Other (Income)/Deductions - Net (Tables)

9 Months Ended

Sep. 27, 2020

Other Income and Expenses [Abstract]

Schedule of Other (Income)/Deductions - Net

Components of Other (income)/deductions––net include:
	Three Months Ended				Nine Months Ended
(MILLIONS OF DOLLARS)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Interest income(a)	$	(17)	$	(60)	$	(70)	$	(185)
Interest expense(a)	416		409		1,178		1,158
Net interest expense	399		348		1,108		973
Royalty-related income	(214)		(155)		(525)		(475)
Net gains on asset disposals	(2)		(32)		—		(33)
Net (gains)/losses recognized during the period on equity securities(b)	70		(6)		(408)		(153)
Income from collaborations, out-licensing arrangements and sales of compound/product rights(c)	(30)		(20)		(245)		(124)
Net periodic benefit costs/(credits) other than service costs(d)	54		(19)		(122)		(110)
Certain legal matters, net	38		64		64		84
Certain asset impairments(e)	900		28		900		188
Business and legal entity alignment costs(f)	—		87		—		343
Net losses on early retirement of debt	—		—		—		138
GSK Consumer Healthcare JV equity method (income)/loss(g)	(103)		—		(196)		—
Other, net(h)	38		24		(69)		(294)
Other (income)/deductions––net	$	1,148	$	319	$	507	$	537

(a)Interest income decreased in the third quarter and first nine months of 2020, primarily driven by a lower investment balance and lower short-term rates. Interest expense remained relatively flat in the third quarter and first nine months of 2020, mainly as a result of the issuance of new debt related to the planned combination of Mylan and Upjohn, offset by lower rates on commercial paper. See Note 7D.

(b)The losses in the third quarter of 2020 include, among other things, unrealized losses of $131 million related to our investment in Allogene. The gains in the first nine months of 2020 include, among other things, unrealized gains of $243 million related to our investment in Allogene and unrealized gains of $154 million related to our investment in BioNTech. The gains in the first nine months of 2019 included, among other things, unrealized gains of $115 million related to our investments in Cortexyme, Inc. and SpringWorks Therapeutics, Inc. For additional information on investments, see Note 7B.

(c)Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. The first nine months of 2020 mainly includes, among other things, (i) an upfront payment to us of $75 million from our sale of our CK1 assets to Biogen, Inc., (ii) $40 million of milestone income from Puma Biotechnology, Inc. related to Neratinib regulatory approvals in the EU and (iii) $30 million of milestone income from Lilly related to the first commercial sale in the U.S. of LOXO-292 for the treatment of RET fusion-positive NSCLC. The first nine months of 2019 primarily included, among other things, $70 million in milestone income from Mylan Pharmaceuticals Inc. related to the FDA’s approval and launch of Wixela Inhub®, a generic of Advair Diskus®.

(d)See Note 10.

(e)The third quarter and first nine months of 2020 include intangible asset impairment charges of $900 million related to Biopharma IPR&D assets for unapproved indications of certain cancer medicines, acquired in connection with our Array acquisition, and reflect, among other things, updated commercial forecasts. The first nine months of 2019 included intangible asset impairment charges of: (i) $90 million related to WRDM IPR&D, for a pre-clinical stage asset from our acquisition of Bamboo for gene therapies for the potential treatment of patients with certain rare diseases, which was the result of a

determination to not use certain Bamboo IPR&D acquired in future rare disease development, (ii) $40 million related to an Upjohn finite-lived developed technology right, acquired in connection with our acquisition of King, for government defense products and reflected, among other things, updated commercial forecasts including manufacturing cost assumptions, and (iii) $10 million related to a Biopharma finite-lived developed technology right, acquired in connection with our acquisition of Anacor, for the treatment for toenail fungus marketed in the U.S. market only, and reflected, among other things, updated commercial forecasts. The first nine months of 2019 also included other asset impairments of $48 million.

(f)In the third quarter and first nine months of 2019, represents incremental costs associated with the design, planning and implementation of our new organizational structure, effective in the beginning of 2019, and primarily includes consulting, legal, tax and advisory services.

(g)The income for the third quarter and first nine months of 2020 represents our pro-rata share of earnings from the GSK Consumer Healthcare joint venture, partially offset by equity method basis difference write-offs and amortization. See Note 2B.

(h)The third quarter of 2020 includes, among other things, charges of $144 million related to the remeasurement of Euro debt issued by Upjohn Finance B.V. in the second quarter of 2020 (see Note 7D) and dividend income of $44 million from our investment in ViiV. The first nine months of 2020 includes, among other things, dividend income of $196 million from our investment in ViiV and charges of $110 million, reflecting the change in the fair value of contingent consideration. The third quarter of 2019 included, among other things, dividend income of $43 million from our investment in ViiV and charges of $121 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture. The first nine months of 2019 included, among other things, (i) dividend income of $184 million from our investment in ViiV, (ii) charges of $146 million for external incremental costs, such as transaction costs and costs to separate our Consumer Healthcare business into a separate legal entity, associated with the formation of the GSK Consumer Healthcare joint venture, and (iii) $50 million of income from insurance recoveries related to Hurricane Maria.

Schedule of Impaired Intangible Assets

Additional information about the intangible assets that were impaired during 2020 in Other (income)/deductions follows:
	Fair Value(a)								Nine Months Ended September 27, 2020
(MILLIONS OF DOLLARS)	Amount		Level 1		Level 2		Level 3		Impairment
Intangible assets––IPR&D(b)	$	1,100	$	—	$	—	$	1,100	$	900

(a)The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis.

(b)Reflects intangible assets written down to fair value in the first nine months of 2020. Fair value was determined using the income approach, specifically the multi-period excess earnings method, also known as the discounted cash flow method. We started with a forecast of all the expected net cash flows associated with the asset and then applied an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the product; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows.