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

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

OPERATIONS**

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

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

Our Business and Strategy

We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products worldwide. At the beginning of our fiscal fourth quarter of 2021, we reorganized our commercial operations and began to manage our commercial operations through a new global structure consisting of two operating segments: Biopharma and PC1. Biopharma is the only reportable segment. See Note 1A. We expect to incur costs of approximately $700 million in connection with separating Upjohn, of which approximately 80% has been incurred since inception and through the second quarter of 2022. These charges include costs and expenses related to separation of legal entities and transaction costs.

Beginning in our third fiscal quarter of 2022, we are making several additional organizational changes to further transform our operations. These changes include establishing a new commercial structure within Biopharma that is designed to better support Comirnaty and Paxlovid in a potential full commercial setting while optimizing our performance across three broad therapeutic areas:

  • Primary Care will consist of our COVID-19 products (currently Comirnaty and Paxlovid), as well as the Internal Medicine and Vaccines product portfolios, including potential future mRNA products.

  • Specialty Care will consist of our Inflammation & Immunology, Rare Disease and Hospital (excluding Paxlovid) product portfolios.

  • Oncology will consist of our Oncology product portfolio.

We are currently evaluating what impacts these organizational changes may have on our financial reporting.

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 2021 Form 10-K.

Our Business Development Initiatives

We are committed to strategically capitalizing on growth opportunities, primarily by advancing our own product pipeline and maximizing the value of our existing products, but also through various business development activities.

Our significant recent business development activities include the transactions discussed in Note 2 and the following:

Acquisition of Global Blood Therapeutics, Inc. (GBT)––In August 2022, we and GBT announced that the companies entered into an agreement under which we will acquire GBT, a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities, starting with sickle cell disease. Under the terms of the agreement, we will acquire all outstanding shares of GBT for $68.50 per share in cash for a total enterprise value of approximately $5.4 billion, including debt and net of cash acquired. The proposed transaction is subject to customary closing conditions, including receipt of regulatory approvals and approval by GBT’s stockholders.

Acquisition of ReViral––In June 2022, which falls in our international third quarter of 2022, we completed our acquisition of ReViral, a privately held, clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel antiviral therapeutics that target respiratory syncytial virus, for a total consideration of up to $525 million, including an upfront payment of $425 million upon closing and an additional $100 million contingent upon future development milestones.

Acquisition of Biohaven––In May 2022, we and Biohaven announced that the companies entered into an agreement under which we will acquire Biohaven, the maker of Nurtec® ODT (rimegepant), an innovative dual-acting migraine therapy approved for both acute treatment and episodic prevention of migraine in adults. Under the terms of the agreement, we will acquire all outstanding common shares of Biohaven not already owned by us for $148.50 per share, in cash. The proposed transaction includes the acquisition of Biohaven’s CGRP programs, including rimegepant, zavegepant and a portfolio of five pre-clinical CGRP assets. Biohaven common shareholders, including Pfizer, will also receive 0.5 of a share of New Biohaven, a new publicly traded company that will retain Biohaven’s non-CGRP development stage pipeline compounds, per Biohaven common share. Pfizer will pay transaction consideration totaling approximately $11.6 billion in cash. Pfizer will also make payments at closing to settle Biohaven’s third party debt and for the redemption of all outstanding shares of Biohaven’s redeemable preferred stock.

This agreement follows on the November 2021 collaboration for the commercialization of rimegepant and zavegepant outside the U.S., in connection with which Pfizer acquired 2.6% of Biohaven’s common stock. New Biohaven will also have the right to receive tiered royalties from Pfizer on any annual net sales of rimegepant and zavegepant in the U.S. in excess of $5.25 billion. The proposed transaction is subject to the completion of the New Biohaven spin-off transaction and other customary closing conditions. All required antitrust clearances have been received. The companies expect the transaction to close by early 2023.

For a description of the more significant recent transactions through February 24, 2022, the filing date of our 2021 Form 10-K, see Note 2 in our 2021 Form 10-K.

Our Second Quarter 2022 and First Six Months of 2022 Performance

Revenues––Revenues increased $8.8 billion, or 47%, in the second quarter of 2022 to $27.7 billion from $18.9 billion in the second quarter of 2021, reflecting an operational increase of $10.1 billion, or 53%, as well as an unfavorable impact of foreign exchange of $1.3 billion, or 7%. The operational increase was primarily driven by growth from Paxlovid and Comirnaty. Excluding the impact of Paxlovid and Comirnaty, revenues increased 1% operationally, reflecting strong growth in Eliquis, the Prevnar family and Vyndaqel/Vyndamax, partially offset by declines in Chantix/Champix, Xeljanz and Sutent.

Revenues increased $20.0 billion, or 60%, in the first six months of 2022 to $53.4 billion from $33.4 billion in the first six months of 2021, reflecting an operational increase of $22.0 billion, or 66%, as well as an unfavorable impact of foreign exchange of $2.0 billion, or 6%. The operational increase was primarily driven by growth from Comirnaty and Paxlovid. Excluding the impact of Comirnaty and Paxlovid, revenues increased 1% operationally, reflecting strong growth in Eliquis, the Prevnar family, Vyndaqel/Vyndamax and Biosimilars, partially offset by declines in Chantix/Champix, Xeljanz 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 13C.

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 $4.5 billion in the second quarter of 2022 and $7.9 billion in the first six months of 2022, compared to the same periods in 2021, respectively, were primarily attributable to (i) higher revenues, partially offset by (ii) increases in Cost of sales, (iii) net losses on equity securities in the second quarter and first six months of 2022 versus net gains on equity securities in the second quarter and first six months of 2021, (iv) increases in Research and development expenses, (v) net periodic benefit costs associated with pension and other postretirement plans incurred in the second quarter and first six months of 2022 versus net periodic benefit credits recognized in the second quarter and first six months of 2021 and (vi) increases in Restructuring charges and certain acquisition-related costs.

See the Analysis of the Condensed Consolidated Statements of Income within 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, as well as in the Item 1. Business––Government Regulation and Price Constraints and Item 1A. Risk Factors sections, and the Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment section of the MD&A of our 2021 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 increased generic competition over the next few years. While additional patent expiries will continue, we expect a moderate impact of reduced revenues due to patent expiries from 2022 through 2025. We continue to vigorously defend our patent rights against infringement, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to help 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 2021 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––Governments globally, as well as private third-party payers in the U.S., may use a variety of measures to control costs, including, among others, proposing

pricing reform or legislation, employing formularies to control costs, cross country collaboration and procurement, price cuts, mandatory rebates, health technology assessments, forced localization as a condition of market access, “international reference pricing” (i.e., the practice of a country linking its regulated medicine prices to those of other countries), quality consistency evaluation processes and volume-based procurement. We anticipate that these and similar initiatives will continue to increase pricing and access pressures globally. In the U.S., we recently implemented a policy that will help improve contract pharmacy integrity. The U.S. Department of Health and Human Services (HHS) has sent letters to numerous manufacturers that have also implemented contract pharmacy integrity initiatives expressing the view that their programs are in violation of the 340B statute, and referring those programs for potential enforcement action. We believe that our program is consistent with the statute. Additional legal or legislative developments with respect to the 340B program may have an adverse impact on our integrity initiative, and we may face enforcement action or penalties, depending upon such developments. For additional information, see the Item 1. Business––Pricing Pressures and Managed Care Organizations and ––Government Regulation and Price Constraints sections in our 2021 Form 10-K and the Overview of Our Performance, Operating Environment, Strategy and Outlook––Our Operating Environment section of the MD&A in our 2021 Form 10-K*.*

Product Supply––We periodically encounter supply delays, disruptions and shortages, including due to voluntary product recalls. In response to requests from various regulatory authorities, manufacturers across the pharmaceutical industry, including Pfizer, are evaluating their product portfolios for the potential presence or formation of nitrosamines. This has led to recalls, including our voluntary recall of Chantix in 2021 and additional voluntary recalls initiated for other products in 2022 due to the presence of nitrosamines above the applicable acceptable intake limit, and may lead to additional recalls or other market actions for Pfizer products. For information on our Chantix recall in 2021 and risks related to product manufacturing, see the Item 1A. Risk Factors––Product Manufacturing, Sales and Marketing Risks section of our 2021 Form 10-K.

