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PFE Pfizer

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, 2019

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

----

PFIZER INC.
(Exact name of registrant as specified in its charter)
Delaware13-5315170
(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)
Securities registered pursuant to Section 12(b) of the Act:
     
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.
YesxNo

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).
YesxNo

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).
YesNox

At November 4, 2019, 5,534,122,364 shares of the issuer’s voting common stock were outstanding.



Table of Contents
Page
  
 
 
  
Condensed Consolidated Statements of Income for the three and nine months ended September 29, 2019 and
September 30, 2018
  
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2019
and September 30, 2018
  
Condensed Consolidated Balance Sheets as of September 29, 2019 and December 31, 2018
  
Condensed Consolidated Statements of Equity for the three and nine months ended September 29, 2019 and
September 30, 2018
  
Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and
September 30, 2018
  
  
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  

2


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:
2018 Financial ReportFinancial Report for the fiscal year ended December 31, 2018, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018
2018 Form 10-KAnnual Report on Form 10-K for the fiscal year ended December 31, 2018
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
ACIPAdvisory Committee on Immunization Practices
AkceaAkcea Therapeutics, Inc.
ALKanaplastic lymphoma kinase
Alliance revenuesRevenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
AllogeneAllogene Therapeutics, Inc.
AnacorAnacor Pharmaceuticals, Inc.
AOCIAccumulated Other Comprehensive Income
ArrayArray BioPharma Inc.
AstellasAstellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.
Bain CapitalBain Capital Private Equity and Bain Capital Life Sciences
BambooBamboo Therapeutics, Inc.
BiopharmaPfizer Biopharmaceuticals Group
BMSBristol-Myers Squibb Company
CAR Tchimeric antigen receptor T cell
CDCU.S. Centers for Disease Control and Prevention
CerevelCerevel Therapeutics, LLC
cGMPcurrent Good Manufacturing Practices
CitibankCitibank, N.A.
Developed MarketsU.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and
New Zealand
EGFRepidermal growth factor receptor
EHEssential Health
EMAEuropean Medicines Agency
Emerging MarketsIncludes, but is not limited to, the following markets: Asia (excluding Japan and South Korea),
Latin America, Eastern Europe, the Middle East, Africa, Central Europe and Turkey
EPSearnings per share
EUEuropean Union
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FDAU.S. Food and Drug Administration
GAAPGenerally Accepted Accounting Principles
GISTgastrointestinal stromal tumors
GPDGlobal Product Development organization
GSKGlaxoSmithKline plc
GS&Co.Goldman, Sachs & Co. LLC
hGH-CTPhuman growth hormone
HISHospira Infusion Systems
Hisun PfizerHisun Pfizer Pharmaceuticals Company Limited
HospiraHospira, Inc.
HR+hormone receptor-positive
ICU MedicalICU Medical, Inc.
IHInnovative Health
IonisIonis Pharmaceuticals, Inc.
IPR&Din-process research and development
IRSU.S. Internal Revenue Service
IVintravenous
JanssenJanssen Biotech Inc.

3


J&JJohnson & Johnson
JVJoint Venture
KingKing Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)
LDLlow density lipoprotein
LEPLegacy Established Products
LIBORLondon Interbank Offered Rate
LillyEli Lilly & Company
LOEloss of exclusivity
MCCMerkel cell carcinoma
MCOmanaged care organization
mCRCmetastatic colorectal cancer
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MedivationMedivation LLC (formerly Medivation, Inc.)
MerckMerck & Co., Inc.
MeridianMeridian Medical Technologies, Inc.
Moody’sMoody’s Investors Service
MylanMylan N.V.
NDAnew drug application
NSCLCnon-small cell lung cancer
NYSENew York Stock Exchange
OPKOOPKO Health, Inc.
OTCover-the-counter
PARPpoly ADP ribose polymerase
PBMpharmacy benefit manager
PharmaciaPharmacia Corporation
PP&Eproperty, plant & equipment
PsApsoriatic arthritis
Quarterly Report on Form 10-QQuarterly Report on Form 10-Q for the quarterly period ended September 29, 2019
RArheumatoid arthritis
RCCrenal cell carcinoma
R&Dresearch and development
ROUright of use
SandozSandoz, Inc., a division of Novartis AG
SECU.S. Securities and Exchange Commission
SFJSFJ Pharmaceuticals Group
ShireShire International GmbH
SI&Aselling, informational and administrative
S&PStandard and Poor’s
TCJAlegislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
TherachonTherachon Holding AG
UCulcerative colitis
U.K.United Kingdom
U.S.United States
ViiVViiV Healthcare Limited
VBPVolume-based procurement program
WRDMWorldwide Research, Development and Medical


4


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
(MILLIONS, EXCEPT PER COMMON SHARE DATA) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Revenues $12,680
 $13,298
 $39,062
 $39,670
Costs and expenses:        
Cost of sales(a)
 2,602
 2,694
 7,611
 8,173
Selling, informational and administrative expenses(a)
 3,260
 3,494
 10,110
 10,448
Research and development expenses(a)
 2,283
 2,008
 5,827
 5,549
Amortization of intangible assets 1,212
 1,253
 3,578
 3,640
Restructuring charges and certain acquisition-related costs 365
 85
 295
 172
(Gain) on completion of Consumer Healthcare JV transaction (8,087) 
 (8,087) 
Other (income)/deductions––net 319
 (414) 537
 (1,143)
Income from continuing operations before provision for taxes on income 10,727
 4,177
 19,190
 12,831
Provision for taxes on income 3,047
 66
 2,566
 1,270
Income from continuing operations 7,680
 4,111
 16,625
 11,562
Discontinued operations––net of tax 4
 11
 4
 10
Net income before allocation to noncontrolling interests 7,684
 4,122
 16,628
 11,571
Less: Net income attributable to noncontrolling interests 4
 8
 19
 25
Net income attributable to Pfizer Inc. $7,680
 $4,114
 $16,609
 $11,546
         
Earnings per common share––basic:
  
  
  
  
Income from continuing operations attributable to Pfizer Inc. common shareholders $1.38
 $0.70
 $2.98
 $1.96
Discontinued operations––net of tax 
 
 
 
Net income attributable to Pfizer Inc. common shareholders $1.38
 $0.70
 $2.98
 $1.96
         
Earnings per common share––diluted:
  
  
  
  
Income from continuing operations attributable to Pfizer Inc. common shareholders $1.36
 $0.69
 $2.92
 $1.92
Discontinued operations––net of tax 
 
 
 
Net income attributable to Pfizer Inc. common shareholders $1.36
 $0.69
 $2.92
 $1.92
         
Weighted-average shares––basic 5,545
 5,875
 5,581
 5,899
Weighted-average shares––diluted 5,649
 5,986
 5,690
 5,998
(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.

5


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
  Three Months Ended Nine Months Ended
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Net income before allocation to noncontrolling interests $7,684
 $4,122
 $16,628
 $11,571
       
  
Foreign currency translation adjustments, net (468) (567) (628) (507)
Reclassification adjustments(a)
 268
 (2) 270
 (22)
  (200) (569) (358) (530)
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
  122
 (13) (131) 355
Unrealized holding gains/(losses) on available-for-sale securities, net 15
 149
 48
 (65)
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)
  8
 112
 77
 (595)
Benefit plans: actuarial gains/(losses), net (171) 8
 (175) 114
Reclassification adjustments related to amortization 60
 60
 180
 183
Reclassification adjustments related to settlements, net 38
 42
 40
 108
Other 42
 49
 60
 69
  (31) 158
 105
 474
Benefit plans: prior service costs and other, net 
 
 (1) 
Reclassification adjustments related to amortization of prior service costs and other, net (44) (46) (137) (137)
Reclassification adjustments related to curtailments of prior service costs and other, net (46) (4) (46) (18)
Other 3
 
 4
 1
  (88) (50) (180) (154)
Other comprehensive loss, before tax (190) (361) (486) (449)
Tax provision on other comprehensive loss 84
 62
 50
 667
Other comprehensive loss before allocation to noncontrolling interests $(275) $(422) $(536) $(1,116)
Comprehensive income before allocation to noncontrolling interests $7,409
 $3,700
 $16,092
 $10,455
Less: Comprehensive income/(loss) attributable to noncontrolling interests (6) 
 8
 5
Comprehensive income attributable to Pfizer Inc. $7,415
 $3,700
 $16,084
 $10,450

(a) 
For the third quarter and first nine months of 2019, the foreign currency translation adjustments are primarily reclassified into (Gain) on completion of Consumer Healthcare JV transaction in the condensed consolidated statements of income as a result of the contribution of our Consumer Healthcare business to the Consumer Healthcare joint venture with GSK. See Note 2B. The remaining foreign currency translation adjustments are reclassified into Other (income)/deductions—net in the condensed consolidated statements of income.
(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.
(c) 
For additional information, 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.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

6


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS) September 29,
2019

 December 31,
2018

  (Unaudited)  
Assets    
Cash and cash equivalents $2,785
 $1,139
Short-term investments 6,302
 17,694
Trade accounts receivable, less allowance for doubtful accounts: 2019—$541; 2018—$541 9,439
 8,025
Inventories 8,222
 7,508
Current tax assets 3,730
 3,374
Other current assets 2,954
 2,461
Assets held for sale 29
 9,725
Total current assets 33,459
 49,926
Equity-method investments 15,999
 181
Long-term investments 2,723
 2,586
Property, plant and equipment, less accumulated depreciation: 2019—$16,728; 2018—$16,591 13,701
 13,385
Identifiable intangible assets, less accumulated amortization 38,995
 35,211
Goodwill 58,665
 53,411
Noncurrent deferred tax assets and other noncurrent tax assets 1,984
 1,924
Other noncurrent assets 4,920
 2,799
Total assets $170,446
 $159,422
     
