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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
The following MD&A is intended to assist the reader in understanding our financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources, and is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes in Item 8. Financial Statements and Supplementary Data in this Form 10-K. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found within MD&A in our 2021 Form 10-K.
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OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK
Financial Highlights––The following is a summary of certain financial performance metrics (in billions, except per share data):
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2022 Total Revenues––$100.3 billion | 2022 Net Cash Flow from Operations––$29.3 billion |
An increase of 23% compared to 2021 | A decrease of 10% compared to 2021 |
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2022 Reported Diluted EPS––$5.47 | 2022 Adjusted Diluted EPS (Non-GAAP)––$6.58* |
An increase of 42% compared to 2021 | An increase of 62% compared to 2021 |
*For additional information regarding Adjusted diluted EPS (which is a non-GAAP financial measure), including reconciliations of certain GAAP Reported to non-GAAP Adjusted information, see the Non-GAAP Financial Measure: Adjusted Income section within MD&A. References to operational variances pertain to period-over-period changes that exclude the impact of foreign exchange rates. Although foreign exchange rate changes are part of our business, they are not within our control and since they can mask positive or negative trends in the business, we believe presenting operational variances excluding these foreign exchange changes provides useful information to evaluate our results.
Our Business and Strategy––Pfizer Inc. is a research-based, global biopharmaceutical company. We apply science and our global resources to bring therapies to people that extend and significantly improve their lives. See the Item 1. Business––About Pfizer section in this Form 10-K. Pfizer is committed to working towards equitable and affordable access to our medicines and vaccines for people around the world. As a science-driven global biopharmaceutical company, we remain focused on advancing our pipeline, supporting our marketed brands and deploying capital responsibly, with a focus on initiatives that can help contribute to our long-term revenue and future growth. Our ability to fulfill our purpose, Breakthroughs that change patients’ lives, remains a core focus and underscores our commitment to addressing the needs of society to help sustain long-term value creation for all stakeholders. Most of our revenues come from the manufacture and sale of biopharmaceutical products. We believe that our medicines and vaccines provide significant value for healthcare providers and patients and seek to enhance their value by continuously evaluating how we can best collaborate with patients, physicians and payers to support and expand patient access to reliable, affordable healthcare around the world. In addition, we continually seek to expand and broaden our product portfolio offerings through prioritized development of our pipeline and acquisitions targeted at critical unmet patient needs. As a result, our commercial organizational structure and R&D operations are critical to the successful execution of our business strategy. In 2023, we are making additional investments in both R&D and SI&A to support Pfizer’s near- and longer-term growth plans, including to support anticipated new launches, commercial launch of COVID-19 products, potential high-value pipeline programs and recently acquired assets.
With the formation of the Consumer Healthcare JV in 2019, the spin-off of our former Upjohn Business in the fourth quarter of 2020 and the sale of our Meridian subsidiary in the fourth quarter of 2021, Pfizer transformed into a more focused, global leader in science-based innovative medicines and vaccines engaged in the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products worldwide. In the fourth quarter of 2021, we began managing our commercial operations through a global structure consisting of two operating segments: Biopharma and PC1. Biopharma is the only reportable segment. See Note 1A and Item 1. Business––Commercial Operations in this Form 10-K for additional information. We expect to incur costs of approximately $700 million in connection with separating Upjohn, of which approximately 85% has been incurred since inception and through December 31, 2022. These charges include costs and expenses related to separation of legal entities and transaction costs.
Beginning in 2019, we took action through our Transforming to a More Focused Company restructuring program to ensure our cost base and support model aligned appropriately with our operating structure. In the third quarter of 2022, we made several organizational changes to further transform our operations to better leverage our expertise in certain areas and in anticipation of potential future new product or indication launches, and in the fourth quarter of 2022, we began taking steps to optimize our end-to-end R&D operations to reduce costs and cycle times as well as to further prioritize our internal R&D portfolio in areas where our capabilities are differentiated while increasing external innovation efforts to leverage an expanding and productive biotech sector. See Note 3 for additional information. For a description of savings related to this
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R&D: We believe we have a strong pipeline and are well-positioned for future growth. R&D is at the heart of fulfilling our purpose to deliver breakthroughs that change patients’ lives as we work to translate advanced science and technologies into the therapies that may be the most impactful for patients. Innovation, drug discovery and development are critical to our success. In addition to discovering and developing new products, our R&D efforts seek to add value to our existing products by improving their effectiveness and ease of dosing and by discovering potential new indications. See the Item 1. Business—Research and Development section in this Form 10-K for our R&D priorities and strategy. We seek to leverage a strong pipeline, organize around expected operational growth drivers and capitalize on trends creating long-term growth opportunities, including:
•an aging global population that is generating increased demand for innovative medicines and vaccines that address patients’ unmet needs; and
•advances in both biological science and platform technologies that are enhancing the delivery of breakthrough new medicines and vaccines.
Our Business Development Initiatives––We are committed to strategically capitalizing on growth opportunities, primarily by advancing our own product pipeline and maximizing the value of our existing products, but also through various business development activities. We view our business development activity as an enabler of our strategies and seek to generate growth by pursuing opportunities and transactions that have the potential to strengthen our business and our capabilities. We assess our business, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will help advance our business strategy.
For additional information, including discussion of recent significant business development activities, see Note 2. Our 2022 Performance
Revenues––Revenues increased $19.0 billion, or 23%, to $100.3 billion in 2022 from $81.3 billion in 2021, reflecting an operational increase of $24.6 billion, or 30%, as well as an unfavorable impact of foreign exchange of $5.5 billion, or 7%. The operational increase was primarily driven by growth from Paxlovid and Comirnaty.
Excluding the impact of Paxlovid and Comirnaty, revenues increased 2% operationally, reflecting strong growth in the Prevnar family, Eliquis and the Vyndaqel family, as well as revenue from recently acquired products, Nurtec ODT/Vydura and Oxbryta, partially offset by declines in Xeljanz, Chantix/Champix, Sutent, certain Comirnaty-related manufacturing activities performed on behalf of BioNTech (which are included in the PC1 contract development and manufacturing organization) and Ibrance.
The following outlines the components of the net change in revenues:
As of January 31, 2023, on a total company basis, we forecasted revenues in 2023 of $67 billion to $71 billion, reflecting an operational decline of 31% at the midpoint from 2022 results, which we expect will also have an unfavorable impact on Income from continuing operations before provision/(benefit) for taxes on income. The total company expected revenue declines in 2023 are driven by an expected reduction in sales of our COVID-19 products, partially offset by expected operational growth from our non-COVID-19 in-line portfolio, anticipated new product launches, and recently acquired products.
See the Revenues by Geography and Revenues––Selected Product Discussion sections within MD&A for more information, including a discussion of key drivers of our revenue performance. See also The Global Economic Environment––COVID-19 section below for information about our COVID-19 products, including expectations for 2023. For information regarding the primary indications or class of certain products, see Note 17C. Income from Continuing Operations Before Provision/(Benefit) for Taxes on Income––The increase in Income from continuing operations before provision/(benefit) for taxes on income of $10.4 billion, to $34.7 billion in 2022 from $24.3 billion in 2021, was primarily attributable to higher revenues and lower Acquired in-process research and development expenses, partially offset by (i) an increase in Cost of sales, (ii) net losses on equity securities in 2022 versus net gains on equity securities in 2021, (iii) lower net periodic benefit credits associated with pension and other postretirement plans, and (iv) increases in Research and development expenses, Selling, informational and administrative expenses, and Restructuring charges and certain acquisition-related costs.
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Regulatory Environment––Pipeline Productivity––Our product lines must be replenished over time to offset revenue losses when products lose exclusivity or market share or to respond to healthcare and innovation trends, as well as to provide for earnings growth. As a result, we devote considerable resources to our R&D activities which, while essential to our growth, incorporate a high degree of risk and cost, including whether a particular product candidate or new indication for an in-line product will achieve the desired clinical endpoint or safety profile, will be approved by regulators or will be successful commercially. Clinical trials are conducted to determine, among other things, whether an investigational drug or device is safe and effective for a particular patient population. After a product has been approved or authorized and launched, we continue to monitor its safety as long as it is available to patients, including conducting postmarketing trials, voluntarily or pursuant to a regulatory request. For the entire life of the product, we collect safety data and report safety information to the FDA and other regulators. Regulatory authorities evaluate potential safety concerns and take any regulatory action deemed necessary and appropriate. Such action(s) may include: updating a product’s labeling, restricting its use, communicating new safety information or, in rare cases, seeking to suspend or remove a product from the market.
Intellectual Property Rights and Collaboration/Licensing Rights––The loss, expiration or invalidation of intellectual property rights, patent litigation settlements and the expiration of co-promotion and licensing rights can have a material adverse effect on our revenues. Certain of our products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face increased generic competition over the next few years. While additional patent expiries will continue, we expect a moderate impact of reduced revenues due to patent expiries from 2023 through 2025. We anticipate a more significant impact of reduced revenues from patent expiries in 2026 through 2030 as several of our in-line products experience patent-based expirations. We continue to vigorously defend our patent rights against infringement, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to help ensure appropriate patient access.
Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures––The pricing of medicines and vaccines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, vaccines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Federal and state governments and private third-party payers in the U.S. continue to take action to manage the utilization of drugs and cost of drugs, including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. We consider a number of factors impacting the pricing of our medicines and vaccines. Within the U.S., we often engage with patients, doctors and healthcare plans. We also often provide significant discounts from the list price to insurers, including PBMs and MCOs. The price that patients pay in the U.S. for prescribed medicines and vaccines is ultimately set by healthcare providers and insurers. Governments globally, as well as private third-party payers in the U.S., may use a variety of measures to control costs, including, among others, proposing pricing reform or legislation, employing formularies to control costs, cross country collaboration and procurement, price cuts, mandatory rebates, health technology assessments, forced localization as a condition of market access, “international reference pricing” (i.e., the practice of a country linking its regulated medicine prices to those of other countries), QCE processes and VBP. We anticipate that these and similar initiatives will continue to increase pricing and access pressures globally. In the U.S., we expect to see continued focus by Congress and the Biden Administration on regulating pricing, which could result in legislative and regulatory changes designed to control costs, such as the IRA that was signed into law in August 2022. We continue to evaluate the impact of the IRA on our business, operations and financial condition and results as the full effect of the IRA on our business and the pharmaceutical industry remains uncertain. In addition, changes to the Medicaid program or the federal 340B drug pricing program, including legal or legislative developments at the federal or state level with respect to the 340B program, could have a material impact on our business. For additional information, see the Item 1. Business––Pricing Pressures and Managed Care Organizations and ––Government Regulation and Price Constraints and the Item 1A. Risk Factors––Pricing and Reimbursement sections in this Form 10-K. Product Supply––We periodically encounter supply delays, disruptions and shortages, including due to voluntary product recalls. In response to requests from various regulatory authorities, manufacturers across the pharmaceutical industry, including Pfizer, are evaluating their product portfolios for the potential presence or formation of nitrosamines. This has led to recalls, including our voluntary recall of Chantix in 2021 and additional voluntary recalls initiated for other products in 2022 due to the presence of nitrosamines above the FDA interim acceptable intake limit, and may lead to additional recalls or other market actions for Pfizer products.
Regarding our supply chain generally, in 2022 and to date, we have not seen a significant disruption, and all of our manufacturing sites globally have continued to operate at or near normal levels; however, we are seeing an increase in overall demand in the industry for certain components and raw materials, which could potentially result in constraining available supply leading to a possible future impact on our business. We are continuing to monitor and implement mitigation strategies in an effort to reduce any potential risk or impact including active supplier management, qualification of additional suppliers and advanced purchasing to the extent possible. For information on risks related to product manufacturing, see the Item 1A. Risk Factors––Product Manufacturing, Sales and Marketing Risks section in this Form 10-K. The Global Economic Environment––In addition to the industry-specific factors discussed above, we, like other businesses of our size and global extent of activities, are exposed to economic cycles. Certain factors in the global economic environment that may impact our global operations include, among other things, currency fluctuations, capital and exchange controls, local and global economic conditions including inflation, recession, volatility and/or lack of liquidity in capital markets, expropriation and other restrictive government actions, changes in intellectual property, legal protections and remedies, trade regulations, tax laws and regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to our products, as well as impacts of political or civil unrest or military action, including the ongoing conflict between Russia and Ukraine and its economic consequences, geopolitical instability, terrorist activity, unstable governments and legal systems, inter-governmental disputes, public health outbreaks, epidemics, pandemics, natural disasters or disruptions related to climate change. Government pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria or other means of cost control. For additional information on risks related to our global operations, see the Item 1A. Risk Factors—Global Operations section in this Form 10-K. COVID-19––In response to COVID-19, we have developed Paxlovid and collaborated with BioNTech to jointly develop Comirnaty, including booster doses of an Omicron-adapted bivalent vaccine. As part of our strategy for COVID-19, we are continuing to make significant additional
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investments in breakthrough science and global manufacturing. This includes continuing to evaluate Comirnaty and Paxlovid, including against new variants of concern, developing monovalent, bivalent and variant adapted vaccine candidates and booster doses and developing potential combination respiratory vaccines and potential next generation vaccines and therapies. We are also evaluating Paxlovid for additional populations. For additional information, including our continuing late-stage development efforts for Paxlovid, see the Product Developments section within MD&A. In 2022 and to date, we principally sold Comirnaty and Paxlovid globally under government contracts. We expect sales of Comirnaty in the U.S. will transition to traditional commercial market sales in the second half of 2023, triggered by the expiration of current contracts and the vaccines purchased through them becoming either depleted or not usable against new variants. Internationally, we expect sales of Comirnaty in international developed markets to generally be under government contracts in 2023, and in emerging markets, under a combination of private channels and government contracts; in both cases, we expect to generally transition to commercial markets starting in 2024. For Paxlovid, we expect 2023 to be a transitional year as we expect to start selling Paxlovid through the commercial channels in the second half of 2023 rather than significant government purchases. We also remain committed to helping ensure broad and equitable access to our COVID-19 products to eligible patients around the world. Revenues from our COVID-19 products are expected to go from their peak in 2022 to their low point in 2023 before potentially returning to growth in 2024. While patient demand for our COVID-19 products is expected to remain strong throughout 2023, much of that demand is expected to be fulfilled by existing supply of products that were delivered to governments and recorded as revenues in 2022. As of January 31, 2023, we forecasted Comirnaty revenues of approximately $13.5 billion in 2023, down 64% from actual 2022 results, with gross profit to be split evenly with BioNTech, and Paxlovid revenues of approximately $8 billion in 2023, down 58% from actual 2022 results. Guidance for both products includes, among other things, anticipated sales through traditional commercial markets in the U.S. in the second half of 2023 and assumes prior absorption of existing government supply from advanced purchase agreements from 2022. These forecasts are based on estimates and assumptions that are subject to significant uncertainties, including, among others, patient demand which could be significantly impacted by the infectiousness and severity of the predominant strains of the SAR-CoV-2 virus during 2023, proportion of the population that receives a vaccine or is treated with an oral antiviral treatment, the number of doses per vaccinated person per year, number of symptomatic infections, market share of Comirnaty and Paxlovid, timing and terms for delivery of the contracted doses of Comirnaty to the EC, Paxlovid sales to China and the timing for transitioning Comirnaty and Paxlovid sales to the commercial market in the U.S.
In addition to our introduction of Comirnaty and Paxlovid, COVID-19 has impacted our business, operations and financial condition and results. For example, COVID-19 had varying impacts on patient visits, vaccinations, elective surgeries, cancer screenings and routine testing, which affected prescriptions or refills of existing prescriptions and demand for products used in procedures. As part of our on-going monitoring and assessment, we have made certain assumptions regarding COVID-19 for purposes of our operational planning and financial projections, including assumptions regarding the global macroeconomic impact of COVID-19, as well as the demand, revenues, supply, contracts and commercial markets for our COVID-19 products, which remain dynamic. Despite careful tracking and planning, we are unable to accurately predict the extent of the impact of COVID-19 on our business, operations and financial condition and results due to the uncertainty of future developments. We will continue to pursue efforts to maintain the continuity of our operations while monitoring for new developments related to COVID-19. Future developments could result in additional favorable or unfavorable impacts on our business, operations or financial condition and results. For information on risks associated with COVID-19 and our COVID-19 products, as well as COVID-19 intellectual property disputes, see the Item 1A. Risk Factors—COVID-19, —Intellectual Property Protection and ––Third-Party Intellectual Property Claims sections in this Form 10-K and Note 16A1. Russia/Ukraine Conflict––Our global operations may be impacted by the armed conflict between Russia and Ukraine. Consistent with our commitment to putting patients first, we are maintaining the supply of medicines to Russia, including the provision of needed medicines to patients already enrolled in clinical trials. Effective March 14, 2022, Pfizer began donating profits of our Russian subsidiary to causes that provide direct humanitarian support to the people of Ukraine, in addition to our ongoing efforts to support the humanitarian response in the region. In 2022, we have donated approximately $25 million to support humanitarian relief and response efforts. We will continue to support Ukrainian relief efforts through this method until peace is achieved. Additionally, we are not initiating new clinical trials in Russia, have stopped recruiting new patients in our ongoing clinical trials in the country, and halted all new investments with local suppliers intended to build manufacturing capacity in Russia. For the years ended December 31, 2022 and 2021, the business of our Russia and Ukraine subsidiaries represented less than 1% of our consolidated revenues and assets, and while we are monitoring the effects of the armed conflict between Russia and Ukraine, the situation continues to evolve and the long-term implications, including the broader economic consequences of the conflict, are difficult to predict at this time. While as of now, we do not anticipate any significant negative impacts on our business from this conflict, continued regional instability, geopolitical shifts, potential additional sanctions and other restrictive measures against Russia, neighboring countries or allies of Russia, any retaliatory measures taken by Russia, neighboring countries or allies of Russia, and actions by our customers or suppliers in response to such measures could adversely affect the global macroeconomic environment, our operations, currency exchange rates and financial markets, which could in turn adversely impact our business and results of operations.
SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
Following is a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements. Also, see Note 1C. For a description of our significant accounting policies, see Note 1. Of these policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and the most complex judgments: Acquisitions (Note 1D); Fair Value (Note 1E); Revenues (Note 1G); Asset Impairments (Note 1M); Tax Assets and Liabilities and Income Tax Contingencies (Note 1Q); Pension and Postretirement Benefit Plans (Note 1R); and Legal and Environmental Contingencies (Note 1S). For a discussion of a recently adopted accounting standard, see Note 1B. Acquisitions
We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair value as of the acquisition date. To estimate fair value, we utilize an exit price approach from the perspective of a market participant. For further detail on acquisition accounting, see Note 1D. For further detail on the techniques and methodologies that we use to estimate fair value, see Note 1E. Historically, intangible assets have been the most significant fair values within our business combinations. We utilize an income approach to estimate the acquisition date fair value of intangible assets. Some of
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the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, the discount rate and the tax rate. For further information on our process to estimate the fair value of intangible assets, see Asset Impairments below. We estimate the fair value of acquired inventory, including finished goods and work in process, by determining the estimated selling price when completed, less an estimate of costs to be incurred to complete and sell the inventory, and an estimate of a reasonable profit allowance for those manufacturing and selling efforts. The fair value of inventory is recognized in our results of operations as the inventory is sold. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of inventory include stage of completion, costs to complete, costs to dispose and selling price.
Revenues
Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. The potential of our estimates to vary (sensitivity) differs by program, product, type of customer and geographic location. However, estimates associated with U.S. Medicare, Medicaid and performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this lag, our recording of adjustments to reflect actual amounts can incorporate revisions of several prior quarters. Rebate accruals are product specific and, therefore for any period, are impacted by the mix of products sold as well as the forecasted channel mix for each individual product. For further information, see the Revenue Deductions section within MD&A and Note 1G. Asset Impairments
We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in Note 1M. Examples of events or circumstances that may be indicative of impairment include:
•A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected.
•A significant adverse change in the extent or manner in which an asset is used such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture or sell a product.
•An expectation of losses or reduced profits associated with an asset. This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability. This also could result from the introduction of a competitor’s product that impacts projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers. For IPR&D projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product.
Identifiable Intangible Assets––We use an income approach, specifically the discounted cash flow method to determine the fair value of intangible assets, other than goodwill. We start with a forecast of all the expected net cash flows associated with the asset, which incorporates the consideration of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions that impact our fair value estimates include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological advancements and risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the jurisdictional mix of the projected cash flows.
While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, those that are most at risk of impairment include IPR&D assets (approximately $11.4 billion as of December 31, 2022) and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, given the uncertain nature of R&D. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.
Goodwill––Our goodwill impairment review work as of December 31, 2022 concluded that none of our goodwill was impaired and we do not believe the risk of impairment is significant at this time, as the fair value of each of our reporting units is significantly higher than their respective net book values.
In our review, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative fair value test.
When we are required to determine the fair value of a reporting unit, we typically use the income approach. The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, we use the discounted cash flow method. We start with a forecast of all the expected net cash flows for the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
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Benefit Plans
For a description of our different benefit plans, see Note 11. Our assumptions reflect our historical experiences and our judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations.
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The following provides (i) at the end of each year, the expected annual rate of return on plan assets for the following year, (ii) the actual annual rate of return on plan assets achieved in each year, and (iii) the weighted-average discount rate used to measure the benefit obligations at the end of each year for our U.S. pension plans and our international pension plans(a): |
| | 2022 | | 2021 | | 2020 |
U.S. Pension Plans | | | | | | |
Expected annual rate of return on plan assets | | 7.5 | % | | 6.3 | % | | 6.8 | % |
Actual annual rate of return on plan assets | | (22.4) | | | 9.2 | | | 14.1 | |
Discount rate used to measure the plan obligations | | 5.4 | | | 2.9 | | | 2.6 | |
International Pension Plans | | | | | | |
Expected annual rate of return on plan assets | | 4.5 | | | 3.1 | | | 3.4 | |
Actual annual rate of return on plan assets | | (26.0) | | | 11.4 | | | 9.7 | |
Discount rate used to measure the plan obligations | | 3.8 | | | 1.6 | | | 1.5 | |
(a)For detailed assumptions associated with our benefit plans, see Note 11B. Expected Annual Rate of Return on Plan Assets––The assumptions for the expected annual rate of return on all of our plan assets reflect our actual historical return experience and our long-term assessment of forward-looking return expectations by asset classes, which is used to develop a weighted-average expected return based on the implementation of our targeted asset allocation in our respective plans.
The expected annual rate of return on plan assets for our U.S. plans and international plans is applied to the fair value of plan assets at each year-end and the resulting amount is reflected in our net periodic benefit costs in the following year.
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The following illustrates the sensitivity of net periodic benefit costs to a 50 basis point decline in our assumption for the expected annual rate of return on plan assets, holding all other assumptions constant (in millions, pre-tax): |
Assumption | | Change | | Increase in 2023 Net Periodic Benefit Costs |
Expected annual rate of return on plan assets | | 50 basis point decline | | $92 |
The actual return on plan assets resulted in a net loss on our plan assets of approximately $6.3 billion during 2022.
Discount Rate Used to Measure Plan Obligations––The weighted-average discount rate used to measure the plan obligations for our U.S. defined benefit plans is determined at least annually and evaluated and modified, as required, to reflect the prevailing market rate of a portfolio of high-quality fixed income investments, rated AA/Aa or better, that reflect the rates at which the pension benefits could be effectively settled. The discount rate used to measure the plan obligations for our international plans is determined at least annually by reference to investment grade corporate bonds, rated AA/Aa or better, including, when there is sufficient data, a yield-curve approach. These discount rate determinations are made in consideration of local requirements. The measurement of the plan obligations at the end of the year will affect the amount of service cost, interest cost and amortization expense reflected in our net periodic benefit costs in the following year.
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The following illustrates the sensitivity of net periodic benefit costs and benefit obligations to a 10 basis point decline in our assumption for the discount rate, holding all other assumptions constant (in millions, pre-tax): |
Assumption | | Change | | Decrease in 2023 Net Periodic Benefit Costs | | Increase to 2022 Benefit Obligations |
Discount rate | | 10 basis point decline | | $6 | | $248 |
The change in the discount rates used in measuring our plan obligations as of December 31, 2022 resulted in a decrease in the measurement of our aggregate plan obligations by approximately $6.6 billion.
Income Tax Assets and Liabilities
Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax, legal contingencies and guarantees and indemnifications. For additional information, see Notes 1Q, 1S, 5D and 16.
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ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME
Revenues by Geography
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The following presents worldwide revenues by geography: |
| | Year Ended December 31, | | % Change |
| | Worldwide | | U.S. | | International | | Worldwide | | U.S. | | International |
(MILLIONS) | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 22/21 | | 21/20 | | 22/21 | | 21/20 | | 22/21 | | 21/20 |
Operating segments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Biopharma | | $ | 98,988 | | | $ | 79,557 | | | $ | 40,724 | | | $ | 42,083 | | | $ | 29,221 | | | $ | 21,055 | | | $ | 56,905 | | | $ | 50,336 | | | $ | 19,670 | | | 24 | | | 95 | | | 44 | | | 39 | | | 13 | | | 156 | |
Pfizer CentreOne | | 1,342 | | | 1,731 | | | 926 | | | 390 | | | 524 | | | 400 | | | 952 | | | 1,206 | | | 526 | | | (22) | | | 87 | | | (26) | | | 31 | | | (21) | | | 129 | |
Total revenues | | $ | 100,330 | | | $ | 81,288 | | | $ | 41,651 | | | $ | 42,473 | | | $ | 29,746 | | | $ | 21,455 | | | $ | 57,857 | | | $ | 51,542 | | | $ | 20,196 | | | 23 | | | 95 | | | 43 | | | 39 | | | 12 | | | 155 | |
2022 v. 2021
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The following provides an analysis of the change in worldwide revenues by geographic areas from 2021 to 2022(a): |
(MILLIONS) | | Worldwide | | U.S. | | International |
Operational growth/(decline): | | | | | | |
Worldwide growth from Paxlovid, Comirnaty, the Prevnar family, Eliquis, the Vyndaqel family, Inlyta and Xtandi, partially offset by worldwide declines from Xeljanz and Ibrance(b) | | $ | 25,435 | | | $ | 13,197 | | | $ | 12,238 | |
Revenues from recently acquired products: Nurtec ODT/Vydura and Oxbryta | | 285 | | | 283 | | | 2 | |
Decline from PC1(b) | | (329) | | | (135) | | | (195) | |
Lower revenues for Chantix/Champix and Sutent: •The decrease in Chantix/Champix was driven by the ongoing global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country •The decrease for Sutent primarily reflects lower volume demand in Europe and the U.S. following its loss of exclusivity in January 2022 and August 2021, respectively | | (690) | | | (396) | | | (293) | |
Other operational factors, net | | (132) | | | (222) | | | 90 | |
Operational growth, net | | 24,569 | | | 12,727 | | | 11,842 | |
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Unfavorable impact of foreign exchange | | (5,527) | | | — | | | (5,527) | |
Revenues increase/(decrease) | | $ | 19,042 | | | $ | 12,727 | | | $ | 6,315 | |
(a)For an analysis of the change in worldwide revenues by geographic area from 2020 to 2021, see the Revenues by Geography section within MD&A in our 2021 Form 10-K.
Emerging markets revenues decreased $604 million, or 3%, in 2022 to $20.1 billion from $20.7 billion in 2021, reflecting an operational increase of $366 million, or 2%, and an unfavorable impact from foreign exchange of approximately 5%. The operational increase in emerging markets revenues was primarily driven by growth from Paxlovid, Sulperazon and Nimenrix, partially offset by declines in Comirnaty and certain Comirnaty-related manufacturing activities performed on behalf of BioNTech. For an analysis of the change in emerging market revenues from 2020 to 2021, see the Revenues by Geography section within MD&A in our 2021 Form 10-K.
Revenue Deductions––Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends.
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The following presents information about revenue deductions: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Medicare rebates | | $ | 838 | | | $ | 726 | | | $ | 647 | |
Medicaid and related state program rebates | | 973 | | | 1,214 | | | 1,136 | |
Performance-based contract rebates | | 3,575 | | | 3,253 | | | 2,660 | |
Chargebacks | | 7,560 | | | 6,122 | | | 4,531 | |
Sales allowances | | 5,460 | | | 4,809 | | | 3,835 | |
Sales returns and cash discounts | | 1,290 | | | 1,054 | | | 924 | |
Total | | $ | 19,697 | | | $ | 17,178 | | | $ | 13,733 | |
Revenue deductions are primarily a function of product sales volume, mix of products sold, contractual or legislative discounts and rebates.
For information on our accruals for revenue deductions, including the balance sheet classification of these accruals, see Note 1G.
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Pfizer Inc. | 2022 Form 10-K | 32 |
Revenues—Selected Product Discussion
Biopharma
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| | | | | | Revenue | | | | | | |
(MILLIONS) | | | | Year Ended Dec. 31, | | % Change | | |
Product | | Global Revenues | | Region | | 2022 | | 2021 | | Total | | Oper. | | Operational Results Commentary |
Comirnaty(a) | | $37,806
Up 10%
(operationally) | | U.S. | | $ | 8,775 | | | $ | 7,809 | | | 12 | | | | | Performance was largely driven by: •operational growth in international markets, led by deliveries to certain international developed markets, as well as government purchasing of bivalent boosters in the fourth quarter of 2022 in support of fall vaccination campaigns; and •growth in the U.S. primarily driven by favorable pricing, partially offset by government purchasing patterns. This growth was partially offset by lower demand in emerging markets. |
| Int’l. | | 29,032 | | | 28,972 | | | — | | 9 | | |
| Worldwide | | $ | 37,806 | | | $ | 36,781 | | | 3 | | | 10 | | |
Paxlovid | | $18,933
* | | U.S. | | $ | 10,514 | | | $ | 76 | | | * | | | | Driven by the U.S. launch under EUA in December 2021 and international launches in late 2021 and early 2022 following regulatory approvals or EUAs. |
| Int’l. | | 8,419 | | | — | | | * | | * | |
| Worldwide | | $ | 18,933 | | | $ | 76 | | | * | | * | |
Eliquis | | $6,480
Up 14%
(operationally) | | U.S. | | $ | 3,822 | | | $ | 3,160 | | | 21 | | | | | Growth driven primarily by continued oral anti-coagulant adoption and market share gains in non-valvular atrial fibrillation in the U.S. and certain markets in Europe, as well as favorable changes in channel mix in the U.S., partially offset by the non-recurrence of an $80 million favorable adjustment related to the Medicare “coverage gap” provision recorded in the first quarter of 2021 in the U.S., as well as declines in certain emerging markets. |
| Int’l. | | 2,658 | | | 2,810 | | | (5) | | | 5 | | |
| Worldwide | | $ | 6,480 | | | $ | 5,970 | | | 9 | | | 14 | | |
Prevnar family | | $6,337
Up 23%
(operationally) | | U.S. | | $ | 4,032 | | | $ | 2,701 | | | 49 | | | | | Growth primarily driven by the adult indications in the U.S. due to strong patient demand following the launch of Prevnar 20 for the eligible adult population, partially offset by a reduction in revenues due to a one-time CDC inventory return program for the pediatric indication, the revenue impact of which is expected to be reversed in 2023 upon replenishment, as well as unfavorable timing of purchases for the adult indication internationally. |
| Int’l. | | 2,305 | | | 2,571 | | | (10) | | | (4) | |
| Worldwide | | $ | 6,337 | | | $ | 5,272 | | | 20 | | | 23 | |
Ibrance | | $5,120
Down 2% (operationally) | | U.S. | | $ | 3,370 | | | $ | 3,418 | | | (1) | | | | | Global declines primarily driven by prior-year clinical trial purchases internationally, planned price decreases that recently went into effect in international developed markets, and continued increase in the proportion of patients accessing Ibrance through the U.S. Patient Assistance Program, partially offset by higher volumes across multiple regions. |
| Int’l. | | 1,751 | | | 2,019 | | | (13) | | | (4) | | |
| Worldwide | | $ | 5,120 | | | $ | 5,437 | | | (6) | | | (2) | | |
Vyndaqel family | | $2,447
Up 29%
(operationally) | | U.S. | | $ | 1,245 | | | $ | 909 | | | 37 | | | | | Growth largely driven by continued strong uptake of the ATTR-CM indication, primarily in developed Europe and the U.S., partially offset by a planned price decrease that went into effect in Japan in the second quarter of 2022. |
| Int’l. | 1,202 | | | 1,106 | | 9 | | 22 | |
| Worldwide | $ | 2,447 | | | $ | 2,015 | | 21 | | 29 | |
Xeljanz | | $1,796
Down 24%
(operationally) | | U.S. | | $ | 1,129 | | | $ | 1,647 | | | (31) | | | | | Global declines driven primarily by decreased prescription volumes globally resulting from ongoing shifts in prescribing patterns related to label changes, as well as declines in net price due to unfavorable changes in channel mix in the U.S. |
| Int’l. | | 668 | | | 808 | | | (17) | | | (8) | | |
| Worldwide | | $ | 1,796 | | | $ | 2,455 | | | (27) | | | (24) | | |
Xtandi | | $1,198
Up 1%
(operationally) | | U.S. | | $ | 1,198 | | | $ | 1,185 | | | 1 | | | | | Performance largely due to steady demand growth across the mCRPC, nmCRPC, and mCSPC indications, slightly offset by unfavorable changes in channel mix and fluctuating enrollment rates in the Xtandi Patient Assistance Program. |
Int’l. | — | | | — | | — | — |
Worldwide | $ | 1,198 | | | $ | 1,185 | | 1 | | 1 | |
Inlyta | | $1,003
Up 4%
(operationally) | | U.S. | | $ | 618 | | | $ | 599 | | | 3 | | | | | Growth primarily reflects continued strong performance in emerging markets and the U.S. driven by the adoption of combinations of certain immune checkpoint inhibitors and Inlyta for the first-line treatment of patients with advanced RCC. |
| Int’l. | 385 | | | 403 | | | (5) | | | 5 | | |
| Worldwide | $ | 1,003 | | | $ | 1,002 | | | — | | 4 | | |
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Pfizer CentreOne
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| | | | | | Revenue | | | | | | |
(MILLIONS) | | | | Year Ended Dec. 31, | | % Change | | |
Operating Segment | | Global Revenues | | Region | | 2022 | | 2021 | | Total | | Oper. | | Operational Results Commentary |
PC1 | | $1,342
Down 19%
(operationally) | | U.S. | | $ | 390 | | | $ | 524 | | | (26) | | | | | Declines primarily driven by lower COVID-19 manufacturing activities performed on behalf of customers, including Comirnaty supply to BioNTech, and lower manufacturing of divested products under manufacturing and supply agreements. |
| Int’l. | 952 | | | 1,206 | | | (21) | | | (16) | | |
| Worldwide | $ | 1,342 | | | $ | 1,731 | | | (22) | | | (19) | | |
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Pfizer Inc. | 2022 Form 10-K | 33 |
(a)Comirnaty includes direct sales and Alliance revenues related to sales of the Pfizer-BioNTech COVID-19 vaccine, which are recorded within our Primary Care customer group. It does not include revenues for certain Comirnaty-related manufacturing activities performed on behalf of BioNTech, which are included in PC1. See Note 17C. *Indicates calculation not meaningful.
See the Item 1. Business—Patents and Other Intellectual Property Rights section in this Form 10-K for information regarding the expiration of various patent rights, Note 16 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above and Note 17C for additional information regarding the primary indications or class of the selected products discussed above. Costs and Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Costs and expenses follow: |
| | Year Ended December 31, | | % Change |
(MILLIONS) | | 2022 | | 2021 | | 2020 | | 22/21 | | 21/20 |
Cost of sales(a) | | $ | 34,344 | | | $ | 30,821 | | | $ | 8,484 | | | 11 | | | * |
Percentage of Revenues | | 34.2 | % | | 37.9 | % | | 20.4 | % | | | | |
Selling, informational and administrative expenses(a) | | 13,677 | | | 12,703 | | | 11,597 | | | 8 | | | 10 | |
Research and development expenses | | 11,428 | | | 10,360 | | | 8,709 | | | 10 | | | 19 | |
Acquired in-process research and development expenses | | 953 | | | 3,469 | | | 684 | | | (73) | | | * |
Amortization of intangible assets(a) | | 3,609 | | | 3,700 | | | 3,348 | | | (2) | | | 11 | |
Restructuring charges and certain acquisition-related costs(a) | | 1,375 | | | 802 | | | 579 | | | 71 | | | 38 | |
Other (income)/deductions—net(a) | | 217 | | | (4,878) | | | 1,213 | | | * | | * |
*Indicates calculation not meaningful.
(a)For a discussion of the drivers of change for 2021 v. 2020, see the Costs and Expenses section within MD&A in our 2021 Form 10-K.
Cost of Sales
2022 v. 2021
Cost of sales increased $3.5 billion, primarily due to:
•an unfavorable impact of $4.0 billion due to increased sales of Comirnaty, which includes a charge for the 50% gross profit split with BioNTech and applicable royalty expenses;
•inventory write-offs and other charges related to Paxlovid and Comirnaty of $1.1 billion and $600 million, respectively; and
•an increase of $1.3 billion due to increased sales of Paxlovid,
partially offset by:
•a $3.3 billion favorable impact of foreign exchange and hedging activity.
The decrease in Cost of sales as a percentage of revenues was primarily due to the favorable impacts of Paxlovid, foreign exchange and higher Alliance revenues, partially offset by higher sales of Comirnaty, as well as the inventory write-offs and other charges related to Paxlovid and Comirnaty, respectively, discussed above.
Selling, Informational and Administrative Expenses
2022 v. 2021
Selling, informational and administrative expenses increased $974 million, mostly due to:
•an increase of $1.3 billion for Paxlovid and Comirnaty marketing and promotional expenses and a higher provision for U.S. healthcare reform fees based on sales of Paxlovid; and
•an increase of $540 million for marketing and promotional expenses for recently acquired and launched products,
partially offset by:
•a $414 million favorable impact of foreign exchange;
•a $320 million decrease in spending across multiple customer groups; and
•a decrease of $270 million in our liability to be paid to participants of our supplemental savings plan.
Research and Development Expenses
2022 v. 2021
Research and development expenses increased $1.1 billion, primarily due to:
•increased investments of $1.3 billion for certain vaccine and oncology programs as well as costs to develop recently acquired assets, partially offset by lower spending of $480 million for various late-stage clinical programs and programs to treat COVID-19.
2021 v. 2020
Research and development expenses increased $1.7 billion, mainly due to increased investments of $1.2 billion across multiple therapeutic areas, including additional spending related to the development of the oral COVID-19 treatment program.
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Pfizer Inc. | 2022 Form 10-K | 34 |
Acquired In-Process Research and Development Expenses
2022 v. 2021
Acquired in-process research and development expenses decreased $2.5 billion largely due to:
•a charge of $2.1 billion related to our asset acquisition of Trillium in 2021; and
•an upfront payment to Arvinas and a premium paid on our equity investment in Arvinas totaling $706 million in 2021,
partially offset by:
•acquired IPR&D incurred in 2022, including $426 million related to our asset acquisition of ReViral in 2022.
2021 v. 2020
Acquired in-process research and development expenses increased $2.8 billion mainly due to:
•a $2.1 billion charge related to our asset acquisition of Trillium; and
•a net increase in charges of $602 million for upfront and milestone payments on collaboration and licensing arrangements, driven by payments to Arvinas and Beam.
Amortization of Intangible Assets
2022 v. 2021
Amortization of intangible assets decreased $91 million, primarily due to lower amortization of Comirnaty sales milestones to BioNTech, as well as lower amortization of intangible assets related to Prevnar and fully amortized assets, partially offset by amortization of intangible assets from our acquisitions of Biohaven and GBT. See Notes 2A and 10A for additional information. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
Transforming to a More Focused Company Program––For a description of our program and actual costs, see Note 3. The program savings discussed below may be rounded and represent approximations. In connection with restructuring our corporate enabling functions, we achieved gross cost savings of $1.0 billion, or net cost savings, excluding merit and inflation growth and certain real estate cost increases, of $700 million, in the two year period from 2021 through 2022. In connection with transforming our commercial go-to market strategy, we expect net cost savings of $1.4 billion, to be achieved primarily from 2022 through 2024. In connection with manufacturing network optimization, we expect net cost savings of $550 million to be achieved primarily from 2020 through 2023. In connection with optimizing our end-to-end R&D operations, we expect net cost savings of $2.3 billion to be achieved primarily from 2023 through 2025. Certain qualifying costs for this program were recorded in 2022, 2021 and 2020, and are reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income. See the Non-GAAP Financial Measure: Adjusted Income section of this MD&A. In addition to this program, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of the losses of exclusivity and the expiration of collaborative arrangements for various products.
