| | 872 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (142 | ) | | (125 | ) |
| Other long-term debt | | 7 |
| | 8 |
|
| Total long-term debt, carried at historical proceeds, as adjusted | | $ | 33,652 |
| | $ | 33,538 |
|
| Current portion of long-term debt, carried at historical proceeds, as adjusted | | $ | 4,255 |
| | $ | 3,546 |
|
E. Other Noncurrent Liabilities
Mylotarg (gemtuzumab ozogamicin)
In April 2018, the EU approved Mylotarg for the treatment of acute myeloid leukemia. In connection with the EU approval, we incurred an obligation to make guaranteed fixed annual payments over a ten-year period aggregating $301 million related to a research and development arrangement. We recorded the estimated net present value of $240 million as a liability and an intangible asset in Developed technology rights as of the approval date. In June 2018, we entered into a transaction with the obligee to buyout the remaining liability for the fixed annual payments for a lump sum payment of $224 million. As a result of the buyout transaction, the liability was extinguished and we recognized a non-cash $17 million pre-tax gain in Other (income)/deductions––net in the second quarter of 2018 (see Note 4).
Bosulif (bosutinib)
In December 2017, the U.S. FDA approved Bosulif for the treatment of patients with newly-diagnosed chronic-phase Ph+ CML. In connection with the U.S. approval, we incurred an obligation to make guaranteed fixed annual payments over a ten-
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
year period aggregating $416 million related to a research and development arrangement. We recorded the estimated net present value of $364 million as of the approval date as an intangible asset in Developed technology rights. In August 2018, we entered into a transaction with the obligee to buyout a portion of the remaining liability for the fixed annual payments for a lump sum payment of $71 million. As a result of the buyout transaction, the liability was reduced and we recognized a non-cash $9 million pre-tax gain in Other (income)/deductions––net in the third quarter of 2018. The present value of the remaining future payments as of September 30, 2018 is $208 million, of which $23 million is recorded in Other current liabilities and $185 million is recorded in Other noncurrent liabilities.
Besponsa (inotuzumab ozogamicin)
In August 2017, the U.S. FDA approved Besponsa (inotuzumab ozogamicin) and in June 2017, the EU approved Besponsa as monotherapy for the treatment of adults with relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia. In connection with the U.S. approval, we incurred an obligation to make guaranteed fixed annual payments over a nine-year period aggregating $296 million related to a research and development arrangement. As a result, we haveWe recorded the estimated net present value of $248 million as of the approval date as an intangible asset in Developed technology rights,. The present value of the remaining future payments as of September 30, 2018 is $240 million, of which $7 million is recorded in Other current liabilities and we have recorded $233 million is recorded in Other noncurrent liabilitiesand $15 millionin Other current liabilities as of October 1, 2017.. In connection with the EU approval, we incurred an obligation to make guaranteed fixed annual payments over a nine-year period aggregating $148 million related to a research and development arrangement. As a result, weWe recorded the estimated net present value of $123 million as of the approval date as an intangible asset in Developed technology rights,. The present value of the remaining future payments as of September 30, 2018 is $121 million, of which $3 million is recorded in Other current liabilities and we have$118 million is recorded $117 million in Other noncurrent liabilitiesand$6 million.
The differences between the estimated fair values in Other current liabilitiesthe Level 2 fair value hierarchy and carrying values of these obligations were not significant as of October 1, 2017. September 30, 2018.
F. Derivative Financial Instruments and Hedging Activities
We adopted a new accounting standard in the first quarter of 2018, as of January 2018. For additional information, see Note 1B.
Foreign Exchange Risk
AsA significant portion of October 1, 2017, the aggregate notional amount ofour revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. We manage our foreign exchange risk, in part, through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. We also manage our foreign exchange risk, depending on market conditions, through fair value, cash flow, and net investment hedging programs through the use of derivative financial instruments hedging or offsettingand foreign currency exposures was $31.5 billion.debt. These financial instruments serve to protect net income against the impact of remeasurement into another currency, or against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.
All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the consolidated balance sheet. The derivative financial instruments primarily hedge or offset exposures in the euro, Japanese yen, U.K. pound and U.K. pound. The maximum lengthSwedish krona. Changes in fair value are reported in earnings or in Other comprehensive income/(loss), depending on the nature and purpose of time over whichthe financial instrument (hedge or offset relationship) and the effectiveness of the hedge relationships, as follows:
Generally, we are hedging futurerecognize the gains and losses on foreign exchange cash flow relatescontracts that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged risk. Upon the adoption of the new standard in 2018, for certain foreign exchange contracts, we exclude an amount from the assessment of hedge effectiveness and recognize that excluded amount through an amortization approach. We also recognize the offsetting foreign exchange impact attributable to our $2.0 billion U.K. pound debt maturingthe hedged item in 2038.earnings.
We designateGenerally, we record in Other comprehensive income/(loss) gains or losses on foreign currency forward-exchangeexchange contracts that are designated as cash flow hedges and reclassify those amounts, as appropriate, into earnings in the same period or periods during which the hedged transaction affects earnings. Upon the adoption of the new standard in 2018, for certain foreign exchange contracts, we exclude an amount from the assessment of hedge effectiveness and recognize that excluded amount through an amortization approach.
Historically, as part of our net investment hedging program, we recognize the gain and loss impact on foreign exchange contracts designated as hedges of our net investments in earnings in three ways: over time––for the periodic net swap payments; immediately––to the extent of any change in the difference between the foreign exchange spot rate and forward rate; and upon sale or substantial liquidation of our net investments––to the extent of change in the foreign exchange spot rates. Upon the adoption of the new standard in 2018, for foreign exchange contracts, we exclude an amount from the
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
assessment of hedge effectiveness and recognize that excluded amount through an amortization approach. We record in Other comprehensive income/(loss) the foreign exchange gains and losses related to foreign exchange-denominated debt designated as a hedge of our net investments in foreign subsidiaries and reclassify those amounts into earnings upon the sale or substantial liquidation of our net investments.
For certain foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on foreign currency exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement.
As a part of our cash flow hedging program, we designate foreign exchange contracts to hedge a portion of our forecasted euro, Japanese yen, Chinese renminbi, Canadian dollar, U.K. pound, Canadian dollar, and Australian dollar-denominated intercompany inventory sales expected to occur no more than two years from the date of each hedge. As of
For the third quarter and first nine months ended October 1, 2017, the notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted sales was $3.9 billion, with a pre-tax loss of $97 million deferred in Accumulated other comprehensive loss. Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax loss of $63 million within the next 12 monthsany ineffectiveness is recognized immediately into Cost of sales. We recognized a $4 million loss in the third quarter of 2017 and a $67 million gain in the first nine months of 2017 as an offset to Cost of sales.
Interest Rate Risk
AsOur interest-bearing investments and borrowings are subject to interest rate risk. With respect to our investments, we strive to maintain a predominantly floating-rate basis position, but our strategy may change based on prevailing market conditions. We currently borrow primarily on a long-term, fixed rate basis. Historically, we strove to borrow primarily on a floating-rate basis; but in recent years we borrowed on a long-term, fixed-rate basis. From time to time, depending on market conditions, we will change the profile of October 1, 2017, the aggregate notional amount of interest rateour outstanding debt by entering into derivative financial instruments designated as fair value hedges was $12.4 billion.like interest rate swaps. We entered into derivative financial instruments to hedge or offset the fixed interest rates on the hedged item, matching the amount and timing of the hedged item. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.
We recognize the gains and losses on interest rate contracts that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged risk. We also recognize the offsetting earnings impact of fixed-rate debt attributable to the hedged risk in earnings.
For the third quarter and first nine months ended October 1, 2017, any ineffectiveness is recognized immediately into earnings. There is no significant ineffectiveness for these periods.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides the fair value of the derivative financial instruments and the related notional amounts presented between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments: |
| (MILLIONS OF DOLLARS) | | September 30, 2018 | | December 31, 2017 |
| | | | | Fair Value | | | | Fair Value |
| | | Notional | | Asset | | Liability | | Notional | | Asset | | Liability |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | |
Foreign exchange contracts(a) | | $ | 19,955 |
| | $ | 590 |
| | $ | 464 |
| | $ | 18,723 |
| | $ | 179 |
| | $ | 459 |
|
| Interest rate contracts | | 11,300 |
| | 335 |
| | 661 |
| | 12,430 |
| | 581 |
| | 178 |
|
| | | | | 925 |
| | 1,126 |
| | | | 760 |
| | 637 |
|
| | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
| Foreign exchange contracts | | $ | 16,798 |
| | 118 |
| | 48 |
| | $ | 14,300 |
| | 62 |
| | 54 |
|
| | | | | | | | | | | | | |
| Total | | | | $ | 1,043 |
| | $ | 1,174 |
| | | | $ | 822 |
| | $ | 691 |
|
| |
(a) | As of September 30, 2018, the notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.4 billion. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: |
| | | Three Months Ended |
| | | Amount of Gains/(Losses) Recognized in OID(a), (b), (c) | | Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d) | | Amount of Gains/(Losses) Reclassified from OCI into OID and COS (Effective Portion)(a), (d) |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | | | | | | | | | | | |
| Foreign currency swaps | | $ | — |
| | $ | — |
| | $ | 218 |
| | $ | 87 |
| | $ | 148 |
| | $ | (39 | ) |
| Foreign currency forward-exchange contracts | | 1 |
| | 2 |
| | (269 | ) | | (212 | ) | | (204 | ) | | (111 | ) |
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency forward-exchange contracts | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments Not Designated as Hedges: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency forward-exchange contracts | | 33 |
| | 20 |
| | — |
| | — |
| | — |
| | — |
|
| Foreign currency swaps | | — |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency long-term debt | | — |
| | — |
| | (166 | ) | | — |
| | — |
| | — |
|
| All other net | | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| | | $ | 34 |
| | $ | 18 |
| | $ | (216 | ) | | $ | (126 | ) | | $ | (55 | ) | | $ | (150 | ) |
| | | | | | | | | | | | | |
| | | Nine Months Ended |
| | | Amount of Gains/(Losses) Recognized in OID(a), (b), (c) | | Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d) | | Amount of Gains/(Losses) Reclassified from OCI into OID and COS (Effective Portion)(a), (d) |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | | | | | | | | | | | |
| Foreign currency swaps | | $ | — |
| | $ | — |
| | $ | 455 |
| | $ | (204 | ) | | $ | 419 |
| | $ | (165 | ) |
| Foreign currency forward-exchange contracts | | (5 | ) | | 1 |
| | (604 | ) | | (770 | ) | | (26 | ) | | (118 | ) |
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency forward-exchange contracts | | — |
| | 1 |
| | — |
| | (15 | ) | | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments Not Designated as Hedges: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency forward-exchange contracts | | (111 | ) | | (49 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign currency swaps | | (1 | ) | | (9 | ) | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign currency short-term borrowings | | — |
| | — |
| | — |
| | (26 | ) | | — |
| | — |
|
| Foreign currency long-term debt | | — |
| | — |
| | (518 | ) | | — |
| | — |
| | — |
|
| All other net | | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
|
| | | $ | (117 | ) | | $ | (56 | ) | | $ | (666 | ) | | $ | (1,014 | ) | | $ | 394 |
| | $ | (283 | ) |
| |
(a)
| OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. COS = Cost of sales, included in Cost of sales in the condensed consolidated statements of income.
|
OCI = Other comprehensive income/(loss), included in thecondensed consolidated statements of comprehensive income. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: |
| |
| Amount of
Gains/(Losses)
Recognized in OID(a), (b) |
| Amount of Gains/(Losses)
Recognized in OCI(a), (c) |
| Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (c) |
| (MILLIONS OF DOLLARS) | | Sep 30,
2018 |
| | Oct 1,
2017 |
| | Sep 30,
2018 |
| | Oct 1,
2017 |
| | Sep 30,
2018 |
| | Oct 1,
2017 |
|
| Three Months Ended | | | | | | | | | | | | |
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | | | | | | | | | | | |
Foreign exchange contracts(d) | | $ | — |
| | $ | 1 |
| | $ | 183 |
| | $ | (51 | ) | | $ | 198 |
| | $ | (56 | ) |
| Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | | — |
| | — |
| | 39 |
| | — |
| | 36 |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments in Fair Value Hedge Relationships: | | | | | | | | | | | | |
| Interest rate contracts | | (195 | ) | | 10 |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item gain/(loss) | | 195 |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | 1 |
| | (11 | ) | | — |
| | — |
| | — |
| | — |
|
| Hedged item gain/(loss) | | (1 | ) | | 11 |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign exchange contracts | | — |
| | — |
| | 43 |
| | — |
| | — |
| | — |
|
| The portion of gains/(losses) on foreign exchange contracts excluded from the assessment of hedge effectiveness | | — |
| | — |
| | 14 |
| | — |
| | 21 |
| | — |
|
| | | | | | | | | | | | | |
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
Foreign currency short-term borrowings(e) | | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
|
Foreign currency long-term debt(e) | | — |
| | — |
| | 17 |
| | (166 | ) | | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments Not Designated as Hedges: | | | | | | | | | | | | |
| Foreign exchange contracts | | 150 |
| | 33 |
| | — |
| | — |
| | — |
| | — |
|
| All other net | | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
| | | $ | 150 |
| | $ | 34 |
| | $ | 304 |
| | $ | (216 | ) | | $ | 256 |
| | $ | (55 | ) |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of
Gains/(Losses)
Recognized in OID(a), (b) | | Amount of Gains/(Losses)
Recognized in OCI(a), (c) | | Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (c) |
| (MILLIONS OF DOLLARS) | | Sep 30,
2018 |
| | Oct 1,
2017 |
| | Sep 30,
2018 |
| | Oct 1,
2017 |
| | Sep 30,
2018 |
| | Oct 1,
2017 |
|
| Nine Months Ended | | | | | | | | | | | | |
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
|
Foreign exchange contracts(d) | | $ | — |
| | $ | (5 | ) | | $ | 147 |
| | $ | (149 | ) | | $ | (204 | ) | | $ | 394 |
|
| Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | | — |
| | — |
| | 87 |
| | — |
| | 84 |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments in Fair Value Hedge Relationships: | | | | | | | | | | | | |
| Interest rate contracts | | (715 | ) | | 19 |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item gain/(loss) | | 715 |
| | (19 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | 5 |
| | (19 | ) | | — |
| | — |
| | — |
| | — |
|
| Hedged item gain/(loss) | | (5 | ) | | 19 |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | | | | | | | | | | | |
| Foreign exchange contracts | | — |
| | — |
| | 191 |
| | — |
| | — |
| | — |
|
| The portion of gains/(losses) on foreign exchange contracts excluded from the assessment of hedge effectiveness | | — |
| | — |
| | 41 |
| | — |
| | 47 |
| | — |
|
| | | | | | | | | | | | | |
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | | | | | | | | | | | |
Foreign currency short-term borrowings(e) | | — |
| | — |
| | 50 |
| | — |
| | — |
| | — |
|
Foreign currency long-term debt(e) | | — |
| | — |
| | 111 |
| | (518 | ) | | — |
| | — |
|
| | | | | | | | | | | | | |
| Derivative Financial Instruments Not Designated as Hedges: | | | | | | | | | | | | |
| Foreign exchange contracts | | 156 |
| | (112 | ) | | — |
| | — |
| | — |
| | — |
|
| All other net | | — |
| | — |
| | 1 |
| | 1 |
| | 1 |
| | — |
|
| | | $ | 156 |
| | $ | (117 | ) | | $ | 629 |
| | $ | (666 | ) | | $ | (72 | ) | | $ | 394 |
|
| |
(b)(a)
| Includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges (primarily interest rate swaps)OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. COS = Cost of Sales, included in Cost of sales in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), as well asincluded in the offsetting gains and losses attributable to the hedged items in such hedging relationships.condensed consolidated statements of comprehensive income. |
| |
(c)(b)
| ThereFor the third quarter and first nine months ended October 1, 2017, there was no significant ineffectiveness for any period presented.ineffectiveness. |
| |
(d)(c)
| For derivative financial instruments in cash flow hedge relationships, the effective portion isgains and losses are included in Other comprehensive income–income/(loss)––Unrealized holding lossesgains/(losses) on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income–income/(loss)––Foreign currency translation adjustments, net. |
| |
(d) | Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $120 million within the next 12 months into Cost of sales. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $1.8 billion U.K. pound debt maturing in 2043. |
| |
(e) | Short-term borrowings include foreign currency short-term borrowings with carrying values of $1.5 billion as of September 30, 2018, which are used as hedging instruments in net investment hedges. Long-term debt includes foreign currency long-term borrowings with carrying values of $3.2 billion as of September 30, 2018, which are used as hedging instruments in net investment hedges. |
For information about the fair value of our derivative financial instruments, and the impact on our condensed consolidated balance sheets, see Note 7A above. |
| | | | | | | | |
| The following table provides the total amount of each income and expense line in which the results of fair value or cash flow hedges are recorded: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30, 2018 |
| | September 30, 2018 |
|
| Cost of sales | | $ | 2,694 |
| | $ | 8,173 |
|
| Other (income)/deductions—net | | (414 | ) | | (1,143 | ) |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | |
| The following table provides the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges: |
| | | Carrying Amount of Hedged Assets/Liabilities |
| | Cumulative Amount of Fair Value Hedging Adjustment Gains/(Losses) Included in the Carrying Amount of the Hedged Assets/Liabilities |
|
| (MILLIONS OF DOLLARS) | | September 30, 2018 |
| | September 30, 2018 |
|
| Short-term investments | | $ | 156 |
| | $ | — |
|
| Long-term investments | | 45 |
| | (1 | ) |
| Short-term borrowings, including current portion of long-term debt | | 1,490 |
| | 8 |
|
| Long-term debt | | 9,548 |
| | 407 |
|
Certain of our derivative instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce ourboth counterparties’ exposure to our risk of defaulting on amounts owed.owed by the other party. As of October 1, 2017,September 30, 2018, the aggregate fair value of these derivative instruments that are in a net liability position was $491$545 million, for which we have posted collateral of $505$535 million in the normal course of business. If there had been a ratings downgrade to below an A rating by S&P or the equivalent rating by Moody’s, we would not have been required to post any additional collateral to our counterparties.counterparties.
G. Credit Risk
On an ongoing basis, we review the creditworthiness of counterparties to our foreign exchange and interest rate agreements and do not expect to incur a significant loss from failure of any counterparties to perform under the agreements. There are no significant concentrations of credit risk related to our financial instruments with any individual counterparty, except for certain significant customers. For additional information as to significant customers, see Notes to Consolidated Financial Statements––Note 18C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 2017 Financial Report. As of October 1, 2017,September 30, 2018, we had $946 millionamounts due from a well-diversified, high quality group of technology companiesbanks ($2.1 billion) from around the world. For details about our investments, see Note 7B above.above.
In general, there is no requirement for collateral from customers. However, derivative financial instruments are executed under credit-support agreements that provide for the ability to request to receive cash collateral, payments depending on levels of exposure, our credit rating and the credit rating of the counterparty. As of October 1, 2017, we received cash collateral of $232 million from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts. With respect to the collateral received, the obligations are reported in Short-term borrowings, including current portion of long-term debt.counterparty, see Note 7F above.
Note 8. Inventories
|
| | | | | | | | |
The following table provides the components of Inventories: |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | December 31,
2016 |
|
| Finished goods | | $ | 2,977 |
| | $ | 2,293 |
|
| Work-in-process | | 4,070 |
| | 3,696 |
|
| Raw materials and supplies | | 879 |
| | 793 |
|
Inventories(a) | | $ | 7,925 |
| | $ | 6,783 |
|
Noncurrent inventories not included above(b) | | $ | 669 |
| | $ | 683 |
|
|
| | | | | | | | |
The following table provides the components of Inventories: |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | December 31,
2017 |
|
| Finished goods | | $ | 2,581 |
| | $ | 2,883 |
|
| Work-in-process | | 4,764 |
| | 3,908 |
|
| Raw materials and supplies | | 839 |
| | 788 |
|
Inventories(a) | | $ | 8,184 |
| | $ | 7,578 |
|
Noncurrent inventories not included above(b) | | $ | 576 |
| | $ | 683 |
|
| |
(a) | The change from December 31, 20162017 reflects the build of inventory primarilyincreases for and in advance of new or potential product launches and increasescertain products to meet targeted levels for certain products in the normal course of business, including those relatedinventory build for supply recovery, network strategy and new product launches, partially offset by a decrease due to demand.foreign exchange. |
| |
(b) | Included in Other noncurrent assets. There are no recoverability issues associated with these amounts. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9. Identifiable Intangible Assets and Goodwill
A. Identifiable Intangible Assets
Balance Sheet Information
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides the components of Identifiable intangible assets: |
| | | October 1, 2017 | | December 31, 2016 |
| (MILLIONS OF DOLLARS) | | Gross Carrying Amount |
| | Accumulated Amortization |
| | Identifiable Intangible Assets, less Accumulated Amortization |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Identifiable Intangible Assets, less Accumulated Amortization |
|
| Finite-lived intangible assets | | | | | | | | | | | | |
Developed technology rights(a) | | $ | 89,585 |
| | $ | (53,960 | ) | | $ | 35,625 |
| | $ | 83,390 |
| | $ | (49,650 | ) | | $ | 33,740 |
|
| Brands | | 2,135 |
| | (1,127 | ) | | 1,008 |
| | 2,092 |
| | (1,032 | ) | | 1,060 |
|
| Licensing agreements and other | | 1,930 |
| | (1,071 | ) | | 859 |
| | 1,869 |
| | (1,005 | ) | | 864 |
|
| | | 93,650 |
| | (56,158 | ) | | 37,492 |
| | 87,351 |
| | (51,687 | ) | | 35,664 |
|
| Indefinite-lived intangible assets | | | | | | | | | | | | |
| Brands and other | | 6,937 |
| |
|
| | 6,937 |
| | 6,883 |
| |
|
| | 6,883 |
|
IPR&D(a) | | 5,292 |
| |
|
| | 5,292 |
| | 10,101 |
| |
|
| | 10,101 |
|
| | | 12,229 |
| |
|
| | 12,229 |
| | 16,984 |
| |
|
| | 16,984 |
|
Identifiable intangible assets(b) | | $ | 105,879 |
| | $ | (56,158 | ) | | $ | 49,721 |
| | $ | 104,335 |
| | $ | (51,687 | ) | | $ | 52,648 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
The following table provides the components of Identifiable intangible assets: |
| | | September 30, 2018 | | December 31, 2017 |
| (MILLIONS OF DOLLARS) | | Gross Carrying Amount |
| | Accumulated Amortization |
| | Identifiable Intangible Assets, less Accumulated Amortization |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Identifiable Intangible Assets, less Accumulated Amortization |
|
| Finite-lived intangible assets | | | | | | | | | | | | |
Developed technology rights(a) | | $ | 92,123 |
| | $ | (57,786 | ) | | $ | 34,337 |
| | $ | 89,550 |
| | $ | (54,785 | ) | | $ | 34,765 |
|
| Brands | | 2,126 |
| | (1,228 | ) | | 898 |
| | 2,134 |
| | (1,152 | ) | | 982 |
|
| Licensing agreements and other | | 1,938 |
| | (1,160 | ) | | 777 |
| | 1,911 |
| | (1,096 | ) | | 815 |
|
| | | 96,187 |
| | (60,175 | ) | | 36,012 |
| | 93,595 |
| | (57,033 | ) | | 36,562 |
|
| Indefinite-lived intangible assets | | | | | | | | | | | | |
| Brands and other | | 6,909 |
| |
|
| | 6,909 |
| | 6,929 |
| |
|
| | 6,929 |
|
IPR&D(a) | | 2,385 |
| |
|
| | 2,385 |
| | 5,249 |
| |
|
| | 5,249 |
|
| | | 9,294 |
| |
|
| | 9,294 |
| | 12,179 |
| |
|
| | 12,179 |
|
Identifiable intangible assets(b) | | $ | 105,481 |
| | $ | (60,175 | ) | | $ | 45,306 |
| | $ | 105,774 |
| | $ | (57,033 | ) | | $ | 48,741 |
|
| |
(a) | The changes in the gross carrying amount of Developed technology rights andIPR&D primarily reflect (i) the transfer of $4.8$2.7 billion from IPR&D to Developed technology rights to reflect the approval of Eucrisa,Xtandi in the U.S. for the treatment of men with non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas, and (ii) the $240 million of Developed technology rights and IPR&D acquired as part of the acquisition of AstraZeneca’s small molecule anti-infectives business (see Note 2A), (iii) the Developed technology rights of $371 million recorded in connection with the EU and U.S. approvalsapproval of BesponsaMylotarg (see Note 7E), partially offset by (iv) measurement period adjustments related to Medivation (see Note 2A) and (v) impairments of Developed technology rights (see Note 4). |
| |
(b)
| The decrease in Identifiable intangible assets, less accumulated amortization, is primarily due to amortization, measurement period adjustments related to Medivation (see Note 2A), as well as impairments of Developed technology rights (see Note 4), partially offset by assets acquired as part of the acquisition of AstraZeneca’s small molecule anti-infectives business (see Note 2A) and the assets recorded in connection with the EU and U.S. approvals of Besponsa (see Note 7E).
|
(b) The decrease in Identifiable intangible assets, less accumulated amortization, is primarily due to amortization, partially offset by additions, mainly consisting of $240 million of Developed technology rights recorded in connection with the EU approval of Mylotarg (see Note 7E). |
| | | | | | | | | |
| Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: |
| | | October 1, 2017 |
| | | IH | | EH | | WRD |
| Developed technology rights | | 68 | % | | 32 | % | | — | % |
| Brands, finite-lived | | 75 | % | | 25 | % | | — | % |
| Brands, indefinite-lived | | 71 | % | | 29 | % | | — | % |
| IPR&D | | 80 | % | | 13 | % | | 7 | % |
|
| | | | | | | | | |
| Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: |
| | | September 30, 2018 |
| | | IH | | EH | | WRD |
| Developed technology rights | | 70 | % | | 29 | % | | — |
|
| Brands, finite-lived | | 75 | % | | 25 | % | | — |
|
| Brands, indefinite-lived | | 71 | % | | 29 | % | | — |
|
| IPR&D | | 64 | % | | 21 | % | | 15 | % |
Amortization
Total amortization expense for finite-lived intangible assets was $1.3 billion for the third quarter of 2018 and $1.2 billion for the third quarter of 2017, and $988 million$3.7 billion for the third quarterfirst nine months of 2016,2018 and $3.6 billion for the first nine months of 2017 and $3.0 billion for the first nine months of 2016.
B. Goodwill
|
| | | | | | | | | | | | |
The following table provides the components of and changes in the carrying amount of Goodwill: |
| (MILLIONS OF DOLLARS) | | IH | | EH | | Total |
| Balance, December 31, 2017 | | $ | 31,141 |
| | $ | 24,811 |
| | $ | 55,952 |
|
Other(a) | | (178 | ) | | (160 | ) | | (338 | ) |
| Balance, September 30, 2018 | | $ | 30,964 |
| | $ | 24,651 |
| | $ | 55,614 |
|
| |
(a) | Primarily reflects the impact of foreign exchange, as well as the contribution of the allogeneic CAR T developmental program assets and operations to Allogene that constituted a business for accounting purposes (see Note 2B). |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Goodwill
|
| | | | | | | | | | | | |
The following table provides the components of and changes in the carrying amount of Goodwill: |
| (MILLIONS OF DOLLARS) | | IH | | EH | | Total |
| Balance, December 31, 2016 | | $ | 30,134 |
| | $ | 24,315 |
| | $ | 54,449 |
|
Additions(a) | | 572 |
| | 92 |
| | 664 |
|
Other(b) | | 491 |
| | 475 |
| | 966 |
|
| Balance, October 1, 2017 | | $ | 31,197 |
| | $ | 24,882 |
| | $ | 56,078 |
|
| |
(a)
| IH additions primarily represent measurement period adjustments related to our Medivation acquisition, and EH additions relate to our acquisition of AstraZeneca’s small molecule anti-infectives business, which are subject to change until we complete the valuation of assets acquired and liabilities assumed (see Note 2A).
|
| |
(b)
| Primarily reflects the impact of foreign exchange and an adjustment of our estimate of goodwill associated with the HIS net assets sold. |
Note 10. Pension and Postretirement Benefit Plans
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides the components of net periodic benefit cost/(income): |
| | | Three Months Ended |
| | | Pension Plans | | |
| | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
|
| Net periodic benefit cost/(credit): | | | | | | | | | | | | | | | | |
|
| Service cost | | $ | 67 |
| | $ | 69 |
| | $ | 6 |
| | $ | 5 |
| | $ | 44 |
| | $ | 41 |
| | $ | 10 |
| | $ | 11 |
|
| Interest cost | | 157 |
| | 218 |
| | 13 |
| | 18 |
| | 52 |
| | 58 |
| | 23 |
| | 33 |
|
| Expected return on plan assets | | (248 | ) | | (239 | ) | | — |
| | — |
| | (87 | ) | | (95 | ) | | (9 | ) | | (8 | ) |
| Amortization of: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Actuarial losses | | 91 |
| | 99 |
| | 12 |
| | 9 |
| | 29 |
| | 23 |
| | 8 |
| | 9 |
|
| Prior service costs (credits) | | — |
| | 1 |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | (45 | ) | | (45 | ) |
| Curtailments | | 1 |
| | 2 |
| | — |
| | 1 |
| | (2 | ) | | — |
| | (3 | ) | | (8 | ) |
| Settlements | | 30 |
| | 21 |
| | 7 |
| | 7 |
| | — |
| | 1 |
| | — |
| | — |
|
| | | $ | 99 |
| | $ | 170 |
| | $ | 39 |
| | $ | 39 |
| | $ | 35 |
| | $ | 27 |
| | $ | (17 | ) | | $ | (9 | ) |
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended |
| | | Pension Plans | | |
| | | U.S. Qualified(a) | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
|
| Net periodic benefit cost/(credit): | | | | | | | | | | | | | | | | |
| Service cost | | $ | 202 |
| | $ | 193 |
| | $ | 18 |
| | $ | 14 |
| | $ | 127 |
| | $ | 126 |
| | $ | 32 |
| | $ | 31 |
|
| Interest cost | | 478 |
| | 486 |
| | 41 |
| | 40 |
| | 152 |
| | 178 |
| | 68 |
| | 77 |
|
| Expected return on plan assets | | (759 | ) | | (721 | ) | | — |
| | — |
| | (256 | ) | | (291 | ) | | (27 | ) | | (25 | ) |
| Amortization of: | | | | | | | | | | | | | | | | |
| Actuarial losses | | 302 |
| | 297 |
| | 37 |
| | 27 |
| | 86 |
| | 70 |
| | 23 |
| | 23 |
|
| Prior service costs (credits) | | 3 |
| | 4 |
| | (1 | ) | | (1 | ) | | (3 | ) | | (2 | ) | | (137 | ) | | (127 | ) |
| Curtailments | | 10 |
| | 5 |
| | — |
| | 1 |
| | (2 | ) | | (1 | ) | | (15 | ) | | (14 | ) |
| Settlements | | 54 |
| | 52 |
| | 32 |
| | 23 |
| | 3 |
| | 2 |
| | — |
| | — |
|
| | | $ | 292 |
| | $ | 316 |
| | $ | 127 |
| | $ | 105 |
| | $ | 106 |
| | $ | 81 |
| | $ | (57 | ) | | $ | (36 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides the components of net periodic benefit cost/(credit): |
| | | Three Months Ended |
| | | Pension Plans | | |
| | | U.S. Qualified(a) | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
|
Net periodic benefit cost/(credit)(b): | | | | | | | | | | | | | | | | |
|
Service cost(c) | | $ | — |
| | $ | 67 |
| | $ | — |
| | $ | 6 |
| | $ | 33 |
| | $ | 44 |
| | $ | 10 |
| | $ | 10 |
|
| Interest cost | | 149 |
| | 157 |
| | 14 |
| | 13 |
| | 52 |
| | 52 |
| | 18 |
| | 23 |
|
| Expected return on plan assets | | (259 | ) | | (248 | ) | | — |
| | — |
| | (89 | ) | | (87 | ) | | (9 | ) | | (9 | ) |
| Amortization of: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
Actuarial losses(c) | | 30 |
| | 91 |
| | 3 |
| | 12 |
| | 25 |
| | 29 |
| | 2 |
| | 8 |
|
| Prior service credits | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | (45 | ) | | (45 | ) |
| Curtailments | | 1 |
| | 1 |
| | 1 |
| | — |
| | (4 | ) | | (2 | ) | | (1 | ) | | (3 | ) |
| Settlements | | 38 |
| | 30 |
| | 3 |
| | 7 |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | (40 | ) | | $ | 99 |
| | $ | 20 |
| | $ | 39 |
| | $ | 17 |
| | $ | 35 |
| | $ | (26 | ) | | $ | (17 | ) |
| |
| | | Nine Months Ended |
| | | Pension Plans | | |
| | | U.S. Qualified(a) | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
|
Net periodic benefit cost/(credit)(b): | | | | | | | | | | | | | | | | |
Service cost(c) | | $ | — |
| | $ | 202 |
| | $ | — |
| | $ | 18 |
| | $ | 104 |
| | $ | 127 |
| | $ | 29 |
| | $ | 32 |
|
| Interest cost | | 450 |
| | 478 |
| | 40 |
| | 41 |
| | 160 |
| | 152 |
| | 54 |
| | 68 |
|
| Expected return on plan assets | | (783 | ) | | (759 | ) | | — |
| | — |
| | (274 | ) | | (256 | ) | | (28 | ) | | (27 | ) |
| Amortization of: | | | | | | | | | | | | | | | | |
Actuarial losses(c) | | 90 |
| | 302 |
| | 10 |
| | 37 |
| | 77 |
| | 86 |
| | 5 |
| | 23 |
|
| Prior service costs/(credits) | | 1 |
| | 3 |
| | (1 | ) | | (1 | ) | | (3 | ) | | (3 | ) | | (135 | ) | | (137 | ) |
| Curtailments | | 11 |
| | 10 |
| | 1 |
| | — |
| | (4 | ) | | (2 | ) | | (15 | ) | | (15 | ) |
| Settlements | | 84 |
| | 54 |
| | 24 |
| | 32 |
| | — |
| | 3 |
| | — |
| | — |
|
| | | $ | (147 | ) | | $ | 292 |
| | $ | 75 |
| | $ | 127 |
| | $ | 61 |
| | $ | 106 |
| | $ | (89 | ) | | $ | (57 | ) |
| |
(a) | In Aprilthe second quarter of 2017, we settled the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. We purchased a group annuity contract on behalf of the remaining plan participants with a third-party insurance provider. As a result, we were relieved of the $156 million net pension benefit obligation and recorded a pretaxpre-tax settlement gain of $41 million, partially offset by the recognition of actuarial losses and prior service costs upon plan settlement of approximately $30 million in Restructuring charges Other (income)/deductions––net (see Note 3). |
| |
(b) | We adopted a new accounting standard on January 1, 2018 that requires the net periodic pension and certain acquisition-relatedpostretirement benefit costs during other than service costs be presented in Other (income)/deductions––net on the second quartercondensed consolidated statements of 2017 (see income. For additional information, see Note 3)1B and Note 4. |
| |
(c) | Effective January 1, 2018, we froze two significant defined benefit pension plans to future benefit accruals in the U.S. and U.K. and as a result, service costs for those plans are eliminated. In addition, due to the plan freeze, the average amortization period for the U.S. qualified plans and U.S. supplemental (non-qualified) plans was extended to the expected life expectancy of the plan participants, whereas the average amortization period in prior years utilized the expected future service period of plan participants. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of and for the nine months ended October 1, 2017, we contributed and expect to contribute in 2017 from our general assets as follows: |
| | | | | | | | | | | | | | | | |
| | | Pension Plans | | |
| (MILLIONS OF DOLLARS) | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| Contributions from our general assets for the nine months ended October 1, 2017 | | $ | 1,095 |
| | $ | 121 |
| | $ | 134 |
| | $ | 158 |
|
Expected contributions from our general assets during 2017(a) | | $ | 1,095 |
| | $ | 146 |
| | $ | 170 |
| | $ | 204 |
|
|
| | | | | | | | | | | | | | | | |
| The following table provides the amounts we contributed, and the amounts we expect to contribute during 2018, to our pension and postretirement plans from our general assets for the periods indicated: |
| | | Pension Plans | | |
| (MILLIONS OF DOLLARS) | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| Contributions from our general assets for the nine months ended September 30, 2018 | | $ | 500 |
| | $ | 118 |
| | $ | 174 |
| | $ | 108 |
|
Expected contributions from our general assets during 2018(a) | | 500 |
| | 137 |
| | 229 |
| | 149 |
|
| |
(a) | Contributions expected to be made for 20172018 are inclusive of amounts contributed during the nine months ended October 1, 2017,September 30, 2018, including the $1.0 billion$500 million voluntary contribution that was made in January 2017February 2018 for the U.S. qualified plans, which was considered pre-funding for future anticipated mandatory contributions and is also expected to reduce Pension Benefit Guaranty Corporation variable rate premiums. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments. |
Note 11. Earnings Per Common Share Attributable to Common Shareholders
| | The following table provides the detailed calculation of Earnings per common share (EPS): | |
The following table provides the detailed calculation of EPS: | | The following table provides the detailed calculation of EPS: |
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (IN MILLIONS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| EPS Numerator––Basic | | | | | | | | | | | | | | | | |
Income from continuing operations(a) | | $ | 2,858 |
| | $ | 1,355 |
| | $ | 9,064 |
| | $ | 6,465 |
| | $ | 4,111 |
| | $ | 2,858 |
| | $ | 11,562 |
| | $ | 9,064 |
|
| Less: Net income attributable to noncontrolling interests | | 18 |
| | — |
| | 32 |
| | 25 |
| | 8 |
| | 18 |
| | 25 |
| | 32 |
|
Income from continuing operations attributable to Pfizer Inc.(a) | | 2,840 |
| | 1,355 |
| | 9,032 |
| | 6,440 |
| | 4,103 |
| | 2,840 |
| | 11,537 |
| | 9,032 |
|
| Less: Preferred stock dividends––net of tax | | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
|
Income from continuing operations attributable to Pfizer Inc. common shareholders(a) | | 2,839 |
| | 1,355 |
| | 9,032 |
| | 6,439 |
| | 4,103 |
| | 2,839 |
| | 11,536 |
| | 9,032 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | 1 |
| | — |
| | 11 |
| | — |
| | 10 |
| | 1 |
|
Net income attributable to Pfizer Inc. common shareholders(a) | | $ | 2,839 |
| | $ | 1,355 |
| | $ | 9,033 |
| | $ | 6,439 |
| | $ | 4,114 |
| | $ | 2,839 |
| | $ | 11,546 |
| | $ | 9,033 |
|
| EPS Numerator––Diluted | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions(a) | | $ | 2,840 |
| | $ | 1,355 |
| | $ | 9,032 |
| | $ | 6,440 |
| | $ | 4,103 |
| | $ | 2,840 |
| | $ | 11,537 |
| | $ | 9,032 |
|
| Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | | — |
| | — |
| | 1 |
| | — |
| | 11 |
| | — |
| | 10 |
| | 1 |
|
Net income attributable to Pfizer Inc. common shareholders and assumed conversions(a) | | $ | 2,840 |
| | $ | 1,355 |
| | $ | 9,034 |
| | $ | 6,440 |
| | $ | 4,114 |
| | $ | 2,840 |
| | $ | 11,546 |
| | $ | 9,034 |
|
| EPS Denominator | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Weighted-average number of common shares outstanding––Basic | | 5,951 |
| | 6,066 |
| | 5,972 |
| | 6,095 |
| | 5,875 |
| | 5,951 |
| | 5,899 |
| | 5,972 |
|
Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements(a) | | 89 |
| | 84 |
| | 85 |
| | 80 |
| | 112 |
| | 89 |
| | 99 |
| | 85 |
|
Weighted-average number of common shares outstanding––Diluted(a) | | 6,041 |
| | 6,150 |
| | 6,057 |
| | 6,175 |
| | 5,986 |
| | 6,041 |
| | 5,998 |
| | 6,057 |
|
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a), (b) | | 47 |
| | 38 |
| | 47 |
| | 60 |
| |
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | | | 5 |
| | 47 |
| | 3 |
| | 47 |
|
| |
(a) | Amounts for the third quarter and first nine months ended October 2, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016, that requires, when applying the treasury stock method for shares that could be repurchased, that the assumed proceeds no longer include the amount of excess tax benefit (see Note 1B).
|
| |
(b)
| These common stock equivalents were outstanding for the periods presented, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 12. CommitmentsContingencies and ContingenciesCertain Commitments
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business.business, including tax and legal contingencies. For a discussion of our tax contingencies, see Note 5B.
Accelerated share repurchase agreement––On February 2, 2017, we entered into an accelerated share repurchase agreement with Citibank to repurchase $5 billion5C. For a discussion of our common stock. Pursuant to the terms of the agreement, on February 6, 2017, we paid $5 billion to Citibank and received an initial delivery of approximately 126 million shares of our common stock from Citibank at a price of $31.73 per share, which represented, based on the closing price of our common stock on the NYSE on February 2, 2017, approximately 80% of the notional amount of the accelerated share repurchase agreement. On May 16, 2017, the accelerated share repurchase agreement with Citibank was completed, which, per the terms of the agreement, resulted in Citibank owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 24 million shares of our common stock from Citibank on May 19, 2017. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $33.31 per share. The common stock received is included in Treasury Stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. At October 1, 2017, our remaining share-purchase authorization was approximately $6.4 billion.
Pending approval in the EU of Mylotarg––Mylotarg was developed, in part, through a research arrangement with a third party. If Mylotarg is approved in the EU in 2018 for the treatment of acute myeloid leukemia, we will incur an obligation for additional fixed payments over a 10-year period aggregating $310 million.
A. Legal Proceedings
Our non-taxlegal contingencies include, but are not limited to, the following:
Patent litigation, which typically involves challenges to the coverage and/or validity of patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in loss of patent protection for a drug, a significant loss of revenues from that drug or impairment of the value of associated assets.
Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters.
Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter.
Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries.jurisdictions.
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.substantial, and/or criminal charges.
We believe that our claims and defenses in these matters in which we are a defendant are substantial, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of our contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.
Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
The principal pending matters to which we are a party are discussed below. In determining whether a pending matter is a principal matter, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things,
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be, or is, a class action and, if not certified, our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; whether related actions have been transferred to multidistrict litigation; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters in which we are the plaintiff, we consider, among other things, the financial significance of the product protected by the patent.patent(s) at issue. As a result of considering qualitative factors in our determination of principal matters, there are some matters discussed below with respect to which management believes that the likelihood of possible loss in excess of amounts accrued is remote.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A1. Legal Proceedings––Patent Litigation
Like other pharmaceutical companies, we are involved in numerous suits relating to our patents, including but not limited to, those discussed below. Most of the suits involve claims by generic drug manufacturers that patents covering our products, processes or dosage forms are invalid and/or do not cover the product of the generic drug manufacturer. Also, counterclaims, as well as various independent actions, have been filed alleging that our assertions of, or attempts to enforce, patent rights with respect to certain products constitute unfair competition and/or violations of antitrust laws. In addition to the challenges to the U.S. patents on a number of our products that are discussed below, patent rights to certain of our products are being challenged in various other countries.jurisdictions. We are also party to other patent damages suits in various jurisdictions pursuant to which generic drug manufacturers, payers, governments or other parties are seeking damages from us for allegedallegedly causing delay of generic entry. Additionally, our licensing and collaboration partners face challenges by generic drug manufacturers to patents covering several of their products that may impact ourfor which we have licenses or co-promotion rights to such products.rights. We also are often involved in other proceedings, such as inter partes review, post-grant review, re-examination or opposition proceedings, before the U.S. Patent and Trademark Office, the European Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual property rights of others. Also, if one of our patents is found to be invalid by such proceedings, generic or competitive products could be introduced into the market resulting in the erosion of sales of our existing products. For example, several of the patents in our pneumococcal vaccine portfolio have beenwere challenged in inter partes review and post-grant review proceedings in the United States. In June 2018, the Patent Trial and Appeal Board ruled on one patent, holding that one claim was valid and that all other claims were invalid. The party challenging that patent has appealed the decision. Challenges to other patents remain pending before the U.S. Patent and Trademark Office.The invalidation of these patents could potentially allow a competitor pneumococcal vaccine into the marketplace. We are also subject to patent litigation pursuant to which one or more third parties seeks damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities. For example, our subsidiary, Hospira issubsidiaries are involved in patent and patent-related disputes over itstheir attempts to bring generic pharmaceutical and biosimilar products to market. If one of our marketed products is found to infringe valid patent rights of a third party, such third party may be awarded significant damages, or we may be prevented from further sales of that product. Such damages may be enhanced as much as three-fold in the event that we or one of our subsidiaries, like Hospira, is found to have willfully infringed valid patent rights of a third party.
Actions In Which We Are The Plaintiff
Bosulif (bosutinib)
In December 2016, Wyeth LLC, Wyeth Pharmaceuticals Inc., and PF Prism C.V. (collectively, Wyeth) brought a patent-infringement action against Alembic Pharmaceuticals, Ltd, Alembic Pharmaceuticals, Inc. (collectively, Alembic), Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries Limited (collectively, Sun), in the U.S. District Court for the District of Delaware in connection with abbreviated new drug applications respectively filed with the FDA by Alembic and Sun, each seeking approval to market generic versions of bosutinib. Alembic is challenging patents, which expire in 2026, covering polymorphic forms of bosutinib and methods of treating chronic myelogenous leukemia. Sun is challenging the patent covering polymorphic forms of bosutinib that expires in 2026. In March 2017, Wyeth brought a patent-infringement action against MSN Laboratories Private Limited and MSN Pharmaceuticals, Inc. (collectively, MSN), in the U.S. District Court for the District of Delaware in connection with an abbreviated new drug application filed with the FDA by MSN, seeking approval to market a generic version of bosutinib, and challenging a patent expiring in 2026 covering polymorphic forms of bosutinib. In September 2017, the case against MSN was dismissed. Also, in September 2017, Wyeth brought an additional patent-infringement action against Sun in the U.S. District Court for the District of Delaware asserting the infringement and validity of two other patents challenged by Sun, which expire in 2025 and 2026, respectively, covering compositions of bosutinib and methods of treating chronic myelogenous leukemia.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
EpiPen
In July 2010, King, which we acquired in 2011 and is a wholly-owned subsidiary, brought a patent-infringement action against Sandoz in the U.S. District Court for the District of New Jersey in connection with Sandoz’s abbreviated new drug application filed with the FDA seeking approval to market an epinephrine injectable product. Sandoz is challenging patents, which expire in 2025, covering the next-generation autoinjector for use with epinephrine that is sold under the EpiPen brand name.
Flector Patch (diclofenac)
In October 2015, the owners (Teikoku Seiyaku Co., Ltd. and Altergon SA) of a patent covering Pfizer’s Flector Patch product, along with the New Drug Application holder (IBSA Institut Biochemique SA), brought a patent-infringement action against Actavis Laboratories UT, Inc. in the U.S. District Court for the District of Delaware in connection with an abbreviated new drug application filed by Actavis Laboratories UT, Inc. with the FDA requesting approval to launch a generic version of Flector Patch prior to the 2019 expiration of the patent. In August 2016, Pfizer subsidiary Alpharma Pharmaceuticals LLC was added as a plaintiff to the lawsuit. In August 2017, this case was settled on terms not material to Pfizer.
Precedex Premix
In June 2014,Ben Venue Laboratories, Inc. (Ben Venue)notified our subsidiary, Hospira, that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that a patent relating to the use of Precedex in an intensive care unit setting, which expires in March 2019, was invalid or not infringed. In August 2014, Hospira and Orion Corporation (co-owner of the patent that is the subject of the lawsuit) filed suit against Ben Venue, Hikma Pharmaceuticals PLC (Hikma), and West-Ward Pharmaceutical Corp. in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patent that is the subject of the lawsuit.patent. In October 2014,
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Eurohealth International Sarl was substituted for Ben Venue and Hikma. In June 2016, this case was settled on terms not material to Pfizer.
In June 2015, Amneal Pharmaceuticals LLC (Amneal) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that four patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In August 2015, Hospira filed suit against Amneal in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patents that are the subject of the lawsuit. In January 2018, the District Court ruled that one of the four patents was valid and infringed, and that the other three patents were invalid. In February and March 2018, respectively, each of Amneal and Hospira appealed the District Court decision to the U.S. Court of Appeals for the Federal Circuit.
In December 2015, Fresenius Kabi USA LLC (Fresenius) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that four patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In January 2016, Hospira filed suit against Fresenius in the U.S. District Court for the Northern District of Illinois asserting the validity and infringement of the patents that are the subject of the lawsuit.
In August 2016, Par Sterile Products, LLC (Par) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that four patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In September 2016, Hospira filed suit against Par in the U.S. District Court for the District of Delaware asserting the validity and infringement of the patents that are the subject of the lawsuit. In December 2016, the case was stayed pending the outcome of Hospira’s suit against Amneal (including all appeals).
Toviaz (fesoterodine)
We have an exclusive, worldwide license to market Toviaz from UCB Pharma GmbH (UCB), which owns the patents relating to Toviaz.
Beginning in May 2013, several generic drug manufacturers notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Toviaz and asserting the invalidity, unenforceability and/or non-infringement of all of our patents for Toviaz that are listed in the FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the “Orange Book”. Beginning in June 2013, we filed actions against all of those generic drug manufacturers in the U.S. District Court for the District of Delaware, asserting the infringement of five of the patents for Toviaz: three composition-of-matter patents and a method-of-use patent that expire in 2019 and a patent covering salts of fesoterodine that expires in 2022. In June and July 2015, we settled with four of the generic defendants. The trial relating to the four remaining defendants occurred in July 2015. In April 2016, the District Court held that the patents that were the subject of the lawsuit were valid and infringed. The defendants’ deadline to appeal this decision expired in June 2016.
In December 2014, Mylan Pharmaceuticals, Inc. (Mylan Pharmaceuticals)2017, Gland Pharma Limited (Gland) notified usHospira that it had filed anabbreviated new drug application with the FDA seeking approval to market a generic version of ToviazHospira’s premix version of Precedex and assertingcontaining allegations that six patents relating to the invalidity, unenforceability and/or non-infringement ofPrecedex premix formulations and their use, all of our patents for Toviaz that are listedwhich expire in the Orange Book.2032, were invalid or not infringed. In January 2015, weFebruary 2018, Hospira filed an actionsuit against Mylan PharmaceuticalsGland in the U.S. District Court for the District of Delaware asserting the validity and infringement of five of the
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
patents for Toviaz: three composition-of-matter patents and a method-of-use patent that expire in 2019 and a patent covering salts of fesoterodine that expires in 2022. In January 2017, the District Court issued a verdict finding that the fivefour patents that are the subject of the lawsuit are valid and infringed. In August 2017, the District Court issued a written decision consistent with the verdict, finding the five patents valid and infringed. In September 2017, Mylan Pharmaceuticals appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit.lawsuit.
In December 2016, Torrent Pharmaceuticals,2017, Jiangsu Hengrui Medicine Co., Ltd. (Torrent)(Hengrui) notified usHospira that it had filed anabbreviated new drug application with the FDA seeking approval to market a generic version of ToviazHospira’s premix version of Precedex and assertingcontaining allegations that six patents relating to the invalidity, unenforceability and/or non-infringement ofPrecedex premix formulations and their use, all of our patents for Toviaz that are listedwhich expire in the Orange Book.2032, were invalid or not infringed. In February 2017, we2018, Hospira filed an actionsuit against TorrentHengrui in the U.S. District Court for the District of Delaware asserting the validity and infringement of the same fivefour patents that are the subject of the lawsuit.
In February 2018, Baxter Healthcare Corporation (Baxter) filed a declaratory judgment action against Mylan Pharmaceuticals.Hospira in the U.S. District Court for the District of Delaware seeking a declaration of non-infringement of four patents relating to the Precedex premix formulations and their use. One of the patents included in the action expires in 2019 and the other three patents expire in 2032. In September 2017, this case was dismissed.March 2018, Hospira filed a counterclaim for infringement of the patent expiring in 2019.
Xeljanz (tofacitinib)
In February 2017, we brought a patent-infringement action against MicroLabs USA Inc. and MicroLabs Ltd. (collectively, MicroLabs) in the U.S. District Court for the District of Delaware asserting the infringement and validity of three patents challenged by MicroLabs in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets. Of the three patents that are the subject of the lawsuit, one covers the active ingredient and expires in December 2025, the second covers an enantiomer of tofacitinib and expires in 2022, and the third covers a polymorphic form of tofacitinib and expires in 2023. Three other patents for Xeljanz expiring in December 2020 have not been challenged by MicroLabs.
Separately, also in February 2017, we brought a patent-infringement action against Sun Pharmaceutical Industries Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering a polymorphic form of tofacitinib, expiring in 2023, that was challenged by Sun Pharmaceutical Industries Ltd. in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 11 mg extended release tablets. In November 2017, we brought an additional patent-infringement action against Sun Pharmaceuticals Industries Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of another patent challenged by Sun Pharmaceuticals Industries Ltd, which covers the active ingredient and expires in December 2025.
In March 2017, we brought a patent-infringement action against Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Ltd. (collectively, Zydus) in the U.S. District Court for the District of Delaware asserting the infringement and validity of the same
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three patents that are the subject of the action against MicroLabs, which Zydus challenged in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets.
Also, in March 2017, we brought separate actions in the U.S. District Court for the District of Delaware against Prinston Pharmaceutical Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Huahai US Inc. and Solco Healthcare US, LLC (collectively, Prinston) and against Breckenridge Pharmaceutical Inc., Pensa Pharma S.A. and Laboratorios Del Dr. Esteve, S.A. (collectively, Breckenridge) on the two patents expiring in 2022 and 2023, respectively, that were challenged by Prinston and Breckenridge in their respective abbreviated new drug applications seeking approval to market generic versions of tofacitinib 5 mg tablets. In October 2017, we brought an additional patent-infringement action against Breckenridge in the U.S. District Court for the District of Delaware asserting the infringement and validity of four additional patents challenged by Breckenridge, three of which expire in December 2020 and one of which expires in December 2025. In March 2018, we brought another patent infringement action against Prinston in the U.S. District Court for the District of Delaware asserting the infringement and validity of an additional patent, which had been subsequently challenged by Prinston and which expires in December 2025. In May 2018, we settled all of our claims against Breckenridge on terms not material to Pfizer.
Xtandi (enzalutamide)
In December 2016, Medivation and Medivation Prostate Therapeutics, Inc. (collectively, the Medivation Group); Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc. (collectively, Astellas); and The Regents of the University of California filed patent-infringement suits in the U.S. District Court for the District of Delaware against Actavis Laboratories FL, Inc. and Actavis LLC (collectively, Actavis); Zydus; and Apotex Inc. and Apotex Corp. (collectively, Apotex) in connection with those companies’ respective abbreviated new drug applications filed with the FDA for approval to market generic versions of enzalutamide. The generic manufacturers are challenging patents, which expire as early as 2026, covering enzalutamide and treatments for prostate cancer. In May 2017, the Medivation Group filed a patent-infringement suit against Roxane Laboratories Inc. (Roxane) in the same court in connection with Roxane’s abbreviated new drug application with the FDA for approval to market a generic version of enzalutamide. In June and July 2018, we settled all of our claims against Actavis and Apotex, respectively, on terms not material to Pfizer.
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Matters Involving Our Collaboration/Licensing Partners
Nexium 24HR (esomeprazole)
We haveIn April 2018, Apotex Inc. notified us that it had filed an exclusive license from AstraZeneca PLC (AstraZeneca)abbreviated new drug application with the FDA seeking approval to market a generic version of Inlyta. Apotex Inc. asserts the invalidity and non-infringement of the crystalline form patent for Inlyta that expires in 2030. In May 2018, we filed suit against Apotex Inc. in the U.S. District Court for the OTC versionDistrict of Nexium (Nexium 24HR). Between October 2014Delaware, asserting the validity and November 2016, Actavis Laboratories FL, Inc. (Actavis), Andrx Labs, LLC (Andrx), Perrigo Company plc (Perrigo), Lupin Limited, Dr. Reddy’s Laboratories, Inc. & Ltd. (Dr. Reddy’s), Hetero USA Inc. (Hetero), Aurobindo Pharma USA Inc. (Aurobindo) and Cipla Limited (Cipla)infringement of the crystalline form patent for Inlyta.
