Form 8-K PFIZER INC For: Jan 29

January 29, 2019 8:50 AM


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549


FORM 8-K


CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): January 29, 2019

PFIZER INC.
(Exact name of registrant as specified in its charter)

Delaware
1-3619
13-5315170
(State or other
(Commission File
(I.R.S. Employer
jurisdiction of
(Number)
Identification No.)
incorporation)
 
 


235 East 42nd Street
10017
New York, New York
(Zip Code)
(Address of principal executive offices)


Registrant’s telephone number, including area code:
(212) 733-2323

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐






Item 2.02 Results of Operations and Financial Condition

On January 29, 2019, Pfizer Inc. (“Pfizer”) issued a press release announcing its financial results for the fourth quarter and full-year 2018. A copy of the press release is furnished herewith as Exhibit 99 and is incorporated by reference herein.

The information furnished pursuant to this “Item 2.02 - Results of Operations and Financial Condition”, including Exhibit 99, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing made by us under the Exchange Act or Securities Act of 1933, as amended, regardless of any general incorporation language in any such filing, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

(d)  Exhibits


Exhibit Number
 
Exhibit Description
 
 
 
 
Press Release of Pfizer Inc. dated January 29, 2019, reporting
Pfizer’s financial results for fourth-quarter and full-year 2018.







 
 
EXHIBIT INDEX
 
 
 
Exhibit No.
 
Description
 
 
 
 
Press Release of Pfizer Inc. dated
January 29, 2019, reporting Pfizer’s financial
results for fourth-quarter and full-year 2018.







SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
PFIZER INC.
 
 
 
 
 
 
 
By:
/s/ Margaret M. Madden
 
 
Margaret M. Madden
 
 
Senior Vice President and Corporate Secretary
 
 
Chief Governance Counsel
 
 
 
 
 
 
Dated: January 29, 2019



Exhibit 99

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PFIZER REPORTS FOURTH-QUARTER AND FULL-YEAR 2018 RESULTS
PROVIDES 2019 FINANCIAL GUIDANCE
Full-Year 2018 Revenues of $53.6 Billion, Reflecting 2% Operational Growth; Fourth-Quarter 2018 Revenues of $14.0 Billion, Reflecting 5% Operational Growth
Full-Year 2018 Reported Diluted EPS(1) of $1.87, Adjusted Diluted EPS(2) of $3.00; Fourth-Quarter 2018 Reported Loss Per Share(1) of $0.07, Adjusted Diluted EPS(2) of $0.64
Returned $20.2 Billion Directly to Shareholders in 2018 Through Share Repurchases and Dividends; Anticipates Repurchasing Approximately $9 Billion of Shares in 2019
Provides 2019 Financial Guidance
Reflects a Full Year of Revenue and Expense Contributions from Consumer Healthcare(3) 
Reflects Anticipated Unfavorable Impact of Foreign Exchange of Approximately $0.9 billion on Revenues and Approximately $0.06 on Adjusted Diluted EPS(2)
Guidance for Adjusted Diluted EPS(2) Excludes the Impact of Gains and Losses on Equity Investments, Which Favorably Impacted 2018 Adjusted Diluted EPS(2) by $0.08
Revenue Guidance of $52.0 to $54.0 Billion and Adjusted Diluted EPS(2) Guidance of $2.82 to $2.92; Midpoints of These Ranges Imply Essentially Flat Operational Performance Compared to 2018 Excluding the Unfavorable Impact of Foreign Exchange and Net Gains on Equity Investments from 2018 Results
NEW YORK, NY, Tuesday, January 29, 2019 – Pfizer Inc. (NYSE: PFE) reported financial results for fourth-quarter and full-year 2018 and provided 2019 financial guidance.
Results for the fourth quarter and the full year of 2018 and 2017(4) are summarized below.
OVERALL RESULTS
 
 
 
 
 
 
 
 
 
($ in millions, except
per share amounts)
Fourth-Quarter
 
 
Full-Year
 
2018
2017
Change
 
 
2018
2017
Change
Revenues
$ 13,976

$ 13,703

2%
 
 
$ 53,647

$ 52,546

2%
Reported Net Income/(Loss)(1)
(394
)
12,274

*
 
 
11,153

21,308

(48%)
Reported Diluted EPS/(LPS)(1)
(0.07
)
2.02

*
 
 
1.87

3.52

(47%)
Adjusted Income(2)
3,802

3,772

1%
 
 
17,958

16,085

12%
Adjusted Diluted EPS(2)
0.64

0.62

3%
 
 
3.00

2.65

13%
 
 
 
 
 
 
 
 
 
* Indicates calculation not meaningful or result is equal to or greater than 100%.

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REVENUES
 
 
 
 
 
 
 
 
 
 
 
($ in millions)
Fourth-Quarter
 
 
Full-Year
 
2018
2017
% Change
 
 
2018
2017
% Change
 
Total
Oper.
 
 
Total
Oper.
Innovative Health
$ 8,852

$ 8,218

8%
10%
 
 
$ 33,426

$ 31,422

6%
6%
Essential Health
5,124

5,484

(7%)
(3%)
 
 
20,221

21,124

(4%)
(5%)
Total Company
$ 13,976

$ 13,703

2%
5%
 
 
$ 53,647

$ 52,546

2%
2%
 
 
 
 
 
 
 
 
 
 
 
Some amounts in this press release may not add due to rounding. All percentages have been calculated using unrounded amounts. References to operational variances pertain to period-over-period growth rates that exclude the impact of foreign exchange(5).
2019 FINANCIAL GUIDANCE(6) 
Pfizer’s 2019 financial guidance is presented below. Financial guidance reflects a full year of revenue and expense contributions from Consumer Healthcare(3).
 
 
Revenues
$52.0 to $54.0 billion
Adjusted Cost of Sales(2) as a Percentage of Revenues
20.8% to 21.8%
Adjusted SI&A Expenses(2)
$13.5 to $14.5 billion
Adjusted R&D Expenses(2)
$7.8 to $8.3 billion
Adjusted Other (Income)/Deductions(2)
Approximately $100 million of income
Effective Tax Rate on Adjusted Income(2)
Approximately 16.0%
Adjusted Diluted EPS(2)
$2.82 to $2.92
 
 
Financial guidance for Adjusted diluted EPS(2) reflects anticipated share repurchases totaling approximately $9 billion in 2019. Dilution related to share-based employee compensation programs is currently expected to offset the reduction in shares associated with these share repurchases by approximately half.
Financial guidance for Adjusted Other (Income)/Deductions(2) and Adjusted Diluted EPS(2) now excludes the impact of realized and unrealized gains and losses on investments in equity securities. In 2018, Pfizer’s 2018 financial results included net gains on investments in equity securities, which favorably impacted Adjusted Other (Income)/Deductions(2) by $586 million and Adjusted Diluted EPS(2) by approximately $0.08.
A reconciliation of Pfizer’s full-year 2018 financial results to certain components of its 2019 financial guidance, including certain significant factors impacting 2018 financial results and 2019 financial guidance, is below:
 
 
 
 
 
 
 
 
Full-Year
2018 Results
2018 (Gains) on Equity Investments
2018 Results Excluding (Gains) on Equity Investments
2019 Financial Guidance at 2018 FX Rates
Impact of Mid-January 2019 FX Rates Compared to 2018 FX Rates
2019 Financial Guidance
 
 
 
 
 
 
 
Revenues ($ in billions)
$53.6
--
$53.6
$52.9 to $54.9
($0.9)
$52.0 to $54.0
Adjusted Diluted EPS(2)
$3.00
($0.08)
$2.92
$2.88 to $2.98
($0.06)
$2.82 to $2.92
 
 
 
 
 
 
 

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CAPITAL ALLOCATION
During 2018, Pfizer returned $20.2 billion directly to shareholders, through a combination of:
$8.0 billion of dividends, composed of quarterly dividends of $0.34 per share of common stock; and
$12.2 billion of share repurchases, composed of $8.2 billion of open-market share repurchases and a $4.0 billion accelerated share repurchase agreement executed in March 2018 and completed in September 2018.
The full-year 2018 diluted weighted-average shares used to calculate earnings per common share was 5,977 million shares, a reduction of 81 million shares compared to full-year 2017.
In 2019, Pfizer anticipates quarterly dividend payments of $0.36 per share of common stock in addition to approximately $9 billion of share repurchases, of which $1.4 billion have been repurchased through January 29, 2019.
As of January 29, 2019, Pfizer’s remaining share repurchase authorization was $12.8 billion, which includes a new $10.0 billion share repurchase program that was authorized by Pfizer’s board of directors in December 2018 and reflects the aforementioned shares already repurchased in 2019.
EXECUTIVE COMMENTARY
Dr. Albert Bourla, Pfizer’s Chief Executive Officer, stated, “2018 was highlighted by solid financial performance, shareholder-friendly capital allocation, the strengthening of our pipeline and the formation of our new commercial structure designed to transition the company to a period post-2020 where we expect a higher and more sustained revenue growth profile.
“We enter 2019 with confidence in the competitive positioning of our businesses, the prospects for our recently launched products and product line extensions, as well as the strength and breadth of our research pipeline. Our focus remains on advancing science and innovation in areas that we believe will serve the unmet needs of patients and also create the most attractive opportunities for value creation.
Dr. Bourla continued, “2019 is expected to be a busy year with important clinical data readouts across our early-, mid- and late-stage pipeline. In the near term, we expect to report pivotal top-line results for tanezumab in chronic lower back pain as well as additional data in osteoarthritis following today’s announcement of a second positive Phase 3 trial. Later in the year, we anticipate reporting pivotal results for rivipansel in vaso-occlusive crisis from sickle cell disease as well as the results of the first Phase 3 trials for abrocitinib (PF-04965842), our Janus kinase-1 (JAK1) inhibitor in development for moderate-to-severe atopic dermatitis. In our earlier stage pipeline, we anticipate generating data for two nonalcoholic steatohepatitis candidates (PF-05221304 and PF-06865571),

