Good day, everyone and welcome to Pfizer's Third Quarter 2014 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 third quarter 2014 performance.

I am joined today as usual by our Chairman and CEO, Ian Read; Frank D'Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development; Albert Bourla, President of Vaccines, Oncology and Consumer; Geno Germano, President of Global Innovative Pharma; John Young, President of Established Pharma and Doug Lankler, General Counsel.

The slides that will be presented on this call can be viewed at our homepage pfizer.com, by clicking on the link for Pfizer Quarterly Corporate Performance Third Quarter 2014, which is located in the Investor Presentations section which is in the lower right hand corner of this page.

Before we start, I’d like to remind you that our discussion during this conference call will include forward-looking statements and that actual results could differ materially from those projected in the forward-looking statements.

The factors that could cause actual results to differ are discussed in Pfizer's 2013 Annual Report on Form 10-K and in our reports on Forms 10-Q and 8-K. Discussions during the call will also include certain financial measures that were not prepared in accordance with 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 October 28, 2014. We will now make prepared remarks and then we will move to a Q&A session. With that, I’ll now turn the call over to Ian Read.

Ian?.

Yes. Thank you, Chuck and thank you all for joining the call this morning. I’ll start with a few comments regarding the quarter and then a few words about our strategy, including some remarks about business development. Starting with the quarter, our performance was well in line with our expectations as the business continues to perform well.

In our Innovative business for Global Innovative Pharmaceuticals, the underlying business grew 9% operationally, if you exclude approximately $425 million or a negative 13 percentage point impact due to LOEs and the loss of Enbrel alliance revenue.

Operationally the Vaccine business grew 19%, the Oncology business grew 17%, and the Consumer Healthcare grew 4%. For our Established business, GEP revenues for the quarter were down less than 1% if you exclude the approximately 383 million operational or 6 percentage points due to the negative impact of recent LOEs and Lipitor in the U.S. and Japan.

We had good operational growth in several of our key products including, Lyrica which grew 16% and the Prevnar franchise which grew 18%, Enbrel remains a solid contributor in markets outside the United States and Canada where we retained marketing exclusivity and there is good momentum of our newest products including Eliquis, Xeljanz, Xalkori, and Inlyta,.

Specifically for Eliquis, a key reading indicator referred to as new to brand share of cardiologists continues to improve nicely. Since launch, based on the most recent date Eliquis’ share has increased from 0% to 44%, while our main competitor’s shares declined from the high of 70s to slightly above ours.

For Xeljanz, the inclusion of structural data in the Xeljanz label has served as an inflection point with prescribers. We hope to see further steady share gains, aided by the growing attractiveness of positions of using Xeljanz as an effective monotherapy option.

Again this quarter we achieved solid companywide performance in emerging markets, revenues increased 9% operationally compared to the year ago quarter, driven by growth in China and Latin America.

Overall performance year-to-date positions us to achieve a strong finish even after taking account that we’ve transitioned to a new commercial model internally, while also adapting to ongoing external market forces.

Looking ahead, the period of high LOE impact will continue through 2016 making it difficult to generate revenue or growth on a net basis. We expect the size of the impact to be substantially reduced starting in 2017. Our strategy has not changed.

It is anchored upon the following pillars; making our R&D more productive so we deliver on our pipeline; continuing to make smart and shareholder-friendly decisions on how we allocate our capital and globally position Pfizer to be a market leader for organic and inorganic growth opportunities.

Regarding the pipeline, we recently achieved several regulatory milestones in our late-stage vaccines and oncology pipelines. The FDA accepted the biologics license application for our meningitis B vaccine with priority review and set a PDUFA date of February 14, 2015.

The new drug application of palbociclib was accepted with priority review of an April 13, 2013 PDUFA date. We also had discussions with the European regulatory health authorities and intend to file palbociclib in the EU next year. The FDA approved abuse deterrent labeling for embedded-extended release capsules, and our investigational C.

difficile vaccine was granted Fast Track designation and advisory committee on immunization practices recommended a routine use of Prevnar 13 amongst adults, 65 years and above in the United States. And looking at our late-stage pipeline, there are multiple indications that Xeljanz is progressing.

