Earnings Call: Q2 2016

Aug 2, 2016

Quarterly report

Summary

Q2 revenue reached $13.1B, up 13% operationally, while adjusted diluted EPS was $0.64. New products and Hospira supported growth; 2016 guidance was reaffirmed, and a potential separation decision remained targeted for year-end.

Good day, everyone, and welcome to Pfizer's second 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. Thank you, operator. Good morning, and thanks for joining us today to review Pfizer's second quarter 2016 performance. As usual, 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, President of Pfizer Innovative Health; John Young, President of Pfizer Essential Health, and Doug Lankler, our general counsel. The slides that we have presented on the call can be viewed on our homepage, pfizer.com, by clicking on the link for Pfizer Quarterly Corporate Performance Second Quarter 2016, and this is located in the For Investors section, which is in the lower right-hand corner of the page. Before we start, I would like to remind you that our discussion during this 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 any forward-looking statements. Additional information regarding these factors is discussed under the Disclosure Notice section in the earnings press release we issued this morning, as well as in Pfizer's 2015 annual report on Form 10-K, included in Part 1, Item 1A, Risk Factors. This is filed with the Securities and Exchange Commission, available at sec.gov and at the Pfizer website, pfizer.com. 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. In addition, discussions during the call will also include certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. Reconciliation of these 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, August 2, 2016. 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 Q&A session. With that, I will now turn the call over to Ian Read. Ian? Thank you, Chuck, and thanks for joining our call this morning. During my remarks, I will briefly talk about the performance of the business and provide some thoughts regarding each of our businesses and our pipeline. Our financial performance year-to-date is strong. Even stripping out the impact of the legacy Hospira business, we reported another quarter of operational revenue growth that is driving our solid EPS performance. We achieved this through continued strong performance of new products. In addition to patent-protected products that are later in their lifecycle, as well as operational growth in emerging markets. This was accomplished despite some continued headwinds from products or loss of exclusivity. As you know, to ensure the appropriate level of focus and autonomy, we have evolved our operating model into two distinct businesses. An innovative business we now call Pfizer Innovative Health, and an established products business we now call Pfizer Essential Health. Through the first six months of the year, the businesses are executing well against their strategies, as demonstrated by each unit's results. A few words about each. For Pfizer Innovative Health, we continuously strengthen our core brands, including Ibrance, Eliquis, Xeljanz, Varicap, and Chantix. More specifically, Xeljanz has been prescribed to more than 50,000 patients worldwide. Revenues for the quarter were $217 million, which represents 70% operational growth versus quarter 2 2015. Eliquis utilization adoption continues to rapidly increase. More than 3.5 million patients already have been prescribed Eliquis. It is now the number one prescribed oral anticoagulant amongst cardiologists in the U.S., Japan, and several European countries. As our partner, Bristol Myers, reported, revenues in the second quarter were strong, representing 75% operational year-over-year growth and 90% year-to-date operational growth. Regarding Ibrance, approximately 35,000 patients have now been treated with by 7,600 prescribers since its launch in February last year, and it has now been approved in 14 countries in addition to the U.S. We anticipate receiving a decision from EU regulators around the end of the year. In Q2, we achieved revenues of $114 million, and for the first six months of the year, a total of $942 million. Our Prevnar 13 franchise continues to be a significant contributor. Through the success of our adult launch in the U.S., approximately 40% of the adult 65 and plus population had been vaccinated as of the end of June. Achieving year-over-year growth is now more difficult because of the reduction in the number of U.S. adults over 65 who have not received their Prevnar 13 shot. We do, however, expect overall global Prevnar franchise sales for full year to be comparable to slightly below 2015 levels. During the quarter, we closed the Anacor acquisition. This is a nice complement to our inflammation and immunology portfolio within the innovative business. The Anacor acquisition is a great example of how the opportunistic bolt-on acquisitions that augment our portfolio with a pipeline product that is potentially quite close to market launch. In terms of the pipeline, we believe there are significant late-stage opportunities in the Innovative business in key areas such as immuno-oncology, CV/metabolic, vaccines, I&I, rare diseases, neuroscience, and pain. In immuno-oncology, we have started phase III studies for avelumab in bladder and ovarian cancer, adding to the numerous existing studies already underway for the compound. Together with our partner, Merck KGaA, we plan to file avelumab for the treatment of metastatic Merkel cell carcinoma at the end of Q3 2016 in the U.S. and by the end of 2016 in the E.U. In CAR T, we are working with Servier on a joint clinical development program for UCART19, a product developed by Cellectis. We have exclusive rights from Servier to develop and commercialize UCART19 in the United States. In June, Cellectis announced the first patient was treated in a phase I pediatric B-cell acute lymphoblastic leukemia trial, marking the first clinical trial of UCART19. Last week, we expanded our immuno-oncology portfolio by entering into a development collaboration license and option agreement with Western Oncolytics. We will collaborate with them on the preclinical and clinical development of their novel oncolytic vaccinia virus, WO-12, through phase I trials. Following the completion of the phase I trial, we have an exclusive option to acquire WO-12. Under our oncology portfolio, we completed our phase III study for inotuzumab in adult patients with relapsed or refractory CD22 positive acute lymphoblastic leukemia. Based on the study's results, we are planning to pursue regulatory submissions, and if approved, inotuzumab could be a valuable new addition to current available treatment options for these patients. Currently, adult patients with elapsed or refractory acute lymphoblastic leukemia have a 5-year survival rate of less than 10%, making these patients particularly difficult to treat. We also continue to see success with Xalkori, it is now the first and only FDA-approved biomarker-driven therapy for the treatment of ROS1-positive metastatic non-small cell cancer. In a clinical trial of 50 patients, two-thirds responded to treatment and the median duration of response exceeded 1 and a half years. While the patient population is limited, it is an important advance for patients who previously had limited treatment options. In July, CHMP adopted a positive opinion recommending extension of the current indication for Xalkori to also include the treatment of adults with ROS1-positive advanced non-small cell lung cancer. This recommendation will now be reviewed by the European Commission. In vaccines, we have two preventative vaccines, Staphylococcus aureus and Clostridium difficile, in phase II clinical development. We expect to have C. diff phase II data towards the end of this year. In inflammation and immunology, the Anacor acquisition has brought us crisaborole. It is an important potential first-line treatment option for the 18 million to 25 million children and adults in the U.S. who have mild to moderate atopic dermatitis. If approved, this would be a meaningful advancement for these patients who have not seen new treatment options for their condition in the last 15 years. Last month, the detailed results from the pivotal phase III study were published in a peer-reviewed journal, and the new drug application is currently under review by U.S. FDA with an expected action