PFIZER INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following MD&A is intended to assist the reader in understanding our financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources, and is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes in Item 8. Financial Statements and Supplementary Data in this Form 10-K. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found within MD&A in our 2021 Form 10-K. Pfizer Inc. 2022 Form 10-K 25 OVERVIEW OF OUR PERFORMANCE, OPERATING ENVIRONMENT, STRATEGY AND OUTLOOK Financial Highlights –– The following is a summary of certain financial performance metrics (in billions, except per share data): 2022 Total Revenues––$100.3 billion 2022 Net Cash Flow from Operations––$29.3 billion An increase of 23% compared to 2021 A decrease of 10% compared to 2021 2022 Reported Diluted EPS––$5.47 2022 Adjusted Diluted EPS (Non-GAAP)––$6.58* An increase of 42% compared to 2021 An increase of 62% compared to 2021 * For additional information regarding Adjusted diluted EPS (which is a non-GAAP financial measure), including reconciliations of certain GAAP Reported to non-GAAP Adjusted information, see the Non-GAAP Financial Measure: Adjusted Income section within MD&A. References to operational variances pertain to period-over-period changes that exclude the impact of foreign exchange rates. Although foreign exchange rate changes are part of our business, they are not within our control and since they can mask positive or negative trends in the business, we believe presenting operational variances excluding these foreign exchange changes provides useful information to evaluate our results. Our Business and Strategy –– Pfizer Inc. is a research-based, global biopharmaceutical company. We apply science and our global resources to bring therapies to people that extend and significantly improve their lives. See the Item 1 . Business –– About Pfizer section in this Form 10-K. Pfizer is committed to working towards equitable and affordable access to our medicines and vaccines for people around the world. As a science-driven global biopharmaceutical company, we remain focused on advancing our pipeline, supporting our marketed brands and deploying capital responsibly, with a focus on initiatives that can help contribute to our long-term revenue and future growth. Our ability to fulfill our purpose, Breakthroughs that change patients’ lives , remains a core focus and underscores our commitment to addressing the needs of society to help sustain long-term value creation for all stakeholders. Most of our revenues come from the manufacture and sale of biopharmaceutical products. We believe that our medicines and vaccines provide significant value for healthcare providers and patients and seek to enhance their value by continuously evaluating how we can best collaborate with patients, physicians and payers to support and expand patient access to reliable, affordable healthcare around the world. In addition, we continually seek to expand and broaden our product portfolio offerings through prioritized development of our pipeline and acquisitions targeted at critical unmet patient needs. As a result, our commercial organizational structure and R&D operations are critical to the successful execution of our business strategy. In 2023, we are making additional investments in both R&D and SI&A to support Pfizer’s near- and longer-term growth plans, including to support anticipated new launches, commercial launch of COVID-19 products, potential high-value pipeline programs and recently acquired assets. With the formation of the Consumer Healthcare JV in 2019, the spin-off of our former Upjohn Business in the fourth quarter of 2020 and the sale of our Meridian subsidiary in the fourth quarter of 2021, Pfizer transformed into a more focused, global leader in science-based innovative medicines and vaccines engaged in the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products worldwide. In the fourth quarter of 2021, we began managing our commercial operations through a global structure consisting of two operating segments: Biopharma and PC1. Biopharma is the only reportable segment. See Note 1A and Item 1. Business––Commercial Operations in this Form 10-K for additional information. We expect to incur costs of approximately $700 million in connection with separating Upjohn, of which approximately 85% has been incurred since inception and through December 31, 2022. These charges include costs and expenses related to separation of legal entities and transaction costs. Beginning in 2019, we took action through our Transforming to a More Focused Company restructuring program to ensure our cost base and support model aligned appropriately with our operating structure. In the third quarter of 2022, we made several organizational changes to further transform our operations to better leverage our expertise in certain areas and in anticipation of potential future new product or indication launches, and in the fourth quarter of 2022, we began taking steps to optimize our end-to-end R&D operations to reduce costs and cycle times as well as to further prioritize our internal R&D portfolio in areas where our capabilities are differentiated while increasing external innovation efforts to leverage an expanding and productive biotech sector. See Note 3 for additional information. For a description of savings related to this Pfizer Inc. 2022 Form 10-K 26 program, see the Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives section of this MD&A . R&D: We believe we have a strong pipeline and are well-positioned for future growth. R&D is at the heart of fulfilling our purpose to deliver breakthroughs that change patients’ lives as we work to translate advanced science and technologies into the therapies that may be the most impactful for patients. Innovation, drug discovery and development are critical to our success. In addition to discovering and developing new products, our R&D efforts seek to add value to our existing products by improving their effectiveness and ease of dosing and by discovering potential new indications. See the Item 1. Business — Research and Development section in this Form 10-K for our R&D priorities and strategy. We seek to leverage a strong pipeline, organize around expected operational growth drivers and capitalize on trends creating long-term growth opportunities, including: • an aging global population that is generating increased demand for innovative medicines and vaccines that address patients’ unmet needs; and • advances in both biological science and platform technologies that are enhancing the delivery of breakthrough new medicines and vaccines. Our Business Development Initiatives –– We are committed to strategically capitalizing on growth opportunities, primarily by advancing our own product pipeline and maximizing the value of our existing products, but also through various business development activities. We view our business development activity as an enabler of our strategies and seek to generate growth by pursuing opportunities and transactions that have the potential to strengthen our business and our capabilities. We assess our business, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will help advance our business strategy. For additional information, including discussion of recent significant business development activities, see Note 2 . Our 2022 Performance Revenues ––Revenues increased $19.0 billion, or 23%, to $100.3 billion in 2022 from $81.3 billion in 2021, reflecting an operational increase of $24.6 billion, or 30%, as well as an unfavorable impact of foreign exchange of $5.5 billion, or 7%. The operational increase was primarily driven by growth from Paxlovid and Comirnaty. Excluding the impact of Paxlovid and Comirnaty, revenues increased 2% operationally, reflecting strong growth in the Prevnar family, Eliquis and the Vyndaqel family, as well as revenue from recently acquired products, Nurtec ODT/Vydura and Oxbryta, partially offset by declines in Xeljanz, Chantix/Champix, Sutent, certain Comirnaty-related manufacturing activities performed on behalf of BioNTech (which are included in the PC1 contract development and manufacturing organization) and Ibrance. The following outlines the components of the net change in revenues: As of January 31, 2023, on a total company basis, we forecasted revenues in 2023 of $67 billion to $71 billion, reflecting an operational decline of 31% at the midpoint from 2022 results, which we expect will also have an unfavorable impact on Income from continuing operations before provision/(benefit) for taxes on income . The total company expected revenue declines in 2023 are driven by an expected reduction in sales of our COVID-19 products, partially offset by expected operational growth from our non-COVID-19 in-line portfolio, anticipated new product launches, and recently acquired products. See the Revenues by Geography and Revenues –– Selected Product Discussion sections within MD&A for more information, including a discussion of key drivers of our revenue performance. See also The Global Economic Environment––COVID-19 section below for information about our COVID-19 products, including expectations for 2023. For information regarding the primary indications or class of certain products, see Note 17 C . Income from Continuing Operations Before Provision/(Benefit) for Taxes on Income –– The increase in Income from continuing operations before provision/(benefit) for taxes on income of $10.4 billion, to $34.7 billion in 2022 from $24.3 billion in 2021, was primarily attributable to higher revenues and lower Acquired in-process research and development expenses , partially offset by (i) an increase in Cost of sales, (ii) net losses on equity securities in 2022 versus net gains on equity securities in 2021, (iii) lower net periodic benefit credits associated with pension and other postretirement plans, and (iv) increases in Research and development expenses, Selling, informational and administrative expenses, and Restructuring charges and certain acquisition-related costs. See the Analysis of the Consolidated Statements of Income within MD&A and Note 4 for additional information. See also The Global Economic Environment––COVID-19 section below for information about our COVID-19 products, including expectations for 2023. For information on our tax provision and effective tax rate, see the Provision/(Benefit) for Taxes on Income section within MD&A and Note 5 . Pfizer Inc. 2022 Form 10-K 27 Our Operating Environment ––We, like other businesses in our industry, are subject to certain industry-specific challenges. These include, among others, the topics listed below. See also the Item 1. Business––Government Regulation and Price Constraints and Item 1A. Risk Factors sections in this Form 10-K. Regulatory Environment––Pipeline Productivity –– Our product lines must be replenished over time to offset revenue losses when products lose exclusivity or market share or to respond to healthcare and innovation trends, as well as to provide for earnings growth. As a result, we devote considerable resources to our R&D activities which, while essential to our growth, incorporate a high degree of risk and cost, including whether a particular product candidate or new indication for an in-line product will achieve the desired clinical endpoint or safety profile, will be approved by regulators or will be successful commercially. Clinical trials are conducted to determine, among other things, whether an investigational drug or device is safe and effective for a particular patient population. After a product has been approved or authorized and launched, we continue to monitor its safety as long as it is available to patients, including conducting postmarketing trials, voluntarily or pursuant to a regulatory request. For the entire life of the product, we collect safety data and report safety information to the FDA and other regulators. Regulatory authorities evaluate potential safety