Item 2. MANAGEMENTS’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS**

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

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 focused, global leader in science-based innovative medicines and vaccines. We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, sale and distribution of biopharmaceutical products worldwide. The financial results of the Upjohn Business and the Mylan-Japan collaboration are reflected as discontinued operations. Prior-period information has been restated to reflect our current organization structure. We expect to incur costs of approximately $700 million in connection with separating Upjohn, of which approximately 75% has been incurred since inception and through the third quarter of 2021. These charges include costs and expenses related to separation of legal entities and transaction costs.

For additional information about our business, strategy and operating environment, see the Item 1. Business section and Overview of Our Performance, Operating Environment, Strategy and Outlook section within MD&A of our 2020 Form 10-K.

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 Development Initiatives

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.

Our significant recent business development activities include:

Collaboration with Biohaven––In November 2021, we entered into a collaboration and license agreement and related sublicense agreement with Biohaven Pharmaceutical Holding Company Ltd., Biohaven Pharmaceutical Ireland DAC and Bioshin LTD. (collectively, Biohaven) pursuant to which we will acquire rights to commercialize rimegepant and zavegepant for the treatment and prevention of migraines outside of the U.S., subject to regulatory approval. Rimegepant is currently commercialized in the U.S. under the brand name Nurtec® ODT, with certain applications pending outside of the U.S. Biohaven will continue to lead R&D globally and we have the exclusive right to commercialization globally, outside of the U.S. Under the financial terms of the transaction agreements, we will make an upfront payment of $500 million, consisting of $150 million cash and $350 million in the purchase of Biohaven equity. Biohaven is also eligible to receive up to $740 million in non-U.S. commercialization milestones, in addition to tiered double-digit royalties on net sales outside of the U.S. In addition to the milestones and royalties above, we will also reimburse Biohaven for the portion of certain additional milestones and royalties due to third parties in accordance with preexisting agreements, which are attributed to ex-U.S. sales. The transaction is subject to customary closing conditions, including completion of review under applicable antitrust laws.

Agreement with Altaris Capital Partners, LLC (Altaris)––In November 2021, we entered into an agreement with Altaris, a healthcare investment firm based in New York, for Altaris to purchase Meridian. Meridian was acquired by Pfizer in 2011 as part of the King Pharmaceuticals acquisition and has maintained relative operational autonomy since that time. Meridian’s operations, which generate approximately $300 million in annual revenues, consist of manufacturing and distributing medical countermeasures used by the U.S. Department of Defense, Emergency Medical Services, Homeland Security and foreign ministries of health and defense, as well as rescue auto-injectors for the emergency treatment of allergic reactions including anaphylaxis. The transaction is expected to close in the coming months, subject to customary closing conditions including the receipt of regulatory approvals.

Acquisition of Trillium Therapeutics Inc. (Trillium)––In August 2021, we and Trillium announced that the companies entered into a definitive agreement under which we will acquire Trillium, a clinical stage immuno-oncology company developing innovative therapies for the treatment of cancer. We currently hold a 2% ownership investment in Trillium. Under the terms of the agreement, we will acquire all outstanding shares of Trillium not already owned by us for $18.50 per share, in cash, or an aggregate purchase price of approximately $2.2 billion. The acquisition is expected to close in the fourth quarter of 2021 or first half of 2022, subject to customary closing conditions, including regulatory approvals.

Collaboration with Arvinas, Inc. (Arvinas)––In July 2021, we announced a global collaboration with Arvinas to develop and commercialize ARV-471, an investigational oral PROTAC® (PROteolysis TArgeting Chimera) estrogen receptor protein degrader. See Note 2 for additional information*.*

Acquisition of Amplyx Pharmaceuticals, Inc. (Amplyx)––In April 2021, we announced that we acquired Amplyx, a privately-held company dedicated to the development of therapies for debilitating and life-threatening diseases that affect people with compromised immune systems. Amplyx’s lead compound, Fosmanogepix (APX001), is a novel investigational asset in Phase 2 development for the treatment of invasive fungal infections.

For a discussion of recent significant business development activities, see Note 2. For a description of the more significant recent transactions through February 25, 2021, the filing date of our 2020 Form 10-K, see Note 2 in our 2020 Form 10-K.

Our Third Quarter 2021 and First Nine Months of 2021 Performance

Revenues

Revenues increased $13.8 billion, or 134%, in the third quarter of 2021 to $24.1 billion from $10.3 billion in the third quarter of 2020, reflecting an operational increase of $13.4 billion, or 130%, as well as a favorable impact of foreign exchange of $421 million, or 4%. Excluding direct sales and alliance revenues of Comirnaty of $13.0 billion, revenues increased 7% operationally, reflecting strong growth in Eliquis, Vyndaqel/Vyndamax, Inlyta, Xtandi, Biosimilars and the Hospital therapeutic area, partially offset by declines in Chantix/Champix, Prevnar family, Sutent, Xeljanz and Enbrel.

Revenues increased $27.4 billion, or 91%, in the first nine months of 2021 to $57.7 billion from $30.2 billion in the first nine months of 2020, reflecting an operational increase of $26.1 billion, or 86%, as well as a favorable impact of foreign exchange of $1.3 billion, or 4%. Excluding direct sales and alliance revenues of Comirnaty of $24.3 billion, revenues increased 8% operationally, reflecting strong growth in Eliquis, Vyndaqel/Vyndamax, Inlyta, Xtandi, Biosimilars and the Hospital therapeutic area, partially offset by declines in Chantix/Champix, Prevnar family, Enbrel and Sutent.

See the Analysis of the Condensed Consolidated Statements of Income––Revenues by Geography and Revenues––Selected Product Discussion sections for more information, including a discussion of key drivers of our revenue performance. For information regarding the primary indications or class of certain products, see Note 13B.

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

The increases in Income from continuing operations before provision/(benefit) for taxes on income of $7.3 billion in the third quarter of 2021 and $13.7 billion in the first nine months of 2021, compared to the same periods in 2020, respectively, were primarily attributable to: (i) higher revenues, (ii) net periodic benefit credits in 2021 versus net periodic benefit costs in 2020, (iii) net gains on equity securities in the third quarter of 2021 versus net losses on equity securities in the third quarter of 2020, and higher net gains on equity securities in the first nine months of 2021 and (iv) the non-recurrence of certain asset impairment charges in 2020, partially offset by (v) increases in: Cost of sales, Research and development expenses, Selling, informational and administrative expenses and Restructuring charges and certain acquisition-related costs.

See the Analysis of the Condensed Consolidated Statements of Income within this MD&A and Note 4 for additional information.

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

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 and in our 2020 Form 10-K.

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. Examples of products experiencing recent expirations of their basic product patent are Chantix in the U.S. in November 2020 and Sutent in the U.S. 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. Further, legal or regulatory action by various stakeholders or governments could potentially result in us not seeking intellectual property protection for or agreeing not to enforce or being restricted from enforcing intellectual property related to our products. For example, in May 2021, the Brazilian Supreme Court voted to invalidate Article 40 of

Brazil’s Patent Law, which guaranteed a minimum 10-year patent term from patent grant, and to give retroactive effect to such decision. 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 in relation to our business as a whole, see the Item 1. Business––Patents and Other Intellectual Property Rights section of our 2020 Form 10-K. For a discussion of recent developments with respect to patent litigation, see Note 12A1.

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

The pricing of medicines and vaccines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, vaccines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Federal and state governments and private third-party payers in the U.S. continue to take action to manage the utilization of drugs and cost of drugs, including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. We consider a number of factors impacting the pricing of our medicines and vaccines. Within the U.S., we often engage with patients, doctors and healthcare plans. We also often provide significant discounts from the list price to insurers, including PBMs and MCOs. The price that patients pay in the U.S. for prescribed medicines and vaccines is ultimately set by healthcare providers and insurers. Governments globally may use a variety of measures to control costs, 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), quality consistency evaluation processes and volume-based procurement. In the U.S., we expect to see continued focus by Congress and the Biden Administration on regulating pricing resulting in legislative and regulatory efforts designed to control costs. Congress is currently considering a budget reconciliation package that includes drug pricing changes to Medicare Part B and D. We anticipate that these and similar initiatives will continue to increase pricing pressures globally. For additional information, see the Item 1. Business––Pricing Pressures and Managed Care Organizations and ––Government Regulation and Price Constraints sections in our 2020 Form 10-K*.*

Product Supply

We periodically encounter supply delays, disruptions and shortages, including due to a voluntary recall of a product. In July and August, Pfizer recalled 16 lots of Chantix in the U.S. due to the presence of a nitrosamine, N-nitroso-varenicline, at or above the FDA interim acceptable intake limit. In September 2021, Pfizer expanded its voluntary recall in the U.S. to include all lots of Chantix. We currently also have a voluntary recall across multiple markets and a global pause in shipments of Chantix. Nitrosamines are impurities common in water and foods and everyone is exposed to some level of nitrosamines. In response to requests from various regulatory authorities, manufacturers across the pharmaceutical industry, including Pfizer, have been evaluating the potential for the presence or formation of nitrosamines in pharmaceutical products. We are currently undertaking an evaluation of our entire portfolio. For information on risks related to product manufacturing, see the Item 1A. Risk Factors––Product Manufacturing, Sales and Marketing Risks section of our 2020 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. For additional information, please see the Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment section of the MD&A of our 2020 Form 10-K.

