Pfizer Inc (PFE) — Q4 2023 Earnings Call Transcript

Good morning. And welcome to Pfizer's earnings call. I'm Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the fourth quarter and full-year 2023 via press release that is available on our website at pfizer.com. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; and Dave Denton, our CFO. Albert and Dave have some prepared remarks and we will then open the call for questions. Joining for the Q&A session, we will also have Dr. Chris Boshoff, EVP and Chief Oncology Officer; Alexandre de Germay, EVP and Chief International Commercial Officer; Dr. Mikael Dolsten, Chief Scientific Officer and President of R&D; Doug Lankler, EVP and General Counsel; and Aamir Malik, EVP and Chief U.S. Commercial Officer. Before we get started, I wanted to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings which are all available on the IR website on pfizer.com. Forward-looking statements on the call are subject to substantial risks and uncertainties and speak only as of the call's original date. We undertake no obligations to update or revise any of these statements. With that, I will turn the call over to Albert.

Thank you, Francesca. Good morning, everyone, and thank you for joining us. I'm pleased to discuss some of the highlights from the fourth quarter and full-year 2023, and of course, a compelling year we have ahead. I’d like to begin with a few reflections on 2023. As you know, we missed our initial internal projections and Street expectations predominantly related to our COVID products, which affected our stock price performance. Despite this challenging year, there were a few great things that happened in 2023 that may have gotten lost amidst the mixed expectations. First, in 2023, Pfizer impacted the lives of more than 620 million people around the world. We believe there is no other company that can reach as many people and patients as Pfizer. If you multiply this with our brand equity and awareness, it creates a very strong asset for us. Second, despite the decline in revenue from our COVID products, as of the reported results for the first nine months of 2023, we were the number one pharmaceutical company in terms of revenues from pharma-only products, a marked improvement from our fourth position in 2019. Next, 2023 was a record year for FDA approvals with nine new molecular entity approvals for Pfizer and many more approvals for new indications in already approved products, marking a very productive year of pipeline execution for Pfizer. Finally, we closed the Seagen acquisition. In the current regulatory environment, being able to close such a large acquisition demonstrates our ability to successfully engage with regulatory bodies. Our deliberate and strategic efforts throughout 2023 created a strong foundation to support us. We are now focused on maximizing the opportunities that have positioned us for success, and our team is driving confidently as we start 2024. From the advent of penicillin to the development of the COVID-19 vaccine, Pfizer has been at the forefront of medical and pharmaceutical breakthroughs for the past 175 years. This year is our 175th anniversary, which can change patient lives and has changed history. Our strategy to continue to build on our proud history of innovation and commercial excellence is supported by the strength of our unmatched global scale and footprint, spanning commercial, financial, medical, regulatory, manufacturing, and government relations. We have a clear view on how we will deliver operational, commercial, and financial success across our business. Our confidence stems from the opportunity we have to bring additional focus to our business by executing five strategic priorities. I will get into each in more detail, but the five key priorities for Pfizer this year are as follows: First, to achieve world-class oncology leadership; second, to deliver the next wave of pipeline innovation; third, to maximize the performance of our new products; fourth, to expand margins by realigning our cost base; and fifth, to allocate capital to enhance shareholder value. I’m confident that Pfizer is well-positioned to execute and deliver meaningful value for our patients and shareholders. Let's start with our first priority, which is to achieve world-class oncology leadership, which I believe we are in a strong position to do. As a reminder, one in three people will be diagnosed with cancer in their lifetime. Oncology represents one of the largest and fastest-growing therapeutic areas. Completing the acquisition of Seagen doubled our oncology research and resources overnight and meaningfully extended the reach and medical impact of our U.S. commercial and medical footprint, with a range of portfolio expansion opportunities boosted by Seagen's broad and deep pipeline. Seagen's in-line medicines are expected to immediately enhance Pfizer's top-line growth, and our combined portfolio provides the opportunity to lead in genitourinary cancers, be a leader in breast cancer, and deliver at least eight potential blockbuster products by 2030. We look forward to providing more information about our oncology platform at our Pfizer Oncology Innovation Day on February 29. As we build our leadership position, we have multiple potential key oncology catalysts in 2024 that we are acutely focused on. On the commercial side, the PADCEV launch in locally advanced/metastatic bladder cancer, in combination with pembrolizumab and XTANDI launch in nonmetastatic castration-sensitive prostate cancer. We are excited by the strength of the PADCEV EV-302 data and recent FDA approval, as it represents an opportunity to broaden the reach of this potentially practice-changing, platinum-free regimen to even more patients in the frontline metastatic urothelial cancer setting. Essentially, the recent approval doubles the addressable population, which had already doubled this past spring. We are also looking forward to Phase 3 data readouts from Vepdegestrant in second-line HR+ metastatic breast cancer and BRAFTOVI in first-line BRAF colorectal cancer. We also plan to advance our late-stage pipeline with Phase 3 starts of CDK4i in post-CDK4/6 metastatic breast cancer and B6A in non-small cell lung cancer. Building on Pfizer's potential medicines, the pipeline across breast cancer, genitourinary cancer, hematology, and CRC; our CDK4 inhibitor could be a compelling follow-on to IBRANCE. And finally, in the early-stage pipeline, we look forward to initiating first-in-patient studies of four new ADC candidates this year, where we believe we have acquired the expertise to be a leader. Our second priority is to deliver the next wave of pipeline innovation with discovery and development across our therapeutic areas outside of oncology in vaccines, anti-infectives, internal medicine, metabolic diseases, and inflammation and immunology. In 2024, we plan to continue making meaningful investments in R&D. In fact, Pfizer's R&D budget is one of the highest in the industry and supports our robust pipeline. We are pursuing cutting-edge science across modalities and platforms to deliver the next generation of potential breakthroughs. We are also leveraging AI and other digital tools across the value chain to increase speed and success rates, starting with our fourth-generation PCV vaccine candidate, which recently entered the clinic and received FDA Fast Track designation. Building on our deep heritage with PREVNAR, we aim to solidify our leadership in the pneumococcal vaccine space by increasing valency and serotype immunogenicity while maintaining our unique FDA label, which includes both invasive pneumococcal disease and pneumococcal pneumonia in adults. Respiratory vaccine combinations are another area where we are poised to lead, building upon our successful COVID vaccine. With the first-generation standalone mRNA flu vaccine, data demonstrated superior efficacy versus a recommended flu vaccine in 18 to 64-year-olds, but did not meet success criteria for immunogenicity for the B strains. Our second-generation flu vaccine was tested in a Phase 2 COVID/flu combination study for 18 to 64-year-olds and has shown encouraging results in both the A and B strains. This new construct has now moved already into a Phase 3 COVID/flu combination trial. Moving next to GBT-601, our next-generation and potentially best-in-class HbS polymerization inhibitor represents a potential step-wise evolution over Oxbryta for sickle cell disease. Recent data presented at ASH 2023 demonstrated multiple blood parameters approaching normal ranges with treatment, suggesting GBT-601 may have the potential to deliver strong efficacy with the convenience of a once-daily pill. We have reaffirmed our commitment to our emerging cardiometabolic programs, with several early clinical development compounds. On the other end of the weight management spectrum, we have Ponsegromab, our GDF15 neutralizing antibody for cancer cachexia, with Phase 2 data expected later this year. Ponsegromab has the potential to be first-in-class and the first FDA-approved treatment for cancer cachexia, which accounts for 20 to 30% of all cancer deaths. Our third priority is, of course, to maximize the performance of our new products and core franchises through a relentless focus on execution to continue growing our top line. To do this, we are prioritizing and focusing on leveraging data to make changes quickly and adapt. Our Pfizer U.S. Commercial and our Pfizer International Commercial organizations will leverage a more focused, efficient structure to drive executional excellence in their respective markets and expand reach to drive growth over the next several years. To discuss a few examples, we continue to be very enthusiastic about the potential of Nurtec to help the more than one billion people living with migraines worldwide. As access and prescriptions in the U.S. and globally continue to increase, we will continue to focus on direct-to-consumer marketing and reducing barriers to access and affordability for healthcare practitioners and patients. With Oxbryta, we will continue to educate healthcare practitioners and patients on the importance of proactively treating the underlying cause of sickle cell disease by reframing treatment goals to chronic/proactive treatment. With Abrysvo, we are focused on increasing overall RSV market growth and market share by establishing RSV vaccination as a year-round discussion and expanding our retail contracting and offerings. With Elrexfio, we are focused on educating healthcare practitioners in both academic institutions and in the community, awareness building and new patient trialists. Coming off the initial launch of Velsipity, we are focused on helping ensure patient access to this as a first-line advanced therapy oral option. With Litfulo, we continue to accelerate the consideration of advanced systemic treatments for appropriate alopecia areata patients and further unlock access to Litfulo. In addition, of course, we continue to protect and grow our core franchises and key blockbusters, including Prevnar, Vyndaqel, and Eliquis, while exploring further opportunities to advance a number of innovative combination regimens. We believe we are well-positioned to bring our global commercial manufacturing and supply capabilities to accelerate current and future marketed products. We believe all these components support our growth potential through 2024 and drive growth potential into 2025. We plan to provide updates throughout the year on how we are advancing these strategic priorities. And with that, I will turn the call over to Dave, who will discuss our financial performance, our initiatives to realign our cost base, and our capital allocation strategy to enhance shareholder value.