concerns and take any regulatory action deemed necessary and appropriate. Such action(s) may include: updating a product’s labeling, restricting its use, communicating new safety information or, in rare cases, seeking to suspend or remove a product from the market. Intellectual Property Rights and Collaboration/Licensing Rights –– The loss, expiration or invalidation of intellectual property rights, patent litigation settlements and the expiration of co-promotion and licensing rights can have a material adverse effect on our revenues. Certain of our products have experienced patent-based expirations or loss of regulatory exclusivity in certain markets in the last few years, and we expect certain products to face increased generic competition over the next few years. While additional patent expiries will continue, we expect a moderate impact of reduced revenues due to patent expiries from 2023 through 2025. We anticipate a more significant impact of reduced revenues from patent expiries in 2026 through 2030 as several of our in-line products experience patent-based expirations. We continue to vigorously defend our patent rights against infringement, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to help ensure appropriate patient access. For additional information on patent rights we consider most significant to our business as a whole, see the Item 1. Business––Patents and Other Intellectual Property Rights section in this Form 10-K. For a discussion of recent developments with respect to patent litigation, see Note 16 A1 . Regulatory Environment/Pricing and Access––Government and Other Payer Group Pressures –– The pricing of medicines and vaccines by pharmaceutical manufacturers and the cost of healthcare, which includes medicines, vaccines, medical services and hospital services, continues to be important to payers, governments, patients, and other stakeholders. Federal and state governments and private third-party payers in the U.S. continue to take action to manage the utilization of drugs and cost of drugs, including increasingly employing formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. We consider a number of factors impacting the pricing of our medicines and vaccines. Within the U.S., we often engage with patients, doctors and healthcare plans. We also often provide significant discounts from the list price to insurers, including PBMs and MCOs. The price that patients pay in the U.S. for prescribed medicines and vaccines is ultimately set by healthcare providers and insurers. Governments globally, as well as private third-party payers in the U.S., may use a variety of measures to control costs, including, among others, proposing pricing reform or legislation, employing formularies to control costs, cross country collaboration and procurement, price cuts, mandatory rebates, health technology assessments, forced localization as a condition of market access, “international reference pricing” (i.e., the practice of a country linking its regulated medicine prices to those of other countries), QCE processes and VBP. We anticipate that these and similar initiatives will continue to increase pricing and access pressures globally. In the U.S., we expect to see continued focus by Congress and the Biden Administration on regulating pricing, which could result in legislative and regulatory changes designed to control costs, such as the IRA that was signed into law in August 2022. We continue to evaluate the impact of the IRA on our business, operations and financial condition and results as the full effect of the IRA on our business and the pharmaceutical industry remains uncertain. In addition, changes to the Medicaid program or the federal 340B drug pricing program, including legal or legislative developments at the federal or state level with respect to the 340B program, could have a material impact on our business. For additional information, see the Item 1. Business –– Pricing Pressures and Managed Care Organizations and ––Government Regulation and Price Constraints and the Item 1A. Risk Factors –– Pricing and Reimbursement sections in this Form 10-K. Product Supply –– We periodically encounter supply delays, disruptions and shortages, including due to voluntary product recalls. In response to requests from various regulatory authorities, manufacturers across the pharmaceutical industry, including Pfizer, are evaluating their product portfolios for the potential presence or formation of nitrosamines. This has led to recalls, including our voluntary recall of Chantix in 2021 and additional voluntary recalls initiated for other products in 2022 due to the presence of nitrosamines above the FDA interim acceptable intake limit, and may lead to additional recalls or other market actions for Pfizer products. Regarding our supply chain generally, in 2022 and to date, we have not seen a significant disruption, and all of our manufacturing sites globally have continued to operate at or near normal levels; however, we are seeing an increase in overall demand in the industry for certain components and raw materials, which could potentially result in constraining available supply leading to a possible future impact on our business. We are continuing to monitor and implement mitigation strategies in an effort to reduce any potential risk or impact including active supplier management, qualification of additional suppliers and advanced purchasing to the extent possible. For information on risks related to product manufacturing, see the Item 1A. Risk Factors––Product Manufacturing, Sales and Marketing Risks section in this Form 10-K. The Global Economic Environment ––In addition to the industry-specific factors discussed above, we, like other businesses of our size and global extent of activities, are exposed to economic cycles. Certain factors in the global economic environment that may impact our global operations include, among other things, currency fluctuations, capital and exchange controls, local and global economic conditions including inflation, recession, volatility and/or lack of liquidity in capital markets, expropriation and other restrictive government actions, changes in intellectual property, legal protections and remedies, trade regulations, tax laws and regulations and procedures and actions affecting approval, production, pricing, and marketing of, reimbursement for and access to our products, as well as impacts of political or civil unrest or military action, including the ongoing conflict between Russia and Ukraine and its economic consequences, geopolitical instability, terrorist activity, unstable governments and legal systems, inter-governmental disputes, public health outbreaks, epidemics, pandemics, natural disasters or disruptions related to climate change. Government pressures can lead to negative pricing pressure in various markets where governments take an active role in setting prices, access criteria or other means of cost control. For additional information on risks related to our global operations, see the Item 1A. Risk Factors — Global Operations section in this Form 10-K. COVID-19 ––In response to COVID-19, we have developed Paxlovid and collaborated with BioNTech to jointly develop Comirnaty, including booster doses of an Omicron-adapted bivalent vaccine. As part of our strategy for COVID-19, we are continuing to make significant additional Pfizer Inc. 2022 Form 10-K 28 investments in breakthrough science and global manufacturing. This includes continuing to evaluate Comirnaty and Paxlovid, including against new variants of concern, developing monovalent, bivalent and variant adapted vaccine candidates and booster doses and developing potential combination respiratory vaccines and potential next generation vaccines and therapies. We are also evaluating Paxlovid for additional populations. For additional information, including our continuing late-stage development efforts for Paxlovid, see the Product Developments section within MD&A. In 2022 and to date, we principally sold Comirnaty and Paxlovid globally under government contracts. We expect sales of Comirnaty in the U.S. will transition to traditional commercial market sales in the second half of 2023, triggered by the expiration of current contracts and the vaccines purchased through them becoming either depleted or not usable against new variants. Internationally, we expect sales of Comirnaty in international developed markets to generally be under government contracts in 2023, and in emerging markets, under a combination of private channels and government contracts; in both cases, we expect to generally transition to commercial markets starting in 2024. For Paxlovid, we expect 2023 to be a transitional year as we expect to start selling Paxlovid through the commercial channels in the second half of 2023 rather than significant government purchases. We also remain committed to helping ensure broad and equitable access to our COVID-19 products to eligible patients around the world. Revenues from our COVID-19 products are expected to go from their peak in 2022 to their low point in 2023 before potentially returning to growth in 2024. While patient demand for our COVID-19 products is expected to remain strong throughout 2023, much of that demand is expected to be fulfilled by existing supply of products that were delivered to governments and recorded as revenues in 2022. As of January 31, 2023, we forecasted Comirnaty revenues of approximately $13.5 billion in 2023, down 64% from actual 2022 results, with gross profit to be split evenly with BioNTech, and Paxlovid revenues of approximately $8 billion in 2023, down 58% from actual 2022 results. Guidance for both products includes, among other things, anticipated sales through traditional commercial markets in the U.S. in the second half of 2023 and assumes prior absorption of existing government supply from advanced purchase agreements from 2022. These forecasts are based on estimates and assumptions that are subject to significant uncertainties, including, among others, patient demand which could be significantly impacted by the infectiousness and severity of the predominant strains of the SAR-CoV-2 virus during 2023, proportion of the population that receives a vaccine or is treated with an oral antiviral treatment, the number of doses per vaccinated person per year, number of symptomatic infections, market share of Comirnaty and Paxlovid, timing and terms for delivery of the contracted doses of Comirnaty to the EC, Paxlovid sales to China and the timing for transitioning Comirnaty and Paxlovid sales to the commercial market in the U.S. In addition to our introduction of Comirnaty and Paxlovid, COVID-19 has impacted our business, operations and financial condition and results. For example, COVID-19 had varying impacts on patient visits, vaccinations, elective surgeries, cancer screenings and routine testing, which affected prescriptions or refills of existing prescriptions and demand for products used in procedures. As part of our on-going monitoring and assessment, we have made certain assumptions regarding COVID-19 for purposes of our operational planning and financial projections, including assumptions regarding the global macroeconomic impact of COVID-19, as well as the demand, revenues, supply, contracts and commercial markets for our COVID-19 products, which remain dynamic. Despite careful tracking and planning, we are unable to accurately predict the extent of the impact of COVID-19 on our business, operations and financial condition and results due to the uncertainty of future developments. We will continue to pursue efforts to maintain the continuity of our operations while monitoring for new developments related to COVID-19. Future developments could result in additional favorable or unfavorable impacts on our business, operations or financial condition and results. For information on risks associated with COVID-19 and our COVID-19 products, as well as COVID-19 intellectual property disputes, see the Item 1A. Risk Factors — COVID-19 , — I ntellectual Property Protection and –– Third-Party Intellectual Property Claims sections in this Form 10-K and Note 16A1 . Russia/Ukraine Conflict ––Our global operations may be impacted by the armed conflict between Russia and Ukraine. Consistent with our commitment to putting patients first, we are maintaining the supply of medicines to Russia, including the provision of needed medicines to patients already enrolled in clinical trials. Effective March 14, 2022, Pfizer began donating profits of our Russian subsidiary to causes that provide direct humanitarian support to the people of Ukraine, in addition to our ongoing efforts to support the humanitarian response in the region. In 2022, we have donated approximately $25 million to support humanitarian relief and response efforts. We will continue to support Ukrainian relief efforts through this method until peace is achieved. Additionally, we are not initiating new clinical trials in Russia, have stopped recruiting new patients in our ongoing clinical trials in the country, and halted all new investments with local suppliers intended to build manufacturing capacity in Russia. For the years ended December 31, 2022 and 2021, the business of our Russia and Ukraine subsidiaries represented less than 1% of our consolidated revenues and assets, and while we are monitoring the effects of the armed conflict between Russia and Ukraine, the situation continues to evolve and the long-term implications, including the broader economic consequences of the conflict, are difficult to predict at this time. While as of now, we do not anticipate any significant negative impacts on our business from this conflict, continued regional instability, geopolitical shifts, potential additional sanctions and other restrictive measures against Russia, neighboring countries or allies of Russia, any retaliatory measures taken by Russia, neighboring countries or allies of Russia, and actions by our customers or suppliers in response to such measures could adversely affect the global macroeconomic environment, our operations, currency exchange rates and financial markets, which could in turn adversely impact our business and results of operations. SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS Following is a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements. Also, see Note 1C . For a description of our significant accounting policies, see Note 1 . Of these policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and the most complex judgments: Acquisitions ( Note 1 D ); Fair Value ( Note 1 E ); Revenues ( Note 1 G ); Asset Impairments ( Note 1 M ); Tax Assets and Liabilities and Income Tax Contingencies ( Note 1 Q ); Pension and Postretirement Benefit Plans ( Note 1 R ); and Legal and Environmental Contingencies ( Note 1 S ). For a discussion of a recently adopted accounting standard, see Note 1B . Acquisitions We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair value as of the acquisition date. To estimate fair value, we utilize an exit price approach from the perspective of a market participant. For further detail on acquisition accounting, see Note 1 D . For further detail on the techniques and methodologies that we use to estimate fair value, see Note 1 E . Historically, intangible assets have been the most significant fair values within our business combinations. We utilize an income approach to estimate the acquisition date fair value of intangible assets. Some of Pfizer Inc. 2022 Form 10-K 29 the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, the discount rate and the tax rate. For further information on our process to estimate the fair value of intangible assets, see Asset Impairments below. We estimate the fair value of acquired inventory, including finished goods and work in process, by determining the estimated selling price when completed, less an estimate of costs to be incurred to complete and sell the inventory, and an estimate of a reasonable profit allowance for those manufacturing and selling efforts. The fair value of inventory is recognized in our results of operations as the inventory is sold. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of inventory include stage of completion, costs to complete, costs to dispose and selling price. Revenues Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. The potential of our estimates to vary (sensitivity) differs by program, product, type of customer and geographic location. However, estimates associated with U.S. Medicare, Medicaid and performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year. Because of this lag, our recording of adjustments to reflect actual amounts can incorporate revisions of several prior quarters. Rebate accruals are product specific and, therefore for any period, are impacted by the mix of products sold as well as the forecasted channel mix for each individual product. For further information, see the Revenue Deductions section within MD&A and Note 1 G . Asset Impairments We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets and goodwill at least annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets. Our impairment review processes are described in Note 1M . Examples of events or circumstances that may be indicative of impairment include: • A significant adverse change in legal factors or in the business climate that could affect the value of the asset. For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected. • A significant adverse change in the extent or manner in which an asset is used such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture or sell a product. • An expectation of losses or reduced profits associated with an asset. This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability. This also could result from the introduction of a competitor’s product that impacts projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers. For IPR&D projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product. Identifiable Intangible Assets ––We use an income approach, specifically the discounted cash flow method to determine the fair value of intangible assets, other than goodwill. We start with a forecast of all the expected net cash flows associated with the asset, which incorporates the consideration of a terminal value for indefinite-lived assets, and then we apply an asset-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions that impact our fair value estimates include: the amount and timing of the projected net cash flows, which includes the expected impact of competitive, legal and/or regulatory forces on the projections and the impact of technological advancements and risk associated with IPR&D assets, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the jurisdictional mix of the projected cash flows. While all intangible assets other than goodwill can face events and circumstances that can lead to impairment, those that are most at risk of impairment include IPR&D assets (approximately $11.4 billion as of December 31, 2022) and newly acquired or recently impaired indefinite-lived brand assets. IPR&D assets are high-risk assets, given the uncertain nature of R&D. Newly acquired and recently impaired indefinite-lived assets are more vulnerable to impairment as the assets are recorded at fair value and are then subsequently measured at the lower of fair value or carrying value at the end of each reporting period. As such, immediately after acquisition or impairment, even small declines in the outlook for these assets can negatively impact our ability to recover the carrying value and can result in an impairment charge. Goodwill ––Our goodwill impairment review work as of December 31, 2022 concluded that none of our goodwill was impaired and we do not believe the risk of impairment is significant at this time, as the fair value of each of our reporting units is significantly higher than their respective net book values. In our review, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors that we consider include, for example, macroeconomic and industry conditions, overall financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative fair value test. When we are required to determine the fair value of a reporting unit, we typically use the income approach. The income approach is a forward-looking approach to estimating fair value and relies primarily on internal forecasts. Within the income approach, we use the discounted cash flow method. We start with a forecast of all the expected net cash flows for the reporting unit, which includes the application of a terminal value, and then we apply a reporting unit-specific discount rate to arrive at a net present value amount. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which includes the expected impact of technological risk and competitive, legal and/or regulatory forces on the projections, as well as the selection of a long-term growth rate; the discount rate, which seeks to reflect the various risks inherent in the projected cash flows; and the tax rate, which seeks to incorporate the geographic diversity of the projected cash flows. Pfizer Inc. 2022 Form 10-K 30 For all of our reporting units, there are a number of future events and factors that may impact future results and that could potentially have an impact on the outcome of subsequent goodwill impairment testing. For a list of these factors, see the Forward-Looking Information and Factors That May Affect Future Result s and the Item 1A. Risk Factors sections in this Form 10-K. Benefit Plans For a description of our different benefit plans, see Note 11 . Our assumptions reflect our historical experiences and our judgment regarding future expectations that have been deemed reasonable by management. The judgments made in determining the costs of our benefit plans can materially impact our results of operations. The following provides (i) at the end of each year, the expected annual rate of return on plan assets for the following year, (ii) the actual annual rate of return on plan assets achieved in each year, and (iii) the weighted-average discount rate used to measure the benefit obligations at the end of each year for our U.S. pension plans and our international pension plans (a) : 2022 2021 2020 U.S. Pension Plans Expected annual rate of return on plan assets 7.5 % 6.3 % 6.8 % Actual annual rate of return on plan assets (22.4) 9.2 14.1 Discount rate used to measure the plan obligations 5.4 2.9 2.6 International Pension Plans Expected annual rate of return on plan assets 4.5 3.1 3.4 Actual annual rate of return on plan assets (26.0) 11.4 9.7 Discount rate used to measure the plan obligations 3.8 1.6 1.5 (a) For detailed assumptions associated with our benefit plans, see Note 11B . Expected Annual Rate of Return on Plan Assets ––The assumptions for the expected annual rate of return on all of our plan assets reflect our actual historical return experience and our long-term assessment of forward-looking return expectations by asset classes, which is used to develop a weighted-average expected return based on the implementation of our targeted asset allocation in our respective plans. The expected annual rate of return on plan assets for our U.S. plans and international plans is applied to the fair value of plan assets at each year-end and the resulting amount is reflected in our net periodic benefit costs in the following year. The following illustrates the sensitivity of net periodic benefit costs to a 50 basis point decline in our assumption for the expected annual rate of return on plan assets, holding all other assumptions constant (in millions, pre-tax): Assumption Change Increase in 2023 Net Periodic Benefit Costs Expected annual rate of return on plan assets 50 basis point decline $92 The actual return on plan assets resulted in a net loss on our plan assets of approximately $6.3 billion during 2022 . Discount Rate Used to Measure Plan Obligations ––The weighted-average discount rate used to measure the plan obligations for our U.S. defined benefit plans is determined at least annually and evaluated and modified, as required, to reflect the prevailing market rate of a portfolio of high-quality fixed income investments, rated AA/Aa or better, that reflect the rates at which the pension benefits could be effectively settled. The discount rate used to measure the plan obligations for our international plans is determined at least annually by reference to investment grade corporate bonds, rated AA/Aa or better, including, when there is sufficient data, a yield-curve approach. These discount rate determinations are made in consideration of local requirements. The measurement of the plan obligations at the end of the year will affect the amount of service cost, interest cost and amortization expense reflected in our net periodic benefit costs in the following year. The following illustrates the sensitivity of net periodic benefit costs and benefit obligations to a 10 basis point decline in our assumption for the discount rate, holding all other assumptions constant (in millions, pre-tax): Assumption Change Decrease in 2023 Net Periodic Benefit Costs Increase to 2022 Benefit Obligations Discount rate 10 basis point decline $6 $248 The change in the discount rates used in measuring our plan obligations as of December 31, 2022 resulted in a decrease in the measurement of our aggregate plan obligations by approximately $6.6 billion. Income Tax Assets and Liabilities Income tax assets and liabilities include income tax valuation allowances and accruals for uncertain tax positions. For additional information, see Notes 1Q and 5 , as well as the Analysis of Financial Condition, Liquidity, Capital Resources and Market Risk section within MD&A . Contingencies We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business, including tax, legal contingencies and guarantees and indemnifications. For additional information, see Notes 1Q , 1S , 5D and 16 . Pfizer Inc. 2022 Form 10-K 31 ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME Revenues by Geography The following presents worldwide revenues by geography: Year Ended December 31, % Change Worldwide U.S. International Worldwide U.S. International (MILLIONS) 2022 2021 2020 2022 2021 2020 2022 2021 2020 22/21 21/20 22/21 21/20 22/21 21/20 Operating segments: Biopharma $ 98,988 $ 79,557 $ 40,724 $ 42,083 $ 29,221 $ 21,055 $ 56,905 $ 50,336 $ 19,670 24 95 44 39 13 156 Pfizer CentreOne 1,342 1,731 926 390 524 400 952 1,206 526 (22) 87 (26) 31 (21) 129 Total revenues $ 100,330 $ 81,288 $ 41,651 $ 42,473 $ 29,746 $ 21,455 $ 57,857 $ 51,542 $ 20,196 23 95 43 39 12 155 2022 v. 2021 The following provides an analysis of the change in worldwide revenues by geographic areas from 2021 to 2022 (a) : (MILLIONS) Worldwide U.S. International Operational growth/(decline): Worldwide growth from Paxlovid, Comirnaty, the Prevnar family, Eliquis, the Vyndaqel family, Inlyta and Xtandi, partially offset by worldwide declines from Xeljanz and Ibrance (b) $ 25,435 $ 13,197 $ 12,238 Revenues from recently acquired products: Nurtec ODT/Vydura and Oxbryta 285 283 2 Decline from PC1 (b) (329) (135) (195) Lower revenues for Chantix/Champix and Sutent: • The decrease in Chantix/Champix was driven by the ongoing global pause in shipments of Chantix due to the presence of N-nitroso-varenicline above an acceptable level of intake set by various global regulators, the ultimate timing for resolution of which may vary by country • The decrease for Sutent primarily reflects lower volume demand in Europe and the U.S. following its loss of exclusivity in January 2022 and August 2021, respectively (690) (396) (293) Other operational factors, net (132) (222) 90 Operational growth, net 24,569 12,727 11,842 Unfavorable impact of foreign exchange (5,527) — (5,527) Revenues increase/(decrease) $ 19,042 $ 12,727 $ 6,315 (a) For an analysis of the change in worldwide revenues by geographic area from 2020 to 2021, see the Revenues by Geography section within MD&A in our 2021 Form 10-K. (b) See the Revenues––Selected Product Discussion within MD&A for additional analysis. Emerging markets revenues decreased $604 million, or 3%, in 2022 to $20.1 billion from $20.7 billion in 2021, reflecting an operational increase of $366 million, or 2%, and an unfavorable impact from foreign exchange of approximately 5%. The operational increase in emerging markets revenues was primarily driven by growth from Paxlovid, Sulperazon and Nimenrix, partially offset by declines in Comirnaty and certain Comirnaty-related manufacturing activities performed on behalf of BioNTech. For an analysis of the change in emerging market revenues from 2020 to 2021, see the Revenues by Geography section within MD&A in our 2021 Form 10-K. Revenue Deductions –– Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business and generally have been less than 1% of revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product revenue growth trends. The following presents information about revenue deductions: Year Ended December 31, (MILLIONS) 2022 2021 2020 Medicare rebates $ 838 $ 726 $ 647 Medicaid and related state program rebates 973 1,214 1,136 Performance-based contract rebates 3,575 3,253 2,660 Chargebacks 7,560 6,122 4,531 Sales allowances 5,460 4,809 3,835 Sales returns and cash discounts 1,290 1,054 924 Total $ 19,697 $ 17,178 $ 13,733 Revenue deductions are primarily a function of product sales volume, mix of products sold, contractual or legislative discounts and rebates. For information on our accruals for revenue deductions, including the balance sheet classification of these accruals, see Note 1G . Pfizer Inc. 2022 Form 10-K 32 Revenues—Selected Product Discussion Biopharma Revenue (MILLIONS) Year Ended Dec. 31, % Change Product Global Revenues Region 2022 2021 Total Oper. Operational Results Commentary Comirnaty (a) $37,806 Up 10% (operationally) U.S. $ 8,775 $ 7,809 12 Performance was largely driven by: • operational growth in international markets, led by deliveries to certain international developed markets, as well as government purchasing of bivalent boosters in the fourth quarter of 2022 in support of fall vaccination campaigns; and • growth in the U.S. primarily driven by favorable pricing, partially offset by government purchasing patterns. This growth was partially offset by lower demand in emerging markets. Int’l. 29,032 28,972 — 9 Worldwide $ 37,806 $ 36,781 3 10 Paxlovid $18,933 * U.S. $ 10,514 $ 76 * Driven by the U.S. launch under EUA in December 2021 and international launches in late 2021 and early 2022 following regulatory approvals or EUAs. Int’l. 8,419 — * * Worldwide $ 18,933 $ 76 * * Eliquis $6,480 Up 14% (operationally) U.S. $ 3,822 $ 3,160 21 Growth driven primarily by continued oral anti-coagulant adoption and market share gains in non-valvular atrial fibrillation in the U.S. and certain markets in Europe, as well as favorable changes in channel mix in the U.S., partially offset by the non-recurrence of an $80 million favorable adjustment related to the Medicare “coverage gap” provision recorded in the first quarter of 2021 in the U.S., as well as declines in certain emerging markets. Int’l. 2,658 2,810 (5) 5 Worldwide $ 6,480 $ 5,970 9 14 Prevnar family $6,337 Up 23% (operationally) U.S. $ 4,032 $ 2,701 49 Growth primarily driven by the adult indications in the U.S. due to strong patient demand following the launch of Prevnar 20 for the eligible adult population, partially offset by a reduction in revenues due to a one-time CDC inventory return program for the pediatric indication, the revenue impact of which is expected to be reversed in 2023 upon replenishment, as well as unfavorable timing of purchases for the adult indication internationally. Int’l. 2,305 2,571 (10) (4) Worldwide $ 6,337 $ 5,272 20 23 Ibrance $5,120 Down 2% (operationally) U.S. $ 3,370 $ 3,418 (1) Global declines primarily driven by prior-year clinical trial purchases internationally, planned price decreases that recently went into effect in international developed markets, and continued increase in the proportion of patients accessing Ibrance through the U.S. Patient Assistance Program, partially offset by higher volumes across multiple regions. Int’l. 1,751 2,019 (13) (4) Worldwide $ 5,120 $ 5,437 (6) (2) Vyndaqel family $2,447 Up 29% (operationally) U.S. $ 1,245 $ 909 37 Growth largely driven by continued strong uptake of the ATTR-CM indication, primarily in developed Europe and the U.S., partially offset by a planned price decrease that went into effect in Japan in the second quarter of 2022. Int’l. 1,202 1,106 9 22 Worldwide $ 2,447 $ 2,015 21 29 Xeljanz $1,796 Down 24% (operationally) U.S. $ 1,129 $ 1,647 (31) Global declines driven primarily by decreased prescription volumes globally resulting from ongoing shifts in prescribing patterns related to label changes, as well as declines in net price due to unfavorable changes in channel mix in the U.S. Int’l. 668 808 (17) (8) Worldwide $ 1,796 $ 2,455 (27) (24) Xtandi $1,198 Up 1% (operationally) U.S. $ 1,198 $ 1,185 1 Performance largely due to steady demand growth across the mCRPC, nmCRPC, and mCSPC indications, slightly offset by unfavorable changes in channel mix and fluctuating enrollment rates in the Xtandi Patient Assistance Program. Int’l. — — — — Worldwide $ 1,198 $ 1,185 1 1 Inlyta $1,003 Up 4% (operationally) U.S. $ 618 $ 599 3 Growth primarily reflects continued strong performance in emerging markets and the U.S. driven by the adoption of combinations of certain immune checkpoint inhibitors and Inlyta for the first-line treatment of patients with advanced RCC. Int’l. 385 403 (5) 5 Worldwide $ 1,003 $ 1,002 — 4 Pfizer CentreOne Revenue (MILLIONS) Year Ended Dec. 31, % Change Operating Segment Global Revenues Region 2022 2021 Total Oper. Operational Results Commentary PC1 $1,342 Down 19% (operationally) U.S. $ 390 $ 524 (26) Declines primarily driven by lower COVID-19 manufacturing activities performed on behalf of customers, including Comirnaty supply to BioNTech, and lower manufacturing of divested products under manufacturing and supply agreements. Int’l. 952 1,206 (21) (16) Worldwide $ 1,342 $ 1,731 (22) (19) Pfizer Inc. 2022 Form 10-K 33 (a) Comirnaty includes direct sales and Alliance revenues related to sales of the Pfizer-BioNTech COVID-19 vaccine, which are recorded within our Primary Care customer group. It does not include revenues for certain Comirnaty-related manufacturing activities performed on behalf of BioNTech, which are included in PC1. See Note 17C . * Indicates calculation not meaningful. See the Item 1. Business — Patents and Other Intellectual Property Rights section in this Form 10-K 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 17 C for additional information regarding the primary indications or class of the selected products discussed above. Costs and Expenses Costs and expenses follow: Year Ended December 31, % Change (MILLIONS) 2022 2021 2020 22/21 21/20 Cost of sales (a) $ 34,344 $ 30,821 $ 8,484 11 * Percentage of Revenues 34.2 % 37.9 % 20.4 % Selling, informational and administrative expenses (a) 13,677 12,703 11,597 8 10 Research and development expenses 11,428 10,360 8,709 10 19 Acquired in-process research and development expenses 953 3,469 684 (73) * Amortization of intangible assets (a) 3,609 3,700 3,348 (2) 11 Restructuring charges and certain acquisition-related costs (a) 1,375 802 579 71 38 Other (income)/deductions—net (a) 217 (4,878) 1,213 * * * Indicates calculation not meaningful. (a) For a discussion of the drivers of change for 2021 v. 2020, see the Costs and Expenses section within MD&A in our 2021 Form 10-K. Cost of Sales 2022 v. 2021 Cost of sales increased $3.5 billion, primarily due to: • an unfavorable impact of $4.0 billion due to increased sales of Comirnaty, which includes a charge for the 50% gross profit split with BioNTech and applicable royalty expenses; • inventory write-offs and other charges related to Paxlovid and Comirnaty of $1.1 billion and $600 million, respectively; and • an increase of $1.3 billion due to increased sales of Paxlovid, partially offset by: • a $3.3 billion favorable impact of foreign exchange and hedging activity. The decrease in Cost of sales as a percentage of revenues was primarily due to the favorable impacts of Paxlovid, foreign exchange and higher Alliance revenues, partially offset by higher sales of Comirnaty, as well as the inventory write-offs and other charges related to Paxlovid and Comirnaty, respectively, discussed above. Selling, Informational and Administrative Expenses 2022 v. 2021 Selling, informational and administrative expenses increased $974 million, mostly due to: • an increase of $1.3 billion for Paxlovid and Comirnaty marketing and promotional expenses and a higher provision for U.S. healthcare reform fees based on sales of Paxlovid; and • an increase of $540 million for marketing and promotional expenses for recently acquired and launched products, partially offset by: • a $414 million favorable impact of foreign exchange; • a $320 million decrease in spending across multiple customer groups; and • a decrease of $270 million in our liability to be paid to participants of our supplemental savings plan. Research and Development Expenses 2022 v. 2021 Research and development expenses increased $1.1 billion, primarily due to: • increased investments of $1.3 billion for certain vaccine and oncology programs as well as costs to develop recently acquired assets, partially offset by lower spending of $480 million for various late-stage clinical programs and programs to treat COVID-19. 2021 v. 2020 Research and development expenses increased $1.7 billion, mainly due to increased investments of $1.2 billion across multiple therapeutic areas, including additional spending related to the development of the oral COVID-19 treatment program. Pfizer Inc. 2022 Form 10-K 34 Acquired In-Process Research and Development Expenses 2022 v. 2021 Acquired in-process research and development expenses decreased $2.5 billion largely due to: • a charge of $2.1 billion related to our asset acquisition of Trillium in 2021; and • an upfront payment to Arvinas and a premium paid on our equity investment in Arvinas totaling $706 million in 2021, partially offset by: • acquired IPR&D incurred in 2022, including $426 million related to our asset acquisition of ReViral in 2022. 2021 v. 2020 Acquired in-process research and development expenses increased $2.8 billion mainly due to: • a $2.1 billion charge related to our asset acquisition of Trillium; and • a net increase in charges of $602 million for upfront and milestone payments on collaboration and licensing arrangements, driven by payments to Arvinas and Beam. See Note s 2A , 2D and 2 E for additional information. Amortization of Intangible Assets 2022 v. 2021 Amortization of intangible assets decreased $91 million, primarily due to lower amortization of Comirnaty sales milestones to BioNTech, as well as lower amortization of intangible assets related to Prevnar and fully amortized assets, partially offset by amortization of intangible assets from our acquisitions of Biohaven and GBT. See Notes 2A and 10A for additional information. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives Transforming to a More Focused Company Program –– For a description of our program and actual costs, see Note 3 . The program savings discussed below may be rounded and represent approximations. In connection with restructuring our corporate enabling functions, we achieved gross cost savings of $1.0 billion, or net cost savings, excluding merit and inflation growth and certain real estate cost increases, of $700 million, in the two year period from 2021 through 2022. In connection with transforming our commercial go-to market strategy, we expect net cost savings of $1.4 billion, to be achieved primarily from 2022 through 2024. In connection with manufacturing network optimization, we expect net cost savings of $550 million to be achieved primarily from 2020 through 2023. In connection with optimizing our end-to-end R&D operations, we expect net cost savings of $2.3 billion to be achieved primarily from 2023 through 2025. Certain qualifying costs for this program were recorded in 2022, 2021 and 2020, and are reflected as Certain Significant Items and excluded from our non-GAAP measure of Adjusted Income. See the Non-GAAP Financial Measure: Adjusted Income section of this MD&A. In addition to this program, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of the losses of exclusivity and the expiration of collaborative arrangements for various products. Other (Income)/Deductions––Net 2022 v. 2021 The period-over-period change of $5.1 billion resulting in net other deductions in 2022 compared to net other income in 2021 was primarily driven by net losses recognized on equity securities in 2022 versus net gains recognized in 2021, lower net periodic benefit credits, and higher asset impairment charges. See Note 4 for additional information . Provision/(Benefit) for Taxes on Income Year Ended December 31, % Change (MILLIONS) 2022 2021 2020 22/21 21/20 Provision/(benefit) for taxes on income $ 3,328 $ 1,852 $ 370 80 * Effective tax rate on continuing operations 9.6 % 7.6 % 5.3 % * Indicates calculation not meaningful. For information about our effective tax rate and the events and circumstances contributing to the changes between periods, as well as details about discrete elements that impacted our tax provisions, see Note 5 . Discontinued Operations For information about our discontinued operations, see Note 2B . PRODUCT DEVELOPMENTS A comprehensive update of Pfizer’s development pipeline was published as of January 31, 2023 and is available at www.pfizer.com/science/drug-product-pipeline. It includes an overview of our research and a list of compounds in development with targeted indication and phase of development, as well as mechanism of action for some candidates in Phase 1 and all candidates from Phase 2 through registration. The following provides information about significant marketing application-related regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan. Pfizer Inc. 2022 Form 10-K 35 The tables below include filing and approval milestones for products that have occurred in the last twelve months and generally do not include approvals that may have occurred prior to that time. The tables include filings with regulatory decisions pending (even if the filing occurred outside of the last twelve-month period). COVID-19 Vaccine Products PATIENT POPULATION AND DATE OF APPROVAL/FILING (a) COVID-19 VACCINE PRODUCT (b) PRIMARY SERIES OR BOOSTER 16 Years of age and older 12-15 Years of age 5-11 Years of age 6 Months through 4 Years of age U.S. EU JAPAN U.S. EU JAPAN U.S. EU JAPAN U.S. EU JAPAN Comirnaty 30-µg 2-dose primary (c) 10-µg 2-dose primary (d) 3-µg 3-dose primary Primary Approved Aug. 2021 Approved Dec. 2020 Cond. J-NDA Feb. 2021 EUA May 2021 Approved May 2021 Cond. J-NDA May 2021 EUA Oct. 2021 Approved Nov. 2021 Cond. J-NDA Jan. 2022 EUA June 2022 CMA Oct. 2022 Cond. J-NDA Oct. 2022 30-µg booster dose (e) 10-µg booster dose Booster EUA (f) Dec. 2021 Approved Oct. 2021 Cond. J-NDA Nov. 2021 EUA (f) Jan. 2022 Approved Feb. 2022 Cond. J-NDA Mar. 2022 EUA (f) May 2022 Approved Sep. 2022 Cond. J-NDA Aug. 2022 Comirnaty Original/Omicron BA.4/BA.5 Vaccine (g) Booster 30-µg booster dose 10-µg booster dose 3-µg booster dose EUA Aug. 2022 Approved Sep. 2022 Cond. J-NDA Oct. 2022 EUA Aug. 2022 Approved Sep. 2022 Cond. J-NDA Oct. 2022 EUA Oct. 2022 CMA Nov. 2022 EUA (h) Dec. 2022 Comirnaty Original/Omicron BA.1 Vaccine Booster 30-µg booster dose Approved Sep. 2022 Cond. J-NDA Sep. 2022 Approved Sep. 2022 Cond. J-NDA Sep. 2022 (a) All EU approvals prior to October 10, 2022 were under the CMA, and later converted to full Marketing Authorization as of October 10, 2022. Dates shown in table reflect original CMA date. (b) All COVID-19 vaccine products listed in this table are being developed in collaboration with BioNTech. (c) FDA has authorized a third 30-µg primary series dose to individuals 12 years of age and older with certain kinds of immunocompromise. (d) FDA has authorized a third 10-µg primary series dose to individuals 5-11 years of age with certain kinds of immunocompromise. (e) FDA has authorized a second booster dose in adults ages 50 years and older who have previously received a first booster of any authorized COVID-19 vaccine. The FDA also has authorized a second booster dose for individuals 12 years of age and older who have been determined to have certain kinds of immunocompromise and who have received a first booster dose of any authorized COVID-19 vaccine. (f) Comirnaty wild-type booster in these populations has been replaced by the booster of the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5). (g) Refers to the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5) and Comirnaty Original/Omicron BA.4/BA.5 Vaccine. (h) The third dose of the primary series 6 months through 4 years of age in the U.S. has been replaced by the 3-µg booster of the Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5). Pfizer Inc. 2022 Form 10-K 36 Other Products PRODUCT INDICATION OR PROPOSED INDICATION APPROVED/FILED* U.S. EU JAPAN Myfembree (relugolix, estradiol, and norethindrone acetate) (a) Heavy menstrual bleeding associated with uterine fibroids Approved May 2021 Moderate to severe pain associated with endometriosis Approved Aug. 2022 Ngenla (somatrogon) (b) Pediatric growth hormone deficiency Filed Jan. 2021 Approved Feb. 2022 Approved Jan. 2022 Prevnar 20/Apexxnar (Vaccine) (c) Active immunization to prevent invasive disease caused by Streptococcus pneumoniae serotypes (adults) Approved June 2021 Approved Feb. 2022 TicoVac (Vaccine) Active immunization to prevent tick-borne encephalitis disease Approved Aug. 2021 Paxlovid (d) (nirmatrelvir [PF-07321332]; ritonavir) COVID-19 in high-risk adults and children (12-18 years of age; >88lbs) EUA Dec. 2021 CMA Jan. 2022 Approved Feb. 2022 Nurtec ODT/Vydura (rimegepant) Acute treatment of migraine with or without aura (adults) Approved Feb. 2020 Approved Apr. 2022 Prevention of episodic migraine (adults) Approved May 2021 Approved Apr. 2022 ritlecitinib (PF-06651600) Alopecia areata Filed Sep. 2022 Filed Sep. 2022 Filed Sep. 2022 zavegepant (intranasal) Acute treatment of migraine Filed May 2022 PF-06886992 (Vaccine) Active immunization to prevent serogroups ABCWY meningococcal infections (adolescent and young adults) Filed Dec. 2022 PF-06928316 (Vaccine) Active immunization to prevent respiratory syncytial virus infection (maternal) Filed Feb. 2023 Filed Jan. 2023 Active immunization to prevent respiratory syncytial virus infection (older adults) Filed Dec. 2022 Filed Jan. 2023 etrasimod Ulcerative colitis (moderately to severely active) Filed Dec. 2022 Filed Nov. 2022 PF-06482077 (Vaccine) Active immunization to prevent invasive and non-invasive pneumococcal infections (pediatric) Filed Jan. 2023 elranatamab (PF-06863135) Multiple myeloma triple-class refractory Filed Feb. 2023 Filed Feb. 2023 * For the U.S., the filing date is the date on which the FDA accepted our submission. For the EU, the filing date is the date on which the EMA validated our submission. (a) Being developed in collaboration with Myovant. In January 2023, the FDA approved the sNDA to include data from the Randomized Withdrawal Study into section 14 of the label. (b) Being developed in collaboration with OPKO. (c) In October 2022, the CDC’s ACIP voted to recommend a single dose of Prevnar 20 to help protect adults previously vaccinated with Prevnar 13 or both Prevnar 13 and PPSV23 against invasive disease and pneumonia caused by the 20 Streptococcus pneumoniae serotypes in Prevnar 20. (d) In June 2022, we announced the submission of an NDA to the FDA for approval of Paxlovid for the treatment of COVID-19 in both vaccinated and unvaccinated individuals who are at high risk for progression to severe illness from COVID-19. In