0000078003 pfe:ViagraMember pfe:UpjohnReportingUnitMember pfe:UpjohnSegmentMember 2020-03-30 2020-06-28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2019June 28, 2020
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 | 13-5315170 |
| (State of Incorporation) | (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)
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| Securities registered pursuant to Section 12(b) of the Act: |
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $.05 par value | | PFE | | New York Stock Exchange |
0.000% Notes due 2020 | | PFE20A | | New York Stock Exchange |
| 0.250% Notes due 2022 | | PFE22 | | New York Stock Exchange |
| 1.000% Notes due 2027 | | PFE27 | | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 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:
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 4, 2019August 3, 2020, 5,534,122,3645,556,879,807 shares of the issuer’s voting common stock were outstanding.
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Condensed Consolidated Statements of Income for the three and ninesix months ended September 29,June 28, 2020 and June 30, 2019 and
September 30, 2018 | |
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Condensed Consolidated Statements of Comprehensive Income for the three and ninesix months ended September 29,June 28, 2020 and June 30, 2019
and September 30, 2018 | |
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Condensed Consolidated Balance Sheets as of September 29, 2019June 28, 2020 and December 31, 20182019 | |
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Condensed Consolidated Statements of Equity for the three and ninesix months ended September 29,June 28, 2020 and June 30, 2019 and
September 30, 2018 | |
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Condensed Consolidated Statements of Cash Flows for the ninesix months ended September 29,June 28, 2020 and June 30, 2019 and
September 30, 2018 | |
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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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20182019 Financial Report | Financial Report for the fiscal year ended December 31, 2018,2019, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 |
20182019 Form 10-K | Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 |
| 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 |
Akcea | Akcea Therapeutics, Inc. |
| ALK | anaplastic lymphoma kinase |
| Alliance revenues | Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us |
| Allogene | Allogene Therapeutics, Inc. |
| AML | Acute Myeloid Leukemia |
| Anacor | Anacor Pharmaceuticals, Inc. |
AOCI | Accumulated Other Comprehensive Income |
| Array | Array BioPharma Inc. |
| Astellas | Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc. |
Bain CapitalATTR-CM | Bain Capital Private Equity and Bain Capital Life Sciencestransthyretin amyloid cardiomyopathy |
| Bamboo | Bamboo Therapeutics, Inc. |
| BioNTech | BioNTech SE |
| Biopharma | Pfizer Biopharmaceuticals Group |
| BMS | Bristol-Myers Squibb Company |
CAR T | chimeric antigen receptor T cell |
| CDC | U.S. Centers for Disease Control and Prevention |
Cerevel | Cerevel Therapeutics, LLC |
| cGMP | current Good Manufacturing Practices |
CitibankCOVID-19 | Citibank, N.A.novel coronavirus disease of 2019 |
| Developed Markets | U.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and
New Zealand |
EGFR | epidermal growth factor receptor |
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, Eastern Europe, Africa, the Middle East, Africa, Central Europe and Turkey |
| EPS | earnings per share |
| EU | European Union |
| 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 organization |
| GSK | GlaxoSmithKline plc |
GS&Co. | Goldman, Sachs & Co. LLC |
| hGH-CTP | human growth hormone |
HIS | Hospira Infusion Systems |
Hisun Pfizer | Hisun Pfizer Pharmaceuticals Company Limited |
| Hospira | Hospira, Inc. |
HR+IBT | hormone receptor-positiveIncome before tax |
| ICU Medical | ICU Medical, Inc. |
IH | Innovative Health |
Ionis | Ionis Pharmaceuticals, Inc. |
| IPR&D | in-process research and development |
| IRS | U.S. Internal Revenue Service |
| IV | intravenous |
Janssen | Janssen Biotech Inc. |
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| J&J | Johnson & Johnson |
| JV | Joint Venture |
| King | King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.) |
| LDL | low density lipoprotein |
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 |
| mCRC | metastatic colorectal cancer |
| 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 |
| Mylan | Mylan N.V. |
| NDA | new drug application |
| 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 |
| PsA | psoriatic arthritis |
| Quarterly Report on Form 10-Q | Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2019June 28, 2020 |
| RA | rheumatoid arthritis |
| RCC | renal cell carcinoma |
| R&D | research and development |
ROU | right of use |
| Sandoz | Sandoz, Inc., a division of Novartis AG |
| SEC | U.S. Securities and Exchange Commission |
SFJ | SFJ Pharmaceuticals Group |
Shire | Shire International GmbH |
| SI&A | selling, informational and administrative |
| S&P | Standard and Poor’s |
| TCJA | legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 |
| Therachon | Therachon Holding AG |
| UC | ulcerative colitis |
| U.K. | United Kingdom |
| U.S. | United States |
| Valneva | Valneva SE |
| ViiV | ViiV Healthcare Limited |
| VBP | Volume-based procurement program |
| WRDM | Worldwide Research, Development and Medical |
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 | | Six Months Ended |
| (MILLIONS, EXCEPT PER COMMON SHARE DATA) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Revenues | | $ | 12,680 |
| | $ | 13,298 |
| | $ | 39,062 |
| | $ | 39,670 |
| | $ | 11,801 |
| | $ | 13,264 |
| | $ | 23,829 |
| | $ | 26,382 |
|
| Costs and expenses: | | | | | | | | | | | | | | | | |
Cost of sales(a) | | 2,602 |
| | 2,694 |
| | 7,611 |
| | 8,173 |
| | 2,281 |
| | 2,576 |
| | 4,658 |
| | 5,009 |
|
Selling, informational and administrative expenses(a) | | 3,260 |
| | 3,494 |
| | 10,110 |
| | 10,448 |
| | 3,030 |
| | 3,511 |
| | 5,903 |
| | 6,850 |
|
Research and development expenses(a) | | 2,283 |
| | 2,008 |
| | 5,827 |
| | 5,549 |
| | 2,132 |
| | 1,842 |
| | 3,856 |
| | 3,544 |
|
| Amortization of intangible assets | | 1,212 |
| | 1,253 |
| | 3,578 |
| | 3,640 |
| | 905 |
| | 1,184 |
| | 1,790 |
| | 2,367 |
|
| Restructuring charges and certain acquisition-related costs | | 365 |
| | 85 |
| | 295 |
| | 172 |
| | 362 |
| | (115 | ) | | 431 |
| | (69 | ) |
| (Gain) on completion of Consumer Healthcare JV transaction | | (8,087 | ) | | — |
| | (8,087 | ) | | — |
| | — |
| | — |
| | (6 | ) | | — |
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| Other (income)/deductions––net | | 319 |
| | (414 | ) | | 537 |
| | (1,143 | ) | | (862 | ) | | 126 |
| | (641 | ) | | 218 |
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| Income from continuing operations before provision for taxes on income | | 10,727 |
| | 4,177 |
| | 19,190 |
| | 12,831 |
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| Provision for taxes on income | | 3,047 |
| | 66 |
| | 2,566 |
| | 1,270 |
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| Income from continuing operations before provision/(benefit) for taxes on income | | | 3,953 |
| | 4,141 |
| | 7,838 |
| | 8,463 |
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| Provision/(benefit) for taxes on income | | | 519 |
| | (915 | ) | | 993 |
| | (481 | ) |
| Income from continuing operations | | 7,680 |
| | 4,111 |
| | 16,625 |
| | 11,562 |
| | 3,434 |
| | 5,056 |
| | 6,845 |
| | 8,945 |
|
| Discontinued operations––net of tax | | 4 |
| | 11 |
| | 4 |
| | 10 |
| | — |
| | — |
| | — |
| | — |
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| Net income before allocation to noncontrolling interests | | 7,684 |
| | 4,122 |
| | 16,628 |
| | 11,571 |
| | 3,434 |
| | 5,056 |
| | 6,845 |
| | 8,945 |
|
| Less: Net income attributable to noncontrolling interests | | 4 |
| | 8 |
| | 19 |
| | 25 |
| | 8 |
| | 10 |
| | 17 |
| | 15 |
|
| Net income attributable to Pfizer Inc. | | $ | 7,680 |
| | $ | 4,114 |
| | $ | 16,609 |
| | $ | 11,546 |
| | $ | 3,426 |
| | $ | 5,046 |
| | $ | 6,828 |
| | $ | 8,929 |
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Earnings per common share––basic: | | |
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| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 1.38 |
| | $ | 0.70 |
| | $ | 2.98 |
| | $ | 1.96 |
| | $ | 0.62 |
| | $ | 0.91 |
| | $ | 1.23 |
| | $ | 1.59 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 1.38 |
| | $ | 0.70 |
| | $ | 2.98 |
| | $ | 1.96 |
| | $ | 0.62 |
| | $ | 0.91 |
| | $ | 1.23 |
| | $ | 1.59 |
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Earnings per common share––diluted: | | |
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| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 1.36 |
| | $ | 0.69 |
| | $ | 2.92 |
| | $ | 1.92 |
| | $ | 0.61 |
| | $ | 0.89 |
| | $ | 1.22 |
| | $ | 1.56 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 1.36 |
| | $ | 0.69 |
| | $ | 2.92 |
| | $ | 1.92 |
| | $ | 0.61 |
| | $ | 0.89 |
| | $ | 1.22 |
| | $ | 1.56 |
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| Weighted-average shares––basic | | 5,545 |
| | 5,875 |
| | 5,581 |
| | 5,899 |
| | 5,554 |
| | 5,562 |
| | 5,550 |
| | 5,598 |
|
| Weighted-average shares––diluted | | 5,649 |
| | 5,986 |
| | 5,690 |
| | 5,998 |
| | 5,619 |
| | 5,672 |
| | 5,616 |
| | 5,711 |
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(a) | Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets. |
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)
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Net income before allocation to noncontrolling interests | | $ | 7,684 |
| | $ | 4,122 |
| | $ | 16,628 |
| | $ | 11,571 |
| | $ | 3,434 |
| | $ | 5,056 |
| | $ | 6,845 |
| | $ | 8,945 |
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|
Foreign currency translation adjustments, net | | (468 | ) | | (567 | ) | | (628 | ) | | (507 | ) | | (242 | ) | | (485 | ) | | (1,513 | ) | | (161 | ) |
Reclassification adjustments(a) | | 268 |
| | (2 | ) | | 270 |
| | (22 | ) | | — |
| | — |
| | — |
| | 2 |
|
| | | (200 | ) | | (569 | ) | | (358 | ) | | (530 | ) | | (242 | ) | | (485 | ) | | (1,513 | ) | | (159 | ) |
| Unrealized holding gains on derivative financial instruments, net | | 150 |
| | 222 |
| | 241 |
| | 236 |
| |
Reclassification adjustments for (gains)/losses included in net income(b) | | (29 | ) | | (235 | ) | | (372 | ) | | 119 |
| |
| Unrealized holding gains/(losses) on derivative financial instruments, net | | | 213 |
| | (176 | ) | | (288 | ) | | 91 |
|
Reclassification adjustments for gains included in net income(b) | | | (186 | ) | | (81 | ) | | (167 | ) | | (343 | ) |
| | | 122 |
| | (13 | ) | | (131 | ) | | 355 |
| | 27 |
| | (256 | ) | | (455 | ) | | (252 | ) |
| Unrealized holding gains/(losses) on available-for-sale securities, net | | 15 |
| | 149 |
| | 48 |
| | (65 | ) | | 42 |
| | (7 | ) | | (9 | ) | | 33 |
|
Reclassification adjustments for (gains)/losses included in net income(b) | | (7 | ) | | (36 | ) | | 30 |
| | (67 | ) | |
Reclassification adjustments for unrealized gains included in Retained earnings(c) | | — |
| | — |
| | — |
| | (462 | ) | |
Reclassification adjustments for losses included in net income(c) | | | 44 |
| | 26 |
| | 59 |
| | 37 |
|
| | | 8 |
| | 112 |
| | 77 |
| | (595 | ) | | 87 |
| | 19 |
| | 50 |
| | 70 |
|
| Benefit plans: actuarial gains/(losses), net | | (171 | ) | | 8 |
| | (175 | ) | | 114 |
| | 5 |
| | (4 | ) | | (160 | ) | | (4 | ) |
| Reclassification adjustments related to amortization | | 60 |
| | 60 |
| | 180 |
| | 183 |
| | 67 |
| | 60 |
| | 133 |
| | 121 |
|
| Reclassification adjustments related to settlements, net | | 38 |
| | 42 |
| | 40 |
| | 108 |
| | 13 |
| | 2 |
| | 66 |
| | 2 |
|
| Other | | 42 |
| | 49 |
| | 60 |
| | 69 |
| | 68 |
| | 41 |
| | 84 |
| | 18 |
|
| | | (31 | ) | | 158 |
| | 105 |
| | 474 |
| | 153 |
| | 100 |
| | 122 |
| | 137 |
|
| Benefit plans: prior service costs and other, net | | — |
| | — |
| | (1 | ) | | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
| Reclassification adjustments related to amortization of prior service costs and other, net | | (44 | ) | | (46 | ) | | (137 | ) | | (137 | ) | | (45 | ) | | (46 | ) | | (89 | ) | | (93 | ) |
| Reclassification adjustments related to curtailments of prior service costs and other, net | | (46 | ) | | (4 | ) | | (46 | ) | | (18 | ) | |
| Other | | 3 |
| | — |
| | 4 |
| | 1 |
| | 5 |
| | 1 |
| | 4 |
| | 2 |
|
| | | (88 | ) | | (50 | ) | | (180 | ) | | (154 | ) | | (40 | ) | | (46 | ) | | (85 | ) | | (92 | ) |
| Other comprehensive loss, before tax | | (190 | ) | | (361 | ) | | (486 | ) | | (449 | ) | | (14 | ) | | (669 | ) | | (1,882 | ) | | (296 | ) |
| Tax provision on other comprehensive loss | | 84 |
| | 62 |
| | 50 |
| | 667 |
| |
| Tax provision/(benefit) on other comprehensive loss | | | 113 |
| | (59 | ) | | (265 | ) | | (34 | ) |
| Other comprehensive loss before allocation to noncontrolling interests | | $ | (275 | ) | | $ | (422 | ) | | $ | (536 | ) | | $ | (1,116 | ) | | $ | (127 | ) | | $ | (610 | ) | | $ | (1,617 | ) | | $ | (262 | ) |
| Comprehensive income before allocation to noncontrolling interests | | $ | 7,409 |
| | $ | 3,700 |
| | $ | 16,092 |
| | $ | 10,455 |
| | $ | 3,307 |
| | $ | 4,446 |
| | $ | 5,227 |
| | $ | 8,683 |
|
| Less: Comprehensive income/(loss) attributable to noncontrolling interests | | (6 | ) | | — |
| | 8 |
| | 5 |
| | (4 | ) | | 12 |
| | 5 |
| | 13 |
|
| Comprehensive income attributable to Pfizer Inc. | | $ | 7,415 |
| | $ | 3,700 |
| | $ | 16,084 |
| | $ | 10,450 |
| | $ | 3,312 |
| | $ | 4,434 |
| | $ | 5,222 |
| | $ | 8,669 |
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(a) | ForAmounts in the thirdsecond quarter and first nine months of 2019,2020 include losses from the weakening of certain major currencies against the U.S. dollar, partially offset by a gain of approximately $380 million pre-tax ($291 million after-tax) related to foreign currency translation adjustments are primarily reclassified into (Gain) on completionand the impact of our net investment hedging program, both attributable to our equity method investment in the GSK Consumer Healthcare JV transaction joint venture. Amounts in the condensed consolidated statementsfirst six months of income as2020 include a resultloss of approximately $1.2 billion pre-tax ($902 million after-tax) related to foreign currency translation adjustments and the contributionimpact of our Consumer Healthcare businessnet investment hedging program, both attributable to our equity method investment in the GSK Consumer Healthcare joint venture with GSK. Seeand losses from the weakening of certain major currencies against the U.S. dollar, partially offset by the results of our net investment hedging program. For additional information on the GSK Consumer Healthcare joint venture, see Note 2B. 2BThe remaining foreign currency translation adjustments are reclassified into. Other (income)/deductions—net Acquisition, Equity-Method Investment and Licensing Arrangementsin the condensed consolidated statements of income: Equity-Method Investment.
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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 Other (income)/deductions—net and Cost of sales, see Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities. |
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(c) | For additional information, see Notes to Consolidated Financial StatementsReclassified into —Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.Other (income)/deductions—net.
|
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) | | September 29,
2019 |
| | December 31,
2018 |
| | June 28,
2020 |
| | December 31,
2019 |
|
| | | (Unaudited) | | | | (Unaudited) | | |
| Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 2,785 |
| | $ | 1,139 |
| | $ | 1,801 |
| | $ | 1,305 |
|
| Short-term investments | | 6,302 |
| | 17,694 |
| | 9,581 |
| | 8,525 |
|
| Trade accounts receivable, less allowance for doubtful accounts: 2019—$541; 2018—$541 | | 9,439 |
| | 8,025 |
| |
Restricted short-term investments(a) | | | 11,412 |
| | — |
|
| Trade accounts receivable, less allowance for doubtful accounts: 2020—$525; 2019—$527 | | | 9,128 |
| | 8,724 |
|
| Inventories | | 8,222 |
| | 7,508 |
| | 8,564 |
| | 8,283 |
|
| Current tax assets | | 3,730 |
| | 3,374 |
| | 3,426 |
| | 3,344 |
|
| Other current assets | | 2,954 |
| | 2,461 |
| | 2,513 |
| | 2,622 |
|
| Assets held for sale | | 29 |
| | 9,725 |
| |
| Total current assets | | 33,459 |
| | 49,926 |
| | 46,424 |
| | 32,803 |
|
| Equity-method investments | | 15,999 |
| | 181 |
| | 15,578 |
| | 17,133 |
|
| Long-term investments | | 2,723 |
| | 2,586 |
| | 3,142 |
| | 3,014 |
|
| Property, plant and equipment, less accumulated depreciation: 2019—$16,728; 2018—$16,591 | | 13,701 |
| | 13,385 |
| |
| Property, plant and equipment, less accumulated depreciation: 2020—$16,889; 2019—$16,789 | | | 14,113 |
| | 13,967 |
|
| Identifiable intangible assets, less accumulated amortization | | 38,995 |
| | 35,211 |
| | 33,541 |
| | 35,370 |
|
| Goodwill | | 58,665 |
| | 53,411 |
| | 58,449 |
| | 58,653 |
|
| Noncurrent deferred tax assets and other noncurrent tax assets | | 1,984 |
| | 1,924 |
| | 2,360 |
| | 2,099 |
|
| Other noncurrent assets | | 4,920 |
| | 2,799 |
| | 4,327 |
| | 4,450 |
|
| Total assets | | $ | 170,446 |
| | $ | 159,422 |
| | $ | 177,934 |
| | $ | 167,489 |
|
| | | | | | | | | |
| Liabilities and Equity | | |
| | |
| | |
| | |
|
| Short-term borrowings, including current portion of long-term debt: 2019—$2,431; 2018—$4,776 | | $ | 16,617 |
| | $ | 8,831 |
| |
| Short-term borrowings, including current portion of long-term debt: 2020—$1,481; 2019—$1,462 | | | $ | 13,084 |
| | $ | 16,195 |
|
| Trade accounts payable | | 3,942 |
| | 4,674 |
| | 3,872 |
| | 4,220 |
|
| Dividends payable | | 1,992 |
| | 2,047 |
| | 2,111 |
| | 2,104 |
|
| Income taxes payable | | 1,892 |
| | 1,265 |
| | 1,445 |
| | 980 |
|
| Accrued compensation and related items | | 2,369 |
| | 2,397 |
| | 2,042 |
| | 2,720 |
|
| Other current liabilities | | 10,160 |
| | 10,753 |
| | 10,168 |
| | 11,083 |
|
| Liabilities held for sale | | — |
| | 1,890 |
| |
| Total current liabilities | | 36,974 |
| | 31,858 |
| | 32,723 |
| | 37,304 |
|
| | | | | | | | | |
| Long-term debt | | 36,044 |
| | 32,909 |
| |
Long-term debt(a) | | | 50,529 |
| | 35,955 |
|
| Pension benefit obligations, net | | 5,103 |
| | 5,272 |
| | 5,344 |
| | 5,638 |
|
| Postretirement benefit obligations, net | | 1,321 |
| | 1,338 |
| | 1,086 |
| | 1,124 |
|
| Noncurrent deferred tax liabilities | | 6,724 |
| | 3,700 |
| | 5,409 |
| | 5,578 |
|
| Other taxes payable | | 12,504 |
| | 14,737 |
| | 11,468 |
| | 12,126 |
|
| Other noncurrent liabilities | | 6,381 |
| | 5,850 |
| | 6,812 |
| | 6,317 |
|
| Total liabilities | | 105,051 |
| | 95,664 |
| | 113,370 |
| | 104,042 |
|
| | | | | | | | | |
| Commitments and Contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | |
| Preferred stock | | 18 |
| | 19 |
| | — |
| | 17 |
|
| Common stock | | 468 |
| | 467 |
| | 470 |
| | 468 |
|
| Additional paid-in capital | | 87,099 |
| | 86,253 |
| | 87,886 |
| | 87,428 |
|
| Treasury stock | | (110,795 | ) | | (101,610 | ) | | (110,978 | ) | | (110,801 | ) |
| Retained earnings | | 100,113 |
| | 89,554 |
| | 100,203 |
| | 97,670 |
|
| Accumulated other comprehensive loss | | (11,801 | ) | | (11,275 | ) | | (13,246 | ) | | (11,640 | ) |
| Total Pfizer Inc. shareholders’ equity | | 65,103 |
| | 63,407 |
| | 64,336 |
| | 63,143 |
|
| Equity attributable to noncontrolling interests | | 293 |
| | 351 |
| | 228 |
| | 303 |
|
| Total equity | | 65,396 |
| | 63,758 |
| | 64,564 |
| | 63,447 |
|
| Total liabilities and equity | | $ | 170,446 |
| | $ | 159,422 |
| | $ | 177,934 |
| | $ | 167,489 |
|
| |
(a) | The balance as of June 28, 2020 reflects the Upjohn Inc. and Upjohn Finance B.V. debt issuances. For additional information see Note 7D. Financial Instruments: Long-Term Debt. |
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
| | | | | PFIZER INC. SHAREHOLDERS | | | | | | PFIZER INC. SHAREHOLDERS | | | | |
| | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | |
| (MILLIONS, EXCEPT PREFERRED SHARES) | | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
| | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
|
| Balance, June 30, 2019 | | 458 |
| | $ | 18 |
| | 9,363 |
| | $ | 468 |
| | $ | 86,963 |
| | (3,801 | ) | | $ | (110,786 | ) | | $ | 94,440 |
| | $ | (11,535 | ) | | $ | 59,568 |
| | $ | 357 |
| | $ | 59,924 |
| |
| Balance, March 29, 2020 | | | 417 |
| | $ | 17 |
| | 9,393 |
| | $ | 470 |
| | $ | 87,680 |
| | (3,841 | ) | | $ | (111,010 | ) | | $ | 101,000 |
| | $ | (13,131 | ) | | $ | 65,026 |
| | $ | 312 |
| | $ | 65,338 |
|
| Net income | | | | | | | | | | | | | | | | 7,680 |
| | | | 7,680 |
| | 4 |
| | 7,684 |
| | | | | | | | | | | | | | | | 3,426 |
| | | | 3,426 |
| | 8 |
| | 3,434 |
|
| Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | (265 | ) | | (265 | ) | | (9 | ) | | (275 | ) | | | | | | | | | | | | | | | | | | (115 | ) | | (115 | ) | | (12 | ) | | (127 | ) |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | | |
|
| | | |
|
| | | | | | | | | | | | | | | | | | | |
|
| | | |
|
|
| Common stock | | | | | | | | | | | | | | | | (2,006 | ) | | | | (2,006 | ) | | | | (2,006 | ) | | | | | | | | | | | | | | | | (4,223 | ) | | | | (4,223 | ) | | | | (4,223 | ) |
| Preferred stock | | | | | | | | | | | | | | | | — |
| | | | — |
| | | | — |
| | | | | | | | | | | | | | | | — |
| | | | — |
| | | | — |
|
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — |
| | 2 |
| | 2 |
| | | | | | | | | | | | | | | | | | | | — |
| | (80 | ) | | (80 | ) |
| Share-based payment transactions | | | | | | 3 |
| | — |
| | 136 |
| | — |
| | (8 | ) | | | | | | 128 |
| | | | 128 |
| | | | | | 2 |
| | — |
| | 221 |
| | — |
| | 1 |
| | | | | | 222 |
| | | | 222 |
|
| Purchases of common stock | | | | | | | | | | | | (34 | ) | | — |
| | | | | | — |
| | | | — |
| | | | | | | | | | | | — |
| | — |
| | | | | | — |
| | | | — |
|
| Preferred stock conversions and redemptions | | (8 | ) | | — |
| | | | | | — |
| | — |
| | — |
| | | | | | (1 | ) | | | | (1 | ) | |
Other(a) | | | |
|
| | | |
|
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (61 | ) | | (61 | ) | |
| Balance, September 29, 2019 | | 449 |
| | $ | 18 |
| | 9,366 |
| | $ | 468 |
| | $ | 87,099 |
| | (3,835 | ) | | $ | (110,795 | ) | | $ | 100,113 |
| | $ | (11,801 | ) | | $ | 65,103 |
| | $ | 293 |
| | $ | 65,396 |
| |
Preferred stock conversions and redemptions(a) | | | (417 | ) | | (17 | ) | | | | | | (14 | ) | | 1 |
| | 31 |
| | | | | | — |
| | | | — |
|
| Other | | | | |
|
| | | |
|
| | — |
| | — |
| | — |
| | — |
| | | | — |
| | — |
| | — |
|
| Balance, June 28, 2020 | | | — |
| | $ | — |
| | 9,394 |
| | $ | 470 |
| | $ | 87,886 |
| | (3,840 | ) | | $ | (110,978 | ) | | $ | 100,203 |
| | $ | (13,246 | ) | | $ | 64,336 |
| | $ | 228 |
| | $ | 64,564 |
|
| | | | PFIZER INC. SHAREHOLDERS | | | | | | PFIZER INC. SHAREHOLDERS | | | | |
| | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | |
| (MILLIONS, EXCEPT PREFERRED SHARES) | | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
| | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
|
| Balance July 1, 2018 | | 502 |
| | $ | 20 |
| | 9,303 |
| | $ | 465 |
| | $ | 84,898 |
| | (3,438 | ) | | $ | (95,463 | ) | | $ | 89,860 |
| | $ | (10,003 | ) | | $ | 69,778 |
| | $ | 346 |
| | $ | 70,124 |
| |
| Balance, March 31, 2019 | | | 466 |
| | $ | 19 |
| | 9,358 |
| | $ | 468 |
| | $ | 86,635 |
| | (3,801 | ) | | $ | (110,781 | ) | | $ | 93,388 |
| | $ | (10,923 | ) | | $ | 58,806 |
| | $ | 352 |
| | $ | 59,158 |
|
| Net income | | | | | | | | | | | | | | | | 4,114 |
| | | | 4,114 |
| | 8 |
| | 4,122 |
| | | | | | | | | | | | | | | | 5,046 |
| | | | 5,046 |
| | 10 |
| | 5,056 |
|
| Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | |
|
| | (414 | ) | | (414 | ) | | (9 | ) | | (422 | ) | | | | | | | | | | | | | | | |
|
| | (613 | ) | | (613 | ) | | 3 |
| | (610 | ) |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | | | (1,977 | ) | | | | (1,977 | ) | | | | (1,977 | ) | | | | | | | | | | | | | | | | (3,994 | ) | | | | (3,994 | ) | | | | (3,994 | ) |
| Preferred stock | | | | | | | | | | | | | | | | — |
| | | | — |
| | | | — |
| | | | | | | | | | | | | | | | — |
| | | | — |
| | | | — |
|
| Noncontrolling interests | | | | | | | | | | | | | | | |
|
| | | | — |
| | — |
| | — |
| | | | | | | | | | | | | | | | | | | | — |
| | (8 | ) | | (8 | ) |
| Share-based payment transactions | | | | | | 23 |
| | 1 |
| | 930 |
| | — |
| | (6 | ) | |
|
| | | | 926 |
| | | | 926 |
| | | | | | 5 |
| | — |
| | 329 |
| | — |
| | (6 | ) | |
|
| | | | 324 |
| | | | 324 |
|
| Purchases of common stock | | | | | | | | | | | | (47 | ) | | (1,105 | ) | |
|
| | | | (1,105 | ) | | | | (1,105 | ) | | | | | | | | | | | | — |
| | — |
| |
|
| | | | — |
| | | | — |
|
| Preferred stock conversions and redemptions | | (14 | ) | | (1 | ) | | | | | | (1 | ) | | — |
| | — |
| |
|
| | | | (1 | ) | | | | (1 | ) | | (8 | ) | | — |
| | | | | | (1 | ) | | — |
| | — |
| |
|
| | | | (1 | ) | | | | (1 | ) |
| Other | | | |
|
| | | | | | — |
| | — |
| |
|
| | (2 | ) | | — |
| | (2 | ) | | — |
| | (2 | ) | | | |
|
| | | | | | — |
| | — |
| | — |
| | — |
| | | | — |
| | — |
| | — |
|
| Balance, September 30, 2018 | | 488 |
| | $ | 20 |
| | 9,326 |
| | $ | 466 |
| | $ | 85,828 |
| | (3,484 | ) | | $ | (96,574 | ) | | $ | 91,995 |
| | $ | (10,417 | ) | | $ | 71,319 |
| | $ | 346 |
| | $ | 71,664 |
| |
| Balance, June 30, 2019 | | | 458 |
| | $ | 18 |
| | 9,363 |
| | $ | 468 |
| | $ | 86,963 |
| | (3,801 | ) | | $ | (110,786 | ) | | $ | 94,440 |
| | $ | (11,535 | ) | | $ | 59,568 |
| | $ | 357 |
| | $ | 59,924 |
|
Amounts may not add due to rounding.See end of tables for notes.
See Notes to Condensed Consolidated Financial Statements.
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
| | | | | | PFIZER INC. SHAREHOLDERS | | | | |
| | | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | |
| (MILLIONS, EXCEPT PREFERRED SHARES) | | | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
|
| Balance, January 1, 2020 | | | 431 |
| | $ | 17 |
| | 9,369 |
| | $ | 468 |
| | $ | 87,428 |
| | (3,835 | ) | | $ | (110,801 | ) | | $ | 97,670 |
| | $ | (11,640 | ) | | $ | 63,143 |
| | $ | 303 |
| | $ | 63,447 |
|
| Net income | | | | | | | | | | | | | | | | | 6,828 |
| | | | 6,828 |
| | 17 |
| | 6,845 |
|
| Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | | (1,605 | ) | | (1,605 | ) | | (12 | ) | | (1,617 | ) |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| Common stock | | | | | | | | | | | | | | | | | (4,294 | ) | | | | (4,294 | ) | | | | (4,294 | ) |
| Preferred stock | | | | | | | | | | | | | | | | | — |
| | | | — |
| | | | — |
|
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | | — |
| | (80 | ) | | (80 | ) |
| Share-based payment transactions | | | | | | | 25 |
| | 1 |
| | 473 |
| | (6 | ) | | (208 | ) | | | | | | 266 |
| | | | 266 |
|
| Purchases of common stock | | | | | | | | | | | | | — |
| | — |
| | | | | | — |
| | | | — |
|
Preferred stock conversions and redemptions(a) | | | (431 | ) | | (17 | ) | | | | | | (15 | ) | | 1 |
| | 31 |
| | | | | | (1 | ) | | | | (1 | ) |
Other(a) | | | | |
|
| | | |
|
| | — |
| | — |
| | — |
| | — |
| |
|
| | — |
| | — |
| | — |
|
| Balance, June 28, 2020 | | | — |
| | $ | — |
| | 9,394 |
| | $ | 470 |
| | $ | 87,886 |
| | (3,840 | ) | | $ | (110,978 | ) | | $ | 100,203 |
| | $ | (13,246 | ) | | $ | 64,336 |
| | $ | 228 |
| | $ | 64,564 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | PFIZER INC. SHAREHOLDERS | | | | | | PFIZER INC. SHAREHOLDERS | | | | |
| | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | |
| (MILLIONS, EXCEPT PREFERRED SHARES) | | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
| | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
|
| Balance, January 1, 2019 | | 478 |
| | $ | 19 |
| | 9,332 |
| | $ | 467 |
| | $ | 86,253 |
| | (3,615 | ) | | $ | (101,610 | ) | | $ | 89,554 |
| | $ | (11,275 | ) | | $ | 63,407 |
| | $ | 351 |
| | $ | 63,758 |
| | 478 |
| | $ | 19 |
| | 9,332 |
| | $ | 467 |
| | $ | 86,253 |
| | (3,615 | ) | | $ | (101,610 | ) | | $ | 89,554 |
| | $ | (11,275 | ) | | $ | 63,407 |
| | $ | 351 |
| | $ | 63,758 |
|
| Net income | | | | | | | | | | | | | | | | 16,609 |
| | | | 16,609 |
| | 19 |
| | 16,628 |
| | | | | | | | | | | | | | | | 8,929 |
| | | | 8,929 |
| | 15 |
| | 8,945 |
|
| Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | (525 | ) | | (525 | ) | | (11 | ) | | (536 | ) | | | | | | | | | | | | | | | |
|
| | (260 | ) | | (260 | ) | | (2 | ) | | (262 | ) |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | | | (6,068 | ) | | | | (6,068 | ) | | | | (6,068 | ) | | | | | | | | | | | | | | | | (4,062 | ) | | | | (4,062 | ) | | | | (4,062 | ) |
| Preferred stock | | | | | | | | | | | | | | | | (1 | ) | | | | (1 | ) | | | | (1 | ) | | | | | | | | | | | | | | | | (1 | ) | | | | (1 | ) | | | | (1 | ) |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — |
| | (5 | ) | | (5 | ) | | | | | | | | | | | | | | | | | | | | — |
| | (8 | ) | | (8 | ) |
| Share-based payment transactions | | | | | | 34 |
| | 2 |
| | 848 |
| | (7 | ) | | (320 | ) | | | | | | 530 |
| | | | 530 |
| | | | | | 31 |
| | 2 |
| | 712 |
| | (7 | ) | | (312 | ) | | | | | | 402 |
| | | | 402 |
|
| Purchases of common stock | | | | | | | | | | | | (213 | ) | | (8,865 | ) | | | | | | (8,865 | ) | | | | (8,865 | ) | | | | | | | | | | | | (180 | ) | | (8,865 | ) | | | | | | (8,865 | ) | | | | (8,865 | ) |
| Preferred stock conversions and redemptions | | (28 | ) | | (1 | ) | | | | | | (2 | ) | | — |
| | — |
| | | | | | (3 | ) | | | | (3 | ) | | (20 | ) | | (1 | ) | | | | | | (1 | ) | | — |
| | — |
| | | | | | (2 | ) | | | | (2 | ) |
Other(a) | | | |
|
| | | |
|
| | — |
| | — |
| |
|
| | 19 |
| |
|
| | 19 |
| | (61 | ) | | (42 | ) | |
| Balance, September 29, 2019 | | 449 |
| | $ | 18 |
| | 9,366 |
| | $ | 468 |
| | $ | 87,099 |
| | (3,835 | ) | | $ | (110,795 | ) | | $ | 100,113 |
| | $ | (11,801 | ) | | $ | 65,103 |
| | $ | 293 |
| | $ | 65,396 |
| |
| | |
| | | PFIZER INC. SHAREHOLDERS | | | | | |
| | | Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | | | | | |
| (MILLIONS, EXCEPT PREFERRED SHARES) | | Shares |
| | Stated Value |
| | Shares |
| | Par Value |
| | Add’l Paid-In Capital |
| | Shares |
| | Cost |
| | Retained Earnings |
| | Accum. Other Comp. Loss |
| | Share- holders’ Equity |
| | Non-controlling interests |
| | Total Equity |
| |
| Balance, January 1, 2018 | | 524 |
| | $ | 21 |
| | 9,275 |
| | $ | 464 |
| | $ | 84,278 |
| | (3,296 | ) | | $ | (89,425 | ) | | $ | 85,291 |
| | $ | (9,321 | ) | | $ | 71,308 |
| | $ | 348 |
| | $ | 71,656 |
| |
| Net income | | | | | | | | | | | | | | | | 11,546 |
| | | | 11,546 |
| | 25 |
| | 11,571 |
| |
| Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | |
|
| | (1,096 | ) | | (1,096 | ) | | (20 | ) | | (1,116 | ) | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | | | (6,012 | ) | | | | (6,012 | ) | | | | (6,012 | ) | |
| Preferred stock | | | | | | | | | | | | | | | | (1 | ) | | | | (1 | ) | | | | (1 | ) | |
| Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — |
| | (7 | ) | | (7 | ) | |
| Share-based payment transactions | | | | | | 51 |
| | 3 |
| | 1,551 |
| | 3 |
| | 19 |
| | | | | | 1,573 |
| | | | 1,573 |
| |
| Purchases of common stock | | | | | | | | | | | | (192 | ) | | (7,168 | ) | | | | | | (7,168 | ) | | | | (7,168 | ) | |
| Preferred stock conversions and redemptions | | (36 | ) | | (1 | ) | | | | | | (2 | ) | | — |
| | — |
| | | | | | (3 | ) | | | | (3 | ) | |
Other(b) | | | |
|
| | | |
|
| | — |
| | — |
| | — |
| | 1,171 |
| | — |
| | 1,171 |
| | — |
| | 1,171 |
| | | |
|
| | | |
|
| | — |
| | — |
| | — |
| | 19 |
| |
|
| | 19 |
| | — |
| | 19 |
|
| Balance, September 30, 2018 | | 488 |
| | $ | 20 |
| | 9,326 |
| | $ | 466 |
| | $ | 85,828 |
| | (3,484 | ) | | $ | (96,574 | ) | | $ | 91,995 |
| | $ | (10,417 | ) | | $ | 71,319 |
| | $ | 346 |
| | $ | 71,664 |
| |
| Balance, June 30, 2019 | | | 458 |
| | $ | 18 |
| | 9,363 |
| | $ | 468 |
| | $ | 86,963 |
| | (3,801 | ) | | $ | (110,786 | ) | | $ | 94,440 |
| | $ | (11,535 | ) | | $ | 59,568 |
| | $ | 357 |
| | $ | 59,924 |
|
| |
(a) | The increase to Retained earnings in the first nine monthsOn May 4, 2020, all outstanding shares of 2019 includes the cumulative effectPfizer’s Series A convertible perpetual preferred stock were converted into shares of the adoption of a new accounting standard for leases in the first quarter of 2019. For additional information, seePfizer common stock. See Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards11.. The decrease in Equity attributable to noncontrolling interests resulted from the deconsolidation of our Consumer Healthcare business in connection with the formation of the GSK Consumer Healthcare joint venture. For for additional information, see Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale.information.
|
| |
(b) | RepresentsThe increase to Retained earnings represents the cumulative effect of the adoption of a new accounting standardsstandard in the first quarter of 20182019 for revenues, financial assets and liabilities, income tax accounting, and the reclassification of certain tax effects from Accumulated other comprehensive income.leases. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 20182019 in our 20182019 Financial Report.
|
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)
|
| | | | | | | | |
| | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
|
| Operating Activities | | | | |
| Net income before allocation to noncontrolling interests | | $ | 16,628 |
| | $ | 11,571 |
|
| Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | | |
| | |
|
| Depreciation and amortization | | 4,626 |
| | 4,743 |
|
| Asset write-offs and impairments | | 224 |
| | 88 |
|
TCJA impact(a) | | (319 | ) | | (410 | ) |
Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed(b) | | (8,233 | ) | | — |
|
Deferred taxes from continuing operations(c) | | 2,067 |
| | (974 | ) |
| Share-based compensation expense | | 448 |
| | 682 |
|
| Benefit plan contributions in excess of income | | (429 | ) | | (1,000 | ) |
| Other adjustments, net | | (622 | ) | | (1,170 | ) |
| Other changes in assets and liabilities, net of acquisitions and divestitures | | (5,571 | ) | | (2,441 | ) |
| Net cash provided by operating activities | | 8,819 |
| | 11,089 |
|
| | | | | |
| Investing Activities | | |
| | |
|
| Purchases of property, plant and equipment | | (1,504 | ) | | (1,357 | ) |
| Purchases of short-term investments | | (4,583 | ) | | (7,364 | ) |
| Proceeds from redemptions/sales of short-term investments | | 7,766 |
| | 12,752 |
|
| Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less | | 8,307 |
| | 385 |
|
| Purchases of long-term investments | | (134 | ) | | (1,503 | ) |
| Proceeds from redemptions/sales of long-term investments | | 116 |
| | 2,174 |
|
| Acquisition of business, net of cash acquired | | (10,861 | ) | | — |
|
| Acquisitions of intangible assets | | (364 | ) | | (47 | ) |
Other investing activities, net(b) | | 145 |
| | 248 |
|
| Net cash provided by/(used in) investing activities | | (1,112 | ) | | 5,289 |
|
| | | | | |
| Financing Activities | | |
| | |
|
| Proceeds from short-term borrowings | | 11,582 |
| | 1,945 |
|
| Principal payments on short-term borrowings | | (4,088 | ) | | (4,239 | ) |
| Net proceeds from/(payments on) short-term borrowings with original maturities of three months or less | | 2,604 |
| | (973 | ) |
| Proceeds from issuance of long-term debt | | 4,942 |
| | 4,974 |
|
| Principal payments on long-term debt | | (5,806 | ) | | (3,104 | ) |
| Purchases of common stock | | (8,865 | ) | | (7,168 | ) |
| Cash dividends paid | | (6,051 | ) | | (6,015 | ) |
| Proceeds from exercise of stock options | | 303 |
| | 1,099 |
|
| Other financing activities, net | | (667 | ) | | (553 | ) |
| Net cash used in financing activities | | (6,045 | ) | | (14,034 | ) |
| Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | (41 | ) | | (116 | ) |
| Net increase in cash and cash equivalents and restricted cash and cash equivalents | | 1,620 |
| | 2,227 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, beginning | | 1,225 |
| | 1,431 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, end | | $ | 2,846 |
| | $ | 3,658 |
|
| - continued - |
PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Operating Activities | | | | | |
| Net income before allocation to noncontrolling interests | | | $ | 6,845 |
| | $ | 8,945 |
|
| Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | | | |
| | |
|
| Depreciation and amortization | | | 2,469 |
| | 3,073 |
|
| Asset write-offs and impairments | | | 58 |
| | 178 |
|
TCJA impact(a) | | | — |
| | (285 | ) |
| Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed | | | (6 | ) | | — |
|
| Deferred taxes from continuing operations | | | 71 |
| | (160 | ) |
| Share-based compensation expense | | | 258 |
| | 384 |
|
| Benefit plan contributions in excess of expense/income | | | (418 | ) | | (313 | ) |
| Other adjustments, net | | | (361 | ) | | (462 | ) |
| Other changes in assets and liabilities, net of acquisitions and divestitures | | | (2,229 | ) | | (7,051 | ) |
| Net cash provided by operating activities | | | 6,688 |
| | 4,309 |
|
| | | | | | |
| Investing Activities | | | |
| | |
|
| Purchases of property, plant and equipment | | | (942 | ) | | (939 | ) |
| Purchases of short-term investments | | | (5,141 | ) | | (4,063 | ) |
| Proceeds from redemptions/sales of short-term investments | | | 4,595 |
| | 6,001 |
|
Net (purchases of)/proceeds from redemptions/sales of short-term investments with original maturities of three months or less(b) | | | (11,949 | ) | | 4,717 |
|
| Purchases of long-term investments | | | (168 | ) | | (123 | ) |
| Proceeds from redemptions/sales of long-term investments | | | 536 |
| | 142 |
|
| Acquisitions of intangible assets | | | (33 | ) | | (267 | ) |
| Other investing activities, net | | | 19 |
| | 179 |
|
| Net cash provided by/(used in) investing activities | | | (13,082 | ) | | 5,648 |
|
| | | | | | |
| Financing Activities | | | |
| | |
|
| Proceeds from short-term borrowings | | | 12,352 |
| | 3,956 |
|
| Principal payments on short-term borrowings | | | (13,166 | ) | | (2,375 | ) |
| Net (payments on)/proceeds from short-term borrowings with original maturities of three months or less | | | (2,273 | ) | | 2,719 |
|
Proceeds from issuance of long-term debt(b) | | | 16,606 |
| | 4,942 |
|
| Principal payments on long-term debt | | | (2,181 | ) | | (5,355 | ) |
| Purchases of common stock | | | — |
| | (8,865 | ) |
| Cash dividends paid | | | (4,216 | ) | | (4,047 | ) |
| Proceeds from exercise of stock options | | | 158 |
| | 248 |
|
| Other financing activities, net | | | (321 | ) | | (541 | ) |
| Net cash provided by/(used in) financing activities | | | 6,959 |
| | (9,318 | ) |
| Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | | (70 | ) | | (28 | ) |
| Net increase in cash and cash equivalents and restricted cash and cash equivalents | | | 495 |
| | 612 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, at beginning of period | | | 1,350 |
| | 1,225 |
|
| Cash and cash equivalents and restricted cash and cash equivalents, at end of period | | | $ | 1,845 |
| | $ | 1,837 |
|
| | | |
| Supplemental Cash Flow Information | | | | | | | | |
| Non-cash transactions: | | | | | |
32% equity-method investment in GSK Consumer Healthcare JV in exchange for contributing Pfizer’s Consumer Healthcare business(b) | | $ | 15,711 |
| | $ | — |
| |
Equity investment in Cerevel Therapeutics, Inc. in exchange for Pfizer’s portfolio of clinical and pre-clinical neuroscience assets(d) | | — |
| | 343 |
| |
Equity investment in Allogene received in exchange for Pfizer's allogeneic CAR T developmental program assets(d) | | — |
| | 92 |
| |
| Cash paid (received) during the period for: | | |
| | |
| | |
| | |
|
| Income taxes | | 2,636 |
| | 1,666 |
| | $ | 1,290 |
| | $ | 2,136 |
|
| Interest paid | | 1,246 |
| | 968 |
| | 910 |
| | 809 |
|
| Interest rate hedges | | (78 | ) | | (104 | ) | | (66 | ) | | (72 | ) |
| |
(a) | As a result of the enactment of the TCJA in December 2017, Pfizer’s ProvisionProvision/(benefit) for taxes on income for (i) the ninesix months ended September 29,June 30, 2019 was favorably impacted by approximately $319$285 million, primarily as a result of additional guidance issued by the U.S. Department of Treasury and (ii) the nine months ended September 30, 2018 was favorably impacted by approximately $410 million, primarily related to certain tax initiatives associated with the lower U.S. tax rate as a result of the TCJA.Treasury. |
| |
(b) | The $8.2Includes $11.4 billion Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed reflectsproceeds from the receipt of a 32% equity-method investmentUpjohn long-term debt issuances in the new company valued at $15.7 billion in exchange for net assets contributedsecond quarter of $7.6 billion and is presented in operating activities net of $146 million cash conveyed that is reflected2020, which are included in Other investing activities, netRestricted short-term investments. in the condensed consolidated balance sheet. For additional information, see Note 2B.Notes 7A. Financial Instruments: Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement:Fair Value Measurements Equity-Method Investment and Assets and Liabilities Held for Sale.
|
| |
(c)
| Includes tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK. For additional information, see Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement:Equity-Method Investment and Assets and Liabilities Held for Saleand Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
|
| |
(d)
| For additional information, see Notes to Consolidated Financial Statements––Instruments: 7D. Note 2B. Acquisitions, Divestitures, Assets and Liabilities Held for Sale, Licensing Arrangements, Research and Development and Collaborative Arrangements, Equity-Method Investments and Privately Held Investment: Divestitures: Divestitures Long-Term Debtin our 2018 Financial Report.).
|
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 in 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 ninesix months ended August 25, 2019May 24, 2020 and AugustMay 26, 2018.2019. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and ninesix months ended September 29, 2019June 28, 2020 and SeptemberJune 30, 20182019.
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 results for the interim periods presented. 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 20182019 Financial Report.
At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of 3 business segments––Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and through July 31, 2019, Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. We have revised prior-period segment information to reflect the reorganization. For additional information, see Note 1314. In addition, certain amounts within
Long-term investmentsBeginning in 2020, Upjohn began managing our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan are reported in our Upjohn business beginning in the December 31, 2018 condensed consolidated balance sheet have been reclassifiedfirst quarter of 2020. In 2019, revenues and expenses from Meridian and Mylan-Japan were recorded in our Biopharma business. We performed certain reclassifications between the Biopharma and Upjohn segments to Equity-method investments to conform 2019 segment revenues and expenses associated with Meridian and Mylan-Japan to the current presentation. There was no impact to our consolidated financial statements. For additional information, see Note 2B.14.
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 2019,2020, as of January 1, 2019,2020, we adopted 4 new accounting standards. See Note 1B for further information.
Our recent significant business development activities include:
| |
• | Formation of a New Consumer Healthcare Joint VentureB. ––On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. In accordance with our domestic and international reporting periods, our financial results, and our Consumer Healthcare segment’s operating results, for the third quarter of 2019 reflect only one month of Consumer Healthcare segment domestic operations and two months of Consumer Healthcare segment international operations. Likewise, our financial results, and our Consumer Healthcare segment’s operating results, for the first nine months of 2019 reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheet as of December 31, 2018.
|
| |
• | Acquisition of Array BioPharma Inc.––On July 30, 2019, we acquired Array for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). Our financial statements for the third quarter and first nine months of 2019 reflect the assets, liabilities, operating results and cash flows of Array, commencing from the acquisition date.
|
| |
• | Agreement to Combine Upjohn with Mylan N.V.––On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company. Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun-off or split-off to Pfizer’s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and Pfizer shareholders. The transaction is anticipated to close in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals.
| |
• | Acquisition of Therachon Holding AG––On July 1, 2019, we acquired all the remaining shares of Therachon for $340 million upfront, plus potential milestone payments of up to $470 million, contingent on the achievement of key milestones in the development and commercialization of the lead asset. The total fair value of the consideration transferred for Therachon was approximately $322 million. Our financial statements for the third quarter and first nine months of 2019 reflect the assets, liabilities, operating results and cash flows of Therachon, commencing from the acquisition date and, in accordance with our international reporting period, reflect two months of Therachon operations and cash flows.
|
For additional information, see Note 2 below and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Assets and Liabilities Held for Sale, Licensing Arrangements, Research and Development and Collaborative Arrangements, Equity-Method Investments and Privately Held Investment inPfizer’s 2018 Financial Report.
B. Adoption of New Accounting Standards in 2020
On January 1, 2019,2020, we adopted 4 new accounting standards.
LeasesCredit Losses on Financial Instruments––On January 1, 2019, weWe adopted a new accounting standard for leases and changed our lease policies accordingly. Undercredit losses on financial instruments, which replaces the newprobable initial recognition threshold for incurred loss estimates under prior guidance with a methodology that reflects expected credit loss estimates. The standard the most significant change is the requirement of balance sheet recognition of ROUgenerally impacts financial assets and lease liabilities by lessees for those leases classified as operating leases. We adopted the new accounting standard utilizing the modified retrospective method using a simplified transition approach, and, therefore, no adjustments were made to our prior period financial statements. We have elected the package of practical expedients for transition which are permitted in the new standard. Accordingly, we did not reassess whether (i) any expired or existing contracts are or contain leases under the new standard, (ii) classification of leases as operating leases or capital leases would be different under the new standard, or (iii) any initial direct costs would have met the definition of initial direct costs under the new standard. Additionally, we did not elect to use hindsight in determining the lease term for existing leases as of January 1, 2019. We recorded noncurrent ROU assets of $1.4 billion and current and noncurrent operating lease liabilities of $1.4 billion as of January 1, 2019. We also recorded the cumulative effect of adopting the standard as an adjustment to increase the opening balance of Retained earnings by $30 million on a pre-tax basis ($20 million after-tax), relating to previously deferred sale-leaseback gains that can be recognized under the new rules.
|
| | | | | | | | | | | | |
| Adopting the standard related to leases impacted our prior period condensed consolidated balance sheet as follows: |
| (MILLIONS OF DOLLARS) | | As Previously Reported Balance at December 31, 2018 |
| | Effect of Change Higher/(Lower) |
| | Balance at January 1, 2019 |
|
| Other current assets | | $ | 2,461 |
| | $ | (1 | ) | | $ | 2,460 |
|
| Noncurrent deferred tax assets and other noncurrent tax assets | | 1,924 |
| | (11 | ) | | 1,913 |
|
| Other noncurrent assets | | 2,799 |
| | 1,351 |
| | 4,149 |
|
| Other current liabilities | | 10,753 |
| | 258 |
| | 11,011 |
|
| Other noncurrent liabilities | | 5,850 |
| | 1,060 |
| | 6,910 |
|
| Retained earnings | | 89,554 |
| | 20 |
| | 89,574 |
|
Adoption of the standard related to leases did not have a material impact on our condensed consolidated statements ofcontractual right to receive cash and are not accounted for at fair value through net income, or condensed consolidated statements of cash flows for the nine months ended September 29, 2019. For additional information, see Note 1D.
Amortization Period for Certain Callable Debt Securities Held at a Premium––We prospectively adopted the standard, which shortens the amortization period for certain callablesuch as accounts receivable and held-to-maturity debt securities held at a premium.securities. The new guidance requires the premiumus to be amortized to the earliest call date. We do not have any investments with features subject to this standardidentify, analyze, document and therefore, there was no impact to our condensed consolidated financial statements from the adoption of thissupport new standard.
Accountingmethodologies for Certain Financial Instruments with Characteristics of Liabilities and Equity and Accountingquantifying expected credit loss estimates for Certain Financial Instruments with Down Round Features––We prospectively adopted the standard, which changes the accounting for warrants or convertible instruments that include a down round feature. We do not have anycertain financial instruments, with features subject to thisusing information such as historical experience, current economic conditions and information, and the use of reasonable and supportable forecasted information. The standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.also
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accountingamends existing impairment guidance for Share-Based Paymentsavailable-for-sale debt securities to Nonemployeesincorporate a credit loss allowance and allows for reversals of credit impairments in the event the issuer’s credit improves.
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. The cumulative effect of adopting the standard as an adjustment to the opening balance of Retained earnings was not material. The impact of adoption did not have a material impact on our condensed consolidated statement of income for the three and six months ended June 28, 2020 or condensed consolidated statement of cash flows for the six months ended June 28, 2020, nor on our condensed consolidated balance sheet as of June 28, 2020. For additional information, see Note 1C.
Goodwill Impairment Testing––We prospectively adopted the new standard, which simplifieseliminates the accounting for share-based paymentsrequirement to nonemployees by aligning it with the accounting for share-based paymentsperform a hypothetical purchase price allocation to employees, with certain exceptions.measure goodwill impairment. Under the new guidance, the measurementgoodwill impairment test is performed by comparing the fair value of equity-classified nonemployee awards will be fixed ata reporting unit with its carrying amount, and recognizing an impairment charge for the grant date. We do not have any share-based awards issued to nonemployees and, therefore, thereamount by which the carrying amount of the reporting unit exceeds its fair value. There was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Collaboration Agreements––We prospectively adopted the new standard, which provides new guidance clarifying the interaction between the accounting for collaborative arrangements and revenue from contracts with customers. There was no impact to our condensed consolidated financial statements from the adoption of this new standard.
On January 1, 2018,2019, we adopted 114 new accounting standards. For additional information, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 20182019 included in our 20182019 Financial Report.
C. Revenues and Trade Accounts Receivable
Deductions from Revenues––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 $5.6$5.5 billion as of September 29, 2019June 28, 2020 and $5.4$5.7 billion as of December 31, 20182019.
| | The following table provides information about the balance sheet classification of these accruals: | | (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | December 31, 2018 |
| | June 28,
2020 |
| | December 31, 2019 |
|
Reserve against Trade accounts receivable, less allowance for doubtful accounts | | $ | 1,203 |
| | $ | 1,288 |
| | $ | 1,129 |
| | $ | 1,257 |
|
Other current liabilities: | | | | | | | | |
| Accrued rebates | | 3,275 |
| | 3,208 |
| | 3,210 |
| | 3,285 |
|
| Other accruals | | 617 |
| | 531 |
| | 576 |
| | 581 |
|
| Other noncurrent liabilities | | 463 |
| | 399 |
| | 598 |
| | 565 |
|
| Total accrued rebates and other accruals | | $ | 5,557 |
| | $ | 5,426 |
| | $ | 5,512 |
| | $ | 5,689 |
|
D. Leases
On January 1, 2019, we adopted a new accounting standardTrade Accounts Receivable––Trade accounts receivable are stated at their net realizable value. The allowance for leases. For furthercredit losses against gross trade accounts receivable reflects the best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, see Note 1B.and forecasts of future economic conditions. In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending on market (U.S. versus international), delinquency status, and customer type (high risk versus low risk and government versus non-government), and fixed reserve percentages are established for each pool of trade accounts receivables.
We lease real estate, fleet,In determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain customers and equipment for use in our operations. Our leases generally have lease terms of 1 to 30 years, some of which include options to terminate or extend leases for up to 5 to 10 years orcustomer types, regulatory and legal environments, country and political risk, and other relevant current and future forecasted macroeconomic factors. These credit risk indicators are monitored on a month-to-month basis. We include options that are reasonably certainquarterly basis to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation ofdetermine whether there have been any changes in market conditions, but generally these termination optionsthe economic environment that would indicate the established reserve percentages should be adjusted, and are not exercised. Residual value guaranteesconsidered on a regional basis to reflect more geographic-specific metrics. Additionally, write-offs and recoveries of customer receivables are generally not included within our operating leases withtracked against collections on a quarterly basis to determine whether the exceptionreserve percentages remain appropriate. When management becomes aware of some fleet leases. In addition to base rent payments, the leases may require us to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month. Variable lease payments amounted to $74 million for the three months ended September 29, 2019 and $192 million for the nine months ended September 29, 2019. We have elected the practical expedient in the new standard to not separate non-lease components from lease components in calculating the amounts of ROU assets and lease liabilities for all underlying asset classes.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the new standard and we perform the lease classification test as of the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
|
| | | | | | |
| For operating leases, the ROU assets and liabilities are presented in our condensed consolidated balance sheet as follows: |
| | | | | Balance at |
|
| (MILLIONS OF DOLLARS) | | Balance Sheet Classification | | September 29,
2019 |
|
| ROU assets | | Other noncurrent assets | | $ | 1,306 |
|
| Lease liabilities (short-term) | | Other current liabilities | | 281 |
|
| Lease liabilities (long-term) | | Other noncurrent liabilities | | 1,037 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
specific allowances for these known troubled accounts are recorded. Trade accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. |
| | | | | | | | |
| Our total lease costs are as follows: |
| | | Three Months Ended |
| | Nine Months Ended |
|
| (MILLIONS OF DOLLARS) | | September 29, 2019 |
| | September 29, 2019 |
|
| Operating lease cost | | $ | 111 |
| | $ | 310 |
|
| Variable lease cost | | 74 |
| | 192 |
|
| Sublease income | | (10 | ) | | (31 | ) |
| Total lease cost | | $ | 174 |
| | $ | 471 |
|
|
| | | | | | | | | |
| Other supplemental information includes the following: |
| | | Weighted-Average Remaining Contractual Lease Term (Years) as of | | Weighted-Average Discount Rate as of |
| | |
| (MILLIONS OF DOLLARS) | | September 29,
2019 | | September 29,
2019 |
| | Nine Months Ended September 29, 2019 |
|
| Operating leases | | 6.8 | | 3.6 | % | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows from operating leases | | | | | | $ | 244 |
|
| (Gains)/losses on sale and leaseback transactions, net | | | | | | (32 | ) |
| ROU assets obtained in exchange for new operating lease liabilities | | | | | | $ | 250 |
|
|
| | | | |
| The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the condensed consolidated balance sheet as of September 29, 2019: |
| (MILLIONS OF DOLLARS) | | |
| Period | | Operating Lease Liabilities |
Next one year(a) | | $ | 322 |
|
| 1-2 years | | 279 |
|
| 2-3 years | | 222 |
|
| 3-4 years | | 176 |
|
| 4-5 years | | 110 |
|
| Thereafter | | 406 |
|
| Total undiscounted lease payments | | 1,516 |
|
| Less: Imputed interest | | 197 |
|
| Present Value of Minimum Lease Payments | | 1,319 |
|
| Less: Current portion | | 281 |
|
| Noncurrent portion | | $ | 1,037 |
|
| |
(a)
| Reflects lease payments due within 12 months subsequent to the balance sheet date. |
In April 2018, we entered an agreementJune 28, 2020, additions to lease space in an office building in New York City. We expect to take controlthe allowance for credit losses, write-offs and recoveries of the property in 2021 and relocate our global headquarters to this new office building in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.7 billion.
Priorcustomer receivables were not material to our adoption of the new lease standard, rental expense, net of sublease income, was $301 million in 2018, $314 million in 2017 and $292 million in 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018, the future minimum rental commitments under non-cancelable operating leases follow: |
| (MILLIONS OF DOLLARS) | | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | After 2023 |
|
| Lease commitments | | $ | 300 |
| | $ | 252 |
| | $ | 210 |
| | $ | 267 |
| | $ | 248 |
| | $ | 2,040 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2. Acquisitions,Acquisition, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development ArrangementLicensing Arrangements
A. AcquisitionsAcquisition
Array BioPharma Inc.
On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). In addition, approximately $157 million in payments to Array employees for the fair value of previously unvested stock options was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs in the condensed consolidated statement of income for the three and nine months ended September 29, 2019 (see Note 3). We financed the majority of the transaction with debt and the balance with existing cash.
Array’s portfolio includes the approved combined use of Braftovi (encorafenib) and Mektovi (binimetinib) for the treatment of BRAFV600E- or BRAFV600K-mutant unresectable or metastatic melanoma. The combination therapy has significant potential for long-term growth via expansion into additional areas of unmet need and is currently being investigated in over 30 clinical trials across several solid tumor indications, including the Phase 3 BEACON trial in BRAF-mutant mCRC, through collaborations with third parties. Pfizer has exclusive rights to commercialize the combination therapy in the U.S. and Canada. In addition to the combination therapy for BRAF-mutant metastatic melanoma, Array brings a broad pipeline of targeted cancer medicines in different stages of research and development, as well as a portfolio of out-licensed medicines, which are expected to generate material milestones and royalties over time.
In connection with this acquisition, we provisionally recorded: (i) $7.2 billion in Identifiable intangible assets, consisting of $1.8 billion of Developed technology rights with a useful life of 16 years, $4.0 billion of IPR&D and $1.4 billion for Licensing agreements ($1.1 billion for technology in development––indefinite-lived licensing agreements and $340 million for developed technology––finite-lived licensing agreements with a useful life of 10 years), (ii) $5.4 billion of Goodwill, (iii) $1.3 billion of net deferred tax liabilities and (iv) $451 million of assumed long-term debt, which was paid in full as of September 29, 2019.. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.
Therachon Holding AG
On July 1, 2019, we acquired all the remaining shares of Therachon, a privately-held clinical-stage biotechnology company focused on rare diseases, with assets in development for the treatment of achondroplasia, a genetic condition and the most common form of short-limb dwarfism, for $340 million upfront, plus potential milestone payments of up to $470 million contingent on the achievement of key milestones in the development and commercialization of the lead asset. In 2018, we acquired approximately 3% of Therachon’s outstanding shares for $5 million. We accounted for the transaction as an asset acquisition since the lead asset represented substantially all the fair value of the gross assets acquired. The total fair value of the consideration transferred for Therachon was approximately $322 million, which consisted of $317 million of cash and our previous $5 million investment in Therachon. Therachon is a wholly-owned subsidiary of Pfizer. In connection with this asset acquisition, we recorded a charge of $337 million in Research and development expenses.
B. Equity-Method Investment and Assets and Liabilities Held for Sale
Formation of GSK Consumer Healthcare Joint Venture
On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. In exchange for contributing our Consumer Healthcare business to the joint venture, we received a 32% equity stake in the new company and GSK owns the remaining 68%. Upon the closing of the transaction, we deconsolidated our Consumer Healthcare business and recognized a pre-tax gain of $8.1 billion ($5.4 billion, net of tax) in our fiscal third quarter of 2019 in (Gain) on completion of Consumer Healthcare JV transaction for the difference in the fair value of our 32% equity stake in the new company and the carrying value of our Consumer Healthcare business. We may record additional adjustments to the gain in future periods, which we do not expect to have a material impact on our consolidated financial statements.
In valuing our investment in GSK Consumer Healthcare, we used discounted cash flow techniques. Some of the more significant estimates Our financial results, 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 or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long term; the discount rate, which seeks to reflect our best estimate of the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
diversity of the projected cash flows. As part of the joint venture transaction, we agreed to indemnify GSK with respect to certain tax matters related to periods prior to closing of the transaction as well as certain potential environmental or other legal liabilities associated with the previous operation of our Consumer Healthcare business. We recognized a liabilitysegment’s operating results, for the second quarter of $45 million with respect to 2019 reflect three months of Consumer Healthcare segment operations and forthe tax matters indemnification. The valuefirst six months of 2019 reflect six months of Consumer Healthcare segment operations, while financial results for the environmental second quarter and legal indemnifications wasfirst six months of 2020 do not considered to be material.reflect any contribution from the Consumer Healthcare business.
