Pfizer Inc (PFE) — Q1 2015 Earnings Call Transcript

Good morning and thank you for joining us today to review Pfizer’s first quarter 2015 performance. I am joined here today by our Chairman and CEO, Ian Read; Frank D’Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development; Albert Bourla, President of Vaccines, Oncology and Consumer; Geno Germano, President of Global Innovative Pharma; John Young, President of Established Pharma; and Doug Lankler, our General Counsel. The slides that will be presented on this call can be viewed on our homepage, pfizer.com by clicking on the link for Pfizer Quarterly Corporate Performance First Quarter 2015, which is located in the Investor Presentations section in the lower right hand corner of the page. Before we start, I’d like to remind you that our discussions during this call will include forward-looking statements and that actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in Pfizer’s 2014 Annual Report on Form 10-K and in our reports on Forms 10-Q and 8-K. Discussions in the call will also include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer’s current report on Form 8-K dated today. We will now make some prepared remarks and then we will move to a Q&A session. With that, I’ll now turn the call over to Ian Read. Ian?

Thank you Chuck and good morning everyone. During my remarks this morning, I will briefly recap the highlights from the quarter, provide some thoughts about the pipeline, and close with a few comments about actions we’ve taken to strengthen our core businesses. Starting with the quarter, our performance was solid with positive results on both top and bottom-lines. Overall, revenues grew by 2% operationally, despite the negative impact from the loss of exclusivity of Celebrex in the U.S. and the conclusion of the Spiriva co-promotion agreement also in the U.S. Additionally, we experienced 12% operational growth in emerging markets, fueled by our GEP and Innovative businesses. Although most LOEs and co-promotion expiries are behind us, we still anticipate some LOEs this year and next, which could hinder revenue growth despite the strong performance of our latest products. Nevertheless, we believe the impact of any remaining LOEs will lessen over time as we continue to build revenue from our investments in key growth areas and recent product launches. I’ll highlight some key areas. Prevenar 13 had a very strong quarter, especially in the U.S. where revenues rose by 80%; this increase was mainly due to strong uptake among adults 65 years and older following a positive recommendation from the U.S. Center for Disease Control and Prevention’s Advisory Committee. Moreover, the timing of government purchases for the pediatric indication compared to the same quarter last year contributed to this growth. Revenues for the adult indication were around $300 million this quarter. Physicians’ feedback on Prevenar 13 is consistently positive, and our strong Q1 sales indicate these physicians are actively vaccinating adults who have never been vaccinated, as well as those previously vaccinated with PNEUMOVAX from Merck. Each year, several million people in the U.S. turn 65 and are eligible to receive Prevenar 13. Among those already 65, there are many millions who either have never been vaccinated or were previously vaccinated. We are raising awareness about the seriousness of pneumococcal pneumonia and the importance of consulting with physicians or pharmacists about vaccination to safeguard against its serious effects. We believe our efforts are fostering a sense of urgency to vaccinate and encouraging consumers to request the Prevenar vaccine. In December, CMS updated their guidance to cover both pneumococcal vaccines, ensuring coverage for seniors 65 and older under Medicare Part D, aligning with positive ASIP recommendations made in August 2014. Eliquis is gaining considerable traction worldwide as it continues to capture market share among cardiologists, and it has recently become the leading oral anticoagulant prescribed by cardiologists for new to brand patients in the United States and Japan. Furthermore, Eliquis is now the number one NOAC prescribed by cardiologists for new to brand patients for the nonvalvular atrial fibrillation indication in the UK and Spain, and we are witnessing increasing uptake in Germany. We are pleased with the progress Xeljanz is making towards becoming a key product, supported by approvals in 40 countries for rheumatoid arthritis, launches and revenue growth for the RA indication, as well as the initiation of filing for a potential second indication in plaques psoriasis. In the U.S., rheumatologist satisfaction with the product remains high; Xeljanz is now ranked number three among rheumatologists in new to brand prescription share of self-administered rheumatoid arthritis therapies and is on track to become the third new to brand therapy overall in the U.S. We have dedicated significant focus and resources to building our oncology business, which has been strengthened by recent advancements. In February, we received accelerated FDA approval for Ibrance and have rapidly launched it in the U.S. While it is still early, I am extremely pleased with its performance. Physicians are embracing the product; the number of new patient starts has been increasing since the FDA approval, and we are seeing early