Other (Income)/Deductions––Net
2022 v. 2021
The period-over-period change of $5.1 billion resulting in net other deductions in 2022 compared to net other income in 2021 was primarily driven by net losses recognized on equity securities in 2022 versus net gains recognized in 2021, lower net periodic benefit credits, and higher asset impairment charges.
See Note 4 for additional information. Provision/(Benefit) for Taxes on Income
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| | Year Ended December 31, | | % Change |
(MILLIONS) | | 2022 | | 2021 | | 2020 | | 22/21 | | 21/20 |
Provision/(benefit) for taxes on income | | $ | 3,328 | | | $ | 1,852 | | | $ | 370 | | | 80 | | | * |
Effective tax rate on continuing operations | | 9.6 | % | | 7.6 | % | | 5.3 | % | | | | |
*Indicates calculation not meaningful.
For information about our effective tax rate and the events and circumstances contributing to the changes between periods, as well as details about discrete elements that impacted our tax provisions, see Note 5. Discontinued Operations
For information about our discontinued operations, see Note 2B. PRODUCT DEVELOPMENTS
A comprehensive update of Pfizer’s development pipeline was published as of January 31, 2023 and is available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of our research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.
The following provides information about significant marketing application-related regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan.
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Pfizer Inc. | 2022 Form 10-K | 35 |
The tables below include filing and approval milestones for products that have occurred in the last twelve months and generally do not include approvals that may have occurred prior to that time. The tables include filings with regulatory decisions pending (even if the filing occurred outside of the last twelve-month period).
COVID-19 Vaccine Products
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PATIENT POPULATION AND DATE OF APPROVAL/FILING(a) |
COVID-19 VACCINE PRODUCT(b) | | PRIMARY SERIES OR BOOSTER | | 16 Years of age and older | | 12-15 Years of age | | 5-11 Years of age | | 6 Months through 4 Years of age |
| | | U.S. | EU | JAPAN | | U.S. | EU | JAPAN | | U.S. | EU | JAPAN | U.S. | EU | JAPAN |
Comirnaty
| | | 30-µg 2-dose primary(c) | | 10-µg 2-dose primary(d) | 3-µg 3-dose primary |
Primary | | Approved Aug. 2021 | Approved Dec. 2020 | Cond. J-NDA Feb. 2021 | | EUA May 2021 | Approved May 2021 | Cond. J-NDA May 2021 | | EUA Oct. 2021 | Approved Nov. 2021 | Cond. J-NDA Jan. 2022 | EUA June 2022 | CMA Oct. 2022 | Cond. J-NDA Oct. 2022 |
| | 30-µg booster dose(e) | | 10-µg booster dose | | | |
Booster | | EUA(f) Dec. 2021 | Approved Oct. 2021 | Cond. J-NDA Nov. 2021 | | EUA(f) Jan. 2022 | Approved Feb. 2022 | Cond. J-NDA Mar. 2022 | | EUA(f) May 2022 | Approved Sep. 2022 | Cond. J-NDA Aug. 2022 | | | |
Comirnaty Original/Omicron BA.4/BA.5 Vaccine(g) | Booster | | 30-µg booster dose | | 10-µg booster dose | 3-µg booster dose |
| EUA Aug. 2022 | Approved Sep. 2022 | Cond. J-NDA Oct. 2022 | | EUA Aug. 2022 | Approved Sep. 2022 | Cond. J-NDA Oct. 2022 | | EUA Oct. 2022 | CMA Nov. 2022 | | EUA(h) Dec. 2022 | | |
Comirnaty Original/Omicron BA.1 Vaccine | Booster | | 30-µg booster dose | | | | | | | |
| | Approved Sep. 2022 | Cond. J-NDA Sep. 2022 | | | Approved Sep. 2022 | Cond. J-NDA Sep. 2022 | |
(a)All EU approvals prior to October 10, 2022 were under the CMA, and later converted to full Marketing Authorization as of October 10, 2022. Dates shown in table reflect original CMA date.
(b)All COVID-19 vaccine products listed in this table are being developed in collaboration with BioNTech.
(c)FDA has authorized a third 30-µg primary series dose to individuals 12 years of age and older with certain kinds of immunocompromise.
(d)FDA has authorized a third 10-µg primary series dose to individuals 5-11 years of age with certain kinds of immunocompromise.
(e)FDA has authorized a second booster dose in adults ages 50 years and older who have previously received a first booster of any authorized COVID-19 vaccine. The FDA also has authorized a second booster dose for individuals 12 years of age and older who have been determined to have certain kinds of immunocompromise and who have received a first booster dose of any authorized COVID-19 vaccine.
(f)Comirnaty wild-type booster in these populations has been replaced by the booster of the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5).
(g)Refers to the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5) and Comirnaty Original/Omicron BA.4/BA.5 Vaccine.
(h)The third dose of the primary series 6 months through 4 years of age in the U.S. has been replaced by the 3-µg booster of the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5).
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Pfizer Inc. | 2022 Form 10-K | 36 |
Other Products
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PRODUCT | INDICATION OR PROPOSED INDICATION | APPROVED/FILED* |
U.S. | EU | JAPAN |
Myfembree (relugolix, estradiol, and norethindrone acetate)(a) | Heavy menstrual bleeding associated with uterine fibroids | Approved May 2021 | | |
Moderate to severe pain associated with endometriosis | Approved Aug. 2022 | | |
Ngenla (somatrogon)(b) | Pediatric growth hormone deficiency | Filed Jan. 2021 | Approved Feb. 2022 | Approved Jan. 2022 |
Prevnar 20/Apexxnar (Vaccine)(c) | Active immunization to prevent invasive disease caused by Streptococcus pneumoniae serotypes (adults) | Approved June 2021 | Approved Feb. 2022 | |
TicoVac (Vaccine) | Active immunization to prevent tick-borne encephalitis disease | Approved Aug. 2021 | | |
Paxlovid(d) (nirmatrelvir [PF-07321332]; ritonavir) | COVID-19 in high-risk adults and children (12-18 years of age; >88lbs) | EUA Dec. 2021 | CMA Jan. 2022 | Approved Feb. 2022 |
Nurtec ODT/Vydura (rimegepant) | Acute treatment of migraine with or without aura (adults) | Approved Feb. 2020 | Approved Apr. 2022 | |
Prevention of episodic migraine (adults) | Approved May 2021 | Approved Apr. 2022 | |
ritlecitinib (PF-06651600) | Alopecia areata | Filed Sep. 2022 | Filed Sep. 2022 | Filed Sep. 2022 |
zavegepant (intranasal) | Acute treatment of migraine | Filed May 2022 | | |
PF-06886992 (Vaccine) | Active immunization to prevent serogroups ABCWY meningococcal infections (adolescent and young adults) | Filed Dec. 2022 | | |
PF-06928316 (Vaccine) | Active immunization to prevent respiratory syncytial virus infection (maternal) | Filed Feb. 2023 | Filed Jan. 2023 | |
Active immunization to prevent respiratory syncytial virus infection (older adults) | Filed Dec. 2022 | Filed Jan. 2023 | |
etrasimod | Ulcerative colitis (moderately to severely active) | Filed Dec. 2022 | Filed Nov. 2022 | |
PF-06482077 (Vaccine) | Active immunization to prevent invasive and non-invasive pneumococcal infections (pediatric) | Filed Jan. 2023 | | |
elranatamab (PF-06863135) | Multiple myeloma triple-class refractory | Filed Feb. 2023 | Filed Feb. 2023 | |
*For the U.S., the filing date is the date on which the FDA accepted our submission. For the EU, the filing date is the date on which the EMA validated our submission.
(a)Being developed in collaboration with Myovant. In January 2023, the FDA approved the sNDA to include data from the Randomized Withdrawal Study into section 14 of the label.
(b)Being developed in collaboration with OPKO.
(c)In October 2022, the CDC’s ACIP voted to recommend a single dose of Prevnar 20 to help protect adults previously vaccinated with Prevnar 13 or both Prevnar 13 and PPSV23 against invasive disease and pneumonia caused by the 20 Streptococcus pneumoniae serotypes in Prevnar 20.
(d)In June 2022, we announced the submission of an NDA to the FDA for approval of Paxlovid for the treatment of COVID-19 in both vaccinated and unvaccinated individuals who are at high risk for progression to severe illness from COVID-19. In December 2022, Pfizer announced the FDA has extended the review period for the NDA for Paxlovid. At the request of the FDA, Pfizer recently submitted additional analyses of efficacy and safety data from the pivotal Evaluation of Protease Inhibition for COVID-19 in High-Risk Patients and supportive Evaluation of Protease Inhibition for COVID-19 in Standard-Risk Patients trials to be considered as part of its NDA for Paxlovid. Results from these analyses are consistent with previously disclosed efficacy and safety data for the trials. In order to allow time for a full review of the application, including the additional data analyses submitted, the FDA has extended the Prescription Drug User Fee Act goal date by three months to May 2023.
In December 2021, in light of the results from the completed required postmarketing safety study of Xeljanz, ORAL Surveillance (A3921133), the U.S. label for Xeljanz was revised. In addition, in November 2022, the EMA concluded their assessment of JAK inhibitors authorized for inflammatory diseases in the EU, including Xeljanz and Cibinqo, and recommended that risk minimization measures, including special warnings and precautions for use, should be revised and harmonized for all such JAK inhibitors. The resulting label changes are expected to be finalized in the first quarter of 2023. We continue to work with regulatory agencies worldwide to review the full results and analyses of ORAL Surveillance and their impact on product labeling. For additional information, see Item 1A. Risk Factors—Post-Authorization/Approval Data. In China, the following products received regulatory approvals in the last twelve months: Paxlovid for COVID-19 infection in February 2022; Cibinqo for atopic dermatitis in April 2022; Lorbrena for non-small cell lung cancer (first line and second line therapy) in April 2022; Xeljanz for ankylosing spondylitis in April 2022; Cresemba (IV formulation) for the treatment of adult patients with invasive aspergillosis and invasive mucormycosis in June 2022; and Xeljanz for the treatment of adult patients with active psoriatic arthritis in October 2022.
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Pfizer Inc. | 2022 Form 10-K | 37 |
The following provides information about additional indications and new drug candidates in late-stage development:
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| PRODUCT/CANDIDATE | PROPOSED INDICATION |
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS | Ibrance (palbociclib)(a) | ER+/HER2+ metastatic breast cancer |
Xtandi (enzalutamide)(b) | Non-metastatic high-risk castration sensitive prostate cancer |
Talzenna (talazoparib) | Combination with Xtandi (enzalutamide) for first-line mCRPC |
Combination with Xtandi (enzalutamide) for DNA Damage Repair (DDR)-deficient mCSPC |
PF-06482077 (Vaccine) | Immunization to prevent invasive and non-invasive pneumococcal infections (pediatric) |
somatrogon (PF-06836922)(c) | Adult growth hormone deficiency |
Braftovi (encorafenib) and Erbitux® (cetuximab)(d) | First-line BRAFV600E-mutant mCRC |
Braftovi (encorafenib) and Mektovi (binimetinib) and Keytruda® (pembrolizumab)(e) | BRAFV600E/K-mutant metastatic or unresectable locally advanced melanoma |
Braftovi (encorafenib) and Mektovi (binimetinib) | BRAFV600E-mutant non-small cell lung cancer |
Paxlovid (nirmatrelvir [PF-07321332]; ritonavir) | COVID-19 in high-risk children (6-11 years of age; >88lbs) |
zavegepant (oral) | Prevention of acute migraine (adults) |
ritlecitinib (PF-06651600) | Vitiligo |
elranatamab (PF-06863135) | Multiple myeloma double-class exposed |
Newly diagnosed multiple myeloma post-transplant maintenance |
Eliquis (apixaban) | Venous thromboembolism (pediatric) |
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT | aztreonam-avibactam (PF-06947387) | Treatment of infections caused by Gram-negative bacteria with limited or no treatment options |
fidanacogene elaparvovec (PF-06838435)(f) | Hemophilia B |
giroctocogene fitelparvovec (PF-07055480)(g) | Hemophilia A |
PF-06425090 (Vaccine) | Immunization to prevent primary clostridioides difficile infection |
sasanlimab (PF-06801591) | Combination with Bacillus Calmette-Guerin for non-muscle-invasive bladder cancer |
fordadistrogene movaparvovec (PF-06939926) | Duchenne muscular dystrophy (ambulatory) |
marstacimab (PF-06741086) | Hemophilia |
| |
|
|
Omicron-based mRNA vaccine(h) | Immunization to prevent COVID-19 (adults) |
VLA15 (PF-07307405) vaccine(i) | Immunization to prevent Lyme Disease |
PF-07252220 (quadrivalent mRNA-based vaccine) | Immunization to prevent influenza |
inclacumab (PF-07940370) | Sickle Cell Disease |
(a)Being developed in collaboration with The Alliance Foundation Trials, LLC.
(b)Being developed in collaboration with Astellas.
(c)Being developed in collaboration with OPKO.
(d)Erbitux® is a registered trademark of ImClone LLC. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono.
(e)Keytruda® is a registered trademark of Merck Sharp & Dohme Corp. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono.
(f)Being developed in collaboration with Spark Therapeutics, Inc.
(g)Being developed in collaboration with Sangamo Therapeutics, Inc.
(h)Being developed in collaboration with BioNTech.
(i)Being developed in collaboration with Valneva.
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Pfizer Inc. | 2022 Form 10-K | 38 |
NON-GAAP FINANCIAL MEASURE: ADJUSTED INCOME
Adjusted income is an alternative measure of performance used by management to evaluate our overall performance as a supplement to our GAAP Reported performance measures. As such, we believe that investors’ understanding of our performance is enhanced by disclosing this measure. We use Adjusted income, certain components of Adjusted income and Adjusted diluted EPS to present the results of our major operations––the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products worldwide––prior to considering certain income statement elements as follows:
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Measure | | Definition | | Relevance of Metrics to Our Business Performance |
Adjusted income | | Net income attributable to Pfizer Inc. common shareholders(a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items | | •Provides investors useful information to: ◦evaluate the normal recurring operational activities, and their components, on a comparable year-over-year basis ◦assist in modeling expected future performance on a normalized basis •Provides investors insight into the way we manage our budgeting and forecasting, how we evaluate and manage our recurring operations and how we reward and compensate our senior management(b) |
Adjusted cost of sales, Adjusted selling, informational and administrative expenses, Adjusted research and development expenses and Adjusted other (income)/deductions––net | | Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Other (income)/deductions––net (a), each before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items, which are components of the Adjusted income measure | |
Adjusted diluted EPS | | EPS attributable to Pfizer Inc. common shareholders––diluted (a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items | |
(a)Most directly comparable GAAP measure.
(b)The short-term incentive plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part versus three budgeted metrics, one of which is Adjusted diluted EPS (as defined for annual incentive compensation purposes), which is derived from Adjusted income and accounts for 40% of the bonus pool funding tied to financial performance. Additionally, the payout for performance share awards is determined in part by Adjusted net income, which is derived from Adjusted income. Beginning in the first quarter of 2022, we no longer exclude any expenses for acquired IPR&D from our non-GAAP Adjusted results but we continue to exclude certain of these expenses for our financial results for annual incentive compensation purposes. The bonus pool funding, which is largely based on financial performance, is adjusted by our R&D pipeline performance, as measured by four metrics, and performance against certain of our ESG metrics, and may be further modified by our Compensation Committee’s assessment of other factors.
Adjusted income and its components and Adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, are limited in their usefulness to investors. Because of their non-standardized definitions, they may not be comparable to the calculation of similar measures of other companies and are presented to permit investors to more fully understand how management assesses performance. A limitation of these measures is that they provide a view of our operations without including all events during a period, and do not provide a comparable view of our performance to peers. These measures are not, and should not be viewed as, substitutes for their most directly comparable GAAP measures of Net income attributable to Pfizer Inc. common shareholders, components of Net income attributable to Pfizer Inc. common shareholders and EPS attributable to Pfizer Inc. common shareholders—diluted, respectively.
We also recognize that, as internal measures of performance, these measures have limitations, and we do not restrict our performance-management process solely to these measures. We also use other tools designed to achieve the highest levels of performance. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, total shareholder return, both on an absolute basis and relative to a publicly traded pharmaceutical index, plays a significant role in determining payouts under certain of our incentive compensation plans.
Beginning in the first quarter of 2022, our reconciliation of certain GAAP Reported to non-GAAP Adjusted information is updated to reflect the following, and prior-period information has been revised to conform to the current period presentation:
Adjusted Income and Adjusted Diluted EPS
Acquired IPR&D—Non-GAAP Adjusted financial measures include expenses for all acquired IPR&D costs incurred in connection with upfront and milestone payments on collaboration and in-license agreements, including premiums on equity securities, as well as asset acquisitions of acquired IPR&D. Previously, certain of these items were excluded from our non-GAAP Adjusted results. Acquired IPR&D expenses that previously would have been excluded from non-GAAP Adjusted income but are now included in both GAAP Reported income and non-GAAP Adjusted income were approximately: (i) $765 million pre-tax ($665 million, net of tax), or $0.12 per share, in 2022; (ii) $3.3 billion pre-tax ($2.6 billion, net of tax), or $0.45 per share, in 2021; and (iii) $504 million pre-tax ($397 million, net of tax), or $0.07 per share, in 2020.
Amortization of Intangible Assets—We began excluding all amortization of intangibles from non-GAAP Adjusted income, compared to excluding only amortization of intangibles related to large mergers or acquisitions under the prior methodology, and presenting it as a separate reconciling line. Previously, the adjustment under the prior methodology was included as part of a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present. The impact of this policy change resulted in benefits on Adjusted diluted EPS of $0.06 in 2022, $0.09 in 2021 and $0.05 in 2020.
Acquisition-Related Items––Adjusted income continues to exclude certain acquisition-related items, which are comprised of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each
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Pfizer Inc. | 2022 Form 10-K | 39 |
transaction and represent costs that were incurred to restructure and integrate businesses as a result of an acquisition. We have made no adjustments for resulting synergies.
The significant costs incurred in connection with a business combination result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring a fully integrated set of activities. For this reason, we believe that such costs incurred can be viewed differently in the context of an acquisition from those costs incurred in other, more normal, business contexts. The integration and restructuring costs for a business combination may occur over several years, with the more significant impacts typically ending within three years of the relevant transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy.
Acquisition-related items may now include purchase accounting impacts that previously would have been included as part of a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present, such as: (i) the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value; (ii) depreciation related to the increase/decrease in fair value of acquired fixed assets; (iii) amortization related to the increase in fair value of acquired debt and (iv) the fair value changes for contingent consideration.
Discontinued Operations––Adjusted income continues to exclude the results of discontinued operations, as well as any related gains or losses on the disposal of such operations. We believe that this presentation is meaningful to investors because, while we review our product portfolio for strategic fit with our operations, we do not build or run our business with the intent to discontinue parts of our business. Restatements due to discontinued operations do not impact compensation or change the Adjusted income measure for the compensation in respect of the restated periods, but are presented for consistency across all periods.
Certain Significant Items––Adjusted income continues to exclude certain significant items representing substantive and/or unusual items that are evaluated individually on a quantitative and qualitative basis. Certain significant items may be highly variable and difficult to predict. Furthermore, in some cases it is reasonably possible that they could reoccur in future periods. For example, although major non-acquisition-related cost-reduction programs are specific to an event or goal with a defined term, we may have subsequent programs based on reorganizations of the business, cost productivity or in response to LOE or economic conditions. Legal charges to resolve litigation are also related to specific cases, which are facts and circumstances specific and, in some cases, may also be the result of litigation matters at acquired companies that were inestimable, not probable or unresolved at the date of acquisition, or legal matters related to divested products or businesses. Gains and losses on equity securities, and pension and postretirement actuarial remeasurement gains and losses have a very high degree of inherent market volatility, which we do not control and cannot predict with any level of certainty and because we do not believe including these gains and losses assists investors in understanding our business or is reflective of our core operations and business. Unusual items represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. See the Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items below for a non-inclusive list of certain significant items.
Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items
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| | Year Ended December 31, 2022 |
Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA | | Cost of sales(a) | | Selling, informational and administrative expenses(a) | | Other (income)/deductions––net(a) | | Net income attributable to Pfizer Inc. common shareholders(a), (b), (c) | | Earnings per common share attributable to Pfizer Inc. common shareholders––diluted |
GAAP Reported | | $ | 34,344 | | | $ | 13,677 | | | | $ | 217 | | | | $ | 31,372 | | | $ | 5.47 | |
Amortization of intangible assets | | — | | | — | | | | — | | | | 3,609 | | | |
Acquisition-related items | | (119) | | | (7) | | | | (74) | | | | 832 | | | |
Discontinued operations(d) | | — | | | — | | | | — | | | | (21) | | | |
Certain significant items: | | | | | | | | | | | | |
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(e) | | (88) | | | (562) | | | | — | | | | 1,396 | | | |
Certain asset impairments(f) | | — | | | — | | | | (421) | | | | 421 | | | |
(Gains)/losses on equity securities(f) | | — | | | — | | | | (1,270) | | | | 1,270 | | | |
Actuarial valuation and other pension and postretirement plan (gains)/losses | | — | | | — | | | | 230 | | | | (230) | | | |
Other | | (40) | | | (59) | | | | (636) | | (g) | | 752 | | | |
Income tax provision—Non-GAAP items | | | | | | | | (1,683) | | | |
Non-GAAP Adjusted | | $ | 34,096 | | | $ | 13,049 | | | | $ | (1,954) | | | | $ | 37,717 | | | $ | 6.58 | |
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Pfizer Inc. | 2022 Form 10-K | 40 |
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| | Year Ended December 31, 2021 |
Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA | | Cost of sales(a) | | Selling, informational and administrative expenses(a) | | Other (income)/deductions––net(a) | | Net income attributable to Pfizer Inc. common shareholders(a), (b) | | Earnings per common share attributable to Pfizer Inc. common shareholders––diluted |
GAAP Reported | | $ | 30,821 | | | $ | 12,703 | | | | $ | (4,878) | | | | $ | 21,979 | | | $ | 3.85 | |
Amortization of intangible assets | | — | | | (38) | | | | (2) | | | | 3,746 | | | |
Acquisition-related items | | 25 | | | (3) | | | | (114) | | | | 139 | | | |
Discontinued operations(d) | | — | | | — | | | | — | | | | 585 | | | |
Certain significant items: | | | | | | | | | | | | |
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(e) | | (108) | | | (450) | | | | — | | | | 1,309 | | | |
Certain asset impairments | | — | | | — | | | | (86) | | | | 86 | | | |
(Gains)/losses on equity securities(f) | | — | | | — | | | | 1,338 | | | | (1,338) | | | |
Actuarial valuation and other pension and postretirement plan (gains)/losses | | — | | | — | | | | 1,601 | | | | (1,601) | | | |
Other | | (52) | | | (141) | | (h) | | (334) | | (g) | | 542 | | | |
Income tax provision—Non-GAAP items | | | | | | | | (2,250) | | | |
Non-GAAP Adjusted | | $ | 30,685 | | | $ | 12,071 | | | | $ | (2,475) | | | | $ | 23,196 | | | $ | 4.06 | |
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| | Year Ended December 31, 2020 |
Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA | | Cost of sales(a) | | Selling, informational and administrative expenses(a) | | Other (income)/deductions––net(a) | | Net income attributable to Pfizer Inc. common shareholders(a), (b) | | Earnings per common share attributable to Pfizer Inc. common shareholders––diluted |
GAAP Reported | | $ | 8,484 | | | $ | 11,597 | | | | $ | 1,213 | | | | $ | 9,159 | | | $ | 1.63 | |
Amortization of intangible assets | | — | | | (38) | | | | (3) | | | | 3,395 | | | |
Acquisition-related items | | 18 | | | (1) | | | | (75) | | | | 98 | | | |
Discontinued operations(d) | | — | | | — | | | | — | | | | (2,879) | | | |
Certain significant items: | | | | | | | | | | | | |
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(e) | | (61) | | | (197) | | | | — | | | | 791 | | | |
Certain asset impairments(f) | | — | | | — | | | | (1,691) | | | | 1,691 | | | |
(Gains)/losses on equity securities(f) | | — | | | — | | | | 557 | | | | (557) | | | |
Actuarial valuation and other pension and postretirement plan (gains)/losses | | — | | | — | | | | (1,092) | | | | 1,092 | | | |
Other | | (56) | | | (292) | | (h) | | (691) | | (g) | | 1,063 | | | |
Income tax provision—Non-GAAP items | | | | | | | | (1,251) | | | |
Non-GAAP Adjusted | | $ | 8,386 | | | $ | 11,068 | | | | $ | (1,781) | | | | $ | 12,601 | | | $ | 2.24 | |
(a)Items that reconcile GAAP Reported to non-GAAP Adjusted balances are shown pre-tax. Our effective tax rates for GAAP Reported income from continuing operations were: 9.6% in 2022, 7.6% in 2021 and 5.3% in 2020. See Note 5. Our effective tax rates for non-GAAP Adjusted income were: 11.7% in 2022, 14.5% in 2021 and 13.5% in 2020. (b)Includes reconciling amounts for Research and development expenses that are not material.
(c)For 2022, the total acquisition-related items of $832 million include reconciling amounts for Restructuring charges and certain acquisition-related costs of $631 million, composed of $348 million of integration costs and other charges, $144 million of transaction costs and $138 million of employee termination-related charges. See Note 3. (d)For information about discontinued operations, see Note 2B. (e)Includes employee termination costs, asset impairments and other exit costs related to our cost-reduction and productivity initiatives not associated with acquisitions. See Note 3. (g)For 2022, the total of $636 million primarily includes (i) charges of $307 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by Haleon/the Consumer Healthcare JV, and adjustments to our equity-method basis differences which are also related to the separation of Haleon/the Consumer Healthcare JV from GSK, and (ii) charges of $230 million for certain legal matters, primarily for certain product liability and other expenses related to products discontinued and/or divested by Pfizer. For 2021, the total of $334 million primarily included (i) charges of $185 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by the Consumer Healthcare JV, and (ii) charges of $162 million for certain legal matters, primarily for certain product liability expenses related to products discontinued and/or divested by Pfizer, and to a lesser extent, legal obligations related to pre-acquisition commitments. For 2020, the total of $691 million primarily included (i) charges of $367 million mostly representing our equity-method accounting pro rata share of transaction-specific restructuring and business combination accounting charges recorded by the Consumer Healthcare JV, and (ii) losses on asset disposals of $238 million.
(h)For 2021 and 2020, the totals of $141 million and $292 million, respectively, primarily included costs for consulting, legal, tax and advisory services associated with a non-recurring internal reorganization of legal entities.
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Pfizer Inc. | 2022 Form 10-K | 41 |
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS
For a discussion of the drivers of change for 2021 versus 2020 as well as cash flows from discontinued operations in 2020, see the Analysis of the Consolidated Statements of Cash Flows section within MD&A in our 2021 Form 10-K.
Cash Flows from Continuing Operations
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| | Year Ended December 31, | | |
(MILLIONS) | | 2022 | | 2021 | | 2020 | | Drivers of change 2022 v. 2021 |
Cash provided by/(used in): | | | | | | | | |
Operating activities from continuing operations | | $ | 29,267 | | | $ | 32,922 | | | $ | 10,540 | | | The change was driven primarily by a net increase in payments to BioNTech for the gross profit split for Comirnaty (see Note 8B) and an increase in noncurrent inventories primarily driven by a strategic build for Paxlovid (see Note 8A), partially offset by higher net income adjusted for non-cash items and the timing of receipts and payments in the ordinary course of business. |
Investing activities from continuing operations | | $ | (15,783) | | | $ | (22,534) | | | $ | (4,162) | | | The change was driven mainly by a $17.4 billion increase in proceeds from redemptions of short-term investments with original maturities of greater than three months, a $7.6 billion decrease in net purchases of short-term investments with original maturities of three months or less and a $4.0 billion dividend received from the Consumer Healthcare JV in 2022 that was allocated to investing activities (see Note 2C), partially offset by cash paid for acquisitions in 2022 of $23.0 billion (Biohaven, $11.5 billion, Arena, $6.2 billion and GBT, $5.2 billion), net of cash acquired (see Note 2A). |
Financing activities from continuing operations | | $ | (14,834) | | | $ | (9,816) | | | $ | (21,640) | | | The change was driven mostly by $2.0 billion of purchases of the Company’s common stock in 2022, a $1.3 billion increase in repayments of long-term debt, and a $997 million decrease in proceeds from the issuance of long-term debt. |
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Cash Flows from Discontinued Operations––In 2021, cash flows from discontinued operations primarily relate to our former Meridian subsidiary, Upjohn Business and the Mylan-Japan collaboration (see Note 2B). ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
Due to our significant operating cash flows, which is a key strength of our liquidity and capital resources and our primary funding source, as well as our financial assets, access to capital markets, revolving credit agreements, and available lines of credit, we believe that we have, and will maintain, the ability to meet our liquidity needs to support ongoing operations, our capital allocation objectives, and our contractual and other obligations for the foreseeable future.
We focus efforts to optimize operating cash flows through achieving working capital efficiencies that target accounts receivable, inventories, accounts payable, and other working capital. Excess cash from operating cash flows is invested in money market funds and available-for-sale debt securities which consist of primarily high-quality, highly liquid, well-diversified debt securities. We have taken, and will continue to take, a conservative approach to our financial investments and monitoring of our liquidity position in response to market changes. We typically maintain cash and cash equivalent balances and short-term investments which, together with our available revolving credit facilities, are in excess of our commercial paper and other short-term borrowings.
Additionally, we may obtain funding through short-term or long-term sources from our access to the capital markets, banking relationships and relationships with other financial intermediaries to meet our liquidity needs.
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Diverse sources of funds: | | Related disclosure presented in this Form 10-K |
Internal sources: | | |
•Operating cash flows | | |
•Cash and cash equivalents | | |
•Money market funds | | |
•Available-for-sale debt securities | | |
| | |
External sources: | | |
Short-term funding: | | |
•Commercial paper | | |
•Revolving credit facilities | | |
•Lines of credit | | |
| | |
Long-term funding: | | |
•Long-term debt | | |
•Equity | | |
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Pfizer Inc. | 2022 Form 10-K | 42 |
Credit Ratings––The cost and availability of financing are influenced by credit ratings, and an increase or decrease in our credit rating could have a beneficial or adverse effect on financing. Our long-term debt is rated high-quality by both S&P and Moody’s. In November 2022, Moody’s increased the rating on our long-term debt from A2 to A1 as well as the outlook on our long-term debt to Stable; S&P continues to rate the outlook of our long-term debt as Stable since November 2020.
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The current ratings assigned to our commercial paper and senior unsecured long-term debt: |
NAME OF RATING AGENCY | | Pfizer Short-Term Rating | | Pfizer Long-Term Rating | | Outlook/Watch |
Moody’s | | P-1 | | A1 | | Stable |
S&P | | A-1+ | | A+ | | Stable |
A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.
Our current and projected dividends provide a return to shareholders while maintaining sufficient capital to invest in growing our business. Our dividends are not restricted by debt covenants. While the dividend level remains a decision of Pfizer’s BOD and will continue to be evaluated in the context of future business performance, we currently believe that we can support future annual dividend increases, barring significant unforeseen events. In December 2022, our BOD declared a first-quarter dividend of $0.41 per share, payable on March 3, 2023, to shareholders of record at the close of business on January 27, 2023. The first-quarter 2023 cash dividend will be our 337th consecutive quarterly dividend.
In the first quarter of 2022, we purchased 39 million shares of our common stock at a cost of $2.0 billion under our publicly announced share purchase plan. See Note 12 for more information. At December 31, 2022, our remaining share-purchase authorization was approximately $3.3 billion. Off-Balance Sheet Arrangements, Contractual, and Other Obligations––In the ordinary course of business, (i) we enter into off-balance sheet arrangements that may result in contractual and other obligations and (ii) in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities. For more information on guarantees and indemnifications, see Note 16B. Additionally, certain of our co-promotion or license agreements give our licensors or partners the rights to negotiate for, or in some cases to obtain under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products. Furthermore, collaboration, licensing or other R&D arrangements may give rise to potential milestone payments. Payments under these agreements generally become due and payable only upon the achievement of certain development, regulatory and/or commercialization milestones, which may span several years and which may never occur.
Our significant contractual and other obligations as of December 31, 2022 consisted of:
•Long-term debt, including current portion (see Note 7D) and related interest payments; •Estimated cash payments related to the TCJA repatriation estimated tax liability (see Note 5). Estimated future payments related to the TCJA repatriation tax liability that will occur after December 31, 2022 total $7.0 billion, of which an estimated $1.0 billion is to be paid in the next twelve months and an estimated $6.0 billion is to be paid in periods thereafter. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards; •Certain commitments totaling $4.4 billion, of which an estimated $1.4 billion is to be paid in the next twelve months, and $3.0 billion in periods thereafter (see Note 16C); •Purchases of property plant and equipment (see Note 9). In 2023, we expect to spend approximately $3.9 billion on property, plant and equipment; and •Future minimum rental commitments under non-cancelable operating leases (see Note 15). In March 2022, in connection with GSK’s previously announced planned demerger, the Consumer Healthcare JV issued notes of $8.75 billion, €2.35 billion and £700 million with various maturities. GSK guaranteed the notes and we agreed to indemnify GSK for 32% of any amount payable by GSK. In conjunction with the completion of GSK’s demerger transactions in July 2022, GSK’s guarantee and our related indemnification of GSK’s guarantee were terminated. See Note 2C. Global Economic Conditions––Venezuela and Argentina operations, and beginning in our second quarter of 2022, our operations in Turkey function in a hyperinflationary economy. The impact to Pfizer is not considered material. For additional information on the global economic environment, see the Item 1A. Risk Factors––Global Operations section in this Form 10-K. Market Risk––We are subject to foreign exchange risk, interest rate risk, and equity price risk. The objective of our financial risk management program is to minimize the impact of foreign exchange rate and interest rate movements on our earnings. We address such exposures through a combination of operational means and financial instruments. For more information on how we manage our foreign exchange and interest rate risks, see Notes 1F and 7E, as well as the Item 1A. Risk Factors—Global Operations section in this Form 10-K for key currencies in which we operate. Our sensitivity analyses of such risks are discussed below. Foreign Exchange Risk—The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to foreign exchange rate changes. In this analysis, holding all other assumptions constant and assuming that a change in one currency’s rate relative to the U.S. dollar would not have any effect on another currency’s rates relative to the U.S. dollar, if the dollar were to appreciate against all other currencies by 10%, as of December 31, 2022, the expected adverse impact on our net income would not be significant.
Interest Rate Risk—The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to interest rate changes. In this analysis, holding all other assumptions constant and assuming a parallel shift in the interest rate curve for all maturities and for all instruments, if there were a one hundred basis point decrease in interest rates as of December 31, 2022, the expected adverse impact on our net income would not be significant.
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Pfizer Inc. | 2022 Form 10-K | 43 |
Equity Price Risk––We hold equity securities with readily determinable fair values in life science companies as a result of certain business development transactions. While we are holding such securities, we are subject to equity price risk, and this may increase the volatility of our income in future periods due to changes in the fair value of equity investments. From time to time, we will sell such equity securities based on our business considerations, which may include limiting our price risk. Our equity securities with readily determinable fair values are analyzed at year-end to determine their sensitivity to equity price rate changes. In this sensitivity analysis, the expected adverse impact on our net income would not be significant.
LIBOR––From time to time, we issued variable rate debt or entered into interest rate derivatives based on LIBOR. The most commonly used U.S. dollar LIBOR rates will cease publication after June 30, 2023, and all other LIBOR rates ceased publication as of December 31, 2021. The U.S. Federal Reserve has selected the Secured Overnight Funding Rate (SOFR) as the preferred alternative reference rate. We have been updating our systems and all of our LIBOR-based contracts as of December 31, 2022 contain fallback language to accommodate an alternative reference rate. We do not expect the transition to have a significant impact on our business or financial condition.
NEW ACCOUNTING STANDARDS
Recently Adopted Accounting Standard
| | | | | | | | | | | | | | |
Recently Issued Accounting Standards, Not Adopted as of December 31, 2022 |
Standard/Description | | Effective Date | | Effect on the Financial Statements |
Reference rate reform provides temporary optional expedients and exceptions to the guidance for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued after 2021 because of reference rate reform. The new guidance provides the following optional expedients: 1. Simplify accounting analyses under current U.S. GAAP for contract modifications. 2. Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue. 3. Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. | | Elections can be adopted prospectively at any time through December 31, 2024. | | We will apply certain of the optional expedients on hedge accounting relationships and related contracts, if necessary. We do not expect this new guidance to have a material impact on our consolidated financial statements. |
In June 2022, the FASB issued final guidance to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual sale restriction as a separate unit of account is not permitted. | | January 1, 2024, with early adoption permitted. | | We are assessing the impact, but currently do not expect this new guidance to have a material impact on our consolidated financial statements. |
In September 2022, the FASB issued final guidance to enhance transparency about an entity’s use of supplier finance programs. Under the final guidance, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. | | January 1, 2023, except for the amendment on rollforward information, which is effective January 1, 2024. Early adoption is permitted. | | This new guidance will result in increased disclosures in the notes to our financial statements. |
| | | | | |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Pfizer Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Pfizer Inc. and Subsidiary Companies (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the U.S. Medicare, Medicaid, and performance-based contract rebates accrual
As discussed in Note 1G to the consolidated financial statements, the Company records estimated deductions for Medicare, Medicaid, and performance-based contract rebates (collectively, U.S. rebates) as a reduction to gross product revenues. The accrual for U.S. rebates is recorded in the same period that the corresponding revenues are recognized. The length of time between when a sale is made and when the U.S. rebate is paid by the Company can be as long as one year, which increases the need for significant management judgment and knowledge of market conditions and practices in estimating the accrual. We identified the evaluation of the U.S. rebates accrual as a critical audit matter because the evaluation of the product-specific experience ratio assumption involved especially challenging auditor judgment. The product-specific experience ratio assumption relates to estimating which of the Company’s revenue transactions will ultimately be subject to a related rebate.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s U.S. rebates accrual process related to the development of the product-specific experience ratio assumptions. We estimated the U.S. rebates accrual using internal information and historical data and compared the result to the Company’s estimated U.S. rebates accrual. We evaluated the Company’s ability to accurately estimate the accrual for U.S. rebates by comparing historically recorded accruals to the actual amount that was ultimately paid by the Company.
Evaluation of gross unrecognized tax benefits
As discussed in Notes 5D and 1Q, the Company’s tax positions are subject to audit by local taxing authorities in each respective tax jurisdiction, and the resolution of such audits may span multiple years. Since tax law is complex and often subject to varied interpretations and judgments, it is uncertain whether some of the Company’s tax positions will be sustained upon audit. As of December 31, 2022, the Company has recorded gross unrecognized tax benefits, excluding associated interest, of $4.5 billion. We identified the evaluation of certain of the Company’s gross unrecognized tax benefits as a critical audit matter because a high degree of audit effort, including specialized skills and knowledge, and complex auditor judgment was required in evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of its tax positions.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 45 |
Report of Independent Registered Public Accounting Firm
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control over the Company’s liability for unrecognized tax position process related to (1) interpretation of tax law, (2) evaluation of which of the Company’s tax positions may not be sustained upon audit, and (3) estimation and recording of the gross unrecognized tax benefits. We involved tax and valuation professionals with specialized skills and knowledge who assisted in evaluating the Company’s interpretation of tax laws, including the assessment of transfer pricing practices in accordance with applicable tax laws and regulations. We inspected settlements with applicable taxing authorities, including assessing the expiration of statutes of limitations. We tested the calculation of the liability for uncertain tax positions, including an evaluation of the Company’s assessment of the technical merits of tax positions and estimates of the amount of tax benefits expected to be sustained.
