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 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found within MD&A in our 2022 Form 10-K. 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): 2023 Total Revenues––$58.5 billion 2023 Net Cash Flow from Operations––$8.7 billion A decrease of 42% compared to 2022 A decrease of 70% compared to 2022 2023 Reported Diluted EPS––$0.37 2023 Adjusted Diluted EPS (Non-GAAP)––$1.84* A decrease of 93% compared to 2022 A decrease of 72% compared to 2022 * 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. 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. 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 continuously evaluate how we can best collaborate with patients, physicians and payors 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 business development opportunities 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. 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. Our 2024 key priorities are: • Achieve world-class oncology leadership • Deliver next wave of pipeline innovation • Maximize performance of our new products • Expand margins by realigning our cost base • Allocate capital to enhance shareholder value Pfizer Inc. 2023 Form 10-K 30 In 2023, we managed our commercial operations through a global structure consisting of two operating segments: Biopharma and Business Innovation. Biopharma was the only reportable segment. See Note 1A and the Item 1. Business––Commercial Operations section. In December 2023, we completed our acquisition of Seagen. At the beginning of 2024, we made changes in our commercial organization that went into effect on January 1, 2024 to incorporate Seagen and improve focus, speed and execution. Specifically, within our Biopharma reportable segment we created: • the Pfizer Oncology Division, which brings together U.S. oncology commercial operations from both Pfizer and Seagen and is led by the Chief Oncology Officer, Executive Vice President, who also leads Pfizer’s newly combined global oncology R&D operations; • the Pfizer U.S. Commercial Division, which focuses on the commercialization of non-oncology products in the U.S. and is led by the Chief U.S. Commercial Officer, Executive Vice President; and • the Pfizer International Commercial Division, which focuses on the commercialization of Pfizer’s entire product portfolio outside the U.S. and is led by the Chief International Commercial Officer, Executive Vice President. In the fourth quarter of 2022, we began taking steps through our Transforming to a More Focused Company restructuring program 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. Beginning in July 2023, in consideration of planned future investments in oncology, including the acquisition of Seagen on December 14, 2023, we reorganized our R&D platform operations. See Note 17A . In the fourth quarter of 2023, we announced that we launched a multi-year, enterprise-wide cost realignment program that aims to realign our costs with our longer-term revenue expectations. See Note 3 . For a description of savings related to these programs, see the Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives section within 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 medicines and vaccines 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 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 a discussion of recent significant business development activities, see Note 2 . Our 2023 Performance Total Revenues ––Total revenues decreased $41.8 billion, or 42%, to $58.5 billion in 2023 from $100.3 billion in 2022, reflecting an operational decrease of $40.8 billion, or 41%, as well as an unfavorable impact of foreign exchange of $1.0 billion, or 1%. The operational decrease was primarily driven by significant declines in revenues from Comirnaty and Paxlovid, including a $3.5 billion non-cash revenue reversal for Paxlovid recorded in the fourth quarter of 2023. Excluding contributions from Comirnaty and Paxlovid, Total revenues increased 7% operationally, reflecting an increase in revenues from Nurtec ODT/Vydura and Oxbryta; revenues from Abrysvo, primarily driven by the launch of the older adult indication in the U.S.; as well as continued growth from the Vyndaqel family and Eliquis; partially offset by a decline in Ibrance. The following chart outlines the components of the net change in Total revenues : See the Total Revenues by Geography and Total 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. For information regarding the primary indications or class of certain products, see Note 17C . Pfizer Inc. 2023 Form 10-K 31 While royalty income through December 31, 2023 has been recorded in Other Income/(Deductions)—net , we will begin reporting such royalty income in Total revenues beginning in 2024 and will restate prior periods for consistency with our 2024 presentation. Additionally, we will no longer record royalties from U.S. sales of Bavencio, as we have irrevocably chosen to donate the right to such royalties to the American Association for Cancer Research. Income from Continuing Operations Before Provision/(Benefit) for Taxes on Income –– The decrease in Income from continuing operations before provision/(benefit) for taxes on income of $33.7 billion, to $1.1 billion in 2023 from $34.7 billion in 2022, was primarily attributable to (i) lower revenues, (ii) higher intangible asset impairment charges, and (iii) increases in Restructuring charges and certain acquisition-related costs , Amortization of intangible assets , and Selling, informational and administrative expenses, partially offset by (iv) a decrease in Cost of sales and (v) net gains on equity securities in 2023 versus net losses on equity securities in 2022 . See the Analysis of the Consolidated Statements of Income section within MD&A and Note 4 . 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 . 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. 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, primarily through internal R&D or through collaborations, acquisitions, JVs, licensing or other arrangements. 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, vaccine 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 judgments, 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 2024 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. For a discussion of recent developments with respect to patent litigation, see Note 16A1 . Regulatory Environment/Pricing and Access––Government and Other Payor 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 payors, governments, patients, and other stakeholders. Federal and state governments and private third-party payors in the U.S. continue to take action to manage the utilization and cost of drugs, including increasingly employing formularies to control costs and encourage utilization of certain drugs, including through the use of deductibles, utilization management tools, cost sharing or 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 payors in the U.S., may use a variety of measures to control costs, including, among others, legislative or regulatory pricing reforms, drug formularies (including tiering and utilization management tools), 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. The drug pricing provisions of the IRA, which was signed into law in August 2022, began to be implemented in 2022 and implementation efforts will continue over the next several years. In August 2023, the Biden Administration unveiled the first ten medicines subject to the “Medicare Drug Price Negotiation Program,” which requires manufacturers of select drugs to engage in a process with the federal government to set new Medicare prices which would go into effect in 2026. Among the first ten medicines subject to the Program included Eliquis. 