Acquisition, Divestiture, Collaborative Arrangement and Equity-Method Investments

A. Acquisition

Nexium Over-the-Counter Rights

In August 2012, we entered into an agreement with AstraZeneca for the exclusive, global, over-the-counter (OTC) rights for Nexium, a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. At that time, we made an upfront payment of $250 million to AstraZeneca, which was expensed. On March 28, 2014, the FDA approved Nexium 24HR (esomeprazole 20mg) for OTC use. Pfizer launched the product in the U.S. on May 27, 2014 and subsequently on July 11, 2014, we paid AstraZeneca a $200 million product launch milestone in accordance with the terms of the agreement. The milestone for this Consumer Healthcare asset acquisition has been recorded in Identifiable intangible assets, less accumulated amortization in the condensed consolidated balance sheet and will be amortized over its estimated useful life. AstraZeneca is eligible to receive future milestone payments of up to $350 million, based on product launches outside the U.S. and level of worldwide sales, as well as royalty payments, based on worldwide sales.

B. Divestiture

Animal Health Business—(Zoetis)

On June 24, 2013, we completed the full disposition of Zoetis. The full disposition was completed through a series of steps, including, in the first quarter of 2013, the formation of Zoetis and an initial public offering (IPO) of an approximate 19.8% interest in Zoetis and, in the second quarter of 2013, an exchange offer for the remaining 80.2% interest.

With respect to the formation and disposition of Zoetis, in the first six months of 2013:

•

Formation of Zoetis—On January 28, 2013, our then wholly owned subsidiary, Zoetis, issued $3.65 billion aggregate principal amount of senior notes. Also, on January 28, 2013, we transferred to Zoetis substantially all of the assets and liabilities of our Animal Health business in exchange for all of the Class A and Class B common stock of Zoetis, $1.0 billion of the $3.65 billion of Zoetis senior notes, and an amount of cash equal to substantially all of the cash proceeds received by Zoetis from the remaining $2.65 billion of senior notes issued. The $1.0 billion of Zoetis senior notes received by Pfizer were exchanged by Pfizer for the retirement of Pfizer commercial paper issued in 2012, and the cash proceeds received by Pfizer of approximately $2.6 billion were used for dividends and stock buybacks.

•

Initial Public Offering (19.8% Interest)—On February 6, 2013, an IPO of the Class A common stock of Zoetis was completed, pursuant to which we sold 99.015 million shares of Class A common stock of Zoetis (all of the Class A common stock, including shares sold pursuant to the underwriters' option to purchase additional shares, which was exercised in full) in exchange for the retirement of approximately $2.5 billion of Pfizer commercial paper issued in 2013. The Class A common stock sold in the IPO represented approximately 19.8% of the total outstanding Zoetis shares. The excess of the consideration received over the net book value of our divested interest was approximately $2.3 billion and was recorded in Additional paid-in capital.

•

Exchange Offer (80.2% Interest)—On June 24, 2013, we exchanged all of our remaining interest in Zoetis for Pfizer common stock and recognized a gain on sale of approximately $10.4 billion, net of income taxes resulting from certain legal entity reorganizations, which was recorded in Gain on disposal of discontinued operations––net of tax in the condensed consolidated statements of income for the three and six months ended June 30, 2013.

The operating results of the Animal Health business are reported as Income from discontinued operations––net of tax in the condensed consolidated statements of income for the three and six months ended June 30, 2013.

Total Discontinued Operations



The following table provides the components of Discontinued operations—net of tax, virtually all of which relates to Zoetis:
	Three Months Ended					Six Months Ended
(MILLIONS OF DOLLARS)	June 29, 2014			June 30, 2013		June 29, 2014			June 30, 2013
Revenues	$	—		$	1,112	$	—		$	2,201
Pre-tax income from discontinued operations	(3		)	189		2			389
Provision for taxes on income^(a)	(1		)	48		(1		)	99
Income from discontinued operations––net of tax	(2		)	141		3			290
Pre-tax gain on disposal of discontinued operations^(b)	2			10,539		66			10,539
Provision for taxes on income^{(b), (c)}	—			121		(4		)	121
Gain on disposal of discontinued operations––net of tax^(b)	2			10,418		70			10,418
Discontinued operations––net of tax	$	—		$	10,559	$	73		$	10,708


^(a)	Includes deferred tax benefits of $2 million and $26 million for the three months ended June 29, 2014 and June 30, 2013, respectively, and deferred tax benefits of $2 million and $19 million for the six months ended June 29, 2014 and June 30, 2013, respectively.


^(b)	For the three and six months ended June 29, 2014, represents post-close adjustments.


^(c)	Reflects income taxes resulting from certain legal entity reorganizations.

The net cash flows of our discontinued operations for each of the categories of operating, investing and financing activities are not significant for the six months ended June 30, 2013, except that financing activities include the cash proceeds from the issuance of senior notes by Zoetis.

C. Collaborative Arrangement

Collaboration with Cellectis SA (Cellectis)

On June 18, 2014, we entered into a global strategic collaboration with Cellectis to develop Chimeric Antigen Receptor T-cell (CAR-T) immunotherapies in the field of oncology directed at select cellular surface antigen targets. Cellectis received an upfront payment of $80 million in August 2014, and will receive funding for research and development costs associated with Pfizer-selected targets and the four Cellectis-selected targets within the collaboration. Cellectis is eligible to receive development, regulatory and commercial milestone payments of up to $185 million per Pfizer product within the collaboration. Cellectis is also eligible to receive tiered royalties on net sales of any products that are commercialized by Pfizer. Additionally, we entered into an agreement to acquire approximately 10% of the Cellectis capital through the purchase of newly issued shares at 9.25 Euro per share, for a total investment of approximately $35 million.

D. Equity-Method Investments

Investment in Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer)

On September 6, 2012, we and Zhejiang Hisun Pharmaceuticals Co., Ltd. (Hisun), a leading pharmaceutical company in China, formed a new company, Hisun Pfizer, 49% owned by Pfizer and 51% owned by Hisun, to develop, manufacture, market and sell pharmaceutical products, primarily branded generic products, predominately in China. In the first quarter of 2013, we and Hisun contributed certain assets to Hisun Pfizer. Our contributions constituted a business, as defined by U.S. GAAP, and in the first six months of 2013, we recognized a pre-tax gain of approximately $459 million in Other (income) deductions––net, reflecting the transfer of the business to Hisun Pfizer (including an allocation of goodwill from our former Emerging Markets reporting unit as part of the carrying amount of the business transferred). Since we hold a 49% interest in Hisun Pfizer, we had an indirect retained interest in the contributed assets. As such, 49% of the gain, or $225 million, represented the portion of the gain associated with that indirect retained interest.

Investment in ViiV Healthcare Limited

On January 21, 2014, the European Commission approved Tivicay (dolutegravir), a product for the treatment of HIV-1 infection, developed by ViiV Healthcare Limited (ViiV), an equity method investee. This approval, in accordance with the agreement between GlaxoSmithKline plc and Pfizer, triggered a reduction in our equity interest in ViiV from 12.6% to 11.7% and an increase in GlaxoSmithKline plc’s equity interest in ViiV from 77.4% to 78.3%, effective April 1, 2014. As a result, in the first six months of 2014, we recognized a loss of approximately $28 million in Other (income)/deductions––net.