date in January 2017. For Xeljanz, we have recently announced positive top-line results from the third phase III trial of Xeljanz for patients with moderately to severe active ulcerative colitis. The combined findings from the phase III pivotal trial are encouraging and provide evidence that Xeljanz has the potential to be an effective new treatment option for both induces and maintains remission in UC. We also announced the results from two pivotal trials in Xeljanz for use in patients with psoriatic arthritis. The two psoriatic arthritis studies, along with a long-term extension study, are expected to form the potential submission package for possible future regulatory applications. In pain, we have begun enrollment in all the phase III tanezumab studies. This program consists of six studies in approximately 7,000 patients in three chronic pain conditions, three in osteoarthritis, two in chronic low back pain, and one in cancer pain. The study results are projected to begin reporting out in 2018. We also are strengthening our gene therapy capabilities. Yesterday, we announced our acquisition of Bamboo, a privately held biotech company based in Chapel Hill, North Carolina, focused on developing gene therapies for the treatment of patients with rare diseases. The acquisition complements our growing rare disease portfolio with preclinical assets, including potential therapies for Duchenne muscular dystrophy and Friedreich's ataxia. In addition, we are making good progress in hematological, including a phase III study in sickle cell disease. With our partner, Spark, we recently presented data at the World Federation of Hemophilia Congress and have received breakthrough designation for SPK-9001, which is currently being investigated in an ongoing phase I/II trial as potential one-time treatment for hemophilia B. Turning now to Pfizer Essential Health. The business continues to move close to stabilization. Excluding the impact of Hospira, the legacy Essential Health business was nearly flat on an operational revenue basis for the first half of the year as compared to a year ago. We continue to expect that this business has the potential to move to operational growth through a combination of expanded biosimilars and sterile injectables portfolios. Much of this is aided by the Hospira acquisition, along with continued growth in emerging markets, which grew by 14% operationally in the second quarter with Hospira and other core areas where the business is a global leader in certain therapeutic sectors. Of note, we are now the worldwide leader in biosimilars according to IMS Revenue, and we expect it to compete in the first wave of biosimilar launches in the U.S., and recently announced our investment to develop a state-of-the-art global biotechnology center in Hangzhou, the economic development area in China. This innovative facility will ensure the development and manufacture of high-quality, affordable biosimilar medicines that have the potential to benefit patients both in China and throughout the world. To potentially further enhance the revenue growth of this business, we will continue actively managing and reshaping our portfolio. Our overarching objective for Pfizer Essential Health has not changed: to generate a modest but sustainable rate of revenue growth. I believe the business is on a good trajectory, and we are taking the actions that will help enable us to achieve this goal. Turning now to a few comments regarding a potential split of the company. As we have previously said, we are assessing the merits of separation and expect to arrive at a decision no later than the end of this year. Let me add, this is not a make-or-break decision for the company. As I have just shared with you, each of our businesses is performing well and will continue to pursue the strategies, including opportunistic business development where appropriate, to accelerate our strategy. A strategy that will best position them for long-term success. As a reminder, our decision criteria for a split of the business has not changed. It continues to be based on four questions. Are the businesses performing well within Pfizer? Could the businesses perform well as stand-alone entities? Is there trapped value in a combined entity? Can the trapped value be unlocked efficiently? We will be thoughtful in evaluating the virtues of split over the coming months. Our key and primary motivation here is shareholder value and return to shareholders. I don't view there being a wrong answer here. The decision will be taken in the straightforward context of the best path forward for shareholder value. In summary, we enter the second half of the year with positive momentum that is positioning us to deliver solid performance for the remainder of the year. Now I'll turn over to Frank, who will go into greater detail on the results of the quarter. Thank you. 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 3, 2015, Pfizer's second quarter and first half 2016 financial results include Hospira global operations, while the comparable prior year periods do not include any legacy Hospira operations. Now moving on to the financials. Second quarter revenues were approximately $13.1 billion and reflect year-over-year operational growth of $1.6 billion or 13%, which was partially offset by the unfavorable impact of foreign exchange of $302 million or 3%. Legacy Hospira operations contributed $1.1 billion to revenues. If you exclude foreign exchange and the contribution from legacy Hospira operations, Pfizer stand-alone revenues grew operationally by $458 million or 4%. In developed markets, operational revenue growth of $1.5 billion or 17% was driven by legacy Hospira operations and the continued strong performance of Ibrance, Eliquis, and Xeljanz in America, which were partially offset by expected lower revenues for Prevnar 13 Adult in the U.S. due to the high initial capture rate after its launch in the fourth quarter of 2014, resulting in a smaller catch-up opportunity versus the year-ago quarter, product losses of exclusivity, and the expiration of the collaboration agreement to co-promote Libtret in the U.S. In emerging markets, operational revenue growth of $116 million or 4% was driven by legacy Hospira operations and certain Essential Health products primarily in China, which were partially offset by lower revenues for Prevnar 13 due to the timing of purchases from Gavi, the Vaccine Alliance and in certain other emerging markets. Second quarter reported diluted EPS was $0.33 compared with $0.42 in the year-ago quarter due to higher asset impairment charges, product losses of exclusivity, foreign exchange, higher charges for legal matters, and the Allergan termination fee, which were partially offset by increased revenues from certain new, in-line, and acquired products, as well as a lower effective tax rate. Second quarter adjusted diluted EPS was $0.64 versus $0.66 in the year-ago quarter. The increase was primarily due to increased revenues, a lower effective tax rate, and fewer diluted weighted average shares outstanding, which declined by 106 million shares versus the year-ago quarter due to our share repurchase program, which were partially offset by an aggregate operational increase in adjusted cost of sales, adjusted SI&A expenses, and adjusted R&D expenses of $913 million or 13%, which includes the addition of Hospira operations in 2016. A $0.06 negative impact due to foreign exchange and continuing product losses of exclusivity. I want to point out that second quarter adjusted cost of sales as a percentage of revenues increased year-over-year from 17.9% to 23.3%, primarily due to foreign exchange and the addition of legacy Hospira operations. Also, because foreign exchange increased cost of sales while decreasing revenues at the same time, which is atypical, there was an exaggerated increase of our adjusted cost of sales as a percentage of revenues in the second quarter. Excluding the foreign exchange impact, adjusted second quarter cost of sales as a percentage of revenue would have been 21.3%. We believe that this is an anomaly rather than a trend, and we have maintained our 2016 adjusted cost of sales as a percentage of revenue guidance. Foreign exchange negatively impacted second quarter revenues by approximately $302 million or 3% and negatively impacted the net of adjusted cost of sales, adjusted SI&A expenses, and adjusted R&D expenses by $106 million or 1%. As a result, foreign