Earnings Call Transcript - PFE Q1 2020

Operator, Operator

Good day, everyone, and welcome to Pfizer’s First Quarter 2020 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Chuck Triano, Senior Vice President of Investor Relations. Please go ahead, sir.

Chuck Triano, Senior Vice President of Investor Relations

Thank you, operator. Good morning, everyone, and thanks for joining us today to review Pfizer's first quarter 2020 financial results, our reaffirmed full year 2020 financial guidance, Pfizer's role in helping find solutions for the COVID-19 pandemic as well as other relevant business topics.

Albert Bourla, CEO

Thank you, Chuck, and good morning, everyone. During my remarks, I will discuss the first quarter business performance as well as recent milestones from our pipeline. However, I want to start with a few thoughts about the COVID-19 pandemic and Pfizer's role in helping find solutions. It goes without saying that this is an extraordinarily difficult and unprecedented time for everyone. The public health challenges posed by COVID-19 have impacted almost every aspect of our lives. As one of the world's largest biopharmaceutical companies, our role in this crisis is dual. On the one hand, we are focused on maintaining the continuous supply of our medicines and vaccines to patients around the globe, while protecting the safety and wellbeing of all our colleagues, of course. On the other hand, we are working with experts, both within and outside Pfizer to bring our expertise, capital and resources to help contribute potential medical solutions to this pandemic. Let me share a few examples of what we are doing on this front. With the burden on hospitals happening around the globe and expected to increase, the continued supply of our medicines and vaccines is now more critical than ever. I'm pleased to say that the Pfizer global supply team has done an outstanding job, keeping our manufacturing sites and related distribution channels operational, without significant supply disruptions. In terms of finding medical solutions for the pandemic, we are collaborating with industry partners and academic institutions to develop potential novel approaches to prevent and treat COVID-19. We aim to leave no stone unturned and we have made advances on multiple fronts. Regarding prevention, we recently announced that Pfizer and the German biotech company, BioNTech, have entered into a global collaboration agreement to co-develop the potential first-in-class mRNA-based coronavirus vaccine program aimed at preventing COVID-19 infection. Last week, we received the regulatory approval from the German authority Paul-Ehrlich-Institut to commence the first clinical trial for our COVID-19 vaccine candidates in Germany and the first patient has already been dosed.

Frank D’Amelio, CFO

Thanks, Albert. Good day, everyone. Before I walk you through our results for the quarter, I want to comment on the current global pandemic, which is impacting nearly every industry around the world. Despite the challenges inherent in operating in this environment, the fundamentals of our business continue to be strong and our outlook for the future of the Company remains bright. We continue to have a strong balance sheet and favorable credit rating, which we expect to allow us to access the capital markets as needed, which was demonstrated in late March with the issuance of a $1.25 billion sustainability bond, the first of its kind in our industry. On the supply side, all 49 of our manufacturing facilities remain operational, and we have not seen a significant disruption in our supply chain as a result of the pandemic. To ensure the safety of our manufacturing colleagues while they perform this critical work, we have put in place enhanced safety measures at all of our plants, including investing in protective equipment, staggering shifts so that fewer colleagues are present at once, restricting site access to only essential workers and requiring colleagues to log their contacts while on site. I want to acknowledge how proud I am of the way our colleagues, many of whom are on the frontlines in this fight, have responded to this crisis with courage and passion from those who are working around the clock on potential treatments or vaccines for COVID-19 to those who continue to operate on manufacturing and supply chain to ensure patients can have the medicines they need. This is in times like these that the strength of our culture and of our people really shines. Now, onto the financials. First quarter 2020 revenues were $12 billion, down 7% operationally versus the year ago quarter. Of course, most of this decline is due to the fact that we no longer report revenues for our consumer healthcare business. Excluding this impact, revenues were down 1% operationally. As Albert already explained in detail, our biopharma revenues grew 12% operationally this quarter, driven by strength across multiple products with approximately 1 percentage point of that growth attributable to the net impact of COVID-19 on product sales. Upjohn revenues declined 37% operationally, driven by generic competition for Lyrica in the U.S. and declining sales of Lipitor and Norvasc in China due to implementation and nationwide expansion of the volume-based procurement program. Importantly, both of these negative drivers were anticipated in our previous Upjohn guidance. For total Company, adjusted SI&A expenses in the quarter were down 16% operationally, approximately half of that decline was due to the fact that we no longer report expenses for the consumer healthcare business. The remainder of the decrease was driven by reductions in field force, advertising and promotional expenses, due to the LOE of Lyrica in the U.S. and lowest selling expenses for Lipitor and Norvasc in China, due to volume based procurement, as well as lower indirect SI&A spending associated with corporate enabling functions. Both reported and adjusted diluted EPS for the first quarter were down compared to the year-ago quarter. The decrease was primarily due to lower revenues, mainly driven by the loss of exclusivity for Lyrica in the U.S., partially offset by lower SI&A expenses. Finally, foreign exchange had a negative impact of $134 million or 1% on first quarter 2020 revenues and $0.02 negative impact on adjusted diluted EPS compared to the year-ago quarter. Before walking you through our guidance updates in detail, I want to acknowledge that no one currently knows exactly how and in what timeframe the COVID-19 pandemic will progress and eventually come to its resolution. Given those uncertainties along with our desire to be as transparent as possible, we are providing on this chart the key COVID-19 related assumptions that are reflected in today's guidance update. In summary, our financial guidance reflects our expectation that most healthcare systems around the world will begin to resume their normal functions in the second half of 2020, including in-person doctor visits, new-to-brand prescription trends, sales force activities and clinical trial enrollment. The guidance also assumes we will be able to continue to operate our manufacturing and supply chain without material disruption, and that we will continue to invest in potential treatments and vaccines against COVID-19 throughout 2020. With that, let's take a look at our guidance. Consistent with last quarter, we are providing three sets of financial guidance. As a reminder, those three steps of guidance are as follows: Total Company, which reflects our current construct of the biopharma and Upjohn businesses and excludes any impact from the pending Upjohn combination with Mylan; Two, New Pfizer, which is a full year pro forma view that reflects the impact of the pending Viatris transaction by removing Upjohn and including $12 billion in cash proceeds from Upjohn to New Pfizer and other transaction-related factors, such as transitional service agreement revenue; and three, Upjohn as a standalone business. Let me remind you that the Upjohn guidance includes the Meridian business and our collaboration with Mylan in Japan, as we discussed last quarter. All of these scenarios continue to be based on a full year of revenues and expenses in 2020. Beginning with total Company, as Albert mentioned, we are reaffirming our guidance ranges for both revenue and adjusted diluted EPS, despite absorbing incremental negative impacts due to foreign exchange fluctuations, since mid-January of approximately $600 million on revenue and $0.04 on adjusted diluted EPS. Moving down the income statement, we lowered our cost of sales as a percentage of revenue guidance range by 0.4 percentage points to reflect favorability, resulting from changes in product mix and other efficiencies. For selling information and administrative expenses, we are lowering our guidance range by $500 million. This reflects incremental cost savings opportunities, primarily related to indirect SI&A spending, as well as actual and anticipated spending reductions as a result of the COVID-19 pandemic, and as Albert already spoke about the $500 million upward revision to our R&D expense range. Finally, our guidance continues to anticipate no share repurchases in 2020. Moving on to financial guidance for New Pfizer and Upjohn. Despite absorbing negative incremental impacts on revenues due to changes in foreign exchange rates since mid-January of approximately $500 million for New Pfizer and $100 million for Upjohn, we are reaffirming the fiscal year 2020 revenue guidance ranges for both pro forma companies. Additionally, we are reaffirming the guidance ranges for adjusted IBT margin and adjusted diluted EPS for New Pfizer, as well as adjusted EBITDA for Upjohn. The only change to the guidance we gave in New Pfizer is a $1 billion reduction in the range for operating cash flow, driven entirely by $1.25 billion voluntary U.S. pension contribution, which we plan to make in the second half of 2020. Moving on to key takeaways. In the first quarter of 2020, our Company performed well in a challenging environment, driven by strong revenue growth from our biopharma business. We reaffirmed our 2020 guidance for revenues and adjusted diluted EPS and we achieved multiple products and pipeline milestones since our last quarterly update, some of which are listed here, demonstrating the continued advancement of our late-stage pipeline. Finally, we paid $2.1 billion in dividends to our shareholders this quarter. As always, we remain committed to delivering attractive shareholder returns in 2020 and beyond.

