Pfizer Inc (PFE) — Q1 2021 Earnings Call Transcript

Thank you, Operator. Good morning, and thanks for joining us today to review Pfizer's first quarter 2020 results and financial guidance update as well as other relevant business topics. I'm joined today as usual by our Chairman and CEO, Dr. Albert Bourla; Frank D'Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development and Medical; Angela Hwang, Group President, Pfizer Biopharmaceuticals Group; John Young, our Chief Business Officer; and Doug Lankler, General Counsel.

Thank you, Chuck, and hello, everyone. I couldn't be prouder of the way Pfizer has started 2021. During the first quarter, we delivered strong financial results. Even excluding the revenue provided from our COVID-19 vaccine, our revenues grew 8% operationally, 10% reported, and this 8% growth includes a negative 5% impact from pricing. We continued to accelerate production and shipments to our COVID-19 vaccine, in many cases, exceeding our contractual obligations for delivery timelines. And we achieved several important clinical, regulatory and commercial milestones. Let me start with commentary on some of our biggest growth drivers in this quarter. The Pfizer-BioNTech COVID-19 vaccine contributed $3.5 billion in global revenues during the first quarter. As of May 3, 2021, Pfizer, along with its partner, BioNTech has shipped approximately 430 million doses of the vaccine to 91 countries and territories around the world. I will share some thoughts on the sustainability of this revenue stream later in my remarks. Eliquis has continued to deliver a strong performance with revenues up 25% operationally to $1.6 billion in the first quarter. In the U.S., Eliquis sales growth was driven mainly by strong volume growth. VYNDAQEL and VYNDAMAX generated revenues of $453 million, representing operational growth of 88%. Our disease education efforts in the U.S. continue to support appropriate diagnosis, increasing the estimated diagnosis rate to almost 24% at quarter end, up from 21% at the end of 2020.

Thank you, Albert. Good day, everyone. I know you've seen our release so let me provide a few highlights regarding the financials. Clearly, the COVID-19 vaccine has had a dramatic positive impact on our year-over-year results, and Albert has addressed the key points on the COVID-19 vaccine landscape. Looking at the income statement. Revenue and adjusted cost of sales was significantly impacted by COVID-19 vaccine sales and the associated 50% gross profit split with BioNTech, which we recognize on the cost of sales line. Revenue increased 42% operationally in the first quarter of 2021, driven by COVID-19 vaccine sales and solid performance from a number of our other key growth drivers. The adjusted cost of sales increase shown here reduced gross margin by 10 percentage points compared to the first quarter of 2020, which primarily reflects the impact of the COVID-19 vaccine gross profit split, which accounted for approximately 8 percentage points and, to a much smaller extent, product mix. Looking at the business excluding the COVID-19 vaccine contribution, we saw a continuation of solid revenue growth for the business in the quarter, which nicely supports our projected revenue CAGR of at least 6% through the end of 2025. As a reminder, this growth projection continues to exclude any contribution from the COVID-19 vaccine. In addition, compared with the prior year quarter, first quarter 2021 revenues were favorably impacted by approximately $400 million as a result of the first quarter 2021 having 3 additional selling days in the U.S. and 4 additional selling days in international markets. This increase in selling days will be offset in the fourth quarter of 2021, resulting in essentially the same number of selling days in full year '21 as compared to full year 2020. However, the favorable impact on quarter-over-quarter comparisons in first quarter 2021 from selling days is partially offset by the non-reoccurrence of favorable revenue impacts related to COVID-19 in first quarter 2020, including increased demand for certain products of approximately $150 million and additional wholesaler inventories of approximately $100 million. Given these factors, the net favorable impact on first quarter 2021 revenues is approximately $150 million or approximately 1.5 percentage points of operational growth, which in effect reduces a strong 8% operational growth rate to about 7%. Reported diluted EPS for the quarter was up 44% compared to the year-ago quarter, while adjusted diluted EPS grew 47% for the quarter. Foreign exchange movements resulted in a 3% positive benefit to revenue and a 1% benefit to adjusted diluted EPS. Let's move to our revised 2021 guidance. We've again provided total company guidance, which includes the business with the COVID-19 vaccine, and then we provided some additional sub-ledger detail on our assumptions regarding the projected COVID-19 vaccine contribution, so you can also see our projection for the business without the COVID-19 vaccine. To start, the adjustments we've made to our total company guidance are almost entirely due to the anticipated impact of the COVID-19 vaccine and R&D spending on incremental COVID-19 programs and non-COVID-19 mRNA programs, along with a small increase in the revenue outlook for the business excluding the COVID-19 vaccine. For adjusted cost of sales, the ranges have increased to 38% to 39%, which incorporates the incremental anticipated COVID-19 vaccine revenue, which has a significantly higher cost of sales due to the gross margin split with BioNTech as compared to the rest of the business. The projected COVID-19 vaccine revenue as a percentage of total company revenue has increased to 36% as compared to 25% in our initial 2021 guidance. On adjusted SI&A, we have maintained our initial guidance of $11 billion to $12 billion. In addition, we increased our adjusted R&D guidance range to $9.8 billion to $10.3 billion to incorporate anticipated spending on incremental COVID-19-related programs and other mRNA-based projects that are not part of the BioNTech partnership. Working this through with a projected 15% effective tax rate yields an increased adjusted diluted EPS range of $3.55 to $3.65 or 59% growth at the midpoint compared to 2020, including an expected 4% benefit from foreign exchange.