exchange negatively impacted second quarter adjusted diluted EPS by approximately $0.06 compared with the year-ago quarter. As you can see on the chart, we are reaffirming revenues and adjusted components of our 2016 financial guidance based on our strong performance to date and continued confidence in the business going forward. Moving on to key takeaways. We achieved another quarter of operational revenue growth driven by the inclusion of legacy Hospira operations, new products that are early in their life cycle such as Ibrance, Xeljanz, and Selzentry, as well as the solid performance from Lyrica. We reaffirm 2016 revenue and adjusted diluted EPS financial guidance. We announced and completed the acquisition of Anacor Pharmaceuticals and accomplished several key product pipeline milestones, and we returned $8.7 billion to shareholders in the first half of 2016 through dividends and share repurchases, including a $5 billion accelerated share repurchase agreement. Finally, we remain committed to delivering attractive shareholder returns in 2016 and beyond. Now I'll turn it back to John. Thank you, Ian and Frank, for the review. Operator, if we can please open for questions. Ladies and gentlemen, if you would like to ask a question, please press star then the number 1 on your telephone keypads. Your first question comes from Mark Schoenebaum from Evercore ISI. Oh, hey guys. Thanks so much for taking the question. Ian, I hope you're well. Frank, hope you're well. Thanks, Mark. Ian, on the topic of the split, I think at Tim's conference a month ago or so, you made some remarks that the Street interpreted as you backing away from the split. That's the widely held consensus view now. I'd just like to hear you explain what did you actually mean to communicate at that particular broker conference. Then if I may, maybe for Dolsten, can we get an update on the oral PCSK9 and timelines for the injectable CVOT trials and whether there's any possibility you'd file before they're out? Thank you. Thank you, Mark. First of all, I want to stress that no decision has been made, and ultimately our decision will be based on what we believe is the best interest of the shareholders. Going back to my prepared remarks, we are looking at these four criteria of are the businesses performing well? Do we believe the businesses could continue to perform well? I do believe there is trapped value and can we extract it on an after-tax basis? I do not know what the street perceives I signaled or did not signal in that meeting. I indicated I do believe that the trapped value question has become more complicated with both the increase in our share value and the decrease in the PEs of the comparables. We continue to have very robust dialogue in the company, preparing for this decision. Certainly stress testing with our two management teams on issues of what initiatives inside their strategies could only be done if they were separate. This is, I think, a key point to look at. Is there some material obstacle inside the company for implementation of strategies of either of these divisions if they remain within say, Pfizer, or can all material strategies be efficiently implemented if we were part of Pfizer? No decision has been taken. We will make that call by the end of the year, and I look forward to giving a decision on that. What I would like to stress is that I do not think that optionality necessarily has an expiration date. Like any business we have in Pfizer, whether it is any part of our business, we continually look at our capital allocation. We continually look at what is in the best interest of Pfizer, which businesses can prosper best in Pfizer. What I would say on optionality is that we will have set up the infrastructure to be able to look at this question at any point in the future if the decision was at the end of the year to remain as we are with both divisions inside Pfizer. If you go to oral PCSK9. Yeah. We do not think that the poor PCSK9 profile would be competitive with the strong and well-lowering 15 with the PCSK9 antibodies observed in many phase III trials. In that area, we actually have moved other interesting products forward, and we have two NMEs coming into the exciting field of NASH. Albert, do you want to share a comment on the regulatory strategy for and the progress of our program with, for the injectable? Yes. We recently confirmed that the first studies met their primary endpoints. The remaining two ongoing SPIRE lipid-lowering studies are anticipated to complete later in 2016. Patient enrollment in the SPIRE-2 cardiovascular outcome was completed in April of 2016. Based on our current estimate, the primary completion of SPIRE-2, the study, is expected to occur in the second half of 2017. Thank you, Albert. Next question please, operator. Your next question comes from Greg Gilbert from Deutsche Bank. Thank you. Ian, would you say it's fair to say that maximizing your tax structure and access to balance sheet, things you've cared deeply about, are things that cannot be addressed anytime soon without a separation of some kind? My second question, if I could ask for your latest intentions on launching Inflectra, are there any key legal milestones that we should be aware of here in the coming months? Thanks. Okay. A separation doesn't, under the current tax laws, facilitate a speedy ability to change the domicile for either of the companies. Under the separation rules now, both companies would be held to the standard of the combined company for three years post the separation. Under present tax laws, I don't see a separation as being a quick route to improving the tax situation. However, I am and remain optimistic that this tax issue will be dealt with by Washington, hopefully in the near future. I think there is a general consensus that we do need to have tax reform to enable U.S. multinationals to be competitive. On the launch of infliximab, I'll ask John to answer that. Okay. Thanks for the question, Greg. In terms of just one initial comment commercially, I would just reconfirm that we're moving ahead with launch preparations, and launch timing will be impacted by the upcoming court decision. I'll ask Nick Langfelder, our General Counsel, to make a couple of comments there. Just to review the dates. When Inflectra was approved on April 5, and we gave our notice to Janssen immediately, that notice period expires on October 2, and we've agreed not to launch before October 3. Earlier this year, we filed a motion for summary judgment that Janssen's 471 antibody patent is invalid. Starting on August 16, the federal court in Massachusetts will hear arguments on this motion and some other issues. If the court rules in our favor, there would be no legal restriction on our ability to launch. If the court doesn't rule in our favor, we start the trial, and we review our options at that time. Yes. Just to confirm, if the court were to rule in our favor, we expect that we would launch Inflectra sometime after October 2, which is after the expiry of the 180-day notice period. If they don't rule in our favor, we would need to look at the different scenarios of when we launch, what's the value of launching on our own, what's the risk we're taking that launch risk, what is the loss of value if other competitors come in with this, and we'll make that decision once we know the results of the court case. Thank you. Frank would like to add something. Yeah. Just Greg, real quick, to punctuate what Ian said relative to the tax rate, it's the third set of proposed regs that Treasury issued in April, where basically the split companies, if you were to split, each of the split companies would be valued at the pre-split, what size evaluation for a 3-year period. That's just a little bit more substantive detail. Thank you. Next question, please, operator. Your next question comes from Chris Schott from JPMorgan. Great. Thanks very much. Just two questions here. First a question for John on Essential Health. I guess we're roughly a year post Hospira. Can you just maybe elaborate a little bit on the key growth drivers for your franchise going forward and how you think about a longer-term sustainable growth rate for this business as we move past the remaining LOEs? Second question, coming back to the question of split. I think we've seen past pharma spin-offs do very well and uncover additional strategies to drive shareholder value that may not have been considered when