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Other (Income)/Deductions - Net | 9 Months Ended
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Sep. 30, 2018
Other Income and Expenses [Abstract] |
Other (Income)/Deductions - Net | Other (Income)/Deductions—Net
The following table provides components of Other (income)/deductions––net:
|  | Three Months Ended |  | Nine Months Ended
(MILLIONS OF DOLLARS) |  | September 30, 2018 |  |  | October 1, 2017 |  |  | September 30, 2018 |  |  | October 1, 2017 |
Interest income(a) |  | $ | (82 | ) |  | $ | (99 | ) |  | $ | (240 | ) |  | $ | (275 | )
Interest expense(a) |  | 310 |  |  | 320 |  |  | 946 |  |  | 940 |
Net interest expense |  | 228 |  |  | 220 |  |  | 706 |  |  | 666 |
Royalty-related income |  | (143 | ) |  | (140 | ) |  | (360 | ) |  | (331 | )
Net gains on asset disposals(b) |  | (4 | ) |  | (13 | ) |  | (19 | ) |  | (36 | )
Net gains recognized during the period on investments in equity securities(c) |  | (94 | ) |  | (45 | ) |  | (460 | ) |  | (111 | )
Net realized (gains)/losses on sales of investments in debt securities |  | 8 |  |  | (23 | ) |  | 12 |  |  | (45 | )
Income from collaborations, out-licensing arrangements and sales of compound/product rights(d) |  | (139 | ) |  | (78 | ) |  | (455 | ) |  | (163 | )
Net periodic benefit costs/(credits) other than service costs(e) |  | (65 | ) |  | 28 |  |  | (231 | ) |  | 81 |
Certain legal matters, net(f) |  | 37 |  |  | 183 |  |  | (70 | ) |  | 194 |
Certain asset impairments(g) |  | (1 | ) |  | 130 |  |  | 40 |  |  | 143 |
Adjustments to loss on sale of HIS net assets(h) |  | (2 | ) |  | (12 | ) |  | (1 | ) |  | 52 |
Business and legal entity alignment costs(i) |  | — |  |  | 16 |  |  | 4 |  |  | 54 |
Other, net(j) |  | (239 | ) |  | (186 | ) |  | (309 | ) |  | (439 | )
Other (income)/deductions––net |  | $ | (414 | ) |  | $ | 79 |  |  | $ | (1,143 | ) |  | $ | 65 |
(a) | Interest income decreased in the third quarter and first nine months of 2018, primarily driven by a lower investment balance. Interest expense decreased in the third quarter of 2018, primarily as a result of refinancing activity that occurred in the fourth quarter of 2017 and a credit to interest expense due to settlement of a tax indemnification case. Interest expense increased for the first nine months of 2018, primarily as a result of higher short-term interest rates, offset, in part, by refinancing activity that occurred in the fourth quarter of 2017.
(b) | In the first nine months of 2017, primarily includes a realized gain on sale of property of $52 million, partially offset by a realized net loss of $30 million related to the sale of our 40% ownership investment in Teuto, including the extinguishment of a put option for the then remaining 60% ownership interest.
(c) | The net gains on investments in equity securities for the third quarter of 2018 include unrealized net gains on equity securities of $8 million and, for the first nine months of 2018, include unrealized net gains on equity securities of $344 million, reflecting the adoption of a new accounting standard in the first quarter of 2018. We continue to hold 2.5 million shares of ICU Medical common stock and we recognized unrealized gains of $24 million in the third quarter of 2018 and unrealized gains of $229 million in the first nine months of 2018 related to these remaining shares. Prior to the adoption of a new accounting standard in the first quarter of 2018, net unrealized gains and losses on virtually all equity securities with readily determinable fair values were reported in Accumulated other comprehensive income. For additional information, see Note 1B, Note 2B and Note 7B.
(d) | Includes income from upfront and milestone payments from our collaboration partners and income from out-licensing arrangements and sales of compound/product rights. In the third quarter of 2018, primarily includes, among other things, (i) $40 million in milestone income from a certain licensee, (ii) a $35 million milestone payment received from Shire related to their first dosing of a patient in a Phase 3 clinical trial of a compound out-licensed by Pfizer to Shire for the treatment of Crohn’s disease and (iii) $45 million in gains related to sales of compound/product rights. In the first nine months of 2018, primarily includes, among other things, (i) approximately $128 million in milestone income from multiple licensees, (ii) an upfront payment to us of $75 million for the sale of an AMPA receptor potentiator for CIAS to Biogen, (iii) $110 million in milestone payments received from Shire, of which $75 million was received in the first quarter of 2018 related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of ulcerative colitis and $35 million was received from Shire related to their first dosing of a patient in a Phase 3 clinical trial for the treatment of Crohn’s disease, (iv) a $40 million milestone payment from Merck in conjunction with the approval of ertugliflozin in the EU and (v) $45 million in gains related to sales of compound/product rights. In the third quarter of 2017, primarily includes, among other things, $50 million in milestone income from a certain licensee and a $15 million gain related to the sale of compound/product rights. In the first nine months of 2017, primarily includes, among other things, approximately $81 million in milestone income from multiple licensees and a $43 million gain related to the sale of compound/product rights. For additional information, see Note 2B, Note 2C and Note 2D.