Evaluation of product liability and other product-related litigation
As discussed in Notes 1S. and 16 to the consolidated financial statements, the Company is involved in 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. Certain of these pending product and other product-related legal proceedings could result in losses that could be substantial. The accrued liability and/or disclosure for the pending product liability and other product-related legal proceedings requires a complex series of judgments by the Company about future events, which involves a number of uncertainties. We identified the evaluation of product liability and other product-related litigation as a critical audit matter. Challenging auditor judgment was required to evaluate the Company’s judgments about future events and uncertainties.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s product liability and other product-related litigation processes, including controls related to (1) the evaluation of information from external and internal legal counsel, (2) forward-looking expectations, and (3) new legal proceedings, or other legal proceedings not currently reserved or disclosed. We read letters received directly from the Company’s external and internal legal counsel that described the Company’s probable or reasonably possible legal contingency to pending product liability and other product-related legal proceedings. We inspected the Company’s minutes from meetings of the Audit Committee, which included the status of key litigation matters. We evaluated the Company’s ability to estimate its monetary exposure to pending product and other product-related legal proceedings by comparing historically recorded liabilities to actual monetary amounts incurred upon resolution of prior legal matters. We analyzed relevant publicly available information about the Company, its competitors, and the industry.

| | |
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|
We have not been able to determine the specific year that we or our predecessor firms began serving as the Company’s auditor, however, we are aware that we or our predecessor firms have served as the Company’s auditor since at least 1942. |
|
New York, New York |
|
February 23, 2023 |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 46 |
Consolidated Statements of Income
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(MILLIONS, EXCEPT PER SHARE DATA) | | | | | 2022 | | 2021 | | 2020 |
Revenues | | | | | $ | 100,330 | | | $ | 81,288 | | | $ | 41,651 | |
Costs and expenses: | | | | | | | | | |
Cost of sales(a) | | | | | 34,344 | | | 30,821 | | | 8,484 | |
Selling, informational and administrative expenses(a) | | | | | 13,677 | | | 12,703 | | | 11,597 | |
Research and development expenses(a) | | | | | 11,428 | | | 10,360 | | | 8,709 | |
Acquired in-process research and development expenses(b) | | | | | 953 | | | 3,469 | | | 684 | |
Amortization of intangible assets | | | | | 3,609 | | | 3,700 | | | 3,348 | |
Restructuring charges and certain acquisition-related costs | | | | | 1,375 | | | 802 | | | 579 | |
| | | | | | | | | |
Other (income)/deductions––net | | | | | 217 | | | (4,878) | | | 1,213 | |
Income from continuing operations before provision/(benefit) for taxes on income | | | | | 34,729 | | | 24,311 | | | 7,036 | |
Provision/(benefit) for taxes on income | | | | | 3,328 | | | 1,852 | | | 370 | |
Income from continuing operations | | | | | 31,401 | | | 22,459 | | | 6,666 | |
| | | | | | | | | |
Discontinued operations––net of tax | | | | | 6 | | | (434) | | | 2,529 | |
| | | | | | | | | |
| | | | | | | | | |
Net income before allocation to noncontrolling interests | | | | | 31,407 | | | 22,025 | | | 9,195 | |
Less: Net income attributable to noncontrolling interests | | | | | 35 | | | 45 | | | 36 | |
Net income attributable to Pfizer Inc. common shareholders | | | | | $ | 31,372 | | | $ | 21,979 | | | $ | 9,159 | |
| | | | | | | | | |
Earnings per common share––basic: | | | | | | | | | |
Income from continuing operations attributable to Pfizer Inc. common shareholders | | | | | $ | 5.59 | | | $ | 4.00 | | | $ | 1.19 | |
Discontinued operations––net of tax | | | | | — | | | (0.08) | | | 0.46 | |
Net income attributable to Pfizer Inc. common shareholders | | | | | $ | 5.59 | | | $ | 3.92 | | | $ | 1.65 | |
Earnings per common share––diluted: | | | | | | | | | |
Income from continuing operations attributable to Pfizer Inc. common shareholders | | | | | $ | 5.47 | | | $ | 3.93 | | | $ | 1.18 | |
Discontinued operations––net of tax | | | | | — | | | (0.08) | | | 0.45 | |
Net income attributable to Pfizer Inc. common shareholders | | | | | $ | 5.47 | | | $ | 3.85 | | | $ | 1.63 | |
| | | | | | | | | |
Weighted-average shares––basic | | | | | 5,608 | | | 5,601 | | | 5,555 | |
Weighted-average shares––diluted | | | | | 5,733 | | | 5,708 | | | 5,632 | |
(a)Exclusive of amortization of intangible assets.
See Accompanying Notes.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 47 |
Consolidated Statements of Comprehensive Income
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Net income before allocation to noncontrolling interests | | $ | 31,407 | | | $ | 22,025 | | | $ | 9,195 | |
| | | | | | |
Foreign currency translation adjustments, net | | (2,328) | | | (682) | | | 772 | |
Reclassification adjustments | | — | | | — | | | (17) | |
| | (2,328) | | | (682) | | | 755 | |
Unrealized holding gains/(losses) on derivative financial instruments, net | | 1,444 | | | 526 | | | (582) | |
Reclassification adjustments for (gains)/losses included in net income(a) | | (2,062) | | | 134 | | | 21 | |
| | (618) | | | 660 | | | (561) | |
Unrealized holding gains/(losses) on available-for-sale securities, net | | (1,306) | | | (355) | | | 361 | |
Reclassification adjustments for (gains)/losses included in net income(b) | | 1,809 | | | (30) | | | (188) | |
| | | | | | |
| | 502 | | | (384) | | | 173 | |
Benefit plans: prior service (costs)/credits and other, net | | (24) | | | 116 | | | 52 | |
Reclassification adjustments related to amortization of prior service costs and other, net | | (129) | | | (154) | | | (176) | |
Reclassification adjustments related to curtailments of prior service costs and other, net | | (12) | | | (75) | | | — | |
| | (166) | | | (113) | | | (124) | |
Other comprehensive income/(loss), before tax | | (2,609) | | | (519) | | | 243 | |
Tax provision/(benefit) on other comprehensive income/(loss) | | (187) | | | 71 | | | (227) | |
Other comprehensive income/(loss) before allocation to noncontrolling interests | | $ | (2,422) | | | $ | (589) | | | $ | 471 | |
| | | | | | |
Comprehensive income/(loss) before allocation to noncontrolling interests | | $ | 28,985 | | | $ | 21,435 | | | $ | 9,666 | |
Less: Comprehensive income/(loss) attributable to noncontrolling interests | | 20 | | | 43 | | | 27 | |
Comprehensive income/(loss) attributable to Pfizer Inc. | | $ | 28,965 | | | $ | 21,393 | | | $ | 9,639 | |
(a)Reclassified into Other (income)/deductions—net and Cost of sales. See Note 7E. (b)Reclassified into Other (income)/deductions—net.
See Accompanying Notes.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 48 |
Consolidated Balance Sheets
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | |
| | As of December 31, |
(MILLIONS, EXCEPT PER SHARE DATA) | | 2022 | | 2021 |
| | | | |
Assets | | | | |
Cash and cash equivalents | | $ | 416 | | | $ | 1,944 | |
Short-term investments | | 22,316 | | | 29,125 | |
Trade accounts receivable, less allowance for doubtful accounts: 2022—$449; 2021—$492 | | 10,952 | | | 11,479 | |
Inventories | | 8,981 | | | 9,059 | |
Current tax assets | | 3,577 | | | 4,266 | |
Other current assets | | 5,017 | | | 3,820 | |
| | | | |
Total current assets | | 51,259 | | | 59,693 | |
Equity-method investments | | 11,033 | | | 16,472 | |
Long-term investments | | 4,036 | | | 5,054 | |
Property, plant and equipment | | 16,274 | | | 14,882 | |
Identifiable intangible assets | | 43,370 | | | 25,146 | |
Goodwill | | 51,375 | | | 49,208 | |
Noncurrent deferred tax assets and other noncurrent tax assets | | 6,693 | | | 3,341 | |
Other noncurrent assets | | 13,163 | | | 7,679 | |
Total assets | | $ | 197,205 | | | $ | 181,476 | |
| | | | |
Liabilities and Equity | | | | |
Short-term borrowings, including current portion of long-term debt: 2022—$2,560; 2021—$1,636 | | $ | 2,945 | | | $ | 2,241 | |
Trade accounts payable | | 6,809 | | | 5,578 | |
Dividends payable | | 2,303 | | | 2,249 | |
Income taxes payable | | 1,587 | | | 1,266 | |
Accrued compensation and related items | | 3,407 | | | 3,332 | |
Deferred revenues | | 2,520 | | | 3,067 | |
Other current liabilities | | 22,568 | | | 24,939 | |
| | | | |
Total current liabilities | | 42,138 | | | 42,671 | |
| | | | |
Long-term debt | | 32,884 | | | 36,195 | |
Pension and postretirement benefit obligations | | 2,250 | | | 3,724 | |
Noncurrent deferred tax liabilities | | 1,023 | | | 349 | |
Other taxes payable | | 9,812 | | | 11,331 | |
Other noncurrent liabilities | | 13,180 | | | 9,743 | |
Total liabilities | | 101,288 | | | 104,013 | |
| | | | |
Commitments and Contingencies | | | | |
| | | | |
Preferred stock, no par value, at stated value; 27 shares authorized; no shares issued or outstanding at December 31, 2022 and December 31, 2021 | | — | | | — | |
Common stock, $0.05 par value; 12,000 shares authorized; issued: 2022—9,519; 2021—9,471 | | 476 | | | 473 | |
Additional paid-in capital | | 91,802 | | | 90,591 | |
| | | | |
Treasury stock, shares at cost: 2022—3,903; 2021—3,851 | | (113,969) | | | (111,361) | |
Retained earnings | | 125,656 | | | 103,394 | |
Accumulated other comprehensive loss | | (8,304) | | | (5,897) | |
Total Pfizer Inc. shareholders’ equity | | 95,661 | | | 77,201 | |
Equity attributable to noncontrolling interests | | 256 | | | 262 | |
Total equity | | 95,916 | | | 77,462 | |
Total liabilities and equity | | $ | 197,205 | | | $ | 181,476 | |
See Accompanying Notes.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 49 |
Consolidated Statements of Equity
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | PFIZER INC. SHAREHOLDERS | | |
Preferred Stock | | Common Stock | | | | Treasury Stock | | | | | | | |
(MILLIONS, EXCEPT PREFERRED SHARES AND PER SHARE AMOUNTS) | | Shares | | Stated Value | | Shares | | Par Value | | Add’l Paid-In Capital | | Shares | | Cost | | Retained Earnings | | Accum. Other Comp. Loss | | Share - holders’ Equity | | Non-controlling Interests | | Total Equity |
Balance, January 1, 2020 | | 431 | | | $ | 17 | | | 9,369 | | | $ | 468 | | | $ | 87,428 | | | (3,835) | | | $ | (110,801) | | | $ | 91,397 | | | $ | (5,367) | | | $ | 63,143 | | | $ | 303 | | | $ | 63,447 | |
Net income | | | | | | | | | | | | | | | | 9,159 | | | | | 9,159 | | | 36 | | | 9,195 | |
Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | 480 | | | 480 | | | (9) | | | 471 | |
Cash dividends declared, per share: $1.53 | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | | | | | | | | | | | | (8,571) | | | | | (8,571) | | | | | (8,571) | |
Preferred stock | | | | | | | | | | | | | | | | — | | | | | — | | | | | — | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — | | | (91) | | | (91) | |
Share-based payment transactions | | | | | | 37 | | | 2 | | | 1,261 | | | (6) | | | (218) | | | — | | | | | 1,044 | | | | | 1,044 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock conversions and redemptions(a) | | (431) | | | (17) | | | | | | | (15) | | | 1 | | | 31 | | | | | | | (1) | | | | | (1) | |
Distribution of Upjohn Business(b) | | | | | | | | | | | | | | | | (1,592) | | | (423) | | | (2,015) | | | (3) | | | (2,018) | |
Other | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | | | (1) | | | (1) | |
Balance, December 31, 2020 | | — | | | — | | | 9,407 | | | 470 | | | 88,674 | | | (3,840) | | | (110,988) | | | 90,392 | | | (5,310) | | | 63,238 | | | 235 | | | 63,473 | |
Net income | | | | | | | | | | | | | | | | 21,979 | | | | | 21,979 | | | 45 | | | 22,025 | |
Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | (587) | | | (587) | | | (3) | | | (589) | |
Cash dividends declared, per share: $1.57 | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | | | | | | | | | | | | (8,816) | | | | | (8,816) | | | | | (8,816) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — | | | (8) | | | (8) | |
Share-based payment transactions | | | | | | 64 | | | 3 | | | 1,917 | | | (11) | | | (373) | | | (77) | | | | | 1,470 | | | | | 1,470 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | — | | | — | | | — | | | — | | | | | (85) | | | | | (85) | | | (7) | | | (92) | |
Balance, December 31, 2021 | | — | | | — | | | 9,471 | | | 473 | | | 90,591 | | | (3,851) | | | (111,361) | | | 103,394 | | | (5,897) | | | 77,201 | | | 262 | | | 77,462 | |
Net income | | | | | | | | | | | | | | | | 31,372 | | | | | 31,372 | | | 35 | | | 31,407 | |
Other comprehensive income/(loss), net of tax | | | | | | | | | | | | | | | | | | (2,407) | | | (2,407) | | | (15) | | | (2,422) | |
Cash dividends declared, per share: $1.61 | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | | | | | | | | | | | | (9,037) | | | | | (9,037) | | | | | (9,037) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling interests | | | | | | | | | | | | | | | | | | | | — | | | (13) | | | (13) | |
Share-based payment transactions | | | | | | 48 | | | 2 | | | 1,192 | | | (13) | | | (608) | | | (73) | | | | | 513 | | | | | 513 | |
Purchases of common stock | | | | | | | | | | | | (39) | | | (2,000) | | | | | | | (2,000) | | | | | (2,000) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | 19 | | | — | | | — | | | — | | | | | 19 | | | (13) | | | 6 | |
Balance, December 31, 2022 | | — | | | $ | — | | | 9,519 | | | $ | 476 | | | $ | 91,802 | | | (3,903) | | | $ | (113,969) | | | $ | 125,656 | | | $ | (8,304) | | | $ | 95,661 | | | $ | 256 | | | $ | 95,916 | |
See Accompanying Notes.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 50 |
Consolidated Statements of Cash Flows
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Operating Activities | | | | | | |
Net income before allocation to noncontrolling interests | | $ | 31,407 | | | $ | 22,025 | | | $ | 9,195 | |
Discontinued operations—net of tax | | 6 | | | (434) | | | 2,529 | |
Net income from continuing operations before allocation to noncontrolling interests | | 31,401 | | | 22,459 | | | 6,666 | |
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 5,064 | | | 5,191 | | | 4,681 | |
Asset write-offs and impairments | | 550 | | | 276 | | | 2,049 | |
Deferred taxes from continuing operations | | (3,764) | | | (4,293) | | | (1,575) | |
| | | | | | |
Share-based compensation expense | | 872 | | | 1,182 | | | 755 | |
Benefit plan contributions in excess of expense/income | | (1,158) | | | (3,123) | | | (1,242) | |
| | | | | | |
Other adjustments, net | | 758 | | | (1,573) | | | (485) | |
Other changes in assets and liabilities, net of acquisitions and divestitures: | | | | | | |
Trade accounts receivable | | 261 | | | (3,811) | | | (1,275) | |
Inventories | | 592 | | | (1,125) | | | (778) | |
Other assets(a) | | (4,506) | | | (1,057) | | | (137) | |
Trade accounts payable | | 1,191 | | | 1,242 | | | 355 | |
Other liabilities | | (1,449) | | | 18,721 | | | 2,768 | |
Other tax accounts, net | | (545) | | | (1,166) | | | (1,240) | |
Net cash provided by operating activities from continuing operations | | 29,267 | | | 32,922 | | | 10,540 | |
Net cash provided by/(used in) operating activities from discontinued operations | | — | | | (343) | | | 3,863 | |
Net cash provided by operating activities | | 29,267 | | | 32,580 | | | 14,403 | |
| | | | | | |
Investing Activities | | | | | | |
Purchases of property, plant and equipment | | (3,236) | | | (2,711) | | | (2,226) | |
Purchases of short-term investments | | (36,384) | | | (38,457) | | | (13,805) | |
Proceeds from redemptions/sales of short-term investments | | 44,821 | | | 27,447 | | | 11,087 | |
Net (purchases of)/proceeds from redemptions/sales of short-term investments with original maturities of three months or less | | (483) | | | (8,088) | | | 920 | |
Purchases of long-term investments | | (1,913) | | | (1,068) | | | (597) | |
Proceeds from redemptions/sales of long-term investments | | 641 | | | 649 | | | 723 | |
Acquisitions of businesses, net of cash acquired | | (22,997) | | | — | | | — | |
Dividend received from the Consumer Healthcare JV(b) | | 3,960 | | | — | | | — | |
Other investing activities, net | | (192) | | | (305) | | | (265) | |
Net cash provided by/(used in) investing activities from continuing operations | | (15,783) | | | (22,534) | | | (4,162) | |
Net cash provided by/(used in) investing activities from discontinued operations | | — | | | (12) | | | (109) | |
Net cash provided by/(used in) investing activities | | (15,783) | | | (22,546) | | | (4,271) | |
| | | | | | |
Financing Activities | | | | | | |
Proceeds from short-term borrowings | | 3,891 | | | — | | | 12,352 | |
Payments on short-term borrowings | | (3,887) | | | — | | | (22,197) | |
Net (payments on)/proceeds from short-term borrowings with original maturities of three months or less | | (222) | | | (96) | | | (4,129) | |
Proceeds from issuances of long-term debt | | — | | | 997 | | | 5,222 | |
Payments on long-term debt | | (3,298) | | | (2,004) | | | (4,003) | |
Purchases of common stock | | (2,000) | | | — | | | — | |
Cash dividends paid | | (8,983) | | | (8,729) | | | (8,440) | |
Other financing activities, net | | (335) | | | 16 | | | (444) | |
Net cash provided by/(used in) financing activities from continuing operations | | (14,834) | | | (9,816) | | | (21,640) | |
Net cash provided by/(used in) financing activities from discontinued operations | | — | | | — | | | 11,991 | |
Net cash provided by/(used in) financing activities | | (14,834) | | | (9,816) | | | (9,649) | |
Effect of exchange-rate changes on cash and cash equivalents and restricted cash and cash equivalents | | (165) | | | (59) | | | (8) | |
Net increase/(decrease) in cash and cash equivalents and restricted cash and cash equivalents | | (1,515) | | | 159 | | | 475 | |
Cash and cash equivalents and restricted cash and cash equivalents, at beginning of period | | 1,983 | | | 1,825 | | | 1,350 | |
Cash and cash equivalents and restricted cash and cash equivalents, at end of period | | $ | 468 | | | $ | 1,983 | | | $ | 1,825 | |
|
- Continued - |
|
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 51 |
Consolidated Statements of Cash Flows
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
Supplemental Cash Flow Information | | | | | | |
Cash paid/(received) during the period for: | | | | | | |
Income taxes | | $ | 7,867 | | | $ | 7,427 | | | $ | 3,153 | |
Interest paid | | 1,442 | | | 1,467 | | | 1,641 | |
Interest rate hedges | | 54 | | | (2) | | | (20) | |
| | | | | | |
Non-cash transaction: | | | | | | |
Right-of-use assets obtained in exchange for lease liabilities | | $ | 752 | | | $ | 1,943 | | | $ | 410 | |
| | | | | | |
See Accompanying Notes.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 52 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 1. Basis of Presentation and Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include the accounts of our parent company and all subsidiaries and are prepared in accordance with U.S. GAAP. The decision of whether or not to consolidate an entity for financial reporting purposes requires consideration of majority voting interests, as well as effective economic or other control over the entity. Typically, we do not seek control by means other than voting interests. For subsidiaries operating outside the U.S., the financial information is included as of and for the year ended November 30 for each year presented. Pfizer's fiscal year-end for U.S. subsidiaries is as of and for the year ended December 31 for each year presented. Substantially all unremitted earnings of international subsidiaries are free of legal and contractual restrictions. All significant transactions among our subsidiaries have been eliminated.
Beginning in the fourth quarter of 2021, we reorganized our commercial operations and began to manage our commercial operations through a global structure consisting of two operating segments, each led by a single manager: Biopharma, our innovative science-based biopharmaceutical business, and PC1, our global contract development and manufacturing organization and a leading supplier of specialty active pharmaceutical ingredients. Beginning in the third quarter of 2022, we made several additional organizational changes to further transform our operations to better leverage our expertise in certain areas and in anticipation of potential future new product or indication launches. These changes include establishing a new commercial structure within Biopharma, optimizing our end-to-end R&D operations and further prioritizing our internal R&D portfolio, as well as realigning certain enabling and platform functions across the organization to ensure alignment with this new operating structure. Biopharma is the only reportable segment. See Note 17. On December 31, 2021, we completed the sale of our Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products. Prior to its sale, Meridian was managed within the former Hospital product portfolio. Beginning in the fourth quarter of 2021, the financial results of Meridian were reflected as discontinued operations for all periods presented. On December 21, 2020, Pfizer and Viatris completed the termination of a pre-existing strategic collaboration between Pfizer and Mylan for generic drugs in Japan (the Mylan-Japan collaboration) pursuant to an agreement dated November 13, 2020, and we transferred related inventories and operations that were part of the Mylan-Japan collaboration to Viatris. On November 16, 2020, we completed the spin-off and the combination of our Upjohn Business with Mylan to form Viatris. Beginning in the fourth quarter of 2020, the financial results of the Upjohn Business and the Mylan-Japan collaboration were reflected as discontinued operations for all periods presented. Upon completion of the spin-off of the Upjohn Business on November 16, 2020, the Upjohn assets and liabilities were derecognized from our consolidated balance sheet and are reflected in Retained Earnings–Distribution of Upjohn Business in the consolidated statement of equity. Prior to the spin-off of the Upjohn Business in November 2020, the Upjohn Business, the Mylan-Japan collaboration and Meridian were managed as part of our former Upjohn operating segment. With the separation of the Upjohn Business, the Mylan-Japan collaboration and Meridian, as well as the formation of the Consumer Healthcare JV in 2019, Pfizer transformed into a more focused, global leader in science-based innovative medicines and vaccines. In addition, other acquisitions and business development activities completed in 2022, 2021 and 2020 impacted financial results in the periods presented. See Note 2. We have made certain reclassification adjustments to conform prior-period amounts to the current presentation, mainly for acquired IPR&D expenses (see Note 1L). Certain amounts in the consolidated financial statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts. B. New Accounting Standard Adopted in 2022
On January 1, 2022, we early adopted a new accounting standard for contract assets and contract liabilities acquired in a business combination. Under the new standard, acquired contract assets and contract liabilities are required to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606. This new guidance generally results in the acquirer recognizing contract assets and contract liabilities at the same amounts that were recorded by the acquiree. Previously, these amounts were recognized by the acquirer at fair value as of the acquisition date. We adopted this new standard on a prospective basis and there was no impact to our consolidated financial statements.
C. Estimates and Assumptions
In preparing these financial statements, we use certain estimates and assumptions that affect reported amounts and disclosures. These estimates and assumptions can impact all elements of our financial statements. For example, in the consolidated statements of income, estimates are used when accounting for deductions from revenues, determining the cost of inventory that is sold, allocating cost in the form of depreciation and amortization, and estimating restructuring charges and the impact of contingencies, as well as determining provisions for taxes on income. On the consolidated balance sheets, estimates are used in determining the valuation and recoverability of assets, and in determining the reported amounts of liabilities, all of which also impact the consolidated statements of income. Certain estimates of fair value and amounts recorded in connection with acquisitions, revenue deductions, impairment reviews, restructuring-associated charges, investments and financial instruments, valuation allowances, pension and postretirement benefit plans, contingencies, share-based compensation, and other calculations can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
Our estimates are often based on complex judgments and assumptions that we believe to be reasonable, but that can be inherently uncertain and unpredictable. If our estimates and assumptions are not representative of actual outcomes, our results could be materially impacted. As future events and their effects cannot be determined with precision, our estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. We are subject to risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in the healthcare environment, competition, litigation, legislation and regulations. We regularly evaluate our estimates and assumptions using historical experience and expectations about the future. We adjust our estimates and assumptions when facts and circumstances indicate the need for change.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 53 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
D. Acquisitions
Our consolidated financial statements include the operations of acquired businesses after the completion of the acquisitions. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of acquired IPR&D be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill. When we acquire net assets that do not constitute a business, as defined in U.S. GAAP, no goodwill is recognized and acquired IPR&D is expensed in Acquired in-process research and development expenses.
Contingent consideration in a business combination is included as part of the acquisition cost and is recognized at fair value as of the acquisition date. Fair value is generally estimated by using a probability-weighted discounted cash flow approach. See Note 16D. Any liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. These changes in fair value are recognized in earnings in Other (income)/deductions––net. E. Fair Value
We measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.
When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:
•Income approach, which is based on the present value of a future stream of net cash flows.
•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.
Our fair value methodologies depend on the following types of inputs:
•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).
The following inputs and valuation techniques are used to estimate the fair value of our financial assets and liabilities:
•Available-for-sale debt securities—third-party matrix-pricing model that uses significant inputs derived from or corroborated by observable market data and credit-adjusted yield curves.
•Equity securities with readily determinable fair values—quoted market prices and observable NAV prices.
•Derivative assets and liabilities—third-party matrix-pricing model that uses inputs derived from or corroborated by observable market data. Where applicable, these models use market-based observable inputs, including interest rate yield curves to discount future cash flow amounts, and forward and spot prices for currencies. The credit risk impact to our derivative financial instruments was not significant.
•Money market funds—observable NAV prices.
We periodically review the methodologies, inputs and outputs of third-party pricing services for reasonableness. Our procedures can include, for example, referencing other third-party pricing models, monitoring key observable inputs (like benchmark interest rates) and selectively performing test-comparisons of values with actual sales of financial instruments.
F. Foreign Currency Translation
For most of our international operations, local currencies have been determined to be the functional currencies. We translate functional currency assets and liabilities to their U.S. dollar equivalents at exchange rates in effect as of the balance sheet date and income and expense amounts at average exchange rates for the period. The U.S. dollar effects that arise from changing translation rates are recorded in Other comprehensive income/(loss). The effects of converting non-functional currency monetary assets and liabilities into the functional currency are recorded in Other (income)/deductions––net. For operations in highly inflationary economies, we translate monetary items at rates in effect as of the balance sheet date, with translation adjustments recorded in Other (income)/deductions––net, and we translate non-monetary items at historical rates.
G. Revenues and Trade Accounts Receivable
Revenue Recognition––We record revenues from product sales when there is a transfer of control of the product from us to the customer. We typically determine transfer of control based on when the product is shipped or delivered and title passes to the customer. For certain contracts, the finished product may temporarily be stored at our or our third-party subcontractors’ locations under a bill-and-hold arrangement. Revenue is recognized on bill-and-hold arrangements at the point in time when the customer obtains control of the product and all of the following criteria have been met: the arrangement is substantive; the product is identified separately as belonging to the customer; the product is ready for physical transfer to the customer; and we do not have the ability to use the product or direct it to another customer. In determining when the customer obtains control of the product, we consider certain indicators, including whether we have a present right to payment from
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 54 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and whether customer acceptance has been received.
Our Sales Contracts––Sales on credit are typically under short-term contracts. Collections are based on market payment cycles common in various markets, with shorter cycles in the U.S. Sales are adjusted for sales allowances, chargebacks, rebates and sales returns and cash discounts. Sales returns occur due to LOE, product recalls or a changing competitive environment.
Deductions from Revenues––Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment is required when estimating the impact of these revenue deductions on gross sales for a reporting period.
Provisions for pharmaceutical sales returns––Provisions are based on a calculation for each market that incorporates the following, as appropriate: local returns policies and practices; historical returns as a percentage of sales; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, such as LOE, product recalls or a changing competitive environment. Generally, returned products are destroyed, and customers are refunded the sales price in the form of a credit.
We record sales incentives as a reduction of revenues at the time the related revenues are recorded or when the incentive is offered, whichever is later. We estimate the cost of our sales incentives based on our historical experience with similar incentives programs to predict customer behavior.
The following outlines our common sales arrangements:
•Customers––Our prescription biopharmaceutical products, with the exception of Paxlovid, are sold principally to wholesalers, but we also sell directly to retailers, hospitals, clinics, government agencies and pharmacies. In 2022, we principally sold Paxlovid to government agencies. In the U.S., we primarily sell our vaccines directly to the federal government, CDC, wholesalers, individual provider offices, retail pharmacies and integrated delivery systems. Outside the U.S., we primarily sell our vaccines to government and non-government institutions. Prescription pharmaceutical products that ultimately are used by patients are generally covered under governmental programs, managed care programs and insurance programs, including those managed through PBMs, and are subject to sales allowances and/or rebates payable directly to those programs. Those sales allowances and rebates are generally negotiated, but government programs may have legislated amounts by type of product (e.g., patented or unpatented).
Specifically:
•In the U.S., we sell our products principally to distributors and hospitals. We also have contracts with managed care programs or PBMs and legislatively mandated contracts with the federal and state governments under which we provide rebates based on medicines utilized by the lives they cover. We record provisions for Medicare, Medicaid, and performance-based contract pharmaceutical rebates based upon our experience ratio of rebates paid and actual prescriptions written during prior periods. We apply the experience ratio to the respective period’s sales to determine the rebate accrual and related expense. This experience ratio is evaluated regularly to ensure that the historical trends are as current as practicable. We estimate discounts on branded prescription drug sales to Medicare Part D participants in the Medicare “coverage gap,” also known as the “doughnut hole,” based on the historical experience of beneficiary prescriptions and consideration of the utilization that is expected to result from the discount in the coverage gap. We evaluate this estimate regularly to ensure that the historical trends and future expectations are as current as practicable. For performance-based contract rebates, we also consider current contract terms, such as changes in formulary status and rebate rates.
•Outside the U.S., the majority of our pharmaceutical sales allowances are contractual or legislatively mandated and our estimates are based on actual invoiced sales within each period, which reduces the risk of variations in the estimation process. In certain European countries, rebates are calculated on the government’s total unbudgeted pharmaceutical spending or on specific product sales thresholds and we apply an estimated allocation factor against our actual invoiced sales to project the expected level of reimbursement. We obtain third-party information that helps us to monitor the adequacy of these accruals.
•Provisions for pharmaceutical chargebacks (primarily reimbursements to U.S. wholesalers for honoring contracted prices and legislated discounts to third parties) closely approximate actual amounts incurred, as we settle these deductions generally within two to five weeks of incurring the liability.
We recorded direct product sales and/or Alliance revenues of more than $1 billion for each of ten products in 2022, for each of nine products in 2021 and for each of seven products in 2020. In the aggregate, these direct product sales and/or alliance product revenues represented 82% of our revenues in 2022, 75% of our revenues in 2021 and 54% of our revenues in 2020. See Note 17C for additional information. The loss or expiration of intellectual property rights can have a significant adverse effect on our revenues as our contracts with customers will generally be at lower selling prices and lower volumes due to added generic competition. We generally provide for higher sales returns during the period in which individual markets begin to near the loss or expiration of intellectual property rights. | | | | | | | | | | | | | | |
Our accruals for Medicare, Medicaid and related state program and performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts are as follows: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
Reserve against Trade accounts receivable, less allowance for doubtful accounts | | $ | 1,200 | | | $ | 1,077 | |
| | | | |
Other current liabilities: | | | | |
Accrued rebates | | 4,479 | | | 3,811 | |
Other accruals | | 430 | | | 528 | |
| | | | |
Other noncurrent liabilities | | 612 | | | 433 | |
Total accrued rebates and other sales-related accruals | | $ | 6,722 | | | $ | 5,850 | |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 55 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from Revenues.
Trade Accounts Receivable—Trade accounts receivable are stated at their net realizable value. The allowance for credit losses reflects our best estimate of expected credit losses of the receivables portfolio determined on the basis of historical experience, current information, and forecasts of future economic conditions. In developing the estimate for expected credit losses, trade accounts receivables are segmented into pools of assets depending on market (U.S. versus international), delinquency status, and customer type (high risk versus low risk and government versus non-government), and fixed reserve percentages are established for each pool of trade accounts receivables.
In determining the reserve percentages for each pool of trade accounts receivables, we considered our historical experience with certain customers and customer types, regulatory and legal environments, country and political risk, and other relevant current and future forecasted macroeconomic factors. These credit risk indicators are monitored on a quarterly basis to determine whether there have been any changes in the economic environment that would indicate the established reserve percentages should be adjusted, and are considered on a regional basis to reflect more geographic-specific metrics. Additionally, write-offs and recoveries of customer receivables are tracked against collections on a quarterly basis to determine whether the reserve percentages remain appropriate. When management becomes aware of certain customer-specific factors that impact credit risk, specific allowances for these known troubled accounts are recorded. Trade accounts receivable are written off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted.
During 2022 and 2021, additions to the allowance for credit losses, write-offs and recoveries of customer receivables were not material to our consolidated financial statements.
H. Collaborative Arrangements
Payments to and from our collaboration partners are presented in our consolidated statements of income based on the nature of the arrangement (including its contractual terms), the nature of the payments and applicable accounting guidance. Under co-promotion agreements, we record the amounts received for our share of gross profits from our collaboration partners as Alliance revenues, a component of Revenues, when our collaboration partners are the principal in the transaction and we receive a share of their net sales or profits. Alliance revenues are recorded as we perform co-promotion activities for the collaboration and the collaboration partners sell the products to their customers. The related expenses for selling and marketing these products including reimbursements to or from our collaboration partners for these costs are included in Selling, informational and administrative expenses. In collaborative arrangements where we manufacture a product for our collaboration partners, we record revenues when we transfer control of the product to our collaboration partners. In collaboration arrangements where we are the principal in the transaction, we record amounts paid to collaboration partners for their share of net sales or profits earned, and all royalty payments to collaboration partners as Cost of sales. Royalty payments received from collaboration partners are included in Other (income)/deductions—net.
Reimbursements to or from our collaboration partners for development costs are typically recorded in Research and development expenses. Upfront payments and pre-approval milestone payments due from us to our collaboration partners in development stage collaborations are recorded as Acquired in-process research and development expenses. Milestone payments due from us to our collaboration partners after regulatory approval has been attained for a medicine are recorded in Identifiable intangible assets—Developed technology rights. Upfront and pre-approval milestone payments earned from our collaboration partners by us are recognized in Other (income)/deductions—net over the development period for the products, when our performance obligations include providing R&D services to our collaboration partners. Upfront, pre-approval and post-approval milestone payments earned by us may be recognized in Other (income)/deductions—net immediately when earned or over other periods depending upon the nature of our performance obligations in the applicable collaboration. Where the milestone event is regulatory approval for a medicine, we generally recognize milestone payments due to us in the transaction price when regulatory approval in the applicable jurisdiction has been attained. We may recognize milestone payments due to us in the transaction price earlier than the milestone event in certain circumstances when recognition of the income would not be probable of a significant reversal.
I. Cost of Sales and Inventories
Inventories are recorded at the lower of cost or net realizable value. The cost of finished goods, work in process and raw materials is determined using average actual cost. We regularly review our inventories for impairment and reserves are established when necessary. Inventories that are not expected to be sold within 12 months are classified as Other noncurrent assets. See Note 8A. J. Selling, Informational and Administrative Expenses
Selling, informational and administrative costs are expensed as incurred. Among other things, these expenses include the internal and external costs of marketing, advertising, shipping and handling, IT and legal defense. Advertising expenses totaled approximately $2.8 billion in 2022, $2.0 billion in 2021 and $1.8 billion in 2020. Production costs are expensed as incurred and the costs of TV, radio, and other electronic media and publications are expensed when the related advertising occurs.
K. Research and Development Expenses
R&D costs are expensed as incurred. These expenses include the costs of our proprietary R&D efforts, as well as R&D activities performed in connection with certain licensing arrangements.
L. Acquired In-Process Research and Development Expenses
Before a compound receives regulatory approval, we record upfront and milestone payments we make to third parties under licensing and collaboration arrangements as expense. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved. Once a compound receives regulatory approval, we record any milestone payments in Identifiable intangible assets, less accumulated amortization and, unless the asset is determined to have an indefinite life, we typically amortize the payments on a straight-line basis over the remaining agreement term or the expected product life cycle, whichever is shorter. In the first quarter of 2022, we began reporting acquired IPR&D expense as a separate line item in our consolidated statements of income. Acquired in-process research and development expenses includes costs incurred in connection with (a) all upfront and milestone payments on
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Pfizer Inc. | 2022 Form 10-K | 56 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
collaboration and in-license agreements, including premiums on equity securities and (b) asset acquisitions of acquired IPR&D. These costs were previously recorded in Research and development expenses.
M. Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets
Long-lived assets include:
•Property, plant and equipment, less accumulated depreciation—These assets are recorded at cost, including any significant improvements after purchase, less accumulated depreciation. Property, plant and equipment assets, other than land and construction in progress, are depreciated on a straight-line basis over the estimated useful life of the individual assets. Depreciation begins when the asset is ready for its intended use. For tax purposes, accelerated depreciation methods are used as allowed by tax laws.
•Identifiable intangible assets, less accumulated amortization—These assets are recorded at fair value at acquisition. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized until a useful life can be determined.
•Goodwill—Goodwill represents the excess of the consideration transferred for an acquired business over the assigned values of its net assets. Goodwill is not amortized.
Amortization of finite-lived acquired intangible assets is included in Amortization of intangible assets.
We review our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.
Specifically:
•For finite-lived intangible assets, such as developed technology rights, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we calculate the undiscounted value of the projected cash flows for the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we reevaluate the remaining useful lives of the assets and modify them, as appropriate.
•For indefinite-lived intangible assets, such as brands and IPR&D assets, when necessary, we determine the fair value of the asset and record an impairment loss, if any, for the excess of book value over fair value. In addition, in all cases of an impairment review other than for IPR&D assets, we re-evaluate whether continuing to characterize the asset as indefinite-lived is appropriate.
•For goodwill, when necessary, we determine the fair value of each reporting unit and record an impairment loss, if any, for the excess of the book value of the reporting unit over the implied fair value.
N. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
We may incur restructuring charges in connection with acquisitions when we implement plans to restructure and integrate the acquired operations or in connection with our cost-reduction and productivity initiatives.
•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 for site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.
Included in Restructuring charges and certain acquisition-related costs are all restructuring charges, as well as certain other costs associated with acquiring and integrating an acquired business. If the restructuring action results in a change in the estimated useful life of an asset, that incremental impact is classified in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate. 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. Transaction costs, such as banking, legal, accounting and other similar costs incurred in connection with a business acquisition are expensed as incurred.
Our business and platform functions may be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as our corporate enabling functions (such as digital, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement).
O. Cash Equivalents and Statement of Cash Flows
Cash equivalents include items almost as liquid as cash, such as certificates of deposit and time deposits with maturity periods of three months or less when purchased. If items meeting this definition are part of a larger investment pool, we classify them as Short-term investments.
Cash flows for financial instruments designated as fair value or cash flow hedges may be included in operating, investing or financing activities, depending on the classification of the items being hedged. Cash flows for financial instruments designated as net investment hedges are classified according to the nature of the hedging instrument. Cash flows for financial instruments that do not qualify for hedge accounting treatment are classified according to their purpose and accounting nature.
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Pfizer Inc. | 2022 Form 10-K | 57 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
P. Investments and Derivative Financial Instruments
The classification of an investment depends on the nature of the investment, our intent and ability to hold the investment, and the degree to which we may exercise influence. Our investments are primarily comprised of the following:
•Public equity securities with readily determinable fair values, which are carried at fair value, with changes in fair value reported in Other (income)/deductions—net.
•Available-for-sale debt securities, which are carried at fair value, with changes in fair value reported in Other comprehensive income/(loss) until realized.
•Held-to-maturity debt securities, which are carried at amortized cost.