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 Drug Rebate program or the 340B 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. 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. Impact of the July 2023 Tornado in Rocky Mount, North Carolina (NC) –– Our manufacturing facility in Rocky Mount, NC was damaged by a tornado in July 2023. The facility is a key producer of sterile injectables and is responsible for manufacturing nearly 25 percent of all our sterile injectables—including anesthesia, analgesia, and micronutrients—which is nearly eight percent of all the sterile injectables used in U.S. hospitals. While manufacturing has resumed, the supply of medicines impacted by the tornado is expected to be affected through 2024. In 2023, we recorded $286 million to Cost of sales for inventory losses, overhead costs related to the period in which the facility could not operate, and incremental costs resulting from the tornado damage. Losses incurred in 2023 were partially offset by insurance recoveries received in the fourth quarter of 2023. We may record additional losses and/or costs and/or insurance recoveries in future periods, but we are unable to predict them with certainty at this time. Pfizer Inc. 2023 Form 10-K 32 Product Supply –– We periodically encounter supply delays, disruptions and shortages, including due to voluntary product recalls and natural or man-made disasters. In 2021, Pfizer recalled all lots of Chantix in the U.S. due to the presence of a nitrosamine, N-nitroso-varenicline, at or above the FDA interim acceptable intake limit. Regulatory authorities outside the U.S. have issued updated guidance on nitrosamine acceptable intake levels. With this recently issued guidance, which included an updated intake level for N-nitroso-varenicline, we expect to make regulatory submissions in 2024 to potentially enable Chantix to return to market outside the U.S., and our related discussions with FDA are ongoing. Except for the tornado in Rocky Mount, NC discussed above, we have not seen a significant disruption of our supply chain in 2023 and through the date of filing of this Form 10-K, and all of our manufacturing sites globally have continued to operate at or near normal levels; however, we continue to see heightened 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 continue 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. 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 and interest rate 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 conflicts between Russia and Ukraine and in the Middle East and their 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. COVID-19 ––In response to COVID-19, we developed Paxlovid and collaborated with BioNTech to jointly develop Comirnaty, including an Omicron XBB.1.5-adapted monovalent vaccine. As part of our strategy for COVID-19, we are continuing to make significant investments in breakthrough science and global manufacturing. This includes continuing to evaluate Comirnaty and Paxlovid, including against new variants of concern, developing variant adapted vaccine candidates and developing potential combination respiratory vaccines and potential next generation vaccines and therapies. We are also evaluating Paxlovid for additional populations. See the Product Developments section within MD&A. In 2023, we principally sold Comirnaty globally under government contracts. In September 2023, Comirnaty transitioned to traditional commercial market sales in the U.S., triggered by the expiration of current contracts and the COVID-19 vaccines from Pfizer and BioNTech purchased through them becoming either depleted or not used following the introduction of a new variant vaccine. Internationally, sales of Comirnaty in international developed markets were generally under government contracts in 2023, and in emerging markets, under a combination of private channels and government contracts; in both cases, we expect to start transitioning to commercial markets in 2024. Due to the commercial market transition as well as the anticipated seasonal nature of COVID vaccination, we expect more than 80% of our 2024 global revenues for Comirnaty to be recorded in the second half of the year. In 2023, we principally sold Paxlovid globally to government agencies. Internationally, for Paxlovid, we are continuing the transition to commercial markets and are expecting most revenue for Paxlovid to be generated through commercial channels in 2024. On October 13, 2023, we announced an amended agreement with the U.S. government, which facilitated the transition of Paxlovid to traditional commercial markets in November 2023, with minimal uptake of NDA-labeled commercial product before January 1, 2024. See Note 17C . For information on risks associated with our COVID-19 products, including certain assumptions made for purposes of our operational planning and financial projections and the uncertainty of future developments, as well as COVID-19 intellectual property disputes, see the Item 1A. Risk Factors — COVID-19 , — Intellectual Property Protection and –– Third-Party Intellectual Property Claims sections and Note 16A1 . Israel/Hamas Conflict ––Our local operations have been impacted by the armed conflict between Israel and Hamas that began on October 7, 2023. For the years ended December 31, 2023 and 2022, the business of our Israeli subsidiary represented less than 1% of our consolidated revenues and assets. We are closely monitoring developments in this conflict, including evaluating potential impacts to our business, customers, suppliers, employees, and operations in Israel and elsewhere in the Middle East that may impact global operations. At this time, longer term impacts to the Company are uncertain and subject to change. Russia/Ukraine Conflict ––Our local operations have been impacted by the armed conflict between Russia and Ukraine. For the years ended December 31, 2023 and 2022, 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 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 global operations 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, including financial institutions, 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 1D ); Fair Value ( Note 1E ); Revenues ( Note 1G ); Asset Impairments ( Note 1M ); Tax Assets and Liabilities and Income Tax Contingencies ( Note 1Q ); Pension and Postretirement Benefit Plans ( Note 1R ); and Legal and Environmental Contingencies ( Note 1S ). For a discussion of recently adopted accounting standards, see Note 1B . Pfizer Inc. 2023 Form 10-K 33 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 1D . For further detail on the techniques and methodologies that we use to estimate fair value, see Note 1E . 