Kerydin (tavaborole)
In September 2018, several generic companies notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Nexium 24HR prior toKerydin. The generic companiesassert the expirationinvalidity and non-infringement of one or moremethods of AstraZeneca’suse and formulation patents listedfor tavaborole that expire in the Orange Book for Nexium 24HR. AstraZeneca2026 and 2027, including pediatric exclusivity. In October 2018, Anacor, our wholly-owned subsidiary, filed actionsinfringement lawsuits against each of these companiesthe generic filers in the U.S. District Court for the District of New Jersey asserting infringement of the challenged patents. In March 2017, the cases against Actavis and Andrx were settled on terms not material to Pfizer. In June 2017, the cases against Perrigo, Dr. Reddy’s and Lupin Limited were settled on terms not material to Pfizer. In August 2017, the cases against Hetero and Aurobindo were settled on terms not material to Pfizer. In October 2017, AstraZeneca’s action against Cipla was settled on terms not material to Pfizer. We were not a party to AstraZeneca’s patent-infringement actions.Delaware.
Matters Involving Our Collaboration/Licensing Partners
Toviaz (fesoterodine)––Inter-Partes Reviews
In January 2016, Mylan Pharmaceuticals and Mylan Laboratories (collectively, Mylan) filed petitions with the U.S. Patent and Trademark Office requesting inter partes reviews of five of the patents covering fesoterodine, the active ingredient in Toviaz: three composition-of-matter patents and a method-of-use patent that expire in 2019 and a patent covering salts of fesoterodine that expires in 2022. The patents are owned by UCB Pharma GmbH, and we have an exclusive, worldwide license to market Toviaz from UCB.UCB Pharma GmbH. In July 2016, the Patent Trial and Appeal Board agreed to institute inter partes reviews of all five patents. Amerigen Pharmaceuticals Limited (Amerigen), Alembic Pharmaceuticals Limited and Torrent Pharmaceuticals Limited have joined the inter partes reviews. In July 2017, the U.S. Patent and Trademark Office issued decisions upholding all five patents. In September 2017, Mylan and Amerigen appealed the U.S. Patent and Trademark Office decisions to the U.S. Court of Appeals for the Federal Circuit. In January 2018, Mylan withdrew its appeal. Amerigen’s appeal of the decision upholding the patent covering salts of fesoterodine that expires in 2022 is the only pending appeal.
Eliquis
In February, March, and April 2017, twenty-five generic companies sent BMS Paragraph-IV certification letters informing BMS that they had filed abbreviated new drug applications seeking approval of generic versions of Eliquis, challenging the validity and infringement of one or more of the three patents listed in the Orange Book for Eliquis. The patents currently are set to expire in 2019, 2026, and 2031. Eliquis has been jointly developed and is being commercialized by BMS and Pfizer. In April 2017, BMS and Pfizer filed patent-infringement actions against all generic filers in the U.S. District Court for the District of
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Delaware and the U.S. District Court for the District of West Virginia, asserting that each of the generic companies’ proposed products would infringe each of the patent(s) that each generic filer challenged. Some generic filers challenged only the 2031 patent, some challenged both the 2031 and 2026 patent, and one generic company challenged all three patents.
Bavencio (avelumab)
In July 2017, We and BMS E.R. Squibb & Sons LLC, Ono Pharmaceutical Co. Ltd.,have settled with certain of the generic companies on terms not material to Pfizer, and Tasuku Honjo brought a patent-infringement actionwe and BMS may settle with other generic companies in the U.S. District Court for the District of Delaware against Pfizer, Merck KGaA, and EMD Serono, alleging that Bavencio (avelumab) infringes one patent relating to methods for treating tumors with anti-PD-L1 antibodies, which expires in 2023.future.
Actions In Which We Are The Defendant
Inflectra (infliximab-dyyb)
In March 2015, Janssen and New York University, together, brought a patent-infringement action in the U.S. District Court for the District of Massachusetts against Hospira, Celltrion Healthcare Co. Ltd. and Celltrion Inc. alleging that infliximab-dyyb, to be marketed by Hospira in the U.S. under the brand name Inflectra, would infringe six patents relating to infliximab, its manufacture and use. Claims with respect to four of the patents have since beenwere dismissed by the plaintiffs, leaving two patents at issue in the ongoing action:issue: the infliximab antibody patent and a patent relating to cell culture media. In August 2016,January 2018, the antibody patent was declared invalid by the Court of Appeals for the Federal Circuit. In July 2018, the U.S. District Court for the District of Massachusetts granted defendants’ motion for summary judgment and ruled that the antibody patent relating to cell culture media was invalid,not infringed.
Bavencio (avelumab)
In July 2017, BMS, E.R. Squibb & Sons LLC, Ono Pharmaceutical Co. Ltd., and Janssen has appealed that ruling toTasuku Honjo brought a patent-infringement action in the U.S. District Court of Appeals for the Federal Circuit.
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A2. Legal Proceedings––Product Litigation
Like other pharmaceutical companies, we are defendants in numerous cases, including but not limited to those discussed below, related to our pharmaceutical and other products. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss.
Asbestos
Between 1967 and 1982, Warner-Lambert owned American Optical Corporation (American Optical), which manufactured and sold respiratory protective devices and asbestos safety clothing. In connection with the sale of American Optical in 1982, Warner-Lambert agreed to indemnify the purchaser for certain liabilities, including certain asbestos-related and other claims. As of October 1, 2017,September 30, 2018, approximately 56,50056,880 claims naming American Optical and numerous other defendants were pending in various federal and state courts seeking damages for alleged personal injury from exposure to asbestos and other allegedly hazardous materials. Warner-Lambert was acquired by Pfizer in 2000 and is a wholly-owned subsidiary of Pfizer. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means of resolving, these claims.
Numerous lawsuits are pending against Pfizer in various federal and state courts seeking damages for alleged personal injury from exposure to products allegedly containing asbestos and other allegedly hazardous materials sold by Pfizer and certain of its previously owned subsidiaries.
There also are a small number of lawsuits pending in various federal and state courts seeking damages for alleged exposure to asbestos in facilities owned or formerly owned by Pfizer or its subsidiaries.
Effexor
Personal Injury Actions
A number of individual lawsuits and multi-plaintiff lawsuits have been filed against us and/or our subsidiaries in various federal and state courts alleging personal injury as a result of the purported ingestion of Effexor. Among other types of actions, the Effexor personal injury litigation includes actions alleging a variety of birth defects as a result of the purported ingestion of Effexor by women during pregnancy. Plaintiffs in these birth-defect actions seek compensatory and punitive damages. In August 2013, the federal birth-defect cases were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Effexor (Venlafaxine Hydrochloride) Products Liability Litigation MDL-2458) in the U.S. District Court for the Eastern District of Pennsylvania. Almost all plaintiffs have voluntarily dismissed their actions. The Multi-District Litigation, as well as the coordinated state court proceedings in California, has been administratively stayed.
Antitrust Actions
Beginning in May 2011, actions, including purported class actions, were filed in various federal courts against Wyeth and, in certain of the actions, affiliates of Wyeth and certain other defendants relating to Effexor XR, which is the extended-release formulation of Effexor. The plaintiffs in each of the class actions seek to represent a class consisting of all persons in the U.S. and its territories who directly purchased, indirectly purchased or reimbursed patients for the purchase of Effexor XR or generic Effexor XR from any of the defendants from June 14, 2008 until the time the defendants’ allegedly unlawful conduct ceased. The plaintiffs in all of the actions allege delay in the launch of generic Effexor XR in the U.S. and its territories, in violation of federal antitrust laws and, in certain of the actions, the antitrust, consumer protection and various other laws of certain states, as the result of Wyeth fraudulently obtaining and improperly listing certain patents for Effexor XR in the Orange Book, enforcing certain patents for Effexor XR and entering into a litigation settlement agreement with a generic drug manufacturer with respect to Effexor XR. Each of the plaintiffs seeks treble damages (for itself in the individual actions or on behalf of the putative class in the purported class actions) for alleged price overcharges for Effexor XR or generic Effexor XR in the U.S. and its territories since June 14, 2008. All of these actions have been consolidated in the U.S. District Court for the District of New Jersey.
In October 2014, the District Court dismissed the direct purchaser plaintiffs’ claims based on the litigation settlement agreement but declined to dismiss the other direct purchaser plaintiff claims. In January 2015, the District Court entered partial final
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judgments as to all settlement agreement claims, including those asserted by direct purchasers and end-payer plaintiffs, which plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit. In August 2017, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s decisions and remanded the claims to the District Court.
ZoloftLipitor
A number of individual lawsuits and multi-plaintiff lawsuits have been filed against us and/or our subsidiaries in various federal and state courts alleging personal injury as a result of the purported ingestion of Zoloft. Among other types of actions, the Zoloft personal injury litigation includes actions alleging a variety of birth defects as a result of the purported ingestion of Zoloft by women during pregnancy. Plaintiffs in these birth-defect actions seek compensatory and punitive damages and the disgorgement of profits resulting from the sale of Zoloft. In April 2012, the federal birth-defect cases were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Zoloft Products Liability Litigation MDL-2342) in the
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U.S. District Court for the Eastern District of Pennsylvania. A number of plaintiffs have voluntarily dismissed their actions. In April 2016, the District Court granted our motion for summary judgment, dismissing the claims of almost all of the remaining plaintiffs. In May 2016, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Third Circuit. In June 2017, the U.S. Court of Appeals for the Third Circuit affirmed the District Court’s decision.
Lipitor
Antitrust Actions
Beginning in November 2011, purported class actions relating to Lipitor were filed in various federal courts against, among others, Pfizer, certain affiliates of Pfizer, and, in most of the actions, Ranbaxy, Inc. (Ranbaxy) and certain affiliates of Ranbaxy. The plaintiffs in these various actions seek to represent nationwide, multi-state or statewide classes consisting of persons or entities who directly purchased, indirectly purchased or reimbursed patients for the purchase of Lipitor (or, in certain of the actions, generic Lipitor) from any of the defendants from March 2010 until the cessation of the defendants’ allegedly unlawful conduct (the Class Period). The plaintiffs allege delay in the launch of generic Lipitor, in violation of federal antitrust laws and/or state antitrust, consumer protection and various other laws, resulting from (i) the 2008 agreement pursuant to which Pfizer and Ranbaxy settled certain patent litigation involving Lipitor, and Pfizer granted Ranbaxy a license to sell a generic version of Lipitor in various markets beginning on varying dates, and (ii) in certain of the actions, the procurement and/or enforcement of certain patents for Lipitor. Each of the actions seeks, among other things, treble damages on behalf of the putative class for alleged price overcharges for Lipitor (or, in certain of the actions, generic Lipitor) during the Class Period. In addition, individual actions have been filed against Pfizer, Ranbaxy and certain of their affiliates, among others, that assert claims and seek relief for the plaintiffs that are substantially similar to the claims asserted and the relief sought in the purported class actions described above. These various actions have been consolidated for pre-trial proceedings in a Multi-District Litigation (In re Lipitor Antitrust Litigation MDL-2332) in the U.S. DistrictCourt for the District of New Jersey.
In September 2013 and 2014, the District Court dismissed with prejudice the claims by direct purchasers. In October and November 2014, the District Court dismissed with prejudice the claims of all other Multi-District Litigation plaintiffs. All plaintiffs have appealed the District Court’s orders dismissing their claims with prejudice to the U.S. Court of Appeals for the Third Circuit. In addition, the direct purchaser class plaintiffs appealed the order denying their motion to amend the judgment and for leave to amend their complaint to the U.S. Court of Appeals for the Third Circuit. In August 2017, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s decisions and remanded substantially all of the claims to the District Court.
Also, in January 2013, the State of West Virginia filed an action in West Virginia state court against Pfizer and Ranbaxy, among others, that asserts claims and seeks relief on behalf of the State of West Virginia and residents of that state that are substantially similar to the claims asserted and the relief sought in the purported class actions described above.
Personal Injury Actions
A number of individual and multi-plaintiff lawsuits have been filed against us in various federal and state courts alleging that the plaintiffs developed type 2 diabetes purportedly as a result of the purported ingestion of Lipitor. Plaintiffs seek compensatory and punitive damages.
In February 2014, the federal actions were transferred for consolidated pre-trial proceedings to a Multi-District Litigation (In re Lipitor (Atorvastatin Calcium) Marketing, Sales Practices and Products Liability Litigation (No. II) MDL-2502) in the U.S. District Court for the District of South Carolina. Since 2016, certain cases in the Multi-District Litigation were remanded to certain state courts. In January 2017, the District Court granted our motion for summary judgment, dismissing substantially all of the remaining cases pending in the Multi-District Litigation. In January 2017, the plaintiffs appealed the District Court’s decision to the U.S. Court of Appeals for the Fourth Circuit. In June 2018, the U.S. Court of Appeals for the Fourth Circuit affirmed the District Court’s decision.
Viagra
A number of individual and multi-plaintiff lawsuits have been filed against us in various federal and state courts alleging that the plaintiffs developed melanoma and/or the exacerbation of melanoma purportedly as a result of the purported ingestion of Viagra. Plaintiffs seek compensatory and punitive damages.
In April 2016, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In Re: Viagra (Sildenafil Citrate) Products Liability Litigation, MDL-2691) in the U.S. District Court for the Northern District of California. In December 2016, federal actions filed against Lilly and filed against both us and Lilly, were transferred for coordinated pre-trial proceedings to the Multi-District Litigation (In re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation, MDL-2691).
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Celebrex
Beginning in July 2014, purported class actions were filed in the U.S. District Court for the Eastern District of Virginia against Pfizer and certain subsidiaries of Pfizer relating to Celebrex. The plaintiffs seek to represent U.S. nationwide or multi-state classes consisting of persons or entities who directly purchased from the defendants, or indirectly purchased or reimbursed patients for some or all of the purchase price of, Celebrex or generic Celebrex from May 31, 2014 until the cessation of the defendants’ allegedly unlawful conduct. The plaintiffs allege delay in the launch of generic Celebrex in violation of federal antitrust laws or certain state antitrust, consumer protection and various other laws as a result of Pfizer fraudulently obtaining and improperly listing a patent on Celebrex, engaging in sham litigation and prolonging the impact of sham litigation through settlement activity that further delayed generic entry. Each of the actions seeks treble damages on behalf of the putative class for alleged price overcharges for Celebrex since May 31, 2014. In December 2014, the District Court granted the parties’ joint motions to consolidate the direct purchaser and end-payer cases, and all such cases were consolidated as of March 2015. In October 2014 and March 2015, we filed motions to dismiss the direct purchasers’ and end-payers’ amended complaints, respectively. In November 2015, the District Court denied in part and granted in part our motion to dismiss the direct purchasers’ amended complaint. In February 2016, the District Court denied in part and granted in part our motion to dismiss the end-payers’ amended complaint, and in August 2016, the District Court dismissed substantially all of the end-payer’s remaining claims. In February 2017, the District Court dismissed with prejudice all of the end-payers’ claims. In March 2017, the end-payers appealed the District Court’s order dismissing their claims with prejudice to the U.S. Court of Appeals for the Fourth Circuit. In August 2017, the District Court granted the direct purchasers’ motion for class certification. In October 2017, Pfizer and the direct purchasers entered into an agreement-in-principle, which is subject to the negotiation of a final settlement agreement and court approval, to resolve the direct purchasers’ class action for $94 million.
Intravenous Solutions
Beginning in November 2016, purported class actions were filed in the U.S. District Court for the Northern District of Illinois against Hospira, Hospira Worldwide, Inc. and certain other defendants relating to intravenous saline solution. Plaintiffs seek to
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represent classesa class consisting of all persons and entities in the U.S. who directly purchased intravenous saline solution sold by any of the defendants from January 1, 2013 until the time the defendants’ allegedly unlawful conduct ceases. Plaintiffs allege that the defendants’ conduct restricts output and artificially fixes, raises, maintains and/or stabilizes the prices of intravenous saline solution sold throughout the U.S. in violation of federal antitrust laws. Plaintiffs seek treble damages (for themselves and on behalf of the putative classes) and an injunction against defendants for alleged price overcharges for intravenous saline solution in the U.S. since January 1, 2013. All of these actions have been consolidated in the U.S. District Court for the Northern District of Illinois. In July 2018, the District Court granted defendants’ motions to dismiss the consolidated amended complaint without prejudice. Plaintiffs filed a second amended complaint in September 2018. On February 3, 2017, we completed the sale of our global infusion therapysystems net assets, HIS, which includes intravenous saline solution, to ICU Medical. The litigation is the subject of cross-claims for indemnification by both Pfizer and ICU Medical under the purchase agreement.
Separately, in April 2017, Pfizer, Hospira and two employees of Pfizer received grand jury subpoenas issued by the United States District Court for the Eastern District of Pennsylvania, in connection with an investigation by the U.S. Department of Justice, Antitrust Division. The subpoenas seek documents related to the sale, manufacture, pricing and shortages of intravenous solutions, including saline, as well as communications among marketindustry participants regarding these issues. The Department of Justice investigation is also the subject of cross-claims for indemnification by both Pfizer and ICU Medical under the purchase agreement. In addition, in August 2015, the New York Attorney General issued a subpoena to Hospira for similar information. Hospira has produced records to the New York Attorney General and will coordinatecoordinated with ICU Medical to produce records to the New York Attorney General as appropriate going forward, and Hospira and Pfizer will coordinate with ICU Medical to produce records to theU.S. Department of Justice.
Hormone Therapy Consumer Class Action
A certified consumer class action is pending against Wyeth in the U.S. District Court for the Southern District of California based on the alleged off-label marketing of its hormone therapy products. The case was originally filed in December 2003. The class consists of California consumers who purchased Wyeth’s hormone-replacement products between January 1995 and January 2003 and who do not seek personal injury damages therefrom. The class seeks compensatory and punitive damages, including a full refund of the purchase price.
Eliquis
A number of individual and multi-plaintiff lawsuits have been filed against us and Bristol-Myers Squibb CompanyBMS in various federal and state courts pursuant to which plaintiffs seek to recover for personal injuries, including wrongful death, due to bleeding allegedly as a result of the alleged ingestion of Eliquis. Plaintiffs seek compensatory and punitive damages.
In February 2017, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In Re: Eliquis (Apixaban) Products Liability Litigation MDL-2754) in the U.S. District Court for the Southern District of New York. In July 2017, the District Court dismissed substantially all of the actions that were pending in the Multi-District Litigation. In
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August 2017, certain plaintiffs appealed the District Court’s dismissal to the U.S. Court of Appeals for the Second Circuit. Additional cases continue to be transferred to the Multi-District Litigation.
EpiPen
Beginning in February 2017, purported class actions were filed in various federal courts by indirect purchasers of EpiPen against Pfizer, and/or its affiliates King and Meridian, and/or various entities affiliated with Mylan N.V., and Mylan N.V. Chief Executive Officer, Heather Bresch. The plaintiffs in these actions seek to represent U.S. nationwide classes comprising persons or entities who paid for any portion of the end-user purchase price of an EpiPen between 2009 until the cessation of the defendants’ allegedly unlawful conduct. In August 2017, a similar lawsuit brought in the U.S. District Court for the District of New Jersey on behalf of a purported class of direct purchaser plaintiffs against Pfizer, King, Meridian and Mylan was voluntarily dismissed without prejudice. Against Pfizer and/or its affiliates, plaintiffs generally allege that Pfizer’s and/or its affiliates’ settlement of patent litigation regarding EpiPen delayed market entry of generic EpiPen in violation of federal antitrust laws and various state antitrust or consumer protection laws. At least one lawsuit also alleges that Pfizer and/or Mylan N.V. violated the federal Racketeer Influenced and Corrupt Organizations Act. Plaintiffs also filed various consumer protection and unjust enrichment claims against, and relating to conduct attributable solely to, Mylan Pharmaceuticals regarding EpiPen. Plaintiffs seek treble damages for alleged overcharges for EpiPen since 2009. In August 2017, the actions were consolidated for coordinated pre-trial proceedings in a Multi-District Litigation (In re: EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation, MDL-2785) in the U.S. District Court for the District of Kansas with other EpiPen-related actions against Mylan N.V. and/or its affiliates to which Pfizer, King and Meridian are not parties.
Nexium 24HR and Protonix
A number of individual and multi-plaintiff lawsuits have been filed against Pfizer, certain of its subsidiaries and/or other pharmaceutical manufacturers in various federal and state courts alleging that the plaintiffs developed kidney-related injuries purportedly as a result of the purported ingestion of certain proton pump inhibitors. The cases against us involve Nexium 24HR and/or Protonix and seek compensatory and punitive damages and, in some cases, treble damages, restitution or disgorgement. In
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August 2017, the federal actions were ordered transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In re: Proton-Pump Inhibitor Products Liability Litigation (No. II)) in the U.S. District Court for the District of New Jersey.
Docetaxel
Personal Injury Actions
A number of lawsuits have been filed against Hospira and Pfizer in various federal and state courts alleging that plaintiffs who were treated with Docetaxel developed permanent hair loss. The significant majority of the cases also name other defendants, including the manufacturer of the branded product, Taxotere. Plaintiffs seek compensatory and punitive damages.
In October 2016, the federal cases were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In re Taxotere (Docetaxel) Products Liability Litigation, MDL-2740) in the U.S. District Court for the Eastern District of Louisiana.
Mississippi Attorney General Government Investigation
In October 2018, the Attorney General of Mississippi filed a complaint in Mississippi state court against the manufacturer of the branded product and eight other manufacturers including Pfizer and Hospira, alleging, with respect to Pfizer and Hospira, a failure to warn about a risk of permanent hair loss in violation of the Mississippi Consumer Protection Act. The action seeks civil penalties and injunctive relief.
A3. Legal Proceedings––Commercial and Other Matters
Average Wholesale Price Litigation
Pfizer, certain of its subsidiaries and other pharmaceutical manufacturers were sued in various state courts by a number of states alleging that the defendants provided average wholesale price (AWP) information for certain of their products that was higher than the actual average prices at which those products were sold. The AWP is used to determine reimbursement levels under Medicare Part B and Medicaid and in many private-sector insurance policies and medical plans. All but one of those actions have been resolved through settlement, dismissal or final judgment. The plaintiff state, Illinois,in the one remaining action claims that the alleged spread between the AWPs at which purchasers were reimbursed and the actual sale prices was promoted by the defendants as an incentive to purchase certain of their products. The actionalleges, among other things, fraudand violation of the state’s unfair trade practices andconsumer protection statutes and seeks monetary and other relief, including civil penalties and treble damages.
Monsanto-Related Matters
In 1997, Monsanto Company (Former Monsanto) contributed certain chemical manufacturing operations and facilities to a newly formed corporation, Solutia Inc. (Solutia), and spun off the shares of Solutia. In 2000, Former Monsanto merged with Pharmacia & Upjohn Company to form Pharmacia. Pharmacia then transferred its agricultural operations to a newly created subsidiary, named Monsanto Company (New Monsanto), which it spun off in a two-stage process that was completed in 2002. Pharmacia was acquired by Pfizer in 2003 and is a wholly-owned subsidiary of Pfizer.
In connection with its spin-off that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities related to Pharmacia’s former agricultural business. New Monsanto has defended and/or is defending Pharmacia in connection with various claims and litigation arising out of, or related to, the agricultural business, and has been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In connection with its spin-off in 1997, Solutia assumed, and agreed to indemnify Pharmacia for, liabilities related to Former Monsanto’s chemical businesses. As the result of its reorganization under Chapter 11 of the U.S. Bankruptcy Code, Solutia’s indemnification obligations relating to Former Monsanto’s chemical businesses are primarily limited to sites that Solutia has owned or operated. In addition, in connection with its spinoff that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Former Monsanto’s chemical businesses, including, but not limited to, any such liabilities that Solutia assumed. Solutia’s and New Monsanto’s assumption of, and agreement to indemnify Pharmacia for, these liabilities apply to pending actions and any future actions related to Former Monsanto’s chemical businesses in which Pharmacia is named as a defendant, including, without limitation, actions asserting environmental claims, including alleged exposure to polychlorinated biphenyls. Solutia and/or New Monsanto are defending Pharmacia in connection with various claims and litigation arising out of, or related to, Former Monsanto’s chemical businesses, and have been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.
Environmental Matters
In 2009, we submitted to the U.S. Environmental Protection Agency (EPA) a corrective measures study report with regard to Pharmacia’s discontinued industrial chemical facility in North Haven, Connecticut and a revised site-wide feasibility study with regard to Wyeth Holdings Corporation’s discontinued industrial chemical facility in Bound Brook, New Jersey.Connecticut. In September 2010, our corrective measures study report with regard to the North Haven facility was approved by the EPA, and we commenced construction of the site remedy in late 2011 under an Updated Administrative Order on Consent with the EPA.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Also, in 2009, we submitted a revised site-wide feasibility study with regard to Wyeth Holdings Corporation’s (formerly, American Cynamid Company) discontinued industrial chemical facility in Bound Brook, New Jersey. In July 2011, Wyeth Holdings Corporation finalized an Administrative Settlement Agreement with the EPA and Order on Consent for Removal Action (the 2011 Administrative Settlement Agreement) with the EPA with regard to the Bound Brook facility. In May 2012, we completed construction of an interim remedy to address the discharge of impacted groundwater from that facility to the Raritan River. In September 2012, the EPA issued a final remediation plan for the Bound Brook facility’s main plant area, which is generally in accordance with one of the remedies evaluated in our revised site-wide feasibility study. In March 2013, Wyeth Holdings Corporation (now Wyeth Holdings LLC) entered into an Administrative Settlement Agreement and Order on Consent with the EPA to allow us to undertake detailed engineering design of the remedy for the main plant area and to perform a focused feasibility study for two adjacent lagoons. In September 2015, the U.S., on behalf of the EPA, lodgedfiled a complaint and consent decree with the federal District Court for the District of New Jersey that will allowallows Wyeth Holdings LLC to complete the design and to implement the remedy for the main plant area. In December 2015, the consent decree (which supersedes the 2011 Administrative Settlement Agreement) was entered by the District Court. We have accrued for the estimated costs of the site remedyremedies for the North Haven facility and Bound Brook facilities. In September 2018, the siteEPA issued a final remediation plan for the Bound Brook facility.two adjacent lagoons, which is generally in accordance with one of the remedies evaluated in our focused feasibility study.
We are a party to a number of other proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and other state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.
Contracts with Iraqi Ministry of Health
In October 2017, a number of United States service members, civilians, and their families brought a complaint in the Federal District Court for the District of Columbia against a number of pharmaceutical and medical devices companies, including Pfizer and certain of its subsidiaries, alleging that the defendants violated the United States Anti-Terrorism Act. The complaint alleges that the defendants provided funding for terrorist organizations through their sales practices pursuant to pharmaceutical and medical device contracts with the Iraqi Ministry of Health.Health, and seeks monetary relief. In July 2018, the U.S. Department of Justice requested documents related to this matter, which are being provided.
Allergan Complaint for Indemnity
In August 2018, Pfizer was named as a defendant in a third-party complaint for indemnity, along with King Pharmaceuticals LLC, a Pfizer subsidiary (King), filed by Allergan Finance LLC (Allergan) in a Multi-District Litigation (In re National Prescription Opiate Litigation MDL 2804) in the U.S. District Court for the Northern District of Ohio. The lawsuit asserts claims for indemnity related to Kadian, which was owned for a short period by King in 2008, prior to Pfizer's acquisition of King in 2010.
A4. Legal Proceedings––Government Investigations
Like other pharmaceutical companies, we are subject to investigations and extensive regulation by government agencies in the U.S., other developed markets and multiple emerging markets in which we operate. As a result, we have interactions with government agencies on an ongoing basis. Criminal charges, and substantial fines and/or civil penalties, as well as limitations on our ability to conduct business in applicable jurisdictions, could result from government investigations. In addition, in a qui tam lawsuit in which the government declines to intervene, the relator may still pursue a suit for the recovery of civil damages and penalties on behalf of the government. Among the investigations by government agencies are the matters discussed below.
Phenytoin Sodium Capsules
In 2012, Pfizer sold the U.K. Marketing Authorisation for phenytoin sodium capsules to a third party, but retained the right to supply the finished product to that third party. In May 2013, the U.K. Competition & Markets Authority (CMA) informed us that it had launched an investigation into the supply of phenytoin sodium capsules in the U.K. market. In August 2015, the CMA issued a Statement of Objections alleging that Pfizer and Pfizer Limited, a U.K. subsidiary, engaged in conduct that violates U.K. and EU antitrust laws. In December 2016, the CMA imposed a £84.2£84.2 million fine on Pfizer and Pfizer Limited. Pfizer appealed the CMA Decisiondecision to The Competition Appeal Tribunal in February 2017.On June 7, 2018, the Competition Appeal Tribunal overturned the CMA decision as well as the associated fine. On June 28, 2018, the CMA sought permission to appeal the Competition Appeal Tribunal’s judgment.
Greenstone Investigations
Since July 2017, the U.S. Department of Justice’s Antitrust Division has been investigating our Greenstone generics business. We believe this is related to an ongoing antitrust investigation of the generic pharmaceutical industry. The government has been obtaining information from Greenstone. In April 2018, Greenstone received requests for information from the Antitrust Department of the Connecticut Office of the Attorney General. We have been providing information pursuant to these requests.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Civil Investigative DemandSubpoena relating to Pharmacy Benefit ManagersManufacturing of Quillivant XR
In March 2016, PfizerOctober 2018, we received a Civil Investigative Demandsubpoena from the U.S. Attorney’s Office for the Southern District of New York seeking records relating to our relationship with another drug manufacturer and its production and manufacturing of drugs including, but not limited to, Quillivant XR. We will be producing records pursuant to the subpoena.
Intravenous Solutions
See Note 12A2. Legal Proceedings––Product Litigation––Intravenous Solutions above for information regarding government investigations related to Pfizer’s contractual relationshipssales of intravenous solution products.
Contracts with pharmacy benefit managersIraqi Ministry of Health
See Note 12A3. Legal Proceedings––Commercial and Other Matters––Contracts with respectIraqi Ministry of Health above for information regarding U.S. government investigations related to contracts with the Iraqi Ministry of Health.
Docetaxel––Mississippi Attorney General Government Investigation
See Note 12A2. Legal Proceedings––Product Litigation––Docetaxel––Mississippi Attorney General Government Investigation above for information regarding a government investigation related to Docetaxel marketing practices.
A5. Legal Proceedings--Matters Resolved During the First Nine Months of 2018
During 2018, certain pharmaceutical products overmatters, including the periodmatters discussed below, were resolved or were the subject of definitive settlement agreements or settlement agreements-in-principle.
Celebrex
Beginning in July 2014, purported class actions were filed in the U.S. District Court for the Eastern District of Virginia against Pfizer and certain subsidiaries of Pfizer relating to Celebrex. The plaintiffs sought to represent U.S. nationwide or multi-state classes consisting of persons or entities who directly purchased from January 1, 2006the defendants, or indirectly purchased or reimbursed patients for some or all of the purchase price of, Celebrex or generic Celebrex from May 31, 2014 until the cessation of the defendants’ allegedly unlawful conduct. The plaintiffs alleged delay in the launch of generic Celebrex in violation of federal antitrust laws or certain state antitrust, consumer protection and various other laws as a result of Pfizer fraudulently obtaining and improperly listing a patent on Celebrex, engaging in sham litigation and prolonging the impact of sham litigation through settlement activity that further delayed generic entry. Each of the actions sought treble damages on behalf of the putative class for alleged price overcharges for Celebrex since May 31, 2014. In December 2014, the District Court granted the parties’ joint motions to consolidate the direct purchaser and end-payer cases, and all such cases were consolidated as of March 2015. In October 2014 and March 2015, we filed motions to dismiss the direct purchasers’ and end-payers’ amended complaints, respectively. In November 2015, the District Court denied in part and granted in part our motion to dismiss the direct purchasers’ amended complaint. In February 2016, the District Court denied in part and granted in part our motion to dismiss the end-payers’ amended complaint, and in August 2016, the District Court dismissed substantially all of the end-payers’ remaining claims. In February 2017, the District Court dismissed with prejudice all of the end-payers’ claims. In March 2017, the end-payers appealed the District Court’s order dismissing their claims with prejudice to the present. We have provided informationU.S. Court of Appeals for the Fourth Circuit. In August 2017, the District Court granted the direct purchasers’ motion for class certification. In November 2017, Pfizer and the direct purchasers entered into an agreement to resolve the government in responsedirect purchasers’ class action for $94 million. In April 2018, the court approved the agreement. In November 2017, Pfizer and the end-payers entered into an agreement to this Civil Investigative Demand.resolve the claims of the end-payer plaintiffs on terms not material to Pfizer.
Subpoenas relating to Copayment Assistance Organizations
In December 2015 and July 2016, Pfizer received subpoenas from the U.S. Attorney’s Office for the District of Massachusetts requesting documents related to the Patient Access Network Foundation and other 501(c)(3) organizations that provide financial assistance to Medicare patients. In May 2018, Pfizer entered into a civil settlement to resolve the matter. Pfizer paid $23.85 million to the United States, and entered into a five-year Corporate Integrity Agreement with the Office of the Inspector General of the Department of Health and Human Services.
Civil Investigative Demand relating to Pharmacy Benefit Managers
In March 2016, Pfizer received a Civil Investigative Demand from the U.S. Attorney’s Office for the Southern District of New York (SDNY) related to Pfizer’s contractual relationships with pharmacy benefit managers with respect to certain pharmaceutical products over the period from January 1, 2006 to the present. We have been providingprovided information to the government in response to these subpoenas.
U.S. Department of Justice Investigation relating to Greenstone
As of July 2017, the U.S. Department of Justice’s Antitrust Division is investigating our Greenstone generics business. We believe this is related to an ongoing antitrust investigation of the generic pharmaceutical industry. The government has been obtaining information from Greenstone.
Intravenous Solutions
See Note 12A2. Legal Proceedings––Product Litigation––Intravenous Solutions above for information regarding government investigations related to sales of intravenous solution products.
A5. Legal Proceedings––Matters Resolved During the First Nine Months of 2017
During 2017, certain matters, including the matter discussed below, were resolved or were the subject of definitive settlement agreements or settlement agreements-in-principle.
Xtandi
In April 2014, the Regents of the University of California (the Regents) filed a complaint against the Medivation Group in California Superior Court in San Francisco. Medivation was acquired by Pfizer in September 2016 and is now a wholly-owned subsidiary of Pfizer. The Regents’ complaint sought a 10% share, under a license agreement between the Medivation Group and the Regents, of certain payments the Medivation Group receives with respect to Xtandi under the Medivation Group’s sub-licensing and collaboration agreement with Astellas. Trial was scheduled to commence in May 2017.Civil Investigative Demand. In July 2017, the parties resolved the matter through2018, Pfizer was served with a settlement on terms not materialqui tam complaint that appears to Pfizer, which was recorded in the second quarter of 2017 as a measurement period adjustmentbe related to the Medivation acquisition.SDNY investigation. The complaint was unsealed following the government’s decision not to intervene in the case.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities prior to theor following a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we wouldmay be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and othervarious restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of October 1, 2017, recorded amounts forSeptember 30, 2018, the estimated fair value of these indemnifications wereindemnification obligations was not significant.
Pfizer Inc. has also guaranteed the long-term debt of certain companies that it acquired and that now are subsidiaries of Pfizer.
C. Certain Commitments
Accelerated share repurchase agreement––On March 12, 2018, we entered into an accelerated share repurchase agreement with Citibank to repurchase $4.0 billion of our common stock. Pursuant to the terms of the agreement, on March 14, 2018, we paid $4.0 billion to Citibank and received an initial delivery of approximately 87 million shares of our common stock from Citibank at a price of $36.61 per share, which represented, based on the closing price of our common stock on the NYSE on March 12, 2018, approximately 80% of the notional amount of the accelerated share repurchase agreement. On September 5, 2018, the accelerated share repurchase agreement with Citibank was completed, which, per the terms of the agreement, resulted in Citibank owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 21 million shares of our common stock from Citibank on September 7, 2018. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $36.86 per share. The common stock received is included in Treasury stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. After giving effect to the accelerated share repurchase agreement, as well as other share repurchases through September 30, 2018, our remaining share-purchase authorization was approximately $9.2 billion at September 30, 2018.
Corporate headquarters lease agreement––In April 2018, we entered an agreement to lease space in an office building in the Hudson Yards neighborhood of New York City. We will relocate our global headquarters to this property with occupancy expected beginning in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.7 billion. In July 2018, we completed the sale of our current headquarters at 219 and 235 East 42nd Street. We also agreed to lease these properties from the buyer while we complete our relocation.
Note 13.Segment, Geographic and Other Revenue Information
A. Segment Information
We manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). The IH and EH segments are each led by a single manager. Each operating segment has responsibility for its commercial activities and for certain IPR&D projects for new investigational products and additional indications for in-line products that generally have achieved proof-of-concept. Each business has a geographic footprint across developed and emerging markets. Our chief operating decision maker uses the revenues and earnings of the two operating segments, among other factors, for performance evaluation and resource allocation.
We regularly review our segments and the approach used by management for performance evaluation and resource allocation. In July 2018, we announced that we will reorganize our commercial operations effective at the beginning of our 2019 fiscal year. We will organize the company into three businesses: a science-based Innovative Medicines business, which will include all of the current Pfizer Innovative Health medicines and vaccines business units as well as biosimilars and a new hospital business unit for anti-infectives and sterile injectables; an off-patent branded and generic Established Medicines business operating with substantial autonomy within Pfizer; and a Consumer Healthcare business. We are currently evaluating the impact to our operating segments and other costs and activities based on how the businesses will be managed in 2019.
As described in Note 1A, acquisitions and divestitures havethe February 3, 2017 sale of HIS impacted our results of operations in 2017 and 2016.2017.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Segments
|
| | |
| Some additional information about our business segments as of September 30, 2018 follows: |
IH Segment | | EH Segment |
IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare.
Key therapeutic areas include internal medicine, vaccines, oncology, inflammation & immunology, rare diseasesdisease and consumer healthcare. | | EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics,and generic sterile injectable products, biosimilars, and select branded products including anti-infectives and, through February 2, 2017, HIS.anti-infectives. EH also includes an R&D organization, as well as our contract manufacturing business. Through February 2, 2017, EH also included HIS. |
Leading brands include:
- Prevnar 13/Prevenar 13
- Xeljanz
- Eliquis
- Lyrica (U.S., Japan and certain other markets)
- Enbrel (outside the U.S. and Canada)
- Viagra (U.S. and Canada)
Ibrance
- Ibrance
- Xtandi
- Several OTC consumer healthcare products (e.g., Advil and
Centrum)
| |
Leading brands include: - Lipitor - Premarin family
- Norvasc - Lyrica (Europe, Russia, Turkey, Israel and Central Asia countries) - Celebrex - Viagra* - Inflectra/Remsima - Sulperazon - Several other sterile injectable products
|
| |
| * | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra worldwide revenues are reported in EH. |
The following organizational change impacted our operating segments in 2018:
Effective in the first quarter of 2018, certain costs for Pfizer’s StratCO group, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. StratCO costs primarily include headcount costs, vendor costs and data costs largely in support of Pfizer’s commercial operations. The majority of the StratCO costs reflect additional amounts that our operating segments would have incurred had each segment operated as a standalone company during the periods presented. The reporting change was made to streamline accountability and speed decision making. In the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation.
Other Costs and Business Activities
Certain pre-tax costs are not allocated to our operating segment results, such as costs associated with the following:
WRD, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities.
GPD, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects.
| |
• | Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. Effective in the first quarter of 2017, Corporate also includes the costs associated with our Pfizer Medical organization (Medical), previously reported as part of Other Business Activities. Medical is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations.Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement), the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations, as well as certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. Effective in the first quarter of 2018, certain costs for StratCO, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. For additional information, see note below on Other unallocated costs.
PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs (which include manufacturing variances associated with production). In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation.
| |
• | Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and PP&E; (ii) acquisition-related costs, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, representing substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges) that are evaluated on an individual basis by management and that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items can include, but are not limited to, non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities. |
Segment Assets
We manage our assets on a total company basis, not by operating segment, as many of our operating assets are shared (such as our plant network assets) or commingled (such as accounts receivable, as many of our customers are served by both operating segments). Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Total assets were approximately $168 billion as of September 30, 2018 and $172 billion as of October 1, 2017 and December 31, 20162017.
Selected Income Statement Information
|
| | | | | | | | | | | | | | | | |
| The following table provides selected income statement information by reportable segment: |
| | | Three Months Ended |
| | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Reportable Segments: | | | | | | | | |
IH(b) | | $ | 8,471 |
| | $ | 8,118 |
| | $ | 5,388 |
| | $ | 5,000 |
|
EH(b) | | 4,826 |
| | 5,050 |
| | 2,527 |
| | 2,801 |
|
| Total reportable segments | | 13,298 |
| | 13,168 |
| | 7,915 |
| | 7,801 |
|
Other business activities(c), (d) | | — |
| | — |
| | (736 | ) | | (759 | ) |
| Reconciling Items: | | | | | | |
| | |
|
Corporate(b), (d) | | — |
| | — |
| | (1,337 | ) | | (1,363 | ) |
Purchase accounting adjustments(d) | | — |
| | — |
| | (1,309 | ) | | (1,154 | ) |
Acquisition-related costs(d) | | — |
| | — |
| | (112 | ) | | (155 | ) |
Certain significant items(e) | | — |
| | — |
| | 213 |
| | (449 | ) |
Other unallocated(b), (d) | | — |
| | — |
| | (457 | ) | | (335 | ) |
| | | $ | 13,298 |
| | $ | 13,168 |
|
| $ | 4,177 |
| | $ | 3,585 |
|
| |
| | | Nine Months Ended |
| | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Reportable Segments: | | | | | | | | |
IH(b) | | $ | 24,573 |
| | $ | 23,204 |
| | $ | 15,419 |
| | $ | 14,534 |
|
EH(b) | | 15,097 |
| | 15,639 |
| | 8,133 |
| | 8,672 |
|
| Total reportable segments | | 39,670 |
| | 38,843 |
| | 23,552 |
| | 23,206 |
|
Other business activities(c), (d) | | — |
| | — |
| | (2,130 | ) | | (2,205 | ) |
| Reconciling Items: | | | | | | | | |
Corporate(b), (d) | | — |
| | — |
| | (3,633 | ) | | (3,908 | ) |
Purchase accounting adjustments(d) | | — |
| | — |
| | (3,665 | ) | | (3,527 | ) |
Acquisition-related costs(d) | | — |
| | — |
| | (221 | ) | | (347 | ) |
Certain significant items(e) | | — |
| | — |
| | (8 | ) | | (797 | ) |
Other unallocated(b), (d) | | — |
| | — |
| | (1,064 | ) | | (1,070 | ) |
| | | $ | 39,670 |
| | $ | 38,843 |
| | $ | 12,831 |
| | $ | 11,351 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Selected Income Statement Information
|
| | | | | | | | | | | | | | | | |
| The following table provides selected income statement information by reportable segment: |
| | | Three Months Ended |
| | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
| Reportable Segments: | | | | | | | | |
| IH | | $ | 8,118 |
| | $ | 7,332 |
| | $ | 4,875 |
| | $ | 4,187 |
|
| EH | | 5,050 |
| | 5,712 |
| | 2,765 |
| | 3,128 |
|
| Total reportable segments | | 13,168 |
| | 13,045 |
| | 7,640 |
| | 7,315 |
|
Other business activities(b), (c) | | — |
| | — |
| | (759 | ) | | (753 | ) |
| Reconciling Items: | | | | | | |
| | |
|
Corporate(c) | | — |
| | — |
| | (1,382 | ) | | (1,537 | ) |
Purchase accounting adjustments(c) | | — |
| | — |
| | (1,154 | ) | | (966 | ) |
Acquisition-related costs(c) | | — |
| | — |
| | (155 | ) | | (280 | ) |
Certain significant items(d) | | — |
| | — |
| | (449 | ) | | (1,969 | ) |
| Other unallocated | | — |
| | — |
| | (156 | ) | | (206 | ) |
| | | $ | 13,168 |
| | $ | 13,045 |
|
| $ | 3,585 |
| | $ | 1,604 |
|
| |
| | | Nine Months Ended |
| | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
| Reportable Segments: | | | | | | | | |
| IH | | $ | 23,204 |
| | $ | 21,471 |
| | $ | 14,190 |
| | $ | 12,470 |
|
| EH | | 15,639 |
| | 17,725 |
| | 8,558 |
| | 9,985 |
|
| Total reportable segments | | 38,843 |
| | 39,196 |
| | 22,748 |
| | 22,454 |
|
Other business activities(b), (c) | | — |
| | — |
| | (2,205 | ) | | (2,096 | ) |
| Reconciling Items: | | | | | | | | |
Corporate(c) | | — |
| | — |
| | (3,948 | ) | | (4,217 | ) |
Purchase accounting adjustments(c) | | — |
| | — |
| | (3,527 | ) | | (3,103 | ) |
Acquisition-related costs(c) | | — |
| | — |
| | (347 | ) | | (598 | ) |
Certain significant items(d) | | — |
| | — |
| | (797 | ) | | (4,112 | ) |
| Other unallocated | | — |
| | — |
| | (573 | ) | | (753 | ) |
| | | $ | 38,843 |
| | $ | 39,196 |
| | $ | 11,351 |
| | $ | 7,575 |
|
| |
(a) | Income from continuing operations before provision for taxes on income. IH’s earnings include dividend income of $91 million and $54 million in the third quarter of 2018 and 2017, respectively, and $226 million and $211 million in the first nine months of 2017 include dividend income of $54 million2018 and $211 million,2017, respectively, from our investment in ViiV. For additional information, see Note 4. |
| |
(b) | In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
| |
(c) | Other business activities includes the costs managed by our WRD and GPD organizations. Effective in the first quarter of 2017, Medical, previously reported as part of Other Business Activities, was reclassified to Corporate. We have reclassified approximately $33 million and $94 million of costs from Other Business Activities to Corporate in the third quarter and first nine months of 2016, respectively, to conform to the current period presentation. |
| |
(c)(d)
| For a description, see the “Other Costs and Business Activities” section above. |
| |
(d)(e)
| Certain significant items are substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges) that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. |
For Earnings in the third quarter of 20172018, certain significant items includes: (i) restructuring credits and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $35 million, (ii) net charges for certain legal matters of $37 million, (iii) income of $2 million, representing an adjustment to amounts previously recorded to write down the HIS net assets to fair value less costs to sell and (iv) other income of $282 million, which includes, among other things, a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system. For additional information, see Note 2B, Note 3 and Note 4.
For Earnings in the third quarter of 2017, certain significant items includes: (i) restructuring credits and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $90$55 million, (ii) charges for certain legal matters of $183 million, (iii) income of $12 million, representing an adjustment to amounts previously recorded to write down the HIS net assets to fair value less costs to sell, (iv) certain asset impairment charges of $127 million, (v) charges for business and legal entity alignment of $16 million and (vi) other charges of $45 million.$81 million, which includes, among other things, $55 million in inventory losses, overhead costs related to the period in which our Puerto Rico plants were not operational, and incremental costs, all of which resulted from hurricanes in Puerto Rico and are included in Cost of sales. For additional information, see Note 2B, Note 3andNote 4.4.
For Earnings in the third quarterfirst nine months of 20162018, certain significant items includes: (i) restructuring chargescredits and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $375$127 million, (ii) incomenet credits for certain legal matters of $40$70 million, (iii) income of $1 million, representing an impairment charge related to the write-down of the HIS net assets to fair value less estimated costs to sell of $1.4 billion, (iv) certain asset impairment charges of $126 million, (v) charges for business and legal entity alignment of $69 million and (vi) other charges of $17 million. For additional information, see Note 3 and Note 4.
For Earnings in the first nine months of 2017, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $253 million, (ii) charges for certain legal matters of $191 million, (iii) incremental chargesadjustment to amounts previously recorded to write down the HIS net assets to fair value less costs to sell, (iv) certain asset impairment charges of $31 million, (v) charges for business and legal entity alignment of $4 million and (vi) other income of $84 million, which includes, among other things, a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system, a $119 million charge, in the aggregate, in Selling, information and administrative expenses, for a special one-time bonus paid to virtually all Pfizer colleagues, excluding executives, which was one of several actions taken by us after evaluating the expected positive net impact of the December 2017 enactment of the TCJA on us, and a $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic chimeric antigen receptor T cell therapy development program assets in connection with our contribution agreement entered into with Allogene. For additional information, see Note 2B, Note 3 and Note 4.
For Earnings in the first nine months of 2017, certain significant items includes: (i) restructuring credits and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $133 million, (ii) charges for certain legal matters of $191 million, (iii) charges of $52 million, representing adjustments to amounts previously recorded to write-down the HIS net assets to fair value less costs to sell, (iv) certain asset impairment charges of $127 million, (v) charges for business and legal entity alignment of $54 million and (vi)(v) other charges of $119 million.$239 million, which include, among other things, $55 million in inventory losses, overhead costs related to the period in which our Puerto Rico plants were not operational, and incremental costs, all of which resulted from hurricanes in Puerto Rico and are included in Cost of sales, and a net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest, which is included in Other (income)/deductions––net. For additional information, see Note 2B, Note 3 and Note 4.
For Earnings in the first nine months of 2016, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $743 million, (ii) charges for certain legal matters of $506 million, (iii) an impairment charge related to the write-down of the HIS net assets to fair value less estimated costs to sell of $1.4 billion, (iv) certain asset impairment charges of $1.1 billion, (v) charges for business and legal entity alignment of $180 million and (vi) other charges of $189 million. For additional information, see Note 3 and Note 4.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Equity in the net income of investees accounted for by the equity method is not significant for any of our operating segments.
The operating segment information does not purport to represent the revenues, costs and income from continuing operations before provision for taxes on income that each of our operating segments would have recorded had each segment operated as a standalone company during the periods presented.
