EXHIBIT 13

Pfizer Inc. 2019 Financial Report
 
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Financial Review
Pfizer Inc. and Subsidiary Companies

 

GLOSSARY OF DEFINED TERMS

Unless the context requires otherwise, references to “Pfizer,” “the Company,” “we,” “us” or “our” in this 2019 Financial Report (defined below) refer to Pfizer Inc. and its subsidiaries. We also have used several other terms in this 2019 Financial Report, most of which are explained or defined below:
2018 Financial Report
Financial Report for the fiscal year ended December 31, 2018, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018
2019 Financial Report
This Financial Report for the fiscal year ended December 31, 2019, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019
2019 Form 10-K
Annual Report on Form 10-K for the fiscal year ended December 31, 2019
ABO
Accumulated benefit obligation
ACA (Also referred to as U.S. Healthcare Legislation)
U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
ACIP
Advisory Committee on Immunization Practices
ALK
anaplastic lymphoma kinase
Allergan
Allergan plc
Alliance revenues
Revenues from alliance agreements under which we co-promote products discovered or developed by other companies or us
Allogene
Allogene Therapeutics, Inc.
Akcea
Akcea Therapeutics, Inc.
AMPA
α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid
Anacor
Anacor Pharmaceuticals, Inc.
AOCI
Accumulated Other Comprehensive Income
Array
Array BioPharma Inc.
Astellas
Astellas Pharma Inc., Astellas US LLC and Astellas Pharma US, Inc.
ATM-AVI
aztreonam-avibactam
Bain Capital
Bain Capital Private Equity and Bain Capital Life Sciences
Bamboo
Bamboo Therapeutics, Inc.
Biogen
Biogen Inc.
Biopharma
Pfizer Biopharmaceuticals Group
BMS
Bristol-Myers Squibb Company
BRCA
BReast CAncer susceptibility gene
CAR T
chimeric antigen receptor T cell
CDC
U.S. Centers for Disease Control and Prevention
Cellectis
Cellectis S.A.
Cerevel
Cerevel Therapeutics, LLC
CHMP
Committee for Medicinal Products for Human Use
CIAS
cognitive impairment associated with schizophrenia
Citibank
Citibank, N.A.
CML
chronic myelogenous leukemia
Developed Markets
U.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and New Zealand
EC
European Commission
EGFR
epidermal growth factor receptor
EH
Essential Health
EMA
European Medicines Agency
Emerging Markets
Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey
EPS
earnings per share
EU
European Union
FASB
Financial Accounting Standards Board
FDA
U.S. Food and Drug Administration
GAAP
Generally Accepted Accounting Principles
GIST
gastrointestinal stromal tumors
GPD
Global Product Development organization
GSK
GlaxoSmithKline plc
GS&Co.
Goldman, Sachs & Co. LLC
HER2-
human epidermal growth factor receptor 2-negative
hGH-CTP
human growth hormone
HIS
Hospira Infusion Systems
Hisun
Zhejiang Hisun Pharmaceuticals Co., Ltd.
Hisun Pfizer
Hisun Pfizer Pharmaceuticals Company Limited
Hospira
Hospira, Inc.
HR+
hormone receptor-positive
IBT
Income before tax
ICU Medical
ICU Medical, Inc.
IH
Innovative Health

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Ionis
Ionis Pharmaceuticals, Inc.
InnoPharma
InnoPharma, Inc.
IPR&D
in-process research and development
IRC
Internal Revenue Code
IRS
U.S. Internal Revenue Service
IV
intravenous
Janssen
Janssen Biotech, Inc.
J&J
Johnson & Johnson
JV
joint venture
King
King Pharmaceuticals LLC (formerly King Pharmaceuticals, Inc.)
LDL
low density lipoprotein
LEP
Legacy Established Products
LIBOR
London Interbank Offered Rate
Lilly
Eli Lilly and Company
LOE
loss of exclusivity
MCC
Merkel Cell Carcinoma
MCO
Managed Care Organization
mCRC
metastatic colorectal cancer
Medivation
Medivation, Inc.
Merck
Merck & Co., Inc.
Meridian
Meridian Medical Technologies, Inc.
Moody’s
Moody’s Investors Service
Mylan
Mylan N.V.
NAV
Net asset value
NDA
new drug application
NovaQuest
NovaQuest Co-Investment Fund II, L.P. or NovaQuest Co-Investment Fund V, L.P., as applicable
NSCLC
non-small cell lung cancer
NYSE
New York Stock Exchange
OPKO
OPKO Health, Inc.
OTC
over-the-counter
PARP
poly ADP ribose polymerase
PBM
Pharmacy Benefit Manager
PBO
Projected benefit obligation
Pharmacia
Pharmacia Corporation
PPS
Portfolio Performance Shares
PP&E
Property, plant & equipment
PSAs
Performance Share Awards
PsA
psoriatic arthritis
PTSRUs
Performance Total Shareholder Return Units
PTUs
Profit Units
RA
rheumatoid arthritis
RCC
renal cell carcinoma
R&D
research and development
ROU
right of use
RPI
RPI Finance Trust
RSUs
Restricted Stock Units
Sandoz
Sandoz, Inc., a division of Novartis AG
SEC
U.S. Securities and Exchange Commission
Servier
Les Laboratoires Servier SAS
SFJ
SFJ Pharmaceuticals
Shire
Shire International GmbH
SI&A
Selling, informational and administrative
S&P
Standard and Poor’s
SIP
Sterile Injectable Pharmaceuticals
Tax Cuts and Jobs Act or TCJA
Legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017
Teuto
Laboratório Teuto Brasileiro S.A.
Therachon
Therachon Holding AG
TSR
Total Shareholder Return
TSRUs
Total Shareholder Return Units
UC
ulcerative colitis
U.K.
United Kingdom
U.S.
United States
VBP
volume-based procurement in China
ViiV
ViiV Healthcare Limited
WRDM
Worldwide Research, Development and Medical

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2019 Financial Report


Financial Review
Pfizer Inc. and Subsidiary Companies

 

INTRODUCTION

See the Glossary of Defined Terms at the beginning of this 2019 Financial Report for terms used throughout this Financial Review. Our Financial Review is provided to assist readers in understanding the results of operations, financial condition and cash flows of Pfizer Inc. and its subsidiaries (the Company). It should be read in conjunction with the consolidated financial statements and Notes to Consolidated Financial Statements. The discussion in this Financial Review contains forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in Part 1, Item 1A, “Risk Factors” of our 2019 Form 10-K and in the “Forward-Looking Information and Factors That May Affect Future Results”, “Our Operating Environment”, "The Global Economic Environment" and “Our Strategy” sections of this Financial Review.

All trademarks in this Financial Report are the property of their respective owners.

The Financial Review is organized as follows:
 
Beginning on page 2
 
 
This section provides information about the following: Financial Highlights; Our Business; Our Business Development Initiatives; Our 2019 Performance; Our Operating Environment; The Global Economic Environment; Our Strategy; and Our Financial Guidance for 2020.
 
 
Beginning on page 12
 
 
This section discusses those accounting policies and estimates that we consider important in understanding our consolidated financial statements. For additional discussion of our accounting policies, see Notes to Consolidated Financial Statements—Note 1. Basis of Presentation and Significant Accounting Policies.
 
 
Beginning on page 16
 
 
This section includes the following sub-sections:
 
 
Beginning on page 16
 
 
This sub-section provides a high-level summary of our revenues, including revenue deductions.
 
 
Beginning on page 18
 
 
This sub-section provides an overview of revenues by segment and geography.
 
 
Beginning on page 21
 
 
This sub-section provides an overview of several of our biopharmaceutical products.
 
 
Beginning on page 26
 
 
This sub-section provides an overview of important biopharmaceutical product developments.
 
 
Beginning on page 30
 
 
This sub-section provides a discussion about our costs and expenses.
 
 
Beginning on page 33
 
 
This sub-section provides a discussion of items impacting our tax provisions.
 
 
Beginning on page 34
 
 
This sub-section provides a discussion of an alternative view of performance used by management.
 
 
Beginning on page 39
 
 
This section provides a discussion of the performance of each of our operating segments.
 
 
Beginning on page 48
 
 
This section provides an analysis of our consolidated cash flows for the three years ended December 31, 2019.
 
 
Beginning on page 49
 
 
This section provides an analysis of selected measures of our liquidity and of our capital resources as of December 31, 2019 and December 31, 2018, as well as a discussion of our outstanding debt and other commitments that existed as of December 31, 2019 and December 31, 2018. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future activities.
 
 
Beginning on page 54
 
 
This section discusses accounting standards that we have recently adopted, as well as those that recently have been issued, but not yet adopted.
 
 
Beginning on page 55
 
 
This section provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements presented in this Financial Review.
 
Certain amounts in our Financial Review may not add due to rounding. All percentages have been calculated using unrounded amounts.

2019 Financial Report    
 
 
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Financial Review
Pfizer Inc. and Subsidiary Companies

 

OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK

Financial Highlights

The following charts provide a summary of certain financial performance (in billions, except per share data):
2019 Total Revenues––$51.8 billion
2019 Net Cash Flow from Operations––$12.6 billion
A decrease of 4% compared to 2018
A decrease of 20% compared to 2018
totalrev2019.jpgnetcashflowfromops2019.jpg
2019 Reported Diluted EPS––$2.87
2019 Adjusted Diluted EPS (Non-GAAP)––$2.95*
An increase of 54% compared to 2018
An increase of 1% compared to 2018
reporteddilutedeps2019.jpgadjdilutedeps-nongaap2019.jpg
*
For additional information regarding Adjusted diluted EPS (which is a non-GAAP financial measure), including reconciliations of certain GAAP reported to non-GAAP adjusted information, see the “Non-GAAP Financial Measure (Adjusted Income)” section of this Financial Review. We have revised 2018 and 2017 Adjusted diluted EPS to conform with our 2019 presentation (see the “Non-GAAP Financial Measure (Adjusted Income)––Certain Significant Items)” section of this Financial Review).
Our Business

We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development, manufacture and distribution of healthcare products, including innovative medicines and vaccines. We work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time. We collaborate with healthcare providers, governments and local communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our products and, to a much lesser extent, from alliance agreements, under which we co-promote products discovered or developed by other companies or us (Alliance revenues).
At the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and, through July 31, 2019, Consumer Healthcare. Biopharma and Upjohn are the only reportable segments. For additional information about this operating structure, see Notes to Consolidated Financial Statements––Note 17A. Segment, Geographic and Other Revenue Information: Segment Information. See the “Our Strategy––Organizing for Growth” section of this Financial Review below and the “Commercial Operations” section in Part I, Item 1, “Business” of our 2019 Form 10-K for additional information.
The majority of our revenues come from the manufacture and sale of biopharmaceutical products. The biopharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights, the ability to replenish innovative biopharmaceutical products, healthcare legislation, pipeline productivity, the regulatory environment, pricing and access pressures and competition. We also face challenges as a result of the global economic environment. For additional information about these factors and challenges, see the “Our Operating Environment” and “The Global Economic Environment” sections of this Financial Review and Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K.
The financial information included in our consolidated financial statements for our subsidiaries operating outside the U.S. is as of and for the year ended November 30 for each year presented. Pfizer's fiscal year-end for U.S. subsidiaries is as of and for the year ended December 31 for each year presented.