Liabilities and Equity  
  
Short-term borrowings, including current portion of long-term debt: 2019—$2,431; 2018—$4,776 $16,617
 $8,831
Trade accounts payable 3,942
 4,674
Dividends payable 1,992
 2,047
Income taxes payable 1,892
 1,265
Accrued compensation and related items 2,369
 2,397
Other current liabilities 10,160
 10,753
Liabilities held for sale 
 1,890
Total current liabilities 36,974
 31,858
     
Long-term debt 36,044
 32,909
Pension benefit obligations, net 5,103
 5,272
Postretirement benefit obligations, net 1,321
 1,338
Noncurrent deferred tax liabilities 6,724
 3,700
Other taxes payable 12,504
 14,737
Other noncurrent liabilities 6,381
 5,850
Total liabilities 105,051
 95,664
     
Commitments and Contingencies 


 


     
Preferred stock 18
 19
Common stock 468
 467
Additional paid-in capital 87,099
 86,253
Treasury stock (110,795) (101,610)
Retained earnings 100,113
 89,554
Accumulated other comprehensive loss (11,801) (11,275)
Total Pfizer Inc. shareholders’ equity 65,103
 63,407
Equity attributable to noncontrolling interests 293
 351
Total equity 65,396
 63,758
Total liabilities and equity $170,446
 $159,422

Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

7


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
  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, June 30, 2019 458
 $18
 9,363
 $468
 $86,963
 (3,801) $(110,786) $94,440
 $(11,535) $59,568
 $357
 $59,924
Net income               7,680
   7,680
 4
 7,684
Other comprehensive income/(loss), net of tax                 (265) (265) (9) (275)
Cash dividends declared:                   

   

Common stock               (2,006)   (2,006)   (2,006)
Preferred stock               
   
   
Noncontrolling interests                   
 2
 2
Share-based payment transactions     3
 
 136
 
 (8)     128
   128
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
 
  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 July 1, 2018 502
 $20
 9,303
 $465
 $84,898
 (3,438) $(95,463) $89,860
 $(10,003) $69,778
 $346
 $70,124
Net income               4,114
   4,114
 8
 4,122
Other comprehensive income/(loss), net of tax               

 (414) (414) (9) (422)
Cash dividends declared:                        
Common stock               (1,977)   (1,977)   (1,977)
Preferred stock               
   
   
Noncontrolling interests               

   
 
 
Share-based payment transactions     23
 1
 930
 
 (6) 

   926
   926
Purchases of common stock           (47) (1,105) 

   (1,105)   (1,105)
Preferred stock conversions and redemptions (14) (1)     (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

Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

8


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
  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, 2019 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
Other comprehensive income/(loss), net of tax                 (525) (525) (11) (536)
Cash dividends declared:                       

Common stock               (6,068)   (6,068)   (6,068)
Preferred stock               (1)   (1)   (1)
Noncontrolling interests                   
 (5) (5)
Share-based payment transactions     34
 2
 848
 (7) (320)     530
   530
Purchases of common stock           (213) (8,865)     (8,865)   (8,865)
Preferred stock conversions and redemptions (28) (1)     (2) 
 
     (3)   (3)
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
Balance, September 30, 2018 488
 $20
 9,326
 $466
 $85,828
 (3,484) $(96,574) $91,995
 $(10,417) $71,319
 $346
 $71,664
(a) 
The increase to Retained earnings in the first nine months of 2019 includes the cumulative effect of the adoption of a new accounting standard for leases in the first quarter of 2019. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards. 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 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.
(b) 
Represents the cumulative effect of the adoption of new accounting standards in the first quarter of 2018 for revenues, financial assets and liabilities, income tax accounting, and the reclassification of certain tax effects from Accumulated other comprehensive income. For additional information, 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.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

9


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 -


10


PFIZER INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

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
Interest paid 1,246
 968
Interest rate hedges (78) (104)

(a) 
As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for (i) the nine months ended September 29, 2019 was favorably impacted by approximately $319 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.
(b) 
The $8.2 billion Gain on completion of Consumer Healthcare JV transaction, net of cash conveyed reflects the receipt of a 32% equity-method investment in the new company valued at $15.7 billion in exchange for net assets contributed of $7.6 billion and is presented in operating activities net of $146 million cash conveyed that is reflected in Other investing activities, net. 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.
(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 Sale and Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
(d)  
For additional information, see Notes to Consolidated Financial Statements––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 in our 2018 Financial Report.
Amounts may not add due to rounding.
See Notes to Condensed Consolidated Financial Statements.

11


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 nine months ended August 25, 2019 and August 26, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 29, 2019 and September 30, 2018.

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 2018 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 13. In addition, certain amounts within Long-term investments in the December 31, 2018 condensed consolidated balance sheet have been reclassified to Equity-method investments to conform to the current presentation. For additional information, see Note 2B.

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, as of January 1, 2019, 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 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 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

12


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 in Pfizer’s 2018 Financial Report.
B. Adoption of New Accounting Standards
On January 1, 2019, we adopted 4 new accounting standards.
Leases––On January 1, 2019, we adopted a new accounting standard for leases and changed our lease policies accordingly. Under the new standard, the most significant change is the requirement of balance sheet recognition of ROU 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 of 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 callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date. We do not have any investments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.
Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity and Accounting 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 any financial instruments with features subject to this standard and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

13


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Accounting for Share-Based Payments to Nonemployees––We prospectively adopted the standard, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. We do not have any share-based awards issued to nonemployees and, therefore, there was no impact to our condensed consolidated financial statements from the adoption of this new standard.

On January 1, 2018, we adopted 11 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 2018 included in our 2018 Financial Report.

C. Revenues and Trade Accounts Receivable
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 billion as of September 29, 2019 and $5.4 billion as of December 31, 2018.
The following table provides information about the balance sheet classification of these accruals:
(MILLIONS OF DOLLARS) September 29,
2019

 December 31, 2018
Reserve against Trade accounts receivable, less allowance for doubtful accounts
 $1,203
 $1,288
Other current liabilities:
    
Accrued rebates 3,275
 3,208
Other accruals 617
 531
Other noncurrent liabilities 463
 399
Total accrued rebates and other accruals $5,557
 $5,426

D. Leases

On January 1, 2019, we adopted a new accounting standard for leases. For further information, see Note 1B.
We lease real estate, fleet, 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 or on a month-to-month basis. We include options that are reasonably certain to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within our operating leases with the exception 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


14


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 agreement to lease space in an office building in New York City. We expect to take control 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.
Prior 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


15


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 2. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement
A. Acquisitions
Array BioPharma Inc.
On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on 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

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 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

16


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 liability of $45 million with respect to the tax matters indemnification. The value of the environmental and legal indemnifications was not considered to be material.
We are accounting for our interest in GSK Consumer Healthcare as an equity-method investment. Our investment in GSK Consumer Healthcare 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. We will record our share of earnings from the 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 record our share of two months of the joint venture’s earnings generated in the third quarter of 2019 in our operating results in the fourth quarter of 2019. As of the July 31, 2019 closing date, the fair value of our investment in GSK Consumer Healthcare was approximately $15.7 billion. 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 allocated within the investment account. We expect to complete the allocation in our fourth quarter of 2019, and we will record the amortization of identified basis differences, as applicable, on a one-quarter lag in Other (income)/deductions––net commencing August 1, 2019. Therefore, we will record the amortization of identified basis differences for two months of the third quarter of 2019 in our operating results in the fourth quarter of 2019.
While we have received our full 32% interest in GSK Consumer Healthcare as 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 in Assets held for sale 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.

17


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.

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PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. As a result, in the third quarter of 2019, we recorded a $127 million charge in Cost 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, which were recorded in Research and development costs in the condensed consolidated statement of income. Detailed analyses of the RESET study, including additional data on efficacy and safety endpoints, are under review and will be submitted for presentation at a future scientific meeting. Following those detailed analyses, the impact on the NovaQuest agreement will be evaluated.
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 Growth
During 2018, as we reviewed our business opportunities and challenges and the way in which we think about 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, a Consumer Healthcare business (see Note 13). To operate effectively in this structure and position ourselves for future growth, we are focused on creating a simpler, more efficient operating structure within each business as well as the functions that support them. Beginning in the fourth quarter of 2018, we reviewed previously planned initiatives and new initiatives to ensure that there was alignment around our new structure and combined the 2017-2019 initiatives with our current Organizing for Growth initiatives to form one cohesive plan. Initiatives for the combined program include activities related to the optimization of our manufacturing plant network, the centralization of our corporate and platform functions, and the simplification and optimization of our operating business structure and functions that support them. From 2017 through September 29, 2019, we incurred approximately $819 million associated with manufacturing optimization, and approximately $945 million associated with other activities.
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 nine months of 2019, we incurred costs of $452 million composed of $272 million associated with the integration of Array, $300 million associated with the 2017-2019 and Organizing for Growth initiatives and $74 million associated with the integration of Hospira, partially offset by income of $194 million, primarily due to the reversal of certain accruals upon the effective favorable settlement of a U.S. IRS audit for multiple tax years and other acquisition-related initiatives.