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 each identifiable intangible asset. Some of the more significant estimates and assumptions inherent in this approach include the amount and timing of projected net cash flows, the discount rate, the tax rate, and, for IPR&D assets, the probability of technical and regulatory success (PTRS). All of these judgments and estimates can materially impact our results of operations. 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. We estimate the fair value of acquired PP&E using a combination of the cost and market approaches. Some of the more significant estimates and assumptions inherent in these approaches are the values of asset replacement costs, comparable assets and estimated remaining economic lives of the assets. For the provisional amounts recognized for the Seagen assets acquired and liabilities assumed as of the acquisition date, see Note 2A . The estimated values are not yet finalized and are subject to change, which could be significant. We will finalize the amounts recognized as we obtain the information necessary to complete the analyses. We expect to finalize the amounts of assets acquired and liabilities assumed as soon as possible but no later than one year from the acquisition date. 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 Product Revenue Deductions section within MD&A and Note 1G . 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 payors. 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 $23.2 billion as of December 31, 2023) 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. Pfizer Inc. 2023 Form 10-K 34 Goodwill ––Our goodwill impairment review work as of December 31, 2023 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. 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. 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) : 2023 2022 2021 U.S. Pension Plans Expected annual rate of return on plan assets 8.0 % 7.5 % 6.3 % Actual annual rate of return on plan assets 10.4 (22.4) 9.2 Discount rate used to measure the plan obligations 5.4 5.4 2.9 International Pension Plans Expected annual rate of return on plan assets 5.1 4.5 3.1 Actual annual rate of return on plan assets (4.6) (26.0) 11.4 Discount rate used to measure the plan obligations 4.4 3.8 1.6 (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. Differences between the actual rate of return on plan assets and the expected annual rate of return on plan assets are immediately recognized through earnings upon remeasurement. 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 2024 Net Periodic Benefit Costs Expected annual rate of return on plan assets (a) 50 basis point decline $84 (a) The estimate excludes any potential mark-to-market adjustments. The actual return on plan assets resulted in a net gain on our plan assets of approximately $835 million during 2023 . 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 significant 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 plan obligations at the end of the year will affect (i) the actuarial (gains)/losses recognized in our net periodic benefit cost for that year and (ii) the amount of service cost and interest cost reflected in our net periodic benefit costs in the following year. Pfizer Inc. 2023 Form 10-K 35 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 2024 Net Periodic Benefit Costs Increase to 2023 Benefit Obligations Discount rate 10 basis point decline $5 $210 The change in the discount rates used in measuring our plan obligations as of December 31, 2023 resulted in a decrease in the measurement of our aggregate plan obligations by approximately $616 million. Income Tax Assets and Liabilities Income tax assets and liabilities include income tax valuation allowances and accruals for uncertain tax positions. 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 and legal contingencies, guarantees and indemnifications. See Notes 1Q , 1S , 5D and 16 . ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME Total Revenues by Geography The following presents worldwide Total revenues by geography: Year Ended December 31, % Change Worldwide U.S. International Worldwide U.S. International (MILLIONS) 2023 2022 2021 2023 2022 2021 2023 2022 2021 23/22 22/21 23/22 22/21 23/22 22/21 Operating segments: Biopharma $ 57,186 $ 98,988 $ 79,557 $ 26,698 $ 42,083 $ 29,221 $ 30,488 $ 56,905 $ 50,336 (42) 24 (37) 44 (46) 13 Business Innovation 1,310 1,342 1,731 390 390 524 920 952 1,206 (2) (22) — (26) (3) (21) Total revenues $ 58,496 $ 100,330 $ 81,288 $ 27,088 $ 42,473 $ 29,746 $ 31,408 $ 57,857 $ 51,542 (42) 23 (36) 43 (46) 12 2023 v. 2022 The following provides an analysis of the worldwide change in Total revenues by geographic areas from 2022 to 2023: (MILLIONS) Worldwide U.S. International Operational growth/(decline): Worldwide declines from Comirnaty $ (26,423) $ (6,370) $ (20,053) Worldwide declines from Paxlovid (17,506) (11,803) (5,703) Worldwide growth from the Vyndaqel family, Eliquis, the Prevnar family and Inlyta, partially offset by worldwide declines from Ibrance, Xeljanz and Xtandi 1,016 1,018 (2) Increase in revenues from Nurtec ODT/Vydura and Oxbryta, which were acquired in the fourth quarter of 2022 972 949 23 Revenues from Abrysvo, primarily driven by launch of the older adult indication in the U.S. in July 2023 890 888 2 Revenues from legacy Seagen products subsequent to the acquisition on December 14, 2023 120 120 — Other operational factors, net 120 (185) 305 Operational growth/(decline), net (40,812) (15,385) (25,428) Unfavorable impact of foreign exchange (1,022) — (1,022) Total revenues increase/(decrease) $ (41,834) $ (15,385) $ (26,449) Emerging markets revenues decreased $8.1 billion, or 40%, in 2023 to $12.0 billion from $20.1 billion in 2022, reflecting an operational decrease of $7.4 billion, or 37%, and an unfavorable impact from foreign exchange of 3%. The operational decrease in emerging markets revenues was primarily driven by declines from Comirnaty and Paxlovid, partially offset by growth from Lorbrena, Zavicefta and Eliquis. See the Total R evenues––Selected Product Discussion section within MD&A for additional analysis. Product 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 product 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. Pfizer Inc. 2023 Form 10-K 36 The following presents information about product revenue deductions: Year Ended December 31, (MILLIONS) 2023 2022 2021 Medicare rebates $ 997 $ 838 $ 726 Medicaid and related state program rebates 1,655 973 1,214 Performance-based contract rebates 5,159 3,575 3,253 Chargebacks 9,828 7,560 6,122 Sales allowances 6,790 5,460 4,809 Sales returns and cash discounts (a) 5,619 1,290 1,054 Total $ 30,048 $ 19,697 $ 17,178 (a) The increase in sales returns and cash discounts in 2023 was primarily