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Pfizer Inc. and Subsidiary Companies

 

References to developed and emerging markets in this Financial Review include:
Developed markets
 
U.S., Western Europe, Japan, Canada, South Korea, Australia, Scandinavian countries, Finland and New Zealand
 
 
 
Emerging markets (include, but are not limited to)
 
Asia (excluding Japan and South Korea), Latin America, Eastern Europe, Africa, the Middle East, Central Europe and Turkey
References to operational variances in this Financial Review pertain to period-over-period growth rates that exclude the impact of foreign exchange. The operational variances are determined by multiplying or dividing, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the prior-year period average foreign exchange rates. Although exchange rate changes are part of our business, they are not within our control. Exchange rate changes, however, can mask positive or negative trends in the business; therefore, we believe presenting operational variances provides useful information to evaluate the results of our business.

On December 22, 2017, the U.S. enacted significant changes to U.S. tax law following the passage and signing of the TCJA. The TCJA is complex and significantly changes the U.S. corporate income tax system by, among other things, reducing the U.S. Federal corporate tax rate from 35% to 21%, transitioning U.S. international taxation from a worldwide tax system to a territorial tax system and imposing a repatriation tax on deemed repatriated accumulated post-1986 earnings of foreign subsidiaries. For information on the TCJA, see Notes to Consolidated Financial Statements––Note 5A. Tax Matters: Taxes on Income from Continuing Operations.

Our Business Development Initiatives

We are committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as well as through various forms of business development, which can include alliances, licenses, joint ventures, collaborations, equity- or debt-based investments, dispositions, mergers and acquisitions. We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. We continue to evaluate business development transactions that have the potential to strengthen our businesses and their capabilities, such as our acquisitions of Array, Therachon, Hospira, Medivation, Anacor and AstraZeneca’s small molecule anti-infectives business, as well as collaborations, and alliance and license agreements with other companies. We assess our businesses, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will advance our businesses.

Our significant recent business development activities include:
License Agreement with Akcea Therapeutics, Inc.––In October 2019, we entered into a worldwide exclusive licensing agreement for AKCEA-ANGPTL3-LRx, an investigational antisense therapy being developed to treat patients with certain cardiovascular and metabolic diseases, with Akcea, a majority-owned affiliate of Ionis. The transaction closed in November 2019 and we made an upfront payment of $250 million to Akcea and Ionis, which was recorded in Research and development expenses in our fiscal fourth quarter of 2019.
Formation of a New Consumer Healthcare Joint Venture––On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. The joint venture is a category leader in pain relief, respiratory and vitamins, minerals and supplements, and therapeutic oral health and is the largest global OTC consumer healthcare business. In accordance with our domestic and international reporting periods, our financial results, and our Consumer Healthcare segment’s operating results, for 2019 reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations. Assets and liabilities associated with our Consumer Healthcare business were reclassified as held for sale in the consolidated balance sheet as of December 31, 2018. See Note 1A. Basis of Presentation and Significant Accounting Policies: Basis of Presentation.
Acquisition of Array BioPharma Inc.––On July 30, 2019, we acquired Array for $48 per share in cash. The total fair value of the consideration transferred for Array was approximately $11.2 billion ($10.9 billion, net of cash acquired). Our financial statements for 2019 reflect the assets, liabilities, operating results and cash flows of Array, commencing from the acquisition date.
Agreement to Combine Upjohn with Mylan N.V.––On July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company, Viatris. Under the terms of the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, Upjohn is expected to be spun off or split off to Pfizer’s shareholders and, immediately thereafter, combined with Mylan. Pfizer shareholders would own 57% of the combined new company, and former Mylan shareholders would own 43%. The transaction is expected to be tax free to Pfizer and Pfizer shareholders. The transaction is anticipated to close in mid-2020, subject to Mylan shareholder approval and satisfaction of other customary closing conditions, including receipt of regulatory approvals. We expect to incur costs of approximately $500 million in connection with fully separating Upjohn, inclusive of $145 million incurred in 2019. Such charges will include costs and expenses related to separation of legal entities and anticipated transaction costs.
Acquisition of Therachon Holding AG––On July 1, 2019, we acquired all the remaining shares of Therachon for $340 million upfront, plus potential milestone payments of up to $470 million, contingent on the achievement of key milestones in the development and commercialization of the lead asset. The total fair value of the consideration transferred for Therachon was approximately $322 million. Our financial statements for 2019 reflect the assets, liabilities, operating results and cash flows of Therachon, commencing from the acquisition date and, in accordance with our international reporting period, reflect five months of Therachon operations and cash flows.
Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc.––On February 3, 2017, we completed the sale of Pfizer’s global infusion systems net assets, HIS, to ICU Medical for up to approximately $900 million, composed of cash and contingent cash consideration, ICU Medical common stock (all of which we sold during 2018) and seller financing. The operating results of HIS are included in our consolidated statement of income through February 2, 2017 and, therefore, our financial results for 2017 reflect one month of HIS domestic operations and two months of HIS international operations. Our financial results for 2019 and 2018 do not reflect any contribution from HIS global operations.
Acquisition of AstraZeneca’s Small Molecule Anti-Infectives Business––On December 22, 2016, which fell in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives

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business, primarily outside the U.S. for approximately $1.0 billion, composed of cash and contingent consideration. Our financial statements reflect the assets, liabilities, operating results and cash flows of this business, commencing from the acquisition date and, in accordance with our international reporting period, for 2017 reflect approximately 11 months of the small molecule anti-infectives business operations and cash flows acquired from AstraZeneca.
For additional information, see Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Equity-Method Investments and Assets and Liabilities Held for Sale, Licensing Arrangements and Research and Development and Collaborative Arrangements.
Our 2019 Performance

Revenues––2019

Revenues decreased $1.9 billion, or 4%, to $51.8 billion in 2019 from $53.6 billion in 2018, reflecting an operational decrease of $545 million, or 1%, and an unfavorable impact of foreign exchange of $1.4 billion, or 3%.
The following graph illustrates the components of the net decrease in revenues in 2019:
revenuedecreasein2019.jpg
*
LOE generally pertains to period-over-period revenue impacts for products across our portfolios experiencing patent expirations or loss of regulatory exclusivity in certain developed markets.
**
On July 31, 2019, we completed the transaction in which we and GSK combined our respective consumer healthcare businesses into a new consumer healthcare joint venture that operates globally under the GSK Consumer Healthcare name. For additional information, see Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Equity-Method Investments and Assets and Liabilities Held for Sale, Licensing Arrangements and Research and Development and Collaborative Arrangements.
The following provides an analysis of the changes in revenues in 2019:
(MILLIONS OF DOLLARS)
 
 
2018 Revenues
 
$
53,647

Operational growth/(decline):
 
 
Continued growth from certain key brands(a)
 
2,495

Higher revenues from continued growth of anti-infective products in China, driven by increased demand for Sulperazon and new launches, the 2018 U.S. launches of immune globulin intravenous products (Panzyga and Octagam) and certain anti-infective launches in international developed and other emerging markets, all in the Hospital products business, higher revenues primarily in the U.S. for Inlyta, Biosimilars, and rare disease products driven by Vyndaqel/Vyndamax and volume-driven growth from Celebrex and Effexor, primarily in Japan and China
 
1,067

Declines from Lyrica, primarily in the U.S., reflecting significantly lower volume associated with multi-source generic competition that began in July 2019, other Hospital products, Enbrel internationally, Viagra and Upjohn’s authorized generic for Viagra primarily in the U.S., Revatio and Relpax primarily in the U.S., and Norvasc and Lipitor primarily in China and Japan
 
(2,728
)
Decline from Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK
 
(1,436
)
Other operational factors, net
 
57

Operational decline, net
 
(545
)
 
 
 
Operational revenues
 
53,102

Unfavorable impact of foreign exchange
 
(1,352
)
2019 Revenues
 
$
51,750

(a) 
Certain key brands represent Ibrance, Eliquis, Xeljanz and Prevnar 13/Prevenar 13. See the “Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this Financial Review for product analysis information.
For worldwide revenues and revenues by geography, for selected products, see the discussion in the “Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion” section of this Financial Review. For additional information regarding the primary indications or class of certain products, see Notes to Consolidated Financial Statements––Note 17C. Segment, Geographic and Other Revenue Information: Other Revenue Information.

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Financial Review
Pfizer Inc. and Subsidiary Companies

 

See the “Analysis of the Consolidated Statements of Income––Revenues––Overview” and “––Revenues by Operating Segment and Geography” sections of this Financial Review for more information, including a discussion of key drivers of our revenue performance.
Income from Continuing Operations Before Provision/(Benefit) for Taxes on Income––2019
The following provides an analysis of the increase in Income from continuing operations before provision/benefit) for taxes on income for 2019:
(MILLIONS OF DOLLARS)
 
 
Income from continuing operations before provision/(benefit) for taxes on income for the year ended December 31, 2018
 
$
11,885

Unfavorable change in revenues
 
(1,897
)
 
 
 
Favorable/(Unfavorable) changes:
 
 
Gain on completion of Consumer Healthcare JV transaction
 
8,086

Lower Cost of sales(a)
 
1,029

Lower Selling, information and administrative expenses(b)
 
105

Higher Research and development expenses(c)
 
(644
)
Lower Amortization of intangible assets(d)
 
283

Lower Restructuring charges and certain acquisition-related costs(e)
 
296

Lower certain asset impairments(f)
 
272

Higher royalty-related income(f)
 
154

Favorable change in the fair value of contingent consideration(f)
 
153

Non-recurrences of net realized losses on sales of investments in debt securities(f)
 
141

Income from insurance recoveries related to Hurricane Maria(f)
 
50

Higher charges for certain legal matters(f)
 
(397
)
Higher net interest expense(f)
 
(365
)
Impact of net periodic benefit costs/(credits) other than service costs(f)
 
(352
)
Non-recurrence of gain on equity investment in Cerevel(f)
 
(343
)
Lower income from collaborations, out-licensing arrangements and sales of compound/product rights(f)
 
(320
)
Higher business and legal entity alignment costs(f)
 
(275
)
Higher net losses on early retirement of debt(f)
 
(134
)
Lower net gains recognized during the period on equity securities(f)
 
(132
)
Non-recurrence of gain on the contribution of Pfizer’s CAR T assets(f)
 
(50
)
All other items, net
 
138

Income from continuing operations before provision/(benefit) for taxes on income for the year ended December 31, 2019
 
$
17,682

(a) 
See the “Costs and Expenses––Cost of Sales” section of this Financial Review.
(b) 
See the “Costs and Expenses––Selling, Informational and Administrative (SI&A) Expenses” section of this Financial Review.
(c) 
See the “Costs and Expenses––Research and Development (R&D) Expenses” section of this Financial Review.
(d) 
See the “Costs and Expenses––Amortization of Intangible Assetssection of this Financial Review.
(e) 
See the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” and Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
(f) 
See the Notes to Consolidated Financial Statements––Note 4. Other (Income)/Deductions—Net.
For information on our tax provision and effective tax rate see the “Provision/(Benefit) for Taxes on Income” section of this Financial Review and Notes to Consolidated Financial Statements––Note 5A. Tax Matters: Taxes on Income from Continuing Operations.
Our Operating Environment
Industry-Specific Challenges

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 significant adverse effect on our revenues. Certain of our current products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face significantly increased generic competition over the next few years. For example, Lyrica lost patent protection in the U.S. in June 2019 and multi-source generic competition began in July 2019. Also, the basic product patent for Chantix in the U.S. will expire in November 2020. We expect the impact of reduced revenues due to patent expiries will be significant in 2020, then moderating downward to a much lower level from 2021 through 2025.

