How will cutting 18 months off the life of its Celebrex patent impact Pfizer’s profits?

Pfizer, headquartered in New York City, is one of the world’s largest pharmaceutical companies (as measured by revenues.) It holds patents on many of the drugs it manufactures.  One of these patents gives Pfizer the exclusive right to market the painkiller, Celebrex.  (Celebrex generated $1.9 billion in revenue in 2013.)

In a recent patent ruling, Pfizer lost this exclusive right to market Celebrex 18 months earlier than it had hoped.  While the court ruling will most likely be challenged by Pfizer, it looks like the patent that Pfizer holds on Celebrex may expire May 30, 2014.

Pfizer amortizes identifiable intangible assets using the straight-line basis over their estimated useful lives.

Questions

1.        Assume that Pfizer has the Celebrex patent on its balance sheet.  In what specific section of the balance sheet will this patent be included?
2.        If Pfizer’s Celebrex patent does expire on May 30, 2014, how will this impact Pfizer’s income for 2014?  How will it impact Pfizer’s income for 2015?
3.        If Pfizer’s Celebrex patent does expire on May 30, 2014, how will this impact Pfizer’s balance sheet (accounting equation) for 2014?  How will it impact Pfizer’s balance sheet for 2015?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions. The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)
• YouTube video (narrated article in shareable YouTube link)

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.