DELAWARE (State of Incorporation) | 13-5315170 (I.R.S. Employer Identification No.) |
YES X | NO ___ |
YES X | NO ___ |
YES ____ | NO X |
Page | |
Condensed Consolidated Statements of Income for the three months ended April 3, 2016 and March 29, 2015 | |
Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2016 and March 29, 2015 | |
Condensed Consolidated Balance Sheets as of April 3, 2016 and December 31, 2015 | |
Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2016 and March 29, 2015 | |
Three Months Ended | ||||||||
(MILLIONS, EXCEPT PER COMMON SHARE DATA) | April 3, 2016 | March 29, 2015 | ||||||
Revenues | $ | 13,005 | $ | 10,864 | ||||
Costs and expenses: | ||||||||
Cost of sales(a) | 2,851 | 1,838 | ||||||
Selling, informational and administrative expenses(a) | 3,385 | 3,104 | ||||||
Research and development expenses(a) | 1,731 | 1,885 | ||||||
Amortization of intangible assets | 1,006 | 940 | ||||||
Restructuring charges and certain acquisition-related costs | 141 | 60 | ||||||
Other (income)/deductions––net | 330 | (46 | ) | |||||
Income from continuing operations before provision for taxes on income | 3,561 | 3,082 | ||||||
Provision for taxes on income | 535 | 706 | ||||||
Income from continuing operations | 3,026 | 2,376 | ||||||
Discontinued operations––net of tax | — | 5 | ||||||
Net income before allocation to noncontrolling interests | 3,026 | 2,381 | ||||||
Less: Net income attributable to noncontrolling interests | 9 | 6 | ||||||
Net income attributable to Pfizer Inc. | $ | 3,016 | $ | 2,376 | ||||
Earnings per common share––basic: | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | ||||
Discontinued operations––net of tax | — | — | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | ||||
Earnings per common share––diluted: | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | ||||
Discontinued operations––net of tax | — | — | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | ||||
Weighted-average shares––basic | 6,150 | 6,203 | ||||||
Weighted-average shares––diluted | 6,214 | 6,292 | ||||||
Cash dividends paid per common share | $ | 0.30 | $ | 0.28 |
(a) | Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill:Identifiable Intangible Assets. |
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Net income before allocation to noncontrolling interests | $ | 3,026 | $ | 2,381 | ||||
Foreign currency translation adjustments, net | 67 | (1,308 | ) | |||||
67 | (1,308 | ) | ||||||
Unrealized holding losses on derivative financial instruments, net | (273 | ) | (315 | ) | ||||
Reclassification adjustments for realized (gains)/losses(a) | (339 | ) | 234 | |||||
(612 | ) | (82 | ) | |||||
Unrealized holding gains/(losses) on available-for-sale securities, net | 129 | (328 | ) | |||||
Reclassification adjustments for realized losses(a) | 209 | 247 | ||||||
339 | (81 | ) | ||||||
Benefit plans: actuarial gains, net | — | 32 | ||||||
Reclassification adjustments related to amortization(b) | 139 | 136 | ||||||
Reclassification adjustments related to settlements, net(b) | 26 | 40 | ||||||
Other | 38 | 158 | ||||||
203 | 365 | |||||||
Benefit plans: prior service costs and other, net | — | (1 | ) | |||||
Reclassification adjustments related to amortization(b) | (41 | ) | (35 | ) | ||||
Reclassification adjustments related to curtailments, net(b) | (6 | ) | (10 | ) | ||||
Other | 5 | — | ||||||
(42 | ) | (46 | ) | |||||
Other comprehensive loss, before tax | (44 | ) | (1,152 | ) | ||||
Tax provision/(benefit) on other comprehensive loss(c) | (41 | ) | 105 | |||||
Other comprehensive loss before allocation to noncontrolling interests | $ | (4 | ) | $ | (1,257 | ) | ||
Comprehensive income before allocation to noncontrolling interests | $ | 3,022 | $ | 1,124 | ||||
Less: Comprehensive income/(loss) attributable to noncontrolling interests | 4 | (10 | ) | |||||
Comprehensive income attributable to Pfizer Inc. | $ | 3,019 | $ | 1,134 |
(a) | Reclassified into Other (income)/deductions—net in the condensed consolidated statements of income. |
(b) | Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension and Postretirement Benefit Plans. |
(c) | See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Loss. |
(MILLIONS OF DOLLARS) | April 3, 2016 | December 31, 2015 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 2,561 | $ | 3,641 | ||||
Short-term investments | 16,882 | 19,649 | ||||||
Trade accounts receivable, less allowance for doubtful accounts: 2016—$649; 2015—$384 | 9,033 | 8,176 | ||||||
Inventories | 7,578 | 7,513 | ||||||
Current tax assets | 2,888 | 2,662 | ||||||
Other current assets | 2,355 | 2,163 | ||||||
Total current assets | 41,298 | 43,804 | ||||||
Long-term investments | 14,146 | 15,999 | ||||||
Property, plant and equipment, less accumulated depreciation: 2016—$14,002; 2015—$13,502 | 13,584 | 13,766 | ||||||
Identifiable intangible assets, less accumulated amortization | 39,602 | 40,356 | ||||||
Goodwill | 48,558 | 48,242 | ||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,738 | 1,794 | ||||||
Other noncurrent assets | 4,003 | 3,420 | ||||||
Total assets | $ | 162,929 | $ | 167,381 | ||||
Liabilities and Equity | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 11,546 | $ | 10,159 | ||||
Trade accounts payable | 3,125 | 3,620 | ||||||
Dividends payable | — | 1,852 | ||||||
Income taxes payable | 920 | 418 | ||||||
Accrued compensation and related items | 1,725 | 2,359 | ||||||
Other current liabilities | 11,419 | 10,990 | ||||||
Total current liabilities | 28,735 | 29,399 | ||||||
Long-term debt | 27,824 | 28,740 | ||||||
Pension benefit obligations, net | 5,264 | 6,310 | ||||||
Postretirement benefit obligations, net | 1,980 | 1,809 | ||||||
Noncurrent deferred tax liabilities | 26,547 | 26,877 | ||||||
Other taxes payable | 4,053 | 3,992 | ||||||
Other noncurrent liabilities | 5,180 | 5,257 | ||||||
Total liabilities | 99,582 | 102,384 | ||||||
Commitments and Contingencies | ||||||||
Preferred stock | 26 | 26 | ||||||
Common stock | 460 | 459 | ||||||
Additional paid-in capital | 81,443 | 81,016 | ||||||
Treasury stock | (84,313 | ) | (79,252 | ) | ||||
Retained earnings | 74,971 | 71,993 | ||||||
Accumulated other comprehensive loss | (9,520 | ) | (9,522 | ) | ||||
Total Pfizer Inc. shareholders’ equity | 63,068 | 64,720 | ||||||
Equity attributable to noncontrolling interests | 279 | 278 | ||||||
Total equity | 63,347 | 64,998 | ||||||
Total liabilities and equity | $ | 162,929 | $ | 167,381 |
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Operating Activities | ||||||||
Net income before allocation to noncontrolling interests | $ | 3,026 | $ | 2,381 | ||||
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,425 | 1,260 | ||||||
Asset write-offs and impairments | 146 | 11 | ||||||
Deferred taxes from continuing operations | (204 | ) | (41 | ) | ||||
Share-based compensation expense | 143 | 162 | ||||||
Benefit plan contributions in excess of expense | (853 | ) | (874 | ) | ||||
Other adjustments, net | 229 | (336 | ) | |||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (2,261 | ) | (1,883 | ) | ||||
Net cash provided by operating activities | 1,651 | 680 | ||||||
Investing Activities | ||||||||
Purchases of property, plant and equipment | (301 | ) | (239 | ) | ||||
Purchases of short-term investments | (3,489 | ) | (7,546 | ) | ||||
Proceeds from redemptions/sales of short-term investments | 7,922 | 10,702 | ||||||
Net proceeds from redemptions/sales of short-term investments with original maturities of three months or less | 493 | 5,243 | ||||||
Purchases of long-term investments | (1,308 | ) | (3,150 | ) | ||||
Proceeds from redemptions/sales of long-term investments | 1,142 | 1,937 | ||||||
Acquisitions of businesses, net of cash acquired | (110 | ) | (678 | ) | ||||
Acquisitions of intangible assets | — | (7 | ) | |||||
Other investing activities, net | 6 | 330 | ||||||
Net cash provided by investing activities | 4,355 | 6,592 | ||||||
Financing Activities | ||||||||
Proceeds from short-term borrowings | 682 | 1,999 | ||||||
Principal payments on short-term borrowings | (1,350 | ) | — | |||||
Net proceeds from short-term borrowings with original maturities of three months or less | 1,724 | 863 | ||||||
Principal payments on long-term debt | (1,536 | ) | (2,998 | ) | ||||
Purchases of common stock | (5,000 | ) | (6,000 | ) | ||||
Cash dividends paid | (1,854 | ) | (1,758 | ) | ||||
Proceeds from exercise of stock options | 296 | 794 | ||||||
Other financing activities, net | 25 | 122 | ||||||
Net cash used in financing activities | (7,014 | ) | (6,978 | ) | ||||
Effect of exchange-rate changes on cash and cash equivalents | (73 | ) | (74 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | (1,080 | ) | 220 | |||||
Cash and cash equivalents, beginning | 3,641 | 3,343 | ||||||
Cash and cash equivalents, end | $ | 2,561 | $ | 3,563 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 518 | $ | 372 | ||||
Interest | 382 | 332 |
• | Quoted prices for identical assets or liabilities in active markets (Level 1 inputs). |
• | Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs). |
• | Unobservable inputs that reflect estimates and assumptions (Level 3 inputs). |
(MILLIONS OF DOLLARS) | Amounts Recognized as of Acquisition Date (as previously reported as of December 31, 2015) | Measurement Period Adjustments | Amounts Recognized as of Acquisition Date (as adjusted) | |||||||||
Working capital, excluding inventories | $ | 274 | $ | (6 | ) | $ | 268 | |||||
Inventories | 1,924 | (16 | ) | 1,908 | ||||||||
Property, plant and equipment(a) | 2,410 | (53 | ) | 2,357 | ||||||||
Identifiable intangible assets, excluding in-process research and development(a) | 8,270 | 65 | 8,335 | |||||||||
In-process research and development | 995 | 5 | 1,000 | |||||||||
Other noncurrent assets | 408 | (46 | ) | 362 | ||||||||
Long-term debt | (1,928 | ) | — | (1,928 | ) | |||||||
Benefit obligations | (117 | ) | — | (117 | ) | |||||||
Net income tax accounts | (3,394 | ) | 25 | (3,369 | ) | |||||||
Other noncurrent liabilities | (39 | ) | — | (39 | ) | |||||||
Total identifiable net assets | 8,803 | (25 | ) | 8,778 | ||||||||
Goodwill | 7,284 | 25 | 7,309 | |||||||||
Net assets acquired/total consideration transferred | $ | 16,087 | $ | — | $ | 16,087 |
(a) | The measurement period adjustments for Identifiable intangible assets reflect changes in the estimated fair value of acquired finite-lived developed technology rights. The measurement period adjustments for Property, plant and equipment primarily reflect changes in the estimated fair value of acquired buildings and machinery and equipment. The changes in the estimated fair values for identifiable intangible assets and property, plant and equipment are primarily to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The measurement period adjustments did not result from intervening events subsequent to the acquisition date. |
• | Amounts for certain balances included in working capital (excluding inventories), certain investments and certain legal contingencies, pending receipt of certain information that could affect provisional amounts recorded. We do not believe any adjustments for legal contingencies will have a material impact on our consolidated financial statements. |
• | Amounts for intangibles, inventory and property, plant and equipment, pending finalization of valuation efforts for acquired intangible assets as well as the completion of certain physical inventory counts and the confirmation of the physical existence and condition of certain property, plant and equipment assets. |
• | Amounts for income tax assets, receivables and liabilities, pending the filing of Hospira pre-acquisition tax returns and the receipt of information including but not limited to that from taxing authorities, which may change certain estimates and assumptions used. |
The following table provides supplemental pro forma information as if the acquisition of Hospira had occurred on January 1, 2014: | ||||
Unaudited Supplemental Pro Forma Consolidated Results | ||||
Three Months Ended | ||||
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) | March 29, 2015 | |||
Revenues | $ | 12,039 | ||
Net income attributable to Pfizer Inc. common shareholders | 2,375 | |||
Diluted earnings per share attributable to Pfizer Inc. common shareholders | 0.38 |
• | Elimination of Hospira’s historical intangible asset amortization expense (approximately $12 million in the first quarter of 2015). |
• | Additional amortization expense (approximately $127 million in the first quarter of 2015) related to the preliminary estimate of the fair value of identifiable intangible assets acquired. |
• | Additional depreciation expense (approximately $22 million in the first quarter of 2015) related to the preliminary estimate of the fair value adjustment to property, plant and equipment (PP&E) acquired. |
• | Adjustment related to the preliminary estimate of the non-recurring fair value adjustment to acquisition-date inventory estimated to have been sold (the addition of $5 million of charges in the first quarter of 2015). |
• | Adjustment to decrease interest expense (approximately $10 million in the first quarter of 2015) related to the fair value adjustment of Hospira debt. |
• | Adjustment for non-recurring acquisition-related costs directly attributable to the acquisition (the elimination of $14 million of charges in the first quarter of 2015), reflecting non-recurring charges incurred by Hospira, which would have been recorded in 2014 under the pro forma assumption that the Hospira acquisition was completed on January 1, 2014. Pfizer did not incur any such charges in the first quarter of 2015. |
• | 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. |
• | Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of four sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $400 million associated with prior acquisition activity and costs of approximately $1.0 billion associated with new non-acquisition-related cost-reduction initiatives. Through April 3, 2016, we incurred approximately $357 million and $570 million, respectively, associated with these initiatives. |
• | The 2014 global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support different reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $225 million. Through April 3, 2016, we incurred approximately $219 million associated with this reorganization. |
• | Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $850 million. Through April 3, 2016, we incurred approximately $532 million associated with these initiatives. |
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Restructuring charges(a): | ||||||||
Employee terminations | $ | 24 | $ | 31 | ||||
Asset impairments | 1 | 6 | ||||||
Exit costs | 4 | 6 | ||||||
Total restructuring charges | 30 | 42 | ||||||
Transaction costs(b) | 24 | 5 | ||||||
Integration costs(c) | 87 | 13 | ||||||
Restructuring charges and certain acquisition-related costs | 141 | 60 | ||||||
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(d): | ||||||||
Cost of sales | 45 | 17 | ||||||
Research and development expenses | 4 | 1 | ||||||
Total additional depreciation––asset restructuring | 49 | 18 | ||||||
Implementation costs recorded in our condensed consolidated statements of income as follows(e): | ||||||||
Cost of sales | 43 | 13 | ||||||
Selling, informational and administrative expenses | 12 | 26 | ||||||
Research and development expenses | 6 | 8 | ||||||
Total implementation costs | 62 | 48 | ||||||
Total costs associated with acquisitions and cost-reduction/productivity initiatives | $ | 252 | $ | 127 |
(a) | In the three months ended April 3, 2016, Employee terminations represent the expected reduction of the workforce by approximately 100 employees, mainly in manufacturing. Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination. |
• | the Global Innovative Pharmaceutical segment (GIP) ($8 million); the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($1 million); the Global Established Pharmaceutical segment (GEP) ($3 million); Worldwide Research and Development and Medical (WRD/M) ($3 million); manufacturing operations ($14 million); and Corporate ($1 million). |
• | GIP ($12 million); VOC ($13 million); GEP ($10 million); WRD/M ($12 million); manufacturing operations ($22 million income); and Corporate ($18 million). |
(b) | Transaction costs represent external costs for banking, legal, accounting and other similar services, most of which are directly related to the terminated transaction with Allergan. |
(c) | 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, primarily related to the acquisition of Hospira. |
(d) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
(e) | Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives. |
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, 2015(a) | $ | 1,109 | $ | — | $ | 48 | $ | 1,157 | ||||||||
Provision | 24 | 1 | 4 | 30 | ||||||||||||
Utilization and other(b) | (165 | ) | (1 | ) | (9 | ) | (175 | ) | ||||||||
Balance, April 3, 2016(c) | $ | 968 | $ | — | $ | 43 | $ | 1,011 |
(a) | Included in Other current liabilities ($776 million) and Other noncurrent liabilities ($381 million). |
(b) | Includes adjustments for foreign currency translation. |
(c) | Included in Other current liabilities ($638 million) and Other noncurrent liabilities ($373 million). |
The following table provides components of Other (income)/deductions––net: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Interest income(a) | $ | (113 | ) | $ | (93 | ) | ||
Interest expense | 306 | 309 | ||||||
Net interest expense | 193 | 216 | ||||||
Royalty-related income | (187 | ) | (222 | ) | ||||
Certain legal matters, net(b) | 274 | — | ||||||
Net gains on asset disposals(c) | (9 | ) | (175 | ) | ||||
Certain asset impairments(d) | 131 | — | ||||||
Business and legal entity alignment costs(e) | 51 | 101 | ||||||
Other, net(f) | (122 | ) | 34 | |||||
Other (income)/deductions––net | $ | 330 | $ | (46 | ) |
(a) | Interest income increased in the first quarter of 2016, primarily due to higher investment returns. |
(b) | In the first quarter of 2016, primarily includes an accrual for an unresolved legal matter and a settlement related to a patent matter. |
(c) | In the first quarter of 2016, primarily includes gains on sales/out-licensing of product and compound rights (approximately $16 million). In the first quarter of 2015, primarily includes gains on sales/out-licensing of product and compound rights (approximately $45 million) and gains on sales of investments in equity securities (approximately $120 million). |
(d) | In the first quarter of 2016, represents an impairment loss of $81 million related to Pfizer’s 49%-owned equity-method investment with Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun) in China, Hisun Pfizer, and an impairment loss of $50 million related to Pfizer's 40%-owned equity-method investment in Teuto. For additional information concerning Hisun Pfizer and Teuto, see Note 2C. |
(e) | In the first quarter of 2016 and 2015, represents expenses for changes to our infrastructure to align our commercial operations, 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. |
(f) | In the first quarter of 2016, primarily includes, among other things, income of $116 million from resolution of a contract disagreement. |
• | benefits related to the final resolution (pending court approval) of an agreement in principle reached in February 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position; |
• | benefits associated with our Venezuela operations; |
• | an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, and the expiration of certain statutes of limitations; as well as |
• | an increase in benefits associated with the U.S. R&D tax credit, which was not in effect in the prior year quarter but was permanently extended on December 18, 2015, |
• | an unfavorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business. |
• | With respect to Pfizer Inc., 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 2011-2013 are currently under audit. Tax years 2014-2016 are open, but not under audit. All other tax years are closed. |