December 2022, Pfizer announced the FDA has extended the review period for the NDA for Paxlovid. At the request of the FDA, Pfizer recently submitted additional analyses of efficacy and safety data from the pivotal Evaluation of Protease Inhibition for COVID-19 in High-Risk Patients and supportive Evaluation of Protease Inhibition for COVID-19 in Standard-Risk Patients trials to be considered as part of its NDA for Paxlovid. Results from these analyses are consistent with previously disclosed efficacy and safety data for the trials. In order to allow time for a full review of the application, including the additional data analyses submitted, the FDA has extended the Prescription Drug User Fee Act goal date by three months to May 2023. In December 2021, in light of the results from the completed required postmarketing safety study of Xeljanz, ORAL Surveillance (A3921133), the U.S. label for Xeljanz was revised. In addition, in November 2022, the EMA concluded their assessment of JAK inhibitors authorized for inflammatory diseases in the EU, including Xeljanz and Cibinqo, and recommended that risk minimization measures, including special warnings and precautions for use, should be revised and harmonized for all such JAK inhibitors. The resulting label changes are expected to be finalized in the first quarter of 2023. We continue to work with regulatory agencies worldwide to review the full results and analyses of ORAL Surveillance and their impact on product labeling. For additional information, see Item 1A. Risk Factors—Post-Authorization/Approval Data . In China, the following products received regulatory approvals in the last twelve months: Paxlovid for COVID-19 infection in February 2022; Cibinqo for atopic dermatitis in April 2022; Lorbrena for non-small cell lung cancer (first line and second line therapy) in April 2022; Xeljanz for ankylosing spondylitis in April 2022; Cresemba (IV formulation) for the treatment of adult patients with invasive aspergillosis and invasive mucormycosis in June 2022; and Xeljanz for the treatment of adult patients with active psoriatic arthritis in October 2022. Pfizer Inc. 2022 Form 10-K 37 The following provides information about additional indications and new drug candidates in late-stage development: PRODUCT/CANDIDATE PROPOSED INDICATION LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS Ibrance (palbociclib) (a) ER+/HER2+ metastatic breast cancer Xtandi (enzalutamide) (b) Non-metastatic high-risk castration sensitive prostate cancer Talzenna (talazoparib) Combination with Xtandi (enzalutamide) for first-line mCRPC Combination with Xtandi (enzalutamide) for DNA Damage Repair (DDR)-deficient mCSPC PF-06482077 (Vaccine) Immunization to prevent invasive and non-invasive pneumococcal infections (pediatric) somatrogon (PF-06836922) (c) Adult growth hormone deficiency Braftovi (encorafenib) and Erbitux ® (cetuximab) (d) First-line BRAF V600E -mutant mCRC Braftovi (encorafenib) and Mektovi (binimetinib) and Keytruda ® (pembrolizumab) (e) BRAF V600E/K -mutant metastatic or unresectable locally advanced melanoma Braftovi (encorafenib) and Mektovi (binimetinib) BRAF V600E -mutant non-small cell lung cancer Paxlovid (nirmatrelvir [PF-07321332]; ritonavir) COVID-19 in high-risk children (6-11 years of age; >88lbs) zavegepant (oral) Prevention of acute migraine (adults) ritlecitinib (PF-06651600) Vitiligo elranatamab (PF-06863135) Multiple myeloma double-class exposed Newly diagnosed multiple myeloma post-transplant maintenance Eliquis (apixaban) Venous thromboembolism (pediatric) NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT aztreonam-avibactam (PF-06947387) Treatment of infections caused by Gram-negative bacteria with limited or no treatment options fidanacogene elaparvovec (PF-06838435) (f) Hemophilia B giroctocogene fitelparvovec (PF-07055480) (g) Hemophilia A PF-06425090 (Vaccine) Immunization to prevent primary clostridioides difficile infection sasanlimab (PF-06801591) Combination with Bacillus Calmette-Guerin for non-muscle-invasive bladder cancer fordadistrogene movaparvovec (PF-06939926) Duchenne muscular dystrophy (ambulatory) marstacimab (PF-06741086) Hemophilia Omicron-based mRNA vaccine (h) Immunization to prevent COVID-19 (adults) VLA15 (PF-07307405) vaccine (i) Immunization to prevent Lyme Disease PF-07252220 (quadrivalent mRNA-based vaccine) Immunization to prevent influenza inclacumab (PF-07940370) Sickle Cell Disease (a) Being developed in collaboration with The Alliance Foundation Trials, LLC. (b) Being developed in collaboration with Astellas. (c) Being developed in collaboration with OPKO. (d) Erbitux ® is a registered trademark of ImClone LLC. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono. (e) Keytruda ® is a registered trademark of Merck Sharp & Dohme Corp. In the EU, we are developing in collaboration with the Pierre Fabre Group. In Japan, we are developing in collaboration with Ono. (f) Being developed in collaboration with Spark Therapeutics, Inc. (g) Being developed in collaboration with Sangamo Therapeutics, Inc. (h) Being developed in collaboration with BioNTech. (i) Being developed in collaboration with Valneva. For additional information about our R&D organization, see the Item 1. Business — Research and Development section in this Form 10-K. Pfizer Inc. 2022 Form 10-K 38 NON-GAAP FINANCIAL MEASURE: ADJUSTED INCOME Adjusted income is an alternative measure of performance used by management to evaluate our overall performance as a supplement to our GAAP Reported performance measures. As such, we believe that investors’ understanding of our performance is enhanced by disclosing this measure. We use Adjusted income, certain components of Adjusted income and Adjusted diluted EPS to present the results of our major operations––the discovery, development, manufacture, marketing, sale and distribution of biopharmaceutical products worldwide––prior to considering certain income statement elements as follows: Measure Definition Relevance of Metrics to Our Business Performance Adjusted income Net income attributable to Pfizer Inc. common shareholders (a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items • Provides investors useful information to: ◦ evaluate the normal recurring operational activities, and their components, on a comparable year-over-year basis ◦ assist in modeling expected future performance on a normalized basis • Provides investors insight into the way we manage our budgeting and forecasting, how we evaluate and manage our recurring operations and how we reward and compensate our senior management (b) Adjusted cost of sales, Adjusted selling, informational and administrative expenses, Adjusted research and development expenses and Adjusted other (income)/deductions –– net Cost of sales, Selling, informational and administrative expenses, Research and development expenses and Other (income)/deductions––net (a) , each before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items, which are components of the Adjusted income measure Adjusted diluted EPS EPS attributable to Pfizer Inc. common shareholders––diluted (a) before the impact of amortization of intangible assets, certain acquisition-related items, discontinued operations and certain significant items (a) Most directly comparable GAAP measure. (b) The short-term incentive plans for substantially all non-sales-force employees worldwide are funded from a pool based on our performance, measured in significant part versus three budgeted metrics, one of which is Adjusted diluted EPS (as defined for annual incentive compensation purposes), which is derived from Adjusted income and accounts for 40% of the bonus pool funding tied to financial performance. Additionally, the payout for performance share awards is determined in part by Adjusted net income, which is derived from Adjusted income. Beginning in the first quarter of 2022, we no longer exclude any expenses for acquired IPR&D from our non-GAAP Adjusted results but we continue to exclude certain of these expenses for our financial results for annual incentive compensation purposes. The bonus pool funding, which is largely based on financial performance, is adjusted by our R&D pipeline performance, as measured by four metrics, and performance against certain of our ESG metrics, and may be further modified by our Compensation Committee’s assessment of other factors. Adjusted income and its components and Adjusted diluted EPS are non-GAAP financial measures that have no standardized meaning prescribed by GAAP and, therefore, are limited in their usefulness to investors. Because of their non-standardized definitions, they may not be comparable to the calculation of similar measures of other companies and are presented to permit investors to more fully understand how management assesses performance. A limitation of these measures is that they provide a view of our operations without including all events during a period, and do not provide a comparable view of our performance to peers. These measures are not, and should not be viewed as, substitutes for their most directly comparable GAAP measures of Net income attributable to Pfizer Inc. common shareholders , components of Net income attributable to Pfizer Inc. common shareholders and EPS attributable to Pfizer Inc. common shareholders—diluted , respectively. We also recognize that, as internal measures of performance, these measures have limitations, and we do not restrict our performance-management process solely to these measures. We also use other tools designed to achieve the highest levels of performance. For example, our R&D organization has productivity targets, upon which its effectiveness is measured. In addition, total shareholder return, both on an absolute basis and relative to a publicly traded pharmaceutical index, plays a significant role in determining payouts under certain of our incentive compensation plans. Beginning in the first quarter of 2022, our reconciliation of certain GAAP Reported to non-GAAP Adjusted information is updated to reflect the following, and prior-period information has been revised to conform to the current period presentation: Adjusted Income and Adjusted Diluted EPS Acquired IPR&D —Non-GAAP Adjusted financial measures include expenses for all acquired IPR&D costs incurred in connection with upfront and milestone payments on collaboration and in-license agreements, including premiums on equity securities, as well as asset acquisitions of acquired IPR&D. Previously, certain of these items were excluded from our non-GAAP Adjusted results. Acquired IPR&D expenses that previously would have been excluded from non-GAAP Adjusted income but are now included in both GAAP Reported income and non-GAAP Adjusted income were approximately: (i) $765 million pre-tax ($665 million, net of tax), or $0.12 per share, in 2022; (ii) $3.3 billion pre-tax ($2.6 billion, net of tax), or $0.45 per share, in 2021; and (iii) $504 million pre-tax ($397 million, net of tax), or $0.07 per share, in 2020. Amortization of Intangible Assets —We began excluding all amortization of intangibles from non-GAAP Adjusted income, compared to excluding only amortization of intangibles related to large mergers or acquisitions under the prior methodology, and presenting it as a separate reconciling line. Previously, the adjustment under the prior methodology was included as part of a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present. The impact of this policy change resulted in benefits on Adjusted diluted EPS of $0.06 in 2022, $0.09 in 2021 and $0.05 in 2020. Acquisition-Related Items –– Adjusted income continues to exclude certain acquisition-related items, which are comprised of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each Pfizer Inc. 2022 Form 10-K 39 transaction and represent costs that were incurred to restructure and integrate businesses as a result of an acquisition. We have made no adjustments for resulting synergies. The significant costs incurred in connection with