DELAWARE (State of Incorporation) | 13-5315170 (I.R.S. Employer Identification No.) |
YES X | NO ___ |
YES X | NO ___ |
YES ____ | NO X |
Page | |
Condensed Consolidated Statements of Income for the three and six months ended June 29, 2014 and June 30, 2013 | |
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 29, 2014 and June 30, 2013 | |
Condensed Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013 | |
Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2014 and June 30, 2013 | |
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS, EXCEPT PER COMMON SHARE DATA) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Revenues | $ | 12,773 | $ | 12,973 | $ | 24,126 | $ | 25,383 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales(a) | 2,462 | 2,242 | 4,507 | 4,505 | ||||||||||||
Selling, informational and administrative expenses(a) | 3,520 | 3,591 | 6,560 | 6,808 | ||||||||||||
Research and development expenses(a) | 1,759 | 1,530 | 3,382 | 3,240 | ||||||||||||
Amortization of intangible assets | 1,001 | 1,140 | 2,118 | 2,359 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | 183 | 139 | 314 | ||||||||||||
Other (income)/deductions––net | (53 | ) | (1,070 | ) | 570 | (925 | ) | |||||||||
Income from continuing operations before provision for taxes on income | 4,003 | 5,357 | 6,850 | 9,082 | ||||||||||||
Provision for taxes on income | 1,082 | 1,782 | 1,664 | 2,891 | ||||||||||||
Income from continuing operations | 2,921 | 3,575 | 5,186 | 6,191 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Income from discontinued operations––net of tax | (2 | ) | 141 | 3 | 290 | |||||||||||
Gain on disposal of discontinued operations––net of tax | 2 | 10,418 | 70 | 10,418 | ||||||||||||
Discontinued operations––net of tax | — | 10,559 | 73 | 10,708 | ||||||||||||
Net income before allocation to noncontrolling interests | 2,921 | 14,134 | 5,259 | 16,899 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 9 | 39 | 18 | 54 | ||||||||||||
Net income attributable to Pfizer Inc. | $ | 2,912 | $ | 14,095 | $ | 5,241 | $ | 16,845 | ||||||||
Earnings per common share––basic(b): | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 0.51 | $ | 0.81 | $ | 0.87 | ||||||||
Discontinued operations––net of tax | — | 1.50 | 0.01 | 1.50 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 2.00 | $ | 0.82 | $ | 2.37 | ||||||||
Earnings per common share––diluted(b): | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 0.50 | $ | 0.80 | $ | 0.86 | ||||||||
Discontinued operations––net of tax | — | 1.48 | 0.01 | 1.49 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 1.98 | $ | 0.81 | $ | 2.34 | ||||||||
Weighted-average shares––basic | 6,368 | 7,042 | 6,379 | 7,115 | ||||||||||||
Weighted-average shares––diluted | 6,444 | 7,117 | 6,460 | 7,185 | ||||||||||||
Cash dividends paid per common share | $ | 0.26 | $ | 0.24 | $ | 0.52 | $ | 0.48 | ||||||||
(a) | Excludes amortization of intangible assets, except as disclosed in Note 9B. Goodwill and Other Intangible Assets: Other Intangible Assets. |
(b) | EPS amounts may not add due to rounding. |
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Net income before allocation to noncontrolling interests | $ | 2,921 | $ | 14,134 | $ | 5,259 | $ | 16,899 | ||||||||
Foreign currency translation adjustments | $ | 233 | $ | (755 | ) | $ | 158 | $ | (1,047 | ) | ||||||
Reclassification adjustments(a) | — | 171 | (62 | ) | 171 | |||||||||||
233 | (584 | ) | 96 | (876 | ) | |||||||||||
Unrealized holding gains/(losses) on derivative financial instruments | 1 | 529 | (57 | ) | 133 | |||||||||||
Reclassification adjustments for realized (gains)/losses(b) | 74 | (224 | ) | 86 | 302 | |||||||||||
75 | 305 | 29 | 435 | |||||||||||||
Unrealized holding gains/(losses) on available-for-sale securities | (15 | ) | (178 | ) | 93 | (188 | ) | |||||||||
Reclassification adjustments for realized (gains)/losses(b) | (79 | ) | 74 | (178 | ) | (84 | ) | |||||||||
(94 | ) | (104 | ) | (85 | ) | (272 | ) | |||||||||
Benefit plans: actuarial gains/(losses), net | (11 | ) | 22 | (5 | ) | 44 | ||||||||||
Reclassification adjustments related to amortization(c) | 49 | 150 | 98 | 301 | ||||||||||||
Reclassification adjustments related to settlements, net(c) | 18 | 41 | 39 | 96 | ||||||||||||
Other | (9 | ) | 43 | (26 | ) | 140 | ||||||||||
47 | 256 | 106 | 581 | |||||||||||||
Benefit plans: prior service credits and other | — | — | — | 3 | ||||||||||||
Reclassification adjustments related to amortization(c) | (18 | ) | (13 | ) | (36 | ) | (29 | ) | ||||||||
Reclassification adjustments related to curtailments, net(c) | 15 | — | 11 | (9 | ) | |||||||||||
Other | — | (4 | ) | (1 | ) | (6 | ) | |||||||||
(3 | ) | (17 | ) | (26 | ) | (41 | ) | |||||||||
Other comprehensive income/(loss), before tax | 258 | (144 | ) | 120 | (173 | ) | ||||||||||
Tax provision/(benefit) on other comprehensive income/(loss)(d) | 5 | 187 | (12 | ) | 363 | |||||||||||
Other comprehensive income/(loss) before allocation to noncontrolling interests | $ | 253 | $ | (331 | ) | $ | 132 | $ | (536 | ) | ||||||
Comprehensive income before allocation to noncontrolling interests | $ | 3,174 | $ | 13,803 | $ | 5,391 | $ | 16,363 | ||||||||
Less: Comprehensive income attributable to noncontrolling interests | 24 | 18 | 31 | 30 | ||||||||||||
Comprehensive income attributable to Pfizer Inc. | $ | 3,150 | $ | 13,785 | $ | 5,360 | $ | 16,333 | ||||||||
(a) | Reclassified into Gain on disposal of discontinued operations—net of tax in the condensed consolidated statements of income. |
(b) | Reclassified into Other (income)/deductions—net in the condensed consolidated statements of income. |
(c) | Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension and Postretirement Benefit Plans. |
(d) | See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive Income/(Loss). |
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 3,406 | $ | 2,183 | ||||
Short-term investments | 30,648 | 30,225 | ||||||
Accounts receivable, less allowance for doubtful accounts | 10,388 | 9,357 | ||||||
Inventories | 6,249 | 6,166 | ||||||
Current deferred tax assets and other current tax assets | 4,869 | 4,624 | ||||||
Other current assets | 2,727 | 3,689 | ||||||
Total current assets | 58,287 | 56,244 | ||||||
Long-term investments | 17,168 | 16,406 | ||||||
Property, plant and equipment, less accumulated depreciation | 12,179 | 12,397 | ||||||
Goodwill | 42,661 | 42,519 | ||||||
Identifiable intangible assets, less accumulated amortization | 37,360 | 39,385 | ||||||
Noncurrent deferred tax assets and other noncurrent tax assets | 1,383 | 1,554 | ||||||
Other noncurrent assets | 3,574 | 3,596 | ||||||
Total assets | $ | 172,612 | $ | 172,101 | ||||
Liabilities and Equity | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 5,561 | $ | 6,027 | ||||
Accounts payable | 2,990 | 3,234 | ||||||
Dividends payable | 1,650 | 1,663 | ||||||
Income taxes payable | 760 | 678 | ||||||
Accrued compensation and related items | 1,631 | 1,792 | ||||||
Other current liabilities | 9,346 | 9,972 | ||||||
Total current liabilities | 21,938 | 23,366 | ||||||
Long-term debt | 32,267 | 30,462 | ||||||
Pension benefit obligations, net | 4,483 | 4,635 | ||||||
Postretirement benefit obligations, net | 2,621 | 2,668 | ||||||
Noncurrent deferred tax liabilities | 26,309 | 25,590 | ||||||
Other taxes payable | 3,800 | 3,993 | ||||||
Other noncurrent liabilities | 4,238 | 4,767 | ||||||
Total liabilities | 95,656 | 95,481 | ||||||
Commitments and Contingencies | ||||||||
Preferred stock | 31 | 33 | ||||||
Common stock | 454 | 453 | ||||||
Additional paid-in capital | 78,208 | 77,283 | ||||||
Treasury stock | (70,535 | ) | (67,923 | ) | ||||
Retained earnings | 71,627 | 69,732 | ||||||
Accumulated other comprehensive loss | (3,152 | ) | (3,271 | ) | ||||
Total Pfizer Inc. shareholders’ equity | 76,633 | 76,307 | ||||||
Equity attributable to noncontrolling interests | 323 | 313 | ||||||
Total equity | 76,956 | 76,620 | ||||||
Total liabilities and equity | $ | 172,612 | $ | 172,101 | ||||
Six Months Ended | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | ||||||
Operating Activities | ||||||||
Net income before allocation to noncontrolling interests | $ | 5,259 | $ | 16,899 | ||||
Adjustments to reconcile net income before allocation to noncontrolling interests to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,880 | 3,400 | ||||||
Asset write-offs, impairments and related charges | 189 | 648 | ||||||
Gain associated with the transfer of certain product rights to an equity-method investment | — | (459 | ) | |||||
Gain on disposal of discontinued operations | (66 | ) | (10,539 | ) | ||||
Deferred taxes from continuing operations | 853 | 1,254 | ||||||
Deferred taxes from discontinued operations | (2 | ) | (19 | ) | ||||
Share-based compensation expense | 281 | 292 | ||||||
Benefit plan contributions (in excess of)/less than expense | (124 | ) | 149 | |||||
Other non-cash adjustments, net | (299 | ) | (101 | ) | ||||
Other changes in assets and liabilities, net of acquisitions and divestitures | (1,949 | ) | (5,464 | ) | ||||
Net cash provided by operating activities | 7,022 | 6,060 | ||||||
Investing Activities | ||||||||
Purchases of property, plant and equipment | (570 | ) | (511 | ) | ||||
Purchases of short-term investments | (21,081 | ) | (21,663 | ) | ||||
Proceeds from redemptions and sales of short-term investments | 20,795 | 14,502 | ||||||
Net (purchases of)/proceeds from redemptions/sales of investments with original maturities of 90 days or less | 1,399 | (401 | ) | |||||
Purchases of long-term investments | (5,327 | ) | (5,233 | ) | ||||
Proceeds from redemptions and sales of long-term investments | 2,947 | 3,194 | ||||||
Acquisitions of businesses, net of cash acquired | — | (15 | ) | |||||
Acquisitions of intangible assets | (56 | ) | (127 | ) | ||||
Other investing activities | 288 | 171 | ||||||
Net cash used in investing activities | (1,605 | ) | (10,083 | ) | ||||
Financing Activities | ||||||||
Proceeds from short-term borrowings | 1 | 2,334 | ||||||
Principal payments on short-term borrowings | (7 | ) | (2,333 | ) | ||||
Net proceeds from/(payments on) short-term borrowings with original maturities of 90 days or less | (2,692 | ) | 2,251 | |||||
Proceeds from issuance of long-term debt(a) | 4,491 | 6,618 | ||||||
Principal payments on long-term debt | (752 | ) | (2,394 | ) | ||||
Purchases of common stock | (2,520 | ) | (7,889 | ) | ||||
Cash dividends paid | (3,320 | ) | (3,436 | ) | ||||
Proceeds from exercise of stock options | 583 | 1,175 | ||||||
Other financing activities | 43 | 74 | ||||||
Net cash used in financing activities | (4,173 | ) | (3,600 | ) | ||||
Effect of exchange-rate changes on cash and cash equivalents | (21 | ) | (22 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 1,223 | (7,645 | ) | |||||
Cash and cash equivalents, beginning | 2,183 | 10,081 | ||||||
Cash and cash equivalents, end | $ | 3,406 | $ | 2,436 | ||||
Supplemental Cash Flow Information | ||||||||
Non-cash transactions: | ||||||||
Sale of subsidiary common stock (Zoetis) for Pfizer common stock(b) | $ | — | $ | 11,408 | ||||
Exchange of subsidiary common stock (Zoetis) for the retirement of Pfizer commercial paper issued in 2013(b) | — | 2,479 | ||||||
Exchange of subsidiary senior notes (Zoetis) for the retirement of Pfizer commercial paper issued in 2012(b) | — | 992 | ||||||
Transfer of certain product rights to an equity-method investment (Hisun Pfizer)(c) | — | 1,233 | ||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 1,068 | $ | 1,305 | ||||
Interest | 996 | 1,103 | ||||||
(a) | In 2013, includes $2.6 billion from the issuance of senior notes by Zoetis (our former Animal Health subsidiary), net of the $1.0 billion non-cash exchange of Zoetis senior notes for the retirement of Pfizer commercial paper issued in 2012. See Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
(b) | See Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
(c) | See Note 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments. |
• | A new standard that clarified the accounting for cumulative translation adjustment (CTA) upon derecognition of a group of assets that is a business or an equity-method investment within a foreign entity. |
• | A new standard regarding the measurement of obligations resulting from joint and several liability arrangements that may include debt agreements, other contractual obligations and settled litigation or judicial rulings. |
• | 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 are directly or indirectly observable (Level 2 inputs). |
• | Unobservable inputs that reflect estimates and assumptions (Level 3 inputs). |
• | Formation of Zoetis—On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of senior notes. Also, on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion of Zoetis senior notes, and an amount of cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion of senior notes issued. The $1.0 billion of Zoetis senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in 2012, and the cash proceeds received by Pfizer of approximately $2.6 billion were used for dividends and stock buybacks. |
• | Initial Public Offering (19.8% Interest)—On February 6, 2013, an IPO of the Class A common stock of Zoetis was completed, pursuant to which we sold 99.015 million shares of Class A common stock of Zoetis (all of the Class A common stock, including shares sold pursuant to the underwriters' option to purchase additional shares, which was exercised in full) in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued in 2013. The Class A common stock sold in the IPO represented approximately 19.8% of the total outstanding Zoetis shares. The excess of the consideration received over the net book value of our divested interest was approximately $2.3 billion and was recorded in Additional paid-in capital. |
• | Exchange Offer (80.2% Interest)—On June 24, 2013, we exchanged all of our remaining interest in Zoetis for Pfizer common stock and recognized a gain on sale of approximately $10.4 billion, net of income taxes resulting from certain legal entity reorganizations, which was recorded in Gain on disposal of discontinued operations––net of tax in the condensed consolidated statements of income for the three and six months ended June 30, 2013. |
The following table provides the components of Discontinued operations—net of tax, virtually all of which relates to Zoetis: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Revenues | $ | — | $ | 1,112 | $ | — | $ | 2,201 | ||||||||
Pre-tax income from discontinued operations | (3 | ) | 189 | 2 | 389 | |||||||||||
Provision for taxes on income(a) | (1 | ) | 48 | (1 | ) | 99 | ||||||||||
Income from discontinued operations––net of tax | (2 | ) | 141 | 3 | 290 | |||||||||||
Pre-tax gain on disposal of discontinued operations(b) | 2 | 10,539 | 66 | 10,539 | ||||||||||||
Provision for taxes on income(b), (c) | — | 121 | (4 | ) | 121 | |||||||||||
Gain on disposal of discontinued operations––net of tax(b) | 2 | 10,418 | 70 | 10,418 | ||||||||||||
Discontinued operations––net of tax | $ | — | $ | 10,559 | $ | 73 | $ | 10,708 | ||||||||
(a) | Includes deferred tax benefits of $2 million and $26 million for the three months ended June 29, 2014 and June 30, 2013, respectively, and deferred tax benefits of $2 million and $19 million for the six months ended June 29, 2014 and June 30, 2013, respectively. |
(b) | For the three and six months ended June 29, 2014, represents post-close adjustments. |
(c) | Reflects income taxes resulting from certain legal entity reorganizations. |
• | In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and |
• | In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization and optimization actions, workforce reductions and the expansion of shared services, including the development of global systems. |
• | Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of ten sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $450 million associated with prior acquisition activity and costs of approximately $1.5 billion associated with new non-acquisition-related cost-reduction initiatives. |
• | New global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support future reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $350 million. |
• | Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $900 million. |
The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Restructuring charges(a): | ||||||||||||||||
Employee terminations | $ | 17 | $ | 136 | $ | 47 | $ | 115 | ||||||||
Asset impairments | 13 | 12 | 19 | 115 | ||||||||||||
Exit costs | 36 | 2 | 40 | 15 | ||||||||||||
Total restructuring charges | 66 | 150 | 106 | 245 | ||||||||||||
Integration costs(b) | 15 | 33 | 33 | 69 | ||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | 183 | 139 | 314 | ||||||||||||
Additional depreciation––asset restructuring recorded in our condensed consolidated statements of income as follows(c): | ||||||||||||||||
Cost of sales | 72 | 58 | 146 | 91 | ||||||||||||
Selling, informational and administrative expenses | 1 | 8 | 1 | 19 | ||||||||||||
Research and development expenses | 29 | 3 | 29 | 94 | ||||||||||||
Total additional depreciation––asset restructuring | 102 | 69 | 176 | 204 | ||||||||||||
Implementation costs recorded in our condensed consolidated statements of income as follows(d): | ||||||||||||||||
Cost of sales | 22 | 5 | 28 | 11 | ||||||||||||
Selling, informational and administrative expenses | 38 | 34 | 53 | 65 | ||||||||||||
Research and development expenses | 16 | 7 | 27 | 9 | ||||||||||||
Total implementation costs | 76 | 46 | 108 | 85 | ||||||||||||
Total costs associated with acquisitions and cost-reduction/productivity initiatives | $ | 259 | $ | 298 | $ | 423 | $ | 603 | ||||||||
(a) | In the six months ended June 29, 2014, Employee terminations represent the expected reduction of the workforce by approximately 300 employees, mainly in manufacturing and sales. |
• | For the three months ended June 29, 2014, the Global Innovative Pharmaceutical segment (GIP) ($9 million), the Global Established Pharmaceutical segment (GEP) ($24 million), the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($6 million), Worldwide Research and Development and Medical ($8 million), manufacturing operations ($12 million) and Corporate ($7 million). |
• | For the six months ended June 29, 2014, the Global Innovative Pharmaceutical segment (GIP) ($11 million), the Global Established Pharmaceutical segment (GEP) ($31 million), the Global Vaccines, Oncology and Consumer Healthcare segment (VOC) ($6 million), Worldwide Research and Development and Medical ($9 million), manufacturing operations ($38 million) and Corporate ($11 million). |
• | For the three months ended June 30, 2013, total operating segments ($54 million), Worldwide Research and Development and Medical ($12 million), manufacturing operations ($80 million) and Corporate ($4 million). |
• | For the six months ended June 30, 2013, total operating segments ($67 million), Worldwide Research and Development and Medical ($15 million), manufacturing operations ($82 million) and Corporate ($81 million). |
(b) | Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. |
(c) | Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions. |
(d) | Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives. |
The following table provides the components of and changes in our restructuring accruals: | ||||||||||||||||
(MILLIONS OF DOLLARS) | Employee Termination Costs | Asset Impairment Charges | Exit Costs | Accrual | ||||||||||||
Balance, December 31, 2013(a) | $ | 1,685 | $ | — | $ | 94 | $ | 1,779 | ||||||||
Provision | 47 | 19 | 40 | 106 | ||||||||||||
Utilization and other(b) | (239 | ) | (19 | ) | (69 | ) | (327 | ) | ||||||||
Balance, June 29, 2014(c) | $ | 1,493 | $ | — | $ | 65 | $ | 1,558 | ||||||||
(a) | Included in Other current liabilities ($1.0 billion) and Other noncurrent liabilities ($767 million). |
(b) | Includes adjustments for foreign currency translation. |
(c) | Included in Other current liabilities ($1.0 billion) and Other noncurrent liabilities ($550 million). |
The following table provides components of Other (income)/deductions––net: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Interest income | $ | (104 | ) | $ | (102 | ) | $ | (196 | ) | $ | (197 | ) | ||||
Interest expense(a) | 343 | 356 | 664 | 727 | ||||||||||||
Net interest expense | 239 | 254 | 468 | 530 | ||||||||||||
Royalty-related income(b) | (239 | ) | (120 | ) | (487 | ) | (183 | ) | ||||||||
Patent litigation settlement income(c) | — | (1,351 | ) | — | (1,351 | ) | ||||||||||
Other legal matters, net(d) | (2 | ) | (12 | ) | 692 | (95 | ) | |||||||||
Gain associated with the transfer of certain product rights(e) | — | 31 | — | (459 | ) | |||||||||||
Net gains on asset disposals(f) | (33 | ) | (28 | ) | (214 | ) | (54 | ) | ||||||||
Certain asset impairments and related charges(g) | — | 127 | 115 | 525 | ||||||||||||
Costs associated with the Zoetis IPO(h) | — | — | — | 18 | ||||||||||||
Other, net | (18 | ) | 29 | (4 | ) | 144 | ||||||||||
Other (income)/deductions––net | $ | (53 | ) | $ | (1,070 | ) | $ | 570 | $ | (925 | ) | |||||
(a) | Interest expense decreased in the second quarter and first six months of 2014 primarily due to the benefit of the effective conversion of some fixed-rate liabilities to floating-rate liabilities. |
(b) | Royalty-related income increased in the second quarter and first six months of 2014 primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013. On that date, the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired, and Pfizer became entitled to royalties for a 36-month period. |
(c) | In 2013, reflects income from a litigation settlement with Teva Pharmaceuticals Industries Ltd. (Teva) and Sun Pharmaceutical Industries Ltd. (Sun) for patent-infringement damages resulting from their "at-risk" launches of generic Protonix in the U.S. As of June 29, 2014, approximately $256 million is not yet due and is included in Other current assets. |
(d) | In the first six months of 2014, primarily includes approximately $620 million for Neurontin-related matters (including off-label promotion actions and antitrust actions) and approximately $55 million for an Effexor-related matter. In the first six months of 2013, primarily includes an $80 million insurance recovery related to a certain litigation matter. For additional information, see Note 12A. Commitments and Contingencies: Legal Proceedings. |
(e) | In the first six months of 2013, represents the gain associated with the transfer of certain product rights to Hisun Pfizer, our 49%-owned equity-method investment in China. For additional information, see Note 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments. |
(f) | In the first six months of 2014, primarily includes gains on sales of product rights (approximately $96 million) and gains on sales of investments in equity securities (approximately $98 million). |
(g) | In the first six months of 2014, includes intangible asset impairment charges of $114 million, virtually all of which relates to an in-process research and development (IPR&D) compound for the treatment of skin fibrosis. The intangible asset impairment charge for the first six months of 2014 is associated with Worldwide Research and Development and reflects, among other things, the impact of changes to the development program. In the first six months of 2013, includes intangible asset impairment charges of $489 million, primarily reflecting (i) $394 million of developed technology rights (for use in the development of bone and cartilage) acquired in connection with our acquisition of Wyeth, and (ii) $81 million related to two IPR&D compounds. The intangible asset impairment charges for 2013 reflect, among other things, updated commercial forecasts. The impairment charges for the first six months of 2013 are associated with the following: Global |