• | With respect to Hospira, Inc., the IRS is auditing 2010-2011 and 2012-2013. Tax years 2014-2015 (through date of acquisition) are open but not under audit. All other tax years are closed. The open tax years and audits for Hospira, Inc. and its subsidiaries are not considered material to Pfizer. |
The following table provides the components of Tax provision/(benefit) on other comprehensive loss: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Foreign currency translation adjustments, net(a) | $ | (14 | ) | $ | 85 | |||
Unrealized holding losses on derivative financial instruments, net | (36 | ) | (224 | ) | ||||
Reclassification adjustments for realized (gains)/losses | (72 | ) | 183 | |||||
(108 | ) | (41 | ) | |||||
Unrealized holding gains/(losses) on available-for-sale securities, net | 17 | (31 | ) | |||||
Reclassification adjustments for realized losses | 26 | (1 | ) | |||||
43 | (32 | ) | ||||||
Benefit plans: actuarial gains, net | — | 12 | ||||||
Reclassification adjustments related to amortization | 47 | 46 | ||||||
Reclassification adjustments related to settlements, net | 9 | 15 | ||||||
Other | (1 | ) | 37 | |||||
55 | 109 | |||||||
Benefit plans: prior service costs and other, net | — | — | ||||||
Reclassification adjustments related to amortization | (15 | ) | (13 | ) | ||||
Reclassification adjustments related to curtailments, net | (2 | ) | (4 | ) | ||||
Other | 1 | — | ||||||
(16 | ) | (17 | ) | |||||
Tax provision/(benefit) on other comprehensive loss | $ | (41 | ) | $ | 105 |
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. |
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 Loss | ||||||||||||||||||
Balance, December 31, 2015 | $ | (5,863 | ) | $ | 421 | $ | (227 | ) | $ | (4,733 | ) | $ | 880 | $ | (9,522 | ) | ||||||||
Other comprehensive income/(loss)(a) | 87 | (504 | ) | 296 | 148 | (25 | ) | 2 | ||||||||||||||||
Balance, April 3, 2016 | $ | (5,776 | ) | $ | (83 | ) | $ | 69 | $ | (4,585 | ) | $ | 855 | $ | (9,520 | ) |
(a) | Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $6 million loss for the first three months of 2016. |
The following table provides additional information about certain of our financial assets and liabilities: | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | December 31, 2015 | ||||||
Selected financial assets measured at fair value on a recurring basis(a) | ||||||||
Trading funds(b) | $ | 260 | $ | 287 | ||||
Available-for-sale debt securities(c) | 27,819 | 32,078 | ||||||
Money market funds | 947 | 934 | ||||||
Available-for-sale equity securities(c) | 497 | 603 | ||||||
Derivative financial instruments in a receivable position(d): | ||||||||
Interest rate swaps | 1,433 | 837 | ||||||
Foreign currency swaps | 103 | 135 | ||||||
Foreign currency forward-exchange contracts | 333 | 559 | ||||||
31,391 | 35,433 | |||||||
Other selected financial assets | ||||||||
Held-to-maturity debt securities, carried at amortized cost(c), (e) | 1,065 | 1,388 | ||||||
Private equity securities, carried at equity-method or at cost(e), (f) | 1,250 | 1,336 | ||||||
2,315 | 2,724 | |||||||
Total selected financial assets | $ | 33,705 | $ | 38,157 | ||||
Selected financial liabilities measured at fair value on a recurring basis(a) | ||||||||
Derivative financial instruments in a liability position(g): | ||||||||
Interest rate swaps | $ | 9 | $ | 139 | ||||
Foreign currency swaps | 1,311 | 1,489 | ||||||
Foreign currency forward-exchange contracts | 432 | 81 | ||||||
1,752 | 1,709 | |||||||
Other selected financial liabilities(h) | ||||||||
Short-term borrowings, carried at historical proceeds, as adjusted(e), (i) | 11,546 | 10,159 | ||||||
Long-term debt, carried at historical proceeds, as adjusted(i), (j) | 27,824 | 28,740 | ||||||
39,370 | 38,899 | |||||||
Total selected financial liabilities | $ | 41,122 | $ | 40,608 |
(a) | We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs and money market funds measured at net asset value. |
(b) | As of April 3, 2016, trading funds are composed of $204 million of trading equity funds and $56 million of trading debt funds. As of December 31, 2015, trading funds are composed of $185 million of trading equity funds and $102 million of trading debt funds. As of April 3, 2016 and December 31, 2015, trading equity funds of $65 million and $85 million, respectively, are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. |
(c) | Gross unrealized gains and losses are not significant. |
(d) | Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of $144 million as of April 3, 2016; and foreign currency forward-exchange contracts with fair values of $136 million as of December 31, 2015. |
(e) | Short-term borrowings include foreign currency short-term borrowings with fair values of $547 million as of December 31, 2015, which are used as hedging instruments. The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of April 3, 2016 or December 31, 2015. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities carried at cost are based on Level 3 inputs. |
(f) | Our private equity securities represent investments in the life sciences sector. |
(g) | Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $188 million and foreign currency forward-exchange contracts with fair values of $117 million as of April 3, 2016; and foreign currency swaps with fair values of $234 million and foreign currency forward-exchange contracts with fair values of $59 million as of December 31, 2015. |
(h) | Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps. |
(i) | We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 |
(j) | The fair value of our long-term debt (not including the current portion of long-term debt) was $31.8 billion as of April 3, 2016 and $32.7 billion as of December 31, 2015. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Generally, the difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance. |
The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets: | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | December 31, 2015 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 809 | $ | 978 | ||||
Short-term investments | 16,882 | 19,649 | ||||||
Long-term investments | 14,146 | 15,999 | ||||||
Other current assets(a) | 390 | 587 | ||||||
Other noncurrent assets(b) | 1,478 | 944 | ||||||
$ | 33,705 | $ | 38,157 | |||||
Liabilities | ||||||||
Short-term borrowings, including current portion of long-term debt(c) | $ | 11,546 | $ | 10,159 | ||||
Other current liabilities(d) | 862 | 645 | ||||||
Long-term debt(c) | 27,824 | 28,740 | ||||||
Other noncurrent liabilities(e) | 890 | 1,064 | ||||||
$ | 41,122 | $ | 40,608 |
(a) | As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($62 million) and foreign currency forward-exchange contracts ($323 million) and, as of December 31, 2015, include interest rate swaps ($2 million), foreign currency swaps ($46 million) and foreign currency forward-exchange contracts ($538 million). |
(b) | As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($1,428 million), foreign currency swaps ($41 million) and foreign currency forward-exchange contracts ($9 million) and, as of December 31, 2015, include interest rate swaps ($835 million), foreign currency swaps ($89 million) and foreign currency forward-exchange contracts ($20 million). |
(c) | We adopted a new standard as of January 1, 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of April 3, 2016, debt issuance costs are $76 million and are presented as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($75 million). In the December 31, 2015 condensed consolidated balance sheet, we have reclassified debt issuance costs of $79 million ($1 million from Other current assets and $79 million from Other noncurrent assets) and have presented them as contra-liabilities to Short-term borrowings, including current portion of long-term debt ($1 million) and Long-term debt ($79 million) to conform to the current period presentation. |
(d) | As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($5 million), foreign currency swaps ($454 million) and foreign currency forward-exchange contracts ($403 million) and, as of December 31, 2015, include interest rate swaps ($5 million), foreign currency swaps ($560 million) and foreign currency forward-exchange contracts ($80 million). |
(e) | As of April 3, 2016, derivative instruments at fair value include interest rate swaps ($4 million), foreign currency swaps ($857 million) and foreign currency forward-exchange contracts ($29 million) and, as of December 31, 2015, include interest rate swaps ($134 million), foreign currency swaps ($928 million) and foreign currency forward-exchange contracts ($1 million). |
The following table provides the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities: | ||||||||||||||||||||
Years | April 3, 2016 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Within 1 | Over 1 to 5 | Over 5 to 10 | Over 10 | Total | |||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||
Western European, Asian, Scandinavian and other government debt(a) | $ | 7,056 | $ | 1,033 | $ | 8 | $ | — | $ | 8,097 | ||||||||||
Corporate debt(b) | 3,223 | 4,786 | 1,656 | 15 | 9,680 | |||||||||||||||
U.S. government debt | 1,812 | 848 | 207 | — | 2,867 | |||||||||||||||
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities | 34 | 2,110 | 71 | 11 | 2,227 | |||||||||||||||
Western European, Scandinavian and other government agency debt(a) | 1,587 | 210 | — | — | 1,797 | |||||||||||||||
Supranational debt(a) | 911 | 323 | — | — | 1,234 | |||||||||||||||
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities | 599 | 112 | 18 | — | 729 | |||||||||||||||
Other asset-backed debt(c) | 461 | 682 | 40 | 4 | 1,188 | |||||||||||||||
Held-to-maturity debt securities | ||||||||||||||||||||
Time deposits and other | 1,024 | 5 | — | — | 1,029 | |||||||||||||||
Western European government debt(a) | 36 | — | — | — | 36 | |||||||||||||||
Total debt securities | $ | 16,744 | $ | 10,109 | $ | 2,001 | $ | 31 | $ | 28,884 |
(a) | Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade. |
(b) | Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade. |
(c) | Includes loan-backed, receivable-backed, and mortgage-backed securities, all of which are investment-grade and in senior positions in the capital structure of the security. Loan-backed securities are collateralized by senior secured obligations of a diverse pool of companies or student loans, and receivable-backed securities are collateralized by credit cards receivables. Mortgage-backed securities are collateralized by diversified pools of residential and commercial mortgages. These securities are valued by third party models that use significant inputs derived from observable market data like prepayment rates, default rates, and recovery rates. |
The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Amount of Gains/(Losses) Recognized in OID(a), (b), (c) | Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d) | Amount of Gains/(Losses) Reclassified from OCI into OID (Effective Portion)(a), (d) | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | April 3, 2016 | March 29, 2015 | April 3, 2016 | March 29, 2015 | ||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | 55 | $ | (732 | ) | $ | 118 | $ | (607 | ) | ||||||||||
Foreign currency forward-exchange contracts | 1 | — | (328 | ) | 417 | 221 | 373 | |||||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | (2 | ) | 2 | (12 | ) | 249 | — | — | ||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | (1 | ) | (41 | ) | — | — | — | — | ||||||||||||||||
Foreign currency swaps | (23 | ) | 1 | — | — | — | — | |||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency short-term borrowings | — | — | (26 | ) | — | — | — | |||||||||||||||||
Foreign currency long-term debt | — | — | — | (3 | ) | — | — | |||||||||||||||||
$ | (25 | ) | $ | (38 | ) | $ | (311 | ) | $ | (68 | ) | $ | 339 | $ | (234 | ) |
(a) | OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income. |
(b) | Also, includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships. |
(c) | There was no significant ineffectiveness for any period presented. |
(d) | For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive loss––Unrealized holding 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 loss––Foreign currency translation adjustments, net. |
The following table provides the components of Inventories: | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | December 31, 2015 | ||||||
Finished goods | $ | 2,782 | $ | 2,714 | ||||
Work-in-process | 3,957 | 3,932 | ||||||
Raw materials and supplies | 840 | 867 | ||||||
Inventories | $ | 7,578 | $ | 7,513 | ||||
Noncurrent inventories not included above(a) | $ | 644 | $ | 594 |
(a) | Included in Other noncurrent assets. There are no recoverability issues associated with these amounts. |
The following table provides the components of Identifiable intangible assets: | ||||||||||||||||||||||||
April 3, 2016 | December 31, 2015 | |||||||||||||||||||||||
(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 | $ | 77,630 | $ | (48,088 | ) | $ | 29,543 | $ | 77,613 | $ | (47,193 | ) | $ | 30,419 | ||||||||||
Brands | 2,103 | (956 | ) | 1,147 | 1,973 | (928 | ) | 1,044 | ||||||||||||||||
Licensing agreements and other | 1,772 | (931 | ) | 841 | 1,619 | (918 | ) | 701 | ||||||||||||||||
81,505 | (49,975 | ) | 31,530 | 81,205 | (49,040 | ) | 32,165 | |||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Brands and other | 6,893 | 6,893 | 7,021 | 7,021 | ||||||||||||||||||||
In-process research and development | 1,179 | 1,179 | 1,171 | 1,171 | ||||||||||||||||||||
8,072 | 8,072 | 8,192 | 8,192 | |||||||||||||||||||||
Identifiable intangible assets(a) | $ | 89,577 | $ | (49,975 | ) | $ | 39,602 | $ | 89,396 | $ | (49,040 | ) | $ | 40,356 |
(a) | The decrease in Identifiable intangible assets, less accumulated amortization, is primarily related to amortization, partially offset by assets acquired, the impact of measurement period adjustments related to our acquisition of Hospira (see Note 2A) and the impact of foreign exchange. |
Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: | ||||||||||||
April 3, 2016 | ||||||||||||
GIP | VOC | GEP | WRD | |||||||||
Developed technology rights | 21 | % | 29 | % | 50 | % | — | % | ||||
Brands, finite-lived | — | % | 73 | % | 27 | % | — | % | ||||
Brands, indefinite-lived | — | % | 71 | % | 29 | % | — | % | ||||
In-process research and development | 2 | % | 10 | % | 85 | % | 3 | % |
The following table provides the components of and changes in the carrying amount of Goodwill: | ||||||||||||||||
(MILLIONS OF DOLLARS) | GIP | VOC | GEP | Total | ||||||||||||
Balance, December 31, 2015 | $ | 12,689 | $ | 11,120 | $ | 24,433 | $ | 48,242 | ||||||||
Additions | — | 51 | 26 | 78 | ||||||||||||
Other(a) | 76 | 60 | 102 | 238 | ||||||||||||
Balance, April 3, 2016 | $ | 12,765 | $ | 11,231 | $ | 24,562 | $ | 48,558 |
(a) | Primarily reflects the impact of foreign exchange. |
The following table provides the components of net periodic benefit cost: | ||||||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
Pension Plans | ||||||||||||||||||||||||||||||||
U.S. Qualified(a) | U.S. Supplemental (Non-Qualified)(b) | International(c) | Postretirement Plans(d) | |||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Apr 3, 2016 | Mar 29, 2015 | Apr 3, 2016 | Mar 29, 2015 | Apr 3, 2016 | Mar 29, 2015 | Apr 3, 2016 | Mar 29, 2015 | ||||||||||||||||||||||||
Net periodic benefit cost/(credit): | ||||||||||||||||||||||||||||||||
Service cost(e) | $ | 63 | $ | 72 | $ | 5 | $ | 6 | $ | 42 | $ | 48 | $ | 10 | $ | 14 | ||||||||||||||||
Interest cost(e) | 134 | 169 | 12 | 14 | 60 | 79 | 22 | 32 | ||||||||||||||||||||||||
Expected return on plan assets | (241 | ) | (272 | ) | — | — | (98 | ) | (106 | ) | (8 | ) | (13 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses | 99 | 83 | 9 | 12 | 23 | 32 | 7 | 9 | ||||||||||||||||||||||||
Prior service credits | 1 | (2 | ) | — | — | — | (2 | ) | (41 | ) | (31 | ) | ||||||||||||||||||||
Curtailments | 2 | 2 | — | — | — | — | (6 | ) | (10 | ) | ||||||||||||||||||||||
Settlements | 15 | 26 | 10 | 15 | 1 | — | — | — | ||||||||||||||||||||||||
$ | 73 | $ | 78 | $ | 35 | $ | 45 | $ | 27 | $ | 51 | $ | (16 | ) | $ | 1 |
(a) | The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. qualified pension plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) lower settlement activity. The aforementioned decreases were partially offset by (i) a lower expected return on plan assets resulting from a net decrease of approximately $1.1 billion in the asset base due in part to lump-sum payments made in 2015 to certain terminated colleagues to settle Pfizer’s pension obligation, partially offset by a voluntary contribution of $1.0 billion made at the beginning of January 2016 and (ii) an increase in the amounts amortized for actuarial losses. |
(b) | The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. non-qualified pension plans was primarily driven by (i) lower settlement activity and (ii) a decrease in the amounts amortized for actuarial losses resulting from the increase, in 2015, in the discount rate used to determine the benefit obligation. |
(c) | The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our international pension plans was primarily driven by (i) lower service and interest costs, resulting from foreign exchange rate changes and a change in methodology for measuring service and interest costs (see (e) below), and (ii) a decrease in the amounts amortized for actuarial losses resulting from large gains in 2015, which decreased the plan net loss position, partially offset by (i) a decrease in the expected return on plan assets due to a lower expected rate of return on plan assets, and foreign exchange rates changes. |
(d) | The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our postretirement plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) an increase in prior service credits due to the postretirement medical plan cap changes during 2015. The aforementioned changes were partially offset by (i) a decrease in expected return on plan assets, primarily resulting from a decrease in plan assets reflecting Internal Revenue Code 401(h) reimbursements to Pfizer for eligible 2014 and 2015 prescription drug expenses for certain retirees, and (ii) lower curtailment gains. |
(e) | Effective January 1, 2016, the Company changed the approach used to measure service and interest costs for U.S. and certain international pension and other postretirement benefits. For fiscal 2015, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the bond model or yield curve used to measure the respective plan obligations. For fiscal 2016, we elected to measure service and interest costs by applying the spot rates along the yield curve, or a yield curve implied from the bond model, to the plans' liability cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. The expected reduction in expense for 2016 associated with this change in estimate is $191 million, which is expected to be recognized evenly over each quarter of the year. |
Pension Plans | ||||||||||||||||
(MILLIONS OF DOLLARS) | U.S. Qualified | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | ||||||||||||
Contributions from/reimbursements of our general assets for the three months ended April 3, 2016(a) | $ | 1,000 | $ | 70 | $ | 50 | $ | (148 | ) | |||||||
Expected contributions from our general assets during 2016(b) | $ | 1,000 | $ | 126 | $ | 174 | $ | (6 | ) |
(a) | Contributions to the postretirement plans reflect Internal Revenue Code 401(h) reimbursements totaling $198 million received for eligible 2014 and 2015 prescription drug expenses for certain retirees. |
(b) | Contributions expected to be made for 2016 are inclusive of amounts contributed during the three months ended April 3, 2016, including the $1.0 billion voluntary contribution that was made in January 2016 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 Earnings per common share (EPS): | ||||||||
Three Months Ended | ||||||||
(IN MILLIONS) | April 3, 2016 | March 29, 2015 | ||||||
EPS Numerator––Basic | ||||||||
Income from continuing operations | $ | 3,026 | $ | 2,376 | ||||
Less: Net income attributable to noncontrolling interests | 9 | 6 | ||||||
Income from continuing operations attributable to Pfizer Inc. | 3,016 | 2,371 | ||||||
