Good day, everyone, and welcome to Pfizer's Analyst and Investor Call to review amended U.S. government Paxlovid supply agreement and updated full-year 2022-2023 guidance. Today's call is being recorded. At this time, I would like to turn the call over to Francesca DeMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma'am.
Good morning, and welcome to our call to review Pfizer's amended U.S. government Paxlovid supply agreement and updated full-year 2023 guidance. I'm Francesca DeMartino, Pfizer's Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. The news and guidance update that we will be discussing today was issued in a press release last Friday, which is available on our website at pfizer.com. Leading today's call are Dr. Albert Bourla, our Chairman and CEO, and Dave Denton, our CFO. Albert and Dave have some prepared remarks, and we will then open the call for questions. Joining for the Q&A session, we also have Doug Lankler, our General Counsel. Before we get started, I wanna remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures.
I encourage you to read the disclaimers in the press release we issued on Friday and the disclosures in our SEC filings, which are all available on the IR website on Pfizer.com. Forward-looking statements on the call speak only as of the date of the call. I also wanna remind you that today's call will focus solely on the topics covered in Friday's press release. We are still finalizing our third quarter results and therefore, may need to defer answering some of your questions until our upcoming third quarter earnings call, which is scheduled for October 31. With that, I will turn the call over to Albert.
Thank you, Francesca. Hello, everyone, and thank you for joining us today. Last Friday, we announced an important agreement with the U.S. government that provides us with a clear pathway to U.S. commercialization of Paxlovid next year. We believe this agreement will make it easier for eligible patients to access Paxlovid, will ensure that the United States will have a robust stockpile for future use, and helps provide more clarity on the commercial market for our COVID-related products. The commercial transition will begin in November of 2023, as the U.S. government begins to discontinue the distribution of EUA-labeled Paxlovid. Pfizer will ensure commercial readiness by providing NDA-labeled commercial supply to all channels by the end of 2023. However, EUA-labeled Paxlovid will remain available free of charge to all eligible patients until the end of this year.
Therefore, we expect only minimal uptake of NDA-labeled commercial product before January 1, 2024. Ultimately, this transition to commercialization will enable more pharmacies and other healthcare sites to stock Paxlovid, unlocking access for a greater number of eligible patients across the U.S. The price of Paxlovid sold to privately insured commercial patients will be negotiated with payers. The agreement has an important component, which is a non-cash transaction, whereby the U.S. government will return an estimated 7.9 million unused EUA-labeled Paxlovid treatment courses at the end of this year at the original contract price, and will receive a volume-based credit from Pfizer for NDA label treatment courses to be supplied on behalf of the government in the future.
This credit will be used by the U.S. government, first, to distribute Paxlovid to federal entities and operate a patient assistance program on behalf of the U.S. government for the uninsured and underinsured from 2024 through 2028. Second, in 2024, to allow patients insured through federal programs, such as Medicare and Medicaid, to continue to receive treatment free of charge through this same program. Separately, Pfizer will provide the U.S. government with 1 million NDA-labeled Paxlovid treatment courses for a strategic national stockpile in 2024 at no cost to the taxpayer, and refresh stock prior to expiry through 2028 or earlier if the stockpile is depleted. By 2024, Pfizer will recognize revenue as Paxlovid commercial product is delivered to U.S. privately insured patients at prices negotiated with payers.
Also, beginning in 2024, any Paxlovid distributed in the U.S. outside of commercial channels will be applied against the U.S. government's credit. Revenue will be recognized by Pfizer as these treatment courses and the stockpile treatment courses are delivered based on the original contract price, adjusted to reflect the stockpile. This agreement will affect Pfizer in a number of ways, including providing us with greater clarity regarding the commercial market for this important treatment and reducing future uncertainty for our broader COVID-19 portfolio. Through 2023, we have taken actions to continue to mitigate the uncertainty in our COVID-19 portfolio. As previously announced, the European Union contract for Comirnaty supply was renegotiated with amended purchasing obligations through 2026.
The U.S. market for Comirnaty transitioned to commercially available product in September 2023, and now this amended agreement with the U.S. government provides us with a timeframe for commercializing Paxlovid as well. Finally, by the end of this year, we expect additional clarification on the expected trends for global vaccination and treatment rates. We believe the rates we see this fall will provide a solid foundation for future expectations. We have come through the period of fear that defined the early days of COVID, where everybody wanted to be vaccinated very quick. In fact, we are right now in the middle of COVID fatigue, where everyone wants to forget about the disease, and we are experiencing a peak of anti-vaccination rhetoric.
