Acquisition and Equity-Method Investment

3 Months Ended

Mar. 29, 2020

Business Combinations, Disposal Groups, Including Discontinued Operations, Equity Method Investments And Research And Development Arrangement [Abstract]

Acquisition and Equity-Method Investment

A. Acquisition

Array BioPharma Inc.

On July 30, 2019, we acquired Array, a commercial stage biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule medicines to treat cancer and other diseases of high unmet need, 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). Array’s portfolio includes the approved combined use of Braftovi (encorafenib) and Mektovi (binimetinib) for the treatment of BRAF^V600E- or BRAF^V600K-mutant unresectable or metastatic melanoma. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.

B. Equity-Method Investment

Formation of GSK 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. In exchange for contributing our Consumer Healthcare business to the joint venture, we received a 32% equity stake in the new company and GSK owns the remaining 68%. Upon the closing of the transaction, we deconsolidated our Consumer Healthcare business and recognized a pre-tax gain of $8.1 billion ($5.4 billion, net of tax) in our fiscal third quarter of 2019 in (Gain) on completion of Consumer Healthcare JV transaction for the difference in the fair value of our 32% equity stake in the new company and the carrying value of our Consumer Healthcare business. We may record additional adjustments to the gain in future periods, which we do not expect to have a material impact on our consolidated financial statements.

We are accounting for our interest in GSK Consumer Healthcare as an equity-method investment. The carrying value of our investment in GSK Consumer Healthcare is approximately $15.4 billion as of March 29, 2020 and $17.0 billion as of December 31, 2019 and is reported as a private equity investment in the Equity-method investments line in our condensed consolidated balance sheet. We record our share of earnings from the GSK Consumer Healthcare joint venture on a quarterly basis on a one-quarter lag in Other (income)/deductions––net commencing from August 1, 2019. Therefore, we recorded our share of the joint venture’s earnings generated in the fourth quarter of 2019, which totaled approximately $11 million, in our operating results in the first quarter of 2020 (see Note 4). As of the July 31, 2019 closing date, we estimated that the fair value of our investment in GSK Consumer Healthcare was approximately $15.7 billion and that 32% of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was approximately $11.2 billion, resulting in an initial basis difference of approximately $4.5 billion. In the fourth quarter of 2019, we preliminarily completed the allocation of the basis difference, which resulted from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of the joint venture, primarily to inventory, definite-lived intangible assets, indefinite-lived intangible assets, related deferred tax liabilities and equity method goodwill within the investment account. We recorded the amortization of basis differences allocated to inventory, definite-lived intangible assets and related deferred tax liabilities in Other (income)/deductions––net commencing August 1, 2019. During the fourth quarter of 2019, GSK Consumer Healthcare revised the initial carrying value of the net assets of the joint venture and our 32% share of the underlying equity in the carrying value of the net assets of GSK Consumer Healthcare was reduced to approximately $11.0 billion and our initial basis difference was increased to approximately $4.8 billion. The adjustment was allocated to equity method goodwill within the investment account. The amortization of these basis differences for the fourth quarter of 2019 totaling approximately $44 million of expense is included in our operating results in Other (income)/deductions––net in the first quarter of 2020 (see Note 4). Amortization of basis differences on inventory and related deferred tax liabilities has been completely recognized by the first quarter of 2020. Basis differences on definite-lived intangible assets and related deferred tax liabilities are being amortized over approximately 17 years. GSK Consumer Healthcare is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in Other comprehensive income. The decrease in the value of our investment from December 31, 2019 to March 29, 2020 is primarily due to foreign currency translation adjustments (see Note 6).

As a part of Pfizer, pre-tax income on a management business unit basis for the Consumer Healthcare business was $281 million for the three months ended March 31, 2019.



Summarized financial information for our equity method investee, GSK Consumer Healthcare, as of and for the three months ending December 31, 2019, the most recent period available, is as follows:
(MILLIONS OF DOLLARS)	December 31, 2019
Current assets	$	7,537
Noncurrent assets	39,509
Total assets	$	47,046

Current liabilities	$	5,576
Noncurrent liabilities	5,321
Total liabilities	$	10,898

Equity attributable to shareholders	$	36,029
Equity attributable to noncontrolling interests	120
Total net equity	$	36,149



(MILLIONS OF DOLLARS)	Three Months Ended December 31, 2019
Net sales	$	3,188
Cost of sales	(1,811		)
Gross profit	$	1,377
Income from continuing operations	46
Net income	46
Income attributable to shareholders	37