Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Financial Highlights

The following is a summary of certain financial performance metrics (in billions, except per share data):

2020 Total Revenues––$41.9 billion			2020 Net Cash Flow from Operations––$14.4 billion
An increase of 2% compared to 2019			An increase of 14% compared to 2019

2020 Reported Diluted EPS––$1.71			2020 Adjusted Diluted EPS (Non-GAAP)––$2.22*
A decrease of 40% compared to 2019			An increase of 16% compared to 2019

*For additional information regarding Adjusted diluted EPS (which is a non-GAAP financial measure), including reconciliations of certain GAAP reported to non-GAAP adjusted information, see the Non-GAAP Financial Measure: Adjusted Income section within MD&A.

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References to operational variances pertain to period-over-period changes that exclude the impact of foreign exchange rates. Although foreign exchange rate changes are part of our business, they are not within our control and since they can mask positive or negative trends in the business, we believe presenting operational variances excluding these foreign exchange changes provides useful information to evaluate our results.

Our Business and Strategy

Most of our revenues come from the manufacture and sale of biopharmaceutical products. With the formation of the Consumer Healthcare JV in 2019 and the completion of the spin-off and combination of our Upjohn Business with Mylan in November 2020, Pfizer has transformed into a more focused, global leader in science-based innovative medicines and vaccines. We now operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, sales and distribution of biopharmaceutical products worldwide. Beginning in the fourth quarter of 2020, the financial results of the Upjohn Business and the Mylan-Japan collaboration are reflected as discontinued operations for all periods presented. Prior-period information has been restated to reflect our current organizational structure following the separation of the Upjohn Business. See Note 1A and Item 1. Business––Commercial Operations of this Form 10-K for additional information. We expect to incur costs of approximately $700 million in connection with separating Upjohn, of which, approximately 70% has been incurred since inception and through December 31, 2020. These charges include costs and expenses related to separation of legal entities and transaction costs.

Transforming to a More Focused Company: We have undertaken efforts to ensure our cost base aligns appropriately with our revenue base. While certain direct costs transferred to the Consumer Healthcare JV and to the Upjohn Business in connection with the spin-off, there are indirect costs which did not transfer. In addition, we are taking steps to restructure our corporate enabling functions to appropriately support and drive the purpose of our focused innovative biopharmaceutical products business and R&D and PGS platform functions. See the Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives section of this MD&A.

R&D: We believe we have a strong pipeline and are well-positioned for future growth. R&D is at the heart of fulfilling our purpose to deliver breakthroughs that change patients’ lives as we work to translate advanced science and technologies into the therapies that may be the most impactful for patients. Innovation, drug discovery and development are critical to our success. In addition to discovering and developing new products, our R&D efforts seek to add value to our existing products by improving their effectiveness and ease of dosing and by discovering potential new indications. See the Item 1. Business—Research and Development section of this Form 10-K for our R&D priorities and strategy.

We seek to leverage a strong pipeline, organize around expected operational growth drivers and capitalize on trends creating long-term growth opportunities, including:

• an aging global population that is generating increased demand for innovative medicines and vaccines that address patients’ unmet needs;

• advances in both biological science and digital technology that are enhancing the delivery of breakthrough new medicines and vaccines; and

• the increasingly significant role of hospitals in healthcare systems.

We are committed to strategically capitalizing on growth opportunities by advancing our own product pipeline and maximizing the value of our existing products, as well as through various business development activities. We view our business development activity as an enabler of our strategies and seek to generate growth by pursuing opportunities and transactions that have the potential to strengthen our business and our capabilities. We assess our business, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will advance our business. For additional information, including discussion of recent significant business development activities, see Note 2.

Our 2020 Performance

Revenues

Revenues increased $736 million, or 2%, to $41.9 billion in 2020 from $41.2 billion in 2019, reflecting an operational increase of $1.1 billion, or 3%, and an unfavorable impact of foreign exchange of $331 million, or 1%.

Excluding the impact of the Consumer Healthcare transaction, revenues increased 8% operationally, reflecting strong growth in Vyndaqel/Vyndamax, Eliquis, Ibrance outside developed Europe, Inlyta, Xeljanz, Xtandi, Prevenar 13 outside the U.S., oncology biosimilars and certain products in the Hospital therapeutic area in the U.S., partially offset by Enbrel internationally and Prevnar 13 and Chantix in the U.S. Revenues for 2020 included an estimated unfavorable impact of approximately $700 million, or 2%, due to COVID-19, primarily reflecting lower demand for certain products in China and unfavorable disruptions to wellness visits for patients in the U.S., which negatively impacted prescribing patterns for certain products, partially offset by increased U.S. demand for certain sterile injectable products and increased adult uptake for Prevenar 13 in certain international markets, resulting from greater vaccine awareness for respiratory illnesses, and U.S. revenues for BNT162b2.

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The following outlines the components of the net change in revenues:

For worldwide revenues, including a discussion of key drivers of our revenue performance and revenues by geography, see the discussion in the Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion and ––Revenues by Geography sections within MD&A. For additional information regarding the primary indications or class of certain products, see Note 17B.

Income from Continuing Operations Before Provision/(Benefit) for Taxes on Income

The following provides an analysis of the change in Income from continuing operations before provision/(benefit) for taxes on income for 2020:

(MILLIONS OF DOLLARS)
Income from continuing operations before provision/(benefit) for taxes on income for the year ended December 31, 2019						$	11,485
Favorable change in revenues						736
Favorable/(Unfavorable) changes:
Non-recurrence of (Gain) on completion of Consumer Healthcare JV transaction						(8,080)
Higher Cost of sales(a)						(441)
Lower Selling, information and administrative expenses(a)						1,136
Higher Research and development expenses(a)						(1,010)
Lower Amortization of intangible assets(a)						1,026
Lower asset impairment charges(b)						1,152
Higher net periodic benefit credits other than service costs(b)						308
Lower business and legal entity alignment costs(b)						300
Higher Consumer Healthcare JV equity method income(b)						281
Lower charges for certain legal matters(b)						264
Higher income from collaborations, out-licensing arrangements and sales of compound/product rights(b)						158
Lower charges to separate our Consumer Healthcare business into a separate legal entity(b)						152
Lower interest expense(b)						125
Higher royalty-related income(b)						124
Lower net losses on early retirement of debt(b)						101
Higher net gains recognized during the period on equity securities(b)						86
Higher ViiV dividend income(b)						58
Higher net losses on asset disposals(b)						(268)
Lower interest income(b)						(153)
All other items, net						(44)
Income from continuing operations before provision/(benefit) for taxes on income for the year ended December 31, 2020						$	7,497

(a)See the Costs and Expenses section within MD&A*.*

(b)See Note 4.

For information on our tax provision and effective tax rate, see the Provision/(Benefit) for Taxes on Income section within MD&A and Note 5A.

Our Operating Environment

We, like other businesses in our industry, are subject to certain industry-specific challenges. These include, among others, the topics listed below. See also the Item 1. Business––Government Regulation and Price Constraints section of this Form 10-K.

Regulatory Environment––Pipeline Productivity

Our product lines must be replenished to offset revenue losses when products lose their market exclusivity, respond to healthcare and innovation trends and provide for earnings growth. As a result, we devote considerable resources to our R&D activities which, while essential to our growth, incorporate a high degree of risk and cost, including whether a particular product candidate or new indication for an in-line product will achieve the desired clinical endpoint or safety profile, will be approved by regulators or will be successful commercially. We conduct clinical trials to

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provide data on safety and efficacy to support the evaluation of a drug’s overall benefit-risk profile for a particular patient population. In addition, after a product has been approved and launched, we continue to monitor its safety as long as it is available to patients. This includes postmarketing trials that may be conducted voluntarily or pursuant to a regulatory request to gain additional medical knowledge. For the entire life of the product, we collect safety data and report safety information to the FDA and other regulatory authorities. Regulatory authorities may evaluate potential safety concerns and take regulatory actions in response, such as updating a product’s labeling, restricting its use, communicating new safety information to the public, or, in rare cases, requiring us to suspend or remove a product from the market. The commercial potential of in-line products may be negatively impacted by post-marketing developments.

Intellectual Property Rights and Collaboration/Licensing Rights

The loss, expiration or invalidation of intellectual property rights, patent litigation settlements with manufacturers and the expiration of co-promotion and licensing rights can have a material adverse effect on our revenues. Certain of our products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face significantly increased generic competition over the next few years. For example, the basic product patent for Chantix in the U.S. expired in November 2020. Also, the basic product patent for Sutent in the U.S. will expire in August 2021. While additional patent expiries will continue, we expect a moderate impact of reduced revenues due to patent expiries from 2021 through 2025. We continue to vigorously defend our patent rights against infringement, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to ensure appropriate patient access.

For additional information on patent rights we consider most significant to our business as a whole, see the Item 1. Business––Patents and Other Intellectual Property Rights section in this Form 10-K.

For a discussion of recent developments with respect to patent litigation, see Note 16A1.

Regulatory Environment/Pricing and Access––U.S. Healthcare Legislation

In March 2010, the ACA was enacted in the U.S. We recorded the following amounts to reflect the impact of the ACA legislation:
						Year Ended December 31,
(MILLIONS OF DOLLARS)						2020						2019						2018
Reduction to Revenues, related to the Medicare “coverage gap” discount provision						$	1,175					$	761					$	418
Selling, informational and administrative expenses, related to the fee payable to the federal government						195						210						134

Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures

The pricing of medicines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Federal and state governments and private third-party payers in the U.S. continue to take action to manage the utilization of drugs and cost of drugs, including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. We consider a number of factors impacting the pricing of our medicines. Within the U.S., we often engage with patients, doctors and healthcare plans. We also often provide significant discounts from the list price to insurers, including PBMs and MCOs. The price that patients pay in the U.S. for prescribed medicines is ultimately set by healthcare providers and insurers. On average, insurers impose a higher out-of-pocket burden on patients for prescription medicines than for comparably priced medical services. Certain governments outside the U.S. provide healthcare at low-to-zero direct cost to consumers at the point of care and have significant power as large single payers to effectively regulate prices or patient reimbursement levels to control costs for the government-sponsored healthcare system. Governments may use a variety of measures, including proposing pricing reform or legislation, cross country collaboration and procurement, price cuts, mandatory rebates, health technology assessments, forced localization as a condition of market access, “international reference pricing” (i.e., the practice of a country linking its regulated medicine prices to those of other countries), QCE processes and VBP. For additional information, see the Item 1. Business––Government Regulation and Price Constraints section in this Form 10-K.

The Global Economic Environment

In addition to the industry-specific factors discussed above, we, like other businesses of our size and global extent of activities, are exposed to the economic cycle. Certain factors in the global economic environment that may impact our global operations include, among other things, currency fluctuations, capital and exchange controls, global economic conditions, restrictive government actions, changes in intellectual property, legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to our products, as well as impacts of political or civil unrest, terrorist activity, unstable governments and legal systems, inter-governmental disputes and public health outbreaks, epidemics and pandemics. Government pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria or other means of cost control.