For additional information, including the patent rights we consider most significant in relation to our business as a whole, together with the year in which the basic product patent expires and recent and expected losses of product exclusivity, see the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 2019 Form 10-K.

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We will continue to aggressively defend our patent rights whenever we deem appropriate. For a discussion of certain recent developments with respect to patent litigation, see Notes to Consolidated Financial Statements––Note 16A1. Contingencies and Certain Commitments: Legal Proceedings––Patent Litigation.
Regulatory Environment/Pricing and Access––U.S. Healthcare Legislation

In March 2010, the ACA was enacted in the U.S. For additional information, see the “Government Regulation and Price Constraints” section in Part I, Item 1, “Business”, of our 2019 Form 10-K.
We recorded the following amounts as a result of the U.S. Healthcare Legislation:


Year Ended December 31,
(MILLIONS OF DOLLARS)

2019


2018


2017

Reduction to Revenues, related to the Medicare “coverage gap” discount provision

$
934


$
674


$
450

Selling, informational and administrative expenses, related to the fee payable to the federal government (which is not deductible for U.S. income tax purposes), based on our prior-calendar-year share relative to other companies of branded prescription drug sales to specified government programs. 2018 reflected a favorable true-up associated with the updated 2017 invoice received from the federal government, which reflected a lower expense than what was previously estimated for invoiced periods.

247


184


307


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

The pricing of medicines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Governments, MCOs and other payor groups continue to seek increasing discounts on our products through a variety of means and could have an adverse impact on our results of operations. We believe that medicines are amongst the most powerful tools for patients in curing, treating and preventing illness and disability, and that all patients should have appropriate access to the medicines their doctors prescribe. We may consider a number of factors when determining a medicine’s price, including, for example, its impact on patients and their disease, other available treatments, the medicine’s potential to reduce other healthcare costs (such as hospital stays), and affordability. Within the U.S., in particular, we may also engage with patients, doctors and healthcare plans regarding their views. We also negotiate with insurers, including PBMs and MCOs, often providing significant discounts to them from the list price. The price that patients pay in the U.S. for the medicines their physicians prescribe is ultimately set by healthcare providers and insurers. On average, in the U.S., insurers impose a of higher out-of-pocket burden on patients for prescription medicines than for comparably-priced medical services. We will continue to work with insurance providers, governments and others to improve access to today’s innovative treatments. Certain governments, including the different EU member states, the U.K., China, Japan, Canada, South Korea and some other international markets, provide healthcare at low-to-zero direct cost to consumers at the point of care and have significant power as large single payers to regulate pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system, particularly under recent global financing pressures. Governments may use a variety of cost-containment measures for our pharmaceutical products, including 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. For additional information, see the “Government Regulation and Price Constrains” section in Part I, Item 1, “Business” of our 2019 Form 10-K.
Regulatory Environment––Pipeline Productivity

The discovery and development of safe, effective new products, as well as the development of additional uses for existing products, are necessary for the continued strength of our businesses. We have encountered increasing regulatory scrutiny of drug safety and efficacy, even as we continue to gather safety and other data on our products, before and after the products have been launched. Our product lines must be replenished over time in order to offset revenue losses when products lose their market exclusivity, as well as to provide for earnings growth. We devote considerable resources to R&D activities. These activities involve a high degree of risk and cost and may take many years, and with respect to any specific R&D project, there can be no assurance that the development of any particular product candidate or new indication for an in-line product will achieve the desired clinical endpoints and safety profile, will be approved by regulators or will be successful commercially.

During the development of a product, we conduct clinical trials to provide data on the drug’s safety and efficacy to support the evaluation of its overall benefit-risk profile for a particular patient population. In addition, after a product has been approved and launched, we continue to monitor its safety as long as it is available to patients, and postmarketing trials may be conducted, including trials requested by regulators and trials that we do voluntarily to gain additional medical knowledge. For the entire life of the product, we collect safety data and report safety information to the FDA and other regulatory authorities. The FDA and regulatory authorities in other jurisdictions may evaluate potential safety concerns related to a product or a class of products and take regulatory actions in response, such as updating a product’s labeling, restricting the use of a product, communicating new safety information to the public, or, in rare cases, removing a product from the market.

Product Manufacturing

We periodically encounter difficulties or delays in manufacturing, including due to suspension of manufacturing or recall of a product, or legal or regulatory actions such as warning letters. For example, Hospira’s manufacturing facility in McPherson, Kansas is currently under the FDA inspection classification of Official Action Indicated (OAI). As a result of this classification, the FDA may refuse to grant premarket approval of applications and/or the FDA may refuse to grant export certificates related to products manufactured at our McPherson site until the site status is upgraded, which upgrade would be based on a re-inspection by the FDA. Future FDA inspections and regulatory activities will further assess the adequacy and sustainability of corrections implemented at the site. Communication with the FDA on the status of the McPherson site is

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ongoing. For additional information regarding the FDA inspection of the McPherson site, see Part I, Item 1A, “Risk Factors––Product Manufacturing, Sales and Marketing Risks” of our 2019 Form 10-K.

We have been experiencing product shortages for products from the legacy Hospira portfolio, among others, largely driven by capacity constraints, technical issues, supplier quality concerns or unanticipated demand. We have made considerable progress remediating issues at legacy Hospira facilities manufacturing sterile injectables and have substantially improved supply from most of these sites. Continuing product shortage interruption at these and other manufacturing facilities could negatively impact our financial results.

Competition

Many of our prescription pharmaceutical products face competition in the form of branded or generic drugs or biosimilars that treat similar diseases or indications. For additional information, see the “Competition” section in Part I, Item 1, “Business” of our 2019 Form 10-K.
The Global Economic Environment

In addition to the industry-specific factors discussed above, we, like other businesses of our size, are exposed to the economic cycle, which impacts our biopharmaceutical operations globally.
Governments, corporations, and insurance companies, which provide insurance benefits to patients, have implemented increases in cost-sharing and restrictions on access to medicines, potentially causing patients to switch to generic or biosimilar products, delay treatments, skip doses or use less effective treatments. As discussed above, government financing pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria (e.g., through public or private health technology assessments), or other means of cost control.
Significant portions of our revenues, costs and expenses, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the Chinese renminbi, the Japanese yen, the Canadian dollar, the U.K. pound and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. dollar were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance.
The impact of possible currency devaluations in countries experiencing high inflation rates or significant exchange fluctuations, including Venezuela and Argentina, can impact our results and financial guidance. For additional information about our exposure to foreign currency risk, see the “Our Financial Guidance for 2020” and the “Analysis of Financial Condition, Liquidity and Capital Resources” sections of this Financial Review.
In June 2016, the U.K. electorate voted in a referendum to leave the EU, which is commonly referred to as “Brexit”. In March 2017, the U.K. government formally notified the European Council of its intention to leave the EU after it triggered Article 50 of the Lisbon Treaty to begin the two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. Formal negotiations officially started in June 2017. Following the General Election in December 2019, the new U.K. parliament approved the negotiated withdrawal agreement and the U.K. left the EU on January 31, 2020 with status quo arrangements through a transition period scheduled to end on December 31, 2020. The transition period will be used to negotiate future trade arrangements between the U.K. and the EU. The consequences of the U.K. leaving the EU and the terms of the future trading relationship continue to be highly uncertain, which may pose certain implications to our research, commercial and general business operations in the U.K. and the EU, including the approval and supply of our products. At present, it is still unclear whether and to what extent the U.K. will remain within or aligned to the EU system of medicines regulation, after the end of the transition period. However, both the U.K. and the EU have issued detailed guidance for the industry on how medicines, medical devices and clinical trials will be separately regulated in their respective territories. Pfizer has substantially completed its preparations for Brexit, having made the changes necessary to meet relevant regulatory requirements in the EU and the U.K., through the transition period and afterwards, especially in the regulatory, research, manufacturing and supply chain areas. Between 2018 and 2021, we expect to spend up to approximately $60 million in one-time costs to make these adaptations.
We generated approximately 2% of our worldwide revenues from the U.K. in 2019 including the foreign currency exchange impact from the weakening U.K. pound relative to the U.S. dollar to date.
Public health epidemics or outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. In particular, the continued spread of the coronavirus globally could adversely impact our operations, including among others, our manufacturing and supply chain, sales and marketing and clinical trial operations and could have an adverse impact on our business and our financial results.

Pfizer maintains a strong financial position while operating in a complex global environment. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. Our long-term debt is rated high quality by both S&P and Moody’s. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified,

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available-for-sale debt securities. For further discussion of our financial condition and credit ratings, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this Financial Review.

These and other industry-wide factors that may affect our businesses should be considered along with information presented in the “Forward-Looking Information and Factors That May Affect Future Results” section of this Financial Review and in Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K.
Our Strategy
We believe that our medicines provide significant value for both healthcare providers and patients, not only from the improved treatment of diseases but also from a reduction in other healthcare costs, such as emergency room or hospitalization costs, as well as improvements in health, wellness and productivity. We continue to actively engage in dialogues about the value of our medicines and how we can best work with patients, physicians and payers to prevent and treat disease and improve outcomes. We continue to work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize patient access and minimize any adverse impact on our revenues. We remain firmly committed to fulfilling our Company’s purpose: Breakthroughs that change patients’ lives. By doing so, we expect to create value for the patients we serve and for our colleagues and shareholders.

