Earnings Call: Q4 2016

Jan 31, 2017

Summary

FY 2016 operational revenue grew 11% overall and 5% excluding legacy Hospira and Medivation. 2017 guidance calls for $52B–$54B revenue and $2.50–$2.60 adjusted EPS, with growth offset by LOEs, FX and the infusion-systems sale.

Good day, everyone, and welcome to Pfizer's fourth quarter 2016 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. Good morning, and thank you for joining us today to review Pfizer's fourth quarter and full year 2016 performance, as well as our 2017 guidance. I am joined today by our Chairman and CEO, Ian Read; Frank D'Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development; Albert Bourla, Group President of Pfizer Innovative Health; John Young, Group President of Pfizer Essential Health; and Doug Brownfield, General Counsel. The slides that will be presented on this call can be viewed on our homepage, pfizer.com, by clicking on the link for Pfizer Quarterly Business Performance Fourth Quarter 2016, which is located in the For Investors section in the lower right-hand corner of this page. Before we start, I would like to remind you that our discussion during this conference call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Additional information regarding these factors is discussed under the Disclosure Matters section in the earnings press release we issued this morning, as well as in Pfizer's 2015 annual report on Form 10-K, including Part One A, Item One A, Risk Factors, that is filed with the Securities and Exchange Commission and available at sec.gov and on our website at pfizer.com. The forward-looking statements during this conference call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements. Discussion during the call will also include certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer's current report on Form 8-K, dated today, January 31, 2017. You may obtain a copy of the Form 8-K on our website, pfizer.com/investors. Any non-GAAP measures presented are not and should not be viewed as substitutes for financial measures required by U.S. GAAP. They have no standardized meaning prescribed by U.S. GAAP and may not be comparable to the calculations of similar measures at other companies. We will now make prepared remarks, and then we will move to a question and answer session. With that, I will now turn the call over to Ian Read. Ian? Thank you, Chuck, and thank you for joining our call this morning. During my remarks, I will make a few comments about the year and where we see the opportunities for continued growth in 2017. Frank will provide details regarding the quarter and our 2017 financial guidance. 2016 was marked by solid execution, which led to another year of operational revenue growth, both in terms of our overall portfolio, which showed an increase of 11% for the year, and on a Pfizer standalone basis, excluding Legacy, Hospira, and Medivation, where the annual growth was 5%. We saw robust revenue growth from both new and mature brands. Pfizer Essential Health established market-leading positions in sterile injectables and biosimilars. Our sterile injectables portfolio achieved over $6 billion in revenue during the year. And in our biosimilars business, we launched Inflectra, the first biosimilar monoclonal antibody available in the U.S. Globally, we have three marketed biosimilars and are the leader in total sales, as well as having a robust pipeline of biosimilar assets. We look to the sterile injectables and biosimilar portfolios to continue to generate growth for the Essential Health business and also expect continued growth of the Essential Health portfolio in emerging markets, which achieved 7% operational growth in 2016. For Pfizer Innovative Health, Eliquis achieved 88% operational growth for the year and is the number one prescribed new oral anticoagulant by cardiologists in 12 markets around the globe. Xeljanz grew 78% operationally and is now nearly a $1 billion brand on an annual revenue basis. Chantix grew 27% operationally. In December, the FDA approved updates to Chantix labeling, including the removal of the box warning regarding serious neuropsychiatric events based on the outcomes of the EAGLE study. Eucrisa grew 14% operationally, and our consumer healthcare business achieved another year of solid performance with 5% operational growth. Ibrance remains a significant growth driver. Its revenue almost tripled year over year and grew 17% globally on a sequentially quarterly basis, reflecting its attractive clinical profile and continued acceptance by physicians, payers, and patients. Ibrance received EU approval in November and will begin to launch across Europe during the year, resulting in incremental revenues primarily in the second half of the year. We feel very confident about our leadership in the CDK 4/6 inhibitor class. Our business development activities during 2016 have provided us with attractive revenue growth opportunities within both of our businesses. Through the acquisitions of Medivation and Anacor to our innovative business, we have added Xtandi for metastatic castration-resistant prostate cancer and Eucrisa for the topical treatment of mild to moderate atopic dermatitis in adults and children as young as two years of age. The addition of AstraZeneca's small molecule anti-infective business to Essential Health has strengthened our anti-infectives portfolio, which is the industry's largest with more than 60 products. Each of these acquisitions strategically aligns with our approach to business development, which is to look for opportunities that contribute immediate and/or near-term revenue growth. As we look at the total company operational revenue growth profile, we see our current in-market products, including our recently acquired products, as having the ability to deliver an enhanced revenue growth rate over time and more than offsetting continued headwinds from product losses of exclusivity. In 2017, on an operational basis, the midpoint of our revenue guidance reflects 4% revenue growth excluding the Hospira Infusion Systems business, which we expect to divest next month. Improved revenue growth is an important driver of valuation and requires continued solid execution in addition to the ongoing advancement of our key pipeline assets. In 2016, we received five product approvals, achieved six regulatory submissions, and advanced 39 compounds in our pipeline. Our current pipeline contains 96 clinical programs, half biologics, half small molecules, and about two-thirds new molecular entities, and is well-positioned. In 2017, we're expecting pivotal top-line study results in oncology and biosimilars. A few pipeline highlights include in oncology, we have a very robust life cycle program for Ibrance. It is being studied in an additional four pivotal studies in early advanced or recurrent breast cancer. In addition, Ibrance is being studied in several non-breast cancer indications, including two sponsored trials in pancreatic and head and neck cancers. Xtandi has provided us with a novel treatment in metastatic prostate cancer. We see a potential opportunity to extend the type of androgen receptor blocker in Xtandi into other indications and to seek regulatory approval in non-metastatic prostate cancer. In immune oncology, we're making significant progress in building a strong IO portfolio and see avelumab as a core asset. With our partner, Merck KGaA, in the U.S., the avelumab submission for treatment of metastatic Merkel cell carcinoma was accepted by the FDA with priority review. We also have announced that the European Medicines Agency validated for review the marketing authorization application in EU. We have 11 compounds in the clinic, including anti-PD-1 mab, the T cell retargeting P-cadherin DART, a small molecule IDO1 inhibitor, and the allogeneic UCART19 T cell therapy for pediatric and adult acute lymphoblastic leukemia. Our avelumab program with Merck KGaA now has 30 programs ongoing, 10 of which are potentially registration-enabling, and over 4,000 patients have now been enrolled in ongoing avelumab studies. The breadth of our IO portfolio allows us to differentiate with combinations, which is core to our strategy. For example, we are starting to deliver data with avelumab and 4-1BB. We plan to initiate by the end of the first quarter a triplet with avelumab, 4-1BB and OX40. We'll have studies with avelumab combined with atezolizumab and 4-1BB. We also have studies with avelumab with lorlatinib, our next-generation ALK inhibitor, and avelumab with imetelstat. In biosimilars, we recently announced positive top-line results for both infliximab, a potential biosimilar to Remicade, and trastuzumab, a potential biosimilar to Herceptin. This month we announced positive top-line results from the comparative REFLECTIONS study for adalimumab, a potential biosimilar to Humira. This marked the third potential biosimilar molecule from our pipeline to report positive top-line data results within the past four months. This year, we expect readouts in bevacizumab and filgrastim, and we have a total of 14 biosimilar molecules in various stages of development. In inflammation and immunology, we have one of the strongest JAK franchises in the industry and have advanced four immunokinase inhibitors, including three selective JAK and one IRAK4 inhibitor to phase II studies. Our phase II trials cover 10 different indications from rheumatoid arthritis to gastrointestinal to dermatology. In vaccines, we have a robust portfolio that continues to progress. We achieved proof of concept of our C. diff vaccine and expect to enter phase III in the coming months. Our Staphylococcus aureus vaccine is currently in phase II, and we now have a novel