Less: Preferred stock dividends––net of tax | — | — | ||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | 3,016 | 2,370 | ||||||
Discontinued operations––net of tax | — | 5 | ||||||
Less: Discontinued operations––net of tax, attributable to noncontrolling interests | — | — | ||||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders | — | 5 | ||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 3,016 | $ | 2,375 | ||||
EPS Numerator––Diluted | ||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 3,016 | $ | 2,371 | ||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | — | 5 | ||||||
Net income attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 3,016 | $ | 2,376 | ||||
EPS Denominator | ||||||||
Weighted-average number of common shares outstanding––Basic | 6,150 | 6,203 | ||||||
Common-share equivalents: stock options, stock issuable under employee compensation plans, convertible preferred stock and accelerated share repurchase agreements | 64 | 90 | ||||||
Weighted-average number of common shares outstanding––Diluted | 6,214 | 6,292 | ||||||
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | 86 | 34 |
(a) | These common stock equivalents were outstanding for the three months ended April 3, 2016 and March 29, 2015, 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 our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets. |
• | Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters. |
• | Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter. |
• | Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries. |
• | Personal Injury Actions |
• | Antitrust Actions |
• | Whistleblower Action |
• | Antitrust Actions |
• | Personal Injury Actions |
Some additional information about each business and operating segment follows: | ||||
Innovative Products Business | Established Products Business | |||
Global Innovative Pharmaceutical segment: GIP focuses on developing and commercializing novel, value-creating medicines that significantly improve patients’ lives. Key therapeutic areas include inflammation/immunology, cardiovascular/metabolic, neuroscience/pain and rare diseases and include leading brands, such as Xeljanz, Eliquis, Lyrica (U.S. and Japan), Enbrel (outside the U.S. and Canada) and Viagra (U.S. and Canada). | Global Vaccines, Oncology and Consumer Healthcare segment: VOC focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare. Consumer Healthcare manufactures and markets several well known, over-the-counter (OTC) products. Each of the three businesses in VOC operates as a separate, global business, with distinct specialization in terms of the science and market approach necessary to deliver value to consumers and patients. | Global Established Pharmaceutical segment: GEP includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars and infusion systems. Beginning in 2016, GEP includes a new GEP R&D organization as well as our contract manufacturing business. |
• | Our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in GEP since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of Pfizer Global Supply and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($111 million of PCS revenues and $21 million of PCS earnings in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
• | In connection with the formation of a new GEP R&D organization, certain functions transferred from Pfizer’s WRD organization into the new GEP R&D organization. The new R&D organization within GEP expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $66 million of costs in the first quarter of 2015 from WRD to GEP to conform to the current period presentation as part of GEP. |
• | WRD, which is generally responsible for research projects for our Innovative Products business until proof-of-concept is achieved and then for transitioning those projects to the appropriate Innovative Products operating segment via the newly formed Global Product Development Group 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 GEP R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
• | Pfizer Medical, which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, partnerships with global public health and medical associations, and regulatory inspection readiness reviews. |
• | Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. |
• | Other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment. |
• | 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 property, plant and equipment; (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, which include 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) | April 3, 2016 | March 29, 2015 | April 3, 2016 | March 29, 2015 | ||||||||||||
Reportable Segments: | ||||||||||||||||
GIP | $ | 3,640 | $ | 3,075 | $ | 2,192 | $ | 1,511 | ||||||||
VOC | 3,394 | 2,664 | 1,835 | 1,464 | ||||||||||||
GEP(b) | 5,972 | 5,125 | 3,657 | 3,215 | ||||||||||||
Total reportable segments | 13,005 | 10,864 | 7,684 | 6,190 | ||||||||||||
Other business activities(c) | — | — | (619 | ) | (624 | ) | ||||||||||
Reconciling Items: | ||||||||||||||||
Corporate(c) | — | — | (1,363 | ) | (1,287 | ) | ||||||||||
Purchase accounting adjustments(c) | — | — | (1,153 | ) | (903 | ) | ||||||||||
Acquisition-related costs(c) | — | — | (116 | ) | (23 | ) | ||||||||||
Certain significant items(d) | — | — | (638 | ) | (228 | ) | ||||||||||
Other unallocated | — | — | (234 | ) | (45 | ) | ||||||||||
$ | 13,005 | $ | 10,864 | $ | 3,561 | $ | 3,082 |
(a) | Income from continuing operations before provision for taxes on income. |
(b) | On September 3, 2015, we acquired Hospira. Commencing from the acquisition date, our condensed consolidated statement of income includes the operating results of Hospira. As a result, legacy Hospira commercial operations, including the legacy Hospira One-2-One contract manufacturing business, are included in GEP’s operating results in our condensed consolidated statements of income for the first quarter of 2016, but not for the first quarter of 2015. See Note 2A for additional information. Effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. |
(c) | For a description, see the “Other Costs and Business Activities” section above. |
(d) | Certain significant items are substantive, unusual items 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(a): | |||||||||
Three Months Ended | |||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | |||||||
United States | $ | 6,625 | $ | 4,433 | |||||
Developed Europe(b) | 2,370 | 2,312 | |||||||
Developed Rest of World(c) | 1,520 | 1,493 | |||||||
Emerging Markets(d) | 2,489 | 2,626 | |||||||
Revenues | $ | 13,005 | $ | 10,864 |
(a) | On September 3, 2015, we acquired Hospira. Commencing from the acquisition date, our condensed consolidated statement of income includes the operating results of Hospira. As a result, legacy Hospira operations are included in our condensed consolidated statements of income for the first quarter of 2016, but not for the first quarter of 2015. See Note 2A for additional information. |
(b) | Developed Europe region includes the following markets: Western Europe, Finland and the Scandinavian countries. Revenues denominated in euros were $1.8 billion in the first quarter of 2016 and $1.8 billion in the first quarter of 2015. |
(c) | Developed Rest of World region includes the following markets: Australia, Canada, Japan, New Zealand and South Korea. |
(d) | Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe, the Middle East and Turkey. |
The following table provides detailed revenue information: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
INNOVATIVE PRODUCTS BUSINESS(a) | $ | 7,033 | $ | 5,738 | ||||
GIP(a) | $ | 3,640 | $ | 3,075 | ||||
Lyrica GIP(b) | 1,011 | 846 | ||||||
Enbrel (Outside the U.S. and Canada) | 733 | 759 | ||||||
Viagra GIP(c) | 300 | 288 | ||||||
Chantix/Champix | 220 | 158 | ||||||
Xeljanz | 197 | 96 | ||||||
BeneFIX | 185 | 173 | ||||||
Refacto AF/Xyntha | 129 | 120 | ||||||
Genotropin | 125 | 138 | ||||||
Toviaz | 64 | 63 | ||||||
Somavert | 55 | 49 | ||||||
BMP2 | 51 | 38 | ||||||
Rapamune | 45 | 53 | ||||||
Alliance revenues GIP(d), (l) | 354 | 200 | ||||||
All other GIP | 171 | 92 | ||||||
VOC(a) | $ | 3,394 | $ | 2,664 | ||||
Prevnar/Prevenar 13 | 1,509 | 1,306 | ||||||
Ibrance | 429 | 38 | ||||||
Sutent | 278 | 242 | ||||||
Xalkori | 139 | 111 | ||||||
Inlyta | 101 | 95 | ||||||
All other V/O | 117 | 63 | ||||||
Consumer Healthcare | 822 | 808 | ||||||
ESTABLISHED PRODUCTS BUSINESS(e) | $ | 5,972 | $ | 5,125 | ||||
Legacy Established Products(f) | $ | 2,800 | $ | 2,848 | ||||
Lipitor | 411 | 441 | ||||||
Premarin family | 256 | 232 | ||||||
Norvasc | 236 | 252 | ||||||
EpiPen | 97 | 76 | ||||||
Xalatan/Xalacom | 89 | 102 | ||||||
Zithromax/Zmax | 80 | 79 | ||||||
Zoloft | 79 | 86 | ||||||
Relpax | 78 | 80 | ||||||
Effexor | 70 | 73 | ||||||
Tikosyn | 61 | 37 | ||||||
Xanax/Xanax XR | 52 | 54 | ||||||
Cardura | 45 | 52 | ||||||
Neurontin | 44 | 55 | ||||||
All other Legacy Established Products(f), (l) | 1,201 | 1,229 | ||||||
Peri-LOE Products(g) | $ | 1,090 | $ | 1,437 | ||||
Lyrica GEP(b) | 218 | 341 | ||||||
Pristiq | 178 | 161 | ||||||
Celebrex | 172 | 205 | ||||||
Vfend | 156 | 182 | ||||||
Zyvox | 127 | 271 | ||||||
Viagra GEP(c) | 96 | 108 | ||||||
Revatio | 66 | 63 | ||||||
All other Peri-LOE Products | 76 | 107 | ||||||
Sterile Injectable Pharmaceuticals(h) | $ | 1,524 | $ | 729 | ||||
Medrol | 113 | 87 | ||||||
Sulperazon | 96 | 98 | ||||||
Fragmin | 78 | 74 | ||||||
Tygacil | 76 | 74 | ||||||
All other Sterile Injectable Pharmaceuticals | 1,161 | 396 |
Infusion Systems(i) | $ | 304 | $ | — | ||||
Biosimilars(j) | $ | 66 | $ | — | ||||
Pfizer CentreOne(k) | $ | 188 | $ | 111 | ||||
Revenues | $ | 13,005 | $ | 10,864 | ||||
Total Lyrica(b) | $ | 1,229 | $ | 1,187 | ||||
Total Viagra(c) | $ | 396 | $ | 396 | ||||
Total Alliance revenues(l) | $ | 360 | $ | 222 |
(a) | The Innovative Products business is composed of two operating segments: GIP and VOC. |
(b) | Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica-GEP. All other Lyrica revenues are included in Lyrica-GIP. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica-GIP and Lyrica-GEP. |
(c) | Viagra revenues from the U.S. and Canada are included in Viagra-GIP. All other Viagra revenues are included in Viagra-GEP. Total Viagra revenues represent the aggregate of worldwide revenues from Viagra-GIP and Viagra-GEP. |
(d) | Includes Eliquis and Rebif. |
(e) | The Established Products business consists of GEP, which includes all legacy Hospira commercial operations. Hospira's commercial operations, including the legacy Hospira One-2-One sterile injectables contract manufacturing business, are included in GEP’s operating results in our condensed consolidated statement of income commencing from the acquisition date of September 3, 2015. As a result, revenues for the first quarter of 2015 and GEP's revenues for the first quarter of 2015 do not include Hospira's revenues. Also, effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) legacy Hospira's One-2-One sterile injectables contract manufacturing operation. Prior to 2016, PCS was managed outside our operating segments and its revenues were reported as other business activities. We have reclassified prior period PCS revenues ($111 million in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
(f) | Legacy Established Products include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products). |
(g) | Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products primarily include Celebrex and Zyvox in most developed markets, Lyrica in certain developed Europe markets, Pristiq globally and Inspra in the EU. |
(h) | Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products). |
(i) | Infusion Systems include Medication Management Systems products composed of infusion pumps and related software and services, as well as I.V. Infusion Products, including large volume I.V. solutions and their associated administration sets. |
(j) | Biosimilars include Inflectra (biosimilar infliximab) in certain European markets, Nivestim (biosimilar filgrastim) in certain Asian markets and Retacrit (biosimilar epoetin zeta) in certain international markets. |
(k) | Pfizer CentreOne includes (i) revenues from legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including revenues related to our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) revenues from legacy Hospira’s One-2-One sterile injectables contract manufacturing operation. For additional information, see (e) above. |
(l) | Total Alliance revenues represent the aggregate of worldwide revenues from Alliance revenues GIP and Alliance revenues GEP, which is included in All other Legacy Established Products. |
● | Beginning on page 41 | ||||
This section provides information about the following: Our Business; our performance during the first quarter of 2016 and 2015; 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 2016. | |||||
● | Beginning on page 53 | ||||
This section includes a Revenues Overview section as well as the following sub-sections: | |||||
Beginning on page 56 | |||||
This sub-section provides revenue information for several of our major biopharmaceutical products. | |||||
Beginning on page 57 | |||||
This sub-section provides an overview of several of our biopharmaceutical products. | |||||
Beginning on page 60 | |||||
This sub-section provides an overview of important biopharmaceutical product developments. | |||||
Beginning on page 64 | |||||
This sub-section provides a discussion about our costs and expenses. | |||||
Beginning on page 67 | |||||
This sub-section provides a discussion of items impacting our tax provisions. | |||||
Beginning on page 67 | |||||
This sub-section provides a discussion of an alternative view of performance used by management. | |||||
● | Beginning on page 71 | ||||
This section provides a discussion of the performance of each of our operating segments. | |||||
● | Beginning on page 77 | ||||
This section provides a discussion of changes in certain components of other comprehensive income. | |||||
● | Beginning on page 78 | ||||
This section provides a discussion of changes in certain balance sheet accounts. | |||||
● | Beginning on page 79 | ||||
This section provides an analysis of our cash flows for the first three months of 2016 and 2015. | |||||
● | Beginning on page 80 | ||||
This section provides an analysis of selected measures of our liquidity and of our capital resources as of April 3, 2016 and December 31, 2015, as well as a discussion of our outstanding debt and other commitments that existed as of April 3, 2016 and December 31, 2015. 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 84 | ||||
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 85 | ||||
This section provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this MD&A, relating to, among other things, our anticipated future operating and financial performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, business-development plans and plans relating to share repurchases and dividends. Such forward-looking statements are based on management’s plans and assumptions, which are inherently susceptible to uncertainty and changes in circumstances. 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 | |||||||||||
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA) | April 3, 2016 | March 29, 2015 | % Change | ||||||||
Revenues | $ | 13,005 | $ | 10,864 | 20 | ||||||
Cost of sales | 2,851 | 1,838 | 55 | ||||||||
% of revenues | 21.9 | % | 16.9 | % | |||||||
Selling, informational and administrative expenses | 3,385 | 3,104 | 9 | ||||||||
% of revenues | 26.0 | % | 28.6 | % | |||||||
Research and development expenses | 1,731 | 1,885 | (8 | ) | |||||||
% of revenues | 13.3 | % | 17.4 | % | |||||||
Amortization of intangible assets | 1,006 | 940 | 7 | ||||||||
% of revenues | 7.7 | % | 8.6 | % | |||||||
Restructuring charges and certain acquisition-related costs | 141 | 60 | * | ||||||||
% of revenues | 1.1 | % | 0.6 | % | |||||||
Other (income)/deductions––net | 330 | (46 | ) | * | |||||||
Income from continuing operations before provision for taxes on income | 3,561 | 3,082 | 16 | ||||||||
% of revenues | 27.4 | % | 28.4 | % | |||||||
Provision for taxes on income | 535 | 706 | (24 | ) | |||||||
Effective tax rate | 15.0 | % | 22.9 | % | |||||||
Income from continuing operations | 3,026 | 2,376 | 27 | ||||||||
% of revenues | 23.3 | % | 21.9 | % | |||||||
Discontinued operations––net of tax | — | 5 | (99 | ) | |||||||
Net income before allocation to noncontrolling interests | 3,026 | 2,381 | 27 | ||||||||
% of revenues | 23.3 | % | 21.9 | % | |||||||
Less: Net income attributable to noncontrolling interests | 9 | 6 | 68 | ||||||||
Net income attributable to Pfizer Inc. | $ | 3,016 | $ | 2,376 | 27 | ||||||
% of revenues | 23.2 | % | 21.9 | % | |||||||
Earnings per common share––basic: | |||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | 29 | ||||||
Discontinued operations––net of tax | — | — | — | ||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | 29 | ||||||
Earnings per common share––diluted: | |||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | 29 | ||||||
Discontinued operations––net of tax | — | — | — | ||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.49 | $ | 0.38 | 29 | ||||||
Cash dividends paid per common share | $ | 0.30 | $ | 0.28 | 7 |
The following provides an analysis of our first-quarter 2016 operational revenue growth for Pfizer standalone revenues (excluding Hospira): | ||||
Three Months Ended | ||||
(BILLIONS OF DOLLARS) | April 3, 2016 | |||
Operational revenues––Pfizer-standalone increase: | ||||
Operational consolidated revenues increase | $ | 2.9 | ||
Less: Revenues from legacy Hospira | (1.2 | ) | ||
Operational revenues––Pfizer-standalone increase | $ | 1.7 | ||
Components of operational revenues––Pfizer-standalone increase: | ||||
Operational revenue growth from certain key products––net | $ | 2.0 | ||
Operational revenue decrease due to product losses of exclusivity and the co-promotion expiration | (0.3 | ) | ||
Operational revenues––Pfizer-standalone increase | $ | 1.7 |
• | higher Other, net (up $157 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | lower research and development expenses (down $155 million) (see also the “Costs and Expenses––Research and Development (R&D) Expenses” section of this MD&A); |
• | lower charges for business and legal entity alignment costs (down $50 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); and |
• | lower net interest expense (down $23 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net), |
• | higher cost of sales (up $1.0 billion) (see also the “Costs and Expenses––Cost of Sales” section of this MD&A); |
• | higher selling, informational and administrative expenses (up $281 million) (see also the “Costs and Expenses––Selling, Informational and Administrative Expenses (SI&A) Expenses” section of this MD&A); |
• | higher charges for legal matters (up $274 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | lower net gains on asset disposals (down $167 million); (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | higher asset impairments (up $131 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | higher restructuring charges and certain acquisition-related costs (up $81 million) (see also the Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives); and |
• | higher amortization of intangible assets (up $66 million) (see also the “Costs and Expenses––Amortization of Intangible Assets ” section of this MD&A). |
• | $96 million in the first quarter of 2016 and $88 million in the first quarter of 2015, recorded as a reduction to Revenues related to the Medicare “coverage gap” discount provision; and |
• | $32 million in the first quarter of 2016 and $32 million in the first quarter of 2015, recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs. |
