Pfizer 2007 Annual Report Download - page 48

46 2007 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
M. Cash Equivalents
Cash equivalents include items almost as liquid as cash, such as
certificates of deposit and time deposits with maturity periods of
three months or less when purchased. If items meeting this
definition are part of a larger investment pool, we classify them
as Short-term investments.
N. Investments
Realized gains or losses on sales of investments are determined
by using the specific identification cost method.
O. Income Tax Contingencies
We are subject to income tax in many jurisdictions and a certain
degree of estimation is required in recording the assets and
liabilities related to income taxes. For a description of our
accounting policy associated with accounting for income tax
contingencies, see Note 1D. Significant Accounting Policies: New
Accounting Standards. All of our tax positions are subject to audit
by the local taxing authorities in each tax jurisdiction. Tax audits
can involve complex issues and the resolution of issues may span
multiple years, particularly if subject to negotiation or litigations.
P. Share-Based Payments
Our compensation programs can include share-based payments.
Beginning in 2006, all grants under share-based payment
programs are accounted for at fair value and these fair values are
generally amortized on an even basis over the vesting terms into
Cost of sales, Selling, informational and administrative expenses
and Research and development expenses, as appropriate. In 2005
and earlier years, grants under stock option and performance-
contingent share award programs were accounted for using the
intrinsic value method.
2. Acquisitions
We are committed to capitalizing on new growth opportunities,
a strategy that can include acquisitions of companies, products or
technologies. During the three years ended December 31, 2007,
2006 and 2005, we acquired the following:
•In the first quarter of 2007, we acquired BioRexis Pharmaceutical
Corp., (BioRexis) a privately held biopharmaceutical company
with a number of diabetes candidates and a novel technology
platform for developing new protein drug candidates, and
Embrex, Inc., (Embrex) an animal health company that possesses
a unique vaccine delivery system known as Inovoject that
improves consistency and reliability by inoculating chicks while
they are still in the egg. In connection with these and other
smaller acquisitions, we recorded $283 million in Acquisition-
related in-process research and development charges.
•In February 2006, we completed the acquisition of the sanofi-
aventis worldwide rights, including patent rights and
production technology, to manufacture and sell Exubera, an
inhaled form of insulin, and the insulin-production business and
facilities located in Frankfurt, Germany, previously jointly
owned by Pfizer and sanofi-aventis, for approximately $1.4
billion (including transaction costs). Substantially all assets
recorded in connection with this acquisition have now been
written off. See Note 4. Asset Impairment Charges and Other
Costs Associated with Exiting Exubera. Prior to the acquisition,
in connection with our collaboration agreement with sanofi-
aventis, we recorded a research and development milestone due
to us from sanofi-aventis of $118 million ($71 million, after tax)
in 2006 in Research and development expenses upon the
approval of Exubera in January 2006 by the U.S. Food and
Drug Administration (FDA).
•In December 2006, we completed the acquisition of PowderMed
Ltd. (PowderMed), a U.K. company which specializes in the
emerging science of DNA-based vaccines for the treatment of
influenza and chronic viral diseases, and in May 2006, we
completed the acquisition of Rinat Neurosciences Corp. (Rinat),
a biologics company with several new central-nervous-system
product candidates. In 2006, the aggregate cost of these and
other smaller acquisitions was approximately $880 million
(including transaction costs). In connection with those
transactions, we recorded $835 million in Acquisition-related
in-process research and development charges.
•In September 2005, we completed the acquisition of all of the
outstanding shares of Vicuron Pharmaceuticals Inc. (Vicuron),
a biopharmaceutical company focused on the development
of novel anti-infectives, for approximately $1.9 billion in cash
(including transaction costs). In connection with the acquisition,
as part of our final purchase price allocation, we recorded
$1.4 billion in Acquisition-related in-process research and
development charges, and $243 million of Goodwill, which
has been allocated to our Pharmaceutical segment.
•In April 2005, we completed the acquisition of Idun
Pharmaceuticals Inc. (Idun), a biopharmaceutical company
focused on the discovery and development of therapies to
control apoptosis, and in August 2005, we completed the
acquisition of Bioren Inc. (Bioren), which focuses on technology
for optimizing antibodies. In 2005, the aggregate cost of these
and other smaller acquisitions was approximately $340 million
in cash (including transaction costs). In connection with these
transactions, we recorded $262 million in Acquisition-related
in-process research and development charges.
3. Discontinued Operations
We evaluate our businesses and product lines periodically for
strategic fit within our operations. Recent activity includes:
•In the fourth quarter of 2006, we sold our Consumer Healthcare
business for $16.6 billion, and recorded a gain of approximately
$10.2 billion ($7.9 billion, net of tax) in Gains on sales of
discontinued operations—net of tax in the consolidated
statement of income for 2006. In 2007, we recorded a loss of
approximately $70 million, after-tax, primarily related to the
resolution of contingencies, such as purchase price adjustments
and product warranty obligations, as well as pension
settlements. This business was composed of:
䡬substantially all of our former Consumer Healthcare segment;
䡬other associated amounts, such as purchase-accounting
impacts, acquisition-related costs and restructuring and
implementation costs related to our cost-reduction initiatives
that were previously reported in the Corporate/Other
segment; and