due to the revenue reversal of $3.5 billion in the fourth quarter of 2023, related to the expected return of an estimated 6.5 million treatment courses of EUA-labeled U.S. government Paxlovid inventory (see Note 17C ). Product 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 product revenue deductions, including the balance sheet classification of these accruals, see Note 1G . Pfizer Inc. 2023 Form 10-K 37 Total Revenues—Selected Product Discussion Biopharma Revenue (MILLIONS) Year Ended Dec. 31, % Change Product Global Revenues Region 2023 2022 Total Oper. Operational Results Commentary Comirnaty (a) $11,220 Down 70% (operationally) U.S. $ 2,404 $ 8,775 (73) Declines largely driven by lower contracted deliveries and demand in international markets and lower U.S. government contracted deliveries, due to transition to new variant vaccines in most markets and the transition to traditional U.S. commercial market sales which began in September 2023. Int’l. 8,816 29,032 (70) (69) Worldwide $ 11,220 $ 37,806 (70) (70) Eliquis $6,747 Up 5% (operationally) U.S. $ 4,228 $ 3,822 11 Growth driven primarily by continued oral anti-coagulant adoption and market share gains in the non-valvular atrial fibrillation indication in the U.S. and certain markets in Europe, partially offset by declines due to LOE and generic competition in certain international markets. Int’l. 2,519 2,658 (5) (3) Worldwide $ 6,747 $ 6,480 4 5 Prevnar family $6,440 Up 3% (operationally) U.S. $ 4,204 $ 4,032 4 Growth primarily driven by the adult indications in the U.S. due to strong patient demand for Prevnar 20 for the eligible adult population, partially offset by the Prevnar pediatric indication in the U.S. driven by lower market share due to competitor entry. Int’l. 2,236 2,305 (3) — Worldwide $ 6,440 $ 6,337 2 3 Ibrance $4,753 Down 6% (operationally) U.S. $ 3,151 $ 3,370 (6) Declines primarily driven by lower demand globally due to competitive pressure, lower clinical trial purchases internationally, and planned price decreases in certain international developed markets. Int’l. 1,602 1,751 (8) (6) Worldwide $ 4,753 $ 5,120 (7) (6) Vyndaqel family $3,321 Up 36% (operationally) U.S. $ 1,863 $ 1,245 50 Growth largely driven by continued strong uptake of the ATTR-CM indication, primarily in the U.S. and developed Europe, partially offset by a planned price decrease that went into effect in Japan in the second quarter of 2022. Int’l. 1,458 1,202 21 22 Worldwide $ 3,321 $ 2,447 36 36 Xeljanz $1,703 Down 4% (operationally) U.S. $ 1,154 $ 1,129 2 Decline driven primarily by decreased prescription volumes globally resulting from ongoing shifts in prescribing patterns related to label changes, partially offset by higher net price in the U.S. due to favorable changes in channel mix. Int’l. 549 668 (18) (15) Worldwide $ 1,703 $ 1,796 (5) (4) Paxlovid $1,279 Down 92% (operationally) U.S. $ (1,289) $ 10,514 * Declines primarily driven by: • a non-cash revenue reversal of $3.5 billion recorded in the fourth quarter of 2023, of which a portion was associated with sales recorded in 2022, related to the expected return of an estimated 6.5 million treatment courses of EUA-labeled U.S. government inventory (see Note 17C ); and • lower contractual deliveries in most international markets, partially offset by: • strong demand in China under the temporary National Reimbursement Drug List (which ended on April 1, 2023) due to surge in COVID-19 infection during the first quarter of 2023; and • fourth quarter sales under traditional commercial markets following transition, primarily in the U.S. Int’l. 2,568 8,419 (69) (68) Worldwide $ 1,279 $ 18,933 (93) (92) Xtandi $1,191 Down 1% (operationally) U.S. $ 1,191 $ 1,198 (1) Decline driven by lower net price mainly due to unfavorable changes in channel mix, partially offset by higher demand. Int’l. — — — — Worldwide $ 1,191 $ 1,198 (1) (1) Inlyta $1,036 Up 5% (operationally) U.S. $ 642 $ 618 4 Growth primarily reflects continued growth 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, partially offset by lower volumes and lower net price in certain European markets. Int’l. 394 385 3 7 Worldwide $ 1,036 $ 1,003 3 5 Nurtec ODT/Vydura $928 * U.S. $ 908 $ 211 * Growth primarily driven by timing of the acquisition of Biohaven (fourth quarter of 2022) as well as strong patient demand in the U.S. See Note 2A . Int’l. 20 2 * * Worldwide $ 928 $ 213 * * Pfizer Inc. 2023 Form 10-K 38 Business Innovation Revenue (MILLIONS) Year Ended Dec. 31, % Change Operating Segment Global Revenues Region 2023 2022 Total Oper. Operational Results Commentary Business Innovation $1,310 Down 2% (operationally) U.S. $ 390 $ 390 — Decline primarily driven by a reduction in Comirnaty supply to BioNTech and lower revenues from our active pharmaceutical ingredient sales operation, partially offset by higher manufacturing activities performed on behalf of customers as well as an increase in R&D services to select innovative biotech companies under our Pfizer Ignite operations. Int’l. 920 952 (3) (3) Worldwide $ 1,310 $ 1,342 (2) (2) (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, which is part of the Business Innovation operating segment. See Note 17C . * Indicates calculation not meaningful. See the Item 1. Business — Patents and Other Intellectual Property Rights section for information regarding the expiration of various patent rights, Note 16 for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above and Note 17C for the primary indications or class of the selected products discussed above. Costs and Expenses Costs and expenses follow: Year Ended December 31, % Change (MILLIONS) 2023 2022 2021 23/22 22/21 Cost of sales $ 24,954 $ 34,344 $ 30,821 (27) 11 Percentage of Total revenues 42.7 % 34.2 % 37.9 % Selling, informational and administrative expenses 14,771 13,677 12,703 8 8 Research and development expenses 10,679 11,428 10,360 (7) 10 Acquired in-process research and development expenses 194 953 3,469 (80) (73) Amortization of intangible assets 4,733 3,609 3,700 31 (2) Restructuring charges and certain acquisition-related costs 2,943 1,375 802 * 71 Other (income)/deductions—net (a) (835) 217 (4,878) * * * Indicates calculation not meaningful. (a) Beginning in 2024, we will include royalty income in Total revenues and will restate prior periods for consistency with our 2024 presentation. 