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psoriasis data for two tyrosine kinase 2 (TYK2) inhibitor candidates (PF-06826647 and PF-06700841, a TYK2/JAK1 dual inhibitor) and immune response data for our respiratory syncytial virus infection (PF-06928316) and pentavalent meningococcal (PF-06886992) vaccine candidates. We also expect to provide early clinical data for our mini-dystrophin gene therapy candidate (PF-06939926) in boys with Duchenne muscular dystrophy, and for our gene therapy program for Hemophilia A (PF-07055480), in collaboration with Sangamo Therapeutics, Inc.
“We see attractive opportunities globally to deliver value to patients, payors and other stakeholders through a combination of innovative biopharmaceutical medicines, vaccines, biosimilars, legacy brands and sterile injectable pharmaceutical products. I believe we have the business structure, leadership team and financial capability firmly in place to drive continued success,” Dr. Bourla concluded.
Frank D’Amelio, Chief Financial Officer and Executive Vice President, Business Operations and Global Supply, stated, “Overall, I was pleased with our 2018 financial performance. We were able to achieve 2% operational revenue growth for the year. We also delivered Adjusted diluted EPS(2) growth of 13% in 2018, primarily reflecting a lower effective tax rate on adjusted income(2) due to tax reform, higher adjusted other income(2), strong performance of certain key products and the net impact of our share repurchases. Regarding capital allocation decisions in 2018, we returned $20.2 billion directly to shareholders through share repurchases and dividends and also announced a new joint venture for Pfizer Consumer Healthcare with GlaxoSmithKline plc (GSK)(3), delivering on our commitment to complete the strategic review for our Consumer Healthcare business in 2018.
“Our 2019 financial guidance anticipates continued strong growth from key product franchises, including Ibrance, Eliquis, Xeljanz and Xtandi as well as the expected loss of exclusivity of Lyrica in the U.S. in June 2019. The midpoint of our 2019 revenue guidance range implies comparable operational performance to 2018 while absorbing an anticipated $2.6 billion revenue headwind due to products that have recently lost or are expected to soon lose marketing exclusivity. Additionally, the midpoint of our 2019 guidance range for Adjusted diluted EPS(2) also implies comparable operational performance to 2018 when excluding the anticipated $0.06 unfavorable impact of foreign exchange on 2019 guidance as well as the $0.08 favorable impact on 2018 Adjusted diluted EPS(2) from net gains on equity investments, which will no longer be included in Adjusted(2) financial results. Notably, our guidance for adjusted diluted EPS(2) anticipates share repurchases totaling approximately $9 billion in 2019, which is currently expected to be offset by approximately half due to dilution related to share-based employee compensation programs,” Mr. D’Amelio concluded.
QUARTERLY FINANCIAL HIGHLIGHTS (Fourth-Quarter 2018 vs. Fourth-Quarter 2017)
Fourth-quarter 2018 revenues totaled $14.0 billion, an increase of $274 million, or 2%, compared to the prior-year quarter, reflecting operational growth of $657 million, or 5%, partially offset by the unfavorable impact of foreign exchange of $383 million, or 3%.

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Innovative Health (IH) Highlights
IH revenues increased 10% operationally, primarily driven by continued growth from key brands including:
Ibrance outside the U.S. grew significantly operationally, primarily driven by continued uptake in developed Europe and the December 2017 launch in Japan as well as the non-recurrence of a one-time price adjustment to full-year 2017 revenues, recorded in fourth-quarter 2017, related to finalizing reimbursement agreements in certain developed Europe markets;
Eliquis globally, up 31% operationally, primarily driven by continued increased adoption in non-valvular atrial fibrillation as well as oral anti-coagulant market share gains;
Xeljanz globally, up 37% operationally, primarily driven by continued uptake in the rheumatoid arthritis indication and, to a lesser extent, from the launches of the psoriatic arthritis and ulcerative colitis indications in the U.S.; and
Prevenar 13 in emerging markets, up 13% operationally, primarily due to continued momentum from the launch of the pediatric indication in China in the second quarter of 2017,
partially offset primarily by lower revenues for:
Viagra in the U.S. due to its December 2017 loss of exclusivity and the resulting shift in the reporting of Viagra revenues in the U.S. and Canada to the Essential Health business at the beginning of 2018(4);
Enbrel in most developed Europe markets, primarily due to continued biosimilar competition; and
Xalkori globally, primarily due to competitive pressures.
Essential Health (EH) Highlights
EH revenues declined 3% operationally, negatively impacted primarily by:
a 13% operational decline in the Legacy Established Products (LEP) portfolio in developed markets, primarily driven by industry-wide pricing challenges in the U.S. and generic competition;
a 14% operational decline in the Sterile Injectable Pharmaceutical (SIP) portfolio in developed markets, primarily due to increased competition across the portfolio and continued legacy Hospira product shortages in the U.S.; and
a 10% operational decline in the Peri-LOE Products portfolio in developed markets, primarily due to expected declines in Lyrica in developed Europe and Pristiq, partially offset by the addition of Viagra revenues from the U.S. and Canada that were previously recorded in the IH business,
partially offset primarily by:

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10% operational growth in emerging markets, primarily reflecting growth across the LEP and SIP portfolios in China; and
31% operational growth from Biosimilars in developed markets, primarily from Inflectra in certain channels in the U.S.
GAAP Reported(1) Income Statement Highlights
SELECTED TOTAL COMPANY REPORTED COSTS AND EXPENSES(1) 
 
 
 
 
 
 
 
 
 
 
 
($ in millions)
(Favorable)/Unfavorable
Fourth-Quarter
 
 
Full-Year
 
2018
2017
% Change
 
 
2018
2017
% Change
 
Total
Oper.
 
 
Total
Oper.
Cost of Sales(1)
$ 3,075

$ 3,256

(6%)
4%
 
 
$ 11,248

$ 11,228

2%
Percent of Revenues
22.0
%
23.8
%
N/A
N/A
 
 
21.0
%
21.4
%
N/A
N/A
SI&A Expenses(1)
 4,007

 4,555

(12%)
(10%)
 
 
 14,455

 14,804

(2%)
(3%)
R&D Expenses(1)
 2,457

 2,316

6%
7%
 
 
 8,006

 7,683

4%
4%
Total
$ 9,539

$ 10,127

(6%)
(2%)
 
 
$ 33,709

$ 33,715

 
 
 
 
 
 
 
 
 
 
 
Other (Income)/Deductions––net(1)

$3,259

$ 1,351

*
*
 
 

$2,116

$ 1,416

49%
43%
Effective Tax Rate on Reported Income(1)
*

*

 
 
 
 
5.9
%
(73.5
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
* Indicates calculation not meaningful or result is equal to or greater than 100%.
The increase in fourth-quarter 2018 other deductions––net(1) compared with the prior-year quarter was primarily driven by:
higher asset impairments charges, primarily associated with generic sterile injectable products acquired in connection with Pfizer’s 2015 acquisition of Hospira, Inc.; and
higher charges for certain legal matters,
partially offset primarily by:
the non-recurrence of net losses on the retirement of certain outstanding debt securities that were recorded in fourth-quarter 2017; and
higher net gains on asset disposals.
Pfizer’s effective tax rate on Reported income(1) for fourth-quarter and full-year 2018 compared to the prior year periods was unfavorably impacted primarily by:
the non-recurrence of a $10.7 billion tax benefit recorded in fourth-quarter 2017 to reflect the December 2017 enactment of the Tax Cut and Jobs Act (TCJA),
partially offset primarily by:

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a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
Adjusted(2) Income Statement Highlights
SELECTED TOTAL COMPANY ADJUSTED COSTS AND EXPENSES(2) 
 
 
 
 
 
 
 
 
 
 
 
($ in millions)
(Favorable)/Unfavorable
Fourth-Quarter
 
 
Full-Year
 
2018
2017
% Change
 
 
2018
2017
% Change
 
Total
Oper.
 
 
Total
Oper.
Adjusted Cost of Sales(2)
$ 3,044

$ 3,059

10%
 
 
$ 11,130

$ 10,778

3%
5%
Percent of Revenues
21.8
%
22.3
%
N/A
N/A
 
 
20.7
%
20.5
%
N/A
N/A
Adjusted SI&A Expenses(2)
 3,968

 4,321

(8%)
(6%)
 
 
 14,232

 14,489

(2%)
(2%)
Adjusted R&D Expenses(2)
 2,436

 2,305

6%
6%
 
 
 7,962

 7,653

4%
4%
Total
$ 9,448

$ 9,685

(2%)
2%
 
 
$ 33,325

$ 32,920

1%
1%
 
 
 
 
 
 
 
 
 
 
 
Adjusted Other (Income)/Deductions––net(2)
($111
)
($186
)
(41%)
(23%)
 
 
($1,253
)
($733
)
71%
84%
Effective Tax Rate on Adjusted Income(2)
16.6
%
8.6
%
 
 
 
 
15.5
%
20.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Pfizer’s effective tax rate on Adjusted income(2) for fourth-quarter 2018 was unfavorably impacted primarily by:
the non-recurrence of tax benefits recorded in fourth-quarter 2017 related to the enactment of the TCJA, primarily reflecting the remeasurement of U.S. deferred tax liabilities on deemed repatriated earnings of foreign subsidiaries that were accrued during 2017 prior to the enactment of the TCJA,
partially offset primarily by:
the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
Pfizer’s effective tax rate on Adjusted income(2) for full-year 2018 was favorably impacted primarily by:
the December 2017 enactment of the TCJA;
the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business; and
an increase in benefits associated with the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.