pneumococcal vaccine in the clinic in phase I that could potentially cover up to 20 serotypes. Of note, during 2017, we anticipate potential U.S. decisions for avelumab Merkel cell carcinoma, potential lorlatinib submission for non-small cell lung cancer, potential EU decision for Xeljanz in RA, potential U.S. filing in the first half of 2017 for additional indications for Xeljanz in ulcerative colitis and psoriatic arthritis. As we look at the year ahead, Pfizer's well-positioned with our in-market portfolio and our pipeline assets. I also see our company structure with its two distinct businesses as affording us the focus and sense of urgency to deliver enhanced revenue growth over time. For 2017, we look forward to working with the new administration and across the healthcare system. Our efforts will continue to be focused on developing, delivering, and providing access to innovative therapies that address areas of unmet medical need and that advance patient care. Pfizer has long held a contract with society through our business practices and culture to ensure that patients get the medicines they need. In summary, in 2016, we created significant value for our shareholders through several initiatives, including acquisitions and partnerships that bolstered each of our businesses, share repurchases, and an increase to the dividend. We enter 2017 with strong financial position, products that are leaders in their categories, strong and emerging mid- and late-stage pipeline, and an operational structure that gives us the flexibility to differentiate our business in ways that will continue to create shareholder value. Now I turn it over to Frank to provide more detail on the quarter. Thanks, Ian. Good day, everyone. As always, the charts I am reviewing today are included in our webcast. As a reminder, because we completed the acquisition of Hospira on September 3rd, 2015, Pfizer's financial results for the full year 2016 reflect legacy Hospira global operations for the entire period, while full year 2015 includes only four months of legacy Hospira U.S. operations and three months of legacy Hospira international operations. Our financial results for fourth quarter 2016 and fourth quarter 2015 include legacy Hospira global operations for both periods. In addition, Pfizer completed the acquisition of Anacor Pharmaceuticals on June 24th, 2016. Consequently, our financial results for the fourth quarter and full year 2016 include three months and approximately six months of legacy Anacor operations, respectively, which were immaterial. Finally, Pfizer completed its acquisition of Medivation on September 28, 2016, so financial results for the fourth quarter and full year 2016 include three months of legacy Medivation operations. Now moving on to the financials. Fourth quarter 2016 revenues were approximately $13.6 billion and reflect a year-over-year operational decline of $191 million or 1%. It is important to note that fourth quarter revenues were negatively impacted by four fewer selling days in the U.S. and three fewer international selling days versus the prior year quarter, which unfavorably affected revenues by approximately $750 million. If you will recall, in the first quarter of 2016, I pointed out that there were nine more selling days versus the prior year quarter, and that this imbalance would be primarily offset in the fourth quarter of 2016, which would have seven fewer selling days. It is important to note that there are essentially the same number of selling days in full year 2016 as in full year 2015, so the impact of the quarterly year-over-year comparisons, notably the first and fourth quarters. Fourth quarter 2016 revenues were also unfavorably impacted by foreign exchange of $228 million or 2%. Our Innovative Health business recorded 2% operational revenue growth in the fourth quarter, driven by the strong performance of eye brands in the U.S., Eliquis globally, Xtandi in the U.S. from the Medivation acquisition in September, and Xeljanz and Lyrica both in the U.S., all of which were partially offset by a 23% operational decrease in global Prevnar 13 revenues. In the U.S., Prevnar 13 declined 33% due to a decrease in revenues for the adult indication after the high initial capture rate of the eligible population following its successful fourth quarter of 2014 launch, which resulted in a smaller remaining catch-up opportunity compared to the prior year quarter, and the unfavorable impact from the timing of government purchases to the pediatric indication. We continue to believe that Prevnar 13, both pediatric and adult indications, will remain a very significant product for Pfizer, notwithstanding this decrease in the fourth quarter 2016 and the expectation that full year 2017 global Prevnar 13 revenues will remain flat, slightly down. We do expect Prevnar adult launches in international markets, as well as the potential for increased utilization in the 18 to 64 population to temper the expected decline in sales in the U.S. Fourth quarter Innovative Health revenues were also negatively impacted by lower revenues for Enbrel in most developed Europe markets, primarily due to continued biosimilar competition and the loss of Rebif alliance revenue versus the year-ago quarter due to the expiration at year-end 2015 of the agreement to co-promote Rebif in the U.S. Revenues for our Essential Health business decreased 6% operationally, driven by a 20% operational decline from Peri-LOE products and a 3% operational decline from legacy established products, which were partially offset by operational growth of 3% from the sterile injectable pharmaceuticals portfolio and 48% from biosimilars. Revenues from legacy Hospira products declined 1% operationally. However, excluding the performance of Hospira infusion systems, these revenues actually increased 2% operationally. In emerging markets, Pfizer's overall Essential Health revenues grew 4% operationally, due primarily to 3% growth from the legacy established products portfolio and 9% growth from the sterile injectables portfolio. Fourth quarter reported EPS was $0.13 compared with a loss of $0.03 in the year-ago quarter, primarily due to the non-recurrence of foreign exchange losses related to Venezuela, a Protonix-related legal matter and pension settlements in the prior year quarter, and a lower effective tax rate in Q4 2016 compared with Q4 of 2015. These were partially offset by fewer selling days, foreign exchange impacts, higher restructuring costs, and losses related to the early redemption of debt, and the pending sale of Hospira Infusion Systems. Adjusted diluted EPS for the fourth quarter was $0.47 versus $0.53 in the year-ago quarter. The decrease was primarily due to fewer selling days, the unfavorable impact of foreign exchange, continuing product losses of exclusivity, and a higher effective tax rate. All of which were partially offset by revenue growth due to certain new, in-line, and acquired products, and fewer diluted weighted average shares outstanding, which declined by 105 million shares versus the year-ago quarter through our share repurchase program. As I previously mentioned, foreign exchange negatively impacted fourth quarter 2016 revenues by approximately $228 million, or 2%, and negatively impacted adjusted cost of sales, adjusted SI&A expenses, and adjusted R&D expenses in the aggregate by $50 million, or 1%. As a result, foreign exchange negatively impacted fourth quarter adjusted diluted EPS by approximately $0.04 compared with the year-ago quarter, with approximately $0.03 related to Venezuela. On a full-year basis, foreign exchange had a $0.21 negative impact on adjusted diluted EPS, with approximately $0.10 attributable to Venezuela. As you can see, we achieved or exceeded all elements of our 2016 financial guidance ranges. It's important to note that every major currency, except the yen, weakened against the U.S. dollar in 2016, which negatively impacted our full-year 2016 revenues by approximately $1.5 billion, of which $778 million was attributable to the devaluation of the Venezuela bolivar. In full year 2016, we generated 11% operational revenue growth, and excluding legacy Hospira and legacy Medivation operations, Pfizer standalone revenues grew 5% operationally. I also want to point out that 2016 adjusted SI&A expenses were at the top end of our guidance range as a result of spending to support new products, including Ibrance, Eliquis, Xeljanz, and Biosimilars. Now I'd like to walk you through the 2017 guidance ranges for revenues and adjusted diluted EPS relative to our 2016 actual results. First, it's important to note that our 2017 financial guidance assumes the pending disposition of Hospira Infusion Systems in February 2017 and excludes its $1.2 billion contribution to 2016 revenues and its $0.03 contribution to adjusted diluted EPS in 2016. Also, while our 2017 revenue guidance range reflects anticipated strong growth of certain new, in-line, and acquired products, this growth is partially offset by an anticipated $2.4 billion negative impact due to continuing product losses of exclusivity and an anticipated $900 million negative impact due to adverse changes in foreign exchange rates. Consequently, we're absorbing a negative impact of $4.5 billion related to these three factors. In addition, I want to clarify for modeling purposes that while Xtandi revenues from the U.S. are included in alliance revenues that are generated outside the U.S. are booked as royalty and therefore included in other income. In summary, we expect our 2017 revenues to be in the range of $52 billion-$54 billion. I also want to point out that the midpoint of this revenue range implies another year of mid-single-digit