• | We believe that patients, who are experiencing increases in co-pays and restrictions on access to medicines as payers seek to control costs, sometimes switch to generic products, delay treatments, skip doses or use less effective treatments. We are exposed to negative pricing pressure in various markets around the world. The U.S. has highly competitive insurance markets, and Europe, Japan, China, Canada, South Korea and a number of other international markets have government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs for the government-sponsored healthcare system, particularly under recent global economic pressures. Furthermore, some government agencies and third-party payers use health technology assessments in ways that, at times, lead to restricted access to and lower prices for new medicines. |
• | We continue to monitor developments regarding government and government agency receivables in several European markets, including Greece, where economic conditions remain challenging and uncertain. For further information about our Accounts Receivable, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A. |
• | Significant portions of our revenues and earnings, 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. |
Some additional information about each product grouping follows: | ||||
Innovative Products Business | Established Products Business | |||
Global Innovative Pharmaceutical segment: GIP focuses on developing and commercializing novel, value-creating medicines that significantly improve patients’ lives. Key therapeutic areas include inflammation/immunology, cardiovascular/metabolic, neuroscience/pain and rare diseases and include leading brands, such as Xeljanz, Eliquis, Lyrica (U.S. and Japan), Enbrel (outside the U.S. and Canada) and Viagra (U.S. and Canada). | Global Vaccines, Oncology and Consumer Healthcare segment: VOC focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare. Consumer Healthcare manufactures and markets several well known, over-the-counter (OTC) products. Each of the three businesses in VOC operates as a separate, global business, with distinct specialization in terms of the science and market approach necessary to deliver value to consumers and patients. | Global Established Pharmaceutical segment: GEP includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars and infusion systems. Beginning in 2016, GEP includes a new GEP R&D organization as well as our contract manufacturing business. |
• | Our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in GEP since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of Pfizer Global Supply and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($111 million of PCS revenues and $21 million of PCS earnings in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
• | In connection with the formation of a new GEP R&D organization, certain functions transferred from Pfizer’s WRD organization into the new GEP R&D organization. The new R&D organization within GEP expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $66 million of costs in the first quarter of 2015 from WRD to GEP to conform to the current period presentation as part of GEP. |
• | Amounts for certain balances included in working capital (excluding inventories), certain investments and certain legal contingencies, pending receipt of certain information that could affect provisional amounts recorded. We do not believe any adjustments for legal contingencies will have a material impact on our consolidated financial statements. |
• | Amounts for intangibles, inventory and property, plant and equipment, pending finalization of valuation efforts for acquired intangible assets as well as the completion of certain physical inventory counts and the confirmation of the physical existence and condition of certain property, plant and equipment assets. |
• | Amounts for income tax assets, receivables and liabilities, pending the filing of Hospira pre-acquisition tax returns and the receipt of information including but not limited to that from taxing authorities, which may change certain estimates and assumptions used. |
• | Research and Development Arrangement with NovaQuest Co-Investment Fund II, L.P. (NovaQuest)––In May 2016, our agreement with NovaQuest became effective, under which NovaQuest will fund up to $250 million in development costs related to certain Phase III clinical trials of Pfizer’s bococizumab compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to $195 million in total based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on bococizumab net sales over approximately nine years. NovaQuest’s development funding is expected to cover up to 40% of the development costs and will be received over six quarters during 2016 and 2017. 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. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the bococizumab product and royalties on net sales will be recorded as Cost of sales when incurred. |
• | Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P. (NovaQuest)––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. 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. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately twelve quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as Cost of sales when incurred. |
• | Terminated Agreement to Combine with Allergan plc––On April 6, 2016, we announced that the merger agreement between Pfizer and Allergan plc entered into on November 22, 2015 was terminated by mutual agreement of the companies. For additional information, see the “Our Business” section of this MD&A. |
• | Research and Development Arrangement with RPI Finance Trust (RPI)––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). If successful and upon approval of Ibrance in the U.S. or certain major markets in the European Union (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. 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 first quarter of 2016 totaled $8.8 million. 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. |
• | Acquisition of a Minority Interest in AM-Pharma B.V. (AM-Pharma)––In April 2015, we acquired a minority equity interest in AM-Pharma, a privately-held Dutch biopharmaceutical company focused on the development of recombinant human Alkaline Phosphatase (recAP) for inflammatory diseases, and secured an exclusive option to acquire the remaining equity in the company. The option becomes exercisable upon delivery of the clinical trial report after completion of a Phase II trial of recAP in the treatment of Acute Kidney Injury related to sepsis, which is expected to read out in 2017. Under the terms of the agreement, we paid $87.5 million for both the exclusive option and the minority equity interest, which was recorded as a cost-method investment in Long-term investments, and we may make additional payments of up to $512.5 million upon exercise of the option and potential launch of any product that may result from this investment. |
• | Collaboration with OPKO Health, Inc. (OPKO)––We entered into a collaborative agreement with OPKO, which closed in January 2015, to develop and commercialize OPKO’s long-acting human growth hormone (hGH-CTP) for the treatment of growth hormone deficiency (GHD) in adults and children, as well as for the treatment of growth failure in children born small for gestational age (SGA) who fail to show catch-up growth by two years of age. hGH-CTP has the potential to reduce the required dosing frequency of human growth hormone to a single weekly injection from the current standard of one injection per day. We have received the exclusive license to commercialize hGH-CTP worldwide. OPKO will lead the clinical activities and will be responsible for funding the development programs for the key indications, which include Adult and Pediatric GHD and Pediatric SGA. We will be responsible for all development costs for additional indications, all postmarketing studies, manufacturing and commercialization activities for all indications, and we will lead the manufacturing activities related to product development. In February 2015, we made an upfront payment of $295 million to OPKO, which was recorded in Research and development expenses, and OPKO is eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. OPKO is also eligible to receive royalty payments associated with the commercialization of hGH-CTP for Adult GHD, which is subject to regulatory approval. Upon the launch of hGH-CTP for Pediatric GHD, which is subject to regulatory approval, the royalties will transition to tiered gross profit sharing for both hGH-CTP and our product, Genotropin. |
• | Acquisition of Marketed Vaccines Business of Baxter International Inc. (Baxter)––On December 1, 2014 (which falls in the first fiscal quarter of 2015 for our international operations), we acquired Baxter’s portfolio of marketed vaccines for a final purchase price of $648 million. The portfolio that was acquired consists of NeisVac-C and FSME-IMMUN/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-IMMUN/TicoVac is a vaccine that helps protect against tick-borne encephalitis. |
• | Operational Factors: Strong performance to date coupled with an improved business outlook for 2016, which favorably impacted the midpoint of the guidance range for reported revenue by approximately $1.0 billion and for reported and adjusted diluted EPS by $0.12; and |
▪ | Foreign Exchange: Favorable changes in foreign exchange rates since mid-January 2016, which favorably impacted the midpoint of the guidance range for reported revenue by approximately $1.0 billion and for reported and adjusted diluted EPS by $0.06. |
Pfizer's complete 2016 financial guidance, including updates announced on May 3, 2016, is summarized below(a), (b): | |
Reported revenues | $51.0 to $53.0 billion |
(previously $49.0 to $51.0 billion) | |
Adjusted cost of sales as a percentage of reported revenues | 21.0% to 22.0% |
Adjusted selling, informational and administrative expenses | $13.7 to $14.7 billion |
(previously $13.2 to $14.2 billion) | |
Adjusted research and development expenses | $7.4 to $7.8 billion |
(previously $7.3 to $7.8 billion) | |
Adjusted other (income)/deductions | Approximately ($500 million) of income |
(previously approximately ($300 million) of income) | |
Effective tax rate on adjusted income | Approximately 24.0% |
Reported diluted Earnings per Share (EPS) | $1.72 to $1.85 |
(previously $1.54 to $1.67) | |
Adjusted diluted EPS | $2.38 to $2.48 |
(previously $2.20 to $2.30) |
The following table provides a reconciliation of 2016 Adjusted income and Adjusted diluted EPS guidance to the 2016 Reported net income attributable to Pfizer Inc. and Reported diluted EPS attributable to Pfizer Inc. common shareholders guidance: | ||||
Full-Year 2016 Guidance(a), (b) | ||||
(BILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) | Net Income | Diluted EPS | ||
Adjusted income/diluted EPS guidance(b) | $14.7 - $15.3 | $2.38 - $2.48 | ||
Purchase accounting impacts of transactions completed as of April 3, 2016 | (2.9) | (0.47) | ||
Restructuring, implementation and other acquisition-related costs | (0.7) - (0.9) | (0.11) - (0.14) | ||
Business and legal entity alignment costs | (0.3) | (0.05) | ||
Reported net income attributable to Pfizer Inc./diluted EPS guidance | $10.6 - $11.4 | $1.72 - $1.85 |
(a) | The 2016 financial guidance reflects the following: |
• | Does not assume the completion of any business development transactions not completed as of April 3, 2016, including any one-time upfront payments associated with such transactions. |
• | Excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of April 3, 2016. |
• | Exchange rates assumed are a blend of the actual exchange rates in effect through the first quarter of 2016 and the mid-April 2016 exchange rates for the remainder of the year. |
• | Guidance for 2016 reported revenues reflects the anticipated negative impact of $2.3 billion due to recent and expected generic competition for certain products that have recently lost or are anticipated to soon lose patent protection. |
• | Guidance for 2016 reported revenues also reflects the anticipated negative impact of $1.3 billion as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2015, including $0.8 billion due to the estimated significant negative currency impact related to Venezuela. The anticipated negative impact on reported and adjusted diluted EPS resulting from unfavorable changes in foreign exchange rates compared to foreign exchange rates from 2015 is approximately $0.10, including $0.07 due to the estimated significant negative currency impact related to Venezuela. |
• | Guidance for reported and adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 6.2 billion shares. |
(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. |
The following table provides worldwide revenues by operating segment and geographic area: | |||||||||||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||||||||||
Worldwide | U.S. | International | Worldwide | U.S. | International | ||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Apr 3, 2016 | Mar 29, 2015 | Apr 3, 2016 | Mar 29, 2015 | Apr 3, 2016 | Mar 29, 2015 | % Change in Revenues | ||||||||||||||||||||||||||
Operating Segments(a): | |||||||||||||||||||||||||||||||||
GIP | $ | 3,640 | $ | 3,075 | $ | 1,937 | $ | 1,490 | $ | 1,702 | $ | 1,585 | 18 | 30 | 7 | ||||||||||||||||||
VOC | 3,394 | 2,664 | 2,177 | 1,482 | 1,217 | 1,182 | 27 | 47 | 3 | ||||||||||||||||||||||||
GEP | 5,972 | 5,125 | 2,512 | 1,462 | 3,460 | 3,664 | 17 | 72 | (6 | ) | |||||||||||||||||||||||
Total revenues | $ | 13,005 | $ | 10,864 | $ | 6,625 | $ | 4,433 | $ | 6,380 | $ | 6,430 | 20 | 49 | (1 | ) |
(a) | GIP = the Global Innovative Pharmaceutical segment; VOC = the Global Vaccines, Oncology and Consumer Healthcare segment; and GEP = the Global Established Pharmaceutical segment. On September 3, 2015, we acquired Hospira, and commencing from the acquisition date, our financial statements reflect the operating results of Hospira. As a result, legacy Hospira operations are reflected in GEP’s operating results in our results of operations for the first quarter of 2016, but not for the first quarter of 2015. Also, effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) legacy Hospira's One-2-One sterile injectables contract manufacturing operation. Prior to 2016, PCS was managed outside our operating segments and its revenues were reported as other business activities. We have reclassified prior period PCS revenues ($111 million in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
• | inclusion of revenues from legacy Hospira operations of $1.2 billion; |
• | the continued strong performance of several key products in developed markets, including Ibrance, Prevnar/Prevenar 13, Eliquis, Lyrica (the Global Innovative Pharmaceutical segment (GIP)), Xeljanz and Chantix/Champix, all primarily in the U.S. (collectively, up approximately $1.2 billion); and |
• | an 11% operational increase in revenues in emerging markets (excluding the contribution from legacy Hospira operations), reflecting continued strong performance primarily from Enbrel and Prevenar 13 and continued strong volume growth from certain other products (collectively, up approximately $280 million), |
• | the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica (Global Established Pharmaceutical segment (GEP)) in certain developed Europe markets (collectively, down approximately $230 million); and |
• | the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $50 million). |
• | in the U.S., revenues increased $2.2 billion, or 49%, in the first quarter of 2016, compared to the same period in 2015, reflecting, among other things: |
◦ | the continued strong performance of several key products including Ibrance, Prevnar 13, Lyrica (GIP), Eliquis, Xeljanz and Chantix (collectively, up approximately $1.0 billion); and |
◦ | the inclusion of legacy Hospira U.S. operations of approximately $930 million, |
◦ | the loss of exclusivity and associated generic competition for Zyvox (down approximately $100 million); and |
◦ | the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $50 million). |
• | in our international markets, revenues decreased $51 million, or 1%, in the first quarter of 2016, compared to the same period in 2015. Foreign exchange unfavorably impacted international revenues by approximately $729 million, or 11%, in the first quarter of 2016. Operationally, revenues increased $678 million, or 11%, in the first quarter of 2016, compared to the same period in 2015, reflecting, among other things: |
◦ | an 11% operational increase in revenues in emerging markets (excluding the contribution from legacy Hospira), reflecting continued strong performance primarily from Enbrel and Prevenar 13 and continued strong volume growth from certain other products (collectively, up approximately $280 million); |
◦ | the inclusion of legacy Hospira international operations of approximately $270 million; and |
◦ | the continued strong performance of Eliquis and higher revenues operationally for Enbrel and Prevenar 13 in developed markets (collectively, up approximately $130 million), |
◦ | lower revenues in developed markets for Lyrica (GEP), Celebrex and Zyvox as a result of the loss of exclusivity (collectively, down approximately $150 million). |
The following table provides information about deductions from revenues: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Medicare rebates(a) | $ | 276 | $ | 221 | ||||
Medicaid and related state program rebates(a) | 371 | 280 | ||||||
Performance-based contract rebates(a), (b) | 589 | 465 | ||||||
Chargebacks(c) | 1,439 | 1,044 | ||||||
Sales allowances(d) | 976 | 903 | ||||||
Sales returns and cash discounts | 364 | 261 | ||||||
Total(e) | $ | 4,015 | $ | 3,174 |
(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 managed care customers within the U.S., including health maintenance organizations and pharmacy benefit managers, 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 April 3, 2016, associated with the following segments: GIP ($1.2 billion); VOC ($0.4 billion); and GEP ($2.4 billion). For the three months ended March 29, 2015, associated with the following segments: GIP ($0.9 billion); VOC ($0.3 billion); and GEP ($1.9 billion). |
• | an increase in chargebacks from GEP products, primarily due to the addition in 2016 of Hospira sterile injectables, and from certain Innovative Business products; |
• | an increase in performance-based contract rebates primarily due to sales to managed care customers in the U.S. and higher rebates in certain developed Europe markets due to competitive pressures post loss of exclusivity for certain products; and |
• | an increase in Medicaid and related state program rebates, primarily as a result of updated estimates of sales related to these programs. |
The following table provides revenue information for several of our major products: | |||||||||
Three Months Ended | |||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | % Change(a) | |||||||
PRODUCT | PRIMARY INDICATIONS | ||||||||
INNOVATIVE PRODUCTS BUSINESS(b) | $ | 7,033 | 23 | ||||||
GIP(b) | 3,640 | 18 | |||||||
Lyrica(c) | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | 1,011 | 19 | ||||||
Enbrel (Outside the U.S. and Canada) | Rheumatoid, juvenile rheumatoid and psoriatic arthritis, plaque psoriasis and ankylosing spondylitis | 733 | (3 | ) | |||||
Viagra GIP(d) | Erectile dysfunction | 300 | 4 | ||||||
Chantix/Champix | An aid to smoking cessation treatment | 220 | 39 | ||||||
Xeljanz | Rheumatoid arthritis | 197 | * | ||||||
BeneFIX | Hemophilia | 185 | 6 | ||||||
Refacto AF/Xyntha | Hemophilia | 129 | 7 | ||||||
Genotropin | Replacement of human growth hormone | 125 | (10 | ) | |||||
Toviaz | Overactive bladder | 64 | 1 | ||||||
Somavert | Acromegaly | 55 | 10 | ||||||
BMP2 | Development of bone and cartilage | 51 | 35 | ||||||
Rapamune | Prevention of organ rejection in kidney transplantation | 45 | (14 | ) | |||||
Alliance revenues GIP(e), (m) | Various | 354 | 77 | ||||||
All other GIP | Various | 171 | 87 | ||||||
VOC(b) | $ | 3,394 | 27 | ||||||
Prevnar/Prevenar 13 | Vaccines for prevention of pneumococcal disease | 1,509 | 16 | ||||||
Ibrance | Advanced breast cancer | 429 | * | ||||||
Sutent | Advanced and/or metastatic renal cell carcinoma (mRCC), refractory gastrointestinal stromal tumors (GIST) and advanced pancreatic neuroendocrine tumor | 278 | 15 | ||||||
Xalkori | Anaplastic lymphoma kinase positive non-small cell lung cancer (NSCLC) and ROS1-positive NSCLC | 139 | 24 | ||||||
Inlyta | Advanced renal cell carcinoma (RCC) | 101 | 6 | ||||||
All other V/O | Various | 117 | 85 | ||||||
Consumer Healthcare | Various | 822 | 2 | ||||||
ESTABLISHED PRODUCTS BUSINESS(f) | $ | 5,972 | 17 | ||||||
Legacy Established Products(g) | $ | 2,800 | (2 | ) | |||||
Lipitor | Reduction of LDL cholesterol | 411 | (7 | ) | |||||
Premarin family | Symptoms of menopause | 256 | 11 | ||||||
Norvasc | Hypertension | 236 | (6 | ) | |||||
EpiPen | Epinephrine injection used in treatment of life-threatening allergic reactions | 97 | 27 | ||||||
Xalatan/Xalacom | Glaucoma and ocular hypertension | 89 | (13 | ) | |||||
Zithromax/Zmax | Bacterial infections | 80 | 1 | ||||||
Zoloft | Depression and certain anxiety disorders | 79 | (8 | ) | |||||
Relpax | Treats the symptoms of migraine headache | 78 | (2 | ) | |||||
Effexor | Depression and certain anxiety disorders | 70 | (5 | ) | |||||
Tikosyn | Maintenance of normal sinus rhythm, conversion of atrial fibrillation/flutter | 61 | 66 | ||||||
Xanax/Xanax XR | Anxiety disorders | 52 | (4 | ) | |||||
Cardura | Hypertension/Benign prostatic hyperplasia | 45 | (12 | ) | |||||
Neurontin | Seizures | 44 | (20 | ) | |||||
All other Legacy Established Products(m) | Various | 1,201 | (2 | ) | |||||
Peri-LOE Products(h) | $ | 1,090 | (24 | ) | |||||
Lyrica GEP(c) | Epilepsy, neuropathic pain and generalized anxiety disorder | 218 | (36 | ) | |||||
Pristiq | Depression | 178 | 11 | ||||||
Celebrex | Arthritis pain and inflammation, acute pain | 172 | (16 | ) | |||||
Vfend | Fungal infections | 156 | (14 | ) | |||||
Zyvox | Bacterial infections | 127 | (53 | ) | |||||
Viagra GEP(d) | Erectile dysfunction | 96 | (11 | ) | |||||
Revatio | Pulmonary arterial hypertension (PAH) | 66 | 5 | ||||||
All other Peri-LOE Products | Various | 76 | (29 | ) | |||||
Sterile Injectable Pharmaceuticals(i) | $ | 1,524 | * | ||||||
Medrol | Inflammation | 113 | 31 | ||||||
Sulperazon | Antibiotic | 96 | (2 | ) | |||||
Fragmin | Anticoagulant | 78 | 6 | ||||||
Tygacil | Antibiotic | 76 | 3 | ||||||
All other Sterile Injectable Pharmaceuticals | Various | 1,161 | * | ||||||
Infusion Systems(j) | Various | $ | 304 | * | |||||
Biosimilars(k) | Various | $ | 66 | * | |||||
Pfizer CentreOne(l) | $ | 188 | 69 | ||||||
Total Lyrica(c) | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia and neuropathic pain due to spinal cord injury | $ | 1,229 | 4 | |||||
Total Viagra(d) | Erectile dysfunction | $ | 396 | — | |||||
Total Alliance revenues(m) | Various | $ | 360 | 62 |
(a) | As compared to the three months ended March 29, 2015. |
(b) | The Innovative Products business is composed of two operating segments: GIP and VOC. |
(c) | Lyrica revenues from all of Europe, Russia, Turkey, Israel and Central Asia countries are included in Lyrica-GEP. All other Lyrica revenues are included in Lyrica-GIP. Total Lyrica revenues represent the aggregate of worldwide revenues from Lyrica-GIP and Lyrica-GEP. |
(d) | Viagra revenues from the U.S. and Canada are included in Viagra-GIP. All other Viagra revenues are included in Viagra-GEP. Total Viagra revenues represent the aggregate of worldwide revenues from Viagra-GIP and Viagra-GEP. |
(e) | Includes Eliquis and Rebif. |
(f) | The Established Products business consists of GEP, which includes all legacy Hospira commercial operations. Hospira's commercial operations, including the legacy Hospira One-2-One sterile injectables contract manufacturing business, are included in GEP's operating results in our condensed consolidated statement of income, commencing from the acquisition date of September 3, 2015. As a result, our revenues for the first quarter of 2015 and GEP's revenues for the first quarter of 2015 do not include Hospira's revenues. Also, effective as of the beginning of 2016, our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) legacy Hospira's One-2-One sterile injectables contract manufacturing operation. Prior to 2016, PCS was managed outside our operating segments and its revenues were reported as other business activities. We have reclassified prior period PCS revenues ($111 million in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
(g) | Legacy Established Products include products that have lost patent protection (excluding Sterile Injectable Pharmaceuticals and Peri-LOE Products). |
(h) | Peri-LOE Products include products that have recently lost or are anticipated to soon lose patent protection. These products primarily include Celebrex and Zyvox in most developed markets, Lyrica in certain developed Europe markets, Pristiq globally and Inspra in the EU. |
(i) | Sterile Injectable Pharmaceuticals include generic injectables and proprietary specialty injectables (excluding Peri-LOE Products). |
(j) | Infusion Systems include Medication Management Systems products composed of infusion pumps and related software and services, as well as I.V. Infusion Products, including large volume I.V. solutions and their associated administration sets. |
(k) | Biosimilars include Inflectra (biosimilar infliximab) in certain European markets, Nivestim (biosimilar filgrastim) in certain Asian markets and Retacrit (biosimilar epoetin zeta) in certain international markets. |
(l) | Pfizer CentreOne includes (i) revenues from legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including revenues related to our manufacturing and supply agreements with Zoetis Inc. (previously known as Pfizer CentreSource or PCS); and (ii) revenues from legacy Hospira’s One-2-One sterile injectables contract manufacturing operation. For additional information, see (f) above. |
(m) | Total Alliance revenues represent the aggregate of worldwide revenues from Alliance revenues GIP and Alliance revenues GEP, which is included in All other Legacy Established Products. |
* | Calculation not meaningful. |
• | Prevnar/Prevenar 13 (Vaccines) is our pneumococcal conjugate vaccine for the prevention of pneumococcal disease. Overall, worldwide revenues for Prevnar/Prevenar 13 increased 19% operationally in the first quarter of 2016, compared to the same period in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 3% in the first quarter of 2016 compared to the same period in 2015. |
• | Lyrica (GEP (revenues from all of Europe, Russia, Turkey, Israel and Central Asia)/GIP (all other revenues)) is indicated in the U.S. for three neuropathic pain conditions, fibromyalgia and adjunctive therapy for adult patients with partial onset seizures. In certain markets outside the U.S., indications include neuropathic pain (peripheral and central), fibromyalgia, adjunctive treatment of epilepsy and generalized anxiety disorder. Worldwide revenues for Lyrica increased 7% operationally in the first quarter of 2016, compared to the same period in 2015. Foreign exchange had an unfavorable impact on worldwide revenues of 3% in the first quarter of 2016, compared to the same period in 2015. |
• | Enbrel (GIP, outside the U.S. and Canada), indicated for the treatment of moderate-to-severe rheumatoid arthritis, polyarticular juvenile rheumatoid arthritis, psoriatic arthritis, plaque psoriasis, ankylosing spondylitis (a type of arthritis affecting the spine), and nonradiographic axial spondyloarthritis, recorded 10% operational increase in worldwide revenues, excluding the U.S. and Canada, in the first quarter of 2016, compared to the same period in 2015. Results for the first quarter of 2016 were favorably impacted by the change in the distribution channel in the U.K in 2015, demand in certain markets in Europe and the timing of purchases in certain emerging markets. Foreign exchange had an unfavorable impact of 13% in the first quarter of 2016, compared to the same period in 2015. |
• | Ibrance (Oncology) has been approved and launched in the U.S., Albania, Argentina, Canada, Chile, Kuwait, Macau and the United Arab Emirates as a first-line treatment for certain forms of advanced breast cancer. Ibrance recorded worldwide revenues of $429 million in the first quarter of 2016, nearly all of which were recorded in the U.S. |
• | Lipitor (GEP) is indicated for the treatment of elevated LDL-cholesterol levels in the blood. Lipitor faces generic competition in all major developed markets. Branded Lipitor recorded worldwide revenues of $411 million, or a 3% operational increase in the first quarter of 2016, compared to the same period in 2015. Foreign exchange had an unfavorable impact of 10% in the first quarter of 2016, compared to the same period in 2015. |
• | Viagra (GIP (U.S. and Canada revenues)/GEP (all other revenues excluding U.S. and Canada)) is indicated for the treatment of erectile dysfunction. Viagra worldwide revenues increased 3% operationally in the first quarter of 2016, compared to the same period in 2015, primarily due to operational growth in the U.S. Foreign exchange had an unfavorable impact of 3% in the first quarter of 2016, compared to the same period in 2015. Revenues in the U.S. increased 5% in the first quarter of 2016, compared to the same period in 2015, primarily reflecting price increases, wholesaler buying patterns and increased pill quantity per prescription, partially offset by lower patient demand and higher rebates. International revenues decreased 2% operationally in the first quarter of 2016, compared to the same period in 2015, primarily from generic competition in Russia and lower volumes in China partially offset by increased demand in certain Middle East markets. Foreign exchange had an unfavorable impact on international revenues of 10% in the first quarter of 2016, compared to the same period in 2015. |
• | Sutent (Oncology) is indicated for the treatment of advanced renal cell carcinoma, including metastatic renal cell carcinoma (mRCC); gastrointestinal stromal tumors after disease progression on, or intolerance to, imatinib mesylate; and advanced pancreatic neuroendocrine tumor. Sutent worldwide revenues increased 22% operationally in the first quarter of 2016, compared to the same period in 2015, primarily due to price increases in the U.S., as well as strong demand in most markets. Foreign exchange had an unfavorable impact of 7% in the first quarter of 2016, compared to the same period in 2015. |
• | Our Premarin family of products (GEP) helps women address moderate-to-severe menopausal symptoms. Premarin worldwide revenues increased 12% operationally in the first quarter of 2016, compared to the same period in 2015. Revenues in the U.S. increased 13% in the first three months of 2016 compared to the same period in 2015, primarily driven by price increases, partially offset by prescription volume declines and lower market growth. Foreign exchange had an unfavorable impact of 1% in the first quarter of 2016, compared to the same period in 2015. |
• | Norvasc (GEP) is indicated for the treatment of hypertension. Norvasc worldwide revenues were relatively flat operationally in the first quarter of 2016, compared to the same period in 2015, primarily due to generic erosion in Japan offset by volume growth in |
• | Chantix/Champix (GIP) is approved as an aid to smoking-cessation treatment in adults 18 years of age and older in multiple markets worldwide. Worldwide revenues increased 43% operationally in the first quarter of 2016, compared to the same period in 2015. Foreign exchange had an unfavorable impact on revenues of 4% in the first quarter of 2016, compared to the same period in 2015. |
• | Xeljanz (GIP) is approved for use as a second-line therapy for the treatment of adult patients with moderate to severe active rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate in more than 45 markets including the U.S., Japan, Australia, Canada, Switzerland and Brazil. Xeljanz worldwide revenues increased 108% operationally in the first quarter of 2016, compared to the same period in 2015. In the U.S., Xeljanz revenues increased 98% in the first quarter of 2016, compared to the same period in 2015, driven by continued adoption by rheumatologists, growing awareness among patients, price increases and wholesaler buying patterns. Foreign exchange had a 3% unfavorable impact on revenues in the first quarter of 2016, compared to the same period in 2015. |
• | BeneFIX and ReFacto AF/Xyntha (GIP) are recombinant hemophilia products that assist patients with their lifelong hemophilia bleeding disorders. BeneFIX worldwide revenues increased 12% operationally in the first quarter of 2016, compared to the same period in 2015 primarily as a result of customer buying patterns in the U.S. Foreign exchange had an unfavorable impact on revenues of 5% in the first quarter of 2016 compared to the same period in 2015. |
• | Pristiq (GEP) is indicated for the treatment of major depressive disorder in the U.S. and in various other countries. Pristiq has also been indicated for treatment of moderate-to-severe vasomotor symptoms (VMS) associated with menopause in Thailand, Mexico, the Philippines and Ecuador. Worldwide revenues for Pristiq increased 15% operationally in the first quarter of 2016, compared to the same period in 2015, primarily due to operational growth in the U.S. driven by favorable pricing and increased demand. Foreign exchange had an unfavorable impact on revenues of 4% in the first quarter of 2016, compared to the same period in 2015. |
• | Celebrex (GEP) is indicated for the treatment of the signs and symptoms of osteoarthritis and rheumatoid arthritis worldwide and for the management of acute pain in adults in the U.S., Japan and certain other markets. Celebrex recorded an 8% decrease in worldwide operational revenues in the first quarter of 2016, compared to the same period in 2015, primarily driven by the loss of exclusivity and associated generic competition in most developed international markets. Foreign exchange had an unfavorable impact of 8% in the first quarter of 2016, compared to the same period in 2015. |
• | Xalkori (Oncology) is indicated for the treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) that is anaplastic lymphoma kinase (ALK)-positive or ROS1-positive. Xalkori worldwide revenues increased 29% operationally in the first quarter of 2016, compared to the same period in 2015, as a result of a steady increase in diagnostic rates for the ALK gene mutation across key markets, which has led to more patients being treated, and price increases in the U.S. Foreign exchange had a 5% unfavorable impact in the first quarter of 2016, compared to the same period in 2015. |
• | Zyvox (GEP) is used to treat serious Gram-positive pathogens, including methicillin-resistant staphylococcus-aureus. Zyvox worldwide revenues decreased 47% operationally in the first quarter of 2016, compared to the same period in 2015, due to generic competition in the U.S. and certain developed Europe markets and pricing pressures in developed international markets. Foreign exchange had an unfavorable impact on revenues of 6% in the first quarter of 2016, compared to the same period in 2015. |
• | Inlyta (Oncology) is indicated for the treatment of patients with advanced renal cell carcinoma (RCC) after failure of a prior systemic treatment. Worldwide revenues increased 10% operationally in the first quarter of 2016, compared to the same period in 2015, primarily due to increased demand across key international markets with greater access and reimbursement, particularly in Europe as well as a launch in China in the third quarter of 2015. Foreign exchange had an unfavorable impact on international revenues of 8% in the first quarter of 2016, compared to the same period in 2015. |
• | Alliance revenues (GEP/GIP) increased 66% operationally in the first quarter of 2016, compared to the same period in 2015, mainly due to: |
◦ | an increase in Eliquis alliance revenues due to increased market share, |
◦ | the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S., which resulted in a decrease of approximately $50 million in the first quarter of 2016, compared to the same period in 2015. |
• | Eliquis (apixaban) (GIP) is being jointly developed and commercialized by Pfizer and Bristol-Myers Squibb (BMS). The two companies share commercialization expenses and profit/losses equally on a global basis. In April 2015, we signed an agreement with BMS to transfer full commercialization rights in certain smaller markets to us, beginning in the third quarter of 2015. 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. Eliquis (apixaban) is approved for multiple indications in major markets around the world: |
◦ | to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation (NVAF); |
◦ | for the treatment of deep vein thrombosis (DVT) and pulmonary embolism (PE), and for the reduction in the risk of recurrent DVT and PE following initial therapy; and |
◦ | for the prophylaxis of DVT, which may lead to PE, in patients who have undergone hip or knee replacement surgery. |
RECENT FDA APPROVALS | ||
PRODUCT | INDICATION | DATE APPROVED |
Xalkori (Crizotinib) | Treatment of patients with ROS1-positive metastatic non-small cell lung cancer | March 2016 |
Xeljanz (Tofacitinib) | Extended-release 11mg tablets for the once-daily treatment of moderate to severe rheumatoid arthritis in patients who have had an inadequate response or intolerance to methotrexate | February 2016 |
Ibrance (Palbociclib) | Treatment of hormone receptor-positive (HR+), human epidermal growth factor receptor 2-negative (HER2-) advanced or metastatic breast cancer in combination with fulvestrant in women with disease progression following endocrine therapy | February 2016 |
PENDING U.S. NEW DRUG APPLICATIONS (NDA) AND SUPPLEMENTAL FILINGS | ||
PRODUCT | PROPOSED INDICATION | DATE FILED* |
ALO-02 (oxycodone HCI/ naltrexone/HCI) | A Mu-type opioid receptor agonist for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate | February 2015 |
Retacrit(a) | A potential biosimilar to Epogen® and Procrit® (epotein alfa) | February 2015 |
Xeljanz (Tofacitinib)(b) | Treatment of adult patients with moderate to severe chronic plaque psoriasis | February 2015 |
Tafamidis meglumine(c) | Treatment of transthyretin familial amyloid polyneuropathy | February 2012 |
* | The dates set forth in this column are the dates on which the FDA accepted our submissions. |
(a) | Epogen® is a registered U.S. trademark of Amgen Inc.; Procrit® is a registered U.S. trademark of Johnson & Johnson. In October 2015, we received a “complete response” letter from the FDA with respect to our biologics license application for Retacrit, our proposed biosimilar to epoetin alfa, which was submitted for all indications of the reference product. We are working diligently to address the content of the letter. |
(b) | In October 2015, we received a “complete response” letter from the FDA with respect to our supplemental NDA for Xeljanz for the treatment of adult patients with moderate to severe chronic plaque psoriasis. We have met with the FDA and are evaluating their feedback to help us determine our next steps. We are evaluating our options, especially in light of the evolving marketplace. |
REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN | |||
PRODUCT | DESCRIPTION OF EVENT | DATE APPROVED | DATE FILED* |
Xeljanz (Tofacitinib) | Application filed in the EU for the treatment of patients with moderate to severe rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate | — | March 2016 |
Xalkori (Crizotinib) | Application filed in the EU for the treatment of ROS1-positive non-small cell lung cancer | — | February 2016 |
Eliquis (Apixaban)(a) | Approval in Japan for the treatment and prevention of recurrence of venous thromboembolism (deep vein thrombosis and pulmonary embolism) | December 2015 | — |
Xalkori (Crizotinib) | Approval in the EU for first line treatment of anaplastic lymphoma kinase (ALK)-positive non-small cell lung cancer | November 2015 | — |
Effexor SR (Venlafaxine HCl) | Approval in Japan for treatment of depression/depressed state | September 2015 | — |
Ibrance (Palbociclib) | Application filed in the EU for palbociclib in combination with endocrine therapy for the treatment of HR+, HER2- advanced or metastatic breast cancer, as well as for the treatment of recurrent advanced breast cancer | — | August 2015 |