The Global Economic Environment

In addition to the industry-specific factors discussed above, we, like other businesses of our size and global extent of activities, are exposed to economic cycles. For additional information, see the Overview of Our Performance, Operating Environment, Strategy and Outlook––The Global Economic Environment section of the MD&A of our 2021 Form 10-K.

Russia/Ukraine Conflict––Our global operations may be impacted by certain factors in the global economic environment including impacts of political or civil unrest or military action, including the armed conflict between Russia and Ukraine. Consistent with our commitment to putting patients first, we are maintaining the supply of medicines to Russia, including the provision of needed medicines to patients already enrolled in clinical trials. Effective March 14, 2022, Pfizer is donating the equivalent of profits of our Russian subsidiary to causes that provide direct humanitarian support to the people of Ukraine, in addition to the company’s ongoing efforts to support the humanitarian response in the region. Our first down payment of $5 million is going to eight global and local non-governmental organizations to support humanitarian relief and response efforts. We will continue to divert these profits to the Ukrainian relief efforts until peace is achieved. Additionally, we are not initiating new clinical trials in Russia, have stopped recruiting new patients in our ongoing clinical trials in the country, and halted all new investments with local suppliers intended to build manufacturing capacity in Russia. For both the six months ended July 3, 2022 and the fiscal year ended December 31, 2021, the business of our Russia and Ukraine subsidiaries represented less than 1% of our consolidated revenues and assets, and while we are monitoring the effects of the armed conflict between Russia and Ukraine, the situation continues to evolve and the long-term implications, including the broader economic consequences of the conflict, are difficult to predict at this time. While as of now, we do not anticipate any significant negative impacts on our business from this conflict, continued regional instability, geopolitical shifts, potential additional sanctions and other restrictive measures against Russia, neighboring countries or allies of Russia, and any retaliatory measures taken by Russia, neighboring countries or allies of Russia, in response to such measures could adversely affect the global macroeconomic environment, our operations, currency exchange rates and financial markets, which could in turn adversely impact our business and results of operations.

COVID-19 Pandemic––The COVID-19 pandemic has impacted our business, operations and financial condition and results.

Our Response to COVID-19

Pfizer is continuing to help lead the global effort to confront the COVID-19 pandemic by advancing a vision for industry-wide collaboration while continuing to make significant investments in breakthrough science and global manufacturing.

*•*Comirnaty/BNT162b2:

◦We have collaborated with BioNTech to jointly develop Comirnaty/BNT162b2, a mRNA-based coronavirus vaccine to help prevent COVID-19. For additional information, see the Product Developments section of this MD&A. We continue to evaluate our vaccine and the short- and long-term safety and efficacy of Comirnaty. We are also studying monovalent, bivalent and variant-adapted vaccine candidates to potentially help prevent COVID-19 caused by variants of concern, as well as a next-generation mRNA vaccine candidate.

◦The companies have entered into agreements to supply pre-specified doses of Comirnaty in 2022 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 2023 and are currently negotiating similar potential agreements with multiple countries as well. Additionally, we will continue our efforts to help ensure equitable access to Comirnaty and anticipate delivering at least two billion doses to low- and middle-income countries—one billion of which were delivered in 2021 and approximately 460 million of which were delivered in the first half of 2022. Certain of the aforementioned doses to low- and middle-income countries are being supplied to the U.S. government at a not-for-profit price to be donated to the world’s poorest nations.

◦As of July 28, 2022, we forecasted approximately $32 billion of revenues for Comirnaty in 2022, with gross profit to be split evenly with BioNTech, which includes doses expected to be delivered in fiscal 2022, primarily under contracts signed as of mid-July 2022.

*•*Paxlovid:

◦In December 2021, the FDA authorized the emergency use of Paxlovid, a novel oral COVID-19 treatment, for the treatment of mild-to-moderate COVID-19 in adults and pediatric patients (12 years of age and older weighing at least 40 kg [88 lbs]) with positive results of direct SARS-CoV-2 viral testing, and who are at high risk for progression to severe COVID-19, including hospitalization or death. Paxlovid has been granted an authorization or approval in many other countries. In June 2022, we submitted an NDA to the FDA for approval of Paxlovid for the treatment of COVID-19 in both vaccinated and unvaccinated individuals who are at high risk for progression to severe illness from COVID-19 consistent with the current EUA. For additional information, see the Product Developments section of this MD&A.

◦We continue to evaluate Paxlovid in other populations, including in non-hospitalized, symptomatic, pediatric patients with a confirmed diagnosis of COVID-19 who are at risk of progression to severe disease (Phase 2/3 study, EPIC-PEDS (Evaluation of Protease Inhibition for COVID-19 in Pediatric Patients)). We also plan to study Paxlovid in those who are immunocompromised, hospitalized with severe COVID-19 and at increased risk for poor outcomes due to the disease, or who are pregnant. In June 2022, we announced that due to a very low rate of hospitalization or death observed in the standard-risk patient population, we ceased enrollment into the Phase 2/3 EPIC-SR (Evaluation of Protease Inhibition for COVID-19 in Standard-Risk Patients) study evaluating the use of Paxlovid in patients who are at standard risk for developing severe COVID-19. Pfizer had previously announced that the primary endpoint for EPIC-SR was not met.

◦We have entered into agreements to supply pre-specified courses of Paxlovid to multiple countries, such as the U.S. and U.K., as well as an agreement with UNICEF to supply low- and middle-income countries. Through the first half of 2022, we produced 30 million treatment courses, and we have capacity to meet the demand for Paxlovid in a flexible manner going forward.

◦As of July 28, 2022, we forecasted approximately $22 billion of revenues for Paxlovid in 2022, which includes treatment courses expected to be delivered in fiscal 2022, primarily relating to supply contracts signed or committed as of mid-July 2022.

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 and oral COVID-19 treatment revenues, 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 2021 Form 10-K, apart from our introduction of Comirnaty/BNT162b2 and Paxlovid, our business and operations were impacted by the pandemic in various ways; certain of those impacts have continued in 2022. For additional detail and discussion on the impact of the COVID-19 pandemic on certain of our products, sales and marketing, supply chain and clinical trials, see the Analysis of the Condensed Consolidated Statements of Income—Revenues by Geography and Revenues—Selected Product Discussion sections within this MD&A and the Overview of Our Performance, Operating Environment, Strategy and Outlook—The Global Economic Environment—COVID-19 Pandemic section of the MD&A of our 2021 Form 10-K.

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, if demand for our products is significantly reduced as a result of the COVID-19 pandemic, or if demand for our COVID-19 vaccine or oral COVID-19 treatment is reduced or no longer exists, we could experience a material adverse impact on our business, operations and financial condition and results.

For additional information, 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 2021 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 2021 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 1E); Fair Value (Note 1F); Revenues (Note 1H); Asset Impairments (Note 1M); Tax Assets and Liabilities and Income Tax Contingencies (Note 1Q); Pension and Postretirement Benefit Plans (Note 1R); and Legal and Environmental Contingencies (Note 1S).

For a discussion 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 2021 Form 10-K. See also Note 1D in our 2021 Form 10-K for a discussion about the risks associated with estimates and assumptions.