19


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
  Three Months Ended Nine Months Ended
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Restructuring charges/(credits):  
  
  
  
Employee terminations $82
 $(24) $(86) $(53)
Asset impairments 3
 12
 3
 8
Exit costs/(credits) (1) 14
 33
 14
Restructuring charges/(credits)(a)
 83
 1
 (50) (32)
Transaction costs(b)
 65
 1
 65
 1
Integration costs and other(c)
 217
 82
 281
 202
Restructuring charges and certain acquisition-related costs 365
 85
 295
 172
Net periodic benefit costs recorded in Other (income)/deductions––net
 9
 41
 19
 103
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(d):
  
  
  
  
Cost of sales 6
 12
 21
 43
Selling, informational and administrative expenses 
 
 2
 
Research and development expenses 
 
 6
 
Total additional depreciation––asset restructuring 6
 12
 29
 43
Implementation costs recorded in our condensed consolidated statements of income as follows(e):
  
  
  
  
Cost of sales 14
 21
 45
 57
Selling, informational and administrative expenses 23
 17
 48
 51
Research and development expenses 3
 9
 16
 22
Total implementation costs 40
 48
 109
 130
Total costs associated with acquisitions and cost-reduction/productivity initiatives $420
 $186
 $452
 $447

(a) 
In the third quarter of 2019, restructuring charges mainly represent employee termination costs associated with cost-reduction and productivity initiatives as well as our acquisition of Array. In the first nine 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. IRS audit for multiple tax years (see Note 5B), partially offset by employee termination costs associated with cost-reduction and productivity initiatives, as well as 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.
The restructuring activities for 2019 are associated with the following:
For the third quarter of 2019, Biopharma ($10 million charge); Upjohn ($6 million credit); and Other ($79 million charge).
For the first nine months of 2019, Biopharma ($38 million credit); Upjohn ($27 million credit); and Other ($15 million charge).
The restructuring activities for 2018 are associated with the following:
For the third quarter of 2018, total reportable segments ($6 million credit); and Other ($7 million charge).
For the first nine months of 2018, total reportable segments ($30 million credit); and Other ($2 million credit). At the beginning of fiscal 2019, we revised our operating segments and are unable to directly associate these prior-period restructuring charges with the new individual segments.
(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 third quarter and first nine months of 2019, integration costs and other primarily includes $157 million in payments to Array employees for the fair value of previously unvested stock options that was recognized as post-closing compensation expense (see Note 2A). In the third quarter and first nine months of 2018, 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.

20


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
Balance, December 31, 2018(a)
 $1,203
 $
 $49
 $1,252
Provision/(credit)(b)
 (86) 3
 33
 (50)
Utilization and other(c)
 (431) (3) (33) (467)
Balance, September 29, 2019(d)
 $686
 $
 $48
 $734

(a) 
Included in Other current liabilities ($823 million) and Other noncurrent liabilities ($428 million).
(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) 
Included in Other current liabilities ($535 million) and Other noncurrent liabilities ($199 million).
Note 4. Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
  Three Months Ended Nine Months Ended
(MILLIONS OF DOLLARS) September 29,
2019


September 30,
2018

 September 29,
2019

 September 30,
2018

Interest income(a)
 $(60) $(82) (185) (240)
Interest expense(a)
 409
 310
 1,158
 946
Net interest expense 348
 228
 973
 706
Royalty-related income(b)
 (155) (143) (475) (360)
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
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d)
 (20) (139) (124) (455)
Net periodic benefit credits other than service costs(e)
 (19) (65) (110) (231)
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
Other, net(j)
 24

(252)
(294)
(322)
Other (income)/deductions––net $319
 $(414) $537
 $(1,143)

(a) 
Interest income decreased in the third quarter and first nine months of 2019, primarily driven by a lower investment balance. Interest expense increased in the third quarter and first nine months of 2019, 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.
(b) 
The increase in royalty-related income for the first nine months of 2019 is primarily due to a one-time favorable resolution in the second quarter of 2019 of a legal dispute for $82 million.
(c) 
The third quarter of 2018 included gains of $24 million and the first nine months of 2018 included gains of $229 million related to our investment in ICU Medical stock. 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 first nine months of 2019, mainly includes, among other things, $70 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 nine months of 2019 include an intangible asset impairment charge of $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 reflect,

21


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 million.
(h) 
In the third quarter and first nine 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 the first nine months of 2018, mainly represents expenses 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.
(i) 
In the first nine months of 2019, represents net losses due to the early retirement of debt in the first quarter of 2019, inclusive of the related termination of cross-currency swaps.
(j) 
The third quarter of 2019 includes, among other things, dividend income of $43 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 million, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also included, among other things, (i) dividend income of $226 million from our investment in ViiV, (ii) charges of $257 million, reflecting the change in the fair value of contingent consideration, (iii) a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T development program assets obtained 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.

22


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The higher effective tax rate for the first nine months 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; 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 as a result of additional guidance issued by the U.S. Department of Treasury related to the enactment of the TCJA.
Our 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) and the remaining liability is reported in noncurrent Other taxes payable in our consolidated balance sheet as of September 29, 2019. The first installment of $750 million was paid in April 2019. 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.
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.
With respect to Pfizer, tax years 2011-2015 are currently under audit. Tax years 2016-2019 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), Japan (2017-2019), Europe (2011-2019, primarily reflecting Ireland, the U.K., France, Italy, Spain and Germany), Latin America (1998-2019, primarily reflecting Brazil) and Puerto Rico (2015-2019).

23


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

C. Tax Provision 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
(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:
  Net Unrealized Gains/(Losses) Benefit Plans  
(MILLIONS OF DOLLARS) Foreign Currency Translation Adjustments
 Derivative Financial Instruments
 Available-For-Sale Securities
 Actuarial Gains/(Losses)
 Prior Service (Costs)/Credits and Other
 Accumulated Other Comprehensive Income/(Loss)
Balance, December 31, 2018 $(6,075) $167
 $(68) $(6,027) $728
 $(11,275)
Other comprehensive income/(loss)(a)
 (443) (107) 68
 94
 (137) (525)
Balance, September 29, 2019 $(6,519) $60
 $
 $(5,933) $591
 $(11,801)
(a) 
Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $11 million loss for the first nine months of 2019.
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.

24


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:
  September 29, 2019 December 31, 2018
(MILLIONS OF DOLLARS) Total Level 1 Level 2 Total Level 1 Level 2
Financial assets measured at fair value on a recurring basis:            
Short-term investments            
Classified as equity securities with readily determinable fair values:            
Money market funds $1,035

$

$1,035

$1,571

$

$1,571
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
Corporate and other 1,772
 
 1,772
 5,482
 
 5,482
  4,270
 
 4,270
 15,091
 
 15,091
Total short-term investments 5,324
 7
 5,317
 16,691
 17
 16,674
Other current assets            
Derivative assets:            
Interest rate contracts 59
 
 59
 97
 
 97
Foreign exchange contracts 559
 
 559
 477
 
 477
Total other current assets 618
 
 618
 574
 
 574
Long-term investments            
Equity securities with readily determinable fair values(a)
 1,530

1,506

24

1,273

1,243

30
             
Classified as available-for-sale debt securities:            
Government and agency—non-U.S. 45
 
 45
 94
 
 94
Corporate and other 363
 
 363
 397
 
 397
  408
 
 408
 491
 
 491
Total long-term investments 1,937
 1,506
 432
 1,764
 1,243
 521
Other noncurrent assets            
Derivative assets:            
Interest rate contracts 557
 
 557
 335
 
 335
Foreign exchange contracts 367
 
 367
 232
 
 232
Total other noncurrent assets 924
 
 924
 566
 
 566
Total assets $8,803
 $1,513
 $7,290
 $19,595
 $1,260
 $18,335
             
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
Total other current liabilities 133
 
 133
 82
 
 82
Other noncurrent liabilities            
Derivative liabilities:            
Interest rate contracts 
 
 
 378
 
 378
Foreign exchange contracts 600
 
 600
 564
 
 564
Total other noncurrent liabilities 600
 
 600
 942
 
 942
Total liabilities $733
 $
 $733
 $1,024
 $
 $1,024
(a) 
As of September 29, 2019, short-term equity securities of $12 million and long-term equity securities of $23 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. As of December 31, 2018, short-term equity securities of $11 million and long-term equity securities of $29 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan.

25


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
  Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
(MILLIONS OF DOLLARS)   Total Level 2   Total Level 2
Financial Liabilities            
Long-term debt, excluding the current portion $36,044
 $40,873
 $40,873
 $32,909
 $35,260
 $35,260

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, 2019 or December 31, 2018. 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, 2019 and December 31, 2018, we had long-term receivables whose fair value is based on Level 3 inputs. As of September 29, 2019 and December 31, 2018, 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
Short-term investments    
Equity securities with readily determinable fair values(a)
 $1,054
 $1,600
Available-for-sale debt securities 4,270
 15,091
Held-to-maturity debt securities 978
 1,003
Total Short-term investments $6,302
 $17,694
     
Long-term investments    
Equity securities with readily determinable fair values $1,530
 $1,273
Available-for-sale debt securities 408
 491
Held-to-maturity debt securities 43
 59
Private equity investments at cost 742
 763
Total Long-term investments $2,723
 $2,586
     
Equity-method investments 15,999
 181
Total long-term investments and equity-method investments $18,721
 $2,767
Held-to-maturity cash equivalents $217
 $199

(a) 
As of September 29, 2019 and December 31, 2018, equity securities with readily determinable fair values included money market funds primarily invested in U.S. Treasury and government debt.