Organizing for Growth
We believe we have one of the strongest pipelines we have had in over a decade, and believe we are well positioned for future growth. Additional patent expiries will continue over several years, and we expect the impact of reduced revenues due to patent expiries will be significant in 2020, then moderating downward to a much lower level from 2021 through 2025. This confluence of events has provided us an opportunity to look at and refine how we organize our business to best achieve sustainable growth and to deliver our medicines and vaccines to the maximum number of people who need them.
At the beginning of our fiscal year 2019, we began to manage our commercial operations through a new global structure consisting of three businesses, each led by a single manager—Pfizer Biopharmaceuticals Group (Biopharma), Upjohn and, through July 31, 2019, Pfizer’s Consumer Healthcare business. We designed this new global structure to take advantage of new growth opportunities driven by the evolving and unique dynamics of relevant markets.
For additional information about each business, see Notes to Consolidated Financial Statements––Note 17A. Segment, Geographic and Other Revenue Information: Segment Information.
We also reorganized our R&D operations as part of our Organizing for Growth reorganization:
The former Worldwide Research and Development organization is renamed Worldwide Research, Development and Medical (WRDM) as we have created a new Worldwide Medical & Safety organization in WRDM that incorporates the former Chief Medical Office as well as the Worldwide Safety function;
The R&D organization within our former Essential Health business has been integrated into the WRDM, GPD and Upjohn organizations, including moving biosimilars into WRDM and GPD and realigning them with the relevant therapeutic areas (e.g., Oncology and Inflammation & Immunology);
The Regulatory function has been moved from the WRDM organization into the GPD organization; and
Late-stage portfolio spend has been moved from our former Innovative Health business to GPD and from our former Essential Health business to GPD and Upjohn.
We re-aligned our commercial operations in 2019 for a number of reasons, including:
Bringing biosimilars into our Oncology and Inflammation & Immunology therapeutic categories gives us the potential to leverage our R&D, regulatory and commercial infrastructure within the Biopharma business to more efficiently bring those assets to market;
Creating a business unit (i.e., the Hospital unit within Biopharma) that is solely focused on medicines that are used in hospitals can potentially bring greater focus and attention to serving those customers and developing those relationships;
Giving Upjohn more autonomy with a focus on maximizing the value of its products, particularly in emerging markets, provides it the opportunity to operate as a standalone business within Pfizer with the potential for sustainable modest growth; and
We believe this new structure better positions each business to achieve its growth potential as we transition to a period post-2020 where we expect higher and more sustained revenue growth due to declining LOEs and the potential of our late-stage pipeline.
Biopharma seeks to leverage a strong pipeline, organize around operational growth drivers, and capitalize on trends creating long-term growth opportunities, including:
an aging global population that is generating increased demand for innovative medicines that address patients’ unmet needs;
advances in both biological science and digital technology that are enhancing the delivery of breakthrough new medicines; and
the increasingly significant role of hospitals in healthcare systems.
Urbanization and the rise of the middle class in emerging markets, particularly in Asia, provide growth opportunities for the Upjohn business. Our ability to work collaboratively within local markets and to be fast, focused and flexible is intended to position this business to seize these opportunities. Upjohn has distinct and dedicated manufacturing, marketing, regulatory and, subject to limited exceptions, enabling functions that report directly into the business providing autonomy and positioning Upjohn to operate as a true stand-alone division. We created this new structure to, among other things, position Upjohn to optimize its distinct growth potential and provide us with the flexibility to access further opportunities to enhance value.
Subsequent to the re-alignment of our commercial operations in 2019, on July 29, 2019, we announced that we entered into a definitive agreement to combine Upjohn with Mylan, creating a new global pharmaceutical company, Viatris. For additional information, see the “Our Business Development Initiatives” section above in this Financial Review. We believe the new company will transform and accelerate Upjohn’s

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and Mylan’s ability to serve patients’ needs and expand their capabilities across more than 165 markets. The combination will drive a sustainable, diverse and differentiated portfolio of prescription medicines, complex generics, over-the-counter products and biosimilars supported by commercial and regulatory expertise, established infrastructure, R&D capabilities and manufacturing and supply chain excellence.
As we prepare for expected growth, we are focused on creating a simpler, more efficient organization by streamlining structures, processes and governance within each business and the functions that support them. As our innovative pipeline matures based on anticipated progression of current trials and the initiation of new pivotal trials, including new trials for medicines we may acquire or in-license, we will need to increase our R&D investments. In addition, as our pipeline potentially delivers new commercialization opportunities, we will need to increase our investments in new-market-creation activities. We have initiated an enterprise-wide digital effort to accelerate drug development, enhance experiences (patient and physician) and access and leverage technology and robotics to simplify and automate our processes.
In the fourth quarter of 2018, we took steps to simplify the organization, increase spans of control and reduce organizational layers, which impacted some managerial roles and responsibilities. We also offered enhancements to certain employee benefits for a short period of time. The expenses related to these enhancements for certain employee benefits did not have a material impact on our 2018 and 2019 results of operations.
Transforming to a More Focused Company
With the formation of the GSK Consumer Healthcare venture and the pending combination of Upjohn with Mylan, Pfizer is transforming itself into a more focused, global leader in science-based innovative medicines. As a result, we began, in the fourth quarter of 2019, to identify and undertake efforts to ensure our cost base aligns appropriately with our Biopharmaceutical revenue base, which is expected to be 20% less (based on the midpoint of the range for 2020 New Pfizer revenue guidance (see the “Our Financial Guidance for 2020” section of this Financial Review), compared to 2019 total company reported revenue) as a result of both the completed Consumer Healthcare and expected Upjohn transactions. While certain direct costs have transferred or will transfer to the Consumer Healthcare joint venture and to the Upjohn entities, there are indirect costs which are not expected to transfer. In addition, we are taking steps to restructure our organizations to appropriately support and drive the purpose of the three core functions of our focused innovative medicines business: R&D, Manufacturing and Commercial. For additional information, see the “Costs and Expenses–– Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this Financial Review.
Commercial Operations

As discussed under “Organizing for Growth”, at the beginning of our 2019 fiscal year, we began to manage our commercial operations through a new global structure consisting of three business segments––Biopharma, Upjohn and, through July 31, 2019, Consumer Healthcare, each led by a single manager. Each operating segment has responsibility for its commercial activities. Upjohn, and through July 31, 2019, Consumer Healthcare are responsible for their own R&D activities while Biopharma receives its R&D services from GPD and WRDM. These services include IPR&D projects for new investigational products and additional indications for in-line products. Each business has a geographic footprint across developed and emerging markets. For additional information on our Commercial Operations, see the “Commercial Operations” section in Part I, Item 1, “Business” of our 2019 Form 10-K. For additional information about our operating structure, see Notes to Consolidated Financial Statements—Note 17A. Segment, Geographic and Other Revenue Information: Segment Information. For additional information about the 2019 performance of each of our operating segments, see the “Analysis of Operating Segment Information” section of this Financial Review.
Description of Research and Development Operations
Innovation is critical to the success of our Company, and drug discovery and development are time-consuming, expensive and unpredictable. Pfizer’s purpose is to deliver breakthroughs that change patients’ lives. R&D is at the heart of fulfilling Pfizer’s purpose as we work to translate advanced science and technologies into the therapies that matter most.
Our R&D priorities include:
delivering a pipeline of highly differentiated medicines and vaccines where Pfizer has a unique opportunity to bring the most important new therapies to patients in need;
advancing our capabilities that can position Pfizer for long-term R&D leadership; and
advancing new models for partnerships with creativity, flexibility and urgency to deliver innovation to patients as quickly as possible.

To that end, our R&D primarily focuses on:
Oncology;
Inflammation and Immunology;
Vaccines;
Internal Medicine;
Rare Diseases; and
Hospital.
For additional information about R&D, see the “Research and Development” section in Part I, Item 1, “Business” of our 2019 Form 10-K. For additional information about R&D by operating segment, see the “Analysis of Operating Segment Information” section of this Financial Review.
For additional information about our pending new drug applications and supplemental filings, see the “Analysis of the Consolidated Statements of Income––Product Developments––Biopharmaceutical” section of this Financial Review.

For additional information about recent transactions and strategic investments that we believe have the potential to advance our pipeline, see the “Our Business Development Initiatives” section of this Financial Review above.

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Intellectual Property Rights
We continue to vigorously defend our patent rights against increasingly aggressive infringement, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to ensure appropriate patient access. In addition, we will continue to employ innovative approaches designed to prevent counterfeit pharmaceuticals from entering the supply chain and to achieve greater control over the distribution of our products, and we will continue to participate in the generics market whenever appropriate. Also, the pursuit of valid business opportunities may require us to challenge intellectual property rights held by other companies that we believe were improperly granted. Such challenges may include negotiation and litigation, which may not always be successful. For additional information about our current efforts to enforce our intellectual property rights and certain other patent proceedings, see Notes to Consolidated Financial Statements––Note 16A1. Contingencies and Certain Commitments: Legal Proceedings––Patent Litigation. For information on risks related to patent protection and intellectual property claims by third parties, see Part I, Item 1A, “Risk Factors––Risks Related to Intellectual Property” in our 2019 Form 10-K.
Capital Allocation and Expense Management
We seek to maintain a strong balance sheet and robust liquidity so that we continue to have the financial resources necessary to take advantage of prudent commercial, research and business development opportunities and to directly enhance shareholder value through share repurchases and dividends. For additional information about our financial condition, liquidity, capital resources, share repurchases (including accelerated share repurchases) and dividends, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this Financial Review. For additional information about our recent business development activities, see the “Our Business Development Initiatives” section of this Financial Review above.
In December 2019, our Board of Directors declared a first-quarter 2020 dividend of $0.38 per share, an increase from the $0.36 per-share quarterly dividend paid during 2019. For additional information, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this Financial Review.

We remain focused on achieving an appropriate cost structure for our company. For additional information about our various initiatives, see the “Our Strategy––Transforming to a More Focused Company” and “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” sections of this Financial Review and Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.

Increasing Investment in the U.S.––After evaluating the expected positive net impact the TCJA will have on us, in early 2018, we decided to take several actions:
Over the five-year period from 2018 through 2022, we plan to invest approximately $5.0 billion in capital projects in the U.S., including the strengthening of our manufacturing presence in the U.S. As part of this plan:
in July 2018, we announced that we will increase our commitment to U.S. manufacturing with a $465 million investment to build one of the most technically advanced sterile injectable pharmaceutical production facilities in the world in Portage, Michigan. This U.S. investment will strengthen our capability to produce and supply critical, life-saving injectable medicines for patients around the world, creating an estimated 450 new jobs over the next several years; and
in August 2019, we announced an additional half billion dollar investment for the construction of a state-of-the-art gene therapy manufacturing facility in Sanford, North Carolina. This facility is anticipated to support our continuing investment in gene therapy R&D, similar to Pfizer’s Chapel Hill and Kit Creek, North Carolina R&D sites. This facility would expand our presence in North Carolina. The expanded facility is projected to add approximately 300 new jobs.
We made a $500 million voluntary contribution to the U.S. Pfizer Consolidated Pension Plan in February 2018.
In the first quarter of 2018, we paid a special, one-time bonus to virtually all Pfizer colleagues, excluding executives, of $119 million in the aggregate.

Our Business Development Initiatives
As part of our strategy, we are also committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as well as through various forms of business development, which can include alliances, licenses, joint ventures, collaborations, equity- or debt-based investments, dispositions, mergers and acquisitions. For additional information see the “Our Business Development Initiatives” section of this Financial Review above and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Divestitures, Equity-Method Investments and Assets and Liabilities Held for Sale, Licensing Arrangements and Research and Development and Collaborative Arrangements.

