•

On February 3, 2017, we completed the sale of our global infusion therapy net assets, HIS, to ICU Medical. The operating results of HIS are included in the condensed consolidated statement of income and EH’s operating results through February 2, 2017 and, therefore, our financial results, and EH’s operating results, for the second quarter of 2017 do not reflect any contribution from HIS global operations, while our financial results, and EH’s operating results, for the second quarter of 2016 reflect three months of HIS global operations. Our financial results, and EH’s operating results, for the first six months of 2017 reflect approximately one month of HIS domestic operations and approximately two months of HIS international operations, while our financial results, and EH’s operating results, for the first six months of2016 reflect six months of HIS global operations. Assets and liabilities associated with HIS are presented as held for sale in the condensed consolidated balance sheet as of December 31, 2016. The HIS assets held for sale are reported in Assets held for sale and HIS liabilities held for sale are reported in Other current liabilities.

•

On September 28, 2016, we acquired Medivation for $81.50 per share. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Medivation. Therefore, Medivation operations are reflected in our financial results, IH’s operating results, and cash flows for the second quarter and first six months of 2017, but not for the second quarter and first six months of 2016.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

•

On June 24, 2016, we acquired Anacor for $99.25 per share. Commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Anacor. Therefore, Anacor operations are reflected in our financial results, IH’s operating results, and cash flows for the second quarter and first six months of 2017, but for only five days in the second quarter and first six months of 2016.

~~On September 3, 2015, we completed our acquisition~~For additional information, see Note 2 and Notes to Consolidated Financial Statements––Note 2. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and ~~commencing from the acquisition date, our financial statements reflect the assets, liabilities, operating results and cash flows of Hospira. As a result, legacy Hospira operations are reflected~~ Equity-Method Investments in ~~our results of operations, EH’s operating results, and cash flows for the second quarter and first six months of~~ Pfizer’s 2016 ~~but not for the second quarter and first six months of 2015. Legacy Hospira assets and liabilities are reflected in our balance sheets as of July 3, 2016 and December 31, 2015.~~

Financial Report.

B. Adoption of New Accounting Standards

WeIn the fourth quarter of 2016, we adopted a new accounting standard for certain elements of the accounting for share-based payments as of January 1, ~~2016 that changed~~2016. Specifically, the ~~presentation~~new standard requires excess tax benefits or deficiencies (including tax benefits of ~~debt issuance costs related~~dividend equivalents) of share-based compensation to abe recognized ~~debt liability~~ as a ~~direct deduction~~component of the Provision for taxes on income, whereas excess tax benefits or deficiencies previously were recognized in Additional paid-in capital. The net tax benefit for the Company was $28 million for the second quarter of 2016 and $50 million for the first six months of 2016. Also, in the diluted net earnings per share calculation, when applying the treasury stock method for shares that could be repurchased, the assumed proceeds no longer include the amount of excess tax benefit.

Another element of the new accounting standard requires that we now present excess tax benefits as operating activities in our consolidated statements of cash flow. We elected to adopt this presentation on a prospective basis as of January 1, 2016. Additionally, cash paid by us when directly withholding shares for tax-withholding purposes is now a cash outflow from financing activities. This reclassification was required to be adopted retrospectively. As a result, $51 million of cash outflows for the ~~carrying value~~first six months of ~~that associated debt, consistent with~~2016 was reclassified from operating activities to financing activities in the presentation of a debt discount. The update does not impact the measurement or recognition of debt issuance costs. As of July 3, 2016, debt issuance costs were $93 million and are presented as contra-liabilities to ~~Short-term borrowings, including current portion of long-term debt~~ ~~($2 million) and~~ ~~Long-termdebt~~ ~~($91 million). In the December 31, 2015~~ condensed consolidated ~~balance sheet, we have reclassified debt issuance costs~~statement of ~~$79 million ($1 million from~~ ~~Other current assets~~ ~~and $79 million from~~ ~~Other noncurrent assets) and have presented them as contra-liabilities to~~ ~~Short-term borrowings, including current portion of long-term debt~~ ~~($1 million) and~~ ~~Long-termdebt~~ ~~($79 million) to conform to the current period presentation.~~cash flows. For additional information, see Notes to Consolidated Financial Statements––Note ~~7A.~~1B. Basis of Presentation and SignificantAccounting Policies:Adoption of New Accounting Standards included in our 2016 Financial Report.

We adopted a new standard as of January 1, 2016 that requires an acquirer to recognize adjustments made in the measurement period to provisional amounts of assets acquired and liabilities assumed in a business combination in the reporting period in which the adjustment amounts are determined. There was no material impact to our condensed consolidated financial statements in the second quarter and first six months of 2016 from adopting this standard. For additional information, see ~~Note 2A.~~

We adopted a new standard as of January 1, ~~2016~~2017 that amended guidance on the assessment of whether an entity is the primary beneficiary of a variable interest entity. Under this new guidance, when evaluating whether an entity is the primary beneficiary, a single decision maker must consider its indirect interest held through related ~~to the accounting for hybrid financial instruments issued or held as investments and there~~parties under common control proportionately. There was no material impact to our condensed consolidated financial statements from adopting this standard.

~~C. Fair Value~~

~~Our fair~~We adopted a new standard as of January 1, 2017 related to inventory. The new guidance requires that inventory be measured at the lower of cost or net realizable value, ~~methodologies depend on~~which is defined as the ~~following types~~estimated selling prices in the ordinary course of ~~inputs:~~

~~Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).~~

Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principallybusiness, less reasonably predictable costs of completion, disposal, and transportation. There was no material impact to our condensed consolidated financial statements from ~~or corroborated by, observable market data by correlation or other means (Level 2 inputs).~~

~~Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).~~

~~A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.~~adopting this standard.

Note 2. Acquisitions, ~~Research~~Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and ~~Development and Collaborative Arrangements,~~ Equity-Method Investments ~~and Cost-Method Investment~~

A. Acquisitions

AstraZeneca’s Small Molecule Anti-Infectives Business (EH)

On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S., including the commercialization and development rights to the newly approved EU drug Zavicefta™ (ceftazidime-avibactam), the marketed agents Merrem™/Meronem™ (meropenem) and Zinforo™ (ceftaroline fosamil), and the clinical development assets ATM-AVI and CXL (ceftaroline fosamil-AVI). Under the terms of the agreement, we made an upfront payment of approximately $552 million to AstraZeneca upon the close of the transaction and an additional $3 million payment for a contractual purchase price adjustment in the second quarter of 2017. We also made a $50 million milestone payment to AstraZeneca in the second quarter of 2017 and will make a deferred payment of $175 million in January 2019. In addition, AstraZeneca is eligible to receive up to $200 million in additional milestone payments, and up to $600 million if sales of Zavicefta™ exceed certain thresholds during the next nine years, as well as tiered royalties on sales of Zavicefta™ and ATM-AVI in certain markets for a period ending on the later of ten years or the loss of patent protection or loss of regulatory exclusivity. The total royalty payments are unlimited during the royalty term and the undiscounted payments are expected to be in the range of approximately $250 million to $425 million. The total fair value of consideration transferred for AstraZeneca’s small molecule anti-infectives business was approximately $1,045 million, which includes $555 million in cash, plus the fair value of contingent consideration of $490 million (which is composed of the deferred payment, the $50 million milestone

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

payment made in the second quarter of 2017 and the future expected milestone and royalty payments). In connection with this acquisition, we provisionally recorded $902 million in Identifiable intangible assets, primarily consisting of $683 million in Developed technology rights and $219 million in IPR&D. We also recorded $96 million in Other current assets related to the economic value of inventory which was retained by AstraZeneca for sale on our behalf, $68 million in Goodwill and $20 million of net deferred tax liabilities. The allocation of the consideration transferred to the assets and the liabilities assumed has not yet been finalized.

Medivation, Inc. (IH)

On September 28, 2016, we acquired Medivation for $81.50 per share. The total fair value of consideration transferred for Medivation was approximately $14.3 billion in cash ($13.9 billion, net of cash acquired). Of this consideration, approximately $365 million was not paid as of December 31, 2016, and was recorded in Other current liabilities. Substantially all of the remaining consideration was paid as of July 2, 2017. Medivation is now a wholly-owned subsidiary of Pfizer. Medivation is a biopharmaceutical company focused on developing and commercializing small molecules for oncology. Medivation’s portfolio includes Xtandi (enzalutamide), an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within tumor cells. Xtandi is being developed and commercialized through a collaboration with Astellas. Astellas has exclusive commercialization rights for Xtandi outside the U.S. In addition, Medivation has a development-stage oncology asset in its pipeline, talazoparib, which is currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer. In connection with this acquisition, we provisionally recorded $13.0 billion in Identifiable intangible assets, primarily consisting of $8.7 billion of Developed technology rights with an average useful life of approximately 12 years and $4.3 billion of IPR&D, and provisionally recorded $5.6 billion of Goodwill, $4.3 billion of net income tax liabilities, and $259 million of assumed contingent consideration. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.

Bamboo Therapeutics, Inc. (R&D)

On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately-held biotechnology company focused on developing gene therapies for the potential treatment of patients with certain rare diseases relating to neuromuscular conditions and those affecting the central nervous system, for $150 million, plus potential milestone payments of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. The total fair value of the consideration transferred for Bamboo was approximately $331 million, including cash of $130 million ($101 million, net of cash acquired), contingent consideration of $157 million, consisting of milestone payments, and the fair value of Pfizer’s previously held equity interest in Bamboo of $44 million. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. Upon acquiring the remaining interest in Bamboo, in the third quarter of 2016, we recognized a gain of $1 million on our existing investment in Other (income)/deductions––net. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant AAV vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility. Bamboo is now a wholly-owned subsidiary of Pfizer. In connection with this acquisition, we provisionally recorded $325 million of Identifiable intangible assets, consisting entirely of IPR&D. We also provisionally recorded $133 million of Goodwill and $93 million of net deferred tax liabilities. The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not yet been finalized.

Anacor Pharmaceuticals, Inc. (IH)

On June 24, 2016, ~~(the acquisition date),~~ we ~~completed our acquisition of~~acquired Anacor for $99.25 per share. The total fair value of consideration transferred for Anacor was approximately $4.9 billion in cash ($4.5 billion net of cash acquired), plus $698 million debt assumed. Anacor is now a wholly-owned subsidiary of Pfizer. Anacor is a biopharmaceutical company focused on novel small-molecule therapeutics derived from its boron chemistry platform. ~~Included within~~ Anacor’s ~~pipeline is~~crisaborole, a non-steroidal topical PDE-4 inhibitor with anti-inflammatory ~~properties.~~properties, was approved by the FDA on December 14, 2016 under the trade name Eucrisa. In connection with this acquisition, we recorded $698 million as the fair value of notes payable in cash, and ~~provisionally~~ recorded ~~$5.0~~$4.9 billion in Identifiable intangible assets, primarily consisting of $4.8 billion of ~~In-process research and development~~IPR&D, and ~~provisionally~~ recorded ~~$1.8 billion~~$646 million of Goodwill and ~~$1.6 billion~~$346 million of net ~~deferred~~income tax liabilities. ~~The allocation of the consideration transferred to the assets acquired and the liabilities assumed has not been finalized.~~

~~PFIZER INC. AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Hospira, Inc.~~

On September 3, 2015 (the acquisition date), we acquired Hospira, a leading provider of sterile injectable drugs and infusion technologies as well as a provider of biosimilars, for $90 per share in cash. The total fair value of consideration transferred for Hospira was approximately $16.1 billion in cash ($15.7 billion, net of cash acquired). Hospira is now a subsidiary of Pfizer. The combination of local Pfizer and Hospira entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps.

The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the acquisition date, as well as adjustments made in the first six months of 2016 to the provisional amounts initially recorded in 2015 (measurement period adjustments) with a corresponding change to goodwill. Certain estimated values are not yet finalized (see below) and are subject to change. We will finalize the amounts recognized as we obtain the information necessary to complete the analyses, but no later than one year from the acquisition date.

(MILLIONS OF DOLLARS)
Amounts Recognized
as of Acquisition Date (as previously reported as of December 31, 2015)

Measurement Period Adjustments^(a)

Amounts Recognized as of Acquisition Date (as adjusted)
Working capital, excluding inventories $ 274
$ (16 ) $ 257
Inventories 1,924
(23 ) 1,901
PP&E 2,410
(57 ) 2,352
Identifiable intangible assets, excluding IPR&D 8,270
20
8,290
IPR&D 995
35
1,030
Other noncurrent assets 408
(46 ) 362
Long-term debt (1,928 ) —
(1,928 )
Benefit obligations (117 ) —
(117 )
Net income tax accounts (3,394 ) 84
(3,310 )
Other noncurrent liabilities (39 ) —
(39 )
Total identifiable net assets 8,803
(4 ) 8,799
Goodwill 7,284
4
7,288
Net assets acquired/total consideration transferred $ 16,087
$ —
$ 16,087


^(a)	The changes in the estimated fair values are primarily to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date. The measurement period adjustments did not result from intervening events subsequent to the acquisition date.

~~The change in the provisional amounts did not have a material impact on our results of operations.~~

~~The following items are subject to change:~~

~~Amounts for certain legal and environmental contingencies, pending receipt of certain information that could affect provisional amounts recorded.~~

~~Amounts for intangibles and PP&E, pending finalization of valuation efforts.~~

Amounts for income tax assets, receivables and liabilities, pending the filing of Hospira pre-acquisition tax returns and the receipt of information including but not limited to that from taxing authorities, which may change certain estimates and assumptions used.

The following table provides supplemental pro forma information as if the acquisition of Hospira had occurred on January 1, 2014:

Unaudited Supplemental
Pro Forma Consolidated Results
Three Months Ended Six Months Ended
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) June 28,
2015
June 28,
2015
Revenues $ 13,037
$ 25,075
Net income attributable to Pfizer Inc. common shareholders 2,703
5,079
Diluted EPS attributable to Pfizer Inc. common shareholders 0.43
0.81

~~PFIZER INC. AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The unaudited supplemental pro forma consolidated results do not purport to reflect what the combined company’s results of operations would have been had the acquisition occurred on January 1, 2014, nor do they project the future results of operations of the combined company or reflect the expected realization of any cost savings associated with the acquisition. The actual results of operations of the combined company may differ significantly from the pro forma adjustments reflected here due to many factors. The unaudited supplemental pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and the liabilities assumed from Hospira.

The unaudited supplemental pro forma consolidated results reflect the historical financial information of Pfizer and Hospira, adjusted to give effect to the acquisition of Hospira as if it had occurred on January 1, 2014, primarily for the following pre-tax adjustments:

~~Elimination of Hospira’s historical intangible asset amortization expense (approximately $12 million in the second quarter of 2015 and $24 million in the first six months of 2015).~~

Additional amortization expense (approximately $124 million in the second quarter of 2015 and $251 million in the first six months of 2015) related to the preliminary estimate of the fair value of identifiable intangible assets acquired.

Additional depreciation expense (approximately $21 million in the second quarter of 2015 and $43 million in the first six months of 2015) related to the preliminary estimate of the fair value adjustment to PP&E acquired.

Adjustment related to the preliminary estimate of the non-recurring fair value adjustment to acquisition-date inventory estimated to have been sold (the addition of $5 million of charges in the second quarter of 2015 and $9 million of charges in the first six months of 2015).

~~Adjustment to decrease interest expense (approximately $10 million in the second quarter of 2015 and $20 million in the first six months of 2015) related to the fair value adjustment of Hospira debt.~~

Adjustment for non-recurring acquisition-related costs directly attributable to the acquisition (the elimination of $30 million of charges in the second quarter of 2015 and $44 million of charges in the first six months of 2015), reflecting non-recurring charges incurred by both Hospira and Pfizer, which would have been recorded in 2014 under the pro forma assumption that the Hospira acquisition was completed on January 1, 2014.

The above adjustments were adjusted for the applicable tax impact. The taxes associated with the adjustments related to the preliminary estimate of the fair value adjustment for acquired intangible assets, PP&E, inventory and debt reflect the statutory tax rates in the various jurisdictions where the adjustments are expected to be incurred. The taxes associated with the elimination of Hospira’s historical intangible asset amortization expense and the adjustment for the acquisition-related costs directly attributable to the acquisition were based on the tax rate in the jurisdiction in which the related deductible costs were incurred.

~~Marketed Vaccines Business of Baxter International Inc.~~

~~On December 1, 2014 (which falls in the first fiscal quarter of 2015 for our international operations), we acquired Baxter~~’s portfolio of marketed vaccines for a final purchase price of $648 million. The portfolio that was acquired consists of NeisVac-C and FSME-IMMUN/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-IMMUN/TicoVac is a vaccine that helps protect against tick-borne encephalitis. In connection with this acquisition, we recorded $376 million in ~~Identifiable intangible assets,~~ ~~primarily consisting of $371 million in~~ ~~Developed technology rights.~~ ~~We also recorded $194 million of~~ ~~Inventories~~ ~~and $12 million in~~ ~~Goodwill~~. The final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed.

B. Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)

On October 6, 2016, we announced that we entered into a definitive agreement under which ICU Medical would acquire all of our global infusion therapy net assets, HIS, for approximately $1 billion in cash and ICU Medical common stock. HIS includes IV pumps, solutions, and devices.As a result of the performance of HIS relative to ICU Medical’s expectations, on January 5, 2017, we entered into a revised agreement with ICU Medical under which ICU Medical would acquire HIS for up to

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~B. Research~~approximately $900 million, composed of cash and ~~Development~~contingent cash consideration, ICU Medical common stock and ~~Collaborative Arrangements~~seller financing.

~~Research~~The revised transaction closed on February 3, 2017. At closing, under the terms of the revised agreement, we received 3.2 million newly issued shares of ICU Medical common stock (as originally agreed), which we valued at approximately $428 million (based upon the closing price of ICU Medical common stock on the closing date less a discount for lack of marketability) and ~~Development Arrangement with NovaQuest Co-Investment Fund II, L.P.~~

which are reported in Long-term investments on the condensed consolidated balance sheet as of July 2, 2017, a promissory note in the amount of $75 million, which is reported in Other noncurrent assets on the condensed consolidated balance sheet as of July 2, 2017, and net cash of approximately $200 million before customary adjustments for net working capital, which is reported in Other investing activities, net on the condensed consolidated statement of cash flows for the six months ended July 2, 2017. In May 2016, our agreement with NovaQuest became effective, under which NovaQuest will fund up to $250 million in development costs related to certain Phase III clinical trials of Pfizer’s bococizumab compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligibleaddition, we are entitled to receive a ~~combination of fixed milestone payments~~contingent amount of up to ~~$195~~an additional $225 million in ~~total~~cash based on ICU Medical’s achievement of ~~first commercial sale and~~ certain ~~levels of~~ cumulative ~~net sales as well as royalties on bococizumab net sales over approximately nine years. NovaQuest’s development funding is expected to cover up to 40%~~performance targets for the combined company through December 31, 2019. After receipt of the ~~development costs and will be received over five quarters during 2016 and 2017. As there is a substantive and genuine~~ICU Medical shares, we own approximately 16% of ICU Medical. We have agreed to certain restrictions on transfer of ~~risk to NovaQuest,~~our ICU Medical shares for 18 months after the ~~development funding is recognized by us as an obligation to perform contractual services~~closing date. The promissory note from ICU Medical has a term of three years and ~~therefore is a reduction of~~ ~~Research~~bears interest at LIBOR plus 2.25% for the first year and ~~development expenses~~ ~~as incurred. The reduction to~~ ~~Research~~LIBOR plus 2.50% for the second and ~~development expenses~~ ~~for~~third years. In the second quarter and first six months of ~~2016 totaled $69.3 million. Fixed sales-based milestone payments will be~~2017, we recognized pre-tax losses of approximately $28 million and $64 million, respectively, in Other (income)/deductions––net, (see Note 4), representing incremental charges to amounts previously recorded ~~as intangible~~to write down the HIS net assets ~~and amortized~~ to ~~Amortization of intangible assets~~ ~~over~~fair value less costs to sell.

While we have received the ~~estimated commercial life~~full purchase price excluding the contingent amount as of the ~~bococizumab product~~February 3, 2017 closing, the sale of the HIS net assets was not completed in certain non-U.S. jurisdictions due to temporary regulatory or operational constraints. In these jurisdictions, which represent a relatively small portion of the HIS net assets, we continue to operate the net assets for the net economic benefit of ICU Medical, and ~~royalties on~~we are indemnified by ICU Medical against risks associated with such operations during the interim period, subject to our obligations under the definitive transaction agreements. We expect the sale of the HIS net ~~sales will~~assets in these jurisdictions to be ~~recorded~~completed by the first quarter of 2018. As such, and as ~~Cost~~we have already received all of ~~sales~~ ~~when incurred.~~the non-contingent proceeds from the sale and ICU Medical is contractually obligated to complete the transaction, we have treated these jurisdictions as sold for accounting purposes.

~~Research and Development Arrangement~~In connection with ~~NovaQuest Co-Investment Fund V, L.P.~~

~~In April 2016, Pfizer~~the sale transaction, we entered into ~~an agreement with NovaQuest under~~certain transitional agreements designed to facilitate the orderly transition of the HIS net assets to ICU Medical. These agreements primarily relate to administrative services, which ~~NovaQuest will fund up~~are generally to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvalsbe provided for ~~such compound. Following potential regulatory approval, NovaQuest will be eligible to receive~~ a ~~combination of fixed milestone payments~~period of up to ~~approximately $267 million in total based on achievement~~24 months after the closing date. We will also manufacture and supply certain HIS products for ICU Medical and ICU Medical will manufacture and supply certain retained Pfizer products for us after closing, generally for a term of ~~first commercial sale~~five years. These agreements are not material to Pfizer and ~~certain levels~~none confers upon us the ability to influence the operating and/or financial policies of ~~cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. NovaQuest’s development funding is expected~~ICU Medical subsequent to ~~cover up to 100% of~~ the development costs and will be received over approximately twelve quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of ~~Research and development expenses~~ ~~as incurred. The reduction to~~ ~~Research and development expenses~~ ~~for the second quarter and first six months of 2016 totaled $15.0 million. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to~~ ~~Amortization of intangible assets~~ ~~over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as~~ ~~Cost of sales~~ ~~when incurred.~~sale.

C. Collaboration Arrangement

~~Research and Development Arrangement with RPI Finance Trust~~

In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over approximately seven years. RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of ~~Research and development expenses~~ ~~as incurred. The reduction to~~ ~~Research and development expenses~~ for the second quarter of 2016 totaled $12.9 million and for the first six months of 2016 totaled $21.7 million. Fixed milestone payments due upon approval will be recorded as intangible assets and amortized to ~~Amortization of intangible assets~~ ~~over the estimated commercial life of the Ibrance product and sales-based royalties will be recorded as~~ ~~Cost of sales~~ ~~when incurred.~~

Collaboration with ~~Eli Lilly~~Merck & ~~Company~~Co., Inc.

In ~~October~~ 2013, we entered into a worldwide, except for Japan, collaboration agreement with ~~Lilly to jointly develop~~Merck for the development and ~~globally commercialize Pfizer’s tanezumab,~~commercialization of ertugliflozin (PF-04971729), our investigational oral sodium glucose cotransporter (SGLT2) inhibitor currently in Phase 3 development for the treatment of type 2 diabetes. Under the agreement, we are collaborating with Merck on the clinical development of ertugliflozin, and ertugliflozin-containing fixed-dose combinations with metformin and Januvia (sitagliptin) tablets.

In the first quarter of 2017, we received a $90 million milestone payment from Merck upon the FDA’s acceptance for review of the NDAs for ertugliflozin and two fixed-dose combinations (ertugliflozin plus Januvia (sitagliptin) and ertugliflozin plus metformin), which ~~provides that Pfizer~~has been deferred and ~~Lilly will equally~~primarily reported in Other noncurrent liabilities and is being recognized in Other (income)/deductions––net over a multi-year period. We are eligible for additional payments associated with the achievement of future clinical, regulatory and commercial milestones. We share ~~product-development expenses as well as~~ potential revenues and certain ~~product-related costs. Following~~costs with Merck on a 60%/40% basis, with Pfizer having the decision by the FDA in March 2015 to lift the partial clinical hold on the tanezumab development program, we received a $200 million upfront payment from Lilly in accordance with the collaboration agreement between Pfizer and Lilly, which is recorded as deferred income in our condensed consolidated balance sheet and is being recognized into ~~Other (income)/deductions––net~~ over a multi-year period beginning in the second quarter of 2015. Pfizer and Lilly resumed the Phase 3 chronic pain program for tanezumab in July 2015, which will consist of six studies in approximately 7,000 patients across osteoarthritis, chronic low back pain and cancer pain. Under the collaboration agreement40% share.

~~PFIZER INC. AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~with Lilly, we are eligible to receive additional payments from Lilly upon the achievement of specified regulatory and commercial milestones.~~

~~Collaboration with OPKO Health, Inc.~~

We entered into a collaborative agreement with OPKO, which closed in January 2015, to develop and commercialize OPKO’s long-acting hGH-CTP for the treatment of GHD in adults and children, as well as for the treatment of growth failure in children born SGA who fail to show catch-up growth by two years of age. hGH-CTP has the potential to reduce the required dosing frequency of human growth hormone to a single weekly injection from the current standard of one injection per day. We have received the exclusive license to commercialize hGH-CTP worldwide. OPKO will lead the clinical activities and will be responsible for funding the development programs for the key indications, which include Adult and Pediatric GHD and Pediatric SGA. We will be responsible for all development costs for additional indications, all postmarketing studies, manufacturing and commercialization activities for all indications, and we will lead the manufacturing activities related to product development. In February 2015, we made an upfront payment of $295 million to OPKO, which was recorded in ~~Research and development expenses,~~ and OPKO is eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. OPKO is also eligible to receive royalty payments associated with the commercialization of hGH-CTP for Adult GHD, which is subject to regulatory approval. Upon the launch of hGH-CTP for Pediatric GHD, which is subject to regulatory approval, the royalties will transition to tiered gross profit sharing for both hGH-CTP and our product, Genotropin.

C.D. Equity-Method Investments

Investment in Hisun Pfizer Pharmaceuticals Company Limited

In the first ~~quarter~~and second quarters of 2016 ~~and in the second quarter of 2016,~~ ,we determined that we had other-than-temporary declines in the value of Hisun Pfizer, our 49%-owned equity-method investment in China, and, therefore, we recognized ~~a loss~~losses of $81 million ~~in the first quarter of 2016~~ and ~~a loss of~~ $130 million, respectively, in ~~the second quarter of 2016 in~~ Other (income)/deductions––net (see Note 4). The declines in value resulted from lower expectations as to the future cash flows to be generated by Hisun Pfizer, primarily as a result of an increase in risk due to the continued slowdown in the Chinese economy and changes in the expected timing and number of new product introductions by Hisun Pfizer. As of

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

July ~~3, 2016,~~2, 2017, the carrying value of our investment in Hisun Pfizer is ~~$530~~$270 million, which is included in Long-term investments. We are continuing to evaluate strategic alternatives with Hisun. These strategic alternatives could impact the value of our investment in Hisun Pfizer in future periods.

In valuing our investment in Hisun Pfizer, we used discounted cash flow techniques, utilizing a 13.0% discount rate, reflecting our best estimate of the various risks inherent in the projected cash flows, and a nominal terminal year growth factor. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long-term; and the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, including country risk. Changes in economic conditions or other factors underlying these assumptions could negatively impact the value of our investment in Hisun Pfizer in future periods.

~~Investment in Laboratório Teuto Brasileiro S.A.~~

In the first quarter of 2016, we determined that we had an other-than-temporary decline in the value of Teuto, a 40%-owned generics company in Brazil, and, therefore, we recognized a loss of $50 million in ~~Other (income)/deductions––net~~ ~~(see~~ ~~Note 4~~) related to our equity-method investment. The decline in value resulted from lower expectations as to the future cash flows to be generated by Teuto, primarily due to a slowdown in Brazilian economic conditions, which have been impacted by political risk, higher inflation, and the depreciation of the Brazilian Real.

~~In valuing our investment in Teuto, we used discounted cash flow techniques, utilizing a 17.5% discount rate,~~ reflecting our best estimate of the various risks inherent in the projected cash flows, and a nominal terminal year growth factor. Some of the more significant estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the long-term; and the discount rate, which seeks to reflect the various risks inherent in the projected cash flows, including country risk.

Investment in Laboratório Teuto Brasileiro S.A.

~~PFIZER INC. AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

We entered into an agreement on June 30, 2017 to exit our investment in Teuto, a 40%-owned generics company in Brazil, and sell our 40% interest in Teuto to the majority shareholders. As part of the agreement, we have anwaived our option to acquire the remaining 60% of Teuto, and Teuto’s other shareholders have anwaived their option to sell their 60% stake in the company to us. ~~Under~~The transaction is expected to close in the ~~terms~~third quarter of 2017. As a result, in the second quarter of 2017, we recognized a net loss of approximately $30 million in Other (income)/deductions––net (see Note 4), which included the impairment of our ~~agreement with Teuto’s other shareholders, 2016 is the final year in which the call and put options may be exercised. Our~~equity-method investment in Teuto, ~~is accounted for under~~ the ~~equity method~~reversal of a contingent liability associated with the majority shareholders’ option to sell their 60% stake in the company to us, and the recognition in earnings of the currency translation adjustment associated with the Teuto investment.

In the first quarter of 2016, we determined that we had an other-than-temporary decline in the value of Teuto, and, therefore, we recognized a loss of $50 million in Other (income)/deductions––net (see Note 4) related to our equity-method investment. The decline in value resulted from lower expectations as to the future cash flows to be generated by Teuto, primarily due to a slowdown in Brazilian economic conditions, which have been impacted by political risk, higher inflation, and the depreciation of the Brazilian real.

In valuing our investment in Teuto, we used discounted cash flow techniques, reflecting our best estimate of the various risks inherent in the projected cash flows, and a nominal terminal year growth factor. Some of the more significant ~~influence we have~~estimates and assumptions inherent in this approach include: the amount and timing of the projected net cash flows, which include the expected impact of competitive, legal, economic and/or regulatory forces on the products; the long-term growth rate, which seeks to project the sustainable growth rate over the ~~operations of Teuto through our board representation, minority veto rights~~long-term; and ~~40% voting interest.~~

~~D. Cost-Method Investment~~

~~AM-Pharma B.V.~~

~~In April 2015, we acquired a minority equity interest in AM-Pharma, a privately-held Dutch biopharmaceutical company focused on~~ the ~~development of recAP for inflammatory diseases, and secured an exclusive option~~discount rate, which seeks to ~~acquire~~reflect the ~~remaining equity~~various risks inherent in the company. The option becomes exercisable upon delivery of the clinical trial report after completion of a Phase II trial of recAP in the treatment of Acute Kidney Injury related to sepsis, which is expected to read out in 2017. Under the terms of the agreement, we paid $87.5 million for both the exclusive option and the minority equity interest, which was recorded as a cost-method investment in ~~Long-term investments, and we may make additional payments of up to $512.5 million upon exercise of the option and potential launch of any product that may result from this investment.~~projected cash flows, including country risk.

Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives

We incur significant costs in connection with acquiring, integrating and restructuring businesses and in connection with our global cost-reduction/productivity initiatives. For example:

In connection with acquisition activity, we typically incur costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and

In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with site closings and other facility rationalization actions, workforce reductions and the expansion of shared services, including the development of global systems.

All of our businesses and functions may be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as groups such as information technology, shared services and corporate operations.

In connection with our acquisition of Hospira, we are focusing our efforts on achieving an appropriate cost structure for the combined company. For up to a three-year period post-acquisition, we expect to incur costs of approximately $1 billion(not including costs of $215 million infor full-year 2015 associated with the return of acquired ~~in-process research and development~~IPR&D rights as described in the Current-Period Key Activities section of Notes to Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives in our ~~2015~~2016 Financial Report) associated with the integration of Hospira.

In early 2014, we announced that we would be incurring costs in 2014-2016 related to new programs: our new global commercial structure reorganization and additional cost-reduction/productivity initiatives. We have the following initiatives underway associated with these programs:

Manufacturing plant network rationalization and optimization, where execution timelines are necessarily long. Our plant network strategy is expected to result in the exit of six sites over the next several years. In connection with these activities, during 2014-2016, we expect to incur costs of approximately $400 million associated with prior acquisition activity and costs of approximately $1.0 billion associated with new non-acquisition-related cost-reduction initiatives. Through July 3, 2016, we incurred approximately $364 million and $685 million, respectively, associated with these initiatives.

The 2014 global commercial structure reorganization, which primarily includes the streamlining of certain functions, the realignment of regional locations and colleagues to support the businesses, as well as implementing the necessary system changes to support different reporting requirements. Through July 3, 2016, we incurred costs of approximately $219 million and have completed this initiative.

Other new cost-reduction/productivity initiatives, primarily related to commercial property rationalization and consolidation. In connection with these cost-reduction activities, during 2014-2016, we expect to incur costs of approximately $800 million. Through July 3, 2016, we incurred approximately $657 million associated with these initiatives.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In 2016, we substantially completed previously disclosed cost-reduction initiatives begun in 2014 associated with our global commercial structure reorganization, manufacturing plant network rationalization and optimization initiatives, and additional cost-reduction/productivity initiatives across the enterprise.

As a result of the evaluation performed in connection with our decision in September 2016 to not pursue, at that time, splitting IH and EH into two separate publicly-traded companies, we identified new opportunities to potentially achieve greater optimization and efficiency to become more competitive in our business. Therefore, in early 2017, we initiated new enterprise-wide cost reduction/productivity initiatives, which we expect to substantially complete by the end of 2019. These initiatives will encompass all areas of our cost base and will include:

Optimization of our manufacturing plant network to support IH and EH products and pipelines. During 2017-2019, we expect to incur costs of approximately $750 million related to this initiative. Through July 2, 2017, we incurred approximately $91 million associated with this initiative.