operational growth, excluding the impact of the pending sale of Hospira Infusion Systems and foreign exchange. Adjusted diluted EPS guidance, as I mentioned, excludes the contribution from the Hospira Infusion Systems and includes the negative impact from product losses of exclusivity, as well as an expected $0.05 negative impact from foreign exchange. In addition, the guidance range for adjusted diluted EPS incorporates $5 billion of anticipated share repurchases in 2017, which are expected to more than offset potential dilution related to employee compensation programs. As a result, we expect adjusted diluted EPS to be in the range of $2.50-$2.60. The midpoint of this range implies operational growth of approximately 10%, excluding the impact of the pending sale of Hospira Infusion Systems and foreign exchange. Moving on to key takeaways. We finished full year 2016 with 5% standalone operational revenue growth excluding Hospira and Medivation. We issued 2017 financial guidance. Excluding the pending sale of Hospira Infusion Systems and foreign exchange, the midpoint of the revenue guidance range implies another year of mid-single-digit operational growth. The midpoint of the adjusted diluted EPS guidance range reflects approximately 10% operational growth. We accomplished several key product and pipeline milestones, including the European Commission's approval of Ibrance for the treatment of women with HR+ and HER2- locally advanced or metastatic breast cancer, and the FDA's approval of Eucrisa for the treatment of mild to moderate atopic dermatitis in patients two years of age and over. We returned $12.3 billion to shareholders through dividends and share repurchases. Finally, we remain committed to delivering attractive shareholder returns in 2017 and beyond. Now I'll turn it back to Chuck. Thank you. Operator, at this point, can we poll for questions, please? If you would like to ask a question, please press star then the number 1 on your telephone keypads. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Tim Anderson from Bernstein. Thank you very much. I would like to ask you about immuno-oncology and just the commitment to the agreement, on avelumab and with your partner, Merck KGaA. As you outlined, you have got lots of registration-enabling trials ongoing and lots of combinations. Should we interpret that as meaning that you are fully committed to that partnership, and to avelumab? Or is it in the realm of possibilities that in this fast-changing world of IO, where the landscape continues to shift, you have to be more open-minded, to continually reassess the way and try to become a leader in this area, and maybe Merck KGaA and the assets that you have in development do not quite get you there? The second question is on border tax. Can we just get your perspective for how you think this whole issue might play out, both in the nearer and longer term? Do you think this proposal has legs? My understanding is that it could clearly be a potential negative for multinational drug companies. Tim, thank you for the question. Regarding avelumab and our partnership with Merck KGaA, we believe avelumab is a highly competitive molecule, and we are focused along with our partner on delivering its promise as both monotherapy and in combination with other agents. In the IO area, we believe that having a backbone of a PD-L1 compound is necessary but insufficient in the future competitive environment. We see avelumab as potentially competitive in selected first-line settings, but believe the true value will be in combinations, potentially with target agents such as LILA, antibody drug conjugates, oncolytic vaccines, and other IO agents such as FOXD4B, OX40, and drugs in Pfizer's pipeline. I think that addresses most of the risk and concerns you have about our strategy. Everybody needs, I think, a PD-L1, but that is just the chips to the entry. After that, you need an extensive portfolio around combinations to really open up the value of immuno-oncology. On the issue of border tax, look, the tax codes are complicated or the tax suggestions are complicated. I think the Republican leadership has overall tax changes that are overall favorable for the pharmaceutical industry. Certainly would allow us to create more jobs in the U.S., and I do not really think that we would fear that the changes as being proposed are negative for our industry. Quite far more positive, in fact. Frank may want to add something to that. I'll just punctuate what Ian said, which is, I don't think you can look at one potential individual part of reform. You've got to look at what the total package would look like. So it'll include what's going to be corporate taxes, what are going to be the impact on future foreign earnings, base erosion, which is where border adjustability comes in, accumulating foreign earnings, interest expense deductibility. So I think what we'll need is, we need the full picture, the full puzzle, instead of just trying to comment on one individual piece of it. Thank you, Frank and Ian. Our next question please, operator. Your next question comes from Chris Schott from JPMorgan. Great. Thanks very much. Just two questions here. First is on just appetite and priorities for business development from here. As you're just thinking about that, would a repatriation kind of tax holiday or broader tax reform affect any of your capital deployment or business development priorities? Basically, could that make deals that didn't make sense previously, make sense given the new capital structure? Second question was just maybe talking a little bit more about Prevnar. We had a step down in sales this quarter. You've talked about sales to be flat to maybe modestly declining in 2017. Could you just elaborate a little bit more, where are we with regards to the adult kind of full list in the U.S., and how should we think about this kind of ramp in Europe offsetting potential further erosion of the U.S. opportunity? Thanks very much. Thank you, Chris. Well, I'll make a few comments on the BD. Frank, you might want to add something, and then we'll go to Albert for a discussion on the Prevnar vaccines. I'd like to point out that the most impactful thing of tax reform will be to level the playing field between U.S. companies and foreign companies in regards of the foreign companies not having the tax advantage of acquiring companies and then taking to a low tax location. That'll be a fundamental change in competitiveness to the extent that tax changes would make it cheaper for us to access financing. Then you're quite right, some deals that previously would not have been affordable may now be affordable. But the lens we look at it is always from the point of view of creating value for shareholders. Per se, I don't see the tax reform alters our approach to doing BD, which is, are we going to generate above our cost of capital in making this investment, and is it both short and long-term the right thing for shareholders? I hope that answers on BD. And we'll go over to Albert to talk about vaccines. Chris, Prevnar 13 is expected to continue to be a significant product. Overall this year, we expect Prevnar 13 to be flat to declining, and this is a result of complex movements in the marketplace. As discussed previously, in the U.S., we have already vaccinated approximately 50% of the 65 plus population. So we expect to continue to see a decline here in the adult indication as we exhaust the catch-up opportunity. This will be offset by international adult growth and growth of adult vaccinations in the 19 to 64 age range. And we'll also see a modest growth in pediatric indication. From our perspective, moving forward in U.S. and in E.U., in the U.S., we are focused on protecting the remaining 50% of the 65 plus population and expanding usage to 19-64 age range. We are aware that vaccinating the remaining 50% is more challenging than it was to vaccinate the first half. And to realize the full potential of 1964, we need an ACIP recommendation. But we are moving forward with plans given the current situation. In Europe, as we know, it's all about recommendations and reimbursements. We continue to advocate with vaccine technical committees for recommendations and payers for reimbursements. The timing of the success varies country by country, and in some cases, region by region within the same country. Just couple of data. In 2016, we had relatively limited number of recommendations on reimbursements. We had in Denmark, and we had one region in Spain, Madrid region. In 2017, we expect funding decisions in a number of important markets like France, Italy, and Belgium. Thank you, Albert. As I think we said in the release, we expect, given the pressures on the ability to get into the residual 50% of the adult markets, we expect sort of flat to slightly down for our overall Prevnar franchise next year. Yeah. Thank you. Operator, can we move to the next question, please? Your next question comes from Vamil Divan from Credit Suisse. Great. Thanks so much for taking my question. One, again, going back to the business development and some of the DC-related comments you made earlier. I'm just wondering, given there's a lot of uncertainty around how everything's going to play out in terms of corporate tax and border taxing, or border pricing, all these issues, is it fair to say that there might be a little bit of a pause in Pfizer's desire to do larger scale business development until these issues are sorted out, presumably later this year? My second question that I had just relates to Xtandi. I'm just curious on that product, sort of your expectations, given how much you paid for that asset in your acquisition last year. J&J commented