2023 v. 2022 Cost of Sales Cost of sales decreased $9.4 billion, primarily due to: • a reduction of $14.2 billion due to lower sales of Comirnaty; and • a reduction of $1.5 billion due to lower sales of Paxlovid, partially offset by: • non-cash charges of $6.2 billion for inventory write-offs and related charges ($5.0 billion for Paxlovid and $1.2 billion for Comirnaty). The increase in Cost of sales as a percentage of Total revenues was mainly driven by the non-cash charge of $6.2 billion discussed above, and unfavorable changes in sales mix, primarily due to lower sales of Paxlovid and Comirnaty, which includes the unfavorable impact of the $3.5 billion non-cash Paxlovid revenue reversal. Selling, Informational and Administrative Expenses Selling, informational and administrative expenses increased $1.1 billion, mostly due to: • an increase of $1.1 billion in marketing and promotional expenses for recently acquired and launched products; • an increase of $280 million for the expected Paxlovid commercial launch; • an increase of $210 million in our liability to be paid to participants of our supplemental savings plan; and • an increase of $170 million in marketing and promotional expenses for rare disease products, partially offset by: • a decrease of $690 million due to a lower provision for U.S. healthcare reform fees related to Comirnaty and Paxlovid. Research and Development Expenses Research and development expenses decreased $749 million, primarily due to: • lower spending of $870 million mainly for lower compensation-related expenses, and ongoing vaccine and hospital programs, as well as • a decrease of $260 million in the value of the portfolio performance share grants reflecting the decrease in the price of Pfizer’s common stock, Pfizer Inc. 2023 Form 10-K 39 partially offset by: • increased investments of $345 million, mainly to develop certain acquired assets, as well as activities to support upcoming product launches. Acquired In-Process Research and Development Expenses Acquired in-process research and development expenses decreased $758 million primarily reflecting the non-recurrence of: • an upfront payment of $426 million related to the closing of the acquisition of ReViral Ltd. in 2022; • an upfront payment to Biohaven and a premium paid on our equity investment in Biohaven totaling $263 million in 2022; and • a $76 million premium paid on our equity investment in BioNTech to develop a potential mRNA vaccine against shingles, both recorded in 2022. See Notes 2A and 2E . Amortization of Intangible Assets Amortization of intangible assets increased $1.1 billion, primarily as a result of 2023 reflecting a full year of amortization of intangible assets from our acquisitions of Biohaven and GBT, higher amortization of intangible assets related to Prevnar, as well as reclassifications of IPR&D to developed technology rights, partially offset by fully amortized assets. See Notes 2A and 10A . Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives Transforming to a More Focused Company Program –– 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 achieved net cost savings of $550 million. 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. Realigning our Cost Base Program –– This program is expected to deliver net cost savings of at least $4 billion, to be achieved primarily from 2023 through 2024. Certain qualifying costs for these programs were recorded in 2023, 2022 and 2021, 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 within MD&A. In connection with our acquisition of Seagen, we are focusing our efforts on achieving an appropriate cost structure for the combined company. We expect to generate approximately $1 billion of annual cost synergies, to be achieved by 2026. For a description of our programs, as well as the anticipated and actual costs, see Note 3A , The program savings discussed above may be rounded and represent approximations. In addition to these programs, we continuously monitor our operations for cost reduction and/or productivity opportunities, especially in light of the losses of exclusivity and the expiration of collaborative arrangements for various products. Other (Income)/Deductions––Net The favorable period-over-period change of $1.1 billion was primarily driven by net gains on equity securities in 2023 versus net losses recognized on equity securities in 2022 and lower net interest expense, partially offset by higher intangible asset impairment charges. See Note 4 . Upjohn Separation Costs Since inception through December 31, 2023, we have incurred substantially all costs of approximately $700 million in connection with separating Upjohn, including costs and expenses related to separation of legal entities and transaction costs. Provision/(Benefit) for Taxes on Income Year Ended December 31, % Change (MILLIONS) 2023 2022 2021 23/22 22/21 Provision/(benefit) for taxes on income $ (1,115) $ 3,328 $ 1,852 * 80 Effective tax rate on continuing operations (105.4) % 9.6 % 7.6 % * 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 . Changes in Tax Laws–– Many countries outside the U.S. have enacted legislation for global minimum taxation resulting from the Organization for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting “Pillar 2” project. The EU has approved a directive requiring member states to incorporate the OECD provisions into their respective domestic laws, and other countries outside the EU are also enacting the provisions into their domestic law. The provisions are generally effective for Pfizer in 2024, though significant details and guidance around the provisions are still pending. Income tax expense could be adversely affected as the legislation becomes effective in countries in which we do business, and such impact could be material to our results of operations. We continue to monitor pending OECD guidance and legislation enactment and implementation by individual countries. Discontinued Operations For information about our discontinued operations, see Note 2B . Pfizer Inc. 2023 Form 10-K 40 PRODUCT DEVELOPMENTS A comprehensive update of Pfizer’s development pipeline was published as of January 30, 2024 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. This section provides information as of the date of this filing about significant marketing application-related regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan. 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 Beginning with the original monovalent Pfizer-BioNTech COVID-19 Vaccine, initially authorized for emergency use, to Comirnaty (COVID-19 Vaccine, mRNA, 2023-2024 Formula), approved by the FDA for individuals 12 years and older and the Pfizer-BioNTech COVID-19 Vaccine (2023-2024 Formula) authorized by the FDA for emergency use for individuals 6 months through 11 years of age, efforts to stay current with circulating COVID-19 strains have resulted in the rapid development of targeted, adapted vaccines for licensure in the U.S., Europe, Japan and other markets. The adapted vaccines have included two bivalent formulations (Original and Omicron BA.1, not authorized in the U.S., and Original and Omicron BA.4/BA.5). As updated COVID-19 vaccines are formulated to more closely target currently circulating vaccines, prior vaccine formulations are generally no longer utilized in a majority of the markets. The 2023-2024 Formula includes a monovalent (single) component that corresponds to the Omicron sub-variant XBB.1.5 of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The table below summarizes the approval of the 2023-2024 Formula in the markets indicated: PRODUCT INDICATION REGULATORY STATUS U.S. (a) EU JAPAN Comirnaty (COVID-19 Vaccine, mRNA, 2023-2024 Formula) Active immunization to prevent COVID-19 caused by SARS-CoV-2 for individuals 6 months through 4 years of age Authorized September 2023 Approved August 2023 