DELAWARE (State of Incorporation) | 13-5315170 (I.R.S. Employer Identification No.) |
YES X | NO ___ |
YES X | NO ___ |
YES ____ | NO X |
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Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and October 1, 2017 | |
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and October 1, 2017 | |
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 | |
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and October 1, 2017 | |
2017 Financial Report | Financial Report for the fiscal year ended December 31, 2017, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 |
2017 Form 10-K | Annual Report on Form 10-K for the fiscal year ended December 31, 2017 |
ACA (Also referred to as U.S. Healthcare Legislation) | U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act |
ACIP | Advisory Committee on Immunization Practices |
ALK | anaplastic lymphoma kinase |
Alliance revenues | Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us |
Allogene | Allogene Therapeutics, Inc. |
AMPA | α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid |
Anacor | Anacor Pharmaceuticals, Inc. |
AOCI | Accumulated Other Comprehensive Income |
Astellas | Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc. |
ASU | Accounting Standards Update |
ATM-AVI | aztreonam-avibactam |
Avillion | Avillion LLP |
Bain Capital | Bain Capital Private Equity and Bain Capital Life Sciences |
Biogen | Biogen Inc. |
BMS | Bristol-Myers Squibb Company |
BRCA | BReast CAncer susceptibility gene |
CAR T | chimeric antigen receptor T cell |
CDC | U.S. Centers for Disease Control and Prevention |
Cellectis | Cellectis S.A. |
Cerevel | Cerevel Therapeutics, LLC |
CIAS | cognitive impairment associated with schizophrenia |
Citibank | Citibank, N.A. |
CML | chronic myelogenous leukemia |
Developed Markets | U.S., Western Europe, Japan, Canada, Australia, South Korea, Scandinavian countries, Finland and New Zealand |
EEA | European Economic Area |
EH | Essential Health |
EMA | European Medicines Agency |
Emerging Markets | Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey |
EPS | earnings per share |
EU | European Union |
Exchange Act | Securities Exchange Act of 1934, as amended |
FASB | Financial Accounting Standards Board |
FDA | U.S. Food and Drug Administration |
GAAP | Generally Accepted Accounting Principles |
GIST | gastrointestinal stromal tumors |
GPD | Global Product Development |
HER2- | human epidermal growth factor receptor 2-negative |
hGH-CTP | human growth hormone |
HIS | Hospira Infusion Systems |
Hisun Pfizer | Hisun Pfizer Pharmaceuticals Company Limited |
Hospira | Hospira, Inc. |
HR+ | hormone receptor-positive |
ICU Medical | ICU Medical, Inc. |
IH | Innovative Health |
IPR&D | in-process research and development |
IRS | U.S. Internal Revenue Service |
IV | intravenous |
Janssen | Janssen Biotech Inc. |
J&J | Johnson & Johnson |
King | King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.) |
LDL | low density lipoprotein |
LEP | Legacy Established Products |
LIBOR | London Interbank Offered Rate |
Lilly | Eli Lilly & Company |
LOE | loss of exclusivity |
MCC | Merkel Cell Carcinoma |
MCO | Managed Care Organization |
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Medivation | Medivation LLC (formerly Medivation, Inc.) |
Merck | Merck & Co., Inc. |
Meridian | Meridian Medical Technologies, Inc. |
Moody’s | Moody’s Investors Service |
NDA | new drug application |
NovaQuest | NovaQuest Co-Investment Fund V, L.P. |
NSCLC | non-small cell lung cancer |
NYSE | New York Stock Exchange |
OPKO | OPKO Health, Inc. |
OTC | over-the-counter |
PARP | poly ADP ribose polymerase |
PBM | Pharmacy Benefit Manager |
Pharmacia | Pharmacia Corporation |
PP&E | Property, plant & equipment |
Quarterly Report on Form 10-Q | Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 |
RCC | renal cell carcinoma |
R&D | research and development |
RPI | RPI Finance Trust |
Sandoz | Sandoz, Inc., a division of Novartis AG |
SEC | U.S. Securities and Exchange Commission |
Servier | Les Laboratoires Servier SAS |
SFJ | SFJ Pharmaceuticals Group |
Shire | Shire International GmbH |
SI&A | Selling, informational and administrative |
SIP | Sterile Injectable Pharmaceuticals |
S&P | Standard and Poor’s |
StratCO | Strategy and Commercial Operations |
Tax Cuts and Jobs Act or TCJA | Legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 |
Teuto | Laboratório Teuto Brasileiro S.A. |
U.K. | United Kingdom |
U.S. | United States |
ViiV | ViiV Healthcare Limited |
WRD | Worldwide Research and Development |
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS, EXCEPT PER COMMON SHARE DATA) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Revenues | $ | 13,298 | $ | 13,168 | $ | 39,670 | $ | 38,843 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales(a) | 2,694 | 2,844 | 8,173 | 7,972 | ||||||||||||
Selling, informational and administrative expenses(a) | 3,494 | 3,504 | 10,448 | 10,249 | ||||||||||||
Research and development expenses(a) | 2,008 | 1,865 | 5,549 | 5,367 | ||||||||||||
Amortization of intangible assets | 1,253 | 1,177 | 3,640 | 3,571 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 85 | 114 | 172 | 267 | ||||||||||||
Other (income)/deductions––net | (414 | ) | 79 | (1,143 | ) | 65 | ||||||||||
Income from continuing operations before provision for taxes on income | 4,177 | 3,585 | 12,831 | 11,351 | ||||||||||||
Provision for taxes on income | 66 | 727 | 1,270 | 2,287 | ||||||||||||
Income from continuing operations | 4,111 | 2,858 | 11,562 | 9,064 | ||||||||||||
Discontinued operations––net of tax | 11 | — | 10 | 1 | ||||||||||||
Net income before allocation to noncontrolling interests | 4,122 | 2,858 | 11,571 | 9,066 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 8 | 18 | 25 | 32 | ||||||||||||
Net income attributable to Pfizer Inc. | $ | 4,114 | $ | 2,840 | $ | 11,546 | $ | 9,034 | ||||||||
Earnings per common share––basic: | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.70 | $ | 0.48 | $ | 1.96 | $ | 1.51 | ||||||||
Discontinued operations––net of tax | — | — | — | — | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.70 | $ | 0.48 | $ | 1.96 | $ | 1.51 | ||||||||
Earnings per common share––diluted: | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.69 | $ | 0.47 | $ | 1.92 | $ | 1.49 | ||||||||
Discontinued operations––net of tax | — | — | — | — | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.69 | $ | 0.47 | $ | 1.92 | $ | 1.49 | ||||||||
Weighted-average shares––basic | 5,875 | 5,951 | 5,899 | 5,972 | ||||||||||||
Weighted-average shares––diluted | 5,986 | 6,041 | 5,998 | 6,057 | ||||||||||||
Cash dividends paid per common share | $ | 0.34 | $ | 0.32 | $ | 1.02 | $ | 0.96 |
(a) | Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets. |
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Net income before allocation to noncontrolling interests | $ | 4,122 | $ | 2,858 | $ | 11,571 | $ | 9,066 | ||||||||
Foreign currency translation adjustments, net | (567 | ) | 878 | (507 | ) | 1,352 | ||||||||||
Reclassification adjustments | (2 | ) | (3 | ) | (22 | ) | 110 | |||||||||
(569 | ) | 875 | (530 | ) | 1,461 | |||||||||||
Unrealized holding gains/(losses) on derivative financial instruments, net | 222 | (50 | ) | 236 | (149 | ) | ||||||||||
Reclassification adjustments for (gains)/losses included in net income(a) | (235 | ) | 56 | 119 | (393 | ) | ||||||||||
(13 | ) | 6 | 355 | (542 | ) | |||||||||||
Unrealized holding gains/(losses) on available-for-sale securities, net | 149 | 384 | (65 | ) | 698 | |||||||||||
Reclassification adjustments for gains included in net income(a) | (36 | ) | (278 | ) | (67 | ) | (181 | ) | ||||||||
Reclassification adjustments for unrealized gains included in Retained earnings(b) | — | — | (462 | ) | — | |||||||||||
112 | 106 | (595 | ) | 518 | ||||||||||||
Benefit plans: actuarial gains/(losses), net | 8 | (103 | ) | 114 | (41 | ) | ||||||||||
Reclassification adjustments related to amortization | 60 | 140 | 183 | 448 | ||||||||||||
Reclassification adjustments related to settlements, net | 42 | 38 | 108 | 89 | ||||||||||||
Other | 49 | (76 | ) | 69 | (111 | ) | ||||||||||
158 | (1 | ) | 474 | 384 | ||||||||||||
Benefit plans: prior service costs and other, net | — | — | — | (2 | ) | |||||||||||
Reclassification adjustments related to amortization | (46 | ) | (46 | ) | (137 | ) | (138 | ) | ||||||||
Reclassification adjustments related to curtailments, net | (4 | ) | (3 | ) | (18 | ) | (14 | ) | ||||||||
Other | — | 1 | 1 | 2 | ||||||||||||
(50 | ) | (48 | ) | (154 | ) | (151 | ) | |||||||||
Other comprehensive income/(loss), before tax | (361 | ) | 938 | (449 | ) | 1,669 | ||||||||||
Tax provision/(benefit) on other comprehensive income/(loss) | 62 | (80 | ) | 667 | (218 | ) | ||||||||||
Other comprehensive income/(loss) before allocation to noncontrolling interests | $ | (422 | ) | $ | 1,018 | $ | (1,116 | ) | $ | 1,888 | ||||||
Comprehensive income before allocation to noncontrolling interests | $ | 3,700 | $ | 3,876 | $ | 10,455 | $ | 10,953 | ||||||||
Less: Comprehensive income attributable to noncontrolling interests | — | 19 | 5 | 48 | ||||||||||||
Comprehensive income attributable to Pfizer Inc. | $ | 3,700 | $ | 3,857 | $ | 10,450 | $ | 10,906 |
(a) | Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income. For additional information on amounts reclassified into Cost of sales, see Note 7F. Financial Instruments: Derivative Financial Instruments and Hedging Activities. |
(b) | For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards. |
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 3,559 | $ | 1,342 | ||||
Short-term investments | 13,680 | 18,650 | ||||||
Trade accounts receivable, less allowance for doubtful accounts: 2018—$567; 2017—$584 | 10,024 | 8,221 | ||||||
Inventories | 8,184 | 7,578 | ||||||
Current tax assets | 3,686 | 3,050 | ||||||
Other current assets | 2,450 | 2,301 | ||||||
Total current assets | 41,583 | 41,141 | ||||||
Long-term investments | 6,444 | 7,015 | ||||||
Property, plant and equipment, less accumulated depreciation: 2018—$17,078; 2017—$16,172 | 14,036 | 13,865 | ||||||
Identifiable intangible assets, less accumulated amortization | 45,306 | 48,741 | ||||||
Goodwill | 55,614 | 55,952 | ||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,875 | 1,855 | ||||||
Other noncurrent assets | 2,980 | 3,227 | ||||||
Total assets | $ | 167,838 | $ | 171,797 | ||||
Liabilities and Equity | ||||||||
Short-term borrowings, including current portion of long-term debt: 2018—$4,255; 2017—$3,546 | $ | 7,385 | $ | 9,953 | ||||
Trade accounts payable | 4,297 | 4,656 | ||||||
Dividends payable | 1,963 | 2,029 | ||||||
Income taxes payable | 2,781 | 477 | ||||||
Accrued compensation and related items | 2,096 | 2,196 | ||||||
Other current liabilities | 10,490 | 11,115 | ||||||
Total current liabilities | 29,013 | 30,427 | ||||||
Long-term debt | 33,652 | 33,538 | ||||||
Pension benefit obligations, net | 4,886 | 5,926 | ||||||
Postretirement benefit obligations, net | 1,455 | 1,504 | ||||||
Noncurrent deferred tax liabilities | 5,512 | 3,900 | ||||||
Other taxes payable | 15,289 | 18,697 | ||||||
Other noncurrent liabilities | 6,367 | 6,149 | ||||||
Total liabilities | 96,174 | 100,141 | ||||||
Commitments and Contingencies | ||||||||
Preferred stock | 20 | 21 | ||||||
Common stock | 466 | 464 | ||||||
Additional paid-in capital | 85,828 | 84,278 | ||||||
Treasury stock | (96,574 | ) | (89,425 | ) | ||||
Retained earnings | 91,995 | 85,291 | ||||||
Accumulated other comprehensive loss | (10,417 | ) | (9,321 | ) | ||||
Total Pfizer Inc. shareholders’ equity | 71,319 | 71,308 | ||||||
Equity attributable to noncontrolling interests | 346 | 348 | ||||||
Total equity | 71,664 | 71,656 | ||||||
Total liabilities and equity | $ | 167,838 | $ | 171,797 |
Nine Months Ended | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | ||||||
Operating Activities | ||||||||
Net income before allocation to noncontrolling interests | $ | 11,571 | $ | 9,066 | ||||
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 4,743 | 4,695 | ||||||
Asset write-offs and impairments | 88 | 326 | ||||||
Adjustments to loss on sale of HIS net assets | (1 | ) | 52 | |||||
TCJA impact(a) | (410 | ) | — | |||||
Deferred taxes from continuing operations | (974 | ) | 241 | |||||
Share-based compensation expense | 682 | 595 | ||||||
Benefit plan contributions in excess of income––2018 and expense––2017 | (1,000 | ) | (1,042 | ) | ||||
Other adjustments, net | (1,169 | ) | (604 | ) | ||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (2,441 | ) | (3,616 | ) | ||||
Net cash provided by operating activities | 11,089 | 9,713 | ||||||
Investing Activities | ||||||||
Purchases of property, plant and equipment | (1,357 | ) | (1,256 | ) | ||||
Purchases of short-term investments | (7,364 | ) | (6,469 | ) | ||||
Proceeds from redemptions/sales of short-term investments | 12,752 | 5,778 | ||||||
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less | 385 | 2,758 | ||||||
Purchases of long-term investments | (1,503 | ) | (2,526 | ) | ||||
Proceeds from redemptions/sales of long-term investments | 2,174 | 2,403 | ||||||
Acquisitions of businesses, net of cash acquired | — | (1,000 | ) | |||||
Acquisitions of intangible assets | (47 | ) | (188 | ) | ||||
Other investing activities, net | 248 | 519 | ||||||
Net cash provided by investing activities | 5,289 | 19 | ||||||
Financing Activities | ||||||||
Proceeds from short-term borrowings | 1,945 | 7,003 | ||||||
Principal payments on short-term borrowings | (4,239 | ) | (7,659 | ) | ||||
Net (payments on)/proceeds from short-term borrowings with original maturities of three months or less | (973 | ) | 566 | |||||
Proceeds from issuance of long-term debt | 4,974 | 5,273 | ||||||
Principal payments on long-term debt | (3,104 | ) | (4,474 | ) | ||||
Purchases of common stock | (7,168 | ) | (5,000 | ) | ||||
Cash dividends paid | (6,015 | ) | (5,750 | ) | ||||
Proceeds from exercise of stock options | 1,099 | 656 | ||||||
Other financing activities, net | (553 | ) | (223 | ) | ||||
Net cash used in financing activities | (14,034 | ) | (9,607 | ) | ||||
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | (116 | ) | 67 | |||||
Net increase in cash and cash equivalents and restricted cash and cash equivalents | 2,227 | 193 | ||||||
Cash and cash equivalents and restricted cash and cash equivalents, beginning | 1,431 | 2,666 | ||||||
Cash and cash equivalents and restricted cash and cash equivalents, end | $ | 3,658 | $ | 2,858 | ||||
Supplemental Cash Flow Information | ||||||||
Non-cash transactions: | ||||||||
Receipt of ICU Medical common stock(b) | $ | — | $ | 428 | ||||
Promissory note from ICU Medical(b) | — | 75 | ||||||
Equity investment in Cerevel Therapeutics, Inc. in exchange for Pfizer’s portfolio of clinical and preclinical neuroscience assets(b) | 343 | — | ||||||
Equity investment in Allogene received in exchange for Pfizer's allogeneic CAR T developmental program assets(b) | 92 | — | ||||||
Cash paid (received) during the period for: | ||||||||
Income taxes | $ | 1,666 | $ | 1,424 | ||||
Interest | 968 | 1,101 | ||||||
Interest rate hedges | (104 | ) | (183 | ) |
(a) | As a result of the enactment of the TCJA in December 2017, Pfizer’s Provision for taxes on income for the nine months ended September 30, 2018 was favorably impacted by approximately $410 million, primarily related to certain tax initiatives associated with the TCJA, as well as favorable adjustments to the provisional estimates of the legislation. See Note 5A. Tax Matters: Taxes on Income from Continuing Operations. |
(b) | For additional information, see Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures. |
• | On February 3, 2017, we completed the sale of our global infusion systems net assets, HIS, to ICU Medical. The operating results of HIS are included in our condensed consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the third quarter of 2017 do not reflect any contribution from HIS global operations, while our financial results, and EH’s operating results, for the first nine months of 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations. Our financial results, and EH’s operating results, for 2018 do not reflect any contribution from HIS global operations. |
• | On December 22, 2016, which fell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of this business, and, in accordance with our international reporting period, our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2017 reflect approximately three months and eight months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca. Our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2018 reflect three months and nine months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca. |
• | certain equity investments to be measured at fair value with changes in fair value now recognized in net income. However, equity investments that do not have readily determinable fair values may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer; |
• | a qualitative assessment of equity investments without readily determinable fair values to identify impairment; and |
• | separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. |
• | Permits hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk; |
• | Changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; |
• | No longer requires the separate measurement and reporting of hedge ineffectiveness, but requires the income statement presentation of the earnings effect of the hedging instrument with the earnings effect of the hedged item; |
• | Permits us to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness; and |
• | Simplifies hedge effectiveness testing. |
• | debt prepayment and extinguishment costs, resulting in an increase in Operating activities––Other adjustments, net and a decrease in Financing activities––Other financing activities, net of $7 million for the nine months ended September 30, 2018; and |
• | accreted interest on the settlement of commercial paper debt instruments, resulting in a decrease in Operating activities––Other adjustments, net, and an increase in Financing activities––Other financing activities, net of $69 million for the nine months ended September 30, 2018. |
Adoption of the standard related to pension and postretirement benefit costs impacted our prior period condensed consolidated statements of income as follows: | ||||||||||||
Three Months Ended October 1, 2017 | ||||||||||||
(MILLIONS OF DOLLARS) | As Previously Reported | Effect of Change Higher/(Lower) | As Restated | |||||||||
Cost of sales | $ | 2,847 | $ | (3 | ) | $ | 2,844 | |||||
Selling, informational and administrative expenses | 3,500 | 4 | 3,504 | |||||||||
Research and development expenses | 1,859 | 6 | 1,865 | |||||||||
Restructuring charges and certain acquisition-related costs | 149 | (35 | ) | 114 | ||||||||
Other (income)/deductions––net | 51 | 28 | 79 | |||||||||
Income from continuing operations before provision for taxes on income | 3,585 | — | 3,585 | |||||||||
Nine Months Ended October 1, 2017 | ||||||||||||
(MILLIONS OF DOLLARS) | As Previously Reported | Effect of Change Higher/(Lower) | As Restated | |||||||||
Cost of sales | $ | 7,980 | $ | (9 | ) | $ | 7,972 | |||||
Selling, informational and administrative expenses | 10,233 | 16 | 10,249 | |||||||||
Research and development expenses | 5,346 | 21 | 5,367 | |||||||||
Restructuring charges and certain acquisition-related costs | 377 | (110 | ) | 267 | ||||||||
Other (income)/deductions––net | (16 | ) | 81 | 65 | ||||||||
Income from continuing operations before provision for taxes on income | 11,351 | — | 11,351 |
Adoption of the standards impacted our condensed consolidated balance sheet as follows: | ||||||||||||||||||||||||
Effect of New Accounting Standards Higher/(Lower) | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | As Previously Reported Balance at December 31, 2017 | Revenues | Financial Assets and Liabilities | Income Tax Accounting | Reclassification of Certain Tax Effects from AOCI | Balance at January 1, 2018 | ||||||||||||||||||
Trade accounts receivable | $ | 8,221 | $ | 13 | $ | — | $ | — | $ | — | $ | 8,234 | ||||||||||||
Inventories | 7,578 | (11 | ) | — | — | — | 7,567 | |||||||||||||||||
Current tax assets | 3,050 | (11 | ) | — | (3 | ) | — | 3,036 | ||||||||||||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,855 | (17 | ) | — | — | — | 1,838 | |||||||||||||||||
Other noncurrent assets | 3,227 | — | — | (204 | ) | — | 3,023 | |||||||||||||||||
Other current liabilities | 11,115 | (123 | ) | — | — | — | 10,992 | |||||||||||||||||
Noncurrent deferred tax liabilities | 3,900 | 106 | — | (18 | ) | — | 3,988 | |||||||||||||||||
Other noncurrent liabilities | 6,149 | (459 | ) | — | — | — | 5,690 | |||||||||||||||||
Retained earnings | 85,291 | 450 | 419 | (189 | ) | 495 | 86,466 | |||||||||||||||||
Accumulated other comprehensive loss | (9,321 | ) | — | (419 | ) | — | (495 | ) | (10,235 | ) |
Adoption of the standards related to the classification of certain transactions in the statement of cash flows and the presentation of restricted cash in the statement of cash flows impacted our condensed consolidated statement of cash flows as follows: | ||||||||||||||||
Nine Months Ended October 1, 2017 | ||||||||||||||||
Effect of New Accounting Standards Inflow/(Outflow) | ||||||||||||||||
(MILLIONS OF DOLLARS) | As Previously Reported | Cash Flow Classification | Restricted Cash | As Restated | ||||||||||||
Operating Activities | ||||||||||||||||
Other adjustments, net | $ | (561 | ) | $ | (43 | ) | $ | — | $ | (604 | ) | |||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (3,644 | ) | — | 28 | (3,616 | ) | ||||||||||
Investing Activities | ||||||||||||||||
Proceeds from redemptions/sales of short-term investments | 5,783 | — | (5 | ) | 5,778 | |||||||||||
Proceeds from redemptions/sales of long-term investments | 2,417 | — | (14 | ) | 2,403 | |||||||||||
Financing Activities | ||||||||||||||||
Principal payments on short-term borrowings | (7,691 | ) | 33 | — | (7,659 | ) | ||||||||||
Net proceeds from short-term borrowings with original maturities of three months or less | 555 | 10 | — | 566 | ||||||||||||
Net increase in cash and cash equivalents and restricted cash and cash equivalents | 184 | — | 9 | 193 | ||||||||||||
Cash and cash equivalents and restricted cash and cash equivalents, beginning | 2,595 | — | 70 | 2,666 | ||||||||||||
Cash and cash equivalents and restricted cash and cash equivalents, ending | 2,779 | — | 79 | 2,858 |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Cash and cash equivalents | $ | 3,559 | $ | 1,342 | ||||
Restricted cash and cash equivalents in Short-term investments | 40 | — | ||||||
Restricted cash and cash equivalents in Long-term investments | 59 | — | ||||||
Restricted cash and cash equivalents in Other current assets | — | 14 | ||||||
Restricted cash and cash equivalents in Other noncurrent assets | — | 75 | ||||||
Total cash and cash equivalents and restricted cash and cash equivalents shown in the condensed consolidated balance sheets | $ | 3,658 | $ | 1,431 |
• | Customers––Our biopharmaceutical products are sold principally to wholesalers but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies, and, in the case of our vaccine products in the U.S., we primarily sell directly to the CDC, wholesalers and individual provider offices. Our consumer healthcare customers include retailers and, to a lesser extent, wholesalers and distributors. |
• | Our Sales Contracts––Sales on credit are typically under short-term contracts. Collections are based on market payment cycles common in various markets, with shorter cycles in the U.S. Sales are adjusted for sales allowances, chargebacks, rebates and sales returns and cash discounts. Sales returns occur due to loss of exclusivity, product recalls or a changing competitive environment. |
• | Deductions from Revenues––Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment is required when estimating the impact of these revenue deductions on gross sales for a reporting period. |
• | In the U.S., we sell our products to distributors and hospitals under our sales contracts. However, we also have contracts with managed care or pharmacy benefit managers and legislatively mandated contracts with the federal and state governments under which we provide rebates to them based on medicines utilized by the lives they cover. We record provisions for Medicare, Medicaid, and performance-based contract pharmaceutical rebates based upon our experience ratio of rebates paid and actual prescriptions written during prior quarters. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. We estimate discounts on branded prescription drug sales to Medicare Part D participants in the Medicare “coverage gap,” also known as the “doughnut hole,” based on the historical experience of beneficiary prescriptions and consideration of the utilization that is expected to result from the discount in the coverage gap. We evaluate this estimate regularly to ensure that the historical trends and future expectations are as current as practicable. For performance-based contract rebates, we also consider current contract terms, such as changes in formulary status and rebate rates. |
• | Outside the U.S., the majority of our pharmaceutical sales allowances are contractual or legislatively mandated and our estimates are based on actual invoiced sales within each period, which reduces the risk of variations in the estimation process. In certain European countries, rebates are calculated on the government’s total unbudgeted pharmaceutical spending or on specific product sales thresholds and we apply an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals. |
• | Provisions for pharmaceutical chargebacks (primarily reimbursements to U.S. wholesalers for honoring contracted prices to third parties) closely approximate actual amounts incurred, as we settle these deductions generally within two to five weeks of incurring the liability. |
• | Provisions for pharmaceutical sales returns are based on a calculation for each market that incorporates the following, as appropriate: local returns policies and practices; historical returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as loss of exclusivity, product recalls or a changing competitive environment. Generally, returned products are destroyed, and customers are refunded the sales price in the form of a credit. |
• | We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs to predict customer behavior. |
The following table provides information about the balance sheet classification of these accruals: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Reserve against Trade accounts receivable, less allowance for doubtful accounts | $ | 1,297 | $ | 1,352 | ||||
Other current liabilities: | ||||||||
Accrued rebates | 3,235 | 2,674 | ||||||
Other accruals | 641 | 512 | ||||||
Other noncurrent liabilities | 374 | 385 | ||||||
Total accrued rebates and other accruals | $ | 5,548 | $ | 4,923 |
• | $394 million (pre-tax) for collaborative arrangements where upfront, pre-approval and regulatory approval milestone payments received from our collaboration partners are recognized in Other (income)/deductions—net over a reduced period. Under the new standard, the income from upfront and pre-approval milestone payments due to us is typically recognized over the development period for the collaboration when our performance obligation, in addition to granting a license, is to provide research and development services to our collaboration partners, and major regulatory approval milestones are typically recognized immediately when earned as the related development period has ended. The income from upfront and milestone payments is typically recognized immediately as earned if our performance obligation, in addition to granting a license, is |
• | $82 million (pre-tax) for collaborative arrangements where we manufacture products for our collaboration partners and recognize Revenues and Cost of sales for product shipments at an earlier point in time. Under the new standard, revenue is recognized when we transfer control of the products to our collaboration partners. Under the old standard, revenue was recognized when our collaboration partners sell the products and transfer title to their third party customers. |
• | 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. |
• | Optimization of our manufacturing plant network to support IH and EH products and pipelines. During 2017-2019, we expect to incur costs of approximately $700 million related to this initiative. Through September 30, 2018, we incurred approximately $322 million associated with this initiative. |