(h) | Represents costs incurred in connection with the IPO of an approximate 19.8% ownership interest in Zoetis. Includes expenditures for banking, legal, accounting and similar services. For additional information, see Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
The following table provides additional information about the intangible assets that were impaired during the first six months of 2014 in Other (income)/deductions––net: | ||||||||||||||||||||
Fair Value(a) | Six Months Ended June 29, 2014 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Amount | Level 1 | Level 2 | Level 3 | Impairment | |||||||||||||||
Intangible assets––IPR&D(b) | $ | 79 | $ | — | $ | — | $ | 79 | $ | 114 | ||||||||||
Total | $ | 79 | $ | — | $ | — | $ | 79 | $ | 114 | ||||||||||
(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 1C. Basis of Presentation and Significant Accounting Policies: Fair Value. |
(b) | Reflects intangible assets written down to fair value in the first six months of 2014. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then we 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 and the impact of technological risk associated with IPR&D assets; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. |
• | the non-recurrence in the second quarter of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the second quarter of 2013; |
• | the favorable impact of the resolution in the second quarter of 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, and from the expiration of certain statutes of limitations; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. research and development (R&D) tax credit on December 31, 2013. |
• | the favorable impact of the resolution in the first six months of 2014 of certain tax positions, pertaining to prior years primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations; |
• | the non-recurrence in the first six months of 2014 of the unfavorable tax impact associated with the non-deductibility of the goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to our 49%-owned equity-method investment with Hisun in China in the first six months of 2013; |
• | the non-recurrence in the first six months of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the first six months of 2013; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. R&D tax credit on December 31, 2013. |
• | With respect to Pfizer Inc., tax years 2009 and 2010 are currently under audit. Tax years 2011-2014 are open, but not under audit. All other tax years are closed. |
The following table provides the components of the tax provision/(benefit) on Other comprehensive income/(loss): | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Foreign currency translation adjustments(a) | $ | (3 | ) | $ | 19 | $ | (10 | ) | $ | 90 | ||||||
Unrealized holding gains/(losses) on derivative financial instruments | 1 | 135 | (16 | ) | (20 | ) | ||||||||||
Reclassification adjustments for realized (gains)/losses | 9 | (89 | ) | 8 | 78 | |||||||||||
10 | 46 | (8 | ) | 58 | ||||||||||||
Unrealized holding gains/(losses) on available-for-sale securities | (4 | ) | 4 | 23 | 15 | |||||||||||
Reclassification adjustments for realized (gains)/losses | (11 | ) | 31 | (40 | ) | 6 | ||||||||||
(15 | ) | 35 | (17 | ) | 21 | |||||||||||
Benefit plans: actuarial gains/(losses), net | (3 | ) | 5 | (2 | ) | 11 | ||||||||||
Reclassification adjustments related to amortization | 16 | 52 | 32 | 106 | ||||||||||||
Reclassification adjustments related to settlements, net | 7 | 16 | 15 | 36 | ||||||||||||
Other | 5 | 21 | (7 | ) | 58 | |||||||||||
25 | 94 | 38 | 211 | |||||||||||||
Benefit plans: prior service credits and other | — | 2 | — | 1 | ||||||||||||
Reclassification adjustments related to amortization | (7 | ) | (6 | ) | (14 | ) | (12 | ) | ||||||||
Reclassification adjustments related to curtailments, net | 2 | (1 | ) | 1 | (4 | ) | ||||||||||
Other | (7 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||
(12 | ) | (7 | ) | (15 | ) | (17 | ) | |||||||||
Tax provision/(benefit) on other comprehensive income/(loss) | $ | 5 | $ | 187 | $ | (12 | ) | $ | 363 | |||||||
(a) | Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely. |
The following table provides the changes, net of tax, in Accumulated other comprehensive loss: | ||||||||||||||||||||||||
Net Unrealized Gains/(Losses) | Benefit Plans | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Foreign Currency Translation Adjustments | Derivative Financial Instruments | Available-For-Sale Securities | Actuarial Gains/(Losses) | Prior Service (Costs)/Credits and Other | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Balance, December 31, 2013 | $ | (590 | ) | $ | 79 | $ | 150 | $ | (3,223 | ) | $ | 313 | $ | (3,271 | ) | |||||||||
Other comprehensive income/(loss)(a) | 93 | 37 | (68 | ) | 68 | (11 | ) | 119 | ||||||||||||||||
Balance, June 29, 2014 | $ | (497 | ) | $ | 116 | $ | 82 | $ | (3,155 | ) | $ | 302 | $ | (3,152 | ) | |||||||||
(a) | Amounts do not include foreign currency translation income of $13 million attributable to noncontrolling interests for the first six months of 2014. |
The following table provides additional information about certain of our financial assets and liabilities: | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
Selected financial assets measured at fair value on a recurring basis(a) | ||||||||
Trading securities(b) | $ | 105 | $ | 126 | ||||
Available-for-sale debt securities(c) | 36,189 | 34,899 | ||||||
Available-for-sale money market funds | 1,474 | 945 | ||||||
Available-for-sale equity securities, excluding money market funds(c) | 306 | 356 | ||||||
Derivative financial instruments in receivable positions(d): | ||||||||
Interest rate swaps | 555 | 468 | ||||||
Foreign currency swaps | 637 | 871 | ||||||
Foreign currency forward-exchange contracts | 122 | 172 | ||||||
39,388 | 37,837 | |||||||
Other selected financial assets | ||||||||
Held-to-maturity debt securities, carried at amortized cost(c), (e) | 9,001 | 9,139 | ||||||
Private equity securities, carried at equity-method or at cost(e), (f) | 2,171 | 2,270 | ||||||
11,172 | 11,409 | |||||||
Total selected financial assets | $ | 50,560 | $ | 49,246 | ||||
Selected financial liabilities measured at fair value on a recurring basis(a) | ||||||||
Derivative financial instruments in a liability position(g): | ||||||||
Interest rate swaps | $ | 90 | $ | 301 | ||||
Foreign currency swaps | 182 | 110 | ||||||
Foreign currency forward-exchange contracts | 119 | 219 | ||||||
391 | 630 | |||||||
Other selected financial liabilities(h) | ||||||||
Short-term borrowings, carried at historical proceeds, as adjusted(e) | 5,561 | 6,027 | ||||||
Long-term debt, carried at historical proceeds, as adjusted(i), (j) | 32,267 | 30,462 | ||||||
37,828 | 36,489 | |||||||
Total selected financial liabilities | $ | 38,219 | $ | 37,119 | ||||
(a) | We use a market approach in valuing financial instruments on a recurring basis. For additional information, see Note 1C. Basis of Presentation and Significant Accounting Policies: Fair Value. All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1% that use Level 1 inputs. |
(b) | Trading securities are held in trust for benefits attributable to the former Pharmacia Savings Plus Plan. |
(c) | Gross unrealized gains and losses are not significant. |
(d) | Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $14 million and foreign currency forward-exchange contracts with fair values of $61 million as of June 29, 2014; and interest rate swaps with fair values of $38 million, foreign currency swaps with fair values of $30 million and foreign currency forward-exchange contracts with fair values of $66 million as of December 31, 2013. |
(e) | The differences between the estimated fair values and carrying values of held-to-maturity debt securities, private equity securities at cost and short-term borrowings not measured at fair value on a recurring basis were not significant as of June 29, 2014 or December 31, 2013. The fair value measurements of our held-to-maturity debt securities and our short-term borrowings are based on Level 2 inputs, using a market approach. The fair value measurements of our private equity securities at cost are based on Level 3 inputs. |
(f) | Our private equity securities represent investments in the life sciences sector. |
(g) | Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency swaps with fair values of $90 million and foreign currency forward-exchange contracts with fair values of $57 million as of June 29, 2014; and foreign currency swaps with fair values of $76 million and foreign currency forward-exchange contracts with fair values of $77 million as of December 31, 2013. |
(h) | Some carrying amounts may include adjustments for discount or premium amortization or for the effect of hedging the interest rate fair value risk associated with certain financial liabilities by interest rate swaps. |
(i) | Includes foreign currency debt with fair values of $669 million as of June 29, 2014 and $651 million as of December 31, 2013, which are used as hedging instruments. |
(j) | The fair value of our long-term debt (not including the current portion of long-term debt) is $37.0 billion as of June 29, 2014 and $35.1 billion as of December 31, 2013. The fair value measurements for our long-term debt are based on Level 2 inputs, using a market approach. Generally, the difference between the fair value of our long-term debt and the amount reported on the condensed consolidated balance sheet is due to a decline in relative market interest rates since the debt issuance. |
The following table provides the classification of these selected financial assets and liabilities in the condensed consolidated balance sheets: | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,430 | $ | 1,104 | ||||
Short-term investments | 30,648 | 30,225 | ||||||
Long-term investments | 17,168 | 16,406 | ||||||
Other current assets(a) | 203 | 286 | ||||||
Other noncurrent assets(b) | 1,111 | 1,225 | ||||||
$ | 50,560 | $ | 49,246 | |||||
Liabilities | ||||||||
Short-term borrowings, including current portion of long-term debt | $ | 5,561 | $ | 6,027 | ||||
Other current liabilities(c) | 215 | 303 | ||||||
Long-term debt | 32,267 | 30,462 | ||||||
Other noncurrent liabilities(d) | 176 | 327 | ||||||
$ | 38,219 | 37,119 | ||||||
(a) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($73 million), foreign currency swaps ($8 million) and foreign currency forward-exchange contracts ($122 million) and, as of December 31, 2013, include interest rate swaps ($90 million), foreign currency swaps ($24 million) and foreign currency forward-exchange contracts ($172 million). |
(b) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($482 million) and foreign currency swaps ($629 million) and, as of December 31, 2013, include interest rate swaps ($378 million) and foreign currency swaps ($847 million). |
(c) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($2 million), foreign currency swaps ($94 million) and foreign currency forward-exchange contracts ($119 million) and, as of December 31, 2013, include foreign currency swaps ($84 million) and foreign currency forward-exchange contracts ($219 million). |
(d) | As of June 29, 2014, derivative instruments at fair value include interest rate swaps ($88 million) and foreign currency swaps ($88 million) and, as of December 31, 2013, include interest rate swaps ($301 million) and foreign currency swaps ($26 million). |
The following table provides the contractual maturities of the available-for-sale and held-to-maturity debt securities: | ||||||||||||||||||||
Years | June 29, 2014 | |||||||||||||||||||
(MILLIONS OF DOLLARS) | Within 1 | Over 1 to 5 | Over 5 to 10 | Over 10 | Total | |||||||||||||||
Available-for-sale debt securities | ||||||||||||||||||||
Western European, Japanese and other government debt(a) | $ | 12,844 | $ | 2,406 | $ | — | $ | 1 | $ | 15,251 | ||||||||||
Corporate debt(b) | 2,306 | 5,018 | 1,581 | 265 | 9,170 | |||||||||||||||
U.S. government debt | 2,151 | 782 | 10 | — | 2,943 | |||||||||||||||
Western European, Scandinavian, Australian and other government agency debt(a) | 1,965 | 367 | — | — | 2,332 | |||||||||||||||
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities | — | 1,924 | — | — | 1,924 | |||||||||||||||
Reverse repurchase agreements(c) | 1,767 | — | — | — | 1,767 | |||||||||||||||
Supranational debt(a) | 638 | 1,040 | — | — | 1,678 | |||||||||||||||
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities | 18 | 775 | — | 331 | 1,124 | |||||||||||||||
Held-to-maturity debt securities | ||||||||||||||||||||
Western European, Scandinavian and other government debt(a) | 5,547 | — | — | — | 5,547 | |||||||||||||||
Western European, Scandinavian and other government agency debt,(a) time deposits and other | 3,368 | 63 | 23 | — | 3,454 | |||||||||||||||
Total debt securities | $ | 30,604 | $ | 12,375 | $ | 1,614 | $ | 597 | $ | 45,190 | ||||||||||
(a) | Issued by governments, government agencies or supranational entities, as applicable, all of which are investment-grade. |
(b) | Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment-grade. |
(c) | Involving U.S. securities. |
The following table provides the components of the senior unsecured long-term debt issued in the second quarter of 2014: | ||||||
(MILLIONS OF DOLLARS) | Maturity Date | As of June 29, 2014 | ||||
1.1% Notes(a), (b) | May 2017 | $ | 1,000 | |||
2.1% Notes(a), (b) | May 2019 | 1,500 | ||||
3.4% Notes(a), (b) | May 2024 | 1,000 | ||||
4.4% Notes(a), (b) | May 2044 | 500 | ||||
Three-month U.S. dollar London Interbank Offering Rate (LIBOR) plus 0.15% Notes(c) | May 2017 | 500 | ||||
Total long-term debt issued in the second quarter of 2014 | $ | 4,500 | ||||
(a) | Interest is payable semi-annually beginning November 15, 2014. |
(b) | The notes are redeemable, in whole or in part, at any time at Pfizer's option, at a redemption price equal to the greater of 100% of the principal amount of the notes being redeemed on the redemption date, or the sum of the present values of the remaining scheduled payments of principal and interest discounted at the U.S. Treasury rate plus an incremental percentage, depending on the issuance; plus, in each case, accrued and unpaid interest. |
(c) | Interest is payable quarterly beginning August 15, 2014. |
(MILLIONS OF DOLLARS) | 2015 | 2016 | 2017 | 2018 | After 2018 | TOTAL | ||||||||||||||||||
Maturities | $ | — | $ | 4,394 | $ | 4,136 | $ | 2,412 | $ | 21,325 | $ | 32,267 | ||||||||||||
The following table provides information about the gains/(losses) incurred to hedge or offset operational foreign exchange or interest rate risk: | ||||||||||||||||||||||||
Amount of Gains/(Losses) Recognized in OID(a), (b), (c) | Amount of Gains/(Losses) Recognized in OCI (Effective Portion)(a), (d) | Amount of Gains/(Losses) Reclassified from OCI into OID (Effective Portion)(a), (d) | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | (3 | ) | $ | 268 | $ | 2 | $ | 131 | |||||||||||
Foreign currency forward-exchange contracts | — | — | 4 | 261 | (76 | ) | 93 | |||||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | — | — | (3 | ) | 16 | — | — | |||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | 32 | (21 | ) | — | — | — | — | |||||||||||||||||
Foreign currency swaps | 3 | 5 | — | — | — | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency long-term debt | — | — | (8 | ) | 34 | — | — | |||||||||||||||||
$ | 35 | $ | (16 | ) | $ | (10 | ) | $ | 579 | $ | (74 | ) | $ | 224 | ||||||||||
Six Months Ended | ||||||||||||||||||||||||
Derivative Financial Instruments in Cash Flow Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | $ | — | $ | — | $ | (18 | ) | $ | (181 | ) | $ | 11 | $ | (251 | ) | |||||||||
Foreign currency forward-exchange contracts | — | — | (39 | ) | 314 | (97 | ) | (51 | ) | |||||||||||||||
Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency swaps | — | (3 | ) | (11 | ) | 139 | — | — | ||||||||||||||||
Derivative Financial Instruments Not Designated as Hedges: | ||||||||||||||||||||||||
Foreign currency forward-exchange contracts | 20 | 128 | — | — | — | — | ||||||||||||||||||
Foreign currency swaps | — | 1 | — | — | — | — | ||||||||||||||||||
Non-Derivative Financial Instruments in Net Investment Hedge Relationships: | ||||||||||||||||||||||||
Foreign currency long-term debt | — | — | (22 | ) | 97 | — | — | |||||||||||||||||
All other net | (3 | ) | — | — | — | — | — | |||||||||||||||||
$ | 17 | $ | 126 | $ | (90 | ) | $ | 369 | $ | (86 | ) | $ | (302 | ) | ||||||||||
(a) | OID = Other (income)/deductions—net, included in Other (income)/deductions—net in the condensed consolidated statements of income. OCI = Other comprehensive income/(loss), included in the condensed consolidated statements of comprehensive income. |
(b) | Also, includes gains and losses attributable to derivative instruments designated and qualifying as fair value hedges, as well as the offsetting gains and losses attributable to the hedged items in such hedging relationships. |
(c) | There was no significant ineffectiveness for any period presented. |
(d) | For derivative financial instruments in cash flow hedge relationships, the effective portion is included in Other comprehensive income/(loss)––Unrealized holding gains/(losses) on derivative financial instruments. For derivative financial instruments in net investment hedge relationships and for foreign currency debt designated as hedging instruments, the effective portion is included in Other comprehensive income/(loss)––Foreign currency translation adjustments. |
The following table provides the components of Inventories: | ||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | December 31, 2013 | ||||||
Finished goods | $ | 2,216 | $ | 2,216 | ||||
Work-in-process | 3,445 | 3,445 | ||||||
Raw materials and supplies | 588 | 505 | ||||||
Inventories | $ | 6,249 | $ | 6,166 | ||||
Noncurrent inventories not included above(a) | $ | 474 | $ | 463 | ||||
(a) | Included in Other noncurrent assets. There are no recoverability issues associated with these amounts. |
The following table provides the components of and changes in the carrying amount of Goodwill: | ||||||||||||||
(MILLIONS OF DOLLARS) | GIP | VOC | GEP | To be Allocated(a) | Total | |||||||||
Balance, December 31, 2013 | $ | $ | $ | $ | 42,519 | $ | 42,519 | |||||||
Additions | — | — | ||||||||||||
Other(b) | 142 | 142 | ||||||||||||
Balance, June 29, 2014 | $ | $ | $ | $ | 42,661 | $ | 42,661 | |||||||
(a) | The amount to be allocated includes the goodwill associated with our former biopharmaceutical operating segments (see above), for which the allocation to our new reporting units, and, as a result, to the new operating segments, is pending. |
(b) | Primarily reflects the impact of foreign exchange. |
The following table provides the components of Identifiable intangible assets: | ||||||||||||||||||||||||
June 29, 2014 | December 31, 2013 | |||||||||||||||||||||||
(MILLIONS OF DOLLARS) | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Identifiable Intangible Assets, less Accumulated Amortization | ||||||||||||||||||
Finite-lived intangible assets | ||||||||||||||||||||||||
Developed technology rights | $ | 72,030 | $ | (43,599 | ) | $ | 28,431 | $ | 72,038 | $ | (41,541 | ) | $ | 30,497 | ||||||||||
Brands | 1,944 | (815 | ) | 1,129 | 1,743 | (773 | ) | 970 | ||||||||||||||||
Licensing agreements and other | 921 | (824 | ) | 97 | 896 | (805 | ) | 91 | ||||||||||||||||
74,895 | (45,238 | ) | 29,657 | 74,677 | (43,119 | ) | 31,558 | |||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Brands and other | 7,374 | 7,374 | 7,384 | 7,384 | ||||||||||||||||||||
In-process research and development | 329 | 329 | 443 | 443 | ||||||||||||||||||||
7,703 | 7,703 | 7,827 | 7,827 | |||||||||||||||||||||
Identifiable intangible assets(a) | $ | 82,598 | $ | (45,238 | ) | $ | 37,360 | $ | 82,504 | $ | (43,119 | ) | $ | 39,385 | ||||||||||
(a) | The decrease in identifiable intangible assets, less accumulated amortization, is primarily related to amortization and, to a much lesser extent, asset impairment charges, partially offset by the Nexium over-the-counter milestone. For information about impairments of intangible assets, see Note 4. Other (Income)/Deductions—Net. For information about the Nexium over-the-counter milestone, see Note 2A. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Acquisition. |
Our identifiable intangible assets are associated with the following, as a percentage of total identifiable intangible assets, less accumulated amortization: | ||||||||||||
June 29, 2014 | ||||||||||||
GIP | VOC | GEP | WRD(a) | |||||||||
Developed technology rights | 34 | % | 32 | % | 34 | % | — | % | ||||
Brands, finite-lived | — | % | 80 | % | 20 | % | — | % | ||||
Brands, indefinite-lived | — | % | 69 | % | 31 | % | — | % | ||||
In-process research and development | 9 | % | 58 | % | 9 | % | 24 | % | ||||
(a) | Worldwide Research and Development. |
The following table provides the components of net periodic benefit cost (including, in 2013, costs reported as part of discontinued operations): | ||||||||||||||||||||||||||||||||
Pension Plans | ||||||||||||||||||||||||||||||||
U.S. Qualified(a) | U.S. Supplemental (Non-Qualified)(b) | International(c) | Postretirement Plans | |||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
Net periodic benefit cost: | ||||||||||||||||||||||||||||||||
Service cost | $ | 63 | $ | 75 | $ | 5 | $ | 6 | $ | 52 | $ | 54 | $ | 14 | $ | 15 | ||||||||||||||||
Interest cost | 175 | 167 | 14 | 13 | 101 | 93 | 42 | 41 | ||||||||||||||||||||||||
Expected return on plan assets | (262 | ) | (251 | ) | — | — | (116 | ) | (100 | ) | (15 | ) | (13 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses | 15 | 89 | 8 | 14 | 24 | 35 | 2 | 12 | ||||||||||||||||||||||||
Prior service credits | (1 | ) | (1 | ) | (1 | ) | — | (1 | ) | (1 | ) | (15 | ) | (11 | ) | |||||||||||||||||
Curtailments | — | — | — | — | 16 | (21 | ) | (1 | ) | (2 | ) | |||||||||||||||||||||
Settlements | 12 | 33 | 5 | 6 | 1 | 1 | — | — | ||||||||||||||||||||||||
Special termination benefits | — | — | — | — | 3 | 2 | — | — | ||||||||||||||||||||||||
$ | 2 | $ | 112 | $ | 31 | $ | 39 | $ | 80 | $ | 63 | $ | 27 | $ | 42 | |||||||||||||||||
Six Months Ended | ||||||||||||||||||||||||||||||||
Net periodic benefit cost: | ||||||||||||||||||||||||||||||||
Service cost | $ | 127 | $ | 152 | $ | 10 | $ | 13 | $ | 104 | $ | 110 | $ | 28 | $ | 31 | ||||||||||||||||
Interest cost | 350 | 335 | 29 | 27 | 201 | 190 | 84 | 83 | ||||||||||||||||||||||||
Expected return on plan assets | (525 | ) | (504 | ) | — | — | (230 | ) | (204 | ) | (31 | ) | (27 | ) | ||||||||||||||||||
Amortization of: | ||||||||||||||||||||||||||||||||
Actuarial losses | 31 | 179 | 15 | 27 | 49 | 72 | 3 | 23 | ||||||||||||||||||||||||
Prior service credits | (3 | ) | (3 | ) | (1 | ) | (1 | ) | (3 | ) | (3 | ) | (29 | ) | (22 | ) | ||||||||||||||||
Curtailments | 2 | (1 | ) | — | — | 15 | (22 | ) | (4 | ) | (9 | ) | ||||||||||||||||||||
Settlements | 21 | 63 | 16 | 28 | 2 | 5 | — | — | ||||||||||||||||||||||||
Special termination benefits | — | — | — | — | 5 | 2 | — | — | ||||||||||||||||||||||||
$ | 3 | $ | 221 | $ | 69 | $ | 94 | $ | 143 | $ | 150 | $ | 51 | $ | 79 | |||||||||||||||||
(a) | The decrease in net periodic benefit costs for the three and six months ended June 29, 2014, compared to the three and six months ended June 30, 2013, for our U.S. qualified pension plans was primarily driven by the decrease in the amounts amortized for actuarial losses resulting from the increase, in 2013, in the discount rate used to determine the benefit obligation (which reduced the amount of deferred actuarial losses), lower service cost resulting from cost-reduction initiatives, lower settlement activity and greater expected return on plan |