We have completed all four, three phase studies in psoriasis has Phase 3 study is underway in psoriatic arthritis and ulcerative colitis and there are Phase 2 studies in psoriasis for topical use, Crohn's disease and ankylosing spondylitis. And we’re exploring expansion of palbociclib from advanced to recurrent and subsequently early breast cancer.

In addition, we’re working to advance potentially attractive opportunities that could be commercialized in 2017 and beyond, they include ertugliflozin for the treatment of diabetes, bococizumab for cholesterol lowering in high risk individuals, vaccines for hospital acquired infections such as Staph aureus and C.

difficile and several biosimilars in oncology and information. Given the pipeline progress being made I believe we have good sight to improve R&D productivity.

In terms of capital allocation we have a strong solid track-record of taking expenses out of the business, generating strong operating cash flows and having a sound balance sheet that is a competitive advantage. We have returned significant capital to shareholders through share repurchases and dividends.

During the period 2011 through 2013, we returned approximately 53 billion and expect to return nearly 12 billion in 2014. All of this positions us well to pursue business development opportunities.

Recently there has been a lot of attention paid to deals involving re-domiciling and the proposed regulations announced by the treasury department which make it more complicated and also potentially limits value that could be created by U.S. companies that re-domicile.

The fact that treasury has left open their ability to make further changes without notice is of concern. For Pfizer enhanced financial flexibility from re-domiciling is certainly still one potential source of creating value.

As we’ve said previously we will look at any business development opportunities based on strategic-fit including operational, portfolio and financial synergies. We continue to evaluate a broad set of potential options on a case-by-case basis to accelerate value creation to shareholders.

Finally a few words regarding the potential split of our businesses, we have two primary businesses. I want to say that again because there seems to be some confusion that I made and verbally created, we have two primary businesses.

An Innovative R&D driven portfolio which is managed through our Global Innovative Pharma and Vaccines Oncology and Consumer segments and secondly a Global Established Pharmaceutical business. We have 10 months experience operating in our current commercial model with P&L information.

This is proving valuable insights into the strength and challenges of each business. In 2015 we will maintain a significant effort towards setting up the groundwork required to operationalize a potential split.

What we do will eventually depend upon how our commercial business is performing in markets? How our shareholders value these businesses? If in some of the parts is greater than the whole. And wherever there are opportunities to enhance their competitive positioning which could be achieved outside of Pfizer.

It is a decision, it’s important to underscore that at this point in time we have not yet made a decision. In summary, we have an unrelenting focus on successfully executing on our commitments so that we start 2015 financially and operationally strong.

And with a flexibility to take the actions that create value and is best for our shareholders, patients and colleagues. Now I’ll turn it over to Frank who’ll take you through the financial details of the quarter..

Thanks Ian and good day everyone. As always the charts we are reviewing are included in our webcast.

As a reminder, because of the full disposition of Zoetis on June 24, 2013, the financial results of the animal health business and the gain associated with its full disposition are reported as a discontinued operation in the consolidated statements of income for the first nine months of 2013. Now let’s move on to the financials.

Third quarter 2014 revenues of approximately 12.4 billion decreased 2% year-over-year, reflecting an operational decline of approximately 270 million or 2% driven mainly by the expiration on October 31, 2013 of the co-promotion term for Enbrel in the U.S.

and Canada, the ongoing termination of the Spiriva collaboration in certain countries, the loss of exclusivity in subsequent multi-sourced generic competition for Detrol LA in the U.S., and other product losses of exclusivity in various markets.

In total, LOEs in declining alliance revenues had a negative impact of approximately 750 million in the quarter. These were partially offset by the strong operational growth in developed markets of Lyrica, Prevnar, Eliquis, Xeljanz, Xalkori, Inlyta, as well as Nexium 24HR primarily in the U.S.

and by 9% operational growth in emerging markets driven by Prevnar as well as Lipitor primarily in China. Foreign exchange had a negligible impact of 11 million on reported revenues.

