Pfizer, Inc.

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.

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. As usual, I'm joined today by our Chairman and CEO, Albert Borla, Frank D'Amelio, our CFO, Michael Dolston, President of Worldwide Research and Development, Angela Wong, Group President, Pfizer Biopharmaceuticals Group, John Young, our Chief Business Officer, and Doug Lankler, our General Counsel. The slides that will be presented on this call were posted to our website earlier this morning and are available at Pfizer.com forward slash investors. You'll see here on this slide that covers our legal disclosures. Albert and Frank will now make prepared remarks and then we'll move to a question and answer session. With that, I'll now turn the call over to Albert Borla. Albert?

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 extraordinary, 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 continued supply of our medicines and vaccines to patients around the globe, while protecting the safety and well-being 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 am 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 relieve 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 regulatory approval from German authority Paul Ehrlich Institute to commence the first clinical trial for our COVID-19 vaccine candidates in Germany, and the first patient has already been dosed. We also plan to conduct trials in the U.S. upon regulatory approval, which is expected shortly. BioNTech and Pfizer will also work jointly to bring the vaccine to market worldwide, excluding China, which is already covered through a separate BioNTech collaboration, subject, of course, to successful development and regulatory approvals. We plan to manufacture millions of doses of the potential vaccine at risk by the end of 2020 to accelerate availability in the event the development program is successful and we obtain regulatory approval and then to rapidly scale up capacity to produce potentially hundreds of millions of doses in 2021. I want to thank everyone in both companies working on this project. Regarding the potential treatment, We now know our lead molecule is a very potent inhibitor of the SARS-CoV-2 3C-like protease with confirmed antiviral activity against SARS-CoV-2. We are accelerating towards the clinic and commencing regulatory discussions while also undertaking additional antiviral testing and working on the formulation for IV administration. We invested in clinical materials over a month ago ahead of understanding antiviral activity to accelerate the potential clinical studies earliest August or September of this year. We also continue to provide our clinical and regulatory experience to small biotech companies working on promising COVID-19 therapies. And we have several Pfizer medicines that they are the subject of novel research projects for investigation in patients with COVID-19. I want to publicly thank all our R&D colleagues who are working tirelessly and often late into the night to find potential vaccines and treatments that could bring an end to this pandemic. At the end, I'm confident that science will win the battle against COVID-19. Now let me turn to our results for the first quarter. Obviously, we experienced both headwinds and tailwinds related to COVID-19 during this quarter. On the one hand, Our sales representatives in many regions were not able to detail with physicians in their offices. In addition, patient visits to doctor offices declined significantly beginning at the end of March, which is expected to negatively impact new diagnosis of conditions requiring physician-administered diagnostic tests beginning in the second quarter of 2020. On the other hand, we saw an uptick in our hospital business unit the first quarter of due in large part to stronger than usual demand for some of our anti-infective medicines, as well as other sterile injectable products utilized in the incubation and ongoing treatment of mechanically ventilated COVID-19 patients. In total, we estimate that these puts and takes resulted in a net benefit of only 1% to our first quarter 2020 biopharma revenues, primarily reflecting increased demand for certain products in Pfizer's hospital portfolio and an increase in the wholesale inventory levels for Eliquis. In the face of these factors, we delivered a strong quarterly performance overall, highlighted by 12% operational revenue growth in our Pfizer biopharmaceuticals group, which will be the business that remains following the anticipated closing of the abjunt transaction in the second half of 2020. We also saw total company revenue negatively impacted by three expected events. The July 19 loss of exclusivity in the U.S. for Lyrica, the July 31 completion of the consumer healthcare joint venture transaction with GSK, which removed our recording of revenue and expenses from this business, and declines in China due to the volume-based procurement program which was initially implemented in March 2019 and expanded nationwide in December of 2019. The Lyrica and consumer impacts will both begin to annualize in the third quarter. The biopharmaceutical group's outstanding growth was again driven primarily by strong performances from our key growth drivers. These include Eliquis, Vintakel Vintamax, iBrands, Enlighta, and Xtendi, as well as 15% operational growth in emerging markets. Our oncology business was particularly strong, up 25% operationally compared with the year-ago quarter. Global iBrands revenues increased 11% operationally to $1.2 billion during this quarter. In the U.S., iBrands revenues grew 15%, and it retained its strong leadership position in the CDK class due to increased volumes and continued CDK class market share gains. The international market delivered strong 25% volume growth in the quarter, led by emerging markets. This volume growth was offset by pricing pressures in the EU5 markets. As a result, operational revenue growth outside the US was 5%. For Xtendi, Alliance revenues in the U.S. were up 25% for the quarter, and when combined with our royalty income on ex-U.S. sales, total $256 million. XMD is the market leader with 38% market share in total prescriptions in advanced prostate cancer. Demand reached an all-time high during the quarter due to solid growth in castrate-resistant prostate cancer, expansion into metastatic castration-sensitive prostate cancer, and overall novel hormone therapy class growth. We are pleased with the early impact of the launch of Xtendi for metastatic castration-sensitive prostate cancer in the US. Xtendi is the first and only oral treatment approved by the FDA in three distinct types of prostate cancer. And related to our acquisition of RA biopharma, we are pleased by the FDA's approval of the lead RA acid, BRAFTOVI, in combination with cetuximab for the treatment of adult patients with metastatic colorectal cancer with a BRAF mutation after prior therapy. We believe the BRAFTOVI tablet has the potential to make a meaningful impact on the lives of those living with this disease. Beyond oncology, we had several other strong product performances. Eliquis continued to perform well. Pfizer's surge of the global revenue was up 29% operationally to $1.3 billion. This growth was driven primarily by continued increased adoption in non-valvular arterial fibrillation, as well as oral anticoagulant market share gains. Additionally, U.S. growth was favorably impacted by COVID-19-related wholesaler buying patterns, partially offset by a lower net price. Looking at our rare diseases business, Ventacle and Ventamax continue to show strong U.S. performance. Overall, these breakthrough medicines contributed $127 million in revenue in the U.S. in the first