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Fourth-quarter 2018 diluted weighted-average shares outstanding used to calculate Reported(1) and Adjusted(2) diluted EPS declined by 152 million shares compared to the prior-year quarter primarily due to Pfizer’s ongoing share repurchase program, reflecting the impact of share repurchases during 2018, partially offset by dilution related to share-based employee compensation programs.
A full reconciliation of Reported(1) to Adjusted(2) financial measures and associated footnotes can be found starting on page 23 of this press release.
FULL-YEAR REVENUE SUMMARY (Full-Year 2018 vs. Full-Year 2017)
Full-year 2018 revenues totaled $53.6 billion, an increase of $1.1 billion, or 2%, compared to full-year 2017, reflecting operational growth of $791 million, or 2%, and the favorable impact of foreign exchange of $310 million, or less than 1%.
Full-year 2018 operational revenue growth of $791 million, or 2%, was primarily driven by:
certain key products, including Ibrance, Eliquis and Xeljanz globally, Prevnar 13/Prevenar 13 primarily in emerging markets, as well as Inflectra primarily in the U.S. and developed Europe; and
emerging markets operational growth of $1.5 billion, or 13% (inclusive of the performance of the aforementioned products),
partially offset primarily by lower revenues for:
products that recently lost marketing exclusivity, which negatively impacted 2018 revenues by $1.7 billion operationally, primarily Viagra in the U.S., Enbrel and Lyrica in developed Europe as well as Relpax and Pristiq in the U.S.;
the LEP portfolio in developed markets, primarily driven by industry-wide pricing challenges in the U.S. and generic competition; and
the SIP portfolio, primarily due to increased competition and legacy Hospira product shortages in the U.S.
RECENT NOTABLE DEVELOPMENTS (Since October 30, 2018)
Product Developments
Bavencio (avelumab)
In December 2018, Merck KGaA, Darmstadt, Germany (Merck KGaA), and Pfizer announced that data from a planned interim analysis of the Phase 3 JAVELIN Ovarian 100 study of avelumab did not support the study’s initial hypothesis, and therefore the alliance made the decision to terminate

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the trial in alignment with the independent Data Monitoring Committee (DMC). Top-line results showed that the study, which evaluated avelumab in combination with and/or following platinum-based chemotherapy in previously untreated patients with ovarian cancer, would not achieve superiority in the pre-specified primary endpoint of progression-free survival (PFS).
In November 2018, Merck KGaA and Pfizer announced that the Phase 3 JAVELIN Ovarian 200 trial evaluating avelumab alone or in combination with pegylated liposomal doxorubicin (PLD), a type of chemotherapy, compared with PLD did not meet the pre-specified primary endpoints of overall survival (OS) or PFS in patients with platinum-resistant or -refractory ovarian cancer. No new safety signals were observed for avelumab alone or in combination with PLD, and the safety profile for avelumab in this trial was consistent with that observed in the overall JAVELIN clinical development program. The data are currently being analyzed, and detailed results will be shared with the scientific community.
Daurismo (glasdegib) -- In November 2018, Pfizer announced that the U.S. Food and Drug Administration (FDA) approved Daurismo, a once-daily oral medicine, for the treatment of newly-diagnosed acute myeloid leukemia in adult patients who are 75 years or older or who have comorbidities that preclude use of intensive induction chemotherapy. Daurismo is taken in combination with low-dose cytarabine, a type of chemotherapy. Daurismo has not been studied in patients with severe renal impairment or moderate-to-severe hepatic impairment.
Lorbrena (lorlatinib) -- In November 2018, Pfizer announced that the FDA approved Lorbrena, a third-generation anaplastic lymphoma kinase (ALK) tyrosine kinase inhibitor for patients with ALK-positive metastatic non-small cell lung cancer (NSCLC) whose disease has progressed on crizotinib and at least one other ALK inhibitor for metastatic disease; or whose disease has progressed on alectinib or ceritinib as the first ALK inhibitor therapy for metastatic disease. This indication is approved under accelerated approval based on tumor response rate and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial.
Lyrica (pregabalin) -- In November 2018, Pfizer announced that the FDA granted pediatric exclusivity for Lyrica. This grant extends the period of U.S. market exclusivity for Lyrica by an additional six months, to June 30, 2019. The pediatric exclusivity determination was based on data from the Lyrica Pediatric Epilepsy Program, which were submitted in response to the FDA’s written request to Pfizer to evaluate the use of Lyrica as adjunctive therapy for partial onset seizures in pediatric epilepsy patients. These were also required post-marketing studies.
Xtandi (enzalutamide) -- In December 2018, Astellas Pharma Inc. (Astellas) and Pfizer announced that the Phase 3 ARCHES trial evaluating Xtandi plus androgen deprivation therapy (ADT) in men with metastatic hormone-sensitive prostate cancer met its primary endpoint, significantly improving radiographic

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progression-free survival versus ADT alone. The preliminary safety analysis of the ARCHES trial appears consistent with the safety profile of Xtandi in previous clinical trials in castration-resistant prostate cancer.
Pipeline Developments
A comprehensive update of Pfizer’s development pipeline was published today and is now available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of Pfizer’s research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.
PF-05280586 (proposed biosimilar rituximab) -- In December 2018, Pfizer announced at the American Society of Hematology Annual Meeting that the REFLECTIONS B328-06 study, a comparative safety and efficacy study of PF-05280586 versus Rituxan®/MabThera®(7) (rituximab-EU), met its primary endpoint of overall response rate (ORR) at week 26 of the 52-week study. 26-week data from the ongoing 52-week REFLECTIONS B328-06 study (n=394) demonstrated no clinically meaningful differences in efficacy, in terms of ORR at week 26, between PF-05280586 and MabThera®(7), for the first-line treatment of patients with CD20-positive, low tumor burden, follicular lymphoma. ORR at week 26 was 75.5% for PF-05280586 compared to 70.7% (rituximab-EU), within the pre-specified equivalence margin. Additionally, estimated rates of one-year PFS were similar across groups (76.4% vs. 81.2% in the PF-05280586 and MabThera®(7) groups, respectively). The results also showed that PF-05280586 had a similar safety profile to MabThera®(7).
PF-06290510 (Staphylococcus aureus multi-antigen vaccine) -- In December 2018, Pfizer announced that the Phase 2b trial STRIVE (STaphylococcus aureus SuRgical Inpatient Vaccine Efficacy) evaluating the company’s investigational Staphylococcus aureus (S. aureus) multi-antigen vaccine is being discontinued due to futility. This decision is based on a recommendation from an independent DMC, composed of external experts, after conducting a pre-planned interim analysis. The DMC concluded from these data that the study reached futility, meaning that there is low statistical probability for the study to meet the pre-defined primary efficacy objective in adults undergoing elective spinal fusion surgery after completing a planned Phase 3 expansion of the study. A safety review by the DMC indicated that the investigational vaccine has been safe and well tolerated. STRIVE trial participants who are enrolled in the study will complete the study’s follow-up evaluations.
PF-06410293 (proposed biosimilar adalimumab) -- In January 2019, the FDA accepted for review a Biologics License Application for PF-06410293, a proposed biosimilar to Humira(8). The Biosimilar User Fee Act goal date for a decision by the FDA is in fourth-quarter 2019.
PF-06439535 (proposed biosimilar bevacizumab) -- In December 2018, Pfizer announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive

- 10 -




opinion, recommending marketing authorization for Zirabev (PF-06439535), a proposed biosimilar to Avastin(9).
PF-06482077 (20-Valent Pneumococcal Conjugate Vaccine) -- In December 2018, Pfizer announced the initiation of a Phase 3 program for its 20-valent pneumococcal conjugate vaccine (20vPnC) candidate, PF-06482077, for the prevention of invasive disease and pneumonia caused by Streptococcus pneumoniae serotypes in the vaccine in adults aged 18 years and older. This first Phase 3 trial will enroll an estimated 3,880 adults and is designed to compare immune responses after 20vPnC administration to responses in control subjects ≥60 years old receiving 13-valent pneumococcal conjugate vaccine and 23-valent pneumococcal polysaccharide vaccine; evaluate the immunogenicity of 20vPnC in adults 18-59 years of age; and describe the 20vPnC safety profile in adults ≥18 years old.
PF-06651600 (JAK3) -- In January 2019, Pfizer announced the initiation of a pivotal Phase 2b/3 clinical trial for its oral JAK3 inhibitor, PF-06651600, for the treatment of patients with moderate to severe alopecia areata, a chronic autoimmune skin disease that causes hair loss on the scalp, face, or body, and currently has no approved therapies. The trial will enroll an estimated 660 patients and will be a double-blind, placebo-controlled, dose-ranging study to evaluate the safety and effectiveness of PF-06651600 in adults and adolescents (12 years and older) who have 50% or greater scalp hair loss.
Tafamidis -- In January 2019, Pfizer announced that the FDA accepted for filing the company’s New Drug Applications (NDAs) for tafamidis for the treatment of transthyretin amyloid cardiomyopathy. Pfizer submitted two NDAs based on two forms of tafamidis: meglumine salt and free acid. The NDA for tafamidis meglumine (20 mg capsule) was granted Priority Review designation and has a Prescription Drug User Fee Act (PDUFA) goal date for a decision by the FDA in July 2019. The tafamidis free acid form (61 mg capsule) will undergo a standard review and has a PDUFA goal date for a decision by the FDA in November 2019. The free acid form is bioequivalent to the 80 mg tafamidis meglumine dose, which was administered as four 20 mg capsules in the pivotal trial and was developed for patient convenience to enable a single capsule for daily administration.
Tanezumab (PF-4383119, RN624) -- Pfizer and Eli Lilly and Company today announced positive top-line results from a Phase 3 study evaluating tanezumab 2.5 mg or 5 mg in patients with moderate-to-severe osteoarthritis (OA) pain. The tanezumab 5 mg treatment arm met all three co-primary endpoints at 24 weeks, demonstrating a statistically significant improvement in pain, physical function and the patients’ overall assessment of their OA compared to those receiving placebo. The tanezumab 2.5 mg treatment arm met two of the three protocol-defined co-primary efficacy endpoints compared to placebo, demonstrating a statistically significant improvement in pain and physical function, while patients’ overall assessment of their OA was not statistically different than placebo. Patients enrolled in the study had experienced inadequate