• | Activities in non-manufacturing related areas, which include further centralization of our corporate and platform functions, as well as other activities where opportunities are identified. During 2017-2019, we expect to incur costs of approximately $450 million related to this initiative. Through September 30, 2018, we incurred approximately $252 million associated with this initiative. |
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Restructuring (credits)/charges: | ||||||||||||||||
Employee terminations | $ | (24 | ) | $ | (55 | ) | $ | (53 | ) | $ | (113 | ) | ||||
Asset impairments(a) | 12 | 101 | 8 | 126 | ||||||||||||
Exit costs | 14 | 10 | 14 | 16 | ||||||||||||
Restructuring charges/(credits)(b) | 1 | 56 | (32 | ) | 28 | |||||||||||
Transaction costs(c) | 1 | (14 | ) | 1 | 4 | |||||||||||
Integration costs(d) | 82 | 73 | 202 | 235 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 85 | 114 | 172 | 267 | ||||||||||||
Net periodic benefit costs recorded in Other (income)/deductions––net(e) | 41 | 35 | 103 | 110 | ||||||||||||
Additional depreciation––asset restructuring, virtually all of which is recorded in Cost of sales(f) | 12 | 39 | 43 | 74 | ||||||||||||
Implementation costs recorded in our condensed consolidated statements of income as follows(g): | ||||||||||||||||
Cost of sales | 21 | 26 | 57 | 77 | ||||||||||||
Selling, informational and administrative expenses | 17 | 22 | 51 | 46 | ||||||||||||
Research and development expenses | 9 | 9 | 22 | 26 | ||||||||||||
Total implementation costs | 48 | 57 | 130 | 150 | ||||||||||||
Total costs associated with acquisitions and cost-reduction/productivity initiatives | $ | 186 | $ | 245 | $ | 447 | $ | 601 |
(a) | The asset impairment charges for the three and nine months ended October 1, 2017 are largely associated with our acquisitions of Hospira and Medivation. |
(b) | In the third quarter of 2018, restructuring charges are primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs. In the first nine months of 2018, restructuring credits are mostly related to the reversal of previously recorded accruals for employee termination costs. In the three and nine months ended October 1, 2017, restructuring charges were mainly associated with our acquisitions of Hospira and Medivation, partially offset by credits associated with cost-reduction and productivity initiatives not associated with acquisitions that mostly related to the reversal of previously recorded accruals for employee termination costs. Employee terminations primarily include revisions of our estimates of severance benefits. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, many of which may be paid out during periods after termination. |
• | For the third quarter of 2018, IH ($13 million credit); EH ($7 million charge); manufacturing operations ($1 million charge); WRD/GPD ($3 million charge); and Corporate ($3 million charge). |
• | For the first nine months of 2018, IH ($25 million credit); EH ($5 million credit); WRD/GPD ($1 million charge); manufacturing operations ($16 million charge); and Corporate ($19 million credit). |
• | For the third quarter of 2017, IH ($1 million charge); EH ($1 million charge); WRD/GPD ($2 million charge); manufacturing operations ($40 million charge); and Corporate ($12 million charge). |
• | For the first nine months of 2017, IH ($1 million credit); EH ($11 million credit); WRD/GPD ($24 million credit); manufacturing operations ($48 million charge); and Corporate ($15 million charge). |
(c) | Transaction costs represent external costs for banking, legal, accounting and other similar services, which in the third quarter of 2017 reflect the reversal of an accrual related to the acquisition of Medivation. Transaction costs for the first nine months of 2017 were directly related to our acquisitions of Hospira, Anacor and Medivation. |
(d) | Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the third quarter and first nine months of 2018, integration costs were primarily related to our acquisition of Hospira. In the third quarter and first nine months of 2017, integration costs primarily relate to our acquisitions of Hospira and Medivation. The first nine months of 2017 also include a net gain of $12 million related to the settlement of the Hospira U.S. qualified defined benefit pension plan (see Note 10). |
(e) | In the three and nine months ended September 30, 2018, primarily represents the net pension curtailments and settlements included in Other (income)/deductions––net upon the adoption of a new accounting standard in the first quarter of 2018. In the three and nine months ended October 1, 2017, primarily represents the net pension curtailments and settlements, partially offset by net periodic benefit credits, excluding service costs, related to our acquisition of Hospira, both of which were reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. These credits included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. For additional information, see Note 1B and Note 10. |
(f) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
(g) | Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives. |
The following table provides the components of and changes in our restructuring accruals: | ||||||||||||||||
(MILLIONS OF DOLLARS) | Employee Termination Costs | Asset Impairment Charges | Exit Costs | Accrual | ||||||||||||
Balance, December 31, 2017(a) | $ | 1,039 | $ | — | $ | 66 | $ | 1,105 | ||||||||
Provision/(Credit) | (53 | ) | 8 | 14 | (32 | ) | ||||||||||
Utilization and other(b) | (235 | ) | (8 | ) | (34 | ) | (277 | ) | ||||||||
Balance, September 30, 2018(c) | $ | 750 | $ | — | $ | 46 | $ | 796 |
(a) | Included in Other current liabilities ($643 million) and Other noncurrent liabilities ($462 million). |
(b) | Includes adjustments for foreign currency translation. |
(c) | Included in Other current liabilities ($397 million) and Other noncurrent liabilities ($399 million). |
The following table provides components of Other (income)/deductions––net: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Interest income(a) | $ | (82 | ) | $ | (99 | ) | $ | (240 | ) | $ | (275 | ) | ||||
Interest expense(a) | 310 | 320 | 946 | 940 | ||||||||||||
Net interest expense | 228 | 220 | 706 | 666 | ||||||||||||
Royalty-related income | (143 | ) | (140 | ) | (360 | ) | (331 | ) | ||||||||
Net gains on asset disposals(b) | (4 | ) | (13 | ) | (19 | ) | (36 | ) | ||||||||
Net gains recognized during the period on investments in equity securities(c) | (94 | ) | (45 | ) | (460 | ) | (111 | ) | ||||||||
Net realized (gains)/losses on sales of investments in debt securities | 8 | (23 | ) | 12 | (45 | ) | ||||||||||
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d) | (139 | ) | (78 | ) | (455 | ) | (163 | ) | ||||||||
Net periodic benefit costs/(credits) other than service costs(e) | (65 | ) | 28 | (231 | ) | 81 | ||||||||||
Certain legal matters, net(f) | 37 | 183 | (70 | ) | 194 | |||||||||||
Certain asset impairments(g) | (1 | ) | 130 | 40 | 143 | |||||||||||
Adjustments to loss on sale of HIS net assets(h) | (2 | ) | (12 | ) | (1 | ) | 52 | |||||||||
Business and legal entity alignment costs(i) | — | 16 | 4 | 54 | ||||||||||||
Other, net(j) | (239 | ) | (186 | ) | (309 | ) | (439 | ) | ||||||||
Other (income)/deductions––net | $ | (414 | ) | $ | 79 | $ | (1,143 | ) | $ | 65 |
(a) | Interest income decreased in the third quarter and first nine months of 2018, primarily driven by a lower investment balance. Interest expense decreased in the third quarter of 2018, primarily as a result of refinancing activity that occurred in the fourth quarter of 2017 and a credit to interest expense due to settlement of a tax indemnification case. Interest expense increased for the first nine months of 2018, primarily as a result of higher short-term interest rates, offset, in part, by refinancing activity that occurred in the fourth quarter of 2017. |
(b) | In the first nine months of 2017, primarily includes a realized gain on sale of property of $52 million, partially offset by a realized net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest. |
(c) | The net gains on investments in equity securities for the third quarter of 2018 include unrealized net gains on equity securities of $8 million and, for the first nine months of 2018, include unrealized net gains on equity securities of $344 million, reflecting the adoption of a new accounting standard in the first quarter of 2018. We continue to hold 2.5 million shares of ICU Medical common stock and we recognized unrealized gains of $24 million in the third quarter of 2018 and unrealized gains of $229 million in the first nine months of 2018 related to these remaining shares. Prior to the adoption of a new accounting standard in the first quarter of 2018, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income. For additional information, see Note 1B, Note 2B and Note 7B. |
(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 third quarter of 2018, primarily includes, among other things, (i) $40 million in milestone income from a certain licensee, (ii) a $35 million milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of Crohn’s disease and (iii) $45 million in gains related to sales of compound/product rights. In the first nine months of 2018, primarily includes, among other things, (i) approximately $128 million in milestone income from multiple licensees, (ii) an upfront payment to us of $75 million for the sale of an AMPA receptor potentiator for CIAS to Biogen, (iii) $110 million in milestone payments received from Shire, of which $75 million was received in the first quarter of 2018 related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of ulcerative colitis and $35 million was received from Shire related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of Crohn’s disease, (iv) a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU and (v) $45 million in gains related to sales of compound/product rights. In the third quarter of 2017, primarily includes, among other things, $50 million in milestone income from a certain licensee and a $15 million gain related to the sale of compound/product rights. In the first nine months of 2017, primarily includes, among other things, approximately $81 million in milestone income from multiple licensees and a $43 million gain related to the sale of compound/product rights. For additional information, see Note 2B, Note 2C and Note 2D. |
(e) | Represents the net periodic benefit costs/(credits), excluding service costs, as a result of the adoption of a new accounting standard in the first quarter of 2018. Effective January 1, 2018, the U.S. Pfizer Consolidated Pension Plan was frozen to future benefit accruals and for the third quarter and first nine months of 2018, resulted in the recognition of lower net periodic benefit costs due to the extension of the amortization period for the actuarial losses. There was also a greater than expected gain on plan assets due to a higher plan asset base compared to the third quarter and first nine months of 2017. For additional information, see Note 1B and Note 10. |
(f) | For the first nine months of 2018, the net credits primarily represent the reversal of a legal accrual where a loss was no longer deemed probable. In the third quarter and first nine months of 2017, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which was approved by the court in April 2018, and a $79 million charge to reflect damages awarded by a jury in a patent matter. |
(g) | In the first nine months of 2018, primarily includes a $31 million intangible asset impairment charge recorded in the second quarter of 2018 related to an IH 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. The impairment charge recorded in the second quarter of 2018 related to IH reflects, among other things, updated commercial forecasts. In the third quarter and first nine months of 2017, primarily includes an intangible asset impairment charge of $127 million related to developed technology rights, acquired in connection with our acquisition of Hospira, for a generic sterile injectable product for the treatment of edema associated with certain conditions. |
(h) | Represents adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical on February 3, 2017. For additional information, see Note 2B. |
(i) | Represents expenses for changes to our infrastructure to align our commercial operations of our current segments, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business. |
(j) | In the third quarter and first nine months of 2018, includes a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system (see Note 2B). The third quarter and first nine months of 2018 also include, among other things, dividend income of $91 million and $226 million, respectively, from our investment in ViiV, and charges of $122 million and $257 million, respectively, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also include a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T therapy development program assets obtained from Cellectis and Servier in connection with our contribution agreement entered into with Allogene in which Pfizer obtained a 25% ownership stake in Allogene (see Note 2B), and a non-cash $17 million pre-tax gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg (see Note 7E). In the third quarter and first nine months of 2017, includes, among other things, dividend income of $54 million and $211 million, respectively, from our investment in ViiV and income of $62 million from resolution of a contract disagreement. |
The following table provides additional information about the intangible asset that was impaired during 2018 in Other (income)/deductions: | ||||||||||||||||||||
Fair Value(a) | Nine Months Ended September 30, 2018 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Amount | Level 1 | Level 2 | Level 3 | Impairment | |||||||||||||||
Intangible assets––Developed technology right, finite-lived(b) | $ | 35 | $ | — | $ | — | $ | 35 | $ | 31 |
(a) | The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis. |
(b) | Reflects an intangible asset written down to fair value in the first nine months of 2018. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. |
• | the adoption of a territorial system and the lower U.S. tax rate as a result of the December 2017 enactment of the TCJA as well as favorable adjustments to the provisional estimate of the impact of the legislation; |
• | the favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; as well as |
• | an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations. |
• | With respect to Pfizer, the IRS has issued a Revenue Agent’s Report (RAR) for tax years 2009-2010. We are not in agreement with the RAR and are currently appealing certain disputed issues. Tax years 2011-2015 are currently under audit. Tax years 2016-2018 are open but not under audit. All other tax years are closed. |
• | With respect to Hospira, the federal income tax audit of tax year 2014 through short-year 2015 was effectively settled in the second quarter of 2018. All other tax years are closed. |
• | With respect to Anacor and Medivation, the open tax years are not considered material to Pfizer. |
The following table provides the components of Tax provision/(benefit) on other comprehensive income/(loss): | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Foreign currency translation adjustments, net(a) | $ | 14 | $ | (62 | ) | $ | 82 | $ | (192 | ) | ||||||
Unrealized holding gains/(losses) on derivative financial instruments, net | 35 | 28 | 39 | 30 | ||||||||||||
Reclassification adjustments for (gains)/losses included in net income | (28 | ) | (29 | ) | 36 | (169 | ) | |||||||||
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | — | — | 1 | — | ||||||||||||
7 | (1 | ) | 77 | (139 | ) | |||||||||||
Unrealized holding gains/(losses) on available-for-sale securities, net | 20 | 37 | (8 | ) | 93 | |||||||||||
Reclassification adjustments for gains included in net income | (6 | ) | (49 | ) | (8 | ) | (45 | ) | ||||||||
Reclassification adjustments for tax on unrealized gains from AOCI to Retained earnings(c) | — | — | (45 | ) | — | |||||||||||
14 | (12 | ) | (62 | ) | 47 | |||||||||||
Benefit plans: actuarial gains/(losses), net | 2 | (37 | ) | 27 | (15 | ) | ||||||||||
Reclassification adjustments related to amortization | 15 | 60 | 43 | 152 | ||||||||||||
Reclassification adjustments related to settlements, net | 10 | 22 | 25 | 30 | ||||||||||||
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | — | — | 637 | — | ||||||||||||
Other | 11 | (33 | ) | 18 | (46 | ) | ||||||||||
38 | 11 | 750 | 121 | |||||||||||||
Benefit plans: prior service costs and other, net | — | — | — | — | ||||||||||||
Reclassification adjustments related to amortization | (11 | ) | (17 | ) | (33 | ) | (50 | ) | ||||||||
Reclassification adjustments related to curtailments, net | (1 | ) | (1 | ) | (4 | ) | (5 | ) | ||||||||
Reclassification adjustments of certain tax effects from AOCI to Retained earnings(b) | — | — | (144 | ) | — | |||||||||||
Other | 1 | 1 | 1 | 1 | ||||||||||||
(11 | ) | (17 | ) | (179 | ) | (55 | ) | |||||||||
Tax provision/(benefit) on other comprehensive income/(loss) | $ | 62 | $ | (80 | ) | $ | 667 | $ | (218 | ) |
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. |
(b) | For additional information on the adoption of a new accounting standard related to reclassification of certain tax effects from AOCI, see Note 1B. |
(c) | For additional information on the adoption of a new accounting standard related to financial assets and liabilities, see Note 1B. |
The following table provides the changes, net of tax, in Accumulated other comprehensive loss: | ||||||||||||||||||||||||
Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Foreign Currency Translation Adjustments | Derivative Financial Instruments | Available-For-Sale Securities | Actuarial Gains/(Losses) | Prior Service (Costs)/Credits and Other | Accumulated Other Comprehensive Income/(Loss) | ||||||||||||||||||
Balance, December 31, 2017 | $ | (5,180 | ) | $ | (30 | ) | $ | 401 | $ | (5,262 | ) | $ | 750 | $ | (9,321 | ) | ||||||||
Other comprehensive income/(loss) due to the adoption of new accounting standards(a) | (2 | ) | (1 | ) | (416 | ) | (637 | ) | 144 | (913 | ) | |||||||||||||
Other comprehensive income/(loss)(b) | (589 | ) | 279 | (116 | ) | 361 | (118 | ) | (183 | ) | ||||||||||||||
Balance, September 30, 2018 | $ | (5,772 | ) | $ | 248 | $ | (131 | ) | $ | (5,538 | ) | $ | 776 | $ | (10,417 | ) |
(a) | Amounts represent the cumulative effect adjustments as of January 1, 2018 from the adoption of new accounting standards related to (i) financial assets and liabilities and (ii) the reclassification of certain tax effects from AOCI. For additional information, see Note 1B. |
(b) | Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $20 million loss for the first nine months of 2018. |
The following table presents the financial assets and liabilities measured at fair value using a market approach on a recurring basis by balance sheet categories and fair value hierarchy level as defined in Notes to Consolidated Financial Statements––Note 1E. Basis of Presentation and Significant Accounting Policies: Fair Value in Pfizer’s 2017 Financial Report: | ||||||||||||||||||||||||
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | ||||||||||||||||||
Financial assets measured at fair value on a recurring basis: | ||||||||||||||||||||||||
Short-term investments | ||||||||||||||||||||||||
Classified as equity securities: | ||||||||||||||||||||||||
Money market funds | $ | 1,184 | $ | — | $ | 1,184 | $ | 2,115 | $ | — | $ | 2,115 | ||||||||||||
Equity(a) | 29 | 17 | 12 | 35 | 16 | 19 | ||||||||||||||||||
1,213 | 17 | 1,196 | 2,150 | 16 | 2,134 | |||||||||||||||||||
Classified as available-for-sale debt securities: | ||||||||||||||||||||||||
Government and agency—non-U.S. | 8,336 | — | 8,336 | 12,242 | — | 12,242 | ||||||||||||||||||
Corporate | 2,890 | — | 2,890 | 2,766 | — | 2,766 | ||||||||||||||||||
Government—U.S. | 8 | — | 8 | 252 | — | 252 | ||||||||||||||||||
Agency asset-backed—U.S. | 17 | — | 17 | 23 | — | 23 | ||||||||||||||||||
Other asset-backed | 5 | — | 5 | 79 | — | 79 | ||||||||||||||||||
11,256 | — | 11,256 | 15,362 | — | 15,362 | |||||||||||||||||||
Total short-term investments | 12,469 | 17 | 12,452 | 17,512 | 16 | 17,496 | ||||||||||||||||||
Other current assets | ||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||
Interest rate contracts | 88 | — | 88 | 104 | — | 104 | ||||||||||||||||||
Foreign exchange contracts | 488 | — | 488 | 234 | — | 234 | ||||||||||||||||||
Total other current assets | 576 | — | 576 | 337 | — | 337 | ||||||||||||||||||
Long-term investments | ||||||||||||||||||||||||
Classified as equity securities: | ||||||||||||||||||||||||
Equity(a) | 1,563 | 1,527 | 36 | 1,440 | 1,398 | 42 | ||||||||||||||||||
Classified as trading securities: | ||||||||||||||||||||||||
Debt | 50 | 50 | — | 73 | 73 | — | ||||||||||||||||||
1,612 | 1,577 | 36 | 1,514 | 1,472 | 42 | |||||||||||||||||||
Classified as available-for-sale debt securities: | ||||||||||||||||||||||||
Government and agency—non-U.S. | 106 | — | 106 | 387 | — | 387 | ||||||||||||||||||
Corporate | 3,210 | — | 3,210 | 4,172 | 36 | 4,136 | ||||||||||||||||||
Government—U.S. | 421 | — | 421 | 495 | — | 495 | ||||||||||||||||||
Other asset-backed | 4 | — | 4 | 35 | — | 35 | ||||||||||||||||||
3,742 | — | 3,742 | 5,090 | 36 | 5,054 | |||||||||||||||||||
Total long-term investments | 5,354 | 1,577 | 3,778 | 6,603 | 1,507 | 5,096 | ||||||||||||||||||
Other noncurrent assets | ||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||
Interest rate contracts | 246 | — | 246 | 477 | — | 477 | ||||||||||||||||||
Foreign exchange contracts | 220 | — | 220 | 7 | — | 7 | ||||||||||||||||||
Total other noncurrent assets | 467 | — | 467 | 484 | — | 484 | ||||||||||||||||||
Total assets | $ | 18,866 | $ | 1,594 | $ | 17,272 | $ | 24,937 | $ | 1,523 | $ | 23,414 | ||||||||||||
Financial liabilities measured at fair value on a recurring basis: | ||||||||||||||||||||||||
Other current liabilities | ||||||||||||||||||||||||
Derivative liabilities: | ||||||||||||||||||||||||
Interest rate contracts | $ | 9 | $ | — | $ | 9 | $ | 1 | $ | — | $ | 1 | ||||||||||||
Foreign exchange contracts | 80 | — | 80 | 201 | — | 201 | ||||||||||||||||||
Total other current liabilities | 89 | — | 89 | 201 | — | 201 | ||||||||||||||||||
Other noncurrent liabilities | ||||||||||||||||||||||||
Derivative liabilities: | ||||||||||||||||||||||||
Interest rate contracts | 653 | — | 653 | 177 | — | 177 | ||||||||||||||||||
Foreign exchange contracts | 432 | — | 432 | 313 | — | 313 | ||||||||||||||||||
Total other noncurrent liabilities | 1,085 | — | 1,085 | 490 | — | 490 | ||||||||||||||||||
Total liabilities | $ | 1,174 | $ | — | $ | 1,174 | $ | 691 | $ | — | $ | 691 |
(a) | As of September 30, 2018, short-term equity securities of $12 million and long-term equity securities of $35 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. As of December 31, 2017, short-term equity securities of $19 million and long-term equity securities of $42 million are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. |
The following table presents the financial liabilities not measured at fair value on a recurring basis, including the carrying values and estimated fair values: | ||||||||||||||||||||||||
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | Total | Level 2 | Total | Level 2 | ||||||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||
Long-term debt, excluding the current portion | $ | 33,652 | $ | 36,243 | $ | 36,243 | $ | 33,538 | $ | 37,253 | $ | 37,253 |
The following table represents our investments by classification type: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Short-term investments | ||||||||
Equity securities | $ | 1,213 | $ | 2,150 | ||||
Available-for-sale debt securities | 11,256 | 15,362 | ||||||
Held-to-maturity debt securities | 1,211 | 1,138 | ||||||
Total Short-term investments | $ | 13,680 | $ | 18,650 | ||||
Long-term investments | ||||||||
Equity securities | $ | 1,563 | $ | 1,440 | ||||
Trading debt securities | 50 | 73 | ||||||
Available-for-sale debt securities | 3,742 | 5,090 | ||||||
Held-to-maturity debt securities | 63 | 4 | ||||||
Private equity investments carried at equity-method or cost | 1,027 | 408 | ||||||
Total Long-term investments | $ | 6,444 | $ | 7,015 | ||||
Held-to-maturity cash equivalents | $ | 237 | $ | 719 |
• | Trading debt securities—quoted market prices. |
• | Available-for-sale debt securities—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and credit-adjusted interest rate yield curves. Mortgage-backed, loan-backed and receivable-backed securities are valued by third-party models that use significant inputs derived from observable market data like prepayment rates, default rates, and recovery rates. |
• | Equity securities—quoted market prices. |
• | Derivative assets and liabilities (financial instruments)—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data. Where applicable, these models discount future cash flow amounts using market-based observable inputs, including interest rate yield curves, and forward and spot prices for currencies. The credit risk impact to our derivative financial instruments was not significant. |
• | Money market funds—observable net asset value prices. |
At September 30, 2018, the investment securities portfolio consisted of debt securities that were virtually all investment-grade. Information on investments in debt and equity securities at September 30, 2018 and December 31, 2017 is as follows, including, as of September 30, 2018, the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
Gross Unrealized | Maturities (in Years) | Gross Unrealized | ||||||||||||||||||||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Amortized Cost | Gains | Losses | Fair Value | Within 1 | Over 1 to 5 | Over 5 | Total | Amortized Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Government and agency––non-U.S. | $ | 8,476 | $ | 9 | $ | (43 | ) | $ | 8,442 | $ | 8,336 | $ | 106 | $ | — | $ | 8,442 | $ | 12,616 | $ | 61 | $ | (48 | ) | $ | 12,629 | ||||||||||||||||||||||
Corporate(a) | 6,192 | 2 | (94 | ) | 6,100 | 2,890 | 2,356 | 854 | 6,100 | 6,955 | 15 | (33 | ) | 6,938 | ||||||||||||||||||||||||||||||||||
Government––U.S. | 451 | — | (23 | ) | 428 | 8 | 421 | — | 428 | 765 | — | (19 | ) | 747 | ||||||||||||||||||||||||||||||||||
Agency asset-backed––U.S. | 18 | — | (1 | ) | 18 | 17 | — | — | 18 | 24 | — | (1 | ) | 24 | ||||||||||||||||||||||||||||||||||
Other asset-backed(b) | 9 | — | — | 9 | 5 | 3 | 2 | 9 | 114 | — | — | 114 | ||||||||||||||||||||||||||||||||||||
Held-to-maturity debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Time deposits and other | 734 | — | — | 734 | 670 | 23 | 40 | 734 | 1,091 | — | — | 1,091 | ||||||||||||||||||||||||||||||||||||
Government and agency––non-U.S. | 778 | — | — | 778 | 778 | — | — | 778 | 770 | — | — | 770 | ||||||||||||||||||||||||||||||||||||
Total debt securities | $ | 16,658 | $ | 11 | $ | (160 | ) | $ | 16,509 | $ | 12,704 | $ | 2,909 | $ | 896 | $ | 16,509 | $ | 22,337 | $ | 77 | $ | (100 | ) | $ | 22,313 | ||||||||||||||||||||||
Available-for-sale equity securities(c) | ||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | $ | 2,115 | $ | — | $ | — | $ | 2,115 | ||||||||||||||||||||||||||||||||||||||||
Equity | 728 | 586 | (124 | ) | 1,190 | |||||||||||||||||||||||||||||||||||||||||||
Total available-for-sale equity securities | $ | 2,843 | $ | 586 | $ | (124 | ) | $ | 3,304 |
(a) | Issued by a diverse group of corporations. |
(b) | Includes mortgage-backed, loan-backed and receivable-backed securities, all of which are in senior positions in the capital structure of the security. Mortgage-backed securities are collateralized by diversified pools of residential and commercial mortgages. Loan-backed securities are collateralized by senior secured obligations of a diverse pool of companies or student loans. Receivable-backed securities are collateralized by credit cards receivables. |
(c) | Upon the 2018 adoption of a new accounting standard related to financial assets and liabilities, available-for-sale equity securities were classified as equity securities. For additional information see Note 1B. |
The following table presents the net unrealized gains and losses for the period that relates to equity securities still held at the reporting date, calculated as follows: | |||||||
(MILLIONS OF DOLLARS) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||