Xeljanz (Tofacitinib) | Application filed in Japan for treatment of psoriasis vulgaris and psoriatic arthritis with inadequate response to existing therapies | — | March 2015 |
* | For applications in the EU, the dates set forth in this column are the dates on which the European Medicines Agency (EMA) validated our submissions. |
(a) | This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with Bristol-Myers Squibb (BMS). |
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS | |
PRODUCT | PROPOSED INDICATION |
Bosulif (Bosutinib) | First-line treatment for patients with chronic phase Philadelphia chromosome positive chronic myelogenous leukemia, which is being developed in collaboration with Avillion Group |
Inlyta (Axitinib) | Adjuvant treatment of renal cell carcinoma, which is being developed in collaboration with SFJ Pharmaceuticals Group |
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 |
Lyrica (Pregabalin) | CR (once-a-day) dosing |
Sutent (Sunitinib) | Adjuvant treatment of renal cell carcinoma |
Xeljanz (Tofacitinib) | Treatment of psoriasis (ex-U.S.) |
Xeljanz (Tofacitinib) | Treatment of ulcerative colitis |
Xeljanz (Tofacitinib) | Treatment of psoriatic arthritis |
Vyndaqel (Tafamidis meglumine) | Adult symptomatic transthyretin cardiomyopathy |
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT | |
CANDIDATE | PROPOSED INDICATION |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | 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 |
Avelumab (PF-06834635) (MSB0010718C) | A monoclonal antibody that inhibits PD-L1 for the third-line treatment of advanced or metastatic gastric/gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany |
Bococizumab | A monoclonal antibody that inhibits PCSK9 for the treatment of hyperlipidemia and prevention of cardiovascular events |
Dacomitinib | A pan-HER tyrosine kinase inhibitor for the first-line treatment of patients with advanced non-small cell lung cancer with EGFR activating mutations, which is being developed in collaboration with SFJ Pharmaceuticals Group |
Ertugliflozin | An oral SGLT2 inhibitor for the treatment of type 2 diabetes, which is being developed in collaboration with Merck & Co., Inc. |
Inotuzumab ozogamicin | An antibody drug conjugate, consisting of an anti-CD22 monotherapy antibody linked to a cytotoxic agent, calicheamycin, for the treatment of acute lymphoblastic leukemia |
PF-06836922 | A long-acting hGH-CTP for the treatment of growth hormone deficiency in adults, which is being developed in collaboration with OPKO Health, Inc. |
PF-06438179(a) | A potential biosimilar to Remicade® (infliximab) |
PF-05280014(b) | A potential biosimilar to Herceptin® (trastuzumab) |
PF-05280586(c) | A potential biosimilar to Rituxan® (rituximab) |
PF-06439535(d) | A potential biosimilar to Avastin® (bevacizumab) |
PF-06410293(e) | 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. |
Tanezumab | An anti-nerve growth factor monoclonal antibody for the treatment of pain, which is being developed in collaboration with Eli Lilly & Company |
Trumenba | A prophylactic vaccine for active immunization to prevent invasive disease caused by Neisseria meningitidis serogroup B in individuals 10 through 25 years of age (ex-U.S.) |
(a) | Remicade® is a registered trademark of Janssen Biotech, Inc. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade® (infliximab) in the 28 countries that form the European Economic Area (EEA) to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization and manufacturing rights to PF-06438179 in all countries outside of the EEA. |
(b) | Herceptin® is a registered trademark of Genentech, Inc. |
(c) | Rituxan® is a registered trademark of Biogen MA Inc. |
(d) | Avastin® is a registered trademark of Genentech, Inc. |
(e) | Humira® is a registered trademark of AbbVie Biotechnology Ltd. |
Three Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | |||||||
Cost of sales | $ | 2,851 | $ | 1,838 | 55 | |||||
As a percentage of Revenues | 21.9 | % | 16.9 | % |
• | an increase in sales volumes due to (i) the inclusion of legacy Hospira operations, which is comprised of inventory measured at fair value on the acquisition date and amortized over the turn of the related inventory; and (ii) the net increase in sales volume of Pfizer legacy products. |
• | an unfavorable change in product mix due to (i) the inclusion of legacy Hospira operations, which is comprised of inventory measured at fair value on the acquisition date and amortized over the turn of the related inventory; and (ii) the impact of losses of exclusivity; and |
• | unfavorable foreign exchange, |
• | a favorable change in product mix related to legacy Pfizer products, excluding losses of exclusivity; and, to a lesser extent, |
• | an increase in alliance revenues which have no associated cost of sales. |
Three Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | |||||||
Selling, informational and administrative expenses | $ | 3,385 | $ | 3,104 | 9 | |||||
As a percentage of Revenues | 26.0 | % | 28.6 | % |
• | the inclusion of legacy Hospira operations; |
• | increased investments to support certain recently launched products, other in-line biopharmaceutical products and certain Consumer Healthcare products; and |
• | an increase in the allowance for doubtful trade accounts receivable, resulting from recent unfavorable developments with a distributor, |
• | the favorable impact of foreign exchange of 4%; |
• | lower expenses associated with certain products that have recently lost marketing exclusivity; and |
• | lower field force, advertising and promotional expenses, reflecting the benefits of cost-reduction and productivity initiatives. |
Three Months Ended | |||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | ||||||||
Research and development expenses | $ | 1,731 | $ | 1,885 | (8 | ) | |||||
As a percentage of Revenues | 13.3 | % | 17.4 | % |
• | the non-recurrence of the $295 million upfront payment to OPKO in the first quarter of 2015 associated with a worldwide development and commercialization agreement; and |
• | the favorable impact of foreign exchange of 1%, |
• | the inclusion of legacy Hospira operations, including increased investment in biosimilar and sterile injectable development programs; and |
• | higher clinical trial spend for certain oncology and GIP late-stage pipeline programs. |
• | Research Units within our Worldwide Research and Development (WRD) organization continue to be generally responsible for research assets for our Innovative Products business (assets that have not yet achieved proof-of-concept). Our Research Units are organized in a variety of ways (by therapeutic area or combinations of therapeutic areas, by discipline, by location, etc.) to enhance flexibility, cohesiveness and focus. Because of our structure, we can rapidly redeploy resources within a Research Unit between various projects as necessary because the workforce shares similar skills, expertise and/or focus. |
• | We created an R&D organization within the Global Established Pharma (GEP) business, which supports the large base of GEP products and is expected to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. |
• | We formed the Global Product Development Group (GPD), which will be generally responsible for the clinical development of assets that have achieved proof-of-concept across our innovative portfolio. This change in organization includes the transfer of the Development Operations organization from the WRD organization to the new GPD organization. GPD will now provide technical support and other services to Pfizer R&D projects. |
• | Our science-based and other platform-services organizations, where a significant portion of our R&D spending occurs, provide technical expertise and other services to the various R&D projects, and are organized into science-based functions (which are part of our WRD organization), such as Pharmaceutical Sciences, Medicinal Chemistry, Regulatory and Drug Safety, and non-science-based functions, such as Facilities, Business Technology and Finance. As a result, within each of these functions, we are able to migrate resources among projects, candidates and/or targets in any therapeutic area and in most phases of development, allowing us to react quickly in response to evolving needs. |
Three Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | |||||||
Amortization of intangible assets | $ | 1,006 | $ | 940 | 7 | |||||
As a percentage of Revenues | 7.7 | % | 8.6 | % |
Three Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | |||||||
Restructuring charges and certain acquisition-related costs | $ | 141 | $ | 60 | * | |||||
Total additional depreciation—asset restructuring | 49 | 18 | * | |||||||
Total implementation costs | 62 | 48 | 30 | |||||||
Costs associated with acquisitions and cost-reduction/productivity initiatives(a) | $ | 252 | $ | 127 | 99 |
(a) | 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 and/or Selling, informational and administrative expenses, as appropriate. |
* | Calculation not meaningful. |
Three Months Ended | ||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | |||||||
Other (income)/deductions––net | $ | 330 | $ | (46 | ) | * |
* | Calculation not meaningful. |
Three Months Ended | |||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | ||||||||
Provision for taxes on income | $ | 535 | $ | 706 | (24 | ) | |||||
Effective tax rate on continuing operations | 15.0 | % | 22.9 | % |
• | senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income and Adjusted diluted earnings per share basis; |
• | our annual budgets are prepared on an Adjusted income and Adjusted diluted earnings per share basis; and |
• | senior management’s annual compensation is derived, in part, using Adjusted income and Adjusted diluted earnings per share measures. See the “Adjusted Income––General Description of Adjusted Income Measure” section of our 2015 Financial Report for additional information. |
Three Months Ended April 3, 2016 | ||||||||||||||||||||||||
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 | $ | 13,005 | $ | — | $ | — | $ | — | $ | — | $ | 13,005 | ||||||||||||
Cost of sales | 2,851 | (200 | ) | — | — | (87 | ) | 2,565 | ||||||||||||||||
Selling, informational and administrative expenses | 3,385 | (1 | ) | — | — | (15 | ) | 3,368 | ||||||||||||||||
Research and development expenses | 1,731 | 2 | — | — | (10 | ) | 1,723 | |||||||||||||||||
Amortization of intangible assets | 1,006 | (975 | ) | — | — | — | 31 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 141 | — | (116 | ) | — | (26 | ) | — | ||||||||||||||||
Other (income)/deductions––net | 330 | 20 | — | — | (500 | ) | (149 | ) | ||||||||||||||||
Income from continuing operations before provision for taxes on income | 3,561 | 1,153 | 116 | — | 638 | 5,468 | ||||||||||||||||||
Provision for taxes on income(b) | 535 | 324 | (99 | ) | — | 544 | 1,304 | |||||||||||||||||
Income from continuing operations | 3,026 | 829 | 215 | — | 94 | 4,164 | ||||||||||||||||||
Discontinued operations––net of tax | — | — | — | — | — | — | ||||||||||||||||||
Net income attributable to noncontrolling interests | 9 | — | — | — | — | 9 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 3,016 | 829 | 215 | — | 94 | 4,155 | ||||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.49 | 0.13 | 0.03 | — | 0.02 | 0.67 |
Three Months Ended March 29, 2015 | ||||||||||||||||||||||||
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 | $ | 10,864 | $ | — | $ | — | $ | — | $ | — | $ | 10,864 | ||||||||||||
Cost of sales | 1,838 | (1 | ) | (9 | ) | — | (21 | ) | 1,807 | |||||||||||||||
Selling, informational and administrative expenses | 3,104 | 1 | — | — | (28 | ) | 3,078 | |||||||||||||||||
Research and development expenses | 1,885 | 1 | — | — | (10 | ) | 1,877 | |||||||||||||||||
Amortization of intangible assets | 940 | (906 | ) | — | — | — | 34 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 60 | — | (14 | ) | — | (46 | ) | — | ||||||||||||||||
Other (income)/deductions––net | (46 | ) | 2 | — | — | (123 | ) | (167 | ) | |||||||||||||||
Income from continuing operations before provision for taxes on income | 3,082 | 903 | 23 | — | 228 | 4,235 | ||||||||||||||||||
Provision for taxes on income(b) | 706 | 261 | 6 | — | 61 | 1,033 | ||||||||||||||||||
Income from continuing operations | 2,376 | 641 | 17 | — | 167 | 3,201 | ||||||||||||||||||
Discontinued operations––net of tax | 5 | — | — | (5 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 6 | — | — | — | — | 6 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 2,376 | 641 | 17 | (5 | ) | 167 | 3,196 | |||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.38 | 0.10 | — | — | 0.03 | 0.51 |
(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 23.8% in the first quarter of 2016, compared with 24.4% in the first quarter of 2015. This decline was primarily due to a favorable change in the jurisdictional mix of earnings, an increase in tax benefits associated with the resolution of certain tax positions pertaining to prior years with various foreign tax authorities, as well as an increase in tax benefits associated with the U.S. R&D tax credit, which was not in effect in the prior year quarter but was permanently extended on December 18, 2015. |
Adjusted income, as shown above, excludes the following items: | ||||||||
Three Months Ended | ||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | ||||||
Purchase accounting adjustments | ||||||||
Amortization, depreciation and other(a) | $ | 954 | $ | 901 | ||||
Cost of sales | 200 | 1 | ||||||
Total purchase accounting adjustments––pre-tax | 1,153 | 903 | ||||||
Income taxes(b) | (324 | ) | (261 | ) | ||||
Total purchase accounting adjustments––net of tax | 829 | 641 | ||||||
Acquisition-related costs | ||||||||
Restructuring charges(c) | 4 | (4 | ) | |||||
Transaction costs(c) | 24 | 5 | ||||||
Integration costs(c) | 87 | 13 | ||||||
Additional depreciation––asset restructuring(d) | — | 9 | ||||||
Total acquisition-related costs––pre-tax | 116 | 23 | ||||||
Income taxes(e) | 99 | (6 | ) | |||||
Total acquisition-related costs––net of tax | 215 | 17 | ||||||
Discontinued operations | ||||||||
Discontinued operations––net of tax | — | (5 | ) | |||||
Discontinued operations––net of tax, attributable to noncontrolling interests | — | — | ||||||
Total discontinued operations––net of tax, attributable to Pfizer Inc.(f) | — | (5 | ) | |||||
Certain significant items | ||||||||
Restructuring charges(g) | 26 | 46 | ||||||
Implementation costs and additional depreciation––asset restructuring(h) | 111 | 58 | ||||||
Certain legal matters, net(i) | 286 | — | ||||||
Certain asset impairments(i) | 131 | — | ||||||
Business and legal entity alignment costs(j) | 51 | 101 | ||||||
Other(k) | 34 | 23 | ||||||
Total certain significant items––pre-tax | 638 | 228 | ||||||
Income taxes(l) | (544 | ) | (61 | ) | ||||
Total certain significant items––net of tax | 94 | 167 | ||||||
Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | $ | 1,138 | $ | 820 |
(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 (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. Transaction costs in the three months ended April 3, 2016 primarily represent external costs for banking, legal, accounting and other similar services, most of which are directly related to the terminated transaction with Allergan plc. 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 three months ended 2016, restructuring charges and integration costs primarily relate to our acquisition of Hospira on September 3, 2015. |
(d) | Represents the impact of changes in estimated useful lives of assets involved in restructuring actions related to acquisitions. Included in Cost of sales for the three months ended March 29, 2015. |
(e) | 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 first quarter of 2016 was unfavorably impacted by the remeasurement of certain deferred tax liabilities resulting from plant network restructuring activities. |
(f) | Included in Discontinued operations––net of tax. For the three months ended March 29, 2015, represents post-close adjustments. |
(g) | Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions. Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(h) | Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(i) | Included in Other (income)/deductions—net (see the “Other (Income)/Deductions—Net” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
(j) | Included in Other (income)/deductions––net. Represents expenses for changes to our infrastructure to align our commercial operations, 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. |
(k) | Primarily all included in Other (income)/deductions––net for the three months ended April 3, 2016 and March 29, 2015. |
(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 ended April 3, 2016 was favorably impacted by benefits related to the final resolution (pending court approval) of an agreement in principle reached in February 2016 to resolve certain claims related to Protonix, which resulted in the receipt of information that raised our assessment of the likelihood of prevailing on the technical merits of our tax position, as well as benefits associated with our Venezuela operations. |
• | Our entire contract manufacturing business, Pfizer CentreOne, is now part of GEP. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis Inc. (collectively Pfizer CentreSource or PCS); and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in GEP since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of Pfizer Global Supply and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($111 million of PCS revenues and $21 million of PCS earnings in the first quarter of 2015) to conform to the current period presentation as part of GEP. |
• | In connection with the formation of a new GEP Research and Development (R&D) organization, certain functions transferred from Pfizer’s Worldwide Research and Development (WRD) organization into the new GEP R&D organization. The new R&D organization within GEP expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $66 million of costs in the first quarter of 2015 from WRD to GEP to conform to the current period presentation as part of GEP. |
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: | ||||||||||||||||||||||||||||||||
Three Months Ended April 3, 2016 | ||||||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | GIP(a) | VOC(a) | Total Innovative Products(b) | Established Products (GEP)(a) | Other(c) | Non-GAAP Adjusted(d) | Reconciling Items(e) | GAAP Reported | ||||||||||||||||||||||||
Revenues | $ | 3,640 | $ | 3,394 | $ | 7,033 | $ | 5,972 | $ | — | $ | 13,005 | $ | — | $ | 13,005 | ||||||||||||||||
Cost of sales | 388 | 506 | 894 | 1,455 | 215 | 2,565 | 287 | 2,851 | ||||||||||||||||||||||||
% of revenue | 10.7 | % | 14.9 | % | 12.7 | % | 24.4 | % | * | 19.7 | % | * | 21.9 | % | ||||||||||||||||||
Selling, informational and administrative expenses | 875 | 811 | 1,686 | 737 | 946 | 3,368 | 16 | 3,385 | ||||||||||||||||||||||||
Research and development expenses | 386 | 252 | 638 | 276 | 809 | 1,723 | 8 | 1,731 | ||||||||||||||||||||||||
Amortization of intangible assets | 9 | 15 | 24 | 7 | — | 31 | 975 | 1,006 | ||||||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | — | 141 | 141 | ||||||||||||||||||||||||
Other (income)/deductions––net | (210 | ) | (25 | ) | (235 | ) | (160 | ) | 246 | (149 | ) | 480 | 330 | |||||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 2,192 | $ | 1,835 | $ | 4,027 | $ | 3,657 | $ | (2,216 | ) | $ | 5,468 | $ | (1,907 | ) | $ | 3,561 |
Three Months Ended March 29, 2015 | ||||||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | GIP(a) | VOC(a) | Total Innovative Products(b) | Established Products (GEP)(a) | Other(c) | Non-GAAP Adjusted(d) | Reconciling Items(e) | GAAP Reported | ||||||||||||||||||||||||
Revenues | $ | 3,075 | $ | 2,664 | $ | 5,738 | $ | 5,125 | $ | — | $ | 10,864 | $ | — | $ | 10,864 | ||||||||||||||||
Cost of sales | 342 | 424 | 766 | 1,003 | 38 | 1,807 | 31 | 1,838 | ||||||||||||||||||||||||
% of revenue | 11.1 | % | 15.9 | % | 13.4 | % | 19.6 | % | * | 16.6 | % | * | 16.9 | % | ||||||||||||||||||