COVID-19 Pandemic

The continuation of the COVID-19 pandemic has impacted our business, operations and financial condition and results. For additional information on the impact of COVID-19 on our revenues, please see the Overview of Our Performance, Operating Environment, Strategy and Outlook–Our 2020 Performance section of this MD&A.

Our Response to COVID-19

We are committed to confronting the public health challenge posed by the pandemic by collaborating with industry partners and academic institutions to develop potential approaches to prevent and treat COVID-19. In March 2020, we issued a five-point plan calling on the biopharmaceutical industry to join us in committing to unprecedented collaboration to combat COVID-19. Subsequently, we have made some important advances, including, among others:

• Entry into a global agreement (except for China, Hong Kong, Macau and Taiwan) with BioNTech for the development, manufacture and commercialization of an mRNA-based coronavirus vaccine, BNT162, to help prevent COVID-19. In November 2020, the companies announced that after conducting the final efficacy analysis in the Phase 3 study, BNT162b2 met both of the study’s primary efficacy endpoints.

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Analysis of the data indicated a vaccine efficacy rate against COVID-19 of 95% in participants without prior SARS-CoV-2 infection (first primary objective) and also in participants with and without prior SARS-CoV-2 infection (second primary objective), in each case measured from seven days after the second dose. The FDA authorized the distribution and use of BNT162b2 in the U.S. to help prevent COVID-19 for individuals 16 years of age and older under an EUA issued in December 2020. BNT162b2 has not been approved or licensed by the FDA. The EUA authorizes distribution and use of this product subject to the conditions set forth in the EUA, and only for the duration of the declaration by the Department of Health & Human Services that circumstances exist justifying authorization of emergency use of drugs and biological products (such as BNT162b2) during the COVID-19 pandemic under Section 564 of the FFDCA (the Declaration), or until revocation of the EUA by the FDA. The FDA has issued EUAs to certain other companies for products intended for the prevention or treatment of COVID-19 and may continue to do so during the duration of the Declaration. The FDA expects EUA holders to work towards submission of a BLA as soon as possible. BNT162b2 has now been granted a CMA, EUA or temporary authorization in more than 50 countries worldwide. The companies continue to study BNT162b2, including studies evaluating it in additional populations, booster doses and emerging variants. Based on the updated 6-dose labeling and subject to continuous process improvements, expansion at current facilities and adding new suppliers and contract manufacturers, the companies believe that they can potentially manufacture at least 2 billion doses in total by the end of 2021. The companies have entered into agreements to supply pre-specified doses of BNT162b2 with multiple developed and emerging nations around the world and are continuing to deliver doses of BNT162b2 to governments under such agreements. As of February 2, 2021, based on the doses to be delivered in 2021 primarily under agreements entered into as of February 2, 2021 (including, among others, agreements with the U.S. government to supply 200 million doses, the European Commission to supply 300 million doses, the Japanese government to supply 144 million doses and COVID-19 Vaccines Global Access (COVAX) for up to 40 million doses in 2021, subject to the negotiation and execution of additional agreements under the COVAX Facility structure), we forecasted approximately $15 billion in revenues in 2021 from BNT162b2, with gross margin to be split evenly with BioNTech. This forecast was based on doses mostly covered under agreements entered into as of February 2, 2021 and did not include all of the doses we can potentially deliver by the end of 2021. The companies continue to enter into agreements with governments for additional doses, including, among others, the exercise by the U.S. government of an option for an additional 100 million doses and an agreement with the European Commission for an additional 200 million doses to be delivered in 2021. Accordingly, this forecast may change based, in part, on these and future additional agreements that may be signed and as circumstances warrant. For additional information on our COVID-19 vaccine development program, see Note 2 and the Item 1A. Risk Factors—COVID-19 Pandemic section in this Form 10-K.

• Initiation, in September 2020, of a Phase 1b clinical trial in hospitalized participants with COVID-19 to evaluate the safety, tolerability and pharmacokinetics of a novel investigational protease inhibitor for COVID-19, PF-07304814, which is a phosphate prodrug of a 3C-like (3CL) protease inhibitor, PF-00835231.

Despite our significant investments and efforts, any of our ongoing development programs related to COVID-19 may not be successful as the risk of failure is significant, and there can be no certainty these efforts will yield a successful product or that costs will ultimately be recouped.

Impact of COVID-19 on Our Business and Operations

The following discussion summarizes our current views of key business and operational areas impacted by the pandemic and its effects on our business, operations, and financial condition and results. As part of our on-going monitoring and assessment, we have made certain assumptions regarding the COVID-19 pandemic for purposes of our operational planning and financial projections, including assumptions regarding the duration, severity and the global macroeconomic impact of the pandemic, as well as COVID-19 vaccine supply and contracts, which remain dynamic. Despite careful tracking and planning, we are unable to accurately predict the extent of the impact of the pandemic on our business, operations and financial condition and results due to the uncertainty of future developments. In particular, we believe the ultimate impact on our business, operations and financial condition and results will be affected by the speed and extent of the continued spread of the coronavirus globally; the emergence of additional virus variants; the duration of the pandemic; new information regarding the severity and incidence of COVID-19; the safety, efficacy and availability of vaccines and treatments for COVID-19; the rate at which the population becomes vaccinated against COVID-19; the global macroeconomic impact of the pandemic and governmental or regulatory actions to contain the virus or control supply of medicines. We are focused on all aspects of our business and are implementing measures aimed at mitigating issues where possible, including by using digital technology to assist in operations for our commercial, manufacturing, R&D and enabling functions globally.

Our business and operations have been impacted by the pandemic in various ways. For example:

• At this time, most of our colleagues who are able to perform their job functions outside of our facilities continue to work remotely, while certain colleagues in the PGS and WRDM organizations continue to work onsite and are subject to strict protocols intended to reduce the risk of transmission.

• While engagement with healthcare professionals has started to return to pre-pandemic levels due to our virtual engagement capabilities, our sales force colleagues continue to encounter mixed access as a result of ongoing restrictions on in-person meetings. We are actively reviewing and assessing epidemiological data and our colleagues remain ready to resume in-person engagements with healthcare professionals on a location-by-location basis as soon as it is safe to do so. During the pandemic, we have adapted our promotional platform by amplifying our existing digital capabilities to reach healthcare professionals and customers to provide critical education and information, including increasing the scale of our remote engagement.

• We have not seen a significant disruption to our supply chain to date, and all of our manufacturing sites globally have continued to operate at or near normal levels.

• After a brief pause to the recruitment portion of certain ongoing clinical studies and a delay to most new study starts, we restarted recruitment across the development portfolio (including new study starts) in late-April 2020.

• Our portfolio of products experienced varying impacts from the pandemic. Some of our products are medically necessary but also more reliant on maintenance therapy with continuing patients in addition to new patients, some of our products are more reliant on new patient starts and typically require doctor visits, including wellness visits, and some of our products are identified as medically necessary for treatment in the pandemic. A large proportion of our portfolio comprises oral or self-injected medicines that do not require a visit to an infusion center or a physician’s office for administration, but vaccines and physician-administered medicines, which do require office visits, were impacted in 2020 by COVID-19-related mobility restrictions or limitations and decline in patient visits to doctors. In addition, certain of our vaccines such as Prevnar 13/Prevenar 13 may be impacted by recommendations by certain health officials to not co-administer such vaccines alongside the COVID-19 vaccines. For additional detail on the impact of the COVID-19 pandemic on our products, see the Analysis of the Consolidated Statements of Income—Revenues—Selected Product Discussion section within MD&A.

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Notwithstanding the foregoing impact of the pandemic, given our significant operating cash flows, as well as our financial assets, access to capital markets and revolving credit agreements, we believe we have, and expect to maintain, the ability to meet liquidity needs for the foreseeable future. We will continue to pursue efforts to maintain the continuity of our operations while monitoring for new developments related to the pandemic. Future developments could result in additional favorable or unfavorable impacts on our business, operations or financial condition and results. If we experience significant disruption in our manufacturing or supply chains or significant disruptions in clinical trials or other operations, or if demand for our products is significantly reduced as a result of the COVID-19 pandemic, we could experience a material adverse impact on our business, operations and financial condition and results. See the Item 1A. Risk Factors—COVID-19 Pandemic section of this Form 10-K.

SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Following is a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements. Also, see Note 1C.

For a description of our significant accounting policies, see Note 1. Of these policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and the most complex judgments: Acquisitions (Note 1D); Fair Value (Note 1E); Revenues (Note 1G); Asset Impairments (Note 1L); Tax Assets and Liabilities and Income Tax Contingencies (Note 1P); Pension and Postretirement Benefit Plans (Note 1Q); and Legal and Environmental Contingencies (Note 1R).

Acquisitions and Fair Value

For discussions about the application of fair value, see the following: recent acquisitions (Note 2A); investments (Note 7A); benefit plan assets (Note 11D); and Asset Impairments below.

Revenues

Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. The potential of our estimates to vary (sensitivity) differs by program, product, type of customer and geographic location. However, estimates associated with U.S. Medicare, Medicaid and performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this lag, our recording of adjustments to reflect actual amounts can incorporate revisions of several prior quarters.

Asset Impairments

We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in Note 1L.

Examples of events or circumstances that may be indicative of impairment include:

• A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected.

• A significant adverse change in the extent or manner in which an asset is used such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture or sell a product.

• An expectation of losses or reduced profits associated with an asset. This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability. This also could result from the introduction of a competitor’s product that impacts projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers. For IPR&D projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product.

Identifiable Intangible Assets

We use an income approach, specifically the discounted cash flow method to determine the fair value of intangible assets, other than goodwill. We start with a forecast of all the expected net cash flows associated with the asset, which incorporates the consideration of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions that impact our fair value estimates include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological advancements and risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic origin of the projected cash flows.

While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, those that are most at risk of impairment include IPR&D assets (approximately $3.2 billion as of December 31, 2020) and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, given the uncertain nature of R&D. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or

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carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.

Goodwill

Our goodwill impairment review work as of December 31, 2020 concluded that none of our goodwill was impaired and we do not believe the risk of impairment is significant at this time.

In our review, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative fair value test.

When we are required to determine the fair value of a reporting unit, we mainly use the income approach but may also use the market approach, or a weighted-average combination of both approaches.

• The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, we use the discounted cash flow method. We start with a forecast of all the expected net cash flows for the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

• The market approach is a historical approach to estimating fair value and relies primarily on external information. We may use two alternative methods within the market approach:

◦Guideline public company method—this method employs market multiples derived from market prices of stocks of companies that are engaged in the same or similar lines of business and that are actively traded on a free and open market and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.