Net gains recognized during the period on investments in equity securities(a) | $ | 94 | $ | 460 | |||
Less: Net gains recognized during the period on equity securities sold during the period | (54 | ) | (90 | ) | |||
Net unrealized gains during the reporting period on equity securities still held at the reporting date(b) | $ | 40 | $ | 370 |
(a) | The net gains on investments in equity securities are reported in Other (income)/deductions––net and, for the third quarter and first nine months of 2018, include unrealized net gains on equity securities reflecting the adoption of a new accounting standard in the first quarter of 2018. For additional information, see Note 4. |
(b) | The third quarter of 2018 includes $8 million of unrealized net gains in Other (income)/deductions––net reflecting the adoption of a new accounting standard in the first quarter of 2018 and $32 million of unrealized gains on other equity securities. The first nine months of 2018 includes $344 million of unrealized net gains in Other (income)/deductions––net reflecting the adoption of a new accounting standard in the first quarter of 2018 and $26 million of unrealized gains on other equity securities. For additional information, see Note 1B and Note 4. |
Short-term borrowings include: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Commercial paper | $ | 2,600 | $ | 6,100 | ||||
Current portion of long-term debt, principal amount | 4,260 | 3,532 | ||||||
Other short-term borrowings, principal amount(a) | 537 | 320 | ||||||
Total short-term borrowings, principal amount | 7,396 | 9,951 | ||||||
Net fair value adjustments related to hedging and purchase accounting | (5 | ) | 14 | |||||
Net unamortized discounts, premiums and debt issuance costs | (7 | ) | (12 | ) | ||||
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted | $ | 7,385 | $ | 9,953 |
(a) | Other short-term borrowings primarily include cash collateral. For additional information, see Note 7F. |
In the third quarter of 2018, we issued the following senior unsecured notes: | ||||||
Principal | ||||||
(MILLIONS OF DOLLARS) | Maturity Date | As of September 30, 2018 | ||||
3.000% notes(a) | September 15, 2021 | $ | 1,000 | |||
Floating rate notes (LIBOR plus 0.33%)(b) | September 15, 2023 | 300 | ||||
3.200% notes(a) | September 15, 2023 | 1,000 | ||||
3.600% notes(a) | September 15, 2028 | 1,000 | ||||
4.100% notes(a) | September 15, 2038 | 700 | ||||
4.200% notes(a) | September 15, 2048 | 1,000 | ||||
Total long-term debt issued in the third quarter of 2018 | $ | 5,000 |
(a) | Fixed rate notes may be redeemed by us at any time, in whole, or in part, at varying redemption prices plus accrued and unpaid interest. |
(b) | Floating rate notes may not be redeemed by their terms prior to maturity. |
The following table provides the aggregate principal amount of our senior unsecured long-term debt, and adjustments to report our aggregate long-term debt: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Total long-term debt, principal amount | $ | 33,658 | $ | 32,783 | ||||
Net fair value adjustments related to hedging and purchase accounting | 129 | 872 | ||||||
Net unamortized discounts, premiums and debt issuance costs | (142 | ) | (125 | ) | ||||
Other long-term debt | 7 | 8 | ||||||
Total long-term debt, carried at historical proceeds, as adjusted | $ | 33,652 | $ | 33,538 | ||||
Current portion of long-term debt, carried at historical proceeds, as adjusted | $ | 4,255 | $ | 3,546 |
• | Generally, we recognize the gains and losses on foreign exchange contracts that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged risk. Upon the adoption of the new standard in 2018, for certain foreign exchange contracts, we exclude an amount from the assessment of hedge effectiveness and recognize that excluded amount through an amortization approach. We also recognize the offsetting foreign exchange impact attributable to the hedged item in earnings. |
• | Generally, we record in Other comprehensive income/(loss) gains or losses on foreign exchange contracts that are designated as cash flow hedges and reclassify those amounts, as appropriate, into earnings in the same period or periods during which the hedged transaction affects earnings. Upon the adoption of the new standard in 2018, for certain foreign exchange contracts, we exclude an amount from the assessment of hedge effectiveness and recognize that excluded amount through an amortization approach. |
• | Historically, as part of our net investment hedging program, we recognize the gain and loss impact on foreign exchange contracts designated as hedges of our net investments in earnings in three ways: over time––for the periodic net swap payments; immediately––to the extent of any change in the difference between the foreign exchange spot rate and forward rate; and upon sale or substantial liquidation of our net investments––to the extent of change in the foreign exchange spot rates. Upon the adoption of the new standard in 2018, for foreign exchange contracts, we exclude an amount from the |
• | For certain foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses on foreign currency exchange contracts that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. |
• | We recognize the gains and losses on interest rate contracts that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged risk. We also recognize the offsetting earnings impact of fixed-rate debt attributable to the hedged risk in earnings. |
The following table provides the fair value of the derivative financial instruments and the related notional amounts presented between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments: | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||||||||||||||||||
Fair Value | Fair Value | |||||||||||||||||||||||
Notional | Asset | Liability | Notional | Asset | Liability | |||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||
Foreign exchange contracts(a) | $ | 19,955 | $ | 590 | $ | 464 | $ | 18,723 | $ | 179 | $ | 459 | ||||||||||||
Interest rate contracts | 11,300 | 335 | 661 | 12,430 | 581 | 178 | ||||||||||||||||||
925 | 1,126 | 760 | 637 | |||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||
Foreign exchange contracts | $ | 16,798 | 118 | 48 | $ | 14,300 | 62 | 54 | ||||||||||||||||
Total | $ | 1,043 | $ | 1,174 | $ | 822 | $ | 691 |
(a) | As of September 30, 2018, the notional amount of outstanding foreign currency forward-exchange contracts hedging our intercompany forecasted inventory sales was $5.4 billion. |
The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | ||||||||||||||||||||||||
Amount of Gains/(Losses) Recognized in OID(a), (b) | Amount of Gains/(Losses) Recognized in OCI(a), (c) | Amount of Gains/(Losses) Reclassified from OCI into OID and COS(a), (c) | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign exchange contracts(d) | $ | — | $ | 1 | $ | 183 | $ | (51 | ) | $ | 198 | $ | (56 | ) | ||||||||||
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | — | — | 39 | — | 36 | — | ||||||||||||||||||
Derivative Financial Instruments in Fair Value Hedge Relationships: | ||||||||||||||||||||||||
Interest rate contracts | (195 | ) | 10 | — | — | — | — | |||||||||||||||||
Hedged item gain/(loss) | 195 | (10 | ) | — | — | — | — | |||||||||||||||||
Foreign exchange contracts | 1 | (11 | ) | — | — | — | — | |||||||||||||||||
Hedged item gain/(loss) | (1 | ) | 11 | — | — | — | — | |||||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign exchange contracts | — | — | 43 | — | — | — | ||||||||||||||||||
The portion of gains/(losses) on foreign exchange contracts excluded from the assessment of hedge effectiveness | — | — | 14 | — | 21 | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency short-term borrowings(e) | — | — | 8 | — | — | — | ||||||||||||||||||
Foreign currency long-term debt(e) | — | — | 17 | (166 | ) | — | — | |||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign exchange contracts | 150 | 33 | — | — | — | — | ||||||||||||||||||
All other net | — | — | — | 1 | — | — | ||||||||||||||||||
$ | 150 | $ | 34 | $ | 304 | $ | (216 | ) | $ | 256 | $ | (55 | ) |
Amount of Gains/(Losses) Recognized in OID(a), (b) | Amount of Gains/(Losses) Recognized in OCI(a), (c) | Amount of Gains/(Losses) Reclassified from OCI into OID and COS(a), (c) | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | ||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign exchange contracts(d) | $ | — | $ | (5 | ) | $ | 147 | $ | (149 | ) | $ | (204 | ) | $ | 394 | |||||||||
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach | — | — | 87 | — | 84 | — | ||||||||||||||||||
Derivative Financial Instruments in Fair Value Hedge Relationships: | ||||||||||||||||||||||||
Interest rate contracts | (715 | ) | 19 | — | — | — | — | |||||||||||||||||
Hedged item gain/(loss) | 715 | (19 | ) | — | — | — | — | |||||||||||||||||
Foreign exchange contracts | 5 | (19 | ) | — | — | — | — | |||||||||||||||||
Hedged item gain/(loss) | (5 | ) | 19 | — | — | — | — | |||||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign exchange contracts | — | — | 191 | — | — | — | ||||||||||||||||||
The portion of gains/(losses) on foreign exchange contracts excluded from the assessment of hedge effectiveness | — | — | 41 | — | 47 | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency short-term borrowings(e) | — | — | 50 | — | — | — | ||||||||||||||||||
Foreign currency long-term debt(e) | — | — | 111 | (518 | ) | — | — | |||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign exchange contracts | 156 | (112 | ) | — | — | — | — | |||||||||||||||||
All other net | — | — | 1 | 1 | 1 | — | ||||||||||||||||||
$ | 156 | $ | (117 | ) | $ | 629 | $ | (666 | ) | $ | (72 | ) | $ | 394 |
(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 the third quarter and first nine months ended October 1, 2017, there was no significant ineffectiveness. |
(c) | For derivative financial instruments in cash flow hedge relationships, the gains and losses are included in Other comprehensive income/(loss)––Unrealized holding gains/(losses) on derivative financial instruments, net. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income/(loss)––Foreign currency translation adjustments, net. |
(d) | Based on quarter-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax gain of $120 million within the next 12 months into Cost of sales. The maximum length of time over which we are hedging future foreign exchange cash flow relates to our $1.8 billion U.K. pound debt maturing in 2043. |
(e) | Short-term borrowings include foreign currency short-term borrowings with carrying values of $1.5 billion as of September 30, 2018, which are used as hedging instruments in net investment hedges. Long-term debt includes foreign currency long-term borrowings with carrying values of $3.2 billion as of September 30, 2018, which are used as hedging instruments in net investment hedges. |
The following table provides the total amount of each income and expense line in which the results of fair value or cash flow hedges are recorded: | ||||||||
Three Months Ended | Nine Months Ended | |||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | September 30, 2018 | ||||||
Cost of sales | $ | 2,694 | $ | 8,173 | ||||
Other (income)/deductions—net | (414 | ) | (1,143 | ) |
The following table provides the amounts recorded in our condensed consolidated balance sheet related to cumulative basis adjustments for fair value hedges: | ||||||||
Carrying Amount of Hedged Assets/Liabilities | Cumulative Amount of Fair Value Hedging Adjustment Gains/(Losses) Included in the Carrying Amount of the Hedged Assets/Liabilities | |||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | September 30, 2018 | ||||||
Short-term investments | $ | 156 | $ | — | ||||
Long-term investments | 45 | (1 | ) | |||||
Short-term borrowings, including current portion of long-term debt | 1,490 | 8 | ||||||
Long-term debt | 9,548 | 407 |
The following table provides the components of Inventories: | ||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | December 31, 2017 | ||||||
Finished goods | $ | 2,581 | $ | 2,883 | ||||
Work-in-process | 4,764 | 3,908 | ||||||
Raw materials and supplies | 839 | 788 | ||||||
Inventories(a) | $ | 8,184 | $ | 7,578 | ||||
Noncurrent inventories not included above(b) | $ | 576 | $ | 683 |
(a) | The change from December 31, 2017 reflects increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery, network strategy and new product launches, partially offset by a decrease due to foreign exchange. |
(b) | Included in Other noncurrent assets. There are no recoverability issues associated with these amounts. |
The following table provides the components of Identifiable intangible assets: | ||||||||||||||||||||||||
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | ||||||||||||||||||
Finite-lived intangible assets | ||||||||||||||||||||||||
Developed technology rights(a) | $ | 92,123 | $ | (57,786 | ) | $ | 34,337 | $ | 89,550 | $ | (54,785 | ) | $ | 34,765 | ||||||||||
Brands | 2,126 | (1,228 | ) | 898 | 2,134 | (1,152 | ) | 982 | ||||||||||||||||
Licensing agreements and other | 1,938 | (1,160 | ) | 777 | 1,911 | (1,096 | ) | 815 | ||||||||||||||||
96,187 | (60,175 | ) | 36,012 | 93,595 | (57,033 | ) | 36,562 | |||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Brands and other | 6,909 | 6,909 | 6,929 | 6,929 | ||||||||||||||||||||
IPR&D(a) | 2,385 | 2,385 | 5,249 | 5,249 | ||||||||||||||||||||
9,294 | 9,294 | 12,179 | 12,179 | |||||||||||||||||||||
Identifiable intangible assets(b) | $ | 105,481 | $ | (60,175 | ) | $ | 45,306 | $ | 105,774 | $ | (57,033 | ) | $ | 48,741 |
(a) | The changes in the gross carrying amount of Developed technology rights and IPR&D primarily reflect (i) the transfer of $2.7 billion from IPR&D to Developed technology rights to reflect the approval of Xtandi in the U.S. for the treatment of men with non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas, and (ii) $240 million of Developed technology rights recorded in connection with the EU approval of Mylotarg (see Note 7E). |
Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: | |||||||||
September 30, 2018 | |||||||||
IH | EH | WRD | |||||||
Developed technology rights | 70 | % | 29 | % | — | ||||
Brands, finite-lived | 75 | % | 25 | % | — | ||||
Brands, indefinite-lived | 71 | % | 29 | % | — | ||||
IPR&D | 64 | % | 21 | % | 15 | % |
The following table provides the components of and changes in the carrying amount of Goodwill: | ||||||||||||
(MILLIONS OF DOLLARS) | IH | EH | Total | |||||||||
Balance, December 31, 2017 | $ | 31,141 | $ | 24,811 | $ | 55,952 | ||||||
Other(a) | (178 | ) | (160 | ) | (338 | ) | ||||||
Balance, September 30, 2018 | $ | 30,964 | $ | 24,651 | $ | 55,614 |
(a) | Primarily reflects the impact of foreign exchange, as well as the contribution of the allogeneic CAR T developmental program assets and operations to Allogene that constituted a business for accounting purposes (see Note 2B). |
The following table provides the components of net periodic benefit cost/(credit): | ||||||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
Pension Plans | ||||||||||||||||||||||||||||||||
U.S. Qualified(a) | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | |||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | ||||||||||||||||||||||||
Net periodic benefit cost/(credit)(b): | ||||||||||||||||||||||||||||||||
Service cost(c) | $ | — | $ | 67 | $ | — | $ | 6 | $ | 33 | $ | 44 | $ | 10 | $ | 10 | ||||||||||||||||
Interest cost | 149 | 157 | 14 | 13 | 52 | 52 | 18 | 23 | ||||||||||||||||||||||||
Expected return on plan assets | (259 | ) | (248 | ) | — | — | (89 | ) | (87 | ) | (9 | ) | (9 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses(c) | 30 | 91 | 3 | 12 | 25 | 29 | 2 | 8 | ||||||||||||||||||||||||
Prior service credits | — | — | — | — | (1 | ) | (1 | ) | (45 | ) | (45 | ) | ||||||||||||||||||||
Curtailments | 1 | 1 | 1 | — | (4 | ) | (2 | ) | (1 | ) | (3 | ) | ||||||||||||||||||||
Settlements | 38 | 30 | 3 | 7 | — | — | — | — | ||||||||||||||||||||||||
$ | (40 | ) | $ | 99 | $ | 20 | $ | 39 | $ | 17 | $ | 35 | $ | (26 | ) | $ | (17 | ) | ||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||||
Pension Plans | ||||||||||||||||||||||||||||||||
U.S. Qualified(a) | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | |||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | ||||||||||||||||||||||||
Net periodic benefit cost/(credit)(b): | ||||||||||||||||||||||||||||||||
Service cost(c) | $ | — | $ | 202 | $ | — | $ | 18 | $ | 104 | $ | 127 | $ | 29 | $ | 32 | ||||||||||||||||
Interest cost | 450 | 478 | 40 | 41 | 160 | 152 | 54 | 68 | ||||||||||||||||||||||||
Expected return on plan assets | (783 | ) | (759 | ) | — | — | (274 | ) | (256 | ) | (28 | ) | (27 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses(c) | 90 | 302 | 10 | 37 | 77 | 86 | 5 | 23 | ||||||||||||||||||||||||
Prior service costs/(credits) | 1 | 3 | (1 | ) | (1 | ) | (3 | ) | (3 | ) | (135 | ) | (137 | ) | ||||||||||||||||||
Curtailments | 11 | 10 | 1 | — | (4 | ) | (2 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||
Settlements | 84 | 54 | 24 | 32 | — | 3 | — | — | ||||||||||||||||||||||||
$ | (147 | ) | $ | 292 | $ | 75 | $ | 127 | $ | 61 | $ | 106 | $ | (89 | ) | $ | (57 | ) |
(a) | In the second quarter of 2017, we settled the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. We purchased a group annuity contract on behalf of the remaining plan participants with a third-party insurance provider. As a result, we were relieved of the $156 million net pension benefit obligation and recorded a pre-tax settlement gain of $41 million, partially offset by the recognition of actuarial losses and prior service costs upon plan settlement of approximately $30 million in Other (income)/deductions––net (see Note 3). |
(b) | We adopted a new accounting standard on January 1, 2018 that requires the net periodic pension and postretirement benefit costs other than service costs be presented in Other (income)/deductions––net on the condensed consolidated statements of income. For additional information, see Note 1B and Note 4. |
(c) | Effective January 1, 2018, we froze two significant defined benefit pension plans to future benefit accruals in the U.S. and U.K. and as a result, service costs for those plans are eliminated. In addition, due to the plan freeze, the average amortization period for the U.S. qualified plans and U.S. supplemental (non-qualified) plans was extended to the expected life expectancy of the plan participants, whereas the average amortization period in prior years utilized the expected future service period of plan participants. |
The following table provides the amounts we contributed, and the amounts we expect to contribute during 2018, to our pension and postretirement plans from our general assets for the periods indicated: | ||||||||||||||||
Pension Plans | ||||||||||||||||
(MILLIONS OF DOLLARS) | U.S. Qualified | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | ||||||||||||
Contributions from our general assets for the nine months ended September 30, 2018 | $ | 500 | $ | 118 | $ | 174 | $ | 108 | ||||||||
Expected contributions from our general assets during 2018(a) | 500 | 137 | 229 | 149 |
(a) | Contributions expected to be made for 2018 are inclusive of amounts contributed during the nine months ended September 30, 2018, including the $500 million voluntary contribution that was made in February 2018 for the U.S. qualified plans, which was considered pre-funding for future anticipated mandatory contributions and is also expected to reduce Pension Benefit Guaranty Corporation variable rate premiums. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments. |
The following table provides the detailed calculation of EPS: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(IN MILLIONS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
EPS Numerator––Basic | ||||||||||||||||
Income from continuing operations | $ | 4,111 | $ | 2,858 | $ | 11,562 | $ | 9,064 | ||||||||
Less: Net income attributable to noncontrolling interests | 8 | 18 | 25 | 32 | ||||||||||||
Income from continuing operations attributable to Pfizer Inc. | 4,103 | 2,840 | 11,537 | 9,032 | ||||||||||||
Less: Preferred stock dividends––net of tax | — | — | 1 | 1 | ||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | 4,103 | 2,839 | 11,536 | 9,032 | ||||||||||||
Discontinued operations––net of tax | 11 | — | 10 | 1 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 4,114 | $ | 2,839 | $ | 11,546 | $ | 9,033 | ||||||||
EPS Numerator––Diluted | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 4,103 | $ | 2,840 | $ | 11,537 | $ | 9,032 | ||||||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | 11 | — | 10 | 1 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 4,114 | $ | 2,840 | $ | 11,546 | $ | 9,034 | ||||||||
EPS Denominator | ||||||||||||||||
Weighted-average number of common shares outstanding––Basic | 5,875 | 5,951 | 5,899 | 5,972 | ||||||||||||
Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements | 112 | 89 | 99 | 85 | ||||||||||||
Weighted-average number of common shares outstanding––Diluted | 5,986 | 6,041 | 5,998 | 6,057 | ||||||||||||
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | 5 | 47 | 3 | 47 |
(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. |
• | 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. |
• | 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. |
• | Antitrust Actions |
• | Personal Injury Actions |
• | Personal Injury Actions |
• | Mississippi Attorney General Government Investigation |
• | Accelerated share repurchase agreement––On March 12, 2018, we entered into an accelerated share repurchase agreement with Citibank to repurchase $4.0 billion of our common stock. Pursuant to the terms of the agreement, on March 14, 2018, we paid $4.0 billion to Citibank and received an initial delivery of approximately 87 million shares of our common stock from Citibank at a price of $36.61 per share, which represented, based on the closing price of our common stock on the NYSE on March 12, 2018, approximately 80% of the notional amount of the accelerated share repurchase agreement. On September 5, 2018, the accelerated share repurchase agreement with Citibank was completed, which, per the terms of the agreement, resulted in Citibank owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 21 million shares of our common stock from Citibank on September 7, 2018. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $36.86 per share. The common stock received is included in Treasury stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. After giving effect to the accelerated share repurchase agreement, as well as other share repurchases through September 30, 2018, our remaining share-purchase authorization was approximately $9.2 billion at September 30, 2018. |
• | Corporate headquarters lease agreement––In April 2018, we entered an agreement to lease space in an office building in the Hudson Yards neighborhood of New York City. We will relocate our global headquarters to this property with occupancy expected beginning in 2022. Our future minimum rental commitment under this 20-year lease is approximately $1.7 billion. In July 2018, we completed the sale of our current headquarters at 219 and 235 East 42nd Street. We also agreed to lease these properties from the buyer while we complete our relocation. |
Some additional information about our business segments as of September 30, 2018 follows: | ||
IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare. Key therapeutic areas include internal medicine, vaccines, oncology, inflammation & immunology, rare disease and consumer healthcare. | EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded and generic sterile injectable products, biosimilars, and select branded products including anti-infectives. EH also includes an R&D organization, as well as our contract manufacturing business. Through February 2, 2017, EH also included HIS. | |
Leading brands include: - Prevnar 13/Prevenar 13 - Xeljanz - Eliquis - Lyrica (U.S., Japan and certain other markets) - Enbrel (outside the U.S. and Canada) - Ibrance - Xtandi - Several OTC consumer healthcare products (e.g., Advil and Centrum) | Leading brands include: - Lipitor - Norvasc - Lyrica (Europe, Russia, Turkey, Israel and Central Asia countries) - Celebrex - Viagra* - Inflectra/Remsima - Sulperazon - Several other sterile injectable products |
* | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra worldwide revenues are reported in EH. |
• | Effective in the first quarter of 2018, certain costs for Pfizer’s StratCO group, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. StratCO costs primarily include headcount costs, vendor costs and data costs largely in support of Pfizer’s commercial operations. The majority of the StratCO costs reflect additional amounts that our operating segments would have incurred had each segment operated as a standalone company during the periods presented. The reporting change was made to streamline accountability and speed decision making. In the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
• | WRD, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
• | GPD, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects. |
• | Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement), the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations, as well as certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. Effective in the first quarter of 2018, certain costs for StratCO, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. For additional information, see note below on Other unallocated costs. |
• | Other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs (which include manufacturing variances associated with production). In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
• | Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and PP&E; (ii) acquisition-related costs, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, representing substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges) that are evaluated on an individual basis by management and that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items can include, but are not limited to, non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities. |
The following table provides selected income statement information by reportable segment: | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Revenues | Earnings(a) | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Reportable Segments: | ||||||||||||||||
IH(b) | $ | 8,471 | $ | 8,118 | $ | 5,388 | $ | 5,000 | ||||||||
EH(b) | 4,826 | 5,050 | 2,527 | 2,801 | ||||||||||||
Total reportable segments | 13,298 | 13,168 | 7,915 | 7,801 | ||||||||||||
Other business activities(c), (d) | — | — | (736 | ) | (759 | ) | ||||||||||
Reconciling Items: | ||||||||||||||||
Corporate(b), (d) | — | — | (1,337 | ) | (1,363 | ) | ||||||||||
Purchase accounting adjustments(d) | — | — | (1,309 | ) | (1,154 | ) | ||||||||||
Acquisition-related costs(d) | — | — | (112 | ) | (155 | ) | ||||||||||
Certain significant items(e) | — | — | 213 | (449 | ) | |||||||||||
Other unallocated(b), (d) | — | — | (457 | ) | (335 | ) | ||||||||||
$ | 13,298 | $ | 13,168 | $ | 4,177 | $ | 3,585 | |||||||||
Nine Months Ended | ||||||||||||||||
Revenues | Earnings(a) | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Reportable Segments: | ||||||||||||||||
IH(b) | $ | 24,573 | $ | 23,204 | $ | 15,419 | $ | 14,534 | ||||||||
EH(b) | 15,097 | 15,639 | 8,133 | 8,672 | ||||||||||||
Total reportable segments | 39,670 | 38,843 | 23,552 | 23,206 | ||||||||||||
Other business activities(c), (d) | — | — | (2,130 | ) | (2,205 | ) | ||||||||||
Reconciling Items: | ||||||||||||||||
Corporate(b), (d) | — | — | (3,633 | ) | (3,908 | ) | ||||||||||
Purchase accounting adjustments(d) | — | — | (3,665 | ) | (3,527 | ) | ||||||||||
Acquisition-related costs(d) | — | — | (221 | ) | (347 | ) | ||||||||||
Certain significant items(e) | — | — | (8 | ) | (797 | ) | ||||||||||
Other unallocated(b), (d) | — | — | (1,064 | ) | (1,070 | ) | ||||||||||
$ | 39,670 | $ | 38,843 | $ | 12,831 | $ | 11,351 |
(a) | Income from continuing operations before provision for taxes on income. IH’s earnings include dividend income of $91 million and $54 million in the third quarter of 2018 and 2017, respectively, and $226 million and $211 million in the first nine months of 2018 and 2017, respectively, from our investment in ViiV. For additional information, see Note 4. |
(b) | In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