success in reimbursement to date. The Ibrance team has done an outstanding job in ensuring we were able to provide the product to patients as quickly as possible after approval. This month, we also announced that a Phase 3 trial of Ibrance for recurrent breast cancer met its primary endpoint of progression-free survival. We will be presenting detailed efficacy and safety results from PALOMA-3 at the upcoming ASCO. Additionally, we have several presentations lined up at ASCO, including oral data presentations for our immune-oncology asset 4-1BB and avelumab, which is co-developed with Merck KGa. Just last week, we reported another promising development in our oncology pipeline; a Phase 3 trial for inotuzumab met its primary endpoint by demonstrating a higher complete hematological remission rate in adults with relapsed or refractory B-cell acute lymphoblastic leukemia, compared to standard chemotherapy. We are discussing these results with the FDA and other regulatory agencies. The trial will continue to assess overall survival, which is an additional primary endpoint; the data will be submitted for presentation at upcoming medical meetings. I believe our recent accomplishments and developments in research and development show that we are experiencing one of the most productive periods for our pipeline. We maintain a strong presence in areas where science is progressing rapidly, where market potential exists, and most crucially, where patient needs are greatest. Today, we published a comprehensive pipeline update; you will see that we boast a rich mix of modalities across small and large molecules and vaccines, innovative mechanisms, and potential new indications. This includes the development of bococizumab, ongoing advancement of Xeljanz, a CDK 4/6 platform with Ibrance, a comprehensive immune-oncology program with our partner Merck KGa for potential single-agent mono-therapy treatments across several tumor types, and assets that position us for potential I/O combination therapies, including 4-1BB, OX40, and ADCs. We are advancing vaccines for Staph aureus and C difficile, a next-generation ALK/ROS1 inhibitor, a world-class kinase capability with unique JAK drugs in development, a robust rare disease portfolio in hematology, neuroscience, and metabolic disorders, and our novel neuroscience work in Parkinson’s is also progressing well, with monoclonal biosimilars now in Phase 3 development. In total, we have 88 programs in clinical development, with 30 programs in late-stage development or registration as of today. Over recent years, we have rejuvenated the pipeline and reshaped our approach to R&D, positioning ourselves effectively to deliver therapies that will significantly enhance people's lives over the next several years. Now, I’ll share a few comments regarding our ongoing steps to expand revenue sources and solidify our core businesses. We continually explore business development opportunities that will create value, favoring deals that provide potential near-term benefits. M&A activity in the pharmaceutical space has been notably strong recently, and Pfizer consistently reviews potential opportunities while remaining disciplined with our shareholders’ capital to ensure that any transactions pursued yield an appropriate return. That is why this quarter, we announced two transactions; one aimed at ensuring the long-term sustainability of the GEP business, and another to enhance our vaccine portfolio. The acquisition of Hospira is an excellent strategic fit in an attractive and growing market segment that includes sterile injectables and biosimilars; we expect this acquisition to significantly enhance the growth trajectory of the GEP business. We remain on track for a closing in the latter half of this year. Additionally, our deal for Redvax broadens our vaccine development portfolio by providing access to a promising vaccine in preclinical development targeting human cytomegalovirus, a virus that can cause severe disabilities in infants when transmitted from newly infected mothers. We now offer a more extensive range of vaccines for preventing serious illnesses, which includes the most widely used conjugate vaccine globally, Prevenar 13, with over 750 million doses distributed. Remember, we have recently received approval to prevent invasive disease caused by group B meningitis in individuals aged 10 to 25 and have vaccines to protect against diseases caused by group C meningitis and to prevent tick-borne encephalitis through our acquisition of Baxter International’s vaccine market. As we have previously stated, business development is not just a strategy; it is one of the several levers we can pull to strengthen our two primary business sectors: innovative products and established products. This year has begun positively, with increasing momentum in our pipeline, growing market penetration for our newest in-line products, and strategic additions to our portfolio. Our focus this year will remain on supporting our recent new product launches, particularly Ibrance and Prevenar 13 for adults, accelerating and distinguishing key programs in the pipeline to deliver breakthrough products, continuing to pursue attractive business development opportunities that will strengthen our businesses, and executing all these initiatives while deploying our capital to generate maximum value for our shareholders.