B. Geographic Information
As described in Note 1A, acquisitions and divestitures havethe February 3, 2017 sale of HIS impacted our results of operations in 2017 and 2016.2017.
| | The following table provides revenues by geographic area: | | | | Three Months Ended | | Nine Months Ended |
| Three Months Ended |
| Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
|
| September 30,
2018 |
|
| October 1,
2017 |
|
| %
Change |
|
| September 30,
2018 |
|
| October 1,
2017 |
|
| %
Change |
|
| U.S. | | $ | 6,534 |
| | $ | 6,530 |
| | — |
| | $ | 19,516 |
| | $ | 19,561 |
| | — |
|
| $ | 6,361 |
|
| $ | 6,534 |
|
| (3 | ) |
| $ | 18,861 |
|
| $ | 19,516 |
|
| (3 | ) |
Developed Europe(a) | | 2,163 |
| | 2,218 |
| | (2 | ) | | 6,309 |
| | 6,982 |
| | (10 | ) |
| 2,231 |
|
| 2,163 |
|
| 3 |
|
| 6,657 |
|
| 6,309 |
|
| 6 |
|
Developed Rest of World(b) | | 1,632 |
| | 1,711 |
| | (5 | ) | | 4,797 |
| | 4,940 |
| | (3 | ) |
| 1,640 |
|
| 1,632 |
|
| 1 |
|
| 4,795 |
|
| 4,797 |
|
| — |
|
Emerging Markets(c) | | 2,839 |
| | 2,586 |
| | 10 |
| | 8,222 |
| | 7,714 |
| | 7 |
|
| 3,066 |
|
| 2,839 |
|
| 8 |
|
| 9,358 |
|
| 8,222 |
|
| 14 |
|
| Revenues | | $ | 13,168 |
| | $ | 13,045 |
| | 1 |
| | $ | 38,843 |
| | $ | 39,196 |
| | (1 | ) |
| $ | 13,298 |
|
| $ | 13,168 |
|
| 1 |
|
| $ | 39,670 |
|
| $ | 38,843 |
|
| 2 |
|
| |
(a) | Developed Europe region includes the following markets: Western Europe, Scandinavian countries and Finland. Revenues denominated in euros were $1.8 billion and $1.7 billion in both the third quarter of 20172018 and 20162017, respectively, and $5.0$5.3 billion and $5.3$5.0 billion in the first nine months of 20172018 and 20162017, respectively. |
| |
(b) | Developed Rest of World region includes the following markets: Japan, Canada, Australia, South Korea and New Zealand. |
| |
(c) | Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe,Africa, the Middle East, Central Europe and Turkey. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. Other Revenue Information
Significant Product Revenues
As described in Note 1A, acquisitions and divestitures havethe February 3, 2017 sale of HIS impacted our results of operations in 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | |
| The following table provides detailed revenue information: |
| (MILLIONS OF DOLLARS) | | | | Three Months Ended | | Nine Months Ended | |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| TOTAL REVENUES | | | | $ | 13,298 |
| | $ | 13,168 |
| | $ | 39,670 |
| | $ | 38,843 |
|
PFIZER INNOVATIVE HEALTH (IH)(a) | | $ | 8,471 |
| | $ | 8,118 |
| | $ | 24,573 |
| | $ | 23,204 |
|
| Internal Medicine | | | | $ | 2,463 |
| | $ | 2,455 |
| | $ | 7,339 |
| | $ | 7,245 |
|
Lyrica IH(b) | | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | 1,132 |
| | 1,150 |
| | 3,398 |
| | 3,382 |
|
| Eliquis alliance revenues and direct sales | | Atrial fibrillation, deep vein thrombosis, pulmonary embolism | | 870 |
| | 644 |
| | 2,524 |
| | 1,813 |
|
| Chantix/Champix | | An aid to smoking cessation treatment in adults 18 years of age or older | | 261 |
| | 240 |
| | 789 |
| | 727 |
|
| BMP2 | | Development of bone and cartilage | | 54 |
| | 79 |
| | 206 |
| | 198 |
|
| Toviaz | | Overactive bladder | | 67 |
| | 62 |
| | 197 |
| | 187 |
|
Viagra IH(c) | | Erectile dysfunction | | — |
| | 206 |
| | — |
| | 711 |
|
| All other Internal Medicine | | Various | | 79 |
| | 75 |
| | 224 |
| | 228 |
|
| Vaccines | | | | $ | 1,845 |
| | $ | 1,649 |
| | $ | 4,708 |
| | $ | 4,385 |
|
| Prevnar 13/Prevenar 13 | | Vaccines for prevention of pneumococcal disease | | 1,660 |
| | 1,522 |
| | 4,290 |
| | 4,069 |
|
| FSME/IMMUN-TicoVac | | Tick-borne encephalitis vaccine | | 57 |
| | 43 |
| | 162 |
| | 119 |
|
| Trumenba | | Meningococcal Group B vaccine | | 61 |
| | 42 |
| | 95 |
| | 79 |
|
| All other Vaccines | | Various | | 67 |
| | 43 |
| | 160 |
| | 117 |
|
| Oncology | | | | $ | 1,775 |
| | $ | 1,616 |
| | $ | 5,294 |
| | $ | 4,551 |
|
| Ibrance | | Advanced breast cancer | | 1,025 |
| | 878 |
| | 2,985 |
| | 2,410 |
|
| Sutent | | Advanced and/or metastatic RCC, adjuvant RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | | 248 |
| | 276 |
| | 785 |
| | 805 |
|
| Xtandi alliance revenues | | Castration-resistant prostate cancer | | 180 |
| | 150 |
| | 510 |
| | 422 |
|
| Xalkori | | ALK-positive and ROS1-positive advanced NSCLC | | 127 |
| | 146 |
| | 417 |
| | 442 |
|
| Inlyta | | Advanced RCC | | 71 |
| | 84 |
| | 226 |
| | 256 |
|
| Bosulif | | Philadelphia chromosome–positive chronic myelogenous leukemia | | 69 |
| | 57 |
| | 206 |
| | 163 |
|
| All other Oncology | | Various | | 55 |
| | 26 |
| | 164 |
| | 54 |
|
| Inflammation & Immunology (I&I) | | | | $ | 1,018 |
| | $ | 1,000 |
| | $ | 2,951 |
| | $ | 2,863 |
|
| Enbrel (Outside the U.S. and Canada) | | Rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | | 531 |
| | 613 |
| | 1,589 |
| | 1,818 |
|
| Xeljanz | | Rheumatoid arthritis, psoriatic arthritis, ulcerative colitis | | 432 |
| | 348 |
| | 1,221 |
| | 935 |
|
| Eucrisa |
| Mild-to-moderate atopic dermatitis (eczema) | | 40 |
| | 15 |
| | 104 |
| | 33 |
|
| All other I&I | | Various | | 15 |
| | 23 |
| | 37 |
| | 78 |
|
| Rare Disease | | | | $ | 531 |
| | $ | 569 |
| | $ | 1,651 |
| | $ | 1,637 |
|
| BeneFIX | | Hemophilia | | 132 |
| | 151 |
| | 420 |
| | 453 |
|
| Genotropin | | Replacement of human growth hormone | | 143 |
| | 136 |
| | 416 |
| | 375 |
|
| Refacto AF/Xyntha | | Hemophilia | | 117 |
| | 140 |
| | 388 |
| | 409 |
|
| Somavert | | Acromegaly | | 64 |
| | 65 |
| | 195 |
| | 182 |
|
| All other Rare Disease | | Various | | 74 |
| | 77 |
| | 232 |
| | 218 |
|
| Consumer Healthcare | | | | $ | 839 |
| | $ | 829 |
| | $ | 2,631 |
| | $ | 2,522 |
|
PFIZER ESSENTIAL HEALTH (EH)(d) | | | | $ | 4,826 |
| | $ | 5,050 |
| | $ | 15,097 |
| | $ | 15,639 |
|
Legacy Established Products (LEP)(e) | | | | $ | 2,533 |
| | $ | 2,681 |
| | $ | 7,865 |
| | $ | 7,995 |
|
| Lipitor | | Reduction of LDL cholesterol | | 507 |
| | 491 |
| | 1,539 |
| | 1,341 |
|
| Norvasc | | Hypertension | | 247 |
| | 226 |
| | 773 |
| | 684 |
|
| Premarin family | | Symptoms of menopause | | 204 |
| | 238 |
| | 605 |
| | 711 |
|
| Xalatan/Xalacom | | Glaucoma and ocular hypertension | | 76 |
| | 83 |
| | 233 |
| | 241 |
|
| Effexor | | Depression and certain anxiety disorders | | 78 |
| | 76 |
| | 228 |
| | 215 |
|
| Zoloft | | Depression and certain anxiety disorders | | 72 |
| | 78 |
| | 223 |
| | 215 |
|
| Zithromax | | Bacterial infections | | 54 |
| | 61 |
| | 216 |
| | 202 |
|
| EpiPen | | Epinephrine injection used in treatment of life-threatening allergic reactions | | 68 |
| | 82 |
| | 215 |
| | 253 |
|
| Xanax | | Anxiety disorders | | 52 |
| | 58 |
| | 163 |
| | 164 |
|
| Sildenafil Citrate | | Erectile dysfunction | | 1 |
| | — |
| | 72 |
| | — |
|
| All other LEP | | Various | | 1,176 |
| | 1,288 |
| | 3,599 |
| | 3,969 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| The following table provides detailed revenue information: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
PFIZER INNOVATIVE HEALTH (IH)(a) | | $ | 8,118 |
| | $ | 7,332 |
| | $ | 23,204 |
| | $ | 21,471 |
|
| Internal Medicine | | $ | 2,455 |
| | $ | 2,243 |
| | $ | 7,245 |
| | $ | 6,557 |
|
Lyrica IH(b) | | 1,150 |
| | 1,049 |
| | 3,382 |
| | 3,107 |
|
| Eliquis alliance revenues and direct sales | | 644 |
| | 449 |
| | 1,813 |
| | 1,225 |
|
| Chantix/Champix | | 240 |
| | 198 |
| | 727 |
| | 631 |
|
Viagra IH(c) | | 206 |
| | 297 |
| | 711 |
| | 897 |
|
| BMP2 | | 79 |
| | 63 |
| | 198 |
| | 175 |
|
| Toviaz | | 62 |
| | 60 |
| | 187 |
| | 191 |
|
| All other Internal Medicine | | 75 |
| | 128 |
| | 228 |
| | 330 |
|
| Vaccines | | $ | 1,649 |
| | $ | 1,641 |
| | $ | 4,385 |
| | $ | 4,576 |
|
| Prevnar 13/Prevenar 13 | | 1,522 |
| | 1,536 |
| | 4,069 |
| | 4,302 |
|
| FSME/IMMUN-TicoVac | | 43 |
| | 33 |
| | 119 |
| | 102 |
|
| All other Vaccines | | 85 |
| | 72 |
| | 197 |
| | 172 |
|
| Oncology | | $ | 1,616 |
| | $ | 1,104 |
| | $ | 4,551 |
| | $ | 3,206 |
|
| Ibrance | | 878 |
| | 550 |
| | 2,410 |
| | 1,492 |
|
| Sutent | | 276 |
| | 260 |
| | 805 |
| | 823 |
|
| Xalkori | | 146 |
| | 140 |
| | 442 |
| | 415 |
|
| Xtandi alliance revenues | | 150 |
| | 2 |
| | 422 |
| | 2 |
|
| Inlyta | | 84 |
| | 95 |
| | 256 |
| | 304 |
|
| Bosulif | | 57 |
| | 43 |
| | 163 |
| | 121 |
|
| All other Oncology | | 26 |
| | 15 |
| | 54 |
| | 49 |
|
| Inflammation & Immunology (I&I) | | $ | 1,000 |
| | $ | 960 |
| | $ | 2,863 |
| | $ | 2,907 |
|
| Enbrel (Outside the U.S. and Canada) | | 613 |
| | 701 |
| | 1,818 |
| | 2,201 |
|
| Xeljanz | | 348 |
| | 235 |
| | 935 |
| | 649 |
|
| Eucrisa |
| 15 |
|
| — |
|
| 33 |
|
| — |
|
| All other I&I | | 23 |
| | 24 |
| | 78 |
| | 57 |
|
| Rare Disease | | $ | 569 |
| | $ | 585 |
| | $ | 1,637 |
| | $ | 1,768 |
|
| BeneFIX | | 151 |
| | 176 |
| | 453 |
| | 543 |
|
| Refacto AF/Xyntha | | 140 |
| | 140 |
| | 409 |
| | 408 |
|
| Genotropin | | 136 |
| | 147 |
| | 375 |
| | 425 |
|
| Somavert | | 65 |
| | 59 |
| | 182 |
| | 173 |
|
| All other Rare Disease | | 77 |
| | 64 |
| | 218 |
| | 219 |
|
| Consumer Healthcare | | $ | 829 |
| | $ | 798 |
| | $ | 2,522 |
| | $ | 2,457 |
|
PFIZER ESSENTIAL HEALTH (EH)(d) | | $ | 5,050 |
| | $ | 5,712 |
| | $ | 15,639 |
| | $ | 17,725 |
|
Legacy Established Products (LEP)(e) | | $ | 2,681 |
| | $ | 2,708 |
| | $ | 7,995 |
| | $ | 8,373 |
|
| Lipitor | | 491 |
| | 422 |
| | 1,341 |
| | 1,294 |
|
| Premarin family | | 238 |
| | 244 |
| | 711 |
| | 751 |
|
| Norvasc | | 226 |
| | 238 |
| | 684 |
| | 714 |
|
| EpiPen | | 82 |
| | 110 |
| | 253 |
| | 300 |
|
| Xalatan/Xalacom | | 83 |
| | 91 |
| | 241 |
| | 273 |
|
| Effexor | | 76 |
| | 70 |
| | 215 |
| | 207 |
|
| Zoloft | | 78 |
| | 72 |
| | 215 |
| | 228 |
|
| Zithromax | | 61 |
| | 56 |
| | 202 |
| | 203 |
|
| Relpax | | 50 |
| | 83 |
| | 193 |
| | 248 |
|
| Xanax | | 58 |
| | 55 |
| | 164 |
| | 163 |
|
| All other LEP | | 1,237 |
| | 1,268 |
| | 3,776 |
| | 3,992 |
|
Sterile Injectable Pharmaceuticals (SIP)(f) | | $ | 1,273 |
| | $ | 1,461 |
| | $ | 4,270 |
| | $ | 4,481 |
|
| Medrol | | 109 |
| | 102 |
| | 352 |
| | 330 |
|
| Sulperazon | | 114 |
| | 102 |
| | 345 |
| | 304 |
|
| Fragmin | | 79 |
| | 80 |
| | 221 |
| | 240 |
|
| Tygacil | | 60 |
| | 69 |
| | 192 |
| | 203 |
|
| Precedex | | 51 |
| | 64 |
| | 182 |
| | 199 |
|
| All other SIP | | 860 |
| | 1,044 |
| | 2,977 |
| | 3,206 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
|
Peri-LOE Products(g) | | $ | 794 |
| | $ | 1,023 |
| | $ | 2,398 |
| | $ | 3,224 |
|
| Celebrex | | 212 |
| | 194 |
| | 564 |
| | 550 |
|
Lyrica EH(b) | | 134 |
| | 191 |
| | 428 |
| | 623 |
|
| Vfend | | 97 |
| | 140 |
| | 305 |
| | 459 |
|
Viagra EH(c) | | 102 |
| | 89 |
| | 285 |
| | 286 |
|
| Pristiq | | 69 |
| | 174 |
| | 230 |
| | 546 |
|
| Zyvox | | 68 |
| | 94 |
| | 220 |
| | 334 |
|
| Revatio | | 58 |
| | 73 |
| | 189 |
| | 213 |
|
| All other Peri-LOE Products | | 55 |
| | 68 |
| | 176 |
| | 214 |
|
Biosimilars(h) | | $ | 141 |
| | $ | 83 |
| | $ | 367 |
| | $ | 228 |
|
| Inflectra/Remsima | | 112 |
| | 49 |
| | 284 |
| | 130 |
|
| All other Biosimilars | | 28 |
| | 34 |
| | 82 |
| | 97 |
|
Pfizer CentreOne(i) | | $ | 161 |
| | $ | 156 |
| | $ | 514 |
| | $ | 540 |
|
Hospira Infusion Systems (HIS)(j) | | $ | — |
| | $ | 281 |
| | $ | 97 |
| | $ | 879 |
|
| Revenues | | $ | 13,168 |
| | $ | 13,045 |
| | $ | 38,843 |
| | $ | 39,196 |
|
| | | | | | | | | |
Total Lyrica(b) | | $ | 1,285 |
| | $ | 1,240 |
| | $ | 3,810 |
| | $ | 3,730 |
|
Total Viagra(c) | | $ | 308 |
| | $ | 387 |
| | $ | 996 |
| | $ | 1,183 |
|
| Total Alliance revenues | | $ | 741 |
| | $ | 419 |
| | $ | 2,112 |
| | $ | 1,155 |
|
|
| | | | | | | | | | | | | | | | | | |
| (MILLIONS OF DOLLARS) | | | | Three Months Ended | | Nine Months Ended | |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
Sterile Injectable Pharmaceuticals (SIP)(f) | | $ | 1,239 |
| | $ | 1,273 |
| | $ | 3,928 |
| | $ | 4,270 |
|
| Sulperazon | | Treatment of infections | | 145 |
| | 114 |
| | 464 |
| | 345 |
|
| Medrol | | Steroid anti-inflammatory | | 95 |
| | 109 |
| | 318 |
| | 352 |
|
| Fragmin | | Slows blood clotting | | 76 |
| | 79 |
| | 221 |
| | 221 |
|
| Tygacil | | Tetracycline class antibiotic | | 60 |
| | 60 |
| | 186 |
| | 192 |
|
| Zosyn/Tazocin | | Antibiotic | | 55 |
| | 47 |
| | 175 |
| | 124 |
|
| Precedex | | Sedation agent in surgery or intensive care | | 47 |
| | 51 |
| | 166 |
| | 182 |
|
| All other SIP | | Various | | 761 |
| | 814 |
| | 2,399 |
| | 2,852 |
|
Peri-LOE Products(g) | | | | $ | 698 |
| | $ | 794 |
| | $ | 2,208 |
| | $ | 2,398 |
|
Viagra EH(c) | | Erectile dysfunction | | 137 |
| | 102 |
| | 509 |
| | 285 |
|
| Celebrex | | Arthritis pain and inflammation, acute pain | | 188 |
| | 212 |
| | 494 |
| | 564 |
|
| Vfend | | Fungal infections | | 87 |
| | 97 |
| | 294 |
| | 305 |
|
Lyrica EH(b) | | Epilepsy, neuropathic pain and generalized anxiety disorder | | 81 |
| | 134 |
| | 251 |
| | 428 |
|
| Zyvox | | Bacterial infections | | 50 |
| | 68 |
| | 184 |
| | 220 |
|
| Revatio | | Pulmonary arterial hypertension | | 53 |
| | 58 |
| | 163 |
| | 189 |
|
| Pristiq | | Depression | | 52 |
| | 69 |
| | 156 |
| | 230 |
|
| All other Peri-LOE Products | | Various | | 49 |
| | 55 |
| | 157 |
| | 176 |
|
Biosimilars(h) | | Various | | $ | 197 |
| | $ | 141 |
| | $ | 558 |
| | $ | 367 |
|
| Inflectra/Remsima | | Inflammatory diseases | | 166 |
| | 112 |
| | 469 |
| | 284 |
|
| All other Biosimilars | | Various | | 31 |
| | 28 |
| | 89 |
| | 82 |
|
Pfizer CentreOne(i) | | | | $ | 159 |
| | $ | 161 |
| | $ | 539 |
| | $ | 514 |
|
Hospira Infusion Systems (HIS)(j) | | Various | | $ | — |
| | $ | — |
| | $ | ��� |
| | $ | 97 |
|
Total Lyrica(b) | | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | $ | 1,213 |
| | $ | 1,285 |
| | $ | 3,649 |
| | $ | 3,810 |
|
Total Viagra(c) | | Erectile dysfunction | | $ | 137 |
| | $ | 308 |
| | $ | 509 |
| | $ | 996 |
|
| Total Alliance revenues | | Various | | $ | 977 |
| | $ | 741 |
| | $ | 2,820 |
| | $ | 2,112 |
|
| |
(a) | The IH business encompasses Internal Medicine, Vaccines, Oncology, Inflammation & Immunology, Rare Disease and Consumer Healthcare. Through December 31, 2016, includes Duavive/Duavee and Viviant (recorded in All other Internal Medicine in 2016), which were transferred from Innovative Health to Essential Health effective January 1, 2017 (recorded in All other LEP (EH) beginning January 1, 2017), in order to align these products with our management of the women’s health portfolio within EH. |
| |
(b) | Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica EH. All other Lyrica revenues are included in Lyrica IH. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica IH and Lyrica EH. |
| |
(c) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues fromfor Viagra in the U.S. and Canada, which were reported in IH through 2017, are includedreported in Viagra IH. AllEH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are includedreported in Viagra EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
| |
(d) | The EH business encompasses Legacy Established Products, Sterile Injectable Pharmaceuticals, Peri-LOE Products, Biosimilars, Pfizer CentreOne and HIS (through February 2, 2017) and includes all legacy Hospira commercial operations.. |
| |
(e) | Legacy Established Products primarily include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products). Effective January 1,In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All otherOther LEP includes Duavive/Duavee and Viviant, which were transferred from Innovative Health (recordedAll Other SIP, are reported in All other Internal Medicine (IH) in 2016), in order to align these products with our management of the women’s health portfolioemerging markets within EH.See note (a) above. Pfizer CentreOne. |
| |
(f) | Sterile Injectable Pharmaceuticals includeincludes branded and generic injectables and proprietary specialty injectables (excluding Peri-LOE Products). In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All Other LEP and All Other SIP, are reported in emerging markets within Pfizer CentreOne. |
| |
(g) | Peri-LOE Products includeincludes products that have recently lost or are anticipated to soon lose patent protection. These products primarily include: Lyrica in Europe, Russia, Turkey, Israel and Central Asia; Viagra in all countries (excluding the U.S. and Canada); and worldwide revenues for Celebrex, Pristiq, Zyvox, Vfend, Revatio and Inspra.Inspra; and beginning in 2018, Viagra revenues for all countries (and Viagra revenues for all countries other than the U.S. and Canada in 2017, see note (c) above). |
| |
(h) | Biosimilars includeincludes Inflectra/Remsima (biosimilar infliximab) in the U.S. and certain international markets, Nivestim (biosimilar filgrastim) in certain European, Asian and Africa/Middle Eastern markets and in the U.S. and Retacrit (biosimilar epoetin zeta) in certain European and Africa/Middle Eastern markets. |
| |
(i) | Pfizer CentreOne includes revenues from our contract manufacturing and active pharmaceutical ingredient sales operation, including sterile injectables contract manufacturing, and revenues related to our manufacturing and supply agreements, including with Zoetis.Zoetis Inc. In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All Other LEP and All Other SIP, are reported in emerging markets within Pfizer CentreOne. |
| |
(j) | HIS (through February 2, 2017) includes Medication Management Systems products composed of infusion pumps and related software and services, as well as IV Infusion Products, including large volume IV solutions and their associated administration sets. |
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Pfizer Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and Subsidiary Companiescompanies (the Company) as of October 1, 2017,September 30, 2018, the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2018 and October 1, 2017, and October 2, 2016, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and October 1, 2017 and October 2, 2016. These condensedthe related notes (collectively, the consolidated interim financial statements are the responsibility of the Company’s management.
We conductedinformation). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Pfizer Inc. and Subsidiary Companies as of December 31, 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
New York, New York
November 9, 20178, 2018
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
See the Glossary of Defined Terms at the beginning of this Quarterly Report on Form 10-Q for terms used throughout this MD&A. Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer’s results of operations, financial condition and cash flows. The MD&A is organized as follows:
|
| | | | | |
| ● | | |
| | This section provides information about the following: Our Business; our performance during the third quarter and first nine months of 20172018 and 2016;2017; Our Operating Environment; theThe Global Economic Environment; Our Strategy; Our Business Development Initiatives, such as acquisitions, dispositions, licensing and collaborations; and Our Financial Guidance for 2017.2018. | |
| ● | | |
| This section discusses updates to our 2017 Financial Report disclosures for those accounting policies and estimates that we consider important in understanding our consolidated financial statements. For additional discussion of our accounting policies, see Notes to Consolidated Financial Statements—Note 1. Basis of Presentation and Significant Accounting Policies. | |
| ● | | |
| | This section includes a Revenues Overview section as well as the following sub-sections: | |
| | | |
| | This sub-section provides an overview of revenues by segment and geography as well as revenue information for several of our major biopharmaceutical products.deductions | |
| | | |
| | This sub-section provides an overview of several of our biopharmaceutical products. | |
| | | |
| | This sub-section provides an overview of important biopharmaceutical product developments. | |
| | | |
| | This sub-section provides a discussion about our costs and expenses. | |
| | | |
| | This sub-section provides a discussion of items impacting our tax provisions. | |
| | | |
| | This sub-section provides a discussion of an alternative view of performance used by management. | |
| ● | | |
| | This section provides a discussion of the performance of each of our operating segments. | |
| ● | | |
| | This section provides a discussion of changes in certain components of other comprehensive income. | |
| ● | | |
| | This section provides a discussion of changes in certain balance sheet accounts. | |
| ● | | |
| | This section provides an analysis of our cash flows for the first nine months of 20172018 and 2016.2017. | |
| ● | | |
| | This section provides an analysis of selected measures of our liquidity and of our capital resources as of October 1, 2017September 30, 2018 and December 31, 2016,2017, as well as a discussion of our outstanding debt and other commitments that existed as of October 1, 2017September 30, 2018 and December 31, 2016.2017. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities. | |
| ● | | |
| | This section discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted. | |
| ● | | |
| | This section provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this MD&A, relating to, among other things, our anticipated operating and financial performance, business plans and prospects, in-line products and product candidates, including anticipated regulatory submissions, data read-outs, approvals, performance, timing of exclusivity and potential benefits of Pfizer’s products and product candidates, strategic reviews, capital allocation, business-development plans, manufacturing and products supply and plans relating to share repurchases and dividends.&A. Also included in this section is a discussion of legal proceedings and contingencies. | |
Certain amounts in our MD&A may not add due to rounding. All percentages have been calculated using unrounded amounts.
| | The following table provides the components of the condensed consolidated statements of income: | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA) | | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | % Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | % Change |
|
| Revenues | | $ | 13,168 |
| | $ | 13,045 |
| | 1 |
| | $ | 38,843 |
| | $ | 39,196 |
| | (1 | ) | | $ | 13,298 |
| | $ | 13,168 |
| | 1 |
| | $ | 39,670 |
| | $ | 38,843 |
| | 2 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales(a) | | 2,847 |
| | 3,085 |
| | (8 | ) | | 7,980 |
| | 9,111 |
| | (12 | ) | | 2,694 |
| | 2,844 |
| | (5 | ) | | 8,173 |
| | 7,972 |
| | 3 |
|
| % of revenues | | 21.6 | % | | 23.6 | % | | |
| | 20.5 | % | | 23.2 | % | | |
| | 20.3 | % | | 21.6 | % | | |
| | 20.6 | % | | 20.5 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, informational and administrative expenses(a) | | 3,500 |
| | 3,559 |
| | (2 | ) | | 10,233 |
| | 10,414 |
| | (2 | ) | | 3,494 |
| | 3,504 |
| | — |
| | 10,448 |
| | 10,249 |
| | 2 |
|
| % of revenues | | 26.6 | % | | 27.3 | % | | |
| | 26.3 | % | | 26.6 | % | | |
| | 26.3 | % | | 26.6 | % | | |
| | 26.3 | % | | 26.4 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses(a) | | 1,859 |
| | 1,881 |
| | (1 | ) | | 5,346 |
| | 5,360 |
| | — |
| | 2,008 |
| | 1,865 |
| | 8 |
| | 5,549 |
| | 5,367 |
| | 3 |
|
| % of revenues | | 14.1 | % | | 14.4 | % | | |
| | 13.8 | % | | 13.7 | % | | |
| | 15.1 | % | | 14.2 | % | | |
| | 14.0 | % | | 13.8 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | | 1,177 |
| | 968 |
| | 22 |
| | 3,571 |
| | 2,934 |
| | 22 |
| | 1,253 |
| | 1,177 |
| | 6 |
| | 3,640 |
| | 3,571 |
| | 2 |
|
| % of revenues | | 8.9 | % | | 7.4 | % | | |
| | 9.2 | % | | 7.5 | % | | |
| | 9.4 | % | | 8.9 | % | | |
| | 9.2 | % | | 9.2 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructuring charges and certain acquisition-related costs | | 149 |
| | 531 |
| | (72 | ) | | 377 |
| | 988 |
| | (62 | ) | | 85 |
| | 114 |
| | (26 | ) | | 172 |
| | 267 |
| | (36 | ) |
| % of revenues | | 1.1 | % | | 4.1 | % | | |
| | 1.0 | % | | 2.5 | % | | |
| | 0.6 | % | | 0.9 | % | | |
| | 0.4 | % | | 0.7 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other (income)/deductions––net | | 51 |
| | 1,417 |
| | (96 | ) | | (16 | ) | | 2,815 |
| | * |
| | (414 | ) | | 79 |
| | * |
| | (1,143 | ) | | 65 |
| | * |
|
| Income from continuing operations before provision for taxes on income | | 3,585 |
| | 1,604 |
| | * |
| | 11,351 |
| | 7,575 |
| | 50 |
| | 4,177 |
| | 3,585 |
| | 17 |
| | 12,831 |
| | 11,351 |
| | 13 |
|
| % of revenues | | 27.2 | % | | 12.3 | % | | |
| | 29.2 | % | | 19.3 | % | | |
| | 31.4 | % | | 27.2 | % | | |
| | 32.3 | % | | 29.2 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Provision for taxes on income(b) | | 727 |
| | 249 |
| | * |
| | 2,287 |
| | 1,109 |
| | * |
| | 66 |
| | 727 |
| | (91 | ) | | 1,270 |
| | 2,287 |
| | (44 | ) |
| Effective tax rate | | 20.3 | % | | 15.5 | % | | |
| | 20.1 | % | | 14.6 | % | | |
| | 1.6 | % | | 20.3 | % | | |
| | 9.9 | % | | 20.1 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations(b) | | 2,858 |
| | 1,355 |
| | * |
| | 9,064 |
| | 6,465 |
| | 40 |
| | 4,111 |
| | 2,858 |
| | 44 |
| | 11,562 |
| | 9,064 |
| | 28 |
|
| % of revenues | | 21.7 | % | | 10.4 | % | | |
| | 23.3 | % | | 16.5 | % | | |
| | 30.9 | % | | 21.7 | % | | |
| | 29.1 | % | | 23.3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | 1 |
| | — |
| | * |
| | 11 |
| | — |
| | * |
| | 10 |
| | 1 |
| | * |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income before allocation to noncontrolling interests | | 2,858 |
| | 1,355 |
| | * |
| | 9,066 |
| | 6,465 |
| | 40 |
| | 4,122 |
| | 2,858 |
| | 44 |
| | 11,571 |
| | 9,066 |
| | 28 |
|
| % of revenues | | 21.7 | % | | 10.4 | % | | |
| | 23.3 | % | | 16.5 | % | | |
| | 31.0 | % | | 21.7 | % | | |
| | 29.2 | % | | 23.3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Less: Net income attributable to noncontrolling interests | | 18 |
| | — |
| | * |
| | 32 |
| | 25 |
| | 27 |
| | 8 |
| | 18 |
| | (53 | ) | | 25 |
| | 32 |
| | (22 | ) |
Net income attributable to Pfizer Inc.(b) | | $ | 2,840 |
| | $ | 1,355 |
| | * |
| | $ | 9,034 |
| | $ | 6,440 |
| | 40 |
| | $ | 4,114 |
| | $ | 2,840 |
| | 45 |
| | $ | 11,546 |
| | $ | 9,034 |
| | 28 |
|
| % of revenues | | 21.6 | % | | 10.4 | % | | |
| | 23.3 | % | | 16.4 | % | | |
| | 30.9 | % | | 21.6 | % | | |
| | 29.1 | % | | 23.3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per common share––basic(b): : | | |
| | |
| | |
| | |
| | |
| | |
| |
Earnings per common share––basic: | | | |
| | |
| | |
| | |
| | |
| | |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 0.48 |
| | $ | 0.22 |
| | * |
| | $ | 1.51 |
| | $ | 1.06 |
| | 43 |
| | $ | 0.70 |
| | $ | 0.48 |
| | 46 |
| | $ | 1.96 |
| | $ | 1.51 |
| | 29 |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 0.48 |
| | $ | 0.22 |
| | * |
| | $ | 1.51 |
| | $ | 1.06 |
| | 43 |
| | $ | 0.70 |
| | $ | 0.48 |
| | 47 |
| | $ | 1.96 |
| | $ | 1.51 |
| | 29 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per common share––diluted(b): | | | | | | |
| | |
| | |
| | |
| |
Earnings per common share––diluted: | | | | | | | |
| | |
| | |
| | |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 0.47 |
| | $ | 0.22 |
| | * |
| | $ | 1.49 |
| | $ | 1.04 |
| | 43 |
| | $ | 0.69 |
| | $ | 0.47 |
| | 46 |
| | $ | 1.92 |
| | $ | 1.49 |
| | 29 |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 0.47 |
| | $ | 0.22 |
| | * |
| | $ | 1.49 |
| | $ | 1.04 |
| | 43 |
| | $ | 0.69 |
| | $ | 0.47 |
| | 46 |
| | $ | 1.92 |
| | $ | 1.49 |
| | 29 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash dividends paid per common share | | $ | 0.32 |
| | $ | 0.30 |
| | 7 |
| | $ | 0.96 |
| | $ | 0.90 |
| | 7 |
| | $ | 0.34 |
| | $ | 0.32 |
| | 6 |
| | $ | 1.02 |
| | $ | 0.96 |
| | 6 |
|
* Calculation not meaningful.meaningful or results are equal to or greater than 100%.
| |
(a) | Excludes amortization of intangible assets, except as disclosed in Notes to Condensed Consolidated Financial Statements––Note 9A. Identifiable Intangible Assets and Goodwill:Identifiable Intangible Assets. |
| |
(b)
| Amounts for the three and nine months ended October 2, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards.
|
OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK
Our Business
We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development and manufacture of healthcare products. Our global portfolio includes medicines and vaccines, as well as many of the world’s best-known consumer healthcare products. We work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our products and, to a much lesser extent, from alliance agreements, under which we co-promote products discovered or developed by other companies or us (Alliance revenues).
We manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). For additional information, see Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information and the “Our Strategy––Commercial Operations” section of this MD&A below.below, including a discussion of our plans to reorganize our operations into three businesses effective at the beginning of fiscal 2019.
In October 2018, we announced our Board of Directors unanimously elected Dr. Albert Bourla, Pfizer Chief Operating Officer, to succeed Ian Read as Chief Executive Officer effective January 1, 2019. Ian Read will transition from his current role as Chairman and Chief Executive Officer to Executive Chairman of Pfizer’s Board of Directors.
The majority of our revenues come from the manufacture and sale of biopharmaceutical products. As explained more fully in our 20162017 Form 10-K, the biopharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights, the ability to replenish innovative biopharmaceutical products, healthcare legislation, pipeline productivity, the regulatory environment, pricing and access pressures and competition. We also face challenges as a result of the global economic environment. For additional information about these factors and challenges, see the “Our Operating Environment” and “The Global Economic Environment” sections of this MD&A and of our 20162017 Financial Report, and Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
The financial information included in our condensed consolidated financial statements for our subsidiaries operating outside the U.S. is as of and for the three and nine months ended August 27, 201726, 2018 and August 28, 2016.27, 2017. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 30, 2018 and October 1, 2017 and October 2, 2016.
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| References to developed and emerging markets in this MD&A include: |
| Developed markets | | U.S., Western Europe, Japan, Canada, Australia, South Korea, Scandinavian countries, Finland and New Zealand |
| | | |
| Emerging markets (includes, but is not limited to) | | Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe,Africa, the Middle East, Central Europe and Turkey |
References to operational variances in this MD&A pertain to period-over-period growth rates that exclude the impact of foreign exchange. The operational variances are determined by multiplying or dividing, as appropriate, our current period U.S. dollar results by the current period average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the prior-year period average foreign exchange rates. Although exchange rate changes are part of our business, they are not within our control. Exchange rate changes, however, can mask positive or negative trends in the business; therefore, we believe presenting operational variances provides useful information in evaluating the results of our business.
In OctoberOn December 22, 2017, we announced that we are reviewingthe U.S. enacted significant changes to U.S. tax law following the passage and signing of the TCJA. The TCJA is complex and significantly changes the U.S. corporate income tax system by, among other things, reducing the U.S. Federal corporate tax rate from 35% to 21%, transitioning U.S. international taxation from a worldwide tax system to a territorial tax system and imposing a repatriation tax on deemed repatriated accumulated post-1986 earnings of foreign subsidiaries. For information on estimates and assumptions in connection with the TCJA, see Notes to Condensed Consolidated Financial Statements––Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
We continue to review strategic alternativesoptions for our Consumer Healthcare business. A rangeWe remain disciplined regarding our capital allocation, and at this time we have not received an acceptable offer for the sale of optionsthis business. We will be considered, includingcontinue our
management of this strong business as we explore other alternatives, which could include everything from a full or partial separation of the Consumer Healthcare business from Pfizer through a spin-off, sale or other transaction, and we mayto ultimately determinedeciding to retain the business. We continue to expect that any decision regarding strategic alternatives for our Consumer Healthcare business will be made during the fourth quarter of 2018.
Our other significant business development activities include:
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• | On February 3, 2017, we completed the sale of Pfizer’s global infusion therapy net assets, HIS, to ICU Medical for up to approximately $900 million, composed of cash and contingent cash consideration, ICU Medical common stock and seller financing.On February 3, 2017, we completed the sale of Pfizer’s global infusion systems net assets, HIS, to ICU Medical for up to approximately $900 million, composed of cash and contingent cash consideration, ICU Medical common stock and seller financing.At closing, we received 3.2 million newly issued shares of ICU Medical common stock, which we initially valued at approximately $428 million (a portion of which we sold in August 2018), a promissory note in the amount of $75 million and net cash of approximately $200 million before customary adjustments for net working capital. In addition, we are entitled to receive a contingent amount of up to an additional $225 million in cash based on ICU Medical’s achievement of certain cumulative performance targets for the combined company through December 31, 2019. The operating results of HIS are included in our condensed consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s |
operating results, for the third quarter of 2017 do not reflect any contribution from HIS global operations, while our financial results, and EH’s operating results, for the third quarter of 2016 reflect three months of HIS global operations. Our financial results, and EH’s operating results, for the first nine months of 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations, while ouroperations. Our financial results, and EH’s operating results, for the first nine months of 20162018 do not reflect nine months ofany contribution from HIS global operations. Assets and liabilities associated with HIS are presented as held for sale in the condensed consolidated balance sheet as of December 31, 2016. The HIS assets held for sale are reported in Assets held for sale and HIS liabilities held for sale are reported in Other current liabilities.
On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. The total fair valuefor $1,040 million, composed of the consideration transferred for this business was approximately $555 million in cash plusand contingent consideration of $490 million.consideration. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of this business, and, in accordance with our international reporting period, our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2017 reflect approximately three months and eight months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca.
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• | On September 28, 2016, we acquired Medivation for $81.50 per share. The total fair value of consideration transferred for Medivation was approximately $14.3 billion in cash ($13.9 billion, net of cash acquired). Of this consideration, approximately $365 million was not paid as of December 31, 2016, and was recorded in Other current liabilities. Substantially all of the remaining consideration was paid as of October 1, 2017. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Medivation. Therefore, Medivation operations are reflected in our financial results, IH’s operating results, and cash flows for the third quarter and first nine months of 2017. In accordance with our domestic and international reporting periods, our consolidated financial statements for the third quarter and first nine months of 2016 reflect three business days of Medivation operations, which were immaterial.
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• | On June 24, 2016, we acquired Anacor for $99.25 per share. The total fair value of consideration transferred for Anacor was approximately $4.9 billion in cash ($4.5 billion, net of cash acquired), plus $698 million debt assumed. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Anacor. Therefore, Anacor operations are reflected in our financial results, IH’s operating results, and cash flows for the third quarter and first nine months of 2017. In accordance with our domestic and international reporting periods, our consolidated financial statements for the third quarter and first nine months of 2016 reflect approximately three months of Anacor operations.
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For additional information, see Notes to Condensed Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets,Acquisition, Divestitures, Licensing Arrangements, Collaborative ArrangementArrangements and Equity-Method InvestmentsPrivately Held Investment and the “Our Strategy” and “Our Business Development Initiatives” sections of this MD&A below.
Impact of Recent Hurricanes in Puerto Rico
We have manufacturing and commercial operations in Puerto Rico, which were impacted by the recent hurricanes toward the end of the third quarter in 2017. While our three manufacturing sites sustained some damage and became inoperable due to issues impacting Puerto Rico overall, weall three sites have made significant progress in repairing our facilities in anticipation of ramping up to fullresumed operations overand remediation activities will continue through the coming months. Asremainder of the dateyear. Given prior inoperability along with ongoing remediation of this Form 10-Q filing, some packaging production has begun at our facilities. We expect our facilities to reach full capacity in early 2018, butsites, there could be certain product shortages in the coming months. Our commercial sales offices in Puerto Rico have been operational since October 9, 2017.
In the third quarter of 2017, we recorded $55 million in Cost of sales for inventory losses, overhead costs related to the period in which the plants could not operate, and incremental costs to date resulting from the hurricanes in Puerto Rico. We may record additional losses in future periods but we are unable to predict them with certainty at this time. As a result of dual source supply options and sufficient pre-hurricane inventory levels, we currently expect the impact on future revenues to be insignificant. We will continue to monitor the situation closely and make any updates to our outlook if warranted.
Product Manufacturing
We periodically encounter difficulties or delays in manufacturing, including due to legal or regulatory actions, such as warning letters, suspension of manufacturing or voluntary recall of a product. Withinproduct, or legal or regulatory actions such as warning letters. The product shortages we have been experiencing within our Essential Health portfolio we have been experiencing product shortages with some products. The product shortages are primarily for products from the legacy Hospira portfolio and are largely driven by capacity constraints, technical issues and technical issues. In February 2017, for example, we received a
warning letter from the FDA communicating the FDA’s view that certain violations of cGMP regulations exist at Hospira’s manufacturing facility in McPherson, Kansas.supplier quality concerns. We are undertaking corrective actions to address the concerns raised by the FDA. Communication with the FDA is ongoing. Until the violations are corrected, the FDA may refuse to grant premarket approval applications and/or the FDA may refuse to grant export certificates related to products manufactured at McPherson, Kansas. Any continued product shortage interruption at this manufacturing facility could negatively impact our financial results, specifically in our Sterile Injectable Pharmaceuticals portfolio. In addition to the McPherson facility, we continue to remediate issues at other legacy Hospira facilities manufacturing sterile injectables within our Essential Health portfolio. Any continuing product shortage interruption at these manufacturing facilities could negatively impact our financial results, specifically in our SIP portfolio. We expectcontinue to make substantial progress on our comprehensive remediation efforts during 2018.plan to upgrade and modernize these facilities, and we expect our supply issues to be significantly improved by the end of 2019.
Our 20172018 Performance
Revenues
Revenues in the third quarter of 20172018 increased $130 million, or 1%, compared to the same period in 20162017, which reflects an operational increase of $178$243 million, or 1%2%, slightlypartially offset by the unfavorable impact of foreign exchange.
exchange of $113 million, or 1%. Revenues in the first nine months of 2017 decreased 1%2018 increased $827 million, or 2%, compared to the same period in 20162017, which reflects an operational increase of $19 million and an unfavorablea favorable impact of foreign exchange of 1%.$693 million, or 2%, and an operational increase of $134 million.
The following provides an analysis of the changes in revenues for the third quarter and first nine months of 20172018:
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| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
| | | | | |
Revenues, for the three months and nine months ended October 2, 2016 | | $ | 13,045 |
| | $ | 39,196 |
|
| | |
|
| | |
Disposition-related operational impact––February 2017 sale of HIS(a) | | (280 | ) | | (783 | ) |
| | |
|
| | |
| Other operational growth/(decline) | | | | |
Continued growth from key brands(b) and growth from Biosimilars | | 806 |
| | 2,245 |
|
| Growth in Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation) | | 148 |
| | 420 |
|
| Declines from Peri-LOE Products, Enbrel (driven by declines in most developed Europe markets), Prevnar 13/Prevenar 13 (driven by declines in the U.S.), and Viagra (IH) (primarily in the U.S.), as well as a decline in our SIP portfolio, and for the first nine months of 2017, also includes a decline in the LEP portfolio | | (598 | ) | | (1,951 | ) |
| Other operational factors, net | | 102 |
| | 87 |
|
| Operational growth, net | | 178 |
| | 19 |
|
| | | | | |
| Operational revenues | | 13,222 |
| | 39,215 |
|
| Unfavorable impact of foreign exchange | | (54 | ) | | (372 | ) |
Revenues, for the three months and nine months ended October 1, 2017 | | $ | 13,168 |
| | $ | 38,843 |
|
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| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
Revenues, for the three and nine months ended October 1, 2017 | | $ | 13,168 |
| | $ | 38,843 |
|
| | |
|
| | |
| Operational growth/(decline): | | | | |
Continued growth from key brands(a) and from recently launched products(b), as well as growth from Biosimilars(c) | | 768 |
| | 2,172 |
|
Declines from the SIP portfolio (primarily in the U.S.), the Peri-LOE Products portfolio (excluding Viagra EH(d), which was impacted by the shift in the reporting of U.S. and Canada Viagra revenues to EH), total Viagra(d) (primarily in the U.S.), Enbrel (driven by declines in most developed Europe markets) and the LEP portfolio (primarily in developed markets) | | (508 | ) | | (1,971 | ) |
Disposition-related impact of the February 2017 sale of HIS(e) | | — |
| | (97 | ) |
| Other operational factors, net | | (18 | ) | | 29 |
|
| Operational growth, net | | 243 |
| | 134 |
|
| | | | | |
| Operational revenues | | 13,410 |
| | 38,977 |
|
| (Unfavorable)/favorable impact of foreign exchange | | (113 | ) | | 693 |
|
Revenues, for the three and nine months ended September 30, 2018 | | $ | 13,298 |
| | $ | 39,670 |
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(a) | InKey brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13 and Xtandi, as well as, for the third quarterfirst nine months of 2018, Chantix/Champix.
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(b) | Growth from recently launched products include Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe. |
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(c) | Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe. |
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(d) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, financialare reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
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(e) | Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to the inclusion of three months of HIS global operations in the same period in 2016. In the first nine months of 2017, financial results include approximately one month of HIS domestic operations and approximately two months of HIS international operations compared to nine months of HIS global operations in the same period in 2016.2017. |
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(b)For worldwide revenues, by geography, for selected products, see the discussion in the “Analysis of the Condensed Consolidated Statements of Income––Revenues and Product Developments––Revenues––Selected Product Discussion” section of this MD&A. For additional information regarding the primary indications or class of certain products, see Notes to Condensed Consolidated Financial Statements––Note 13C. Segment, Geographic and Other Revenue Information: Other Revenue Information. | Key brands include Ibrance and Eliquis (globally) as well as Lyrica (IH) and Xeljanz (both primarily in the U.S.).
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See the “Analysis of the Condensed Consolidated Statements of Income––Revenues and Product Developments––Revenues––Overview”Revenues by Segment and Geography” section below for more information, including a discussion of key drivers of our revenue performance.
Income from Continuing Operations Before Provision for Taxes on Income
The following provides an analysis of the increasesincrease in Income from continuing operations before provision for taxes on income for the third quarter and first nine months of 20172018: |
| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
| | | | | |
Income from continuing operations before provision for taxes on income, for the three months and nine months ended October 2, 2016 | | $ | 1,604 |
| | $ | 7,575 |
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| | | | | |
| Favorable/(Unfavorable) change in revenues | | 123 |
| | (353 | ) |
| | | | | |
| Favorable/(Unfavorable) changes: | | |
| |
Nonrecurrence of 2016 impairment on remeasurement of HIS net assets and lower loss on sale of HIS(a) | | 1,434 |
| | 1,369 |
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Lower Cost of sales(b) | | 238 |
| | 1,130 |
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Lower certain asset impairments(a) | | 3 |
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| 937 |
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Lower Restructuring charges and certain acquisition-related costs(c) | | 381 |
| | 611 |
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(Higher)/lower certain legal matters, net(a) | | (223 | ) | | 300 |
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Higher net gains on asset disposals(a) | | 108 |
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| 268 |
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Higher dividend income(a) | | 54 |
| | 204 |
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Lower Selling, information and administrative expenses(d) | | 59 |
| | 181 |
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Lower business and legal entity alignment costs(a) | | 53 |
| | 126 |
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Higher Amortization of intangible assets(e) | | (209 | ) |
| (637 | ) |
Lower royalty-related income(a) | | (93 | ) |
| (363 | ) |
| | | | | |
| All other items, net | | 52 |
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| 4 |
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Income from continuing operations before provision for taxes on income, for the three months and nine months ended October 1, 2017 | | $ | 3,585 |
|
| $ | 11,351 |
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| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
Income from continuing operations before provision for taxes on income, for the three and nine months ended October 1, 2017 | | $ | 3,585 |
| | $ | 11,351 |
|
| Favorable change in revenues | | 130 |
| | 827 |
|
| Favorable/(unfavorable) changes: | | |
|
|
Higher net gains recognized during the period on investments in equity securities(a) | | 49 |
| | 349 |
|
Impact of net periodic benefit costs/(credits) other than service costs(a) | | 93 |
| | 313 |
|
Higher income from collaborations, out-licensing arrangements and sales of compound/product rights(a) | | 61 |
| | 292 |
|
Impact of certain legal matters, net(a) | | 146 |
| | 264 |
|
Lower certain asset impairments(a) | | 131 |
| | 103 |
|
Impact of Cost of sales(b) | | 149 |
| | (202 | ) |
Impact of Selling, information and administrative expenses(c) | | 10 |
| | (198 | ) |
Higher Research and development expenses(d) | | (144 | ) | | (182 | ) |
Higher Amortization of intangible assets(e) | | (76 | ) | | (69 | ) |
| All other items, net | | 43 |
|
| (17 | ) |
Income from continuing operations before provision for taxes on income, for the three and nine months ended September 30, 2018 | | $ | 4,177 |
|
| $ | 12,831 |
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(a) | See the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net. |
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(b) | See the “Costs and Expenses––Cost of Sales” section of this MD&A. |
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(c) | See the “Costs and Expenses––Restructuring Charges and Certain Acquisition-Related Costs and Cost-Reduction/Productivity Initiatives” section of this MD&A. |
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(d)
| See the “Costs and Expenses––Selling, Informational and Administrative (SI&A) Expenses” section of this MD&A. |
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(d) | See the “Costs and Expenses––Research and Development (R&D) Expenses” section of this MD&A. |
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(e) | See the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A. |
For information on our tax provision and effective tax rate see the “Provision for Taxes on Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 5. Tax Matters.
Our Operating Environment
Industry-Specific Challenges
Intellectual Property Rights and Collaboration/Licensing Rights
The loss, expiration or invalidation of intellectual property rights, patent litigation settlements with generic manufacturers and the expiration of co-promotion and licensing rights can have a significant adverse effect on our revenues. WeMany of our branded products have multiple patents that expire at varying dates, thereby strengthening our overall patent protection. However, once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, we lose exclusivity on these products, and generic pharmaceutical manufacturers generally produce similar products and sell them for a number of our products in certain markets and we have lost collaboration rights with respect to a number of our alliance products in certain markets, and we expect certain products to face significantly increasedlower price. The date at which generic competition overcommences may be different from the next few years.date that the patent or regulatory exclusivity expires. However, when generic competition does commence, the resulting price competition can substantially decrease our revenues for the impacted products, often in a very short period of time. Also, if one of our patents is found to be invalid by judicial, court or administrative proceedings, such as inter partesreview, post-grant review, re-examination or opposition proceedings, before the U.S. Patent and Trademark Office, the European Patent Office, or other foreign counterparts, generic or competitive products could be introduced into the market resulting in the erosion of sales of our existing products. For example, several of the patents in our pneumococcal vaccine portfolio have beenwere challenged in inter partes review and post-grant review proceedings in the U.S. In June 2018, the Patent Trial and Appeal Board ruled on one patent, holding that one claim was valid and that all other claims were invalid. The party challenging that patent has appealed the decision. Challenges to other patents remain pending before the U.S. Patent and Trademark Office. The invalidation of these patents could potentially allow a competitor pneumococcal vaccine into the marketplace.
As a result of a patent litigation settlement, with severalTeva Pharmaceuticals USA, Inc. launched a generic manufacturers, generic versionsversion of Pristiq launchedViagra in the U.S. in MarchDecember 2017. See the “Intellectual Property Rights and Collaboration/Licensing Rights” section of our 20162017 Financial Report for additional information about (i) recent losses and expected losses of product exclusivity in the U.S., Europe and/or Japan impacting product revenues and (ii) recent losses of collaboration rights impacting alliance revenues.
We lost or expect to lose exclusivity for various other products in various markets over the next few years, including, among others, Viagra in the U.S. in December 2017 and the expiration of the basic product patent for Lyrica in the U.S. in December 2018. Pfizer is currently pursuing a six-month patent-term extension for pediatric exclusivity for Lyrica in the U.S. with the FDA.
For additional information, see the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 20162017 Form 10-K.
We will continue to aggressively defend our patent rights whenever we deem appropriate. For more detailed information about our significant products, see the discussion in the “Revenues––Major Products” and “Revenues––Selected Product Discussion” sections of this MD&A. For a discussion of certain recent developments with respect to patent litigation, see Notes to Condensed Consolidated Financial Statements––Note 12A1. CommitmentsContingencies and Contingencies:Certain Commitments: Legal Proceedings––Patent Litigation.
Regulatory Environment/Pricing and Access––U.S. Healthcare Legislation
In March 2010, the ACA was enacted in the U.S. For additional information, see the “Government Regulation and Price Constraints” section in Part I, Item 1, “Business” of our 20162017 Form 10-K.
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| | | | | | | | | | | | | | | | |
| We recorded the following amounts as a result of the U.S. Healthcare Legislation: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
Reduction to Revenues, related to the Medicare “coverage gap” discount provision | | $ | 217 |
| | $ | 157 |
| | $ | 435 |
| | $ | 296 |
|
Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes), based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs. The first nine months of 2018 also reflected a favorable true-up associated with the updated 2017 invoice received from the federal government, which reflected a lower expense than what was previously estimated for invoiced periods. | | 43 |
| | 87 |
| | 118 |
| | 218 |
|
We recorded the following amounts as a result of the U.S. Healthcare Legislation:
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• | $157 million in the third quarter of 2017 and $143 million in the third quarter of 2016, and $296 million in the first nine months of 2017 and $302 million in the first nine months of 2016, recorded as a reduction to Revenues related to the Medicare “coverage gap” discount provision; and
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• | $87 million in the third quarter of 2017 and $95 million in the third quarter of 2016, and $218 million in the first nine months of 2017 and $219 million in the first nine months of 2016, recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs.
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Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures
Governments, MCOs and other payer groups continue to seek increasing discounts on our products through a variety of means, such as leveraging their purchasing power, implementing price controls, and demanding price cuts (directly or by rebate actions). In Europe, Japan, China, Canada, South Korea and some other international markets, governments provide healthcare at lowlow-to-zero direct cost to patientsconsumers at the point of care and have significant power as large single payers to regulate pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system, particularly under recent global economic pressures. In the U.S., a primary government activity with implicationsaction to reduce federal spending on entitlement programs including Medicare and Medicaid may affect payment for pharmaceutical pricing is deficit reduction.our products or services provided using our products. Any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented and/or any significant additional taxes or fees that may be imposed on us, as part of any broad deficit-reduction effort could have an adverse impact on our results of operations. Significant Medicare reductions could also result if Congress proceeds with certain proposals to convert the Medicare fee-for-service program into a premium support program, or if itCongress chooses to implement the recommendations made annually by the Medicare Payment Advisory Commission, which are primarily intended to extend the fiscal solvency of the Medicare program. Similar reductions to Medicare spending could result if the threshold for action by the Independent Payment Advisory Board (IPAB) is reached, and the Secretary of the Department of Health and Human Services (to whom responsibility for developing savings proposals specified in the ACA is likely to default in the absence of a seated IPAB) is required to identify savings. Current projections by the Centers for Medicare and Medicaid Services Office of the Actuary indicate that the IPAB threshold will not be reached before 2021.
Consolidation among MCOs has increased the negotiating power of MCOs and other private insurers. Private third-party insurers, as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange
for formulary inclusion. Failure to obtain or maintain timely or adequate pricing or formulary placement for our products or obtaining such pricing or placement at unfavorable pricing could adversely impact revenue.
Additionally, effortsEfforts by government officials or legislators to implement measures to regulate prices or payment for pharmaceutical products, including legislation on drug importation, could adversely affect our business if implemented. ThereRecently, there has recently been considerable public and government scrutiny of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals, and there are indications that therepharmaceuticals. There have also been state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices. Certain state legislation has been subject to legal challenges.
Adoption of new legislation at the federal or state level could be a Presidential Executive Order that would focus on pharmaceuticals.further affect demand for, or pricing of, our products. We believe medicines are the most efficient and effective use of healthcare dollars based on the value they deliver to the overall healthcare system. We will continue to work with stakeholderslaw makers and advocate for solutions that effectively improve patient health outcomes, lower costs to the healthcare system, and ensure access to medicines within an efficient and affordable healthcare system.
Adoption of other new legislation at the federal or state level could further affect demand for, or pricing of, our products. We face uncertainties due to federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the ACA, though theACA. The likelihood of such a repeal of the ACA is nowcurrently appears low given the recent failureU.S. midterm elections, which resulted in Democratic control of the Senate’s multiple attempts to repeal various combinationsHouse of ACA provisions. In October 2017,Representatives. Although the President signed an Executive Order directing federal agencies to modify how the ACA is implemented and announced that his administration will withhold the cost-
sharing subsidies paid to health insurance exchange plans serving low-income enrollees. The revenues generated for Pfizer by the health insurance exchanges under the ACA are minor, so the impact of the recent administration actions is expected to be limited. Therethere is no assurance that any future replacement, modification or repeal of the ACA will not adversely affect our business and financial results, particularly if the legislation reduces incentives for employer-sponsored insurance coverage. We also may face uncertainties if our industry is looked to for savings to fund certain legislation, such as reauthorization of the Children’s Health Insurance Program, or lifting the debt ceiling. There have also beenOne recent state legislative efforts to address drug costs,example is the Bipartisan Budget Act of 2018, which have generally focused on increasing transparency around drug costs or limiting drug prices. Recent legislation enacted includes, for example, a 2017 Maryland law that prohibits a generic drug manufacturer or wholesale distributor from engaging in price gougingincreased the discount we pay in the sale of certain off-patent or generic drugs,Medicare Part D “coverage gap” from 50% to 70%, which will modestly reduce our future Medicare Part D revenues.
In May 2018, President Trump released his Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (Blueprint). Pfizer communicated a 2017 California lawformal response to the request for information that requires manufacturersaccompanied the Blueprint, and is participating in the subsequent rule-making process to provide advanced notification ofadvance the proposals that are most likely to bring meaningful out-of-pocket cost relief to patients. Certain proposals in the Blueprint, and related drug pricing measures proposed since the Blueprint, could cause significant operational and reimbursement changes for the pharmaceutical industry. On July 10, 2018, Pfizer decided to defer price increases that were effective July 1, 2018, and return those prices to certain purchasers and report specified drug pricing information totheir pre-July 1, 2018 levels. In addition, the state. We cannot predict the successprice declines that we took as of current or future federal or state legislative efforts. We will continue to work with law makers and advocate for solutions that effectively improve patient health outcomes and lower costs to the healthcare system.
The potential for additional pricing and access pressures in the commercial sector continues to be significant. Some employers, seeking to avoid the tax on high-cost health insurance in the ACA to be imposed in 2020,2022, are already scaling back healthcare benefits and an increasing number are implementing high deductible benefit designs. This is a trend that is likely to continue, especially if proposals to limit the tax exclusion for employer sponsored health insurance ultimately become law.continue. Private third-party payers, such as health plans, increasingly challenge pharmaceutical product pricing, which could result in lower prices, lower reimbursement rates and a reduction in demand for our products. Pricing pressures for our products may occur as a result of highly competitive insurance markets. Healthcare provider purchasers, directly or through group purchasing organizations, are seeking enhanced discounts or implementing more rigorous bidding or purchasing review processes.
Overall, there is increasing pressure on U.S. providers to deliver healthcare at a lower cost and to ensure that those expenditures deliver demonstrated value in terms of health outcomes. Longer term, we are seeing a shift in focus away from fee-for-service payments towards outcomes-based payments and risk-sharing arrangements that reward providers for cost reductions. These new payment models can, at times, lead to lower prices for, and restricted access to, new medicines. At the same time, these models can also expand utilization by encouraging physicians to screen, diagnose and focus on outcomes.
Outside the U.S., governments, including the different EU Member States, Japan and Canada, may use a variety of cost-containment measures for our pharmaceutical products, including price cuts, mandatory rebates, value-based pricing,health technology assessments, forced localization as a condition of market access and international reference pricing (i.e., the practice of a country linking its regulated medicine prices to those of other countries). This international patchwork of price regulation and differing economic conditions and incomplete value assessments of value across countries has led to different prices in different countries, varying health outcomes and some third-party trade in our products between countries.
In particular, international reference pricing adds to the regional impact of price cuts in individual countries and hinders patient access and innovation. Price variations, exacerbated by international reference pricing systems, also have resulted from exchange rate fluctuations. The downward pricing pressure resulting from this dynamic can be expected to continue as a result of reforms to international reference pricing policies and measures targeting pharmaceuticals in some European countries.
In addition, several important multilateral organizations, such as the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD), are increasing policy pressures and scrutiny of international pharmaceutical pricing through issuing reports and policy recommendations (e.g., 2016 UN High Level Panel Report on Access to Medicines and 2017 OECD Report on New Health Technologies––Managing Access, Value and Sustainability). Government adoption ofThe recommendations from these reports and any other recommendations that may leadbe made in the future will continue to exert additional pricing pressures.
In response to the evolving U.S. and global healthcare spending landscape, we are continuing to work with health authorities, health technology assessment and quality measurement bodies and major U.S. payers throughout the product-development process to better understand how these entities value our compounds and products. Further, we are seeking to develop stronger internal capabilities focused on demonstrating the value of the medicines that we discover or develop, register and manufacture, by recognizing patterns of usage of our medicines and competitor medicines along with patterns of healthcare costs.
For additional information, see the “Regulatory Environment––Pipeline Productivity” and “Competition” sections of our 20162017 Financial Report.
The Global Economic Environment
In addition to the industry-specific factors discussed above, we, like other businesses, are exposed to the economic cycle, which impacts our biopharmaceutical operations globally.
Governments, corporations, and insurance companies, which provide insurance benefits to patients, have implemented increases in cost-sharing and restrictions on access to medicines, potentially causing patients to switch to generic or biosimilar products, delay treatments, skip doses or use less effective treatments. Government financing pressures can lead to negative pricing
pressure in various markets where governments take an active role in setting prices, access criteria (e.g., through public or private health technology assessments), or other means of cost control. Examples include Europe, Japan, China, Canada, South Korea and a number of other international markets. The U.S. continues to maintain competitive insurance markets, but has also seen significant increases in patient cost-sharing and growing government influence as government programs continue to grow as a source of coverage.