quarter. our disease awareness efforts helped drive the estimated diagnosis rate to 13% in the first quarter, compared with only 1-2% prior to launch. At the end of the quarter, more than 13,000 patients have been diagnosed, more than 8,500 patients have received a prescription, and more than 5,000 patients have received the drug. For the quarter, we estimate the average number of patients in the U.S. taking Vinterquel was approximately 4,600. These numbers include patients who are receiving the drug at no cost through our patient assistance programs. In Europe, we received approval of Vinterquel for the treatment of ATTR cardiomyopathy in February, and we have already launched in two markets, including Germany. That said, as a result of stay-at-home orders, we are seeing a slowdown in new diagnosis in April, as fewer patients are visiting doctors' offices for consultations or scintigraphy tests. Global Zeldon's revenue were up 8% operationally in the quarter to $451 million. Revenues outside the U.S. were up 38% operationally primarily reflecting continued uptake in rheumatoid arthritis, as well as from the recent launch of the ulcerative colitis indication in certain developed markets. In the US, Zeldjan's revenues were down 4%. This reflected continued strong demand across all approved indications, more than offset by a lower net price due to higher rebating from commercial contracts signed in 2019. as well as temporary lowering of wholesaler inventory levels in first quarter 2020. Wholesaler inventory levels for Zeldens were restored to normal levels in early April 2020, during Pfizer's second quarter, as underlying volume demand has remained consistently strong. Global Prevenor 13 revenues were down 1% operationally, to $1.45 billion, with 11% operational growth internationally, primarily reflecting continued pediatric uptake in China and the overall favorable impact of timing associated with government purchases for the pediatric indication in certain emerging markets, including Russia and Turkey. In the U.S., revenues were down 10%, primarily reflecting the unfavorable impact of timing associated with government purchases for the pediatric indication compared with the previous year quarter. Looking at our sterile injectables portfolio, our manufacturing recovery is having a positive impact on the top line in the U.S. We have completed most of our supply remediation and continue to invest in modernization necessary to sustain performance. In response to increasing demand due to the COVID-19 pandemic, In March, Pfizer shipped more than 30 critical medicines to 150% of baseline demand from this portfolio, and more than 10 of these exceeded 200. In certain cases, Pfizer supported up to 600 of baseline demand. Of note, our global revenue from a sterile injectable portfolio grew 15% operationally in the first quarter and increased 6% sequentially compared to fourth quarter of 2019. Additionally, more than 90% of our injectables portfolio is in stock today. Our global biosimilars portfolio grew 63% operationally to $288 million in the quarter. The increase was driven largely by steady growth in the U.S., thanks to a strong performance of Retacrit and continued progress with Inflectra, which was up 46% due to increased demand in open systems. partially offset by price erosion. We also have launched three therapeutic monoclonal antibody oncology biosimilars in the U.S. over the past few months, and we are encouraged by our initial engagements with payers and providers where we have not seen the negative impact of exclusionary contracting by the innovator companies that we had seen with the Inflectra launch. Revenues for our AppZone business were down 37% operationally in the quarter to $2 billion. The decline was primarily driven by the expected significant volume declines for Lyrica in the U.S. due to multi-shore generic competition that began in July 2019. AppZone revenues in China declined 41% operationally, primarily driven by undisputed declines for Lipitor and Norvac, primarily resulting from the value-based procurement program, which was initially implemented in March 2019 and expanded nationwide beginning in December of 2019. These declines were consistent with our previous guidance for the Abzon business. Regarding Abzon's combination with Mylan, the industrial logic continues to be very attractive. While we pushed out the expected timing of the deal close to the second half of 2020, mostly due to administrative delays related to COVID-19, there is no change in our commitment to the transaction and we continue to move forward with all pre-closing activities and initiatives. Last week, the European Commission approved the proposed transaction, subject to divestment of certain of Milan's generic medicines. Turning now to R&D, we continue to be excited with the progress we are making with our pipeline and the potential it has to deliver significant benefits to patients across a range of therapeutic areas. Since our last earnings call on January 28th, we have seen some exciting milestones. We announced top line results from a phase three study of Pfizer's 20-valent pneumococcal conjugate vaccine in adults 18 years of age or older. The vaccine candidate demonstrated a safety and immunogenicity profile comparable to licensed pneumococcal vaccines, and we expect to file the adult 20-valent pneumococcal indication with the FDA in early fourth quarter of 2020. We are announced, we are encouraged about our potential maternal RSV vaccine, which had a recent Phase II redoubt with preliminary positive data with favorable tolerability and safety. A Phase III start is projected within a few months, and we look forward to discussing this data with regulators. We announced positive top-line results from a third Phase III trial of abracitinib. The study, which evaluated the safety and efficacy of abrocitinib in adults with moderate to severe atopic dermatitis who were also on background topical therapy and included an active control arm treated with dupilumab plus background topical therapy, met both of its co-primary efficacy endpoints. In a key secondary endpoint, the proportion of patients in the abrocitinib 200 milligram arm let's see, the clinically significant reduction in each by week two was statistically superior to the dupilumab ARB, while the 100 milligram abracitinib ARB was numerically higher but not statistically significantly higher than the dupilumab ARB at week two. These data, along with the results from other positive monotherapy pivotal trials, will support regulatory filings, starting with the FDA plan for later this year. Our filing for Tanizumab was accepted for review in March at both the FDA and EMA. We are pursuing approval for the 2.5 milligram dose administered subcutaneously in patients with chronic pain due to moderate to severe osteoarthritis who have failed prior analysis. In the U.S., we expect an advisory committee meeting later this year and a decision from the FDA in December. A decision from the EU regulators is expected next year. Our ACC DGAT2 inhibitor combination has achieved positive results in a phase two proof of concept study for NASH. Data from that study will be shared at an upcoming Congress. The licensed ANG PTL3 NDSEN's oligonucleotide project successfully concluded the phase 1 to A part of the program, meeting its primary endpoint and multiple secondary endpoints. The program has advanced towards phase 2B with a focus on two indications, severe hypertriglycemia and cardiovascular risk reduction. Preliminary results in our Phase 1b Duchenne muscular dystrophy gene therapy study support the continuation of the trial and the start of a Phase 3 program, which is anticipated to begin dosing patients