Chuck Triano, Senior Vice President of Investor Relations

Thanks, Frank, and thanks, Albert, for those comments. Operator, can we please now poll for questions?

Operator, Operator

Your first question comes from the line of David Risinger from Morgan Stanley.

David Risinger, Analyst

Yes. Thanks very much for the detailed review, and congratulations on the performance. So, I have two questions, please. First is with respect to the guidance and the second is on the vaccine candidate. So, with respect to the guidance and the assumptions on slide 13, could you just discuss what you're assuming with respect to a potential resurgence in COVID during the start of the flu season and the fourth quarter, and the impact of that on healthcare systems and physician visits? And then second, with respect to your vaccine candidate with BioNTech, could you just discuss your level of conviction that you have the right candidate that will be safe and effective? And when do you expect to generate animal data, and when do you expect to generate initial human data? Thank you very much.

Albert Bourla, CEO

Dave, thank you very much. Very good questions, as usual. The first one is guidance. Let me ask Frank to make comments about the assumptions.

Frank D’Amelio, CFO

Yes. So, David, on our guidance, we are assuming a recovery in the second half of the year. We expect the second quarter to be reported as primarily impacted in a negative way from the COVID-19 virus, but we do expect the recovery in the second half of the year. And that includes the items that we talked about in our comments. In-person doctor visits going back up again, new-to-brand prescription trends, sales force activities, clinical trial enrollment, and obviously all of our sites continuing to operate and provide medicines to patients the way that they're currently doing today. So punch line, second half recovery and the healthcare system returns to normal operations.

Albert Bourla, CEO

Thank you, Frank. And now, Mikael, I think you would like to comment on the vaccine before let me say just one thing on the vaccine. This is new technology. But we are very familiar with both the technology and the company, because we have been working with them for the last two years in a joint project to develop with the same technology, a flu vaccine. So, we jumped into the COVID-19 when the need emerged, jointly together. And we are applying, of course, all the learnings that we had with the technology during the last two years. Now, Mikael, can you please speak more specifically about the specific project?