they were part of a larger organization. I guess when we look at Zoetis, for example, I think that surprised the Street on how much margin leverage that had. Is that a relevant thing to think about with these much larger businesses you're considering to be splitting here? How does that factor into a decision to split the company? Thanks so much. Okay. Thank you. I will ask John to do the post-Hospira, then I will talk about the split and also ask Frank to add some comments too. Okay. Thanks for the question, Chris. First of all, let me just say that we are actually very pleased with the performance in the second quarter and so far this year across all of the segments of our business, both the legacy portfolio, the peri-LOE brands, which are performing above market benchmarks, the emerging market business, and then the growth drivers, biosimilars and our sterile injectable portfolio. Biosimilars clearly is a very attractive market opportunity. Pfizer is the leader in total sales with biosimilars commercialized across all three classes. We are aiming with our development pipeline to really add to our leadership position in the market. Sterile injectables is another attractive segment, and clearly that was a primary driver of our acquisition with Hospira. We are the leader in that segment as well. We continue to be very positive about the opportunities for continued growth in the sterile injectable business. The performance of our core brands in emerging markets continues to be strong. Our business performed well again in the second quarter, primarily driven by some of the incorporation of Hospira operations. Actually, even excluding the impact of Hospira, we saw strong performance in the second quarter as well. In addition to those core franchises, we also see the anti-infectives portfolio in women's health continuing to be strong therapeutic areas for us, where we have a leadership position. When we put all of those drivers together, even in the face of the impact of LOEs that we are managing on behalf of the corporation, our aspiration in the medium term is to take the Essential Health business to a growth rate in the low to mid-single digit range. And as a consequence, we believe we can add significant shareholder value through delivering that performance on a sustainable basis. Thank you, John. I would add that part of the investment case with Hospira was the launch of some of their portfolio in the international markets. This does not occur immediately. It depends on the state of their different registrations and frankly, we would expect that to occur over a 2-year period post the integration. So some of that growth internationally will come once registrations are complete. We continue to look at the total portfolio of the Essential Health business and look for ways to restructuring that. So that's part of the strategy of the team. With regard to the split. Yeah, it's a good question. When you look at some of the splits in the pharma area and what was perceived as increase in value. Part of that is, I think, due to the fact that if you look at perhaps the, you said the Animal Health split or Abbott or Baxter or the others, you have to question, number one, were the separate parts all being invested in equally? I don't think they were. Were they getting the same amount of management attention? I don't think they were. In our particular case, we are investing in both segments heavily, and there's a big difference between a division that is spending being 8% of your revenue and its management attention compared to a division that has 45% of your total revenues. So I think those are things we're looking at. But I do acknowledge that there is this general assumption out there that split companies will improve their performance because of more management focus, which we are trying to deal with by having very distinct leaderships. Also we've looked at some of that research that Frank will have to comment on that. Sure. So we looked at the S&P 500 index, and we compared it to the Guggenheim Split Company index. It is interesting. If you look for one year, the S&P outperforms the Split Company index. Five years, it is about a push, roughly a push. Ten years, the Split Company index outperforms the S&P 500, but on a compounded growth rate basis, 1% and change. There is no real material difference. At least if you look at the returns on a one, five, and 10-year period, the S&P versus the other index. The key question I think, and this is where along with Todd, for questions is what can be done differently if the divisions were split versus what can be done if they are inside Pfizer? Which brings in, of course, balance sheet brings in the whole capital structures and also appetite for risk. Thank you. Thank you. Next question, please. Your next question comes from Vamil Divan from Credit Suisse. Great. Thanks so much for taking my questions. Good morning, everyone. My first one, I guess, would be for Albert and just around Prevnar. You did obviously give the guidance for this year and how to think about the impact of catch-up dosing last year. Can you just talk a little bit more longer term? So how do you see this franchise as you think about 2017, 2018, both U.S., ex-U.S.? And then also maybe you could just remind us on, it has been a couple of years now since the ACIP recommendation for the use in adults. What is the timing and the process for them to sort of reassess that? I think it was five years after that initial vote. Maybe you can just remind us. And then my second one, I think, is for John, just on the EH business. You talked about the top line. Maybe if you could a little bit more just understand. I was surprised by the margins that we saw this quarter. They are quite a bit below last quarter. Is there something specific to this quarter or how should we think about sort of the operating margins or progression for this business going forward? Thanks. Okay. I am going to let Albert answer the questions you asked. I think on the margins, Frank had some interesting analysis I heard a comment on. Albert. Speaking of the remaining of this year, overall, we expect total full revenue franchise to be comparable or slightly down compared to '15 SPN. Moving forward, in the U.S., we are focused on capturing the remaining cohort and expanding usage to a greater age range given the expanded label. However, to realize the full potential of this, we need the ACIP recommendation. We will also continue developing fully in the other markets. As we always do, we will incorporate our expectations into our 2017 guidance that we will provide in January. Just to make some comments. Prevnar 13 will continue to be a significant product. Generally speaking, in the U.S., we will continue to see a decline as we exhaust the catch-up opportunity, and then we will stabilize. In international markets, we will continue growing as we gain more investments and recommendations. Of course, we are working to develop a next-generation pneumococcal conjugate vaccine with additional serotypes. Thank you, Albert. Thank you. On the Essential Health business and the margins. From a gross margin perspective, it is really a combination of the impact of Hospira, which has lower gross margins relative to the overall business, and the impact of product LOEs. Those are the two things really driving the gross margin impact. If you go down to operating margin, then once again, it is really a combination of the incremental Hospira SI&A spend and the incremental Hospira R&D spend, which were not in the prior year numbers. Those two on expenses, give or take, about $170 million combined. You drop all of that, and that is also what is impacting the operating margin. We are not seeing anything that is outside of our expectations other than in this timing in the second quarter of the exchange lending, which is in the cost of goods due to phasing and in the revenue and our full-year forecast take that into account. Yeah. In fact, we gave guidance for the year. We reaffirmed our cost of sales guidance, 21%-22%, which takes all of that, all of Essential Health Yeah Innovative Health, all the FX, we take all of that into account. Thank you, Ian. Great. Next question, please. Your next question comes from Tim Anderson from Bernstein. Thank you. A couple of questions. Ian, when you and I spoke about a split-up in early June, one of the metrics you said you were considering was how cash flows would be impacted