Thank you, Albert, and good morning, everyone. As we enter 2024, we are clearly focused on a small number of critical priorities. These priorities include building a world-class oncology organization, ensuring the next wave of pipeline innovations, maximizing our new product portfolio performance with a more efficient commercial structure, and finally right-sizing our cost base. With that said, I’ll start this morning with our full-year and fourth-quarter results, then I’ll touch on our capital allocation priorities. I'll finish this morning with a few comments on our 2024 guidance and the near-term expectations that set this year as a foundational year to drive our growth potential in the latter half of the decade. For the full year 2023, we recorded revenues of $58.5 billion, achieving 7% operational growth, solidly in line with our expectations when excluding contributions from both Comirnaty and Paxlovid. The significant sales decline in our COVID products, including a $3.5 billion revenue reversal for Paxlovid, was the primary driver of an overall 41% operational decrease year-over-year. With the expectation that Seagen will be a substantial growth contributor in 2024 and beyond, our full-year and fourth-quarter results include approximately $120 million in Seagen product revenue after the close of the acquisition on December 14. On the bottom line, we reported full-year 2023 diluted EPS of $0.37 a share, a 93% year-over-year decline, and adjusted diluted earnings per share of $1.84, down 72% versus year-over-year. This decline is primarily due to a significant decrease in sales for both Comirnaty and Paxlovid; the impact of the $3.5 billion revenue reversal for Paxlovid revenues in the fourth quarter related to an expected return of an estimated 6.5 million unused EUA-labeled treatment courses from the U.S. government; and finally a non-cash inventory write-off and other charges of $5.6 billion recorded in the third quarter for Paxlovid and to a lesser extent Comirnaty. Now turning to the quarter, I’d like to highlight that we delivered a solid 8% year-over-year operational revenue growth, again, excluding Comirnaty and Paxlovid. Contributing to this strong performance were our newly approved RSV vaccine, as well as Vyndaqel and Eliquis; partially offset by lower revenues for Ibrance and the Prevnar Family. However, our Q4 results, both top and bottom-line, continued to be significantly and negatively impacted by our COVID products on a year-on-year basis. Revenues declined 42% operationally, with the results significantly impacted by both Comirnaty and Paxlovid sales. Adjusted cost of sales as a percentage of revenues increased by 12 percentage points, driven primarily by the $3.5 billion non-cash Paxlovid revenue reversal and, to a much lesser extent, unfavorable changes in sales mix. Overall, our adjusted operating expenses declined 10% compared to Q4 of last year. Adjusted SI&A expenses increased 1% operationally in the quarter, primarily driven by the timing of marketing and promotional activities, including those related to recently launched and acquired products. And consistent with our strategy, we have been focused on re-prioritizing our R&D spending to enhance overall returns. Adjusted R&D expenses decreased 24% operationally, driven primarily by lower spending across both vaccine programs and certain acquired assets, as well as lower compensation-related expenses. Both our reported diluted loss per share of $0.60 and our adjusted diluted earnings per share of $0.10 for the quarter were negatively impacted by the $3.5 billion Paxlovid revenue reversal, which dampened EPS by approximately $0.54. Continued declines in both Comirnaty and Paxlovid sales also negatively affected our performance in the quarter. Foreign exchange movements had an immaterial impact compared to last year's fourth quarter. As we are increasingly focused on prioritizing our investments to drive forward-looking growth, our GAAP results include a $1.4 billion intangible asset impairment charge associated with etrasimod, based on changes in development plans for additional indications and overall revenue expectations. I will point out that this product is still projected to contribute over $1 billion in peak annual sales. Additionally, we recorded a nearly $1 billion intangible asset impairment for Prevnar 13, reflecting a transition to vaccines with higher serotype coverage. As discussed in prior quarters, our capital allocation strategy is designed to enhance shareholder value and is based on three core pillars. First is growing our dividend. Second is reinvesting in the business. And finally is making share repurchases after de-levering our balance sheet. For 2023, we returned $9.2 billion to shareholders via our quarterly dividend, we have invested $10.7 billion in internal R&D, and finally, we have invested approximately $44 billion in completed business development transactions, net of cash acquired, essentially all for the acquisition of Seagen. Our expectation is to maintain and grow our dividend while de-levering our capital structure, with a gross leverage target of 3.25x and a goal to preserve our credit rating and access to Tier 1 commercial paper. Upon achieving our de-levering goals, we anticipate returning to a more balanced capital allocation strategy, inclusive of share repurchases. Now given that we issued our full-year 2024 revenue and adjusted diluted EPS guidance on December 13, let me just hit a few of the highlights. We expect total company full-year '24 revenues to be in the range of $58.5 billion to $61.5 billion, which reflects our expectation of strong contributions across our product portfolio. Importantly, excluding Comirnaty and Paxlovid, we anticipate operational revenue growth of 8%-10%. We remain confident on delivering at least $4 billion of net savings from our cost realignment program by the end of the year. We believe right-sizing the cost base will put us on a strong footing towards margin expansion and increased operational efficiency moving forward. We expect adjusted diluted earnings per share to be in the range of $2.05 to $2.25 a share for the full year 2024, and this range is inclusive of an anticipated $0.40 of earnings dilution from the Seagen acquisition, with the vast majority of this dilution resulting from the financing costs associated with the deal. Cycling into 2024, we have significantly invested in our business to fuel our longer-term growth, and the foundation is set to deliver on our commitments to enhance long-term shareholder value. We are acutely focused on driving near-term performance while solidifying our growth expectations for the back half of the decade. And with that, I'd like to turn it back over to Albert to begin our Q&A session.