•Private equity securities without readily determinable fair values and where we have no significant influence are measured at cost minus any impairment and plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
•For equity investments in common stock or in-substance common stock where we have significant influence over the financial and operating policies of the investee, we use the equity-method of accounting. Under the equity-method, we record our share of the investee’s income and expenses in Other (income)/deductions—net. The excess of the cost of the investment over our share of the underlying equity in the net assets of the investee as of the acquisition date is allocated to the identifiable assets and liabilities of the investee, with any remaining excess amount allocated to goodwill. Such investments are initially recorded at cost, which is the fair value of consideration paid and typically does not include contingent consideration.
Realized gains or losses on sales of investments are determined by using the specific identification cost method.
We regularly evaluate all of our financial assets for impairment. For investments in debt and equity, if and when a decline in fair value is determined, an impairment charge is recorded and a new cost basis in the investment is established. For equity-method investments, an impairment charge is recorded only if and when a decline in fair value is determined to be other-than-temporary.
Derivative financial instruments are carried at fair value in certain balance sheet categories (see Note 7A), with changes in fair value reported in net income or, for certain qualifying hedging relationships, in Other comprehensive income/(loss) (see Note 7E). Q. Tax Assets and Liabilities and Income Tax Contingencies
Tax Assets and Liabilities––Current tax assets primarily include (i) tax effects for intercompany transfers of inventory within our combined group, which are recognized in the consolidated statements of income when the inventory is sold to a third party and (ii) income tax receivables that are expected to be recovered either via refunds from taxing authorities or reductions to future tax obligations.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws. We provide a valuation allowance when we believe that our deferred tax assets are not recoverable based on an assessment of estimated future taxable income that incorporates ongoing, prudent and feasible tax-planning strategies, that would be implemented, if necessary, to realize the deferred tax assets. Amounts recorded for valuation allowances requires judgments about future income which can depend heavily on estimates and assumptions. All deferred tax assets and liabilities within the same tax jurisdiction are presented as a net amount in the noncurrent section of our consolidated balance sheet.
The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years.
Other non-current tax assets primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction.
Other taxes payable as of December 31, 2022 and 2021 include liabilities for uncertain tax positions and the noncurrent portion of the repatriation tax liability for which we elected payment over eight years through 2026. For additional information, see Note 5D for uncertain tax positions and Note 5A for the repatriation tax liability and other estimates and assumptions in connection with the TCJA.
Income Tax Contingencies––We account for income tax contingencies using a benefit recognition model. If we consider that a tax position is more likely than not to be sustained upon audit, based solely on the technical merits of the position, we recognize all or a portion of the benefit. We measure the benefit by determining the amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the taxing authority with full knowledge of all relevant information.
We regularly monitor our position and subsequently recognize the unrecognized tax benefit: (i) if there are changes in tax law, analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to “more likely than not”; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. Liabilities for uncertain tax positions are classified as current only when we expect to pay cash within the next 12 months. Interest and penalties, if any, are recorded in Provision/(benefit) for taxes on income and are classified on our consolidated balance sheet with the related tax liability.
Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could
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Pfizer Inc. | 2022 Form 10-K | 58 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution.
R. Pension and Postretirement Benefit Plans
The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. In the U.S., we have both IRC-qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans, as well as other postretirement benefit plans consisting primarily of medical insurance for retirees and their eligible dependents. Net periodic pension and postretirement benefit costs other than the service costs are recognized in Other (income)/deductions—net. We immediately recognize actuarial gains and losses arising from the remeasurement of our pension and postretirement plans (MTM Accounting). Each time a pension or postretirement plan is remeasured, the actuarial gain or loss is recognized immediately and classified as Other (income)/deductions––net. We recognize the overfunded or underfunded status of each of our defined benefit plans as an asset or liability. The obligations are generally measured at the actuarial present value of all benefits attributable to employee service rendered, as provided by the applicable benefit formula. Our pension and other postretirement obligations may be determined using assumptions such as discount rate, expected annual rate of return on plan assets, expected employee turnover and participant mortality. For our pension plans, the obligation may also include assumptions as to future compensation levels. For our other postretirement benefit plans, the obligation may include assumptions as to the expected cost of providing medical insurance benefits, as well as the extent to which those costs are shared with the employee or others (such as governmental programs). Plan assets are measured at fair value.
S. Legal and Environmental Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent litigation, product liability and other product-related litigation, commercial and other asserted or unasserted matters, environmental claims and proceedings, government investigations and guarantees and indemnifications. In assessing contingencies related to legal and environmental proceedings that are pending against the Company, or unasserted claims that are probable of being asserted, we record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.
T. Share-Based Payments
Our compensation programs can include share-based payments. Generally, grants under share-based payment programs are accounted for at fair value and these fair values are generally amortized on a straight-line basis or on an accelerated attribution approach over the vesting terms with the related costs recorded in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate.
Note 2. Acquisitions, Divestitures, Equity-Method Investments, Licensing Arrangements and Collaborative Arrangements
A. Acquisitions
GBT––On October 5, 2022, we acquired GBT, a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities, starting with sickle cell disease, for $68.50 per share in cash. The total fair value of the consideration transferred was $5.7 billion ($5.2 billion, net of cash acquired). In addition, $136 million in payments to GBT employees for the fair value of previously unvested long-term incentive awards was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs (see Note 3). In connection with this business combination, we provisionally recorded: (i) $4.4 billion in Identifiable intangible assets, consisting of $3.0 billion of IPR&D and $1.4 billion of developed technology rights with a useful life of six years, (ii) $1.1 billion of Goodwill, (iii) $681 million of inventories to be sold over approximately three years, (iv) $570 million of net deferred tax liabilities and (v) $331 million of assumed long-term debt that was paid in full in the fourth quarter of 2022. The allocation of the consideration transferred to the assets acquired and liabilities assumed has not yet been finalized.
Biohaven––On October 3, 2022, we acquired Biohaven, the maker of Nurtec ODT/Vydura (rimegepant), an innovative therapy approved for both acute treatment of migraine and prevention of episodic migraine in adults. The transaction includes the acquisition of Biohaven’s CGRP programs, including rimegepant, zavegepant and a portfolio of five pre-clinical CGRP assets. Under the terms of the agreement, we acquired all outstanding common shares of Biohaven not already owned by us for $148.50 per share, in cash, for payments of approximately $11.5 billion, plus repayment of third-party debt of $863 million and redemption of Biohaven’s redeemable preferred stock for $495 million. Effective immediately prior to the closing of the acquisition, Biohaven completed the spin-off of Biohaven Ltd. (NYSE: BHVN), distributing Biohaven Ltd.’s shares to Biohaven shareholders. Biohaven Ltd. is a new publicly traded company that retained Biohaven’s non-CGRP development stage pipeline compounds. Pfizer, a Biohaven shareholder, received a pro rata portion of Biohaven Ltd.’s shares in the distribution and owns approximately 1.5% of Biohaven Ltd. as of December 31, 2022.
This acquisition follows on the November 2021 collaboration for the commercialization of rimegepant and zavegepant outside the U.S., in connection with which Pfizer acquired 2.6% of Biohaven’s common stock (see Note 2E). Biohaven Ltd. will also have the right to receive tiered royalties from Pfizer on any annual net sales of rimegepant and zavegepant in the U.S. in excess of $5.25 billion. This contingent consideration was determined to have no fair value as of the acquisition date. After the acquisition, we remain responsible for payment of high single digit to mid-teen percentage tiered royalties on world-wide net sales excluding China and low to high single digit royalties on net sales in China of rimegepant and zavegepant as well as certain regulatory approval and commercial milestone payments associated with rimegepant and zavegepant of up to $1.1 billion under pre-existing third-party license and other agreements.
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Pfizer Inc. | 2022 Form 10-K | 59 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The total fair value of the consideration transferred was $11.8 billion, which includes the fair value of Pfizer’s previous investment in Biohaven on the acquisition date of approximately $300 million. In connection with this business combination, we provisionally recorded: (i) $12.1 billion in Identifiable intangible assets, consisting of $11.6 billion of developed technology rights with a useful life of 11 years and $450 million of IPR&D, (ii) $817 million of inventories to be sold over approximately two years, (iii) $797 million of Goodwill, (iv) $398 million of trade accounts receivable, (v) $1.4 billion of assumed long-term debt that was paid in full in the fourth quarter of 2022, (vi) $566 million of net deferred tax liabilities and (vii) $477 million of Other current liabilities. The allocation of the consideration transferred to the assets acquired and liabilities assumed has not yet been finalized.
ReViral––On June 9, 2022, we acquired ReViral, a privately held, clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel antiviral therapeutics that target respiratory syncytial virus, for a total consideration of up to $536 million, including upfront payments of $436 million upon closing (including a base payment of $425 million plus working capital adjustments) and an additional $100 million contingent upon a future development milestone. It was subsequently determined the applicable milestone was not achieved.
We accounted for the transaction as an asset acquisition since the lead asset, sisunatovir, represented substantially all of the fair value of the gross assets acquired. At the acquisition date, we recorded a $426 million charge representing an acquired IPR&D asset with no alternative use in Acquired in-process research and development expenses, which is presented as a cash outflow from operating activities. Other assets acquired and liabilities assumed were not significant.
Arena––On March 11, 2022, we acquired Arena, a clinical stage company, for $100 per share in cash. The total fair value of the consideration transferred was $6.6 billion ($6.2 billion, net of cash acquired). In addition, $138 million in payments to Arena employees for the fair value of previously unvested long-term incentive awards was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs (see Note 3). Arena’s portfolio includes development-stage therapeutic candidates in gastroenterology, dermatology, and cardiology, including etrasimod, an oral, selective sphingosine 1-phosphate (S1P) receptor modulator currently in development for a range of immuno-inflammatory diseases including UC, Crohn’s disease, atopic dermatitis, eosinophilic esophagitis, and alopecia areata. In connection with this business combination, we provisionally recorded: (i) $5.5 billion in Identifiable intangible assets, consisting of $5.0 billion of IPR&D and $460 million of indefinite-lived licensing agreements and other, (ii) $1.0 billion of Goodwill and (iii) $506 million of net deferred tax liabilities. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.
Trillium––On November 17, 2021, we acquired all of the issued and outstanding common stock not already owned by Pfizer of Trillium, a clinical stage immuno-oncology company developing therapies targeting cancer immune evasion pathways and specific cell targeting approaches, for $18.50 per share in cash, for total consideration of $2.0 billion, net of cash acquired. As a result, Trillium became our wholly owned subsidiary. We previously held a 2% ownership investment in Trillium. Trillium’s lead program, TTI-622, is an investigational fusion protein that is designed to block the inhibitory activity of CD47, a molecule that is overexpressed by a wide variety of tumors.
We accounted for the transaction as an asset acquisition since the lead asset, TTI-622, represented substantially all of the fair value of the gross assets acquired, which exclude cash acquired. At the acquisition date, we recorded a $2.1 billion charge representing an acquired IPR&D asset with no alternative future use in Acquired in-process research and development expenses, of which the $2.0 billion net cash consideration is presented as a cash outflow from operating activities. In connection with this acquisition, we recorded $256 million of assets acquired primarily consisting of cash and investments. Liabilities assumed were approximately $81 million.
Array––On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, for $48 per share in cash. The total fair value of the consideration transferred was $11.2 billion ($10.9 billion, net of cash acquired). In addition, $157 million in payments to Array employees for the fair value of previously unvested stock options was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs (see Note 3). We financed the majority of the transaction with debt and the balance with existing cash. Array’s portfolio includes Braftovi (encorafenib) and Mektovi (binimetinib), a broad pipeline of targeted cancer medicines in different stages of R&D, as well as a portfolio of out-licensed medicines, which may generate milestones and royalties over time. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed was completed in 2020. In connection with this business combination, we recorded: (i) $6.3 billion in Identifiable intangible assets, consisting of $2.0 billion of developed technology rights with a useful life of 16 years, $2.8 billion of IPR&D and $1.5 billion of licensing agreements and other ($1.2 billion for technology in development––indefinite-lived licensing agreements and $360 million for developed technology––finite-lived licensing agreements with a useful life of 10 years), (ii) $6.1 billion of Goodwill, (iii) $1.1 billion of net deferred tax liabilities and (iv) $451 million of assumed long-term debt, which was paid in full in 2019.
In 2020, we recorded measurement period adjustments to the estimated fair values initially recorded in 2019, which resulted in a reduction in Identifiable intangible assets of approximately $900 million with a corresponding change to Goodwill and net deferred tax liabilities. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date and did not have a material impact on our consolidated statement of income for the year ended December 31, 2020.
Pro forma information for the aforementioned acquisitions has not been presented because these acquisitions were not material to our consolidated financial statements.
B. Divestitures
Meridian––On December 31, 2021, we completed the sale of our Meridian subsidiary for approximately $51 million in cash and recognized a loss of approximately $167 million, net of tax, in Discontinued operations––net of tax. In connection with the sale, Pfizer and the purchaser of Meridian entered into various agreements to provide a framework for our relationship after the sale, including interim TSAs and an MSA. The TSAs primarily involve Pfizer providing services related to IT, among other activities, and are generally expected to be for terms of no more
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Pfizer Inc. | 2022 Form 10-K | 60 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
than 12 to 18 months post sale. The MSA is for a term of three years post sale with a two year extension period. In 2022, the amounts recorded under the interim TSAs and MSA were not material to our consolidated results of operations. No amounts were recorded under these arrangements in 2021.
Upjohn Separation and Combination with Mylan––On November 16, 2020, we completed the spin-off and the combination of the Upjohn Business with Mylan (the Transactions) to form Viatris. The Transactions were structured as an all-stock, Reverse Morris Trust transaction. Specifically, (i) we contributed the Upjohn Business to a wholly owned subsidiary, which was renamed Viatris, so that the Upjohn Business was separated from the remainder of our business (the Separation), (ii) following the Separation, we distributed, on a pro rata basis, all of the shares of Viatris common stock held by Pfizer to Pfizer stockholders as of the November 13, 2020 record date, such that each Pfizer stockholder as of the record date received approximately 0.124079 shares of Viatris common stock per share of Pfizer common stock (the Distribution); and (iii) immediately after the Distribution, the Upjohn Business combined with Mylan in a series of transactions in which Mylan shareholders received one share of Viatris common stock for each Mylan ordinary share held by such shareholder, subject to any applicable withholding taxes (the Combination). Prior to the Distribution, Viatris made a cash payment to Pfizer equal to $12.0 billion as partial consideration for the contribution of the Upjohn Business to Viatris. As of the closing of the Combination, Pfizer stockholders owned approximately 57% of the outstanding shares of Viatris common stock, and Mylan shareholders owned approximately 43% of the outstanding shares of Viatris common stock, in each case on a fully diluted, as-converted and as-exercised basis. The Transactions are generally expected to be tax free to Pfizer and Pfizer stockholders for U.S. tax purposes. Beginning November 16, 2020, Viatris operates both the Upjohn Business and Mylan as an independent publicly traded company, which is traded under the symbol “VTRS” on the NASDAQ.
In connection with the Transactions, in June 2020, Upjohn Inc. and Upjohn Finance B.V. completed privately placed debt offerings of $7.45 billion and €3.60 billion aggregate principal amounts, respectively, (approximately $11.4 billion) of senior unsecured notes and entered into other financing arrangements, including a $600 million delayed draw term loan agreement and a revolving credit facility agreement for up to $4.0 billion. Proceeds from the debt offerings and other financing arrangements were used to fund the $12.0 billion cash distribution Viatris made to Pfizer prior to the Distribution. We used the cash distribution proceeds to pay down commercial paper borrowings and redeem the $1.15 billion aggregate principal amount outstanding of our 1.95% senior unsecured notes that were due in June 2021 and $342 million aggregate principal amount outstanding of our 5.80% senior unsecured notes that were due in August 2023, before the maturity date. Interest expense for the $11.4 billion in debt securities incurred during 2020 is included in Discontinued operations––net of tax. Following the Separation and Combination of the Upjohn Business with Mylan, we are no longer the obligor or guarantor of any Upjohn debt or Upjohn financing arrangements.
As a result of the spin-off of the Upjohn Business, we distributed net assets of $1.6 billion as of November 16, 2020, which was reflected as a reduction to Retained earnings and reflects the 2021 MTM change in accounting principle. Of this amount, $412 million represents cash transferred to the Upjohn Business, with the remainder considered a non-cash activity in the consolidated statement of cash flows for the year ended December 31, 2020. The spin-off also resulted in a net increase to Accumulated other comprehensive loss of $423 million for the derecognition of net gains on foreign currency translation adjustments of $397 million and prior service net credits associated with benefit plans of $26 million, which were reclassified to Retained earnings.
As a result of the separation of Upjohn, we incurred separation-related costs of $434 million in 2020, which are included in Discontinued operations––net of tax. These costs primarily relate to professional fees for regulatory filings and separation activities within finance, tax, legal and information system functions as well as investment banking fees.
In connection with the Transactions, Pfizer and Viatris entered into various agreements to effect the Separation and Combination and to provide a framework for our relationship after the Combination, including a separation and distribution agreement, interim operating models, including agency arrangements, MSAs, TSAs, a tax matters agreement, and an employee matters agreement, among others. The interim agency operating model arrangements primarily include billings, collections and remittance of rebates that we are performing on a transitional basis on behalf of Viatris. Under the MSAs, Pfizer or Viatris, as the case may be, manufactures, labels and packages products for the other party. The terms of the MSAs range in initial duration from four to seven years post-Separation. The TSAs primarily involve Pfizer providing services to Viatris related to finance, IT and human resource infrastructure and are generally expected to be for terms of no more than three years post-Separation. The amounts recorded under the above agreements were not material to our consolidated results of operations in 2022, 2021 and 2020.
Net amounts due to Viatris under the above agreements were $94 million as of December 31, 2022 and net amounts due from Viatris under the above arrangements were $53 million as of December 31, 2021. The cash flows associated with the above agreements are included in Net cash provided by operating activities from continuing operations, except for a $277 million payment to Viatris made in 2021 pursuant to terms of the separation agreement, which is reported in Other financing activities, net.
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Pfizer Inc. | 2022 Form 10-K | 61 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | | | |
Components of Discontinued operations––net of tax: |
| | | | Year Ended December 31,(a) |
(MILLIONS) | | | | 2022 | | 2021 | | 2020 |
Revenues | | | | $ | — | | | $ | 277 | | | $ | 7,572 | |
Costs and expenses: | | | | | | | | |
Cost of sales | | | | — | | | 204 | | | 2,106 | |
Selling, informational and administrative expenses | | | | 8 | | | 26 | | | 1,682 | |
Research and development expenses | | | | — | | | 9 | | | 224 | |
Acquired in-process research and development expenses | | | | — | | | — | | | — | |
Amortization of intangible assets | | | | — | | | 45 | | | 224 | |
Restructuring charges and certain acquisition-related costs | | | | — | | | 2 | | | 29 | |
Other (income)/deductions––net | | | | (20) | | | 365 | | | 428 | |
Pre-tax income/(loss) from discontinued operations | | | | 12 | | | (375) | | | 2,879 | |
Provision/(benefit) for taxes on income | | | | 13 | | | (107) | | | 349 | |
Income/(loss) from discontinued operations––net of tax | | | | (1) | | | (268) | | | 2,529 | |
Pre-tax gain/(loss) on sale of discontinued operations | | | | 10 | | | (211) | | | — | |
Provision/(benefit) for taxes on income | | | | 2 | | | (44) | | | — | |
Gain/(loss) on sale of discontinued operations––net of tax | | | | 7 | | | (167) | | | — | |
Discontinued operations––net of tax | | | | $ | 6 | | | $ | (434) | | | $ | 2,529 | |
(a)In 2022, Discontinued operations—net of tax relates to post-close adjustments. In 2021, Discontinued operations—net of tax primarily includes (i) the operations of Meridian prior to its sale on December 31, 2021 recognized in Income/(loss) from discontinued operations—net of tax, which includes a pre-tax amount to resolve a MDL relating to EpiPen against the Company in the U.S. District Court for the District of Kansas for $345 million; and (ii) the after tax loss of $167 million related to the sale of Meridian recognized in Gain/(loss) on sale of discontinued operations––net of tax. To a much lesser extent, Discontinued operations—net of tax in 2021 also includes the operations of the Mylan-Japan collaboration prior to its termination on December 21, 2020 and post-close adjustments directly related to our former Upjohn and Nutrition discontinued businesses, including adjustments for tax, benefits and legal-related matters recognized in Income/(loss) from discontinued operations—net of tax. In 2020, Discontinued operations—net of tax relates to the operations of the Upjohn Business, Meridian and the Mylan-Japan collaboration and includes the impact of the 2021 MTM change in accounting principle, pre-tax interest expense of $116 million associated with the U.S. dollar and Euro denominated senior unsecured notes issued by Upjohn Inc. and Upjohn Finance B.V. in the second quarter of 2020 and pre-tax charges of $223 million related to the remeasurement of Euro debt issued by Upjohn Finance B.V. in the second quarter of 2020.
C. Equity-Method Investments
Haleon/Consumer Healthcare JV––On July 31, 2019, we completed a transaction in which we and GSK combined our respective consumer healthcare businesses into a new JV that operated globally under the GSK Consumer Healthcare name. In exchange for the contribution of our consumer healthcare business to the JV, we received a 32% equity stake in the new company and GSK owned the remaining 68%. On July 18, 2022, GSK completed a demerger of the Consumer Healthcare JV which became Haleon, an independent, publicly traded company listed on the London Stock Exchange that holds the joint Consumer Healthcare business of GSK and Pfizer following the demerger. We continue to own 32% of the ordinary shares of Haleon after the demerger, and we account for our interest in Haleon/the Consumer Healthcare JV as an equity-method investment.
The carrying value of our investment in Haleon as of December 31, 2022 and in the Consumer Healthcare JV as of December 31, 2021 is $10.8 billion and $16.3 billion, respectively, and is reported in Equity-method investments. The fair value of our investment in Haleon as of December 31, 2022, based on quoted market prices of Haleon stock, was $11.7 billion. Haleon/the Consumer Healthcare JV is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in other comprehensive income. The decrease in the value of our investment from December 31, 2021 to December 31, 2022 is primarily due to dividends totaling approximately $4.5 billion, of which cash flows of $4.0 billion are included in Net cash provided by/(used in) investing activities and $584 million are included in Net cash provided by operating activities, as well as $1.4 billion in pre-tax foreign currency translation adjustments (see Note 6), partially offset by our share of Haleon/the Consumer Healthcare JV’s earnings. We record our share of earnings from Haleon/the Consumer Healthcare JV on a quarterly basis on a one-quarter lag in Other (income)/deductions––net. Our total share of Haleon/the Consumer Healthcare JV’s earnings generated in the fourth quarter of 2021 and the first nine months of 2022, which we recorded in our operating results in 2022, was $536 million. Our total share of the JV’s earnings generated in the fourth quarter of 2020 and the first nine months of 2021, which we recorded in our operating results in 2021, was $495 million. Our total share of the JV’s earnings generated in the fourth quarter of 2019 and the first nine months of 2020, which we recorded in our operating results in 2020, was $417 million. As part of the initial accounting for our investment in the Consumer Healthcare JV in 2019, we determined that the difference between the initial fair value of our investment less our underlying equity in the carrying value of the net assets of the JV resulted in an initial excess basis difference of $4.8 billion. We allocated the difference primarily to inventory, definite-lived intangible assets, indefinite-lived intangible assets, related deferred tax liabilities, and equity-method goodwill. We recognize amortization of these basis differences in Other (income)/deductions––net. Amortization of basis differences on inventory and related deferred tax liabilities was completely recognized by the second quarter of 2020. Basis differences on definite-lived intangible assets and related deferred tax liabilities are being amortized over the lives of the underlying assets, which range from 8 to 20 years. In 2022, our equity-method income included in Other (income)/ deductions––net also includes charges of $100 million, primarily for adjustments to our equity-method basis differences related to the separation of Haleon/the Consumer Healthcare JV from GSK. The total amortization and adjustment of basis differences was not material to our results of operations in 2021 and 2020. See Note 4.
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Pfizer Inc. | 2022 Form 10-K | 62 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | |
Summarized financial information for our equity-method investee, Haleon/the Consumer Healthcare JV, as of September 30, 2022, the most recent period available, and as of September 30, 2021 and for the periods ending September 30, 2022, 2021, and 2020 is as follows: |
(MILLIONS) | | | | September 30, 2022 | | September 30, 2021 |
Current assets | | | | $ | 5,932 | | | $ | 6,890 | |
Noncurrent assets | | | | 35,204 | | | 39,445 | |
Total assets | | | | $ | 41,137 | | | $ | 46,335 | |
| | | | | | |
Current liabilities | | | | $ | 5,235 | | | $ | 5,133 | |
Noncurrent liabilities | | | | 17,220 | | | 5,218 | |
Total liabilities | | | | $ | 22,455 | | | $ | 10,351 | |
| | | | | | |
Equity attributable to shareholders | | | | $ | 18,455 | | | $ | 35,705 | |
Equity attributable to noncontrolling interests | | | | 227 | | | 279 | |
Total net equity | | | | $ | 18,682 | | | $ | 35,984 | |
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| | | | For the Twelve Months Ending |
(MILLIONS) | | | | September 30, 2022 | | September 30, 2021 | | September 30, 2020 |
Net sales | | | | $ | 13,566 | | | $ | 12,836 | | | $ | 12,720 | |
Cost of sales | | | | (5,081) | | | (4,755) | | | (5,439) | |
Gross profit | | | | $ | 8,486 | | | $ | 8,081 | | | $ | 7,281 | |
Income from continuing operations | | | | 1,745 | | | 1,614 | | | 1,350 | |
Net income | | | | 1,745 | | | 1,614 | | | 1,350 | |
Income attributable to shareholders | | | | 1,675 | | | 1,547 | | | 1,307 | |
In connection with GSK’s previously announced planned demerger of at least 80% of GSK’s 68% equity interest in the Consumer Healthcare JV, in March 2022 the Consumer Healthcare JV completed its offering of a total aggregate principal amount of $8.75 billion in U.S. dollar-denominated senior notes of various maturities, €2.35 billion in euro-denominated senior notes of various maturities and £700 million in U.K. pound-denominated senior notes of various maturities (collectively, the “notes”). The notes were guaranteed by GSK generally up to and excluding the date of the demerger (the “Guarantee Assumption Date”). We agreed to indemnify GSK for 32% (representing our pro rata equity interest in the Consumer Healthcare JV) of any amount payable by GSK pursuant to its guarantee of the notes. Our indemnity was provided solely for the benefit of GSK. Neither we nor any of our subsidiaries were an issuer or guarantor of any of the notes.
Following its issuance of the notes in March 2022, which fell in our international second quarter of 2022, the Consumer Healthcare JV loaned to us and GSK the net proceeds received from the notes on a pro rata equity ownership basis, for which we received a loan of £2.9 billion ($3.7 billion as of the end of our second quarter of 2022), at an interest rate of 1.365% per annum payable semi-annually in arrears. In conjunction with the demerger, we received £3.5 billion ($4.2 billion) in dividends from the JV in July 2022, of which $4.0 billion related to a one-time pre-separation dividend, which decreased the carrying value of our investment (as discussed above). Simultaneous with the receipt of the dividends, we repaid the £2.9 billion loan from the JV. GSK similarly received pro rata dividends and simultaneously repaid its pro rata loan from the JV. In conjunction with these transactions, our indemnification of GSK’s guarantee discussed above was terminated.
Investment in ViiV––In 2009, we and GSK created ViiV, which is focused on research, development and commercialization of human immunodeficiency virus (HIV) medicines. We own approximately 11.7% of ViiV, and prior to 2016 we accounted for our investment under the equity method due to the significant influence that we have over the operations of ViiV through our board representation and minority veto rights. We suspended application of the equity method to our investment in ViiV in 2016 when the carrying value of our investment was reduced to zero due to the recognition of cumulative equity-method losses and dividends, and therefore we no longer record our proportionate share of ViiV’s net income (loss) in our results of operations. Since 2016, we have recognized dividends from ViiV as income in Other (income)/deductions––net when earned, including dividends of $314 million in 2022, $166 million in 2021 and $278 million in 2020 (see Note 4). | | | | | | | | | | | | | | | | |
Summarized financial information for our equity-method investee, ViiV, as of December 31, 2022 and 2021 and for the years ending December 31, 2022, 2021, and 2020 is as follows: |
| | | | As of December 31, |
(MILLIONS) | | | | 2022 | | 2021 |
Current assets | | | | $ | 4,043 | | | $ | 3,608 | |
Noncurrent assets | | | | 3,014 | | | 3,563 | |
Total assets | | | | $ | 7,057 | | | $ | 7,171 | |
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Current liabilities | | | | $ | 3,780 | | | $ | 3,497 | |
Noncurrent liabilities | | | | 5,996 | | | 6,536 | |
Total liabilities | | | | $ | 9,777 | | | $ | 10,033 | |
| | | | | | |
Total net equity/(deficit) attributable to shareholders | | | | $ | (2,720) | | | $ | (2,862) | |
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Pfizer Inc. | 2022 Form 10-K | 63 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
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| | | | Year Ended December 31, |
(MILLIONS) | | | | 2022 | | 2021 | | 2020 |
Net sales | | | | $ | 6,955 | | | $ | 6,380 | | | $ | 6,224 | |
Cost of sales | | | | (819) | | | (682) | | | (574) | |
Gross profit | | | | $ | 6,135 | | | $ | 5,698 | | | $ | 5,650 | |
Income from continuing operations | | | | 3,108 | | | 2,040 | | | 2,012 | |
Net income | | | | 3,108 | | | 2,040 | | | 2,012 | |
Income attributable to shareholders | | | | 3,108 | | | 2,040 | | | 2,012 | |
D. Licensing Arrangements
Agreement with Valneva––On April 30, 2020, we signed an agreement to co-develop and commercialize Valneva’s Lyme disease vaccine candidate, VLA15, which covers six serotypes that are prevalent in North America and Europe. Valneva and Pfizer will work closely together throughout the development of VLA15. Valneva is eligible to receive a total of up to $308 million in cash payments from us consisting of a $130 million upfront payment, which was paid and recorded in Acquired in-process research and development expenses in our second quarter of 2020, as well as $35 million in development milestones which were paid and recorded in Acquired in-process research and development expenses in 2021 and 2022, and $143 million in early commercialization milestones which remain unpaid. Under the terms of the agreement, Valneva was to fund 30% of all development costs through completion of the development program, and in return we were to pay Valneva tiered royalties. We will lead late-stage development and have sole control over commercialization.
In June 2022, we entered into an Equity Subscription Agreement, under which we invested €90.5 million ($95 million) in Valneva to further support our strategic Lyme arrangement. In addition, we updated the terms of our existing agreement for VLA15. Valneva will now fund 40% of the remaining shared development costs, and we will pay Valneva tiered royalties ranging from 14% to 22%, compared to royalties starting at 19% in the initial agreement. In addition, the royalties will be complemented by up to $100 million in milestones payable to Valneva based on cumulative sales. Other early commercialization milestones are unchanged. As of December 31, 2022, we held a 6.9% equity stake of Valneva.
E. Collaborative Arrangements
We enter into collaborative arrangements with respect to in-line medicines, as well as medicines in development that require completion of research and regulatory approval. Collaborative arrangements are contractual agreements with third parties that involve a joint operating activity, typically a research and/or commercialization effort, where both we and our partner are active participants in the activity and are exposed to the significant risks and rewards of the activity. Our rights and obligations under our collaborative arrangements vary. For example, we have agreements to co-promote pharmaceutical products discovered by us or other companies, and we have agreements where we partner to co-develop and/or participate together in commercializing, marketing, promoting, manufacturing and/or distributing a drug product.
Collaboration with Biohaven––In November 2021, we entered into a collaboration and license agreement and related sublicense agreement with Biohaven and certain of its subsidiaries to commercialize rimegepant and zavegepant for the treatment and prevention of migraines outside of the U.S., subject to regulatory approval. Under the terms of the agreement, Biohaven would lead R&D globally and we would have the exclusive right to commercialization globally, outside of the U.S. Upon the closing of the transaction on January 4, 2022, we paid Biohaven $500 million, including an upfront payment of $150 million and an equity investment of $350 million. We recognized $263 million for the upfront payment and premium paid on our equity investment in Acquired in-process research and development expenses. In October 2022, we acquired all outstanding common shares of Biohaven not already owned by us for $148.50 per share, in cash, for payments of approximately $11.5 billion. See Note 2A. This acquisition represented a settlement of the pre-existing relationship, and we determined that no gain or loss was required to be recognized. Collaborations with BioNTech––On December 30, 2021, we entered into a research, development and commercialization agreement to develop a potential first mRNA-based vaccine for the prevention of shingles (herpes zoster virus) based on BioNTech’s proprietary mRNA technology and our antigen technology. Under the terms of the agreement, we agreed to pay BioNTech $225 million, including an upfront cash payment of $75 million and an equity investment of $150 million. BioNTech is eligible to receive future regulatory and sales milestone payments of up to $200 million. In return, BioNTech agreed to pay us $25 million for our proprietary antigen technology. The net upfront payment to BioNTech was recorded to Acquired in-process research and development expenses in our fourth quarter of 2021. We and BioNTech share development costs. We will have commercialization rights to the potential vaccine worldwide, excluding Germany, Turkey and certain developing countries where BioNTech will have commercialization rights. We and BioNTech will share gross profits from commercialization of any product.
On April 9, 2020, we signed a global agreement with BioNTech to co-develop a mRNA-based coronavirus vaccine program aimed at preventing COVID-19 infection, which resulted in the development of Comirnaty. In connection with the April 2020 agreement, we made an upfront cash payment of $72 million and an equity investment in the common stock of BioNTech of $113 million. We recognized $98 million for the upfront payment and a premium paid on the equity investment in Acquired in-process research and development expenses in our second quarter of 2020. BioNTech became eligible to receive potential milestone payments of up to $563 million for a total consideration of $748 million. Under the terms of this agreement, we and BioNTech share gross profits and development costs equally after approval and successful commercialization of the vaccine, and we were responsible for all of the development costs until commercialization of the vaccine. Thereafter, BioNTech was to repay us its 50 percent share of these development costs through reductions in gross profit sharing and milestone payments to BioNTech over time. On January 29, 2021, we and BioNTech signed an amended version of the April 2020 agreement. Under the January 2021 agreement, BioNTech paid us their 50 percent share of prior development costs in a lump sum payment during the first quarter of 2021. Further R&D costs are being shared equally. We have commercialization rights to the vaccine worldwide, excluding Germany and Turkey where BioNTech markets and distributes the vaccine under the agreement with us, and excluding China, Hong Kong, Macau and Taiwan, which are subject to a separate collaboration between BioNTech and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. We recognize
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Pfizer Inc. | 2022 Form 10-K | 64 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Revenues and Cost of sales on a gross basis in markets where we are commercializing the vaccine and we record our share of gross profits related to sales of the vaccine by BioNTech in Germany and Turkey in Alliance revenues.
We made an additional investment of $50 million in common stock of BioNTech as part of an underwritten equity offering by BioNTech, which closed in July 2020. As of December 31, 2022, we held an equity stake of 2.7% of BioNTech.
Collaboration with Beam––On December 24, 2021, we entered into a multi-year research collaboration with Beam to utilize Beam’s in vivo base editing programs, which use mRNA and lipid nanoparticles, for three targets for rare genetic diseases of the liver, muscle and central nervous system. Under the terms of the agreement, Beam conducts all research activities through development candidate selection for three undisclosed targets, which are not included in Beam’s existing programs, and we may opt in to obtain exclusive licenses to each development candidate. Beam has a right to opt in, at the end of phase 1/2 studies, upon the payment by Beam of an option exercise fee, to a global co-development and co-commercialization agreement with respect to one program licensed under the collaboration pursuant to which we and Beam would share net profits as well as development and commercialization costs in a 65%/35% ratio (Pfizer/Beam). Upon entering into the agreement, we recorded $300 million in Acquired in-process research and development expenses in the fourth quarter of 2021 for an upfront payment due to Beam, and if we exercise our opt in to licenses for all three targets, Beam will be eligible for up to an additional $1.05 billion in development, regulatory and commercial milestone payments for a potential total deal consideration of up to $1.35 billion. Beam is also eligible to receive royalties on global net sales for each licensed program.
Collaboration with Arvinas––On July 21, 2021, we entered into a global collaboration with Arvinas to develop and commercialize ARV-471, an investigational oral PROTAC® (PROteolysis TArgeting Chimera) estrogen receptor protein degrader. The estrogen receptor is a well-known disease driver in most breast cancers. In connection with the agreement, we made an upfront cash payment of $650 million to Arvinas and we made a $350 million equity investment in the common stock of Arvinas. We recognized $706 million for the upfront payment and a premium paid on our equity investment in Acquired in-process research and development expenses in our third quarter of 2021. Arvinas is also eligible to receive up to $400 million in approval milestones and up to $1 billion in commercial milestones. The companies will equally share worldwide development costs, commercialization expenses and profits. As of December 31, 2022, we held a 6.5% equity stake of Arvinas.
Collaboration with Myovant––On December 26, 2020, we entered into a collaboration with Myovant to jointly develop and commercialize Orgovyx (relugolix) in advanced prostate cancer and Myfembree (relugolix 40 mg, estradiol 1.0 mg, and norethindrone acetate 0.5 mg) in women’s health in the U.S. and Canada. We also received an exclusive option to commercialize relugolix in oncology outside the U.S. and Canada, excluding certain Asian countries, which we declined to exercise. Under the terms of the agreement, the companies equally share profits and allowable expenses in the U.S. for Orgovyx, and in the U.S. and Canada for Myfembree, with Myovant bearing our share of allowable expenses up to a maximum of $100 million in 2021 and up to a maximum of $50 million in 2022. Pfizer does not have rights outside of these markets. We record our share of gross profits as Alliance revenue. Myovant remains responsible for regulatory interactions and drug supply and continues to lead clinical development for Myfembree. Myovant is entitled to receive up to $4.35 billion, including an upfront payment of $650 million, which was made in December 2020, $200 million in potential regulatory milestones for FDA approvals for Myfembree in women’s health, all of which has been paid to Myovant as of December 31, 2022 and recognized as Identifiable intangible assets—Developed technology rights, and tiered sales milestones of up to $3.5 billion in total for prostate cancer and for the combined women’s health indications for which commercial sales have commenced. In connection with this transaction, in 2020 we recognized $499 million in Identifiable intangible assets––Developed technology rights and $151 million in Acquired in-process research and development expenses representing the relative fair value of the portion of the upfront payment allocated to the approved indication and unapproved indications of the product, respectively.
Collaboration with CStone––On September 29, 2020, we entered into a strategic collaboration with CStone to address oncological needs in China. The collaboration encompasses our $200 million upfront equity investment in CStone, the development and commercialization of CStone’s sugemalimab (CS1001, PD-L1 antibody) in mainland China, and a framework between the companies to bring additional oncology assets to the Greater China market. The transaction closed on October 9, 2020. As of December 31, 2022, we held a 9.7% equity stake of CStone.
Summarized Financial Information for Collaborative Arrangements
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The following provides the amounts and classification of payments (income/(expense)) between us and our collaboration partners: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Revenues—Revenues(a) | | $ | 437 | | | $ | 590 | | | $ | 284 | |
Revenues—Alliance revenues(b) | | 8,537 | | | 7,652 | | | 5,418 | |
Total revenues from collaborative arrangements | | $ | 8,974 | | | $ | 8,241 | | | $ | 5,703 | |
Cost of sales(c) | | $ | (15,589) | | | $ | (16,169) | | | $ | (61) | |
Selling, informational and administrative expenses(d) | | (196) | | | (175) | | | (194) | |
Research and development expenses(e) | | 272 | | | 314 | | | (14) | |
Acquired in-process research and development expenses(f) | | (339) | | | (1,056) | | | (179) | |
Other income/(deductions)—net(g) | | 664 | | | 820 | | | 567 | |
(a)Represents sales to our partners of products manufactured by us.
(b)Substantially all relates to amounts earned from our partners under co-promotion agreements. The increase in 2022 reflects increases in Alliance revenues from Eliquis, Comirnaty and Bavencio, while the increase in 2021 reflects increases in Alliance revenues from Comirnaty, Eliquis and Xtandi.