For a discussion of a recently adopted accounting standard, see Note 1B. For a discussion of presentation changes for Acquired in-process research and development expenses, see Note 1D.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Revenues by Geography

The following presents worldwide revenues by geography:
Three Months Ended
WorldwideU.S.InternationalWorld-wideU.S.Inter-national
(MILLIONS)July 3, 2022July 4, 2021July 3, 2022July 4, 2021July 3, 2022July 4, 2021% Change in Revenues
Operating segments:
Biopharma$27,425$18,463$11,136$7,380$16,289$11,083495147
Pfizer CentreOne31743786136230301(27)(36)(23)
Total revenues$27,742$18,899$11,222$7,515$16,519$11,384474945
Six Months Ended
WorldwideU.S.InternationalWorld-wideU.S.Inter-national
(MILLIONS)July 3, 2022July 4, 2021July 3, 2022July 4, 2021July 3, 2022July 4, 2021% Change in Revenues
Operating segments:
Biopharma$52,748$32,588$19,952$14,757$32,795$17,830623584
Pfizer CentreOne655827188288467539(21)(35)(13)
Total revenues$53,402$33,415$20,140$15,046$33,262$18,369603481

Second Quarter of 2022 vs. Second Quarter of 2021

The following provides an analysis of the change in worldwide revenues by geographic areas in the second quarter of 2022:
Three Months Ended July 3, 2022
(MILLIONS)WorldwideU.S.International
Operational growth/(decline):
Worldwide growth from Paxlovid, Comirnaty, Eliquis, Prevnar family, Vyndaqel/Vyndamax, Inlyta and Biosimilars, partially offset by worldwide declines from Xeljanz, Ibrance and Xtandi. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis$10,486$3,972$6,514
Decline from PC1. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis(109)(49)(60)
Lower revenues for Chantix/Champix and Sutent: •The decrease in Chantix/Champix was driven by the ongoing global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country •The decrease for Sutent primarily reflects lower volume demand in the U.S. and Europe following its loss of exclusivity in August 2021 and January 2022, respectively(273)(177)(97)
Other operational factors, net(1)(39)37
Operational growth, net10,1033,7076,395
Unfavorable impact of foreign exchange(1,260)—(1,260)
Revenues increase/(decrease)$8,842$3,707$5,135

Emerging markets revenues increased $2.2 billion, or 58%, in the second quarter of 2022 to $6.0 billion from $3.8 billion in the second quarter of 2021, reflecting an operational increase of $2.4 billion, or 63%, and an unfavorable impact from foreign exchange of approximately 6%. The operational increase in emerging markets was primarily driven by growth from Comirnaty and Paxlovid.

First Six Months of 2022 vs. First Six Months of 2021

The following provides an analysis of the worldwide change in revenues by geographic areas in the first six months of 2022:
Six Months Ended July 3, 2022
(MILLIONS)WorldwideU.S.International
Operational growth/(decline):
Worldwide growth from Comirnaty, Paxlovid, Eliquis, Prevnar family, Vyndaqel/Vyndamax, Inlyta and Biosimilars, partially offset by worldwide declines from Xeljanz, Ibrance and Xtandi. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis$22,854$5,736$17,117
Decline from PC1. See the Analysis of the Condensed Consolidated Statements of Income––Revenues––Selected Product Discussion within MD&A for additional analysis(152)(100)(52)
Lower revenues for Chantix/Champix and Sutent: •The decrease in Chantix/Champix was driven by the ongoing global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country •The decrease for Sutent primarily reflects lower volume demand in the U.S. and Europe following its loss of exclusivity in August 2021 and January 2022, respectively(568)(381)(187)
Other operational factors, net(108)(160)53
Operational growth/(decline), net22,0265,09416,931
Unfavorable impact of foreign exchange(2,038)—(2,038)
Revenues increase/(decrease)$19,988$5,094$14,893

Emerging markets revenues increased $6.7 billion, or 102%, in the first six months of 2022 to $13.4 billion from $6.6 billion in the first six months of 2021, reflecting an operational increase of $7.2 billion, or 108%, and an unfavorable impact from foreign exchange of approximately 7%. The operational increase in emerging markets was primarily driven by growth from Comirnaty and Paxlovid.

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 EndedSix Months Ended
(MILLIONS)July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Medicare rebates$186$182$387$371
Medicaid and related state program rebates225306466652
Performance-based contract rebates8627881,6671,541
Chargebacks1,7971,5183,5342,949
Sales allowances1,3671,2112,5712,354
Sales returns and cash discounts328235598459
Total$4,765$4,240$9,223$8,326

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 1C.

Revenues––Selected Product Discussion

Biopharma

(MILLIONS)Revenue% Change
ProductPeriodGlobal RevenuesRegionJuly 3, 2022July 4, 2021TotalOper.Operational Results Commentary
Comirnaty(a)QTD$8,848 Up 20% (operationally)U.S.$1,080$2,034(47)Driven by strong operational growth in international markets, led by increased sales of doses to serve emerging markets and increased deliveries to certain international developed markets, partially offset by a slower pace of deliveries to the U.S. and Canada.
Int’l.7,7685,8043443
Worldwide$8,848$7,8381320
YTD$22,075 *** (operationally)**U.S.$3,395$4,072(17)
Int’l.18,6817,228**
Worldwide$22,075$11,30095*
PaxlovidQTD$8,115 *****U.S.$4,455$—*Driven by the U.S. launch under emergency use authorization in December 2021 and international launches in late 2021 and early 2022 following regulatory approvals or emergency use authorizations.
Int’l.3,660—**
Worldwide$8,115$—**
YTD$9,585 *****U.S.$5,470$—*
Int’l.4,115—**
Worldwide$9,585$—**
EliquisQTD$1,745 Up 23% (operationally)U.S.$1,064$83128Global growth driven primarily by continued oral anti-coagulant adoption and market share gains in non-valvular atrial fibrillation, particularly in the U.S. and certain markets in Europe, as well as favorable changes in channel mix in the U.S. In addition, YTD performance was negatively impacted by the non-recurrence of an $80 million favorable adjustment related to the Medicare “coverage gap” provision recorded in the first quarter of 2021.
Int’l.681650516
Worldwide$1,745$1,4811823
YTD$3,537 Up 17% (operationally)U.S.$2,144$1,81218
Int’l.1,3941,312615
Worldwide$3,537$3,1241317
Prevnar familyQTD$1,429 Up 18% (operationally)U.S.$906$64241Growth primarily driven by the adult indications in the U.S. due to strong stocking and patient demand following the launch of Prevnar 20 for the adult population, partially offset by unfavorable timing of government and private purchasing of Prevnar 13 for the pediatric indication globally. In addition, YTD international performance was negatively impacted by competitive pressures in China for the pediatric indication and timing of government purchasing for the adult indication.
Int’l.523599(13)(7)
Worldwide$1,429$1,2411518
YTD$2,994 Up 21% (operationally)U.S.$1,920$1,28050
Int’l.1,0741,244(14)(10)
Worldwide$2,994$2,5241921
IbranceQTD$1,320 Down 3% (operationally)U.S.$868$8621QTD decline primarily driven by prior-year quarter clinical trial purchases in international developed markets, partially offset by modest growth in the U.S. despite continued increase in the proportion of patients accessing Ibrance through the Patient Assistance Program. YTD decline largely due to a continued increase in the proportion of patients accessing Ibrance through the U.S. Patient Assistance Program and prior-year quarter clinical trial purchases in international developed markets, partially offset by higher volumes in emerging markets.
Int’l.452542(17)(8)
Worldwide$1,320$1,404(6)(3)
YTD$2,557 Down 1% (operationally)U.S.$1,621$1,656(2)
Int’l.9361,002(7)1
Worldwide$2,557$2,657(4)(1)
Vyndaqel/ VyndamaxQTD$552 Up 16% (operationally)U.S.$296$22532Growth largely driven by continued strong uptake of the ATTR-CM indication, primarily in developed Europe and the U.S., partially offset by a planned price decrease which recently went into effect in Japan.
Int’l.256276(7)3
Worldwide$552$5011016
YTD$1,164 Up 28% (operationally)U.S.$561$43030
Int’l.6035231526
Worldwide$1,164$9532228
XeljanzQTD$430 Down 24% (operationally)U.S.$254$390(35)Driven primarily by declines in net price due to unfavorable changes in channel mix, decreased prescription volumes globally resulting from ongoing shifts in prescribing patterns related to JAK class label changes, and unfavorable wholesaler inventory buying patterns in the U.S.
Int’l.176195(10)(2)
Worldwide$430$586(27)(24)
YTD$802 Down 26% (operationally)U.S.$457$722(37)
Int’l.345402(14)(8)
Worldwide$802$1,124(29)(26)
(MILLIONS)Revenue% Change
ProductPeriodGlobal RevenuesRegionJuly 3, 2022July 4, 2021TotalOper.Operational Results Commentary
XtandiQTD$290 Down 4% (operationally)U.S.$290$303(4)Decline largely due to channel mix and fluctuating enrollment rates in the Xtandi Patient Assistance Program, partially offset by recent demand growth and an increase in new patient starts across the mCRPC, nmCRPC, and mCSPC indications.
Int’l.————
Worldwide$290$303(4)(4)
YTD$558 Down 2% (operationally)U.S.$558$570(2)
Int’l.————
Worldwide$558$570(2)(2)
InlytaQTD$274 Up 11% (operationally)U.S.$162$1555Growth primarily reflects continued adoption in emerging markets and developed Europe of combinations of certain immune checkpoint inhibitors and Inlyta for the first-line treatment of patients with advanced RCC.
Int’l.112102920
Worldwide$274$257611
YTD$508 Up 8% (operationally)U.S.$302$2962
Int’l.206190817
Worldwide$508$48648
BiosimilarsQTD$580 Up 7% (operationally)U.S.$401$36310Growth mainly driven by oncology biosimilars primarily due to strong U.S. growth of Zirabev and Retacrit. In addition, YTD performance was negatively impacted by decreases in Inflectra globally as a result of competitive pressures for certain biosimilars.
Int’l.179195(8)(1)
Worldwide$580$55947
YTD$1,185 Up 11% (operationally)U.S.$837$69121
Int’l.348398(13)(6)
Worldwide$1,185$1,089911