Thank you. With that, let's start the Q&A session. Operator, please assemble the queue.

So maybe I'm stupid on this question, but if I'm doing your math for your guidance of margins in low-70s for fiscal year '24. By my math, the margins for other biopharma would have to drop to about 60% in order to balance out the other margins. Can you just help me understand your guidance and triangulate that with your top-line and bottom-line guidance and triangulating that with your margin guidance?

This is Dave. Correct. Our guidance for gross margin, although we don't provide it specifically, we give some color around the fact that it's approximately 70%. Obviously, our focus going forward is to improve our margin rate and, more importantly, improve our operating margin rate to the bottom line. As we look here at 2024, there are a few things that have compressed our margin rate. First, as COVID has declined year-over-year, that has served to deleverage, if you will, the P&L as COVID took up and covered some fixed overhead. But importantly, what’s happening is we are in-sourcing products that we've recently acquired. That in-sourcing requires time before we get up to peak yield and performance, so that in the short term dampens gross margin rate, but has a trajectory to improve gross margin rate over time. And then secondly, I will say that over the last several years, we have absorbed some amount of inflation within our cost of goods sold. That is an area of opportunity for us as we think about improving performance longer term. So I hope that gives you some color.

Maybe another kind of finance question here. Certainly, R&D in 4Q was meaningfully below kind of where you guys had set the guide there. How should we think about that? Does it just reflect sort of faster cost cutting? Is it just more an artifact of the later integration of SGen? And clearly, you're reaffirming your guide, but just maybe if you can just sort of check that box for us, that would be helpful.

Sure. Probably not much to read into that. Obviously, R&D came in a little favorable compared to our expectations previously. Part of this is the fact that we are very focused on realigning our cost base, so consistent with the program. And then secondly, there probably is some timing that's dampening R&D in the fourth quarter that will slide into 2024 and into 2025. So there is some timing implications to that performance level. But I think importantly, back to my prepared remarks, our focus is on delivering net savings of $4 billion. If you look through the end of 2023, about half of that we've achieved already. We're now focused on achieving the additional $2 billion or so as we cycle into 2024, and all eyes are on that objective.

Thank you, Dave. We have high confidence in the number that we gave.

Sorry, I was muted. Wanted to ask you on your Prevnar franchise. First of all, for the fourth-generation PCV, could you give more color on how it compares in contrast with Prevnar 20? And then just on the Prevnar order timing issue, was that U.S. or ex U.S.?