as a split company versus a combined company. You brought that up a couple of times, almost seeming to signal that there was a cash flow problem of some sort if you were to split. I am wondering if you could just elaborate on what potential problems might be from a cash flow perspective and balance sheet perspective. Second question, also in early June, when we talked about M&A, you mentioned all options were on the table when talking about deal sizes. I am wondering how much weight to give language like that. Does it really mean it is reasonably possible that we could see Pfizer spend, let us say, $100 billion on an acquisition target? Maybe this is a dumb question, but with your IO platform you are building, are you willing to rule out some of the obvious big IO takeout targets like a Bristol or an Astra that would obviously be duplicative in certain ways? What I indicated to you was that we are looking at the capital structures of the two businesses and how you deploy the cash flows. Clearly, if you are in two distinct divisions, you do not have the same opportunities of deployment of cash if you are in two companies as you do if you are one. You have less choices as to in which areas you put it. When you are one company, you can take those cash flows, return them to shareholders, continue investing in the business, pay your dividend, or do business development in the essential business. Once you split, you permanently divide those cash flows, and of course, you lose flexibility. I think that was basically my comment there, which is understandable. Your question on M&A is, we constantly survey the M&A space. We have the ability to do acquisitions. I do not think we are necessarily limited in size. If the transaction is attractive and creates shareholder value, we have the wherewithal to do the transactions we need to do. I really wouldn't speculate and never have speculated on specific targets or specific opportunities. Thank you. Thanks, Ian. Next question please, operator. Your next question comes from Steve Scala from Cowen. Thank you. I have two questions. The first is a more near-term question on Prevnar. I believe the last update on the U.S. adult penetration was that about one-third of the market had been penetrated, and today it was stated to be 40%. It appears that there has been some additional penetration, but sales are still down versus Q1 and down versus Q4. The question is, why are sales declining when penetration still appears to be on the uptick? The second question is for Dr. Dolsten. Pfizer had some provocative early data on a differentiated gamma secretase inhibitor for Alzheimer's disease at the recent AAIC meeting. Is Pfizer moving ahead with this agent despite multiple failures from other companies in gamma secretase? Thank you. Thank you, Steve. Could you, Albert, explain the dynamics of the adult market? Yes. Steve, the reason why this is happening is because this is a one-time event in the lifetime of the individual adult. Individuals that are vaccinated, they do not have an opportunity to repeat the vaccination in the next year. That counts against you when you move into the next year. Increased penetration just indicates you've now got less of a pool. Yes To get 100% of the pool vaccinated, we now think 40% have been vaccinated. Those remaining 60%, although 60% are harder to get at because most of them haven't been vaccinated by Nutvac, and so they're more difficult targets to access. Those that were vaccinated last year, we don't repeat the vaccination this year. Yeah. The growth is declining. Declining. Okay, Mikael, gamma secretase. Yeah. Thank you for interest and great that you picked up some of the things we have communicated. We have built a quite nice portfolio in the Alzheimer's space with a gamma secretase modulator and a very selective BACE1 inhibitor. Our gamma secretase modulator was based on extensive work to develop a unique profile in the sense that it modulates rather than inhibits the cleavage of the gamma secretase function of the A-beta. So you get a unique profile where you do lower some of the forms of amyloid, the longer forms, typically the 1-40 amyloid-beta that has been assumed to be the most toxic, while it actually preserves and possibly enhances some of the shorter forms that potentially even can be beneficial. So we do think we have a unique profile, and it does not have the type of, so far, side effects that have been reported with gamma secretase inhibitor, including GI issues. This has been a very tolerable clean drug. We will certainly continue to look at ways to advance this molecule as a standalone molecule, and we have the unique opportunity to consider combining it with BACE1. It is a field we feel very enthusiastic about the recent advances, and thank you again for having noted it. Thank you, Mikael. Next question please, operator. Your next question comes from Jami Rubin from Goldman Sachs. Thank you. Ian, not to belabor this topic, but forgive me, I am just for a couple more questions. If the decision is not to split later this year, should shareholders infer that you believe that Pfizer shares are fully valued? Because you have spent a lot of time talking about what part of the decision is to decide whether or not there is trapped value. If you decide not, I would assume that would mean that you feel that there is no trapped value. My second question is, I think investors are also just frustrated that it is taking so long to decide. Is this all about tax considerations? Because it seems that when you initially floated the idea and created three separate companies, which is now two separate companies, you pursued both AstraZeneca and then Allergan. I am just wondering how important having a competitive tax basis is to making your decision a tax inversion. Third, you brought this up in your comments, but just curious, your level of optimism that a new administration will pass broad tax reform. Should that happen, does it make sense for you to wait on deciding on a major transaction or deciding on a split? Thanks very much. Thank you. Well, I would leave the market to decide if Pfizer shares are fully valued or not. I personally think that we have a lot of very positive energy in our pipeline, our stock, and whether it is fully valued or not, does not mean there is or is not trapped value in one segment of it. I think they are different questions. The answer would be, I am not sure there is trapped value, but I am pretty sure that we have a very robust pipeline and will produce greater value for shareholders as we go forward. I think that is the way to answer that. Now on the tax reform, I am cautiously optimistic as there is more discussion on both sides of the aisle on the need to reform the tax system, the need to invest in the United States. Hopefully, with a new administration, whoever administration is in, they will re-look at the need and all the energy around the tax reform. Of course, the potential of that tax reform has implications for what type of transactions you want to do and what type of premiums you want to pay. So it is an influence in our thinking. Thanks, Ian. Next question, please. Your next question comes from Richard Purkiss from Piper Jaffray. Thanks. I've got two questions. Firstly, can you give us an estimate of Ibrance penetration broken down, if possible, by line of therapy in the U.S.? Then on Sutent, I've been modeling pressure going forward as IO therapies enter earlier lines of setting. But is there an opportunity to protect value by moving it into the adjuvant space? Thanks. Thank you, Richard. Albert? Yes. Thank you very much, Richard. Let me start by saying that we are very pleased with the performance of Ibrance. As Ian said, this launch has been prescribed by more than 7,600 physicians and received by approximately 35,000 metastatic breast cancer patients. On your question on the penetration in the different lines, the most recent market share reports I have seen show that we have reached the first line market share of 43% and the second and third line market share of 46% and 24% respectively. Also, we continue to see very strong insurance. Feedback from prescribers and patients continue to be very positive, particularly on patient quality of life. We will continue building momentum in the U.S. as we expand on the penetration in all lines of therapy. We will continue to expand geographically. As you know, we have filed in EU and could