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Acquisition, Discontinued Operations, Equity-Method Investment and Collaborative Arrangement | 9 Months Ended
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Oct. 02, 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 | Acquisitions, Discontinued Operations, Equity-Method Investment and Collaborative Arrangement A. Acquisitions ReViral––On June 9, 2022, which fell in our international third quarter of 2022, we acquired ReViral, a privately held, clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel antiviral therapeutics that target respiratory syncytial virus, for a total consideration of up to $536 million, including upfront payments of $436 million upon closing (including a base payment of $425 million plus working capital adjustments) and an additional $100 million contingent upon future development milestones. We accounted for the transaction as an asset acquisition since the lead asset, sisunatovir, represented substantially all of the fair value of the gross assets acquired. At the acquisition date, we recorded a $426 million charge representing an acquired IPR&D asset with no alternative use in Acquired in-process research and development expenses, which is presented as a cash outflow from operating activities. Other assets acquired and liabilities assumed were not significant. 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 and other, (ii) $1.0 billion of Goodwill and (iii) $505 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 and nine months ended October 2, 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 and nine months ended October 2, 2022 and October 3, 2021. Net amounts due from Viatris under the agreements were approximately $167 million as of October 2, 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. Discontinued operations—net of tax for the three and nine months ended October 3, 2021 reflects pre-tax loss from discontinued operations of $17 million and $353 million, respectively, and primarily includes pre-disposal operations related to our former Meridian subsidiary including a $345 million pre-tax expense in the first nine months of 2021 to resolve a Multi-District Litigation relating to EpiPen against the Company in the U.S. District Court for the District of Kansas (prior to presenting Meridian as discontinued operations, this EpiPen litigation amount was included in Other (income)/deductions––net). For the three and nine months ended October 2, 2022, Discontinued operations—net of tax reflects pre-tax loss of $15 million and pre-tax income of $9 million from discontinued operations, respectively, and relates to post-closing adjustments for previously divested businesses primarily for tax and legal matters. C. Equity-Method Investment Haleon/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 operated globally under the GSK Consumer Healthcare name. In exchange for the contribution of our consumer healthcare business to the JV, we received a 32% equity stake in the new company and GSK owned the remaining 68%. On July 18, 2022, GSK completed a demerger of the Consumer Healthcare JV which became Haleon, an independent, publicly traded company listed on the London Stock Exchange that holds the joint Consumer Healthcare business of GSK and Pfizer following the demerger. We continue to own 32% of the ordinary shares of Haleon after the demerger. We continue to account for our interest in Haleon as an equity-method investment. The carrying value of our investment in Haleon as of October 2, 2022 and in the Consumer Healthcare JV as of December 31, 2021 is $9.6 billion and $16.3 billion, respectively, and is reported in Equity-method investments. The fair value of our investment in Haleon as of October 2, 2022, based on quoted market prices of Haleon stock, was $9.1 billion. Haleon/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 dividends totaling approximately $4.5 billion, of which cash flows of $4.0 billion are included in Net cash used in investing activities from continuing operations and $584 million are included in Net cash provided by operating activities from continuing operations, as well as $2.4 billion in pre-tax foreign currency translation adjustments (see Note 6), partially offset by our share of the JV’s earnings. We record our share of earnings from Haleon/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 second quarter of 2022, which we recorded in our operating results in the third quarter of 2022, was $67 million. Our total share of the JV’s earnings generated in the fourth quarter of 2021 and first six months of 2022, which we recorded in our operating results in the first nine months of 2022, was $402 million. Our total share of the JV’s earnings generated in the second quarter of 2021, which we recorded in our operating results in the third quarter of 2021, was $106 million. Our total share of the JV’s earnings generated in the fourth quarter of 2020 and first six months of 2021, which we recorded in our operating results in the first nine months of 2021, was $324 million. In the third quarter and first nine months of 2022, our equity-method income included in Other (income)/deductions––net also includes charges of $118 million and $119 million, respectively, primarily for adjustments to our equity-method basis differences related to the separation of Haleon/the GSK Consumer Healthcare JV from GSK. 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 was not material to our results of operations in the third quarter and first nine months of 2021. See Note 4.
Summarized financial information for our equity method investee, the Consumer Healthcare JV, for the three and nine months ending June 30, 2022, the most recent period available, and for the three and nine months ending June 30, 2021, is as follows:
|  | Three Months Ended |  | Nine Months Ended |  |
(MILLIONS) |  | June 30, 2022 |  | June 30, 2021 |  | June 30, 2022 |  | June 30, 2021 |  |
Net sales |  | $ | 3,218 |  |  | $ | 3,152 |  |  | $ | 10,164 |  |  | $ | 9,428 |  |  |
Cost of sales |  | (1,196) |  |  | (1,180) |  |  | (3,830) |  |  | (3,536) |  |  |
Gross profit |  | $ | 2,022 |  |  | $ | 1,972 |  |  | $ | 6,334 |  |  | $ | 5,892 |  |  |
Income from continuing operations |  | 226 |  |  | 348 |  |  | 1,303 |  |  | 1,064 |  |  |
Net income |  | 226 |  |  | 348 |  |  | 1,303 |  |  | 1,064 |  |  |
Income attributable to shareholders |  | 210 |  |  | 330 |  |  | 1,256 |  |  | 1,012 |  |  |
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 were guaranteed by GSK generally up to and excluding the date of the demerger (the “Guarantee Assumption Date”). We 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 was provided solely for the benefit of GSK. Neither we nor any of our subsidiaries were an issuer or guarantor of any of the notes. Following its issuance of the notes in March 2022, which fell in our international 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 ($3.7 billion as of the end of our second quarter of 2022), at an interest rate of 1.365% per annum payable semi-annually in arrears. In conjunction with the demerger, we received £3.5 billion ($4.2 billion) in dividends from the JV in July 2022, of which $4.0 billion related to a one-time pre-separation dividend, which decreased the carrying value of our investment (as discussed above). Simultaneous with the receipt of the dividends, we repaid the £2.9 billion loan from the JV. GSK similarly received pro rata dividends and simultaneously repaid its pro rata loan from the JV. In conjunction with these transactions, our indemnification of GSK’s guarantee discussed above was terminated. D. Collaborative Arrangement Collaboration with Biohaven––In November 2021, we entered into a collaboration and license agreement and related sublicense agreement with Biohaven and certain of its subsidiaries to commercialize rimegepant and zavegepant for the treatment and prevention of migraines outside of the U.S., subject to regulatory approval. Under the terms of the agreement, Biohaven would lead R&D globally and we would 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. In October 2022, within our fiscal fourth quarter of 2022, we acquired all outstanding common shares of Biohaven not already owned by us for $148.50 per share, in cash, for payments of approximately $11.5 billion.

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