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Our Financial Guidance for 2020
2020 Financial Guidance for Total Company
2020 financial guidance for Total Company is presented below(a), (b):
Revenues
$48.5 to $50.5 billion
Adjusted cost of sales as a percentage of revenues
19.9% to 20.9%
Adjusted selling, informational and administrative expenses
$12.0 to $13.0 billion
Adjusted research and development expenses
$8.1 to $8.5 billion
Adjusted other (income)/deductions
Approximately $800 million of income
Effective tax rate on adjusted income
Approximately 15.0%
Adjusted diluted EPS
$2.82 to $2.92
(a) 
The 2020 financial guidance for Total Company reflects the following:
Reflects a full year of revenue and expense contributions from Biopharma and Upjohn, and excludes any impact from the pending Upjohn combination with Mylan.
Does not assume the completion of any business development transactions not completed as of December 31, 2019, including any one-time upfront payments associated with such transactions.
Includes Pfizer’s pro rata share of the Consumer Healthcare joint venture anticipated earnings, which is recorded in Adjusted other (income)/deductions on a one-quarter lag. Therefore, 2020 financial guidance for Adjusted other (income)/deductions and Adjusted diluted EPS reflects Pfizer’s share of the joint venture’s earnings that were generated in the fourth quarter of 2019 (to be recorded by Pfizer in the first quarter of 2020) as well as Pfizer’s share of the joint venture’s projected earnings during the first three quarters of 2020.
Reflects an anticipated negative revenue impact of $2.4 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection.
Exchange rates assumed are as of mid-January 2020. Reflects the anticipated unfavorable impact of approximately $0.2 billion on revenues and approximately $0.01 on adjusted diluted EPS as a result of changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2019.
Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 5.65 billion shares, which assumes no share repurchases in 2020.
(b) 
For additional information regarding an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this Financial Review.
Beginning in 2020, Upjohn began managing Pfizer’s Meridian subsidiary, the manufacturer of EpiPen and other auto-injector products, and the Mylan-Japan collaboration for generic drugs in Japan (established in 2012) (Mylan-Japan). As a result, revenues and expenses associated with Meridian and Mylan-Japan will be reported in Pfizer’s Upjohn business beginning in the first quarter of 2020. In 2019, revenues from Meridian and Mylan-Japan were recorded in Pfizer’s Biopharma business and totaled $598 million, flat operationally, compared with full-year 2018.
Pfizer, Upjohn and Mylan are in the process of negotiating the terms on which Pfizer would transfer the Meridian business and/or certain Pfizer assets that currently form part of the Mylan-Japan collaboration to Viatris following the completion of the proposed combination of Upjohn and Mylan. There can be no assurance that any agreement or transaction will result from these negotiations and if the parties are unsuccessful in their efforts to negotiate the terms of such potential transactions, the Meridian business and/or the Pfizer assets that currently form part of the Mylan-Japan collaboration will remain with Pfizer.
2020 Financial Guidance for New Pfizer
2020 financial guidance for New Pfizer is presented below(a), (b):
Revenues
$40.7 to $42.3 billion
Adjusted IBT Margin(c)
Approximately 37.0%
Adjusted Diluted EPS
$2.25 to $2.35
Operating Cash Flow(d)
$11.0 to $12.0 billion
(a) 
Financial guidance for New Pfizer reflects a full-year 2020 pro-forma view of the company assuming the pending Upjohn combination with Mylan was completed at the beginning of 2020. Therefore, New Pfizer reflects contributions from the Biopharma business as it is presently being managed, which excludes contributions from Pfizer’s Meridian subsidiary and the Pfizer-Mylan strategic collaboration in Japan (Mylan-Japan). Pfizer’s Meridian subsidiary and Mylan-Japan were managed by Pfizer’s Biopharma business in 2019. Financial guidance for New Pfizer also includes the full-year effect of the following items that assume the completion of the Upjohn combination with Mylan: (i) $12 billion of net proceeds from Upjohn to be retained by Pfizer, which Pfizer will use to repay its own existing indebtedness; and (ii) other transaction-related items, such as income from transition services agreements between Pfizer and Viatris. In addition, 2020 financial guidance for New Pfizer Adjusted IBT Margin and Adjusted diluted EPS reflects Pfizer’s share of the earnings generated by the Consumer Healthcare joint venture in fourth-quarter 2019 (to be recorded by Pfizer in first-quarter 2020) as well as Pfizer’s share of the Consumer Healthcare joint venture’s projected earnings during the first three quarters of 2020.
(b) 
For additional information regarding an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this Financial Review.
(c) 
Adjusted income before tax margin (Adjusted IBT margin) is defined as revenue less the sum of Adjusted cost of sales, Adjusted SI&A expenses, Adjusted R&D expenses, Adjusted amortization of intangible assets and Adjusted other (income)/deductions as a percentage of revenue. Adjusted IBT Margin is presented because management believes this performance measure supplements investors’ and other readers’ understanding and assessment of the financial performance of New Pfizer. Adjusted IBT margin is not, and should not be viewed as, a substitute for U.S. GAAP income before tax margin.
(d) 
Does not include our planned $1.25 billion voluntary contribution to the U.S. qualified pension plans in the second half of 2020.
2020 Financial Guidance for Upjohn

2020 financial guidance for Upjohn now reflects the inclusion of revenues and expenses associated with Meridian and Mylan-Japan, which were previously recorded in Pfizer’s Biopharma business. Except for the shift of Meridian and Mylan-Japan from Biopharma to Upjohn, there are no operational changes to Upjohn’s 2020 financial guidance compared with the preliminary financial targets that were provided in July 2019.

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2020 financial guidance for Upjohn is presented below(a):
Revenues
$8.0 to $8.5 billion
Adjusted EBITDA(b)
$3.8 to $4.2 billion
(a) 
Financial guidance for Upjohn assumes a full-year 2020 contribution from the Upjohn business as it is presently being managed, which includes contributions from Pfizer’s Meridian subsidiary and Mylan-Japan.
(b) 
Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) is defined as reported U.S. GAAP net income/(loss), and its components, adjusted for interest expense, provision/(benefit) for taxes on income/(loss) and depreciation and amortization, further adjusted to exclude purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items (some of which may recur, such as gains on the completion of joint venture transactions, restructuring charges, legal charges or net gains and losses on equity securities, but which management does not believe are reflective of ongoing core operations). Adjusted EBITDA is presented because management believes this performance measure supplements investors’ and other readers’ understanding and assessment of the financial performance of Upjohn. Adjusted EBITDA as defined is not a measurement of financial performance under GAAP, and should not be considered as an alternative to net income/(loss) or cash flow from operations determined in accordance with GAAP.

Pfizer does not provide guidance for GAAP Reported financial measures (other than revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses, net gains or losses on investments in equity securities and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.
For information about our actual costs and anticipated costs and cost savings associated with our various initiatives, see the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this Financial Review and Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
Our 2020 financial guidance is subject to a number of factors and uncertainties as described in the “Our Operating Environment”, “The Global Economic Environment”, “Our Strategy” and “Forward-Looking Information and Factors That May Affect Future Results” sections of this Financial Review; and Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K.
SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

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

Following is a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements. See also Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions for a discussion about the risks associated with estimates and assumptions.

Acquisitions and Fair Value

For a discussion about the application of fair value to our recent acquisitions, see Notes to Consolidated Financial Statements—Note 2A. Acquisitions, Divestitures, Equity-Method Investments and Assets and Liabilities Held for Sale, Licensing Arrangements and Research and Development and Collaborative Arrangements: Acquisitions.

For a discussion about the application of fair value to our investments, see Notes to Consolidated Financial Statements—Note 7A. Financial Instruments: Fair Value Measurements.

For a discussion about the application of fair value to our benefit plan assets, see Notes to Consolidated Financial Statements––Note 11D. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Plan Assets.

For a discussion about the application of fair value to our asset impairment reviews, see “Asset Impairment Reviews” below.

Revenues

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

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


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Asset Impairment Reviews

We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in the Notes to Consolidated Financial Statements––Note 1L. Basis of Presentation and Significant Accounting Policies: Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets.
Examples of events or circumstances that may be indicative of impairment include:
A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected.
A significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the FDA or other regulatory authorities could affect our ability to manufacture or sell a product.
A projection or forecast that indicates losses or reduced profits associated with an asset. This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability. This also could result from the introduction of a competitor’s product that results in a significant loss of market share or the inability to achieve the previously projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers. For IPR&D projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product.

Identifiable Intangible Assets

As a result of our identifiable intangible asset impairment review work, we recognized a number of impairments of identifiable intangible assets for the years ended December 31, 2019, 2018 and 2017. See Notes to Consolidated Financial Statements––Note 4. Other (Income)/DeductionsNet.
When we are required to determine the fair value of intangible assets other than goodwill, we use an income approach, specifically the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the asset, which includes the application of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions 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 projections and the impact of technological risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.

While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, in general, intangible assets other than goodwill that are most at risk of impairment include IPR&D assets (approximately $5.9 billion as of December 31, 2019) and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, as R&D is an inherently risky activity. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge.

Goodwill

As a result of our goodwill impairment review work, we concluded that none of our goodwill was impaired as of December 31, 2019, and we do not believe the risk of impairment is significant at this time.

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

When we are required to determine the fair value of a reporting unit, as appropriate for the individual reporting unit, we mainly use the income approach but we may also use the market approach, or a weighted-average combination of both approaches.
The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, the method that we use is the discounted cash flow method. We start with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.
The market approach is a historical approach to estimating fair value and relies primarily on external information. Within the market approach are two methods that we may use:
Guideline public company method—this method employs market multiples derived from market prices of stocks of companies that are engaged in the same or similar lines of business and that are actively traded on a free and open market and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.

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Guideline transaction method—this method relies on pricing multiples derived from transactions of significant interests in companies engaged in the same or similar lines of business and the application of the identified multiples to the corresponding measure of our reporting unit’s financial performance.
The market approach is only appropriate when the available external information is robust and deemed to be a reliable proxy for the specific reporting unit being valued; however, these assessments may prove to be incomplete or inaccurate. Some of the more significant estimates and assumptions inherent in this approach include: the selection of appropriate guideline companies and transactions and the determination of applicable premiums and discounts based on any differences in ownership percentages, ownership rights, business ownership forms or marketability between the reporting unit and the guideline companies and transactions.
For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see the “Forward-Looking Information and Factors That May Affect Future Results” section of this Financial Review and Part I, Item 1A, “Risk Factors” in our 2019 Form 10-K.
Benefit Plans

The majority of our employees worldwide are covered by defined benefit pension plans, defined contribution plans or both. In the U.S., we sponsor both IRC-qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans, as well as other postretirement benefit plans consisting primarily of medical insurance for retirees and their eligible dependents.

The accounting for benefit plans is highly dependent on actuarial estimates, assumptions and calculations, which can result from a complex series of judgments about future events and uncertainties. The assumptions and actuarial estimates required to estimate the net employee benefit obligations for the defined benefit and postretirement plans include the discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality (life expectancy); and healthcare cost trend rates.

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

As of December 31, 2019, the noncurrent portion of our pension benefit obligations, net, increased by approximately $326 million, compared to December 31, 2018. The increase reflects, among other things, a decrease in the discount rate used in the measurement of plan obligations, partially offset by an increase in the actual returns on plan assets. As of December 31, 2019, the noncurrent portion of our postretirement benefit obligations, net decreased by approximately $247 million, compared to December 31, 2018. The decrease reflects, among other things, plan amendments related to the prescription drug coverage in our U.S. and Puerto Rico Postretirement Plans and changes to the claim cost assumptions, partially offset by the decrease in discount rate. For additional information, see Notes to Consolidated Financial Statements––Note 11C. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Obligations and Funded Status.

Our assumptions reflect our historical experiences and our judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations.
The following table provides (i) at the end of each year, the expected annual rate of return on plan assets for the following year, (ii) the actual annual rate of return on plan assets achieved in each year, and (iii) the weighted-average discount rate used to measure the benefit obligations at the end of each year for our U.S. qualified pension plans and our international pension plans(a):
 
 
2019

 
2018

 
2017

U.S. Qualified Pension Plans
 
 
 
 
 
 
Expected annual rate of return on plan assets
 
7.0
%
 
7.2
 %
 
7.5
%
Actual annual rate of return on plan assets
 
22.6

 
(5.3
)
 
16.2

Discount rate used to measure the plan obligations
 
3.3

 
4.4

 
3.8

International Pension Plans
 
 
 
 
 
 
Expected annual rate of return on plan assets
 
3.4

 
3.9

 
4.4

Actual annual rate of return on plan assets
 
10.7

 
(0.9
)
 
10.3

Discount rate used to measure the plan obligations
 
1.7

 
2.5

 
2.3

(a) 
For detailed assumptions associated with our benefit plans, see Notes to Consolidated Financial Statements—Note 11B. Pension and Postretirement Benefit Plans and Defined Contribution Plans: Actuarial Assumptions.
Expected Annual Rate of Return on Plan Assets

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

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

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The following table illustrates the sensitivity of net periodic benefit costs to a 50 basis point decline in our assumption for the expected annual rate of return on plan assets, holding all other assumptions constant (in millions, pre-tax):
Assumption
 
Change
 
Increase in 2020 Net Periodic Benefit Costs
Expected annual rate of return on plan assets
 
50 basis point decline
 
$110

The actual return on plan assets was approximately $3.7 billion during 2019.