(b) | The decrease in net periodic benefit costs for the three and six months ended June 29, 2014, compared to the three and six months ended June 30, 2013, for our U.S. supplemental (non-qualified) pension plans was primarily driven by lower settlement activity and the decrease in the amounts amortized for actuarial losses resulting from the increase, in 2013, in the discount rate used to determine the benefit obligation. |
(c) | The decrease in net periodic benefit costs for the six months ended June 29, 2014, compared to the six months ended June 30, 2013, for our international pension plans was primarily driven by the decrease in the amounts amortized for actuarial losses resulting from increases, in 2013, in the discount rates used to determine the benefit obligations, greater expected return on plan assets resulting from an increased plan asset base, partially offset by the change in the impact of curtailments associated with restructuring initiatives. The increase in net periodic benefit costs for the three months ended June 29, 2014 for our international pension plans was primarily driven by the decrease in the amounts amortized for actuarial losses resulting from increases, in 2013, in the discount rates used to determine the benefit obligations, greater expected return on plan assets resulting from an increased plan asset base, more than offset by the change in the impact of curtailments associated with restructuring initiatives. |
Pension Plans | ||||||||||||||||
(MILLIONS OF DOLLARS) | U.S. Qualified | U.S. Supplemental (Non-Qualified) | International | Postretirement Plans | ||||||||||||
Contributions from our general assets for the six months ended June 29, 2014 | $ | 1 | $ | 112 | $ | 159 | $ | 118 | ||||||||
Expected contributions from our general assets during 2014(a) | $ | 6 | $ | 181 | $ | 312 | $ | 241 | ||||||||
(a) | Contributions expected to be made for 2014 are inclusive of amounts contributed during the six months ended June 29, 2014. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments. |
The following table provides the detailed calculation of Earnings per common share (EPS): | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(IN MILLIONS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
EPS Numerator––Basic | ||||||||||||||||
Income from continuing operations | $ | 2,921 | $ | 3,575 | $ | 5,186 | $ | 6,191 | ||||||||
Less: Net income attributable to noncontrolling interests | 9 | 10 | 18 | 19 | ||||||||||||
Income from continuing operations attributable to Pfizer Inc. | 2,912 | 3,565 | 5,168 | 6,172 | ||||||||||||
Less: Preferred stock dividends––net of tax | 1 | — | 1 | 1 | ||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | 2,911 | 3,565 | 5,167 | 6,171 | ||||||||||||
Discontinued operations––net of tax | — | 10,559 | 73 | 10,708 | ||||||||||||
Less: Discontinued operations––net of tax, attributable to noncontrolling interests | — | 25 | — | 39 | ||||||||||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders | — | 10,534 | 73 | 10,669 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 2,911 | $ | 14,099 | $ | 5,240 | $ | 16,840 | ||||||||
EPS Numerator––Diluted | ||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 2,912 | $ | 3,565 | $ | 5,168 | $ | 6,172 | ||||||||
Discontinued operations––net of tax, attributable to Pfizer Inc. common shareholders and assumed conversions | — | 10,534 | 73 | 10,669 | ||||||||||||
Net income attributable to Pfizer Inc. common shareholders and assumed conversions | $ | 2,912 | $ | 14,099 | $ | 5,241 | $ | 16,841 | ||||||||
EPS Denominator | ||||||||||||||||
Weighted-average number of common shares outstanding––Basic | 6,368 | 7,042 | 6,379 | 7,115 | ||||||||||||
Common-share equivalents: stock options, stock issuable under employee compensation plans and convertible preferred stock | 76 | 75 | 81 | 70 | ||||||||||||
Weighted-average number of common shares outstanding––Diluted | 6,444 | 7,117 | 6,460 | 7,185 | ||||||||||||
Stock options that had exercise prices greater than the average market price of our common stock issuable under employee compensation plans(a) | 44 | 44 | 44 | 44 | ||||||||||||
(a) | These common stock equivalents were outstanding for the six months ended June 29, 2014 and June 30, 2013, but were not included in the computation of diluted EPS for those periods because their inclusion would have had an anti-dilutive effect. |
• | Patent litigation, which typically involves challenges to the coverage and/or validity of our patents on various products, processes or dosage forms. We are the plaintiff in the vast majority of these actions. An adverse outcome in actions in which we are the plaintiff could result in a loss of patent protection for the drug at issue, a significant loss of revenues from that drug and impairments of any associated assets. |
• | Product liability and other product-related litigation, which can include personal injury, consumer, off-label promotion, securities-law, antitrust and breach of contract claims, among others, often involves highly complex issues relating to medical causation, label warnings and reliance on those warnings, scientific evidence and findings, actual, provable injury and other matters. |
• | Commercial and other matters, which can include merger-related and product-pricing claims and environmental claims and proceedings, can involve complexities that will vary from matter to matter. |
• | Government investigations, which often are related to the extensive regulation of pharmaceutical companies by national, state and local government agencies in the U.S. and in other countries. |
• | Personal Injury Actions |
• | Antitrust Actions |
• | Off-Label Promotion Actions |
• | Personal Injury Actions |
• | Whistleblower Action |
• | Antitrust Actions |
• | Personal Injury Actions |
• | The SI&A expenses were allocated using proportional allocation methods based on associated selling costs, revenues or product-specific costs, as applicable. |
• | The R&D expenses were allocated based on product-specific R&D costs or revenue metrics, as applicable. |
• | Global Innovative Pharmaceutical segment––GIP comprises medicines within several therapeutic areas that are generally expected to have market exclusivity beyond 2015. These therapeutic areas include immunology and inflammation, cardiovascular/metabolic, neuroscience and pain, rare diseases and women's/men's health. |
• | Global Vaccines, Oncology and Consumer Healthcare segment––VOC focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare. Each of the three businesses that comprise this segment operates with distinct specialization in terms of the science, talent and market approach necessary to deliver value to consumers and patients. |
• | Global Established Pharmaceutical segment––GEP includes the brands that have lost market exclusivity and, generally, the mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets and, to a much smaller extent, generic pharmaceuticals. Additionally, GEP includes our sterile injectable products and biosimilar development portfolio. |
• | Worldwide Research and Development, which is generally responsible for research projects until proof-of-concept is achieved and then for transitioning those projects to the appropriate operating segment for possible clinical and commercial development. R&D spending may include upfront and milestone payments for intellectual property rights. This organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects. Worldwide Research and Development is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
• | Pfizer Medical, which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, partnerships with global public health and medical associations, regulatory inspection readiness reviews, internal audits of Pfizer-sponsored clinical trials and internal regulatory compliance processes. |
• | Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. |
• | Other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment. |
• | Certain transactions and events such as (i) purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) acquisition-related costs, where we incur costs for executing the transaction, integrating the acquired operations and restructuring the combined company; and (iii) certain significant items, which include non-acquisition-related restructuring costs, as well as costs incurred for legal settlements, asset impairments and disposals of assets or businesses, including, as applicable, any associated transition activities. |
The following table provides selected income statement information by reportable segment: | ||||||||||||||||
Revenues | Earnings(a) | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Three Months Ended | ||||||||||||||||
Reportable Segments: | ||||||||||||||||
Global Innovative Pharmaceutical (GIP) | $ | 3,547 | $ | 3,726 | $ | 2,009 | $ | 2,320 | ||||||||
Global Vaccines, Oncology and Consumer Healthcare (VOC) | 2,579 | 2,263 | 1,157 | 1,063 | ||||||||||||
Global Established Pharmaceutical (GEP) | 6,513 | 6,921 | 4,176 | 4,409 | ||||||||||||
Total reportable segments | 12,639 | 12,910 | 7,342 | 7,792 | ||||||||||||
Other business activities(b) | 63 | 63 | (713 | ) | (671 | ) | ||||||||||
Reconciling Items: | ||||||||||||||||
Corporate(c) | — | — | (1,287 | ) | (1,437 | ) | ||||||||||
Purchase accounting adjustments(c) | — | — | (949 | ) | (1,108 | ) | ||||||||||
Acquisition-related costs(c) | — | — | (47 | ) | (113 | ) | ||||||||||
Certain significant items(d) | 71 | — | (238 | ) | 1,012 | |||||||||||
Other unallocated | — | — | (105 | ) | (118 | ) | ||||||||||
$ | 12,773 | $ | 12,973 | $ | 4,003 | $ | 5,357 | |||||||||
Six Months Ended | ||||||||||||||||
Reportable Segments: | ||||||||||||||||
Global Innovative Pharmaceutical business (GIP) | $ | 6,623 | $ | 7,032 | $ | 3,776 | $ | 4,215 | ||||||||
Global Vaccines, Oncology and Consumer Healthcare (VOC) | 4,753 | 4,453 | 2,214 | 2,058 | ||||||||||||
Global Established Pharmaceutical business (GEP) | 12,503 | 13,782 | 8,225 | 8,861 | ||||||||||||
Total reportable segments | 23,879 | 25,267 | 14,215 | 15,134 | ||||||||||||
Other business activities(b) | 119 | 116 | (1,380 | ) | (1,331 | ) | ||||||||||
Reconciling Items: | ||||||||||||||||
Corporate(c) | — | — | (2,487 | ) | (2,771 | ) | ||||||||||
Purchase accounting adjustments(c) | — | — | (1,957 | ) | (2,327 | ) | ||||||||||
Acquisition-related costs(c) | — | — | (77 | ) | (203 | ) | ||||||||||
Certain significant items(d) | 128 | — | (1,254 | ) | 924 | |||||||||||
Other unallocated | — | — | (210 | ) | (344 | ) | ||||||||||
$ | 24,126 | $ | 25,383 | $ | 6,850 | $ | 9,082 | |||||||||
(a) | Income from continuing operations before provision for taxes on income. |
(b) | Other business activities includes the revenues and operating results of Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales operation, and the costs managed by our Worldwide Research and Development organization and our Pfizer Medical organization. |
(c) | For a description, see the "Other Costs and Business Activities" section above. |
(d) | Certain significant items are substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. |
The following table provides revenues by geographic area: | ||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||||
United States | $ | 4,906 | $ | 5,090 | (4 | ) | $ | 9,181 | $ | 10,004 | (8 | ) | ||||||||||
Developed Europe(a) | 3,008 | 2,913 | 3 | 5,803 | 5,717 | 2 | ||||||||||||||||
Developed Rest of World(b) | 1,861 | 2,108 | (12 | ) | 3,589 | 4,147 | (13 | ) | ||||||||||||||
Emerging Markets(c) | 2,998 | 2,862 | 5 | 5,553 | 5,515 | 1 | ||||||||||||||||
Revenues | $ | 12,773 | $ | 12,973 | (2 | ) | $ | 24,126 | $ | 25,383 | (5 | ) | ||||||||||
(a) | Developed Europe region includes the following markets: Western Europe, Finland and the Scandinavian countries. Revenues denominated in euros were $2.3 billion and $2.2 billion in the second quarter of 2014 and 2013, respectively, and $4.5 billion and $4.3 billion in the first six months of 2014 and 2013, respectively. |
(b) | Developed Rest of World region includes the following markets: Australia, Canada, Japan, New Zealand and South Korea. |
(c) | Emerging Markets region includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, the Middle East, Eastern Europe, Africa, Turkey and Central Europe. |
The following table provides detailed revenue information: | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
(MILLIONS OF DOLLARS) | Business(a) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Biopharmaceutical revenues: | |||||||||||||||||
Lyrica(b) | GIP/GEP | $ | 1,315 | $ | 1,134 | $ | 2,465 | $ | 2,200 | ||||||||
Prevnar family | V | 1,097 | 969 | 2,024 | 1,896 | ||||||||||||
Enbrel (Outside the U.S. and Canada) | GIP | 977 | 960 | 1,891 | 1,837 | ||||||||||||
Celebrex | GEP | 762 | 715 | 1,386 | 1,368 | ||||||||||||
Lipitor | GEP | 543 | 545 | 1,000 | 1,171 | ||||||||||||
Viagra(c) | GEP/GIP | 427 | 484 | 801 | 945 | ||||||||||||
Zyvox | GEP | 348 | 346 | 669 | 688 | ||||||||||||
Sutent | O | 310 | 312 | 578 | 614 | ||||||||||||
Norvasc | GEP | 282 | 313 | 560 | 614 | ||||||||||||
Premarin family | GEP | 274 | 273 | 522 | 517 | ||||||||||||
BeneFIX | GIP | 227 | 217 | 428 | 406 | ||||||||||||
Vfend | GEP | 221 | 177 | 398 | 364 | ||||||||||||
Pristiq | GEP | 198 | 177 | 370 | 343 | ||||||||||||
Genotropin | GIP | 194 | 198 | 360 | 387 | ||||||||||||
Chantix/Champix | GIP | 170 | 166 | 317 | 332 | ||||||||||||
Refacto AF/Xyntha | GIP | 171 | 146 | 316 | 285 | ||||||||||||
Xalatan/Xalacom | GEP | 128 | 147 | 247 | 294 | ||||||||||||
Medrol | GEP | 115 | 123 | 221 | 236 | ||||||||||||
Zoloft | GEP | 104 | 109 | 205 | 225 | ||||||||||||
Xalkori | O | 108 | 67 | 196 | 120 | ||||||||||||
Inlyta | O | 101 | 71 | 189 | 134 | ||||||||||||
Relpax | GEP | 98 | 94 | 185 | 180 | ||||||||||||
Sulperazon | GEP | 92 | 73 | 180 | 144 | ||||||||||||
Effexor | GEP | 96 | 125 | 178 | 230 | ||||||||||||
Fragmin | GEP | 95 | 94 | 176 | 180 | ||||||||||||
Rapamune | GIP | 87 | 86 | 175 | 170 | ||||||||||||
Zithromax/Zmax | GEP | 76 | 83 | 168 | 199 | ||||||||||||
Tygacil | GEP | 82 | 92 | 156 | 179 | ||||||||||||
EpiPen | GEP | 89 | 73 | 152 | 145 | ||||||||||||
Zosyn/Tazocin | GEP | 75 | 102 | 149 | 189 | ||||||||||||
Revatio | GEP | 68 | 78 | 144 | 150 | ||||||||||||
Toviaz | GIP | 79 | 65 | 142 | 117 | ||||||||||||
Cardura | GEP | 68 | 75 | 134 | 151 | ||||||||||||
Xanax/Xanax XR | GEP | 68 | 65 | 127 | 135 | ||||||||||||
Inspra | GEP | 62 | 59 | 123 | 111 | ||||||||||||
Xeljanz | GIP | 68 | 22 | 120 | 33 | ||||||||||||
Somavert | GIP | 59 | 55 | 109 | 103 | ||||||||||||
Neurontin | GEP | 58 | 56 | 107 | 108 | ||||||||||||
Unasyn | GEP | 54 | 53 | 100 | 109 | ||||||||||||
Diflucan | GEP | 46 | 60 | 98 | 105 | ||||||||||||
Protonix/Pantoprazole | GEP | 50 | 48 | 98 | 95 | ||||||||||||
Detrol/Detrol LA | GEP | 57 | 155 | 94 | 306 | ||||||||||||
Depo-Provera | GEP | 40 | 53 | 93 | 90 | ||||||||||||
BMP2 | GIP | 51 | 66 | 90 | 111 | ||||||||||||
Alliance revenues(d) | GEP/GIP | 235 | 756 | 448 | 1,503 | ||||||||||||
All other GIP | GIP | 131 | 148 | 237 | 269 | ||||||||||||
All other GEP | GEP | 1,620 | 1,781 | 3,187 | 3,490 | ||||||||||||
All other V/O | V/O | 51 | 44 | 93 | 78 | ||||||||||||
Total biopharmaceutical revenues | 11,727 | 12,110 | 22,206 | 23,656 | |||||||||||||
Other revenues: | |||||||||||||||||
Consumer Healthcare | C | 912 | 800 | 1,673 | 1,611 | ||||||||||||
Other(e) | 134 | 63 | 247 | 116 | |||||||||||||
Revenues | $ | 12,773 | $ | 12,973 | $ | 24,126 | $ | 25,383 | |||||||||
(a) | Indicates the business to which the revenues relate. GIP = the Global Innovative Pharmaceutical segment; V= the Global Vaccines |
(b) | Lyrica revenues from all of Europe are included in GEP. All other Lyrica revenues are included in GIP. |
(c) | Viagra revenues from the U.S. and Canada are included in GIP. All other Viagra revenues are included in GEP. |
(d) | Includes Enbrel (GIP, in the U.S. and Canada through October 31, 2013), Spiriva (GEP), Rebif (GIP), Aricept (GEP) and Eliquis (GIP). |
(e) | Other includes revenues generated from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization, and also includes, in 2014, the revenues related to our transitional manufacturing and supply agreements with Zoetis. |
• | Overview of Our Performance, Operating Environment, Strategy and Outlook. This section, beginning on page 42, provides information about the following: our business; our performance during the second quarter and first six months of 2014 and 2013; our operating environment; our strategy; our business development initiatives, such as acquisitions, dispositions, licensing and collaborations; and our financial guidance for 2014. |
• | Analysis of the Condensed Consolidated Statements of Income. This section begins on page 53, and consists of the following sub-sections: |
◦ | Revenues and Product Developments. This sub-section, beginning on page 53, provides an analysis of our revenues and products for the second quarter and first six months of 2014 and 2013, including an overview of important biopharmaceutical product developments. |
◦ | Costs and Expenses. This sub-section, beginning on page 65, provides a discussion about our costs and expenses. |
◦ | Provision for Taxes on Income. This sub-section, on page 69, provides a discussion of items impacting our tax provisions. |
◦ | Discontinued Operations. This sub-section, on page 70, provides an analysis of the financial statement impact of our discontinued operations. |
◦ | Adjusted Income. This sub-section, beginning on page 70, provides a discussion of an alternative view of performance used by management. |
◦ | Analysis of Operating Segment Information. This sub-section, beginning on page 77, provides a discussion of the performance of each of our operating segments. |
• | Analysis of the Condensed Consolidated Statements of Comprehensive Income. This section, beginning on page 83, provides a discussion of changes in certain components of other comprehensive income. |
• | Analysis of the Condensed Consolidated Balance Sheets. This section, on page 84, provides a discussion of changes in certain balance sheet accounts. |
• | Analysis of the Condensed Consolidated Statements of Cash Flows. This section, beginning on page 85, provides an analysis of our cash flows for the first six months of 2014 and 2013. |
• | Analysis of Financial Condition, Liquidity and Capital Resources. This section, beginning on page 86, provides an analysis of selected measures of our liquidity and of our capital resources as of June 29, 2014 and December 31, 2013, as well as a discussion of our outstanding debt and other commitments that existed as of June 29, 2014 and December 31, 2013. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer's future activities. |
• | New Accounting Standards. This section, beginning on page 89, discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted. |
• | Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 90, provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this MD&A relating to, among other things, our anticipated operating and financial performance, business plans and prospects, in-line products and product candidates, strategic reviews, capital allocation, plans relating to share repurchases and dividends and business-development plans. Such forward-looking statements are based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. |
The following table provides the components of the condensed consolidated statements of income: | ||||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||||
Revenues | $ | 12,773 | $ | 12,973 | (2 | ) | $ | 24,126 | $ | 25,383 | (5 | ) | ||||||||||
Cost of sales | 2,462 | 2,242 | 10 | 4,507 | 4,505 | — | ||||||||||||||||
% of revenues | 19.3 | % | 17.3 | % | 18.7 | % | 17.7 | % | ||||||||||||||
Selling, informational and administrative expenses | 3,520 | 3,591 | (2 | ) | 6,560 | 6,808 | (4 | ) | ||||||||||||||
% of revenues | 27.6 | % | 27.7 | % | 27.2 | % | 26.8 | % | ||||||||||||||
Research and development expenses | 1,759 | 1,530 | 15 | 3,382 | 3,240 | 4 | ||||||||||||||||
% of revenues | 13.8 | % | 11.8 | % | 14.0 | % | 12.8 | % | ||||||||||||||
Amortization of intangible assets | 1,001 | 1,140 | (12 | ) | 2,118 | 2,359 | (10 | ) | ||||||||||||||
% of revenues | 7.8 | % | 8.8 | % | 8.8 | % | 9.3 | % | ||||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | 183 | (56 | ) | 139 | 314 | (56 | ) | ||||||||||||||
% of revenues | 0.6 | % | 1.4 | % | 0.6 | % | 1.2 | % | ||||||||||||||
Other (income)/deductions––net | (53 | ) | (1,070 | ) | (95 | ) | 570 | (925 | ) | * | ||||||||||||
Income from continuing operations before provision for taxes on income | 4,003 | 5,357 | (25 | ) | 6,850 | 9,082 | (25 | ) | ||||||||||||||
% of revenues | 31.3 | % | 41.3 | % | 28.4 | % | 35.8 | % | ||||||||||||||
Provision for taxes on income | 1,082 | 1,782 | (39 | ) | 1,664 | 2,891 | (42 | ) | ||||||||||||||
Effective tax rate | 27.0 | % | 33.3 | % | 24.3 | % | 31.8 | % | ||||||||||||||
Income from continuing operations | 2,921 | 3,575 | (18 | ) | 5,186 | 6,191 | (16 | ) | ||||||||||||||
% of revenues | 22.9 | % | 27.6 | % | 21.5 | % | 24.4 | % | ||||||||||||||
Discontinued operations––net of tax | — | 10,559 | (100 | ) | 73 | 10,708 | (99 | ) | ||||||||||||||
Net income before allocation to noncontrolling interests | 2,921 | 14,134 | (79 | ) | 5,259 | 16,899 | (69 | ) | ||||||||||||||
% of revenues | 22.9 | % | 108.9 | % | 21.8 | % | 66.6 | % | ||||||||||||||
Less: Net income attributable to noncontrolling interests | 9 | 39 | (77 | ) | 18 | 54 | (67 | ) | ||||||||||||||
Net income attributable to Pfizer Inc. | $ | 2,912 | $ | 14,095 | (79 | ) | $ | 5,241 | $ | 16,845 | (69 | ) | ||||||||||
% of revenues | 22.8 | % | 108.6 | % | 21.7 | % | 66.4 | % | ||||||||||||||
Earnings per common share––basic(a): | ||||||||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 0.51 | (10 | ) | $ | 0.81 | $ | 0.87 | (7 | ) | ||||||||||
Discontinued operations––net of tax | — | 1.50 | (100 | ) | 0.01 | 1.50 | (99 | ) | ||||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.46 | $ | 2.00 | (77 | ) | $ | 0.82 | $ | 2.37 | (65 | ) | ||||||||||
Earnings per common share––diluted(a): | ||||||||||||||||||||||
Income from continuing operations attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 0.50 | (10 | ) | $ | 0.80 | $ | 0.86 | (7 | ) | ||||||||||
Discontinued operations––net of tax | — | 1.48 | (100 | ) | 0.01 | 1.49 | (99 | ) | ||||||||||||||
Net income attributable to Pfizer Inc. common shareholders | $ | 0.45 | $ | 1.98 | (77 | ) | $ | 0.81 | $ | 2.34 | (65 | ) | ||||||||||
Cash dividends paid per common share | $ | 0.26 | $ | 0.24 | 8 | $ | 0.52 | $ | 0.48 | 8 | ||||||||||||
(a) | EPS amounts may not add due to rounding. |
• | the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada (approximately $428 million); |
• | the loss of exclusivity and subsequent multi-source generic competition for Detrol LA in the U.S., Viagra in most major European markets, Lyrica in Canada and Aricept in Canada (aggregate decline of approximately $208 million); |
• | the ongoing termination of the Spiriva collaboration in certain countries (approximately $127 million); |
• | the operational decline of certain products, including Metaxalone, Effexor, Norvasc and Caduet (approximately $129 million); and |
• | the loss of exclusivity for certain other products (approximately $78 million), |
• | the operational growth of certain products in certain developed markets, including Lyrica, Nexium 24HR in the U.S. as a result of its recent launch, Prevnar, Eliquis, Xeljanz, Celebrex, Xalkori and Inlyta, among others (approximately $569 million); |
• | an 11% operational increase in revenues in emerging markets, including strong operational growth from Lipitor, primarily in China, and Prevenar (approximately $271 million); and |
• | revenues from the transitional manufacturing and supply agreements with Zoetis (approximately $71 million). |
• | the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada (approximately $804 million); |