COVID-19 Pandemic

The continuation of the COVID-19 pandemic has impacted our business, operations and financial condition and results.

Our Response to COVID-19

We are committed to confronting the public health challenge posed by the pandemic by collaborating with industry partners, global regulators and academic institutions to develop potential approaches to prevent and treat COVID-19. We have made some important advances, including, among others:

*•*COVID-19 Vaccine Development Program:

◦The FDA has approved Comirnaty in the U.S. to prevent COVID-19 in individuals 16 years of age and older as a two-dose primary series (30 µg per dose). Comirnaty is the first COVID-19 vaccine to be granted approval by the FDA and had previously been available to this patient population in the U.S. under an EUA since December 2020. The vaccine remains available to individuals 12 to 15 years old under an EUA granted by the FDA in May 2021. Emergency use and distribution of this product is 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 during the COVID-19 pandemic under Section 564 of the U.S. Federal Food, Drug and Cosmetic Act (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. In September 2021, the FDA authorized for emergency use a booster dose of Comirnaty/BNT162b2 for individuals 65 years of age and older, individuals 18 through 64 years of age at high risk of severe COVID-19, and individuals 18 through 64 years of age with frequent institutional or occupational exposure to SARS-CoV-2. In addition, in October 2021, the FDA authorized for emergency use a booster dose to eligible individuals who have completed primary vaccination with a different authorized COVID-19 vaccine. The FDA also authorized BNT162b2 (10 µg per dose) for emergency use for children 5 through 11 years of age. In November 2021, we and BioNTech submitted a request to the FDA to amend the EUA of a booster dose of Comirnaty/BNT162b2 to include all individuals 18 years of age and older. Comirnaty/BNT162b2 has been granted an approval or a temporary authorization in many other countries around the world in populations varying by country. We continue to evaluate our vaccine, including for potential maternal and additional pediatric indications, and the short- and long-term efficacy of Comirnaty. We are also studying vaccines to potentially prevent COVID-19 caused by new and emerging variants or an updated vaccine as needed.

◦The companies have entered into agreements to supply pre-specified doses of Comirnaty with multiple developed and emerging countries around the world and are continuing to deliver doses of Comirnaty to governments under such agreements. We also signed agreements with multiple countries to supply Comirnaty doses in 2022 and beyond and are currently negotiating similar potential agreements with multiple other countries.

◦As of November 2, 2021, we forecasted approximately $36.0 billion in revenues in 2021 from Comirnaty, with gross profit to be split evenly with BioNTech, reflecting approximately 2.3 billion doses that are expected to be delivered in fiscal 2021 based on expected ordering patterns through the end of December 2021 for the U.S. and through the end of November 2021 for the rest of the world. Pfizer and BioNTech continue to expect to manufacture 3 billion doses in total by the end of December 2021. The difference between the number of doses expected to contribute to 2021 revenues versus the number of doses expected to be manufactured by year-end relates to anticipated international deliveries in December 2021, which will be recorded as revenue in 2022 due to our international fiscal calendar, and, to a lesser extent, doses expected to be produced but not yet delivered as of December 31, 2021. We anticipate delivering at least two billion doses to low- and middle-income countries by the end of 2022 - at least one billion to be delivered in 2021 and one billion in 2022, with the possibility to increase those deliveries if more orders are placed by these countries for 2022. One billion of these doses will be supplied to the U.S. government at a not-for-profit price to be donated to the world’s poorest nations at no charge to those countries.

*•*COVID-19 Protease Inhibitors:

◦In July 2021, we initiated the Phase 2/3 EPIC-HR (Evaluation of Protease Inhibition for COVID-19 in High-Risk Patients) study to evaluate the efficacy, safety and tolerability of Paxlovid (PF-07321332; ritonavir), an investigational, novel oral antiviral therapeutic for COVID-19, which is a SARS-CoV2-3CL protease inhibitor and is co-administered with a low dose of ritonavir, in non-hospitalized, high-risk adult participants with COVID-19. In August 2021, we initiated the pivotal Phase 2/3 EPIC-SR (Evaluation of Protease Inhibition for COVID-19 in Standard-Risk Patients) study to evaluate Paxlovid (PF-07321332; ritonavir) in patients with a confirmed diagnosis of SARS-CoV-2 infection who are at standard risk (i.e., low risk of hospitalization or death). In September 2021, we initiated the Phase 2/3 EPIC-PEP (Evaluation of Protease Inhibition for COVID-19 in Post-Exposure Prophylaxis) study to evaluate Paxlovid (PF-07321332; ritonavir) for the prevention of COVID-19 infection in adults living in the same household as someone with a confirmed COVID-19 infection. In November 2021, Pfizer announced the scheduled interim analysis of EPIC-HR, which showed an 89% reduction in risk of COVID-19-related hospitalization or death from any cause compared to placebo in patients treated within three days of symptom onset (primary endpoint). Pfizer plans to submit the data as part of its ongoing rolling submission to the FDA for EUA as soon as possible. We have also entered into agreements to supply pre-specified courses of treatment with several countries and are currently in negotiations with other markets to supply the product, if authorized or approved.

◦In September 2021, the National Institute of Allergy and Infectious Disease initiated a study of our intravenously administered investigational protease inhibitor for COVID-19, PF-07304814, which is a SARS-CoV2-3CL protease inhibitor, in adults hospitalized with COVID-19, as part of the National Institutes of Health’s Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV)-3 program.

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

As part of our on-going monitoring and assessment, we have made certain assumptions regarding the 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. 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 corporate enabling functions globally.

As discussed in our 2020 Form 10-K, our business and operations were impacted in 2020 by the pandemic in various ways; certain of those impacts have continued in 2021. For detail on the impact of the COVID-19 pandemic on our products, see the Analysis of the Condensed Consolidated Statements of Income—Revenues by Geography and Revenues—Selected Product Discussion sections within this MD&A. In 2021, engagement with healthcare professionals has started to return to pre-pandemic levels and we continue to review and assess epidemiological data to inform in-person engagements with healthcare professionals and to ensure the safety of our colleagues, customers and communities. As part of our commitment to engaging our customers in the manner they prefer, we are also taking a hybrid approach of virtual and in person engagements and are seeing customer response to both approaches. During the pandemic, we adapted our promotional platform by amplifying our digital capabilities to reach healthcare professionals and customers to provide critical education and information, including increasing the scale of our remote engagement. Also, in 2021, we have continued not to see 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. However, we are seeing an increase in overall demand in the industry for certain components and raw materials potentially constraining available supply, which could have a future impact on our business. We are continuing to monitor and implement mitigation strategies in an effort to reduce any potential impact.

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.

For additional information, please see the Item 1A. Risk Factors—COVID-19 Pandemic section and the Overview of Our Performance, Operating Environment, Strategy and Outlook section of the MD&A of our 2020 Form 10-K.

SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

For a description of our significant accounting policies, see Note 1 in our 2020 Form 10-K*.* 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).

For a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements, see the Significant Accounting Policies and Application of Critical Accounting Estimates and Assumptions section within MD&A in our 2020 Form 10-K. See also Note 1C in our 2020 Form 10-K for a discussion about the risks associated with estimates and assumptions.