Discount Rate Used to Measure Plan Obligations

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

The measurement of the plan obligations at the end of the year will affect the amount of service cost, interest cost and amortization expense reflected in our net periodic benefit costs in the following year.
The following table illustrates the sensitivity of net periodic benefit costs and benefit obligations to a 10 basis point decline in our assumption for the discount rate, holding all other assumptions constant (in millions, pre-tax):
Assumption
 
Change
 
Increase in 2020 Net Periodic Benefit Costs
 
2019 Benefit Obligations
 
 
 
 
Increase
 
Increase
Discount rate
 
10 basis point decline
 
$4
 
$461

The change in the discount rates used in measuring our plan obligations as of December 31, 2019 resulted in an increase in the measurement of our aggregate plan obligations by approximately $3.2 billion.
Income Tax Assets and Liabilities

In the fourth quarter of 2017, we recorded an estimate of certain tax effects of the TCJA, including (i) the impact on deferred tax assets and liabilities from the reduction in the U.S. Federal corporate tax rate from 35% to 21%, (ii) the impact on valuation allowances and other state income tax considerations, (iii) a repatriation tax liability on accumulated post-1986 foreign earnings for which we elected, with the filing of our 2018 U.S. Federal Consolidated Income Tax Return, payment over eight years through 2026, and (iv) deferred taxes on basis differences expected to give rise to future taxes on global intangible low-taxed income. In addition, we had provided deferred tax liabilities in the past on foreign earnings that were not indefinitely reinvested. As a result of the TCJA, in the fourth quarter of 2017, we reversed an estimate of the deferred taxes that are no longer expected to be needed due to the change to the territorial tax system.
The TCJA subjects a U.S. shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the tax expense related to such income in the year the tax is incurred. We elected to recognize deferred taxes for temporary differences expected to reverse as global intangible low-taxed income in future years. We were able to make a reasonable estimate of the deferred taxes on the temporary differences expected to reverse in the future and provided a provisional deferred tax liability as of December 31, 2017.
In 2018, we finalized our provisional accounting for the tax effects of the TCJA based on our best estimates of available information and data, and reported and disclosed the impacts within the applicable measurement period, in accordance with guidance issued by the SEC. We believe that there may be additional interpretations, clarifications and guidance from the U.S. Department of Treasury. Any change to our calculations resulting from such additional interpretations, clarifications and guidance would be reflected in the period of issuance. In addition, our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards. The current portion of the aforementioned repatriation tax liability is reported in current Income taxes payable in our consolidated balance sheet as of December 31, 2019 (approximately $600 million due in April 2020) and the remaining liability is reported in noncurrent Other taxes payable in our consolidated balance sheet as of December 31, 2019. The first installment of $750 million was paid in April 2019.
Income tax assets and liabilities also include income tax valuation allowances and accruals for uncertain tax positions. For additional information, see Notes to Consolidated Financial Statements—Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions; Note 1P. Basis of Presentation and Significant Accounting Policies: Tax Assets and Liabilities and Income Tax Contingencies and Note 5A. Tax Matters: Taxes on Income from Continuing Operations, as well as the “Analysis of Financial Condition, Liquidity and Capital Resources––Selected Measures of Liquidity and Capital Resources—Contractual Obligations” section of this Financial Review.

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Contingencies

We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, such as patent litigation, product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations, and guarantees and indemnifications, as well as for tax matters. For additional information, see Notes to Consolidated Financial Statements—Note 1P. Basis of Presentation and Significant Accounting Policies: Tax Assets and Liabilities and Income Tax Contingencies, Note 1R. Basis of Presentation and Significant Accounting Policies: Legal and Environmental Contingencies, Note 5D. Tax Matters: Tax Contingencies and Note 16. Contingencies and Certain Commitments.
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME
The following table provides the components of the consolidated statements of income:
  
 
Year Ended December 31,
 
% Change
(MILLIONS OF DOLLARS)
 
2019
 
2018
 
2017
 
19/18
 
18/17
Revenues
 
$
51,750

 
$
53,647

 
$
52,546

 
(4
)
 
2

Cost of sales(a)
 
10,219

 
11,248

 
11,228

 
(9
)
 

% of revenues
 
19.7
%
 
21.0
%
 
21.4
 %
 
 
 
 
Selling, informational and administrative expenses(a)
 
14,350

 
14,455

 
14,804

 
(1
)
 
(2
)
% of revenues
 
27.7
%
 
26.9
%
 
28.2
 %
 
 
 
 
Research and development expenses(a)
 
8,650

 
8,006

 
7,683

 
8

 
4

% of revenues
 
16.7
%
 
14.9
%
 
14.6
 %
 
 
 
 
Amortization of intangible assets
 
4,610

 
4,893

 
4,758

 
(6
)
 
3

% of revenues
 
8.9
%
 
9.1
%
 
9.1
 %
 
 
 
 
Restructuring charges and certain acquisition-related costs
 
747

 
1,044

 
351

 
(28
)
 
*

% of revenues
 
1.4
%
 
1.9
%
 
0.7
 %
 
 
 
 
(Gain) on completion of Consumer Healthcare JV transaction
 
(8,086
)
 

 

 
*

 

% of revenues
 
15.6
%
 

 

 
 
 
 
Other (income)/deductions—net
 
3,578

 
2,116

 
1,416

 
69

 
49

Income from continuing operations before provision/(benefit) for taxes on income
 
17,682

 
11,885

 
12,305

 
49

 
(3
)
% of revenues
 
34.2
%
 
22.2
%
 
23.4
 %
 
 
 
 
Provision/(benefit) for taxes on income
 
1,384

 
706

 
(9,049
)
 
96

 
*

Effective tax rate
 
7.8
%
 
5.9
%
 
(73.5
)%
 
 
 
 
Income from continuing operations
 
16,298

 
11,179

 
21,353

 
46

 
(48
)
% of revenues
 
31.5
%
 
20.8
%
 
40.6
 %
 
 
 
 
Discontinued operations—net of tax
 
4

 
10

 
2

 
(61
)
 
*

Net income before allocation to noncontrolling interests
 
16,302

 
11,188

 
21,355

 
46

 
(48
)
% of revenues
 
31.5
%
 
20.9
%
 
40.6
 %
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
29

 
36

 
47

 
(18
)
 
(24
)
Net income attributable to Pfizer Inc.
 
$
16,273

 
$
11,153

 
$
21,308

 
46

 
(48
)
% of revenues
 
31.4
%
 
20.8
%
 
40.6
 %
 
 
 
 
*
Indicates calculation not meaningful or result is equal to or greater than 100%.
(a) 
Excludes amortization of intangible assets, except as disclosed in Notes to Consolidated Financial Statements––Note 10A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.
RevenuesOverview
Total revenues in 2019 compared to 2018 reflects an operational decline of $545 million, or 1%, and an unfavorable impact of foreign exchange of $1.4 billion, or 3% in 2019 compared to 2018.
Total revenues in 2018 compared to 2017 reflects an operational increase of $791 million, or 2%, and the favorable impact of foreign exchange of $310 million, or less than 1%, in 2018 compared to 2017.
See the “Revenues by Segment and Geography” and “Revenues—Selected Product Discussion” sections of this Financial Review for additional analyses.
Certain of our current products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face significantly increased generic competition over the next few years. For additional information, see the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business” of our 2019 Form 10-K.
We have significant operations outside the U.S., with revenues exceeding $500 million in eleven countries in each of 2019, 2018 and 2017.


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By total revenues, the U.S., China and Japan are our three largest national markets:
revbynatlmarket2017-2019.jpg
Inventory Stocking

Our policy relating to the supply of pharmaceutical inventory at domestic wholesalers, and in major international markets, is to generally maintain stocking levels under one month on average and to keep monthly levels consistent from year to year based on patterns of utilization. We historically have been able to closely monitor these customer stocking levels by purchasing information from our customers directly or by obtaining other third-party information. We believe our data sources to be directionally reliable but cannot verify their accuracy. Further, as we do not control this third-party data, we cannot be assured of continuing access. Unusual buying patterns and utilization are promptly investigated.

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. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. 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, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends.
The following table provides information about revenue deductions:
  
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

Medicare rebates(a)
 
$
1,306

 
$
1,706

 
$
1,316

Medicaid and related state program rebates(a)
 
1,936

 
1,969

 
1,860

Performance-based contract rebates(a), (b)
 
3,767

 
3,377

 
3,245

Chargebacks(c)
 
5,588

 
6,461

 
6,047

Sales allowances(d)
 
5,678

 
5,592

 
5,165

Sales returns and cash discounts
 
1,315

 
1,522

 
1,493

Total(e)
 
$
19,589

 
$
20,627

 
$
19,126

(a) 
Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold.
(b) 
Performance-based contract rebates include contract rebates with MCOs within the U.S., including health maintenance organizations and PBMs, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones.
(c) 
Chargebacks primarily represent reimbursements to U.S. wholesalers for honoring contracted prices to third parties.
(d) 
Sales allowances primarily represent price reductions that are contractual or legislatively mandated outside the U.S., discounts and distribution fees.
(e) 
For 2019, associated with the following segments: Biopharma ($12.0 billion), Upjohn ($7.2 billion) and Other ($0.4 billion). For 2018, associated with the following segments: Biopharma ($10.2 billion), Upjohn ($9.7 billion) and Other ($0.7 billion). For 2017, associated with the following segments: Biopharma ($9.2 billion), Upjohn ($9.2 billion) and Other ($0.7 billion).
Total revenue deductions for 2019 decreased 5% compared to 2018, primarily as a result of:
a decrease in chargebacks primarily related to Upjohn products, including Viagra and Lyrica; and
a decrease in Medicare rebates, driven by a significant decrease in Lyrica sales in the U.S. due to multi-source generic competition that began in July 2019,
partially offset by:
an increase in performance-based contract rebates, primarily in the U.S. due to increased sales of certain Biopharma products, slightly offset by decreased Lyrica sales.
For information on our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts, including the balance sheet classification of these accruals, see Notes to Consolidated Financial Statements––Note 1G. Basis of Presentation and Significant Accounting Policies: Revenues and Trade Accounts Receivable.

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Revenues by Operating Segment and Geography

The following graphs show revenues by operating segment and geography:
revbyopsegment-geography2019.jpg
2019 Revenues by Geography
 
% of Total
U.S.
 
46%
International
 
54%

revbyopsegment-geography2018.jpg
2018 Revenues by Geography
 
% of Total
U.S.
 