We are accounting for our interest in GSK Consumer Healthcare as an equity-method investment. Our The carrying value of ourinvestment in GSK Consumer Healthcare is approximately $15.4 billion as of June 28, 2020 and $17.0 billion as of December 31, 2019 and is reported as a private equity investment in the Equity-method investments line in our condensed consolidated balance sheet as of September 29, 2019. Our consolidated statements of income for the third quarter and first nine months of 2019 include revenues and expenses associated with Pfizer’s Consumer Healthcare business through July 31, 2019.sheet. We will record our share of earnings from the GSK Consumer Healthcare joint venture on a quarterly basis on a one-quarter lag in Other (income)/deductions––net commencing from August 1, 2019. Therefore, we will recordrecorded our share of two months of the joint venture’s earnings generated in the thirdfirst quarter of 20192020, which totaled approximately $129 million, in our operating results in the second quarter of 2020. Our total share of the joint venture’s earnings generated in the fourth quarter of 2019.2019 and the first quarter of 2020, which we recorded in our operating results for the first six months of 2020, was approximately $140 million. See Note 4. As of the July 31, 2019 closing date, we estimated that the fair value of our investment in GSK Consumer Healthcare was approximately $15.7 billion and that 32% of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was approximately $11.2 billion, resulting in an initial basis difference of approximately $4.5 billion. TheIn the fourth quarter of 2019, we preliminarily completed the allocation of the basis difference, which resulted from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare has not yet been allocatedthe joint venture, primarily to inventory, definite-lived intangible assets, indefinite-lived intangible assets, related deferred tax liabilities and equity method goodwill within the investment account. We expect to complete the allocation in our fourth quarter of 2019, and we will recordrecorded the amortization of identified basis differences as applicable, on a one-quarter lagallocated to inventory, definite-lived intangible assets and related deferred tax liabilities in Other (income)/deductions––net commencing August 1, 2019. Therefore, we will recordDuring the fourth quarter of 2019, GSK Consumer Healthcare revised the initial carrying value of the net assets of the joint venture and our 32% share of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was reduced to approximately $11.0 billion and our initial basis difference was increased to approximately $4.8 billion. The adjustment was allocated to equity method goodwill within the investment account. The amortization of identifiedthese basis differences for two months of the thirdfirst quarter of 2020 totaling approximately $4 million of expense is included in our operating results in Other (income)/deductions––net inthe second quarter of 2020. The total amortization of these basis differences for the fourth quarter of 2019 and the first quarter of 2020, which was included in our operating results in the fourth quarterfirst six months of 2019.
While we have received our full 32% interest in GSK Consumer Healthcare as2020, was approximately $48 million of the July 31, 2019 closing and transferred control of our Consumer Healthcare business to GSK Consumer Healthcare, the contribution of the business was not completed in certain non-U.S. jurisdictions due to temporary regulatory or operational constraints. In these jurisdictions, we have continued to operate the business for the net economic benefit of GSK Consumer Healthcare, and we are indemnified by GSK Consumer Healthcare against risks associated with such operations during the interim period, subject to our obligations under the definitive transaction agreements. We expect the contribution of our Consumer Healthcare business in these jurisdictions to be fully completed by the first half of 2021. As such, and as we and GSK Consumer Healthcare are contractually obligated to complete the transaction, we have treated these jurisdictions as sold for accounting purposes.
In connection with the contribution of our Consumer Healthcare business, we entered into certain transitional agreements designed to facilitate the orderly transition of the business to GSK Consumer Healthcare. 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 consumer products for GSK Consumer Healthcare and GSK Consumer Healthcare will manufacture and supply certain retained Pfizer products for us after closing, generally for a term of up to six years. These agreements are not material to Pfizer.
Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheets as of December 31, 2018. The Consumer Healthcare business assets held for sale are reported inexpense. See Assets held for saleNote 4. and Consumer Healthcare business liabilities held for sale are reported in Liabilities held for sale in the consolidated balance sheet as of December 31, 2018. This includes the Consumer Healthcare business tax assets and liabilities related to fully dedicated consumer healthcare subsidiaries.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | |
| The amounts associated with the Consumer Healthcare business, as well as other assets classified as held for sale consisted of the following: |
| (MILLIONS OF DOLLARS) | | December 31,
2018 |
|
| Assets Held for Sale | | |
| Cash and cash equivalents | | $ | 32 |
|
| Trade accounts receivable, less allowance for doubtful accounts | | 532 |
|
| Inventories | | 538 |
|
| Other current assets | | 56 |
|
| PP&E | | 675 |
|
| Identifiable intangible assets, less accumulated amortization | | 5,763 |
|
| Goodwill | | 1,972 |
|
| Noncurrent deferred tax assets and other noncurrent tax assets | | 54 |
|
| Other noncurrent assets | | 57 |
|
| Total Consumer Healthcare assets held for sale | | 9,678 |
|
Other assets held for sale(a) | | 46 |
|
| Assets held for sale | | $ | 9,725 |
|
| | | |
| Liabilities Held for Sale | | |
| | | |
| Trade accounts payable | | $ | 406 |
|
| Income taxes payable | | 39 |
|
| Accrued compensation and related items | | 93 |
|
| Other current liabilities | | 353 |
|
| Pension benefit obligations, net | | 39 |
|
| Postretirement benefit obligations, net | | 33 |
|
| Noncurrent deferred tax liabilities | | 870 |
|
| Other noncurrent liabilities | | 56 |
|
| Total Consumer Healthcare liabilities held for sale | | $ | 1,890 |
|
| |
(a)
| Other assets held for sale consist of PP&E. |
As a part of Pfizer, pre-tax income on a management business unit basis for the Consumer Healthcare business was $100 million for the third quarter of 2019 and $654 million for the nine months ended September 29, 2019, through July 31, 2019, and $211 million for the third quarter of 2018 and $725 million for the nine months ended September 30, 2018.
C. Research and Development Arrangement
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 would fund up to $200 million in development costs related to certain Phase 3 clinical trials of Pfizer’s rivipansel compound and Pfizer would use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding was expected to cover up to 100% of the development costs and was received over approximately 13 quarters from 2016 through the second quarter of 2019 after which Pfizer is responsible for the remaining development costs. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding was recognized by us as an obligation to perform contractual services and therefore a reduction of Research and development expenses as incurred. The funding cap was reached in 2019. Following potential regulatory approval, NovaQuest would 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 would 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 would be recorded as Cost of sales when incurred.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In August 2019, we announced thatbasis differences on inventory and related deferred tax liabilities has been completely recognized by the Phase 3 RESET (Rivipansel Evaluating Safety, Efficacysecond quarter of 2020. Basis differences on definite-lived intangible assets and Time to Discharge)pivotal study did not meet its primary or key secondary efficacy endpoints. The objectiverelated deferred tax liabilities are being amortized over the lives of the trialunderlying assets, which range from 6 to 20 years. GSK Consumer Healthcare is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in Other comprehensive income. The decrease in the value of our investment from December 31, 2019 to June 28, 2020 is primarily due to approximately $1.1 billion in pre-tax foreign currency translation adjustments (see Note 6), as well as a dividend of approximately $519 million, which was to evaluatereceived from the efficacy and safety of rivipanselGSK Consumer Healthcare joint venture in patients aged six and older with sickle cell disease who were hospitalized for a vaso-occlusive crisis and required treatment with IV opioids. June 2020.
As a result, inpart of Pfizer, pre-tax income on a management business unit basis for the thirdConsumer Healthcare business was $274 million for the second quarter of 2019 and $554 million for the six months ended June 30, 2019.
|
| | | | |
| Summarized financial information for our equity method investee, GSK Consumer Healthcare, as of and for the three and six months ending March 31, 2020, the most recent period available, is as follows: |
| (MILLIONS OF DOLLARS) | | March 31,
2020 |
|
| Current assets | | $ | 8,213 |
|
| Noncurrent assets | | 37,627 |
|
| Total assets | | $ | 45,840 |
|
| | | |
| Current liabilities | | $ | 5,524 |
|
| Noncurrent liabilities | | 5,152 |
|
| Total liabilities | | $ | 10,677 |
|
| | | |
| Equity attributable to shareholders | | $ | 35,031 |
|
| Equity attributable to noncontrolling interests | | 133 |
|
| Total net equity | | $ | 35,163 |
|
|
| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months Ended March 31, 2020 |
| | Six Months Ended March 31, 2020 |
|
| Net sales | | $ | 3,503 |
| | $ | 6,691 |
|
| Cost of sales | | (1,394 | ) | | (3,205 | ) |
| Gross profit | | $ | 2,109 |
| | $ | 3,486 |
|
| Income from continuing operations | | 425 |
| | 471 |
|
| Net income | | 425 |
| | 471 |
|
| Income attributable to shareholders | | 405 |
| | 441 |
|
C. Licensing Arrangements
Agreement with Valneva SE
On April 30, 2020, we recorded a $127 million chargesigned an agreement to co-develop and commercialize Valneva’s Lyme disease vaccine candidate VLA15. VLA15 is the only active Lyme disease vaccine program inCost of sales related to rivipansel, primarily for inventory manufactured for expected future sale, as well as $15 million of anticipated clinical development program close-out costs,today, and covers six serotypes that are prevalent in North America and Europe. Valneva and Pfizer will work closely together throughout the development of VLA15. Valneva is eligible to receive a total of $308 million in cash payments consisting of a $130 million upfront payment, which werewas paid and recorded in Research and development costsexpenses in our fiscal second quarter of 2020, as well as $35 million in development milestones and $143 million in early commercialization milestones. Under the condensed consolidated statement of income. Detailed analysesterms of the RESET study, including additional dataagreement, Valneva will fund 30% of all development costs through completion of the development program, and in return we will pay Valneva tiered royalties. We will lead late-stage development and have sole control over commercialization.
Agreement with BioNTech SE
On April 9, 2020, we signed a global agreement with BioNTech to co-develop a potential first-in-class, mRNA-based coronavirus vaccine program, BNT162, aimed at preventing COVID-19 infection. The collaboration aims to rapidly advance multiple COVID-19 vaccine candidates into human clinical testing based on efficacyBioNTech’s proprietary mRNA vaccine platforms, with the objective of ensuring rapid worldwide access to the vaccine, if approved. The collaboration will leverage our broad expertise in vaccine R&D, regulatory capabilities, and safety endpoints, are under reviewglobal manufacturing and distribution network. In connection with the agreement, we paid BioNTech an upfront cash payment of $72 million, which was recorded in Research and development expenses in our fiscal second quarter of 2020, and we made an equity investment of $113 million in common stock of BioNTech. BioNTech is eligible to receive potential future milestone payments of up to $563 million for a total consideration of
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
$748 million. While Pfizer and BioNTech will share development costs equally if the vaccine is approved and successfully commercialized, Pfizer will be submittedresponsible for presentation atall of the development costs until commercialization of the vaccine. Thereafter, BioNTech would repay Pfizer its 50 percent share of these development costs through reductions in gross profit sharing and milestone payments to BioNTech over time. BioNTech and Pfizer will also work jointly to commercialize the vaccine worldwide (excluding China, which is subject to a future scientific meeting. Following those detailed analyses, the impact on the NovaQuest agreement will be evaluated.separate collaboration between BioNTech and Shanghai Fosun Pharmaceutical (Group) Co., Ltd) if development is successful and regulatory approval is obtained. We made an additional investment of $50 million in common stock of BioNTech as part of an underwritten equity offering by BioNTech, which closed in July 2020 in our fiscal third quarter of 2020.
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
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.
2017-2019 Initiatives and Organizing for GrowthTransforming to a More Focused Company Program
During 2018, as we reviewed our business opportunities and challengesWith the formation of the GSK Consumer Healthcare joint venture and the way in which we think aboutanticipated combination of Upjohn, our business operations, we determined that at the start of our 2019 fiscal year, we would begin operating under our new commercial structure, which reorganized our operations into 3 businesses––Biopharma,a science-based innovative medicines business; Upjohn, a global, primarily off-patent branded and generic established medicines business; and through July 31, 2019,generics business, with Mylan, Pfizer is transforming itself into a Consumer Healthcare business (see Note 13). To operate effectivelymore focused, global leader in this structure and position ourselves for future growth,science-based innovative medicines. As a result, we are focused on creating a simpler, more efficient operating structure within each business as well as the functions that support them. Beginningbegan in the fourth quarter of 2018, we reviewed previously planned initiatives2019, to identify and new initiativesundertake efforts to ensure that there was alignment around our new structure and combined the 2017-2019 initiativescost base aligns appropriately with our current Organizing for GrowthBiopharmaceutical revenue base as a result of both the completed GSK Consumer Healthcare and expected Upjohn transactions. While certain direct costs have transferred or will transfer to the GSK Consumer Healthcare joint venture and to the Upjohn entities, there are indirect costs which are not expected to transfer. In addition, we are taking steps to restructure our organizations to appropriately support and drive the purpose of the three core functions of our focused innovative medicines business: R&D, Manufacturing and Commercial.
We expect the costs associated with this multi-year program to be incurred from 2020 through 2022 and to total approximately $1.2 billion on a pre-tax basis, with substantially all of the costs to be cash expenditures. Actions may include, among others, changes in location of certain activities, expanded use and co-location of centers of excellence and shared services, and increased use of digital technologies. The associated actions and the specific costs will primarily include severance and benefit plan impacts, exit costs as well as associated implementation costs.
Also as part of this program, in connection with the legacy cost reduction initiatives, to form one cohesive plan. Initiatives for the combined program include activitiesprimarily related to manufacturing activities, we expect to incur costs of approximately $400 million, with approximately 20% of the optimizationcosts to be non-cash. The costs associated with this effort are expected to be incurred from 2020 through 2022, and will primarily include implementation costs, product transfer costs, exit costs, as well as accelerated depreciation.
From the start of our manufacturing plant network,this program in the centralizationfourth quarter of our corporate and platform functions, and the simplification and optimization of our operating business structure and functions that support them. From 20172019 through September 29, 2019,June 28, 2020, we incurred approximately $819$549 million associated with manufacturing optimization, and approximately $945 million associated with other activities.this program.
In 2019, we expect restructuring, implementation and additional depreciation charges of about $600 million and, of that amount, we expect approximately 15% of the total charges will be non-cash.
Current-Period Key Activities
For the first ninesix months of 20192020, we incurred costs of $452$566 million composed primarily of the Transforming to a More Focused Company program. For the first six months of 2019, we incurred costs of $32 million composed of $272 million associated with the integration of Array, $300$180 million associated with the 2017-2019 and Organizing for Growth initiatives, and $74$51 million associated with the integration of Hospira, partially offset byand income of $194$199 million primarily due to the reversal of certain accruals upon the effective favorable settlement of a U.S.an IRS audit for multiple tax years and 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 | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Restructuring charges/(credits): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Employee terminations | | $ | 82 |
| | $ | (24 | ) | | $ | (86 | ) | | $ | (53 | ) | | $ | 346 |
| | $ | (166 | ) | | $ | 371 |
| | $ | (167 | ) |
| Asset impairments | | 3 |
| | 12 |
| | 3 |
| | 8 |
| | (8 | ) | | (9 | ) | | 23 |
| | — |
|
| Exit costs/(credits) | | (1 | ) | | 14 |
| | 33 |
| | 14 |
| |
Restructuring charges/(credits)(a) | | 83 |
| | 1 |
| | (50 | ) | | (32 | ) | |
| Exit costs | | | 1 |
| | 31 |
| | 1 |
| | 34 |
|
Restructuring charges(a) | | | 340 |
| | (144 | ) | | 396 |
| | (134 | ) |
Transaction costs(b) | | 65 |
| | 1 |
| | 65 |
| | 1 |
| | 11 |
| | — |
| | 14 |
| | — |
|
Integration costs and other(c) | | 217 |
| | 82 |
| | 281 |
| | 202 |
| | 11 |
| | 29 |
| | 21 |
| | 64 |
|
| Restructuring charges and certain acquisition-related costs | | 365 |
| | 85 |
| | 295 |
| | 172 |
| | 362 |
| | (115 | ) | | 431 |
| | (69 | ) |
Net periodic benefit costs recorded in Other (income)/deductions––net | | 9 |
| | 41 |
| | 19 |
| | 103 |
| | 5 |
| | 4 |
| | 29 |
| | 10 |
|
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(d): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Cost of sales | | 6 |
| | 12 |
| | 21 |
| | 43 |
| | 4 |
| | 7 |
| | 10 |
| | 15 |
|
| Selling, informational and administrative expenses | | — |
| | — |
| | 2 |
| | — |
| | — |
| | 1 |
| | — |
| | 2 |
|
| Research and development expenses | | — |
| | — |
| | 6 |
| | — |
| | 2 |
| | 2 |
| | (3 | ) | | 5 |
|
| Total additional depreciation––asset restructuring | | 6 |
| | 12 |
| | 29 |
| | 43 |
| | 6 |
| | 10 |
| | 6 |
| | 23 |
|
Implementation costs recorded in our condensed consolidated statements of income as follows(e): | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Cost of sales | | 14 |
| | 21 |
| | 45 |
| | 57 |
| | 11 |
| | 17 |
| | 21 |
| | 31 |
|
| Selling, informational and administrative expenses | | 23 |
| | 17 |
| | 48 |
| | 51 |
| | 63 |
| | 16 |
| | 78 |
| | 25 |
|
| Research and development expenses | | 3 |
| | 9 |
| | 16 |
| | 22 |
| | 1 |
| | 9 |
| | 1 |
| | 13 |
|
| Total implementation costs | | 40 |
| | 48 |
| | 109 |
| | 130 |
| | 75 |
| | 42 |
| | 99 |
| | 69 |
|
| Total costs associated with acquisitions and cost-reduction/productivity initiatives | | $ | 420 |
| | $ | 186 |
| | $ | 452 |
| | $ | 447 |
| | $ | 449 |
| | $ | (59 | ) | | $ | 566 |
| | $ | 32 |
|
| |
(a) | In the thirdsecond quarter and first six months of 2019,2020, restructuring charges mainly represent employee termination costs associated with cost-reduction and productivity initiatives as well as our acquisition of Array.Transforming to a More Focused Company cost reduction program. In the second quarter and first ninesix months of 2019,, restructuring credits mostly represent the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S.an IRS audit for multiple tax years (see years. See Notes to Consolidated Financial Statements––Note 5B5D. Tax Matters: Tax Contingencies ), partially offset by employee termination costs associated with cost-reduction and productivity initiatives, as well asin our acquisition of Array. In the third quarter of 2018, restructuring charges were 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 were mostly related to the reversal of previously recorded accruals for employee termination costs.2019 Financial Report. |
The restructuring activities for 20192020 are associated with the following:
| |
| • | For the thirdsecond quarter of 20192020, Biopharma ($1012 million charge)credit); Upjohn ($61 million credit); and Other ($79352 million charge). |
| |
| • | For the first ninesix months of 20192020, Biopharma ($389 million credit); Upjohn ($2712 million credit)charge); and Other ($15393 million charge). |
The restructuring activities for 20182019 are associated with the following:
For the thirdsecond quarter of 2018, total reportable segments2019, Biopharma ($662 million credit); Upjohn ($9 million credit); and Other ($774 million charge)credit).
For the first ninesix months of 2018, total reportable segments2019, Biopharma ($3048 million credit); Upjohn ($22 million credit); and Other ($263 million credit). At
Restructuring costs identified as Other are for restructuring activities associated with corporate enabling functions, WRDM, GPD and other manufacturing and commercial operations, as applicable. For the beginningsecond quarter and first six months of fiscal 2019, we revised our operating segments and are unable2020, restructuring costs identified as Other primarily relate to directly associate these prior-period restructuring charges with the new individual segments.corporate enabling functions.
| |
(b) | Transaction costs represent external costs for banking, legal, accounting and other similar services. In the third quarter and first nine months of 2019, transaction costs relate to our acquisition of Array. |
| |
(c) | Integration costs and other represent external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. In the thirdsecond quarter and first ninesix months of 2019,2020, integration costs and other primarily includes $157 million in paymentswere mostly related to Array employees for the fair valueour acquisition of previously unvested stock options that was recognized as post-closing compensation expense (see Note 2A).Array. In the thirdsecond quarter and first ninesix months of 2018,2019, integration costs and other were primarily related to our acquisition of Hospira. |
| |
(d) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
| |
(e) | Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | 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 |
| | Employee Termination Costs |
| | Asset Impairment Charges |
| | Exit Costs |
| | Accrual |
|
Balance, December 31, 2018(a) | | $ | 1,203 |
| | $ | — |
| | $ | 49 |
| | $ | 1,252 |
| |
Provision/(credit)(b) | | (86 | ) | | 3 |
| | 33 |
| | (50 | ) | |
Balance, December 31, 2019(a) | | | $ | 887 |
| | $ | — |
| | $ | 46 |
| | $ | 933 |
|
| Provision | | | 371 |
| | 23 |
| | 1 |
| | 396 |
|
Utilization and other(c)(b) | | (431 | ) | | (3 | ) | | (33 | ) | | (467 | ) | | (341 | ) | | (23 | ) | | (14 | ) | | (378 | ) |
Balance, September 29, 2019(d) | | $ | 686 |
| | $ | — |
| | $ | 48 |
| | $ | 734 |
| |
Balance, June 28, 2020(c) | | | $ | 918 |
| | $ | — |
| | $ | 34 |
| | $ | 951 |
|
| |
(a) | Included in Other current liabilities ($823714 million) and Other noncurrent liabilities ($428219 million). |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(b) | Includes the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years. See Note 5B for additional information.
|
| |
(c)
| Includes adjustments for foreign currency translation. |
| |
(d)(c)
| Included in Other current liabilities ($535625 million) and Other noncurrent liabilities ($199326 million). |
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 | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
|
| September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
|
| June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
Interest income(a) | | $ | (60 | ) | | $ | (82 | ) | | (185 | ) | | (240 | ) | | $ | (19 | ) | | $ | (59 | ) | | $ | (53 | ) | | $ | (125 | ) |
Interest expense(a) | | 409 |
| | 310 |
| | 1,158 |
| | 946 |
| | 372 |
| | 389 |
| | 762 |
| | 750 |
|
| Net interest expense | | 348 |
| | 228 |
| | 973 |
| | 706 |
| | 353 |
| | 330 |
| | 709 |
| | 625 |
|
Royalty-related income(b) | | (155 | ) | | (143 | ) | | (475 | ) | | (360 | ) | | (191 | ) | | (231 | ) | | (311 | ) | | (320 | ) |
| Net gains on asset disposals | | (32 | ) | | (4 | ) | | (33 | ) | | (19 | ) | |
Net gains recognized during the period on investments in equity securities(c) | | (6 | ) |
| (85 | ) |
| (153 | ) |
| (460 | ) | |
| Net realized losses on sales of investments in debt securities | | — |
|
| 8 |
|
| — |
|
| 19 |
| |
| Net (gains)/losses on asset disposals | | | 1 |
| | — |
| | 2 |
| | (1 | ) |
Net gains recognized during the period on equity securities(c) | | | (732 | ) |
| (36 | ) |
| (478 | ) |
| (147 | ) |
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d) | | (20 | ) | | (139 | ) | | (124 | ) | | (455 | ) | | (100 | ) | | (22 | ) | | (215 | ) | | (104 | ) |
Net periodic benefit credits other than service costs(e) | | (19 | ) | | (65 | ) | | (110 | ) | | (231 | ) | | (108 | ) | | (51 | ) | | (175 | ) | | (91 | ) |
Certain legal matters, net(f) | | 64 |
| | 37 |
| | 84 |
| | (70 | ) | |
Certain asset impairments(g) | | 28 |
| | (1 | ) | | 188 |
| | 40 |
| |
Business and legal entity alignment costs(h) | | 87 |
| | 1 |
| | 343 |
| | 5 |
| |
Net losses on early retirement of debt(i) | | — |
| | — |
| | 138 |
| | 3 |
| |
| Certain legal matters, net | | | 17 |
| | 15 |
| | 26 |
| | 19 |
|
Certain asset impairments(f) | | | — |
| | 10 |
| | — |
| | 160 |
|
Business and legal entity alignment costs(g) | | | — |
| | 137 |
| | — |
| | 256 |
|
| Net losses on early retirement of debt | | | — |
| | — |
| | — |
| | 138 |
|
GSK Consumer Healthcare JV equity method (income)/loss(h) | | | (126 | ) | | — |
| | (92 | ) | | — |
|
Other, net(j)(i) | | 24 |
|
| (252 | ) |
| (294 | ) |
| (322 | ) | | 25 |
|
| (27 | ) |
| (107 | ) |
| (318 | ) |
| Other (income)/deductions––net | | $ | 319 |
| | $ | (414 | ) | | $ | 537 |
| | $ | (1,143 | ) | | $ | (862 | ) | | $ | 126 |
| | $ | (641 | ) | | $ | 218 |
|
| |
(a) | Interest income decreased in the thirdsecond quarter and first ninesix months of 2019,2020, primarily driven by a lower investment balance.balance and lower short-term interest rates. Interest expense decreased in the second quarter of 2020 mainly as a result of the retirement of higher-coupon debt and the issuance of new debt with a lower coupon than the debt outstanding for the comparative prior year period. Interest expense increased in the third quarter and first ninesix months of 2019, 2020, mainly as a result of an increased commercial paper balance due to the acquisition of Array, as well as the retirement of lower-coupon debt and the issuance of new debt with a higher coupon than the debt outstanding for the comparative prior year periods. Array. |
| |
(b) | The increase in royalty-relatedRoyalty-related income for the second quarter and first ninesix months of 2019 is primarily due toincluded a one-time favorable resolution in the second quarter of 2019 of a legal dispute for $82 million. |
| |
(c) | The thirdgains in the second quarter of 2018 included2020 include, among other things, unrealized gains of $24 million and the first nine months of 2018 included gains of $229$508 million related to our investment in ICU Medical stock.Allogene and unrealized gains of $61 million related to our investment in BioNTech. The gains in the first six months of 2020 include, among other things, unrealized gains of $374 million related to our investment in Allogene and unrealized gains of $127 million related to our investment in BioNTech. The gains in the first six months of 2019 included, among other things, unrealized gains of $104 million related to our investment in Cortexyme, Inc. For additional information on investments, see Note 7B. |
| |
(d) | Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the second quarter and first ninesix months of 2019,2020, mainly includes, among other things, $70$40 million of milestone income from Puma Biotechnology, Inc. related to Neratinib regulatory approvals in the EU, and $30 million of milestone income from Lilly related to the first commercial sale in the U.S. of LOXO-292 for the treatment of RET fusion-positive NSCLC. The first six months of 2020 also includes an upfront payment to us of $75 million from our sale of our CK1 assets to Biogen, Inc. In the first six months of 2019, primarily included $68 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub®, a generic of Advair Diskus®(fluticasone propionate and salmeterol inhalation powder) and $26 million in milestone income from multiple licensees. In the third quarter of 2018, primarily included, 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, mainly included, 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 α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid (AMPA) receptor potentiator for cognitive impairment associated with schizophrenia (CIAS) to Biogen Inc., (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 of a compound out-licensed by Pfizer to Shire 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.. |
| |
(e) | For additional information, see Note 10. |
| |
(f) | For the first nine months of 2018, the net credits primarily represented the reversal of a legal accrual where a loss was no longer deemed probable. |
| |
(g)
| The first ninesix months of 2019 include anincluded intangible asset impairment chargecharges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases, which was the result of a determination to not use certain Bamboo IPR&D acquired in future rare disease development, (ii) $40 million related to an Upjohn finite-lived developed technology right, acquired in connection with our acquisition of King, for government defense products and reflected, among other things, updated commercial forecasts including manufacturing cost assumptions, and (iii) $10 million and the first nine months of 2018 included an intangible asset impairment charge of $31 million recorded in the second quarter of 2018, which are all related to a finite-lived developed technology right, acquired in connection with our acquisition of Anacor, for the treatment for toenail fungus marketed in the U.S. market only, associated with Biopharma and reflectreflected, |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
among other things, updated commercial forecasts. The first nine months of 2019 also includes intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases and (ii) $40 million related to a Biopharma developed technology right, acquired in connection with our acquisition of King, for government defense products. The WRDM IPR&D intangible asset impairment charge was the result of a determination to not use certain Bamboo IPR&D acquired in future rare disease development. The intangible asset impairment charge related to the Biopharma developed technology right reflects, among other things, updated commercial forecasts including manufacturing cost assumptions. In addition, the first nine months of 2019, includes other asset impairments of $48 among other things, updated commercial forecasts. In addition, the first six months of 2019 included other asset impairments of $20 million.
| |
(h)(g)
| In the thirdsecond quarter and first ninesix months of 2019, and in the third quarter of 2018, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services. In |
| |
(h) | Includes our share of the first nine monthsGSK Consumer Healthcare joint venture’s earnings and the amortization of 2018, mainly represents expensesbasis differences, which resulted from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of the joint venture. See Note 2B for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, 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.additional information. |
| |
(i) | In the first nine months of 2019, represents net losses due to the early retirement of debt in the firstThe second quarter of 2019, inclusive of the related termination of cross-currency swaps.
|
| |
(j)
| The third quarter of 20192020 includes, among other things, dividend income of $43$76 million from our investment in ViiV, and charges of $121 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture. The first nine months of 2019 includes, among other things, (i) dividend income of $184 million from our investment in ViiV, (ii) charges of $146 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture and (iii) $50 million of income from insurance recoveries related to Hurricane Maria. The third quarter and first nine months of 2018 included 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 pre-clinical stage neuroscience assets primarily targeting disorders of the central nervous system. The third quarter of 2018 also included, among other things, dividend income of $91 million from our investment in ViiV, and charges of $122$86 million, reflecting the change in the fair value of contingent consideration. The first ninesix months of 2018 also included,2020 includes, among other things, (i) dividend income of $226$153 million from our investment in ViiV (ii)and charges of $257$99 million, reflecting the change in the fair value of contingent consideration. The second quarter of 2019 included, among other things, charges of $81 million, reflecting the change in the fair value of contingent consideration, (iii) a non-cashdividend income of $76 million from our investment in ViiV, and $25 million of income from insurance recoveries related to Hurricane Maria. The first six months of 2019 included, among other things, dividend income of $140 million from our investment in ViiV and $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T development program assets obtainedincome from Cellectis S.A. and Les Laboratoires Servier SAS in connection with our contribution agreement entered into with Allogene, and (iv) a non-cash $17 million gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg. |
|
| | | | | | | | | | | | | | | | | | | | |
The following table provides additional information about the intangible assets that were impaired during 2019 in Other (income)/deductions: |
| | | Fair Value(a) | | Nine Months Ended September 29, 2019 |
| (MILLIONS OF DOLLARS) | | Amount | | Level 1 | | Level 2 | | Level 3 | | Impairment |
Intangible assets––IPR&D(b) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 90 |
|
Intangible assets––Developed technology rights(b) | | 13 |
| | — |
| | — |
| | 13 |
| | 50 |
|
| Total | | $ | 13 |
| | $ | — |
| | $ | — |
| | $ | 13 |
| | $ | 140 |
|
| |
(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 intangible assets written down to fair value in the first nine months of 2019. 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
During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.
Our effective tax rate for continuing operations was 28.4% for the third quarter of 2019, compared to 1.6% for the third quarter of 2018 and was 13.4% for the first nine months of 2019, compared to 9.9% for the first nine months of 2018.
The higher effective tax rate for the third quarter of 2019 in comparison with the same period in 2018 was primarily due to:
the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK;
the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the legislation commonly referred to as the TCJA; and
a decrease in tax 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.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Tax Matters
A. Taxes on Income from Continuing Operations
Our effective tax rate for continuing operations was 13.1% for the second quarter of 2020, compared to (22.1)% for the second quarter of 2019 and was 12.7% for the first six months of 2020, compared to (5.7)% for the first six months of 2019.
The higher effective tax rate for the second quarter and first ninesix months of 20192020 in comparison with the same periodperiods in 20182019 was primarily due to:
the tax expense of $2.7 billion associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK; | |
| • | the non-recurrence of the $1.4 billion tax benefit, representing taxes and interest, recorded in the second quarter of 2019 due to the favorable settlement of an IRS audit for multiple tax years (see Notes to Consolidated Financial Statements––Note 5D. Tax Matters: Tax Contingencies in our 2019 Financial Report); and |
the non-recurrence of certain tax initiatives and favorable adjustments to the provisional estimate of the TCJA,
partially offset by:
an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years, primarily resulting from the aforementioned favorable settlement with the IRS; and
the tax benefit recorded in the first six months of 2019 as a result of additional guidance issued by the U.S. Department of Treasury related to the enactmentTCJA,
partially offset by:
the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the TCJA.normal course of business.
Our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings for which we elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026 is reported in current Income taxes payable (approximately $750 million)$1.4 billion) and the remaining liability is reported in noncurrent Other taxes payable in our condensed consolidated balance sheet as of September 29, 2019June 28, 2020. The firstsecond installment of $750$680 million was paid in July 2020, which was originally due to be paid in April 2019.2020 but was extended to July 2020 by the IRS in response to the COVID-19 pandemic. The third installment of approximately $750 million is due in April 2021. 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of June 28, 2020, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on our effective tax rate.
B. 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:
During the second quarter of 2019, Pfizer reached settlement of disputed issues at the IRS Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2009-2010. As a result of settling these years, in the second quarter of 2019 we recorded a benefit of approximately $1.4 billion, representing tax and interest.
IRS. With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2011-20152011-2013. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2014-2015 are currently under audit. Tax years 2016-20192016-2020 are open, but not under audit. All other tax years are closed.
In addition to the open audit years in the U.S., we have open audit years in other major tax jurisdictions, such as Canada (2013-2019)(2013-2020), Japan (2017-2019)(2017-2020), Europe (2011-2019,(2011-2020, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2019,(1998-2020, primarily reflecting Brazil) and Puerto Rico (2015-2019)(2015-2020).
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. Tax ProvisionProvision/(Benefit) on Other Comprehensive Loss
|
| | | | | | | | | | | | | | | | |
The following table provides the components of Tax provision on other comprehensive loss: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
|
Foreign currency translation adjustments, net(a) | | $ | 86 |
| | $ | 14 |
| | $ | 96 |
| | $ | 82 |
|
| Unrealized holding gains on derivative financial instruments, net | | 31 |
| | 35 |
| | 37 |
| | 39 |
|
| Reclassification adjustments for (gains)/losses included in net income | | (3 | ) | | (28 | ) | | (62 | ) | | 36 |
|
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | — |
| | 1 |
|
| | | 28 |
| | 7 |
| | (24 | ) | | 77 |
|
| Unrealized holding gains/(losses) on available-for-sale securities, net | | 2 |
| | 20 |
| | 6 |
| | (8 | ) |
| Reclassification adjustments for (gains)/losses included in net income | | (1 | ) | | (6 | ) | | 4 |
| | (8 | ) |
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c) | | — |
| | — |
| | — |
| | (45 | ) |
| | | 1 |
| | 14 |
| | 10 |
| | (62 | ) |
| Benefit plans: actuarial gains/(losses), net | | (41 | ) | | 2 |
| | (42 | ) | | 27 |
|
| Reclassification adjustments related to amortization | | 23 |
| | 15 |
| | 41 |
| | 43 |
|
| Reclassification adjustments related to settlements, net | | 9 |
| | 10 |
| | 10 |
| | 25 |
|
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | — |
| | 637 |
|
| Other | | (1 | ) | | 11 |
| | 2 |
| | 18 |
|
| | | (10 | ) | | 38 |
| | 12 |
| | 750 |
|
| Benefit plans: prior service costs and other, net | | — |
| | — |
| | — |
| | — |
|
| Reclassification adjustments related to amortization of prior service costs and other, net | | (11 | ) | | (11 | ) | | (33 | ) | | (33 | ) |
| Reclassification adjustments related to curtailments of prior service costs and other, net | | (11 | ) | | (1 | ) | | (11 | ) | | (4 | ) |
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | | — |
| | — |
| | — |
| | (144 | ) |
| Other | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| | | (21 | ) | | (11 | ) | | (43 | ) | | (179 | ) |
| Tax provision on other comprehensive loss | | $ | 84 |
| | $ | 62 |
| | $ | 50 |
| | $ | 667 |
|
|
| | | | | | | | | | | | | | | | |
The following table provides the components of Tax provision/(benefit) on other comprehensive loss: |
| | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
Foreign currency translation adjustments, net(a) | | $ | 60 |
| | $ | (17 | ) | | $ | (192 | ) | | $ | 10 |
|
| Unrealized holding gains/(losses) on derivative financial instruments, net | | 51 |
| | (53 | ) | | (82 | ) | | 6 |
|
| Reclassification adjustments for gains included in net income | | (35 | ) | | (4 | ) | | (20 | ) | | (59 | ) |
| | | 16 |
| | (57 | ) | | (102 | ) | | (53 | ) |
| Unrealized holding gains/(losses) on available-for-sale securities, net | | 5 |
| | (1 | ) | | (1 | ) | | 4 |
|
| Reclassification adjustments for losses included in net income | | 6 |
| | 3 |
| | 7 |
| | 5 |
|
| | | 11 |
| | 2 |
| | 6 |
| | 9 |
|
| Benefit plans: actuarial gains/(losses), net | | 2 |
| | (1 | ) | | (19 | ) | | (1 | ) |
| Reclassification adjustments related to amortization | | 16 |
| | 15 |
| | 31 |
| | 18 |
|
| Reclassification adjustments related to settlements, net | | 2 |
| | — |
| | 12 |
| | 1 |
|
| Other | | 16 |
| | 8 |
| | 20 |
| | 3 |
|
| | | 35 |
| | 23 |
| | 43 |
| | 21 |
|
| Reclassification adjustments related to amortization of prior service costs and other, net | | (11 | ) | | (11 | ) | | (21 | ) | | (22 | ) |
| Other | | 1 |
| | — |
| | 1 |
| | — |
|
| | | (9 | ) | | (11 | ) | | (20 | ) | | (22 | ) |
| Tax provision/(benefit) on other comprehensive loss | | $ | 113 |
| | $ | (59 | ) | | $ | (265 | ) | | $ | (34 | ) |
| |
(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 Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.
|
| |
(c)
| For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Notes to Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards in 2018 in our 2018 Financial Report.
|
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
| | The following table provides the changes, net of tax, in Accumulated other comprehensive loss: | The following table provides the changes, net of tax, in Accumulated other comprehensive loss: | The following table provides the changes, net of tax, in Accumulated other comprehensive loss: |
| | | Net Unrealized Gains/(Losses) | | Benefit Plans | | | | 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) |
| | 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, 2018 | | $ | (6,075 | ) | | $ | 167 |
| | $ | (68 | ) | | $ | (6,027 | ) | | $ | 728 |
| | $ | (11,275 | ) | |
| Balance, December 31, 2019 | | | $ | (5,952 | ) | | $ | 20 |
| | $ | (35 | ) | | $ | (6,257 | ) | | $ | 584 |
| | $ | (11,640 | ) |
Other comprehensive income/(loss)(a) | | (443 | ) | | (107 | ) | | 68 |
| | 94 |
| | (137 | ) | | (525 | ) | | (1,310 | ) | | (353 | ) | | 44 |
| | 79 |
| | (65 | ) | | (1,605 | ) |
| Balance, September 29, 2019 | | $ | (6,519 | ) | | $ | 60 |
| | $ | — |
| | $ | (5,933 | ) | | $ | 591 |
| | $ | (11,801 | ) | |
| Balance, June 28, 2020 | | | $ | (7,262 | ) | | $ | (333 | ) | | $ | 9 |
| | $ | (6,178 | ) | | $ | 518 |
| | $ | (13,246 | ) |
| |
(a) | Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $11$12 million loss for the first ninesix months of 2020. Includes after-tax losses of approximately $902 million related to foreign currency translation adjustments and the impact of our net investment hedging program, both attributable to our equity method investment in GSK Consumer Healthcare (see2019 Note 2B.), and losses from the weakening of certain major currencies against the U.S. dollar. These losses were partially offset by the results of our net investment hedging program. |
As of September 29, 2019, with respect to derivative financial instruments, the amount of unrealized pre-tax net gains on derivative financial instruments estimated to be reclassified into income within the next 12 months is approximately $247 million. The net gains are expected to be offset primarily by net losses from reclassification adjustments related to foreign currency exchange-denominated forecasted intercompany inventory sales.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 7. Financial Instruments
A. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
| | 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 2018 Financial Report: | |
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 our 2019 Financial Report: | | 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 our 2019 Financial Report: |
| | | September 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| (MILLIONS OF DOLLARS) | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | 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 with readily determinable fair values: | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 1,035 |
|
| $ | — |
|
| $ | 1,035 |
|
| $ | 1,571 |
|
| $ | — |
|
| $ | 1,571 |
| | $ | 13,033 |
|
| $ | — |
|
| $ | 13,033 |
|
| $ | 705 |
|
| $ | — |
|
| $ | 705 |
|
Equity(a) | | 19 |
| | 7 |
| | 12 |
| | 29 |
| | 17 |
| | 11 |
| |
| | | 1,054 |
| | 7 |
| | 1,047 |
| | 1,600 |
| | 17 |
| | 1,583 |
| | | | | | | | | | | | |
| Classified as available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Government and agency—non-U.S. | | 2,498 |
| | — |
| | 2,498 |
| | 9,609 |
| | — |
| | 9,609 |
| | 6,218 |
| | — |
| | 6,218 |
| | 4,863 |
| | — |
| | 4,863 |
|
| Government and agency—U.S. | | | 14 |
| | — |
| | 14 |
| | 811 |
| | — |
| | 811 |
|
| Corporate and other | | 1,772 |
| | — |
| | 1,772 |
| | 5,482 |
| | — |
| | 5,482 |
| | 1,440 |
| | — |
| | 1,440 |
| | 1,013 |
| | — |
| | 1,013 |
|
| | | 4,270 |
| | — |
| | 4,270 |
| | 15,091 |
| | — |
| | 15,091 |
| | 7,672 |
| | — |
| | 7,672 |
| | 6,687 |
| | — |
| | 6,687 |
|
| Total short-term investments | | 5,324 |
| | 7 |
| | 5,317 |
| | 16,691 |
| | 17 |
| | 16,674 |
| | 20,705 |
| | — |
| | 20,705 |
| | 7,392 |
| | — |
| | 7,392 |
|
| Other current assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | 59 |
| | — |
| | 59 |
| | 97 |
| | — |
| | 97 |
| | 17 |
| | — |
| | 17 |
| | 53 |
| | — |
| | 53 |
|
| Foreign exchange contracts | | 559 |
| | — |
| | 559 |
| | 477 |
| | — |
| | 477 |
| | 413 |
| | — |
| | 413 |
| | 413 |
| | — |
| | 413 |
|
| Total other current assets | | 618 |
| | — |
| | 618 |
| | 574 |
| | — |
| | 574 |
| | 431 |
| | — |
| | 431 |
| | 465 |
| | — |
| | 465 |
|
| Long-term investments | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities with readily determinable fair values(a) | | 1,530 |
|
| 1,506 |
|
| 24 |
|
| 1,273 |
|
| 1,243 |
|
| 30 |
| |
Classified as equity securities with readily determinable fair values(b) | | | 2,072 |
|
| 2,046 |
|
| 26 |
|
| 1,902 |
|
| 1,863 |
|
| 39 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Classified as available-for-sale debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Government and agency—non-U.S. | | 45 |
| | — |
| | 45 |
| | 94 |
| | — |
| | 94 |
| |
| Government and agency—U.S. | | | 243 |
| | — |
| | 243 |
| | 303 |
| | — |
| | 303 |
|
| Corporate and other | | 363 |
| | — |
| | 363 |
| | 397 |
| | — |
| | 397 |
| | 11 |
| | — |
| | 11 |
| | 11 |
| | — |
| | 11 |
|
| | | 408 |
| | — |
| | 408 |
| | 491 |
| | — |
| | 491 |
| | 254 |
| | — |
| | 254 |
| | 315 |
| | — |
| | 315 |
|
| Total long-term investments | | 1,937 |
| | 1,506 |
| | 432 |
| | 1,764 |
| | 1,243 |
| | 521 |
| | 2,326 |
| | 2,046 |
| | 280 |
| | 2,216 |
| | 1,863 |
| | 354 |
|
| Other noncurrent assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | 557 |
| | — |
| | 557 |
| | 335 |
| | — |
| | 335 |
| | 140 |
| | — |
| | 140 |
| | 266 |
| | — |
| | 266 |
|
| Foreign exchange contracts | | 367 |
| | — |
| | 367 |
| | 232 |
| | — |
| | 232 |
| | 221 |
| | — |
| | 221 |
| | 261 |
| | — |
| | 261 |
|
| Total derivative assets | | | 362 |
| | — |
| | 362 |
| | 526 |
| | — |
| | 526 |
|
Insurance contracts(c) | | | 578 |
| | — |
| | 578 |
| | 575 |
| | — |
| | 575 |
|
| Total other noncurrent assets | | 924 |
| | — |
| | 924 |
| | 566 |
| | — |
| | 566 |
| | 940 |
| | — |
| | 940 |
| | 1,102 |
| | — |
| | 1,102 |
|
| Total assets | | $ | 8,803 |
| | $ | 1,513 |
| | $ | 7,290 |
| | $ | 19,595 |
| | $ | 1,260 |
| | $ | 18,335 |
| | $ | 24,402 |
| | $ | 2,046 |
| | $ | 22,355 |
| | $ | 11,176 |
| | $ | 1,863 |
| | $ | 9,313 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial liabilities measured at fair value on a recurring basis: | | | | | | | | | | | | | | | | | | | | | | | | |
| Other current liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| |
| Foreign exchange contracts | | 133 |
| | — |
| | 133 |
| | 78 |
| | — |
| | 78 |
| | $ | 127 |
| | $ | — |
| | $ | 127 |
| | $ | 114 |
| | $ | — |
| | $ | 114 |
|
| Total other current liabilities | | 133 |
| | — |
| | 133 |
| | 82 |
| | — |
| | 82 |
| | 127 |
| | — |
| | 127 |
| | 114 |
| | — |
| | 114 |
|
| Other noncurrent liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | — |
| | — |
| | — |
| | 378 |
| | — |
| | 378 |
| |
| Foreign exchange contracts | | 600 |
| | — |
| | 600 |
| | 564 |
| | — |
| | 564 |
| | 866 |
| | — |
| | 866 |
| | 604 |
| | — |
| | 604 |
|
| Total other noncurrent liabilities | | 600 |
| | — |
| | 600 |
| | 942 |
| | — |
| | 942 |
| | 866 |
| | — |
| | 866 |
| | 604 |
| | — |
| | 604 |
|
| Total liabilities | | $ | 733 |
| | $ | — |
| | $ | 733 |
| | $ | 1,024 |
| | $ | — |
| | $ | 1,024 |
| | $ | 993 |
| | $ | — |
| | $ | 993 |
| | $ | 718 |
| | $ | — |
| | $ | 718 |
|
| |
(a) | As of September 29, 2019,June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term equity securitiesinvestments in the condensed consolidated balance sheet. |
| |
(b) | As of $12 million andJune 28, 2020, long-term equity securities of $23$163 million areand as of December 31, 2019, long-term equity securities of $176 million were held in trustrestricted trusts for benefits attributable to the former Pharmacia Savings Plus Plan. various U.S. non-qualified employee benefit plans. |
| |
As of December 31, 2018(c)
| , short-term equity securities of $11 million and long-term equity securities of $29 million areOther noncurrent assets include life insurance policies held in trust for benefitsrestricted trusts attributable to the former Pharmacia Savings Plus Plan.funding of various U.S. non-qualified employee benefit plans. The underlying invested assets in these insurance contracts are marketable securities, which are carried at fair value, with changes in fair value recognized in Other (income)/deductions––net in the condensed consolidated statements of income (see Note 4).
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 using a market approach: | | | | September 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
| (MILLIONS OF DOLLARS) | | | | Total | | Level 2 | | | | Total | | Level 2 | | | | Total | | Level 2 | | | | Total | | Level 2 |
| Financial Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, excluding the current portion | | $ | 36,044 |
| | $ | 40,873 |
| | $ | 40,873 |
| | $ | 32,909 |
| | $ | 35,260 |
| | $ | 35,260 |
| | $ | 50,529 |
| | $ | 59,121 |
| | $ | 59,121 |
| | $ | 35,955 |
| | $ | 40,842 |
| | $ | 40,842 |
|
| |
(a) | As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet. |
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, restricted stock and private equity securities, and short-term borrowings not measured at fair value on a recurring basis were not significant as of September 29, 2019June 28, 2020 or December 31, 2018.2019. 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, which represent investments in the life sciences sector, are based on Level 3 inputs using a market approach.
In addition, as of September 29, 2019June 28, 2020 and December 31, 2018,2019, we had long-term receivables whose fair value is based on Level 3 inputs. As of September 29, 2019June 28, 2020 and December 31, 2018,2019, the differences between the estimated fair values and carrying values of these receivables were not significant.
Total Short-Term and Long-Term Investments and Equity-Method Investments
| | The following table represents our investments by classification type: | | (MILLIONS OF DOLLARS) | | September 29, 2019 |
| | December 31, 2018 |
| | June 28,
2020 |
| | December 31,
2019 |
|
| Short-term investments | | | | | | | | |
Equity securities with readily determinable fair values(a) | | $ | 1,054 |
| | $ | 1,600 |
| | $ | 13,033 |
| | $ | 705 |
|
| Available-for-sale debt securities | | 4,270 |
| | 15,091 |
| | 7,672 |
| | 6,687 |
|
| Held-to-maturity debt securities | | 978 |
| | 1,003 |
| | 288 |
| | 1,133 |
|
| Total Short-term investments | | $ | 6,302 |
| | $ | 17,694 |
| | $ | 20,993 |
| | $ | 8,525 |
|
| | | | | | | | | |
| Long-term investments | | | | | | | | |
| Equity securities with readily determinable fair values | | $ | 1,530 |
| | $ | 1,273 |
| | $ | 2,072 |
| | $ | 1,902 |
|
| Available-for-sale debt securities | | 408 |
| | 491 |
| | 254 |
| | 315 |
|
| Held-to-maturity debt securities | | 43 |
| | 59 |
| | 43 |
| | 42 |
|
| Private equity investments at cost | | 742 |
| | 763 |
| |
| Private equity securities at cost | | | 772 |
| | 756 |
|
| Total Long-term investments | | $ | 2,723 |
| | $ | 2,586 |
| | $ | 3,142 |
| | $ | 3,014 |
|
| | | | | | |
| Equity-method investments | | 15,999 |
| | 181 |
| | 15,578 |
| | 17,133 |
|
| Total long-term investments and equity-method investments | | $ | 18,721 |
| | $ | 2,767 |
| | $ | 18,720 |
| | $ | 20,147 |
|
| Held-to-maturity cash equivalents | | $ | 217 |
| | $ | 199 |
| | $ | 119 |
| | $ | 163 |
|
| |
(a) | As of September 29, 2019June 28, 2020 and December 31, 2018,2019, equity securities with readily determinable fair values included money market funds primarily invested in U.S. Treasury and government debt. As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions (see Note 7D) are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet. |
.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Investments
Debt Securities
| | | At September 29, 2019, the investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt and equity securities at September 29, 2019 and December 31, 2018 is as follows, including, as of September 29, 2019, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: | |
| At June 28, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at June 28, 2020 and December 31, 2019 is as follows, including, as of June 28, 2020, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: | | At June 28, 2020, our investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt securities at June 28, 2020 and December 31, 2019 is as follows, including, as of June 28, 2020, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: |
| | | September 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| | | | | Gross Unrealized | | | | Maturities (in Years) | | | | | Gross Unrealized | | | | | | | 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 |
| | 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. | | $ | 2,538 |
| | $ | 11 |
| | $ | (6 | ) | | $ | 2,543 |
| | $ | 2,498 |
| | $ | 45 |
| | $ | — |
| | $ | 2,543 |
| | $ | 9,754 |
| | $ | 7 |
| | $ | (58 | ) | | $ | 9,703 |
| | $ | 6,209 |
| | $ | 12 |
| | $ | (3 | ) | | $ | 6,218 |
| | $ | 6,218 |
| | $ | — |
| | $ | — |
| | $ | 6,218 |
| | $ | 4,895 |
| | $ | 6 |
| | $ | (38 | ) | | $ | 4,863 |
|
| Government and agency––U.S. | | | 257 |
| | 1 |
| | (1 | ) | | 257 |
| | 14 |
| | 243 |
| | — |
| | 257 |
| | 1,120 |
| | — |
| | (6 | ) | | 1,114 |
|
Corporate and other(a) | | 2,140 |
| | 1 |
| | (6 | ) | | 2,135 |
| | 1,772 |
| | 360 |
| | 2 |
| | 2,135 |
| | 5,905 |
| | — |
| | (27 | ) | | 5,878 |
| | 1,450 |
| | 2 |
| | (1 | ) | | 1,451 |
| | 1,440 |
| | 11 |
| | — |
| | 1,451 |
| | 1,027 |
| | — |
| | (2 | ) | | 1,025 |
|
| Held-to-maturity debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Time deposits and other | | 636 |
| | — |
| | — |
| | 636 |
| | 593 |
| | 8 |
| | 35 |
| | 636 |
| | 668 |
| | — |
| | — |
| | 668 |
| | 228 |
| | — |
| | — |
| | 228 |
| | 189 |
| | 9 |
| | 30 |
| | 228 |
| | 535 |
| | — |
| | — |
| | 535 |
|
Government and agency––non-U.S. | | 601 |
| | — |
| | — |
| | 601 |
| | 601 |
| | — |
| | — |
| | 601 |
| | 592 |
| | — |
| | — |
| | 592 |
| | 222 |
| | — |
| | — |
| | 222 |
| | 218 |
| | — |
| | 4 |
| | 222 |
| | 803 |
| | — |
| | — |
| | 803 |
|
| Total debt securities | | $ | 5,916 |
| | $ | 11 |
| | $ | (12 | ) | | $ | 5,915 |
| | $ | 5,464 |
| | $ | 413 |
| | $ | 38 |
| | $ | 5,915 |
| | $ | 16,920 |
| | $ | 8 |
| | $ | (85 | ) | | $ | 16,842 |
| | $ | 8,366 |
| | $ | 16 |
| | $ | (5 | ) | | $ | 8,376 |
| | $ | 8,079 |
| | $ | 263 |
| | $ | 35 |
| | $ | 8,376 |
| | $ | 8,380 |
| | $ | 6 |
| | $ | (47 | ) | | $ | 8,340 |
|
| |
(a) | Primarily issued by a diverse group of corporations. |
|
| | | | | | | | | | | | | | | | |
| The following table presents the net unrealized (gains) and losses for the period that relate to equity securities still held at the reporting date, calculated as follows: |
| | | Three Months Ended | | Nine Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
|
Net gains recognized during the period on investments in equity securities(a) | | $ | (6 | ) | | $ | (85 | ) | | $ | (153 | ) | | $ | (460 | ) |
| Less: Net gains recognized during the period on equity securities sold during the period | | (3 | ) | | (58 | ) | | (13 | ) | | (105 | ) |
| Net unrealized gains during the reporting period on equity securities still held at the reporting date | | $ | (3 | ) | | $ | (27 | ) | | $ | (140 | ) | | $ | (355 | ) |
|
| | | | | | | | | | | | | | | | |
| The following table presents the calculation of the portion of unrealized gains for the period that relates to equity securities, excluding equity method investments, still held at the reporting date: |
| | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
Net gains recognized during the period on equity securities(a) | | $ | (732 | ) | | $ | (36 | ) | | $ | (478 | ) | | $ | (147 | ) |
| Less: Net (gains)/losses recognized during the period on equity securities sold during the period | | 1 |
| | (6 | ) | | (18 | ) | | (10 | ) |
Net unrealized gains during the reporting period on equity securities still held at the reporting date(b) | | $ | (733 | ) | | $ | (31 | ) | | $ | (459 | ) | | $ | (137 | ) |
| |
(a) | The net gains on investments in equity securities are reported in Other (income)/deductions––net. For additional information, see Note 4. |
| |
(b) | Included in net unrealized gains are observable price changes on equity securities without readily determinable fair values. Since January 1, 2018, there were cumulative impairments and downward adjustments of $67 million and upward adjustments of $66 million. Impairments, downward and upward adjustments were not significant in the second quarter and the first six months of 2020 and 2019. |
C. Short-Term Borrowings
| | Short-term borrowings include: | | (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | December 31,
2018 |
| | June 28,
2020 |
| | December 31,
2019 |
|
| Commercial paper | | $ | 12,914 |
| | $ | 3,100 |
| | $ | 10,660 |
| | $ | 13,915 |
|
| Current portion of long-term debt, principal amount | | 2,423 |
| | 4,781 |
| | 1,481 |
| | 1,458 |
|
Other short-term borrowings, principal amount(a) | | 1,334 |
| | 966 |
| | 956 |
| | 860 |
|
| Total short-term borrowings, principal amount | | 16,671 |
| | 8,847 |
| | 13,097 |
| | 16,233 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 7 |
| | (5 | ) | | 1 |
| | 5 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (61 | ) | | (11 | ) | | (14 | ) | | (43 | ) |
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted | | $ | 16,617 |
| | $ | 8,831 |
| | $ | 13,084 |
| | $ | 16,195 |
|
| |
(a) | Other short-term borrowings primarily include cash collateral. For additional information, see Note 7E. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. Long-Term Debt
New Issuances
|
| | | | | | |
| In the first quarter of 2019, we issued the following senior unsecured notes: |
| | | | | Principal |
| (MILLIONS OF DOLLARS) | | Maturity Date | | As of September 29, 2019 |
2.800% notes(a) | | March 11, 2022 | | $ | 500 |
|
2.950% notes(a) | | March 15, 2024 | | 750 |
|
3.450% notes(a) | | March 15, 2029 | | 1,750 |
|
3.900% notes(a) | | March 15, 2039 | | 750 |
|
4.000% notes(a) | | March 15, 2049 | | 1,250 |
|
Total long-term debt issued in the first quarter of 2019(b) | | | | $ | 5,000 |
|
|
| | | | | | |
| In the second quarter of 2020, we issued the following senior unsecured notes: |
| (MILLIONS OF DOLLARS) | | | | |
| | | | | Principal |
| Interest Rate | | Maturity Date | | As of June 28, 2020 |
Pfizer Inc.(a) | | | | |
| 0.800% | | May 28, 2025 | | $ | 750 |
|
| 1.700% | | May 28, 2030 | | 1,000 |
|
| 2.550% | | May 28, 2040 | | 1,000 |
|
| 2.700% | | May 28, 2050 | | 1,250 |
|
| | | | | $ | 4,000 |
|
Upjohn Inc., a wholly-owned subsidiary of Pfizer Inc.(b) | | | | |
| 1.125% | | June 22, 2022 | | $ | 1,000 |
|
| 1.650% | | June 22, 2025 | | 750 |
|
| 2.300% | | June 22, 2027 | | 750 |
|
| 2.700% | | June 22, 2030 | | 1,450 |
|
| 3.850% | | June 22, 2040 | | 1,500 |
|
| 4.000% | | June 22, 2050 | | 2,000 |
|
| | | | | $ | 7,450 |
|
Upjohn Finance B.V., a wholly-owned subsidiary of Upjohn Inc.(b) | | | | |
| 0.816% | | June 23, 2022 | | € | 750 |
|
| 1.023% | | June 23, 2024 | | 750 |
|
| 1.362% | | June 23, 2027 | | 850 |
|
| 1.908% | | June 23, 2032 | | 1,250 |
|
| | | | | € | 3,600 |
|
| |
(a) | Fixed rateThe notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rate for the notes at issuance was 2.11%. |
| |
(b) | In June 2020, Upjohn Inc. and Upjohn Finance B.V. completed privately placed debt offerings in connection with the previously announced proposed Reverse Morris Trust transaction that will ultimately combine Upjohn and Mylan to form a new company, Viatris. The notes may be redeemed by Upjohn Inc. and Upjohn Finance B.V., as applicable, at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. The weighted-average effective interest rates at issuance were 2.95% for the $7.45 billion notes and 1.37% for the €3.60 billion notes. If the proposed transaction with Mylan does not close on or prior to February 1, 2021, or if, prior to such date, Upjohn Inc. and Mylan notify the trustee that the business combination agreement for the proposed transaction with Mylan is terminated, or the transaction will not otherwise be pursued, the notes must be redeemed at redemption prices equal to 101% of their respective principal amounts, plus accrued and unpaid interest. Pfizer has guaranteed these notes, and such guarantees will automatically and unconditionally terminate without the consent of holders of the notes upon the proposed distribution to Pfizer’s stockholders of all of the issued and outstanding shares of Upjohn Inc.’s common stock held by Pfizer (the Distribution). Upjohn Inc. has guaranteed the notes issued by Upjohn Finance B.V., and Upjohn Inc. will remain a guarantor of such notes post Distribution. Following the separation, Upjohn Inc. and Upjohn Finance B.V., as applicable, will remain the obligor. The proceeds from the financings will be used in part to fund a cash distribution from Upjohn Inc. to Pfizer immediately prior to the Distribution. In the interim, the $11.4 billion of proceeds are classified as Restricted short-term investments in the condensed consolidated balance sheet as of June 28, 2020 pursuant to the terms of the transaction agreements. |
|
| | | | | | |
| In the first quarter of 2020, we issued the following senior unsecured notes: |
| (MILLIONS OF DOLLARS) | | | | Principal |
| Interest Rate | | Maturity Date | | As of June 28, 2020 |
2.625%(a) | | April 1, 2030 | | $ | 1,250 |
|
Total long-term debt issued in the first quarter of 2020(b) | | | | $ | 1,250 |
|
| |
(a) | The notes may be redeemed by us at any time, in whole, or in part, at a redemption price plus accrued and unpaid interest. |
| |
(b) | The weighted-average effective interest rate for the notes at issuance was 3.57%2.67%. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | | | | |
| 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) | | June 28,
2020 |
| | December 31,
2019 |
|
Total long-term debt, principal amount(a) | | $ | 49,187 |
| | $ | 34,820 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 1,654 |
| | 1,305 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (317 | ) | | (176 | ) |
| Other long-term debt | | 5 |
| | 5 |
|
| Total long-term debt, carried at historical proceeds, as adjusted | | $ | 50,529 |
| | $ | 35,955 |
|
| Current portion of long-term debt, carried at historical proceeds, as adjusted (not included above) | | $ | 1,481 |
| | $ | 1,462 |
|
| |
(a) | As of June 28, 2020, $11.4 billion of proceeds from the Upjohn debt transactions are invested in money market funds and included in Restricted short-term investments in the condensed consolidated balance sheet. |
Retirements
In January 2019,March 2020, we repurchased at par all €1.1$1.065 billion ($1.3 billion, at exchange rates on settlement) principal amount outstanding of the 5.75% euro-denominated debtour senior unsecured notes that waswere due June 2021in 2047 before the maturity date, atwhich did not have a redemption value of €1.3 billion ($1.5 billion, at exchange ratesmaterial impact on settlement). As a result, in the first quarter of 2019, we recorded a net loss of approximately $138 million, which included the related termination of cross-currency swaps, and is reported in Other (income)/deductions––net in theour condensed consolidated statements of income. For additional information, see Note 4.
|
| | | | | | | | |
| 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 29,
2019 |
| | December 31,
2018 |
|
| Total long-term debt, principal amount | | $ | 34,602 |
| | $ | 32,558 |
|
| Net fair value adjustments related to hedging and purchase accounting | | 1,614 |
| | 479 |
|
| Net unamortized discounts, premiums and debt issuance costs | | (179 | ) | | (136 | ) |
| Other long-term debt | | 7 |
| | 7 |
|
| Total long-term debt, carried at historical proceeds, as adjusted | | $ | 36,044 |
| | $ | 32,909 |
|
| Current portion of long-term debt, carried at historical proceeds, as adjusted | | $ | 2,431 |
| | $ | 4,776 |
|
E. Derivative Financial Instruments and Hedging Activities
Foreign Exchange Risk
A significant portion of our 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 and foreign currency 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.
The derivative financial instruments primarily hedge or offset exposures in the euro, U.K. pound, euro, Japanese yen, Swedish krona and Chinese renminbi and Swedish krona.renminbi.
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 and Australian dollar-denominated intercompany inventory sales expected to occur no more than two years from the date of each hedge.
