PFIZER INC

Costs and Expenses

Cost of Sales

Cost of sales decreased $7.1 billion, primarily due to:

•the non-recurrence of a non-cash charge of $6.2 billion in 2023 related to Paxlovid and Comirnaty recorded for inventory write-offs and related charges ($5.0 billion for Paxlovid and $1.2 billion for Comirnaty); and

•a favorable change in sales mix of $2.6 billion, primarily driven by lower sales of Comirnaty,

•an impact of $1.9 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 reflects the non-recurrence of the aforementioned non-cash charge of $6.2 billion, as well as significantly lower sales of Comirnaty.

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 decreased $41 million, mostly due to:

•a decrease of $790 million due to lower promotional and marketing spend for various products, including Comirnaty and Paxlovid,

•higher compensation-related expenses of $630 million; and

•an increase of $140 million for corporate enabling functions primarily driven by our acquisition of Seagen.

Research and Development Expenses

Research and development expenses increased $143 million, primarily due to:

•a net increase in spending of $1.1 billion mainly to develop certain product candidates acquired from Seagen; and

•an increase of $680 million in compensation-related expenses,

•lower spending of $1.6 billion as a result of our cost realignment program and on various product candidates, primarily ongoing vaccine programs.

Amortization of Intangible Assets

Amortization of intangible assets increased $553 million, primarily due to:

•an increase of $570 million from our December 2023 acquisition of Seagen; and

•an increase of $470 million related to assets reclassified in 2023 from IPR&D to developed technology rights and from indefinite-lived to finite-lived brands,

•a decrease of $570 million 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 total net cost savings of approximately $4.5 billion by the end of 2025, most of which was achieved by year-end 2024.

Manufacturing Optimization Program––We expect to begin to achieve initial savings from Phase 1 of this multi-phased program in the latter part of 2025 and continue to expect approximately $1.5 billion in savings from this first phase by the end of 2027.

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. See the Non-GAAP Financial Measure: Adjusted Income 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 in light of patent-based and regulatory exclusivity expiries as well as the expiration of collaborative arrangements for various products. Long-term improvement in gross margin will remain a key focus for the Company over the next few years.

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 $1.7 billion, incurred primarily from 2023 through 2025.

Other (Income)/Deductions––Net

The unfavorable period-over-period change of $4.2 billion was primarily driven by (i) higher net interest expense of $2.0 billion, (ii) an unfavorable impact of $760 million due to net periodic benefit costs associated with pension and postretirement plans in 2024 versus net periodic benefit credits in 2023, (iii) lower net gains on equity securities of $580 million, (iv) a charge of $420 million in 2024 related to the expected sale of one of our facilities resulting from the discontinuation of our DMD program and (v) lower Haleon equity method income of $400 million, partially offset by (vi) gains of $945 million in 2024 on the partial sales of our investment in Haleon.

2023 v. 2022

The favorable period-over period change of $840 million was mainly driven by a favorable impact of $2.9 billion due to net gains on equity securities in 2023 versus net losses recognized on equity securities in 2022 and lower net interest expense of $400 million, partially offset by higher intangible asset impairment charges of $2.6 billion.

See Note 4.