Activities in non-manufacturing related areas, which include further centralization of our corporate and platform functions, as well as other activities where opportunities are identified. During 2017-2019, we expect to incur costs of approximately $150 million related to this initiative. Through July 2, 2017, we incurred approximately $73 million associated with this initiative.

The costs expected to be incurred during ~~2014-2016,~~2017-2019, of approximately ~~$2.4 billion in total~~$900 million for the above-mentioned programs (but not including expected costs associated with the Hospira integration), include restructuring charges, implementation costs and additional depreciation––asset restructuring. Of this amount, we expect that about a quarter of the charges will be non-cash.

Current-Period Key Activities

InFor the first six months of ~~2016,~~2017, we incurred ~~approximately $625~~costs of $163 million ~~in cost-reduction and acquisition-related costs (excluding transaction costs) primarily in connection~~associated with the 2017-2019 program, $107 million associated with the integration of Hospira and ~~the aforementioned manufacturing plant network rationalization and optimization program.~~$85 million associated with all other acquisition-related initiatives.



The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
	Three Months Ended				Six Months Ended
(MILLIONS OF DOLLARS)	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Restructuring charges^(a):
Employee terminations	$	10	$	93	$	29	$	117
Asset impairments	—		16		24		18
Exit costs	4		31		6		35
Total restructuring charges	14		141		59		170
Transaction costs^(b)	6		36		18		60
Integration costs^(c)	50		139		151		227
Restructuring charges and certain acquisition-related costs	70		316		228		457
Additional depreciation––asset restructuringrecorded in our condensed consolidated statements of income as follows^(d):
Cost of sales	21		52		35		99
Research and development expenses	—		1		—		5
Total additional depreciation––asset restructuring	21		53		35		104
Implementation costs recorded in our condensed consolidated statements of income as follows^(e):
Cost of sales	36		38		51		81
Selling, informational and administrative expenses	15		20		24		33
Research and development expenses	11		5		17		9
Other (income)/deductions––net	—		1		—		1
Total implementation costs	62		64		93		124
Total costs associated with acquisitions and cost-reduction/productivity initiatives	$	153	$	433	$	356	$	685

The following table provides the components of costs associated with acquisitions and cost-reduction/productivity initiatives:
Three Months Ended Six Months Ended
(MILLIONS OF DOLLARS) July 3,
2016
June 28,
2015
July 3,
2016
June 28,
2015
Restructuring charges^(a):

Employee terminations $ 93
$ 34
$ 117
$ 65
Asset impairments 16
5
18
11
Exit costs 31
4
35
10
Total restructuring charges 141
43
170
85
Transaction costs^(b)
36
1
60
6
Integration costs^(c)
139
42
227
54
Restructuring charges and certain acquisition-related costs 316
86
457
146
Additional depreciation––asset restructuringrecorded in our condensed consolidated statements of income as follows^(d):

Cost of sales 52
28
99
45
Research and development expenses 1
1
5
2
Total additional depreciation––asset restructuring 53
28
104
47
Implementation costs recorded in our condensed consolidated statements of income as follows^(e):

Cost of sales 38
28
81
41
Selling, informational and administrative expenses 20
13
33
39
Research and development expenses 5
3
9
12
Other (income)/deductions––net 1
1
1
1
Total implementation costs 64
45
124
93
Total costs associated with acquisitions and cost-reduction/productivity initiatives $ 433
$ 159
$ 685
$ 286

^(a)

In the second quarter and first six months of 2017, restructuring charges are largely associated with cost-reduction and productivity initiatives not associated with acquisitions, as well as our acquisitions of mainly Anacor for the second quarter of 2017 and mainly Anacor and Medivation for the first six months of 2017. In the second quarter and first six months of 2016, restructuring charges are largely associated with cost-reduction and productivity initiatives not associated with acquisitions. In the six months ended July ~~3, 2016,~~ 2, 2017, Employee terminations ~~represent the expected reduction of the workforce by approximately 600employees, mainly in manufacturing, sales and research. Employee termination costs are generally recorded when the actions are probable and estimable and~~ primarily include ~~accrued severance benefits,~~ pension and postretirement ~~benefits, many~~benefit costs, partially offset by revisions of ~~which may be paid out during periods after termination.~~our estimates of severance benefits.

PFIZER INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Employee termination costs are generally recorded when the actions are probable and estimable and include accrued severance benefits, pension and postretirement benefits, many of which may be paid out during periods after termination.

The restructuring ~~charges~~activities for ~~2016~~2017 are associated with the following:


•	For the second quarter of 2017, IH ($3 million income); EH ($8 million); WRD/GPD ($3 million); manufacturing operations ($1 million income); and Corporate ($7 million).


•	For the first six months of 2017, IH ($6 million); EH ($10 million income); WRD/GPD ($13 million); manufacturing operations ($24 million); and Corporate ($26 million).

For the second quarter of 2016, the IH segment ($5 million); the EH segment ($11 million income); WRD, GPD and Medical (M) (WRD/GPD/M) ($49 million); manufacturing operations ($59 million); and Corporate ($39 million).

~~For the first six months of 2016, IH ($14 million); EH ($8 million income); WRD/GPD/M ($52 million); manufacturing operations ($73 million); and Corporate ($40 million).~~

The restructuring ~~charges~~activities for ~~2015~~2016 are associated with the following:

~~For the second quarter of 2015, IH ($21 million); EH ($2 million income); WRD/GPD/M ($4 million); manufacturing operations ($14 million); and Corporate ($6 million).~~

~~For the first six monthsof 2015, IH ($46 million); EH ($8 million); WRD/GPD/M ($16 million); manufacturing operations ($8 million income); and Corporate ($24 million).~~


•	For the second quarter of 2016, IH ($5 million); EH ($11 million income); WRD/GPD ($49 million); manufacturing operations ($59 million); and Corporate ($39 million).


•	For the first six months of 2016, IH ($14 million); EH ($8 million income); WRD/GPD ($52 million); manufacturing operations ($73 million); and Corporate ($40 million).

^(b)

Transaction costs represent external costs for banking, legal, accounting and other similar services, ~~most~~virtually all of which in the second quarter and first six months of ~~2016~~2017 are directly related to ~~the~~our acquisition of Medivation. Transaction costs in the second quarter of 2016 were mostly related to the Anacor acquisition and ~~most of which~~ in the first six months of 2016 ~~includes costs~~, were mostly related to the Anacor acquisition ~~as well as costs associated with~~and our terminated transaction with Allergan.

^(c)

Integration costs represent external, incremental costs directly related to integrating acquired businesses, and primarily include expenditures for consulting and the integration of systems and processes. In the second quarter and first six months of 2017, integration costs were primarily related to our acquisitions of Hospira and Medivation, including a net gain of $12 million related to the settlement of the Hospira U.S. qualified defined benefit pension plan (see Note 10). In the second quarter and first six months of 2016, integration costs were primarily related to our acquisition of Hospira and the terminated transaction with Allergan.

~~PFIZER INC. AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

costs primarily relate to our acquisition of Hospira and the terminated transaction with Allergan. Integration costs in 2015 represent external incremental costs directly related to our acquisition with Hospira.


^(d)	Additional depreciation––asset restructuring represents the impact of changes in the estimated useful lives of assets involved in restructuring actions.


^(e)	Implementation costs represent external, incremental costs directly related to implementing our non-acquisition-related cost-reduction/productivity initiatives.



The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)	Employee Termination Costs			Asset Impairment Charges			Exit Costs			Accrual
Balance, December 31, 2016^(a)	$	1,547		$	—		$	36		$	1,583
Provision	29			24			6			59
Utilization and other^(b)	(293		)	(24		)	(6		)	(323		)
Balance, July 2, 2017^(c)	$	1,282		$	—		$	36		$	1,319

The following table provides the components of and changes in our restructuring accruals:
(MILLIONS OF DOLLARS)
Employee
Termination Costs

Asset
Impairment Charges

Exit Costs
Accrual
Balance, December 31, 2015^(a)
$ 1,109
$ —
$ 48
$ 1,157
Provision 117
18
35
170
Utilization and other^(b)
(248 ) (18 ) (43 ) (309 )
Balance, July 3, 2016^(c)
$ 978
$ —
$ 40
$ 1,018


^(a)	Included in Other current liabilities ($~~776~~863 million) and Other noncurrent liabilities ($~~381~~720 million).


^(b)	Includes adjustments for foreign currency translation.


^(c)	Included in Other current liabilities ($~~541~~602 million) and Other noncurrent liabilities ($~~477~~717 million).

Note 4. Other (Income)/Deductions—Net


The following table provides components of Other (income)/deductions––net:	The following table provides components of Other (income)/deductions––net:													The following table provides components of Other (income)/deductions––net:
		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
(MILLIONS OF DOLLARS)		July 3, 2016			June 28, 2015			July 3, 2016			June 28, 2015				July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Interest income^(a)		$	(122	)	$	(119	)	$	(234	)	$	(211	)		$	(94	)	$	(122	)	$	(175	)	$	(234	)
Interest expense^(a)		292			278			598			587				312			292			621			598
Net interest expense		170			159			363			375				218			170			446			363
Royalty-related income(b)		(274		)	(257		)	(461		)	(479		)		(105		)	(274		)	(191		)	(461		)
Certain legal matters, net^(b)(c)		261			99			534			99				3			261			11			534
Net gains on asset disposals^(c)(d)		(31		)	(19		)	(39		)	(195		)		(62		)	(31		)	(194		)	(39		)
Certain asset impairments^(d)		816			25			947			25
Business and legal entity alignment costs^(e)		60			63			111			164
Other, net^(f)		66			(15		)	(57		)	20
Loss on sale of HIS net assets^(e)															28			—			64			—
Certain asset impairments^(f)															—			816			13			947
Business and legal entity alignment costs^(g)															17			60			38			111
Other, net^(h)															(164		)	66			(254		)	(57		)
Other (income)/deductions––net		$	1,068		$	55		$	1,398		$	9			$	(66	)	$	1,068		$	(68	)	$	1,398

The following table provides the components of Tax provision/(benefit) on other comprehensive income/(loss):
Three Months Ended Six Months Ended
(MILLIONS OF DOLLARS) July 3,
2016
June 28,
2015
July 3,
2016
June 28,
2015
Foreign currency translation adjustments, net^(a)
$ (1 ) $ 12
$ (15 ) $ 97
Unrealized holding gains/(losses) on derivative financial instruments, net
(157 ) 120
(193 ) (103 )
Reclassification adjustments for realized (gains)/losses 122
(155 ) 49
28
(35 ) (34 ) (144 ) (75 )
Unrealized holding gains/(losses) on available-for-sale securities, net 49
(37 ) 65
(69 )
Reclassification adjustments for realized (gains)/losses (28 ) 63
(2 ) 62
21
25
63
(7 )
Benefit plans: actuarial gains/(losses), net (8 ) (4 ) (8 ) 8
Reclassification adjustments related to amortization 47
45
93
90
Reclassification adjustments related to settlements, net 8
8
17
23
Other (9 ) 1
(9 ) 38
38
49
93
159
Benefit plans: prior service credits and other, net 31
192
31
191
Reclassification adjustments related to amortization (15 ) 7
(30 ) (6 )
Reclassification adjustments related to curtailments, net —
(22 ) (2 ) (26 )
Other (2 ) (1 ) (1 ) (1 )
14
176
(3 ) 159
Tax provision/(benefit) on other comprehensive income/(loss) $ 36
$ 228
$ (5 ) $ 332

The following table provides the changes, net of tax, in Accumulated other comprehensive loss:
Net Unrealized Gains/(Losses) Benefit Plans
(MILLIONS OF DOLLARS) Foreign Currency Translation Adjustments
Derivative Financial Instruments
Available-For-Sale Securities
Actuarial Gains/(Losses)
Prior Service (Costs)/Credits and Other
Accumulated Other Comprehensive Loss
Balance, December 31, 2015 $ (5,863 ) $ 421
$ (227 ) $ (4,733 ) $ 880
$ (9,522 )
Other comprehensive income/(loss)^(a)
598
(571 ) 399
196
9
630
Balance, July 3, 2016 $ (5,265 ) $ (150 ) $ 172
$ (4,538 ) $ 889
$ (8,891 )

The following table provides the classification of these selected financial assets and liabilities in our condensed consolidated balance sheets:
(MILLIONS OF DOLLARS) July 3,
2016
December 31,
2015
Assets
Cash and cash equivalents $ 848
$ 978
Short-term investments 17,531
19,649
Long-term investments 13,124
15,999
Other current assets^(a)
304
587
Other noncurrent assets^(b)
1,954
944
$ 33,762
$ 38,157
Liabilities

Short-term borrowings, including current portion of long-term debt^(c)
$ 13,724
$ 10,159
Other current liabilities^(d)
606
645
Long-term debt^(c)
30,457
28,740
Other noncurrent liabilities^(e)
1,196
1,064
$ 45,983
$ 40,608

The following table provides the components of unsecured short-term debt assumed from Anacor:
(MILLIONS OF DOLLARS)
As of July 3,
2016

2.00% Notes (Maturity Date 2021) $ 184
2.00% Notes (Maturity Date 2023) 275
Total short-term debt assumed from Anacor $ 459

The following table provides the components of Inventories:
(MILLIONS OF DOLLARS) July 3,
2016
December 31,
2015
Finished goods $ 2,734
$ 2,714
Work-in-process 3,931
3,932
Raw materials and supplies 950
867
Inventories $ 7,614
$ 7,513
Noncurrent inventories not included above^(a)
$ 594
$ 594

The following table provides the components of Identifiable intangible assets:
July 3, 2016 December 31, 2015
(MILLIONS OF DOLLARS)
Gross
Carrying
Amount

Accumulated
Amortization

Identifiable
Intangible
Assets, less
Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Identifiable
Intangible
Assets, less
Accumulated
Amortization

Finite-lived intangible assets
Developed technology rights $ 77,444
$ (48,875 ) $ 28,569
$ 77,613
$ (47,193 ) $ 30,419
Brands 1,997
(980 ) 1,016
1,973
(928 ) 1,044
Licensing agreements and other 1,801
(962 ) 839
1,619
(918 ) 701
81,242
(50,817 ) 30,425
81,205
(49,040 ) 32,165
Indefinite-lived intangible assets
Brands and other 7,025

7,025
7,021

7,021
In-process research and development 5,606

5,606
1,171

1,171
12,631

12,631
8,192

8,192
Identifiable intangible assets^(a)
$ 93,874
$ (50,817 ) $ 43,056
$ 89,396
$ (49,040 ) $ 40,356

The following table provides the components of and changes in the carrying amount of Goodwill:
(MILLIONS OF DOLLARS) IH EH Total
Balance, December 31, 2015 $ 23,809
$ 24,433
$ 48,242
Additions^(a)
1,822
4
1,826
Other^(b)
305
227
532
Balance, July 3, 2016 $ 25,936
$ 24,664
$ 50,600

The following table provides the components of net periodic benefit cost:
Three Months Ended
Pension Plans

U.S.
Qualified^(a)

U.S.
Supplemental
(Non-Qualified)^(b)

International^(c)

Postretirement
Plans^(d)
(MILLIONS OF DOLLARS) July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
Net periodic benefit cost/(credit):
Service cost^(e)
$ 62
$ 72
$ 5
$ 6
$ 43
$ 46
$ 10
$ 14
Interest cost^(e)
134
168
11
13
60
76
22
32
Expected return on plan assets (240 ) (270 ) —
—
(98 ) (103 ) (8 ) (13 )
Amortization of:

Actuarial losses 99
82
9
11
24
31
7
9
Prior service costs (credits) 1
(2 ) —
—
(1 ) (2 ) (41 ) (31 )
Curtailments 1
—
—
—
(1 ) —
(1 ) (7 )
Settlements 16
19
6
2
—
1
—
—
$ 73
$ 69
$ 31
$ 32
$ 27
$ 50
$ (11 ) $ 5

Six Months Ended
Pension Plans

U.S.
Qualified^(a)

U.S.
Supplemental
(Non-Qualified)^(b)

International^(c)

Postretirement
Plans^(d)
(MILLIONS OF DOLLARS) July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
July 3, 2016
June 28, 2015
Net periodic benefit cost/(credit):
Service cost^(e)
$ 125
$ 144
$ 9
$ 11
$ 85
$ 94
$ 20
$ 27
Interest cost^(e)
268
337
23
27
119
155
44
64
Expected return on plan assets (481 ) (542 ) —
—
(196 ) (209 ) (17 ) (26 )
Amortization of:
Actuarial losses 199
165
18
23
46
63
15
18
Prior service costs (credits) 2
(3 ) (1 ) (1 ) (1 ) (3 ) (82 ) (62 )
Curtailments 3
1
—
—
(1 ) —
(6 ) (17 )
Settlements 31
45
16
17
1
1
—
—
$ 146
$ 147
$ 66
$ 77
$ 53
$ 101
$ (27 ) $ 6

The following table provides selected income statement information by reportable segment:
Three Months Ended
Revenues
Earnings^(a)
(MILLIONS OF DOLLARS) July 3,
2016
June 28,
2015
July 3,
2016
June 28,
2015
Reportable Segments:
IH^(b)
$ 7,105
$ 6,630
$ 4,179
$ 3,764
EH^(c)
6,042
5,223
3,198
3,144
Total reportable segments 13,147
11,853
7,377
6,908
Other business activities^(d)
—
—
(708 ) (715 )
Reconciling Items:

Corporate^(e)
—
—
(1,256 ) (1,286 )
Purchase accounting adjustments^(e)
—
—
(984 ) (835 )
Acquisition-related costs^(e)
—
—
(202 ) (68 )
Certain significant items^(f)
—
—
(1,506 ) (305 )
Other unallocated —
—
(312 ) (160 )
$ 13,147
$ 11,853

$ 2,410
$ 3,539

Six Months Ended
Revenues
Earnings^(a)
(MILLIONS OF DOLLARS) July 3,
2016
June 28,
2015
July 3,
2016
June 28,
2015
Reportable Segments:
IH^(b)
$ 14,139
$ 12,368
$ 8,282
$ 6,813
EH^(c)
12,013
10,348
6,857
6,359
Total reportable segments 26,152
22,717
15,139
13,172
Other business activities^(d)
—
—
(1,404 ) (1,412 )
Reconciling Items:
Corporate^(e)
—
—
(2,619 ) (2,573 )
Purchase accounting adjustments^(e)
—
—
(2,137 ) (1,738 )
Acquisition-related costs^(e)
—
—
(317 ) (91 )
Certain significant items^(f)
—
—
(2,144 ) (532 )
Other unallocated —
—
(548 ) (205 )
$ 26,152
$ 22,717
$ 5,971
$ 6,621

Weinfluence as government programs continue to monitor developments regarding government and government agency receivables in several European markets, including Greece, where economic conditions remain challenging and uncertain. For further information about our ~~Accounts Receivable, see the “Analysis~~grow as a source of ~~Financial Condition, Liquidity and Capital Resources” section of this MD&A.~~coverage.


•	We continue to monitor developments regarding government and government agency receivables in several European markets, including Greece, where economic conditions remain challenging and uncertain. For further information about our Accounts Receivable, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.

Significant portions of our revenues and earnings, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk in part through operational means, including managing same-currency revenues in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk also is managed through the use of derivative financial instruments and foreign currency debt. As we operate in multiple foreign currencies, including the euro, the Japanese yen, the Chinese renminbi, the U.K. pound, the Canadian dollar and approximately 100 other currencies, changes in those currencies relative to the U.S. dollar will impact our revenues and expenses. If the U.S. dollar were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. dollar were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. Therefore, significant changes in foreign exchange rates, including those changes resulting from the volatility following the U.K. referendum in which voters approved the exit from the EU, can impact our results and our financial guidance.

The impact of possible currency devaluations in countries experiencing high inflation rates or significant exchange fluctuations, including Venezuela and more recently Egypt, can impact our results and financial guidance. For further information about our exposure to foreign currency risk, see the “Analysis of Financial Condition, Liquidity and Capital Resources” and the “Our Financial Guidance for ~~2016”~~2017” sections of this MD&A.

In June 2016, the U.K. electorate voted in a referendum to leave the ~~EU. The~~EU, which is commonly referred to as “Brexit”. In January 2017, the U.K. Prime Minister announced a 12-point plan of negotiating objectives and confirmed that the U.K. government ~~has~~will not seek continued membership in the EU single market. In March 2017, the U.K. government formally notified the European Council of ~~their~~its intention to leave the EU ~~which would~~after it triggered Article 50 of the Lisbon Treaty to begin athe two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. This process is expected to be highly complex and ~~if needed, may be bilaterally extended. The~~the end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU.

We generated approximately 2% of our worldwide revenues from the U.K. in the first six months of 2017. However, except for the foreign currency exchange impact from the weakening U.K. pound relative to the U.S. dollar to date, there are no other immediate-term impacts to our business as there has not yet been a formal change in the relationship between the U.K. and the EU. In addition, because of the significant uncertainties associated with the negotiation process, any potential long-term impacts are not currently determinable.

~~Despite the challenging financial markets,~~ Pfizer maintains a strong financial ~~position.~~position while operating in a complex global environment. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. Our long-term debt is rated high quality by both S&P and Moody’s. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified, available-for-sale debt securities. For further discussion of our financial condition and credit ratings, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.

These and other industry-wide factors that may affect our businesses should be considered along with information presented in the “Forward-Looking Information and Factors That May Affect Future Results” section of this MD&A and in Part I, Item 1A, “Risk Factors” of our ~~2015~~2016 Form 10-K.

Our Strategy

We believe that our medicines provide significant value for both healthcare providers and patients, not only from the improved treatment of diseases but also from a reduction in other healthcare costs, such as emergency room or hospitalization costs, as well as improvements in health, wellness and productivity. We continue to actively engage in dialogues about the value of our ~~products~~medicines and how we can best work with patients, physicians and payers to prevent and treat disease and improve outcomes. We continue to work within the current legal and pricing structures, as well as continue to review our pricing arrangements and contracting methods with payers, to maximize patient access ~~to patients~~ and minimize any adverse impact on our revenues. We remain

firmly committed to fulfilling our company’s purpose of innovating to bring therapies to patients that extend and significantly improve their lives. By doing so, we expect to create value for the patients we serve and for our shareholders.

Commercial Operations

We manage our commercial operations through two distinct business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). Effective in the second quarter of 2016, our segments were reorganized to reflect that we now manage our innovative pharmaceutical and consumer healthcare operations as one business segment, Pfizer Innovative Health (previously these businesses were managed as two segments: the GIP segment and the VOC segment). We have revised prior-period information to reflect the reorganization. Also, in the second quarter of 2016, we changed the name of our Established Products business to Pfizer Essential Health. The IH and EH operating segments are each led by a single manager. Each operating segment has responsibility for its commercial activities and for certain IPR&D projects for new investigational products and additional indications for in-line products that generally have achieved proof-of-concept. Each business has a geographic footprint across developed and emerging markets. ~~As IH leadership assesses how to most efficiently manage the IH segment operations, we will assess the impact, if any, that any such changes may have on our reporting units.~~



Some additional information about our business segments follows:
	IH Segment		EH Segment
●	IH focuses on developing and commercializing novel, value-creating medicines and vaccines that significantly improve patients’ lives, as well as products for consumer healthcare. Key therapeutic areas include internal medicine, vaccines, oncology, ~~inflammation/~~inflammation & immunology, ~~cardiovascular/metabolic, neuroscience/pain,~~ rare diseases and consumer healthcare and include leading brands, such as Prevnar/Prevenar 13, Xeljanz, Eliquis, Lyrica (U.S., Japan and certain other markets), Enbrel (outside the U.S. and Canada) and Viagra (U.S. and Canada), as well as several well-known, OTC consumer products.healthcare.	●	EH includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars, select branded products including anti-infectives and, ~~infusion systems.~~through February 2, 2017, HIS. EH also includes ~~a new EH research and development~~an R&D organization, as well as our contract manufacturing business.
●	We expect that the IH biopharmaceutical portfolio of innovative, largely patent-protected, in-line and newly launched products will be sustained by ongoing investments to develop promising assets and targeted business development in areas of focus to help ensure a pipeline of highly-differentiated product candidates in areas of unmet medical need. The assets managed by IH are science-driven, highly differentiated and generally require a high-level of engagement with healthcare providers and consumers.	●	EH is expected to generate strong consistent cash flow by providing patients around the world with access to effective, lower-cost, high-value treatments. EH leverages our biologic development, regulatory and manufacturing expertise to seek to advance its biosimilar development portfolio. Additionally, EH leverages capabilities in formulation development and manufacturing expertise to help advance its generic sterile injectables portfolio. EH may also engage in targeted business development to further enable its commercial strategies.
●	IH will have continued focus on R&D productivity and pipeline strength while maximizing the value of our recently launched brands and in-line portfolio. Our acquisitions of Anacor and Medivation expanded our pipeline in the high priority therapeutic areas of inflammation and immunology and oncology.	●	For EH, we continue to invest in growth drivers and manage the portfolio to extract additional value while seeking opportunities for operating efficiencies. This strategy includes active management of our portfolio; maximizing growth of core product segments; acquisitions to strengthen core areas of our portfolio further, such as our recent acquisition of AstraZeneca’s small molecule anti-infectives business; and divestitures to increase focus on our core strengths. In line with this strategy, on February 3, 2017, we completed the sale of Pfizer’s global infusion therapy net assets, representing the infusion systems net assets that we acquired as part of the Hospira transaction, HIS, to ICU Medical.
	Leading brands include: - Prevnar 13/Prevenar 13 - Xeljanz - Eliquis - Lyrica (U.S., Japan and certain other markets) - Enbrel (outside the U.S. and Canada) - Viagra (U.S. and Canada) - Ibrance - Xtandi - Several OTC consumer healthcare products (e.g., Advil and Centrum)		Leading brands include: - Lipitor - Premarin family - Norvasc - Lyrica (Europe, Russia, Turkey, Israel and Central Asia countries) - Celebrex - Inflectra/Remsima - Several sterile injectable products

We expect that the IH biopharmaceutical portfolio of innovative, largely patent-protected, in-line and newly launched products will be sustained by ongoing investments to develop promising assets and targeted business development in areas of focus to help ensure a pipeline of highly-differentiated product candidates in areas of unmet medical need. The assets managed by IH are science-driven, highly differentiated and generally require a high-level of engagement with healthcare providers and consumers.

EH is expected to generate strong consistent cash flow by providing patients around the world with access to effective, lower-cost, high-value treatments. EH leverages our biologic development, regulatory and manufacturing expertise to seek to advance its biosimilar development portfolio. Additionally, EH leverages capabilities in formulation development and manufacturing expertise to help advance its generic sterile injectables portfolio. In addition, EH may also engage in targeted business development to further enable its commercial strategies.

~~Effective as of the beginning of 2016, the following changes impact EH:~~

Our entire contract manufacturing business, Pfizer CentreOne (previously known as Pfizer CentreSource or PCS), is now part of EH. Pfizer CentreOne consists of (i) the revenues and expenses of legacy Pfizer's contract manufacturing and active pharmaceutical ingredient sales operation, including the revenues and expenses related to our manufacturing and supply agreements with Zoetis; and (ii) the revenues and expenses of legacy Hospira's One-2-One sterile injectables contract manufacturing operation, which has been included in EH since we acquired Hospira on September 3, 2015. Prior to 2016, PCS was managed outside our operating segments as part of PGS and reported as "Other Business Activities". We have reclassified prior period PCS operating results ($133 million of PCS revenues and $30 million of PCS earnings in the second quarter of 2015, and $244 million of PCS revenues and $52 million of PCS earnings in the first six months of 2015) to conform to the current period presentation as part of EH.

In connection with the formation of a new EH R&D organization, certain functions transferred from Pfizer’s WRD organization to the new EH R&D organization. The new R&D organization within EH expects to develop potential new sterile injectable drugs and therapeutic solutions, as well as biosimilars. We have reclassified approximately $67 million of costs in the second quarter of 2015 and $134 million of costs in the first six months of 2015 from WRD to EH to conform to the current period presentation as part of EH.

~~Effective as of the beginning of the second quarter of 2016, the following changes impact IH:~~

In connection with the formation of the GPD organization, a new unified center for late-stage development for our innovative products, which is generally responsible for the clinical development of assets that are in clinical trials for our WRD and Innovative portfolios, certain development-related functions transferred from IH to GPD. We have reclassified approximately $76 million of costs in the first quarter of 2016, approximately $73 million of costs in the second quarter of 2015 and approximately $147 million of costs in the first six months of 2015 from IH to GPD to conform to the current period presentation as part of GPD.

~~For additional information about our operating structure, see Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.~~

For additional information about the ~~2016~~2017 performance for each of our operating segments, see the “Analysis of Operating Segment Information” section of this MD&A.

Description of Research and Development Operations

Innovation is critical to the success of our company, and drug discovery and development is time-consuming, expensive and unpredictable. Our R&D priorities include delivering a pipeline of differentiated therapies and vaccines with the greatest medical and commercial promise, innovating new capabilities that can position Pfizer for long-term leadership and creating new models for biomedical collaboration that will expedite the pace of innovation and productivity. To that end, our research primarily focuses on:

Biosimilars;

Inflammation and Immunology;

Metabolic Disease and Cardiovascular Risks;

Neuroscience;

Oncology;

Rare Diseases; and

Vaccines.

We continue to strengthen our global R&D organization and pursue strategies intended to improve innovation and overall productivity in R&D to achieve a sustainable pipeline that will deliver value in the near term and over time. Our R&D ~~priorities include delivering~~spending is conducted through a ~~pipeline~~number of ~~differentiated therapies with the greatest scientific and commercial promise, innovating new capabilities that can position Pfizer~~matrix organizations:

Research Units within our WRD organization are generally responsible for ~~long-term leadership and creating new models~~research assets for ~~biomedical collaboration that will expedite the pace of innovation and productivity. To that end,~~ our ~~research primarily focuses on six high-priority areas~~IH business (assets that have not yet achieved proof-of-concept). Our Research Units are organized in a ~~mix~~variety of ~~small molecules~~ways (by therapeutic area or combinations of therapeutic areas, by discipline, by location, etc.) to enhance flexibility, cohesiveness and focus. Because of our structure, we can rapidly redeploy resources within a Research Unit between various projects as necessary because the workforce shares similar skills, expertise and/or focus.

Our R&D organization within the EH business supports the large ~~molecules––immunology~~base of EH products and ~~inflammation; cardiovascular~~is expected to develop potential new sterile injectable drugs and ~~metabolic diseases; oncology; vaccines; neuroscience~~therapeutic solutions, as well as biosimilars.

Our GPD organization is a unified center for late-stage development for our innovative products and ~~pain;~~is generally responsible for the clinical development of assets that are in clinical trials for our WRD and ~~rare diseases. Another~~Innovative portfolios. GPD is expected to enable more efficient and effective development and enhance our ability to accelerate and progress assets through our pipeline. GPD combines certain previously separate development-related functions from the IH business and the WRD organization to achieve a development capability that is expected to deliver high-quality, efficient, and well-executed clinical programs by enabling greater speed, greater cost efficiencies, and reduced complexity across our development portfolio. GPD also provides technical support and other services to Pfizer R&D projects.

Our science-based and other platform-services organizations, where a significant portion of our R&D spending occurs, provide technical expertise and other services to the various R&D projects, and are organized into science-based functions (which are part of our WRD organization), such as Pharmaceutical Sciences, Medicinal Chemistry, Regulatory and Drug Safety, and non-science-based functions, such as Facilities, Business Technology and Finance. As a result, within each of these functions, we are able to migrate resources among projects, candidates and/or targets in any therapeutic area and in most phases of ~~focus~~development, allowing us to react quickly in response to evolving needs.

We manage R&D operations on a total-company basis through our matrix organizations described above. Specifically, a single committee with representation from the R&D groups and the IH commercial organization is ~~biosimilars, which are being developed by~~accountable for aligning resources among all of our ~~newly formed~~WRD, GPD and IH R&D projects and for seeking to ensure optimal capital allocation across the Innovative R&D portfolio. We believe that this approach also serves to maximize accountability and flexibility. Our EH R&D ~~organization.~~organization manages its resources separately from the WRD and GPD organizations.

Generally, we do not disaggregate total R&D expense by development phase or by therapeutic area since, as described above, we do not manage a significant portion of our R&D operations by development phase or by therapeutic area. Further, as we are able to adjust a significant portion of our spending quickly, as conditions change, we believe that any prior-period information about R&D expense by development phase or by therapeutic area would not necessarily be representative of future spending.

While a significant portion of R&D is done internally, we continue to seek out promising chemical and biological lead molecules and innovative technologies developed by third parties to ~~enhance~~incorporate into our ~~pipeline of potential future products~~discovery and development processes or projects, as well as our product lines, by entering into collaborations, ~~alliance~~alliances and license agreements with other companies, as well as leveraging acquisitions and equity- or debt-based investments. These agreements enable us to co-develop, license or acquire promising compounds, technologies or capabilities. We also enter into agreements pursuant to which a third party agrees to fund a portion of the development costs of one of our pipeline products in exchange for rights to receive potential milestone payments, revenue sharing payments, profit sharing payments and/or royalties. Collaboration, alliance, license and

funding agreements and equity- or debt-based investments allow us to share risk and cost and to access external scientific and technological expertise, and enable us to advance our own products as well as in-licensed or acquired products.

In the first quarter of 2016, we announced the GPD organization, a new, unified center for late-stage development for our innovative products. GPD is expected to enable more efficient and effective development and enhance our ability to accelerate and progress assets through our pipeline. GPD combines certain previously separate development-related functions from the IH business and the WRD organization to achieve a development capability that is expected to deliver high-quality, efficient, and well-executed clinical programs by enabling greater speed, greater cost efficiencies, and reduced complexity across our development organizations.

For additional information about R&D by operating segment, see the “Analysis of Operating Segment Information” section of this MD&A. For additional information about our pending new drug applications and supplemental filings, see the “Analysis of the Condensed Consolidated Statements of Income––Product Developments––Biopharmaceutical” section of this MD&A. For additional information about recent transactions and strategic investments that we believe have the potential to advance our pipeline, ~~and maximize the value of our in-line products,~~ see the “Our Strategy––Our Business Development Initiatives” section of this MD&A.