Interest Rate Risk
Our 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 ratefixed-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. We entered into
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
| | 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 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| | | | | Fair Value | | | | Fair Value | | | | Fair Value | | | | Fair Value |
| | | Notional | | Asset | | Liability | | Notional | | Asset | | Liability | | Notional | | Asset | | Liability | | Notional | | Asset | | Liability |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts(a) | | $ | 22,807 |
| | $ | 810 |
| | $ | 621 |
| | $ | 22,984 |
| | $ | 654 |
| | $ | 586 |
| | $ | 22,543 |
| | $ | 551 |
| | $ | 914 |
| | $ | 25,193 |
| | $ | 591 |
| | $ | 662 |
|
| Interest rate contracts | | 6,645 |
| | 616 |
| | — |
| | 11,145 |
| | 432 |
| | 383 |
| | 1,995 |
| | 158 |
| | — |
| | 6,645 |
| | 318 |
| | — |
|
| | | | | 1,425 |
| | 621 |
| | | | 1,085 |
| | 968 |
| | | | 708 |
| | 914 |
| | | | 909 |
| | 662 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | | $ | 18,112 |
| | 116 |
| | 112 |
| | $ | 15,154 |
| | 55 |
| | 55 |
| | $ | 14,433 |
| | 84 |
| | 79 |
| | $ | 19,623 |
| | 82 |
| | 55 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | | $ | 1,542 |
| | $ | 733 |
| | | | $ | 1,140 |
| | $ | 1,024 |
| | | | $ | 792 |
| | $ | 993 |
| | | | $ | 992 |
| | $ | 718 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| |
(a) | The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $6.6$5.2 billion as of September 29, 2019June 28, 2020 and $5.8$5.9 billion as of December 31, 2018.2019. |
| | | The following tables provide information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | |
| The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | | 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) |
| Amount of Gains/(Losses)
Recognized in OCI(a), (b) |
| Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (b) |
| Amount of
Gains/(Losses)
Recognized in OID(a) |
| Amount of Gains/(Losses)
Recognized in OCI(a), (b) |
| Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (b) |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts(c) | | $ | — |
| | $ | — |
| | $ | 131 |
| | $ | 183 |
| | $ | 7 |
| | $ | 198 |
| | $ | — |
| | $ | — |
| | $ | 187 |
| | $ | (204 | ) | | $ | 172 |
| | $ | 48 |
|
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | | — |
| | — |
| | 21 |
| | 39 |
| | 22 |
| | 36 |
| | — |
| | — |
| | 13 |
| | 28 |
| | 14 |
| | 32 |
|
| Derivative Financial Instruments in Fair Value Hedge Relationships: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | 378 |
| | (195 | ) | | — |
| | — |
| | — |
| | — |
| | 6 |
| | 483 |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item | | (378 | ) | | 195 |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (483 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item | | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Foreign exchange contracts | | — |
| | — |
| | 112 |
| | 43 |
| | — |
| | — |
| | — |
| | — |
| | (144 | ) | | (48 | ) | | — |
| | — |
|
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness | | — |
| | — |
| | 43 |
| | 14 |
| | 45 |
| | 21 |
| | — |
| | — |
| | 29 |
| | 52 |
| | 42 |
| | 31 |
|
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Foreign currency short-term borrowings(d)(e) | | — |
| | — |
| | 45 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (16 | ) | | — |
| | — |
|
Foreign currency long-term debt(d)(e) | | — |
| | — |
| | 79 |
| | 17 |
| | — |
| | — |
| | — |
| | — |
| | (42 | ) | | (27 | ) | | — |
| | — |
|
| Derivative Financial Instruments Not Designated as Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | | (77 | ) | | 150 |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
|
All other net | | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | — |
|
| | | $ | (77 | ) | | $ | 150 |
| | $ | 429 |
| | $ | 304 |
| | $ | 74 |
| | $ | 256 |
| | $ | 8 |
| | $ | (4 | ) | | $ | 56 |
| | $ | (216 | ) | | $ | 228 |
| | $ | 111 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | Amount of
Gains/(Losses)
Recognized in OID(a) | | Amount of Gains/(Losses)
Recognized in OCI(a), (b) | | Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (b) | | Amount of
Gains/(Losses)
Recognized in OID(a) | | Amount of Gains/(Losses)
Recognized in OCI(a), (b) | | Amount of Gains/(Losses)
Reclassified from
OCI into OID and COS(a), (b) |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Nine Months Ended | | | | | | | | | | | | | |
| Six Months Ended | | | | | | | | | | | | | |
| Derivative Financial Instruments in Cash Flow Hedge Relationships: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Foreign exchange contracts(c) | | $ | — |
| | $ | — |
| | $ | 137 |
| | $ | 147 |
| | $ | 265 |
| | $ | (204 | ) | | $ | — |
| | $ | — |
| | $ | (341 | ) | | $ | 6 |
| | $ | 126 |
| | $ | 257 |
|
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | | — |
|
| — |
|
| 105 |
|
| 87 |
|
| 108 |
|
| 84 |
| | — |
|
| — |
|
| 42 |
|
| 84 |
|
| 41 |
|
| 86 |
|
| | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Derivative Financial Instruments in Fair Value Hedge Relationships: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| Interest rate contracts | | 1,191 |
| | (715 | ) | | — |
| | — |
| | — |
| | — |
| | 392 |
| | 813 |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item | | (1,191 | ) | | 715 |
| | — |
| | — |
| | — |
| | — |
| | (392 | ) | | (813 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign exchange contracts | | — |
| | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Hedged item | | — |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | |
|
| | | |
|
| | | |
|
|
| Derivative Financial Instruments in Net Investment Hedge Relationships: | | | |
|
| | | |
|
| | | |
|
| | | |
|
| | | |
|
| | | |
|
|
| Foreign exchange contracts | | — |
| | — |
| | 87 |
| | 191 |
| | — |
| | — |
| | — |
| | — |
| | 240 |
| | (25 | ) | | — |
| | — |
|
| The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness | | — |
|
| — |
|
| 136 |
|
| 41 |
|
| 99 |
|
| 47 |
| |
The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness(d) | | | — |
|
| — |
|
| 176 |
|
| 93 |
|
| 84 |
|
| 55 |
|
| | | | | |
|
| |
|
| |
|
| |
|
| |
|
|
| Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | | | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
|
| |
|
| |
|
| |
|
| |
|
|
Foreign currency short-term borrowings(d) | | — |
| | — |
| | 65 |
| | 50 |
| | — |
| | — |
| |
Foreign currency long-term debt(d) | | — |
| | — |
| | 89 |
| | 111 |
| | — |
| | — |
| |
Foreign currency short-term borrowings(e) | | | — |
| | — |
| | 8 |
| | 19 |
| | — |
| | — |
|
Foreign currency long-term debt(e) | | | — |
| | — |
| | 3 |
| | 11 |
| | — |
| | — |
|
| | | | | |
|
| |
|
| |
|
| | | |
|
|
| Derivative Financial Instruments Not Designated as Hedges: | | | |
|
| |
|
| |
|
| | | |
|
| | | |
|
| |
|
| |
|
| | | |
|
|
| Foreign exchange contracts | | (201 | ) | | 156 |
| | — |
| | — |
| | — |
| | — |
| | (51 | ) | | (124 | ) | | — |
| | — |
| | — |
| | — |
|
| All other net | | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| |
All other net(d) | | | — |
| | — |
| | 12 |
| | 1 |
| | (1 | ) | | — |
|
| | | $ | (201 | ) | | $ | 156 |
| | $ | 617 |
| | $ | 629 |
| | $ | 472 |
| | $ | (72 | ) | | $ | (51 | ) | | $ | (124 | ) | | $ | 139 |
| | $ | 188 |
| | $ | 251 |
| | $ | 398 |
|
| |
(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 the condensed consolidated statements of comprehensive income. |
| |
(b) | For derivative financial instruments in cash flow hedge relationships, the gains and losses are included in Other comprehensive income–loss––Unrealized holding gainsgains/(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 isgains and losses are included in Other comprehensive income–loss––Foreign currency translation adjustments, net. |
| |
(c) | The amounts reclassified from OCI into COS were: |
| |
| • | Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-taxnet gain of $252$80 million withinin the next 12second quarter of 2020;
|
| |
| • | a net gain of $150 million in the first six months intoof Cost of sales.2020; |
a net gain of $59 million in the second quarter of 2019; and
a net gain of $103 million in the first six months of 2019.
The remaining amounts were reclassified from OCI into OID. Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $102 million within the next 12 months into income. 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.
| |
(d) | Short-term borrowings include foreign currency short-term borrowings with carrying values of $1.1 billion as of September 29, 2019, which are used as hedging instruments in net investment hedges. The amounts reclassified from OCI were reclassified into OID. |
| |
(e) | Long-term debt includes foreign currency long-term borrowings with carrying values of $1.9$2.0 billion as of September 29, 2019,June 28, 2020, which are used as hedging instruments in net investment hedges. |
|
| | | | | | | | | | | | | | | | |
| 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 29,
2019 |
| | September 30,
2018 |
| | September 29
2019 |
| | September 30,
2018 |
|
| Cost of sales |
| $ | 2,602 |
| | $ | 2,694 |
| | $ | 7,611 |
| | $ | 8,173 |
|
| Other (income)/deductions—net |
| 319 |
| | (414 | ) | | 537 |
| | (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: | | | | September 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| | | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount | | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount | | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount | | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount |
| (MILLIONS OF DOLLARS) |
| Carrying Amount of Actively Hedged Assets/Liabilities(a) |
|
| Active Hedging Relationships |
| | Discontinued Hedging Relationships |
| | Carrying Amount of Actively Hedged Assets/Liabilities(a) |
| | Active Hedging Relationships |
| | Discontinued Hedging Relationships |
|
| Carrying Amount of Hedged Assets/Liabilities(a) |
|
| Active Hedging Relationships |
| | Discontinued Hedging Relationships |
| | Carrying Amount of Hedged Assets/Liabilities(a) |
| | Active Hedging Relationships |
| | Discontinued Hedging Relationships |
|
| Short-term investments | | | $ | 45 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Long-term investments |
| $ | 45 |
|
| $ | — |
| | $ | — |
| | $ | 45 |
| | $ | (1 | ) | | $ | — |
|
| — |
|
| — |
| | — |
| | 45 |
| | — |
| | — |
|
| Short-term borrowings, including current portion of long-term debt |
| — |
|
| — |
| | — |
| | 1,499 |
| | (5 | ) | | — |
| |
| Long-term debt |
| 7,101 |
|
| 557 |
| | 700 | | 9,952 |
| | (45 | ) | | 129 |
|
| 2,023 |
|
| 140 |
| | 1,181 |
| | 7,092 |
| | 266 |
| | 690 |
|
| |
(a) | Carrying amounts exclude the cumulative amount of fair value hedging adjustments. |
Certain of our derivative financial instruments are covered by associated credit-support agreements that have credit-risk-related contingent features designed to reduce both counterparties’ exposure to risk of defaulting on amounts owed by the other party. As of September 29, 2019June 28, 2020, the aggregate fair value of these derivative financial instruments that are in a net liability position was $673$928 million, for which we have posted collateral of $661$922 million in the normal course of business. If there had been a 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.
As of September 29, 2019June 28, 2020, we received cash collateral of $1.3 billion$858 million from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts that are in a net asset position.contracts. With respect to the collateral received, the obligations are reported in Short-term borrowings, including current portion of long-term debt.
F. 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.counterparty. For additional information onabout concentrations of certain credit risk related to certain significant customers, see Notes to Consolidated Financial Statements––Note 18C.17C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 20182019 Financial Report. As of September 29, 2019June 28, 2020, we had amounts due from a well-diversified, high quality group of banks ($2.71.9 billion) from around the world. For details about our investments, see Note 7B 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, depending on levels of exposure, our credit rating and the credit rating of the counterparty, see Note 7E above.
Note 8. Inventories
| | The following table provides the components of Inventories: | The following table provides the components of Inventories: | The following table provides the components of Inventories: |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | December 31,
2018 |
| | June 28,
2020 |
| | December 31,
2019 |
|
| Finished goods | | $ | 2,594 |
| | $ | 2,262 |
| | $ | 3,002 |
| | $ | 2,750 |
|
| Work-in-process | | 4,866 |
| | 4,701 |
| | 4,810 |
| | 4,743 |
|
| Raw materials and supplies | | 762 |
| | 546 |
| | 752 |
| | 790 |
|
Inventories(a) | | $ | 8,222 |
| | $ | 7,508 |
| | $ | 8,564 |
| | $ | 8,283 |
|
Noncurrent inventories not included above(b) | | $ | 677 |
| | $ | 618 |
| | $ | 962 |
| | $ | 714 |
|
| |
(a) | The change from December 31, 20182019 reflects increases for certain products, to meet targeted levels in the normal course of business, including inventory build for supply recovery, new product launches, network strategy and market demand, partially offset by a decrease due to foreign exchange and the write off of rivipansel inventory previously expected to be sold (see Note 2C).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: | The following table provides the components of Identifiable intangible assets: | The following table provides the components of Identifiable intangible assets: |
| | | September 29, 2019 | | December 31, 2018 | | June 28, 2020 | | December 31, 2019 |
| (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 |
| | 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) | | $ | 91,212 |
| | $ | (62,032 | ) | | $ | 29,180 |
| | $ | 89,430 |
| | $ | (58,895 | ) | | $ | 30,535 |
| | $ | 89,927 |
| | $ | (64,683 | ) | | $ | 25,244 |
| | $ | 88,730 |
| | $ | (63,106 | ) | | $ | 25,625 |
|
| Brands | | 922 |
| | (733 | ) | | 190 |
| | 923 |
| | (708 | ) | | 215 |
| | 922 |
| | (757 | ) | | 165 |
| | 922 |
| | (741 | ) | | 181 |
|
Licensing agreements and other(a)(b) | | 1,776 |
| | (1,173 | ) | | 603 |
| | 1,436 |
| | (1,140 | ) | | 296 |
| | 2,327 |
| | (1,226 | ) | | 1,101 |
| | 1,772 |
| | (1,191 | ) | | 582 |
|
| | | 93,910 |
| | (63,938 | ) | | 29,972 |
| | 91,788 |
| | (60,743 | ) | | 31,045 |
| | 93,176 |
| | (66,667 | ) | | 26,509 |
| | 91,425 |
| | (65,037 | ) | | 26,387 |
|
| Indefinite-lived intangible assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Brands | | 1,991 |
| |
|
| | 1,991 |
| | 1,991 |
| |
|
| | 1,991 |
| | 1,991 |
| |
|
| | 1,991 |
| | 1,991 |
| |
|
| | 1,991 |
|
IPR&D(a) | | 5,959 |
| |
|
| | 5,959 |
| | 2,171 |
| |
|
| | 2,171 |
| | 4,518 |
| |
|
| | 4,518 |
| | 5,919 |
| |
|
| | 5,919 |
|
Licensing agreements and other(a), (b) | | 1,073 |
| |
|
| | 1,073 |
| | 3 |
| |
|
| | 3 |
| |
Licensing agreements and other(b) | | | 523 |
| |
|
| | 523 |
| | 1,073 |
| |
|
| | 1,073 |
|
| | | 9,023 |
| |
|
| | 9,023 |
| | 4,165 |
| |
|
| | 4,165 |
| | 7,032 |
| |
|
| | 7,032 |
| | 8,983 |
| |
|
| | 8,983 |
|
Identifiable intangible assets(a), (c) | | $ | 102,933 |
| | $ | (63,938 | ) | | $ | 38,995 |
| | $ | 95,954 |
| | $ | (60,743 | ) | | $ | 35,211 |
| |
Identifiable intangible assets(c) | | | $ | 100,208 |
| | $ | (66,667 | ) | | $ | 33,541 |
| | $ | 100,408 |
| | $ | (65,037 | ) | | $ | 35,370 |
|
| |
(a) | The increasechanges in the gross carrying amount of Identifiable intangible assets primarily reflects the impact of the acquisition of Array, including the addition of $1.8 billionDeveloped technology rights and IPR&D primarily reflect the transfer of $1.4 billion from IPR&D to Developed technology rights $340 millionto reflect the approval of Braftovi in combination with Erbitux® (cetuximab), for the treatment of BRAFfinite-lived V600ELicensing agreements, $4.0 billion of IPR&D and $1.1 billion of indefinite-lived Licensing agreements(see Note 2A).-mutant metastatic colorectal cancer after prior therapy. |
| |
(b) | ReflectsThe changes in the gross carrying amount of Licensing agreements and other primarily reflect the transfer of $550 million from Indefinite-lived Licensing agreements and other to finite-lived Licensing agreements and other to reflect the approval in the U.S. of several products subject to out-licensing arrangements acquired licensing agreements for technology in development.from Array. |
| |
(c) | The increasedecrease in Identifiable intangible assets, less accumulated amortization, is primarily due to additions noted in (a) above, partially offset by amortization and intangible asset impairment charges. See Note 4 for additional information on intangible asset impairments.amortization. |
Licensing Agreements
Licensing agreements for developed technology and licensing agreements for technology in development primarily relate to out-licensing arrangements acquired from third parties, including the Array acquisition. These intangible assets represent the amortized or unamortized cost associated with the license, where Pfizer has acquired the right to future royalties and/or milestones upon development or commercialization by the licensing partner. A significant component of the licensing arrangements at September 29, 2019 are for out-licensing arrangements with a number of partners for oncology technology in varying stages of development that have not yet received regulatory approval in a major market. Accordingly, during the development period after the date of acquisition, each of these assets is classified as indefinite-lived intangible assets and will not be amortized until approval is obtained in a major market. At that time we will determine the useful life of the asset, reclassify the respective licensing arrangement asset to finite-lived intangible asset and begin amortization. If the development effort is abandoned, the related licensing asset will likely be written-off, and we will record an impairment charge.
| | Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: | | | | September 29, 2019 | | June 28, 2020 |
| | | Biopharma | | Upjohn | | WRDM | | Biopharma | | Upjohn | | WRDM |
| Developed technology rights | | 99 | % | | 1 | % | | — |
| | 99 | % | | 1 | % | | — |
|
| Brands, finite-lived | | 100 | % | | — |
| | — |
| | 100 | % | | — |
| | — |
|
| Brands, indefinite-lived | | 42 | % | | 58 | % | | — |
| | 42 | % | | 58 | % | | — |
|
| IPR&D | | 95 | % | | — |
| | 5 | % | | 94 | % | | — |
| | 6 | % |
| Licensing agreements and other, finite-lived | | 98 | % | | — |
| | 2 | % | | 99 | % | | 1 | % | | 1 | % |
| Licensing agreements and other, indefinite-lived | | 100 | % | | — |
| | — |
| | 100 | % | | — |
| | — |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amortization
Total amortization expense for finite-lived intangible assets was $917 million for the second quarter of 2020 and $1.2 billion for the thirdsecond quarter of 2019 and $1.3 billion for the third quarter of 2018, and $3.6$1.8 billion for the first ninesix months of 20192020 and $3.7$2.4 billion for the first ninesix months of 20182019.
B. Goodwill
Prior to 2019, we managed our commercial operations through 2 distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). At the beginning of our 2019 fiscal year, we reorganized our commercial operations and our businesses are managed through 3 different operating segments––Biopharma, Upjohn and through July 31, 2019, Pfizer’s Consumer Healthcare business (see Note 13 for further information). Our Consumer Healthcare business was classified as held for sale as of December 31, 2018 and therefore, the goodwill attributable to the Pfizer Consumer Healthcare business was not included in the table below (see Note 2B. for further information). Additionally, upon closing of the transaction during the third quarter, we deconsolidated our Consumer Healthcare business and derecognized Consumer Healthcare goodwill.
As a result of the reorganization of our commercial operations, our remaining goodwill was required to be reallocated amongst the then new Biopharma and Upjohn operating segments by determining the fair value of each reporting unit under our old and new management structure and the portions being transferred. We completed this re-allocation based on relative fair value in the second quarter of 2019 and have retrospectively presented goodwill according to the new operating structure.
|
| | | | | | | | | | | | |
The following table provides the components of and changes in the carrying amount of Goodwill: |
| (MILLIONS OF DOLLARS) | | Biopharma | | Upjohn | | Total |
| Balance, December 31, 2018 | | $ | 42,927 |
| | $ | 10,484 |
| | $ | 53,411 |
|
Additions(a) | | 5,378 |
| | — |
| | 5,378 |
|
Other(b) | | (99 | ) | | (24 | ) | | (123 | ) |
| Balance, September 29, 2019 | | $ | 48,206 |
| | $ | 10,460 |
| | $ | 58,665 |
|
|
| | | | | | | | | | | | |
The following table provides the components of and changes in the carrying amount of Goodwill: |
| (MILLIONS OF DOLLARS) | | Biopharma | | Upjohn | | Total |
| Balance, December 31, 2019 | | $ | 48,202 |
| | $ | 10,451 |
| | $ | 58,653 |
|
Other(a) | | (155 | ) | | (49 | ) | | (204 | ) |
| Balance, June 28, 2020 | | $ | 48,047 |
| | $ | 10,401 |
| | $ | 58,449 |
|
| |
(a) | Biopharma additions relate to our acquisition of Array (see Note 2A).
|
| |
(b)
| Primarily reflectsrepresents the impact of foreign exchange. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 10. Pension and Postretirement Benefit Plans
| | | The following tables provide the components of net periodic benefit cost/(credit): | |
| The following table provides the components of net periodic benefit cost/(credit): | | The following table provides the components of net periodic benefit cost/(credit): |
| | | Three Months Ended | | Three Months Ended |
| | | Pension Plans | | | | Pension Plans | | |
| | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Net periodic benefit cost/(credit): | | | | | | | | | | | | | | | | |
| |
| Service cost | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 31 |
| | $ | 33 |
| | $ | 9 |
| | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 36 |
| | $ | 31 |
| | $ | 10 |
| | $ | 9 |
|
| Interest cost | | 157 |
| | 149 |
| | 12 |
| | 14 |
| | 53 |
| | 52 |
| | 19 |
| | 18 |
| | 131 |
| | 157 |
| | 8 |
| | 12 |
| | 40 |
| | 54 |
| | 13 |
| | 19 |
|
| Expected return on plan assets | | (222 | ) | | (259 | ) | | — |
| | — |
| | (79 | ) | | (89 | ) | | (8 | ) | | (9 | ) | | (251 | ) | | (223 | ) | | — |
| | — |
| | (75 | ) | | (80 | ) | | (9 | ) | | (8 | ) |
| Amortization of: | | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
|
| Actuarial losses | | 37 |
| | 30 |
| | 2 |
| | 3 |
| | 20 |
| | 25 |
| | — |
| | 2 |
| | 32 |
| | 37 |
| | 4 |
| | 2 |
| | 30 |
| | 20 |
| | — |
| | 1 |
|
| Prior service credits | | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | (43 | ) | | (45 | ) | | (1 | ) | | (1 | ) | | — |
| | — |
| | (1 | ) | | (1 | ) | | (43 | ) | | (45 | ) |
| Curtailments | | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | (4 | ) | | (47 | ) | | (1 | ) | |
| Settlements | | 1 |
| | 38 |
| | 22 |
| | 3 |
| | 12 |
| | — |
| | (10 | ) | | — |
| | 6 |
| | 2 |
| | 6 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
| Special termination benefits | | 3 |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | 1 |
| | 3 |
| | — |
| | — |
| | — |
| | 1 |
|
| Net periodic benefit cost/(credit) reported in income | | | $ | (83 | ) | | $ | (27 | ) | | $ | 19 |
| | $ | 17 |
| | $ | 32 |
| | $ | 25 |
| | $ | (30 | ) | | $ | (23 | ) |
| | | $ | (25 | ) | | $ | (40 | ) | | $ | 41 |
| | $ | 20 |
| | $ | 37 |
| | $ | 17 |
| | $ | (78 | ) | | $ | (26 | ) | |
| | | Nine Months Ended | | Six Months Ended |
| | | Pension Plans | | | | Pension Plans | | |
| | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans | | U.S. Qualified | | U.S. Supplemental (Non-Qualified) | | International | | Postretirement Plans |
| (MILLIONS OF DOLLARS) | | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Net periodic benefit cost/(credit): | | | | | | | | | | | | | | | | | |
| Service cost | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 94 |
| | $ | 104 |
| | $ | 28 |
| | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 72 |
| | $ | 63 |
| | $ | 19 |
| | $ | 19 |
|
| Interest cost | | 472 |
| | 450 |
| | 37 |
| | 40 |
| | 162 |
| | 160 |
| | 57 |
| | 54 |
| | 262 |
| | 315 |
| | 18 |
| | 25 |
| | 82 |
| | 109 |
| | 25 |
| | 38 |
|
| Expected return on plan assets | | (667 | ) | | (783 | ) | | — |
| | — |
| | (239 | ) | | (274 | ) | | (25 | ) | | (28 | ) | | (503 | ) | | (445 | ) | | — |
| | — |
| | (153 | ) | | (160 | ) | | (18 | ) | | (16 | ) |
| Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actuarial losses | | 110 |
| | 90 |
| | 7 |
| | 10 |
| | 61 |
| | 77 |
| | 2 |
| | 5 |
| | 64 |
| | 74 |
| | 7 |
| | 5 |
| | 62 |
| | 41 |
| | — |
| | 2 |
|
| Prior service costs/(credits) | | (2 | ) | | 1 |
| | (1 | ) | | (1 | ) | | (3 | ) | | (3 | ) | | (132 | ) | | (135 | ) | |
| Curtailments | | — |
| | 11 |
| | — |
| | 1 |
| | — |
| | (4 | ) | | (47 | ) | | (15 | ) | |
| Prior service credits | | | (1 | ) | | (2 | ) | | — |
| | — |
| | (1 | ) | | (2 | ) | | (86 | ) | | (89 | ) |
| Settlements | | 3 |
| | 84 |
| | 21 |
| | 24 |
| | 12 |
| | — |
| | (10 | ) | | — |
| | 20 |
| | 2 |
| | 44 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
| Special termination benefits | | 4 |
| | — |
| | 14 |
| | — |
| | — |
| | 1 |
| | 2 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 9 |
| | — |
| | — |
| | — |
| | 1 |
|
| | | $ | (80 | ) | | $ | (147 | ) | | $ | 78 |
| | $ | 75 |
| | $ | 88 |
| | $ | 61 |
| | $ | (124 | ) | | $ | (89 | ) | |
| Net periodic benefit cost/(credit) reported in income | | | $ | (159 | ) | | $ | (55 | ) | | $ | 71 |
| | $ | 37 |
| | $ | 63 |
| | $ | 51 |
| | $ | (60 | ) | | $ | (46 | ) |
|
| | | | | | | | | | | | | | | | |
| The following table provides the amounts we contributed, and the amounts we expect to contribute during 2019, 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 29, 2019 | | $ | 8 |
| | $ | 122 |
| | $ | 158 |
| | $ | 103 |
|
Expected contributions from our general assets during 2019(a) | | 11 |
| | 147 |
| | 191 |
| | 143 |
|
|
| | | | | | | | | | | | | | | | |
| The following table provides the amounts we contributed, and the amounts we expect to contribute during 2020, 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 six months ended June 28, 2020 | | $ | 3 |
| | $ | 150 |
| | $ | 116 |
| | $ | 64 |
|
Expected contributions from our general assets during 2020(a) | | 1,253 |
| | 183 |
| | 185 |
| | 137 |
|
| |
(a) | Contributions expected to be made for 20192020 are inclusive of amounts contributed during the ninesix months ended September 29, 2019.June 28, 2020. 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. For the U.S. qualified plans, we plan to make a $1.25 billion voluntary contribution in the second half of 2020. |
Note 11. Equity
A. Preferred Stock
Prior to May 4, 2020, Pfizer’s Series A convertible perpetual preferred stock (the Series A Preferred Stock) was held by an employee stock ownership plan trust (the Trust). All outstanding shares of Series A Preferred Stock were converted, at the direction of the independent fiduciary under the Trust and in accordance with the certificate of designations for the Series A Preferred Stock, into shares of Pfizer common stock on May 4, 2020. The Trust received an aggregate of 1,070,369 shares of Pfizer common stock upon conversion, with 0 shares of Series A Preferred Stock remaining outstanding as a result of the conversion.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Dividends
|
| | | | | | | | | | | | |
| The following table summarizes quarterly cash dividends: |
| 2020 | | 2019 |
| Date Declared | | Payment Date | | Dividend Per Share |
| | Date Declared | | Payment Date | | Dividend Per Share |
|
| December 13, 2019 | | March 6, 2020 | | 0.38 |
| | December 14, 2018 | | March 1, 2019 | | 0.36 |
|
| April 23, 2020 | | June 5, 2020 | | 0.38 |
| | April 25, 2019 | | June 7, 2019 | | 0.36 |
|
| June 25, 2020 | | September 1, 2020 | | 0.38 |
| | June 27, 2019 | | September 3, 2019 | | 0.36 |
|
| | | | | | | September 24, 2019 | | December 2, 2019 | | 0.36 |
|
Note 11.12. Earnings Per Common Share Attributable to Pfizer Inc. Common Shareholders
| | The following table provides the detailed calculation of 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 | | Six Months Ended |
| (IN MILLIONS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| EPS Numerator––Basic | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 7,680 |
| | $ | 4,111 |
| | $ | 16,625 |
| | $ | 11,562 |
| | $ | 3,434 |
| | $ | 5,056 |
| | $ | 6,845 |
| | $ | 8,945 |
|
| Less: Net income attributable to noncontrolling interests | | 4 |
| | 8 |
| | 19 |
| | 25 |
| | 8 |
| | 10 |
| | 17 |
| | 15 |
|
| Income from continuing operations attributable to Pfizer Inc. | | 7,676 |
| | 4,103 |
| | 16,606 |
| | 11,537 |
| | 3,426 |
| | 5,046 |
| | 6,828 |
| | 8,929 |
|
| Less: Preferred stock dividends––net of tax | | — |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders | | 7,676 |
| | 4,103 |
| | 16,605 |
| | 11,536 |
| | 3,426 |
| | 5,045 |
| | 6,828 |
| | 8,929 |
|
| Discontinued operations––net of tax | | 4 |
| | 11 |
| | 4 |
| | 10 |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders | | $ | 7,680 |
| | $ | 4,114 |
| | $ | 16,609 |
| | $ | 11,546 |
| | $ | 3,426 |
| | $ | 5,045 |
| | $ | 6,828 |
| | $ | 8,929 |
|
| EPS Numerator––Diluted | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | | $ | 7,676 |
| | $ | 4,103 |
| | $ | 16,606 |
| | $ | 11,537 |
| | $ | 3,426 |
| | $ | 5,046 |
| | $ | 6,828 |
| | $ | 8,929 |
|
| Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | | 4 |
| | 11 |
| | 4 |
| | 10 |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to Pfizer Inc. common shareholders and assumed conversions | | $ | 7,680 |
| | $ | 4,114 |
| | $ | 16,609 |
| | $ | 11,546 |
| | $ | 3,426 |
| | $ | 5,046 |
| | $ | 6,828 |
| | $ | 8,929 |
|
| EPS Denominator | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Weighted-average number of common shares outstanding––Basic | | 5,545 |
| | 5,875 |
| | 5,581 |
| | 5,899 |
| | 5,554 |
| | 5,562 |
| | 5,550 |
| | 5,598 |
|
| Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements | | 104 |
| | 112 |
| | 110 |
| | 99 |
| |
| Common-share equivalents: stock options, stock issuable under employee compensation plans and convertible preferred stock | | | 65 |
| | 110 |
| | 66 |
| | 112 |
|
| Weighted-average number of common shares outstanding––Diluted | | 5,649 |
| | 5,986 |
| | 5,690 |
| | 5,998 |
| | 5,619 |
| | 5,672 |
| | 5,616 |
| | 5,711 |
|
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | | 3 |
| | 5 |
| | 2 |
| | 3 |
| |
| Cash dividends declared per share | | $ | 0.36 |
| | $ | 0.34 |
| | $ | 1.08 |
| | $ | 1.02 |
| |
Anti-dilutive common stock equivalents(a) | | | 6 |
| | 1 |
| | 4 |
| | 2 |
|
| |
(a) | 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 12.13. Contingencies and Certain Commitments
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax and legal contingencies. For a discussion of our tax contingencies, see Note 5B. For a discussion of our legal contingencies, see below.
A. Legal Proceedings
Our legal 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 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.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 jurisdictions.
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, which could be substantial, and/or criminal charges.
We believe that our claims and defenses in 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, 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(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 jurisdictions. We are also party to patent damages suits in various jurisdictions pursuant to which generic drug manufacturers, payers, governments or other parties are seeking damages from us for allegedly causing delay of generic entry. Additionally, our licensing and collaboration partners face challenges by generic drug manufacturers to patents covering products for which we have licenses or co-promotion 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 were challenged in inter partes review and post-grant review proceedings in the U.S. TheIn October 2017, the Patent Trial and Appeal Board (PTAB) refused to initiate proceedings as to 2 patents. In June 2018, the Patent Trial and Appeal BoardPTAB ruled on another patent, holding that 1 claim was valid and that all other claims were invalid. The party challenging that patent has appealed the decision. In November 2019, the U.S. Court of Appeals for the Federal Circuit vacated the PTAB’s ruling and requested that the PTAB redecide the challenge.In March and June 2019, an additional patent was found invalid in separate proceedings by the Patent TrialPTAB. We appealed. In January 2020, the U.S. Court of Appeals for the Federal Circuit vacated the original decision and Appeal Board. We have appealed.requested that the PTAB redecide the case. Challenges to other patents remain pending in jurisdictions outside the U.S. The invalidation of all of the patents in our pneumococcal portfolio could potentially allow a competitor pneumococcal vaccine into the marketplace. In the event that any of the patents are found valid and infringed, a competitor pneumococcal vaccine
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
might be prohibited from entering the market or required to pay Pfizer a royalty. We are also subject to patent litigation pursuant to which one or more third parties seeksseek damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities. For example, our Hospira subsidiaries are involved in patent and patent-related disputes over their 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, the Wyeth Group) brought a patent-infringement action against Alembic Pharmaceuticals, Ltd, Alembic Pharmaceuticals, Inc. (collectively, Alembic), Sun Pharmaceutical Industries, Inc., and Sun Pharmaceutical Industries Ltd. (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 a patent covering polymorphic forms of bosutinib, which expires in 2026, and a patent covering methods of treating chronic myelogenous leukemia, which expires in 2025. Sun is also challenging the same patent covering polymorphic forms of bosutinib that expires in 2026. In March 2017, the Wyeth Group 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, the Wyeth Group 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 2 other patents challenged by Sun, covering compositions of bosutinib and methods of treating chronic myelogenous leukemia, each of which expire in 2025. In October 2019, we settled the cases against each of Alembic and Sun on terms not material to Pfizer.
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.
Precedex PremixXeljanz (tofacitinib)
In June 2014,Ben Venue Laboratories, Inc. (Ben Venue)notified our subsidiary, Hospira,Beginning in 2017, we brought patent-infringement actions against several generic manufacturers that it had filed anseparate abbreviated new drug applicationapplications with the FDA seeking approval to market atheir generic versionversions of Hospira’s premix versiontofacitinib tablets in one or both of Precedex5 mg and containing allegations that a patent related to10 mg dosage strengths, and in both immediate and extended release forms. To date, actions against the use of Precedex in an intensive care unit setting, which expired 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. In October 2014, Eurohealth International Sarl was substituted for Ben Venue and Hikma. In June 2016, this case wasfollowing generic manufacturers have been 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 4 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 1 of the 4 patents was valid and infringed, and that the other 3 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 January 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the District Court’s decision.
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 certain 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 those patents. In December 2018, the District Court ruled that the asserted patents were invalid. Hospira has appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit.
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 4
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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). In February 2019, a new stay was entered, extending the stay until the outcome of the appeal in the Fresenius case.
In December 2017, Gland Pharma Limited (Gland) 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 6 patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In February 2018, Hospira filed suit against Gland in the U.S. District Court for the District of Delaware asserting the validity and infringement of 4 patents that are the subject of the lawsuit. The case against Gland has been stayed pending the outcome of the appeal in the Fresenius case.
In December 2017, Jiangsu Hengrui Medicine Co., Ltd. (Hengrui) 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 6 patents relating to the Precedex premix formulations and their use, all of which expire in 2032, were invalid or not infringed. In February 2018, Hospira filed suit against Hengrui in the U.S. District Court for the District of Delaware asserting the validity and infringement of 4 patents that are the subject of the lawsuit. The case against Hengrui has been stayed pending the outcome of the appeal in the Fresenius case.
In February 2018, Baxter Healthcare Corporation (Baxter) filed a declaratory judgment action against Hospira in the U.S. District Court for the District of Delaware seeking a declaration of non-infringement of 4 patents relating to the Precedex premix formulations and their use. NaN of the patents included in the action related to the use of Precedex in an intensive care unit setting and expired in 2019 and the other 3 patents expire in 2032. In March 2018, Hospira filed a counterclaim for infringement of the patent that expired in 2019. In November 2018, the case was dismissed by mutual agreement of the parties.
Xeljanz (tofacitinib)
In February 2017, we brought a patent-infringement action againstPfizer: (i) 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 3 patents challenged by MicroLabs in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets. In November 2018, we settled all of our claims against MicroLabs on terms not material to Pfizer.
Separately, also in February 2017, we brought a patent-infringement action against; (ii) Sun Pharmaceutical Industries Ltd. (Sun 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 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 Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of another patent challenged by Sun; (iii) Prinston Pharmaceutical Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., which covers the active ingredientHuahai US Inc. and expires in December 2025. In October 2018, we brought a third patent infringement action against SunSolco Healthcare US, LLC; (iv) Breckenridge Pharmaceutical Inc., Pensa Pharma S.A. and Laboratorios Del Dr. Esteve, S.A.; and (v) Ajanta Pharma Ltd. in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering the extended release formulation of tofacitinib, which expires in 2034. In March and April 2019, theAjanta Pharma USA Inc. The remaining actions against Sun Ltd. were dismissed by mutual agreement of the parties.continue as described below.
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 3 patents: the patent covering the active ingredient expiring in December 2025, the patent covering an enantiomer of tofacitinib expiring in 2022, and the patent covering a polymorphic form of tofacitinib expiring in 2023, 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 2 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 4 additional patents challenged by Breckenridge, 3 of which expire in December 2020 and 1 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
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December 2025. In May 2018, we settled all of our claims against Breckenridge on terms not material to Pfizer. In January 2019, we settled all of our claims against Prinston on terms not material to Pfizer.
In December 2018, we brought a separate patent infringement action against Teva Pharmaceuticals USA, Inc. (Teva) in the U.S. District Court for the District of Delaware asserting the infringement and validity of our patent covering extended release
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formulations of tofacitinib that was challenged by Teva in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 11 mg extended release tablets.
In March 2019, we brought a separate patent infringement action against Ajanta Pharma Ltd. and Ajanta Pharma USA Inc. (collectively, Ajanta) in the U.S. District Court for the District of Delaware asserting the infringement and validity of 2 patents: the patent covering the active ingredient that expires in December 2025 and the patent covering a polymorphic form of tofacitinib that expires in 2023, each of which Ajanta challenged in its abbreviated new drug application seeking approval to market a generic version of tofacitinib 5 mg tablets.
Inlyta (axitinib)
In April 2018, Apotex Inc. notified us that it had filed an 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 District of Delaware, asserting the validity and infringement of the crystalline form patent for Inlyta.
In May 2019, Glenmark Pharmaceuticals Limited (Glenmark) notified us that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Inlyta. Glenmark asserts the invalidity and non-infringement of the crystalline form patent for Inlyta that expires in 2030. In June 2019, we filed suit against Glenmark in the U.S. District Court for the District of Delaware, asserting the validity and 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 Kerydin. The generic companies assert the invalidity and non-infringement of methods of use and formulation patents for tavaborole that expire in 2026 and 2027, including pediatric exclusivity. In October 2018, Anacor, our wholly-owned subsidiary, filed infringement lawsuits against each of the generic filers in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of West Virginia.
Ibrance (palbociclib)
In March 2019, several generic companies notified us that they had filed abbreviated new drug applications with the FDA seeking approval to market generic versions of Ibrance. The generic companies assert the invalidity and non-infringement of 2 composition of matter patents and a method of use patent covering palbociclib, each of which expire in 2023. In April 2019, we brought patent infringement actions against each of the generic filers in various federal courts, asserting the validity and infringement of the patents challenged by the generic companies.
Matters Involving Our Collaboration/Licensing Partners
Xtandi (enzalutamide)Chantix (varenicline)
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 suitsJanuary 2020, we brought a patent infringement action against Viwit Pharmaceutical Co. Ltd. (Viwit) in the U.S. District Court for the District of Delaware against Actavis Laboratories FL, Inc.asserting the validity and Actavis LLC (collectively, Actavis); Zydus; and Apotex Inc. and Apotex Corp. (collectively, Apotex)infringement of 3 patents challenged by Viwit 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’sits abbreviated new drug application with the FDA forseeking approval to market a generic version of enzalutamide. varenicline, 0.5 mg and 1.0 mg tablets.
Lyrica (pregabalin)
In 2018 and 2019, we settled all pending claimsJune 2014, Generics (U.K.) Ltd (trading as Mylan) filed an invalidity action against the variousLyrica pain use patent in the High Court of Justice in London. Subsequently, Actavis Group PTC ehf filed an invalidity action in the same court, and Pfizer sued for infringement against Actavis Group PTC ehf, Actavis U.K. Ltd and Caduceus Pharma Ltd (together, Actavis), in addition to requesting preliminary relief. Our request for preliminary relief was denied in a January 2015 hearing, and the denial subsequently was confirmed on appeal.
In February 2015, the National Health Service (NHS) England was ordered by the High Court, as an intermediary, to issue guidance for prescribers and pharmacists directing the prescription and dispensing of Lyrica by brand when pregabalin was prescribed for the treatment of neuropathic pain. NHS Wales and NHS Northern Ireland also issued prescribing guidance. The guidance to prescribe and dispense Lyrica for neuropathic pain was withdrawn upon patent expiration in July 2017.
We also filed infringement actions against (i) Teva UK Ltd, and (ii) Dr. Reddy’s Laboratories (UK) Ltd and Caduceus Pharma Ltd (together, Dr. Reddy’s) in February 2015, seeking the same relief as in the action against Actavis. Dr. Reddy’s filed an invalidity counterclaim. These actions were stayed pending the outcome of the Mylan and Actavis cases.
The Mylan and Actavis invalidity actions were heard in the High Court at the same time as the Actavis infringement action. The High Court ruled against us, holding that the asserted claims were either not infringed or invalid, and appeals followed. In November 2018, the U.K. Supreme Court ruled that all the relevant claims directed to neuropathic pain were invalid.
In October 2015, after Sandoz GmbH and Sandoz Ltd (together, Sandoz) launched a full label generic challengers on termspregabalin product, we obtained from the High Court a preliminary injunction enjoining Sandoz from further sales of the product and ordering Sandoz to identify the parties holding its product. Sandoz identified wholesaler AAH Pharmaceuticals Ltd and pharmacy chain Lloyds Pharmacy Ltd (supplied by AAH), and we requested that these parties cease further sales and withdraw the Sandoz full label product. In October 2015, Lloyds was added to the Sandoz action, and we obtained a preliminary order from the High Court requiring Lloyds to advise its pharmacists that the Sandoz full label product should not material to Pfizer.be dispensed. In November 2015, the High Court confirmed the preliminary injunction against Sandoz and Lloyds. Sandoz filed an invalidity counterclaim. Upon
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agreement of the parties, in December 2015, the proceedings against Lloyds were discontinued, and the proceedings against Sandoz were stayed pending outcome of the Mylan and Actavis cases. The preliminary injunction against Sandoz remained in place until patent expiration in July 2017.
In May 2020, Dr. Reddy’s filed a claim for damages in connection with the above-referenced legal actions. In July 2020, the Scottish Ministers and 14 Scottish Health Boards (together, NHS Scotland) filed a claim for damages in connection with the above-referenced legal action concerning Sandoz.
Matter Involving Our Collaboration/Licensing Partners
Eliquis
In February, March, and April 2017, NaN 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 3 patents listed in the Orange Book for Eliquis. TheNaN of the patents expired in December 2019 and the remaining 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 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
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patent, some challenged both the 2031 and 2026 patent, and one generic company challenged all 3 patents. WeIn August 2020, the U.S. District Court for the District of Delaware ruled that both the 2026 patent and the 2031 patent are valid and infringed by the proposed generic products. The decision is subject to appeal. Prior to the August 2020 ruling, we and BMS have settled with certain of the generic companies on terms not material to Pfizer, and we and BMS may settle with other generic companies in the 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 6 patents relating to infliximab, its manufacture and use. Claims with respect to 4 of the patents were dismissed by the plaintiffs, leaving 2 patents at issue: the infliximab antibody patent and a patent relating to cell culture media. In 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 patent relating to cell culture media was not infringed. Janssen appealed the District Court’s decision to the U.S. Court of Appeals for the Federal Circuit.
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 September 29, 2019, approximately 46,500 claims namingClaims against American Optical and numerous other defendants wereare 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
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.
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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 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.
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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. District Court 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 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 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 numberSince April 2016, a Multi-District Litigation has been pending in the U.S. District Court for the Northern District of individual and multi-plaintiff lawsuits have been filed against usCalifornia (In Re: Viagra (Sildenafil Citrate) Products Liability Litigation, MDL-2691), in various federal and state courts allegingwhich plaintiffs allege that the plaintiffsthey developed melanoma and/or the exacerbation of melanoma purportedly as a result of the 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 actionsAdditional cases filed against Lilly and filed against both us and Lilly, were transferred for coordinated pre-trial proceedingswith respect to Cialis have also been consolidated in the Multi-District Litigation ((In re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation, MDL-2691).
Intravenous Solutions
Beginning In January 2020, the District Court granted our and Lilly’s motion to exclude all of plaintiffs’ general causation opinions. As a result, in November 2016, purported class actions wereApril 2020, the District Court entered summary judgment in favor of defendants and dismissed all of plaintiffs’ claims. In April 2020, plaintiffs filed a notice of appeal in the U.S. District Court of Appeals for the Northern District of Illinois against Hospira, Hospira Worldwide, Inc. and certain other defendants relating to intravenous saline solution. Plaintiffs seek to represent a 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 salineNinth Circuit.
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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 systems 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.
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.
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, and Mylan 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,February 2020, a similar lawsuit broughtwas filed in the U.S. District Court for the District of New JerseyKansas against Pfizer, King, Meridian and the Mylan entities on behalf of a purported U.S. nationwide class of direct purchaser plaintiffs against Pfizer, King, Meridian and Mylan was voluntarily dismissed without prejudice.who purchased EpiPen devices directly from the defendants (the 2020 Lawsuit). Against Pfizer and/or its affiliates, plaintiffs in these actions 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 one1 lawsuit also alleges that Pfizer and/or Mylan violated the federal Racketeer Influenced and Corrupt Organizations Act.Act (RICO). Plaintiffs also filed various federal antitrust, state consumer protection and unjust enrichment claims against, and relating to conduct attributable solely to, Mylan and/or its affiliates regarding EpiPen. Plaintiffs seek treble damages for alleged overcharges for EpiPen since 2009.2011. In August 2017, all of these actions, except for the actions2020 Lawsuit, 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, MDL-2785)) in the U.S. District Court for the District of Kansas with other EpiPen-related actions against Mylan and/or its affiliates to which Pfizer, King and Meridian are not parties.
In July 2020, a new lawsuit was filed in the District of Colorado on behalf of indirect purchasers. Plaintiff represents a putative U.S. nationwide class of persons or entities who paid for any portion of the end-user purchase price of certain refill or replacement EpiPens since 2010. Plaintiff alleges that Pfizer and Meridian misrepresented the shelf-life and expiration date of EpiPen, in violation of the federal RICO statute. Plaintiff seeks treble damages for alleged unnecessary replacement or refill purchases of EpiPens by members of the putative class.
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 ingestion of certain proton pump inhibitors. The cases against Pfizer involve Protonix and/or Nexium 24HR and seek compensatory and punitive damages and, in some cases, treble damages, restitution or disgorgement. In 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. On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. As part of the joint venture transaction, the joint venture has agreed to assume, and to indemnify Pfizer for, liabilities arising out of such litigation to the extent related to Nexium 24HR.
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, MDL-2740)) in the U.S. District Court for the Eastern District of Louisiana.
Mississippi Attorney General Government InvestigationAction
In October 2018, the Attorney General of Mississippi filed a complaint in Mississippi state court against the manufacturer of the branded product and 8 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.
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Adalimumab Biosimilars
Beginning in March 2019, purported class actions relating to Humira and adalimumab biosimilars were filed in the United States District Court for the Northern District of Illinois against AbbVie Inc. (AbbVie), certain affiliates of AbbVie, and other pharmaceutical manufacturers. Pfizer is a named defendant in three of the actions. The plaintiffs seek to represent nationwide and multi-state classes consisting of persons and/or entities who are indirect purchasers of Humira from January 1, 2017 until the allegedly unlawful antitrust effects cease. Against Pfizer, the plaintiffs generally allege that Pfizer’s and AbbVie’s 2018 licensing agreements, resolving all global intellectual property matters for Pfizer’s proposed adalimumab biosimilar, delayed market entry of Pfizer’s biosimilar product in the U.S. in violation of federal antitrust laws, various state antitrust or consumer protection laws, and unjust enrichment laws. Plaintiffs seek injunctive relief and treble damages for alleged overcharges for Humira since 2017. In August 2019, the plaintiffs filed an amended consolidated complaint that superseded the prior complaints and does not name Pfizer as a defendant. As a result, Pfizer is no longer a party to the case.
Array Securities Litigation
In November 2017, 2 purported class actions were filed in the U.S. District Court for the District of Colorado alleging that Array, which we acquired in July 2019 and is our wholly owned subsidiary, and certain of its former officers violated federal securities laws in connection with certain disclosures made, or omitted, by Array regarding the NRAS-mutant melanoma program. In March 2018, the actions were consolidated into a single proceeding.
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Zantac
A number of lawsuits have been filed against Pfizer in various federal and state courts alleging that plaintiffs developed various types of cancer, or face an increased risk of developing cancer, purportedly as a result of the ingestion of Zantac. The significant majority of these cases also name other defendants that have historically manufactured and/or sold Zantac. Pfizer has not sold Zantac since 2006, and only sold an over-the-counter version of the product. Plaintiffs seek compensatory and punitive damages and, in some cases, treble damages, restitution or disgorgement.
In February 2020, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In re Zantac/Ranitidine NDMA Litigation, MDL-2924) in the U.S. District Court for the Southern District of Florida. In June 2020: (i) plaintiffs in the Multi-District Litigation filed against Pfizer and many other defendants a consolidated consumer class action complaint alleging, among other things, violations of the RICO statute and consumer protection statutes of all 50 states, and a consolidated third-party payor class action complaint alleging violation of the RICO statute and seeking reimbursement for payments made for the prescription version of Zantac; (ii) Pfizer received service of a Canadian class action complaint naming Pfizer and other defendants, and seeking compensatory and punitive damages for personal injury and economic loss, allegedly arising from the defendants’ sale of Zantac in Canada; and (iii) the State of New Mexico filed a civil action against Pfizer and many other defendants, alleging various state statutory and common law claims in connection with the defendants’ alleged sale of Zantac in New Mexico.
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 1 of those actions have been resolved through settlement, dismissal or final judgment. The plaintiff state, Illinois,in the 1 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. In September 2019, we settled the remaining action on terms not material to Pfizer. All actions have now been resolved through settlement, dismissal or final judgment.
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.
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 spinoffspin-off 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. In September 2010, our corrective measures
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
study report 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. In September 2019, the EPA acknowledged that construction of the site remedy has been completed.
Also, in 2009, we submitted a revised site-wide feasibility study with regard to Wyeth Holdings Corporation’s (formerly, American Cyanamid 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
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 2 adjacent lagoons. In September 2015, the U.S., on behalf of the EPA, filed a complaint and consent decree with the federal District Court for the District of New Jersey that allows 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. In September 2018, the EPA issued a final remediation plan for the 2 adjacent lagoons, which is generally in accordance with one of the remedies evaluated in our focused feasibility study, and in September 2019, 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 lagoons.
We have accrued for the estimated costs of the site remedies for the North Haven and Bound Brook facilities.
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 U.S. 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, and seeks monetary relief. In July 2020, the District Court granted defendants’ motions to dismiss and dismissed all of plaintiffs’ claims. In July 2018, the U.S. Department of Justice requested documents related to this matter, which are beinghave been provided.
Allergan Complaint for Indemnity
In August 2018, Pfizer was named as a defendant in a third-party complaint for indemnity, along with 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 asserted 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. In December 2018, the District Court dismissed the lawsuit. In February 2019, Allergan filed a similar complaint in the Supreme Court of the State of New York, asserting claims for indemnity related to Kadian.
Breach of Contract––Xalkori
Pfizer is a defendant in a breach of contract action brought by New York University (NYU) in the Supreme Court of the State of New York (Supreme Court). NYU alleges that it is entitled to royalties on Pfizer’s sales ofXalkori under the terms of a Research and License Agreement between NYU and Sugen, Inc. Sugen, Inc. was acquired by Pharmacia in August 1999, and Pharmacia was acquired by Pfizer in 2003 and is a wholly owned subsidiary of Pfizer. The action was originally filed in 2013. In December 2015, the Supreme Court dismissed the action and, in May 2017, the New York State Appellate Division reversed the decision and remanded the proceedings to the Supreme Court. In January 2020, the Supreme Court denied both parties’ summary judgment motions.
A4. Legal Proceedings––Government Investigations
Like other pharmaceutical companies, we are subject to 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, substantial fines and/or civil penalties, limitations on our ability to conduct business in applicable jurisdictions, corporate integrity or deferred prosecution agreements, as well as reputational harm and increased public interest in the matter could result from government investigations in the U.S. and other jurisdictions in which we do business. 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 million fine on Pfizer and Pfizer Limited. Pfizer appealed the CMA decision to The Competition Appeal Tribunal in February 2017. On June 7, 2018, the Competition
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Appeal Tribunal overturned the CMA decision as well as the associated fine. The CMA appealed the judgment to the Court of Appeal.
Greenstone Investigations
U.S. Department of Justice Antitrust Division Investigation
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 broader antitrust investigation of the generic pharmaceutical industry. The government has been obtaining information from Greenstone.
State Attorneys General Generics Antitrust Litigation
In April 2018, Greenstone received requests for information from the Antitrust Department of the Connecticut Office of the Attorney General. In May 2019, Attorneys General of more than 40 states plus the District of Columbia and Puerto Rico filed a
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
complaint against a number of pharmaceutical companies, including Greenstone and Pfizer. The matter has been consolidated with a Multi-District Litigation (In re: Generic Pharmaceuticals Pricing Antitrust Litigation MDL No. 2724) in the Eastern District of Pennsylvania. As to Greenstone and Pfizer, the complaint alleges anticompetitive conduct in violation of federal and state antitrust laws and state consumer protection laws. In June 2020, the State Attorneys General filed a new complaint against a large number of companies, including Greenstone and Pfizer, making similar allegations, but concerning a new set of drugs. This complaint was transferred to the Multi-District Litigation in July 2020.
Subpoena relating to Manufacturing of Quillivant XR
In October 2018, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York (SDNY) 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 are producinghave produced records pursuant to the subpoena.
Government Inquiries relating to Meridian Medical Technologies
In February 2019, we received a civil investigative demand from the U.S. Attorney’s Office for the SDNY. The civil investigative demand seeks records and information related to alleged quality issues involving the manufacture of auto-injectors at our Meridian site. In August 2019, we received a HIPAA subpoena from the U.S. Attorney’s Office for the Eastern District of Missouri seeking similar records and information. We are producing records in response to these requests.
U.S. Department of Justice/SEC Inquiry relating to Russian Operations
In June 2019, we received an informal request from the U.S. Department of Justice’s FCPA Unit seeking documents relating to our operations in Russia. In September 2019, we received a similar request from the SEC’s FCPA unit. We are producing records pursuant to these requests.
Contracts with Iraqi Ministry of Health
See Note 12A3. 13A3. Contingencies and Certain Commitments:Commitments: Legal Proceedings––Commercial and Other Matters––Contracts with Iraqi 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 InvestigationAction
See Note 12A2. 13A2. Contingencies and Certain Commitments:Commitments: Legal Proceedings––Product Litigation––Docetaxel––Mississippi Attorney General Government InvestigationAction above for information regarding a government investigationaction related to Docetaxel marketing practices.
U.S. Department of Justice Inquiries relating to India Operations
In March 2020, we received an informal request from the U.S. Department of Justice's Consumer Protection Branch seeking documents relating to our manufacturing operations in India, including at our former facility located at Irrungattukottai in India. In April 2020, we received a similar request from the U.S. Attorney’s Office for the SDNY regarding a civil investigation concerning operations at our facilities in India. We are producing records pursuant to these requests.
U.S. Department of Justice Inquiry relating to China Operations
In June 2020, we received an informal request from the U.S. Department of Justice's FCPA Unit seeking documents relating to our operations in China. We will be producing records pursuant to this request.
Zantac––State of New Mexico Civil Action
See Note 13A2. Contingencies and Certain Commitments: Legal Proceedings––Product Litigation––Zantac above for information regarding a civil action filed by the State of New Mexico alleging various state statutory and common law claims in connection with the defendants’ alleged sale of Zantac in New Mexico.
A5. Legal Proceedings––Matters Resolved During the First Six Months of 2020
During the first six months of 2020, certain matters, including the matter discussed below, were resolved or were the subject of definitive settlement agreements or settlement agreements-in-principle.
Hormone Therapy Consumer Class Action
A certified consumer class action was 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 consisted of California consumers who purchased Wyeth’s hormone-replacement products between January 1995 and January 2003 and who did not seek personal injury damages therefrom. The class sought compensatory and punitive damages, including a full refund of the purchase price. In March 2020, the parties reached an agreement, and obtained preliminary court approval, to resolve this matter for $200 million, which was paid in full in the second quarter of 2020.
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 or following a transaction. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we may be required to reimburse the loss. These indemnifications are generally subject to various restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 29, 2019,June 28, 2020, the estimated fair value of these indemnification obligations was not significant.
In addition, in connection with our entry into certain agreements, our counterparties may agree to indemnify us. For example, our collaboration agreement with EMD Serono, Inc. to co-promote Rebif in the U.S. expired at the end of 2015 and included certain indemnity provisions. Patent litigation brought by Biogen Idec MA Inc. against EMD Serono Inc. and Pfizer is pending in the U.S. District Court for the District of New Jersey and the United States Court of Appeals for the Federal Circuit. EMD Serono Inc. has acknowledged that it is obligated to satisfy any award of damages.
Pfizer Inc. has also guaranteed the long-term debt of certain companies that it acquired and that now are subsidiaries of Pfizer.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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C. Certain CommitmentsContingent Consideration for Acquisitions
On February 7,We may be required to make contingent consideration payments to sellers for certain prior business combinations. For additional information, see Notes to Consolidated Financial Statements––Note 1D. Basis of Presentation and Significant Accounting Policies: Acquisitions in our 2019 we entered into an accelerated share repurchase agreement with GS&Co.Financial Report. The estimated fair value of contingent consideration as of June 28, 2020 is $727 million, of which $157 million is recorded in Other current liabilities and $570 million is recorded in Other noncurrent liabilities in our condensed consolidated balance sheet. The estimated fair value of contingent consideration as of December 31, 2019 was $711 million, of which $160 million was recorded in Other current liabilities and $551 million was recorded in Other noncurrent liabilities in our condensed consolidated balance sheet. The increase in the contingent consideration balance from December 31, 2019 is primarily due to repurchase approximately $6.8 billionfair value adjustments, partially offset by payments made upon the achievement of our common stock. Pursuant to the terms of the agreement, on February 12, 2019, we paid approximately $6.8 billion to GS&Co. and received an initial delivery of approximately 130 million shares of our common stock from GS&Co., which represented, based on the closing price of our common stock on the NYSE on February 7, 2019, approximately 80% of the notional amount of the accelerated share repurchase agreement. On August 1, 2019, the accelerated share repurchase agreement with GS&Co. was completed, which, per the terms of the agreement, resulted in GS&Co. owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 33.5 million shares of our common stock from GS&Co. on August 5, 2019. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $41.42 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 and other share repurchases through September 29, 2019, our remaining share-purchase authorization was approximately $5.3 billion on September 29, 2019.milestones.
Note 13.14. Segment, Geographic and Other Revenue Information
A. Segment Information
At the beginning of our 2019 fiscal year 2019, we reorganized our commercial operations and began to manage our commercial operations through a new global structure consisting of 3 distinct business segments: Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and through July 31, 2019, Pfizer’s Consumer Healthcare business (Consumer Healthcare), each led by a single manager. Each operating segment has responsibility for its commercial activities. Upjohn is, and through July 31, 2019 Consumer Healthcare arewas, responsible for theirits own R&D activities while Biopharma receives its R&D services from GPD and WRDM. These services include IPR&D projects for new investigational products and additional indications for in-line products. Each business has a geographic footprint across developed and emerging markets. Our chief operating decision maker uses the revenues and earnings of the operating segments, among other factors, for performance evaluation and resource allocation. Biopharma and Upjohn are the only reportable segments.
Beginning in 2020, Upjohn began managing our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan are reported in our Upjohn business beginning in the first quarter of 2020. In 2019, revenues and expenses from Meridian and Mylan-Japan were recorded in our Biopharma business. We have revised prior-period information (Revenues and Earnings, as defined by management) to conform to the current management structure. As our operations were not managed under
Acquisitions and other business development activities completed in 2019 and in the new structure until the beginningfirst half of fiscal 2019, certain costs and expenses could not be directly attributed to one of the then new operating segments. As a result, our operating segment results for the third quarter and first nine months of 2018 include allocations, which management believes are reasonable. As described in Note 1A and Note 2B, acquisitions and2020, including the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture, have impacted financial results in the periods presented. For additional information, see Notes to Consolidated Financial Statements—Note 1A. Basis of Presentation and Significant Accounting Policies: Basis of Presentation in our results of operations in 2019.2019 Financial Report, and Note 2.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Segments
|
| | | |
| Some additional information about our Biopharma and Upjohn business segments follows: |
| Pfizer Biopharmaceuticals Group | | |
Biopharma is a science-based innovative medicines business that includes six business units – Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines and Internal Medicine. The new Hospital unit commercializes our global portfolio of sterile injectable and anti-infective medicines and includes Pfizer’s contract manufacturing operation, Pfizer CentreOne. At the beginning of our 2019 fiscal year, we also incorporated our biosimilar portfolio into our Oncology and Inflammation & Immunology business units and certain legacy established products into the Internal Medicine business unit. Each business unit is committed to delivering breakthroughs that change patients’ lives. | | Upjohn is a global, primarily off-patent branded and generic medicines business, which includes a portfolio of 20 globally recognized solid oral dose brands, as well as a U.S.-based generics platform, Greenstone. |
Select products include:
- Prevnar 13/Prevenar 13
- Ibrance - Eliquis
- Prevnar 13/Prevenar 13 - Xeljanz
- Enbrel (outside the U.S. and Canada)
- Vyndaqel/Vyndamax - Chantix/Champix - Xtandi - Sutent - Xtandi
| | Select products include:
- Lipitor - Lyrica
- Lipitor
- Norvasc - Celebrex - Viagra - Certain generic medicines |
On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company. For additional information, see Note 1A.
On July 31, 2019, Pfizer’s Consumer Healthcare business, an over-the-counter medicines business, was combined with GSK’s consumer healthcare business to form a new consumer healthcare joint venture. See Note 1A and Note 2B for additional information.
Other Costs and Business Activities
Certain pre-tax costs are not allocated to our operating segment results, such as costs associated with the following:
WRDM––the R&D and Medical expenses managed by our WRDM organization, which is generally responsible for research projects for our Biopharma portfolio until proof-of-concept is achieved and then for transitioning those projects to the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRDM organization also has responsibility for certain science-based and other platform-services organizations, which provide end-to-end technical expertise and other services to the various R&D projects, as well as the Worldwide Medical and Safety group, which ensures that Pfizer provides all stakeholders––including patients, healthcare providers, pharmacists, payers and health authorities––with complete and up-to-date information on the risks and benefits associated with Pfizer products so that they can make appropriate decisions on how and when to use Pfizer’s medicines.
GPD––the costs associated with our GPD organization, which is generally responsible for clinical trials from WRDM in the Biopharma portfolio, including late stage portfolio spend. GPD also provides technical support and other services to Pfizer R&D projects. GPD is responsible for facilitating all regulatory submissions and interactions with regulatory agencies.
Other––the operating results of our Consumer Healthcare business, through July 31, 2019, and costs associated with other commercial activities not managed as part of Biopharma or Upjohn, including all strategy, business development, portfolio management and valuation capabilities, which previously had been reported in various parts of the organization.
| |
| • | Corporate and Other Unallocated––the costs associated with corporate enabling functions (such as digital, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance, and worldwide procurement), patient advocacy activities and certain compensation and other corporate costs, such as interest income and expense, and Other Unallocated––the costs associated with platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance, and worldwide procurement), patient advocacy activities and certain compensation and other corporate costs, such as interest income and expense, and
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
gains and losses on investments, as well as overhead expenses associated with our manufacturing (which include manufacturing variances associated with production) and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs.Corporate and Other Unallocated also includes our share of earnings from the GSK Consumer Healthcare joint venture and other charges related to the GSK Consumer Healthcare joint venture, primarily representing our pro-rata share of restructuring and business combination accounting charges recorded by the GSK Consumer Healthcare joint venture. |
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 gains on the completion of joint venture transactions, restructuring charges, legal charges or net gains and losses on investments infrom equity securities) that
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 companyTotal Company basis, not by operating segment, as many of our operating assets are shared or commingled (such as accounts receivable, as many of our customers are served by multiple 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 $170$178 billion as of September 29, 2019June 28, 2020 and $159$167 billion as of December 31, 20182019.