Thanks Ian, good day everyone. As always, the charts I’m reviewing today are included in our webcast. First quarter 2015 reported revenues were approximately $10.9 billion and reflect operational growth of $250 million or 2% year-over-year, mainly driven by the strong performance of Prevenar 13 and Eliquis in developed markets and Lyrica, Nexium 24HR, Xeljanz, and Viagra primarily in the U.S. The launch of Ibrance in the U.S. in February of this year, and 12% operational growth in emerging markets, which were more than offset by the unfavorable impact of foreign exchange of approximately $739 million or 7%, the loss of exclusivity in immediate multi-source generic competition for Celebrex in the U.S. in December of 2014, other product losses of exclusivity, and the termination of the Spiriva co-promotion collaboration in certain countries. Adjusted diluted EPS was $0.51 versus $0.57 in the year-ago quarter. The decrease was primarily due to a $0.04 negative impact due to foreign exchange and a $0.03 negative impact due to the $295 million upfront payment to OPKO during the first quarter of 2015. Adjusted diluted EPS was favorably impacted by a lower effective tax rate and fewer diluted weighted average shares outstanding, which declined by 148 million shares versus the year-ago quarter due to ongoing share repurchases, which includes the partial-quarter impact of our $5 billion accelerated share repurchase agreement effective February 2015. Reported diluted EPS was $0.38 compared with $0.36 in the year-ago quarter due to the previously mentioned factors and the favorable impact of lower legal charges, which were partially offset by a higher effective tax rate. Foreign exchange negatively impacted first quarter reported revenues by $739 million or $0.07 and positively impacted adjusted cost of sales, adjusted SI&A expenses, and adjusted R&D expenses in the aggregate by $462 million or 7%. As a result, foreign exchange negatively impacted fourth quarter adjusted diluted EPS by approximately $0.04 compared with the year-ago quarter. Now moving on to the financial highlights of our business segments, in the first quarter, Global Innovative Pharmaceutical revenues increased 7% operationally year-over-year due to the strong operational growth from Lyrica, primarily in the U.S. and Japan, and the performance from recently launched products including Eliquis globally and Xeljanz primarily in the U.S. Although operationally revenues increased 7% and cost of sales decreased 1%, income before taxes declined 9% operationally mainly because of a 59% operational increase in R&D expenses primarily due to the previously mentioned upfront payment to OPKO Health and to a lesser extent, an 11% operational increase in SI&A expenses due to increased investments in new products and certain in-line brands. First quarter VOC revenues increased 29% operationally due to the 51% operational revenue growth from our Global Vaccines business as a result of Prevenar 13 which grew 80% in the U.S. and 15% internationally, and the inclusion of Baxter’s market of vaccines in Europe, Nexium 24HR in the U.S., the launch of Ibrance in the U.S. in February, and Xalkori and Inlyta globally. Income before taxes increased 41% operationally, mainly due to increased revenues with an associated improvement in gross margin, partially offset by a 19% operational increase in SI&A expenses due to investment in Prevenar 13 adult indication, Nexium 24HR, and the Trumenba and Ibrance launches, and the 7% operational increase in R&D expenses due to increased investment in the Ibrance development program and the global immuno-oncology alliance with Merck KGaA and other oncology products. In the first quarter, Global Established Pharmaceuticals revenues decreased 10% operationally, mainly due to the loss of exclusivity and immediate multi-source generic competition for Celebrex in the U.S. in December of 2014, and to a lesser extent from the loss of exclusivity of Lyrica in certain developed markets in Europe during the first quarter of 2015 and Zyvox IV in the U.S. in January 2015, continued generic competition for Lipitor in developed markets, and termination of the Spiriva co-promotion agreement in most countries including the U.S. in April of 2014. All of these were partially offset by strong operational growth of 10% in emerging markets, driven by Lipitor, Viagra, and Norvasc. Income before taxes declined 14% operationally due to the decrease in revenues and 1% operational increase or 2.1 percentage point increase as a percentage of revenues and cost of sales due to an unfavorable change in product mix. Flatter R&D expenses primarily due to increased spending in our biosimilars development programs offset by lower clinical trial expenses, all of which were partially offset by 9% operational decrease in SI&A expenses driven by cost reduction and productivity initiatives. Now, I would like to walk you through the updated full-year 2015 guidance ranges for reported revenues, reported diluted EPS, and adjusted diluted EPS relative to our 2014 actual results. I want to point out that there are no unfavorable changes to our operational outlook; we’re only updating the 2015 guidance ranges for these elements solely due to the negative impact of recent changes in foreign exchange rates in relation to the U.S. dollar from mid-January to mid-April, primarily driven by the weakening of the euro. This updated guidance assumes an FX rate for the euro of approximately $1.06. As a result, we are lowering our reported revenue range by $500 million and now expect the range to be $44 billion to $46 billion. It’s important to note that the actual negative impact of foreign exchange in our full-year 2015 revenues is actually greater than $500 million. However, the operational strength of our revenues is allowing us to absorb this. In addition, we are lowering our reported and adjusted diluted EPS ranges by $0.05 and now expect reported diluted EPS to be in the range of $1.32 to $1.47 and adjusted diluted EPS to be in the range of $1.95 to $2.05. Before moving, I want to point out that actual rates in mid-April 2015 do not include the impact of a potential devaluation of the Venezuelan Bolivar. We’re reaffirming the remaining elements of our 2015 financial guidance, which we issued on January 27, 2015. Moving on to key takeaways, we recorded solid financial performance in the first quarter. While we have no unfavorable changes in our operational outlook for the remainder of 2015, we have updated our financial guidance solely to reflect the negative impact of recent changes in foreign exchange rates. We entered into an agreement to acquire Hospira for a total enterprise value of approximately $17 billion. Subject to the appropriate regulatory approvals, we continue to expect to complete the transaction in the second half of 2015. We achieved several key R&D milestones so far in 2015 including receiving accelerated approval from the FDA for Ibrance with letrozole for first-line advanced breast cancer; our Phase 3 PALOMA-3 study for Ibrance with fulvestrant met its primary efficacy endpoint; the FDA lifting the partial clinical hold on our tanezumab development program; and we’re preparing to resume Phase 3 activities with our partner Eli Lilly, and the EC approved an expanded indication for the use of Prevenar 13 in adults aged 18 years and older. We continue to create shareholder value through prudent capital allocation; in the first quarter of 2015, we’ve returned $7.8 billion to shareholders through dividends and share repurchases. It’s important to note that after repurchasing $6 billion of our common stock in the first quarter of 2015, including our $5 billion accelerated share repurchase, we have already met our 2015 share repurchase target and do not currently expect to repurchase additional shares this year. We continue to expect to return approximately $13 billion to shareholders in 2015 through a combination of dividends and share repurchases. Finally, we remain committed to delivering attractive shareholder returns in 2015 and beyond.