For a discussion of a recently adopted accounting standard, a change in accounting principle related to our pension and postretirement plans, and significant accounting policies, see Notes 1B, 1C and 1D.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Revenues by Geography

The following presents worldwide revenues by geography:
						Three Months Ended
						Worldwide												U.S.												International												World-wide						U.S.						Inter-national
(MILLIONS)						Oct. 3, 2021						Sept. 27, 2020						Oct. 3, 2021						Sept. 27, 2020						Oct. 3, 2021						Sept. 27, 2020						% Change in Revenues
Total revenues						$	24,094					$	10,277					$	7,079					$	5,425					$	17,014					$	4,852					134						30						251
						Nine Months Ended
						Worldwide												U.S.												International												World-wide						U.S.						Inter-national
(MILLIONS)						Oct. 3, 2021						Sept. 27, 2020						Oct. 3, 2021						Sept. 27, 2020						Oct. 3, 2021						Sept. 27, 2020						% Change in Revenues
Total revenues						$	57,653					$	30,224					$	22,269					$	15,827					$	35,384					$	14,396					91						41						146

Third Quarter of 2021 vs. Third Quarter of 2020

The following provides an analysis of the worldwide change in revenues by geographic areas in the third quarter of 2021:
						Three Months Ended October 3, 2021
(MILLIONS)						Worldwide						U.S.						International
Operational growth/(decline):
Growth from Comirnaty, Eliquis, Vyndaqel/Vyndamax, Inlyta, Xtandi, Ibrance outside the U.S., Biosimilars and the Hospital therapeutic area, partially offset by declines from Prevnar family and Xeljanz. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis						$	13,695					$	1,877					$	11,818
Lower revenues for Chantix/Champix, Sutent and Enbrel: •The decrease in Chantix/Champix was driven by the voluntary recall across multiple markets and the global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country •The decrease in Sutent primarily reflects lower volume demand in the U.S. resulting from its loss of exclusivity in August 2021 •The decrease for Enbrel internationally primarily reflects continued biosimilar competition, which is expected to continue						(319)						(220)						(99)
Other operational factors, net						19						(3)						22
Operational growth/(decline), net						13,395						1,654						11,741
Favorable impact of foreign exchange						421						—						421
Revenues increase/(decrease)						$	13,817					$	1,654					$	12,162

Emerging markets revenues increased $4.4 billion, or 227%, in the third quarter of 2021 to $6.3 billion from $1.9 billion in the third quarter of 2020, reflecting an operational increase of $4.3 billion, or 222%, and a favorable impact from foreign exchange of approximately 5%. The operational increase in emerging markets was primarily driven by revenues from Comirnaty and growth from certain products in the Hospital therapeutic area and Eliquis.

First Nine Months of 2021 vs. First Nine Months of 2020

The following provides an analysis of the worldwide change in revenues by geographic areas in the first nine months of 2021:
						Nine Months Ended October 3, 2021
(MILLIONS)						Worldwide						U.S.						International
Operational growth/(decline):
Growth from Comirnaty, Eliquis, Vyndaqel/Vyndamax, Inlyta, Xtandi, Ibrance outside the U.S., Biosimilars and the Hospital therapeutic area, partially offset by declines from Prevnar family and Xeljanz. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis						$	26,647					$	6,776					$	19,871
Lower revenues for Chantix/Champix, Enbrel and Sutent: •The decrease in Chantix/Champix was driven by the voluntary recall across multiple markets and the global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country and the negative impact of the COVID-19 pandemic resulting in a decline in patient visits to doctors for preventive health purposes •The decrease for Enbrel internationally primarily reflects continued biosimilar competition, which is expected to continue •The decrease in Sutent primarily reflects lower volume demand in the U.S. resulting from its loss of exclusivity in August 2021, as well as continued erosion as a result of increased competition in certain international developed markets						(562)						(320)						(241)
Other operational factors, net						2						(14)						15
Operational growth/(decline), net						26,087						6,442						19,644
Favorable impact of foreign exchange						1,342						—						1,342
Revenues increase/(decrease)						$	27,429					$	6,442					$	20,987

Emerging markets revenues increased $6.9 billion, or 116%, in the first nine months of 2021 to $12.9 billion from $6.0 billion in the first nine months of 2020, reflecting an operational increase of $6.7 billion, or 113%, and a favorable impact from foreign exchange of approximately 3%. The operational increase in emerging markets was primarily driven by revenues from Comirnaty and growth from certain products in the Hospital therapeutic area 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:
						Three Months Ended												Nine Months Ended
(MILLIONS)						October 3, 2021						September 27, 2020						October 3, 2021						September 27, 2020
Medicare rebates						$	175					$	163					$	546					$	489
Medicaid and related state program rebates						252						252						904						832
Performance-based contract rebates						883						616						2,424						1,886
Chargebacks						1,618						1,127						4,567						3,190
Sales allowances						1,218						904						3,575						2,790
Sales returns and cash discounts						267						229						727						668
Total						$	4,414					$	3,291					$	12,743					$	9,855

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 1D.

Revenues––Selected Product Discussion

(MILLIONS)																								Revenue												% Change
Product						Period						Global Revenues						Region						Oct. 3, 2021						Sept. 27, 2020						Total						Oper.						Operational Results Commentary
Comirnaty**(a)**						QTD						$12,977 *****						U.S.						$	1,586					$	—					*												Driven by global uptake, following a growing number of regulatory approvals and temporary authorizations.
Int’l.						11,391						—						*						*
Worldwide						$	12,977					$	—					*						*
YTD			$24,277 *****			U.S.						$	5,657					$	—					*
Int’l.						18,619						—						*						*
Worldwide						$	24,277					$	—					*						*
Eliquis			QTD			$1,346 Up 19% (operationally)			U.S.						$	629					$	557					13												Global growth driven primarily by continued increased adoption in non-valvular atrial fibrillation and oral anti-coagulant market share gains. YTD was also impacted by a favorable adjustment related to the Medicare “coverage gap” provision resulting from lower than previously expected discounts in prior periods.
Int’l.						717						557						29						25
Worldwide						$	1,346					$	1,114					21						19
YTD			$4,470 Up 19% (operationally)			U.S.						$	2,440					$	2,084					17
Int’l.						2,030						1,602						27						21
Worldwide						$	4,470					$	3,686					21						19
Ibrance			QTD			$1,381 Up 1% (operationally)			U.S.						$	883					$	909					(3)												Growth driven primarily by accelerating demand internationally as the delays in diagnosis and treatment initiations caused by COVID-19 show signs of recovery across several international markets, partially offset by a decline in the U.S., driven by an increase in the proportion of patients accessing Ibrance through our Patient Assistance Program.
Int’l.						498						448						11						9
Worldwide						$	1,381					$	1,357					2						1
YTD			$4,039 Up 1% (operationally)			U.S.						$	2,539					$	2,689					(6)
Int’l.						1,500						1,266						18						14
Worldwide						$	4,039					$	3,955					2						1
Prevnar family			QTD			$1,447 Down 7% (operationally)			U.S.						$	850					$	868					(2)												Decline primarily resulting from: •continued impact of the lower remaining unvaccinated eligible adult population in the U.S. and the June 2019 change to the ACIP recommendation for the Prevnar 13 adult indication to shared clinical decision-making; and •the adult indication in the U.S. due to the ongoing prioritization of primary and booster vaccination campaigns for COVID-19 by U.S. health authorities, and a later start to the flu season compared to the prior year. This decline was partially offset by: •U.S. growth in the pediatric indication, driven by government purchasing patterns. YTD was also impacted by: •a decline, primarily in developed Europe, reflecting significantly increased adult demand in the prior year in Germany and certain other markets resulting from greater vaccine awareness for respiratory illnesses due to the COVID-19 pandemic.
Int’l.						596						665						(10)						(13)
Worldwide						$	1,447					$	1,534					(6)						(7)
YTD			$3,971 Down 4% (operationally)			U.S.						$	2,130					$	2,143					(1)
Int’l.						1,841						1,957						(6)						(8)
Worldwide						$	3,971					$	4,100					(3)						(4)

