PFIZER INC

Biopharma

Pfizer CentreOne

See the Item 1. Business—Patents and Other Intellectual Property Rights section of our 2024 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

First Quarter of 2025 vs. First Quarter of 2024

Cost of Sales

Cost of sales decreased $534 million in the first quarter of 2025, primarily due to:

•a favorable revision of our estimate of accrued royalties; and

•a $210 million favorable impact of foreign exchange,

partially offset by:

•a $260 million unfavorable impact of changes in sales mix.

The decrease in Cost of sales as a percentage of revenues in the first quarter of 2025 was primarily due to all the factors discussed above, as well as the non-recurrence of the Paxlovid favorable final adjustment of $771 million recorded in the first quarter of 2024 to the estimated non-cash Paxlovid revenue reversal recorded in the fourth 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 the 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 $464 million in the first quarter of 2025, primarily reflecting ongoing productivity improvements as part of our cost realignment program that drove both a decrease of $185 million in marketing and promotional spend for various products and lower spending of $145 million in corporate enabling functions, as well as lower spending of $90 million on COVID-19 products.

Research and Development Expenses

Research and development expenses decreased $290 million in the first quarter of 2025, primarily driven by a net decrease in spending of $260 million due to pipeline focus and optimization, as well as lower compensation-related expenses.

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 $5.7 billion through 2027. The total net cost savings are composed of: (i) net cost savings of $4.5 billion expected to be achieved by the end of 2025, most of which was achieved by year-end 2024, and (ii) our recently announced additional anticipated net cost savings of $1.2 billion, primarily in SI&A, expected to be achieved by the end of 2027. In addition, we expect cost savings of approximately $500 million from our recently announced expansion of this program related to our R&D re-organization to be realized by the end of 2026, with the savings expected to be reinvested in R&D programs.

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 net cost 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 3. 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. 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 $273 million in the first quarter of 2025 was primarily driven by (i) net losses on equity securities in the first quarter of 2025 versus net gains on equity securities in the first quarter of 2024, (ii) the non-recurrence of a gain on the partial sale of our investment in Haleon in the first quarter of 2024 and (iii) higher intangible asset impairment charges, partially offset by (iv) lower net interest expense. See Note 4.