(c)Primarily relates to amounts paid to collaboration partners for their share of net sales or profits earned in collaboration arrangements where we are the principal in the transaction, and cost of sales for inventory purchased from our partners. The decrease in 2022, as well as the increase in 2021, primarily relate to Comirnaty.
(d)Represents net reimbursements to our partners for selling, informational and administrative expenses incurred.
(e)Represents net reimbursements (to)/from our partners for research and development expenses incurred.
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Pfizer Inc. | 2022 Form 10-K | 65 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
(f)Primarily relates to upfront payments to our partners as well as premiums paid on our equity investments in the common stock of our partners.
(g)Primarily relates to royalties from our collaboration partners.
The amounts outlined in the above table do not include transactions with third parties other than our collaboration partners, or other costs for the products under the collaborative arrangements.
Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
A. Transforming to a More Focused Company Program
With the formation of the Consumer Healthcare JV in 2019 and the spin-off of our former Upjohn Business in the fourth quarter of 2020, Pfizer transformed into a more focused, global leader in science-based innovative medicines and vaccines. We took efforts to ensure our cost base and support model aligned appropriately with our operating structure. While certain direct costs transferred to the Consumer Healthcare JV in 2019, and to the Upjohn Business in connection with the spin-off, there are indirect costs which did not transfer. This program is primarily composed of the following initiatives:
•We took steps to restructure our corporate enabling functions to appropriately support our business, R&D and PGS platform functions. Actions included, among others, changes in location of certain activities, expanded use and co-location of centers of excellence and shared services, and increased use of digital technologies. The associated actions and the specific costs primarily included severance and benefit plan impacts, exit costs as well as associated implementation costs.
•In addition, we transformed our commercial go-to market model in the way we engage patients and physicians. We also made several organizational changes in the third quarter of 2022 to further transform our operations to better leverage our expertise in certain areas and in anticipation of potential future new product or indication launches (see Note 1A). Actions included, among others, centralization of certain activities and enhanced use of digital technologies. The costs for this effort primarily included severance and associated implementation costs. •We also optimized our manufacturing network under this program and incurred one-time costs for cost-reduction initiatives related to our manufacturing operations. The costs for this effort included, among other things, severance costs, implementation costs, product transfer costs, site exit costs, as well as accelerated depreciation.
•In the fourth quarter of 2022, we began taking steps to optimize our end-to-end R&D operations to reduce costs and cycle times as well as to further prioritize our internal R&D portfolio in areas where our capabilities are differentiated while increasing external innovation efforts to leverage an expanding and productive biotech sector. Actions include leveraging automation and digital capabilities, novel clinical development approaches and capabilities, and externalization of select assets and R&D units. We expect costs for this effort of $500 million to be incurred primarily through 2023, with costs to primarily represent cash expenditures. The costs for this effort primarily include severance costs and associated implementation costs.
From the start of this program in the fourth quarter of 2019 through December 31, 2022, we incurred costs of $3.5 billion, of which $1.4 billion ($1.0 billion of restructuring charges) is associated with Biopharma. We have incurred approximately 85% of total expected costs to date, and we expect the remaining costs to be substantially incurred through 2023.
B. Key Activities
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The following summarizes acquisitions and cost-reduction/productivity initiatives costs and credits: |
| | | | Year Ended December 31, |
(MILLIONS) | | | | | | 2022 | | 2021 | | 2020 |
Restructuring charges/(credits): | | | | | | | | | | |
Employee terminations | | | | | | $ | 776 | | | $ | 680 | | | $ | 474 | |
Asset impairments | | | | | | 52 | | | 53 | | | 66 | |
Exit costs/(credits) | | | | | | 54 | | | 8 | | | (6) | |
Restructuring charges/(credits)(a) | | | | | | 882 | | | 741 | | | 535 | |
Transaction costs(b) | | | | | | 144 | | | 20 | | | 10 | |
Integration costs and other(c) | | | | | | 348 | | | 41 | | | 34 | |
Restructuring charges and certain acquisition-related costs | | | | | | 1,375 | | | 802 | | | 579 | |
Net periodic benefit costs/(credits) recorded in Other (income)/deductions––net | | | | | | (9) | | | (63) | | | 3 | |
Additional depreciation––asset restructuring recorded in our consolidated statements of income as follows(d): | | | | | | | | | | |
Cost of sales | | | | | | 34 | | | 63 | | | 21 | |
Selling, informational and administrative expenses | | | | | | 2 | | | 23 | | | — | |
Research and development expenses | | | | | | — | | | — | | | (3) | |
Total additional depreciation––asset restructuring | | | | | | 36 | | | 87 | | | 17 | |
| | | | | | | | | | |
Implementation costs recorded in our consolidated statements of income as follows(e): | | | | | | | | | | |
Cost of sales | | | | | | 54 | | | 45 | | | 40 | |
Selling, informational and administrative expenses | | | | | | 560 | | | 426 | | | 197 | |
Research and development expenses | | | | | | 2 | | | 1 | | | 1 | |
| | | | | | | | | | |
Total implementation costs | | | | | | 616 | | | 472 | | | 238 | |
Total costs associated with acquisitions and cost-reduction/productivity initiatives | | | | | | $ | 2,018 | | | $ | 1,298 | | | $ | 838 | |
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Pfizer Inc. | 2022 Form 10-K | 66 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
(a)Primarily represents cost reduction initiatives. Restructuring charges/(credits) associated with Biopharma: ($354 million charge in 2022, $610 million charge in 2021, and $71 million charge in 2020).
(b)Represents external costs for banking, legal, accounting and other similar services.
(c)Represents external, incremental costs directly related to integrating acquired businesses, such as expenditures for consulting and the integration of systems and processes, and certain other qualifying costs. 2022 costs mostly related to our acquisitions of Arena and GBT, including $138 million in payments to Arena employees in the first quarter of 2022 and $136 million in payments to GBT employees in the fourth quarter of 2022 for the fair value of previously unvested long-term incentive awards that was recognized as post-closing compensation expense. See Note 2A. 2021 costs primarily related to our acquisition of Trillium. 2020 costs primarily related to our acquisition of Array. (d)Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.
(e)Represents external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.
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The following summarizes the components and changes in restructuring accruals: |
(MILLIONS) | | Employee Termination Costs | | Asset Impairment Charges | | Exit Costs | | Accrual |
Balance, January 1, 2021 | | $ | 782 | | | $ | — | | | $ | 15 | | | $ | 798 | |
Provision | | 680 | | | 53 | | | 8 | | | 741 | |
Utilization and other(a) | | (449) | | | (53) | | | 34 | | | (468) | |
Balance, December 31, 2021(b) | | 1,014 | | | — | | | 57 | | | 1,071 | |
Provision | | 776 | | | 52 | | | 54 | | | 882 | |
Utilization and other(a) | | (594) | | | (52) | | | (103) | | | (750) | |
Balance, December 31, 2022(c) | | $ | 1,196 | | | $ | — | | | $ | 8 | | | $ | 1,204 | |
(a)Includes adjustments for foreign currency translation.
(b)Included in Other current liabilities ($816 million) and Other noncurrent liabilities ($255 million).
(c)Included in Other current liabilities ($991 million) and Other noncurrent liabilities ($213 million).
Note 4. Other (Income)/Deductions—Net
| | | | | | | | | | | | | | | | | | | | |
Components of Other (income)/deductions––net include: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Interest income | | $ | (251) | | | $ | (36) | | | $ | (73) | |
Interest expense(a) | | 1,238 | | | 1,291 | | | 1,449 | |
Net interest expense | | 987 | | | 1,255 | | | 1,376 | |
Royalty-related income | | (845) | | | (857) | | | (770) | |
Net (gains)/losses on asset disposals | | — | | | (99) | | | 237 | |
Net (gains)/losses recognized during the period on equity securities(b) | | 1,273 | | | (1,344) | | | (540) | |
Income from collaborations, out-licensing arrangements and sales of compound/product rights(c) | | (188) | | | (396) | | | (326) | |
Net periodic benefit costs/(credits) other than service costs | | (849) | | | (2,547) | | | 311 | |
Certain legal matters, net(d) | | 230 | | | 182 | | | 28 | |
Certain asset impairments(e) | | 421 | | | 86 | | | 1,691 | |
| | | | | | |
Haleon/Consumer Healthcare JV equity method (income)/loss(f) | | (436) | | | (471) | | | (298) | |
Other, net(g) | | (378) | | | (687) | | | (497) | |
Other (income)/deductions––net | | $ | 217 | | | $ | (4,878) | | | $ | 1,213 | |
(a)Capitalized interest totaled $124 million in 2022, $108 million in 2021 and $96 million in 2020.
(b)2022 losses include, among other things, unrealized losses of $986 million related to investments in BioNTech, Allogene Therapeutics, Inc. and Arvinas. 2021 gains included, among other things, unrealized gains of $1.6 billion related to investments in BioNTech and Cerevel Therapeutics Holdings, Inc. 2020 gains included, among other things, unrealized gains of $405 million related to investments in BioNTech and SpringWorks Therapeutics, Inc.
(c)2022 includes, among other things, $94 million of out-licensing income from multiple licensees. 2021 included, among other things, $188 million of net collaboration income from BioNTech related to Comirnaty and $97 million of milestone income from multiple licensees. 2020 included, among other things, (i) $178 million in milestone income from multiple licensees and (ii) a $75 million upfront payment received from our sale of our CK1 assets to Biogen Inc.
(d)2022 primarily includes certain product liability and other expenses related to products discontinued and/or divested by Pfizer. 2021 primarily includes certain product liability expenses related to products discontinued and/or divested by Pfizer, and to a lesser extent, legal obligations related to pre-acquisition commitments.
(e)2022 primarily includes intangible asset impairment charges of: (i) $200 million associated with our Biopharma segment, representing an IPR&D asset for the unapproved indication of symptomatic dilated cardiomyopathy due to a mutation of the gene encoding the lamin A/C protein, acquired in our Array acquisition, and was a result of the Phase 3 trial reaching futility at a pre-planned interim analysis, (ii) $171 million associated with our Biopharma segment, related to developed technology rights acquired in our Hospira acquisition, and reflect updated commercial forecasts mainly reflecting competitive pressures, and (iii) $50 million associated with PC1, related to finite-lived licensing agreements acquired in our Hospira acquisition, and reflects updated contract manufacturing forecasts reflecting changes to market dynamics. 2020 included intangible asset impairment charges associated with our Biopharma segment that reflected, among other things, updated commercial forecasts mainly reflecting competitive pressures: (i) $900 million related to IPR&D assets for unapproved indications of certain cancer medicines, acquired in our Array acquisition; (ii) $528 million related to Eucrisa, a finite-lived developed technology right acquired in our Anacor Pharmaceuticals, LLC acquisition; and (iii) $263 million related to finite-lived developed technology rights for certain generic sterile injectables acquired in our Hospira acquisition.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 67 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
(g)2022 includes, among other things, (i) dividend income of $314 million from our investment in ViiV, (ii) income net of costs associated with TSAs of $142 million and (iii) charges of $77 million, reflecting the change in the fair value of contingent consideration. 2021 included, among other things, (i) income net of costs associated with TSAs of $288 million, (ii) dividend income of $166 million from our investment in ViiV and (iii) charges of $142 million, reflecting the change in the fair value of contingent consideration. 2020 included, among other things, (i) dividend income of $278 million from our investment in ViiV, (ii) income net of costs associated with TSAs of $114 million and (iii) charges of $105 million, reflecting the change in the fair value of contingent consideration.
The asset impairment charges included in Other (income)/deductions––net are based on estimates of fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Additional information about the intangible assets that were impaired during 2022 (impairment recorded in Other (income)/deductions–net) follows: |
| | | | Year Ended |
| | Fair Value(a) | | December 31, 2022 |
(MILLIONS) | | Amount | | Level 1 | | Level 2 | | Level 3 | | Impairment |
Intangible assets––IPR&D(b) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 200 | |
Intangible assets––Developed technology rights(b) | | 60 | | | — | | | — | | | 60 | | | 171 | |
Intangible assets––Licensing agreements and other(b) | | 30 | | | — | | | — | | | 30 | | | 50 | |
Total | | $ | 90 | | | $ | — | | | $ | — | | | $ | 90 | | | $ | 421 | |
(a)The fair value amount is presented as of the date of impairment, as this asset is not measured at fair value on a recurring basis. See also Note 1E. (b)Reflects intangible assets written down to fair value in 2022. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows for the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
Note 5. Tax Matters
A. Taxes on Income from Continuing Operations
| | | | | | | | | | | | | | | | | | | | |
Components of Income from continuing operations before provision/(benefit) for taxes on income include: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
United States | | $ | 5,032 | | | $ | 6,064 | | | $ | (2,887) | |
International | | 29,697 | | | 18,247 | | | 9,924 | |
Income from continuing operations before provision/(benefit) for taxes on income(a), (b) | | $ | 34,729 | | | $ | 24,311 | | | $ | 7,036 | |
(a)2022 v. 2021––The decrease in domestic income is primarily related to net losses on equity securities in 2022 versus net gains on equity securities in 2021, lower net periodic benefit credits and higher restructuring charges and certain acquisition-related costs, partially offset by Paxlovid income and lower acquired IPR&D expenses. The increase in the international income is primarily related to Paxlovid and Comirnaty income partially offset by lower net periodic benefit credits.
(b)2021 v. 2020––The domestic income in 2021 versus domestic loss in 2020 was mainly related to Comirnaty income, lower asset impairment charges, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and higher net gains from equity securities, partially offset by higher R&D expenses. The increase in the international income was primarily related to Comirnaty income, net periodic benefit credits in 2021 versus net periodic benefit costs in 2020 and lower asset impairment charges.
| | | | | | | | | | | | | | | | | | | | |
Components of Provision/(benefit) for taxes on income based on the location of the taxing authorities include: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
United States | | | | | | |
Current income taxes: | | | | | | |
Federal | | $ | 2,744 | | | $ | 3,342 | | | $ | 372 | |
State and local | | (20) | | | 34 | | | 56 | |
Deferred income taxes: | | | | | | |
Federal | | (3,271) | | | (3,850) | | | (1,164) | |
State and local | | (310) | | | (491) | | | (131) | |
Total U.S. tax provision/(benefit) | | (857) | | | (964) | | | (867) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
International | | | | | | |
Current income taxes | | 4,368 | | | 2,769 | | | 1,517 | |
Deferred income taxes | | (183) | | | 48 | | | (279) | |
Total international tax provision/(benefit) | | 4,185 | | | 2,816 | | | 1,237 | |
Provision/(benefit) for taxes on income | | $ | 3,328 | | | $ | 1,852 | | | $ | 370 | |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 68 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The changes in Provision/(benefit) for taxes on income impacting the effective tax rate year-over-year are summarized below:
2022 v. 2021
The higher effective tax rate in 2022 was mainly the result of:
•the non-recurrence of certain initiatives executed in 2021 associated with our investment in the Consumer Healthcare JV with GSK based on estimates and assumptions that we believe to be reasonable,
partially offset by:
•tax benefits in 2022 related to global income tax resolutions in multiple tax jurisdictions spanning multiple tax years that included the closing of U.S. IRS audits covering five tax years.
2021 v. 2020
The higher effective tax rate in 2021 was mainly the result of:
•the change in the jurisdictional mix of earnings primarily related to Comirnaty; and
•lower tax benefits related to the impairment of intangible assets,
partially offset by:
•certain initiatives executed in the third quarter of 2021 associated with our investment in the Consumer Healthcare JV with GSK based on estimates and assumptions that we believe to be reasonable.
In all years, federal, state and international net tax liabilities assumed or established as part of a business acquisition are not included in Provision/(benefit) for taxes on income (see Note 2A). We elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, to pay our initial estimated $15 billion repatriation tax liability on accumulated post-1986 foreign earnings over eight years through 2026. The fourth annual installment of this liability was paid by its April 18, 2022 due date. The fifth annual installment is due April 18, 2023 and is reported in current Income taxes payable as of December 31, 2022. The remaining liability is reported in noncurrent Other taxes payable. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards.
B. Tax Rate Reconciliation
| | | | | | | | | | | | | | | | | | | | |
The reconciliation of the U.S. statutory income tax rate to our effective tax rate for Income from continuing operations follows: |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
U.S. statutory income tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| | | | | | |
Taxation of non-U.S. operations (a), (b) | | (5.0) | | | (4.3) | | | (9.9) | |
Tax settlements and resolution of certain tax positions(c) | | (3.0) | | | (0.4) | | | (2.7) | |
Foreign-Derived Intangible Income deduction(d) | | (1.9) | | | (0.6) | | | — | |
Certain Consumer Healthcare JV initiatives(c) | | — | | | (6.0) | | | — | |
U.S. R&D tax credit | | (0.6) | | | (0.5) | | | (1.4) | |
Interest(e) | | 0.2 | | | 0.4 | | | 1.1 | |
All other, net(f) | | (1.1) | | | (2.0) | | | (2.8) | |
Effective tax rate for income from continuing operations | | 9.6 | % | | 7.6 | % | | 5.3 | % |
(a)For taxation of non-U.S. operations, this rate impact reflects the income tax rates and relative earnings in the locations where we do business outside the U.S., together with the U.S. tax cost on our international operations, changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions,” as well as changes in valuation allowances. Specifically: (i) the jurisdictional location of earnings is a significant component of our effective tax rate each year, and the rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of such earnings as compared to our total earnings; (ii) the U.S. tax implications of our foreign operations is a significant component of our effective tax rate each year and generally offsets some of the reduction to our effective tax rate each year resulting from the jurisdictional location of earnings; (iii) the impact of certain tax initiatives; and (iv) the impact of changes in uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions” is a component of our effective tax rate each year that can result in either an increase or decrease to our effective tax rate. The jurisdictional mix of earnings, which includes the impact of the location of earnings as well as the U.S. tax cost on our international operations, can vary as a result of operating fluctuations in the normal course of business and as a result of the extent and location of other income and expense items, such as restructuring charges, asset impairments and gains and losses on strategic business decisions. See also Note 5A for the components of pre-tax income and Provision/(benefit) for taxes on income, which is based on the location of the taxing authorities, and for information about settlements and other items impacting Provision/(benefit) for taxes on income. (b)In all years, the reduction in our effective tax rate is a result of the jurisdictional location of earnings and is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and, to a lesser extent, in Puerto Rico. We benefit from Puerto Rican tax incentives pursuant to a grant that expires during 2053. Under such grant, we are partially exempt from income, property and municipal taxes. In Singapore, we benefit from incentive tax rates effective through 2048 on income from manufacturing and other operations.
(d)The higher rate benefit from the Foreign-Derived Intangible Income deduction in 2022 is mainly the result of the TCJA requirement to capitalize R&D costs for tax years beginning after December 31, 2021.
(e)Includes changes in interest related to our uncertain tax positions not included in the reconciling item called “Tax settlements and resolution of certain tax positions”.
(f)All other, net is primarily due to routine business operations.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 69 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Deferred Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Components of our deferred tax assets and liabilities, shown before jurisdictional netting, follow: |
| | 2022 Deferred Tax* | | 2021 Deferred Tax* |
(MILLIONS) | | Assets | | (Liabilities) | | Assets | | (Liabilities) |
Prepaid/deferred items | | $ | 1,768 | | | $ | (533) | | | $ | 1,889 | | | $ | (456) | |
Accrued/deferred royalties | | 2,127 | | | — | | | 777 | | | — | |
Inventories | | 672 | | | (262) | | | 408 | | | (56) | |
Intangible assets(a) | | 1,445 | | | (6,288) | | | 1,542 | | | (4,577) | |
Property, plant and equipment | | 112 | | | (1,845) | | | 117 | | | (1,647) | |
Employee benefits(b) | | 1,314 | | | (276) | | | 1,594 | | | (178) | |
Restructurings and other charges | | 302 | | | — | | | 303 | | | — | |
Legal and product liability reserves | | 385 | | | — | | | 373 | | | — | |
Research and development(c) | | 4,137 | | | — | | | 1,656 | | | — | |
Net operating loss/tax credit carryforwards(d), (e) | | 2,224 | | | — | | | 1,431 | | | — | |
Unremitted earnings | | — | | | (51) | | | — | | | (45) | |
State and local tax adjustments | | 151 | | | — | | | 197 | | | — | |
Investments(f) | | 91 | | | (208) | | | 70 | | | (689) | |
All other | | 78 | | | (56) | | | 89 | | | (68) | |
| | 14,806 | | | (9,519) | | | 10,446 | | | (7,714) | |
Valuation allowances | | (1,541) | | | — | | | (1,462) | | | — | |
Total deferred taxes | | $ | 13,265 | | | $ | (9,519) | | | $ | 8,983 | | | $ | (7,714) | |
Net deferred tax asset/(liability)(g) | | $ | 3,746 | | | | | $ | 1,269 | | | |
*The deferred tax assets and liabilities associated with global intangible low-taxed income are included in the relevant categories. See Note 1Q. (a)The increase in net deferred tax liabilities in 2022 is primarily due to the acquisition of intangible assets related to GBT, Arena and Biohaven, partially offset by the amortization of intangible assets and certain impairment charges.
(b)The decrease in net deferred tax assets in 2022 is primarily due to changes in pension and postretirement benefit obligations, as well as the performance of plan assets reported in the period. See Note 11. (c)The increase in deferred tax assets in 2022 is related to the TCJA requirement to capitalize R&D costs for tax years beginning after December 31,2021.
(d)The increase in deferred tax assets in 2022 is primarily due to the acquisition of net operating loss carryforwards and credit carryforwards related to Arena, GBT and Biohaven. See Note 2A. (e)The amounts in 2022 and 2021 are reduced for unrecognized tax benefits of $1.2 billion and $3.0 billion, respectively, where we have net operating loss carryforwards, similar tax losses, and/or tax credit carryforwards that are available, under the tax law of the applicable jurisdiction, to settle any additional income taxes that would result from the disallowance of a tax position.
(f)The decrease in net deferred tax liabilities in 2022 is primarily due to the impact of foreign currency translation adjustments related to our equity-method investment in Haleon/the Consumer Healthcare JV. See Note 2C. (g)In 2022, Noncurrent deferred tax assets and other noncurrent tax assets ($4.8 billion), and Noncurrent deferred tax liabilities ($1.0 billion). In 2021, Noncurrent deferred tax assets and other noncurrent tax assets ($1.6 billion), and Noncurrent deferred tax liabilities ($0.3 billion).
We have carryforwards, primarily related to net operating and capital losses, general business credits, foreign tax credits and charitable contributions, which are available to reduce future U.S. federal and/or state, as well as international, income taxes payable with either an indefinite life or expiring at various times from 2023 to 2042. Certain of our U.S. net operating losses and general business credits are subject to limitations under IRC Section 382.
As of December 31, 2022, we have not made a U.S. tax provision on $60.0 billion of unremitted earnings of our international subsidiaries. As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2022 is not practicable. The amount of indefinitely reinvested earnings is based on estimates and assumptions and subject to management evaluation, and is subject to change in the normal course of business based on operational cash flow, completion of local statutory financial statements and the finalization of tax returns and audits, among other things. Accordingly, we regularly update our earnings and profits analysis for such events.
D. Tax Contingencies
For a description of our accounting policies associated with accounting for income tax contingencies, see Note 1Q. Uncertain Tax Positions
As tax law is complex and often subject to varied interpretations, it is uncertain whether some of our tax positions will be sustained upon audit. As of December 31, 2022, we had $2.9 billion and as of December 31, 2021, we had $4.5 billion in net unrecognized tax benefits, excluding associated interest.
•Tax assets for uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction. As of December 31, 2022, we had $1.5 billion in assets associated with uncertain tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.5 billion) and Other taxes payable ($45 million). As of December 31, 2021, we had $1.5 billion in assets associated with uncertain
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 70 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
tax positions. These amounts were included in Noncurrent deferred tax assets and other noncurrent tax assets ($1.4 billion) and Other taxes payable ($105 million).
•Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.
| | | | | | | | | | | | | | | | | | | | |
The reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows: |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Balance, beginning | | $ | (6,068) | | | $ | (5,595) | | | $ | (5,381) | |
Acquisitions | | (52) | | | — | | | 37 | |
Divestitures(a) | | — | | | — | | | 265 | |
Increases based on tax positions taken during a prior period(b) | | (67) | | | (111) | | | (232) | |
Decreases based on tax positions taken during a prior period(b), (c) | | 1,339 | | | 103 | | | 64 | |
Decreases based on settlements for a prior period(c),(d) | | 842 | | | 24 | | | 15 | |
Increases based on tax positions taken during the current period(b) | | (701) | | | (550) | | | (411) | |
Impact of foreign exchange | | 90 | | | 22 | | | (72) | |
Other, net(b), (e) | | 122 | | | 40 | | | 120 | |
Balance, ending(f) | | $ | (4,494) | | | $ | (6,068) | | | $ | (5,595) | |
(a)For 2020, related to the separation of Upjohn. See Note 2B. (b)Primarily included in Provision/(benefit) for taxes on income.
(c)Primarily related to effectively settling certain issues with the U.S. and foreign tax authorities. See Note 5A. (d)Primarily related to cash payments and reductions of tax attributes.
(e)Primarily related to decreases as a result of a lapse of applicable statutes of limitations.
(f)In 2022, included in Income taxes payable ($40 million), Other current assets ($3 million), Noncurrent deferred tax assets and other noncurrent tax assets ($1.2 billion), Noncurrent deferred tax liabilities ($5 million) and Other taxes payable ($3.2 billion). In 2021, included in Income taxes payable ($19 million), Other current assets ($42 million), Noncurrent deferred tax assets and other noncurrent tax assets ($3.0 billion), Noncurrent deferred tax liabilities ($5 million) and Other taxes payable ($3.0 billion).
•Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded primarily in Provision/(benefit) for taxes on income. In 2022, we recorded a net decrease in interest of $17 million. In 2021 and 2020, we recorded net increases in interest of $108 million and $89 million respectively. Gross accrued interest totaled $552 million as of December 31, 2022 (reflecting a decrease of $31 million as a result of cash payments) and gross accrued interest totaled $601 million as of December 31, 2021 (reflecting a decrease of $1 million as a result of cash payments). In 2022 and 2021, these amounts were substantially all included in Other taxes payable. Accrued penalties are not significant. See also Note 5A. Status of Tax Matters and Potential Impact on Accruals for Uncertain Tax Positions
The U.S. is one of our major tax jurisdictions, and we are regularly audited by the IRS. During the third quarter of 2022, Pfizer reached resolution of disputed issues at the IRS Independent Office of Appeals, thereby settling all issues related to U.S. tax returns of Pfizer for the years 2011-2015. With respect to Pfizer, tax years 2016-2018 are under audit. Tax years 2019-2022 are open but not under audit. All other tax years are closed. In addition to the open audit years in the U.S., we have open audit years and certain related audits, appeals and investigations in certain major international tax jurisdictions such as Canada (2017-2022), Europe (2012-2022, primarily in Ireland, the U.K., France, Italy, Spain and Germany), Asia Pacific (2012-2022, primarily in China, Japan and Singapore) and Latin America (1998-2022, primarily in Brazil).
Any settlements or statutes of limitations expirations could result in a significant decrease in our uncertain tax positions. We estimate that it is reasonably possible that within the next 12 months, our gross unrecognized tax benefits, exclusive of interest, could decrease by as much as $100 million, as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 71 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
E. Tax Provision/(Benefit) on Other Comprehensive Income/(Loss)
| | | | | | | | | | | | | | | | | | | | | | | | |
Components of the Tax provision/(benefit) on other comprehensive income/(loss) include: |
| | | | Year Ended December 31, |
(MILLIONS) | | | | | | 2022 | | 2021 | | 2020 |
Foreign currency translation adjustments, net(a) | | | | | | $ | (126) | | | $ | 43 | | | $ | (119) | |
| | | | | | | | | | |
Unrealized holding gains/(losses) on derivative financial instruments, net | | | | | | 183 | | | 84 | | | (88) | |
Reclassification adjustments for (gains)/losses included in net income | | | | | | (270) | | | 29 | | | (25) | |
| | | | | | | | | | |
| | | | | | (87) | | | 114 | | | (113) | |
Unrealized holding gains/(losses) on available-for-sale securities, net | | | | | | (164) | | | (44) | | | 45 | |
Reclassification adjustments for (gains)/losses included in net income | | | | | | 226 | | | (4) | | | (24) | |
| | | | | | | | | | |
| | | | | | 62 | | | (48) | | | 22 | |
Benefit plans: prior service (costs)/credits and other, net | | | | | | (5) | | | 27 | | | 12 | |
Reclassification adjustments related to amortization of prior service costs and other, net | | | | | | (29) | | | (47) | | | (31) | |
Reclassification adjustments related to curtailments of prior service costs and other, net | | | | | | (3) | | | (18) | | | 1 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | (37) | | | (38) | | | (17) | |
Tax provision/(benefit) on other comprehensive income/(loss) | | | | | | $ | (187) | | | $ | 71 | | | $ | (227) | |
(a)Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that are expected to be held indefinitely.
Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following summarizes the changes, net of tax, in Accumulated other comprehensive loss: |
| | Net Unrealized Gains/(Losses) | | Benefit Plans | | |
(MILLIONS) | | Foreign Currency Translation Adjustments(a) | | Derivative Financial Instruments | | Available-For-Sale Securities | | Prior Service (Costs)/ Credits and Other | | Accumulated Other Comprehensive Income/(Loss) |
Balance, January 1, 2020 | | $ | (5,936) | | | $ | 20 | | | $ | (35) | | | $ | 584 | | | $ | (5,367) | |
Other comprehensive income/(loss) | | 883 | | | (448) | | | 151 | | | (106) | | | 480 | |
Distribution of Upjohn Business(b) | | (397) | | | — | | | — | | | (26) | | | (423) | |
Balance, December 31, 2020 | | (5,450) | | | (428) | | | 116 | | | 452 | | | (5,310) | |
Other comprehensive income/(loss) | | (722) | | | 547 | | | (336) | | | (75) | | | (587) | |
Balance, December 31, 2021 | | (6,172) | | | 119 | | | (220) | | | 377 | | | (5,897) | |
Other comprehensive income/(loss) | | (2,188) | | | (531) | | | 440 | | | (129) | | | (2,407) | |
Balance, December 31, 2022 | | $ | (8,360) | | | $ | (412) | | | $ | 220 | | | $ | 248 | | | $ | (8,304) | |
(a)Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests. Foreign currency translation adjustments include net losses in 2022 and 2021 and net gains in 2020 related to our equity-method investment in Haleon/the Consumer Healthcare JV (see Note 2C), and the impact of our net investment hedging program. (b)For more information, see Note 2B.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 72 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 7. Financial Instruments
A. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis and Fair Value Hierarchy, using a Market Approach:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | | | As of December 31, 2021 |
(MILLIONS) | | Total | | Level 1 | | Level 2 | | | | Total | | Level 1 | | Level 2 |
Financial assets: | | | | | | | | | | | | | | |
Short-term investments | | | | | | | | | | | | | | |
Equity securities with readily determinable fair values: | | | | | | | | | | | | | | |
Money market funds | | $ | 1,588 | | | $ | — | | | $ | 1,588 | | | | | $ | 5,365 | | | $ | — | | | $ | 5,365 | |
| | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | |
Government and agency—non-U.S. | | 15,915 | | | — | | | 15,915 | | | | | 17,318 | | | — | | | 17,318 | |
Government and agency—U.S. | | 1,313 | | | — | | | 1,313 | | | | | 4,050 | | | — | | | 4,050 | |
Corporate and other | | 1,514 | | | — | | | 1,514 | | | | | 647 | | | — | | | 647 | |
| | 18,743 | | | — | | | 18,743 | | | | | 22,014 | | | — | | | 22,014 | |
Total short-term investments | | 20,331 | | | — | | | 20,331 | | | | | 27,379 | | | — | | | 27,379 | |
Other current assets | | | | | | | | | | | | | | |
Derivative assets: | | | | | | | | | | | | | | |
Interest rate contracts | | — | | | — | | | — | | | | | 4 | | | — | | | 4 | |
Foreign exchange contracts | | 714 | | | — | | | 714 | | | | | 704 | | | — | | | 704 | |
Total other current assets | | 714 | | | — | | | 714 | | | | | 709 | | | — | | | 709 | |
Long-term investments | | | | | | | | | | | | | | |
Equity securities with readily determinable fair values(a) | | 2,836 | | | 2,823 | | | 13 | | | | | 3,876 | | | 3,849 | | | 27 | |
| | | | | | | | | | | | | | |
Available-for-sale debt securities: | | | | | | | | | | | | | | |
Government and agency—non-U.S. | | 280 | | | — | | | 280 | | | | | 465 | | | — | | | 465 | |
Government and agency—U.S. | | — | | | — | | | — | | | | | 6 | | | — | | | 6 | |
Corporate and other | | 72 | | | — | | | 72 | | | | | 50 | | | — | | | 50 | |
| | 352 | | | — | | | 352 | | | | | 521 | | | — | | | 521 | |
Total long-term investments | | 3,188 | | | 2,823 | | | 365 | | | | | 4,397 | | | 3,849 | | | 548 | |
Other noncurrent assets | | | | | | | | | | | | | | |
Derivative assets: | | | | | | | | | | | | | | |
Interest rate contracts | | — | | | — | | | — | | | | | 16 | | | — | | | 16 | |
Foreign exchange contracts | | 364 | | | — | | | 364 | | | | | 242 | | | — | | | 242 | |
Total derivative assets | | 364 | | | — | | | 364 | | | | | 259 | | | — | | | 259 | |
Insurance contracts(b) | | 665 | | | — | | | 665 | | | | | 808 | | | — | | | 808 | |
Total other noncurrent assets | | 1,028 | | | — | | | 1,028 | | | | | 1,067 | | | — | | | 1,067 | |
Total assets | | $ | 25,261 | | | $ | 2,823 | | | $ | 22,439 | | | | | $ | 33,552 | | | $ | 3,849 | | | $ | 29,703 | |
| | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | |
Other current liabilities | | | | | | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | | | | | |
Interest rate contracts | | $ | 10 | | | $ | — | | | $ | 10 | | | | | $ | — | | | $ | — | | | $ | — | |
Foreign exchange contracts | | 694 | | | — | | | 694 | | | | | 476 | | | — | | | 476 | |
Total other current liabilities | | 704 | | | — | | | 704 | | | | | 476 | | | — | | | 476 | |
Other noncurrent liabilities | | | | | | | | | | | | | | |
Derivative liabilities: | | | | | | | | | | | | | | |
Interest rate contracts | | 321 | | | — | | | 321 | | | | | — | | | — | | | — | |
Foreign exchange contracts | | 864 | | | — | | | 864 | | | | | 405 | | | — | | | 405 | |
Total other noncurrent liabilities | | 1,185 | | | — | | | 1,185 | | | | | 405 | | | — | | | 405 | |
Total liabilities | | $ | 1,889 | | | $ | — | | | $ | 1,889 | | | | | $ | 881 | | | $ | — | | | $ | 881 | |
(a)Long-term equity securities of $143 million as of December 31, 2022 and $194 million as of December 31, 2021 were held in restricted trusts for U.S. non-qualified employee benefit plans.
(b)Includes life insurance policies held in restricted trusts for U.S. non-qualified employee benefit plans. The underlying invested assets in these contracts are marketable securities, which are carried at fair value, with changes in fair value recognized in Other (income)/deductions—net (see Note 4). Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis––The carrying value of Long-term debt, excluding the current portion was $33 billion as of December 31, 2022 and $36 billion as of December 31, 2021. The estimated fair value of such debt, using a market approach and Level 2 inputs, was $30 billion as of December 31, 2022 and $42 billion as of December 31, 2021.
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Pfizer Inc. | 2022 Form 10-K | 73 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities, long-term receivables and short-term borrowings not measured at fair value on a recurring basis were not significant as of December 31, 2022 and 2021. The fair value measurements of our held-to-maturity debt securities and short-term borrowings are based on Level 2 inputs. The fair value measurements of our long-term receivables and private equity securities are based on Level 3 inputs.
B. Investments
Total Short-Term, Long-Term and Equity-Method Investments
| | | | | | | | | | | | | | |
The following summarizes our investments by classification type: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
Short-term investments | | | | |
Equity securities with readily determinable fair values(a) | | $ | 1,588 | | | $ | 5,365 | |
Available-for-sale debt securities | | 18,743 | | | 22,014 | |
Held-to-maturity debt securities | | 1,985 | | | 1,746 | |
Total Short-term investments | | $ | 22,316 | | | $ | 29,125 | |
| | | | |
Long-term investments | | | | |
Equity securities with readily determinable fair values(b) | | $ | 2,836 | | | $ | 3,876 | |
Available-for-sale debt securities | | 352 | | | 521 | |
Held-to-maturity debt securities | | 48 | | | 34 | |
Private equity securities at cost(b) | | 800 | | | 623 | |
Total Long-term investments | | $ | 4,036 | | | $ | 5,054 | |
Equity-method investments | | 11,033 | | | 16,472 | |
Total long-term investments and equity-method investments | | $ | 15,069 | | | $ | 21,526 | |
Held-to-maturity cash equivalents | | $ | 679 | | | $ | 268 | |
(a)Includes money market funds primarily invested in U.S. Treasury and government debt.
(b)Represent investments in the life sciences sector.
Debt Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2022, our investment portfolio consisted of debt securities issued across diverse governments, corporate and financial institutions, which are investment-grade. The contractual or estimated maturities, are as follows: |
| | As of December 31, 2022 | As of December 31, 2021 |
| | | | Gross Unrealized | | | | Maturities (in Years) | | | Gross Unrealized | | |
(MILLIONS) | | Amortized Cost | | Gains | | Losses | | Fair Value | | Within 1 | | Over 1 to 5 | | Over 5 | | Amortized Cost | | Gains | | Losses | | Fair Value |
Available-for-sale debt securities | | | | | | | | | | | | | | | | | | | | | | |
Government and agency––non-U.S. | | $ | 15,946 | | | $ | 297 | | | $ | (48) | | | $ | 16,195 | | | $ | 15,915 | | | $ | 280 | | | $ | — | | | $ | 18,032 | | | $ | 13 | | | $ | (263) | | | $ | 17,783 | |
Government and agency––U.S. | | 1,313 | | | — | | | — | | | 1,313 | | | 1,313 | | | — | | | — | | | 4,056 | | | — | | | (1) | | | 4,055 | |
Corporate and other | | 1,584 | | | 7 | | | (4) | | | 1,586 | | | 1,514 | | | 72 | | | — | | | 698 | | | — | | | (1) | | | 697 | |
Held-to-maturity debt securities | | | | | | | | | | | | | | | | | | | | | | |
Time deposits and other | | 1,171 | | | — | | | — | | | 1,171 | | | 1,127 | | | 20 | | | 24 | | | 947 | | | — | | | — | | | 947 | |
Government and agency––non-U.S. | | 1,542 | | | — | | | — | | | 1,542 | | | 1,538 | | | 3 | | | 1 | | | 1,102 | | | — | | | — | | | 1,102 | |
Total debt securities | | $ | 21,556 | | | $ | 304 | | | $ | (53) | | | $ | 21,807 | | | $ | 21,407 | | | $ | 375 | | | $ | 25 | | | $ | 24,835 | | | $ | 14 | | | $ | (265) | | | $ | 24,584 | |
Any expected credit losses to these portfolios would be immaterial to our financial statements.
