PFIZER INC

Biopharma

Pfizer CentreOne

See the Item 1. Business—Patents and Other Intellectual Property Rights section of our 2023 Form 10-K for information regarding the expiration of various patent rights, Note 12 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above and Note 13C for additional information regarding the primary indications or class of the selected products discussed above.

Costs and Expenses

Third Quarter of 2024 vs. Third Quarter of 2023 and First Nine Months of 2024 vs. First Nine Months of 2023

Cost of Sales

Cost of sales decreased $4.0 billion in the third quarter of 2024, primarily due to:

•the non-recurrence of a non-cash charge of $5.6 billion recorded in the third quarter of 2023 for inventory write-offs and related charges ($4.7 billion for Paxlovid and $0.9 billion for Comirnaty),

•an unfavorable change in sales mix of $1.5 billion, primarily driven by higher sales of Paxlovid and Comirnaty, including a charge for the 50% gross profit split with BioNTech and applicable royalty expenses; and

•an impact of $490 million from our Seagen acquisition, inclusive of the amortization of the fair value step-up of inventory.

Cost of sales decreased $5.4 billion in the first nine months of 2024, primarily due to:

•the non-recurrence of the aforementioned non-cash charge of $5.6 billion recorded in the third quarter of 2023; and

•a favorable change in sales mix of $845 million, primarily driven by lower sales of Comirnaty,

•an impact of $1.4 billion from our Seagen acquisition, inclusive of the amortization of the fair value step-up of inventory.

The decrease in Cost of sales as a percentage of revenues in the third quarter and the first nine months of 2024 reflects the non-recurrence of the aforementioned non-cash charge of $5.6 billion recorded in the third quarter of 2023.

Certain of our vaccines, including Comirnaty, are subject to seasonality of demand, with a greater portion of revenues and related cost of sales anticipated in the fall and winter seasons. See also Overview of Our Performance, Operating Environment, Strategy and Outlook—The Global Economic Environment––COVID-19 section for information about our COVID-19 products.

Selling, Informational and Administrative Expenses

Selling, informational and administrative expenses were relatively flat in the third quarter of 2024, primarily due to:

•a decrease of $210 million due to lower U.S. healthcare reform fees primarily related to Paxlovid and Comirnaty,

largely offset by:

•an increase of $165 million in marketing and promotional expenses for recently launched and acquired products.

Selling, informational and administrative expenses increased $260 million in the first nine months of 2024, primarily due to:

•an increase of $600 million in marketing and promotional expenses for recently launched and acquired products,

•a decrease of $310 million for marketing and promotional expenses for Paxlovid.

Research and Development Expenses

Research and development expenses decreased $113 million in the third quarter and $77 million in the first nine months of 2024, primarily due to:

•lower spending of $430 million in the third quarter and $930 million in the first nine months related to certain ongoing vaccine programs and as a result of our cost realignment program,

•a net increase in spending of $310 million in the third quarter and $850 million in the first nine months mainly to develop certain product candidates acquired from Seagen.

Amortization of Intangible Assets

Amortization of intangible assets increased $133 million in the third quarter of 2024 and $461 million in the first nine months of 2024, primarily driven by:

•increases of $140 million in the third quarter and $400 million in the first nine months from our December 2023 acquisition of Seagen; and

•increases of $120 million in the third quarter and $360 million in the first nine months related to assets reclassified in 2023 from IPR&D to developed technology rights,

•decreases of $130 million in the third quarter and $350 million in the first nine months related to changes in asset lives and fully amortized assets.

Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

Realigning our Cost Base Program––This program is expected to deliver net cost savings of at least $4 billion, to be achieved primarily from 2023 through 2024.

Manufacturing Optimization Program––The first phase of this multi-phased program is expected to deliver savings of approximately $1.5 billion by the end of 2027, some of which is expected to begin being realized in 2025.

Certain qualifying costs for these programs in all periods since inception were recorded and reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income/(Loss). See the Non-GAAP Financial Measure: Adjusted Income/(Loss) section within MD&A.

For a description of our programs, as well as the anticipated and actual costs, see Note 3A. The program savings discussed above may be rounded and represent approximations. In addition to these programs, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of patent-based and regulatory exclusivity expiries as well as the expiration of collaborative arrangements for various products. Improvement of operating margin will continue to be an important focus for the Company.

Seagen acquisition––In connection with our acquisition of Seagen, we are focusing our efforts on achieving an appropriate cost structure for the combined company. We expect to generate approximately $1 billion of annual cost synergies, to be achieved by 2026. The one-time costs to generate these synergies are expected to be approximately $1.5 billion, incurred primarily from 2023 through 2025.

Other (Income)/Deductions—Net

The unfavorable period-over-period changes of $62 million in the third quarter of 2024 and $1.6 billion for the first nine months of 2024 were primarily driven by higher net interest expense and a charge in the third quarter of 2024 related to the expected sale of one of our facilities resulting from the discontinuation of our DMD program, partially offset by net gains on equity securities in 2024 versus net losses on equity securities in 2023. See Note 4.