Selling, informational and administrative expenses | 808 | 595 | 1,403 | 704 | 971 | 3,078 | 27 | 3,104 | ||||||||||||||||||||||||
Research and development expenses | 623 | 193 | 816 | 200 | 861 | 1,877 | 8 | 1,885 | ||||||||||||||||||||||||
Amortization of intangible assets | 11 | 12 | 24 | 10 | — | 34 | 906 | 940 | ||||||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | — | 60 | 60 | ||||||||||||||||||||||||
Other (income)/deductions––net | (220 | ) | (25 | ) | (245 | ) | (7 | ) | 86 | (167 | ) | 121 | (46 | ) | ||||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 1,511 | $ | 1,464 | $ | 2,975 | $ | 3,215 | $ | (1,955 | ) | $ | 4,235 | $ | (1,153 | ) | $ | 3,082 |
(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) | Total Innovative Products represents the sum of the GIP and VOC segments. |
(c) | Other comprises the revenues and costs included in our Adjusted income components (see footnote (d) below) that are managed outside our three operating segments and includes the following: |
Three Months Ended April 3, 2016 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i), (v) | Medical(ii), (v) | Corporate(iii), (v) | Other Unallocated(iv), (v) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | 40 | 176 | 215 | |||||||||||||||
Selling, informational and administrative expenses | — | 27 | 900 | 18 | 946 | |||||||||||||||
Research and development expenses | 606 | — | 197 | 6 | 809 | |||||||||||||||
Amortization of intangible assets | — | — | — | — | — | |||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (14 | ) | — | 226 | 34 | 246 | ||||||||||||||
Income from continuing operations before provision for taxes on income | $ | (592 | ) | $ | (27 | ) | $ | (1,363 | ) | $ | (234 | ) | $ | (2,216 | ) |
Three Months Ended March 29, 2015 | ||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | WRD(i), (v) | Medical(ii), (v) | Corporate(iii), (v) | Other Unallocated(iv), (v) | Total | |||||||||||||||
Revenues | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Cost of sales | — | — | 22 | 15 | 38 | |||||||||||||||
Selling, informational and administrative expenses | — | 26 | 936 | 9 | 971 | |||||||||||||||
Research and development expenses | 621 | 6 | 230 | 4 | 861 | |||||||||||||||
Amortization of intangible assets | — | — | — | — | — | |||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | |||||||||||||||
Other (income)/deductions––net | (29 | ) | — | 98 | 17 | 86 | ||||||||||||||
Income from continuing operations before provision for taxes on income | $ | (592 | ) | $ | (32 | ) | $ | (1,287 | ) | $ | (45 | ) | $ | (1,955 | ) |
(i) | WRD—the research and development expenses managed by our Worldwide Research and Development (WRD) organization, which is generally responsible for research projects for our Innovative Products business until proof-of-concept is achieved and then for transitioning those projects to the appropriate Innovative Products operating segment via the newly formed Global Product Development Group 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 GEP R&D projects. WRD is also responsible for facilitating all regulatory submissions |
(ii) | Medical—the costs associated with our Pfizer Medical organization (Medical), which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, partnerships with global public health and medical associations, and regulatory inspection readiness reviews. |
(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) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. |
(iv) | Other Unallocated—other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment. |
(v) | Although we typically provide qualitative information about our Other costs on an annual basis, updated estimates are provided in the first quarter of 2016 as a result of the transfer of certain WRD functions to GEP that was effective at the beginning of 2016. For information purposes only, for the first quarter of 2016 we estimate that Other costs, in the aggregate and as described above, but excluding (i) net interest-related expense not attributable to an operating segment included in Corporate (approximately $219 million for the first quarter of 2016 in Other (income)/deductions––net); and (ii) net losses on investments not attributable to an operating segment and included in Corporate (approximately $5 million for the first quarter of 2016 in Other (income)/deductions––net), are generally associated with our operating segments, as follows: |
First-Quarter 2016 | ||||||
(PERCENTAGES) | GIP | VOC | GEP | |||
WRD/Medical Costs | ||||||
Selling, informational and administrative expenses | 37% - 39% | 20% - 22% | 40% - 42% | |||
Research and development expenses | 53% - 57% | 40% - 43% | 3% - 5% | |||
Other (income)/deductions––net | * | * | * | |||
Total WRD/Medical Costs | 51% - 55% | 40% - 43% | 4% - 6% | |||
Corporate/Other Unallocated Costs | ||||||
Cost of sales | 15% - 17% | 3% - 5% | 79% - 81% | |||
Selling, informational and administrative expenses | 26% - 28% | 23% - 25% | 47% - 51% | |||
Research and development expenses | 46% - 50% | 40% - 43% | 9% - 11% | |||
Other (income)/deductions––net | * | * | * | |||
Total Corporate/Other Unallocated Costs | 26% - 29% | 22% - 25% | 47% - 50% | |||
Total WRD/Medical and Corporate/Other Unallocated Costs | ||||||
Cost of sales | 15% - 17% | 3% - 5% | 79% - 81% | |||
Selling, informational and administrative expenses | 26% - 28% | 23% - 25% | 47% - 51% | |||
Research and development expenses | 51% - 55% | 40% - 43% | 4% - 6% | |||
Other (income)/deductions––net | * | * | * | |||
Total WRD/Medical and Corporate/Other Unallocated Costs | 34% - 37% | 28% - 31% | 34% - 37% |
• | WRD/Medical––The information provided in the table above for WRD and Medical 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––Virtually all of the information provided in the table above for Corporate and Other Unallocated was derived 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. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable. |
(d) | See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for a definition of these “Adjusted Income” components. |
(e) | Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive, unusual items 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. |
• | Revenues increased 18% in the first quarter of 2016 compared to the same period in 2015. Foreign exchange had an unfavorable impact of 6% on GIP revenues in the first quarter of 2016, compared to the same period in 2015. Revenues increased by 25% operationally in the first quarter of 2016 compared to the same period in 2015, primarily due to the following operational factors: |
◦ | strong operational growth from Eliquis globally, Lyrica and Xeljanz both primarily in the U.S., Enbrel in most international markets and Chantix primarily in the U.S. (collectively, up approximately $680 million), |
◦ | a decline in Rebif revenues in the U.S. due to the expiration of the collaboration agreement to co-promote Rebif in the U.S., which expired at the end of 2015 (down approximately $50 million). |
• | Cost of sales as a percentage of Revenues decreased 0.5 percentage points in the first quarter of 2016, compared to the same period in 2015, primarily driven by a decrease in royalty expense and an increase in alliance revenues, which have no associated cost of sales, partially offset by unfavorable foreign exchange. The increase in Cost of sales of 13% in the first quarter of 2016, compared to the same period in 2015, was primarily driven by an increase in sales volume and unfavorable foreign exchange, partially offset by a decrease in royalty expense. |
• | The increase in Selling, informational and administrative expenses of 8% in the first quarter of 2016, compared to the same period in 2015, reflects an increase in the allowance for doubtful trade accounts receivable, resulting from recent unfavorable developments with a distributor and additional investment in Eliquis and Lyrica, partially offset by reduced investment in certain other products and favorable foreign exchange. |
• | The decrease in Research and development expenses of 38% in the first quarter of 2016, compared to the same period in 2015, primarily reflects the non-recurrence of the $295 million upfront payment made to OPKO Health Inc. in the first quarter of 2015, partially offset primarily by increased investment in certain late-stage pipeline programs. |
• | The unfavorable change in Other (income)/deductions––net in the first quarter of 2016, compared to the same period in 2015, primarily reflects a decrease in royalty income, partially offset by an increase in our equity income from a certain equity-method investment. |
Global Vaccines, Oncology and Consumer Healthcare Revenues | |||||||||||
Three Months Ended | |||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | ||||||||
Global Vaccines | $ | 1,570 | $ | 1,328 | 18 | % | |||||
Global Oncology | 1,001 | 528 | 90 | % | |||||||
Consumer Healthcare | 822 | 808 | 2 | % | |||||||
Total VOC | $ | 3,394 | $ | 2,664 | 27 | % |
• | Revenues increased 27% in the first quarter of 2016, compared to the same period in 2015, which includes an increase in revenues of 33% operationally. |
◦ | Global Vaccines Revenues increased 18% to $1.6 billion in the first quarter of 2016, compared to $1.3 billion in the same period in 2015, reflecting an operational increase in revenues of 22% in the first quarter of 2016. The increases were primarily due to an increase of 22% in the first quarter of 2016 in Prevnar 13 revenue in the U.S., primarily driven by the timing of government purchases for the pediatric indication and continued strong uptake among adults due to the overall success of commercial programs. International revenues increased 19% operationally in the first quarter of 2016, driven by Prevenar 13, which grew 13% operationally in the first quarter of 2016, compared to the same period in 2015, primarily driven by adult launches mostly from Spain, Portugal, Greece and Canada. |
◦ | Global Oncology Revenues increased 90% to $1.0 billion in the first quarter of 2016, compared to $528 million in the same period in 2015, reflecting an operational increase in revenues of 95% in the first quarter of 2016 primarily driven by continued strong momentum following the February 2015 U.S. launch of Ibrance for advanced breast cancer and, to a lesser extent, stronger demand for Sutent and Xalkori in most markets. |
◦ | Consumer Healthcare Revenues increased 2% to $822 million in the first quarter of 2016, compared to $808 million in the same period in 2015, reflecting an operational increase in revenues of 10% in the first quarter of 2016, primarily due to the performance of Nexium 24HR and Advil, both in the U.S., reflecting strong demand following increased promotion and the launch of a tablet form for Nexium 24HR in the first quarter of 2016. |
• | Cost of sales as a percentage of Revenues decreased 1.0 percentage point in the first quarter of 2016, compared to the same period in 2015, primarily driven by a favorable change in product mix, partially offset by an increase in royalty expense and unfavorable foreign exchange. The increase in Cost of sales of 19% in the first quarter of 2016 compared to the same period in 2015, was primarily due to an increase in sales volumes, driven primarily by continued strong uptake of Prevnar 13, and an increase in royalty expense. |
• | Selling, informational and administrative expenses increased 36% in the first quarter of 2016, compared to the same period in 2015, primarily driven by an increase in the allowance for doubtful trade accounts receivable, resulting from recent unfavorable developments with a distributor, higher promotional expenses primarily in the U.S. for Prevnar 13, Ibrance, as well as certain Consumer Healthcare product, partially offset by favorable foreign exchange. |
• | Research and development expenses increased 30% in the first quarter of 2016, compared to the same period in 2015, primarily reflecting increased costs associated with our oncology programs, primarily our avelumab alliance with Merck KGaA and Ibrance. |
• | Revenues increased 17%, to $6.0 billion in the first quarter of 2016, compared to $5.1 billion in the same period in 2015. Foreign exchange had an unfavorable impact of 8% on GEP revenues in the first quarter of 2016, compared to the same period in 2015. Revenues increased by 24% operationally in the first quarter of 2016 compared to the same period in 2015, primarily due to the inclusion of legacy Hospira operations in the first quarter of 2016. Revenues excluding the contribution from the legacy Hospira portfolio, which contributed $1.2 billion, increased 1% operationally in the first quarter of 2016 compared to the same period in 2015, primarily due to the following operational factors: |
◦ | excluding the impact of product losses of exclusivity, growth in the U.S., where revenues increased 17% (up by approximately $220 million) for the first quarter of 2016, driven by 19% growth from Legacy Established Products and 22% growth from the Sterile Injectable Pharmaceuticals portfolio; and |
◦ | growth in emerging markets, where revenues increased 5% operationally for the first quarter of 2016 (up by approximately $100 million), |
◦ | the loss of exclusivity and associated generic competition for certain Peri-LOE Products, driven by Zyvox in the U.S. and certain developed Europe markets as well as Lyrica in certain developed Europe markets (collectively, down by approximately $230 million). |
• | Cost of sales as a percentage of Revenues increased 4.8 percentage points in the first quarter of 2016, compared to the same period in 2015, primarily due to the inclusion of legacy Hospira operations and the impact of losses of exclusivity resulting in an unfavorable change in product mix. The increase in Cost of sales of 45% in the first quarter of 2016 compared to the same period in 2015, was primarily driven by the inclusion of legacy Hospira, partially offset by favorable foreign exchange and lower volumes as a result of products losing exclusivity. |
• | Selling, informational and administrative expenses increased 5% in the first quarter of 2016, compared to the same period in 2015, primarily due to the inclusion of legacy Hospira operations, partially offset by lower field force, advertising and promotional expenses, reflecting the benefits of cost-reduction and productivity initiatives, and favorable foreign exchange. |
• | Research and development expenses increased 38% in the first quarter of 2016, compared to the same period in 2015, reflecting the inclusion of legacy Hospira operations and increased investment in biosimilar development programs and sterile injectable development programs. |
• | The favorable change in Other (income)/deductions––net in the first quarter of 2016, compared to the same period in 2015, primarily reflects resolution of a contract disagreement and favorable foreign exchange. |
The following table contains selected balance sheet information by operating segment: | ||||||||||||||||||||
As of December 31, 2015 | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | GIP(a), (b) | VOC(a), (b) | GEP(a), (b) | Corporate/Unallocated(a), (c) | Total Company | |||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 3,641 | $ | 3,641 | ||||||||||
Short-term investments | — | — | — | 19,649 | 19,649 | |||||||||||||||
Trade accounts receivable, less allowance for doubtful accounts | 2,566 | 1,764 | 3,846 | — | 8,176 | |||||||||||||||
Inventories | 1,532 | 1,855 | 4,126 | — | 7,513 | |||||||||||||||
Current tax assets | 436 | 578 | 1,251 | 396 | 2,662 | |||||||||||||||
Other current assets | 502 | 246 | 564 | 851 | 2,163 | |||||||||||||||
Total current assets | $ | 43,804 | ||||||||||||||||||
Short term borrowings, including current portion of long-term debt | $ | — | $ | — | $ | — | $ | 10,159 | $ | 10,159 | ||||||||||
Trade accounts payable | 1,094 | 1,039 | 1,436 | 52 | 3,620 | |||||||||||||||
Dividends payable | — | — | — | 1,852 | 1,852 | |||||||||||||||
Income taxes payable | — | — | — | 418 | 418 | |||||||||||||||
Accrued compensation and related items | 778 | 512 | 857 | 211 | 2,359 | |||||||||||||||
Other current liabilities | 2,460 | 1,716 | 3,868 | 2,945 | 10,990 | |||||||||||||||
Total current liabilities | $ | 29,399 | ||||||||||||||||||
Other selected balance sheet information: | ||||||||||||||||||||
Noncurrent inventories(d) | $ | 70 | $ | 49 | $ | 475 | $ | — | $ | 594 |
(a) | The selected balance sheet information is presented as of December 31, 2015 after all significant intercompany balances and transactions between legal entities have been eliminated. For subsidiaries operating outside the U.S., the selected balance sheet information is included as of November 30, 2015. |
(b) | The selected balance sheet information for each operating segment has been developed as follows: |
• | Trade accounts receivable, less allowance for doubtful accounts––significantly all amounts were derived using specific identification methods. |
• | Inventories (including noncurrent portion)–– these amounts were derived using specific identification methods and with respect to shared inventory components, these amounts were derived using proportional allocation methods based on associated manufacturing costs and related product-specific inventory. |
• | Current tax assets––for current tax assets (prepaid taxes associated with intercompany profits that are eliminated in consolidation), these amounts were derived using proportional allocation methods based on the associated unrealized intercompany profits. |
• | Other current assets––these amounts were derived using proportional allocation methods based on country-specific revenues, or associated costs, as appropriate, as well as specific identification methods. |
• | Trade accounts payable––the amounts were derived using specific identification methods and using proportional allocation methods based on associated manufacturing costs, certain research and development costs or other operating costs, as appropriate. |
• | Accrued compensation and related items––these amounts were derived using proportional allocation methods based on country-specific compensation expenses and, with respect to amounts related to our enabling functions and other supporting functions, based on country-specific revenues and associated operating costs, as appropriate. In addition, amounts were also derived using specific identification methods. |
◦ | Other current liabilities––these amounts were derived using specific identification methods or estimates for the amounts associated with each operating segment, as well as proportional allocation methods based on country, global or regional revenue, country-specific manufacturing costs, certain research and development costs or other associated operating costs, as appropriate. |
(c) | Corporate/Unallocated includes the following line items: |
• | Cash and cash equivalents, Short-term investments, Short-term borrowings, including current portion of long-term debt and Dividends payable as these accounts are predominately non-operating financial assets and liabilities. Identification of amounts by operating segment is not meaningful as none of our operating segments operate as a standalone company with an identifiable debt/capital structure. |
• | Income taxes payable as this account represents liabilities associated with specific legal entities and none of our operating segments operate as a standalone company with identifiable legal entities. |
• | Current tax assets––the portion of these accounts included as Corporate/Unallocated primarily relates to tax assets associated with specific legal entities as none of our operating segments operate as a standalone company with identifiable legal entities. |
• | Other current assets––the portion of these accounts included as Corporate/Unallocated primarily relates to derivative financial instruments. Identification of these amounts by operating segment is not meaningful as none of our operating segments operate as a standalone company with an identifiable debt/capital structure. |
• | Trade accounts payable––the portion of this account included as Corporate/Unallocated primarily relates to liabilities associated with specific legal entities not identified with operating segments. |