Equity Securities
| | | | | | | | | | | | | | | | | | | | |
The following presents the calculation of the portion of unrealized (gains)/losses that relates to equity securities, excluding equity-method investments, held at the reporting date: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Net (gains)/losses recognized during the period on equity securities(a) | | $ | 1,273 | | | $ | (1,344) | | | $ | (540) | |
Less: Net (gains)/losses recognized during the period on equity securities sold during the period | | (126) | | | (80) | | | (24) | |
Net unrealized (gains)/losses during the reporting period on equity securities still held at the reporting date(b) | | $ | 1,400 | | | $ | (1,264) | | | $ | (515) | |
(a)Reported in Other (income)/deductions––net. See Note 4. (b)Included in net unrealized (gains)/losses are observable price changes on equity securities without readily determinable fair values. As of December 31, 2022, there were cumulative impairments and downward adjustments of $193 million and upward adjustments of $203 million. Impairments, downward and upward adjustments were not significant in 2022, 2021 and 2020.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 74 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Short-Term Borrowings
| | | | | | | | | | | | | | |
Short-term borrowings include: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
| | | | |
Current portion of long-term debt, principal amount | | $ | 2,550 | | | $ | 1,636 | |
Other short-term borrowings, principal amount(a) | | 385 | | | 605 | |
Total short-term borrowings, principal amount | | 2,935 | | | 2,241 | |
Net fair value adjustments | | 10 | | | — | |
| | | | |
Total Short-term borrowings, including current portion of long-term debt, carried at historical proceeds, as adjusted | | $ | 2,945 | | | $ | 2,241 | |
(a)Primarily includes cash collateral. See Note 7F. As of December 31, 2022, we had access to a $7 billion committed U.S. revolving credit facility, which may be used for general corporate purposes including to support our commercial paper borrowings. Lenders under this facility have approximately $700 million of commitments maturing in November 2026 and $6.3 billion of commitments maturing in November 2027. In addition to the U.S. revolving credit facility, our lenders have provided us an additional $321 million in lines of credit, of which $292 million expire within one year. Essentially all lines of credit were unused as of December 31, 2022.
D. Long-Term Debt
| | | | | | | | | | | | | | |
The following outlines our senior unsecured long-term debt* and the weighted-average stated interest rate by maturity: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
Notes due 2023 (3.2% for 2021)(a) | | $ | — | | | $ | 2,550 | |
Notes due 2024 (3.9% for 2022 and 2021) | | 2,250 | | | 2,250 | |
Notes due 2025 (0.8% for 2022 and 2021) | | 750 | | | 750 | |
Notes due 2026 (2.9% for 2022 and 2021) | | 3,000 | | | 3,000 | |
Notes due 2027 (2.1% for 2022 and 2021) | | 1,000 | | | 1,051 | |
Notes due 2028 (4.8% for 2022 and 2021) | | 1,660 | | | 1,660 | |
Notes due 2029-2033 (2.6% for 2022 and 2021) | | 5,000 | | | 5,000 | |
Notes due 2034-2038 (5.5% for 2022 and 2021) | | 5,517 | | | 5,585 | |
Notes due 2039-2043 (4.8% for 2022 and 4.7% for 2021) | | 7,153 | | | 7,352 | |
Notes due 2044-2048 (4.2% for 2022 and 2021) | | 3,250 | | | 3,250 | |
Notes due 2049-2053 (3.4% for 2022 and 2021) | | 2,500 | | | 2,500 | |
Total long-term debt, principal amount | | 32,080 | | | 34,948 | |
Net fair value adjustments related to hedging and purchase accounting | | 959 | | | 1,438 | |
Net unamortized discounts, premiums and debt issuance costs | | (175) | | | (195) | |
Other long-term debt | | 20 | | | 4 | |
Total long-term debt, carried at historical proceeds, as adjusted | | $ | 32,884 | | | $ | 36,195 | |
Current portion of long-term debt, carried at historical proceeds, as adjusted (not included above (3.7% for 2022 and 1.0% for 2021)) | | $ | 2,560 | | | $ | 1,636 | |
*Our long-term debt is generally redeemable by us at any time at varying redemption prices plus accrued and unpaid interest.
(a)Reclassified to the current portion of long-term debt.
Issuances—In August 2021, we completed a public offering of $1.0 billion principal amount of senior unsecured notes due 2031 at an effective interest rate of 1.79%. In May 2020, we completed a public offering of $4.0 billion aggregate principal amount of senior unsecured notes with a weighted-average effective interest rate of 2.11% and in March 2020, we completed a public offering of $1.25 billion aggregate principal amount of senior unsecured notes with a weighted-average effective interest rate of 2.67%.
Retirements—In November 2020, we repurchased all $1.15 billion and $342 million principal amount outstanding of the 1.95% senior unsecured notes that were due in June 2021 and 5.80% senior unsecured notes that were due in August 2023 and recorded a total net loss of $36 million in Other (income)/deductions––net. See Note 2B. In March 2020, we repurchased at par all $1.065 billion principal amount outstanding of our senior unsecured notes due in 2047. E. Derivative Financial Instruments and Hedging Activities
Foreign Exchange Risk––A significant portion of our revenues, earnings and net investments in foreign affiliates is exposed to changes in foreign exchange rates. Where foreign exchange risk is not offset by other exposures, we manage our foreign exchange risk principally through the use of derivative financial instruments and foreign currency debt. These financial instruments serve to mitigate the impact on net income as a result of remeasurement into another currency, or against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.
The derivative financial instruments primarily hedge or offset exposures in the euro, U.K. pound, Japanese yen, and Canadian dollar, and include a portion of our forecasted foreign exchange-denominated intercompany inventory sales hedged up to two years. We may seek to protect against possible declines in the reported net investments of our foreign business entities.
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Pfizer Inc. | 2022 Form 10-K | 75 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Changes in fair value are reported in earnings or in Other comprehensive income/(loss), depending on the nature and purpose of the financial instrument (hedge or offset relationship). For certain foreign exchange contracts, we exclude an amount from the assessment of hedge effectiveness and recognize the excluded amount through an amortization approach in earnings. The hedge relationships are as follows:
•Generally, we recognize the gains and losses on foreign exchange contracts that are designated as fair value hedges in earnings upon the recognition of the change in fair value of the hedged item. We also recognize the offsetting foreign exchange impact attributable to the hedged item in earnings.
•Generally, we record in Other comprehensive income/(loss) gains or losses on foreign exchange contracts that are designated as cash flow hedges and reclassify those amounts into earnings in the same period or periods during which the hedged transaction affects earnings.
•We record in Other comprehensive income/(loss) ––Foreign currency translation adjustments, net the foreign exchange gains and losses related to foreign exchange-denominated debt and foreign exchange contracts designated as a hedge of our net investments in foreign subsidiaries and reclassify those amounts into earnings upon the sale or substantial liquidation of our net investments.
•For foreign exchange contracts not designated as hedging instruments, we recognize the gains and losses immediately into earnings along with the earnings impact of the items they generally offset. These contracts take the opposite currency position of that reflected on the balance sheet to counterbalance the effect of any currency movement.
Interest Rate Risk––Our interest-bearing investments and borrowings are subject to interest rate risk. Depending on market conditions, we may change the profile of our outstanding debt or investments by entering into derivative financial instruments like interest rate swaps, either to hedge or offset the exposure to changes in the fair value of hedged items with fixed interest rates, or to convert variable rate debt or investments to fixed rates. The derivative financial instruments primarily hedge U.S. dollar fixed-rate debt.
We recognize the change in fair value on interest rate contracts that are designated as fair value hedges in earnings, as well as the offsetting earnings impact of the hedged risk attributable to the hedged item.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following summarizes the fair value of the derivative financial instruments and notional amounts: |
(MILLIONS) | | As of December 31, 2022 | | As of December 31, 2021 |
| | | | Fair Value | | | | Fair Value |
| | Notional | | Asset | | Liability | | Notional | | Asset | | Liability |
Derivatives designated as hedging instruments: | | | | | | | | | | | | |
Foreign exchange contracts(a) | | $ | 26,603 | | | $ | 838 | | | $ | 1,196 | | | $ | 29,576 | | | $ | 787 | | | $ | 717 | |
Interest rate contracts | | 2,250 | | | — | | | 331 | | | 2,250 | | | 21 | | | — | |
| | | | 838 | | | 1,527 | | | | | 808 | | | 717 | |
| | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | |
Foreign exchange contracts | | $ | 29,814 | | | 240 | | | 362 | | | $ | 21,419 | | | 160 | | | 164 | |
| | | | | | | | | | | | |
Total | | | | $ | 1,078 | | | $ | 1,889 | | | | | $ | 968 | | | $ | 881 | |
(a)The notional amount of outstanding foreign exchange contracts hedging our intercompany forecasted inventory sales was $4.4 billion as of December 31, 2022 and $4.8 billion as of December 31, 2021.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 76 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following summarizes information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk exposures: |
| | Gains/(Losses) Recognized in OID(a)
| | Gains/(Losses) Recognized in OCI(a) | | Gains/(Losses) Reclassified from OCI into OID and COS(a) |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Derivative Financial Instruments in Cash Flow Hedge Relationships: | | | | | | | | | | | | |
Foreign exchange contracts(b) | | $ | — | | | $ | — | | | $ | 1,296 | | | $ | 488 | | | $ | 1,916 | | | $ | (173) | |
Amount excluded from effectiveness testing and amortized into earnings(c) | | — | | | — | | | 148 | | | 38 | | | 145 | | | 38 | |
| | | | | | | | | | | | |
Derivative Financial Instruments in Fair Value Hedge Relationships: | | | | | | | | | | | | |
Interest rate contracts | | (337) | | | (7) | | | — | | | — | | | — | | | — | |
Hedged item | | 337 | | | 7 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Derivative Financial Instruments in Net Investment Hedge Relationships: | | | | | | | | | | | | |
Foreign exchange contracts | | — | | | — | | | 816 | | | 468 | | | — | | | — | |
Amount excluded from effectiveness testing and amortized into earnings(c) | | — | | | — | | | 73 | | | 52 | | | 129 | | | 109 | |
| | | | | | | | | | | | |
Non-Derivative Financial Instruments in Net Investment Hedge Relationships:(d) | | | | | | | | | | | | |
Foreign currency short-term borrowings | | — | | | — | | | 26 | | | 78 | | | — | | | — | |
Foreign currency long-term debt | | — | | | — | | | 51 | | | 86 | | | — | | | — | |
| | | | | | | | | | | | |
Derivative Financial Instruments Not Designated as Hedges: | | | | | | | | | | | | |
Foreign exchange contracts | | (1,153) | | | (192) | | | — | | | — | | | — | | | — | |
All other net(c) | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| | $ | (1,153) | | | $ | (192) | | | $ | 2,409 | | | $ | 1,210 | | | $ | 2,190 | | | $ | (25) | |
(a)OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the consolidated statements of income. COS = Cost of Sales, included in Cost of sales in the consolidated statements of income. OCI = Other comprehensive income/(loss), included in the consolidated statements of comprehensive income.
(b)The amounts reclassified from OCI into COS were a net gain of $375 million in 2022 and a net loss of $89 million in 2021. The remaining amounts were reclassified from OCI into OID. Based on year-end foreign exchange rates that are subject to change, we expect to reclassify a pre-tax loss of $107 million within the next 12 months into income. The maximum length of time over which we are hedging our exposure to the variability in future foreign exchange cash flows is approximately 20 years and relates to foreign currency debt.
(c)The amounts reclassified from OCI were reclassified into OID.
(d)Short-term borrowings and long-term debt include foreign currency borrowings which are used as net investment hedges. The short-term borrowings’ carrying value as of December 31, 2021 was $1.1 billion. The long-term debt carrying values as of December 31, 2022 and December 31, 2021 were $795 million and $844 million, respectively.
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The following summarizes cumulative basis adjustments to our long-term debt in fair value hedges: |
| | As of December 31, 2022 | | As of December 31, 2021 |
| | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount | | | | Cumulative Amount of Fair Value Hedging Adjustment Increase/(Decrease) to Carrying Amount |
(MILLIONS) | | Carrying Amount of Hedged Assets/Liabilities(a) | | Active Hedging Relationships | | Discontinued Hedging Relationships | | Carrying Amount of Hedged Assets/Liabilities(a) | | Active Hedging Relationships | | Discontinued Hedging Relationships |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Short-term borrowings, including current portion of long-term debt | | $ | — | | | $ | — | | | $ | 10 | | | $ | — | | | $ | — | | | $ | — | |
Long-term debt | | $ | 2,235 | | | $ | (321) | | | $ | 1,042 | | | $ | 2,233 | | | $ | 16 | | | $ | 1,154 | |
(a)Carrying amounts exclude the cumulative amount of fair value hedging adjustments.
F. Credit Risk
On an ongoing basis, we monitor and review the credit risk of our customers, financial institutions and exposures in our investment portfolio.
With respect to our trade accounts receivable, we monitor the creditworthiness of our customers to which we grant credit in the normal course of business. In general, there is no requirement for collateral from customers. For additional information on our trade accounts receivable and
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Pfizer Inc. | 2022 Form 10-K | 77 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
allowance for credit losses, see Note 1G. A significant portion of our trade accounts receivable balances are due from wholesalers and governments. For additional information on our trade accounts receivables with significant customers, see Note 17C. With respect to our investments, we monitor concentrations of credit risk associated with government, government agency, and corporate issuers of securities. Investments are placed in instruments that are investment grade and are primarily short in duration. Exposure limits are established to limit a concentration with any single credit counterparty. As of December 31, 2022, the largest investment exposures in our portfolio represent primarily sovereign debt instruments issued by the Netherlands, Canada, Germany, Japan, the U.K., the U.S., and France.
With respect to our derivative financial instrument agreements with financial institutions, we do not expect to incur a significant loss from failure of any counterparty. Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements with credit-support annexes that contain zero threshold provisions requiring collateral to be exchanged daily depending on levels of exposure. As a result, there are no significant concentrations of credit risk with any individual financial institution. As of December 31, 2022, the aggregate fair value of these derivative financial instruments that are in a net payable position was $888 million, for which we have posted collateral of $901 million with a corresponding amount reported in Short-term investments. As of December 31, 2022, the aggregate fair value of our derivative financial instruments that are in a net receivable position was $435 million, for which we have received collateral of $337 million with a corresponding amount reported in Short-term borrowings, including current portion of long-term debt.
Note 8. Other Financial Information
A. Inventories
| | | | | | | | | | | | | | |
The following summarizes the components of Inventories: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
Finished goods | | $ | 2,603 | | | $ | 3,641 | |
Work-in-process | | 5,519 | | | 4,424 | |
Raw materials and supplies | | 859 | | | 994 | |
Inventories(a) | | $ | 8,981 | | | $ | 9,059 | |
Noncurrent inventories not included above(b) | | $ | 5,827 | | | $ | 939 | |
(a)The decrease from December 31, 2021 reflects lower levels of Comirnaty, partially offset by new products acquired through recent acquisitions and higher Paxlovid inventory levels.
(b)Included in Other noncurrent assets. The increase from December 31, 2021 is primarily due to strategic inventory build related to Paxlovid. Based on our current estimates and assumptions, there are no recoverability issues for these amounts.
B. Other Current Liabilities
Other current liabilities includes, among other things, amounts payable to BioNTech for the gross profit split for Comirnaty, which totaled $5.2 billion as of December 31, 2022 and $9.7 billion as of December 31, 2021.
Note 9. Property, Plant and Equipment (PP&E)
| | | | | | | | | | | | | | | | | | | | |
The following summarizes the components of Property, plant and equipment: |
| | Useful Lives | | As of December 31, |
(MILLIONS) | | (Years) | | 2022 | | 2021 |
Land | | - | | $ | 368 | | | $ | 423 | |
Buildings | | 33-50 | | 8,832 | | | 9,001 | |
Machinery and equipment | | 8-20 | | 12,881 | | | 12,252 | |
Furniture, fixtures and other | | 3-12.5 | | 4,491 | | | 4,457 | |
Construction in progress | | - | | 4,875 | | | 3,822 | |
| | | | 31,448 | | | 29,955 | |
Less: Accumulated depreciation | | | | 15,174 | | | 15,074 | |
Property, plant and equipment | | | | $ | 16,274 | | | $ | 14,882 | |
| | | | | | | | | | | | | | |
The following provides long-lived assets by geographic area: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
United States | | $ | 9,179 | | | $ | 8,385 | |
Developed Europe | | 5,389 | | | 5,094 | |
Developed Rest of World | | 293 | | | 347 | |
Emerging Markets | | 1,413 | | | 1,056 | |
Property, plant and equipment | | $ | 16,274 | | | $ | 14,882 | |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 78 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 10. Identifiable Intangible Assets and Goodwill
A. Identifiable Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following summarizes the components of Identifiable intangible assets: |
| | As of December 31, 2022 | | As of December 31, 2021 |
(MILLIONS) | | Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, less Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, less Accumulated Amortization |
Finite-lived intangible assets | | | | | | | | | | | | |
Developed technology rights(a) | | $ | 85,604 | | | $ | (56,307) | | | $ | 29,297 | | | $ | 73,346 | | | $ | (53,732) | | | $ | 19,614 | |
Brands | | 922 | | | (844) | | | 78 | | | 922 | | | (807) | | | 115 | |
Licensing agreements and other | | 2,237 | | | (1,397) | | | 841 | | | 2,284 | | | (1,299) | | | 985 | |
| | 88,763 | | | (58,548) | | | 30,215 | | | 76,552 | | | (55,838) | | | 20,714 | |
Indefinite-lived intangible assets | | | | | | | | | | | | |
Brands | | 827 | | | | | 827 | | | 827 | | | | | 827 | |
IPR&D(b) | | 11,357 | | | | | 11,357 | | | 3,092 | | | | | 3,092 | |
| | | | | | | | | | | | |
Licensing agreements and other(b) | | 971 | | | | | 971 | | | 513 | | | | | 513 | |
| | 13,155 | | | | | 13,155 | | | 4,432 | | | | | 4,432 | |
Identifiable intangible assets(c) | | $ | 101,919 | | | $ | (58,548) | | | $ | 43,370 | | | $ | 80,984 | | | $ | (55,838) | | | $ | 25,146 | |
(a)The increase in the gross carrying amounts mainly reflect the impact of the acquisitions of Biohaven and GBT (see Note 2A). (b)The increase in the gross carrying amounts mainly reflect the impact of the acquisitions of Arena, GBT and Biohaven (see Note 2A), and for IPR&D, is partially offset by an impairment (see Note 4). (c)The increase is primarily due to acquisitions (see Note 2A), partially offset by amortization expense. Developed Technology Rights––Developed technology rights represent the cost for developed technology acquired from third parties and can include the right to develop, use, market, sell and/or offer for sale the product, compounds and intellectual property that we have acquired with respect to products, compounds and/or processes that have been completed. We possess a well-diversified portfolio of hundreds of developed technology rights across therapeutic categories, representing our commercialized products. The significant components of developed technology rights are the following: Nurtec ODT/Vydura, Xtandi, Prevnar family, Braftovi/Mektovi, Oxbryta, Premarin, Eucrisa, Orgovyx, Zavicefta, Bavencio and Merrem/Meronem. Also included in this category are the post-approval milestone payments made under our alliance agreements for certain prescription pharmaceutical products.
Brands––Brands represent the cost for tradenames and know-how, as the products themselves do not receive patent protection. Indefinite-lived brands include Medrol and Depo-Medrol, while finite-lived brands include Zavedos and Depo-Provera.
IPR&D––IPR&D assets represent R&D assets acquired through business combinations that have not yet received regulatory approval in a major market. The significant components of IPR&D are etrasimod, GBT601, talazoparib, Braftovi/Mektovi and zavegepant. IPR&D assets are required to be classified as indefinite-lived assets until the successful completion or the abandonment of the associated R&D effort. Accordingly, during the development period after the date of acquisition, these assets are not amortized until approval is obtained in a major market, typically either the U.S. or the EU, or in a series of other countries, subject to certain specified conditions and management judgment. At that time, we will determine the useful life of the asset, reclassify it out of IPR&D and begin amortization. If the associated R&D effort is abandoned, the related IPR&D assets will be written-off, and we will record an impairment charge. IPR&D assets are high-risk assets, given the uncertain nature of R&D. Accordingly, IPR&D assets may become impaired and/or be written-off in the future.
Licensing Agreements––Licensing agreements for developed technology and for technology in development primarily relate to out-licensing arrangements acquired from third parties, including the Array and Arena acquisition. These assets represent the cost for the license, where we acquired the right to future royalties and/or milestones upon development or commercialization by the licensing partner. A significant component of the licensing arrangements are for out-licensing arrangements with a number of partners for oncology technology in varying stages of development that have not yet received regulatory approval in a major market. Accordingly, during the development period after the date of acquisition, each of these assets is classified as indefinite-lived intangible assets and will not be amortized until approval is obtained in a major market. At that time we will determine the useful life of the asset, reclassify the respective licensing arrangement asset to finite-lived intangible asset and begin amortization. If the development effort is abandoned, the related licensing asset will be written-off, and we will record an impairment charge.
Amortization––The weighted-average life for each of our total finite-lived intangible assets is approximately 9 years, and for the largest component, developed technology rights, is approximately 8 years. Total amortization expense for finite-lived intangible assets was $3.6 billion in 2022, $3.7 billion in 2021 and $3.4 billion in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following provides the expected annual amortization expense: |
(MILLIONS) | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
Amortization expense | | $ | 4,223 | | | $ | 3,981 | | | $ | 3,780 | | | $ | 3,714 | | | $ | 3,503 | |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 79 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
B. Goodwill
| | | | | | | | | | | | | | | | |
The following summarizes the changes in the carrying amount of Goodwill: |
(MILLIONS) | | | | | | | | | | Total(a) |
Balance, January 1, 2021 | | | | | | | | | | $ | 49,556 | |
Additions | | | | | | | | | | — | |
Impact of foreign exchange | | | | | | | | | | (348) | |
Balance, December 31, 2021 | | | | | | | | | | 49,208 | |
Additions(b) | | | | | | | | | | 2,917 | |
Impact of foreign exchange | | | | | | | | | | (750) | |
Balance, December 31, 2022 | | | | | | | | | | $ | 51,375 | |
(a)As a result of the organizational changes to the commercial structure within the Biopharma operating segment effective in the third quarter of 2022 (see Note 1A), our goodwill was required to be reallocated amongst impacted reporting units. The allocation of goodwill is a complex process that requires, among other things, that we determine the fair value of each reporting unit under our old and new organizational structure and the portions being transferred. We completed this re-allocation during the fourth quarter 2022 and concluded that none of our goodwill was impaired. Our goodwill balance continues to be assigned within the Biopharma reportable segment. (b)Additions relate to our acquisitions of GBT, Arena and Biohaven. See Note 2A. Note 11. Pension and Postretirement Benefit Plans and Defined Contribution Plans
The majority of our employees worldwide are eligible for retirement benefits provided through defined benefit pension plans, defined contribution plans or both. In the U.S., we sponsor both IRC-qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans. A qualified plan meets the requirements of certain sections of the IRC, and, generally, contributions to qualified plans are tax deductible. A qualified plan typically provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. A supplemental (non-qualified) plan provides additional benefits to certain employees. In addition, we provide medical insurance benefits to certain retirees and their eligible dependents through our postretirement plans.
A. Components of Net Periodic Benefit Costs and Changes in Other Comprehensive Income/(Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following summarizes the components of net periodic benefit cost/(credit), including those reported as part of discontinued operations for 2020, and the changes in Other comprehensive income/(loss) for our benefit plans: |
| | |
| | Pension Plans | | Postretirement Plans |
| | U.S. | | International | | |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Service cost | | $ | — | | | $ | — | | | $ | — | | | $ | 116 | | | $ | 130 | | | $ | 146 | | | $ | 29 | | | $ | 36 | | | $ | 38 | |
Interest cost | | 534 | | | 455 | | | 533 | | | 157 | | | 146 | | | 164 | | | 27 | | | 29 | | | 49 | |
Expected return on plan assets | | (862) | | | (1,052) | | | (1,015) | | | (296) | | | (327) | | | (314) | | | (47) | | | (39) | | | (36) | |
Amortization of prior service cost/(credit) | | 2 | | | (2) | | | (3) | | | (1) | | | (1) | | | (3) | | | (130) | | | (151) | | | (170) | |
Actuarial (gains)/losses(a) | | 225 | | | (684) | | | 1,152 | | | (11) | | | (690) | | | 148 | | | (440) | | | (167) | | | (165) | |
Curtailments | | — | | | — | | | — | | | (11) | | | (4) | | | — | | | (18) | | | (82) | | | — | |
Special termination benefits | | 18 | | | 17 | | | 1 | | | 1 | | | — | | | — | | | 1 | | | 2 | | | — | |
Net periodic benefit cost/(credit) reported in income | | (84) | | | (1,265) | | | 668 | | | (45) | | | (746) | | | 141 | | | (578) | | | (372) | | | (282) | |
Cost/(credit) reported in Other comprehensive income/(loss) | | (2) | | | 2 | | | 5 | | | (1) | | | 4 | | | 5 | | | 169 | | | 107 | | | 114 | |
Cost/(credit) recognized in Comprehensive income | | $ | (86) | | | $ | (1,264) | | | $ | 674 | | | $ | (46) | | | $ | (742) | | | $ | 145 | | | $ | (410) | | | $ | (265) | | | $ | (168) | |
(a)Reflects: (i) actuarial remeasurement net gains in 2022, primarily due to increases in discount rates, partially offset by unfavorable plan asset performance, (ii) actuarial remeasurement gains in 2021, primarily due to favorable plan asset performance and increases in discount rates, and (iii) actuarial remeasurement net losses in 2020, primarily due to decreases in discount rates partially offset by favorable plan asset performance.
The components of net periodic benefit cost/(credit) other than the service cost component are primarily included in Other (income)/deductions––net (see Note 4).
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 80 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
B. Actuarial Assumptions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Postretirement Plans |
| | U.S. | | International | | |
| | Year Ended December 31, |
(PERCENTAGES) | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Weighted-average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | | | | | | | |
Discount rate: | | | | | | | | | | | | | | | | | | |
Pension plans/postretirement plans | | 2.9 | % | | 2.6 | % | | 3.3 | % | | | | | | | | 2.9 | % | | 2.5 | % | | 3.2 | % |
Interest cost | | | | | | | | 1.5 | % | | 1.2 | % | | 1.5 | % | | | | | | |
Service cost | | | | | | | | 1.7 | % | | 1.4 | % | | 1.6 | % | | | | | | |
Expected return on plan assets | | 6.3 | % | | 6.8 | % | | 7.0 | % | | 3.1 | % | | 3.4 | % | | 3.6 | % | | 6.3 | % | | 6.8 | % | | 7.0 | % |
Rate of compensation increase(a) | | | | | | | | 2.8 | % | | 2.9 | % | | 2.9 | % | | | | | | |
| | | | | | | | | | | | | | | | | | |
Weighted-average assumptions used to determine benefit obligations at fiscal year-end: | | | | | | | | | | | | | | | | | | |
Discount rate | | 5.4 | % | | 2.9 | % | | 2.6 | % | | 3.8 | % | | 1.6 | % | | 1.5 | % | | 5.5 | % | | 2.9 | % | | 2.5 | % |
Rate of compensation increase(a) | | | | | | | | 3.0 | % | | 2.8 | % | | 2.9 | % | | | | | | |
(a)The rate of compensation increase is not used to determine the net periodic benefit cost and benefit obligation for the U.S. pension plans as these plans are frozen.
All of the assumptions are reviewed at least annually. We revise these assumptions based on an annual evaluation of long-term trends as well as market conditions that may have an impact on the cost of providing retirement benefits.
The weighted-average discount rate for our U.S. defined benefit plans is set with reference to the prevailing market rate of a portfolio of high-quality fixed income investments, rated AA/Aa or better that reflect the rates at which the pension benefits could be effectively settled. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA/Aa or better, including, when there is sufficient data, a yield curve approach. These rate determinations are made consistent with local requirements. Overall, the yield curves used to measure the benefit obligations at year-end 2022 resulted in substantially higher discount rates as compared to the prior year.
| | | | | | | | | | | | | | |
The following provides the healthcare cost trend rate assumptions for our U.S. postretirement benefit plans: |
| | As of December 31, |
| | 2022 | | 2021 |
| | | | |
Healthcare cost trend rate assumed for next year | | 6.4 | % | | 6.0 | % |
| | | | |
Rate to which the cost trend rate is assumed to decline | | 4.0 | % | | 4.0 | % |
Year that the rate reaches the ultimate trend rate | | 2045 | | | 2045 | |
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 81 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Obligations and Funded Status
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following provides: (i) an analysis of the changes in our benefit obligations, plan assets and funded status of our benefit plans, (ii) the funded status recognized in our consolidated balance sheets and (iii) the pre-tax components of cumulative amounts recognized in Accumulated other comprehensive loss: |
| | Pension Plans | | Postretirement Plans |
| | U.S. | | International | | |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
Change in benefit obligation(a) | | | | | | | | | | | | |
Benefit obligation, beginning | | $ | 17,150 | | | $ | 18,306 | | | $ | 11,657 | | | $ | 12,001 | | | $ | 995 | | | $ | 1,238 | |
Service cost | | — | | | — | | | 116 | | | 130 | | | 29 | | | 36 | |
Interest cost | | 534 | | | 455 | | | 157 | | | 146 | | | 27 | | | 29 | |
Employee contributions | | — | | | — | | | 9 | | | 10 | | | 75 | | | 78 | |
Plan amendments | | — | | | — | | | — | | | — | | | 24 | | | (116) | |
Changes in actuarial assumptions and other(b) | | (4,187) | | | (331) | | | (2,931) | | | 89 | | | (593) | | | (117) | |
Foreign exchange impact | | (1) | | | — | | | (1,065) | | | (298) | | | (5) | | | 1 | |
Upjohn spin-off(c) | | — | | | — | | | 37 | | | 3 | | | — | | | — | |
Acquisitions/divestitures, net | | 61 | | | — | | | (50) | | | — | | | — | | | — | |
Curtailments and special termination benefits | | 18 | | | 17 | | | (10) | | | (2) | | | (3) | | | (8) | |
Settlements(d) | | (1,698) | | | (785) | | | (64) | | | (47) | | | (39) | | | — | |
Benefits paid | | (457) | | | (512) | | | (359) | | | (374) | | | (101) | | | (147) | |
Benefit obligation, ending(a) | | 11,420 | | | 17,150 | | | 7,497 | | | 11,657 | | | 410 | | | 995 | |
Change in plan assets | | | | | | | | | | | | |
Fair value of plan assets, beginning | | 16,346 | | | 16,094 | | | 10,729 | | | 9,811 | | | 753 | | | 588 | |
Actual return on plan assets | | (3,550) | | | 1,405 | | | (2,624) | | | 1,106 | | | (106) | | | 89 | |
Company contributions | | 230 | | | 143 | | | 156 | | | 451 | | | 65 | | | 145 | |
Employee contributions | | — | | | — | | | 9 | | | 10 | | | 75 | | | 78 | |
Foreign exchange impact | | — | | | — | | | (1,037) | | | (229) | | | — | | | — | |
Upjohn spin-off(c) | | — | | | — | | | 45 | | | 2 | | | — | | | — | |
Acquisitions/divestitures, net | | 1 | | | — | | | 9 | | | — | | | — | | | — | |
Settlements(d) | | (1,698) | | | (785) | | | (64) | | | (47) | | | (39) | | | — | |
Benefits paid | | (457) | | | (512) | | | (359) | | | (374) | | | (101) | | | (147) | |
Fair value of plan assets, ending | | 10,871 | | | 16,346 | | | 6,865 | | | 10,729 | | | 647 | | | 753 | |
Funded status | | $ | (549) | | | $ | (805) | | | $ | (632) | | | $ | (928) | | | $ | 238 | | | $ | (241) | |
Amounts recorded in our consolidated balance sheet: | | | | | | | | | | | | |
Noncurrent assets | | $ | 346 | | | $ | 447 | | | $ | 783 | | | $ | 1,480 | | | $ | 322 | | | $ | — | |
Current liabilities | | (110) | | | (138) | | | (27) | | | (33) | | | (6) | | | (6) | |
Noncurrent liabilities | | (785) | | | (1,113) | | | (1,388) | | | (2,376) | | | (78) | | | (235) | |
Funded status | | $ | (549) | | | $ | (805) | | | $ | (632) | | | $ | (928) | | | $ | 238 | | | $ | (241) | |
Pre-tax components of cumulative amounts recognized in Accumulated other comprehensive loss: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Prior service (costs)/credits | | $ | (4) | | | $ | (6) | | | $ | (34) | | | $ | (35) | | | $ | 413 | | | $ | 581 | |
Information related to the funded status of pension plans with an ABO in excess of plan assets(e): | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fair value of plan assets | | $ | 86 | | | $ | 120 | | | $ | 343 | | | $ | 1,304 | | | | | |
ABO | | 981 | | | 1,371 | | | 1,600 | | | 3,344 | | | | | |
Information related to the funded status of pension plans with a PBO in excess of plan assets(e): | | | | | | | | | | | | |
| | | | | | | | | | | | |
Fair value of plan assets | | $ | 86 | | | $ | 120 | | | $ | 1,081 | | | $ | 1,381 | | | | | |
PBO | | 981 | | | 1,371 | | | 2,496 | | | 3,789 | | | | | |
| | | | | | | | | | | | |
(a)For the U.S. pension plans, the benefit obligation is both the PBO and ABO as these plans are frozen and future benefit accruals no longer increase with future compensation increases. For the international pension plans, the benefit obligation is the PBO. The ABO for our international pension plans was $7.2 billion in 2022 and $11.2 billion in 2021. For the postretirement plans, the benefit obligation is the ABO.
(b)For both 2022 and 2021, primarily includes actuarial gains resulting from increases in discount rates, offset by increases in inflation assumptions for the international plan.
(c)For more information, see Note 2B. (d)As a result of a group annuity contract entered into between Pfizer and a third party insurance company in July 2022, the third party insurance company assumed future benefit obligations and responsibility for the annuity payments of certain retirees in the Pfizer Consolidated Pension Plan. As of December 31, 2022, $586 million of benefit obligations and $588 million of plan assets are associated with this contract. We expect to finalize the remaining regulatory approvals for this transaction in due course.
(e)Our main U.S. qualified plan, U.S. postretirement plan and many of our international plans were overfunded as of December 31, 2022.
| | | | | | | | |
Pfizer Inc. | 2022 Form 10-K | 82 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
D. Plan Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following provides the components of plan assets: |
| | | | As of December 31, 2022 | | As of December 31, 2021 |
| | | | | | Fair Value | | | | | | Fair Value | | |
(MILLIONS EXCEPT TARGET ALLOCATION PERCENTAGE) | | Target Allocation Percentage | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets Measured at NAV(a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Assets Measured at NAV(a) |
U.S. pension plans | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 0-10% | | $ | 828 | | | $ | 49 | | | $ | 779 | | | $ | — | | | $ | — | | | $ | 1,326 | | | $ | 78 | | | $ | 1,248 | | | $ | — | | | $ | — | |
Equity securities: | | 20-40% | | | | | | | | | | | | | | | | | | | | |
Global equity securities | | | | 1,555 | | | 1,553 | | | 1 | | | 1 | | | — | | | 2,273 | | | 2,233 | | | 38 | | | 2 | | | — | |
Equity commingled funds | | | | 165 | | | — | | | 165 | | | — | | | — | | | 1,352 | | | — | | | 1,152 | | | — | | | 200 | |
Fixed income securities: | | 45-75% | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | | 3,512 | | | 5 | | | 3,507 | | | — | | | — | | | 5,566 | | | 18 | | | 5,548 | | | — | | | — | |
Government and agency obligations(b) | | | | 1,772 | | | — | | | 1,772 | | | — | | | — | | | 2,533 | | | — | | | 2,533 | | | — | | | — | |
Fixed income commingled funds | | | | 16 | | | — | | | 16 | | | — | | | — | | | 38 | | | — | | | 38 | | | — | | | — | |
Other investments: | | 5-20% | | | | | | | | | | | | | | | | | | | | |
Partnership investments(c) | | | | 2,152 | | | — | | | — | | | — | | | 2,152 | | | 2,079 | | | 3 | | | — | | | — | | | 2,076 | |
Insurance contracts | | | | 116 | | | — | | | 116 | | | — | | | — | | | 158 | | | — | | | 158 | | | — | | | — | |
Other commingled funds(d) | | | | 756 | | | — | | | — | | | — | | | 756 | | | 1,019 | | | — | | | 10 | | | — | | | 1,009 | |
Total | | 100 | % | | $ | 10,871 | | | $ | 1,607 | | | $ | 6,355 | | | $ | 1 | | | $ | 2,908 | | | $ | 16,346 | | | $ | 2,332 | | | $ | 10,726 | | | $ | 2 | | | $ | 3,286 | |
International pension plans | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 0-10% | | $ | 221 | | | $ | 58 | | | $ | 163 | | | $ | — | | | $ | — | | | $ | 541 | | | $ | 191 | | | $ | 346 | | | $ | — | | | $ | 3 | |
Equity securities: | | 10-20% | | | | | | | | | | | | | | | | | | | | |
Equity commingled funds | | | | 714 | | | — | | | 672 | | | — | | | 42 | | | 1,453 | | | — | | | 1,386 | | | — | | | 67 | |
Fixed income securities: | | 45-70% | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | | 569 | | | — | | | 569 | | | — | | | — | | | 1,187 | | | — | | | 1,187 | | | — | | | — | |
Government and agency obligations(b) | | | | 862 | | | — | | | 862 | | | — | | | — | | | 2,415 | | | — | | | 2,415 | | | — | | | — | |
Fixed income commingled funds | | | | 2,053 | | | — | | | 1,045 | | | — | | | 1,008 | | | 2,266 | | | — | | | 1,138 | | | — | | | 1,128 | |
Other investments: | | 15-35% | | | | | | | | | | | | | | | | | | | | |
Partnership investments(c) | | | | 128 | | | — | | | 1 | | | — | | | 126 | | | 107 | | | — | | | 2 | | | — | | | 106 | |
Insurance contracts | | | | 1,197 | | | — | | | 54 | | | 1,143 | | | — | | | 1,329 | | | — | | | 56 | | | 1,273 | | | — | |
Other(d) | | | | 1,122 | | | — | | | 133 | | | 312 | | | 677 | | | 1,431 | | | — | | | 141 | | | 404 | | | 886 | |
Total | | 100 | % | | $ | 6,865 | | | $ | 58 | | | $ | 3,498 | | | $ | 1,455 | | | $ | 1,853 | | | $ | 10,729 | | | $ | 191 | | | $ | 6,672 | | | $ | 1,677 | | | $ | 2,189 | |
U.S. postretirement plans(e) | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 0-5% | | $ | 97 | | | $ | 1 | | | $ | 96 | | | $ | — | | | $ | — | | | $ | 85 | | | $ | 3 | | | $ | 82 | | | $ | — | | | $ | — | |
Insurance contracts | | 95-100% | | 551 | | | — | | | 551 | | | — | | | — | | | 669 | | | — | | | 669 | | | — | | | — | |
Total | | 100 | % | | $ | 647 | | | $ | 1 | | | $ | 646 | | | $ | — | | | $ | — | | | $ | 753 | | | $ | 3 | | | $ | 750 | | | $ | — | | | $ | — | |
(a)Certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The NAV amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.
(b)Government and agency obligations are inclusive of repurchase agreements.
(c)Mainly includes investments in private equity, private debt, public equity limited partnerships, and, to a lesser extent, real estate and venture capital.
(d)Mostly includes investments in hedge funds and real estate.
(e)Reflects postretirement plan assets, which support a portion of our U.S. retiree medical plans.
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The following provides an analysis of the changes in our more significant investments valued using significant unobservable inputs: |
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| | | | International Pension Plans |
| | | | | | | | | | Year Ended December 31, |
(MILLIONS) | | | | | | | | | | 2022 | | 2021 |
Fair value, beginning | | | | | | | | | | $ | 1,677 | | | $ | 1,362 | |
Actual return on plan assets: | | | | | | | | | | | | |
Assets held, ending | | | | | | | | | | (177) | | | 23 | |
Assets sold during the period | | | | | | | | | | 4 | | | — | |
Purchases, sales, and settlements, net | | | | | | | | | | (129) | | | 52 | |
Transfer into/(out of) Level 3 | | | | | | | | | | 241 | | | 265 | |
Exchange rate changes | | | | | | | | | | (161) | | | (24) | |
Fair value, ending | | | | | | | | | | $ | 1,455 | | | $ | 1,677 | |
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Pfizer Inc. | 2022 Form 10-K | 83 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The following methods and assumptions were used to estimate the fair value of our pension and postretirement plans’ assets:
•Cash and cash equivalents: Level 1 investments may include cash, cash equivalents and foreign currency valued using exchange rates. Level 2 investments may include short-term investment funds which are commingled funds priced at a stable NAV by the administrator of the funds.