(c) | Other business activities includes the costs managed by our WRD and GPD organizations. |
(d) | For a description, see the “Other Costs and Business Activities” section above. |
(e) | Certain significant items are substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges) that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. |
The following table provides revenues by geographic area: | ||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||||
U.S. | $ | 6,361 | $ | 6,534 | (3 | ) | $ | 18,861 | $ | 19,516 | (3 | ) | ||||||||||
Developed Europe(a) | 2,231 | 2,163 | 3 | 6,657 | 6,309 | 6 | ||||||||||||||||
Developed Rest of World(b) | 1,640 | 1,632 | 1 | 4,795 | 4,797 | — | ||||||||||||||||
Emerging Markets(c) | 3,066 | 2,839 | 8 | 9,358 | 8,222 | 14 | ||||||||||||||||
Revenues | $ | 13,298 | $ | 13,168 | 1 | $ | 39,670 | $ | 38,843 | 2 |
(a) | Developed Europe region includes the following markets: Western Europe, Scandinavian countries and Finland. Revenues denominated in euros were $1.8 billion and $1.7 billion in the third quarter of 2018 and 2017, respectively, and $5.3 billion and $5.0 billion in the first nine months of 2018 and 2017, respectively. |
(b) | Developed Rest of World region includes the following markets: Japan, Canada, Australia, South Korea and New Zealand. |
(c) | Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey. |
The following table provides detailed revenue information: | ||||||||||||||||||
(MILLIONS OF DOLLARS) | Three Months Ended | Nine Months Ended | ||||||||||||||||
PRODUCT | PRIMARY INDICATIONS OR CLASS | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | |||||||||||||
TOTAL REVENUES | $ | 13,298 | $ | 13,168 | $ | 39,670 | $ | 38,843 | ||||||||||
PFIZER INNOVATIVE HEALTH (IH)(a) | $ | 8,471 | $ | 8,118 | $ | 24,573 | $ | 23,204 | ||||||||||
Internal Medicine | $ | 2,463 | $ | 2,455 | $ | 7,339 | $ | 7,245 | ||||||||||
Lyrica IH(b) | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | 1,132 | 1,150 | 3,398 | 3,382 | |||||||||||||
Eliquis alliance revenues and direct sales | Atrial fibrillation, deep vein thrombosis, pulmonary embolism | 870 | 644 | 2,524 | 1,813 | |||||||||||||
Chantix/Champix | An aid to smoking cessation treatment in adults 18 years of age or older | 261 | 240 | 789 | 727 | |||||||||||||
BMP2 | Development of bone and cartilage | 54 | 79 | 206 | 198 | |||||||||||||
Toviaz | Overactive bladder | 67 | 62 | 197 | 187 | |||||||||||||
Viagra IH(c) | Erectile dysfunction | — | 206 | — | 711 | |||||||||||||
All other Internal Medicine | Various | 79 | 75 | 224 | 228 | |||||||||||||
Vaccines | $ | 1,845 | $ | 1,649 | $ | 4,708 | $ | 4,385 | ||||||||||
Prevnar 13/Prevenar 13 | Vaccines for prevention of pneumococcal disease | 1,660 | 1,522 | 4,290 | 4,069 | |||||||||||||
FSME/IMMUN-TicoVac | Tick-borne encephalitis vaccine | 57 | 43 | 162 | 119 | |||||||||||||
Trumenba | Meningococcal Group B vaccine | 61 | 42 | 95 | 79 | |||||||||||||
All other Vaccines | Various | 67 | 43 | 160 | 117 | |||||||||||||
Oncology | $ | 1,775 | $ | 1,616 | $ | 5,294 | $ | 4,551 | ||||||||||
Ibrance | Advanced breast cancer | 1,025 | 878 | 2,985 | 2,410 | |||||||||||||
Sutent | Advanced and/or metastatic RCC, adjuvant RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | 248 | 276 | 785 | 805 | |||||||||||||
Xtandi alliance revenues | Castration-resistant prostate cancer | 180 | 150 | 510 | 422 | |||||||||||||
Xalkori | ALK-positive and ROS1-positive advanced NSCLC | 127 | 146 | 417 | 442 | |||||||||||||
Inlyta | Advanced RCC | 71 | 84 | 226 | 256 | |||||||||||||
Bosulif | Philadelphia chromosome–positive chronic myelogenous leukemia | 69 | 57 | 206 | 163 | |||||||||||||
All other Oncology | Various | 55 | 26 | 164 | 54 | |||||||||||||
Inflammation & Immunology (I&I) | $ | 1,018 | $ | 1,000 | $ | 2,951 | $ | 2,863 | ||||||||||
Enbrel (Outside the U.S. and Canada) | Rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | 531 | 613 | 1,589 | 1,818 | |||||||||||||
Xeljanz | Rheumatoid arthritis, psoriatic arthritis, ulcerative colitis | 432 | 348 | 1,221 | 935 | |||||||||||||
Eucrisa | Mild-to-moderate atopic dermatitis (eczema) | 40 | 15 | 104 | 33 | |||||||||||||
All other I&I | Various | 15 | 23 | 37 | 78 | |||||||||||||
Rare Disease | $ | 531 | $ | 569 | $ | 1,651 | $ | 1,637 | ||||||||||
BeneFIX | Hemophilia | 132 | 151 | 420 | 453 | |||||||||||||
Genotropin | Replacement of human growth hormone | 143 | 136 | 416 | 375 | |||||||||||||
Refacto AF/Xyntha | Hemophilia | 117 | 140 | 388 | 409 | |||||||||||||
Somavert | Acromegaly | 64 | 65 | 195 | 182 | |||||||||||||
All other Rare Disease | Various | 74 | 77 | 232 | 218 | |||||||||||||
Consumer Healthcare | $ | 839 | $ | 829 | $ | 2,631 | $ | 2,522 | ||||||||||
PFIZER ESSENTIAL HEALTH (EH)(d) | $ | 4,826 | $ | 5,050 | $ | 15,097 | $ | 15,639 | ||||||||||
Legacy Established Products (LEP)(e) | $ | 2,533 | $ | 2,681 | $ | 7,865 | $ | 7,995 | ||||||||||
Lipitor | Reduction of LDL cholesterol | 507 | 491 | 1,539 | 1,341 | |||||||||||||
Norvasc | Hypertension | 247 | 226 | 773 | 684 | |||||||||||||
Premarin family | Symptoms of menopause | 204 | 238 | 605 | 711 | |||||||||||||
Xalatan/Xalacom | Glaucoma and ocular hypertension | 76 | 83 | 233 | 241 | |||||||||||||
Effexor | Depression and certain anxiety disorders | 78 | 76 | 228 | 215 | |||||||||||||
Zoloft | Depression and certain anxiety disorders | 72 | 78 | 223 | 215 | |||||||||||||
Zithromax | Bacterial infections | 54 | 61 | 216 | 202 | |||||||||||||
EpiPen | Epinephrine injection used in treatment of life-threatening allergic reactions | 68 | 82 | 215 | 253 | |||||||||||||
Xanax | Anxiety disorders | 52 | 58 | 163 | 164 | |||||||||||||
Sildenafil Citrate | Erectile dysfunction | 1 | — | 72 | — | |||||||||||||
All other LEP | Various | 1,176 | 1,288 | 3,599 | 3,969 |
(MILLIONS OF DOLLARS) | Three Months Ended | Nine Months Ended | ||||||||||||||||
PRODUCT | PRIMARY INDICATIONS OR CLASS | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | |||||||||||||
Sterile Injectable Pharmaceuticals (SIP)(f) | $ | 1,239 | $ | 1,273 | $ | 3,928 | $ | 4,270 | ||||||||||
Sulperazon | Treatment of infections | 145 | 114 | 464 | 345 | |||||||||||||
Medrol | Steroid anti-inflammatory | 95 | 109 | 318 | 352 | |||||||||||||
Fragmin | Slows blood clotting | 76 | 79 | 221 | 221 | |||||||||||||
Tygacil | Tetracycline class antibiotic | 60 | 60 | 186 | 192 | |||||||||||||
Zosyn/Tazocin | Antibiotic | 55 | 47 | 175 | 124 | |||||||||||||
Precedex | Sedation agent in surgery or intensive care | 47 | 51 | 166 | 182 | |||||||||||||
All other SIP | Various | 761 | 814 | 2,399 | 2,852 | |||||||||||||
Peri-LOE Products(g) | $ | 698 | $ | 794 | $ | 2,208 | $ | 2,398 | ||||||||||
Viagra EH(c) | Erectile dysfunction | 137 | 102 | 509 | 285 | |||||||||||||
Celebrex | Arthritis pain and inflammation, acute pain | 188 | 212 | 494 | 564 | |||||||||||||
Vfend | Fungal infections | 87 | 97 | 294 | 305 | |||||||||||||
Lyrica EH(b) | Epilepsy, neuropathic pain and generalized anxiety disorder | 81 | 134 | 251 | 428 | |||||||||||||
Zyvox | Bacterial infections | 50 | 68 | 184 | 220 | |||||||||||||
Revatio | Pulmonary arterial hypertension | 53 | 58 | 163 | 189 | |||||||||||||
Pristiq | Depression | 52 | 69 | 156 | 230 | |||||||||||||
All other Peri-LOE Products | Various | 49 | 55 | 157 | 176 | |||||||||||||
Biosimilars(h) | Various | $ | 197 | $ | 141 | $ | 558 | $ | 367 | |||||||||
Inflectra/Remsima | Inflammatory diseases | 166 | 112 | 469 | 284 | |||||||||||||
All other Biosimilars | Various | 31 | 28 | 89 | 82 | |||||||||||||
Pfizer CentreOne(i) | $ | 159 | $ | 161 | $ | 539 | $ | 514 | ||||||||||
Hospira Infusion Systems (HIS)(j) | Various | $ | — | $ | — | $ | — | $ | 97 | |||||||||
Total Lyrica(b) | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | $ | 1,213 | $ | 1,285 | $ | 3,649 | $ | 3,810 | |||||||||
Total Viagra(c) | Erectile dysfunction | $ | 137 | $ | 308 | $ | 509 | $ | 996 | |||||||||
Total Alliance revenues | Various | $ | 977 | $ | 741 | $ | 2,820 | $ | 2,112 |
(a) | The IH business encompasses Internal Medicine, Vaccines, Oncology, Inflammation & Immunology, Rare Disease and Consumer Healthcare. |
(b) | Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica EH. All other Lyrica revenues are included in Lyrica IH. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica IH and Lyrica EH. |
(c) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
(d) | The EH business encompasses Legacy Established Products, Sterile Injectable Pharmaceuticals, Peri-LOE Products, Biosimilars, Pfizer CentreOne and HIS (through February 2, 2017). |
(e) | Legacy Established Products primarily include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products). In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All Other LEP and All Other SIP, are reported in emerging markets within Pfizer CentreOne. |
(f) | Sterile Injectable Pharmaceuticals includes branded and generic injectables (excluding Peri-LOE Products). In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All Other LEP and All Other SIP, are reported in emerging markets within Pfizer CentreOne. |
(g) | Peri-LOE Products includes products that have recently lost or are anticipated to soon lose patent protection. These products primarily include: Lyrica in Europe, Russia, Turkey, Israel and Central Asia; worldwide revenues for Celebrex, Pristiq, Zyvox, Vfend, Revatio and Inspra; and beginning in 2018, Viagra revenues for all countries (and Viagra revenues for all countries other than the U.S. and Canada in 2017, see note (c) above). |
(h) | Biosimilars includes Inflectra/Remsima (biosimilar infliximab) in the U.S. and certain international markets, Nivestim (biosimilar filgrastim) in certain European, Asian and Africa/Middle Eastern markets and in the U.S. and Retacrit (biosimilar epoetin zeta) in certain European and Africa/Middle Eastern markets. |
(i) | Pfizer CentreOne includes revenues from our contract manufacturing and active pharmaceutical ingredient sales operation, including sterile injectables contract manufacturing, and revenues related to our manufacturing and supply agreements, including with Zoetis Inc. In the fourth quarter of 2017, we sold our equity share in Hisun Pfizer. As a result, effective in the first quarter of 2018, Hisun Pfizer-related revenues, previously reported in emerging markets within All Other LEP and All Other SIP, are reported in emerging markets within Pfizer CentreOne. |
(j) | HIS (through February 2, 2017) includes Medication Management Systems products composed of infusion pumps and related software and services, as well as IV Infusion Products, including large volume IV solutions and their associated administration sets. |
● | Beginning on page 57 | ||||
This section provides information about the following: Our Business; our performance during the third quarter and first nine months of 2018 and 2017; 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 2018. | |||||
● | Beginning on page 71 | ||||
This section discusses updates to our 2017 Financial Report disclosures for those accounting policies and estimates that we consider important in understanding our consolidated financial statements. For additional discussion of our accounting policies, see Notes to Consolidated Financial Statements—Note 1. Basis of Presentation and Significant Accounting Policies. | |||||
● | Beginning on page 72 | ||||
This section includes the following sub-sections: | |||||
Beginning on page 72 | |||||
This sub-section provides an overview of revenues by segment and geography as well as revenue deductions | |||||
Beginning on page 76 | |||||
This sub-section provides an overview of several of our biopharmaceutical products. | |||||
Beginning on page 82 | |||||
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 102 | ||||
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 2018 and 2017. | |||||
● | Beginning on page 105 | ||||
This section provides an analysis of selected measures of our liquidity and of our capital resources as of September 30, 2018 and December 31, 2017, as well as a discussion of our outstanding debt and other commitments that existed as of September 30, 2018 and December 31, 2017. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities. | |||||
● | 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 111 | ||||
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. |
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 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||||
Revenues | $ | 13,298 | $ | 13,168 | 1 | $ | 39,670 | $ | 38,843 | 2 | ||||||||||||
Cost of sales(a) | 2,694 | 2,844 | (5 | ) | 8,173 | 7,972 | 3 | |||||||||||||||
% of revenues | 20.3 | % | 21.6 | % | 20.6 | % | 20.5 | % | ||||||||||||||
Selling, informational and administrative expenses(a) | 3,494 | 3,504 | — | 10,448 | 10,249 | 2 | ||||||||||||||||
% of revenues | 26.3 | % | 26.6 | % | 26.3 | % | 26.4 | % | ||||||||||||||
Research and development expenses(a) | 2,008 | 1,865 | 8 | 5,549 | 5,367 | 3 | ||||||||||||||||
% of revenues | 15.1 | % | 14.2 | % | 14.0 | % | 13.8 | % | ||||||||||||||
Amortization of intangible assets | 1,253 | 1,177 | 6 | 3,640 | 3,571 | 2 | ||||||||||||||||
% of revenues | 9.4 | % | 8.9 | % | 9.2 | % | 9.2 | % | ||||||||||||||
Restructuring charges and certain acquisition-related costs | 85 | 114 | (26 | ) | 172 | 267 | (36 | ) | ||||||||||||||
% of revenues | 0.6 | % | 0.9 | % | 0.4 | % | 0.7 | % | ||||||||||||||
Other (income)/deductions––net | (414 | ) | 79 | * | (1,143 | ) | 65 | * | ||||||||||||||
Income from continuing operations before provision for taxes on income | 4,177 | 3,585 | 17 | 12,831 | 11,351 | 13 | ||||||||||||||||
% of revenues | 31.4 | % | 27.2 | % | 32.3 | % | 29.2 | % | ||||||||||||||
Provision for taxes on income | 66 | 727 | (91 | ) | 1,270 | 2,287 | (44 | ) | ||||||||||||||
Effective tax rate | 1.6 | % | 20.3 | % | 9.9 | % | 20.1 | % | ||||||||||||||
Income from continuing operations | 4,111 | 2,858 | 44 | 11,562 | 9,064 | 28 | ||||||||||||||||
% of revenues | 30.9 | % | 21.7 | % | 29.1 | % | 23.3 | % | ||||||||||||||
Discontinued operations––net of tax | 11 | — | * | 10 | 1 | * | ||||||||||||||||
Net income before allocation to noncontrolling interests | 4,122 | 2,858 | 44 | 11,571 | 9,066 | 28 | ||||||||||||||||
% of revenues | 31.0 | % | 21.7 | % | 29.2 | % | 23.3 | % | ||||||||||||||
Less: Net income attributable to noncontrolling interests | 8 | 18 | (53 | ) | 25 | 32 | (22 | ) | ||||||||||||||
Net income attributable to Pfizer Inc. | $ | 4,114 | $ | 2,840 | 45 | $ | 11,546 | $ | 9,034 | 28 | ||||||||||||
% of revenues | 30.9 | % | 21.6 | % | 29.1 | % | 23.3 | % | ||||||||||||||
Earnings per common share––basic: | ||||||||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.70 | $ | 0.48 | 46 | $ | 1.96 | $ | 1.51 | 29 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.70 | $ | 0.48 | 47 | $ | 1.96 | $ | 1.51 | 29 | ||||||||||||
Earnings per common share––diluted: | ||||||||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.69 | $ | 0.47 | 46 | $ | 1.92 | $ | 1.49 | 29 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.69 | $ | 0.47 | 46 | $ | 1.92 | $ | 1.49 | 29 | ||||||||||||
Cash dividends paid per common share | $ | 0.34 | $ | 0.32 | 6 | $ | 1.02 | $ | 0.96 | 6 |
(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. |
References to developed and emerging markets in this MD&A include: | ||
Developed markets | U.S., Western Europe, Japan, Canada, Australia, South Korea, Scandinavian countries, Finland and New Zealand | |
Emerging markets (includes, but is not limited to) | Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey |
• | On February 3, 2017, we completed the sale of Pfizer’s global infusion systems net assets, HIS, to ICU Medical for up to approximately $900 million, composed of cash and contingent cash consideration, ICU Medical common stock and seller financing. At closing, we received 3.2 million newly issued shares of ICU Medical common stock, which we initially valued at approximately $428 million (a portion of which we sold in August 2018), a promissory note in the amount of $75 million and net cash of approximately $200 million before customary adjustments for net working capital. In addition, we are entitled to receive a contingent amount of up to an additional $225 million in cash based on ICU Medical’s achievement of certain cumulative performance targets for the combined company through December 31, 2019. The operating results of HIS are included in our condensed consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the third quarter of 2017 do not reflect any contribution from HIS global operations, while our financial results, and EH’s operating results, for the first nine months of 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations. Our financial results, and EH’s operating results, for 2018 do not reflect any contribution from HIS global operations. |
• | On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. for $1,040 million, composed of cash and contingent consideration. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of this business, and, in accordance with our international reporting period, our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2017 reflect approximately three months and eight months, respectively, of the small molecule anti-infectives business acquired from AstraZeneca. Our financial results, EH’s operating results, and cash flows for the third quarter and first nine months of 2018 reflect three months and nine months, respectively, of the small molecule anti-infective business acquired from AstraZeneca. |
(MILLIONS OF DOLLARS) | Three Months | Nine Months | ||||||
Revenues, for the three and nine months ended October 1, 2017 | $ | 13,168 | $ | 38,843 | ||||
Operational growth/(decline): | ||||||||
Continued growth from key brands(a) and from recently launched products(b), as well as growth from Biosimilars(c) | 768 | 2,172 | ||||||
Declines from the SIP portfolio (primarily in the U.S.), the Peri-LOE Products portfolio (excluding Viagra EH(d), which was impacted by the shift in the reporting of U.S. and Canada Viagra revenues to EH), total Viagra(d) (primarily in the U.S.), Enbrel (driven by declines in most developed Europe markets) and the LEP portfolio (primarily in developed markets) | (508 | ) | (1,971 | ) | ||||
Disposition-related impact of the February 2017 sale of HIS(e) | — | (97 | ) | |||||
Other operational factors, net | (18 | ) | 29 | |||||
Operational growth, net | 243 | 134 | ||||||
Operational revenues | 13,410 | 38,977 | ||||||
(Unfavorable)/favorable impact of foreign exchange | (113 | ) | 693 | |||||
Revenues, for the three and nine months ended September 30, 2018 | $ | 13,298 | $ | 39,670 |
(a) | Key brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13 and Xtandi, as well as, for the first nine months of 2018, Chantix/Champix. |
(b) | Growth from recently launched products include Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe. |
(c) | Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe. |
(d) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
(e) | Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017. |
(MILLIONS OF DOLLARS) | Three Months | Nine Months | ||||||
Income from continuing operations before provision for taxes on income, for the three and nine months ended October 1, 2017 | $ | 3,585 | $ | 11,351 | ||||
Favorable change in revenues | 130 | 827 | ||||||
Favorable/(unfavorable) changes: | ||||||||
Higher net gains recognized during the period on investments in equity securities(a) | 49 | 349 | ||||||
Impact of net periodic benefit costs/(credits) other than service costs(a) | 93 | 313 | ||||||
Higher income from collaborations, out-licensing arrangements and sales of compound/product rights(a) | 61 | 292 | ||||||
Impact of certain legal matters, net(a) | 146 | 264 | ||||||
Lower certain asset impairments(a) | 131 | 103 | ||||||
Impact of Cost of sales(b) | 149 | (202 | ) | |||||
Impact of Selling, information and administrative expenses(c) | 10 | (198 | ) | |||||
Higher Research and development expenses(d) | (144 | ) | (182 | ) | ||||
Higher Amortization of intangible assets(e) | (76 | ) | (69 | ) | ||||
All other items, net | 43 | (17 | ) | |||||
Income from continuing operations before provision for taxes on income, for the three and nine months ended September 30, 2018 | $ | 4,177 | $ | 12,831 |
(a) | See the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net. |
(b) | See the “Costs and Expenses––Cost of Sales” section of this MD&A. |
(c) | See the “Costs and Expenses––Selling, Informational and Administrative (SI&A) Expenses” section of this MD&A. |
(d) | See the “Costs and Expenses––Research and Development (R&D) Expenses” section of this MD&A. |
(e) | See the “Costs and Expenses––Amortization of Intangible Assets” section of this MD&A. |
We recorded the following amounts as a result of the U.S. Healthcare Legislation: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Reduction to Revenues, related to the Medicare “coverage gap” discount provision | $ | 217 | $ | 157 | $ | 435 | $ | 296 | ||||||||
Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes), based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs. The first nine months of 2018 also reflected a favorable true-up associated with the updated 2017 invoice received from the federal government, which reflected a lower expense than what was previously estimated for invoiced periods. | 43 | 87 | 118 | 218 |
• | Governments, corporations, and insurance companies, which provide insurance benefits to patients, have implemented increases in cost-sharing and restrictions on access to medicines, potentially causing patients to switch to generic or biosimilar products, delay treatments, skip doses or use less effective treatments. Government financing pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria (e.g., through public or private health technology assessments), or other means of cost control. Examples include Europe, Japan, China, Canada, South Korea and a number of other international markets. The U.S. continues to maintain competitive insurance markets, but has also seen significant increases in patient cost-sharing and growing government influence as government programs continue to grow as a source of coverage. |
• | 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 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. |
• | 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. This process continues to be highly complex and the end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU, including the approval and supply of our products. The EMA announced in November 2017 that it will be relocating from London, U.K. to Amsterdam, Netherlands by the expected date of Brexit in March 2019. |
• | On December 22, 2017, the U.S. enacted significant changes to U.S. tax law following the passage and signing of the TCJA. The TCJA is complex and significantly changes the U.S. corporate income tax system by, among other things, reducing the U.S. Federal corporate tax rate from 35% to 21%, transitioning U.S. international taxation from a worldwide tax system to a |
• | a science-based Innovative Medicines business, which will include all of our current Innovative Health medicines and vaccines business units as well as biosimilars and a new Hospital Medicines business unit that will commercialize our global portfolio of sterile injectable and anti-infective medicines; |
• | an off-patent branded and generic Established Medicines business; and |
• | a Consumer Healthcare business, for which we continue to evaluate strategic alternatives, with a decision expected in the fourth quarter of 2018. |
Some additional information about our business segments as of September 30, 2018 follows: | ||||
● | IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare. Key therapeutic areas include internal medicine, vaccines, oncology, inflammation & immunology, rare disease and consumer healthcare. | ● | EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded and generic sterile injectable products, biosimilars, and select branded products including anti-infectives. EH also includes an R&D organization, as well as our contract manufacturing business. Through February 2, 2017, EH also included HIS. | |
● | We expect that the IH biopharmaceutical portfolio of innovative, largely patent-protected, in-line and newly launched products will be sustained by ongoing investments to develop promising assets and targeted business development in areas of focus to help ensure a pipeline of highly-differentiated product candidates in areas of unmet medical need. The assets managed by IH are science-driven, highly differentiated and generally require a high-level of engagement with healthcare providers and consumers. | ● | EH is expected to generate strong consistent cash flow by providing patients around the world with access to effective, lower-cost, high-value treatments. EH leverages our biologic development, regulatory and manufacturing expertise to seek to advance its biosimilar development portfolio. Additionally, EH leverages capabilities in formulation development and manufacturing expertise to help advance its generic sterile injectables portfolio. EH may also engage in targeted business development to further enable its commercial strategies. | |
● | IH will have continued focus on R&D productivity and pipeline strength while maximizing the value of our recently launched brands and in-line portfolio. We have also expanded our pipeline in high priority therapeutic areas such as inflammation and immunology and oncology with select business development transactions. | ● | For EH, we continue to invest in growth drivers and manage the portfolio to extract additional value while seeking opportunities for operating efficiencies. This strategy includes active management of our portfolio; maximizing growth of core product segments; acquisitions to strengthen core areas of our portfolio further, such as our acquisition of AstraZeneca’s small molecule anti-infectives business; and divestitures to increase focus on our core strengths. In line with this strategy, on February 3, 2017, we completed the sale of Pfizer’s global infusion systems net assets, representing the infusion systems net assets that we acquired as part of the Hospira transaction, HIS, to ICU Medical. | |
Leading brands include: - Prevnar 13/Prevenar 13 - Xeljanz - Eliquis - Lyrica (U.S., Japan and certain other markets) - Enbrel (outside the U.S. and Canada) - Ibrance - Xtandi - Several OTC consumer healthcare products (e.g., Advil and Centrum) | Leading brands include: - Lipitor - Norvasc - Lyrica (Europe, Russia, Turkey, Israel and Central Asia countries) - Celebrex - Viagra* - Inflectra/Remsima - Sulperazon - Several other sterile injectable products |
• | delivering a pipeline of differentiated therapies and vaccines with the greatest medical and commercial potential; |
• | advancing our capabilities that can position Pfizer for long-term leadership; and |
• | creating new models for biomedical collaboration that will expedite the pace of innovation and productivity. |
• | Biosimilars; |
• | Inflammation and Immunology; |
• | Internal Medicine; |
• | Oncology; |
• | Rare Diseases; and |
• | Vaccines. |
• | Research Units within our WRD organization are generally responsible for research and early-stage development assets for our IH business (assets that have not yet achieved proof-of-concept). Our Research Units are organized by therapeutic area to enhance flexibility, cohesiveness and focus. Because of our structure, we can rapidly redeploy resources within a Research Unit between various projects as necessary because the workforce shares similar skills, expertise and/or focus. |
• | Our R&D organization within the EH business supports the large base of EH products and is expected to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. |
• | Our GPD organization is a unified center for late-stage development for our innovative products and is generally responsible for the operational execution of clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD is expected to enable more efficient and effective development and enhance our ability to accelerate and progress assets through our pipeline. |
• | Our science-based and other platform-services organizations, where a significant portion of our R&D spending occurs, provide technical expertise and other services to the various R&D projects, and are organized into science-based functions (which are part of our WRD organization), such as Pharmaceutical Sciences, Medicinal Chemistry, Regulatory and Drug Safety, and non-science-based functions, such as Facilities, Business Technology and Finance. As a result, within each of these functions, we are able to migrate resources among projects, candidates and/or targets in any therapeutic area and in most phases of development, allowing us to react quickly in response to evolving needs. |
