Pfizer 2015 Annual Report Download - page 18

Financial Review
Pfizer Inc. and Subsidiary Companies
2015 Financial Report
17
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. All of these judgments and estimates can materially impact our results of operations.
Property, Plant and Equipment—The fair value of acquired property, plant and equipment is determined using a variety of valuation
approaches, depending on the nature of the asset and the quality of available information. The fair value of acquired property, plant and
equipment was primarily determined as follows:
• Land––Market, a sales comparison approach that measures value of an asset through an analysis of sales and offerings of comparable
property.
• Buildings, Machinery and equipment and Furniture and fixtures—Replacement cost, an approach that measures the value of an asset by
estimating the cost to acquire or construct comparable assets. For buildings that are not highly specialized or that could be income
producing if leased to a third party, we also considered market and income factors.
• Construction in progress—Replacement cost, generally assumed to equal historical book value.
The amounts recorded for the major components of acquired property, plant and equipment are as follows:
(MILLIONS OF DOLLARS)
Useful Lives
(Years)
Amounts Recognized
As of Acquisition Date
Land $111
Buildings 33—50 556
Machinery and equipment 8—20 1,060
Furniture, fixtures and other 3—121/2 141
Construction in progress 542
Total Property, plant and equipment $2,410
The fair value of property, plant and equipment will be recognized in our results of operations over the expected useful life of the individual
depreciable assets.
Some of the more significant inputs, estimates and assumptions inherent in the estimate of the fair value of property, plant and equipment
include the nature, age, condition or location of the land, buildings, machinery and equipment, furniture and fixtures, and construction in
progress, as applicable, as well as the estimate of market and replacement cost and the determination of the appropriate valuation premise,
in-use or in-exchange. The in-use valuation premise assesses the value of an asset when used in combination with other assets (for example,
on an installed basis), while the in-exchange valuation assesses the value of an asset on a stand alone basis. All of these judgments and
estimates can materially impact our results of operations.
Identifiable Intangible Assets—The fair value of acquired identifiable intangible assets generally is determined using an income approach. This
method starts with a forecast of all of the expected future net cash flows associated with the asset and then adjusts the forecast to present
value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.
The fair value of acquired identifiable intangible assets is composed of finite-lived developed technology rights with a weighted-average life of
approximately 17 years ($7.7 billion); other finite-lived identifiable intangible assets with a weighted-average life of approximately 12 years
($550 million); and IPR&D assets ($995 million). For information about our identifiable intangible assets, see Notes to Consolidated Financial
Statements––Note 10. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets.
As of the acquisition date, we recognized IPR&D assets of $660 million for biosimilar programs and $335 million for sterile injectable
programs.
Biosimilar IPR&D Acquired Assets:
• In order to eliminate certain redundancies in Pfizer’s biosimilar drug products pipeline created as a result of the acquisition of Hospira, in
September 2015 we opted to return to Celltrion Inc. and Celltrion Healthcare, Co., Ltd. (collectively Celltrion) rights that Hospira had
previously acquired to potential biosimilars to Rituxan® (rituximab) and Herceptin® (trastuzumab). In connection with the return of these
rights, we wrote-off these IPR&D assets, totaling $170 million. See the “Product Developments—Biopharmaceutical” section of this
Financial Review and Notes to Consolidated Financial Statements—Note 3. Restructuring Charges and Other Costs Associated with
Acquisitions and Cost-Reduction/Productivity Initiatives for additional information.
• The higher value remaining biosimilar IPR&D assets acquired from Hospira have been submitted to the FDA for approval and include the
following potential biosimilars for (i) epoetin alfa (treatment of anemia in dialysis and oncology applications) and (ii) infliximab (rheumatoid
arthritis and gastrointestinal disorders). These biosimilars and filgrastim (oncology) are already available in certain markets outside the
U.S. Filgrastim in the U.S. market and other biosimilar IPR&D assets acquired from Hospira are in late-stage development. See the
“Product Developments––Biopharmaceutical” section of this Financial Review for additional information about these programs.
Sterile Injectable IPR&D Acquired Assets:
• The sterile injectable IPR&D assets acquired from Hospira are in various therapeutic areas including anti-infectives, oncology,
cardiovascular and neurology, among others. The sterile injectable IPR&D assets are in various stages of development with anticipated
launch dates across 2016, 2017 and 2018.
The fair value of finite-lived identifiable intangible assets will be recognized in our results of operations over the expected useful life of the
individual assets.