Thank you, Ian and Frank. Operator, can we please poll for questions now?

I would like to ask about the use of capital. I know you've discussed this frequently, but I'm interested in any subtle changes in your responses. Ian, when you think about the use of capital, are you still open to a large deal like the AstraZeneca proposal from last year if the numbers make sense? Also, would you theoretically consider acquiring a company that adds small molecule and DA capabilities to the established products business, or do you think the acquisition of Hospira has addressed the main gaps that business might have had? Lastly, as you look at the biotech landscape, what are your general thoughts on biotech valuations and opportunities? Thank you.

I believe the organization is flexible regarding the size of business development; it needs to be a business development opportunity that significantly impacts our performance. I would not hesitate to pursue a large transaction if it offered value for shareholders, whether it involves enhancing our Innovative segment, GEP, or Consumer. Our focus is on value and whether it benefits shareholders; we can expand into any of these areas. Regarding valuation, I mentioned last quarter that I found the biotech sector's valuation to be unexciting, and I still hold that view. This means we proceed with caution when assessing deals. There likely isn't a deal we've considered that we haven't thoroughly evaluated, as our priority is to create value for shareholders, which guides our decisions.

Thank you very much. Ian, in your prepared remarks you failed to mention tax conversions. I’m just curious to know how much of a priority a tax conversion still is or unlocking the value of your overseas cash flows. And if you were to abide by the current IRS laws today, doesn’t that mean that there are fewer large targets available to you than before; can you confirm that and really just your appetite? And then secondly, you’ve said before that the earliest you can break up the company is in 2017; I’m assuming that’s day one 2017 because we will at that point have three full years of financials. And if that’s correct, are you targeting a decision sometime next year, I would think that once you make the decision, it’s going to take about a year or so before you actually execute on the split or maybe it won’t take quite that long but are you targeting a decision next year and if so what at this point are you waiting for to make that decision?

In response to your first question about the timing of the split, we indicated that we could initiate it in 2017, which suggests we need to decide by late 2016. We require three years of financial data, which we will have by the end of 2016. As previously mentioned, I want to assess the sustainability of the two divisions within Pfizer before making any decisions. I'm monitoring our pipeline development and exploring opportunities to enhance our established products, as we have done with Hospira. Additionally, I am evaluating how the market currently values Pfizer and whether the combined value of our segments differs from the total value of the company. We plan to make a decision regarding the split in late 2016, with an ongoing focus on creating shareholder value. Regarding the possibility of lowering our tax rate or re-domiciling, managing our expenses prudently is crucial, as tax is a significant cost. The new proposed rule changes complicate the immediate benefits of re-domiciling, as it depends on the specific target and various complex factors related to assets, cash, and tax positions. Therefore, each potential deal is unique, but we are committed to pursuing opportunities that create value.

So, with respect to the potential separation of the businesses, I’m guessing that you’re not willing to disclose the relative cash flow of the two segments. But my assumption is that the cash flow of the Innovative business is an even smaller percentage of the total company cash flow than the earnings that you disclosed from the Innovative business would suggest. So anyway Frank, I was just hoping that you could speak to that and help us understand whether that’s accurate and whether the lack of cash flow in the innovative business is something that could potentially constrain your ability to separate or monetize that business.

So, a couple of comments, David. Let me just start by saying, reminding everyone this quarter when we file our 10-Q, we’ll be including balance sheet information for this segment but we won’t have debt or cash for example by segment; we’ll have on the asset side accounts receivable, inventory, tax assets and other assets and then on the liability side we’ll have on accounts payable, accrued compensation, and other liability. So, we’ll start providing balance sheet information but we won’t be providing debt or cash by various segments, since those are really enterprise assets, enterprise liabilities at this point. What I would say is this that I don’t see capital structure. So, I’m going to raise it up a little bit. You asked about cash but I’ll answer the question by saying, I don’t see capital structure and somehow impeding our decision making. So, let’s hit to whether or not to execute a split of the company. We believe, I believe we can clearly manage our way through capital structure, so that’s not in any way, shape or form some sort of impeding factor relative to our decision.