Therefore, we believe those who are getting vaccines and medicines in the current environment are people who believe in the value of protection and treatment, and will continue this behavior in the years to come. Given that clarity, combined with the lower than forecasted demand for both Paxlovid and Comirnaty we are currently experiencing globally, we have revised our full-year 2023 guidance and launched a program designed to reduce our cost and align them with our longer-term revenue expectations. At this time, I will turn it over to Dave Denton, who will provide more details on guidance and our cost realignment program. David?
Thank you, Albert, and good morning. As we announced on Friday, we now anticipate our full-year 2023 revenue to be in the range of $58 billion-$61 billion, compared to our prior range of $67 billion-$70 billion. The reduced range is solely due to the expected performance of our COVID products. We are reducing our full-year 2023 revenue expectations for Paxlovid by approximately $7 billion and for Comirnaty by approximately $2 billion. Now, for Paxlovid, the $7 billion reduction includes an estimated $4.2 billion non-cash revenue reversal. This will be recorded in the fourth quarter of 2023 for the return of approximately 7.9 million unused EUA-labeled treatment courses from the U.S. government's inventory. It is important to note that our non-COVID product portfolio remains strong.
We continue to expect these products to achieve year-over-year operational revenue growth in the range of 6%-8% in 2023. Due to lower than expected utilization for our COVID products, we have recorded a non-cash charge of $5.5 billion to cost of goods sold in the third quarter of 2023. This charge is primarily related to inventory write-offs for Paxlovid of $4.6 billion, and to a lesser extent, for inventory write-offs and other charges for Comirnaty of $0.9 billion. We also expect to deliver approximately $1 billion in savings in 2023 through our cost realignment program versus our prior guidance, which I'll speak about in just a moment. Our revised guidance also reflects anticipated improvements in our effective tax rate on adjusted income for 2023, from approximately 15% in our original guidance to approximately 12%.
Due to the combined impact of these items, we now expect full-year 2023 adjusted diluted earnings per share to be in the range of $1.45-$1.65, compared with our original guidance range of $3.25-$3.45. The change represents a reduction of $1.80, with $1.46 associated with the one-time impact from the return of Paxlovid from the U.S. government and our write-offs, with $0.34 from the lower-than-expected COVID revenues for 2023. Now, let me touch briefly on the cost realignment program we also announced on Friday. During our second quarter earnings call, we shared that we were carefully monitoring the demand for our COVID products.
At that time, we also said we were preparing, if needed, to adjust our 2024 total operating expenses to align with our longer-term revenue expectations. Given the new realities that Albert just mentioned, we now know that we need to adjust our cost base accordingly. We expect our enterprise-wide program to deliver annualized targeted savings of at least $3.5 billion by the end of 2024. This includes the $1 billion of targeted savings in 2023 that I mentioned earlier, and an additional $2.5 billion in targeted savings to be realized in 2024. This comprehensive cost realignment program will touch all parts of the business in all regions. We have established a program management office comprised of senior leaders from the company to help ensure these savings are realized.
The one-time cost to achieve these savings are expected to be approximately $3 billion, which will primarily result in a cash outlay in 2024. These costs will include severance as well as implementation costs. We will continue to revise our estimates and our targeted savings and their associated costs over the remainder of this year, and we'll incorporate them into our full-year guidance for 2024. Lastly, I want to point out that our revised guidance and cost realignment program have no impact on, and have not been impacted by, our plan to acquire Seagen. We remain extremely excited about the deal, which reflects our significant commitment to helping lead the battle against cancer. We continue to expect the transaction to close later this year or early in 2024, subject to customary closing conditions, including the receipt of all regulatory approvals.
We have raised $31 billion in acquisition financing so far and continue to expect incremental 2030 revenues in excess of $10 billion and cost efficiencies of $1 billion without impacting R&D programs. With that, I'll hand it back to the operator, so we can open it up for questions.
At this time, if you would like to ask a question, please press star one now on your telephone keypad. To withdraw yourself from the queue, you may press star two. Again, to ask a question, please press star one. We'll take our first question from Robyn Karnauskas of Truist Securities.
Hi, thanks for taking my question. I think, you know, as we've digested all the news over the weekend, I think the big-picture question that we had was, you know, how do you actually think about coming up with a formula to guide for next year? How do you come up with certainty that how Paxlovid will be used, you know, how testing will be done, and how the vaccine business will shape up? It seems like there's so many unknowns that you may not be able to give a great job of guiding for next year, given there's so much uncertainty. Just start off with that big-picture question. Thanks.