• | the continued erosion of branded Lipitor in the U.S. and most other developed markets due to generic competition and the operational decline of certain products, including, Metaxalone, Effexor, Norvasc and Caduet (approximately $361 million); |
• | the loss of exclusivity and subsequent multi-source generic competition for Detrol LA in the U.S., Viagra in most major European markets, Lyrica in Canada and Aricept in Canada (aggregate decline of approximately $421 million); |
• | the ongoing termination of the Spiriva collaboration in certain countries (approximately $303 million); and |
• | the loss of exclusivity for certain other products (approximately $137 million), |
• | the operational growth of certain products in certain developed markets, including Lyrica, Nexium 24HR in the U.S. as a result of its recent launch, Prevnar, Eliquis, Xeljanz, Celebrex, Xalkori and Inlyta, as well as the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan (approximately $871 million); |
• | a 6% operational increase in revenues in emerging markets (approximately $334 million); and |
• | revenues from the transitional manufacturing and supply agreements with Zoetis (approximately $128 million). |
• | the non-recurrence in the second quarter of 2014 of patent litigation settlement income of $1.4 billion in the second quarter of 2013 (see also the “Costs and Expenses––Other (Income)/Deductions–Net” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | higher cost of sales (up $220 million) (see also the “Costs and Expenses––Cost of Sales" section of this MD&A); and |
• | higher research and development expenses (up $229 million) (see also the “Costs and Expenses––Research and Development (R&D) Expenses" section of this MD&A), |
• | a lower effective tax rate (down 6.3 percentage points to 27.0%) (see also the “Provision for Taxes on Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 5. Tax Matters); |
• | lower asset impairments and related charges (down $126 million) (see also the “Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | higher royalty-related income (up $119 million) primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013. On that date, the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired, and Pfizer became entitled to royalties for a 36-month period (see also the "Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); and |
• | lower purchase accounting adjustments (down $115 million). |
• | the non-recurrence in the first six months of 2014 of the patent litigation settlement income of $1.4 billion in the first six months of 2013 (see also the “Costs and Expenses––Other (Income)/Deductions–Net” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); |
• | higher legal charges (up $787 million), primarily due to Neurontin- and Effexor-related matters (see also the "Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); and |
• | the non-recurrence in the first six months of 2014 of the gain associated with the transfer of certain product rights to our joint venture with Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun) in China in the first six months of 2013 ($459 million) (see also the "Our Business Development Initiatives " and "Costs and Expenses––Other (Income)/Deductions––Net" sections of this MD&A and Notes to Condensed Consolidated Financial Statement––Note 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments, and Note 4. Other (Income)/Deductions––Net), |
• | a lower effective tax rate (down 7.5 percentage points to 24.3%) (see also the “Provision for Taxes on Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 5. Tax Matters); |
• | lower asset impairment and related charges (down $506 million) (see also the “Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives and Note 4. Other (Income)/Deductions––Net); |
• | lower operational expenses due to the benefits of cost-reduction and productivity initiatives; |
• | higher royalty-related income (up $304 million) primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013. On that date, the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired, and Pfizer became entitled to royalties for a 36-month period (see also the "Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net); and |
• | higher net gains on asset disposals (up $160 million), primarily due to gains on sales of product rights and gains on sales of investments in equity securities (see also the "Costs and Expenses––Other (Income)/Deductions––Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net). |
• | $30 million in the second quarter of 2014 and $103 million in the second quarter of 2013, and $205 million in the first six months of 2014 and $231 million in the first six months of 2013, recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare “coverage gap” discount provision; and |
• | $54 million in the second quarter of 2014 and $75 million in the second quarter of 2013, and $25 million in the first six months of 2014 and $131 million in the first six months of 2013, recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs. The decrease in the first six months of 2014 was driven by a true-up associated with the final 2013 invoice received from the federal government, which reflected a lower share than that of the initial 2013 invoice. |
• | Budget Control Act of 2011—In August 2011, the federal Budget Control Act of 2011 (the Budget Control Act) was enacted in the U.S. In December 2013, Congress enacted minor amendments to the Budget Control Act, providing for greater discretionary spending in 2014 and 2015 than originally budgeted. The amendments also provide for U.S. Food and Drug Administration (FDA) user fee sequester relief for two years, allowing the FDA to continue to review new products. The new legislation continues to prohibit reductions in payments to Medicare providers from exceeding a 2% reduction of the originally budgeted amount, and extends this prohibition for two years (until 2023). The implications to Pfizer of these changes are expected to be nominal. However, any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant additional taxes or fees that may be imposed on us, as part of any broader deficit-reduction effort or legislative replacement for the Budget Control Act, could have an adverse impact on our results of operations. |
• | Sustainable Growth Rate Replacement—The Medicare physician payment formula known as the Sustainable Growth Rate (SGR) is routinely overridden by Congressional action because it would lead to dramatic decreases in physician payment. On April 1, 2014, the President signed into law another extension that will maintain physician payment through March 2015. Prior to expiration of the extension, it is likely that Congress will consider legislation to permanently repeal the SGR and replace it with a new payment model. The Congressional Budget Office has estimated that the cost to the federal government of repealing and replacing the SGR would be approximately $130 billion over 10 years. The source of those funds could include additional taxes on and/or rebate requirements applicable to the pharmaceutical industry, including Pfizer. |
• | Federal Debt Ceiling—After the U.S. federal debt ceiling was reached on May 19, 2013 and measures taken by the U.S. Treasury Department to enable the U.S. federal government to continue meeting its financial obligations were nearly exhausted, Congress enacted legislation on October 16, 2013 that suspended the debt ceiling through February 7, 2014 and preserved the ability of the U.S. Treasury Department to use “extraordinary measures” to avoid a default on U.S. federal government debt for a short period of time thereafter. In February 2014, Congress enacted legislation that further suspends the debt ceiling until March 15, 2015, effectively ensuring the U.S. federal government’s ability to satisfy its financial obligations until that date, including under Medicare, Medicaid and other publicly funded or subsidized health programs that have a direct impact on our results of operations. |
• | We believe that patients, who are experiencing increases in co-pays and restrictions on access to medicines as payers seek to control costs, sometimes switch to generic products, delay treatments, skip doses or use less effective treatments. We continue to experience pricing pressure in various markets around the world, including in the U.S. with highly competitive insurance markets, in developed European markets, Japan and in a number of emerging markets, with government-mandated reductions in prices for certain biopharmaceutical products and government-imposed access restrictions in certain countries. |
• | We continue to monitor developments regarding government and government agency receivables in several European markets where economic conditions remain challenging and uncertain. For further information about our Accounts Receivable, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A. |
• | Significant portions of our revenues and earnings, as well as our substantial international assets, are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the Japanese yen, Australian dollar, the U.K. pound, the Canadian dollar and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. dollar were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance. |
• | Global Innovative Pharmaceutical segment––GIP comprises medicines within several therapeutic areas that are generally expected to have market exclusivity beyond 2015. These therapeutic areas include immunology and inflammation, cardiovascular/metabolic, neuroscience and pain, rare diseases and women's/men's health. |
• | Global Vaccines, Oncology and Consumer Healthcare segment––VOC focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare. Each of the three businesses that comprise this segment operates with distinct specialization in terms of the science, talent and market approach necessary to deliver value to consumers and patients. |
• | Global Established Pharmaceutical segment––GEP includes the brands that have lost market exclusivity and, generally, the mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets and, to a much smaller extent, generic pharmaceuticals. Additionally, GEP includes our sterile injectable products and biosimilar development portfolio. |
• | Marketed Vaccines Business of Baxter International Inc. (Baxter)––On July 30, 2014, we entered into a definitive agreement to acquire Baxter’s portfolio of marketed vaccines for $635 million. As part of the transaction, we will also acquire a portion of Baxter’s facility in Orth, Austria, where these vaccines are manufactured. Baxter’s portfolio of marketed vaccines consists of NeisVac-C and FSME-Immun/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-Immun/TicoVac is a vaccine that helps protect against tick-borne encephalitis. The transaction is subject to customary closing conditions as well as regulatory approvals in several markets, including some countries in the European Union (EU), and is expected to occur by the end of 2014. As announced on July 30, 2014, we do not expect this transaction to have an impact on our 2014 financial guidance. |
• | InnoPharma, Inc. (InnoPharma)––On July 16, 2014, we entered into an agreement to acquire InnoPharma, a privately held pharmaceutical development company, for an upfront cash payment of $225 million and up to $135 million of contingent milestone payments. InnoPharma’s current portfolio includes ten generic products approved by the FDA. InnoPharma also has a pipeline of 19 products filed with the FDA and more than 30 injectable and ophthalmic products under development. InnoPharma seeks to develop novel formulations of existing drugs, including hard-to-make products, such as those that require complex manufacturing capabilities, in areas such as cancer and central nervous disorders. The closing of the transaction is subject to U.S. regulatory approval and is expected to occur during the third quarter of 2014. |
• | Collaboration with Cellectis SA (Cellectis)––On June 18, 2014, we entered into a global strategic collaboration with Cellectis to develop Chimeric Antigen Receptor T-cell (CAR-T) immunotherapies in the field of oncology directed at select cellular surface antigen targets. Cellectis received an upfront payment of $80 million in August 2014, and will receive funding for research and development costs associated with Pfizer-selected targets and the four Cellectis-selected targets within the collaboration. Cellectis is eligible to receive development, regulatory and commercial milestone payments of up to $185 million per Pfizer product within the collaboration. Cellectis is also eligible to receive tiered royalties on net sales of any products that are commercialized by Pfizer. Additionally, we entered into an agreement to acquire approximately 10% of the Cellectis capital through the purchase of newly issued shares at 9.25 euro per share, for a total investment of |
• | ViiV Healthcare Limited (ViiV)––On January 21, 2014, the European Commission approved Tivicay (dolutegravir), a product for the treatment of HIV-1 infection, developed by ViiV, an equity method investee. This approval, in accordance with the agreement between GlaxoSmithKline plc and Pfizer, triggered a reduction in our equity interest in ViiV from 12.6% to 11.7% and an increase in GlaxoSmithKline plc’s equity interest in ViiV from 77.4% to 78.3%, effective April 1, 2014. As a result, in the first six months of 2014, we recognized a loss of approximately $28 million in Other (income)/deductions––net. We continue to account for our investment in ViiV under the equity method due to the significant influence that we continue to have through our board representation and minority veto rights. |
• | Zoetis––On June 24, 2013, we completed the full disposition of Zoetis. The full disposition was completed through a series of steps, including, in the first quarter of 2013, the formation of Zoetis and an initial public offering (IPO) of an approximate 19.8% interest in Zoetis and, in the second quarter of 2013, an exchange offer for the remaining 80.2% interest. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture. |
• | Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer)––On September 6, 2012, we and Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun), a leading pharmaceutical company in China, formed a new company, Hisun Pfizer, 49% owned by Pfizer and 51% owned by Hisun, to develop, manufacture, market and sell pharmaceutical products, primarily branded generic products, predominately in China. In the first quarter of 2013, we and Hisun contributed certain assets to Hisun Pfizer. Our contributions constituted a business, as defined by U.S. GAAP, and in the first six months of 2013, we recognized a pre-tax gain of approximately $459 million in Other (income)/deductions––net. For additional information, see Notes to Condensed Consolidated Financial Statements––Note 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments. |
• | Nexium Over-the-Counter Rights––In August 2012, we entered into an agreement with AstraZeneca for the exclusive, global, over-the-counter (OTC) rights for Nexium, a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. At that time, we made an upfront payment of $250 million to AstraZeneca, which was expensed. On March 28, 2014, the FDA approved Nexium 24HR (esomeprazole 20 mg) for OTC use. Pfizer launched the product in the U.S. on May 27, 2014 and subsequently on July 11, 2014, we paid AstraZeneca a $200 million product launch milestone in accordance with the terms of the agreement. The milestone for this Consumer Healthcare asset acquisition has been recorded in Identifiable intangible assets, less accumulated amortization in the consolidated condensed balance sheet and will be amortized over its estimated useful life. AstraZeneca is eligible to receive future milestone payments of up to $350 million, based on product launches outside the U.S. and level of worldwide sales, as well as royalty payments, based on worldwide sales. |
The following table provides our financial guidance for 2014, as updated on July 29, 2014(a), (b), (c): | |
Full-Year 2014 Guidance | |
Adjusted revenues | $48.7 to $50.7 billion |
Adjusted cost of sales as a percentage of adjusted revenues | 19.0% to 20.0% |
Adjusted selling, informational and administrative expenses | $13.3 to $14.3 billion |
Adjusted research and development expenses | $6.7 to $7.2 billion |
Adjusted other (income)/deductions | Approximately ($200 million) of income |
Effective tax rate on adjusted income | Approximately 27.0% |
Reported diluted Earnings per Share (EPS) | $1.47 to $1.62 |
Adjusted diluted EPS | $2.20 to $2.30 |
(a) | The 2014 financial guidance reflects the following: |
• | Does not assume the completion of any business-development transactions not completed as of June 29, 2014, including any one-time upfront payments associated with such transactions, except for the $80 million upfront payment to Cellectis. |
• | Excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of June 29, 2014. |
• | Exchange rates assumed are a blend of the actual exchange rates in effect through June 29, 2014 and the mid-July 2014 exchange rates for the remainder of the year. |
• | Adjusted and reported diluted EPS guidance assumes diluted weighted-average shares outstanding of approximately 6.4 billion shares. |
• | Revenues and cost of sales from the transitional manufacturing and supply agreements with Zoetis have been excluded from the applicable Adjusted components of the financial guidance. |
(b) | As reported on July 29, 2014, certain financial guidance components have been updated to reflect performance in the first six months of the year as well as the following factors: |
• | Adjusted Revenues: The expected negative impact from anticipated multi-source generic competition for Celebrex in the U.S. beginning in December 2014. In addition to the approximate one month of multi-source generic competition, Celebrex revenues also are expected to be negatively impacted in the fourth quarter of 2014 by associated wholesaler and retailer destocking (approximately $500 million). |
• | Adjusted Selling, informational and administrative expenses: The expected reduction in promotional spending for Celebrex in the second half of 2014 attributable to the aforementioned anticipated multi-source generic competition in the U.S. beginning in December 2014. |
• | Adjusted Research and development expenses: The impact from the $80 million upfront payment to Cellectis associated with the global strategic collaboration announced on June 18, 2014, as well as higher expected expenses related to the planned acceleration of certain late-stage clinical programs, including palbociclib and bococizumab, among other programs. |
• | Adjusted Other (income)/deductions: The favorable impacts of lower expected net interest expense over the remainder of 2014 (as compared to that assumed in connection with our original financial guidance) as well as gains realized in the first six months of 2014 on sales of product rights and of investments in equity securities, among various other factors. |
• | Reported Diluted EPS: The negative impact from charges related to certain legal matters, primarily related to Neurontin, incurred in the first quarter of 2014. |
(c) | For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the "Adjusted Income" section of this MD&A. |
The following table provides a reconciliation of 2014 Adjusted income and Adjusted diluted EPS guidance to the 2014 Reported net income attributable to Pfizer Inc. and Reported diluted EPS attributable to Pfizer Inc. common shareholders guidance: | ||||
Full-Year 2014 Guidance | ||||
(BILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) | Net Income(a) | Diluted EPS(a) | ||
Adjusted income/diluted EPS guidance(b) | $14.1 - $14.8 | $2.20 - $2.30 | ||
Purchase accounting impacts of transactions completed as of June 29, 2014 | (2.8) | (0.43) | ||
Restructuring and implementation costs | (1.1) - (1.4) | (0.17) - (0.22) | ||
Certain other items incurred through June 29, 2014(c) | (0.6) | (0.09) | ||
Discontinued operations | 0.1 | 0.01 | ||
Reported net income attributable to Pfizer Inc./diluted EPS guidance | $9.4 - $10.4 | $1.47 - $1.62 | ||
(a) | Does not assume the completion of any business-development transactions not completed as of June 29, 2014, including any one-time upfront payments associated with such transactions, except for the $80 million upfront payment to Cellectis. Also excludes the potential effects of the resolution of litigation-related matters not substantially resolved as of June 29, 2014. Exchange rates assumed are a blend of the actual exchange rates in effect through June 29, 2014 and the mid-July 2014 exchange rates for the remainder of the year. Adjusted and reported diluted EPS guidance assumes diluted weighted-average shares outstanding of approximately 6.4 billion shares. Revenues and cost |
(b) | For an understanding of Adjusted income and Adjusted diluted EPS (which are non-GAAP financial measures), see the “Adjusted Income” section of this MD&A. |
(c) | Primarily reflects the resolution of certain legal matters, primarily Neurontin-related matters. |
The following table provides worldwide revenues by operating segment and geographic area: | |||||||||||||||||||||||||||||||||
Worldwide | U.S. | International | World- wide | U.S. | Inter- national | ||||||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | % Change in Revenues | ||||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||||||||||
Operating Segments(a): | |||||||||||||||||||||||||||||||||
GIP | $ | 3,547 | $ | 3,726 | $ | 1,614 | $ | 1,808 | $ | 1,933 | $ | 1,918 | (5 | ) | (11 | ) | 1 | ||||||||||||||||
VOC | 2,579 | 2,263 | 1,136 | 938 | 1,443 | 1,325 | 14 | 21 | 9 | ||||||||||||||||||||||||
GEP | 6,513 | 6,921 | 2,105 | 2,329 | 4,408 | 4,592 | (6 | ) | (10 | ) | (4 | ) | |||||||||||||||||||||
12,639 | 12,910 | 4,855 | 5,075 | 7,784 | 7,835 | (2 | ) | (4 | ) | (1 | ) | ||||||||||||||||||||||
Other(b) | 134 | 63 | 51 | 15 | 83 | 48 | 113 | * | 73 | ||||||||||||||||||||||||
Total revenues | $ | 12,773 | $ | 12,973 | $ | 4,906 | $ | 5,090 | $ | 7,867 | $ | 7,883 | (2 | ) | (4 | ) | — | ||||||||||||||||
Biopharmaceutical | $ | 11,727 | $ | 12,110 | $ | 4,406 | $ | 4,738 | $ | 7,321 | $ | 7,372 | (3 | ) | (7 | ) | (1 | ) | |||||||||||||||
Six Months Ended | |||||||||||||||||||||||||||||||||
Operating Segments(a): | |||||||||||||||||||||||||||||||||
GIP | $ | 6,623 | $ | 7,032 | $ | 2,941 | $ | 3,353 | $ | 3,682 | $ | 3,679 | (6 | ) | (12 | ) | — | ||||||||||||||||
VOC | 4,753 | 4,453 | 2,137 | 1,932 | 2,616 | 2,521 | 7 | 11 | 4 | ||||||||||||||||||||||||
GEP | 12,503 | 13,782 | 4,009 | 4,685 | 8,494 | 9,097 | (9 | ) | (14 | ) | (7 | ) | |||||||||||||||||||||
23,879 | 25,267 | 9,087 | 9,970 | 14,792 | 15,297 | (5 | ) | (9 | ) | (3 | ) | ||||||||||||||||||||||
Other(b) | 247 | 116 | 94 | 34 | 153 | 82 | 113 | * | 87 | ||||||||||||||||||||||||
Total revenues | $ | 24,126 | $ | 25,383 | $ | 9,181 | $ | 10,004 | $ | 14,945 | $ | 15,379 | (5 | ) | (8 | ) | (3 | ) | |||||||||||||||
Biopharmaceutical | $ | 22,206 | $ | 23,656 | $ | 8,293 | $ | 9,255 | $ | 13,913 | $ | 14,401 | (6 | ) | (10 | ) | (3 | ) | |||||||||||||||
(a) | GIP = the Global Innovative Pharmaceutical segment; VOC = the Global Vaccines, Oncology and Consumer Healthcare segment; and GEP = the Global Established Pharmaceutical segment. |
(b) | Includes revenues generated from Pfizer CentreSource, our contract manufacturing and bulk pharmaceutical chemical sales organization, and also includes, in 2014, the revenues related to our transitional manufacturing and supply agreements with Zoetis. |
• | in the U.S., biopharmaceutical revenues decreased $332 million, or 7%, in the second quarter of 2014 and decreased $962 million, or 10%, in the first six months of 2014, compared to the same periods in 2013, reflecting, among other things: |