Adjusted diluted EPS of $0.57 decreased 2% or $0.01 primarily due to lower revenues and a 2% aggregate operational increase in adjusted cost of sales, adjusted SI&A and adjusted R&D expenses resulting from an unfavorable shift in product mix, upfront payments to Cellectis and MedGenesis Therapeutix associated with recently announced agreements, as well as the ongoing Phase 3 programs for bococizumab, ertugliflozin, palbociclib and certain other new drug candidates.

Adjusted SI&A expenses however decreased by 1% operationally because of continued benefits from cost reduction and productivity initiatives, partially offset by product launch investments.

Adjusted diluted EPS was favorably impacted by fewer diluted weighted average shares outstanding which declined by 253 million shares versus the year ago quarter, due to ongoing share repurchases and the lower effective tax rate.

We recorded reported diluted EPS of $0.42 compared with $0.39 in the year ago quarter due to the previously mentioned factors and the favorable impact of the non-recurrence of a loss associated with Theo-Dur option.

Lower restructuring charges and lower expenses related to cost reduction initiatives, which were partially offset by the unfavorable impact of a charge to account for an additional year of the non-tax deductible branded prescription drug fee under the final regulations issued by the IRS during the third quarter 2014.

Foreign exchange negatively impacted third quarter revenues by 11 million and had a net unfavorable impact of 10 million on the aggregate of adjusted cost of sales, SI&A and R&D expenses. And consequently, the impact of foreign exchange on adjusted diluted EPS was negligible compared with the year ago quarter.

Now moving onto the financial highlights of our business, in the third quarter Global Innovative Pharmaceutical revenues decreased 4% operationally year-over-year due to the previously mentioned expiration of the co-promotion term for Enbrel in the U.S. and Canada, partially offset by strong operational growth from Lyrica, primarily in the U.S.

and Japan and Eliquis and Xeljanz globally.

Income before taxes declined 8% operationally due to the decrease in revenues, a 12% operational increase in cost of sales or a 1.9 percentage point increase as a percentage of revenues of which 1.5 percentage points was attributable to the loss of Enbrel alliance revenues, a 6% operational increase in SI&A expenses from increased investment in new products such as Eliquis and Xeljanz and in-line brands such as Lyrica and Viagra, as well as a 33% operational increase in R&D expenses due to incremental investment in late-staged pipeline products such as bococizumab, ertugliflozin, and additional Xeljanz indications.

In the third quarter, revenues from our Vaccines, Oncology and Consumer Healthcare businesses grew 13% operationally year-over-year, due to the strong operational growth of Prevnar, Xalkori, Inlyta and Nexium 24HR.

Income before taxes increased 19% operationally due to increased revenues, which were partially offset by a 12% operational increase in cost of sales driven by increased sales volume.

As a percentage of revenue cost of sales decreased by 0.2 percentage points due to a favorable change in product mix, and there was a 13% operational increase in SI&A expenses due to Nexium launch cost and Prevnar Adult investment and prelaunch expenses of palbociclib and our meningitis B vaccine candidate.

R&D expenses however decreased 10% operationally due to lower cost for certain oncology programs partially offset by increased investment in the palbociclib and mening B development programs.

In the third quarter Global Established Pharmaceutical revenues decreased 6% operationally year-over-year due to the previously mentioned product losses of exclusivity and the loss of alliance revenues and an operational decrease of Lipitor in U.S. and Japan.

Income before taxes declined 4% operationally due to the decrease in revenues it was partially offset by the decreases in cost of sales, SI&A and R&D expenses which included increased spending on biosimilar development programs.

Now moving on to our 2014 financial guidance, we’re updating certain components of our 2014 financial guidance based on our year-to-date performance, recent changes in the foreign exchange rates and our outlook for the remainder of the year.

