PFIZER INC

Biopharma

Pfizer CentreOne

See the Item 1. Business—Patents and Other Intellectual Property Rights section for information regarding the expiration of various patent rights, Note 16 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above and Note 17C for the primary indications or class of the selected products discussed above.

Costs and Expenses

Cost of Sales

Cost of sales decreased $1.8 billion, primarily due to:

•a favorable change in sales mix of $1.4 billion driven by lower sales of Comirnaty and Paxlovid, including the non-recurrence of charges recorded in 2024 that were included in the 50% gross profit split with BioNTech and applicable royalty expenses;

•a decrease of $633 million due to lower amortization from the step-up of acquired inventory; and

•net favorable revisions to our estimate of accrued royalties,

partially offset by:

•a $288 million unfavorable impact of foreign exchange.

The decrease in Cost of sales as a percentage of revenues was primarily due to the factors mentioned above, and also partially offset by 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 $936 million, primarily reflecting focused investments and ongoing productivity improvements as part of our cost realignment program that drove:

•a decrease of $930 million in marketing and promotional spend on various products; and

•lower spending of $395 million in corporate enabling functions,

partially offset by:

•an increase of $230 million due to a favorable adjustment of U.S. healthcare reform fees recorded in 2024 primarily related to Paxlovid and Comirnaty.

Research and Development Expenses

Research and development expenses decreased $385 million, primarily driven by a net decrease in spending of $490 million due to pipeline focus and optimization initiatives including the expansion of our digital capabilities, as well as lower compensation-related expenses.

Acquired In-Process Research and Development Expenses

Acquired in-process research and development expenses increased $1.5 billion, primarily driven by a $1.35 billion charge related to an in-licensing agreement with 3SBio and a $150 million charge related to an in-licensing agreement with YaoPharma.

Amortization of Intangible Assets

Amortization of intangible assets decreased $413 million, primarily due to lower amortization related to Prevnar, fully amortized assets and asset impairments.

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 2026. The total net cost savings are composed of net cost savings of $5.1 billion achieved through 2025, and the remaining anticipated savings of $600 million, primarily in SI&A, expected to be achieved by the end of 2026. In addition, we achieved cost savings of approximately $500 million from our pipeline focus and optimization initiatives including the expansion of our digital capabilities, with the savings expected to be reinvested in R&D programs by the end of 2026.

Manufacturing Optimization Program––The first phase of this multi-phased program is on track to deliver approximately $1.5 billion in net cost savings by the end of 2027, with approximately $600 million of net cost savings realized by year-end 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. 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, 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, with approximately $800 million of annual cost synergies achieved by year-end 2025. The one-time costs to generate these synergies are expected to be approximately $1.7 billion, the majority of which has been incurred through 2025.

Metsera acquisition––In connection with our acquisition of Metsera, we are focusing our efforts on achieving an appropriate cost structure for the combined company. We expect to generate approximately $600 million 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 $700 million, incurred primarily from 2025 through 2027.

Other (Income)/Deductions––Net

The unfavorable period-over-period change of $2.3 billion was primarily driven by (i) higher intangible asset impairments of $1.6 billion, (ii) an unfavorable impact of $1.1 billion due to net losses on equity securities in 2025 versus net gains on equity securities in 2024, (iii) the non-recurrence of realized gains of $945 million on the partial sale of our previous investment in Haleon in 2024, and (iv) higher charges for certain legal matters of $490 million, partially offset by (v) a favorable impact of $832 million due to net periodic benefit credits associated with pension and postretirement plans in 2025 versus net periodic benefit costs in 2024, (vi) lower net interest expense of $478 million primarily driven by a reduction in commercial paper outstanding, compared to 2024, and (vii) the non-recurrence of 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. See Note 4.