Acquisition, Discontinued Operations, Equity-Method Investment and Collaborative Arrangement

3 Months Ended

Apr. 03, 2022

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

Acquisition, Discontinued Operations, Equity-Method Investment and Collaborative Arrangement

A. Acquisition

Arena––On March 11, 2022, we acquired Arena, a clinical stage company, for $100 per share in cash. The total fair value of the consideration transferred was $6.6 billion ($6.2 billion, net of cash acquired). In addition, $138 million in payments to Arena employees for the fair value of previously unvested long-term incentive awards was recognized as post-closing compensation expense and recorded in Restructuring charges and certain acquisition-related costs (see Note 3).

Arena’s portfolio includes development-stage therapeutic candidates in gastroenterology, dermatology, and cardiology, including etrasimod, an oral, selective sphingosine 1-phosphate (S1P) receptor modulator currently in development for a range of immuno-inflammatory diseases including UC, Crohn’s Disease, atopic dermatitis, eosinophilic esophagitis, and alopecia areata. In connection with this acquisition, we provisionally recorded: (i) $5.5 billion in Identifiable intangible assets, consisting of $5.0 billion of IPR&D and $460 million of indefinite-lived Licensing agreements, (ii) $1.0 billion of Goodwill and (iii) $510 million of net deferred tax liabilities. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.

B. Discontinued Operations

Meridian––On December 31, 2021, we completed the sale of our Meridian subsidiary. In the three months ended April 3, 2022, the amounts recorded under the interim TSAs and MSA were not material.

Upjohn Separation and Combination with Mylan––On November 16, 2020, we completed the spin-off and the combination of the Upjohn Business with Mylan to form Viatris. In connection with this transaction, Pfizer and Viatris entered into various agreements to effect the separation and combination and to provide a framework for our relationship after the combination, including a separation and distribution agreement, interim operating models, including agency arrangements, MSAs, TSAs, a tax matters agreement, and an employee matters agreement, among others. The amounts recorded under these agreements were not material to our consolidated results of operations in the three months ended April 3, 2022 and April 4, 2021. Net amounts due from Viatris under the agreements were approximately $133 million as of April 3, 2022 and $53 million as of December 31, 2021. The cash flows associated with the agreements are included in Net cash provided by operating activities from continuing operations, except for a $277 million payment to Viatris made in the first quarter of 2021 pursuant to terms of the separation agreement, which is reported in Other financing activities, net.

C. Equity-Method Investment

Consumer Healthcare JV––On July 31, 2019, we completed a transaction in which we and GSK combined our respective consumer healthcare businesses into a new JV that operates globally under the GSK Consumer Healthcare name. In exchange, we received a 32% equity stake in the new company and GSK owns the remaining 68%. We are accounting for our interest in the Consumer Healthcare JV as an equity-method investment. The carrying value of our investment in the Consumer Healthcare JV is $15.8 billion as of April 3, 2022 and $16.3 billion as of December 31, 2021 and is reported as a private equity investment in Equity-method investments as of April 3, 2022 and December 31, 2021. The Consumer Healthcare JV 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, 2021 is primarily due to $508 million in pre-tax foreign currency translation adjustments (see Note 6), as well as dividends totaling approximately $177 million, partially offset by our share of the JV’s earnings. We record our share of earnings from the Consumer Healthcare JV on a quarterly basis on a one-quarter lag in Other (income)/deductions––net. Our total share of the JV’s earnings generated in the fourth quarter of 2021, which we recorded in our operating results in the first quarter of 2022, was $185 million. Our total share of the JV’s earnings generated in the fourth quarter of 2020, which we recorded in our operating results in first quarter 2021, was $71 million. The total amortization and adjustment of basis differences resulting 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 JV is included in Other (income)/deductions––net and was not material to our results of operations in the periods presented. See Note 4.



Summarized financial information for our equity method investee, the Consumer Healthcare JV, for the three months ending December 31, 2021, the most recent period available, and for the three months ending December 31, 2020, is as follows:
	Three Months Ended
(MILLIONS)		December 31, 2021		December 31, 2020
Net sales		$	3,420	$	3,096
Cost of sales		(1,312)		(1,188)
Gross profit		$	2,108	$	1,908
Income from continuing operations		590		233
Net income		590		233
Income attributable to shareholders		578		221

In connection with GSK’s previously announced planned demerger of at least 80% of GSK’s 68% equity interest in the Consumer Healthcare JV, in March 2022 the Consumer Healthcare JV completed its offering of a total aggregate principal amount of $8.75 billion in U.S. dollar-denominated senior notes of various maturities, €2.35 billion in euro-denominated senior notes of various maturities and £700 million in U.K. pound-denominated senior notes of various maturities (collectively, the “notes”). The notes are guaranteed by GSK generally up to and excluding the date of the demerger (the “Guarantee Assumption Date”). We have agreed to indemnify GSK for 32% (representing our pro rata equity interest in the Consumer Healthcare JV) of any amount payable by GSK pursuant to its guarantee of the notes. Our indemnity is provided solely for the benefit of GSK and will terminate automatically as of the Guarantee Assumption date. Neither we nor any of our subsidiaries is an issuer or guarantor of any of the notes.

Following its issuance of the notes in March 2022, in our fiscal second quarter of 2022, the Consumer Healthcare JV loaned to us and GSK the net proceeds received from the notes on a pro rata equity ownership basis, for which we received a loan of £2.9 billion, at an interest rate of 1.365% per annum payable semi-annually in arrears. The loan will mature and be repaid upon the earlier of two business days after approval of the demerger transaction by GSK’s shareholders or two business days after the occurrence of a mandatory redemption event with respect to the notes. In conjunction with the demerger, we will receive our 32% share of the proceeds repaid by us and GSK as a dividend from the Consumer Healthcare JV.

D. Collaboration Arrangement

Collaboration with Biohaven––In November 2021, we entered into a collaboration and license agreement and related sublicense agreement with Biohaven to commercialize rimegepant and zavegepant for the treatment and prevention of migraines outside of the U.S., subject to regulatory approval. Biohaven will continue to lead R&D globally and we have the exclusive right to commercialization globally, outside of the U.S. Upon the closing of the transaction on January 4, 2022, we paid Biohaven $500 million, including an upfront payment of $150 million and an equity investment of $350 million. We recognized $263 million for the upfront payment and premium paid on our equity investment in Acquired in-process research and development expenses. Biohaven is also eligible to receive up to $740 million in non-U.S. commercialization milestone payments, in addition to tiered double-digit royalties on net sales outside of the U.S. In addition to the milestone payments and royalties above, we will also reimburse Biohaven for the portion of certain additional milestone payments and royalties due to third parties in accordance with preexisting Biohaven agreements, which are attributed to ex-U.S. sales.