Aamir, why don't you take the Prevnar question? And then maybe Alexandre, you can add a little bit of color on the situation in the U.S. So what is the situation in Prevnar with the orders?

Yes. So Louise, regarding Prevnar, with the pediatric business, we often see some lumpiness in quarterly revenues, given the timing and impact of CDC orders, so it's difficult to map that all out quarter by quarter. So you should expect that on the pediatric business. But otherwise, we're very happy with how our launch is progressing and the growth momentum that we see there. On the adult business, I think it's different in the sense that we have a 96% market share that we closed the adult business with at the end of the year. But it's really important to keep in mind that we are operating in a market where the patient pool is steadily decreasing. There was a big catch-up opportunity versus the prior recommendation, and we've worked through that catch-up opportunity already. So the remaining patients are generally those that are aging into the 65-plus population, as well as those with underlying medical conditions, and those are harder to activate patients. So we expect that business to continue to face that smaller patient population going forward. Also, we expect competition with V116 emerging that will make the adult market more competitive, but we see a lot of growth potential in the pediatric market.

Thank you. Alexandre, how was the Prevnar situation in the last quarter or in the year in international markets?

Yes. Louise, good question. As you know, the majority of our ex-U.S. business is driven by tender. We book the sales when we ship the product; it doesn't reflect utilization. The government schedules their campaigns in their respective markets. The reality is that we continue to have an IP exclusivity in 130 markets around the world. At the same time, we continue to progress both on the pediatric, as you saw last week, the CHMP positive opinion, and now we're going to go into final approval and then vaccine technical committees and pricing in all those markets, which will take a bit of time. In addition, we see some positive traction on the adult franchise, where we have launched in over 30 markets. We see very good developments with the recommendations of the Vaccine Technical Committee. To give you an example, we used to have very limited access to Prevnar 13 in countries like Germany, France, and the UK. We just received a recommendation from Germany's VTC that actually recommended usage of Prevnar 20 in older adults over 60, as well as at-risk populations from 18 to 59, which we believe we have a significant growth opportunity in increasing vaccination in the adult population outside the U.S.

And Mikael, to conclude what about the fourth-generation Prevnar?

Yes, I'm very pleased that the fourth generation has entered clinical studies. It has a Fast Track designation from the U.S. FDA, indicating a unique product offering. It includes some of the new technology we have developed that gives us a really cutting-edge toolbox, whether it's chemistry carriers or reformulations. It relies on the unique Pfizer platform to provide potential prevention of both invasive disease, which is the smaller disease burden, and pneumococcal disease, which causes more than 150,000 hospitalizations. To the best of my knowledge, we are the only one that can address both of them. So we feel very good about that entry.

Thank you, Mikael. So to summarize the Prevnar situation, which I know is on the minds of all, let's start with the commercial front. In the U.S., clearly, the adult opportunity, we have taken the cream basically of the catch-up opportunity. This is happening once you are getting a recommendation from the CDC for a catch-up. This market, the pool of patients has been largely exhausted. We already have 96% market share in that. So this is not a market, the adult now, that we expect to continuously grow in the U.S. Pediatric is a very different story because our market share is now growing, and we have indications that will continue to grow strongly. So we expect in the U.S. the Prevnar situation to be a strong growth story in pediatrics. Internationally, we expect to see growth because the products have just launched, and the recommendations are following. There is a delay in international which is higher than usual in the U.S. So we expect to see growth in adult and pediatrics. I want to reemphasize that we have basically exclusivity of Prevnar 13 in more than 100 countries, 113 countries in tenders. We plan to convert that now to 20. On the fourth generation, we are moving full speed. We believe our expertise will allow us to build a polyvalent vaccine that will really compete very nicely as a fourth generation and do that successfully and quickly. So that's the story and let's move to the next question, please.

Two, please. So in your prepared remarks, you noted you took a $1.4 billion impairment charge associated with etrasimod. Can you add more color here? What prompted that reevaluation? Any feedback on how that launch has gone? Secondly, on Abrysvo, can you give us some color on how your contracting has evolved in '24 versus '23? Based on that, what's your market share expectation for this year versus the 35% last year?

Thank you very much. Why don't you take the impairment question and then I will move to commercial?

Yes. So on etrasimod, keep in mind that this product is still anticipated to be over $1 billion in peak sales. As you know, there are multiple indications attributed to this medicine. Financially, as you look at that medication, there were additional indications that met the financial criteria for an impairment, which we took in the quarter. Clinically, there's still some work that will be ongoing in support of the asset. So with that...

Thank you very much. So Aamir, maybe etrasimod commercially, how is the launch going, and what about Abrysvo?

Sure. So I'll start with etrasimod or VELSIPITY, as we call it. Regarding the product value proposition, we think this is a very promising oral option for moderate to severe UC patients. It has strong efficacy that patients and physicians we've exposed this to have demonstrated they want to transition from conventional therapy to advanced therapy. It gives them an option to maintain a once-a-day oral routine, which many are already on instead of beginning with an injection or infusion. About 80% of those patients that haven't progressed to an advanced therapy prefer an oral option, but only about 10% of those patients actually get one. So there's a clear need here that VELSIPITY can help us fit. The benefit-risk profile for VELSIPITY is very strong. So we received approval at the end of last year. We've invested efforts in building HCP and patient awareness on the label and on the value proposition. But I just want to remind you that with any immuno-inflammatory product, it takes time to get broad national access. That's where our focus is right now, ensuring that we secure VELSIPITY access as a first-line advanced therapy oral option, and that's going to take some time to put in place. When we have that in place, we see upside momentum from the launch.

What about Abrysvo?