◦Guideline transaction method—this method relies on pricing multiples derived from transactions of significant interests in companies engaged in the same or similar lines of business and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.

The market approach is only appropriate when the available external information is robust and deemed to be a reliable proxy for the specific reporting unit being valued; however, these assessments may prove to be incomplete or inaccurate. Some of the more significant estimates and assumptions inherent in this approach include: the selection of appropriate guideline companies and transactions and the determination of applicable premiums and discounts based on any differences in ownership percentages, ownership rights, business ownership forms or marketability between the reporting unit and the guideline companies and transactions.

For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see the Forward-Looking Information and Factors That May Affect Future Results and the Item 1A. Risk Factors sections in this Form 10-K.

Benefit Plans

For a description of our different benefit plans, see Note 11.

Effective January 1, 2018, accruals for future benefits under the PCPP (our largest U.S. defined benefit plan) and the defined benefit section of the Pfizer Group Pension Scheme (our largest pension plan in the U.K.) were frozen and resulted in elimination of future service costs for the plans. The Pfizer defined contribution savings plan provides additional annual contributions to those previously accruing benefits under the PCPP and active members of the Pfizer Group Pension Scheme started accruing benefits under the defined contribution section of that plan.

Our assumptions reflect our historical experiences and our judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations.

The following provides (i) at the end of each year, the expected annual rate of return on plan assets for the following year, (ii) the actual annual rate of return on plan assets achieved in each year, and (iii) the weighted-average discount rate used to measure the benefit obligations at the end of each year for our U.S. qualified pension plans and our international pension plans(a):
						2020						2019						2018
U.S. Qualified Pension Plans
Expected annual rate of return on plan assets						6.8		%				7.0		%				7.2		%
Actual annual rate of return on plan assets						14.1						22.6						(5.3)
Discount rate used to measure the plan obligations						2.6						3.3						4.4
International Pension Plans
Expected annual rate of return on plan assets						3.4						3.6						3.9
Actual annual rate of return on plan assets						9.7						10.7						(0.9)
Discount rate used to measure the plan obligations						1.5						1.7						2.5

(a)For detailed assumptions associated with our benefit plans, see Note 11B.

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Expected Annual Rate of Return on Plan Assets

The assumptions for the expected annual rate of return on all of our plan assets reflect our actual historical return experience and our long-term assessment of forward-looking return expectations by asset classes, which is used to develop a weighted-average expected return based on the implementation of our targeted asset allocation in our respective plans.

The expected annual rate of return on plan assets for our U.S. plans and the majority of our international plans is applied to the fair value of plan assets at each year-end and the resulting amount is reflected in our net periodic benefit costs in the following year.

The following illustrates the sensitivity of net periodic benefit costs to a 50 basis point decline in our assumption for the expected annual rate of return on plan assets, holding all other assumptions constant (in millions, pre-tax):
Assumption						Change						Increase in 2021 Net Periodic Benefit Costs
Expected annual rate of return on plan assets						50 basis point decline						$116

The actual return on plan assets was approximately $2.9 billion during 2020*.*

Discount Rate Used to Measure Plan Obligations

The weighted-average discount rate used to measure the plan obligations for our U.S. defined benefit plans is determined at least annually and evaluated and modified, as required, to reflect the prevailing market rate of a portfolio of high-quality fixed income investments, rated AA/Aa or better, that reflect the rates at which the pension benefits could be effectively settled. The discount rate used to measure the plan obligations for our international plans is determined at least annually by reference to investment grade corporate bonds, rated AA/Aa or better, including, when there is sufficient data, a yield-curve approach. These discount rate determinations are made in consideration of local requirements.

The measurement of the plan obligations at the end of the year will affect the amount of service cost, interest cost and amortization expense reflected in our net periodic benefit costs in the following year.

The following illustrates the sensitivity of net periodic benefit costs and benefit obligations to a 10 basis point decline in our assumption for the discount rate, holding all other assumptions constant (in millions, pre-tax):
Assumption						Change						Increase in 2021 Net Periodic Benefit Costs						2020 Benefit Obligations
												Increase						Increase
Discount rate						10 basis point decline						$2						$483

The change in the discount rates used in measuring our plan obligations as of December 31, 2020 resulted in an increase in the measurement of our aggregate plan obligations by approximately $1.9 billion.

Anticipated Change in Accounting Policy

We anticipate making a change in our pension accounting policy under which we would begin recognizing actuarial gains and losses immediately in the income statement compared to our current accounting policy that recognizes such gains and losses in stockholders’ equity and amortizes them as a component of net periodic benefit cost/(credit) over future periods. This anticipated change is expected to go into effect in the first quarter of 2021 and if adopted, will require recasting prior period amounts to conform to the new accounting policy.

Income Tax Assets and Liabilities

Income tax assets and liabilities include income tax valuation allowances and accruals for uncertain tax positions. For additional information, see Notes 1P and 5, as well as the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk––Selected Measures of Liquidity and Capital Resources section within MD&A*.*

Contingencies

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax, legal contingencies and guarantees and indemnifications. For additional information, see Notes 1P, 1R, 5D and 16.

Pfizer Inc.			2020 Form 10-K			30

ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME

Revenues by Geography

The following presents worldwide revenues by geography:
						Year Ended December 31,																																																						% Change
						Worldwide																		U.S.																		International																		Worldwide												U.S.												International
(MILLIONS OF DOLLARS)						2020						2019						2018						2020						2019						2018						2020						2019						2018						20/19						19/18						20/19						19/18						20/19						19/18
Total revenues						$	41,908					$	41,172					$	40,825					$	21,712					$	20,593					$	20,119					$	20,196					$	20,579					$	20,705					2						1						5						2						(2)						(1)

2020 v. 2019

The following provides an analysis of the change in worldwide revenues by geographic areas in 2020:
(MILLIONS OF DOLLARS)						Worldwide						U.S.						International
Operational growth/(decline):
Growth from Prevnar 13/Prevenar 13, Ibrance, Eliquis, Xeljanz, Vyndaqel/Vyndamax, Xtandi, Inlyta, Biosimilars and the Hospital therapeutic area, partially offset by Chantix/Champix. See the Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis						$	3,479					$	1,902					$	1,577
Impact of completion of the Consumer Healthcare JV transaction. Revenues in 2019 reflect seven months of Consumer Healthcare business domestic operations and eight months of international operations, and none in 2020						(2,082)						(988)						(1,094)
Lower revenues for Enbrel internationally, primarily reflecting continued biosimilar competition in most developed Europe markets, as well as in Japan and Brazil, all of which is expected to continue						(320)						—						(320)
Other operational factors, net						(10)						205						(214)
Operational growth/(decline), net						1,068						1,119						(50)
Unfavorable impact of foreign exchange						(331)						—						(331)
Revenues increase/(decrease)						$	736					$	1,119					$	(383)

Revenues for 2020 included an estimated unfavorable impact of approximately $700 million, or 2%, due to COVID-19, primarily reflecting lower demand for certain products in China and unfavorable disruptions to wellness visits for patients in the U.S., which negatively impacted prescribing patterns for certain products, partially offset by increased U.S. demand for certain sterile injectable products and increased adult uptake for Prevenar 13 in certain international markets, resulting from greater vaccine awareness for respiratory illnesses, and U.S. revenues for BNT162b2.

Emerging markets revenues decreased $456 million, or 5%, in 2020 to $8.4 billion from $8.8 billion in 2019, and were relatively flat operationally, reflecting an unfavorable impact of foreign exchange of 5% on emerging markets revenues. The relatively flat operational performance was primarily driven by growth from Eliquis, Prevenar 13, Ibrance and Zavicefta, offset by lower revenues for Consumer Healthcare, reflecting the July 31, 2019 completion of the Consumer Healthcare JV transaction.

Pfizer Inc.			2020 Form 10-K			31

2019 v. 2018

The following provides an analysis of the change in worldwide revenues by geographic areas in 2019:
(MILLIONS OF DOLLARS)						Worldwide						U.S.						International
Operational growth/(decline):
Growth from Ibrance, Eliquis, Xeljanz and Prevnar/Prevenar 13						$	2,495					$	914					$	1,581
Higher revenues for certain Hospital products as a result of: •continued growth of anti-infective products in China, driven by increased demand for Sulperazon and new launches; •the 2018 U.S. launches of our immune globulin IV products (Panzyga and Octagam); and •the launches of certain anti-infectives products (Zavicefta, Zinforo and Cresemba) in international developed and emerging markets						472						174						298
Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC						190						175						14
Higher revenues for Biosimilars, primarily in the U.S.						168						185						(17)
Higher revenues for rare disease products driven by: •the U.S. launches in May 2019 of Vyndaqel and in September 2019 of Vyndamax for the treatment of ATTR-CM; •continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe; and •the March 2019 launch of the ATTR-CM indication in Japan, partially offset by: •lower revenues for certain rare disease products, including the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix in the U.S.						159						108						51
Impact of completion of the Consumer Healthcare JV transaction. Revenues in 2019 only reflect seven months of Consumer Healthcare business domestic operations and eight months of international operations						(1,436)						(889)						(547)
Lower revenues from other Hospital products, primarily reflecting declines in developed markets, mostly due to the continued expected negative impact from generic competition for products that have previously lost marketing exclusivity						(447)						(200)						(247)
Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition						(292)						—						(292)
Other operational factors, net						141						6						136
Operational growth, net						1,450						473						976
Unfavorable impact of foreign exchange						(1,103)						—						(1,103)
Revenues increase/(decrease)						$	347					$	473					$	(127)

Emerging markets revenues increased $210 million, or 2%, in 2019 to $8.8 billion, from $8.6 billion in 2018, reflecting an operational increase of $820 million, or 10%. Foreign exchange had an unfavorable impact of 7% on emerging markets revenues. The operational increase in emerging markets was primarily driven by Prevenar 13, Ibrance and Eliquis.

Revenue Deductions

Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. These deductions represent estimates of related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends.

The following presents information about revenue deductions:
						Year Ended December 31,
(MILLIONS OF DOLLARS)						2020						2019						2018
Medicare rebates						$	647					$	628					$	495
Medicaid and related state program rebates						1,136						1,259						984
Performance-based contract rebates						2,660						2,332						1,758
Chargebacks						4,531						3,411						2,954
Sales allowances						3,841						3,782						3,536
Sales returns and cash discounts						924						878						1,128
Total						$	13,739					$	12,290					$	10,854

Revenue deductions are primarily a function of product sales volume, mix of products sold, contractual or legislative discounts and rebates.

For information on our accruals for revenue deductions, including the balance sheet classification of these accruals, see Note 1G.