a business combination result primarily from the need to eliminate duplicate assets, activities or employees––a natural result of acquiring a fully integrated set of activities. For this reason, we believe that such costs incurred can be viewed differently in the context of an acquisition from those costs incurred in other, more normal, business contexts. The integration and restructuring costs for a business combination may occur over several years, with the more significant impacts typically ending within three years of the relevant transaction. Because of the need for certain external approvals for some actions, the span of time needed to achieve certain restructuring and integration activities can be lengthy. Acquisition-related items may now include purchase accounting impacts that previously would have been included as part of a reconciling line entitled “Purchase accounting adjustments” that we no longer separately present, such as: (i) the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value; (ii) depreciation related to the increase/decrease in fair value of acquired fixed assets; (iii) amortization related to the increase in fair value of acquired debt and (iv) the fair value changes for contingent consideration. Discontinued Operations –– Adjusted income continues to exclude the results of discontinued operations, as well as any related gains or losses on the disposal of such operations. We believe that this presentation is meaningful to investors because, while we review our product portfolio for strategic fit with our operations, we do not build or run our business with the intent to discontinue parts of our business. Restatements due to discontinued operations do not impact compensation or change the Adjusted income measure for the compensation in respect of the restated periods, but are presented for consistency across all periods. Certain Significant Items –– Adjusted income continues to exclude certain significant items representing substantive and/or unusual items that are evaluated individually on a quantitative and qualitative basis. Certain significant items may be highly variable and difficult to predict. Furthermore, in some cases it is reasonably possible that they could reoccur in future periods. For example, although major non-acquisition-related cost-reduction programs are specific to an event or goal with a defined term, we may have subsequent programs based on reorganizations of the business, cost productivity or in response to LOE or economic conditions. Legal charges to resolve litigation are also related to specific cases, which are facts and circumstances specific and, in some cases, may also be the result of litigation matters at acquired companies that were inestimable, not probable or unresolved at the date of acquisition, or legal matters related to divested products or businesses. Gains and losses on equity securities, and pension and postretirement actuarial remeasurement gains and losses have a very high degree of inherent market volatility, which we do not control and cannot predict with any level of certainty and because we do not believe including these gains and losses assists investors in understanding our business or is reflective of our core operations and business. Unusual items represent items that are not part of our ongoing business; items that, either as a result of their nature or size, we would not expect to occur as part of our normal business on a regular basis; items that would be non-recurring; or items that relate to products we no longer sell. See the Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items below for a non-inclusive list of certain significant items. Reconciliations of GAAP Reported to Non-GAAP Adjusted Information––Certain Line Items Year Ended December 31, 2022 Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA Cost of sales (a) Selling, informational and administrative expenses (a) Other (income)/deductions––net (a) Net income attributable to Pfizer Inc. common shareholders (a), (b), (c) Earnings per common share attributable to Pfizer Inc. common shareholders––diluted GAAP Reported $ 34,344 $ 13,677 $ 217 $ 31,372 $ 5.47 Amortization of intangible assets — — — 3,609 Acquisition-related items (119) (7) (74) 832 Discontinued operations (d) — — — (21) Certain significant items: Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring (e) (88) (562) — 1,396 Certain asset impairments (f) — — (421) 421 (Gains)/losses on equity securities (f) — — (1,270) 1,270 Actuarial valuation and other pension and postretirement plan (gains)/losses — — 230 (230) Other (40) (59) (636) (g) 752 Income tax provision—Non-GAAP items (1,683) Non-GAAP Adjusted $ 34,096 $ 13,049 $ (1,954) $ 37,717 $ 6.58 Pfizer Inc. 2022 Form 10-K 40 Year Ended December 31, 2021 Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA Cost of sales (a) Selling, informational and administrative expenses (a) Other (income)/deductions––net (a) Net income attributable to Pfizer Inc. common shareholders (a), (b) Earnings per common share attributable to Pfizer Inc. common shareholders––diluted GAAP Reported $ 30,821 $ 12,703 $ (4,878) $ 21,979 $ 3.85 Amortization of intangible assets — (38) (2) 3,746 Acquisition-related items 25 (3) (114) 139 Discontinued operations (d) — — — 585 Certain significant items: Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring (e) (108) (450) — 1,309 Certain asset impairments — — (86) 86 (Gains)/losses on equity securities (f) — — 1,338 (1,338) Actuarial valuation and other pension and postretirement plan (gains)/losses — — 1,601 (1,601) Other (52) (141) (h) (334) (g) 542 Income tax provision—Non-GAAP items (2,250) Non-GAAP Adjusted $ 30,685 $ 12,071 $ (2,475) $ 23,196 $ 4.06 Year Ended December 31, 2020 Data presented will not (in all cases) aggregate to totals. MILLIONS, EXCEPT PER SHARE DATA Cost of sales (a) Selling, informational and administrative expenses (a) Other (income)/deductions––net (a) Net income attributable to Pfizer Inc. common shareholders (a), (b) Earnings per common share attributable to Pfizer Inc. common shareholders––diluted GAAP Reported $ 8,484 $ 11,597 $ 1,213 $ 9,159 $ 1.63 Amortization of intangible assets — (38) (3) 3,395 Acquisition-related items 18 (1) (75) 98 Discontinued operations (d) — — — (2,879) Certain significant items: Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring (e) (61) (197) — 791 Certain asset impairments (f) — — (1,691) 1,691 (Gains)/losses on equity securities (f) — — 557 (557) Actuarial valuation and other pension and postretirement plan (gains)/losses — — (1,092) 1,092 Other (56) (292) (h) (691) (g) 1,063 Income tax provision—Non-GAAP items (1,251) Non-GAAP Adjusted $ 8,386 $ 11,068 $ (1,781) $ 12,601 $ 2.24 (a) Items that reconcile GAAP Reported to non-GAAP Adjusted balances are shown pre-tax. Our effective tax rates for GAAP Reported income from continuing operations were: 9.6% in 2022, 7.6% in 2021 and 5.3% in 2020. See Note 5 . Our effective tax rates for non-GAAP Adjusted income were: 11.7% in 2022, 14.5% in 2021 and 13.5% in 2020. (b) Includes reconciling amounts for Research and development expenses that are not material. (c) For 2022, the total acquisition-related items of $832 million include reconciling amounts for Restructuring charges and certain acquisition-related costs of $631 million , composed of $348 million of integration costs and other charges, $144 million of transaction costs and $138 million of employee termination-related charges. See Note 3 . (d) For information about discontinued operations, see Note 2B . (e) Includes employee termination costs, asset impairments and other exit costs related to our cost-reduction and productivity initiatives not associated with acquisitions. See Note 3 . (f) See Note 4 . (g) For 2022, the total of $636 million primarily includes (i) charges of $307 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by Haleon/the Consumer Healthcare JV, and adjustments to our equity-method basis differences which are also related to the separation of Haleon/the Consumer Healthcare JV from GSK, and (ii) charges of $230 million for certain legal matters, primarily for c ertain product liability and other expenses related to products discontinued and/or divested by Pfizer . For 2021, the total of $334 million primarily included (i) charges of $185 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of preparing for separation from GSK recorded by the Consumer Healthcare JV, and (ii) charges of $162 million for certain legal matters, primarily for c ertain product liability expenses related to products discontinued and/or divested by Pfizer, and to a lesser extent, legal obligations related to pre-acquisition commitments . For 2020, the total of $691 million primarily included (i) charges of $367 million mostly representing our equity-method accounting pro rata share of transaction-specific restructuring and business combination accounting charges recorded by the Consumer Healthcare JV, and (ii) losses on asset disposals of $238 million. (h) For 2021 and 2020, the totals of $141 million and $292 million, respectively, primarily included costs for consulting, legal, tax and advisory services associated with a non-recurring internal reorganization of legal entities. Pfizer Inc. 2022 Form 10-K 41 ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS For a discussion of the drivers of change for 2021 versus 2020 as well as cash flows from discontinued operations in 2020, see the Analysis of the Consolidated Statements of Cash Flows section within MD&A in our 2021 Form 10-K. Cash Flows from Continuing Operations Year Ended December 31, (MILLIONS) 2022 2021 2020 Drivers of change 2022 v. 2021 Cash provided by/(used in): Operating activities from continuing operations $ 29,267 $ 32,922 $ 10,540 The change was driven primarily by a net increase in payments to BioNTech for the gross profit split for Comirnaty (see Note 8B ) and an increase in noncurrent inventories primarily driven by a strategic build for Paxlovid (see Note 8A ), partially offset by higher net income adjusted for non-cash items and the timing of receipts and payments in the ordinary course of business. Investing activities from continuing operations $ (15,783) $ (22,534) $ (4,162) The change was driven mainly by a $17.4 billion increase in proceeds from redemptions of short-term investments with original maturities of greater than three months, a $7.6 billion decrease in net purchases of short-term investments with original maturities of three months or less and a $4.0 billion dividend received from the Consumer Healthcare JV in 2022 that was allocated to investing activities (see Note 2C ), partially offset by cash paid for acquisitions in 2022 of $23.0 billion (Biohaven, $11.5 billion, Arena, $6.2 billion and GBT, $5.2 billion), net of cash acquired (see Note 2A ). Financing activities from continuing operations $ (14,834) $ (9,816) $ (21,640) The change was driven mostly by $2.0 billion of purchases of the Company’s common stock in 2022, a $1.3 billion increase in repayments of long-term debt, and a $997 million decrease in proceeds from the issuance of long-term debt. Cash Flows from Discontinued Operations –– In 2021, cash flows from discontinued operations primarily relate to our former Meridian subsidiary, Upjohn Business and the Mylan-Japan collaboration (see Note 2B ). ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK Due to our significant operating cash flows, which is a key strength of our liquidity and capital resources and our primary funding source, as well as our financial assets, access to capital markets, revolving credit agreements, and available lines of credit, we believe that we have, and will maintain, the ability to meet our liquidity needs to support ongoing operations, our capital allocation objectives, and our contractual and other obligations for the foreseeable future. We focus efforts to optimize operating cash flows through achieving working capital efficiencies that target accounts receivable, inventories, accounts payable, and other working capital. Excess cash from operating cash flows is invested in money market funds and available-for-sale debt securities which consist of primarily high-quality, highly liquid, well-diversified debt securities. We have taken, and will continue to take, a conservative approach to our financial investments and monitoring of our liquidity position in response to market changes. We typically maintain cash and cash equivalent balances and short-term investments which, together with our available revolving credit facilities, are in excess of our commercial paper and other short-term borrowings. Additionally, we may obtain funding through short-term or long-term sources from our access to the capital markets, banking relationships and relationships with other financial intermediaries to meet our liquidity needs. Diverse sources of funds: Related disclosure presented in this Form 10-K Internal sources: • Operating cash flows Consolidated Statements of Cash Flows – Operating Activities and the Analysis of the Consolidated Statements of Cash Flows within MD&A • Cash and cash equivalents Consolidated Balance Sheets • Money market funds Note 7A • Available-for-sale debt securities Note 7A , 7B External sources: Short-term funding: • Commercial paper Note 7C • Revolving credit facilities Note 7C • Lines of credit Note 7C Long-term funding: • Long-term debt Note 7D • Equity Consolidated Statements of Equity and Note 12 For additional information about the sources and uses of our funds and capital resources for the years ended December 31, 2022 and 2021, see the Analysis of the Consolidated Statements of Cash Flows in this MD&A. Pfizer Inc. 2022 Form 10-K 42 Credit Ratings ––The cost and availability of financing are influenced by credit ratings, and an increase or decrease in our credit rating could have a beneficial or adverse effect on financing. Our long-term debt is rated high-quality by both S&P and Moody’s. In November 2022, Moody’s increased the rating on our long-term debt from A2 to A1 as well as the outlook on our long-term debt to Stable; S&P continues to rate the outlook of our long-term debt as Stable since November 2020. The current ratings assigned to our commercial paper and senior unsecured long-term debt: NAME OF RATING AGENCY Pfizer Short-Term Rating Pfizer Long-Term Rating Outlook/Watch Moody’s P-1 A1 Stable S&P A-1+ A+ Stable A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating. Capital Allocation Framework ––Our capital allocation framework is primarily devised to facilitate (i) the achievement of medical breakthroughs through R&D investments and business development activities and (ii) returning capital to shareholders through dividends and share repurchases. See the Overview of Our Performance, Operating Environment, Strategy and Outlook — Our Business and Strategy section of this MD&A. Our current and projected dividends provide a return to shareholders while maintaining sufficient capital to invest in growing our business. Our dividends are not restricted by debt covenants. While the dividend level remains a decision of Pfizer’s BOD and will continue to be evaluated in the context of future business performance, we currently believe that we can support future annual dividend increases, barring significant unforeseen events. In December 2022, our BOD declared a first-quarter dividend of $0.41 per share, payable on March 3, 2023, to shareholders of record at the close of business on January 27, 2023. The first-quarter 2023 cash dividend will be our 337th consecutive quarterly dividend. In the first quarter of 2022, we purchased 39 million shares of our common stock at a cost of $2.0 billion under our publicly announced share purchase plan. See Note 12 for more information. At December 31, 2022, our remaining share-purchase authorization was approximately $3.3 billion. Off-Balance Sheet Arrangements, Contractual, and Other Obligations ––In the ordinary course of business, (i) we enter into off-balance sheet arrangements that may result in contractual and other obligations and (ii) in connection with the sale of assets and businesses and other transactions, we often indemnify our counterparties against certain liabilities that may arise in connection with the transaction or that are related to events and activities. For more information on guarantees and indemnifications, see Note 16B . Additionally, certain of our co-promotion or license agreements give our licensors or partners the rights to negotiate for, or in some cases to obtain under certain financial conditions, co-promotion or other rights in specified countries with respect to certain of our products. Furthermore, collaboration, licensing or other R&D arrangements may give rise to potential milestone payments. Payments under these agreements generally become due and payable only upon the achievement of certain development, regulatory and/or commercialization milestones, which may span several years and which may never occur. Our significant contractual and other obligations as of December 31, 2022 consisted of: • Long-term debt, including current portion (see Note 7D ) and related interest payments; • Estimated cash payments related to the TCJA repatriation estimated tax liability (see Note 5 ). Estimated future payments related to the TCJA repatriation tax liability that will occur after December 31, 2022 total $7.0 billion, of which an estimated $1.0 billion is to be paid in the next twelve months and an estimated $6.0 billion is to be paid in periods thereafter. Our obligations may vary as a result of changes in our uncertain tax positions and/or availability of attributes such as foreign tax and other credit carryforwards; • Certain commitments totaling $4.4 billion, of which an estimated $1.4 billion is to be paid in the next twelve months, and $3.0 billion in periods thereafter (see Note 16C ); • Purchases of property plant and equipment (see Note 9 ). In 2023, we expect to spend approximately $3.9 billion on property, plant and equipment; and • Future minimum rental commitments under non-cancelable operating leases (see Note 15 ). In March 2022, in connection with GSK’s previously announced planned demerger, the Consumer Healthcare JV issued notes of $8.75 billion, €2.35 billion and £700 million with various maturities. GSK guaranteed the notes and we agreed to indemnify GSK for 32% of any amount payable by GSK. In conjunction with the completion of GSK’s demerger transactions in July 2022, GSK’s guarantee and our related indemnification of GSK’s guarantee were terminated. See Note 2C . Global Economic Conditions ––Venezuela and Argentina operations, and beginning in our second quarter of 2022, our operations in Turkey function in a hyperinflationary economy. The impact to Pfizer is not considered material. For additional information on the global economic environment, see the Item 1A. Risk Factors––Global Operations section in this Form 10-K. Market Risk ––We are subject to foreign exchange risk, interest rate risk, and equity price risk. The objective of our financial risk management program is to minimize the impact of foreign exchange rate and interest rate movements on our earnings. We address such exposures through a combination of operational means and financial instruments. For more information on how we manage our foreign exchange and interest rate risks, see Notes 1 F and 7E , as well as the Item 1A. Risk Factors—Global Operations section in this Form 10-K for key currencies in which we operate. Our sensitivity analyses of such risks are discussed below. Foreign Exchange Risk —The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to foreign exchange rate changes. In this analysis, holding all other assumptions constant and assuming that a change in one currency’s rate relative to the U.S. dollar would not have any effect on another currency’s rates relative to the U.S. dollar, if the dollar were to appreciate against all other currencies by 10%, as of December 31, 2022, the expected adverse impact on our net income would not be significant. Interest Rate Risk —The fair values of our financial instrument holdings are analyzed at year-end to determine their sensitivity to interest rate changes. In this analysis, holding all other assumptions constant and assuming a parallel shift in the interest rate curve for all maturities and for all instruments, if there were a one hundred basis point decrease in interest rates as of December 31, 2022, the expected adverse impact on our net income would not be significant. Pfizer Inc. 2022 Form 10-K 43 Equity Price Risk ––We hold equity securities with readily determinable fair values in life science companies as a result of certain business development transactions. While we are holding such securities, we are subject to equity price risk, and this may increase the volatility of our income in future periods due to changes in the fair value of equity investments. From time to time, we will sell such equity securities based on our business considerations, which may include limiting our price risk. Our equity securities with readily determinable fair values are analyzed at year-end to determine their sensitivity to equity price rate changes. In this sensitivity analysis, the expected adverse impact on our net income would not be significant. LIBOR ––From time to time, we issued variable rate debt or entered into interest rate derivatives based on LIBOR. The most commonly used U.S. dollar LIBOR rates will cease publication after June 30, 2023, and all other LIBOR rates ceased publication as of December 31, 2021. The U.S. Federal Reserve has selected the Secured Overnight Funding Rate (SOFR) as the preferred alternative reference rate. We have been updating our systems and all of our LIBOR-based contracts as of December 31, 2022 contain fallback language to accommodate an alternative reference rate. We do not expect the transition to have a significant impact on our business or financial condition. NEW ACCOUNTING STANDARDS Recently Adopted Accounting Standard See Note 1B . Recently Issued Accounting Standards, Not Adopted as of December 31, 2022 Standard/Description Effective Date Effect on the Financial Statements Reference rate reform provides temporary optional expedients and exceptions to the guidance for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued after 2021 because of reference rate reform. The new guidance provides the following optional expedients: 1. Simplify accounting analyses under current U.S. GAAP for contract modifications. 2. Simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue. 3. Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. Elections can be adopted prospectively at any time through December 31, 2024. We will apply certain of the optional expedients on hedge accounting relationships and related contracts, if necessary. We do not expect this new guidance to have a material impact on our consolidated financial statements. In June 2022, the FASB issued final guidance to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual sale restriction as a separate unit of account is not permitted. January 1, 2024, with early adoption permitted. We are assessing the impact, but currently do not expect this new guidance to have a material impact on our consolidated financial statements. In September 2022, the FASB issued final guidance to enhance transparency about an entity’s use of supplier finance programs . Under the final guidance, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. January 1, 2023, except for the amendment on rollforward information, which is effective January 1, 2024. Early adoption is permitted. This new guidance will result in increased disclosures in the notes to our financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is incorporated by reference to the discussion in the Analysis of Financial Condition , Liquidity, Capital Resources and Market Risk section within MD&A. Pfizer Inc. 2022 Form 10-K 44