Let me quickly remind you of some assumptions in context on the projected COVID-19 vaccine contribution and our collaboration agreement. As referenced earlier, the Pfizer-BioNTech COVID-19 vaccine collaboration construct is a 50-50 gross margin split. Pfizer will book the vast majority of the global collaboration revenue, except for Germany and Turkey, where we receive a profit share from BioNTech and we do not participate in China. We now expect that we can manufacture up to 2.5 billion doses in '21, subject to continuous process improvements, expansion at current facilities and adding new suppliers and contract manufacturers. As of mid-April, we have contracted for approximately 1.6 billion vaccine doses to be delivered in 2021 and still have contracts for potential additional doses under review. Based on the approximately 1.6 billion doses, we are now forecasting approximately $26 billion in COVID-19 vaccine revenue this year. We continue to have 3 pricing tiers for government contracts depending on the relative wealth of nations. Our cost of sales for the COVID-19 vaccine revenue continues to include manufacturing and distribution costs, applicable royalty expense as well as a payment to BioNTech representing the 50% gross profit split. We continue to expect that the adjusted income before tax for the COVID-19 vaccine contribution to be in the high 20s as a percentage of revenue. This margin level also includes the anticipated spending on additional mRNA programs. As I noted earlier, the COVID-19 vaccine is now projected to account for 36% of total revenue for 2021, up from 25% in our initial guidance for the year. Let me add that if we contract for additional delivery of doses during the year, we will provide a guidance update in our subsequent earning releases. If we remove the projected COVID-19 vaccine contribution from both periods, you will see that we slightly increased 2021 revenue range to be between $44.6 billion and $46.6 billion, representing approximately 6% operational revenue growth at the midpoint. In terms of adjusted diluted EPS, we continue to project a range of $2.50 to $2.60, which represents approximately 11% operational growth at the midpoint. These growth rates are all consistent with how we've been publicly positioning the business post the Upjohn separation. You likely saw our announcement that we have maintained our dividend payment for the second quarter at its current level despite Viatris announcing their expected dividend payment. For those continuing to own Viatris shares, this effectively represents an increase in the dividend income, and our Board felt that the strength of our business supported maintaining our dividend. For the foreseeable future, we expect our Board to continue to support annual dividend increases at approximately this year's level. Obviously, we have no say as to what Viatris does with its future dividend. In summary, a tremendous start to 2021. The COVID-19 vaccine continues to benefit millions of people around the world, and the business is on track for anticipated solid top and bottom line growth. We remain focused on advancing our pipeline, supporting in-market brands and looking to deploy capital responsibly, with a focus on initiatives that can solidify our long-term revenue and earnings growth outlook. With that, I'll turn it back to Chuck.

Great. Thanks, Frank and Albert, for your prepared remarks. At this point, operator, let's move to our Q&A session, please.