Pfizer CentreOne

(MILLIONS)Revenue% Change
Operating SegmentPeriodGlobal RevenuesRegionJuly 3, 2022July 4, 2021TotalOper.Operational Results Commentary
PC1QTD$317 Down 25% (operationally)U.S.$86$136(36)Decline primarily driven by lower manufacturing of divested products under manufacturing and supply agreements and lower COVID-19 manufacturing activities performed on behalf of customers, including, with respect to the second quarter, Comirnaty supply to BioNTech.
Int’l.230301(23)(20)
Worldwide$317$437(27)(25)
YTD$655 Down 18% (operationally)U.S.$188$288(35)
Int’l.467539(13)(10)
Worldwide$655$827(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 PC1 contract development and manufacturing operation. Revenues related to these manufacturing activities totaled $55 million and $101 million for the second quarter and the first six months of 2022, respectively, and $87 million for both the second quarter and the first six months of 2021.

  • Indicates calculation not meaningful.

See the Item 1. Business—Patents and Other Intellectual Property Rights section of our 2021 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 13C 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 July 28, 2022 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 as of the date of this filing 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 generally 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).

PRODUCTDISEASE AREAAPPROVED/FILED*
U.S.EUJAPAN
Comirnaty/BNT162b2 (PF-07302048)(a)Immunization to prevent COVID-19 (16 years of age and older)BLA Aug. 2021CMA Dec. 2020Approved Feb. 2021
Immunization to prevent COVID-19 (12-15 years of age)sBLA July 2022CMA May 2021Approved May 2021
Immunization to prevent COVID-19 (booster)EUA Sep. 2021CMA Oct. 2021Approved Nov. 2021
Immunization to prevent COVID-19 (5-11 years of age)EUA Oct. 2021CMA Nov. 2021Approved Jan. 2022
Immunization to prevent COVID-19 (6 months through 4 years of age)EUA June 2022Filed July 2022Filed July 2022
Cibinqo (abrocitinib)Atopic dermatitisApproved Jan. 2022Approved Dec. 2021Approved Sep. 2021
Xeljanz (tofacitinib)Ankylosing spondylitisApproved Dec. 2021Approved Nov. 2021
Myfembree (relugolix fixed dose combination)(b)Uterine fibroids (combination with estradiol and norethindrone acetate)Approved May 2021
Endometriosis (combination with estradiol and norethindrone acetate)Approved Aug. 2022
Lorbrena/Lorviqua (lorlatinib)First-line ALK-positive NSCLCApproved Mar. 2021Approved Jan. 2022Approved Nov. 2021
Ngenla (somatrogon)(c)Pediatric growth hormone deficiencyFiled Jan. 2021Approved Feb. 2022Approved Jan. 2022
Prevnar 20/Apexxnar (Vaccine)(d)Immunization to prevent invasive and non-invasive pneumococcal infections (adults)Approved June 2021Approved Feb. 2022
TicoVac (Vaccine)Immunization to prevent tick-borne encephalitisApproved Aug. 2021
Paxlovid(e) (nirmatrelvir [PF-07321332]; ritonavir)COVID-19 infection (high risk population)EUA Dec. 2021CMA Jan. 2022Approved Feb. 2022
Vydura (rimegepant)(f)Acute migraineApproved Apr. 2022
Migraine preventionApproved Apr. 2022

*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. Comirnaty/BNT162b2 is approved by the FDA for individuals 12 years and older (30-µg, 2-dose primary series) and is FDA authorized to provide: (i) a 3-µg, 3-dose primary series to individuals 6 months through 4 years of age, (ii) a 10-µg, 2-dose primary series to individuals 5-11 years of age, (iii) a third 10-µg primary series dose to individuals 5-11 years of age with certain kinds of immunocompromise, (iv) a 30-µg, 2-dose primary series to individuals 12 years of age and older, (iv) a third 30-µg primary series dose to individuals 12 years of age and older with certain kinds of immunocompromise, (v) a single 10-µg booster dose to individuals 5-11 years of age who have completed a primary series with Comirnaty/BNT162b2, (vi) a 30-µg, first booster dose to individuals 12 years of age and older who have completed a primary series with Comirnaty/BNT162b2, (vii) a 30-µg, first booster dose to individuals 18 years of age and older who have completed primary vaccination with a different authorized or approved COVID-19 vaccine (booster schedule based on labeling information of vaccine used for primary series), (viii) a 30-µg, second booster dose to individuals 50 years of age and older who have received a first booster dose of any authorized or approved COVID-19 vaccine and (ix) a 30-µg, second booster dose to individuals 12 years of age and older with certain kinds of immunocompromise and who have received a first booster dose of any authorized or approved COVID-19 vaccine. Comirnaty/BNT162b2 has been granted CMA by the EC to prevent COVID-19 in people aged 5 years and older. The vaccine is administered as a 2-dose series, 3 weeks apart. Adults and adolescents from the age of 12 are given 30-µg per dose; children aged 5 to 11 years are given 10-µg per dose. In addition, the CMA has been expanded to include a booster dose (third dose) at least 3 months after the second dose in individuals 12 years of age and older. A third primary course dose may be administered at least 28 days after the second dose to people aged 5 years and older with a severely weakened immune system. In July 2022, Pfizer and BioNTech completed a submission to the EMA for an Omicron-adapted bivalent COVID-19 vaccine candidate, based on the BA.1 sub-lineage, for individuals 12 years of age and older. In Japan, Comirnaty/BNT162b2 has been granted exceptional approval by the Ministry of Health, Labour and Welfare to prevent infections caused by SARS-CoV-2 in people aged 5 years and older. The vaccine is administered as a 2-dose series, 3 weeks apart. Adults and adolescents from the age of 12 are given 30-µg per dose; children aged 5 to 11 years are given 10-µg per dose. In addition, the exceptional approval has been expanded to include a booster dose (third dose) at least 5 months after the second dose in individuals 12 years of age and older.