• | Accrued compensation and related items––the portion of these accounts included as Corporate/Unallocated primarily relates to our pension and post-retirement benefit obligations associated with former employees. We have not identified any of these amounts with a particular operating segment as these types of liabilities are theoretically funded through accumulated earnings and/or excess cash/investments and none of our operating segments operate as a standalone company with an identifiable debt/capital structure. |
• | Other current liabilities––the portion of these accounts included as Corporate/Unallocated primarily relates to: |
◦ | Amounts associated with legal and environmental liabilities. Although some of these amounts may be associated with products sold in our current operating segments, we have not identified any of these amounts with a particular operating segment as these types of liabilities are theoretically funded through accumulated earnings and/or excess cash/investments and none of our operating segments operate as a standalone company with an identifiable debt/capital structure. |
◦ | Accrued interest and derivative financial instruments. Identification of these amounts by operating segment is not meaningful as none of our operating segments operate as a standalone company with an identifiable debt/capital structure. |
(d) | Included in Other noncurrent assets on the consolidated balance sheet. |
• | For Foreign currency translation adjustments, net, for the first quarter of 2016, reflects primarily the strengthening of the U.S. dollar against the British pound and Argentine peso, partially offset by the weakening of the U.S dollar against the euro and Japanese yen. |
• | For Unrealized holding losses on derivative financial instruments, net and Unrealized holding gains/(losses) on available-for-sale securities, net, reflects the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. |
• | For Benefit plans: actuarial gains, net, primarily reflects the impact of foreign exchange and, to a significantly lesser extent, settlement activity. 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, for the first quarter of 2016, reflects the reclassification into income of amounts related to (i) amortization of changes in prior service costs and credits previously recognized in Other |
• | For Trade accounts receivable, less allowance for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business and an increase in the allowance for doubtful accounts, resulting from recent unfavorable developments with a distributor. |
• | For Inventories, the change reflects planned inventory reductions, partially offset by inventory builds in the normal course of business. |
• | For Other current assets, the change reflects an increase in VAT receivable balances, partially offset by a decrease in receivables associated with our derivative financial instruments. |
• | For Property, plant and equipment, less accumulated depreciation (PP&E), the change reflects depreciation during the period, partially offset by capital additions in the normal course of business. |
• | For Identifiable intangible assets, less accumulated amortization, the change reflects amortization, partially offset by the impact of measurement period adjustments related to our acquisition of Hospira (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Research and Development and Collaborative Arrangements and Equity-Method Investments: Acquisitions) and Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets for additional information). |
• | For Other noncurrent assets, the change reflects an increase in receivables associated with our derivative financial instruments. |
• | For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business. |
• | For Dividends payable, the change reflects the first quarter 2016 dividend payment made in March 2016. |
• | For Accrued compensation and related items, the decrease reflects bonus payments made to employees during the first quarter of 2016. |
• | For Other current liabilities, the change reflects accruals for certain legal matters, an increase in VAT payable balances and an increase in payables associated with our derivative financial instruments, partially offset by payments of restructuring accruals and the timing of other payments in the normal course of business. |
• | For Pension benefit obligations, net and Postretirement benefit obligations, net, the change reflects a $1.0 billion voluntary pension contribution in January 2016, as well as the information provided in Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. |
• | For Other noncurrent liabilities, the change reflects a decrease in the payables associated with our derivative financial instruments, and distributions under certain of the Company’s deferred compensation programs partially offset by changes in accruals in the normal course of business. |
• | For Treasury stock, the change reflects $5 billion paid to Goldman, Sachs & Co. in March 2016 pursuant to the terms of an accelerated share repurchase agreement. See Notes to Condensed Consolidated Financial Statements—Note 12. Commitments and Contingencies for additional information. |
Three Months Ended | |||||||||||
(MILLIONS OF DOLLARS) | April 3, 2016 | March 29, 2015 | % Change | ||||||||
Cash provided by/(used in): | |||||||||||
Operating activities | $ | 1,651 | $ | 680 | * | ||||||
Investing activities | 4,355 | 6,592 | (34 | ) | |||||||
Financing activities | (7,014 | ) | (6,978 | ) | 1 | ||||||
Effect of exchange-rate changes on cash and cash equivalents | (73 | ) | (74 | ) | (2 | ) | |||||
Net increase/(decrease) in Cash and cash equivalents | $ | (1,080 | ) | $ | 220 | * |
* | Calculation not meaningful. |
• | net redemptions of investments of $4.8 billion in the first quarter of 2016, compared to $7.2 billion in the first quarter of 2015, |
• | a decrease in cash paid for acquisitions of $568 million (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Research and Development and Collaborative Arrangements, and Equity-Method Investments: Acquisitions). |
• | purchases of common stock of $5.0 billion in the first quarter of 2016, compared to $6.0 billion in the first quarter of 2015; |
• | cash dividends paid of $1.9 billion in the first quarter of 2016, compared to $1.8 billion in the first quarter of 2015; and |
• | net payments on short-term borrowings and long-term debt of $481 million in the first quarter of 2016, compared to $136 million in the first quarter of 2015, |
• | proceeds from the exercise of stock options of $296 million in the first quarter of 2016, compared to $794 million in the first quarter of 2015. |
• | the working capital requirements of our operations, including our research and development 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) | April 3, 2016 | December 31, 2015 | ||||||
Selected financial assets: | ||||||||
Cash and cash equivalents(a) | $ | 2,561 | $ | 3,641 | ||||
Short-term investments(a) | 16,882 | 19,649 | ||||||
Long-term investments(a) | 14,146 | 15,999 | ||||||
33,590 | 39,290 | |||||||
Debt: | ||||||||
Short-term borrowings, including current portion of long-term debt | 11,546 | 10,159 | ||||||
Long-term debt | 27,824 | 28,740 | ||||||
39,370 | 38,899 | |||||||
Selected net financial assets/(liabilities)(b) | $ | (5,780 | ) | $ | 391 | |||
Working capital(c) | $ | 12,563 | $ | 14,405 | ||||
Ratio of current assets to current liabilities | 1.44:1 | 1.49:1 | ||||||
Total Pfizer Inc. shareholders’ equity per common share(d) | $ | 10.41 | $ | 10.48 |
(a) | See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of the credit risk related to our financial instruments held. |
(b) | Selected net financial assets decreased due to lower net proceeds from redemption/sales of both short-term and long-term investments, partially offset by the net increase in short-term borrowings and long-term debt. For additional information, see the “Analysis of the Condensed Consolidated Statements of Cash Flows” section of this MD&A. |
(c) | The decrease in working capital is due to the timing of accruals, cash receipts and payments in the ordinary course of business. |
(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 non-credit-enhanced long-term debt: | |||||||
NAME OF RATING AGENCY | Pfizer Commercial Paper | Pfizer Long-Term Debt | Date of Last Rating Change | ||||
Rating | Rating | Outlook | |||||
Moody’s | P-1 | A1 | Stable | October 2009 | |||
S&P | A-1+ | AA | Stable | April 2016 |
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 | ||||||||
(SHARES IN MILLIONS, DOLLARS IN BILLIONS) | April 3 2016(a) | March 29, 2015(b) | ||||||
Shares of common stock purchased | 136 | 182 | ||||||
Cost of purchase | $ | 5.0 | $ | 6.0 |
(a) | Represents shares purchased pursuant to an accelerated share repurchase agreement. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 12. Commitments and Contingencies and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities" in Part II, Item 2 of this Quarterly Report on Form 10-Q. |
(b) | Includes approximately151 million shares purchased for $5 billion pursuant to an accelerated share repurchase agreement. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our 2015 Annual Report on Form 10-K. |
The following table provides a brief description of recently issued accounting standards, not yet adopted: | ||||
Standard/Description | Effective Date | Effect on the Financial Statements or Other Significant Matters | ||
In July 2015, the FASB issued an update related to inventory. The new guidance requires that inventory be measured at the lower of cost or net realizable value. | January 1, 2017. Earlier application is permitted as of the beginning of an interim or annual reporting period. | We do not expect the provisions of this new standard will have a material impact on our consolidated financial statements. | ||
In May 2014, the FASB issued amended guidance related to revenue from contracts with customers. The new guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance the FASB has issued five Accounting Standard Updates, amending the guidance, effective date, and the SEC has rescinded certain related SEC guidance; the most recent of which was issued in May 2016. | January 1, 2018. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. | We have not yet completed our final review of the impact of this guidance, although we currently do not anticipate a material impact on our revenue recognition practices. We continue to review variable consideration, potential disclosures, and our method of adoption to complete our evaluation of the impact on our consolidated financial statements. In addition, we continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the Financial Accounting Standards Board (FASB), which may impact our current conclusions. | ||
In January 2016, the FASB issued an update to its guidance on recognition and measurement of financial assets and liabilities. Among other things, the new guidance makes the following targeted changes to existing guidance: 1. Requires certain equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. 2. Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. 3. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. | January 1, 2018. Earlier application is not allowed for the amendments in the update, described here, that have potential to impact our consolidated financial statements. | We are assessing the impact of the provisions of this new guidance on our consolidated financial statements. | ||
In February 2016, the FASB issued an update to its guidance on leases. The new ASU provides guidance for both lessee and lessor accounting models. Among other things, the new guidance requires that a right of use asset and a lease liability be recognized for leases with a duration of greater than one year. | January 1, 2019. Earlier application is permitted | We have not yet completed our review of the impact of this guidance. However, we anticipate recognition of additional assets and corresponding liabilities related to leases on our balance sheet. |
Standard/Description | Effective Date | Effect on the Financial Statements or Other Significant Matters | ||
In March 2016, the FASB issued new guidance on accounting for employee share-based payments. The new guidance makes the following changes to existing guidance for public companies: 1. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. 2. The minimum statutory tax withholding requirement to qualify for equity classification has been changed from a limit of the employer's minimum statutory withholding requirements to permitting withholding up to the maximum statutory tax rates in the applicable jurisdictions. 3. Cash paid by an employer when directly withholding shares for tax-withholding purposes will be classified as a financing activity in the statement of cash flows. 4. An option has been added to allow an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or to account for forfeitures when they occur. | January 1, 2017, with earlier application permitted. | We have not yet completed our review of the impact 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; and uncertainties regarding our ability to address the comments in complete response letters received by us with respect to certain of our drug applications to the satisfaction of the FDA; |
• | 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 interim data, including the risk that final results of studies for which interim data have been provided and/or additional clinical trials may be different from (including less favorable than) the 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 satisfy the conditions to closing of any announced transactions in the anticipated time frame or at all; |
• | competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products 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; |
• | the ability to meet generic and branded competition after the loss 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; |
• | trade buying patterns; |
• | the impact of existing and future legislation and regulatory provisions on product exclusivity; |
• | trends toward managed care and healthcare cost containment; |
• | the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented, and/or any significant additional taxes or fees that may be imposed on the pharmaceutical industry as part of any broad deficit-reduction effort; |
• | the impact of U.S. healthcare legislation enacted in 2010—the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act––and of any modification, repeal or invalidation of any of the provisions thereof; |
• | U.S. federal or state legislation or regulatory action affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; 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, settlement costs, the risk of an adverse decision or settlement and the adequacy of reserves related to product liability, patent matters, government investigations, consumer, commercial, securities, antitrust, environmental, employment, tax issues, ongoing efforts to explore various means for resolving asbestos litigation, and other legal proceedings; |
• | 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; |
• | any significant issues involving our largest wholesaler customers, 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; |
• | 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; |
• | uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; and the related risk that our allowance for doubtful accounts may not be adequate; |
• | 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, product recalls, withdrawals and other unusual items, including our ability to realize the projected benefits of our cost-reduction and productivity initiatives, including those related to our research and development organization, and of the internal separation of our commercial operations into our current operating structure; |
• | the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments; |
• | risks related to internal control over financial reporting; and |
• | risks and uncertainties related to our recent acquisition of Hospira, including, among other things, the ability to realize the anticipated benefits of the acquisition of Hospira, including the possibility that expected cost savings and accretion 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 transaction making it more difficult to maintain business and operational relationships; significant transaction costs; 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) | ||||||
January 1, 2016 through January 31, 2016 | 1,020,169 | $ | 30.06 | — | $ | 16,355,862,076 | ||||
February 1, 2016 through February 28, 2016 | 371,620 | $ | 28.42 | — | $ | 16,355,862,076 | ||||
February 29, 2016 through April 3, 2016 | 139,382,354 | $ | 29.38 | 136,239,782 | $ | 11,355,862,076 | ||||
Total | 140,774,143 | $ | 29.38 | 136,239,782 |
(a) | On October 23, 2014, we announced that the Board of Directors had authorized an $11 billion share-purchase plan, and share purchases commenced thereunder in January 2015 (the October 2014 Stock Purchase Plan). In December 2015, the Board of Directors authorized a new $11 billion share repurchase program to be utilized over time. On March 8, 2016, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. (GS&Co.) to repurchase $5 billion of our common stock. Pursuant to the terms of the agreement, on March 10, 2016, we paid $5 billion to GS&Co. and received an initial delivery of approximately 136 million shares of our common stock from GS&Co. at a price of $29.36 per share, which represented, based on the closing share price of our common stock on the New York Stock Exchange on March 8, 2016, approximately 80% of the notional amount of the accelerated share repurchase agreement. As of April 3, 2016, the common stock received is included in Treasury Stock. At settlement of the agreement, which is expected to occur during the second quarter of 2016, GS&Co. may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to deliver shares of our common stock or may elect to make a cash payment to GS&Co., with the number of shares to be delivered or the amount of such payment, as well as the final average price per share, based on the volume-weighted average price, less a discount, of Pfizer's common stock during the term of the transaction. This agreement was entered into pursuant to our previously announced share repurchase authorization. After giving effect to the accelerated share repurchase agreement, our remaining share-purchase authorization is approximately $11.4 billion. |
(b) | In addition to the amounts purchased under the accelerated share repurchase agreement, these columns reflect the following transactions during the first fiscal quarter of 2016: (i) the surrender to Pfizer of 3,042,322 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees; (ii) the open market purchase by the trustee of 24,303 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; (iii) the surrender to Pfizer of 328,391shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees; (iv) the surrender to Pfizer of 151,279 shares of common stock to pay the exercise price and to satisfy tax withholding obligations in connection with the exercise of employee stock options; and (v) the surrender of 988,066 shares of common stock to satisfy withholding obligations in connection with the settlement of total shareholder return units. |
Exhibit 10.1 | - | Pfizer Supplemental Savings Plan. | |
Exhibit 12 | - | Computation of Ratio of Earnings to Fixed Charges. | |
Exhibit 15 | - | Accountants’ Acknowledgment. | |
Exhibit 31.1 | - | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 31.2 | - | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Exhibit 32.1 | - | 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. | |
Exhibit 32.2 | - | 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 EX-101.SCH EX-101.CAL EX-101.LAB EX-101.PRE EX-101.DEF | XBRL Instance Document 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: | May 12, 2016 | /s/ Loretta V. Cangialosi |
Loretta V. Cangialosi, Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) |