in the second half of 2020, subject to regulatory approvals, of course. The Phase 1b trial continues despite the current COVID-19 pandemic because of the urgent need of these patients and their families. We will be sharing more results from this trial on May 15th at the American Society for Gene and Cell Therapy Conference. Despite a brief pause in clinical trial recruitment, most of our key pipeline programs continue to move forward. The anticipated timing for top-line data from the Phase III Ibram's PALACE study remains early 2021, for example. because the study was already fully enrolled before the post. To end, Devel and Yuma Koka adult studies also have completed, and we are just waiting on the results. We look forward to rescheduling our investor day, previously scheduled for March 31st, once we have a clearer picture of the evolving guidelines regarding COVID-19. So now, before I turn it over to Frank, I would like to give you a broad view of our reaffirmed 2020 financial guidance for Total Pfizer. Pfizer and Abzan combined, which I see as a strong message regarding the strength and resilience of our business. I will speak to Total Pfizer and Frank will provide more specifics in his comments. Since our initial 2020 guidance was provided in January, we have seen three incremental factors that we have incorporated into our guidance. R&D investments we have made and plan to make during 2020 to combat COVID-19. The projected COVID-19 impact and other operational impact items on our operations in terms of the P&L and changes in foreign exchange rates. In terms of the first factor, as you have seen us announced already, we see promising science-based opportunity in terms of combating COVID-19. In support of this highly important initiative, we are increasing our projected R&D investment for 2020 by $500 million. This predominantly reflects the investment in our COVID-19 vaccine development collaboration with BioNTech, which is rapidly moving forward. Regarding the second factor, we have analyzed the changing dynamics within our markets and believe that we are likely to see more negative impacts during the second quarter, driven primarily by reductions in new patient starts due to reduced office visits and diagnostic testing and lower levels of elective subjects. we are modeling an overall economic recovery beginning in the second half of this year with an expectation that healthcare activity will approach pre-COVID-19 levels later in the year. Obviously, there are still uncertainties, but we believe we do have a resilient business model and a clearer line of sight for our business as compared with those in many other sectors of the economy. Our portfolio comprises medicines where we see potential different types of impact from the COVID-19 pandemic. Some are medically necessary, such as eliquids and eye brands, but also more reliant on continuing patients. Some are generally more reliant on new patient sites, such as vindical or chandix, or used in certain surgeries. and still other medicines that have been identified as medically necessary in the pandemic, such as some of our hospital sterile injectable products, and are seeing increased utilization because of the COVID-19 crisis. Also remember that a large proportion of our portfolio is made up of oral or self-injected medicines and that do not require a visit to an infusion center or doctor's office. In addition, a majority of revenue for our portfolio is derived from specialty pharmacy channels, which enables direct delivery of these medicines to patients. Both are positive factors in the current environment. Given that, we anticipated a blended impact of COVID-19. Let me offer a few specifics regarding how we are projecting the COVID-19 pandemic to impact our larger revenue growth drivers. Medicines such as Ibrans and Eliquis, both are expected to continue to generate new patient starts, but they are also more mature and therefore more dependent on maintenance therapy with continuing patients. Both are oral medicines, leaders in their categories, and very well known to physicians. Attributes such as Eliquis noted safety profile, which does not require regular monitoring. may provide an opportunity for appropriate patients with an alternative treatment option during this time. As for Ibrans, while we would expect to see some minimal impact in new patient starts for Ibrans in second quarter, we also expect to see a catch-up in the second half of the year. Vintacor is a good example of a recently launched product that not only is highly dependent on new patient starts, but the diagnosis process also requires a doctor's office visit and subsequent diagnostic testing through additional office visits. We anticipate a drop in new patient starts and are seeing that currently, and we are seeing that currently, but we believe the strong momentum behind this workbook will resume in the second half of the year in terms of diagnosis, prescribing, and patient access. Regarding Prevna, While we anticipated temporary slowdown in vaccinations in the second quarter, we believe that a resurgence in infant vaccinations to catch up could take place in the second half of the year. And for adults, we anticipate there will be heightened awareness of the importance of getting vaccinated prior to the next flu season. As of Zeldans, in a category where many other products are infusions, Zeldzans provide a number of options for patients which should be well suited to the current environment. Because Zeldzans has been in the market for more than eight years, a large proportion of its revenues is driven by continuing patients. It also has broad payer access and patient co-pay support. We expect to see temporary impact to new patient starts for Zeldzans in the second quarter. But again, we expect to see recovery in the second half of the year. Where we are seeing a more pronounced negative impact is with medicines that might not seem as obvious. Xandix, for example, which is generally prescribed during a well visit with a physician. And BMP, which is used in elective surgeries, would be two products I would highlight here in this category. When looking across the portfolio, we don't see this as revenue that will be lost forever, but mainly as deferred revenue to be slowly recouped as the pandemic eases and we see a normalization of interactions between our sales force and physicians and between physicians and patients. As a result, we believe that the anticipated net impact of these factors in combination with some non-COVID related operational improvements should be negligible in terms of our total company revenue rate projections for 2020. We have also reduced our SINA guidance for the year. This reflects reduced spending on both direct and indirect SINA during the first quarter, as well as some additional efficiencies identified for the remainder of 2020 in our indirect SINA reduction initiative. Lastly, regarding foreign exchange, Since our initial guidance in January, the U.S. dollar has strengthened, which drives an expected reduction of our revenues of approximately $600 million and negatively impacts adjusted earnings per share by approximately 4 cents. Bringing this all together now, our current view of the underlying strength, breadth, and projected resilience of our business in these uncertain times allow us to absorb both the incremental $500 million in projected R&D investment this year and the incrementally negative foreign exchange impact to maintain our initial guidance ranges on both the top and bottom lines. In addition, I see the long-term fundamentals of our business remaining strong and following the completion of the abjunct transaction, I expect our business to be positioned to generate