Approved September 2023 Active immunization to prevent COVID-19 caused by SARS-CoV-2 for individuals 5 through 11 years of age Authorized September 2023 Approved August 2023 Approved September 2023 Active immunization to prevent COVID-19 caused by SARS-CoV-2 in individuals 12 years of age and older Approved September 2023 Approved August 2023 Approved September 2023 (a) In September 2023, Pfizer and BioNTech announced the FDA approved a regulatory application for their Omicron XBB.1.5-adapted monovalent COVID-19 vaccine for individuals 12 years of age and older (Comirnaty (COVID-19 Vaccine, mRNA, 2023-2024 Formula)). The FDA also granted EUA for the Omicron XBB.1.5-adapted monovalent COVID-19 vaccine for individuals 6 months through 11 years of age (Pfizer-BioNTech COVID-19 Vaccine (2023-2024 Formula)). Pfizer Inc. 2023 Form 10-K 41 Other Products PRODUCT INDICATION OR PROPOSED INDICATION APPROVED/FILED* U.S. EU JAPAN Ngenla (somatrogon) (a) Pediatric growth hormone deficiency Approved June 2023 Approved February 2022 Approved January 2022 Prevnar 20/Apexxnar (Vaccine) Active immunization to prevent pneumonia, invasive disease and otitis media caused by Streptococcus pneumoniae (adults) Approved June 2021 Approved February 2022 Filed September 2023 Active immunization to prevent pneumonia, invasive disease and otitis media caused by Streptococcus pneumoniae (pediatric) Approved April 2023 Filed November 2022 Filed March 2023 TicoVac (Vaccine) Active immunization to prevent tick-borne encephalitis disease Approved August 2021 Filed March 2023 Paxlovid (b ) (nirmatrelvir and ritonavir) COVID-19 in high-risk adults Approved May 2023 Approved February 2023 Approved July 2023 Nurtec ODT/Vydura (rimegepant) Acute treatment of migraine with or without aura (adults) Approved February 2020 Approved April 2022 Prevention of episodic migraine (adults) Approved May 2021 Approved April 2022 Litfulo/Ritfulo (ritlecitinib) Alopecia areata Approved June 2023 Approved September 2023 Approved June 2023 Zavzpret (zavegepant) (intranasal) Acute treatment of migraine with or without aura (adults) Approved March 2023 Penbraya (PF-06886992) (Vaccine) Active immunization to prevent serogroups ABCWY meningococcal infections (adolescent and young adults) Approved October 2023 Filed June 2023 Abrysvo (Vaccine) Active immunization to prevent RSV infection (maternal) Approved August 2023 Approved August 2023 Approved January 2024 Active immunization to prevent RSV infection (older adults) Approved May 2023 Approved August 2023 Filed May 2023 Velsipity (etrasimod) Ulcerative colitis (moderately to severely active) Approved October 2023 Approved February 2024 Braftovi (encorafenib) and Mektovi (binimetinib) BRAF V600E -mutant metastatic non-small cell lung cancer Approved October 2023 Filed October 2023 (c) Elrexfio (elranatamab) Multiple myeloma triple-class relapsed/refractory Approved August 2023 Approved December 2023 Filed June 2023 Talzenna (talazoparib) Combination with Xtandi (enzalutamide) for adult patients with homologous recombination repair (HRR) gene-mutated mCRPC (d) Approved June 2023 Approved January 2024 Approved January 2024 Treatment of BRCA gene-mutated, HER2-negative, inoperable or recurrent breast cancer who have been treated with cancer chemotherapy Approved October 2018 Approved June 2019 Approved January 2024 fidanacogene elaparvovec (PF-06838435) (e) Hemophilia B (adults) Filed June 2023 Filed May 2023 Xtandi (enzalutamide) (f) nmCSPC with biochemical recurrence at high risk for metastasis (high-risk BCR) Approved November 2023 Filed September 2023 marstacimab (PF-06741086) Hemophilia A and B Filed December 2023 Filed October 2023 aztreonam-avibactam (g) (PF-06947387) Treatment of infections caused by Gram-negative bacteria with limited or no treatment options Filed September 2023 Padcev (enfortumab vedotin-ejfv) (h) In combination with Keytruda (i) (pembrolizumab) for locally advanced or metastatic urothelial cancer (adults) Approved December 2023 Filed January 2024 Filed January 2024 Tivdak (tisotumab vedotin-tftv) (j) Recurrent or metastatic cervical cancer with disease progression on or after first-line therapy Filed (k) January 2024 Filed February 2024 Tukysa (tucatinib) In combination with trastuzumab for HER2-positive metastatic colorectal cancer that has progressed following treatment with fluoropyrimidine-, oxaliplatin-, and irinotecan-based chemotherapy Approved January 2023 Pfizer Inc. 2023 Form 10-K 42 * 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 OPKO. (b) Previously authorized under EUA in the U.S. (December 2021) and approved by the FDA in high-risk adults (May 2023). Remains under EUA for children (12-18 years of age; >88lbs) in the U.S. (c) Pierre Fabre is the Marketing Authorization Holder for Braftovi (encorafenib) and Mektovi (binimetinib) in the EU. (d) Listed indication applies to U.S. only. EU indication (all comers): mCRPC in whom chemotherapy is not clinically indicated; Japan indication: BRCA gene-mutated mCRPC. (e) Being developed in collaboration with Spark Therapeutics, Inc. (f) Being developed in collaboration with Astellas. (g) Being developed in collaboration with AbbVie. AbbVie has the exclusive commercialization rights to this investigative therapy in the U.S. and Canada; Pfizer leads the joint development program and has commercialization rights in all other countries. (h) Being developed in collaboration with Astellas. (i) Keytruda is a registered trademark of Merck Sharp & Dohme Corp. (j) Being developed in collaboration with Genmab. (k) January 2024 filing date refers to application for conversion from accelerated to full approval. The following provides information about additional indications and new drug candidates in late-stage development: PRODUCT/CANDIDATE PROPOSED DISEASE AREA 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 Talzenna (talazoparib) Combination with Xtandi (enzalutamide) for DNA Damage Repair-deficient mCSPC Ngenla (somatrogon) (b) Adult growth hormone deficiency Braftovi (encorafenib) and Erbitux® (cetuximab) (c) First-line BRAF V600E -mutant mCRC Paxlovid (nirmatrelvir; ritonavir) COVID-19 in high-risk children (6-11 years of age; >88lbs) Litfulo (ritlecitinib) Vitiligo Elrexfio (elranatamab) Multiple myeloma double-class exposed Newly diagnosed multiple myeloma post-transplant maintenance Newly diagnosed multiple myeloma transplant-ineligible Oxbryta (voxelotor) Sickle cell disease (pediatric) Eliquis (apixaban) (d) Venous thromboembolism (pediatric) Abrysvo (vaccine) Active immunization to prevent RSV infection in adults (18-59) Padcev (enfortumab vedotin) (e) Cisplatin-ineligible/decline muscle-invasive bladder cancer Cisplatin-eligible muscle-invasive bladder cancer Tukysa (tucatinib) HER2+ adjuvant breast cancer 2nd line/3rd line HER2+ metastatic breast cancer 1st line HER2+ metastatic colorectal cancer NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT giroctocogene fitelparvovec (PF-07055480) (f) 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) VLA15 (PF-07307405) vaccine (g) Immunization to prevent Lyme disease PF-07252220 (quadrivalent mRNA-based vaccine) Immunization to prevent influenza Vepdegestrant (PF-07850327) (h) Breast cancer metastatic - 2 nd line ER+/HER2- inclacumab (PF-07940370) Sickle cell disease Ibrance + vepdegestrant (h) ER+/HER2- metastatic breast cancer Dazukibart (PF-06823859) Dermatomyositis, polymyositis Disitamab vedotin (i) 1st line HER2 (≥IHC1+) metastatic urothelial cancer PF-07926307 (COVID/flu combo vaccine) (j) Immunization to prevent COVID infection and influenza sisunatovir (PF-07923568) Respiratory syncytial virus infection (adults) Note: Braftovi/Mektovi/Keytruda previously listed as a late-stage clinical candidate is no longer considered registrational and has been removed. Note: Zavzpret oral for the prevention of chronic migraine previously listed as a late-stage clinical candidate has been removed. (a) Being developed in collaboration with The Alliance Foundation Trials, LLC. (b) Being developed in collaboration with OPKO. (c) 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. (d) Being developed in collaboration with BMS. (e) Being developed in collaboration with Astellas. (f) Being developed in collaboration with Sangamo Therapeutics, Inc. (g) Being developed in collaboration with Valneva. (h) Vepdegestrant is being developed in collaboration with Arvinas. (i) Being developed in collaboration with RemeGen Co., Ltd. (j) Being developed in collaboration with BioNTech. Pfizer Inc. 2023 Form 10-K 43 For additional information about our R&D organization, see Note 17 and the Item 1. Business — Research and Development section. For additional information regarding certain collaboration arrangements, see Item 1. Business — Collaboration and Co-Promotion Agreements . 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. Adjusted Income and Adjusted Diluted EPS Amortization of Intangible Assets —Adjusted income excludes all amortization of intangible assets. Acquisition-Related Items –– Adjusted income excludes certain acquisition-related items, which are composed of transaction, integration, restructuring charges and additional depreciation costs for business combinations because these costs are unique to each 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 include purchase accounting impacts such as the incremental charge to cost of sales from the sale of acquired inventory that was written up to fair value, depreciation related to the increase/decrease in fair value of acquired fixed assets, amortization related to the increase in fair value of acquired debt, and the fair value changes for contingent consideration. Pfizer Inc. 2023 Form 10-K 44 Discontinued Operations –– Adjusted income excludes 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 excludes 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 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, 2023 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 $ 24,954 $ 14,771 $ (835) $ 2,119 $ 0.37 Amortization of intangible assets — — — 4,733 Acquisition-related items (629) (11) (28) 1,874 Discontinued operations (d) — — — (11) Certain significant items: Restructuring charges/(credits) and implementation costs and additional depreciation—asset restructuring (e) (98) (290) — 2,227 Certain asset impairments (f) — — (3,024) 3,024 (Gains)/losses on equity securities (f) — — 1,588 (1,588) Actuarial valuation and other pension and postretirement plan (gains)/losses — — 265 (265) Other (238) (g) (24) (246) (h) 518 Income tax provision—Non-GAAP items (2,131) Non-GAAP Adjusted $ 23,988 $ 14,446 $ (2,281) $ 10,501 $ 1.84 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) (h) 752 Income tax provision—Non-GAAP items (1,683) Non-GAAP Adjusted $ 34,096 $ 13,049 $ (1,954) $ 37,717 $ 6.58 Pfizer Inc. 2023 Form 10-K 45 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) (i) (334) (h) 542 Income tax provision—Non-GAAP items (2,250) Non-GAAP Adjusted $ 30,685 $ 12,071 $ (2,475) $ 23,196 $ 4.06 (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: (105.4)% in 2023, 9.6% in 2022 and 7.6% in 2021. See Note 5 . Our effective tax rates for non-GAAP Adjusted income were: 9.0% in 2023, 11.7% in 2022 and 14.5% in 2021. (b) Includes reconciling amounts for Research and development expenses that are not material to our non-GAAP consolidated results of operations. (c) For 2023, the total acquisition-related items of $1.9 billion include reconciling amounts for Restructuring charges and certain acquisition-related costs of $1.2 billion, mainly composed of $785 million of integration costs and other charges, $190 million of transaction costs and $125 million of employee termination-related charges. For 2022, the total acquisition-related items of $832 million included 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) 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 2023, the total of $238 million mainly includes $286 million in inventory losses, overhead costs related to the period in which the facility could not operate, and incremental costs resulting from tornado damage to our manufacturing facility in Rocky Mount, NC, partially offset by insurance recoveries. (h) For 2023, the total of $246 million includes charges of (i) $474 million for certain legal matters, primarily representing certain product liability and other legal expenses related to products discontinued and/or divested by Pfizer, and to a lesser extent, legal obligations related to pre-acquisition matters, and (ii) $127 million mostly related to our equity-method accounting pro-rata share of intangible asset amortization and impairments, costs of separating from GSK and restructuring costs recorded by Haleon, partially offset by: (i) a $222 million gain on the divestiture of our early-stage rare disease gene therapy portfolio to Alexion, and (ii) dividend income of $211 million related to our investment in Nimbus resulting from Takeda’s acquisition of Nimbus’s oral, selective allosteric tyrosine kinase 2 (TYK2) inhibitor program subsidiary. For 2022, the total of $636 million included charges of (i) $307 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of separating 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) $230 million for certain legal matters, primarily representing c ertain product liability and other legal expenses related to products discontinued and/or divested by Pfizer . For 2021, the total of $334 million included charges of (i) $185 million mostly representing our equity-method accounting pro rata share of restructuring charges and costs of separating from GSK recorded by the Consumer Healthcare JV, and (ii) $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 matters . (i) For 2021, the total of $141 million primarily included costs for consulting, legal, tax and advisory services associated with a non-recurring internal reorganization of legal entities. Pfizer Inc. 2023 Form 10-K 46 ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS For a discussion of the drivers of change for 2022 versus 2021 as well as cash flows from discontinued operations in 2021, see the Analysis of the Consolidated Statements of Cash Flows section within