(b)Being developed in collaboration with Myovant. In June 2022, the FDA accepted for review a sNDA for Myfembree (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) proposing updates to Myfembree’s U.S. Prescribing Information based on safety and efficacy data from the Phase 3 LIBERTY randomized withdrawal study in premenopausal women with heavy menstrual bleeding associated with uterine fibroids for up to two years. The PDUFA goal date for this sNDA is January 29, 2023.

(c)Being developed in collaboration with OPKO. In January 2022, Pfizer and OPKO received a Complete Response Letter (CRL) from the FDA for the BLA for somatrogon. Discussions are ongoing with the FDA regarding the CRL and how to best address their concerns.

(d)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 were published in the Morbidity and Mortality Weekly Report on January 28, 2022. The publication also notes “for adults who have received pneumococcal conjugate vaccine (PCV13) but have not completed their recommended pneumococcal vaccine series with PPSV23, one dose of Prevnar 20 may be used if PPSV23 is not available.”

(e)In January 2022, the EMA approved the CMA of Paxlovid for treating COVID-19 in adults who do not require supplemental oxygen and who are at increased risk of the disease becoming severe. In June 2022, we announced the submission of an NDA to the FDA for approval of Paxlovid for the treatment of COVID-19 in both vaccinated and unvaccinated individuals who are at high risk for progression to severe illness from COVID-19.

(f)Under a commercialization arrangement with Biohaven.

In December 2021, in light of the results from the completed required postmarketing safety study of Xeljanz, ORAL Surveillance (A3921133), the U.S. label for Xeljanz was revised. In addition, at the request of the EC, the PRAC of the EMA has adopted a referral procedure under Article 20 of Regulation (EC) No 726/2004 to assess safety information relating to oral JAK inhibitors authorized for inflammatory diseases, including Xeljanz and Cibinqo, which is ongoing. For additional information, see Item 1A. Risk Factors—Post-Authorization/Approval Data and the Product Development sections of our 2021 Form 10-K.

In China, the following products received regulatory approvals in the last twelve months: Cresemba for fungal infection and Besponsa for second line acute lymphoblastic leukemia, both in December 2021; Paxlovid for COVID-19 infection in February 2022; Cibinqo for atopic dermatitis in April 2022; Lorbrena for non-small cell lung cancer (first line and second line therapy) in April 2022.

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

LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTSPRODUCT/CANDIDATEPROPOSED DISEASE AREA
Ibrance (palbociclib)(a)ER+/HER2+ metastatic breast cancer
Xtandi (enzalutamide)(b)Non-metastatic high-risk castration sensitive prostate cancer
Talzenna (talazoparib)Combination with Xtandi (enzalutamide) for first-line mCRPC
Combination with Xtandi (enzalutamide) for DNA Damage Repair (DDR)-deficient mCSPC
PF-06482077 (Vaccine)Immunization to prevent invasive and non-invasive pneumococcal infections (pediatric)
somatrogon (PF-06836922)(c)Adult growth hormone deficiency
Braftovi (encorafenib) and Erbitux® (cetuximab)(d)First-line BRAFv600E-mutant mCRC
Myfembree (relugolix fixed dose combination)(e)Combination with estradiol and norethindrone acetate for contraceptive efficacy
Braftovi (encorafenib) and Mektovi (binimetinib) and Keytruda® (pembrolizumab)(f)BRAFv600E-mutant metastatic or unresectable locally advanced melanoma
Paxlovid (nirmatrelvir [PF-07321332]; ritonavir)COVID-19 infection (pediatric)
NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENTaztreonam-avibactam (PF-06947387)Treatment of infections caused by Gram-negative bacteria
fidanacogene elaparvovec (PF-06838435)(g)Hemophilia B
giroctocogene fitelparvovec (PF-07055480)(h)Hemophilia A
PF-06425090 (Vaccine)(i)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)
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)(j)Multiple myeloma triple-class refractory
Multiple myeloma double-class exposed
Newly diagnosed multiple myeloma
Omicron-based mRNA vaccine(k)Immunization to prevent COVID-19 (adults)
Etrasimod (PF-07915503)Ulcerative colitis (moderately to severely active)
VLA15 (PF-07307405)(l)Immunization to prevent Lyme Disease

(a)Being developed in collaboration with The Alliance Foundation Trials, LLC.

(b)Being developed in collaboration with Astellas.

(c)Being developed in collaboration with OPKO.

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

(e)Being developed in collaboration with Myovant.

(f)Keytruda® is a registered trademark of Merck Sharp & Dohme Corp. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono Pharmaceutical Co., Ltd.

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

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

(i)In March 2022, Pfizer announced results from the CLOVER trial (Clostridium difficile Vaccine Efficacy Trial), a pivotal Phase 3 study evaluating its Clostridioides difficile (C. difficile) vaccine candidate (PF-06425090) in the prevention of C. difficile infection (CDI). Initial analyses of two protocol defined secondary endpoints indicated a favorable benefit in reducing CDI severity and 100% vaccine efficacy in preventing medically attended CDI, although the trial did not meet its pre-specified primary endpoint of prevention of primary CDI. Safety reviews indicated that the investigational vaccine was safe and well tolerated. Pfizer is evaluating next steps for the program in coordination with regulatory agencies.

(j)Multiple myeloma triple-class refractory is currently in a Phase 2 registration-enabling study.

(k)Being developed in collaboration with BioNTech.

(l)Being developed in collaboration with Valneva SE.

In April 2022, Pfizer shared top-line results from the Paxlovid Phase 2/3 EPIC-PEP (Evaluation of Protease Inhibition for COVID-19 in Post-Exposure Prophylaxis) study in adults living in the same household as someone with a confirmed COVID-19 infection observing a risk reduction of 32% and 37% in adults who received Paxlovid for five and ten days, respectively, to prevent infection. These results, however, were not statistically significant and, as such, the primary endpoint of reducing the risk of confirmed and symptomatic COVID-19 infection in adults who had been exposed to the virus through a household contact was not met. In June 2022, an updated analysis from 1,153 patients enrolled in Paxlovid EPIC-SR (Evaluation of Protease Inhibition for COVID-19 in Standard Risk Patients) through December 2021 showed a non-significant 51% relative risk reduction (secondary endpoint, treatment arm: 5/576; placebo: 10/569). The primary endpoint in the EPIC-SR study also was not met. A sub-group analysis of 721 vaccinated adults with at least one risk factor for progression to severe COVID-19 showed a non-significant 57% relative risk reduction in hospitalization or death (treatment arm: 3/361; placebo: 7/360). Additional analyses of secondary endpoint data showed that treatment with Paxlovid resulted in a nominally significant 62% decrease in COVID-19-related medical visits per day across all patients, relative to placebo (p=0.0228). Types of medical visits included trips to the emergency room, urgent care, hospital admissions, and telehealth calls, among others. An additional pre-specified descriptive analysis showed a 72% reduction in the average number of days in hospital among Paxlovid-treated patients versus placebo in EPIC-SR. Other not statistically significant findings included no Paxlovid-treated patients admitted to the intensive care unit, compared to three in the placebo group, and no deaths in patients who received Paxlovid with one death in the placebo group. Due to a very low rate of hospitalization or death observed in the standard-risk patient population, Pfizer decided to cease enrollment into EPIC-SR and include available data in the NDA submission to the FDA to support the use of Paxlovid in appropriate individuals at high risk of progression to severe illness. For additional information on Paxlovid, please see the COVID-19 Pandemic section of this MD&A.

In August 2022, we announced that an interim futility analysis of the global Phase 3 trial, REALM-DCM, designed to evaluate the efficacy and safety of PF-07265803 in patients with symptomatic dilated cardiomyopathy (DCM) due to a mutation of the gene encoding the lamin A/C protein (LMNA), indicated the trial is unlikely to meet its primary endpoint upon completion. Based on these results, the Phase 3 trial and further development of PF-07265803 will be discontinued. This decision is not based on safety concerns.