a little bit last week around some market contraction that they're seeing in that space. I am just curious if you can give a little bit more color in terms of what you are seeing in terms of volumes and pricing from Xtandi. Thanks. On the BD, I do not see it as a pause. We are going to play the cards we get dealt. As I said, the change in the tax code may reduce competition for assets from external buyers. It may alter somewhat the overall cost to make an acquisition, but it is not dramatic in the sense of we are going to take a year of pause or something until we see what the tax code is going to do. We are going to continue to do BD where we see value for our shareholders. We think we have the flexibility on the balance sheet to do that. I do not see a dramatic pause. Frank, do you want to add anything to that? Just that since September of 2015, with the current cards we have been dealt, with the current tax laws as they are written, we have done approximately $40 billion in deals, all of which obviously we believe are or will create shareholder value. To Ian's point, if we get dealt a new set of cards, a new hand, then obviously we will play that hand. Once again, what encompasses that never changes. The compass is always creating shareholder value. Okay. Albert, on Xtandi. Yes. Vamil, let me provide some insight of the market dynamics and then also provide our expectations for the product. Xtandi revenues in Q4 declined 8% versus Q3 of the same year and 13% versus same quarter of last year. However, Xtandi demand, as measured by Specialty Pharma, was up, increased 4% in Q4 versus Q3, and over 9% versus the same quarter of last year. The same inconsistency between revenues and demand is also observed on a full year basis, where revenues were up by 8%, while total prescriptions were up by 15%. This inconsistency is due to changes in the demand mix with a significant increase in patient assistance program last quarter, which impact revenue. This spike in PAP program is unprecedented compared with prior experiences. We remain confident in the growth potential of Xtandi in the metastatic prostate cancer market for the following reasons. We expect to continue to grow service both oncologists and urologists. Urologists is where the largest growth potential exists. Currently, the number of oncologists prescribing the product is almost 4,000 of a universe of 6,500. The number of urologists prescribing Xtandi now grew to around 1,400 in this quarter. However, there is still a great opportunity with over 5,500 urologists prescribing Casodex. The publication of the positive data from Terrain, which is the only study demonstrating superiority against Casodex head-to-head, will have a significant impact. Recent market research showed a significant increase in prescribing intent by both oncologists and urologists that were aware of current data versus those that were not aware. Beginning of January 1st this year, we put a strong commercial management team in place from Pfizer. Given our strong reputation and experience in both oncology and urology, together with our good partner Astellas, we expect to accelerate the Xtandi growth. All right. Thank you, Albert. Our next question please, operator. Your next question comes from Jami Rubin from Goldman Sachs. Thank you. My question is for you, Ian. As you know, President Trump is meeting with a group of industry executives right now as we speak, and he said he wants to bring drug pricing down. Do you think that the industry is doing enough to quell concerns out there? If this comes to a head, how do you think it does come to a head? How are we going to get closure on this drug pricing issue? Will the industry have to give something up? How do you look at it? Just specifically on your price increases, which you announced January 1st, are you holding to one price increase a year? Can you comment on that? I think it's just interesting that a number of the distributors this morning said that they are expecting that drug companies will raise prices again in the June and July time period. Just sort of your overall views on how this is all going to come to a head. Thanks. Okay. Thank you, Jamie. On our price increases, I do not want to get into the rhythm of when we increase prices for simply competitive reasons. But we are not changing our philosophy vis-a-vis how we price our medications and when we take those price increases. Regarding the meeting with President Trump, which I could not attend because I am on this analyst call, I would like to sort of broaden exactly and look at what he said. He said, number one, we need to get manufacturing back to America. That falls squarely in the side of getting a tax reform, which allows us to reinvest in the United States and create jobs. I think we can be a very positive part of the story of creating jobs in the United States if we get the tax reform. Regulations. We got where he is going to cut up to 80% to help streamline the approval process. That will help with drug prices because it will induce more competition. We have been advocating for a long time to speed up the approval of generics and remove the barriers to their approval because that will help with drug prices. Regulations. The way insurance is delivered. Cost to consumers, which is really, I think, what the President is talking about. Cost to patients is driven by the fact that the out-of-pocket expense on average for a patient to visit a hospital is 3%, but on his drug bill it is 15%. We would like to see regulations that would allow that unfair playing field to be squared up. It would be positive to get a new FDA head and very positive if young companies can get to the market quicker, and that is good for us and good for the whole system. I think the complexity of drug prices involve all of the other comments you made. I think there are lots of ways, like changing regulations to allow value-based contracting between the industry and the health system will also be very helpful. We have a regulation that was created for fee for service, and now we need regulations in a new world of value-based pricing. I think there are lots of ways we can work with the administration to ensure that patients have affordable drugs or more affordable drugs in the United States. I think that covered most of what you asked. Thanks, Jamie. Thank you, Ian. Next question, please. Your next question comes from Mark Schoenebaum from Evercore ISI. Hey, guys. First of all, I would like to thank the Pfizer organization for all the help while I was gone, especially Chuck, Ryan, and Brian helping my team. Thank you. I wanted to ask again about the possibility of a repatriation holiday. Maybe this is a question for Frank, but I just want to understand if I am doing this right. Your OUS cash, I believe is at least $14 billion, I think is what you said publicly. Not updated for the Q4. Your leverage ratio right now, you told that the EBITDA is something around one, 1.3, somewhere in there. I believe you said you would be willing to go to at least two. I am wondering, my understanding is that if you are able to repatriate cash, you probably alleviate some of your needs for commercial for short-term paper in the U.S. So in the event of a tax repatriation holiday, how high, Frank, would you allow your leverage ratio to go? Would you consider maximizing your borrowing to maximize cash on hand? Then second of all, if you don't mind, just the 5% operational growth for the year in revenue, can you break out price versus volume? Mark, I'm going to direct most of the questions to Frank. I think he can give you the answers you're looking for. Just to let you say welcome back. Good to have you back on the calls. Yeah, welcome back, Mark. I wanted to also say that too. So listen, on capital structure, the real punchline to the question was, how high would we go? Let me run a few numbers and then I'll answer the question, which is, at the end of last quarter, we had about $24 billion in cash. We say at any point in time, up to $10 billion of that is in the U.S. So that $24 minus that $10 that we disclosed is how you got to your $14 billion. At the end of last quarter, we had give or take about $44 billion in debt. So, if you put your debt, the debt of $44 billion, put that on our EBITDA number, you get a number that's close to two. If you do a net debt number, which is probably the calculation that you did, you get to a leverage ratio that's about one and change, which is I'm assuming how you got to the basis of your question. In terms of how high would we go on leverage, the answer is it depends on what we're doing. Quite frankly, to lock myself in on a number really to me isn't an appropriate thing. It really depends on what is the use of capital. The compass on capital, whether it's business development, whether it's buybacks, whether it's dividends, whether it's investing in our business, but the compass is how do we maximize capital deployment to maximize shareholder value? So that's how we think about it. To the extent that we needed to lever up because we think there'd be an an opportunity that made sense, we'd lever up. To lever up just to lever up isn't what we're all about. That's how I'd answer that. On price, I think the way I'll answer it is, I believe for the full year, our operational revenue growth all-in was 11%. Then you took out, you made a couple of adjustments to get to 5%. But I look at the 11%, the majority of that 11% is volume. Low single digits, approximately 2% of that is price. Thanks, Frank. Next question, please operator. Your next question comes from David Risinger, from Morgan Stanley. Yes, thanks very much. I have a couple questions. First, with respect