Intellectual Property Rights

We continue to aggressively defend our patent rights against increasingly aggressive infringement whenever appropriate, and we will continue to support efforts that strengthen worldwide recognition of patent rights while taking necessary steps to ensure appropriate patient access. In addition, we will continue to employ innovative approaches designed to prevent counterfeit pharmaceuticals from entering the supply chain and to achieve greater control over the distribution of our products, and we will continue to participate in the generics market for our products, whenever appropriate, once they lose exclusivity. Also, the pursuit of valid business opportunities may require us to challenge intellectual property rights held by other companies that we believe were improperly granted. Such challenges may include negotiation and litigation, which may not be successful. For additional information about our current efforts to enforce our intellectual property rights and certain other patent proceedings, see Notes to Condensed Consolidated Financial ~~Statements–~~Statements––Note 12A1. Commitments and Contingencies: Legal Proceedings––Patent Litigation. For information on risks

related to patent protection and intellectual property claims by third parties, see ~~"Risks~~“Risks Related to Intellectual ~~Property"~~Property” in Part I, Item 1A, “Risk Factors” of our ~~2015~~2016 Form 10-K.

Capital Allocation and Expense Management

We seek to maintain a strong balance sheet and robust liquidity so that we continue to have the financial resources necessary to take advantage of prudent commercial, research and business development opportunities and to directly enhance shareholder value through share repurchases and dividends. For additional information about our financial condition, liquidity, capital resources, share repurchases (including accelerated share repurchases) and dividends, see the “Analysis of Financial Condition, Liquidity and Capital Resources” section of this MD&A.

On March 8, 2016, we entered into an accelerated share repurchase agreement with GS&Co. to repurchase $5 billion of our common stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. In June 2016, we completed the agreement. For additional information about our recent business development activities, see the ~~“Analysis of Financial Condition, Liquidity and Capital Resources–~~“Our Strategy––~~Share-Purchase Plans and Accelerated Share Repurchase Agreements”~~Our Business Development Initiatives” section of this MD&A, “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities" in Part II, Item 2 of this Quarterly Report on Form 10-Q and Notes to Condensed Consolidated Financial Statements––~~Note 12. Commitments and Contingencies.~~&A.

We remain focused on achieving an appropriate cost structure for the Company. For additional information about our cost-reduction and productivity initiatives, see the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.

Our Business Development Initiatives

We are committed to capitalizing on growth opportunities by advancing our own pipeline and maximizing the value of our in-line products, as well as through various forms of business development, which can include alliances, licenses, joint ventures, collaborations, equity- or debt-based investments, dispositions, mergers and acquisitions. We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. We are especially interested in opportunities in our six high-priority therapeutic areas––immunology and inflammation; cardiovascular and metabolic diseases; oncology; vaccines; neuroscience and pain; and rare diseases––and in emerging markets and essential health medicines, including biosimilars. We continue to evaluate business development transactions that have the potential to strengthen one or both of our businesses and their capabilities, such as our ~~recent~~ acquisitions of Hospira, Medivation, Anacor, and ~~Anacor,~~AstraZeneca’s small molecule anti-infectives business, as well as collaborations, and alliance and license agreements with other companies, including our collaborations with Cellectis, ~~SA,~~ OPKO ~~Health, Inc.~~ and Merck KGaA. We assess our businesses, assets and scientific capabilities/portfolio as part of our regular, ongoing portfolio review process and also continue to consider business development activities that will advance our businesses. We are continuing to consider whether a further separation of our IH and EH businesses would be in the best interests of our stockholders. However, no decision has been made regarding any such potential separation; we anticipate making a decision regarding whether to pursue any such potential separation by no later than the end of 2016. For additional information on our business development activities, see Notes to Condensed Consolidated Financial Statements––Note 2.

Acquisitions, ~~Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method InvestmentandNotes to Condensed Consolidated Financial Statements––Note 1. Basis of Presentation and Significant Accounting Policies.~~

~~Acquisition~~Sale of Hospira

~~Description of Transaction~~

~~On September 3, 2015 (the acquisition date), we acquired Hospira, a leading provider of sterile injectable drugs~~ Infusion Systems Net Assets, Collaborative Arrangement and infusion technologies as well as a provider of biosimilars, for approximately $16.1 billion in cash ($15.7 billion, net of cash acquired). Hospira is now a subsidiary of Pfizer. The combination of local Pfizer and Hospira entities may be pending in various jurisdictions and integration is subject to completion of various local legal and regulatory steps.

~~Recording of Assets Acquired and Liabilities Assumed~~

~~In 2015, we recorded provisional amounts for the assets acquired and liabilities assumed, which were adjusted in the first six months of 2016 (measurement period adjustments).~~

Certain estimated values are not yet finalized and are subject to change (see below). We will finalize the amounts recognized as we obtain the information necessary to complete the analyses. We will finalize the amounts of assets acquired and liabilities assumed as soon as possible but no later than one year from the acquisition date. For the provisional amounts recognized for the Hospira assets acquired and liabilities assumed as of the acquisition date, see Notes to Condensed Consolidated Financial

~~Statements––Note 2A.~~ ~~Acquisitions, Research and Development and Collaborative Arrangements,~~ Equity-Method ~~Investments and Cost-Method Investment: Acquisitions~~.

~~Measurement Period Adjustments~~

In the first six months of 2016, we recorded measurement period adjustments that reduced, on a net basis, the preliminary estimate of the fair value of identifiable net assets acquired by $4 million with a corresponding increase to goodwill. The measurement period adjustments did not result from intervening events subsequent to the acquisition date. The change in the provisional amounts did not have a material impact on our results of operations. For the measurement period adjustments to the Hospira assets acquired and liabilities assumed as of the acquisition date that were recognized in the first six months of 2016, see Notes to Condensed Consolidated Financial Statements––~~Note 2A.~~ ~~Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions~~.

~~Provisional Amounts Subject to Change~~Investments.

The ~~following items are subject to change:~~

~~Amounts for certain legal and environmental contingencies, pending receipt of certain information that could affect provisional amounts recorded.~~

~~Amounts for intangibles and PP&E, pending finalization of valuation efforts.~~

~~Additional Recent Transactions and Events~~

~~Additional~~more significant recent transactions and events are described below:

•

Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)––On February 3, 2017, we completed the sale of our global infusion therapy net assets, HIS, to ICU Medical. In connection with this transaction, in the second quarter and first six months of 2017, we recognized pre-tax losses of approximately $28 million and $64 million, respectively, in Other (income)/deductions––net, representing incremental charges to amounts previously recorded to write down the HIS net assets to fair value less costs to sell. We may record additional adjustments to the loss on the sale of HIS net assets in future periods, pending final working capital adjustments and local market closes, among other agreement provisions, which we do not expect to have a material impact on our consolidated financial statements.

~~Acquisition of Bamboo Therapeutics, Inc. (Bamboo)~~––On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately held biotechnology company, focused on developing gene therapies for the treatment of patients with certain rare diseases, for $150 million, plus potential milestone payments to Bamboo’s selling shareholders of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant Adeno-Associated Virus vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility. We do not expect this transaction to have any significant impact on our 2016 financial performance. Following the acquisition, Bamboo is now a wholly-owned subsidiary of Pfizer.

~~Acquisition of Anacor Pharmaceuticals, Inc.~~––On June 24, 2016 (the acquisition date), we completed the acquisition of Anacor. For additional information, see the “Our Business” section of this MD&A. Included within Anacor’s pipeline is crisaborole, which is currently under review by the FDA for the treatment of mild-to-moderate atopic dermatitis in children and adults, commonly referred to as a type of eczema. The PDUFA goal timing for the completion of the FDA’s review of the crisaborole NDA is early 2017. ~~Anacor also holds the rights to Kerydin, a topical treatment~~ ~~for onychomycosis (toenail fungus) that is distributed and commercialized by Sandoz~~ ~~in the U.S.~~

~~Research and Development Arrangement with NovaQuest Co-Investment Fund II, L.P.~~––In May 2016, our agreement with NovaQuest became effective, under which NovaQuest will fund up to $250 million in development costs related to certain Phase III clinical trials of Pfizer’s bococizumab compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to $195 million in total based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on bococizumab net sales over approximately nine years. NovaQuest’s development funding is expected to cover up to 40% of the development costs and will be received over five quarters during 2016 and 2017. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of ~~Research and development expenses~~ ~~as incurred. The reduction to~~ ~~Research and development expenses~~ ~~for the second quarter and first six months of 2016 totaled $69.3 million. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to~~ ~~Amortization of intangible assets~~ ~~over the estimated commercial life of the bococizumab product and royalties on net sales will be recorded as~~ ~~Cost of sales~~ ~~when incurred.~~

~~Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.~~––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total based on achievement of first

•

Acquisition of AstraZeneca’s Small Molecule Anti-Infectives Business (EH)––On December 22, 2016, which falls in the first fiscal quarter of 2017 for our international operations, we acquired the development and commercialization rights to AstraZeneca’s small molecule anti-infectives business, primarily outside the U.S., including the commercialization and development rights to the newly approved EU drug Zavicefta™ (ceftazidime-avibactam), the marketed agents Merrem™/Meronem™ (meropenem) and Zinforo™ (ceftaroline fosamil), and the clinical development assets ATM-AVI and CXL (ceftaroline fosamil-AVI). The total fair value of the consideration transferred for this business was approximately $555 million in cash plus the fair value of contingent consideration of $490 million.

•

Acquisition of Medivation, Inc. (IH)––On September 28, 2016, we acquired Medivation for $81.50 per share. The total fair value of consideration transferred for Medivation was approximately $14.3 billion in cash ($13.9 billion, net of cash acquired). Medivation’s portfolio includes Xtandi (enzalutamide), an androgen receptor inhibitor that blocks multiple steps in the androgen receptor signaling pathway within tumor cells. Xtandi is being developed and commercialized through a collaboration with Astellas. Astellas has exclusive commercialization rights for Xtandi outside the U.S. In addition, Medivation has a development-stage oncology asset in its pipeline, talazoparib, which is currently in a Phase 3 study for the treatment of BRCA-mutated breast cancer.

•

Acquisition of Bamboo Therapeutics, Inc. (R&D)––On August 1, 2016, we acquired all the remaining equity in Bamboo, a privately-held biotechnology company, focused on developing gene therapies for the potential treatment of patients with certain rare diseases relating to neuromuscular conditions and those affecting the central nervous system, for $150 million, plus potential milestone payments of up to $495 million contingent upon the progression of key assets through development, regulatory approval and commercialization. We previously purchased a minority stake in Bamboo in the first quarter of 2016 for a payment of approximately $43 million. This acquisition provides us with several clinical and pre-clinical assets that complement our rare disease portfolio, an advanced recombinant AAV vector design and production technology, and a fully functional Phase I/II gene therapy manufacturing facility.

•

Acquisition of Anacor Pharmaceuticals, Inc. (IH)––On June 24, 2016, we acquired Anacor for $99.25 per share. The total fair value of consideration transferred for Anacor was approximately $4.9 billion in cash ($4.5 billion net of cash acquired) plus $698 million debt assumed. Anacor’s crisaborole, a non-steroidal topical PDE-4 inhibitor with anti-inflammatory properties, was approved by the FDA on December 14, 2016 under the trade name Eucrisa, for the treatment of mild-to-moderate atopic dermatitis in patients two years of age and older, commonly referred to as a type of eczema. Anacor also holds the rights to Kerydin, a topical treatment for onychomycosis (toenail fungus) that is distributed and commercialized by Sandoz in the U.S.

•

Research and Development Arrangement with NovaQuest Co-Investment Fund V, L.P.––In April 2016, Pfizer entered into an agreement with NovaQuest under which NovaQuest will fund up to $200 million in development costs related to certain Phase III clinical trials of Pfizer’s rivipansel compound and Pfizer will use commercially reasonable efforts to develop and obtain regulatory approvals for such compound. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately twelve quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the second quarter of 2017totaled $14.8 million and for the first six months of 2017 totaled $32.0 million. The reduction to Research and development expenses for the second quarter and first six months of 2016 totaled $15.0 million. Following potential regulatory approval, NovaQuest will be eligible to receive a combination of fixed milestone payments of up to approximately $267 million in total, based on achievement of first commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as Cost of sales when incurred.

•

Research and Development Arrangement with RPI Finance Trust––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of Research and development expenses as incurred. The reduction to Research and development expenses for the second quarter of 2017 totaled $12.3 million and for the first six months of 2017 totaled $26.8 million. The reduction to Research and development expenses for the second quarter of 2016 totaled $12.9 million and for the first six months of 2016 totaled $21.7 million. If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over

commercial sale and certain levels of cumulative net sales as well as royalties on rivipansel net sales over approximately eight years. NovaQuest’s development funding is expected to cover up to 100% of the development costs and will be received over approximately twelve quarters from 2016 to 2019. As there is a substantive and genuine transfer of risk to NovaQuest, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of ~~Research and development expenses~~ ~~as incurred. The reduction to~~ ~~Research and development expenses~~ ~~for the second quarter and first six months of 2016 totaled $15.0 million. Fixed sales-based milestone payments will be recorded as intangible assets and amortized to~~ ~~Amortization of intangible assets~~ ~~over the estimated commercial life of the rivipansel product and royalties on net sales will be recorded as~~ ~~Cost of sales~~ ~~when incurred.~~

~~Terminated Agreement to Combine with Allergan plc~~––On April 6, 2016, we announced that the merger agreement between Pfizer and Allergan entered into on November 22, 2015 was terminated by mutual agreement of the companies. For additional information, see the “Our Business” section of this MD&A.

~~Research and Development Arrangement with RPI Finance Trust~~––In January 2016, Pfizer entered into an agreement with RPI, a subsidiary of Royalty Pharma, under which RPI will fund up to $300 million in development costs related to certain Phase III clinical trials of Pfizer’s Ibrance (palbociclib) product primarily for adjuvant treatment of hormone receptor positive early breast cancer (the Indication). If successful and upon approval of Ibrance in the U.S. or certain major markets in the EU for the Indication based on the applicable clinical trials, RPI will be eligible to receive a combination of approval-based fixed milestone payments of up to $250 million dependent upon results of the clinical trials and royalties on certain Ibrance sales over approximately seven years. RPI’s development funding is expected to cover up to 100% of the costs primarily for the applicable clinical trials through 2021. As there is a substantive and genuine transfer of risk to RPI, the development funding is recognized by us as an obligation to perform contractual services and therefore is a reduction of ~~Research and development expenses~~ ~~as incurred. The reduction to~~ ~~Research and development expenses~~ ~~for the second quarter of 2016 totaled $12.9 million and for the first six months of 2016 totaled $21.7 million.~~ Fixed milestone payments due upon approval will be recorded as intangible assets and amortized to Amortization of intangible assets over the estimated commercial life of the Ibrance product and sales-based royalties will be recorded as Cost of sales when incurred.

•

Approval of Besponsa––In June 2017, the European Union approved Besponsa (inotuzumab ozogamicin) as monotherapy for the treatment of adults with relapsed or refractory CD22-positive B-cell precursor acute lymphoblastic leukemia (ALL). In connection with this approval, we incurred an obligation to make guaranteed fixed annual payments over a nine year period aggregating $148 million related to a research and development arrangement. As a result, we recorded the estimated net present value of $118 million as Developed technology rights, and $115 million in Other noncurrent liabilities and $3 million in Other current liabilities in the second quarter of 2017. If Besponsa is approved in the United States for ALL, we will incur an obligation for additional fixed payments over a nine year period aggregating $296 million.


•	Pending approval in the EU of Mylotarg––Mylotarg was developed, in part, through a research arrangement with a third party. If Mylotarg is approved in the EU in 2018 for the treatment of acute myeloid leukemia, we will incur an obligation for additional fixed payments over a 10 year period aggregating $310 million.

~~Minority Interest in AM-Pharma B.V.~~––In April 2015, we acquired a minority equity interest in AM-Pharma, a privately-held Dutch biopharmaceutical company focused on the development of recAP for inflammatory diseases, and secured an exclusive option to acquire the remaining equity in the company. The option becomes exercisable upon delivery of the clinical trial report after completion of a Phase II trial of recAP in the treatment of Acute Kidney Injury related to sepsis, which is expected to read out in 2017. Under the terms of the agreement, we paid $87.5 million for both the exclusive option and the minority equity interest, which was recorded as a cost-method investment in ~~Long-term investments, and we may make additional payments of up to $512.5 million upon exercise of the option and potential launch of any product that may result from this investment.~~

~~Collaboration with OPKO Health, Inc.~~––We entered into a collaborative agreement with OPKO, which closed in January 2015, to develop and commercialize OPKO’s long-acting hGH-CTP for the treatment of GHD in adults and children, as well as for the treatment of growth failure in children born SGA who fail to show catch-up growth by two years of age. hGH-CTP has the potential to reduce the required dosing frequency of human growth hormone to a single weekly injection from the current standard of one injection per day. We have received the exclusive license to commercialize hGH-CTP worldwide. OPKO will lead the clinical activities and will be responsible for funding the development programs for the key indications, which include Adult and Pediatric GHD and Pediatric SGA. We will be responsible for all development costs for additional indications, all postmarketing studies, manufacturing and commercialization activities for all indications, and we will lead the manufacturing activities related to product development. In February 2015, we made an upfront payment of $295 million to OPKO, which was recorded in ~~Research and development expenses,~~ and OPKO is eligible to receive up to an additional $275 million upon the achievement of certain regulatory milestones. OPKO is also eligible to receive royalty payments associated with the commercialization of hGH-CTP for Adult GHD, which is subject to regulatory approval. Upon the launch of hGH-CTP for Pediatric GHD, which is subject to regulatory approval, the royalties will transition to tiered gross profit sharing for both hGH-CTP and our product, Genotropin.

~~Acquisition of Marketed Vaccines Business of Baxter International Inc.~~––On December 1, 2014 (which falls in the first fiscal quarter of 2015 for our international operations), we acquired Baxter’s portfolio of marketed vaccines for a final purchase price of $648 million. The portfolio that was acquired consists of NeisVac-C and FSME-IMMUN/TicoVac. NeisVac-C is a vaccine that helps protect against meningitis caused by group C meningococcal meningitis and FSME-IMMUN/TicoVac is a vaccine that helps protect against tick-borne encephalitis.

For a description of the more significant recent transactions through February ~~29, 2016,~~23, 2017, the filing date of our ~~2015~~2016 Form 10-K, see the “Our Business Development Initiatives” section of our ~~2015~~2016 Financial Report.

Our Financial Guidance for ~~2016~~2017

On August ~~2, 2016,~~1, 2017, we ~~reaffirmed~~updated our ~~2016~~2017 financial guidance ~~components set forth below~~^{(a), (b)}:previously issued on January 31, 2017 and reaffirmed on May 2, 2017. Specifically, we raised the midpoint of our Adjusted diluted EPS guidance range by $0.02 to a range of $2.54 to $2.60 to reflect a $300 million increase to the guidance for Adjusted other (income)/deductions due to lower-than-forecasted net interest expense as well as higher-than-forecasted royalty income from certain products and dividend income from ViiV.

Additionally, the updated financial guidance absorbs $75 million of Adjusted research and development expenses that were recorded in the second quarter of 2017 resulting from an agreement we entered into in May 2017 with Sangamo to develop and commercialize gene therapy programs for Hemophilia A, including SB-525, one of Sangamo’s four lead product candidates.



Pfizer’s updated 2017 financial guidance is presented below^(a),^(b):
Revenues	$~~51.0~~52.0 to ~~$53.0~~$54.0 billion
Adjusted cost of sales as a percentage of revenues	~~21.0%~~20.0% to ~~22.0%~~21.0%
Adjusted selling, informational and administrative expenses	$13.7 to $14.7 billion
Adjusted research and development expenses	$~~7.4~~7.5 to ~~$7.8~~$8.0 billion
Adjusted other (income)/deductions	Approximately ~~($500 million)~~$200 million of income
Adjusted other (income)/deductions	(previously approximately $100 million of deductions)
Effective tax rate on adjusted income	Approximately ~~24.0%~~23.0%
Adjusted diluted EPS	$~~2.38~~2.54 to ~~$2.48~~$2.60
Adjusted diluted EPS	(previously $2.50 to $2.60)


^(a)	~~The 2016~~ The 2017 financial guidance reflects the following:


•	Does not assume the completion of any business development transactions not completed as of July 2, 2017, including any one-time upfront payments associated with such transactions.

Exchange rates assumed are a blend of the actual exchange rates in effect through June 2017 and mid-July 2017 exchange rates for the remainder of the year.


•	Reflects an anticipated negative revenue impact of $2.4 billion due to recent and expected generic and biosimilar competition for certain products that have recently lost or are anticipated to soon lose patent protection.


•	Reflects the anticipated negative impact of $0.2 billion on revenues and $0.01 on adjusted diluted EPS as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2016.

Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of between 6.0 and 6.1 billion shares, which reflects the impact of our $5.0 billion accelerated share repurchase agreement executed in February 2017 and completed in May 2017.


^(b)	For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.

Pfizer does not provide guidance for GAAP Reported financial measures (other than Revenues) or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of pending litigation, unusual gains and losses, acquisition-related expenses and potential future asset impairments without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP Reported results for the guidance period.

~~Does not assume the completion of any business development transactions not completed as of July 3, 2016, including any one-time upfront payments associated with such transactions.~~

~~Exchange rates assumed are a blend of the actual exchange rates in effect through the second quarter of 2016 and the mid-July 2016 exchange rates for the remainder of the year.~~

Guidance for 2016 revenues reflects the anticipated negative impact of $2.3 billion due to recent and expected generic competition for certain products that have recently lost or are anticipated to soon lose patent protection.

Guidance for 2016 revenues also reflects the anticipated negative impact of $1.4 billion as a result of unfavorable changes in foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from 2015, including $0.8 billion due to the estimated significant negative currency impact related to Venezuela. The anticipated negative impact on adjusted diluted EPS resulting from unfavorable changes in foreign exchange rates compared to foreign exchange rates from 2015 is approximately $0.10, including $0.07 due to the estimated significant negative currency impact related to Venezuela.

~~Guidance for adjusted diluted EPS assumes diluted weighted-average shares outstanding of approximately 6.2 billion shares.~~


^(b)	For an understanding of Adjusted income and its components and Adjusted diluted EPS (all of which are non-GAAP financial measures), see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.

~~For additional~~ information about our actual costs and anticipated costs and cost savings associated with our three-year cost-reduction ~~initiatives announced~~initiative entered into in ~~2014,~~the fourth quarter of 2016, the Hospira acquisition, our recent business development activities, and ~~our~~ global commercial structure, ~~which was established in 2014,~~ see the “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” section of this MD&A and Notes to Condensed Consolidated

Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.

Our ~~2016~~2017 financial guidance is subject to a number of factors and ~~uncertainties—~~uncertainties as described in the “Our Operating Environment”, “The Global Economic Environment”, “Our Strategy” and “Forward-Looking Information and Factors That May Affect Future Results” sections of this MD&A; ~~the “Our Operating Environment”, “The Global Economic Environment” and “Our Strategy” sections of our 2015 Financial Report;~~ and Part I, Item 1A, “Risk Factors” of our ~~2015~~2016 Form 10-K.

SIGNIFICANT ACCOUNTING POLICIES AND APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

For a description of our significant accounting policies, see Notes to Consolidated Financial Statements––Note 1. Basis of Presentation and Significant Accounting Policies in our ~~2015~~2016 Form 10-K. 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: (i) Acquisitions (Note 1D); (ii) Fair Value (Note 1E); (iii) Revenues (Note 1G); (iv) Asset Impairments (Note 1K); (v) Income Tax Contingencies (Note 1O); (vi) Pension and Postretirement Benefit Plans (Note 1P); and Legal and Environmental Contingencies (Note 1Q).

For a discussion about the critical accounting estimates and assumptions impacting our consolidated financial statements, see the “Significant Accounting Policies and Application of Critical Accounting Estimates and Assumptions” section of our ~~2015~~2016 Financial Report. See also Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies: Estimates and Assumptions for a discussion about the risks associated with estimates and assumptions in our ~~2015~~2016 Form 10-K.

For a discussion of recently adopted accounting standards, ~~See~~see Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant AccountingPolicies: Adoption of New Accounting Standards.

~~Benefit Plans~~

Effective January 1, 2016, the Company changed the approach used to measure service and interest costs for U.S. and certain international pension and other postretirement benefits. For fiscal 2015, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the bond model or yield curve used to measure the respective plan obligations. For 2016, we elected to measure service and interest costs by applying the spot rates along the yield curve for certain international plans, or a yield curve implied from our specific detailed bond model for U.S. plans, to the plans' liability cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. The expected reduction in expense for 2016 associated with this change in estimate is $191 million, including $42 million from international plans, which is expected to be recognized evenly over each quarter of the year.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

REVENUES AND PRODUCT DEVELOPMENTS

Revenues––Overview

																																			The following table provides worldwide revenues by operating segment and geographic area:
	Three Months Ended																Three Months Ended
	Worldwide				U.S.				International				Worldwide	U.S.	International		Worldwide				U.S.				International				World-wide		U.S.		Inter-national
(MILLIONS OF DOLLARS)	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		% Change in Revenues				July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016		% Change in Revenues
Operating Segments^(a):
IH	$	7,105	$	6,630	$	3,950	$	3,459	$	3,156	$	3,170	7	14	—		$	7,671	$	7,105	$	4,437	$	3,950	$	3,233	$	3,156	8		12		2
EH	6,042		5,223		2,385		1,535		3,656		3,688		16	55	(1	)	5,226		6,042		1,908		2,420		3,318		3,621		(14	)	(21	)	(8	)
Total revenues	$	13,147	$	11,853	$	6,335	$	4,994	$	6,812	$	6,859	11	27	(1	)	$	12,896	$	13,147	$	6,345	$	6,370	$	6,551	$	6,777	(2	)	—		(3	)

	Six Months Ended																Six Months Ended
	Worldwide				U.S.				International				Worldwide	U.S.	International		Worldwide				U.S.				International				World-wide		U.S.		Inter-national
(MILLIONS OF DOLLARS)	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		% Change in Revenues				July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016		% Change in Revenues
Operating Segments^(a):
IH	$	14,139	$	12,368	$	8,064	$	6,431	$	6,075	$	5,937	14	25	2		$	15,086	$	14,139	$	8,930	$	8,064	$	6,155	$	6,075	7		11		1
EH	12,013		10,348		4,897		2,996		7,116		7,352		16	63	(3	)	10,590		12,013		4,052		4,967		6,537		7,046		(12	)	(18	)	(7	)
Total revenues	$	26,152	$	22,717	$	12,960	$	9,428	$	13,192	$	13,289	15	37	(1	)	$	25,675	$	26,152	$	12,982	$	13,031	$	12,693	$	13,121	(2	)	—		(3	)

^(a)

IH = the Innovative Health segment; and EH = the Essential Health segment. For additional information about each operating segment, see the “Our Strategy––Commercial Operations” ~~section~~and “Analysis of Operating Segment Information” sections of this MD&A and Notes to Condensed Consolidated Financial Statements––Note 13A. Segment, Geographic and Other Revenue Information: Segment Information.

The percentages of worldwide revenues by geographic area are as follows:

Revenues––Second Quarter of 2017 vs. Second Quarter of 2016

~~Revenues~~ in the second quarter of 2016 were $13.1 billion, an increase of 11% compared to the same period in 2015, which reflects an operational increase of $1.6 billion, or 13%, partially offset by the unfavorable impact of foreign exchange of $302



The following provides an analysis of the change in revenues by geographic areas in the second quarter of 2017:
(MILLIONS OF DOLLARS)	Three Months Ended July 2, 2017
	Worldwide			U.S.			International

Acquisition-related operational growth:
Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation)	$	141		$	141		$	—

Disposition-related operational impact:
Financial results in the second quarter of 2017 do not reflect any contribution from HIS global operations, compared to the inclusion of three months of HIS global operations in the same period in 2016 (February 2017 sale)	(296		)	(230		)	(65		)

Other operational growth/(decline):
Continued growth from key brands including Ibrance and Eliquis globally, as well as Xeljanz and Lyrica (IH), both primarily in the U.S.	730			498			232
Growth from Biosimilars, primarily driven by Inflectra in certain developed Europe markets and in the U.S.	47			23			24
Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Vfend and Lyrica (EH), both in developed Europe markets	(305		)	(159		)	(146		)
Lower revenues for Enbrel driven by declines in most developed Europe markets, primarily due to continued biosimilar competition	(133		)	—			(133		)
Decline in the Legacy Established Products portfolio	(99		)	(103		)	4
Global decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the unfavorable timing of government purchases for the pediatric indication and the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year quarter. International revenues increased primarily due to the favorable timing of government purchases in certain emerging markets for the pediatric indication.	(84		)	(123		)	39
Other operational factors, net	(50		)	(72		)	22
Operational decline, net	(48		)	(25		)	(24		)

Unfavorable impact of foreign exchange	(202		)	—			(202		)
Revenues decrease	$	(251	)	$	(25	)	$	(226	)

Emerging markets revenues increased $170 million, or ~~3%. The operational increasewas primarily the result of:~~

~~inclusion of revenues from legacy Hospira operations of $1.1 billion in the second quarter of 2016; and~~

the continued strong performance of several key products in developed markets, including Ibrance, Lyrica (IH) and Xeljanz, all primarily in the U.S., as well as Eliquis (collectively, up approximately $780 million in the second quarter of 2016),

~~partially offset by:~~

the Prevnar/Prevenar 13 franchise, primarily driven by the expected decline in revenues for Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year quarter. International revenues for the pediatric indication for Prevenar 13 also decreased, primarily in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year quarter (down approximately $230 million in the second quarter of 2016);

the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica (EH), in certain developed Europe markets (collectively, down approximately $210 million in the second quarter of 2016); and

~~the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $90 million in the second quarter of 2016).~~

~~Revenues––First Six Months 2016~~

~~Revenues~~ in the first six months of 2016, were $26.2 billion, an increase of 15% compared to the same period in 2015, which reflects an operational increase of $4.5 billion, or 20%, partially offset by the unfavorable impact of foreign exchange of $1.0 billion, or 5%. Compared to the first six months of 2015, revenues in the first six months of 2016 were favorably impacted by approximately $800 million as a result of the first six months of 2016 having four additional selling days in the U.S. and international markets. This imbalance in selling days will be offset in the fourth quarter of 2016 resulting in essentially the same

~~number of selling days in 2016 as 2015. The operational increase,which includes the impact of the additional selling days in the first six months of 2016, was primarily the result of:~~

~~inclusion of revenues from legacy Hospira operations of $2.3 billion in the first six months of 2016;~~

the continued strong performance of several key products in developed markets, including Ibrance, Lyrica (IH), Xeljanz, Chantix/Champix and Consumer Healthcare, all primarily in the U.S., as well as Eliquis (collectively, up approximately $1.9 billion in the first six months of 2016); and

a 6% operational increase in revenues in emerging markets (excluding the contribution from legacy Hospira operations), reflecting continued strong performance primarily from Enbrel and Eliquis and continued strong volume growth from certain other products (collectively, up approximately $320 million in the~~first six months of 2016),~~

~~partially offset by:~~

the loss of exclusivity and associated generic competition for Zyvox, primarily in the U.S. and certain developed Europe markets, and Lyrica (EH) in certain developed Europe markets (collectively, down approximately $440 million in the first six months of 2016); and

~~the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $140 million in the first six months of 2016).~~

~~Geographically,~~

~~in the U.S., revenues increased $1.3 billion, or 27%~~, in the second quarter of 2017 to $2.8 billion, reflecting an operational increase of $247 million, or 9%. Foreign exchange had an unfavorable impact of approximately 3% on emerging markets revenues. This operational growth in emerging markets was primarily driven by our IH segment as well as our Legacy Established Products portfolio.