Mikael Dolsten, Chief Scientific Officer

Thank you, Albert, and Dave for asking these important questions. I will start by saying, I think we have the most comprehensive SARS-CoV-2 vaccine program currently ongoing specifically related to mRNA. As Albert alluded to, we had built a lot of experience on the various type of mRNA and formulation of lipid nanoparticles through two years of work on flu and a lot of different animal data coming from our work and work from BioNTech on both oncology and other programs. When it comes to the specific Lightspeed program as it's called, that has basically in two to three months moved from the drawing table to dosing patients right now. It contains, as we have announced, four different vaccine candidates that will be studied in humans. The first one already dosed. And that allows us, more than anyone, to cherry pick from a new disease like COVID-19, what type, what antigen is the most effective and allows us to pick one or two to move into pivotal studies. So, that covers unmodified mRNA, modified and self-amplifying. To the best of my knowledge, we are the only one currently having self-amplified mRNA in the clinic, which would allow you to dose at lower dose than any other construct. We already have animal data from rodents on the various constructs that are encouraging. And we also have data from patients here that shows that the two antigens that we pick seem to be the most relevant for intervening and utilizing viruses. And by having picked two, spike or the smaller components receptor binding domain, again, I think we will be able to cherry pick what turns out to be the most effective in man. So, more animal data will come over the next few weeks on primates. And I expect human data to come late May-June from the first experiments performed on plasma from vaccinated patients. And this is a unique trial design with continuous data flow that should allow us to progress fast and share data with regulators. So, we expect the flow of data coming in May, June, and then move into expanded trials that could allow for emergency use or accelerated approval coming in the fall, possibly October and onwards. So, thank you very much for your questions.

Albert Bourla, CEO

Thank you, Mikael. And also let me add here, but the reason also why we jumped into this is not only because we've had the familiarity with the company and the technology, and we had discussed this project that was very exciting, but also we are uniquely positioned to help during this crisis because we have the end-to-end capabilities. We have very strong capabilities from early preclinical research, all the way to manufacturing. And frankly, as we have, I think, said, but I make it very clear now also, we are planning to manufacture at risk this vaccine. So, if the technical success and regulatory approvals are there, we will have doses available in the last quarter of this year. And also, it would be an omission if I wouldn't mention right now how grateful we are with the advice and collaboration that the FDA is giving us that they are trying to work their timelines day and night as well, so that they can help bring to the world a solution. Thank you very much.

Operator, Operator

Your next question comes from the line of Chris Schott from JP Morgan.

Chris Schott, Analyst

Just two. First on Vyndaqel and the impact from COVID. It sounds like you're expecting a slowdown in diagnosis rates in the quarter. Should we also expect that RXs and patients receiving drug should also slow or could those actually keep ramping, once you've identified a product that can keep working through the process? My second question on Vyndaqel was also on payer mix. You've had a little bit more experience with the product. And we're still trying to get a sense of where gross to net could shake out for the product. So, any additional statistics here in terms of how many patients are getting free drug, how many are reimbursed? Any data there would be very helpful. My final question was on Prevnar in infants. Are your expectations for that product for the year unchanged, so that we're going to obviously see a 2Q impact, but you get kind of a catch up in the second half of the year, or should we actually be thinking about Prevnar infant expectations for the year coming down as that catch-up won't offset the lost sales in the quarter?

Albert Bourla, CEO

I think all three questions are very well suited for Angela to answer. So, Angela, why don’t you start with Vyndaqel?

Angela Hwang, Group President, Pfizer Biopharma

Great. Thank you. Thanks for those questions, Chris. So, firstly, on Vyndaqel. As you can see, we continue to have great momentum behind this product. And we do believe that this will sustain its momentum throughout the year. As Albert mentioned, we do think that there will be some slowdown in new RXs in the second quarter. And actually, just to align with those comments, we did see that in our patient hub enrollments since the middle of March, we saw a decline of about 20% in the last four weeks, compared to the previous four weeks. So, I think that this comment about new patient starts is one that we are seeing in the patient hub. However, let's also think about the great attributes of Vyndaqel. It's an oral medication; it's one that is being delivered through specialty pharmacies directly to patients’ homes; it's one that because of its mortality benefits, decreases hospitalizations. All of these really play well to the time that we're in right now in this pandemic. And so, we anticipate our continuing patients to be able to continue on their drugs and be able to stay on therapy, so no impact on TRxs. Your second question was around the payer mix. And on that front, we have not seen change in terms of the numbers of patients on commercial versus Medicare versus other books of business. That has been pretty consistent through the time from launch, and our Medicare patients are the predominant part of our patient population, and that hasn't changed at all. And then, I think the third question was on Prevnar P. And on Prevnar P, similarly consistent with comments made earlier, we do anticipate the second quarter to have some slowdown. And this is just because well visits aren't taking place; there is a lot more caution regarding visits to pediatrician's offices. So, we do anticipate some slowdown there. But, we also know both from our research and from our representatives that pediatricians are anxious and are motivated to get the well visits back and to have our infants, as well as our children vaccinated. And therefore, based on that and based on the fact that we expect a recovery in the second half per Frank's comments about our assumptions, we do anticipate a catch-up towards the second half of the year that will allow us to attain our expectations that we had for P for all of 2020.

Operator, Operator

Your next question comes from the line of Umer Raffat from Evercore ISI.

Umer Raffat, Analyst

Mikael, on your antiviral for COVID, you’re going down the protease inhibitor track, instead of the nuc. Maybe, if you could explain the thought process? And if you could also lay out for us the exact EC50 that you're seeing with your 3CL inhibitor? And I asked because some of the initial 3CL inhibitor constructs you had chosen against SARS, the EC50s were above 10. So, I wonder if you are seeing something closer to a one on the protease inhibitor you've chosen. And secondly, on COVID vaccine, Mikael, I'm curious, what's the exact threshold on utilizing antibody titers that you want to see for you to say, you know what, we have something?