Congratulations on the quarter. So first question I had for you. What are your thoughts on the slowing vaccination rates in the U.S.? Do you anticipate things to pick up again? And will we reach that level of herd immunity in the U.S. here? And then second question I had was on vaccine sales and how you think about it beyond 2021 and 2022. What gives you confidence that there's going to be a tail here? And how does that tail look relative to the $26 billion that you're going to potentially have this year? And then last question I had for you is just on how you're thinking about FDA concerns around JAK safety.

Thank you very much, Louise. I would like to make some comments about the slowing vaccinations and briefly touch on the revenues for '22/'23. I will ask Mikael Dolsten to provide some additional insights on this as well as on JAK. The U.S. has done an excellent job and has achieved vaccination levels that exceeded expectations. As we vaccinate more individuals, it's natural that those who are hesitant to receive the vaccine will make up a larger portion of the remaining population. Consequently, a decline in vaccination rates is to be expected. However, I believe that introducing vaccinations for younger individuals, particularly following the anticipated approval for ages 11 to 15, will lead to an increase in vaccination rates. Overall, the U.S. is performing well, and efforts should focus on persuading those who are still fearful about the vaccine to take the necessary steps. Looking beyond '22 and '23, we maintain, as we've stated previously, that there will be a need for booster shots. This likely need will persist moving forward, suggesting that annual or regular vaccinations could become common practice. Our belief is grounded in the comprehensive evidence available, rather than solely on recent studies that support this view. The evidence shows we have maintained high efficacy levels above 90% for six months, although there is a slight decline from the initial 95%. There are indications of reduced efficacy over time, as shown by our studies on neutralizing antibodies, which have also declined. This reduction affects both vaccinated individuals and those who have naturally contracted the virus. We also observe that reinfection rates are rising six months post-infection. Currently, our vaccine remains effective against all observed variants, but the decline in neutralizing titers indicates that we need to enhance immunogenicity to sustain efficacy against variants, which is why we are pursuing booster shots. All these developments have led to discussions with governments worldwide regarding procurement agreements for '22, '23, and '24. I will also ask Mikael Dolsten to share his thoughts on the necessity of boosters and repeat vaccinations, along with his comments on JAK.

Yes. Thank you, Albert. I thought you outlined, in an excellent manner, that we have identified a handful of key points related to immunity induced by convalescence after injection of the vaccine that will, over time, as expected, show some decline. Antibodies will show some decline as their half-life is limited. Of course, protection contains other immune mechanisms. When you put all of this in context that SARS-CoV-2 is globally circulating to an extent we have rarely seen or ever seen in our lifetime of a virus, and the inability to control across the globe will, of course, lead to numerous changes in the viral mutation rate. So it just punctuates what Albert said; we need continuously to keep up a very high immune pressure against the virus to stay ahead of the curve. And the best way to do that is with regular boosting. And finally, herd immunity, while we would like to see it established, what you hear from a lot of public health and global health experts is that it will be really difficult on an enlarged continent to establish such a high immunization rate across all ages and to ensure as you immunize one part of the continent that immunity is maintained in another part. So I think we would really need to rely on regular immunization and, of course, other public health measures rather than hoping that herd immunity across the globe can be established. Finally, on the JAK safety, in February 2021, the FDA made it public about our data in 11.33 related to increased risk of serious heart-related problems and certain cancers when compared to another type of medicine, the TNF inhibitors. So these data are clearly not new. FDA, EMA, and other agencies work in dialogue with us to finalize the outcome of this review. On the other hand, I think the JAK class has shown to be an important contribution as an oral alternative for many patients, and you avoid other issues such as drug antibodies with the biologicals. So we continue to wait for the finalization of the outcome of the 11.33 trial. We think each JAK inhibitor is unique and needs to be assessed by itself. And we continue to believe that with proper labeling and given the tremendous experience of Xeljanz since 2012, it will continue to have the potential to be an important medicine.