Revenues––First Six Months of 2017 vs. First Six Months of 2016 ~~and~~



The following provides an analysis of the change in revenues by geographic areas in the first six months of 2017:
(MILLIONS OF DOLLARS)	Six Months Ended July 2, 2017
	Worldwide			U.S.			International

Acquisition-related operational growth:
Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation)	$	272		$	272		$	—

Disposition-related operational impact:
Approximately one month of HIS domestic operations and approximately two months of HIS international operations in the first six months of 2017, compared to six months of HIS global operations in the same period in 2016 (February 2017 sale)	(503		)	(406		)	(97		)

Other operational growth/(decline):
Continued growth from key brands including Ibrance and Eliquis globally, as well as Lyrica (IH) and Xeljanz, both primarily in the U.S.	1,351			944			407
Growth from Biosimilars, primarily driven by Inflectra in certain developed Europe markets and in the U.S.	88			40			48
Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Lyrica (EH) and Vfend, both in developed Europe markets	(559		)	(239		)	(320		)
Lower revenues for Enbrel driven by declines in most developed Europe markets, primarily due to continued biosimilar competition	(265		)	—			(265		)
Decline in the Legacy Established Products portfolio	(252		)	(264		)	12
Global decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year period and the unfavorable timing of government purchases for the pediatric indication. International revenues increased primarily due to the favorable timing of government purchases in certain emerging markets for the pediatric indication.	(197		)	(216		)	19
Decline in Viagra (IH) revenues primarily in the U.S.	(95		)	(95		)	(1		)
Other operational factors, net	1			(85		)	86
Operational decline, net	(159		)	(49		)	(110		)

Unfavorable impact of foreign exchange	(318		)	—			(318		)
Revenues decrease	$	(477	)	$	(49	)	$	(428	)

Emerging markets revenues increased ~~$3.5 billion,~~$254 million, or ~~37%~~5%, in the first six months of ~~2016, compared~~2017 to ~~the same periods in 2015,~~$5.4 billion, reflecting ~~among other things:~~


◦	~~the inclusion of legacy Hospira U.S. operations of approximately $850 million in the second quarter of 2016 and $1.8 billion in the first six months of 2016; and~~


◦	the continued strong performance of several key products including Ibrance, Lyrica (IH), Eliquis, Xeljanz and Chantix (collectively, up approximately $720 million in the second quarter of 2016 and $1.6 billion in the first six months of 2016),

~~partially offset by:~~


◦	the expected decline in revenues for Prevnar 13 primarily driven by Prevnar 13 for adults in the U.S. due to a high initial capture rate of the eligible population following its successful fourth-quarter 2014 launch, which resulted in a smaller remaining “catch up” opportunity compared to the prior-year quarter (down approximately $110 million in the second quarter of 2016);


◦	the expiration at the end of 2015 of the collaboration agreement to co-promote Rebif in the U.S. (down approximately $90 million in the second quarter of 2016 and $140 million in the first six months of 2016); and


◦	~~the loss of exclusivity and associated generic competition for Zyvox (down approximately $70 million in the second quarter of 2016 and $170 million in the first six months of 2016).~~

~~in our international markets, revenues decreased $47~~an operational increase of $404 million, or ~~1%, in the second quarter of 2016, and decreased $98 million, or 1%, in the first six months of 2016 compared to the same periods in 2015.~~8%. Foreign exchange ~~unfavorably impacted international revenues~~had an unfavorable impact of approximately 3% on emerging markets revenues. This operational growth in emerging markets was primarily driven by approximately $300 million, or 4%, in the second quarter of 2016 and unfavorably impacted international revenues by approximately $1.0 billion, or 8% in the first six months of 2016. Operationally, revenues increased $253 million, or 4%, in the second quarter of 2016 and increased $931 million, or 7% in the first six months of 2016, compared to the same periods in 2015, reflecting, among other things:


◦	~~the inclusion of legacy Hospira international operations of approximately $290 million in the second quarter of 2016 and $560 million in the first six months of 2016;~~


◦	~~the continued strong performance of Eliquis (up approximately $90 million in the second quarter of 2016 and $180 million in the first six months of 2016); and~~


◦	the continued strong volume growth from certain other products in emerging markets, excluding the contributions from legacy Hospira and Eliquis and lower revenues from Prevenar 13 pediatric (collectively, up approximately $130 million in the second quarter of 2016 and $360 million in the first six months of 2016),

~~partially offset by:~~


◦	lower revenues in developed markets for Lyrica (EH) and Zyvox as a result of the loss of exclusivity (collectively, down approximately $150 million in the second quarter of 2016 and $280 million in the first six months of 2016); and


◦	lower revenues for Prevenar 13 primarily for the pediatric indication mostly in emerging markets, reflecting timing of purchases from Gavi, the Vaccine Alliance, and certain other markets, compared to the prior-year period (down approximately $120 million for the second quarter of 2016 and $60 million in the first six months of 2016).

During the second quarter of 2016, international revenues represented 52% of total revenues, compared to 58% in the second quarter of 2015. Excluding foreign exchange, international revenues in the second quarter of 2016 represented 53% of total revenues. During the first six months of 2016, international revenues represented 50% of total revenues compared to 58% in the first six months of 2015. Excluding foreign exchange, international revenues in the first six months of 2016 represented 52% of total revenues. The decline in the percentage of international revenues is primarily due to the inclusion of Hospira.

~~For additional information about operating~~our IH segment ~~revenues, see the “Analysis of Operating Segment Information” section of this MD&A.~~as well as our Sterile Injectable Pharmaceuticals portfolio.

Revenue Deductions

Our gross product revenues are subject to a variety of deductions that are generally estimated and recorded in the same period that the revenues are recognized, and primarily represent chargebacks, rebates ~~chargebacks~~ and sales allowances to wholesalers, and, to a lesser extent, distributors like MCOs, retailers and government agencies ~~wholesalers/distributors and managed care organizations~~ with respect to our pharmaceutical products. Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. On a quarterly basis, our adjustments of estimates to reflect actual results generally have been less than 1% of revenues, and have resulted in either a net increase or a net decrease in revenues. Product-specific rebates, however, can have a significant impact on year-over-year individual product growth trends.


The following table provides information about deductions from revenues:
The following table provides information about revenue deductions:									The following table provides information about revenue deductions:
	Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
(MILLIONS OF DOLLARS)	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015			July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Medicare rebates^(a)	$	216	$	228	$	492	$	449		$	316	$	216	$	575	$	492
Medicaid and related state program rebates^(a)	364		291		735		571			451		364		896		735
Performance-based contract rebates^{(a), (b)}	636		581		1,225		1,046			819		636		1,547		1,225
Chargebacks^(c)	1,414		1,208		2,853		2,251			1,480		1,414		2,978		2,853
Sales allowances^(d)	1,115		990		2,091		1,894			1,189		1,115		2,300		2,091
Sales returns and cash discounts	324		366		688		627			372		324		697		688
Total^(e)	$	4,067	$	3,665	$	8,083	$	6,839		$	4,626	$	4,067	$	8,993	$	8,083


^(a)	Rebates are product-specific and, therefore, for any given year are impacted by the mix of products sold.

^(b)

Performance-based contract rebates include contract rebates with ~~managed care customers~~MCOs within the U.S., including health maintenance organizations and PBMs, who receive rebates based on the achievement of contracted performance terms and claims under these contracts. Outside the U.S., performance-based contract rebates include rebates to wholesalers/distributors based on achievement of contracted performance for specific products or sales milestones.


^(c)	Chargebacks primarily represent reimbursements to U.S. wholesalers for honoring contracted prices to third parties.


^(d)	Sales allowances primarily represent price reductions that are contractual or legislatively mandated outside the U.S., discounts and distribution fees.

^(e)

For the three months ended July 2, 2017, associated with the following segments: IH ($2.2 billion) and EH ($2.5 billion). For the three months ended July 3, 2016, associated with the following segments: IH ($1.6 billion); and EH ($2.4 billion). For the ~~three~~six months ended ~~June 28, 2015,~~July 2, 2017, associated with the following segments: IH ($~~1.4~~4.0 billion); and EH ($~~2.3~~5.0 billion). For the six months ended July 3, 2016, associated with the following segments: IH ($3.3 billion) and EH ($4.8 billion). ~~For the six months ended June 28, 2015, associated with the following segments: IH ($2.6 billion) and EH ($4.2 billion).~~

Total revenue deductions ~~from revenues~~ for the second quarter of ~~2016~~2017 increased ~~11%~~14% compared to the second quarter of ~~2015,~~2016, and total revenue deductions ~~from revenues~~ for the first six months of ~~2016~~2017 increased ~~18%~~11% compared to the first six months of ~~2015,~~2016, primarily as a result of:

~~an increase in chargebacks from EH products, primarily due to the addition in 2016 of Hospira sterile injectables, and from certain IH products;~~

an increase in performance-based contract rebates primarily due to sales to managed care customers in the U.S. ~~and, for the first six months of 2016,~~, as well as higher rebates in certain ~~developed Europe~~ markets ~~due to competitive pressures post loss of exclusivity for certain products; and~~outside the U.S.;

an increase in sales allowances primarily in markets outside the U.S.;

an increase in Medicaid and related state program rebates, primarily as a result of updated estimates of sales related to these ~~programs.~~programs; and

an increase in chargebacks from certain IH products, partially offset by decreases across several EH products.

Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled ~~$4.1~~$4.4 billion as of July ~~3, 2016,~~2, 2017, of which approximately ~~$2.7~~$2.9 billion is included in Other current liabilities, $~~332~~369 million is included in Other noncurrent liabilities and approximately $1.1 billion is included against Trade accounts receivable, less allowance for doubtful accounts, in our condensed consolidated balance sheet.Our accruals for Medicare rebates, Medicaid and related state program rebates, performance-based contract rebates, chargebacks, sales allowances and sales returns and cash discounts totaled$~~3.9~~4.3 billion as of December 31, ~~2015,~~2016, of which approximately ~~$2.6~~$2.8 billion is included in Other current liabilities, $~~272~~357 million is included in Other noncurrent liabilities and approximately ~~$1.1~~$1.2 billion is included against Trade accounts receivable, less allowance for doubtful accounts, in our condensed consolidated balance sheet.

Revenues—Major Products


The following table provides revenue information for several of our major products:
The following table provides revenue information for several of our major products. As described in Note 1A, acquisitions and divestitures have impacted our results of operations in 2017 and 2016.															The following table provides revenue information for several of our major products. As described in Note 1A, acquisitions and divestitures have impacted our results of operations in 2017 and 2016.
			Three Months Ended						Six Months Ended								Three Months Ended						Six Months Ended
(MILLIONS OF DOLLARS)	(MILLIONS OF DOLLARS)		July 3, 2016		% Change^(a)				July 3, 2016		% Change^(a)				(MILLIONS OF DOLLARS)				% Change^(a)						% Change^(a)
PRODUCT		PRIMARY INDICATIONS OR CLASS	July 3, 2016		Total		Oper.		July 3, 2016		Total		Oper.			PRIMARY INDICATIONS OR CLASS	July 2, 2017		Total		Oper.		July 2, 2017		Total		Oper.
TOTAL REVENUES																	$	12,896	(2	)	—		$	25,675	(2	)	(1	)
PFIZER INNOVATIVE HEALTH (IH)^(b)	PFIZER INNOVATIVE HEALTH (IH)^(b)		$	7,105	7		9		$	14,139	14		18		PFIZER INNOVATIVE HEALTH (IH)^(b)		$	7,671	8		9		$	15,086	7		8
Internal Medicine	Internal Medicine		$	2,190	16		16		$	4,314	22		23		Internal Medicine		$	2,412	10		11		$	4,789	11		11
Lyrica IH^(c)		Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury	1,048		15		16		2,059		17		19			Epilepsy, post-herpetic neuralgia and diabetic peripheral neuropathy, fibromyalgia, neuropathic pain due to spinal cord injury	1,101		5		5		2,231		8		8
Eliquis alliance revenues and direct sales																Atrial fibrillation, deep vein thrombosis, pulmonary embolism	605		50		52		1,169		51		52
Viagra IH^(d)		Erectile dysfunction	300		(10	)	(10	)	600		(4	)	(3	)		Erectile dysfunction	255		(15	)	(15	)	505		(16	)	(16	)
Chantix/Champix		An aid to smoking cessation treatment	213		23		24		434		31		33			An aid to smoking cessation treatment in adults 18 years of age or older	248		16		17		487		12		13
Toviaz		Overactive bladder	67		(5	)	(6	)	131		(2	)	(1	)		Overactive bladder	62		(8	)	(6	)	125		(4	)	(3	)
BMP2		Development of bone and cartilage	61		(19	)	(19	)	112		(1	)	(1	)		Development of bone and cartilage	57		(6	)	(6	)	119		6		6
Alliance revenues^(e)		Various	371		28		25		722		45		45
All other Internal Medicine		Various	130		*		*		257		*		*			Various	84		(13	)	(13	)	153		(25	)	(24	)
Vaccines	Vaccines		$	1,365	(14	)	(13	)	$	2,935	1		3		Vaccines		$	1,270	(7	)	(5	)	$	2,735	(7	)	(6	)
Prevnar/Prevenar 13		Vaccines for prevention of pneumococcal disease	1,258		(16	)	(15	)	2,766		(1	)	—
Prevnar 13/Prevenar 13																Vaccines for prevention of pneumococcal disease	1,154		(8	)	(7	)	2,547		(8	)	(7	)
FSME/IMMUN-TicoVac		Tick-borne encephalitis vaccine	42		(24	)	(26	)	69		6		6			Tick-borne encephalitis vaccine	50		18		23		76		10		15
All other Vaccines		Various	65		*		*		100		*		*			Various	66		1		6		112		13		17
Oncology	Oncology		$	1,101	54		56		$	2,102	69		72		Oncology		$	1,589	44		46		$	2,935	40		41
Ibrance		Advanced breast cancer	514		*		*		942		*		*			Advanced breast cancer	853		66		67		1,532		63		63
Sutent		Advanced and/or metastatic RCC, refractory GIST and advanced pancreatic neuroendocrine tumor	285		(3	)	—		563		5		10			Advanced and/or metastatic RCC, refractory GIST (after disease progression on, or intolerance to, imatinib mesylate) and advanced pancreatic neuroendocrine tumor	279		(2	)	—		529		(6	)	(4	)
Xalkori		ALK-positive NSCLC and ROS1-positive NSCLC	137		15		15		275		20		22			ALK-positive and ROS1-positive advanced NSCLC	155		13		15		296		8		10
Xtandi alliance revenues																Advanced prostate cancer	141		*		*		272		*		*
Inlyta		Advanced RCC	108		(2	)	(3	)	209		1		3			Advanced RCC	88		(19	)	(17	)	172		(18	)	(16	)
Bosulif																Philadelphia chromosome–positive chronic myelogenous leukemia	59		44		45		106		35		36
All other Oncology		Various	57		16		15		112		25		26			Various	14		(11	)	(11	)	28		(18	)	(18	)
Inflammation & Immunology (I&I)	Inflammation & Immunology (I&I)		$	999	3		7		$	1,947	6		14		Inflammation & Immunology (I&I)		$	992	(1	)	1		$	1,863	(4	)	(3	)
Enbrel (Outside the U.S. and Canada)		Rheumatoid, juvenile rheumatoid and psoriatic arthritis, plaque psoriasis and ankylosing spondylitis	766		(7	)	(3	)	1,500		(5	)	3			Rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, plaque psoriasis, pediatric plaque psoriasis, ankylosing spondylitis and nonradiographic axial spondyloarthritis	617		(20	)	(17	)	1,205		(20	)	(18	)
Xeljanz		Rheumatoid arthritis	217		70		72		414		85		87			Rheumatoid arthritis	336		55		56		587		42		42
All Other I&I		Various	16		1		(7	)	33		39		33
Eucrisa																Mild to moderate atopic dermatitis (eczema)	9		*		*		17		*		*
All other I&I																Various	31		90		90		54		63		62
Rare Disease	Rare Disease		$	614	(3	)	(2	)	$	1,182	(1	)	3		Rare Disease		$	562	(8	)	(6	)	$	1,069	(10	)	(8	)
BeneFIX		Hemophilia	183		(5	)	(5	)	367		—		3			Hemophilia	153		(16	)	(15	)	302		(18	)	(16	)
Refacto AF/Xyntha																Hemophilia	139		—		4		269		—		4
Genotropin		Replacement of human growth hormone	152		(9	)	(6	)	277		(9	)	(5	)		Replacement of human growth hormone	135		(12	)	(10	)	238		(14	)	(13	)
Refacto AF/Xyntha		Hemophilia	139		(2	)	(1	)	268		2		6
Somavert		Acromegaly	59		8		8		114		9		12			Acromegaly	61		3		6		117		3		5
Rapamune		Prevention of organ rejection in kidney transplantation	47		(11	)	(4	)	93		(12	)	(4	)
All other Rare Disease		Various	33		27		23		63		18		19			Various	74		(8	)	(6	)	141		(9	)	(8	)
Consumer Healthcare	Consumer Healthcare		$	837	—		5		$	1,659	1		7		Consumer Healthcare		$	846	1		2		$	1,694	2		3
PFIZER ESSENTIAL HEALTH (EH)^(f)			$	6,042	16		19		$	12,013	16		22
Legacy Established Products (LEP)^(g)			$	2,864	(2	)	2		$	5,664	(2	)	5
PFIZER ESSENTIAL HEALTH (EH)^(e)															PFIZER ESSENTIAL HEALTH (EH)^(e)		$	5,226	(14	)	(12	)	$	10,590	(12	)	(10	)
Legacy Established Products (LEP)^(f)															Legacy Established Products (LEP)^(f)		$	2,707	(5	)	(3	)	$	5,313	(6	)	(4	)
Lipitor		Reduction of LDL cholesterol	461		(9	)	(2	)	872		(8	)	—			Reduction of LDL cholesterol	445		(3	)	—		849		(3	)	1
Premarin family		Symptoms of menopause	251		(3	)	(2	)	507		3		4			Symptoms of menopause	245		(2	)	(2	)	473		(7	)	(7	)
Norvasc		Hypertension	240		(4	)	(2	)	476		(5	)	(1	)		Hypertension	231		(4	)	—		458		(4	)	—
EpiPen		Epinephrine injection used in treatment of life-threatening allergic reactions	93		9		10		190		18		19			Epinephrine injection used in treatment of life-threatening allergic reactions	90		(4	)	(3	)	171		(10	)	(10	)
Xalatan/Xalacom		Glaucoma and ocular hypertension	94		(5	)	(4	)	182		(9	)	(5	)		Glaucoma and ocular hypertension	81		(13	)	(12	)	158		(13	)	(14	)
Relpax		Treats the symptoms of migraine headache	87		6		5		165		2		2			Symptoms of migraine headache	60		(31	)	(30	)	143		(14	)	(13	)
Zithromax																Bacterial infections	62		(9	)	(4	)	140		(5	)	—
Effexor																Depression and certain anxiety disorders	73		8		11		139		2		3
Zoloft		Depression and certain anxiety disorders	77		(17	)	(14	)	156		(13	)	(5	)		Depression and certain anxiety disorders	69		(11	)	(8	)	137		(13	)	(10	)
Zithromax/Zmax^(h)		Bacterial infections	67		10		12		147		5		10
Effexor		Depression and certain anxiety disorders	67		(9	)	(5	)	137		(7	)	(1	)
Tikosyn		Maintenance of normal sinus rhythm, conversion of atrial fibrillation/flutter	55		32		32		116		48		48
Xanax/Xanax XR		Anxiety disorders	55		2		3		108		(1	)	4
Cardura		Hypertension/Benign prostatic hyperplasia	48		(11	)	(10	)	94		(12	)	(7	)
Neurontin		Seizures	47		(2	)	5		91		(12	)	1
Depo-Provera		Contraceptive	34		(33	)	(31	)	68		(23	)	(19	)
Xanax																Anxiety disorders	52		(6	)	(5	)	107		(1	)	—
All other LEP		Various	1,187		1		8		2,355		—		9			Various	1,300		(5	)	(3	)	2,538		(7	)	(5	)
Sterile Injectable Pharmaceuticals (SIP)⁽ⁱ⁾			$	1,497	99		*		$	3,021	*		*
Medrol^(h)		Adrenocortical steroid	115		16		21		228		23		29
Sterile Injectable Pharmaceuticals (SIP)^(g)															Sterile Injectable Pharmaceuticals (SIP)^(g)		$	1,444	(4	)	(2	)	$	2,996	(1	)	—
Medrol																Steroid anti-inflammatory	123		7		8		243		7		7
Sulperazon		Antibiotic	105		31		37		201		13		18			Treatment of infections	110		4		10		232		15		21
Fragmin		Anticoagulant	82		(7	)	(4	)	160		(1	)	4			Slows blood clotting	71		(14	)	(9	)	142		(11	)	(8	)
Precedex																Sedation agent in surgery or intensive care	67		2		1		132		(3	)	(4	)
Tygacil		Antibiotic	59		(23	)	(17	)	134		(11	)	(3	)		Tetracycline class antibiotic	57		(3	)	(2	)	131		(2	)	(1	)
All other SIP		Various	1,136		*		*		2,297		*		*			Various	1,016		(5	)	(4	)	2,116		(2	)	(1	)

~~Viagra~~ (Lyrica revenues in our IH ~~(U.S. and Canada revenues)/EH (all other revenues excluding U.S. and Canada)) isindicated for the treatment of erectile dysfunction. Viagra worldwide revenues decreased 9%~~segment increased operationally in the second quarter ~~of 2016,~~ and ~~3% operationally in the~~ first six months of ~~2016,~~2017, compared to the same periods in ~~2015,~~2016, primarily driven by sustained demand and positive price impact in the U.S. Foreign exchange had a de minimis impact on Lyrica IH revenues in the second quarter and first six months of 2017, compared to the same periods in 2016. In our EH segment, worldwide revenues from Lyrica decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, due to ~~new access constraints and increased rebates.~~losses of exclusivity in developed Europe markets. Foreign exchange had an unfavorable impact on Lyrica EH worldwide revenues ~~of 1%~~ in the second quarter ~~of 2016,~~ and ~~2% in the~~ first six months of ~~2016,~~2017, compared to the same periods in ~~2015. Revenues in the U.S. decreased 10%~~2016.

•

Ibrance (IH) worldwide revenues increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, most of which were recorded in the U.S. The significant revenue growth reflects our scientific/clinical data, continued positive patient experience as well as Ibrance being the first (in the U.S.) and only (in major markets outside of the U.S.) registered product in this class of medicines. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter of 2017 and had a de minimis impact in the first six months of 2017, compared to the same periods in 2016.

•

Enbrel (IH, outside the U.S. and Canada) worldwide revenues, excluding the U.S. and Canada, decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, primarily due to on-going biosimilar competition, which is expected to continue. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Lipitor (EH) worldwide revenues were flat operationally in the second quarter of 2017 and increased operationally in the first six months of 2017, compared to the same periods in 2016. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016. In the U.S., revenues decreased 21% in the second quarter of 2017 and 24% in the first six months of 2017, compared to the same periods in 2016, primarily due to lower volumes.

In our international markets, revenues increased 2% operationally in the second quarter of ~~2016,~~2017 and 3%4% operationally in the first six months of ~~2016,~~2017, compared to the same periods in ~~2015, primarily reflecting new access constraints, lower patient~~2016, driven by strong demand ~~and higher rebates,~~in China, partially offset by ~~price increases, wholesaler buying patterns~~lower volumes in Japan and ~~increased pill quantity per prescription.~~certain Middle Eastern markets, as well as pricing pressures in China. Foreign exchange had an unfavorable impact on international revenues in the second quarter of 2017 and first six months of 2017, compared to the same periods in 2016.

•

Viagra (IH (U.S. and Canada revenues)/EH (all other revenues excluding U.S. and Canada)) worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, primarily due to lower market demand. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

Revenues in the U.S. decreased 15% in the second quarter of 2017 and 16% in the first six months of 2017, compared to the same periods in 2016, primarily due to lower market demand. International revenues decreased 5%3% operationally in the second quarter of 2017, compared to the same period in 2016 ~~and~~, primarily from price reductions in China. International revenues decreased 4%3% operationally in the first six months of ~~2016,~~2017, compared to the same ~~periods~~period in ~~2015,~~2016, primarily from lower volumes and price reductions in China, ~~and~~partially offset by increased demand in ~~developed international~~certain Middle Eastern markets. Foreign exchange had an unfavorable impact on international revenues ~~of 5%~~ in the second quarter ~~of 2016,~~ and ~~7% in the~~ first six months of ~~2016,~~2017, compared to the same periods in ~~2015.~~2016.

•

Xeljanz (IH) worldwide revenues increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016. In the U.S., Xeljanz revenues increased 53% in the second quarter of 2017 and 38% in the first six months of 2017, compared to the same periods in 2016, primarily driven by increased adoption among rheumatologists, growing awareness among patients and improvements in payer access. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter of 2017 and had a de minimis impact in the first six months of 2017, compared to the same periods in 2016.

•

Sutent (IH) worldwide revenues were relatively flat operationally in the second quarter of 2017 and decreased operationally in the first six months of 2017, compared to the same periods in 2016. The decrease in the first six months of 2017 was primarily due to competitive pressure in the U.S. and Europe and cost containment measures in certain developed international markets. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.


•	Chantix/Champix (IH) worldwide revenues increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

~~Viagra~~In the U.S., Chantix revenues increased 24% in ~~our IH segment~~the second quarter of 2017 and 18% in the first six months of 2017, compared to the same periods in 2016 primarily due to increased promotional activities, educating health care providers on updates to the Chantix label, including removal of the boxed warning, the addition of EAGLES safety and efficacy data, improved patient access and positive price impact.

•

The Premarin family of products (EH) worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016. Revenues in the U.S. decreased 2% in the second quarter and 7% in the first six months of 2017, compared to the same periods in 2016, primarily driven by volume declines and lower market growth, mainly offset by a positive price impact.

Internationally, Premarin revenues decreased ~~10%~~12% operationally in the second quarter of 2017, compared to the same period in 2016 ~~and~~, primarily due to lower volume in Brazil. Internationally, Premarin revenues decreased 3%8% operationally in the first six months of 2017, compared to the same period in 2016, primarily due to lower volumes in Mexico and the U.K. Foreign exchange had a de minimis impact on international revenues in the second quarter of 2017 and had a favorable impact in the first six months of 2017, compared to the same periods in ~~2015,~~2016.

•

Norvasc (EH) worldwide revenues were relatively flat operationally in the second quarter and first six months of 2017, compared to the same periods in 2016. Results for the second quarter of 2017 were impacted by generic competition in Japan and pricing pressures in China, offset by strong demand in China and Middle Eastern markets. Results for the first six months of 2017 were impacted by generic competition in Japan and pricing pressures in China, offset by strong demand in China. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Celebrex (EH) worldwide revenues were relatively flat operationally in the second quarter of 2017 and increased operationally in the first six months of 2017, compared to the same periods in 2016. The increase in the first six months of 2017 was primarily driven by volume growth in emerging markets, primarily China and certain Middle Eastern markets, and favorable rebates in the U.S. This was partially offset by the loss of exclusivity and associated generic competition in the U.S. and most developed international markets. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

BeneFIX and ReFacto AF/Xyntha (IH)––BeneFIX worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, primarily as a result of erosion of market share in the U.S. and European countries due to increasing adoption of extended half-life treatment options as well as a price decrease in the U.K. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

ReFacto AF/Xyntha worldwide revenues increased operationally in ~~our EH segment, revenues from Viagra decreased 6% operationally in~~both the second quarter ~~of 2016,~~ and ~~decreased 4% operationally in the~~ first six months of ~~2016,~~2017, compared to the same periods in ~~2015.~~

~~Sutent~~ (IH) is indicated for the treatment of advanced renal cell carcinoma, including mRCC; GIST after disease progression on, or intolerance to, imatinib mesylate; and advanced pancreatic neuroendocrine tumor. Sutent worldwide revenues were relatively flat operationally in the second quarter of 2016 ~~compared to the same period in 2015, primarily~~, largely due to ~~price increases in the U.S., offset by competitive pressures and cost containment measures. Sutent worldwide revenues~~ increased ~~10% operationally in the first~~ ~~six months~~ ~~of 2016, compared to the same period in 2015, primarily due to price increases in the U.S., as well as strong~~product demand ~~primarily in emerging markets. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 5% in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Our~~ ~~Premarin~~ family of products (EH) helps women address moderate-to-severe menopausal symptoms. Premarin worldwide revenues decreased 2% operationally in the second quarter of 2016, and increased 4% operationally in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015. Revenues in the U.S. decreased 2% in the second quarter of 2016compared to the same period in 2015, primarily driven by prescription volume declines and lower market growth, partially offset by favorable pricing. Revenues in the U.S.~~ ~~increased 5%~~ in the first six months of 2016 compared to the same period in 2015, primarily driven by price increases, partially offset by prescription volume declines and lower market growth. Foreign exchange had an unfavorable impact on revenues of 1% in both the second quarter and the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Norvasc~~ ~~(EH) is indicated for the treatment of hypertension. Norvasc worldwide revenues decreased 2% operationally in the second quarter of 2016, and 1% operationally in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015. Results for the second quarter of 2016 were primarily impacted by generic erosion in Japan and declines~~ in certain emerging markets, ~~primarily in the Middle East,~~ partially offset by ~~strong demand~~declines in ~~China. Results for~~developed markets in Europe and the ~~first~~ ~~six months~~U.S. primarily driven by increasing adoption of 2016 were primarily impacted by generic erosion in Japan, partially offset by strong demand in China. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 4% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Chantix/Champix~~ ~~(IH) is approved as an aid to smoking-cessation~~extended half-life treatment ~~in adults 18 years of age and older in multiple markets worldwide. Worldwide revenues increased 24% operationally in the second quarter of 2016, and 33% operationally in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~options. Foreign exchange had an unfavorable impact on worldwide revenues ~~of 1%~~ in the second quarter ~~of 2016,~~ and ~~2% in the~~ first six months of ~~2016,~~2017, compared to the same periods in ~~2015.~~2016.

•

Xalkori (IH) worldwide revenues increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, as a result of a steady increase in diagnostic rates for the ALK gene mutation across key markets outside the U.S., which has led to more patients being treated. This increase was partially offset by volume declines in the U.S. and Japan due to competitive pressure, partially mitigated by the March 2016 FDA approval of the supplemental NDA to treat patients with metastatic NSCLC whose tumors are ROS1-positive. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Inlyta (IH) worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, primarily due to increased competition in the U.S. and Europe, partially offset by performance in key emerging markets. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Inflectra/Remsima (EH) worldwide revenues increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, due to continued uptake in developed markets in Europe, and the U.S. launch in the fourth quarter of 2016, partially offset by pricing pressures in Europe. Inflectra uptake in the U.S. is being driven by a number of factors including Inflectra’s clinical data package, patient support programs, price and the access/reimbursement environment. To date, reimbursement coverage has been mixed. While we achieved 100% Medicare coverage, we have experienced access challenges

~~In the U.S., Chantix revenues increased 40% in the second quarter of 2016, and 51% in the first~~ ~~six months~~ ~~of 2016, compared~~among national commercial payers where our lower priced product has not received access at parity to the ~~same periods~~innovator product and remains in ~~2015, primarily due to increased demand,~~a disadvantaged position despite recent price increases ~~and wholesaler buying patterns.~~

Internationally, Champix revenues decreased 1% operationally in the second quarter of 2016, compared to the same period in 2015, primarily due to prescription market contraction due to electronic cigarette uptake in the U.K. and the timing of government purchases in Turkey, partially offset by demand in South Korea driven by reforms to the government sponsored smoking cessation subsidy program. Internationally, Champix revenues increased 5% operationally in the first ~~six months~~ of 2016, compared to the same period in 2015, primarily due to growth in South Korea (driven by reforms to the government sponsored smoking cessation subsidy program), Spain and the Netherlands. Foreign exchange had an unfavorable impact on international revenues of 3% in the second quarter of 2016, and 6% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Xeljanz~~ (IH) is approved for use as a second-line therapy for the treatment of adult patients with moderate to severe active rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate and is available in more than 45 markets including the U.S., Japan, Australia, Canada, Switzerland and Brazil. Xeljanz worldwide revenues increased 72% operationally in the second quarter of 2016, and 87% operationally in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015. In the U.S., Xeljanz revenues increased 63% in the second quarter of 2016, and 78% in the first~~ ~~six months~~ of 2016, compared to the same periods in 2015, driven by increased adoption among rheumatologists and growing awareness among patients as well as price increases. Foreign exchange had a 2% unfavorable impact on revenues in both the second quarter and in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Pristiq~~ (EH) is indicated for the treatment of major depressive disorder in the U.S. and in various other countries. Pristiq has also been indicated for treatment of moderate-to-severe vasomotor symptoms associated with menopause in certain international markets. Worldwide revenues for Pristiq increased 11% operationally in the second quarter of 2016, and increased 13% operationally in the first ~~six months~~ of 2016, compared to the same periods in 2015, primarily due to growth in the U.S. driven by favorable pricing and increased demand. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 3% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~BeneFIX and ReFacto AF/Xyntha~~ (IH) are recombinant hemophilia products that assist patients with their lifelong hemophilia bleeding disorders. BeneFIX worldwide revenues decreased 5% operationally in the second quarter of 2016, compared to the same period in 2015, primarily as a result of erosion of market share in the U.S. due to the launch of new extended half-life treatment options. BeneFIX worldwide revenues increased 3% operationally in the first ~~six months~~ of 2016, compared to the same period in 2015, primarily as a result of higher product demand in Europe. Foreign exchange had an unfavorable impact on revenues of 1% in the second quarter of 2016 and 3% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

ReFacto AF/Xyntha recorded a 1% operational decrease in worldwide revenues in the second quarter of 2016, compared to the same period in 2015, due to launch of new extended half-life treatment options and changes in purchasing patterns in the U.S. ReFacto AF/Xyntha recorded a 6% operational increase in the first ~~six months~~ of 2016, compared to the same period in 2015, largely due to product demand across Europe and certain other international markets. Foreign exchange had an unfavorable impact on revenues of 1% in the second quarter of 2016, and 4% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Celebrex~~ (EH) is indicated for the treatment of the signs and symptoms of osteoarthritis and rheumatoid arthritis worldwide and for the management of acute pain in adults in the U.S., Japan and certain other markets. Celebrex recorded a 16% operational decrease in worldwide revenues in the second quarter of 2016, and a 12% operational decrease in worldwide revenues in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015, primarily driven~~taken by the loss of exclusivity and associated generic competition in the U.S. and most developed international markets, partially offset by growth in China and other emerging markets. Foreign exchange had an unfavorable impact on worldwide revenues of 2% in the second quarter of 2016, and 5% in the first ~~six months~~ ~~of 2016, compared~~innovator product. We will look at all relevant factors impacting reimbursement given our extensive experience working with commercial payers to ~~the same periods in 2015.~~

~~Internationally, Celebrex revenues decreased 5% operationally in the second quarter of 2016, and 9% operationally in the first~~ ~~six months~~ of 2016, compared to the same periods in 2015, driven by the loss of exclusivity and launch of multi-source generic competition in most developed markets partially offset by volume growth in China and other emerging markets. Foreign exchange had an unfavorable impact on international revenues of 2% in the second quarter of 2016, and 6% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Xalkori~~ (IH) is indicated for the treatment of patients with locally advanced or metastatic NSCLC that is ALK-positive or ROS1-positive. Xalkori worldwide revenues increased 15% operationally in the second quarter of 2016, and 22% operationally in the first ~~six months~~ of 2016, compared to the same periods in 2015, as a result of a steady increase in diagnostic rates for the ALK gene mutation across key markets, which has led to more patients being treated, and price increase in the U.S. Foreign exchange had an unfavorable impact on revenues of 3% in the first ~~six months~~ ~~of 2016, compared to the same period in 2015.~~

~~Zyvox~~ (EH) is used to treat serious Gram-positive pathogens, including methicillin-resistant staphylococcus-aureus. Zyvox worldwide revenues decreased 54% operationally in the second quarter of 2016, and 50% operationally in the first ~~six months~~ of 2016, compared to the same periods in 2015, due to generic competition in the U.S. and developed international markets and corresponding pricing pressures, as well as lower volumes in emerging markets, primarily China and Latin America. Foreign exchange had an unfavorable impact on revenues of 2% in the second quarter of 2016, and 4% in the first ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Inlyta~~ (IH) is indicated for the treatment of patients with advanced RCC after failure of a prior systemic treatment. Worldwide revenues decreased 3% operationally in the second quarter of 2016, compared to the same period in 2015, primarily due to increased competition due to new entrants in the second line market primarily in the U.S., offsetting the growth in other markets, particularly in Japan and Argentina as well as in China following the launch in the third quarter of 2015. Worldwide revenues increased 3% operationally in the first ~~six months~~ ~~of 2016, compared to the same period in 2015, primarily due to increased demand across key international markets with~~enable greater access and reimbursement, particularly in Europe and emerging markets, mainly in Argentina as well as in China following the launch in the third quarter of 2015, partially offset by a decrease in the U.S. due to increased competition due to new entrants in the second line market. Foreign exchange had an unfavorable impact on revenues of 2% in the first ~~six months~~ ~~of 2016, compared to the same period in 2015.~~for Inflectra.