Yes. First of all, we will provide guidance for next year when time comes, and usually this time it is when we report our fourth quarter earnings. But I think when it comes to Pax, to COVID revenues, I think you have enough elements to make your own calculations right now, because a lot of the uncertainties have been that they were this year, now have been eliminated, and some of them, by the end of the year, will become more clear. Let me be more. Comirnaty. E.U., you have now a way to calculate it because the contract has been renegotiated and there are purchase obligations every year, so that you can calculate this. On the U.S., the uncertainty was, are we going to commercialize?
That happened in September, so now we are into the market with the new price that you will see this year. The only uncertainty that remains for the vaccination is the vaccination rates, and those, we are going to see them, how that evolve by the end of the year. I think it is fair to say that whatever will be the vaccination rates this year, this is our expectation, will become a solid foundation of what will be the vaccination rates for the years to come. Because those are the people that truly believe, as I said, in vaccination, the value of vaccines, because we are really far away from the COVID fear, that everybody wanted it. We are in the middle of the COVID fatigue. Nobody wants to speak about COVID. We have the peak of anti-vaccination rhetorics.
With all of that, those people that will go to get vaccine this year, I think will go get next year as well. Now, let's move to Paxlovid. There was a clear uncertainty of what happens with the U.S. stocks that were, or government stocks that were significantly quite significant, and we estimate that the end of the year will be 7.9 billion doses that are enough for an additional year of utilization, right? So this also uncertainty is going away. We will wait now to see how the treatment rates evolve, and then you can calculate what will be the treatment rates for the next year. And then you should apply the new prices. And for the commercial, that you don't know, but you will find out pretty soon, because we are currently starting negotiations with the payers.
And also for every Medicare or Medicaid or uninsured patient that we will be providing product in 2024, we will be recording sales for these volumes at the prices, approximately the pandemic prices. It is a pandemic price of $530, as you know, adjusted slightly for the inventory, for accounting, the stockpile for accounting reasons. So I think you have enough elements right now to estimate the future revenue COVID in 2024 and beyond, and that by the end of the year, when you have vaccination and treatment rates, that they are more clear, you can do even more accurate job.
Yeah. Hey, Robyn, this is Dave. Maybe I'll just emphasize a couple points. One is clearly the COVID products will be informed by the remainder of the year as we commercialize these products. As we've always anticipated, these products become more standard and more consistent, so we'll be able to predict them better. And third, I think we've learned a lot over the last year and a half of how these products will perform. Our expectation is we will model that. We will come into the market next year with guidance that we believe is appropriate and conservative and give you the risk and opportunity to associate with that.
Thank you. Next question, please.
We'll take our next question from Evan Segerman of BMO Capital Markets.
Hi there. Thank you so much for taking my question. So you indicated that we're reaching a peak in vaccination rate in your prepared remarks. Does this imply that you think we could actually see an increase in vaccination rates going forward, or should this be the new normal? And as it comes to Paxlovid, can you walk us through kind of what has changed from second quarter to now? Is this solely driven by a renegotiation of the government contract, or are there other factors at play that really drove the guidance cut? Thank you so much.
For the new normal of vaccination rates, I think that, as I explained, because of the circumstances of this year, whoever would get vaccines likely are the people that they are truly believers in the value of the vaccine. So that should be a good foundation for a conservative, if you want, estimation of what should be the vaccination rates going forward. Are there chances that this could become even higher or not? I, I think only if there are combination vaccines, that that could be a significant catalyst into the market, combination with flu or RSV. But right now, what we assume it is that vaccination rates of next year will be similar to what our vaccination rates are this year. I will ask David to speak a little bit about what changed.
It was only the U.S. government or what else triggered our?
Yes, as it relates to our guidance change, the vast majority of the change within our guidance is related to the U.S. government renegotiation of the agreement. But clearly, underlying that was some change in what we see from a utilization perspective for patients for both Paxlovid and Comirnaty for the balance of this year.
Thank you. Next question, please.
We'll take our next question from Carter Gould of Barclays.
Great. Good morning. Thanks for doing the call. I guess for Dave, I don't know if you can give some additional color on the source of the cost cuts, either, you know, between R&D and SG&A. Just to confirm, will that full $3.5 billion hit non-GAAP? Just want a clarification on that as well. Thank you.
Sure. I guess, first, on the $3.5 billion, yes, it will all hit non-GAAP, so it'll be within our run rate. At this point in time, we're not gonna clarify any additional detail around the cost program in the different buckets. I will tell you that we have a fairly comprehensive program 'cause we've been planning for this for a while. We have senior leaders across the organization engaged in this, with, within this program with a very comprehensive project management office. We're executing our plans both this year to realize the $1 billion savings, as well as, as we wrap into 2024 to get the incremental $2.5 billion.
I will point out that while we're this is a comprehensive program across both R&D and SI&A, our core research, particularly as it relates to oncology, remains intact. As you can well imagine, we've made a big investment in oncology. We're fully supporting the oncology business, and we think we have a big opportunity to grow that business over time.