47%
International
 
53%

revbyopsegment-geography2017.jpg
2017 Revenues by Geography
 
% of Total
U.S.
 
50%
International
 
50%


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The following table provides worldwide revenues by operating segment and geography:
 
 
Year Ended December 31,
 
% Change
 
 
Worldwide
 
U.S.
 
International
 
Worldwide
 
U.S.
 
International
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
2017

 
2019

 
2018

 
2017

 
2019

 
2018

 
2017

 
19/18

 
18/17

 
19/18

 
18/17

 
19/18

 
18/17
Operating Segments(a):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Biopharma
 
$
39,419

 
$
37,558

 
$
35,530

 
$
19,605

 
$
18,243

 
$
17,961

 
$
19,814

 
$
19,315

 
$
17,569

 
5

 
6

 
7

 
2

 
3

 
10
Upjohn
 
10,233

 
12,484

 
13,447

 
3,259

 
5,209

 
6,150

 
6,974

 
7,275

 
7,297

 
(18
)
 
(7
)
 
(37
)
 
(15
)
 
(4
)
 
Consumer Healthcare
 
2,098

 
3,605

 
3,472

 
988

 
1,877

 
1,851

 
1,110

 
1,728

 
1,621

 
(42
)
 
4

 
(47
)
 
1

 
(36
)
 
7
Other(b)
 

 

 
97

 

 

 
64

 

 

 
33

 

 
*

 

 
*

 

 
*
Total revenues
 
$
51,750

 
$
53,647

 
$
52,546

 
$
23,852

 
$
25,329

 
$
26,026

 
$
27,898

 
$
28,318

 
$
26,519

 
(4
)
 
2

 
(6
)
 
(3
)
 
(1
)
 
7
*
Indicates the calculation is not meaningful or results are equal to or greater than 100%.
(a) 
For additional information about each operating segment, see the “Commercial Operations” section in Part I, Item 1, “Business” of our 2019 Form 10-K, the “Analysis of Operating Segment Information” section of this Financial Review and Notes to Consolidated Financial Statements––Note 17A. Segment, Geographic and Other Revenue Information: Segment Information.
(b) 
Represents HIS revenues through February 2, 2017. On February 3, 2017, we completed the sale of HIS to ICU Medical. For additional information, see Notes to Consolidated Financial Statements—Note 1A. Basis of Presentation and Significant Accounting Policies: Basis of Presentation.

We recorded direct product and/or alliance revenues of more than $1 billion for each of: eight products in 2019, ten products in 2018 and nine products in 2017.
Direct Product And/Or Alliance Revenues of More Than $1 Billion
2019
 
2018
 
2017
Prevnar 13/Prevenar 13
 
Prevnar 13/Prevenar 13
 
Prevnar 13/Prevenar 13
Ibrance
 
Lyrica
 
Lyrica
Eliquis*
 
Ibrance
 
Ibrance
Lyrica
 
Eliquis*
 
Eliquis*
Xeljanz
 
Enbrel
 
Enbrel
Lipitor
 
Lipitor
 
Lipitor
Enbrel
 
Xeljanz
 
Xeljanz
Chantix/Champix
 
Chantix/Champix
 
Viagra
 
 
Sutent
 
Sutent
 
 
Norvasc
 
 
* Eliquis includes alliance revenues and direct sales in 2019, 2018 and 2017.
These direct product sales and/or alliance product revenues represent 49% of our revenues in 2019, 51% of our revenues in 2018 and 46% of our revenues in 2017. See the “Analysis of the Consolidated Statements of Income—Revenues—Selected Product Discussion” section of this Financial Review for additional information.


2019 Financial Report    
 
 
19


Financial Review
Pfizer Inc. and Subsidiary Companies

 

2019 v. 2018

The following provides an analysis of the change in worldwide revenues by geographic areas in 2019:
(MILLIONS OF DOLLARS)
 
Worldwide
 
U.S.
 
International
Operational growth/(decline):
 
 
 
 
 
 
Continued growth from certain key brands(a)
 
$
2,495

 
$
914

 
$
1,581

Higher revenue from continued growth of anti-infective products in China, driven by increased demand for Sulperazon and new launches, the 2018 U.S. launches of our immune globulin intravenous products (Panzyga and Octagam) and the launches of certain anti-infectives products (Zavicefta, Zinforo and Cresemba) in international developed and emerging markets, all in the Hospital products business
 
472

 
174

 
298

Higher revenues for Inlyta, primarily in the U.S. driven by increased demand resulting from the second quarter of 2019 U.S. FDA approvals for the combinations of certain immune checkpoint inhibitors plus Inlyta for the first-line treatment of patients with advanced RCC
 
190

 
175

 
14

Higher revenues for Biosimilars, primarily in the U.S.
 
168

 
185

 
(17
)
Higher revenues for rare disease products driven by the U.S. launches in May 2019 of Vyndaqel and in September 2019 of Vyndamax, for the treatment of transthyretin amyloid cardiomyopathy (ATTR-CM); and in international markets, primarily driven by continued uptake for the transthyretin amyloid polyneuropathy indication, primarily in developed Europe, as well as the March 2019 launch of the ATTR-CM indication in Japan, partially offset by lower revenues for certain rare disease products, including the hemophilia franchises (Refacto AF/Xyntha and BeneFIX), primarily due to competitive pressures, and Genotropin in developed markets, mainly due to unfavorable channel mix in the U.S.
 
159

 
108

 
51

Volume-driven growth from Celebrex and Effexor, primarily in Japan and China
 
78

 
(8
)
 
87

Lower worldwide revenues for Lyrica, primarily in the U.S., reflecting the expected significantly lower volumes associated with multi-source generic competition that began in July 2019
 
(1,628
)
 
(1,582
)
 
(46
)
Lower revenues for Consumer Healthcare reflecting the July 31, 2019 completion of the Consumer Healthcare joint venture transaction with GSK. As a result, 2019 revenues reflect seven months of Consumer Healthcare segment domestic operations and eight months of Consumer Healthcare segment international operations
 
(1,436
)
 
(889
)
 
(547
)
Lower revenues from other Hospital products, primarily reflecting declines in developed markets, mostly due to the continued expected negative impact from generic competition for products that have previously lost marketing exclusivity
 
(447
)
 
(200
)
 
(247
)
Lower revenues for Enbrel internationally, reflecting continued biosimilar competition in most developed Europe markets
 
(292
)
 

 
(292
)
Lower revenues for Viagra and Upjohn's authorized generic for Viagra in the U.S. resulting from increased generic competition following Viagra's December 2017 patent expiration, partially offset by increased retail demand growth in China
 
(171
)
 
(193
)
 
21

Decline in revenues for Revatio driven by lower U.S. Oral Suspension formulation sales and pricing pressures due to a recent generic entry, and for Relpax, driven by continued generic competition across developed markets
 
(149
)
 
(110
)
 
(39
)
Decline in Norvasc and Lipitor due to pricing pressures from the implementation of the VBP in certain cities in China and lower volumes in Japan, partially offset by overall increased demand in China in the first quarter of 2019 and continued geographic expansion in China during the second half of 2019 in provinces where the VBP had not yet been implemented
 
(40
)
 
(4
)
 
(36
)
Other operational factors, net
 
57

 
(47
)
 
104

Operational growth/(decline), net
 
(545
)
 
(1,477
)
 
932

 
 
 
 
 
 
 
Unfavorable impact of foreign exchange
 
(1,352
)
 

 
(1,352
)
Revenues decrease
 
$
(1,897
)
 
$
(1,477
)
 
$
(420
)
(a) 
Certain key brands represent Ibrance, Eliquis, Xeljanz and Prevnar 13/Prevenar 13. See the “Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this Financial Review for product analysis information.
Emerging markets revenues increased $82 million, or 1%, in 2019 to $12.7 billion, reflecting an operational increase of $877 million, or 7%. Foreign exchange had an unfavorable impact of approximately 6% on emerging markets revenues. The operational increase in emerging markets was primarily driven by Prevenar 13, Ibrance and Eliquis in our Biopharma segment and Zoloft, Viagra, Celebrex and Lipitor in our Upjohn segment.

20
 
 
2019 Financial Report


Financial Review
Pfizer Inc. and Subsidiary Companies

 

2018 v. 2017

The following provides an analysis of the change in worldwide revenues by geographic areas in 2018:
(MILLIONS OF DOLLARS)
 
Worldwide
 
U.S.
 
International
Operational growth/(decline):
 
 
 
 
 
 
Continued growth from certain key brands(a)
 
$
2,715

 
$
1,019

 
$
1,696

Growth from Biosimilars, primarily from Inflectra in certain channels in the U.S. and developed Europe markets
 
217

 
147

 
69

Growth from recently launched products, including Eucrisa in the U.S., as well as Besponsa and Bavencio, primarily in the U.S. and developed Europe
 
195

 
158

 
37

Higher revenues for Lipitor and Norvasc primarily due to increased demand in China, partially offset by pricing pressures in China and lower volumes in Japan for Lipitor and Norvasc and the non-recurrence of favorable U.S. rebates for Lipitor that occurred in 2017
 
182

 
(52
)
 
234

Growth in our Consumer Healthcare business across all markets
 
107

 
26

 
81

Lower revenues for Viagra in the U.S. resulting from the loss of exclusivity in December 2017
 
(572
)
 
(572
)
 

Decline in the Hospital products business, driven by lower revenues in developed markets, primarily due to increased competition across the portfolio and continued legacy Hospira product shortages in the U.S., partially offset by an increase in emerging markets, primarily in China
 
(482
)
 
(703
)
 
221

Lower revenues for Enbrel, primarily in most developed Europe markets due to continued biosimilar competition
 
(350
)
 

 
(350
)
Decline in Greenstone, Upjohn's solid oral dose generics subsidiary, due to additional generic competition in the U.S. and decline in Relpax, primarily due to loss of exclusivity in the U.S.
 
(318
)
 
(310
)
 
(8
)
Lower revenues for the Premarin family of products and Pristiq primarily driven by generic competition in the U.S.
 
(241
)
 
(201
)
 
(40
)
Decline in revenues for Lyrica, primarily driven by losses of exclusivity in developed Europe markets and Australia, partially offset by growth in the U.S. and growth in the orally dissolving tablet formulation in Japan
 
(115
)
 
131

 
(246
)
Lower revenues from the hemophilia portfolio (BeneFIX and Refacto AF/Xyntha), primarily in developed Europe
 
(100
)
 
(13
)
 
(88
)
Decline in revenues for Celebrex, primarily driven by the non-recurrence of favorable U.S. rebates that occurred in 2017 and lower volumes in the U.S.
 