Thank you for all the work on the vaccine front. I just had a follow-up on the booster question. Do you think that will be uniform across different groups? Or will there be any differences by baseline characteristics such as age in terms of the timing or a need for a boost? And then would you expect FDA and CDC to issue a recommendation on the need for boosters sometime this year? And then my second question for Albert or Frank is just would welcome your perspective on the potential impact of tax rate changes in the U.S. And any thoughts on how that might change your capital allocation strategy and/or views on inversions.

Mikael, why don't you take the question for the boosters?

Yes. I think we cannot, of course, predict what CDC and similar agencies will do. But what seems to be the general public dialogue and which, of course, builds on experience with other viral epidemics, this is, of course, a pandemic, is that you would likely start with those that are most susceptible, older adults, and those with chronic diseases such as cardiovascular, obesity, COPD, asthma, many who are immune-impaired. And of course, that constitutes a very large population. While you may start with those, if we are to really maintain control of the virus, it will be very reasonable to also vaccinate younger groups. Although severe COVID is less common in younger groups, some patients may suffer severely from such infection, and they are at risk of acquiring Long COVID syndrome, which can cause significant impairment of participation in functional life for young individuals as well as old. So all in all, yes, regular boost of the entire population is a clear possibility, prioritizing to start, of course, with many vulnerable from age to chronic diseases, which is a large number of the adult population.

Thank you, Mikael. And Frank, would you like to take the question about the tax?

Sure. Thank you, Albert. So I think it's premature to comment on what impact the proposed tax reform would have on how we view capital allocation and inversions simply because these kinds of proposals typically go through multiple iterations, multiple discussions, multiple negotiations. Obviously, we're staying very close to this, doing all the analytics that you would expect us to do. But I think what's really important is how we think about taxes and tax policy. The 2017 tax reform leveled the playing field for U.S. multinationals against foreign competitors. And that was an enabler, from my perspective, of much of what we've done with capital deployment, particularly in the U.S. We committed to $5 billion of CapEx investment between 2018 and 2022. We committed a few billion of that risk capital in order to develop the COVID vaccine, funding of our U.S. qualified pension plan that we did last year to the tune of over $1 billion. All of those, from my perspective, were enabled by the level-playing field that we now get to compete on against our foreign competitors. And so what we want from tax reform, when all is said and done, is we want that level-playing field to continue so that we have the ability to compete on a level-playing field.

Congratulations on a remarkable quarter and really tremendous progress. Some quick questions. First on pricing, you mentioned the 5% headwind. Could you give us a sense of what that looks like for the rest of the year? Is that something that we should be expecting for the full year or is it just a Q1 phenomenon? And then related to that, Albert, you disclosed your view on the pricing policy and regulatory and legislative update. But is what you described a realistic case or is that the best case? And then a couple of questions for Mikael. Mikael, I've asked you this before, but given what we're seeing in India and in other geographies, is it your view that COVID is going to be a case of convergent evolution or continuous evolution, i.e., are we seeing new mutations beyond E4 and E484K have additional resistance mechanisms to the first generation of vaccines and antibodies? And then just lastly, you mentioned mRNA. You have a maternal RSV vaccine. Are you planning to apply mRNA as a more efficient approach to getting coverage against RSV?

Geoff, a lot of questions, very important. Now let me speak a little bit about the policy of the prices, and then I will ask Frank to comment a little bit on the pricing. And then on the 2 other areas, clearly, Mikael will speak about the resistance and the mRNA. On the pricing reforms, these are our standard positions. But I will try to explain how I feel about the pricing reforms. And I have said it on multiple occasions. We don't think that the status quo is good for anyone. I don't think it's good for the industry. I don't think it's good for the Americans because there is a problem with the current way of the current system. And this is a problem that basically every American is paying for their medicines, and this is unique to medicines, not to other medical interventions, is paying out of pocket like they are uninsured, although they do have insurance. And this is the fundamental thing that needs to change. Because the medicines' contribution to the overall health care is 12%. So by definition, it cannot be the big issue but it is becoming the big issue in the discussion because everybody has to pay this, and many Americans have experienced a significant reduction in their out-of-pocket expenses. So what this change could look like? And for us, a change could take different forms. It could be consistent from different areas, may not be the rebate reform, which I think is one of the systemic issues that we are having with drug pricing, but it could also be that out-of-pocket caps. The fundamental thing is that there will be a cost that the industry, I'm sure, will be willing to take on board as long as all the savings, all the contributions that we are doing right now from this industry will go to the pockets of the American patients. And this is a fundamental difference with what people are discussing right now because we are hearing a lot of suggestions that they want to tax the pharmaceutical companies or tax the insurance companies, but the proceeds will just fall into the black hole of the federal budget, which is not what we want. If our contributions go to the patients, we are sitting down with all the parties trying to do a decent price reform in the manner that the Americans experience the cost when they go to their pharmacy to collect their medicines. So is it realistic or optimistic? I believe it is realistic. I believe that there is room for agreement both with the 2 sides of the aisle and with this administration. And we will continue working on finding this solution. But I repeat, make medicines affordable for the patients and not throw money into the black hole of the federal budget. Now Frank, if you can take the price increase and then Mikael.

