Pfizer 2010 Annual Report Download - page 10

Financial Review
Pfizer Inc. and Subsidiary Companies
performance-based milestone payment from us in 2012 of up to approximately $200 million. We have an option to acquire the
remaining 60 percent of Teuto’s shares beginning in 2014, and Teuto’s shareholders have an option to sell their 60 percent stake to us
beginning in 2015.
We are accounting for our interest in Teuto as an equity method investment due to the significant influence we have over the
operations of Teuto through our board representation, minority veto rights and 40% voting interest. Our investment in Teuto is
reported as a private equity investment in Long-term investments and loans in our consolidated balance sheet as of
December 31, 2010. Our share of Teuto’s income and expenses is recorded in Other deductions—net. See also Notes to
Consolidated Financial Statements—Note 3E. Other Significant Transactions and Events: Equity-Method Investments.
•On October 18, 2010, we entered into a strategic global agreement with Biocon, a biotechnology company based in India, for the
worldwide commercialization of Biocon’s biosimilar versions of insulin and insulin analog products: Recombinant Human Insulin,
Glargine, Aspart and Lispro. We will have exclusive rights to commercialize these products globally, with certain exceptions, including
co-exclusive rights for all of the products with Biocon in Germany, India and Malaysia. We will also have co-exclusive rights with
existing Biocon licensees with respect to certain of these products, primarily in a number of developing markets. Biocon will remain
responsible for the clinical development, manufacture and supply of these biosimilar insulin products, as well as for regulatory activities
to secure approval for these products in various markets. Biocon’s Recombinant Human Insulin formulations are approved in 27
countries in developing markets, and commercialized in 23 of those countries, while Biocon’s Glargine has been launched in its first
market, India. Under the terms of the strategic global agreement, we made upfront payments totaling $200 million in the fourth quarter
of 2010, of which $100 million was paid to Biocon (recorded in Research and development expenses) and $100 million was paid into
an escrow account. The payment into the escrow account will be released to Biocon based on achievement of certain milestones.
Biocon also is eligible to receive additional development and regulatory milestone payments of up to $150 million and will receive
additional payments based on our sales of Biocon’s four insulin biosimilar products across global markets.
•On October 6, 2010, we completed our acquisition of FoldRx Pharmaceuticals, Inc. (FoldRx), a privately held drug discovery and
clinical development company, whose portfolio includes clinical and preclinical programs for investigational compounds to treat
diseases caused by protein misfolding. FoldRx’s lead product candidate, tafamidis meglumine, is in registration in both the U.S. and the
EU as a first-in-class oral therapy for the treatment of transthyretin amyloid polyneuropathy (ATTR-PN), a progressively fatal genetic
neurodegenerative disease, for which liver transplant is the only treatment option currently available. The total consideration for the
acquisition was approximately $400 million, which consisted of an upfront payment to FoldRx’s shareholders of about $200 million and
contingent consideration with an estimated acquisition-date fair value of about $200 million. The contingent consideration consists of up
to $455 million in additional payments that are contingent upon the attainment of future regulatory and commercial milestones. For
additional information see Notes to Consolidated Financial Statements—Note 3D. Other Significant Transactions and Events:
Acquisitions.
•On October 15, 2009 (the acquisition date), we acquired all of the outstanding equity of Wyeth in a cash-and-stock transaction, valued,
based on the closing market price of Pfizer common stock on the acquisition date, at $50.40 per share of Wyeth common stock, or a
total of approximately $68 billion. In connection with our acquisition of Wyeth, we are required to divest certain animal health assets.
Certain of these assets were sold in 2009. In addition, in 2010, we completed the divestiture of certain animal health products and
related assets in Australia, China, the EU, Switzerland and Mexico. It is possible that additional divestitures of animal health assets may
be required based on ongoing regulatory reviews in other jurisdictions worldwide, but they are not expected to be significant to our
business. For additional information related to our acquisition of Wyeth, see the “Acquisition of Wyeth” section of this Financial Review
and see Notes to Consolidated Financial Statements—Note 2. Acquisition of Wyeth.
•In April 2009, we announced that we entered into an agreement with GlaxoSmithKline plc (GSK) to create a new company focused
solely on research, development and commercialization of human immunodeficiency virus (HIV) medicines. The transaction closed on
October 30, 2009, and the new company, ViiV Healthcare Limited (ViiV), began operations on November 2, 2009. We and GSK have
contributed certain HIV-related product and pipeline assets to the new company. ViiV has a broad product portfolio of 11 marketed
products, including innovative leading therapies such as Combivir and Kivexa products and Selzentry/Celsentri (maraviroc), and has a
pipeline of six innovative and targeted medicines, including four compounds in Phase 2 development. ViiV has contracted R&D and
manufacturing services directly from GSK and us and also has entered into a research alliance agreement with GSK and us. Under this
alliance, ViiV is investing in our and GSK’s programs for discovery research and development into HIV medicines. ViiV has exclusive
rights of first negotiation in relation to any new HIV-related medicines developed by either GSK or us. We recorded a pre-tax gain of
$482 million in connection with the formation of the new company and we currently hold a 15% equity interest and GSK holds an 85%
equity interest. The equity interests will be adjusted in the event that specified sales and regulatory milestones are achieved. Our equity
interest in ViiV could vary from 9% to 30.5%, and GSK’s equity interest could vary from 69.5% to 91%, depending upon the milestones
achieved with respect to the original pipeline assets contributed by us and by GSK to ViiV. Each company may also be entitled to
preferential dividend payments to the extent that specific sales thresholds are met in respect of the marketed products and pipeline
assets originally contributed. For additional information on our investment in ViiV, see Notes to Consolidated Financial Statements—
Note 3E. Other Significant Transactions and Events: Equity-Method Investments.
•In December 2008, we entered into an agreement with Auxilium Pharmaceuticals, Inc. (Auxilium) to develop, commercialize and supply
Xiapex, a novel, first-in-class biologic, for the treatment of Dupuytren’s contracture and Peyronie’s disease. Under the collaboration
agreement with Auxilium, we will receive exclusive rights to commercialize Xiapex in the EU and 19 other European and Eurasian
countries. We submitted an application for Xiapex for the treatment of Dupuytren’s contracture in the EU in December 2009. Under the
agreement with Auxilium, we made an upfront payment of $75 million in 2008 and a $15 million milestone payment in 2010, which is
included in Research and development expenses in 2008. We also may make additional payments to Auxilium of up to approximately
$400 million based upon regulatory and commercialization milestones, as well as additional milestone payments based upon the
successful commercialization of the product.
8 2010 Financial Report