I have a couple of questions, first regarding Ibrance. Could you elaborate on the launch and commercial plans for this product moving forward? Additionally, I'd like to understand the significance of the PALOMA-3 trial for the market opportunity and how it will impact the product's growth. How substantial is this opportunity for Pfizer? My second question relates to GEP. Do you have the capability to pursue a major deal at this time, or are you mainly focused on the Hospira integration? I'm curious whether you have the personnel available to take on another large deal if the opportunity arises.

So, let me just talk about the deal. We’ve done several large integrations. We’re working well with Hospira. We expect to close in the second half of this year. Should value be there, this organization has a capability of undertaking our deals independent of size, if it was important for our shareholder. So, I’m not concerned about that. I would pass it over to Albert to talk about Ibrance.

Overall, we are very pleased with the results. And so far Ibrance is being well received by oncologists. We have over 800 healthcare practitioners prescribing it. We have over 2,000 patients in one quarter and we have approximately 3,000 total scripts written so far. First-line market share is already approaching 10%, which is way ahead of previous analogues. And also we see strong reinvestment so far. Now the expectation is that Ibrance will gradually grow to become a new standard of care, a first-line treatment of this group of patients. But over time, momentum in breast cancer will build beyond first line as other studies read out positive. For example, you mentioned the results of PALOMA-3, which will be presented at ASCO, but we plan to work with the FDA to expand the label to other lines of therapy based on these results. And also as a reminder, there are several other breast cancer studies running in early and recurrence settings. And needless to say, we also have many non-breast tumor studies including head and neck, lung, melanoma, etc. Now for your particular importance of PALOMA-3, as I said, so far there is limited medical use in second and third line given that the label is in the first line. So as I said, we will work with FDA to expand the label to other lines of therapy. But beyond label amendment, I think we should see the PALOMA-3 in the way that adds to the level of confidence in the mechanics of action and of course is also confirmation of an additional effective Ibrance combination, but this time with Faslodex, before we had with flat fulvestrant.

And we are at Pfizer and very focused on speed and maximizing the opportunity of Ibrance and getting this great product to patients as fast as possible. And I believe we will be filing in the EU in the second half of this year. Is that right?

This is correct, Ian.

Enbrel saw an 8% operational decrease in Europe, and I'm curious about how much of this is due to the impact of the biosimilar Remicade. Can you discuss expectations for that product in Europe regarding volume growth and pricing? Additionally, could you provide insights on the likelihood of Pfizer deciding not to split up? You've kept that option open for several years in our discussions. Most investors are looking for more than just acquiring additional targets and growing larger, so it would be useful to know the probability of that outcome not happening. Is it less than 10%, less than 20%, less than 50%, or something else?

Let me try and deal with the split before we ask Geno to deal with Enbrel. What I would say Tim is that I think this management team has established a reputation of focusing its actions on shareholder value. So, I don’t really think it’s useful to give odds; what I think is useful is to say we will do what’s best for shareholders in creating value for them. And some of our transactions, when we were looking at previous ones last year, at times we talked about getting bigger to get smaller. Because by getting bigger, we could add and strengthen the independent businesses and then get smaller if it made sense. Frankly, we’re focused on creating value for shareholders. And if a split or getting bigger and then splitting make sense, we will execute that because the prime driver of this management team is to create shareholder value. With that I’ll pass it over to Geno to talk about Enbrel in Europe.

Tim, the situation in Europe with Enbrel was that we implanted a new distribution model in the UK. We started at the end of last year where we moved away from the retail channel into just the hospital channel and directed patients. So, we saw in the first quarter this year was some inventory work down in the first quarter and that affected our sales in the UK. We had good strong sales in Italy and France and Spain. So, we really didn’t see anything more widespread than the distribution change. In terms of the effective biosimilar Remicade on the Enbrel business, we really haven’t seen an impact there either. So, we’re expecting to see continued modest growth to a very large base of business; it’s a very well-accepted product throughout Europe and the rest of the world. And we anticipate continuation of modest growth for the brand outside the U.S.

First, Frank, just mechanistically, how would a very large transaction if you did one affect the timing of a potential split? Clearly the Hospira deal did not affect your timeline but I imagine certain deals could. And secondly for John; it’s good to see another strong quarter from Hospira. Is it fair to say that the addition of Hospira in your mind takes gap from flat to declining in sales in the out years to pretty squarely into growth territory? Thanks.

Just to reiterate what I said before and then I’ll answer the question specifically. We’re doing all the things we need to do, in particular the three years of prospective audited financials, so that we’d be in a position to exercise our option in 2017, if we chose to do so. And as I said before, the Hospira acquisition does not impact that timeline. But then Gregg, specific to your question, if we were to do a large transaction, and as Ian said before, we’re agnostic to size, it’s really all about what we believe we can create shareholder value for our shareholders. It could, it clearly could impact our timeline. If we were to do a transaction and if it were to impact our timeline, please know we’ll proactively tell you all that as soon as we know.