Pfizer Inc.			2020 Form 10-K			32

Revenues—Selected Product Discussion

																		Revenue
(MILLIONS OF DOLLARS)																		Year Ended Dec. 31,												% Change
Product						Global Revenues						Region						2020						2019						Total						Oper.						Operational Results Commentary
Prevnar 13/ Prevenar 13						$5,850 Up 1% (operationally)						U.S.						$	2,930		$	3,209					(9)												Operational growth internationally primarily reflects increased adult uptake in certain international markets resulting from greater vaccine awareness for respiratory illnesses, including specifically pneumococcal disease, due to the COVID-19 pandemic, as well as continued strong pediatric uptake in China, partially offset by a decline in the U.S., primarily driven by the expected unfavorable impact of disruptions to wellness visits for pediatric and adult patients due to COVID-19-related mobility restrictions or limitations as well as the continued impact of a lower remaining eligible adult population and the impact of the revised ACIP recommendation for the adult indication to shared clinical decision making, which means the decision to vaccinate should be made at the individual level between health care providers and their patients.
			Int’l.						2,920			2,638						11						13
			Worldwide						$	5,850		$	5,847					—						1
Ibrance						$5,392 Up 9% (operationally)						U.S.						$	3,634		$	3,250					12												Primarily driven by continued strong volume growth in most markets, partially offset by pricing pressures in certain developed Europe markets.
			Int’l.						1,758			1,710						3						5
			Worldwide						$	5,392		$	4,961					9						9
Eliquis						$4,949 Up 18% (operationally)						U.S.						$	2,688		$	2,343					15												Primarily driven by continued increased adoption in non-valvular atrial fibrillation as well as oral anti-coagulant market share gains, partially offset by a lower net price due to an increased impact from the Medicare “coverage gap” and unfavorable channel mix in the U.S.
			Int’l.						2,260			1,877						20						22
			Worldwide						$	4,949		$	4,220					17						18
Xeljanz						$2,437 Up 9% (operationally)						U.S.						$	1,706		$	1,636					4												Higher volumes in the U.S. within the RA, PsA and UC indications driven by reaching additional patients through improvements in formulary access, partially offset by increased discounts from recently-signed contracts which were entered into in order to unlock access to additional patient lives. Also reflects operational growth internationally mainly driven by continued uptake in the RA indication and, to a lesser extent, from the recent launch of the UC indication in certain developed markets.
			Int’l.			731			606						21						23
			Worldwide			$	2,437		$	2,242					9						9
Vyndaqel/ Vyndamax						$1,288 *****						U.S.						$	613		$	191					*												Driven by the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019 for the treatment of ATTR-CM and by the March 2019 launch of the ATTR-CM indication in Japan and the February 2020 approval of the ATTR-CM indication in the EU.
			Int’l.			675			282			*			*
			Worldwide			$	1,288		$	473		*			*
Xtandi						$1,024 Up 22% (operationally)						U.S.						$	1,024		$	838					22												Primarily driven by continued strong demand for Xtandi in the mCRPC and nmCRPC indications, as well as the mCSPC indication, which was approved in the U.S. in December 2019.
Int’l.			—			—			—			—
Worldwide			$	1,024		$	838		22			22
Chantix/ Champix						$919 Down 17% (operationally)						U.S.						$	716		$	899					(20)												Driven by the U.S. and primarily reflects expected lower demand resulting from reduced doctor visits, including wellness visits when Chantix is typically prescribed, due to COVID-19-related mobility restrictions or limitations as well as the loss of patent protection in the U.S. in November 2020, partially offset by increased demand in Spain as a result of government reimbursement starting in January 2020.
			Int’l.			203			208						(2)						(1)
			Worldwide			$	919		$	1,107					(17)						(17)
Inlyta						$787 Up 66% (operationally)						U.S.						$	523		$	295					78												Primarily due to increased demand in the U.S. and certain developed international markets, following the approvals in 2019 for combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC.
			Int’l.			264			182						45						47
			Worldwide			$	787		$	477					65						66
Biosimilars						$1,527 Up 68% (operationally)						U.S.						$	899		$	451					99												Primarily driven by recent oncology biosimilar launches in the U.S. and other global markets and continued growth from Retacrit, primarily in the U.S.
			Int’l.			628			460						36						37
			Worldwide			$	1,527		$	911					68						68
Hospital						$7,961 Up 3% (operationally)						U.S.						$	3,362		$	3,081					9												Higher revenues in the U.S., primarily driven by increased demand for certain sterile injectable products utilized in the intubation and ongoing treatment of mechanically-ventilated COVID-19 patients, continued growth from Panzyga and recent anti-infective launches, as well as Pfizer CentreOne business in international markets, partially offset by lower demand for certain anti-infective products in China due to lower infection rates driven by fewer elective surgical procedures, shorter in-patient hospital stays and improved infection control.
			Int’l.			4,599			4,691						(2)						—
			Worldwide			$	7,961		$	7,772					2						3

• Calculation is not meaningful or results are equal to or greater than 100%.

See the Item 1. Business—Patents and Other Intellectual Property Rights section in this Form 10-K for information regarding the expiration of various patent rights.

See Note 16 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above.

See Note 17B for additional information regarding the primary indications or class of the selected products discussed above.

Pfizer Inc.			2020 Form 10-K			33

Product Developments

A comprehensive update of Pfizer’s development pipeline was published as of February 2, 2021 and is available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of our research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration.

The following provides information about significant marketing application-related regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan. The table below includes only approvals for products that have occurred in the last twelve months and does not include approvals that may have occurred prior to that time. The table includes filings with regulatory decisions pending (even if the filing occurred outside of the last twelve-month period).

PRODUCT			DISEASE AREA			APPROVED/FILED*
U.S.			EU			JAPAN
PF-07302048 (COVID-19 Vaccine)(a)			Immunization to prevent COVID-19 (16 years of age and older)			EUA Dec. 2020			CMA Dec. 2020			Approved Feb. 2021
Bavencio (avelumab)(b)			First-line maintenance urothelial cancer			Approved June 2020			Approved Jan. 2021			Filed May 2020
First-line RCC (combination with Inlyta (axitinib))									Approved Dec. 2019
Nyvepria (pegfilgrastim-apgf)			Neutropenia in patients undergoing cancer chemotherapy (biosimilar)			Approved June 2020			Approved Nov. 2020
Braftovi (encorafenib)(c)			Second or third-line BRAFv600E-mutant mCRC (combination with Erbitux® (cetuximab))			Approved April 2020			Approved June 2020			Approved Nov. 2020
Braftovi (encorafenib) and Mektovi (binimetinib)(c)			Second or third-line BRAFV600E-mutant mCRC (combination with Erbitux® (cetuximab))									Approved Nov. 2020
Xtandi (enzalutamide)(d)			mCSPC			Approved Dec. 2019			Filed July 2019
Abrilada (U.S.); Amsparity (EU) (adalimumab-afzb)(e)			RA (biosimilar)			Approved Nov. 2019			Approved Feb. 2020
abrocitinib (PF-04965842)			Atopic dermatitis			Filed Oct. 2020			Filed Oct. 2020			Filed Dec. 2020
Infliximab Pfizer (infliximab)			Ankylosing spondylitis (biosimilar)									Approved Oct. 2020
Bevacizumab Pfizer (bevacizumab)			Non-small cell lung cancer (biosimilar)									Approved Sept. 2020
Rituximab Pfizer (rituximab)			Chronic idiopathic thrombocytopenic purpura (biosimilar)									Approved Aug. 2020
tanezumab(f)			Chronic pain due to moderate-to-severe osteoarthritis			Filed March 2020			Filed March 2020			Filed Aug. 2020
Bosulif (bosutinib)			First-line chronic myelogenous leukemia									Approved June 2020
Daurismo (glasdegib)			Combination with low-dose cytarabine for AML						Approved June 2020
Ruxience (rituximab)			Follicular lymphoma (biosimilar)						Approved April 2020
Staquis (crisaborole)			Atopic dermatitis						Approved March 2020
Vyndaqel (tafamidis free acid)			ATTR-CM						Approved Feb. 2020
Xeljanz (tofacitinib)			Modified release 11 mg tablet for RA (combination with methotrexate)						Approved Dec. 2019
Ankylosing spondylitis			Filed Aug. 2020
Relugolix**(g)**			Uterine fibroids (combination with estradiol and norethindrone acetate)			Filed Aug. 2020
Lorbrena (lorlatinib)			First- line ALK-positive non-small cell lung cancer			Filed Dec. 2020
somatrogon (PF-06836922)****(h)			Pediatric growth hormone deficiency			Filed Jan. 2021
PF-06482077 (Vaccine)			Invasive and non-invasive pneumococcal infections (adults)			Filed Dec. 2020

Pfizer Inc.			2020 Form 10-K			34

*For the U.S., the filing date is the date on which the FDA accepted our submission. For the EU, the filing date is the date on which the EMA validated our submission.

(a)PF-07302048 or BNT162b2 (Pfizer/BioNTech COVID-19 vaccine) received EUA from the FDA and CMA from the EMA.

(b)Being developed in collaboration with Merck KGaA, Germany.

(c)Erbitux® is a registered trademark of ImClone LLC. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono Pharmaceutical Co., Ltd.

(d)Being developed in collaboration with Astellas.

(e)We are working to make Abrilada available to U.S. patients as soon as feasible based on the terms of our agreement with AbbVie. Current plans are to launch Abrilada in 2023. We do not currently plan to commercialize Amsparity in the EU due to unfavorable market conditions.

(f)Being developed in collaboration with Lilly.

(g)Being developed in collaboration with Myovant.

(h)Being developed in collaboration with OPKO Health, Inc.

In China, the following products received regulatory approvals in the last twelve months: Eucrisa for atopic dermatitis in July 2020 and Vyndaqel for cardiac amyloidosis in September 2020.

The following provides information about additional indications and new drug candidates in late-stage development:

			PRODUCT/CANDIDATE			PROPOSED DISEASE AREA
LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS			Bavencio (avelumab)(a)			First-line non-small cell lung cancer
Ibrance (palbociclib)(b)			ER+/HER2+ metastatic breast cancer
Xtandi (enzalutamide)(c)			Non-metastatic high-risk castration sensitive prostate cancer
Talzenna (talazoparib)			Combination with Xtandi (enzalutamide) for first-line mCRPC
PF-06482077 (Vaccine)			Invasive and non-invasive pneumococcal infections (pediatric)
somatrogon (PF-06836922)(d)			Adult growth hormone deficiency
tanezumab(e)			Cancer pain
Braftovi (encorafenib) and Erbitux® (cetuximab)(f)			First-line BRAFv600E-mutant mCRC
Relugolix(g)			Combination with estradiol and norethindrone acetate for endometriosis
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT			aztreonam-avibactam (PF-06947387)			Treatment of infections caused by Gram-negative bacteria for which there are limited or no treatment options
fidanacogene elaparvovec (PF-06838435)			Hemophilia B
Giroctocogene fitelparvovec (SB-525 or PF-07055480)			Hemophilia A
PF-06425090 (Vaccine)			Primary clostridioides difficile infection
PF-06886992 (Vaccine)			Serogroups meningococcal (adolescent and young adults)
PF-06928316 (Vaccine)			Respiratory syncytial virus infection (maternal)
PF-07265803			Dilated cardiomyopathy due to Lamin A/C gene mutation
ritlecitinib (PF-06651600)			Alopecia areata
sasanlimab (PF-06801591)			Non-muscle-invasive bladder cancer
PF-06939926			Duchenne muscular dystrophy
marstacimab (PF-06741086)			Hemophilia

(a)Being developed in collaboration with Merck KGaA, Germany.