(MILLIONS)																								Revenue												% Change
Product						Period						Global Revenues						Region						Oct. 3, 2021						Sept. 27, 2020						Total						Oper.						Operational Results Commentary
Xeljanz						QTD						$610 Down 7% (operationally)						U.S.						$	410					$	469					(13)												Decline driven by the U.S., reflecting the negative impact of a review by the FDA which resulted in a Drug Safety Communication related to Xeljanz and two competitors’ arthritis medicines in the same drug class, as well as an unfavorable change in channel mix toward lower-priced channels and continued investments to improve formulary positioning and unlock access to additional patient lives. This decline was partially offset by operational growth internationally mainly driven by continued uptake in the UC indication in certain developed markets.
Int’l.			201						185						8						7
Worldwide			$	610					$	654					(7)						(7)
YTD			$1,734 Down 1% (operationally)			U.S.						$	1,132					$	1,213					(7)
Int’l.						602						528						14						11
Worldwide						$	1,734					$	1,741					—						(1)
Vyndaqel/ Vyndamax			QTD			$501 Up 42% (operationally)			U.S.						$	228					$	158					44												Growth primarily driven by continued strong uptake of the ATTR-CM indication in the U.S., developed Europe and Japan.
Int’l.			273						193			41			40
Worldwide			$	501					$	351		43			42
YTD			$1,454 Up 66% (operationally)			U.S.						$	658					$	431					53
Int’l.						796						429						86						78
Worldwide						$	1,454					$	859					69						66
Xtandi			QTD			$309 Up 16% (operationally)			U.S.						$	309					$	266					16												Growth primarily driven by strong demand across the mCRPC, nmCRPC and mCSPC indications.
Int’l.			—						—			—			—
Worldwide			$	309					$	266		16			16
YTD			$879 Up 19% (operationally)			U.S.						$	879					$	741					19
Int’l.						—						—						—						—
Worldwide						$	879					$	741					19						19
Inlyta			QTD			$256 Up 30% (operationally)			U.S.						$	151					$	124					22												Growth primarily reflects continued adoption in the U.S. and developed Europe of combinations of certain immune checkpoint inhibitors and Inlyta for the first-line treatment of patients with advanced RCC.
Int’l.			104						71						47						43
Worldwide			$	256					$	195					31						30
YTD			$742 Up 31% (operationally)			U.S.						$	448					$	372					20
Int’l.						294						187						57						51
Worldwide						$	742					$	559					33						31
Biosimilars			QTD			$575 Up 34% (operationally)			U.S.						$	390					$	260					50												Growth primarily driven by recent oncology monoclonal antibody biosimilar launches and continued growth from Retacrit in the U.S.
Int’l.			185						164						13						9
Worldwide			$	575					$	424					36						34
YTD			$1,663 Up 62% (operationally)			U.S.						$	1,080					$	588					84
Int’l.						583						414						41						32
Worldwide						$	1,663					$	1,001					66						62
Hospital			QTD			$2,367 Up 29% (operationally)			U.S.						$	819					$	765					7												Growth primarily driven by Pfizer CentreOne, our contract manufacturing operation, reflecting certain Comirnaty-related manufacturing activities performed on behalf of BioNTech and manufacturing of legacy Upjohn products for Viatris under manufacturing and supply agreements, as well as growth from international markets, primarily driven by the anti-infectives portfolio.
Int’l.			1,548						1,025						51						46
Worldwide			$	2,367					$	1,790					32						29
YTD			$6,968 Up 18% (operationally)			U.S.						$	2,557					$	2,485					3
Int’l.						4,412						3,256						36						30
Worldwide						$	6,968					$	5,741					21						18

(a)Comirnaty includes direct sales and alliance revenues related to sales of the Pfizer-BioNTech COVID-19 vaccine, which are recorded within our Vaccines therapeutic area. It does not include revenues for certain Comirnaty-related manufacturing activities performed on behalf of BioNTech, which are included in the Pfizer CentreOne contract manufacturing operation within the Hospital area. Revenues related to these manufacturing activities totaled $187 million and $274 million for the third quarter and the first nine months of 2021, respectively.

• 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 of our 2020 Form 10-K for information regarding the expiration of various patent rights, Note 12 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above, and Note 13B for information regarding the primary indications or class of the selected products discussed.

Product Developments

A comprehensive update of Pfizer’s development pipeline was published as of November 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
Comirnaty/BNT162b2 (PF-07302048)(a)			Immunization to prevent COVID-19 (16 years of age and older)			BLA Aug. 2021			CMA Dec. 2020			Approved Feb. 2021
Immunization to prevent COVID-19 (12-15 years of age)			EUA May 2021			CMA May 2021			Approved May 2021
Immunization to prevent COVID-19 (booster, adults)			EUA Sep. 2021			CMA Oct. 2021			Approved Nov. 2021
Immunization to prevent COVID-19 (5-11 years of age)			EUA Oct. 2021			Filed Oct. 2021			Filed Nov. 2021
Bavencio (avelumab)(b)			First-line maintenance urothelial cancer						Approved Jan. 2021			Approved Feb. 2021
Nyvepria (pegfilgrastim-apgf)			Neutropenia in patients undergoing cancer chemotherapy (biosimilar)						Approved Nov. 2020
Braftovi (encorafenib)(c)			Second or third-line BRAFv600E-mutant mCRC (combination with Erbitux® (cetuximab))									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 April 2021
Cibinqo (abrocitinib)(e)			Atopic dermatitis			Filed Oct. 2020			Filed Oct. 2020			Approved Sep. 2021
Xeljanz (tofacitinib)(e)			Ankylosing spondylitis			Filed Aug. 2020			Filed Feb. 2021
Myfembree (relugolix fixed dose combination)(f)			Uterine fibroids (combination with estradiol and norethindrone acetate)			Approved May 2021
Endometriosis (combination with estradiol and norethindrone acetate)			Filed Sep. 2021
Lorbrena (lorlatinib)			First- line ALK-positive NSCLC			Approved Mar. 2021			Filed Feb. 2021			Filed Dec. 2020
somatrogon (PF-06836922)****(g)			Pediatric growth hormone deficiency			Filed Jan. 2021			Filed Feb. 2021			Filed Jan. 2021
Prevnar 20 (Vaccine)(h)			Immunization to prevent invasive and non-invasive pneumococcal infections (adults)			Approved June 2021			Filed Feb. 2021
TicoVac (Vaccine)			Immunization to prevent tick-borne encephalitis			Approved Aug. 2021

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

(a)Being developed in collaboration with BioNTech. Prior to BLA, Comirnaty/BNT162b2 for ages 16 and up was available pursuant to an EUA from the FDA on December 11, 2020. A booster dose received EUA from the FDA on September 22, 2021 for individuals 65 years of age and older, individuals 18 through 64 years of age at high risk of severe COVID-19, and individuals 18 through 64 years of age with frequent institutional or occupational exposure to SARS-CoV-2. In addition, in October 2021, the FDA authorized for emergency use a booster dose to eligible individuals who have completed primary vaccination with a different authorized COVID-19 vaccine. A booster dose received conditional marketing authorization from the EMA on October 5, 2021 and approval in Japan on November 10, 2021 for 18 years of age and older. In November 2021, we and BioNTech submitted a request to the FDA to amend the EUA of a booster dose of Comirnaty/BNT162b2 to include all individuals 18 years of age and older.

(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)In July 2021, the FDA notified the company that it will not meet the PDUFA goal dates for the New Drug Application for abrocitinib and the supplemental New Drug Application for Xeljanz/Xeljanz XR (tofacitinib). The FDA cited its ongoing review of Pfizer's post-marketing safety study, ORAL Surveillance, evaluating tofacitinib in rheumatoid arthritis patients, as a factor for the extensions. In October 2021, the EMA’s Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion recommending the approval of abrocitinib to treat moderate to severe atopic dermatitis in adults who are candidates for systemic therapy. The CHMP also adopted a positive opinion recommending an extension to the existing indications for Xeljanz (tofacitinib) to include the treatment of adults with active ankylosing spondylitis who have responded inadequately to conventional therapy.

(f)Being developed in collaboration with Myovant.

(g)Being developed in collaboration with OPKO.

(h)In October 2021, the CDC’s ACIP voted to recommend Prevnar 20 for routine use in adults. Specifically, the ACIP voted to recommend the following: (i) adults 65 years of age or older who have not previously received a pneumococcal conjugate vaccine or whose previous vaccination history is unknown should receive a pneumococcal conjugate vaccine

(either pneumococcal 20-valent conjugate vaccine (PCV20) or pneumococcal 15-valent conjugate vaccine (PCV15)). If PCV15 is used, this should be followed by a dose of pneumococcal polysaccharide vaccine (PPSV23); and (ii) adults aged 19 years of age or older with certain underlying medical conditions or other risk factors who have not previously received a pneumococcal conjugate vaccine or whose previous vaccination history is unknown should receive a pneumococcal conjugate vaccine (either PCV20 or PCV15). If PCV15 is used, this should be followed by a dose of PPSV23. The recommendations will be forwarded to the director of the CDC and the U.S. Department of Health and Human Services for review and following approval, the recommendations are published in the Morbidity and Mortality Weekly Report.

In October 2021, Pfizer and Lilly discontinued the global clinical development program for tanezumab, an investigational nerve growth factor inhibitor. This decision was made following receipt of a Complete Response Letter from the FDA for the tanezumab application in osteoarthritis (OA) and a negative opinion adopted by the EMA's Committee for Medicinal Products for Human Use on the tanezumab Marketing Authorization Application in OA.

In September 2021, the FDA issued a Drug Safety Communication (DSC) related to Xeljanz/Xeljanz XR and two competitors’ arthritis medicines in the same drug class, based on its completed review of the ORAL Surveillance trial. The DSC stated that the FDA will require revisions to the Boxed Warnings for each of these medicines to include information about the risks of serious heart-related events, cancer, blood clots, and death. In addition, the DSC indicates the FDA’s intention to limit approved uses of these products to certain patients who have not responded or cannot tolerate one or more tumor necrosis factor (TNF) blockers.