Okay. So you've heard Albert and me talk about pricing and that pricing has been a headwind, and we expect it to continue to be a headwind for the foreseeable future. And that's obviously what we saw this quarter, with pricing being a negative 5% on a global basis. I should also mention it was negative 5% in the U.S. Now in terms of our guidance, which is what you asked, Geoffrey, our guidance assumed the pricing decrease, negative impact, I'll call it in the range of low to mid-single digits. So that 5% reduction that we saw this quarter is consistent with what we assumed in our annual guidance.

Thank you, Frank. And by the way, I wanted to add that this minus 5% is the reality of the numbers. I'm sure that many Americans haven't experienced, during this quarter, a 5% reduction in their out-of-pocket costs because it's a system that works in a way that no matter what you do on the top, their price that they have to pay is derived from very different rules. Mikael, can you speak a little bit about the resistant mechanism in the mRNA or RSV?

Yes, thank you. I'll start with mRNA. As you discussed here, Geoffrey, of course, there is tremendous viral amounts across the globe, fueled by the spread in large population areas like India. We do see several different lineages of SARS-CoV-2 established. They, however, seem to share the most critical mutations. Most of the variants have up to 10 mutations, and they can combine in different ways. So far, we believe that our current vaccine is very effective in controlling all known mutations. But as Albert alluded to, we believe it's very important to keep up very high neutralizing antibody levels in addition to the nice T cell immunity. And that's why a possible outcome of this tremendous spread, including India, is to have a regular boost. As the pandemic continues, up to now, mutations have been selected mainly because the virus is trying to spread more quickly. The virus will now face vaccinated immunity in maybe '22, '23 increasingly. So we need to be prepared that there could be new unexpected mutations to come. And that's why Pfizer is leaving no stone untouched and also has variant vaccines developed and could be an alternative later if that scenario would emerge. But right now, it seems like the current vaccine is very effective against all these variants despite each having up to 10 different mutations. On the RSV, well, we had very robust titers with our protein-based RSV vaccine in maternal vaccination, very good tolerability and antibodies passed efficiently through the cord blood. And we are enrolling now well in Phase III. We also have initiated a Phase II CHALLENGE study with RSV that will read out mid of the year, and that could possibly lead to progression swiftly into Phase III. So we are pretty advanced with the protein base; it looks very good. But of course, we have now an mRNA platform that we would like to use for multiple opportunities. We expect to put into the clinic, 2, first in humans, novel vaccines every year for the next 2 years. Certainly, RSV could, in the future, be one alternative, whether it could be a supplement to the protein base in order to add some T cell immunity. These are things we'll continue to explore and then prioritize among the many exciting opportunities for our mRNA platform.

I have two questions. Regarding the DMD gene therapy, is the potency assay issue related to concerns around correlation of biomarkers to motor function efficacy? Or is it simply a technical issue with no bearing on relevance of the endpoints? And second question is a little bit more broad-based. But in the COVID vaccine, Pfizer has built the world's largest global pharmaceutical franchise in 6 months. I imagine that it is creating a substantial stress throughout the organization, similar to the disruption of a major acquisition. What metrics do you monitor to ensure that these stresses are not going to show up in 1 to 3 years or so as, say, subpar product performances, clinical trial failures that otherwise would have been successes and maybe missed M&A that would have otherwise made sense for Pfizer?

