Appendix A
`2015 Financial Report
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`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1133, p. 1 of 134
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`

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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`INTRODUCTION
`Our Financial Review is provided to assist readers in understanding the results of operations, financial condition and cash flows of Pfizer Inc.
`(the Company). It should be read in conjunction with the consolidated financial statements and Notes to Consolidated Financial Statements.
`The discussion in this Financial Review contains forward-looking statements that involve substantial risks and uncertainties. Our actual results
`could differ materially from those anticipated in these forward-looking statements as a result of various factors, such as those discussed in
`Part 1, Item 1A, “Risk Factors” of our 2015 Annual Report on Form 10-K and in the “Forward-Looking Information and Factors That May Affect
`Future Results”, “Our Operating Environment” and “Our Strategy” sections of this Financial Review.
`
`The Financial Review is organized as follows:
`
`Beginning on page 2
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`Beginning on page 12
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`Beginning on page 19
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`Beginning on page 24
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`Beginning on page 28
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`Beginning on page 31
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`Beginning on page 34
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`Beginning on page 35
`Beginning on page 35
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`Beginning on page 42
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`Beginning on page 48
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`Beginning on page 49
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`Beginning on page 50
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`Beginning on page 51
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`Overview of Our Performance, Operating Environment, Strategy and Outlook . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides information about the following: Our Business; Our 2015 Performance; Our
`Operating Environment; The Global Economic Environment, Our Strategy; Our Business Development
`Initiatives, such as acquisitions, dispositions, licensing and collaborations; and Our Financial Guidance for
`2016.
`Significant Accounting Policies and Application of Critical Accounting Estimates and Assumptions . . . . . . . . .
`This section discusses those accounting policies and estimates that we consider important in
`understanding our consolidated financial statements. For additional discussion of our accounting policies,
`see Notes to Consolidated Financial Statements—Note 1. Basis of Presentation and Significant
`Accounting Policies.
`Analysis of the Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section includes a Revenues Overview section as well as the following sub-sections:
` Revenues-Major Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This sub-section provides an overview of several of our biopharmaceutical products.
` Product Developments-Biopharmaceutical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This sub-section provides an overview of important biopharmaceutical product developments.
` Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This sub-section provides a discussion about our costs and expenses.
` Provision for Taxes on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This sub-section provides a discussion of items impacting our tax provisions.
` Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
` Adjusted Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This sub-section provides a discussion of an alternative view of performance used by management.
`Analysis of Operating Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides a discussion of the performance of each of our operating segments.
`Analysis of the Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides a discussion of changes in certain components of other comprehensive income.
`Analysis of the Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides a discussion of changes in certain balance sheet accounts, including Accumulated
`other comprehensive loss.
`Analysis of the Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides an analysis of our consolidated cash flows for the three years ended December 31,
`2015.
`Analysis of Financial Condition, Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides an analysis of selected measures of our liquidity and of our capital resources as of
`December 31, 2015 and December 31, 2014, as well as a discussion of our outstanding debt and other
`commitments that existed as of December 31, 2015 and December 31, 2014. Included in the discussion of
`outstanding debt is a discussion of the amount of financial capacity available to help fund Pfizer’s future
`activities.
`New Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section discusses accounting standards that we have recently adopted, as well as those that recently
`have been issued, but not yet adopted.
`Forward-Looking Information and Factors That May Affect Future Results . . . . . . . . . . . . . . . . . . . . . . . . . . .
`This section provides a description of the risks and uncertainties that could cause actual results to differ
`materially from those discussed in forward-looking statements presented in this Financial Review relating
`to, among other things, our anticipated operating and financial performance, business plans and
`prospects, in-line products and product candidates, strategic reviews, capital allocation, business-
`development plans and plans relating to share repurchases and dividends. Such forward-looking
`statements are based on management’s plans and assumptions, which are inherently susceptible to
`uncertainty and changes in circumstances. Also included in this section are discussions of Financial Risk
`Management and Contingencies, including legal and tax matters.
`Certain amounts in our Financial Review may not add due to rounding. All percentages have been calculated using unrounded
`amounts.