26


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

B. Investments
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:
  September 29, 2019 December 31, 2018
    Gross Unrealized   Maturities (in Years)    Gross Unrealized   
(MILLIONS OF DOLLARS) Amortized Cost
 Gains
 Losses
 Fair Value
 Within 1
 Over 1
to 5

 Over 5
 Total
 Amortized Cost
 Gains
 Losses
 Fair Value
Available-for-sale debt securities                        
Government and agency––non-U.S.
 $2,538
 $11
 $(6) $2,543
 $2,498
 $45
 $
 $2,543
 $9,754
 $7
 $(58) $9,703
Corporate and other(a)
 2,140
 1
 (6) 2,135
 1,772
 360
 2
 2,135
 5,905
 
 (27) 5,878
Held-to-maturity debt securities                        
Time deposits and other 636
 
 
 636
 593
 8
 35
 636
 668
 
 
 668
Government and agency––non-U.S.
 601
 
 
 601
 601
 
 
 601
 592
 
 
 592
Total debt securities $5,916
 $11
 $(12) $5,915
 $5,464
 $413
 $38
 $5,915
 $16,920
 $8
 $(85) $16,842
(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)

(a) 
The net gains on investments in equity securities are reported in Other (income)/deductions––net. For additional information, see Note 4.
C. Short-Term Borrowings
Short-term borrowings include:
(MILLIONS OF DOLLARS) September 29,
2019

 December 31,
2018

Commercial paper $12,914
 $3,100
Current portion of long-term debt, principal amount 2,423
 4,781
Other short-term borrowings, principal amount(a)
 1,334
 966
Total short-term borrowings, principal amount 16,671
 8,847
Net fair value adjustments related to hedging and purchase accounting 7
 (5)
Net unamortized discounts, premiums and debt issuance costs (61) (11)
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted
 $16,617
 $8,831
(a) 
Other short-term borrowings primarily include cash collateral. For additional information, see Note 7E.

27


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
(a) 
Fixed rate notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest.
(b) 
The weighted-average effective interest rate for the notes at issuance was 3.57%.

Retirements
In January 2019, we repurchased all €1.1 billion ($1.3 billion, at exchange rates on settlement) principal amount outstanding of the 5.75% euro-denominated debt that was due June 2021 before the maturity date at a redemption value of €1.3 billion ($1.5 billion, at exchange rates 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 the 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 U.K. pound, euro, Japanese yen, Chinese renminbi and Swedish krona.
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 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

28


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
    Fair Value   Fair Value
  Notional Asset Liability Notional Asset Liability
Derivatives designated as hedging instruments:            
Foreign exchange contracts(a)
 $22,807
 $810
 $621
 $22,984
 $654
 $586
Interest rate contracts 6,645
 616
 
 11,145
 432
 383
    1,425
 621
   1,085
 968
             
Derivatives not designated as hedging instruments:            
Foreign exchange contracts $18,112
 116
 112
 $15,154
 55
 55
             
Total   $1,542
 $733
   $1,140
 $1,024
(a) 
The notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $6.6 billion as of September 29, 2019 and $5.8 billion as of December 31, 2018.
The following tables provide 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)
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Three Months Ended            
Derivative Financial Instruments in Cash Flow Hedge Relationships:            
Foreign exchange contracts(c)
 $
 $
 $131
 $183
 $7
 $198
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach 
 
 21
 39
 22
 36
Derivative Financial Instruments in Fair Value Hedge Relationships:            
Interest rate contracts 378
 (195) 
 
 
 
Hedged item (378) 195
 
 
 
 
Foreign exchange contracts 
 1
 
 
 
 
Hedged item 
 (1) 
 
 
 
Derivative Financial Instruments in Net Investment Hedge Relationships:  
  
  
  
  
  
Foreign exchange contracts 
 
 112
 43
 
 
The portion on foreign exchange contracts excluded from the assessment of hedge effectiveness 
 
 43
 14
 45
 21
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:  
  
  
  
  
  
Foreign currency short-term borrowings(d)
 
 
 45
 8
 
 
Foreign currency long-term debt(d)
 
 
 79
 17
 
 
Derivative Financial Instruments Not Designated as Hedges:            
Foreign exchange contracts (77) 150
 
 
 
 
All other net 
 
 (1) 
 
 
  $(77) $150
 $429
 $304
 $74
 $256

29


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)
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Nine Months Ended            
Derivative Financial Instruments in Cash Flow Hedge Relationships:  
  
  
  
  
  
Foreign exchange contracts(c)
 $
 $
 $137
 $147
 $265
 $(204)
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach 



105

87

108

84
Derivative Financial Instruments in Fair Value Hedge Relationships: 

 

 

 

 

 

Interest rate contracts 1,191
 (715) 
 
 
 
Hedged item (1,191) 715
 
 
 
 
Foreign exchange contracts 
 5
 
 
 
 
Hedged item 
 (5) 
 
 
 
Derivative Financial Instruments in Net Investment Hedge Relationships:   

   

   

Foreign exchange contracts 
 
 87
 191
 
 
The portion of foreign exchange contracts excluded from the assessment of hedge effectiveness 



136

41

99

47
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
 
 
Derivative Financial Instruments Not Designated as Hedges:   

 

 

   

Foreign exchange contracts (201) 156
 
 
 
 
All other net 
 
 
 1
 
 1
  $(201) $156
 $617
 $629
 $472
 $(72)
(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––Unrealized holding gains on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income––Foreign currency translation adjustments, net.
(c) 
Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $252 million within the next 12 months into Cost of sales. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $1.8 billion U.K. pound debt maturing in 2043.
(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. Long-term debt includes foreign currency long-term borrowings with carrying values of $1.9 billion as of September 29, 2019, 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)


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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
    
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
Long-term investments
$45

$
 $
 $45
 $(1) $
Short-term borrowings, including current portion of long-term debt



 
 1,499
 (5) 
Long-term debt
7,101

557
 700 9,952
 (45) 129

(a) 
Carrying amounts exclude the cumulative amount of fair value hedging adjustments.
Certain of our derivative 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, 2019, the aggregate fair value of these derivative instruments that are in a net liability position was $673 million, for which we have posted collateral of $661 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, 2019, we received cash collateral of $1.3 billion from various counterparties. The collateral primarily supports the approximate fair value of our derivative contracts that are in a net asset position. 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. For additional information on significant customers, see Notes to Consolidated Financial Statements––Note 18C. Segment, Geographic and Other Revenue Information: Other Revenue Information in Pfizer’s 2018 Financial Report. As of September 29, 2019, we had amounts due from a well-diversified, high quality group of banks ($2.7 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:
(MILLIONS OF DOLLARS) September 29,
2019

 December 31,
2018

Finished goods $2,594
 $2,262
Work-in-process 4,866
 4,701
Raw materials and supplies 762
 546
Inventories(a)
 $8,222
 $7,508
Noncurrent inventories not included above(b)
 $677
 $618

(a) 
The change from December 31, 2018 reflects 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 a decrease due to foreign exchange and the write off of rivipansel inventory previously expected to be sold (see Note 2C).
(b) 
Included in Other noncurrent assets. There are no recoverability issues associated with these amounts.

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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:
  September 29, 2019 December 31, 2018
(MILLIONS OF DOLLARS) 
Gross
Carrying
Amount

 
Accumulated
Amortization

 
Identifiable
Intangible
Assets, less
Accumulated
Amortization

 
Gross
Carrying
Amount

 
Accumulated
Amortization

 
Identifiable
Intangible
Assets, less
Accumulated
Amortization

Finite-lived intangible assets            
Developed technology rights(a)
 $91,212
 $(62,032) $29,180
 $89,430
 $(58,895) $30,535
Brands 922
 (733) 190
 923
 (708) 215
Licensing agreements and other(a)
 1,776
 (1,173) 603
 1,436
 (1,140) 296
  93,910
 (63,938) 29,972
 91,788
 (60,743) 31,045
Indefinite-lived intangible assets            
Brands 1,991
 

 1,991
 1,991
 

 1,991
IPR&D(a)
 5,959
 

 5,959
 2,171
 

 2,171
Licensing agreements and other(a), (b)
 1,073
 

 1,073
 3
 

 3
  9,023
 

 9,023
 4,165
 

 4,165
Identifiable intangible assets(a), (c)
 $102,933
 $(63,938) $38,995
 $95,954
 $(60,743) $35,211

(a) 
The increase in the gross carrying amount of Identifiable intangible assets primarily reflects the impact of the acquisition of Array, including the addition of $1.8 billion of Developed technology rights, $340 million of finite-lived Licensing agreements, $4.0 billion of IPR&D and $1.1 billion of indefinite-lived Licensing agreements (see Note 2A).
(b) 
Reflects acquired licensing agreements for technology in development.
(c) 
The increase 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.

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
  Biopharma Upjohn WRDM
Developed technology rights 99% 1% 
Brands, finite-lived 100% 
 
Brands, indefinite-lived 42% 58% 
IPR&D 95% 
 5%
Licensing agreements and other, finite-lived 98% 
 2%
Licensing agreements and other, indefinite-lived 100% 
 



32


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Amortization

Total amortization expense for finite-lived intangible assets was $1.2 billion for the third quarter of 2019 and $1.3 billion for the third quarter of 2018, and $3.6 billion for the first nine months of 2019 and $3.7 billion for the first nine months of 2018.
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

(a) 
Biopharma additions relate to our acquisition of Array (see Note 2A).
(b) 
Primarily reflects the impact of foreign exchange.