Selected Income Statement Information
As described in Note 1A and Note 2B, acquisitions and the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture have impacted our results of operations in 2019.
| | The following table provides selected income statement information by reportable segment: | | | | Three Months Ended | | Three Months Ended |
| | | Revenues | | Earnings(a) | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Reportable Segments: | | | | | | | | | | | | | | | | |
| Biopharma | | $ | 10,108 |
| | $ | 9,422 |
| | $ | 6,503 |
| | $ | 6,206 |
| | $ | 9,795 |
| | $ | 9,432 |
| | $ | 6,650 |
| | $ | 6,071 |
|
| Upjohn | | 2,195 |
| | 3,036 |
| | 1,353 |
| | 2,051 |
| | 2,006 |
| | 2,970 |
| | 1,168 |
| | 1,973 |
|
| Total reportable segments | | 12,303 |
| | 12,458 |
| | 7,856 |
| | 8,257 |
| | 11,801 |
| | 12,402 |
| | 7,818 |
| | 8,044 |
|
| Other business activities | | — |
| | — |
| | (1,443 | ) | | (1,298 | ) | | — |
| | 862 |
| | (1,530 | ) | | (1,193 | ) |
| Reconciling Items: | | | | | | |
| | |
| | | | | | |
| | |
|
| Corporate and other unallocated | | 377 |
| | 839 |
| | (1,431 | ) | | (1,658 | ) | | — |
| | — |
| | (1,136 | ) | | (1,399 | ) |
| Purchase accounting adjustments | | — |
| | — |
| | (1,141 | ) | | (1,309 | ) | | — |
| | — |
| | (910 | ) | | (1,178 | ) |
| Acquisition-related costs | | — |
| | — |
| | (300 | ) | | (112 | ) | | — |
| | — |
| | (21 | ) | | 176 |
|
Certain significant items(b) | | — |
| | — |
| | 7,187 |
| | 298 |
| | — |
| | — |
| | (268 | ) | | (309 | ) |
| | | $ | 12,680 |
| | $ | 13,298 |
| | $ | 10,727 |
| | $ | 4,177 |
| | $ | 11,801 |
| | $ | 13,264 |
| | $ | 3,953 |
| | $ | 4,141 |
|
| | | | Nine Months Ended | | Six Months Ended |
| | | Revenues | | Earnings(a) | | Revenues | | Earnings(a) |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Reportable Segments: | | | | | | | | | | | | | | | | |
| Biopharma | | $ | 28,887 |
| | $ | 27,737 |
| | $ | 18,484 |
| | $ | 17,987 |
| | $ | 19,802 |
| | $ | 18,477 |
| | $ | 13,379 |
| | $ | 11,954 |
|
| Upjohn | | 8,077 |
| | 9,302 |
| | 5,577 |
| | 6,442 |
| | 4,027 |
| | 6,184 |
| | 2,359 |
| | 4,251 |
|
| Total reportable segments | | 36,964 |
| | 37,040 |
| | 24,062 |
| | 24,428 |
| | 23,829 |
| | 24,661 |
| | 15,738 |
| | 16,206 |
|
| Other business activities | | — |
| | — |
| | (3,750 | ) | | (3,605 | ) | | — |
| | 1,721 |
| | (3,019 | ) | | (2,306 | ) |
| Reconciling Items: | | | | | | | | | | | | | | | | |
| Corporate and other unallocated | | 2,098 |
| | 2,631 |
| | (4,108 | ) | | (4,558 | ) | | — |
| | — |
| | (2,245 | ) | | (2,676 | ) |
| Purchase accounting adjustments | | — |
| | — |
| | (3,357 | ) | | (3,665 | ) | | — |
| | — |
| | (1,722 | ) | | (2,217 | ) |
| Acquisition-related costs | | — |
| | — |
| | (152 | ) | | (221 | ) | | — |
| | — |
| | (34 | ) | | 148 |
|
Certain significant items(b) | | — |
| | — |
| | 6,495 |
| | 452 |
| | — |
| | — |
| | (879 | ) | | (691 | ) |
| | | $ | 39,062 |
| | $ | 39,670 |
| | $ | 19,190 |
| | $ | 12,831 |
| | $ | 23,829 |
| | $ | 26,382 |
| | $ | 7,838 |
| | $ | 8,463 |
|
| |
(a) | Income from continuing operations before provisionprovision/(benefit) for taxes on income. Biopharma’s earnings include dividend income of $43$76 million in the thirdsecond quarter of 2020 and $76 million in the second quarter of 2019 and $91 million in the third quarter of 2018, and $184$153 million in the first ninesix months of 20192020 and $226$140 million in the first ninesix months of 20182019 from our investment in ViiV. For additional information, see Note 4. |
| |
(b) | Certain significant items are substantive and/or unusual, and in some cases recurring, items (as noted above) 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. |
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For Earnings in the third quarter of 2019, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $110 million, (ii) charges for certain legal matters of $63 million, (iii) charges for business and legal entity alignment of $89 million, (iv) net gains recognized during the period on investments in equity securities of $3 million, (v) a pre-tax gain associated with the completion of the GSK Consumer Healthcare joint venture transaction of $8.1 billion and (vi) other charges of $641 million, which includes, among other things, a $337 million charge in Research and development expenses related to our acquisition of Therachon, a $127 million charge for rivipansel in Cost of sales, primarily for inventory manufactured for expected future sale and charges of $161 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity associated with the formation of the GSK Consumer Healthcare joint venture. For additional information, see Note 1A, Note 2B, Note 3 and Note 4.
For Earnings in the third quarter of 2018, 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) charges for business and legal entity alignment of $1 million, (iv) net gains recognized during the period on investments in equity securities of $85 million and (v) other income of $286 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 pre-clinical stage neuroscience assets primarily targeting disorders of the central nervous system. For additional information, see Note 3 and Note 4.
For Earnings in the first nine months of 2019, certain significant items includes: (i) restructuring charges and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $280 million, (ii) charges for certain legal matters of $72 million, (iii) certain asset impairment charges of $149 million, (iv) charges for business and legal entity alignment of $353 million, (v) net gains recognized during the period on investments in equity securities of $139 million, (vi) a pre-tax gain associated with the completion of the GSK Consumer Healthcare joint venture transaction of $8.1 billion, (vii) net losses on early retirement of debt of $138 million and (viii) other charges of $738 million, which includes, among other things, a $337 million charge in Research and development expenses related to our acquisition of Therachon, a $127 million chargefor rivipansel in Cost of sales, primarily for inventory manufactured for expected future sale and charges of $223 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity associated with the formation of the GSK Consumer Healthcare joint venture. For additional information, see Note 1A, Note 2B, Note 3 and Note 4.
For Earnings in the first nine months of 2018, certain significant items includes: (i) restructuring credits and implementation costs associated with our cost-reduction initiatives that are not associated with an acquisition of $127 million, (ii) net credits for certain legal matters of $70 million, (iii) certain asset impairment charges of $31 million, (iv) charges for business and legal entity alignment of $5 million, (v) net gains recognized during the period on investments in equity securities of $460 million, (vi) net losses on early retirement of debt of $3 million and (vii) other income of $89 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 pre-clinical stage neuroscience assets primarily targeting disorders of the central nervous system, 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 TCJA, and a non-cash $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic CAR T cell therapy development program assets in connection with our contribution agreement entered into with Allogene. For additional information, see Note 3 and Note 4.
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.
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. Geographic Information
As described in Note 1A and Note 2B, acquisitions and the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture have impacted our results of operations in 2019. | | The following table provides revenues by geographic area: | | | | Three Months Ended |
| Nine Months Ended | | Three Months Ended |
| Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | % Change |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| % Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change |
|
| June 28,
2020 |
|
| June 30,
2019 |
|
| % Change |
|
| U.S. | | $ | 5,850 |
| | $ | 6,361 |
| | (8 | ) |
| $ | 18,360 |
|
| $ | 18,861 |
|
| (3 | ) | |
| United States | | | $ | 5,402 |
| | $ | 6,335 |
| | (15 | ) |
| $ | 11,053 |
|
| $ | 12,510 |
|
| (12 | ) |
Developed Europe(a) | | 2,135 |
| | 2,231 |
| | (4 | ) |
| 6,450 |
|
| 6,657 |
|
| (3 | ) | | 2,088 |
| | 2,228 |
| | (6 | ) |
| 4,009 |
|
| 4,315 |
|
| (7 | ) |
Developed Rest of World(b) | | 1,585 |
| | 1,640 |
| | (3 | ) |
| 4,758 |
|
| 4,795 |
|
| (1 | ) | | 1,552 |
| | 1,639 |
| | (5 | ) |
| 3,008 |
|
| 3,174 |
|
| (5 | ) |
Emerging Markets(c) | | 3,110 |
| | 3,066 |
| | 1 |
|
| 9,493 |
|
| 9,358 |
|
| 1 |
| | 2,759 |
| | 3,062 |
| | (10 | ) |
| 5,759 |
|
| 6,383 |
|
| (10 | ) |
| Revenues | | $ | 12,680 |
| | $ | 13,298 |
| | (5 | ) |
| $ | 39,062 |
|
| $ | 39,670 |
|
| (2 | ) | | $ | 11,801 |
| | $ | 13,264 |
| | (11 | ) |
| $ | 23,829 |
|
| $ | 26,382 |
|
| (10 | ) |
| |
(a) | Developed Europe region includes the following markets: Western Europe, Scandinavian countries and Finland. Revenues denominated in euros were $1.7 billion in the thirdsecond quarter of 20192020 and $1.8 billion in the thirdsecond quarter of 20182019, and were $5.2$3.2 billion in the first ninesix months of 20192020 and $5.3$3.5 billion in the first ninesix months of 2018.2019. |
| |
(b) | Developed Rest of World region includes the following markets: Japan, Canada, South Korea, Australia and New Zealand. |
| |
(c) | Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Africa, 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 and Note 2B, acquisitions and the contributionThe following table provides detailed revenue information for several of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture have impacted our results of operations in 2019.major products:
|
| | | | | | | | | | | | | | | | | | |
| The following table provides detailed revenue information: |
| (MILLIONS OF DOLLARS) | | | | Three Months Ended | | Nine Months Ended |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
|
| TOTAL REVENUES | | | | $ | 12,680 |
| | $ | 13,298 |
| | $ | 39,062 |
| | $ | 39,670 |
|
PFIZER BIOPHARMACEUTICALS GROUP (BIOPHARMA)(a) | | $ | 10,108 |
| | $ | 9,422 |
| | $ | 28,887 |
| | $ | 27,737 |
|
Internal Medicine(b) | | | | $ | 2,207 |
| | $ | 2,182 |
| | $ | 6,754 |
| | $ | 6,529 |
|
| Eliquis alliance revenues and direct sales | | Atrial fibrillation, deep vein thrombosis, pulmonary embolism | | 1,025 |
| | 870 |
| | 3,121 |
| | 2,524 |
|
| Chantix/Champix | | An aid to smoking cessation treatment in adults 18 years of age or older | | 276 |
| | 261 |
| | 825 |
| | 789 |
|
| Premarin family | | Symptoms of menopause | | 182 |
| | 204 |
| | 542 |
| | 605 |
|
| BMP2 | | Development of bone and cartilage | | 66 |
| | 54 |
| | 212 |
| | 206 |
|
| Toviaz | | Overactive bladder | | 61 |
| | 67 |
| | 186 |
| | 197 |
|
| All other Internal Medicine | | Various | | 597 |
| | 727 |
| | 1,867 |
| | 2,208 |
|
Oncology(c) | | | | $ | 2,350 |
| | $ | 1,840 |
| | $ | 6,547 |
| | $ | 5,487 |
|
| Ibrance | | Advanced breast cancer | | 1,283 |
| | 1,025 |
| | 3,677 |
| | 2,985 |
|
| Sutent | | Advanced and/or metastatic RCC, adjuvant RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | | 224 |
| | 248 |
| | 704 |
| | 785 |
|
| Xtandi alliance revenues | | Castration-resistant prostate cancer | | 225 |
| | 180 |
| | 594 |
| | 510 |
|
| Xalkori | | ALK-positive and ROS1-positive advanced NSCLC | | 130 |
| | 127 |
| | 385 |
| | 417 |
|
| Inlyta | | Advanced RCC | | 139 |
| | 71 |
| | 316 |
| | 226 |
|
| Bosulif | | Philadelphia chromosome–positive chronic myelogenous leukemia | | 90 |
| | 69 |
| | 267 |
| | 206 |
|
Retacrit(j) | | Anemia | | 64 |
| | 19 |
| | 147 |
| | 55 |
|
| All other Oncology | | Various | | 194 |
| | 101 |
| | 456 |
| | 302 |
|
Hospital(d) | | | | $ | 1,917 |
| | $ | 1,841 |
| | $ | 5,717 |
| | $ | 5,944 |
|
| Sulperazon | | Treatment of infections | | 163 |
| | 145 |
| | 505 |
| | 464 |
|
Medrol(e) | | Steroid anti-inflammatory | | 109 |
| | 110 |
| | 348 |
| | 369 |
|
| Vfend | | Fungal infections | | 87 |
| | 87 |
| | 265 |
| | 294 |
|
Zithromax(e) | | Bacterial infections | | 77 |
| | 61 |
| | 254 |
| | 243 |
|
| EpiPen | | Epinephrine injection used in treatment of life-threatening allergic reactions | | 92 |
| | 68 |
| | 238 |
| | 215 |
|
| Zyvox | | Bacterial infections | | 61 |
| | 50 |
| | 195 |
| | 184 |
|
| Fragmin | | Slows blood clotting | | 62 |
| | 76 |
| | 185 |
| | 221 |
|
| Zosyn/Tazocin | | Antibiotic | | 49 |
| | 56 |
| | 153 |
| | 176 |
|
| Tygacil | | Tetracycline class antibiotic | | 50 |
| | 60 |
| | 146 |
| | 186 |
|
Pfizer CentreOne(f) | | Various | | 176 |
| | 159 |
| | 556 |
| | 539 |
|
| All other Anti-infectives | | Various | | 335 |
| | 300 |
| | 961 |
| | 929 |
|
All other Hospital(d) | | Various | | 656 |
| | 669 |
| | 1,910 |
| | 2,124 |
|
| Vaccines | | | | $ | 1,808 |
| | $ | 1,845 |
| | $ | 4,795 |
| | $ | 4,708 |
|
| Prevnar 13/Prevenar 13 | | Pneumococcal disease | | 1,603 |
| | 1,660 |
| | 4,268 |
| | 4,290 |
|
| FSME/IMMUN-TicoVac | | Tick-borne encephalitis disease | | 64 |
| | 57 |
| | 197 |
| | 162 |
|
| Nimenrix | | Meningococcal disease | | 52 |
| | 46 |
| | 159 |
| | 95 |
|
| Trumenba | | Meningococcal disease | | 73 |
| | 61 |
| | 117 |
| | 95 |
|
| All other Vaccines | | Various | | 16 |
| | 21 |
| | 54 |
| | 65 |
|
Inflammation & Immunology (I&I)(g) | | $ | 1,226 |
| | $ | 1,184 |
| | $ | 3,482 |
| | $ | 3,419 |
|
| Xeljanz | | RA, PsA, UC | | 599 |
| | 432 |
| | 1,634 |
| | 1,221 |
|
| Enbrel (Outside the U.S. and Canada) | | RA, juvenile idiopathic arthritis, PsA, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | | 415 |
| | 531 |
| | 1,285 |
| | 1,589 |
|
Inflectra/Remsima(g), (j) | | Inflammatory diseases | | 155 |
| | 166 |
| | 446 |
| | 469 |
|
| Eucrisa | | Mild-to-moderate atopic dermatitis (eczema) | | 43 |
| | 40 |
| | 92 |
| | 104 |
|
| All other I&I | | Various | | 15 |
| | 14 |
| | 24 |
| | 36 |
|
|
| | | | | | | | | | | | | | | | | | |
| (MILLIONS OF DOLLARS) | | | | Three Months Ended | | Six Months Ended |
| PRODUCT | | PRIMARY INDICATION OR CLASS | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| TOTAL REVENUES | | | | $ | 11,801 |
| | $ | 13,264 |
| | $ | 23,829 |
| | $ | 26,382 |
|
| PFIZER BIOPHARMACEUTICALS GROUP (BIOPHARMA) | | $ | 9,795 |
| | $ | 9,432 |
| | $ | 19,802 |
| | $ | 18,477 |
|
Internal Medicine(a) | | | | $ | 2,279 |
| | $ | 2,243 |
| | $ | 4,610 |
| | $ | 4,380 |
|
| Eliquis alliance revenues and direct sales | | Nonvalvular atrial fibrillation, deep vein thrombosis, pulmonary embolism | | 1,272 |
| | 1,085 |
| | 2,572 |
| | 2,096 |
|
| Chantix/Champix | | An aid to smoking cessation treatment in adults 18 years of age or older | | 235 |
| | 276 |
| | 505 |
| | 549 |
|
| Premarin family | | Symptoms of menopause | | 152 |
| | 193 |
| | 304 |
| | 361 |
|
| BMP2 | | Development of bone and cartilage | | 57 |
| | 79 |
| | 127 |
| | 145 |
|
| Toviaz | | Overactive bladder | | 64 |
| | 65 |
| | 124 |
| | 125 |
|
| All other Internal Medicine | | Various | | 498 |
| | 544 |
| | 978 |
| | 1,103 |
|
| Oncology | | | | $ | 2,647 |
| | $ | 2,236 |
| | $ | 5,082 |
| | $ | 4,198 |
|
| Ibrance | | Metastatic breast cancer | | 1,349 |
| | 1,261 |
| | 2,598 |
| | 2,394 |
|
| Xtandi alliance revenues | | Non-metastatic and metastatic castration-resistant prostate cancer and metastatic castration-sensitive prostate cancer | | 266 |
| | 201 |
| | 475 |
| | 369 |
|
| Sutent | | Advanced and/or metastatic RCC, adjuvant RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | | 209 |
| | 248 |
| | 414 |
| | 480 |
|
| Inlyta | | Advanced RCC | | 195 |
| | 104 |
| | 364 |
| | 177 |
|
| Xalkori | | ALK-positive and ROS1-positive advanced NSCLC | | 138 |
| | 133 |
| | 287 |
| | 255 |
|
| Bosulif | | Philadelphia chromosome–positive chronic myelogenous leukemia | | 113 |
| | 97 |
| | 213 |
| | 177 |
|
Retacrit(b) | | Anemia | | 87 |
| | 51 |
| | 176 |
| | 82 |
|
| Braftovi | | In combination with Mektovi for metastatic melanoma for patients who test positive for a BRAF genetic mutation and, in combination with Erbitux® (cetuximab), for the treatment of BRAFV600E-mutant metastatic colorectal cancer after prior therapy | | 36 |
| | — |
| | 74 |
| | — |
|
| Mektovi | | In combination with Braftovi for metastatic melanoma for patients who test positive for a BRAF genetic mutation | | 32 |
| | — |
| | 69 |
| | — |
|
| All other Oncology | | Various | | 221 |
| | 140 |
| | 412 |
| | 262 |
|
Hospital(a), (c) | | | | $ | 1,794 |
| | $ | 1,838 |
| | $ | 3,807 |
| | $ | 3,665 |
|
| Sulperazon | | Bacterial infections | | 102 |
| | 165 |
| | 289 |
| | 342 |
|
| Medrol | | Anti-inflammatory glucocorticoid | | 78 |
| | 120 |
| | 207 |
| | 240 |
|
| Zithromax | | Bacterial infections | | 55 |
| | 73 |
| | 193 |
| | 177 |
|
| Precedex | | Sedation agent in surgery or intensive care | | 114 |
| | 40 |
| | 156 |
| | 80 |
|
| Vfend | | Fungal infections | | 75 |
| | 94 |
| | 149 |
| | 178 |
|
| Panzyga | | Primary humoral immunodeficiency | | 63 |
| | 44 |
| | 136 |
| | 61 |
|
PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | (MILLIONS OF DOLLARS) | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| PRODUCT | | PRIMARY INDICATIONS OR CLASS | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | PRIMARY INDICATION OR CLASS | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Zyvox | | | Bacterial infections | | 55 |
| | 71 |
| | 125 |
| | 134 |
|
| Fragmin | | | Treatment/prevention of venous thromboembolism | | 58 |
| | 63 |
| | 118 |
| | 123 |
|
Pfizer CentreOne(d) | | | Various | | 224 |
| | 204 |
| | 376 |
| | 380 |
|
| All other Anti-infectives | | | Various | | 367 |
| | 420 |
| | 811 |
| | 825 |
|
All other Hospital(c) | | | Various | | 603 |
| | 544 |
| | 1,245 |
| | 1,124 |
|
| Vaccines | | | | $ | 1,247 |
| | $ | 1,375 |
| | $ | 2,857 |
| | $ | 2,988 |
|
| Prevnar 13/Prevenar 13 | | | Pneumococcal disease | | 1,116 |
| | 1,179 |
| | 2,566 |
| | 2,665 |
|
| Nimenrix | | | Meningococcal disease | | 56 |
| | 58 |
| | 130 |
| | 107 |
|
| All other Vaccines | | | Various | | 75 |
| | 138 |
| | 161 |
| | 215 |
|
| Inflammation & Immunology (I&I) | | Inflammation & Immunology (I&I) | | $ | 1,149 |
| | $ | 1,219 |
| | $ | 2,127 |
| | $ | 2,256 |
|
| Xeljanz | | | RA, PsA, UC | | 635 |
| | 613 |
| | 1,086 |
| | 1,036 |
|
| Enbrel (Outside the U.S. and Canada) | | | RA, juvenile idiopathic arthritis, PsA, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | | 337 |
| | 420 |
| | 684 |
| | 871 |
|
Inflectra/Remsima(b) | | | Crohn’s disease, pediatric Crohn’s disease, UC, pediatric UC, RA in combination with methotrexate, ankylosing spondylitis, PsA and plaque psoriasis | | 150 |
| | 153 |
| | 308 |
| | 291 |
|
| All other I&I | | | Various | | 26 |
| | 34 |
| | 48 |
| | 59 |
|
| Rare Disease | | | $ | 601 |
| | $ | 531 |
| | $ | 1,592 |
| | $ | 1,651 |
| | | $ | 681 |
| | $ | 521 |
| | $ | 1,319 |
| | $ | 991 |
|
| Vyndaqel/Vyndamax | | | ATTR-cardiomyopathy and polyneuropathy | | 277 |
| | 63 |
| | 508 |
| | 104 |
|
| BeneFIX | | Hemophilia | | 125 |
| | 132 |
| | 372 |
| | 420 |
| | Hemophilia B | | 109 |
| | 121 |
| | 230 |
| | 247 |
|
| Genotropin | | Replacement of human growth hormone | | 124 |
| | 143 |
| | 357 |
| | 416 |
| | Replacement of human growth hormone | | 106 |
| | 125 |
| | 209 |
| | 232 |
|
| Refacto AF/Xyntha | | Hemophilia | | 104 |
| | 117 |
| | 319 |
| | 388 |
| | Hemophilia A | | 91 |
| | 108 |
| | 181 |
| | 214 |
|
| Vyndaqel | | ATTR-Cardiomyopathy and Polyneuropathy | | 156 |
| | 37 |
| | 259 |
| | 108 |
| |
| Somavert | | Acromegaly | | 64 |
| | 64 |
| | 192 |
| | 195 |
| | Acromegaly | | 67 |
| | 68 |
| | 131 |
| | 128 |
|
| All other Rare Disease | | Various | | 28 |
| | 38 |
| | 94 |
| | 123 |
| | Various | | 31 |
| | 35 |
| | 61 |
| | 66 |
|
UPJOHN(b), (h) | | | $ | 2,195 |
| | $ | 3,036 |
| | $ | 8,077 |
| | $ | 9,302 |
| |
UPJOHN(a) | | | | $ | 2,006 |
| | $ | 2,970 |
| | $ | 4,027 |
| | $ | 6,184 |
|
| Lipitor | | | Reduction of LDL cholesterol | | 431 |
| | 407 |
| | 836 |
| | 1,029 |
|
| Lyrica | | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | 527 |
| | 1,213 |
| | 2,888 |
| | 3,649 |
| | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | | 349 |
| | 1,175 |
| | 706 |
| | 2,362 |
|
| Lipitor | | Reduction of LDL cholesterol | | 476 |
| | 507 |
| | 1,506 |
| | 1,539 |
| |
| Norvasc | | Hypertension | | 219 |
| | 248 |
| | 735 |
| | 777 |
| | Hypertension | | 222 |
| | 216 |
| | 419 |
| | 516 |
|
| Celebrex | | Arthritis pain and inflammation, acute pain | | 179 |
| | 188 |
| | 526 |
| | 494 |
| | Arthritis pain and inflammation, acute pain | | 139 |
| | 174 |
| | 295 |
| | 347 |
|
| Viagra | | Erectile dysfunction | | 120 |
| | 137 |
| | 379 |
| | 509 |
| | Erectile dysfunction | | 94 |
| | 114 |
| | 222 |
| | 259 |
|
| Effexor | | Depression and certain anxiety disorders | | 80 |
| | 78 |
| | 242 |
| | 228 |
| | Depression and certain anxiety disorders | | 86 |
| | 86 |
| | 163 |
| | 163 |
|
| Zoloft | | Depression and certain anxiety disorders | | 74 |
| | 72 |
| | 217 |
| | 223 |
| | Depression and certain anxiety disorders | | 79 |
| | 73 |
| | 157 |
| | 143 |
|
EpiPen(a) | | | Epinephrine injection used in treatment of life-threatening allergic reactions | | 64 |
| | 67 |
| | 136 |
| | 123 |
|
| Xalatan/Xalacom | | Glaucoma and ocular hypertension | | 68 |
| | 76 |
| | 201 |
| | 233 |
| | Glaucoma and ocular hypertension | | 65 |
| | 72 |
| | 126 |
| | 133 |
|
| Xanax | | Anxiety disorders | | 50 |
| | 52 |
| | 147 |
| | 163 |
| |
| Revatio | | Pulmonary arterial hypertension | | 24 |
| | 53 |
| | 122 |
| | 163 |
| |
| All other Upjohn | | Various | | 379 |
| | 411 |
| | 1,114 |
| | 1,325 |
| | Various | | 476 |
| | 587 |
| | 968 |
| | 1,109 |
|
CONSUMER HEALTHCARE BUSINESS(i) | | $ | 377 |
| | $ | 839 |
| | $ | 2,098 |
| | $ | 2,631 |
| |
| | | | | | | | | | | | |
CONSUMER HEALTHCARE BUSINESS(e) | | CONSUMER HEALTHCARE BUSINESS(e) | | $ | — |
| | $ | 862 |
| | $ | — |
| | $ | 1,721 |
|
| Total Alliance revenues | | Various | | $ | 1,141 |
| | $ | 977 |
| | $ | 3,418 |
| | $ | 2,820 |
| | | $ | 1,404 |
| | $ | 1,187 |
| | $ | 2,786 |
| | $ | 2,277 |
|
Total Biosimilars(j) | | Various | | $ | 236 |
| | $ | 197 |
| | $ | 632 |
| | $ | 558 |
| |
Total Sterile Injectable Pharmaceuticals(k) | | $ | 1,248 |
| | $ | 1,239 |
| | $ | 3,703 |
| | $ | 3,928 |
| |
Total Biosimilars(b) | | | | | $ | 289 |
| | $ | 217 |
| | $ | 578 |
| | $ | 396 |
|
Total Sterile Injectable Pharmaceuticals(f) | | Total Sterile Injectable Pharmaceuticals(f) | | $ | 1,237 |
| | $ | 1,218 |
| | $ | 2,644 |
| | $ | 2,455 |
|
| |
(a) | TheBeginning in 2020, Upjohn began managing our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer Biopharmaceuticals Group encompassesand Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues associated with our Meridian subsidiary, except for product revenues for EpiPen sold in Canada, and Mylan-Japan, are reported in our Upjohn business beginning in the first quarter of 2020. We have reclassified revenues associated with our Meridian subsidiary and Mylan-Japan from the Hospital and Internal Medicine Oncology, Hospital, Vaccines, Inflammation & Immunology and Rare Disease. The new Hospital business unit commercializes our global portfolio of sterile injectable and anti-infective medicines, and also includes Pfizer CentreOne(f).
|
| |
(b)
| We reclassified certain products from the LEP category, including Premarin family products, and certain other products from the legacy Peri-LOE category, including Pristiq, to the Internal Medicine category and reclassified Lyrica from the Internal Medicine categorycategories to the Upjohn business to conform 20182019 product revenues to the current presentation. |
| |
(c)(b)
| We performed certain reclassifications in the All other Oncology category to conform 2018 productBiosimilars are highly similar versions of approved and authorized biological medicines and primarily include revenues to the current presentation.from Inflectra/Remsima and Retacrit. |
| |
(d)(c)
| Hospital is a new business unit that commercializes our global portfolio of sterile injectable and anti-infective medicines. We performed certain reclassifications, primarily from the legacy Sterile Injectables Pharmaceuticals (SIP) category (Sulperazon, Medrol, Fragmin, Tygacil, Zosyn/Tazocin and Precedex, among other products), the LEP category (Epipen and Zithromax), and the legacy Peri-LOE category (Vfend and Zyvox) to the Hospital category to conform 2018 product revenues to the current presentation. Hospital also includes Pfizer CentreOne(f)(d). All other Hospital primarily includes revenues from legacy SIPSterile Injectables Pharmaceuticals (SIP) products (that are not anti-infective products) and, to a much lesser extent, solid oral dose products (that are not anti-infective products). SIP anti-infective products that are not individually listed above are recorded in “All other Anti-infectives”. |
| |
(e)
| 2018 revenues for Medrol and Zithromax may not agree to previously disclosed revenues because revenues for those products were previously split between LEP and the legacy SIP categories. All revenues for these products are currently reported in the Hospital category. |
| |
(f)(d)
| 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 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 legacy All Other LEP and legacy All Other SIP, are reported in emerging markets within Pfizer CentreOne.agreements. |
| |
(g)
| We reclassified Inflectra/Remsima from the legacy Biosimilars category to the Inflammation & Immunology category to conform 2018 product revenues to the current presentation. |
| |
(h)
| Pfizer’s Upjohn business encompasses primarily off-patent branded and generic medicines that includes a portfolio of 20 globally recognized solid oral dose brands including Lyrica, Lipitor, Norvasc, Celebrex and Viagra, as well as a U.S.-based generics platform, Greenstone. |
| |
(i)(e)
| On July 31, 2019, Pfizer’s Consumer Healthcare business, an over-the-counter medicines business, was combined with GSK’s consumer healthcare business to form a new consumer healthcare joint venture. For additional information, see Note 1A and Note 2B. |
| |
(j)(f)
| Biosimilars are highly similar versions of approved and authorized biological medicines and primarily include revenues from Inflectra/Remsima and Retacrit. |
| |
(k)
| Total Sterile Injectable Pharmaceuticals represents the total of all branded and generic injectable products in the Hospital business, including anti-infective sterile injectable pharmaceuticals. |
Review Report Ofof 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 subsidiaries (the Company) as of September 29, 2019,June 28, 2020, the related condensed consolidated statements of income, comprehensive income and equity for the three-month and nine-monthsix-month periods ended September 29,June 28, 2020 and June 30, 2019, and September 30, 2018, the related condensed consolidated statements of cash flows for the nine-monthsix-month periods ended September 29,June 28, 2020 and June 30, 2019 and September 30, 2018 and the related notes (collectively, the consolidated interim financial information). 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, 20182019, 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 28, 2019,27, 2020, 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, 20182019 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 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.
/s/ KPMG LLP
New York, New York
November 7, 2019August 6, 2020
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. All trademarks in this MD&A are the property of their respective owners. The MD&A is organized as follows:
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| | | | | |
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| | This section provides information about the following: Our Business; Our Business Development Initiatives; our performance during the thirdsecond quarter and first ninesix months of 20192020 and 2018;2019; Our Operating Environment; The Global Economic Environment; Our Strategy; Our Business Development Initiatives, such as acquisitions, dispositions, licensing and collaborations; and Our Financial Guidance for 2019.2020. | |
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| | This section discusses updates to our 2018 Financial Report disclosures for those accounting policies and estimates that we consider important in understanding our consolidated financial statements. | |
| ● | | |
| | This section includes the following sub-sections: | |
| | | |
| | This sub-section provides an overview of revenues by operating segment and geography as well as revenue deductions. | |
| | | |
| | This sub-section provides an overview of several of our biopharmaceutical products. | |
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| | This sub-section provides an overview of important biopharmaceutical product developments. | |
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| | This sub-section provides a discussion about our costs and expenses. | |
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| | This sub-section provides a discussion of items impacting our tax provisions. | |
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| | This sub-section provides a discussion of an alternative view of performance used by management. | |
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| | This section provides a discussion of the performance of each of our operating segments. | |
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| 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 ninesix months of 20192020 and 2018.2019. | |
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| | This section provides an analysis of selected measures of our liquidity and of our capital resources as of September 29, 2019June 28, 2020 and December 31, 2018,2019, as well as a discussion of our outstanding debt and other commitments that existed as of September 29, 2019June 28, 2020 and December 31, 2018.2019. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities. | |
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| | This section discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted. | |
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| | 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. Also included in this section is a discussion of legal proceedings and contingencies. | |
Certain amounts in ourthis MD&A may not add due to rounding. All percentages have been calculated using unrounded amounts.
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, manufacture and manufacturedistribution of healthcare products, including innovative medicines and vaccines. 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).
At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and, through July 31, 2019, Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. For additional information about this operating structure, see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale and Note 13A.14A. Segment, Geographic and Other Revenue Information: Segment Information and the “Our Strategy––Commercial“Commercial Operations” section in Part I, Item 1, “Business” of this MD&A below.our 2019
Form 10-K.
Beginning in 2020, Upjohn began managing our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan are reported in our Upjohn business beginning in the first quarter of 2020. In 2019, revenues and expenses from Meridian and Mylan-Japan were recorded in our Biopharma business. We performed certain reclassifications between the Biopharma and Upjohn segments to conform 2019 segment revenues and expenses associated with Meridian and Mylan-Japan to the current presentation. There was no impact to our consolidated financial statements.
The majority of our revenues come from the manufacture and sale of biopharmaceutical products. As explained more fully in our 20182019 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, product manufacturing 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 ofin our 20182019 Financial Report and Part I, Item 1A, “Risk Factors” of our 20182019 Form 10-K.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 ninesix months ended August 25, 2019May 24, 2020 and AugustMay 26, 2018.2019. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and ninesix months ended September 29, 2019June 28, 2020 and SeptemberJune 30, 20182019.
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 evaluatingto evaluate the results of our business.
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 our businesses and their capabilities, such as our acquisitions of Array, Therachon, Hospira, Medivation, Anacor and AstraZeneca’s small molecule anti-infectives business, as well as collaborations, and alliance and license agreements with other 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.
Our significant recent business development activities include:
| |
| • | Agreement with Valneva SE––On April 30, 2020, we signed an agreement to co-develop and commercialize Valneva’s Lyme disease vaccine candidate VLA15, which is currently in Phase 2 clinical studies. In June 2020, Valneva announced that the antitrust-related condition precedent was met and, consequently, the agreement became effective. VLA15 is the only active Lyme disease vaccine program in clinical development today, and covers six serotypes that are prevalent in North America and Europe. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisition, Equity-Method Investment and Licensing Arrangements: Licensing Arrangements. |
| |
| • | Agreement with BioNTech SE––On April 9, 2020, we signed a global agreement with BioNTech to co-develop a potential first-in-class, mRNA-based coronavirus vaccine program, BNT162, aimed at preventing COVID-19 infection. The collaboration aims to rapidly advance multiple COVID-19 vaccine candidates into human clinical testing based on BioNTech’s proprietary mRNA vaccine platforms, with the objective of ensuring rapid worldwide access to the vaccine, if approved. The collaboration will leverage our broad expertise in vaccine R&D, regulatory capabilities, and global manufacturing and distribution network. We and BioNTech plan to jointly conduct clinical trials for the COVID-19 vaccine candidates initially in the U.S. and Europe across multiple sites. For additional information, including information regarding our COVID-19 vaccine development program, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment”and “Product Developments—Biopharmaceutical” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisition, Equity-Method Investment and Licensing Arrangements: Licensing Arrangements. |
| |
| • | Formation of a New Consumer Healthcare Joint Venture––On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. The joint venture is a category leaderdevelops and markets brands in the oral health, pain relief, respiratory, nutrition/gastro-intestinal and vitamins, minerals and supplements, and therapeutic oralskin health categories and is the largest global OTC consumer healthcare business. |
| |
• | Acquisition of Array BioPharma Inc.––On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair valueone of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired).world’s leading over-the-counter healthcare companies. Our financial statementsresults, and our Consumer Healthcare segment’s operating results, for the thirdsecond quarter of 2019 reflect three months of Consumer Healthcare segment operations and forthe first ninesix months of 2019 reflect six months of Consumer Healthcare segment operations, while financial results for the assets, liabilities, operating results second quarter and cash flowsfirst six months of Array, commencing2020 do not reflect any contribution from the acquisition date.Consumer Healthcare business. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisition, Equity-Method Investment and Licensing Arrangements: Equity-Method Investment.
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| |
| • | Agreement to Combine Upjohn with Mylan N.V.––On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company.company, Viatris. Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun-off or split-offspun off to Pfizer’s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer and Pfizer shareholders. The transaction was approved by Mylan’s shareholders in June 2020 and is anticipated to close in mid-2020,the fourth quarter of 2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals. |
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• | Acquisition of Therachon Holding AG––On July 1, 2019, we acquired all the remaining sharesrequired regulatory approvals. In June 2020, Upjohn Inc. and Upjohn Finance B.V. (a wholly-owned subsidiary of Therachon for $340Upjohn Inc.) completed privately placed debt offerings in connection with the transaction. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt and the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A. We expect to incur costs of approximately $700 million upfront, plus potential milestone paymentsin connection with separating Upjohn, of up to $470 million, contingent onwhich approximately 30% has been incurred since inception and through the achievement of key milestones in the development and commercialization of the lead asset. The total fair value of the consideration transferred for Therachon was approximately $322 million. Our financial statements for the third quarter and first ninesix months of 2019 reflect the assets, liabilities, operating results2020. Such charges include costs and cash flowsexpenses related to separation of Therachon, commencing from the acquisition datelegal entities and in accordance with our international reporting period, reflect two months of Therachon operations and cash flows.anticipated transaction costs.
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For additional information,a description of the more significant recent transactions through February 27, 2020, the filing date of our 2019 Form 10-K, see Notes to Condensed Consolidated Financial Statements––Note 1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation, Notes to Condensed Consolidated Financial Statements––Note 2. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement, and the “Our Strategy––Commercial Operations” and the “Our Strategy––Our Business Development Initiatives” sections of this MD&A below.
Product Manufacturing
We periodically encounter difficulties or delays in manufacturing, including due to suspension of manufacturing or voluntary recall of a product, or legal or regulatory actions such as warning letters. For example, Hospira’s manufacturing facility in McPherson, Kansas is currently under the FDA inspection classification of Official Action Indicated (OAI). As a result of this classification, 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 our McPherson site until the site status is upgraded, which upgrade would be based on a re-inspection by the FDA. Future FDA inspections and regulatory activities will further assess the adequacy and sustainability of corrections implemented at the site. Communication with the FDA on the status of the McPherson site is ongoing. For additional information regarding the FDA inspection of the McPherson site, see Part I, Item 1A, “Risk Factors––Product Manufacturing, Sales and Marketing Risks”section of our 2018 Form 10-K.
The product shortages we have been experiencing within our portfolio are primarily for products from the legacy Hospira portfolio and are largely driven by capacity constraints, technical issues and supplier quality concerns. We continue to remediate issues at legacy Hospira facilities manufacturing sterile injectables. Any continuing product shortage interruption at these manufacturing facilities could negatively impact our financial results, specifically in our Hospital portfolio. We continue to make progress on our comprehensive remediation plan to upgrade and modernize these facilities, and we expect our supply issues to be substantially improved by the end of 2019.2019 Financial Report.
Our ThirdSecond Quarter 20192020 and First Six Months of 2020 Performance
Revenues
Revenues decreased $1.5 billion, or 11%, in the thirdsecond quarter of 20192020 decreased $618 million, or 5%, compared to the same period in 20182019, which reflectsreflecting an operational decrease of $403 million,$1.2 billion, or 3%9%, as well as thean unfavorable impact of foreign exchange of $215$277 million, or 2%. Excluding the impact of the Consumer Healthcare transaction, revenues decreased 3% operationally, reflecting a 31% operational decline in our Upjohn business mainly due to the U.S. loss of exclusivity of Lyrica, which was partially offset by 6% operational growth in our Biopharma business. Excluding the impact of Lyrica in the U.S., Upjohn revenues declined 6% operationally. Revenues for the second quarter of 2020 included an estimated net unfavorable impact of approximately $500 million, or 4%, due to COVID-19, primarily reflecting unfavorable disruptions to wellness visits for pediatric and adult patients in the U.S. and lower demand for certain products in China, partially offset by increased U.S. demand for certain sterile injectable products as well as increased adult demand for Prevenar 13 in certain international markets.
Revenues decreased $2.6 billion, or 10%, in the first ninesix months of2019 decreased $609 million, or 2%2020, compared to the same period in 20182019, which reflectsreflecting an operational decrease of $2.1 billion, or 8%, as well as an unfavorable impact of foreign exchange of $1.2 billion,$411 million, or 3%,2%. Excluding the impact of the Consumer Healthcare transaction, revenues decreased 2% operationally, reflecting a 34% operational decline in our Upjohn business mainly due to the U.S. loss of exclusivity of Lyrica, which was partially offset by 9% operational growth in our Biopharma business. Excluding the impact of Lyrica in the U.S., Upjohn revenues declined 11% operationally. Revenues for the first six months of 2020 included an operational increaseestimated net unfavorable impact of $586approximately $350 million, or 1%., due to COVID-19, primarily reflecting unfavorable disruptions to wellness visits for pediatric and adult patients in the U.S. and lower demand for certain products in China, partially offset by increased U.S. demand for certain sterile injectable products as well as increased adult demand for Prevenar 13 in certain international markets.
The following provides an analysisSee the “Analysis of the changes in revenuesCondensed Consolidated Statements of Income––Revenues by Operating Segment and Geography” section below for the third quarter and first nine monthsmore information, including a discussion of 2019:key drivers of our revenue performance.
|
| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
Revenues, for the three and nine months ended September 30, 2018 | | $ | 13,298 |
| | $ | 39,670 |
|
| | |
|
| | |
| Operational growth/(decline): | | | | |
Continued growth from certain key brands(a) | | 621 |
| | 1,978 |
|
Higher revenues for Biosimilars, certain rare disease products and Inlyta primarily in the U.S.; and, in the nine months ended September 29, 2019, volume growth from Celebrex and Effexor, primarily in Japan and China | | 200 |
| | 284 |
|
| Decline from Lipitor and Norvasc in the third quarter of 2019 and growth from Lipitor in the first nine months of 2019, partially offset by decline from Norvasc | | (35 | ) | | 37 |
|
| Declines from Viagra and Pfizer’s authorized generic for Viagra in the U.S.; Enbrel internationally; Lyrica, primarily in the U.S., reflecting significant lower volume associated with multi-source generic competition that began in July 2019; Revatio and Relpax primarily in the U.S.; and in the third quarter of 2019, Prevnar 13/Prevenar 13 | | (897 | ) | | (1,215 | ) |
| Decline from Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK | | (451 | ) | | (462 | ) |
| Growth/(decline) from the Hospital business | | 112 |
| | (46 | ) |
| Other operational factors, net | | 47 |
| | 10 |
|
| Operational growth/(decline), net | | (403 | ) | | 586 |
|
| | | | | |
| Operational revenues | | 12,895 |
| | 40,256 |
|
| Unfavorable impact of foreign exchange | | (215 | ) | | (1,194 | ) |
Revenues, for the three and nine months ended September 29, 2019 | | $ | 12,680 |
| | $ | 39,062 |
|
| |
(a)
| Key brands represent Ibrance, Eliquis and Xeljanz as well as, for the first nine months of 2019, Prevnar 13/Prevenar 13.
|
For worldwide revenues and revenues by geography, for selected products, see the discussion in the “Analysis of the Condensed Consolidated Statements of Income––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.14C. Segment, Geographic and Other Revenue Information: Other Revenue Information.
See the “Analysis of the Condensed Consolidated Statements of Income––Revenues by Operating Segment and Geography” section below for more information, including a discussion of key drivers of our revenue performance.
Income from Continuing Operations Before ProvisionProvision/(Benefit) for Taxes on Income
The following provides an analysis of the increasedecrease in Income from continuing operations before provisionprovision/(benefit) for taxes on income for the thirdsecond quarter and first ninesix months of 20192020:
|
| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Nine Months |
|
Income from continuing operations before provision for taxes on income, for the three and nine months ended September 30, 2018 | | $ | 4,177 |
| | $ | 12,831 |
|
| Unfavorable change in revenues | | (618 | ) | | (609 | ) |
| Favorable/(unfavorable) changes: | | |
|
|
| Gain on completion of Consumer Healthcare JV transaction in 2019 | | 8,087 |
| | 8,087 |
|
Lower Cost of sales(a) | | 92 |
| | 562 |
|
Lower Selling, information and administrative expenses(b) | | 234 |
| | 338 |
|
Favorable change in the fair value of contingent consideration(c) | | 101 |
| | 226 |
|
Higher royalty-related income(c) | | 12 |
| | 115 |
|
Lower Amortization of intangible assets(c) | | 42 |
| | 61 |
|
Income from insurance recoveries related to Hurricane Maria(c) | | — |
| | 50 |
|
Non-recurrence of gain on equity investment in Cerevel(c) | | (343 | ) | | (343 | ) |
Higher business and legal entity alignment costs(c) | | (86 | ) | | (337 | ) |
Lower income from collaborations, out-licensing arrangements and sales of compound/product rights(c) | | (119 | ) | | (331 | ) |
Lower net gains recognized during the period on investments in equity-securities(c) | | (79 | ) | | (307 | ) |
Higher Research and development expenses(d) | | (275 | ) | | (278 | ) |
Higher net interest expense(c) | | (120 | ) | | (267 | ) |
Unfavorable change in certain legal matters, net(c) | | (28 | ) | | (154 | ) |
Higher asset impairment charges(c) | | (28 | ) | | (148 | ) |
Higher net losses on early retirement of debt(c) | | — |
| | (134 | ) |
Higher Restructuring charges and certain acquisition-related costs(e) | | (280 | ) | | (123 | ) |
Lower net periodic benefit credits other than service costs(c) | | (46 | ) | | (121 | ) |
Higher transaction and advisory costs to separate our Consumer Healthcare business(c) | | (81 | ) | | (58 | ) |
Non-recurrence of gain on the contribution of Pfizer’s CAR T assets(c) | | — |
| | (50 | ) |
| All other items, net | | 83 |
|
| 180 |
|
Income from continuing operations before provision for taxes on income, for the three and nine months ended September 29, 2019 | | $ | 10,727 |
|
| $ | 19,190 |
|
|
| | | | | | | | |
| (MILLIONS OF DOLLARS) | | Three Months |
| | Six Months |
|
Income from continuing operations before provision/(benefit) for taxes on income, for the three and six months ended June 30, 2019 | | $ | 4,141 |
| | $ | 8,463 |
|
| Unfavorable change in revenues | | (1,463 | ) | | (2,552 | ) |
| Favorable/(Unfavorable) changes: | | |
|
|
Lower Cost of sales(a) | | 295 |
| | 351 |
|
Lower Selling, informational and administrative expenses(b) | | 481 |
| | 947 |
|
Higher Research and development expenses(c) | | (290 | ) | | (311 | ) |
Lower Amortization of intangible assets(d) | | 279 |
| | 577 |
|
Higher Restructuring charges and certain acquisition-related costs(e) | | (478 | ) | | (500 | ) |
Higher net gains recognized during the period on equity-securities(f) | | 696 |
| | 331 |
|
Lower business and legal entity alignment costs(f) | | 137 |
| | 256 |
|
Lower asset impairment charges(f) | | 10 |
| | 160 |
|
Non-recurrence of net losses on early retirement of debt(f) | | — |
| | 138 |
|
Higher income from collaborations, out-licensing arrangements and sales of compound/product rights(f) | | 78 |
| | 111 |
|
GSK Consumer Healthcare JV equity method income(f) | | 126 |
| | 92 |
|
Higher net periodic benefit credits other than service costs(f) | | 57 |
| | 85 |
|
Unfavorable change in the fair value of contingent consideration(f) | | (5 | ) | | (89 | ) |
Higher net interest expense(f) | | (23 | ) | | (84 | ) |
| Non-recurrence of insurance recoveries related to Hurricane Maria in 2019 | | (25 | ) | | (50 | ) |
| All other items, net | | (65 | ) |
| (86 | ) |
Income from continuing operations before provision/(benefit) for taxes on income, for the three and six months ended June 28, 2020 | | $ | 3,953 |
|
| $ | 7,838 |
|
| |
(a) | See the “Costs and Expenses––Cost of Sales” section of this MD&A. |
| |
(b) | See the “Costs and Expenses––Selling, Informational and Administrative (SI&A) Expenses” section of this MD&A. |
| |
(c) | See the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net.
|
| |
(d)
| See the “Costs and Expenses––Research and Development (R&D) Expenses” section of this MD&A. |
| |
(e)
| See the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A. |
| |
(f)(d)
| See the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A. |
| |
(e) | See the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A. |
| |
(f) | See Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net. |
For information on our tax provision and effective tax rate see the “Provision“Provision/(Benefit) 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 manufacturers and the expiration of co-promotion and licensing rights can have a significantmaterial adverse effect on our revenues. Many 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 typically lose exclusivity on these products, and generic and biosimilar pharmaceutical manufacturers generally produce similar products and sell them for a lower price. The date at which generic competition commences may be different from the 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 were challenged in inter partes review and post-grant review proceedings in the U.S. The Patent Trial and Appeal Board refused to initiate proceedings as to two patents. In June 2018, the Patent Trial and Appeal Board ruled on another patent, holding that one claim was valid and that all other claims were invalid. The party challenging that patent has appealed the decision. In March and June 2019, an additional patent was found invalid in separate proceedings by the Patent Trial and Appeal Board. We have appealed. Challenges to other patents remain pending in jurisdictions outside the U.S. The invalidation of all of the patents in our pneumococcal portfolio could potentially allow a competitor pneumococcal vaccine into the marketplace. In the event that any of the patents are found valid and infringed, a competitor pneumococcal vaccine might be prohibited from entering the market or required to pay Pfizer a royalty.
A numberCertain of our current products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face significantly increased generic competition over the next few years. For example, as a result of a patent litigation settlement, Teva Pharmaceuticals USA, Inc. launched a generic version of Viagra (a product in our Upjohn business) in the U.S. in December 2017. Lyrica (a product in our Upjohn business) lost patent protection in the U.S. in June 2019 and multi-source generic competition began in July 2019. AdditionalAlso, the basic product patent expiriesfor Chantix in the U.S. will continue over several years, and weexpire in November 2020. We expect the impact of reduced revenues due to patent expiries will be significant in the rest of 2019 and in 2020, then moderating downward to a much lower level from 2021 through 2025.
Our biologic products, including BeneFIX, ReFacto, Xyntha, Bavencio, Prevnar 13/Prevenar 13 and Enbrel (we market Enbrel outside the U.S. and Canada), may face in the future, or already face, competition from biosimilars (also referred to as follow-on biologics). If competitors are able to obtain marketing approval for biosimilars referencing our biologic products, our biologic products may become subject to competition from these biosimilars, with attendant competitive pressure, and price reductions could follow. For example, Enbrel faces ongoing biosimilar competition in most developed Europe markets. The expiration or successful challenge of applicable patent rights could trigger this competition, assuming any relevant regulatory exclusivity period has expired.
See the “Intellectual Property Rights and Collaboration/Licensing Rights” section of our 2018 Financial Report for additional information about recent losses and expected losses of product exclusivity in the U.S., Europe and/or Japan impacting product revenues.
For additional information, including the patent rights we consider most significant in relation to our business as a whole, together with the year in which the basic product patent expires and recent and expected losses of product exclusivity, see the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 20182019 Form 10-K.
We will continue to vigorouslyaggressively defend our patent rights whenever we deem appropriate. For a discussion of certain recent developments with respect to patent litigation, see Notes to Condensed Consolidated Financial Statements––Note 12A1.13A1. Contingencies and 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 20182019 Form 10-K.
| | We recorded the following amounts as a result of the U.S. Healthcare Legislation: | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
Reduction to Revenues, related to the Medicare “coverage gap” discount provision | | $ | 307 |
| | $ | 217 |
| | $ | 596 |
| | $ | 435 |
| | $ | 216 |
| | $ | 154 |
| | $ | 350 |
| | $ | 289 |
|
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. | | 52 |
| | 43 |
| | 173 |
| | 118 |
| |
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. | | | 71 |
| | 70 |
| | 110 |
| | 121 |
|
Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures
The pricing of medicines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Governments, MCOs and other payor groups continue to seek increasing discounts on our products through a variety of means and could have a material adverse impact on our results of operations. We believe that medicines are amongst the most powerful tools for patients in curing, treating and preventing illness and disability, and that all patients should have appropriate access to the medicines their doctors prescribe. We may consider a number of factors when determining a medicine’s price, including, for example, its impact on patients and their disease, other available treatments, the medicine’s potential to reduce other healthcare costs (such as hospital stays), and affordability. Within the U.S., in particular, we may also engage with patients, doctors and healthcare plans regarding their views. We also negotiate with insurers, including PBMs and MCOs, often providing significant discounts to them from the list price. The price that patients pay in the U.S. for the medicines their physicians prescribe is ultimately set by healthcare providers and insurers. On average, in the U.S., insurers impose a higher out-of-pocket burden on patients for prescription medicines than for comparably-priced medical services. Private third-party payers and federal and state governments in the U.S. continue to take action to manage the utilization of drugs and control the cost of drugs, including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. For example, in July 2020, President Trump announced that he had signed four Executive Orders related to drug pricing, including orders addressing Part D rebate reform, the provision of deeply discounted insulin and/or an EpiPen to patients of Federally Qualified Health Centers, drug importation from Canada, and most favored nation pricing for Medicare. We will continue to work with insurance providers, governments and others to improve access to today’s innovative treatments.
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,Certain governments, including the different EU member states, the U.K., China, Japan, China, Canada, South Korea and some other international markets, governments provide healthcare at low-to-zero direct cost to consumers 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 response to the evolving U.S. and global healthcare spending landscape, we continue 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 seek 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.
U.S.––In the U.S., government action to reduce federal spending on entitlement programs including Medicare and Medicaid may affect payment for 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 could have an adverse impact on our results of operations.
Consolidation among MCOs has increased the negotiating power of MCOs and other third-party payers. Private third-party payers, as well as governments, increasingly employ formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. Failure to obtain or maintain timely or adequate pricing or favorable formulary placement for our products, or failure to obtain such formulary placement at favorable pricing, could adversely impact revenue.
Efforts 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. There continues to be considerable public and government scrutiny of pharmaceutical pricing and measures to address the perceived high cost of pharmaceuticals are being considered by Congress, the Presidential Administration and select states. In addition to new state transparency laws and the introduction of several Federal pricing bills, we have also seen the inclusion of new pricing rules in continuing resolutions such as the treatment of authorized generics in the calculation of average manufacturer price. We expect to see continued focus in regulating pricing resulting in additional legislation that could adversely impact revenue.
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 continue to work with law 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.
There have been significant efforts at the federal and state levels to reform the healthcare system by enhancing access to healthcare, improving the delivery of healthcare and further rationalizing payment for healthcare. 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. There is additional uncertainty given the December 2018 ruling infinancing pressures. Texas v. Azar to invalidate the law as unconstitutional, and the subsequent decision by the U.S. Department of Justice not to defend the law. At this time, the law remains in effect pending appeals of the decision. Given the outcomes of the 2018 U.S. midterm elections with Democrats taking over the U.S. House of Representatives and Republicans growing their majority in the U.S. Senate, we believe it is unlikely Congress will find bipartisan consensus to advance any significant changes to the ACA until the legal process unfolds. The revenues generated for Pfizer by the health insurance exchanges and Medicaid expansion under the ACA are not material, so the impact of the change in law and similar recent Presidential Administration actions is expected to be limited. Any future replacement,
modification or repeal of the ACA may adversely affect our business and financial results, particularly if the legislation reduces incentives for employer-sponsored insurance coverage. As another example, the Bipartisan Budget Act of 2018, which increased the discount we pay in the Medicare Part D “coverage gap” from 50% to 70%, will modestly increase our future Medicare Part D rebates. Any future healthcare reform efforts may adversely affect our business and financial results.
The potential for additional pricing and access pressures in the commercial sector continues to be significant. Many employers have adopted high deductible health plans, which can increase out-of-pocket costs for medicines. This is a trend that is likely to 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 and improved patient outcomes. 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 promote utilization of drugs by encouraging physicians to screen and diagnose and consider drugs as a means of forestalling more costly medical interventions.
Outside the U.S.––Certain governments, including the different EU Member States, China, Japan, Canada and South Korea, have significant power as large single payers to regulate prices andGovernments may use a variety of cost-containment measures for our pharmaceutical products, including price cuts, mandatory rebates, public or private health technology assessments, forced localization as a condition of market access, and international“international reference pricingpricing” (i.e., the practice of a country linking its regulated medicine prices to those of other countries). As a result, we expect that such pressures on the pricing component of operating results will continue. In addition, the international patchwork of price regulation, quality consistency evaluation processes and differing economic conditions and incomplete value assessments across countries has led to varying health outcomes and some third-party trade in our products between countries.volume-based procurement.
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), including the World Health Organization (WHO), and the Organization for Economic Cooperation and Development (OECD), are increasing scrutiny of international pharmaceutical pricing through issuing reports and policy recommendations. In 2019, the WHO continued exerting pressure on pharmaceutical pricing practices by supporting strategies to reduce medicine prices, including calling for greater transparency around the cost of research and development and production of medicines, as well as disclosure of net prices.
In China, healthcare is largely driven by a public payer system, with public medical insurance as the largest single payer for pharmaceuticals, and pricing pressures have increasedcentralized VBP program was initiated in recent years. Government officials have consistently emphasized the importance of improved health outcomes, the need for healthcare reform and decreased drug prices as key indicators of progress towards reform. While the government provides basic health insurance for the vast majority of Chinese citizens, that insurance is not adequate to cover many innovative medicines, and alternative funding sources for innovative medicines remain suboptimal.
In 2017 and 2018, China’s government negotiated with companies to add approximately 60 innovative drugs (mainly oncology medicines) to the National Reimbursement Drug List. Prices for drugs were reduced dramatically through this government-led process. While these negotiations included a path to access for companies, market access is not assured. In addition, significant questions about the processes and negotiations for provincial tendering remain, as well as the need for multi-layered negotiations across provincial, municipal and hospital levels.
In the off-patent space, in 2013, China began to implement a quality consistency evaluation (QCE) process in order to improve the quality of domestically-manufactured generic drugs, primarily by requiring such drugs to pass a test to assess their bioequivalence to a qualified reference drug (typically the originator drug). In 2018, numerous local generics were officially deemed bioequivalent under QCE. A pilot project for centralized volume-based procurement was then initiated including 25 molecules of drugs covering 11 major Chinese cities.2018. Under this procurement model, a tender process has been established where a certain portion of included molecule volumes are guaranteed to tender winners. The program is intended to contain
healthcare costcosts by driving utilization of generics that have passed QCE,quality consistency evaluation, which has resulted in dramatic price cuts for off-patent medicines.
Upjohn and most off-patent originators were not successful in the first bidding process under this pilot, which was finalized in December 2018 and implemented in March 2019, and thosemost contracts went to local generic companies. The first bidding process resulted in significant price cuts by the successful bidders, with some reducing the priceThis pilot program covered 25 molecules, including atorvastatin calcium tablets (Lipitor) and amlodipine besylate tablets (Norvasc). In April 2020, China implemented another round of their products by as much as 96%, as companies attempted to secure volumes of the Chinese pharmaceutical market. The drugs which lost the bidding were also requested to reduce their selling price up to 30% based on the price difference with the successful bidder. In July 2019, China’s government announced a plan for a nationwide expansion of the volume-based procurement model,national VBP program, which was finalized in September 2019covers 33 new molecules, including Biopharma’s Zithromax tablets and will be implemented in late 2019 or early 2020. The expanded model allows for as many as three successful biddersDiflucan capsules and includes an additional 25 provinces and regions, and applies to certain drugs that are purchased for public hospitals as well as some military and private medical institutions. Ourno Upjohn business unit and most originator brands wereproducts. Biopharma was not successful in the bidding process for this nationwideexpansion. In June 2020, China announced the latest round of the expansion of the VBP program, which is expected to be implemented in November 2020 and those contracts mostly went to local Chinese generic companies. The QCE-qualified generic makersincludes Biopharma’s Xeljanz and Zyvox tablets and Upjohn’s Viagra, Zoloft and Celebrex.
For additional information, see the “Government Regulation and Price Constrains” section in Part I, Item 1, “Business” of atorvastatin and amlodipine bid aggressively, lowering prices even further from the March 2019 tender. Our Upjohn business unit continues to take steps to mitigate the revenue impact of these initiatives but anticipates that they will continue to affect our Upjohn business in China going forward. We expect to utilize our presence in the retail channel and tendering capabilities to mitigate some of these pricing pressures. In addition, we believe that our geographic expansion to under-penetrated and lower-tiered cities and counties and additional focus on non-tendered products will increase sales volumes in greater China and partially mitigate pressures from QCE.2019 Form 10-K.
Furthermore, the Chinese government has discussed moving toward effortsOther Industry-Specific Challenges
Regulatory agencies periodically inspect our drug manufacturing facilities to unify the reimbursement price between QCE-approved generic medicines and theevaluate compliance with cGMP or other applicable original medicines. The government currently plansrequirements. Failure to implement this universal reimbursement price initiative within the next twocomply with these requirements may subject us to three years. If this policy is implemented, the new reimbursement level for Upjohn’s products will likely be lower than the current reimbursement level, placing additional pressures on price and/possible legal or patient copays. There remains uncertaintyregulatory actions, such as to whether, when and how this policy may be officially implemented. The Chinese government could also enact other policies that may increase pricing pressureswarning letters, suspension of manufacturing, seizure of product, injunctions, debarment, recall of a product, delays or have the effectdenials of reducing the volumeproduct approvals, import bans or denials of sales available to Upjohn’s products. This potential policy, andimport certifications, any other policies like it that could increase pricing and copay pressures on Upjohn’s drug products in China,of which could have ana material adverse effect on our business, financial condition and results of operations. The government has indicated that additional post-LOE drugs could be subjectedIn December 2019-January 2020, for example, the FDA conducted an inspection of our McPherson facility and issued an inspection report noting several findings to QCE qualification in future rounds, which could also be tiedPfizer responded. Based on the outcome of this inspection, the FDA upgraded the inspection classification of the McPherson site to volume-based procurement. The scope of future QCEVoluntary Action Indicated (VAI) from Official Action Indicated. VAI status will allow supplements, including those for manufacturing changes/improvements and new products, is currently unknown and while it may impact our business in China, we do not believe it will be significant to Pfizer’s business and financial condition. We will continue to monitorproceed for approval following the marketnormal FDA process for developments.
a site with an acceptable compliance status. For additional information, see the “Regulatory“Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment––Industry-Specific Challenges––Product Manufacturing” section of our 2019 Financial Report.
We and other pharmaceutical companies continue to face industry-specific challenges that can significantly impact our business, including, among others, the regulatory environment, pipeline productivity, product manufacturing and competition. For additional information, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment––Industry-Specific Challenges––Regulatory Environment––Pipeline Productivity”, “––Product Manufacturing” and “Competition” “––Competition”sections of our 20182019 Financial Report Financial Report and the “Government Regulation and Price Constraints” section in Part I, Item 1, “Business”1A, “Risk Factors” of our 2019 Form 10-K 2018and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q Form 10-K..
The Global Economic Environment
In addition to the industry-specific factors discussed above, we, like other businesses of our size, are exposed to the economic cycle, which impacts our biopharmaceutical operations globally.
Governments, corporations,COVID-19 Pandemic. In December 2019, illnesses associated with COVID-19 were reported and insurance companies, which provide insurance benefitsthe virus has since caused widespread and significant disruptions to patients, have implemented increases in cost-sharingdaily life 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. As discussed above, 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 includeeconomies across geographies. The World Health Organization has classified the different EU Member States, 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 growoutbreak as a sourcepandemic. Our business, operations and financial condition and results have been impacted to varying degrees, primarily during the second quarter of coverage.
Significant portions2020. We currently anticipate an ongoing, gradual global recovery from the first-half 2020 macroeconomic and healthcare impacts of the COVID-19 pandemic. For additional information on the impact of COVID-19 on our revenues, costs and 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 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,please see the “Analysis“Overview of Financial Condition, LiquidityOur Performance, Operating Environment, Strategy and Capital Resources”Outlook––Our Second Quarter 2020 and the “Our Financial Guidance for 2019” sectionsFirst Six Months of 2020 Performance” section of this MD&A.
Pfizer’s Response to COVID-19
We are fully committed to confronting the public health challenge posed by the COVID-19 pandemic by collaborating with industry partners and academic institutions to develop potential approaches to prevent and treat COVID-19. Our researchers and scientists also have been exploring potential new uses of existing medicines in our portfolio that may be able to help infected patients.
In June 2016,response to the U.K. electorate votedCOVID-19 pandemic, in March 2020, we issued a referendumfive-point plan calling on the biopharmaceutical industry to leavejoin us in committing to unprecedented collaboration to combat COVID-19. Subsequently, we announced some important advances in the EU, which is commonly referredbattle against the COVID-19 pandemic, including, among others:
We and The Pfizer Foundation announced the commitment of $40 million in medical and charitable cash grants to as “Brexit”. In March 2017,help combat the U.K. government formally notified the European Council of its intention to leave the EU after it triggered Article 50health effects of the Lisbon Treaty to beginCOVID-19 pandemic in the two-year negotiation process establishingU.S. and around the termsworld. The Pfizer Foundation is a charitable organization established by Pfizer Inc. It is a separate legal entity from Pfizer Inc. with distinct legal restrictions.
We confirmed a lead compound and analogues in our portfolio are potent inhibitors of the exitSARS-CoV-2 3C-like protease, based on the results of initial screening assays. In addition, preliminary data suggest the lead protease inhibitor shows antiviral activity against SARS-CoV-2, the virus that causes COVID-19. Consequently, we are continuing to perform pre-clinical confirmatory studies, including further anti-viral profiling and outliningassessment of the future relationship betweensuitability of the U.K.lead molecule for IV administration clinically. In July 2020, we published the chemical structure of a 3C-like (3CL) protease inhibitor and the EU. Formal negotiations officially startedits in June 2017. After multiple votesvitro activity against coronaviruses, including SARS-CoV-2. In parallel, we are also investing in the British Parliament in 2019 failing to approve a Brexit withdrawal agreementmaterials with the EU,aim of accelerating the EU has agreed in principle to extend the datestart of a potential clinical study of the U.K.’s withdrawal until January 31,lead molecule to the third quarter of 2020, or earlier in the event the current proposed Brexit withdrawal agreement is agreed and approved by both U.K. and EU parliaments. A General Election will now be held on December 12, 2019. The outcomesubject to positive completion of the election on the Brexit process,pre-clinical confirmatory studies and the consequences of the U.K. leaving the EU (when or if that happens), also continue to be uncertain, which 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. At present, it is still unclear whether and to what extent the U.K. will remain within or aligned to the EU system of medicines regulation, depending on the ultimate outcome of the negotiations. However, both the U.K. and the EU have issued detailed guidance for the industry on how medicines, medical devices and clinical trials will be separately regulated in their respective territories in the event of a ‘hard Brexit’, meaning an outcome where no negotiated settlement is reached.