- 11 -




pain relief from or intolerance to at least three different classes of analgesics, and on average had OA for more than six years.
Preliminary safety data showed that tanezumab was generally well tolerated during the 24-week treatment period, with similarly low rates of treatment discontinuations due to adverse events observed among patients taking tanezumab and placebo. The trial also included a 24-week safety follow-up period, for a total of 48 weeks of observation. Overall, rapidly progressive osteoarthritis (RPOA) was observed in 2.1% of tanezumab-treated patients and was not observed in the placebo arm. The ratio of RPOA type 1 (accelerated joint space narrowing) to RPOA type 2 (damage or deterioration of the joint) was 2:1, consistent with the ratio from the previously reported subcutaneous Phase 3 study in OA pain (A4091056). There was one event of osteonecrosis and one event of subchondral insufficiency fracture observed in tanezumab-treated patients, and no events were observed in the placebo arm. The rate of total joint replacement was similar across the tanezumab treatment groups and placebo. Detailed efficacy and safety results from this study will be submitted to a future medical congress.
Corporate Developments
At the start of the 2019 fiscal year(4), Pfizer began operating in its previously-announced new commercial structure, reorganizing operations into three businesses:
Pfizer Biopharmaceuticals Group (PBG), a science-based innovative medicines business, which includes all of the Innovative Health business units (except Consumer Healthcare) as well as a new Hospital business unit that commercializes Pfizer’s global portfolio of sterile injectable and anti-infective medicines. Pfizer also incorporated its biosimilar portfolio into its Oncology and Inflammation & Immunology business units.
Upjohn, a global, off-patent branded and generic established medicines business, which includes the majority of Pfizer’s off-patent solid oral dose legacy brands, including Lyrica, Lipitor, Norvasc, Viagra and Celebrex as well as certain generic medicines. To allow this business to act with speed and flexibility, it has distinct and fully-dedicated manufacturing, marketing, regulatory and, with some exceptions, enabling functions, which enhances its autonomy and positions it to operate as a true stand-alone business within Pfizer.
Consumer Healthcare, which includes Pfizer’s over-the-counter medicines(6).
Pfizer will provide financial reporting to reflect this reorganization beginning in first-quarter 2019.
In December 2018, Pfizer entered into a definitive agreement with GSK under which the two companies have agreed to combine their respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name.  In exchange for contributing its Consumer Healthcare business, Pfizer will receive a 32% equity stake in the new company

- 12 -




and GSK will own the remaining 68% of the new company. Upon the closing of the transaction, which is expected to occur in the second half of 2019, subject to customary closing conditions including GSK shareholder approval and required regulatory approvals, Pfizer anticipates deconsolidating its Consumer Healthcare business and will begin to receive its pro rata share of the joint venture’s earnings and dividends, which will be paid on a quarterly basis. Pfizer will have the right to appoint three out of the nine members of the joint venture’s board. The transaction is expected to deliver $650 million in peak cost synergies and to be slightly accretive for Pfizer in each of the first three years after the close of the transaction.
In December 2018, Pfizer’s board of directors declared a 36-cent first-quarter 2019 dividend on the company’s common stock, representing an increase of approximately 6% compared to the company’s first-quarter 2018 dividend. The first-quarter 2019 dividend is payable on March 1, 2019 to shareholders of record at the close of business on February 1, 2019. Additionally, the board of directors also authorized a new $10 billion share repurchase program to be utilized over time. As of January 29, 2019, Pfizer’s remaining share repurchase authorization was $12.8 billion, including this new share repurchase program and reflecting the $1.4 billion of shares repurchased to date in 2019.

- 13 -




For additional details, see the attached financial schedules, product revenue tables and disclosure notice.
(1)
Revenues is defined as revenues in accordance with U.S. generally accepted accounting principles (GAAP). Reported net income/(loss) is defined as net income/(loss) attributable to Pfizer Inc. in accordance with U.S. GAAP. Reported diluted earnings per share (EPS) and reported loss per share (LPS) are defined as diluted EPS or LPS attributable to Pfizer Inc. common shareholders in accordance with U.S. GAAP.
(2)
Adjusted income and its components and Adjusted diluted EPS are defined as reported U.S. GAAP net income(1) and its components and reported diluted EPS(1) excluding purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items (some of which may recur, such as restructuring or legal charges, but which management does not believe are reflective of ongoing core operations). Adjusted cost of sales, Adjusted selling, informational and administrative (SI&A) expenses, Adjusted research and development (R&D) expenses and Adjusted other (income)/deductions are income statement line items prepared on the same basis as, and therefore components of, the overall Adjusted income measure. As described in the Financial Review––Non-GAAP Financial Measure (Adjusted Income) section of Pfizer’s 2017 Financial Report, which was filed as Exhibit 13 to Pfizer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, management uses Adjusted income, among other factors, to set performance goals and to measure the performance of the overall company. Because Adjusted income is an important internal measurement for Pfizer, management believes that investors’ understanding of our performance is enhanced by disclosing this performance measure. Pfizer reports Adjusted income, certain components of Adjusted income, and Adjusted diluted EPS in order to portray the results of the company’s major operations––the discovery, development, manufacture, marketing and sale of prescription medicines, vaccines and consumer healthcare (OTC) products––prior to considering certain income statement elements. See the accompanying reconciliations of certain GAAP Reported to Non-GAAP Adjusted information for the fourth quarter and full year of 2018 and 2017. The Adjusted income and its components and Adjusted diluted EPS measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted EPS.
(3)
In December 2018, Pfizer entered into a definitive agreement with GSK under which the two companies have agreed to combine their respective consumer healthcare businesses into a new consumer healthcare joint venture that will operate globally under the GSK Consumer Healthcare name.  In exchange for contributing its Consumer Healthcare business, Pfizer will receive a 32% equity stake in the new company and GSK will own the remaining 68% of the new company. Upon the closing of the transaction, which is expected to occur in the second half of 2019, subject to customary closing conditions including GSK shareholder approval and required regulatory approvals, Pfizer anticipates deconsolidating its Consumer Healthcare business and will begin to receive its pro rata share of the joint venture’s earnings and

- 14 -




dividends, which will be paid on a quarterly basis. For additional information regarding the proposed transaction, please see the Corporate Developments section of this press release.
(4)
Pfizer’s fiscal year-end for international subsidiaries is November 30 while Pfizer’s fiscal year-end for U.S. subsidiaries is December 31. Therefore, Pfizer’s fourth quarter and full year for U.S. subsidiaries reflect the three and twelve months ending on December 31, 2018 and December 31, 2017 while Pfizer’s fourth quarter and full year for subsidiaries operating outside the U.S. reflect the three and twelve months ending on November 30, 2018 and November 30, 2017.
(5)
References to operational variances in this press release pertain to period-over-period growth rates that exclude the impact of foreign exchange. The operational variances are determined by multiplying or dividing, as appropriate, the current period U.S. dollar results by the current period average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the prior-year period average foreign exchange rates. Although exchange rate changes are part of Pfizer’s business, they are not within Pfizer’s control. Exchange rate changes, however, can mask positive or negative trends in the business; therefore, Pfizer believes presenting operational variances provides useful information in evaluating the results of its business.
(6)
The 2019 financial guidance reflects the following:
Pfizer does not provide guidance for GAAP Reported financial measures (other than revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses, net gains or losses on equity securities and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.
Does not assume the completion of any business development transactions not completed as of December 31, 2018, including any one-time upfront payments associated with such transactions.
Reflects a full year of revenue and expense contributions from Consumer Healthcare(3).
Reflects an anticipated negative revenue impact of $2.6 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection.
Exchange rates assumed are as of mid-January 2019. Reflects the anticipated unfavorable impact of approximately $0.9 billion on revenues and approximately $0.06 on Adjusted diluted EPS(2) as a

- 15 -




result of changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2018.
Guidance for Adjusted diluted EPS(2) assumes diluted weighted-average shares outstanding of approximately 5.7 billion shares, which reflects share repurchases totaling $12.2 billion in 2018 and the weighted-average impact of an anticipated approximately $9 billion of share repurchases in 2019. Dilution related to share-based employee compensation programs is currently expected to offset the reduction in shares associated with these share repurchases by approximately half.
(7)
Rituximab is marketed in the U.S. under the brand name Rituxan® and marketed in the E.U. and other regions under the brand name MabThera®. Rituxan® is a registered trademark of Biogen MA Inc. MabThera® is a registered trademark of F. Hoffman-La Roche AG.
(8)
Humira® is a registered U.S. trademark of Abbvie Biotechnology Ltd.
(9)
Avastin® is a registered U.S. trademark of Genentech, Inc.
Contacts:
Media
 
Investors
 
 
Joan Campion
212.733.2798
Chuck Triano
212.733.3901
 
 
 
Ryan Crowe
212.733.8160
 
 
 
Bryan Dunn
212.733.8917

- 16 -


PFIZER INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME(1) 
(UNAUDITED)
(millions, except per common share data)


 
 
Fourth-Quarter
 
% Incr. /
 
Full-Year
 
% Incr. /
 
 
2018

 
2017

 
(Decr.)
 
2018

 
2017

 
(Decr.)
Revenues
 
$
13,976

 
$
13,703

 
2
 
$
53,647

 
$
52,546

 
2
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales(1), (2), (3)
 
3,075

 
3,256

 
(6)
 
11,248

 
11,228

 
Selling, informational and administrative expenses(1), (2), (3)
 
4,007

 
4,555

 
(12)
 
14,455

 
14,804

 
(2)
Research and development expenses(1), (2), (3)
 
2,457

 
2,316

 
6
 
8,006

 
7,683

 
4
Amortization of intangible assets(3)
 
1,253

 
1,187

 
6
 
4,893

 
4,758

 
3
Restructuring charges and certain acquisition-related costs(1), (4)
 
872

 
84

 
*
 
1,044

 
351

 
*
Other (income)/deductions––net(1), (5)
 
3,259

 
1,351

 
*
 
2,116

 
1,416

 
49
 
 
 
 
 
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations before provision/(benefit) for taxes on income/(loss)
 
(946
)
 
953

 
*
 
11,885

 
12,305

 
(3)
Provision/(benefit) for taxes on income/(loss)(6)
 
(563
)
 
(11,335
)
 
(95)
 
706

 
(9,049
)
 
*
Income/(loss) from continuing operations
 
(383
)
 
12,289

 
*
 
11,179

 
21,353

 
(48)
Discontinued operations––net of tax
 

 
1

 
*
 
10

 
2

 
*
Net income/(loss) before allocation to noncontrolling interests
 
(383
)
 
12,290

 
*
 
11,188

 
21,355

 
(48)
Less: Net income attributable to noncontrolling interests
 
11

 
15

 
(28)
 
36

 
47

 
(24)
Net income/(loss) attributable to Pfizer Inc.
 