•Equity securities: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 1 and Level 2 investments may include commingled funds that have a readily determinable fair value based on quoted prices on an exchange or a published NAV derived from the quoted prices in active markets of the underlying securities. Level 3 investments may include individual securities that are unlisted, delisted, suspended, or illiquid and are typically valued using their last available price.
•Fixed income securities: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 2 investments may include commingled funds that have a readily determinable fair value based on observable prices of the underlying securities. Level 2 investments may include corporate bonds, government and government agency obligations and other fixed income securities valued using bid evaluation pricing models or quoted prices of securities with similar characteristics. Level 3 investments may include securities that are valued using alternative pricing sources, such as investment managers or brokers, which use proprietary pricing models that incorporate unobservable inputs.
•Other investments: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 2 investments may include insurance contracts which invest in interest bearing cash, U.S. government securities and corporate debt instruments. Level 3 investments may include securities or insurance contracts that are valued using alternative pricing sources, such as investment managers or brokers, which use proprietary pricing models that incorporate unobservable inputs.
Equity securities, Fixed income securities and Other investments may each be combined into commingled funds. Most commingled funds are valued to reflect the interest in the fund based on the reported year-end NAV. Partnership and Other investments are valued based on year-end reported NAV (or its equivalent), with adjustments as appropriate for lagged reporting of up to three months.
Certain investments are authorized to include derivatives, such as equity or bond futures, swaps, options and currency futures or forwards for managing risks and exposures.
Global plan assets are managed with the objective of generating returns that will enable the plans to meet their future obligations, while seeking to manage net periodic benefit costs and cash contributions over the long-term. We utilize long-term asset allocation ranges in the management of our plans’ invested assets. Our long-term return expectations are developed based on a diversified, global investment strategy that takes into account historical experience, as well as the impact of portfolio diversification, active portfolio management, and our view of current and future economic and financial market conditions. As market conditions and other factors change, we may adjust our targets accordingly and our asset allocations may vary from the target allocations.
E. Cash Flows
It is our practice to fund amounts for our qualified pension plans that are at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws.
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The following provides the expected future cash flow information related to our benefit plans: |
| | Pension Plans | | Postretirement Plans |
(MILLIONS) | | U.S. | | International | | |
Expected employer contributions: | | | | | | |
2023(a) | | $ | 111 | | | $ | 147 | | | $ | (53) | |
Expected benefit payments: | | | | | | |
2023 | | $ | 982 | | | $ | 364 | | | $ | 42 | |
2024 | | 947 | | | 365 | | | 43 | |
2025 | | 920 | | | 372 | | | 44 | |
2026 | | 901 | | | 379 | | | 44 | |
2027 | | 885 | | | 392 | | | 43 | |
2028–2032 | | 4,218 | | | 2,069 | | | 192 | |
(a)For the U.S. postretirement plan, the IRC 401(h) and voluntary employees’ beneficiary association reimbursements totaling $95 million are expected to exceed expected employer contributions.
The above table reflects the total U.S. and international plan benefits projected to be paid from the plans or from our general assets under the current actuarial assumptions used for the calculation of the benefit obligation.
F. Defined Contribution Plans
We have defined contribution plans in the U.S. and other countries. For the majority of the U.S. defined contribution plans, employees may contribute a portion of their salaries and bonuses to the plans, and we match, in cash, a portion of the employee contributions. We also offer a Retirement Savings Contribution (RSC) which is an annual non-contributory employer contribution in the U.S. and Puerto Rico. We recorded charges related to the employer contributions to global defined contribution plans of $770 million in 2022, $732 million in 2021 and $685 million in 2020.
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Pfizer Inc. | 2022 Form 10-K | 84 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 12. Equity
A. Common Stock Purchases
We purchase our common stock through privately negotiated transactions or in the open market as circumstances and prices warrant. Purchased shares under a share-purchase plan, which is authorized by our BOD, are available for general corporate purposes. In December 2018, the BOD authorized a $10 billion share repurchase program to be utilized over time and share repurchases commenced thereunder in the first quarter of 2019.
In the first quarter of 2022, we purchased 39 million shares of our common stock at a cost of $2 billion under our publicly announced share purchase plan. Our remaining share-purchase authorization was approximately $3.3 billion at December 31, 2022.
B. Preferred Stock and Employee Stock Ownership Plans
Prior to May 4, 2020, we had outstanding Series A convertible perpetual preferred stock (the Series A Preferred Stock) that was held by an ESOP trust (the Trust). All outstanding shares of Series A Preferred Stock were converted, at the direction of the independent fiduciary under the Trust and in accordance with the certificate of designations for the Series A Preferred Stock, into shares of our common stock on May 4, 2020. The Trust received an aggregate of 1,070,369 shares of our common stock upon conversion, with zero shares of Series A Preferred Stock remaining outstanding as a result of the conversion. In December 2020, we filed a certificate of elimination to our restated certificate of incorporation, as amended and a restated certificate of incorporation with the Delaware Secretary of State, which eliminated the Series A Preferred Stock.
We have one ESOP that holds common stock of the Company (Common ESOP). As of December 31, 2022, all shares of common stock held by the Common ESOP have been allocated to the Pfizer U.S. defined contribution plan participants. The compensation cost related to the Common ESOP was $19 million for each of 2022, 2021 and 2020.
Note 13. Share-Based Payments
Our compensation programs can include share-based payment awards with value that is determined by reference to the fair value of our shares and that provide for the grant of shares or options to acquire shares or similar arrangements. Our share-based awards are designed based on competitive survey data or industry peer groups used for compensation purposes, and are allocated between different long-term incentive awards, generally in the form of Total Shareholder Return Units (TSRUs), Restricted Stock Units (RSUs), Portfolio Performance Shares (PPSs), Performance Share Awards (PSAs), Breakthrough Performance Awards (BPAs) and stock options, as determined by the Compensation Committee of our BOD.
The 2019 Stock Plan (2019 Plan) replaced and superseded the 2014 Plan. It provides for 400 million shares, in addition to shares remaining under the 2014 Plan, to be authorized for grants. As of December 31, 2022, no shares remain under the 2014 Plan. The 2019 Plan provides that the number of stock options, TSRUs, RSUs, or performance-based awards that may be granted to any one individual during any 36-month period is limited to 20 million shares, and that RSUs count as three shares, PPSs, PSAs and BPAs count as three shares times the maximum potential payout, while TSRUs and stock options count as one share, toward the maximum shares available under the 2019 Plan. As of December 31, 2022, 270 million shares were available for award, including 27 million shares that we assumed from the remaining shares available from the stock plans of GBT, Arena and Biohaven which can be issued to legacy employees of the acquired companies and newly hired employees after the dates of the respective acquisitions. Although not required to do so, we have used authorized and unissued shares and, to a lesser extent, treasury stock to satisfy our obligations under these programs.
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Pfizer Inc. | 2022 Form 10-K | 85 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
A summary of the awards and valuation details:
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Awarded to | Terms | Valuation | Recognition and Presentation |
Total Shareholder Return Units (TSRUs)(a), (b) |
Senior and other key management and select employees | •Entitle the holder to receive shares of our common stock with a value equal to the difference between the defined settlement price and the grant price, plus the dividend equivalents accumulated during the five or seven-year term, if and to the extent the total value is positive. •Settlement price is the average closing price of our common stock during the 20 trading days ending on the fifth or seventh anniversary of the grant, as applicable; the grant price is the closing price of our common stock on the date of the grant. •Automatically settle on the fifth or seventh anniversary of the grant but vest on the third anniversary of the grant. | As of the grant date using a Monte Carlo simulation model | Amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate. |
Restricted Stock Units (RSUs) |
Select employees | •Entitle the holder to receive a specified number of shares of our common stock, including dividend equivalents that are reinvested into additional RSUs. •For RSUs granted before 2022, generally in all instances, the units vest on the third anniversary of the grant date assuming continuous service from the grant date. Beginning in 2022, generally in all instances, the units vest and distribute one-third per year for three years on each of the three annual anniversaries from the date of grant assuming continuous service from the grant date. | As of the grant date using the closing price of our common stock | Amortized on a straight-line basis for RSUs granted before 2022, and on an accelerated attribution approach for RSUs granted in 2022, over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate. |
Portfolio Performance Shares (PPSs) |
Select employees | •Entitle the holder to receive, at the end of the performance period, shares of our common stock, if any, including shares resulting from dividend equivalents earned on such shares. •For PPSs granted, the awards vest on the third anniversary of the grant assuming continuous service from the grant date and the number of shares paid, if any, depends on the achievement of predetermined goals related to Pfizer’s long-term product portfolio during a three or five-year performance period from the year of the grant date, as applicable. •The number of shares that may be earned ranges from 0% to 200% of the initial award depending on goal achievement over the performance period. | As of the grant date using the intrinsic value method using the closing price of our common stock | Amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of our common stock, the number of shares that are probable of being earned, and management’s assessment of the probability that the specified performance criteria will be achieved. |
Performance Share Awards (PSAs) |
Senior and other key management | •Entitle the holder to receive, at the end of the performance period, shares of our common stock (retirees) earned, if any, or an equal value in cash (active colleagues), including dividend equivalents on shares earned, dependent upon the achievement of predetermined goals related to two measures: a.Adjusted net income over three one-year periods; and b.TSR as compared to the NYSE ARCA Pharmaceutical Index (DRG Index) over the three-year performance period. •PSAs vest on the third anniversary of the grant assuming continuous service from the grant date. •The award that may be earned ranges from 0% to 200% of the target award depending on goal achievement over the performance period. | As of the grant date using the intrinsic value method using the closing price of our common stock | Amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of our common stock, the number of shares that are probable of being earned and management’s assessment of the probability that the specified performance criteria will be achieved. |
Breakthrough Performance Awards (BPAs) |
Select employees identified as instrumental in delivering medicines to patients (excluding executive officers) | •Entitle the holder to receive, at the end of the performance period, shares of our common stock, if any, including shares resulting from dividend equivalents earned on such shares. •For BPAs granted, the awards, if earned/vested, are settled at the end of the performance period, but no earlier than the one-year anniversary of the date of grant and dependent upon the achievement of the respective predetermined performance goals related to advancing Pfizer’s product pipeline during the performance period. •The number of shares that may be earned ranges from 0% to 600% of the target award depending on the level and timing of goal achievement over the performance period. | As of the grant date using the intrinsic value method using the closing price of our common stock | Amortized on a straight-line basis over the probable vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, and adjusted each reporting period, as necessary, to reflect changes in the price of our common stock, the number of shares that are probable of being earned and management’s assessment of the probability that the specified performance criteria will be achieved and/or management’s assessment of the probable vesting term. |
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Pfizer Inc. | 2022 Form 10-K | 86 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | |
Awarded to | Terms | Valuation | Recognition and Presentation |
Stock Options |
Select employees | •Entitle the holder to purchase a specified number of shares of our common stock at a price per share equal to the closing market price of our common stock on the date of grant, for a period of time when vested. •Since 2016, only a limited set of non-U.S. employees received stock option grants. No stock options were awarded to senior and other key management in any period presented. •Stock options vest on the third anniversary of the grant assuming continuous service from the grant date and have a contractual term of 10 years. | As of the grant date using the Black-Scholes-Merton option-pricing model | Amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate. |
(a)Retirement-eligible holders, as defined in the grant terms, can convert their TSRUs, when vested, into Profit Units (PTUs) with a conversion ratio based on a calculation used to determine the shares at TSRU settlement. The PTUs are entitled to earn Dividend Equivalent Units (DEUs), and the PTUs and DEUs will be settled in our common stock on the TSRUs’ original settlement date and will be subject to the terms and conditions of the original grant including forfeiture provisions.
(b)In 2017, Performance Total Shareholder Return Units (PTSRUs) were awarded to the Former Chairman and Chief Executive Officer (1,444,395 PTSRUs) and 361,099 PTSRUs were awarded to the Group President, Chief Business Officer (former role Group President Pfizer Innovative Health) at a grant price of $30.31 and at a GDFV of $5.54 per PTSRU. In addition to having the same characteristics and valuation methodology of TSRUs, PTSRU grants require special service and performance conditions. These awards were settled in December 2022 in accordance with the grant provisions.
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The following provides data related to all TSRU, RSU, PPS, PSA and stock option activity: |
(MILLIONS, EXCEPT FAIR VALUE OF SHARES VESTED PER TSRU AND STOCK OPTION) | | TSRUs | | RSUs | | PPSs | | PSAs | | Stock Options |
Year Ended December 31, | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Total fair value of shares vested(a) | | $11.72 | | $7.26 | | $6.22 | | $345 | | $304 | | $334 | | $145 | | $181 | | $119 | | $57 | | $33 | | $25 | | $9.44 | | $4.86 | | $3.56 |
Total intrinsic value of options exercised or share units converted | | $1,131 | | $594 | | $84 | | | | | | | | $280 | | $228 | | $224 | | | | | | | | $247 | | $584 | | $293 |
Cash received upon exercise | | | | | | | | | | | | | | | | | | | | | | | | | | $260 | | $795 | | $425 |
Tax benefits realized from exercise | | | | | | | | | | | | | | | | | | | | | | | | | | $46 | | $106 | | $55 |
Compensation cost recognized, pre-tax(b) | | $255 | | $259 | | $287 | | $402 | | $281 | | $272 | | $144 | | $535 | | $180 | | $73 | | $76 | | $31 | | $4 | | $5 | | $6 |
Total compensation cost related to nonvested awards not yet recognized, pre-tax | | $179 | | $187 | | $224 | | $266 | | $271 | | $228 | | $135 | | $175 | | $104 | | $38 | | $54 | | $32 | | $3 | | $3 | | $4 |
Weighted-average period over which cost is expected to be recognized (years) | | 1.7 | | 1.6 | | 1.6 | | 1.7 | | 1.8 | | 1.7 | | 1.7 | | 1.8 | | 1.8 | | 1.8 | | 1.8 | | 1.9 | | 1.7 | | 1.6 | | 1.7 |
(a)Weighted-average GDFV per TSRUs and stock options.
(b)In 2020, TSRU includes expense for PTSRUs, which is not significant.
Total share-based payment expense was $872 million, $1.2 billion and $780 million in 2022, 2021 and 2020, respectively, which includes pre-tax share-based payment expense included in Discontinued operations––net of tax of $0 million, $2 million and $25 million in 2022, 2021 and 2020, respectively. Tax benefit for share-based compensation expense was $160 million, $227 million and $141 million in 2022, 2021 and 2020, respectively.
The table above excludes total expense due to the modification for share-based awards in connection with our cost reduction/productivity initiatives, which was not significant for all years presented and is recorded in Restructuring charges and certain acquisition-related costs (see Note 3). Amounts capitalized as part of inventory cost were not significant for any period presented. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary of the weighted-average assumptions used in the valuation of TSRUs and stock options: |
| | TSRUs | | Stock Options |
Year Ended December 31, | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Expected dividend yield (based on a constant dividend yield during the expected term) | | 3.42 | % | | 4.51 | % | | 4.36 | % | | 3.42 | % | | 4.51 | % | | 4.36 | % |
Risk-free interest rate (based on interpolated yield on U.S. Treasury zero-coupon issues) | | 1.87 | % | | 0.93 | % | | 1.15 | % | | 1.93 | % | | 1.27 | % | | 1.25 | % |
Expected stock price volatility (based on implied volatility, after consideration of historical volatility) | | 29.20 | % | | 26.53 | % | | 20.99 | % | | 29.21 | % | | 26.54 | % | | 20.97 | % |
TSRUs contractual/stock options expected term, years (based on historical exercise and post-vesting termination patterns for stock options) | | 5.17 | | 5.15 | | 5.12 | | 6.50 | | 6.75 | | 6.75 |
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Pfizer Inc. | 2022 Form 10-K | 87 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
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Summary of all TSRU, RSU, PPS, PSA and BPA activity during 2022 (with the shares granted representing the maximum award that could be achieved for PPSs, PSAs and BPAs): |
| | TSRUs | | RSUs | | PPSs(a) | | PSAs | | BPAs |
TSRUs | | Per TSRU, Weighted Average | | Shares | | Weighted Avg. GDFV per share | | Shares | | Weighted Avg. Intrinsic Value per share | | Shares | | Weighted Avg. Intrinsic Value per share | | Shares | | Weighted Avg. Intrinsic Value per share |
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(Thousands) | | GDFV | | Grant Price | | (Thousands) | | | (Thousands) | | (Thousands) | | | (Thousands) | |
Nonvested, December 31, 2021 | 114,599 | | $ | 6.90 | | | $ | 34.12 | | | 25,540 | | $ | 35.52 | | | 21,480 | | $ | 59.05 | | | 5,154 | | $ | 59.05 | | | 859 | | $ | 59.05 | |
Granted | 22,479 | | 11.72 | | | 46.02 | | | 9,617 | | 46.73 | | | 7,089 | | 45.96 | | | 1,506 | | 46.38 | | | — | | | — | |
Vested | (33,066) | | | 8.40 | | | 38.57 | | | (7,258) | | | 41.10 | | | (5,602) | | | 46.99 | | | (1,209) | | | 46.98 | | | — | | | — | |
Reinvested dividend equivalents | | | | | | | 876 | | | 50.30 | | | | | | | | | | | | | |
Forfeited | (2,318) | | | 7.76 | | | 35.88 | | | (948) | | | 39.75 | | | (645) | | | 50.52 | | | (433) | | | 47.22 | | | (859) | | | 47.21 | |
Nonvested, December 31, 2022 | 101,693 | | $ | 7.58 | | | $ | 35.26 | | | 27,826 | | $ | 38.26 | | | 22,322 | | $ | 51.24 | | | 5,018 | | $ | 51.24 | | | — | | | $ | — | |
(a)Vested and non-vested shares outstanding, but not paid as of December 31, 2022 were 34.2 million.
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Summary of TSRU and PTU information as of December 31, 2022(a), (b): |
| | TSRUs (Thousands) | | PTUs (Thousands) | | Weighted-Average Grant Price Per TSRU | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Millions) |
TSRUs Outstanding | | 180,182 | | | | | $ | 34.51 | | | 2.0 | | $ | 3,528 | |
TSRUs Vested | | 78,488 | | | | | 33.54 | | | 0.7 | | 1,637 | |
TSRUs Expected to vest(c) | | 99,060 | | | | | $ | 35.14 | | | 3.0 | | 1,856 | |
Outstanding PTUs converted from TSRUs exercised | | | | 2,621 | | | | | 0.6 | | $ | 134 | |
(a)In 2022, we settled 42,938,701 TSRUs with a weighted-average grant price of $27.32 per unit.
(b)In 2022, 3,097,904 TSRUs with a weighted-average grant price of $28.37 per unit were converted into 1,820,027 PTUs.
(c)The number of TSRUs expected to vest takes into account an estimate of expected forfeitures.
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Summary of all stock option activity during 2022: |
| | Shares (Thousands) | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value(a) (Millions) |
Outstanding, December 31, 2021 | | 44,874 | | | $ | 30.20 | | | | | |
Granted | | 429 | | | 45.96 | | | | | |
Exercised | | (9,859) | | | 26.44 | | | | | |
Forfeited | | (26) | | | 34.52 | | | | | |
Expired | | (138) | | | 20.80 | | | | | |
Outstanding, December 31, 2022 | | 35,280 | | | 31.47 | | | 2.1 | | $ | 697 | |
Vested and expected to vest, December 31, 2022(b) | | 35,209 | | | 31.46 | | | 2.1 | | 696 | |
Exercisable, December 31, 2022 | | 32,460 | | | $ | 31.18 | | | 1.6 | | $ | 651 | |
(a)Market price of our underlying common stock less exercise price.
(b)The number of options expected to vest takes into account an estimate of expected forfeitures.
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Pfizer Inc. | 2022 Form 10-K | 88 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Note 14. Earnings Per Common Share Attributable to Pfizer Inc. Common Shareholders
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The following presents the detailed calculation of EPS: |
| | Year Ended December 31, |
(IN MILLIONS) | | 2022 | | 2021 | | 2020 |
EPS Numerator––Basic | | | | | | |
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Income from continuing operations attributable to Pfizer Inc. common shareholders | | $ | 31,366 | | | $ | 22,414 | | | $ | 6,630 | |
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Discontinued operations––net of tax | | 6 | | | (434) | | | 2,529 | |
Net income attributable to Pfizer Inc. common shareholders | | $ | 31,372 | | | $ | 21,979 | | | $ | 9,159 | |
EPS Numerator––Diluted | | | | | | |
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | | $ | 31,366 | | | $ | 22,414 | | | $ | 6,630 | |
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | | 6 | | | (434) | | | 2,529 | |
Net income attributable to Pfizer Inc. common shareholders and assumed conversions | | $ | 31,372 | | | $ | 21,979 | | | $ | 9,159 | |
EPS Denominator | | | | | | |
Weighted-average number of common shares outstanding––Basic | | 5,608 | | | 5,601 | | | 5,555 | |
Common-share equivalents: stock options and stock issuable under employee compensation plans | | 125 | | | 107 | | | 77 | |
Weighted-average number of common shares outstanding––Diluted | | 5,733 | | | 5,708 | | | 5,632 | |
Anti-dilutive common stock equivalents(a) | | 1 | | | 2 | | | 4 | |
(a)These common stock equivalents were outstanding for the periods presented, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect.
Allocated shares held by the Common ESOP, including reinvested dividends, are considered outstanding for EPS calculations and the eventual conversion of allocated preferred shares held by the Preferred ESOP was assumed in the diluted EPS calculation until the conversion date, which occurred in May 2020. See Note 12. Note 15. Leases
We lease real estate, fleet, and equipment for use in our operations. Our leases generally have lease terms of 1 to 30 years, some of which include options to terminate or extend leases for up to 5 to 10 years or on a month-to-month basis. We include options that are reasonably certain to be exercised as part of the determination of lease terms. We may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options have not been exercised. Residual value guarantees are generally not included within our operating leases with the exception of some fleet leases. In addition to base rent payments, the leases may require us to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month. Variable lease payments amounted to $536 million in 2022, $381 million in 2021 and $380 million in 2020. We elected the practical expedient to not separate non-lease components from lease components in calculating the amounts of ROU assets and lease liabilities for all underlying asset classes.
We determine if an arrangement is a lease at inception of the contract and we perform the lease classification test as of the lease commencement date. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
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For operating leases, the ROU assets and liabilities in our consolidated balance sheets follows: |
| | | | As of December 31, |
(MILLIONS) | | Balance Sheet Classification | | 2022 | | 2021 |
ROU assets | | Other noncurrent assets | | $ | 3,002 | | | $ | 2,839 | |
Lease liabilities (short-term) | | Other current liabilities | | 620 | | | 449 | |
Lease liabilities (long-term) | | Other noncurrent liabilities | | 2,597 | | | 2,510 | |
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Components of total lease cost includes: |
| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
Operating lease cost | | $ | 714 | | | $ | 548 | | | $ | 432 | |
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Variable lease cost | | 536 | | | 381 | | | 380 | |
Sublease income | | (32) | | | (41) | | | (40) | |
Total lease cost | | $ | 1,218 | | | $ | 888 | | | $ | 772 | |
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Pfizer Inc. | 2022 Form 10-K | 89 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
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Other supplemental information follows: |
| | As of December 31, |
(MILLIONS) | | 2022 | | 2021 |
Operating leases | | | | |
Weighted-Average Remaining Contractual Lease Term (Years) | | 11 | | 12 |
Weighted-Average Discount Rate | | 3.0 | % | | 2.8 | % |
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| | Year Ended December 31, |
(MILLIONS) | | 2022 | | 2021 | | 2020 |
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Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
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Operating cash flows from operating leases | | $ | 617 | | | $ | 387 | | | $ | 333 | |
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(Gains)/losses on sale and leaseback transactions, net | | 11 | | | 1 | | | (3) | |
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The following reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in the consolidated balance sheet as of December 31, 2022: |
(MILLIONS) | | |
Period | | Operating Lease Liabilities |
Next one year(a) | | $ | 662 | |
1-2 years | | 489 | |
2-3 years | | 356 | |
3-4 years | | 300 | |
4-5 years | | 246 | |
Thereafter | | 1,791 | |
Total undiscounted lease payments | | 3,844 | |
Less: Imputed interest | | 627 | |
Present value of minimum lease payments | | 3,217 | |
Less: Current portion | | 620 | |
Noncurrent portion | | $ | 2,597 | |
(a)Reflects lease payments due within 12 months subsequent to the balance sheet date.
Note 16. Contingencies and Certain Commitments
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax and legal contingencies, guarantees and indemnifications. The following outlines our legal contingencies, guarantees and indemnifications. For a discussion of our tax contingencies, see Note 5D. A. Legal Proceedings
Our legal contingencies include, but are not limited to, the following:
•Patent litigation, which typically involves challenges to the coverage and/or validity of patents on various products, processes or dosage forms. An adverse outcome could result in loss of patent protection for a product, a significant loss of revenues from a product or impairment of the value of associated assets. We are the plaintiff in the majority of these actions.
•Product liability and other product-related litigation related to current or former products, which can include personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, among others, and 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 asserted or unasserted matters, which can include acquisition-, licensing-, intellectual property-, collaboration- or co-promotion-related and product-pricing claims and environmental claims and proceedings, and can involve complexities that will vary from matter to matter.
•Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other jurisdictions.
Certain of these contingencies could result in increased expenses and/or losses, including damages, royalty payments, fines and/or civil penalties, which could be substantial, and/or criminal charges.
We believe that our claims and defenses in matters in which we are a defendant are substantial, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of matters, which could have a material adverse effect on our results of operations and/or our cash flows in the period in which the amounts are accrued or paid.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of our contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments, which result from a complex series of judgments about future events and uncertainties, are based on estimates and assumptions that have been deemed reasonable by
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Pfizer Inc. | 2022 Form 10-K | 90 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.
Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For proceedings under environmental laws to which a governmental authority is a party, we have adopted a disclosure threshold of $1 million in potential or actual governmental monetary sanctions.
The principal pending matters to which we are a party are discussed below. In determining whether a pending matter is a principal matter, we consider both quantitative and qualitative factors to assess materiality, such as, among others, the amount of damages and the nature of other relief sought, if specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be, or is, a class action and, if not certified, our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; whether related actions have been transferred to multidistrict litigation; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters in which we are the plaintiff, we consider, among other things, the financial significance of the product protected by the patent(s) at issue. Some of the matters discussed below include those which management believes that the likelihood of possible loss in excess of amounts accrued is remote.
A1. Legal Proceedings––Patent Litigation
We are involved in suits relating to our patents (or those of our collaboration/licensing partners to which we have licenses or co-promotion rights), including but not limited to, those discussed below. We face claims by generic drug manufacturers that patents covering our products (or those of our collaboration/licensing partners to which we have licenses or co-promotion rights and to which we may or may not be a party), processes or dosage forms are invalid and/or do not cover the product of the generic drug manufacturer. Also, counterclaims, as well as various independent actions, have been filed alleging that our assertions of, or attempts to enforce, patent rights with respect to certain products constitute unfair competition and/or violations of antitrust laws. In addition to the challenges to the U.S. patents that are discussed below, patent rights to certain of our products or those of our collaboration/licensing partners are being challenged in various other jurisdictions. Some of our collaboration or licensing partners face challenges to the validity of their patent rights in non-U.S. jurisdictions. For example, in April 2022, the U.K. High Court issued a judgment finding invalid a BMS patent related to Eliquis due to expire in 2026. In November 2022, BMS received permission to appeal the High Court’s decision. Additional challenges are pending in other jurisdictions. Also, in July 2022, CureVac AG (CureVac) brought a patent infringement action against BioNTech and certain of its subsidiaries in the German Regional Court alleging that Comirnaty infringes certain German utility model patents and certain expired and unexpired European patents. Additional challenges involving Comirnaty patents may be filed against us and/or BioNTech in other jurisdictions in the future. Adverse decisions in these matters could have a material adverse effect on our results of operations. We are also party to patent damages suits in various jurisdictions pursuant to which generic drug manufacturers, payers, governments or other parties are seeking damages from us for allegedly causing delay of generic entry.
We also are often involved in other proceedings, such as inter partes review, post-grant review, re-examination or opposition proceedings, before the U.S. Patent and Trademark Office, the European Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual property rights of others. Also, if one of our patents (or one of our collaboration/licensing partners patents) is found to be invalid by such proceedings, generic or competitive products could be introduced into the market resulting in the erosion of sales of our existing products. For example, several of the patents in our pneumococcal vaccine portfolio have been challenged in inter partes review and post-grant review proceedings in the U.S. Patent and Trademark Office, as well as outside the U.S. The invalidation of any of the patents in our pneumococcal portfolio could potentially allow additional competitor vaccines, if approved, to enter the marketplace earlier than anticipated. In the event that any of the patents are found valid and infringed, a competitor’s vaccine, if approved, might be prohibited from entering the market or a competitor might be required to pay us a royalty.
We are also subject to patent litigation pursuant to which one or more third parties seek damages and/or injunctive relief to compensate for alleged infringement of its patents by our commercial or other activities. If one of our marketed products (or a product of our collaboration/licensing partners) is found to infringe valid patent rights of a third party, such third party may be awarded significant damages or royalty payments, or we may be prevented from further sales of that product. Such damages may be enhanced as much as three-fold if we or one of our subsidiaries is found to have willfully infringed valid patent rights of a third party.
Actions In Which We Are The Plaintiff
Xeljanz (tofacitinib)
Beginning in 2017, we brought patent-infringement actions against several generic manufacturers that filed separate abbreviated new drug applications (ANDAs) with the FDA seeking approval to market their generic versions of tofacitinib tablets in one or both of 5 mg and 10 mg dosage strengths, and in both immediate and extended release forms. To date, we have settled actions with several manufacturers on terms not material to us. The remaining action continues in the U.S. District Court for the District of Delaware as described below.
In October 2021, we brought a separate patent-infringement action against Sinotherapeutics Inc. (Sinotherapeutics) asserting the infringement and validity of our patent covering extended release formulations of tofacitinib that was challenged by Sinotherapeutics in its ANDA seeking approval to market a generic version of tofacitinib 11 mg extended release tablets. In November 2022, we filed an additional patent-infringement action against Sinotherapeutics relating to its challenge of our extended release formulation and method of treatment patents in its ANDA seeking approval to market a generic version of tofacitinib 22 mg extended release tablets.
In November 2022, we brought a separate patent-infringement action against Sun Pharmaceutical Industries Limited and Sun Pharmaceutical Industries, Inc. (collectively, Sun) asserting the infringement and validity of our compound patent covering the active ingredient that was challenged by Sun in its ANDAs seeking approval to market generic versions of tofacitinib extended release (11 mg, 22 mg) tablets. In January 2023, we settled our action against Sun on terms not material to us.
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Pfizer Inc. | 2022 Form 10-K | 91 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Inlyta (axitinib)
In 2019, Glenmark Pharmaceuticals Ltd. (Glenmark) notified us that it had filed an ANDA with the FDA seeking approval to market a generic version of Inlyta. Glenmark asserts the invalidity and non-infringement of the crystalline form patent for Inlyta that expires in 2030. In 2019, we filed suit against Glenmark in the U.S. District Court for the District of Delaware, asserting the validity and infringement of the crystalline form patent for Inlyta. In November 2022, we settled our action against Glenmark on terms not material to us.
Ibrance (palbociclib)
Beginning in January 2021, several generic companies notified us that they had filed ANDAs with the FDA seeking approval to market generic versions of Ibrance tablets. The generic companies are challenging some or all of the following patents: (i) the composition of matter patent expiring in 2027; (ii) the composition of matter patent expiring in 2023; (iii) the method of use patent expiring in 2023; (iv) the crystalline form patent expiring in 2034; and (v) a tablet formulation patent expiring in 2036. We brought patent infringement actions against each of the generic filers in various U.S. federal courts, asserting the validity and infringement of the patents challenged by the generic companies. We have settled with one of these generic companies on terms not material to us, and we dismissed the patent infringement actions relating to the crystalline form of patent, the composition of matter patent expiring in 2023, the method of use patent, and the tablet formulation patent against the generic companies that had challenged these patents. The composition of matter patent expiring in 2027 remains in suit.
Eucrisa
Beginning in September 2021, several generic companies notified us that they had filed ANDAs with the FDA seeking approval to market generic versions of Eucrisa. The companies assert the invalidity and non-infringement of a composition of matter patent expiring in 2026, two method of use patents expiring in 2027, and one other method of use patent expiring in 2030. In September 2021, we brought patent infringement actions against the generic filers in the U.S. District Court for the District of Delaware, asserting the validity and infringement of the patents challenged by the generic companies.
Braftovi (encorafenib)
In August 2022, a generic company notified us that it had filed an ANDA with the FDA seeking approval to market a generic version of Braftovi. The company asserted the invalidity and non-infringement of, among others, a method of use patent expiring in 2033. In September 2022, we brought a patent infringement action against the generic company in the U.S. District Court for the District of Delaware, asserting the validity and infringement of the method of use patent expiring in 2033. In January 2023, the case was dismissed.
Mektovi (binimetinib)
Beginning in August 2022, several generic companies notified us that they had filed ANDAs with the FDA seeking approval to market generic versions of Mektovi. The companies assert the invalidity and non-infringement of two method of use patents expiring in 2030, a method of use patent expiring in 2031, two method of use patents expiring in 2033, and a product by process patent expiring in 2033. Beginning in September 2022, we brought patent infringement actions against the generic filers in the U.S. District Court for the District of Delaware, asserting the validity and infringement of all six patents.
Actions in Which We are the Defendant
Comirnaty
In March 2022, Alnylam Pharmaceuticals, Inc. (Alnylam) filed a complaint in the U.S. District Court for the District of Delaware against Pfizer and Pharmacia & Upjohn Co. LLC, our wholly owned subsidiary, alleging that Comirnaty infringes U.S. Patent No. 11,246,933, which was issued in February 2022, and seeking unspecified monetary damages. In July 2022, Alnylam filed a second complaint in the U.S. District Court for the District of Delaware against Pfizer, Pharmacia & Upjohn Co. LLC, BioNTech and BioNTech Manufacturing GmbH, alleging that Comirnaty infringes U.S. Patent No. 11,382,979, which was issued in July 2022, and seeking unspecified monetary damages.
In August 2022, ModernaTX, Inc. (ModernaTX) and Moderna US, Inc. (Moderna) sued Pfizer, BioNTech, BioNTech Manufacturing GmbH and BioNTech US Inc. in the U.S. District Court for the District of Massachusetts, alleging that Comirnaty infringes three U.S. patents. In its complaint, Moderna stated that it is seeking damages for alleged infringement occurring after March 7, 2022.
In August 2022, ModernaTX filed a patent infringement action in Germany against Pfizer and certain subsidiary companies, as well as BioNTech and certain subsidiary companies, alleging that Comirnaty infringes two European patents. In September 2022, ModernaTX filed patent infringement actions in the U.K and in the Netherlands against Pfizer and certain subsidiary companies, as well as BioNTech and certain subsidiary companies, on the same two patents. In its complaints, ModernaTX stated that it is seeking damages for alleged infringement occurring after March 7, 2022. In the U.K., Pfizer and BioNTech have brought an action against ModernaTX seeking to revoke these European patents, which was consolidated with the September 2022 action filed by ModernaTX.
Paxlovid
In June 2022, Enanta Pharmaceuticals, Inc. filed a complaint in the U.S. District Court for the District of Massachusetts against Pfizer alleging that the active ingredient in Paxlovid, nirmatrelvir, infringes U.S. Patent No. 11,358,953, which was issued in June 2022, and seeking unspecified monetary damages.
Matters Involving Pfizer and its Collaboration/Licensing Partners
Comirnaty
In July 2022, Pfizer, BioNTech and BioNTech Manufacturing GmbH filed a declaratory judgment complaint against CureVac in the U.S. District Court for the District of Massachusetts seeking a judgment of non-infringement for the following three patents relating to Comirnaty: U.S. Patent Nos. 11,135,312, 11,149,278, and 11,241,493. Outside of the U.S., in the U.K., Pfizer and BioNTech have sued CureVac seeking a judgment of invalidity of several patents and CureVac has made certain infringement counterclaims.
Xtandi (enzalutamide)
In July 2022, Medivation and Medivation Prostate Therapeutics, Inc.; Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.; and The Regents of the University of California filed a patent-infringement suit in the U.S. District Court for the District of New Jersey against Zydus Pharmaceuticals (USA) Inc. and Zydus Lifesciences Ltd.; and in December 2022, the same entities filed a patent-infringement suit in the U.S. District Court for the District of New Jersey against Sun in connection with those companies’ respective ANDAs seeking approval to market
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Pfizer Inc. | 2022 Form 10-K | 92 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
generic versions of enzalutamide. The generic manufacturers are challenging the composition of matter patent, which expires in 2027, covering enzalutamide and pharmaceutical compositions thereof, for treating prostate cancer.
A2. Legal Proceedings––Product Litigation
We are defendants in numerous cases, including but not limited to those discussed below, related to our pharmaceutical and other products. Plaintiffs in these cases seek damages and other relief on various grounds for alleged personal injury and economic loss.
Asbestos
Between 1967 and 1982, Warner-Lambert owned American Optical Corporation (American Optical), which manufactured and sold respiratory protective devices and asbestos safety clothing. In connection with the sale of American Optical in 1982, Warner-Lambert agreed to indemnify the purchaser for certain liabilities, including certain asbestos-related and other claims. Warner-Lambert was acquired by Pfizer in 2000 and is a wholly owned subsidiary of Pfizer. Warner-Lambert is actively engaged in the defense of, and will continue to explore various means of resolving, these claims.
Numerous lawsuits against American Optical, Pfizer and certain of its previously owned subsidiaries are pending in various federal and state courts seeking damages for alleged personal injury from exposure to products allegedly containing asbestos and other allegedly hazardous materials sold by Pfizer and certain of its previously owned subsidiaries.
There also are a small number of lawsuits pending in various federal and state courts seeking damages for alleged exposure to asbestos in facilities owned or formerly owned by Pfizer or its subsidiaries.
Effexor
Beginning in 2011, actions, including purported class actions, were filed in various federal courts against Wyeth and, in certain of the actions, affiliates of Wyeth and certain other defendants relating to Effexor XR, which is the extended-release formulation of Effexor. The plaintiffs in each of the class actions seek to represent a class consisting of all persons in the U.S. and its territories who directly purchased, indirectly purchased or reimbursed patients for the purchase of Effexor XR or generic Effexor XR from any of the defendants from June 14, 2008 until the time the defendants’ allegedly unlawful conduct ceased. The plaintiffs in all of the actions allege delay in the launch of generic Effexor XR in the U.S. and its territories, in violation of federal antitrust laws and, in certain of the actions, the antitrust, consumer protection and various other laws of certain states, as the result of Wyeth fraudulently obtaining and improperly listing certain patents for Effexor XR in the Orange Book, enforcing certain patents for Effexor XR and entering into a litigation settlement agreement with a generic drug manufacturer with respect to Effexor XR. Each of the plaintiffs seeks treble damages (for itself in the individual actions or on behalf of the putative class in the purported class actions) for alleged price overcharges for Effexor XR or generic Effexor XR in the U.S. and its territories since June 14, 2008. All of these actions have been consolidated in the U.S. District Court for the District of New Jersey.
In 2014, the District Court dismissed the direct purchaser plaintiffs’ claims based on the litigation settlement agreement, but declined to dismiss the other direct purchaser plaintiff claims. In 2015, the District Court entered partial final judgments as to all settlement agreement claims, including those asserted by direct purchasers and end-payer plaintiffs, which plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit. In 2017, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s decisions and remanded the claims to the District Court.