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 NSCLC
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
Combination with Xtandi (enzalutamide) for DNA Damage Repair (DDR)-deficient mCSPC
PF-06482077 (Vaccine)			Immunization to prevent invasive and non-invasive pneumococcal infections (pediatric)
somatrogon (PF-06836922)(d)			Adult growth hormone deficiency
Braftovi (encorafenib) and Erbitux® (cetuximab)(e)			First-line BRAFv600E-mutant mCRC
Myfembree (relugolix fixed dose combination)(f)			Combination with estradiol and norethindrone acetate for contraceptive efficacy
Braftovi (encorafenib) and Mektovi (binimetinib) and Keytruda® (pembrolizumab)(g)			BRAFv600E-mutant metastatic or unresectable locally advanced melanoma
Comirnaty**/**BNT162b2 (PF-07302048)(h)			Immunization to prevent COVID-19 (children 2 to <5 years of age)
Immunization to prevent COVID-19 (infants 6 months to <24 months)
Immunization to prevent COVID-19 (maternal)
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT			aztreonam-avibactam (PF-06947387)			Treatment of infections caused by Gram-negative bacteria
fidanacogene elaparvovec (PF-06838435)(i)			Hemophilia B
giroctocogene fitelparvovec (PF-07055480)(j)			Hemophilia A
PF-06425090 (Vaccine)			Immunization to prevent primary clostridioides difficile infection
PF-06886992 (Vaccine)			Immunization to prevent serogroups meningococcal infection (adolescent and young adults)
PF-06928316 (Vaccine)			Immunization to prevent respiratory syncytial virus infection (maternal)
Immunization to prevent respiratory syncytial virus infection (older adults)
PF-07265803			Dilated cardiomyopathy due to Lamin A/C gene mutation
ritlecitinib (PF-06651600)			Alopecia areata
sasanlimab (PF-06801591)			Combination with Bacillus Calmette-Guerin for non-muscle-invasive bladder cancer
fordadistrogene movaparvovec (PF-06939926)			Duchenne muscular dystrophy
marstacimab (PF-06741086)			Hemophilia
Elranatamab (PF-06863135)			Multiple Myeloma Double-Class Exposed
Paxlovid (PF-07321332; ritonavir)			COVID-19 Infection (high risk population)
COVID-19 Infection (low risk population)
COVID-19 Infection (post exposure prophylaxis)

(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.

(e)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.

(f)Being developed in collaboration with Myovant.

(g)Keytruda® is a registered trademark of Merck Sharp & Dohme Corp.

(h)Being developed in collaboration with BioNTech.

(i)Being developed in collaboration with Spark Therapeutics, Inc.

(j)Being developed in collaboration with Sangamo Therapeutics, Inc.

For additional information about our R&D organization, see the Item 1. Business—Research and Development section of our 2020 Form 10-K.

COSTS AND EXPENSES

Costs and expenses follow:
						Three Months Ended																		Nine Months Ended
(MILLIONS)						October 3, 2021						September 27, 2020						% Change						October 3, 2021						September 27, 2020						% Change
Cost of sales						$	9,973					$	2,007					*						$	21,232					$	5,773					*
Percentage of Revenues						41.4		%				19.5		%										36.8		%				19.1		%
Selling, informational and administrative expenses						2,905						2,658						9						8,617						7,858						10
Research and development expenses						3,447						2,300						50						7,920						6,050						31
Amortization of intangible assets						981						862						14						2,784						2,579						8
Restructuring charges and certain acquisition-related costs						646						2						*						668						417						60
Other (income)/deductions—net						(1,696)						1,878						*						(3,697)						1,114						*
* Indicates calculation not meaningful or results are equal to or greater than 100%.

Cost of Sales

Cost of sales increased $8.0 billion in the third quarter and $15.5 billion in the first nine months of 2021, primarily due to:

• the impact of Comirnaty, which includes a charge for the 50% gross profit split with BioNTech and applicable royalty expenses;

• increased sales volumes of other products, driven mostly by Pfizer CentreOne; and

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

The increase in Cost of sales as a percentage of revenues in the third quarter of 2021, compared to the same period in 2020, was primarily due to all of the factors discussed above, in addition to the unfavorable impact of the voluntary recall and global pause in shipments of Chantix, partially offset by an increase in alliance revenues, which have no associated cost of sales.

The increase in Cost of sales as a percentage of revenues in the first nine months of 2021, compared to the same period in 2020, 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.

Selling, Informational and Administrative Expenses

SI&A expenses increased $248 million in the third quarter of 2021, mostly due to:

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

• increased product-related spending across multiple therapeutic areas and other costs associated with activity that is closer to pre-pandemic levels as compared to the prior-year quarter.

SI&A expenses increased $759 million in the first nine months of 2021, mostly due to:

• increased product-related spending across multiple therapeutic areas and other costs associated with activity that is closer to pre-pandemic levels as compared to the prior-year period;

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

• costs related to Comirnaty, driven by a higher provision for healthcare reform fees based on sales;

• the unfavorable impact of foreign exchange; and

• an increase to expense resulting from the increase in our liability to be paid to participants of our supplemental savings plan,

partially offset by:

• lower spending on Chantix following the loss of patent protection in the U.S. in November 2020.

Research and Development (R&D) Expenses

R&D expenses increased $1.1 billion in the third quarter primarily due to:

• an upfront payment related to the global collaboration agreement with Arvinas to develop and commercialize ARV-471; and

• increased investments across multiple therapeutic areas, including additional spending related to the development and at-risk manufacturing of the COVID-19 anti-viral programs.

R&D expenses increased $1.9 billion in the first nine months of 2021, primarily due to:

• increased investments across multiple therapeutic areas, including additional spending related to the development and at-risk manufacturing of the COVID-19 anti-viral programs;

• the upfront payment related to the global collaboration agreement with Arvinas to develop and commercialize ARV-471;

• a charge for IPR&D related to an asset acquisition completed in the second quarter of 2021; and

• an increase 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 specific performance criteria will be achieved,

partially offset by:

• the non-recurrence of 2020 upfront payments to Valneva and BioNTech; and

• lower spending across the Inflammation & Immunology and Internal medicine portfolios.

Amortization of Intangible Assets

Amortization of intangible assets increased $120 million in the third quarter and $204 million in the first nine months of 2021, primarily as a result of amortization of capitalized Comirnaty sales milestones to BioNTech.

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 restructuring our corporate enabling functions, 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 from 2021 through 2022. In connection with transforming our marketing strategy, we expect net cost savings of $1.3 billion, to be achieved primarily from 2022 through 2024. In connection with manufacturing network optimization, including legacy cost reduction initiatives, we expect net cost savings of $300 million to be achieved primarily from 2020 through 2022.

Certain qualifying costs for this program were recorded in the first three quarters of 2021 and 2020 and are reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income. See the Non-GAAP Financial Measure: Adjusted Income section of this MD&A.

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

Other (Income)/Deductions—Net

Other income—net increased $3.6 billion in the third quarter of 2021, mainly due to:

• net periodic benefit credits recorded in the third quarter of 2021 versus net periodic benefit costs recorded in the third quarter of 2020;

• the non-recurrence of certain asset impairment charges that were incurred in the third quarter of 2020; and

• net gains on equity securities in the third quarter of 2021 versus net losses on equity securities recognized in the third quarter of 2020.

Other income—net increased $4.8 billion in the first nine months of 2021, mainly due to:

• net periodic benefit credits recorded in the first nine months of 2021 versus net periodic benefit costs recorded in the first nine months of 2020;

• higher net gains on equity securities; and

• the non-recurrence of certain asset impairment charges that were incurred in the first nine months of 2020.

See Note 4 for additional information*.*

PROVISION/(BENEFIT) FOR TAXES ON INCOME

						Three Months Ended																		Nine Months Ended
(MILLIONS)						October 3, 2021						September 27, 2020						% Change						October 3, 2021						September 27, 2020						% Change
Provision/(benefit) for taxes on income						$	(331)					$	(347)					(5)						$	1,518					$	434					*
Effective tax rate on continuing operations						(4.2)		%				(60.9)		%										7.5		%				6.7		%
* Indicates calculation not meaningful or results are 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 2A.