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• | We continue to monitor developments regarding government and government agency receivables in several European markets, including Greece, where economic conditions remain challenging and uncertain. For further information about our Accounts Receivable, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.
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Significant portions of our revenues, costs and earnings,expenses, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the Japanese yen, the Chinese renminbi, the U.K. pound, the Canadian dollar and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. dollar were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. Therefore, significant changes in foreign exchange rates including those changes resulting from the volatility following the U.K. referendum in which voters approved the exit from the EU, can impact our results and our financial guidance.
The impact of possible currency devaluations in countries experiencing high inflation rates or significant exchange fluctuations, including Venezuela and Argentina, can impact our results and financial guidance. For further information about our exposure to foreign currency risk, see the “Analysis of Financial Condition, Liquidity and Capital Resources” and the “Our Financial Guidance for 20172018” sections of this MD&A.
In June 2016, the U.K. electorate voted in a referendum to leave the EU, which is commonly referred to as “Brexit”. In January 2017, the U.K. Prime Minister announced a 12-point plan of negotiating objectives and confirmed that the U.K. government will not seek continued membership in the EU single market. In March 2017, the U.K. government formally notified the European Council of its intention to leave the EU after it triggered Article 50 of the Lisbon Treaty to begin the two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. Formal negotiations officially started in June 2017. This process continues to be highly complex and the end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU, including the approval and supply of our products. The EMA announced in November 2017 that it will be relocating from London, U.K. to Amsterdam, Netherlands by the expected date of Brexit in March 2019.
We generated approximately 2% of our worldwide revenues from the U.K. in 2017 and in the first nine months of 2017. However, except for2018, including the foreign currency exchange impact from the weakening U.K. pound relative to the U.S. dollar to date,date. We recognize that there are still significant uncertainties surrounding the ultimate resolution of Brexit negotiations, and we will continue to monitor any changes that may arise and assess their potential impact on our business.
Pfizer’s preparations are well advanced to make the changes necessary to meet EU legal requirements after the U.K. is no other immediate-term impacts to our business as there has not yet beenlonger a formal changemember state, especially in the relationship betweenregulatory, manufacturing and supply chain areas. The aim is to ensure the U.K.continuity of supply to patients in Europe (EU and U.K.) and other global markets impacted by these changes. The one-time costs of making these adaptations are currently estimated at approximately $100 million.
On December 22, 2017, the EU. In addition, becauseU.S. enacted significant changes to U.S. tax law following the passage and signing of the TCJA. The TCJA is complex and significantly changes the U.S. corporate income tax system by, among other things, reducing the U.S. Federal corporate tax rate from 35% to 21%, transitioning U.S. international taxation from a worldwide tax system to a
territorial tax system and imposing a repatriation tax on deemed repatriated accumulated post-1986 earnings of foreign subsidiaries. Given the significant uncertaintieschanges resulting from and complexities associated with the negotiation process, any potential long-termTCJA, the estimated financial impacts are not currently determinable.for 2017, as well as the estimated impact on 2018 financial guidance for the effective tax rate on adjusted income remain provisional and subject to further analysis, interpretation and clarification of the TCJA, which could result in further changes to these estimates during the fourth quarter of 2018. For additional information, see the “Our Financial Guidance for 2018”, “Provision for Taxes on Income” and “Analysis of Financial Condition, Liquidity and Capital Resources” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
Pfizer maintains a strong financial position while operating in a complex global environment. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. Our long-term debt is rated high quality by both S&P and Moody’s. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, available-for-sale debt securities. For further discussion of our financial condition and credit ratings, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.
These and other industry-wide factors that may affect our businesses should be considered along with information presented in the “Forward-Looking Information and Factors That May Affect Future Results” section of this MD&A and in Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K and Part II, Item 1A, "Risk Factors,"“Risk Factors” of this Quarterly Report on Form 10-Q.
Our Strategy
We believe that our medicines provide significant value for both healthcare providers and patients, not only from the improved treatment of diseases but also from a reduction in other healthcare costs, such as emergency room or hospitalization costs, as well as improvements in health, wellness and productivity. We continue to actively engage in dialogues about the value of our medicines and how we can best work with patients, physicians and payers to prevent and treat disease and improve outcomes.
We continue to work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize patient access and minimize any adverse impact on our revenues. We remain firmly committed to fulfilling our company’s purpose of innovating to bring therapies to patients that extend and significantly improve their lives. By doing so, we expect to create value for the patients we serve and for our shareholders.
We expect higher and more sustained growth post-2020 after our near-term patent expirations occur. Therefore, in July 2018, we announced that we will organize our company into three businesses effective at the beginning of our 2019 fiscal year. We believe the new structure better positions each business to achieve its growth potential:
a science-based Innovative Medicines business, which will include all of our current Innovative Health medicines and vaccines business units as well as biosimilars and a new Hospital Medicines business unit that will commercialize our global portfolio of sterile injectable and anti-infective medicines;
an off-patent branded and generic Established Medicines business; and
a Consumer Healthcare business, for which we continue to evaluate strategic alternatives, with a decision expected in the fourth quarter of 2018.
These changes will not be effective until the beginning of our 2019 fiscal year to allow for the necessary internal transition process. We are currently evaluating the impact to our operating segments and other costs and activities based on how the businesses will be managed in 2019. Beginning with our first-quarter 2019 financial results, our financial reporting will reflect the new organizational structure.
As we prepare for expected growth, we are focused on creating a simpler, more efficient structure within each business and the functions that support them. Further, as our innovative pipeline matures with the anticipated progression of current and the initiation of new pivotal trials, we will need to increase our R&D investments. In addition, as our pipeline potentially delivers new commercialization opportunities, we will need to increase our investments in new-market-creation activities.
To partially offset these incremental cost increases, we expect to generate cost reduction opportunities, particularly in SI&A. We are taking steps to simplify the organization, increase spans of control and reduce organizational layers. As such, we expect some managerial roles and responsibilities to be impacted. Enhancements to certain employee benefits are being offered for a short period of time. We do not yet know the impact of these voluntary and involuntary plans, but expect to record a special termination benefit as well as severance in the fourth quarter of 2018. Such benefits will be reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income. We do not expect the expenses related to these
enhancements to change our current full year 2018 guidance. Any future impact will be considered in the totality of our annual guidance for 2019.
Commercial Operations
We currently manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). The IH and EH operating segments are each led by a single manager. Each operating segment has responsibility for its commercial activities and for certain IPR&D projects for new investigational products and additional indications for in-line products that generally have achieved proof-of-concept. Each business has a geographic footprint across developed and emerging markets.
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| Some additional information about our business segments as of September 30, 2018 follows: |
| | IH Segment | | | EH Segment |
| ● | IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare. Key therapeutic areas include internal medicine, vaccines, oncology, inflammation & immunology, rare diseasesdisease and consumer healthcare. | | ● | EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics,and generic sterile injectable products, biosimilars, and select branded products including anti-infectives and, through February 2, 2017, HIS.anti-infectives. EH also includes an R&D organization, as well as our contract manufacturing business.
Through February 2, 2017, EH also included HIS. |
| ● | We expect that the IH biopharmaceutical portfolio of innovative, largely patent-protected, in-line and newly launched products will be sustained by ongoing investments to develop promising assets and targeted business development in areas of focus to help ensure a pipeline of highly-differentiated product candidates in areas of unmet medical need. The assets managed by IH are science-driven, highly differentiated and generally require a high-level of engagement with healthcare providers and consumers. | | ● | EH is expected to generate strong consistent cash flow by providing patients around the world with access to effective, lower-cost, high-value treatments. EH leverages our biologic development, regulatory and manufacturing expertise to seek to advance its biosimilar development portfolio. Additionally, EH leverages capabilities in formulation development and manufacturing expertise to help advance its generic sterile injectables portfolio. EH may also engage in targeted business development to further enable its commercial strategies. |
| ● | IH will have continued focus on R&D productivity and pipeline strength while maximizing the value of our recently launched brands and in-line portfolio. Our acquisitions of Anacor and MedivationWe have also expanded our pipeline in the high priority therapeutic areas ofsuch as inflammation and immunology and oncology.oncology with select business development transactions. | | ● | For EH, we continue to invest in growth drivers and manage the portfolio to extract additional value while seeking opportunities for operating efficiencies. This strategy includes active management of our portfolio; maximizing growth of core product segments; acquisitions to strengthen core areas of our portfolio further, such as our recent acquisition of AstraZeneca’s small molecule anti-infectives business; and divestitures to increase focus on our core strengths. In line with this strategy, on February 3, 2017, we completed the sale of Pfizer’s global infusion therapysystems net assets, representing the infusion systems net assets that we acquired as part of the Hospira transaction, HIS, to ICU Medical. |
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Leading brands include:
- Prevnar 13/Prevenar 13
- Xeljanz
- Eliquis
- Lyrica (U.S., Japan and certain other markets)
- Enbrel (outside the U.S. and Canada)
- Viagra (U.S. and Canada)
Ibrance
- Ibrance
-
- Several OTC consumer healthcare products (e.g., Advil and
Centrum) | | |
Leading brands include:
- Lipitor
- Premarin family
Norvasc
- Norvasc
-
countries)
- Celebrex
- Viagra*
- Inflectra/Remsima
- Sulperazon - Several other sterile injectable products |
*Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra worldwide revenues are reported in EH.
For additional information about the 20172018 performance for each of our operating segments, see the “Analysis of Operating Segment Information” section of this MD&A.
Description of Research and Development Operations
The following description of R&D operations reflects operations as of September 30, 2018.
Innovation is critical to the success of our company, and drug discovery and development is time-consuming, expensive and unpredictable. Our goal is to discover, develop and bring to market innovative products that address major unmet medical needs. Our R&D priorities include include:
delivering a pipeline of differentiated therapies and vaccines with the greatest medical and commercial promise, innovating newpotential;
advancing our capabilities that can position Pfizer for long-term leadershipleadership; and
creating new models for biomedical collaboration that will expedite the pace of innovation and productivity.
To that end, our researchR&D primarily focuses on:
Biosimilars;
Inflammation and Immunology;
Metabolic Disease and Cardiovascular Risks;
Neuroscience;Internal Medicine;
Oncology;
Rare Diseases; and
Vaccines.
In January 2018, we announced our decision to end internal neuroscience discovery and early development efforts and re-allocate funding to other areas where we have stronger scientific leadership. The development of tanezumab and potential treatments for rare neuromuscular disorders is not impacted by this decision. In June 2018, we announced our plan to invest $600 million in biotechnology and other emerging growth companies through Pfizer Ventures, our venture investment vehicle. Pfizer Ventures will seek to invest approximately 25% of its available capital ($150 million) in promising early-stage neuroscience companies. In addition to increased funding, we will extend our leadership as a venture capital investor with an expanded team that leverages expertise across venture capital investing, business development, drug discovery and clinical development. The new organization consolidates R&D Innovate, Pfizer’s R&D equity investment vehicle, with Pfizer Venture Investments, our long-standing venture investment group. In September 2018, we and Bain Capital entered into a transaction to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system including Parkinson’s disease, epilepsy, Alzheimer’s disease, schizophrenia and addiction. For additional information on the transaction with Bain Capital, see the Notes to Condensed Consolidated Financial Statements––Note 2B.Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures.
We continue to strengthen our global R&D organization and pursue strategies intended to improve innovation and overall productivity in R&D to achieve a sustainable pipeline that will deliver value in the near term and over time. Our R&D spending is conducted through a number of matrix organizations:
Research Units within our WRD organization are generally responsible for research and early-stage development assets for our IH business (assets that have not yet achieved proof-of-concept). Our Research Units are organized in a variety of ways (byby therapeutic area or combinations of therapeutic areas, by discipline, by location, etc.) to enhance flexibility, cohesiveness and focus. Because of our structure, we can rapidly redeploy resources within a Research Unit between various projects as necessary because the workforce shares similar skills, expertise and/or focus.
Our R&D organization within the EH business supports the large base of EH products and is expected to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars.
Our GPD organization is a unified center for late-stage development for our innovative products and is generally responsible for the operational execution of clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD is expected to enable more efficient and effective development and enhance our ability to accelerate and progress assets through our pipeline. GPD combines certain previously separate development-related functions from the IH business and the WRD organization to achieve a development capability that is expected to deliver high-quality, efficient, and well-executed clinical programs by enabling greater speed, greater cost efficiencies, and reduced complexity across our development portfolio. GPD also provides technical support and other services to Pfizer R&D projects.
Our science-based and other platform-services organizations, where a significant portion of our R&D spending occurs, provide technical expertise and other services to the various R&D projects, and are organized into science-based functions (which are part of our WRD organization), such as Pharmaceutical Sciences, Medicinal Chemistry, Regulatory and Drug Safety, and non-science-based functions, such as Facilities, Business Technology and Finance. As a result, within each of these functions, we are able to migrate resources among projects, candidates and/or targets in any therapeutic area and in most phases of development, allowing us to react quickly in response to evolving needs.
We manage R&D operations on a total-company basis through our matrix organizations described above. Specifically, a single committee with representation from the R&D groups and the IH commercial organization is accountable for aligning resources among all of our WRD, GPD and IH R&D projects and for seeking to ensure optimal capital allocation across the Innovative
R&D portfolio. We believe that this approach also serves to maximize accountability and flexibility. Our EH R&D organization manages its resources separately from the WRD and GPD organizations.
Generally, we do not disaggregate total R&D expense by development phase or by therapeutic area since, as described above, we do not manage a significant portion of our R&D operations by development phase or by therapeutic area. Further, as we are able to adjust a significant portion of our spending quickly, as conditions change, we believe that any prior-period information about R&D expense by development phase or by therapeutic area would not necessarily be representative of future spending.
While a significant portion of R&D is done internally, we continue to seek out promising chemical and biological lead molecules and innovative technologies developed by third parties to incorporate into our discovery and development processes or projects, as well as our product lines, by entering into collaborations, alliances and license agreements with other companies, as well as leveraging acquisitions and equity- or debt-based investments. These agreements enable us to co-develop, license or acquire promising compounds, technologies or capabilities. We also enter into agreements pursuant to which a third party agrees to fund a portion of the development costs of one of our pipeline products in exchange for rights to receive potential milestone payments, revenue sharing payments, profit sharing payments and/or royalties. Collaboration, alliance, license and
funding agreements and equity- or debt-based investments allow us to share risk and cost and to access external scientific and technological expertise, and enable us to advance our own products as well as in-licensed or acquired products.
For additional information about R&D by operating segment, see the “Analysis of Operating Segment Information” section of this MD&A. For additional information about our pending new drug applications and supplemental filings, see the “Analysis of the Condensed Consolidated Statements of Income––Product Developments––Biopharmaceutical” section of this MD&A. For additional information about recent transactions and strategic investments that we believe have the potential to advance our pipeline, see the “Our Strategy––Our Business Development Initiatives” section of this MD&A.
Intellectual Property Rights
We continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to ensure appropriate patient access. In addition, we will continue to employ innovative approaches designed to prevent counterfeit pharmaceuticals from entering the supply chain and to achieve greater control over the distribution of our products, and we will continue to participate in the generics market for our products, whenever appropriate, once they lose exclusivity. Also, the pursuit of valid business opportunities may require us to challenge intellectual property rights held by other companies that we believe were improperly granted. Such challenges may include negotiation and litigation, which may not be successful. For additional information about our current efforts to enforce our intellectual property rights and certain other patent proceedings, see Notes to Condensed Consolidated Financial Statements––Note 12A1. CommitmentsContingencies and Contingencies:Certain Commitments: Legal Proceedings––Patent Litigation. For information on risks related to patent protection and intellectual property claims by third parties, see “Risks Related to Intellectual Property” in Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K.
Capital Allocation and Expense Management
We seek to maintain a strong balance sheet and robust liquidity so that we continue to have the financial resources necessary to take advantage of prudent commercial, research and business development opportunities and to directly enhance shareholder value through share repurchases and dividends. For additional information about our financial condition, liquidity, capital resources, share repurchases (including accelerated share repurchases) and dividends, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A. For additional information about our recent business development activities, see the “Our Strategy––Our Business Development Initiatives” section of this MD&A.
We remain focused on achieving an appropriate cost structure for the Company.our company. For additional information about our cost-reduction and productivity initiatives, see the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
Increasing Investment in the U.S.––After evaluating the expected positive net impact the TCJA will have on us, we decided to take several actions:
Over the next five years, we plan to invest approximately $5.0 billion in capital projects in the U.S., including the strengthening of our manufacturing presence in the U.S. As part of this plan, in July 2018, we announced that we will increase our commitment to U.S. manufacturing with a $465 million investment to build one of the most technically advanced sterile injectable pharmaceutical production facilities in the world in Portage, Michigan. This U.S. investment will strengthen our capability to produce and supply critical, life-saving injectable medicines for patients around the world.
Known as Modular Aseptic Processing, the new, multi-story, 400,000-square-foot production facility will also support the area economy by creating an estimated 450 new jobs over the next several years.
We made a $500 million voluntary contribution to our U.S. pension plan in February 2018.
In the fourth quarter of 2017, we made a $200 million charitable contribution to the Pfizer Foundation, an organization that provides grant and investment funding to support organizations and social entrepreneurs in an effort to improve healthcare delivery.
In the first quarter of 2018, we paid a special, one-time bonus to virtually all Pfizer colleagues, excluding executives, of $119 million in the aggregate.
Our Business Development Initiatives
We are committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as well as through various forms of business development, which can include alliances, licenses, joint ventures, collaborations, equity- or debt-based investments, dispositions, mergers and acquisitions. We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. We continue to evaluate business development transactions that have the potential to strengthen one or both of our businesses and their capabilities, such as our acquisitions of Hospira, Medivation, Anacor, and AstraZeneca’s small molecule anti-infectives business, as well as collaborations, and alliance and license agreements with other companies, including our collaborations with Cellectis, OPKO and Merck KGaA.companies. We assess our businesses, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will advance our businesses. In October 2017, we announced that we are reviewing
We continue to review strategic alternativesoptions for our Consumer Healthcare business. A rangeWe remain disciplined regarding our capital allocation, and at this time we have not received an acceptable offer for the sale of optionsthis business. We will be considered, includingcontinue our management of this strong business as we explore other alternatives, which could include everything from a full or partial separation of the Consumer Healthcare business from Pfizer through a spin-off, sale or other transaction, and we mayto ultimately determinedeciding to retain the business. We continue to expect that any decision regarding strategic alternatives for our Consumer Healthcare wouldbusiness will be made during the fourth quarter of 2018.
For additional information on our business development activities, see Notes to Condensed Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets,Acquisition, Divestitures, Licensing Arrangements, Collaborative ArrangementArrangements and Equity-Method Investments.Privately Held Investment.
The more significant recent transactions and events are described below:
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• | Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)––On February 3, 2017, we completed the sale of our global infusion therapy net assets, HIS, to ICU Medical. In connection with this transaction, we recognized pre-tax income of approximately $12 million in the third quarter of 2017 and pre-tax losses of approximately $52 million in the first
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Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)––On February 3, 2017, we completed the sale of our global infusion systems net assets, HIS, to ICU Medical. In connection with this transaction, we recognized pre-tax income of $2 million in the third quarter of 2018 and pre-tax income of $1 million in the first nine months of 20172018, and we recognized pre-tax income of approximately $12 million in the third quarter of 2017 and a pre-tax loss of approximately $52 million in the first nine months of 2017 in Other (income)/deductions––net, representing adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell. We may record additional adjustments to the loss on the sale of HIS net assets in future periods, pending final working capital adjustments and local market closes, among other agreement provisions, which we do not expect to have a material impact on our consolidated financial statements.
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• | Acquisition of AstraZeneca’s Small Molecule Anti-Infectives Business (EH)––On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. The total fair value of the consideration transferred for this business was approximately $555 million in cash plus the fair value of contingent consideration of $490 million.
Acquisition of AstraZeneca’s Small Molecule Anti-Infectives Business (EH)––On December 22, 2016, which fell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. The total fair value of the consideration transferred for this business was approximately $555 million in cash plus the fair value of contingent consideration of $485 million. Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase 3 clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately 12 quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2018totaled $12.9 million and for the first nine months of 2018 totaled $44.2 million. The reduction to Research and development expenses for the third quarter of 2017 totaled $16.8 million and for the first nine months of 2017 totaled $48.8 million. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total, based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of |
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• | Acquisition of Medivation, Inc. (IH)––On September 28, 2016, we acquired Medivation for $81.50 per share. The total fair value of consideration transferred for Medivation was approximately $14.3 billion in cash ($13.9 billion, net of cash acquired). Medivation’s portfolio includes Xtandi (enzalutamide), an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within tumor cells. Xtandi is being developed and commercialized through a collaboration with Astellas. Astellas has exclusive commercialization rights for Xtandi outside the U.S. In addition, Medivation has a development-stage oncology asset in its pipeline, talazoparib, which is currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer.
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• | Acquisition of Bamboo Therapeutics, Inc. (R&D)––On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately-held biotechnology company, focused on developing gene therapies for the potential treatment of patients with certain rare diseases relating to neuromuscular conditions and those affecting the central nervous system, for $150 million, plus potential milestone payments of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant AAV vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility.
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• | Acquisition of Anacor Pharmaceuticals, Inc. (IH)––On June 24, 2016, we acquired Anacor for $99.25 per share. The total fair value of consideration transferred for Anacor was approximately $4.9 billion in cash ($4.5 billion net of cash acquired) plus $698 million debt assumed. Anacor’s crisaborole, a non-steroidal topical PDE-4 inhibitor with anti-inflammatory properties, was approved by the FDA on December 14, 2016 under the trade name Eucrisa, for the treatment of mild-to-moderate atopic dermatitis in patients two years of age and older, commonly referred to as a type of eczema. Anacor also holds the rights to Kerydin, a topical treatment for onychomycosis (toenail fungus) that is distributed and commercialized by Sandoz in the U.S.
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• | Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately twelve quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2017totaled $16.8 million and for the first nine months of 2017 totaled $48.8 million. The reduction to Research and development expenses for the third quarter of 2016 totaled $14.5 million and for the first nine months of 2016 totaled $29.5 million. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total, based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as Cost of sales when incurred.
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• | Research and Development Arrangement with RPI Finance Trust––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2017 totaled $27.6 million and for the first nine months of 2017 totaled $54.4 million. The reduction to Research and development expenses for the third quarter of 2016 totaled $11.0 million and for the first nine months of 2016 totaled $32.7 million. If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based
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intangible assets over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as Cost of sales when incurred.
Research and Development Arrangement with RPI Finance Trust––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase 3 clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2018 totaled $27.1 million and for the first nine months of 2018 totaled $78.7 million. The reduction to Research and development expenses for the third quarter of 2017 totaled $27.6 million and for the first nine months of 2017 totaled $54.4 million. If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over approximately seven years. Fixed milestone payments due upon approval will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the Ibrance product and sales-based royalties will be recorded as Cost of sales when incurred.
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• | Approval of Besponsa––In August 2017, the U.S. approved Besponsa (inotuzumab ozogamicin) and in June 2017, the EU approved Besponsa as monotherapy for the treatment of adults with relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia. In connection with the U.S. approval, we incurred an obligation to make guaranteed fixed annual payments over a nine-year period aggregating $296 million related to a research and development arrangement. As a result, we have recorded the estimated net present value of $248 million as an intangible asset in Developed technology rights, and we have recorded $233 million in Other noncurrent liabilities and $15 millionin Other current liabilities as of October 1, 2017. In connection with the EU approval, we incurred an obligation to make guaranteed fixed annual payments over a nine-year period aggregating $148 million related to a research and development arrangement. As a result, we have recorded the estimated net present value of $123 million as an intangible asset in Developed technology rights, and we have recorded $117 million in Other noncurrent liabilities and$6 million in Other current liabilities as of October 1, 2017.
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For a description of the more significant recent transactions through February 23, 201722, 2018, the filing date of our 20162017 Form 10-K, see the “Our Business Development Initiatives” section of our 20162017 Financial Report.
Our Financial Guidance for 20172018
On October 31, 2017,30, 2018, we updated our 2017 financial guidance. Specifically, we narrowed the ranges for certain 20172018 financial guidance components, including a $0.03 increase to reflect our performance to date as well as our outlook for the remainder of the year. The midpoint of our guidance range for adjustedAdjusted diluted EPS was unchanged from our July 2018 guidance update.
The guidance range for Revenues was narrowed from a range of $53.0 to $55.0 billion to a range of $2.58$53.0 to $2.62. The midpoint$53.7 billion, primarily reflecting:
lower-than-anticipated Essential Health revenues, primarily due to continued legacy Hospira Sterile Injectable Pharmaceuticals (SIP) product shortages in the U.S.; and
recent unfavorable changes in foreign exchange rates in relation to the U.S. dollar from mid-July 2018 to mid-October 2018, primarily the weakening of our new guidance range for adjusted diluted EPS implies 8% growth compared with last year.certain emerging markets currencies and the euro.
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Pfizer’s updated 20172018 financial guidance is presented below(a),(b): |
| Revenues | $52.453.0 to $53.1$53.7 billion |
| | (previously $52.0$53.0 to $54.0$55.0 billion) |
| Adjusted cost of sales as a percentage of revenues | 20.0%20.8% to 20.5%21.3% |
| | (previously 20.0%20.5% to 21.0%21.5%) |
| Adjusted selling, informational and administrative expenses | $14.0 to $14.5 billion |
| | (previously $13.7$14.0 to $14.7$15.0 billion) |
| Adjusted research and development expenses | $7.57.7 to $7.8$8.1 billion |
| (previously $7.5 to $8.0 billion) |
| Adjusted other (income)/deductions | Approximately $500 million$1.3 billion of income |
| (previously approximately $200 million$1.0 billion of income) |
| Effective tax rate on adjusted income | Approximately 23.0%16.0% |
| Adjusted diluted EPS | $2.582.98 to $2.62$3.02 |
| (previously $2.54$2.95 to $2.60)$3.05) |
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(a) | The 20172018 financial guidance reflects the following: |
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• | Does not assume the completion of any business development transactions not completed as of October 1, 2017, including any one-time upfront payments associated with such transactions.A full year contribution from Consumer Healthcare. Pfizer continues to expect that any decision regarding strategic alternatives for Consumer Healthcare would be made during the fourth quarter of 2018. Does not assume the completion of any business development transactions not completed as of September 30, 2018, including any one-time upfront payments associated with such transactions. Guidance for Adjusted other (income)/deductions does not attempt to forecast unrealized net gains or losses on equity securities. Pfizer is unable to predict with reasonable certainty unrealized gains or losses on equity securities in a given period. Net unrealized gains and losses on equity securities are now recorded in Adjusted other (income)/deductions during each quarter, reflecting the adoption of a new accounting standard in the first quarter of 2018 (see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards). Prior to the adoption of the new standard, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income. |
Exchange rates assumed are a blend of the actual exchange rates in effect through September 2017third-quarter 2018 and mid-October 20172018 exchange rates for the remainder of the year.
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• | Reflects an anticipated negative revenue impact of $2.3 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection.
Reflects an anticipated negative revenue impact of $1.8 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection. Assumes no generic competition for Lyrica in the U.S. until June 2019, which is contingent upon a six-month patent-term extension granted by the FDA for pediatric exclusivity, which the company is currently pursuing. Reflects the anticipated favorable impact of approximately $350 million on revenues and approximately $0.02 on adjusted diluted EPS as a result of favorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2017. |
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• | Reflects the anticipated negative impact of $0.1 billion on revenues and $0.01 on adjusted diluted EPS as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2016.
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Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of betweenapproximately 6.0 and 6.1 billion shares, which reflects anticipated share repurchases totaling approximately $12.0 billion in 2018, including $9.0 billion of share repurchases already completed through October 30, 2018. Dilution related to share-based employee compensation programs is expected to offset the impact of our $5.0 billion acceleratedreduction in shares associated with these share repurchase agreement executed in February 2017 and completed in May 2017.repurchases by approximately half.
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(b) | For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A. |
Pfizer does not provide guidance for GAAP Reported financial measures (other than Revenues)revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.
For information about our actual costs and anticipated costs and cost savings associated with our three-year cost-reduction initiative entered into in the fourth quarter of 2016, the Hospira acquisition, our recent business development activities, and our current global commercial structure, see the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
Our 20172018 financial guidance is subject to a number of factors and uncertainties as described in the “Our Operating Environment”, “The Global Economic Environment”, “Our Strategy” and “Forward-Looking Information and Factors That May Affect Future Results” sections of this MD&A; in Part II, Item 1A, “Risk Factors”, of this Quarterly Report on Form 10-Q; and Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K.10-K and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
For a description of our significant accounting policies, see Notes to Consolidated Financial Statements––Note 1. Basis of Presentation and Significant Accounting Policies in our 2016 Form 10-K. 2017 Financial Report and Notes to Condensed Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Revenues. Of these policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and the most complex judgments: (i) Acquisitions (Note(2017 Financial Report Note 1D); (ii) Fair Value (Note(2017 Financial Report Note 1E); (iii) Revenues (Note 1G)1C in this Quarterly Report on Form 10-Q); (iv) Asset Impairments (Note(2017 Financial Report Note 1K); (v) Income Tax Assets and Liabilities and Income Tax Contingencies (Note(2017 Financial Report Note 1O); (vi) Pension and Postretirement Benefit Plans (Note(2017 Financial Report Note 1P); and Legal and Environmental Contingencies (Note(2017 Financial Report Note 1Q).
For a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements, see the “Significant Accounting Policies and Application of Critical Accounting Estimates and Assumptions” section of our 20162017 Financial Report. See also Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions in our 2017 Financial Report for a discussion about the risks associated with estimates and assumptions in our 2016 Form 10-K.assumptions.
For a discussion of recently adopted accounting standards and significant accounting policies, see Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards.Standards, Note 1C. Basis of Presentation and Significant Accounting Policies: Revenues and Note 1D. Basis of Presentation and Significant Accounting Policies: Collaborative Arrangements.
Revenues
Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment is required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Historically, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. The sensitivity of our estimates can vary by program, type of customer and geographic location. However, estimates associated with U.S. Medicare, Medicaid and performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.
Income Tax Assets and Liabilities
In the fourth quarter of 2017, we recorded an estimate of certain tax effects of the TCJA, including the impact on deferred tax assets and liabilities from the reduction in the U.S Federal corporate tax rate from 35% to 21%, the impact on valuation allowances and other state income tax considerations, a repatriation tax liability on accumulated post-1986 foreign earnings for which we plan to elect payment over eight years through 2026 that is reported primarily in Other taxes payable, and deferred taxes on basis differences expected to give rise to future taxes on global intangible low-taxed income. In addition, we had provided deferred tax liabilities in the past on foreign earnings that were not indefinitely reinvested. As a result of the TCJA, in the fourth quarter of 2017, we reversed an estimate of the deferred taxes that are no longer expected to be needed due to the change to the territorial tax system. The estimated amounts recorded may change in the future due to uncertain tax positions.
The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We have elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years. However, given the complexity of these provisions, we have not finalized our analysis. We were able to make a reasonable estimate of the deferred taxes on the temporary differences expected to reverse in the future and provided a provisional deferred tax liability as of December 31, 2017. The provisional amount is based on the evaluation of certain temporary differences
inside each of our foreign subsidiaries that are expected to reverse as global intangible low-taxed income. However, as we continue to evaluate the TCJA’s global intangible low-taxed income provisions during the measurement period, we may revise the methodology used for determining the deferred tax liability associated with such income.
We believe that we have made reasonable estimates with respect to each of the above items, however, all of the amounts recorded remain provisional as we have not completed our analysis of the complex and far reaching effects of the TCJA. Further, we continue to consider our assertions on any remaining outside basis differences in our foreign subsidiaries as of September 30, 2018 and have not completed our analysis. In the third quarter of 2018, we recorded a favorable adjustment to the provisional estimate of the impact of the legislation, primarily related to the remeasurement of deferred tax assets and liabilities as well as revised estimates of benefits related to certain tax initiatives. Under guidance issued by the staff of the SEC, we expect to finalize our accounting related to the tax effects of the TCJA on deferred taxes, valuation allowances, state tax considerations, the repatriation tax liability, global intangible low-taxed income, and any remaining outside basis differences in our foreign subsidiaries during the fourth quarter of 2018, as we complete the remainder of our tax return filings and as any interpretations or clarifications of the TCJA occur through further legislation or U.S. Treasury actions or other means.
Income tax assets and liabilities also include income tax valuation allowances and accruals for uncertain tax positions. For additional information, see Notes to Consolidated Financial Statements—Note 1C.Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions; Note 1O. Basis of Presentation and Significant Accounting Policies: Tax Assets and Liabilities and Income Tax Contingencies and Note 5A. Tax Matters: Taxes on Income from Continuing Operations in our 2017 Form 10-K, as well as the “Analysis of Financial Condition, Liquidity and Capital Resources––Selected Measures of Liquidity and Capital Resources—Contractual Obligations” section of our 2017 Financial Report.
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ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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| REVENUES AND PRODUCT DEVELOPMENTS |
|
| Revenues by Segment and Geography |
REVENUES AND PRODUCT DEVELOPMENTS
Revenues––Overview
The following graphs show revenues by geography (dollars in billions):
| | | The following tables provide worldwide revenues by operating segment and by geography: | |
| The following tables provide worldwide revenues by operating segment and geography: | | The following tables provide worldwide revenues by operating segment and geography: |
| | | Three Months Ended | | Three Months Ended |
| | | Worldwide | | U.S. | | International | | World-wide | | U.S. | | Inter-national | | Worldwide | | U.S. | | International | | World-wide | | U.S. | | Inter-national |
| (MILLIONS OF DOLLARS) | | Oct 1,
2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | % Change in Revenues | | Sep 30,
2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | % Change in Revenues |
Operating Segments(a): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| IH | | $ | 8,118 |
| | $ | 7,332 |
| | $ | 4,777 |
| | $ | 4,244 |
| | $ | 3,341 |
| | $ | 3,088 |
| | 11 |
| | 13 |
| | 8 |
| | $ | 8,471 |
| | $ | 8,118 |
| | $ | 4,881 |
| | $ | 4,777 |
| | $ | 3,590 |
| | $ | 3,341 |
| | 4 |
| | 2 |
| | 7 |
| EH | | 5,050 |
| | 5,712 |
| | 1,756 |
| | 2,286 |
| | 3,294 |
| | 3,426 |
| | (12 | ) | | (23 | ) | | (4 | ) | | 4,826 |
| | 5,050 |
| | 1,480 |
| | 1,756 |
| | 3,347 |
| | 3,294 |
| | (4 | ) | | (16 | ) | | 2 |
| Total revenues | | $ | 13,168 |
| | $ | 13,045 |
| | $ | 6,534 |
| | $ | 6,530 |
| | $ | 6,634 |
| | $ | 6,515 |
| | 1 |
| | — |
| | 2 |
| | $ | 13,298 |
| | $ | 13,168 |
| | $ | 6,361 |
| | $ | 6,534 |
| | $ | 6,937 |
| | $ | 6,634 |
| | 1 |
| | (3 | ) | | 5 |
| | | | Nine Months Ended | | Nine Months Ended |
| | | Worldwide | | U.S. | | International | | World-wide | | U.S. | | Inter-national | | Worldwide | | U.S. | | International | | World-wide | | U.S. | | Inter-national |
| (MILLIONS OF DOLLARS) | | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | Oct 1, 2017 |
| | Oct 2, 2016 |
| | % Change in Revenues | | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | Sep 30, 2018 |
| | Oct 1, 2017 |
| | % Change in Revenues |
Operating Segments(a): | | | | |
| | | | |
| | | | |
| | |
| | |
| | |
| | | | |
| | | | |
| | | | |
| | |
| | |
| | |
| IH | | $ | 23,204 |
| | $ | 21,471 |
| | $ | 13,708 |
| | $ | 12,308 |
| | $ | 9,496 |
| | $ | 9,163 |
| | 8 |
| | 11 |
| | 4 |
| | $ | 24,573 |
| | $ | 23,204 |
| | $ | 14,002 |
| | $ | 13,708 |
| | $ | 10,572 |
| | $ | 9,496 |
| | 6 |
| | 2 |
| | 11 |
| EH | | 15,639 |
| | 17,725 |
| | 5,808 |
| | 7,253 |
| | 9,831 |
| | 10,472 |
| | (12 | ) | | (20 | ) | | (6 | ) | | 15,097 |
| | 15,639 |
| | 4,859 |
| | 5,808 |
| | 10,238 |
| | 9,831 |
| | (3 | ) | | (16 | ) | | 4 |
| Total revenues | | $ | 38,843 |
| | $ | 39,196 |
| | $ | 19,516 |
| | $ | 19,561 |
| | $ | 19,327 |
| | $ | 19,636 |
| | (1 | ) | | — |
| | (2 | ) | | $ | 39,670 |
| | $ | 38,843 |
| | $ | 18,861 |
| | $ | 19,516 |
| | $ | 20,810 |
| | $ | 19,327 |
| | 2 |
| | (3 | ) | | 8 |
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(a) | IH = the Innovative Health segment; and EH = the Essential Health segment. For additional information about each operating segment, see the “Our Strategy––Commercial Operations” and “Analysis of Operating Segment Information” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information. |
Revenues––Third Quarter of 20172018 vs. Third Quarter of 2016
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| | | | | | | | | | | | |
| The following provides an analysis of the change in revenues by geographic areas in the third quarter of 2017: |
| (MILLIONS OF DOLLARS) | | Three Months Ended October 1, 2017 |
| | | Worldwide | | U.S. | | International |
| | |
| | | | |
| Disposition-related operational impact: | |
| | | | |
| Financial results in the third quarter of 2017 do not reflect any contribution from HIS global operations, compared to the inclusion of three months of HIS global operations in the same period in 2016 (February 2017 sale) | | $ | (280 | ) | | $ | (220 | ) | | $ | (60 | ) |
| | |
| | | | |
| Other operational growth/(decline): | | | | | | |
| Continued growth from key brands including Ibrance and Eliquis globally, as well as Lyrica (IH) and Xeljanz, both primarily in the U.S. | | 751 |
| | 460 |
| | 291 |
|
| Growth in Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation) | | 148 |
| | 148 |
| | — |
|
| Growth from Biosimilars | | 55 |
| | 34 |
| | 21 |
|
| Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Lyrica (EH) and Vfend, both primarily in developed Europe markets | | (220 | ) | | (103 | ) | | (117 | ) |
| Decline from the Sterile Injectable Pharmaceuticals portfolio, primarily due to legacy Hospira product shortages in the U.S. | | (182 | ) | | (196 | ) | | 14 |
|
| Lower revenues for Viagra (IH) in the U.S. primarily due to wholesaler destocking in advance of anticipated generic competition beginning in December 2017 | | (91 | ) | | (91 | ) | | — |
|
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (89 | ) | | — |
| | (89 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year quarter, partially offset by growth from the pediatric indication. International revenues increased primarily due to the favorable overall impact of timing of government purchases in certain emerging markets and the launch of Prevenar 13 in China for the pediatric indication. | | (16 | ) | | (40 | ) | | 24 |
|
| Other operational factors, net | | 102 |
| | 12 |
| | 89 |
|
| Operational growth, net | | 178 |
| | 4 |
| | 174 |
|
| | |
|
| | | | |
| Unfavorable impact of foreign exchange | | (54 | ) | | — |
| | (54 | ) |
Revenues increase | | $ | 123 |
| | $ | 4 |
| | $ | 120 |
|
|
| | | | | | | | | | | | |
| The following provides an analysis of the worldwide change in revenues by geographic areas in the third quarter of 2018: |
| | | Three Months Ended September 30, 2018 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 660 |
| | $ | 287 |
| | $ | 373 |
|
| Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | | 56 |
| | 38 |
| | 18 |
|
| Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | | 52 |
| | 40 |
| | 12 |
|
Lower revenues for total Viagra(b), primarily in the U.S. due to generic competition that began in December 2017 | | (169 | ) | | (165 | ) | | (4 | ) |
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH(b)), primarily due to expected declines in Lyrica in developed Europe | | (125 | ) | | (61 | ) | | (64 | ) |
| Decline in the LEP portfolio primarily driven by lower revenues in developed markets | | (121 | ) | | (180 | ) | | 59 |
|
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (65 | ) | | — |
| | (65 | ) |
| Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | | (28 | ) | | (58 | ) | | 31 |
|
| Other operational factors, net | | (18 | ) | | (73 | ) | | 55 |
|
| Operational growth/(decline), net | | 243 |
| | (173 | ) | | 415 |
|
| | | | | | | |
| Unfavorable impact of foreign exchange | | (113 | ) | | — |
| | (113 | ) |
Revenues increase/(decrease) | | $ | 130 |
| | $ | (173 | ) | | $ | 302 |
|
| |
(a) | Certain key brands represent Eliquis, Ibrance, Prevnar 13/Prevenar 13, Xeljanz and Xtandi. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this MD&A for product analysis information. |
| |
(b) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
Emerging markets revenues increased $254$226 million, or 10%8%, in the third quarter of 20172018 to $3.1 billion from $2.8 billion, reflecting an operational increase of $356 million, or 13%. Foreign exchange had an unfavorable impact of approximately 5% on emerging markets revenues. The operational increase in emerging markets was driven by our EH segment, primarily by the Legacy Established Products portfolio and Sterile Injectable Pharmaceuticals portfolio, as well as Prevenar 13 in our IH segment.
Revenues––First Nine Months of 2018 vs. First Nine Months of 2017
|
| | | | | | | | | | | | |
| The following provides an analysis of the change in worldwide revenues by geographic areas in the first nine months of 2018: |
| | | Nine Months Ended September 30, 2018 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 1,835 |
| | $ | 822 |
| | $ | 1,013 |
|
| Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | | 172 |
| | 145 |
| | 27 |
|
| Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | | 165 |
| | 115 |
| | 50 |
|
Lower revenues for total Viagra(b), primarily in the U.S. due to generic competition that began in December 2017 | | (495 | ) | | (491 | ) | | (4 | ) |
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH(b)), primarily due to expected declines in Lyrica in developed Europe and Pristiq in the U.S. due to generic competition | | (463 | ) | | (156 | ) | | (307 | ) |
| Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | | (419 | ) | | (480 | ) | | 61 |
|
| Decline in the LEP portfolio, primarily driven by lower revenues in developed markets | | (314 | ) | | (460 | ) | | 145 |
|
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (279 | ) | | — |
| | (279 | ) |
| Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017 | | (97 | ) | | (64 | ) | | (33 | ) |
| Other operational factors, net | | 29 |
| | (88 | ) | | 117 |
|
| Operational growth/(decline), net | | 134 |
| | (655 | ) | | 790 |
|
| | | | | | | |
| Favorable impact of foreign exchange | | 693 |
| | — |
| | 693 |
|
Revenues increase/(decrease) | | $ | 827 |
| | $ | (655 | ) | | $ | 1,483 |
|
| |
(a) | Certain key brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13, Xtandi and Chantix/Champix. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this MD&A for product analysis information. |
| |
(b) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
Emerging markets revenues increased $1.1 billion, or 14%, in the first nine months of 2018 to $9.4 billion from $8.2 billion, reflecting an operational increase of $280 million,$1.1 billion, or 11%13%. Foreign exchange had an unfavorablea favorable impact of approximately 1% on emerging markets revenues. The operational increase in emerging markets was primarily driven by our IHEH segment, primarily by the Legacy Established Products portfolio and the Sterile Injectable Pharmaceuticals portfolio, as well as our Legacy Established Products and Sterile Injectable Pharmaceuticals portfolios.
Revenues––First Nine Months of 2017 vs. First Nine Months of 2016
|
| | | | | | | | | | | | |
| The following provides an analysis of the change in revenues by geographic areas in the first nine months of 2017: |
| (MILLIONS OF DOLLARS) | | Nine Months Ended October 1, 2017 |
| | | Worldwide | | U.S. | | International |
| | | | | | | |
| Disposition-related operational impact: | | | | | | |
| Approximately one month of HIS domestic operations and approximately two months of HIS international operations in the first nine months of 2017, compared to nine months of HIS global operations in the same period in 2016 (February 2017 sale) | | $ | (783 | ) | | $ | (626 | ) | | $ | (158 | ) |
| | | | | | | |
| Other operational growth/(decline): | | | | | | |
| Continued growth from key brands including Ibrance and Eliquis globally, as well as Lyrica (IH) and Xeljanz, both primarily in the U.S. | | 2,102 |
| | 1,404 |
| | 698 |
|
| Growth in Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation) | | 420 |
| | 420 |
| | — |
|
| Growth from Biosimilars | | 143 |
| | 74 |
| | 69 |
|
| Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Lyrica (EH) and Vfend, both primarily in developed Europe markets | | (779 | ) | | (342 | ) | | (437 | ) |
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (353 | ) | | — |
| | (353 | ) |
| Decline in the Legacy Established Products portfolio | | (250 | ) | | (314 | ) | | 64 |
|
| Decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the first nine months of 2016, partially offset by growth from the pediatric indication. International revenues increased primarily due to the favorable overall impact of timing of government purchases in certain emerging markets and the launch of Prevenar 13 in China for the pediatric indication. | | (213 | ) | | (256 | ) | | 44 |
|
| Decline in Viagra (IH) revenues mainly in the U.S. primarily due to lower market growth | | (186 | ) | | (186 | ) | | (1 | ) |
| Decline from the Sterile Injectable Pharmaceuticals portfolio, primarily due to legacy Hospira product shortages in the U.S. | | (169 | ) | | (253 | ) | | 84 |
|
| Other operational factors, net | | 87 |
| | 33 |
| | 54 |
|
| Operational growth (decline), net | | 19 |
| | (45 | ) | | 64 |
|
| | | | | | | |
| Unfavorable impact of foreign exchange | | (372 | ) | | — |
| | (372 | ) |
| Revenues decrease | | $ | (353 | ) | | $ | (45 | ) | | $ | (308 | ) |
Emerging markets revenues increased $508 million, or 7%,Prevenar 13 in the first nine months of 2017 to $8.2 billion, reflecting an operational increase of $684 million, or 9%. Foreign exchange had an unfavorable impact of approximately 2% on emerging markets revenues. The operational increase in emerging markets was primarily driven by our IH segment as well as our Legacy Established Products and Sterile Injectable Pharmaceuticals portfolios.segment.
Revenue Deductions
Our gross product revenues are subject to a variety of deductions, thatwhich generally are generally estimated and recorded in the same period that the revenues are recognized, and primarily representrecognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales allowances to wholesalers, and, to a lesser extent, distributors like MCOs, retailers and government agencies with respect to our pharmaceutical products. Thosereturns. These deductions represent estimates of rebates and discountsthe related to gross sales for the reporting periodobligations and, as such, knowledge and judgment of market conditions and practice areis required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Historically, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Revenues.
| | The following table provides information about revenue deductions: | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
Medicare rebates(a) | | $ | 355 |
| | $ | 285 |
| | $ | 931 |
| | $ | 777 |
| | $ | 443 |
| | $ | 355 |
| | $ | 1,266 |
| | $ | 931 |
|
Medicaid and related state program rebates(a) | | 439 |
| | 338 |
|
| 1,335 |
| | 1,073 |
| | 502 |
| | 439 |
|
| 1,500 |
| | 1,335 |
|
Performance-based contract rebates(a), (b) | | 773 |
| | 629 |
|
| 2,321 |
| | 1,854 |
| | 854 |
| | 773 |
|
| 2,467 |
| | 2,321 |
|
Chargebacks(c) | | 1,608 |
| | 1,465 |
|
| 4,585 |
| | 4,318 |
| | 1,654 |
| | 1,608 |
|
| 4,850 |
| | 4,585 |
|
Sales allowances(d) | | 1,419 |
| | 1,177 |
|
| 3,718 |
| | 3,268 |
| | 1,448 |
| | 1,419 |
|
| 4,142 |
| | 3,718 |
|
| Sales returns and cash discounts | | 329 |
| | 356 |
| | 1,025 |
| | 1,044 |
| | 358 |
| | 329 |
| | 1,067 |
| | 1,025 |
|
Total(e) | | $ | 4,923 |
| | $ | 4,251 |
| | $ | 13,916 |
| | $ | 12,334 |
| | $ | 5,259 |
| | $ | 4,923 |
| | $ | 15,292 |
| | $ | 13,916 |
|
| |
(a) | Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold. |
| |
(b) | Performance-based contract rebates include contract rebates with MCOs within the U.S., including health maintenance organizations and PBMs, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones. |
| |
(c) | Chargebacks primarily represent reimbursements to U.S. wholesalers for honoring contracted prices to third parties. |
| |
(d) | Sales allowances primarily represent price reductions that are contractual or legislatively mandated outside the U.S., discounts and distribution fees. |
| |
(e) | For the three months ended September 30, 2018, associated with the following segments: IH ($2.3 billion) and EH ($2.9 billion). For the three months ended October 1, 2017, associated with the following segments: IH ($2.4 billion); and EH ($2.5 billion). For the threenine months ended October 2, 2016,September 30, 2018, associated with the following segments: IH ($1.86.5 billion); and EH ($2.48.8 billion). For the nine months ended October 1, 2017, associated with the following segments: IH ($6.4 billion) and EH ($7.5 billion). For the nine months ended October 2, 2016, associated with the following segments: IH ($5.1 billion) and EH ($7.2 billion). |
Total revenue deductions for the third quarter of 20172018 increased 16%7% compared to the third quarter of 20162017, and total revenue deductions for the first nine months of 20172018 increased 13%10% compared to the first nine months of 20162017, primarily as a result of:
an increase in performance-based contract rebates primarily due to sales to managed care customers in the U.S., as well as higher rebates in certain markets outside the U.S.;
an increase in sales allowances as a result of sales growth, primarily in markets outside the U.S.;international markets;
an increase in Medicare rebates driven by increased sales of IH products through this channel;
higher chargebacks fromto U.S. wholesalers on certain IH and EH products, partially offset by decreases across several EHin chargebacks as a result of decreases in sales of sterile injectable products; and
an increase in Medicaid and related state program rebates, primarily as a result of updated estimatesincreased sales of sales related toIH products through these programs.
OurFor information on our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts, totaled $4.6 billion asincluding the balance sheet classification of October 1, 2017,these accruals, see Notes to Condensed Consolidated Financial Statements––Note 1C. Basis of which (i) approximately $2.5 billion represents accrued rebates included in Other current liabilities,Presentation and (ii) approximately $2.1 billion represents other accruals included in Other current liabilities ($472 million), Other noncurrent liabilities ($344 million)and against Trade accounts receivable, less allowance for doubtful accounts ($1.3 billion), in our condensed consolidated balance sheet.Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled$4.3 billion as of December 31, 2016, of which (i) approximately $2.3 billion represents accrued rebates included in Other current liabilities, and (ii) approximately $2.0 billion represents other accruals included in Other current liabilities ($509 million), Other noncurrent liabilities ($357 million) and against Trade accounts receivable, less allowance for doubtful accounts ($1.2 billion), in our condensed consolidated balance sheet.Significant Accounting Policies: Revenues.