Thank you very much, Steve. Mikael, would you like to take the DMD question? Is it a technical issue?

The DMD trial is currently enrolling in various countries, as mentioned by Albert earlier. In each of these locations, we have a set of assays approved by regulatory bodies. Our conversation with the FDA primarily revolves around a technical concern regarding quantification in a specific supportive assay, but we don't see it affecting any of the main assays. We are actively collaborating with the FDA to address this issue. To my knowledge, we were the first to initiate the DMD Phase III trial, which began enrolling well outside of the U.S. late last year. As we approach May, we are six months ahead of anyone else utilizing yield therapy, and no other entities have reported receiving FDA clearance.

Thank you, Mikael. It's true that achieving the success we had with this vaccine required the creativity of our team, along with significant personal sacrifices. Many individuals dedicated countless hours to ensure this was possible, and it is understandably taking a toll on them. While their dedication and passion are commendable, I'm concerned about the risk of burnout among our staff. It's important to note that since 2016, Pfizer has operated with distinct business units, which I helped establish. This structure organizes our efforts into six units, including R&D, commercial, and clinical development. The COVID work primarily took place within one of these six units, focusing mainly on the R&D aspect. Meanwhile, our oncology, disease, and internal medicine units continued managing their regular responsibilities. They faced challenges due to COVID-19 but rose to the occasion, embodying our commitment to putting patients first. The sense of sacrifice seen in our vaccine efforts is mirrored across the other units, with people deeply passionate about their roles and proud of their contributions. Overall, while there has been significant disruption in part of our organization, it has been counterbalanced by a strong sense of pride in our achievements.

Great. And thank you so much for all the efforts around COVID. So a couple of questions that I have. So one, I guess there's obviously some debate around the durability of your vaccine sales and cash flows. But you clearly have a lot more sales and a lot more free cash now than you've probably envisioned a couple of years ago because of the vaccine. So I'm just thinking that you are obviously investing more behind the COVID vaccine and therapeutics. But can you just talk about your priorities from a capital allocation perspective? Now I don't think you mentioned you don't want to do share repurchases. But are there other priorities that you could maybe look to, whether it's bringing in external assets or maybe even doing larger deals, given the extra cash that you now will have? And then maybe a second one, I guess, for Albert, maybe a little bit more of a personal angle here. But I appreciate your comments you made around the COVID crisis in India recently. I'm just wondering if you can provide some clarity on the status of getting your vaccine to the market there. I think you filed back in February, and then there's some questions about maybe doing a trial in India, I think some questions around indemnification around side effects. Can you just clarify where things stand there and what might be reasonable in terms of timing to get the vaccine available to patients there?

Thank you for your question. Regarding the vaccine in India, we submitted our application months ago, using the same documentation we provided to regulatory agencies worldwide. The Indian authorities requested additional studies for approval. We were focused on allocating our resources to address variants and develop vaccines for children and pregnant women, which are areas we've not previously explored. Currently, the Indian government is engaging in productive discussions with us about these concerns, and we are optimistic they will reconsider the requirement for local trials to facilitate vaccine availability. However, it's important to recognize that in the immediate one to two months, people are suffering in hospitals, and introducing a vaccine won't change that situation quickly. Our priority is to ensure the Indian government has sufficient medications for those currently hospitalized. This is why we announced that four of our medications are included in the government's COVID treatment protocols, and we will ensure an adequate supply for all patients in public hospitals within the next 30 days. We are increasing production of these medications in Europe, the U.S., and Asia, and we are enhancing distribution channels to expedite shipment to India due to the urgent need. Regarding capital allocation, our strategy remains focused on the available opportunities rather than on capital availability. We're committed to maintaining a growing dividend as part of our investment strategy. Our investments in research, manufacturing, and capital are all designed to enhance the long-term durability of our growth into the latter half of this decade. You can expect to see several Phase II and Phase III business development deals that will potentially bring new medications in-house during this timeframe. Frank, do you have anything to add?