◦ | lower Alliance revenues, primarily due to Enbrel, reflecting the expiration of the co-promotion term of the collaboration agreement in October 2013 (approximately $402 million in the second quarter of 2014 and $753 million in the first six months of 2014), and Spiriva, reflecting the final-year terms, and termination on April 29, 2014, of the co-promotion collaboration, which, per the terms of the collaboration agreement, resulted in a decline of our share of Spiriva revenue (approximately $101 million in the second quarter of 2014 and $250 million in the first six months of 2014); and |
◦ | lower revenues from Detrol LA due to loss of exclusivity (approximately $88 million in the second quarter of 2014 and $190 million in the first six months of 2014), and lower revenues from Lipitor (approximately $112 million in the first six months of 2014), |
◦ | the strong performance of Lyrica (approximately $110 million in the second quarter of 2014 and $186 million in the first six months of 2014) as well as the growth of Xeljanz, Prevnar, Eliquis, Xalkori and Celebrex (approximately $184 million in the second quarter of 2014 and $260 million in the first six months of 2014). |
• | in our international markets, biopharmaceutical revenues decreased $51 million, or 1%, in the second quarter of 2014 and decreased $488 million, or 3%, in the first six months of 2014, compared to the same periods in 2013. Operationally, revenues increased $25 million in the second quarter of 2014 and decreased $69 million, or relatively flat as a percentage of revenues for both the second quarter and six month periods in 2014 compared to the same periods in 2013 reflecting, among other things: |
◦ | lower revenues as a result of the loss of exclusivity and subsequent multi-source generic competition for Viagra in most major European markets and Lyrica in Canada (approximately $92 million in the second quarter of 2014 and $200 million in the first six months of 2014); |
◦ | the operational decline of certain products, including Norvasc, Xalabrands, Zithromax and Effexor, in developed international markets, and Sutent in China (approximately $75 million in the second quarter of 2014 and $139 million for the first six months of 2014); |
◦ | lower Alliance revenues (approximately $38 million in the second quarter of 2014 and $104 million in the first six months of 2014), primarily due to the expiration of the co-promotion term of the collaboration agreement for Enbrel, the ongoing termination of the Spiriva collaboration agreement in certain countries, the loss of exclusivity for Aricept in Canada (primarily impacting the second quarter of 2014) and the termination of the co-promotion agreement for Aricept in Japan in December 2012 (primarily impacting the first six months of 2014); and |
◦ | the continued erosion of branded Lipitor in most international developed markets (approximately $45 million for the second quarter of 2014 and $75 million for the first six months of 2014), |
◦ | the operational growth of Xeljanz, Prevnar and Celebrex as well as the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan (approximately $108 million for the second quarter of 2014 and $155 million in the first six months of 2014); and |
◦ | higher revenues for Enbrel outside Canada, Lyrica in developed markets, and the performance of recently launched products Xalkori and Inlyta (collectively, up approximately $125 million in the second quarter of 2014 and $273 million in the first six months of 2014). |
The following table provides information about deductions from revenues: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Medicaid and related state program rebates(a) | $ | 48 | $ | 141 | $ | 220 | $ | 293 | ||||||||
Medicare rebates(a) | 265 | 177 | 505 | 333 | ||||||||||||
Performance-based contract rebates(a), (b) | 558 | 485 | 1,071 | 962 | ||||||||||||
Chargebacks(c) | 959 | 830 | 1,792 | 1,823 | ||||||||||||
Sales allowances(d) | 1,040 | 1,002 | 1,981 | 2,029 | ||||||||||||
Sales returns/Cash discounts | 330 | 280 | 572 | 524 | ||||||||||||
Total(e) | $ | 3,200 | $ | 2,915 | $ | 6,141 | $ | 5,964 | ||||||||
(a) | Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold. |
(b) | Performance-based contract rebates include contract rebates with managed care customers within the U.S., including health maintenance organizations and pharmacy benefit managers, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones. |
(c) | Chargebacks primarily represent reimbursements to wholesalers for honoring contracted prices to third parties. |
(d) | Sales allowances primarily represent pharmaceutical rebates, discounts and price reductions that are contractual or legislatively mandated outside the U.S. |
(e) | For the three months ended June 29, 2014, associated with the following segments: GIP ($0.7 billion); VOC ($0.3 billion); and GEP ($2.2 billion). For the three months ended June 30, 2013, associated with the following segments: GIP ($0.7 billion); VOC ($0.2 billion); and GEP ($2.0 billion). For the six months ended June 29, 2014, associated with the following segments: GIP ($1.4 billion); VOC ($0.5 billion); and GEP ($4.2 billion). For the six months ended June 30, 2013, associated with the following segments: GIP ($1.3 billion); VOC ($0.5 billion); and GEP segment ($4.2 billion). |
• | an increase in sales chargebacks on certain branded and generic products sold by our Greenstone unit due to increasing competitive pressures; |
• | an increase in performance-based contract rebates as a result of contract arrangements and incentives, primarily in Europe; and |
• | an increase in Medicare rebates due to higher volume in the Medicare patient population, |
• | a decrease in Medicaid and related state program rebates primarily as a result of a decrease in Managed Medicaid estimated rebates. |
• | an increase in Medicare rebates due to higher volume in the Medicare patient population; and |
• | an increase in performance-based contract rebates as a result of contract arrangements and incentives, primarily in Europe and China, |
• | a decrease in Medicaid and related state program rebates, primarily as a result of a decrease in Managed Medicaid estimated rebates. |
The following table provides detailed revenue information: | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | % Change(b) | June 29, 2014 | % Change(b) | |||||||||||||
PRODUCT | PRIMARY INDICATIONS | Business(a) | |||||||||||||||
Lyrica(c) | Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury | GIP/GEP | $ | 1,315 | 16 | $ | 2,465 | 12 | |||||||||
Prevnar family | Vaccines for prevention of pneumococcal disease | V | 1,097 | 13 | 2,024 | 7 | |||||||||||
Enbrel (Outside the U.S. and Canada) | Rheumatoid, juvenile rheumatoid and psoriatic arthritis, plaque psoriasis and ankylosing spondylitis | GIP | 977 | 2 | 1,891 | 3 | |||||||||||
Celebrex | Arthritis pain and inflammation, acute pain | GEP | 762 | 7 | 1,386 | 1 | |||||||||||
Lipitor | Reduction of LDL cholesterol | GEP | 543 | - | 1,000 | (15 | ) | ||||||||||
Viagra(d) | Erectile dysfunction | GEP/GIP | 427 | (12 | ) | 801 | (15 | ) | |||||||||
Zyvox | Bacterial infections | GEP | 348 | 1 | 669 | (3 | ) | ||||||||||
Sutent | Advanced and/or metastatic renal cell carcinoma (mRCC), refractory gastrointestinal stromal tumors (GIST) and advanced pancreatic neuroendocrine tumor | O | 310 | (1 | ) | 578 | (6 | ) | |||||||||
Norvasc | Hypertension | GEP | 282 | (10 | ) | 560 | (9 | ) | |||||||||
Premarin family | Symptoms of menopause | GEP | 274 | - | 522 | 1 | |||||||||||
BeneFIX | Hemophilia | GIP | 227 | 5 | 428 | 5 | |||||||||||
Vfend | Fungal infections | GEP | 221 | 25 | 398 | 9 | |||||||||||
Pristiq | Depression | GEP | 198 | 12 | 370 | 8 | |||||||||||
Genotropin | Replacement of human growth hormone | GIP | 194 | (2 | ) | 360 | (7 | ) | |||||||||
Chantix/Champix | An aid to smoking cessation treatment | GIP | 170 | 2 | 317 | (5 | ) | ||||||||||
Refacto AF/Xyntha | Hemophilia | GIP | 171 | 17 | 316 | 11 | |||||||||||
Xalatan/Xalacom | Glaucoma and ocular hypertension | GEP | 128 | (13 | ) | 247 | (16 | ) | |||||||||
Medrol | Inflammation | GEP | 115 | (7 | ) | 221 | (6 | ) | |||||||||
Zoloft | Depression and certain anxiety disorders | GEP | 104 | (5 | ) | 205 | (9 | ) | |||||||||
Xalkori | Anaplastic lymphoma kinase positive non-small cell lung cancer | O | 108 | 61 | 196 | 63 | |||||||||||
Inlyta | Advanced renal cell carcinoma (RCC) | O | 101 | 42 | 189 | 41 | |||||||||||
Relpax | Treats the symptoms of migraine headache | GEP | 98 | 4 | 185 | 3 | |||||||||||
Sulperazon | Antibiotic | GEP | 92 | 26 | 180 | 25 | |||||||||||
Effexor | Depression and certain anxiety disorders | GEP | 96 | (23 | ) | 178 | (23 | ) | |||||||||
Fragmin | Anticoagulant | GEP | 95 | 1 | 176 | (2 | ) | ||||||||||
Rapamune | Prevention of organ rejection in kidney transplantation | GIP | 87 | 1 | 175 | 3 | |||||||||||
Zithromax/Zmax | Bacterial infections | GEP | 76 | (8 | ) | 168 | (16 | ) | |||||||||
Tygacil | Antibiotic | GEP | 82 | (11 | ) | 156 | (13 | ) | |||||||||
EpiPen | Epinephrine injection used in treatment of life-threatening allergic reactions | GEP | 89 | 22 | 152 | 5 | |||||||||||
Zosyn/Tazocin | Antibiotic | GEP | 75 | (26 | ) | 149 | (21 | ) | |||||||||
Revatio | Pulmonary arterial hypertension (PAH) | GEP | 68 | (13 | ) | 144 | (4 | ) | |||||||||
Toviaz | Overactive bladder | GIP | 79 | 22 | 142 | 21 | |||||||||||
Cardura | Hypertension/Benign prostatic hyperplasia | GEP | 68 | (9 | ) | 134 | (11 | ) | |||||||||
Xanax/Xanax XR | Anxiety disorders | GEP | 68 | 5 | 127 | (6 | ) | ||||||||||
Inspra | High blood pressure | GEP | 62 | 5 | 123 | 11 | |||||||||||
Xeljanz | Rheumatoid arthritis | GIP | 68 | * | 120 | * | |||||||||||
Somavert | Acromegaly | GIP | 59 | 7 | 109 | 6 | |||||||||||
Neurontin | Seizures | GEP | 58 | 4 | 107 | (1 | ) | ||||||||||
Unasyn | Injectable antibacterial | GEP | 54 | 2 | 100 | (8 | ) | ||||||||||
Diflucan | Fungal infections | GEP | 46 | (23 | ) | 98 | (7 | ) | |||||||||
Protonix/Pantoprazole | Short-term treatment of erosive esophagitis associated with gastroesophageal reflux disease (GERD) | GEP | 50 | 4 | 98 | 3 | |||||||||||
Detrol/Detrol LA | Overactive bladder | GEP | 57 | (63 | ) | 94 | (69 | ) | |||||||||
Depo-Provera | Contraceptive | GEP | 40 | (25 | ) | 93 | 3 | ||||||||||
BMP2 | Development of bone and cartilage | GIP | 51 | (23 | ) | 90 | (19 | ) | |||||||||
Alliance revenues(e) | Various | GEP/GIP | 235 | (69 | ) | 448 | (70 | ) | |||||||||
All other biopharmaceutical(f) | Various | GIP/GEP/V/O | 1,802 | (9 | ) | 3,517 | (8 | ) | |||||||||
All other GIP(f) | GIP | 131 | (11 | ) | 237 | (12 | ) | ||||||||||
All other GEP(f) | GEP | 1,620 | (9 | ) | 3,187 | (9 | ) | ||||||||||
All other V/O(f) | V/O | 51 | 16 | 93 | 19 | ||||||||||||
(a) | Indicates the business to which the revenues relate. GIP = the Global Innovative Pharmaceutical segment; V = the Global Vaccines business; O = the Global Oncology business; and GEP = the Global Established Pharmaceutical segment. |
(b) | As compared to the three and six months ended June 30, 2013, as applicable. |
(c) | Lyrica revenues from all of Europe are included in GEP. All other Lyrica revenues are included in GIP. |
(d) | Viagra revenues from the U.S. and Canada are included in GIP. All other Viagra revenues are included in GEP. |
(e) | Includes Enbrel (GIP, in the U.S. and Canada through October 31, 2013), Spiriva (GEP), Rebif (GIP), Aricept (GEP) and Eliquis (GIP). |
(f) | All other GIP, All other GEP and All other V/O are subsets of All other biopharmaceutical revenues. |
• | Lyrica (GIP/GEP) is indicated in the U.S. for three neuropathic pain conditions, fibromyalgia and adjunctive therapy for adult patients with partial onset seizures. In certain countries outside the U.S., indications include neuropathic pain (peripheral and central), fibromyalgia, adjunctive treatment of epilepsy and generalized anxiety disorder. Worldwide revenues for Lyrica increased 16% in the second quarter of 2014, and 12% in the first six months of 2014, compared to the same periods in 2013. |
• | Prevnar family of products (V) consists of Prevnar 13/Prevenar 13 and Prevnar/Prevenar (7-valent), our pneumococcal conjugate vaccines for the prevention of various syndromes of pneumococcal disease. Overall, worldwide revenues for the Prevnar family of products increased 13% in the second quarter of 2014, and 7% in the first six months of 2014, compared to the same periods in 2013. |
• | Enbrel (GIP, outside of the U.S. and Canada), for the treatment of moderate-to-severe rheumatoid arthritis, polyarticular juvenile rheumatoid arthritis, psoriatic arthritis, plaque psoriasis and ankylosing spondylitis, a type of arthritis affecting the spine, recorded an increase in worldwide revenues, excluding the U.S. and Canada, of 2% in the second quarter of 2014, and 3% in the first six months of 2014, compared to the same periods in 2013. Results were favorably impacted by continued market leadership in rheumatoid arthritis. Foreign exchange had a favorable impact of 1% in the second quarter of 2014 and an unfavorable impact of 1% in the first six months of 2014, compared to the same periods in 2013. |
• | Celebrex (GEP), indicated for the treatment of the signs and symptoms of osteoarthritis and rheumatoid arthritis worldwide and for the management of acute pain in adults in the U.S., Japan and certain other markets, recorded an increase in worldwide revenues of 7% in the second quarter of 2014, and 1% in the first six months of 2014, compared to the same periods in 2013, primarily due to favorable pricing in the U.S. and strong demand from the lower back pain indication in Japan, partially offset by share erosion in the U.S. and the developed markets in Europe. |
• | Lipitor (GEP) is for the treatment of elevated LDL-cholesterol levels in the blood. Lipitor has lost exclusivity and faces generic competition in all major markets. Branded Lipitor recorded worldwide revenues of $543 million, relatively unchanged in the second quarter of 2014, compared to the same period in 2013, primarily due to continued brand erosion in the U.S. and developed markets due to generic competition, offset by operational increases in emerging markets, primarily in China. Revenues were $1.0 billion, or a decrease of 15%, in the first six months of 2014, compared to the same period in 2013, due to: |
◦ | the impact of loss of exclusivity; |
◦ | the continuing impact of an intensely competitive lipid-lowering market with competition from generics and branded products worldwide; and |
◦ | the increased payer pressure worldwide, including the need for flexible rebate policies, |
◦ | lower rebates in the U.S. |
◦ | in the U.S., revenues increased 12% in the second quarter of 2014, and decreased 43% in the first six months of 2014, compared to the same periods in 2013; and |
◦ | in our international markets, revenues decreased 3% in the second quarter of 2014, and 7% in the first six months of 2014, compared to the same periods in 2013. Foreign exchange had an unfavorable impact on international revenues of 2% in the second quarter of 2014, and 2% in the first six months of 2014, compared to the same periods in 2013. |
• | Zyvox (GEP) is the world’s best-selling branded agent among those used to treat serious Gram-positive pathogens, including methicillin-resistant staphylococcus-aureus. Zyvox worldwide revenues increased 1% in the second quarter of 2014, and decreased 3% in the first six months, compared to the same periods in 2013. The decrease in the first six months of 2014 was primarily due to a prolonged supply interruption of Zyvox IV in China that is expected to continue through 2014. Foreign exchange had a favorable impact on international revenues of 1% in the second quarter of 2014, and an unfavorable impact of 2% in the first six months of 2014, compared to the same periods in 2013. |
• | Sutent (O) is indicated for the treatment of advanced renal cell carcinoma, including metastatic renal cell carcinoma (mRCC); gastrointestinal stromal tumors after disease progression on, or intolerance to, imatinib mesylate; and advanced pancreatic neuroendocrine tumor. Sutent worldwide revenues decreased 1% in the second quarter of 2014, and 6% in the first six months of 2014, compared to the same periods in 2013, as a result of competitive pressure, timing of sales in emerging markets, a change in purchasing patterns in the U.S., and the unfavorable impact of foreign exchange of 1% in the second quarter of 2014 and 1% in the first six months of 2014, partially offset by price increases in the U.S. and increased market share in Japan and South Korea. |
• | Norvasc (GEP) is indicated for the treatment of hypertension. Norvasc worldwide revenues decreased 10% in the second quarter of 2014, and 9% in the first six months of 2014, compared to the same periods in 2013, and reflects, among other factors, generic erosion in Japan and the unfavorable impact of foreign exchange of 2% in the second quarter of 2014 and 3% in the first six months of 2014, compared to the same periods in 2013. |
• | Our Premarin family of products (GEP) helps women address moderate-to-severe menopausal symptoms. Premarin worldwide revenues were flat in the second quarter of 2014, and increased 1% in the first six months of 2014, compared to the same periods in 2013. Revenues in the U.S. were favorably impacted by the launch of a new Women's Health-focused sales force, increased marketing support, and a cross-franchise price increase, and unfavorably impacted by prescription volume declines for Premarin Family Oral brands. |
• | BeneFIX and ReFacto AF/Xyntha (GIP) are hemophilia products using state-of-the-art manufacturing that assist patients with their lifelong bleeding disorders. BeneFIX recorded an increase in worldwide revenues of 5% in both the second quarter and first six months of 2014, compared to the same periods in 2013, primarily due to greater consumption and price increases in the U.S. Increased consumption and patient demand contributed to growth in several EU countries. |
• | Pristiq (GEP) is approved for the treatment of major depressive disorder in the U.S. and in various other countries. Pristiq has also been approved for treatment of moderate-to-severe vasomotor symptoms (VMS) associated with menopause in Thailand, Mexico, the Philippines and Ecuador. Pristiq recorded an increase in worldwide revenues of 12% in the second quarter of 2014, and 8% in the first six months, compared to the same periods in 2013, primarily due to prescription growth in the emerging markets, Canada and Australia, as well as a price increase in the U.S. |
• | Chantix/Champix (GIP) is an aid to smoking-cessation treatment in adults 18 years of age and older. Worldwide revenues increased 2% in the second quarter of 2014, and decreased 5% in the first six months, compared to the same periods in 2013. Revenues in the U.S. increased 18% in the second quarter of 2014, and 8% in the first six months of 2014, compared to the same periods in 2013, primarily due to price increases, partially offset by competition from OTC competitors, mainly Nicorette and a movement by smokers to e-cigarettes. International revenues decreased 13% in the second quarter of 2014, and 18% in the first six months, compared to the same periods in 2013, primarily due to overall market decline across several key markets as a result of a challenging macro-economic environment, strong competitive pressure from aggressive Nicotine Replacement Therapy (NRT) consumer promotion and the widespread availability of e-cigarettes and use of prescription medication, as well as the lingering impact from previous negative media exposure and the unfavorable impact on international revenues of foreign exchange of 3% in the second quarter of 2014 and 4% in the first six months of 2014. |
• | Xalkori (O), for the treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) that is anaplastic lymphoma kinase (ALK)-positive, is now approved in 75 countries, including the U.S., EU (conditional), Japan, South Korea, Canada, Australia and Switzerland, as well as in many emerging markets, including China, Russia, Mexico, India and Turkey. Xalkori recorded worldwide revenues of $108 million in the second quarter of 2014, an increase of 61%, and $196 million in the first six months of 2014, an increase of 63%, compared to the same periods in 2013 as a result of (i) an increase in diagnostic rates for the ALK gene abnormality, which has led to more patients being treated, as well as an extended duration of therapy, and an increase in market share, driving the number of prescriptions up and (ii) price increases in the U.S. |
• | Inlyta (O), for the treatment of patients with advanced renal cell carcinoma (RCC) after failure of a prior systemic treatment, is now approved in 65 countries, including the U.S., EU, Switzerland, Japan, Canada, Australia, South Korea and some emerging markets, including Russia, Mexico and Turkey (exact indications vary by region). Inlyta recorded worldwide revenues of $101 million in the second quarter of 2014, an increase of 42%, and $189 million in the first six months of 2014, an increase of 41%, compared to the same periods in 2013, due to recent launches and additional share uptake. International revenues increased 56% in the second quarter, and 63% in the first six months, compared to the same periods in 2013, primarily due to strong growth in developed markets in Europe, where a large proportion of oncologists are prescribing Inlyta. Foreign exchange had an unfavorable impact on international revenues of 2% in the second quarter of 2014 and 6% in the first six months of 2014. |
• | Xeljanz (GIP) was approved in the U.S. in November 2012 and in various other countries in 2013 for the treatment of adult patients with moderately to severely active rheumatoid arthritis. It has experienced consistent month-to-month growth in the U.S., where total prescription volume grew 24% in the second quarter of 2014, compared to the first quarter of 2014. Xeljanz recorded worldwide revenues of $68 million in the second quarter of 2014 and $120 million in the first six months of 2014, compared to $22 million and $33 million in the same periods in 2013, virtually all in the U.S., primarily driven by the FDA approval for a label update in February 2014 to include data on radiographic progression, which strengthens the clinical profile of Xeljanz as well as positive consumer awareness. Xeljanz also has been approved in Colombia, Uruguay, Chile, Taiwan, Bolivia, Guatemala, Philippines, and Ecuador. |
• | Alliance revenues (GEP/GIP) worldwide decreased 69% in the second quarter of 2014, and 70% in the first six months of 2014, compared to the same periods in 2013, mainly due to: |
◦ | the expiration or near-term expiration of the co-promotion collaboration for Spiriva (GEP) in Japan, the U.S. (where the collaboration expired in April 2014), and certain European countries combined with the expiration of the collaboration in Australia, Canada and South Korea, which resulted in a decrease in Pfizer's share of Spiriva revenues of $127 million in the second quarter of 2014, and $303 million in the first six months of 2014, compared to the same periods in 2013; |
◦ | the loss of exclusivity for Aricept in Canada in December 2013, which resulted in a decrease in revenues of approximately $28 million in the second quarter of 2014, compared to the same period in 2013, and combined with the termination of the co-promotion agreement for Aricept (GEP) in Japan in December 2012, resulted in a decrease in Pfizer's share of Aricept revenues of approximately $59 million in the first six months of 2014, compared to the same period in 2013; and |