Thank you, David. Next question, please.
We'll take our next question from Chris Shibutani of Goldman Sachs.
Thank you very much. The cost savings that you've outlined, obviously, you've discussed what the implications are for 2023 and 2024. Would it be reasonable to expect that there would be further opportunities for savings beyond 2024, particularly as you're integrating potentially so many businesses, including Seagen, et cetera?
First of all, everything is excluding Seagen. Seagen has nothing to do with any of these things. Now, for the Pfizer part, clearly by 2024, you should, as David explained, you should calculate the cost base, combined R&D and SI&A, that it is $3.5 billion, less than the midpoint of the combined previous guidance. Our previous guidance had R&D number and a SI&A number. If you add those two, in 2024, you should expect $3.5 billion less, and in 2023, you should expect one of these already to happen, right? So that's how to calculate. I hope I answered. Anything to add, David?
Nope, that's great.
Thank you very much. Let's go to the next.
We'll take our next question from Colin Bristow of UBS.
Hey, good morning, and thanks for taking the questions. To not beat the same drum here, I just wondered if, as we think about Paxlovid from here, testing rates in the U.S. are down around 90% year-on-year and continue to trend lower. Can you just give us some idea of where you expect this to reach steady state? And then what proportion of current Paxlovid prescriptions are being written to patients without a test-confirmed diagnosis of COVID? And then just a sort of a point of clarification on the cost savings and the cost-cutting program. We've been a lot of questions. There's some confusion. You're spending $3 billion to achieve $3.5 billion in cost savings.
And then the ongoing run rate, is that $3.5 billion or $2.5 billion? It sounds like from your last answer, it's $3.5 billion, but if we could just sort of draw a line under it and clarify that, that would be great. Thanks.
Just real quickly on the cost savings program, the run rate will be $3.5 billion in 2024 and beyond.
Thank you for clarifying that. We were very clear, actually. It's almost like if we are giving you guidance for the combined OpEx, next year, right? So it's going to be whatever is the midpoint of the previous guidance, minus $3.5 billion. And what is already we gave you guidance for this year, is going to be whatever was the midpoint of the combined R&D and, and SI&A, minus $1 billion, right? So $3.5 billion will be the running rate. Now, on the Paxlovid, the question is, when are we going to reach a stable state of utilization? I think we have right now. It was lower than what we thought, but we have.
Last year, approximately 11.8 million courses were distributed in the world, and right now we are trending to slightly above that, so for this year. It's going to be slightly below in the U.S., it's going to be ahead in international, but we believe that we have reached a quite steady state that can become a foundation for calculating future utilizations. So thank you very much. Next question, please.
Our next question is from Umer Raffat of Evercore ISI.
Hi, guys. I appreciate you clarifying Colin's question. I feel like that was very important because there was an earlier implication that the annualized cut is $2.5 billion, so I appreciate you clarifying it's $3.5 billion. My question is, is that a gross cut or is that a net cost cut to Pfizer?
I guess what you mean, gross or net, it is if that, we will have those 3.5 cuts, and then we would reinvest more money on top of that. No, that's what we said, that we expect next year's cost base to be $3.5 billion less than the combined base guidance, midpoint of guidance of R&D and SI&A that we gave until recently, before we revised it on Friday.
So it is net?
It is now. Thank you very much, Umer. Let's go to the next question, please.
Our next question is from Terence Flynn of Morgan Stanley.
Great. Thanks so much for taking the questions. Maybe just a two-parter for me. So just wondering, Dave, does this bring you back to pre-pandemic operating margins after adjusting for the Comirnaty profit split? And then on Paxlovid in the commercial setting, can you give us any sense of how the negotiated price, where that might shake out? Thank you.
Yeah, so I'll talk about the operating margin specifically. We have not obviously provided guidance for 2024, so there'll be obviously puts and takes to that. So we'll hold on that until we give 2024. I've been very clear that the long-term outlook of our business is to get back to pre-pandemic levels, adjusted for our mix, primarily the vaccine program, 'cause it does carry a lower volume or a lower gross profit given our partnership.
Thank you, Dave. Now on Paxlovid and on the pricing, look, there are two components, right? 2024 will be a price that we apply as we recognize revenue to Medicare and Medicaid, patients and uninsured, right? If you see the current, IQVIA reporting, Medicare and Medicaid account for approximately 40% of Paxlovid scripts. That's 35 and five, correct. Those, we pretty much know the price. The price will be the pandemic price, adjusted, as I said, slightly for the inventory. So that we know. And that will be applied in 2024 only. Now, in 2024, in addition to that, we will have the commercial plans that are the remaining of the volume, plus some additional patients. And over there, the price will be known pretty soon.