Albert Bourla, CEO

Thank you, Umer. Mikael, the stage is yours.

Mikael Dolsten, Chief Scientific Officer

Thank you very much, Umer. Great questions here. So, let's start with protease inhibitors. We had a privilege; this isn’t just repurposed protease inhibitor from a distant relative. We had a collection of compounds that showed very potent activity to the SARS-CoV-1. And we were able to model and show that it's a very strong similarity in the binding and have confirmed that these compounds on the SARS-CoV-2 to COVID-19 disease are very potent. We are talking about very potent nanomolar type of binding. And it is supported by X-ray data available that shows again unique, highly selective binding patterns. We are now doing cellular antiviral studies, which initial data is encouraging again, showing potent activity, which needs to be studied on different cell types where the virus may be harbored. All together, we think these are very promising drug candidates. And we're moving swiftly ahead with scaling up, adding other IND type of data to potentially pending regulatory dialogues that have initiated to be able to dose patients around August this year. We’re also working on oral follow-on drug and have identified several candidates that show suitability for this type of delivery system. So, altogether, I feel very encouraged that this could be the first-in-class protease drug for SARS-CoV-2 and we'll keep you posted as we advance. On the vaccine, clearly, we are looking at what could be animal data guiding us on what should be the relevant threshold in order to have neutralization of virus. And we have in discussion with regulators gotten good feedback on data from multiple animal models that we are pursuing that could help to possibly even create a surrogate endpoint. We're also looking at convalescent serum from patients to understand which of those that are used for treatment intervention guides us and we will actually use those also in intervention models. So, while we expect in our Phase 2 study later summer, Q3 early to generate human data on our vaccine when it comes to impacts on events. These will be supplemented by multiple animal models and plasma levels of neutralizing antibodies used in transfusion therapies. So, all-in-all, a multi-pronged approach to nail down the type of levels we should aim for, and to keep with the most aspirational goal of getting a vaccine that can be considered for emergency use, accelerated approval around Q3 this year. Thank you very much.

Albert Bourla, CEO

Thank you, Mikael. And also to add with the antiviral as we did with the vaccines, we are producing at risk clinical material. So, in case we decide to go into summer and do clinical studies, as Mikael said, we will be able to do it immediately.

Operator, Operator

Your next question comes from the line of Terence Flynn from Goldman Sachs.

Terence Flynn, Analyst

Hi. Thanks for taking the questions. Maybe two for me. The first is, given the current environment, I was just wondering if there are any changes to how you're approaching capital allocation here. Do you expect M&A and business development opportunities to increase? I think you had talked on your fourth quarter call about potentially finalizing some deals in the first half of the year. So, just wondering if there's been any change on that front? And then, my second question is on your 20-valent pneumococcal disease program. We've now seen the top line data for the adult Phase 3 setting come out. Just wondering what outstanding questions are left here on that program, as you look ahead on the forward and securing the filing in the fourth quarter?

Albert Bourla, CEO

Thank you very much. So, Frank, would you like to make some comments on the capital allocation?

Frank D’Amelio, CFO

Sure. So, Terence, on capital allocation, our priorities remain the same, which are obviously dividends and we paid a $2.1 billion dividend to our shareholders this quarter, investing in the business, and then obviously M&A, so mergers and acquisitions. And clearly, there has been some value reset in the industry, and you can see some of that with some of the biotechs. And obviously, as we always do, we'll look for opportunities where we think it's a good deal for our company and for our shareholders. The one thing I want to balance this with though is, even though valuations reset, Board of Directors and management teams expectations don't necessarily reset at the same pace. So, that's always something we have to work our way through. But from a high level priority perspective, our capital allocation priorities remain the same.

Terence Flynn, Analyst

Thank you, Frank. And then, Mikael, is there anything that you're waiting more on, pneumococcal adult or you think you can file?

Mikael Dolsten, Chief Scientific Officer

We are very confident in the pneumococcal adult after completion of the main efficacy studies that we have done a press release, and it has the immunogenicity, safety and scalability that we were looking for. We also recently had a lot consistency study to readout, which again, showed similar grade profile for the 20-valent to be used in the adult setting. We are still having one study that is for patients previously immunized with pneumococcal vaccines that will be coming shortly. But for naïve patients, we do have all data available, looking like a very strong profile and we are yet to supplement with the data sets coming on previously immunized, which, this would be to expand the coverage. And that's why we feel very confident about filing and you heard from Albert's introduction that we moved it to early Q4.

Operator, Operator

Your next question comes from the line of Randall Stanicky from RBC Capital Markets.

Randall Stanicky, Analyst

Just two questions, probably both for Angela. Can you just talk about the Ibrance trends, particularly EU5 price headwinds? When do those abate, and how should we think about Ibrance growth for this year? And then, just a follow-up on Vyndaqel, the 13% diagnosis rate, it's a nice jump from 4Q of 9%. Any change to where you guys think that can ultimately get to, putting aside near-term headwinds from COVID?

Albert Bourla, CEO

Angela, go ahead.