To reiterate, we do not provide guidance for individual businesses. However, we are pleased to see the strong momentum in the Hospira business this quarter. The GEP business has experienced some losses due to LOEs, which Ian mentioned. We anticipate that this will affect the revenue trajectory of the base GEP business over the next year or two. Nonetheless, the transaction serves as an immediate source of revenue growth with products that can be expanded into new markets, thanks to Pfizer's global reach. The excitement in the financial community, which we also share, comes from the integration of two excellent businesses that will not only drive profitable revenue growth in the near term but also create a platform for future growth, supported by Pfizer's global infrastructure. We remain optimistic about the combination of these two businesses.

First one just has to do with the Hospira transaction. Can you give any clarity on when you might anticipate HSR clearance? Most notably one thing that we noticed was that on medium and broad spectrum, antibiotics and beta-lactams that there’s some overlap and then certainly the overlap in the biosimilars, so any kind of commentary on product divestitures would be helpful. And then second question on your oncology business, if you look at Xalkori, you have number one, number two competitors in oncology launching all positive compounds globally; Inlyta, in light of I/O data that potentially is becoming available, can you maybe discuss the OS benefit Inlyta has potentially to being able to compete with I/O? And then on Ibrance just potentially competitive threat since competitors are indicating that could have data in the ‘16 to Ibrance, just your thoughts on your competitive positioning of that franchise going forward here.

Okay John, thank you, some very optimistic questions there. Why don’t we deal first of all with Hospira; Doug can you do that?

Sure. So, we’re looking at all aspects relative, beyond obviously biosimilars as well, we’re working closely with regulators and we’re pleased with the progress that we’re making. We continue to expect to close the transaction during the second half of 2015.

And on the oncology issues, would you like to comment upon what we expect the competition launching and then our second-generation or third-generation ALK/ROS and then perhaps Mikael may want to comment on some of the competitive dynamics.

Absolutely and thanks John for the question. In Ibrance, I spoke a little bit before; right now we are really the only company that has randomized data out there, so we can make any comparison. We have the most advanced and the most broad program in CDK 4/6. I say more advanced because we are the only one, so that we have registration to start with and we have already announced positive results of a second study in a different population, and of course we are initiating, right now we have in this year running already four Phase 3 studies on the breast cancer. We’re running beyond breast cancer over 30 studies in multiple tumor indications. So I have a lot of respect for competitors but I think in that one really we are way ahead.

I think one competitor just demanded that they may be finishing their Phase 3 in ‘17, is that right?

In the second half of 2016, we expect to complete the confirmatory study by August of this year. We have already registered for the same type of study. Additionally, we are in discussions with EU authorities and plan to file for Ibrance in the second half of this year.

Mikael, any comments?

Yes, I want to just briefly comment on your discussion about our ALK franchise. I think we should look up on it as an ALK franchise, where Xalkori is the most experienced drug with a very recognized stable profile. We shared at recent conferences including the presentation at AACR our third-generation ALK inhibitor with 3922 number name. And it’s really a unique compound that hits all known ALK mutations including the G1202R. To the best of my knowledge, it’s still the only compound that has shown strong effect across all mutations regardless of whether the patient has experienced several of the currently available ALK inhibitors. Moreover, several responses have also been reported against brain metastases for this drug. So, I think the combined ALK franchise from place that will over time be very strong. Inlyta can also be nicely combined with an immune-oncology product as per our strategy. So, we shouldn’t see Inlyta alone facing other entrants but we and Merck Serono are exploring immune-oncology avelumab, Inlyta, and other agents. So, I think you will see us building a strong position in renal cell carcinoma.

And John, I sort of see the competition coming in and extending the survival time of patients with the ALK mutations as very positive for our third generation when it comes to market. As you’ll have all patients that have gone through our first line as Xalkori increases second line on products of competitors and creating a more substantial patient base for our third generation ALK. So thanks for the questions.

I have two quick questions about products and one regarding expenses. First, could you share your current optimism about tanezumab? I know you’re in Phase 3 now, but considering past safety concerns, do you believe it could be a blockbuster product or is it likely to remain more niche? Second, regarding Lipitor, I understand the real-world study has been completed for a while; any updates on when we might expect the data? Lastly, on the expense side, if I'm interpreting the release correctly, a significant amount of expenses has been categorized under the other bucket, rather than being assigned to one of the three specific business units. Given that we’re five quarters in with the company operating as three separate units, how should we approach the possibility of splitting into two entities without encountering significant dis-synergies, considering there will be considerable overlap in expense allocations?

Tanezumab, look, we see this as a real innovation; one of the first real breakthroughs in pain management in many, many years and a significant unmet need over the use of opioids being a big problem and a substantial number of patients with the conditions that we’re pursuing osteoarthritis, chronic low back pain, and cancer pain. So we see that this drug has significant potential. We know a lot about this medicine; we’ve completed quite a number of studies and we’re anxious to see it advance through this next phase of development and enter the market.