to pipeline news flow in 2017, could you just highlight what the top two or three readouts are in your mind that we should be focused on? Then second, with respect to future business development, you've obviously commented on it in some detail, but it would be helpful to get some more perspective on what your expectations are for potential timing on large transactions. It would seem that it would be most beneficial to Pfizer to have clarity on the likelihood of tax reform and/or repatriation before pursuing a very substantial transaction, but would love to get your comments on that, Frank. Thank you. Well, I'll ask Mikael to do the pipeline flow. Then myself and Frank will answer your BD question. Yeah, thank you for the question. I think we are in a really good rhythm with the pipeline. Actually, over the last six years, we have had over 20 key approvals with an average of three to four approvals per year. The pipeline, the quantity and the quality that we have of the pipeline of more than 90 programs in clinical development will have a similar flow or even more. Actually, in 2017 and 2018, we expect about five approvals every year. Concerning readouts, and I'll focus mainly on pivotal studies that are registration-enabling, we will have about 15, one, five pivotal readouts in 2017 and 2018. Particularly in 2017, more near term, I can mention readouts expected for dacomitinib, lorlatinib, adalimumab in certain indications, and also two of our biosimilars. There will be a continuous flow up to 15 pivotal readouts in total 2017 and 2018. Thanks, Mikael. Frank, would you like to add a bit of BD color? Sure. Dave, you commented specifically, you mentioned large transactions. The way I'd answer the question is, and Ian and I have both said this before, we always start with we're agnostic to size when it comes to business development. Our compass is will it continue to be shareholder value. In terms of the other part of your question about access to overseas cash or easier access to overseas cash, clearly that would be beneficial. That would be favorable, all other things being equal. But in terms of does that make it easier to do deals? The answer is it depends. For example, what happens to the valuations of all the companies? If it's easier to have access to overseas cash, because that's why valuations and prices are. So the compass has to continue to be shareholder value, return on capital relative to our cost of capital. That's what we've always done. That's what we'll continue to do. But at a macro level, all other things being equal, does easier access to our global cash help us? Is it more favorable? The answer is yes. But there's other factors that we'll have to understand as we work our way through business development. Thank you, Frank. Next question, please, operator. Your next question comes from John Boris from SunTrust. Thanks for taking the questions. First question just has to do with a very broad question on. John, we cannot hear you. You need to speak up. Sorry. Sure. Can you hear me now? Much better, John. Loud and clear. Okay, great. Thank you. So the first question is just a very broad question on how fragmented the pharmaceutical industry is relative to other industries. Can you just give your thoughts on consolidation and especially in light of the pricing pressures, just your thoughts on the need for the industry to consolidate? There is a lot of manufacturing inefficiencies out there, just a lot of inefficiencies in the industry in general. So that is the first broad question. Second question. In 2006, you made a decision to sell your consumer business. Is there any way of giving some quantification as to what kind of earnings contribution you currently get from the consumer business? And if you were to consider externally selling it, how would you offset that dilution? Would you add to that $5 billion share repurchase? Third question. Ibrance. Obviously, outperformance, great performance on the brand in the quarter. Was there any additional product put into the channel on Ibrance, or was that all sell-through? Lastly, Ian, I applaud your highlighting the 96 clinical programs you have, but one thing I hear a lot from investors is that you haven't had an R&D meeting in a long time. I would love to see that innovation displayed in front of the investment community. Any thoughts about doing an R&D meeting? Okay. Thank you, John. Four good questions. The issue of fragmentation. From a society point of view, society has to decide do they want continuing a plethora of innovation with lots of shots on goal? If they do, they need to continue to support that and support it through a robust market-based system in the U.S. To the extent that that would change and we don't have a robust ability to recover our value, then I do think you'd see defragmentation disappear and innovation would go down. It's a sort of really macro decision that the government has to make or society has to make as to how much progress and how fast they want to see progress and how much resources they're willing to put behind it. That would dictate, I think, defragmentation and then fragmentation of the industry. With regard to consumer business, we don't give out square profits for sub-businesses. We see it as an asset that is valuable to us, valuable to our shareholders. Like all of our portfolio and all of our assets, if there's a better mix, we're always open to it, but it has to be for strategic reasons rather than cash. On Ibrance, I'll ask Albert to talk a little bit about Ibrance, but before he does, you asked about the R&D portfolio. Was this specifically- R&D day. Huh? R&D day. R&D day. Well, look, let's look at it. We haven't had one for some time. I haven't often found them that productive. We give you a lot of visibility by publishing our clinicaltrials.gov. Mikael's available to analysts whenever they want to talk about the science. More than willing for you to come in and talk to Mikael, John. I'm not sure that a big R&D day really is worth the disruption and the focus on getting it done vis-a-vis explaining what we're doing, but we'll take a look at it. Okay, Ibrance. It was a great performance for Ibrance, John, as we said, exceeded $2 billion this year in the second year of its launch, and it was almost 200% growth. This excellent financial performance is driven by underlying demand, and there was no abnormal fluctuations in inventories. Okay. Frank, why don't you add some more on the consumer? Yeah. So, John, just to run some numbers to help you in terms of answering your question. So for the quarter, consumer revenues, $950 million, +4% operationally. For the year, $3.4 billion, up 5% operationally. We don't give specific margins, but one of the things we do say about the consumer business is that the margins are lower than the pharmaceutical business because it's a less risky business. That gives you enough information, I think, to be able to really build off what the number is. And by the way, in terms of just the theory of the case of when we divest an asset, how do we deal with it from a dilution or completion perspective? The answer is it depends, but think about Zoetis. We did a big buyback. We did a share exchange. And so even though we divested what was a very good, very profitable company, we wound up making that transaction accretive. So there's lots of ways for us to do that. You mentioned share buybacks, and yes, that's clearly one of the ways when we divest assets that we can deal with depletion and dilution. Thank you, Frank. Our next question, please, operator. Your next question comes from Jeff Meacham from Barclays. Hey, guys. Good morning. I want to dig in a little bit in the biosimilar franchise. What can you guys tell us about the Inflectra experience so far in the U.S., and what is the Pfizer view of the new interchangeability guidance and what it means to speed to market? At a higher level, when your biosimilar franchise scales to add more assets, do you think about gross to net any differently? In other words, is the long-term value here biased to more margin contribution or more revenue growth? Thanks. John, would you like to comment on that? Yeah. First of all, I think we obviously are very positive about the opportunity that we have with biosimilars. First of all, the commercial opportunity to add real value to our shareholders. Also the opportunity that biosimilars represent to continue to bring some of the competition that Ian referred to the healthcare system and to bring efficiencies and savings. We think the opportunities in both regards are very significant. It is obviously very early days with Inflectra in the U.S. We are literally in the first, this is just the second month of launch, so it is early days. We anticipate that the uptake in the first few months in the U.S. will be slow. That represents our progress in Europe, where we have seen that actually after the first few months as physicians get comfortable with biosimilars, we have seen the rate of uptake really begin to accelerate. Just to give you a data point to compare, in Europe the uptake of biosimilars overall for infliximab in Europe is something like 28%-29% in the second year. We are actually very satisfied with what we have seen about the progress that biosimilars can make when we begin to get information about how a high-quality biosimilar and our data can really actually deliver significant value to the healthcare system. In regard to your second question about the portfolio, we certainly continue to have, as you have heard from Ian and Frank, a bias to shareholder value. Our compass, whether it is in BD, as Ian and Frank have talked about, or when it comes to the individual