Lipitor
Beginning in 2011, purported class actions relating to Lipitor were filed in various federal courts against, among others, Pfizer, certain Pfizer affiliates, and, in most of the actions, Ranbaxy Laboratories Ltd. (Ranbaxy) and certain Ranbaxy affiliates. The plaintiffs in these various actions seek to represent nationwide, multi-state or statewide classes consisting of persons or entities who directly purchased, indirectly purchased or reimbursed patients for the purchase of Lipitor (or, in certain of the actions, generic Lipitor) from any of the defendants from March 2010 until the cessation of the defendants’ allegedly unlawful conduct (the Class Period). The plaintiffs allege delay in the launch of generic Lipitor, in violation of federal antitrust laws and/or state antitrust, consumer protection and various other laws, resulting from (i) the 2008 agreement pursuant to which Pfizer and Ranbaxy settled certain patent litigation involving Lipitor and Pfizer granted Ranbaxy a license to sell a generic version of Lipitor in various markets beginning on varying dates, and (ii) in certain of the actions, the procurement and/or enforcement of certain patents for Lipitor. Each of the actions seeks, among other things, treble damages on behalf of the putative class for alleged price overcharges for Lipitor (or, in certain of the actions, generic Lipitor) during the Class Period. In addition, individual actions have been filed against Pfizer, Ranbaxy and certain of their affiliates, among others, that assert claims and seek relief for the plaintiffs that are substantially similar to the claims asserted and the relief sought in the purported class actions described above. These various actions have been consolidated for pre-trial proceedings in a MDL in the U.S. District Court for the District of New Jersey.
In September 2013 and 2014, the District Court dismissed with prejudice the claims of the direct purchasers. In October and November 2014, the District Court dismissed with prejudice the claims of all other MDL plaintiffs. All plaintiffs appealed the District Court’s orders dismissing their claims with prejudice to the U.S. Court of Appeals for the Third Circuit. In addition, the direct purchaser class plaintiffs appealed the order denying their motion to amend the judgment and for leave to amend their complaint to the Court of Appeals. In 2017, the Court of Appeals reversed the District Court’s decisions and remanded the claims to the District Court.
Also, in 2013, the State of West Virginia filed an action in West Virginia state court against Pfizer and Ranbaxy, among others, that asserts claims and seeks relief on behalf of the State of West Virginia and residents of that state that are substantially similar to the claims asserted and the relief sought in the purported class actions described above.
EpiPen (Direct Purchaser)
In February 2020, a lawsuit was filed in the U.S. District Court for the District of Kansas against Pfizer, its current and former affiliates King and Meridian, and various Mylan entities, on behalf of a purported U.S. nationwide class of direct purchaser plaintiffs who purchased EpiPen devices directly from the defendants. Plaintiffs in this action generally allege that Pfizer and Mylan conspired to delay market entry of generic EpiPen through the settlement of patent litigation regarding EpiPen, and thereby delayed market entry of generic EpiPen in violation of federal antitrust law. Plaintiffs seek treble damages for alleged overcharges for EpiPen since 2011. In July 2021, the District Court granted defendants’ motion to dismiss the direct purchaser complaint, without prejudice. In September 2021, plaintiffs filed an amended complaint. In August 2022, the District Court granted Pfizer’s motion to dismiss the complaint, and plaintiffs have appealed to the U.S. Court of Appeals for the Tenth Circuit.
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Pfizer Inc. | 2022 Form 10-K | 93 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Nexium 24HR and Protonix
A number of individual and multi-plaintiff lawsuits have been filed against Pfizer, certain of its subsidiaries and/or other pharmaceutical manufacturers in various federal and state courts alleging that the plaintiffs developed kidney-related injuries purportedly as a result of the ingestion of certain proton pump inhibitors. The cases against Pfizer involve Protonix and/or Nexium 24HR and seek compensatory and punitive damages and, in some cases, treble damages, restitution or disgorgement. In 2017, the federal actions were ordered transferred for coordinated pre-trial proceedings to a MDL in the U.S. District Court for the District of New Jersey. As part of the combination of our and GSK’s consumer healthcare businesses to form Haleon, Haleon assumed, and agreed to indemnify Pfizer for, liabilities arising out of such litigation to the extent related to Nexium 24HR.
Docetaxel
•Personal Injury Actions
A number of lawsuits have been filed against Hospira and Pfizer in various federal and state courts alleging that plaintiffs who were treated with Docetaxel developed permanent hair loss. The significant majority of the cases also name other defendants, including the manufacturer of the branded product, Taxotere. Plaintiffs seek compensatory and punitive damages. Additional lawsuits have been filed in which plaintiffs allege they developed blocked tear ducts following their treatment with Docetaxel.
In 2016, the federal cases were transferred for coordinated pre-trial proceedings to a MDL in the U.S. District Court for the Eastern District of Louisiana. In 2022, the eye injury cases were transferred for coordinated pre-trial proceedings to a MDL in the U.S. District Court for the Eastern District of Louisiana.
•Mississippi Attorney General Government Action
In 2018, the Attorney General of Mississippi filed a complaint in Mississippi state court against the manufacturer of the branded product and eight other manufacturers including Pfizer and Hospira, alleging, with respect to Pfizer and Hospira, a failure to warn about a risk of permanent hair loss in violation of the Mississippi Consumer Protection Act. The action seeks civil penalties and injunctive relief.
Zantac
A number of lawsuits have been filed against Pfizer in various federal and state courts alleging that plaintiffs developed various types of cancer, or face an increased risk of developing cancer, purportedly as a result of the ingestion of Zantac. The significant majority of these cases also name other defendants that have historically manufactured and/or sold Zantac. Pfizer has not sold Zantac since 2006, and only sold an OTC version of the product. In 2006, Pfizer sold the consumer business that included its Zantac OTC rights to Johnson & Johnson and transferred the assets and liabilities related to Zantac OTC to Johnson & Johnson in connection with the sale. Plaintiffs in these cases seek compensatory and punitive damages.
In February 2020, the federal actions were transferred for coordinated pre-trial proceedings to a MDL in the U.S. District Court for the Southern District of Florida (the Federal MDL Court). Plaintiffs in the MDL have filed against Pfizer and many other defendants a master personal injury complaint, asserting a consolidated consumer class action alleging, among other things, claims under consumer protection statutes of all 50 states, and a medical monitoring complaint seeking to certify medical monitoring classes under the laws of 13 states. In addition, (i) Pfizer has received service of Canadian class action complaints naming Pfizer and other defendants, and seeking compensatory and punitive damages for personal injury and economic loss, allegedly arising from the defendants’ sale of Zantac in Canada; and (ii) the State of New Mexico and the Mayor and City Council of Baltimore separately filed civil actions against Pfizer and many other defendants in state courts, alleging various state statutory and common law claims in connection with the defendants’ alleged sale of Zantac in those jurisdictions. In April 2021, a Judicial Council Coordinated Proceeding was created in the Superior Court of California in Alameda County to coordinate personal injury actions against Pfizer and other defendants filed in California state court. Coordinated proceedings have also been created in other state courts. In December 2022, the Federal MDL Court granted defendants’ Daubert motions to exclude plaintiffs’ expert testimony and motion for summary judgment on general causation, and dismissed the litigation.
Chantix
Beginning in August 2021, a number of putative class actions have been filed against Pfizer in various U.S. federal courts following Pfizer’s voluntary recall of Chantix due to the presence of a nitrosamine, N-nitroso-varenicline. Plaintiffs assert that they suffered economic harm purportedly as a result of purchasing Chantix or generic varenicline medicines sold by Pfizer. Plaintiffs seek to represent nationwide and state-specific classes and seek various remedies, including damages and medical monitoring. In December 2022, the federal actions were transferred for coordinated pre-trial proceedings to a MDL in the U.S. District Court for the Southern District of New York. Similar putative class actions have been filed in Canada and Israel, where the product brand is Champix.
A3. Legal Proceedings––Commercial and Other Matters
Monsanto-Related Matters
In 1997, Monsanto Company (Former Monsanto) contributed certain chemical manufacturing operations and facilities to a newly formed corporation, Solutia Inc. (Solutia), and spun off the shares of Solutia. In 2000, Former Monsanto merged with Pharmacia & Upjohn Company to form Pharmacia. Pharmacia then transferred its agricultural operations to a newly created subsidiary, named Monsanto Company (New Monsanto), which it spun off in a two-stage process that was completed in 2002. Pharmacia was acquired by Pfizer in 2003 and is a wholly owned subsidiary of Pfizer.
In connection with its spin-off that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities related to Pharmacia’s former agricultural business. New Monsanto has defended and/or is defending Pharmacia in connection with various claims and litigation arising out of, or related to, the agricultural business, and has been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.
In connection with its spin-off in 1997, Solutia assumed, and agreed to indemnify Pharmacia for, liabilities related to Former Monsanto’s chemical businesses. As the result of its reorganization under Chapter 11 of the U.S. Bankruptcy Code, Solutia’s indemnification obligations relating to Former Monsanto’s chemical businesses are primarily limited to sites that Solutia has owned or operated. In addition, in connection with its spin-off that was completed in 2002, New Monsanto assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Former Monsanto’s chemical businesses, including, but not limited to, any such liabilities that Solutia assumed. Solutia’s and New Monsanto’s
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Pfizer Inc. | 2022 Form 10-K | 94 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
assumption of, and agreement to indemnify Pharmacia for, these liabilities apply to pending actions and any future actions related to Former Monsanto’s chemical businesses in which Pharmacia is named as a defendant, including, without limitation, actions asserting environmental claims, including alleged exposure to polychlorinated biphenyls. Solutia and/or New Monsanto are defending Pharmacia in connection with various claims and litigation arising out of, or related to, Former Monsanto’s chemical businesses, and have been indemnifying Pharmacia when liability has been imposed or settlement has been reached regarding such claims and litigation.
Environmental Matters
In 2009, as part of our acquisition of Wyeth, we assumed responsibility for environmental remediation at the Wyeth Holdings LLC (formerly known as, Wyeth Holdings Corporation and American Cyanamid Company) discontinued industrial chemical facility in Bound Brook, New Jersey. Since that time, we have executed or have become a party to a number of administrative settlement agreements, orders on consent, and/or judicial consent decrees, with the U.S. Environmental Protection Agency and/or New Jersey Department of Environmental Protection to perform remedial design, removal and remedial actions, and related environmental remediation activities at the Bound Brook facility. We have accrued for the currently estimated costs of these activities.
We are a party to a number of other proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and other state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.
Contracts with Iraqi Ministry of Health
In 2017, a number of U.S. service members, civilians, and their families brought a complaint in the U.S. District Court for the District of Columbia against a number of pharmaceutical and medical devices companies, including Pfizer and certain of its subsidiaries, alleging that the defendants violated the U.S. Anti-Terrorism Act. The complaint alleges that the defendants provided funding for terrorist organizations through their sales practices pursuant to pharmaceutical and medical device contracts with the Iraqi Ministry of Health, and seeks monetary relief. In July 2020, the District Court granted defendants’ motions to dismiss and dismissed all of plaintiffs’ claims. In January 2022, the Court of Appeals reversed the District Court’s decision. In February 2023, the defendants filed for en banc review of the Court of Appeals’ decision. In February 2023, the Court of Appeals denied defendants’ en banc petitions.
Allergan Complaint for Indemnity
In 2019, Pfizer was named as a defendant in a complaint, along with King, filed by Allergan Finance LLC (Allergan) in the Supreme Court of the State of New York, asserting claims for indemnity related to Kadian, which was owned for a short period by King in 2008, prior to Pfizer's acquisition of King in 2010. This suit was voluntarily discontinued without prejudice in January 2021.
Viatris Securities Litigation
In October 2021, a putative class action was filed in the Court of Common Pleas of Allegheny County, Pennsylvania on behalf of former Mylan N.V. shareholders who received Viatris common stock in exchange for Mylan shares in connection with the spin-off of the Upjohn Business and its combination with Mylan (the Transactions). Viatris, Pfizer, and certain of each company’s current and former officers, directors and employees are named as defendants. An amended complaint was filed in January 2023, and alleges that the defendants violated certain provisions of the Securities Act of 1933 in connection with certain disclosures made in or omitted from the registration statement and related prospectus issued in connection with the Transactions, as well as related communications. Plaintiff seeks damages, costs and expenses and other equitable and injunctive relief.
A4. Legal Proceedings––Government Investigations
We are subject to extensive regulation by government agencies in the U.S., other developed markets and multiple emerging markets in which we operate. Criminal charges, substantial fines and/or civil penalties, limitations on our ability to conduct business in applicable jurisdictions, corporate integrity or deferred prosecution agreements, as well as reputational harm and increased public interest in the matter could result from government investigations in the U.S. and other jurisdictions in which we do business. These matters often involve government requests for information on a voluntary basis or through subpoenas after which the government may seek additional information through follow-up requests or additional subpoenas. In addition, in a qui tam lawsuit in which the government declines to intervene, the relator may still pursue a suit for the recovery of civil damages and penalties on behalf of the government. Among the investigations by government agencies are the matters discussed below.
Greenstone Investigations
•U.S. Department of Justice Antitrust Division Investigation
Since July 2017, the U.S. Department of Justice's Antitrust Division has been investigating our former Greenstone generics business. We believe this is related to an ongoing broader antitrust investigation of the generic pharmaceutical industry. We have produced records relating to this investigation.
•State Attorneys General and Multi-District Generics Antitrust Litigation
In April 2018, Greenstone received requests for information from the Antitrust Department of the Connecticut Office of the Attorney General. In May 2019, Attorneys General of more than 40 states plus the District of Columbia and Puerto Rico filed a complaint against a number of pharmaceutical companies, including Greenstone and Pfizer. The matter has been consolidated with a MDL in the Eastern District of Pennsylvania. As to Greenstone and Pfizer, the complaint alleges anticompetitive conduct in violation of federal and state antitrust laws and state consumer protection laws. In June 2020, the State Attorneys General filed a new complaint against a large number of companies, including Greenstone and Pfizer, making similar allegations, but concerning a new set of drugs. This complaint was transferred to the MDL in July 2020. The MDL also includes civil complaints filed by private plaintiffs and state counties against Pfizer, Greenstone and a significant number of other defendants asserting allegations that generally overlap with those asserted by the State Attorneys General.
Subpoena & Civil Investigative Demand relating to Tris Pharma/Quillivant XR
In October 2018, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York (SDNY) seeking records relating to our relationship with another drug manufacturer and its production and manufacturing of drugs including, but not limited to, Quillivant XR. We responded to that subpoena in full and have had no communication with the SDNY in connection with the subpoena since June 2019.
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Pfizer Inc. | 2022 Form 10-K | 95 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Additionally, in September 2020, we received a Civil Investigative Demand (CID) from the Texas Attorney General’s office seeking records of a similar nature to those requested by the SDNY. We are producing records in response to this request.
Government Inquiries relating to Meridian Medical Technologies
In February 2019, we received a CID from the U.S. Attorney’s Office for the SDNY. The CID seeks records and information related to alleged quality issues involving the manufacture of auto-injectors at the Meridian site. In August 2019, we received a HIPAA subpoena issued by the U.S. Attorney’s Office for the Eastern District of Missouri, in coordination with the Department of Justice’s Consumer Protection Branch, seeking similar records and information. We are producing records in response to these and subsequent requests.
U.S. Department of Justice/SEC Inquiry relating to Russian Operations
In June 2019, we received an informal request from the U.S. Department of Justice’s Foreign Corrupt Practices Act (FCPA) Unit seeking documents relating to our operations in Russia. In September 2019, we received a similar request from the SEC’s FCPA Unit. We have produced records pursuant to these requests.
Docetaxel––Mississippi Attorney General Government Investigation
See Legal Proceedings––Product Litigation––Docetaxel––Mississippi Attorney General Government Investigation above for information regarding a government investigation related to Docetaxel marketing practices.
U.S. Department of Justice Inquiries relating to India Operations
In March 2020, we received an informal request from the U.S. Department of Justice's Consumer Protection Branch seeking documents relating to our manufacturing operations in India, including at our former facility located at Irrungattukottai in India. In April 2020, we received a similar request from the U.S. Attorney’s Office for the SDNY regarding a civil investigation concerning operations at our facilities in India. We are producing records pursuant to these requests.
U.S. Department of Justice/SEC Inquiry relating to China Operations
In June 2020, we received an informal request from the U.S. Department of Justice's FCPA Unit seeking documents relating to our operations in China. In August 2020, we received a similar request from the SEC’s FCPA Unit. We have produced records pursuant to these requests.
Zantac––State of New Mexico and Mayor and City Council of Baltimore Civil Actions
See Legal Proceedings––Product Litigation––Zantac above for information regarding civil actions separately filed by the State of New Mexico and the Mayor and City Council of Baltimore alleging various state statutory and common law claims in connection with the defendants’ alleged sale of Zantac in those jurisdictions.
Government Inquiries relating to Biohaven
In June 2022, the U.S. Department of Justice's Commercial Litigation Branch and the U.S. Attorney’s Office for the Western District of New York issued a CID relating to Biohaven. The CID seeks records and information related to, among other things, engagements with health care professionals and co-pay coupons cards. Biohaven is a wholly-owned subsidiary that we acquired in October 2022. We are producing records in response to these requests.
B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities prior to or following a transaction. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we may be required to reimburse the loss. These indemnifications are generally subject to various restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of December 31, 2022, the estimated fair value of these indemnification obligations is not material to Pfizer. See Note 2C for a description of the March 2022 indemnity provided by Pfizer to GSK in connection with the issuance of notes by the Consumer Healthcare JV. In conjunction with the completion of GSK’s demerger transactions in July 2022, GSK’s guarantee and our related indemnification of GSK’s guarantee were terminated. In addition, in connection with our entry into certain agreements and other transactions, our counterparties may be obligated to indemnify us. For example, in November 2020, we and Mylan completed the transaction to spin-off our Upjohn Business and combine it with Mylan to form Viatris. As part of the transaction and as previously disclosed, each of Viatris and Pfizer has agreed to assume, and to indemnify the other for, liabilities arising out of certain matters. Also, our global agreement with BioNTech to co-develop a mRNA-based coronavirus vaccine program aimed at preventing COVID-19 infection, includes certain indemnity provisions pursuant to which each of BioNTech and Pfizer has agreed to indemnify the other for certain liabilities that may arise in connection with certain third-party claims relating to Comirnaty.
We have also guaranteed the long-term debt of certain companies that we acquired and that now are subsidiaries of Pfizer. See Note 7D. C. Certain Commitments
As of December 31, 2022, we had commitments totaling $4.4 billion that are legally binding and enforceable. These commitments include payments relating to potential milestone payments deemed reasonably likely to occur, and purchase obligations for goods and services.
See Note 5A for information on the TCJA repatriation tax liability. D. Contingent Consideration for Acquisitions
We may be required to make payments to sellers for certain prior business combinations that are contingent upon future events or outcomes. See Note 1D. The estimated fair value of contingent consideration as of December 31, 2022 is $645 million, of which $42 million is recorded in Other current liabilities and $603 million in Other noncurrent liabilities, and as of December 31, 2021 was $697 million, of which $135 million was recorded in Other current liabilities and $563 million in Other noncurrent liabilities. The decrease in the contingent consideration balance
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Pfizer Inc. | 2022 Form 10-K | 96 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
from December 31, 2021 is primarily due to payments made upon the achievement of certain sales-based milestones partially offset by fair value adjustments.
E. Insurance
Our insurance coverage reflects market conditions (including cost and availability) existing at the time it is written, and our decision to obtain insurance coverage or to self-insure varies accordingly. Depending upon the cost and availability of insurance and the nature of the risk involved, the amount of self-insurance may be significant. The cost and availability of coverage have resulted in self-insuring certain exposures, including product liability. If we incur substantial liabilities that are not covered by insurance or substantially exceed insurance coverage and that are in excess of existing accruals, there could be a material adverse effect on our cash flows or results of operations in the period in which the amounts are paid and/or accrued.
Note 17. Segment, Geographic and Other Revenue Information
A. Segment Information
We regularly review our operating segments and the approach used by management to evaluate performance and allocate resources. We manage our commercial operations through two operating segments, Biopharma and PC1, which are each led by a single manager. Biopharma is the only reportable segment. Each operating segment has responsibility for its commercial activities. Regional commercial organizations market, distribute and sell our products and are supported by global platform functions that are responsible for the research, development, manufacturing and supply of our products and global corporate enabling functions. Biopharma receives its R&D services from WRDM and GPD. These services include IPR&D projects for new investigational products and additional indications for in-line products. Each operating segment has a geographic footprint across developed and emerging markets. Our chief operating decision maker uses the revenues and earnings of the operating segments, among other factors, for performance evaluation and resource allocation.
After the organizational changes in the third quarter of 2022 (see Note 1A), the new commercial structure within Biopharma is designed to better support and optimize performance across three broad customer groups: •Primary Care consists of the former Internal Medicine and Vaccines product portfolios, products for COVID-19 prevention and treatment, and potential future mRNA and antiviral products.
•Specialty Care consists of the former Inflammation & Immunology, Rare Disease and Hospital (excluding Paxlovid) product portfolios.
•Oncology consists of the former Oncology product portfolio.
Other Business Activities––Includes the operating results of PC1 as well as certain pre-tax costs not allocated to our operating segment results, such as costs associated with:
•WRDM––the R&D and Medical expenses managed by our WRDM organization, which is generally responsible for research projects for our Biopharma portfolio until proof-of-concept is achieved and then for transitioning those projects to the GPD organization for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. The WRDM organization also has responsibility for certain science-based and other platform-services organizations, which provide end-to-end technical expertise and other services to the various R&D projects, as well as the Worldwide Medical and Safety group, which ensures that Pfizer provides all stakeholders––including patients, healthcare providers, pharmacists, payers and health authorities––with complete and up-to-date information on the risks and benefits associated with Pfizer products so that they can make appropriate decisions on how and when to use Pfizer’s medicines.
•GPD––the costs associated with our GPD organization, which is generally responsible for clinical trials from WRDM in the Biopharma portfolio, including both early- and late-stage portfolio spend. GPD also provides technical support and other services to Pfizer R&D projects. GPD is responsible for facilitating all regulatory submissions and interactions with regulatory agencies.
•Corporate and other unallocated––the costs associated with (i) corporate enabling functions (such as digital, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement, among others) and other corporate costs, including, but not limited to, all strategy, business development, portfolio management and valuation capabilities and certain compensation, as well as interest income and expense, and gains and losses on investments; (ii) overhead costs primarily associated with our manufacturing operations (which include manufacturing variances associated with production) that are not directly assessed to an operating segment, as business unit (segment) management does not manage these costs; and (iii) our share of earnings from Haleon/the Consumer Healthcare JV.
Reconciling Items––The following items, transactions and events are not allocated to our operating segment results: (i) all amortization of intangible assets; (ii) acquisition-related items, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, representing substantive and/or unusual, and in some cases recurring, items that are evaluated on an individual basis by management and that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such certain significant items can include, but are not limited to, pension and postretirement actuarial remeasurement gains and losses, non-acquisition-related restructuring costs, net gains and losses on investments in equity securities, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities. Beginning in the first quarter of 2022, acquisition-related items may now include purchase accounting impacts that previously were included as part of a reconciling item entitled “Purchase accounting adjustments” that we no longer separately present, such as the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, depreciation related to the increase/decrease in fair value of acquired fixed assets, amortization related to the increase in fair value of acquired debt, and the fair value changes for contingent consideration.
Segment Assets––We manage our assets on a total company basis, not by operating segment, as our operating assets are shared or commingled. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Total assets were $197 billion as of December 31, 2022 and $181 billion as of December 31, 2021.
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Pfizer Inc. | 2022 Form 10-K | 97 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Selected Income Statement Information
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The following table provides selected income statement information by reportable segment: |
| | Revenues | | | | Earnings(a) | | Depreciation and Amortization(b) |
| | Year Ended December 31, | | | | Year Ended December 31, | | Year Ended December 31, |
(MILLIONS OF DOLLARS) | | 2022 | | 2021 | | | 2020 | | | | | | | | | 2022 | | 2021 | | | 2020 | | 2022 | | 2021 | | | 2020 |
Reportable Segment: | | | | | | | | | | | | | | | | | | | | | | | | |
Biopharma | | $ | 98,988 | | | $ | 79,557 | | | $ | 40,724 | | | | | | | | | $ | 57,148 | | | $ | 40,647 | | | $ | 27,191 | | | $ | 813 | | | $ | 789 | | | $ | 693 | |
Other business activities(c) | | 1,342 | | | 1,731 | | | 926 | | | | | | | | | (14,370) | | | (13,455) | | | (12,583) | | | 626 | | | 590 | | | 592 | |
Reconciling Items: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangible assets | | | | | | | | | | | | | | (3,609) | | | (3,746) | | | (3,395) | | | 3,609 | | | 3,746 | | | 3,395 | |
Acquisition-related items | | | | | | | | | | | | | | (832) | | | (139) | | | (98) | | | (20) | | | (21) | | | (17) | |
Certain significant items(d) | | | | | | | | | | | | | | (3,608) | | | 1,003 | | | (4,079) | | | 36 | | | 87 | | | 18 | |
| | $ | 100,330 | | | $ | 81,288 | | | $ | 41,651 | | | | | | | | | $ | 34,729 | | | $ | 24,311 | | | $ | 7,036 | | | $ | 5,064 | | | $ | 5,191 | | | $ | 4,681 | |
(a)Income from continuing operations before provision/(benefit) for taxes on income. Biopharma’s earnings include dividend income from our investment in ViiV of $314 million in 2022, $166 million in 2021 and $278 million in 2020. In connection with the organizational changes effective in the third quarter of 2022, certain functions transferred between Biopharma and corporate enabling functions and certain activities were realigned within the GPD organization. We have reclassified $231 million of costs in 2021 and $222 million of costs in 2020 from corporate enabling functions, which are included in Other business activities, to Biopharma to conform to the current period presentation. Amortization of intangible assets is not allocated to our operating segments for all periods presented.
(b)Certain production facilities are shared. Depreciation is allocated based on estimates of physical production.
(c)Other business activities include revenues and costs associated with PC1 and costs that we do not allocate to our operating segments, per above, including acquired IPR&D expenses in the periods presented (see Notes 2A, 2D and 2E). In 2022, earnings include (i) write-offs of $1.3 billion to Cost of sales of inventory related to COVID-19 products that have exceeded or are expected to exceed their approved shelf-lives prior to being used and (ii) charges to Cost of sales of approximately $430 million related to excess raw materials for Paxlovid. (d)Certain significant items are substantive and/or unusual, and in some cases recurring, items (as noted above). Earnings in 2022 includes, among other items: (i) restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring of $1.4 billion ($562 million recorded in Selling, informational and administrative expenses and the remaining amount primarily recorded in Restructuring charges and certain acquisition-related costs) and (ii) net losses on equity securities of $1.3 billion recorded in Other (income)/deductions––net. Earnings in 2021 included, among other items: (i) actuarial valuation and other pension and postretirement plan gains of $1.6 billion recorded in Other (income)/deductions––net and (ii) net gains on equity securities of $1.3 billion recorded in Other (income)/deductions––net, partially offset by (iii) restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring of $1.3 billion ($450 million recorded in Selling, informational and administrative expenses and the remaining amount primarily recorded in Restructuring charges and certain acquisition-related costs). Earnings in 2020 included, among other items: (i) charges of $1.7 billion related to certain asset impairments recorded in Other (income)/deductions––net, (ii) actuarial valuation and other pension and postretirement plan losses of $1.1 billion recorded in Other (income)/deductions––net and (iii) restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring of $791 million ($197 million recorded in Selling, informational and administrative expenses and the remaining amount primarily recorded in Restructuring charges and certain acquisition-related costs). For additional information, see Notes 3 and 4.
B. Geographic Information
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The following summarizes revenues by geographic area: |
| | | | Year Ended December 31, |
(MILLIONS) | | | | | | | | 2022 | | 2021 | | 2020 |
United States | | | | | | | | $ | 42,473 | | | $ | 29,746 | | | $ | 21,455 | |
Developed Europe | | | | | | | | 21,982 | | | 18,336 | | | 7,788 | |
Developed Rest of World | | | | | | | | 15,778 | | | 12,506 | | | 4,036 | |
Emerging Markets | | | | | | | | 20,097 | | | 20,701 | | | 8,372 | |
Revenues | | | | | | | | $ | 100,330 | | | $ | 81,288 | | | $ | 41,651 | |
Revenues exceeded $500 million in each of 24, 21 and 8 countries outside the U.S. in 2022, 2021 and 2020, respectively. The U.S. is the only country to contribute more than 10% of total revenue in 2022, 2021 and 2020. As a percentage of revenues, our largest country outside the U.S. was Japan, which contributed 8% of total revenue in 2022, 9% of total revenue in 2021 and 6% of total revenue in 2020.
We and our collaboration partner, BioNTech, have entered into agreements to supply pre-specified doses of Comirnaty and we have entered into agreements to supply pre-specified treatment courses of Paxlovid with multiple developed and emerging nations around the world and are continuing to deliver doses of Comirnaty and treatment courses of Paxlovid under such agreements. In 2021 and 2022, we principally sold the Comirnaty vaccine and the Paxlovid product directly to government and government sponsored customers. This includes supply agreements entered into in November 2020 and February and May 2021 with the EC for Comirnaty on behalf of the different EU member states and certain other countries. Each EU member state submits its own Comirnaty vaccine order to us and is responsible for payment pursuant to terms of the supply agreements negotiated by the EC.
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Pfizer Inc. | 2022 Form 10-K | 98 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
C. Other Revenue Information
Significant Customers
| | | | | | | | | | | | | | | | | | | | |
The following summarizes revenue, as a percentage of total revenues, for our three largest U.S. wholesaler customers: |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
McKesson, Inc. | | 8 | % | | 9 | % | | 16 | % |
AmerisourceBergen Corporation | | 5 | % | | 7 | % | | 14 | % |
Cardinal Health, Inc. | | 4 | % | | 5 | % | | 10 | % |
Collectively, our three largest U.S. wholesaler customers represented 32%, 24% and 30% of total trade accounts receivable as of December 31, 2022, 2021 and 2020.
Additionally, revenues from the U.S. government represented 23% and 13% of total revenues for 2022 and 2021, respectively, and was not significant for 2020. Accounts receivable from the U.S. government represented 4% and 12% of total trade accounts receivable as of December 31, 2022 and December 31, 2021, respectively. Revenues and accounts receivable from the U.S. government primarily represent sales of Paxlovid and Comirnaty in 2022, and sales of Comirnaty in 2021.
Significant Product Revenues
The following provides detailed revenue information for several of our major products:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(MILLIONS) | | | | Year Ended December 31, |
PRODUCT | | PRIMARY INDICATION OR CLASS | | 2022 | | 2021 | | 2020 |
| | | | | | |
TOTAL REVENUES | | | | $ | 100,330 | | | $ | 81,288 | | | $ | 41,651 | |
GLOBAL BIOPHARMACEUTICALS BUSINESS (BIOPHARMA)(a) | | $ | 98,988 | | | $ | 79,557 | | | $ | 40,724 | |
Primary Care | | $ | 73,023 | | | $ | 52,029 | | | $ | 15,577 | |
Comirnaty direct sales and alliance revenues(b) | | Active immunization to prevent COVID-19 | | 37,806 | | | 36,781 | | | 154 | |
Paxlovid | | COVID-19 in certain high-risk patients | | 18,933 | | | 76 | | | — | |
Eliquis alliance revenues and direct sales | | Nonvalvular atrial fibrillation, deep vein thrombosis, pulmonary embolism | | 6,480 | | | 5,970 | | | 4,949 | |
Prevnar family | | Active immunization to prevent invasive disease caused by Streptococcus pneumoniae serotypes | | 6,337 | | | 5,272 | | | 5,850 | |
Premarin family | | Symptoms of menopause | | 455 | | | 563 | | | 680 | |
BMP2 | | Development of bone and cartilage | | 277 | | | 266 | | | 274 | |
Nimenrix | | Active immunization against invasive meningococcal ACWY disease | | 268 | | | 193 | | | 221 | |
Nurtec ODT/Vydura | | Acute treatment of migraine and prevention of episodic migraine | | 213 | | | — | | | — | |
FSME-IMMUN/TicoVac | | Active immunization to prevent tick-borne encephalitis disease | | 200 | | | 185 | | | 196 | |
Toviaz | | Overactive bladder | | 146 | | | 238 | | | 252 | |
Trumenba | | Active immunization to prevent invasive disease caused by Neisseria meningitidis group B | | 123 | | | 118 | | | 112 | |
Chantix/Champix | | An aid to smoking cessation treatment in adults 18 years of age or older | | 8 | | | 398 | | | 919 | |
All other Primary Care | | Various | | 1,778 | | | 1,967 | | | 1,972 | |
Specialty Care | | $ | 13,833 | | | $ | 15,194 | | | $ | 14,280 | |
Vyndaqel family | | ATTR-CM and polyneuropathy | | 2,447 | | | 2,015 | | | 1,288 | |
Xeljanz | | RA, PsA, UC, active polyarticular course juvenile idiopathic arthritis, ankylosing spondylitis | | 1,796 | | | 2,455 | | | 2,437 | |
Enbrel (Outside the U.S. and Canada) | | RA, juvenile idiopathic arthritis, PsA, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis | | 1,003 | | | 1,185 | | | 1,350 | |
Sulperazon | | Bacterial infections | | 786 | | | 683 | | | 618 | |
Inflectra/Remsima | | Crohn’s disease, pediatric Crohn’s disease, UC, pediatric UC, RA in combination with methotrexate, ankylosing spondylitis, PsA and plaque psoriasis | | 532 | | | 657 | | | 659 | |
Ig Portfolio(c) | | Various | | 491 | | | 430 | | | 376 | |
BeneFIX | | Hemophilia B | | 425 | | | 438 | | | 454 | |
Zavicefta | | Bacterial infections | | 412 | | | 413 | | | 212 | |
Genotropin | | Replacement of human growth hormone | | 360 | | | 389 | | | 427 | |
Zithromax | | Bacterial infections | | 331 | | | 278 | | | 276 | |
Medrol | | Anti-inflammatory glucocorticoid | | 328 | | | 432 | | | 402 | |
Fragmin | | Treatment/prevention of venous thromboembolism | | 269 | | | 305 | | | 252 | |
Somavert | | Acromegaly | | 268 | | | 277 | | | 277 | |
Refacto AF/Xyntha | | Hemophilia A | | 239 | | | 304 | | | 370 | |
Vfend | | Fungal infections | | 225 | | | 267 | | | 270 | |
Oxbryta | | Sickle cell disease | | 73 | | | — | | | — | |
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Pfizer Inc. | 2022 Form 10-K | 99 |
Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(MILLIONS) | | | | Year Ended December 31, |
PRODUCT | | PRIMARY INDICATION OR CLASS | | 2022 | | 2021 | | 2020 |
| | | | | | |
All other Anti-infectives | | Various | | 1,471 | | | 1,835 | | | 1,679 | |
All other Specialty Care | | Various | | 2,377 | | | 2,830 | | | 2,934 | |
Oncology | | $ | 12,132 | | | $ | 12,333 | | | $ | 10,867 | |
Ibrance | | HR-positive/HER2-negative metastatic breast cancer | | 5,120 | | | 5,437 | | | 5,392 | |
Xtandi alliance revenues | | mCRPC, nmCRPC, mCSPC | | 1,198 | | | 1,185 | | | 1,024 | |
Inlyta | | Advanced RCC | | 1,003 | | | 1,002 | | | 787 | |
Bosulif | | Philadelphia chromosome–positive chronic myelogenous leukemia | | 575 | | | 540 | | | 450 | |
Zirabev | | Treatment of mCRC; unresectable, locally advanced, recurrent or metastatic NSCLC; recurrent glioblastoma; metastatic RCC; and persistent, recurrent or metastatic cervical cancer | | 562 | | | 444 | | | 143 | |
Xalkori | | ALK-positive and Proto-Oncogene 1, Receptor Tyrosine Kinase-positive advanced NSCLC | | 465 | | | 493 | | | 544 | |
Ruxience | | Non-hodgkin’s lymphoma, chronic lymphocytic leukemia, granulomatosis with polyangiitis (Wegener’s Granulomatosis) and microscopic polyangiitis | | 458 | | | 491 | | | 170 | |
Retacrit | | Anemia | | 394 | | | 444 | | | 386 | |
Sutent | | Advanced and/or metastatic RCC, adjuvant RCC, refractory gastrointestinal stromal tumors (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor | | 347 | | | 673 | | | 819 | |
Lorbrena | | ALK-positive metastatic NSCLC | | 343 | | | 266 | | | 204 | |
Bavencio alliance revenues | | Locally advanced or metastatic urothelial carcinoma; metastatic Merkel cell carcinoma; immunotherapy and tyrosine kinase inhibitor combination for patients with advanced RCC | | 271 | | | 178 | | | 80 | |
Aromasin | | Post-menopausal early and advanced breast cancer | | 248 | | | 211 | | | 148 | |
Besponsa | | Relapsed or refractory B-cell acute lymphoblastic leukemia | | 219 | | | 192 | | | 182 | |
Trazimera | | HER2-positive breast cancer and metastatic stomach cancers | | 203 | | | 197 | | | 98 | |
Braftovi | | In combination with Mektovi for metastatic melanoma in patients with a BRAFV600E/K mutation and, in combination with Erbitux® (cetuximab)(d), for the treatment of BRAFV600E-mutant mCRC after prior therapy | | 194 | | | 187 | | | 160 | |
Mektovi | | In combination with Braftovi for metastatic melanoma in patients with a BRAFV600E/K mutation | | 176 | | | 155 | | | 142 | |
All other Oncology | | Various | | 357 | | | 238 | | | 137 | |
PFIZER CENTREONE(a) | | $ | 1,342 | | | $ | 1,731 | | | $ | 926 | |
|
Total Alliance revenues included above | | $ | 8,537 | | | $ | 7,652 | | | $ | 5,418 | |
(a)See Note 1A for information about our recent organizational changes. PC1 includes revenues from our contract manufacturing, including certain Comirnaty-related manufacturing activities performed on behalf of BioNTech ($188 million for 2022, $320 million for 2021, and $0 million for 2020), and revenues from our active pharmaceutical ingredient sales operation, as well as revenues related to our manufacturing and supply agreements with former legacy Pfizer businesses/partnerships, including but not limited to, transitional manufacturing and supply agreements with Viatris following the spin-off of the Upjohn Business. (b)Excludes revenues for certain Comirnaty-related manufacturing activities performed on behalf of BioNTech, which are included in the PC1 contract development and manufacturing organization.
(c)Immunoglobulin (Ig) portfolio include the revenues from Panzyga, Octagam and Cutaquig.
(d)Erbitux® is a registered trademark of ImClone LLC.
Remaining Performance Obligations––Contracted revenue expected to be recognized from remaining performance obligations for firm orders in long-term contracts to supply Comirnaty to our customers totaled approximately $15 billion as of December 31, 2022, which includes amounts received in advance and deferred, as well as amounts that will be invoiced as we deliver these products to our customers in future periods. Of this amount, current contract terms provide for expected delivery of product with contracted revenue in 2023 and 2024, the timing and terms of which may be renegotiated. Remaining performance obligations are based on foreign exchange rates as of the end of our fiscal fourth quarter of 2022 and exclude arrangements with an original expected contract duration of less than one year.
Deferred Revenues––Our deferred revenues primarily relate to advance payments received or receivable from various government or government sponsored customers in international markets for supply of Comirnaty. The deferred revenues related to Comirnaty total $2.5 billion as of December 31, 2022, with $2.4 billion and $77 million recorded in current liabilities and noncurrent liabilities, respectively. The deferred revenues related to Comirnaty totaled $3.3 billion as of December 31, 2021, with $3.0 billion and $249 million recorded in current liabilities and noncurrent liabilities, respectively. The decrease in Comirnaty deferred revenues during 2022 was primarily the result of amounts recognized in Revenues as we delivered the product to our customers and the impact of foreign exchange, partially offset by additional advance payments received as we entered into new or amended contracts. During 2022, we recognized revenue of $3.1 billion that was included in the balance of Comirnaty deferred revenues as of December 31, 2021. The Comirnaty deferred revenues as of December 31, 2022 will be recognized in Revenues proportionately as we transfer control of the product to our customers and satisfy our performance obligation under the contracts, with the amounts included in current liabilities expected to be recognized in Revenues within the next 12 months, and the amounts included in noncurrent liabilities expected to be recognized in Revenues in 2024. Deferred revenues associated with contracts for other products were not significant as of December 31, 2022 or 2021.
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Pfizer Inc. | 2022 Form 10-K | 100 |