$
(394
)
 
$
12,274

 
*
 
$
11,153

 
$
21,308

 
(48)
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings/(loss) per common share––basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to Pfizer Inc. common shareholders
 
$
(0.07
)
 
$
2.06

 
*
 
$
1.90

 
$
3.57

 
(47)
Discontinued operations––net of tax
 

 

 
 

 

 
Net income/(loss) attributable to Pfizer Inc. common shareholders
 
$
(0.07
)
 
$
2.06

 
*
 
$
1.90

 
$
3.57

 
(47)
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings/(loss) per common share––diluted(7):
 
 
 
 
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to Pfizer Inc. common shareholders
 
$
(0.07
)
 
$
2.02

 
*
 
$
1.86

 
$
3.52

 
(47)
Discontinued operations––net of tax
 

 

 
 

 

 
Net income/(loss) attributable to Pfizer Inc. common shareholders
 
$
(0.07
)
 
$
2.02

 
*
 
$
1.87

 
$
3.52

 
(47)
Weighted-average shares used to calculate earnings/(loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
5,788

 
5,963

 
 
 
5,872

 
5,970

 
 
Diluted(7)
 
5,788

 
6,064

 
 
 
5,977

 
6,058

 
 
*
Indicates calculation not meaningful or result is equal to or greater than 100%.
See end of tables for notes (1) through (7).
Amounts may not add due to rounding. All percentages have been calculated using unrounded amounts.


- 17 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(1)
The financial statements present the three and twelve months ended December 31, 2018 and December 31, 2017. Subsidiaries operating outside the U.S. are included for the three and twelve months ended November 30, 2018 and November 30, 2017.
The adoption of certain new accounting standards in the first quarter of 2018 impacted our consolidated statements of income as follows:
Financial Assets and Liabilities––We adopted a new accounting standard on January 1, 2018 utilizing the modified retrospective method, and, therefore, no adjustments were made to amounts in our prior period financial statements. The standard requires certain equity investments to be measured at fair value with changes in fair value now recognized in net income. However, equity investments that do not have readily determinable fair values may be measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Therefore, in the three and twelve months ended December 31, 2018, Other (income)/deductions––net includes net unrealized gains on equity securities. See Note (5) below for additional information.
Revenues––We adopted a new accounting standard on January 1, 2018 for revenue recognition. Under the new standard, revenue is recognized upon transfer of control of the product to our customer in an amount that reflects the consideration we expect to receive in exchange. We adopted the new accounting standard utilizing the modified retrospective method, and, therefore, no adjustments were made to amounts in our prior period financial statements. However, the adoption of this new standard did impact the timing of recognizing Other (income)/deductions––net, primarily for upfront and milestone payments on our collaboration arrangements and, to a lesser extent, product rights and out-licensing arrangements, and the timing of recognizing Revenues and Cost of sales on certain product shipments. The impact of adoption did not have a material impact to our condensed consolidated statements of income for the three and twelve months ended December 31, 2018. See Note (5) below for additional information.
Presentation of Net Periodic Pension and Postretirement Benefit Cost––We adopted a new accounting standard on January 1, 2018 that requires the net periodic pension and postretirement benefit costs other than the service costs be presented in Other (income)/deductions––net, and that the presentation be applied retrospectively. We adopted the presentation of the net periodic benefit costs other than service costs by reclassifying these costs from Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Restructuring charges and certain acquisition-related costs to Other (income)/deductions––net. We have therefore reclassified the prior period net periodic benefit costs/(credits) to apply the retrospective presentation for comparative periods. See Note (5) below for additional information.
On February 3, 2017, we completed the sale of our global infusion systems net assets, Hospira Infusion Systems (HIS). The operating results of HIS are included in the consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the fourth quarter of 2017 do not reflect any contribution from HIS global operations. Our financial results, and EH’s operating results, for full-year 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations. Our financial results, and EH’s operating results, for full-year 2018 do not reflect any contribution from HIS global operations.
Certain amounts in the consolidated statements of income and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
(2)
Exclusive of amortization of intangible assets, except as discussed in footnote (3) below.
(3)
Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets, as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate.

- 18 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(4)
Restructuring charges and certain acquisition-related costs include the following:
 
 
Fourth-Quarter
 
Full-Year
(MILLIONS OF DOLLARS)
 
2018


2017

 
2018

 
2017

Restructuring charges––acquisition-related costs(a)
 
$
33

 
$
25

 
$
37

 
$
105

Restructuring charges/(credits)––cost reduction initiatives(b)
 
782

 
(23
)
 
745

 
(75
)
Restructuring charges
 
814

 
2

 
782

 
30

Transaction costs(c)
 

 

 
1

 
4

Integration costs(d)
 
58

 
82

 
260

 
317

Restructuring charges and certain acquisition-related costs
 
$
872

 
$
84

 
$
1,044

 
$
351

(a)
Restructuring charges––acquisition-related costs include employee termination costs, asset impairments and other exit costs associated with business combinations. Charges for the fourth quarter of 2018 were primarily due to asset write downs related to our acquisition of Hospira, Inc. (Hospira), and charges for full-year 2018 were primarily due to asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira. Restructuring charges for the fourth quarter and full-year 2017 were primarily due to asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs. The charges for the fourth quarter of 2017 were mainly related to our acquisition of Hospira. The charges for the full-year 2017 were mainly related to our acquisitions of Hospira and Medivation, Inc. (Medivation).
(b)
Restructuring charges/(credits)––cost reduction initiatives relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions. For the fourth quarter and full-year 2018, the charges were primarily related to employee termination costs and asset write downs. The employee termination costs are associated with our improvements to operational effectiveness as part of the realignment of our organizational structure effective at the beginning of 2019. For the fourth quarter and full-year 2017, the credits were mostly related to the reversal of previously recorded accruals for employee termination costs, partially offset by asset write downs.
(c)
Transaction costs represent external costs for banking, legal, accounting and other similar services, which for full-year 2017 were directly related to our acquisitions of Hospira, Anacor Pharmaceuticals, Inc. and Medivation.
(d)
Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the fourth quarter and full-year 2018, integration costs were primarily related to our acquisition of Hospira. In the fourth quarter of 2017, integration costs primarily related to our acquisition of Hospira and, for full-year 2017, integration costs primarily related to our acquisitions of Hospira and Medivation.

- 19 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(5)
Other (income)/deductions––net includes the following:
 

Fourth-Quarter

Full-Year
(MILLIONS OF DOLLARS)

2018


2017


2018


2017

Interest income(a)

$
(93
)

$
(117
)

$
(333
)

$
(391
)
Interest expense(a)

370


329


1,316


1,270

Net interest expense

276


213


983


879

Royalty-related income

(135
)

(168
)

(495
)

(499
)
Net (gains)/losses on asset disposals(b)

(52
)

81


(71
)

45

Net gains recognized during the period on investments in equity securities(c)

(126
)

(64
)

(586
)

(224
)
Net realized (gains)/losses on sales of investments in debt securities

121




141


(45
)
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d)

(30
)

(54
)

(488
)

(217
)
Net periodic benefit costs/(credits) other than service costs(e)

(57
)

20


(288
)

101

Certain legal matters, net(f)

227


46


157


240

Certain asset impairments(g)

3,076


252


3,115


395

Adjustments to loss on sale of HIS net assets(h)



3


(1
)

55

Business and legal entity alignment costs(i)



17


4


71

Net losses on early retirement of debt(j)



999


3


999

Other, net(k)

(41
)

6


(357
)

(383
)
Other (income)/deductions––net

$
3,259


$
1,351


$
2,116


$
1,416

(a)
Interest income decreased in the fourth quarter and full-year 2018, primarily driven by a lower investment balance. Interest expense increased in the fourth quarter and full-year 2018, primarily as a result of higher short-term interest rates, offset, in part, by refinancing activity that occurred in the fourth quarter of 2017.
(b)
In the fourth quarter and full-year 2018, primarily includes a realized gain on sale of property of $60 million. In the fourth quarter of 2017, primarily includes an $81 million realized loss related to the sale of our then 49%-owned equity-method investment in Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer). In addition to the $81 million realized loss related to Hisun Pfizer, full-year 2017, also includes a realized net loss of $30 million related to the sale of our 40% ownership investment in Laboratório Teuto Brasileiro S.A., including the extinguishment of a put option for the then remaining 60% ownership interest, partially offset by a realized gain on sale of property of $52 million.
(c)
The net gains on investments in equity securities for the fourth quarter of 2018 include unrealized net gains on equity securities of $133 million and, for full-year 2018, include unrealized net gains on equity securities of $477 million, reflecting the adoption of a new accounting standard in the first quarter of 2018. Prior to the adoption of a new accounting standard in the first quarter of 2018, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income.
(d)
Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights.
(e)
Represents the net periodic benefit costs/(credits), excluding service costs, as a result of the adoption of a new accounting standard in the first quarter of 2018. Effective January 1, 2018, the U.S. Pfizer Consolidated Pension Plan was frozen to future benefit accruals and for the fourth quarter and full-year 2018, resulted in the recognition of lower net periodic benefit costs due to the extension of the amortization period for the actuarial losses. There was also a greater than expected gain on plan assets due to a higher plan asset base compared to the fourth quarter and full-year 2017. See note (1) above for additional information.
(f)
In the fourth quarter of 2018, primarily includes legal reserves for certain pending legal matters. In full-year 2018, primarily includes legal reserves for certain pending legal matters, partially offset by the reversal of a legal accrual where a loss was no longer deemed probable. In full-year 2017, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which was approved by the court in April 2018, and a $79 million charge to reflect damages awarded by a jury in a patent matter.