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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):
  Three Months Ended
  Pension 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

Net periodic benefit cost/(credit):                
Service cost $
 $
 $
 $
 $31
 $33
 $9
 $10
Interest cost 157
 149
 12
 14
 53
 52
 19
 18
Expected return on plan assets (222) (259) 
 
 (79) (89) (8) (9)
Amortization of:  
  
  
  
    
  
  
Actuarial losses 37
 30
 2
 3
 20
 25
 
 2
Prior service credits (1) 
 
 
 (1) (1) (43) (45)
Curtailments 
 1
 
 1
 
 (4) (47) (1)
Settlements 1
 38
 22
 3
 12
 
 (10) 
Special termination benefits 3
 
 5
 
 
 
 1
 
  $(25) $(40) $41
 $20
 $37
 $17
 $(78) $(26)
  Nine Months Ended
  Pension 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

Net periodic benefit cost/(credit):                
Service cost $
 $
 $
 $
 $94
 $104
 $28
 $29
Interest cost 472
 450
 37
 40
 162
 160
 57
 54
Expected return on plan assets (667) (783) 
 
 (239) (274) (25) (28)
Amortization of:                
Actuarial losses 110
 90
 7
 10
 61
 77
 2
 5
Prior service costs/(credits) (2) 1
 (1) (1) (3) (3) (132) (135)
Curtailments 
 11
 
 1
 
 (4) (47) (15)
Settlements 3
 84
 21
 24
 12
 
 (10) 
Special termination benefits 4
 
 14
 
 
 1
 2
 
  $(80) $(147) $78
 $75
 $88
 $61
 $(124) $(89)

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

(a) 
Contributions expected to be made for 2019 are inclusive of amounts contributed during the nine months ended September 29, 2019. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 11. Earnings Per Common Share Attributable to Common Shareholders
The following table provides the detailed calculation of EPS:
  Three Months Ended Nine Months Ended
(IN MILLIONS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

EPS Numerator––Basic        
Income from continuing operations $7,680
 $4,111
 $16,625
 $11,562
Less: Net income attributable to noncontrolling interests 4
 8
 19
 25
Income from continuing operations attributable to Pfizer Inc. 7,676
 4,103
 16,606
 11,537
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
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
EPS Numerator––Diluted  
  
  
  
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions $7,676
 $4,103
 $16,606
 $11,537
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
EPS Denominator  
  
  
  
Weighted-average number of common shares outstanding––Basic 5,545
 5,875
 5,581
 5,899
Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements 104
 112
 110
 99
Weighted-average number of common shares outstanding––Diluted 5,649
 5,986
 5,690
 5,998
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
(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.
Note 12. 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.

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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.
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. The Patent Trial and Appeal Board refused to initiate proceedings as to 2 patents. In June 2018, the Patent Trial and Appeal Board 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 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

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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 seeks 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 Premix
In June 2014, Ben Venue Laboratories, Inc. (Ben Venue) notified our subsidiary, Hospira, that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that a patent related to 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 was settled on terms not material to Pfizer.
In June 2015, Amneal Pharmaceuticals LLC (Amneal) notified Hospira that it had filed an abbreviated new drug application with the FDA seeking approval to market a generic version of Hospira’s premix version of Precedex and containing allegations that 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

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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 against MicroLabs USA Inc. and MicroLabs Ltd. (collectively, MicroLabs) in the U.S. District Court for the District of Delaware asserting the infringement and validity of 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 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 Ltd., which covers the active ingredient and expires in December 2025. In October 2018, we brought a third patent infringement action against Sun 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, the actions against Sun Ltd. were dismissed by mutual agreement of the parties.

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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PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 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)
In December 2016, Medivation and Medivation Prostate Therapeutics, Inc. (collectively, the Medivation Group); Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc. (collectively, Astellas); and The Regents of the University of California filed patent-infringement suits in the U.S. District Court for the District of Delaware against Actavis Laboratories FL, Inc. and Actavis LLC (collectively, Actavis); Zydus; and Apotex Inc. and Apotex Corp. (collectively, Apotex) in connection with those companies’ respective abbreviated new drug applications filed with the FDA for approval to market generic versions of enzalutamide. The generic manufacturers are challenging patents, which expire as early as 2026, covering enzalutamide and treatments for prostate cancer. In May 2017, the Medivation Group filed a patent-infringement suit against Roxane Laboratories Inc. (Roxane) in the same court in connection with Roxane’s abbreviated new drug application with the FDA for approval to market a generic version of enzalutamide. In 2018 and 2019, we settled all pending claims against the various generic challengers on terms not material to Pfizer.
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. The patents currently are set to expire in 2019, 2026, and 2031. Eliquis has been jointly developed and is being commercialized by BMS and Pfizer. In April 2017, BMS and Pfizer filed patent-infringement actions against all generic filers in the U.S. District Court for the District of 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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PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

patent, some challenged both the 2031 and 2026 patent, and one generic company challenged all 3 patents. 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 naming American Optical and numerous other defendants were pending in various federal and state courts seeking damages for alleged personal injury from exposure to asbestos and other allegedly hazardous materials. Warner-Lambert was acquired by Pfizer in 2000 and is a wholly owned subsidiary of Pfizer. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means of resolving, these claims.

Numerous lawsuits are pending against Pfizer in various federal and state courts seeking damages for alleged personal injury from exposure to products allegedly containing asbestos and other allegedly hazardous materials sold by Pfizer and certain of its previously owned subsidiaries.
There also are a small number of lawsuits pending in various federal and state courts seeking damages for alleged exposure to asbestos in facilities owned or formerly owned by Pfizer or its subsidiaries.

Effexor
Beginning in May 2011, actions, including purported class actions, were filed in various federal courts against Wyeth and, in certain of the actions, affiliates of Wyeth and certain other defendants relating to Effexor XR, which is the extended-release formulation of Effexor. The plaintiffs in each of the class actions seek to represent a class consisting of all persons in the U.S. and its territories who directly purchased, indirectly purchased or reimbursed patients for the purchase of Effexor XR or generic Effexor XR from any of the defendants from June 14, 2008 until the time the defendants’ allegedly unlawful conduct ceased. The plaintiffs in all of the actions allege delay in the launch of generic Effexor XR in the U.S. and its territories, in violation of federal antitrust laws and, in certain of the actions, the antitrust, consumer protection and various other laws of certain states, as the result of Wyeth fraudulently obtaining and improperly listing certain patents for Effexor XR in the Orange Book, enforcing certain patents for Effexor XR and entering into a litigation settlement agreement with a generic drug manufacturer with respect to Effexor XR. Each of the plaintiffs seeks treble damages (for itself in the individual actions or on behalf of the putative class in the purported class actions) for alleged price overcharges for Effexor XR or generic Effexor XR in the U.S. and its territories since June 14, 2008. All of these actions have been consolidated in the U.S. District Court for the District of New Jersey.
In October 2014, the District Court dismissed the direct purchaser plaintiffs’ claims based on the litigation settlement agreement, but declined to dismiss the other direct purchaser plaintiff claims. In January 2015, the District Court entered partial final 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 number of individual and multi-plaintiff lawsuits have been filed against us in various federal and state courts alleging that the plaintiffs developed melanoma and/or the exacerbation of melanoma purportedly as a result of the ingestion of Viagra. Plaintiffs seek compensatory and punitive damages.
In April 2016, the federal actions were transferred for coordinated pre-trial proceedings to a Multi-District Litigation (In Re: Viagra (Sildenafil Citrate) Products Liability Litigation, MDL-2691) in the U.S. District Court for the Northern District of California. In December 2016, federal actions filed against Lilly and filed against both us and Lilly, were transferred for coordinated pre-trial proceedings to the Multi-District Litigation (In re: Viagra (Sildenafil Citrate) and Cialis (Tadalafil) Products Liability Litigation, MDL-2691).
Intravenous Solutions
Beginning in November 2016, purported class actions were filed in the U.S. District Court for the Northern District of Illinois against Hospira, Hospira Worldwide, Inc. and certain other defendants relating to intravenous saline solution. Plaintiffs seek to 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 saline

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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, a similar lawsuit brought in the U.S. District Court for the District of New Jersey on behalf of a purported class of direct purchaser plaintiffs against Pfizer, King, Meridian and Mylan was voluntarily dismissed without prejudice. Against Pfizer and/or its affiliates, plaintiffs generally allege that Pfizer’s and/or its affiliates’ settlement of patent litigation regarding EpiPen delayed market entry of generic EpiPen in violation of federal antitrust laws and various state antitrust or consumer protection laws. At least one lawsuit also alleges that Pfizer and/or Mylan violated the federal Racketeer Influenced and Corrupt Organizations Act. Plaintiffs also filed various consumer protection and unjust enrichment claims against, and relating to conduct attributable solely to, Mylan and/or its affiliates regarding EpiPen. Plaintiffs seek treble damages for alleged overcharges for EpiPen since 2009. In August 2017, the actions were consolidated for coordinated pre-trial proceedings in a Multi-District Litigation (In re: EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation, MDL-2785) in the U.S. District Court for the District of Kansas with other EpiPen-related actions against Mylan and/or its affiliates to which Pfizer, King and Meridian are not parties.
Nexium 24HR and Protonix
A number of individual and multi-plaintiff lawsuits have been filed against Pfizer, certain of its subsidiaries and/or other pharmaceutical manufacturers in various federal and state courts alleging that the plaintiffs developed kidney-related injuries purportedly as a result of the 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) in the U.S. District Court for the Eastern District of Louisiana.
Mississippi Attorney General Government Investigation
In October 2018, the Attorney General of Mississippi filed a complaint in Mississippi state court against the manufacturer of the branded product and 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.
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 action alleges, among other things, fraud and violation of the state’s unfair trade practices and consumer 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 spinoff that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Former Monsanto’s chemical businesses, including, but not limited to, any such liabilities that Solutia assumed. Solutia’s and New Monsanto’s assumption of, and agreement to indemnify Pharmacia for, these liabilities apply to pending actions and any future actions related to Former Monsanto’s chemical businesses in which Pharmacia is named as a defendant, including, without limitation, actions asserting environmental claims, including alleged exposure to polychlorinated biphenyls. Solutia and/or New Monsanto are defending Pharmacia in connection with various claims and litigation arising out of, or related to, Former Monsanto’s chemical businesses, and have been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.
Environmental Matters
In 2009, we submitted to the U.S. Environmental Protection Agency (EPA) a corrective measures study report with regard to Pharmacia’s discontinued industrial chemical facility in North Haven, Connecticut. In September 2010, our corrective measures

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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.
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 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 2018, the U.S. Department of Justice requested documents related to this matter, which are being provided.
Allergan Complaint for Indemnity
In August 2018, Pfizer was named as a defendant in a third-party complaint for indemnity, along with King, 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.
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

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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 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.
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 producing 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. Contingencies and Certain 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 Investigation
See Note 12A2. Contingencies and Certain Commitments: Legal Proceedings––Product Litigation––Docetaxel––Mississippi Attorney General Government Investigation above for information regarding a government investigation related to Docetaxel marketing practices.
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, the estimated fair value of these indemnification obligations was not significant.
In addition, in connection with our entry into certain agreements, our counterparties 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.