We generated approximately 2% of our worldwide revenues from the U.K. in 2018 and in the first nine months of 2019, including the foreign currency exchange impact from the weakening U.K. pound relative to the U.S. dollar to date.
Pfizer’s preparations for Brexit, including for a ‘hard Brexit’, are well advanced to make the changes necessary to meet all relevant requirements in the EU and the U.K. after Brexit, especially in the regulatory research, manufacturing and supply chain areas. The principal aim is to ensure the continuity of supply to patients in Europe (EU and the U.K.) and other global markets impacted by these changes. Between 2018 and 2021, we now expect to spend up to approximately $60 million in one-time costs to make these adaptations.approval.
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| • | We entered into a global agreement with BioNTech to co-develop a potential first-in-class, mRNA-based coronavirus vaccine program, BNT162, aimed at preventing COVID-19 infection. As part of this co-development program, which we refer to as Project Lightspeed, we and BioNTech announced in July 2020 the start of a global (except for China) Phase 2/3 safety and efficacy clinical study to evaluate a single nucleoside-modified messenger RNA candidate. After extensive review of preclinical and clinical data from Phase 1/2 clinical trials, and in consultation with the FDA’s Center for Biologics Evaluation and Research and other global regulators, we and BioNTech chose to advance the BNT162b2 vaccine candidate into the Phase 2/3 study, at a 30 µg dose level in a 2 dose regimen. BNT162b2, which received Fast Track designation from the FDA in July 2020, encodes an optimized SARS-CoV-2 full length spike glycoprotein, which is the target of virus neutralizing antibodies. If the Phase 2/3 trial is successful, we and BioNTech expect to be ready to seek Emergency Use Authorization or some form of regulatory approval as early as October 2020. If authorization or approval is obtained, the companies currently aim to supply globally (excluding China) up to 100 million doses by the end of 2020 and approximately 1.3 billion doses by the end of 2021. Also in July and August 2020, we and BioNTech announced agreements with the following governments: (i) with the U.K. government for 30 million doses of BNT162, to be delivered in 2020 and 2021, subject to clinical success and regulatory approval or authorization; (ii) with the U.S. government, under which the U.S. government will pay $1.95 billion, in installments as vaccine quantities are delivered, for the first 100 million doses of BNT162, subject to regulatory approval or Emergency Use Authorization from the FDA, as well as the ability for the U.S. government to acquire up to an additional 500 million doses; (iii) with the government of Japan to supply 120 million doses of BNT162, subject to clinical success and regulatory approval, beginning in 2021; and (iv) with the government of Canada to supply BNT162, subject to clinical success and Health Canada approval, over the course of 2021. For additional information on our collaboration with BioNTech, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business Development Initiatives” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisition, Equity-Method Investment and Licensing Arrangements: Licensing Arrangements. |
Pfizer maintains a strong financial position while operating in a complex global environment. Due toDespite our significant operating cash flows, financial assets, accessinvestments and efforts, our development programs for any potential treatment or vaccine for COVID-19 may not be successful as the risk of failure is significant and there can be no certainty these efforts will yield a successful product or that these costs will ultimately be recouped. In addition, we may change the way we approach or provide additional research funding for potential drug and/or vaccine development related 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.COVID-19. We have taken and will continue to take a conservative approachshare information from our research that could benefit the global effort to respond to this unprecedented healthcare crisis.
Impact of COVID-19 on Pfizer’s Business and Operations
We are continuing to monitor the latest developments regarding the COVID-19 pandemic on our financial investments. Both short-termbusiness, operations, 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,results, and have made certain assumptions regarding the pandemic for purposes of our operational planning and financial projections, including assumptions regarding the duration and severity of the pandemic and the global macroeconomic impact of the pandemic. For additional information, please also see our financial guidance set forth in the “Analysis“Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Financial Condition, Liquidity and Capital Resources”Guidance for 2020” section of this MD&A. Despite careful tracking and planning, however, we are unable to accurately predict the extent of the impact of the pandemic on our business, operations and financial condition and results due to the uncertainty of future developments. In particular, we believe the ultimate impact on our business, operations and financial condition and results will be affected by the speed and extent of the continued spread of the coronavirus globally, the duration of the pandemic, new information that may emerge concerning the severity and incidence of COVID-19, the safety, efficacy and availability of a vaccine and treatments for COVID-19, the global macroeconomic impact of the pandemic and governmental or regulatory actions to contain the virus or control supply of medicines. We are focused on all aspects of our business and are implementing measures aimed at mitigating issues where possible, including by using digital technology to assist in operations for our commercial, manufacturing, R&D and enabling functions globally.
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| • | Our Colleagues. Our colleagues and customers have both experienced disruptions to the normal ways of working. At this time, our colleagues in most locations who are able to perform their job functions outside of our facilities continue to work remotely. Certain of our colleagues, primarily those in the Pfizer Global Supply and Worldwide Research and Development organizations, have roles for which their physical presence at our facilities is required to perform their job functions. These colleagues continue to report to work and are subject to strict protocols intended to reduce the risk of transmission, including social distancing, maintaining contact logs, increased cleaning and use of personal protective equipment as necessary. |
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| • | Our Sales and Marketing. We have experienced an impact on our sales and marketing activities due to widespread restrictions on in-person meetings with healthcare professionals and the refocused attention of the medical community on fighting COVID-19. Access to prescribers for sales force colleagues during the second quarter of 2020 was mixed, with those in most international markets able to meet with healthcare professionals for most of the quarter, while those in the U.S. were unable to meet in-person with healthcare professionals for nearly all of the quarter. At this time, no U.S. sales force colleagues are meeting in-person with healthcare professionals due to COVID-19-related safety concerns. We are actively reviewing and assessing epidemiological data and our colleagues remain ready to resume in-person engagements with healthcare professionals on a location-by-location basis as soon as it is safe to do so. |
As a result of the lower number of in-person meetings with prescribers and restrictions on patient movements due to government-mandated work-from-home or shelter-in-place policies, the rate of new prescriptions for certain products and of vaccination rates for most vaccines slowed in certain markets, which negatively impacted our second quarter 2020 financial results. These declines were partially offset by certain of our medicines and vaccines that saw increased demand in certain markets compared to the prior-year quarter, including Prevenar 13 for streptococcus pneumoniae in adults in international markets as well as certain sterile injectable products utilized in the intubation and ongoing treatment of mechanically-ventilated COVID-19 patients.
During the pandemic, we have adapted our promotional platform by amplifying our existing digital capabilities to reach healthcare professionals and customers to provide critical education and information, including increasing the scale of our remote engagement. All of our U.S. sales representatives are digitally enabled, and we are currently conducting virtual detailing and remote sampling, which has proven to be an efficient way to interact with healthcare providers during the crisis.
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| • | Our Manufacturing and Supply Chain.Our manufacturing and supply chain professionals have been working continuously in an effort to ensure continued patient access to our medicines and vaccines. Across our plant network, we have implemented our preparedness plan to control site operations. To date, we have not seen a significant disruption in our supply chain, and all of our manufacturing sites around the world have continued to operate at or near normal levels. So far, we have been able to mitigate distribution issues that have arisen, including by using newly available excess capacity in commercial airplanes to transport inventory. In addition, we have taken steps to scale up manufacturing operations at risk to accelerate our ability to supply a potential novel treatment or potential vaccine for COVID-19 if we receive regulatory approval. We are also committed to offering any excess manufacturing capacity and to potentially shifting production in order to support others’ efforts to manufacture any lifesaving breakthroughs that may be developed to combat COVID-19. |
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| • | Our Clinical Trials. After a brief pause to the recruitment portion of certain ongoing clinical studies and a delay to most new study starts, in late-April 2020 we restarted recruitment across the development portfolio, including new study starts. We continue to work closely with clinical trial sites to understand their needs and are performing remote monitoring, where appropriate, to oversee study conduct. In addition, processes to enable tele-health and home healthcare are being utilized where appropriate to continue the data collection process and support patient safety. |
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| • | Our Products. Our portfolio of products comprises medicines and vaccines which may experience varying impacts from the COVID-19 pandemic. Some of our products, such as Eliquis and Ibrance, are medically necessary but also more reliant on maintenance therapy with continuing patients in addition to new patients. Certain other products, such as Vyndaqel/Vyndamax, Chantix/Champix and products used in certain elective surgeries, are more reliant on new patient starts and typically require doctor visits, including wellness visits. Other medicines have been identified as medically necessary for treatment in the pandemic, such as certain of our Hospital sterile injectable products. A large proportion of our portfolio comprises oral or self-injected medicines that do not require a visit to an infusion center or a physician’s office for administration, but vaccines and physician-administered medicines which do require office visits were impacted by COVID-19-related mobility restrictions or limitations during the second quarter of 2020. Specialty pharmacy channels, from which we derive a majority of our revenue, enable direct delivery of these specialty medicines to patients. |
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| • | Our Financial Condition and Access to Capital Markets. Due to our significant operating cash flows, as well as our financial assets, access to capital markets and revolving credit agreements, we believe we have, and will maintain, the ability to meet liquidity needs for the foreseeable future. |
We will continue to pursue efforts to maintain the continuity of our operations while monitoring for new developments related to the COVID-19 pandemic, which are unpredictable. Future COVID-19 developments could result in additional favorable or unfavorable impacts on our business, operations or financial condition and results. If we experience significant disruption in our manufacturing or supply chains or significant disruptions in clinical trials or other operations, or if demand for our products is
ultimately significantly reduced as a result of the COVID-19 pandemic, we could experience a material adverse impact on our business, operations and financial condition and results. For additional information, please also see Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
For other global economic environment matters impacting our business, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment”section of our 2019 Financial Report.
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 20182019 Form 10-K.10-K and Part II, Item 1A, “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’sCompany’s purpose: Breakthroughs that change patients’ lives. By doing so, we expect to create value for the patients we serve and for our colleagues and shareholders. For a more comprehensive discussion of our strategy including additional discussion of certain items below, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Strategy”section of our 2019 Financial Report.
Organizing for Growth
We believe we have one of the strongest pipelines we have had in over a decade, and believe we are well positioned for future growth. Additional patent expiries will continue over several years, and we expect the impact of reduced revenues due to patent expiries will be significant in the rest of 2019 and in 2020, then moderating downward to a much lower level from 2021 through 2025. This confluence of events has givenprovided us an opportunity to look at and refine how we organize our business to best achieve sustainable growth and to deliver our medicines and vaccines to the maximum number of people who need them.
At the beginning of our fiscal year 2019, we began to manage our commercial operations through a new global structure consisting of three businesses, each led by a single manager—Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and, through July 31, 2019, Pfizer’s Consumer Healthcare business. We designed this new global structure to take advantage of new growth opportunities driven by the evolving and unique dynamics of relevant markets.
See the “Commercial Operations” section below for For additional information about each business.
Webusiness, see Notes to Condensed Consolidated Financial Statements—Note 14A. Segment, Geographic and Other Revenue Information: Segment Information. As part of our Organizing for Growth initiative, we also reorganized our R&D operations, as partexplained in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Strategy––Organizing for Growth” section of our Organizing for Growth reorganization:
The former Worldwide, Research and Development organization is renamed Worldwide Research, Development and Medical (WRDM) as we have created a new Worldwide Medical & Safety organization in WRDM that incorporates the former Chief Medical Office as well as the Worldwide Safety function;
The R&D organization within our former Essential Health business has been integrated into the WRDM, GPD and Upjohn organizations, including moving biosimilars into WRDM and GPD and realigning them with the relevant therapeutic areas (e.g., Oncology and Inflammation & Immunology);
The Regulatory function has been moved from the WRDM organization into the GPD organization; and
Late-stage portfolio spend has been moved from our former Innovative Health business to GPD and from our former Essential Health business to GPD and Upjohn.
We re-aligned our commercial operations in 2019 for a number of reasons, including:
Bringing biosimilars into our Oncology and Inflammation & Immunology therapeutic categories gives us the potential to leverage our R&D, regulatory and commercial infrastructure within the Biopharma business to more efficiently bring those assets to market;
Creating a business unit (i.e., the Hospital unit within Biopharma) that is solely focused on medicines that are used in hospitals can potentially bring greater focus and attention to serving those customers and developing those relationships;
Giving Upjohn more autonomy with a focus on maximizing the value of its products, particularly in emerging markets, provides it the opportunity to operate as a standalone business within Pfizer with the potential for sustainable modest growth; and
We believe this new structure better positions each business to achieve its growth potential as we transition to a period post-2020 where we expect higher and more sustained revenue growth due to declining LOEs and the potential of our late-stage pipeline.
Biopharma seeks to leverage a strong pipeline, organize around operational growth drivers, and capitalize on trends creating long-term growth opportunities, including:
an aging global population that is generating increased demand for innovative medicines that address patients’ unmet needs;
advances in both biological science and digital technology that are enhancing the delivery of breakthrough new medicines; and
the increasingly significant role of hospitals in healthcare systems.
Urbanization and the rise of the middle class in emerging markets, particularly in Asia, provide growth opportunities for the Upjohn business. Our ability to work collaboratively within local markets and to be fast, focused and flexible is intended to position this business to seize these opportunities. Upjohn has distinct and dedicated manufacturing, marketing, regulatory and, subject to limited exceptions, enabling functions that report directly into the business providing autonomy and positioning Upjohn to operate as a true stand-alone division. We created this new structure to, among other things, position Upjohn to optimize its distinct growth potential and provide us with the flexibility to access further opportunities to enhance value.Financial Report.
Subsequent to the re-alignment of our commercial operations in 2019, on July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company.company, Viatris. For additional information, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business Development Initiatives” section above in this MD&A. We believe the new company will transform and accelerate Upjohn’s and Mylan’s ability to serve patients’ needs and expand their capabilities across more than 165 markets. The combination will drive a sustainable, diverse and differentiated portfolio of prescription medicines, complex generics, over-the-counter products and biosimilars supported by commercial and regulatory expertise, established infrastructure, R&D capabilities and manufacturing and supply chain excellence.
As we prepare for expected growth, we are focused on creating a simpler, more efficient organization by streamlining structures, processes and governance within each business and the functions that support them. As our innovative pipeline matures based on anticipated progression of current trials and the initiation of new pivotal trials, including new trials for medicines we may acquire or in-license, 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. We have initiated an enterprise-wide digital effort to accelerate drug development, enhance experiences (patient and physician), and access and leverage technology and robotics to simplify and automate our processes.
InWith the formation of the GSK Consumer Healthcare joint venture and the anticipated combination of Upjohn, our global, primarily off-patent branded and generics business, with Mylan, Pfizer is transforming itself into a more focused, global leader in science-based innovative medicines. As a result, we began, in the fourth quarter of 2018,2019, to identify and undertake efforts to ensure our cost base aligns appropriately with our Biopharmaceutical revenue base, which is expected to be 20% less (based on
the midpoint of the range for 2020 New Pfizer revenue guidance, compared to 2019 Total Company reported revenue) as a result of both the completed GSK Consumer Healthcare and expected Upjohn transactions. While certain direct costs have transferred or will transfer to the GSK Consumer Healthcare joint venture and to the Upjohn entities, there are indirect costs which are not expected to transfer. In addition, we tookare taking steps to simplifyrestructure our organizations to appropriately support and drive the organization, increase spanspurpose of control and reduce organizational layers, which impacted some managerial roles and responsibilities. We also offered enhancements to certain employee benefits for a short period of time. The expenses related to these enhancements for certain employee benefits did not have a material impact on our 2018 results of operations and any expected future impact of these enhancements are reflected in the totalitythree core functions of our annual guidance for 2019. To partially offset the incremental cost increases of increasedfocused innovative medicines business: R&D, investmentsManufacturing and marketing activities in future periods, we expect to generate cost reduction opportunities, particularly in indirect SI&A.
Commercial Operations
As discussed under “Organizing for Growth”, at the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Biopharma, Upjohn and through July 31, 2019, Consumer Healthcare, each led by a single manager. Each operating segment has responsibility for its commercial activities. Upjohn and Consumer Healthcare are responsible for their own R&D activities while Biopharma receives its R&D services from GPD and WRDM. These services include IPR&D projects for new investigational products and additional indications for in-line products. Each business has a geographic footprint across developed and emerging markets.
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Some additional information about our Biopharma and Upjohn business segments follows: |
| Pfizer
Biopharmaceuticals
Group
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Biopharma is a science-based innovative medicines business that includes six business units – Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines and Internal Medicine. The new Hospital unit commercializes our global portfolio of sterile injectable and anti-infective medicines and includes Pfizer’s contract manufacturing operation, Pfizer CentreOne. At the beginning of our 2019 fiscal year, we also incorporated our biosimilar portfolio into our Oncology and Inflammation & Immunology business units and certain legacy established products into the Internal Medicine business unit. Each business unit is committed to delivering breakthroughs that change patients’ lives. | | Upjohn is a global, primarily off-patent branded and generic medicines business, which includes a portfolio of 20 globally recognized solid oral dose brands, as well as a U.S.-based generics platform, Greenstone.
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Select products include:
- Prevnar 13/Prevenar 13
- Ibrance
- Eliquis
- Xeljanz
- Enbrel (outside the U.S. and Canada)
- Chantix/Champix
- Sutent
- Xtandi
| | Select products include:
- Lyrica
- Lipitor
- Norvasc
- Celebrex
- Viagra
- Certain generic medicines
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On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company.Commercial. For additional information, see the “Our Strategy––Our Business Development Initiatives” section of this MD&A below.
On July 31, 2019, Pfizer’s Consumer Healthcare business, an over-the-counter medicines business, was combined with GSK’s consumer healthcare business to form a new consumer healthcare joint venture. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation and Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement:Equity-Method Investment and Assets and Liabilities Held for Sale.
For additional information about our operating structure, see Notes to Condensed Consolidated Financial Statements—Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.
For additional information about the 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
Innovation is critical to the success of our company, and drug discovery and development are time-consuming, expensive and unpredictable. Pfizer’s purpose is to deliver breakthroughs that change patients’ lives. R&D is at the heart of fulfilling Pfizer’s purpose as we work to translate advanced science and technologies into the therapies that matter most. Our R&D priorities include:
delivering a pipeline of highly differentiated medicines and vaccines where Pfizer has a unique opportunity to bring the most important new therapies to patients in need;
advancing our capabilities that can position Pfizer for long-term R&D leadership; and
advancing new models of partnerships with creativity, flexibility and urgency to deliver innovation to patients as quickly as possible.
To that end, our R&D primarily focuses on:
Oncology;
Inflammation and Immunology;
Rare Diseases;
Hospital;
Vaccines; and
Internal Medicine.
In 2019, 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 is positioned to 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 WRDM organization are generally responsible for research and early-stage development assets for our Biopharma business (assets that have not yet achieved proof-of-concept). Our Research Units are organized by therapeutic area to enhance flexibility, cohesiveness and focus. Because of our structure, we are able to rapidly redeploy resources within a Research Unit between various projects as necessary because in many instances the workforce shares similar skills, expertise and/or focus.
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 WRDM organization), such as Pharmaceutical Sciences, Medicine Design, and non-science-based functions, such as Facilities, Digital 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. In addition, the Worldwide Medical and Safety group ensures that Pfizer provides all stakeholders, including patients, healthcare providers, pharmacists, payers and health authorities with complete and up-to-date information on the risks and benefits associated with Pfizer products so that they can make appropriate decisions on how and when to use Pfizer’s medicines.
Our R&D organization within the Upjohn business supports the off-patent branded and generic established medicines and helps develop product enhancements, new indications and new market registrations based on these medicines.
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• | Our GPD organization is a unified center for clinical development and regulatory activities that is generally responsible for the clinical development strategy and operational execution of clinical trials for both early-stage assets in the WRDM portfolio as well as late-stage assets in the Biopharma portfolio. For WRDM assets, GPD works in close collaboration with the Early Clinical Development group, which has expertise in various disciplines such as Biostatistics, Clinical Pharmacology and Digital Medicine. GPD enables more efficient and effective development and enhances our ability to accelerate and progress assets through our pipeline. GPD also provides operational support to Upjohn for select clinical development and regulatory activities.
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We manage R&D operations on a total-company basis through our matrix organizations described above. Specifically, a portfolio governance committee, comprised of senior executives, is accountable for aligning resources among all of our WRDM, GPD and Biopharma 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 Upjohn R&D organization manages its resources separately from the WRDM 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 collaboration, alliance 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 or more 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 provide us the opportunity to advance our own products as well as the 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 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 vigorously defend our patent rights against increasingly aggressive infringement, 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, whenever appropriate. 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 always 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. Contingencies and Certain Commitments: Legal Proceedings––Patent Litigation. For information on risks related to patent protection and intellectual property claims by third parties, see Part I, Item 1A, “Risk Factors––Risks Related to Intellectual Property” in our 2018 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 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”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.&A.
Increasing Investment inOur Financial Guidance for 2020
On July 28, 2020, we increased our 2020 financial guidance for Total Company and New Pfizer revenues and Adjusted diluted EPS and reaffirmed all other financial guidance components.
The guidance reflects management’s current expectations for operational performance, foreign exchange rates as well as various COVID-19-related uncertainties, primarily those related to the U.S.––After evaluatingseverity, duration and global macroeconomic impact of the expected positive net impactpandemic. Key guidance assumptions regarding these uncertainties broadly reflect an ongoing, gradual global recovery from the TCJA will have on us, in early 2018, we decided to take several actions:
Overfirst half of 2020 macroeconomic and healthcare impacts of the five-year period from 2018 through 2022, 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:COVID-19 pandemic. Specific COVID-19-related assumptions include:
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◦▪ | Patient visits with physicians, vaccination rates and the number of elective surgical procedures will gradually increase from second-quarter 2020 levels, beginning in July 2018, we announced that wethe third quarter of 2020; |
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| ▪ | New-to-brand prescription trends for certain key products will increase our commitmentgradually improve from second-quarter 2020 levels, beginning in the third quarter of 2020; |
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| ▪ | Gradual improvement in access to U.S. manufacturing with a $465 million investment to build onehealthcare professionals for sales force colleagues; |
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| ▪ | Clinical trial enrollment, including new study starts, continues throughout the remainder 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 produce2020; |
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| ▪ | Pfizer’s manufacturing and supply critical, life-saving injectable medicines for patients around the world, creating an estimated 450 new jobs over the next several years;chain activities continue to not be materially disrupted; and |
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◦▪ | Pfizer’s investments in August 2019, we announced an additional half billion dollar investmentpotential treatments and a potential vaccine for the construction of a state-of-the-art gene therapy manufacturing facility in Sanford, North Carolina. This facility is anticipated to support our continuing investment in gene therapy R&D, similar to Pfizer’s Chapel Hill and Kit Creek, North Carolina R&D sites. This facility would expand our presence in North Carolina. The expanded facility is projected to add approximately 300 new jobs.COVID-19 continue throughout 2020. |
We madeHowever, updated financial guidance does not include any revenues from a $500 million voluntary contributionpotential COVID-19 vaccine.
Based on results to date and these assumptions for the U.S. Pfizer Consolidated Pension Plan in February 2018.
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 our businesses and their capabilities, such as our recently-announced agreement to combine Upjohn with Mylan, our acquisitions of Array, Medivation, Anacor and AstraZeneca’s small molecule anti-infectives business, as well as collaborations, and alliance and license agreements with other 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.
The more significant recent transactions and events are described below:
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• | License Agreement with Akcea Therapeutics, Inc.––In October 2019, we announced that we entered into a worldwide exclusive licensing agreement for AKCEA-ANGPTL3-LRx, an investigational antisense therapy being developed to treat patients with certain cardiovascular and metabolic diseases, with Akcea, a majority-owned affiliate of Ionis. Under the terms of the agreement, Akcea and Ionis will split equally a $250 million upfront license fee and will split equally development, regulatory and sales milestone payments of up to $1.3 billion and tiered, double-digit royalties on annual worldwide net sales upon marketing approval of AKCEA-ANGPTL3-LRx, if any. Pfizer is responsible for all development and regulatory activities and costs beyond those associated with the ongoing Phase 2 study. This transaction is expected to close in the fourth quarter of 2019 and is subject to clearance under the Hart-Scott Rodino Antitrust Improvements Act as well as satisfaction of other customary closing conditions.
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• | Formation of a New Consumer Healthcare Joint Venture––On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. The joint venture is a category leader in pain relief, respiratory and vitamins, minerals and supplements, and therapeutic oral health and is the largest global OTC consumer healthcare business. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation andNotes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement:Equity-Method Investment and Assets and Liabilities Held for Sale.
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• | Acquisition of Array BioPharma Inc.––On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). Array’s portfolio includes the approved combined use of Braftovi (encorafenib) and Mektovi (binimetinib) for the treatment of BRAFV600E- or BRAFV600K-mutant unresectable or metastatic melanoma. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation and Notes to Condensed Consolidated Financial Statements––Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions.
|
| |
• | Agreement to Combine Upjohn with Mylan N.V.––On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company. Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun-off or split-off to Pfizer’s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer and Pfizer shareholders. The transaction is anticipated to close in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals. See the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A for additional information.
|
| |
• | Acquisition of Therachon Holding AG––On July 1, 2019, we acquired all the remaining shares of Therachon, a privately-held clinical-stage biotechnology company focused on rare diseases, with assets in development for the treatment of achondroplasia, a genetic condition and the most common form of short-limbed dwarfism. We acquired Therachon for $340 million upfront, plus potential milestone payments of up to $470 million, contingent on the achievement of key milestones in the development and commercialization of the lead asset. The total fair value of the consideration transferred for Therachon was approximately $322 million. For additional information, see Notes to Condensed Consolidated Financial Statements––
|
Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions.
For a descriptionremainder of the more significant recent transactions through February 28, 2019, the filing date of our 2018 Form 10-K, see the “Our Strategy––Our Business Development Initiatives” section of our 2018 Financial Report.
Our Financial Guidance for 2019
On October 29, 2019, we updated our 2019year, Pfizer increased its 2020 financial guidance primarily to reflect ourfor Total Company revenues and Adjusted diluted EPS and reaffirmed all other Total Company financial results through the first nine months of 2019 and our confidence in the business going forward. We raised the midpoint of our 2019 guidance range for revenues by $200 million to a range of $51.2 to $52.2 billion, composed of $400 million of operational revenue improvement, partially offset by a $200 million unfavorable impact from changes in foreign exchange rates since mid-July 2019. We also increased the midpoint of our 2019 guidance range for Adjusted Diluted EPS by $0.16 to a range of $2.94 to $3.00, reflecting an $0.18 operational improvement, partially offset by a $0.02 unfavorable impact from changes in foreign exchange rates. The operational improvement primarily reflects the aforementioned improved revenue outlook as well as an improved outlook for Adjusted cost of sales as a percentage of revenues, driven by a more favorable product mix than previously anticipated.components.
|
| |
Pfizer’s updated 20192020 financial guidance is presented below(a), (b): |
| Revenues | $51.248.6 to $52.2$50.6 billion |
| | (previously $50.5$48.5 to $52.5$50.5 billion) |
| Adjusted cost of sales as a percentage of revenues | 19.3%19.5% to 19.8% |
| (previously 20.1% to 21.1%)20.5% |
| Adjusted selling, informational and administrative expenses | $13.511.5 to $14.0$12.5 billion |
| (previously $13.0 to $14.0 billion) |
| Adjusted research and development expenses | $7.78.6 to $8.1$9.0 billion |
| (previously $7.9 to $8.3 billion) |
| Adjusted other (income)/deductions | Approximately $200$800 million of income |
| Effective tax rate on adjusted income | Approximately 16.0%15.0% |
| Adjusted diluted EPS | $2.942.85 to $3.00$2.95 |
| | (previously $2.76$2.82 to $2.86)$2.92) |
| |
(a) | The 20192020 financial guidance reflects the following: |
Financial guidance for Total Company reflects a full-year 2020 contribution from Biopharma and Upjohn, the current construct of the company, and excludes any impact from the pending Upjohn combination with Mylan.
| |
| • | Does not assume the completion of any business development transactions not completed as of June 28, 2020, including any one-time upfront payments associated with such transactions.September 29, 2019. |
Includes revenues and expenses associated with Pfizer’s Consumer Healthcare business through July 31, 2019 as well as Pfizer’s pro rata share of the GSK Consumer Healthcare joint venture anticipated earnings, from the Consumer Healthcare JV with GSK from August 1, 2019, which will beis recorded on a quarterly basis in Adjusted other (income)/deductions. Pfizer will record its share of the JV’s anticipated earningsdeductions on a one-quarter lag; therefore, 2019lag. Therefore, 2020 financial guidance for Adjusted other (income)/deductions and Adjusted diluted EPS reflects Pfizer’s share of two months of the JV’sjoint venture’s earnings that are expected to bewere generated in third-quarterthe fourth quarter of 2019 which will be recordedand in the first quarter of 2020 (recorded by Pfizer in fourth-quarter 2019.the first six months of 2020) as well as Pfizer’s share of the joint venture’s projected earnings during the second and third quarters of 2020.
Reflects an anticipated negative revenue impact of $2.1$2.4 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.
Exchange rates assumed are a blend of the actual exchange rates in effect through third-quarter 2019second-quarter 2020 and mid-October 2019mid-July 2020 rates for the remainder of the year. ReflectsFinancial guidance reflects the anticipated unfavorable impact of approximately $1.4$0.6 billion on revenues and approximately $0.10$0.05 on adjustedAdjusted diluted EPS as a result of changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2018.2019.
Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 5.75.6 billion shares, which reflects the weighted-average impact ofassumes no share repurchases totaling $8.9 billion already completed in 2019. Dilution related to share-based employee compensation programs is currently expected to offset the reduction in shares associated with these share repurchases by approximately half.2020.
| |
(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. |
Beginning in 2020, Upjohn began managing Pfizer’s Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan are reported in Pfizer’s Upjohn business beginning in the first quarter of 2020.
Pfizer, Upjohn and Mylan agreed (simultaneous with their entry into the transaction agreements governing the proposed combination of Upjohn and Mylan) to review and negotiate in good faith a potential transfer of Pfizer’s Meridian Medical Technologies business (the Meridian Business) to Upjohn, such that it would be sold to Mylan in the pending transaction for the Upjohn business. The Meridian Business supplies EpiPen Auto-Injectors to Mylan under a supply agreement expiring December 31, 2020 (the EpiPen Supply Agreement). Instead of entering into an agreement to transfer the Meridian Business to Mylan, the parties have agreed to extend the EpiPen Supply Agreement for an additional four-year period through December 31, 2024, with an option for Mylan to further extend the term for an additional one-year period thereafter.
Pfizer and Mylan have also reached a preliminary agreement on the general terms under which Pfizer would transfer certain Pfizer assets that currently form part of the Mylan-Japan collaboration to Mylan or, following the proposed combination of Upjohn and Mylan, to Viatris. Any such proposed transaction would be subject to the finalization and execution of a definitive agreement that would contain customary closing conditions, including but not limited to, receipt of any necessary regulatory approvals. There can be no assurance that any agreement or transaction will result from these negotiations, and if the parties are unsuccessful in their efforts to negotiate the terms of such potential transactions, the Pfizer assets that currently form part of the Mylan-Japan collaboration will remain with Pfizer.
2020 Financial Guidance for New Pfizer
|
| |
2020 updated financial guidance for New Pfizer is presented below(a), (b): |
| Revenues | $40.8 to $42.4 billion |
| (previously $40.7 to $42.3 billion) |
Adjusted IBT Margin(c) | Approximately 37.0% |
| Adjusted Diluted EPS | $2.28 to $2.38 |
| (previously $2.25 to $2.35) |
Operating Cash Flow(d) | $10.0 to $11.0 billion |
| |
(a) | The financial guidance for New Pfizer reflects a full-year 2020 view of the company assuming the pending Upjohn combination with Mylan was completed at the beginning of 2020 and reflects contributions from the Biopharma business as it is presently being managed, which excludes contributions from Pfizer’s Meridian subsidiary and the Pfizer-Mylan strategic collaboration in Japan (Mylan-Japan). Pfizer’s Meridian subsidiary and Mylan-Japan were managed by Pfizer’s Biopharma business in 2019, but were moved to Upjohn in 2020. Financial guidance for New Pfizer also includes the full-year effect of the following items that assume the completion of the Upjohn combination with Mylan: (i) $12 billion of net proceeds from Upjohn to be retained by Pfizer, which Pfizer will use to repay its own existing indebtedness; and (ii) other transaction-related items, such as income from transition services agreements between Pfizer and Viatris. In addition, 2020 financial guidance for New Pfizer Adjusted IBT Margin and Adjusted diluted EPS reflects Pfizer’s share of the GSK Consumer Healthcare joint venture’s earnings that were generated in the fourth quarter of 2019 and in the first quarter of 2020 (recorded by Pfizer in the first six months of 2020), as well as Pfizer’s share of the GSK Consumer Healthcare joint venture’s projected earnings during the second and third quarters of 2020. |
| |
(b) | For additional information regarding 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. |
| |
(c) | Adjusted income before tax margin (Adjusted IBT margin) is defined as revenue less the sum of Adjusted cost of sales, Adjusted SI&A expenses, Adjusted R&D expenses, Adjusted amortization of intangible assets and Adjusted other (income)/deductions as a percentage of revenue. Adjusted IBT margin is presented because management believes this performance measure supplements investors’ and other readers’ understanding and assessment of the financial performance of New Pfizer. Adjusted IBT margin is not, and should not be viewed as, a substitute for U.S. GAAP income before tax margin. |
| |
(d) | Includes a $1.25 billion voluntary contribution to the U.S. qualified pension plans, planned for the second half of 2020. |
2020 Financial Guidance for Upjohn |
| |
2020 reaffirmed financial guidance for Upjohn is presented below(a): |
| Revenues | $8.0 to $8.5 billion |
Adjusted EBITDA(b) | $3.8 to $4.2 billion |
| |
(a) | Financial guidance for Upjohn reflects a full-year 2020 contribution from the Upjohn business as it is presently being managed, which includes contributions from Pfizer’s Meridian subsidiary and the Pfizer-Mylan strategic collaboration in Japan (Mylan-Japan). Pfizer’s Meridian subsidiary and Mylan-Japan were managed by Pfizer’s Biopharma business in 2019 but were moved to Upjohn in 2020. |
| |
(b) | Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) is defined as reported U.S. GAAP net income, and its components, adjusted for interest expense, provision for taxes on income and depreciation and amortization, further adjusted to exclude purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items (some of which may recur, such as gains on the completion of joint venture transactions, restructuring charges, legal charges or net gains and losses on equity securities, but which management does not believe are reflective of ongoing core operations). Adjusted EBITDA is presented because management believes this performance measure supplements investors’ and other readers’ understanding and assessment of the financial performance of Upjohn. Adjusted EBITDA as defined is not a measurement of financial performance under GAAP, and should not be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. |
Pfizer does not provide guidance for GAAP Reported financial measures (other than 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, net gains orand losses on investments infrom equity securities 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 2017-2019 initiatives and Organizing for Growth,Transforming to a More Focused Company program, 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 20192020 financial guidance is subject to a number of assumptions, as well as 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; and Part I, Item 1A, “Risk Factors” of our 20182019 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 20182019 Financial Report. 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: Acquisitions (Note 1D); Fair Value (Note 1E); Revenues (Note 1G );1G); Asset Impairments (Note 1L); Tax Assets and Liabilities and Income Tax Contingencies (Note 1P); Pension and Postretirement Benefit Plans (Note 1Q); and Legal and Environmental Contingencies (Note 1R).
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 20182019 Financial Report. See also Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions in our 20182019 Financial Report for a discussion about the risks associated with estimates and 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 in 2020 ,and Note 1C. Basis of Presentation and Significant Accounting Policies: Revenues and Trade Accounts Receivable and Note 1D. Basis of Presentation and Significant Accounting Policies: Leases.Receivable.
ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| | The following table provides the components of the condensed consolidated statements of income: | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA) | | September 29,
2019 |
| | September 30,
2018 |
| | % Change |
| | September 29,
2019 |
| | September 30,
2018 |
| | % Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change |
|
| Revenues | | $ | 12,680 |
| | $ | 13,298 |
| | (5 | ) | | $ | 39,062 |
| | $ | 39,670 |
| | (2 | ) | | $ | 11,801 |
| | $ | 13,264 |
| | (11 | ) | | $ | 23,829 |
| | $ | 26,382 |
| | (10 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales(a) | | 2,602 |
| | 2,694 |
| | (3 | ) | | 7,611 |
| | 8,173 |
| | (7 | ) | | 2,281 |
| | 2,576 |
| | (11 | ) | | 4,658 |
| | 5,009 |
| | (7 | ) |
| % of revenues | | 20.5 | % | | 20.3 | % | | |
| | 19.5 | % | | 20.6 | % | | |
| | 19.3 | % | | 19.4 | % | | |
| | 19.5 | % | | 19.0 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, informational and administrative expenses(a) | | 3,260 |
| | 3,494 |
| | (7 | ) | | 10,110 |
| | 10,448 |
| | (3 | ) | | 3,030 |
| | 3,511 |
| | (14 | ) | | 5,903 |
| | 6,850 |
| | (14 | ) |
| % of revenues | | 25.7 | % | | 26.3 | % | | |
| | 25.9 | % | | 26.3 | % | | |
| | 25.7 | % | | 26.5 | % | | |
| | 24.8 | % | | 26.0 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development expenses(a) | | 2,283 |
| | 2,008 |
| | 14 |
| | 5,827 |
| | 5,549 |
| | 5 |
| | 2,132 |
| | 1,842 |
| | 16 |
| | 3,856 |
| | 3,544 |
| | 9 |
|
| % of revenues | | 18.0 | % | | 15.1 | % | | |
| | 14.9 | % | | 14.0 | % | | |
| | 18.1 | % | | 13.9 | % | | |
| | 16.2 | % | | 13.4 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | | 1,212 |
| | 1,253 |
| | (3 | ) | | 3,578 |
| | 3,640 |
| | (2 | ) | | 905 |
| | 1,184 |
| | (24 | ) | | 1,790 |
| | 2,367 |
| | (24 | ) |
| % of revenues | | 9.6 | % | | 9.4 | % | | |
| | 9.2 | % | | 9.2 | % | | |
| | 7.7 | % | | 8.9 | % | | |
| | 7.5 | % | | 9.0 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructuring charges and certain acquisition-related costs | | 365 |
| | 85 |
| | * |
| | 295 |
| | 172 |
| | 72 |
| | 362 |
| | (115 | ) | | * |
| | 431 |
| | (69 | ) | | * |
|
| % of revenues | | 2.9 | % | | 0.6 | % | | |
| | 0.8 | % | | 0.4 | % | | |
| | 3.1 | % | | (0.9 | )% | | |
| | 1.8 | % | | (0.3 | )% | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (Gain) on completion of Consumer Healthcare JV transaction | | (8,087 | ) | | — |
| | * |
| | (8,087 | ) | | — |
| | * |
| | — |
| | — |
| | — |
| | (6 | ) | | — |
| | * |
|
| % of revenues | | 63.8 | % | | — |
| | * |
| | 20.7 | % | | — |
| | * |
| | — |
| | — |
| | | | — |
| | — |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other (income)/deductions––net | | 319 |
| | (414 | ) | | * |
| | 537 |
| | (1,143 | ) | | * |
| | (862 | ) | | 126 |
| | * |
| | (641 | ) | | 218 |
| | * |
|
| Income from continuing operations before provision for taxes on income | | 10,727 |
| | 4,177 |
| | * |
| | 19,190 |
| | 12,831 |
| | 50 |
| |
| Income from continuing operations before provision/(benefit) for taxes on income | | | 3,953 |
| | 4,141 |
| | (5 | ) | | 7,838 |
| | 8,463 |
| | (7 | ) |
| % of revenues | | 84.6 | % | | 31.4 | % | | |
| | 49.1 | % | | 32.3 | % | | |
| | 33.5 | % | | 31.2 | % | | |
| | 32.9 | % | | 32.1 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for taxes on income | | 3,047 |
| | 66 |
| | * |
| | 2,566 |
| | 1,270 |
| | * |
| |
| Provision/(benefit) for taxes on income | | | 519 |
| | (915 | ) | | * |
| | 993 |
| | (481 | ) | | * |
|
| Effective tax rate | | 28.4 | % | | 1.6 | % | | |
| | 13.4 | % | | 9.9 | % | | |
| | 13.1 | % | | (22.1 | )% | | |
| | 12.7 | % | | (5.7 | )% | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | 7,680 |
| | 4,111 |
| | 87 |
| | 16,625 |
| | 11,562 |
| | 44 |
| | 3,434 |
| | 5,056 |
| | (32 | ) | | 6,845 |
| | 8,945 |
| | (23 | ) |
| % of revenues | | 60.6 | % | | 30.9 | % | | |
| | 42.6 | % | | 29.1 | % | | |
| | 29.1 | % | | 38.1 | % | | |
| | 28.7 | % | | 33.9 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Discontinued operations––net of tax | | 4 |
| | 11 |
| | (66 | ) | | 4 |
| | 10 |
| | (61 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income before allocation to noncontrolling interests | | 7,684 |
| | 4,122 |
| | 86 |
| | 16,628 |
| | 11,571 |
| | 44 |
| | 3,434 |
| | 5,056 |
| | (32 | ) | | 6,845 |
| | 8,945 |
| | (23 | ) |
| % of revenues | | 60.6 | % | | 31.0 | % | | |
| | 42.6 | % | | 29.2 | % | | |
| | 29.1 | % | | 38.1 | % | | |
| | 28.7 | % | | 33.9 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Less: Net income attributable to noncontrolling interests | | 4 |
| | 8 |
| | (56 | ) | | 19 |
| | 25 |
| | (23 | ) | | 8 |
| | 10 |
| | (19 | ) | | 17 |
| | 15 |
| | 10 |
|
| Net income attributable to Pfizer Inc. | | $ | 7,680 |
| | $ | 4,114 |
| | 87 |
| | $ | 16,609 |
| | $ | 11,546 |
| | 44 |
| | $ | 3,426 |
| | $ | 5,046 |
| | (32 | ) | | $ | 6,828 |
| | $ | 8,929 |
| | (24 | ) |
| % of revenues | | 60.6 | % | | 30.9 | % | | |
| | 42.5 | % | | 29.1 | % | | |
| | 29.0 | % | | 38.0 | % | | |
| | 28.7 | % | | 33.8 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per common share––basic: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 1.38 |
| | $ | 0.70 |
| | 98 |
| | $ | 2.98 |
| | $ | 1.96 |
| | 52 |
| | $ | 0.62 |
| | $ | 0.91 |
| | (32 | ) | | $ | 1.23 |
| | $ | 1.59 |
| | (23 | ) |
| Net income attributable to Pfizer Inc. common shareholders | | $ | 1.38 |
| | $ | 0.70 |
| | 98 |
| | $ | 2.98 |
| | $ | 1.96 |
| | 52 |
| | $ | 0.62 |
| | $ | 0.91 |
| | (32 | ) | | $ | 1.23 |
| | $ | 1.59 |
| | (23 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings per common share––diluted: | | | | | | |
| | |
| | |
| | |
| | | | | | |
| | |
| | |
| | |
|
| Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 1.36 |
| | $ | 0.69 |
| | 98 |
| | $ | 2.92 |
| | $ | 1.92 |
| | 52 |
| | $ | 0.61 |
| | $ | 0.89 |
| | (31 | ) | | $ | 1.22 |
| | $ | 1.56 |
| | (22 | ) |
| Net income attributable to Pfizer Inc. common shareholders | | $ | 1.36 |
| | $ | 0.69 |
| | 98 |
| | $ | 2.92 |
| | $ | 1.92 |
| | 52 |
| | $ | 0.61 |
| | $ | 0.89 |
| | (31 | ) | | $ | 1.22 |
| | $ | 1.56 |
| | (22 | ) |
* CalculationIndicates calculation not meaningful or results areresult is 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. |
Revenues by Operating Segment and Geography
The following graphs show revenues by operating segment and geography:
ThirdSecond Quarter
|
| | |
20192020 Revenues by Geography | | % of Total |
| U.S. | | 46% |
| International | | 54% |
|
| | |
20182019 Revenues by Geography | | % of Total |
| U.S. | | 48% |
| International | | 52% |
First NineSix Months
|
| | |
| 2020 Revenues by Geography | | % of Total |
| U.S. | | 46% |
| International | | 54% |
|
| | |
| 2019 Revenues by Geography | | % of Total |
| U.S. | | 47% |
| International | | 53% |
|
| | |
2018 Revenues by Geography | | % of Total |
U.S. | | 48% |
International | | 52% |
| | 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) | | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | % Change in Revenues | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change in Revenues |
Operating Segments(a): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Biopharma | | $ | 10,108 |
| | $ | 9,422 |
| | $ | 5,218 |
| | $ | 4,684 |
| | $ | 4,890 |
| | $ | 4,738 |
| | 7 |
| | 11 |
| | 3 |
| | $ | 9,795 |
| | $ | 9,432 |
| | $ | 5,045 |
| | $ | 4,667 |
| | $ | 4,750 |
| | $ | 4,765 |
| | 4 |
| | 8 |
| | — |
|
| Upjohn | | 2,195 |
| | 3,036 |
| | 509 |
| | 1,231 |
| | 1,686 |
| | 1,805 |
| | (28 | ) | | (59 | ) | | (7 | ) | | 2,006 |
| | 2,970 |
| | 357 |
| | 1,245 |
| | 1,648 |
| | 1,725 |
| | (32 | ) | | (71 | ) | | (4 | ) |
| Consumer Healthcare | | 377 |
| | 839 |
| | 124 |
| | 445 |
| | 253 |
| | 394 |
| | (55 | ) | | (72 | ) | | (36 | ) | | — |
| | 862 |
| | — |
| | 423 |
| | — |
| | 439 |
| | (100 | ) | | (100 | ) | | (100 | ) |
| Total revenues | | $ | 12,680 |
| | $ | 13,298 |
| | $ | 5,850 |
| | $ | 6,361 |
| | $ | 6,830 |
| | $ | 6,937 |
| | (5 | ) | | (8 | ) | | (2 | ) | | $ | 11,801 |
| | $ | 13,264 |
| | $ | 5,402 |
| | $ | 6,335 |
| | $ | 6,399 |
| | $ | 6,929 |
| | (11 | ) | | (15 | ) | | (8 | ) |
| | | | Nine Months Ended | | Six 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) | | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | % Change in Revenues | | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change in Revenues |
Operating Segments(a): | | | | |
| | | | |
| | | | |
| | |
| | |
| | |
| | | | |
| | | | |
| | | | |
| | |
| | |
| | |
|
| Biopharma | | $ | 28,887 |
| | $ | 27,737 |
| | $ | 14,481 |
| | $ | 13,582 |
| | $ | 14,406 |
| | $ | 14,155 |
| | 4 |
| | 7 |
| | 2 |
| | $ | 19,802 |
| | $ | 18,477 |
| | $ | 10,258 |
| | $ | 9,128 |
| | $ | 9,544 |
| | $ | 9,349 |
| | 7 |
| | 12 |
| | 2 |
|
| Upjohn | | 8,077 |
| | 9,302 |
| | 2,891 |
| | 3,921 |
| | 5,186 |
| | 5,381 |
| | (13 | ) | | (26 | ) | | (4 | ) | | 4,027 |
| | 6,184 |
| | 795 |
| | 2,518 |
| | 3,232 |
| | 3,666 |
| | (35 | ) | | (68 | ) | | (12 | ) |
| Consumer Healthcare | | 2,098 |
| | 2,631 |
| | 988 |
| | 1,357 |
| | 1,110 |
| | 1,273 |
| | (20 | ) | | (27 | ) | | (13 | ) | | — |
| | 1,721 |
| | — |
| | 864 |
| | — |
| | 857 |
| | (100 | ) | | (100 | ) | | (100 | ) |
| Total revenues | | $ | 39,062 |
| | $ | 39,670 |
| | $ | 18,360 |
| | $ | 18,861 |
| | $ | 20,701 |
| | $ | 20,810 |
| | (2 | ) | | (3 | ) | | (1 | ) | | $ | 23,829 |
| | $ | 26,382 |
| | $ | 11,053 |
| | $ | 12,510 |
| | $ | 12,776 |
| | $ | 13,872 |
| | (10 | ) | | (12 | ) | | (8 | ) |
| |
(a) | For additional information about each operating segment, see the “Our Strategy––Commercial Operations” and “Analysis of Operating Segment Information” sectionssection of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A.14A. Segment, Geographic and Other Revenue Information: Segment Information. |
Third Quarterof2019 vs. ThirdSecond Quarter of 20182020 vs. Second Quarter of 2019
|
| | | | | | | | | | | | |
| The following provides an analysis of the worldwide change in revenues by geographic areas in the third quarter of 2019: |
| | | Three Months Ended September 29, 2019 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 621 |
| | $ | 323 |
| | $ | 298 |
|
| Higher revenues for the Hospital products business, primarily driven by continued growth from anti-infective products in China as well as the November 2018 U.S. launch of Panzyga | | 112 |
| | 54 |
| | 58 |
|
| Higher revenues for rare disease products driven by Vyndaqel following the U.S. launch in May 2019 for the treatment of transthyretin amyloid cardiomyopathy (ATTR-CM); and in international markets, primarily driven by continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe, as well as the March 2019 launch of the ATTR-CM indication in Japan, partially offset by lower revenues for the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix in the U.S. | | 86 |
| | 65 |
| | 21 |
|
| Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC, partially offset by the decline in other developed markets due to increased competition | | 70 |
| | 65 |
| | 4 |
|
| Growth from Biosimilars, primarily in the U.S. | | 44 |
| | 51 |
| | (7 | ) |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in July 2019 | | (687 | ) | | (675 | ) | | (12 | ) |
| Lower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK. As a result, third-quarter 2019 revenues reflect one month of Consumer Healthcare domestic operations and two months of Consumer Healthcare international operations | | (451 | ) | | (321 | ) | | (130 | ) |
| Lower revenues for Enbrel internationally, reflecting continued biosimilar competition in most developed Europe markets | | (99 | ) | | — |
| | (99 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to a recent generic entry, and for Relpax, driven by continued generic competition across developed markets | | (53 | ) | | (39 | ) | | (14 | ) |
| Lower revenues for Prevnar 13 in the U.S., primarily reflecting lower government purchases for the pediatric indication as well as the continued decline in revenues for the adult indication due to a declining “catch up” opportunity compared to the prior year quarter, partially offset by an increase in international revenues mostly due to higher volumes reflecting continued uptake following the 2017 launch in China, partially offset by the unfavorable impact of timing associated with government purchases for the pediatric indication in certain emerging markets | | (43 | ) | | (81 | ) | | 37 |
|
| Decline from Norvasc and Lipitor, primarily in China, driven by pricing pressures from the March 2019 government implementation of the VBP in certain cities. The decline in Lipitor was also due to discontinued sales in Saudi Arabia and lower volumes in Japan. The decline in Norvasc was also due to lower volumes in Japan and South Korea. These declines were partially offset by volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented | | (35 | ) | | 1 |
| | (36 | ) |
| Lower revenues for Viagra primarily in the U.S. resulting from the loss of exclusivity in December 2017 | | (14 | ) | | (11 | ) | | (3 | ) |
| Other operational factors, net | | 47 |
| | 57 |
| | (9 | ) |
| Operational growth/(decline), net | | (403 | ) | | (510 | ) | | 107 |
|
| | | | | | | |
| Unfavorable impact of foreign exchange | | (215 | ) | | — |
| | (215 | ) |
Revenues decrease | | $ | (618 | ) | | $ | (510 | ) | | $ | (107 | ) |
|
| | | | | | | | | | | | |
| The following provides an analysis of the worldwide change in revenues by geographic areas in the second quarter of 2020: |
| | | Three Months Ended June 28, 2020 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 351 |
| | $ | 192 |
| | $ | 159 |
|
| Higher revenues for the rare disease business driven by the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for ATTR-CM; and in international markets, primarily driven by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU | | 175 |
| | 128 |
| | 47 |
|
| Higher revenues for Inlyta, primarily in the U.S., driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC | | 93 |
| | 72 |
| | 21 |
|
| Higher revenues for Biosimilars, primarily in the U.S., driven by strong volume performance from Retacrit and new product launches | | 78 |
| | 55 |
| | 23 |
|
| Higher revenues for Xtandi primarily driven by continued strong demand in the metastatic and non-metastatic castration-resistant prostate cancer indications as well as the metastatic (mCSPC) castration-sensitive prostate cancer indication, which was approved in the U.S. in December 2019 | | 64 |
| | 64 |
| | — |
|
| Growth in revenues for Lipitor and Norvasc, reflecting significant revenue declines in the prior-year period associated with the VBP program in China, which was initially implemented in certain cities in March 2019, and expanded nationwide beginning in December 2019, resulting in significant volume and price erosion | | 55 |
| | 10 |
| | 45 |
|
| Lower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK. As a result, for the second quarter of 2019, revenues reflect three months of Consumer Healthcare segment operations, while for the second quarter of 2020, there is no contribution from the Consumer Healthcare business | | (862 | ) | | (423 | ) | | (439 | ) |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in the U.S. in July 2019 | | (826 | ) | | (784 | ) | | (42 | ) |
| Lower revenues for Enbrel internationally, primarily reflecting continued biosimilar competition in most developed Europe markets, as well as in Japan and Brazil, all of which is expected to continue | | (66 | ) | | — |
| | (66 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to multi-source generic competition | | (34 | ) | | (33 | ) | | (1 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues primarily in the U.S., reflecting the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations, partially offset by the favorable impact of timing associated with government purchases for the pediatric indication, compared to the prior-year period. The decline in the U.S. was partially offset by growth in international markets primarily reflecting significantly increased adult uptake in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China | | (28 | ) | | (132 | ) | | 103 |
|
| Other operational factors, net | | (185 | ) | | (82 | ) | | (103 | ) |
| Operational growth/(decline), net | | (1,186 | ) | | (933 | ) | | (253 | ) |
| | | | | | | |
| Unfavorable impact of foreign exchange | | (277 | ) | | — |
| | (277 | ) |
Revenues decrease | | $ | (1,463 | ) | | $ | (933 | ) | | $ | (530 | ) |
| |
(a) | Certain keykey brands represent Ibrance, Eliquis and Xeljanz. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Revenues for the second quarter of 2020 included an estimated net unfavorable impact of approximately $500 million, or 4%, due to COVID-19, primarily reflecting unfavorable disruptions to wellness visits for pediatric and adult patients in the U.S. and lower demand for certain products in China, partially offset by increased U.S. demand for certain sterile injectable products as well as increased adult demand for Prevenar 13 in certain international markets.
Emerging markets revenues increased $44decreased $303 million, or 1%10%, in the thirdsecond quarter of 20192020 to $2.8 billion from $3.1 billion in the second quarter of 2019, reflecting an operational increasedecrease of $180$95 million, or 6%3%, partially offset byand an unfavorable impact from foreign exchange of approximately 4%7%. The operational increasedecrease in emerging markets was primarily driven by Ibrance,lower revenues for
Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK and Sulperazon, in our Biopharma segment, partially offset primarily by growth from Prevenar 13 and Eliquis in our Biopharma segment and Lipitor and Norvasc in our Upjohn segment.
Revenues––First NineSix Months of 20192020 vs. First NineSix Months of 20182019
|
| | | | | | | | | | | | |
| The following provides an analysis of the change in worldwide revenues by geographic areas in the first nine months of 2019: |
| | | Nine Months Ended September 29, 2019 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 1,978 |
| | $ | 761 |
| | $ | 1,216 |
|
| Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC, partially offset by the decline in other developed markets due to increased competition | | 100 |
| | 97 |
| | 3 |
|
| Higher revenues for Biosimilars, primarily in the U.S. | | 95 |
| | 112 |
| | (18 | ) |
| Volume-driven growth from Celebrex and Effexor, primarily in Japan and China | | 68 |
| | (6 | ) | | 74 |
|
| Growth from Lipitor, primarily due to volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented, partially offset by pricing pressures for Lipitor and Norvasc from the implementation of the VBP in certain cities in China, lower volumes in Japan for Norvasc and the discontinued sales of Lipitor in Saudi Arabia | | 37 |
| | (7 | ) | | 44 |
|
| Higher revenues for rare disease products driven by Vyndaqel following the U.S. launch in May 2019 for the treatment of transthyretin amyloid cardiomyopathy (ATTR-CM); and in international markets, primarily driven by continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe, as well as the March 2019 launch of the ATTR-CM indication in Japan, partially offset by lower revenues for certain rare disease products, including the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix | | 21 |
| | 26 |
| | (5 | ) |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in July 2019 | | (736 | ) | | (719 | ) | | (17 | ) |
| Lower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK. As a result, the first nine months of 2019 revenues reflect seven months of Consumer Healthcare domestic operations and eight months of Consumer Healthcare international operations | | (462 | ) | | (370 | ) | | (93 | ) |
| Lower revenues for Enbrel internationally, reflecting continued biosimilar competition in most developed Europe markets | | (200 | ) | | — |
| | (200 | ) |
| Lower revenues for Viagra and Upjohn’s authorized generic for Viagra in the U.S. resulting from increased generic competition | | (181 | ) | | (191 | ) | | 9 |
|
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to a recent generic entry, and for Relpax, driven by continued generic competition across developed markets | | (98 | ) | | (67 | ) | | (31 | ) |
| Lower revenues for the Hospital products business, primarily reflecting declines in developed markets, mostly due to the continued expected negative impact from generic competition for products that have previously lost marketing exclusivity, partially offset by continued growth from anti-infective products in China as well as the 2018 U.S. launches of our immune globulin intravenous products (Panzyga and Octagam) | | (46 | ) | | (91 | ) | | 45 |
|
| Other operational factors, net | | 10 |
| | (47 | ) | | 56 |
|
| Operational growth/(decline), net | | 586 |
| | (500 | ) | | 1,085 |
|
| | | | | | | |
| Unfavorable impact of foreign exchange | | (1,194 | ) | | — |
| | (1,194 | ) |
Revenues decrease | | $ | (609 | ) | | $ | (500 | ) | | $ | (108 | ) |
|
| | | | | | | | | | | | |
| The following provides an analysis of the change in worldwide revenues by geographic areas in the first six months of 2020: |
| | | Six Months Ended June 28, 2020 |
| (MILLIONS OF DOLLARS) | | Worldwide | | U.S. | | International |
| Operational growth/(decline): | | | | | | |
Continued growth from certain key brands(a) | | $ | 812 |
| | $ | 494 |
| | $ | 318 |
|
| Higher revenues for the rare disease business driven by the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for ATTR-CM; and in international markets, primarily driven by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU | | 353 |
| | 268 |
| | 85 |
|
| Higher revenues for the Hospital business in the U.S., primarily driven by increased demand for certain sterile injectable products utilized in the intubation and ongoing treatment of mechanically-ventilated COVID-19 patients as well as continued growth from Panzyga following its November 2018 U.S. launch | | 212 |
| | 207 |
| | 6 |
|
| Higher revenues for Inlyta, primarily in the U.S., driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC | | 191 |
| | 155 |
| | 35 |
|
| Higher revenues for Biosimilars, primarily in the U.S., driven by strong volume performance from Retacrit, new product launches and steady volume and share growth in the U.S. for Inflectra, across hospital channels, clinics and alternate sites of care | | 190 |
| | 149 |
| | 41 |
|
| Higher revenues for Xtandi primarily driven by continued strong demand in the metastatic and non-metastatic castration-resistant prostate cancer indications as well as the metastatic (mCSPC) castration-sensitive prostate cancer indication, which was approved in the U.S. in December 2019 | | 106 |
| | 106 |
| | — |
|
| Lower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK. As a result, for the first six months of 2019, revenues reflect six months of Consumer Healthcare segment operations, while for the first six months of 2020, there is no contribution from the Consumer Healthcare business | | (1,721 | ) | | (864 | ) | | (857 | ) |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in the U.S. in July 2019 | | (1,655 | ) | | (1,592 | ) | | (63 | ) |
| Declines in revenues for Lipitor and Norvasc, primarily resulting from the VBP program in China, which was initially implemented in certain cities in March 2019, and expanded nationwide beginning in December 2019, resulting in significant volume and price erosion | | (254 | ) | | 12 |
| | (266 | ) |
| Lower revenues for Enbrel internationally, primarily reflecting continued biosimilar competition in most developed Europe markets, as well as in Brazil and Japan, all of which is expected to continue | | (159 | ) | | — |
| | (159 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to multi-source generic competition | | (58 | ) | | (55 | ) | | (2 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues primarily in the U.S., reflecting the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations, partially offset by the favorable impact of timing associated with government purchases for the pediatric indication, compared to the prior-year period. The decline in the U.S. was partially offset by growth in international markets primarily reflecting significantly increased adult uptake in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China | | (47 | ) | | (215 | ) | | 169 |
|
| Other operational factors, net | | (113 | ) | | (121 | ) | | 8 |
|
| Operational growth/(decline), net | | (2,141 | ) | | (1,457 | ) | | (684 | ) |
| | | | | | | |
| Unfavorable impact of foreign exchange | | (411 | ) | | — |
| | (411 | ) |
Revenues decrease | | $ | (2,552 | ) | | $ | (1,457 | ) | | $ | (1,096 | ) |
| |
(a) | Certain keykey brands represent Ibrance, Eliquis Xeljanz and Prevnar 13/Prevenar 13.Xeljanz. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Revenues for the first six months of 2020 included an estimated net unfavorable impact of approximately $350 million, or 1%, due to COVID-19, primarily reflecting unfavorable disruptions to wellness visits for pediatric and adult patients in the U.S. and lower demand for certain products in China, partially offset by increased U.S. demand for certain sterile injectable products as well as increased adult demand for Prevenar 13 in certain international markets.
Emerging markets revenues increased $135decreased $624 million, or 1%10%, in the first ninesix months of 20192020 to $9.5$5.8 billion from $9.4$6.4 billion in the first six months of 2019, reflecting an operational increasedecrease of $839$328 million, or 9%5%. Foreign exchange had an unfavorable impact of approximately 8%5% on emerging markets revenues. The operational increasedecrease in emerging markets was primarily driven by Prevenar 13, Ibrance and Eliquis in our Biopharma segment andlower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK, Lipitor Viagra, Celebrex and Norvasc in our Upjohn segment and Sulperazon in our Biopharma segment, partially offset by growth from Prevenar 13, Eliquis, certain anti-infective products, primarily Zavicefta and Zithromax, Ibrance and Xalkori in our Biopharma segment.
Revenue Deductions
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 isare 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.
| | The following table provides information about revenue deductions: | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
Medicare rebates(a) | | $ | 295 |
| | $ | 443 |
| | $ | 1,080 |
| | $ | 1,266 |
| | $ | 164 |
| | $ | 351 |
| | $ | 359 |
| | $ | 785 |
|
Medicaid and related state program rebates(a) | | 503 |
| | 502 |
|
| 1,531 |
| | 1,500 |
| | 317 |
| | 459 |
|
| 634 |
| | 1,028 |
|
Performance-based contract rebates(a), (b) | | 923 |
| | 854 |
|
| 2,784 |
| | 2,467 |
| | 972 |
| | 972 |
|
| 1,882 |
| | 1,861 |
|
Chargebacks(c) | | 1,328 |
| | 1,654 |
|
| 4,252 |
| | 4,850 |
| | 1,368 |
| | 1,368 |
|
| 2,787 |
| | 2,924 |
|
Sales allowances(d) | | 1,350 |
| | 1,448 |
|
| 4,164 |
| | 4,142 |
| | 1,236 |
| | 1,454 |
|
| 2,666 |
| | 2,814 |
|
| Sales returns and cash discounts | | 262 |
| | 358 |
| | 1,065 |
| | 1,067 |
| | 271 |
| | 477 |
| | 542 |
| | 804 |
|
Total(e) | | $ | 4,660 |
| | $ | 5,259 |
| | $ | 14,875 |
| | $ | 15,292 |
| | $ | 4,329 |
| | $ | 5,082 |
| | $ | 8,871 |
| | $ | 10,216 |
|
| |
(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 29,June 28, 2020, associated with the following segments: Biopharma ($3.2 billion) and Upjohn ($1.1 billion). For the three months ended June 30, 2019, associated with the following segments: Biopharma ($3.0 billion), Upjohn ($1.6 billion) and Other ($0.1 billion). For the three months ended September 30, 2018, associated with the following segments: Biopharma ($2.6 billion), Upjohn ($2.51.9 billion) and Other ($0.2 billion). For the ninesix months ended September 29,June 28, 2020, associated with the following segments: Biopharma ($6.6 billion) and Upjohn ($2.3 billion). For the six months ended June 30, 2019, associated with the following segments: Biopharma ($8.75.7 billion), Upjohn ($5.84.2 billion) and Other ($0.4 billion). For the nine months ended September 30, 2018, associated with the following segments: Biopharma ($7.4 billion), Upjohn ($7.4 billion) and Other ($0.50.3 billion). |
Total revenue deductions for the thirdsecond quarter of 20192020 decreased 11%15%, compared to the thirdsecond quarter of 20182019, and total revenue deductions for the first ninesix months of 20192020 decreased 3%13%, compared to the first ninesix months of 20182019, primarily as a result of:
a decrease in chargebacks, primarily related to Upjohn products, including ViagraMedicaid and Lyrica; and
a decrease in Medicare rebates, driven by a significant decrease in Lyrica sales in the U.S., due to multi-source generic competition that began in July 2019,2019; and
partially offset by:
an increasea decrease in performance-based contract rebates,sales returns and cash discounts, primarily due to the non-recurrence of a sales return reserve recorded for Lyrica in the prior year in advance of anticipated multi-source generic competition that began in the U.S. due to increased sales of certain Biopharma products, slightly offset by decreased Lyrica sales.in July 2019.
