Pfizer 2010 Annual Report Download - page 68

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
Bextra and Certain Other Investigations
In January 2009, we entered into an agreement-in-principle with the U.S. Department of Justice (DOJ) to resolve previously reported
investigations regarding past off-label promotional practices concerning Bextra, as well as certain other investigations. In connection
with these actions, in the fourth quarter of 2008, we recorded a charge of $2.3 billion, pre-tax and after-tax, in Other deductions—net
and such amount is included in Other current liabilities in 2008. In the third quarter of 2009, we reached final resolution of this matter
and no additional charge was recorded. The entire $2.3 billion was paid in 2009. We recorded a tax benefit of $174 million in the
third quarter of 2009 as such resolution resulted in the receipt of information that raised our assessment of the likelihood of
prevailing on the technical merits of our tax position. In addition, in September 2009, we settled state civil consumer protection
allegations related to our past promotional practices concerning Geodon and recorded a charge of $33 million.
Certain Product Litigation—Celebrex and Bextra
In October 2008, we reached agreements-in-principle to resolve the pending U.S. consumer fraud purported class action cases and
more than 90% of the known U.S. personal injury claims involving Celebrex and Bextra, and we reached agreements to resolve
substantially all of the claims of state attorneys general primarily relating to alleged Bextra promotional practices. In connection with
these actions, in the third quarter of 2008, we recorded pre-tax charges of approximately:
•$745 million applicable to all known U.S. personal injury claims;
•$89 million applicable to the pending U.S. consumer fraud purported class action cases; and
•$60 million applicable to agreements to resolve civil claims brought by 33 states and the District of Columbia, primarily relating to
alleged Bextra promotional practices. Under these agreements, we made a payment of $60 million to the states and have adopted
compliance measures that complement policies and procedures previously established by us.
These litigation-related charges were recorded in 2008 in Other deductions—net. Virtually all of this amount was paid in 2009.
During 2009, we recorded approximately $170 million in insurance recoveries in Selling, informational and administrative expenses.
We believe that the charges of approximately $745 million will be sufficient to resolve all U.S. personal injury claims that were known
at the time of the agreement-in-principle, including those that had not been settled at the time. However, additional charges may
have to be taken in the future in connection with certain pending claims and unknown claims relating to Celebrex.
D. Acquisitions
Acquisition of FoldRx Pharmaceuticals, Inc.
On October 6, 2010, we completed our acquisition of FoldRx Pharmaceuticals, Inc. (FoldRx), a privately-held drug discovery and
clinical development company, whose portfolio includes clinical and preclinical programs for investigational compounds to treat
diseases caused by protein misfolding. FoldRx’s lead product candidate, tafamidis meglumine, is in registration in both the U.S. and
the EU as a first-in-class oral therapy for the treatment of transthyretin amyloid polyneuropathy (ATTR-PN), a progressively fatal
genetic neurodegenerative disease, for which liver transplant is the only treatment option currently available. The total consideration
for the acquisition was approximately $400 million, which consisted of an upfront payment to FoldRx’s shareholders of about $200
million and contingent consideration with an estimated acquisition-date fair value of about $200 million. The contingent consideration
consists of up to $455 million in additional payments that are contingent upon the attainment of future regulatory and commercial
milestones. In connection with this acquisition, we recorded an asset of approximately $500 million in Identifiable intangible assets—
in-process research and development. The goodwill resulting from the acquisition was approximately $60 million.
The fair value of the contingent consideration of about $200 million at the acquisition date was estimated by utilizing a probability
weighted income approach. We started with an estimate of the probability weighted potential cash payments by year, based on our
expectation as to when the future regulatory and commercial milestones might be achieved, and then we discounted each of those
projected payments to arrive as a present value amount. Subsequent to the acquisition date, we remeasure the contingent
consideration liability at current fair value at every reporting period with changes recorded in Other deductions—net in our
consolidated statements of income.
Other Acquisitions
We completed the following additional acquisitions during the year ended December 31, 2008:
•In the fourth quarter of 2008, we completed the acquisition of a number of animal health product lines from Schering-Plough
Corporation (Schering-Plough) for approximately $170 million.
•In the second quarter of 2008, we acquired Encysive Pharmaceuticals Inc. (Encysive), a biopharmaceutical company whose main
product was Thelin (see Note 3B. Asset Impairment Charges), through a tender offer, for approximately $200 million, including
transaction costs. In addition, in the second quarter of 2008, we acquired Serenex, Inc. (Serenex), a privately held biotechnology
company. In connection with these acquisitions, we recorded approximately $170 million in Acquisition-related in-process research and
development charges and approximately $450 million in intangible assets.
•In the first quarter of 2008, we acquired CovX, a privately held biotherapeutics company, and we acquired all the outstanding shares of
Coley Pharmaceutical Group, Inc. (Coley), a biopharmaceutical company. In connection with these and two smaller acquisitions related
to Animal Health, we recorded approximately $440 million in Acquisition-related in-process research and development charges in 2008.
In 2010, we recorded $125 million and in 2009 we recorded $68 million in Acquisition-related in-process research and development
charges related to the resolution of certain contingencies and achievement of milestones associated with CovX.
66 2010 Financial Report