Yes, Vamil, you're absolutely right. Obviously, the COVID business is generating incremental free cash flow for us, but from my perspective, not material enough to have any major impact on our capital structure. And to Albert's point, the term I would use is we will stay the course in terms of how we deploy our capital. And then Albert obviously potential areas where we would deploy it, right? The dividend, investing in the business, and you saw that with the R&D guidance increase this quarter, and then M&A and M&A really focused on growth in the second half of the decade.

Frank, there was a comment you made back in March which got a lot of attention. And I thought perhaps you could elaborate a bit more on how you're thinking about the durability of COVID revenues and perhaps lay out the sort of the volume and the price element of it beyond 2022. And if you could also perhaps speak to the pricing seen in your Canadian contracts, whether it's consistent in 2023, '24 versus where it was in the '21 contract. And then I had a quick R&D one as well, if I may. I know there's these additional FDA technical requests on the gene therapy assay for DMD. I recall you guys were using ITR in Phase I and then you switched to a transgene assay in Phase III because it was a little more low variability. Is FDA now thinking the variability is higher than they want in the transgene assay as well? I'm just trying to understand what the word 'matrix' means. Is it still just the transgene assay with different methods or are there multiple assays at play now?

Frank?

Thank you, Albert. So on pricing, Umer, I really want to not get into detail on pricing other than obviously, there are certain contracts where we disclosed the prices. In terms of the way I think about this, what we're really focused on now is getting doses to the patients that need doses around the world, so getting people vaccinated. That's been our focus. We're acutely focused on that. You heard in our prepared remarks that we said we can make approximately 2.5 billion doses this year. We can take that up to 3 billion doses next year, and that's what we're really focused on: getting those made, getting them delivered, and getting the vaccines into patients' arms. So that's the focus. On the Canada contract, we didn't discuss pricing on that contract. What we did say was up to 125 million doses in 2022 and 2023, with an option for more doses in 2024. And then in terms of the durability of the franchise, I'm going to try not to repeat what Albert said, but I thought Albert went into a lot of detail on why we believe the COVID revenue franchise has significant durability and why we think we see that as something that's going to take place for the foreseeable future.

Thank you, Frank. Mikael, about the technical question?

Yes. The core assays that you alluded to related to AAV and transient effectiveness are all without any real comments from the FDA, so they're all fine. This is what I call a supportive assay, an adjunct assay that was more related to the colocalization of the DMD protein and discussions on various technologies on how to measure that. And as I said, in Europe, as this was an adjunct assay in other countries, we have cleared and enrolled efficiently and are progressing towards the next step of the trial very well. So it's a very technical issue how to do a detection but not related to the core potency assays. And obviously, we're working to resolve it. But what I understand currently, there is no other potential gene therapy in the U.S. that has cleared yet to Phase III. And we obviously would like to be first, not just ex-U.S. where we've been going for 6 months but within the U.S. and work diligently to resolve this very technical question.

I have a couple of questions. Regarding your mRNA and flu vaccine plans, how will the trial be designed and what is the primary goal? Are you aiming to demonstrate superiority in efficacy or simply achieve equivalent performance to existing vaccines? You mentioned that your vaccine is quadrivalent, so if there is a comparator, it would likely be something like Sanofi's flu block. Additionally, what is the expected timeline for development? I assume it will take longer than the COVID vaccine, potentially a couple of years. Also, on your 5-year guidance, can you clarify your earlier remarks about pricing? What does your 5-year guidance indicate about drug pricing, especially in light of possible drug pricing austerity measures in Europe due to COVID?

Yes. Thank you, Tim. And Mikael, do you want to take the question about the flu?