contribution of product portfolios such as biosimilars, will always be around shareholder value. And so, we certainly are very positive about the opportunities for revenue growth, but our compass is always going to be shareholder value as we determine how to invest in that portfolio going forward. Thanks, John. Next question, please. Your next question comes from Steve Scala from Cowen. Many thanks. I have two questions. First, for Ian, as someone who has been in the industry for a long time, I would be interested in how you view the current potential threat from government intervention on drug pricing versus that sporadically over the last 20 or 30 years. Would you say it is now among the most significant threat you have ever seen? Would you say it is similar to past periods or not as severe? Then a question for Dr. Dolsten on JAVELIN-100. The study is similar to KEYNOTE-024 and CheckMate 026. Reads out this summer. The PD-L1 expression threshold is 1%. Is Pfizer amending the protocol to use a higher threshold since otherwise it seems that the study is unlikely to be successful? So, thank you. Steve, on the role of threat, it's a good question. I think the misinformation is far greater than I've ever seen before out in the marketplace. We're seeing added on to previous price discussions, the behavior of companies that work in the generic sector who are moving to change their prices in a more volatile manner, hence creating a negative perception there. But if you actually look at the price increases of the branded pharmaceutical companies as a whole, for 2015, it was 2.8%. If you separate the hysteria frankly, in the media, and often the examples are companies that are in the generic market, then I think it's really a huge amount of misinformation out there that we and the pharma as an organization needs to begin to start dealing with. Ian. So, great to get the question on our clinical strategies. We always carefully monitor new learning in clinical science to make sure we timely incorporate them into our studies. This is true also for the JAVELIN first-line lung cancer study, where we are obviously incorporating the best way to define the patients concerning PD-L1. You can be certain that our patient population will be optimized for what is the best knowledge, how to get likely maximal response to a PD-L1 inhibitor such as avelumab. Finally, I just wanted to add, beyond the monotherapy, which we think will be a productive profile for initial monotherapy, we worked on doublets and triplets with 41D and OX40 that will over time, we think, be able to move the needle even further, including indications such as lung cancer. Thank you, Mikael. Next question please, operator. Your next question comes from Gregg Gilbert from Deutsche Bank. Thank you. First for John Young. John, do you think the Essential Health business can grow without deals and without the benefit of innovative products coming over the wall over time? Can you also give us a roadmap for what biosimilar launches Pfizer might have in the next 2-3 years, and comment on your Copaxone ANDA status in light of the legal ruling? Over to Ian and Frank, rather than asking you to predict what replaces the Affordable Care Act and when, can I ask you to quantify the effect you think the ACA has had on Pfizer? Industry fee, doughnut hole, increased volume potentially, biotech exclusivity. These are the things that come to mind, but how do you quantify what ACA has done for Pfizer as we think about where that may go in the future? Thanks. Please, John. Okay. Thanks for the question, Greg. I think we have been fairly consistent in terms of saying that we really believe that we have a strategy and a portfolio that can return the Pfizer Essential Health business to some sustainable growth after the impact of LOEs has begun to lessen. We certainly still have an impact of some LOEs in our portfolio, as you know, but that impact will lessen over the next few years. I think we believe that just strategically at a high level of strength that we have in our emerging market business, that would be typically in most of the large emerging markets, number one or two in most of those countries. We have the leading sterile injectable business, leading biosimilars business, and within what we think of as our global brand portfolio, we actually also have the largest portfolio of anti-infectives in the business. We believe that those core areas of strength really provide an opportunity for us to really drive this business to sustainable growth. Just to run some numbers for you. Whilst in the fourth quarter of this year, the growth of the business overall was -6%. If you adjust for the impact of LOEs, giving you a sense of what is actually happening to the core business, without that headwind, the answer is flat. But if you adjust for and equalize for the selling days, which I think Frank highlighted in his opening comments, that core business grew by 6%. I think it hopefully gives you a sense that we are actually growing those portfolios that we believe will be the positive drivers of growth going forward. We will continue to look at opportunities to strengthen those portfolios. Certainly, our aspirations for some of this business to sustainable growth remains undimmed. In terms of biosimilar launches, as you know, we are very well positioned to be the leader that we are today in terms of revenues, but actually a leader over the next 5-10 years, given the strength of our portfolio. In the relatively near term, we anticipate that in the 2018-2019 timeframe, we will be able to file around about five biosimilar products. I think you are aware of the products that we have in our pipeline. We certainly have potential biosimilars for trastuzumab for cancer, for bevacizumab, also for cancer, for adalimumab, which is an anti-TNF product and one of the biggest products in the world, and rituximab as well as Epo, which we filed in response to the complete response letter that Hospira had previously received. We filed that response in December of last year. When you look at all of those drivers, both combining that with the early-stage pipeline that we have, we believe we are really well positioned to have a rich pipeline of biosimilars in the marketplace over the medium term. Thanks for the question, Greg. Greg, thank you. I am going to just point out some of the I will get Frank to go through the costs of ACA to it. I would like to just make the point that there was no windfall for our industry from the expected 20 million more patients, as most of these patients were not treated with the type of, given the level of insurance they have, they didn't really have access to innovative drugs. There was very little revenue growth from the exchanges revising. Now let's get into the expenses of the ACA. Yeah. The doughnut hole in the fee on pharma sales this year, for the full year, Greg, $722 million. By the way, the thing to add to that is the Medicaid component, although it is very hard to really come up with that number now because many states have moved to manage Medicaid. If I just ballpark that number and assume it has been roughly the same as it was a couple of years ago, that number grosses up to about $1.25 billion. You divide that by call it $80 million per share pre-tax to that $1.25 billion, $0.15-$0.16 a share. Thank you. That's right. Can we move on to the next question, please? Your next question comes from Marc Goodman from UBS. Yes, morning. Looks like another year of flat spending. Can you talk about the push and pull specifically on SG&A for this year? Also just more broadly, just philosophically, it looks like R&D SG&A the past couple of years have been flattish. Should we be thinking flattish for the next couple of years as we model and basically however the top line drives the bottom line. Second of all, just on Ibrance, you mentioned there was no unusual inventory, but you also, on the quarter, usually give us some metrics, how many patients were on the product, and what kind of penetration rates you've got in first line and second line. That'd be helpful. Thanks. Why don't you do the Ibrance, Albert, and we'll get back to the remainder of the R&D and SG&A. Yes, Mark, let me give you a brief overview of the performance of Ibrance. Let me start by saying how happy we are with the success. Ibrance has been prescribed in the U.S. by approximately 9,500 physicians. This is up from 8,500 that were in Q3. It has been given to approximately 50,000 patients. Our initial launch strategy was to establish Ibrance as the standard of care with early-adopting physicians. Moving forward, we believe the growth will come from late adopters, many of whom have already prescribed Ibrance, but in a limited number of patients. 