have an approved product by the end of the year, and we will continue to expand into earlier lines of therapy. As you know, we have people that start this ongoing in this population. Let me move to Sutent. You are right. We did report the S-TRAC results. Let me say a few words about it. Today, there are no treatments approved or widely used in the adjuvant setting for RCC. Nephrectomy is the standard of care. The S-TRAC study that we did aimed to determine if adjuvant therapy with Sutent post-nephrectomy would be beneficial for our RCC patients with non-metastatic disease. We did that in high-risk patients. The results were not only statistically significant but also clinically meaningful. If approved, Sutent will be the first product approved in the adjuvant setting for RCC. Too early to comment on filing and approval timelines. We will update you on appropriate times. How to think about the opportunity is also part of your question. The eligible population for S-TRAC that we are going to do the trial was stage 3 patients and a small part of the non-metastatic phase 4. The stage 3 population in the U.S. is 5,000 to 6,000 per year, approximately. Assuming that 80% of patients that are stage 3 are receiving nephrectomy, this will result in approximately 4,000 to 5,000 patients eligible for Sutent in the U.S. per year, with similar numbers expected in Europe. Of course, these are preliminary numbers and in case of potential approval, also will depend on the label. Thank you, Albert. Next question, please. Your next question comes from Geoff Meacham from Barclays. Morning, guys. Thanks for taking the question. I have a few on Xeljanz. When you look, growth has picked up of late, and you do have ulcerative colitis and PsA as new drivers. But on the other side, you have JAKs hitting the market soon and competitively and uncertainty on psoriasis. I think my question here is where does this fit among Pfizer's priorities for commercial stage products, and then do you have to press reset in the positioning here when you look at the marketplace, especially with baricitinib coming? Thanks. Jeff, Albert, do you want to take this question? Yes, absolutely. Look, we are very bullish on the opportunity results. The growth was significant, 72%, and we continue to expand the use of Xeljanz geographically. As you are aware, in March, the EMA accepted our application for the treatment of RA. Discussions are going well. We also are looking forward to new indications in psoriatic arthritis and ulcerative colitis. Both of them are sizable markets, exceeding each one of them only the 7, 3 billion, each one of them of market opportunity. In your question about competition, first of all, it is difficult to make direct comparisons without head-to-head trials. Results from the initial phase III studies of competitors, of baricitinib, for example, appear to be consistent with the JAK class. But we believe that this data continues to support the value of JAK inhibitors for the treatment of RA, and as a result, will grow the class. For our product, we are confident in the value of Xeljanz because we are the first-in-class JAK inhibitor, and the ongoing data dissemination and extensive real-world experience continues and will provide significant growth. Thank you, Albert. Next question, please. Your next question comes from Marc Goodman from UBS. Yes, morning. A few things. First, can you give us a little more color on China and the growth there and one of the key products and what is happening? Second, Lyrica, both first quarter and second quarter, there has been a significant jump in revenues, and yet you look at the prescription trends, they have not changed much. It is clearly pricing, and I am just curious if there is more of the pricing that is reaching the ASP versus gross to nets are changing there in a good way for you. Then third, can you just let us know for the rest of the year, what kind of data readouts will we see for your immuno-oncology assets? Thanks. Okay, John, China, please. Okay. Thanks for the question, Mark. China continues to perform well. Even in the face of some anticipated cost pressures, we continue to see some strong volume growth. Overall, our business grew around about 11% in the quarter. Hospira is a very small driver of that growth. To Ian's earlier comments, in China, whilst we see significant potential from the Hospira portfolio, it will take time to realize that just driven by the time of regulatory approval. Overall, the franchises that are growing strongly in China include our cardiovascular business, which is really very well aligned to the increasing priorities of the Chinese government. Our anti-infective portfolio continues to perform well. Overall, we are really very positive about the opportunities for our business in China. It is very well aligned with the priorities of the Chinese government, and we are working very closely with them to strengthen primary care services and management for chronic diseases, which we believe will do good things for the Chinese healthcare system and for patients, and obviously are very well aligned with our portfolio as well. Thank you, John. Albert, Lyrica. Lyrica is doing very well. In U.S., it was a significant growth, but also outside the U.S., we've had the growth for this quarter. It is a mixture. It's a mixture both of volume. Volume is growing. Pricing. International is mainly volume. I think the pricing in the U.S. reflects the value of the product to the patients and to the healthcare system. Data on our oncology. Yeah. I'll say a few words on data and readout in oncology overall. We have a readout for non-small cell lung cancer, EGFR mutant patients with dacomitinib. We have a readout that's a phase III study. We have a readout also for Bosulif in first line CML, again, a phase III study. In the early pipeline, we'll continue to update you as the data evolve on our IO portfolio, whether 4-1BB with Keytruda that was shared at ASCO, 4-1BB now with avelumab or OX40 with avelumab, likely to come at select conferences late this year and early next year. I should also mention that in our portfolio of targeted cancer drugs, we will share at the later part of this year encouraging data with several compound, glasdegib, also known earlier as SMO in AML. PTK7, ADC ovarian cancer, lorlatinib for ALK-positive lung cancer, and our 7775, EGFR mutant drug for resistant lung cancer will also be shared. So it's quite a nice rich data flow in both IO and targeted cancer drugs over the period to come. Thank you. Next question, please. Your next question comes from Alex Arfaei from BMO Capital Markets. Good morning, folks, and thank you for taking the questions. Ian, obviously 4% operational revenue growth for a company of your size is good. But as you step back and look at your innovative segment, it is quite concentrated on Prevnar, the trajectory of which is uncertain as illustrated this quarter. It is also quite dependent on Ibrance and Xeljanz for growth, both of which have significant competition coming. Finally, you have these patent expirations between 2020 and 2023. How do you think about the growth prospects of the innovative segment, since that is clearly where you get most of your valuation? Could you comment on the need for business development there? A couple of quick follow-ups, if I may. Sorry if I missed this, but what was Prevnar adult sales by region, if possible? How should we think about Chantix's new growth trajectory? Thank you. Yeah. Thank you, Alex. Look, on the innovative business, I think it is in a very strong position right now. If you look at the underlying growth of Ibrance and Xeljanz and Chantix and Lyrica, clearly the business is functioning both well internationally and in the U.S. So I think there are strong short-term drivers. I do understand that as we have signaled to you that Prevnar is likely not to be a growth contributor in the 2017 period, in 2017 and 2018. But on the other hand, we will see a reduction in adult sales in the U.S. We will begin to see a pickup of adult sales internationally, and we will look to explore adult sales in the audience from 18 to 55 in the U.S. as well. So I think you will see very strong growth drivers in most of our major products in the innovative area, with slower growth or flattish probably in Prevnar. Then I think we look to the While we do have those later on in the decade, we then begin to see the result of all of our investment in