Revenues—Major Products
|
| | | | | | | | | | | | | | | | | | | | | | |
The following table provides revenue information for several of our major products. As described in Note 1A, acquisitions and divestitures have impacted our results of operations in 2017 and 2016. |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | | | % Change(a) | | | | % Change(a) |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | Oct 1,
2017 |
| Total |
| | Oper. |
| Oct 1,
2017 |
| Total |
| | Oper. |
|
| TOTAL REVENUES | | | | $ | 13,168 |
| | 1 |
| | 1 |
| | $ | 38,843 |
| | (1 | ) | | — |
|
PFIZER INNOVATIVE HEALTH (IH)(b) | | $ | 8,118 |
| | 11 |
| | 11 |
| | $ | 23,204 |
| | 8 |
| | 9 |
|
| Internal Medicine | | $ | 2,455 |
| | 9 |
| | 10 |
| | $ | 7,245 |
| | 10 |
| | 11 |
|
Lyrica IH(c) | | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | 1,150 |
| | 10 |
| | 11 |
| | 3,382 |
| | 9 |
| | 9 |
|
| Eliquis alliance revenues and direct sales | | Atrial fibrillation, deep vein thrombosis, pulmonary embolism | | 644 |
| | 43 |
| | 43 |
| | 1,813 |
| | 48 |
| | 49 |
|
| Chantix/Champix | | An aid to smoking cessation treatment in adults 18 years of age or older | | 240 |
| | 21 |
| | 22 |
| | 727 |
| | 15 |
| | 15 |
|
Viagra IH(d) | | Erectile dysfunction | | 206 |
| | (31 | ) | | (31 | ) | | 711 |
| | (21 | ) | | (21 | ) |
| BMP2 | | Development of bone and cartilage | | 79 |
| | 24 |
| | 24 |
| | 198 |
| | 13 |
| | 13 |
|
| Toviaz | | Overactive bladder | | 62 |
| | 4 |
| | 5 |
| | 187 |
| | (2 | ) | | — |
|
| All other Internal Medicine | | Various | | 75 |
| | (41 | ) | | (41 | ) | | 228 |
| | (31 | ) | | (31 | ) |
| Vaccines | | $ | 1,649 |
| | 1 |
| | — |
| | $ | 4,385 |
| | (4 | ) | | (4 | ) |
| Prevnar 13/Prevenar 13 | | Vaccines for prevention of pneumococcal disease | | 1,522 |
| | (1 | ) | | (1 | ) | | 4,069 |
| | (5 | ) | | (5 | ) |
| FSME/IMMUN-TicoVac | | Tick-borne encephalitis vaccine | | 43 |
| | 31 |
| | 29 |
| | 119 |
| | 17 |
| | 19 |
|
| All other Vaccines | | Various | | 85 |
| | 17 |
| | 16 |
| | 197 |
| | 14 |
| | 17 |
|
| Oncology | | $ | 1,616 |
| | 46 |
| | 46 |
| | $ | 4,551 |
| | 42 |
| | 43 |
|
| Ibrance | | Advanced breast cancer | | 878 |
| | 60 |
| | 59 |
| | 2,410 |
| | 61 |
| | 62 |
|
| Sutent | | Advanced and/or metastatic RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | | 276 |
| | 6 |
| | 6 |
| | 805 |
| | (2 | ) | | (1 | ) |
| Xalkori | | ALK-positive and ROS1-positive advanced NSCLC | | 146 |
| | 4 |
| | 4 |
| | 442 |
| | 6 |
| | 8 |
|
| Xtandi alliance revenues | | Advanced prostate cancer | | 150 |
| | * |
| | * |
| | 422 |
| | * |
| | * |
|
| Inlyta | | Advanced RCC | | 84 |
| | (12 | ) | | (10 | ) | | 256 |
| | (16 | ) | | (14 | ) |
| Bosulif | | Philadelphia chromosome–positive chronic myelogenous leukemia | | 57 |
|
| 34 |
|
| 35 |
| | 163 |
| | 35 |
| | 36 |
|
| All other Oncology | | Various | | 26 |
| | 74 |
| | 76 |
| | 54 |
| | 10 |
| | 11 |
|
| Inflammation & Immunology (I&I) | | $ | 1,000 |
| | 4 |
| | 4 |
| | $ | 2,863 |
| | (1 | ) | | — |
|
| Enbrel (Outside the U.S. and Canada) | | Rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | | 613 |
| | (13 | ) | | (13 | ) | | 1,818 |
| | (17 | ) | | (16 | ) |
| Xeljanz | | Rheumatoid arthritis | | 348 |
| | 48 |
| | 49 |
| | 935 |
| | 44 |
| | 44 |
|
| Eucrisa | | Mild to moderate atopic dermatitis (eczema) | | 15 |
| | * |
| | * |
| | 33 |
| | * |
| | * |
|
| All other I&I | | Various | | 23 |
| | (3 | ) | | 1 |
| | 78 |
| | 35 |
| | 36 |
|
| Rare Disease | | $ | 569 |
| | (3 | ) | | (3 | ) | | $ | 1,637 |
| | (7 | ) | | (6 | ) |
| BeneFIX | | Hemophilia | | 151 |
| | (14 | ) | | (14 | ) | | 453 |
| | (17 | ) | | (16 | ) |
| Refacto AF/Xyntha | | Hemophilia | | 140 |
| | — |
| | (1 | ) | | 409 |
| | — |
| | 3 |
|
| Genotropin | | Replacement of human growth hormone | | 136 |
| | (7 | ) | | (6 | ) | | 375 |
| | (12 | ) | | (10 | ) |
| Somavert | | Acromegaly | | 65 |
| | 11 |
| | 10 |
| | 182 |
| | 6 |
| | 7 |
|
| All other Rare Disease | | Various | | 77 |
| | 21 |
| | 21 |
| | 218 |
| | (1 | ) | | 1 |
|
| Consumer Healthcare | | $ | 829 |
| | 4 |
| | 4 |
| | $ | 2,522 |
| | 3 |
| | 3 |
|
PFIZER ESSENTIAL HEALTH (EH)(e) | | $ | 5,050 |
| | (12 | ) | | (11 | ) | | $ | 15,639 |
| | (12 | ) | | (11 | ) |
Legacy Established Products (LEP)(f) | | $ | 2,681 |
| | (1 | ) | | — |
| | $ | 7,995 |
| | (5 | ) | | (3 | ) |
| Lipitor | | Reduction of LDL cholesterol | | 491 |
| | 16 |
| | 18 |
| | 1,341 |
| | 4 |
| | 6 |
|
| Premarin family | | Symptoms of menopause | | 238 |
| | (2 | ) | | (2 | ) | | 711 |
| | (5 | ) | | (5 | ) |
| Norvasc | | Hypertension | | 226 |
| | (5 | ) | | (3 | ) | | 684 |
| | (4 | ) | | (1 | ) |
| EpiPen | | Epinephrine injection used in treatment of life-threatening allergic reactions | | 82 |
| | (25 | ) | | (25 | ) | | 253 |
| | (16 | ) | | (15 | ) |
| Xalatan/Xalacom | | Glaucoma and ocular hypertension | | 83 |
| | (9 | ) | | (8 | ) | | 241 |
| | (12 | ) | | (12 | ) |
| Effexor | | Depression and certain anxiety disorders | | 76 |
| | 8 |
| | 9 |
| | 215 |
| | 4 |
| | 5 |
|
| Zoloft | | Depression and certain anxiety disorders | | 78 |
| | 9 |
| | 11 |
| | 215 |
| | (6 | ) | | (4 | ) |
| Zithromax | | Bacterial infections | | 61 |
| | 10 |
| | 11 |
| | 202 |
| | (1 | ) | | 3 |
|
| Relpax | | Symptoms of migraine headache | | 50 |
| | (39 | ) | | (39 | ) | | 193 |
| | (22 | ) | | (22 | ) |
| Xanax | | Anxiety disorders | | 58 |
| | 5 |
| | 4 |
| | 164 |
| | 1 |
| | 2 |
|
| All other LEP | | Various | | 1,237 |
| | (2 | ) | | (1 | ) | | 3,776 |
| | (5 | ) | | (4 | ) |
Sterile Injectable Pharmaceuticals (SIP)(g) | | $ | 1,273 |
| | (13 | ) | | (12 | ) | | $ | 4,270 |
| | (5 | ) | | (4 | ) |
| Medrol | | Steroid anti-inflammatory | | 109 |
| | 7 |
| | 7 |
| | 352 |
| | 7 |
| | 7 |
|
| Sulperazon | | Treatment of infections | | 114 |
| | 11 |
| | 13 |
| | 345 |
| | 14 |
| | 18 |
|
| Fragmin | | Slows blood clotting | | 79 |
| | (1 | ) | | (1 | ) | | 221 |
| | (8 | ) | | (6 | ) |
| Tygacil | | Tetracycline class antibiotic | | 60 |
| | (12 | ) | | (12 | ) | | 192 |
| | (5 | ) | | (5 | ) |
| Precedex | | Sedation agent in surgery or intensive care | | 51 |
| | (21 | ) | | (20 | ) | | 182 |
| | (8 | ) | | (9 | ) |
| All other SIP | | Various | | 860 |
| | (18 | ) | | (17 | ) | | 2,977 |
| | (7 | ) | | (6 | ) |
Revenues––Selected Product Discussion |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | | | % Change(a) | | | | % Change(a) |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | Oct 1,
2017 |
| Total |
| | Oper. |
| Oct 1,
2017 |
| Total |
| | Oper. |
|
Peri-LOE Products(h) | | $ | 794 |
| | (22 | ) | | (22 | ) | | $ | 2,398 |
| | (26 | ) | | (24 | ) |
| Celebrex | | Arthritis pain and inflammation, acute pain | | 212 |
| | 9 |
| | 11 |
| | 564 |
| | 3 |
| | 4 |
|
Lyrica EH(c) | | Epilepsy, neuropathic pain and generalized anxiety disorder | | 134 |
| | (30 | ) | | (31 | ) | | 428 |
| | (31 | ) | | (29 | ) |
| Vfend | | Fungal infections | | 97 |
| | (31 | ) | | (29 | ) | | 305 |
| | (33 | ) | | (32 | ) |
Viagra EH(d) | | Erectile dysfunction | | 102 |
| | 14 |
| | 16 |
| | 285 |
| | — |
| | 3 |
|
| Pristiq | | Depression | | 69 |
| | (61 | ) | | (61 | ) | | 230 |
| | (58 | ) | | (58 | ) |
| Zyvox | | Bacterial infections | | 68 |
| | (28 | ) | | (27 | ) | | 220 |
| | (34 | ) | | (33 | ) |
| Revatio | | Pulmonary arterial hypertension | | 58 |
| | (20 | ) | | (20 | ) | | 189 |
| | (11 | ) | | (11 | ) |
| All other Peri-LOE Products | | Various | | 55 |
| | (19 | ) | | (17 | ) | | 176 |
| | (17 | ) | | (15 | ) |
Biosimilars(i) | | Various | | $ | 141 |
| | 70 |
| | 67 |
| | $ | 367 |
| | 61 |
| | 63 |
|
| Inflectra/Remsima | | Inflammatory diseases | | 112 |
| | * |
| | * |
| | 284 |
| | * |
| | * |
|
| All other Biosimilars | | Various | | 28 |
| | (16 | ) | | (18 | ) | | 82 |
| | (15 | ) | | (14 | ) |
Pfizer CentreOne(j) | | | | $ | 161 |
| | 3 |
| | 3 |
| | $ | 514 |
| | (5 | ) | | (5 | ) |
Hospira Infusion Systems (HIS)(k) | | Various | | $ | — |
| | * |
| | * |
| | $ | 97 |
| | (89 | ) | | (89 | ) |
Total Lyrica(c) | | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | $ | 1,285 |
| | 4 |
| | 5 |
| | $ | 3,810 |
| | 2 |
| | 3 |
|
Total Viagra(d) | | Erectile dysfunction | | $ | 308 |
| | (20 | ) | | (20 | ) | | $ | 996 |
| | (16 | ) | | (15 | ) |
| Total Alliance revenues | | Various | | $ | 741 |
| | 77 |
| | 78 |
| | $ | 2,112 |
| | 83 |
| | 84 |
|
| |
(a)
| As compared to the three and nine months ended October 2, 2016.
|
| |
(b)
| The IH business encompasses Internal Medicine, Vaccines, Oncology, Inflammation & Immunology, Rare Disease and Consumer Healthcare. Through December 31, 2016, includes Duavive/Duavee and Viviant (recorded in All other Internal Medicine in 2016), which were transferred from Innovative Health to Essential Health effective January 1, 2017 (recorded in All other LEP (EH) beginning January 1, 2017), in order to align these products with our management of the women’s health portfolio within EH. |
| |
(c)
| Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica EH. All other Lyrica revenues are included in Lyrica IH. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica IH and Lyrica EH. |
| |
(d)
| Viagra revenues from the U.S. and Canada are included in Viagra IH. All other Viagra revenues are included in Viagra EH. Total Viagra revenues represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
| |
(e)
| The EH business encompasses Legacy Established Products, Sterile Injectable Pharmaceuticals, Peri-LOE Products, Biosimilars, Pfizer CentreOne and HIS (through February 2, 2017) and includes all legacy Hospira commercial operations. |
| |
(f)
| Legacy Established Products primarily include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products). Effective January 1, 2017, All other LEP includes Duavive/Duavee and Viviant, which were transferred from Innovative Health (recorded in All other Internal Medicine (IH) in 2016), in order to align these products with our management of the women’s health portfolio within EH. See note (b) above. |
| |
(g)
| Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products). |
| |
(h)
| Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products include: Lyrica in Europe, Russia, Turkey, Israel and Central Asia; Viagra in all countries (excluding the U.S. and Canada); and worldwide revenues for Celebrex, Pristiq, Zyvox, Vfend, Revatio and Inspra. |
| |
(i)
| Biosimilars include Inflectra/Remsima (biosimilar infliximab) in the U.S. and certain international markets, Nivestim (biosimilar filgrastim) in certain European, Asian and Africa/Middle Eastern markets and Retacrit (biosimilar epoetin zeta) in certain European and Africa/Middle Eastern markets. |
| |
(j)
| Pfizer CentreOne includes revenues from our contract manufacturing and active pharmaceutical ingredient sales operation, including sterile injectables contract manufacturing, and revenues related to our manufacturing and supply agreements, including with Zoetis. |
| |
(k)
| HIS (through February 2, 2017) includes Medication Management Systems products composed of infusion pumps and related software and services, as well as IV Infusion Products, including large volume IV solutions and their associated administration sets. |
| |
* | Indicates calculation not meaningful. |
The tables below provide worldwide revenues, by geography, for selected products. References to total change pertain to period-over-period growth rates that include foreign exchange. The difference between the total change and operational change represents the impact of foreign exchange. Amounts may not add due to rounding. All percentages have been calculated using unrounded amounts. An asterisk (*) indicates the calculation is not meaningful or results are equal to or greater than 100%.
•Prevnar 13/Prevenar 13 (IH): Revenues––Selected Product Discussion |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 1,089 |
| | $ | 971 |
| | 12 | | | | $ | 2,597 |
| | $ | 2,554 |
| | 2 | | |
| International | | 571 |
| | 551 |
| | 4 | | 6 | | 1,694 |
| | 1,515 |
| | 12 | | 10 |
| Worldwide revenues | | $ | 1,660 |
| | $ | 1,522 |
| | 9 | | 10 | | $ | 4,290 |
| | $ | 4,069 |
| | 5 | | 5 |
The information included in “Revenues—Selected Product Discussion” below should be read in conjunction with the revenue information included in the “Revenues—Major Products” section.
| |
• | Prevnar 13/Prevenar 13 (IH) worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
|
In the U.S., revenues for Prevnar 13 decreased 4%growth in the third quarter of 2017and 9% in the first nine months of 2017, compared to2018 in the same periods in 2016,U.S. was primarily due to higher government purchases for the pediatric indication, partially offset by the continued decline in revenues for the Adultadult indication in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity (i.e., the opportunity to reach adults ageaged 65 years and older who have not been previously vaccinated with Prevnar 13), compared to the prior-year period, partially offset byperiod.
The operational growth from the pediatric indication. Given the success since the launch of the Adult indication, approximately 53% of the eligible patient pool 65 years and above in the U.S. has already been vaccinated. While the remaining eligible population is large, this cohort is much more difficult to capture.
Internationally, revenues for Prevenar 13 increased 5% operationally in the third quarter of 20172018 internationally was primarily due to higher volumes for the pediatric indication resulting from increased orders associated with Gavi, the Vaccine Alliance and 3% operationallyfrom the second-quarter 2017 launch in China. The international operational growth in the first nine months of 2017, compared to the same periods in 2016, 2018 was primarily due to the favorable overall impact of timing of government purchases in certain emerging markets and the launch of Prevenar 13 in Chinahigher volumes for the pediatric indication. Foreign exchange had a de minimis impact on international revenuesindication resulting from the second-quarter 2017 launch in China and increased orders associated with Gavi, the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
Vaccine Alliance.
In 2014, the ACIP voted to recommend Prevnar 13 for routine use to help protect adults aged 65 years and older against pneumococcal disease, which for adults includes pneumonia caused by the 13 pneumococcal serotypes included in the vaccine. These ACIP recommendations were subsequently approved by the directors at the CDC and U.S. Department of Health and Human Services, and were published in the Morbidity and Mortality Weekly Report in September 2014 by the CDC. As with other vaccines, the CDC regularly monitors the impact of vaccination and reviews the recommendations; in this case, however,recommendations. During the recently held October 2018 ACIP meeting, the CDC announced formally that it will conduct this reviewpresented initial data and indicated formal evaluation of evidence (grading) and a potential vote on the maintenance of the 65 years and older recommendation would likely happen in 2018.2019. A potential adverse change in the ACIP recommendation could negatively impact future Prevnar 13 revenues. Currently, we are workingWe continue to generate and publish data and communicate with a numberthe ACIP on the burden of U.S. investigators to monitor the proportion of community-acquired pneumonia caused by the serotypes included inpneumococcal disease and Prevnar 13 vaccine effectiveness and continue to observe trends.safety.
| |
• | Lyrica (EH (revenuesWe announced in September 2018 that our next generation 20-Valent Pneumococcal Vaccine candidate has received Breakthrough Therapy designation from all of Europe, Russia, Turkey, Israel and Central Asia)/IH (revenues from all other geographies)) worldwide revenues increased operationally in the third quarter and the first nine months of 2017, compared to the same periods in 2016. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016. |
In the U.S., FDA.
•Lyrica revenues increased 12% (EH (revenues from all of Europe, Russia, Turkey, Israel and Central Asia)/IH (revenues from all other geographies)): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 875 |
| | $ | 877 |
| | — |
| | | | $ | 2,643 |
| | $ | 2,602 |
| | 2 |
| | |
| International | | 338 |
| | 408 |
| | (17 | ) | | (17 | ) | | 1,006 |
| | 1,208 |
| | (17 | ) | | (19 | ) |
| Worldwide revenues | | $ | 1,213 |
| | $ | 1,285 |
| | (6 | ) | | (5 | ) | | $ | 3,649 |
| | $ | 3,810 |
| | (4 | ) | | (5 | ) |
The relatively flat performance in the third quarter of 2017 and 10%2018 in the U.S. was primarily due to sustained demand. The growth in the first nine months of 2017, compared to2018 in the same periods in 2016,U.S. was primarily driven by sustained demand and positive price impact.
Internationally, Lyrica revenues decreased 8% operationallyThe operational decline in the third quarter of 2017 and 10% operationally in the first nine months of 2017, compared to the same periods in 2016,2018 internationally was primarily due to losses of exclusivity in developed Europe markets. Foreign exchange had an unfavorable impact on internationalmarkets, Australia and South Korea. The operational decline in the first nine months of 2018 internationally was primarily due to losses of exclusivity in developed Europe markets, Australia and South Korea, partially offset by growth in the orally dissolving tablet formulation in Japan.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides worldwide revenues for Lyrica in our IH segment, by geography: |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 875 |
| | $ | 877 |
| | — |
| | | | $ | 2,643 |
| | $ | 2,602 |
| | 2 |
| | |
| International | | 257 |
| | 274 |
| | (6 | ) | | (6 | ) | | 755 |
| | 779 |
| | (3 | ) | | (5 | ) |
| Worldwide revenues | | $ | 1,132 |
| | $ | 1,150 |
| | (2 | ) | | (2 | ) | | $ | 3,398 |
| | $ | 3,382 |
| | — |
| | — |
|
Worldwide Lyrica revenues in our IH segment in the third quarter of 2018 decreased operationally, primarily due to losses of exclusivity in Australia in July 2017 and in South Korea in August 2017. The relatively flat performance in worldwide Lyrica revenues in our IH segment in the first nine months of 2018 was primarily due to losses of exclusivity in Australia and South Korea, offset by growth in the orally dissolving tablet formulation in Japan. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The following table provides worldwide revenues for Lyrica in our EH segment, by geography: |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | — |
| | $ | — |
| | — |
| | | | $ | — |
| | $ | — |
| | — |
| | |
| International | | 81 |
| | 134 |
| | (40 | ) | | (39 | ) | | 251 |
| | 428 |
| | (41 | ) | | (45 | ) |
| Worldwide revenues | | $ | 81 |
| | $ | 134 |
| | (40 | ) | | (39 | ) | | $ | 251 |
| | $ | 428 |
| | (41 | ) | | (45 | ) |
The worldwide operational declines in our EH segment in the third quarter and first nine months of 2017, compared2018 were primarily due to the same periodslosses of exclusivity in 2016.developed Europe markets.
Lyrica revenues in our IH segment increased operationally•Ibrance (IH): |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 708 |
| | $ | 713 |
| | (1 | ) | | | | $ | 2,178 |
| | $ | 2,048 |
| | 6 | | |
| International | | 317 |
| | 165 |
| | 93 |
| | 98 | | 807 |
| | 362 |
| | * | | * |
| Worldwide revenues | | $ | 1,025 |
| | $ | 878 |
| | 17 |
| | 18 | | $ | 2,985 |
| | $ | 2,410 |
| | 24 | | 23 |
The worldwide operational growth in the third quarter and first nine months of 2017, compared to the same periods2018 reflects an uptake in 2016, primarilyinternational markets, mostly driven by sustained demandkey European markets where we secured access and reimbursement in 2017 and the December 2017 launch in Japan as well as Ibrance class leadership among cyclin-dependent kinase inhibitors in major markets, supported by our scientific/clinical data and continued positive price impact in the U.S. Foreign exchange had an unfavorable impact on Lyrica IH revenuespatient experience. The decline in the third quarter of 2018 in the U.S. was primarily due to the impact of competition and a de minimis impactincreased rebates. The growth in the first nine months of 2017, compared2018 in the U.S. was primarily due to continued demand growth partially offset by uptake of competitors and increased rebates.
Eliquis alliance revenues and direct sales (IH): Eliquis has been jointly developed and is commercialized by Pfizer and BMS. Pfizer funds between 50% and 60% of all development costs depending on the same periodsstudy. Profits and losses are shared equally on a global basis, except in 2016.certain countries where Pfizer commercializes Eliquis and pays BMS compensation based on a percentage of net sales. We have full commercialization rights in certain smaller markets. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the Novel Oral Anticoagulant (NOAC) market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 455 |
| | $ | 352 |
| | 29 | | | | $ | 1,371 |
| | $ | 1,041 |
| | 32 | | |
| International | | 416 |
| | 291 |
| | 43 | | 44 | | 1,153 |
| | 772 |
| | 49 | | 42 |
| Worldwide revenues | | $ | 870 |
| | $ | 644 |
| | 35 | | 36 | | $ | 2,524 |
| | $ | 1,813 |
| | 39 | | 36 |
The worldwide revenues from Lyrica decreased operationallyoperational growth in the third quarter and first nine months of 2017, compared to the same periods2018 was primarily driven by continued increased adoption in 2016, due to losses of exclusivity in developed Europe markets. Foreign exchange had a favorable impact on Lyrica EHnon-valvular atrial fibrillation, as well as oral anti-coagulant market share gain.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| U.S. | | $ | 25 |
| | $ | 60 |
| | (58 | ) | | | | $ | 86 |
| | $ | 125 |
| | (32 | ) | | |
| International | | 482 |
| | 431 |
| | 12 |
| | 11 | | 1,453 |
| | 1,215 |
| | 20 |
| | 14 |
| Worldwide revenues | | $ | 507 |
| | $ | 491 |
| | 3 |
| | 3 | | $ | 1,539 |
| | $ | 1,341 |
| | 15 |
| | 10 |
The worldwide revenuesoperational growth in the third quarter of 2018 was primarily driven by increased demand in China, partially offset by the non-recurrence of favorable U.S. rebates that occurred in the third quarter of 2017 and an unfavorable impactpricing pressures in China. The worldwide operational growth in the first nine months of 2017, compared to the same periods in 2016.
| |
• | Ibrance (IH) worldwide revenues, most of which were recorded in the U.S., increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. The significant revenue growth reflects our scientific/clinical data, continued positive patient experience as well as Ibrance being the class leader among cyclin-dependent kinase inhibitors in major markets. Foreign exchange had a favorable impact on worldwide revenues in the third quarter of 2017 and had an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Enbrel (IH, outside the U.S. and Canada) worldwide revenues, excluding the U.S. and Canada, decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016,2018 was primarily due to on-going biosimilar competition in most developed Europe markets, which is expected to continue. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Lipitor (EH) worldwide revenues increased operationally in the third quarter and the first nine months of 2017, compared to the same periods in 2016. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter of 2017 and first nine months of 2017, compared to the same periods in 2016. In the U.S., revenues increased more than 100% in the third quarter of 2017 and 11% in the first nine months of 2017, compared to the same periods in 2016, primarily due to favorable rebates.
|
In our international markets, revenues increased 11% operationally in the third quarter of 2017, compared to the same period in 2016, driven by increased demand in China and certain Middle Eastern markets, partially offset by lower volumes in Japan and pricing pressures in China. International revenuesChina, the non-recurrence of favorable U.S. rebates that occurred in the third quarter of 2017 and generic competition in Japan.
•Enbrel (IH, outside the U.S. and Canada): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | — |
| | $ | — |
| | — |
| | | | $ | — |
| | $ | — |
| | — |
| | |
| International | | 531 |
| | 613 |
| | (13 | ) | | (11 | ) | | 1,589 |
| | 1,818 |
| | (13 | ) | | (15 | ) |
| Worldwide revenues | | $ | 531 |
| | $ | 613 |
| | (13 | ) | | (11 | ) | | $ | 1,589 |
| | $ | 1,818 |
| | (13 | ) | | (15 | ) |
The worldwide operational declines in the third quarter and first nine months of 2018 were primarily due to ongoing biosimilar competition in most developed Europe markets, which is expected to continue.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 332 |
| | $ | 291 |
| | 14 | | | | $ | 964 |
| | $ | 793 |
| | 22 | | |
| International | | 100 |
| | 57 |
| | 76 | | 84 | | 256 |
| | 142 |
| | 81 | | 81 |
| Worldwide revenues | | $ | 432 |
| | $ | 348 |
| | 24 | | 26 | | $ | 1,221 |
| | $ | 935 |
| | 31 | | 31 |
The growth in the U.S. in the third quarter and first nine months of 2018 was primarily driven by increased 6% operationallyadoption among rheumatologists, growing awareness among patients and improvements in payer access, as well as launches of the psoriatic arthritis (PsA) indication in the first quarter of 2018 and ulcerative colitis indication in the third quarter of 2018.
The operational growth internationally in the third quarter and first nine months of 2018 was primarily driven by the 2017 approval of the rheumatoid arthritis indication in certain European markets, as well as continued uptake in Japan, Canada and emerging markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 80 |
| | $ | 87 |
| | (7 | ) | | | | $ | 262 |
| | $ | 277 |
| | (6 | ) | | |
| International | | 168 |
| | 189 |
| | (11 | ) | | (9 | ) | | 524 |
| | 527 |
| | (1 | ) | | (5 | ) |
| Worldwide revenues | | $ | 248 |
| | $ | 276 |
| | (10 | ) | | (9 | ) | | $ | 785 |
| | $ | 805 |
| | (2 | ) | | (5 | ) |
The worldwide operational declines in the third quarter and first nine months of 2018 were primarily due to lower volumes driven by competitive pressure in the U.S. and certain developed and emerging Europe markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| U.S. | | $ | 9 |
| | $ | 9 |
| | (2 | ) | | | | $ | 27 |
| | $ | 28 |
| | (4 | ) | | |
| International | | 238 |
| | 217 |
| | 10 |
| | 10 | | 745 |
| | 656 |
| | 14 |
| | 9 |
| Worldwide revenues | | $ | 247 |
| | $ | 226 |
|
| 9 |
| | 10 | | $ | 773 |
| | $ | 684 |
| | 13 |
| | 9 |
The worldwide operational growth in the third quarter and the first nine months of 2017, compared to the same period in 2016,2018 was primarily driven by increased demand in China, partially offset by generic competition in Japan and pricing pressures in China.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
|
| U.S. | | $ | 197 |
| | $ | 180 |
| | 10 | | | | $ | 602 |
| | $ | 542 |
| | 11 | | |
| International | | 64 |
| | 60 |
| | 6 | | 7 | | 187 |
| | 184 |
| | 2 | | (2 | ) |
| Worldwide revenues | | $ | 261 |
| | $ | 240 |
| | 9 | | 9 | | $ | 789 |
| | $ | 727 |
| | 9 | | 8 |
|
The growth in the U.S. in the third quarter and first nine months of 2018 was primarily due to increased volume, improved patient access and, for the first nine months of 2018, positive price impact.
•The Premarin family of products (EH): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 191 |
| | $ | 224 |
| | (15 | ) | | | | $ | 569 |
|
| $ | 670 |
| | (15 | ) | | |
| International | | 12 |
| | 14 |
| | (14 | ) | | (12 | ) | | 36 |
| | 41 |
| | (13 | ) | | (14 | ) |
| Worldwide revenues | | $ | 204 |
| | $ | 238 |
| | (15 | ) | | (15 | ) | | $ | 605 |
| | $ | 711 |
| | (15 | ) | | (15 | ) |
The worldwide operational declines in the third quarter and first nine months of 2018 were primarily driven by generic competition in the U.S.
•Viagra (EH): Viagralost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 32 |
| | $ | 198 |
| | (84 | ) | | | | $ | 196 |
| | $ | 687 |
| | (71 | ) | | |
| International | | 105 |
| | 111 |
| | (5 | ) | | (3 | ) | | 313 |
| | 309 |
| | 1 |
| | (1 | ) |
| Worldwide revenues | | $ | 137 |
| | $ | 308 |
| | (55 | ) | | (55 | ) | | $ | 509 |
| | $ | 996 |
| | (49 | ) | | (50 | ) |
The declines in the U.S. in the third quarter and first nine months of 2018 were primarily due to the loss of exclusivity in December 2017.
The operational decline in the third quarter of 2018 internationally was primarily driven by lower volumes in Russia and Turkey and pricing pressures in China, partially offset by increased demand in China and Saudi Arabia.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | — |
| | $ | — |
| | — | | | | $ | — |
| | $ | — |
| | — | | |
| International | | 145 |
| | 114 |
| | 28 | | 26 | | 464 |
| | 345 |
| | 34 | | 28 |
| Worldwide revenues | | $ | 145 |
| | $ | 114 |
| | 28 | | 26 | | $ | 464 |
| | $ | 345 |
| | 34 | | 28 |
The international operational growth in the third quarter and first nine months of 2018 was primarily due to increased demand in China.
•Xtandi alliance revenues (IH): Xtandi is being developed and commercialized through a collaboration with Astellas. The two companies share equally in the gross profits (losses) related to U.S. net sales of Xtandi. Subject to certain exceptions, Pfizer and Astellas also share equally all Xtandi commercialization costs attributable to the U.S. market. Pfizer and Astellas also share certain development and other collaboration expenses, and Pfizer receives tiered royalties as a percentage of international Xtandi net sales (recorded in Other (income)/deductions—net). |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 180 |
| | $ | 150 |
| | 20 | | | | $ | 510 |
| | $ | 422 |
| | 21 | | |
| International | | — |
| | — |
| | — | | — | | — |
| | — |
| | — | | — |
| Worldwide revenues | | $ | 180 |
| | $ | 150 |
| | 20 | | 20 | | $ | 510 |
| | $ | 422 |
| | 21 | | 21 |
The growth in the U.S. in the third quarter and first nine months of 2018 was primarily driven by continued growth of Xtandi in metastatic castration-resistant prostate cancer. While enrollment rates in patient assistance programs (PAP), which provide free medicines to patients, fluctuate throughout the year, we have observed a reduction in PAP utilization in the third quarter and first nine months of 2018, compared to the same periods in 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 34 |
| | $ | 49 |
| | (31 | ) | | | | $ | 118 |
| | $ | 170 |
| | (31 | ) | | |
| International | | 93 |
| | 96 |
| | (4 | ) | | (2 | ) | | 299 |
| | 272 |
| | 10 |
| | 5 |
|
| Worldwide revenues | | $ | 127 |
| | $ | 146 |
| | (13 | ) | | (12 | ) | | $ | 417 |
| | $ | 442 |
| | (6 | ) | | (9 | ) |
The worldwide operational declines in the third quarter and first nine months of 2018 were primarily due to volume declines in the ALK indication across certain developed markets, primarily in the U.S. and certain markets in developed Europe, due to competitive pressure. The declines were partially offset by a continued increase in diagnostic rates for the ALK gene mutation across key markets and share in first-line ALK treatment outside the U.S., primarily in certain emerging markets, as well as uptake in treatment of patients with metastatic NSCLC whose tumors are ROS1-positive.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 16 |
| | $ | 61 |
| | (73 | ) | | | | $ | 50 |
| | $ | 117 |
| | (57 | ) | | |
| International | | 171 |
| | 150 |
| | 14 |
| | 14 |
| | 444 |
| | 448 |
| | (1 | ) | | (4 | ) |
| Worldwide revenues | | $ | 188 |
| | $ | 212 |
| | (11 | ) | | (11 | ) | | $ | 494 |
| | $ | 564 |
| | (12 | ) | | (15 | ) |
The worldwide operational decline in the third quarter of 2018 was primarily driven by the non-recurrence of the favorable U.S. rebates that occurred in the third quarter of 2017 and lower volumes in the U.S., as well as pricing pressure in Mexico, partially offset by increased demand in China and Japan. The worldwide operational decline in the first nine months of 2018 was primarily driven by the non-recurrence of the favorable U.S. rebates that occurred in the third quarter of 2017, lower volumes in the U.S., Japan and certain Middle Eastern markets, as well as pricing pressurespressure in China. Foreign exchange had an unfavorable impact on international revenues in the third quarter of 2017 and first nine months of 2017, compared to the same periods in 2016.
| |
• | Viagra (IH (U.S. and Canada revenues)/EH (all other revenues excluding U.S. and Canada)) worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. The decrease in the third quarter of 2017, compared to the same period in 2016, was primarily due to wholesaler destocking in advance of anticipated generic competition in the U.S. beginning in December 2017. The decrease in the first nine months of 2017, compared to the same period in 2016, was primarily due to lower market growth. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
Revenues in the U.S. decreased 32% in the third quarter of 2017, compared to the same period in 2016, primarily due to wholesaler destocking in advance of anticipated generic competition beginning in December 2017. Revenues in the U.S. decreased 21% in the first nine months of 2017, compared to the same period in 2016, primarily due to lower market growth. International revenues increased 15% operationally in the third quarter of 2017, compared to the same period in 2016, primarily from demand in emerging markets, primarily in China. International revenues increased 3% operationally in the first nine months of 2017, compared to the same period in 2016, primarily fromMexico, partially offset by increased demand in emerging markets, mainly China and certain Middle Eastern markets, partially offset by price reductions in China. Foreign exchange had an unfavorable impact on international revenues
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 71 |
| | $ | 34 |
| | * | | | | $ | 189 |
| | $ | 74 |
| | * | | |
| International | | 95 |
| | 78 |
| | 22 | | 22 | | 280 |
| | 210 |
| | 33 | | 24 |
| Worldwide revenues | | $ | 166 |
| | $ | 112 |
| | 48 | | 48 | | $ | 469 |
| | $ | 284 |
| | 65 | | 58 |
The worldwide operational growth in the third quarter and first nine months of 2017, compared2018 was due to the same periodscontinued uptake in 2016.
| |
• | Xeljanz (IH) worldwide revenues increased operationallycertain channels in the third quarter and first nine months of 2017, compared to the same periods in 2016. In the U.S., Xeljanz revenues increased 44% in the third quarter of 2017 and 40% in the first nine months of 2017, compared to the same periods in 2016, primarily driven by increased adoption among rheumatologists, growing awareness among patients and improvements in payer access. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter of 2017 and had a de minimis impact in the first nine months of 2017, compared to the same periods in 2016.
|
| |
• | BeneFIX and ReFacto AF/Xyntha (IH)––BeneFIX worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, primarily as a result of erosion of market share in the U.S. and European countries due to increasing adoption of extended half-life treatment options as well as a price decrease in the U.K. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
ReFacto AF/Xyntha worldwide revenues decreased operationally in the third quarter of 2017 and increased operationally in the first nine months of 2017, compared to the same periods in 2016. The increase in the first nine months of 2017 was largely due to increased product demand in certain emerging markets, partially offset by declines in developed markets in Europe, and the U.S., primarily driven by increasing adoption of extended half-life treatment options. Foreign exchange had a favorable impact on worldwide revenues in the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
| |
• | Sutent (IH) worldwide revenues increased operationally in the third quarter of 2017 and decreased operationally in the first nine months of 2017, compared to the same periods in 2016. The increase in the third quarter of 2017 was primarily driven by increased performance in certain emerging markets. The decrease in the first nine months of 2017 was primarily due to competitive pressure in the U.S. and Europe and cost containment measures in certain developed international markets, partially offset by increased performance in certain emerging markets. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Chantix/Champix (IH) worldwide revenues increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter of 2017 and a de minimis impact in the first nine months of 2017, compared to the same periods in 2016.
|
In the U.S., Chantix revenues increased 27% in the third quarter of 2017 and 21% in the first nine months of 2017, compared to the same periods in 2016, primarily due to increased promotional activities, educating healthcare providers on updates to the Chantix label, including removal of the boxed warning, the addition of EAGLES safety and efficacy data, improved patient access and positive price impact.
| |
• | The Premarin family of products (EH) worldwide revenues decreased operationally in the third quarter of 2017 and first nine months of 2017, compared to the same periods in 2016. Revenues in the U.S. decreased 2% in the third quarter and 5% in the first nine months of 2017, compared to the same periods in 2016, primarily driven by lower volume, partially offset by a positive price impact.
|
Internationally, Premarin revenues decreased 8% operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, primarily due to lower volumes in certain emerging markets and, with respect to the first nine months of 2017, the U.K., partially offset by price increases. Foreign exchange had a favorable impact on international revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
| |
• | Norvasc (EH) worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. Results for the third quarter of 2017 and first nine months of 2017 were impacted by generic competition in Japan, lower volumes in certain Middle Eastern markets and pricing pressures in China, partially offset by demand in China. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Celebrex (EH) worldwide revenues increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016. The increase in the third quarter of 2017, compared to the same period in 2016, was primarily
|
driven by favorable rebates in the U.S. and increased demand in China, partially offset by generic competition in the U.S., lower volumes in certain Middle Eastern markets and pricing pressures in China and Mexico. The increase in the first nine months of 2017, compared to the same period in 2016, was primarily driven by favorable rebates in the U.S. and volume growth in emerging markets, primarily China, partially offset by generic competition in the U.S. and most developed international markets and pricing pressures in China and Mexico. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.these markets.
| |
• | Xalkori (IH) worldwide revenues increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, as a result of a steady increase in diagnostic rates for the ALK gene mutation across key markets outside the U.S., which has led to more patients being treated. This increase was partially offset by volume declines in the U.S. and Japan due to competitive pressure, partially mitigated by the March 2016 FDA approval of the supplemental NDA to treat patients with metastatic NSCLC whose tumors are ROS1-positive as detected by an FDA-approved test. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Inflectra/Remsima (EH) worldwide revenues increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, due to continued uptake in developed markets in Europe, and the U.S. launch in the fourth quarter of 2016, partially offset by pricing pressures in Europe. Foreign exchange had a favorable impact on worldwide revenues in the third quarter of 2017 and an unfavorable impact in the first nine months of 2017, compared to the same periods in 2016.
|
Inflectra uptake in the U.S. is being driven by a number of factors including Inflectra’s clinical data package, patient support programs, price and the access/reimbursement environment. To date, reimbursement coverage has been mixed. While we achieved 100% Medicare coverage, we have experienced access challenges among commercial payers where our lower priced product has not received access at parity to the innovator product and remains in a disadvantaged position despite recentthe higher price increases taken by theof innovator product. We will look at all relevant factors impacting reimbursement given our extensive experience working with commercial payers to enable greater access for Inflectra. Additionally, in September 2017, Pfizer filed suit in the U.S. District Court for the Eastern District of Pennsylvania against Johnson & Johnson (J&J)J&J alleging that J&J’s exclusionary contracts and other anticompetitive practices concerning Remicade®Remicade® (infliximab) violate federal antitrust laws.
| |
• | Inlyta (IH) worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, primarily due to increased competition in the U.S. and Europe, partially offset by performance in key emerging markets. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
|
| |
• | Pristiq (EH) worldwide revenues decreased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, primarily due to loss of exclusivity in the U.S. in March 2017. Foreign exchange had a de minimis impact on worldwide revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
| | September 30,
2018 |
| | October 1,
2017 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 27 |
| | $ | 30 |
| | (10 | ) | | | | $ | 88 |
| | $ | 95 |
| | (7 | ) | | |
| International | | 44 |
| | 53 |
| | (18 | ) | | (15 | ) | | 138 |
| | 161 |
| | (14 | ) | | (16 | ) |
| Worldwide revenues | | $ | 71 |
| | $ | 84 |
| | (15 | ) | | (13 | ) | | $ | 226 |
| | $ | 256 |
| | (12 | ) | | (13 | ) |
The worldwide revenues decreased operationallyoperational decline in the third quarter of 2018 was primarily due to increased competition across developed markets. The worldwide operational decline in the first nine months of 2018 was primarily due to increased competition across developed markets, as well as China.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 40 |
| | $ | 15 |
| | * | | | | $ | 104 |
| | $ | 33 |
| | * | | |
| International | | — |
| | — |
| | — | | — | | — |
| | — |
| | — | | — |
| Worldwide revenues | | $ | 40 |
| | $ | 15 |
| | * | | * | | $ | 104 |
| | $ | 33 |
| | * | | * |
The worldwide operational growth in the third quarter and first nine months of 2017, compared to the same periods in 2016, due to generic competition in developed international markets2018 was primarily driven by broader prescriber trial and the U.S.adoption, as well as growing patient awareness and corresponding pricing pressures, partially offset by volumeinterest.
•Alliance revenues (IH/EH): |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. | | September 30,
2018 |
| | October 1,
2017 |
| | Total | | Oper. |
| U.S. | | $ | 642 |
| | $ | 507 |
| | 26 | | | | $ | 1,901 |
| | $ | 1,487 |
| | 28 | | |
| International | | 336 |
| | 234 |
| | 44 | | 43 | | 919 |
| | 624 |
| | 47 | | 39 |
| Worldwide revenues | | $ | 977 |
| | $ | 741 |
| | 32 | | 32 | | $ | 2,820 |
| | $ | 2,112 |
| | 34 | | 31 |
The worldwide operational growth in China. Foreign exchange had an unfavorable impact on worldwide revenues in the third quarter and first nine months of 2017, compared2018 was mainly due to the same periodsincreases in 2016.
| |
• | Eucrisa (IH) is approved in the U.S. for the treatment of mild to moderate atopic dermatitis for patients two years of ageEliquis and older. The FDA approved Eucrisa on December 14, 2016, and Eucrisa was launched in the U.S. late in the first quarter of 2017. Eucrisa is a novel non-steroidal topical ointment and is the first topical prescription treatment for atopic dermatitis approved in over 10 years. Prescription volume continued to strengthen through the third quarter of 2017 supported by the launch of our direct-to-consumer campaign.
|
| |
• | Alliance revenues (IH/EH) increased operationally in the third quarter and first nine months of 2017, compared to the same periods in 2016, mainly due to:
|
| |
◦ | an increase in Eliquis alliance revenues due to higher demand resulting from increased market penetration of novel oral anticoagulants and market share gains; and |
| |
◦ | the inclusion of Xtandi alliance revenues of $150 million in the third quarter of 2017 and $422 million in the first nine months of 2017 in the U.S. resulting from the September 2016 acquisition of Medivation. We expect patient assistance program (which provides free medicines to patients) utilization as a percentage of total demand to normalize as we move into next year.
|
Foreign exchange had an unfavorable impact on alliance revenues in the third quarter and first nine months of 2017, compared to the same periods in 2016.
discussed above.
| |
| ◦ | Eliquis (IH) has been jointly developed and is commercialized by Pfizer and BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis, except in certain countries where Pfizer commercializes Eliquis and pays BMS compensation based on a percentage of net sales. We have full commercialization rights in certain smaller markets. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the Novel Oral Anticoagulant (NOAC) market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients.
|
| |
◦ | XtandiBavencio (IH) is being developed and commercialized through ain collaboration with Astellas. The twoMerck KGaA. Both companies sharejointly fund all development and commercialization costs, and split equally any profits generated from selling any anti-PD-L1 or anti-PD-1 products from this collaboration. Bavencio is currently approved in metastatic MCC in the gross profits (losses) related to U.S. net sales, Europe, Japan, and selected other markets, as well as in second line treatment of Xtandi. Subject to certain exceptions, Pfizer and Astellas also share equally all Xtandi commercialization costs attributable tolocally advanced or metastatic urothelial carcinoma in the U.S. market. Pfizer and Astellas also share certain development and other collaboration expenses and Pfizer receives tiered royalties as a percentage of international Xtandi net sales (recorded in Other (income)/deductions—net).
|
See the “Analysis of theNotes to Condensed Consolidated Statements of Income—Revenues—Selected Product Descriptions” section of our 2016Financial ReportStatements––Note 13C.Segment, Geographic and Other Revenue Information: Other Revenue Information for additional information regarding the primary indications or class of the selected products discussed above.
See Notes to Condensed Consolidated Financial Statements—Note 12.CommitmentsContingencies and ContingenciesCertain Commitments for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above.
Product Developments—Biopharmaceutical
We continue to invest in R&D to provide potential future sources of revenues through the development of new products, as well as through additional uses for in-line and alliance products. Notwithstanding our efforts, there are no assurances as to when, or if, we will receive regulatory approval for additional indications for existing products or any of our other products in development.
We continue to strengthen our global R&D organization and pursue strategies intended to improve innovation and overall productivity in R&D to achieve a sustainable pipeline that will deliver value in the near term and over time. Our R&D priorities include:
delivering a pipeline of differentiated therapies with the greatest scientific and commercial promise;
innovating new capabilities that can position Pfizer for long-term leadership; and
creating new models for biomedical collaboration that will expedite the pace of innovation and productivity.
Our R&D primarily focuses on:
Biosimilars;
Inflammation and Immunology;
Metabolic Disease and Cardiovascular Risks;
Neuroscience;
Oncology
Rare Diseases; and
Vaccines.
For additional information about our R&D organization, including the EH R&D organization, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook—Our Strategy—Organizing for Growth” and “—Description of Research and Development Operations” sectionsections of this MD&A.
A comprehensive update of Pfizer’s development pipeline was published on as of October 31, 201730, 2018 and is available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of our research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.
The following series of tables provides information about significant regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan, as well as additional indications and new drug candidates in late-stage development.
|
| | |
| RECENT FDA APPROVALS |
| PRODUCT | INDICATION | DATE APPROVED |
Lyrica (pregabalin) | Extended-release tablets CV as once-daily therapy for the management of neuropathic pain associated with diabetic peripheral neuropathy and the management of post-herpetic neuralgia | October 2017
|
Mylotarg (gemtuzumab ozogamicin)Lorbrena (lorlatinib) | Treatment of adultspatients with newly diagnosed CD33-positive acute myeloid leukemia (AML),ALK-positive metastatic NSCLC whose disease has progressed on crizotinib and adults and children 2 years and older with relapsedat least one other ALK inhibitor for metastatic disease; or refractory CD33-positive AMLwhose disease has progressed on alectinib or ceritinib as the first ALK inhibitor therapy for metastatic disease | September 2017November 2018 |
Besponsa (inotuzumab ozogamicin)Talzenna (talazoparib) | Treatment of adultsadult patients with relapseddeleterious or refractory B-cell precursor acute lymphoblastic leukemia | August 2017 |
Bavencio (avelumab) | Treatment for patients withsuspected deleterious germline BRCA-mutated (gBRCAm) human epidermal growth factor receptor 2 (HER2)-negative locally advanced or metastatic urothelial carcinomabreast cancer | October 2018 |
| Vizimpro (dacomitinib) | First-line treatment of patients with disease progression onmetastatic non-small cell lung cancer with epidermal growth factor receptor exon 19 deletion or after platinum-based therapy,exon 21 L858R substitution mutations as detected by an FDA-approved test, which is being developed in collaboration with Merck KGaA, GermanySFJ | May 2017September 2018 |
Bavencio (avelumab)Nivestym (filgrastim-aafi)(a) | A biosimilar to Neupogen® (filgrastim) for all eligible indications of the reference product | July 2018 |
| Xtandi (enzalutamide) | Treatment of men with non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas | July 2018 |
| Xeljanz (tofacitinib) | Treatment of adult patients with moderately to severely active ulcerative colitis | May 2018 |
Retacrit (epoetin alfa-epbx)(b) | A biosimilar to Epogen® and Procrit® (epoetin alfa) for all indications of the reference product | May 2018 |
| Steglatro (ertugliflozin) | An adjunct to diet and exercise to improve glycemic control in adults and pediatric patients 12 years and older with metastatic Merkel cell carcinoma,type 2 diabetes mellitus, which is being developed in collaboration with Merck KGaA, Germany | MarchDecember 2017 |
Eucrisa (crisaborole)Segluromet (ertugliflozin and metformin) | A non-steroidal topical anti-inflammatory PDE-4 inhibitorAn adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus who are not adequately controlled on a regimen containing ertugliflozin or metformin, or in patients who are already treated with both ertugliflozin and metformin, which is being developed in collaboration with Merck | December 2017 |
| Steglujan (ertugliflozin and sitagliptin) | An adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus when treatment with both ertugliflozin and sitagliptin is appropriate, which is being developed in collaboration with Merck | December 2017 |
| Bosulif (bosutinib) | Treatment of adult patients with newly-diagnosed chronic phase Philadelphia chromosome-positive Ph+ CML, which is being developed in collaboration with Avillion | December 2017 |
| Xeljanz (tofacitinib) and Xeljanz XR | Xeljanz 5 mg twice daily and Xeljanz XR extended release 11 mg once daily for the treatment of mild-to-moderate atopic dermatitisadult patients with active psoriatic arthritis who have had an inadequate response or intolerance to methotrexate or other disease-modifying antirheumatic drugs | December 20162017 |
| Sutent (sunitinib) | Adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma following nephrectomy (surgical removal of the cancerous kidney) | November 2017 |
| |
(a) | Neupogen® is a registered trademark of Amgen Inc. |
| |
(b) | Epogen® is a registered U.S. trademark of Amgen Inc.; Procrit® is a registered U.S. trademark of J&J. |
|
| | |
| PENDING U.S. NDAs AND SUPPLEMENTAL FILINGS |
| PRODUCT | PROPOSED INDICATION | DATE FILED* FILED* |
PF-05280014PF-05280586(a)
| A potential biosimilar to HerceptinRituxan® (rituximab) | September 2018 |
PF-06439535®(b)(trastuzumab) | A potential biosimilar to Avastin® (bevacizumab) | August 20172018 |
Bosulif (bosutinib) | Treatment of patients with newly diagnosed chronic phase Philadelphia chromosome-positive chronic myeloid leukemia, which is being developed in collaboration with Avillion | August 2017 |
Xeljanz (tofacitinib)glasdegib | Treatment of adult patients with moderately to severely active ulcerative colitispreviously untreated acute myeloid leukemia in combination with low-dose cytarabine, a type of chemotherapy | July 2017June 2018 |
Sutent (sunitinib)PF-05280014(b)(c)
| Adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma following nephrectomy | May 2017 |
Xeljanz (tofacitinib)(c)
| Treatment of adult patients with active psoriatic arthritis | May 2017 |
PF-06438179(d)
| A potential biosimilar to Remicade® (infliximab) Herceptin® (trastuzumab) | AprilAugust 2017 |
ertugliflozin | Treatment of type 2 diabetes, which is being developed in collaboration with Merck | March 2017 |
Retacrit(e)
| A potential biosimilar to Epogen® and Procrit® (epotein alfa)
| February 2015 |
tafamidis meglumine(f)(d) | Treatment of transthyretin familial amyloid polyneuropathy | February 2012 |
| |
| * | The dates set forth in this column are the dates on which the FDA accepted our submissions. |
| |
(a) | HerceptinRituxan® is a registered trademark of Biogen MA Inc.
|
| |
(b) | Avastin® is a registered trademark of Genentech, Inc. |
| |
(b)
| In September 2017, the FDA’s Oncologic Drug Advisory Committee (ODAC) voted six in favor and six against the benefit-risk profile for Sutent as adjuvant treatment of adult patients at high risk of recurrent renal cell carcinoma after nephrectomy (surgical removal of the cancer-containing kidney). |
| |
(c) | In August 2017, the FDA’s Arthritis Advisory Committee voted ten to one to recommend approval of the proposed dose of tofacitinib for the treatment of adult patients with active psoriatic arthritis. |
| |
(d)
| RemicadeHerceptin® is a registered trademark of Janssen.Genentech, Inc. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade® (infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization rights to PF-06438179 in all countries outside of the EEA.
|
| |
(e)
| Epogen® is a registered U.S. trademark of Amgen Inc.; Procrit® is a registered U.S. trademark of Johnson & Johnson. In October 2015,April 2018, we received a “complete response” letter from the FDA with respect to our biologics license application (BLA) for Retacrit,PF-05280014, our proposed biosimilar to epoetin alfa,trastuzumab, which was submitted for all indications of the reference product. The FDA highlighted the need for additional technical information, which does not relate to safety or clinical data submitted in the application. In December 2016, we completed the resubmission of the BLA toOctober 2018, the FDA acknowledged for Retacrit in response to the “complete response” letter. In May 2017, the FDA’s ODAC voted to recommend Retacrit for approval. In June 2017, we received a “complete response” letter from the FDA, relating to matters noted in a Warning Letter issued in February 2017 following a routine inspection of the company’s facility in McPherson, Kansas in 2016. This facility was listed as the potential manufacturing site in thereview our BLA for the proposed epoetin alfa biosimilar. The issues noted in the Warning Letter do not relate specifically to the manufacture of epoetin alfa. No additional clinical data was requested at this time and we continue to work closely with the FDA on next steps.resubmission.
|
| |
(f)(d)
| In May 2012, the FDA’s Peripheral and Central Nervous System Drugs Advisory Committee voted that the tafamidis meglumine data provide substantial evidence of efficacy for a surrogate endpoint that is reasonably likely to predict a clinical benefit. In June 2012, the FDA issued a “complete response” letter with respect to the tafamidis NDA. The FDA has requested the completion of a second efficacy study, and also has asked for additional information on the data within the current tafamidis NDA. Pfizer initiatedhas completed study B3461028, in December 2013, a global Phase 3 study to support a potential new indication in transthyretin cardiomyopathy, which includes transthyretin familial amyloid cardiomyopathy (TTR-FAC)patients with wild type and wild-type cardiomyopathy (WT-CM). We anticipate results from thisvariant transthyretin. This study in 2018,has achieved its primary endpoint, and continue to workwe are working with the FDA to identify next steps. |
|
| | | |
| REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN |
| PRODUCT | DESCRIPTION OF EVENT | DATE APPROVED | DATE FILED* FILED* |
Xeljanz (tofacitinib)Vyndaqel (tafamidis meglumine) | Application filed in Japan for treatment of transthyretin amyloid cardiomyopathy (ATTR-CM) | — | November 2018 |
| Xtandi (enzalutamide) | Application approved in the EU for treatment of adult men with high-risk non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas | October 2018 | — |
Trastuzumab BS for I.V. Infusion 60mg/150mg “Pfizer”(a) | Application approved in Japan for a biosimilar to Herceptin® (trastuzumab)
| September 2018 | — |
| Lorbrena (lorlatinib) | Application approved in Japan for the treatment of patients with ALK-positive metastatic non-small cell lung cancer, previously treated with one or more ALK inhibitor | September 2018 | — |
PF-05280586(b) | Application filed in the EU for treatment of psoriatic arthritisa potential biosimilar to Rituxan® (rituximab)
| — | September 2017August 2018 |
Ibrance (palbociclib)Xeljanz (tofacitinib) | Approval in Japan for Ibrance in combination with endocrine therapy for the treatment of HR+, HER2- inoperable or recurrent breast cancer | September 2017 | — |
Bavencio (avelumab) | Approval in Japan for the treatment of curatively unresectable Merkel cell carcinoma, which is being developed in collaboration with Merck KGaA, Germany | September 2017 | — |
Bavencio (avelumab) | ApprovalApplication approved in the EU for the treatment of adult patients with moderately to severely active ulcerative colitis who have had an inadequate response, lost response, or were intolerant to either conventional therapy or a biologic agent | July 2018 | — |
Trazimera(a) | Application approved in the EU for a biosimilar to Herceptin® (trastuzumab) for the treatment of human epidermal growth factor (HER2) overexpressing breast cancer and HER2 overexpressing metastatic Merkel cell carcinoma, which is being developedgastric or gastroesophageal junction adenocarcinoma | July 2018 | — |
Infliximab BS for I.V. Infusion 100mg “Pfizer”(c) | Application approved in collaboration with Merck KGaA, GermanyJapan for a biosimilar to Remicade® (infliximab) | September 2017July 2018 | — |
| Xeljanz (tofacitinib) | Application filed in the EU for the treatment of ulcerative colitis | — | August 2017 |
Bosulif (bosutinib) | Application filed in the EU for the treatment of patients with newly diagnosed chronic phase Philadelphia chromosome-positive chronic myeloid leukemia, which is being developed in collaboration with Avillion | — | August 2017 |
PF-06438179(a)
| Application filed in Japan for a potential biosimilar to Remicade® (infliximab)
| — | August 2017 |
PF-05280014(b)
| Application filed in the EU for a potential biosimilar to Herceptin® (trastuzumab)
| — | July 2017 |
Besponsa (inotuzumab ozogamicin) | Approval in the EU for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia
| June 2017 | — |
Trumenba
| Approval in the EU for a prophylactic vaccine for active immunization to prevent invasive disease caused by Neisseria meningtidis serogroup B in individuals 10 years of age and older
| May 2017 | — |
Xalkori (crizotinib) | Approval in Japan for the treatment of ROS1-positive non-small cell lung cancer | May 2017 | — |
Xeljanz (tofacitinib) | Application filed in Japan for the treatment of ulcerative colitis | — | May 2017 |
Sutent (sunitinib) | Application filed in the EU for the adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma following nephrectomy | — | April 2017 |
inotuzumab ozogamicin | Application filed in Japan for the treatment of acute lymphoblastic leukemia | — | April 2017 |
Xeljanz (tofacitinib) | Approvalapproved in the EU for Xeljanz in combination with methotrexate for the treatment of moderate to severe active rheumatoidpsoriatic arthritis in adult patients who have responded inadequately to,had an inadequate response or who arehave been intolerant to one or morea prior disease-modifying antirheumatic drugs. Xeljanz can be given as monotherapy in case of intolerance to methotrexate or when treatment with methotrexate is inappropriatedrug therapy | March 2017June 2018 | — |
ertugliflozintalazoparib | Application filed in the EU for the treatment of type 2 diabetes,patients with germline BRCA-mutated advanced breast cancer | — | June 2018 |
| Xeljanz (tofacitinib) | Application approved in Japan for the treatment of ulcerative colitis | May 2018 | — |
| dacomitinib | Application filed in Japan for the treatment of patients with locally advanced or metastatic non-small cell lung cancer with epidermal growth factor receptor (EGFR) mutations, which is being developed in collaboration with MerckSFJ | — | February 2017May 2018 |
Mylotarg (gemtuzumab ozogamicin)crisaborole | Application filed in the EU for the treatment of mild-to-moderate atopic dermatitis | — | May 2018 |
| Mylotarg (gemtuzumab ozogamicin) | Application approved in the EU for treatment of patients age 15 years and above with previously untreated, de novo, CD33-positive acute myeloid leukemia, except acute promyelocytic leukemia | April 2018
| — |
| Bosulif (bosutinib) | Application approved in the EU for the treatment of adults with newly diagnosed chronic phase Philadelphia chromosome-positive chronic myelogenous leukemia (Ph+ CML), which is being developed in collaboration with Avillion | April 2018 | — |
| dacomitinib | Application filed in the EU for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer with EGFR activating mutations, which is being developed in collaboration with SFJ | — | December 2016March 2018 |
Ibrance (palbociclib)Steglatro (ertugliflozin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: • as monotherapy in patients for palbociclib whom the use of metformin is considered inappropriate due to intolerance or contraindications; andendocrine therapyaddition to other medicinal products for the treatment of HR+, HER2- advanced ordiabetes, which is being developed in collaboration with Merck
| March 2018 | — |
| Segluromet (ertugliflozin and metformin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: metastatic breast cancer, as well as• in patients not adequately controlled on their maximally tolerated dose of metformin alone;• in patients on their maximally tolerated doses of metformin in addition to other medicinal products for the treatment of recurrentdiabetes; andadvanced breast cancer• in patients already being treated with the combination of ertugliflozin and metformin as separate tablets, which is being developed in collaboration with Merck | November 2016March 2018 | — |
| Steglujan (ertugliflozin and sitagliptin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: • when metformin and/or a sulphonylurea (SU) and one of the monocomponents of Steglujan do not provide adequate glycaemic control; and• in patients already being treated with the combination of ertugliflozin and sitagliptin as separate tablets, which is being developed in collaboration with Merck | March 2018 | — |
PF-06439535(d) | Application filed in the EU for a potential biosimilar to Avastin® (bevacizumab) | — | March 2018 |
| Xeljanz (tofacitinib) | Application filed in the EU for modified release 11mg tablet for rheumatoid arthritis | — | March 2018 |
| lorlatinib (PF-06463922) | Application filed in the EU for the treatment of patients with ALK-positive metastatic non-small cell lung cancer, previously treated with one or more ALK inhibitors | — | February 2018 |
| Besponsa (inotuzumab ozogamicin) | Approval in Japan for the treatment of relapsed or refractory CD 22- positive acute lymphoblastic leukemia | January 2018 | — |
| |
| * | For applications in the EU, the dates set forth in this column are the dates on which the EMA validated our submissions. |
| |
(a) | RemicadeHerceptin® is a registered trademark of Genentech, Inc.
|
| |
(b) | Rituxan® is a registered trademark of Biogen MA Inc. |
| |
(c) | Remicade® is a registered Japan trademark of Janssen. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade® (infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization rights to PF-06438179 in all countries outside of the EEA. |
| |
(b)(d)
| Herceptin®Avastin® is a registered trademark of Genentech, Inc.
|
|
| |
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS
FOR IN-LINE AND IN-REGISTRATION PRODUCTS
|
| PRODUCT | PROPOSED INDICATION |
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1, in combination with Inlyta (axitinib), a tyrosine kinase inhibitor,
for the first-line treatment of advanced renal cell carcinoma, which is being developed in collaboration with
Merck KGaA, Germany
|
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1, in combination with talazoparib in patients with previously untreated advanced ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany |
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for the first-line treatment of stage IIIb/IV non-small cell lung
cancer, which is being developed in collaboration with Merck KGaA, Germany
|
Bavencio (avelumab)(a) | A monoclonal antibody that inhibits PD-L1 for treatment of stage IIIb/IV non-small cell lung cancer that has progressed after a platinum-containing doublet, which is being developed in collaboration with Merck KGaA, Germany |
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for treatment of platinum-resistant/refractory ovarian cancer,
which is being developed in collaboration with Merck KGaA, Germany
|
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for the first-line treatment of ovarian cancer, which is being
developed in collaboration with Merck KGaA, Germany
|
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for maintenance treatment, in the first-line setting, for patients
with urothelial cancer, which is being developed in collaboration with Merck KGaA, Germany
|
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for maintenance treatment of advanced or metastatic gastric/
gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany
|
| Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for the third-line treatment of advanced or metastatic gastric/
gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany
|
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for treatment of locally advanced squamous cell carcinoma of the
head and neck, which is being developed in collaboration with Merck KGaA, Germany
|
Inlyta (axitinib) | Adjuvant treatment of renal cell carcinoma, which is being developed in collaboration with SFJ |
| Ibrance (palbociclib) | Treatment of HER2+ advanced breast cancer, in collaboration with the Alliance Foundation Trials, LLC |
| Ibrance (palbociclib) | Treatment of high-risk early breast cancer, in collaboration with the German Breast Group |
| Ibrance (palbociclib) | Treatment of HR+ early breast cancer, in collaboration with the Alliance Foundation Trials, LLC, and the Austrian Breast Colorectal Cancer Study Group |
Xtandi (enzalutamide)Xeljanz (tofacitinib) | Treatment of non-metastatic castration resistant prostate cancerankylosing spondylitis |
| Xtandi (enzalutamide) | Treatment of non-metastatic high risk hormone-sensitive prostate cancer, which is being developed through a collaboration with Astellas |
| Xtandi (enzalutamide) | Treatment of metastatic hormone-sensitive prostate cancer, which is being developed through a collaboration with Astellas |
| Vyndaqel (tafamidis meglumine) | Adult symptomatic transthyretin cardiomyopathy (ex-Japan) |
| |
(a) | In February 2018, we and our partner Merck KGaA, Darmstadt, Germany, announced that the Bavencio Phase 3 trial in second-line NSCLC did not meet its pre-specified primary endpoint. We are continuing to further evaluate the detailed results. |
|
| |
| NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT |
| CANDIDATE | PROPOSED INDICATION |
dacomitinibglasdegib (PF-0444913) | A pan-human epidermal growth factor receptor (HER) tyrosine kinasesmoothened inhibitor for the first-line treatment of patients with advanced non-small cell lung cancer with estimated glomerular filtration rate (eGFR) activating mutations, which is being developed in collaboration with SFJacute myeloid leukemia |
| lorlatinib (PF-06463922) | A next generation ALK/ROS1 tyrosine kinase inhibitor for the first-line treatment of patients with ALK-positive metastaticadvanced non-small cell lung cancer previously treated with one or more ALK inhibitors |
| fidanacogene elaparvovec (PF-06838435) | An investigational gene therapy for the treatment of hemophilia B |
| PF-04965842 | A Janus kinase 1 (JAK1) inhibitor for the treatment of moderate-to-severe atopic dermatitis |
| PF-06425090 | A prophylactic vaccine for active immunization to prevent clostridium difficile colitis |
PF-05280586PF-06410293(a)
| A potential biosimilar to Rituxan® (rituximab) |
PF-06439535(b)
| A potential biosimilar to Avastin® (bevacizumab)
|
PF-06410293(c)
| A potential biosimilar to Humira®Humira® (adalimumab)
|
| rivipansel (GMI-1070) | A pan-selectin inhibitor for the treatment of vaso-occlusive crisis in hospitalized individuals with sickle cell disease, which was licensed from GlycoMimetics Inc. |
| somatrogon (PF-06836922) | A long-acting hGH-CTP for the treatment of growth hormone deficiency in children, which is being developed in collaboration with OPKO |
| somatrogon (PF-06836922) | A long-acting hGH-CTP for the treatment of growth hormone deficiency in adults, which is being developed in collaboration with OPKO |
| talazoparib (MDV3800) | An oral PARP inhibitor for the treatment of patients with germline breast cancer susceptibility gene BRCA mutated advanced breastmetastatic castration-resistant prostate cancer |
| tanezumab | An anti-nerve growth factor monoclonal antibody for the treatment of pain, which is being developed in collaboration with Lilly |
| |
(a) | RituxanHumira® is a registered trademark of Biogen MA Inc.
|
| |
(b)
| Avastin® is a registered trademark of Genentech, Inc.
|
| |
(c)
| Humira® is a registered trademark of AbbVie Biotechnology Ltd.
|
Additional product-related programs are in various stages of discovery and development. Also, see the discussion in the “Our Strategy––Our Business Development Initiatives” section of this MD&A.