On Abrysvo, I'll comment briefly on the adult and then on the maternal. On the adult vaccine, the market was clearly ahead of everyone's expectations and not limited by shared clinical decision-making versus a routine recommendation. We would like to do better than the 30-some percent share that you referred to as well. We are very focused going forward on retail contracting for the '24, '25 season. I will also mention that we are doing that with thoughtfulness to ensure that we secure a profitable share in those contracts and differentiate using our maternal indication. We also see opportunities in the non-retail setting, where we have strong share. We're going to focus on new opportunities currently studying with Abrysvo, adults aged 18 and older with underlying medical conditions, as well as a new packing presentation to better fit our customer needs. We see momentum there. On the maternal side, we're only a few months in, but we're encouraged by what we're seeing as the first maternal vaccine to prevent infants from birth to six months when they are most vulnerable. More than 65% of women prefer to get the maternal vaccine versus having their infant immunized with a monoclonal antibody. We think that the label provides us the opportunity to grow that segment as well.

Two for me. I guess the first one is just Comirnaty rest of world was ahead of consensus expectations this quarter. Just wondering if there were any one-time benefits in that number, if that's a fair go-forward sales level to think about through 2026, given the existing EU contract? And the second one is, I noticed that Danuglipron wasn't mentioned in the PR or the prepared remarks. Just wondering if that once-daily PK trial is completed yet and what the next steps are there?

Thank you very much. Maybe very quickly on Danuglipron, we didn't mention it because we don't have anything to say more. So that's the only thing. There is a program, which is composed of a lot of experiments that we are doing now. In terms of moving it to once-a-day, we will speak only when we have data. We don't want to become the focus again of another earnings call. That being said, I'll move it to Alexandre to discuss the dynamics of Comirnaty in the rest of the world outside the U.S.

There are several elements playing out on the Comirnaty franchise. First, what we see is restrictions on vaccination guidelines, right? So versus the previous years, we see that the guidelines are really focusing on the older population as well as the at-risk population. As you know, we already signed several contracts with the European Commission, Canada, the UK, and Australia. Following the approval in August last year, we started executing on our contract with the European countries. Some countries advanced their orders in 2024 into 2023 so they could execute their activation campaign properly. The other trend is we don't see major vaccination uptakes in the future year. We think that what we have seen in the 2023, 2024 campaign is the type of acceleration we will see ahead, which will be carried over the next few years. The only area with potential future growth in terms of vaccination uptake is if we can increase our co-administration with the flu vaccines, where in all our key markets, the rate of vaccination in flu is actually higher than it is for Comirnaty. We believe there's potentially here an opportunity. The last point is that Comirnaty's sales pattern is evolving towards a seasonal pattern. You saw you have a very strong Q4, similar to what you expect in flu vaccination type of markets. That’s what we also expect in 2024. As I was reading some of the models in the financial community, I think there is some confusion that we will have higher Q1 and Q2, which I believe will be more towards the second part of the year, but of course, in line with the guidance.

I was looking at SEC filings from Cerevel and they disclosed that Pfizer was open to putting out a bid on Cerevel after Phase 3 data, which would have been in 2024. Meaning I also noticed that you were saying you're not open to a buyback in 2024 and deleveraging remains a top priority. Just want to balance those two, especially in the context of where the stock stands.

Look, I will ask Dave to speak about it. The fact that we are looking at everything and engaging doesn't mean that that's our obligation. We are doing all the work, but it doesn't mean that our intention is to deviate from the capital allocation strategy that we have just articulated. Our number one priority is our dividend and growing it. Then it's a year of execution. We try to delever, as David said. Once we bring our leverage to the levels that we are aspiring, we will also start moving into share buybacks and, of course, M&A. While for '24, we will see everything in existence because we never say never to business development opportunities that could come, our strategy is that you will not see anything major in business development in terms of dollars.

You said it well. You are correct.

Thank you very much. You are a good teacher. Thank you. And the other question, Umer? I think that was it, right?

Maybe for Aamir. So Eliquis is the biggest drug on the initial list of 10 drugs for IRA. CMS has until February 1 to provide you the initial proposed negotiated price. So two questions here. Can you confirm you haven't already received that initial proposal yet? And second question, can we expect that at some point between now and September 1, which is the deadline they have to make the final price public, that you'll give some investors some sort of directional information on how those discussions are going? Are we going to be kind of in the dark until September 1?

So Tim, as you can appreciate, this whole price-setting authority in Medicare, this is new, and pharma companies are obviously beginning to understand this process of the federal government. The rules are complicated, so we’re wrapping our minds around it. Our alliance partner, BMS, is leading engagement with CMS in the official process to determine the price for Eliquis in Part D that will begin on January 1, 2026. Also, as I’m sure you can appreciate, we’re not going to comment on an ongoing price-setting process and negotiation.

Yes, it’s very difficult to comment on these things because they are ongoing. It would be inappropriate and could complicate things. I understand there's a need for people to understand because that’s an important product. We will try as soon as possible and practically to provide the level of details that we are all looking for.

A couple of questions, please. First to Aamir, under your new leadership and commercial focus, what key products would you guide us to of recent launches that we should look for in terms of acceleration of rollout trajectory? And it doesn't have to be recently launched, established ones as well. Then second to Mikael, could you share more information about your next-generation PCV vaccine, specifically how many serotypes? I'm assuming that given it's a new technology, you lose the ability to grandfather the pneumonia claim from the CAPiTA trial into the profile as it matures. If you could confirm, that would be great.

Thank you very much, Andrew. Your assumption, I don't think it is correct, but Mikael will answer that. Let's first go to Aamir to give us a view on '24 priorities for commercial execution in the U.S.