innovation. You begin to see the launch of tanezumab, or you see the launch of the PCSK9, or you see the launch of otetricline, which we believe is a best-in-class molecule and coming into a revitalized positioning in the marketplace. We see our vaccine products coming forward with C. diff, or perhaps later Staph aureus. So I think you see our whole IO portfolio coming through very strongly. And there I, too, believe that while avelumab is the PD-1, what is really going to differentiate the companies is the ability to play in spaces from what we would call cold tumors, which don't react to the PD-1s. You then need to get in there with bispecifics or vaccines where we're very strong, or where you need to go beyond the PD-1 and you need to add triplets and doublets. We have nine products in immune oncology. I think we're going to be positioned as a company that can give you the backbone of a PD-1, and in the same package, can give you doublets and triplets and traditional therapy. I believe this is the key to really unlocking the value of immune oncology, is this offering of capturing patients rather than capturing individual treatment arms. I'm excited about both our near-term and long-term opportunities. Thank you. The revenues for adults and the question on Chantix, maybe I can take. The adult revenues this quarter were $370 million. By region, that was $276 million in U.S., but as we said, declined 37%, and 45 internationally. That increased 41%, and that trend will continue. One will decline, the other will increase. On Chantix. Chantix revenues were up 24% operationally, and that was driven by the U.S. This increase reflects the robust efficacy of Chantix compared to other- And the evolving safety profile based upon the EAGLES and real-world data. Apparently, EAGLES data is very important, right? Let me give you some insight on that. The trial was the largest clinical trial of approved smoking cessation medicines. It was conducted at the request of the FDA and the EMA. The trial did not show a significant increase in the incidence of serious neuropsychiatric events with Chantix or the bupropion compared to placebo only. In terms of efficacy, results showed that patients taking Chantix had significantly higher continuous abstinence rates than patients taking bupropion. In Europe, the Chantix label has already been updated to remove the black triangle as well. In the U.S., as you may be aware, the FDA has scheduled a joint advisory committee meeting that will review those data. Overall, we believe that the available clinical data does not support an increased risk of serious neuropsychiatric safety events in patients attempting to quit smoking with Chantix. Obviously, a black box warning is discouraging for physicians to prescribe the product and for patients to take this medicine. We are really looking forward to discussing in September with the advisory committee. Thank you. Thanks, Albert. We move to the next question, please. The next question comes from John Boris from SunTrust. Thanks for taking the questions. I just want to go back and revisit the taxation question. If we look at your current tax rate of 24%, our thoughts are that if you look at some of your losses of exclusivity and if you've done really good tax planning on a lot of your assets that lose exclusivity between now and 2020, we estimate that there is approximately about $12 billion that lose exclusivity during that time period. When you couple that with Prevnar that is above your tax rate, at least that is our assumption, is not there an issue where we are going to see some creep upward on your overall effective tax rate? Just help us understand. I know you don't give a long-term projection, but again, with that thinking, it would seem that with those sales accounting for about one-third of your total sales, that that might influence the tax rate or bias it upwards. Second question, since you haven't taken off the table a large acquisition, can you remind us the qualities of the AZN acquisition that you attempted? Is that something that you might consider revisiting going forward? Then the last question just has to do with Anacor on the crisaborole asset. You've given a long-term revenue target for that asset. Are you still comfortable with that target, and by what year could you hit that target? Thanks. John, crisaborole, I think we're very confident of the selling approval of our forecasts we put out there. We think it's a unique product. Clearly, you need a ramp-up. Normally you hit peak sales in about fifth year out. Maybe it's faster with this product given the unmet medical need, but I don't think we've given evidence on that or given information out on that. Albert, do you have any update on that? No, you said it very well. We do believe what we said, but we continue assessing the product on what will be a $2 billion-plus opportunity, and is driven by really the unmet medical need. Today, patients suffering from this condition have limited treatment options because approved therapies have limitations related to safety, including black box warnings. Crisaborole's known mechanism of action, already used systemically in other agents, has the potential to have a very favorable safety profile, which is particularly important in pediatric population, which is a very big part of the overall atopic dermatitis expectation. We're confident of our Prevnar revenue projections, and we expect earlier than the normal fifth-year peak sales given the unmet medical need in the marketplace. The attraction of AZN was threefold. It was around revenue and pipeline, especially their oncology assets, which are now not as relevant to us given our deal with Merck. It was around operational expense savings, and it was around financial or ability to deploy our capital globally in a tax-efficient manner. I really can't comment on any appetite around any specific company. So we remain interested in doing business development deals that would achieve some similar results, i.e., getting pipeline that's about growth that fills in our pipeline, operational synergy savings, and potentially tax savings. Those still remain attractive to us. Now I'll try and speak on the tax rate. Yeah. John, the way to think about this is in 2009, our tax rate was 30%. We've given guidance this year with a tax rate of 24%. We've actually taken that tax rate down, give or take, about 1% a year since 2009. I think we've clearly established a really good rhythm. By the way, we did that during a period of very large LOEs. Obviously, going forward, we'll provide guidance on the 2017 tax rate on our fourth quarter earnings call. When we close out 2016, we'll give guidance for 2017. But please know, obviously, we do lots of tax planning. We understand what's coming at us for the next few years, and our objective is to continue to have that tax rate for you as effective and efficient as possible. Thank you. Thanks, Frank. Next question, please. Your next question is from Manoj Garg from HealthCor. Great. Thank you. I have two commercial questions and one capital allocation question for Frank. On the commercial front for Xeljanz, we noticed that it came off of Express Scripts' excluded list for 2017. Can you comment on any other notable changes for 2017? On Ibrance, are you proactively taking any measures there with contracting to ensure a leadership position when additional competitors, if and when they do emerge? Then I'll follow up with my question for Frank. Okay. On the commercial situation, we continue to improve our access and our tiering on Xeljanz and on Ibrance. We think we are in a very strong position. We offer very good value equation to patients and managed care, and we will continue to monitor that as and when competition comes through. Your question on Xeljanz? Xeljanz? Oh, no, on the capital allocation? Ian? Yes. You repeat the last question you had? I can give you the one on Ibrance. Yes. Okay, then. Yes. Let us go to the third question you had. You wanted to pose to Frank. Oh, can I come back? Okay. And pose it. Sorry, we are offline. We will get him online. We will get you offline. Yes. Next question, please. Your next question comes from David Risinger from Morgan Stanley. Yes, thanks very much. I have one question for Frank and one for John. Frank, could you just talk about the standup costs preparing for separation that have been reflected in recent non-GAAP operating profit results? More specifically, I