Yes. With the flu vaccine, given the strong immune response we have seen for our mRNA platform, we certainly hope to be able to show substantial differentiation versus the current flu vaccine. This is, of course, the aspiration we have. Technically, there will be 2 components: one is to look at immune response on antibodies that have certain standards reported related to increase in titer. And we will be able to compare to the current protein-based flu vaccines. And then we're also planning to run a vaccine efficacy study, where we think it’s not just what we hope to be a very potent antibody response but also the T cell response. So I would certainly aspire to have a vaccine that is substantially better than the current vaccine based on the platform by itself but also based on that we are able, so fast, to align the platform with the sequence of the emerging flu strains, while as you may know, many years, the protein base are misaligned, and that's why you get very modest vaccine efficacy, maybe just 50% and similar for immune responses. So given that we saw 95% efficacy against COVID, we think there is a large module for us to improve on the current flu vaccine. On the timing, Albert said we are moving to start human trials in Q3. And we will obviously, early on, generate data on the immunogenicity. And if that continued to go as well as our aspiration, we think we can move very fast with this vaccine and also utilizing the type of approach where you establish a large number of sites in the regions to study in order to enroll very fast. And we will look at various ways to register this vaccine and also how that could coincide with the recommendation by authorities. So while we don't give at this early time an exact date, it is anticipated we will move very fast, may not be as fast as a pandemic development but much faster than the traditional flu development.

Thank you, Mikael. And then, Frank, I know you did answer the pricing, but do you want to say a little bit more about it?

Sure, Albert. And this was more about the 5-year CAGR through 2025. So I think, Tim, the way I think about it is we really look at pricing by geographic region. And we continue to believe it's going to be a headwind by geographic region. What would be examples of that? The U.S. would be one, emerging markets would be one. Developed Europe would be one, just as an example. They all range in, I'll call it, negative pricing increases, and the range is low single digits to high single digits. And obviously, we blend that all together into an overall global rate, and that's what we've assumed in our CAGR assumptions through 2025.

Just a couple on the mRNA vaccines that you're pushing forward. You had been working with BioNTech for your flu vaccine. I just want to confirm that you're using the Pfizer mRNA technology for the flu vaccine that you're moving forward with. And curious as to why you're going with that approach beyond just the economic benefit of using your own tech versus something that you're collaborating with. Is there something different about your mRNA technology, whether it's in the non-COVID portions of the vaccine or the LMP? And then secondly, again on the flu vaccine, what is your ability to formulate it with the COVID vaccine? I'm wondering why you're moving forward at a co-formulated Prevnar 20 plus 162b2 and not looking for the flu vaccine co-formulation.

As regards to flu vaccine, we had an elaboration with BioNTech that goes back to 2018. At the time, we had announced also publicly some of the terms of this agreement. And the developments are based on the work that has been done so far by both companies on the flu. As for the question of co-formulated, we didn't announce a co-formulation with Prevnar right now. We announced co-administration with Prevnar. Clearly, we are looking at options to co-formulate the BioNTech-Pfizer mRNA vaccine against COVID with other vaccines. But this is not what we spoke about today, and we haven't made final decisions on co-formulation. And I think Chuck, we do not have time for another question, right?

That's right, Albert. Just your closing remarks.

Okay. I wanted to thank everyone for joining us today and for your continued engagement with Pfizer. I do think the pandemic has been the ultimate test for Pfizer's and, in truth, the entire pharmaceutical industry's capabilities and credibility. And in my view, we have, thus far, passed with flying colors. The success of our COVID-19 vaccine has led to an important question. If we could do this for COVID-19, why not for other diseases? There are so many people suffering from other serious diseases, and their needs aren't any less urgent. We now see an opportunity to take the lessons learned and new ways of thinking and apply them across our entire portfolio. The speed with which we interact with regulators as well as the continued acceleration of digital solutions such as artificial intelligence, electronic diaries, advanced analytics, and electronic health records are just some of the things we plan to bring to all of our clinical trials so we can continue to move at the speed of science. And now before we end the call, I want to take a moment to extend my thanks and very best wishes to our colleague and good friend of mine, Chuck Triano, who will be retiring at the end of September. Chuck has been interacting with the global investment community for nearly 35 years, including the past 13 years here at Pfizer. And I think all of you would agree that during that time, he has elevated Pfizer's investor relations function to a best-in-class. That's because he values clarity, integrity, and transparency in the way you communicate. And it is because he has a passion for our company and our industry that makes him an outstanding champion for both. The good news is he will be around for at least one more earnings cycle and perhaps another as he has agreed to stay on as an advisor during this transition. Chuck, thank you for being a valued colleague and friend. Pfizer will miss you, but on behalf of all of us, I wish you all the best in the next part of your journey. Thank you, everyone, and have a great rest of your day.