• | Over the next five years, we plan to invest approximately $5.0 billion in capital projects in the U.S., including the strengthening of our manufacturing presence in the U.S. As part of this plan, in July 2018, we announced that we will increase our commitment to U.S. manufacturing with a $465 million investment to build one of the most technically advanced sterile injectable pharmaceutical production facilities in the world in Portage, Michigan. This U.S. investment will strengthen our capability to produce and supply critical, life-saving injectable medicines for patients around the world. |
• | We made a $500 million voluntary contribution to our U.S. pension plan in February 2018. |
• | In the fourth quarter of 2017, we made a $200 million charitable contribution to the Pfizer Foundation, an organization that provides grant and investment funding to support organizations and social entrepreneurs in an effort to improve healthcare delivery. |
• | In the first quarter of 2018, we paid a special, one-time bonus to virtually all Pfizer colleagues, excluding executives, of $119 million in the aggregate. |
• | Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)––On February 3, 2017, we completed the sale of our global infusion systems net assets, HIS, to ICU Medical. In connection with this transaction, we recognized pre-tax income of $2 million in the third quarter of 2018 and pre-tax income of $1 million in the first nine months of 2018, and we recognized pre-tax income of approximately $12 million in the third quarter of 2017 and a pre-tax loss of approximately $52 million in the first nine months of 2017 in Other (income)/deductions––net, representing adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell. We may record additional adjustments to the loss on the sale of HIS net assets in future periods, which we do not expect to have a material impact on our consolidated financial statements. |
• | Acquisition of AstraZeneca’s Small Molecule Anti-Infectives Business (EH)––On December 22, 2016, which fell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S. The total fair value of the consideration transferred for this business was approximately $555 million in cash plus the fair value of contingent consideration of $485 million. |
• | Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase 3 clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately 12 quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2018 totaled $12.9 million and for the first nine months of 2018 totaled $44.2 million. The reduction to Research and development expenses for the third quarter of 2017 totaled $16.8 million and for the first nine months of 2017 totaled $48.8 million. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total, based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of |
• | Research and Development Arrangement with RPI Finance Trust––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase 3 clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the third quarter of 2018 totaled $27.1 million and for the first nine months of 2018 totaled $78.7 million. The reduction to Research and development expenses for the third quarter of 2017 totaled $27.6 million and for the first nine months of 2017 totaled $54.4 million. If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over approximately seven years. Fixed milestone payments due upon approval will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the Ibrance product and sales-based royalties will be recorded as Cost of sales when incurred. |
• | lower-than-anticipated Essential Health revenues, primarily due to continued legacy Hospira Sterile Injectable Pharmaceuticals (SIP) product shortages in the U.S.; and |
• | recent unfavorable changes in foreign exchange rates in relation to the U.S. dollar from mid-July 2018 to mid-October 2018, primarily the weakening of certain emerging markets currencies and the euro. |
Pfizer’s updated 2018 financial guidance is presented below(a), (b): | |
Revenues | $53.0 to $53.7 billion |
(previously $53.0 to $55.0 billion) | |
Adjusted cost of sales as a percentage of revenues | 20.8% to 21.3% |
(previously 20.5% to 21.5%) | |
Adjusted selling, informational and administrative expenses | $14.0 to $14.5 billion |
(previously $14.0 to $15.0 billion) | |
Adjusted research and development expenses | $7.7 to $8.1 billion |
Adjusted other (income)/deductions | Approximately $1.3 billion of income |
(previously approximately $1.0 billion of income) | |
Effective tax rate on adjusted income | Approximately 16.0% |
Adjusted diluted EPS | $2.98 to $3.02 |
(previously $2.95 to $3.05) |
(a) | The 2018 financial guidance reflects the following: |
• | A full year contribution from Consumer Healthcare. Pfizer continues to expect that any decision regarding strategic alternatives for Consumer Healthcare would be made during the fourth quarter of 2018. |
• | Does not assume the completion of any business development transactions not completed as of September 30, 2018, including any one-time upfront payments associated with such transactions. |
• | Guidance for Adjusted other (income)/deductions does not attempt to forecast unrealized net gains or losses on equity securities. Pfizer is unable to predict with reasonable certainty unrealized gains or losses on equity securities in a given period. Net unrealized gains and losses on equity securities are now recorded in Adjusted other (income)/deductions during each quarter, reflecting the adoption of a new accounting standard in the first quarter of 2018 (see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards). Prior to the adoption of the new standard, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income. |
• | Exchange rates assumed are a blend of the actual exchange rates in effect through third-quarter 2018 and mid-October 2018 exchange rates for the remainder of the year. |
• | Reflects an anticipated negative revenue impact of $1.8 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection. Assumes no generic competition for Lyrica in the U.S. until June 2019, which is contingent upon a six-month patent-term extension granted by the FDA for pediatric exclusivity, which the company is currently pursuing. |
• | Reflects the anticipated favorable impact of approximately $350 million on revenues and approximately $0.02 on adjusted diluted EPS as a result of favorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2017. |
• | Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 6.0 billion shares, which reflects anticipated share repurchases totaling approximately $12.0 billion in 2018, including $9.0 billion of share repurchases already completed through October 30, 2018. Dilution related to share-based employee compensation programs is expected to offset the 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. |
ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
REVENUES AND PRODUCT DEVELOPMENTS | ||||
Revenues by Segment and Geography |
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) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | % Change in Revenues | |||||||||||||||||||||||||
Operating Segments(a): | ||||||||||||||||||||||||||||||||
IH | $ | 8,471 | $ | 8,118 | $ | 4,881 | $ | 4,777 | $ | 3,590 | $ | 3,341 | 4 | 2 | 7 | |||||||||||||||||
EH | 4,826 | 5,050 | 1,480 | 1,756 | 3,347 | 3,294 | (4 | ) | (16 | ) | 2 | |||||||||||||||||||||
Total revenues | $ | 13,298 | $ | 13,168 | $ | 6,361 | $ | 6,534 | $ | 6,937 | $ | 6,634 | 1 | (3 | ) | 5 | ||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||||
Worldwide | U.S. | International | World-wide | U.S. | Inter-national | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | Sep 30, 2018 | Oct 1, 2017 | % Change in Revenues | |||||||||||||||||||||||||
Operating Segments(a): | ||||||||||||||||||||||||||||||||
IH | $ | 24,573 | $ | 23,204 | $ | 14,002 | $ | 13,708 | $ | 10,572 | $ | 9,496 | 6 | 2 | 11 | |||||||||||||||||
EH | 15,097 | 15,639 | 4,859 | 5,808 | 10,238 | 9,831 | (3 | ) | (16 | ) | 4 | |||||||||||||||||||||
Total revenues | $ | 39,670 | $ | 38,843 | $ | 18,861 | $ | 19,516 | $ | 20,810 | $ | 19,327 | 2 | (3 | ) | 8 |
(a) | IH = the Innovative Health segment; and EH = the Essential Health segment. For additional information about each operating segment, see the “Our Strategy––Commercial Operations” and “Analysis of Operating Segment Information” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information. |
The following provides an analysis of the worldwide change in revenues by geographic areas in the third quarter of 2018: | ||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||
(MILLIONS OF DOLLARS) | Worldwide | U.S. | International | |||||||||
Operational growth/(decline): | ||||||||||||
Continued growth from certain key brands(a) | $ | 660 | $ | 287 | $ | 373 | ||||||
Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | 56 | 38 | 18 | |||||||||
Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | 52 | 40 | 12 | |||||||||
Lower revenues for total Viagra(b), primarily in the U.S. due to generic competition that began in December 2017 | (169 | ) | (165 | ) | (4 | ) | ||||||
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH(b)), primarily due to expected declines in Lyrica in developed Europe | (125 | ) | (61 | ) | (64 | ) | ||||||
Decline in the LEP portfolio primarily driven by lower revenues in developed markets | (121 | ) | (180 | ) | 59 | |||||||
Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | (65 | ) | — | (65 | ) | |||||||
Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | (28 | ) | (58 | ) | 31 | |||||||
Other operational factors, net | (18 | ) | (73 | ) | 55 | |||||||
Operational growth/(decline), net | 243 | (173 | ) | 415 | ||||||||
Unfavorable impact of foreign exchange | (113 | ) | — | (113 | ) | |||||||
Revenues increase/(decrease) | $ | 130 | $ | (173 | ) | $ | 302 |
(a) | Certain key brands represent Eliquis, Ibrance, Prevnar 13/Prevenar 13, Xeljanz and Xtandi. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this MD&A for product analysis information. |
(b) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
The following provides an analysis of the change in worldwide revenues by geographic areas in the first nine months of 2018: | ||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||
(MILLIONS OF DOLLARS) | Worldwide | U.S. | International | |||||||||
Operational growth/(decline): | ||||||||||||
Continued growth from certain key brands(a) | $ | 1,835 | $ | 822 | $ | 1,013 | ||||||
Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | 172 | 145 | 27 | |||||||||
Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | 165 | 115 | 50 | |||||||||
Lower revenues for total Viagra(b), primarily in the U.S. due to generic competition that began in December 2017 | (495 | ) | (491 | ) | (4 | ) | ||||||
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH(b)), primarily due to expected declines in Lyrica in developed Europe and Pristiq in the U.S. due to generic competition | (463 | ) | (156 | ) | (307 | ) | ||||||
Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | (419 | ) | (480 | ) | 61 | |||||||
Decline in the LEP portfolio, primarily driven by lower revenues in developed markets | (314 | ) | (460 | ) | 145 | |||||||
Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | (279 | ) | — | (279 | ) | |||||||
Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017 | (97 | ) | (64 | ) | (33 | ) | ||||||
Other operational factors, net | 29 | (88 | ) | 117 | ||||||||
Operational growth/(decline), net | 134 | (655 | ) | 790 | ||||||||
Favorable impact of foreign exchange | 693 | — | 693 | |||||||||
Revenues increase/(decrease) | $ | 827 | $ | (655 | ) | $ | 1,483 |
(a) | Certain key brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13, Xtandi and Chantix/Champix. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this MD&A for product analysis information. |
(b) | Viagra lost exclusivity in the U.S. in December 2017. Beginning in 2018, revenues for Viagra in the U.S. and Canada, which were reported in IH through 2017, are reported in EH (which reported all other Viagra revenues excluding the U.S. and Canada through 2017). Therefore, beginning in 2018, total Viagra revenues are reported in EH. Total Viagra revenues in 2017 represent the aggregate of worldwide revenues from Viagra IH and Viagra EH. |
The following table provides information about revenue deductions: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Medicare rebates(a) | $ | 443 | $ | 355 | $ | 1,266 | $ | 931 | ||||||||
Medicaid and related state program rebates(a) | 502 | 439 | 1,500 | 1,335 | ||||||||||||
Performance-based contract rebates(a), (b) | 854 | 773 | 2,467 | 2,321 | ||||||||||||
Chargebacks(c) | 1,654 | 1,608 | 4,850 | 4,585 | ||||||||||||
Sales allowances(d) | 1,448 | 1,419 | 4,142 | 3,718 | ||||||||||||
Sales returns and cash discounts | 358 | 329 | 1,067 | 1,025 | ||||||||||||
Total(e) | $ | 5,259 | $ | 4,923 | $ | 15,292 | $ | 13,916 |
(a) | Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold. |
(b) | Performance-based contract rebates include contract rebates with MCOs within the U.S., including health maintenance organizations and PBMs, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones. |
(c) | Chargebacks primarily represent reimbursements to U.S. wholesalers for honoring contracted prices to third parties. |
(d) | Sales allowances primarily represent price reductions that are contractual or legislatively mandated outside the U.S., discounts and distribution fees. |
(e) | For the three months ended September 30, 2018, associated with the following segments: IH ($2.3 billion) and EH ($2.9 billion). For the three months ended October 1, 2017, associated with the following segments: IH ($2.4 billion); and EH ($2.5 billion). For the nine months ended September 30, 2018, associated with the following segments: IH ($6.5 billion) and EH ($8.8 billion). For the nine months ended October 1, 2017, associated with the following segments: IH ($6.4 billion) and EH ($7.5 billion). |
• | an increase in sales allowances as a result of sales growth, primarily in international markets; |
• | an increase in Medicare rebates driven by increased sales of IH products through this channel; |
• | higher chargebacks to U.S. wholesalers on certain IH and EH products, partially offset by decreases in chargebacks as a result of decreases in sales of sterile injectable products; and |
• | an increase in Medicaid and related state program rebates, primarily as a result of increased sales of IH products through these programs. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 1,089 | $ | 971 | 12 | $ | 2,597 | $ | 2,554 | 2 | ||||||||||||||
International | 571 | 551 | 4 | 6 | 1,694 | 1,515 | 12 | 10 | ||||||||||||||||
Worldwide revenues | $ | 1,660 | $ | 1,522 | 9 | 10 | $ | 4,290 | $ | 4,069 | 5 | 5 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 875 | $ | 877 | — | $ | 2,643 | $ | 2,602 | 2 | ||||||||||||||||||
International | 338 | 408 | (17 | ) | (17 | ) | 1,006 | 1,208 | (17 | ) | (19 | ) | ||||||||||||||||
Worldwide revenues | $ | 1,213 | $ | 1,285 | (6 | ) | (5 | ) | $ | 3,649 | $ | 3,810 | (4 | ) | (5 | ) |
The following table provides worldwide revenues for Lyrica in our IH segment, by geography: | ||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 875 | $ | 877 | — | $ | 2,643 | $ | 2,602 | 2 | ||||||||||||||||||
International | 257 | 274 | (6 | ) | (6 | ) | 755 | 779 | (3 | ) | (5 | ) | ||||||||||||||||
Worldwide revenues | $ | 1,132 | $ | 1,150 | (2 | ) | (2 | ) | $ | 3,398 | $ | 3,382 | — | — |
The following table provides worldwide revenues for Lyrica in our EH segment, by geography: | ||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | — | $ | — | — | $ | — | $ | — | — | ||||||||||||||||||
International | 81 | 134 | (40 | ) | (39 | ) | 251 | 428 | (41 | ) | (45 | ) | ||||||||||||||||
Worldwide revenues | $ | 81 | $ | 134 | (40 | ) | (39 | ) | $ | 251 | $ | 428 | (41 | ) | (45 | ) |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
% Change | % Change | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | |||||||||||||||||
U.S. | $ | 708 | $ | 713 | (1 | ) | $ | 2,178 | $ | 2,048 | 6 | ||||||||||||||
International | 317 | 165 | 93 | 98 | 807 | 362 | * | * | |||||||||||||||||
Worldwide revenues | $ | 1,025 | $ | 878 | 17 | 18 | $ | 2,985 | $ | 2,410 | 24 | 23 |
• | Eliquis alliance revenues and direct sales (IH): Eliquis has been jointly developed and is commercialized by Pfizer and BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis, except in certain countries where Pfizer commercializes Eliquis and pays BMS compensation based on a percentage of net sales. We have full commercialization rights in certain smaller markets. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the Novel Oral Anticoagulant (NOAC) market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 455 | $ | 352 | 29 | $ | 1,371 | $ | 1,041 | 32 | ||||||||||||||
International | 416 | 291 | 43 | 44 | 1,153 | 772 | 49 | 42 | ||||||||||||||||
Worldwide revenues | $ | 870 | $ | 644 | 35 | 36 | $ | 2,524 | $ | 1,813 | 39 | 36 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||
U.S. | $ | 25 | $ | 60 | (58 | ) | $ | 86 | $ | 125 | (32 | ) | ||||||||||||||
International | 482 | 431 | 12 | 11 | 1,453 | 1,215 | 20 | 14 | ||||||||||||||||||
Worldwide revenues | $ | 507 | $ | 491 | 3 | 3 | $ | 1,539 | $ | 1,341 | 15 | 10 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | — | $ | — | — | $ | — | $ | — | — | ||||||||||||||||||
International | 531 | 613 | (13 | ) | (11 | ) | 1,589 | 1,818 | (13 | ) | (15 | ) | ||||||||||||||||
Worldwide revenues | $ | 531 | $ | 613 | (13 | ) | (11 | ) | $ | 1,589 | $ | 1,818 | (13 | ) | (15 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 332 | $ | 291 | 14 | $ | 964 | $ | 793 | 22 | ||||||||||||||
International | 100 | 57 | 76 | 84 | 256 | 142 | 81 | 81 | ||||||||||||||||
Worldwide revenues | $ | 432 | $ | 348 | 24 | 26 | $ | 1,221 | $ | 935 | 31 | 31 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 80 | $ | 87 | (7 | ) | $ | 262 | $ | 277 | (6 | ) | ||||||||||||||||
International | 168 | 189 | (11 | ) | (9 | ) | 524 | 527 | (1 | ) | (5 | ) | ||||||||||||||||
Worldwide revenues | $ | 248 | $ | 276 | (10 | ) | (9 | ) | $ | 785 | $ | 805 | (2 | ) | (5 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||
U.S. | $ | 9 | $ | 9 | (2 | ) | $ | 27 | $ | 28 | (4 | ) | ||||||||||||||
International | 238 | 217 | 10 | 10 | 745 | 656 | 14 | 9 | ||||||||||||||||||
Worldwide revenues | $ | 247 | $ | 226 | 9 | 10 | $ | 773 | $ | 684 | 13 | 9 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
% Change | % Change | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | |||||||||||||||||
U.S. | $ | 197 | $ | 180 | 10 | $ | 602 | $ | 542 | 11 | |||||||||||||||
International | 64 | 60 | 6 | 7 | 187 | 184 | 2 | (2 | ) | ||||||||||||||||
Worldwide revenues | $ | 261 | $ | 240 | 9 | 9 | $ | 789 | $ | 727 | 9 | 8 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 191 | $ | 224 | (15 | ) | $ | 569 | $ | 670 | (15 | ) | ||||||||||||||||
International | 12 | 14 | (14 | ) | (12 | ) | 36 | 41 | (13 | ) | (14 | ) | ||||||||||||||||
Worldwide revenues | $ | 204 | $ | 238 | (15 | ) | (15 | ) | $ | 605 | $ | 711 | (15 | ) | (15 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 32 | $ | 198 | (84 | ) | $ | 196 | $ | 687 | (71 | ) | ||||||||||||||||
International | 105 | 111 | (5 | ) | (3 | ) | 313 | 309 | 1 | (1 | ) | |||||||||||||||||
Worldwide revenues | $ | 137 | $ | 308 | (55 | ) | (55 | ) | $ | 509 | $ | 996 | (49 | ) | (50 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | — | $ | — | — | $ | — | $ | — | — | ||||||||||||||
International | 145 | 114 | 28 | 26 | 464 | 345 | 34 | 28 | ||||||||||||||||
Worldwide revenues | $ | 145 | $ | 114 | 28 | 26 | $ | 464 | $ | 345 | 34 | 28 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 180 | $ | 150 | 20 | $ | 510 | $ | 422 | 21 | ||||||||||||||
International | — | — | — | — | — | — | — | — | ||||||||||||||||
Worldwide revenues | $ | 180 | $ | 150 | 20 | 20 | $ | 510 | $ | 422 | 21 | 21 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 34 | $ | 49 | (31 | ) | $ | 118 | $ | 170 | (31 | ) | ||||||||||||||||
International | 93 | 96 | (4 | ) | (2 | ) | 299 | 272 | 10 | 5 | ||||||||||||||||||
Worldwide revenues | $ | 127 | $ | 146 | (13 | ) | (12 | ) | $ | 417 | $ | 442 | (6 | ) | (9 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 16 | $ | 61 | (73 | ) | $ | 50 | $ | 117 | (57 | ) | ||||||||||||||||
International | 171 | 150 | 14 | 14 | 444 | 448 | (1 | ) | (4 | ) | ||||||||||||||||||
Worldwide revenues | $ | 188 | $ | 212 | (11 | ) | (11 | ) | $ | 494 | $ | 564 | (12 | ) | (15 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 71 | $ | 34 | * | $ | 189 | $ | 74 | * | ||||||||||||||
International | 95 | 78 | 22 | 22 | 280 | 210 | 33 | 24 | ||||||||||||||||
Worldwide revenues | $ | 166 | $ | 112 | 48 | 48 | $ | 469 | $ | 284 | 65 | 58 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||||||
U.S. | $ | 27 | $ | 30 | (10 | ) | $ | 88 | $ | 95 | (7 | ) | ||||||||||||||||
International | 44 | 53 | (18 | ) | (15 | ) | 138 | 161 | (14 | ) | (16 | ) | ||||||||||||||||
Worldwide revenues | $ | 71 | $ | 84 | (15 | ) | (13 | ) | $ | 226 | $ | 256 | (12 | ) | (13 | ) |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 40 | $ | 15 | * | $ | 104 | $ | 33 | * | ||||||||||||||
International | — | — | — | — | — | — | — | — | ||||||||||||||||
Worldwide revenues | $ | 40 | $ | 15 | * | * | $ | 104 | $ | 33 | * | * |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | Total | Oper. | September 30, 2018 | October 1, 2017 | Total | Oper. | ||||||||||||||||
U.S. | $ | 642 | $ | 507 | 26 | $ | 1,901 | $ | 1,487 | 28 | ||||||||||||||
International | 336 | 234 | 44 | 43 | 919 | 624 | 47 | 39 | ||||||||||||||||
Worldwide revenues | $ | 977 | $ | 741 | 32 | 32 | $ | 2,820 | $ | 2,112 | 34 | 31 |
◦ | Bavencio (IH) is being developed and commercialized in collaboration with Merck KGaA. Both companies jointly fund all development and commercialization costs, and split equally any profits generated from selling any anti-PD-L1 or anti-PD-1 products from this collaboration. Bavencio is currently approved in metastatic MCC in the U.S., Europe, Japan, and selected other markets, as well as in second line treatment of locally advanced or metastatic urothelial carcinoma in the U.S. |
RECENT FDA APPROVALS | ||
PRODUCT | INDICATION | DATE APPROVED |
Lorbrena (lorlatinib) | Treatment of patients with ALK-positive metastatic NSCLC whose disease has progressed on crizotinib and at least one other ALK inhibitor for metastatic disease; or whose disease has progressed on alectinib or ceritinib as the first ALK inhibitor therapy for metastatic disease | November 2018 |
Talzenna (talazoparib) | Treatment of adult patients with deleterious or suspected deleterious germline BRCA-mutated (gBRCAm) human epidermal growth factor receptor 2 (HER2)-negative locally advanced or metastatic breast cancer | October 2018 |
Vizimpro (dacomitinib) | First-line treatment of patients with metastatic non-small cell lung cancer with epidermal growth factor receptor exon 19 deletion or exon 21 L858R substitution mutations as detected by an FDA-approved test, which is being developed in collaboration with SFJ | September 2018 |
Nivestym (filgrastim-aafi)(a) | A biosimilar to Neupogen® (filgrastim) for all eligible indications of the reference product | July 2018 |
Xtandi (enzalutamide) | Treatment of men with non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas | July 2018 |
Xeljanz (tofacitinib) | Treatment of adult patients with moderately to severely active ulcerative colitis | May 2018 |
Retacrit (epoetin alfa-epbx)(b) | A biosimilar to Epogen® and Procrit® (epoetin alfa) for all indications of the reference product | May 2018 |
Steglatro (ertugliflozin) | An adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus, which is being developed in collaboration with Merck | December 2017 |
Segluromet (ertugliflozin and metformin) | An adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus who are not adequately controlled on a regimen containing ertugliflozin or metformin, or in patients who are already treated with both ertugliflozin and metformin, which is being developed in collaboration with Merck | December 2017 |
Steglujan (ertugliflozin and sitagliptin) | An adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus when treatment with both ertugliflozin and sitagliptin is appropriate, which is being developed in collaboration with Merck | December 2017 |
Bosulif (bosutinib) | Treatment of adult patients with newly-diagnosed chronic phase Philadelphia chromosome-positive Ph+ CML, which is being developed in collaboration with Avillion | December 2017 |
Xeljanz (tofacitinib) and Xeljanz XR | Xeljanz 5 mg twice daily and Xeljanz XR extended release 11 mg once daily for the treatment of adult patients with active psoriatic arthritis who have had an inadequate response or intolerance to methotrexate or other disease-modifying antirheumatic drugs | December 2017 |
Sutent (sunitinib) | Adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma following nephrectomy (surgical removal of the cancerous kidney) | November 2017 |
(a) | Neupogen® is a registered trademark of Amgen Inc. |
(b) | Epogen® is a registered U.S. trademark of Amgen Inc.; Procrit® is a registered U.S. trademark of J&J. |
PENDING U.S. NDAs AND SUPPLEMENTAL FILINGS | ||
PRODUCT | PROPOSED INDICATION | DATE FILED* |
PF-05280586(a) | A potential biosimilar to Rituxan® (rituximab) | September 2018 |
PF-06439535(b) | A potential biosimilar to Avastin® (bevacizumab) | August 2018 |
glasdegib | Treatment of adult patients with previously untreated acute myeloid leukemia in combination with low-dose cytarabine, a type of chemotherapy | June 2018 |
PF-05280014(c) | A potential biosimilar to Herceptin® (trastuzumab) | August 2017 |
tafamidis meglumine(d) | Treatment of transthyretin familial amyloid polyneuropathy | February 2012 |
* | The dates set forth in this column are the dates on which the FDA accepted our submissions. |
(a) | Rituxan® is a registered trademark of Biogen MA Inc. |
(b) | Avastin® is a registered trademark of Genentech, Inc. |
(c) | Herceptin® is a registered trademark of Genentech, Inc. In April 2018, we received a “complete response” letter from the FDA with respect to our biologics license application (BLA) for PF-05280014, our proposed biosimilar to trastuzumab, which was submitted for all indications of the reference product. The FDA highlighted the need for additional technical information, which does not relate to safety or clinical data submitted in the application. In October 2018, the FDA acknowledged for review our BLA resubmission. |
(d) | In May 2012, the FDA’s Peripheral and Central Nervous System Drugs Advisory Committee voted that the tafamidis meglumine data provide substantial evidence of efficacy for a surrogate endpoint that is reasonably likely to predict a clinical benefit. In June 2012, the FDA issued a “complete response” letter with respect to the tafamidis NDA. The FDA has requested the completion of a second efficacy study, and also has asked for additional information on the data within the current tafamidis NDA. Pfizer has completed study B3461028, a global Phase 3 study to support a potential new indication in transthyretin cardiomyopathy, which includes patients with wild type and variant transthyretin. This study has achieved its primary endpoint, and we are working with the FDA to identify next steps. |
REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN | |||
PRODUCT | DESCRIPTION OF EVENT | DATE APPROVED | DATE FILED* |
Vyndaqel (tafamidis meglumine) | Application filed in Japan for treatment of transthyretin amyloid cardiomyopathy (ATTR-CM) | — | November 2018 |
Xtandi (enzalutamide) | Application approved in the EU for treatment of adult men with high-risk non-metastatic castration-resistant prostate cancer, which is being developed through a collaboration with Astellas | October 2018 | — |
Trastuzumab BS for I.V. Infusion 60mg/150mg “Pfizer”(a) | Application approved in Japan for a biosimilar to Herceptin® (trastuzumab) | September 2018 | — |
Lorbrena (lorlatinib) | Application approved in Japan for the treatment of patients with ALK-positive metastatic non-small cell lung cancer, previously treated with one or more ALK inhibitor | September 2018 | — |