Yes. So Andrew, I'll take a step back and start by saying I've been very excited about this role and this opportunity, also to do it with the team we've built, which is a mix of seasoned Pfizer leaders and experienced leaders from outside of Pfizer. My focus and we can talk about specific products; we've touched on many of them already. But my overall focus is on execution excellence. In our primary care and specialty care portfolio, we have many great brands. We have some enduring franchises like Vyndaqel, Eliquis, and Prevnar. I spent quite a bit of time talking about that. Our focus is to defend and grow where we can, and we do see opportunities. We also acknowledge that some brands have great value propositions but are in highly competitive categories with entrenched competitors. In those situations, my focus is principally to prioritize actions that can grow each of the brands. In Aamir’s leadership role, it is organizational focus on both blocking and tackling, including contracting. When we look at our main resources, we have our field force, advertising and promotion dollars, and medical capabilities to prioritizing where we put those. That is what I'm focused on with my management team. We see opportunities to continue with core franchises and some recent launches like Abrysvo, Nurtec, Litfulo, and Sabinko.

Thank you, Aamir. Andrew, let me take the liberty to ask also the other commercial leaders to comment a little bit on their priorities because that will give you a better sense of the whole picture. Alexandre, in international, as you are taking over, what are your key priorities?

Thanks for the question, Albert, and the opportunity to share my priorities. My main focus is really to generate material growth with improved return on investment. This is my mantra. How are we going to do that? My top four markets, China, Japan, Germany, and France, represent 40% of our international division. Those markets will report directly to me for resource allocation and plan support to generate the most growth. Our top 15 countries represent 70% of our total international division; thus, the focus for me is clear. In each market, we select drivers of growth in-line and new products with material impact and improved returns. For instance, last week, in Japan, we discussed Vyndaqel, where the diagnosis rate is half that of the U.S. and France. We reviewed a plan to catch those increased diagnosis rates. I’ll also travel to Germany next week to review the Eliquis plan. We plan to do the same for new products, like LORBRENA in China, where lung cancer affects a large proportion of the population. The proportion of lung cancer that could benefit from LORBRENA within the worldwide community is about 1.7%, but in China, it’s actually 7%. We see a huge opportunity and are developing a plan to get LORBRENA quickly to those patients that could benefit.

And then maybe, Chris, also on the commercial front, how do you see oncology evolving in the U.S.?

Thank you, Andrew, Albert. Our biggest priority is obviously continuity of the business. We've done a lot of work during the last nine months during integration planning. We don't want to miss a peak, and it's now moving towards flawless execution with immediate priorities, obviously, the PADCEV launch for advanced/metastatic bladder cancer from the EV-302 study, the launch of XTANDI in non-metastatic castration-sensitive prostate cancer from the EMBARK trial, and the early launch and focus on access and awareness during 2024 for Abrysvo in late-line multiple myeloma. For TALZENNA, up to 25% of patients with metastatic castration-resistant prostate cancer would be eligible in the U.S. from the indication.

Thank you, Chris. Let's go to Mikael Dolsten, if you can make some comments on the next generation as much as you can share about sales.

We have a strong position with good momentum in the PCB conjugate. As Andrew mentioned, we've gotten positive recommendations for PCB 20 in Europe. We’re building on that unique platform, and we can grandfather unique claims for the higher segment for pneumococcal pneumonia. It's a major burden resulting in approximately 150,000 U.S. hospitalizations. To the best of my knowledge, the Pfizer platform with a new fourth generation, as was with the third generation, will be the only one that can cover these claims. The new generation will contain more serotypes, which applies to adults and potentially to pediatric populations; it includes improvements on existing serotypes for increased coverage compared to PCV20. I do think we will expand our serotype coverage while maintaining existing key characteristics that are not occurring with other products. This offers unique differentiation, so I feel very good about the fourth-generation progress.

Thank you, Mikael.

Albert, the oncology franchise following Seagen, I suspect, will probably be one of your bigger growth drivers for Pfizer going forward. The question is, is there an intermediate or long-term target as a percent of revenue that you're looking to achieve for this segment? Are there technologies beyond ADC that you think could be additive to the pipeline?

Yes. Very general, then I will ask Chris to comment a little bit on the technologies we are focusing on. I can't say how much oncology will contribute. But clearly, we have given expectations about Seagen, and we say that we expect it to be at $10 billion by year 2030 from the $3.1 billion we gave guidance for 2024. We feel very good about the $10 billion. The more data coming, when we gave the $10 billion, we were not aware of some of the readouts that followed that projection. So we feel very good about that. The Pfizer pipeline in oncology, I think, was also among the strongest in our therapeutic areas. The combination gives us a lot of strength. But Chris, why don't you comment a little bit about the R&D evolution of oncology and the platforms you are going to base your strategies on?

With the modalities we want to focus on now, we see we have significant strength and capabilities, including with medicinal chemistry, our protein engineering, and our strength in cancer biology. We therefore want to focus on small molecules, especially from our La Joya site, bispecifics from both La Joya and the new Seattle site, and ADCs in Seattle. So small molecules, biologics – as you know, we do have an interest also in allogeneic CAR T cells with the formation of Allogene, a company we still follow and have significant interest in. We're focused on these three modalities where we see significant opportunities also for combinations, for example, doing small molecules and ADCs, but also potentially in the future between ADCs and bispecifics.

Maybe a question on Nurtec, the trends in market share as well as pricing. Just wanted to make sure that is there a significant price delta between Nurtec price versus the competitor price, I mean, the discounts that they are offering, given that your competitor has multiple offerings in the headache market? If there is a delta, do you expect this to grow or decline over 2024 on pricing?

Thank you, Mohit, very much. Aamir, about Nurtec and in general, the migraine franchise.

