Pfizer 2012 Annual Report Download - page 69

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
68
2012 Financial Report
The following table provides the amounts and classification of payments (income/(expense)), between us and our collaboration partners:
Year Ended December 31,
(MILLIONS OF DOLLARS) 2012 2011 2010
Revenues—Revenues(a) $1,231 $1,029 $710
Revenues—Alliance revenues(b) 3,492 3,630 4,084
Total revenues from collaborative arrangements 4,723 4,659 4,794
Cost of sales(c) (362)(420)(124)
Selling, informational and administrative expenses(d) (290)(237)(131)
Research and development expenses(e) (74)(299)(316)
Other deductions—net (15)34 37
(a) Represents sales to our partners of products manufactured by us.
(b) Substantially all relate to amounts earned from our partners under co-promotion agreements.
(c) Primarily relates to royalties earned by our partners and cost of sales associated with inventory purchased from our partners.
(d) Represents net reimbursements to our partners for selling, informational and administrative expenses incurred.
(e) Primarily related to net reimbursements, as well as upfront payments and pre-approval milestone payments earned by our partners. The upfront and milestone
payments were as follows: $44 million in 2012, $210 million in 2011 and $147 million in 2010.
The amounts disclosed in the above table do not include transactions with third parties other than our collaboration partners, or other costs
associated with the products under the collaborative arrangements. In addition, during 2012 and 2011, we paid $29 million and $61 million,
respectively, in post-approval milestones to collaboration partners. These payments were recorded in Identifiable intangible assets––
Developed technology rights.
D. Equity-Method Investments
ViiV Healthcare Limited (ViiV)
On October 31, 2012, our equity-method investee, ViiV, acquired the remaining 50% of Shionogi-ViiV Healthcare LLC, its equity-method
investee, from Shionogi & Co., Ltd. (Shionogi) in consideration for a 10% interest in ViiV (newly issued shares) and contingent consideration in
the form of future royalties. As a result of this transaction, ViiV recorded a gain associated with the step-up on the 50% interest previously held
by ViiV. Also, Pfizer's equity interest in ViiV was reduced from 15% to 13.5% and GlaxoSmithKline plc's equity interest was reduced from 85%
to 76.5%. As a result of the above, we recognized a gain of $44 million, which was recorded in Other deductions––net, in the fourth quarter of
2012. Our investment in ViiV is accounted for under the equity method due to the significant influence that we have over the operations of ViiV
through our board representation and minority veto rights.
Investment in Hisun Pfizer Pharmaceuticals Company Limited
On September 6, 2012, Pfizer and Zhejiang Hisun Pharmaceuticals Co., Ltd., a leading Chinese pharmaceutical company, created a new
company, Hisun Pfizer Pharmaceuticals Company Limited (HPP), to develop, manufacture and commercialize off-patent pharmaceutical
products in China and global markets. In accordance with our international reporting periods, this transaction was accounted for in the fourth
quarter of 2012. HPP was established with registered capital of $250 million. Zhejiang Hisun Pharmaceuticals holds a 51% equity interest and
Pfizer holds a 49% equity interest in HPP. In 2013, the parties will contribute select existing products to HPP, which will have a broad portfolio
covering cardiovascular disease, infectious disease, oncology, mental health, and other therapeutic areas. See also Note 19B. Subsequent
Events: Hisun Pfizer Pharmaceuticals Company Limited (HPP). The parties will also contribute manufacturing sites, cash and other relevant
assets. Our investment in HPP is accounted for under the equity method due to the significant influence that we have over the operations of
HPP through our board representation, minority veto rights and 49% voting interest.
Investment in Laboratório Teuto Brasileiro
On November 8, 2010, we consummated our partnership to develop and commercialize generic medicines with Laboratório Teuto Brasileiro
S.A. (Teuto) a leading generics company in Brazil. As part of the transaction, we acquired a 40% equity stake in Teuto, and entered into a
series of commercial agreements. The partnership is enhancing our position in Brazil, a key emerging market, by providing access to Teuto’s
portfolio of products. Through this partnership, we have access to significant distribution networks in rural and suburban areas in Brazil, and
the opportunity to register and commercialize Teuto’s products in various markets outside Brazil. Under the terms of our purchase agreement
with Teuto, we made an upfront payment at the closing of approximately $230 million. On May 23, 2012, we made a performance-based
milestone payment to Teuto of $91.5 million, which was recorded as an additional investment in Teuto. We have an option to acquire the
remaining 60% of Teuto’s shares beginning in 2014, and Teuto’s shareholders have an option to sell their 60% stake to us beginning in 2015.
The portion of the total arrangement consideration that was allocated to the net call/put option, based on relative fair values of the 40% equity
investment and the net option, is being accounted for at cost and will be evaluated for impairment on an ongoing basis. Our investment in
Teuto is accounted for under the equity method due to the significant influence we have over the operations of Teuto through our board
representation, minority veto rights and 40% voting interest.