◦ | the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada in October 2013, which resulted in a decrease of $428 million in the second quarter of 2014, and $804 million in the first six months of 2014, compared to the same periods in 2013. (While Enbrel alliance revenues declined $428 million in the second quarter of 2014 and $804 million in the first six months of 2014, we received royalty income from Enbrel in the U.S. and Canada of $124 million in the second quarter of 2014 and $261 million in the first six months of 2014, which is recorded in Other (income)/deductions—net in the condensed consolidated statements on income. See Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net.) |
• | Eliquis (apixaban) (GIP) is being jointly developed and commercialized by Pfizer and Bristol-Myers Squibb (BMS). In 2012, Eliquis (apixaban) was approved to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation in the 27 countries of the EU, plus Iceland and Norway, Canada, Japan and the U.S. To date, we have launched that indication for Eliquis in the U.S., 23 EU markets, Canada and Australia. The two companies share |
• | Embeda (GIP)—In November 2013, we announced that the FDA had approved a prior approval supplement for an update to the Embeda manufacturing process. This update addressed the pre-specified stability requirement that led to the voluntary recall of Embeda from the market in March 2011. We anticipate returning Embeda to the market in early 2015. |
RECENT FDA APPROVALS | ||
PRODUCT | INDICATION | DATE APPROVED |
Eliquis (Apixaban)(a) | Prevention of deep vein thrombosis (DVT), which may lead to pulmonary embolism (PE), in adult patients who have undergone hip or knee replacement surgery | March 2014 |
Duavee (Conjugated Estrogens/Bazedoxifene)(b) | Treatment of moderate-to-severe vasomotor symptoms associated with menopause and prevention of postmenopausal osteoporosis in women with a uterus | October 2013 |
(a) | This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS. |
(b) | The FDA approved the 0.45 mg/20 mg dose of Duavee for these indications. We received a "complete response" letter from the FDA with regard to the 0.625 mg/20 mg dose for these indications, and for an indication for the treatment of vulvar and vaginal atrophy. |
PENDING U.S. NEW DRUG APPLICATIONS (NDA) AND SUPPLEMENTAL FILINGS | ||
PRODUCT | INDICATION | DATE FILED* |
Eliquis (Apixaban)(a) | Treatment of DVT and PE, and for the reduction in the risk of recurrent DVT and PE | December 2013 |
Tafamidis meglumine(b) | Treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP) | February 2012 |
Genotropin Mark VII Multidose Disposable Device (Somatropin rDNA Origin)(c) | Replacement of human growth hormone deficiency | December 2009 |
Celebrex (Celecoxib)(d) | Chronic pain | October 2009 |
Remoxy (Oxycodone Hydrochloride)(e) | Management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate | August 2008 |
Viviant (Bazedoxifene)(f) | Osteoporosis treatment and prevention | August 2006 |
* | The dates set forth in this column are the dates on which the FDA accepted our submissions. |
(a) | This indication for Eliquis (apixaban) was developed in collaboration with BMS. |
(b) | In May 2012, the FDA's Peripheral and Central Nervous System Drugs Advisory Committee voted that the tafamidis meglumine data provide substantial evidence of efficacy for a surrogate endpoint that is reasonably likely to predict a clinical benefit. In June 2012, the FDA issued a “complete response” letter with respect to the tafamidis NDA. The FDA has requested the completion of a second efficacy study, and also has asked for additional information on the data within the current tafamidis NDA. We continue to work with the FDA to define a path forward. |
(c) | After receiving a “complete response” letter from the FDA for the Genotropin Mark VII multidose disposable device submission, we submitted our response in August 2010. In April 2011, we received a second “complete response” letter from the FDA, and we submitted our response in July 2013. In February 2014, we received a third "complete response" letter from the FDA, and we are working with the FDA to determine next steps. |
(d) | In June 2010, we received a “complete response” letter from the FDA for the Celebrex chronic pain supplemental NDA. The supplemental NDA remains pending while we await the completion of the PRECISION trial, anticipated in 2015, which will inform our next steps. The PRECISION trial is designed to assess the relative long-term cardiovascular safety of Celebrex compared to prescription doses of ibuprofen and naproxen in the treatment of arthritis pain. |
(e) | In 2005, King Pharmaceuticals, Inc. (King) entered into an agreement with Pain Therapeutics, Inc. (PT) to develop and commercialize Remoxy. In August 2008, the FDA accepted the NDA for Remoxy that had been submitted by King and PT. In December 2008, the FDA issued a “complete response” letter. In March 2009, King exercised its right under the agreement with PT to assume sole control and responsibility for the development of Remoxy. In December 2010, King resubmitted the NDA for Remoxy with the FDA. In June 2011, we and PT announced that a “complete response” letter had been received from the FDA with regard to the resubmission of the NDA. Having achieved technical milestones related to manufacturing and following guidance received from the FDA earlier in 2013, we announced in October 2013 that we will proceed with the additional clinical studies and other actions required to address the "complete response" letter received in June 2011. These new clinical studies will include, in part, a pivotal bioequivalence study with the modified Remoxy formulation to bridge to the clinical data related to the original Remoxy formulation, and an abuse-potential study with the modified formulation. As previously disclosed, the "complete response" submission is not expected to occur prior to mid-2015. |
(f) | Two “approvable” letters were received by Wyeth in April and December 2007 from the FDA for Viviant (bazedoxifene), for the prevention of post-menopausal osteoporosis, that set forth the additional requirements for approval. In May 2008, Wyeth received an “approvable” letter from the FDA for the treatment of post-menopausal osteoporosis. The FDA is seeking additional data, and we have been systematically working through these requirements and seeking to address the FDA's concerns. In February 2008, the FDA advised Wyeth that it expects to convene an advisory committee to review the pending NDAs for both the treatment and prevention indications after we submit our response to the “approvable” letters. In view of the recent approval of Duavee by the FDA, we are reassessing the next steps regarding our NDAs for Viviant. In April 2009, Wyeth received approval in the EU for CONBRIZA (the EU trade name for Viviant) for the treatment of post-menopausal osteoporosis in women at increased risk of fracture. |
REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN | |||
PRODUCT | DESCRIPTION OF EVENT | DATE APPROVED | DATE FILED* |
Eliquis (Apixaban)(a) | Approval in the EU for treatment of DVT and PE, and prevention of recurrent DVT and PE in adults | July 2014 | — |
Prevenar 13 Adult | Approval in Japan for prevention of pneumococcal disease caused by Streptococcus pneumoniae serotypes (1, 3, 4, 5, 6A, 6B, 7F, 9V, 14, 18C, 19A, 19F and 23F) in adults 65 years of age and older | June 2014 | __ |
Bosulif (Bosutinib) | Application filed in Japan for treatment of previously treated chronic myelogenous leukemia | — | December 2013 |
Vyndaqel (Tafamidis meglumine) | Approval in Japan as a treatment to delay the peripheral neurological impairment of transthyretin familial amyloid polyneuropathy (TTR-FAP) | September 2013 | — |
Conjugated Estrogens/Bazedoxifene | Application filed in the EU for treatment of symptoms associated with menopause and osteoporosis | — | July 2012 |
* | For applications in the EU, the dates set forth in this column are the dates on which the European Medicines Agency (EMA) validated our submissions. |
(a) | This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS. |
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS | |
PRODUCT | INDICATION |
Inlyta (Axitinib) | Oral and selective inhibitor of vascular endothelial growth factor (VEGF) receptor 1, 2 & 3 for the adjuvant treatment of renal cell carcinoma, which is being developed in collaboration with SFJ Pharmaceuticals Group |
Lyrica (Pregabalin) | Peripheral neuropathic pain; CR (once-a-day) dosing |
Sutent (Sunitinib) | Adjuvant treatment of renal cell carcinoma |
Tofacitinib | A JAK kinase inhibitor for the treatment of psoriasis, ulcerative colitis and psoriatic arthritis |
Vyndaqel (Tafamidis meglumine) | Adult symptomatic transthyretin cardiomyopathy |
Xalkori (Crizotinib) | An oral ALK and c-Met inhibitor for the first-line treatment of ALK-positive non-small cell lung cancer |
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT | |
CANDIDATE | INDICATION |
ALO-02 | A Mu-type opioid receptor agonist for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate |
Bococizumab (RN316) (PF-04950615) | A monoclonal antibody that inhibits PCSK9 for the treatment of hyperlipidemia and prevention of cardiovascular events |
Dacomitinib | A pan-HER tyrosine kinase inhibitor for the first-line treatment of patients with advanced non-small cell lung cancer with EGFR activating mutations, which is being developed in collaboration with SFJ Pharmaceuticals Group |
Ertugliflozin (PF-04971729) | An oral SGLT2 inhibitor for the treatment of type 2 diabetes, which is being developed in collaboration with Merck & Co., Inc. |
Inotuzumab ozogamicin | An antibody drug conjugate, consisting of an anti-CD22 monotherapy antibody linked to a cytotoxic agent, calicheamycin, for the treatment of acute lymphoblastic leukemia |
MnB rLP2086(a) (PF-05212366) | A prophylactic vaccine for prevention of Neisseria meningitidis serogroup B invasive disease in adolescents and young adults (ages 10-25) |
Palbociclib (PD-0332991)(b) | An oral and selective reversible inhibitor of the CDK 4 and 6 kinases for the first-line treatment of patients with estrogen receptor-positive (ER+), human epidermal growth factor receptor 2-negative (HER2-) advanced breast cancer, as well as for the treatment of recurrent advanced breast cancer and, in collaboration with the German Breast Group, high-risk early breast cancer |
PF-05280014 | A potential biosimilar to Trastuzumab. Trastuzumab is a monoclonal antibody that binds and inhibits HER2 for the treatment of HER2-positive breast cancer and gastric cancer |
Tanezumab(c) | An anti-nerve growth factor monoclonal antibody for the treatment of pain (on clinical hold) |
(a) | In March 2014, we announced that the FDA granted Breakthrough Therapy designation to MnB rLP2086. In June 2014, we submitted a Biologics License Application to the FDA for this vaccine candidate, which is pending acceptance by the FDA for filing. |
(b) | On February 3, 2014, we announced that the randomized Phase 2 trial of palbociclib achieved its primary endpoint by demonstrating a statistically significant and clinically meaningful improvement in progression-free survival for the combination of palbociclib and letrozole compared with letrozole alone in post-menopausal women with ER+, HER2- locally advanced or newly diagnosed metastatic breast cancer. Adverse events observed for the palbociclib arm were consistent with the known adverse event profile for this combination. |
(c) | The tanezumab program is under a partial clinical hold by the FDA pending our submission of additional nonclinical data. We anticipate submitting that data to the FDA during the first quarter of 2015. Subject to the removal of the partial clinical hold, we are planning to continue development of tanezumab for the treatment of osteoarthritis, chronic low back pain and cancer pain. In October 2013, we entered into a collaboration agreement with Eli Lilly and Company to jointly develop and globally commercialize tanezumab for those indications. |
Three Months Ended | Six Months Ended | |||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||
Cost of sales | $ | 2,462 | $ | 2,242 | 10 | $ | 4,507 | $ | 4,505 | - | ||||||||||
As a percentage of Revenues | 19.3 | % | 17.3 | % | 18.7 | % | 17.7 | % | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||||
Selling, informational and administrative expenses | $ | 3,520 | $ | 3,591 | (2 | ) | $ | 6,560 | $ | 6,808 | (4 | ) | ||||||||||
As a percentage of Revenues | 27.6 | % | 27.7 | % | 27.2 | % | 26.8 | % | ||||||||||||||
• | lower expenses for field force and administration, reflecting the benefits of cost-reduction and productivity initiatives, partly in response to product losses of exclusivity; |
• | for the first six months of 2014, a reduction related to a true-up of the 2013 fee payable to the federal government under the U.S. Healthcare Legislation based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs; and |
• | the favorable impact of foreign exchange of 1% for both periods, |
• | increased investments in support of several recent product launches. |
Three Months Ended | Six Months Ended | |||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||
Research and development expenses | $ | 1,759 | $ | 1,530 | 15 | $ | 3,382 | $ | 3,240 | 4 | ||||||||||
As a percentage of Revenues | 13.8 | % | 11.8 | % | 14.0 | % | 12.8 | % | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||||
Costs associated with acquisitions and cost-reduction/productivity initiatives(a) | $ | 259 | $ | 298 | (13 | ) | $ | 423 | $ | 603 | (30 | ) | ||||||||||
(a) | Comprises Restructuring charges and certain acquisition-related costs as well as costs associated with our cost-reduction/productivity initiatives included in Cost of sales, Research and development expenses and/or Selling, informational and administrative expenses, as appropriate. |
• | In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and |
• | In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization and optimization actions, workforce reductions and the expansion of shared services, including the development of global systems. |
• | Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of ten sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $450 million associated with prior acquisition activity and costs of approximately $1.5 billion associated with new non-acquisition-related cost-reduction initiatives. |
• | New global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support future reporting requirements. In connection with this reorganization, during 2014-2016, we expect to incur costs of approximately $350 million. |
• | Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $900 million. |
Three Months Ended | Six Months Ended | ||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | |||||||||||||||
Other (income)/deductions––net | $ | (53 | ) | $ | (1,070 | ) | (95 | ) | $ | 570 | $ | (925 | ) | * | |||||||
• | the non-recurrence in the second quarter of 2014 of patent litigation settlement income of $1.4 billion in the second quarter of 2013 (for additional information, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net), |
• | lower asset impairments and related charges (down $127 million) (for additional information, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net); and |
• | higher royalty-related income (up $119 million) primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013 (for additional information, see Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net). |
• | the non-recurrence in the first six months of 2014 of patent litigation settlement income of $1.4 billion in the first six months of 2013 (for additional information, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net); |
• | higher legal charges (up $787 million), primarily due to Neurontin- and Effexor-related matters (for additional information, see Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net); and |
• | the non-recurrence of a gain of $459 million recorded in the first six months of 2013 associated with the transfer of certain product rights to our 49%-owned equity-method investment in China (for additional information, see Notes to Condensed Consolidated Financial Statements—Note 2D. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments), |
• | lower asset impairments and related charges (down $410 million) (for additional information, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net); |
• | higher royalty-related income (up $304 million) primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013 (for additional information, see Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net); and |
• | higher net gains on asset disposals (up $160 million), primarily due to gains on sales of product rights and gains on sales of investments in equity securities (for additional information, see Notes to Condensed Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net). |
Three Months Ended | Six Months Ended | |||||||||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | June 29, 2014 | June 30, 2013 | % Change | ||||||||||||||||
Provision for taxes on income | $ | 1,082 | $ | 1,782 | (39 | ) | $ | 1,664 | $ | 2,891 | (42 | ) | ||||||||||
Effective tax rate | 27.0 | % | 33.3 | % | 24.3 | % | 31.8 | % | ||||||||||||||
• | the non-recurrence in the second quarter of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the second quarter of 2013; |
• | the favorable impact of the resolution in the second quarter of 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, and from the expiration of certain statutes of limitations; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. R&D tax credit on December 31, 2013. |
• | the favorable impact of the resolution in the first six months of 2014 of certain tax positions, pertaining to prior years, primarily with various foreign tax authorities, and from the expiration of certain statutes of limitations; |
• | the non-recurrence in the first six months of 2014 of the unfavorable tax impact associated with the non-deductibility of the goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to our 49%-owned equity-method investment with Hisun in China in the first six months of 2013; |
• | the non-recurrence in the first six months of 2014 of the unfavorable impact of the tax rate associated with the patent litigation settlement income in the second quarter of 2013; and |
• | the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, |
• | the expiration of the U.S. R&D tax credit on December 31, 2013. |
The following table provides the components of Discontinued operations—net of tax, virtually all of which relates to Zoetis: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Revenues | $ | — | $ | 1,112 | $ | — | $ | 2,201 | ||||||||
Pre-tax income from discontinued operations | (3 | ) | 189 | 2 | 389 | |||||||||||
Provision for taxes on income(a) | (1 | ) | 48 | (1 | ) | 99 | ||||||||||
Income from discontinued operations––net of tax | (2 | ) | 141 | 3 | 290 | |||||||||||
Pre-tax gain on disposal of discontinued operations(b) | 2 | 10,539 | 66 | 10,539 | ||||||||||||
Provision for taxes on income(b), (c) | — | 121 | (4 | ) | 121 | |||||||||||
Gain on disposal of discontinued operations––net of tax(b) | 2 | 10,418 | 70 | 10,418 | ||||||||||||
Discontinued operations––net of tax | $ | — | $ | 10,559 | $ | 73 | $ | 10,708 | ||||||||
(a) | Includes deferred tax benefits of $2 million and $26 million for the three months ended June 29, 2014 and June 30, 2013, respectively, and deferred tax benefits of $2 million and $19 million for the six months ended June 29, 2014 and June 30, 2013, respectively. |
(b) | For the three and six months ended June 29, 2014, represents post-close adjustments. |
(c) | Reflects income taxes resulting from certain legal entity reorganizations. |
• | senior management receives a monthly analysis of our operating results that is prepared on an Adjusted income basis; |
• | our annual budgets are prepared on an Adjusted income basis; and |
• | senior management’s annual compensation is derived, in part, using this Adjusted income measure. Adjusted income is the performance metric utilized in the determination of bonuses under the Pfizer Inc. Executive Annual Incentive Plan that is designed to limit the bonuses payable to the Executive Leadership Team (ELT) for purposes of Internal Revenue Code Section 162(m). Subject to the Section 162(m) limitation, the bonuses are funded from a pool based on the performance measured by three financial metrics, including adjusted diluted earnings per share, which is derived from Adjusted income. This metric accounts for 40% of the bonus pool. The pool applies to the bonus plans for virtually all bonus-eligible, non-sales-force employees worldwide, including the ELT members and other members of senior management. |
Three Months Ended June 29, 2014 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 12,773 | $ | — | $ | — | $ | — | $ | (71 | ) | $ | 12,702 | |||||||||||
Cost of sales | 2,462 | 14 | (16 | ) | — | (140 | ) | 2,320 | ||||||||||||||||
Selling, informational and administrative expenses | 3,520 | 4 | — | — | (38 | ) | 3,486 | |||||||||||||||||
Research and development expenses | 1,759 | — | — | — | (45 | ) | 1,714 | |||||||||||||||||
Amortization of intangible assets | 1,001 | (961 | ) | — | — | — | 40 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 81 | — | (31 | ) | — | (50 | ) | — | ||||||||||||||||
Other (income)/deductions––net | (53 | ) | (6 | ) | — | — | (36 | ) | (95 | ) | ||||||||||||||
Income from continuing operations before provision for taxes on income | 4,003 | 949 | 47 | — | 238 | 5,237 | ||||||||||||||||||
Provision for taxes on income(b) | 1,082 | 254 | 49 | — | 74 | 1,459 | ||||||||||||||||||
Income from continuing operations | 2,921 | 695 | (2 | ) | — | 164 | 3,778 | |||||||||||||||||
Discontinued operations––net of tax | — | — | — | — | — | — | ||||||||||||||||||
Net income attributable to noncontrolling interests | 9 | — | — | — | — | 9 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 2,912 | 695 | (2 | ) | — | 164 | 3,769 | |||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.45 | 0.11 | — | — | 0.03 | 0.58 | ||||||||||||||||||
Six Months Ended June 29, 2014 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 24,126 | $ | — | $ | — | $ | — | $ | (128 | ) | $ | 23,998 | |||||||||||
Cost of sales | 4,507 | 83 | (22 | ) | — | (262 | ) | 4,306 | ||||||||||||||||
Selling, informational and administrative expenses | 6,560 | 4 | — | — | (58 | ) | 6,506 | |||||||||||||||||
Research and development expenses | 3,382 | — | — | — | (56 | ) | 3,326 | |||||||||||||||||
Amortization of intangible assets | 2,118 | (2,037 | ) | — | — | — | 81 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 139 | — | (55 | ) | — | (84 | ) | — | ||||||||||||||||
Other (income)/deductions––net | 570 | (7 | ) | — | — | (922 | ) | (359 | ) | |||||||||||||||
Income from continuing operations before provision for taxes on income | 6,850 | 1,957 | 77 | — | 1,254 | 10,138 | ||||||||||||||||||
Provision for taxes on income(b) | 1,664 | 542 | 58 | — | 422 | 2,686 | ||||||||||||||||||
Income from continuing operations | 5,186 | 1,415 | 19 | — | 832 | 7,452 | ||||||||||||||||||
Discontinued operations––net of tax | 73 | — | — | (73 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 18 | — | — | — | — | 18 | ||||||||||||||||||
Net income attributable to Pfizer Inc. | 5,241 | 1,415 | 19 | (73 | ) | 832 | 7,434 | |||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 0.81 | 0.22 | — | (0.01 | ) | 0.13 | 1.15 | |||||||||||||||||
Three Months Ended June 30, 2013 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 12,973 | $ | — | $ | — | $ | — | $ | — | $ | 12,973 | ||||||||||||
Cost of sales | 2,242 | 15 | (50 | ) | — | (13 | ) | 2,194 | ||||||||||||||||
Selling, informational and administrative expenses | 3,591 | 1 | (6 | ) | — | (36 | ) | 3,550 | ||||||||||||||||
Research and development expenses | 1,530 | 1 | — | — | (10 | ) | 1,521 | |||||||||||||||||
Amortization of intangible assets | 1,140 | (1,097 | ) | — | — | — | 43 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 183 | — | (57 | ) | — | (126 | ) | — | ||||||||||||||||