`
`Beginning on page 56
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`Beginning on page 58
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`2015 Financial Report
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`1
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`

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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK
`
`Our Business
`
`We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery,
`development and manufacture of healthcare products. Our global portfolio includes medicines, vaccines and medical devices, as well as many
`of the world’s best-known consumer healthcare products. We work across developed and emerging markets to advance wellness, prevention,
`treatments and cures that challenge the most feared diseases of our time. We collaborate with healthcare providers, governments and local
`communities to support and expand access to reliable, affordable healthcare around the world. Our revenues are derived from the sale of our
`products and, to a much lesser extent, from alliance agreements, under which we co-promote products discovered by other companies
`(Alliance revenues).
`
`The majority of our revenues come from the manufacture and sale of biopharmaceutical products. The biopharmaceutical industry is highly
`competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges which can significantly impact our
`results. These factors include, among others: the loss or expiration of intellectual property rights and the expiration of co-promotion and
`licensing rights, healthcare legislation, pipeline productivity, the regulatory environment, pricing and access pressures and competition. We
`also face challenges as a result of the global economic environment. For additional information about these factors and challenges, see the
`“Our Operating Environment” section of this Financial Review and in Part I, Item 1A, “Risk Factors,” of our 2015 Annual Report on Form 10-K.
`
`The financial information included in our consolidated financial statements for our subsidiaries operating outside the United States (U.S.) is as
`of and for the year ended November 30 for each year presented. Pfizer's fiscal year-end for U.S. subsidiaries is as of and for the year ended
`December 31 for each year presented.
`
`References to developed markets in this Financial Review include the U.S., Western Europe, Japan, Canada, Australia, Scandinavia, South
`Korea, Finland and New Zealand; and references to emerging markets in this Financial Review include, but are not limited to, the following
`markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe, the Middle East and Turkey.
`
`References to operational variances in this Financial Review refer to variances excluding the impacts of foreign exchange.
`
`On November 23, 2015, we announced that we have entered into a definitive merger agreement with Allergan plc (Allergan), a global
`pharmaceutical company incorporated in Ireland, under which we have agreed to combine with Allergan in a stock transaction valued at
`$363.63 per Allergan share, for a total enterprise value of approximately $160 billion, based on the closing price of Pfizer common stock of
`$32.18 on November 20, 2015 (the last trading day prior to the announcement) and certain other assumptions. Subject to the terms and
`conditions of the merger agreement, the businesses of Pfizer and Allergan will be combined under a single company and Pfizer would become
`a wholly-owned subsidiary of Allergan, which is organized under the laws of Ireland and which, subject to the approval by Allergan
`shareholders, will be renamed “Pfizer plc”. We anticipate that the parent company will be treated as a non-U.S. corporation (and, therefore, a
`non-U.S. tax resident) under the applicable U.S. federal income tax rules, although the U.S. Internal Revenue Service (IRS) may challenge
`that treatment. The completion of the transaction, which is expected in the second half of 2016, is subject to certain conditions, including
`receipt of regulatory approval in certain jurisdictions, including the U.S. and European Union (EU), the receipt of necessary approvals from
`both Pfizer and Allergan shareholders, and the completion of Allergan’s pending divestiture of its generics business to Teva Pharmaceuticals
`Industries Ltd. Readers are encouraged to review the joint proxy statement/prospectus we will file with the U.S. Securities and Exchange
`Commission (SEC) seeking stockholder approval of the transaction. That document will include important information regarding the proposed
`transaction. While we have taken actions and incurred costs associated with the pending combination that are reflected in our financial
`statements, the pending combination with Allergan will not be reflected in our financial statements until consummation. See the “Our Business
`Development Initiatives” section of this Financial Review and Notes to Consolidated Financial Statements––Note 19. Pending Combination
`with Allergan for additional information.
`
`On September 3, 2015 (the acquisition date), we acquired Hospira, Inc. (Hospira) for approximately $16.1 billion in cash ($15.7 billion, net of
`cash acquired). Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows
`of Hospira, and, in accordance with our domestic and international reporting periods, our consolidated financial statements for the year ended
`December 31, 2015 reflect four months of legacy Hospira U.S. operations and three months of legacy Hospira international operations. See
`Notes to Consolidated Financial Statements––Note 2A. Acquisitions, Licensing Agreements, Collaborative Arrangements, Divestitures, Equity-
`Method Investments and Cost-Method Investment: Acquisitions and the “Significant Accounting Policies and Application of Critical Accounting
`Estimates––Acquisition of Hospira” section of this Financial Review for additional information. Hospira is now a subsidiary of Pfizer and its
`commercial operations are now included within the Global Established Pharmaceutical (GEP) segment. The combination of local Pfizer and
`Hospira entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps. We
`expect to generate $800 million of annual cost synergies by 2018 in connection with the Hospira acquisition. Based on our past experience,
`the one-time costs to generate the synergies are expected to be approximately $1 billion (not including costs of $215 million in 2015
`associated with the return of acquired in-process research and development (IPR&D) rights), incurred for up to a three-year period post-
`acquisition. See the “Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section
`of this Financial Review.