For additional information about our R&D organization, see the Item 1. Business—Research and Development section of our 2021 Form 10-K.

COSTS AND EXPENSES

Costs and expenses follow:
Three Months EndedSix Months Ended
(MILLIONS)July 3, 2022July 4, 2021% ChangeJuly 3, 2022July 4, 2021% Change
Cost of sales$8,648$6,99624$18,632$11,15367
Percentage of Revenues31.2%37.0%34.9%33.4%
Selling, informational and administrative expenses3,0482,92345,6425,700(1)
Research and development expenses2,8152,239265,1164,23321
Acquired in-process research and development expenses1219(100)35623850
Amortization of intangible assets822917(10)1,6571,776(7)
Restructuring charges and certain acquisition-related costs189(1)*38121*
Other (income)/deductions—net772(1,343)*1,122(2,347)*
* Indicates calculation not meaningful.

Cost of Sales

Cost of sales increased $1.7 billion in the second quarter and $7.5 billion in the first six months of 2022, primarily due to:

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

  • the impact of Paxlovid; and

  • a $450 million write-off of inventory related to COVID-19 products that have exceeded or are expected to exceed their approved shelf-lives prior to being used,

partially offset by:

  • the favorable impact of foreign exchange rates.

The decrease in Cost of sales as a percentage of revenues in the second quarter of 2022 was primarily due to favorable changes in sales mix, including significant sales of Paxlovid, as well as the favorable impact of foreign exchange rates, and an increase in alliance revenues, which have no associated cost of sales, partially offset by the impact of Comirnaty and the inventory write-offs related to COVID-19 products as discussed above.

The increase in Cost of sales as a percentage of revenues in the first six months of 2022 was primarily due to the impact of Comirnaty and the inventory write-off related to COVID-19 products as discussed above, partially offset by favorable changes in sales mix, including significant sales of Paxlovid, as well as the favorable impact of foreign exchange rates, and an increase in alliance revenues, which have no associated cost of sales.

Selling, Informational and Administrative (SI&A) Expenses

SI&A expenses increased $125 million in the second quarter of 2022, mostly due to:

  • increased spending on Paxlovid and Comirnaty and a higher provision for healthcare reform fees based on sales of Paxlovid and Comirnaty,

partially offset by:

  • a decrease in our liability to be paid to participants of our supplemental savings plan.

SI&A expenses decreased $59 million in the first six months of 2022, mainly due to:

  • a decrease in our liability to be paid to participants of our supplemental savings plan;

  • the favorable impact of foreign exchange; and

  • lower spending across the Inflammation & Immunology and Internal Medicine therapeutic areas,

partially offset by:

  • increased spending on Paxlovid and Comirnaty and a higher provision for healthcare reform fees based on sales of Paxlovid and Comirnaty.

Research and Development (R&D) Expenses

R&D expenses increased $576 million in the second quarter and $883 million in the first six months of 2022, primarily driven by increased investments across multiple late-stage clinical programs, including development costs and at-risk manufacturing related to programs to prevent and treat COVID-19, as well as costs to develop recently acquired assets.

Acquired In-Process Research and Development (IPR&D) Expenses

Acquired IPR&D expenses decreased $218 million in the second quarter of 2022, primarily reflecting the acquisition of Amplyx Pharmaceuticals Inc. (Amplyx) in the second quarter of 2021, and no transactions giving rise to acquired IPR&D expenses in the second quarter of 2022.

Acquired IPR&D expenses increased $118 million in the first six months of 2022, largely due to:

  • an upfront payment to Biohaven and a premium paid on our equity investment in Biohaven; and

  • a premium paid on our equity investment in BioNTech to develop a potential mRNA vaccine against shingles,

partially offset by:

  • the acquisition of Amplyx in the second quarter of 2021.

Amortization of Intangible Assets

Amortization of intangible assets decreased $95 million in the second quarter and $119 million in the first six months of 2022, primarily as a result of lower amortization of 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 $1.4 billion, to be achieved primarily from 2022 through 2024. In connection with manufacturing network optimization, we expect net cost savings of $550 million to be achieved primarily from 2020 through 2023.

Certain qualifying costs for this program were recorded in the first two quarters of 2022 and 2021 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

The period-over-period changes were primarily driven by:

  • net losses on equity securities in the second quarter and first six months of 2022 versus net gains recognized in the second quarter and first six months of 2021; and

  • net periodic benefit costs recorded in the second quarter and first six months of 2022 versus net periodic benefit credits recorded in the second quarter and first six months of 2021.

See Note 4 for additional information*.*

PROVISION/(BENEFIT) FOR TAXES ON INCOME

Three Months EndedSix Months Ended
(MILLIONS)July 3, 2022July 4, 2021% ChangeJuly 3, 2022July 4, 2021% Change
Provision/(benefit) for taxes on income$1,570$1,12340$2,742$1,93142
Effective tax rate on continuing operations13.7%16.2%13.4%15.3%

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

DISCONTINUED OPERATIONS

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

NON-GAAP FINANCIAL MEASURE: ADJUSTED INCOME

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

MeasureDefinitionRelevance of Metrics to Our Business Performance
Adjusted incomeNet income attributable to Pfizer Inc. common shareholders(a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items•Provides investors useful information to: ◦evaluate the normal recurring operational activities, and their components, on a comparable year-over-year basis ◦assist in modeling expected future performance on a normalized basis •Provides investors insight into the way we manage our budgeting and forecasting, how we evaluate and manage our recurring operations and how we reward and compensate our senior management(b)
Adjusted cost of sales, Adjusted selling, informational and administrative expenses, Adjusted research and development expenses and Adjusted other (income)/deductions*––*netCost of sales, Selling, informational and administrative expenses, Research and development expenses and Other (income)/deductions––net (a), each before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items, which are components of the Adjusted income measure
Adjusted diluted EPSEPS attributable to Pfizer Inc. common shareholders––diluted(a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items

(a)Most directly comparable GAAP measure.

(b)The short-term incentive plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part versus three budgeted metrics, one of which is Adjusted diluted EPS (as defined for annual incentive compensation purposes), which is derived from Adjusted income and accounts for 40% of the bonus pool funding tied to financial performance. Additionally, the payout for performance share awards is determined in part by Adjusted net income, which is derived from Adjusted income. Beginning in the first quarter of 2022, we no longer exclude any expenses for acquired IPR&D from our non-GAAP Adjusted results but we continue to exclude certain of these expenses for our financial results for annual incentive compensation purposes. The bonus pool funding, which is largely based on financial performance, is adjusted by our R&D pipeline performance, as measured by four metrics, and performance against certain of our environmental, social and governance (ESG) metrics, and may be further modified by our Compensation Committee’s assessment of other factors.

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

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

Beginning in the first quarter of 2022, our reconciliation of certain GAAP reported to non-GAAP adjusted information is updated to reflect the following, and prior-period information has been revised to conform to the current period presentation:

Adjusted Income and Adjusted Diluted EPS

Acquired IPR&D—Non-GAAP Adjusted financial measures include expenses for all acquired IPR&D costs incurred in connection with upfront and milestone payments on collaboration and in-license agreements, including premiums on equity securities, as well as asset acquisitions of acquired IPR&D. Previously, certain of these items were excluded from our non-GAAP adjusted results. Acquired IPR&D expenses that previously would have been excluded from non-GAAP Adjusted income but are now included in both GAAP Reported income and non-GAAP Adjusted income: (i) had no impact in the second quarter of 2022, (ii) were approximately $339 million pre-tax ($276 million, net of tax), or $0.05 per share, in the first six months of 2022 and (iii) were approximately $186 million for both pre-tax and net of tax, or $0.03 per share, in both the second quarter and first six months of 2021.