~~Alliance revenues~~ ~~(IH/EH) increased 19% operationally in the second quarter of 2016, and 39% operationally in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015, mainly due to:~~

•

Pristiq (EH) worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, primarily due to loss of exclusivity in the U.S. in March 2017 resulting in significant generic competition. Foreign exchange had a de minimis impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Zyvox (EH) worldwide revenues decreased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, due to generic competition in developed international markets and the U.S. and corresponding pricing pressures, partially offset by strong volume growth in China. Foreign exchange had an unfavorable impact on worldwide revenues in the second quarter and first six months of 2017, compared to the same periods in 2016.

•

Eucrisa (IH) is approved in the U.S. for the treatment of mild to moderate atopic dermatitis for patients two years of age and older. The FDA approved Eucrisa on December 14, 2016, and Eucrisa was launched in the U.S. late in the first quarter of 2017. Eucrisa is a novel non-steroidal topical ointment and is the first topical prescription treatment for atopic dermatitis approved in over 10 years. While there was solid uptake in the demand for Eucrisa and sequential prescription demand increased, net revenues have not followed the same pattern of growth. We expect this will normalize with net revenue sequential growth in the third quarter of 2017.


•	Alliance revenues (IH/EH) increased operationally in the second quarter and first six months of 2017, compared to the same periods in 2016, mainly due to:


◦	an increase in Eliquis alliance revenues due to higher demand resulting from increased market ~~share,~~

~~partially offset by:~~


◦	~~the expiration at the end~~penetration of ~~2015 of the collaboration agreement to co-promote Rebif in the U.S., which resulted in a decrease of approximately $90 million in the second quarter of 2016,~~novel oral anticoagulants and ~~approximately $140 million in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Foreign exchange had a favorable impact on alliance revenues of 2% in the second quarter of 2016, and an unfavorable impact on alliance revenues of 1% in the first~~ ~~six months~~ ~~of 2016, compared to the same periods in 2015.~~

~~Eliquis~~ (apixaban) (IH) is being jointly developed and commercialized by Pfizer and BMS. The two companies share commercialization expenses and profit/losses equally on a global basis. In April 2015, we signed an agreement with BMS to transfer full commercialization rights in certain smaller markets to us, beginning in the third quarter of 2015. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the NOAC market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients. Eliquis (apixaban) is approved for multiple indications in major markets around the world:


◦	~~to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation;~~


◦	~~for the treatment of DVT and PE, and for the reduction in the risk of recurrent DVT and PE following initial therapy;~~market share gains; and


◦	~~for~~ the ~~prophylaxis~~inclusion of ~~DVT, which may lead to PE,~~Xtandi alliance revenues of $141 million in ~~patients who have undergone hip or knee replacement surgery.~~the second quarter of 2017 and $272 million in the first six months of 2017 in the U.S. resulting from the September 2016 acquisition of Medivation.

~~The NOAC class penetration continues to expand across key markets. Eliquis has become the most prescribed oral anticoagulant in new-to-brand prescriptions among cardiologists~~Foreign exchange had an unfavorable impact on alliance revenues in the ~~U.S.~~second quarter and first six months of 2017, ~~Japan, and several other key markets.~~compared to the same periods in 2016.

◦

Eliquis (IH) has been jointly developed and is commercialized by Pfizer and BMS. Pfizer funds between 50% and 60% of all development costs depending on the study. Profits and losses are shared equally on a global basis, except in certain countries where Pfizer commercializes Eliquis and pays BMS compensation based on a percentage of net sales. We have full commercialization rights in certain smaller markets, beginning in the third quarter of 2015. BMS supplies the product to us at cost plus a percentage of the net sales to end-customers in these markets. Eliquis is part of the Novel Oral Anticoagulant (NOAC) market; the agents in this class were developed as alternative treatment options to warfarin in appropriate patients.

◦

Xtandi (IH) is being developed and commercialized through a collaboration with Astellas. The two companies share equally in the gross profits (losses) related to U.S. net sales of Xtandi. Subject to certain exceptions, Pfizer and Astellas also share equally all Xtandi commercialization costs attributable to the U.S. market. Pfizer and Astellas also share certain development and other collaboration expenses and Pfizer receives tiered royalties as a percentage of international Xtandi net sales (recorded in Other (income)/deductions—net). While there has been some displacement in Xtandi revenues relative to demand growth in the U.S., reflecting an increase in utilization of patient assistance programs which provide free medicines to patients, we expect patient assistance program utilization as a percentage of total demand to normalize as we move into next year.

See the ~~“Our Operating Environment—Intellectual Property Rights and Collaboration/Licensing Rights”~~“Analysis of the Consolidated Statements of Income—Revenues—Selected Product Descriptions” section of our ~~2015~~2016 Financial Report for additional information regarding the ~~expiration~~primary indications or class of ~~various contract rights relating to Enbrel and Rebif.~~the selected products discussed above.

See Notes to Condensed Consolidated Financial Statements—Note 12.Commitments and Contingencies for a discussion of recent developments concerning patent and product litigation relating to certain of the products discussed above.

Product Developments—Biopharmaceutical

We continue to invest in R&D to provide potential future sources of revenues through the development of new products, as well as through additional uses for in-line and alliance products. Notwithstanding our efforts, there are no assurances as to when, or if, we will receive regulatory approval for additional indications for existing products or any of our other products in development.

delivering a pipeline of differentiated therapies with the greatest scientific and commercial ~~promise,~~ promise;

innovating new capabilities that can position Pfizer for long-term ~~leadership~~leadership; and

creating new models for biomedical collaboration that will expedite the pace of innovation and productivity. ~~To that end, our research~~

Our R&D primarily focuses ~~on six high-priority areas that have a mix of small molecules~~on:

Biosimilars;

Inflammation and ~~large molecules—immunology~~Immunology;

Metabolic Disease and ~~inflammation; cardiovascular~~Cardiovascular Risks;

Neuroscience;

Oncology

Rare Diseases; and ~~metabolic diseases; oncology; vaccines; neuroscience and pain; and rare diseases. Another area of focus is biosimilars, which are being developed by our newly formed EH R&D organization.~~

Vaccines.

For additional information about our R&D organization, including the ~~new~~ EH R&D organization, see the “Overview of Our Performance, Operating Environment, Strategy and Outlook—Our Strategy—~~Commercial~~Description of Research and Development Operations” section of this MD&A.

A comprehensive update of Pfizer’s development pipeline was published on August ~~2, 2016~~1, 2017 and is available at www.pfizer.com/~~pipeline.~~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.

The following series of tables provides information about significant regulatory actions by, and filings pending with, the FDA and regulatory authorities in the EU and Japan, as well as additional indications and new drug candidates in late-stage development.



RECENT FDA APPROVALS
PRODUCT	INDICATION	DATE APPROVED
~~Xalkori (Crizotinib)~~Bavencio (avelumab)	Treatment for patients with locally advanced or metastatic urothelial carcinoma with disease progression on or after platinum-based therapy, which is being developed in collaboration with Merck KGaA, Germany	May 2017
Bavencio (avelumab)	Treatment of adults and pediatric patients 12 years and older with ~~ROS1-positive~~ metastatic ~~non-small~~Merkel cell ~~lung cancer~~carcinoma, which is being developed in collaboration with Merck KGaA, Germany	March ~~2016~~2017
~~Xeljanz (Tofacitinib)~~Eucrisa (crisaborole)	~~Extended-release 11mg tablets~~A non-steroidal topical anti-inflammatory PDE-4 inhibitor for the ~~once-daily~~ treatment of ~~moderate to severe rheumatoid arthritis in patients who have had an inadequate response or intolerance to methotrexate~~mild-to-moderate atopic dermatitis	~~February~~December 2016
~~Ibrance (Palbociclib)~~	~~Treatment of HR+, HER2- advanced or metastatic breast cancer in combination with fulvestrant in women with disease progression following endocrine therapy~~	~~February 2016~~



PENDING U.S. NDAs AND SUPPLEMENTAL FILINGS
PRODUCT	PROPOSED INDICATION	DATE FILED^*
~~Crisaborole (PF-06930164)~~Xeljanz (tofacitinib)	~~A non-steroidal topical anti-inflammatory PDE-4 inhibitor for the~~Treatment of adult patients with moderately to severely active ulcerative colitis	July 2017
Sutent (sunitinib)	Adjuvant treatment in adult patients at high risk of ~~mild-to-moderate atopic dermatitis~~recurrent renal cell carcinoma following nephrectomy	~~March 2016~~May 2017
~~ALO-02 (oxycodone HCI/ naltrexone/HCI)~~Xeljanz (tofacitinib)^(a)	Treatment of adult patients with active psoriatic arthritis	May 2017
PF-06438179^(b)	A ~~Mu-type opioid receptor agonist for the management~~potential biosimilar to Remicade^® (infliximab)	April 2017
ertugliflozin	Treatment of ~~pain severe enough~~type 2 diabetes, which is being developed in collaboration with Merck	March 2017
inotuzumab ozogamicin	Treatment of acute lymphoblastic leukemia	February 2017
Lyrica (pregabalin)	Controlled Release (once-a-day) dosing	February 2017
Mylotarg (gemtuzumab ozogamicin)^(c)	Treatment of acute myeloid leukemia	January 2017
Retacrit^(d)	A potential biosimilar to ~~require daily, around-the-clock, long-term opioid treatment~~Epogen^® and ~~for which alternative treatment options are inadequate~~Procrit^® (epotein alfa)	February 2015
~~Retacrit~~tafamidis meglumine^(b)(e)	~~A potential biosimilar to Epogen® and Procrit® (epotein alfa)~~	~~February 2015~~
~~Tafamidis meglumine~~^(c)	Treatment of transthyretin familial amyloid polyneuropathy	February 2012


*	The dates set forth in this column are the dates on which the FDA accepted our submissions.

^(a)

In ~~June 2016,~~August 2017, the FDA’s ~~Anesthetic and Analgesic Drug Products Advisory Committee and Drug Safety and Risk Management~~Arthritis Advisory Committee voted ~~in favor of~~ten to one to recommend approval of ~~ALO-02 for “management~~the proposed dose of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative options are inadequate.” The Committees recommended the inclusion of abuse-deterrent labeling for intranasal and intravenous routes of abuse, but voted against inclusion of abuse-deterrent labelingtofacitinib for the ~~oral route. The FDA will take the Committees’ recommendations into consideration before taking action on the ALO-02 NDA.~~treatment of adult patients with active psoriatic arthritis.

^(b)

~~Epogen®~~

Remicade^® is a registered trademark of Janssen. In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade^® (infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization rights to PF-06438179 in all countries outside of the EEA.


^(c)	In July 2017, the FDA’s Oncologic Drugs Advisory Committee (ODAC) voted six to one that Mylotarg in combination with chemotherapy has a favorable risk:benefit profile for patients with newly-diagnosed CD33-positive acute myeloid leukemia.

^(d)

Epogen^® is a registered U.S. trademark of Amgen Inc.; ~~Procrit®~~Procrit^® is a registered U.S. trademark of Johnson & Johnson. In October 2015, we received a “complete response” letter from the FDA with respect to our biologics license application (BLA) for Retacrit, our proposed biosimilar to epoetin alfa, which was submitted for all indications of the reference product. ~~We are working diligently to address~~In December 2016, we completed the ~~content~~resubmission of the BLA to the FDA for Retacrit in response to the “complete response” letter. In May 2017, the FDA’s ODAC voted to recommend Retacrit for approval. In June 2017, we received a “complete response” letter from the FDA, relating to matters noted in a Warning Letter issued in February 2017 following a routine inspection of the company’s facility in McPherson, Kansas in 2016. This facility was listed as the potential manufacturing site in the BLA for the proposed epoetin alfa biosimilar. The issues noted in the Warning Letter do not relate specifically to the manufacture of epoetin alfa. No additional clinical data was requested at this time and we continue to work closely with the FDA on next steps.

^(c)(e)

In May 2012, the FDA’s Peripheral and Central Nervous System Drugs Advisory Committee voted that the tafamidis meglumine data provide substantial evidence of efficacy for a surrogate endpoint that is reasonably likely to predict a clinical benefit. In June 2012, the FDA issued a “complete response” letter with respect to the tafamidis NDA. The FDA has requested the completion of a second efficacy study, and also has asked for additional information on the data within the current tafamidis NDA. Pfizer initiated study B3461028 in December 2013, a global Phase 3 study to support a potential new indication in transthyretin cardiomypathy, which includes transthyretin familial amyloid cardiomyopathy (TTR-FAC) and wild-type cardiomyopathy (WT-CM). We anticipate results from this study in 2018, and continue to work with the FDA to identify next steps.

In July 2016, we withdrew all pending regulatory applications of tofacitinib seeking approval for the treatment of adult patients with moderate to severe chronic plaque psoriasis, including the supplemental new drug application in the U.S. following the October 2015 Complete Response Letter from the FDA. The withdrawal of these filings will allow us more time to determine the path forward for tofacitinib in this indication.



REGULATORY APPROVALS AND FILINGS IN THE EU AND JAPAN
PRODUCT	DESCRIPTION OF EVENT	DATE APPROVED	DATE FILED^*
~~Inotuzumab ozogamicin~~ PF-05280014^(a)	Application filed in the EU for a potential biosimilar to Herceptin^® (trastuzumab)	—	July 2017
Besponsa (inotuzumab ozogamicin)	Approval in the EU for the treatment of adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia	June 2017	—	~~May 2016~~
Trumenba	~~Application filed~~Approval in the EU for a prophylactic vaccine for active immunization to prevent invasive disease caused by Neisseria ~~meningitidis~~ meningtidisserogroup B in individuals 10 ~~through 25~~ years of age and older	May 2017	—
Xalkori (crizotinib)	Approval in Japan for the treatment of ROS1-positive non-small cell lung cancer	May 2017	—
Xeljanz (tofacitinib)	Application filed in Japan for the treatment of ulcerative colitis	—	May ~~2016~~2017
Sutent (sunitinib)	Application filed in the EU for the adjuvant treatment in adult patients at high risk of recurrent renal cell carcinoma following nephrectomy	—	April 2017
inotuzumab ozogamicin	Application filed in Japan for the treatment of acute lymphoblastic leukemia	—	April 2017
Xeljanz ~~(Tofacitinib)~~(tofacitinib)	Approval in the EU for Xeljanz in combination with methotrexate for the treatment of moderate to severe active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to one or more disease-modifying antirheumatic drugs. Xeljanz can be given as monotherapy in case of intolerance to methotrexate or when treatment with methotrexate is inappropriate	March 2017	—
ertugliflozin	Application filed in the EU for the treatment of ~~patients~~type 2 diabetes, which is being developed in collaboration with ~~moderate to severe rheumatoid arthritis who have had an inadequate response or intolerance to methotrexate~~Merck	—	~~March~~February 2017
Mylotarg (gemtuzumab ozogamicin)	Application filed in the EU for the treatment of acute myeloid leukemia	—	December 2016
Ibrance (palbociclib)	Approval in the EU for palbociclib in combination with endocrine therapy for the treatment of HR+, HER2- advanced or metastatic breast cancer, as well as for the treatment of recurrent advanced breast cancer	November 2016	—
Ibrance (palbociclib)	Application filed in Japan for palbociclib in combination with endocrine therapy for the treatment of inoperable or recurrent breast cancer	—	October 2016
~~Xalkori (Crizotinib)~~Bavencio (avelumab)^(a)(b)	Application filed in the EU for the treatment of metastatic Merkel cell carcinoma, which is being developed in collaboration with Merck KGaA, Germany	—	October 2016
Xalkori (crizotinib)	Approval in the EU for the treatment of ROS1-positive non-small cell lung cancer	—	~~February~~August 2016
~~Eliquis (Apixaban)~~^(b)	~~Approval in Japan for the treatment and prevention of recurrence of venous thromboembolism (DVT and PE)~~	~~December 2015~~	—
~~Xalkori (Crizotinib)~~	~~Approval in the EU for first line treatment of ALK-positive non-small cell lung cancer~~	~~November 2015~~	—
~~Effexor SR (Venlafaxine HCl)~~	~~Approval in Japan for treatment of depression/depressed state~~	~~September 2015~~	—
~~Ibrance (Palbociclib)~~	Application filed in the EU for palbociclib in combination with endocrine therapy for the treatment of HR+, HER2- advanced or metastatic breast cancer, as well as for the treatment of recurrent advanced breast cancer	—	~~August 2015~~


*	For applications in the EU, the dates set forth in this column are the dates on which the EMA validated our submissions.


^(a)	Herceptin^® is a registered trademark of Genentech, Inc.


^(b)	In July ~~2016,~~2017, the EMA’s Committee for Medicinal Products for Human Use ~~issued an opinion recommending that Xalkori be granted~~recommended the approval of avelumab as a monotherapy for the treatment of ~~adults~~adult patients with ~~ROS1-positive advanced non-small~~metastatic Merkel cell ~~lung cancer.~~carcinoma.


^(b)	~~This indication for Eliquis (apixaban) was developed and is being commercialized in collaboration with BMS.~~



LATE-STAGE CLINICAL PROGRAMS FOR ADDITIONAL USES AND DOSAGE FORMS FOR IN-LINE AND IN-REGISTRATION PRODUCTS
PRODUCT	PROPOSED INDICATION
~~Bosulif (Bosutinib)~~Bavencio (avelumab)	~~First-line treatment for patients with chronic phase Philadelphia chromosome positive chronic myelogenous leukemia, which is being developed in collaboration with Avillion Group~~
~~Inlyta (Axitinib)~~	~~Adjuvant treatment of renal cell carcinoma, which is being developed in collaboration with SFJ Pharmaceuticals Group~~
~~Ibrance (Palbociclib)~~	~~Treatment of high-risk early breast cancer, in collaboration with the German Breast Group~~
~~Ibrance (Palbociclib)~~	~~Treatment of HR+ early breast cancer, in collaboration with the Alliance Foundation Trials, LLC, and the Austrian Breast Colorectal Cancer Study Group~~
~~Lyrica (Pregabalin)~~	~~CR (once-a-day) dosing~~
~~Sutent (Sunitinib)~~	~~Adjuvant treatment of renal cell carcinoma~~
~~Xeljanz (Tofacitinib)~~	~~Treatment of ulcerative colitis~~
~~Xeljanz (Tofacitinib)~~	~~Treatment of psoriatic arthritis~~
~~Vyndaqel (Tafamidis meglumine)~~	~~Adult symptomatic transthyretin cardiomyopathy~~



~~NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT~~
~~CANDIDATE~~	~~PROPOSED INDICATION~~
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~	A monoclonal antibody that inhibits PD-L1, in combination with Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of advanced renal cell carcinoma, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for the first-line treatment of stage IIIb/IV non-small cell lung cancer, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for treatment of stage IIIb/IV non-small cell lung cancer that has progressed after a platinum-containing doublet, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for treatment of platinum-resistant/refractory ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for the first-line treatment of ovarian cancer, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for maintenance treatment, in the first-line setting, for patients with urothelial cancer, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for maintenance treatment of advanced or metastatic gastric/ gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany
~~Avelumab (PF-06834635)~~ ~~(MSB0010718C)~~ Bavencio (avelumab)	A monoclonal antibody that inhibits PD-L1 for the third-line treatment of advanced or metastatic gastric/ gastro-esophageal junction cancers, which is being developed in collaboration with Merck KGaA, Germany
~~Bococizumab~~Bavencio (avelumab)	A monoclonal antibody that inhibits ~~PCSK9~~PD-L1 for ~~the~~ treatment of ~~hyperlipidemia~~locally advanced squamous cell carcinoma of the head and ~~prevention of cardiovascular events~~neck, which is being developed in collaboration with Merck KGaA, Germany
~~Dacomitinib~~Bosulif (bosutinib)	First-line treatment for patients with chronic phase Philadelphia chromosome positive chronic myelogenous leukemia, which is being developed in collaboration with Avillion Group
Inlyta (axitinib)	Adjuvant treatment of renal cell carcinoma, which is being developed in collaboration with SFJ
Ibrance (palbociclib)	Treatment of HER2+ advanced breast cancer, in collaboration with the Alliance Foundation Trials, LLC
Ibrance (palbociclib)	Treatment of high-risk early breast cancer, in collaboration with the German Breast Group
Ibrance (palbociclib)	Treatment of HR+ early breast cancer, in collaboration with the Alliance Foundation Trials, LLC, and the Austrian Breast Colorectal Cancer Study Group
Xtandi (enzalutamide)	Treatment of non-metastatic castration resistant prostate cancer
Xtandi (enzalutamide)	Treatment of non-metastatic high risk hormone-sensitive prostate cancer
Xtandi (enzalutamide)	Treatment of metastatic hormone-sensitive prostate cancer
Xeljanz (tofacitinib)	Treatment of ulcerative colitis (ex-U.S.)
Xeljanz (tofacitinib)	Treatment of psoriatic arthritis (ex-U.S.)
Vyndaqel (tafamidis meglumine)	Adult symptomatic transthyretin cardiomyopathy

In May 2017, we and our partner Astellas announced discontinuation of the planned ENDEAR trial (a phase III study comparing the efficacy and safety of Xtandi in combination with paclitaxel chemotherapy or as monotherapy versus placebo with paclitaxel in patients with advanced, diagnostic-positive, triple-negative breast cancer); no patients were ever enrolled in the trial.



NEW DRUG CANDIDATES IN LATE-STAGE DEVELOPMENT
CANDIDATE	PROPOSED INDICATION
dacomitinib	A ~~pan-HER~~pan-human epidermal growth factor receptor (HER) tyrosine kinase inhibitor for the first-line treatment of patients with advanced non-small cell lung cancer with ~~EGFR~~estimated glomerular filtration rate (eGFR) activating mutations, which is being developed in collaboration with SFJ ~~Pharmaceuticals Group~~
~~Ertugliflozin~~lorlatinib (PF-06463922)	~~An oral SGLT2~~A next generation ALK/ROS1 tyrosine kinase inhibitor for the treatment of ~~type 2 diabetes, which is being developed in collaboration~~patients with ~~Merck & Co., Inc.~~ALK-positive metastatic non-small cell lung cancer, previously treated with one or more ALK inhibitors
~~Inotuzumab ozogamicin~~	~~An antibody drug conjugate, consisting of an anti-CD22 monotherapy antibody linked to a cytotoxic agent, calicheamycin, for the treatment of acute lymphoblastic leukemia (ex-EU)~~
~~PF-06836922~~PF-06425090	A ~~long-acting hGH-CTP~~prophylactic vaccine for ~~the treatment of growth hormone deficiency in adults, which is being developed in collaboration with OPKO Health, Inc.~~active immunization to prevent clostridium difficile colitis
~~PF-06438179~~PF-05280014^(a)	A potential biosimilar to ~~Remicade® (infliximab)~~Herceptin^®(trastuzumab) (ex-EU)
~~PF-05280014~~PF-05280586^(b)	A potential biosimilar to ~~Herceptin®~~Rituxan^®~~(trastuzumab)~~(rituximab)
~~PF-05280586~~PF-06439535^(c)	A potential biosimilar to ~~Rituxan®~~Avastin^®~~(rituximab)~~ (bevacizumab)
~~PF-06439535~~PF-06410293^(d)	A potential biosimilar to ~~Avastin® (bevacizumab)~~Humira^® (adalimumab)
~~PF-06410293~~^(e)	~~A potential biosimilar to Humira® (adalimumab)~~
~~Rivipansel~~rivipansel (GMI-1070)	A pan-selectin inhibitor for the treatment of vaso-occlusive crisis in hospitalized individuals with sickle cell disease, which was licensed from GlycoMimetics Inc.
~~Tanezumab~~somatrogon (PF-06836922)	A long-acting hGH-CTP for the treatment of growth hormone deficiency in children, which is being developed in collaboration with OPKO
somatrogon (PF-06836922)	A long-acting hGH-CTP for the treatment of growth hormone deficiency in adults, which is being developed in collaboration with OPKO
talazoparib (MDV3800)	An oral PARP inhibitor for the treatment of patients with germline breast cancer susceptibility gene BRCA mutated advanced breast cancer
tanezumab	An anti-nerve growth factor monoclonal antibody for the treatment of pain, which is being developed in collaboration with Lilly

^(a)

~~Remicade®~~Herceptin^® is a registered trademark of ~~Janssen Biotech,~~Genentech, Inc. ~~In February 2016, we divested the rights for development and commercialization of PF-06438179, a potential biosimilar to Remicade~~^®(infliximab) in the 28 countries that form the EEA to Sandoz, which was a condition to the European Commission’s approval of the Hospira transaction. We retain commercialization and manufacturing rights to PF-06438179 in all countries outside of the EEA.


^(b)	~~Herceptin® is a registered trademark of Genentech, Inc.~~


Rituxan^(c)®	~~Rituxan®~~ is a registered trademark of Biogen MA Inc.


^(d)(c)	~~Avastin®~~ Avastin^® is a registered trademark of Genentech, Inc.


^(e)(d)	~~Humira®~~ Humira^® is a registered trademark of AbbVie Biotechnology Ltd.

~~Inflectra™~~

~~In 2009, Hospira entered into an agreement to develop and market certain biosimilar molecules with Celltrion Inc. and Celltrion Healthcare, Co., Ltd. (collectively, Celltrion) including Inflectra~~^™(infliximab) for patients with autoimmune diseases. In Europe, Inflectra has now launched in 36 markets. Celltrion possesses the right to commercialize its infliximab product under the brand name Remsima^™ in the same European markets as Hospira. We have exclusive commercialization rights from Celltrion to its infliximab product in the U.S., Canada and certain other territories. In April 2016, the FDA approved Inflectra (infliximab-dyyb) across all eligible indications of the reference product, Remicade® (infliximab).~~In December 2014, Hospira launched Inflectra in Canada. Inflectra has also been approved in certain markets, where we will market it under the brand name Remsima™.~~

Additional product-related programs are in various stages of discovery and development. Also, see the discussion in the “Our Strategy––Our Business Development Initiatives” section of this MD&A.

COSTS AND EXPENSES

The changes in expenses below reflect, among other things, the favorable impact of the February 2017 sale of HIS. The operating results of HIS are included in operating results through February 2, 2017 and, therefore, operating results for the second quarter of 2017 do not reflect HIS global operations, while operating results for the second quarter of 2016 reflect three months of HIS global operations. Operating results for the first six months of 2017 include approximately one month of HIS domestic operations and approximately two months of HIS international operations, while operating results for the first six months of 2016 reflect six months of HIS global operations.

Cost of Sales


	Three Months Ended							Six Months Ended							Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)	July 3, 2016			June 28, 2015			% Change	July 3, 2016			June 28, 2015			% Change	July 2, 2017			July 3, 2016			% Change		July 2, 2017			July 3, 2016			% Change
Cost of sales	$	3,174		$	2,180		46	$	6,026		$	4,018		50	$	2,663		$	3,174		(16	)	$	5,134		$	6,026		(15	)
As a percentage of Revenues	24.1		%	18.4		%		23.0		%	17.7		%		20.7		%	24.1		%			20.0		%	23.0		%

Cost of sales ~~increased 46%~~ decreased 16% in the second quarter of ~~2016~~2017, and ~~50%~~15% in the first six months of ~~2016,~~2017, compared to the same periods in ~~2015,~~2016, primarily due to:


•	the nonrecurring unfavorable impact of $30 million in the second quarter of 2016 and $212 million in the first six months of 2016 of acquired Hospira inventory, which is measured at fair value on the acquisition date and was amortized over the turn of the related inventory;

~~an increase~~recognition of synergies related to our cost-reduction/productivity initiatives;


•	the favorable impact of the sale of HIS global operations (which carried a higher cost of sales than other products) of $156 million in the second quarter of 2017, and $282 million in the first six months of 2017; and


•	the favorable impact of foreign exchange of $192 million in the second quarter of 2017, and $220 million in the first six months of 2017.

The decrease in ~~sales volumes including legacy Hospira operations;~~

~~the sale of legacy Hospira inventory measured at fair value on the acquisition date and amortized over the turn of the related inventory; and~~

~~the unfavorable impact of foreign exchange.~~

~~The increase in~~ Cost of sales as a percentage of revenues in the second quarter of ~~2016~~2017 and the first six months of ~~2016,~~2017, compared to the same periods in ~~2015,~~2016, was primarily due ~~to:~~

~~an unfavorable change in product mix due~~ to (i) the inclusion of legacy Hospira operations with products that carry a higher cost, as well as the impact of acquired Hospira inventory which is measured at fair value on the acquisition date and amortized over the turnall of the ~~related inventory; and (ii) the impact of losses of exclusivity on products which formerly had a higher gross margin; and~~

~~the unfavorable impact of foreign exchange,~~

~~partially offset by:~~

~~a favorable change~~factors discussed above plus an increase in ~~product mix related to legacy Pfizer products, including~~ alliance revenues, ~~(which~~which have no associated cost of ~~sales), excluding losses of exclusivity.~~sales.

Selling, Informational and Administrative (SI&A) Expenses


	Three Months Ended							Six Months Ended							Three Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)	July 3, 2016			June 28, 2015			% Change	July 3, 2016			June 28, 2015			% Change	July 2, 2017			July 3, 2016			% Change		July 2, 2017			July 3, 2016			% Change
Selling, informational and administrative expenses	$	3,471		$	3,386		2	$	6,856		$	6,491		6	$	3,425		$	3,471		(1	)	$	6,733		$	6,856		(2	)
As a percentage of Revenues	26.4		%	28.6		%		26.2		%	28.6		%		26.6		%	26.4		%			26.2		%	26.2		%

SI&A expenses ~~increased 2%~~decreased 1% in the second quarter of ~~2016~~2017, compared to the same period in ~~2015,~~2016, primarily due to:

~~the inclusion of legacy Hospira operations; and~~

~~increased investments to support~~lower spending for certain ~~recently launched products;~~

~~partially offset by:~~products, primarily Prevnar 13/Prevenar 13;

the favorable impact of foreign exchange of ~~2% in the second quarter of 2016;~~$44 million; and

~~lower field force, advertising~~the favorable impact of the sale of HIS global operations of $31 million,

partially offset by:

additional investment across several of our key products, primarily Eucrisa, Xeljanz, Xtandi and ~~promotional expenses, reflecting~~Ibrance; and

increased spending for biosimilars, primarily related to the ~~benefits~~U.S. launch of ~~cost-reduction and productivity initiatives.~~Inflectra.

SI&A expenses ~~increased 6%~~decreased 2% in the first six months of ~~2016~~2017, compared to the same period in ~~2015,~~2016, primarily due to:


•	the non-recurrence of an allowance for doubtful trade accounts receivable of approximately $280 million, resulting from unfavorable developments with a distributor that was recorded in the first quarter of 2016;

~~an increase in the allowance~~lower spending for ~~doubtful trade accounts receivable, resulting from unfavorable developments with a distributor;~~

~~the inclusion of legacy Hospira operations; and~~

~~increased investments to support~~ certain ~~recently launched~~ products, ~~and other in-line biopharmaceutical products,~~

~~partially offset by:~~primarily Prevnar 13/Prevenar 13;

the favorable impact of foreign exchange of 3%$67 million; and

the favorable impact of the sale of HIS global operations of $55 million,

partially offset by:

additional investment across several of our key products, primarily Eucrisa, Xeljanz, Xtandi and Ibrance;

increased spending for biosimilars, primarily related to the U.S. launch of Inflectra; and

an increase in ~~the first six months of 2016; and~~

~~lower field force, advertising and promotional expenses, reflecting the benefits of cost-reduction and productivity initiatives.~~

charitable contributions.