We are starting negotiations with payers, so there will be a list price, and of course, there will be rebates that will apply to this list price, and eventually, we'll have a net that we will see when we give guidance, we will calculate that. I want to clarify something. As we move to the year 2025, all Medicare and Medicaid patients will be receiving commercially available product, which means commercial price. So although in 2024, the Medicare and Medicaid will recognize revenues with lesser likely price than the commercial, in year 2025, everyone will have the same price going forward.
We will, in addition, recognize revenues at the pandemic prices for underinsured and uninsured patients, but we will continue providing product through a patient assistance program that we will be providing and operating on behalf of the U.S. government. Every product that will be given to this patient assistance program will go against the volume credit that the U.S. government will receive from us at the end of the year. So I hope that this clarifies the situation, and I think, as I said, makes quite easy, I think, for everyone to start calculating. There are one or two elements that are still missing, the commercial price of Paxlovid, and then maybe refined utilization rates of treatments and vaccinations. Next question, please.
We'll take our next question from Mohit Bansal of Wells Fargo.
Great. Thank you for taking my question, and thank you for hosting this call. A couple of questions for Dave. So is it fair to assume the majority of the cost cuts are coming from the COVID business? And then, bear with me on this math. If I take the midpoint of your guidance for this year, cut $1 billion for this year and another $2.5 billion for next year, and then if I add $2.5 billion of OpEx for Seagen, it seems like your OpEx could be roughly flat for 2024 from 2023. Is that fair?
So I guess first on the split between COVID and non-COVID, as you know, we don't kinda manage our business that way. I would say that we're continuing to, as I articulated earlier, our cost program is comprehensive. It's across our business, both COVID and non-COVID. But clearly, if you look at the trends and the current state of the pandemic, the patient need in our COVID business is less than what it was in the height of the pandemic. So we would obviously lean in and rationalize our cost base accordingly based on those dynamics. And then secondly, I think intellectually, the conversation you had around the midpoint is not is factually accurate.
I think it's just too early at this point in time to give you some clarity around how and when all those costs will be integrated and combined, when the acquisition is completed. So more to come on that piece, but we'll be very transparent and make sure that you understand all the puts and takes as it relates to our cost base, as well as our complete business as we cycle into 2024.
Thank you, Dave. Again, to reiterate that everything that we are doing right now has nothing to do with the acquisition of Seagen. That's a completely different, let's say, element. Close or not close this year or next year, this is what Pfizer will look like, and then Seagen is on an additional topic. So, next question, please.
We'll take our next question from David Risinger of Leerink Partners.
Yes, thanks very much. So with respect to vaccine demand, given that many people avoid mRNA boosters due to fears about brief tolerability issues in the first 24 hours, could you provide an update on your efforts to minimize reactogenicity risks in both future Comirnaty booster versions and also Pfizer novel mRNA vaccines for other diseases? Thank you.
Thank you very much. On the reactogenicity, first of all, I think the Pfizer BioNTech vaccine has. Not all vaccines are the same. Our reactogenicity, we believe it is, not we believe, we know the numbers. It's quite good compared to other vaccines that are available, so I don't think we have a reactogenicity issue with our vaccine. Clearly, we are working on and will continue, despite the reduction of our operating expenses, we'll continue working, particularly on combinations of vaccines. Right now, we are the only company that has both an mRNA and an RSV, and we are working now on the flu.
So clearly, as we are doing all of that, we are working on combinations that will help us enhance the how easy and convenient it is for patients to receive protection for respiratory diseases. And that, of course, will potentially play a role in improving access to these vaccines or in utilization of these vaccines. Thank you, David. Let's go to the next question, please.
We'll take our next question from Akash Tewari of Jefferies.
Hey, morning, this is Ivy on for Akash. Thanks for taking our questions. We have two. The first is on the revised guidance. So how do you feel comfortable about only $2 billion revs cut in COVID vaccine sales this year, given there's already some write-down in E.U.? What's the implied U.S. demand in your view for this year and also on a go-forward basis? The second one is for Danuglipron. So can you confirm what you saw on a blended basis? What level of weight loss are you aiming for here? Will you move forward a program if it shows weight loss of more than 10%, or are you really targeting at 15%? Thank you.
Thank you very much. On your question, what is the assumptions for our Comirnaty revenues? One, it is outside the U.S., because all is based on deliveries that are expected to happen from orders that have already been placed. So that's one part. On the U.S., it is more variable, and our assumption right now it is that what we will see, it is a vaccination rate similar to what we saw in 2022 between September and that we launched and December. So pretty much that was, at that time, 15%. So before that September period, we have approximately 2% of people that were getting vaccinations. So right now, we have an assumption that approximately 17% of Americans will receive a dose.