at least six percent compound on your revenue growth through 2025. we expect adjusted eps obviously to grow even faster now i will turn it over to frank frank 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 a 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 front lines 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 our manufacturing and supply chains to ensure patients can have the medicines they need. It is in times like these that the strength of our culture and of our people really shines. Now, on to 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 health care 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 one 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 Novask in China due to the 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 SINA 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 health care 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 lower selling expenses for Lipitor and Norvasc in China due to volume-based procurement, as well as lower indirect SINA 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 SINA expenses. Finally, foreign exchange had a negative impact of $134 million, or 1% on first quarter 2020 revenues, and a $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, Salesforce activities, and clinical trial enrollment. The guidance also assumes that 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 sets 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 Vietris 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 is 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 4 cents 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 SIA 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 for new Pfizer is a $1 billion reduction in the range for operating cash flow, driven entirely by a $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 in adjusted diluted EPSs. and we achieved multiple product 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. Now I'll turn it back to Chuck.

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

Ladies and gentlemen, if you would like to ask a question, please press star then the number one on your telephone keypads. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Reisinger from Morgan Stanley.

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 in 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.

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

So, David, on our guidance, we are assuming a recovery in the second half of the year. We expect the second quarter to be the quarter that's primarily impacted in a negative way from the COVID-19 virus, but we do expect a recovery in the second half of the year, and that includes the items that we talked about in our comments. in-person doctor visits start up again, new to brand prescription trends, Salesforce 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 punchline, second half recovery, and the health care system returns to normal operations.

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

Thank you, Albert and Dave, for asking this important question. I would start by saying I think we have the most comprehensive SARS-CoV-2 vaccine program currently ongoing, and it's specifically related to mRNA. As Albert alluded to, we had built a lot of experience on the various type of mRNA and the formulation of lipid nanoparticles through two years 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 light speed 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 mRNA type, what antigen is the most effective and allow us to pick one or two to move into pivotal studies. So that covers unmodified mRNA, modified and the self amplifying. To the best of my knowledge, we're 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 antigen that we picked seems to be the most relevant for intervening and utilizing viruses. And by having picked two, spike or the smaller component receptor binding domain again, I think we will be able to cherry-pick what turns out to translate most effectively 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, share data with regulators. So we expect a flow of data coming May, June, and then move into expanded trials that could allow emergency use or accelerated approval coming in the fall, possibly October and onwards. So thank you very much for your questions.

Thank you, Michael. And also, let me add here, but the reason also why we jumped into this is not only because we had the familiarity with the company, with 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 are having 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 during the last quarter of this year. And also, it would be an omission if I wouldn't mention right now that how grateful we are with the advice and collaboration that 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. Let's go to the next question. Yes, next question. Thank you.

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

Just to first on Vindickel and the impact from COVID, it sounds like you're expecting a slowdown in diagnosis rates in the quarter. Should we also expect that Rx's and patients receiving drugs 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 Vindickel 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, just any data there would be very helpful. My final question was on Prevnar infants. Are your expectations for that product for the year unchanged so that we're going to obviously see you get 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? Thanks so much.

Thank you, Sot. I think all three questions are very well suited for Angela to answer. So, Angela, why don't you start with Vindakel?

Great. Thank you. Thanks for those questions, Chris. So, firstly, on Vindakel, as you can see, we continue to have just great momentum behind this product. And we do believe that this will sustain its performance throughout the year. As Albert mentioned, we do think that there will be some slowdown in NRXs in the second quarter. And actually, just to align with those comments, we did see that in our patient hub enrollment, 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 Vindicale. It's an oral medication. It's one that is being delivered through specialty pharmacy 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 your third question was on Prevnar P. And on Prevnar P, similarly consistent with comments made earlier, we do anticipate 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 pediatricians offices. So we do anticipate some slow down there, but we also know both from our own 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 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 peace for all of 2020. Great.

Thank you, Angela. Thanks, Angela. Operator, next question, please.