`
`On June 24, 2013, we completed the full disposition of our Animal Health business, Zoetis Inc. (Zoetis), and recognized a gain of
`approximately $10.3 billion, net of tax, in Gain on disposal of discontinued operations––net of tax in our consolidated statement of income for
`the year ended December 31, 2013. The operating results of this business through June 24, 2013, the date of disposal, are reported as
`Income from discontinued operations––net of tax in our consolidated statements of income. See Notes to Consolidated Financial
`Statements––Note 2D. Acquisitions, Licensing Agreements, Collaborative Arrangements, Divestitures, Equity-Method Investments and Cost-
`Method Investment: Divestitures for additional information.
`
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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`Our 2015 Performance
`
`Revenues––2015
`
`Revenues in 2015 were $48.9 billion, a decrease of 2% compared to 2014. This reflects an operational increase of $3.0 billion, or 6%, which
`was more than offset by the unfavorable impact of foreign exchange of $3.8 billion, or 8%.
`
`The following provides an analysis of our 2015 operational revenue growth for Pfizer standalone revenues:
`
`(BILLIONS OF DOLLARS)
`Operational revenues––Pfizer-standalone increase:
`Operational consolidated revenues increase
`Less: Revenues from legacy Hospira
`Revenues from vaccines acquired from Baxter
`Operational revenues––Pfizer-standalone increase
`Components of operational revenues––Pfizer-standalone increase:
`Operational revenue growth from certain key products––net
`Operational revenue decrease due to product losses of exclusivity and co-promotion expirations
`Operational revenues––Pfizer-standalone increase
`
`Year Ended December 31,
`2015
`
`$
`
`$
`
`$
`
`$
`
`3.0
`(1.5)
`(0.2)
`1.3
`
`4.5
`(3.2)
`1.3
`
`See the “Analysis of the Consolidated Statements of Income––Revenues––Overview” section below for more information, including a
`discussion of key drivers of our revenue performance.
`
`Income from Continuing Operations Before Provision for Taxes on Income––2015
`
`•
`
`Income from continuing operations before provision for taxes on income was $9.0 billion in 2015 compared to $12.2 billion in 2014, primarily
`reflecting, among other items, in addition to the operational and foreign exchange impacts for Revenues described above:
`• higher restructuring charges and certain acquisition-related costs (up $902 million) (see also the Notes to Consolidated Financial
`Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives);
`foreign currency loss ($806 million) and an inventory impairment charge ($72 million) related to Venezuela in 2015 (see also the “Costs
`and Expenses––Cost of Sales” and the “Analysis of Financial Condition, Liquidity and Capital Resources––Global Economic Conditions––
`Venezuela Operations” sections of this Financial Review and Notes to Consolidated Financial Statements––Note 4. Other (Income)/
`Deductions––Net);
`• higher selling, informational and administrative expenses (up $711 million) (see also the “Costs and Expenses––Selling, Informational and
`Administrative Expenses (SI&A) Expenses” section of this Financial Review);
`• higher Other, net (up $668 million) (see also the Notes to Consolidated Financial Statements––Note 4. Other (Income)/Deductions––Net);
`• higher asset impairments (up $349 million) (see also the Notes to Consolidated Financial Statements––Note 4. Other (Income)/
`Deductions––Net); and
`• higher charges for business and legal entity alignment activities (up $114 million) (see also the Notes to Consolidated Financial
`Statements––Note 4. Other (Income)/Deductions––Net),
`partially offset by:
`•
`lower research and development expenses (down $703 million) (see also the “Costs and Expenses––Research and Development (R&D)
`Expenses” section of this Financial Review);
`lower amortization of intangible assets (down $311 million) (see also the “Costs and Expenses––Amortization of Intangible Assets” section
`of this Financial Review); and
`lower net interest expense (down $207 million) (see also the Notes to Consolidated Financial Statements––Note 4. Other (Income)/
`Deductions––Net).