- 20 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(g)
In the fourth quarter and full-year 2018, primarily includes intangible asset impairment charges of $3.1 billion, mainly composed of (i) $2.6 billion related to EH finite-lived developed technology rights, $242 million related to EH finite-lived licensing agreements and $80 million related to EH finite-lived in-process research and development (IPR&D), all of which relate to our acquisition of Hospira, for generic sterile injectable products associated with various indications and (ii) $117 million related to a multi-antigen vaccine IPR&D program for adults undergoing elective spinal fusion surgery. In 2018, the intangible asset impairment charges associated with the generic sterile injectable products reflect, among other things, updated commercial forecasts, reflecting an increased competitive environment as well as higher manufacturing costs, largely stemming from ongoing manufacturing and supply issues. The intangible asset impairment charge for the multi-antigen vaccine IPR&D program was the result of the Phase 2b trial reaching futility at a pre-planned interim analysis. In the fourth quarter of 2017, primarily includes intangible asset impairment charges of $210 million, mainly related to (i) developed technology rights for a sterile injectable pain reliever, acquired in connection with our acquisition of Hospira, and (ii) other developed technology rights for the treatment of attention deficit hyperactivity disorder, acquired in connection with our acquisition of NextWave Pharmaceuticals Inc. (NextWave) and for a generic injectable antibiotic product for the treatment of bacterial infections, acquired in connection with our acquisition of Hospira. In full-year 2017, primarily includes intangible asset impairment charges of $337 million, mainly related to (i) developed technology rights for a generic sterile injectable product for the treatment of edema associated with certain conditions and a sterile injectable pain reliever, both acquired in connection with our acquisition of Hospira, and (ii) other developed technology rights for the treatment of attention deficit hyperactivity disorder, acquired in connection with our acquisition of NextWave and for a generic injectable antibiotic product for the treatment of bacterial infections, acquired in connection with our acquisition of Hospira.
(h)
Represents adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical on February 3, 2017.
(i)
Represents expenses for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(j)
In fourth quarter and full-year 2017, represents net losses due to the early retirement of debt, inclusive of the related termination of cross currency swaps.
(k)
The fourth quarter of 2018 includes, among other things, credits of $51 million, reflecting the change in the fair value of contingent consideration, and dividend income of $27 million from our investment in ViiV Healthcare Limited (ViiV). Full-year 2018 includes, among other things, (i) a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital Private Equity and Bain Capital Life Sciences to create a new biopharmaceutical company, Cerevel Therapeutics, LLC (Cerevel), to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system, (ii) dividend income of $253 million from our investment in ViiV, (iii) a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic chimeric antigen receptor T cell therapy development program assets obtained from Cellectis S.A. and Les Laboratoires Servier SAS in connection with our contribution agreement entered into with Allogene Therapeutics, Inc. and (iv) a non-cash $17 million pre-tax gain on the cash settlement of a liability that we incurred in April 2018 upon the European Union approval of Mylotarg, partially offset by charges of $207 million, reflecting the change in the fair value of contingent consideration and $59 million of incremental costs associated with the design, planning and implementation of the new organizational structure, effective in the beginning of 2019, and primarily include consulting, legal, tax, and advisory services. In the fourth quarter of 2017, includes, among other things, dividend income of $55 million from our investment in ViiV. In full-year 2017, includes, among other things, dividend income of $266 million, from our investment in ViiV and income of $62 million from resolution of a contract disagreement.
(6)
The Provision/(benefit) for taxes on income/(loss) for fourth-quarter and full-year 2018 was favorably impacted primarily by (i) adjustments to the provisional estimate of the legislation commonly referred to as the U.S. Tax Cuts and Jobs Act (TCJA) recorded as we finalized our accounting related to the tax effects of the TCJA, in accordance with guidance issued by the U.S. Securities and Exchange Commission, (ii) the change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, as well as (iii) the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
The Provision for taxes on income for fourth-quarter and full-year 2017 was favorably impacted by (i) tax benefits associated with the remeasurement of deferred tax liabilities, which includes the repatriation tax on deemed repatriated accumulated earnings of foreign subsidiaries associated with the enactment of the TCJA, (ii) the change in the

- 21 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, as well as (iii) the resolution of certain tax positions pertaining to prior years primarily with various foreign tax authorities, and the expiration of certain statutes of limitations.
(7)
For fourth-quarter 2018, we used basic weighted average shares of 5,788 million (excluding common-share equivalents) to calculate GAAP Reported Loss per common share––diluted on Net loss attributable to Pfizer Inc.

- 22 -


PFIZER INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION(1) 
CERTAIN LINE ITEMS - (UNAUDITED)
(millions of dollars, except per common share data)

 
 
Fourth-Quarter 2018
 
 
GAAP Reported(2)
 
Purchase Accounting Adjustments
 
Acquisition-Related Costs(3)
 
Discontinued Operations
 
Certain Significant Items(4)
 
Non-GAAP Adjusted(5)
Revenues
 
$
13,976

 
$

 
$

 
$

 
$

 
$
13,976

Cost of sales(6), (7)
 
3,075

 
5

 
(2
)
 

 
(34
)
 
3,044

Selling, informational and administrative expenses(6), (7)
 
4,007

 
1

 
(2
)
 

 
(38
)
 
3,968

Research and development expenses(6), (7)
 
2,457

 

 

 

 
(21
)
 
2,436

Amortization of intangible assets(7)
 
1,253

 
(1,184
)
 

 

 

 
69

Restructuring charges and certain acquisition-related costs
 
872

 

 
(90
)
 

 
(782
)
 

Other (income)/deductions––net(8)
 
3,259

 
56

 
(3
)
 

 
(3,423
)
 
(111
)
Income/(loss) from continuing operations before provision/(benefit) for taxes on income/(loss)
 
(946
)
 
1,121

 
97

 

 
4,298

 
4,569

Provision/(benefit) for taxes on income/(loss)
 
(563
)
 
180

 
14

 

 
1,125

 
756

Income/(loss) from continuing operations
 
(383
)
 
941

 
83

 

 
3,172

 
3,813

Discontinued operations––net of tax
 

 

 

 

 

 

Net income/(loss) before allocation to noncontrolling interests
 
11

 

 

 

 

 
11

Net income/(loss) attributable to Pfizer Inc. common shareholders
 
(394
)
 
941

 
83

 

 
3,172

 
3,802

Earnings/(loss) per common share attributable to Pfizer Inc.––diluted(9)
 
(0.07
)
 
0.16

 
0.01

 

 
0.54

 
0.64

 
 
Full-Year Ended December 31, 2018
 
 
GAAP Reported(2)
 
Purchase Accounting Adjustments
 
Acquisition-Related Costs(3)
 
Discontinued Operations
 
Certain Significant Items(4)
 
Non-GAAP Adjusted(5)
Revenues
 
$
53,647

 
$

 
$

 
$

 
$

 
$
53,647

Cost of sales(6), (7)
 
11,248

 
3

 
(10
)
 

 
(110
)
 
11,130

Selling, informational and administrative expenses(6), (7)
 
14,455

 
2

 
(2
)
 

 
(222
)
 
14,232

Research and development expenses(6), (7)
 
8,006

 
3

 

 

 
(47
)
 
7,962

Amortization of intangible assets(7)
 
4,893

 
(4,612
)
 

 

 

 
281

Restructuring charges and certain acquisition-related costs
 
1,044

 

 
(299
)
 

 
(745
)
 

Other (income)/deductions––net(8)
 
2,116

 
(182
)
 
(7
)
 

 
(3,181
)
 
(1,253
)
Income/(loss) from continuing operations before provision/(benefit) for taxes on income/(loss)
 
11,885

 
4,786

 
318

 

 
4,305

 
21,294

Provision/(benefit) for taxes on income/(loss)
 
706

 
915

 
54

 

 
1,625

 
3,301

Income/(loss) from continuing operations
 
11,179

 
3,871

 
264

 

 
2,680

 
17,994

Discontinued operations––net of tax
 
10

 

 

 
(10
)
 

 

Net income/(loss) before allocation to noncontrolling interests
 
36

 

 

 

 

 
36

Net income/(loss) attributable to Pfizer Inc. common shareholders
 
11,153

 
3,871

 
264

 
(10
)
 
2,680

 
17,958

Earnings/(loss) per common share attributable to Pfizer Inc.––diluted
 
1.87

 
0.65

 
0.04

 

 
0.45

 
3.00

See end of tables for notes (1) through (9).
Amounts may not add due to rounding.

