Acquisitions, Discontinued Operations and Equity-Method Investment

3 Months Ended

Apr. 02, 2023

Business Combinations, Disposal Groups, Including Discontinued Operations, Equity Method Investments And Research And Development Arrangement [Abstract]

Acquisitions, Discontinued Operations and Equity-Method Investment

A. Acquisitions

GBT––On October 5, 2022, we acquired GBT, a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments for underserved patient communities, starting with sickle cell disease. The total fair value of the consideration transferred was $5.7 billion ($5.2 billion, net of cash acquired). In connection with this business combination, we provisionally recorded: (i) $4.4 billion in Identifiable intangible assets, consisting of $3.0 billion of IPR&D and $1.4 billion of developed technology rights with a useful life of six years, (ii) $1.1 billion of Goodwill, (iii) $672 million of inventories to be sold over approximately three years, (iv) $568 million of net deferred tax liabilities and (v) $331 million of assumed long-term debt that was paid in full in the fourth quarter of 2022. The allocation of the consideration transferred to the assets acquired and liabilities assumed has not yet been finalized.

Biohaven––On October 3, 2022, we acquired Biohaven, the maker of Nurtec ODT/Vydura (rimegepant), an innovative therapy approved for both acute treatment of migraine and prevention of episodic migraine in adults. The total fair value of the consideration transferred was $11.8 billion, which includes the fair value of Pfizer’s previous investment in Biohaven on the acquisition date of approximately $300 million. In connection with this business combination, we provisionally recorded: (i) $12.1 billion in Identifiable intangible assets, consisting of $11.6 billion of developed technology rights with a useful life of 11 years and $450 million of IPR&D, (ii) $817 million of inventories to be sold over approximately two years, (iii) $797 million of Goodwill, (iv) $398 million of trade accounts receivable, (v) $1.4 billion of assumed long-term debt that was paid in full in the fourth quarter of 2022, (vi) $566 million of net deferred tax liabilities and (vii) $476 million of Other current liabilities. The allocation of the consideration transferred to the assets acquired and liabilities assumed has not yet been finalized.

Arena––On March 11, 2022, we acquired Arena, a clinical stage company with development-stage therapeutic candidates in gastroenterology, dermatology and cardiology. The total fair value of the consideration transferred was $6.6 billion ($6.2 billion, net of cash acquired). The final allocation of the consideration transferred to the assets acquired and the liabilities assumed was completed in the first quarter of 2023. In connection with this business combination, we recorded: (i) $5.5 billion in Identifiable intangible assets, consisting of $5.0 billion of IPR&D and $460 million of indefinite-lived licensing agreements and other, (ii) $1.0 billion of Goodwill and (iii) $490 million of net deferred tax liabilities.

B. Discontinued Operations

Discontinued operations––net of tax in the periods presented are post-close adjustments related to the previously disposed discontinued Meridian subsidiary and the Upjohn Business. In the three months ended April 2, 2023 and April 3, 2022, amounts recorded under interim agreements, including TSAs and MSAs, associated with these disposals were not material. Under agreements related to the 2020 spin-off and the combination of the Upjohn Business with Mylan to form Viatris, net amounts due from Viatris were approximately $57 million as of April 2, 2023 and net amounts due to Viatris were $94 million as of December 31, 2022. The cash flows associated with the agreements are included in Net cash provided by operating activities. For information about the nature of these agreements, see Note 2B in our 2022 Form 10-K.

C. Equity-Method Investment

Haleon/Consumer Healthcare JV––On July 18, 2022, GSK completed a demerger of the Consumer Healthcare JV which became Haleon, an independent, publicly traded company listed on the London Stock Exchange that holds the joint historical consumer healthcare business of GSK and Pfizer following the demerger. We continue to own 32% of the ordinary shares of Haleon after the demerger.

The carrying value of our investment in Haleon as of April 2, 2023 and as of December 31, 2022 is $11.0 billion and $10.8 billion, respectively, and is reported in Equity-method investments. The fair value of our investment in Haleon as of April 2, 2023, based on quoted market prices of Haleon stock, was $11.8 billion. Haleon/the Consumer Healthcare JV is a foreign investee whose reporting currency is the U.K. pound, and therefore we translate its financial statements into U.S. dollars and recognize the impact of foreign currency translation adjustments in the carrying value of our investment and in other comprehensive income. The increase in the value of our investment from December 31, 2022 is primarily due to $90 million in

pre-tax foreign currency translation adjustments (see Note 6) and our share of Haleon’s earnings. We record our share of earnings from Haleon/the Consumer Healthcare JV on a quarterly basis on a one-quarter lag in Other (income)/deductions––net. Our total share of Haleon’s earnings generated in the fourth quarter of 2022, which we recorded in our operating results in the first quarter of 2023, was $68 million. Our total share of the JV’s earnings generated in the fourth quarter of 2021, which we recorded in our operating results in the first quarter of 2022, was $185 million. The total amortization and adjustment of basis differences resulting from the excess of the initial fair value of our investment over the underlying equity in the carrying value of the net assets of Haleon/the Consumer Healthcare JV was not material to our results of operations in the periods presented. See Note 4.



Summarized financial information for our equity-method investee, Haleon/the Consumer Healthcare JV, for the three months ending December 31, 2022, the most recent period available, and for the three months ending December 31, 2021, is as follows:
	Three Months Ended
(MILLIONS)		December 31, 2022		December 31, 2021
Net sales		$	3,261	$	3,420
Cost of sales		(1,496)		(1,312)
Gross profit		$	1,766	$	2,108
Income from continuing operations		225		590
Net income		225		590
Income attributable to shareholders		211		578