(b)Being developed in collaboration with the Alliance Foundation Trial.

(c)Being developed in collaboration with Astellas.

(d)Being developed in collaboration with OPKO Health, Inc.

(e)Being developed in collaboration with Lilly.

(f)Erbitux® is a registered trademark of ImClone LLC. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono Pharmaceutical Co., Ltd.

(g)Being developed in collaboration with Myovant.

For additional information about our R&D organization, see the Item 1. Business—Research and Development section of this Form 10-K.

COSTS AND EXPENSES

The changes in costs and expenses below reflect, among other things, a decline in expenses resulting from the July 31, 2019 completion of the Consumer Healthcare JV transaction (see Note 2C). In addition, the COVID-19 pandemic impacted certain operating expenses in 2020.

Pfizer Inc.			2020 Form 10-K			35

Costs and expenses follow:
						Year Ended December 31,																		% Change
(MILLIONS OF DOLLARS)						2020						2019						2018						20/19						19/18
Cost of sales						$	8,692					$	8,251					$	8,987					5						(8)
Percentage of Revenues						20.7		%				20.0		%				22.0		%
Selling, informational and administrative expenses						11,615						12,750						12,612						(9)						1
Percentage of Revenues						27.7		%				31.0		%				30.9		%
Research and development expenses						9,405						8,394						7,760						12						8
Percentage of Revenues						22.4		%				20.4		%				19.0		%
Amortization of intangible assets						3,436						4,462						4,736						(23)						(6)
Percentage of Revenues						8.2		%				10.8		%				11.6		%
Restructuring charges and certain acquisition-related costs						600						601						1,058						—						(43)
Percentage of Revenues						1.4		%				1.5		%				2.6		%
Other (income)/deductions—net						669						3,314						2,077						(80)						60

Cost of Sales

2020 v. 2019

Cost of sales increased $441 million, primarily due to:

• increased sales volumes;

• the increase in royalty expenses, due to an increase in sales of related products;

• the unfavorable impact of incremental costs incurred in response to the COVID-19 pandemic; and

• the unfavorable impact of foreign exchange and hedging activity on intercompany inventory,

partially offset by:

• the favorable impact of the July 31, 2019 completion of the Consumer Healthcare JV transaction.

The increase in Cost of sales as a percentage of revenues in 2020, compared to 2019, was primarily due to all of the factors discussed above, partially offset by an increase in alliance revenues, which have no associated cost of sales.

2019 v. 2018

Cost of sales decreased $736 million, primarily due to:

• the favorable impact of the July 31, 2019 completion of the Consumer Healthcare JV transaction;

• the favorable impact of foreign exchange; and

• the favorable impact of hedging activity of intercompany inventory,

partially offset by:

• the unfavorable change in product mix; and

• the increase in royalty expenses, due to an increase in sales of related products.

The decrease in Cost of sales as a percentage of revenues in 2019, compared to 2018, was primarily due to all of the factors discussed above, as well an increase in alliance revenues, which have no associated cost of sales.

Selling, Informational and Administrative (SI&A) Expenses

2020 v. 2019

SI&A expenses decreased $1.1 billion, mostly due to:

• the favorable impact of the July 31, 2019 completion of the Consumer Healthcare JV transaction;

• lower spending for corporate enabling functions;

• lower spending on sales and marketing activities due to the impact of the COVID-19 pandemic; and

• lower investments across the Internal Medicine and Inflammation & Immunology portfolios,

partially offset by:

• the increase in external, incremental costs directly related to implementing our cost-reduction/productivity initiatives; and

• the increase in business and legal entity alignment costs.

2019 v. 2018

SI&A expenses increased $138 million, primarily due to:

• additional investment in emerging markets;

• additional investment in the Oncology portfolio in developed markets;

• increased employee deferred compensation as a result of savings plan gains;

• the increase due to the timing of expenses (i.e., insurance recoveries and product donations);

• marketing and promotional expenses for the U.S. launches of Vyndaqel in May 2019 and Vyndamax in September 2019;

Pfizer Inc.			2020 Form 10-K			36

• increased business and legal entity alignment costs;

• costs to separate Consumer Healthcare; and

• increased healthcare reform expenses,

partially offset by:

• the favorable impact of the July 31, 2019 completion of the Consumer Healthcare JV; and

• the favorable impact of foreign exchange.

Research and Development (R&D) Expenses

2020 v. 2019

R&D expenses increased $1.0 billion, mainly due to:

• costs related to our collaboration agreement with BioNTech to co-develop a COVID-19 vaccine, including an upfront payment to BioNTech;

• a net increase in upfront payments, mainly related to Myovant and Valneva; and

• increased investments towards building new capabilities and driving automation,

partially offset by:

• the net reduction of upfront and milestone payments associated with the acquisition of Therachon in July 2019 and Akcea in October 2019.

2019 v. 2018

R&D expenses increased $635 million, mainly due to:

• upfront payments to Therachon and Akcea;

• increased investments towards building new capabilities and driving automation;

• increased spending on our Inflammation & Immunology and Rare Disease portfolios due to several Phase 3 programs and

investment in gene therapy;

• increased spending related to assets acquired from our acquisition of Array; and

• increased medical spend for new and growing products,

partially offset by:

• decreased spending across the Oncology, Vaccines and Internal Medicine portfolios, as select programs have reached completion;

• the decrease in the value of the portfolio performance share grants reflecting changes in the price of Pfizer’s common stock, as well as management’s assessment of the probability that the specified performance criteria will be achieved;

• the discontinuation of the Staphylococcus aureus vaccine trial;

• the favorable impact of the July 31, 2019 completion of the Consumer Healthcare JV; and

• the favorable impact of foreign exchange.

Amortization of Intangible Assets

2020 v. 2019

Amortization of intangible assets decreased $1.0 billion, primarily due to:

• the non-recurrence of amortization of fully amortized assets and the impairment of Eucrisa in the fourth quarter of 2019,

partially offset by:

• the increase in amortization of intangible assets from our acquisition of Array.

2019 v. 2018

Amortization of intangible assets decreased $274 million, mainly due to:

• the non-recurrence of amortization as a result of the impairment of sterile injectable products in the fourth quarter of 2018;

• fully amortized assets; and

• the contribution of our Consumer Healthcare business to the Consumer Healthcare JV,

partially offset by:

• the increase in amortization related to assets recorded as a result of the approval of Xtandi in the U.S. for the treatment of nmCRPC in July of 2018; and

• amortization of intangible assets from our acquisition of Array.

For additional information, see Notes 2A, 2C, and 10A.

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

Transforming to a More Focused Company Program

For a description of our program, as well as the anticipated and actual costs, see Note 3. The program savings discussed below may be rounded and represent approximations. In connection with the costs primarily related to the corporate enabling functions initiatives, we expect gross cost savings of $1.0 billion, or net cost savings, excluding merit and inflation growth and certain real estate cost increases, of $700 million, to be achieved primarily over the two-year period 2021-2022. In connection with manufacturing network optimization, including legacy cost reduction initiatives, we expect targeted net cost savings of $300 million to be achieved primarily from 2020 through 2022.

Pfizer Inc.			2020 Form 10-K			37

Certain qualifying costs for this program were recorded in 2020, and in the fourth quarter of 2019, and are reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income. See the Non-GAAP Financial Measure: Adjusted Income section of this MD&A.

In addition to this program, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of the losses of exclusivity and the expiration of collaborative arrangements for various products.

Other (Income)/Deductions––Net

2020 v. 2019

Other deductions—net decreased $2.6 billion, mainly due to:

• lower asset impairment charges;

• higher net periodic benefit credits other than service costs;

• lower business and legal entity alignment costs;

• higher Consumer Healthcare JV equity method income; and

• lower charges for certain legal matters,

partially offset by:

• higher net losses on asset disposals.

2019 v. 2018

Other deductions—net increased $1.2 billion, mainly due to:

• higher net periodic benefits costs other than service costs;

• lower income from collaborations, out-licensing arrangements and sales of compound/product rights;

• higher interest expense mainly as a result of an increased commercial paper balance due to the acquisition of Array, as well as the retirement of lower-coupon debt and the issuance of new debt with a higher coupon than the debt outstanding for the comparative prior year period; and

• higher business and legal entity alignment costs,

partially offset by:

• lower asset impairment charges.

See Note 4 for additional information*.*

PROVISION/(BENEFIT) FOR TAXES ON INCOME

						Year Ended December 31,																		% Change
(MILLIONS OF DOLLARS)						2020						2019						2018						20/19						19/18
Provision/(benefit) for taxes on income						$	477					$	618					$	(266)					(23)						*
Effective tax rate on continuing operations						6.4		%				5.4		%				(7.4)		%

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

For information about our effective tax rate and the events and circumstances contributing to the changes between periods, as well as details about discrete elements that impacted our tax provisions, see Note 5.

DISCONTINUED OPERATIONS

For information about our discontinued operations, see Note 2B.

NON-GAAP FINANCIAL MEASURE: ADJUSTED INCOME

Adjusted income is an alternative measure of performance used by management to evaluate our overall performance in conjunction with other performance measures. As such, we believe that investors’ understanding of our performance is enhanced by disclosing this measure. We use Adjusted income, certain components of Adjusted income and Adjusted diluted EPS to present the results of our major operations––the discovery, development, manufacture, marketing, sales and distribution of biopharmaceutical products worldwide––prior to considering certain income statement elements as follows:

Measure						Definition						Illustrative Use
Adjusted income						Net income attributable to Pfizer Inc. common shareholders(a) before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items						•Monthly managerial analysis of our operating results and our annual budgets are prepared using these non-GAAP measures •Senior management’s compensation is determined, in part, using these non-GAAP measures(b)
Adjusted cost of sales, Adjusted selling, informational and administrative expenses, Adjusted research and development expenses, Adjusted other (income)/deductions*––*net						Cost of sales, Selling, informational and administrative expenses, Research and development expenses, Amortization of intangible assets and Other (income)/deductions––net (a), each before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items, which are components of the Adjusted income measure
Adjusted diluted EPS						EPS attributable to Pfizer Inc. common shareholders––diluted (a) before the impact of purchase accounting for acquisitions, acquisition-related costs, discontinued operations and certain significant items

Pfizer Inc.			2020 Form 10-K			38

(a)Most directly comparable GAAP measure.