It's important to note that this guidance does not include an adjustment for the potential devaluation of the Venezuelan bolivar or any other currency. We’re narrowing our adjusted revenue range to 48.7 billion to 49.7 billion, from 48.7 billion to 50.7 billion.

We are narrowing and lowering our adjusted cost of sales as a percentage of adjusted revenues range to 18.5% to 19% or 19% to 20%. We are narrowing our adjusted SI&A expenses range to 13.5 billion to 14 billion from 13.3 billion to 14.3 billion.

We are narrowing our adjusted R&D expense range to 6.9 billion to 7.2 billion from 6.7 billion to 7.2 billion. We now expect other income to be approximately 400 million versus our previous expectation of about 200 million. We continue to expect our adjusted effective tax rate to be approximately 27% which does not assume the renewal of the U.S.

R&D tax credit if renewed the effect would not be material and we would not anticipate any impact on our 2014 adjusted effective tax rate guidance. We are narrowing our reported diluted EPS range to a $1.50 to $1.59 from a $1.47 to $1.62 and we are narrowing our adjusted diluted EPS range to 2.23 to 2.27 versus 2.20 to 2.30.

Now moving onto the key takeaways, we narrowed our guidance ranges for adjusted revenues and adjusted diluted EPS. We recently achieved several key R&D milestones related to palbociclib, our meningitis B vaccine candidate Prevnar 13 and our investigational C/ diff vaccine. We continue to create shareholder value through prudent capital allocation.

To-date in 2014, we have returned approximately 5 billion in dividends to shareholders and repurchased 4.2 billion or approximately 140.4 million shares and we continue to expect to repurchase approximately 5 billion of our common stock this year.

These repurchases and planned repurchases for the remainder of the year are expected to reduce total shares outstanding year-over-year by a total of approximately 100 million shares by the end of 2014 after considering actual and projected dilution related to employee compensation programs.

In total, we expect to return nearly 12 billion of the shares repurchase in dividends to shareholders this year. In addition, last week the Board of Directors authorized a new $11 billion share repurchase program to be used overtime. Finally, we remain committed to delivering attractive shareholder returns in 2014 and beyond.

With that I’ll turn it back to Chuck..

Thank you, Frank and Ian for your comments. At this point operator can we please pull for questions? Question-and-Answer Session.

(Operator Instructions) Your first question comes from Chris Schott from JPMorgan. Chris Schott - JPMorgan Great, thanks very much for the questions. Just a few here on bis dev, first I just want to make sure I am clear on your comments.

Do you still see meaningful value to Pfizer from inversion or should we be thinking about larger deals having to be much more driven by operating synergies and pipeline opportunities, I guess relative to I’ll say six or 12 months ago? The second question is just how does the potential for future treasury action factor into that analysis in terms of -- do you really kind of know what treasury ultimately does and does that effect how you are thinking about this? And then the final one is just a broader one, which is relative to a year ago it seems like Pfizer is much more focused on business development.

I guess this question is for, what’s kind of changed over the last year that it seems like you are just kind of seeing, that is just a big value creating event for shareholders that didn’t exist maybe one or two years ago? Thanks very much..

Thanks Chris. I appreciate your questions on BD, I just want to make the point that BD is not a strategy it is an enabler of the strategy.

So I don’t want to get us, sort of totally focused on BD and not on the strength of our underlying business, the development of our pipeline and I think in our prepared remarks has gone through that, so I won’t repeat it here but I do want to stress that we feel the strategies we have put in place on improving our innovative core and getting capital allocation right are working and working well.

So the rules that, the proposed rule changes on inversions have not stopped inversions, if you are between the 80% and 60% I think it's fair to say they have made it more difficult and perhaps changed the timing on realization of the value.

But we still believe on a case-by-case basis there is meaningful value that we had from inversions and probably the most significant is the liberation of a substantial proportion of your future cash flows outside of the U.S. tax system into a territorial system. The next question I believe was future treasury actions.