Your next question comes from the line of Umar Rafat from Evacor ISI.

Hi, thanks so much for taking my question. I hope you all are staying safe. Michael, on your antiviral for COVID, you're going down the protease inhibitor track instead of the nuke. 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 ask because some of the initial 3CL inhibitor constructs you had chosen against SARS, their EC50s were above 10. So I wonder if you are seeing something closer to a 1 on the protease inhibitor you've chosen. And secondly, on COVID vaccine, Michael, I'm curious, what's the exact threshold on neutralizing antibody titer that you want to see for you to say, you know what, we have something?

Thank you, Marshall. Michael, the stage is yours.

Yeah, thank you very much, Omer. Great questions here. So let's start with the protease inhibitors. You know, we had the privilege that this isn't just a 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, the COVID-19 disease, are very potent. We are talking about, you know, very potent non-hormonal type of binding. And this 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. Altogether 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 be able to dose patients around August this year. We're also working on oral full-on drugs 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, you know, what could be animal data guiding us on what should be the relevant thresholds 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 the surrogate endpoints. We're also looking at convalescent serum from patients to understand which of those that are used for treatment intervention guides us, and we'll actually use those also in intervention models. So while we expect in our phase two study later summer Q3 early to generate human data on our vaccine when it comes to impact on events, this 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 be aiming 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.

Thank you, Michael. And also to add that with the antiviral, as we did with the vaccine, we are producing at-risk clinical material. So in case we decide to go in the summer into clinical studies, as Michael said, we will be able to do it immediately. All right. Talk to the next question.

Yes. Next question, please.

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

Hi. Thanks for taking the questions. Maybe two for me. The first is, given the current environment, 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 three 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. Thank you.

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

Sure. So, Terrence, on capital allocation issues, 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, some mergers and acquisitions. And clearly there's 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.

Thank you, Frank. And then, Michael, is there anything that you are waiting more on, on Limacoccal's doubt, or do you think you can file?

You know, we are very... confident in the pneumococcal adult after the completion of the main efficacy study that we have done a press release, and it has the immunogenicity, safety, and tolerability that we were looking for. We also recently had a lot consistency study to read out, which again showed similar great 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 a promococcal vaccine that will be coming shortly. But, you know, for naive patients, we do have all data available, looking like a very strong profile and weighing just to supplement with the data set coming on previously immunized, which, you know, this would be to expand their coverage. And that's why we, you know, feel very confident about filing And you heard from Albert's introduction that we moved it to early Q4. Thank you very much.

Thank you. That's great. Operator, can we go to the next question, please?

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

Great. Thanks, guys. Just two questions, probably both for Angela. Can you just talk about the I-Rent trends, particularly the EU5 price headwinds? When did those and how should we think about iBrands growth for this year? And then just a follow up on Vindicale, 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? Thanks. Angela, go ahead.

Sure. So iBrands in the EU, I want to affirm that our fundamentals and our growth for eye brands in the EU continues to be really strong. And we continue to see great growth opportunities, you know, into the future. Right now, the first line metastatic breast cancer share of the CDK class is only at 38. So, you know, 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 iBrands 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 online. 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 business. And so those impacts are already included in our guidance. And because of the timing of when these contracts were 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 comparisons that is driving the effect of what you're seeing from a net sales perspective. But I want to reaffirm that our fundamentals are strong, the value proposition of iRans is strong, and we continue to see tremendous growth opportunities both for the class as well as our own share. Your next question was about Vindicale. 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 heightened awareness around which patients we should suspect for ATTRCM and then have those patients be then diagnosed through scintigraphy continues to be the mainstay of how we are generating diagnosis. You know, 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 we'll continue to do so.

Right. Thanks for the detail, Angela. Next question, please, operator.

Your next question comes from Tam Anderson from Wolf Research.

Thank you. On your 20-valent pneumococcal conjugate vaccine, Just an update on timing for when we are likely to see the phase three trial start in PEDS to keep that gap with Merck as small as possible. And then a second question on adjuvant, IBRANTS, 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.

Yes, thank you very much. Let me take quickly the adjuvant, and then Michael, please answer the plan development, and Ed, if you have anything on the adjuvant. We have not run any interim analysis yet on PALAS study. And we expect, as we said before, that the study will come to completion, which means that we'll not stop, we expect, during the interim because we have set very high criteria for stopping so typically we do not announce when we have interim analysis data and visibility unless if we stop so as i said we don't have data we haven't performed an analysis yet and analysis has not been performed typically we don't announce it and the study will come to completion is expected early in 2021 So, Michael, on the trend development, on the PIDs, when we can start the phase three, and then you have to add something in the balance.

Thank you very much, Albert, and Tim, for the question. You know, after the press release of the three injections, immunization or the PID, we later shared that the fourth dose further substantiates the 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 PID PCV20 very soon. We're talking likely about just a few weeks to be clear. That's our projected plans right now. And I think you said very well on the adjuvant IBRNs that we feel very optimistic and good about them and just waiting for them to, you know, report on the dates that we have communicated.

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

Sure, Chuck. So as you said, we will launch tentatively after the MERC 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, you know, we are confident of our PCV13. 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 the maybe gap in launches, we anticipate to be competing in the market and to continue to support the benefits of PCV13 to infants.

Great. Thank you. Operator, can we please move to the next question?

The next question is from Louise Chen from Kantor.

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 PCV20. Just curious if you think from the adult side, that the ACIP recommendation would change at all if you were to get approved for PCV20. Thank you. Thank you.