COSTS AND EXPENSES
The changes in expenses below reflect, among other things, the favorable impact of the February 2017 sale of HIS. The operating results of HIS are included in our operating results through February 2, 2017 and, therefore, operating results for the third quarter of 2017 do not reflect any contribution from HIS global operations, while operating results for the third quarter of 2016 reflect three months of HIS global operations. Operating results for the first nine months of 2017 include reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations, whileoperations. Our operating results for the first nine months of 20162018 do not reflect nine months ofany HIS global operations.
Cost of Sales
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | % Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | % Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | % Change |
| Cost of sales | | $ | 2,847 |
| | $ | 3,085 |
| | (8 | ) | | $ | 7,980 |
| | $ | 9,111 |
| | (12 | ) | | $ | 2,694 |
| | $ | 2,844 |
| | (5 | ) | | $ | 8,173 |
| | $ | 7,972 |
| | 3 |
As a percentage of Revenues | | 21.6 | % | | 23.6 | % | | | | 20.5 | % | | 23.2 | % | | | | 20.3 | % | | 21.6 | % | | | | 20.6 | % | | 20.5 | % | |
Cost of sales decreased 8%5% in the third quarter of 2017, and 12% in the first nine months of 20172018, compared to the same periodsperiod in 20162017, primarily due to:
| |
• | the favorable impact of the sale of HIS global operations (which carried a higher cost of sales than other products) of $152 million in the third quarter of 2017, and $433 million in the first nine months of 2017; |
| |
• | the favorable impact of foreign exchange of $223 million and the favorable offset of hedging gains of $66 million, both in the first nine months of 2017;
|
| |
• | the nonrecurring unfavorable impact of $4 million in the third quarter of 2016 and $216 million in the first nine months of 2016 of acquired Hospira inventory, which is measured at fair value on the acquisition date and was amortized over the turn of the related inventory;
|
recognition of synergies related to our cost-reduction/productivity initiatives;foreign exchange of $212 million and the favorable impact of hedging activity on intercompany inventory of $18 million;
a favorable change in product mix, including an operational decline inlower volumes driven by the SIP portfolio, andprimarily due to legacy Hospira product shortages in the favorability attributed to products that have lost exclusivity,U.S., as well as generic competition in developed markets; and
partially offset by:
$55the non-recurrence of $55 million in inventory losses, overhead costs, and incremental costs related to the period in 2017 during which our Puerto Rico plants were not operational due to hurricanes,
partially offset by:
increased sales volumes for various key products within our product portfolio;
higher costs across the SIP portfolio, as a result of the complexity of high quality product manufacture across the legacy Hospira plants; and
an increase in royalty expenses based on the mix of products sold.
Cost of sales increased3% in the first nine months of 2018, compared to the same period in 2017, primarily due to:
the unfavorable impact of foreign exchange of $157 million and the unfavorable impact of hedging activity on intercompany inventory of $114 million;
increased sales volumes for various key products within our product portfolio; and
an increase in royalty expenses based on the mix of products sold,
partially offset by:
lower volumes driven by the SIP portfolio, primarily due to legacy Hospira product shortages in the U.S., as well as generic competition in developed markets;
the non-recurrence of $55 million in inventory losses, overhead costs, and incremental costs related to date, allthe period in 2017 during which our Puerto Rico plants were not operational due to hurricanes; and
the non-recurrence of which resulted from the recent hurricanescharges related to a product recall that occurred in Puerto Rico.2017.
The decrease in Cost of sales as a percentage of revenues in the third quarter of 20172018 and the slight increase in Cost of sales as a percentage of revenues for the first nine months of 20172018, compared to the same periods in 20162017, was primarily due to all of the factors discussed above, as well as an increase in alliance revenues, which have no associated cost of sales.
Selling, Informational and Administrative (SI&A) Expenses | | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| Selling, informational and administrative expenses | | $ | 3,500 |
| | $ | 3,559 |
| | (2 | ) | | $ | 10,233 |
| | $ | 10,414 |
| | (2 | ) | | $ | 3,494 |
| | $ | 3,504 |
| | — |
| | $ | 10,448 |
| | $ | 10,249 |
| | 2 |
As a percentage of Revenues | | 26.6 | % | | 27.3 | % | | | | 26.3 | % | | 26.6 | % | | | | 26.3 | % | | 26.6 | % | | | | 26.3 | % | | 26.4 | % | |
SI&A expenses decreased 2%remained relatively flat in the third quarter of 20172018, compared to the same period in 20162017, primarily due to:
| |
• | lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and lower expenses associated with products that recently lost marketing exclusivity; |
the favorable impactbenefits of cost-reduction and productivity initiatives;
lower general and administrative expenses;
lower healthcare reform expenses as a result of a true up of the sale of HIS global operations of $39 million;prior year amount; and
lower spending for certain products, primarily Prevnar 13/Prevenar 13; and
the favorable impact of foreign exchange of $11$24 million,
partiallylargely offset by:
additional investment across several of our key products, primarily Xeljanz, Eucrisa, IbranceEliquis and Xtandi;Prevnar 13/Prevenar 13 (pediatric indication); and
increased spending for biosimilars, primarily related to the U.S. launch of Inflectra.additional investments in China.
SI&A expenses decreasedincreased 2% in the first nine months of 2017, 2018, compared to the same period in 20162017, primarily due to:
| |
• | the non-recurrence of an allowance for doubtful trade accounts receivable of approximately $265 million, resulting from unfavorable developments with a distributor that was recorded in the first quarter of 2016;
|
| |
• | lower advertising, promotional and field force expenses associated with products that recently lost marketing exclusivity and certain other expenses related to disputes in the ordinary course of business;
|
lower spending for certain products, primarily Prevnar 13/Prevenar 13;
the favorable impact of the sale of HIS global operations of $95 million; and
the favorable impact of foreign exchange of $78 million,
partially offset by:
additional investment across several of our key products, primarily Xeljanz, Eucrisa, Ibrance, XtandiPrevnar 13/Prevenar 13 (pediatric indication) and Xeljanz;Eliquis;
increased spending for biosimilars, primarily relatedthe unfavorable impact of foreign exchange of $152 million;
a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, of $119 million, in the U.S. launchaggregate, in the first quarter of Inflectra;2018; and
an increaseadditional investments in charitable contributions.China,
partially offset by:
lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives;
lower general and administrative expenses;
lower healthcare reform expenses as a result of a true up of the prior year amount; and
decreased investment in Enbrel due to loss of exclusivity across developed Europe.
Research and Development (R&D) Expenses
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | %
Change | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| Research and development expenses | | $ | 1,859 |
| | $ | 1,881 |
| | (1 | ) | | $ | 5,346 |
| | $ | 5,360 |
| | — |
| | $ | 2,008 |
| | $ | 1,865 |
| | 8 | | $ | 5,549 |
| | $ | 5,367 |
| | 3 |
As a percentage of Revenues | | 14.1 | % | | 14.4 | % | | | | 13.8 | % | | 13.7 | % | |
|
| | 15.1 | % | | 14.2 | % | | 14.0 | % | | 13.8 | % | |
|
R&D expenses decreased 1%increased 8% in the third quarter of 2017and were relatively flat in3% the first nine months of 20172018, compared to the same periods in 20162017, primarily due to:
lower expenses due to the discontinuation of the global clinical development program for bococizumab in the fourth quarter of 2016;
the close-out of certain post-marketing clinical trials; and
the favorable impact of the sale of HIS global operations,
partially offset by:increased costs associated with:
| |
•– | increasedour Oncology portfolio, including costs associated with Bavencio studies;
|
| |
| – | our oncology programs, primarilyPhase 3 clinical trial spend on Medivation assets,related to our JAK1 inhibitor (which was initiated in December 2017), as well as, in the third quarterfirst nine months of 20172018, increased costs associated with our immuno-oncology development programs; |
lower development funding credits primarily related to the discontinuation of the global clinical development program for bococizumab in the fourth quarter of 2016;
an expense of $75 million resulting from our May 2017 agreement with Sangamo to develop and commercialize gene therapy programs for Hemophilia A;
| |
• | increased costs associated with our C. difficile vaccine program, which initiated a Phase 3 clinical studytrial related to the C. difficile vaccine program (which was initiated in March 2017; and2017);
|
an increase in the value of the portfolio performance share grants reflecting changes in the price of Pfizer’s common stock, as well as management’s assessment of the probability that the specified performance criteria will be achieved;
•the timing of milestone activity; and
•increased spend on our rare disease portfolio,
partially offset by:
decreased spending for biosimilars as several programs have reached completion;
lower costs associated withdue to the completion of certain tanezumab studies;
the phase out of the Lyrica clinical studies; and
the impact of our tanezumabdecision to end internal neuroscience discovery and early development program.efforts.
For additional information on Cost of sales, SI&A and R&D expenses by operating segment, see the “Analysis of Operating Segment Information” section of this MD&A.
Amortization of Intangible Assets
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| Amortization of intangible assets | | $ | 1,177 |
| | $ | 968 |
| | 22 | | $ | 3,571 |
| | $ | 2,934 |
| | 22 | | $ | 1,253 |
| | $ | 1,177 |
| | 6 | | $ | 3,640 |
| | $ | 3,571 |
| | 2 |
As a percentage of Revenues | | 8.9 | % | | 7.4 | % | | 9.2 | % | | 7.5 | % | | | 9.4 | % | | 8.9 | % | | 9.2 | % | | 9.2 | % | |
Amortization of intangible assets increased 22% in the third quarter of 2017 and 22% in the first nine months of 2017, compared to the same periods in 2016, primarily due to the inclusion of amortization expense of approximately $221 million (pre-tax) in the third quarter of 2017 and approximately $751 million (pre-tax) in the first nine months of 2017 related to the identifiable intangible assets acquired from Medivation and Anacor, partially offset by assets that became fully amortized at the end of their estimated useful lives.
See also Notes to Condensed Consolidated Financial Statements—Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
|
| Restructuring charges | | $ | 91 |
| | $ | 404 |
| | (77 | ) | | $ | 150 |
| | $ | 574 |
| | (74 | ) |
| Transaction costs | | (14 | ) | | 54 |
| | * |
| | 4 |
| | 114 |
| | (97 | ) |
| Integration costs | | 73 |
| | 74 |
| | (1 | ) | | 224 |
| | 300 |
| | (26 | ) |
| Restructuring charges and certain acquisition-related costs | | 149 |
| | 531 |
| | (72 | ) | | 377 |
| | 988 |
| | (62 | ) |
| Total additional depreciation—asset restructuring | | 39 |
| | 47 |
| | (17 | ) | | 74 |
| | 151 |
| | (51 | ) |
| Total implementation costs | | 57 |
| | 78 |
| | (27 | ) | | 150 |
| | 202 |
| | (26 | ) |
Costs associated with acquisitions and cost-reduction/productivity initiatives(a) | | $ | 245 |
| | $ | 655 |
| | (63 | ) | | $ | 601 |
| | $ | 1,341 |
| | (55 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | Sep 30,
2018 |
| | Oct 1,
2017 |
| | %
Change |
| | Sep 30,
2018 |
| | Oct 1,
2017 |
| | %
Change |
|
Restructuring charges—acquisition-related costs(a) | | $ | 24 |
| | $ | 70 |
| | (66 | ) | | $ | 5 |
| | $ | 80 |
| | (94 | ) |
Restructuring credits—cost reduction initiatives(b) | | (22 | ) | | (15 | ) | | 54 |
| | (37 | ) | | (52 | ) | | (29 | ) |
| Restructuring charges/(credits) | | 1 |
| | 56 |
| | (98 | ) | | (32 | ) | | 28 |
| | * |
|
Transaction costs(c) | | 1 |
| | (14 | ) | | * |
| | 1 |
| | 4 |
| | (59 | ) |
Integration costs(c) | | 82 |
| | 73 |
| | 13 |
| | 202 |
| | 235 |
| | (14 | ) |
| Restructuring charges and certain acquisition-related costs | | 85 |
| | 114 |
| | (26 | ) | | 172 |
| | 267 |
| | (36 | ) |
Net periodic benefit costs(d) | | 41 |
| | 35 |
| | 16 |
| | 103 |
| | 110 |
| | (7 | ) |
| Additional depreciation—asset restructuring | | 12 |
| | 39 |
| | (69 | ) | | 43 |
| | 74 |
| | (42 | ) |
| Total implementation costs | | 48 |
| | 57 |
| | (16 | ) | | 130 |
| | 150 |
| | (13 | ) |
Costs associated with acquisitions and cost-reduction/productivity initiatives(e) | | $ | 186 |
| | $ | 245 |
| | (24 | ) | | $ | 447 |
| | $ | 601 |
| | (26 | ) |
| * Calculation not meaningful or results are equal to or greater than 100%. |
| |
(a) | Comprises Restructuring charges and certain charges––acquisition-related costs as well as include employee termination costs, asset impairments and other exit costs associated with business combinations. Charges for the third quarter of 2018 were primarily due to accruals for exit costs and asset write downs related to our cost-reduction/productivityacquisition of Hospira, and charges for the first nine months of 2018 were primarily due to asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira. Restructuring charges for the third quarter and first nine months of 2017 were mainly related to our acquisitions of Hospira and Medivation.
|
| |
(b) | Restructuring credits––cost reduction initiatives included in Costrelate to employee termination costs, asset impairments and other exit costs not associated with acquisitions. For the third quarter and first nine months of sales, Research2018 and development expenses and/or Selling, informational and administrative expenses, as appropriate. 2017, the credits are mostly related to the reversal of previously recorded accruals for employee termination costs. |
| |
(c) | For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
| |
(d) | For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards and Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
| |
(e) | Comprises Restructuring charges and certain acquisition-related costs as well as costs associated with our cost-reduction/productivity initiatives included in Cost of sales, Research and development expenses,Selling, informational and administrative expenses and/or Other (income)/deductions––net as appropriate. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
In connection with our acquisition of Hospira in September 2015, we are focusingfocused our efforts on achieving an appropriate cost structure for the combined company. We expect to achieveachieved our $1 billion of annual cost savings by 2018 in connection with the Hospira acquisition, 25% more than our initial cost savings target of $800 million, and have achieved approximately $700 million of cost savings through October 1, 2017.million. The one-time costs to generate the savings are expected to be approximately $1 billion (not including costs of $215 million for full-year 2015 associated with the return of acquired IPR&D rights), and the majority of these costs were incurred for up to awithin the three-year period post-acquisition.
In 2016, we substantially completed previously disclosed cost-reduction initiatives begun in 2014 associated with our global commercial structure reorganization, manufacturing plant network rationalization and optimization initiatives, and additional cost-reduction/productivity initiatives across the enterprise. Through December 31, 2016, we incurred $3.1 billion (pre-tax) in total costs for the 2014-2016 program. The cumulative ongoing annual cost savings associated with the 2014-2016 program (but not including expected cost savings associated with the Hospira acquisition), are approximately $3.1 billion. These savings were recognized, for the most part, through the end of 2016. However, savings from costs incurred in the last half of 2016 are expected to largely occur in 2017 and are reflected in our 2017 financial guidance.
New Cost-Reduction/Productivity Initiatives—2017 through 2019 Activities
As a result of the evaluation performed in connection with our decision in September 2016 to not pursue, at that time, splitting IH and EH into two separate publicly-traded companies, we have identified new opportunities to potentially achieve greater optimization and efficiency to become more competitive in our business. Therefore, in early 2017, we have initiated new enterprise-wide cost-reduction/productivity initiatives, which we expect to substantially complete by the end of 2019. These initiatives will encompass all areas of our cost base and will include further centralization of our corporate and platform functions and optimization of our manufacturing plant network to support IH and EH products and pipelines, as well as activities in other areas where opportunities are identified. The action plans related to these new initiatives are underway and, in order to achieve targeted savings of approximately $1.3$1.4 billion by 2020, we expect to incur total costs of approximately $1.0$1.2 billion over the next three years.three-year period, 2017-2019. Of this amount, we expect about 80%60% to be manufacturing operations related and we expect about 20% of the total charges will be non-cash. For additional information about these programs and expected and actual total costs, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
The expected cost savings in 20172018 associated with these activities are reflected in our 20172018 financial guidance.
In addition to these major initiatives, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of the losses of exclusivity and the expiration of collaborative arrangements for various products.
Other (Income)/Deductions—Net |
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
| Other (income)/deductions––net | | $ | 51 |
| | $ | 1,417 |
| | (96 | )% | | $ | (16 | ) | | $ | 2,815 |
| | * |
| |
* | Calculation not meaningful. |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| Other (income)/deductions––net | | $ | (414 | ) | | $ | 79 |
| | * | | $ | (1,143 | ) | | $ | 65 |
| | * |
| * Calculation not meaningful or results are equal to or greater than 100%. |
For information about the components of Other (income)/deductions—net, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net.
See also the “Analysis of Operating Segment Information” section of this MD&A.
PROVISION FOR TAXES ON INCOME
| | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | | |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change | | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| | September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
|
| Provision for taxes on income | | $ | 727 |
| | $ | 249 |
| | * | | $ | 2,287 |
| | $ | 1,109 |
| | * | | $ | 66 |
| | $ | 727 |
| | (91 | ) | | $ | 1,270 |
| | $ | 2,287 |
| | (44 | ) |
| Effective tax rate on continuing operations | | 20.3 | % | | 15.5 | % | | 20.1 | % | | 14.6 | % | | | | 1.6 | % | | 20.3 | % | | | | 9.9 | % | | 20.1 | % | | |
|
| |
* | Calculation not meaningful. |
For information about our effective tax rate and the events and circumstances contributing to the changes between periods, see Notes to Condensed Consolidated Financial Statements—Note 5. Tax Matters.
NON-GAAP FINANCIAL MEASURE (ADJUSTED INCOME)
General Description of Non-GAAP Financial Measure (Adjusted Income)
Adjusted income is an alternative view of performance used by management. We measure the performance of the overall Company on this basis in conjunction with other performance metrics. Because Adjusted income is an important internal measurement for Pfizer, we believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. We report Adjusted income, certain components of Adjusted income, and Adjusted diluted earnings per share in order to portray the results of our major operations––the discovery, development, manufacture, marketing and sale of prescription medicines, vaccines and consumer healthcare (OTC) products––prior to considering certain income statement elements. We have defined Adjusted income as Net income attributable to Pfizer Inc. before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items, which are described below. Also, see the “Non-GAAP Financial Measure (Adjusted Income)––General Description of Non-GAAP Financial Measure (Adjusted Income)” section of our 20162017 Financial Report for additional information. Similarly, we have defined the Adjusted income components as Cost of sales, Selling, informational and administrative expenses, Research and development expenses, Amortization of intangible assets and Other (income)/deductions––net, each before the impact of purchase accounting for acquisitions, acquisition-related costs and certain significant items. We have defined Adjusted diluted earnings per share as Earnings per common share attributable to Pfizer Inc.––dilutedbefore the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items. The Adjusted income measure, the Adjusted income component measures and the Adjusted diluted earnings per share measure are not, and should not be viewed as, substitutes for U.S. GAAP net income, U.S. GAAP net income components or U.S. GAAP diluted earnings per share.
The following are examples of how the Adjusted income and Adjusted diluted earnings per share measures are utilized:
senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income and Adjusted diluted earnings per share basis;
our annual budgets are prepared on an Adjusted income and Adjusted diluted earnings per share basis; and
| |
• | senior management’s annual compensation is derived, in part, using Adjusted income and Adjusted diluted earnings per share measures. See the “Non-GAAP Financial Measure (Adjusted Income)––General Description of Non-GAAP Financial Measure (Adjusted Income)” section of our 2016 Financial Report for additional information.senior management’s annual compensation is derived, in part, using Adjusted income and Adjusted diluted earnings per share measures. See the “Non-GAAP Financial Measure (Adjusted Income)––General Description of Non-GAAP Financial Measure (Adjusted Income)” section of our 2017 Financial Report for additional information. |
Adjusted income and its components and Adjusted diluted earnings per share are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, are limited in their usefulness to investors. Because of their
non-standardized definitions, Adjusted income and its components (unlike U.S. GAAP net income and its components) and Adjusted diluted earnings per share (unlike U.S. GAAP diluted earnings per share) may not be comparable to the calculation of similar measures of other companies. Adjusted income and its components and Adjusted diluted earnings per share are presented solely to permit investors to more fully understand how management assesses performance.
We also recognize that, as internal measures of performance, the Adjusted income and its components and Adjusted diluted earnings per share measures have limitations, and we do not restrict our performance-management process solely to these metrics. A limitation of these measures is that they provide a view of our operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangibles, and do not provide a comparable view of our performance to other companies in the biopharmaceutical industry. We also use other specifically tailored tools designed to achieve the highest levels of performance. For example, our R&D organization has productivity targets, upon which its
effectiveness is measured. In addition, total shareholder return, both on an absolute basis and relative to a publicly-traded pharmaceutical index, plays a significant role in determining payouts under certain of Pfizer’s long-term incentive compensation plans.
See the accompanying reconciliations of certain GAAP reported to non-GAAP adjusted information for the third quarter and first nine months of 20172018 and 20162017 below.
Purchase Accounting Adjustments
Adjusted income is calculated prior to considering certain significant purchase accounting impacts resulting from business combinations and net asset acquisitions. These impacts, primarily associated with Wyeth (acquired in 2009), Hospira (acquired in 2015), Anacor (acquired in June 2016) and Medivation (acquired in September 2016), can include the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, amortization related to the increase in fair value of the acquired finite-lived intangible assets, and to a much lesser extent, depreciation related to the increase/decrease in fair value of the acquired fixed assets (primarily manufacturing facilities), amortization related to the increase in fair value of acquired debt, and the fair value changes associated with contingent consideration. Therefore, the Adjusted income measure includes the revenues earned upon the sale of the acquired products without considering the acquisition cost of those products.
Acquisition-Related Costs
Adjusted income is calculated prior to considering transaction, integration, restructuring and additional depreciation costs associated with business combinations because these costs are unique to each transaction and represent costs that were incurred to restructure and integrate two businesses as a result of the acquisition decision. For additional clarity, only transaction costs, additional depreciation and restructuring and integration activities that are associated with a business combination or a net-asset acquisition are included in acquisition-related costs. We have made no adjustments for the resulting synergies.
Discontinued Operations
Adjusted income is calculated prior to considering the results of operations included in discontinued operations, as well as any related gains or losses on the disposal of such operations.
Certain Significant Items
Adjusted income is calculated prior to considering certain significant items. Certain significant items represent substantive and/or unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspects of their nature. Certain significant items may be highly variable and difficult to predict. Furthermore, in some cases it is reasonably possible that they could reoccur in future periods. For example, major non-acquisition-related cost-reduction programs stand on their own as they are specific to an event or goal with a defined term, but we may have subsequent programs based on reorganizations of the business, cost productivity or in response to loss of exclusivity or economic conditions. Legal charges to resolve litigation are also related to specific cases, which are facts and circumstances specific and, in some cases, may also be the result of litigation matters at acquired companies that were inestimable, not probable or unresolved at the date of acquisition. Unusual items may represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. While not all-inclusive, examples of items that could be included as certain significant items would be a major non-acquisition-related restructuring charge and associated implementation costs; amounts related to certain disposals of businesses, products or facilities that do not qualify as discontinued operations under U.S. GAAP; certain intangible asset impairments; adjustments related to the resolution of certain tax positions; the impact of adopting certain significant, event-driven tax legislation; legislation, such as the TCJA discussed in Notes to Condensed Consolidated Financial Statements—Note 5A. Tax Matters: Taxes on Income from Continuing Operations;or charges related to certain legal matters, such as certain of those discussed in Notes to Condensed Consolidated Financial Statements—Note 12A. Commitments Contingencies
and Contingencies:Certain Commitments: Legal Proceedings, included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Normal, ongoing defense costs of the Company or settlements of and accruals for legal matters made in the normal course of our business would not be considered certain significant items.
Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items
| | | | | Three Months Ended October 1, 2017 | | Three Months Ended September 30, 2018 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 13,168 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,168 |
| | $ | 13,298 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,298 |
|
| Cost of sales | | 2,847 |
| | (28 | ) | | (26 | ) | | — |
| | (92 | ) | | 2,699 |
| | 2,694 |
| | 1 |
| | (3 | ) | | — |
| | (19 | ) | | 2,673 |
|
| Selling, informational and administrative expenses | | 3,500 |
| | — |
| | — |
| | — |
| | (22 | ) | | 3,478 |
| | 3,494 |
| | — |
| | — |
| | — |
| | (23 | ) | | 3,471 |
|
| Research and development expenses | | 1,859 |
| | 1 |
| | — |
| | — |
| | (9 | ) | | 1,851 |
| | 2,008 |
| | 1 |
| | — |
| | — |
| | (11 | ) | | 1,998 |
|
| Amortization of intangible assets | | 1,177 |
| | (1,120 | ) | | — |
| | — |
| | — |
| | 57 |
| | 1,253 |
| | (1,182 | ) | | — |
| | — |
| | — |
| | 71 |
|
| Restructuring charges and certain acquisition-related costs | | 149 |
| | — |
| | (129 | ) | | — |
| | (21 | ) | | — |
| | 85 |
| | — |
| | (107 | ) | | — |
| | 22 |
| | — |
|
| Other (income)/deductions––net | | 51 |
| | (7 | ) | | — |
| | — |
| | (305 | ) | | (261 | ) | | (414 | ) | | (130 | ) | | (2 | ) | | — |
| | 244 |
| | (302 | ) |
| Income from continuing operations before provision for taxes on income | | 3,585 |
| | 1,154 |
| | 155 |
| | — |
| | 449 |
| | 5,343 |
| | 4,177 |
| | 1,309 |
| | 112 |
| | — |
| | (213 | ) | | 5,386 |
|
Provision for taxes on income(b) | | 727 |
| | 306 |
| | 72 |
| | — |
| | 161 |
| | 1,267 |
| | 66 |
| | 263 |
| | 21 |
| | — |
| | 367 |
| | 716 |
|
| Income from continuing operations | | 2,858 |
| | 848 |
| | 83 |
| | — |
| | 288 |
| | 4,077 |
| | 4,111 |
| | 1,047 |
| | 91 |
| | — |
| | (580 | ) | | 4,669 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 18 |
| | — |
| | — |
| | — |
| | — |
| | 18 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | 8 |
|
| Net income attributable to Pfizer Inc. | | 2,840 |
| | 848 |
| | 83 |
| | — |
| | 288 |
| | 4,059 |
| | 4,114 |
| | 1,047 |
| | 91 |
| | (11 | ) | | (580 | ) | | 4,661 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 0.47 |
| | 0.14 |
| | 0.01 |
| | — |
| | 0.05 |
| | 0.67 |
| | 0.69 |
| | 0.17 |
| | 0.02 |
| | — |
| | (0.10 | ) | | 0.78 |
|
| | | | | Nine Months Ended October 1, 2017 | | Nine Months Ended September 30, 2018 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 38,843 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 38,843 |
| | $ | 39,670 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39,670 |
|
| Cost of sales | | 7,980 |
| | (45 | ) | | (38 | ) | | — |
| | (168 | ) | | 7,729 |
| | 8,173 |
| | (2 | ) | | (9 | ) | | — |
| | (77 | ) | | 8,086 |
|
| Selling, informational and administrative expenses | | 10,233 |
| | (15 | ) | | — |
| | — |
| | (67 | ) | | 10,151 |
| | 10,448 |
| | 1 |
| | — |
| | — |
| | (185 | ) | | 10,264 |
|
| Research and development expenses | | 5,346 |
| | 7 |
| | — |
| | — |
| | (26 | ) | | 5,326 |
| | 5,549 |
| | 3 |
| | — |
| | — |
| | (26 | ) | | 5,526 |
|
| Amortization of intangible assets | | 3,571 |
| | (3,438 | ) | | — |
| | — |
| | — |
| | 133 |
| | 3,640 |
| | (3,428 | ) | | — |
| | — |
| | — |
| | 212 |
|
| Restructuring charges and certain acquisition-related costs | | 377 |
| | — |
| | (309 | ) | | — |
| | (68 | ) | | — |
| | 172 |
| | — |
| | (209 | ) | | — |
| | 37 |
| | — |
|
| Other (income)/deductions––net | | (16 | ) | | (35 | ) | | — |
| | — |
| | (468 | ) | | (519 | ) | | (1,143 | ) | | (238 | ) | | (4 | ) | | — |
| | 242 |
| | (1,143 | ) |
| Income from continuing operations before provision for taxes on income | | 11,351 |
| | 3,527 |
| | 347 |
| | — |
| | 797 |
| | 16,023 |
| | 12,831 |
| | 3,665 |
| | 221 |
| | — |
| | 8 |
| | 16,725 |
|
Provision for taxes on income(b) | | 2,287 |
| | 990 |
| | 137 |
| | — |
| | 263 |
| | 3,677 |
| | 1,270 |
| | 735 |
| | 40 |
| | — |
| | 500 |
| | 2,544 |
|
| Income from continuing operations | | 9,064 |
| | 2,537 |
| | 211 |
| | — |
| | 534 |
| | 12,345 |
| | 11,562 |
| | 2,930 |
| | 182 |
| | — |
| | (492 | ) | | 14,181 |
|
| Discontinued operations––net of tax | | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | 10 |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 32 |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| | 25 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
|
| Net income attributable to Pfizer Inc. | | 9,034 |
| | 2,537 |
| | 211 |
| | (1 | ) | | 534 |
| | 12,313 |
| | 11,546 |
| | 2,930 |
| | 182 |
| | (10 | ) | | (492 | ) | | 14,156 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 1.49 |
| | 0.42 |
| | 0.03 |
| | — |
| | 0.09 |
| | 2.03 |
| | 1.92 |
| | 0.49 |
| | 0.03 |
| | — |
| | (0.08 | ) | | 2.36 |
|
See end of tables for notes (a) and (b).
| | | | | Three Months Ended October 2, 2016 | | Three Months Ended October 1, 2017 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 13,045 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,045 |
| | $ | 13,168 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,168 |
|
| Cost of sales | | 3,085 |
| | (32 | ) | | (3 | ) | | — |
| | (93 | ) | | 2,957 |
| | 2,844 |
| | (28 | ) | | (26 | ) | | — |
| | (92 | ) | | 2,696 |
|
| Selling, informational and administrative expenses | | 3,559 |
| | (5 | ) | | — |
| | — |
| | (23 | ) | | 3,531 |
| | 3,504 |
| | — |
| | — |
| | — |
| | (22 | ) | | 3,482 |
|
| Research and development expenses | | 1,881 |
| | — |
| | — |
| | — |
| | (8 | ) | | 1,873 |
| | 1,865 |
| | 1 |
| | — |
| | — |
| | (9 | ) | | 1,857 |
|
| Amortization of intangible assets | | 968 |
| | (936 | ) | | — |
| | — |
| | — |
| | 32 |
| | 1,177 |
| | (1,120 | ) | | — |
| | — |
| | — |
| | 57 |
|
| Restructuring charges and certain acquisition-related costs | | 531 |
| | — |
| | (277 | ) | | — |
| | (254 | ) | | — |
| | 114 |
| | — |
| | (129 | ) | | — |
| | 15 |
| | — |
|
| Other (income)/deductions––net | | 1,417 |
| | 6 |
| | — |
| | — |
| | (1,590 | ) | | (168 | ) | | 79 |
| | (7 | ) | | — |
| | — |
| | (340 | ) | | (268 | ) |
| Income from continuing operations before provision for taxes on income | | 1,604 |
| | 966 |
| | 280 |
| | — |
| | 1,969 |
| | 4,819 |
| | 3,585 |
| | 1,154 |
| | 155 |
| | — |
| | 449 |
| | 5,343 |
|
Provision for taxes on income(b), (c) | | 249 |
| | 366 |
| | 73 |
| | — |
| | 370 |
| | 1,058 |
| |
Provision for taxes on income(b) | | | 727 |
| | 306 |
| | 72 |
| | — |
| | 161 |
| | 1,267 |
|
Income from continuing operations(c) | | 1,355 |
| | 600 |
| | 207 |
| | — |
| | 1,599 |
| | 3,761 |
| | 2,858 |
| | 848 |
| | 83 |
| | — |
| | 288 |
| | 4,077 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18 |
| | — |
| | — |
| | — |
| | — |
| | 18 |
|
Net income attributable to Pfizer Inc.(c) | | 1,355 |
| | 600 |
| | 207 |
| | — |
| | 1,599 |
| | 3,761 |
| | 2,840 |
| | 848 |
| | 83 |
| | — |
| | 288 |
| | 4,059 |
|
Earnings per common share attributable to Pfizer Inc.––diluted(c) | | 0.22 |
| | 0.10 |
| | 0.03 |
| | — |
| | 0.26 |
| | 0.61 |
| | 0.47 |
| | 0.14 |
| | 0.01 |
| | — |
| | 0.05 |
| | 0.67 |
|
| | | | | Nine Months Ended October 2, 2016 | | Nine Months Ended October 1, 2017 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) | | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Costs(a) | | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 39,196 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39,196 |
| | $ | 38,843 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 38,843 |
|
| Cost of sales | | 9,111 |
| | (284 | ) | | (3 | ) | | — |
| | (240 | ) | | 8,584 |
| | 7,972 |
| | (45 | ) | | (38 | ) | | — |
| | (168 | ) | | 7,720 |
|
| Selling, informational and administrative expenses | | 10,414 |
| | (13 | ) | | — |
| | — |
| | (59 | ) | | 10,342 |
| | 10,249 |
| | (15 | ) | | — |
| | — |
| | (67 | ) | | 10,167 |
|
| Research and development expenses | | 5,360 |
| | 1 |
| | — |
| | — |
| | (24 | ) | | 5,336 |
| | 5,367 |
| | 7 |
| | — |
| | — |
| | (26 | ) | | 5,348 |
|
| Amortization of intangible assets | | 2,934 |
| | (2,841 | ) | | — |
| | — |
| | — |
| | 94 |
| | 3,571 |
| | (3,438 | ) | | — |
| | — |
| | — |
| | 133 |
|
| Restructuring charges and certain acquisition-related costs | | 988 |
| | — |
| | (595 | ) | | — |
| | (393 | ) | | — |
| | 267 |
| | — |
| | (319 | ) | | — |
| | 52 |
| | — |
|
| Other (income)/deductions––net | | 2,815 |
| | 33 |
| | — |
| | — |
| | (3,395 | ) | | (547 | ) | | 65 |
| | (35 | ) | | 10 |
| | — |
| | (588 | ) | | (547 | ) |
| Income from continuing operations before provision for taxes on income | | 7,575 |
| | 3,103 |
| | 598 |
| | — |
| | 4,112 |
| | 15,388 |
| | 11,351 |
| | 3,527 |
| | 347 |
| | — |
| | 797 |
| | 16,023 |
|
Provision for taxes on income(b), (c) | | 1,109 |
| | 962 |
| | 47 |
| | — |
| | 1,377 |
| | 3,496 |
| |
Provision for taxes on income(b) | | | 2,287 |
| | 990 |
| | 137 |
| | — |
| | 263 |
| | 3,677 |
|
Income from continuing operations(c) | | 6,465 |
| | 2,141 |
| | 550 |
| | — |
| | 2,735 |
| | 11,892 |
| | 9,064 |
| | 2,537 |
| | 211 |
| | — |
| | 534 |
| | 12,345 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 25 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 32 |
| | — |
| | — |
| | — |
| | — |
| | 32 |
|
Net income attributable to Pfizer Inc.(c) | | 6,440 |
| | 2,141 |
| | 550 |
| | — |
| | 2,735 |
| | 11,867 |
| | 9,034 |
| | 2,537 |
| | 211 |
| | (1 | ) | | 534 |
| | 12,313 |
|
Earnings per common share attributable to Pfizer Inc.––diluted(c) | | 1.04 |
| | 0.35 |
| | 0.09 |
| | — |
| | 0.44 |
| | 1.92 |
| | 1.49 |
| | 0.42 |
| | 0.03 |
| | — |
| | 0.09 |
| | 2.03 |
|
| |
(a) | For details of adjustments, see “Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income” below. |
| |
(b) | The effective tax rate on Non-GAAP Adjusted income was 13.3% in the third quarter of 2018, compared to 23.7% in the third quarter of 2017. The effective tax rate on Non-GAAP Adjusted income was 15.2% in the first nine months of 2018, compared with 22.0%to 22.9% in the third quarterfirst nine months of 20162017. The increase wasdecreases were primarily due to an unfavorabletax benefits associated with the December 2017 enactment of the TCJA, a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business. The effective tax rate on Non-GAAP Adjusted income was 22.9% in the first nine months of 2017, compared with 22.7% in the first nine months of 2016. Thebusiness, as well as an increase was primarily due to a decrease in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations, partially offset by a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business. |
| |
(c)
| GAAP Reported and Non-GAAP Adjusted amounts for the three and nine months ended October 2, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016, requiring: (i) excess tax benefits or deficiencies (including tax benefits of dividend equivalents) of share-based compensation to be recognized as a component of the Provision for taxes on income (the net tax benefit was $35 million in the third quarter of 2016 and $85 million in the first nine months of 2016) and (ii) in the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefit. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Adoption of New Accounting Standards in Pfizer’s 2016 Financial Report.limitations.
|
Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income | | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | October 1,
2017 |
| | October 2,
2016 |
| | September 30,
2018 |
| | October 1,
2017 |
| | September 30,
2018 |
| | October 1,
2017 |
|
| Purchase accounting adjustments | | | | | | | | | | | | | | | | |
Amortization, depreciation and other(a) | | $ | 1,126 |
| | $ | 934 |
| | $ | 3,482 |
| | $ | 2,819 |
| | $ | 1,310 |
| | $ | 1,126 |
| | $ | 3,662 |
| | $ | 3,482 |
|
| Cost of sales | | 28 |
| | 32 |
| | 45 |
| | 284 |
| | (1 | ) | | 28 |
| | 2 |
| | 45 |
|
| Total purchase accounting adjustments––pre-tax | | 1,154 |
| | 966 |
| | 3,527 |
| | 3,103 |
| | 1,309 |
| | 1,154 |
| | 3,665 |
| | 3,527 |
|
Income taxes(b) | | (306 | ) | | (366 | ) | | (990 | ) | | (962 | ) | | (263 | ) | | (306 | ) | | (735 | ) | | (990 | ) |
| Total purchase accounting adjustments––net of tax | | 848 |
| | 600 |
| | 2,537 |
| | 2,141 |
| | 1,047 |
| | 848 |
| | 2,930 |
| | 2,537 |
|
| Acquisition-related costs | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Restructuring charges(c) | | 70 |
| | 150 |
| | 82 |
| | 181 |
| | 24 |
| | 70 |
| | 5 |
| | 80 |
|
Transaction costs(c) | | (14 | ) | | 54 |
| | 4 |
| | 114 |
| | 1 |
| | (14 | ) | | 1 |
| | 4 |
|
Integration costs(c) | | 73 |
| | 73 |
| | 224 |
| | 300 |
| | 82 |
| | 73 |
| | 202 |
| | 235 |
|
Additional depreciation––asset restructuring(d) | | 26 |
| | 3 |
| | 38 |
| | 3 |
| |
Net periodic benefit costs/(credits) other than service costs(d) | | | 2 |
| | — |
| | 4 |
| | (10 | ) |
Additional depreciation––asset restructuring(e) | | | 3 |
| | 26 |
| | 9 |
| | 38 |
|
| Total acquisition-related costs––pre-tax | | 155 |
| | 280 |
| | 347 |
| | 598 |
| | 112 |
| | 155 |
| | 221 |
| | 347 |
|
Income taxes(e) | | (72 | ) | | (73 | ) | | (137 | ) | | (47 | ) | |
Income taxes(f) | | | (21 | ) | | (72 | ) | | (40 | ) | | (137 | ) |
| Total acquisition-related costs––net of tax | | 83 |
| | 207 |
| | 211 |
| | 550 |
| | 91 |
| | 83 |
| | 182 |
| | 211 |
|
| Discontinued operations | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Total discontinued operations––net of tax, attributable to Pfizer Inc.(f) | | — |
| | — |
| | (1 | ) | | — |
| |
Total discontinued operations––net of tax, attributable to Pfizer Inc.(g) | | | (11 | ) | | — |
| | (10 | ) | | (1 | ) |
| Certain significant items | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Restructuring charges(g) | | 21 |
| | 254 |
| | 68 |
| | 393 |
| |
Implementation costs and additional depreciation––asset restructuring(h) | | 69 |
| | 122 |
| | 185 |
| | 350 |
| |
Certain legal matters, net(i) | | 183 |
| | (40 | ) | | 191 |
| | 506 |
| |
Loss on sale and impairment on remeasurement of HIS net assets(i) | | (12 | ) | | 1,422 |
| | 52 |
| | 1,422 |
| |
Certain asset impairments(i) | | 127 |
| | 126 |
| | 127 |
| | 1,073 |
| |
Business and legal entity alignment costs(i) | | 16 |
| | 69 |
| | 54 |
| | 180 |
| |
Other(j) | | 45 |
| | 17 |
| | 119 |
| | 189 |
| |
Restructuring credits––cost reduction initiatives(h) | | | (22 | ) | | (15 | ) | | (37 | ) | | (52 | ) |
Implementation costs and additional depreciation––asset restructuring(i) | | | 57 |
| | 69 |
| | 164 |
| | 185 |
|
Certain legal matters, net(j) | | | 37 |
| | 183 |
| | (70 | ) | | 191 |
|
Adjustments to loss on sale of HIS net assets(j) | | | (2 | ) | | (12 | ) | | (1 | ) | | 52 |
|
Certain asset impairments(j) | | | — |
| | 127 |
| | 31 |
| | 127 |
|
Business and legal entity alignment costs(j) | | | — |
| | 16 |
| | 4 |
| | 54 |
|
Other(k) | | | (282 | ) | | 81 |
| | (84 | ) | | 239 |
|
| Total certain significant items––pre-tax | | 449 |
| | 1,969 |
| | 797 |
| | 4,112 |
| | (213 | ) | | 449 |
| | 8 |
| | 797 |
|
Income taxes(k) | | (161 | ) | | (370 | ) | | (263 | ) | | (1,377 | ) | |
Income taxes(l) | | | (367 | ) | | (161 | ) | | (500 | ) | | (263 | ) |
| Total certain significant items––net of tax | | 288 |
| | 1,599 |
| | 534 |
| | 2,735 |
| | (580 | ) | | 288 |
| | (492 | ) | | 534 |
|
| Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | | $ | 1,219 |
| | $ | 2,406 |
| | $ | 3,280 |
| | $ | 5,426 |
| | $ | 547 |
| | $ | 1,219 |
| | $ | 2,610 |
| | $ | 3,280 |
|
| |
(a) | Included primarily in Amortization of intangible assets. |
| |
(b) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. |
| |
(c) | Included in Restructuring charges and certain acquisition-related costs. Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. Restructuring charges for the three months ended September 30, 2018 were primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, and charges for the nine months ended September 30, 2018 were primarily due to asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira.Restructuring charges for the third quarter and first nine months of 2017 were mainly related to our acquisitions of Hospira and Medivation. Transaction costs represent external costs for banking, legal, accounting and other similar services. Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
| |
(d) | Amounts for the three and nine months ended October 1, 2017 represent the net periodic benefit credits, excluding service costs, reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards. These credits included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. |
| |
(e) | Included in Cost of sales. Represents the impact of changes in estimated useful lives of assets involved in restructuring actions related to acquisitions. |
| |
(f) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. |
| |
(e)(g)
| Included in Discontinued operations––net of tax. |
| |
(h) | Amounts relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions, which are included in Restructuring charges and certain acquisition-related cost (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three and nine months ended September 30, 2018 and October 1, 2017, the credits are mostly related to the reversal of previously recorded accruals for employee termination costs. |
| |
(i) | Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three months ended September 30, 2018, included in Cost of sales ($30 million), Selling, informational and administrative expenses ($17 million) and Research and development expenses ($9 million). For the three months ended October 1, 2017, included in Cost of sales ($38 million), Selling, informational and administrative expenses ($22 million) and Research and development expenses ($9 million). For the nine months ended September 30, 2018, included in Cost of sales ($91 million), Selling, informational and administrative expenses ($51 million) and Research and development expenses ($22 million). For the nine months ended October 1, 2017, included in Cost of sales ($113 million), Selling, informational and administrative expenses ($46 million) and Research and development expenses ($26 million). |
| |
(j) | Included in Other (income)/deductions—net (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
| |
(k) | For the three months ended September 30, 2018, primarily included in Cost of sales ($12 millionincome), Selling, informational and administrative expenses ($6 million) and Other (income)/deductions––net ($279 million income). For the nine months ended September 30, 2018, primarily included in Cost of sales ($14 millionincome), Selling, informational and administrative expenses ($134 million) and Other (income)/deductions––net ($206 million income). For the third quarter and first nine months of 2018, includes, among other things, a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system. The first nine months of 2018 also includes (i) a $119 million charge, in the aggregate, in Selling, informational and administrative expenses for a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, which was one of several actions taken by us after evaluating the expected positive net impact of the December 2017 enactment of the legislation commonly referred to as the TCJA on us and (ii) a non-cash $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic chimeric antigen receptor T cell therapy development program assets in connection with our contribution agreement entered into with Allogene (see Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures). For the three months ended October 1, 2017, included in Cost of sales ($54 million) and Other (income)/deductions––net ($26 million). For the nine months ended October 1, 2017, included in Cost of sales ($55 million), Selling, informational and administrative expenses ($21 million) and Other (income)/deductions––net ($163 million). For the third quarter and first nine months of 2017, includes $55 million in inventory losses, overhead costs related to the period in which our Puerto Rico plants were not operational, and incremental costs, all of which resulted from hurricanes in Puerto Rico and are included in Cost of sales. For the nine months ended October 1, 2017, also includes a net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest, which is included in Other (income)/deductions––net. |
| |
(l) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The nine months ended October 2, 2016were unfavorably impacted by the remeasurement of certain deferred tax liabilities resulting from plant network restructuring activities. |
| |
(f)
| Included in Discontinued operations––net of tax.
|
| |
(g)
| Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions. Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives).
|
| |
(h)
| Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three months ended October 1, 2017, included in Cost of sales ($38 million), Selling, informational and administrative expenses ($22 million) and Research and development expenses ($9 million). For the three months ended October 2, 2016, virtually all included in Cost of sales ($89 million), Selling, informational and administrative expenses ($23 million) and Research and development expenses ($8 million). For the nine months ended October 1, 2017, included in Cost of sales ($113 million), Selling, informational and administrative
|
expenses ($46 million) and Research and developmentexpenses ($26 million). For the nine months ended October 2, 2016, virtually all included in Cost of sales ($269 million), Selling, informational and administrativeexpenses ($56 million) and Research and developmentexpenses ($22 million).
| |
(i)
| Included in Other (income)/deductions—net (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net).
|
| |
(j)
| For the three months ended October 1, 2017, included in Cost of sales ($54 million) and Other (income)/deductions––net ($9 million income. For the three months ended October 2, 2016, included in Cost of sales ($4 million) and Other (income)/deductions––net ($13 million). For the nine months ended October 1, 2017, included in Cost of sales ($55 million), Selling, informational and administrative expenses ($21 million) and Other (income)/deductions––net ($43 million). For the nine months ended October 2, 2016, included in Cost of sales ($29 million income), Selling, informational and administrative expenses ($3 million), Research and developmentexpenses ($2 million) and Other (income)/deductions––net ($213 million). In the three months and nine months ended October 1,September 30, 2018 were favorably impacted by the December 2017 includes $55 million in inventory losses, overhead costsenactment of the TCJA, primarily related to the period in which our Puerto Rico plants were not operational, and incremental costs to date, all of which resulted from the recent hurricanes in Puerto Rico and are included in Cost of sales. For the nine months ended October 1, 2017, includes a net loss of $30 million relatedcertain tax initiatives, as well as favorable adjustments to the saleprovisional estimate of our 40% ownership investment in Teuto, including the extinguishmentimpact of a put option for the remaining 60% ownership interest. Forlegislation. Given the nine months ended October 2, 2016, primarily includes $150 million paid to Allergan for reimbursement of Allergan’s expensessignificant changes resulting from and complexities associated with the terminated transaction.
|
| |
(k)
| IncludedTCJA, the estimated financial impacts recorded in Provision for taxes on income. Income taxes includes the tax effect2017 remain provisional and are subject to further analysis, interpretation and clarification of the associated pre-tax amounts, calculatedTCJA, which could result in further changes to these estimates in the fourth quarter of 2018. Under guidance issued by determining the jurisdictional locationstaff of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The third quarter of 2016 was unfavorably impacted bySEC, we expect to finalize our accounting related to the tax effects of an impairment charge related to the write-downTCJA on deferred taxes, valuation allowances, state tax considerations, the repatriation tax liability, global intangible low-taxed income, and any remaining outside basis differences in our foreign subsidiaries during the fourth quarter of 2018, as we complete the HIS net assets to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, and the jurisdictional mix of intangible assets. The first nine months of 2016 were favorably impacted by benefits related to the final resolution of an agreement in principle reached in February 2016 and finalized in April 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our initial assessment in 2015 of the likelihood of prevailing on the technical meritsremainder of our tax position,return filings and as well as benefits associated with our Venezuela operations, partially offset by the unfavorable tax effectsany interpretations or clarifications of the impairment charge related to the write-down of the HIS net assets to fair value less estimated costs to sell, mainly related to goodwill, which is not deductible for tax purposes, and the jurisdictional mix of intangible assets.TCJA occur through legislation or U.S. Treasury actions or other means.
|
ANALYSIS OF OPERATING SEGMENT INFORMATION
The following tables and associated notes provide additional information about the performance of our two operating segments—the IH segment and the EH segment. For additional information about each operating segment, see the “Our Strategy––Commercial Operations” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 13. Segment, Geographic and Other Revenue Information, as well as the “Selected Balance Sheet Information by Operating Segment” section of the MD&A in our Quarterly Report on Form 10-Q for the quarterquarterly period ended April 2, 2017.1, 2018.