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C. Certain Commitments
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. 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.
Note 13. Segment, Geographic and Other Revenue Information

A. Segment Information

At the beginning of our 2019 fiscal year, we 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 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. 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. 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 the new structure until the beginning 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 and the contribution of our Consumer Healthcare business to the GSK Consumer Healthcare joint venture have impacted our results of operations in 2019.

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Operating Segments
Some additional information about our Biopharma and Upjohn business segments follows:
pfizerlogo2816.jpg
Pfizer
Biopharmaceuticals
Group
 
upjohnlogo.jpg
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
- Xeljanz
- Enbrel (outside the U.S. and Canada)
-
Chantix/Champix
- Sutent
- Xtandi
 
Select products include:
- 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 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

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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.
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 in equity securities) that are evaluated on an individual basis by management and that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items can include, but are not limited to, non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities.
Segment Assets

We manage our assets on a total company basis, not by operating segment, as many of our operating assets are shared 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 billion as of September 29, 2019 and $159 billion as of December 31, 2018.
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
  Revenues 
Earnings(a)
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Reportable Segments:        
Biopharma $10,108
 $9,422
 $6,503
 $6,206
Upjohn 2,195
 3,036
 1,353
 2,051
Total reportable segments 12,303
 12,458
 7,856
 8,257
Other business activities 
 
 (1,443) (1,298)
Reconciling Items:      
  
Corporate and other unallocated 377
 839
 (1,431) (1,658)
Purchase accounting adjustments 
 
 (1,141) (1,309)
Acquisition-related costs 
 
 (300) (112)
Certain significant items(b)
 
 
 7,187
 298
  $12,680
 $13,298
 $10,727
 $4,177
 
  Nine Months Ended
  Revenues 
Earnings(a)
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Reportable Segments:        
Biopharma $28,887
 $27,737
 $18,484
 $17,987
Upjohn 8,077
 9,302
 5,577
 6,442
Total reportable segments 36,964
 37,040
 24,062
 24,428
Other business activities 
 
 (3,750) (3,605)
Reconciling Items:        
Corporate and other unallocated 2,098
 2,631
 (4,108) (4,558)
Purchase accounting adjustments 
 
 (3,357) (3,665)
Acquisition-related costs 
 
 (152) (221)
Certain significant items(b)
 
 
 6,495
 452
  $39,062
 $39,670
 $19,190
 $12,831
(a) 
Income from continuing operations before provision for taxes on income. Biopharma’s earnings include dividend income of $43 million in the third quarter of 2019 and $91 million in the third quarter of 2018, and $184 million in the first nine months of 2019 and $226 million in the first nine months of 2018 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.

48


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 charge for 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.
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
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 
%
Change


September 29,
2019


September 30,
2018


%
Change

U.S. $5,850
 $6,361
 (8)
$18,360

$18,861

(3)
Developed Europe(a)
 2,135
 2,231
 (4)
6,450

6,657

(3)
Developed Rest of World(b)
 1,585
 1,640
 (3)
4,758

4,795

(1)
Emerging Markets(c)
 3,110
 3,066
 1

9,493

9,358

1
Revenues $12,680
 $13,298
 (5)
$39,062

$39,670

(2)
(a) 
Developed Europe region includes the following markets: Western Europe, Scandinavian countries and Finland. Revenues denominated in euros were $1.7 billion in the third quarter of 2019 and $1.8 billion in the third quarter of 2018, and were $5.2 billion in the first nine months of 2019 and $5.3 billion in the first nine months of 2018.
(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, the Middle East, Africa, Central Europe and Turkey.

49


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 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 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


50


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(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

Rare Disease   $601
 $531
 $1,592
 $1,651
BeneFIX Hemophilia 125
 132
 372
 420
Genotropin Replacement of human growth hormone 124
 143
 357
 416
Refacto AF/Xyntha Hemophilia 104
 117
 319
 388
Vyndaqel ATTR-Cardiomyopathy and Polyneuropathy 156
 37
 259
 108
Somavert Acromegaly 64
 64
 192
 195
All other Rare Disease Various 28
 38
 94
 123
UPJOHN(b), (h)
   $2,195
 $3,036
 $8,077
 $9,302
Lyrica Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury 527
 1,213
 2,888
 3,649
Lipitor Reduction of LDL cholesterol 476
 507
 1,506
 1,539
Norvasc Hypertension 219
 248
 735
 777
Celebrex Arthritis pain and inflammation, acute pain 179
 188
 526
 494
Viagra Erectile dysfunction 120
 137
 379
 509
Effexor Depression and certain anxiety disorders 80
 78
 242
 228
Zoloft Depression and certain anxiety disorders 74
 72
 217
 223
Xalatan/Xalacom Glaucoma and ocular hypertension 68
 76
 201
 233
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
CONSUMER HEALTHCARE BUSINESS(i)
 $377
 $839
 $2,098
 $2,631
           
Total Alliance revenues Various $1,141
 $977
 $3,418
 $2,820
Total Biosimilars(j)
 Various $236
 $197
 $632
 $558
Total Sterile Injectable Pharmaceuticals(k)
 $1,248
 $1,239
 $3,703
 $3,928

(a) 
The Pfizer Biopharmaceuticals Group encompasses 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 category to the Upjohn business to conform 2018 product revenues to the current presentation.
(c) 
We performed certain reclassifications in the All other Oncology category to conform 2018 product revenues to the current presentation.
(d) 
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). All other Hospital primarily includes revenues from legacy 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) 
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.
(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) 
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) 
Biosimilars are highly similar versions of approved and authorized biological medicines and primarily include revenues from Inflectra/Remsima and Retacrit.
(k) 
Sterile Injectable Pharmaceuticals represents the total of all branded and generic injectable products in the Hospital business, including anti-infective sterile injectable pharmaceuticals.

51


Review Report Of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Pfizer Inc.:

Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and subsidiaries (the Company) as of September 29, 2019, the related condensed consolidated statements of income, comprehensive income and equity for the three-month and nine-month periods ended September 29, 2019 and September 30, 2018, the related condensed consolidated statements of cash flows for the nine-month periods ended September 29, 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, 2018, 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, 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, 2018 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, 2019

52


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

See the Glossary of Defined Terms at the beginning of this Quarterly Report on Form 10-Q for terms used throughout this MD&A. Our MD&A is provided in addition to the accompanying condensed consolidated financial statements and footnotes to assist readers in understanding Pfizer’s results of operations, financial condition and cash flows. The MD&A is organized as follows:
Beginning on page 54
 This section provides information about the following: Our Business; our performance during the third quarter and first nine months of 2019 and 2018; 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. 
Beginning on page 69
 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. 
Beginning on page 70
 This section includes the following sub-sections: 
 
Beginning on page 71
 This sub-section provides an overview of revenues by operating segment and geography as well as revenue deductions. 
 
Beginning on page 75
 This sub-section provides an overview of several of our biopharmaceutical products. 
 
Beginning on page 81
 This sub-section provides an overview of important biopharmaceutical product developments. 
 
Beginning on page 85
 This sub-section provides a discussion about our costs and expenses. 
 
Beginning on page 88
 This sub-section provides a discussion of items impacting our tax provisions. 
 
Beginning on page 88
 This sub-section provides a discussion of an alternative view of performance used by management. 
Beginning on page 94
 This section provides a discussion of the performance of each of our operating segments. 
Beginning on page 102
 This section provides a discussion of changes in certain components of other comprehensive income. 
Beginning on page 103
 This section provides a discussion of changes in certain balance sheet accounts. 
Beginning on page 104
 This section provides an analysis of our cash flows for the first nine months of 2019 and 2018. 
Beginning on page 105
 This section provides an analysis of selected measures of our liquidity and of our capital resources as of September 29, 2019 and December 31, 2018, as well as a discussion of our outstanding debt and other commitments that existed as of September 29, 2019 and December 31, 2018. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities. 
Beginning on page 109
 This section discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted. 
Beginning on page 110
 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 our MD&A may not add due to rounding. All percentages have been calculated using unrounded amounts.

53


OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Our Business

We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development and manufacture of healthcare products, 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, 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. Segment, Geographic and Other Revenue Information: Segment Information and the “Our Strategy––Commercial Operations” section of this MD&A below.
The majority of our revenues come from the manufacture and sale of biopharmaceutical products. As explained more fully in our 2018 Form 10-K, the biopharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights, the ability to replenish innovative biopharmaceutical products, healthcare legislation, pipeline productivity, the regulatory environment, pricing and access pressures and competition. We also face challenges as a result of the global economic environment. For additional information about these factors and challenges, see the “Our Operating Environment” and “The Global Economic Environment” sections of this MD&A and of our 2018 Financial Report and Part I, Item 1A, “Risk Factors” of our 2018 Form 10-K.

The financial information included in our condensed consolidated financial statements for our subsidiaries operating outside the U.S. is as of and for the three and nine months ended August 25, 2019 and August 26, 2018. The financial information included in our condensed consolidated financial statements for U.S. subsidiaries is as of and for the three and nine months ended September 29, 2019 and September 30, 2018.
References to operational variances in this MD&A pertain to period-over-period growth rates that exclude the impact of foreign exchange. The operational variances are determined by multiplying or dividing, as appropriate, our current period U.S. dollar results by the current period average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the prior-year period average foreign exchange rates. Although exchange rate changes are part of our business, they are not within our control. Exchange rate changes, however, can mask positive or negative trends in the business; therefore, we believe presenting operational variances provides useful information in evaluating the results of our business.
Our significant recent business development activities include:
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.
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). 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 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.