Amortization of Intangible Assets—We began excluding all amortization of intangibles from non-GAAP Adjusted income, compared to excluding only amortization of intangibles related to large mergers or acquisitions under the prior methodology, and presenting it as a separate reconciling line. Previously, the adjustment under the prior methodology was included as part of

a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present. The impact of this policy change resulted in benefits of $0.02 and $0.03 on Adjusted diluted EPS in the second quarter and first six months of 2022, respectively, and $0.03 and $0.04 in the second quarter and first six months of 2021, respectively.

Acquisition-Related Items—Adjusted income continues to exclude certain acquisition-related items, which are comprised of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each 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. Beginning in the first quarter of 2022, acquisition-related items may now include purchase accounting impacts that previously would have been included as part of a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present, such as: (i) the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, (ii) depreciation related to the increase/decrease in fair value of acquired fixed assets, (iii) amortization related to the increase in fair value of acquired debt and (iv) the fair value changes for contingent consideration.

Discontinued Operations—Adjusted income continues to exclude the results of discontinued operations, as well as any related gains or losses on the disposal of such operations. We believe that this presentation is meaningful to investors because, while we review our 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 continues to exclude certain significant items representing substantive and/or unusual items that are evaluated individually on a quantitative and qualitative basis. Certain significant items may be highly variable and difficult to predict. Furthermore, in some cases it is reasonably possible that they could reoccur in future periods. For example, although major non-acquisition-related cost-reduction programs are specific to an event or goal with a defined term, we may have subsequent programs based on reorganizations of the business, cost productivity or in response to LOE or economic conditions. Legal charges to resolve litigation are also related to specific cases, which are facts and circumstances specific and, in some cases, may also be the result of litigation matters at acquired companies that were inestimable, not probable or unresolved at the date of acquisition. Gains and losses on equity securities, and pension and postretirement actuarial remeasurement gains and losses have a very high degree of inherent market volatility, which we do not control and cannot predict with any level of certainty and because we do not believe including these gains and losses assists investors in understanding our business or is reflective of our core operations and business. Unusual items represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell.

See the Reconciliations of GAAP Reported to Non-GAAP Adjusted information—Certain Line Items below for a non-inclusive list of certain significant items and the Non-GAAP Financial Measure: Adjusted Income section within MD&A of our 2021 Form 10-K for additional information.

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

Three Months Ended July 3, 2022
Data presented will not (in all cases) aggregate to totals. (MILLIONS, EXCEPT PER COMMON SHARE DATA)Cost of sales(a)Selling, informational and administrative expenses(a)Other (income)/deductions––net(a)Net income attributable to Pfizer Inc. common shareholders(a)Earnings per common share attributable to Pfizer Inc. common shareholders––diluted
GAAP reported$8,648$3,048$772$9,906$1.73
Amortization of intangible assets———822
Acquisition-related items(b)5(2)(13)82
Discontinued operations(c)———(34)
Certain significant items:
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(d)(22)(134)—272
(Gains)/losses on equity securities——(539)539
Actuarial valuation and other pension and postretirement plan (gains)/losses——(490)490
Other(e)(6)(13)(107)130
Income tax provision—non-GAAP items(551)
Non-GAAP adjusted$8,625$2,900$(377)$11,656$2.04
Six Months Ended July 3, 2022
Data presented will not (in all cases) aggregate to totals. (MILLIONS, EXCEPT PER COMMON SHARE DATA)Cost of sales(a)Selling, informational and administrative expenses(a)Other (income)/deductions––net(a)Net income attributable to Pfizer Inc. common shareholders(a)Earnings per common share attributable to Pfizer Inc. common shareholders––diluted
GAAP reported$18,632$5,642$1,122$17,769$3.10
Amortization of intangible assets———1,657
Acquisition-related items(b)8(3)(39)269
Discontinued operations(c)———(24)
Certain significant items:
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(d)(42)(208)—394
(Gains)/losses on equity securities——(1,237)1,237
Actuarial valuation and other pension and postretirement plan (gains)/losses——(418)418
Other(e)(17)(35)(211)273
Income tax provision—Non-GAAP items(999)
Non-GAAP adjusted$18,582$5,396$(783)$20,993$3.66
Three Months Ended July 4, 2021
Data presented will not (in all cases) aggregate to totals. (MILLIONS, EXCEPT PER COMMON SHARE DATA)Cost of sales(a)Selling, informational and administrative expenses(a)Other (income)/deductions––net(a)Net income attributable to Pfizer Inc. common shareholders(a)Earnings per common share attributable to Pfizer Inc. common shareholders––diluted
GAAP reported$6,996$2,923$(1,343)$5,563$0.98
Amortization of intangible assets—(10)—928
Acquisition-related items6(1)(37)34
Discontinued operations(c)———346
Certain significant items:
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(d)(37)(96)—129
(Gains)/losses on equity securities——798(798)
Actuarial valuation and other pension and postretirement plan (gains)/losses——(6)6
Other(e)(16)(39)1344
Income tax provision—non-GAAP items(230)
Non-GAAP adjusted$6,949$2,778$(576)$6,023$1.06
Six Months Ended July 4, 2021
Data presented will not (in all cases) aggregate to totals. (MILLIONS, EXCEPT PER COMMON SHARE DATA)Cost of sales(a)Selling, informational and administrative expenses(a)Other (income)/deductions––net(a)Net income attributable to Pfizer Inc. common shareholders(a)Earnings per common share attributable to Pfizer Inc. common shareholders––diluted
GAAP reported$11,153$5,700$(2,347)$10,440$1.84
Amortization of intangible assets—(19)(1)1,798
Acquisition-related items11(1)16(27)
Discontinued operations(c)———337
Certain significant items:
Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring(d)(55)(160)—234
(Gains)/losses on equity securities——1,197(1,197)
Actuarial valuation and other pension and postretirement plan (gains)/losses——33(33)
Other(e)(34)(99)(74)211
Income tax provision—Non-GAAP items(390)
Non-GAAP adjusted$11,076$5,421$(1,177)$11,375$2.01

(a)Items that reconcile GAAP Reported to non-GAAP Adjusted balances are shown pre-tax. Our effective tax rates for GAAP reported income from continuing operations were: 13.7% and 13.4% in the three and six months ended July 3, 2022, respectively, and 16.2% and 15.3% in the three and six months ended July 4, 2021, respectively. See Note 5. Our effective tax rates on non-GAAP adjusted income were: 15.4% and 15.1% in the three and six months ended July 3, 2022, respectively, and 17.1% and 16.3% in the three and six months ended July 4, 2021, respectively.

(b)Acquisition-related items in the three and six months ended July 3, 2022 primarily represent integration and other costs for the acquisition of Arena in March 2022. See Note 2A.

(c)Relates to the previously divested Meridian subsidiary and post-closing adjustments for other previously divested businesses. See Note 2B.

(d)Includes employee termination costs, asset impairments and other exit costs related to our cost-reduction and productivity initiatives not associated with acquisitions. See Note 3.