As described in the Notes to Condensed Consolidated Financial Statements—Note 1A1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation, acquisitions and divestitures havethe February 3, 2017 sale of HIS impacted our results of operations in 2017 and 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| The following tables provide revenue and cost information by reportable operating segment and a reconciliation of that information to our condensed consolidated statements of income: |
| | | Third Quarter of 2017 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 8,118 |
| | $ | 5,050 |
| | $ | — |
| | $ | 13,168 |
| | $ | — |
| | $ | 13,168 |
|
| Cost of sales | | 1,082 |
| | 1,448 |
| | 170 |
| | 2,699 |
| | 147 |
| | 2,847 |
|
| % of revenue | | 13.3 | % |
| 28.7 | % |
| * |
|
| 20.5 | % |
| * |
|
| 21.6 | % |
| Selling, informational and administrative expenses | | 1,736 |
| | 727 |
| | 1,016 |
| | 3,478 |
| | 22 |
| | 3,500 |
|
| Research and development expenses | | 639 |
| | 249 |
| | 964 |
| | 1,851 |
| | 8 |
| | 1,859 |
|
| Amortization of intangible assets | | 40 |
| | 17 |
| | — |
| | 57 |
| | 1,120 |
| | 1,177 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 149 |
| | 149 |
|
| Other (income)/deductions––net | | (253 | ) | | (155 | ) | | 147 |
| | (261 | ) | | 312 |
| | 51 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 4,875 |
| | $ | 2,765 |
| | $ | (2,297 | ) | | $ | 5,343 |
| | $ | (1,759 | ) | | $ | 3,585 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended October 1, 2017 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 23,204 |
| | $ | 15,639 |
| | $ | — |
| | $ | 38,843 |
| | $ | — |
| | $ | 38,843 |
|
| Cost of sales | | 2,912 |
| | 4,319 |
| | 497 |
| | 7,729 |
| | 252 |
| | 7,980 |
|
| % of revenue | | 12.6 | % | | 27.6 | % | | * |
| | 19.9 | % | | * |
| | 20.5 | % |
| Selling, informational and administrative expenses | | 4,914 |
| | 2,212 |
| | 3,026 |
| | 10,151 |
| | 82 |
| | 10,233 |
|
| Research and development expenses | | 1,709 |
| | 755 |
| | 2,862 |
| | 5,326 |
| | 20 |
| | 5,346 |
|
| Amortization of intangible assets | | 90 |
| | 43 |
| | — |
| | 133 |
| | 3,438 |
| | 3,571 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 377 |
| | 377 |
|
| Other (income)/deductions––net | | (611 | ) | | (248 | ) | | 341 |
| | (519 | ) | | 503 |
| | (16 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 14,190 |
| | $ | 8,558 |
| | $ | (6,725 | ) | | $ | 16,023 |
| | $ | (4,671 | ) | | $ | 11,351 |
|
| | | The following tables provide revenue and cost information by reportable operating segment and a reconciliation of that information to our condensed consolidated statements of income: | | The following tables provide revenue and cost information by reportable operating segment and a reconciliation of that information to our condensed consolidated statements of income: |
| | | Third Quarter of 2016 | | Third Quarter of 2018 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
| | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 7,332 |
| | $ | 5,712 |
| | $ | — |
| | $ | 13,045 |
| | $ | — |
| | $ | 13,045 |
| | $ | 8,471 |
| | $ | 4,826 |
| | $ | — |
| | $ | 13,298 |
| | $ | — |
| | $ | 13,298 |
|
| Cost of sales | | 1,039 |
| | 1,546 |
| | 372 |
| | 2,957 |
| | 128 |
| | 3,085 |
| | 981 |
| | 1,413 |
| | 279 |
| | 2,673 |
| | 21 |
| | 2,694 |
|
| % of revenue | | 14.2 | % |
| 27.1 | % |
| * |
|
| 22.7 | % |
| * |
|
| 23.6 | % | | 11.6 | % |
| 29.3 | % |
| * |
|
| 20.1 | % |
| * |
|
| 20.3 | % |
| Selling, informational and administrative expenses | | 1,647 |
| | 813 |
| | 1,071 |
| | 3,531 |
| | 28 |
| | 3,559 |
| | 1,695 |
| | 663 |
| | 1,114 |
| | 3,471 |
| | 23 |
| | 3,494 |
|
| Research and development expenses | | 671 |
| | 292 |
| | 911 |
| | 1,873 |
| | 8 |
| | 1,881 |
| | 695 |
| | 225 |
| | 1,078 |
| | 1,998 |
| | 10 |
| | 2,008 |
|
| Amortization of intangible assets | | 25 |
| | 7 |
| | — |
| | 32 |
| | 936 |
| | 968 |
| | 57 |
| | 20 |
| | (6 | ) | | 71 |
| | 1,182 |
| | 1,253 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 531 |
| | 531 |
| | — |
| | — |
| | — |
| | — |
| | 85 |
| | 85 |
|
| Other (income)/deductions––net | | (237 | ) | | (73 | ) | | 142 |
| | (168 | ) | | 1,584 |
| | 1,417 |
| | (345 | ) | | (22 | ) | | 65 |
| | (302 | ) | | (112 | ) | | (414 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 4,187 |
| | $ | 3,128 |
| | $ | (2,496 | ) | | $ | 4,819 |
| | $ | (3,215 | ) | | $ | 1,604 |
| | $ | 5,388 |
| | $ | 2,527 |
| | $ | (2,530 | ) | | $ | 5,386 |
| | $ | (1,208 | ) | | $ | 4,177 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2018 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 24,573 |
| | $ | 15,097 |
| | $ | — |
| | $ | 39,670 |
| | $ | — |
| | $ | 39,670 |
|
| Cost of sales | | 3,049 |
| | 4,442 |
| | 595 |
| | 8,086 |
| | 87 |
| | 8,173 |
|
| % of revenue | | 12.4 | % | | 29.4 | % | | * |
| | 20.4 | % | | * |
| | 20.6 | % |
| Selling, informational and administrative expenses | | 4,967 |
| | 1,909 |
| | 3,388 |
| | 10,264 |
| | 183 |
| | 10,448 |
|
| Research and development expenses | | 1,882 |
| | 683 |
| | 2,961 |
| | 5,526 |
| | 23 |
| | 5,549 |
|
| Amortization of intangible assets | | 165 |
| | 47 |
| | — |
| | 212 |
| | 3,428 |
| | 3,640 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 172 |
| | 172 |
|
| Other (income)/deductions––net | | (909 | ) | | (117 | ) | | (117 | ) | | (1,143 | ) | | — |
| | (1,143 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 15,419 |
| | $ | 8,133 |
| | $ | (6,827 | ) | | $ | 16,725 |
| | $ | (3,894 | ) | | $ | 12,831 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter of 2017 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 8,118 |
| | $ | 5,050 |
| | $ | — |
| | $ | 13,168 |
| | $ | — |
| | $ | 13,168 |
|
| Cost of sales | | 1,082 |
| | 1,448 |
| | 167 |
| | 2,696 |
| | 147 |
| | 2,844 |
|
| % of revenue | | 13.3 | % |
| 28.7 | % |
| * |
|
| 20.5 | % |
| * |
|
| 21.6 | % |
| Selling, informational and administrative expenses | | 1,619 |
| | 693 |
| | 1,171 |
| | 3,482 |
| | 22 |
| | 3,504 |
|
| Research and development expenses | | 634 |
| | 250 |
| | 973 |
| | 1,857 |
| | 8 |
| | 1,865 |
|
| Amortization of intangible assets | | 40 |
| | 17 |
| | — |
| | 57 |
| | 1,120 |
| | 1,177 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 114 |
| | 114 |
|
| Other (income)/deductions––net | | (256 | ) | | (158 | ) | | 147 |
| | (268 | ) | | 347 |
| | 79 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 5,000 |
| | $ | 2,801 |
| | $ | (2,457 | ) | | $ | 5,343 |
| | $ | (1,759 | ) | | $ | 3,585 |
|
See end of tables for notes (a) through (d).
| | | | | Nine Months Ended October 2, 2016 | | Nine Months Ended October 1, 2017 |
| (MILLIONS OF DOLLARS) | | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
| | Innovative Health (IH)(a) |
| | Essential Health (EH)(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 21,471 |
| | $ | 17,725 |
| | $ | — |
| | $ | 39,196 |
| | $ | — |
| | $ | 39,196 |
| | $ | 23,204 |
| | $ | 15,639 |
| | $ | — |
| | $ | 38,843 |
| | $ | — |
| | $ | 38,843 |
|
| Cost of sales | | 2,930 |
| | 4,677 |
| | 977 |
| | 8,584 |
| | 527 |
| | 9,111 |
| | 2,912 |
| | 4,319 |
| | 489 |
| | 7,720 |
| | 252 |
| | 7,972 |
|
| % of revenue | | 13.6 | % | | 26.4 | % | | * |
| | 21.9 | % | | * |
| | 23.2 | % | | 12.6 | % | | 27.6 | % | | * |
| | 19.9 | % | | * |
| | 20.5 | % |
| Selling, informational and administrative expenses | | 4,947 |
| | 2,435 |
| | 2,960 |
| | 10,342 |
| | 72 |
| | 10,414 |
| | 4,598 |
| | 2,103 |
| | 3,467 |
| | 10,167 |
| | 82 |
| | 10,249 |
|
| Research and development expenses | | 1,815 |
| | 876 |
| | 2,645 |
| | 5,336 |
| | 23 |
| | 5,360 |
| | 1,694 |
| | 760 |
| | 2,894 |
| | 5,348 |
| | 20 |
| | 5,367 |
|
| Amortization of intangible assets | | 74 |
| | 20 |
| | — |
| | 94 |
| | 2,841 |
| | 2,934 |
| | 90 |
| | 43 |
| | — |
| | 133 |
| | 3,438 |
| | 3,571 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 988 |
| | 988 |
| | — |
| | — |
| | — |
| | — |
| | 267 |
| | 267 |
|
| Other (income)/deductions––net | | (764 | ) | | (267 | ) | | 484 |
| | (547 | ) | | 3,362 |
| | 2,815 |
| | (623 | ) | | (258 | ) | | 334 |
| | (547 | ) | | 613 |
| | 65 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | $ | 12,470 |
| | $ | 9,985 |
| | $ | (7,066 | ) | | $ | 15,388 |
| | $ | (7,813 | ) | | $ | 7,575 |
| | $ | 14,534 |
| | $ | 8,672 |
| | $ | (7,183 | ) | | $ | 16,023 |
| | $ | (4,671 | ) | | $ | 11,351 |
|
| |
| * | Indicates calculation not meaningful or result is equal to or greater than 100%. |
| |
(a) | Amounts represent the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. |
The following organizational change impacted our operating segments in 2018:
Effective in the first quarter of 2018, certain costs for Pfizer’s StratCO group, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. StratCO costs primarily include headcount costs, vendor costs and data costs largely in support of Pfizer’s commercial operations. The majority of the StratCO costs reflect additional amounts that our operating segments would have incurred had each segment operated as a standalone company during the periods presented. The reporting change was made to streamline accountability and speed decision making. In the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation.
| |
(b) | Other comprises the costs included in our Adjusted income components (see footnote (c) below) that are managed outside of our two operating segments and includes the following: |
| | | | | Third Quarter of 2017 | | Third Quarter of 2018 |
| | | Other Business Activities | | | | | Other Business Activities | | | |
| (MILLIONS OF DOLLARS) | | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
| | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | — |
| | — |
| | 28 |
| | 142 |
| | 170 |
| | — |
| | — |
| | 21 |
| | 258 |
| | 279 |
|
| Selling, informational and administrative expenses | | — |
| | — |
| | 993 |
| | 23 |
| | 1,016 |
| | — |
| | — |
| | 950 |
| | 164 |
| | 1,114 |
|
| Research and development expenses | | 568 |
| | 193 |
| | 194 |
| | 8 |
| | 964 |
| | 550 |
| | 193 |
| | 318 |
| | 16 |
| | 1,078 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (2 | ) | | — |
| | 167 |
| | (18 | ) | | 147 |
| | (6 | ) | | (1 | ) | | 47 |
| | 26 |
| | 65 |
|
| Loss from continuing operations before provision for taxes on income | | $ | (566 | ) | | $ | (193 | ) | | $ | (1,382 | ) | | $ | (156 | ) | | $ | (2,297 | ) | | $ | (543 | ) | | $ | (192 | ) | | $ | (1,337 | ) | | $ | (457 | ) | | $ | (2,530 | ) |
| | | | | Nine Months Ended October 1, 2017 | | Nine Months Ended September 30, 2018 |
| | | Other Business Activities | | | | | | Other Business Activities | | | | |
| (MILLIONS OF DOLLARS) | | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
| | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | — |
| | — |
| | (3 | ) | | 500 |
| | 497 |
| | — |
| | — |
| | 149 |
| | 446 |
| | 595 |
|
| Selling, informational and administrative expenses | | — |
| | (1 | ) | | 2,995 |
| | 31 |
| | 3,026 |
| | — |
| | — |
| | 2,881 |
| | 507 |
| | 3,388 |
|
| Research and development expenses | | 1,674 |
| | 560 |
| | 616 |
| | 12 |
| | 2,862 |
| | 1,664 |
| | 579 |
| | 672 |
| | 46 |
| | 2,961 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (29 | ) | | — |
| | 339 |
| | 31 |
| | 341 |
| | (110 | ) | | (4 | ) | | (69 | ) | | 65 |
| | (117 | ) |
| Loss from continuing operations before provision for taxes on income | | $ | (1,645 | ) | | $ | (559 | ) | | $ | (3,948 | ) | | $ | (573 | ) | | $ | (6,725 | ) | | $ | (1,554 | ) | | $ | (575 | ) | | $ | (3,633 | ) | | $ | (1,064 | ) | | $ | (6,827 | ) |
| | | | | Third Quarter of 2016 | | Third Quarter of 2017 |
| | | Other Business Activities | | | | | | Other Business Activities | | | | |
| (MILLIONS OF DOLLARS) | | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
| | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | — |
| | — |
| | 104 |
| | 268 |
| | 372 |
| | — |
| | — |
| | 27 |
| | 139 |
| | 167 |
|
| Selling, informational and administrative expenses | | — |
| | 1 |
| | 1,073 |
| | (3 | ) | | 1,071 |
| | — |
| | — |
| | 980 |
| | 191 |
| | 1,171 |
|
| Research and development expenses | | 575 |
| | 172 |
| | 169 |
| | (5 | ) | | 911 |
| | 570 |
| | 195 |
| | 189 |
| | 20 |
| | 973 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | 5 |
| | — |
| | 191 |
| | (54 | ) | | 142 |
| | (4 | ) | | (1 | ) | | 167 |
| | (15 | ) | | 147 |
|
| Loss from continuing operations before provision for taxes on income | | $ | (580 | ) | | $ | (173 | ) | | $ | (1,537 | ) | | $ | (206 | ) | | $ | (2,496 | ) | | $ | (566 | ) | | $ | (193 | ) | | $ | (1,363 | ) | | $ | (335 | ) | | $ | (2,457 | ) |
| | | | | Nine Months Ended October 2, 2016 | | Nine Months Ended October 1, 2017 |
| | | Other Business Activities | | | | | | Other Business Activities | | | | |
| (MILLIONS OF DOLLARS) | | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
| | WRD(i) |
| | GPD(ii) |
| | Corporate(iii) |
| | Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | — |
| | — |
| | 194 |
| | 783 |
| | 977 |
| | — |
| | — |
| | (4 | ) | | 493 |
| | 489 |
|
| Selling, informational and administrative expenses | | — |
| | 1 |
| | 2,910 |
| | 48 |
| | 2,960 |
| | — |
| | (1 | ) | | 2,965 |
| | 502 |
| | 3,467 |
|
| Research and development expenses | | 1,629 |
| | 487 |
| | 523 |
| | 6 |
| | 2,645 |
| | 1,680 |
| | 565 |
| | 609 |
| | 39 |
| | 2,894 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (22 | ) | | — |
| | 590 |
| | (83 | ) | | 484 |
| | (36 | ) | | (4 | ) | | 338 |
| | 36 |
| | 334 |
|
| Loss from continuing operations before provision for taxes on income | | $ | (1,608 | ) | | $ | (488 | ) | | $ | (4,217 | ) | | $ | (753 | ) | | $ | (7,066 | ) | | $ | (1,644 | ) | | $ | (561 | ) | | $ | (3,908 | ) | | $ | (1,070 | ) | | $ | (7,183 | ) |
| |
(i) | WRD—the R&D expenses managed by our WRD organization, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
| |
(ii) | GPD––the costs associated with our GPD organization, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects. |
| |
(iii) | Corporate—Corporate––the costs associated with Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. Effective in the first quarter of 2017, Corporate also includes the costs associated with our Pfizer Medical organization (Medical), previously reported as part of Other Business Activities. Medical is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations. We have reclassified approximately $33 millionassociations, as well as certain compensation and $94 million of Medicalother corporate costs, from Other Business Activities to Corporatesuch as interest income and expense, and gains and losses on investments. Effective in the thirdfirst quarter of 2018, certain costs for StratCO, which were previously reported in the operating results of our operating segments and first nine months of 2016, respectively, to conform to the current period presentation.
Corporate, are reported in Other Unallocated. For additional information, see note (iv) below. |
We recognized a $14 million loss in the third quarter of 2018 and a $47 million gain in the first nine months of 2018 as an offset to Cost of sales primarily related to euro-denominated forward-exchange contracts designated as cash flow hedges of a portion of our foreign exchange-denominated forecasted intercompany inventory sales. We recognized a $4 million loss in the third quarter of 2017 and a $67 million gain in the first nine months of 2017 as an offseta reduction to Cost of sales related to foreign currencyeuro, Japanese yen and U.K. pound-denominated forward-exchange contracts designated as cash flow hedges of a portion of our foreign exchange-denominated forecasted intercompany inventory sales. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 7F. 7F. Financial Instruments: Derivative Financial Instruments and Hedging Activities.
| |
(iv) | Other Unallocated—other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs (which include manufacturing variances associated with production). In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
For information purposes only, the following tables present reconciliations of our segment operating results to segment operating results including estimated Other costs generally associated with each segment. While we do not manage our segments or have performance goals under such an allocated manner, we believe that some investors may find this information useful in their analyses.
The estimated Other costs generally associated with our operating segments do not purport to reflect the additional amounts that each of our operating segments would have incurred had each segment operated as a standalone company during the period presented.
For information purposes only, for the first nine months of 20172018, we estimate that Other costs, as described above, for combined WRD and GPD costs of $2.2$2.1 billion, and combined Corporate and Other Unallocated costs of $4.0$4.4 billion after excluding (i) net interest-related expense not attributable to an operating segment included in Corporate (approximately $704$730 million for the first nine months of 20172018 in Other (income)/deductions––net); and (ii) net income from investments and other assets not attributable to an operating segment included in Corporate (approximately $146$442 million for the first nine months of 20172018 in Other(income)/deductions––net), are generally associated with our operating segments, as follows:
| | | | | Nine Months Ended October 1, 2017 |
| Nine Months Ended September 30, 2018 |
| | | | | Estimated Other Costs Associated with IH(ii) | | |
|
|
| Estimated Other Costs Associated with IH(ii) |
|
|
| (MILLIONS OF DOLLARS) | | Innovative Health Non-GAAP Adjusted(i), (iii) |
| | Estimated WRD/GPD(ii) |
| | Estimated Corporate/Other Unallocated(ii) |
| | Innovative Health with Estimated Other Costs Associated with
Innovative Health
Non-GAAP Adjusted(ii), (iii) |
|
| Innovative Health Non-GAAP Adjusted(i), (iii) |
|
| Estimated WRD/GPD(ii) |
|
| Estimated Corporate/Other Unallocated(ii) |
|
| Innovative Health with Estimated Other Costs Associated with
Innovative Health
Non-GAAP Adjusted(ii), (iii) |
|
| Revenues | | $ | 23,204 |
| | $ | — |
| | $ | — |
| | $ | 23,204 |
|
| $ | 24,573 |
|
| $ | — |
|
| $ | — |
|
| $ | 24,573 |
|
| Cost of sales | | 2,912 |
| | — |
| | 68 |
| | 2,980 |
|
| 3,049 |
|
| — |
|
| 81 |
|
| 3,130 |
|
| Selling, informational and administrative expenses | | 4,914 |
| | (1 | ) | | 1,688 |
| | 6,601 |
|
| 4,967 |
|
| — |
|
| 1,918 |
|
| 6,886 |
|
| Research and development expenses | | 1,709 |
| | 2,220 |
| | 575 |
| | 4,504 |
|
| 1,882 |
|
| 2,219 |
|
| 658 |
|
| 4,760 |
|
| Amortization of intangible assets | | 90 |
| | — |
| | — |
| | 90 |
|
| 165 |
|
| — |
|
| (4 | ) |
| 161 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| Other (income)/deductions––net | | (611 | ) | | (29 | ) | | (84 | ) | | (725 | ) |
| (909 | ) |
| (113 | ) |
| (213 | ) |
| (1,235 | ) |
| Income from continuing operations before provision for taxes on income | | 14,190 |
| | (2,190 | ) | | (2,246 | ) | | 9,754 |
|
| 15,419 |
|
| (2,106 | ) |
| (2,441 | ) |
| 10,872 |
|
| | | | | Nine Months Ended October 1, 2017 |
| Nine Months Ended September 30, 2018 |
| | | | | Estimated Other Costs Associated with EH(ii) | | |
|
|
| Estimated Other Costs Associated with EH(ii) |
|
|
| (MILLIONS OF DOLLARS) | | Essential Health
Non-GAAP Adjusted(i), (iii) |
| | Estimated WRD/GPD(ii) |
| | Estimated Corporate/Other Unallocated(ii) |
| | Essential Health with Estimated Other Costs Associated with
Essential Health
Non-GAAP Adjusted(ii), (iii) |
|
| Essential Health
Non-GAAP Adjusted(i), (iii) |
|
| Estimated WRD/GPD(ii) |
|
| Estimated Corporate/Other Unallocated(ii) |
|
| Essential Health with Estimated Other Costs Associated with
Essential Health
Non-GAAP Adjusted(ii), (iii) |
|
| Revenues | | $ | 15,639 |
| | $ | — |
| | $ | — |
| | $ | 15,639 |
|
| $ | 15,097 |
|
| $ | — |
|
| $ | — |
|
| $ | 15,097 |
|
| Cost of sales | | 4,319 |
| | — |
| | 429 |
| | 4,749 |
|
| 4,442 |
|
| — |
|
| 514 |
|
| 4,956 |
|
| Selling, informational and administrative expenses | | 2,212 |
| | — |
| | 1,338 |
| | 3,550 |
|
| 1,909 |
|
| — |
|
| 1,469 |
|
| 3,379 |
|
| Research and development expenses | | 755 |
| | 15 |
| | 53 |
| | 823 |
|
| 683 |
|
| 24 |
|
| 60 |
|
| 767 |
|
| Amortization of intangible assets | | 43 |
| | — |
| | — |
| | 43 |
|
| 47 |
|
| — |
|
| 4 |
|
| 51 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| Other (income)/deductions––net | | (248 | ) | | — |
| | (104 | ) | | (353 | ) |
| (117 | ) |
| — |
|
| (78 | ) |
| (195 | ) |
| Income from continuing operations before provision for taxes on income | | 8,558 |
| | (15 | ) | | (1,716 | ) | | 6,827 |
|
| 8,133 |
|
| (24 | ) |
| (1,969 | ) |
| 6,141 |
|
| |
(i) | Amount represents the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. See note (a) above for more information. |
| |
(ii) | Represents costs not assessed to an operating segment, as business unit (segment) management does not manage these costs. For a description of these other costs and business activities, see note (b) above. |
| |
• | WRD/GPD––The information provided for WRD and GPD was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with each operating segment.WRD/GPD––The information provided for WRD and GPD was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with each operating segment. Corporate/Other Unallocated––The information provided for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification and estimates. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable. |
| |
• | Corporate/Other Unallocated––The information provided for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification and estimates. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable.
|
The estimated Other costs generally associated with our operating segments do not purport to reflect the additional amounts that each of our operating segments would have incurred had each segment operated as a standalone company during the period presented.
| |
(iii) | See note (c) below for an explanation of our Non-GAAP Adjusted financial measure. |
| |
(c) | See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for a definition of these “Adjusted Income” components. |
| |
(d) | Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges), that are evaluated on an individual basis by management. For additional information about these reconciling items and/or our Non-GAAP adjusted measure of performance, see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A. |
Third Quarter of 20172018 vs. Third Quarter of 20162017
Innovative Health Operating Segment
Revenues
IH Revenues increased $786$353 million, or 11%4%, to $8.1$8.5 billion, reflecting an 11% operational increase. Foreignincrease of $426 million, or 5%, partially offset by the unfavorable impact of foreign exchange had a de minimis impact on IH Revenuesof $73 million, or 1%.
The following provides an analysis of the increase in IH worldwide Revenues: | | | (MILLIONS OF DOLLARS) | | | | |
IH Revenues, for the three months ended October 2, 2016 | | $ | 7,332 |
| |
IH Revenues, for the three months ended October 1, 2017 | | | $ | 8,118 |
|
| | | | | |
| Operational growth/(decline): | | | | |
| Continued growth from key brands including Ibrance and Eliquis globally, as well as Lyrica and Xeljanz, both primarily in the U.S. | | 751 |
| |
| Growth in Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation) | | 148 |
| |
| Lower revenues for Viagra in the U.S. primarily due to wholesaler destocking in advance of anticipated generic competition beginning in December 2017 | | (91 | ) | |
Continued growth from certain key brands(a) | | | 660 |
|
| Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | | | 52 |
|
| Negative impact of the loss of exclusivity of Viagra in the U.S. in December 2017 and the resulting shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 | | | (206 | ) |
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (89 | ) | | (65 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year quarter, partially offset by growth from the pediatric indication. International revenues increased primarily due to the favorable overall impact of timing of government purchases in certain emerging markets and the launch of Prevenar 13 in China for the pediatric indication. | | (16 | ) | |
| Other operational factors, net | | 95 |
| | (15 | ) |
| Operational growth, net | | 799 |
| | 426 |
|
| | | | | |
| Unfavorable impact of foreign exchange | | (13 | ) | | (73 | ) |
IH Revenues increase | | 786 |
| | 353 |
|
IH Revenues, for the three months ended October 1, 2017 | | $ | 8,118 |
| |
IH Revenues, for the three months ended September 30, 2018 | | | $ | 8,471 |
|
| |
(a) | Certain key brands represent Eliquis, Ibrance, Prevnar 13/Prevenar 13, Xeljanz and Xtandi. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Total IH revenues from emerging markets increased $167$78 million, or 18%7%, to $1.2 billion from $1.1 billion, on both a reported andreflecting 14% operational basis.growth. Foreign exchange had a de minimisan unfavorable impact of 7% on total IH revenues from emerging markets.
Costs and Expenses
| |
•
| Cost of sales as a percentage of Revenues decreased 0.8 percentage points, primarily driven by a favorable change in product mix, including an increase in alliance revenue, which have no associated cost of sales, partially offset by an increase in royalty expense, mostly related to Ibrance, and the unfavorable impact of foreign exchange.
|
| |
• | The increase in Cost of sales of 4% was primarily driven by an increase in royalty expense, mostly related to Ibrance, and the unfavorable impact of foreign exchange, partially offset by a favorable change in product mix.
|
| |
• | The increase in Selling, informational and administrativeexpenses of 5% was primarily driven by additional investment across several of our key products, primarily Eucrisa, Ibrance and Xtandi. The increase was partially offset by lower spending for certain other products, primarily Prevnar 13/Prevenar 13, and the favorable impact of foreign exchange.
|
| |
•
| The decrease in Research and developmentexpenses of 5% primarily reflects:
|
| |
◦ | the discontinuation of the global clinical development program for bococizumab in the fourth quarter of 2016, |
partially offset by increased costs associated with:
| |
◦ | our oncology programs, primarily clinical trial spend on legacy Medivation assets and our immuno-oncology development programs; |
| |
◦ | our C. difficile vaccine program, which initiated a Phase 3 clinical study in March 2017; and
|
| |
◦ | our tanezumab development program. |
| |
• | The favorable change in Other (income)/deductions––net primarily reflects:
|
| |
◦ | the addition of $73 million in Xtandi royalty income; |
| |
◦ | a $54 million increase in dividend income from our investment in ViiV; and |
| |
◦ | a $50 million milestone payment received for an out-licensed product, |
partially offset by:
| |
◦ | lower royalty income for Enbrel of $139 million, resulting from the expiration on October 31, 2016 of the 36-month royalty period under the collaboration agreement for Enbrel in the U.S. and Canada (the collaboration period under the agreement expired on October 31, 2013). |
Essential Health Operating Segment
Revenues
EH Revenues decreased $662 million, or 12%, to $5.0 billion, reflecting an 11% operational decrease, of which 5% operationally was due to the sale of HIS. Foreign exchange had an unfavorable impact of 1% on EH Revenues.
The following provides an analysis of the decrease in EH Revenues: |
| | | | |
| (MILLIONS OF DOLLARS) | | |
EH Revenues, for the three months ended October 2, 2016 | | $ | 5,712 |
|
| | | |
| Disposition-related operational impact: | | |
| Financial results in the third quarter of 2017 do not reflect any contribution from HIS global operations, compared to the inclusion of three months of HIS global operations in the same period in 2016 (February 2017 sale) | | (280 | ) |
| | | |
| Other operational growth/(decline): | | |
| Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Lyrica and Vfend, both primarily in developed Europe | | (220 | ) |
| Decline from the Sterile Injectable Pharmaceuticals portfolio, primarily due to legacy Hospira product shortages in the U.S. | | (182 | ) |
| Growth from Biosimilars | | 55 |
|
| Other operational factors, net | | 6 |
|
| Operational decline, net | | (621 | ) |
| | | |
| Unfavorable impact of foreign exchange | | (41 | ) |
EH Revenues decrease | | (662 | ) |
EH Revenues, for the three months ended October 1, 2017 | | $ | 5,050 |
|
Total EH revenues in developed markets decreased $749 million, or 18%, to $3.3 billion, reflecting an 18% operational decline, of which 6% operationally was due to the unfavorable impact of the sale of HIS. Total EH revenues in developed markets were also negatively impacted by a 33% operational decline from Peri-LOE Products and a 20% operational decline from the Sterile Injectable Pharmaceuticals portfolio primarily due to legacy Hospira product supply shortages in the U.S., partially offset by 65% operational growth from Biosimilars. Foreign exchange had a de minimis impact on total EH revenues in developed markets.
Total EH revenues from emerging markets increased $87 million, or 5%, to $1.7 billion, reflecting 7% operational growth, primarily driven by 6% operational growth from the Legacy Established Products portfolio and 14% operational growth from the Sterile Injectable Pharmaceuticals portfolio. Foreign exchange had an unfavorable impact of 1%. Excluding HIS from both periods, EH revenues in emerging markets grew 8% operationally.
Costs and Expenses
The changes in EH expenses below reflect, among other things,Cost of sales as a percentage of Revenues decreased 1.7 percentage points, primarily driven by the favorable impact of foreign exchange.
The decrease in Cost of sales of 9% was primarily driven by the February 2017 salefavorable impact of HIS. foreign exchange, partially offset by an increase in sales volumes for various key products within our product portfolio and an increase in royalty expenses based on the mix of products sold.
The operating resultsincrease in Selling, informational and administrativeexpenses of HIS are included5% was primarily driven by additional investment across several of our key products, primarily Xeljanz, Eucrisa, Eliquis and Prevnar 13/Prevenar 13 (pediatric indication), partially offset by lower healthcare reform expenses as a result of a true up of a prior year amount, and the favorable impact of foreign exchange.
The increase in EH’s operating results through February 2, 2017Research and therefore, operating results for EH for the third quarterdevelopmentexpenses of 2017 do not reflect HIS global operations, while operating results for EH for the third quarter of 2016 reflect three months of HIS global operations.10% primarily reflects:
| |
•◦ | Cost of sales as a percentage of Revenuesincreased 1.6 percentage points primarily due to cost increases reflecting the shift to EH of certain legacy Hospira costs that were previously unallocated to EH as a result of harmonizing the Hospira cost policy, and the impact of product losses of exclusivity, partially offset by the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products.
|
| |
• | The decrease in Cost of sales of 6% was primarily due to:
for our rare disease portfolio; |
| |
| ◦ | the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products;increased costs associated with our Phase 3 clinical trial related to our JAK1 inhibitor (which was initiated in December 2017); and |
| |
| ◦ | a net decrease in royalty expense and, to a lesser extent, |
| |
◦ | lower volumes driven by, among other things,increased costs across the Sterile Injectable Pharmaceuticals (SIP)Oncology portfolio, primarily due to legacy Hospira product shortages in the U.S.,including costs associated with Bavencio studies, |
partially offset by:
| |
| ◦ | cost increases reflectinglower costs due to the shift to EHcompletion of certain legacy Hospira costs that were previously unallocated to EH as tanezumab studies. |
The favorable change in Other (income)/deductions––net primarily reflects:
| |
| ◦ | a result of harmonizing the Hospira cost policy.$36 million increase in dividend income from our investment in ViiV; |
| |
•◦ | Selling, informationala $33 million increase in income from collaborations, out-licensing arrangements and administrativeexpenses decreased 11%, mainly due to lower advertising, promotionalsales of compound/product rights; and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and lower expenses associated with products that recently lost marketing exclusivity, as well as the favorable impact of the sale of HIS, partially offset by increased spending for biosimilars, primarily related to the U.S. launch of Inflectra.
|
| |
• | Research and developmentexpenses decreased 15%, primarily due to the close-out of certain post-marketing clinical trials and the favorable impact of the sale of HIS.
|
| |
•◦ | The favorable changea $14 million increase in Other (income)/deductions––netprimarily reflects income from resolutionXtandi royalty income.
|
Essential Health Operating Segment
Revenues
EH Revenues decreased $223 million, or 4%, to $4.8 billion, reflecting an operational decrease of $183 million, or 4%, and the unfavorable impact of foreign exchange of $40 million, or 1%.
The following provides an analysis of the decrease in EH worldwide Revenues: |
| | | | |
| (MILLIONS OF DOLLARS) |
|
|
|
EH Revenues, for the three months ended October 1, 2017 |
| $ | 5,050 |
|
|
|
|
|
| Operational growth/(decline): |
|
|
|
| Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH), primarily due to expected declines in Lyrica in developed Europe |
| (125 | ) |
| Decline in the LEP portfolio primarily driven by lower revenues in developed markets | | (121 | ) |
| Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | | (28 | ) |
| Positive impact of Viagra, mostly driven by the shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 (due to the loss of exclusivity of Viagra in the U.S. in December 2017), partially offset by lower revenues in emerging markets and developed Europe markets (previously reported in EH) | | 37 |
|
| Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe |
| 56 |
|
| Other operational factors, net | | (2 | ) |
| Operational decline, net |
| (183 | ) |
| |
|
|
|
| Unfavorable impact of foreign exchange |
| (40 | ) |
EH Revenues decrease |
| (223 | ) |
EH Revenues, for the three months ended September 30, 2018 |
| $ | 4,826 |
|
Total EH revenues from emerging markets increased $149 million, or 9%, to $1.9 billion from $1.7 billion, reflecting 11% operational growth, primarily driven by 11% operational growth from the LEP portfolio and 14% operational growth from the SIP portfolio, partially offset by a 2% operational decline from the Peri-LOE Products portfolio. Foreign exchange had an unfavorable impact of 3% on total EH revenues from emerging markets.
Costs and Expenses
Cost of sales as a percentage of Revenues increased 0.6 percentage points, primarily due to:
| |
| ◦ | higher sales volumes of Inflectra in the U.S. and developed Europe, which carry higher product costs; and |
| |
| ◦ | lower sales volumes and margins as a contract disagreementresult of product losses of exclusivity and generic competition in developed markets, |
partially offset by:
| |
| ◦ | the favorable impact of foreign exchange.exchange; and |
| |
| ◦ | lower sales volumes in the SIP portfolio, which carries a higher cost to produce, in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. |
The decrease in Cost of sales of 2% was primarily due to:
| |
| ◦ | the favorable impact of foreign exchange; and |
| |
| ◦ | lower sales volumes driven by product losses of exclusivity and generic competition in developed markets, |
partially offset by:
◦higher sales volumes of Inflectra in the U.S. and developed Europe, which carry higher product costs; and
| |
| ◦ | higher costs across the SIP portfolio, as a result of the complexity of high quality product manufacturing across the legacy Hospira plants. |
Selling, informational and administrativeexpenses decreased 4% mainly due to lower general and administrative expenses, as well as lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and the favorable impact of foreign exchange, partially offset by additional investments in China.
Research and developmentexpenses decreased 10% primarily due to decreased spending for biosimilars as several programs have reached completion.
The unfavorable change in Other (income)/deductions––netprimarily reflects the non-recurrence of income from resolution of a contract disagreement, the unfavorable impact of foreign exchange and the non-recurrence of a gain on the redemption of an acquired bond in 2017, partially offset by an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights.
First Nine Months of 20172018 vs. First Nine Months of 20162017
Innovative Health Operating Segment
Revenues
IH Revenues increased $1,733$1.4 billion, or 6%, to $24.6 billion, reflecting an operational increase of $1.0 billion, or 4%, and the favorable impact of foreign exchange of $342 million, or 8%, to $23.2 billion, reflecting a 9% operational increase. Foreign exchange had an unfavorable impact of 1% on IH Revenues2%.
The following provides an analysis of the increase in IH worldwide Revenues:
| | | (MILLIONS OF DOLLARS) | | | | |
IH Revenues, for the nine months ended October 2, 2016 | | $ | 21,471 |
| |
IH Revenues, for the nine months ended October 1, 2017 | | | $ | 23,204 |
|
| | | | | |
| Operational growth/(decline): | | | | |
| Continued growth from key brands including Ibrance and Eliquis globally, as well as Lyrica and Xeljanz, both primarily in the U.S. | | 2,102 |
| |
| Growth in Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation) | | 420 |
| |
Continued growth from certain key brands(a) | | | 1,835 |
|
| Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | | | 172 |
|
| Negative impact of the loss of exclusivity of Viagra in the U.S. in December 2017 and the resulting shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 | | | (711 | ) |
| Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | | (353 | ) | | (279 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the first nine months of 2016, partially offset by growth from the pediatric indication. International revenues increased primarily due to the favorable overall impact of timing of government purchases in certain emerging markets and the launch of Prevenar 13 in China for the pediatric indication. | | (213 | ) | |
| Lower revenues for Viagra in the U.S. primarily due to lower market growth | | (186 | ) | |
| Other operational factors, net | | 113 |
| | 11 |
|
| Operational growth, net | | 1,883 |
| | 1,028 |
|
| | | | | |
| Unfavorable impact of foreign exchange | | (150 | ) | |
| Favorable impact of foreign exchange | | | 342 |
|
IH Revenues increase | | 1,733 |
| | 1,370 |
|
IH Revenues, for the nine months ended October 1, 2017 | | $ | 23,204 |
| |
IH Revenues, for the nine months ended September 30, 2018 | | | $ | 24,573 |
|
| |
(a) | Certain key brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13, Xtandi and Chantix/Champix. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Total IH revenues from emerging markets increased $377$456 million, or 14%15%, to $3.6 billion from $3.1 billion, reflecting a 15%16% operational increase. Foreign exchange had an unfavorable impact of 1% on Total IH revenues from emerging markets.
Costs and Expenses
Cost of sales as a percentage of Revenues decreased 0.1 percentage points, primarily driven by the favorable impact of foreign exchange, partially offset by an unfavorable change in product mix. The unfavorable product mix, which includes the unfavorable impact of the reclassification of Viagra IH to EH in 2018, is partially offset by an increase in alliance revenues, which have no associated cost of sales.
The increase in Cost of sales of 5% was primarily driven by an increase in sales volumes for various key products within our product portfolio, and an increase in royalty expenses based on the mix of products sold, partially offset by the favorable impact of foreign exchange.
The increase in Selling, informational and administrativeexpenses of 8% was primarily driven by additional investment across several of our key products, primarily Xeljanz, Eucrisa, Ibrance, Prevnar 13/Prevenar 13 (pediatric indication) and Eliquis, partially offset by lower healthcare reform expenses as a result of a true up of a prior year amount and decreased investment in Enbrel due to loss of exclusivity across developed Europe.
The increase in Research and developmentexpenses of 11% primarily reflects:
| |
•◦ | Cost of sales as a percentage of Revenues decreased 1.1 percentage points primarily driven by a favorable change in product mix, including an increase in alliance revenue, which have noincreased costs associated cost of sales, partially offset by an increase in royalty expense, mostlywith our Phase 3 clinical trials related to Ibrance.
|
| |
• | The decreaseour JAK1 inhibitor (which was initiated in Cost of sales of 1% was primarily driven by favorable product mixDecember 2017) and the favorable impact of foreign exchange, partially offset by an increaseC. difficile vaccine program (which was initiated in royalty expense, mostly related to Ibrance.
|
| |
• | The decrease in Selling, informational and administrativeexpenses of 1% was primarily driven by the non-recurrence of an allowance for doubtful trade accounts receivable, resulting from unfavorable developments with a distributor that was recorded in the first quarter of 2016, lower spending for certain products, primarily Prevnar 13/Prevenar 13, and the favorable impact of foreign exchange, partially offset by additional investment across several of our key products, primarily Eucrisa, Ibrance, Xtandi and Xeljanz.
|
| |
• | The decrease in Research and developmentexpenses of 6% primarily reflects:March 2017);
|
| |
| ◦ | increased costs across the discontinuation of the global clinical development programOncology portfolio, including costs associated with Bavencio studies; and |
| |
| ◦ | increased costs for bococizumab in the fourth quarter of 2016,our rare disease portfolio, |
partially offset by:
| |
| ◦ | increasedlower costs associated with:due to the completion of certain clinical studies, including tanezumab and Lyrica. |
The favorable change in Other (income)/deductions––net primarily reflects:
| |
▪◦ | our oncology programs, including clinical trial spend on legacy Medivation assets; |
| |
▪ | our C. difficile vaccine program, which initiated a Phase 3 clinical study$188 million increase in March 2017;income from collaborations, out-licensing arrangements and |
| |
▪ | our tanezumab development program; and sales of compound/product rights; |
| |
| ◦ | an expense of $28a $45 million representing IH’s portion of the $75 million expense resulting from our May 2017 agreement with Sangamo to develop and commercialize gene therapy programs for Hemophilia A. |
| |
• | The unfavorable changeincrease inOther (income)/deductions––net primarily reflects:
|
| |
◦ | lower royalty income for Enbrel of $414 million, resulting from the expiration on October 31, 2016 of the 36-month royalty period under the collaboration agreement for Enbrel in the U.S. and Canada (the collaboration period under the agreement expired on October 31, 2013), |
partially offset by:
| |
◦ | an increase of $204 million in dividend income from our investment in ViiV; |
| |
◦ | the addition of $160 million of Xtandi royalty income; and |
| |
| ◦ | a $50$14 million milestone payment received for an out-licensed product.increase in dividend income from our investment in ViiV. |
Essential Health Operating Segment
Revenues
EH Revenues decreased $2.1 billion,$542 million, or 12%3%, to $15.6$15.1 billion, reflecting a 11%an operational decrease of which 4% operationally was due to$894 million, or 6%, partially offset by the sale of HIS. Foreign exchange had an unfavorablefavorable impact of 1% on EH Revenuesforeign exchange of $352 million, or 2%.
The following provides an analysis of the decrease in EH worldwide Revenues: |
| | | | |
| (MILLIONS OF DOLLARS) | | |
EH Revenues, for the nine months ended October 2, 2016 | | $ | 17,725 |
|
| | | |
| Disposition-related operational impact: | | |
| Approximately one month of HIS domestic operations and approximately two months of HIS international operations in the first nine months of 2017, compared to nine months of HIS global operations in the same period in 2016 (February 2017 sale) | | (783 | ) |
| | | |
| Other operational growth/(decline): | | |
| Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Lyrica and Vfend, both primarily in developed Europe | | (779 | ) |
| Decline in the Legacy Established Products portfolio | | (250 | ) |
| Decline from the Sterile Injectable Pharmaceuticals portfolio, primarily due to legacy Hospira product shortages in the U.S. | | (169 | ) |
| Growth from Biosimilars | | 143 |
|
| Other operational factors, net | | (26 | ) |
| Operational decline, net | | (1,864 | ) |
| | | |
| Unfavorable impact of foreign exchange | | (222 | ) |
EH Revenues decrease | | (2,086 | ) |
EH Revenues, for the nine months ended October 1, 2017 | | $ | 15,639 |
|
Total EH revenues in developed markets decreased $2.2 billion, or 17%, to $10.5 billion, reflecting a 17% operational decline, of which 5% operationally was due to the unfavorable impact of the sale of HIS. Total EH revenues in developed markets were also negatively impacted by a 36% operational decline from Peri-LOE Products, a 7% operational decline in the Legacy Established Products portfolio and a 9% operational decline from the Sterile Injectable Pharmaceuticals portfolio, partially offset by 64% operational growth from Biosimilars. Foreign exchange had an unfavorable impact of 1%. |
| | | | |
| (MILLIONS OF DOLLARS) | | |
EH Revenues, for the nine months ended October 1, 2017 | | $ | 15,639 |
|
| | | |
| Operational growth/(decline): | | |
| Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH), primarily due to expected declines in Lyrica in developed Europe and Pristiq in the U.S. due to generic competition | | (463 | ) |
| Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | | (419 | ) |
| Decline in the LEP portfolio primarily driven by lower revenues in developed markets | | (314 | ) |
| Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017 | | (97 | ) |
| Positive impact of Viagra, mostly driven by the shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 (due to the loss of exclusivity of Viagra in the U.S. in December 2017), partially offset by lower revenues in developed Europe markets (previously reported in EH) | | 216 |
|
| Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | | 165 |
|
| Other operational factors, net | | 19 |
|
| Operational decline, net | | (894 | ) |
| | | |
| Favorable impact of foreign exchange | | 352 |
|
EH Revenues decrease | | (542 | ) |
EH Revenues, for the nine months ended September 30, 2018 | | $ | 15,097 |
|
Total EH revenues from emerging markets increased $131$680 million, or 3%13%, to $5.8 billion from $5.1 billion, reflecting 6% operational growth, primarily driven by 5%11% operational growth from the Legacy Established ProductsLEP portfolio and 15%13% operational growth from the Sterile Injectable PharmaceuticalsSIP portfolio, partially offset by a 2% operational decline from the Peri-LOE Products portfolio. Foreign exchange had an unfavorablea favorable impact of 3%. Excluding HIS in both periods,2% on total EH revenues infrom emerging markets grew 7% operationally.markets.
Costs and Expenses
The changes in EH expenses below reflect, among other things, the favorable impact of the February 2017 sale of HIS. The operating results of HIS are included in EH’s operating results through February 2, 2017 and, therefore, operating results for EH for the first nine months of 2017 include approximately one month of HIS domestic operations and approximately two months of HIS international operations, while operatingoperations. Operating results for EH for the first nine months of 20162018 do not reflect nine months ofany contribution from HIS global operations.
Cost of sales as a percentage of Revenues increased 1.8 percentage points, primarily due to:
| |
•◦ | Costhigher sales volume of Inflectra in the U.S. and developed Europe, and higher Pfizer CentreOne sales as a percentagevolumes, both of Revenues increased 1.2 percentage points, primarily due to cost increases reflecting the shift to EH of certain legacy Hospira costs that were previously unallocated to EH as a result of harmonizing the Hospira cost policy, and the impact ofwhich carry higher product losses of exclusivity, partially offset by the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products, and the favorable impact of foreign exchange.
costs; |
| |
•◦ | The decreaselower sales volumes and margins as a result of product losses of exclusivity and generic competition in Cost of sales of 8% primarily reflects;
developed markets; and |
| |
| ◦ | the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products; |
| |
◦ | the favorableunfavorable impact of foreign exchange; |
| |
◦ | a net decrease in royalty expense and, to a lesser extent, |
| |
◦ | lower volumes driven by, among other things, the SIP portfolio, primarily due to legacy Hospira product shortages in the U.S.,exchange, |
partially offset by:
| |
| ◦ | lower sales volumes in the SIP portfolio, which carries a higher cost increases reflecting the shift to EH of certainproduce, in developed markets, primarily due to continued legacy Hospira costs that were previously unallocated to EH as a result of harmonizingproduct shortages in the Hospira cost policy.U.S.; and |
| |
•◦ | Selling, informational and administrativeexpenses decreased 9% primarily due to lower advertising, promotional, and field force expenses associated with products that recently lost marketing exclusivity and certain other expensesthe non-recurrence of charges related to disputesa product recall that occurred in 2017.
|
The increase in Cost of sales of 3% was primarily due to:
| |
| ◦ | higher sales volumes of Inflectra in the ordinary courseU.S. and developed Europe, and higher Pfizer CentreOne sales volumes, both of business, as well as the favorable impact of the sale of HISwhich carry higher product costs; and the favorable impact of foreign exchange, partially offset by increased spending for biosimilars, primarily related to the U.S. launch of Inflectra. |
| |
•◦ | Research and developmentexpenses decreased 14%, primarily due to the close-out of certain post-marketing clinical trials and the favorableunfavorable impact of the saleforeign exchange,
|
partially offset by:
| |
| ◦ | lower sales volumes driven by product losses of HIS.exclusivity and generic competition in developed markets; and |
| |
•◦ | The unfavorable change in Other (income)/deductions––net primarily reflects the non-recurrence of charges related to a resolution of a contract disagreementproduct recall that occurred in the first quarter of 2016, partially offset by a gain on the redemption of an acquired bond.
2017. |
Selling, informational and administrativeexpenses decreased 9% mainly due to lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and lower general and administrative expenses, partially offset by additional investments in China and the unfavorable impact of foreign exchange.
Research and developmentexpenses decreased 10%, primarily due to decreased spending for biosimilars as several programs have reached completion.
The unfavorable change in Other (income)/deductions––net primarily reflects the non-recurrence of income from resolution of a contract disagreement, the non-recurrence of a gain on the redemption of an acquired bond in 2017 and the unfavorable impact of foreign exchange, partially offset by an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights.
ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Changes in the components of Accumulated other comprehensive loss for the third quarter and first nine months of20172018 reflect the following:
| |
• | For Foreign currency translation adjustments, net, for the third quarter of 2017, primarily reflects the weakening of the U.S. dollar against the euro, Canadian dollar and Australian dollar; for the first nine months of 2017, primarily reflects the weakening of the U.S. dollar against the euro, Canadian dollar, Swedish krona and the Australian dollar. For the first nine months of 2017, also includes the reclassification of amounts related to the agreement to sell our 40% ownership investment in Teuto. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 2D. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments.For Foreign currency translation adjustments, net,the third quarter of 2018 primarily reflects the strengthening of the U.S. dollar against the Chinese renminbi, U.K. pound and Australian dollar, and for the first nine months of 2018, primarily reflects the strengthening of the U.S. dollar against the U.K. pound, Turkish lira and Brazilian real, partially offset by the weakening of the U.S. dollar against the Japanese yen. For Unrealized holding gains/(losses) on derivative financial instruments, net and Unrealized holding gains/(losses) on available-for-sale securities, net, reflects the impact of fair value re-measurements and the reclassification of amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards and Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. For Benefit plans: actuarial gains/(losses), net, the third quarter of 2018 primarily reflects (i) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income, (ii) the favorable impact of foreign exchange, (iii) settlement activity and (iv) an $8 million reduction in the plan liability due to an interim re-measurement. For the first nine months of 2018, primarily reflects (i) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income, (ii) a $92 million reduction in the plan liability due to an interim re-measurement, (iii) settlement activity and (iv) the favorable impact of foreign exchange. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10.Pension and Postretirement Benefit Plans. For Benefit plans: prior service costs and other, net, the third quarter and the first nine months of 2018 reflect the reclassification into income of amounts related to (i) amortization of changes in prior service costs and credits previously recognized in Other comprehensive income and (ii) curtailment activity. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. For Tax provision/(benefit) on other comprehensive income/(loss), the first nine months of 2018 reflect the reclassification of the stranded tax amounts related to the TCJA from AOCI to Retained earnings, which was recorded in the first quarter of 2018. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards and Notes to Condensed Consolidated Financial Statements—Note 5D.Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Income/(Loss). |
| |
• | For Unrealized holding losses on derivative financial instruments, net and Unrealized holding gains on available-for-sale securities, net, reflect the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.
|
| |
• | For Benefit plans: actuarial losses, net, for the third quarter and first nine months of 2017, primarily reflects (i) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income; (ii) the unfavorable impact of foreign exchange; and (iii) an increase in actuarial losses due to an interim remeasurement. The first nine months of 2017 also reflects the remeasurement gain due to the settlement of the Hospira U.S. qualified defined benefit plan. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.
|
ANALYSIS OF THE CONDENSED CONSOLIDATED BALANCE SHEETS
For information about certain of our financial assets and liabilities, including Cash and cash equivalents, Short-term investments, Long-term investments, Short-term borrowings, including current portion of long-term debt, and Long-term debt, see the “Analysis of the Condensed Consolidated Statements of Cash Flows” section of this MD&A, the “Analysis of Financial Condition, Liquidity and Capital Resources: Selected Measures of Liquidity and Capital Resources” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.
For information about certain balances in Trade accounts receivable, less allowance for doubtful accounts, see also the “Analysis of Financial Condition, Liquidity and Capital Resources: Selected Measures of Liquidity and Capital Resources: Accounts Receivable” section of this MD&A.
For information about events and circumstances impacting our tax-related accounts, see Notes to Condensed Consolidated Financial Statements—Note 5. Tax Matters.
For information related to changes in Accumulated other comprehensive loss, see the “Analysis of the Condensed Consolidated Statements of Comprehensive Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests.
The changes in our asset and liability accounts as of October 1, 2017,September 30, 2018, compared to December 31, 20162017, generally reflect, among other things, the impact of assets acquired and liabilities assumed as part of the acquisition of AstraZeneca’s small molecule anti-infectives business, measurement period adjustments related to the acquisition of Medivation, and fluctuations in foreign currency exchange rates, as well as the impact of the adoption of new accounting standards in the first quarter of 2018. The following explanations exclude the impact of the acquisition of AstraZeneca’s small molecule anti-infectives business, measurement period adjustments related to the acquisition of Medivation, as well as the sale of HIS to ICU Medical and foreign exchange and the impact of the adoption of new accounting standards in the first quarter of 2018 (see Notes to Condensed Consolidated Financial Statements––Statements—
Note 2. Acquisitions, Sale1B. Basis of Hospira Infusion Systems Net Assets,Presentation and Significant Accounting Policies: Adoption of New Accounting Standards for additional information).
For Trade accounts receivable, less allowance for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business.
For Inventories, the change reflects the increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery, network strategy and new product launches.
For Other current assets, the change reflects an increase in receivables associated with derivative financial instruments, partially offset by the receipt of a milestone payment related to the first marketing authorization for ertugliflozin (see Notes to Condensed Consolidated Financial Statements—Note 2D. Acquisition, Divestitures, Licensing Arrangements, Collaborative ArrangementArrangements and Equity-Method Investments and Privately Held Investment: Collaborative Arrangements).
For PP&E,the change primarily reflects capital additions in the normal course of business, partially offset by depreciation during the period.
For Identifiable intangible assets, less accumulated amortization, the change primarily reflects amortization for the period, partially offset by an intangible asset recorded in connection with the EU approval of Mylotarg (see Notes to Condensed Consolidated Financial Statements—Note 9.9A. Identifiable Intangible Assets and Goodwill for additional information)Goodwill: Identifiable Intangible Assets).
For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business.