Research and Development (R&D) Expenses


	Three Months Ended							Six Months Ended								Three Months Ended							Six Months Ended
(MILLIONS OF DOLLARS)	July 3, 2016			June 28, 2015			% Change	July 3, 2016			June 28, 2015			% Change		July 2, 2017			July 3, 2016			% Change	July 2, 2017			July 3, 2016			% Change
Research and development expenses	$	1,748		$	1,734		1	$	3,478		$	3,620		(4	)	$	1,780		$	1,748		2	$	3,487		$	3,478		—
As a percentage of Revenues	13.3		%	14.6		%		13.3		%	15.9		%			13.8		%	13.3		%		13.6		%	13.3		%

Second Quarter of 2015
(MILLIONS OF DOLLARS)
Innovative Health (IH)^(a)

Essential Health (EH)^(a)

Other^(b)

Non-GAAP
Adjusted^(c)

Reconciling Items^(d)

GAAP Reported
Revenues $ 6,630
$ 5,223
$ —
$ 11,853
$ —
$ 11,853
Cost of sales 937
1,042
144
2,123
58
2,180
% of revenue 14.1 % 19.9 % *
17.9 % *
18.4 %
Selling, informational and administrative expenses 1,619
840
913
3,372
15
3,386
Research and development expenses 573
219
941
1,732
2
1,734
Amortization of intangible assets 23
10
—
33
839
872
Restructuring charges and certain acquisition-related costs —
—
—
—
86
86
Other (income)/deductions––net (286 ) (31 ) 164
(153 ) 209
55
Income from continuing operations before provision for taxes on income $ 3,764
$ 3,144
$ (2,161 ) $ 4,747
$ (1,208 ) $ 3,539

Second Quarter of 2015
Other Business Activities
(MILLIONS OF DOLLARS)
WRD⁽ⁱ⁾

GPD⁽ⁱⁱ⁾

Medical⁽ⁱⁱⁱ⁾

Corporate^(iv)

Other Unallocated^(v)
Total
Revenues $ —
$ —
$ —
$ —
$ —
$ —
Cost of sales —
—
—
25
118
144
Selling, informational and administrative expenses —
—
28
871
14
913
Research and development expenses 544
150
7
231
9
941
Amortization of intangible assets —
—
—
—
—
—
Restructuring charges and certain acquisition-related costs —
—
—
—
—
—
Other (income)/deductions––net (15 ) —
—
159
19
164
Loss from continuing operations before provision for taxes on income $ (530 ) $ (150 ) $ (35 ) $ (1,286 ) $ (160 ) $ (2,161 )



~~Six Months Ended July 3, 2016~~
~~(PERCENTAGES)~~	IH	EH
~~WRD/GPD/Medical Costs~~
~~Selling, informational and administrative expenses~~	~~67% - 69%~~	~~31% - 33%~~
~~Research and development expenses~~	~~98% - 100%~~	~~0% - 2%~~
~~Other (income)/deductions––net~~	*	*
~~Total WRD/GPD/Medical Costs~~	~~96% - 98%~~	~~2% - 4%~~

~~Corporate/Other Unallocated Costs~~
~~Cost of sales~~	~~24% - 26%~~	~~74% - 76%~~
~~Selling, informational and administrative expenses~~	~~49% - 51%~~	~~49% - 51%~~
~~Research and development expenses~~	~~83% - 85%~~	~~15% - 17%~~
~~Other (income)/deductions––net~~	*	*
~~Total Corporate/Other Unallocated Costs~~	~~49% - 51%~~	~~49% - 51%~~

~~Total WRD/GPD/Medical and Corporate/Other Unallocated Costs~~
~~Cost of sales~~	~~24% - 26%~~	~~74% - 76%~~
~~Selling, informational and administrative expenses~~	~~50% - 52%~~	~~48% - 50%~~
~~Research and development expenses~~	~~95% - 97%~~	~~3% - 5%~~
~~Other (income)/deductions––net~~	*	*
~~Total WRD/GPD/Medical and Corporate/Other Unallocated Costs~~	~~65% - 67%~~	~~33% - 35%~~

~~Corporate/Other Unallocated~~––The information provided in the table above for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification. Management believes that the allocations ofcombined Corporate and Other Unallocated costs of $2.6 billion after excluding (i) net interest-related expense not attributable to an operating segment included in Corporate (approximately $470 million for the first six months of 2017 in Other (income)/deductions––net); and (ii) net income from investments and other assets not attributable to an operating segment included in Corporate (approximately $96 million for the first six months of 2017 in Other(income)/deductions––net), are ~~reasonable.~~generally associated with our operating segments, as follows:



	Six Months Ended July 2, 2017
				Estimated Other Costs Associated with IH⁽ⁱⁱ⁾
(MILLIONS OF DOLLARS)	Innovative Health Non-GAAP Adjusted^{(i), (iii)}			Estimated WRD/GPD⁽ⁱⁱ⁾			Estimated Corporate/Other Unallocated⁽ⁱⁱ⁾			Innovative Health with Estimated Other Costs Associated with Innovative Health Non-GAAP Adjusted^(ii), ⁽ⁱⁱⁱ⁾
Revenues	$	15,086		$	—		$	—		$	15,086
Cost of sales	1,830			—			26			1,857
Selling, informational and administrative expenses	3,178			(1		)	1,176			4,353
Research and development expenses	1,071			1,461			393			2,924
Amortization of intangible assets	50			—			—			50
Restructuring charges and certain acquisition-related costs	—			—			—			—
Other (income)/deductions––net	(359		)	(28		)	(73		)	(459		)
Income from continuing operations before provision for taxes on income	9,316			(1,432		)	(1,521		)	6,362



	Six Months Ended July 2, 2017
				Estimated Other Costs Associated with EH⁽ⁱⁱ⁾
(MILLIONS OF DOLLARS)	Essential Health Non-GAAP Adjusted^{(i), (iii)}			Estimated WRD/GPD⁽ⁱⁱ⁾			Estimated Corporate/Other Unallocated⁽ⁱⁱ⁾			Essential Health with Estimated Other Costs Associated with Essential Health Non-GAAP Adjusted^{(ii), (iii)}
Revenues	$	10,590		$	—		$	—		$	10,590
Cost of sales	2,872			—			301			3,173
Selling, informational and administrative expenses	1,485			—			835			2,321
Research and development expenses	506			13			33			552
Amortization of intangible assets	26			—			—			26
Restructuring charges and certain acquisition-related costs	—			—			—			—
Other (income)/deductions––net	(93		)	—			(80		)	(173		)
Income from continuing operations before provision for taxes on income	5,793			(13		)	(1,089		)	4,691


⁽ⁱ⁾	Amount represents the revenues and costs managed by each of our operating segments. The expenses generally include only those costs directly attributable to the operating segment. See note (a) above for more information.


⁽ⁱⁱ⁾	Represents costs not assessed to an operating segment, as business unit (segment) management does not manage these costs. For a description of these other costs and business activities, see note (b) above.


•	WRD/GPD––The information provided for WRD and GPD was substantially all derived from our estimates of the costs incurred in connection with the R&D projects associated with each operating segment.

•

Corporate/Other Unallocated––The information provided for Corporate and Other Unallocated was derived mainly using proportional allocation methods based on global, regional or country revenues or global, regional or country headcount, as well as certain cost metrics, as appropriate, such as those derived from research and development and manufacturing costs, and, to a lesser extent, specific identification and estimates. Management believes that the allocations of Corporate and Other Unallocated costs are reasonable.

The estimated Other costs generally associated with our operating segments do not purport to reflect the additional amounts that each of our operating segments would have incurred had each segment operated as a standalone company during the period presented.


⁽ⁱⁱⁱ⁾	See note (c) below for an explanation of our Non-GAAP Adjusted financial measure.


^(c)	See the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A for a definition of these “Adjusted Income” components.

^(d)

Includes costs associated with (i) purchase accounting adjustments; (ii) acquisition-related costs; and (iii) certain significant items, which are substantive and/or unusual, and in some cases recurring, items (such as restructuring or legal charges), ~~or unusual items~~ that are evaluated on an individual basis by management. For additional information about these reconciling items and/or our Non-GAAP ~~Adjusted~~adjusted measure of performance, see the “Non-GAAP Financial Measure (Adjusted Income)” section of this MD&A.

Second Quarter of 2017 vs. Second Quarter of 2016

Innovative Health Operating Segment

Revenues

IH Revenues increased 7%$565 million, or 8%, to ~~$7.1~~$7.7 billion, reflecting a 9% operational increase. Foreign exchange had an unfavorable impact of 1% on IH Revenues.

The following provides an analysis of the increase in ~~the second quarter of 2016, compared~~IH Revenues:



(MILLIONS OF DOLLARS)
IH Revenues, for the three months ended July 3, 2016	$	7,105

Acquisition-related operational growth:
Xtandi alliance revenues in the U.S. (September 2016 acquisition of Medivation)	141

Other operational growth/(decline):
Continued growth from key brands including Ibrance and Eliquis globally, as well as Xeljanz and Lyrica, both primarily in the U.S.	730
Lower revenues for Enbrel driven by declines in most developed Europe markets, primarily due to continued biosimilar competition	(133		)
Global decline in Prevnar 13/Prevenar 13 revenues. U.S. revenues decreased primarily due to the unfavorable timing of government purchases for the pediatric indication and the continued decline in revenues for the Adult indication due to a smaller remaining “catch up” opportunity compared to the prior-year quarter. International revenues increased primarily due to the favorable timing of government purchases in certain emerging markets for the pediatric indication.	(84		)
Other operational factors, net	6
Operational growth, net	660

Unfavorable impact of foreign exchange	(95		)
IH Revenues increase	565
IH Revenues, for the three months ended July 2, 2017	$	7,671

Total IH revenues from emerging markets increased $149 million, or 16%, to ~~$6.6~~$1.1 billion, ~~in the same period in 2015, and increased 14% to $14.1 billion in the first six months of 2016, compared to $12.4 billion in the same period in 2015.~~reflecting an 18% operational increase. Foreign exchange had an unfavorable impact of 2% on total IH revenues ~~in the second quarter of 2016,~~from emerging markets.

Costs and ~~4% in the first six months of 2016, compared to the same periods in 2015. IH~~ ~~Revenues~~ increased by 9% operationally in the second quarter of 2016 and 18% operationally in the first six months of 2016 compared to the same periods in 2015, primarily due to the following operational factors:

Expenses

◦

•

~~continued strong momentum from Ibrance~~

Cost of sales as a percentage of Revenues decreased 1.2 percentage points, primarily driven by a favorable change in ~~the U.S.,~~product mix, including an increase in alliance revenue, which have no associated cost of sales, as well as ~~strong operational growth from Eliquis globally and Lyrica, Xeljanz, Consumer Healthcare and Chantix, all primarily~~the favorable impact of foreign exchange, partially offset by an increase in ~~the U.S. (collectively, up approximately $900 million for the second quarter of 2016 and $2.0 billion for the first six months of 2016),~~

~~partially offset by:~~royalty expense.

◦


◦•	The decrease in Cost of sales of 2% was primarily driven by the favorable impact of foreign exchange and favorable product mix, partially offset by an increase in royalty expense.


•	The increase in Selling, informational and administrativeexpenses of 3% was primarily driven by additional investment across several of our key products, primarily Eucrisa, Xeljanz, Xtandi and Ibrance. The increase was partially offset by lower spending for certain other products, primarily Prevnar 13/Prevenar 13, and the favorable impact of foreign exchange.

•

The decrease in Research and developmentexpenses of 6% primarily reflects the discontinuation of the global clinical development program for bococizumab in the fourth quarter of 2016, partially offset by increased costs associated with our C. difficile vaccine program, which initiated a ~~decline~~Phase 3 clinical study in ~~Rebif revenues~~March 2017, our oncology programs, primarily clinical trial spend on legacy Medivation assets, as well as an expense of approximately $28 million, representing IH’s portion of the $75 million expense resulting from our May 2017 agreement with Sangamo to develop and commercialize gene therapy programs for Hemophilia A.

•

The unfavorable change in Other (income)/deductions––net primarily reflects (i) a net decrease in royalty income of approximately $165 million, primarily due to lower royalty income for Enbrel of $157 million, resulting from the expiration on October 31, 2016 of the 36-month royalty period under the collaboration agreement for Enbrel in the U.S. ~~due to~~and Canada (the collaboration period under the ~~expiration~~agreement expired on October 31, 2013), partially offset by the addition of ~~the collaboration agreement to co-promote Rebif~~$51 million in ~~the U.S., which expired at the end~~Xtandi royalty income, and (ii) an increase of ~~2015 (down approximately $90~~$106 million ~~for the second quarter of 2016 and $140 million for the first six months of 2016).~~in dividend income from our investment in ViiV.

Total IH revenues from emerging markets were $932 million in the second quarter of 2016, compared to $1.1 billion in the second quarter of 2015, reflecting a 2% operational decrease in the second quarter of 2016 plus the unfavorable impact of foreign exchange. IH revenues from emerging markets were $1.8 billion in the first six months of 2016, compared to $2.0 billion in the first six months of 2015, reflecting 8% operational growth in the first six months of 2016, which was more than offset by the unfavorable impact of foreign exchange.

~~Cost of sales~~ ~~as a percentage of~~ ~~Revenues~~ decreased 0.1 percentage point in the second quarter of 2016, and decreased 0.4 percentage points in the first six months of 2016, compared to the same periods in 2015, primarily driven by a favorable change in product mix, including an increase in alliance revenues, which have no associated cost of sales, partially offset by unfavorable foreign exchange. The increase in ~~Cost of sales~~ of 6% in the second quarter of 2016, compared to the same period in 2015, was primarily driven by unfavorable foreign exchange and an increase in royalty expense, partially offset by favorable product mix. The increase in ~~Cost of sales~~ ~~of 11% in the first six months of 2016, compared to the same period in 2015, was primarily driven by unfavorable foreign exchange, an increase in sales volumes and an increase in royalty expense.~~

~~The slight decrease in~~ ~~Selling, informational and administrativeexpenses~~ ~~in the second quarter of 2016, compared to the same period in 2015, reflects favorable foreign exchange, offset by additional investment in Prevnar 13 and Eliquis. The increase in~~ ~~Selling, informational and administrativeexpenses~~ of 9% in the first six months of 2016, compared to the same period in 2015, reflects an increase in the allowance for doubtful trade accounts receivable, resulting from unfavorable developments with a distributor, and additional investment in Eliquis and Prevnar 13, partially offset by favorable foreign exchange.

~~The increase in~~ ~~Research and developmentexpenses~~ ~~of 2% in the second quarter of 2016, compared to the same period in 2015, primarily reflects the increased costs associated with our avelumab alliance with Merck KGaA. The decrease in~~ ~~Research and developmentexpenses~~ of 13% in the first six months of 2016, compared to the same period in 2015, primarily reflects the non-recurrence of the $295 million upfront payment made to OPKO in the first quarter of 2015, partially offset by increased costs associated with our oncology programs, primarily our avelumab alliance with Merck KGaA and increased investment in certain late-stage pipeline programs, primarily bococizumab and tanezumab.

Essential Health Operating Segment

Revenues

EH Revenues ~~increased 16%~~ decreased $816 million, or 14%, ~~to $6.0 billion in the second quarter of 2016, compared~~ to $5.2 billion, inreflecting a 12% operational decrease, of which 5% operationally was due to the ~~same period in 2015, and increased 16% to $12.0 billion in the first six months~~sale of ~~2016, compared to $10.3 billion in the same period in 2015.~~HIS. Foreign exchange had an unfavorable impact of 4%2% on EH Revenues.

The following provides an analysis of the decrease in EH Revenues:



(MILLIONS OF DOLLARS)
EH Revenues, for the three months ended July 3, 2016	$	6,042

Disposition-related operational impact:
Financial results in the second quarter of 2017 do not reflect any contribution from HIS global operations, compared to the inclusion of three months of HIS global operations in the same period in 2016 (February 2017 sale)	(296		)

Other operational growth/(decline):
Decline from Peri-LOE Products, including declines in Pristiq in the U.S., which lost marketing exclusivity in the U.S. in March 2017, as well as Vfend and Lyrica, both in developed Europe markets	(305		)
Decline in the Legacy Established Products portfolio	(99		)
Growth from Biosimilars, primarily driven by Inflectra in certain developed Europe markets and in the U.S.	47
Other operational factors, net	(56		)
Operational decline, net	(709		)

Unfavorable impact of foreign exchange	(107		)
EH Revenues decrease	(816		)
EH Revenues, for the three months ended July 2, 2017	$	5,226

Total EH revenues in developed markets decreased $836 million, or 19%, to $3.5 billion, reflecting an 18% operational decline. The operational decline was driven primarily by operational declines from Peri-LOE Products, a 5% unfavorable impact of the ~~second quarter~~sale of ~~2016,~~HIS and 6%a decline in the first six months of 2016, compared to the same periods in 2015. Revenues increased by 19% operationally in the second quarter of 2016 and 22% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to the inclusion of legacy Hospira operations of $1.1 billion in the second quarter of 2016 and $2.3 billion in the first six months of 2016,Legacy Established Products portfolio, partially offset by ~~the loss~~operational growth from Biosimilars. Foreign exchange had an unfavorable impact of ~~exclusivity and associated generic competition for certain Peri-LOE Products, primarily Zyvox~~1% on total EH revenues in ~~the U.S. and certain~~ developed ~~Europe markets, as well as Lyrica in certain developed Europe~~ markets. EH ~~Revenues~~ excluding the contribution from the legacy Hospira portfolio, decreased 3% operationally in the second quarter of 2016 and decreased 1% operationally in the first six months of 2016, compared to the same periods in 2015, primarily due to the following operational factors:



•	Cost of sales as a percentage of Revenues increased 1.1 percentage points, primarily due to cost increases reflecting the shift to EH of certain legacy Hospira costs that were previously unallocated to EH as a result of harmonizing the Hospira cost policy, and the impact of product losses of exclusivity, partially offset by the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products, and the favorable impact of foreign exchange.


•	The decrease in Cost of sales of 8% primarily reflects the favorable impact of the sale of HIS, which had a higher cost of sales than the other EH products, and the favorable impact of foreign exchange, partially offset by cost increases reflecting the shift to EH of certain legacy Hospira costs that were previously unallocated to EH as a result of harmonizing the Hospira cost policy.

•

Selling, informational and administrativeexpenses decreased 8%, primarily due to lower advertising, promotional, field force and certain other expenses related to disputes in the ordinary course of business, as well as the favorable impact of the sale of HIS and the favorable impact of foreign exchange, partially offset by increased spending for biosimilars, primarily related to the U.S. launch of Inflectra.


•	Research and developmentexpenses decreased 13%, primarily due to the close-out of certain post-marketing clinical trials and the favorable impact of the sale of HIS.


•	The unfavorable change in Other (income)/deductions––net primarily reflects the non-recurrence of a resolution of a contract disagreement in the first quarter of 2016, partially offset by a gain on the redemption of an acquired bond and the favorable impact of foreign exchange.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Changes in the components of Accumulated other comprehensive loss for the second quarter and ~~the first six months~~ ~~of 2016~~ ~~reflect the following:~~

~~For~~ ~~Foreign currency translation adjustments, net,~~ ~~for the second quarter of 2016, primarily reflects the weakening of the U.S. dollar against the euro and Japanese yen; for the first six months~~ ~~of 2016, primarily reflects the strengthening of the U.S. dollar against the U.K. pound, partially offset by the weakening of the U.S. dollar against the euro and Japanese yen.~~

~~For~~ ~~Unrealized holding gains/(losses) on derivative financial instruments, net~~ ~~and~~ ~~Unrealized holding gains/(losses) on available-for-sale securities, net,~~ ~~reflects the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments~~.

~~For~~ ~~Benefit plans: actuarial gains/(losses), net,~~ reflects the impact of the inclusion of Hospira’s pension and postretirement benefit plans in our results of operations, subsequent to its acquisition, partially offset by favorable foreign exchange, large gains in the international plans in 2015 and, to a lesser extent, settlement activity. For additional information, see Notes to Condensed Consolidated Financial Statements—~~Note 10. Pension and Postretirement Benefit Plans~~.

~~For~~ ~~Benefit plans: prior service credits and other, net, for the~~ first six months of ~~2016, reflects an $82 million reduction in our U.S. Postretirement Plan obligation due to a plan change approved in June 2016 that introduced a cap on costs for certain groups within~~2017 reflect the ~~plan, partially offset by the reclassification into income of amounts related to (i) amortization of changes in prior service costs and credits previously recognized in~~ ~~Other comprehensive income~~ ~~and (ii) curtailment activity. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans~~.following:

•

For Foreign currency translation adjustments, net, for the second quarter of 2017, primarily reflects the weakening of the U.S. dollar against the euro and British pound, partially offset by the strengthening of the U.S. dollar against the Australian dollar; for the first six months of 2017, primarily reflects the weakening of the U.S. dollar against the euro, British pound and the Swedish krona. For the second quarter and first six months of 2017, also includes the reclassification of amounts related to the agreement to sell our 40% ownership investment in Teuto. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 2D. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Equity-Method Investments.


•	For Unrealized holding losses on derivative financial instruments, net and Unrealized holding gains on available-for-sale securities, net, reflect the impact of fair value remeasurements and the reclassification of realized amounts into income. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.

•

For Benefit plans: actuarial gains/(losses), net, for the second quarter and first six months of2017, primarily reflects (i) the remeasurement gain due to the settlement of the Hospira U.S. qualified defined benefit plan; (ii) the amortization of changes in the pension benefit obligation previously recognized in Other comprehensive income; and (iii) the unfavorable impact of foreign exchange. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Postretirement Benefit Plans.

ANALYSIS OF THE CONDENSED CONSOLIDATED BALANCE SHEETS

For information about certain of our financial assets and liabilities, including Cash and cash equivalents, Short-term investments, Long-term investments, Short-term borrowings, including current portion of long-term debt, and Long-term debt, see the “Analysis of the Condensed Consolidated Statements of Cash Flows” section of this MD&A, the “Analysis of Financial Condition, Liquidity and Capital Resources: Selected Measures of Liquidity and Capital Resources” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 7. Financial Instruments.

For information about certain balances in Trade accounts receivable, less allowance for doubtful accounts, see also the “Analysis of Financial Condition, Liquidity and Capital Resources: Selected Measures of Liquidity and Capital Resources: Accounts Receivable” section of this MD&A.

For information about events and circumstances impacting our tax-related accounts, see Notes to Condensed Consolidated Financial Statements—Note 5. Tax Matters.

For information related to changes in Accumulated other comprehensive loss, see the “Analysis of the Condensed Consolidated Statements of Comprehensive Income” section of this MD&A and Notes to Condensed Consolidated Financial Statements—Note 6. Accumulated Other Comprehensive Loss, Excluding Noncontrolling Interests.

The changes in our asset and liability accounts as of July ~~3, 2016,~~2, 2017, compared to December 31, ~~2015,~~2016, generally reflect, among other things, the impact of assets acquired and liabilities assumed as part of the acquisition of AstraZeneca’s small molecule anti-infectives business, measurement period adjustments related to the acquisitions of Medivation and Anacor and fluctuations in foreign currency exchange rates.The following explanations exclude the impact of ~~foreign exchange.~~

~~For~~ ~~Trade accounts receivable, less allowance for doubtful accounts,~~ the change reflects the timing of sales and collections in the normal course of business and an increase in the allowance for doubtful accounts, resulting from unfavorable developments with a distributor.

~~For~~ ~~Inventories,~~ ~~the change reflects planned inventory reductions, offset by inventory builds in the normal course of business.~~

~~For~~ ~~Other current assets,~~ ~~the change reflects an increase in VAT receivable balances due to a change in our supply chain, partially offset by a decrease in receivables associated with our derivative financial instruments.~~

~~For PP&E,the change reflects depreciation during the period, partially offset by capital additions in the normal course of business.~~

~~For~~ ~~Identifiable intangible assets, less accumulated amortization, the change reflects~~ the acquisition of ~~Anacor and the impact of~~AstraZeneca’s small molecule anti-infectives business, measurement period adjustments related to ~~our acquisition~~the acquisitions of ~~Hospira~~Medivation and Anacor, as well as the sale of HIS to ICU Medical (see Notes to Condensed Consolidated Financial ~~Statements—~~Statements––Note ~~2A.~~ 2. Acquisitions, ~~Research~~Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and ~~Development and Collaborative Arrangements,~~ Equity-Method Investments and ~~Cost-Method Investment: Acquisitions~~ ~~and~~ Note ~~9A.~~9. Identifiable Intangible Assets and ~~Goodwill: Identifiable Intangible Assets~~ Goodwill for additional information) and foreign exchange.


•	For Trade accounts receivable, less allowance for doubtful accounts, the change reflects the timing of sales and collections in the normal course of business.


•	For Inventories, the change primarily reflects the build of inventory primarily for and in advance of new product launches and to meet targeted levels for certain products, partially offset by inventory reductions in the normal course of business.


•	For Other current assets, the change reflects a decrease in receivables associated with our derivative financial instruments, a decrease in receivables from royalty agreements as a result of contract terminations, as well as the timing of receipts and payments in the normal course of business.


•	For PP&E,the change reflects depreciation during the period, partially offset by capital additions in the normal course of business.


•	For Identifiable intangible assets, less accumulated amortization, the change primarily reflects amortization for the period, partially offset by intangible assets recorded in connection with the EU approval of Besponsa.For additional information, see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities.


•	For Other noncurrent assets, the change reflects net increases in the normal course of business, partially offset by a decrease in receivables associated with our derivative financial instruments.


•	For Trade accounts payable, the change reflects the timing of purchases and payments in the normal course of business, including the impact of efforts to improve working capital efficiencies.


•	For Accrued compensation and related items, the decrease reflects normal bonus payments made to employees and a reduction related to the termination of a Hospira U.S. qualified defined benefit pension plan, partially offset by current year’s accruals. For additional information, see Notes to Condensed Consolidated Financial Statements—Note 10. Pension and Other Postretirement Benefit Plans.


•	For Other current liabilities, the change reflects a decrease in liabilities associated with:


◦	payment for consideration transferred for Medivation;


◦	payments for restructuring activities, liabilities related to the closeout of bococizumab clinical studies and product liability claims;


◦	a decrease in liabilities associated with our derivative financial instruments; and


◦	the timing of payments for accrued interest,

partially offset ~~by amortization and impairments for the period~~.by:


◦	an accrual for net funds due to ICU Medical for net economic benefit payments (see Notes to Condensed Consolidated Financial Statements––Note 2B. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Sale of Hospira Infusion Systems Net Assets to ICU Medical, Inc. (EH)); and


◦	the impact of timing of payments in the normal course of business.


•	For Pension benefit obligations, net, the decrease primarily reflects the $1.0 billion voluntary pension contribution in January 2017 and payments to plan participants.


•	For Other noncurrent liabilities, the change reflects a reduction from:


◦	the reversal of a contingent liability as a result of exiting our investment in Teuto (see Notes to Condensed Consolidated Financial Statements––Note 2D. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Equity Method Investments);


◦	a decrease in liabilities associated with our derivative financial instruments; and


◦	an increase in reclassification of short-term liabilities and accruals in the normal course of business,

~~For~~ ~~Goodwill,~~ ~~the change primarily reflects the acquisition of Anacor (see Notes to Condensed Consolidated Financial Statements—Note 2A.~~ ~~Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions~~ ~~and~~ ~~Note 9A. Identifiable Intangible Assets and Goodwill: Identifiable Intangible Assets~~ ~~for additional information).~~

~~For~~ ~~Other noncurrent assets,~~ ~~the change reflects an increase in receivables associated with our derivative financial instruments and an increase in noncurrent VAT receivable balances due to a change in our supply chain.~~

~~For~~ ~~Trade accounts payable,~~ ~~the change reflects the timing of purchases and payments in the normal course of business.~~

~~For~~ ~~Dividends payable,~~ ~~the change reflects the difference between the first quarter 2016 dividends declared in 2015 and the third quarter dividends declared in June 2016.~~

~~For~~ ~~Accrued compensation and related items,~~ ~~the decrease reflects bonus payments made to employees during the first six months of 2016.~~

~~For~~ ~~Other current liabilities, the change reflects payments and accruals for certain legal matters and restructuring matters, and payments for interest,~~ partially offset ~~by an increase in VAT payable balances due to a change in our supply chain and the timing of other accruals and payments in the normal course of business.~~by:

~~For~~ ~~Pension benefit obligations, net~~ ~~and~~ ~~Postretirement benefit obligations, net, the change reflects a $1.0 billion voluntary pension contribution in January 2016, as well as the information provided in Notes to Condensed Consolidated Financial Statements—Note 10.~~ ~~Pension and Postretirement Benefit Plans~~.

~~For~~ ~~Other noncurrent liabilities~~, the change reflects an increase in the payables associated with our derivative financial instruments and deferred revenue from a co-development agreement, partially offset by distributions under certain of our deferred compensation programs and changes in accruals in the normal course of business.

~~For~~ ~~Treasury stock,~~ ~~the change reflects $5 billion paid to GS&Co. in March 2016 pursuant to the terms of an accelerated share repurchase agreement. See Notes to Condensed Consolidated Financial Statements—Note 12. Commitments and Contingencies~~ ~~for additional information.~~


◦	an increase to record an obligation in connection with the EU approval of Besponsa(see Notes to Condensed Consolidated Financial Statements—Note 7E. Financial Instruments: Other Noncurrent Liabilities); and


◦	an increase in deferred revenue from a milestone payment received from Merck for the ertugliflozin collaboration agreement (see Notes to Condensed Consolidated Financial Statements––Note 2C. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Collaboration Arrangement).


•	For Treasury stock, the change reflects $5 billion paid to Citibank in February 2017 pursuant to the terms of an accelerated share repurchase agreement. See Notes to Condensed Consolidated Financial Statements—Note 12. Commitments and Contingencies for additional information.

ANALYSIS OF THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended								Six Months Ended
(MILLIONS OF DOLLARS)	July 3, 2016			June 28, 2015			% Change		July 2, 2017			July 3, 2016			% Change
Cash provided by/(used in):
Operating activities(a)	$	5,230		$	4,770		10		$	4,841		$	5,414		(11	)
Investing activities	(323		)	4,487			*		3,034			(323		)	*
Financing activities(a)	(5,069		)	(8,852		)	(43	)	(7,922		)	(5,253		)	51
Effect of exchange-rate changes on cash and cash equivalents	(68		)	(78		)	(14	)	37			(68		)	*
Net increase/(decrease) in Cash and cash equivalents	$	(230	)	$	327		*
Net decrease in Cash and cash equivalents									$	(10	)	$	(230	)	(96	)


*	Calculation not meaningful.

^(a)

Amounts for the six months ended July 3, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016, that requires that cash flows present (i) excess tax benefits as Other tax accounts, net as part of operating activities, rather than financing activities on a prospective basis beginning in the year of adoption, and (ii) cash paid by us when directly withholding shares for tax-withholding purposes as a cash outflow from financing activities, rather than operating activities and is reflected in the year of adoption. The year-to-date excess tax benefit was $51 million in the first six months of 2016. For cash paid by us for withholding purposes, $133 million for the first six months of 2016 is presented as financing activitiesin the condensed consolidated statement of cash flows (see Notes to Consolidated Financial Statements—Note 1B. Basis of Presentation and Significant Accounting Policies: Adoption of New Accounting Standards).

In the condensed consolidated statements of cash flows, the line item Other changes in assets and liabilities, net of acquisitions and divestitures is presented excluding the effects of changes in foreign currency exchange rates, as these changes do not reflect actual cash inflows or outflows, and excluding any other significant non-cash movements. Accordingly, the amounts shown will not necessarily agree with the changes in the assets and liabilities that are presented in our condensed consolidated balance sheets.

Operating Activities

Our net cash provided by operating activities was ~~$5.2~~$4.8 billion in the first six months of ~~2016,~~2017, compared to ~~$4.8~~$5.4 billion in the same period ~~of 2015.~~in 2016. The ~~increase~~decrease in net cash provided by operating activities reflects ~~an increase in operating earnings, partially offset by~~ the timing of receipts from customers and payments to vendors in the ordinary course of business, ~~and~~as well as an increase in ~~bonus payments made to employees.~~our net income after adjustments for the non-cash changes.

In the first six months of ~~2016 and 2015,~~2017, the line item Other adjustments, net primarily reflects, among other items, the decrease in the provision for bad debt expense, an increase in dividends from equity-method investments reclassified to investing activities in 2017 and an increase in net gains on sales of PP&E.

In the first six months of 2017 and 2016, the line item Other changes in assets and liabilities, net of acquisitions and divestitures, primarily reflects changes, in the normal course of business, in trade accounts receivable, inventories, other current assets, other noncurrent assets, trade accounts payable, accrued compensation and other current and ~~non-current~~noncurrent liabilities. For the first six months of 2016 ~~and 2015,~~, this line item also includes the adjustments necessary to reflect the payments of certain legal claims accrued in prior periods, including for ~~the first six months of 2016,~~ Protonix-related ~~matters, and for the first six months of 2015, Neurontin-related matters, partially offset by the deferral of an upfront payment received from Lilly as part of a collaborative arrangement.~~matters. For additional information about accounts receivable, see also the “Selected Measures of Liquidity and Capital Resources: Accounts Receivable” section of this MD&A.

For additional information about changes in other assets and liabilities account balances, see also “Analysis of the Condensed Consolidated Balance Sheets” in this MD&A.

Investing Activities

Our net cash ~~used~~provided by investing activities was ~~$323 million~~$3.0 billion in the first six months of ~~2016,~~2017, compared to net cash ~~provided by~~used in investing activities of ~~$4.5 billion~~$323 million in the same period in ~~2015.~~2016. The ~~decrease~~change in net cash provided by investing activities was primarily attributable to:

cash paid of $4.5 billion, net of cash acquired, for the acquisition of Anacor in the first six months of 2016 compared to cash paid of $679 million, net of cash acquired, primarily for the acquisition of Baxter’s portfolio of marketed vaccines in the first six months of 2015. (see Notes to Condensed Consolidated Financial Statements—~~Note 2A.~~ ~~Acquisitions, Research and Development and Collaborative Arrangements, Equity-Method Investments and Cost-Method Investment: Acquisitions~~),

•

a decrease in cash used for acquisitions—cash paid of $1.0 billion, net of cash acquired, primarily for the acquisition of AstraZeneca’s small molecule anti-infectives business in 2017 and substantially all of the remaining consideration for the Medivation acquisition, compared to cash paid of $4.5 billion, net of cash acquired, for the acquisition of Anacor in 2016 (see Notes to Condensed Consolidated Financial Statements—Note 2A. Acquisitions, Sale of Hospira Infusion Systems Net Assets, Collaborative Arrangement and Equity-Method Investments: Acquisitions); and


•	an increase in Other investing activities, net, including dividends received from equity-method investments,

partially offset by:

~~net redemptions of investments of $5.1 billion in the first six months of 2016, compared to $5.3 billion in the first six months of 2015.~~


•	less net proceeds generated from the sale of investments of $638 million in 2017 for cash needs.