`
`•
`
`•
`
`For information on our tax provision and effective tax rate see the “Provision for Taxes on Income” section of the Financial Review and Notes
`to Consolidated Financial Statements––Note 5. Tax Matters.
`Our Operating Environment
`Industry-Specific Challenges
`
`Intellectual Property Rights and Collaboration/Licensing Rights
`
`The loss or expiration of intellectual property rights and the expiration of co-promotion and licensing rights can have a significant adverse
`effect on our revenues. Many of our branded products have multiple patents that expire at varying dates, thereby strengthening our overall
`patent protection. However, once patent protection has expired or has been lost prior to the expiration date as a result of a legal challenge, we
`
`2015 Financial Report
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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`lose exclusivity on these products, and generic pharmaceutical manufacturers generally produce similar products and sell them for a lower
`price. The date at which generic competition commences may be different from the date that the patent or regulatory exclusivity expires.
`However, when generic competition does commence, the resulting price competition can substantially decrease our revenues for the impacted
`products, often in a very short period of time.
`
`Our biotechnology products, including BeneFIX, ReFacto, Xyntha and Enbrel (we market Enbrel outside the U.S. and Canada), may face
`competition in the future from biosimilars (also referred to as follow-on biologics). If competitors are able to obtain marketing approval for
`biosimilars that reference our biotechnology products, our biotechnology products may become subject to competition from these biosimilars,
`with attendant competitive pressure, and price reductions could follow. Expiration or successful challenge of applicable patent rights could
`trigger this competition, assuming any relevant exclusivity period has expired. However, biosimilar manufacturing is complex. At least initially
`upon approval of a biosimilar competitor, biosimilar competition with respect to biologics may not be as significant as generic competition with
`respect to small molecule drugs.
`
`We have lost exclusivity for a number of our products in certain markets and we have lost collaboration rights with respect to a number of our
`alliance products in certain markets, and we expect certain products and alliance products to face significantly increased generic competition
`over the next few years.
`
`Specifically:
`
`Recent Losses and Expected Losses of Product Exclusivity
`
`The following table provides information about certain of our products recently experiencing, or expected to experience in 2016, patent
`expirations or loss of regulatory exclusivity in the U.S., Europe or Japan, showing, by product, the key dates or expected key dates, the
`markets impacted and the revenues associated with those products in those markets:
`(MILLIONS OF DOLLARS)
`Products
`
`Key Dates(a)
`
`Markets Impacted
`
`Product Revenues in Markets Impacted
`Year Ended December 31,
`2015
`2014
`35
`87
`
`$
`
`$
`
`2013
`428
`
`Detrol IR and Detrol LA(b)
`
`$
`
`Viagra
`
`Rapamune
`
`Inspra(c)
`Lyrica(d)
`Celebrex(e)
`
`Zyvox(f)
`
`Enbrel(g)
`
`Relpax
`Vfend
`
` 2015 Financial Report
`
`4
`
`Major European markets
`September 2012
`U.S.
`January 2014
`Major European markets
`June 2013
`Japan
`May 2014
`U.S.
`January 2014
`Major European markets
`June 2015
`Major European markets
`March 2014
`Major European markets
`July 2014
`Major European markets
`November 2014
`U.S.
`December 2014
`U.S.
`First half of 2015
`Major European markets
`January 2016
`Major European markets
`August 2015
`Japan
`September 2015
`U.S.
`December 2016
`Major European markets
`July 2016
`Japan
`January 2016
`U.S.
`April 2016
`Tygacil
`(a) Unless stated otherwise, “Key Dates” indicate patent-based expiration dates.
`(b) In January 2014, generic versions of Detrol LA became available in the U.S. pursuant to a settlement agreement.
`(c) In March 2014, regulatory exclusivity for Inspra expired in most major European markets, allowing generic companies to submit applications for marketing
`authorizations for their generic products.
`(d) In July 2014, regulatory exclusivity for Lyrica expired in the EU, allowing generic companies to submit applications for marketing authorizations for their generic
`products.
`(e) In December 2014, generic versions of Celebrex became available pursuant to settlement agreements with several generic manufacturers.