I can’t predict what they are going to do, so no one can, it's worrying that we’re putting this, the U.S. businesses are put in this uncertain situation and that U.S. companies are put in such a competitive disadvantage vis-à-vis foreign competitors both from the tax rate and also the uncertainty of the rules.

But that’s where we are today and that is what we have to live with.

I think what it means is that as you look at inversion, you need to thoroughly understand case-by-case what inversion target is, what your capabilities are and how you intend to realize the values and there should be multiple ways of realizing such value because you can't anticipate the rule changes that treasury may put in place, so all of that would be factored in I think by anybody who intends to do an inversion deal.

And then I think from your question about why more focus on Pfizer now on BD. I think if you got to look that in the context of when this team, they took over the company back in late '10 we were really focused on fixing our related core, working with Michael to make sure that our science organization was best-in-class.

Advancing our pipeline, getting our capital allocation right, getting our expense base right, getting our culture the way we want it to be and I think through '11, '12 and parts of '13 we got where we wanted to be and we felt very confident about our ability to take on BD over a bolt-on or a large size and ensure we maximize the value of any such BD.

So I think that explains the timing. Thank you for the question..

Thanks, Ian. Operator, next question please..

Your next question comes from Gregg Gilbert from Deutsche Bank. Gregg Gilbert - Deutsche Bank Thanks. Ian what have been the key learnings since the decision of separating your businesses internally. I realize you are telling 10 months but I am sure you've learned from some goods and bads? And may be part B of that questions is a hypothetical.

If someone were to offer you a price for the EP business and could run it in a more cost and tax efficient manner and Pfizer shares could benefit from that, would it even be possible at this point or soon from an operational standpoint, in other words has enough separation work occurred to enable that type of hypothetical to be a reality? Thanks..

Okay, I will deal with the learnings and then I’ll ask Frank to talk about the hypothetical of this more immediate separation.

I think the learnings are what we basically expected is the power of focus, it's the power of having a leader on a team focused on Established products, with John Young leading that with crafting strategies that address the specific issues of the EP business, of driving that business in those countries without losing focus on what the strategies are for that business.

it is about having John working on growth opportunities, his team looking for growth opportunities, I think it's back to the whole area of give a team an objective, make it clear, make it focused and let them go at it. And if you've got good people, they will come up with extraordinary results.

So I think that's the learning on that and we continue to be pleased with the way John’s approaching his, the way Albert is doing it with VOC, and what Geno is doing with GIP. I mean these growth rates in Eliquis and Xeljanz and Lyrica are a result of a great management team working and Albert also will be the growth in the Vaccines, Oncology.

So I am very pleased with the focus we are achieving. So with that I’ll handover to you..

Yes. And so Gregg, in terms of the timing, the way I will answer the question relative to, for example our Established Products business. The way to think about this is, is it a public transaction or a private transaction. If it's a public transaction, and by the way I know your example was the private one, I’ll get to it.

If it's a public transaction, so a reverse mortgage trust, a partial spin, a complete spin, a partial IPO, a partial IPO followed by a single split and three years of audited financials is required and that would be three years of prospective audited financials. So think about that as 2017.

If it's a private transaction, by the way your example was a private transaction. So we sell an entire segment to someone who we would sell a partial element of your segment or a joint venture with a minority interest or a joint venture with a majority interest.

Then it is subject to what's called a significance test, and then there is three tests within the significance test, there is an asset test, an income test and an investment test. The asset test is the targets assets as a percentage of the acquirer's assets. The income test is the acquirer's income as a percentage of the acquirer's income.

And then the investment test is the acquirer's investment in the target as a percentage of the acquirer's assets. If all three tests are below 20%, no audited financials are required. If anyone test is between 20% and 40%, one year audited financials is required.

If anyone test is between 40% and 50%, two years of audited financials are required and if anyone test is greater than 50%, two years of balance sheet, three years of income statement, cash flow, comprehensive income and shareholders’ equity are required.

Given the size of our established products business it is very likely one of the tests if not all, would be greater than 50%..