- 23 -


PFIZER INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION(1) 
CERTAIN LINE ITEMS - (UNAUDITED)
(millions of dollars, except per common share data)

 
 
Fourth-Quarter 2017
 
 
GAAP Reported(2)
 
Purchase Accounting Adjustments
 
Acquisition-Related Costs(3)
 
Discontinued Operations
 
Certain Significant Items(4)
 
Non-GAAP Adjusted(5)
Revenues
 
$
13,703

 
$

 
$

 
$

 
$

 
$
13,703

Cost of sales(2), (6), (7)
 
3,256

 
(2
)
 

 

 
(196
)
 
3,059

Selling, informational and administrative expenses(2), (6), (7)
 
4,555

 
(1
)
 

 

 
(233
)
 
4,321

Research and development expenses(2), (6), (7)
 
2,316

 
1

 

 

 
(12
)
 
2,305

Amortization of intangible assets(7)
 
1,187

 
(1,127
)
 

 

 

 
60

Restructuring charges and certain acquisition-related costs(2)
 
84

 

 
(107
)
 

 
23

 

Other (income)/deductions––net(2), (8)
 
1,351

 
(103
)
 
(2
)
 

 
(1,433
)
 
(186
)
Income/(loss) from continuing operations before provision/(benefit) for taxes on income/(loss)
 
953

 
1,231

 
109

 

 
1,850

 
4,143

Provision/(benefit) for taxes on income/(loss)
 
(11,335
)
 
341

 
36

 

 
11,314

 
356

Income/(loss) from continuing operations
 
12,289

 
890

 
73

 

 
(9,464
)
 
3,787

Discontinued operations––net of tax
 
1

 

 

 
(1
)
 

 

Net income/(loss) before allocation to noncontrolling interests
 
15

 

 

 

 

 
15

Net income/(loss) attributable to Pfizer Inc. common shareholders
 
12,274

 
890

 
73

 
(1
)
 
(9,464
)
 
3,772

Earnings/(loss) per common share attributable to Pfizer Inc.––diluted
 
2.02

 
0.15

 
0.01

 

 
(1.56
)
 
0.62

 
 
Full-Year Ended December 31, 2017
 
 
GAAP Reported(2)
 
Purchase Accounting Adjustments
 
Acquisition-Related Costs(3)
 
Discontinued Operations
 
Certain Significant Items(4)
 
Non-GAAP Adjusted(5)
Revenues
 
$
52,546

 
$

 
$

 
$

 
$

 
$
52,546

Cost of sales(2), (6), (7)
 
11,228

 
(47
)
 
(39
)
 

 
(363
)
 
10,778

Selling, informational and administrative expenses(2), (6), (7)
 
14,804

 
(16
)
 

 

 
(299
)
 
14,489

Research and development expenses(2), (6), (7)
 
7,683

 
8

 

 

 
(38
)
 
7,653

Amortization of intangible assets(7)
 
4,758

 
(4,565
)
 

 

 

 
193

Restructuring charges and certain acquisition-related costs(2)
 
351

 

 
(426
)
 

 
75

 

Other (income)/deductions––net(2), (8)
 
1,416

 
(138
)
 
9

 

 
(2,020
)
 
(733
)
Income/(loss) from continuing operations before provision/(benefit) for taxes on income/(loss)
 
12,305

 
4,758

 
456

 

 
2,647

 
20,166

Provision/(benefit) for taxes on income/(loss)
 
(9,049
)
 
1,331

 
173

 

 
11,577

 
4,033

Income/(loss) from continuing operations
 
21,353

 
3,426

 
283

 

 
(8,930
)
 
16,132

Discontinued operations––net of tax
 
2

 

 

 
(2
)
 

 

Net income/(loss) before allocation to noncontrolling interests
 
47

 

 

 

 

 
47

Net income/(loss) attributable to Pfizer Inc. common shareholders
 
21,308

 
3,426

 
283

 
(2
)
 
(8,930
)
 
16,085

Earnings/(loss) per common share attributable to Pfizer Inc.––diluted
 
3.52

 
0.57

 
0.05

 

 
(1.47
)
 
2.65

See end of tables for notes (1) through (8).
Amounts may not add due to rounding.

- 24 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)

(1)
Certain amounts in the reconciliation of GAAP reported to Non-GAAP adjusted information and associated notes may not add due to rounding.
(2)
The financial statements present the three and twelve months ended December 31, 2018 and December 31, 2017. Subsidiaries operating outside the U.S. are included for the three and twelve months ended November 30, 2018 and November 30, 2017.
The adoption of certain new accounting standards in the first quarter of 2018 impacted our consolidated statements of income. Among other items, GAAP Reported and Non-GAAP Adjusted amounts for the three and twelve months ended December 31, 2017 have been revised from previously reported amounts to reflect the retrospective adoption of a new accounting standard in the first quarter of 2018, as of January 1, 2018, requiring the reclassification of the non-service cost components of net periodic pension and postretirement benefit costs to Other (income)/deductions––net from their classification within Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Restructuring charges and certain acquisition-related costs. See Note (1) and Note (5) to Notes to Consolidated Statements of Income above and Note (3) below for additional information.
On February 3, 2017, we completed the sale of our global infusion systems net assets, Hospira Infusion Systems (HIS). The operating results of HIS are included in the consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the fourth quarter of 2017 do not reflect any contribution from HIS global operations. Our financial results, and EH’s operating results, for full-year 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations. Our financial results, and EH’s operating results, for full-year 2018 do not reflect any contribution from HIS global operations.
(3)
Acquisition-related costs include the following:
 
 
Fourth-Quarter
 
Full-Year
(MILLIONS OF DOLLARS)
 
2018

 
2017

 
2018

 
2017

Restructuring charges(a)
 
$
33

 
$
25

 
$
37

 
$
105

Transaction costs(b)
 

 

 
1

 
4

Integration costs(c)
 
58

 
82

 
260

 
317

Net periodic benefit costs/(credits) other than service costs(d)
 
3

 
2

 
7

 
(9
)
Additional depreciation––asset restructuring(e)
 
4

 

 
12

 
39

Total acquisition-related costs––pre-tax
 
97

 
109

 
318

 
456

Income taxes(f)
 
(14
)
 
(36
)
 
(54
)
 
(173
)
Total acquisition-related costs––net of tax
 
$
83

 
$
73

 
$
264

 
$
283

(a)
Restructuring charges include employee termination costs, asset impairments and other exit costs associated with business combinations. Charges for the fourth quarter of 2018 were primarily due to asset write downs related to our acquisition of Hospira, Inc. (Hospira) and charges for full-year 2018 were primarily due to asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs related to our acquisition of Hospira. Restructuring charges for the fourth quarter and full-year 2017 were primarily due to asset write downs, partially offset by the reversal of previously recorded accruals for employee termination costs. The charges for the fourth quarter of 2017 were mainly related to our acquisition of Hospira. The charges for the full-year 2017 were mainly related to our acquisitions of Hospira and Medivation, Inc. (Medivation). All of these costs and charges are included in Restructuring charges and certain acquisition-related costs.
(b)
Transaction costs represent external costs for banking, legal, accounting and other similar services, which for full-year 2017 were directly related to our acquisitions of Hospira, Anacor Pharmaceuticals, Inc. and Medivation. All of these costs and charges are included in Restructuring charges and certain acquisition-related costs.
(c)
Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the fourth quarter and full-year 2018, integration costs were primarily related to our acquisition of Hospira. In the fourth quarter of 2017, integration costs primarily related to our acquisition of Hospira and, for full-year 2017, integration costs primarily related to our acquisitions of Hospira and Medivation. All of these costs and charges are included in Restructuring charges and certain acquisition-related costs.
(d)
Amounts for all periods presented represent the net periodic benefit costs/(credits), excluding service costs, reclassified to Other (income)/deductions––net as a result of the retrospective adoption of a new accounting standard in the first quarter of 2018. See Note (2) above for additional information. The credits for full-year 2017

- 25 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)

included a net settlement gain, partially offset by accelerated amortization of actuarial losses and prior service costs upon the settlement of the remaining obligation associated with the Hospira U.S. qualified defined benefit pension plan.
(e)
Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions related to acquisitions. In fourth-quarter and full-year 2018, included in Cost of sales and Selling, informational and administrative expenses. In fourth-quarter and full-year 2017, included in Cost of sales.
(f)
Included in Provision/(benefit) for taxes on income/(loss). 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. Income taxes recorded in fourth-quarter and full-year 2017 do not reflect any changes associated with the December 2017 enactment of the legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (TCJA). These changes resulting from the TCJA have been reflected below in Note 4, Certain significant items “Income taxes”.
(4)
Certain significant items include the following:
 
 
Fourth-Quarter
 
Full-Year
(MILLIONS OF DOLLARS)
 
2018

 
2017

 
2018

 
2017

Restructuring charges/(credits)––cost reduction initiatives(a)
 
$
782

 
$
(23
)
 
$
745

 
$
(75
)
Implementation costs and additional depreciation––asset restructuring(b)
 
68

 
94

 
232

 
279

Certain legal matters, net(c)
 
227

 
46

 
157

 
237

Adjustments to loss on sale of HIS net assets(d)
 

 
3

 
(1
)
 
55

Certain asset impairments(e)
 
3,070

 
252

 
3,101

 
379

Business and legal entity alignment costs(f)
 

 
17

 
4

 
71

Net losses on early retirement of debt(g)
 

 
999

 
3

 
999

Other(h)
 
152

 
461

 
65

 
700

Total certain significant items––pre-tax
 
4,298

 
1,850

 
4,305

 
2,647

Income taxes(i)
 
(1,125
)
 
(11,314
)
 
(1,625
)
 
(11,577
)
Total certain significant items––net of tax
 
$
3,172

 
$
(9,464
)
 
$
2,680

 
$
(8,930
)
(a)
Restructuring charges/(credits)––cost reduction initiatives relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions, which are included in Restructuring charges and certain acquisition-related costs. For the fourth quarter and full-year 2018, the charges were primarily related to employee termination costs and asset write downs. The employee termination costs are associated with our improvements to operational effectiveness as part of the realignment of our organizational structure effective at the beginning of 2019. For the fourth quarter and full-year 2017, the credits were mostly related to the reversal of previously recorded accruals for employee termination costs, partially offset by asset write downs.
(b)
Relates to our cost-reduction and productivity initiatives not related to acquisitions. Included in Cost of sales ($30 million), Selling, informational and administrative expenses ($21 million) and Research and development expenses ($17 million) for the fourth quarter of 2018. Included in Cost of sales ($121 million), Selling, informational and administrative expenses ($72 million) and Research and development expenses ($39 million) for full-year 2018. Included in Cost of sales ($57 million), Selling, informational and administrative expenses ($25 million) and Research and development expenses ($12 million) for the fourth quarter of 2017. Included in Cost of sales ($170 million), Selling, informational and administrative expenses ($71 million) and Research and development expenses ($38 million) for full-year 2017.
(c)
Included in Other (income)/deductions––net. In the fourth quarter of 2018, primarily includes legal reserves for certain pending legal matters. In full-year 2018, primarily includes legal reserves for certain pending legal matters. partially offset by the reversal of a legal accrual where a loss was no longer deemed probable. In full-year 2017, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which was approved by the court in April 2018, and a $79 million charge to reflect damages awarded by a jury in a patent matter.
(d)
Included in Other (income)/deductions––net. Represents adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical, Inc. on February 3, 2017.