Other (income)/deductions––net | (1,070 | ) | (28 | ) | — | — | 1,197 | 99 | ||||||||||||||||
Income from continuing operations before provision for taxes on income | 5,357 | 1,108 | 113 | — | (1,012 | ) | 5,566 | |||||||||||||||||
Provision for taxes on income(b) | 1,782 | 298 | (75 | ) | — | (452 | ) | 1,553 | ||||||||||||||||
Income from continuing operations | 3,575 | 810 | 188 | — | (560 | ) | 4,013 | |||||||||||||||||
Discontinued operations––net of tax | 10,559 | — | — | (10,559 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 39 | — | — | (29 | ) | — | 10 | |||||||||||||||||
Net income attributable to Pfizer Inc. | 14,095 | 810 | 188 | (10,530 | ) | (560 | ) | 4,003 | ||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 1.98 | 0.11 | 0.03 | (1.48 | ) | (0.08 | ) | 0.56 | ||||||||||||||||
Six Months Ended June 30, 2013 | ||||||||||||||||||||||||
IN MILLIONS, EXCEPT PER COMMON SHARE DATA | GAAP Reported | Purchase Accounting Adjustments(a) | Acquisition-Related Costs(a) | Discontinued Operations(a) | Certain Significant Items(a) | Non-GAAP Adjusted | ||||||||||||||||||
Revenues | $ | 25,383 | $ | — | $ | — | $ | — | $ | — | $ | 25,383 | ||||||||||||
Cost of sales | 4,505 | 20 | (83 | ) | — | (19 | ) | 4,423 | ||||||||||||||||
Selling, informational and administrative expenses | 6,808 | 6 | (8 | ) | — | (78 | ) | 6,728 | ||||||||||||||||
Research and development expenses | 3,240 | 2 | — | — | (103 | ) | 3,139 | |||||||||||||||||
Amortization of intangible assets | 2,359 | (2,277 | ) | — | — | — | 82 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | 314 | — | (112 | ) | — | (202 | ) | — | ||||||||||||||||
Other (income)/deductions––net | (925 | ) | (78 | ) | — | — | 1,326 | 323 | ||||||||||||||||
Income from continuing operations before provision for taxes on income | 9,082 | 2,327 | 203 | — | (924 | ) | 10,688 | |||||||||||||||||
Provision for taxes on income(b) | 2,891 | 632 | (49 | ) | — | (548 | ) | 2,926 | ||||||||||||||||
Income from continuing operations | 6,191 | 1,695 | 252 | — | (376 | ) | 7,762 | |||||||||||||||||
Discontinued operations––net of tax | 10,708 | — | — | (10,708 | ) | — | — | |||||||||||||||||
Net income attributable to noncontrolling interests | 54 | — | — | (35 | ) | — | 19 | |||||||||||||||||
Net income attributable to Pfizer Inc. | 16,845 | 1,695 | 252 | (10,673 | ) | (376 | ) | 7,743 | ||||||||||||||||
Earnings per common share attributable to Pfizer Inc.––diluted | 2.34 | 0.24 | 0.04 | (1.49 | ) | (0.05 | ) | 1.08 | ||||||||||||||||
(a) | For details of adjustments, see "Details of Income Statement Items Excluded from Adjusted Income" below. |
(b) | The effective tax rate on Non-GAAP Adjusted income was 27.9% in the second quarter of 2014, consistent with 27.9% in the second quarter of 2013, primarily reflecting the favorable impact of the resolution in the second quarter of 2014 of certain tax positions, pertaining to prior years with various foreign tax authorities, and from the expiration of certain statutes of limitations, offset by an unfavorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business and the expiration of the U.S. R&D tax credit on December 31, 2013. The effective tax rate on Non-GAAP Adjusted income was 26.5% in the first six months of 2014, |
Adjusted income, as shown above, excludes the following items: | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | June 29, 2014 | June 30, 2013 | ||||||||||||
Purchase accounting adjustments | ||||||||||||||||
Amortization, depreciation and other(a) | $ | 963 | $ | 1,123 | $ | 2,040 | $ | 2,347 | ||||||||
Cost of sales | (14 | ) | (15 | ) | (83 | ) | (20 | ) | ||||||||
Total purchase accounting adjustments––pre-tax | 949 | 1,108 | 1,957 | 2,327 | ||||||||||||
Income taxes(b) | (254 | ) | (298 | ) | (542 | ) | (632 | ) | ||||||||
Total purchase accounting adjustments––net of tax | 695 | 810 | 1,415 | 1,695 | ||||||||||||
Acquisition-related costs | ||||||||||||||||
Restructuring charges(c) | 16 | 24 | 22 | 43 | ||||||||||||
Integration costs(c) | 15 | 33 | 33 | 69 | ||||||||||||
Additional depreciation––asset restructuring(d) | 16 | 56 | 22 | 91 | ||||||||||||
Total acquisition-related costs––pre-tax | 47 | 113 | 77 | 203 | ||||||||||||
Income taxes(e) | (49 | ) | 75 | (58 | ) | 49 | ||||||||||
Total acquisition-related costs––net of tax | (2 | ) | 188 | 19 | 252 | |||||||||||
Discontinued operations | ||||||||||||||||
Discontinued operations––net of tax(f) | — | (10,559 | ) | (73 | ) | (10,708 | ) | |||||||||
Discontinued operations––net of tax, attributable to noncontrolling interests | — | 29 | — | 35 | ||||||||||||
Total discontinued operations––net of tax, attributable to Pfizer Inc. | — | (10,530 | ) | (73 | ) | (10,673 | ) | |||||||||
Certain significant items | ||||||||||||||||
Restructuring charges(g) | 50 | 126 | 84 | 202 | ||||||||||||
Implementation costs and additional depreciation––asset restructuring(h) | 162 | 59 | 262 | 198 | ||||||||||||
Gain associated with the transfer of certain product rights(i) | — | 31 | — | (459 | ) | |||||||||||
Patent litigation settlement income(j) | — | (1,351 | ) | — | (1,351 | ) | ||||||||||
Other legal matters, net(i) | 4 | (13 | ) | 698 | (100 | ) | ||||||||||
Certain asset impairments and related charges(i) | — | 95 | 114 | 489 | ||||||||||||
Costs associated with the Zoetis IPO(k) | — | — | — | 18 | ||||||||||||
Income associated with the transitional manufacturing and supply agreements with Zoetis(l) | (9 | ) | — | (17 | ) | — | ||||||||||
Other(m) | 31 | 41 | 113 | 79 | ||||||||||||
Total certain significant items––pre-tax | 238 | (1,012 | ) | 1,254 | (924 | ) | ||||||||||
Income taxes(n) | (74 | ) | 452 | (422 | ) | 548 | ||||||||||
Total certain significant items––net of tax | 164 | (560 | ) | 832 | (376 | ) | ||||||||||
Total purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc. | $ | 857 | $ | (10,092 | ) | $ | 2,193 | $ | (9,102 | ) | ||||||
(a) | Included primarily in Amortization of intangible assets. |
(b) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. |
(c) | Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(d) | Represents the impact of changes in estimated useful lives of assets involved in restructuring actions related to acquisitions (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(e) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. In the second quarter and first six months of 2014, also includes the favorable impact of the remeasurement of certain deferred tax liabilities resulting from plant network activities. In the second quarter and first six months of 2013, also includes the unfavorable impact of the remeasurement of certain deferred tax liabilities resulting from plant network activities. |
(f) | Included in Discontinued operations––net of tax. For the six months ended June 29, 2014, represents post-close adjustments. For the three and six months ended June 30, 2013, virtually all relates to our former Animal Health business (see Notes to Condensed Consolidated Financial Statements—Note 2B. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Divestiture). |
(g) | Represents restructuring charges primarily incurred for our cost-reduction/productivity initiatives. Included in Restructuring charges and certain acquisition-related costs (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(h) | Amounts relate to our cost-reduction/productivity initiatives (see Notes to Condensed Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives). |
(i) | Included in Other (income)/deductions—net (see the "Other (Income)/Deductions—Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
(j) | In 2013, reflects income from a litigation settlement with Teva Pharmaceutical Industries Ltd. and Sun Pharmaceutical Industries Ltd. for patent-infringement damages resulting from their "at-risk" launches of generic Protonix in the U.S. Included in Other (income)/deductions—net (see the "Other (Income)/Deductions—Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
(k) | Represents costs incurred in connection with the initial public offering of an approximate 19.8% ownership interest in Zoetis. Includes expenditures for banking, legal, accounting and similar services. For the six months ended June 30, 2013, primarily included in Other (income)/deductions—net (see the "Other (Income)/Deductions—Net" section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net). |
(l) | Primarily included in Revenues ($71 million) and Cost of sales ($60 million) for the three months ended June 29, 2014. Primarily included in Revenues ($128 million) and Cost of sales ($110 million) for the first six months of 2014. |
(m) | Primarily included in Other (income)/deductions—net. |
(n) | Included in Provision for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts and is calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The second quarter and first six months of 2013 were unfavorably impacted by the tax rate associated with the patent litigation settlement income. The first six months of 2013 were also unfavorably impacted by the non-deductibility of goodwill derecognized and the jurisdictional mix of the other intangible assets divested as part of the transfer of certain product rights to Pfizer's 49%-owned equity-method investment in China (see Notes to Condensed Consolidated Financial Statements—Note 5A. Tax Matters: Taxes on Income from Continuing Operations). |
The following tables provide revenue and cost information by reportable operating segment and a reconciliation of that information to our condensed consolidated statements of income: | ||||||||||||||||||||||||||||
GIP(a) | VOC(a) | GEP(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | ||||||||||||||||||||||
(MILLIONS OF DOLLARS) | ||||||||||||||||||||||||||||
Three Months Ended June 29, 2014 | ||||||||||||||||||||||||||||
Revenues | $ | 3,547 | $ | 2,579 | $ | 6,513 | $ | 63 | $ | 12,702 | $ | 71 | $ | 12,773 | ||||||||||||||
Cost of sales | 475 | 519 | 1,169 | 157 | 2,320 | 142 | 2,462 | |||||||||||||||||||||
Selling, informational and administrative expenses | 929 | 656 | 1,028 | 873 | 3,486 | 34 | 3,520 | |||||||||||||||||||||
Research and development expenses | 372 | 251 | 151 | 940 | 1,714 | 45 | 1,759 | |||||||||||||||||||||
Amortization of intangible assets | 11 | 5 | 25 | (1 | ) | 40 | 961 | 1,001 | ||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | 81 | 81 | |||||||||||||||||||||
Other (income)/deductions––net | (249 | ) | (9 | ) | (36 | ) | 199 | (95 | ) | 42 | (53 | ) | ||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 2,009 | $ | 1,157 | $ | 4,176 | $ | (2,105 | ) | $ | 5,237 | $ | (1,234 | ) | $ | 4,003 | ||||||||||||
(MILLIONS OF DOLLARS) | GIP(a) | VOC(a) | GEP(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | |||||||||||||||||||||
Six Months Ended June 29, 2014 | ||||||||||||||||||||||||||||
Revenues | $ | 6,623 | $ | 4,753 | $ | 12,503 | $ | 119 | $ | 23,998 | $ | 128 | $ | 24,126 | ||||||||||||||
Cost of sales | 890 | 928 | 2,194 | 294 | 4,306 | 201 | 4,507 | |||||||||||||||||||||
Selling, informational and administrative expenses | 1,694 | 1,187 | 1,865 | 1,760 | 6,506 | 54 | 6,560 | |||||||||||||||||||||
Research and development expenses | 766 | 435 | 289 | 1,836 | 3,326 | 56 | 3,382 | |||||||||||||||||||||
Amortization of intangible assets | 22 | 9 | 50 | — | 81 | 2,037 | 2,118 | |||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | 139 | 139 | |||||||||||||||||||||
Other (income)/deductions––net | (525 | ) | (20 | ) | (120 | ) | 306 | (359 | ) | 929 | 570 | |||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 3,776 | $ | 2,214 | $ | 8,225 | $ | (4,077 | ) | $ | 10,138 | $ | (3,288 | ) | $ | 6,850 | ||||||||||||
(MILLIONS OF DOLLARS) | GIP(a) | VOC(a) | GEP(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | |||||||||||||||||||||
Three Months Ended June 30, 2013(e) | ||||||||||||||||||||||||||||
Revenues | $ | 3,726 | $ | 2,263 | $ | 6,921 | $ | 63 | $ | 12,973 | $ | — | $ | 12,973 | ||||||||||||||
Cost of sales | 438 | 422 | 1,160 | 174 | 2,194 | 48 | 2,242 | |||||||||||||||||||||
Selling, informational and administrative expenses | 824 | 563 | 1,157 | 1,006 | 3,550 | 41 | 3,591 | |||||||||||||||||||||
Research and development expenses | 263 | 216 | 183 | 859 | 1,521 | 9 | 1,530 | |||||||||||||||||||||
Amortization of intangible assets | 9 | 4 | 28 | 2 | 43 | 1,097 | 1,140 | |||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | (1 | ) | — | 1 | — | 183 | 183 | ||||||||||||||||||||
Other (income)/deductions––net | (128 | ) | (4 | ) | (16 | ) | 247 | 99 | (1,169 | ) | (1,070 | ) | ||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 2,320 | $ | 1,063 | $ | 4,409 | $ | (2,226 | ) | $ | 5,566 | $ | (209 | ) | $ | 5,357 | ||||||||||||
(MILLIONS OF DOLLARS) | GIP(a) | VOC(a) | GEP(a) | Other(b) | Non-GAAP Adjusted(c) | Reconciling Items(d) | GAAP Reported | |||||||||||||||||||||
Six Months Ended June 30, 2013(e) | ||||||||||||||||||||||||||||
Revenues | $ | 7,032 | $ | 4,453 | $ | 13,782 | $ | 116 | $ | 25,383 | $ | — | $ | 25,383 | ||||||||||||||
Cost of sales | 881 | 852 | 2,303 | 387 | 4,423 | 82 | 4,505 | |||||||||||||||||||||
Selling, informational and administrative expenses | 1,523 | 1,097 | 2,237 | 1,871 | 6,728 | 80 | 6,808 | |||||||||||||||||||||
Research and development expenses | 570 | 441 | 364 | 1,764 | 3,139 | 101 | 3,240 | |||||||||||||||||||||
Amortization of intangible assets | 22 | 7 | 49 | 4 | 82 | 2,277 | 2,359 | |||||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | 314 | 314 | |||||||||||||||||||||
Other (income)/deductions––net | (179 | ) | (2 | ) | (32 | ) | 536 | 323 | (1,248 | ) | (925 | ) | ||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 4,215 | $ | 2,058 | $ | 8,861 | $ | (4,446 | ) | $ | 10,688 | $ | (1,606 | ) | $ | 9,082 | ||||||||||||
(a) | Amounts represent the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. |
(b) | Other comprises the revenues and costs included in our Adjusted income components (see footnote (c) below) that are managed outside of our three operating segments and includes the following: |
Three Months Ended June 29, 2014 | ||||||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | PCS(i) | WRD(ii) | Medical(iii) | Corporate(iv) | Other Unallocated(v) | Total | ||||||||||||||||||
Revenues | $ | 63 | $ | — | $ | — | $ | — | $ | — | $ | 63 | ||||||||||||
Cost of sales | 41 | — | — | 40 | 76 | 157 | ||||||||||||||||||
Selling, informational and administrative expenses | 4 | — | 29 | 832 | 8 | 873 | ||||||||||||||||||
Research and development expenses | — | 719 | 7 | 207 | 7 | 940 | ||||||||||||||||||
Amortization of intangible assets | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | — | ||||||||||||||||||
Other (income)/deductions––net | — | (23 | ) | — | 208 | 14 | 199 | |||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 19 | $ | (696 | ) | $ | (36 | ) | $ | (1,287 | ) | $ | (105 | ) | $ | (2,105 | ) | |||||||
Six Months Ended June 29, 2014 | ||||||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | PCS(i) | WRD(ii) | Medical(iii) | Corporate(iv) | Other Unallocated(v) | Total | ||||||||||||||||||
Revenues | $ | 119 | $ | — | $ | — | $ | — | $ | — | $ | 119 | ||||||||||||
Cost of sales | 77 | — | — | 51 | 166 | 294 | ||||||||||||||||||
Selling, informational and administrative expenses | 7 | — | 53 | 1,683 | 17 | 1,760 | ||||||||||||||||||
Research and development expenses | 1 | 1,382 | 13 | 427 | 13 | 1,836 | ||||||||||||||||||
Amortization of intangible assets | — | — | — | — | — | — | ||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | — | ||||||||||||||||||
Other (income)/deductions––net | — | (34 | ) | — | 326 | 14 | 306 | |||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 34 | $ | (1,348 | ) | $ | (66 | ) | $ | (2,487 | ) | $ | (210 | ) | $ | (4,077 | ) | |||||||
Three Months Ended June 30, 2013 | ||||||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | PCS(i) | WRD(ii) | Medical(iii) | Corporate(iv) | Other Unallocated(v) | Total | ||||||||||||||||||
Revenues | $ | 63 | $ | — | $ | — | $ | — | $ | — | $ | 63 | ||||||||||||
Cost of sales | 34 | — | — | 33 | 107 | 174 | ||||||||||||||||||
Selling, informational and administrative expenses | 3 | 1 | 27 | 940 | 35 | 1,006 | ||||||||||||||||||
Research and development expenses | 1 | 667 | 9 | 177 | 5 | 859 | ||||||||||||||||||
Amortization of intangible assets | — | 1 | — | (1 | ) | 2 | 2 | |||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | 1 | 1 | ||||||||||||||||||
Other (income)/deductions––net | — | (10 | ) | 1 | 288 | (32 | ) | 247 | ||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 25 | $ | (659 | ) | $ | (37 | ) | $ | (1,437 | ) | $ | (118 | ) | $ | (2,226 | ) | |||||||
Six Months Ended June 30, 2013 | ||||||||||||||||||||||||
Other Business Activities | ||||||||||||||||||||||||
(MILLIONS OF DOLLARS) | PCS(i) | WRD(ii) | Medical(iii) | Corporate(iv) | Other Unallocated(v) | Total | ||||||||||||||||||
Revenues | $ | 116 | $ | — | $ | — | $ | — | $ | — | $ | 116 | ||||||||||||
Cost of sales | 67 | — | — | 72 | 248 | 387 | ||||||||||||||||||
Selling, informational and administrative expenses | 6 | 1 | 52 | 1,769 | 43 | 1,871 | ||||||||||||||||||
Research and development expenses | 1 | 1,317 | 13 | 417 | 16 | 1,764 | ||||||||||||||||||
Amortization of intangible assets | — | 1 | — | — | 3 | 4 | ||||||||||||||||||
Restructuring charges and certain acquisition-related costs | — | — | — | — | — | — | ||||||||||||||||||
Other (income)/deductions––net | — | (12 | ) | 1 | 513 | 34 | 536 | |||||||||||||||||
Income from continuing operations before provision for taxes on income | $ | 42 | $ | (1,307 | ) | $ | (66 | ) | $ | (2,771 | ) | $ | (344 | ) | $ | (4,446 | ) | |||||||
(i) | PCS—the revenues and costs of Pfizer CentreSource (PCS), our contract manufacturing and bulk pharmaceutical chemical sales operation. |
(ii) | WRD—the research and development expenses managed by our Worldwide Research and Development organization (WRD), which is generally responsible for research projects until proof-of-concept is achieved and then for transitioning those projects to the appropriate operating segment for possible clinical and commercial development. This organization also has responsibility for certain science-based and other platform-services organizations, which provide technical expertise and other services to the various R&D projects. WRD is also responsible for facilitating all regulatory submissions and interactions with regulatory agencies, including all safety-event activities. |
(iii) | Medical—the costs associated with our Pfizer Medical organization (Medical), which is responsible for the provision of medical information to healthcare providers, patients and other parties, transparency and disclosure activities, clinical trial results publication, grants for healthcare quality improvement and medical education, partnerships with global public health and medical associations, regulatory inspection readiness reviews, internal audits of Pfizer-sponsored clinical trials and internal regulatory compliance processes. |
(iv) | Corporate—the costs associated with Corporate, representing platform functions (such as worldwide technology, global real estate operations, legal, finance, human resources, worldwide public affairs, compliance, and worldwide procurement) and certain compensation and other corporate costs, such as interest income and expense, and gains and losses on investments. |
(v) | Other Unallocated—other unallocated costs, representing overhead expenses associated with our manufacturing and commercial operations not directly attributable to an operating segment. |
(PERCENTAGES) | GIP | VOC | GEP | |||
WRD/Medical Costs | ||||||
Selling, informational and administrative expenses | 31% - 33% | 31% - 33% | 35% - 37% | |||
Research and development expenses | 52% - 56% | 30% - 33% | 14% - 16% | |||
Other (income)/deductions––net | * | * | * | |||
Total WRD/Medical Costs | 50% - 54% | 31% - 34% | 15% - 17% | |||
Corporate/Other Unallocated Costs | ||||||
Cost of sales | 11% - 13% | 11% - 13% | 74% - 76% | |||
Selling, informational and administrative expenses | 26% - 28% | 20% - 22% | 50% - 54% | |||
Research and development expenses | 50% - 54% | 35% - 38% | 11% - 13% | |||
Other (income)/deductions––net | * | * | * | |||
Total Corporate/Other Unallocated Costs | 29% - 32% | 21% - 24% | 45% - 48% | |||
Total WRD/Medical and Corporate/Other Unallocated Costs | ||||||
Cost of sales | 11% - 13% | 11% - 13% | 74% - 76% | |||
Selling, informational and administrative expenses | 26% - 28% | 20% - 22% | 50% - 54% | |||
Research and development expenses | 52% - 56% | 31% - 34% | 13% - 15% | |||
Other (income)/deductions––net | * | * | * | |||
Total WRD/Medical/Corporate/Other Unallocated Costs | 37% - 40% | 25% - 28% | 34% - 37% | |||
• | WRD/Medical––The information provided in the table above for WRD and Medical was substantially all derived from our estimates of the costs incurred in connection with the research and development projects associated with each operating segment. |
• | Corporate/Other Unallocated––The information provided in the table above for Corporate and Other Unallocated was virtually all derived using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable. |
(c) | See the "Adjusted Income" section of this MD&A for a definition of these “Adjusted Income” components. |
(d) | Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive, unusual items that are evaluated on an individual basis by management. For additional information about these reconciling items and/or our Non-GAAP Adjusted measure of performance, see the "Adjusted Income" section of this MD&A. |
(e) | As our operations were not managed under the new structure until the beginning of the first quarter of 2014, certain costs and expenses could not be directly attributed to one of the new operating segments. As a result, our operating segment results for the second quarter and first six months of 2013 include allocations. The amounts subject to allocation methods in the second quarter of 2013 were approximately $520 million of selling, informational and administrative expenses and approximately $160 million of research and development expenses, and the amounts subject to allocation methods in the first six months of 2013 were approximately $1,020 million of selling, informational and administrative expenses and approximately $420 million of research and development expenses. |
• | The selling, informational and administrative expenses were allocated using proportional allocation methods based on associated selling costs, revenues or product-specific costs, as applicable. |
• | The research and development expenses were allocated based on product-specific R&D costs or revenue metrics, as applicable. |
• | Revenues decreased 5% to $3,547 million in the second quarter of 2014, compared to $3,726 in the same period in 2013 and decreased 6% to $6,623 million in the first six months of 2014, compared to $7,032 in the same period in 2013, which includes a decrease in operational revenues of 5% in both the second quarter of 2014 and in the first six months of 2014, primarily due to: |
◦ | the expiration of the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada on October 31, 2013; for a 36-month period thereafter, we are entitled to royalty payments that have been and are expected to continue to be significantly less than the share of Enbrel profits prior to the expiration of the co-promotion term of the collaboration agreement, and those royalty payments are and will be included in Other (income)/deductions––net rather than in Revenues (approximately $428 million for the second quarter of 2014 and $804 million for the first six months of 2014); and |
◦ | loss of exclusivity for Lyrica in Canada in February 2013 (a decline of approximately $30 million for the second quarter of 2014 and $70 million for the first six months of 2014), |