Angela Hwang, Group President, Pfizer Biopharma

So, on Ibrance in the EU, I want to affirm that our fundamentals and our growth of Ibrance in the EU continue to be really strong. And we continue to see great growth opportunities into the future. Right now, the first-line metastatic breast cancer share of the CDK class is only at 38. So, there's room for growth here. And we do have a strong leading market share of 68% of all CDKs. So, I think just right there, you can see that there are continued opportunities for growth. And that is how we see it. We saw very strong double-digit growth for Ibrance in volume. And what you didn't see and why that didn't translate into net sales is because we negotiated a number of very large contracts with certain large European countries. Many of these happened in Q4 of 2019. And because these contracts are multi-year, what you get here now is some stability in that. And so, this has allowed us to rebase our businesses. So, those impacts are already included in our guidance. And because of the timing of when these contracts are signed, we expect to return to net sales growth in the second half of 2020. So, all-in-all, I think it's just the timing and the year-on-year comparison that is driving the effect of what you're seeing from a net sales perspective. And I want to reaffirm that our fundamentals are strong, our value proposition of Ibrance is strong. And we continue to see tremendous growth opportunity both for the class, as well as our own share. Your next question was about Vyndaqel. And I think your question was around just sort of diagnosis and whether we're seeing anything particular there. And no, I mean, the strategy that we have deployed from the beginning, which is to find and heighten awareness around which patients we should suspect for ATTR-CM and then have those patients be then diagnosed through scintigraphy, continues to be the mainstay of how we are generating diagnosis. With time, we are deploying and we're experimenting with artificial intelligence and different sort of predictive models that might allow us to again support the suspicion of these patients. But, I would say that our strategies have been rather consistent since launch. And I think that the diagnosis rates that we're seeing tell us that what we've been doing is working well. There's great receptivity for this product, both from physicians as well as from patients. We are very active on the education front, both from a diagnosis and from a treatment perspective. So, I think that what we've been doing is really working well and will continue to do so.

Operator, Operator

Your next question comes from Tim Anderson from Wolfe Research.

Tim Anderson, Analyst

On your 20-valent pneumococcal conjugate vaccine. Just an update on timing for when we are likely to see the Phase 3 trial start in order to keep that gap with Merck as small as possible? And then, second question on adjuvant Ibrance, just an update on timing of when we will see the data? And when you do top-line that, are you likely to disclose any results or is it just going to be a qualitative top-line? Thank you.

Albert Bourla, CEO

Let me briefly address the adjuvant and then have Mikael discuss the 20-valent vaccine and anything related to the adjuvant. We have not conducted any interim analysis on the PALLAS study yet. As previously mentioned, we expect the study to reach completion, meaning we will not halt it for interim results because the criteria for the study are very stringent. Typically, we do not disclose interim analysis data unless we decide to stop the study. Therefore, we do not have any data, and an analysis has not been conducted. When we do analyze, we typically do not announce it, and the study is expected to be completed early in 2021. Mikael, please provide an update on the 20-valent vaccine, including the timeline for starting the Phase 3 trial, and add any comments on the PALLAS study.

Mikael Dolsten, Chief Scientific Officer

Thank you very much, Albert and Tim for the questions. We offered a press release of the three injections immunization; we later shared that the fourth dose further substantiates data. We have had extensive regulatory dialogues in the U.S. and elsewhere and shared all those data sets. So, we are planning to start the pediatric PCV-20 very soon. We're talking likely about just a few weeks to be clear. So, that's our projected plans right now. And I think you said very well on the adjuvant Ibrance studies that we feel very optimistic and good about them and just waiting for them to report on the date that we have communicated.

Albert Bourla, CEO

Thank you. Angela, do you want to add anything on the pediatric marketplace as we see it potentially playing out?

Angela Hwang, Group President, Pfizer Biopharma

As you said, we will launch tentatively after the Merck 15. However, we don't anticipate that the ACIP will make a preferential recommendation between the two. And therefore, we believe that PCV-13 will compete with 15 until the PCV-20 comes to market. And we are confident about PCV-13. It has tremendous experience with healthcare professionals. We have very strong account management developed with our customers through the years that we've been on the market and we also have a very reliable supply track record. And so, despite there may be gap in launches, we anticipate to be competing in the market and to continue to support the benefits of PCV-13 to infants.

Operator, Operator

Your next question is from Louise Chen from Cantor.

Louise Chen, Analyst

Hi. Thanks for taking my questions here. So my first question for you is, do you have any update or more details on the go forward strategy for Pfizer, post the Upjohn separation as it pertains to M&A, pipeline assets, what you're thinking about there? And then, what in your DMD Phase 1b data gave you confidence to move into Phase 3 studies? Where are you with manufacturing? And what type of data do you think you'll report out at ASGCT? And then, my last question here is just back on PCV-20. Just curious if you think from the adult side that the ACIP recommendation would change at all if you were to get approved for PCV-20? Thank you.

Albert Bourla, CEO

Thank you. I’d like to address this topic rather than focusing on M&A. John may also have additional insights. I’ll then turn to Mikael regarding DMD, and perhaps Angela can provide updates on PCV-20 and how ACIP will approach adults. Our forward strategy is clear and will remain consistent. We anticipate a separation from Upjohn, and Pfizer is poised to become a leading growth company. We are increasingly confident in this direction. We are reinforcing our commitment to at least a 6% growth rate, which we expect to maintain. M&A is not a primary strategy for us; it serves as a tool to enhance our overall strategy. Historically, we engaged in M&A primarily to acquire revenues or achieve earnings growth through significant mergers that could reduce costs, which was necessary at the time. Going forward, we do not need to pursue EPS through acquisitions, as our EPS growth will occur organically alongside our revenue growth. While we won't rule out M&A altogether, we are not focused on large acquisitions for several reasons. Firstly, very few targets can offer growth without diluting our own, as most grow at a slower pace. Secondly, targets often seek high premiums, which typically leads to value being realized by the acquiring company’s shareholders. Additionally, major acquisitions can generate disruption, especially in R&D, which is a concern. Regarding capital investment, M&A is not our top priority for these reasons. Our focus will be on investing in early Phase 2 and Phase 3 potential medicines that can contribute to our pipeline. This will help us enhance the product offerings expected in 2025, 2026, 2027, and 2028, allowing us to sustain the growth we are confident we can achieve organically in the next five to six years. That's our strategy regarding M&A. Now, Mikael, what gives you optimism regarding DMD?