Albert, real-world, real-life study Lipitor?

The actual use trial was completed in December. So the results are expected this quarter. The results of the study will inform next steps and timelines for potential NDA filing. We will continue to update you as we have more news on that.

And Frank on expenses?

The major items in that other bucket are WRD. So, Mikael’s organization, and I’ll call it corporate. We think about corporate as what we call the enabling function. So, it’s IT; finance; legal; HR; facilities; public relations, all those functions basically are what are in our corporate bucket there. Last year in the Q, we gave you all percentages on how to allocate those various items to the segments. The key there is in terms of the basis of what’s underpinning those percentages that we gave you. There is really three buckets of allocations there; I’ll call it specific assignments, regional allocations, and general allocations. The specific assignments are about 40%; the regional allocations are about 20%; the general allocations are about 40%. So, we provide all that detail, so that you can basically drive it to the segment. And what that tells you is much of it, the specific assignment and the regional allocation is very specific to an individual segment.

Just a few quick questions, a couple on the pipeline and then one for Ian. On the pipeline, maybe just to start off, maybe we could talk a little bit about when we might see data with your 4-1BB and what combinations we may see. Interestingly, we’d love to hear your thoughts on AstraZeneca’s deal with Celgene and their comments on the challenges of getting into hem tumors. The second question, just given the broad success of Opdivo in second-line lung cancer, when and how do you see your recently announced study recruiting in the U.S. or perhaps even in Europe over the next 12 months as approvals are likely received? And then lastly for Ian, when you say that you are agnostic to the creation of shareholder value, I think everybody has asked the question of the possibility that you go out and buy more assets. However, I do think that there certainly is the possibility of lowering your tax rates with the willingness to perhaps merge with an overseas entity, with that entity being the controlling entity. How agnostic are you truly to that kind of an outcome?

I’ll ask Mikael to comment on the 4-1BB. I don’t really think it’s appropriate first to comment on AZ strategy and how they go about financing their pipeline. And then on lung cancer perhaps Mikael or Albert can deal with that. Then I’ll come back to how agnostic I feel.

As you know, we believe that the field of I/O combinations is going to increasingly be prominent. And we have invested in a broad number of I/O combinations; we’ll have up to five I/O drugs in the clinic this year and expect every year probably, two new entering. Specifically for 4-1BB, we will share additional data at ASCO. We have growing experience with 4-1BB in lymphoma on a rituximab background that said yes the stable activity and good volatility profile. And I think suggest that this class of combining checkpoint activators with checkpoint inhibitors may be the route to go as we have learned combining multiple checkpoint inhibitors as CTLA-4 and PD-1, mainly to decreasing therapeutic window while 4-1BB we’re very encouraged that the therapeutic window will be large and the drug is an interesting part of this new I/O combination. I also wanted to make a pitch that we actually are now entering the clinic with our OX40 antibody that also will be planned to explode as mono-therapy and later in combination with avelumab. Briefly just on second-line lung cancer, as we announced avelumab into several solid tumor indications, we expect over the years of ‘17, ‘18, ‘19, and ‘20 to see multiple pivotal trials readout and opportunities for drug registrations across several of the solid tumors including lung cancer.

Thank you, Mikael. Seamus, I believe you may have misunderstood my position. I'm not indifferent to value; rather, I'm indifferent to size and completely focused on value. This relates to your questions about whether to adopt an 80-20 or 60-40 approach to maximize benefits. I'm open to any combinations that clearly create value for our shareholders. Thank you.

I have a couple. First for Frank, isn’t the full-year share count guidance 6.2 billion shares versus Q1’s nearly 6.3 billion; that difference is 3.2 billion in share repurchase? And related to that, I’m surprised the share count was not much lower in Q1 versus Q4, given the 150 million share repurchase. I guess the answer might be that you weren’t expecting the stock to be so strong but maybe you can clarify. And then secondly, how much of the $300 million in Prevenar sales in adults in Q1 would you consider catch up versus the cohort of people that just turned 65 and are receptive to vaccination?

So on the share repurchase Steve, our projection for the end of the year is a little bit higher than the number you quoted and we obviously factored that into our guidance. And then in terms of the shares from Q4 to Q1, remember on that accelerated share repurchase, we got a partial quarter benefit for that in the number, because we didn’t put that in place until February, so kind of think about it as a mid-quarter impact. But if you go to the full year, we’re a little bit higher than the 6.2 and what’s really been driving that, and it’s a good issue is the stock price is higher than we thought it was going to be. From a share repurchase assumption perspective, in terms of what we assumed in our planning, it’s higher than what we had planned for, but net-net it’s all factored into our guidance.

Al, if you’d like to sort of try and dissect it, interesting market for adult vaccines in the U.S. and potentially internationally.