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, sale 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 items, 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 amortization of intangible assets and 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 items, discontinued operations and certain significant items, which are components of the Adjusted income measure
Adjusted diluted EPS						EPS attributable to Pfizer Inc. common shareholders––diluted(a) before the impact of purchase accounting for acquisitions, acquisition-related items, discontinued operations and certain significant items

(a)Most directly comparable GAAP measure.

(b)The short-term incentive plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part 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. Starting with 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 the third quarter and first nine months of 2021 and 2020 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.

Acquisition-Related Items

Adjusted income excludes acquisition-related items, which are comprised of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each 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.

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/productivity programs are specific to an event or goal with a defined term, we may have subsequent programs based on reorganizations of the business, cost-reduction/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.

Beginning in 2021, we exclude pension and postretirement actuarial remeasurement gains and losses from our measure of Adjusted income because of their inherent market volatility, which we do not control and cannot predict with any level of certainty and because we do not believe including these gains and losses assists investors in understanding our business or is reflective of our core operations and business.

Also, see the Non-GAAP Financial Measure: Adjusted Income section of the MD&A of our 2020 Form 10-K for additional information.

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

						Three Months Ended October 3, 2021
(MILLIONS, EXCEPT PER COMMON SHARE DATA)						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Items(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	24,094					$	—					$	—					$	—					$	—					$	24,094
Cost of sales						9,973						6						—						—						(42)						9,937
Selling, informational and administrative expenses						2,905						(1)						—						—						(173)						2,732
Research and development expenses						3,447						1						—						—						(708)						2,740
Amortization of intangible assets						981						(813)						—						—						—						169
Restructuring charges and certain acquisition-related costs						646						—						(1)						—						(645)						—
(Gain) on completion of Consumer Healthcare JV transaction						—						—						—						—						—						—
Other (income)/deductions––net						(1,696)						(47)						—						—						1,174						(569)
Income from continuing operations before provision/(benefit) for taxes on income						7,836						852						1						—						395						9,084
Provision/(benefit) for taxes on income(b)						(331)						127						2						—						1,587						1,385
Income from continuing operations						8,167						725						(1)						—						(1,192)						7,699
Income/(loss) from discontinued operations––net of tax						(9)						—						—						9						—						—
Net income attributable to noncontrolling interests						12						—						—						—						—						12
Net income attributable to Pfizer Inc. common shareholders						8,146						725						(1)						9						(1,192)						7,687
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						1.42						0.13						—						—						(0.21)						1.34

						Nine Months Ended October 3, 2021
(MILLIONS, EXCEPT PER COMMON SHARE DATA)						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Items(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	57,653					$	—					$	—					$	—					$	—					$	57,653
Cost of sales						21,232						17						—						—						(138)						21,112
Selling, informational and administrative expenses						8,617						(2)						—						—						(432)						8,183
Research and development expenses						7,920						4						—						—						(899)						7,026
Amortization of intangible assets						2,784						(2,338)						—						—						—						446
Restructuring charges and certain acquisition-related costs						668						—						(3)						—						(666)						—
(Gain) on completion of Consumer Healthcare JV transaction						—						—						—						—						—						—
Other (income)/deductions––net						(3,697)						(31)						—						—						1,984						(1,744)
Income from continuing operations before provision/(benefit) for taxes on income						20,128						2,349						3						—						151						22,631
Provision/(benefit) for taxes on income(b)						1,518						482						3						—						1,549						3,551
Income from continuing operations						18,610						1,868						—						—						(1,398)						19,080
Income/(loss) from discontinued operations––net of tax						24						—						—						(24)						—						—
Net income attributable to noncontrolling interests						47						—						—						—						—						47
Net income attributable to Pfizer Inc. common shareholders						18,586						1,868						—						(24)						(1,398)						19,033
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						3.27						0.33						—						—						(0.25)						3.35

						Three Months Ended September 27, 2020
(MILLIONS, EXCEPT PER COMMON SHARE DATA)						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Items(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	10,277					$	—					$	—					$	—					$	—					$	10,277
Cost of sales						2,007						5						—						—						(24)						1,989
Selling, informational and administrative expenses						2,658						(1)						—						—						(95)						2,562
Research and development expenses						2,300						1						—						—						(3)						2,298
Amortization of intangible assets						862						(789)						—						—						—						73
Restructuring charges and certain acquisition-related costs						2						—						(11)						—						9						—
(Gain) on completion of Consumer Healthcare JV transaction						—						—						—						—						—						—
Other (income)/deductions––net						1,878						(4)						—						—						(2,271)						(397)
Income from continuing operations before provision/(benefit) for taxes on income						570						787						11						—						2,384						3,752
Provision/(benefit) for taxes on income(b)						(347)						190						3						—						596						441
Income from continuing operations						917						596						9						—						1,789						3,311
Income/(loss) from discontinued operations––net of tax						560						—						—						(560)						—						—
Net income attributable to noncontrolling interests						8						—						—						—						—						8
Net income attributable to Pfizer Inc. common shareholders						1,469						596						9						(560)						1,789						3,303
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						0.26						0.11						—						(0.10)						0.32						0.59

						Nine Months Ended September 27, 2020
(MILLIONS, EXCEPT PER COMMON SHARE DATA)						GAAP Reported						Purchase Accounting Adjustments(a)						Acquisition-Related Items(a)						Discontinued Operations(a)						Certain Significant Items(a)						Non-GAAP Adjusted
Revenues						$	30,224					$	—					$	—					$	—					$	—					$	30,224
Cost of sales						5,773						14						—						—						(86)						5,701
Selling, informational and administrative expenses						7,858						(1)						—						—						(318)						7,540
Research and development expenses						6,050						4						—						—						(242)						5,812
Amortization of intangible assets						2,579						(2,365)						—						—						—						214
Restructuring charges and certain acquisition-related costs						417						—						(46)						—						(371)						—
(Gain) on completion of Consumer Healthcare JV transaction						(6)						—						—						—						6						—
Other (income)/deductions––net						1,114						(89)						—						—						(2,126)						(1,101)
Income from continuing operations before provision/(benefit) for taxes on income						6,438						2,437						46						—						3,137						12,057
Provision/(benefit) for taxes on income(b)						434						546						11						—						719						1,710
Income from continuing operations						6,004						1,891						35						—						2,417						10,347
Income/(loss) from discontinued operations––net of tax						2,334						—						—						(2,334)						—						—
Net income attributable to noncontrolling interests						25						—						—						—						—						25
Net income attributable to Pfizer Inc. common shareholders						8,313						1,891						35						(2,334)						2,417						10,322
Earnings per common share attributable to Pfizer Inc. common shareholders––diluted						1.48						0.34						0.01						(0.42)						0.43						1.84

(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 15.3% in the third quarter of 2021, compared to 11.8% in the third quarter of 2020. The effective tax rate on Non-GAAP Adjusted income was 15.7% in the first nine months of 2021, compared to 14.2% in the first nine months of 2020. The increases were due to a change in the jurisdictional mix of earnings, primarily related to Comirnaty.

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

						Three Months Ended												Nine Months Ended
(MILLIONS)						Oct. 3, 2021						Sept. 27, 2020						Oct. 3, 2021						Sept. 27, 2020
Purchase accounting adjustments
Amortization, depreciation and other(a)						$	859					$	792					$	2,367					$	2,451
Cost of sales						(6)						(5)						(17)						(14)
Total purchase accounting adjustments––pre-tax						852						787						2,349						2,437
Income taxes(b)						(127)						(190)						(482)						(546)
Total purchase accounting adjustments––net of tax						725						596						1,868						1,891
Acquisition-related items
Restructuring charges/(credits)(c)						(2)						4						(9)						3
Transaction costs(c)						—						—						—						14
Integration costs and other(c)						3						7						11						29
Total acquisition-related items––pre-tax						1						11						3						46
Income taxes(b)						(2)						(3)						(3)						(11)
Total acquisition-related items––net of tax						(1)						9						—						35
Discontinued operations
Income/(loss) from discontinued operations––net of tax(d)						9						(560)						(24)						(2,334)
Certain significant items
Restructuring charges/(credits)*––*cost reduction initiatives(e)						645						(9)						666						371
Implementation costs and additional depreciation––asset restructuring(f)						181						50						403						153
Net (gains)/losses on asset disposals(g)						1						—						(57)						—
Net (gains)/losses recognized during the period on equity securities(g)						(400)						73						(1,597)						(429)
Certain legal matters, net(g)						64						(17)						438						5
Certain asset impairments(g)						—						900						—						900
Business and legal entity alignment costs(h)						31						63						156						212
Actuarial valuation and other pension and postretirement plan (gains)/losses(i)						(899)						1,230						(932)						1,306
(Gain) on completion of Consumer Healthcare JV transaction(j)						—						—						—						(6)
Other(k)						772						94						1,075						624
Total certain significant items––pre-tax						395						2,384						151						3,137
Income taxes(l)						(1,587)						(596)						(1,549)						(719)
Total certain significant items––net of tax						(1,192)						1,789						(1,398)						2,417
Total purchase accounting adjustments, acquisition-related items, discontinued operations and certain significant items––net of tax, attributable to Pfizer Inc.						$	(460)					$	1,834					$	446					$	2,009

(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 the applicable tax rate.