Gregg you can see that we've given this some considerable thought and continually working on this and leaving no stone unturned in ways of trying to achieve our objective here. Thank you..

Thank you, Frank and Ian. Next question please operator..

The next question comes from Mark Schoenebaum from ISI Group. Vlad Nikolenko - ISI Group Hi, thank you for taking my question. Actually Vlad Nikolenko sitting in for Mark, again congratulations with a great quarter and I have a couple of questions about the R&D update.

So I am wondering if you can provide more color on the level of confidence for the ongoing palbociclib filing which is our understanding is based on Phase 2 data and the plans how to use the Phase 3 data? And also I want to know if you can give more highlights about the ongoing PCSK9 program.

And finally just to get more sense about the state of the pipeline. Because currently published pipeline accounts more than 80 programs, at different stages of the development, some of them are label extensions. Just what investors have to focus on besides palbociclib and PCSK9 and Vaccines that you already mentioned? Thank you..

Paul thank you very much good questions, which we welcome answering, so I’ll ask Albert to deal with the palbo issue, Geno with the bococizumab and then we’ll ask Mikael to give you a succinct description of the portfolio and what we’re excited about..

Thank you, Vlad and for palbo as you are aware we have submitted a filling and FDA has accepted the NDA and gave us priority review. And we have a PDUFA date which is on April 13. This filing was based on Phase 2 data. To-date FDA has not placed any conditions related to submission of Phase 3 data results during the NDA review.

In fact we do not expect to have any Phase 3 data before the PDUFA date. There is an interim review built into the protocol which is event driven and so I cannot speculate when it will happen but this interim review will not happen before the PDUFA date.

So we’re looking forward to continue working with the FDA so we can bring this product to patients as soon as possible..

Thank you, Geno?.

The palbociclib the PCSK9 program is progressing, we’re in Phase 3. We’ve been enrolling for about a year now. We have a fairly extensive Phase 3 program with five LDL trials and two cardiovascular outcomes trial. This I think differentiates our program from others in the category.

So I believe we’re the only one with a cardiovascular outcomes trial in the high risk patients who are unable to get their LDL levels below 100 on maximum doses of statins.

And so this is a patient population where we’re likely to show a benefit and in the event that reductions in LDL levels to very low levels don’t show the linearity that we’re looking for. We think this patient population will still show the benefit.

We have a second cardiovascular outcomes trial in a broader patient population, testing whether reducing LDL levels below the current recommended levels will confer an additional morbidity or mortality benefits. So it is a robust program we’re moving quickly to enroll patients and we’re on-track..

Mikael some comments on the -- do you have products outside of those mid-term..

Absolutely, the way to look upon the pipeline is as you said we have more than 80 projects across Phase 1 to registration. And when you look at the late-stage I would encourage you to see it as four potential blockbuster franchisees, supporting GIP, VOC and GEP and you are aware of palbo for VOC, for GIP boco and Xeljanz’s lifecycle management.

As you have heard Xeljanz is really picking up pace in array and there are multiple indications that the following, psoriasis, ulcerative colitis, psoriatic arthritis and a QD foray. And then finally for GEP the biosimilars which are moving to four, soon in Phase 3 and one additional in PUC study.

There is also an upside that we haven’t discussed a lot and that is progress that we’re making on tanezumab in pre-clinical safety in the dialog with the agency and we look forward to concluding this data with a potential opportunity to get back on the dialog to restart that program pending of course good date and so on agency dialogs.

You already mentioned vaccines and I expect that we’ll see mid of next year that we’ll have six different programs in addition to staph C. diff we also have therapeutic vaccines now coming that includes a gene, nicotine and cancer vaccine and I encourage you to see that as a whole technology platform that we have built.

In enology inflammation in addition to the tofacitinib oral program there are now additional opportunity in psoriasis we have recently seen encouraging data for our topical version of tofacitinib in both dermatitis and psoriasis and we’re designing a new generation of JAK inhibitors with psoriasis as well as for IBD.