PF-05280586(b) | Application filed in the EU for a potential biosimilar to Rituxan® (rituximab) | — | August 2018 |
Xeljanz (tofacitinib) | Application approved in the EU for the treatment of adult patients with moderately to severely active ulcerative colitis who have had an inadequate response, lost response, or were intolerant to either conventional therapy or a biologic agent | July 2018 | — |
Trazimera(a) | Application approved in the EU for a biosimilar to Herceptin® (trastuzumab) for the treatment of human epidermal growth factor (HER2) overexpressing breast cancer and HER2 overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma | July 2018 | — |
Infliximab BS for I.V. Infusion 100mg “Pfizer”(c) | Application approved in Japan for a biosimilar to Remicade® (infliximab) | July 2018 | — |
Xeljanz (tofacitinib) | Application approved in the EU for Xeljanz in combination with methotrexate for the treatment of active psoriatic arthritis in adult patients who have had an inadequate response or who have been intolerant to a prior disease-modifying antirheumatic drug therapy | June 2018 | — |
talazoparib | Application filed in the EU for the treatment of patients with germline BRCA-mutated advanced breast cancer | — | June 2018 |
Xeljanz (tofacitinib) | Application approved in Japan for the treatment of ulcerative colitis | May 2018 | — |
dacomitinib | Application filed in Japan for the treatment of patients with locally advanced or metastatic non-small cell lung cancer with epidermal growth factor receptor (EGFR) mutations, which is being developed in collaboration with SFJ | — | May 2018 |
crisaborole | Application filed in the EU for the treatment of mild-to-moderate atopic dermatitis | — | May 2018 |
Mylotarg (gemtuzumab ozogamicin) | Application approved in the EU for treatment of patients age 15 years and above with previously untreated, de novo, CD33-positive acute myeloid leukemia, except acute promyelocytic leukemia | April 2018 | — |
Bosulif (bosutinib) | Application approved in the EU for the treatment of adults with newly diagnosed chronic phase Philadelphia chromosome-positive chronic myelogenous leukemia (Ph+ CML), which is being developed in collaboration with Avillion | April 2018 | — |
dacomitinib | Application filed in the EU for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer with EGFR activating mutations, which is being developed in collaboration with SFJ | — | March 2018 |
Steglatro (ertugliflozin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: • as monotherapy in patients for whom the use of metformin is considered inappropriate due to intolerance or contraindications; and• in addition to other medicinal products for the treatment of diabetes, which is being developed in collaboration with Merck | March 2018 | — |
Segluromet (ertugliflozin and metformin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: • in patients not adequately controlled on their maximally tolerated dose of metformin alone;• in patients on their maximally tolerated doses of metformin in addition to other medicinal products for the treatment of diabetes; and• in patients already being treated with the combination of ertugliflozin and metformin as separate tablets, which is being developed in collaboration with Merck | March 2018 | — |
Steglujan (ertugliflozin and sitagliptin) | Approval in the EU as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus: • when metformin and/or a sulphonylurea (SU) and one of the monocomponents of Steglujan do not provide adequate glycaemic control; and • in patients already being treated with the combination of ertugliflozin and sitagliptin as separate tablets, which is being developed in collaboration with Merck | March 2018 | — |
PF-06439535(d) | Application filed in the EU for a potential biosimilar to Avastin® (bevacizumab) | — | March 2018 |
Xeljanz (tofacitinib) | Application filed in the EU for modified release 11mg tablet for rheumatoid arthritis | — | March 2018 |
lorlatinib (PF-06463922) | Application filed in the EU for the treatment of patients with ALK-positive metastatic non-small cell lung cancer, previously treated with one or more ALK inhibitors | — | February 2018 |
Besponsa (inotuzumab ozogamicin) | Approval in Japan for the treatment of relapsed or refractory CD 22- positive acute lymphoblastic leukemia | January 2018 | — |
* | For applications in the EU, the dates set forth in this column are the dates on which the EMA validated our submissions. |
(a) | Herceptin® is a registered trademark of Genentech, Inc. |
(b) | Rituxan® is a registered trademark of Biogen MA Inc. |
(c) | Remicade® is a registered Japan trademark of Janssen. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade® (infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization rights to PF-06438179 in all countries outside of the EEA. |
(d) | Avastin® is a registered trademark of Genentech, Inc. |
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS | |
PRODUCT | PROPOSED INDICATION |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1, in combination with Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of advanced renal cell carcinoma, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1, in combination with talazoparib in patients with previously untreated advanced ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for the first-line treatment of stage IIIb/IV non-small cell lung cancer, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab)(a) | A monoclonal antibody that inhibits PD-L1 for treatment of stage IIIb/IV non-small cell lung cancer that has progressed after a platinum-containing doublet, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for treatment of platinum-resistant/refractory ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for the first-line treatment of ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for maintenance treatment, in the first-line setting, for patients with urothelial cancer, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for maintenance treatment of advanced or metastatic gastric/ gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany |
Bavencio (avelumab) | A monoclonal antibody that inhibits PD-L1 for treatment of locally advanced squamous cell carcinoma of the head and neck, which is being developed in collaboration with Merck KGaA, Germany |
Ibrance (palbociclib) | Treatment of HER2+ advanced breast cancer, in collaboration with the Alliance Foundation Trials, LLC |
Ibrance (palbociclib) | Treatment of high-risk early breast cancer, in collaboration with the German Breast Group |
Ibrance (palbociclib) | Treatment of HR+ early breast cancer, in collaboration with the Alliance Foundation Trials, LLC, and the Austrian Breast Colorectal Cancer Study Group |
Xeljanz (tofacitinib) | Treatment of ankylosing spondylitis |
Xtandi (enzalutamide) | Treatment of non-metastatic high risk hormone-sensitive prostate cancer, which is being developed through a collaboration with Astellas |
Xtandi (enzalutamide) | Treatment of metastatic hormone-sensitive prostate cancer, which is being developed through a collaboration with Astellas |
Vyndaqel (tafamidis meglumine) | Adult symptomatic transthyretin cardiomyopathy (ex-Japan) |
(a) | In February 2018, we and our partner Merck KGaA, Darmstadt, Germany, announced that the Bavencio Phase 3 trial in second-line NSCLC did not meet its pre-specified primary endpoint. We are continuing to further evaluate the detailed results. |
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT | |
CANDIDATE | PROPOSED INDICATION |
glasdegib (PF-0444913) | A smoothened inhibitor for the treatment of acute myeloid leukemia |
lorlatinib (PF-06463922) | A next generation ALK/ROS1 tyrosine kinase inhibitor for the first-line treatment of patients with ALK-positive advanced non-small cell lung cancer |
fidanacogene elaparvovec (PF-06838435) | An investigational gene therapy for the treatment of hemophilia B |
PF-04965842 | A Janus kinase 1 (JAK1) inhibitor for the treatment of moderate-to-severe atopic dermatitis |
PF-06425090 | A prophylactic vaccine for active immunization to prevent clostridium difficile colitis |
PF-06410293(a) | A potential biosimilar to Humira® (adalimumab) |
rivipansel (GMI-1070) | A pan-selectin inhibitor for the treatment of vaso-occlusive crisis in hospitalized individuals with sickle cell disease, which was licensed from GlycoMimetics Inc. |
somatrogon (PF-06836922) | A long-acting hGH-CTP for the treatment of growth hormone deficiency in children, which is being developed in collaboration with OPKO |
somatrogon (PF-06836922) | A long-acting hGH-CTP for the treatment of growth hormone deficiency in adults, which is being developed in collaboration with OPKO |
talazoparib (MDV3800) | An oral PARP inhibitor for the treatment of metastatic castration-resistant prostate cancer |
tanezumab | An anti-nerve growth factor monoclonal antibody for the treatment of pain, which is being developed in collaboration with Lilly |
(a) | Humira® is a registered trademark of AbbVie Biotechnology Ltd. |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | |||||||||||||||
Cost of sales | $ | 2,694 | $ | 2,844 | (5 | ) | $ | 8,173 | $ | 7,972 | 3 | ||||||||||
As a percentage of Revenues | 20.3 | % | 21.6 | % | 20.6 | % | 20.5 | % |
• | the favorable impact of foreign exchange of $212 million and the favorable impact of hedging activity on intercompany inventory of $18 million; |
• | lower volumes driven by the SIP portfolio, primarily due to legacy Hospira product shortages in the U.S., as well as generic competition in developed markets; and |
• | the non-recurrence of $55 million in inventory losses, overhead costs, and incremental costs related to the period in 2017 during which our Puerto Rico plants were not operational due to hurricanes, |
• | increased sales volumes for various key products within our product portfolio; |
• | higher costs across the SIP portfolio, as a result of the complexity of high quality product manufacture across the legacy Hospira plants; and |
• | an increase in royalty expenses based on the mix of products sold. |
• | the unfavorable impact of foreign exchange of $157 million and the unfavorable impact of hedging activity on intercompany inventory of $114 million; |
• | increased sales volumes for various key products within our product portfolio; and |
• | an increase in royalty expenses based on the mix of products sold, |
• | lower volumes driven by the SIP portfolio, primarily due to legacy Hospira product shortages in the U.S., as well as generic competition in developed markets; |
• | the non-recurrence of $55 million in inventory losses, overhead costs, and incremental costs related to the period in 2017 during which our Puerto Rico plants were not operational due to hurricanes; and |
• | the non-recurrence of charges related to a product recall that occurred in 2017. |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | |||||||||||||||
Selling, informational and administrative expenses | $ | 3,494 | $ | 3,504 | — | $ | 10,448 | $ | 10,249 | 2 | |||||||||||
As a percentage of Revenues | 26.3 | % | 26.6 | % | 26.3 | % | 26.4 | % |
• | lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives; |
• | lower general and administrative expenses; |
• | lower healthcare reform expenses as a result of a true up of the prior year amount; and |
• | the favorable impact of foreign exchange of $24 million, |
• | additional investment across several of our key products, primarily Xeljanz, Eucrisa, Eliquis and Prevnar 13/Prevenar 13 (pediatric indication); and |
• | additional investments in China. |
• | additional investment across several of our key products, primarily Xeljanz, Eucrisa, Ibrance, Prevnar 13/Prevenar 13 (pediatric indication) and Eliquis; |
• | the unfavorable impact of foreign exchange of $152 million; |
• | a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, of $119 million, in the aggregate, in the first quarter of 2018; and |
• | additional investments in China, |
• | lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives; |
• | lower general and administrative expenses; |
• | lower healthcare reform expenses as a result of a true up of the prior year amount; and |
• | decreased investment in Enbrel due to loss of exclusivity across developed Europe. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||
Research and development expenses | $ | 2,008 | $ | 1,865 | 8 | $ | 5,549 | $ | 5,367 | 3 | ||||||||||
As a percentage of Revenues | 15.1 | % | 14.2 | % | 14.0 | % | 13.8 | % |
• | increased costs associated with: |
– | our Oncology portfolio, including costs associated with Bavencio studies; |
– | our Phase 3 clinical trial related to our JAK1 inhibitor (which was initiated in December 2017), as well as, in the first nine months of 2018, our Phase 3 clinical trial related to the C. difficile vaccine program (which was initiated in March 2017); |
• | an increase in the value of the portfolio performance share grants reflecting changes in the price of Pfizer’s common stock, as well as management’s assessment of the probability that the specified performance criteria will be achieved; |
• | decreased spending for biosimilars as several programs have reached completion; |
• | lower costs due to the completion of certain tanezumab studies; |
• | the phase out of the Lyrica clinical studies; and |
• | the impact of our decision to end internal neuroscience discovery and early development efforts. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||
Amortization of intangible assets | $ | 1,253 | $ | 1,177 | 6 | $ | 3,640 | $ | 3,571 | 2 | ||||||||||
As a percentage of Revenues | 9.4 | % | 8.9 | % | 9.2 | % | 9.2 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | Sep 30, 2018 | Oct 1, 2017 | % Change | Sep 30, 2018 | Oct 1, 2017 | % Change | ||||||||||||||||
Restructuring charges—acquisition-related costs(a) | $ | 24 | $ | 70 | (66 | ) | $ | 5 | $ | 80 | (94 | ) | ||||||||||
Restructuring credits—cost reduction initiatives(b) | (22 | ) | (15 | ) | 54 | (37 | ) | (52 | ) | (29 | ) | |||||||||||
Restructuring charges/(credits) | 1 | 56 | (98 | ) | (32 | ) | 28 | * | ||||||||||||||
Transaction costs(c) | 1 | (14 | ) | * | 1 | 4 | (59 | ) | ||||||||||||||
Integration costs(c) | 82 | 73 | 13 | 202 | 235 | (14 | ) | |||||||||||||||
Restructuring charges and certain acquisition-related costs | 85 | 114 | (26 | ) | 172 | 267 | (36 | ) | ||||||||||||||
Net periodic benefit costs(d) | 41 | 35 | 16 | 103 | 110 | (7 | ) | |||||||||||||||
Additional depreciation—asset restructuring | 12 | 39 | (69 | ) | 43 | 74 | (42 | ) | ||||||||||||||
Total implementation costs | 48 | 57 | (16 | ) | 130 | 150 | (13 | ) | ||||||||||||||
Costs associated with acquisitions and cost-reduction/productivity initiatives(e) | $ | 186 | $ | 245 | (24 | ) | $ | 447 | $ | 601 | (26 | ) | ||||||||||
* Calculation not meaningful or results are equal to or greater than 100%. |
(a) | Restructuring charges––acquisition-related costs include employee termination costs, asset impairments and other exit costs associated with business combinations. Charges for the third quarter of 2018 were primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, and charges for the first nine months of 2018 were primarily due to asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira. Restructuring charges for the third quarter and first nine months of 2017 were mainly related to our acquisitions of Hospira and Medivation. |
(b) | Restructuring credits––cost reduction initiatives relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions. For the third quarter and first nine months of 2018 and 2017, the credits are mostly related to the reversal of previously recorded accruals for employee termination costs. |
(c) | For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
(d) | For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards and Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
(e) | Comprises Restructuring charges and certain acquisition-related costs as well as costs associated with our cost-reduction/productivity initiatives included in Cost of sales, Research and development expenses, Selling, informational and administrative expenses and/or Other (income)/deductions––net as appropriate. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||
Other (income)/deductions––net | $ | (414 | ) | $ | 79 | * | $ | (1,143 | ) | $ | 65 | * | ||||||||
* Calculation not meaningful or results are equal to or greater than 100%. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | September 30, 2018 | October 1, 2017 | % Change | ||||||||||||||||
Provision for taxes on income | $ | 66 | $ | 727 | (91 | ) | $ | 1,270 | $ | 2,287 | (44 | ) | ||||||||||
Effective tax rate on continuing operations | 1.6 | % | 20.3 | % | 9.9 | % | 20.1 | % |
• | senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income and Adjusted diluted earnings per share basis; |
• | our annual budgets are prepared on an Adjusted income and Adjusted diluted earnings per share basis; and |
• | senior management’s annual compensation is derived, in part, using Adjusted income and Adjusted diluted earnings per share measures. |
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 13,298 | $ | — | $ | — | $ | — | $ | — | $ | 13,298 | ||||||||||||
Cost of sales | 2,694 | 1 | (3 | ) | — | (19 | ) | 2,673 | ||||||||||||||||
Selling, informational and administrative expenses | 3,494 | — | — | — | (23 | ) | 3,471 | |||||||||||||||||
Research and development expenses | 2,008 | 1 | — | — | (11 | ) | 1,998 | |||||||||||||||||
Amortization of intangible assets | 1,253 | (1,182 | ) | — | — | — | 71 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 85 | — | (107 | ) | — | 22 | — | |||||||||||||||||
Other (income)/deductions––net | (414 | ) | (130 | ) | (2 | ) | — | 244 | (302 | ) | ||||||||||||||
Income from continuing operations before provision for taxes on income | 4,177 | 1,309 | 112 | — | (213 | ) | 5,386 | |||||||||||||||||
Provision for taxes on income(b) | 66 | 263 | 21 | — | 367 | 716 | ||||||||||||||||||
Income from continuing operations | 4,111 | 1,047 | 91 | — | (580 | ) | 4,669 | |||||||||||||||||
Discontinued operations––net of tax | 11 | — | — | (11 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 8 | — | — | — | — | 8 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 4,114 | 1,047 | 91 | (11 | ) | (580 | ) | 4,661 | ||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.69 | 0.17 | 0.02 | — | (0.10 | ) | 0.78 |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 39,670 | $ | — | $ | — | $ | — | $ | — | $ | 39,670 | ||||||||||||
Cost of sales | 8,173 | (2 | ) | (9 | ) | — | (77 | ) | 8,086 | |||||||||||||||
Selling, informational and administrative expenses | 10,448 | 1 | — | — | (185 | ) | 10,264 | |||||||||||||||||
Research and development expenses | 5,549 | 3 | — | — | (26 | ) | 5,526 | |||||||||||||||||
Amortization of intangible assets | 3,640 | (3,428 | ) | — | — | — | 212 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 172 | — | (209 | ) | — | 37 | — | |||||||||||||||||
Other (income)/deductions––net | (1,143 | ) | (238 | ) | (4 | ) | — | 242 | (1,143 | ) | ||||||||||||||
Income from continuing operations before provision for taxes on income | 12,831 | 3,665 | 221 | — | 8 | 16,725 | ||||||||||||||||||
Provision for taxes on income(b) | 1,270 | 735 | 40 | — | 500 | 2,544 | ||||||||||||||||||
Income from continuing operations | 11,562 | 2,930 | 182 | — | (492 | ) | 14,181 | |||||||||||||||||
Discontinued operations––net of tax | 10 | — | — | (10 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 25 | — | — | — | — | 25 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 11,546 | 2,930 | 182 | (10 | ) | (492 | ) | 14,156 | ||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 1.92 | 0.49 | 0.03 | — | (0.08 | ) | 2.36 |
Three Months Ended October 1, 2017 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 13,168 | $ | — | $ | — | $ | — | $ | — | $ | 13,168 | ||||||||||||
Cost of sales | 2,844 | (28 | ) | (26 | ) | — | (92 | ) | 2,696 | |||||||||||||||
Selling, informational and administrative expenses | 3,504 | — | — | — | (22 | ) | 3,482 | |||||||||||||||||
Research and development expenses | 1,865 | 1 | — | — | (9 | ) | 1,857 | |||||||||||||||||
Amortization of intangible assets | 1,177 | (1,120 | ) | — | — | — | 57 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 114 | — | (129 | ) | — | 15 | — | |||||||||||||||||
Other (income)/deductions––net | 79 | (7 | ) | — | — | (340 | ) | (268 | ) | |||||||||||||||
Income from continuing operations before provision for taxes on income | 3,585 | 1,154 | 155 | — | 449 | 5,343 | ||||||||||||||||||
Provision for taxes on income(b) | 727 | 306 | 72 | — | 161 | 1,267 | ||||||||||||||||||
Income from continuing operations | 2,858 | 848 | 83 | — | 288 | 4,077 | ||||||||||||||||||
Discontinued operations––net of tax | — | — | — | — | — | — | ||||||||||||||||||
Net income attributable to noncontrolling interests | 18 | — | — | — | — | 18 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 2,840 | 848 | 83 | — | 288 | 4,059 | ||||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.47 | 0.14 | 0.01 | — | 0.05 | 0.67 |
Nine Months Ended October 1, 2017 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 38,843 | $ | — | $ | — | $ | — | $ | — | $ | 38,843 | ||||||||||||
Cost of sales | 7,972 | (45 | ) | (38 | ) | — | (168 | ) | 7,720 | |||||||||||||||
Selling, informational and administrative expenses | 10,249 | (15 | ) | — | — | (67 | ) | 10,167 | ||||||||||||||||
Research and development expenses | 5,367 | 7 | — | — | (26 | ) | 5,348 | |||||||||||||||||
Amortization of intangible assets | 3,571 | (3,438 | ) | — | — | — | 133 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 267 | — | (319 | ) | — | 52 | — | |||||||||||||||||
Other (income)/deductions––net | 65 | (35 | ) | 10 | — | (588 | ) | (547 | ) | |||||||||||||||
Income from continuing operations before provision for taxes on income | 11,351 | 3,527 | 347 | — | 797 | 16,023 | ||||||||||||||||||
Provision for taxes on income(b) | 2,287 | 990 | 137 | — | 263 | 3,677 | ||||||||||||||||||
Income from continuing operations | 9,064 | 2,537 | 211 | — | 534 | 12,345 | ||||||||||||||||||
Discontinued operations––net of tax | 1 | — | — | (1 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 32 | — | — | — | — | 32 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 9,034 | 2,537 | 211 | (1 | ) | 534 | 12,313 | |||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 1.49 | 0.42 | 0.03 | — | 0.09 | 2.03 |
(a) | For details of adjustments, see “Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income” below. |
(b) | The effective tax rate on Non-GAAP Adjusted income was 13.3% in the third quarter of 2018, compared to 23.7% in the third quarter of 2017. The effective tax rate on Non-GAAP Adjusted income was 15.2% in the first nine months of 2018, compared to 22.9% in the first nine months of 2017. The decreases were primarily due to tax benefits associated with the December 2017 enactment of the TCJA, a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, as well as an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations. |
Three Months Ended | Nine Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | September 30, 2018 | October 1, 2017 | ||||||||||||
Purchase accounting adjustments | ||||||||||||||||
Amortization, depreciation and other(a) | $ | 1,310 | $ | 1,126 | $ | 3,662 | $ | 3,482 | ||||||||
Cost of sales | (1 | ) | 28 | 2 | 45 | |||||||||||
Total purchase accounting adjustments––pre-tax | 1,309 | 1,154 | 3,665 | 3,527 | ||||||||||||
Income taxes(b) | (263 | ) | (306 | ) | (735 | ) | (990 | ) | ||||||||
Total purchase accounting adjustments––net of tax | 1,047 | 848 | 2,930 | 2,537 | ||||||||||||
Acquisition-related costs | ||||||||||||||||
Restructuring charges(c) | 24 | 70 | 5 | 80 | ||||||||||||
Transaction costs(c) | 1 | (14 | ) | 1 | 4 | |||||||||||
Integration costs(c) | 82 | 73 | 202 | 235 | ||||||||||||
Net periodic benefit costs/(credits) other than service costs(d) | 2 | — | 4 | (10 | ) | |||||||||||
Additional depreciation––asset restructuring(e) | 3 | 26 | 9 | 38 | ||||||||||||
Total acquisition-related costs––pre-tax | 112 | 155 | 221 | 347 | ||||||||||||
Income taxes(f) | (21 | ) | (72 | ) | (40 | ) | (137 | ) | ||||||||
Total acquisition-related costs––net of tax | 91 | 83 | 182 | 211 | ||||||||||||
Discontinued operations | ||||||||||||||||
Total discontinued operations––net of tax, attributable to Pfizer Inc.(g) | (11 | ) | — | (10 | ) | (1 | ) | |||||||||
Certain significant items | ||||||||||||||||
Restructuring credits––cost reduction initiatives(h) | (22 | ) | (15 | ) | (37 | ) | (52 | ) | ||||||||
Implementation costs and additional depreciation––asset restructuring(i) | 57 | 69 | 164 | 185 | ||||||||||||
Certain legal matters, net(j) | 37 | 183 | (70 | ) | 191 | |||||||||||
Adjustments to loss on sale of HIS net assets(j) | (2 | ) | (12 | ) | (1 | ) | 52 | |||||||||
Certain asset impairments(j) | — | 127 | 31 | 127 | ||||||||||||
Business and legal entity alignment costs(j) | — | 16 | 4 | 54 | ||||||||||||
Other(k) | (282 | ) | 81 | (84 | ) | 239 | ||||||||||
Total certain significant items––pre-tax | (213 | ) | 449 | 8 | 797 | |||||||||||
Income taxes(l) | (367 | ) | (161 | ) | (500 | ) | (263 | ) | ||||||||
Total certain significant items––net of tax | (580 | ) | 288 | (492 | ) | 534 | ||||||||||
Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | $ | 547 | $ | 1,219 | $ | 2,610 | $ | 3,280 |
(a) | Included primarily in Amortization of intangible assets. |
(b) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. |
(c) | Included in Restructuring charges and certain acquisition-related costs. Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. Restructuring charges for the three months ended September 30, 2018 were primarily due to accruals for exit costs and asset write downs related to our acquisition of Hospira, and charges for the nine months ended September 30, 2018 were primarily due to asset write downs related to our acquisition of Hospira, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira. Restructuring charges for the third quarter and first nine months of 2017 were mainly related to our acquisitions of Hospira and Medivation. Transaction costs represent external costs for banking, legal, accounting and other similar services. Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. |
(d) | Amounts for the three and nine months ended October 1, 2017 represent the net periodic benefit credits, excluding service costs, reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards. These credits included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan. |
(e) | Included in Cost of sales. Represents the impact of changes in estimated useful lives of assets involved in restructuring actions related to acquisitions. |
(f) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. |
(g) | Included in Discontinued operations––net of tax. |
(h) | Amounts relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions, which are included in Restructuring charges and certain acquisition-related cost (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three and nine months ended September 30, 2018 and October 1, 2017, the credits are mostly related to the reversal of previously recorded accruals for employee termination costs. |
(i) | Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). For the three months ended September 30, 2018, included in Cost of sales ($30 million), Selling, informational and administrative expenses ($17 million) and Research and development expenses ($9 million). For the three months ended October 1, 2017, included in Cost of sales ($38 million), Selling, informational and administrative expenses ($22 million) and Research and development expenses ($9 million). For the nine months ended September 30, 2018, included in Cost of sales ($91 million), Selling, informational and administrative expenses ($51 million) and Research and development expenses ($22 million). For the nine months ended October 1, 2017, included in Cost of sales ($113 million), Selling, informational and administrative expenses ($46 million) and Research and development expenses ($26 million). |
(j) | Included in Other (income)/deductions—net (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