`(f) Pursuant to terms of a settlement agreement, certain formulations of Zyvox became subject to generic competition in the U.S. in January 2015. Other
`formulations of Zyvox became subject to generic competition in the U.S. in the first half of 2015.
`(g) In January 2016, the European Commission approved an etanercept biosimilar referencing Enbrel.
`
`76
`
`129
`
`74
`1,048
`189
`
`564
`
`2,402
`
`233
`349
`
`110
`
`120
`
`254
`
`160
`1,634
`1,872
`
`1,020
`
`2,832
`
`244
`403
`
`112
`
`310
`
`253
`
`150
`1,458
`2,084
`
`1,013
`
`2,776
`
`218
`413
`
`150
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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`Recent Losses and Expected Losses of Collaboration Rights
`
`The following table provides information about certain of our alliance revenue products that have experienced or that are expected to
`experience in 2016 losses of collaboration rights, showing, by product, the date of the loss of the collaboration rights, the markets impacted
`and the alliance revenues associated with those products in those markets:
`
`(MILLIONS OF DOLLARS)
`
`Products
`
`Date of Loss of
`Collaboration Rights
`
`Markets Impacted
`
`Alliance Revenues in
`Markets Impacted
`
`Spiriva(a)
`
`U.S., Japan, certain European
`countries, Australia, Canada and
`South Korea
`
`$
`
`Year Ended December 31,
`2015
`2014
`27
`168
`
`$
`
`April 2014 (U.S.), between 2012
`and 2016 (Japan, certain
`European countries, Australia,
`Canada and South Korea)
`Enbrel(b)
`—
`1,400
`3
`U.S. and Canada
`October 2013
`Rebif(c)
`371
`401
`415
`U.S.
`End of 2015
`(a) Our collaboration with Boehringer Ingelheim for Spiriva expires on a country-by-country basis between 2012 and 2016. On April 29, 2014, our alliance in the
`U.S. came to an end.
`(b) The U.S. and Canada co-promotion term of our collaboration agreement with Amgen Inc. for Enbrel expired on October 31, 2013. While we are entitled to
`royalties until October 31, 2016, those royalties have been and are expected to continue to be significantly less than our share of Enbrel profits from U.S. and
`Canada sales prior to the expiration. In addition, while our share of the profits from this co-promotion agreement previously was included in Revenues, our
`royalties after October 31, 2013 are and will be included in Other (income)/deductions––net, in our consolidated statements of income. Outside the U.S. and
`Canada, we continue to have the exclusive rights to market Enbrel.
`(c) Our collaboration agreement with EMD Serono Inc. to co-promote Rebif in the U.S. expired at the end of 2015.
`
`2013
`659
`
`$
`
`In addition, we expect to lose exclusivity for various other products in various markets over the next few years. For additional information, see
`the “Patents and Other Intellectual Property Rights” section in Part I, Item 1, “Business”, of our 2015 Annual Report on Form 10-K.
`
`Our financial results in 2015 and our 2016 financial guidance, respectively, reflect the impact and projected impact of the loss of exclusivity of
`various products and the expiration of certain alliance product contract rights discussed above. For additional information about our 2016
`financial guidance, see the “Our Financial Guidance for 2016” section of this Financial Review.
`
`We will continue to aggressively defend our patent rights whenever we deem appropriate. For more detailed information about our significant
`products, see the discussion in the “Revenues––Major Products” and “Revenues––Selected Product Descriptions” sections of this Financial
`Review. For a discussion of certain recent developments with respect to patent litigation, see Notes to Consolidated Financial Statements––
`Note 17A1. Commitments and Contingencies: Legal Proceedings––Patent Litigation.
`
`Regulatory Environment/Pricing and Access––U.S. Healthcare Legislation
`
`In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together,
`the U.S. Healthcare Legislation, and also known as the Affordable Care Act or ACA), was enacted in the U.S. For additional information, see
`the “Government Regulation and Price Constraints” section in Part I, Item 1, “Business”, of our 2015 Annual Report on Form 10-K. The U.S.
