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

Second Quarter of 2025 vs. Second Quarter of 2024 and First Six Months of 2025 vs. First Six Months of 2024

Cost of Sales

Cost of sales increased $479 million in the second quarter of 2025, primarily due to:

•the non-recurrence of a favorable revision to accrued royalties recorded in the second quarter of 2024; and

•a $140 million unfavorable impact of changes in sales mix, partially offset by:

•a decrease of $180 million due to lower amortization from the step-up of acquired inventory.

Cost of sales decreased $55 million in the first six months of 2025, primarily due to:

•a decrease of $295 million due to lower amortization from the step-up of acquired inventory; and

•a $150 million favorable impact of foreign exchange,

partially offset by:

•a $410 million unfavorable impact of changes in sales mix.

The increase in Cost of sales as a percentage of revenues in the second quarter of 2025 was primarily due to the non-recurrence of a favorable revision to accrued royalties recorded in second quarter of 2024, partially offset by lower amortization from the step-up of acquired inventory.

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 $302 million in the second quarter and $765 million in the first six months of 2025, primarily reflecting focused investments and ongoing productivity improvements as part of our cost realignment program that drove:

•a decrease of $220 million in the second quarter and $460 million in the first six months in marketing and promotional spend on various products; and

•lower spending of $160 million in the second quarter and $295 million in the first six months in corporate enabling functions.

Research and Development Expenses

Research and development expenses decreased $215 million in the second quarter and $504 million in the first six months of 2025, primarily driven by a net decrease in spending of $260 million in the second quarter and $490 million in the first six months 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 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 the expansion of this program in May 2025 related to our R&D re-organization to be fully realized by the end of 2026, with the savings expected to be reinvested in R&D programs by the end of 2026.

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 the end of 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 favorable period-over-period change of $367 million in the second quarter of 2025 was primarily driven by (i) net gains on equity securities in the second quarter of 2025 versus net losses on equity securities in the second quarter of 2024, (ii) lower net interest expense and (iii) lower intangible asset impairment charges, partially offset by (iv) higher charges for certain legal matters. The favorable period-over-period change of $95 million for the first six months of 2025 was primarily driven by lower net interest expense, partially offset by higher charges for certain legal matters. See Note 4.