20% of the approximately 12,000 prescribing physicians in the U.S. have not yet prescribed the product. From those already prescribing it, approximately 30% have only one or two patients on Ibrance. With the publication of PALOMA-2, we think that this is important data for these late-adopting physicians. Let's not forget that the study demonstrated more than two years PFS, making it the first and only treatment of this population to do so in a randomized phase III study. Last, to answer your question, our internal market shares are approximately 45% in first line for the quarter, 40% in second line, and 25% approximately in the third line. Thank you, Albert. I'm going to make a couple of comments on your question from the sort of strategic point of view of our spends from R&D and SG&A, and then ask Frank to give you more analysis. We spend in SG&A and R&D according to the opportunities we see and how we can create value. That layer is always there, and expectations of R&D and SG&A are really related to the opportunities we see in the marketplace. Underneath that, though, we have consistent programs to look for efficiencies in how we do R&D, how we deliver our SG&A, and perhaps bank and credit on some of those efficiencies. Right now looking at it, I'm satisfied with the level of support we have next year by SG&A and R&D. Each budget cycle, when we look at it, there could be opportunities and the growth we can get from those opportunities. Thanks. Yeah, maybe I'll give you some of the puts and takes, Mark, to see if that helps. I'll run some numbers first. Let's do SI&A. Last year, the SI&A actual number for 2016, full year was $14.7 billion. Our guidance for 2017 is $13.7 billion to $14.7 billion, with a midpoint of $14.2 billion. There's a lot going on underneath those numbers. If you look at the $14.7 billion, compare it to the $14.2 billion, just in terms of the midpoint of the guidance. What's going on there? One is ongoing cost reduction programs that Ian alluded to. Two is we get the benefit of the sale of Hospira Infusion Systems. So that comes out. The foreign exchange actually helped SI&A to the tune of about $200 million. We called that out. So let's think about that as things that are helping the number, but then there's offsets against that. For example, we get the full year effect of Medivation next year, launch cost for that. Launch cost for Eucrisa is another area. Spend on some of our other areas. But those are the kinds of things that are going on in terms of $13.7 billion, $14.7 billion, hit the midpoint relative to next year. There's items that are driving the number down. There's items that are driving the number up. If you look at R&D, same kind of, I'll call it puts and takes. Last year, 2016, $7.8 billion. Guidance for this year, $7.5 billion to $8 billion. So the midpoint roughly the same as last year, which is part of the basis of your question. But once again, lots going on there. For example, the large bococizumab charge we had in the fourth quarter comes out. So that would reduce spending a little if things equal. On the other hand, we've got the Medivation acquisition, and we're actually increasing our investment in things like Ibrance, immuno-oncology, and some of our late-stage pipeline assets. So when you put that all together, you get to that range of $7.5 billion to $8 billion. Just the rhythm of the numbers. Thank you very much. Next question, please, operator. Your next question comes from Andrew Baum from Citi. Hi, a couple of questions, please. It seems as if the new administration is proposing lower drug prices in exchange for accelerating development timelines for drugs. Do you really believe that that's the underlying issue with economics of the pharmaceutical industry? Does that represent a fair trade to you? Second, in terms of the industry group, highlighting other players in the healthcare value chain who may be contributing to drug price inflation. Perhaps you might like to comment both on the role of PBMs as well as on 340B hospital programs. Then very quickly on biosimilars. In relation to your oncology biosimilars, could you outline what you think the anticipated adoption rate and market impact will be? How fast, and in particular, to which customer groups in the U.S. you think are going to be most accessible in the initial launch period? Thank you. Your question on the administration, I would look at it this way. I think to the extent that, and I would hope at least how the administration's thinking of it, to the extent that they can remove regulations and make it easier and faster to bring drugs to market, that will make the marketplace a lot more competitive, which will then in turn help to bring down drug prices. So I believe that this is the philosophy of the administration to ensure there's competition in the marketplace, and that would be one way of ensuring that drug prices are modified in some way. Regarding your comment about the difference between our price and the list price, I think we get, I think there's a study recently came out indicating the percentage we get of the list price. We have got into a marketplace and the way the marketplace has developed, that we have list prices that then rebates negotiated gives a net price. I believe there are alternative systems where we could have just as an efficient system, but where the list prices could be lower and the net prices would stay substantially the same or might drop slightly because of the middleman not making so much money in the middle. That is very complex, and we need to come up with a competitive market-based solution to that. I do believe that is one of the problems in the market today, because people without insurance or through the deductibles are hit with the list price rather than the net price to the insurance company. Maybe there are ways we can work with the insurance company administration to get rid of this big difference between list price and net price. The last question was biosimilars. Thanks for the question, Andrew. Obviously there are no currently available oncology product biosimilars, either from our portfolio or any other company's portfolio in either the U.S. or Europe or any other major market around the world. To some extent, it is very early days to conjecture what the rate of uptake might be. What I can say is that we are very positive about the pipeline that we have. As I mentioned earlier, we have bevacizumab, a potential biosimilar to Avastin. We have rituximab, a potential biosimilar to Rituxan, and we have a potential biosimilar trastuzumab to Herceptin. We are very positive about the way that those clinical programs are unfolding. I think in oncology, it is very likely that biosimilars will be used initially for new patients. I think it is probably unlikely that oncologists will choose to change a patient's therapy. But given the particular dynamics where patients, by definition, start and finish courses of therapy, more often, we do not see that as being an inhibition in any way to the uptake. Once physicians actually see the clinical data for a biosimilar and then can make an informed decision along with their patients around how to most appropriately manage their course of therapy. Thanks, John. Next question, please. Your next question comes from Tony Butler from Guggenheim Securities. Yes, thanks very much. Three very brief questions. Frank, have efficiencies in gross margins actually been totally wrung out to date? Number two, to John Young again on biosimilars. Do you believe in the U.S. that overall demand is dependent upon formulary positioning, all of pushing the brand back to a higher tier for where your biosimilar may be at a lower tier as opposed to physician pull through? Then finally, to Mikael Dolsten on first-line lung. Once again, do you wait until JAVELIN-100 completes before moving forward with the combination studies, or are you already underway with those? I noticed or cannot find any trials other than in head and neck, which has radiation, which may involve chemotherapy plus avelumab. So I'm curious how you and/or Pfizer think about that in combination specifically for lung. Thanks very much. Okay. Frank. Yeah. Tony, I will answer it by using cost of sales, which is basically the same thing. Think about it this way. Our cost of sales in 2016 was 22% of revenue for the full year. Our guidance for 2017 is 20%-21%. The midpoint of that guidance, 20.5%. We are actually down from 22% to a range of 20%-21% in 2017. Couple of things going on there. One is more alliance revenue. Alliance revenue, we book the revenue based on net gross profit, so there is no cost, so that obviously helps the percentage, but also ongoing cost reduction programs taking place in our factories and throughout the company. The offset to that is we have $2.4 billion of LOEs next year, some of which obviously have a negative impact on the cost of sales. But when you put that together, the short answer is we are going down year-over-year. No, short answer is no, we have not wrung it out completely. There are always opportunities to continue to improve in everything that we do. Okay, thanks for the question on biosimilars, Tony. I think just to hit on a couple points I made already, which is clearly one component of ensuring appropriate uptake for biosimilars in the marketplace is physician education, making sure that they are familiar with your clinical data, the strength of your program, and we also believe, actually, the importance of the company profile and your experience in biosimilars. That said, plainly, access is a critical component as well, and we are absolutely clear that ensuring that we can negotiate appropriate patient access and we take the steps necessary to ensure that patients can have access to high-quality biosimilars is equally important. Yeah. So, great to hear about your interest in how one will evolve the IO combinations. As we have optimized JAVELIN-100 for PD-L1 monotherapy, and I think based on current experiences across the field of PD-1 and PD-L1 antibodies, one can assume that monotherapy may be particularly robust in the PD-L1 high fraction of tumors, but likely of less magnitude in PD-L1 lower lung cancers. We have several phase I studies ongoing where we study combination of avelumab, such as JAVELIN Lung 101, which contains avelumab plus ALK inhibitors, crizotinib or lorlatinib for ALK-positive lung cancer. We also have JAVELIN Medley, and solid tumor basket studies that contain avelumab with 4-1BB, avelumab with OX40. We are planning this quarter to start a triple avelumab, 4-1BB, OX40, which likely, to the best of my knowledge, will be the first