Mikael Dolsten, Chief Scientific Officer

Thank you very much. Treating boys with Duchenne is such a transformative area. We have now treated 11 patients, 8 of them at the high dose of 3 to 14. We continue to see very consistent results based on efficacy, particularly in dystrophin expression and distribution. As we have treated more patients and have a longer observation period for the early boys, we can see that durability appears to exceed 12 months concerning dystrophin, which gives us confidence in the potential long-term durability for these boys. Additionally, we have data on muscle health, creatine kinase, and more recently MRI, which further affirms that we are positively affecting muscle health. In terms of motor function, using clinical scales, we have observed favorable data on the Northstar Index across several treated boys. It’s important to note that we see this improvement across different ages. While monitoring early boys, they may experience some spontaneous improvements that are hard to distinguish from treatment effects. However, we have also seen improvements in older boys, where declines were expected. Overall, we believe we have built a robust data set on efficacy and gained valuable insights on risk mitigation and safety event management. We are also making significant progress in expanding our therapy manufacturing efforts in North Carolina, all of which will support our plan to initiate Phase 3 trials in just a few months. Thank you for your interest.

Albert Bourla, CEO

Thank you, Mikael. Really, very exciting news for these boys particularly, they have virtually no solutions right now. Angela, what about our views on what would be the recommendations of ACIP on the adult pneumococcal vaccine, the 20 and competition?

Angela Hwang, Group President, Pfizer Biopharma

Yes. So, we're really excited about our PCV-20 programs, and specifically about the breadth that serotypes coverage that PCV20 provides. And we really see the benefits in two ways. One, first of all, these incremental serotypes are associated with high case fatality rates, antibiotic resistance and/or meningitis. So, these are sort of serious diseases that these serotypes will be able to cover. But also relative to PCV-15, PCV-20 is expected to provide 33% more coverage against IPD strains in adults. So, with these data, our plan is to bring this forward to the CDC and to regulatory authorities. We will certainly be discussing recommendations and what all this means. But, I think in the end, we will know that this is a decision that the CDC needs to make. And we will be having these conversations with them as our program develops. But, certainly, we feel very strongly about the potential benefits and the additional coverage that PCV-20 can provide. And we'll keep you posted with what happens with the CDC.

Albert Bourla, CEO

And John, you have to add any comments on our going forward strategy, given that you're managing this area very successfully right now and particularly on M&A targets or licensing targets that we have?

John Young, Chief Business Officer

We typically do not discuss specific targets, but Albert covered the main points in his response. We are optimistic about the growth potential of our core business. Our business development strategy is focused on acquiring clinical stage assets that can enhance our existing internal pipeline, which we are confident about. We aim to explore opportunities in areas like oncology, where there could be beneficial additions, and rare diseases, where innovation is abundant. Our unique capabilities in manufacturing and development, as mentioned by Mikael, position us well to expand our pipeline. We will continue to evaluate selective opportunities across our other areas. We believe that there are possibilities available and remain active in this space. However, we will maintain a disciplined approach to capital deployment, ensuring that it maximizes value for both our shareholders and our patients. Albert's and Frank's responses should provide a sense of our perspective on capital deployment and business development following the separation of Upjohn.

Albert Bourla, CEO

Thank you very much. I'm not sure if we answered also the question on DMD about manufacturing. And yes, we feel very good about manufacturing. Our investments are progressing very nicely. And we will be able to manufacture at scale from the DMD, provided that it is successful and runs.

Operator, Operator

The next question comes from Steve Scala from Cowen.

Steve Scala, Analyst

Thank you. I had a few questions. First on abrocitinib. I believe only the higher dose was better than Dupixent. But, there were safety issues at that dose. And it was not superior on itch. It seems the outlook is not all that positive. You obviously think differently. So, could you explain? Secondly, you spoke about the PALLAS trial. But to clarify, the PENELOPE-B neoadjuvant trial, did you say the readout is now Q1 of '21? We had thought it was likely to be top-line this year. And then, lastly, can you just quantify the Eliquis stocking in the quarter? Thank you.

Albert Bourla, CEO

Thank you very much. I will quickly address the PENELOPE; it is expected to come in the second half of the year, while the PALLAS is expected to arrive early next year. This aligns with what you mentioned earlier. Mikael, can you share why you are excited about abrocitinib?