`Healthcare Legislation also created a framework for the approval of biosimilars (also known as follow-on biologics) following the expiration of
`12 years of exclusivity for the innovator biologic, with a potential six-month pediatric extension. For additional information on the biosimilar
`approval pathway, the U.S. Food and Drug Administration’s (FDA) guidance documents and competition from biosimilar manufacturers, see
`the “Patents and Intellectual Property—Biotechnology Products” and “Government Regulation and Price Constraints—Biosimilar Regulation”
`sections in Part I, Item 1 “Business”, of our 2015 Annual Report on Form 10-K.
`
`Impacts on our 2015 Results
`
`We recorded the following amounts in 2015 as a result of the U.S. Healthcare Legislation:
`• $977 million recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare
`“coverage gap” discount provision, as well as an increase in Medicaid rebates; and
`• $251 million recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government (which is
`not deductible for U.S. income tax purposes) based on our prior-calendar-year share relative to other companies of branded prescription
`drug sales to specified government programs. The decrease in the impact of the U.S. Healthcare Legislation on Selling, informational and
`administrative expenses in 2015 compared to 2014 was primarily a result of the non-recurrence of the $215 million charge in 2014 to
`account for an additional year of the non-tax deductible Branded Prescription Drug Fee, partially offset by a lower favorable true-up in
`2015, compared to the favorable true-up in 2014, associated with the final invoice for the respective prior-calendar year received from the
`federal government, which reflected a lower share than that of the initial invoice.
`
`2015 Financial Report
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`Financial Review
`Pfizer Inc. and Subsidiary Companies
`
`Impacts on our 2014 Results
`
`We recorded the following amounts in 2014 as a result of the U.S. Healthcare Legislation:
`• $631 million recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare
`“coverage gap” discount provision; and
`• $362 million recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government. 2014
`included a $215 million charge to account for an additional year of the non-tax deductible Branded Prescription Drug Fee in accordance
`with final regulations issued in the third quarter of 2014 by the IRS. The amount in 2014 also reflected a favorable true-up associated with
`the final 2013 invoice received from the federal government, which reflected a lower share than that of the initial 2013 invoice.
`The final regulations issued by the IRS did not change the payment schedule for the Branded Prescription Drug Fee; accordingly there was no
`cash flow impact in 2014 from the $215 million charge.
`
`Impacts on our 2013 Results
`
`We recorded the following amounts in 2013 as a result of the U.S. Healthcare Legislation:
`• $458 million recorded as a reduction to Revenues, related to the higher, extended and expanded rebate provisions and the Medicare
`“coverage gap” discount provision; and
`• $280 million recorded in Selling, informational and administrative expenses, related to the fee payable to the federal government.
`
`Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures
`
`Governments, managed care organizations and other payer groups continue to seek increasing discounts on our products through a variety of
`means, such as leveraging their purchasing power, implementing price controls, and demanding price cuts (directly or by rebate actions). In
`Europe, Japan, China, Canada, South Korea and some other international markets, governments provide healthcare at low direct cost to
`patients and regulate pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system.
`In the U.S., a primary government activity with implications for pharmaceutical pricing is deficit reduction. Any significant spending reductions
`affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant
`additional taxes or fees that may be imposed on us, as part of any broad deficit-reduction effort could have an adverse impact on our results of
`operations.
`
`Additionally, policy efforts designed specifically to reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and
`discounts or other pricing restrictions. A number of the candidates for the 2016 U.S. presidential elections have introduced such policy
`proposals, and a November 2015 U.S. Department of Health and Human Services forum dedicated to drug pricing could lead to further
`proposals. We believe medicines are the most efficient and effective use of healthcare dollars based on the value they deliver to the overall
`healthcare system. We continue to work with stakeholders in an effort to ensure access to medicines within an efficient and affordable
`healthcare system. In addition, certain regulatory changes to be implemented in 2016 may affect Pfizer's obligations under the Medicaid drug
`rebate program, but the impact of those changes is not yet known.
`
`The ACA, which expanded the role of the U.S. government as a healthcare payer, is accelerating changes in the U.S. healthcare marketplace,
`and the potential for additional pricing and access pressures continues to be significant. Many of these developments may impact drug
`utilization, in particular branded drug utilization. Some employers, seeking to avoid the tax on high-cost health insurance in the ACA originally
`to be imposed in 2018 (now to be imposed in 2020, per the terms of the fiscal year 2016 omnibus appropriations legislation), are already
`scaling back healthcare benefits. Some health plans and pharmacy benefit managers are seeking greater pricing predictability from
`pharmaceutic