- 26 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)

(e)
Included in Other (income)/deductions––net. In the fourth quarter and full-year 2018, primarily includes intangible asset impairment charges of $3.1 billion, mainly composed of (i) $2.6 billion related to EH finite-lived developed technology rights, $242 million related to EH finite-lived licensing agreements and $80 million related to EH finite-lived in-process research and development (IPR&D), all of which relate to our acquisition of Hospira, for generic sterile injectable products associated with various indications and (ii) $117 million related to a multi-antigen vaccine IPR&D program for adults undergoing elective spinal fusion surgery. In 2018, the intangible asset impairment charges associated with the generic sterile injectable products reflect, among other things, updated commercial forecasts, reflecting an increased competitive environment as well as higher manufacturing costs, largely stemming from ongoing manufacturing and supply issues. The intangible asset impairment charge for the multi-antigen vaccine IPR&D program was the result of the Phase 2b trial reaching futility at a pre-planned interim analysis. In the fourth quarter of 2017, primarily includes intangible asset impairment charges of $210 million, mainly related to (i) developed technology rights for a sterile injectable pain reliever, acquired in connection with our acquisition of Hospira, and (ii) other developed technology rights for the treatment of attention deficit hyperactivity disorder, acquired in connection with our acquisition of NextWave Pharmaceuticals Inc. (NextWave) and for a generic injectable antibiotic product for the treatment of bacterial infections, acquired in connection with our acquisition of Hospira. In full-year 2017, primarily includes intangible asset impairment charges of $337 million, mainly related to (i) developed technology rights for a generic sterile injectable product for the treatment of edema associated with certain conditions and a sterile injectable pain reliever, both acquired in connection with our acquisition of Hospira, and (ii) other developed technology rights for the treatment of attention deficit hyperactivity disorder, acquired in connection with our acquisition of NextWave and for a generic injectable antibiotic product for the treatment of bacterial infections, acquired in connection with our acquisition of Hospira.
(f)
Included in Other (income)/deductions––net. Represents expenses for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(g)
Included in Other (income)/deductions––net. In fourth-quarter and full-year 2017, represents net losses due to the early retirement of debt, inclusive of the related termination of cross currency swaps.
(h)
For the fourth quarter of 2018, included in Cost of sales ($4 million), Selling, informational and administrative expenses ($17 million), Research and development expenses ($4 million) and Other (income)/deductions––net ($126 million) and includes, among other things, $58 million of incremental costs associated with the design, planning and implementation of the new organizational structure, effective in the beginning of 2019, and primarily include consulting, legal, tax, and advisory services. For full-year 2018, included in Cost of sales ($10 million income), Selling, informational and administrative expenses ($151 million), Research and development expenses ($8 million) and Other (income)/deductions––net ($83 million income). Full-year 2018 includes, among other things, (i) a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital Private Equity and Bain Capital Life Sciences to create a new biopharmaceutical company, Cerevel Therapeutics, LLC (Cerevel), to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system, (ii) a $119 million charge, in the aggregate, in Selling, informational and administrative expenses for a special, one-time bonus paid to virtually all Pfizer colleagues, excluding executives, which was one of several actions taken by us after evaluating the expected positive net impact of the December 2017 enactment of the legislation commonly referred to as the U.S. TCJA, (iii) $59 million of incremental costs associated with the design, planning and implementation of the new organizational structure, effective in the beginning of 2019, and primarily include consulting, legal, tax, and advisory services and (iv) a non-cash $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic chimeric antigen receptor T cell therapy development program assets in connection with our contribution agreement entered into with Allogene Therapeutics, Inc. In the fourth quarter of 2017, included in Cost of sales ($138 million), Selling, informational and administrative expenses ($208 million) and Other (income)/deductions––net ($115 million). In full-year 2017, included in Cost of sales ($193 million), Selling, informational and administrative expenses ($229 million) and Other (income)/deductions––net ($278 million). For the fourth quarter and full-year 2017, includes, among other things, (i) a charitable contribution to the Pfizer Foundation of $200 million, which is included in Selling, informational and administrative expenses, (ii) $140 million in fourth-quarter 2017 and $195 million in full-year 2017 in inventory losses, overhead costs related to the period in which our Puerto Rico plants were not operational, and incremental costs, all of which resulted from hurricanes in Puerto Rico in 2017 and are included in Cost of sales and (iii) an $81 million loss

- 27 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)

related to the sale of our then 49%-owned equity-method investment in Hisun Pfizer Pharmaceuticals Company Limited, which is included in Other (income)/deductions––net. Full-year 2017 also includes a realized net loss of $30 million related to the sale of our 40% ownership investment in Laboratório Teuto Brasileiro S.A., including the extinguishment of a put option for the then remaining 60% ownership interest, which is included in Other (income)/deductions––net.
(i)
Included in Provision/(benefit) for taxes on income/(loss). Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction’s applicable tax rate. The fourth-quarter and full-year 2018 were favorably impacted primarily by adjustments to the provisional estimate of the TCJA recorded as we finalized our accounting related to the tax effects of the TCJA, in accordance with guidance issued by the U.S. Securities and Exchange Commission. The fourth-quarter and full-year 2017 were favorably impacted by tax benefits primarily associated with the remeasurement of U.S. deferred tax liabilities, which includes the repatriation tax on deemed repatriated accumulated earnings of foreign subsidiaries associated with the TCJA.
(5)
Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are not, and should not be viewed as, substitutes for U.S. GAAP net income/(loss) and its components and diluted EPS/loss per share (LPS). Despite the importance of these measures to management in goal setting and performance measurement (as described in the Financial Review––Non-GAAP Financial Measure (Adjusted Income) section of Pfizer’s 2017 Financial Report, which was filed as Exhibit 13 to Pfizer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017), Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of their non-standardized definitions, Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS (unlike U.S. GAAP net income/(loss) and its components and diluted EPS/LPS) may not be comparable to the calculation of similar measures of other companies. Non-GAAP Adjusted income and its components and Non-GAAP Adjusted diluted EPS are presented solely to permit investors to more fully understand how management assesses performance.
(6)
Exclusive of amortization of intangible assets, except as discussed in footnote (7) below.
(7)
Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as these intangible assets benefit multiple business functions. Amortization expense related to intangible assets that are associated with a single function is included in Cost of sales, Selling, informational and administrative expenses and/or Research and development expenses, as appropriate.
(8)
Non-GAAP Adjusted Other (income)/deductions––net includes the following:
 
 
Fourth-Quarter
 
Full-Year
(MILLIONS OF DOLLARS)
 
2018

 
2017

 
2018

 
2017

Interest income
 
$
(93
)
 
$
(117
)
 
$
(333
)
 
$
(391
)
Interest expense
 
377

 
330

 
1,344

 
1,304

Net interest expense
 
283

 
213

 
1,011

 
912

Royalty-related income
 
(135
)
 
(168
)
 
(495
)
 
(499
)
Net gains on asset disposals
 
(52
)
 

 
(71
)
 
(66
)
Net gains recognized during the period on investments in equity securities
 
(126
)
 
(64
)
 
(586
)
 
(224
)
Net realized (gains)/losses on sales of investments in debt securities
 
121

 

 
141

 
(45
)
Income from collaborations, out-licensing arrangements and sales of compound/product rights
 
(30
)
 
(54
)
 
(464
)
 
(217
)
Net periodic benefit credits other than service costs
 
(102
)
 
(6
)
 
(435
)
 
(35
)
Certain legal matters, net
 

 

 

 
3

Certain asset impairments
 
6

 

 
15

 
16

Adjustments to loss on sale of HIS net assets
 

 

 

 

Business and legal entity alignment costs
 

 

 

 

Net losses on early retirement of debt
 

 

 

 

Other, net
 
(77
)
 
(107
)
 
(369
)
 
(578
)
Non-GAAP Adjusted Other (income)/deductions––net
 
$
(111
)
 
$
(186
)
 
$
(1,253
)
 
$
(733
)

- 28 -


PFIZER INC. AND SUBSIDIARY COMPANIES
NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION
CERTAIN LINE ITEMS
(UNAUDITED)

For additional information regarding the adjustments, see the accompanying reconciliations on pages 23 and 24. See Note (5) to Consolidated Statements of Income for the fourth quarter and full-year 2018 and 2017 above for additional information on the components comprising GAAP reported Other (income)/deductions––net. For additional information on certain significant items excluded from GAAP reported Other (income)/deductions––net in calculating Non-GAAP Adjusted Other (income)/deductions––net, refer to footnote (4) above.
(9)
For fourth-quarter 2018, we used basic weighted average shares of 5,788 million (excluding common-share equivalents) to calculate GAAP Reported Loss per common share attributable to Pfizer Inc.––diluted, and we used diluted weighted average shares of 5,912 million to calculate both the Non-GAAP Adjusted Earnings per common share attributable to Pfizer Inc.––diluted and the related Earnings per common share attributable to Pfizer Inc.––diluted for the adjustments to reconcile GAAP Reported to Non-GAAP Adjusted information.

- 29 -


PFIZER INC. AND SUBSIDIARY COMPANIES
OPERATING SEGMENT INFORMATION(1) - (UNAUDITED)
(millions of dollars)

 
 
Fourth-Quarter 2018
 
 
Innovative Health (IH)(2)
 
Essential Health (EH)(2)
 
Other(3)
 
Non-GAAP Adjusted(4)
 
Reconciling Items(5)
 
GAAP Reported
Revenues
 
$
8,852

 
$
5,124

 
$

 
$
13,976

 
$

 
$
13,976

Cost of sales
 
1,091

 
1,614

 
339

 
3,044

 
31

 
3,075

% of revenue
 
12.3
%
 
31.5
%
 
*

 
21.8
%
 
*

 
22.0
%
Selling, informational and administrative expenses
 
1,993

 
703

 
1,272

 
3,968

 
39

 
4,007

Research and development expenses
 
983

 
254

 
1,199

 
2,436

 
21

 
2,457

Amortization of intangible assets
 
54

 
15

 

 
69

 
1,184

 
1,253

Restructuring charges and certain acquisition-related costs