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Other (Income)/Deductions - Net
 9 Months Ended
Sep. 29, 2019
Other Income and Expenses [Abstract]  
Other (Income)/Deductions - Net Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
 
 
Three Months Ended
 
Nine Months Ended
(MILLIONS OF DOLLARS)
 
September 29,
2019


September 30,
2018

 
September 29,
2019

 
September 30,
2018

Interest income(a)
 
$
(60
)
 
$
(82
)
 
(185
)
 
(240
)
Interest expense(a)
 
409

 
310

 
1,158

 
946

Net interest expense
 
348

 
228

 
973

 
706

Royalty-related income(b)
 
(155
)
 
(143
)
 
(475
)
 
(360
)
Net gains on asset disposals
 
(32
)
 
(4
)
 
(33
)
 
(19
)
Net gains recognized during the period on investments in equity securities(c)
 
(6
)

(85
)

(153
)

(460
)
Net realized losses on sales of investments in debt securities
 
—


8


—


19

Income from collaborations, out-licensing arrangements and sales of compound/product rights(d)
 
(20
)
 
(139
)
 
(124
)
 
(455
)
Net periodic benefit credits other than service costs(e)
 
(19
)
 
(65
)
 
(110
)
 
(231
)
Certain legal matters, net(f)
 
64

 
37

 
84

 
(70
)
Certain asset impairments(g)
 
28

 
(1
)
 
188

 
40

Business and legal entity alignment costs(h)
 
87

 
1

 
343

 
5

Net losses on early retirement of debt(i)
 
—

 
—

 
138

 
3

Other, net(j)
 
24


(252
)

(294
)

(322
)
Other (income)/deductions––net
 
$
319

 
$
(414
)
 
$
537

 
$
(1,143
)

(a) 
Interest income decreased in the third quarter and first nine months of 2019, primarily driven by a lower investment balance. Interest expense increased in the third quarter and first nine months of 2019, mainly as a result of an increased commercial paper balance due to the acquisition of Array, as well as the retirement of lower-coupon debt and the issuance of new debt with a higher coupon than the debt outstanding for the comparative prior year periods.
(b) 
The increase in royalty-related income for the first nine months of 2019 is primarily due to a one-time favorable resolution in the second quarter of 2019 of a legal dispute for $82 million.
(c) 
The third quarter of 2018 included gains of $24 million and the first nine months of 2018 included gains of $229 million related to our investment in ICU Medical stock. For additional information on investments, see Note 7B.
(d) 
Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the first nine months of 2019, mainly includes, among other things, $70 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub®, a generic of Advair Diskus®(fluticasone propionate and salmeterol inhalation powder) and $26 million in milestone income from multiple licensees. In the third quarter of 2018, primarily included, among other things, (i) $40 million in milestone income from a certain licensee, (ii) a $35 million milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of Crohn’s disease and (iii) $45 million in gains related to sales of compound/product rights. In the first nine months of 2018, mainly included, among other things, (i) approximately $128 million in milestone income from multiple licensees, (ii) an upfront payment to us of $75 million for the sale of an α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid (AMPA) receptor potentiator for cognitive impairment associated with schizophrenia (CIAS) to Biogen Inc., (iii) $110 million in milestone payments received from Shire, of which $75 million was received in the first quarter of 2018 related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of ulcerative colitis and $35 million was received from Shire related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of Crohn’s disease, (iv) a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU and (v) $45 million in gains related to sales of compound/product rights.
(e) 
For additional information, see Note 10.
(f) 
For the first nine months of 2018, the net credits primarily represented the reversal of a legal accrual where a loss was no longer deemed probable.
(g) 
The first nine months of 2019 include an intangible asset impairment charge of $10 million and the first nine months of 2018 included an intangible asset impairment charge of $31 million recorded in the second quarter of 2018, which are all related to a finite-lived developed technology right, acquired in connection with our acquisition of Anacor, for the treatment for toenail fungus marketed in the U.S. market only, associated with Biopharma and reflect,
among other things, updated commercial forecasts. The first nine months of 2019 also includes intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases and (ii) $40 million related to a Biopharma developed technology right, acquired in connection with our acquisition of King, for government defense products. The WRDM IPR&D intangible asset impairment charge was the result of a determination to not use certain Bamboo IPR&D acquired in future rare disease development. The intangible asset impairment charge related to the Biopharma developed technology right reflects, among other things, updated commercial forecasts including manufacturing cost assumptions. In addition, the first nine months of 2019, includes other asset impairments of $48 million.
(h) 
In the third quarter and first nine months of 2019, and in the third quarter of 2018, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services. In the first nine months of 2018, mainly represents expenses for changes to our infrastructure to align our commercial operations that existed through December 31, 2018, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(i) 
In the first nine months of 2019, represents net losses due to the early retirement of debt in the first quarter of 2019, inclusive of the related termination of cross-currency swaps.
(j) 
The third quarter of 2019 includes, among other things, dividend income of $43 million from our investment in ViiV and charges of $121 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture. The first nine months of 2019 includes, among other things, (i) dividend income of $184 million from our investment in ViiV, (ii) charges of $146 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture and (iii) $50 million of income from insurance recoveries related to Hurricane Maria. The third quarter and first nine months of 2018 included a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and pre-clinical stage neuroscience assets primarily targeting disorders of the central nervous system. The third quarter of 2018 also included, among other things, dividend income of $91 million from our investment in ViiV, and charges of $122 million, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also included, among other things, (i) dividend income of $226 million from our investment in ViiV, (ii) charges of $257 million, reflecting the change in the fair value of contingent consideration, (iii) a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T development program assets obtained from Cellectis S.A. and Les Laboratoires Servier SAS in connection with our contribution agreement entered into with Allogene, and (iv) a non-cash $17 million gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg.
The following table provides additional information about the intangible assets that were impaired during 2019 in Other (income)/deductions:
 
 
Fair Value(a)
 
Nine Months Ended September 29, 2019
(MILLIONS OF DOLLARS)
 
Amount
 
Level 1
 
Level 2
 
Level 3
 
Impairment
Intangible assets––IPR&D(b)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
90

Intangible assets––Developed technology rights(b)
 
13

 
—

 
—

 
13

 
50

Total
 
$
13

 
$
—

 
$
—

 
$
13

 
$
140


(a) 
The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis.
(b) 
Reflects intangible assets written down to fair value in the first nine months of 2019. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.