In the cardiovascular and metabolic we have generated encouraging data on novel PD-5 inhibitor for diabetic nephropathy and we’ve another drug CS-25 that is leading out in the next one or two months.

Oncology there is very nice mid-staged pipeline with the GSI drug for genetical altered triple-negative breast, a broad program around slow and hematology and we have recently seen encouraging Phase 1 data for our full on drug 392 and as you are all aware we’re building a increasingly robust immuno-oncology second wave program and we’re now for example dosing 41BB on top of PD-1 in a partnership with Merck and recently we moved our fifth antibody drug conjugate into the clinic and addressing multiple solid tumors, so these were just a couple of things that I think will deliver a lot of momentum over the next two years..

Thank you, Mikael..

Thanks, Mikael.

Next question please, operator?.

Your next question comes from Marc Goodman from UBS. Marc Goodman - UBS Yes, I'm not sure if Geno is on the line, but if he could talk about the oncology business and maybe specifically some of the products. Inlyta, Xalkori, some of these products look that they are slowing down a little bit, so I was curious what's happening there.

And then I believe we got into the oncology just at the end there about how you are positioning yourself for the future, but I'm curious how you are thinking about immuno-oncology and the products that you are working on.

And then on biosimilars, could you tell us, the four Phase 3s, has anything moved forward? When should we be expecting the Phase 3s to finish?.

Okay, so I’ll ask Albert who has responsibility for oncology business to make some comments on SUTENT, and Inlyta, and Xalkori, and all basically are in line products and then on the positioning perhaps of the, for immuno-oncology I’d ask Mikael to make a comment on that and then on biosimilars John could make comment. Thank you..

Thanks a lot for the Inlyta, as you know we said for the quarter 23% growth operational, U.S. was 9%. And in U.S. we have a strong uptake in the academic setting, what we’re working now it is to make sure what we have strong uptake also in the community setting and to have numerous programs that are in place to achieve that.

In EU Inlyta, it was quite impressive 32% growth for the quarter. However, the results are driven basically by positive ESMO guidelines, but now are endorsing Inlyta as a standard second line treatment option and also we saw this year improvement in our reimbursement status. Right now we have basically all 16 EU countries reimbursing Inlyta.

If I go to Xalkori, in Xalkori, we were very pleased with the performance. We had 55% growth operationally for the quarter. U.S. 33%. It’s driven by clearly an increased testing for the ALK gene mutation right now we’re at 74% testing to remind you we started at the launch at 11% and the year ago was 60%. So it’s a significant improvement.

In EU, the growth was even more impressive 74% for the quarter. Although, over there again it is driven by ESMO treatment guidance but also we have positive data from the PROFILE 1014 study, that we released and that is driving a lot of these results in Europe.

And finally in Japan Xalkori had 43% growth and is driven by again the new data of PROFILE 1014, but have compared Xalkori to the standard chemotherapy..

Thank you very much. So we go to the positioning on immuno-oncology..

Yes, we’re enthusiastic about immuno-oncology rising as a new modality in oncology and as you know that’s been durable, but mainly are partial responses and we see the next level of immuno-oncology to go to deeper and more complete responses and that where we really are focusing our current efforts strongly to be a leader.

I mentioned briefly that our 41BB is now dosing on top of PD-1 in a partnership with Merck. We have a partnership to study 41BB on top of CCR4 with KHK. And we’re moving additional checkpoint modulators into human studies export early next year or later next year our own PD-1.

In addition to the checkpoint drugs, I think you will see not only I/O plus I/O combos, but I/O plus targeted agents. And we’re working in a partnership with Merck studying PD-1 plus Inlyta and planning to study PD-1 plus Xalkori together.

A second modality beyond the I/O checkpoints are cancer vaccines where we’re planning during next year to start our first out of a serious of cancer vaccine clinical studies. We also have our own platform of bi-functional antibodies that will start delivering human agents in 2016.

And as you know we did with Cellectis and partnership around CAR T-cell, so we’re playing very broadly with the leading technologies and assets and our goal is to move one to two immuno-oncology agents in the classes as I described every year for the coming period into human studies mainly focusing on combination, which we think will deliver the outmost value of deep more durable responses..