◦ | strong operational growth from Lyrica, primarily in the U.S. and Japan, and Enbrel outside the U.S. and Canada, as well as the performance of recently launched products, including Eliquis globally and Xeljanz, primarily in the U.S. (a combined increase of approximately $234 million for the second quarter of 2014 and $469 million for the first six months of 2014). |
• | Cost of sales as a percentage of Revenues increased in the second quarter and first six months of 2014, compared to the second quarter and first six months of 2013, due to the loss of Enbrel alliance revenue after October 31, 2013 when the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired. |
• | Selling, informational and administrative expenses increased 13% in the second quarter of 2014 and 11% in the first six months, compared to the same periods in 2013, reflecting increased investment in recently launched brands as well as certain other in-line products, partially offset by the benefits of cost-reduction and productivity initiatives. |
• | Research and development expenses increased 41% in the second quarter of 2014 and 34% in the first six months of 2014, compared to the same periods in 2013, reflecting costs associated with recently initiated Phase 3 programs for certain new drug candidates as well as for studies of certain products in potential new indications. |
• | The favorable change in Other (income)/deductions––net in the second quarter of 2014 and in the first six months of 2014, compared to the same periods in 2013, primarily reflects an increase in royalty-related income, primarily due to royalties earned on sales of Enbrel in the U.S. and Canada after October 31, 2013. As noted above, on that date, the co-promotion term of the collaboration agreement for Enbrel in the U.S. and Canada expired, and Pfizer became entitled to royalties for a 36-month period. |
• | Revenues increased 14% in the second quarter of 2014, and increased 7% in the first six months of 2014, compared to the same periods in 2013, which includes an increase in operational revenues of 15% in the second quarter of 2014 and 9% in the first six months of 2014. |
◦ | Global Vaccines Revenues increased 13% to $1,097 million in the second quarter of 2014, compared to $970 million in the same period in 2013, and revenues increased 7% to $2,022 million in the first six months of 2014, compared to $1,893 million in the same period in 2013, reflecting an increase in operational revenues of 14% in the second quarter and 9% in the first six months of 2014. The increases were primarily due to the performance of Prevnar 13 in the U.S., primarily reflecting increased purchasing patterns, increased prices and increased demand and a 15% operational increase in the second quarter of 2014 and an 8% operational increase in the first six months of 2014 in international sales of the Prevenar family which primarily reflects increased shipments associated with the Global Alliance for Vaccines and Immunization as well as the timing of government purchases in various emerging markets compared with the prior periods, partially offset by lower demand due to adverse weather conditions and decreased stockpile purchases. |
◦ | Global Oncology Revenues increased 16% to $570 million in the second quarter of 2014, compared to $493 million in the same period in 2013, and revenues increased 11% to $1,058 million in the first six months of 2014, compared to $949 million in the same period in 2013, reflecting an increase in operational revenues of 16% in the second quarter of 2014 and 12% in the first six months of 2014, due to continued strong uptake of recent product launches, Xalkori and Inlyta globally, partially offset by a decline in Sutent revenues in the U.S., for the first six months of 2014 and certain emerging markets, such as China, for both the second quarter of 2014 and the first six months of 2014 primarily due to the timing of purchases. |
◦ | Consumer Healthcare Revenues increased 14% to $912 million in the second quarter of 2014, compared to $800 million in the same period in 2013, and revenues increased 4% to $1,673 million in the first six months of 2014, compared to $1,611 million in the same period in 2013, reflecting an increase in operational revenues of 15% in the second quarter of 2014 and 6% in the first six months of 2014, primarily due to the launch of Nexium 24HR in late May 2014, partially offset in the first six months of 2014 by a decrease in revenues for respiratory products in the U.S. and Canada due to a less severe cold and flu incidence, and for pain management products in the U.S., primarily due to increased competition resulting from the return to the market of certain competing analgesic brands. |
• | Cost of sales as a percentage of Revenues increased in the second quarter and first six months of 2014, compared to the second quarter and first six months of 2013, primarily due to increased sales of Prevnar, at a lower margin, to the Global Alliance for Vaccines and Immunization. |
• | Selling informational and administrative expenses increased 17% in the second quarter of 2014 and 8% in the first six months of 2014, compared to the same periods in 2013, primarily driven by Consumer Healthcare expenses incurred to support the launch of Nexium 24HR in the U.S. as well as palbociclib and meningitis B vaccine pre-launch marketing expenses. |
• | Research and development expenses increased 16% in the second quarter of 2014 and decreased 1% in the first six months of 2014, compared to the same periods in 2013, primarily due to investment in our portfolio primarily to support acceleration of the meningitis B vaccine and palbociclib development programs, for both the second quarter of 2014 and the first six months of 2014 and the completion of Oncology Phase 3 trials during the first six months of 2014. |
• | Revenues decreased 6%, to $6,513 million in the second quarter of 2014, compared to $6,921 million in the same period in 2013, and decreased 9%, to $12,503 million in the first six months of 2014, compared to $13,782 million in the same period in 2013, |
◦ | the loss of exclusivity and subsequent launch of multi-source generic competition for Detrol LA in the U.S. in January 2014, Viagra in most major European markets in June 2013 as well as Aricept in Canada in December 2013 (aggregate decline of approximately $179 million in the second quarter of 2014 and $351 million in the first six months of 2014); |
◦ | the expiration or near-term expiration of the co-promotion collaboration for Spiriva in most countries, including the U.S. (where the collaboration expired in April 2014), which, per the terms of the collaboration agreement, has resulted in a decline in Pfizer’s share of Spiriva revenues (approximately $127 million in the second quarter of 2014 and $303 million in the first six months of 2014); |
◦ | the operational decline of certain products, including Metaxalone and Effexor (approximately $77 million in the second quarter of 2014 and $110 million in the first six months of 2014); |
◦ | an operational decline due to loss of exclusivity for certain other products and steeper generic erosion in Japan (approximately $90 million in the second quarter of 2014 and $131 million for the first six months of 2014); |
◦ | a decline in branded Lipitor revenues in the U.S. and most other developed markets as a result of continued generic competition in the first six months of 2014 (approximately $35 million in the second quarter of 2014 and $187 million in the first six months of 2014); and |
◦ | a decline in Aricept, not including Canada, revenues primarily due to the termination of the co-promotion agreement in Japan in December 2012 (approximately $14 million in the second quarter of 2014 and $60 million in the first six months of 2014), |
◦ | the strong operational performance of Celebrex worldwide (growth of approximately $55 million in the second quarter of 2014 and $43 million in the first six months of 2014); |
◦ | the strong operational performance of Lyrica, primarily in Europe, as well as Vfend (growth of approximately $96 million in the second quarter of 2014 and $120 million in the first six months of 2014); |
◦ | the operational growth of Lipitor in China (approximately $61 million in the second quarter of 2014 and $89 million in the first six months of 2014); and |
◦ | the contribution from the collaboration with Mylan Inc. to market generic drugs in Japan (approximately $9 million in the second quarter of 2014 and $44 million in the first six months of 2014). |
• | Cost of sales as a percentage of Revenues increased in the second quarter and first six months of 2014, compared to the second quarter and first six months of 2013, due to unfavorable changes in product mix. |
• | Selling, informational and administrative expenses decreased 11% in the second quarter of 2014 and 17% in the first six months of 2014, compared to the same periods in 2013, due to lower expenses for field force and administration, reflecting the benefits of cost-reduction and productivity initiatives. |
• | Research and development expenses decreased 17% in the second quarter of 2014 and 21% in the first six months of 2014, compared to the same periods in 2013, due to lower operating expenses, primarily reflecting the benefits of cost-reduction and productivity initiatives, partially offset by increased spending on biosimilars R&D. |
• | The favorable change in Other (income)/deductions––net in the first six months of 2014 primarily reflects gains on sales of product rights. |
• | For Foreign currency translation adjustments, for the second quarter of 2014, reflects the strengthening of several currencies against the U.S. dollar, primarily the Australian dollar, Japanese yen, U.K. pound, Brazilian real and Canadian dollar; for the first six months of 2014, reflects the strengthening of several currencies against the U.S. dollar, primarily the Australian dollar, Japanese yen, U.K. pound and Brazilian real, partially offset by the weakening of the Canadian dollar in |
• | For Unrealized holding gains/(losses) on derivative financial instruments, reflects the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. |
• | For Unrealized holding gains/(losses) on available-for-sale securities, reflects the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. |
• | For Benefit plans: actuarial gains/(losses), net, reflects the reclassification of certain amounts related to amortization and settlements into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. |
• | For Accounts receivable, less allowance for doubtful accounts, the change also reflects the timing of collections in the normal course of business. |
• | For Other current assets, the change also reflects the receipt of a portion of the Protonix patent litigation settlement income recognized in 2013 and other receipts in the normal course of business. |
• | For Property, plant and equipment, less accumulated depreciation, the change also reflects depreciation, partially offset by capital additions. |
• | For Identifiable intangible assets, less accumulated amortization, the change also reflects amortization and, to a much lesser extent, asset impairment charges, partially offset by the Nexium over-the-counter milestone. For additional information about our intangible assets, see Notes to Condensed Consolidated Financial Statements—Note 9B. Goodwill and Other Intangible Assets: Other Intangible Assets. For additional information about the asset impairment charges, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net. For additional information about the asset acquisition, see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments: Acquisition. |
• | For Other current liabilities, the change also reflects the timing of payments and accruals in the normal course of business, partially offset by an increase in our legal accruals, not yet paid, primarily for Neurontin-related matters. For additional information about the legal accruals, see Notes to Condensed Consolidated Financial Statements—Note 4. Other (Income)/Deductions—Net. |
• | For Pension benefit obligations, net and Postretirement benefit obligations, net, the change also reflects, among other things, pension contributions and benefit payments, partially offset by net periodic benefit cost. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans. |
• | For Other noncurrent liabilities, the change also reflects a decrease in liabilities associated with derivative financial instruments and a decrease in our deferred compensation liability. For additional information about the fair value of our financial instruments, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments. |
Six Months Ended | |||||||||||
(MILLIONS OF DOLLARS) | June 29, 2014 | June 30, 2013 | % Change | ||||||||
Cash provided by/(used in): | |||||||||||
Operating activities | $ | 7,022 | $ | 6,060 | 16 | ||||||
Investing activities | (1,605 | ) | (10,083 | ) | (84 | ) | |||||
Financing activities | (4,173 | ) | (3,600 | ) | 16 | ||||||
Effect of exchange-rate changes on cash and cash equivalents | (21 | ) | (22 | ) | (5 | ) | |||||
Net increase/(decrease) in Cash and cash equivalents | $ | 1,223 | $ | (7,645 | ) | * | |||||
* | Calculation not meaningful. |
• | net proceeds from borrowings of $1.0 billion in the first six months of 2014, compared to net proceeds from borrowings of $6.5 billion in the first six months of 2013; and |
• | proceeds from the exercise of stock options of $583 million in the first six months of 2014, compared to $1.2 billion in the first six months of 2013, |
• | purchases of common stock of $2.5 billion in the first six months of 2014, compared to $7.9 billion in the first six months of 2013. |
• | we sold Zoetis common stock for Pfizer common stock valued at $11.4 billion; |
• | we exchanged Zoetis common stock for the retirement of Pfizer commercial paper issued in 2013 for $2.5 billion; |
• | we exchanged Zoetis senior notes for the retirement of Pfizer commercial paper issued in 2012 for $1.0 billion; and |
• | we transferred certain product rights, valued at $1.2 billion, to an equity-method investment (Hisun Pfizer). |
• | the working capital requirements of our operations, including our research and development activities; |
• | investments in our business; |
• | dividend payments and potential increases in the dividend rate; |
• | share repurchases; |
• | the cash requirements associated with our cost-reduction/productivity initiatives; |
• | paying down outstanding debt; |
• | contributions to our pension and postretirement plans; and |
• | business-development activities. |
The following table provides certain relevant measures of our liquidity and capital resources: | ||||||||
(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA) | June 29, 2014 | December 31, 2013 | ||||||
Selected financial assets: | ||||||||
Cash and cash equivalents(a) | $ | 3,406 | $ | 2,183 | ||||
Short-term investments(a) | 30,648 | 30,225 | ||||||
Long-term investments(a) | 17,168 | 16,406 | ||||||
51,222 | 48,814 | |||||||
Debt: | ||||||||
Short-term borrowings, including current portion of long-term debt | 5,561 | 6,027 | ||||||
Long-term debt | 32,267 | 30,462 | ||||||
37,828 | 36,489 | |||||||
Net financial assets(b) | $ | 13,394 | $ | 12,325 | ||||
Working capital | $ | 36,349 | $ | 32,878 | ||||
Ratio of current assets to current liabilities | 2.66 | :1 | 2.41 | :1 | ||||
Total Pfizer Inc. shareholders' equity per common share(c) | $ | 12.06 | $ | 11.93 | ||||
(a) | See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of the credit risk related to our financial instrument holdings. |
(b) | Net financial assets increased as net cash provided by operating activities and the proceeds from the exercise of stock options, among other things, more than offset capital investments, share purchases and dividend payments. For additional information, see the “Analysis of the Condensed Consolidated Statements of Cash Flows” section of this MD&A. |
(c) | Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury shares). |
The following table provides the current ratings assigned by these rating agencies to our commercial paper and senior unsecured non-credit-enhanced long-term debt: | |||||||
NAME OF RATING AGENCY | Pfizer Commercial Paper | Pfizer Long-Term Debt | Date of Last Rating Change | ||||
Rating | Rating | Outlook | |||||
Moody’s | P-1 | A1 | Stable | October 2009 | |||
S&P | A-1+ | AA | Stable | October 2009 | |||
• | the outcome of research and development activities including, without limitation, the ability to meet anticipated clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for product candidates, as well as the possibility of unfavorable clinical trial results, including unfavorable new clinical data and additional analyses of existing clinical data; |
• | decisions by regulatory authorities regarding whether and when to approve our drug applications, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the efficacy and safety information submitted; and decisions by regulatory authorities regarding labeling, ingredients and other matters that could affect the availability or commercial potential of our products; |
• | the speed with which regulatory authorizations, pricing approvals and product launches may be achieved; |
• | the outcome of post-approval clinical trials, which could result in the loss of marketing approval for a product or changes in the labeling for, and/or increased or new concerns about the safety or efficacy of, a product that could affect its availability or commercial potential; |
• | the success of external business-development activities, including the ability to satisfy the conditions to closing of announced transactions in the anticipated timeframe or at all; |
• | competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates; |
• | the implementation by the FDA of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products in the U.S., with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights; |
• | the ability to meet generic and branded competition after the loss of patent protection for our products or competitor products; |
• | the ability to successfully market both new and existing products domestically and internationally; |
• | difficulties or delays in manufacturing; |
• | trade buying patterns; |
• | the impact of existing and future legislation and regulatory provisions on product exclusivity; |
• | trends toward managed care and healthcare cost containment; |
• | the impact of the U.S. Budget Control Act of 2011 (the Budget Control Act) and the deficit-reduction actions to be taken pursuant to the Budget Control Act in order to achieve the deficit-reduction targets provided for therein, and the impact of any broader deficit-reduction efforts; |
• | the impact of U.S. healthcare legislation enacted in 2010—the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act––and of any modification or repeal of any of the provisions thereof; |
• | U.S. federal or state legislation or regulatory action affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; direct-to-consumer advertising and interactions with healthcare professionals; and the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures as a result of highly competitive insurance markets; |
• | legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated price reductions for certain biopharmaceutical products in certain European and emerging market countries and Japan and government-imposed access restrictions in certain countries; |
• | the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest and unstable governments and legal systems; |
• | contingencies related to actual or alleged environmental contamination; |
• | claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates; |
• | any significant breakdown, infiltration or interruption of our information technology systems and infrastructure; |
• | legal defense costs, insurance expenses, settlement costs, the risk of an adverse decision or settlement and the adequacy of reserves related to product liability, patent protection, government investigations, consumer, commercial, securities, antitrust, environmental and tax issues, ongoing efforts to explore various means for resolving asbestos litigation, and other legal proceedings; |
• | our ability to protect our patents and other intellectual property, both domestically and internationally; |
• | interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates; |
• | governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals; |
• | any significant issues involving our largest wholesaler customers, which account for a substantial portion of our revenues; |
• | the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines; |
• | any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards; |
• | changes in U.S. generally accepted accounting principles; |
• | uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; and the related risk that our allowance for doubtful accounts may not be adequate; |
• | any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas; |
• | growth in costs and expenses; |
• | changes in our product, segment and geographic mix; and |
• | the impact of acquisitions, divestitures, restructurings, internal reorganizations, product recalls and withdrawals and other unusual items, including our ability to realize the projected benefits of our cost-reduction and productivity initiatives, including those related to our research and development organization, and of the internal separation of our commercial operations into three new global businesses. |
Period | Total Number of Shares Purchased(b) | Average Price Paid per Share(b) | Total Number of Shares Purchased as Part of Publicly Announced Plan(a) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan(a) | ||||||
March 31, 2014 through April 27, 2014 | 12,814,204 | $ | 31.23 | 12,776,197 | $ | 3,919,718,747 | ||||
April 28, 2014 through May 25, 2014 | 14,065,748 | $ | 30.00 | 14,000,830 | $ | 3,499,754,940 | ||||
May 26, 2014 through June 29, 2014 | 17,205,929 | $ | 29.57 | 17,044,300 | $ | 2,995,790,811 | ||||
Total | 44,085,881 | $ | 30.19 | 43,821,327 | ||||||
(a) | On June 27, 2013, we announced that the Board of Directors had authorized a $10 billion share-purchase plan (the June 2013 Stock Purchase Plan), and share purchases commenced thereunder in October 2013. |
(b) | In addition to amounts purchased under the June 2013 Stock Purchase Plan, these columns reflect the following transactions during the second fiscal quarter of 2014: (i) the surrender to Pfizer of 124,514 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees; (ii) the open market purchase by the trustee of 30,669 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance share awards and who deferred receipt of such awards; and (iii) the surrender to Pfizer of 109,371 shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees. |
Exhibit 4.1 | - | Fourth Supplemental Indenture, dated as of May 15, 2014, between us and The Bank of New York Mellon (successor to JPMorgan Chase Bank, N.A. (formerly JPMorgan Chase Bank, formerly The Chase Manhattan Bank)), as Trustee, to Indenture dated as of January 30, 2001, is incorporated by reference from our 8-K report filed on May 15, 2014 (File No. 001-03619). | |
Exhibit 12 | - | Computation of Ratio of Earnings to Fixed Charges. | |
Exhibit 15 | - | Accountants’ Acknowledgment | |
Exhibit 31.1 | - | Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 31.2 | - | Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 32.1 | - | Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 32.2 | - | Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 101: | |||
EX-101.INS EX-101.SCH EX-101.CAL EX-101.LAB EX-101.PRE EX-101.DEF | XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase XBRL Taxonomy Extension Definition Document | ||
Pfizer Inc. | ||
(Registrant) | ||
Dated: | August 7, 2014 | /s/ Loretta V. Cangialosi |
Loretta V. Cangialosi, Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) | ||