I don’t have specific data yet as to how much is catch-up or not but it’s an indication of the significant potential of this market. Let me run some numbers for you. Every year 4 million adults in U.S. alone are turning 65. There are 27 million adults that have been previously vaccinated with PPV 23 and an additional 20 million adults that have never been vaccinated, that’s a pool of 47 million adults in the U.S. Both of these cohorts are now recommended and reimbursed to receive Prevenar 13. And the same comes with Europe. In Europe, we have already received the label for the prevention of pneumonia for adults 18 and older. We are working country by country to ensure recommendations and after that reimbursement which will take some time but typically it’s happening. And in general, we are very pleased with the first quarter, the results. They were driven of course by the broad recommendation. We had the severe flu season that also played a role and also our commercial efforts were very successful. Going forward in the spring months, we expect the revenues to moderate given the seasonality of the business but we expect strong revenue growth will resume in the fall. Overall, we expect very strong growth for the year.

A question on your immune-oncology portfolio; do you have any evidence to date to conclude that the ADC enabled properties of your PDL-1 are positively significantly differentiated versus the other non-factor enabled PDL 1s that aren’t clinically approved? Second, is it still the case that you haven’t shared any solid tumor responses with your anti-CD-137 or has that changed? And then lastly, perhaps you could comment on the strategic outlook of your consumer health business, given it’s a very active market out there with numerous potential buyers who I’m sure would be interested in your assets?

Mikael, could you take us through the immune-oncology questions?

I think you asked briefly about ADCs and then mainly around differentiation for our immune-oncology assets. Maybe I’d just say a few words on ADCs. We have built up seven ADCs in the clinic. You heard recently about our clindamycin ADC, inotuzumab, showing positive and good data for the first of two primary endpoints, hematological remissions. We have the next wave in Phase 1/2 studies; I can particularly mention one that you think you should keep an eye on that we will also believe will continue to establish ADC as an important modality. And we are indeed quite encouraged by the idea of combining the selectivity of ADCs with immune-oncology. So I think your question was really good by asking about those modalities. Our PDL-1, as you know, our view is that data available to date suggests that it will have a similar profile to that on other advanced PD-1 and PDL-1 antibodies that are presented data in unselected patients. And as you continue to explore the enrichment of patients such as an increase in the level of PDL-1, it’s expected that response rates will further increase as well as with a drug combination. There’s been some suggestion from a reported ASR that avelumab may also, on the positive end, pick up some ADCs to rank itself; it remains to be proven what tumor types this could potentially be a differentiation. But so far we have said that avelumab has a competitive profile similar to the PD-1, PDL-1 and we are very excited to advance the molecule and we’ll share an update at ASCO.

And on the Consumer business, it actually had a very quarter, very good growth. And so it’s a business that we like to be in. I think it’s a strategically important business for us. And we will continue to develop it and if we have opportunities to do acquisitions to grow, we’ll also look at those. So it’s a good business to be in.

Couple of quick questions, on the biosimilar Avastin; what’s your view with regards to what agencies were required for approval? Do you think response rates will be sufficient, would you anticipate meeting survival data? And also do you see any issues with recruitment here, given there is a question of more incentives to trial the biosimilar versus the innovator? And then last question on Xeljanz; I see you’re filing based on 5 and 10 milligrams data in plaque psoriasis; is that potential for this data set to assist any approval of the 10 milligram data in RA?

I would say that for each of the biosimilars, we negotiate endpoint with the regulatory agencies. And we expect that data that indicate you have equivalence analytical on the drug pharmacokinetics and clinical profile in general will lead to registration across multiple indications. I can’t specifically speculate on what would be required for Avastin but I will in general be optimistic that readouts such as response rates or PFS will likely confirm equivalence if you do have also strong robust data on the other aspects by equivalence. We have now five antibodies working closely with GEP in the pipeline and we are very pleased so far with all of those; four are in Phase 3 studies.

On the 10 milligram data in psoriasis; as you know the psoriasis patient population is a much different patient population than RA. However, as we accumulate more and more data on the 10 milligram in both in RA post-marketing surveillance studies in the additional indications including psoriasis and ulcerative colitis and other indications, the data base continues to grow. And that will serve as our support for continuing to evaluate the 10 mg across all of the indications as time goes by.

A follow-up on biosimilars on your outlook; could you comment on some of the intellectual property barriers that you might face in bringing biosimilars to the market and specifically I am wondering about the Humira biosimilars that you have in development. What’s your expected timeline for that product given some of the IP that AbbVie keeps referring to?

I think what we’d say is obviously we’re looking at a full range of considerations when we develop our portfolio of biosimilars. As Mikael just said and answered to the previous question, we engage very strongly with the regulators to make sure that we have an appropriate clinical program and clearly we’re very mindful of the IP landscape which frankly varies by asset, is very complex ranging from base patents to a range of other patents. So we work very closely with our legal team to assess the likely time of entry to the marketplace for all of our biosimilars and we take that into full consideration when we’re constructing our development program and making our forecast for the long range.

Thanks John. And thank you everybody for your attention this morning.

Thank you. Have a good day.