do not know if you have the numbers, but possibly the first half spending that was in your non-GAAP income statement in the first half of 2016. Then for John, with respect to your internal Pfizer-developed Remicade biosimilar program, could you please just update us on that and your plans for that going forward? Actually, before I finish, going back to Frank, should we assume that whatever the standup costs or potential separation costs that are being run through the income statement this year will continue going forward? Since Ian had mentioned that even if you decide not to split at the end of this year, you plan to retain that optionality. Thank you. Thanks. On the optionality cost, Dave, those costs are all in GAAP results. They are not in adjusted results, so what you referred to as non-GAAP. Let me run the numbers. For this quarter, it was about $60 million. Year to date, it is about $110 million. Since inception of the project, so that goes back a couple of years, $600 million. One key point here is the way we program the work and therefore the resulting spending is approximately two-thirds of the spend would take place after we make a decision. We have programmed it to try to preserve as much capital as we can while giving ourselves the ability to implement optionality if we decided to do so within that 12-month period following the decision. In terms of the sunk cost, that work is completed. If we were to make a decision soon or sometime in the future, that work remains completed. We do not basically lose any of the work that we have completed to date. There are ongoing costs to maintain the reporting we have had on optionality. De minimis. De minimis. De minimis. John. Thanks, Dave, for the question on our internal infliximab program. Just as a reminder, we out-licensed that as part of our agreement with the EMA when we acquired Hospira to Novartis/Sandoz. We retained the commercial rights for a number of territories, including the U.S. and certain other markets. That program is progressing on track. We expect to have the readout from our pivotal phase III trials from that program towards the end of this year. Thanks, John. Next question, please. Your next question is from Seamus Fernandez from B. Riley. Oh, thanks for the question. Just a couple of quick ones. As we think about the Anacor acquisition, you guys made an unusual move, and seemingly a timely one, given the increase in valuations in the biotech market. Ian, can you just comment on the valuations in the biotech space as you see them today? Do you see opportunities despite the increased valuation, or do you think that enthusiasm here is starting to build in too high expectations? As a follow-up to that, can you guys comment a little bit on the strategy with crisaborole? Obviously, it fits well with your pediatric sales force, but this is also an entry into the dermatology market to some degree, where you certainly are present with Enbrel internationally, but don't really have a presence in the dermatology market in the U.S. Just wondering if there's a broader interest in the derm space, particularly medical derm, where when we hear from dermatologists, there is a significant vacuum in innovation. The second question, just biosimilars in general. We heard from Sandoz in June that pricing is coming in quite a bit below where they had modeled the market, but penetration is also coming in higher. Can you guys talk a little bit about, John, maybe you can talk a little bit about how the biosimilar market is evolving, and how the uptake of Inflectra might be different from competition that you might see to Enbrel or how you might compete for pharmacy-delivered injectable products? Thanks. Thanks, Seamus. On the valuations, I think that if you go back six or seven months, I think we said that we thought they were frothy on biotech. They came down and are beginning to build back up again. It all depends on each individual company, what the product, what's the opportunity, what are you willing to pay, what can you add to it? I don't think you can generalize on valuations across different products. But thank you for the question. On the crisaborole. Yes. First of all, you are absolutely right that derm is a very important area. From immunology, we have rheumatology, dermatology, and GI, and derm was what we were missing, and now we are getting with crisaborole. We are building derm capability as we speak, commercial capabilities. Anacor had already started building them, and we continue very rapidly scaling them up. We are going to use our own primary care footprint because a big part of the crisaborole sales will be in primary care and, of course, our pediatric footprint. John. Okay. Over to you, John. Thanks for the question, Seamus. Exactly as you say, we believe that there is likely to be some significant variability, molecule to molecule and product to product, and indeed across markets based on a variety of factors, primarily including the number of entrants, the quality and breadth of their label, as well as the innovator reactions by similar competition. That is pretty much what we are seeing in Europe. We have always said that we would expect price discounting to be somewhere in the 30%-50% range. That pretty much is what we are seeing across Europe overall, with some variability across molecules. We expect similar range in the U.S. Overall, the market is very much behaving in line with our expectations, and we have been very positive with the rate of adoption of Inflectra that we have seen in Europe, and are certainly very positive about the potential opportunity that this represents in the United States, too. Thank you, John. Operator, can we take our last question, please? Your final question comes from David Maris from Wells Fargo. Good morning. Two questions. First, on the biosimilars in the new facility, when do you think that would be operational? Are there any trends that you are seeing in the marketplace that give you additional confidence in building this facility? The other is on the overall pricing environment. A couple of your peers have mentioned that the pricing environment in the U.S. has more recently been difficult, and they are assuming increased price pressure in the U.S., including increased rebating and discounting. Are you seeing that? How do you look at that going the next year or so? Thank you. How do we pricing John there, I am sorry, the biosimilar in China. I think pricing has been competitive and difficult for many years now. Managed care is organized. The market is competitive. The product has to have value add to get access. I think Ibrance is an example of a product that has got access. I do not perceive that in our therapies with the products we have, that the pricing has become more difficult in the last year than previously. Is there a political rhetoric that you would expect around the political season on pricing? Absolutely. Have there been some bad actors which have made it more difficult for the industry to get its message across? There have been. But I still believe that this society and opinion leaders believe in an innovative industry and understand that a high-risk industry needs to have an ability to recuperate its capital and attracting capital. So I think, that overall, we'll continue in a competitive pricing environment, which is appropriate for society. So with that, I'll ask John to talk about biosimilars. So thanks for the question, David. So let me just make a comment, first of all, about the penetration of biologic medicines generally into China, which is low vis-a-vis most benchmarks internationally. So we believe that post the expiry of any relevant patents in China, the biosimilars is a significant opportunity. Obviously, we are committed to bringing high-quality products to market, and so we're very excited with the investment that we announced in Hangzhou economic development area, to invest $350 million in what will be a state-of-the-art global biotechnology center. That center is expected to be completed in 2018, and we'll be working with the CFDA and relevant Chinese authorities to bring products, biosimilar molecules, coming out of that facility to the Chinese market as soon as possible following the completion of the plant. Thanks, John, and thanks everybody for joining us today. Thank you. Thank you. Ladies and gentlemen, this concludes Pfizer's second quarter 2016 earnings conference call. You may now disconnect.