MD&A in our 2022 Form 10-K. Cash Flows from Continuing Operations Year Ended December 31, (MILLIONS) 2023 2022 2021 Drivers of change 2023 v. 2022 Cash provided by/(used in): Operating activities from continuing operations $ 8,700 $ 29,267 $ 32,922 The change was driven primarily by a decrease in net income adjusted for non-cash items and the timing of receipts and payments in the ordinary course of business, partially offset by net changes in inventory greater than one year (see Note 8A ). Investing activities from continuing operations $ (32,278) $ (15,783) $ (22,534) The change was driven mainly by $43.4 billion cash paid in 2023 for the acquisition of Seagen, net of cash acquired, compared with $23.0 billion cash paid in 2022 for acquisitions (Biohaven, $11.5 billion, Arena, $6.2 billion and GBT, $5.2 billion), net of cash acquired (see Note 2A ), as well as 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 a $5.5 billion increase in net redemptions of short-term investments in 2023 and a $1.7 billion decrease in purchases of long-term investments. Financing activities from continuing operations $ 26,066 $ (14,834) $ (9,816) The change was driven mostly by $30.8 billion of proceeds from the issuance of long-term debt in May of 2023 and a $7.9 billion increase in net proceeds from the issuance of short-term borrowings. ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK Our historically robust operating cash flow, which we expect to continue over time, is a key strength of our liquidity and capital resources and our primary funding source. We believe as a result of this, together with our financial assets, access to capital markets, revolving credit agreements, and available lines of credit, 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 section within MD&A • Cash and cash equivalents Consolidated Balance Sheets • Money market funds Note 7A • Available-for-sale debt securities Note 7A , 7B • Equity investments 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, 2023 and 2022, see the Analysis of the Consolidated Statements of Cash Flows section within MD&A. Financing for Seagen Acquisition ––As part of the financing for our acquisition of Seagen, we issued $31 billion of long-term debt in May 2023 and $8 billion of commercial paper in the fourth quarter of 2023. The net proceeds from long-term debt were invested in short-term investments in a combination of money market funds and available-for-sale debt securities until the completion of the acquisition. Pfizer Inc. 2023 Form 10-K 47 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 March 2023, following the announcement of the proposed acquisition of Seagen, Moody’s changed its outlook on our long-term debt to Negative; S&P downgraded our short-term rating from A-1+ to A-1. In October 2023, following the announcement of the amended Paxlovid supply agreement with the U.S. government and updated 2023 guidance, S&P changed its outlook on our long-term debt to Negative. In December 2023, following the release of 2024 guidance (i) Moody’s downgraded our long-term rating from A1 to A2 and changed its outlook on our long-term debt to Stable and (ii) S&P downgraded our long-term rating from A+ to A and changed its outlook on our long-term debt to Stable. As of the date of the filing of this Form 10-K, the following ratings have been 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 A2 Stable Outlook S&P A-1 A Stable Outlook These ratings are not a recommendation to buy, sell or hold securities and the ratings are 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 enhance shareholder value and is based on three core pillars: growing our dividend, reinvesting in the business and making share repurchases after de-levering our balance sheet. See the Overview of Our Performance, Operating Environment, Strategy and Outlook — O ur Business and Strategy section within 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. On December 14, 2023, our BOD declared a first-quarter dividend of $0.42 per share, payable on March 1, 2024, to shareholders of record at the close of business on January 26, 2024. The first-quarter 2024 cash dividend will be our 341st consecutive quarterly dividend. As of December 31, 2023, 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, 2023 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, 2023 total $6.0 billion, of which an estimated $1.5 billion is to be paid in the next twelve months and an estimated $4.5 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 $5.2 billion, of which an estimated $1.3 billion is to be paid in the next twelve months, and $3.9 billion in periods thereafter (see Note 16C ); • Purchases of PP&E (see Note 9 ). In 2024, we expect to spend approximately $3.7 billion on PP&E; and • Future minimum rental commitments under non-cancelable operating leases (see Note 15 ). Global Economic Conditions ––Venezuela, Argentina and Turkey operations function in a hyperinflationary economy. The impact to Pfizer is not considered material. See the Item 1A. Risk Factors––Global Operations section. 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 1F and 7E , as well as the Item 1A. Risk Factors—Global Operations section 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 move against all other currencies by 10%, as of December 31, 2023, the expected 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 change in interest rates as of December 31, 2023, the expected impact on our net income would not be significant. Equity Price Risk ––We hold long-term investments in equity securities with readily determinable fair values in life science companies as a result of certain business development transactions (see Note 7B ). 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 Pfizer Inc. 2023 Form 10-K 48 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 impact on our net income would not be significant. NEW ACCOUNTING STANDARDS Recently Adopted Accounting Standards See Note 1B . Recently Issued Accounting Standards, Not Adopted as of December 31, 2023 Standard/Description Effective Date Effect on the 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. The new guidance is consistent with our current policy, and it will not have an impact on our consolidated financial statements. In November 2023, the FASB issued final guidance to improve transparency of segment disclosures . The final guidance requires the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, other segment items by reportable segment and a description of its composition, and requires all current annual disclosures be provided in interim periods. January 1, 2024 for annual reports and January 1, 2025 for interim reports. Early adoption is permitted. This new guidance will result in increased disclosures in the notes to our financial statements. In December 2023, the FASB issued final guidance to improve income tax disclosures . The final guidance requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information. January 1, 2025, with early adoption 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. 2023 Form 10-K 49