We think it's a quite safe assumption based on the trends, but of course, we will wait to see until the end of the year. Thank you very much. Let's go to the next question.
We'll take our next question from Tim Anderson of Wolfe Research.
Ah, by the way I forgot. Excuse me. I forgot to answer about the Danu, and the answer is: we are not commenting on that. This call is about the new guidance. As we have said multiple times, for Danu, we are expecting data by the end of the year, so there, there's nothing new over there. Thank you very much. Let's go to Tim.
Mr. Anderson, please proceed with your question.
T hank you. A couple for me. You know, one of the challenges of the Pfizer model has been trying to understand the profitability of the COVID revenue stream, such that we can ascertain what the underlying earnings are. And you had given that information very early on, then you pulled back. So can you give us any idea now what the profitability of this business is, not only in 2023, but kind of 2024 as well? And if you can't really give that information, at least talk about profitability of Comirnaty versus Paxlovid. I'm guessing Paxlovid is much more profitable than Comirnaty, but perhaps you can clarify. And then the second question, you know, Albert, in your prerecorded video from a few days ago, you said we're at the peak of anti-vaccine and anti-treatment rhetoric, suggesting that's the trough.
I'm just wondering how you can really know that. To me, it seems like people not getting these products, doing just fine for the most part, might reaffirm that you don't need these products. Maybe those, you know, maybe that anti-treatment and anti-vaccine sentiment actually gets worse from here, not better.
So maybe I'll take the profitability of the COVID revenue stream. Clearly, we have guided and been very clear on the revenue contribution of both Comirnaty and Paxlovid over time. We have not given the flow-through of those, but I will, we will take that under consideration going forward. I will, to your point, given the partnership arrangement around Comirnaty, the profitability associated with Paxlovid, the flow-through of that is greater on that product than it is of Comirnaty due to that arrangement.
Yes. Now, is it the peak of the vaccine rhetoric, or are we going to see a little bit less or a little bit more, or a lot less, or a little bit, or a lot more? I don't think that things will vary much, and I think that as you are moving towards another year distance from the COVID period, those things likely will go down. And in any case, we are taking assumptions that we are not going to maintain this. So we are assuming that things will be the same in the years to come, COVID fatigue and the vaccination rate. So the people that did it this year will continue doing it next year. I think it is quite safe assumption, but of course, assumptions is different thing, and facts are different thing. That's why we are giving forward-looking statements.
Thank you very much. Next question, please.
We'll take our next question from Steve Scala of Cowen.
Oh, thank you. Apologies for asking again, but just for clarity, was the original plan for 2024's cost base to be higher, similar, or lower than 2023, of course, excluding Seagen? Based on everything you've said, it sounds like similar, but can you confirm that? And secondly,
No, so the,
I'm curious why Fi,
Go ahead.
I'm curious why Pfizer did not cut the $30 billion annual guidance for COVID revenue along with this news. You stated that you have enough information, and what we've learned year to date has been unfavorable, so why wait on that news? Thank you.
Yeah, so I think as you think about 2024, keep in mind that what we're anchoring on is our prior guidance of 2023 for cost. We're taking $1 billion out of 2023 and an additional $2.5 billion out of 2024. So you should expect us to see those materialized as we give guidance for 2024. And then I think it's I think you're relating the $30 billion comment is really related to the longer-term outlook of the COVID franchise in the future. I think at this point in time, I think it's safe to say that we are now rebaselining our outlook for COVID. We are now looking at the trends that we see of these products going into the hands of patients commercially.
I would say that we would start fresh as we think about our guidance coming out of 2023, going into 2024, longer term.
And Steve, I see that, there are a lot of questions coming: is it gross, net, et cetera. So I think it's very, very clear. Let me try to say it also with some numbers, approximate. The combined cost base was approximately $27 billion in sense, right? I think it was the midpoint, $13 billion for R&D and around +$14 billion for, for S&A. So at $27 billion was, were the combined. So you should expect that we will end up the year, according to the new guidance, instead of $27 billion and change, $26 billion and change. And you should expect that we will have a cost base combined for next year, $27 billion minus $3.5 billion. $27 billion and change, minus $3.5 billion. That would be the net. It's almost, as I said, like giving you guidance. It- this is the base, the at least.
We don't say that this will be the number, but we said that at least 2.5 next year, in addition to the one that we're having this year. So $27.10, minus $3.50 should be at least. David?