(99
)
 
(99
)
 

Impact on financial results from the sale of HIS in February 2017. 2018 does not reflect any contribution from HIS global operations, compared to approximately one month of HIS domestic operations and approximately two months of HIS international operations in the same period in 2017
 
(97
)
 
(64
)
 
(33
)
Other operational factors, net
 
(251
)
 
(166
)
 
(84
)
Operational growth/(decline), net
 
791

 
(698
)
 
1,489

 
 
 
 
 
 
 
Favorable impact of foreign exchange
 
310

 

 
310

Revenues increase/(decrease)
 
$
1,101

 
$
(698
)
 
$
1,799

(a) 
Certain key brands represent Ibrance, Eliquis, Xeljanz, Prevnar/Prevenar 13, Xtandi and Chantix/Champix. See the “Analysis of the Consolidated Statements of Income––Revenues––Selected Product Discussion" section of this Financial Review for product analysis information.
Emerging markets revenues increased $1.3 billion, or 11%, in 2018 to $12.7 billion, from $11.4 billion in 2017, reflecting an operational increase of $1.5 billion, or 13%. Foreign exchange had an unfavorable impact of approximately 2% on emerging markets revenues. The operational increase in emerging markets was primarily driven by Prevenar 13, Sulperazon, Ibrance and Eliquis in our Biopharma segment and Lipitor and Norvasc in our Upjohn segment.
For additional information about operating segment revenues, see the “Analysis of Operating Segment Information” section of this Financial Review.
Revenues—Selected Product Discussion
The tables below provide worldwide revenues and revenues by geography, for selected products. References to total change pertain to period-over-period growth rates that include foreign exchange. The difference between the total change and operational change represents the impact of foreign exchange. Amounts may not add due to rounding. All percentages have been calculated using unrounded amounts. An asterisk (*) indicates the calculation is not meaningful or results are equal to or greater than 100%.

2019 Financial Report    
 
 
21


Financial Review
Pfizer Inc. and Subsidiary Companies

 

Prevnar 13/Prevenar 13 (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.
U.S.
 
$
3,209

 
$
3,360

 
(4
)
 
 
International
 
2,638

 
2,443

 
8

 
12
Worldwide revenues
 
$
5,847

 
$
5,802

 
1

 
3
The decline in 2019 in the U.S. primarily reflects the continued decline in revenues for the adult indication due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity (i.e., the opportunity to reach adults aged 65 years and older who have not been previously vaccinated with Prevnar 13) as well as lower government purchases for the pediatric indication.
The operational growth in 2019 internationally was primarily driven by the pediatric indication due to higher volumes reflecting continued uptake in China, favorable impact of timing and increased volumes associated with government purchases for the pediatric indication in certain emerging markets and higher volumes resulting from increased shipments associated with Gavi, the Vaccine Alliance.
In 2014, the ACIP voted to recommend Prevnar 13 for routine use to help protect adults aged 65 years and older against pneumococcal disease, which for adults includes pneumonia caused by the 13 pneumococcal serotypes included in the vaccine. These ACIP recommendations were subsequently approved by the directors at the CDC and U.S. Department of Health and Human Services, and were published in the Morbidity and Mortality Weekly Report in September 2014 by the CDC. The CDC regularly monitors the impact of vaccination and reviews the recommendations. During the February 2019 ACIP meeting, the CDC presented a formal evaluation of evidence to the recommendation framework (grading) for ACIP’s input. On June 26, 2019, the ACIP voted to revise the pneumococcal vaccination guidelines and recommend Prevnar 13 for adults 65 and older based on the shared clinical decision making of the provider and patient, which means the decision to vaccinate should be made at the individual level between health care providers and their patients, maintaining reimbursement. The recommendation reaffirms that there remains vaccine preventable pneumococcal disease in the population of adults 65 years or older, which may be prevented through direct vaccination. The ACIP’s recommendation was approved by the directors at the CDC and U.S. Department of Health and Human Services, and published by the CDC in the Morbidity and Mortality Weekly Report in the fourth quarter of 2019. While the ACIP’s latest recommendation did not have an impact on Prevnar 13 revenues in 2019, due to timing of the Morbidity and Mortality Weekly Report publication, we expect Prevnar 13 revenues from the adult indication to continue to decline in 2020 and beyond.
Ibrance (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total
 
Oper.
U.S.
 
$
3,250

 
$
2,922

 
11
 
 
International
 
1,710

 
1,196

 
43
 
53
Worldwide revenues
 
$
4,961

 
$
4,118

 
20
 
23
The operational growth in 2019 in international markets reflects the continued strong uptake in developed Europe and Japan as well as in certain emerging markets following launches, partially offset by pricing pressure primarily in certain developed Europe markets beginning in the fourth quarter of 2019. The growth in 2019 in the U.S. was mainly driven by cyclin-dependent kinase (CDK) class share growth and Ibrance’s continued CDK class share leadership in its approved metastatic breast cancer indications.
Eliquis alliance revenues and direct sales (Biopharma): Eliquis has been jointly developed and is commercialized by Pfizer and BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis, except in certain countries where Pfizer commercializes Eliquis and pays BMS compensation based on a percentage of net sales. We have full commercialization rights in certain smaller markets. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the Novel Oral Anticoagulant market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients.
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total
 
Oper.
U.S.
 
$
2,343

 
$
1,849

 
27
 
 
International
 
1,877

 
1,585

 
18
 
24
Worldwide revenues
 
$
4,220

 
$
3,434

 
23
 
26
The worldwide operational growth in 2019 was mostly driven by continued increased adoption in non-valvular atrial fibrillation, as well as oral anti-coagulant market share gains, partially offset by a higher Medicare “coverage gap” discount provision on U.S. revenues compared to the prior year.

22
 
 
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Financial Review
Pfizer Inc. and Subsidiary Companies

 

Lyrica (Upjohn):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019


2018

 
Total

 
Oper.

U.S.
 
$
2,012

 
$
3,594

 
(44
)
 
 
International
 
1,308

 
1,375

 
(5
)
 
(3
)
Worldwide revenues
 
$
3,321

 
$
4,970

 
(33
)
 
(33
)
The declines in 2019 in the U.S. were due to the expected significantly lower volumes driven by multi-source generic competition which began in July 2019.
The operational decline internationally in 2019 was primarily due to generic competition in developed Europe markets and pricing pressures across international markets, partially offset by increased volumes in Japan attributable to growth in the orally dissolving tablet formulation, and increased volumes in Russia and China.
Xeljanz (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total
 
Oper.
U.S.
 
$
1,636

 
$
1,394

 
17
 
 
International
 
606

 
380

 
59
 
70
Worldwide revenues
 
$
2,242

 
$
1,774

 
26
 
29
The growth in the U.S. in 2019 was primarily due to continued growth in the RA indication driven by access improvements, and by volume growth from the launches of the UC and PsA indications in 2018, partially offset by higher rebating from new commercial contracts.
The operational growth internationally in 2019 was mainly driven by continued uptake in the RA indication in developed Europe, emerging markets, Japan and Canada as well as from the recent launch of the UC indication in certain developed markets.
In July and December 2019, the FDA updated the U.S. prescribing information for Xeljanz to include three additional boxed warnings as well as changes to the indication and dosing for UC. In January 2020, the EC revised the summary of product characteristics (SmPC) for Xeljanz to include new warnings and recommendations for use of Xeljanz due to an increased risk of venous thromboembolism, and, due to an increased risk of infections, revised warnings in patients older than 65 years of age. These updates were based on the FDA’s and EMA’s review of 10 mg data from the ongoing post-marketing requirement RA study A3921133. We expect these updates to moderate growth. See the “Analysis of Consolidated Statements of Income—Product Development—Biopharmaceuticals” section of this Financial Review.
Lipitor (Upjohn):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.
U.S.
 
$
104

 
$
110

 
(6
)
 
 
International
 
1,870

 
1,952

 
(4
)
 
Worldwide revenues
 
$
1,973

 
$
2,062

 
(4
)
 
The worldwide operational revenue was flat in 2019 mostly due to overall increased demand in China in the first quarter of 2019 and continued geographic expansion during the second half of 2019 in provinces where the VBP program had not yet been implemented, offset by pricing pressures in China resulting from the VBP implementation in certain cities, discontinued sales in Saudi Arabia and lower volumes in Japan.
Enbrel (Biopharma, outside the U.S. and Canada):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019


2018

 
Total

 
Oper.

U.S.
 
$

 
$

 

 
 
International
 
1,699

 
2,112

 
(20
)
 
(14
)
Worldwide revenues
 
$
1,699

 
$
2,112

 
(20
)
 
(14
)
The worldwide operational decline in 2019 was primarily due to ongoing biosimilar competition in most developed Europe markets, which is expected to continue.

2019 Financial Report    
 
 
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Financial Review
Pfizer Inc. and Subsidiary Companies

 

Chantix/Champix (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.

U.S.
 
$
899

 
$
838

 
7

 
 
International
 
208

 
247

 
(16
)
 
(12
)
Worldwide revenues
 
$
1,107

 
$
1,085

 
2

 
3

The growth in the U.S. in 2019 was primarily due to stronger demand. The operational decline internationally in 2019 was mainly driven by generic entry in South Korea and Canada.
Norvasc (Upjohn):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.

U.S.
 
$
39

 
$
36

 
6

 
 
International
 
911

 
992

 
(8
)
 
(4
)
Worldwide revenues
 
$
950

 
$
1,029

 
(8
)
 
(4
)
The worldwide operational decline in 2019 was primarily due to pricing pressures in China resulting from the VBP implementation in certain cities and lower volumes in Japan, partially offset by overall increased demand in China in the first quarter of 2019 and continued geographic expansion during the second half of 2019 in provinces where the VBP had not yet been implemented.
Sutent (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.

U.S.
 
$
283

 
$
357

 
(21
)
 
 
International
 
653

 
692

 
(6
)
 
1

Worldwide revenues
 
$
936

 
$
1,049

 
(11
)
 
(7
)
The worldwide operational decline in 2019 reflects continued erosion as a result of increased competition in the U.S. and key developed markets, partially offset by growth in certain emerging markets.
Xtandi alliance revenues (Biopharma): Xtandi is being developed and commercialized through a collaboration with Astellas. The two companies share equally in the gross profits (losses) related to U.S. net sales of Xtandi. Subject to certain exceptions, Pfizer and Astellas also share equally all Xtandi commercialization costs attributable to the U.S. market. Pfizer and Astellas also share certain development and other collaboration expenses, and Pfizer receives tiered royalties as a percentage of international Xtandi net sales (recorded in Other (income)/deductions—net).
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total
 
Oper.
U.S.
 
$
838

 
$
699

 
20
 
 
International
 

 

 
 
Worldwide revenues
 
$
838

 
$
699

 
20
 
20
The growth in the U.S. in 2019 was primarily driven by increased demand for Xtandi in metastatic (mCRPC) and non-metastatic (nmCRPC) castration-resistant prostate cancer. Revenues continue to be unfavorably impacted by patient assistance programs (PAP) utilization.
The Premarin family of products (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019


2018

 
Total

 
Oper.

U.S.
 
$
690

 
$
783

 
(12
)
 
 
International
 
44

 
49

 
(10
)
 
(6
)
Worldwide revenues
 
$
734

 
$
832

 
(12
)
 
(12
)
The worldwide operational decline in 2019 was primarily driven by continued competitive pressures in the U.S., which is expected to continue.

24
 
 
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Pfizer Inc. and Subsidiary Companies

 

Celebrex (Upjohn):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018

 
Total

 
Oper.
U.S.
 
$
58

 
$
65

 
(11
)
 
 
International
 
661

 
621

 
7

 
8
Worldwide revenues
 
$
719

 
$
686

 
5

 
7
The worldwide operational growth in 2019 was mainly due to higher volumes in China, driven by investments in geographic expansion, and higher volumes in Japan, partially offset by pricing pressures in certain emerging markets.
Sulperazon (Biopharma):
 
 
Year Ended December 31,
 
 
 
 
 
 
% Change
(MILLIONS OF DOLLARS)
 
2019

 
2018