So Mohit, thanks for the question. We were encouraged by Q4 for Nurtec, and I'll also include some comments on ZAVZPRET as part of my response. We were up more than 30% versus the prior year and over 20% compared to the prior quarter. There are a few things that are encouraging. Nurtec continues to be the number one prescribed CGRP, so we have leading TRx volume and share. Interestingly, more than 90% of new prescribers in the category, many of whom are primary care physicians, are prescribing Nurtec. Our pills per Rx have steadily risen over the last several quarters, so we continue to see opportunity. There are key things to keep in mind. One is that there is a lot of unmet need. Albert referred to it in his written remarks. A lot of patients remain undiagnosed, and very few get Rx therapy. Oral CGRPs account for less than 20% of the Rx market. As you point out, this is a very competitive category with Qulipta and Ubrelvy. I won't specifically comment on their pricing strategies versus ours, as GTMs play a role in all of it. Our focus for Nurtec is to be sharper and more competitive in our patient engagement and activation. Two, we have an opportunity with our field force to focus on the most relevant CGRP writers, as I said, especially PCPs. PCPs write two-thirds of triptans, but only about a third of CGRPs, so there's an opportunity there. Patient access and experience also provide an opportunity to reduce friction. I will also mention ZAVZPRET because with the intranasal option, we think we can have a nice complement to an oral for rapid pain relief. There's also unmet need for patients that face nausea and vomiting from the use of an oral. We want to continue investing in our Nurtec and ZAVZPRET franchise.

Two questions. First, on Danuglipron, I know Pfizer doesn't want to provide an update. But clearly, the company has greater insight than we do into how the once-daily version is performing in the Phase I PK trial. So I'd like to ask how you would characterize that performance so far? In the absence of any visibility, it's hard for us to be confident in the outlook for this program. The second question is a new weight loss agent was added to Phase I, designated 6016. Can you tell us what the mechanism is, please?

Yes. Steve, I'm going to disappoint you because you are asking things that we have said we are not willing to disclose at this stage for multiple reasons. Clearly, on Danu, we have more information than is normal with everything that we are doing because we're having a very complicated, as I said, multiple experiments plan right now. But we won't comment on that at this stage. Regarding the new weight loss molecule, we have also said we will not disclose the mechanism of action for the same reasons. First of all, it's too early to comment. We don't want to give competition any advantage. Sorry to disappoint you, but there is not much to offer at this stage. Hopefully, as we said, mid-year we expect to have more information on that.

Thanks for all the updates. So I have two questions. First is for Dave. Could you please discuss the '24 gross margin in some detail? I think on the last call, you had discussed potentially a low 70% gross margin. If you can comment on that in more detail, that would be helpful. The second question is for Mikael. If Danuglipron once-daily does have the profile you're looking for, would the company then conduct a Phase 2A dose-ranging study to assess the efficacy and tolerability to design a dose to advance Phase 2B or Phase 3?

Thanks, Dave. Very quickly, Mikael, how to resolve Danu and then we'll go to Dave.

Yes, you heard Albert say that we are running several clinical experiments to gather insight on that molecule and we have a second lift. Pfizer has always been open to consider different types of clinical study design. In general, we tend to move directly into a Phase 3 when the data supports it, assuming a large safety database. But we look at each program individually. So when we have all the data, we will be able to share with you.

Yes. Let's go to the gross margin, where we can serve a little bit more information.

So David, this is Dave, and I'll be very brief here. Obviously, we've indicated our '24 gross margin expectations are in the low 70s as we discussed previously. As you know, as we cycle into '24, there are a few things happening, as I indicated earlier. One is, as COVID declines, we're kind of deleveraging since COVID absorbed a lot of fixed overhead. So that's compressing gross margins. Secondly, we’re in the process of in-sourcing many of the products we acquired over the last couple of years. That in-sourcing has a short-term effect on gross margin but gives us an opportunity to improve margins as yields improve over time. Finally, we've absorbed inflation within our cost of goods sold, and that's an opportunity for us to take out over the next several periods. So, again, we expect that the low 70s for 2024 is our expectation.

And David, let me add a little more color. The Comirnaty and Paxlovid are big products but they are manufactured in the same facilities, however, they are separate facilities, so they are not affecting the margins of the other products. The margins were absorbing overhead when producing those products. As we are reducing our expectations for COVID to realistic targets, we maintain our capacity to produce more if demand is present. So far, we maintain that capacity.

So we expect to see improvement over time as conditions align.

And as David mentioned, we have a disproportionate amount of new loans. These loans are costly when building infrastructure or developing something new. But the infrastructure is set for future products. Revenues begin low but will increase. As the infrastructure matures, we expect revenues to grow as well. This is an area we are actively looking to improve.

And maybe just for Dave and Albert, just building on the mid- to longer-term margin piece of the equation. It sounds like we should think about margin recovery as a gradual process versus a snapback? Is that fair? The bigger picture question is just how do we think about reasonable longer-term margins, maybe not giving specific timelines, but can we think about mid- to high-30% operating margins as still a reasonable target for Pfizer? Or do we need to rethink where margins can go over time?

No, I think you're absolutely correct. Mid- to high-30s is a reasonable target for us, with a slight caveat that Comirnaty has a shared gross margin level with our partner, so that’s dampening to gross margins and operating profit. Generally speaking, you can think about this as a gradual and steady improvement story over the next several periods.

On the medium-term margin profile. Thank you for the color you've provided. If you think about the growth aspirations you have, does that require you to sacrifice some of the margins? So if you were to say, at the top end of your growth profile, would we be looking at mid-30s gross margin or lower? What is the balance there? The second question, you briefly touched on your capital allocation priorities earlier. Obviously, cost-cutting and deleveraging is a priority for 2024. In the medium term, which therapy areas would you deploy more capital to after the 2024 deleveraging exercise is done?

David, why don't you take that?

Yes. On the margin discussion, obviously, we have invested substantially in our business over the past couple of years. The investment phase is largely behind us. We will invest once again to improve performance; however, the big dollars have been invested. It's an execution story from now on, focusing on improving performance. Generally, the higher the revenue, the better performance as we’re able to leverage fixed costs. The higher those revenue targets and achievements happen, the better improvement you should expect regarding margins. For capital allocation, as stated, we are focused on executing our plan to support our dividend growth over time while delevering as we integrate assets. Afterward, we will prioritize our investments in oncology, number one, while also looking at vaccines, metabolic diseases, immune inflammation, and antivirals.