(b)The short-term incentive plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part by three metrics, one of which is Adjusted diluted EPS, which is derived from Adjusted income and accounts for 40% of the bonus pool funding. Additionally, the payout for Performance Share Awards is determined in part by Adjusted net income, which is derived from Adjusted income. Effective for the 2020 performance year and consistent with shareholder feedback received in 2019, the Compensation Committee of the BOD approved adding an R&D pipeline achievement factor to the existing short-term incentive financial metrics.

Adjusted income, and its components and Adjusted diluted EPS, are non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, are limited in their usefulness to investors. Because of their non-standardized definitions, they may not be comparable to the calculation of similar measures of other companies and are presented solely to permit investors to more fully understand how management assesses performance. A limitation of these measures is that they provide a view of our operations without including all events during a period, and do not provide a comparable view of our performance to peers. These measures are not, and should not be viewed as, substitutes for their directly comparable GAAP measures of Net income attributable to Pfizer Inc. common shareholders, components of Net income attributable to Pfizer Inc. common shareholders and EPS attributable to Pfizer Inc. common shareholders—diluted, respectively. See the accompanying reconciliations of certain GAAP reported to non-GAAP adjusted information for 2020, 2019 and 2018 below.

We also recognize that, as internal measures of performance, these measures have limitations, and we do not restrict our performance-management process solely to these measures. We also use other tools designed to achieve the highest levels of performance. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, total shareholder return, both on an absolute basis and relative to a publicly traded pharmaceutical index, plays a significant role in determining payouts under certain of our incentive compensation plans.

Purchase Accounting Adjustments

Adjusted income excludes certain significant purchase accounting impacts resulting from business combinations and net asset acquisitions. These impacts can include the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, amortization related to the increase in fair value of the acquired finite-lived intangible assets, and to a much lesser extent, depreciation related to the increase/decrease in fair value of the acquired fixed assets, amortization related to the increase in fair value of acquired debt, and the fair value changes for contingent consideration. Therefore, the Adjusted income measure includes the revenues earned upon the sale of the acquired products without considering the acquisition cost of those products.

The exclusion of amortization attributable to acquired intangible assets provides management and investors an alternative view of our results by providing a degree of parity to internally developed intangible assets for which R&D costs have been expensed. However, we have not factored in the impacts of any other differences that might have occurred if we had discovered and developed those intangible assets on our own, such as different R&D costs, timelines or resulting sales; accordingly, this approach does not intend to be representative of the results that would have occurred if we had discovered and developed the acquired intangible assets internally.

Acquisition-Related Costs

Adjusted income excludes acquisition-related costs, which are comprised of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each transaction and represent costs that were incurred to restructure and integrate businesses as a result of an acquisition. We have made no adjustments for resulting synergies.

The significant costs incurred in connection with a business combination result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring a fully integrated set of activities. For this reason, we believe that such costs incurred can be viewed differently in the context of an acquisition from those costs incurred in other, more normal, business contexts. The integration and restructuring costs for a business combination may occur over several years, with the more significant impacts typically ending within three years of the relevant transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy.

Discontinued Operations

Adjusted income excludes the results of discontinued operations, as well as any related gains or losses on the disposal of such operations. We believe that this presentation is meaningful to investors because, while we review our therapeutic areas and product lines for strategic fit with our operations, we do not build or run our business with the intent to discontinue parts of our business. Restatements due to discontinued operations do not impact compensation or change the Adjusted income measure for the compensation in respect of the restated periods, but are presented for consistency across all periods.

Certain Significant Items

Adjusted income excludes certain significant items representing substantive and/or unusual items that are evaluated individually on a quantitative and qualitative basis. Certain significant items may be highly variable and difficult to predict. Furthermore, in some cases it is reasonably possible that they could reoccur in future periods. For example, although major non-acquisition-related cost-reduction programs are specific to an event or goal with a defined term, we may have subsequent programs based on reorganizations of the business, cost productivity or in response to LOE or economic conditions. Legal charges to resolve litigation are also related to specific cases, which are facts and circumstances specific and, in some cases, may also be the result of litigation matters at acquired companies that were inestimable, not probable or unresolved at the date of acquisition. Unusual items represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. For a non-inclusive list of certain significant items see Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income below.

Pfizer Inc.			2020 Form 10-K			39

Reconciliation of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items

						2020
IN MILLIONS, EXCEPT PER COMMON SHARE DATA						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Costs(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	41,908					$	—					$	—					$	—					$	—					$	41,908
Cost of sales						8,692						18						—						—						(118)						8,592
Selling, informational and administrative expenses						11,615						(2)						—						—						(489)						11,124
Research and development expenses						9,405						5						—						—						(526)						8,884
Amortization of intangible assets						3,436						(3,152)						—						—						—						284
Restructuring charges and certain acquisition-related costs						600						—						(44)						—						(556)						—
(Gain) on completion of Consumer Healthcare JV transaction						(6)						—						—						—						6						—
Other (income)/deductions––net						669						(75)						—						—						(2,068)						(1,474)
Income from continuing operations before provision/(benefit) for taxes on income						7,497						3,206						44						—						3,752						14,499
Provision/(benefit) for taxes on income(b)						477						668						9						—						803						1,957
Income from continuing operations						7,021						2,537						35						—						2,948						12,541
Income from discontinued operations––net of tax						2,631						—						—						(2,631)						—						—
Net income attributable to noncontrolling interests						36						—						—						—						—						36
Net income attributable to Pfizer Inc. common shareholders						9,616						2,537						35						(2,631)						2,948						12,506
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						1.71						0.45						0.01						(0.47)						0.52						2.22

						2019
IN MILLIONS, EXCEPT PER COMMON SHARE DATA						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Costs(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	41,172					$	—					$	—					$	—					$	—					$	41,172
Cost of sales						8,251						19						—						—						(208)						8,062
Selling, informational and administrative expenses						12,750						2						(2)						—						(263)						12,488
Research and development expenses						8,394						4						—						—						(663)						7,736
Amortization of intangible assets						4,462						(4,191)						—						—						—						271
Restructuring charges and certain acquisition-related costs						601						—						(183)						—						(418)						—
(Gain) on completion of Consumer Healthcare JV transaction						(8,086)						—						—						—						8,086						—
Other (income)/deductions––net						3,314						(21)						—						—						(3,563)						(270)
Income from continuing operations before provision/(benefit) for taxes on income						11,485						4,186						185						—						(2,971)						12,885
Provision/(benefit) for taxes on income(b)						618						823						59						—						539						2,039
Income from continuing operations						10,867						3,363						126						—						(3,510)						10,846
Income from discontinued operations––net of tax						5,435						—						—						(5,435)						—						—
Net income attributable to noncontrolling interests						29						—						—						—						—						29
Net income attributable to Pfizer Inc. common shareholders						16,273						3,363						126						(5,435)						(3,510)						10,817
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						2.87						0.59						0.02						(0.96)						(0.62)						1.91

Pfizer Inc.			2020 Form 10-K			40

						2018
IN MILLIONS, EXCEPT PER COMMON SHARE DATA						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Costs(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	40,825					$	—					$	—					$	—					$	—					$	40,825
Cost of sales						8,987						3						(10)						—						(105)						8,874
Selling, informational and administrative expenses						12,612						2						(2)						—						(191)						12,420
Research and development expenses						7,760						3						—						—						(47)						7,716
Amortization of intangible assets						4,736						(4,456)						—						—						—						280
Restructuring charges and certain acquisition-related costs						1,058						—						(299)						—						(759)						—
(Gain) on completion of Consumer Healthcare JV transaction						—						—						—						—						—						—
Other (income)/deductions––net						2,077						(182)						(7)						—						(2,520)						(631)
Income from continuing operations before provision/(benefit) for taxes on income						3,594						4,630						318						—						3,622						12,164
Provision/(benefit) for taxes on income(b)						(266)						888						54						—						1,509						2,185
Income from continuing operations						3,861						3,741						264						—						2,113						9,979
Income from discontinued operations––net of tax						7,328						—						—						(7,328)						—						—
Net income attributable to noncontrolling interests						36						—						—						—						—						36
Net income attributable to Pfizer Inc. common shareholders						11,153						3,741						264						(7,328)						2,113						9,944
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						1.87						0.63						0.04						(1.23)						0.35						1.66

(a)For details of adjustments, see Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income.

(b)The effective tax rate on Non-GAAP Adjusted income was 13.5% in 2020, 15.8% in 2019 and 18.0% in 2018. The decrease in 2020, compared with 2019, was primarily due to a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business. The decrease in 2019, compared with 2018, was primarily due to a favorable change in the jurisdictional mix of earnings as a result of operating fluctuations in the normal course of business, partially offset by a decrease in tax benefits for the resolution of certain tax positions, principally non-U.S., pertaining to prior years.

Pfizer Inc.			2020 Form 10-K			41

Details of Income Statement Items Included in GAAP Reported but Excluded from Non-GAAP Adjusted Income

						Year Ended December 31,
(MILLIONS OF DOLLARS)						2020						2019						2018
Purchase accounting adjustments
Amortization, depreciation and other(a)						$	3,224					$	4,205					$	4,633
Cost of sales						(18)						(19)						(3)
Total purchase accounting adjustments—pre-tax						3,206						4,186						4,630
Income taxes(b)						(668)						(823)						(888)
Total purchase accounting adjustments—net of tax						2,537						3,363						3,741
Acquisition-related items
Restructuring charges/(credits)(c)						—						(192)						37
Transaction costs(c)						10						63						1
Integration costs and other(c)						34						311						260
Net periodic benefit costs/(credits) other than service costs(d)						—						—						7
Additional depreciation—asset restructuring(e)						—						3						12
Total acquisition-related items—pre-tax						44						185						318
Income taxes(f)						(9)						(59)						(54)
Total acquisition-related items—net of tax						35						126						264
Discontinued operations
Income from discontinued operations—net of tax(g)						(2,631)						(5,435)						(7,328)
Certain significant items
Restructuring charges/(credits)*––*cost reduction initiatives(h)						556						418						759
Implementation costs and additional depreciation—asset restructuring(i)						257						192						212
Net (gains)/losses on asset disposals(d)						238						—						—
Net (gains)/losses recognized during the period on equity securities(d)						(557)						(415)						(586)
Certain legal matters, net(d)						24						291						84
Certain asset impairments(d)						1,691						2,798						3,101
Business and legal entity alignment costs(j)						270						412						63
(Gain) on completion of Consumer Healthcare JV transaction(k)						(6)						(8,086)						—
Other(l)						1,278						1,418						(10)
Total certain significant items—pre-tax						3,752						(2,971)						3,622
Income taxes(m)						(803)						(539)						(1,509)
Total certain significant items—net of tax						2,948						(3,510)						2,113
Total purchase accounting adjustments, acquisition-related items, discontinued operations and certain significant items—net of tax, attributable to Pfizer Inc.						$	2,890					$	(5,455)					$	(1,209)

(a)Included primarily in Amortization of intangible assets.