Financing Activities

Our net cash used in financing activities was ~~$5.1~~$7.9 billion in first six months of ~~2016,~~2017, compared to ~~$8.9~~$5.3 billion in the same period in ~~2015.~~2016. The ~~decrease~~change in net cash used in financing activities was primarily attributable to:

~~net proceeds on short-term borrowings and long-term debt of $2.9 billion in the first six months of 2016, compared to net payments on borrowings of $504 million in the first six months of 2015; and~~

~~purchases of common stock of $5.0 billion in the first six months of 2016, compared to $6.0 billion in the first six months of 2015;~~


•	$2.2 billion less proceeds raised from net short-term borrowings in the first six months of 2017, compared to the first six months of 2016,

partially offset by:


•	the issuance of long-term debt of $5.3 billion in the first six months of 2017, compared to $5.0 billion in the same period in 2016 (see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt).

~~proceeds from the exercise~~

Supplemental Schedule of ~~stock options~~Non-Cash Investing and Financing Information

For further details on supplemental cash flow information, see Condensed Consolidated Statements of ~~$696 million in the first six months of 2016, compared to $981 million in the first six months of 2015.~~Cash Flows.

ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We rely largely on operating cash flows, short-term investments, short-term commercial paper borrowings and long-term debt to provide for our liquidity requirements. We continue our efforts to improve cash inflows through working capital efficiencies. We target specific areas of focus including accounts receivable, inventories, accounts payable, and other working capital, which allows us to optimize our operating cash flows. Due to our significant operating cash flows as well as our financial assets, access to capital markets and available lines of credit and revolving credit agreements, we believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future, which include:

the working capital requirements of our operations, including our ~~research and development~~R&D activities;

investments in our business;

dividend payments and potential increases in the dividend rate;

share repurchases;

the cash requirements associated with our cost-reduction/productivity initiatives;

paying down outstanding debt;

contributions to our pension and postretirement plans; and

business-development activities.

Our long-term debt is rated high-quality by both S&P and Moody’s. See the “Credit Ratings” section below. As market conditions change, we continue to monitor our liquidity position. We have taken and will continue to take a conservative approach to our financial investments. Both short-term and long-term investments consist primarily of high-quality, highly liquid, well-diversified available-for-sale debt securities.

Selected Measures of Liquidity and Capital Resources

												The following table provides certain relevant measures of our liquidity and capital resources:
(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PER COMMON SHARE DATA)	July 3, 2016			December 31, 2015		July 2, 2017			December 31, 2016
Selected financial assets:
Cash and cash equivalents^(a)	$	3,411		$	3,641	$	2,585		$	2,595
Short-term investments^(a)	17,531			19,649		11,748			15,255
Long-term investments^(a)	13,124			15,999		7,008			7,116
	34,067			39,290		21,340			24,967
Debt:
Short-term borrowings, including current portion of long-term debt	13,724			10,159		9,514			10,688
Long-term debt	30,457			28,740		34,191			31,398
	44,181			38,899		43,705			42,085
Selected net financial assets/(liabilities)^(b)	$	(10,114	)	$	391
Selected net financial liabilities^(b)						$	(22,364	)	$	(17,118	)

Working capital^(c)	$	11,746		$	14,405	$	9,203		$	7,834
Ratio of current assets to current liabilities	1.37:1			1.49:1		1.34:1			1.25:1
Total Pfizer Inc. shareholders’ equity per common share^(d)	$	10.36		$	10.48	$	9.82		$	9.81


^(a)	See Notes to Condensed Consolidated Financial Statements––Note 7. Financial Instruments for a description of certain assets held and for a description of ~~the~~ credit risk related to our financial instruments held.

^(b)

~~Selected~~The increase in selected net financial ~~assets decreased due to an~~liabilities is primarily driven by (i) our decrease in short-term investments, the proceeds of which were used for various cash needs and (ii) the net increase in ~~short-term~~long-term debt. We retain a strong financial liquidity position as a result of our net cash provided by operating activities, our high-quality financial asset portfolio and ~~long-term~~access to capital markets. Both Moody’s and S&P rating agencies maintained our strong investment-grade corporate debt rating subsequent to the ~~acquisition~~acquisitions of ~~Anacor~~Medivation and ~~payments on long-term debt.~~Anacor. For additional information, see the ~~“Analysis of the Condensed Consolidated Statements of Cash Flows”~~“Credit Ratings” section of this MD&A.


^(c)	The ~~decrease~~increase in working capital is primarily due to ~~an increase in short term borrowings, and~~ the timing of accruals, cash receipts and payments in the ordinary course of ~~business.~~business, an increase in inventory related to new products, and a decline in short-term borrowings, partially offset by a decline in short-term investments used for various cash needs.


^(d)	Represents total Pfizer Inc. shareholders’ equity divided by the actual number of common shares outstanding (which excludes treasury stock).

For additional information about the sources and uses of our funds, see the “Analysis of the Condensed Consolidated Balance Sheets” and the “Analysis of the Condensed Consolidated Statements of Cash Flows” sections of this MD&A.

On ~~June 3, 2016,~~March 17, 2017, we completed a public offering of ~~$5.0~~$1.065 billion ~~aggregate~~ principal amount of senior unsecured notes due 2047 with an interest rate of 4.20%, and on March 6, 2017, we completed a public offering of €4.0 billion principal amount of senior unsecured notes with a weighted-average effective interest rate of 0.23% (see Notes to Condensed Consolidated Financial Statements––Note 7D. Financial Instruments: Long-Term Debt).

Domestic and International Short-Term Funds

Many of our operations are conducted outside the U.S., and significant portions of our cash, cash equivalents and short-term investments are held internationally. We generally hold up to $10 billion of these short-term funds in U.S. tax jurisdictions. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows (both inflows and outflows). Repatriation of overseas funds can result in additional U.S. federal, state and local income tax payments. We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be indefinitely reinvested outside the U.S., no accrual for U.S. taxes is provided.

Accounts Receivable

We continue to monitor developments regarding government and government agency receivables in several European markets where economic conditions remain challenging and uncertain. Historically, payments from a number of these European governments and government agencies extend beyond the contractual terms of sale. Specifically, we ~~have~~ received ~~limited~~delayed payments ~~in 2015 and~~for 2016 revenues from the Greek ~~government on outstanding receivables;~~government; the vast majority of ~~such~~Greece government receivables pertain to ~~2015 and 2016~~2017 revenues. Also, the Greek government ~~has~~ restructured its debt to other third parties in the third quarter of ~~2015. Accordingly, we have adjusted~~2016. We determined our allowance for doubtful accounts to reflect these events, and have ~~$55~~$29 million in net receivables from the Greek government as of July ~~3, 2016.~~2, 2017. Reported revenues from all customers in Greece for the six months ended July ~~3, 2016~~2, 2017 were ~~$127~~$121 million.

We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on an analysis of the following: (i) payments received to date; (ii) the consistency of payments from customers; (iii) direct and observed interactions with the governments (including court petitions) and with market participants (for example, the factoring industry); and (iv) various third-party assessments of repayment risk (for example, rating agency publications and the movement of rates for credit default swap instruments).

As of July ~~3, 2016,~~2, 2017, we had about ~~$752~~$506 million in aggregate gross accounts receivable from governments and/or government agencies in Italy, Spain, Greece and Portugal where economic conditions remain challenging and uncertain. Such receivables in excess of one year from the invoice date, totaling ~~$97~~$65 million, were as follows: ~~$65~~$45 million in Italy; ~~$17~~$14 million in Portugal; ~~$10~~$3 million in Greece; and $5$3 million in Spain.

Although certain European governments and government agencies sometimes delay payments beyond the contractual terms of sale, we seek to appropriately balance repayment risk with the desire to maintain good relationships with our customers and to ensure a humanitarian approach to local patient needs.

We will continue to closely monitor repayment risk and, when necessary, we will continue to adjust our allowance for doubtful accounts.

Our assessments about the recoverability of accounts receivables can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Notes to Consolidated Financial Statements––Note 1C. Basis of Presentation and Significant Accounting Policies:Estimates and Assumptions included in our ~~2015~~2016 Financial Report.

Credit Ratings

Two major corporate debt-rating organizations, Moody’s and S&P, assign ratings to our short-term and long-term debt. A security rating is not a recommendation to buy, sell or hold securities and the rating is subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.



The following table provides the current ratings assigned by these rating agencies to our commercial paper and senior unsecured long-term debt:
NAME OF RATING AGENCY	Pfizer Commercial Paper	Pfizer Long-Term Debt		Date of Last Rating Change
NAME OF RATING AGENCY	Rating	Rating		Date of Last Rating Change	~~Outlook~~
Moody’s^(a)	P-1	A1	~~Negative Outlook~~		~~May 2016~~October 2009
S&P^(b)	A-1+	AA	~~Stable~~		~~April 2016~~October 2009


^(a)	In September 2016, Moody’s updated their credit outlook from negative outlook to stable.


^(b)	In April 2016, S&P updated their credit outlook from negative watch to stable.

Debt Capacity

We have available lines of credit and revolving credit agreements with a group of banks and other financial intermediaries. We maintain cash and cash equivalent balances and short-term investments in excess of our commercial paper and other short-term borrowings. As of July ~~3, 2016,~~2, 2017, we had access to ~~$7.9~~$7.7 billion of lines of credit, of which ~~$867~~$665 million expire within one year. Of these lines of credit, ~~$7.9~~$7.7 billion ~~are~~were unused, of which our lenders have committed to loan us ~~$7.1~~$7.0 billion at our request. Also, $7.0 billion of our unused lines of credit, all of which expire in ~~2020,~~2021, may be used to support our commercial paper borrowings.

Global Economic Conditions––General

The global economic environment has not had, nor do we anticipate it will have, a material impact on our liquidity or capital resources. Due to our significant operating cash flows, financial assets, access to capital markets and available lines of credit and revolving credit agreements, we continue to believe that we have, and will maintain, the ability to meet our liquidity needs for the foreseeable future. ~~As market conditions change, we continue to~~We monitor our liquidity ~~position.~~position continuously in the face of evolving economic conditions.

Global Economic Conditions––U.K.

In June 2016, the U.K. electorate voted in a referendum to leave the ~~EU. The~~EU, which is commonly referred to as “Brexit”. In January 2017, the U.K. Prime Minister announced a 12-point plan of negotiating objectives and confirmed that the U.K. government ~~has~~will not seek continued membership in the EU single market. In March 2017, the U.K. government formally notified the European Council of ~~their~~its intention to leave the EU ~~which would~~after it triggered Article 50 of the Lisbon Treaty to begin athe two-year negotiation process establishing the terms of the exit and outlining the future relationship between the U.K. and the EU. This process is expected to be highly complex and ~~may, if needed, be bi-laterally extended. The~~the end result of these negotiations may pose certain implications to our research, commercial and general business operations in the U.K. and the EU.

Global Economic Conditions––Venezuela Operations

Our Venezuela operations continue to operate with the U.S. dollar as the functional currency due to the hyperinflationary status of the Venezuelan economy.

In the second quarter of 2015, the Venezuelan government identified three official rates of exchange. These are the CENCOEX rate of 6.3; the SICAD rate of 13.5 (as of August ~~2016)~~2017); and, after the international quarter end, there was a change in the Venezuelan government foreign exchange system resulting in the SIMADI rate of ~~640~~2,970 (as of August ~~2016)~~2017). Effective in March 2016, the CENCOEX rate was replaced by the DIPRO rate of 10 (as of ~~August 2016)~~February 2017); the SICAD rate ceased to be offered; and the SIMADI rate was planned to be replaced by the DICOM rate, but the DICOM rate is not published. The Venezuelan government continues to publish the SIMADI rate, which is commonly referred to as the DICOM rate, and that rate has grown from 206 in March 2016 to about ~~640~~2,970 (as of August ~~2016)~~2017). Based on ~~recent~~ conditions in Venezuela, we resolved that our Venezuelan bolivar-denominated net monetary assets that are subject to revaluation are no longer expected to be substantially settled at the Venezuelan government CENCOEX official rate of 6.3 or the DIPRO official rate of 10, but at a rate of 500 at the end of the second ~~quarter.~~quarter and third quarter of 2016, and 670 at the end of the fourth quarter of 2016 and at the end of the first and second quarter of 2017.

We cannot predict whether there will be further devaluations of the Venezuelan currency or whether our use of the ~~SIMADI official~~DICOM rate will continue to be supported by evolving facts and circumstances. Further, other potential actions by the Venezuelan government in response to economic uncertainties could impact the recoverability of our investment in Venezuela, which could result in an impairment charge and, under extreme circumstances, could impact our ability to continue to operate in the country in the same manner as we have historically.

On July 11, 2016, the Venezuelan government administration announced a new program under a State of Emergency decree that is intended to control the use of raw materials, production and distribution of products, specifically for medicines and foods. It is uncertain how this program will be applied to Pfizer in Venezuela. We continue to operate under adverse conditions in Venezuela and have ~~$12~~$17 million of net monetary assets and ~~$84~~$44 million of non-monetary assets, excluding inventory carried at lower of cost or market, in ~~Venezuela.~~Venezuela at May 28, 2017, our international quarter-end.

Off-Balance Sheet Arrangements

In the ordinary course of business and in connection with the sale of assets and businesses, we often indemnify our counterparties against certain liabilities that may arise in connection with a transaction or that are related to activities prior to a transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters, and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications generally are subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of July ~~3, 2016,~~2, 2017, recorded amounts for the estimated fair value of these indemnifications were not significant.

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.

Share-Purchase Plans and Accelerated Share Repurchase Agreements

On ~~March 8, 2016,~~February 2, 2017, we entered into an accelerated share repurchase agreement with ~~GS&Co.~~Citibank to repurchase $5 billion of our common stock. ~~Pursuant~~For additional information, see Notes to ~~the terms~~Condensed Consolidated Financial Statements––Note 12. Commitments and Contingencies and “Unregistered Sales of ~~the agreement,~~Equity Securities and Use of Proceeds––Issuer Purchases of Equity Securities” in Part II, Item 2 of this Quarterly Report on March 10, 2016, we paid $5 billion to GS&Co. and received an initial delivery of approximately 136 million shares of our common stock from GS&Co. based on a price of $29.36 per share, which represented, based on the closing share price of our common stock on the NYSE on March 8, 2016, approximately 80% of the notional amount of the accelerated share repurchase agreement. On June 20, 2016, the accelerated share repurchase agreement with GS&Co. was completed, which, per the terms of the agreement, resulted in GS&Co. owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 18 million shares of our common stock from GS&Co. on June 20, 2016. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was $32.38 per share. The common stock received is included in ~~Treasury stock. This agreement was entered into pursuant to our previously announced share repurchase authorization.~~Form 10-Q.


The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced share-purchase plans, including our accelerated share repurchase agreements:
The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced accelerated share repurchase agreements:								The following table provides the number of shares of our common stock purchased and the cost of purchases under our publicly announced accelerated share repurchase agreements:
	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
(SHARES IN MILLIONS, DOLLARS IN BILLIONS)	July 3 2016^(a)		June 28, 2015		July 3, 2016^(a)		June 28, 2015^(b)		July 2, 2017^(a)		July 3, 2016^(b)		July 2, 2017^(a)		July 3, 2016^(b)
Shares of common stock purchased	18		—		154		182		24		18		150		154
Cost of purchase	$	—	$	—	$	5.0	6.0		$	—	$	—	$	5.0	$	5.0

^(a)

Represents shares purchased pursuant to ~~and received upon settlement of~~ an accelerated share repurchase ~~agreement.~~agreement with Citibank. For additional information, seeNotes to Condensed Consolidated Financial Statements––Note 12. Commitments and Contingencies and “Unregistered Sales of Equity Securities and Use of Proceeds––Issuer Purchases of Equity ~~Securities"~~Securities” in Part II, Item 2 of this Quarterly Report on Form 10-Q.


^(b)	~~Includes approximately~~ ~~151 million~~Represents shares purchased ~~for $5 billion~~ pursuant to an accelerated share repurchase ~~agreement.~~agreement entered into on March 8, 2016. For additional information, see Notes to Consolidated Financial Statements––Note 12. Equity in our ~~2015 Form 10-K.~~2016 Financial Report.

~~After giving effect to the accelerated share repurchase agreement,~~At July 2, 2017, our remaining share-purchase authorization iswas approximately ~~$11.4 billion as of July 3, 2016.~~$6.4 billion.

Dividends on Common Stock

In June ~~2016,~~2017, our Board of Directors declared a dividend of ~~$0.30~~$0.32 per share, payable on September 1, ~~2016,~~2017, to shareholders of record at the close of business on August ~~5, 2016.~~4, 2017.

NEW ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

See Notes to Condensed Consolidated Financial Statements––Note 1B. Basis of Presentation and Significant AccountingPolicies: Adoption of New Accounting Standards.

Recently Issued Accounting Standards, Not Adopted as of July ~~3, 2016~~2, 2017



The following table provides a brief description of recently issued accounting standards, not yet adopted:
Standard/Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
~~In July 2015, the FASB issued an update related to~~ ~~inventory. The new guidance requires that inventory be measured at the lower of cost or net realizable value.~~	~~January 1, 2017. Earlier application is permitted as of the beginning of an interim or annual reporting period.~~	~~We do not expect the provisions of this new standard will have a material impact on our consolidated financial statements.~~
In May 2014, the FASB issued amended guidance related to revenue from contracts with customers. The new guidance introduces a new principles-based framework for revenue recognition and disclosure. Since its issuance the FASB has issued ~~five~~six ASUs, amending the guidance and effective date, and the SEC has rescinded certain related SEC guidance; the most recent of ~~which~~these changes was issued in ~~May~~December 2016.	January 1, 2018. ~~Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.~~	We have ~~not yet completed~~made substantial progress in completing our ~~final~~ review of the impact of this guidance ~~although we currently~~across our various business arrangements and revenue-related activities, and do not ~~anticipate~~expect the adoption of this standard to have a material impact on our financial statements and revenue recognition ~~practices.~~practices, or our internal controls. We ~~continue to review variable consideration, potential disclosures,~~expect that milestone payments received in our collaboration agreements, which are recorded in Other (income)/deductions––net, and ~~our method of adoption to complete our evaluation~~currently amortized over the life of the ~~impact on~~agreement, will, for many arrangements, be amortized over the development period. We are reviewing our ~~consolidated financial statements. In addition, we~~disclosures for revenue recognition and do not anticipate significant changes will be needed to conform with the disclosure requirements of the new guidance. We continue to monitor additional changes, modifications, clarifications or interpretations ~~being~~ undertaken by the FASB, which may impact our current conclusions. In addition, we continue to monitor other changes, such as changes in our business, new collaboration arrangements, business combinations, etc., which may impact our current conclusions prior to the adoption date.
In January 2016, the FASB issued an update to its guidance on recognition and measurement of financial assets and liabilities.Among other things, the new guidance makes the following targeted changes to existing guidance: 1. Requires certain equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. 2. ~~Simplifies the impairment~~Requires a qualitative assessment of equity investments without readily determinable fair values ~~by requiring a qualitative assessment~~ to identify impairment. 3. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements.	January 1, 2018.	We have substantially completed our review and will continue to assess events which may occur prior to adoption. As of July 2, 2017, we have $488 million in available-for-sale equity securities and approximately $694 million of restricted stock and private equity securities which will be subject to the new rules. Further, for the six months ended July 2, 2017, we recognized $170 million of unrealized holding gains on available-for-sale equity securities in Other comprehensive income, which would have been recorded to Other (income)/deductions––net under the new rules. We expect the adoption of this new accounting standard may increase the volatility of our income in future periods due to changes in the fair value of equity investments. The impact of adoption will be recorded as a cumulative effect adjustment to Retained earnings.
In August 2016, the FASB issued new guidance on the classification of certain transactions in the Statement of Cash Flows.	January 1, 2018. Earlier application is ~~permitted~~permitted.	We have substantially completed our review and will continue to assess events which may occur prior to adoption. Upon adoption, we expect to reclassify approximately $362 million of cash outflows related to debt redemption in 2016 from operating activities to financing activities. We also expect to reclassify approximately $32 million of cash inflows from trust-owned life insurance contracts in 2016 from operating activities to investing activities. Cash outflows from trust-owned life insurance contracts represent benefit payments and are classified as operating activities. In addition, the new guidance may impact the classification of certain cash flows related to contingent consideration in a business acquisition, depending on the ultimate settlement amount of the ~~beginning of an interim or annual reporting period.~~contingency.



Standard/Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
In October 2016, the FASB issued new guidance on the presentation of restricted cash in the Statement of Cash Flows.	January 1, 2018. Earlier application is permitted.	We ~~are assessing~~have not yet completed our review of the impact ~~of the provisions~~ of this new guidance on our consolidated financial statements. However, our restricted cash balances as of the end of 2016 were approximately $18.1 million of short-term restricted cash and $45.3 million of long-term restricted cash. Our restricted cash balances as of July 2, 2017 were approximately $0.4 million of short-term restricted cash and $51.5 million of long-term restricted cash.
In October 2016, the FASB issued an update to its guidance on income tax accounting. The new guidance replaces the prohibition against recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party with a requirement to do so, unless the asset transferred is inventory.	January 1, 2018.	Our analysis of the standard indicates that our estimate of the impact to our consolidated financial statements, using current assumptions, is not material. However, while we currently do not have any specific plans, we cannot predict intercompany asset transfers other than inventory that may occur in the future, as they are dependent on economic and operational factors that may change over time. For example, an acquisition might cause us to realign legal entities and to transfer assets between entities as we integrate an acquired company into Pfizer. We anticipate that after adoption, our effective tax rate could be impacted by the immediate recognition of the tax consequences of intercompany asset transfers other than inventory. The impact of adoption will be recorded as a cumulative effect adjustment to Retained earnings.
In January 2017, the FASB issued new guidance to clarify the definition of a business. The new guidance provides a new framework for determining whether business development transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If the fair value of the gross assets acquired is concentrated in a single identifiable asset, the transaction will not qualify for treatment as a business. The new guidance also requires that to be considered a business, a set of integrated activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs, without regard as to whether a market participant could replace missing elements. In addition, the new guidance narrows the definition of the term “output” to make it consistent with how outputs are described in the updated revenue recognition guidance.	January 1, 2018. Earlier application is permitted.	We have made substantial progress in completing our review of this guidance. The new accounting standard is applicable on a prospective basis upon adoption and therefore has no impact on completed transactions. We expect that subsequent to our anticipated adoption date of January 1, 2018, fewer transactions will be accounted for as business acquisitions (decreasing the amount of goodwill incurred and potentially increasing IPR&D expense) or disposals of a business. We will continue to monitor for changes in our business, and business combination or other transactions which might close after adoption and be impacted by these new standards.
In February 2017, the FASB issued amended guidance related to the derecognition of nonfinancial assets.	January 1, 2018. Earlier application is permitted.	We have not yet completed our review of the impact of this new guidance on our consolidated financial statements. However, we are not expecting a material impact on existing transactions.
In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit cost. Under the new rules, entities that sponsor defined benefit plans will present net benefit cost as follows: 1. Service cost will be included in the same income statement line items where other employee compensation costs are reported. 2. The other components of net benefit cost will be presented outside of income from operations, if such a subtotal is presented. 3. Only the service cost component will be capitalized, when applicable (for example, as a cost of inventory, internal-use software, or a self-constructed fixed asset). If a separate line item is used to present the other components of net benefit cost, it should have an appropriate description. If a separate line item or items is not used, the line item or items in the income statement where the other components of net benefit cost are included must be disclosed.	January 1, 2018.	We have not yet completed our review of the impact of this new guidance on our consolidated financial statements, although we anticipate that after adoption, the net benefit costs other than service costs will be reclassified to Other (income)/deductions—net from their current classification within Cost of sales, Selling, informational and administrative expenses, and Research and development expenses. Effective January 1, 2018, future accruals under the Pfizer Consolidated Pension Plan (our largest U.S. defined benefit plan), will freeze, and the Pfizer defined contribution savings plan will provide additional annual contributions to those previously accruing benefits under the Pfizer Consolidated Pension Plan. This change will result in elimination of future service costs for the plan.
In May 2017, the FASB issued new guidance on the accounting for modifications of share-based payment awards. The new guidance clarifies that changes in the terms or conditions of a share-based payment award be accounted for as a modification unless all the following conditions are met: 1. The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. 2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. 3. The modification does not change the classification of the award as an equity instrument or a liability instrument.	January 1, 2018. Early application is permitted, including in interim periods.	We have not yet completed our review of the impact of this new guidance on our consolidated financial statements. However, any impact will be dependent upon whether we make any future modifications of share-based payment awards, and we have no plans to modify share-based payment awards at this time.



Standard/Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
In February 2016, the FASB issued an update to its guidance on leases. The new ASU provides guidance for both lessee and lessor accounting models. Among other things, the new guidance requires that a right of use asset and a lease liability be recognized for leases with a duration of greater than one year.	January 1, 2019. Earlier application is permitted.	We have not yet completed our review of the impact of this guidance. However, we anticipate recognition of at least $2 billion of additional assets and corresponding liabilities ~~related to~~on our balance sheet. We are currently assessing the potential impact of embedded leases on our ~~balance sheet.~~

consolidated financial statements, given our manufacturing outsourcing and other agreements. In connection with this guidance we will need to design new processes and technological solutions to provide the appropriate financial accounting and disclosure data.

~~Standard/Description~~ In March 2017, the FASB issued new guidance that shortens the amortization period for certain callable debt securities held at a premium. The new guidance requires the premium to be amortized to the earliest call date.	~~Effective Date~~January 1, 2019. Early application is permitted, including in interim periods, so long as any adjustments are reflected as of the beginning of the fiscal year that includes the interim period in which the guidance is applied.	~~Effect~~We are assessing the impact of the provisions of this new guidance on ~~the Financial Statements or Other Significant Matters~~our consolidated financial statements.
In ~~March 2016,~~July 2017, the FASB issued new guidance on accounting for ~~employee share-based payments.~~ ~~The new guidance changes existing guidance as follows:~~ ~~1. All excess tax benefits~~certain financial instruments with characteristics of liabilities and ~~tax deficiencies (including tax benefits~~equity, and accounting for certain financial instruments with down round features (a feature in a financial instrument that reduces the strike price of ~~dividends on share-based payment awards) should be recognized as income tax expense~~an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or ~~benefit in~~issues an equity-linked financial instrument with a strike price below the ~~income statement. The tax effects~~currently stated strike price of ~~exercised or vested awards should be treated as discrete items in~~ the reporting period in which they occur. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. ~~2. The minimum statutory tax withholding requirement to qualify for equity classification has changed to permit withholding up to the maximum statutory tax rates in the applicable jurisdictions.~~ ~~3. Cash paid by an employer when directly withholding shares for tax-withholding purposes will be classified as a financing activity in the statement of cash flows.~~ ~~4. An entity-wide accounting policy election may be made to either estimate the number of awards that are expected to vest (current GAAP) or to account for forfeitures when they occur.~~issued financial instrument).	January 1, ~~2017, with earlier~~2019. Earlier application is permitted.	We ~~have not yet completed our review~~are assessing the impact of the ~~impact~~provisions of this new guidance on our consolidated financial statements. Although it is difficult to predict the impact as it is dependent on the timing of when employees exercise stock options and the fair value of our stock price at that time, we do not anticipate a material impact to our consolidated financial statements upon adoption.
In June 2016, the FASB issued new guidance on accounting for credit losses of financial instruments. The new guidance replaces the incurred losses methodology in current GAAP with a methodology that reflects expected credit losses using an allowance account.	January 1, 2020. Earlier application is permitted as of fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.	We are assessing the impact of the provisions of this new guidance on our consolidated financial statements.
In January 2017, the FASB issued new guidance for goodwill impairment testing. The new guidance eliminates the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, although it cannot exceed the total amount of goodwill allocated to that reporting unit.	January 1, 2020. Earlier application is permitted.	We have not yet completed our review of the impact of this new guidance on our consolidated financial statements. However, we do not expect this new guidance to have a material impact on our consolidated financial statements.

FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This report and other written or oral statements that we make from time to time contain forward-looking ~~statements that set forth anticipated results based on management’s plans and assumptions.~~statements. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “may,” “could,” “likely,” “ongoing,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” “goal,” “objective,” “aim” and other words and terms of similar meaning or by using future dates in connection with any discussion of, among other things, our anticipated ~~future~~ operating and financial performance, business plans and prospects, in-line products and product candidates, including anticipated regulatory submissions, approvals, performance and potential benefits of Pfizer’s products and product candidates,

strategic reviews, capital allocation, business-development plans and plans relating to share repurchases and dividends. In particular, these include statements relating to future actions, business plans and prospects, our acquisitions and other business development activities, the disposition of ~~Hospira and Anacor,~~the HIS net assets, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, plans relating to share repurchases and dividends, government regulation and financial results, including, in particular, the financial guidance set forth in the “Our Financial Guidance for ~~2016”~~2017” section of this MD&A, the anticipated costs and cost savings, including from our acquisition of Hospira and our cost-reduction/productivity initiatives set forth in the ~~“Overview of Our Performance, Operating Environment, Strategy and Outlook” and~~ “Costs and Expenses––Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives” ~~sections~~section of this MD&A and in Notes to Condensed Consolidated Financial Statements––Note 3. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives, the benefits ~~including cost savings,~~ expected from our ~~acquisition of Hospira;~~business development transactions, the ~~expected timing of a decision regarding a potential separation of our IH and EH businesses,~~anticipated product performance set forth in ~~the “Overview of Our Performance, Operating Environment, Strategy~~“Revenues and ~~Outlook” section~~Product Developments—Revenues—Selected Product Discussion" of this MD~~&A;~~&A and the contributions that we expect to make from our general assets to our pension and postretirement plans during ~~2016~~2017 set forth in Notes to Condensed Consolidated Financial Statements––Note 10. Pension and Postretirement Benefit Plans. Among the factors that could cause actual results to differ materially from past results and future plans and projected future results are the following:

the outcome of research and development activities including, without limitation, the ability to meet anticipated pre-clinical and clinical trial commencement and completion dates, regulatory submission and approval dates, and launch dates for product candidates, as well as the possibility of unfavorable pre-clinical and clinical trial results, including unfavorable new clinical data and additional analyses of existing clinical data;

decisions by regulatory authorities regarding whether and when to approve our drug applications, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the

efficacy and safety information submitted; decisions by regulatory authorities regarding labeling, ingredients and other matters that could affect the availability or commercial potential of our products; and uncertainties regarding our ability to address the comments in complete response letters received by us with respect to certain of our drug applications to the satisfaction of the FDA;

the speed with which regulatory authorizations, pricing approvals and product launches may be achieved;

the outcome of post-approval clinical trials, which could result in the loss of marketing approval for a product or changes in the labeling for, and/or increased or new concerns about the safety or efficacy of, a product that could affect its availability or commercial potential;

risks associated with interim data, including the risk that final results of studies for which interim data have been provided and/or additional clinical trials may be different from (including less favorable than) the interim data results and may not support further clinical development of the applicable product candidate or indication;

the success of external business-development activities, including the ability to satisfy the conditions to closing of ~~any~~ announced transactions in the anticipated time frame or at ~~all;~~all or to realize the anticipated benefits of such transactions;

competitive developments, including the impact on our competitive position of new product entrants, in-line branded products, generic products, private label products, biosimilars and product candidates that treat diseases and conditions similar to those treated by our in-line drugs and drug candidates;

the implementation by the FDA and regulatory authorities in certain other countries of an abbreviated legal pathway to approve biosimilar products, which could subject our biologic products to competition from biosimilar products, with attendant competitive pressures, after the expiration of any applicable exclusivity period and patent rights;

risks related to our ability to develop and launch ~~biosimilars;~~biosimilars, including risks associated with “at risk” launches, defined as the marketing of a product by Pfizer before the final resolution of litigation (including any appeals) brought by a third party alleging that such marketing would infringe one or more patents owned or controlled by the third party;

the ability to meet competition from generic, branded and ~~branded competition~~biosimilar products after the loss or expiration of patent protection for our products or competitor products;

the ability to successfully market both new and existing products domestically and internationally;

difficulties or delays in ~~manufacturing;~~manufacturing, including possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, injunctions or voluntary recall of a product;

trade buying patterns;

the impact of existing and future legislation and regulatory provisions on product exclusivity;

trends toward managed care and healthcare cost containment, and our ability to obtain or maintain timely or adequate pricing or formulary placement for our products;

the impact of any significant spending reductions or cost controls affecting Medicare, Medicaid or other publicly funded or subsidized health programs or changes in the tax treatment of employer-sponsored health insurance that may be implemented, and/or any significant additional taxes or fees that may be imposed on the pharmaceutical industry as part of any broad deficit-reduction effort;

the impact of any U.S. healthcare reform or legislation, ~~enacted in 2010—~~including any repeal, substantial modification or invalidation of any or all of the provisions of the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation ~~Act––~~Act, and ~~of any modification, repeal~~the passage or ~~invalidation of any~~failure of the ~~provisions thereof;~~American Health Care Act;

U.S. federal or state legislation or regulatory action and/or policy efforts affecting, among other things, pharmaceutical product pricing, reimbursement or access, including under Medicaid, Medicare and other publicly funded or subsidized health programs; patient out-of-pocket costs for medicines, manufacturer prices and/or price increases that could result in new mandatory rebates and discounts or other pricing restrictions; the importation of prescription drugs from outside the U.S. at prices that are regulated by governments of various foreign countries; restrictions on direct-to-consumer advertising; limitations on interactions with healthcare professionals; or the use of comparative effectiveness methodologies that could be implemented in a manner that focuses primarily on the cost differences and minimizes the therapeutic differences among pharmaceutical products and restricts access to innovative medicines; as well as pricing pressures for our products as a result of highly competitive insurance markets;

legislation or regulatory action in markets outside the U.S. affecting pharmaceutical product pricing, reimbursement or access, including, in particular, continued government-mandated reductions in prices and access restrictions for certain biopharmaceutical products to control costs in those markets;

the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest, unstable governments and legal systems and inter-governmental disputes;

contingencies related to actual or alleged environmental contamination;

claims and concerns that may arise regarding the safety or efficacy of in-line products and product candidates;

any significant breakdown, infiltration or interruption of our information technology systems and infrastructure;

legal defense costs, insurance expenses and settlement ~~costs,~~ costs;

the risk of an adverse decision or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, product liability ~~patent matters,~~and other product-related litigation, including personal injury, consumer, off-label promotion, securities, antitrust and breach of contract claims, commercial, environmental, government investigations, ~~consumer, commercial, securities, antitrust, environmental,~~ employment ~~tax issues, ongoing efforts to explore~~and other legal proceedings, including various means for resolving asbestos litigation, ~~and other legal proceedings;~~as well as tax issues;

our ability to protect our patents and other intellectual property, both domestically and internationally;

interest rate and foreign currency exchange rate fluctuations, including the impact of possible currency devaluations in countries experiencing high inflation rates and the volatility following the U.K. referendum in which voters approved the exit from the EU;

governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside the U.S. that may result from pending and possible future proposals;

any significant issues involving our largest wholesale distributors, which account for a substantial portion of our revenues;

the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines;

the end result of any negotiations between the U.K. government and the EU regarding the terms of the U.K.’s exit from the EU, which could have implications on our research, commercial and general business operations in the U.K. and the EU;

~~any significant issues involving our largest wholesaler customers, which account for a substantial portion of our revenues;~~

~~the possible impact of the increased presence of counterfeit medicines in the pharmaceutical supply chain on our revenues and on patient confidence in the integrity of our medicines;~~

any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards;

any significant issues that may arise related to our joint ventures and other third-party business arrangements;

changes in U.S. generally accepted accounting principles;

changes in interpretations of existing laws and regulations, or changes in laws and regulations, in the U.S. and other countries;

uncertainties related to general economic, political, business, industry, regulatory and market conditions including, without limitation, uncertainties related to the impact on us, our customers, suppliers and lenders and counterparties to our foreign-exchange and interest-rate agreements of challenging global economic conditions and recent and possible future changes in global financial markets; and the related risk that our allowance for doubtful accounts may not be adequate;

any changes in business, political and economic conditions due to actual or threatened terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas;

growth in costs and expenses;

changes in our product, segment and geographic mix;

the impact of purchase accounting adjustments, acquisition-related costs, discontinued operations and certain significant items;

the impact of acquisitions, divestitures, restructurings, internal reorganizations, product recalls, withdrawals and other unusual items, including our ability to realize the projected benefits of our cost-reduction and productivity initiatives ~~including those related to our research and development organization,~~ and of the internal separation of our commercial operations into our current operating structure;

the risk of an impairment charge related to our intangible assets, goodwill or equity-method investments;

risks related to internal control over financial reporting; and

risks and uncertainties related to our ~~recent~~ acquisitions of Hospira, Anacor, Medivation and ~~Anacor,~~AstraZeneca’s small molecule anti-infectives business, including, among other things, the ability to realize the anticipated benefits of ~~the~~those acquisitions, ~~of Hospira and Anacor,~~ including the possibility that expected cost savings related to the acquisition of Hospira and accretion related to the acquisitions of Hospira, Anacor and ~~Anacor~~Medivation will not be realized or will not be realized within the expected time frame; the risk that the businesses will not be integrated successfully; disruption from the ~~transaction~~transactions making it more difficult to maintain business and operational relationships; risks related to our ability to grow revenues for Xtandi and expand Xtandi into the non-metastatic castration-resistant prostate cancer setting; significant transaction costs; and unknown liabilities.