Let me maybe speak a little bit on the strategy on M&A, and then John also can add to that. Then I will ask Michael on the DMD, and then maybe Angela on the PCV20 again, how ACIP will do the adults. On the go-forward strategy, our strategy is very clear and will remain the same. Post the expected separation with ABZON, Pfizer will become a top-line, best-in-class growth story. And we are feeling more and more confident about it. We are strengthening our language around the 6%. Today I said at least 6% will grow. And that we expect that will continue. Now, the M&A is not a strategy. It is a tool to support a strategy. And that's why the M&A in the past, We're much more geared towards buying revenues or buying earnings growth by big mergers that could cut costs because this is what we needed at that time. Right now, moving forward, we are not in a need to buy EPS. Our EPS will grow organically as our revenues will grow organically. So our M&A, although we never say never on anything in M&A, right now it will continue that our strategy is not. to go to a big M&A for the following three reasons. One, it is that very few targets will provide, will not dilute our growth, very few. Most of them will grow less than us, so we'll have dilution. Secondly, that targets usually they want a significant premium, and those makes me feel that most of the value is captured by the shareholders of the acquirer, like the one that is making the acquisition. And, of course, those big acquisitions are creating some distractions, which R&D could be an issue. So these are the considerations. In terms of saying where are we going to invest our capital, if this is not our first priority for the reasons that I said, we are going to invest in early phase two, phase three, ready to start. potential medicines that could be part of our pipeline so that we will strengthen the pipeline that is coming post, as products post-25, 26, 27, 28, so that we can sustain the growth that already we feel very confident we have organically in the next five, six years. So that's on our strategy and NMNA. DMD, Michael, what makes you optimistic?

Yeah, thank you very much. I mean, it's such a transformative area treating these boys with Duchenne. So we are now treated, as you will learn more at the conference, 11 patients, eight of them at the high dose of 3E to the 14. And we continue to see very consistent data on efficacy, looking at the dystrophin expression, the distribution of the dystrophin, and as we have treated more patients and the early boys that were treated, we have now longer observation period, we can also see that durability seems to exceed 12 months when it comes to gene expression, which makes us feeling very good that this could be a long durability for these boys. And we also have data coming out on muscle health, creatine kinase, and more recently, MRI, that allow us again to add another level of confidence that we're changing the health of the muscles. And finally, for the motor function, where you use clinical scales, we have seen across a number of treated boys favorable data on their North Star And I want to point out that we have seen it across different ages because if you mainly monitor early boys for this, they do have some spontaneous improvement that could be difficult to differ from treatment-induced. But we have also seen it on older boys where you expect decline, but we have noted improvement instead. So all in all, we feel that we have now accumulated a very robust data set on efficacy, and we have learned important experiences how to mitigate risk and manage any possible safety event. Of course, we have one of the largest efforts in new therapy manufacturing that has been expanding in North Carolina, and that will all come together now in our plans to start of his three trials in just a few months. So thank you for your interest.

Thank you, Michael. You're really very exciting news for these boys, particularly though they have virtually no solutions right now. Angela, what about our use on what could be the recommendations of ACIP on the adult pneumococcal vaccine, the 20, and competition?

Yes. So, you know, we're really excited about our PCB20 program and specifically about the breadth of serotype coverage that PCB20 provides. And we really see the benefit in two ways. One, first of all, these incremental serotypes are associated with high case fatality rates, antibiotic resistance, and or meningitis. So, you know, these are sort of serious diseases that these serotypes will be able to cover. But also, relative to PCV15, PCV20 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 our regulatory authorities. We will certainly be discussing recommendations and what all this means. But I think in the end we all 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 PCV20 can provide, and we'll keep you posted with what happens with the CDC. Thank you.

Thank you, Adil. And John, do you have to add any comments on our go-forward strategy, given that you are managing this area very successfully right now, and particularly on M&A targets or licensing targets that we have?

Thanks, Albert, and thanks for the question. Obviously, we don't talk about specific targets, as you all know, but I think Albert really hit on the main point in his answer, which is We feel really good about the prospects for the continued growth of our core business. In terms of business development to strengthen that, our focus is absolutely on clinical stage assets. I think Frank touched on this in his answer to capital allocation earlier on, but we're really very focused on clinical stage assets that could complement our existing internal pipeline that we feel good about. So we're going to be focused on areas, including oncology, where there could be interesting tuck-ins. We're going to be looking at rare disease. There's a lot of innovation taking place there. And I think we're uniquely placed because of the capabilities and manufacturing and development that Michael's touched on to add to our pipeline. And we continue to look across, you know, our other areas, you know, as well, at select opportunities. So, you know, we think there are opportunities out there. We continue to be very active in this space. But, of course, we're always going to make sure that we're disciplined. And we deploy capital in a way that really optimizes value for our shareholders, but most importantly for our patients. So I think between Albert's and Frank's answers, hopefully that gives you a flavor of how we feel about capital deployment and business development for our business strategy post the separation of Upjohn. Thank you very much.

And 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 for the DMD, provided that it's successful and registered. So, Chuck, let's go to the next question.

Yes, please. Let's move to the next operator.

Our next question comes from Steve Scala from Cowan.

Thank you. I have a few questions. First, on abracitinib, 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 PALIS 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 Eloquist stocking in the quarter? Thank you.

Thank you very much. I will very quickly answer the Penelope. No, Penelope is expected to come in the second half of this year. The palace is expected to come early next year. This is exactly as we had said it before. Michael, why are you excited about abracitinib?