For Other current liabilities, the change reflects a decrease in liabilities associated with:
| |
•◦ | For Trade accounts receivable, less allowancepayments for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business.
|
| |
• | For Inventories, the change reflects the build of inventory primarily for and in advance of new or potential product launches and increases to meet targeted levels for certain products in the normal course of business, including those related to demand.
|
| |
• | For Other current assets, the change reflects a decrease in receivables associated with our derivative financial instruments, as well as the timing of receipt and payments in the normal course of business, partially offset by an increase in VAT receivable balances due to a change in our supply chain.
|
| |
• | For PP&E,the change primarily reflects depreciation during the period and reductions due to restructuring efforts, partially offset by capital additions in the normal course of business.
|
| |
• | For Identifiable intangible assets, less accumulated amortization, the change primarily reflects amortization for the period, partially offset by intangible assets recorded in connection with the EU and U.S. approvals of Besponsa.For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities.
|
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• | For Other noncurrent assets, the change reflects a decrease in receivables associated with our derivative financial instruments, partially offset by net increases in the normal course of business.
|
| |
• | For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business, including the impact of efforts to improve working capital efficiencies.
|
| |
• | For Accrued compensation and related items, the decrease reflects normal bonus payments made to employees and a reduction related to the termination of a Hospira U.S. qualified defined benefit pension plan, partially offset by current year’s accruals. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.
|
| |
• | For Other current liabilities, the change reflects a decrease in liabilities associated with:
contingent consideration obligations; |
| |
| ◦ | payment for consideration transferred for Medivation;payments to settle certain legal and product liability obligations; |
| |
| ◦ | payments for restructuring activities and activities; |
| |
| ◦ | payments for liabilitiesthe current portion of obligations recorded in connection with the U.S. approval of Bosulif, and the EU and U.S. approvals of Besponsa (see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities); and |
| |
| ◦ | payables related to derivative financial instruments, |
partially offset by increases related to:
| |
| ◦ | payments and accruals in the closeoutnormal course of bococizumab clinical studies;business; and |
| |
| ◦ | our derivative financial instruments,reclassifications from noncurrent liabilities. |
partially offset by:For Pension benefit obligations, net, the decrease primarily reflects a voluntary pension contribution, direct employer benefit payments, and an interim re-measurement in a U.S. non-qualified plan.
◦For Other noncurrent liabilities, the change reflects an increase related to accrued healthcare fees;in liabilities associated with:
| |
◦ | an accrual for net funds due to ICU Medical for net economic benefit payments (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)); and
|
| |
◦ | the impact of timing of payments in the normal course of business. |
| |
• | For Pension benefit obligations, net, the decrease primarily reflects the $1.0 billion voluntary pension contribution in January 2017 and payments to plan participants.
|
| |
• | For Other noncurrent liabilities, the change reflects a decrease in liabilities associated with:
|
| |
| ◦ | an increase in reclassification of short-term liabilities; |
| |
◦ | ourpayables, associated with derivative financial instruments; and |
| |
| ◦ | an increase in liabilities associated with the reversalsale-leaseback of a contingent liability as a result of exiting our investment in TeutoNew York headquarters (see Notes to Condensed Consolidated Financial Statements––Statements—Note 2D. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement12C. Contingencies and Equity-Method Investments: Equity Method Investments),Certain Commitments: Certain Commitments for additional information); and |
| |
| ◦ | a change in the fair value of contingent consideration (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net), |
partially offset by:
| |
| ◦ | an increase of $351 millionreclassifications to record obligations in connection with the EU and U.S. approvals of Besponsa(see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities);
|
| |
◦ | an increase in deferred revenue from a milestone payment received from Merck for the ertugliflozin collaboration agreement (see Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Collaboration Arrangement); and
|
| |
◦ | accruals in the normal course of business. |
| |
• | For Treasury stock, the change reflects $5 billion paid to Citibank in February 2017 pursuant to the terms of an accelerated share repurchase agreement. See Notes to Condensed Consolidated Financial Statements—Note 12. Commitments and Contingencies for additional information.
current liabilities. |
For Treasury stock, the change reflects $4.0 billion paid to Citibank in March 2018 pursuant to the terms of an accelerated share repurchase agreement as well as open market share repurchases. See Notes to Condensed Consolidated Financial Statements—Note 12C. Contingencies and Certain Commitments: Certain Commitments for additional information.
ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | Nine Months Ended | | | | Nine Months Ended | | |
| (MILLIONS OF DOLLARS) | | October 1,
2017 |
| | October 2,
2016 |
| | %
Change |
|
| September 30,
2018 |
| | October 1,
2017 |
| | %
Change |
| Cash provided by/(used in): | | | | | | |
| | | | | |
Operating activities(a) | | $ | 9,728 |
| | $ | 10,151 |
| | (4 | ) |
| $ | 11,089 |
| | $ | 9,713 |
| | 14 |
| Investing activities | | 38 |
| | (4,704 | ) | | * |
|
| 5,289 |
| | 19 |
| | * |
Financing activities(a) | | (9,650 | ) | | (6,915 | ) | | 40 |
|
| (14,034 | ) | | (9,607 | ) | | 46 |
| Effect of exchange-rate changes on cash and cash equivalents | | 67 |
| | (79 | ) | | * |
| |
Net increase/(decrease) in Cash and cash equivalents | | $ | 184 |
| | $ | (1,547 | ) | | * |
| |
| Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | | (116 | ) | | 67 |
| | * |
Net increase in Cash and cash equivalents and restricted cash and cash equivalents | | | $ | 2,227 |
| | $ | 193 |
| | * |
| * Calculation not meaningful or results are equal to or greater than 100%. | | * Calculation not meaningful or results are equal to or greater than 100%. |
| |
* | Calculation not meaningful. |
| |
(a)
| Amounts for the nine months ended October 2, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016, that requires that cash flows present (i) excess tax benefits as Other tax accounts, net as part of operating activities, rather than financing activities on a prospective basis beginning in the year of adoption, and (ii) cash paid by us when directly withholding shares for tax-withholding purposes as a cash outflow from financing activities, rather than operating activities and is reflected in the year of adoption. The year-to-date excess tax benefit was $87 million in the first nine months of 2016. For cash paid by us for withholding purposes, $134 million for the first nine months of 2016 is presented as financing activitiesin the condensed consolidated statement of cash flows (see Notes to Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards).
|
In the condensed consolidated statements of cash flows, the line item Other changes in assets and liabilities, net of acquisitions and divestitures is presented excluding the effects of changes in foreign currency exchange rates, as these changes do not reflect actual cash inflows or outflows, and excluding any other significant non-cash movements. Accordingly, the amounts shown will not necessarily agree with the changes in the assets and liabilities that are presented in our condensed consolidated balance sheets.
Operating Activities
Our net cash provided by operating activities was $9.7$11.1 billion in the first nine months of 20172018, compared to $10.2$9.7 billion in the same period in 20162017. The decreaseincrease in net cash provided by operating activities reflects an increase in net cash generated from net income. The net cash generated reflects the timing of receipts from customers and payments to vendors in the ordinary course of business, as well as an increase in benefit plan contributions.business.
In the first nine months of 20172018, the change in the line item Other adjustments, net primarily reflects, among other items, the decrease in the provision for bad debt expense, an increase in dividends from an equity-method investment reclassified to investing activities in 2017 and an increase initems:
unrealized net gains on equity securities resulting from the adoption of a new accounting standard on January 1, 2018 related to financial assets and liabilities (see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards);
a non-cash gain associated with our transaction with Bain Capital to create a new biopharmaceutical company to continue development of a portfolio of clinical and preclinical stage neuroscience assets (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures); and
a non-cash gain on the contribution of Pfizer’s allogeneic CAR T developmental program assets, in connection with our contribution agreement with Allogene (see Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures),
partially offset by:
net losses on foreign exchange contracts hedging a portion of our forecasted intercompany inventory sales (that fixes the cost of PP&E.inventory sold later to customers); and
a decrease in gains on the sale of property, plant and equipment.
In the first nine months of 20172018 and 20162017, the line item Other changes in assets and liabilities, net of acquisitions and divestitures, primarily reflects changes, in the normal course of business, in trade accounts receivable, inventories, other current assets, other noncurrent assets, trade accounts payable, accrued compensation and other current and noncurrent liabilities. For the first nine months of 2016, this line item also includes the adjustments necessary to reflect the payments of certain legal claims accrued in prior periods, including for Protonix-related matters. For additional information about accounts receivable, see also the “Selected Measures of Liquidity and Capital Resources: Accounts Receivable” section of this MD&A.
For additional information about changes in other assets and liabilities account balances, see alsothe “Analysis of the Condensed Consolidated Balance Sheets” in this MD&A.
Investing Activities
Our net cash provided by investing activities was $38 million$5.3 billion in the first nine months of 20172018, compared to net cash used inprovided by investing activities of $4.7 billion$19 million in the same period in 20162017. The changeincrease in net cash provided by investing activities was primarily attributable to:
| |
• | a decrease in cash used for acquisitions—cash paid of $1.0 billion, net of cash acquired, primarily for the acquisition of AstraZeneca’s small molecule anti-infectives business in 2017 and substantially all of the remaining consideration for the Medivation acquisition, compared to cash paid of $17.7 billion, net of cash acquired, primarily for the acquisitions of Medivation, Bamboo and Anacor in 2016 (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Acquisitions); andan increase in net proceeds generated from the sale of investments of $4.5 billion in 2018 for cash needs; and a decrease in cash used for acquisitions, net of cash acquired of $1.0 billion due to the acquisition of the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business and substantially all of the remaining consideration for the Medivation acquisition in 2017 (see Notes to Condensed Consolidated Financial Statements—Note 2A.
Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Acquisition). |
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• | an increase in Other investing activities, net, including dividends received from an equity-method investment,
|
partially offset by:
| |
• | less net proceeds generated from the sale of investments of $12.2 billion in 2017 for cash needs.
|
Financing Activities
Our net cash used in financing activities was $9.6$14.0 billion in the first nine months of 20172018, compared to $6.9$9.6 billion in the same period in 20162017. The changeincrease in net cash used in financing activities was primarily attributable to:
| |
• | $2.2$3.2 billion less proceeds raised from short-term borrowings in the first nine months of 2018, compared to the first nine months of 2017; and higher purchases of common stock of $2.2 billion, less proceeds raised from net short-term borrowings in the first nine months of 2017, compared to the first nine months of 2016; and |
| |
• | $5.8 billion cash dividends paid in the first nine months of 2017, compared to $5.5 billion in the same period in 2016,
|
partially offset by:
| |
• | the issuance of long-term debt of $5.3 billion in the first nine months of 2017, compared to $5.0 billion in the same period in 2016 (see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt).lower repayments on long-term debt of $1.4 billion. |
ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We rely largely on operating cash flows, short-term investments, short-term commercial paper borrowings and long-term debt to provide for our liquidity requirements. We continue our efforts to improve cash inflows through working capital efficiencies. We target specific areas of focus including accounts receivable, inventories, accounts payable, and other working capital, which allows us to optimize our operating cash flows. Due to our significant operating cash flows as well as our financial assets, access to capital markets and available lines of credit and revolving credit agreements, we believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future, which include:
the working capital requirements of our operations, including our R&D activities;
investments in our business;
dividend payments and potential increases in the dividend rate;
share repurchases;
the cash requirements associated with our cost-reduction/productivity initiatives;
paying down outstanding debt;
contributions to our pension and postretirement plans; and
business-development activities.
Our long-term debt is rated high-quality by both S&P and Moody’s. See the “Credit Ratings” section below. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified available-for-sale debt securities.
Selected Measures of Liquidity and Capital Resources | | The following table provides certain relevant measures of our liquidity and capital resources: | | (MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA) | | October 1,
2017 |
| | December 31,
2016 |
| | September 30,
2018 |
| | December 31,
2017 |
|
| Selected financial assets: | | | | | | | | |
Cash and cash equivalents(a) | | $ | 2,779 |
| | $ | 2,595 |
| | $ | 3,559 |
| | $ | 1,342 |
|
Short-term investments(a) | | 14,146 |
| | 15,255 |
| | 13,680 |
| | 18,650 |
|
Long-term investments(a) | | 7,311 |
| | 7,116 |
| | 6,444 |
| | 7,015 |
|
| | | 24,236 |
| | 24,967 |
| | 23,684 |
| | 27,007 |
|
| Debt: | | |
| | |
| | |
| | |
|
| Short-term borrowings, including current portion of long-term debt | | 9,448 |
| | 10,688 |
| | 7,385 |
| | 9,953 |
|
| Long-term debt | | 34,503 |
| | 31,398 |
| | 33,652 |
| | 33,538 |
|
| | | 43,951 |
| | 42,085 |
| | 41,037 |
| | 43,491 |
|
Selected net financial liabilities(b) | | $ | (19,714 | ) | | $ | (17,118 | ) | | $ | (17,353 | ) | | $ | (16,484 | ) |
| | | | | | | | | |
Working capital(c) | | $ | 12,074 |
| | $ | 7,834 |
| | $ | 12,569 |
| | $ | 10,714 |
|
| Ratio of current assets to current liabilities | | 1.43:1 |
| | 1.25:1 |
| | 1.43:1 |
| | 1.35:1 |
|
Total Pfizer Inc. shareholders’ equity per common share(d) | | $ | 10.20 |
| | $ | 9.81 |
| | $ | 12.21 |
| | $ | 11.93 |
|
| |
(a) | See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of credit risk related to our financial instruments held. |
| |
(b) | The increase in selected net financial liabilities iswas primarily driven by (i) ourthe decrease in short-term investments the proceeds of which were used for various cash needs, and (ii)partially offset by the net increase in long-termrepayment of debt. We retain a strong financial liquidity position as a result of our net cash provided by operating activities, our high-quality financial asset portfolio and access to capital markets. Both Moody’s and S&P rating agencies maintained our strong investment-grade corporate debt rating subsequent to the acquisitions of Medivation and Anacor. For additional information, see the “Credit Ratings” section of this MD&A. |
financial asset portfolio and access to capital markets. Both Moody’s and S&P rating agencies maintained our strong investment-grade corporate debt rating subsequent to the acquisitions of Medivation and Anacor. For additional information, see the “Credit Ratings” section of this MD&A.
| |
(c) | The increase in working capital iswas primarily due to the timing of accruals, cash receipts and payments in the ordinary course of business, a decline in short-term borrowings and an increase in inventory related to new or potential products, partially offset by a decline in short-term investments used for various cash needs and the sale of HIS assets to ICU Medical.to: |
the timing of accruals, cash receipts and payments in the ordinary course of business;
a decrease in short-term borrowings as a result of repayments of commercial paper; and
an increase in inventory related to increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery, network strategy and new product launches,
partially offset by:
a decrease in Short-term investments mainly driven by the financing requirements for share repurchase activities, dividend payments, capital expenditures and debt repayment, partially offset by operating cash flow generation, cash from employee stock option exercises and reclassification of long-term to short-term investments;
an increase in income taxes payable related to the timing of accruals in certain major markets in the ordinary course of business and the reclassification of the first federal installment of transition tax previously recorded in noncurrent liabilities; and
the net impact of foreign currency exchange.
| |
(d) | Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury stock). |
On September 7, 2018, we completed a public offering of $5.0 billion aggregate principal amount of senior unsecured notes (see Notes to Consolidated Financial Statements––Note 7D.Financial Instruments: Long-Term Debt).
On October 6, 2016, we announced that we entered into a definitive agreement under which ICU Medical agreed to acquire all of our global infusion systems net assets, HIS. The revised transaction closed on February 3, 2017. At closing, we received 3.2 million newly issued shares of ICU Medical common stock (as originally agreed). In August 2018, we sold 700,000 shares of ICU Medical common stock. We continue to hold 2.5 million shares of ICU Medical common stock. The lock-up period under the shareholder agreement that we entered into with ICU Medical in connection with these shares expired on August 3, 2018 and the shares are registrable upon our request subject to the terms thereof. Given that the shares were received in connection with our divestiture of the HIS business, and that our business model is generally not to invest in equities, we are evaluating our options to monetize the shares subject to market conditions and other relevant factors.
For additional information about the sources and uses of our funds, see the “Analysis of the Condensed Consolidated Balance Sheets” and the “Analysis of the Condensed Consolidated Statements of Cash Flows” sections of this MD&A.
On March 17, 2017, we completed a public offering of $1.065 billion principal amount of senior unsecured notes due 2047 with an interest rate of 4.20%, and on March 6, 2017, we completed a public offering of €4.0 billion principal amount of senior unsecured notes with a weighted-average effective interest rate of 0.23% (see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt).
Domestic and International Short-Term FundsSelected Financial Assets
Many of our operations are conducted outside the U.S., and significant portions of our cash, cash equivalents and short-term investmentsselected financial assets are held internationally. We generally hold up to $10 billion of these short-term funds in U.S. tax jurisdictions. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows (both inflows and outflows). Repatriation of overseas funds can resultGiven the recent changes in additionaltax law under the TCJA, which includes transitioning U.S. federal, state and local income tax payments. We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be indefinitely reinvested outside the U.S., no accrual for U.S. taxes is provided.
Accounts Receivable
We continue to monitor developments regarding government and government agency receivables in several European markets where economic conditions remain challenging and uncertain. Historically, paymentsinternational taxation from a number of these European governments and government agencies extend beyond the contractual terms of sale. Specifically, we received delayed payments for 2016 revenues from the Greek government; virtually all Greece government receivables pertainworldwide tax system to 2017 revenues. Also, the Greek government restructured its debt to other third partiesa territorial tax system, in the thirdfourth quarter of 2016. We determined2017, we recorded an estimated repatriation tax on deemed repatriated accumulated post-1986 earnings of foreign subsidiaries for which we plan to elect payment over eight years through 2026. These changes will also allow us to more easily access our allowance for doubtful accounts to reflect these events, and have $35 millionselected financial assets globally. As a result of the enactment of the TCJA, in net receivables from2018 we repatriated the Greek governmentmajority of our cash we held internationally as of October 1, 2017. Reported revenues from all customers in Greece for the nine months ended October 1, 2017 were $180 million.year-end 2017.
We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on an analysis of the following: (i) payments received to date; (ii) the consistency of payments from customers; (iii) direct and observed interactions with the governments (including court petitions) and with market participants (for example, the factoring industry); and (iv) various third-party assessments of repayment risk (for example, rating agency publications and the movement of rates for credit default swap instruments).
As of October 1, 2017, we had about $533 million in aggregate gross accounts receivable from governments and/or government agencies in Italy, Spain, Greece and Portugal where economic conditions remain challenging and uncertain. Such receivables in excess of one year from the invoice date, totaling $65 million, were as follows: $40 million in Italy; $18 million in Portugal; $4 million in Greece; and $3 million in Spain.
Although certain European governments and government agencies sometimes delay payments beyond the contractual terms of sale, we seek to appropriately balance repayment risk with the desire to maintain good relationships with our customers and to ensure a humanitarian approach to local patient needs.
We will continue to closely monitor repayment risk and, when necessary, we will continue to adjust our allowance for doubtful accounts.
Our assessments about the recoverability of accounts receivables can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies:Estimates and Assumptions included in our 2016 Financial Report.
Credit Ratings
Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to our short-term and long-term debt. A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.
|
| | | | | | |
| The following table provides the current ratings assigned by these rating agencies to our commercial paper and senior unsecured long-term debt: |
| NAME OF RATING AGENCY | | Pfizer Commercial Paper | | Pfizer Long-Term Debt | Date of Last Rating Change |
| | Rating | | Rating | |
Moody’s(a) | | P-1 | | A1 | | October 2009 |
S&P(b) | | A-1+ | | AA | | October 2009 |
| |
(a) | In September 2016, Moody’s updated their credit outlook from negative outlook to stable. |
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(b) | In April 2016, S&P updated their credit outlook from negative watch to stable. |
Debt CapacityCapacity––Lines of Credit
We have available lines of credit and revolving credit agreements with a group of banks and other financial intermediaries. We typically maintain cash and cash equivalent balances and short-term investments in excess of our commercial paper and other short-term borrowings. As of October 1, 2017,September 30, 2018, we had access to $7.8$7.6 billion of lines of credit, of which $689$571 million expire within one year. Of these lines of credit, $7.7$7.6 billion were unused, of which our lenders have committed to loan us $7.0$7.1 billion at our request. Also, $7.0 billion ofrequest, primarily under our unused lines ofrevolving credit all of which expirefacility expiring in 2021,2022, and may be used to support our commercial paper borrowings.
Global Economic Conditions––General
The global economic environment has not had, nor do we anticipate it will have, a material impact on our liquidity or capital resources. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. We monitor our liquidity position continuously in the face of evolving economic conditions.
For additional information see “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment––The Global Economic Conditions––U.K.
In June 2016, the U.K. electorate votedEnvironment” section in a referendum to leave the EU, which is commonly referred to as “Brexit”. In January 2017, the U.K. Prime Minister announced a 12-point plan of negotiating objectives and confirmed that the U.K. government will not seek continued membership in the EU single market. In March 2017, the U.K. government formally notified the
European Council of its intention to leave the EU after it triggered Article 50 of the Lisbon Treaty to begin the two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. This process continues to be highly complex and the end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU, including the approval of our products.
We generated approximately 2% of our worldwide revenues from the U.K. in the first nine months of 2017. However, except for the foreign currency exchange impact from the weakening U.K. pound relative to the U.S. dollar to date, there are no other immediate-term impacts to our business as there has not yet been a formal change in the relationship between the U.K. and the EU. In addition, because of the significant uncertainties associated with the negotiation process, any potential long-term impacts are not currently determinable.this MD&A.
Global Economic Conditions––Venezuela Operations
Our Venezuela operations continue to operate with the U.S. dollar as the functional currency due to the hyperinflationary status of the Venezuelan economy.
In the second quarter of 2015,We used the Venezuelan government identified three official rates of exchange. These were the CENCOEXbolivar soberano rate of 6.3; the SICAD rate of 13.5 (as of November 2017); and the SIMADI rate of 3,345 (as of November 2017). Effective in March 2016, the CENCOEX rate was replaced by the DIPRO rate of 10 (as of February 2017); the SICAD rate ceased60.27 as our best estimate to be offered; and the SIMADI rate was planned to be replaced by the DICOM rate.revalue our Venezuelan bolivar denominated net monetary assets. The Venezuelan government continued to publish the SIMADI rate, which was commonly referred to as thecurrent DICOM rate and then began to publish the DICOM rate beginning in August 2017. That SIMADI, now DICOM, rate has grown from 206 in March 2016 tois about 3,345 (as of November 2017). Based on conditions in Venezuela, we resolved that our Venezuelan bolivar-denominated net monetary assets that are subject to revaluation are no longer expected to be substantially settled at the Venezuelan government CENCOEX official rate of 6.3 or the DIPRO official rate of 10, but at a rate of 500 at the end of the second quarter and third quarter of 2016, and 670 at the end of the fourth quarter of 2016, and at the end of the first and second quarters of 2017, and 2,640 at the end of the third quarter of 2017.
We cannot predict whether there will be further devaluations of the Venezuelan currency or whether our use of the DICOM rate will continue to be supported by evolving facts and circumstances. Further, other potential64.89. Future actions by the Venezuelan government in response to economic uncertainties could impact the recoverability of our investment in Venezuela, which could result in an impairment charge and, under extreme circumstances, could impact our ability to continue to operate in the country in the same manner as we have historically.
On July 11, 2016, the Venezuelan government administration announced a new program under a State of Emergency decree that is intended to control the use of raw materials, production and distribution of products, specifically for medicines and foods. It is uncertain how this program will be applied to Pfizer in Venezuela. We continue to operate under adverse conditionshave in Venezuela and have $6 million ofa few net monetary assets and $40$46 million of non-monetary assets, excluding inventory carried at lowerand $11 million of cost or market,deferred foreign exchange losses reported in Venezuelathe balance sheet in Accumulated other comprehensive loss––Foreign currency translation adjustments at August 27, 2017,26, 2018, our international quarter-end.
Our Argentina operations function in a hyperinflationary economy. The impact to Pfizer is not considered material.
Off-Balance Sheet Arrangements
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to events and activities prior to or following a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we wouldmay be required to reimburse the loss. These indemnificationsindemnification obligations generally are subject to threshold amounts, specified claim periods and othervarious restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of October 1, 2017, recorded amounts forSeptember 30, 2018, the estimated fair value of these indemnifications wereour indemnity obligations was not significant.
Certain of our co-promotion or license agreements give our licensors or partners the rights to negotiate for, or in some cases to obtain under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products.
Share-Purchase Plans and Accelerated Share Repurchase Agreements
Our October 2014December 2015 $11 billion share-purchase planshare repurchase program was exhausted in the firstthird quarter of 2017. 2018.
In December 2015,2017, the Board of Directors authorized an $11additional $10 billion share repurchase program, and share repurchases commenced thereunder in the firstthird quarter of 2017.2018 (the 2017 program).
On February 2, 2017,March 12, 2018, we entered into an accelerated share repurchase agreement with Citibank to repurchase $5$4.0 billion of our common stock. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12. CommitmentsContingencies and ContingenciesCertain Commitments and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities” in Part II, Item 2 of this Quarterly Report on Form 10-Q.
| | | The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced accelerated share repurchase agreements: | |
| The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced share purchase plans, including our accelerated share repurchase agreements: | | The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced share purchase plans, including our accelerated share repurchase agreements: |
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (SHARES IN MILLIONS, DOLLARS IN BILLIONS) | | October 1, 2017 |
| | October 2, 2016 |
| | October 1,
2017(a) |
| | October 2,
2016(b) |
| | September 30, 2018(a) |
| | October 1, 2017 |
| | September 30, 2018(a) |
| | October 1, 2017(b) |
|
| Shares of common stock purchased | | — |
| | — |
| | 150 |
| | 154 |
| | 47 |
| | — |
| | 192 |
| | 150 |
|
| Cost of purchase | | $ | — |
| | $ | — |
| | $ | 5.0 |
| | $ | 5.0 |
| | $ | 1.1 |
| | $ | — |
| | $ | 7.2 |
| | $ | 5.0 |
|
| |
(a) | Represents shares purchased pursuant to an accelerated share repurchase agreement with Citibank.Citibank entered into on March 12, 2018, as well as other share repurchases. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12. CommitmentsContingencies and ContingenciesCertain Commitments and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities” in Part II, Item 2 of this Quarterly Report on Form 10-Q.10-Q and the Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018. |
| |
(b) | Represents shares purchased pursuant to an accelerated share repurchase agreement entered into on March 8, 2016.February 2, 2017. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our 20162017 Financial Report. |
At October 1, 2017,September 30, 2018, our remaining share-purchase authorization under the 2017 program was approximately $6.4$9.2 billion.
Dividends on Common Stock
In September 2017,2018, our Board of Directors declared a dividend of $0.32$0.34 per share, payable on December 1, 20173, 2018, to shareholders of record at the close of business on November 10, 20179, 2018.
NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
See Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant AccountingPolicies: Adoption of New Accounting Standards.
Recently Issued Accounting Standards, Not Adopted as of October 1, 2017
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| | | | |
The following table provides a brief descriptionRecently Issued Accounting Standards, Not Adopted as of recently issued accounting standards, not yet adopted:
September 30, 2018 |
| Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In May 2014, the FASB issued amended guidance related to revenue from contracts with customers. The new guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance the FASB has issued six ASUs, amending the guidance and effective date, and the SEC has rescinded certain related SEC guidance; the most recent of these changes was issued in December 2016. | | January 1, 2018. | | We have made substantial progress in completing our review of the impact of this guidance across our various business arrangements and revenue-related activities, and do not expect the adoption of this standard to have a material impact on our reported Revenues in our consolidated financial statements, revenue recognition processes, or our internal controls. We are reviewing our disclosures for revenue recognition and do not anticipate significant changes will be needed to conform with the disclosure requirements of the new guidance.
The interpretation and applicability of the new revenue recognition standard to collaboration arrangements in certain industries is still being assessed. We expect that milestone payments received in our collaboration agreements, which are recorded in Other (income)/deductions––net, and currently amortized over the life of the agreement, will, for many arrangements, be amortized over the remaining development period or sooner, if there is a distinct and separable licensing component. We are required to apply the new rules to existing contracts as if the new principles had always existed, and therefore, upon adoption, we expect to record a cumulative effect adjustment to Retained earnings as of the adoption date in the range of $350 million to $550 million to accelerate what would have been future income under the current rules into prior periods. The financial statement impact on pre-tax income is expected to be less than $100 million in any future annual period.
We continue to monitor additional changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact our current conclusions. In addition, we continue to monitor other changes, such as changes in our business, new collaboration arrangements, business combinations, etc., which may impact our current conclusions prior to the adoption date.
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Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In January 2016, the FASB issued an update to its guidance on recognition and measurement of financial assets and liabilities.
Among other things, the new guidance makes the following targeted changes to existing guidance:
1. Requires certain equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.
2. Requires a qualitative assessment of equity investments without readily determinable fair values to identify impairment.
3. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements.
In September 2017, the FASB issued a proposed amendment to this new standard which is intended to clarify certain aspects of the guidance.
| | January 1, 2018. | | We have substantially completed our review of the impact of this new guidance on our consolidated financial statements, and will continue to assess events which may occur prior to adoption. As of October 1, 2017, we have $1.0 billion in available-for-sale equity securities and approximately $273 million of restricted stock and private equity securities which will be subject to the new rules. Further, for the nine months ended October 1, 2017, we recognized $406 million of previously unrealized holding gains and $119 million of previously unrealized losses on available-for-sale equity securities in Other comprehensive income, which would have been recorded to Other (income)/ deductions––net under the new rules. The impact of adoption will be recorded as a cumulative effect adjustment to Retained earnings. We expect the adoption of this new accounting standard may increase the volatility of our income in future periods due to changes in the fair value of equity investments. We do not expect that the proposed amendment, as currently drafted, will have any substantive impact to our assessment discussed above. We continue to monitor changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact our current conclusions.
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In AugustFebruary 2016, the FASB issued new guidance on the classification of certain transactions in the Statement of Cash Flows.
| | January 1, 2018. Earlier application is permitted. | | We have substantially completed our review and will continue to assess events which may occur prior to adoption. Retrospective application is required. Upon adoption, we expect to reclassify approximately $362 million of cash outflows related to debt redemption in 2016 from operating activities to financing activities. We also expect to reclassify approximately $32 million of cash inflows from trust-owned life insurance contracts in 2016 from operating activities to investing activities. Cash outflows from trust-owned life insurance contracts represent benefit payments and are classified as operating activities. In addition, although there is no impact on the presented historical comparative financial statements, the new guidance may impact the classification of certain cash flows related to contingent consideration in a business acquisition, depending on the ultimate settlement amount of the reported contingency liability. |
In October 2016, the FASB issued new guidance on the presentation of restricted cash in the Statement of Cash Flows.
| | January 1, 2018. Earlier application is permitted. | | We have substantially completed our review and will continue to assess events which may occur prior to adoption. Retrospective application is required. Our restricted cash balances as of the end of 2016 were approximately $18.1 million of short-term restricted cash and $45.3 million of long-term restricted cash. Our restricted cash balances as of October 1, 2017 were approximately $6.4 million of short-term restricted cash and $68.7 million of long-term restricted cash. |
In October 2016, the FASB issued an update to its guidance on income tax accounting. The new guidance replaces the prohibition against recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party with a requirement to do so, unless the asset transferred is inventory.
| | January 1, 2018. | | We have substantially completed our review and will continue to assess events which may occur prior to adoption. Our analysis of the standard indicates that our estimate of the impact to our consolidated financial statements, using current assumptions, is not material. However, while we currently do not have any specific plans, we cannot predict intercompany asset transfers other than inventory that may occur in the future, as they are dependent on economic and operational factors that may change over time.
For example, an acquisition might cause us to realign legal entities and to transfer assets between entities as we integrate an acquired company into Pfizer. We anticipate that after adoption, our effective tax rate could be impacted by the immediate recognition of the tax consequences of intercompany asset transfers other than inventory. The impact of adoption will be recorded as a cumulative effect adjustment to Retained Earnings.
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In January 2017, the FASB issued new guidance to clarify the definition of a business. The new guidance provides a new framework for determining whether business development transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If the fair value of the gross assets acquired is concentrated in a single identifiable asset, the transaction will not qualify for treatment as a business. The new guidance also requires that to be considered a business, a set of integrated activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs, without regard as to whether a market participant could replace missing elements. In addition, the new guidance narrows the definition of the term “output” to make it consistent with how outputs are described in the updated revenue recognition guidance.
| | January 1, 2018. Earlier application is permitted. | | We have substantially completed our review and will continue to assess events which may occur prior to adoption. The new accounting standard is applicable on a prospective basis upon adoption and therefore has no impact on completed transactions. We expect that subsequent to our anticipated adoption date of January 1, 2018, fewer transactions will be accounted for as business acquisitions (decreasing the amount of goodwill incurred and potentially increasing IPR&D expense) or disposals of a business. We will continue to monitor for changes in our business, and business combination or other transactions which might close after adoption and be impacted by these new standards. |
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Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In February 2017, the FASB issued amended guidance related to the derecognition of nonfinancial assets.
| | January 1, 2018. Earlier application is permitted. | | We have substantially completed our review and will continue to assess events which may occur prior to adoption. The new guidance applies to the full or partial sale or transfer of nonfinancial assets, including intangible assets, real estate and inventory, under which the gain or loss is the difference between the consideration received and the carrying value of the asset. The new guidance does not impact out-licensing arrangements. We are not expecting a material impact on existing transactions. We will continue to monitor for changes in our business and transactions which might be impacted by these new standards. The impact of adoption, if any, will be recorded as a cumulative effect adjustment to Retained Earnings.
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In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit cost. Under the new rules, entities that sponsor defined benefit plans will present net benefit cost as follows:
1. Service cost will be included in the same income statement line items where other employee compensation costs are reported.
2. The other components of net benefit cost will be presented outside of income from operations, if such a subtotal is presented.
3. Only the service cost component will be capitalized, when applicable (for example, as a cost of inventory, internal-use software, or a self-constructed fixed asset).
If a separate line item is used to present the other components of net benefit cost, it should have an appropriate description. If a separate line item or items is not used, the line item or items in the income statement where the other components of net benefit cost are included must be disclosed.
| | January 1, 2018. | | We have made substantial progress in completing our review of the impact of this new guidance. We anticipate that upon adoption, the net benefit costs other than service costs will be reclassified to Other (income)/deductions-net from their current classification within Cost of sales, Selling, informational and administrative expenses, and Research and development expenses. We expect to adopt the practical expedient which allows us to ignore capitalized pension expense in the retrospective adjustments in our Statements of Income. Net benefit cost/(income) other than service costs was $154 million for the year ended December 31, 2016 and $89 million for the nine months ended October 1, 2017 (see Notes to Condensed Consolidated Financial Statements––Note 10.Pension and Postretirement Benefits for further details). We are still assessing the impact on our results of operations for business segment reporting, changes in accounting processes, such as inventory standard costing methodologies, and policies.
Effective January 1, 2018, future accruals under the Pfizer Consolidated Pension Plan (our largest U.S. defined benefit plan), will freeze, and the Pfizer defined contribution savings plan will provide additional annual contributions to those previously accruing benefits under the Pfizer Consolidated Pension Plan. This change will result in elimination of future service costs for the plan.
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In May 2017, the FASB issued new guidance on the accounting for modifications of share-based payment awards. The new guidance clarifies that changes in the terms or conditions of a share-based payment award be accounted for as a modification unless all the following conditions are met:
1.
The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified.2.
The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.3.
The modification does not change the classification of the award as an equity instrument or a liability instrument. | | January 1, 2018. Early application is permitted, including in interim periods. | | We have substantially completed our review and will continue to assess events that may occur prior to adoption. The new accounting standard is applicable on a prospective basis upon adoption and therefore has no impact on completed transactions. The impact of adopting this guidance will be dependent upon whether we make any future modifications of share-based payment awards, and we have no plans to modify share-based payment awards at this time. |
In February 2016, the FASB issued an update to its guidance on leases. The new ASU provides guidance for both lessee and lessor accounting models. Among other things, the new guidance requires that a right of use asset and a lease liability be recognized for leases with a duration of greater than one year. Since its issuance, the FASB has issued several ASUs, including amending the guidance to offer an additional transition method.
| | January 1, 2019. Earlier application is permitted. | | We have made substantial progress in completing our review of the impact of this new guidance. We anticipate recognition of at leastapproximately $2 billion of additional assets and corresponding liabilities on our balance sheet. We are currently assessinghave also assessed the potential impact of embedded leases on our consolidated financial statements, given our manufacturing outsourcing, service arrangements and other agreements. In connection with this guidance we will need to designare currently designing new global processes and technological solutions to provide the appropriate financial accounting and disclosure data. We continue to monitor changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact our conclusions. |
In March 2017, the FASB issued new guidance that shortens the amortization period for certain callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date. | | January 1, 2019. Early application is permitted, including in interim periods, so long as any adjustments are reflected as of the beginning of the fiscal year that includes the interim period in which the guidance is applied. | | We are assessing the impact of the provisions ofdo not have any investments with features subject to this standard and do not expect this new guidance to have a material impact on our consolidated financial statements. |
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Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In July 2017, the FASB issued new guidance on accounting for certain financial instruments with characteristics of liabilities and equity, and accounting for certain financial instruments with down round features (a feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument). | | January 1, 2019. Earlier application is permitted. | | We are assessing the impact of the provisions ofdo not have any financial instruments with features subject to this standard and do not expect this new guidance to have a material impact on our consolidated financial statements. |
In August 2017,June 2018, the FASB issued new guidance making targeted improvements to accounting for hedging activities. The objective of this amendment is to improve financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements, and also to simplify the applicationaccounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of hedge accounting guidance.equity-classified nonemployee awards will be fixed at the grant date. | | January 1, 2019. Early adoption is permitted, including in interim periods.
| | We are assessing the impact of the provisions ofdo not have any share-based awards issued to nonemployees and do not expect this new guidance to have a material impact on our consolidated financial statements and, pending our final review, we may consider early adoption.statements.
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| Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In June 2016, the FASB issued new guidance on accounting for credit losses of financial instruments. The new guidance replaces the probable initial recognition threshold for incurred loss estimates in current GAAP with a methodology that reflects expected credit loss estimates. | | January 1, 2020. Earlier application is permitted as of fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. | | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. This standard includes our financial instruments, such as accounts receivable, and investments that are generally of high credit quality. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new guidance requires us to identify, analyze, document and support new methodologies for quantifying expected credit loss estimates for our financial instruments, using information such as historical estimatesexperience and current economic environmental conditions, plus the use of reasonable supportable forecast information. |
In January 2017, the FASB issued new guidance for goodwill impairment testing. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. | | January 1, 2020. Earlier application is permitted. | | We have not yet completed our review of the impact of this new guidance on our consolidated financial statements. However, we do not expect this new guidance to have a material impact on our consolidated financial statements. |
In August 2018, the FASB issued new guidance related to customers’ accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. The new guidance aligns the requirements for capitalizing implementation costs in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance can be adopted either prospectively or retrospectively. | | January 1, 2020. Earlier application is permitted. | | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements.
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In November 2018, the FASB issued new guidance clarifying the interaction between the accounting guidance for collaboration agreements and revenue from contracts with customers. | | January 1, 2020. Earlier application is permitted | | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. |
FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written or oral statements that we make from time to time contain forward-looking statements. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “may,” “could,” “likely,” “ongoing,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “assume,” “target,” “forecast,” “guidance,” “goal,” “objective,” “aim” and other words and terms of similar meaning or by using future dates in connection with any discussion of, among other things, our anticipated operating and financial performance, business plans and prospects, in-line products and product candidates, including anticipated regulatory submissions, data read-outs, study starts, approvals, performance, timing of exclusivity and potential benefits of Pfizer’s products and product candidates, strategic reviews, capital allocation, business-development plans, the benefits expected from our plans to organize our commercial operations into three businesses effective at the beginning of the company's 2019 fiscal year, our acquisitions and other business development activities, our ability to successfully capitalize on growth opportunities, manufacturing and product supply and plans relating to share repurchases and dividends. In particular, these include statements relating to future actions, business plans and prospects, our acquisitions and other business development activities, the disposition of the HIS net assets, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, plans relating to share repurchases and dividends, government regulation and financial results, including, in particular, the expected impact of the recent hurricanes in Puerto Rico set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business––Impact of Recent Hurricanes in Puerto Rico” section of this MD&A, the anticipated progress in remediation efforts at certain of our Hospira manufacturing facilities set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business––Product Manufacturing” section of this MD&A, our plans to organize our company into three businesses effective at the beginning of our 2019 fiscal year and our expectations regarding growth set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Strategy––Organizing for Growth” section of this MD&A, the anticipated timeframe for any decision regarding strategic alternatives for Pfizer Consumer Healthcare set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business” and “––Our Strategy––Our Business Development Initiatives” sectionsections of this MD&A, our anticipated liquidity position set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment” and the “Analysis of Financial Condition, Liquidity and Capital Resources” sections of this MD&A, the financial guidance set forth in the “Our Financial Guidance for 20172018” section of this MD&A, the anticipated costs and cost savings, including from our acquisition of Hospira and our cost-reduction/productivity initiatives set forth in the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A and in Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives, the benefits expected from our business development transactions the anticipated product performance set forth in “Revenues and Product Developments—Revenues—Selected Product Discussion” of this MD&A and the contributions that we expect to make from our general assets to our pension and postretirement plans during 20172018 set forth in Notes to Condensed Consolidated Financial Statements––Note 10. Pension and Postretirement Benefit Plans. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:
the outcome of research and development activities including, without limitation, the ability to meet anticipated pre-clinical and clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for product candidates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including unfavorable new clinical data and additional analyses of existing clinical data;
decisions by regulatory authorities regarding whether and when to approve our drug applications, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the efficacy and safety information submitted; decisions by regulatory authorities regarding labeling, ingredients and other matters that could affect the availability or commercial potential of our products; and uncertainties regarding our ability to address the comments in complete response letters received by us from regulatory authorities such as the FDA and the EMA with respect to certain of our drug applications to the satisfaction of those authorities; and recommendations by technical or advisory committees, such as ACIP, that may impact the FDA;use of our vaccines;
the speed with which regulatory authorizations, pricing approvals and product launches may be achieved;
the outcome of post-approval clinical trials, which could result in the loss of marketing approval for a product or changes in the labeling for, and/or increased or new concerns about the safety or efficacy of, a product that could affect its availability or commercial potential;
risks associated with preliminary, early stage or interim data, including the risk that final results of studies for which preliminary, early stage or interim data have been provided and/or additional clinical trials may be different from (including less favorable than) the preliminary, early stage or interim data results and may not support further clinical development of the applicable product candidate or indication;
the success of external business-development activities, including the ability to identify and execute on potential business development opportunities, the ability to satisfy the conditions to closing of announced transactions in the anticipated time frame or at all, orthe ability to realize the anticipated benefits of any such transactions;transactions, and the potential need to obtain additional equity or debt financing to pursue these opportunities which could result in increased leverage and impact our credit ratings;
competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products, biosimilars and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates;
the implementation by the FDA and regulatory authorities in certain other countries of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products, with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights;
risks related to our ability to develop and launch biosimilars, including risks associated with “at risk” launches, defined as the marketing of a product by Pfizer before the final resolution of litigation (including any appeals) brought by a third party alleging that such marketing would infringe one or more patents owned or controlled by the third party;party, and access challenges for our biosimilar products where our product may not receive appropriate formulary access or remains in a disadvantaged position relative to the innovator product;
the ability to meet competition from generic, branded and biosimilar products after the loss or expiration of patent protection for our products or competitor products;
the ability to successfully market both new and existing products domestically and internationally;
difficulties or delays in manufacturing, including delays caused by natural events, such as hurricanes; supply shortages at our facilities; and legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, debarment, injunctions or voluntary recall of a product;
trade buying patterns;
the impact of existing and future legislation and regulatory provisions on product exclusivity;
trends toward managed care and healthcare cost containment, and our ability to obtain or maintain timely or adequate pricing or formulary placement for our products;
the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented, and/or any significant additional taxes or fees that may be imposed on the pharmaceutical industry as part of any broad deficit-reduction effort;implemented;
the impact of any U.S. healthcare reform or legislation, including any replacement, repeal, substantial modification or invalidation of anysome or all of the provisions of the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act;
U.S. federal or state legislation or regulatory action and/or policy efforts affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; patient out-of-pocket costs for medicines, manufacturer prices and/or price increases that could result in new mandatory rebates and discounts or other pricing restrictions; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; restrictions on direct-to-consumer advertising; limitations on interactions with healthcare professionals; or the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures for our products as a result of highly competitive insurance markets;
legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets;
the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes;
contingencies related to actual or alleged environmental contamination;
claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates;
any significant breakdown, infiltration or interruption of our information technology systems and infrastructure;
legal defense costs, insurance expenses and settlement costs;
the risk of an adverse decision or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, such as claims that our patents are invalid and/or do not cover the product of the generic drug manufacturer or where one or more third parties seeks damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities, product liability and other product-related litigation, including personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, commercial, environmental, government investigations, employment and other legal proceedings, including various means for resolving asbestos litigation, as well as tax issues;
the risk that our currently pending or future patent applications may not result in issued patents, or be granted on a timely basis, or any patent-term extensions that we seek may not be granted on a timely basis, if at all;
our ability to protect our patents and other intellectual property, both domestically and internationally;
interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates and the volatility following the U.K. referendum in which voters approved the exit from the EU;rates;
governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals;proposals, including further clarifications and/or interpretations of the recently passed TCJA;
any significant issues involving our largest wholesale distributors, which account for a substantial portion of our revenues;
the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines;
the end result of any negotiations between the U.K. government and the EU regarding the terms of the U.K.’s exit from the EU, which could have implications on our research, commercial and general business operations in the U.K. and the EU;EU, including the approval and supply of our products;
any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards;
any significant issues that may arise related to our joint ventures and other third-party business arrangements;
changes in U.S. generally accepted accounting principles;
further clarifications and/or changes in interpretations of existing laws and regulations, or changes in laws and regulations, in the U.S. and other countries;
uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; and the related risk that our allowance for doubtful accounts may not be adequate; and the risks related to volatility of our income due to changes in the market value of equity investments;
any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas;
growth in costs and expenses;
changes in our product, segment and geographic mix;
the impact of purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items;
the impact of acquisitions, divestitures, restructurings, internal reorganizations, including our plans to organize our commercial operations into three businesses effective at the beginning of the company’s 2019 fiscal year, and cost-reduction and productivity initiatives, each of which requires upfront costs but may fail to yield anticipated benefits and may result in unexpected costs or organizational disruption;
the impact of product recalls, withdrawals and other unusual items, including our ability to realize the projected benefits of our cost-reduction and productivity initiatives and of the internal separation of our commercial operations into our current operating structure;items;
the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;
risks related to internal control over financial reporting;
risks and uncertainties related to our acquisitions of Hospira, Anacor, Medivation and AstraZeneca’s small molecule anti-infectives business, including, among other things, the ability to realize the anticipated benefits of those acquisitions, including the possibility that expected cost savings related to the acquisition of Hospira and accretion related to the acquisitions of Hospira, Anacor and Medivation will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; disruption from the transactions making it more difficult to maintain business and operational relationships; risks related to our ability to grow revenues for Xtandi and expand Xtandi into the non-metastatic castration-resistant prostate cancer setting;Xtandi; significant transaction costs; and unknown liabilities; and
risks and uncertainties related to our evaluation of strategic alternatives for our Consumer Healthcare business, including, among other things, the ability to realize the anticipated benefits of any strategic alternatives we may pursue for our Consumer Healthcare business, includingbusiness; the potential for disruption to our business resultingand diversion of management’s attention from other aspects of our business; the evaluation ofpossibility that such strategic alternatives for Pfizer Consumer Healthcare;will not be completed on terms that are advantageous to Pfizer; the possibility that we may not be ableunable to realize a higher value for Pfizer Consumer Healthcare through strategic alternatives; and unknown liabilities.
We cannot guarantee that any forward-looking statement will be realized. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results
and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements, and are cautioned not to put undue reliance on forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related subjects.
Our 20162017 Form 10-K listed various important factors that could cause actual results to differ materially from past and projected future results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. Reference is also made to Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
The operating segment information provided in this report does not purport to represent the revenues, costs and income from continuing operations before provision for taxes on income that each of our operating segments would have recorded had each segment operated as a standalone company during the periods presented.
This report includes discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data. In addition, clinical trial data are subject to differing interpretations, and, even when we view data as sufficient to support the safety and/or effectiveness of a product candidate or a new indication for an in-line product, regulatory authorities may not share our views and may require additional data or may deny approval altogether.
Financial Risk Management
Interest Rate Risk
With respect to our investments, we strive to maintain a predominantly floating–rate basis position, but our strategy may change based on prevailing market conditions.
We currently borrow primarily on a long-term, fixed-rate basis. Historically, we strove to borrow primarily on a floating-rate basis; but in recent years we borrowed on a long-term, fixed-rate basis. From time to time, depending on market conditions, we will change the profile of our outstanding debt by entering into derivative financial instruments like interest rate swaps.
Legal Proceedings and Contingencies
Information with respect to legal proceedings and contingencies required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements––Note 12A. CommitmentsContingencies and Contingencies:Certain Commitments: Legal Proceedings in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is incorporated by reference from the discussion under the heading Financial Risk Management in our 20162017 Financial Report.Report and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.
During our most recent fiscal quarter, there has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements––Note 12A. CommitmentsContingencies and Contingencies:Certain Commitments: Legal Proceedings in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Tax Matters
Additional information with respect to tax matters required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements––Note 5B.5C. Tax Matters: Tax Contingencies in Part I, Item 1, of this Quarterly Report on Form 10-Q.
We account for income tax contingencies using a benefit recognition model. If our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit: (i) if there are changes in tax law, analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to “more likely than not”; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, changes in tax law or receipt of new information that would either increase or decrease the technical merits of a position relative to the “more-likely-than-not” standard.
Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.
Item 1A. Risk Factors
The “Our Operating Environment” and “Forward-Looking Information and Factors That May Affect Future Results” sections of the MD&A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K are incorporated by reference herein. We are including the following revised risk factor which updates and supersedes the corresponding risk factor disclosed in our 2016 Form 10-K, and should be read in conjunction with our description of risk factors in Part I, Item 1A, “Risk Factors” of our 20162017 Form 10-K:10-K.
PRODUCT MANUFACTURING AND MARKETING RISKSMARKET FLUCTUATIONS IN OUR EQUITY INVESTMENTS
Difficulties or delaysIn the first quarter of 2018, we adopted a new accounting standard whereby certain equity investments are measured at fair value with changes in product manufacturing or marketing could affectfair value now recognized in net income. We expect the adoption of this new accounting standard may increase the volatility of our income in future results through regulatory actions, shut-downs, approval delays, withdrawals, recalls, penalties, supply disruptions or shortages, reputational harm, product liability, unanticipated costs or otherwise. Examples of such difficulties or delays include, but are not limitedperiods due to the inability to increase production capacity commensurate with demand; the failure to predict market demand for, or to gain market acceptance of, approved products; the possibility that the supply of incoming materials may be delayed or become unavailable and that the quality of incoming materials may be substandard and not detected; the possibility that we may fail to maintain appropriate quality standards throughout the internal and external supply network and/or comply with cGMPs and other applicable regulations such as serialization (which allows for track and trace of productschanges in the supply chainfair value of equity investments. For additional information, see Notes to enhance patient safety); risks to supply chain continuity as a resultCondensed Consolidated Financial Statements––Note 1B. Basis of natural or man-made disasters at our facilities or at a supplier or vendor, including those that may be related to climate change; or failure to maintain the integrityPresentation and Significant Accounting Policies: Adoption of our supply chains against intentional and criminal acts such as economic adulteration, product diversion, product theft, and counterfeit goods.
Regulatory agencies periodically inspect our drug manufacturing facilities to ensure compliance with applicable cGMP requirements. Failure to comply with these requirements may subject us to possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, injunctions or voluntary recall of a product, any of which could have a material adverse effect on our business, financial condition and results of operations. In February 2017, we received a warning letter from the FDA communicating the FDA’s view that certain violations of cGMP regulations exist at Hospira’s manufacturing facility in McPherson, Kansas. We are undertaking corrective actions to address the concerns raised by the FDA. Communication with the FDA is ongoing. Until the violations are corrected and confirmed by the FDA, the FDA may refuse toNew Accounting Standards.
grant premarket approval applications and/or the FDA may refuse to grant export certificates related to products manufactured at McPherson, Kansas. In addition, in September 2017, Meridian, a subsidiary of Pfizer Inc., received a warning letter from the FDA asserting the FDA’s view that certain violations of cGMP and Quality System Regulations exist at Meridian’s manufacturing sites in St. Louis, Missouri. We are undertaking corrective actions to address the concerns raised by the FDA, and communication with the FDA is ongoing. Until the violations are corrected and confirmed by the FDA, the FDA may refuse to grant premarket approval of applications and/or the FDA may refuse to grant export certificates related to products manufactured at St. Louis, Missouri.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides certain information with respect to our purchases of shares of the Company’s common stock during the third fiscal quarter of 20172018:
Issuer Purchases of Equity Securities(a)
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(b) |
| | Average Price Paid per Share(b) |
| | Total Number of Shares Purchased as Part of Publicly Announced Plan |
| | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan(a) |
|
| July 3, 2017 through July 30, 2017 | | 12,102 |
| | $ | 33.46 |
| | — |
| | $ | 6,355,862,076 |
|
| July 31, 2017 through August 27, 2017 | | 51,568 |
| | $ | 33.03 |
| | — |
| | $ | 6,355,862,076 |
|
| August 28, 2017 through October 1, 2017 | | 33,579 |
| | $ | 34.06 |
| | — |
| | $ | 6,355,862,076 |
|
| Total | | 97,249 |
| | $ | 33.44 |
| | — |
| | |
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(a)(b) |
| | Average Price Paid per Share(a)(b) |
| | Total Number of Shares Purchased as Part of Publicly Announced Plan(a) |
| | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan(a) |
|
| July 2, 2018 through July 29, 2018 | | 7,765 |
| | $ | 36.43 |
| | — |
| | $ | 10,292,715,228 |
|
| July 30, 2018 through August 26, 2018 | | 10,626 |
| | $ | 40.45 |
| | — |
| | $ | 10,292,715,228 |
|
| August 27, 2018 through September 30, 2018 | | 46,671,505 |
| | $ | 40.36 |
| | 46,652,993 |
| | $ | 9,187,715,502 |
|
| Total | | 46,689,896 |
| | $ | 40.36 |
| | 46,652,993 |
| | |
| |
(a) | Our October 2014December 2015 $11 billion share-purchase planshare repurchase program was exhausted in the firstthird quarter of 2017.2018. In December 2015,2017, the Board of Directors authorized an $11additional $10 billion share repurchase program, and share repurchases commenced thereunder in the firstthird quarter of 2018 (the 2017 program). On February 2, 2017,March 12, 2018, we entered into an accelerated share repurchase agreement with Citibank to repurchase $5$4.0 billion of our common stock. Pursuant to the terms of the agreement,stock and on February 6, 2017, we paid $5 billion to Citibank and received an initial delivery of approximately 126 million shares of our common stock from Citibank at a price of $31.73 per share, which represented, based on the closing price of our common stock on the NYSE on February 2, 2017, approximately 80% of the notional amount of the accelerated share repurchase agreement. On May 16, 2017,September 5, 2018, the accelerated share repurchase agreement with Citibank was completed, which, percompleted. For additional information, see the terms of the agreement, resulted in Citibank owing us a certain number of shares of Pfizer common stock. PursuantNotes to the agreement’s settlement terms, we received an additional 24 million shares of our common stock from Citibank on May 19, 2017. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $33.31 per share. The common stock received is included in Treasury StockCondensed Consolidated Financial Statements––Note 12. Contingencies and Certain Commitments. This agreement was entered into pursuant to our previously announced share repurchase authorization. At October 1, 2017,September 30, 2018, our remaining share-purchase authorization under the 2017 program was approximately $6.4$9.2 billion. |
| |
(b) | TheseIn addition to the amounts purchased under our share repurchase program, including amounts purchased under the accelerated share repurchase agreement with Citibank, these columns reflect the following transactions during the third fiscal quarter of 2017:represent (i) the surrender to Pfizer of 91,48732,041 shares of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees;awards under our long-term incentive programs and (ii) the surrender to Pfizer of 100 shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees; (iii) the surrender of 16 shares of common stock to satisfy withholding obligations in connection with the settlement of total shareholder return units; and (iv) the open market purchase by the trustee of 5,6464,862 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance share awards and who deferred receipt of such awards.
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
|
| | | |
| | | - | Amendment No. 13 to the Pfizer Supplemental Savings PlanPlan. |
| | | - | Pfizer Inc. Global Performance Plan |
| | - | Computation of Ratio of Earnings to Fixed Charges. |
| | - | Accountants’ Acknowledgment. |
| | | - | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | - | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | - | Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | - | Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | Exhibit 101: | | |
| | EX-101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | EX-101.SCH EX-101.CAL EX-101.LAB EX-101.PRE EX-101.DEF | | XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase XBRL Taxonomy Extension Definition Document |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | | Pfizer Inc. |
| | | (Registrant) |
| | | |
| | | |
| Dated: | November 9, 20178, 2018 | /s/ Loretta V. Cangialosi |
| | | Loretta V. Cangialosi, Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) |