And Steve, let me just reemphasize on the COVID business. It's clear that there are going to be unmet patient needs for COVID going forward. I think the question is how big that business is on an annual basis going forward. Think about our business, I think, in two pieces: one, a core business that has a lot of products that is generating, in this year, a growth rate of 6%-8%, with a COVID option on top of t hat will allow us to book additional revenue, profits, and cash flow that we can then utilize to reinvest in our core business to allow us to grow more rapidly over time. And that's how we're thinking about this business going forward, and I tencourage us all to kind of begin to think about that as we model our business in future periods.
Next question, please.
Take our next question from Kerry Holford of Berenberg.
Thank you. A couple of questions on Paxlovid, please. What is the risk that ex-U.S. governments now follow the U.S. path and request a refund or a rephasing of Paxlovid orders? And I guess, how much flex would you be prepared to give other governments here? And then related to this, can you confirm how many treatment courses of Paxlovid are still sitting in the channels today following the announced U.S. writedown? Thank you.
Thank you very much. On the, you know, what other governments will do around the world and health authorities, I can't tell. Right? Right now, we have already 23 markets that we have moved into commercial arrangements, so they are not anymore under the government-free product, right? And we expect as the stocks of this, of the governments, that they are not on commercial, let's say, commercialization in their countries, are depleted, also will move to normality and over there. Now, as regard the stocks that are in the channels, the $7.9 that we estimated we would take back includes what is in the channels. So right now, it's not what is in the U.S. inventory at the main warehouses, but also what is in the channel.
All of that we'll take back, because, following January, on January first, none of this product will be available, anymore. It needs to be back so that it can be replaced with, the NDA label product. Thank you very much. Let's go to the next question, please.
We'll take that next question from Andrew Baum of Citi. Your line is open.
Many thanks. So question for, Albert. You highlighted that oncology has been ring-fenced. I note you've disposed of early-stage assets in gene therapy. You're obviously downsizing the R&D infrastructure. Taking out 13% of your OpEx base is substantial. So I'm just curious as to where's the focus gonna be on what franchises, and will you make further use of innovative funding models? I note the recent deal with Roivant in order to give yourself broader bandwidth while having a control of your cost base. So just some direction on the impact for the pipeline.
Yes. Thank you. Thank you, Andrew. Look, we will provide, as I said, as, as David said, some details about next year's, let's say, split between, of course, R&D and the SNA. But I want to emphasize that in all scenarios, you need to know that we will have enough SNA to be able to promote our business, and we will maintain one of the highest absolute numbers of R&D spend in the industry, right? So if you see the numbers that every company is spending, and you see what you should expect, but what will remain for Pfizer will be on the top, let's say, on the top quartile, right? So I don't think we will have an issue with, with money. It's just that it is a very different,
It is a very different story to be able to support a $70 billion revenue than a $60 billion revenue, which is more or less our current guidance, right? So that's why you are adjusting that. We need to grow a smaller base now. So going back as to what will be our focus, the focus remains what we had. Oncology is a very, very big part of it. We have very exciting pipeline ourselves, and we are investing significantly with the Seagen acquisition. Vaccines, it's a significant part of our focus. Metabolic diseases and internal medicine, I&I also, and antivirals anti- infectives also, which are the other three areas that we are active currently, also are a part of the focus that we are having right now.
And last but not least, are we going to use, let's say, ways to mitigate risk of R&D by having different, financing and sharing risks with different partners? Probably, yes, but nothing that... It's, it's nothing that, our, our cost reduction is based on, giving products, to other people to, to run it on their own expenses. It's just a way to mitigate, risk, and, share it, split it with more players, and that will continue to the same degree that happens right now. Thank you. Next question, please.
Take our next question from Chris Schott of JP Morgan.
Great. Thanks so much. Just had a follow-up question on the Paxlovid commercial model. So just as we think about this, you know, kind of transitioning now, can you just elaborate on similarities and differences of what we're seeing with the transition with Comirnaty versus what you're expecting with Paxlovid? So I guess maybe specifically, do you expect this drug is gonna require a copay, and does that affect demand at all? And then just any directional color at all. I know you're not disclosing pricing, but just, you know, how different could pricing look versus what we were seeing previously with those government contracts? Thanks so much.
Yes. Of course, we are working to make sure that the transition will be seamless, and we will not have any issues. In the vaccines, in the first couple of weeks, we saw that the things were not adequate. There were some retailers that didn't have stocks. We want to make sure that this will not happen now, and this is one of the reasons why we start in November, although the free product will be available all the way until the end of the year. But we do that so that when day one comes, everyone is well stocked with the Paxlovid, so that we can start recording our sales. Now, the other element, of course, it is the price.