We cannot guarantee that any forward-looking statement will be ~~realized, although we believe we have been prudent in our plans and assumptions.~~realized. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or

projected. Investors should bear this in mind as they consider forward-looking statements, and are cautioned not to put undue reliance on forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. You are advised, however, to consult any further disclosures we make on related ~~subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the SEC.~~subjects.

Our ~~2015~~2016 Form 10-K listed various important factors that could cause actual results to differ materially from past and projected future results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

The operating segment information provided in this report does not purport to represent the revenues, costs and income from continuing operations before provision for taxes on income that each of our operating segments would have recorded had each segment operated as a standalone company during the periods presented.

This report includes discussion of certain clinical studies relating to various in-line products and/or product candidates. These studies typically are part of a larger body of clinical data relating to such products or product candidates, and the discussion herein should be considered in the context of the larger body of data. In addition, clinical trial data are subject to differing interpretations, and, even when we view data as sufficient to support the safety and/or effectiveness of a product candidate or a new indication for an in-line product, regulatory authorities may not share our views and may require additional data or may deny approval altogether.

Legal Proceedings and Contingencies

Information with respect to legal proceedings and contingencies required by this Item is incorporated herein by reference to

Notes to Condensed Consolidated Financial Statements––Note 12A. Commitments and Contingencies: Legal Proceedings in

Part I, Item 1, of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is incorporated by reference from the discussion under the heading Financial Risk Management in our ~~2015~~2016 Financial Report.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.

During our most recent fiscal quarter, there has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements––Note 12A. Commitments and Contingencies: Legal Proceedings in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Tax Matters

Additional information with respect to tax matters required by this Item is incorporated herein by reference to Notes to Condensed Consolidated Financial Statements––Note 5B. Tax Matters: Tax Contingencies in Part I, Item 1, of this Quarterly Report on Form 10-Q.

We account for income tax contingencies using a benefit recognition model. If our initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently recognize the tax benefit: (i) if there are changes in tax law, analogous case law or there is new information that sufficiently raise the likelihood of prevailing on the technical merits of the position to “more likely than not”; (ii) if the statute of limitations expires; or (iii) if there is a completion of an audit resulting in a favorable settlement of that tax year with the appropriate agency. We regularly re-evaluate our tax positions based on the results of audits of federal, state and foreign income tax filings, statute of limitations expirations, changes in tax law or receipt of new information that would either increase or decrease the technical merits of a position relative to the “more-likely-than-not” standard.

Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes, and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.

Item 1A. Risk Factors

The “Our Operating Environment” and “Forward-Looking Information and Factors That May Affect Future Results” sections of the MD&A of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our ~~2015~~2016 Form 10-K are incorporated by reference herein. There have been no material changes from the risk factors discussed in Part I, Item 1A, “Risk Factors” of our ~~2015~~2016 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides certain information with respect to our purchases of shares of the Company’s common stock during the second fiscal quarter of ~~2016:~~2017:

Issuer Purchases of Equity Securities^(a)

Period
Total Number of
Shares Purchased^{(a), (b)}

Average Price
Paid per Share^{(a), (b)}

Total Number of Shares Purchased as Part of Publicly Announced Plan^(a)

Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan^(a)

April 4, 2016 through May 1, 2016 7,854
$ 31.19
—
$ 11,355,862,076
May 2, 2016 through May 29 2016 6,352
$ 36.53
—
$ 11,355,862,076
May 30, 2016 through July 3, 2016 18,182,673
$ 32.39
18,157,790
$ 11,355,862,076
Total 18,196,879
$ 32.39
18,157,790



Period	Total Number of Shares Purchased^{(a), (b)}	Average Price Paid per Share^{(a), (b)}		Total Number of Shares Purchased as Part of Publicly Announced Plan^(a)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan^(a)
April 3, 2017 through April 30, 2017	19,093	$	34.08	—	$	6,355,862,076
May 1, 2017 through May 28 2017	24,055,296	$	33.31	24,047,727	$	6,355,862,076
May 29, 2017 through July 2, 2017	46,290	$	32.23	—	$	6,355,862,076
Total	24,120,679	$	33.31	24,047,727

^(a)

OnOur October ~~23,~~ 2014 ~~we announced that the Board of Directors had authorized an~~ $11 billion share-purchase plan ~~and share purchases commenced thereunder~~was exhausted in ~~January 2015 (the October 2014 Stock Purchase Plan)~~the first quarter of 2017. In December 2015, the Board of Directors authorized ~~a new~~an $11 billion share repurchase program, ~~to be utilized over time.~~and share repurchases commenced thereunder in the first quarter of 2017. On ~~March 8, 2016,~~February 2, 2017, we entered into an accelerated share repurchase agreement with ~~GS&Co.~~Citibank to repurchase $5 billion of our common stock. Pursuant to the terms of the agreement, on ~~March 10, 2016,~~February 6, 2017, we paid $5 billion to ~~GS&Co.~~Citibank and received an initial delivery of approximately ~~136~~126 million shares of our common stock from ~~GS&Co. based on~~Citibank at a price of ~~$29.36~~$31.73 per share, which represented, based on the closing ~~share~~ price of our common stock on the NYSE on ~~March 8, 2016,~~February 2, 2017, approximately 80% of the notional amount of the accelerated share repurchase agreement. On ~~June 20, 2016,~~May 16, 2017, the accelerated share repurchase agreement with ~~GS&Co.~~Citibank was completed, which, per the terms of the agreement, resulted in ~~GS&Co.~~Citibank owing us a certain number of shares of Pfizer common stock. Pursuant to the agreement’s settlement terms, we received an additional 1824 million shares of our common stock from ~~GS&Co.~~Citibank on ~~June 20, 2016.~~May 19, 2017. The average price paid for all of the shares delivered under the accelerated share repurchase agreement was ~~$32.38~~$33.31 per share. The common stock received is included in Treasury ~~stock~~Stock. This agreement was entered into pursuant to our previously announced share repurchase authorization. ~~After giving effect to the accelerated share repurchase agreement,~~At July 2, 2017, our remaining share-purchase authorization iswas approximately ~~$11.4 billion at July 3, 2016.~~$6.4 billion.

^(b)

In addition to the amounts purchased under the accelerated share repurchase agreement, these columns reflect the following transactions during the second fiscal quarter of ~~2016:~~2017: (i) the surrender to Pfizer of ~~40,088~~66,444 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees; (ii) the surrender to Pfizer of ~~944~~366 shares of common stock to satisfy tax withholding obligations in connection with the vesting of performance share awards issued to employees; (iii) the surrender ~~to Pfizer~~ of ~~767~~25 shares of common stock to ~~pay~~satisfy withholding obligations in connection with the ~~exercise price~~settlement of total shareholder return units; (iv) the open market purchase by the trustee of 5,805 shares of common stock in connection with the reinvestment of dividends paid on common stock held in trust for employees who were granted performance share awards and who deferred receipt of such awards; and (v) the surrender to Pfizer of 312 shares of common stock to satisfy tax withholding obligations in connection with the ~~exercise~~vesting of ~~employee~~ stock options; and (iv) the clawback of a first quarter payment of total shareholder return units in accordance with the terms of the grant resulting in the reversal of the surrender of 2,710 shares of common stockoptions issued to ~~satisfy withholding obligations.~~employees.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



~~Exhibit 10.1~~	-	~~Amendment No. 2 to Amended and Restated Deferred Compensation Plan, dated April 27, 2016.~~
Exhibit 12	-	Computation of Ratio of Earnings to Fixed Charges.
Exhibit 15	-	Accountants’ Acknowledgment.
Exhibit 31.1	-	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	-	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	-	Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	-	Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101:
EX-101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
EX-101.SCH EX-101.CAL EX-101.LAB EX-101.PRE EX-101.DEF		~~XBRL Instance Document~~ XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase XBRL Taxonomy Extension Definition Document

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Pfizer Inc.
		(Registrant)


Dated:	August ~~11, 2016~~10, 2017	/s/ Loretta V. Cangialosi
		Loretta V. Cangialosi, Senior Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer)

~~105~~107



PART I. FINANCIAL INFORMATION	Page

Item 1.
Financial Statements

Condensed Consolidated Statements of Income for the three and six months ended July 2, 2017 and July 3, 2016 ~~and June 28, 2015~~	5

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 2, 2017 and July 3, 2016 ~~and June 28, 2015~~	6

Condensed Consolidated Balance Sheets as of July ~~3, 2016~~2, 2017 and December 31, ~~2015~~2016	7

Condensed Consolidated Statements of Cash Flows for the six months ended July 2, 2017 and July 3, 2016 ~~and June 28, 2015~~	8

Notes to Condensed Consolidated Financial Statements	9

Review Report of Independent Registered Public Accounting Firm	4743

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	4844

Item 3.
Quantitative and Qualitative Disclosures About Market Risk	~~101~~

~~Item 4.~~
~~Controls and Procedures~~	~~101~~

~~PART II. OTHER INFORMATION~~

~~Item 1.~~
~~Legal Proceedings~~	~~102~~

~~Item 1A.~~
~~Risk Factors~~	~~102~~

~~Item 2.~~
~~Unregistered Sales of Equity Securities and Use of Proceeds~~	103

Item 3.4.
~~Defaults Upon Senior Securities~~Controls and Procedures	103

~~Item 4.~~PART II. OTHER INFORMATION
~~Mine Safety Disclosures~~	~~103~~

Item 5.1.
~~Other Information~~	~~103~~

~~Item 6.~~
~~Exhibits~~Legal Proceedings	104

~~Signature~~Item 1A.
Risk Factors	104

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	105

Item 3.
Defaults Upon Senior Securities	105

Item 4.
Mine Safety Disclosures	105

Item 5.
Other Information	105

Item 6.
Exhibits	106

Signature	107



~~2015~~2016 Financial Report	Financial Report for the fiscal year ended December 31, ~~2015,~~2016, which was filed as Exhibit 13 to the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~2016
~~2015~~2016 Form 10-K	Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015~~2016
AAV	Adeno-Associated Virus
ACA (Also referred to as U.S. Healthcare Legislation)	U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
ACIP	Advisory Committee on Immunization Practices
ALK	anaplastic lymphoma kinase
Allergan	Allergan plc
Alliance revenues	~~revenues~~Revenues from alliance agreements under which we co-promote products discovered or developed by other companies
~~AM-Pharma~~	~~AM-Pharma B.V.~~ or us
Anacor	Anacor Pharmaceuticals, Inc.
Astellas	Astellas Pharma U.S., Inc.
ASU	Accounting Standards Update
~~Baxter~~ATM-AVI	~~Baxter International~~aztreonam-avibactam
Bamboo	Bamboo Therapeutics, Inc.
BMS	Bristol-Myers Squibb Company
CDC	U.S. Centers for Disease Control and Prevention
Cellectis	Cellectis SA
Citibank	Citibank N.A.
Developed Markets	U.S., Western Europe, Japan, Canada, Australia, ~~Scandinavia,~~ South Korea, Scandinavian countries, Finland and New Zealand
~~DOJ~~	~~U.S. Department of Justice~~
~~DVT~~	~~deep vein thrombosis~~
EEA	European Economic Area
EH	Essential Health
EMA	European Medicines Agency
Emerging Markets	Includes, but is not limited to, the following markets: Asia (excluding Japan and South Korea), Latin America, Africa, Eastern Europe, Central Europe, the Middle East and Turkey
~~EPA~~	~~U.S. Environmental Protection Agency~~
EPS	earnings per share
EU	European Union
EURIBOR	Euro Interbank Offered Rate
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FDA	U.S. Food and Drug Administration
GAAP	Generally Accepted Accounting Principles
~~GHD~~	~~growth hormone deficiency~~
GIST	gastrointestinal stromal tumors
~~GEP~~	~~Global Established Pharmaceutical segment~~
~~GIP~~	~~Global Innovative Pharmaceutical segment~~
GPD	Global Product Development ~~organization~~
~~GS&Co.~~	~~Goldman, Sachs & Co.~~
HER2-	human epidermal growth factor receptor 2-negative
~~hGH-CTP~~HIS	~~human growth hormone~~Hospira Infusion Systems
Hisun	Zhejiang Hisun Pharmaceuticals Co., Ltd.
Hisun Pfizer	Hisun Pfizer Pharmaceuticals Company Limited
Hospira	Hospira, Inc.
HR+	hormone receptor-positive
ICU Medical	ICU Medical, Inc.
IH	Innovative Health
IPR&D	in-process research and development
~~IRC~~	~~Internal Revenue Code~~
IRS	U.S. Internal Revenue Service
IV	intravenous
Janssen	Janssen Biotech Inc.
King	King Pharmaceuticals, Inc.
LDL	low density lipoprotein
LIBOR	London Interbank Offered Rate
Lilly	Eli Lilly & Company
LOE	loss of exclusivity



MCO	~~managed care organization~~Managed Care Organization
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
~~MDV~~Medivation	~~multi-dose vial~~Medivation, Inc.
Merck	Merck & Co., Inc.
Meridian	Meridian Medical Technologies, Inc.
Moody’s	Moody’s Investors Service
~~mRCC~~	~~metastatic renal cell carcinoma~~
NDA	new drug application
~~NOAC~~	~~Novel Oral Anticoagulant~~
NovaQuest	NovaQuest Co-Investment Fund ~~II, L.P. or NovaQuest Co-Investment Fund~~ V, L.P.~~, as applicable~~
NSCLC	non-small cell lung cancer
NYSE	New York Stock Exchange
OPKO	OPKO Health, Inc.
OTC	over-the-counter
PBM	Pharmacy Benefit Manager
~~PDUFA~~	~~Prescription Drug User Fee Act~~
PE	~~pulmonary embolism~~
~~PGS~~	~~Pfizer Global Supply~~
Pharmacia	Pharmacia Corporation
PP&E	Property, plant & equipment
Quarterly Report on Form 10-Q	Quarterly Report on Form 10-Q for the quarterly period ended July ~~3, 2016~~
~~RAR~~	~~Revenue Agent’s Report~~2, 2017
RCC	renal cell carcinoma
~~recAP~~	~~recombinant human Alkaline Phosphatase~~
R&D	research and development
RPI	RPI Finance Trust
Sandoz	Sandoz, Inc., a division of Novartis AG
Sangamo	Sangamo Therapeutics, Inc.
SEC	U.S. Securities and Exchange Commission
~~SGA~~SFJ	~~small for gestational age~~SFJ Pharmaceuticals Group
S&P	Standard and Poor’s
Teuto	Laboratório Teuto Brasileiro S.A.
U.K.	United Kingdom
U.S.	United States
~~VAT~~ViiV	~~value added tax~~
~~VOC~~	~~Global Vaccines, Oncology and Consumer~~ViiV Healthcare ~~segment~~Limited
WRD	Worldwide Research and Development
Zoetis	Zoetis Inc.


	Three Months Ended				Six Months Ended				Three Months Ended					Six Months Ended
(MILLIONS, EXCEPT PER COMMON SHARE DATA)	July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015		July 2, 2017			July 3, 2016		July 2, 2017			July 3, 2016
Revenues	$	13,147	$	11,853	$	26,152	$	22,717	$	12,896		$	13,147	$	25,675		$	26,152
Costs and expenses:
Cost of sales^(a)	3,174		2,180		6,026		4,018		2,663			3,174		5,134			6,026
Selling, informational and administrative expenses^(a)	3,471		3,386		6,856		6,491		3,425			3,471		6,733			6,856
Research and development expenses^(a)	1,748		1,734		3,478		3,620		1,780			1,748		3,487			3,478
Amortization of intangible assets	961		872		1,966		1,811		1,208			961		2,394			1,966
Restructuring charges and certain acquisition-related costs	316		86		457		146		70			316		228			457
Other (income)/deductions––net	1,068		55		1,398		9		(66		)	1,068		(68		)	1,398
Income from continuing operations before provision for taxes on income	2,410		3,539		5,971		6,621		3,815			2,410		7,767			5,971
Provision for taxes on income(b)	375		905		910		1,610		739			347		1,560			861
Income from continuing operations(b)	2,035		2,635		5,060		5,011		3,077			2,062		6,207			5,110
Discontinued operations––net of tax	1		1		1		6		2			1		1			1
Net income before allocation to noncontrolling interests(b)	2,035		2,635		5,061		5,017		3,078			2,063		6,208			5,111
Less: Net income attributable to noncontrolling interests	16		9		25		14		5			16		14			25
Net income attributable to Pfizer Inc.(b)	$	2,019	$	2,626	$	5,036	$	5,002	$	3,073		$	2,047	$	6,194		$	5,085

Earnings per common share––basic:
Earnings per common share––basic^(b):
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.33	$	0.43	$	0.82	$	0.81	$	0.52		$	0.34	$	1.04		$	0.83
Discontinued operations––net of tax	—		—		—		—		—			—		—			—
Net income attributable to Pfizer Inc. common shareholders	$	0.33	$	0.43	$	0.82	$	0.81	$	0.52		$	0.34	$	1.04		$	0.83

Earnings per common share––diluted:
Earnings per common share––diluted^(b):
Income from continuing operations attributable to Pfizer Inc. common shareholders	$	0.33	$	0.42	$	0.82	$	0.80	$	0.51		$	0.33	$	1.02		$	0.82
Discontinued operations––net of tax	—		—		—		—		—			—		—			—
Net income attributable to Pfizer Inc. common shareholders	$	0.33	$	0.42	$	0.82	$	0.80	$	0.51		$	0.33	$	1.02		$	0.82

Weighted-average shares––basic	6,068		6,159		6,110		6,181		5,958			6,068		5,982			6,110
Weighted-average shares––diluted	6,137		6,243		6,176		6,267		6,037			6,149		6,065			6,188
Cash dividends paid per common share	$	0.30	$	0.28	$	0.60	$	0.56	$	0.32		$	0.30	$	0.64		$	0.60


(MILLIONS OF DOLLARS)	July 3, 2016			December 31, 2015			July 2, 2017			December 31, 2016
	(Unaudited)						(Unaudited)
Assets
Cash and cash equivalents	$	3,411		$	3,641		$	2,585		$	2,595
Short-term investments	17,531			19,649			11,748			15,255
Trade accounts receivable, less allowance for doubtful accounts: 2016—$670; 2015—$384	9,138			8,176
Trade accounts receivable, less allowance for doubtful accounts: 2017—$579; 2016—$609							9,476			8,225
Inventories	7,614			7,513			7,584			6,783
Current tax assets	3,127			2,662			3,113			3,041
Other current assets	3,023			2,163			1,877			2,249
Assets held for sale							3			801
Total current assets	43,845			43,804			36,385			38,949
Long-term investments	13,124			15,999			7,008			7,116
Property, plant and equipment, less accumulated depreciation: 2016—$14,637; 2015—$13,502	13,609			13,766
Property, plant and equipment, less accumulated depreciation: 2017—$15,506; 2016—$14,807							13,386			13,318
Identifiable intangible assets, less accumulated amortization	43,056			40,356			51,348			52,648
Goodwill	50,600			48,242			55,014			54,449
Noncurrent deferred tax assets and other noncurrent tax assets	1,805			1,794			1,952			1,812
Other noncurrent assets	4,618			3,420			3,466			3,323
Total assets	$	170,658		$	167,381		$	168,558		$	171,615

Liabilities and Equity
Short-term borrowings, including current portion of long-term debt	$	13,724		$	10,159
Short-term borrowings, including current portion of long-term debt: 2017—$3,072; 2016—$4,225							$	9,514		$	10,688
Trade accounts payable	3,261			3,620			3,439			4,536
Dividends payable	1,820			1,852			1,904			1,944
Income taxes payable	647			418			552			437
Accrued compensation and related items	1,594			2,359			1,625			2,487
Other current liabilities	11,053			10,990			10,148			11,023
Total current liabilities	32,099			29,399			27,182			31,115

Long-term debt	30,457			28,740			34,191			31,398
Pension benefit obligations, net	5,224			6,310			5,371			6,406
Postretirement benefit obligations, net	1,877			1,809			1,705			1,766
Noncurrent deferred tax liabilities	28,300			26,877			30,879			30,753
Other taxes payable	4,116			3,992			4,096			4,000
Other noncurrent liabilities	5,518			5,257			6,440			6,337
Total liabilities	107,592			102,384			109,863			111,776

Commitments and Contingencies

Preferred stock	25			26			23			24
Common stock	461			459			463			461
Additional paid-in capital	82,138			81,016			83,373			82,685
Treasury stock	(84,313		)	(79,252		)	(89,416		)	(84,364		)
Retained earnings	73,350			71,993			74,107			71,774
Accumulated other comprehensive loss	(8,891		)	(9,522		)	(10,181		)	(11,036		)
Total Pfizer Inc. shareholders’ equity	62,769			64,720			58,368			59,544
Equity attributable to noncontrolling interests	297			278			326			296
Total equity	63,066			64,998			58,694			59,840
Total liabilities and equity	$	170,658		$	167,381		$	168,558		$	171,615



DELAWARE (State of Incorporation)	13-5315170 (I.R.S. Employer Identification No.)


^(a)	Excludes amortization of intangible assets, except as disclosed in Note 9A. Identifiable Intangible Assets and Goodwill:Identifiable Intangible Assets.


^(b)	Amounts for the three and six months ended July 3, 2016 have been revised from previously reported amounts to reflect the adoption of a new accounting standard in the fourth quarter of 2016, as of January 1, 2016. For additional information, see Note 1B. Basis of Presentation and Significant Accounting Policies––Adoption of New Accounting Standards.


^(b)	Reclassified into Other (income)/deductions—net and Cost of sales in the condensed consolidated statements of income.


^(c)	Generally reclassified, as part of net periodic pension cost, into Cost of sales, Selling, informational and administrative expenses, and/or Research and development expenses, as appropriate, in the condensed consolidated statements of income. For additional information, see Note 10. Pension and Postretirement Benefit Plans.


^(c)(d)	See Note 5C. Tax Matters: Tax Provision/(Benefit) on Other Comprehensive ~~Income/(Loss).~~Income.



(MILLIONS OF DOLLARS)	Amounts Recognized as of Acquisition Date (as previously reported as of December 31, 2015)			Measurement Period Adjustments^(a)			Amounts Recognized as of Acquisition Date (as adjusted)
Working capital, excluding inventories	$	274		$	(16	)	$	257
Inventories	1,924			(23		)	1,901
PP&E	2,410			(57		)	2,352
Identifiable intangible assets, excluding IPR&D	8,270			20			8,290
IPR&D	995			35			1,030
Other noncurrent assets	408			(46		)	362
Long-term debt	(1,928		)	—			(1,928		)
Benefit obligations	(117		)	—			(117		)
Net income tax accounts	(3,394		)	84			(3,310		)
Other noncurrent liabilities	(39		)	—			(39		)
Total identifiable net assets	8,803			(4		)	8,799
Goodwill	7,284			4			7,288
Net assets acquired/total consideration transferred	$	16,087		$	—		$	16,087



The following table provides supplemental pro forma information as if the acquisition of Hospira had occurred on January 1, 2014:
	Unaudited Supplemental Pro Forma Consolidated Results
	Three Months Ended		Six Months Ended
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)	June 28, 2015		June 28, 2015
Revenues	$	13,037	$	25,075
Net income attributable to Pfizer Inc. common shareholders	2,703		5,079
Diluted EPS attributable to Pfizer Inc. common shareholders	0.43		0.81


^(d)(e)	In the second quarter and first six months of 2017, represents incremental charges to amounts previously recorded to write down the HIS net assets to fair value less costs to sell related to the sale of HIS net assets to ICU Medical.


^(e)(g)	In the second quarter and first six months of ~~2016~~2017 and ~~2015,~~2016, represents expenses for changes to our infrastructure to align our commercial operations, including costs to internally separate our businesses into distinct legal entities, as well as to streamline our intercompany supply operations to better support each business.



YES X	NO ___



YES X	NO ___



YES ____	NO X



The following table provides additional information about the intangible assets that were impaired during 2016 in Other (income)/deductions––net:
	Fair Value^(a)								Six Months Ended July 3, 2016
(MILLIONS OF DOLLARS)	Amount		Level 1		Level 2		Level 3		Impairment
Intangible assets––IPR&D^(b)	$	35	$	—	$	—	$	35	$	310
Intangible assets––Developed technology rights ^(b)	66		—		—		66		331
Total	$	101	$	—	$	—	$	101	$	641


^(a)	~~The fair value amount is presented as of the date of impairment, as these assets are not measured at fair value on a recurring basis. See also~~ ~~Note 1C~~.


^(a)	Taxes are not provided for foreign currency translation adjustments relating to investments in international subsidiaries that will be held indefinitely.



The following table provides the changes, net of tax, in Accumulated other comprehensive loss:
	Net Unrealized Gains/(Losses)									Benefit Plans
(MILLIONS OF DOLLARS)	Foreign Currency Translation Adjustments			Derivative Financial Instruments			Available-For-Sale Securities			Actuarial Gains/(Losses)			Prior Service (Costs)/Credits and Other			Accumulated Other Comprehensive Income/(Loss)
Balance, December 31, 2016	$	(6,659	)	$	348		$	(131	)	$	(5,473	)	$	879		$	(11,036	)
Other comprehensive income/(loss)^(a)	702			(410		)	352			276			(66		)	855
Balance, July 2, 2017	$	(5,957	)	$	(62	)	$	221		$	(5,198	)	$	814		$	(10,181	)


^(a)	Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $15 million income for the first six months of 2017.


^(a)	~~Amounts do not include foreign currency translation adjustments attributable to noncontrolling interests of $1 million loss for the first six months of~~ ~~2016~~.


^(a)	We use a market approach in valuing financial instruments on a recurring basis. ~~For additional information, see~~ ~~Note 1C.~~ All of our financial assets and liabilities measured at fair value on a recurring basis use Level 2 inputs in the calculation of fair value, except less than 1%4% that use Level 1 inputs and money market funds that are measured at net asset value.


^(d)	Designated as hedging instruments, except for certain contracts used as offsets; namely, foreign currency forward-exchange contracts with fair values of ~~$77~~$60 million as of July ~~3, 2016;~~2, 2017; and foreign currency forward-exchange contracts with fair values of ~~$136~~$162 million as of December 31, ~~2015.~~2016.


^(h)	~~We adopted a new standard as of January 1,~~ 2016 that changed the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying value of that associated debt, consistent with the presentation of a debt discount. See ~~Note 1B~~ ~~for additional information.~~.


^(e)	~~As of July 3, 2016, derivative instruments at fair value~~ include interest rate swaps ($1 million), foreign currency swaps ($~~1.2 billion) and foreign currency forward-exchange contracts ($28 million) and, as of December 31, 2015, include interest rate swaps ($134 million), foreign currency swaps ($928~~300 million) and foreign currency forward-exchange contracts ($1143 million).


^(d)	As of July 2, 2017, derivative instruments at fair value include interest rate swaps ($166 million), foreign currency swaps ($933 million) and foreign currency forward-exchange contracts ($26 million) and, as of December 31, 2016, include interest rate swaps ($147 million) and foreign currency swaps ($1.1 billion).

																					The following table provides the contractual maturities, or as necessary, the estimated maturities, of the available-for-sale and held-to-maturity debt securities:
	Years								July 3, 2016		Years								July 2, 2017
(MILLIONS OF DOLLARS)	Within 1		Over 1 to 5		Over 5 to 10		Over 10		Total		Within 1		Over 1 to 5		Over 5 to 10		Over 10		Total
Available-for-sale debt securities
Corporate debt^(a)	$	4,136	$	4,623	$	1,707	$	33	$	10,499	$	2,561	$	2,613	$	1,579	$	16	$	6,770
Western European, Asian, Scandinavian and other government debt^(b)	7,063		666		8		—		7,738
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association asset-backed securities	78		2,196		58		—		2,332
Western European, Asian, and other government debt^(b)											4,863		377		—		—		5,240
Western European, Scandinavian and other government agency debt^(b)											1,120		46		6		—		1,172
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities											404		84		—		—		488
Other asset-backed debt^(c)											302		102		4		—		408
U.S. government debt	1,302		508		210		—		2,020		328		35		9		—		371
Western European, Scandinavian and other government agency debt^(b)	1,700		162		—		—		1,862
Supranational debt^(b)	804		375		—		—		1,179		351		194		—		—		546
Other asset-backed debt^(c)	411		592		31		3		1,037
Government National Mortgage Association and other U.S. government guaranteed asset-backed securities	620		69		17		—		706
Held-to-maturity debt securities
Time deposits and other	1,149		1		—		—		1,151		1,275		—		3		—		1,279
Western European government debt^(b)	15		—		—		—		15		275		—		—		—		275
Total debt securities	$	17,279	$	9,193	$	2,031	$	36	$	28,539	$	11,479	$	3,452	$	1,601	$	16	$	16,548


^(a)	Issued by a diverse group of corporations, ~~largely consisting of financial institutions, virtually~~with a significant concentration in the technology and energy sectors, all of which are investment-grade.


^(b)	Issued by governments, government agencies or supranational entities, as applicable, all of which are ~~investment-grade.~~high quality.



The following table provides the components of unsecured short-term debt assumed from Anacor:
(MILLIONS OF DOLLARS)	As of July 3, 2016
2.00% Notes (Maturity Date 2021)	$	184
2.00% Notes (Maturity Date 2023)	275
Total short-term debt assumed from Anacor	$	459



The following table provides the amounts of senior unsecured long-term debt issued in the first quarter of 2017:
		Principal
		As of July 2, 2017
(MILLIONS)	Maturity Date	Euro		U.S. Dollar
3-month EURIBOR + 0.20% floating rate notes (0% floor)	March 6, 2019	€	1,250	$	1,427
0.00% euro notes^(a)	March 6, 2020	1,000		1,141
0.25% euro notes^(a)	March 6, 2022	1,000		1,141
1.00% euro notes^(a)	March 6, 2027	750		856
Total euro long-term debt issued in the first quarter of 2017^(b)		€	4,000	$	4,566
4.20% notes^(c)	March 17, 2047			1,065
Total long-term debt issued in the first quarter of 2017^(d)				$	5,631


^(a)	Redeemable at any time, in whole, or in part, at our option prior to 30 to 90 days of maturity date at the comparable German government bond rate, plus 0.15%; plus, in each case, accrued and unpaid interest. The fixed rate euro notes are also redeemable at our option, in whole, or in part, within 30 to 90 days of maturity date.


^(b)	The weighted-average effective interest rate for the euro notes at issuance was 0.23%.


^(c)	The notes, issued in U.S. dollars in Taiwan, are redeemable, at our option, in whole but not in part, on each March 17 on or after March 17, 2020.


^(d)	The aggregate amount at issuance date was $5,279 million. The increase in the amount since the date of issuance is due to foreign currency exchange.