Pfizer 2013 Annual Report Download - page 11

Financial Review
Pfizer Inc. and Subsidiary Companies
10
2013 Financial Report
Our Business Development Initiatives
We are committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as
well as through various forms of business development, which can include alliances, licenses, joint ventures, dispositions and acquisitions. We
view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder
value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. We are especially
interested in opportunities in our five high-priority therapeutic areas—immunology and inflammation; oncology; cardiovascular and metabolic
diseases; neuroscience and pain; and vaccines––and in emerging markets and established products. Other areas of focus include rare
diseases and biosimilars. We assess our businesses and assets as part of our regular, ongoing portfolio review process and also continue to
consider business development activities for our businesses.
The more significant recent transactions and events are described below.
• Collaboration with Eli Lilly & Company (Lilly)––In October 2013, we entered into a collaboration agreement with Lilly to jointly develop
and globally commercialize Pfizer's tanezumab, which provides that Pfizer and Lilly will equally share product-development expenses as
well as potential revenues and certain product-related costs. The tanezumab program currently is subject to a partial clinical hold by the
FDA pending submission of nonclinical data to the FDA. We anticipate submitting that data by the end of 2014. Under the agreement with
Lilly, we are eligible to receive certain payments from Lilly upon the achievement of specified clinical, regulatory and commercial
milestones, including an upfront payment of $200 million that is contingent upon the parties continuing in the collaboration after receipt of
the FDA’s response to the submission of the nonclinical data. Both Pfizer and Lilly have the right to terminate the agreement under
certain conditions.
• ViiV Healthcare Limited (ViiV)––On August 12, 2013, the FDA approved Tivicay (dolutegravir), a product for the treatment of HIV-1
infection, developed by ViiV, an equity-method investee. This approval, in accordance with the agreement between GlaxoSmithKline plc
and Pfizer, triggered a reduction in our interest in ViiV from 13.5% to 12.6% and an increase in GlaxoSmithKline plc's equity interest in
ViiV from 76.5% to 77.4% effective October 1, 2013. As a result, in 2013, we recognized a loss of approximately $32 million in Other
(income)/deductions––net. We continue to account for our investment in ViiV under the equity method due to the significant influence that
we continue to have through our board representation and minority veto rights.
On October 31, 2012, ViiV acquired the remaining 50% of Shionogi-ViiV Healthcare LLC, its equity-method investee, from Shionogi &
Co., Ltd. (Shionogi) in consideration for a 10% interest in ViiV (newly issued shares) and contingent consideration in the form of future
royalties. For additional information, see Notes to Consolidated Financial Statements––Note 2D. Acquisitions, Divestitures, Collaborative
Arrangements and Equity-Method Investments: Equity Method Investments.
• Animal Health/Zoetis––On June 24, 2013, we completed the full disposition of our Animal Health business. The full disposition was
completed through a series of steps, including the formation of Zoetis, an initial public offering (IPO) of an approximate 19.8% interest in
Zoetis and an exchange offer for the remaining 80.2% interest. For additional information, see Notes to Consolidated Financial
Statements––Note 2B. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments: Divestitures.
• Collaboration with Merck & Co., Inc. (Merck)––On April 29, 2013, we announced that we entered into a worldwide, except Japan,
collaboration agreement with Merck for the development and commercialization of Pfizer's ertugliflozin (PF-04971729), an investigational
oral sodium glucose cotransporter (SGLT2) inhibitor currently in Phase 3 development for the treatment of type 2 diabetes.
• Hisun Pfizer Pharmaceuticals Company Limited (Hisun Pfizer)––On September 6, 2012, we and Zhejiang Hisun Pharmaceuticals Co.,
Ltd. formed a new company, Hisun Pfizer, to develop, manufacture, market and sell pharmaceutical products, primarily branded generic
products, predominately in China. On January 1, 2013, we contributed assets constituting a business to this 49%-owned equity-method
investment and recognized a pre-tax gain of approximately $459 million in Other (income)/deductions––net. For additional information,
see Notes to Consolidated Financial Statements––Note 2D. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method
Investments: Equity-Method Investments.
• Nutrition Business––On November 30, 2012, we completed the sale of our Nutrition business to Nestlé for $11.85 billion in cash. For
additional information, see Notes to Consolidated Financial Statements—Note 2B. Acquisitions, Divestitures, Collaborative Arrangements
and Equity-Method Investments: Divestitures.
• NextWave Pharmaceuticals Incorporated (NextWave)––On November 27, 2012, we completed our acquisition of NextWave, a privately
held, specialty pharmaceutical company. As a result of the acquisition, we now hold exclusive North American rights to Quillivant XR™
(methylphenidate hydrochloride), the first once-daily liquid medication approved in the U.S. for the treatment of attention deficit
hyperactivity disorder. The total consideration for the acquisition was approximately $442 million, which consisted of upfront payments to
NextWave's shareholders of approximately $278 million and contingent consideration with an estimated acquisition-date fair value of
approximately $164 million. In 2013, as a result of lowered commercial forecasts, the fair value of the contingent consideration decreased
and we recognized a pre-tax gain of approximately $114 million in Other (income)/deductions––net. For additional information, see Notes
to Consolidated Financial Statements—Note 2A. Acquisitions, Divestitures, Collaborative Arrangements and Equity-Method Investments:
Acquisitions.
• Nexium Over-The-Counter Rights––In August 2012, we entered into an agreement with AstraZeneca for the exclusive, global, OTC rights
for Nexium, a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease. We made an
upfront payment of $250 million to AstraZeneca, and AstraZeneca is eligible to receive milestone payments of up to $550 million based
on product launches and level of sales as well as royalty payments based on sales. In August 2013, the European Commission granted a
Marketing Authorization for 'Nexium Control' OTC, with non-prescription status in all EU member states for the short-term treatment of
reflux symptoms (including heartburn and acid regurgitation in adults). A new drug application submission for Nexium OTC in the U.S. in
a 20mg delayed-release capsule was accepted for review by the FDA in the first half of 2013.