For 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, including the balance sheet classification of these accruals, see Notes to Condensed Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Revenues and Trade Accounts Receivable.
Revenues––Selected Product Discussion
The tables below provide worldwide revenues and 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 (Biopharma):
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Nine Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
| U.S. |
| $ | 1,008 |
|
| $ | 1,089 |
|
| (7 | ) |
|
|
|
| $ | 2,498 |
|
| $ | 2,597 |
|
| (4 | ) |
|
|
| International |
| 595 |
|
| 571 |
|
| 4 |
|
| 7 |
|
| 1,770 |
|
| 1,694 |
|
| 4 |
|
| 9 |
| Worldwide revenues |
| $ | 1,603 |
|
| $ | 1,660 |
|
| (3 | ) |
| (3 | ) |
| $ | 4,268 |
|
| $ | 4,290 |
|
| (1 | ) |
| 1 |
The declines in the third quarter and first nine months of 2019 in the U.S. primarily reflect lower government purchases for the pediatric indication as well as the continued decline in revenues for the adult indication 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 aged 65 years and older who have not been previously vaccinated with Prevnar 13).
The operational growth in the third quarter of 2019 internationally was mostly due to higher volumes reflecting continued uptake following the 2017 launch in China, partially offset by the unfavorable impact of timing associated with government purchases for the pediatric indication in certain emerging markets.
The operational growth in the first nine months of 2019 internationally was primarily due to higher volumes resulting from increased shipments associated with Gavi, the Vaccine Alliance, and higher volumes reflecting continued uptake following the second quarter 2017 launch in China, partially offset by the non-recurrence of volumes associated with an adult national immunization program in first quarter of 2018.
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. The CDC regularly monitors the impact of vaccination and reviews the recommendations. During the February 2019 ACIP meeting, the CDC presented a formal evaluation of evidence to the recommendation framework (grading) for ACIP’s input. On June 26, 2019, the ACIP voted to revise the pneumococcal vaccination guidelines and recommend Prevnar 13 for adults 65 and older based on the shared clinical decision making of the provider and patient, which means the decision to vaccinate should be made at the individual level between health care providers and their patients, maintaining reimbursement. This revised recommendation reaffirms that there remains vaccine preventable pneumococcal disease in the population of adults 65 years or older, which may be prevented through direct vaccination, and we expect the ACIP’s provisional recommendation to be approved by the directors at the CDC and U.S. Department of Health and Human Services, and is expected to be published by the CDC in the Morbidity and Mortality Weekly Report in the fourth quarter of 2019. We do not expect the ACIP’s latest recommendation will have a significant impact on Prevnar 13 revenues for the remainder of 2019.
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | 832 |
| | $ | 708 |
| | 18 | | | | $ | 2,405 |
| | $ | 2,178 |
| | 10 | | | | $ | 927 |
| | $ | 831 |
| | 11 |
| | | | $ | 1,779 |
| | $ | 1,572 |
| | 13 | | |
| International | | 451 |
| | 317 |
| | 42 | | 48 | | 1,273 |
| | 807 |
| | 58 | | 70 | | 422 |
| | 430 |
| | (2 | ) | | 3 | | 819 |
| | 822 |
| | — | | 4 |
| Worldwide revenues | | $ | 1,283 |
| | $ | 1,025 |
| | 25 | | 27 | | $ | 3,677 |
| | $ | 2,985 |
| | 23 | | 27 | | $ | 1,349 |
| | $ | 1,261 |
| | 7 |
| | 9 | | $ | 2,598 |
| | $ | 2,394 |
| | 9 | | 10 |
OperationalThe operational growth in international markets reflects the continued strong uptake in developed Europesecond quarter and Japan as well as in certain emerging markets following launches. The growthfirst six months of 2020 in the U.S. was mainly driven by increased cyclin-dependent kinase (CDK) class share growthpenetration and Ibrance’s continued CDK classmarket share leadership in its approved metastatic breast cancer indications.cancer. The operational growth in the second quarter and first six months of 2020 internationally reflects the continued strong volume growth in most markets, partially offset by pricing pressures in certain developed Europe markets.
| |
| • | Eliquis alliance revenues and direct sales (Biopharma): 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 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. |
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | 541 |
| | $ | 455 |
| | 19 | | | | $ | 1,768 |
| | $ | 1,371 |
| | 29 | | | | $ | 722 |
| | $ | 626 |
| | 15 | | | | $ | 1,527 |
| | $ | 1,227 |
| | 24 | | |
| International | | 484 |
| | 416 |
| | 16 | | 20 | | 1,353 |
| | 1,153 |
| | 17 | | 24 | | 550 |
| | 459 |
| | 20 | | 25 | | 1,045 |
| | 869 |
| | 20 | | 24 |
| Worldwide revenues | | $ | 1,025 |
| | $ | 870 |
| | 18 | | 20 | | $ | 3,121 |
| | $ | 2,524 |
| | 24 | | 27 | | $ | 1,272 |
| | $ | 1,085 |
| | 17 | | 19 | | $ | 2,572 |
| | $ | 2,096 |
| | 23 | | 24 |
The worldwide operational growth in the thirdsecond quarter and first ninesix months of 20192020 was mostlyprimarily driven by higher demand due to continued increased adoption in non-valvular atrial fibrillation as well as oral anti-coagulant market share gains, partially offset by a higher Medicare “coverage gap” discount provision onlower net price. In the second quarter of 2020, U.S. revenuesgrowth was also unfavorably impacted by a lower net price and COVID-19-related wholesaler buying patterns.
| |
| • | Prevnar 13/Prevenar 13 (Biopharma): |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
|
| Oper. |
|
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
|
| Oper. |
|
| U.S. |
| $ | 481 |
|
| $ | 612 |
|
| (22 | ) |
|
|
|
| $ | 1,275 |
|
| $ | 1,490 |
|
| (14 | ) |
|
|
|
| International |
| 636 |
|
| 567 |
|
| 12 |
|
| 18 |
|
| 1,291 |
|
| 1,175 |
|
| 10 |
|
| 14 |
|
| Worldwide revenues |
| $ | 1,116 |
|
| $ | 1,179 |
|
| (5 | ) |
| (2 | ) |
| $ | 2,566 |
|
| $ | 2,665 |
|
| (4 | ) |
| (2 | ) |
The decline in the second quarter and first six months of 2020 in the U.S. primarily reflects the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations, partially offset by the favorable impact of timing associated with government purchases for the pediatric indication, compared to the priorprior-year period.
The operational growth in the second quarter and first six months of 2020 internationally primarily reflects significantly increased adult uptake in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China.
On June 26, 2019, the ACIP voted to revise the pneumococcal vaccination guidelines and recommend Prevnar 13 for adults 65 and older based on the shared clinical decision making of the provider and patient, which means the decision to
vaccinate should be made at the individual level between health care providers and their patients, maintaining reimbursement. The recommendation reaffirms that there remains vaccine preventable pneumococcal disease in the population of adults 65 years or older, which may be prevented through direct vaccination. The ACIP’s recommendation was approved by the directors at the CDC and U.S. Department of Health and Human Services, and published by the CDC in the Morbidity and Mortality Weekly Report in the fourth quarter of 2019. The ACIP’s latest recommendation did not have an impact on Prevnar 13 revenues in 2019, due to timing of the Morbidity and Mortality Weekly Report publication, nor was there impact in the first half of 2020. We expect Prevnar 13 revenues from the adult indication to decline through the remainder of the year.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| U.S. | | $ | 458 |
| | $ | 458 |
| | — | | | | $ | 744 |
| | $ | 756 |
| | (2 | ) | | |
| International | | 177 |
| | 155 |
| | 14 | | 20 | | 343 |
| | 279 |
| | 23 |
| | 28 |
| Worldwide revenues | | $ | 635 |
| | $ | 613 |
| | 4 | | 5 | | $ | 1,086 |
| | $ | 1,036 |
| | 5 |
| | 6 |
U.S. revenue was flat in the second quarter of 2020 and declined in the first six months of 2020 primarily due to a lower net price due to higher rebating from commercial contracts signed in 2019. These declines were offset by continued strong demand across all approved indications.
The operational growth internationally in the second quarter and first six months of 2020 was mainly driven by continued uptake in the RA indication and, to a lesser extent, from the recent launch of the UC indication in certain developed markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
| Oper. |
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
|
| Oper. |
|
| U.S. |
| $ | 43 |
|
| $ | 30 |
|
| 44 |
|
|
| $ | 67 |
|
| $ | 51 |
|
| 33 |
|
|
|
|
| International |
| 388 |
|
| 377 |
|
| 3 |
| 7 |
| 768 |
|
| 979 |
|
| (21 | ) |
| (19 | ) |
| Worldwide revenues |
| $ | 431 |
|
| $ | 407 |
|
| 6 |
| 10 |
| $ | 836 |
|
| $ | 1,029 |
|
| (19 | ) |
| (16 | ) |
The worldwide operational growth in the second quarter primarily reflects significant revenue declines in the prior-year period associated with the VBP program in China, which was initially implemented in certain cities in March 2019, and expanded nationwide beginning in December 2019, resulting in significant volume and price erosion. The worldwide operational decline in the first six months of 2020 primarily resulted from the VBP program mentioned above.
| | | |
| Three Months Ended |
| Nine Months Ended | | Three Months Ended | | Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. |
| $ | 200 |
|
| $ | 875 |
|
| (77 | ) |
|
|
|
| $ | 1,924 |
|
| $ | 2,643 |
|
| (27 | ) |
|
|
| | $ | 51 |
| | $ | 835 |
| | (94 | ) | | | | $ | 132 |
| | $ | 1,724 |
| | (92 | ) | | |
| International |
| 326 |
|
| 338 |
|
| (4 | ) |
| (4 | ) |
| 964 |
|
| 1,006 |
|
| (4 | ) |
| (2 | ) | | 298 |
| | 340 |
| | (13 | ) | | (12 | ) | | 574 |
| | 638 |
| | (10 | ) | | (10 | ) |
| Worldwide revenues |
| $ | 527 |
|
| $ | 1,213 |
|
| (57 | ) |
| (57 | ) |
| $ | 2,888 |
|
| $ | 3,649 |
|
| (21 | ) |
| (20 | ) | | $ | 349 |
| | $ | 1,175 |
| | (70 | ) | | (70 | ) | | $ | 706 |
| | $ | 2,362 |
| | (70 | ) | | (70 | ) |
The declinesworldwide decline in the thirdsecond quarter and first ninesix months of 20192020 inwas primarily driven by the U.S. were due to the expected significantly lower volumes driven by multi-source generic competition whichthat began in July 2019.
The operational decline internationally in the third quarter of 2019 was mostly due to generic competition in developed Europe markets. The operational decline internationally in the first nine months of 2019 was primarily due to generic competition in developed Europe markets and pricing pressures across international markets, partially offset by increased volumes in Japan attributable to growth in the orally dissolving tablet formulation, and increased volumes in Russia and China.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. |
| U.S. | | $ | 444 |
| | $ | 332 |
| | 34 | | | | $ | 1,201 |
| | $ | 964 |
| | 25 | | |
| International | | 154 |
| | 100 |
| | 54 | | 61 | | 434 |
| | 256 |
| | 69 | | 83 |
| Worldwide revenues | | $ | 599 |
| | $ | 432 |
| | 38 | | 40 | | $ | 1,634 |
| | $ | 1,221 |
| | 34 | | 37 |
The growth in the U.S. in the third quarter and first nine months of 2019 was primarily due to continued growth in the RA indication driven by access improvements, and by volume growth from the launches of the UC and PsA indications in 2018, partially offset by higher rebating from new commercial contracts. The third quarter of 2019 also benefited from the non-recurrence of a one-time true-up payment in the prior year quarter for improved access with one customer.
The operational growth internationally in the third quarter and first nine months of 2019 was mainly driven by continued uptake in the RA indication in developed Europe, emerging markets, Japan and Canada as well as from the recent launch of the UC indication in certain developed markets.
In July 2019, the FDA updated the U.S. prescribing information for Xeljanz to include two additional boxed warnings as well as changes to the indication and dosing for UC. These updates were based on the FDA’s review of data from the ongoing post-marketing requirement RA study A3921133. While we expect these updates to have an impact on prescribing, we expect Xeljanz to continue to grow globally across all indications due to improved access and reimbursement and due to the high unmet need for these disease states. See the “Analysis of Condensed Consolidated Statements of Income—Product Development—Biopharmaceuticals” section of this MD&A.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Nine Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
| U.S. |
| $ | 25 |
|
| $ | 25 |
|
| 1 |
|
|
|
|
| $ | 76 |
|
| $ | 86 |
|
| (12 | ) |
|
|
| International |
| 451 |
|
| 482 |
|
| (6 | ) |
| (3 | ) |
| 1,430 |
|
| 1,453 |
|
| (2 | ) |
| 4 |
| Worldwide revenues |
| $ | 476 |
|
| $ | 507 |
|
| (6 | ) |
| (3 | ) |
| $ | 1,506 |
|
| $ | 1,539 |
|
| (2 | ) |
| 3 |
The worldwide operational decline in the third quarter of 2019 was primarily driven by pricing pressures in China resulting from the March 2019 government implementation of the VBP in certain cities, discontinued sales in Saudi Arabia and lower volumes in Japan, partially offset by volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented. The worldwide operational growth in the first nine months of 2019 was mostly due to overall increased demand in China in the first quarter of 2019 and continued geographic expansion during the third quarter in provinces where the VBP program has not yet been implemented, partially offset by pricing pressures in China resulting from the VBP implementation in certain cities and discontinued sales in Saudi Arabia.2019.
| |
| • | Enbrel (Biopharma, outside the U.S. and Canada): |
| | | |
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
|
| Oper. |
|
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
|
| Oper. |
|
| U.S. |
| $ | — |
|
| $ | — |
|
| — |
|
|
|
|
| $ | — |
|
| $ | — |
|
| — |
|
|
|
|
| $ | — |
|
| $ | — |
|
| — |
|
|
|
|
| $ | — |
|
| $ | — |
|
| — |
|
|
|
|
| International |
| 415 |
|
| 531 |
|
| (22 | ) |
| (19 | ) |
| 1,285 |
|
| 1,589 |
|
| (19 | ) |
| (13 | ) |
| 337 |
|
| 420 |
|
| (20 | ) |
| (16 | ) |
| 684 |
|
| 871 |
|
| (21 | ) |
| (18 | ) |
| Worldwide revenues |
| $ | 415 |
|
| $ | 531 |
|
| (22 | ) |
| (19 | ) |
| $ | 1,285 |
|
| $ | 1,589 |
|
| (19 | ) |
| (13 | ) |
| $ | 337 |
|
| $ | 420 |
|
| (20 | ) |
| (16 | ) |
| $ | 684 |
|
| $ | 871 |
|
| (21 | ) |
| (18 | ) |
The worldwide operational declinesdecline in the thirdsecond quarter and first ninesix months of 20192020 werewas primarily due to ongoingcontinued biosimilar competition in most developed Europe markets as well as in Brazil and Japan, all of which is expected to continue.
| |
| • | Vyndaqel/Vyndamax (Biopharma): |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | 145 |
| | $ | 8 |
| | * | | | | $ | 272 |
| | $ | 8 |
| | * | | |
| International | | 131 |
| | 55 |
| | * | | * | | 236 |
| | 96 |
| | * | | * |
| Worldwide revenues | | $ | 277 |
| | $ | 63 |
| | * | | * | | $ | 508 |
| | $ | 104 |
| | * | | * |
The growth in the U.S. in the second quarter and first six months of 2020 was driven by the launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for the treatment of ATTR-CM. The operational growth in international markets in the second quarter and first six months of 2020 was primarily driven by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU.
| |
| • | Chantix/Champix (Biopharma): |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 227 |
| | $ | 197 |
| | 15 |
| | | | $ | 666 |
| | $ | 602 |
| | 11 |
| | |
| International | | 49 |
| | 64 |
| | (22 | ) | | (20 | ) | | 159 |
| | 187 |
| | (15 | ) | | (10 | ) |
| Worldwide revenues | | $ | 276 |
| | $ | 261 |
| | 6 |
| | 7 |
| | $ | 825 |
| | $ | 789 |
| | 5 |
| | 6 |
|
The growth in the U.S. in the third quarter and first nine months of 2019 was primarily due to favorable channel mix. The operational declines internationally in the third quarter and first nine months of 2019 were mainly driven by generic entry in South Korea and Canada.
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 9 |
| | $ | 9 |
| | 5 |
| | | | $ | 30 |
| | $ | 27 |
| | 11 |
| | | | $ | 179 |
| | $ | 227 |
| | (21 | ) | | | | $ | 390 |
| | $ | 439 |
| | (11 | ) | | |
| International | | 209 |
| | 239 |
| | (12 | ) | | (9 | ) | | 704 |
| | 750 |
| | (6 | ) | | (1 | ) | | 56 |
| | 49 |
| | 15 |
| | 20 |
| | 115 |
| | 110 |
| | 5 |
| | 8 |
|
| Worldwide revenues | | $ | 219 |
| | $ | 248 |
| | (12 | ) | | (9 | ) | | $ | 735 |
| | $ | 777 |
| | (6 | ) | | (1 | ) | | $ | 235 |
| | $ | 276 |
| | (15 | ) | | (14 | ) | | $ | 505 |
| | $ | 549 |
| | (8 | ) | | (7 | ) |
The worldwide operational revenue decline in the thirdsecond quarter and first six months of 20192020 was primarily driven by pricing pressures in Chinathe U.S. and primarily reflects expected lower demand resulting from the VBP implementation in certain cities and lower volumes in Japan and South Korea,reduced doctor visits, including wellness visits when Chantix is typically prescribed, due to COVID-19-related mobility restrictions or limitations. The decline was partially offset by volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented. The worldwide operational decline in the first nine months of 2019 was primarily due to pricing pressures in China resulting from the VBP implementation in certain cities and lower volumes in Japan, partially offset by overall increased demand in China in the first quarter of 2019 and continued geographic expansion during the third quarter of 2019 in provinces where the VBP has not yet been implemented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Nine Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| U.S. |
| $ | 64 |
|
| $ | 80 |
|
| (20 | ) |
|
|
|
| $ | 217 |
|
| $ | 262 |
|
| (17 | ) |
|
|
|
| International |
| 160 |
|
| 168 |
|
| (5 | ) |
| — |
|
| 488 |
|
| 524 |
|
| (7 | ) |
| — |
|
| Worldwide revenues |
| $ | 224 |
|
| $ | 248 |
|
| (10 | ) |
| (7 | ) |
| $ | 704 |
|
| $ | 785 |
|
| (10 | ) |
| (5 | ) |
The worldwide operational declines in the third quarter and first nine months of 2019 reflect continued erosionSpain as a result of increased competitiongovernment reimbursement starting in the U.S. and key developed markets, partially offset by growth in certain emerging markets.January 2020.
| |
| • | Xtandi alliance revenues (Biopharma): 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 | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | 225 |
| | $ | 180 |
| | 25 | | | | $ | 594 |
| | $ | 510 |
| | 17 | | | | $ | 266 |
| | $ | 201 |
| | 32 | | | | $ | 475 |
| | $ | 369 |
| | 29 | | |
| International | | — |
| | — |
| | — | | — | | — |
| | — |
| | — | | — | | — |
| | — |
| | — | | — | | — |
| | — |
| | — | | — |
| Worldwide revenues | | $ | 225 |
| | $ | 180 |
| | 25 | | 25 | | $ | 594 |
| | $ | 510 |
| | 17 | | 17 | | $ | 266 |
| | $ | 201 |
| | 32 | | 32 | | $ | 475 |
| | $ | 369 |
| | 29 | | 29 |
The growth in the U.S. in the thirdsecond quarter and first ninesix months of 20192020 was primarily driven by increasedcontinued strong demand for Xtandi in the metastatic (mCRPC) and non-metastatic (nmCRPC) castration-resistant prostate cancer partially offset by higher patient assistance programs (PAP) utilizationindications, as well as the metastatic (mCSPC) castration-sensitive prostate cancer indication, which was approved in the first nine months of 2019, compared to the same periodU.S. in 2018.December 2019.
| |
| • | TheNorvasc Premarin family of products (Biopharma)(Upjohn):
|
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 170 |
| | $ | 191 |
| | (11 | ) | | | | $ | 510 |
| | $ | 569 |
| | (10 | ) | | | | $ | 7 |
| | $ | 11 |
| | (32 | ) | | | | $ | 16 |
| | $ | 21 |
| | (23 | ) | | |
| International | | 11 |
| | 12 |
| | (8 | ) | | (5 | ) | | 32 |
| | 36 |
| | (10 | ) | | (5 | ) | | 215 |
| | 205 |
| | 5 |
| | 9 | | 403 |
| | 495 |
| | (19 | ) | | (16 | ) |
| Worldwide revenues | | $ | 182 |
| | $ | 204 |
| | (11 | ) | | (11 | ) | | $ | 542 |
| | $ | 605 |
| | (10 | ) | | (10 | ) | | $ | 222 |
| | $ | 216 |
| | 3 |
| | 7 | | $ | 419 |
| | $ | 516 |
| | (19 | ) | | (16 | ) |
The worldwide operational growth in the second quarter of 2020 reflects significant revenue declines in the third quarterprior-year period associated with the VBP program in China, which was initially implemented in certain cities in March 2019, and
expanded nationwide beginning in December 2019, resulting in significant volume and price erosion. The worldwide operational decline in the first ninesix months of 20192020 were primarily driven by competitive pressures inresulted from the U.S.VBP program mentioned above.
| |
| • | Celebrex Sutent(Upjohn) (Biopharma):
|
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 14 |
| | $ | 16 |
| | (17 | ) | | | | $ | 44 |
| | $ | 50 |
| | (13 | ) | | | | $ | 61 |
| | $ | 82 |
| | (26 | ) | | | | $ | 113 |
| | $ | 153 |
| | (26 | ) | | |
| International | | 166 |
| | 171 |
| | (3 | ) | | (3 | ) | | 482 |
| | 444 |
| | 9 |
| | 12 | | 148 |
| | 166 |
| | (11 | ) | | (6 | ) | | 301 |
| | 327 |
| | (8 | ) | | (4 | ) |
| Worldwide revenues | | $ | 179 |
| | $ | 188 |
| | (5 | ) | | (4 | ) | | $ | 526 |
| | $ | 494 |
| | 7 |
| | 9 | | $ | 209 |
| | $ | 248 |
| | (16 | ) | | (13 | ) | | $ | 414 |
| | $ | 480 |
| | (14 | ) | | (11 | ) |
The worldwide operational decline in the thirdsecond quarter of 2019 was primarily due to lower volumes and pricing pressures in certain emerging markets. The worldwide operational growth in the first ninesix months of 20192020 was mainly due to higher volumesreflects continued erosion as a result of increased competition in Japanthe U.S. and in China, driven by investments in geographic expansion,key international developed markets, partially offset by pricing pressuresgrowth in certain emerging markets.
| |
| • | SulperazonInlyta (Biopharma):
|
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | — |
| | $ | — |
| | — | | | | $ | — |
| | $ | — |
| | — | | | | $ | 132 |
| | $ | 60 |
| | * | | | | $ | 248 |
| | $ | 93 |
| | * | | |
| International | | 163 |
| | 145 |
| | 12 | | 16 | | 505 |
| | 464 |
| | 9 | | 15 | | 63 |
| | 44 |
| | 43 | | 48 | | 116 |
| | 84 |
| | 38 | | 42 |
| Worldwide revenues | | $ | 163 |
| | $ | 145 |
| | 12 | | 16 | | $ | 505 |
| | $ | 464 |
| | 9 | | 15 | | $ | 195 |
| | $ | 104 |
| | 87 | | 89 | | $ | 364 |
| | $ | 177 |
| | * | | * |
The internationalworldwide operational growth in the thirdsecond quarter and first ninesix months of 20192020 was mostlyprimarily due to increased demand in China.the U.S. from the FDA approvals in the second quarter of 2019 for combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC.
| |
| • | Inflectra/Remsima (Biopharma): |
| | | |
| Three Months Ended |
| Nine Months Ended | | Three Months Ended | | Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. |
| $ | 77 |
|
| $ | 71 |
|
| 8 |
|
|
|
|
| $ | 208 |
|
| $ | 189 |
|
| 10 |
|
|
|
| | $ | 72 |
| | $ | 74 |
| | (3 | ) | | | | $ | 156 |
| | $ | 132 |
| | 18 |
| | |
| International |
| 78 |
|
| 95 |
|
| (18 | ) |
| (15 | ) |
| 238 |
|
| 280 |
|
| (15 | ) |
| (10 | ) | | 78 |
| | 78 |
| | — |
| | 5 | | 153 |
| | 159 |
| | (4 | ) | | (1 | ) |
| Worldwide revenues |
| $ | 155 |
|
| $ | 166 |
|
| (7 | ) |
| (5 | ) |
| $ | 446 |
|
| $ | 469 |
|
| (5 | ) |
| (2 | ) | | $ | 150 |
| | $ | 153 |
| | (2 | ) | | 1 | | $ | 308 |
| | $ | 291 |
| | 6 |
| | 8 |
|
The worldwide operational revenues declinedrevenue growth in the thirdsecond quarter and first ninesix months of 20192020 due towas primarily driven by switch-to-biosimilar products policies implemented in Canada and steady volume and share growth in the U.S. across hospital channels, clinics and alternate sites of care, partially offset by pricing pressures globally as well as competitive pressures internationally, partially offset by continued volume growth in certain channels in the U.S., as well as in certain developed markets in Europe and Canada.internationally.
The growth in the U.S. in the third quarter and first nine months of 2019 was primarily driven by demand in open systems, partially offset by price erosion. While Inflectra has achieved parity access to Remicade® (infliximab) in Medicare Part B, in the U.S., nearly half of all commercial patients are not able to access Inflectra due to exclusionary contracting practicesconduct by J&J. In September 2017, Pfizer filed suit in the U.S. District Court for the Eastern District of Pennsylvania against J&J alleging that J&J’s exclusionary contracts and other anticompetitive practices concerning Remicade violate federal antitrust laws. In June 2019, Pfizer received a Civil Investigative Demand from the Federal Trade Commission (FTC) seeking documents and information relating to the alleged conduct and market conditions at issue in Pfizer’s lawsuit against J&J. Pfizer understands that the FTC’s investigation is focused on J&J’s alleged conduct at issue in Pfizer’s lawsuit against J&J.
| |
| • | The Premarin family of products (Biopharma): |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 142 |
| | $ | 182 |
| | (22 | ) | | | | $ | 283 |
| | $ | 340 |
| | (17 | ) | | |
| International | | 10 |
| | 11 |
| | (7 | ) | | 1 |
| | 20 |
| | 21 |
| | (3 | ) | | 1 |
|
| Worldwide revenues | | $ | 152 |
| | $ | 193 |
| | (21 | ) | | (21 | ) | | $ | 304 |
| | $ | 361 |
| | (16 | ) | | (16 | ) |
The worldwide operational decline in the second quarter and first six months of 2020 was primarily driven by continued competitive pressures in the U.S., which is expected to continue.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 10 |
| | $ | 16 |
| | (33 | ) | | | | $ | 22 |
| | $ | 30 |
| | (28 | ) | | |
| International | | 129 |
| | 158 |
| | (18 | ) | | (17 | ) | | 274 |
| | 317 |
| | (14 | ) | | (13 | ) |
| Worldwide revenues | | $ | 139 |
| | $ | 174 |
| | (20 | ) | | (18 | ) | | $ | 295 |
| | $ | 347 |
| | (15 | ) | | (14 | ) |
The worldwide operational decline in the second quarter and first six months of 2020 was primarily driven by lower volume in certain developed markets, primarily in Japan, in anticipation of generic competition that began in June 2020, Pfizer’s third quarter for international subsidiaries, following patent expiration in November 2019, partially offset by higher volumes in China. The first six months of 2020 were also impacted by pricing pressures and lower volumes in certain other emerging markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | — |
| | $ | — |
| | — |
| | | | $ | — |
| | $ | — |
| | — |
| | |
| International | | 102 |
| | 165 |
| | (38 | ) | | (36 | ) | | 289 |
| | 342 |
| | (16 | ) | | (13 | ) |
| Worldwide revenues | | $ | 102 |
| | $ | 165 |
| | (38 | ) | | (36 | ) | | $ | 289 |
| | $ | 342 |
| | (16 | ) | | (13 | ) |
The international operational decline in the second quarter and first six months of 2020 was primarily driven by lower demand in China due to lower infection rates driven by fewer elective surgical procedures, shorter in-patient hospital stays and improved infection control compared to the prior year period.
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total | | Oper. | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. | | June 28,
2020 |
| | June 30,
2019 |
| | Total | | Oper. |
| U.S. | | $ | 36 |
| | $ | 34 |
| | 7 | | | | $ | 111 |
| | $ | 118 |
| | (6 | ) | | | | $ | 37 |
| | $ | 41 |
| | (8 | ) | | | | $ | 77 |
| | $ | 75 |
| | 2 | | |
| International | | 94 |
| | 93 |
| | 1 | | 4 | | 274 |
| | 299 |
| | (8 | ) | | (3 | ) | | 100 |
| | 92 |
| | 9 |
| | 14 | | 210 |
| | 180 |
| | 17 | | 21 |
| Worldwide revenues | | $ | 130 |
| | $ | 127 |
| | 2 | | 5 | | $ | 385 |
| | $ | 417 |
| | (8 | ) | | (4 | ) | | $ | 138 |
| | $ | 133 |
| | 4 |
| | 7 | | $ | 287 |
| | $ | 255 |
| | 12 | | 15 |
The worldwide operational growth in the thirdsecond quarter and first six months of 20192020 was primarily due to increased volumesresulted from growth in China, following the impact of inclusion of Xalkori in the 2019 National Reimbursement Drug Listing (NRDL) in China, partially offset by volume declines in the ALK indication due to competitive pressure primarily across developed Europe and pricing pressures in China. In the first nine months of 2019, the worldwide operational decline in revenues primarily resulted from erosion due to competition in developed Europe and in the U.S., partially offset by growth in China, following the impact of inclusion of Xalkori in the NRDL.List.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
| | September 29,
2019 |
| | September 30,
2018 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 20 |
| | $ | 32 |
| | (37 | ) | | | | $ | 72 |
| | $ | 196 |
| | (63 | ) | | |
| International | | 99 |
| | 105 |
| | (5 | ) | | (3 | ) | | 306 |
| | 313 |
| | (2 | ) | | 3 |
|
| Worldwide revenues | | $ | 120 |
| | $ | 137 |
| | (13 | ) | | (11 | ) | | $ | 379 |
| | $ | 509 |
| | (26 | ) | | (22 | ) |
The declines in the U.S. in the third quarter and first nine months of 2019 were driven by the loss of exclusivity in December 2017.
The operational decline internationally in the third quarter of 2019 was primarily due to lower volumes across developed markets. The operational growth internationally in the first nine months of 2019 was mostly due to increased demand in China driven by investments in geographic expansion, partially offset by pricing pressures in China and lower volumes across developed and certain emerging markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Nine Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
| Oper. |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
| U.S. |
| $ | 92 |
|
| $ | 27 |
|
| * |
|
|
| $ | 185 |
|
| $ | 88 |
|
| * |
|
|
|
| International |
| 46 |
|
| 44 |
|
| 6 |
| 10 |
| 131 |
|
| 138 |
|
| (5 | ) |
| 2 |
| Worldwide revenues |
| $ | 139 |
|
| $ | 71 |
|
| 95 |
| 98 |
| $ | 316 |
|
| $ | 226 |
|
| 40 |
|
| 44 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | | | | | % Change | | | | | | % Change |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
| | June 28,
2020 |
| | June 30,
2019 |
| | Total |
| | Oper. |
|
| U.S. | | $ | 11 |
| | $ | 13 |
| | (15 | ) | | | | $ | 28 |
| | $ | 52 |
| | (46 | ) | | |
| International | | 83 |
| | 102 |
| | (18 | ) | | (15 | ) | | 193 |
| | 207 |
| | (6 | ) | | (4 | ) |
| Worldwide revenues | | $ | 94 |
| | $ | 114 |
| | (18 | ) | | (15 | ) | | $ | 222 |
| | $ | 259 |
| | (15 | ) | | (13 | ) |
The worldwide operational growth in the third quarter and first nine months of 2019 was primarily due to increased demand in the U.S. as a result of the FDA approvalsdecline in the second quarter and first six months of 2019 for combinations of certain checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC. The growth2020 was partially offsetprimarily driven by the decline in other developedemerging markets, primarily China, resulting from mobility restrictions due to increased competition.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Three Months Ended |
| Nine Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
| Oper. |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
|
| Oper. |
|
| U.S. |
| $ | 42 |
|
| $ | 40 |
|
| 5 |
|
|
| $ | 90 |
|
| $ | 104 |
|
| (14 | ) |
|
|
|
| International |
| 1 |
|
| — |
|
| * |
| * |
| 2 |
|
| — |
|
| * |
|
| * |
|
| Worldwide revenues |
| $ | 43 |
|
| $ | 40 |
|
| 7 |
| 7 |
| $ | 92 |
|
| $ | 104 |
|
| (12 | ) |
| (12 | ) |
COVID-19. The growth in the U.S. in the third quarter of 2019 was driven by volume growth that was partially offset by higher rebating and unfavorable channel mix. Theworldwide operational decline in the U.S. in the first ninesix months of 20192020 was drivenalso impacted by continued volume growth that was more than offset by higher rebating and unfavorable channel mix,erosion due to multi-source generic competition in addition to favorable rebate adjustments in 2018.the U.S.
| |
| • | Alliance revenues (Biopharma): |
| | | |
| Three Months Ended |
| Nine Months Ended |
| Three Months Ended |
| Six Months Ended |
|
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
|
|
|
|
|
|
| % Change |
|
|
|
|
| % Change |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
| Oper. |
| September 29,
2019 |
|
| September 30,
2018 |
|
| Total |
| Oper. |
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
| Oper. |
| June 28,
2020 |
|
| June 30,
2019 |
|
| Total |
| Oper. |
| U.S. |
| $ | 773 |
|
| $ | 642 |
|
| 20 |
|
|
| $ | 2,383 |
|
| $ | 1,901 |
|
| 25 |
|
|
| $ | 996 |
|
| $ | 835 |
|
| 19 |
|
|
| $ | 2,018 |
|
| $ | 1,610 |
|
| 25 |
|
|
| International |
| 368 |
|
| 336 |
|
| 10 |
| 13 |
| 1,034 |
|
| 919 |
|
| 13 |
| 18 |
| 408 |
|
| 352 |
|
| 16 |
| 19 |
| 769 |
|
| 666 |
|
| 15 |
| 18 |
| Worldwide revenues |
| $ | 1,141 |
|
| $ | 977 |
|
| 17 |
| 18 |
| $ | 3,418 |
|
| $ | 2,820 |
|
| 21 |
| 23 |
| $ | 1,404 |
|
| $ | 1,187 |
|
| 18 |
| 19 |
| $ | 2,786 |
|
| $ | 2,277 |
|
| 22 |
| 23 |
The worldwide operational growth in the second quarter and first six months of 2020was mainlyprimarily due to increases in Eliquis and Xtandi alliance revenues included in the above discussion.
| |
◦ | Bavencio (Biopharma) is being developed and commercialized in collaboration with Merck KGaA. Both companies jointly fund the majority of development and commercialization costs, and split equally any profits generated from selling any products containing avelumab from this collaboration. Bavencio is currently approved in metastatic MCC in the U.S., Europe and Japan and select other markets, as well as in second line treatment of locally advanced or metastatic urothelial carcinoma and first-line treatment of patients with advanced RCC in combination with Inlyta in the U.S.
|
See Notes to Condensed Consolidated Financial Statements––Note 13C.14C. 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 12.13. Contingencies and Certain Commitments for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above.
See the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 2019 Form 10-K for information regarding the expiration of various patent rights.
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.
For additional information about our R&D organization, see the “Overview“Research and Development” section in Part I, Item 1, “Business” of Our Performance, Operating Environment, Strategy and Outlook—Our Strategy—Organizing for Growth” and “—Description of Research and Development Operations” sections of this MD&A.our 2019 Form 10-K.
A comprehensive update of Pfizer’s development pipeline was published as of October 29, 2019July 28, 2020 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 |
Ruxience™ (rituximab-pvvr)(a)
| A biosimilar to Rituxan® (rituximab) for the treatment of adult patients with non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, and granulomatosis with polyangiitis and microscopic polyangiitis
| July 2019 |
Zirabev (bevacizumab-bvzr)(b)
| A biosimilar to Avastin® (bevacizumab) for the treatment of mCRC; unresectable, locally advanced, recurrent or metastatic NSCLC; recurrent glioblastoma; metastatic RCC; and persistent, recurrent or metastatic cervical cancer
| June 2019 |
| Bavencio (avelumab) | Bavencio (avelumab) in combination with Inlyta (axitinib) forFor the first-linemaintenance treatment of patients with locally advanced RCC,or metastatic urothelial carcinoma that has not progressed with first-line platinum-containing chemotherapy, which is being developed in collaboration with Merck KGaA, Germany | May 2019 |
Vyndaqel (tafamidis meglumine) | Treatment of the cardiomyopathy of wild-type or hereditary transthyretin-mediated amyloidosis (ATTR-CM) in adults to reduce cardiovascular mortality and cardiovascular-related hospitalization | May 2019 |
Vyndamax (tafamidis) | Treatment of the cardiomyopathy of wild-type or hereditary ATTR-CM in adults to reduce cardiovascular mortality and cardiovascular-related hospitalization | May 2019June 2020 |
Trazimera (trastuzumab-qyyp)Nyvepria (pegfilgrastim-apgf)(c)(a)
| A biosimilar to HerceptinNeulasta® (trastuzumab) for all eligible indications(pegfilgrastim) to decrease the incidence of the reference productinfection, as manifested by febrile neutropenia, in patients with non-myeloid malignancies receiving myelosuppressive anti-cancer drugs associated with a clinically significant incidence of febrile neutropenia | March 2019 |
Daurismo (glasdegib) | Treatment of newly-diagnosed acute myeloid leukemia in adult patients who are 75 years or older or who have comorbidities that preclude use of intensive induction chemotherapy | November 2018 |
Lorbrena (lorlatinib) | Treatment of patients with ALK-positive metastatic NSCLC whose disease has progressed on crizotinib and at least one other ALK inhibitor for metastatic disease; or whose disease has progressed on alectinib or ceritinib as the first ALK inhibitor therapy for metastatic disease | November 2018 |
| June 2020 |
Braftovi (encorafenib)(a)(b) | RituxanBraftovi (encorafenib) in combination with Erbitux® is a registered trademark(cetuximab) for the treatment of Biogen MA Inc.
|
| |
BRAF(b)V600E-mutant metastatic colorectal cancer after prior therapy | Avastin® is a registered trademark of Genentech, Inc.
|
| |
(c)
| Herceptin® is a registered trademark of Genentech, Inc.
|
|
| | |
PENDING U.S. NDAs AND SUPPLEMENTAL FILINGS |
PRODUCT | PROPOSED INDICATION | DATE FILED*April 2020 |
| Xtandi (enzalutamide) | Treatment of metastatic hormone-sensitivecastration-sensitive prostate cancer, which is being developed through a collaboration with Astellas | AugustDecember 2019 |
PF-06881894Abrilada(a)(adalimumab-afzb)(c)
| A potential biosimilar to Neulasta®(pegfilgrastim) | August 2019 |
PF-06410293(b)
| A potential biosimilar to Humira®(adalimumab) for the treatment of certain patients with rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, adult Crohn's disease, UC and plaque psoriasis
| JanuaryNovember 2019 |
Vyndaqel (tafamidis meglumine)(c)
| 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) | Neulasta® is a registered U.S. trademark of Amgen Inc. |
| |
(b) | Erbitux® is a registered trademark of ImClone LLC. |
| |
(c) | Humira® is a registered trademark of AbbVie Biotechnology Ltd. Pfizer is working to make Abrilada available to U.S. patients as soon as feasible based on the terms of its agreement with AbbVie. Current plans are to launch Abrilada in 2023. |
|
| | |
| PENDING U.S. NDAs AND SUPPLEMENTAL FILINGS |
| PRODUCT | PROPOSED INDICATION | DATE FILED* |
| tanezumab | For patients with chronic pain due to moderate-to-severe osteoarthritis (OA) who have experienced inadequate pain relief with other analgesics, which is being developed in collaboration with Lilly | March 2020 |
| |
(c)
* | In May 2012,The date set forth in this column is 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,date on which the FDA issued a “complete response” letter with respect to this 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 has completed study B3461028, a global Phase 3 study to support the new indication of transthyretin amyloid cardiomyopathy, which includes patients with wild type and variant transthyretin. We are working with the FDA to identify next steps.accepted our submission. |
|
| | | |
| REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN |
| PRODUCT | DESCRIPTION OF EVENT | DATE APPROVED | DATE FILED* |
Braftovi (encorafenib) and Mektovi (binimetinib)Bosulif (bosutinib) | Application approved in Japan for the first-line treatment of chronic myelogenous leukemia (CML) | June 2020 | — |
| Daurismo (glasdegib) | Application approved in the EU for Daurismo (glasdegib) in combination with low-dose cytarabine, a type of chemotherapy, for the treatment of newly diagnosed (de novo or secondary) AML in adult patients who are not candidates for standard chemotherapy | June 2020 | — |
| Bavencio (avelumab) | Application filed in the EU for second-or-third-linefirst-line maintenance treatment of patients with locally advanced or metastatic urothelial carcinoma, which is being developed in collaboration with Merck KGaA, Germany | — | June 2020 |
Braftovi (encorafenib)BRAF-(a) | Application approved in the EU for Braftovi (encorafenib) in combination with Erbituxmutant® (cetuximab), for the treatment of adult patients with mCRC with a BRAF mutation, who have received prior systemic therapy, which is being developed in collaboration with the Pierre Fabre Group | June 2020 | — |
| Bavencio (avelumab) | Application filed in Japan for first-line maintenance treatment of patients with locally advanced or metastatic urothelial carcinoma, which is being developed in collaboration with Merck KGaA, Germany | — | NovemberMay 2020 |
Ruxience (rituximab)(b) | Application approved in the EU for a biosimilar to MabThera® (rituximab) for the treatment of non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, RA, granulomatosis with polyangiitis and microscopic polyangiitis, and pemphigus vulgaris | April 2020 | — |
| Staquis (crisaborole) | Application approved in the EU for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients from 2 years of age with ≤ 40% body surface area affected | March 2020 | — |
| tanezumab | Application filed in the EU for adult patients with moderate to severe chronic pain associated with OA for whom treatment with NSAIDs and/or an opioid is ineffective, not tolerated or inappropriate | — | March 2020 |
| Braftovi (encorafenib) and Mektovi (binimetinib) | Application filed in Japan for second-or-third-line treatment of BRAF-mutant mCRC in patients who have received prior systemic therapy, which is being developed in collaboration with Ono Pharmaceutical Co., Ltd. | — | March 2020 |
| Vyndaqel (tafamidis free acid) | Application approved in the EU for a once-daily 61 mg oral capsule, for the treatment of wild-type or hereditary transthyretin amyloidosis in adult patients with cardiomyopathy | February 2020 | — |
Amsparity (adalimumab)(c) | Application approved in the EU for a biosimilar to Humira® (adalimumab) for the treatment of certain patients with RA, juvenile idiopathic arthritis, axial spondyloarthritis, psoriatic arthritis, psoriasis, hidradenitis suppurativa, Crohn’s disease, UC, uveitis, and pediatric plaque psoriasis | February 2020 | — |
| Xeljanz (tofacitinib) | Application approved in the EU for Xeljanz (tofacitinib) 11 mg prolonged release tablets in combination with methotrexate for the treatment of moderate to severe active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to one or more disease-modifying antirheumatic drugs | December 2019 | — |
| Bavencio (avelumab) | Application approved in Japan for Bavencio (avelumab) in combination with Inlyta (axitinib) for the first-line treatment of advanced RCC, which is being developed in collaboration with Merck KGaA, Germany | December 2019 | — |
| Bavencio (avelumab) | Application approved in the EU for Bavencio (avelumab) in combination with Inlyta (axitinib) for the first-line treatment of advanced RCC, which is being developed in collaboration with Merck KGaA, Germany | October 2019 | — |
PF-06881894(a)(d) | Application filed in the EU for a potential biosimilar to Neulasta®Neulasta® (pegfilgrastim) | — | October 2019 |
Rituximab Pfizer (rituximab)(b)(e) | Application approved in Japan for a biosimilar to Rituxan® (rituximab) for the treatment of CD20-positive, B-cell non-Hodgkin’s Lymphoma, CD20-positive, B-cell lymphoproliferative disease under immunosuppression, and Granulomatosis with polyangiitis, and microscopic polyangiitis | September 2019 | — |
Bosulif (bosutinib) | Application filed in Japan for the treatment of chronic myelogenous leukemia (CML), which is being developed in collaboration with Avillion LLP | — | July 2019 |
| Xtandi (enzalutamide) | Application filed in the EU for the treatment of metastatic hormone-sensitivecastration-sensitive prostate cancer, which is being developed through a collaboration with Astellas | — | July 2019 |
Talzenna (talazoparib) | Application approved in the EU for monotherapy for the treatment of adult patients with germline breast cancer susceptibility gene (gBRCA)1/2-mutations, who have human epidermal growth factor receptor 2-negative (HER2-) locally advanced or metastatic breast cancer
| June 2019 | — |
Bevacizumab Pfizer (bevacizumab)(c)
| Application approved in Japan for a biosimilar to Avastin® (bevacizumab) for the treatment of metastatic colorectal cancer
| June 2019 | — |
Daurismo (glasdegib) | Application filed in the EU for treatment of newly-diagnosed acute myeloid leukemia in adult patients who are 75 years or older or who have co-morbidities that preclude use of intensive induction chemotherapy | — | May 2019 |
Lorviqua (lorlatinib) | Application approved in the EU as monotherapy, for the treatment of adult patients with ALK- positive advanced non-small cell lung cancer whose disease has progressed after:
•
alectinib or ceritinib as the first ALK tyrosine kinase inhibitor (TKI) therapy; or•
crizotinib and at least one other ALK TKI | May 2019 | — |
Vizimpro (dacomitinib) | Application approved in the EU as monotherapy for the first-line treatment of adult patients with locally advanced or metastatic non-small cell lung cancer with EGFR activating mutations, which is being developed in collaboration with SFJ | April 2019 | — |
Vyndaqel (tafamidis meglumine) | Application approved in Japan for treatment of transthyretin amyloid cardiomyopathy | March 2019 | — |
Zirabev(c)
| Application approved in the EU for a biosimilar to Avastin® (bevacizumab) for the treatment of metastatic carcinoma of the colon or rectum, metastatic breast cancer, unresectable advanced, metastatic or recurrent NSCLC, advanced and/or metastatic renal cell cancer and persistent, recurrent, or metastatic carcinoma of the cervix
| February 2019 | — |
Vyndaqel (tafamidis free acid) | Application filed in the EU for the treatment of adults with transthyretin amyloid cardiomyopathy | — | January 2019 |
Bavencio (avelumab) | Application filed in Japan for Bavencio (avelumab) in combination with Inlyta (axitinib) for the first-line treatment of advanced RCC, which is being developed in collaboration with Merck KGaA, Germany | — | January 2019 |
Vizimpro (dacomitinib) | Application approved in Japan for the treatment of patients with locally advanced or metastatic non-small cell lung cancer with EGFR mutations, which is being developed in collaboration with SFJ | January 2019 | — |
PF-06410293(d)
| Application filed in the EU for a potential biosimilar to Humira® (adalimumab)
| — | November 2018 |
PF-05280586(b)
| Application filed in the EU for a potential biosimilar to Rituxan® (rituximab)
| — | August 2018 |
crisaborole | Application filed in the EU for the treatment of mild-to-moderate atopic dermatitis | — | May 2018 |
Xeljanz (tofacitinib) | Application filed in the EU for modified release 11mg tablet for RA | — | March 2018 |
| |
| * | For applications in the EU, the dates set forth in this column are the dates on which the EMA validated our submissions. |
| |
(a) | Erbitux® is a registered trademark of ImClone LLC. |
| |
(b) | MabThera® is a registered trademark ofF. Hoffman-La Roche AG. |
| |
(c) | Humira® is a registered trademark of AbbVie Biotechnology Ltd. Pfizer does not currently plan to commercialize Amsparity in the EU due to unfavorable market conditions. |
| |
(d) | Neulasta® is a registered trademark of Amgen Inc. |
| |
(b)(e)
| Rituxan® is a registered trademark of Biogen MA Inc. |
| |
(c)
| Avastin® is a registered trademark of Genentech, Inc.
|
| |
(d)
| Humira® is a registered trademark of AbbVie Biotechnology Ltd.
|
|
| |
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 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 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 treatment of locally advanced squamous cell carcinoma of the head and neck, which is being developed in collaboration with Merck KGaA, Germany |
Braftovi (encorafenib) and Mektovi (binimetinib) | Second-or-third-line treatment of BRAF-mutant mCRC (ex-EU)
|
| Daurismo (glasdegib)(a) | A smoothened inhibitor, in combination with azacitidine,cytarabine and daunorubicin, for the treatment of acute myeloid leukemiaAML |
| 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 |
| Lorbrena (lorlatinib) | Treatment of patients with metastatic non-small cell lung cancer whose tumors are ALK-positive as detected by an FDA-approved test |
| Xeljanz (tofacitinib) | Treatment of ankylosing spondylitis |
| Xtandi (enzalutamide) | Treatment of non-metastatic hormone-sensitivecastration-sensitive prostate cancer, which is being developed through a collaboration with Astellas |
| Talzenna (talazoparib) | An oral PARP inhibitor, in combination with Xtandi (enzalutamide), for the treatment of metastatic castration-resistant prostate cancer |
| |
(a) | In May 2020, we accepted the recommendation of the independent Data Monitoring Committee to stop the Non-Intensive cohort of the Phase 3 clinical trial for BRIGHT AML 1019, as it is unlikely to show a statistically significant improvement in the primary endpoint of overall survival. No important new safety signals were observed in patients treated with glasdegib. A separate cohort of BRIGHT AML 1019 evaluates glasdegib in combination with intensive chemotherapy (cytarabine and daunorubicin) for the treatment of adult patients with previously untreated AML, and the cohort is ongoing and remains blinded. |
In February 2019,May 2020, we and the company took stepsAustrian Breast & Colorectal Cancer Study Group and the Alliance Foundation announced that following a preplanned efficacy and futility analysis, the independent Data Monitoring Committee of the collaborative Ibrance (palbociclib) Phase 3 early breast cancer PALbociclib CoLlaborative Adjuvant Study (PALLAS) determined that the trial is unlikely to transition rheumatoid arthritis study patients who were on tofacitinib 10 mg twice daily to tofacitinib 5 mg twice dailyshow a statistically significant improvement in the ongoing FDA post-marketing requirement study A3921133, a study performedprimary endpoint of invasive disease-free survival. No unexpected new safety signals were observed in patients considered to be at high risk for certain side effects. This action was taken asreceiving Ibrance. When available, the result of notificationfull results from the tofacitinib Rheumatology Data Safety Monitoring Board of a safety signal regarding the tofacitinib 10 mg twice daily treatment arm inPALLAS study A3921133. The 5 mg twice daily dose is the FDA approved dose in the U.S. for adult patients with moderate to severe rheumatoid arthritis. In July 2019, the FDA updated the U.S. prescribing information for Xeljanz to include two additional boxed warnings as well as changes to the indication and dosing for UC. These updates were based on the FDA’s review of data from the ongoing post-marketing requirement RA study A3921133. In addition, the EU product labeling (SmPC) for Xeljanz was updated in July 2019 to reflect provisional measures required by the EMA’s pharmacovigilance committee (PRAC) while a review was conducted. The PRAC has completed its review and has recommended to the EMA’s scientific committee (CHMP) that caution should be utilized in treating patients with Xeljanz who are at risk for certain side effects. This recommendation will be reviewed byshared with the CHMP who will issue a final opinion; this is expected during November 2019. The CHMP opinion will be provided to the European Commission to issue a legally-binding decision; this procedure is expected to be completed in early 2020.scientific community.
|
| |
| NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT |
| CANDIDATE | PROPOSED INDICATION |
| abrocitinib (PF-04965842) | A Janus kinase 1 (JAK1) inhibitor for the treatment of moderate-to-severe atopic dermatitis |
aztreonam-avibactam
(PF-06947387) | A beta lactam/beta lactamase inhibitor for the treatment of patients with infections caused by Gram-negative bacteria, including those that produce metallo-beta-lactamases, for which there are limited or no treatment options |
| fidanacogene elaparvovec (PF-06838435) | An investigational gene therapy for the treatment of hemophilia B |
| PF-06482077 | A 20-Valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumonia caused by Streptococcus pneumoniae serotypes covered by the vaccine in adults 18 years of age and older |
PF-06651600PF-06482077 | A 20-Valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumonia caused by Streptococcus pneumoniae serotypes covered by the vaccine in infants |
| PF-06425090 | A prophylactic vaccine for prevention of primary clostridioidesdifficile infection (CDI) in individuals |
PF-06886992
| Prevention of invasive meningococcal disease caused by Neisseria meningitidis serogroups A,B,C,W and Y in persons one through 25 years of age |
| PF-06928316 | A respiratory syncytial virus vaccine for the prevention of RSV disease in young infants through maternal immunization and in older adults through direct immunization |
PF-07302048 (BNT162)
| A messenger RNA-based vaccine for the prevention of SARS-CoV-2, the virus that causes COVID-19 disease, in partnership with BioNTech |
| PF-07265803 | An oral inhibitor of p38 mitogen-activated protein kinase for the treatment of patients with symptomatic dilated cardiomyopathy due to a Lamin A/C gene mutation |
| ritlecitinib (PF-06651600) | A selective dual Janus kinase 3 (JAK3) and Tyrosine kinase Expressed in hepatocellular Carcinoma (TEC) family inhibitor for the treatment of patients with moderate to severe alopecia areata |
abrocitinib (PF-04965842)sasanlimab (PF-06801591)
| A Janus kinase 1 (JAK1) inhibitormonoclonal antibody that inhibits PD-1, in combination with Bacillus Calmette-Guerin (BCG), for the treatment of moderate-to-severe atopic dermatitis |
PF-06425090 | A prophylactic vaccine for prevention of primary clostridium difficile infection (CDI) in individuals |
PF-06802861 | An oral inhibitor of p38 mitogen-activated protein kinase for the treatment of patients with symptomatic dilated cardiomyopathy due to a Lamin A/C gene mutation |
rivipansel (GMI-1070)(a)
| A triple selectin inhibitor, with highest potency for E-selectin for the treatment of acute vaso-occlusive crises associated with sickle cell disease in patients aged 6 years and above, which was licensed from GlycoMimetics Inc.non-muscle invasive bladder cancer |
| 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 |
tanezumab(b) | An anti-nerve growth factor monoclonal antibody for the treatment of cancer pain, which is being developed in collaboration with Lilly |
| |
(a)
| In August 2019, we announced that the Phase 3 RESET (Rivipansel Evaluating Safety, Efficacy and Time to Discharge) pivotal study did not meet its primary or key secondary efficacy endpoints. The objective of the trial was to evaluate the efficacy and safety of rivipansel in patients aged six and older with sickle cell disease who were hospitalized for a vaso-occlusive crisis and required treatment with IV opioids. The primary endpoint was time to readiness-for-discharge and the key secondary efficacy endpoints were time-to-discharge, cumulative IV opioid consumption, and time to discontinuation of IV opioids. Detailed analyses of the RESET study, including additional data on efficacy and safety endpoints, which are not available at this time, will be submitted for presentation at a future scientific meeting. We are awaiting additional data to determine next steps. |
| |
(b)
| In April 2019, Pfizer and Lilly announced top-line results from a Phase 3 study (A4091058) evaluating subcutaneous (SC) administration of tanezumab 2.5 mg and 5 mg. The objective of the study was to compare the long-term joint safety and 16-week efficacy of tanezumab relative to nonsteroidal anti-inflammatory drugs in patients with moderate-to-severe osteoarthritis (OA) of the hip or knee. During additional routine quality-control activities that occurred after the study was completed and the database was locked, an adverse event of osteonecrosis, which required adjudication was identified in a patient treated with tanezumab 2.5 mg SC. Accounting for the one additional adjudicated case of osteonecrosis in the tanezumab 2.5 mg arm, the incidence of the primary joint safety endpoint for the 2.5 mg SC arm is 3.9 |
percent (vs. 3.8 percent, reported in the top-line report). This additional finding does not change the conclusion of the study. Detailed results from this study will be presented at the 2019 American College of Rheumatology and the Association of Rheumatology Professionals Annual Meeting on November 11 and 12, 2019.
Additional product-related programs are in various stages of discovery and development.
Costs and Expenses
The changes in expenses below reflect, among other things, a decline in expenses resulting from the July 31, 2019 completion of the Consumer Healthcare JV transaction with GSK. Our financial results, and our Consumer Healthcare segment’s operating results, for the third quarter of 2019 reflect only one month of Consumer Healthcare segment domestic operations and two months of Consumer Healthcare segment international operations. Likewise, our financial results, and our Consumer Healthcare segment’s operating results, for the first nine months of 2019 reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations. For additional information, seeGSK (see Notes to Condensed Consolidated Financial Statements—Note 1A.2B. BasisAcquisition, Equity-Method Investment and Licensing Arrangements: Equity-Method Investment). In addition, the COVID-19 pandemic impacted certain operating expenses in the second quarter and first six months of Presentation and Significant Accounting Policies: Basis of Presentation.2020.
Cost of Sales
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | % Change |
| | September 29,
2019 |
| | September 30,
2018 |
| | % Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | % Change |
|
| Cost of sales | | $ | 2,602 |
| | $ | 2,694 |
| | (3 | ) | | $ | 7,611 |
| | $ | 8,173 |
| | (7 | ) | | $ | 2,281 |
| | $ | 2,576 |
| | (11 | ) | | $ | 4,658 |
| | $ | 5,009 |
| | (7 | ) |
As a percentage of Revenues | | 20.5 | % | | 20.3 | % | | | | 19.5 | % | | 20.6 | % | | | | 19.3 | % | | 19.4 | % | | | | 19.5 | % | | 19.0 | % | | |
Cost of sales decreased $92$295 million or 3%, in the thirdsecond quarter of 20192020, compared to and $351 million in the same period infirst six months of 20182020, primarily due to:
the favorable impact of the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK; and
lower royalty expense for Lyrica due to the June 2019 lossa favorable impact of exclusivity in the U.S.,foreign exchange,
partially offset by:
| |
• | a $127 million charge for rivipansel, primarily for inventory manufactured for expected future sale (see Notes to Condensed Consolidated Financial Statements––the unfavorable impact of incremental costs incurred in response to the COVID-19 pandemic. The decrease in Note 2C. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Research and Development Arrangement). |
Cost of sales decreased$562 million, or 7%, in the first ninesix months of 2019, compared to the same period in 2018, primarily due to:
the favorable impact of foreign exchange of $341 million;
the favorable impact of hedging activity on intercompany inventory of $216 million;
the favorable impact of the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK; and
lower royalty expense for Lyrica due to the June 2019 loss of exclusivity in the U.S.,
partially offset by:
an unfavorable change in product mix; and
| |
• | a $127 million charge for rivipansel, primarily for inventory manufactured for expected future sale (see Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Research and Development Arrangement).
|
The slight increase in Cost of sales as a percentage of revenues in the third quarter of 2019, compared to the same period in 2018,2020 was primarily due to all of the factors discussed above, as well as the impact of the loss of exclusivity of Lyrica in the U.S.,also partially offset by anthe net increase in alliance revenues, which have no associated cost of sales.sales volumes for various products within our product portfolio.
The slight decrease in Cost of sales as a percentage of revenues in the first nine monthssecond quarter of 2019,2020, compared to the same period in 2018,2019, was primarily due to all of the factors discussed above, as well as a favorable change in product mix, primarily driven by revenue growth in the Oncology portfolio and Vyndaqel, and an increase in alliance revenues, which have no associated cost of sales, partially offset by the impact of the losslower Lyrica revenues in developed markets due to U.S. multi-source generic competition that began in July 2019.
The increase in Cost of exclusivitysales as a percentage of Lyricarevenues in the first six months of 2020, compared to the same period in 2019, was primarily due to all of the factors discussed above, as well as the impact of the lower Lyrica revenues in developed markets due to U.S. multi-source generic competition that began in July 2019, partially offset by a favorable change in product mix, primarily driven by revenue growth in the Oncology portfolio and Vyndaqel, and 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 |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change |
| | September 29,
2019 |
| | September 30,
2018 |
| | %
Change |
|
| Selling, informational and administrative expenses | | $ | 3,260 |
| | $ | 3,494 |
| | (7 | ) | | $ | 10,110 |
| | $ | 10,448 |
| | (3 | ) |
As a percentage of Revenues | | 25.7 | % | | 26.3 | % | | | | 25.9 | % | | 26.3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
|
| Selling, informational and administrative expenses | | $ | 3,030 |
| | $ | 3,511 |
| | (14 | ) | | $ | 5,903 |
| | $ | 6,850 |
| | (14 | ) |
As a percentage of Revenues | | 25.7 | % | | 26.5 | % | | | | 24.8 | % | | 26.0 | % | | |
SI&A expenses decreased $234$481 million or 7%, in the thirdsecond quarter of 2019, compared to the same period in 20182020, primarily due to:
the favorable impact of the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK;
lower advertising, promotionalspending on sales and marketing activities due to the impact of the COVID-19 pandemic;
a decrease in field force expense as well as advertising and promotion expenses, in developed markets, primarily related to Lipitor and Norvasc, due to the VBP program in China, which was initially implemented in certain cities in March 2019 and expanded nationwide beginning in December 2019, as well as Lyrica in the U.S., due to generic competition that began in July 2019 and anticipated generic competition for Celebrex in Japan beginning in June 2020;
lower spending associated with corporate enabling functions; and
the favorable impact of foreign exchange, of $48 million,
partially offset by:
additional investment across several oflegal entity restructuring, as well as separation costs associated with our products.planned Upjohn transaction with Mylan.
SI&A expenses decreased $338$947 million or 3%, in the first ninesix months of 2019, 2020,compared to the same period in 2018, primarily mostly due to:
the favorable impact of foreign exchange of $254 million;
lower advertising, promotional and field force expenses in developed markets, primarily related to Lyrica in the U.S.;
the favorable impact of the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK;
a reduction in field force expense as well as advertising and promotion expenses, primarily related to Lyrica in the U.S. due to generic competition that began in July 2019 and the anticipated generic competition for Celebrex in Japan that began in June 2020, as well as a decrease in Lipitor and Norvasc expenses due to the VBP program in China, which was initially implemented in certain cities in March 2019 and expanded nationwide beginning in December 2019;
lower spending associated with corporate enabling functions;
lower spending on sales and marketing activities due to the impact of the COVID-19 pandemic;
a reduction to expense resulting from the decrease in our liability to be paid to participants of our supplemental savings plan;
lower investments across the Inflammation & Immunology portfolio; and
the non-recurrencefavorable impact of a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, of $119 million, in the aggregate, in the first quarter of 2018,foreign exchange,
partially offset by:
additional investment across several oflegal entity restructuring, as well as separation costs associated with our key products; and
additional investments in China across key brands.planned Upjohn transaction with Mylan.
Research and Development (R&D) Expenses
| | | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| Research and development expenses | | $ | 2,283 |
| | $ | 2,008 |
| | 14 | | $ | 5,827 |
| | $ | 5,549 |
| | 5 | | $ | 2,132 |
| | $ | 1,842 |
| | 16 | | $ | 3,856 |
| | $ | 3,544 |
| | 9 |
As a percentage of Revenues | | 18.0 | % | | 15.1 | % | | 14.9 | % | | 14.0 | % | |
| | 18.1 | % | | 13.9 | % | | 16.2 | % | | 13.4 | % | |
|
R&D expenses increased $275$290 million or 14%, in the thirdsecond quarter of 20192020, comparedprimarily due to:
costs related to the same periodour collaboration agreement with BioNTech to co-develop a COVID-19 vaccine, including an upfront payment to BioNTech; and
an upfront payment to Valneva,
partially offset by:
a net reduction of spending across our Oncology, Inflammation & Immunology, Rare Disease, Internal Medicine and Vaccines portfolios, as well as delays in program costs related to COVID-19.