(k) | For the three months ended September 30, 2018, primarily included in Cost of sales ($12 million income), Selling, informational and administrative expenses ($6 million) and Other (income)/deductions––net ($279 million income). For the nine months ended September 30, 2018, primarily included in Cost of sales ($14 million income), Selling, informational and administrative expenses ($134 million) and Other (income)/deductions––net ($206 million income). For the third quarter and first nine months of 2018, includes, among other things, a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system. The first nine months of 2018 also includes (i) a $119 million charge, in the aggregate, in Selling, informational and administrative expenses for a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, which was one of several actions taken by us after evaluating the expected positive net impact of the December 2017 enactment of the legislation commonly referred to as the TCJA on us and (ii) a non-cash $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic chimeric antigen receptor T cell therapy development program assets in connection with our contribution agreement entered into with Allogene (see Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures). For the three months ended October 1, 2017, included in Cost of sales ($54 million) and Other (income)/deductions––net ($26 million). For the nine months ended October 1, 2017, included in Cost of sales ($55 million), Selling, informational and administrative expenses ($21 million) and Other (income)/deductions––net ($163 million). For the third quarter and first nine months of 2017, includes $55 million in inventory losses, overhead costs related to the period in which our Puerto Rico plants were not operational, and incremental costs, all of which resulted from hurricanes in Puerto Rico and are included in Cost of sales. For the nine months ended October 1, 2017, also includes a net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest, which is included in Other (income)/deductions––net. |
(l) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The three months and nine months ended September 30, 2018 were favorably impacted by the December 2017 enactment of the TCJA, primarily related to certain tax initiatives, as well as favorable adjustments to the provisional estimate of the impact of the legislation. Given the significant changes resulting from and complexities associated with the TCJA, the estimated financial impacts recorded in 2017 remain provisional and are subject to further analysis, interpretation and clarification of the TCJA, which could result in further changes to these estimates in the fourth quarter of 2018. Under guidance issued by the staff of the SEC, we expect to finalize our accounting related to the tax effects of the TCJA on deferred taxes, valuation allowances, state tax considerations, the repatriation tax liability, global intangible low-taxed income, and any remaining outside basis differences in our foreign subsidiaries during the fourth quarter of 2018, as we complete the remainder of our tax return filings and as any interpretations or clarifications of the TCJA occur through legislation or U.S. Treasury actions or other means. |
The following tables provide revenue and cost information by reportable operating segment and a reconciliation of that information to our condensed consolidated statements of income: | ||||||||||||||||||||||||
Third Quarter of 2018 | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Innovative Health (IH)(a) | Essential Health (EH)(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | ||||||||||||||||||
Revenues | $ | 8,471 | $ | 4,826 | $ | — | $ | 13,298 | $ | — | $ | 13,298 | ||||||||||||
Cost of sales | 981 | 1,413 | 279 | 2,673 | 21 | 2,694 | ||||||||||||||||||
% of revenue | 11.6 | % | 29.3 | % | * | 20.1 | % | * | 20.3 | % | ||||||||||||||
Selling, informational and administrative expenses | 1,695 | 663 | 1,114 | 3,471 | 23 | 3,494 | ||||||||||||||||||
Research and development expenses | 695 | 225 | 1,078 | 1,998 | 10 | 2,008 | ||||||||||||||||||
Amortization of intangible assets | 57 | 20 | (6 | ) | 71 | 1,182 | 1,253 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | 85 | 85 | ||||||||||||||||||
Other (income)/deductions––net | (345 | ) | (22 | ) | 65 | (302 | ) | (112 | ) | (414 | ) | |||||||||||||
Income/(loss) from continuing operations before provision for taxes on income | $ | 5,388 | $ | 2,527 | $ | (2,530 | ) | $ | 5,386 | $ | (1,208 | ) | $ | 4,177 |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Innovative Health (IH)(a) | Essential Health (EH)(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | ||||||||||||||||||
Revenues | $ | 24,573 | $ | 15,097 | $ | — | $ | 39,670 | $ | — | $ | 39,670 | ||||||||||||
Cost of sales | 3,049 | 4,442 | 595 | 8,086 | 87 | 8,173 | ||||||||||||||||||
% of revenue | 12.4 | % | 29.4 | % | * | 20.4 | % | * | 20.6 | % | ||||||||||||||
Selling, informational and administrative expenses | 4,967 | 1,909 | 3,388 | 10,264 | 183 | 10,448 | ||||||||||||||||||
Research and development expenses | 1,882 | 683 | 2,961 | 5,526 | 23 | 5,549 | ||||||||||||||||||
Amortization of intangible assets | 165 | 47 | — | 212 | 3,428 | 3,640 | ||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | 172 | 172 | ||||||||||||||||||
Other (income)/deductions––net | (909 | ) | (117 | ) | (117 | ) | (1,143 | ) | — | (1,143 | ) | |||||||||||||
Income/(loss) from continuing operations before provision for taxes on income | $ | 15,419 | $ | 8,133 | $ | (6,827 | ) | $ | 16,725 | $ | (3,894 | ) | $ | 12,831 |
Third Quarter of 2017 | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Innovative Health (IH)(a) | Essential Health (EH)(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | ||||||||||||||||||
Revenues | $ | 8,118 | $ | 5,050 | $ | — | $ | 13,168 | $ | — | $ | 13,168 | ||||||||||||
Cost of sales | 1,082 | 1,448 | 167 | 2,696 | 147 | 2,844 | ||||||||||||||||||
% of revenue | 13.3 | % | 28.7 | % | * | 20.5 | % | * | 21.6 | % | ||||||||||||||
Selling, informational and administrative expenses | 1,619 | 693 | 1,171 | 3,482 | 22 | 3,504 | ||||||||||||||||||
Research and development expenses | 634 | 250 | 973 | 1,857 | 8 | 1,865 | ||||||||||||||||||
Amortization of intangible assets | 40 | 17 | — | 57 | 1,120 | 1,177 | ||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | 114 | 114 | ||||||||||||||||||
Other (income)/deductions––net | (256 | ) | (158 | ) | 147 | (268 | ) | 347 | 79 | |||||||||||||||
Income/(loss) from continuing operations before provision for taxes on income | $ | 5,000 | $ | 2,801 | $ | (2,457 | ) | $ | 5,343 | $ | (1,759 | ) | $ | 3,585 |
Nine Months Ended October 1, 2017 | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Innovative Health (IH)(a) | Essential Health (EH)(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | ||||||||||||||||||
Revenues | $ | 23,204 | $ | 15,639 | $ | — | $ | 38,843 | $ | — | $ | 38,843 | ||||||||||||
Cost of sales | 2,912 | 4,319 | 489 | 7,720 | 252 | 7,972 | ||||||||||||||||||
% of revenue | 12.6 | % | 27.6 | % | * | 19.9 | % | * | 20.5 | % | ||||||||||||||
Selling, informational and administrative expenses | 4,598 | 2,103 | 3,467 | 10,167 | 82 | 10,249 | ||||||||||||||||||
Research and development expenses | 1,694 | 760 | 2,894 | 5,348 | 20 | 5,367 | ||||||||||||||||||
Amortization of intangible assets | 90 | 43 | — | 133 | 3,438 | 3,571 | ||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | 267 | 267 | ||||||||||||||||||
Other (income)/deductions––net | (623 | ) | (258 | ) | 334 | (547 | ) | 613 | 65 | |||||||||||||||
Income/(loss) from continuing operations before provision for taxes on income | $ | 14,534 | $ | 8,672 | $ | (7,183 | ) | $ | 16,023 | $ | (4,671 | ) | $ | 11,351 |
* | Indicates calculation not meaningful or result is equal to or greater than 100%. |
(a) | Amounts represent the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. |
(b) | Other comprises the costs included in our Adjusted income components (see footnote (c) below) that are managed outside of our two operating segments and includes the following: |
Third Quarter of 2018 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i) | GPD(ii) | Corporate(iii) | Other Unallocated(iv) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | 21 | 258 | 279 | |||||||||||||||
Selling, informational and administrative expenses | — | — | 950 | 164 | 1,114 | |||||||||||||||
Research and development expenses | 550 | 193 | 318 | 16 | 1,078 | |||||||||||||||
Amortization of intangible assets | — | — | — | (6 | ) | (6 | ) | |||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (6 | ) | (1 | ) | 47 | 26 | 65 | |||||||||||||
Loss from continuing operations before provision for taxes on income | $ | (543 | ) | $ | (192 | ) | $ | (1,337 | ) | $ | (457 | ) | $ | (2,530 | ) |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i) | GPD(ii) | Corporate(iii) | Other Unallocated(iv) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | 149 | 446 | 595 | |||||||||||||||
Selling, informational and administrative expenses | — | — | 2,881 | 507 | 3,388 | |||||||||||||||
Research and development expenses | 1,664 | 579 | 672 | 46 | 2,961 | |||||||||||||||
Amortization of intangible assets | — | — | — | — | — | |||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (110 | ) | (4 | ) | (69 | ) | 65 | (117 | ) | |||||||||||
Loss from continuing operations before provision for taxes on income | $ | (1,554 | ) | $ | (575 | ) | $ | (3,633 | ) | $ | (1,064 | ) | $ | (6,827 | ) |
Third Quarter of 2017 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i) | GPD(ii) | Corporate(iii) | Other Unallocated(iv) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | 27 | 139 | 167 | |||||||||||||||
Selling, informational and administrative expenses | — | — | 980 | 191 | 1,171 | |||||||||||||||
Research and development expenses | 570 | 195 | 189 | 20 | 973 | |||||||||||||||
Amortization of intangible assets | — | — | — | — | — | |||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (4 | ) | (1 | ) | 167 | (15 | ) | 147 | ||||||||||||
Loss from continuing operations before provision for taxes on income | $ | (566 | ) | $ | (193 | ) | $ | (1,363 | ) | $ | (335 | ) | $ | (2,457 | ) |
Nine Months Ended October 1, 2017 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i) | GPD(ii) | Corporate(iii) | Other Unallocated(iv) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | (4 | ) | 493 | 489 | ||||||||||||||
Selling, informational and administrative expenses | — | (1 | ) | 2,965 | 502 | 3,467 | ||||||||||||||
Research and development expenses | 1,680 | 565 | 609 | 39 | 2,894 | |||||||||||||||
Amortization of intangible assets | — | — | — | — | — | |||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (36 | ) | (4 | ) | 338 | 36 | 334 | |||||||||||||
Loss from continuing operations before provision for taxes on income | $ | (1,644 | ) | $ | (561 | ) | $ | (3,908 | ) | $ | (1,070 | ) | $ | (7,183 | ) |
(i) | WRD—the R&D expenses managed by our WRD organization, which is generally responsible for research projects for our IH business until proof-of-concept is achieved and then for transitioning those projects to the IH segment via the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRD organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects, including EH R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
(ii) | GPD––the costs associated with our GPD organization, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios. GPD also provides technical support and other services to Pfizer R&D projects. |
(iii) | Corporate––the costs associated with Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement), the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, and partnerships with global public health and medical associations, as well as certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. Effective in the first quarter of 2018, certain costs for StratCO, which were previously reported in the operating results of our operating segments and Corporate, are reported in Other Unallocated. For additional information, see note (iv) below. |
(iv) | Other Unallocated—other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs (which include manufacturing variances associated with production). In connection with the StratCO reporting change, in the third quarter of 2017, we reclassified approximately $125 million of costs from IH, approximately $36 million of costs from EH and approximately $19 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. In the first nine months of 2017, we reclassified approximately $344 million of costs from IH, approximately $114 million of costs from EH and approximately $40 million of costs from Corporate to Other unallocated costs to conform to the current period presentation. |
Nine Months Ended September 30, 2018 | ||||||||||||||||
Estimated Other Costs Associated with IH(ii) | ||||||||||||||||
(MILLIONS OF DOLLARS) | Innovative Health Non-GAAP Adjusted(i), (iii) | Estimated WRD/GPD(ii) | Estimated Corporate/Other Unallocated(ii) | Innovative Health with Estimated Other Costs Associated with Innovative Health Non-GAAP Adjusted(ii), (iii) | ||||||||||||
Revenues | $ | 24,573 | $ | — | $ | — | $ | 24,573 | ||||||||
Cost of sales | 3,049 | — | 81 | 3,130 | ||||||||||||
Selling, informational and administrative expenses | 4,967 | — | 1,918 | 6,886 | ||||||||||||
Research and development expenses | 1,882 | 2,219 | 658 | 4,760 | ||||||||||||
Amortization of intangible assets | 165 | — | (4 | ) | 161 | |||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | ||||||||||||
Other (income)/deductions––net | (909 | ) | (113 | ) | (213 | ) | (1,235 | ) | ||||||||
Income from continuing operations before provision for taxes on income | 15,419 | (2,106 | ) | (2,441 | ) | 10,872 |
Nine Months Ended September 30, 2018 | ||||||||||||||||
Estimated Other Costs Associated with EH(ii) | ||||||||||||||||
(MILLIONS OF DOLLARS) | Essential Health Non-GAAP Adjusted(i), (iii) | Estimated WRD/GPD(ii) | Estimated Corporate/Other Unallocated(ii) | Essential Health with Estimated Other Costs Associated with Essential Health Non-GAAP Adjusted(ii), (iii) | ||||||||||||
Revenues | $ | 15,097 | $ | — | $ | — | $ | 15,097 | ||||||||
Cost of sales | 4,442 | — | 514 | 4,956 | ||||||||||||
Selling, informational and administrative expenses | 1,909 | — | 1,469 | 3,379 | ||||||||||||
Research and development expenses | 683 | 24 | 60 | 767 | ||||||||||||
Amortization of intangible assets | 47 | — | 4 | 51 | ||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | ||||||||||||
Other (income)/deductions––net | (117 | ) | — | (78 | ) | (195 | ) | |||||||||
Income from continuing operations before provision for taxes on income | 8,133 | (24 | ) | (1,969 | ) | 6,141 |
(i) | Amount represents the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. See note (a) above for more information. |
(ii) | Represents costs not assessed to an operating segment, as business unit (segment) management does not manage these costs. For a description of these other costs and business activities, see note (b) above. |
• | WRD/GPD––The information provided for WRD and GPD was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with each operating segment. |
• | Corporate/Other Unallocated––The information provided for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification and estimates. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable. |
(iii) | See note (c) below for an explanation of our Non-GAAP Adjusted financial measure. |
(c) | See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for a definition of these “Adjusted Income” components. |
(d) | Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges), that are evaluated on an individual basis by management. For additional information about these reconciling items and/or our Non-GAAP adjusted measure of performance, see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A. |
(MILLIONS OF DOLLARS) | ||||
IH Revenues, for the three months ended October 1, 2017 | $ | 8,118 | ||
Operational growth/(decline): | ||||
Continued growth from certain key brands(a) | 660 | |||
Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | 52 | |||
Negative impact of the loss of exclusivity of Viagra in the U.S. in December 2017 and the resulting shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 | (206 | ) | ||
Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | (65 | ) | ||
Other operational factors, net | (15 | ) | ||
Operational growth, net | 426 | |||
Unfavorable impact of foreign exchange | (73 | ) | ||
IH Revenues increase | 353 | |||
IH Revenues, for the three months ended September 30, 2018 | $ | 8,471 |
(a) | Certain key brands represent Eliquis, Ibrance, Prevnar 13/Prevenar 13, Xeljanz and Xtandi. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
• | Cost of sales as a percentage of Revenues decreased 1.7 percentage points, primarily driven by the favorable impact of foreign exchange. |
• | The decrease in Cost of sales of 9% was primarily driven by the favorable impact of foreign exchange, partially offset by an increase in sales volumes for various key products within our product portfolio and an increase in royalty expenses based on the mix of products sold. |
• | The increase in Selling, informational and administrative expenses of 5% was primarily driven by additional investment across several of our key products, primarily Xeljanz, Eucrisa, Eliquis and Prevnar 13/Prevenar 13 (pediatric indication), partially offset by lower healthcare reform expenses as a result of a true up of a prior year amount, and the favorable impact of foreign exchange. |
• | The increase in Research and development expenses of 10% primarily reflects: |
◦ | increased costs for our rare disease portfolio; |
◦ | increased costs associated with our Phase 3 clinical trial related to our JAK1 inhibitor (which was initiated in December 2017); and |
◦ | increased costs across the Oncology portfolio, including costs associated with Bavencio studies, |
◦ | lower costs due to the completion of certain tanezumab studies. |
• | The favorable change in Other (income)/deductions––net primarily reflects: |
◦ | a $36 million increase in dividend income from our investment in ViiV; |
◦ | a $33 million increase in income from collaborations, out-licensing arrangements and sales of compound/product rights; and |
◦ | a $14 million increase in Xtandi royalty income. |
(MILLIONS OF DOLLARS) | ||||
EH Revenues, for the three months ended October 1, 2017 | $ | 5,050 | ||
Operational growth/(decline): | ||||
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH), primarily due to expected declines in Lyrica in developed Europe | (125 | ) | ||
Decline in the LEP portfolio primarily driven by lower revenues in developed markets | (121 | ) | ||
Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | (28 | ) | ||
Positive impact of Viagra, mostly driven by the shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 (due to the loss of exclusivity of Viagra in the U.S. in December 2017), partially offset by lower revenues in emerging markets and developed Europe markets (previously reported in EH) | 37 | |||
Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | 56 | |||
Other operational factors, net | (2 | ) | ||
Operational decline, net | (183 | ) | ||
Unfavorable impact of foreign exchange | (40 | ) | ||
EH Revenues decrease | (223 | ) | ||
EH Revenues, for the three months ended September 30, 2018 | $ | 4,826 |
• | Cost of sales as a percentage of Revenues increased 0.6 percentage points, primarily due to: |
◦ | higher sales volumes of Inflectra in the U.S. and developed Europe, which carry higher product costs; and |
◦ | lower sales volumes and margins as a result of product losses of exclusivity and generic competition in developed markets, |
◦ | the favorable impact of foreign exchange; and |
◦ | lower sales volumes in the SIP portfolio, which carries a higher cost to produce, in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. |
• | The decrease in Cost of sales of 2% was primarily due to: |
◦ | the favorable impact of foreign exchange; and |
◦ | lower sales volumes driven by product losses of exclusivity and generic competition in developed markets, |
◦ | higher costs across the SIP portfolio, as a result of the complexity of high quality product manufacturing across the legacy Hospira plants. |
• | Selling, informational and administrative expenses decreased 4% mainly due to lower general and administrative expenses, as well as lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and the favorable impact of foreign exchange, partially offset by additional investments in China. |
• | Research and development expenses decreased 10% primarily due to decreased spending for biosimilars as several programs have reached completion. |
• | The unfavorable change in Other (income)/deductions––net primarily reflects the non-recurrence of income from resolution of a contract disagreement, the unfavorable impact of foreign exchange and the non-recurrence of a gain on the redemption of an acquired bond in 2017, partially offset by an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights. |
(MILLIONS OF DOLLARS) | ||||
IH Revenues, for the nine months ended October 1, 2017 | $ | 23,204 | ||
Operational growth/(decline): | ||||
Continued growth from certain key brands(a) | 1,835 | |||
Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe | 172 | |||
Negative impact of the loss of exclusivity of Viagra in the U.S. in December 2017 and the resulting shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 | (711 | ) | ||
Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition | (279 | ) | ||
Other operational factors, net | 11 | |||
Operational growth, net | 1,028 | |||
Favorable impact of foreign exchange | 342 | |||
IH Revenues increase | 1,370 | |||
IH Revenues, for the nine months ended September 30, 2018 | $ | 24,573 |
(a) | Certain key brands represent Eliquis, Ibrance, Xeljanz, Prevnar 13/Prevenar 13, Xtandi and Chantix/Champix. See the “Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this MD&A for product analysis information. |
• | Cost of sales as a percentage of Revenues decreased 0.1 percentage points, primarily driven by the favorable impact of foreign exchange, partially offset by an unfavorable change in product mix. The unfavorable product mix, which includes the unfavorable impact of the reclassification of Viagra IH to EH in 2018, is partially offset by an increase in alliance revenues, which have no associated cost of sales. |
• | The increase in Cost of sales of 5% was primarily driven by an increase in sales volumes for various key products within our product portfolio, and an increase in royalty expenses based on the mix of products sold, partially offset by the favorable impact of foreign exchange. |
• | The increase in Selling, informational and administrative expenses of 8% was primarily driven by additional investment across several of our key products, primarily Xeljanz, Eucrisa, Ibrance, Prevnar 13/Prevenar 13 (pediatric indication) and Eliquis, partially offset by lower healthcare reform expenses as a result of a true up of a prior year amount and decreased investment in Enbrel due to loss of exclusivity across developed Europe. |
• | The increase in Research and development expenses of 11% primarily reflects: |
◦ | increased costs associated with our Phase 3 clinical trials related to our JAK1 inhibitor (which was initiated in December 2017) and the C. difficile vaccine program (which was initiated in March 2017); |
◦ | increased costs across the Oncology portfolio, including costs associated with Bavencio studies; and |
◦ | increased costs for our rare disease portfolio, |
◦ | lower costs due to the completion of certain clinical studies, including tanezumab and Lyrica. |
• | The favorable change in Other (income)/deductions––net primarily reflects: |
◦ | a $188 million increase in income from collaborations, out-licensing arrangements and sales of compound/product rights; |
◦ | a $45 million increase in Xtandi royalty income; and |
◦ | a $14 million increase in dividend income from our investment in ViiV. |
(MILLIONS OF DOLLARS) | ||||
EH Revenues, for the nine months ended October 1, 2017 | $ | 15,639 | ||
Operational growth/(decline): | ||||
Decline from the Peri-LOE Products portfolio, driven by lower revenues in developed markets (excluding Viagra EH), primarily due to expected declines in Lyrica in developed Europe and Pristiq in the U.S. due to generic competition | (463 | ) | ||
Decline from the SIP portfolio, driven by lower revenues in developed markets, primarily due to continued legacy Hospira product shortages in the U.S. | (419 | ) | ||
Decline in the LEP portfolio primarily driven by lower revenues in developed markets | (314 | ) | ||
Impact on financial results for the sale of HIS in February 2017. The first nine months of 2018 do not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017 | (97 | ) | ||
Positive impact of Viagra, mostly driven by the shift in the reporting of U.S. and Canada Viagra revenues from IH to EH at the beginning of 2018 (due to the loss of exclusivity of Viagra in the U.S. in December 2017), partially offset by lower revenues in developed Europe markets (previously reported in EH) | 216 | |||
Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S., as well as in developed Europe | 165 | |||
Other operational factors, net | 19 | |||
Operational decline, net | (894 | ) | ||
Favorable impact of foreign exchange | 352 | |||
EH Revenues decrease | (542 | ) | ||
EH Revenues, for the nine months ended September 30, 2018 | $ | 15,097 |
• | Cost of sales as a percentage of Revenues increased 1.8 percentage points, primarily due to: |
◦ | higher sales volume of Inflectra in the U.S. and developed Europe, and higher Pfizer CentreOne sales volumes, both of which carry higher product costs; |
◦ | lower sales volumes and margins as a result of product losses of exclusivity and generic competition in developed markets; and |
◦ | the unfavorable impact of foreign exchange, |
◦ | lower sales volumes in the SIP portfolio, which carries a higher cost to produce, in developed markets, primarily due to continued legacy Hospira product shortages in the U.S.; and |
◦ | the non-recurrence of charges related to a product recall that occurred in 2017. |
• | The increase in Cost of sales of 3% was primarily due to: |
◦ | higher sales volumes of Inflectra in the U.S. and developed Europe, and higher Pfizer CentreOne sales volumes, both of which carry higher product costs; and |
◦ | the unfavorable impact of foreign exchange, |
◦ | lower sales volumes driven by product losses of exclusivity and generic competition in developed markets; and |
◦ | the non-recurrence of charges related to a product recall that occurred in 2017. |
• | Selling, informational and administrative expenses decreased 9% mainly due to lower advertising, promotional and field force expenses, reflecting the benefits of cost-reduction and productivity initiatives, and lower general and administrative expenses, partially offset by additional investments in China and the unfavorable impact of foreign exchange. |
• | Research and development expenses decreased 10%, primarily due to decreased spending for biosimilars as several programs have reached completion. |
• | The unfavorable change in Other (income)/deductions––net primarily reflects the non-recurrence of income from resolution of a contract disagreement, the non-recurrence of a gain on the redemption of an acquired bond in 2017 and the unfavorable impact of foreign exchange, partially offset by an increase in income from collaborations, out-licensing arrangements and sales of compound/product rights. |
• | For Foreign currency translation adjustments, net, the third quarter of 2018 primarily reflects the strengthening of the U.S. dollar against the Chinese renminbi, U.K. pound and Australian dollar, and for the first nine months of 2018, primarily reflects the strengthening of the U.S. dollar against the U.K. pound, Turkish lira and Brazilian real, partially offset by the weakening of the U.S. dollar against the Japanese yen. |
• | For Unrealized holding gains/(losses) on derivative financial instruments, net and Unrealized holding gains/(losses) on available-for-sale securities, net, reflects the impact of fair value re-measurements and the reclassification of amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards and Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. |
• | For Benefit plans: actuarial gains/(losses), net, the third quarter of 2018 primarily reflects (i) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income, (ii) the favorable impact of foreign exchange, (iii) settlement activity and (iv) an $8 million reduction in the plan liability due to an interim re-measurement. For the first nine months of 2018, primarily reflects (i) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income, (ii) a $92 million reduction in the plan liability due to an interim re-measurement, (iii) settlement activity and (iv) the favorable impact of foreign exchange. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. |