Yeah, you know, we are very excited about abracitinib, and let me just punctuate a few things. In the Jade Compare study, we showed that both high and medium doses met co-primer endpoint in very effectively reducing eczema. We had a key secondary endpoint of comparing itch to Dupixent standard of care. And this is one of the most patient-centric endpoint impacting quality of life both day and nighttime. And at the high dose, statistically significantly showed better effect, clinically meaningful, than dupixen, while the lower dose, the 100 milligram, numerically was better, but didn't reach statistical significance. You know, overall, what we see is more rapid onset with our paoral abracitinib than the biological... And we see a more rapid onset numerically, whether you look at skin clearance or whether you look at itch. And while there is some more infections, always with higher doses of JAK inhibitors, we think and I believe that the benefit versus the risk is still very favorable. These are mild to moderate cases, most attenuate. and basically all attenuate if you discontinue treatment. And I want to finally emphasize that we have a very exciting additional trial that is not necessary for filing, but it's coming later this year, the trial regimen that will study if you start on the 200 mg, which we know will clear skin with usage much faster than standard of care, And then you can switch in a maintenance to the 100 milligram, which, you know, likely have a lower level of any adverse event, including infection. Does that give you potentially max flexibility to treat and clean up itch and skin and go on a lower dose? But again, the benefit risk to me looks very favorable also for the higher dose. These infections are relatively rare. They're mild to moderate and can easily be managed. and are, you know, quite common for patients treated by dermatologists. So I feel very good about high dose being superior and the lower dose being somewhat similar to the PICS and still having faster onset of action numerically and is plural and very convenient to take. I hope that gave you a good sense why I feel encouraged to see these new treatment options for patients moving to regulatory discussion, and hopefully soon available. Thank you.

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

Yes. In terms of this eloquent 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.

Great, thank you. We have time for a couple more questions. Operator, can we move to the next one?

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

Thank you. I know that you've added a couple of very distinguished founders to the board. You've also added a former FDA commissioner under your tenure, Albert, as well as the Mylon transaction. Should we think about this has been the accelerated evolution of Kaiser in terms of trying to improve the ROI that it 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 talent enrichment that's gone on that also points in that direction. And then second to Michael, 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 I.O. targets, such as TIDGET, and there's some others out there with a randomized phase two trial, should I assume that Pfizer is willing to re-engage back in that field? I know I'm exaggerating in terms of binary, but it does seem that you have pivoted back towards small molecules. Then finally, if you'd comment on the anticipated treatment duration in the real-world setting for PALIS given the issues with adverse events as well as reimbursement friction for Medicare patients. Andrew, can you repeat the first part of your question, the ROI? Yeah, so I was basically saying that, you know, under your tenure, Albert, there's a notable addition of three individuals with high scientific calibers. the former FDA commissioner, but also two very distinguished scientists, as well as de-complexifying the organization by the Upjohn transaction. So when I think about the evolution of the business under Pfizer, it does seem that the 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 is something changed in the profile of improving the ROI on R&D?

I got it now. No, thank you very much, thank you very much. And the answer is absolutely yes. It's not by chance that right now in our board we have five top scientists, four of them physicians, top scientists that they have unique expertise, either in regulatory science, they have unique expertise in development, they have unique expertise in basic science, both in primary care and metabolic diseases, and immunology. We have also, through Susan Hockfield, she was the pioneer of bringing together the genomic data with computation power. She was the first biologist and first woman to be any head of the president of the MIT. And this is a very clear statement that Pfizer is different. Pfizer is a science-based company, and this is where the growth is coming. And we are adding those board members to provide also more visibility, but also because they help us with their very high knowledge. Now, there is not one or two. There are multiple measures, metrics that we are using to assess if indeed our R&D machine is a new machine and if we can count on it in this new strategy. And they are all pointing in this direction. I think we've made very clear that the Pfizer of the past, because you ask a question of how if you can kill quickly and if you can, let's say, progress things that they really matter rather than move everything. Pfizer of the past had the success rate of phase two studies of 15% when I saw the past few years back. 15% when the industry was at 30%. Today, Pfizer's success rate, it is close to 50%, 5-0. And that's on a rolling four years assessment right now. And I'm sure next year will be 50% or rolling 50%. And this is not the only one. In 2018, we were the company that introduced most new molecular entities of anybody else who would expect that from Pfizer. And it can go on and on. John Young, has a very detailed list of criteria, and he's managing the governing process that is making sure that as we allocate capital, we allocate with R&D ROI in mind. And also I will add that the speed with which the company is reacting has nothing to do with the company of the past. And by the way, this is very well indicated in the way that we were able to move better than any biotech. in speed in developing vaccine or in the speed in developing an antiviral. And the reason why we have been able to accomplish this speed, in addition to be cultural, it is also that we can break the company into five distinct business units, plus one, excuse me, six, together with hospitals, business units. And that each one of these business units, for example, oncology, vaccines, rare diseases, they operate like a biotech. they make decisions end-to-end from commercial to early R&D within this structure. Like if I said, if they were a biotech company and they are presenting their requests for finance and into the committee that John Young is managing so that you can allocate the capital. And last but not least, although Pfizer is laser-focused on this and ROE of R&D as we are progressing. It was absolutely to avoid misunderstanding. It was absolutely not one of our criteria when we jumped into the COVID-19 programs. The only criteria that we used as we jumped into the COVID-19 projects was if we can have a solution, if we can make the difference, if we think that our technology is good one, so that you can bring a vaccine or an antiviral, because this is not times that ROI should prevail for COVID-19. It is times that the solution should be found. So with that, I hope I gave you some color on how Pfizer is changing and what is the meaning, which is more than symbolic of appointing the new board members. And I go to Michael to answer your second question.