54


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 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” 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.

Our Third Quarter 2019 Performance

Revenues

Revenues in the third quarter of 2019 decreased $618 million, or 5%, compared to the same period in 2018, which reflects an operational decrease of $403 million, or 3%, as well as the unfavorable impact of foreign exchange of $215 million, or 2%. Revenues in the first nine months of 2019 decreased $609 million, or 2%, compared to the same period in 2018, which reflects an unfavorable impact of foreign exchange of $1.2 billion, or 3%, partially offset by an operational increase of $586 million, or 1%.

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The following provides an analysis of the changes in revenues for the third quarter and first nine months of 2019:
(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. 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.

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Income from Continuing Operations Before Provision for Taxes on Income
The following provides an analysis of the increase in Income from continuing operations before provision for taxes on income for the third quarter and first nine months of 2019:
(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
(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) 
See the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A.
For information on our tax provision and effective tax rate see the “Provision for Taxes on Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 5. Tax Matters.

Our Operating Environment
Industry-Specific Challenges

Intellectual Property Rights and Collaboration/Licensing Rights

The loss, expiration or invalidation of intellectual property rights, patent litigation settlements with manufacturers and the expiration of co-promotion and licensing rights can have a significant 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

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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 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, 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 number of our current products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last 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. 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.

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, see the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 2018 Form 10-K.
We will continue to vigorously 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. 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 2018 Form 10-K.
We recorded the following amounts as a result of the U.S. Healthcare Legislation:
  Three Months Ended Nine Months Ended
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Reduction to Revenues, related to the Medicare “coverage gap” discount provision
 $307
 $217
 $596
 $435
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

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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. 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. 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, 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 in 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,

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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 and 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 reference pricing (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 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.
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 increased 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. 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

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healthcare cost by driving utilization of generics that have passed QCE, 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, which was finalized in December 2018 and implemented in March 2019, and those contracts went to local generic companies. The first bidding process resulted in significant price cuts by the successful bidders, with some reducing the price 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, which was finalized in September 2019 and will be implemented in late 2019 or early 2020. The expanded model allows for as many as three successful bidders 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. Our Upjohn business unit and most originator brands were not successful in the bidding process for this nationwide expansion, and those contracts mostly went to local Chinese generic companies. The QCE-qualified generic makers 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.

Furthermore, the Chinese government has discussed moving toward efforts to unify the reimbursement price between QCE-approved generic medicines and the applicable original medicines. The government currently plans to implement this universal reimbursement price initiative within the next two 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/or patient copays. There remains uncertainty as to whether, when and how this policy may be officially implemented. The Chinese government could also enact other policies that may increase pricing pressures or have the effect of reducing the volume of sales available to Upjohn’s products. This potential policy, and any other policies like it that could increase pricing and copay pressures on Upjohn’s drug products in China, could have an adverse effect on our business, financial condition and results of operations. The government has indicated that additional post-LOE drugs could be subjected to QCE qualification in future rounds, which could also be tied to volume-based procurement. The scope of future QCE 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 monitor the market for developments.
For additional information, see the “Regulatory Environment––Pipeline Productivity” and “Competition” sections of our 2018 Financial Report and the “Government Regulation and Price Constraints” section in Part I, Item 1, “Business” of our 2018 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, and insurance companies, which provide insurance benefits to patients, have implemented increases in cost-sharing and restrictions on access to medicines, potentially causing patients to switch to generic or biosimilar products, delay treatments, skip doses or use less effective treatments. 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 include 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 grow as a source of coverage.
Significant portions of 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

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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, see the “Analysis of Financial Condition, Liquidity and Capital Resources” and the “Our Financial Guidance for 2019” sections of this MD&A.
In June 2016, the U.K. electorate voted in a referendum to leave the EU, which is commonly referred to as “Brexit”. In March 2017, the U.K. government formally notified the European Council of its intention to leave the EU after it triggered Article 50 of the Lisbon Treaty to begin the two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. Formal negotiations officially started in June 2017. After multiple votes in the British Parliament in 2019 failing to approve a Brexit withdrawal agreement with the EU, the EU has agreed in principle to extend the date of the U.K.’s withdrawal until January 31, 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 outcome of the election on the Brexit process, 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.
Pfizer maintains a strong financial position while operating in a complex global environment. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. Our long-term debt is rated high quality by both S&P and Moody’s. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, available-for-sale debt securities. For further discussion of our financial condition and credit ratings, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.
These and other industry-wide factors that may affect our businesses should be considered along with information presented in the “Forward-Looking Information and Factors That May Affect Future Results” section of this MD&A and in Part I, Item 1A, “Risk Factors” of our 2018 Form 10-K.

Our Strategy

We believe that our medicines provide significant value for both healthcare providers and patients, not only from the improved treatment of diseases but also from a reduction in other healthcare costs, such as emergency room or hospitalization costs, as well as improvements in health, wellness and productivity. We continue to actively engage in dialogues about the value of our medicines and how we can best work with patients, physicians and payers to prevent and treat disease and improve outcomes. We continue to work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize patient access and minimize any adverse impact on our revenues. We remain firmly committed to fulfilling our company’s purpose: Breakthroughs that change patients’ lives. By doing so, we expect to create value for the patients we serve and for our colleagues and shareholders.
Organizing for Growth
We believe we have one of the strongest pipelines 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 given 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.

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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 additional information about each business.
We also reorganized our R&D operations as part 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.
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. 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 leverage technology and robotics to simplify and automate our processes.

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In the fourth quarter of 2018, we took steps to simplify the organization, increase spans 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 totality of our annual guidance for 2019. To partially offset the incremental cost increases of increased R&D investments 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.
Some additional information about our Biopharma and Upjohn business segments follows:
pfizerlogo2816.jpg
Pfizer
Biopharmaceuticals
Group

 
upjohnlogo.jpg
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
- Xeljanz
- Enbrel (outside the U.S. and Canada)
-
Chantix/Champix
- Sutent
- Xtandi
 
Select products include:
- 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 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.


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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.
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.
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.

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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” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.

Increasing Investment in the U.S.––After evaluating the expected positive net impact the TCJA will have on us, in early 2018, we decided to take several actions:
Over 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:
in July 2018, we announced that we will increase our commitment to U.S. manufacturing with a $465 million investment to build one of the most technically advanced sterile injectable pharmaceutical production facilities in the world in Portage, Michigan. This U.S. investment will strengthen our capability to produce and supply critical, life-saving injectable medicines for patients around the world, creating an estimated 450 new jobs over the next several years; and
in August 2019, we announced an additional half billion dollar investment 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.
We made a $500 million voluntary contribution to the U.S. Pfizer Consolidated Pension Plan in February 2018.

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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:
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.
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 and 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.
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––

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Note 2A. Acquisitions, Equity-Method Investment and Assets and Liabilities Held for Sale and Research and Development Arrangement: Acquisitions.
For a description 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 2019 financial guidance primarily to reflect our 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.
Pfizer’s updated 2019 financial guidance is presented below(a), (b):
Revenues$51.2 to $52.2 billion
 (previously $50.5 to $52.5 billion)
Adjusted cost of sales as a percentage of revenues19.3% to 19.8%
 (previously 20.1% to 21.1%)
Adjusted selling, informational and administrative expenses$13.5 to $14.0 billion
 (previously $13.0 to $14.0 billion)
Adjusted research and development expenses$7.7 to $8.1 billion
 (previously $7.9 to $8.3 billion)
Adjusted other (income)/deductionsApproximately $200 million of income
Effective tax rate on adjusted incomeApproximately 16.0%
Adjusted diluted EPS$2.94 to $3.00
 (previously $2.76 to $2.86)
(a) 
The 2019 financial guidance reflects the following:
Does not assume the completion of any business development transactions not completed as of 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 anticipated earnings from the Consumer Healthcare JV with GSK from August 1, 2019, which will be recorded on a quarterly basis in Adjusted other (income)/deductions. Pfizer will record its share of the JV’s anticipated earnings on a one-quarter lag; therefore, 2019 financial guidance for Adjusted other (income)/deductions and Adjusted diluted EPS reflects Pfizer’s share of two months of the JV’s earnings that are expected to be generated in third-quarter 2019, which will be recorded by Pfizer in fourth-quarter 2019.
Reflects an anticipated negative revenue impact of $2.1 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 2019 and mid-October 2019 rates for the remainder of the year. Reflects the anticipated unfavorable impact of approximately $1.4 billion on revenues and approximately $0.10 on adjusted diluted EPS as a result of changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2018.
Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 5.7 billion shares, which reflects the weighted-average impact of 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.
(b) 
For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.
Pfizer does not provide guidance for GAAP Reported financial measures (other than revenues) 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 or losses on investments in 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, 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 2019 financial guidance is subject to a number of factors and uncertainties as described in the “Our Operating Environment”, “The Global Economic Environment”, “Our Strategy” and “Forward-Looking Information and Factors That May Affect Future Results” sections of this MD&A; and Part I, Item 1A, “Risk Factors” of our 2018 Form 10-K.

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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 2018 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 ); 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 2018 Financial Report. See also Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions in our 2018 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, 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.