• | For Benefit plans: prior service costs and other, net, the third quarter and the first nine months of 2018 reflect the reclassification into income of amounts related to (i) amortization of changes in prior service costs and credits previously recognized in Other comprehensive income and (ii) curtailment activity. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. |
• | For Tax provision/(benefit) on other comprehensive income/(loss), the first nine months of 2018 reflect the reclassification of the stranded tax amounts related to the TCJA from AOCI to Retained earnings, which was recorded in the first quarter of 2018. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards and Notes to Condensed Consolidated Financial Statements—Note 5D.Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Income/(Loss). |
• | For Trade accounts receivable, less allowance for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business. |
• | For Inventories, the change reflects the increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery, network strategy and new product launches. |
• | For Other current assets, the change reflects an increase in receivables associated with derivative financial instruments, partially offset by the receipt of a milestone payment related to the first marketing authorization for ertugliflozin (see Notes to Condensed Consolidated Financial Statements—Note 2D. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Collaborative Arrangements). |
• | For PP&E, the change primarily reflects capital additions in the normal course of business, partially offset by depreciation during the period. |
• | For Identifiable intangible assets, less accumulated amortization, the change primarily reflects amortization for the period, partially offset by an intangible asset recorded in connection with the EU approval of Mylotarg (see Notes to Condensed Consolidated Financial Statements—Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets). |
• | For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business. |
• | For Other current liabilities, the change reflects a decrease in liabilities associated with: |
◦ | payments for contingent consideration obligations; |
◦ | payments to settle certain legal and product liability obligations; |
◦ | payments for restructuring activities; |
◦ | payments for the current portion of obligations recorded in connection with the U.S. approval of Bosulif, and the EU and U.S. approvals of Besponsa (see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities); and |
◦ | payables related to derivative financial instruments, |
◦ | payments and accruals in the normal course of business; and |
◦ | reclassifications from noncurrent liabilities. |
• | For Pension benefit obligations, net, the decrease primarily reflects a voluntary pension contribution, direct employer benefit payments, and an interim re-measurement in a U.S. non-qualified plan. |
• | For Other noncurrent liabilities, the change reflects an increase in liabilities associated with: |
◦ | an increase in payables, associated with derivative financial instruments; |
◦ | an increase in liabilities associated with the sale-leaseback of our New York headquarters (see Notes to Condensed Consolidated Financial Statements—Note 12C. Contingencies and Certain Commitments: Certain Commitments for additional information); and |
◦ | a change in the fair value of contingent consideration (see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net), |
◦ | reclassifications to current liabilities. |
• | For Treasury stock, the change reflects $4.0 billion paid to Citibank in March 2018 pursuant to the terms of an accelerated share repurchase agreement as well as open market share repurchases. See Notes to Condensed Consolidated Financial Statements—Note 12C. Contingencies and Certain Commitments: Certain Commitments for additional information. |
Nine Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | September 30, 2018 | October 1, 2017 | % Change | |||||||
Cash provided by/(used in): | ||||||||||
Operating activities | $ | 11,089 | $ | 9,713 | 14 | |||||
Investing activities | 5,289 | 19 | * | |||||||
Financing activities | (14,034 | ) | (9,607 | ) | 46 | |||||
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | (116 | ) | 67 | * | ||||||
Net increase in Cash and cash equivalents and restricted cash and cash equivalents | $ | 2,227 | $ | 193 | * | |||||
* Calculation not meaningful or results are equal to or greater than 100%. |
• | unrealized net gains on equity securities resulting from the adoption of a new accounting standard on January 1, 2018 related to financial assets and liabilities (see Notes to Condensed Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards); |
• | a non-cash gain associated with our transaction with Bain Capital to create a new biopharmaceutical company to continue development of a portfolio of clinical and preclinical stage neuroscience assets (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures); and |
• | a non-cash gain on the contribution of Pfizer’s allogeneic CAR T developmental program assets, in connection with our contribution agreement with Allogene (see Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisition, Divestitures, Licensing Arrangements, Collaborative Arrangements and Privately Held Investment: Divestitures), |
• | net losses on foreign exchange contracts hedging a portion of our forecasted intercompany inventory sales (that fixes the cost of inventory sold later to customers); and |
• | a decrease in gains on the sale of property, plant and equipment. |
• | an increase in net proceeds generated from the sale of investments of $4.5 billion in 2018 for cash needs; and |
• | a decrease in cash used for acquisitions, net of cash acquired of $1.0 billion due to the acquisition of the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business and substantially all of the remaining consideration for the Medivation acquisition in 2017 (see Notes to Condensed Consolidated Financial Statements—Note 2A. |
• | $3.2 billion less proceeds raised from short-term borrowings in the first nine months of 2018, compared to the first nine months of 2017; and |
• | higher purchases of common stock of $2.2 billion, |
• | lower repayments on long-term debt of $1.4 billion. |
• | the working capital requirements of our operations, including our R&D activities; |
• | investments in our business; |
• | dividend payments and potential increases in the dividend rate; |
• | share repurchases; |
• | the cash requirements associated with our cost-reduction/productivity initiatives; |
• | paying down outstanding debt; |
• | contributions to our pension and postretirement plans; and |
• | business-development activities. |
The following table provides certain relevant measures of our liquidity and capital resources: | ||||||||
(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA) | September 30, 2018 | December 31, 2017 | ||||||
Selected financial assets: | ||||||||
Cash and cash equivalents(a) | $ | 3,559 | $ | 1,342 | ||||
Short-term investments(a) | 13,680 | 18,650 | ||||||
Long-term investments(a) | 6,444 | 7,015 | ||||||
23,684 | 27,007 | |||||||
Debt: | ||||||||
Short-term borrowings, including current portion of long-term debt | 7,385 | 9,953 | ||||||
Long-term debt | 33,652 | 33,538 | ||||||
41,037 | 43,491 | |||||||
Selected net financial liabilities(b) | $ | (17,353 | ) | $ | (16,484 | ) | ||
Working capital(c) | $ | 12,569 | $ | 10,714 | ||||
Ratio of current assets to current liabilities | 1.43:1 | 1.35:1 | ||||||
Total Pfizer Inc. shareholders’ equity per common share(d) | $ | 12.21 | $ | 11.93 |
(a) | See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of credit risk related to our financial instruments held. |
(b) | The increase in selected net financial liabilities was primarily driven by the decrease in short-term investments used for cash needs, partially offset by the repayment of debt. We retain a strong financial liquidity position as a result of our net cash provided by operating activities, our high-quality |
(c) | The increase in working capital was primarily due to: |
• | the timing of accruals, cash receipts and payments in the ordinary course of business; |
• | a decrease in short-term borrowings as a result of repayments of commercial paper; and |
• | an increase in inventory related to increases for certain products to meet targeted levels in the normal course of business, including inventory build for supply recovery, network strategy and new product launches, |
• | a decrease in Short-term investments mainly driven by the financing requirements for share repurchase activities, dividend payments, capital expenditures and debt repayment, partially offset by operating cash flow generation, cash from employee stock option exercises and reclassification of long-term to short-term investments; |
• | an increase in income taxes payable related to the timing of accruals in certain major markets in the ordinary course of business and the reclassification of the first federal installment of transition tax previously recorded in noncurrent liabilities; and |
• | the net impact of foreign currency exchange. |
(d) | Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury stock). |
The following table provides the current ratings assigned by these rating agencies to our commercial paper and senior unsecured long-term debt: | ||||||
NAME OF RATING AGENCY | Pfizer Commercial Paper | Pfizer Long-Term Debt | Date of Last Rating Change | |||
Rating | Rating | |||||
Moody’s(a) | P-1 | A1 | October 2009 | |||
S&P(b) | A-1+ | AA | October 2009 |
(a) | In September 2016, Moody’s updated their credit outlook from negative outlook to stable. |
(b) | In April 2016, S&P updated their credit outlook from negative watch to stable. |
The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced share purchase plans, including our accelerated share repurchase agreements: | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
(SHARES IN MILLIONS, DOLLARS IN BILLIONS) | September 30, 2018(a) | October 1, 2017 | September 30, 2018(a) | October 1, 2017(b) | ||||||||||||
Shares of common stock purchased | 47 | — | 192 | 150 | ||||||||||||
Cost of purchase | $ | 1.1 | $ | — | $ | 7.2 | $ | 5.0 |
(a) | Represents shares purchased pursuant to an accelerated share repurchase agreement with Citibank entered into on March 12, 2018, as well as other share repurchases. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12. Contingencies and Certain Commitments and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities” in Part II, Item 2 of this Quarterly Report on Form 10-Q and the Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018. |
(b) | Represents shares purchased pursuant to an accelerated share repurchase agreement entered into on February 2, 2017. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our 2017 Financial Report. |
Recently Issued Accounting Standards, Not Adopted as of September 30, 2018 | ||||
Standard/Description | Effective Date | Effect on the Financial Statements or Other Significant Matters | ||
In February 2016, the FASB issued new guidance on accounting for leases. The new ASU provides guidance for both lessee and lessor accounting models. Among other things, the new guidance requires that a right of use asset and a lease liability be recognized for leases with a duration of greater than one year. Since its issuance, the FASB has issued several ASUs, including amending the guidance to offer an additional transition method. | January 1, 2019. Earlier application is permitted. | We have made substantial progress in completing our review of the impact of this new guidance. We anticipate recognition of approximately $2 billion of additional assets and corresponding liabilities on our balance sheet. We have also assessed the potential impact of embedded leases on our consolidated financial statements, given our manufacturing outsourcing, service arrangements and other agreements. In connection with this guidance we are currently designing new global processes and technological solutions to provide the appropriate financial accounting and disclosure data. We continue to monitor changes, modifications, clarifications or interpretations undertaken by the FASB, which may impact our conclusions. | ||
In March 2017, the FASB issued new guidance that shortens the amortization period for certain callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date. | January 1, 2019. Early application is permitted, including in interim periods, so long as any adjustments are reflected as of the beginning of the fiscal year that includes the interim period in which the guidance is applied. | We do not have any investments with features subject to this standard and do not expect this new guidance to have a material impact on our consolidated financial statements. | ||
In July 2017, the FASB issued new guidance on accounting for certain financial instruments with characteristics of liabilities and equity, and accounting for certain financial instruments with down round features (a feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument). | January 1, 2019. Earlier application is permitted. | We do not have any financial instruments with features subject to this standard and do not expect this new guidance to have a material impact on our consolidated financial statements. | ||
In June 2018, the FASB issued new guidance to simplify 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. | January 1, 2019. Early adoption is permitted, including in interim periods. | We do not have any share-based awards issued to nonemployees and do not expect this new guidance to have a material impact on our consolidated financial statements. |
Standard/Description | Effective Date | Effect on the Financial Statements or Other Significant Matters | ||
In June 2016, the FASB issued new guidance on accounting for credit losses of financial instruments. The new guidance replaces the probable initial recognition threshold for incurred loss estimates in current GAAP with a methodology that reflects expected credit loss estimates. | January 1, 2020. Earlier application is permitted as of fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. This standard includes our financial instruments, such as accounts receivable, and investments that are generally of high credit quality. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new guidance requires us to identify, analyze, document and support new methodologies for quantifying expected credit loss estimates for our financial instruments, using information such as historical experience and current economic environmental conditions, plus the use of reasonable supportable forecast information. | ||
In January 2017, the FASB issued new guidance for goodwill impairment testing. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit. | January 1, 2020. Earlier application is permitted. | We do not expect this new guidance to have a material impact on our consolidated financial statements. | ||
In August 2018, the FASB issued new guidance related to customers’ accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. The new guidance aligns the requirements for capitalizing implementation costs in such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance can be adopted either prospectively or retrospectively. | January 1, 2020. Earlier application is permitted. | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. | ||
In November 2018, the FASB issued new guidance clarifying the interaction between the accounting guidance for collaboration agreements and revenue from contracts with customers. | January 1, 2020. Earlier application is permitted | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. |
• | the outcome of research and development activities including, without limitation, the ability to meet anticipated pre-clinical and clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for product candidates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including unfavorable new clinical data and additional analyses of existing clinical data; |
• | decisions by regulatory authorities regarding whether and when to approve our drug applications, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the efficacy and safety information submitted; decisions by regulatory authorities regarding labeling, ingredients and other matters that could affect the availability or commercial potential of our products; uncertainties regarding our ability to address the comments received by us from regulatory authorities such as the FDA and the EMA with respect to certain of our drug applications to the satisfaction of those authorities; and recommendations by technical or advisory committees, such as ACIP, that may impact the use of our vaccines; |
• | the speed with which regulatory authorizations, pricing approvals and product launches may be achieved; |
• | the outcome of post-approval clinical trials, which could result in the loss of marketing approval for a product or changes in the labeling for, and/or increased or new concerns about the safety or efficacy of, a product that could affect its availability or commercial potential; |
• | risks associated with preliminary, early stage or interim data, including the risk that final results of studies for which preliminary, early stage or interim data have been provided and/or additional clinical trials may be different from (including less favorable than) the preliminary, early stage or interim data results and may not support further clinical development of the applicable product candidate or indication; |
• | the success of external business-development activities, including the ability to identify and execute on potential business development opportunities, the ability to satisfy the conditions to closing of announced transactions in the anticipated time frame or at all, the ability to realize the anticipated benefits of any such transactions, and the potential need to obtain additional equity or debt financing to pursue these opportunities which could result in increased leverage and impact our credit ratings; |
• | competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products, biosimilars and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates; |
• | the implementation by the FDA and regulatory authorities in certain other countries of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products, with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights; |
• | risks related to our ability to develop and launch biosimilars, including risks associated with “at risk” launches, defined as the marketing of a product by Pfizer before the final resolution of litigation (including any appeals) brought by a third party alleging that such marketing would infringe one or more patents owned or controlled by the third party, and access challenges for our biosimilar products where our product may not receive appropriate formulary access or remains in a disadvantaged position relative to the innovator product; |
• | the ability to meet competition from generic, branded and biosimilar products after the loss or expiration of patent protection for our products or competitor products; |
• | the ability to successfully market both new and existing products domestically and internationally; |
• | difficulties or delays in manufacturing, including delays caused by natural events, such as hurricanes; supply shortages at our facilities; and legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, debarment, injunctions or voluntary recall of a product; |
• | trade buying patterns; |
• | the impact of existing and future legislation and regulatory provisions on product exclusivity; |
• | trends toward managed care and healthcare cost containment, and our ability to obtain or maintain timely or adequate pricing or formulary placement for our products; |
• | the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented; |
• | the impact of any U.S. healthcare reform or legislation, including any replacement, repeal, modification or invalidation of some or all of the provisions of the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act; |
• | U.S. federal or state legislation or regulatory action and/or policy efforts affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; patient out-of-pocket costs for medicines, manufacturer prices and/or price increases that could result in new mandatory rebates and discounts or other pricing restrictions; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; restrictions on direct-to-consumer advertising; limitations on interactions with healthcare professionals; or the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures for our products as a result of highly competitive insurance markets; |
• | legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets; |
• | the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes; |
• | contingencies related to actual or alleged environmental contamination; |
• | claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates; |
• | any significant breakdown, infiltration or interruption of our information technology systems and infrastructure; |
• | legal defense costs, insurance expenses and settlement costs; |
• | the risk of an adverse decision or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, such as claims that our patents are invalid and/or do not cover the product of the generic drug manufacturer or where one or more third parties seeks damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities, product liability and other product-related litigation, including personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, commercial, environmental, government investigations, employment and other legal proceedings, including various means for resolving asbestos litigation, as well as tax issues; |
• | the risk that our currently pending or future patent applications may not result in issued patents, or be granted on a timely basis, or any patent-term extensions that we seek may not be granted on a timely basis, if at all; |
• | our ability to protect our patents and other intellectual property, both domestically and internationally; |
• | interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates; |
• | governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals, including further clarifications and/or interpretations of the recently passed TCJA; |
• | any significant issues involving our largest wholesale distributors, which account for a substantial portion of our revenues; |
• | the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines; |
• | the end result of any negotiations between the U.K. government and the EU regarding the terms of the U.K.’s exit from the EU, which could have implications on our research, commercial and general business operations in the U.K. and the EU, including the approval and supply of our products; |
• | any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards; |
• | any significant issues that may arise related to our joint ventures and other third-party business arrangements; |
• | changes in U.S. generally accepted accounting principles; |
• | further clarifications and/or changes in interpretations of existing laws and regulations, or changes in laws and regulations, in the U.S. and other countries; |
• | uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; the related risk that our allowance for doubtful accounts may not be adequate; and the risks related to volatility of our income due to changes in the market value of equity investments; |
• | any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas; |
• | growth in costs and expenses; |
• | changes in our product, segment and geographic mix; |
• | the impact of purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items; |
• | the impact of acquisitions, divestitures, restructurings, internal reorganizations, including our plans to organize our commercial operations into three businesses effective at the beginning of the company’s 2019 fiscal year, and cost-reduction and productivity initiatives, each of which requires upfront costs but may fail to yield anticipated benefits and may result in unexpected costs or organizational disruption; |
• | the impact of product recalls, withdrawals and other unusual items; |
• | the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments; |
• | risks related to internal control over financial reporting; |
• | risks and uncertainties related to our acquisitions of Hospira, Anacor, Medivation and AstraZeneca’s small molecule anti-infectives business, including, among other things, the ability to realize the anticipated benefits of those acquisitions, including the possibility that expected accretion related to the acquisitions of Hospira, Anacor and Medivation will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; disruption from the transactions making it more difficult to maintain business and operational relationships; risks related to our ability to grow revenues for Xtandi; significant transaction costs; and unknown liabilities; and |
• | risks and uncertainties related to our evaluation of strategic alternatives for our Consumer Healthcare business, including, among other things, the ability to realize the anticipated benefits of any strategic alternatives we may pursue for our Consumer Healthcare business; the potential for disruption to our business and diversion of management’s attention from other aspects of our business; the possibility that such strategic alternatives will not be completed on terms that are advantageous to Pfizer; the possibility that we may be unable to realize a higher value for Pfizer Consumer Healthcare through strategic alternatives; and unknown liabilities. |
Period | Total Number of Shares Purchased(a)(b) | Average Price Paid per Share(a)(b) | Total Number of Shares Purchased as Part of Publicly Announced Plan(a) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan(a) | ||||||||||
July 2, 2018 through July 29, 2018 | 7,765 | $ | 36.43 | — | $ | 10,292,715,228 | ||||||||
July 30, 2018 through August 26, 2018 | 10,626 | $ | 40.45 | — | $ | 10,292,715,228 | ||||||||
August 27, 2018 through September 30, 2018 | 46,671,505 | $ | 40.36 | 46,652,993 | $ | 9,187,715,502 | ||||||||
Total | 46,689,896 | $ | 40.36 | 46,652,993 |
(a) | Our December 2015 $11 billion share repurchase program was exhausted in the third quarter of 2018. In December 2017, the Board of Directors authorized an additional $10 billion share repurchase program, and share repurchases commenced thereunder in the third quarter of 2018 (the 2017 program). On March 12, 2018, we entered into an accelerated share repurchase agreement with Citibank to repurchase $4.0 billion of our common stock and on September 5, 2018, the accelerated share repurchase agreement with Citibank was completed. For additional information, see the Notes to Condensed Consolidated Financial Statements––Note 12. Contingencies and Certain Commitments. At September 30, 2018, our remaining share-purchase authorization under the 2017 program was approximately $9.2 billion. |
(b) | In addition to the amounts purchased under our share repurchase program, including amounts purchased under the accelerated share repurchase agreement with Citibank, these columns represent (i) 32,041 shares of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of awards under our long-term incentive programs and (ii) the open market purchase by the trustee of 4,862 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance share awards and who deferred receipt of such awards. |
- | Amendment No. 3 to the Pfizer Supplemental Savings Plan. | ||
- | Accountants’ Acknowledgment. | ||
- | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
- | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
- | Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
- | Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
Exhibit 101: | |||
EX-101.INS | XBRL Instance Document | ||
EX-101.SCH EX-101.CAL EX-101.LAB EX-101.PRE EX-101.DEF | XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase XBRL Taxonomy Extension Definition Document |
Pfizer Inc. | ||
(Registrant) | ||
Dated: | November 8, 2018 | /s/ Loretta V. Cangialosi |
Loretta V. Cangialosi, Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) |