triple with this agent. I should say that although you cannot predict outcome of combination drugs, we have seen the history of oncology to evolve to that as we learn about single agent activity. Both 4-1BB and OX40 show some single agent activity, whether on clinical activity or important immune parameters. Finally, I should say that we also are starting studies where we combine avelumab with our own EGFR inhibitor for the T790M mutation, which is the Rowan segment. We will review those data as they emerge, and during first half of the year, particularly avelumab, 4-1BB, and OX40 data will emerge, and take rapid decisions together with our partner, Merck Serono, how to leverage those data. We will certainly not wait to see the outcome of JAVELIN-100, as we think the design of combination studies can also contribute to expand and supplement the position we can have in monotherapy. Thank you. Thanks, Mikael. Next question, please. Your next question comes from Seamus Fernandez from Leerink. Oh, thanks for the question. Just a couple of quick ones. Ian, maybe you can just comment on the fact that IO investment overall seems wildly inefficient. In that context, can you just discuss the general efficiency of pharma's investments into this area, and in oncology, if you think the industry should really be looking to consolidate more of that spend over time, or should companies really be taking these independent paths, chasing the same targets? The separate question is just for Frank. On the tax rate, can you just help us understand a little bit more the relative to your current repatriation thresholds, what would the tax rate need to be in order to maximize your free flow of capital? Obviously, 15%, I think, would get us there, which is the current proposal for a territorial tax system, but would 20% get us there? Would 22% get us there relative to forecasting your current pro forma tax rate, which typically runs between 22% and 25%? Thanks. Seamus, regarding your question, I think you can see that clearly with the way investors have treated initially BMS and Merck, and those are the front runners on IO, that they think it's a very effective investment strategy. The question you're really asking is there value to multiple shots on goals and multiple combinations, and there are a lot of combinations that you can try. I think that the field is in its infancy, and that implies some lack of efficiency that we explore for leads and different ways to take these products forward, which will over the medium term, shake out. Now, whether you want only one company chasing one target, well, that would be the result of not spending as much on research by not supporting prices and not supporting innovation. Okay. Thanks. Seamus, on taxes. Let me run a few numbers and then I'll answer the question, which is, there's the proposals from the administration, there's the proposals from Paul Ryan and the rest of the Republicans. Think about it this way. You've got to think of foreign earnings in terms of accumulated earnings to date and then future earnings. On future earnings, the administration has a proposal, I believe, of 15% minimum tax, where Paul Ryan has a proposal that's basically a total territorial tax system, where we bring it back at zero. Now that comes, by the way, with base erosion called border adjustability. By the way, I like that total territorial with zero. I mean, that's really good. Because this is where our competitors are. Which goes, by the way, to Ian's point, in terms of a level playing field with our competitors. If you look at accumulated earnings, so everything that's been accumulated already to date, the administration has a proposal of 10%. Paul Ryan has a proposal of, I believe it's 8.75% on the cash, 3.5% on the non-cash, and then it's payable over eight years. My short answer is the lower the better. We obviously want to have easier access to our overseas cash in terms of maximizing shareholder value. The lower that number is for us, the better it is for our shareholders. So my threshold though is low. Thank you, Frank. Next question, please. Your next question comes from Alex Arfaei from BMO Capital Markets. Good morning, Alex. Good morning. Thank you for taking the questions. First, Ian, thank you for prioritizing your investors and being on the call as opposed to the White House. This morning, the President said that foreign countries must pay their fair share for drug price development, excuse me, for drug development. This may not be a fair question to you, but do you think that is actually achievable? If so, how could it be achieved? Then, also, forgive me, I'm not sure if I understood your earlier comments regarding the connection between U.S. manufacturing and tax reform, if you could clarify that. Then, finally on the business, Hospira operational growth was a little bit lower than expected at 2%, given all the ex-U.S. launches. Can you provide some commentary there? Thank you. Okay. On the stopping free riding is the way I put it, that economies free ride on innovation paid for by Americans. Clearly, it is trade policy. It is how we interact and how we do our trade policy and how we negotiate them. I think the President has been clear that he thinks that they haven't been negotiated hard enough. As regards to free riding on American innovation in pharmaceuticals, I totally agree with him, and hopefully we'll get something done on that. He certainly declared his intentions to do so. I'll hand over the other question to John. Yeah. Thanks for the question. We continue to be very positive about the contribution that Hospira has made to our business, both in terms of its strategic fit, but also its operational performance. Just to run some numbers by you. Our sterile injectable business for Hospira on the quarter, as we printed it, was flat. Our biosimilars business grew by 48%. The infusion systems business, which had some softness in the fourth quarter, declined by 9%, and the total was minus 1%. Just to come back to the selling days true-up, but if you adjusted those for selling days and equalize between 2015 and 2016, the numbers become 9% growth for the sterile injectable business, 61% growth for the biosimilars business. Infusion systems would be -2% compared to the -9%, and the total business would be 8% compared to the -1% when you adjust for selling days. Overall, we remain very positive about the organic performance of that business. Regarding the connection between taxable manufacturing and bringing jobs back, as an industry, we're interested in highly qualified workforces that have been trained and that were driven by the tax code today to manufacture outside of the U.S. If there is no penalty by the border adjustment for manufacturing inside the U.S. to supply your markets outside the U.S., that will encourage us to put more jobs in the U.S. Thank you, Ian. Operator, if we could take our last question, please. Your final question comes from Richard Purkiss from Piper Jaffray. Thanks. I had a couple of quick product questions. Firstly, for Albert, on Bosulif, do you see the results of the BFORE study allowing you to expand into the first-line setting in the face of Gleevec generics? Then for Mikael or Albert on Ibrance, can you tell us when you expect to see the neoadjuvant breast cancer data from the PALLET study? Also, can you give us a quick update on how enrollment is going in PALLAS? Can you repeat the first question, Richard? We didn't quite- Sure, yeah. Bosulif? It was a question for Albert Bourla on Bosulif. Bosulif, okay. The results of the BFORE study allowing you to expand into first line in the face of Gleevec generic. Yeah. Well, I think we'll ask Mikael to make some comments on that. Yeah, Ibrance. Ibrance. You can take that too, Mikael. Thank you. Yeah. Thank you for noting the very strong performance of Bosulif in the BFORE study that was run with the venture group, Regulus, supporting us in developing it to early line. We were really pleased with the data that we, I think, have been released on a press type of high level that showed that it outperformed Gleevec and showed superiority. So we think it will certainly give Bosulif an opportunity to be a major drug for us all lines in chronic myelogenous leukemia. Thank you for noting that. When it comes to Ibrance, we have had a solid enrollment for our early breast cancer trials, which I think reflects, as Albert has alluded to, the very favorable tolerability profile for a drug like Ibrance to be used and we have both, as you know, PALLAS and PENELOPE. PALLAS is the broader study that covers both high-risk and intermediate-risk patients that will be treated with Ibrance for two years. The smaller PALLET trial, which is a phase II, more of a neoadjuvant trial may read out later this year or possibly 2018. Always difficult to have a firm projection. We anticipate data could come this year. That's a study that in some way will give additional data from a WashU University study that was earlier shown at ASCO, which did show on Ki-67 as a proliferative marker of estrogen receptor-positive cancer cells, as well as on clinical responses that Ibrance was very active in this equivalent of early breast cancer. These are the endpoints, but in a larger trial, phase II of PALLET, we look forward to the data and think it will just add more aspects of Ibrance and its activity across many segments of breast cancer, whether advanced recurrent or here earlier breast cancer. Thank you, Mikael, and thank you everybody for your attention this morning. Thank you, everybody. Thank you, everybody. Ladies and gentlemen, this does conclude Pfizer's fourth quarter 2016 earnings conference call. You may now disconnect.