(b)Included in Provision/(benefit) for taxes on income. Includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that applicable tax rate.

(c)Included in Restructuring charges and certain acquisition-related costs. See Note 3.

(d)Included in Other (income)/deductions—net. See Note 4.

(e)In 2019, primarily included in Selling, informational and administrative expenses. In 2018, primarily included in Cost of sales. Represents the impact of changes in the estimated useful lives of assets involved in restructuring actions related to acquisitions.

(f)Included in Provision/(benefit) for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying the applicable tax rate. 2019 includes the impact of the non-taxable reversal of certain accruals related to our acquisition of Wyeth upon the effective favorable settlement of a U.S. IRS audit for multiple tax years.

(g)Included in Income from discontinued operations––net of tax and relates to the November 16, 2020 spin-off and combination of our Upjohn Business with Mylan*. See Note 2B.*

(h)Amounts relate to employee termination costs, asset impairments and other exit costs not associated with acquisitions, which are included in Restructuring charges and certain acquisition-related costs (see Note 3).

(i)Amounts relate to our cost-reduction/productivity initiatives not related to acquisitions (see Note 3). For 2020, primarily included in Cost of sales ($62 million) and Selling, informational and administrative expenses ($197 million). For 2019, included in Cost of sales ($89 million), Selling, informational and administrative expenses ($73 million) and Research and development expenses ($30 million). For 2018, included in Cost of sales ($101 million), Selling, informational and administrative expenses ($71 million) and Research and development expenses ($39 million).

(j)In 2020, included in Cost of sales ($51 million), Selling, informational and administrative expenses ($206 million) and Research and development expenses ($13 million) and primarily represents costs for consulting, legal, tax and advisory services associated with internal reorganization of legal entities. In 2019, primarily included in Cost of sales ($15 million), Selling, informational and administrative expenses ($96 million) and Other (income)/deductions––net ($300 million) and in 2018, included in Other (income)/deductions––net and represents costs for consulting, legal, tax and other advisory services associated with the design, planning and implementation of our then new business structure, effective in the beginning of 2019.

(k)Included in (Gain) on completion of Consumer Healthcare JV transaction (see Note 2C).

Pfizer Inc.			2020 Form 10-K			42

(l)For 2020, primarily included in Selling, informational and administrative expenses ($86 million), Research and development expenses ($515 million) and Other (income)/deductions––net ($672 million). For 2019, included in Cost of sales ($104 million), Selling, informational and administrative expenses ($94 million), Research and development expenses ($632 million) and Other (income)/deductions––net ($589 million). For 2018, primarily included in Selling, informational and administrative expenses ($120 million) and Other (income)/deductions––net ($142 million income). 2020 includes the following charges recorded in Research and development expenses: (i) $151 million, representing the expense portion of our upfront payment to Myovant, (ii) an upfront payment of $130 million to Valneva, (iii) a $75 million milestone payment to Akcea, (iv) a $72 million upfront payment to BioNTech and (v) a $50 million milestone payment to Therachon. 2020 also includes, among other things, the following charges recorded in Other (income)/deductions––net: (i) charges of $367 million, primarily representing our pro rata share of restructuring and business combination accounting charges recorded by the Consumer Healthcare JV, partially offset by gains from the divestiture of certain of the JV’s brands recorded by the Consumer Healthcare JV, and our write-off and amortization of equity method basis differences primarily related to those brand divestitures and to inventory, and (ii) $198 million of settlement losses within the U.S. PCPP. 2019 included, among other things, (i) a $337 million charge in Research and development expenses related to our acquisition of Therachon, (ii) an upfront license fee payment of $250 million to Akcea, recorded in Research and development expenses, (iii) charges of $240 million, primarily in Selling, informational and administrative expenses ($87 million) and Other (income)/deductions––net ($152 million), for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity associated with the formation of the Consumer Healthcare JV, (iv) net losses on early retirement of debt of $138 million in Other (income)/deductions––net, (v) charges of $112 million recorded in Other (income)/deductions––net representing our pro rata share of primarily restructuring and business combination accounting charges recorded by the Consumer Healthcare JV and (vi) a $99 million charge in Cost of sales related to rivipansel, primarily for inventory manufactured for expected future sale. For 2018, included, among other things, (i) a non-cash $343 million pre-tax gain in Other (income)/deductions––net associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system, (ii) an $88 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 TCJA and (iii) a non-cash $50 million pre-tax gain in Other (income)/deductions––net as a result of the contribution of our allogeneic CAR T therapy development program assets in connection with our contribution agreement entered into with Allogene (see Note 2B).

(m)Included in Provision/(benefit) for taxes on income. Income taxes includes the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying the applicable tax rate. The amount in 2020 was favorably impacted by tax benefits associated with intangible asset impairment charges (see Note 4). The amount in 2019 was favorably impacted by a benefit of $1.4 billion, representing tax and interest, resulting from the favorable settlement of a U.S. IRS audit for multiple tax years, the benefits related to certain tax initiatives for the implementation of our then new business structure, as well as the tax benefit recorded as a result of additional guidance issued by the U.S. Department of Treasury related to the TCJA and unfavorably impacted by the tax expense of approximately $2.7 billion associated with the gain related to the completion of the Consumer Healthcare JV transaction. The amount in 2018 was favorably impacted primarily by tax benefits related to the TCJA, including certain 2018 tax initiatives as well as adjustments to the provisional estimate of the legislation, reported and disclosed within the applicable measurement period, in accordance with guidance issued by the SEC.

Pfizer Inc.			2020 Form 10-K			43

ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Flows from Continuing Operations

						Year Ended December 31,
(MILLIONS OF DOLLARS)						2020						2019						2018						Drivers of change
Cash provided by/(used in):
Operating activities from continuing operations						$	10,586					$	7,011					$	8,875					2020 v. 2019 The change is driven mainly by higher net income adjusted for non-cash items, advanced payments in 2020 for BNT162b2 recorded in deferred revenue, the upfront cash payment associated with our acquisition of Therachon in 2019, and the upfront cash payment associated with our licensing agreement with Akcea in 2019, partially offset by an increase in benefit plan contributions. The change also reflects the impact of timing of receipts and payments in the ordinary course of business. The change in Other adjustments, net is driven primarily by an increase in equity method dividends received, partially offset by an increase in equity income and increases in net unrealized gains on equity securities. 2019 v. 2018 The change is driven mostly by the upfront cash payments in 2019 associated with our acquisition of Therachon and our licensing agreement with Akcea, partially offset by a decrease in benefit plan contributions. The change also reflects the impact of timing of receipts and payments in the ordinary course of business. The change in Other adjustments, net is driven primarily by a non-cash gain in 2018 associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, and a non-cash gain in 2018 on the contribution of Pfizer’s allogeneic CAR T developmental program assets, partially offset by net gains on foreign exchange hedging of our intercompany inventory sales.
Investing activities from continuing operations						$	(4,188)					$	(3,852)					$	4,584					2020 v. 2019 The change is driven mostly by a $6.0 billion decrease in net proceeds from short-term investments with original maturities of three months or less and $2.7 billion in net purchases of short-term investments with original maturities of greater than three months in 2020 (compared to $2.3 billion net proceeds from short-term investments with original maturities of greater than three months in 2019), partially offset by the cash used to acquire Array, net of cash acquired, of $10.9 billion in 2019. 2019 v. 2018 The change is driven primarily by cash used for the acquisition of Array, net of cash acquired, of $10.9 billion in 2019, partially offset by an increase in net proceeds generated from the sale of investments of $2.9 billion for cash needs, including financing the acquisition of Array.
Financing activities from continuing operations						$	(21,640)					$	(8,485)					$	(20,441)					2020 v. 2019 The change is driven primarily by $14.0 billion net payments on short-term borrowings in 2020 (compared to $10.6 billion net proceeds raised from short-term borrowings in 2019) and an increase in cash dividends paid of $397 million, partially offset by a decrease in purchases of common stock of $8.9 billion, lower repayments on long-term debt of $2.8 billion, and an increase in issuances of long-term debt of $280 million. 2019 v. 2018 The change is driven mostly by $10.6 billion of net proceeds raised from short-term borrowings in 2019, primarily in connection with the acquisition of Array (compared to net payments on short-term borrowings of $2.3 billion in 2018) and lower purchases of common stock of $3.3 billion, partially offset by higher repayments on long-term debt of $3.2 billion and lower proceeds from the exercise of stock options of $864 million.

Cash Flows from Discontinued Operations

Cash flows from discontinued operations relate to the Upjohn Business (see Note 2B). In 2020, net cash provided by financing activities from discontinued operations primarily reflects issuances of long-term debt*.*

Pfizer Inc.			2020 Form 10-K			44

ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK

We rely largely on operating cash flows, short-term investments or commercial paper borrowings and long-term debt to provide for our liquidity requirements. We continue our efforts to improve cash inflows through working capital efficiencies. We target specific areas of focus including accounts receivable, inventories, accounts payable, and other working capital, which allows us to optimize our operating cash flows.

Due to our significant operating cash flows as well as our financial assets, access to capital markets and available lines of credit and revolving credit agreements, we believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future, which can include, among others:

• the working capital requirements of our operations, including our R&D activities;

• investments in our business;

• dividend payments and potential increases in the dividend rate;

• share repurchases;

• the cash requirements for our cost-reduction/productivity initiatives;

• paying down outstanding debt;

• contributions to our pension and postretirement plans; and

• business development activities.

Our long-term debt is rated high-quality by both S&P and Moody’s. See the Credit Ratings section below. We have taken, and will continue to take, a conservative approach to our financial investments and monitoring of our liquidity position in response to market changes. Our debt investments consist primarily of high-quality, highly liquid, well-diversified available-for-sale debt securities.

Debt Capacity—Lines of Credit

We have available lines of credit and revolving credit agreements with a group of banks and other financial intermediaries. We typically maintain cash and cash equivalent balances and short-term investments which, together with our available revolving credit facilities, are in excess of our commercial paper and other short-term borrowings. See Note 7C.

Selected Measures of Liquidity and Capital Resources

The following presents certain relevant measures of our liquidity and capital resources:
						As of December 31,
(MILLIONS OF DOLLARS, EXCEPT RATIOS)						2020						2019
Selected financial assets(a):
Cash and cash equivalents						$	1,784					$	1,121
Short-term investments						10,437						8,525
Long-term investments, excluding private equity securities at cost						2,973						2,258
						15,195						11,905
Debt:
Short-term borrowings, including current portion of long-term debt						2,703						16,195
Long-term debt						37,133						35,955
						39,835						52,150
Selected net financial liabilities						$	(24,641)					$	(40,245)
Working capital(b)						$	9,147					$	(4,501)
Ratio of current assets to current liabilities						1.35:1						0.88:1

(a)See Note 7 for a description of certain assets held and for a description of credit risk related to our financial instruments held.