Mikael Dolsten, Chief Scientific Officer

We are very excited about abrocitinib. In the JADE COMPARE study, both high and medium doses achieved the coprimary endpoint and effectively reduced eczema. We had a key secondary endpoint comparing itch relief to Dupixent, which is significant for quality of life both during the day and at night. The high dose showed a statistically significant and clinically meaningful improvement compared to Dupixent, while the lower dose of 100 milligrams was numerically better but did not reach statistical significance. Overall, abrocitinib demonstrated a quicker onset of action compared to the biological Dupixent, with notable improvements in skin clearance and itch relief. While higher doses of JAK inhibitors typically come with a higher risk of infections, we believe the benefits outweigh the risks. Most of the cases are mild to moderate and tend to improve upon discontinuation of treatment. Additionally, we have an exciting upcoming trial that is not necessary for filing but will be initiated later this year. This trial will explore starting treatment with the 200-milligram dose, which is effective in clearing skin and reducing itch faster than standard care, followed by a maintenance dose of 100 milligrams, likely resulting in fewer adverse events, including infections. This approach offers considerable flexibility for treatment. I believe the benefit-risk profile looks very favorable for the higher dose, and while infections are relatively rare or mild, they can be managed easily and are quite common among patients treated by dermatologists. I am optimistic about the higher dose being superior, and the lower dose showing similar results to Dupixent, with a similarly faster onset of action and the added convenience of being oral. I hope this gives you a sense of why I am encouraged about these new treatment options for patients, as we move forward in regulatory discussions and look forward to making them available soon.

Albert Bourla, CEO

Thank you, Mikael. And Angela, what about the inventory levels? Can you explain Eliquis?

Angela Hwang, Group President, Pfizer Biopharma

Yes. In terms of this Eliquis impact, what we saw was an uptick in terms of inventory levels to prepare for the pandemic, and the impact was about in the mid-single digits in terms of worldwide revenue.

Operator, Operator

Your next question comes from the line of Andrew Baum from Citi.

Andrew Baum, Analyst

Thank you. I know that you've added a couple of very distinguished scientists to the Board, also added a former FDA Commissioner, under your tenure, Albert, as well as the Mylan transaction. Should we think about this as an accelerated evolution of Pfizer in terms of trying to improve the ROI that has had historically on R&D? And if so, aside from the measures I outlined, perhaps you could highlight any other internal, either organizational or current enrichment that's going on that also points in that direction? And then second to Mike, Pfizer seems to have pivoted away from immuno-oncology, as many others have done, given the disappointments post-PD-1. If we do see the emergence of novel IO targets, such as assets for the randomized Phase 2 trials, should I assume that Pfizer’s willing to reengage back in that field? And I know I'm exaggerating in terms of binary, but it does seem that you have pivoted back towards more molecules. Then finally, if you could comment on the anticipated treatment duration in the real-world setting for PALLAS, given the issues with adverse events as well as reimbursement friction for Medicare patients?

Albert Bourla, CEO

Andrew, can you repeat the first part of your question, the ROI?

Andrew Baum, Analyst

Yes. So, I was basically saying that under your tenure, Albert, there's a notable addition of three individuals with high scientific caliber. So, obviously, the former FDA Commissioner, but also two very distinguished scientists as well as decomplexifying the organization by the Upjohn transaction. So, when I think about the evolution of the business on Pfizer, it does seem there's a concerted attempt to try and shine more light or improve the ROI through some of these measures. So, I was asking, are there any other internal measures, talent enrichment inside the organization, or new R&D structures designed to improve R&D, either through accelerating programs, killing early the normal stuff, but if something changed in the profile of improving the ROI on R&D…

Albert Bourla, CEO

Thank you very much. The answer is absolutely yes. It's no coincidence that our Board currently includes five prominent scientists, four of whom are physicians with unique expertise in areas like regulatory science, development, and basic science, particularly in primary care, metabolic diseases, and immunology. Additionally, through Susan Hockfield, we have someone who pioneered the integration of genomic data with computational power and was the first woman to lead MIT. This clearly indicates that Pfizer is different, as we are a science-based company driving our growth. We are adding these Board members not only for greater visibility but also because of their extensive knowledge. We have several metrics in place to evaluate if our R&D efforts are evolving and can support our new strategy, and all indications point in the right direction. We have highlighted that Pfizer has changed from its past; previously, our success rate in Phase 2 studies was only 15%, but now it has risen to nearly 50% based on four years of rolling assessments. I anticipate that it will maintain around 50% moving forward. Moreover, in 2018, we introduced more new molecular entities than any other company, which is quite unexpected for Pfizer. John Young is managing a comprehensive list of criteria for our governance process, ensuring that we allocate resources with R&D return on investment in mind. The speed of our operations today is significantly different from the past, as evidenced by how rapidly we developed solutions, better than any biotech, during the pandemic. We've transformed the company into six distinct business units, including oncology and vaccines, allowing them to function like biotech firms. These units make decisions from commercial stages to early R&D, presenting their funding requests under John Young's management. It's important to note that while we are focused on R&D ROI, this was not a consideration when we embarked on our COVID-19 initiatives. Our sole criterion was whether we could provide a solution, as the priority during this crisis was to find effective responses rather than focus on return on investment. I hope this gives you insight into how Pfizer is evolving and the significance of our new Board appointments. Now, I will hand it over to Mikael to address your second question.

Mikael Dolsten, Chief Scientific Officer

Thank you for that question. We think we need to be careful and not throw everything under the kitchen into immune-oncology. We try really to cherry pick the areas where we have learned after the initial positioning of PDXs, one example is bifunctional antibodies. We have a dose escalation of a BCMA bifunctional that looks very encouraging which subcutaneous unique profile. We have follow-on PD-1 bifunctional with cytokines that can boost immune resistance. And we have oncolytic viruses. We were successful combining Inlyta with PDX, and we're building on that experience to now move from actually our Boulder units form Array, a small molecule this year that we think is an immune enhancer for cancer and an XMR inhibitor. So, I hope you got that answer that we are cherry-picking areas where we think we can break resistance to IO rather than serving everything on to these areas.