2018, andR&D expenses increased $278$311 million or 5%, in the first ninesix months of 2019, compared to the same period in 2018 primarily2020, mostly due to:
| |
• | investments in newly acquired Therachoncosts related to our collaboration agreement with BioNTech to co-develop a COVID-19 vaccine, including an upfront payment to BioNTech; an upfront payment to Valneva; and Array products (see Notes to Condensed Consolidated Financial Statements––Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions); |
increased investments towards building new capabilities and driving automation; and
increased spending on our Inflammation & Immunology and Rare Disease portfolios due to several phase 3 programs and
investment in gene therapy,automation,
partially offset by:
a decrease in the value of the portfolio performance share grants reflecting changesthe decrease in the price of Pfizer’s common stock in the first half of 2020; and
a net reduction of spending across our Oncology, Inflammation & Immunology, Rare Disease, Internal Medicine and Vaccines portfolios, as well as management’s assessment of the probability that the specific performance criteria will be achieved;
decreased spending across the Oncology, Vaccines and Internal Medicine portfolios, as select programs have reached completion; and
the timing of milestone activity.delays in program costs related to COVID-19.
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 | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change |
| | September 29,
2019 |
| | September 30,
2018 |
| | %
Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
|
| Amortization of intangible assets | | $ | 1,212 |
| | $ | 1,253 |
| | (3 | ) | | $ | 3,578 |
| | $ | 3,640 |
| | (2 | ) | | $ | 905 |
| | $ | 1,184 |
| | (24 | ) | | $ | 1,790 |
| | $ | 2,367 |
| | (24 | ) |
As a percentage of Revenues | | 9.6 | % | | 9.4 | % | | | | 9.2 | % | | 9.2 | % | | | | 7.7 | % | | 8.9 | % | | | | 7.5 | % | | 9.0 | % | | |
Amortization of intangible assets decreased $42$279 million or 3%, in the thirdsecond quarter of 2019, compared to2020 and $577 million in the same period in 2018,first six months of 2020, primarily due to the non-recurrence of amortization expense resulting fromas a result of fully amortized assets and the impairment of sterile injectable products
Eucrisa in the fourth quarter of 2018 and the contribution of our Consumer Healthcare business to the Consumer Healthcare joint venture with GSK,2019, partially offset by an increase in amortization expense ofrelated to intangible assets as a result offrom our acquisition of Array.
Amortization of intangible assets decreased $61 million, or 2%, in the first nine months of 2019, compared to same period in 2018, primarily due to the non-recurrence of amortization expense resulting from the impairment of sterile injectable products in 2018 and the contribution of our Consumer Healthcare business to the Consumer Healthcare joint venture with GSK, partially offset by an increase in amortization expense of assets recorded as a result of the approval of an additional indication for Xtandi in the U.S., and amortization of intangible assets as a result of our acquisition of Array.
For additional information, see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions,Acquisition, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions, —Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for SaleLicensing Arrangements: Acquisition and —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 | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | %
Change |
| | Sept. 29,
2019 |
| | Sept. 30,
2018 |
| | %
Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
|
Restructuring charges/(credits)—acquisition-related costs(a) | | $ | 19 |
| | $ | 24 |
| | (20 | ) | | $ | (196 | ) | | $ | 5 |
| | * |
| |
Restructuring charges/(credits)—cost reduction initiatives(b) | | 64 |
| | (22 | ) | | * |
| | 145 |
| | (37 | ) | | * |
| |
Restructuring credits—acquisition-related costs(a) | | | $ | (1 | ) | | $ | (206 | ) | | (100 | ) | | $ | — |
| | $ | (214 | ) | | (100 | ) |
Restructuring charges—cost reduction initiatives(b) | | | 341 |
| | 62 |
| | * |
| | 396 |
| | 81 |
| | * |
|
| Restructuring charges/(credits) | | 83 |
| | 1 |
| | * |
| | (50 | ) | | (32 | ) | | 58 |
| | 340 |
| | (144 | ) | | * |
| | 396 |
| | (134 | ) | | * |
|
Transaction costs(c) | | 65 |
| | 1 |
| | * |
| | 65 |
| | 1 |
| | * |
| | 11 |
| | — |
| | * |
| | 14 |
| | — |
| | * |
|
Integration costs and other(c) | | 217 |
| | 82 |
| | * |
| | 281 |
| | 202 |
| | 39 |
| | 11 |
| | 29 |
| | (62 | ) | | 21 |
| | 64 |
| | (67 | ) |
| Restructuring charges and certain acquisition-related costs | | 365 |
| | 85 |
| | * |
| | 295 |
| | 172 |
| | 72 |
| | 362 |
| | (115 | ) | | * |
| | 431 |
| | (69 | ) | | * |
|
| Net periodic benefit costs | | 9 |
| | 41 |
| | (78 | ) | | 19 |
| | 103 |
| | (81 | ) | | 5 |
| | 4 |
| | 24 |
| | 29 |
| | 10 |
| | * |
|
| Additional depreciation—asset restructuring | | 6 |
| | 12 |
| | (50 | ) | | 29 |
| | 43 |
| | (33 | ) | |
| Total additional depreciation—asset restructuring | | | 6 |
| | 10 |
| | (36 | ) | | 6 |
| | 23 |
| | (71 | ) |
| Total implementation costs | | 40 |
| | 48 |
| | (17 | ) | | 109 |
| | 130 |
| | (17 | ) | | 75 |
| | 42 |
| | 77 |
| | 99 |
| | 69 |
| | 45 |
|
Costs associated with acquisitions and cost-reduction/productivity initiatives(d) | | $ | 420 |
| | $ | 186 |
| | * |
| | $ | 452 |
| | $ | 447 |
| | 1 |
| | $ | 449 |
| | $ | (59 | ) | | * |
| | $ | 566 |
| | $ | 32 |
| | * |
|
| * Calculation not meaningful or results are equal to or greater than 100%. | |
| * Indicates calculation not meaningful or results are equal to or greater than 100%. | | * Indicates calculation not meaningful or results are equal to or greater than 100%. |
| |
(a) | Restructuring charges/(credits)––acquisition-related costs includeIncludes employee termination costs, asset impairments and other exit costs associated with business combinations. Charges for the third quarter of 2019 represent employee termination costs related to our acquisition of Array. Credits for the second quarter and the first ninesix months of 2019 were mostly due to the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. an IRS audit for multiple tax years. See Notes to Condensed Consolidated Financial Statements—Statements––Note 5B.5D. Tax Matters: Tax Contingencies.Contingencies Charges for the third quarter of 2018 were primarily due to accruals for exit costs and asset write downs related toin our acquisition of Hospira, and charges for the first nine months of 2018 were mainly 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 Hospira2019 Financial Report.
|
| |
(b) | Restructuring charges/(credits)––cost reduction initiatives relate toIncludes employee termination costs, asset impairments and other exit costs not associated with acquisitions. The charges for the second quarter and the first six months of 2020 primarily represent employee termination costs associated with our Transforming to a More Focused Company program.For the thirdsecond quarter of 2019, the charges were mainly composed of employee termination costs, and exit costs, partially offset by lower asset write-downs, and for the first ninesix months of 2019the charges were mostly related to employee termination costs and exit costs. For the third quarter and first nine months of 2018, the credits were 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) | 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. |
2017-2019 Initiatives and Organizing for GrowthTransforming to a More Focused Company Program
During 2018, as we reviewed our business opportunities and challengesWith the formation of the GSK Consumer Healthcare joint venture and the way in which we think aboutanticipated combination of Upjohn, our business operations, we determined that at the start of our 2019 fiscal year, we would begin operating under our new commercial structure, which reorganized our operations into three businesses––Biopharma,a science-based innovative medicines business; Upjohn, a global, primarily off-patent branded and generic established medicines business; and through July 31, 2019,generics business, with Mylan, Pfizer is transforming itself into a Consumer Healthcare business. To operate effectivelymore focused, global leader in this structure and position ourselves for future growth,science-based innovative medicines. As a result, we are focused on creating a simpler, more efficient operating structure within each business as well as the functions that support them. Beginningbegan, in the fourth quarter of 2018, we reviewed previously planned initiatives2019, to identify and new initiativesundertake efforts to ensure that there was alignment around our new structure and have combined the 2017-2019 initiativescost base aligns appropriately with our current OrganizingBiopharmaceutical revenue base, which is expected to be 20% less (based on the midpoint of the range for Growth initiatives2020 New Pfizer revenue guidance, compared to form one cohesive plan. For2019 Total Company reported revenue) as a result of both the combined programs,completed GSK Consumer Healthcare and expected Upjohn transactions. While certain direct costs have transferred or will transfer to achieve targetedthe GSK Consumer Healthcare joint venture and to the Upjohn entities, there are indirect costs which are not expected to transfer. In addition, we are taking steps to restructure our organizations to appropriately support and drive the purpose of the three core functions of our focused innovative medicines business: R&D, Manufacturing and Commercial.
We expect the costs associated with this multi-year program to be incurred from 2020 through 2022 and to total approximately $1.2 billion on a pre-tax basis, with substantially all of the costs to be cash expenditures. Actions may include, among others, changes in location of certain activities, expanded use and co-location of centers of excellence and shared services, and increased use of digital technologies. The associated actions and the specific costs will primarily include severance and benefit plan impacts, exit costs as well as associated implementation costs. We expect gross cost savings of approximately $2.0 billion,$900 million to be achieved primarily over the two-year period 2021-2022.
Also as part of this program, in connection with the legacy cost reduction initiatives, primarily related to manufacturing activities, we expect to incur costs of approximately $2.0 billion in costs over the three-year period 2017-2019, and approximately $500$400 million, beyond 2019, primarily on manufacturing activities. Of the total $2.5 billion, we expect approximately 50% to be related to
manufacturing operations, and we expectwith approximately 20% of the chargescosts to be non-cash. The costs associated with this effort are expected to be incurred from 2020 through 2022, and will primarily include implementation costs, product transfer costs, exit costs, as well as accelerated depreciation. We expect anticipatedtargeted net cost savings of approximately $200 million, with approximately 30% realized in the first half of 2020, and the remaining expected to be achieved in the second half of 2020 through 20202022.
Savings are expected to be realized primarily in corporate enabling functions and in manufacturing (as described in the Notes to Condensed Consolidated Financial Statements––Note 14A. Segment, Geographic and Other Revenue Information: Segment Information).
Certain qualifying costs associated with this program were recorded in the Organizing for Growth initiativesfourth quarter of approximately $500 million will be reinvested in our R&D pipeline2019 and in sellingthe first and marketing to supportsecond quarters of 2020 and are reflected as Certain Significant Items and excluded from our current and recently launched products and indications. non-GAAP measure of Adjusted Income. See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for additional information.
For additional information about these programsthis program 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.
In addition to thesethis major initiatives,program, 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 | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| Other (income)/deductions––net | | $ | 319 |
| | $ | (414 | ) | | * | | $ | 537 |
| | $ | (1,143 | ) | | * | | $ | (862 | ) | | $ | 126 |
| | * | | $ | (641 | ) | | $ | 218 |
| | * |
| * Calculation not meaningful or results are equal to or greater than 100%. | |
| * Indicates calculation not meaningful or results are equal to or greater than 100%. | | * Indicates 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.
ProvisionProvision/(Benefit) for Taxes on Income
| | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | September 29,
2019 |
| | September 30,
2018 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change | | June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
| Provision for taxes on income | | $ | 3,047 |
| | $ | 66 |
| | * | | $ | 2,566 |
| | $ | 1,270 |
| | * | |
| Provision/(benefit) for taxes on income | | | $ | 519 |
| | $ | (915 | ) | | * | | $ | 993 |
| | $ | (481 | ) | | * |
| Effective tax rate on continuing operations | | 28.4 | % | | 1.6 | % | | 13.4 | % | | 9.9 | % | | | | 13.1 | % | | (22.1 | )% | | 12.7 | % | | (5.7 | )% | | |
| * Calculation not meaningful or results are equal to or greater than 100%. | |
| * Indicates calculation not meaningful or results are equal to or greater than 100%. | | * Indicates calculation not meaningful or results are equal to or greater than 100%. |
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 and vaccines––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 20182019 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.––diluted before 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.
SeeEffective in 2020, the “Non-GAAP Financial Measure (Adjusted Income)––General Descriptionbonus plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part by three metrics, one of Non-GAAP Financial Measure (Adjusted Income)” sectionwhich is Adjusted diluted earnings per share, which is derived from Adjusted income and accounts for 40% of our 2018 Financial Reportthe bonus pool funding. Additionally, the payout for additional information.some Performance Share Awards is determined in part by Adjusted net income, which is derived from Adjusted income.
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 they do not provide a comparable view of our performance relative 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 thirdsecond quarter and first ninesix months of 20192020 and 20182019 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 2016), Medivation (acquired in 2016) and Array (acquired in 2019), 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 charges 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 bebe: (i) gains on the completion of joint venture transactions such as the gain on the completion of the GSK Consumer Healthcare joint venture transaction discussed in Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisitions,Acquisition, Equity-Method Investment and AssetsLicensing Arrangements: Equity-Method Investment, (ii) gains and Liabilities Held for Salelosses from equity securities because of their inherent volatility, which we do not control and Researchcannot predict with any level of certainty and Development Arrangement: Equity-Method Investmentbecause we do not believe that including these gains and Assetslosses assists investors in understanding our business or is reflective of our core operations and Liabilities Held for Sale,business; (iii) a major non-acquisition-related restructuring charge and associated implementation costs; (iv) amounts related to certain disposals of businesses, products or facilities that do not qualify as discontinued operations under U.S. GAAP; (v) certain intangible asset impairments; (vi) adjustments related to the resolution of certain tax positions; (vii) the impact of adopting certain significant, event-driven tax legislation, such as the TCJA discussed in Notes to Condensed Consolidated Financial Statements—Note 5A. Tax Matters: Taxes on Income from Continuing Operations; in Pfizer’s 2019 Financial Report; or (viii) charges related to certain legal matters, such as certain of those discussed in Notes to Condensed Consolidated Financial Statements—Note 12A.13A. Contingencies and 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.
Beginning in 2019, we exclude the net gains and losses on investments in equity securities from our measure of Adjusted income because of their inherent volatility, which we do not control and cannot predict with any level of certainty and because we do not believe that including these gains and losses assists investors in understanding our business or is reflective of our core operations and business. We have revised Adjusted income and Adjusted diluted EPS for the third quarter and first nine months of 2018 to conform with our 2019 presentation.
Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items
| | | | | Three Months Ended September 29, 2019 | | Three Months Ended June 28, 2020 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 12,680 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 12,680 |
| | $ | 11,801 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 11,801 |
|
| Cost of sales | | 2,602 |
| | 4 |
| | — |
| | — |
| | (147 | ) | | 2,459 |
| | 2,281 |
| | 5 |
| | — |
| | — |
| | (49 | ) | | 2,236 |
|
| Selling, informational and administrative expenses | | 3,260 |
| | 1 |
| | — |
| | — |
| | (64 | ) | | 3,196 |
| | 3,030 |
| | (1 | ) | | — |
| | — |
| | (221 | ) | | 2,808 |
|
| Research and development expenses | | 2,283 |
| | 1 |
| | — |
| | — |
| | (343 | ) | | 1,940 |
| | 2,132 |
| | 1 |
| | — |
| | — |
| | (238 | ) | | 1,895 |
|
| Amortization of intangible assets | | 1,212 |
| | (1,140 | ) | | — |
| | — |
| | — |
| | 72 |
| | 905 |
| | (834 | ) | | — |
| | — |
| | — |
| | 71 |
|
| Restructuring charges and certain acquisition-related costs | | 365 |
| | — |
| | (300 | ) | | — |
| | (64 | ) | | — |
| | 362 |
| | — |
| | (21 | ) | | — |
| | (341 | ) | | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | (8,087 | ) | | — |
| | — |
| | — |
| | 8,087 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | 319 |
| | (6 | ) | | — |
| | — |
| | (281 | ) | | 32 |
| | (862 | ) | | (82 | ) | | — |
| | — |
| | 582 |
| | (361 | ) |
| Income from continuing operations before provision for taxes on income | | 10,727 |
| | 1,141 |
| | 300 |
| | — |
| | (7,187 | ) | | 4,981 |
| |
Provision for taxes on income(b) | | 3,047 |
| | 239 |
| | 58 |
| | — |
| | (2,581 | ) | | 763 |
| |
| Income from continuing operations before provision/(benefit) for taxes on income | | | 3,953 |
| | 910 |
| | 21 |
| | — |
| | 268 |
| | 5,152 |
|
Provision/(benefit) for taxes on income(b) | | | 519 |
| | 187 |
| | 5 |
| | — |
| | 30 |
| | 741 |
|
| Income from continuing operations | | 7,680 |
| | 902 |
| | 242 |
| | — |
| | (4,606 | ) | | 4,218 |
| | 3,434 |
| | 723 |
| | 16 |
| | — |
| | 238 |
| | 4,411 |
|
| Discontinued operations––net of tax | | 4 |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | 8 |
|
| Net income attributable to Pfizer Inc. | | 7,680 |
| | 902 |
| | 242 |
| | (4 | ) | | (4,606 | ) | | 4,214 |
| | 3,426 |
| | 723 |
| | 16 |
| | — |
| | 238 |
| | 4,403 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 1.36 |
| | 0.16 |
| | 0.04 |
| | — |
| | (0.82 | ) | | 0.75 |
| | 0.61 |
| | 0.13 |
| | — |
| | — |
| | 0.04 |
| | 0.78 |
|
See end of tables for notesnote (a)and (b).
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 29, 2019 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 39,062 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39,062 |
|
| Cost of sales | | 7,611 |
| | 15 |
| | — |
| | — |
| | (196 | ) | | 7,430 |
|
| Selling, informational and administrative expenses | | 10,110 |
| | 2 |
| | (2 | ) | | — |
| | (139 | ) | | 9,971 |
|
| Research and development expenses | | 5,827 |
| | 3 |
| | — |
| | — |
| | (372 | ) | | 5,458 |
|
| Amortization of intangible assets | | 3,578 |
| | (3,377 | ) | | — |
| | — |
| | — |
| | 201 |
|
| Restructuring charges and certain acquisition-related costs | | 295 |
| | — |
| | (150 | ) | | — |
| | (145 | ) | | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | (8,087 | ) | | — |
| | — |
| | — |
| | 8,087 |
| | — |
|
| Other (income)/deductions––net | | 537 |
| | — |
| | — |
| | — |
| | (740 | ) | | (203 | ) |
| Income from continuing operations before provision for taxes on income | | 19,190 |
| | 3,357 |
| | 152 |
| | — |
| | (6,495 | ) | | 16,204 |
|
Provision for taxes on income(b) | | 2,566 |
| | 685 |
| | 69 |
| | — |
| | (759 | ) | | 2,560 |
|
| Income from continuing operations | | 16,625 |
| | 2,673 |
| | 83 |
| | — |
| | (5,737 | ) | | 13,644 |
|
| Discontinued operations––net of tax | | 4 |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 19 |
| | — |
| | — |
| | — |
| | — |
| | 19 |
|
| Net income attributable to Pfizer Inc. | | 16,609 |
| | 2,673 |
| | 83 |
| | (4 | ) | | (5,737 | ) | | 13,625 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 2.92 |
| | 0.47 |
| | 0.01 |
| | — |
| | (1.01 | ) | | 2.39 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2018 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 13,298 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,298 |
|
| Cost of sales | | 2,694 |
| | 1 |
| | (3 | ) | | — |
| | (19 | ) | | 2,673 |
|
| Selling, informational and administrative expenses | | 3,494 |
| | — |
| | — |
| | — |
| | (23 | ) | | 3,471 |
|
| Research and development expenses | | 2,008 |
| | 1 |
| | — |
| | — |
| | (11 | ) | | 1,998 |
|
| Amortization of intangible assets | | 1,253 |
| | (1,182 | ) | | — |
| | — |
| | — |
| | 71 |
|
| Restructuring charges and certain acquisition-related costs | | 85 |
| | — |
| | (107 | ) | | — |
| | 22 |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (414 | ) | | (130 | ) | | (2 | ) | | — |
| | 329 |
| | (217 | ) |
| Income from continuing operations before provision for taxes on income | | 4,177 |
| | 1,309 |
| | 112 |
| | — |
| | (298 | ) | | 5,300 |
|
Provision for taxes on income(b) | | 66 |
| | 263 |
| | 21 |
| | — |
| | 363 |
| | 712 |
|
| Income from continuing operations | | 4,111 |
| | 1,047 |
| | 91 |
| | — |
| | (661 | ) | | 4,588 |
|
| Discontinued operations––net of tax | | 11 |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 8 |
| | — |
| | — |
| | — |
| | — |
| | 8 |
|
| Net income attributable to Pfizer Inc. | | 4,114 |
| | 1,047 |
| | 91 |
| | (11 | ) | | (661 | ) | | 4,580 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 0.69 |
| | 0.17 |
| | 0.02 |
| | — |
| | (0.11 | ) | | 0.77 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 28, 2020 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 23,829 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 23,829 |
|
| Cost of sales | | 4,658 |
| | 9 |
| | — |
| | — |
| | (81 | ) | | 4,586 |
|
| Selling, informational and administrative expenses | | 5,903 |
| | — |
| | — |
| | — |
| | (351 | ) | | 5,553 |
|
| Research and development expenses | | 3,856 |
| | 3 |
| | — |
| | — |
| | (236 | ) | | 3,622 |
|
| Amortization of intangible assets | | 1,790 |
| | (1,648 | ) | | — |
| | — |
| | — |
| | 142 |
|
| Restructuring charges and certain acquisition-related costs | | 431 |
| | — |
| | (35 | ) | | — |
| | (396 | ) | | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | (6 | ) | | — |
| | — |
| | — |
| | 6 |
| | — |
|
| Other (income)/deductions––net | | (641 | ) | | (85 | ) | | — |
| | — |
| | 179 |
| | (547 | ) |
| Income from continuing operations before provision/(benefit) for taxes on income | | 7,838 |
| | 1,722 |
| | 34 |
| | — |
| | 879 |
| | 10,474 |
|
Provision/(benefit) for taxes on income(b) | | 993 |
| | 367 |
| | 8 |
| | — |
| | 170 |
| | 1,539 |
|
| Income from continuing operations | | 6,845 |
| | 1,355 |
| | 26 |
| | — |
| | 709 |
| | 8,934 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 17 |
| | — |
| | — |
| | — |
| | — |
| | 17 |
|
| Net income attributable to Pfizer Inc. | | 6,828 |
| | 1,355 |
| | 26 |
| | — |
| | 709 |
| | 8,917 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 1.22 |
| | 0.24 |
| | — |
| | — |
| | 0.13 |
| | 1.59 |
|
| | | | | Nine Months Ended September 30, 2018 | | Three Months Ended June 30, 2019 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) | | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
| | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) |
| | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 39,670 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 39,670 |
| | $ | 13,264 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,264 |
|
| Cost of sales | | 8,173 |
| | (2 | ) | | (9 | ) | | — |
| | (77 | ) | | 8,086 |
| | 2,576 |
| | 6 |
| | — |
| | — |
| | (26 | ) | | 2,556 |
|
| Selling, informational and administrative expenses | | 10,448 |
| | 1 |
| | — |
| | — |
| | (185 | ) | | 10,264 |
| | 3,511 |
| | 1 |
| | (1 | ) | | — |
| | (47 | ) | | 3,464 |
|
| Research and development expenses | | 5,549 |
| | 3 |
| | — |
| | — |
| | (26 | ) | | 5,526 |
| | 1,842 |
| | 1 |
| | — |
| | — |
| | (18 | ) | | 1,825 |
|
| Amortization of intangible assets | | 3,640 |
| | (3,428 | ) | | — |
| | — |
| | — |
| | 212 |
| | 1,184 |
| | (1,117 | ) | | — |
| | — |
| | — |
| | 67 |
|
| Restructuring charges and certain acquisition-related costs | | 172 |
| | — |
| | (209 | ) | | — |
| | 37 |
| | — |
| | (115 | ) | | — |
| | 177 |
| | — |
| | (62 | ) | | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (1,143 | ) | | (238 | ) | | (4 | ) | | — |
| | 702 |
| | (683 | ) | | 126 |
| | (70 | ) | | — |
| | — |
| | (156 | ) | | (100 | ) |
| Income from continuing operations before provision for taxes on income | | 12,831 |
| | 3,665 |
| | 221 |
| | — |
| | (452 | ) | | 16,265 |
| |
Provision for taxes on income(b) | | 1,270 |
| | 735 |
| | 40 |
| | — |
| | 468 |
| | 2,513 |
| |
| Income from continuing operations before provision/(benefit) for taxes on income | | | 4,141 |
| | 1,178 |
| | (176 | ) | | — |
| | 309 |
| | 5,452 |
|
Provision/(benefit) for taxes on income(b) | | | (915 | ) | | 222 |
| | 6 |
| | — |
| | 1,610 |
| | 923 |
|
| Income from continuing operations | | 11,562 |
| | 2,930 |
| | 182 |
| | — |
| | (921 | ) | | 13,752 |
| | 5,056 |
| | 957 |
| | (182 | ) | | — |
| | (1,301 | ) | | 4,529 |
|
| Discontinued operations––net of tax | | 10 |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 25 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 10 |
| | — |
| | — |
| | — |
| | — |
| | 10 |
|
| Net income attributable to Pfizer Inc. | | 11,546 |
| | 2,930 |
| | 182 |
| | (10 | ) | | (921 | ) | | 13,727 |
| | 5,046 |
| | 957 |
| | (182 | ) | | — |
| | (1,301 | ) | | 4,520 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 1.92 |
| | 0.49 |
| | 0.03 |
| | — |
| | (0.15 | ) | | 2.29 |
| | 0.89 |
| | 0.17 |
| | (0.03 | ) | | — |
| | (0.23 | ) | | 0.80 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| IN MILLIONS, EXCEPT PER COMMON SHARE DATA | | GAAP Reported |
| | Purchase Accounting Adjustments(a) |
| | Acquisition-Related Items(a) | | Discontinued Operations(a) |
| | Certain Significant Items(a) |
| | Non-GAAP Adjusted |
|
| Revenues | | $ | 26,382 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 26,382 |
|
| Cost of sales | | 5,009 |
| | 10 |
| | — |
| | — |
| | (48 | ) | | 4,971 |
|
| Selling, informational and administrative expenses | | 6,850 |
| | 1 |
| | (2 | ) | | — |
| | (74 | ) | | 6,775 |
|
| Research and development expenses | | 3,544 |
| | 3 |
| | — |
| | — |
| | (29 | ) | | 3,518 |
|
| Amortization of intangible assets | | 2,367 |
| | (2,237 | ) | | — |
| | — |
| | — |
| | 130 |
|
| Restructuring charges and certain acquisition-related costs | | (69 | ) | | — |
| | 150 |
| | — |
| | (81 | ) | | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | 218 |
| | 6 |
| | — |
| | — |
| | (459 | ) | | (235 | ) |
| Income from continuing operations before provision/(benefit) for taxes on income | | 8,463 |
| | 2,217 |
| | (148 | ) | | — |
| | 691 |
| | 11,223 |
|
Provision/(benefit) for taxes on income(b) | | (481 | ) | | 446 |
| | 11 |
| | — |
| | 1,822 |
| | 1,797 |
|
| Income from continuing operations | | 8,945 |
| | 1,771 |
| | (159 | ) | | — |
| | (1,131 | ) | | 9,426 |
|
| Discontinued operations––net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net income attributable to noncontrolling interests | | 15 |
| | — |
| | — |
| | — |
| | — |
| | 15 |
|
| Net income attributable to Pfizer Inc. | | 8,929 |
| | 1,771 |
| | (159 | ) | | — |
| | (1,131 | ) | | 9,410 |
|
| Earnings per common share attributable to Pfizer Inc.––diluted | | 1.56 |
| | 0.31 |
| | (0.03 | ) | | — |
| | (0.20 | ) | | 1.65 |
|
| |
(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 15.3%14.4% in the thirdsecond quarter of 2020, compared to 16.9% in the second quarter of 2019, compared to 13.4% in the third quarter of 2018. The increase was primarily due to a decrease in tax benefits associated with the resolution of certain tax positions pertaining to prior years primarily with foreign tax authorities. The effective tax rate on Non-GAAP Adjusted income was 15.8%14.7% in the first ninesix months of 20192020, compared to 15.4%16.0% in the first ninesix months of 2018.2019. The increase wasdecreases were primarily due to a decrease in tax benefits associated with the resolution of certain tax positions pertaining to prior years primarily with foreign tax authorities, partially offset by the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business. |
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 | | Six Months Ended |
| (MILLIONS OF DOLLARS) | | September 29,
2019 |
| | September 30,
2018 |
| | September 29,
2019 |
| | September 30,
2018 |
| | June 28,
2020 |
| | June 30,
2019 |
| | June 28,
2020 |
| | June 30,
2019 |
|
| Purchase accounting adjustments | | | | | | | | | | | | | | | | |
Amortization, depreciation and other(a) | | $ | 1,145 |
| | $ | 1,310 |
| | $ | 3,372 |
| | $ | 3,662 |
| | $ | 915 |
| | $ | 1,185 |
| | $ | 1,731 |
| | $ | 2,227 |
|
| Cost of sales | | (4 | ) | | (1 | ) | | (15 | ) | | 2 |
| | (5 | ) | | (6 | ) | | (9 | ) | | (10 | ) |
| Total purchase accounting adjustments––pre-tax | | 1,141 |
| | 1,309 |
| | 3,357 |
| | 3,665 |
| | 910 |
| | 1,178 |
| | 1,722 |
| | 2,217 |
|
Income taxes(b) | | (239 | ) | | (263 | ) | | (685 | ) | | (735 | ) | | (187 | ) | | (222 | ) | | (367 | ) | | (446 | ) |
| Total purchase accounting adjustments––net of tax | | 902 |
| | 1,047 |
| | 2,673 |
| | 2,930 |
| | 723 |
| | 957 |
| | 1,355 |
| | 1,771 |
|
| Acquisition-related items | | | | |
| | |
| | |
| |
Restructuring charges/(credits)(c) | | 19 |
| | 24 |
| | (196 | ) | | 5 |
| |
| Acquisition-related costs | | | | | |
| | |
| | |
|
Restructuring credits(c) | | | (1 | ) | | (206 | ) | | — |
| | (214 | ) |
Transaction costs(c) | | 65 |
| | 1 |
| | 65 |
| | 1 |
| | 11 |
| | — |
| | 14 |
| | — |
|
Integration costs and other(c) | | 217 |
| | 82 |
| | 281 |
| | 202 |
| | 11 |
| | 29 |
| | 21 |
| | 64 |
|
| Net periodic benefit costs other than service costs | | — |
| | 2 |
| | — |
| | 4 |
| |
Additional depreciation––asset restructuring(d) | | — |
| | 3 |
| | 2 |
| | 9 |
| | — |
| | 1 |
| | — |
| | 2 |
|
| Total acquisition-related items––pre-tax | | 300 |
| | 112 |
| | 152 |
| | 221 |
| |
| Total acquisition-related costs––pre-tax | | | 21 |
| | (176 | ) | | 34 |
| | (148 | ) |
Income taxes(e) | | (58 | ) | | (21 | ) | | (69 | ) | | (40 | ) | | (5 | ) | | (6 | ) | | (8 | ) | | (11 | ) |
| Total acquisition-related items––net of tax | | 242 |
| | 91 |
| | 83 |
| | 182 |
| |
| Total acquisition-related costs––net of tax | | | 16 |
| | (182 | ) | | 26 |
| | (159 | ) |
| Discontinued operations | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Total discontinued operations––net of tax, attributable to Pfizer Inc.(f) | | (4 | ) | | (11 | ) | | (4 | ) | | (10 | ) | | — |
| | — |
| | — |
| | — |
|
| Certain significant items | | | | |
| | |
| | |
| | | | |
| | |
| | |
|
Restructuring charges/(credits)––cost reduction initiatives(g) | | 64 |
| | (22 | ) | | 145 |
| | (37 | ) | |
Restructuring charges––cost reduction initiatives(g) | | | 341 |
| | 62 |
| | 396 |
| | 81 |
|
Implementation costs and additional depreciation––asset restructuring(h) | | 46 |
| | 57 |
| | 135 |
| | 164 |
| | 82 |
| | 51 |
| | 106 |
| | 89 |
|
Net gains recognized during the period on equity securities(i) | | | (696 | ) | | (25 | ) | | (501 | ) | | (136 | ) |
Certain legal matters, net(i) | | 63 |
| | 37 |
| | 72 |
| | (70 | ) | | 17 |
| | 15 |
| | 26 |
| | 9 |
|
Certain asset impairments(i) | | — |
| | — |
| | 149 |
| | 31 |
| | — |
| | 10 |
| | — |
| | 149 |
|
Business and legal entity alignment costs(i)(j) | | 89 |
| | 1 |
| | 353 |
| | 5 |
| | 174 |
| | 141 |
| | 289 |
| | 264 |
|
Net gains recognized during the period on investments in equity securities(i) | | (3 | ) | | (85 | ) | | (139 | ) | | (460 | ) | |
(Gain) on completion of Consumer Healthcare JV transaction(j) | | (8,087 | ) | | — |
| | (8,087 | ) | | — |
| |
Net losses on early retirement of debt(i) | | — |
| | — |
| | 138 |
| | 3 |
| | — |
| | — |
| | — |
| | 138 |
|
Other(k) | | 641 |
| | (286 | ) | | 738 |
| | (89 | ) | | 350 |
| | 56 |
| | 563 |
| | 97 |
|
| Total certain significant items––pre-tax | | (7,187 | ) | | (298 | ) | | (6,495 | ) | | (452 | ) | | 268 |
| | 309 |
| | 879 |
| | 691 |
|
Income taxes(l) | | 2,581 |
| | (363 | ) | | 759 |
| | (468 | ) | | (30 | ) | | (1,610 | ) | | (170 | ) | | (1,822 | ) |
| Total certain significant items––net of tax | | (4,606 | ) | | (661 | ) | | (5,737 | ) | | (921 | ) | | 238 |
| | (1,301 | ) | | 709 |
| | (1,131 | ) |
| Total purchase accounting adjustments, acquisition-related items, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | | $ | (3,466 | ) | | $ | 466 |
| | $ | (2,984 | ) | | $ | 2,181 |
| |
| Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | | | $ | 977 |
| | $ | (526 | ) | | $ | 2,090 |
| | $ | 481 |
|
| |
(a) | Included primarily in Amortization of intangible assets. |
| |
(b) | Included in Provision /(benefit) 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/(credits) includes employee termination costs, asset impairments and other exit costs associated with business combinations. Transaction costs represent external costs for banking, legal, accounting and other similar services. Integration costs and other represent external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. For additional information, 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. |
| |
(d) | Included in Selling, informational and administrative expenses for the ninethree and six months ended September 29,June 30, 2019 and in Cost of sales for the three and nine months ended September 30, 2018. Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions related to acquisitions. |
| |
(e) | Included in ProvisionProvision/(benefit) 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 second quarter and first ninesix months of 2019 include the impact of the non-taxable reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S.an IRS audit for multiple tax years. |
| |
(f) | Included in Discontinued operations––net of tax. |
| |
(g) | 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 costs (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). |
| |
(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 September 29,June 28, 2020, primarily included in Cost of sales ($16 million) and Selling, informational and administrative expenses ($63 million). For the six months ended June 28, 2020, primarily included in Cost of sales ($31 million) and Selling, informational and administrative expenses ($78 million). For the three months ended June 30, 2019, included in Cost of sales ($2024 million), Selling, informational and administrative expenses ($2316 million) and Research and development expenses ($11 million). For the six months ended June 30, 2019, included in Cost of sales ($46 million), Selling, informational and administrative expenses ($25 million) and Research and development expenses ($3 million). For the nine months ended September 29, 2019, included in Cost of sales ($65 million), Selling, informational and administrative expenses ($48 million) and Research and development expenses ($21 million). 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 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 ($2218 million). |
| |
(i) | Included in Other (income)/deductions—net except for business and legal entity alignment costs that are primarily included in Other (income)/deductions—net (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
| |
(j) | IncludedFor the three months ended June 28, 2020, primarily included in (Gain) on completionCost of Consumer Healthcare JV transactionsales (see notes to Condensed Consolidated Financial Statements––$30 million) and Note 2B.Selling, informational and administrative expenses Acquisitions, Equity-Method Investment($138 million), and Assetsfor the six months ended June 28, 2020, primarily included in Cost of sales ($45 million) and Liabilities Held for SaleSelling, informational and Research and Development Arrangement:Equity-Method Investment and Assets and Liabilities Held for Sale).administrative
|
expenses ($235 million) and primarily represents legal entity restructuring, as well as separation costs associated with our planned Upjohn transaction with Mylan, and mainly includes consulting, legal, tax and advisory services. For the three and six months ended June 30, 2019, primarily included in Other (income)/deductions––net and represented incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily included consulting, legal, tax and advisory services.
| |
(k)(k)
| For the three months ended September 29, 2019,June 28, 2020, primarily included in Cost of salesSelling, informational and administrative expenses ($12821 million),Research and development expenses ($229 million) and Other (income)/deductions––net ($97 million). For the first six months of 2020, primarily included in Selling, informational and administrative expenses ($3937 million), Research and development expenses ($230 million)and Other (income)/deductions––net ($296 million). For the three months ended June 30, 2019, primarily included in Selling, informational and administrative expenses ($28 million) and Other (income)/deductions––net ($19 million). For the first six months of 2019, primarily included in Selling, informational and administrative expenses ($41 million), Research and development expenses ($34011 million) and Other (income)/deductions––net ($134($43 million). For the nine months ended September 29, 2019, included in Cost of sales ($130 million), Selling, informational and administrative expenses ($80 million), Research and development expenses ($351 million) and Other (income)/deductions––net ($178 million). For the three months ended September 30, 2018, included in Cost of sales ($12 million income), Selling, informational and administrative expenses ($6 million), Research and development expenses ($2 million) and Other (income)/deductions––net ($282 million income). For the nine months ended September 30, 2018, included in Cost of sales ($14 million income), Selling, informational and administrative expenses ($134 million), Research and development expenses ($3 million), and Other (income)/deductions––net ($212 million income). The third quarter and first nine months of 2019 include, amongAmong other things, (i) a $337 million charge in Research and development expenses related to our acquisition of Therachon and (ii) a $127 million charge for rivipansel in Cost of sales, primarilyfor inventory manufactured for expected future sale. In addition, the thirdsecond quarter of 20192020 includes charges of $161$85 million and the first ninesix months of 2019 include2020 includes charges of $223$245 million primarilyrecorded in Other (income)/deductions––net,primarily representing our pro rata share of restructuring and Selling, informational and administrative expenses, for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity associated with the formation ofcombination accounting charges recorded by the GSK Consumer Healthcare joint venture. The thirdsecond quarter and first ninesix months of 20182020 also include among other things, a non-cash $343upfront payments of $130 million pre-tax gain into Valneva SE and $72 million to BioNTech SE, which were recorded to Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continueResearch and development of a portfolio of clinical and pre-clinical 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 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 asset contribution agreement entered into with Allogene.expenses. |
| |
(l) | Included in ProvisionProvision/(benefit) 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 thirdsecond quarter and first nine months of 2019 were impacted by the tax expense associated with the gain related to the completion of the Consumer Healthcare joint venture transaction with GSK. The first ninesix months of 2019 were favorably impacted primarily by a benefit recorded of approximately $1.4 billion, representing tax and interest, resulting from the favorable settlement of a U.S.an IRS audit for multiple tax years, as well as the tax benefit recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the TCJA. The third quarter and nine months ended September 30, 2018 were favorably impacted by the December 2017 enactment of the TCJA, primarily related to certain tax initiatives, as well as favorable adjustments to the provisional estimate of the impact of the legislation. |
Analysis of Operating Segment Information
The following tables and associated notes provide additional information about the performance of each of our two reportable operating segments—Biopharma and Upjohn, and our Consumer Healthcare operating segment through July 31, 2019. For additional information about each operating segment, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook—Our Strategy—Organizing for Growth” and “—Commercial Operations” sectionssection of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 13.14. Segment, Geographic and Other Revenue Information.
Acquisitions and other business development activities completed in 2019 and in the first half of 2020, including the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture, have impacted ourfinancial results of operations in 2019.the periods presented. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1A.Basis of Presentation and Significant Accounting Policies: Basis of Presentation.Presentation
| | 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 2019 | | Second Quarter of 2020 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
| | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 10,108 |
| | $ | 2,195 |
| | $ | 377 |
| | $ | 12,680 |
| | $ | — |
| | $ | 12,680 |
| | $ | 9,795 |
| | $ | 2,006 |
| | $ | — |
| | $ | 11,801 |
| | $ | — |
| | $ | 11,801 |
|
| Cost of sales | | 1,869 |
| | 425 |
| | 164 |
| | 2,459 |
| | 143 |
| | 2,602 |
| | 1,713 |
| | 506 |
| | 17 |
| | 2,236 |
| | 44 |
| | 2,281 |
|
| % of revenue | | 18.5 | % |
| 19.4 | % |
| * |
|
| 19.4 | % |
| * |
|
| 20.5 | % | | 17.5 | % |
| 25.2 | % |
| * |
|
| 18.9 | % |
| * |
|
| 19.3 | % |
| Selling, informational and administrative expenses | | 1,602 |
| | 360 |
| | 1,234 |
| | 3,196 |
| | 64 |
| | 3,260 |
| | 1,488 |
| | 273 |
| | 1,047 |
| | 2,808 |
| | 222 |
| | 3,030 |
|
| Research and development expenses | | 256 |
| | 57 |
| | 1,628 |
| | 1,940 |
| | 343 |
| | 2,283 |
| | 216 |
| | 56 |
| | 1,623 |
| | 1,895 |
| | 237 |
| | 2,132 |
|
| Amortization of intangible assets | | 71 |
| | — |
| | — |
| | 72 |
| | 1,140 |
| | 1,212 |
| | 71 |
| | — |
| | — |
| | 71 |
| | 834 |
| | 905 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 365 |
| | 365 |
| | — |
| | — |
| | — |
| | — |
| | 362 |
| | 362 |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | (8,087 | ) | | (8,087 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (193 | ) | | — |
| | 226 |
| | 32 |
| | 287 |
| | 319 |
| | (342 | ) | | 2 |
| | (21 | ) | | (361 | ) | | (501 | ) | | (862 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | 6,503 |
| | 1,353 |
| | (2,874 | ) | | 4,981 |
| | 5,746 |
| | 10,727 |
| |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | | 6,650 |
| | 1,168 |
| | (2,666 | ) | | 5,152 |
| | (1,199 | ) | | 3,953 |
|
See end of tables for notes (a) through (d). |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 29, 2019 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 28,887 |
| | $ | 8,077 |
| | $ | 2,098 |
| | $ | 39,062 |
| | $ | — |
| | $ | 39,062 |
|
| Cost of sales | | 5,488 |
| | 1,268 |
| | 674 |
| | 7,430 |
| | 181 |
| | 7,611 |
|
| % of revenue | | 19.0 | % | | 15.7 | % | | * |
| | 19.0 | % | | * |
| | 19.5 | % |
| Selling, informational and administrative expenses | | 4,821 |
| | 1,064 |
| | 4,087 |
| | 9,971 |
| | 139 |
| | 10,110 |
|
| Research and development expenses | | 623 |
| | 169 |
| | 4,667 |
| | 5,458 |
| | 369 |
| | 5,827 |
|
| Amortization of intangible assets | | 201 |
| | 1 |
| | — |
| | 201 |
| | 3,377 |
| | 3,578 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 295 |
| | 295 |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | (8,087 | ) | | (8,087 | ) |
| Other (income)/deductions––net | | (729 | ) | | (2 | ) | | 528 |
| | (203 | ) | | 740 |
| | 537 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | 18,484 |
| | 5,577 |
| | (7,857 | ) | | 16,204 |
| | 2,986 |
| | 19,190 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter of 2018 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 9,422 |
| | $ | 3,036 |
| | $ | 839 |
| | $ | 13,298 |
| | $ | — |
| | $ | 13,298 |
|
| Cost of sales | | 1,673 |
| | 476 |
| | 524 |
| | 2,673 |
| | 21 |
| | 2,694 |
|
| % of revenue | | 17.8 | % |
| 15.7 | % |
| * |
|
| 20.1 | % |
| * |
|
| 20.3 | % |
| Selling, informational and administrative expenses | | 1,626 |
| | 439 |
| | 1,406 |
| | 3,471 |
| | 23 |
| | 3,494 |
|
| Research and development expenses | | 215 |
| | 67 |
| | 1,717 |
| | 1,998 |
| | 10 |
| | 2,008 |
|
| Amortization of intangible assets | | 66 |
| | — |
| | 5 |
| | 71 |
| | 1,182 |
| | 1,253 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 85 |
| | 85 |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (364 | ) | | 3 |
| | 144 |
| | (217 | ) | | (197 | ) | | (414 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | 6,206 |
| | 2,051 |
| | (2,956 | ) | | 5,300 |
| | (1,123 | ) | | 4,177 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 28, 2020 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 19,802 |
| | $ | 4,027 |
| | $ | — |
| | $ | 23,829 |
| | $ | — |
| | $ | 23,829 |
|
| Cost of sales | | 3,488 |
| | 1,003 |
| | 95 |
| | 4,586 |
| | 73 |
| | 4,658 |
|
| % of revenue | | 17.6 | % | | 24.9 | % | | * |
| | 19.2 | % | | * |
| | 19.5 | % |
| Selling, informational and administrative expenses | | 2,980 |
| | 560 |
| | 2,013 |
| | 5,553 |
| | 350 |
| | 5,903 |
|
| Research and development expenses | | 401 |
| | 110 |
| | 3,110 |
| | 3,622 |
| | 234 |
| | 3,856 |
|
| Amortization of intangible assets | | 141 |
| | — |
| | — |
| | 142 |
| | 1,648 |
| | 1,790 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 431 |
| | 431 |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) |
| Other (income)/deductions––net | | (588 | ) | | (5 | ) | | 45 |
| | (547 | ) | | (94 | ) | | (641 | ) |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | 13,379 |
| | 2,359 |
| | (5,264 | ) | | 10,474 |
| | (2,635 | ) | | 7,838 |
|
| | | | | Nine Months Ended September 30, 2018 | | Second Quarter of 2019 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
| | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 27,737 |
| | $ | 9,302 |
| | $ | 2,631 |
| | $ | 39,670 |
| | $ | — |
| | $ | 39,670 |
| | $ | 9,432 |
| | $ | 2,970 |
| | $ | 862 |
| | $ | 13,264 |
| | $ | — |
| | $ | 13,264 |
|
| Cost of sales | | 5,242 |
| | 1,453 |
| | 1,391 |
| | 8,086 |
| | 87 |
| | 8,173 |
| | 1,732 |
| | 551 |
| | 273 |
| | 2,556 |
| | 20 |
| | 2,576 |
|
| % of revenue | | 18.9 | % | | 15.6 | % | | * |
| | 20.4 | % | | * |
| | 20.6 | % | | 18.4 | % |
| 18.6 | % |
| * |
|
| 19.3 | % |
| * |
|
| 19.4 | % |
| Selling, informational and administrative expenses | | 4,765 |
| | 1,239 |
| | 4,261 |
| | 10,264 |
| | 183 |
| | 10,448 |
| | 1,685 |
| | 385 |
| | 1,394 |
| | 3,464 |
| | 48 |
| | 3,511 |
|
| Research and development expenses | | 583 |
| | 173 |
| | 4,770 |
| | 5,526 |
| | 23 |
| | 5,549 |
| | 200 |
| | 60 |
| | 1,565 |
| | 1,825 |
| | 16 |
| | 1,842 |
|
| Amortization of intangible assets | | 177 |
| | — |
| | 34 |
| | 212 |
| | 3,428 |
| | 3,640 |
| | 67 |
| | — |
| | — |
| | 67 |
| | 1,117 |
| | 1,184 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | 172 |
| | 172 |
| | — |
| | — |
| | — |
| | — |
| | (115 | ) | | (115 | ) |
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (1,016 | ) | | (4 | ) | | 337 |
| | (683 | ) | | (460 | ) | | (1,143 | ) | | (323 | ) | | 1 |
| | 222 |
| | (100 | ) | | 226 |
| | 126 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | 17,987 |
| | 6,442 |
| | (8,163 | ) | | 16,265 |
| | (3,434 | ) | | 12,831 |
| |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | | 6,071 |
| | 1,973 |
| | (2,592 | ) | | 5,452 |
| | (1,311 | ) | | 4,141 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| (MILLIONS OF DOLLARS) | | Biopharma(a) |
| | Upjohn(a) |
| | Other(b) |
| | Non-GAAP
Adjusted(c) |
| | Reconciling Items(d) |
| | GAAP Reported |
|
| Revenues | | $ | 18,477 |
| | $ | 6,184 |
| | $ | 1,721 |
| | $ | 26,382 |
| | $ | — |
| | $ | 26,382 |
|
| Cost of sales | | 3,374 |
| | 1,088 |
| | 510 |
| | 4,971 |
| | 38 |
| | 5,009 |
|
| % of revenue | | 18.3 | % | | 17.6 | % | | * |
| | 18.8 | % | | * |
| | 19.0 | % |
| Selling, informational and administrative expenses | | 3,201 |
| | 722 |
| | 2,853 |
| | 6,775 |
| | 75 |
| | 6,850 |
|
| Research and development expenses | | 364 |
| | 115 |
| | 3,039 |
| | 3,518 |
| | 26 |
| | 3,544 |
|
| Amortization of intangible assets | | 129 |
| | — |
| | — |
| | 130 |
| | 2,237 |
| | 2,367 |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | (69 | ) | | (69 | ) |
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (545 | ) | | 8 |
| | 302 |
| | (235 | ) | | 453 |
| | 218 |
|
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | 11,954 |
| | 4,251 |
| | (4,983 | ) | | 11,223 |
| | (2,760 | ) | | 8,463 |
|
| |
| * | Indicates calculation not meaningful or result is equal to or greater than 100%. |
| |
(a) | Amounts represent the revenues and costs managed by each of the Biopharma and Upjohn reportable operating segments for the periods presented. The expenses generally include only those costs directly attributable to the operating segment. |
| |
(b) | Other comprises the revenues and costs included in our Adjusted income components (see footnote (c) below) that are managed outside Biopharma and Upjohn and includes the following: |
| | | | | Third Quarter of 2019 | | Second Quarter of 2020 |
| | | Other Business Activities | | | | | Other Business Activities | | | |
| (MILLIONS OF DOLLARS) | | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
| | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | 377 |
| | $ | — |
| | $ | 377 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | — |
| | — |
| | 113 |
| | 51 |
| | 164 |
| | — |
| | — |
| | — |
| | 17 |
| | 17 |
|
| Selling, informational and administrative expenses | | 34 |
| | — |
| | 263 |
| | 936 |
| | 1,234 |
| | 40 |
| | — |
| | 107 |
| | 900 |
| | 1,047 |
|
| Research and development expenses | | 582 |
| | 816 |
| | 19 |
| | 210 |
| | 1,628 |
| | 646 |
| | 727 |
| | 6 |
| | 245 |
| | 1,623 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (9 | ) | | 1 |
| | — |
| | 234 |
| | 226 |
| | — |
| | 5 |
| | — |
| | (25 | ) | | (21 | ) |
| Income/(loss) from continuing operations before provision for taxes on income | | (608 | ) | | (817 | ) | | (19 | ) | | (1,431 | ) | | (2,874 | ) | |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | | (685 | ) | | (732 | ) | | (113 | ) | | (1,136 | ) | | (2,666 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 29, 2019 |
| | | Other Business Activities | | |
| (MILLIONS OF DOLLARS) | | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | 2,098 |
| | $ | — |
| | $ | 2,098 |
|
| Cost of sales | | — |
| | 1 |
| | 663 |
| | 9 |
| | 674 |
|
| Selling, informational and administrative expenses | | 84 |
| | — |
| | 1,058 |
| | 2,944 |
| | 4,087 |
|
| Research and development expenses | | 1,662 |
| | 2,306 |
| | 82 |
| | 617 |
| | 4,667 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (11 | ) | | — |
| | — |
| | 538 |
| | 528 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | (1,736 | ) | | (2,308 | ) | | 294 |
| | (4,108 | ) | | (7,857 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 28, 2020 |
| | | Other Business Activities | | |
| (MILLIONS OF DOLLARS) | | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Cost of sales | | (1 | ) | | 1 |
| | — |
| | 96 |
| | 95 |
|
| Selling, informational and administrative expenses | | 68 |
| | — |
| | 213 |
| | 1,732 |
| | 2,013 |
|
| Research and development expenses | | 1,224 |
| | 1,498 |
| | 11 |
| | 376 |
| | 3,110 |
|
| Amortization of intangible assets | | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | 2 |
| | 1 |
| | 1 |
| | 41 |
| | 45 |
|
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | (1,293 | ) | | (1,499 | ) | | (226 | ) | | (2,245 | ) | | (5,264 | ) |
| | | | | Third Quarter of 2018 | | Second Quarter of 2019 |
| | | Other Business Activities | | | | | | Other Business Activities | | | | |
| (MILLIONS OF DOLLARS) | | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
| | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | 839 |
| | $ | — |
| | $ | 839 |
| | $ | — |
| | $ | — |
| | $ | 862 |
| | $ | — |
| | $ | 862 |
|
| Cost of sales | | — |
| | 3 |
| | 281 |
| | 240 |
| | 524 |
| | — |
| | 1 |
| | 276 |
| | (4 | ) | | 273 |
|
| Selling, informational and administrative expenses | | 35 |
| | — |
| | 416 |
| | 955 |
| | 1,406 |
| | 29 |
| | — |
| | 407 |
| | 958 |
| | 1,394 |
|
| Research and development expenses | | 546 |
| | 806 |
| | 42 |
| | 323 |
| | 1,717 |
| | 548 |
| | 764 |
| | 32 |
| | 221 |
| | 1,565 |
|
| Amortization of intangible assets | | — |
| | — |
| | 11 |
| | (6 | ) | | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (3 | ) | | (8 | ) | | 9 |
| | 146 |
| | 144 |
| | (1 | ) | | 1 |
| | (1 | ) | | 224 |
| | 222 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | (578 | ) | | (801 | ) | | 80 |
| | (1,658 | ) | | (2,956 | ) | |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | | (576 | ) | | (765 | ) | | 148 |
| | (1,399 | ) | | (2,592 | ) |
| | | | | Nine Months Ended September 30, 2018 | | Six Months Ended June 30, 2019 |
| | | Other Business Activities | | | | | | Other Business Activities | | | | |
| (MILLIONS OF DOLLARS) | | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
| | WRDM(i) |
| | GPD(ii) |
| | Other(iii) |
| | Corporate and Other Unallocated(iv) |
| | Total |
|
| Revenues | | $ | — |
| | $ | — |
| | $ | 2,631 |
| | $ | — |
| | $ | 2,631 |
| | $ | — |
| | $ | — |
| | $ | 1,721 |
| | $ | — |
| | $ | 1,721 |
|
| Cost of sales | | — |
| | — |
| | 870 |
| | 521 |
| | 1,391 |
| | — |
| | 1 |
| | 550 |
| | (42 | ) | | 510 |
|
| Selling, informational and administrative expenses | | 98 |
| | — |
| | 1,250 |
| | 2,913 |
| | 4,261 |
| | 50 |
| | — |
| | 795 |
| | 2,008 |
| | 2,853 |
|
| Research and development expenses | | 1,644 |
| | 2,318 |
| | 130 |
| | 678 |
| | 4,770 |
| | 1,080 |
| | 1,490 |
| | 63 |
| | 406 |
| | 3,039 |
|
| Amortization of intangible assets | | — |
| | — |
| | 34 |
| | — |
| | 34 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restructuring charges and certain acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net | | (107 | ) | | (10 | ) | | 8 |
| | 446 |
| | 337 |
| | (2 | ) | | — |
| | — |
| | 304 |
| | 302 |
|
| Income/(loss) from continuing operations before provision for taxes on income | | (1,636 | ) | | (2,308 | ) | | 339 |
| | (4,558 | ) | | (8,163 | ) | |
| Income/(loss) from continuing operations before provision/(benefit) for taxes on income | | | (1,128 | ) | | (1,491 | ) | | 313 |
| | (2,676 | ) | | (4,983 | ) |
| |
(i) | WRDM—the R&D and Medical expenses managed by our WRDM organization, which is generally responsible for research projects for our Biopharma portfolio until proof-of-concept is achieved and then for transitioning those projects to the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRDM organization also has responsibility for certain science-based and other platform-services organizations, which provide end-to-end technical expertise and other services to the various R&D projects, as well as the Worldwide Medical and Safety group, which ensures that Pfizer provides all stakeholders––including patients, healthcare providers, pharmacists, payers and health authorities––with complete and up-to-date information on the risks and benefits associated with Pfizer products so that they can make appropriate decisions on how and when to use Pfizer’s medicines. |
| |
(ii) | GPD––the costs associated with our GPD organization, which is generally responsible for clinical trials from WRDM in the Biopharma portfolio, including late stage portfolio spend. GPD also provides technical support and other services to Pfizer R&D projects. GPD is responsible for facilitating all regulatory submissions and interactions with regulatory agencies. |
| |
(iii) | Other—the operating results of our Consumer Healthcare business, through July 31, 2019, and costs associated with other commercial activities not managed as part of Biopharma or Upjohn, including all strategy, business development, portfolio management and valuation capabilities, which previously had been reported in various parts of the organization. |
| |
(iv) | Corporate and Other Unallocated––the costs associated with platformcorporate enabling functions (such as worldwide technology,digital, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement), patient advocacy activities and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments, as well as overhead expenses associated with our manufacturing (which include manufacturing variances associated with production) and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs.Corporate and Other Unallocated also includes our share of earnings from the GSK Consumer Healthcare joint venture and other charges related to the GSK Consumer Healthcare joint venture, primarily representing our pro-rata share of restructuring and business combination accounting charges recorded by the GSK Consumer Healthcare joint venture. |
We recognized the following amounts in Cost of sales related to forward-exchange contracts designated as cash flow hedges of a portion of our foreign exchange-denominated forecasted intercompany inventory sales:
| |
| • | a $66$80 million net gain in the thirdsecond quarter of 20192020; |
| |
| • | a $169$150 million net gain in the first ninesix months of 20192020; |
a $14$59 million net gain in the thirdsecond quarter of 2018;2019; and
a $47$103 million lossnet gain in the first ninesix months of 2018.2019.
For additional information, see Notes to Condensed Consolidated Financial Statements––Note 7E. Financial Instruments: Derivative Financial Instruments and Hedging Activities.
For information purposes only, the following tables present reconciliations of the Biopharma segment operating results and Upjohn segment operating results to Biopharma and Upjohn operating results including estimated Other costs generally associated with the Biopharma and Upjohn operating segments. 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 periods presented.
For information purposes only, for the first nine months of 2019, we estimate that Other costs attributable to our Biopharma and Upjohn segments, as described above, for combined WRDM, GPD and other business activities costs are $4.4 billion, and combined Corporate and Other Unallocated costs are $3.2 billion, which excludes income and costs associated with our Consumer Healthcare business. The combined Corporate and Other Unallocated costs also exclude (i) net interest-related expense not attributable to an operating segment included in Corporate (approximately $987 million for the first nine months of 2019 in Other (income)/deductions––net); and (ii) net income from investments and other assets not attributable to an operating segment included in Corporate (approximately $127 million for the first nine months of 2019 in Other(income)/deductions––net). The remaining costs have been attributed to our Biopharma and Upjohn operating segments, as follows:
|
| | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 29, 2019 |
|
|
|
| Estimated Other Costs Associated with Biopharma(ii) |
|
|
| (MILLIONS OF DOLLARS) |
| Biopharma Non-GAAP Adjusted(i), (iii) |
|
| Estimated WRDM/
GPD/Other
Business Activities(ii) |
|
| Estimated Corporate/Other Unallocated(ii) |
|
| Biopharma with
Estimated Other Costs
Associated with
Biopharma
Non-GAAP Adjusted(ii), (iii) |
|
| Revenues |
| $ | 28,887 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,887 |
|
| Cost of sales |
| 5,488 |
|
| 1 |
|
| 6 |
|
| 5,495 |
|
| Selling, informational and administrative expenses |
| 4,821 |
|
| 400 |
|
| 2,183 |
|
| 7,403 |
|
| Research and development expenses |
| 623 |
|
| 3,977 |
|
| 582 |
|
| 5,182 |
|
| Amortization of intangible assets |
| 201 |
|
| — |
|
| — |
|
| 201 |
|
| Restructuring charges and certain acquisition-related costs |
| — |
|
| — |
|
| — |
|
| — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net |
| (729 | ) |
| (9 | ) |
| (255 | ) |
| (992 | ) |
| Income/(loss) from continuing operations before provision for taxes on income |
| 18,484 |
|
| (4,369 | ) |
| (2,517 | ) |
| 11,598 |
|
|
| | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 29, 2019 |
|
|
|
| Estimated Other Costs Associated with Upjohn(ii) |
|
|
| (MILLIONS OF DOLLARS) |
| Upjohn
Non-GAAP Adjusted(i), (iii) |
|
| Estimated WRDM/
GPD/Other
Business Activities(ii) |
|
| Estimated Corporate/Other Unallocated(ii) |
|
| Upjohn with
Estimated Other Costs
Associated with
Upjohn
Non-GAAP Adjusted(ii), (iii) |
|
| Revenues |
| $ | 8,077 |
|
| $ | — |
|
| $ | — |
|
| $ | 8,077 |
|
| Cost of sales |
| 1,268 |
|
| — |
|
| (19 | ) |
| 1,249 |
|
| Selling, informational and administrative expenses |
| 1,064 |
|
| 24 |
|
| 599 |
|
| 1,687 |
|
| Research and development expenses |
| 169 |
|
| 1 |
|
| 20 |
|
| 190 |
|
| Amortization of intangible assets |
| 1 |
|
| — |
|
| — |
|
| 1 |
|
| Restructuring charges and certain acquisition-related costs |
| — |
|
| — |
|
| — |
|
| — |
|
| (Gain) on completion of Consumer Healthcare JV transaction | | — |
| | — |
| | — |
| | — |
|
| Other (income)/deductions––net |
| (2 | ) |
| — |
|
| (44 | ) |
| (46 | ) |
| Income/(loss) from continuing operations before provision for taxes on income |
| 5,577 |
|
| (25 | ) |
| (556 | ) |
| 4,996 |
|
| |
(i)
| Amount represents the revenues and costs managed by the 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. |
| |
• | WRDM/GPD/Other Business Activities––The information provided for WRDM, GPD and Other Business Activities was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with the Biopharma and Upjohn operating segments as well as specific identification and estimates of costs incurred in connection with activities associated with the Biopharma and Upjohn operating segments.
|
| |
• | 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 Biopharma and Upjohn operating segments do not purport to reflect the additional amounts that each of the 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 gains on the completion of joint venture transactions, restructuring charges, legal charges or net gains and losses on investment infrom equity securities), 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. |
ThirdSecond Quarter of 20192020 vs. ThirdSecond Quarter of 20182019
Biopharma Operating Segment
Revenues
Biopharma Revenues increased $686$363 million, or 7%4%, to $10.1$9.8 billion in the second quarter of 2020 from $9.4 billion in the second quarter of 2019, reflecting an operational increase of $852$593 million, or 9%6%, partially offset by the unfavorable impact of foreign exchange of $166$230 million, or 2%.
The following provides an analysis of the increase in Biopharma worldwide Revenues:
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
Biopharma Revenues, for the three months ended September 30, 2018 | | $ | 9,422 |
|
| | | |
| Operational growth/(decline): | | |
Continued worldwide growth from certain key brands(a) | | 621 |
|
| Higher revenues for the Hospital products business, primarily driven by continued growth from anti-infective products in China as well as the November 2018 U.S. launch of Panzyga | | 112 |
|
| Higher revenues for rare disease products driven by Vyndaqel following the U.S. launch in May 2019 for the treatment of transthyretin amyloid cardiomyopathy (ATTR-CM); and in international markets, primarily driven by continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe, as well as the March 2019 launch of the ATTR-CM indication in Japan, partially offset by lower revenues for the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix in the U.S. | | 86 |
|
| Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC, partially offset by the decline in other developed markets due to increased competition | | 70 |
|
| Growth from Biosimilars, primarily in the U.S. | | 44 |
|
| Lower revenues for Enbrel internationally, reflecting continued biosimilar competition in most developed Europe markets | | (99 | ) |
| Lower revenues for Prevnar 13 in the U.S., primarily reflecting lower government purchases for the pediatric indication as well as the continued decline in revenues for the adult indication due to a declining “catch up” opportunity compared to the prior year quarter, partially offset by an increase in international revenues mostly due to higher volumes reflecting continued uptake following the 2017 launch in China, partially offset by the unfavorable impact of timing associated with government purchases for the pediatric indication in certain emerging markets | | (43 | ) |
| Other operational factors, net | | 62 |
|
| Operational growth, net | | 852 |
|
| Unfavorable impact of foreign exchange | | (166 | ) |
Biopharma Revenues increase | | 686 |
|
Biopharma Revenues, for the three months ended September 29, 2019 | | $ | 10,108 |
|
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
Biopharma Revenues, for the three months ended June 30, 2019 | | $ | 9,432 |
|
| | | |
| Operational growth/(decline): | | |
Continued growth from certain key brands(a) | | 351 |
|
| Higher revenues for the rare disease business driven by the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for ATTR-CM; and in international markets, primarily driven by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU | | 175 |
|
| Higher revenues for Inlyta, primarily in the U.S., driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC | | 93 |
|
| Higher revenues for Biosimilars, primarily in the U.S., driven by strong volume performance from Retacrit and new product launches | | 78 |
|
| Higher revenues for Xtandi primarily driven by continued strong demand in the metastatic and non-metastatic castration-resistant prostate cancer indications as well as the metastatic (mCSPC) castration-sensitive prostate cancer indication, which was approved in the U.S. in December 2019 | | 64 |
|
| Lower revenues for Enbrel internationally, primarily reflecting continued biosimilar competition in most developed Europe markets, as well as in Japan and Brazil, all of which is expected to continue | | (66 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues primarily in the U.S., reflecting the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations, partially offset by the favorable impact of timing associated with government purchases for the pediatric indication, compared to the prior-year period. The decline in the U.S. was partially offset by growth in international markets primarily reflecting significantly increased adult uptake in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China | | (28 | ) |
| Other operational factors, net | | (74 | ) |
| Operational growth, net | | 593 |
|
| Unfavorable impact of foreign exchange | | (230 | ) |
Biopharma Revenues increase | | 363 |
|
Biopharma Revenues, for the three months ended June 28, 2020 | | $ | 9,795 |
|
| |
(a) | Certain keykey brands represent Ibrance, Eliquis and Xeljanz. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Total Biopharma revenues from emerging markets increased $174decreased $80 million, or 9%4%, to $1.9 billion in the second quarter of 2020 from $2.0 billion from $1.8 billion,in the second quarter of 2019, reflecting 15% operational growth.growth of $82 million, or 4%. Foreign exchange had an unfavorable impact of 5%8% on total Biopharma revenues from emerging markets. The operational increase in emerging markets was primarily driven by Ibrance,Prevenar 13 and Eliquis, and Prevenar 13.