(e)For the second quarter of 2022, the total Other (income)/deductions––net adjustment of $107 million primarily includes charges of $55 million mostly representing our equity-method accounting pro rata share of costs of preparing for separation from GSK recorded by the GSK Consumer Healthcare JV, and charges of $19 million for certain legal matters. For the first six months of 2022, the total Other (income)/deductions––net adjustment of $211 million primarily includes charges for certain legal matters of $98 million and charges of $61 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by the GSK Consumer Healthcare JV. For the first six months of 2021, amounts in Selling, informational and administrative expenses of $99 million primarily include costs for consulting, legal, tax and advisory services associated with a non-recurring internal reorganization of legal entities. For the first six months of 2021, the total Other (income)/deductions––net adjustment of $74 million primarily includes charges of $81 million representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by the GSK Consumer Healthcare JV. The second quarter and first six months of 2022 and 2021 include insignificant reconciling amounts for Research and development expenses.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Flows from Continuing Operations

Six Months Ended
(MILLIONS)July 3, 2022July 4, 2021Drivers of change
Cash provided by/(used in):
Operating activities from continuing operations$14,717$15,828The change was driven primarily by (i) a decrease in the change in amounts due to BioNTech for the gross profit split for Comirnaty and a decrease in the change in deferred revenues (see Notes 8 and 13C), as well as (ii) the impact of timing of receipts and payments in the ordinary course of business, partially offset by (iii) higher net income adjusted for non-cash items, including an increase from non-cash unrealized losses on equity securities recognized in 2022, compared to unrealized gains recognized in 2021.
Investing activities from continuing operations$(10,746)$(9,880)The change was driven mainly by $6.2 billion cash paid for the acquisition of Arena, net of cash acquired, a $3.0 billion increase in purchases of short-term investments with original maturities of greater than three months, a $2.6 billion increase in net purchases of short-term investments with original maturities of three months or less, and a $1.2 billion increase in purchases of long-term investments, partially offset by a $12.6 billion increase in redemptions of short-term investments with original maturities of greater than three months.
Financing activities from continuing operations$(4,058)$(5,364)The change was driven mostly by $4.0 billion proceeds from short-term borrowings, largely reflecting the loan from the Consumer Healthcare JV (see Note 2C), and an $879 million net increase in proceeds from short-term borrowings with original maturities of three months or less, partially offset by $2.0 billion purchases of the Company’s common stock in 2022 and a $1.6 billion increase in repayments of long-term debt.

Cash Flows from Discontinued Operations

Cash flows from discontinued operations relate to previously divested businesses (see Note 2B).

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

Due to our significant operating cash flows, which is a key strength of our liquidity and capital resources and our primary funding source, as well as our financial assets, access to capital markets, revolving credit agreements, and available lines of

credit, we believe that we have, and will maintain, the ability to meet our liquidity needs to support ongoing operations, our capital allocation objectives, and our contractual and other obligations for the foreseeable future. For additional information, including information about off-balance sheet arrangements, see the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk section within MD&A in our 2021 Form 10-K. For information about the sources and uses of our funds, as well as our operating cash flows, see our condensed consolidated statements of cash flows, condensed consolidated balance sheets, condensed consolidated statements of equity, and the Analysis of the Condensed Consolidated Statements of Cash Flows within MD&A. For information on our money market funds, available-for sale-debt securities and long-term debt, see Note 7.

Debt Capacity––Lines of Credit

As of July 3, 2022, we had access to a $7 billion committed U.S. revolving credit facility expiring in 2026, which may be used for general corporate purposes including to support our commercial paper borrowings. In addition to the U.S. revolving credit facility, our lenders have provided us an additional $527 million in lines of credit, of which $495 million expire within one year. Essentially all lines of credit were unused as of July 3, 2022.

Capital Allocation Framework

Our capital allocation framework is primarily devised to facilitate (i) the achievement of medical breakthroughs through R&D investments and business development activities and (ii) returning capital to shareholders through dividends and share repurchases. See the Overview of Our Performance, Operating Environment, Strategy and Outlook section within MD&A of our 2021 Form 10-K. In April 2022, our BOD declared a dividend of $0.40 per share, paid on June 10, 2022, to shareholders of record at the close of business on May 13, 2022. In June 2022, our BOD declared a dividend of $0.40 per share, payable on September 6, 2022, to shareholders of record at the close of business on July 29, 2022.

In the first quarter of 2022, we purchased 39 million shares of our common stock at a cost of $2.0 billion under our publicly announced share purchase plan. We did not purchase shares in the second quarter of 2022. See Note 12 in our 2021 Form 10-K and Unregistered Sales of Equity Securities and Use of Proceeds in Part II, Item 2 for more information. At July 3, 2022, our remaining share-purchase authorization was approximately $3.3 billion.

In keeping with Pfizer’s transformation into a more focused, global leader in science-based innovative medicines and vaccines, we intend to exit our 32% ownership interest in Haleon in a disciplined manner, with the objective of maximizing value for our shareholders. See Note 2C.

Off-Balance Sheet Arrangements

For information about off-balance sheet arrangements, see the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk section within MD&A in our 2021 Form 10-K. For more information on guarantees and indemnifications, see Note 12B.

In March 2022, in connection with GSK’s previously announced planned demerger, the Consumer Healthcare JV issued notes of $8.75 billion, €2.35 billion and £700 million with various maturities. GSK guaranteed the notes and we agreed to indemnify GSK for 32% of any amount payable by GSK. In conjunction with the completion of GSK’s demerger transactions in July 2022, GSK’s guarantee and our related indemnification of GSK’s guarantee were terminated. See Note 2C.

Global Economic Conditions

Beginning in our second quarter of 2022, our operations in Turkey function in a hyperinflationary economy. The impact to Pfizer is not considered material. For more information about global economic conditions, see the Overview of Our Performance, Operating Environment, Strategy and Outlook—The Global Economic Environment section within this MD&A.

For additional information about our diverse sources of funds, global economic conditions, and information about credit ratings, market risk and LIBOR, see the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk section within MD&A in our 2021 Form 10-K.

NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standard

See Note 1B.

Recently Issued Accounting Standards, Not Adopted as of July 3, 2022
Standard/DescriptionEffective DateEffect 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, but currently do not expect this new guidance to have a material impact on our consolidated financial statements.
In June 2022, the FASB issued final guidance to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual sale restriction as a separate unit of account is not permitted.January 1, 2024, with early adoption permitted.We are assessing the impact, but currently do not expect this new guidance to have a material impact on our consolidated financial statements.

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,” “potential,” “hope” 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, strategy 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, the expected benefits of the organizational changes to further transform our operations, including establishing a new commercial structure within Biopharma, our efforts to respond to COVID-19, including our plans and expectations regarding Comirnaty and Paxlovid, and any potential future vaccines or treatments; the forecasted revenue, demand, manufacturing and supply of Comirnaty and Paxlovid; our expectations regarding the impact of COVID-19 on our business; the expected impact of patent expiries and competition from generic manufacturers; the expected pricing pressures on our products and the anticipated impact to our business; the availability of raw materials for 2022; the expected charges and/or costs in connection with the spin-off of the Upjohn Business and its combination with Mylan; 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; and our planned capital spending.

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 2021 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 2021 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, in the Item 1A. Risk Factors section in our 2021 Form 10-K or within this MD&A, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results, 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/or 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 actions by regulatory authorities based on analysis of ORAL Surveillance or other data, including on other 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 or prevent diseases and conditions similar to those treated or intended to be prevented 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 facilities or third-party facilities that we rely on; 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 and commercialize a vaccine to help prevent COVID-19 and an oral COVID-19 treatment, as well as challenges related to their manufacturing, supply and distribution;

  • risks related to our ability to achieve our revenue forecasts for Comirnaty and Paxlovid or any potential future COVID-19 vaccines or treatments, including, among other things, whether and when additional supply or purchase agreements will be reached, the risk that demand for any products may be reduced or no longer exist and the possibility that COVID-19 will diminish in severity or prevalence or disappear entirely, which may lead to reduced revenues or excess inventory;

  • 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 or vaccines 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, such as inflation, 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, geopolitical instability, 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, including our ongoing evaluation of our product portfolio for the potential presence or formation of nitrosamines;

  • 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 the impact of political unrest or civil unrest or military action, including the ongoing conflict between Russia and Ukraine and the continued economic consequences, 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 internationally and in the U.S., including, among others, potential adoption of global minimum taxation requirements and potential changes to existing tax law by the current U.S. Presidential administration and Congress;

Risks Related to Intellectual Property, Technology and Security

  • any significant breakdown or interruption of our information technology systems and infrastructure (including cloud services);

  • any business disruption, theft of confidential or proprietary information, extortion or integrity compromise resulting from a cyber-attack or other malfeasance by third parties, including, but not limited to, nation states, employees, business partners or others;

  • 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, such as against claims of invalidity that could result in LOE, including challenges faced by our collaboration or licensing partners to the validity of their patent rights, asserted and/or 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 our oral COVID-19 treatment.

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