Operator, Operator

Your next question comes from Vamil Divan from Mizuho Securities.

Vamil Divan, Analyst

Thank you for taking my question. I'd like to follow up on the earlier discussion about abrocitinib and your thoughts on safety now that the COMPARE data is available. I'm curious about your confidence in securing a label without any black box warnings related to the current JAK inhibitors and their associations with infections, malignancies, and BTEs. From conversations with dermatologists, it appears that having a clean label is vital for competing with Dupixent. Could you share your perspective on this? Additionally, regarding your immunology pipeline and the JAK-3 1600, I wanted to get an update on the timing. The clinical trial indicates results for the Phase 2 and Phase 3 should be available in September, but it also notes that patient recruitment is still ongoing. Can you provide more clarity on when we might expect data for this product? I understand it has breakthrough status. Thank you.

Albert Bourla, CEO

Thank you, Vamil. Mikael?

Mikael Dolsten, Chief Scientific Officer

Yes. Abrocitinib, we have a large database. I feel very good about its profile. We have not seen any cardiovascular issues, and that's really what is worrying about safety. While we see as expected some viral skin infections, I consider them a more of safety, tolerability issue and very mild and moderate, and can be well managed with standard experience in medical practice. I cannot speculate about black box; that's really for regulators. Our JAK-3 in alopecia has a very unique profile. The most selective of all JAKs that I've seen this far, we think the readout will be probably, as we have predicted, mid-‘21 and this is a pivotal study that could go quickly to filing. We do have end of this year a number of JAK inhibitor readouts in the Phase 2, like JAK-3 in vitiligo, we have oral too in psoriasis and topical in atopic dermatitis. So, we'll keep you busy with a flow of news.

Operator, Operator

Your next question comes from Navin Jacob from UBS.

Navin Jacob, Analyst

Thanks for taking my question. Mikael, I wanted to ask for more details about the regulators' comments on surrogate markers for SARS-CoV-2 vaccines. What specific criteria will they use to allow for quicker approvals? Additionally, could you clarify your manufacturing goals by the end of the year if approval is granted? Assuming approval happens, will it be under an extended access program for healthcare workers? Lastly, what is required from regulators for broader approval for the general public? Any clarity on these points would be appreciated.

Albert Bourla, CEO

Yes. I do not know how the regulators would like to regulate that. And I leave it to them. But I can answer the question on the manufacturing. So, we expect that we will have in the last quarter of this year, millions of doses basically ready. And then, for ‘21, we could ramp up to hundreds of millions of doses available. Now, Mikael, maybe a little bit you can answer the question about the endpoints or the surrogate endpoints.

Mikael Dolsten, Chief Scientific Officer

There are, of course, interest of both regulators and pharmas to see how we can learn maximally to allow potentially very important vaccine quickly to deal with both medical and business crises. We have had ample discussions with the highest level of regulatory leaders in both the U.S. and Europe. So, in the surrogate side, there are two animal guiding principles, if you can show for life-threatening diseases data. And we are pursuing mice/hamsters, as well as primate studies that are ongoing and will hopefully show to us what level of immune activity interferes with the virus. And we're also doing some, I think, really creative studies taking patient sera and testing them, how they can intervene in these models and trying to correlate convalescence, patient transfusions, and what levels protect the disease or can halt the progression of disease in patients. So, I think this is a unique area where we will have human and animal data coming together in Q3 to possibly provide a surrogate. But we are planning from our Phase 2 study of the vaccines to also have human event rates. So it's more of having a really comprehensive approach to bring confidence and accelerate the potential approval or emergency use of these. It's not relying on just one approach; it’s multiple approaches that we bring together in close dialogues with the highest level of regulators.

Operator, Operator

Your final question comes from the line of Carter Gould from Barclays.

Carter Gould, Analyst

Thanks for fitting me in. I guess, just one on sort of your view on the OUS pricing dynamics coming out of COVID. Just your expectations on the potential likelihood of incremental pricing pressure from government-funded health care systems, given the pressure on EU budgets and expectation we see, similar austerity measures like we saw last decade? Thank you.

Albert Bourla, CEO

It's very challenging to make predictions. Regardless, our assumptions are that pricing is not the driver of growth; volume will be our growth driver, even without COVID. If I were to address your question about COVID from a long-term perspective, I see two dynamics at play. One is the likely budgetary pressures on governments, which historically they have approached with caution. This could have a negative impact. Conversely, the value proposition of the pharmaceutical industry has undergone a significant transformation in public perception. During this crisis, the industry represents the collective needs of billions of people and countless enterprises seeking solutions. This could have a very positive effect. The net impact of these two factors remains to be seen, but I firmly believe that growth will come from volume, not pricing. I appreciate all your questions, and thank you very much for your engagement with Pfizer. We are grateful to share information and also to learn from you. This is an incredibly difficult time for everyone, and it is both a privilege and a responsibility for our team to support patients during this crisis. We have had the opportunity to showcase the strength of our science, and we will do everything possible to contribute to solving this issue. I want to acknowledge the healthcare workers on the frontlines; their heroic efforts have inspired us all. Their courage, dedication, and expertise have saved countless lives now and will continue to do so in the future. On behalf of all Pfizer employees and their families, I thank you. Enjoy the rest of your day.

Operator, Operator

Ladies and gentlemen, this does conclude Pfizer's first quarter 2020 earnings conference call. You may now disconnect.