After oncology, the second area we are emphasizing is vaccines, along with metabolic diseases and immuno-inflammation. We are also committed to our antiviral programs.

Just a couple of pipeline questions for me, please. Firstly, on RSV. Can we expect you to announce the date for Abrysvo following the third season in Q2? On the two Phase 3 starts you've highlighted today, B6A in lung and CDK4 in breast, when can we expect Phase 3 data readouts for these two products?

Yes. Yes, I got it. Thank you. Why don't you take that, Mikael on the Abrysvo? Then, Chris.

We continue to accumulate important RSV data and the expansion of how this important vaccine can be used. You should expect that in the first half of the year, likely Q2, we will share more from our clinical trials, including the full second season, but also expansion to traditional age groups. As you can see on clintrial.gov, we have active trials that will address high-risk groups across a large age span.

Thank you, Mikael. And then, Chris?

The immediate readouts for this year will be the VERITAC-2 study in second-line hormone receptor-positive metastatic breast cancer and also from the BREAKWATER study in first-line BRAF colorectal cancer. Both sets of results should be anticipated for the second half of 2024. The new study starting right now is CDK4, B6A, and Dasitumab, as well as ECH2, and those will appear in clinicaltrials.gov with projected completion dates beyond 2025 and 2026.

Two questions, if I may. Aamir, with your prior role, you had mentioned a $25 billion in revenues by 2030 that the company was looking to deliver based on M&A. We have the impairment with Arena. Is there an update for that? Now that you're in the role of U.S. Chief Commercial Officer, non-oncology, non-COVID, what would be on your wish list in terms of where you feel an opportunity to expand those revenues potentially through business development that could work to hit that $25 billion target by 2030? Secondly, as M&A activity across the industry continues, investors pay attention to what's going on with the FTC. Having passed through this gauntlet with Seagen last year, is there anything you can comment about to help us think about how regulators view the M&A environment regarding size of deal or any other dimension worth noting from your experience in '23?

Thank you very much. Aamir, why don't you take the question?

There's a lot in what you asked. Firstly, on the $25 billion goal, I'll remind you that we guided to $20 billion for what we plan on achieving by 2030 based on the deals we've completed. The $25 billion was a 2030 goal, so there's lots of time to reach that goal consistent with our capital allocation priorities. Regarding a wish list, honestly, every company has one, but my focus is on delivering value from our launches and the deals we've done. That’s where my focus is now. On the FTC, it's inappropriate for us to comment on their intentions. However, we feel good about how we operated with all regulators to successfully get our deals done.

Fair point on the Prevnar comments with the impairment charge and kind of the moving parts between adult, pediatric, and international. Consensus had modest top-line growth over the next few years for the entire franchise. Is that a reasonable expectation for investors, given the increased competition from Merck and shrinking U.S. pool? Do you have an internal view on what the ACIP recommendation will be regarding Prevnar and VV116?

Aamir, why don’t you take that question on Prevnar expectations? We don’t comment on the Street's expectations, right? We gave a very high-level trajectory on how we view this market. In the U.S., the adult opportunity is largely exhausted; we have 96% market share in adults. This is not a market segment we expect to continue to grow in the U.S. Competition with Merck is coming, so this is not a big growth area for us. The pediatric opportunities are very different because it's a cohort of newborns every year that offers significant growth potential, and that's how we should see it. So there is nothing much to add.

Two questions from me. One, when you think about the additional $25 billion in revenues by 2030, now that Seagen's part of this business, where are we in getting to that metric? Second question is really on Oxbryta on sickle cell disease. When you bought the asset, you noted that you plan to speed up the distribution of the drug to parts of the world most impacted by the disease. We haven't really seen much OUS given recent competitive approvals in the Middle East. How do you think about the OUS opportunity in the context of the competitive updates there? So Seagen and then thinking about Oxbryta comments.

I can take Seagen easily because that's an easy answer. From Seagen, we expect to reach $10 billion by year 2030. That was a number we put out when announcing the acquisition. A few things have reinforced our confidence in this number. First, ADC technology has become the hottest sector for M&A activity. There is consensus among investors and industry analysts that it will deliver a lot of value, reassuring us. Second, Seagen has provided significant product readouts and outcomes beyond our expectations. Additionally, we’re advancing other initiatives that we’ll show you on February 29. The $10 billion is part of our $25 billion projection; we feel confident we can achieve it. Aamir, how is Oxbryta doing?

We're pleased with the U.S. performance. In Q4, Oxbryta was up 30% year-over-year and 14% quarter-over-quarter. The prescription trends are solid. We have made many investments in customer-facing teams since our acquisition. We like the momentum and expect to see more. Currently, the rest of the world is a small portion of Oxbryta revenue, and that will take time to develop but we’re looking at it appropriately. Regarding the GBT acquisition, it is key to look at Oxbryta but also, we are excited about GBT601, which we expect can bring a lot of value in addition to Oxbryta. Some sales may be cannibalized, but Oxbryta will grow in the market, showing we expect significant value from this acquisition.

We feel more confident now about our projections for the GBT acquisition. Since the acquisition, we have data we didn't have before, particularly regarding 601. We hope it could become transformative in sickle cell, leading to a step change if Phase 3 confirms Phase 2 results. Overall, we remain optimistic. In summary, we are optimistic about the year ahead. We have defined our five key priorities to keep us focused. This will be a year of execution. I have a team I believe are the right leaders to execute. The world was impressed with our execution in our COVID response and we plan to replicate that excellence for oncology leadership, pipeline progression, maximizing new product performance, execution of our cost realignment, plus enhancing shareholder value through capital allocation. The team is committed to delivering these results, and I look forward to our next meeting in three months to show progress against our goals. Thank you very much, all. Bye-bye.