Costs and Expenses
| |
• | Cost of sales as a percentage of Revenues increased 0.7 decreased 0.9 percentage points, driven by an unfavorable impact of foreign exchange and higher royalty expenses, partially offset by a favorable change in product mix,. |
| |
• | The which includes an increase in Costalliance revenue which has no associated cost of sales, of 12% was mainly driven by the unfavorableand a favorable impact of foreign exchange, as well aspartially offset by an increase in royalty expenses based on the mix of products sold,sold.
|
| |
| • | The decrease in Cost of sales of 1% was mainly driven by a favorable impact of foreign exchange, partially offset by an increase in sales volumes for variousroyalty expense based on the mix of products within our product portfoliosold, and an unfavorable change in product mix. |
| |
| • | The decrease in Selling, informational and administrative expenses of 1%12% was mostly driven by lower investment in certain productsspending on sales and marketing activities due to the impact of the COVID-19 pandemic, a favorable impact of foreign exchange, and lower investments across the Inflammation & Immunology portfolio, partially offset by additional investment across several of our products, including recently acquired Array products.in the Oncology portfolio in developed markets. |
| |
• | The increase in Research and development expenses of 19%8% was mostly driven by investment in newly acquired Array products.mainly related to increased medical spending, primarily for Rare Disease, Internal Medicine, and Hospital. |
| |
| • | The unfavorablefavorable change in Other (income)/deductions––netprimarily reflects a $96 million decrease includes, among other things, an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights, and a $47 million decrease in dividend income from our investment in ViiV, partially offset by a favorable impact of foreign exchange. |
Upjohn Operating Segment
Revenues
Upjohn Revenues decreased $841 million, or 28%, to $2.2 billion, reflecting an operational decrease of $804 million, or 26%, and the unfavorable impact of foreign exchange of $37 million, or 1%.
The following provides an analysis of the decrease in Upjohn worldwide Revenues: |
| | | | |
| (MILLIONS OF DOLLARS) |
|
|
|
Upjohn Revenues, for the three months ended September 30, 2018 |
| $ | 3,036 |
|
|
|
|
|
| Operational decline: |
|
|
|
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in July 2019 | | (687 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to a recent generic entry, and for Relpax, driven by continued generic competition across developed markets | | (53 | ) |
| Decline from Norvasc and Lipitor, primarily in China, driven by pricing pressures from the March 2019 government implementation of the VBP in certain cities. The decline in Lipitor was also due to discontinued sales in Saudi Arabia and lower volumes in Japan. The decline in Norvasc was also due to lower volumes in Japan and South Korea. These declines were partially offset by volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented | | (35 | ) |
| Lower revenues for Viagra primarily in the U.S. resulting from the loss of exclusivity in December 2017 |
| (14 | ) |
| Other operational factors, net | | (14 | ) |
| Operational decline, net |
| (804 | ) |
| Unfavorable impact of foreign exchange |
| (37 | ) |
Upjohn Revenues decrease |
| (841 | ) |
Upjohn Revenues, for the three months ended September 29, 2019 |
| $ | 2,195 |
|
Total Upjohn revenues from emerging markets decreased $46 million, or 5%, to $955 million from $1.0 billion, reflecting a 1% operational decline. Foreign exchange had an unfavorable impact of 3% on total Upjohn revenues from emerging markets. The operational decrease in emerging markets was primarily driven by Lipitor and Norvasc.
Costs and Expenses
| |
• | Cost of sales as a percentage of Revenues increased 3.7 percentage points driven by lower Lyrica revenues in developed markets, primarilyroyalty- related to the June 2019 loss of exclusivity for Lyrica in the U.S., as well as an unfavorable impact of foreign exchange, partially offset by lower royalty expense for Lyricaincome mainly due to the patent expiration.
|
| |
• | The decreasein Cost of sales of 11% was driven by lower royalty expense resulting from the June 2019 loss of exclusivity for Lyrica in the U.S., as well as lower volumes for certain products, partially offset by an unfavorable impact of foreign exchange.
|
| |
• | Selling, informational and administrativeexpenses decreased 18% mostly driven by a reduction in field force expense as well as advertising and promotion expenses in developed markets, primarily related to Lyrica in the U.S., partially offset by the non-recurrence of a one-time general and administrative expense reversal in the third quarter of 2018.
|
| |
• | Research and developmentexpenses and Other (income)/deductions––netwere relatively unchanged.
|
First Nine Months of 2019 vs. First Nine Months of 2018
Biopharma Operating Segment
Revenues
Biopharma Revenues increased $1.1 billion, or 4%, to $28.9 billion, reflecting an operational increase of $2.0 billion, or 7%, and an unfavorable impact of foreign exchange of $891 million, or 3%.
The following provides an analysis of the increase in Biopharma worldwide Revenues:
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
Biopharma Revenues, for the nine months ended September 30, 2018 | | $ | 27,737 |
|
| | | |
| Operational growth/(decline): | | |
Continued worldwide growth from certain key brands(a) | | 1,978 |
|
| Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC, partially offset by the decline in other developed markets due to increased competition | | 100 |
|
| Growth from Biosimilars, primarily in the U.S. | | 95 |
|
| Higher revenues for rare disease products driven by Vyndaqel following the U.S. launch in May 2019 for the treatment of transthyretin amyloid cardiomyopathy (ATTR-CM); and in international markets, primarily driven by continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe, as well as the March 2019 launch of the ATTR-CM indication in Japan, partially offset by lower revenues for certain rare disease products, including the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix | | 21 |
|
| Lower revenues for Enbrel internationally, reflecting continued biosimilar competition in most developed Europe markets | | (200 | ) |
| Lower revenues for the Hospital products business, primarily reflecting declines in developed markets, mostly due to the continued expected negative impact from generic competition for products that have previously lost marketing exclusivity, partially offset by continued growth from anti-infective products in China as well as the 2018 U.S. launches of our immune globulin intravenous products (Panzyga and Octagam) | | (46 | ) |
| Other operational factors, net | | 92 |
|
| Operational growth, net | | 2,040 |
|
| Unfavorable impact of foreign exchange | | (891 | ) |
Biopharma Revenues increase | | 1,150 |
|
Biopharma Revenues, for the nine months ended September 29, 2019 | | $ | 28,887 |
|
| |
(a)
| Certain key brands represent Ibrance, Eliquis, Xeljanz and Prevnar/Prevenar 13. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information.
|
Total Biopharma revenues from emerging markets increased $288 million, or 5%, to $5.9 billion from $5.7 billion, reflecting 14% operational growth. Foreign exchange had unfavorable impact of 9% on total Biopharma revenues from emerging markets. The operational increase in emerging markets was primarily driven by Prevenar 13, Ibrance and Eliquis.
Costs and Expenses
| |
• | Cost of sales as a percentage of Revenues was relatively flat.
|
| |
• | The increase in Cost of sales of 5% was mainly driven by an unfavorable change in product mix, an increase in royalty expenses based on the mix of products sold and an increase in sales volumes for various products within our product portfolio, partially offset by a favorable impact of foreign exchange.
|
| |
• | The increase in Selling, informational and administrativeexpenses of 1% was mostly driven by additional investment across several of our products, including recently acquired Array products, as well as the non-recurrenceresolution of a favorable true-up of healthcare reform expenses in the first quarter of 2018, partially offset by a favorable impact of foreign exchange and decreased investment in certain products.
|
| |
• | Research and developmentexpenses of 7% was mostly driven by investment in newly acquired Array products, partially offset by a favorable impact of foreign exchange.
|
| |
• | The unfavorable change in Other (income)/deductions––net primarily reflects a $301 million decrease in income from collaborations, out-licensing arrangements and sales of compound/product rights and a $42 million decrease in dividend income from our investment in ViiV, partially offset by an increase in royalty-related income mainly due to a one-time favorable resolutionlegal dispute in the second quarter of 2019 of a legal dispute for $82 million..
|
Upjohn Operating Segment
Revenues
Upjohn Revenues decreased $1.2 billion,$964 million, or 13%32%, to $8.1$2.0 billion in the second quarter of 2020 from $3.0 billion in the second quarter of 2019, reflecting an operational decrease of $992$917 million, or 11%31%, and the unfavorable impact of foreign exchange of $233$48 million, or 2%.
The following provides an analysis of the decrease in Upjohn worldwide Revenues:
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
| Upjohn Revenues, for the nine months ended September 30, 2018 | | $ | 9,302 |
|
| | | |
| Operational growth/(decline): | | |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in July 2019 | | (736 | ) |
| Lower revenues for Viagra and Upjohn’s authorized generic for Viagra in the U.S. resulting from increased generic competition following Viagra's December 2017 patent expiration | | (181 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to a recent generic entry, and for Relpax, driven by continued generic competition across developed markets | | (98 | ) |
| Volume-driven growth from Celebrex and Effexor, primarily in Japan and China | | 68 |
|
| Growth from Lipitor, primarily due to volume growth and geographic expansion in provinces in China where the VBP has not yet been implemented, partially offset by pricing pressures for Lipitor and Norvasc from the implementation of the VBP in certain cities in China, lower volumes in Japan for Norvasc and the discontinued sales of Lipitor in Saudi Arabia | | 37 |
|
| Other operational factors, net | | (82 | ) |
| Operational decline, net | | (992 | ) |
| Unfavorable impact of foreign exchange | | (233 | ) |
Upjohn Revenues decrease | | (1,225 | ) |
Upjohn Revenues, for the nine months ended September 29, 2019 | | $ | 8,077 |
|
|
| | | | |
| (MILLIONS OF DOLLARS) |
|
|
|
Upjohn Revenues, for the three months ended June 30, 2019 |
| $ | 2,970 |
|
|
|
|
|
| Operational growth/(decline): |
|
|
|
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in the U.S. in July 2019 | | (826 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to multi-source generic competition | | (34 | ) |
| Growth in revenues for Lipitor and Norvasc, reflecting significant revenue declines in the prior-year period associated with the VBP program in China, which was initially implemented in certain cities in March 2019, and expanded nationwide beginning in December 2019, resulting in significant volume and price erosion | | 55 |
|
| Other operational factors, net | | (111 | ) |
| Operational decline, net |
| (917 | ) |
| Unfavorable impact of foreign exchange |
| (48 | ) |
Upjohn Revenues decrease |
| (964 | ) |
Upjohn Revenues, for the three months ended June 28, 2020 |
| $ | 2,006 |
|
Total Upjohn revenues from emerging markets decreased $52increased $11 million, or 2%1%, to $3.0 billion,$862 million in the second quarter of 2020 from $851 million in the second quarter of 2019, reflecting 4% operational growth more than offset by theof $57 million, or 7%. Foreign exchange had an unfavorable impact of foreign exchange of 6%5% on total Upjohn revenues from emerging markets. The operational increase in emerging markets was primarily driven by Lipitor Viagra, Celebrex and Norvasc.Norvasc in China.
Costs and Expenses
| |
| • | Cost of sales as a percentage of Revenues increased 0.16.7 percentage points, driven by lower Lyrica revenues, in developed markets, primarily related to the June 2019 loss of exclusivity for Lyrica in the U.S., due to multi-source generic competition that began in July 2019, partially offset by lower royalty expense for Lyrica due to its U.S. patent expiration. |
| |
| • | The decreasein Cost of sales of 8% was mainly driven by a decrease in sales volume and lower royalty expense primarily due to the Lyrica patent expiration and multi-source generic competition that began in the U.S. in July 2019. |
| |
| • | Selling, informational and administrativeexpenses decreased 29% driven by a decrease in field force expense as well as advertising and promotion expenses, primarily related to Lipitor and Norvasc, due to the volume-based procurement (VBP) program in China, which was initially implemented in certain cities in March 2019 and expanded nationwide beginning in December 2019, as well as Lyrica in the U.S. due to generic competition that began in July 2019 and anticipated generic competition for Celebrex in Japan beginning in June 2020. |
| |
| • | Research and developmentexpenses and Other (income)/deductions––netwere relatively unchanged. |
First Six Months of 2020 vs. First Six Months of 2019
Biopharma Operating Segment
Revenues
Biopharma Revenues increased $1.3 billion, or 7%, to $19.8 billion in the first six months of 2020 from $18.5 billion in the first six months of 2019, reflecting an operational increase of $1.7 billion, or 9%, and an unfavorable impact of foreign exchange of $345 million, or 2%.
The following provides an analysis of the increase in Biopharma worldwide Revenues:
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
Biopharma Revenues, for the six months ended June 30, 2019 | | $ | 18,477 |
|
| | | |
| Operational growth/(decline): | | |
Continued growth from certain key brands(a) | | 812 |
|
| Higher revenues for the rare disease business driven by the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for ATTR-CM; and in international markets, primarily driven by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU | | 353 |
|
| Higher revenues for the Hospital business in the U.S., primarily driven by increased demand for certain sterile injectable products utilized in the intubation and ongoing treatment of mechanically-ventilated COVID-19 patients as well as continued growth from Panzyga following its November 2018 U.S. launch | | 212 |
|
| Higher revenues for Inlyta, primarily in the U.S., driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC | | 191 |
|
| Higher revenues for Biosimilars, primarily in the U.S., driven by strong volume performance from Retacrit, new product launches and steady volume and share growth in the U.S. for Inflectra, across hospital channels, clinics and alternate sites of care | | 190 |
|
| Higher revenues for Xtandi primarily driven by continued strong demand in the metastatic and non-metastatic castration-resistant prostate cancer indications as well as the metastatic (mCSPC) castration-sensitive prostate cancer indication, which was approved in the U.S. in December 2019 | | 106 |
|
| Lower revenues for Enbrel internationally, primarily reflecting continued biosimilar competition in most developed Europe markets, as well as in Brazil and Japan, all of which is expected to continue | | (159 | ) |
| Decline in Prevnar 13/Prevenar 13 revenues primarily in the U.S., reflecting the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations, partially offset by the favorable impact of timing associated with government purchases for the pediatric indication, compared to the prior-year period. The decline in the U.S. was partially offset by growth in international markets primarily reflecting significantly increased adult uptake in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China | | (47 | ) |
| Other operational factors, net | | 11 |
|
| Operational growth, net | | 1,670 |
|
| Unfavorable impact of foreign exchange | | (345 | ) |
Biopharma Revenues increase | | 1,325 |
|
Biopharma Revenues, for the six months ended June 28, 2020 | | $ | 19,802 |
|
| |
(a) | Certain key brands represent Ibrance, Eliquis and Xeljanz. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
Total Biopharma revenues from emerging markets increased $143 million, or 4%, to $4.1 billion in the first six months of 2020 from $3.9 billion in the first six months of 2019, reflecting operational growth of $379 million, or 10%. Foreign exchange had an unfavorable impact of 6% on total Biopharma revenues from emerging markets. The operational increase in emerging markets was primarily driven by Prevenar 13, Eliquis, certain anti-infective products, primarily Zavicefta and Zithromax, Ibrance and Xalkori, partially offset by Sulperazon.
Costs and Expenses
| |
| • | Cost of sales as a percentage of Revenues decreased 0.6 percentage points, driven by a favorable change in product mix, which includes an increase in alliance revenue which has no associated cost of sales, partially offset by an increase in royalty expenses based on the mix of products sold. |
| |
| • | The increase in Cost of sales of 3% was mainly driven by an increase in sales volumes for various products and an increase in royalty expenses based on the mix of products sold, partially offset by a favorable impact of foreign exchange. |
| |
| • | The decrease in Selling, informational and administrativeexpenses of 7% was mostly driven by lower spending on sales and marketing activities due to the impact of the COVID-19 pandemic, lower investments across the Inflammation & Immunology portfolio, a favorable impact of foreign exchange, and lower healthcare reform expenses, partially offset by additional investment in the Oncology portfolio in developed markets. |
| |
| • | The increasein Research and developmentexpenses of 10% was mainly related to increased medical spending, primarily for Oncology, Internal Medicine, and Rare Disease. |
| |
| • | The favorable change in Other (income)/deductions––net includes, among other things, an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights, partially offset by a decrease in royalty- related income mainly due to the non-recurrence of a one-time favorable resolution of a legal dispute in the second quarter of 2019. |
Upjohn Operating Segment
Revenues
Upjohn Revenues decreased $2.2 billion, or 35%, to $4.0 billion in the first six months of 2020 from $6.2 billion in the first six months of 2019, reflecting an operational decrease of $2.1 billion, or 34%, and the unfavorable impact of foreign exchange of $66 million, or 1%.
The following provides an analysis of the decrease in Upjohn worldwide Revenues:
|
| | | | |
| (MILLIONS OF DOLLARS) | | |
Upjohn Revenues, for the six months ended June 30, 2019 | | $ | 6,184 |
|
| | | |
| Operational decline: | | |
| Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in the U.S. in July 2019 | | (1,655 | ) |
| Declines in revenues for Lipitor and Norvasc, primarily resulting from the VBP program in China, which was initially implemented in certain cities in March 2019, and expanded nationwide beginning in December 2019, resulting in significant volume and price erosion | | (254 | ) |
| Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to multi-source generic competition | | (58 | ) |
| Other operational factors, net | | (124 | ) |
| Operational decline, net | | (2,090 | ) |
| Unfavorable impact of foreign exchange | | (66 | ) |
Upjohn Revenues decrease | | (2,156 | ) |
Upjohn Revenues, for the six months ended June 28, 2020 | | $ | 4,027 |
|
Total Upjohn revenues from emerging markets decreased $307 million, or 15%, to $1.7 billion in the first six months of 2020 from $2.0 billion in the first six months of 2019, reflecting an operational decline of $247 million or, 12%, and the unfavorable impact of foreign exchange of 3% on total Upjohn revenues from emerging markets. The operational decline in emerging markets was primarily driven by Lipitor and Norvasc in China.
Costs and Expenses
| |
| • | Cost of sales as a percentage of Revenues increased 7.3 percentage points, driven by lower Lyrica revenues, primarily in the U.S. due to multi-source generic competition that began in July 2019, lower Lipitor and Norvasc revenues due to theVBP program in China, which was initially implemented in March 2019 and expanded nationwide beginning in December 2019, and an unfavorable impact of foreign exchange, partially offset by lower royalty expense for Lyrica due to its U.S. patent expiration. |
| |
| • | The decrease in Cost of sales of 13% 8% was primarily mainly driven by lower royalty expense and a decrease in sales volume primarily due to the June 2019 loss of exclusivity for Lyrica patent expiration and multi-source generic competition that began in the U.S., a favorable impact of foreign exchange, as well as lower atorvastatin active product ingredients import duties in China.July 2019. |
| |
| • | Selling, informational and administrative expenses decreased 14%22% driven by a reduction in field force expense as well as advertising and promotion expenses, in developed markets, primarily related to Lyrica in the U.S., due to generic competition that began in July 2019 and the anticipated generic competition for Celebrex in Japan that began in June 2020, as well as a favorable impact of foreign exchange, partially offset bydecrease in Lipitor and Norvasc expenses due to the non-recurrence of one-time generalVBP program in China, which was initially implemented in certain cities in March 2019 and administrative expense reversalsexpanded nationwide beginning in the second and third quarters of 2018, and investments in China across key brands.December 2019. |
| |
| • | Research and development expenses and Other (income)/deductions––net were relatively unchanged. |
ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Changes in the components of Accumulated other comprehensive loss reflect the following:
| |
• | For Foreign currency translation adjustments, net, the third quarter and first nine months of2019 primarily reflect the reclassification resulting from the contribution of our Consumer Healthcare business to the Consumer Healthcare joint venture with GSK, and the strengthening of the U.S. dollar against the euro, partially offset by the weakening of the U.S. dollar against the Japanese yen and the results of our net investment hedging program. The first nine months of 2019 also reflect the strengthening of the U.S. dollar against the Australian dollar. For additional information, see Notes to Consolidated Financial Statements—Note 2B. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Equity-Method Investment and Assets and Liabilities Held for Sale.
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| |
• | For Unrealized holding gains on derivative financial instruments, net and Unrealized holding gains/(losses) on available-for-sale securities, net, thethird quarter and first nine months of2019reflect the impact of fair value remeasurements and the reclassification of amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.
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| |
• | For Benefit plans: actuarial gains/(losses), net, mainly reflects for the third quarter and the first nine months of 2019 (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) a $194 million increase in the plan liability due to interim plan remeasurements. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10.Pension and Postretirement Benefit Plans.
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• | For Benefit plans: prior service costs and other, net, the third quarter and the first nine months of 2019 reflect the reclassification into income of amounts related to amortization of changes in prior service costs and credits previously recognized in Other comprehensive income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.
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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, Equity-method 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 events and circumstances impacting our tax-related accounts, see Notes to Condensed Consolidated Financial Statements—Note 5. Tax Matters.
For a description of changes in Total Equity, see the consolidated statements of equity.
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 September 29, 2019, compared to December 31, 2018, generally reflect, and the following explanations exclude, fluctuations in foreign currency exchange rates, the impact of the adoption of new accounting standards in the first quarter of 2019, our Consumer Healthcare business joint venture with GSK, and our acquisitions of Array and Therachon (see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards and Note 2. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement for additional information).
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• | 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, new product launches and market demand, partially offset by the write off of rivipansel inventory previously expected to be sold (see Notes to Condensed Consolidated Financial Statements—Note 2C. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Research and Development Arrangement for additional information).
|
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• | For Other current assets, the change reflects increases in receivables in the normal course of business.
|
| |
• | For PP&E,the change primarily reflects capital additions in the normal course of business, partially offset by depreciation during the period.
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• | For Identifiable intangible assets, less accumulated amortization, the change primarily reflects amortization for the period and intangible asset impairment charges (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net), partially offset by additions for the period.
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• | For Other noncurrent assets, the change reflects a net increase in assets in the normal course of business, and an increase in receivables associated with derivative financial instruments.
|
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• | For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business.
|
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• | For Other current liabilities, the change reflects a decrease in liabilities associated with:
|
| |
◦ | payments and accruals in the normal course of business; |
| |
◦ | payments for restructuring activities; and |
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◦ | payments for contingent consideration obligations, |
partially offset by:
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◦ | an increase due to reclassifications from noncurrent to current. |
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• | For Pension benefit obligations, net, the change reflects pension contributions and direct employer benefit payments, partially offset by interim plan remeasurements.
|
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• | For Other noncurrent liabilities, the change reflects:
|
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◦ | a decrease in payables associated with derivative financial instruments; |
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◦ | a decrease in restructuring liabilities related to the reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years (see Notes to Condensed Consolidated Financial Statements—Note 5B. Tax Contingencies); and
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◦ | a decrease due to reclassifications from noncurrent to current, |
partially offset by:
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◦ | an increase in accruals in the normal course of business. |
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• | For Treasury stock, the change reflects $8.9 billion of share repurchases, composed of $6.8 billion paid to GS&Co. in February 2019 pursuant to the terms of an accelerated share repurchase agreement as well as $2.1 billion of open-market share repurchases. See Notes to Condensed Consolidated Financial Statements—Note 12C. Contingencies and Certain Commitments: Certain Commitments for additional information.
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ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | Nine Months Ended | | | | Six Months Ended | | |
| (MILLIONS OF DOLLARS) |
| September 29,
2019 |
| | September 30,
2018 |
| | %
Change |
|
| June 28,
2020 |
| | June 30,
2019 |
| | %
Change |
|
| Cash provided by/(used in): |
| | | | | |
| | | | | |
| Operating activities |
| $ | 8,819 |
| | $ | 11,089 |
| | (20 | ) |
| $ | 6,688 |
| | $ | 4,309 |
| | 55 |
|
| Investing activities |
| (1,112 | ) | | 5,289 |
| | * |
|
| (13,082 | ) | | 5,648 |
| | * |
|
| Financing activities |
| (6,045 | ) | | (14,034 | ) | | (57 | ) |
| 6,959 |
| | (9,318 | ) | | * |
|
| Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | (41 | ) | | (116 | ) | | (65 | ) | | (70 | ) | | (28 | ) | | * |
|
Net increase in Cash and cash equivalents and restricted cash and cash equivalents | | $ | 1,620 |
| | $ | 2,227 |
| | (27 | ) | | $ | 495 |
| | $ | 612 |
| | (19 | ) |
| * Calculation not meaningful or results are equal to or greater than 100%. | | * Calculation not meaningful or results are equal to or greater than 100%. |
Operating Activities
Our net cash provided by operating activities was $8.8 billion in the first nine months of 2019, compared to $11.1 billion in the same period in 2018. The decreaseincrease in net cash provided by operating activities reflectsis driven by the timingnet change in Other changes in assets and liabilities, net of receipts from customersacquisitions and payments to vendors in the ordinary course of business, and the upfront cash payment associated with our acquisition of Therachon (see Notes to Condensed Consolidated Financial Statementsdivestitures––Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions), partially offset by an increasea decrease in net income, andreflecting the lower contribution from the Consumer Healthcare business as a decrease in benefit plan contributions.result of the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK.
In the first ninesix months of 20192020, the change in the line item Other adjustments, net primarily reflects, among other items:
the non-recurrence of 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 pre-clinical stage neuroscience assetsan increase in 2018;equity method dividends received,
a reductionpartially offset by:
an increase in net unrealized gains on equity securities;
a reductionan increase in net realized gainsequity income; and
an increase in accreted interest on equity securities; and
the non-recurrence of a non-cash gain on the contribution of Pfizer’s allogeneic CAR T developmental program assets, in connection with our contribution agreement with Allogene in 2018,
partially offset by:
net gains on foreign exchange contracts hedging a portion of our forecasted intercompany inventory sales (that fixes the cost of inventory sold later to customers).debt discount.
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. In the first ninesix months of 20192020 and 20182019, 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, otherand noncurrent assets, trade accounts payable, accrued compensation, and other current and noncurrent liabilities, as well as in the first nine months of 2019, the adjustment necessary to reflect the non-cash nature of athe favorable settlement of a U.S.an IRS audit for multiple tax years (see Notes to Condensed Consolidated Financial StatementsStatements––––Note 5A.5D. Tax Matters: Taxes on Income from Continuing OperationsTax Contingencies )in our 2019 Financial Report).
For additional information about changes in other assets and liabilities account balances, see the “Analysis of the Condensed Consolidated Balance Sheets” in this MD&A.
Investing Activities
Our net cash used in investing activities was $1.1 billion in the first nine months of 2019, compared to net cash provided by investing activities of $5.3 billion in the same period in 2018. The change in net cash provided by/(used in) investing activities was mostly attributable to:
| |
| • | a $16.7 billion increase in net purchases of short-term investments with original maturities of three months or less, largely due to the $11.4 billion of proceeds from the Upjohn long-term debt issuances in the second quarter of 2020, which were invested in money market funds (see Notes to Condensed Consolidated Financial Statements—Note 7D. Financial Instruments: Long-Term Debt and —Note 7A. Financial Instruments: Fair Value Measurements); and |
a $1.4 billion decrease in proceeds from redemptions and sales of short-term investments.
Financing Activities
The change in net cash provided by/(used in) financing activities was primarily attributable to:
cash used for the acquisition of Array, net of cash acquired, of $10.9 billion in the third quarter of 2019,
partially offset by:
| |
| • | an increase in net proceeds generated from the saleissuances of investmentslong-term debt of $5.0$11.7 billion for cash needs, including financing the acquisition of Array (see Notes to Condensed Consolidated Financial StatementsStatements—––Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions7D. Financial Instruments: Long-Term Debt).; |
Financing Activities
Our net cash used by financing activities was $6.0 billion in the first nine months of 2019, compared to $14.0 billion in the same period in 2018. Thea decrease in net cash used in financing activities was primarily attributable to:
| |
• | $10.1 billion net proceeds raised from short-term borrowings in the first nine months of 2019, primarily in connection with the acquisition of Array, compared to net payments on short-term borrowings of $3.3 billion in the first nine months of 2018,
|
partially offset by:purchases of common stock of $8.9 billion; and
higherlower repayments on long-term debt of $2.7 billion;$3.2 billion,
higher purchasespartially offset by:
$3.1 billion net payments on short-term borrowings in the first six months of common stock2020, compared to $4.3 billion net proceeds raised from short-term borrowings in the first six months of $1.7 billion; and
lower proceeds from the exercise of stock options of $796 million.2019.
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:can include, among others:
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 debt 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) | | September 29,
2019 |
| | December 31,
2018 |
| | June 28,
2020 |
| | December 31,
2019 |
|
Selected financial assets(a): | | | | | | | | |
| Cash and cash equivalents | | $ | 2,785 |
| | $ | 1,139 |
| | $ | 1,801 |
| | $ | 1,305 |
|
| Restricted short-term investments | | | 11,412 |
| | — |
|
| Short-term investments | | 6,302 |
| | 17,694 |
| | 9,581 |
| | 8,525 |
|
Long-term investments, excluding private equity investments at cost | | 1,981 |
| | 1,823 |
| |
| Long-term investments, excluding private equity securities at cost | | | 2,370 |
| | 2,258 |
|
| | | 11,067 |
| | 20,656 |
| | 25,163 |
| | 12,088 |
|
| Debt: | | |
| | |
| | |
| | |
|
| Short-term borrowings, including current portion of long-term debt | | 16,617 |
| | 8,831 |
| | 13,084 |
| | 16,195 |
|
| Long-term debt | | 36,044 |
| | 32,909 |
| | 50,529 |
| | 35,955 |
|
| | | 52,662 |
| | 41,740 |
| | 63,613 |
| | 52,150 |
|
Selected net financial liabilities(b) | | $ | (41,595 | ) | | $ | (21,084 | ) | |
| Selected net financial liabilities | | | $ | (38,450 | ) | | $ | (40,062 | ) |
| | | | | | | | | |
Working capital(c) | | $ | (3,515 | ) | | $ | 18,068 |
| |
Working capital(b) | | | $ | 13,701 |
| | $ | (4,501 | ) |
| Ratio of current assets to current liabilities | | 0.90:1 |
| | 1.57:1 |
| | 1.42:1 |
| | 0.88:1 |
|
Total Pfizer Inc. shareholders’ equity per common share(d) | | $ | 11.77 |
| | $ | 11.09 |
| |
Total Pfizer Inc. shareholders’ equity per common share(c) | | | $ | 11.58 |
| | $ | 11.41 |
|
| |
(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 was primarily driven by a decrease in short-term investments and a net increase in short-term debt, mainly as a result of cash paid for the acquisition of Array. 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. For additional information, see the “Credit Ratings” section of this MD&A. |
| |
(c)
| The decrease in working capital was primarily due to: |
| |
• | a decrease in Short-term investments mainly driven by the financing requirements for the acquisition of Array, share repurchase activities, dividend payments, capital expenditures and debt repayment, partially offset by operating cash flow generation, cash from employee stock option exercises and the long-term debt issuance;
|
the impact of the deconsolidation of the Consumer Healthcare business as a result of the completion of the Consumer Healthcare joint venture transaction;
an increase in short-term borrowings as a result ofmainly driven by operating cash flow generation and the issuance of commercial paper, mostly to finance the acquisition of Array; and
the net impact of foreign currency exchange,
long-term debt issuances discussed below, partially offset by:by debt repayment and capital expenditures; and
the timing of accruals, cash receipts and payments in the ordinary course of business; andbusiness.
| |
• | 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, new product launches and market demand, partially offset by the write off of rivipansel inventory previously expected to be sold (see Notes to Condensed Consolidated Financial Statements—Note 2C. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Research and Development Arrangement for additional information).
|
| |
(d)(c)
| Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury stock). |
In March 2019,June 2020, Upjohn Inc. and Upjohn Finance B.V. (a wholly-owned subsidiary of Upjohn Inc.) completed privately placed debt offerings of $7.45 billion and €3.60 billion aggregate principal senior unsecured notes, respectively (the Upjohn Debt Transactions). See the “Agreement to Combine Upjohn with Mylan” section below for the discussion on the use of proceeds.
In May 2020, we completed a public offering of $5.0$4.0 billion aggregate principal amount of senior unsecured notes.
In March 2020, we:
completed a public offering of $1.25 billion aggregate principal amount of senior unsecured sustainability notes. The proceeds were initially used to repay outstanding commercial paper and subsequently will be used to help manage our environmental impact and support increased patient access to our medicines and vaccines, especially among underserved populations, and strengthen healthcare systems; and
repurchased at par all $1.065 billion principal amount outstanding of senior unsecured notes (seethat were due in 2047 before the maturity date, which did not have a material impact on our condensed consolidated financial statements.
For additional information, see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt).
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” sectionssection of this MD&A.
Agreement to Combine Upjohn with Mylan
In connection with our agreement to combine Upjohn with Mylan to form a new company, Viatris, discussed in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business Development Initiatives” section of this MD&A, in June 2020, Upjohn Inc. (i) incurred $11.4 billion of debt in the Upjohn Debt Transactions, (ii) entered into a revolving credit agreement for up to $4 billion, $1.5 billion of which will be available in a single draw at or around the closing of the combination of Upjohn with Mylan for the sole purpose of funding the cash payment of $12 billion by Upjohn Inc. to Pfizer as partial consideration for Pfizer’s contribution of the Upjohn Business to Upjohn Inc. and (iii) entered into a $600 million delayed draw term loan agreement. Immediately prior to the proposed distribution to Pfizer’s stockholders of all of the
issued and outstanding shares of Upjohn Inc.’s common stock held by Pfizer (the Distribution), Upjohn Inc. will make a cash distribution of $12 billion to Pfizer. The proceeds of the revolving credit agreement, term loan agreement and the Upjohn Debt Transactions will be used to fund the $12 billion cash distribution from Upjohn Inc. to Pfizer prior to the Distribution. In the interim, the $11.4 billion of proceeds from the Upjohn Debt Transactions were invested by Upjohn Inc. in money market funds and classified as Restricted short-term investments in the condensed consolidated balance sheet as of June 28, 2020. Upon completion of the Upjohn Debt Transactions on June 23, 2020, the commitments under the senior unsecured $12 billion bridge facility were fully terminated. Pfizer has guaranteed the notes in the Upjohn Debt Transactions, and such guarantees will automatically and unconditionally terminate without the consent of holders of the notes upon the Distribution. Upjohn Inc. has guaranteed the notes issued by Upjohn Finance B.V., and Upjohn Inc. will remain a guarantor of such notes post Distribution. Following the separation, Upjohn Inc. and Upjohn Finance B.V., as applicable, will remain the obligor with respect to all of the aforementioned debt. See Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt for additional information.
Domestic and International Selected Financial Assets
Many of our operations are conducted outside the U.S., and significant portions of our selected financial assets are held internationally. 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). The changes in tax law under the TCJA, which includes transitioning U.S. international taxation from a worldwide tax system to a territorial tax system, allow us to more easily access our selected financial assets globally. The majority of our cash we held internationally as of year-end 2017 was repatriated in 2018.
Agreement to Combine Upjohn with Mylan
In connection with the recently-announced agreement to combine Upjohn with Mylan discussed in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business” and “––Our Strategy––Our Business Development Initiatives” sections of this MD&A, Upjohn will incur $12 billion of debt prior to the closing of the transaction. Immediately prior to the separation, Upjohn will make a cash distribution of $12 billion to Pfizer, which will be funded by the proceeds of such debt. Following the separation, Upjohn will remain the obligor with respect to the debt.
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.
In June 2019, S&P placed Pfizer on “CreditWatch Negative” following the announcement of Pfizer’s intention to acquire Array. The CreditWatch placement was resolved with a one-notch downgrade of Pfizer’s debt rating to ‘AA-’ upon the consummation of the transaction. In July 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, which resulted in actions from both Moody’s and S&P. Moody’s placed Pfizer’s long-term rating under review for downgrade (limited to one-notch, or ‘A2’ upon close of the Mylan transaction) while S&P lowered Pfizer’s rating to ‘AA-’ (as a result of the Array transaction) and confirmed it will still remain on CreditWatch Negative (with the expectation the rating will be lowered one additional notch to ‘A+’ upon close of the Mylan transaction).
|
| | | | | | | | |
| 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 | | Outlook/Watch | | Date of Last Rating Change |
| | Rating | | Rating | | |
| Moody’s | | P-1 | | A1 | | Under Review for Downgrade | | October 2009 |
| S&P | | A-1+ | | AA- | | CreditWatch Negative | | July 2019 |
Debt Capacity––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 which, together with our available revolving credit facilities, are in excess of our commercial paper and other short-term borrowings. As of September 29, 2019June 28, 2020, we had access to a total of $15.0$15 billion in U.S. revolving credit facilities consisting of a $7.0$7 billion facility expiring in 20232024 and an $8.0$8 billion facility expiring in September 2020, which may be used to support our commercial paper borrowings. In addition to the U.S. revolving credit facilities, our lenders have provided us an additional $526$611 million in lines of credit, of which $497$582 million expire within one year. Of these total lines of credit, $15.5$15.6 billion were unused as of September 29, 2019. In connection with the recently-announced agreement to combine Upjohn with Mylan discussed in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business” and “––Our Strategy––Our Business Development Initiatives” sections of this MD&A, Upjohn entered into a fully underwritten, 364-day senior unsecured bridge facility for up to $12 billion. This bridge facility is expected to terminate upon the issuance of $12 billion of debt securities, loans or a combination of the two by Upjohn prior to the transaction close.June 28, 2020.
LIBOR
From time to time, we issue variable rate debt based on LIBOR, or undertake interest rate swaps that contain a variable element based on LIBOR. BanksThe U.K. Financial Conduct Authority announced in July 2017 that it will no longer compel banks to submit rates that are currently reporting information used to setcalculate LIBOR will stop doing so after 2021. Various governing parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR.working on a benchmark transition plan for LIBOR (and other interbank offered rates globally). We are monitoring their efforts,
progress, and we will likely amend contracts to accommodate any replacement rate where it is not already provided. We do not expect the transition to an alternative rate to have a material impact on our liquidity or financial resources.
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 the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment––The Global Economic Environment” section in this MD&A.
Global Economic Conditions––Venezuela and Argentina Operations
Our Venezuela and Argentina operations function in hyperinflationary economies. 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. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we may be required to reimburse the loss. These indemnification obligations generally are subject to various restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of September 29, 2019,June 28, 2020, the estimated fair value of our indemnityindemnification 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 December 2017 $10 billion share repurchase program was exhausted in the first quarter of 2019.
In December 2018, the Board of Directors authorized a new $10 billion share repurchase program to be utilized over time (the 2018 program) and share repurchases commenced thereunder in the first quarter of 2019.
On February 7, 2019, we entered into an accelerated share repurchase agreement with GS&Co. to repurchase approximately $6.8 billion of our common stock, and on August 1, 2019, the accelerated share repurchase agreement with GS&Co. was completed. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12C. Contingencies and Certain Commitments: Certain 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 share purchase plans, including our accelerated share repurchase agreements: |
| | | Three Months Ended | | Nine Months Ended |
| (SHARES IN MILLIONS, DOLLARS IN BILLIONS) | | September 29, 2019(a) |
| | September 30, 2018(b) |
| | September 29, 2019(a) |
| | September 30, 2018(b) |
|
| Shares of common stock purchased | | 34 |
| | 47 |
| | 213 |
| | 192 |
|
| Cost of purchase | | $ | — |
| | $ | 1.1 |
| | $ | 8.9 |
| | $ | 7.2 |
|
| |
(a)
| Represents shares purchased pursuant to an accelerated share repurchase agreement with GS&Co. entered into on February 7, 2019, as well as other share repurchases. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12C. Contingencies and Certain Commitments: Certain 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.
|
| |
(b)
| Represents shares purchased pursuant to an accelerated share repurchase agreement with Citibank entered into on March 12, 2018, as well as other share repurchases. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our 2018 Financial Report.
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After giving effect to the accelerated share repurchase agreement and other share repurchases through September 29, 2019,At June 28, 2020, our remaining share-purchase authorization was approximately $5.3 billion, with no repurchases in the first six months of 2020 and no repurchases currently planned for the remainder of 2020. See Notes to Consolidated Financial Statements––Note 12. Equity in our 2019 Financial Report for more information on September 29, 2019.our publicly announced share-purchase plans, including our accelerated share repurchase agreements.
Dividends on Common Stock
In September 2019,For quarterly cash dividend information, see Notes to Condensed Consolidated Financial Statements––Note 11. Equity.
Our current and projected dividends provide a return to shareholders while maintaining sufficient capital to invest in growing our businesses. Our dividends are not restricted by debt covenants. While the dividend level remains a decision of Pfizer’s Board of Directors declaredand will continue to be evaluated in the context of future business performance, we currently believe that we can support future annual dividend increases, barring significant unforeseen events. Also, assuming Upjohn is spun off, Pfizer expects that immediately following the closing of the proposed transaction to combine Upjohn with Mylan, the combined dividend dollar amount received by Pfizer shareholders, based upon the combination of continued Pfizer ownership and approximately 0.12 shares of the new company (Viatris) expected to be granted for each Pfizer share in a spin-off, will equate to Pfizer’s dividend of $0.36 per share, payable on December 2, 2019,amount in effect immediately prior to shareholders of record at the close of business on November 8, 2019.closing.
NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
See Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant Accounting Policies: Policies: Adoption of New Accounting Standards.Standards in 2020.
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Recently Issued Accounting Standards, Not Adopted as of September 29, 2019June 28, 2020 |
| Standard/Description | | Effective Date | | Effect on the Financial Statements or Other Significant Matters |
In June 2016,December 2019, the FASB issued new guidance on that simplifies the accounting for income taxescredit losses by eliminating certain exceptions to the guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of financial instruments.deferred tax liabilities for outside basis differences. The new guidance replacesalso simplifies aspects of the probable initial recognition thresholdaccounting for incurred loss estimatesfranchise taxes and enacted changes in current GAAP withtax laws or rates and clarifies the accounting for transactions that result in a methodology that reflects expected credit loss estimates.step-up in the tax basis of goodwill. | | January 1, 2020.2021. Early adoption is permitted. | | We do not expect this guidance to have a material impact on our consolidated financial statements.
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In March 2020, the FASB issued new guidance to address reference rate reform by providing temporary optional expedients and exceptions to the guidance for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued after 2021 because of reference rate reform. The new guidance provides the following optional expedients: 1. Simplify accounting analyses under current U.S. GAAP for contract modifications.2. Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue.3. Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. | | Elections can be adopted prospectively at any time in the first quarter of 2020 through December 31, 2022.
| | 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 experience and current economic conditions, plus the use of reasonable supportable forecast information. We do not expect this new guidance to have a material impact on our consolidated financial statements.
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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. | | 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. | | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. We do not expect this new guidance to have a material impact 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. | | We have assessed the impact of the provisions of this new guidance and do not expect it will have a material impact 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,” “seek” 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, expectations for our product pipeline, in-line products and product candidates, including anticipated regulatory submissions, data read-outs, study starts, approvals, revenue contribution, growth, performance, timing of exclusivity and potential benefits, strategic reviews, capital allocation objectives, plans for and prospects of our acquisitions and other business-development activities, benefits anticipated from the reorganization of our commercial operations in 2019, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, government regulation, our ability to successfully capitalize on growth opportunities or prospects, manufacturing and product supply, our efforts to respond to COVID-19, our expectations regarding the impact of COVID-19 on our business, operations and financial results and plans relating to share repurchases and dividends. In particular, these include statements relating to future actions, including, among others, the anticipated progress in remediation efforts at certainexpected timing of our Hospira manufacturing facilitiesclosing of and costs associated with the expectations relatedpending transaction to our supply issuescombine Upjohn with Mylan to create a new global pharmaceutical company set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Business––Product Manufacturing”Business Development Initiatives” section of this MD&A, the expected impact of patent expiries on our business set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment––Industry-Specific Challenges––Intellectual Property Rights and Collaboration/Licensing Rights” sectionand “––Our Strategy––Organizing for Growth” sections of this MD&A, the expected pricing pressures on our products in the U.S.efforts to respond to COVID-19, including, among other things, expectations regarding our investigational vaccine candidate against SARS-CoV-2 and internationallyour investigational protease inhibitor, and the anticipated impact toof COVID-19 on our business, operations and financial results set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment” and “––Our Operating Environment––Industry-Specific Challenges––Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures” sectionFinancial Guidance for 2020” sections of this MD&A, the benefits expected from the reorganization of our commercial operations in 2019 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 expected timinganticipated costs and benefitssavings from certain of our agreementinitiatives, primarily from our Transforming to combine Upjohn with Mylan to create a new global pharmaceutical companyMore Focused Company program, set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Outlook—Our Business,”Strategy—Transforming to a More Focused Company” and “–“Costs and Expenses––Our Strategy––Our Business DevelopmentRestructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” sections of this MD&A the anticipated costs relatedand in Notes to our preparations for Brexit set forth in the “Overview of Our Performance, Operating Environment, StrategyCondensed Consolidated Financial Statements––Note 3. Restructuring Charges and Outlook––Our Operating Environment––The Global Economic Environment” section of this MD&A, our anticipated liquidity position set forth in the “Overview of Our Performance, Operating Environment, StrategyOther Costs Associated with Acquisitions and Outlook––Our Operating Environment––The Global Economic Environment” and the “Analysis of Financial Condition, Liquidity and Capital Resources” sections of this MD&A, our plans for increasing investment in the U.S. set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Strategy––Capital Allocation and Expense Management––Increasing Investment in the U.S.” section of this MD&A,Cost-Reduction/Productivity Initiatives, the financial guidance set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Financial Guidance for 2019”2020” section of this MD&A, the expected impact of ACIP’s latest recommendation for Prevnar 13 for adults 65 and older on Prevnar 13’s revenues set forth in the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion––Prevnar 13/Prevenar 13” section of this MD&A, the expected impact of updates to the prescribing information for Xeljanz on its prescribing and growthour anticipated liquidity position set forth in the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion––Xeljanz”Financial Condition, Liquidity and Capital Resources” section of this MD&A, the anticipated costs and savings from our 2017-2019 initiatives and our Organizing for Growth initiative,expectations regarding dividends set forth in the “Costs“Analysis of Financial Condition, Liquidity and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives”Capital Resources” 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 and the contributions that we expect to make from our general assets to the company’s pension and postretirement plans during 20192020 set forth in the “Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Financial Guidance for 2020” section of this MD&A and 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 R&D activities, including, without limitation, the ability to meet anticipated pre-clinical or clinical endpoints, commencement and/or completion dates for our pre-clinical or clinical trials, regulatory submission dates, regulatory approval dates and/or launch dates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including the possibility of unfavorable new clinical data and further analyses of existing clinical data;
the risk we may not be able to successfully address all of the comments received from regulatory authorities such as the FDA or the EMA, or obtain approval from regulators, which will depend on myriad factors, including such regulator making a determination as to whether a product’s benefits outweigh its known risks and a determination of the product’s efficacy; regulatory decisions impacting labeling, manufacturing processes, safety and/or other matters; and recommendations by technical or advisory committees, such as ACIP, that may impact the use of our vaccines;
the speed with which regulatory authorizations, pricing approvals and product launches may be achieved;
claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates, including claims and concerns that may arise from the outcome of post-approval clinical trials, which could result in the loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of, a product that could affect its availability or commercial potential, such as the update to the U.S. and EU prescribing information for Xeljanz and Xeljanz extended release;Xeljanz;
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, the ability to realize the anticipated benefits of any such 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 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 launchcommercialize 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, 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, sales or marketing, including delays caused by natural events, such as hurricanes; supply disruptions, shortages or stock-outs at our facilities; and legal or regulatory actions, such as
warning letters, suspension of manufacturing, seizure of product, injunctions, debarment, voluntary recall of a product, delays or failuredenials of product approvals, import bans or denial of import certifications;
the impact of public health outbreaks, epidemics or pandemics (such as the COVID-19 pandemic) on our business, operations and financial condition and results, including due to securetravel limitations and government-mandated work-from-home or shelter-in-place orders, manufacturing disruptions or delays, supply chain interruptions, including challenges related to reliance on third-party suppliers, disruptions to pipeline development and clinical trials, including difficulties or delays in enrollment of certain clinical trials, decreased product approvals;demand, including due to reduced numbers of in-person meetings with prescribers, patient visits with physicians, vaccinations and elective surgeries resulting in fewer new prescriptions or refills of existing prescriptions and reduced demand for products used in procedures, further reduced product demand as a result of increased unemployment, challenges presented by reallocating human capital, R&D, manufacturing and other resources to assist in responding to the pandemic without disruption to our operations, costs associated with the COVID-19 pandemic, including protocols intended to reduce the risk of transmission, increased supply chain costs and additional R&D costs incurred in our efforts to develop a potential vaccine and treatment for COVID-19, challenges related to our business development initiatives, including potential delays or disruptions related to regulatory approvals, including the anticipated combination of Upjohn with Mylan, interruptions or delays in the operations of certain regulatory authorities, which may delay the approvals of new products we are developing, potential label expansions for existing products and the launch of newly-approved products, potential increased cyber incidents such as phishing, social engineering and malware attacks, and other challenges presented by disruptions to our normal operations in response to the pandemic, as well as uncertainties regarding the duration and severity of the pandemic and its impacts and government or regulatory actions to contain the virus or control the supply of medicines, each of which may also amplify the impact of the other factors listed in this section;
uncertainties related to our efforts to develop a potential treatment or vaccine for COVID-19, including uncertainties related to the risk that our development programs may not be successful, commercially viable or receive approval or Emergency Use Authorization from regulatory authorities, risks associated with preliminary data, including the possibility of unfavorable new preclinical or clinical trial data and further analyses of existing preclinical or clinical trial data that may be inconsistent with the data used for selection of the BNT162b2 vaccine candidate and dose level for the Phase 2/3 study, the risk that clinical trial data are subject to differing interpretations and assessments, including during the peer review/publication process, in the scientific community generally, and by regulatory authorities, whether and when data from the BNT162 mRNA vaccine program will be published in scientific journal publications and, if so, when and with what modifications, disruptions in the relationships between us and our collaboration partners or third-party suppliers, the risk that other companies may produce superior or competitive products, the risk that demand for any products may no longer exist, risks related to the availability of raw materials to manufacture any such products, the risk that we may not be able to recoup costs associated with our R&D and manufacturing efforts and risks associated with any changes in the way we approach or provide additional research funding for potential drug development related to COVID-19, the risk that we may not be able to create or scale up manufacturing capacity on a timely basis or have access to logistics or supply channels commensurate with global demand for any potential approved vaccine or product candidate, which would negatively impact our ability to supply the estimated numbers of doses of our vaccine candidate within the projected time periods indicated, and pricing and access challenges for such products, including in the U.S.;
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 favorable 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;
the impact of any U.S. healthcare reform or legislation, including any replacement, repeal, modification or invalidation of some 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, intellectual property, 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; general budget control actions; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; revisions to reimbursement of biopharmaceuticals under
government programs; restrictions on U.S. 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., including China, affecting pharmaceutical product pricing, intellectual property, 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, economic conditions, 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;internationally, including against claims of invalidity that could result in loss of exclusivity, such as claims related to our Lyrica patents in Japan, and in response to any pressure, or legal or regulatory action by, various stakeholders or governments that could potentially result in us not seeking intellectual property protection for or agreeing not to enforce intellectual property related to our medicines, including potential vaccines and treatments for COVID-19;
interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation 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, including further clarifications and/or interpretations of or changes to the TCJA enacted in 2017;
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;
uncertainties based on the end result of any negotiationsformal change in relationship 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, 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 or regulatory 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;countries, including changes in U.S. generally accepted accounting principles;
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; 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 or civil unrest 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 product recalls, withdrawals and other unusual items;
the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;
the impact of, and risks and uncertainties related to, acquisitions and divestitures, restructurings and internal reorganizations, includingsuch as the reorganizationacquisition of Array, our commercial operations in 2019, the transaction with GSK which combined our respective consumer healthcare businesses into a new consumer healthcare joint venture and our agreement to combine Upjohn with Mylan as well as any other corporate strategic initiatives, 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;
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 acquisitions, such as the acquisition of Array,create a new global pharmaceutical company, Viatris, including, among other things, risks related to the satisfaction of the conditions to closing to any pending transaction (including the failure to obtain any necessary shareholder and regulatory approvals) in the anticipated timeframe or at all and the possibility that such transaction does not close; the ability to realize the anticipated benefits of those acquisitions,transactions, including the possibility that the expected cost savings and/or accretion from certain of those acquisitionstransactions will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; negative effects of the announcement or the consummation of the transaction on the market price of Pfizer’s common stock, Pfizer’s credit ratings and/or Pfizer’s operating results; disruption from the transactions making it more difficult to maintain business and operational relationships; risks related to our ability to grow revenues for certain acquired products; significant transaction costs; and unknown liabilities;
risks and uncertainties related to our transaction with GSK, which combined our respective consumer healthcare businesses into a new consumer healthcare joint venture, including, among other things, risks related to the ability to realize the anticipated benefits of the transaction, including the possibility that the expected benefits and cost synergies from the transaction will not be realized or will not be realized within the expected time period, the risk that the businesses will not be integrated successfully, the possibility that a future separation of the joint venture as an independent company via a demerger of GSK’s equity interest to GSK’s shareholders and a listing of the joint venture on the U.K. equity market may not occur, disruption from the transaction making it more difficult to maintain business and operational relationships, negative effects of the transaction on the market price of Pfizer’s common stock and on Pfizer’s operating results, significant transaction costs, unknown liabilities, the risk of litigation and/or regulatory actions related to the transaction, other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange and interest rates, changes in tax and other laws, regulations, rates and policies, future business combinations or disposals anddisposals; competitive developments; and as it relates to the Consumer Healthcare JV with GSK, the possibility that a future separation of the joint venture as an independent company via a demerger of GSK’s equity interest to GSK’s shareholders and a listing of the joint venture on the U.K. equity market may not occur; and
the impact of, and risks and uncertainties related to, restructurings and internal reorganizations, including the reorganization of our agreementcommercial operations in 2019, as well as any other corporate strategic initiatives, and cost-reduction and productivity initiatives, each of which requires upfront costs but may fail to combine Upjohn with Mylan to create a new global pharmaceutical company, including, among other things, risks related to the satisfaction of the conditions to closing the transaction (including the failure to obtain necessary shareholder and regulatory approvals) in the anticipated timeframe or at all and the possibility that the transaction does not close, risks related to the ability to realize theyield anticipated benefits of the transaction, including the possibility that the expected benefits and cost synergies from the proposed transaction will not be realizedmay result in unexpected costs or will not be realized within the expected time period, the risk that the businesses will not be integrated successfully, disruption from the transaction making it more difficult to maintain business and operational relationships, negative effects of the announcement or the consummation of the proposed transaction on the market price of Pfizer’s common stock, Pfizer’s credit ratings and/or on Pfizer’s or the combined company’s operating results, significant transaction costs, unknown liabilities, the risk of litigation and/or regulatory actions related to the proposed transaction, other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange and interest rates, changes in tax and other laws, regulations, rates and policies, future business combinations or disposals and competitive developments.organizational disruption.
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.
Additional discussion regarding certain risks, uncertainties and assumptions described above, as well as other material risks to our business, is included under the heading entitled “Risk Factors” in Part I, Item 1A. of our 20182019 Form 10-K.10-K and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. These risks 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. We incorporate that section of the 20182019 Form 10-K in this filing and investors should refer to it. 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.
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. Contingencies and 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 in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk—Financial Risk Management inManagement”, of our 20182019 Financial Report.Form 10-K.
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.13A. Contingencies and 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. 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
We refer to the “Our Operating Environment”, “The Global Economic 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 20182019 Form 10-K. There have been no material changes fromWe are including the following risk factor, which should be read in conjunction with the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 20182019 Form 10-K.
COVID-19 PANDEMIC
Our business, operations and financial condition and results have been and may continue to be impacted by the COVID-19 pandemic to varying degrees. We currently anticipate an ongoing, gradual global recovery from the first-half 2020 macroeconomic and healthcare impacts of the COVID-19 pandemic beginning in the third quarter of 2020. The pandemic continues to present a number of risks and challenges for our business, including, among others, impacts due to travel limitations and government-mandated work-from-home or shelter-in-place orders; manufacturing disruptions and delays; supply chain interruptions, including challenges related to reliance on third-party suppliers; disruptions to pipeline development and clinical trials, including difficulties or delays in enrollment of certain clinical trials; decreased product demand, including due to reduced numbers of in-person meetings with prescribers, patient visits with physicians, vaccinations and elective surgeries resulting in fewer new prescriptions or refills of existing prescriptions and reduced demand for products used in procedures; further reduced product demand as a result of increased unemployment; challenges presented by reallocating human capital, R&D, manufacturing and other resources to assist in responding to the pandemic without disruption to our operations; costs associated with the COVID-19 pandemic, including protocols intended to reduce the risk of transmission; increased supply chain costs and additional R&D costs incurred in our efforts to develop a vaccine and treatment for COVID-19; challenges related to our business development initiatives, including potential delays or disruptions related to regulatory approvals, including the anticipated combination of Upjohn with Mylan; interruptions or delays in the operations of certain regulatory authorities, which may delay the approvals of new products we are developing, potential label expansions for existing products and the launch of newly-approved products; potential increased cyber incidents such as phishing, social engineering and malware attacks; challenges related to our intellectual property, both domestically and internationally, including in response to any pressure or legal or regulatory action, by various stakeholders or governments that could potentially result in us not seeking intellectual property protection for, licensing or agreeing not to enforce our intellectual property rights related to our medicines, including potential vaccines and treatments for COVID-19; and other challenges presented by disruptions to our normal operations in response to the pandemic, as well as uncertainties regarding the duration and severity of the pandemic and its impacts and government or regulatory actions to contain the virus or control the supply of medicines.
We also face uncertainties related to our efforts to develop a potential treatment or vaccine for COVID-19, including uncertainties related to the risk that our development programs may not be successful, commercially viable or receive approval or Emergency Use Authorization from regulatory authorities; risks associated with preliminary data, including the possibility of unfavorable new preclinical or clinical trial data and further analyses of existing preclinical or clinical trial data that may be inconsistent with the data used for selection of the BNT162b2 vaccine candidate and dose level for the Phase 2/3 study; the risk that clinical trial data are subject to differing interpretations and assessments, including during the peer review/publication process, in the scientific community generally, and by regulatory authorities; whether and when data from the BNT162 mRNA vaccine program will be published in scientific journal publications and, if so, when and with what modifications; disruptions in the relationships between us and our collaboration partners or third-party suppliers; the risk that other companies may produce superior or competitive products; the risk that demand for any products we may develop may no longer exist; risks related to the availability of raw materials to manufacture any such products; the risk that we may not be able to recoup costs associated with our R&D and manufacturing efforts and risks associated with any changes in the way we approach or provide additional research funding for potential drug development related to COVID-19; the risk that we may not be able to create or scale up manufacturing capacity on a timely basis or have access to logistics or supply channels commensurate with global demand for any potential approved vaccine or product candidate, which would negatively impact our ability to supply the estimated numbers of doses of our vaccine candidate within the projected time periods indicated; and pricing and access challenges for such products, including in the U.S.
Further, the COVID-19 pandemic, and the volatile global economic conditions stemming from the pandemic, could precipitate or amplify the other risk factors that we identify in the “Risk Factors” section of our 2019 Form 10-K, which could materially adversely affect our business, operations and financial condition and results.
We are continuing to monitor the latest developments regarding the COVID-19 pandemic on our business, operations and financial condition and results, and have made certain assumptions regarding the pandemic for purposes of our operational planning and financial projections, including assumptions regarding the duration and severity of the pandemic and the global macroeconomic impact of the pandemic. Despite careful tracking and planning, however, we are unable to accurately predict the extent of the impact of the pandemic on our business, operations and financial condition and results due to the uncertainty of future developments. In particular, we believe the ultimate impact on our business, operations and financial condition and results will be affected by the speed and extent of the continued spread of the coronavirus globally, the duration of the pandemic, new information that may emerge concerning the severity and incidence of COVID-19, the safety, efficacy and availability of a vaccine and treatments for COVID-19, the global macroeconomic impact of the pandemic and governmental or regulatory actions to contain the virus or control supply of medicines. The pandemic may also affect our business, operations or financial condition and results in a manner that is not presently known to us or that we currently do not consider to present significant risks.
For additional information on how the COVID-19 pandemic has already impacted our business, operations and financial condition and results, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment” section of the MD&A of this Quarterly Report on Form 10-Q.
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 thirdsecond fiscal quarter of 20192020:
Issuer Purchases of Equity Securities(a)
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(a), (b) |
| | Average Price Paid per Share(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 1, 2019 through July 28, 2019 | | 30,230 |
| | $ | 43.28 |
| | — |
| | $ | 5,292,881,709 |
|
| July 29, 2019 through August 25, 2019 | | 33,620,322 |
| | $ | 41.42 |
| | 33,501,384 |
| | $ | 5,292,881,709 |
|
| August 26, 2019 through September 29, 2019 | | 23,422 |
| | $ | 37.78 |
| | — |
| | $ | 5,292,881,709 |
|
| Total | | 33,673,974 |
| | $ | 41.41 |
| | 33,501,384 |
| | |
|
| | | | | | | | | | | | | | |
| 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) |
|
| March 30, 2020 through April 26, 2020 | | 19,649 |
| | $ | 32.65 |
| | — |
| | $ | 5,292,881,709 |
|
| April 27, 2020 through May 24, 2020 | | 41,905 |
| | $ | 38.04 |
| | — |
| | $ | 5,292,881,709 |
|
| May 25, 2020 through June 28, 2020 | | 18,583 |
| | $ | 37.24 |
| | — |
| | $ | 5,292,881,709 |
|
| Total | | 80,137 |
| | $ | 36.53 |
| | — |
| | |
| |
(a) | Our December 2017 $10 billion share repurchase program was exhausted in the first quarter of 2019. In December 2018, the Board of Directors authorized a new $10 billion share repurchase program to be utilized over time (the 2018 program) and share repurchases commenced thereunder in the first quarter of 2019. On February 7, 2019, we entered into an accelerated share repurchase agreement with GS&Co. to repurchase approximately $6.8 billion of our common stock and on August 1, 2019, the accelerated share repurchase agreement with GS&Co. was completed. For additional information, see the Notes to Condensed Consolidated Financial Statements––Note 12C. Contingencies and Certain Commitments: Certain Commitments12. Equity . At September 29,in our 2019 our remaining share-purchase authorization under the 2018 program was approximately $5.3 billion.Financial Report, which is
|
incorporated by reference.
| |
(b) | In addition to the 33.5 million shares received under the accelerated share repurchase agreement with GS&Co. (see the Notes to Condensed Consolidated Financial Statements––Note 12C. Contingencies and Certain Commitments: Certain Commitments),theseThese columns represent (i) 166,53973,616 shares of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of awards under our long-term incentive programs and (ii) the open market purchase by the trustee of 6,0516,521 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.
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| | | |
| | | - | Amendment No. 1, dated as of May 29, 2020, to the Business Combination Agreement, dated as of July 29, 2019, by and among Pfizer Inc., Upjohn Inc., Utah Acquisition Sub Inc., Mylan N.V., Mylan I B.V. and Mylan II B.V. is incorporated by reference from our Current Report on Form 8-K filed on July 29, 2019June 1, 2020 (File No. 001-03619)*. (Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to supplementally furnish to the Securities and Exchange Commission upon request any omitted schedule or exhibit to the Business Combination Agreement). |
| | | - | Amendment No. 2, dated as of May 29, 2020, to the Separation and Distribution Agreement, dated as of July 29, 2019, by and amongbetween Pfizer Inc. and Upjohn Inc. is incorporated by reference from our Current Report on Form 8-K filed on July 29, 2019June 1, 2020 (File No. 001-03619)*. (Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to supplementally furnish to the Securities and Exchange Commission upon request any omitted schedule or exhibit to the Separation and Distribution Agreement). |
| | - | Fourth Supplemental Indenture, dated May 28, 2020, between Pfizer Inc. and The Bank of New York Mellon, as trustee, is incorporated by reference from our Current Report on Form 8-K filed on May 28, 2020 (File No. 001-03619). |
| | | Time Sharing Agreement, dated July 9, 2020, by and between Pfizer Inc. and Albert Bourla. |
| | | - | 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 | | Inline XBRL Taxonomy Extension Schema Inline XBRL Taxonomy Extension Calculation Linkbase Inline XBRL Taxonomy Extension Label Linkbase Inline XBRL Taxonomy Extension Presentation Linkbase Inline XBRL Taxonomy Extension Definition Document |
| | Exhibit 104 | | Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| |
* | Annexes, schedules and/or exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Pfizer agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. |
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 7, 2019August 6, 2020 | /s/ Loretta V. CangialosiJennifer Damico |
| | | Loretta V. Cangialosi,Jennifer Damico, Senior Vice President and
Controller (Principal Accounting Officer and Duly Authorized Officer) |