(e) | Represents the net periodic benefit costs/(credits), excluding service costs, as a result of the adoption of a new accounting standard in the first quarter of 2018. Effective January 1, 2018, the U.S. Pfizer Consolidated Pension Plan was frozen to future benefit accruals and for the third quarter and first nine months of 2018, resulted in the recognition of lower net periodic benefit costs due to the extension of the amortization period for the actuarial losses. There was also a greater than expected gain on plan assets due to a higher plan asset base compared to the third quarter and first nine months of 2017. For additional information, see Note 1B and Note 10.
(f) | For the first nine months of 2018, the net credits primarily represent the reversal of a legal accrual where a loss was no longer deemed probable. In the third quarter and first nine months of 2017, primarily includes a $94 million charge to resolve a class action lawsuit filed by direct purchasers relating to Celebrex, which was approved by the court in April 2018, and a $79 million charge to reflect damages awarded by a jury in a patent matter.
(g) | In the first nine months of 2018, primarily includes a $31 million intangible asset impairment charge recorded in the second quarter of 2018 related to an IH 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. The impairment charge recorded in the second quarter of 2018 related to IH reflects, among other things, updated commercial forecasts. In the third quarter and first nine months of 2017, primarily includes an intangible asset impairment charge of $127 million related to developed technology rights, acquired in connection with our acquisition of Hospira, for a generic sterile injectable product for the treatment of edema associated with certain conditions. The intangible asset impairment charge for the third quarter and first nine months of 2017 is associated with EH and reflects, among other things, updated commercial forecasts and an increased competitive environment.
(h) | Represents adjustments to amounts previously recorded in 2016 to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical on February 3, 2017. For additional information, see Note 2B.
(i) | Represents expenses for changes to our infrastructure to align our commercial operations of our current segments, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.
(j) | In the third quarter and first nine months of 2018, includes a non-cash $343 million pre-tax gain associated with our transaction with Bain Capital to create a new biopharmaceutical company, Cerevel, to continue development of a portfolio of clinical and preclinical stage neuroscience assets primarily targeting disorders of the central nervous system (see Note 2B). The third quarter and first nine months of 2018 also include, among other things, dividend income of $91 million and $226 million, respectively, from our investment in ViiV, and charges of $122 million and $257 million, respectively, reflecting the change in the fair value of contingent consideration. The first nine months of 2018 also include a non-cash $50 million pre-tax gain on the contribution of Pfizer’s allogeneic CAR T therapy development program assets obtained from Cellectis and Servier in connection with our contribution agreement entered into with Allogene in which Pfizer obtained a 25% ownership stake in Allogene (see Note 2B), and a non-cash $17 million pre-tax gain on the cash settlement of a liability that we incurred in April 2018 upon the EU approval of Mylotarg (see Note 7E). In the third quarter and first nine months of 2017, includes, among other things, dividend income of $54 million and $211 million, respectively, from our investment in ViiV and income of $62 million from resolution of a contract disagreement.
The following table provides additional information about the intangible asset that was impaired during 2018 in Other (income)/deductions:
|  | Fair Value(a) |  | Nine Months Ended September 30, 2018
(MILLIONS OF DOLLARS) |  | Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | Impairment
Intangible assets––Developed technology right, finite-lived(b) |  | $ | 35 |  |  | $ | — |  |  | $ | — |  |  | $ | 35 |  |  | $ | 31 |
(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 an intangible asset written down to fair value in the first nine months of 2018. 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.

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- Definition The entire disclosure for other income or other expense items (both operating and nonoperating). Sources of nonoperating income or nonoperating expense that may be disclosed, include amounts earned from dividends, interest on securities, profits (losses) on securities, net and miscellaneous other income or income deductions. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 720 -URI http://asc.fasb.org/topic&trid=2122503 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 610 -URI http://asc.fasb.org/topic&trid=49130413 + Details
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