Thank you for that question. You know, we think we need to be careful and not throw everything under the kitchen sink into immune oncology. We try really to share picked 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 with subcute unique profile. full-on PD-1 bifunctional with cytokines that can boost immune resistance, and we have oncolytic viruses. You know, we were successful combining Enlyta with PDX, and we're building on that experience to now move from actually our Boulder unit, former Ray, a small molecule this year that we think is an immune enhancer for cancer, an Axelmer inhibitor. So I hope you got that information. answer that we are cherry-picking the areas where we think we can break resistance to IO rather than just throwing everything onto this area.

Thank you very much for your questions, Andrew. So, Tak?

Yes, let's try to get a couple more in. Operator, next question, please.

Your next question is from Vamil Devan from Mizuho Securities.

Great. Thanks for taking my question. So, One, maybe following up on the question from before, Steve's question. So, Michael, I definitely get the enthusiasm you have on the efficacy side and the convenience side. Because my question is just more on safety. Now that you've seen the compare data, and as you think about the filing, just your level of confidence on the label being clean from some of the black box warnings we see for the current Jax in terms of infections, malignancies, but obviously also VTEs. I think in talking to dermatologists, I feel like it'll be critical for it to be to not have a black box in order to compete with a product like Dupixent. So maybe just you can share your views there. And then the second one also on the immunology pipeline, your JAK3, the 1600, just curious on timing of that. I think clinical trials says that the trial is expected to read out the phase two, phase three is expected in September of this year, but it also says it's still recruiting patients. So just trying to get a better sense of when we might see data for that product. I know it has breakthrough. Got it, thanks.

Thank you, thank you very much. Michael, jump immediately.

Yeah, you know, abracitinib, you know, we have a large database. I feel very good about its profile. We have not seen any, you know, cardiovascular issues, and that's really what is worrying about safety. While we see, as expected, you know, some viral skin infections, I consider them more of, you know, safety tolerability and are 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 YAK3 in alopecia has a very unique profile. The most selective of all YAK that I've seen this far. We think 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 II, like JAK3 in vitiligo. We have oral ticturium psoriasis and topical in atopic dermatitis. So we'll keep you busy with a flow of news. Thank you.

Thank you, Michael. Operator, can we get another question, please?

Your next question is from Naveen Jacob from UBS.

Hi. Thanks so much, Naveen from UBS. Thanks for fitting me in. Michael, just wanted to just touch upon the commentary with regards to the regulators allowing surrogate markers for the SARS-CoV-2 vaccine. Just want to dig into that a little bit more. What specifically will they be looking for that allows speedy approval And then I want to understand the manufacturing targets that you have by year end if approved. If approved, I just want to understand is it, I'm assuming it's going to be under a sort of expanded access use basis for healthcare workers. And then what do you need from regulators for a broad approval for the general public? Any kind of clarity around that would be helpful.

Yes, I do not know how the regulators would like to regulate that. So 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, Michael, maybe a little bit you can answer

the question about the endpoints or the surrogate endpoint there are of course interests of both regulators and farmers to see how we can learn maximally to allow potentially very important vaccine quickly to deal with this both medical and business crisis so we have had ample discussions with the highest level of regulatory leaders in both u.s and europe So on the surrogate side, there are two animal guiding principles, if you can show, for life-threatening diseases data. And we are pursuing mice slash 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 patients' era and testing them, how they can intervene in these models and trying to correlate convalescent patient transfusions and what levels protect the disease or, you know, 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 two 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 this. 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.

Right. Thank you, Michael. Operator, we have time for one more question, so if we can move to our last question, please.

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

Great. 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 healthcare systems given likely pressure on EU budgets And is your expectation we see similar austerity measures like we saw last decade? Thank you.

Yeah. So I think it's very difficult to predict. And in any case, I think our assumptions is that pricing is not the growth driver. Pricing is volume is going to be our growth driver, even without COVID. But I think if I had to speak on a high level on COVID right now, I think, and not on the short term, but on the long term, as you are asking, I see two dynamics here. One is the one that you mentioned, which is likely governments will have, let's say, budgetary pressures, and we know that that's typically an area that they try to go. So that, I think, will be towards the negatives. But also we see that the value proposition of the pharmaceutical industry has been drastically reset in the minds of the people right now, because the pharmaceutical industry right now in the middle of this crisis represent the hope of the billions of people and the hundreds of millions of enterprises that will find a solution towards that. And I think that will work on the very positive side. So remains to be seen what will be the net net of those two areas. But I believe that in any case, it's not going to drive growth by pricing is going to be by volume. So I guess this is the end of, and thank you very much for this question. Really appreciate it. So I think this is the end, Chuck. So let me just thank you all for joining us today, for your continued interest and engagement within Pfizer. We are very happy to provide information and also are very happy to learn from you. As I said at the start, this is an extremely difficult time for everyone. As such, it is both a great privilege and a great responsibility for our colleagues to serve patients At this moment, we have an opportunity to demonstrate the power of our science, and we will do everything we can to do to be part of the solution to this problem. And I want to close by acknowledging the healthcare workers on the front lines whose heroic efforts have been an inspiration to all of us. Their courage, their dedication, and expertise have saved countless lives right now. and probably in the future even more. And on behalf of all Pfizer colleagues and their families, I say thank you. So have a great rest of your day.

Ladies and gentlemen, this does conclude Pfizer's first quarter 2020 earnings conference.