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

(d)Included in Income/(loss) from discontinued operations––net of tax. See Note 2A.

(e)Includes 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.

(f)Relates to our cost-reduction and productivity initiatives not related to acquisitions (see Note 3). For the third quarter of 2021, primarily included in Cost of sales ($31 million) and Selling, informational and administrative expenses ($150 million). For the first nine months of 2021, primarily included in Cost of sales ($93 million) and Selling, informational and administrative expenses ($310 million). For the third quarter of 2020, primarily included in Cost of sales ($13 million) and Selling, informational and administrative expenses ($36 million). For the first nine months of 2020, primarily included in Cost of sales ($40 million) and Selling, informational and administrative expenses ($114 million).

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

(h)Mainly represents costs for consulting, legal, tax and advisory services associated with the internal reorganization of legal entities. For the third quarter of 2021, primarily included in Cost of sales ($11 million) and Selling, informational and administrative expenses ($20 million), and for the first nine months of 2021, primarily included in Cost of sales ($43 million) and Selling, informational and administrative expenses ($107 million). For the third quarter of 2020, primarily included in Cost of sales ($12 million) and Selling, informational and administrative expenses ($50 million), and for the first nine months of 2020, primarily included in Cost of sales ($42 million), Selling, informational and administrative expenses ($157 million) and Research and development expenses ($13 million).

(i)Included in Other (income)/deductions––net. Primarily includes pension plan interim actuarial remeasurement pre-tax gains of $836 million in the third quarter of 2021 and $881 million in the first nine months of 2021, and pension plan interim actuarial remeasurement pre-tax losses of $1.2 billion in the third quarter of 2020 and $1.3 billion in the first nine months of 2020. See Note 1C.

(j)Included in (Gain) on completion of Consumer Healthcare JV transaction. See Note 2B.

(k)For the third quarter of 2021, primarily included in Research and development expenses ($707 million) and Other (income)/deductions––net ($61 million). For the first nine months of 2021, primarily included in Selling, informational and administrative expenses ($15 million), Research and development expenses ($892 million) and Other (income)/deductions––net ($165 million). For the third quarter of 2020, primarily included in Other (income)/deductions––net ($86 million). For the first nine months of 2020, primarily included in Selling, informational and administrative expenses ($46 million), Research and development expenses ($231 million) and Other (income)/deductions––net ($343 million). Among other things, the third quarter and first nine months of 2021 include an upfront payment of $650 million to Arvinas, which was recorded to Research and development expenses, and the first nine months of 2021 include a charge of $186 million for IPR&D related to an asset acquisition completed in the second quarter of 2021. Also, the third quarter of 2021 includes charges of $55 million and the first nine months of 2021 include charges of $136 million recorded in Other (income)/deductions––net, primarily representing our pro rata share of accounting charges related to restructuring costs and costs of preparing for separation from GSK that were recorded by the Consumer Healthcare JV. Among other things, the first nine months of 2020 included (i) charges of $297 million recorded in Other (income)/deductions––net, 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) upfront payments of $130 million to Valneva and $72 million to BioNTech, which were recorded to Research and development expenses.

(l)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 the applicable tax rate. The third quarter and first nine months of 2021 were favorably impacted by benefits associated with certain initiatives executed in the third quarter of 2021 associated with our investment in the Consumer Healthcare JV with GSK (see Note 5A). The third quarter and first nine months of 2020 were favorably impacted by benefits associated with certain intangible asset impairment charges (see Note 4).

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Flows from Continuing Operations

						Nine Months Ended
(MILLIONS)						October 3, 2021						September 27, 2020												Drivers of change
Cash provided by/(used in):
Operating activities from continuing operations						$	26,660					$	6,364											The change is driven primarily by higher net income and advance payments in 2021 for Comirnaty recorded in deferred revenue and the impact of timing of receipts and payments in the ordinary course of business, including a $7.8 billion accrual for the gross profit split due to BioNTech, partially offset by a non-cash change in Other Adjustments, net, primarily resulting from an increase in unrealized gains on equity securities.
Investing activities from continuing operations						$	(19,960)					$	(1,129)											The change is driven mainly by a $17.0 billion increase in purchases of short-term investments with original maturities of greater than three months and a $7.8 billion increase in net purchases of short-term investments with original maturities of three months or less, partially offset by a $7.5 billion increase in redemptions of short-term investments with original maturities of greater than three months.
Financing activities from continuing operations						$	(6,465)					$	(7,257)											The change is driven mostly by a $5.1 billion net reduction in repayments of short-term borrowings with maturities of greater than three months and a $1.5 billion reduction in repayments of long-term debt, partially offset by a $4.2 billion decrease in proceeds from issuances of long-term debt and a $1.4 billion net decrease in proceeds from short-term borrowings with maturities of three months or less.

Cash Flows from Discontinued Operations

Cash flows from discontinued operations primarily relate to our former Upjohn Business and the Mylan-Japan collaboration (see Note 2A). In 2020, investing and financing activities from discontinued operations primarily reflect investments in money market funds with proceeds from issuances of long-term debt*.*

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 strive to improve cash inflows through working capital efficiencies. 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. 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. As of October 3, 2021, we had access to a $7 billion U.S. revolving credit facility expiring in 2025. In addition, our lenders have provided us an additional $377 million in lines of credit, of which $336 million expire within one year. Essentially all lines of credit were unused as of October 3, 2021.

Selected Measures of Liquidity and Capital Resources

The following presents certain relevant measures of our liquidity and capital resources:
(MILLIONS, EXCEPT RATIOS)						October 3, 2021						December 31, 2020
Selected financial assets(a):
Cash and cash equivalents						$	1,966					$	1,784
Short-term investments						27,730						10,437
Long-term investments, excluding private equity securities at cost						4,632						2,973
						34,328						15,195
Debt:
Short-term borrowings, including current portion of long-term debt						3,629						2,703
Long-term debt						36,250						37,133
						39,878						39,835
Selected net financial liabilities						$	(5,551)					$	(24,641)
Working capital(b)						$	16,097					$	9,147
Ratio of current assets to current liabilities						1.39:1						1.35:1

(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 an increase in short-term investments due to operating cash flow generation, partially offset by the timing of accruals, cash receipts and payments in the ordinary course of business and capital expenditures.

In August 2021, we completed a public offering of $1 billion aggregate principal amount of senior unsecured sustainability notes. We are using the net proceeds to finance or refinance, in whole or in part as follows: R&D expenses related to our COVID-19 vaccine, capital expenditures in connection with the manufacture and distribution of COVID-19 vaccines and other projects that have environmental and/or social benefits. For additional information, see Note 7D.

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

For information about credit ratings, LIBOR, global economic conditions, and market risk, see the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk—Selected Measures of Liquidity and Capital Resources section within MD&A in our 2020 Form 10-K.

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 12B.

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

At October 3, 2021, our remaining share-purchase authorization was approximately $5.3 billion, with no repurchases in the first nine months of 2021. See Note 12 in our 2020 Form 10-K for more information on our publicly announced share-purchase plans.

Dividends on Common Stock

In September 2021, our BOD declared a dividend of $0.39 per share, payable on December 6, 2021, to shareholders of record at the close of business on November 5, 2021*.* 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.

NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standard

See Note 1B.

Recently Issued Accounting Standard, Not Adopted as of October 3, 2021
Standard/Description						Effective Date						Effect on the Financial Statements
Reference rate reform provides temporary optional expedients and exceptions to the guidance for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued after 2021 because of reference rate reform. The new guidance provides the following optional expedients: 1.Simplify accounting analyses under current U.S. GAAP for contract modifications. 2.Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue. 3.Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform.						Elections can be adopted prospectively at any time through December 31, 2022.						We are assessing the impact of the provisions of this new guidance on our consolidated financial statements.
Accounting for contract assets and contract liabilities from contracts with customers requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606. This new guidance will generally result in the acquirer recognizing contract assets and contract liabilities at the same amounts that were recorded by the acquiree. Previously, these amounts were recognized by the acquirer at fair value as of the acquisition date.						January 1, 2023. Early adoption is permitted.						We do not expect this new guidance to have a material impact on our consolidated financial statements.

FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Form 10-Q contains forward-looking statements. We also provide forward-looking statements in other materials we release to the public, as well as public oral statements. Given their forward-looking nature, these statements involve substantial risks, uncertainties and potentially inaccurate assumptions.

We have tried, wherever possible, to identify such statements by using words such as “will,” “may,” “could,” “likely,” “ongoing,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “assume,” “target,” “forecast,” “guidance,” “goal,” “objective,” “aim,” “seek” and other words and terms of similar meaning or by using future dates.

We include forward-looking information in our discussion of the following, among other topics:

• our anticipated operating and financial performance, reorganizations, business plans and prospects;

• expectations for our product pipeline, in-line products and product candidates, including anticipated regulatory submissions, data read-outs, study starts, approvals, clinical trial results and other developing data, revenue contribution, growth, performance, timing of exclusivity and potential benefits;

• strategic reviews, capital allocation objectives, dividends and share repurchases;

• plans for and prospects of our acquisitions, dispositions and other business development activities, and our ability to successfully capitalize on these opportunities;

• sales, expenses, interest rates, foreign exchange rates and the outcome of contingencies, such as legal proceedings;

• expectations for impact of or changes to existing or new government regulations or laws;

• our ability to anticipate and respond to macroeconomic, geopolitical, health and industry trends, pandemics, acts of war and other large-scale crises; and

• manufacturing and product supply.

In particular, forward-looking information in this Form 10-Q includes statements relating to specific future actions and effects, including, among others, our efforts to respond to COVID-19, including our development of a vaccine to help prevent COVID-19 and our investigational protease inhibitors, the forecasted revenue contribution of Comirnaty and the potential number of doses that we and BioNTech believe can be manufactured; our expectations regarding the impact of COVID-19 on our business; the expected impact of patent expiries and competition from generic manufacturers; the benefits expected from our business development transactions; our anticipated liquidity position; the anticipated costs and savings from certain of our initiatives, including our Transforming to a More Focused Company program; anticipated study starts; our planned capital spending; and the expectations for our quarterly dividend payments.

Given their nature, we cannot assure that any outcome expressed in these forward-looking statements will be realized in whole or in part. Actual outcomes may vary materially from past results and those anticipated, estimated, implied or projected. These forward-looking statements may be affected by underlying assumptions that may prove inaccurate or incomplete, or by known or unknown risks and uncertainties, including those described in this section and in the Item 1A. Risk Factors section in our 2020 Form 10-K.

Therefore, you are cautioned not to unduly rely on forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities law. You are advised, however, to consult any further disclosures we make on related subjects.

Some of the factors that could cause actual results to differ are identified below, as well as those discussed in the Item 1A. Risk Factors section in our 2020 Form 10-K and within this MD&A. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. The occurrence of any of the risks identified below or in the Item 1A. Risk Factors section in our 2020 Form 10-K, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies. It is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties:

Risks Related to Our Business, Industry and Operations, and Business Development:

• the outcome of R&D activities, including, the ability to meet anticipated pre-clinical or clinical endpoints, commencement and/or completion dates for our pre-clinical or clinical trials, regulatory submission dates, and/or regulatory approval and/or launch dates; the possibility of unfavorable pre-clinical and clinical trial results, including the possibility of unfavorable new pre-clinical or clinical data and further analyses of existing pre-clinical or clinical data; the risk that pre-clinical and clinical trial data are subject to differing interpretations and assessments, including during the peer review/publication process, in the scientific community generally, and by regulatory authorities; and whether and when additional data from our pipeline programs will be published in scientific journal publications and, if so, when and with what modifications and interpretations;

• our ability to successfully address comments received from regulatory authorities such as the FDA or the EMA, or obtain approval for new products and indications from regulators on a timely basis or at all; regulatory decisions impacting labeling including the scope of indicated patient populations, product dosage, manufacturing processes, safety and/or other matters, including decisions relating to emerging developments regarding potential product impurities; the impact of recommendations by technical or advisory committees; and the timing of pricing approvals and product launches;

• claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates, including claims and concerns that may arise from the outcome of post-approval clinical trials, which could impact marketing approval, product labeling, and/or availability or commercial potential, including uncertainties regarding the commercial or other impact of the results of the Xeljanz ORAL Surveillance (A3921133) study or any potential actions by regulatory authorities based on analysis of ORAL Surveillance or other data, including on other Janus kinase (JAK) inhibitors in our portfolio;

• the success and impact of external business development activities, including the ability to identify and execute on potential business development opportunities; the ability to satisfy the conditions to closing of announced transactions in the anticipated time frame or at all; the ability to realize the anticipated benefits of any such transactions in the anticipated time frame or at all; the potential need for and impact of additional equity or debt financing to pursue these opportunities, which could result in increased leverage and/or a downgrade of our credit ratings; challenges integrating the businesses and operations; disruption to business and operations relationships; risks related to growing revenues for certain acquired products; significant transaction costs; and unknown liabilities;

• competition, including from new product entrants, in-line branded products, generic products, private label products, biosimilars and product candidates that treat diseases and conditions similar to those treated by our in-line products and product candidates;

• the ability to successfully market both new and existing products, including biosimilars;

• difficulties or delays in manufacturing, sales or marketing; supply disruptions, shortages or stock-outs at our or our third party suppliers’ facilities; and legal or regulatory actions;

• the impact of public health outbreaks, epidemics or pandemics (such as the COVID-19 pandemic), including the impact of vaccine mandates where applicable, on our business, operations and financial condition and results, including impacts on our employees, manufacturing, supply chain, sales and marketing, R&D and clinical trials;

• risks and uncertainties related to our efforts to develop a vaccine to help prevent COVID-19 and potential treatments for COVID-19, as well as challenges related to their manufacturing, supply and distribution;

• trends toward managed care and healthcare cost containment, and our ability to obtain or maintain timely or adequate pricing or favorable formulary placement for our products;

• interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates;

• any significant issues involving our largest wholesale distributors or government customers, which account for a substantial portion of our revenues;

• the impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain;

• any significant issues related to the outsourcing of certain operational and staff functions to third parties; and any significant issues related to our JVs and other third-party business arrangements;

• uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets;

• any changes in business, political and economic conditions due to actual or threatened terrorist activity, civil unrest or military action;

• the impact of product recalls, withdrawals and other unusual items, including uncertainties related to regulator-directed risk evaluations and assessments;

• trade buying patterns;

• the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;

• the impact of, and risks and uncertainties related to, restructurings and internal reorganizations, as well as any other corporate strategic initiatives, and cost-reduction and productivity initiatives, each of which requires upfront costs but may fail to yield anticipated benefits and may result in unexpected costs or organizational disruption;

Risks Related to Government Regulation and Legal Proceedings:

• the impact of any U.S. healthcare reform or legislation or any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented;

• U.S. federal or state legislation or regulatory action and/or policy efforts affecting, among other things, pharmaceutical product pricing, intellectual property, reimbursement or access or restrictions on U.S. direct-to-consumer advertising; limitations on interactions with healthcare professionals and other industry stakeholders; as well as pricing pressures for our products as a result of highly competitive insurance markets;

• legislation or regulatory action in markets outside of the U.S., including China, affecting pharmaceutical product pricing, intellectual property, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets;

• the exposure of our operations globally to possible capital and exchange controls, economic conditions, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes;

• legal defense costs, insurance expenses, settlement costs and contingencies, including those related to actual or alleged environmental contamination;

• the risk and impact of an adverse decision or settlement and the adequacy of reserves related to legal proceedings;

• the risk and impact of tax related litigation;

• governmental laws and regulations affecting our operations, including, without limitation, changes in laws and regulations or their interpretation, including, among others, changes in tax laws and regulations, including, among others, any potential changes to the existing tax law by the current U.S. Presidential administration and Congress increasing the corporate tax rate and/or the tax rate on foreign earnings;

Risks Related to Intellectual Property, Technology and Security:

• any significant breakdown or interruption of our information technology systems and infrastructure;

• any business disruption, theft of confidential or proprietary information, extortion or integrity compromise resulting from a cyberattack;

• the risk that our currently pending or future patent applications may not be granted on a timely basis or at all, or any patent-term extensions that we seek may not be granted on a timely basis, if at all; and

• our ability to protect our patents and other intellectual property, including against claims of invalidity that could result in LOE, unasserted intellectual property claims and in response to any pressure, or legal or regulatory action by, various stakeholders or governments that could potentially result in us not seeking intellectual property protection for or agreeing not to enforce or being restricted from enforcing intellectual property related to our products, including our vaccine to help prevent COVID-19 and potential treatments for COVID-19.