(b)The increase in working capital was primarily driven by the use of Upjohn cash distribution proceeds to pay down short-term commercial paper borrowings. See Note 2B.

On November 16, 2020, we received $12.0 billion as partial consideration for the contribution of the Upjohn Business to Viatris (see Note 2B). In November 2020, we used the cash proceeds to pay down commercial paper and redeem, before the maturity date, the $1.15 billion aggregate principal amount outstanding of 1.95% senior unsecured notes that were due in June 2021 and $342 million aggregate principal amount of 5.80% senior unsecured notes that were due in August 2023.

In May 2020, we completed a public offering of $4.0 billion aggregate principal amount of senior unsecured notes.

In March 2020, we:

• completed a public offering of $1.25 billion aggregate principal amount of senior unsecured sustainability notes. The proceeds were initially used to repay outstanding commercial paper and subsequently will be used to help manage our environmental impact and support increased patient access to our medicines and vaccines, especially among underserved populations, and strengthen healthcare systems; and

• repurchased at par all $1.065 billion principal amount outstanding of senior unsecured notes that were due in 2047 before the maturity date.

For additional information about these issuances and retirements, see Note 7D.

For additional information about the sources and uses of our funds, see the Analysis of the Consolidated Statements of Cash Flows within MD&A.

Pfizer Inc.			2020 Form 10-K			45

Credit Ratings

Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to our short-term and long-term debt. A security rating is not

a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each

rating should be evaluated independently of any other rating.

The current ratings assigned to our commercial paper and senior unsecured long-term debt:
NAME OF RATING AGENCY						Pfizer Short-Term						Pfizer Long-Term						Outlook/Watch						Date of Last Rating Change
			Rating						Rating
Moody’s						P-1						A2						Stable						November 2020
S&P						A-1+						A+						Stable						November 2020

Both Moody’s and S&P lowered Pfizer’s long-term debt rating one notch to ‘A2’ and ‘A+’, respectively, upon completion of the Upjohn separation in November 2020. Pfizer’s short-term rating remained unchanged. Additionally, both rating agencies removed Pfizer’s long-term debt rating from “under review” and assigned a stable outlook.

LIBOR

For information on interest rate risk and LIBOR, see the Item 1A. Risk Factors––Global Operations section in this Form 10-K. We do not expect the transition to an alternative rate to have a material impact on our liquidity or financial resources.

Global Economic Conditions

Our Venezuela and Argentina operations function in hyperinflationary economies. The impact to Pfizer is not considered material. For additional information on the global economic environment, see the Item 1A. Risk Factors––Global Operations section in this Form 10-K.

Market Risk

The objective of our financial risk management program is to minimize the impact of foreign exchange rate and interest rate movements on our earnings. We address these exposures through a combination of operational means and financial instruments. We adapt our practices periodically as economic conditions change. For more information, see Notes 1F and 7E, as well as the Item 1A. Risk Factors—Global Operations section in this Form 10-K for key currencies in which we operate.

Foreign Exchange Risk—We are subject to foreign exchange risk in our commercial operations, assets and liabilities that are denominated in foreign currencies and our net investments in foreign subsidiaries.

On the commercial side, a significant portion of our revenues and earnings is exposed to changes in exchange rates. Where foreign exchange risk is not offset by other exposures, we may use foreign currency forward-exchange contracts and/or foreign currency swaps to manage that risk.

With respect to our financial assets and liabilities, our primary foreign exchange exposure arises from intercompany receivables and payables, and, to a lesser extent, from investments and debt denominated in currencies other than the functional currency of the business entity.

In addition, under certain market conditions, we may seek to protect against possible declines in the reported net investments of our foreign business entities. In these cases, we may use foreign exchange contracts and/or foreign currency debt.

The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to foreign exchange rate changes. In this analysis, holding all other assumptions constant and assuming that a change in one currency’s rate relative to the U.S. dollar would not have any effect on another currency’s rates relative to the U.S. dollar, if the dollar were to appreciate against all other currencies by 10%, as of December 31, 2020, the expected adverse impact on our net income would not be significant.

Interest Rate Risk—Our interest-bearing investments and borrowings are subject to interest rate risk which may have an impact on net income. Depending on market conditions, we may change the profile of our outstanding debt or investments by entering into derivative financial instruments like interest rate swaps, either to hedge or offset the exposure to changes in the fair value of hedged items with fixed interest rates, or to convert variable rate debt (or investments) to fixed rates.

The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to interest rate changes. In this analysis, holding all other assumptions constant and assuming a parallel shift in the interest rate curve for all maturities and for all instruments, if there were a one hundred basis point decrease in interest rates as of December 31, 2020, the expected adverse impact on our net income would not be significant.

Equity Price Risk––We hold equity securities with readily determinable fair values in life science companies as a result of certain business development transactions. While we are holding such securities, we are subject to equity price risk, and this may increase the volatility of our income in future periods due to changes in the fair value of equity investments. From time to time, we will sell such equity securities based on our business considerations, which may include limiting our price risk.

Our equity securities with readily determinable fair values are analyzed at year-end to determine their sensitivity to equity price rate changes. In this sensitivity analysis, the expected adverse impact on our net income would not be significant.

Pfizer Inc.			2020 Form 10-K			46

Contractual Obligations

Payments due under contractual obligations as of December 31, 2020, mature as follows:

												Years
(MILLIONS OF DOLLARS)						Total						2021						2022- 2023						2024- 2025						There-after
Long-term debt, including current portion(a)						$	39,135					$	2,002					$	4,346					$	3,068					$	29,719					Consists of senior unsecured notes (including fixed and floating rate, foreign currency denominated, and other notes). Commitments under financing leases are not significant.
Interest payments on long-term debt obligations(a)						21,122						1,390						2,746						2,455						14,530						Incorporates only current period assumptions for interest rates, foreign currency translation rates and hedging strategies, and assumes that interest is accrued through the maturity date or expiration of the related instrument.
Other long-term liabilities(b)						2,070						383						451						381						855						Includes expected payments relating to our unfunded U.S. supplemental (non-qualified) pension plans, postretirement plans and deferred compensation plans. Excludes amounts relating to our U.S. qualified pension plans and international pension plans, all of which have a substantial amount of plan assets, because the required funding obligations are not expected to be material and/or because such liabilities do not necessarily reflect future cash payments, as the impact of changes in economic conditions on the fair value of the pension plan assets and/or liabilities can be significant. Also, excludes $4.2 billion of liabilities related to the fair value of derivative financial instruments, legal matters and employee terminations, among other liabilities, most of which do not represent contractual obligations.
Operating leases(c)						3,312						357						638						460						1,856						Includes future minimum rental commitments under non-cancelable operating leases, including an agreement to lease space in an office building in New York City.
Purchase obligations and other(d)						3,793						847						1,470						933						543						Includes agreements to purchase goods and services that are enforceable and legally binding and includes amounts relating to advertising, information technology services, employee benefit administration services, and potential milestone payments deemed reasonably likely to occur.
Other taxes payable—deemed repatriated accumulated post-1986 earnings of foreign subsidiaries(e)						9,000						700						1,700						3,700						2,900						Represents estimated cash payments related to the TCJA repatriation tax liability.
Uncertain tax positions(e)						42						42						—						—						—						Includes only income tax amounts currently payable. We are unable to predict the timing of tax settlements related to our noncurrent obligations for uncertain tax positions as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

(a)See Note 7.

(b)See Notes 3, 7A,11E and16.

(c)See Note 15.

(d)Also includes obligations to make guaranteed fixed annual payments over the next six years in connection with the U.S. and EU approvals for Besponsa ($401 million) and an obligation to make guaranteed fixed annual payments over the next seven years for Bosulif ($195 million), both associated with R&D arrangements.

(e)See Note 5.

The above table includes amounts for potential milestone payments under collaboration, licensing or other arrangements, if the payments are deemed reasonably likely to occur. Payments under these agreements generally become due and payable only upon the achievement of certain development, regulatory and/or commercialization milestones, which may span several years and which may never occur.

In 2021, we expect to spend approximately $3.0 billion on property, plant and equipment. We rely largely on operating cash flows to fund our capital investment needs.

Off-Balance Sheet Arrangements

In the ordinary course of business and in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities. For more information on guarantees and indemnifications, see Note 16B.

Additionally, certain of our co-promotion or license agreements give our licensors or partners the rights to negotiate for, or in some cases to obtain under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products.

Share-Purchase Plans and Accelerated Share Repurchase Agreements

See Note 12 for information on the shares of our common stock purchased and the cost of purchases under our publicly announced share-purchase plans, including our accelerated share repurchase agreements. At December 31, 2020, our remaining share-purchase authorization was approximately $5.3 billion.

Pfizer Inc.			2020 Form 10-K			47

Dividends on Common Stock

In December 2020, our BOD declared a first-quarter dividend of $0.39 per share, payable on March 5, 2021, to shareholders of record at the close of business on January 29, 2021. The first-quarter 2021 cash dividend will be our 329th consecutive quarterly dividend.

Our current and projected dividends provide a return to shareholders while maintaining sufficient capital to invest in growing our business. Our dividends are not restricted by debt covenants. While the dividend level remains a decision of Pfizer’s BOD and will continue to be evaluated in the context of future business performance, we currently believe that we can support future annual dividend increases, barring significant unforeseen events. Viatris is expected to begin paying a quarterly dividend in the second quarter of 2021, at which time Pfizer’s quarterly dividend is expected to be reduced such that the combined dividend dollar amount received by Pfizer shareholders, based upon the combination of continued Pfizer ownership and approximately 0.124079 shares of Viatris common stock which were granted for each Pfizer share in the spin-off, will equate to Pfizer’s dividend amount in effect immediately prior to the initiation of the Viatris dividend.

NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

See Note 1B.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2020
Standard/Description						Effective Date						Effect on the Financial Statements
Accounting for income taxes eliminates certain exceptions to the guidance, related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.						January 1, 2021.						We do not expect this guidance to have a material impact on our consolidated financial statements.
Reference rate reform provides temporary optional expedients and exceptions to the guidance for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued after 2021 because of reference rate reform. The new guidance provides the following optional expedients: 1.Simplify accounting analyses under current U.S. GAAP for contract modifications. 2.Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue. 3.Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform.						Elections can be adopted prospectively at any time in the first quarter of 2020 through December 31, 2022.						We are assessing the impact of the provisions of this new guidance on our consolidated financial statements.