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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
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA) September 29,
2019

 September 30,
2018

 
%
Change

 September 29,
2019

 September 30,
2018

 
%
Change

Revenues $12,680
 $13,298
 (5) $39,062
 $39,670
 (2)
             
Cost of sales(a)
 2,602
 2,694
 (3) 7,611
 8,173
 (7)
% of revenues 20.5% 20.3%  
 19.5% 20.6%  
             
Selling, informational and administrative expenses(a)
 3,260
 3,494
 (7) 10,110
 10,448
 (3)
% of revenues 25.7% 26.3%  
 25.9% 26.3%  
             
Research and development expenses(a)
 2,283
 2,008
 14
 5,827
 5,549
 5
% of revenues 18.0% 15.1%  
 14.9% 14.0%  
             
Amortization of intangible assets 1,212
 1,253
 (3) 3,578
 3,640
 (2)
% of revenues 9.6% 9.4%  
 9.2% 9.2%  
             
Restructuring charges and certain acquisition-related costs 365
 85
 *
 295
 172
 72
% of revenues 2.9% 0.6%  
 0.8% 0.4%  
             
(Gain) on completion of Consumer Healthcare JV transaction (8,087) 
 *
 (8,087) 
 *
% of revenues 63.8% 
 *
 20.7% 
 *
             
Other (income)/deductions––net 319
 (414) *
 537
 (1,143) *
Income from continuing operations before provision for taxes on income 10,727
 4,177
 *
 19,190
 12,831
 50
% of revenues 84.6% 31.4%  
 49.1% 32.3%  
             
Provision for taxes on income 3,047
 66
 *
 2,566
 1,270
 *
Effective tax rate 28.4% 1.6%  
 13.4% 9.9%  
             
Income from continuing operations 7,680
 4,111
 87
 16,625
 11,562
 44
% of revenues 60.6% 30.9%  
 42.6% 29.1%  
             
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
% of revenues 60.6% 31.0%  
 42.6% 29.2%  
             
Less: Net income attributable to noncontrolling interests 4
 8
 (56) 19
 25
 (23)
Net income attributable to Pfizer Inc. $7,680
 $4,114
 87
 $16,609
 $11,546
 44
% of revenues 60.6% 30.9%  
 42.5% 29.1%  
             
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
Net income attributable to Pfizer Inc. common shareholders $1.38
 $0.70
 98
 $2.98
 $1.96
 52
             
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
Net income attributable to Pfizer Inc. common shareholders $1.36
 $0.69
 98
 $2.92
 $1.92
 52
* Calculation not meaningful or results are equal to or greater than 100%.
(a) 
Excludes amortization of intangible assets, except as disclosed in Notes to Condensed Consolidated Financial Statements––Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.

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Revenues by Operating Segment and Geography

The following graphs show revenues by operating segment and geography:
Third Quarter
q32019revenuesbysegment.jpgq32018revenuesbysegment.jpg
2019 Revenues by Geography % of Total
U.S. 46%
International 54%
 
2018 Revenues by Geography % of Total
U.S. 48%
International 52%

First Nine Months
firstninemonths2019byseg.jpgfirstninemonths2018byseg.jpg
2019 Revenues by Geography % of Total
U.S. 47%
International 53%
    
 
2018 Revenues by Geography % of Total
U.S. 48%
International 52%

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The following tables provide worldwide revenues by operating segment and geography:
  Three Months Ended
  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
Operating Segments(a):
                  
Biopharma $10,108
 $9,422
 $5,218
 $4,684
 $4,890
 $4,738
 7
 11
 3
Upjohn 2,195
 3,036
 509
 1,231
 1,686
 1,805
 (28) (59) (7)
Consumer Healthcare 377
 839
 124
 445
 253
 394
 (55) (72) (36)
Total revenues $12,680
 $13,298
 $5,850
 $6,361
 $6,830
 $6,937
 (5) (8) (2)
 
  Nine Months Ended
  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
Operating Segments(a):
    
    
    
  
  
  
Biopharma $28,887
 $27,737
 $14,481
 $13,582
 $14,406
 $14,155
 4
 7
 2
Upjohn 8,077
 9,302
 2,891
 3,921
 5,186
 5,381
 (13) (26) (4)
Consumer Healthcare 2,098
 2,631
 988
 1,357
 1,110
 1,273
 (20) (27) (13)
Total revenues $39,062
 $39,670
 $18,360
 $18,861
 $20,701
 $20,810
 (2) (3) (1)
(a) 
For additional information about each operating segment, see the “Our Strategy––Commercial Operations” and “Analysis of Operating Segment Information” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.

72


Third Quarter of 2019 vs. Third Quarter of 2018
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)
(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.
Emerging markets revenues increased $44 million, or 1%, in the third quarter of 2019 to $3.1 billion, reflecting an operational increase of $180 million, or 6%, partially offset by an unfavorable impact from foreign exchange of approximately 4%. The operational increase in emerging markets was primarily driven by Ibrance, Prevenar 13 and Eliquis in our Biopharma segment.

73


First Nine Months of 2019 vs. First Nine Months of 2018
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)
(a) 
Certain key brands represent Ibrance, Eliquis, Xeljanz and Prevnar 13/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.
Emerging markets revenues increased $135 million, or 1%, in the first nine months of 2019 to $9.5 billion from $9.4 billion, reflecting an operational increase of $839 million, or 9%. Foreign exchange had an unfavorable impact of approximately 8% on emerging markets revenues. The operational increase in emerging markets was primarily driven by Prevenar 13, Ibrance and Eliquis in our Biopharma segment and Lipitor, Viagra, Celebrex and Norvasc in our Upjohn segment.

74


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 is required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends.
The following table provides information about revenue deductions:
  Three Months Ended Nine Months Ended
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 September 29,
2019

 September 30,
2018

Medicare rebates(a)
 $295
 $443
 $1,080
 $1,266
Medicaid and related state program rebates(a)
 503
 502

1,531
 1,500
Performance-based contract rebates(a), (b)
 923
 854

2,784
 2,467
Chargebacks(c)
 1,328
 1,654

4,252
 4,850
Sales allowances(d)
 1,350
 1,448

4,164
 4,142
Sales returns and cash discounts 262
 358
 1,065
 1,067
Total(e)
 $4,660
 $5,259
 $14,875
 $15,292
(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, 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 ($2.5 billion) and Other ($0.2 billion). For the nine months ended September 29, 2019, associated with the following segments: Biopharma ($8.7 billion), Upjohn ($5.8 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 ($0.5 billion).
Total revenue deductions for the third quarter of 2019 decreased 11% compared to the third quarter of 2018, and total revenue deductions for the first nine months of 2019 decreased 3%, compared to the first nine months of 2018, primarily as a result of:
a decrease in chargebacks, primarily related to Upjohn products, including Viagra 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,
partially offset by:
an increase in performance-based contract rebates, primarily in the U.S. due to increased sales of certain Biopharma products, slightly offset by decreased Lyrica sales.
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%.

75


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.
Ibrance (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. $832
 $708
 18   $2,405
 $2,178
 10  
International 451
 317
 42 48 1,273
 807
 58 70
Worldwide revenues $1,283
 $1,025
 25 27 $3,677
 $2,985
 23 27
Operational growth in international markets reflects the continued strong uptake in developed Europe and Japan as well as in certain emerging markets following launches. The growth in the U.S. was mainly driven by cyclin-dependent kinase (CDK) class share growth and Ibrance’s continued CDK class share leadership in its approved metastatic breast cancer indications.
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.

76


  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. $541
 $455
 19   $1,768
 $1,371
 29  
International 484
 416
 16 20 1,353
 1,153
 17 24
Worldwide revenues $1,025
 $870
 18 20 $3,121
 $2,524
 24 27
The worldwide operational growth in the third quarter and first nine months of 2019 was mostly driven by 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 on U.S. revenues compared to the prior year.
Lyrica (Upjohn):
 
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.
$200

$875

(77)



$1,924

$2,643

(27)


International
326

338

(4)
(4)
964

1,006

(4)
(2)
Worldwide revenues
$527

$1,213

(57)
(57)
$2,888

$3,649

(21)
(20)
The declines in the third quarter and first nine months of 2019 in the U.S. were due to the expected significantly lower volumes driven by multi-source generic competition which 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.
Xeljanz (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. $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.
Lipitor (Upjohn):
 
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

77


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.
Enbrel (Biopharma, outside the U.S. and Canada):
 
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.
$

$






$

$





International
415

531

(22)
(19)
1,285

1,589

(19)
(13)
Worldwide revenues
$415

$531

(22)
(19)
$1,285

$1,589

(19)
(13)
The worldwide operational declines in the third quarter and first nine months of 2019 were primarily due to ongoing biosimilar competition in most developed Europe markets, which is expected to continue.
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.
Norvasc (Upjohn):
  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. $9
 $9
 5
   $30
 $27
 11
  
International 209
 239
 (12) (9) 704
 750
 (6) (1)
Worldwide revenues $219
 $248
 (12) (9) $735
 $777
 (6) (1)
The worldwide operational decline in the third quarter of 2019 was primarily driven by pricing pressures in China resulting from the VBP implementation in certain cities and lower volumes in Japan and South Korea, 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.
Sutent (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.
$64

$80

(20)



$217

$262

(17)


International
160

168

(5)


488

524

(7)

Worldwide revenues
$224

$248

(10)
(7)
$704

$785

(10)
(5)

78


The worldwide operational declines in the third quarter and first nine months of 2019 reflect continued erosion as a result of increased competition in the U.S. and key developed markets, partially offset by growth in certain emerging markets.
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
      % Change     % Change
(MILLIONS OF DOLLARS) September 29,
2019

 September 30,
2018

 Total Oper. September 29,
2019

 September 30,
2018

 Total Oper.
U.S. $225
 $180
 25   $594
 $510
 17  
International 
 
   
 
  
Worldwide revenues $225
 $180
 25 25 $594
 $510
 17 17
The growth in the U.S. in the third quarter and first nine months of 2019 was primarily driven by increased demand for Xtandi in metastatic (mCRPC) and non-metastatic (nmCRPC) castration-resistant prostate cancer, partially offset by higher patient assistance programs (PAP) utilization in the first nine months of 2019, compared to the same period in 2018.
The Premarin family of products (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. $170
 $191
 (11)   $510
 $569
 (10)  
International 11
 12
 (8) (5) 32
 36
 (10) (5)
Worldwide revenues $182
 $204
 (11) (11) $542
 $605