Vaccines, they are zero copay because of, because of law, right? Paxlovid is like every other medicine. So when it comes to Medicare and Medicaid, care will be free. There will be no charge, and as I said, we will record the price of the pandemic. When it comes to a commercial product, that's a question of negotiations. It's not us, that we are setting the copays. It is the benefit designers that will set a copay on this medicine. What we are doing, we are explaining to them with data, the solid value that the Paxlovid brings to the healthcare system. And of course, we are planning to make contracts so that we will minimize the burden to patients by giving appropriate rebates.
But at the end of the day, it's going to be the payer's decision and the plan benefits manager's decision. Thank you very much, Chris. Let's go to the next question.
We'll take Geoff Meacham of Bank of America.
Hey, guys. Thanks for the question. A lot have been asked already, but I guess maybe bigger picture, Albert, you know, does the COVID trends today that you're seeing on, you know, on demand and on volume, does it change how you're thinking about the priority for, you know, for COVID combinations and flu and others? I just wasn't sure if that was still a strategic priority down the road. Thank you.
Yeah. Thank you. No, it remains clearly strategic priorities. Let's make sure that we understand something, right? The COVID product, after this new realities that we are replacing expectations, will be two of our largest products, right? So both Paxlovid and the vaccines. There is clearly mega blockbusters, will remain to be. The second thing is that clearly the combinations on vaccines we are very much convinced that will unlock significant potential by improving the vaccination rates. Right now, the flu vaccination rates in this country are at 48%, approximately, of the Americans are getting a flu vaccine. And those usually are people that believe in vaccines, right? They go to get vaccines. They are not people that believe that vaccines, they don't protect or they are dangerous, right? At large.
So it's going to be way more convenient if they will be offered with the same injection, not two or three, the same injection, and zero copay to get free of charge, not one, but three vaccines or two. I think that will increase the vaccination rates of COVID, and will bring them closer to flu. Of course, that remains to be seen, but this is our belief right now. That's why we continue very aggressively developing combination for our respiratory franchise vaccines. And yes?
Well, we'll take our last question.
This is the last question. All right, let's go to the last question.
We'll take our last question from Louise Chen of Cantor.
Hi, thanks for taking my question here. So wanted to ask you how much risk there is to the guidance that you've given for your COVID franchise for the remainder of the year, and if you could remind us when your international year ends. Thank you.
Well, I think that the same risk that exists in every guidance that you give, that's why we usually give a range, so that we will be within it. But the guidance has three components. One, it is the base business. We feel very good about the base business. I don't think there is risk there, but of course, it remains to be seen. Then the Paxlovid, it is quite well calculated because we do not expect to record any additional sales of magnitude of additional sales in the current guidance in the months to come until the end of the year. And then for vaccination rates and for vaccines, as I said, there is a component which is based on outside the U.S., and this is based on deliveries that are scheduled to occur.
Then there is a component of how many vaccines will be utilized in the U.S. until the end of December. For that, we are using. There is some risk there, up and down, but we are using, let's say, a reasonable assumption to calculate that, as I said.
And I think as it relates to the international calendar, we end internationally at the end of November. And as Albert articulated, I think we have a good plan and outlook for the balance of the year. I think we've tried to take a very appropriate, yet conservative approach to our guidance levels. So with that,
Yes, but that's very important, what David said, right? So when we make all these calculations, we calculate that, deliveries that will happen internationally in December will not be in this year's guidance, right? So, so I think, before we close the call, I, I felt that that was a very useful, discussion, and I feel that we clarified a lot. I think you would agree with me that, a lot of the uncertainties that were surrounding, the COVID business now have been, either resolved or about to be resolved pretty soon, and the final elements will become clear, and everybody could predict, the business with the reasonable safety for 2024 and the years, to come.
Now, before we close this call, I want to extend a warm welcome to Francesca DeMartino, who joined Pfizer as our Head Investor Relations exactly two weeks ago today. Talk about hitting the ground running, right? In the middle of those news, she worked to prepare and organize us all. Francesca has nearly 25 years of experience in investor relations, communications, and corporate finance in the healthcare industry, and every bit of that experience and insight has been on display in helping to prepare us for this important announcement, so it is clear that she's a great fit for our team. Let me close by saying that all of us at Pfizer are proud that our scientific breakthroughs played a significant role in getting the global health crisis under control.
This agreement represents the next logical step in our ongoing efforts to help ensure every eligible patient continues to have access to our potentially life-saving COVID-19 treatment, and it will help ensure that Pfizer can continue delivering breakthroughs that change patients' lives. Now, we will bring our call to a close. Thank you very much for joining us. Have a great rest of the day.
This does conclude today's program. You may now disconnect your lines, and everyone, have a great day.