Thank you, Mikael, John?.

Okay. So thanks for the question Marc. So, just as a reminder in our first wave we have five monoclonals in our biosimilar portfolio primarily in oncology and inflammation indications.

So the three biosimilars are already in Phase 3 studies that are ongoing or enrolling our biosimilar for rituximab, our biosimilar for trastuzumab and biosimilar for infliximab. So those Phase 3 studies are ongoing already.

As Mikael mentioned earlier on biosimilar bevacizumab has just recently completed, successfully completed Phase 1 study and so the next milestone for that in development would be at the initiation of Phase 3 and we have an adalimumab biosimilar which is currently in Phase 1.

So, those studies are progressing well and we anticipate bringing this portfolio to the market in the 2017-2018 timeframe..

Thanks, John. Moving to the next question please operator..

Your next question comes from Steve Scala from Cowen. Steve Scala - Cowen and Company A few questions, you stated, I think, that you would file palbociclib in the EU in 2015.

Is that based on the same Phase 2 data that you submitted to the FDA so the filing could be early in 2015? Or is it based on some look at Phase 3 as well, which would probably push the filing to later in the year? And two questions for Ian, and I apologize in advance for both.

But why the very deliberate comment on two businesses rather than three when the Company is giving financials on three businesses and has been talking about three businesses for several years? I know you've been talking about two companies or two businesses in recent calls, but why the need to emphasize it now? Secondly, I'm not clear on the benefit to Pfizer of saying an inversion is still possible.

Is it, for instance, to prompt further treasury clarification or for some other reason? Thank you..

I’ll ask -- on the -- as answering a question about whether we still thought that inversion was a viable strategic component of any deal, we still believe it is I was answering the question, so I think that explains why I answered it that way it was no ulterior motive beyond that of reassuring investors that while the rules have changed, we still believe in the appropriate circumstances that inversions can be part of the value mix of a deal.

And although we can do deals and we do see value in deals with that inversions, it still remains part of our overall mix. So I hope it explains that Steve.

On the two businesses, the reason I would so, I’ve been talking to investors and I believe there is a confusion out there, we have two businesses, we report one of the businesses in several, in two segments.

We have our business which is our Innovative business which relies on our core research and our core capabilities and which I see as an integral business is made up of Oncology, and Vaccines, and Consumer and what I would call traditional Innovative.

That is as I see it one business and the fact that we report it separately is really an artifact of the SEC rules on segment reporting and depending on pure management construct and who reports to the CEO. And I think that’s led to some confusion in the investment community that we see the company as made up of more than two business segments.

So, I see two business segments one is Innovative, using those resources of Innovative and one that is Established using and those are the ones that John runs.

So I just wanted to make that clear and most of the work we’re doing on optionality is around those two businesses, not around more than those two businesses, Palbo in the EU?.

Yes. Thanks a lot Steve. And we have had discussions with the European regulatory health authorities on the clinical data and it is our intention to file an EU and that filing will happen in 2015, I don’t want to be more specific if it's going to be beginning of the end of ’15 or it is going to be in 2015.

Now of the anticipated filing packets will likely look similar to what was submitted in U.S. to the FDA..

Okay. Thanks Albert. Next question please..

Your next question comes from Colin Bristow from Bank of America Merrill Lynch. Colin Bristow - Bank of America/Merrill Lynch Good morning and thanks for taking the questions.

Just on BD, the immuno-oncology product seems to continue to grow as potential indications continue to grow, making it arguably more attractive for those who aren't first to market.

How are you thinking about this space with regards to your business development priorities? And then just on Xeljanz, there's obviously it a couple of competitor JAKs on the horizon. How do you view the competitive threat and Xeljanz's positioning? And you said on track for a filing in the first half of 2015, for your once daily formulation. Thanks..

Alright, so Geno can talk about the Xeljanz situation and then I’ll come back on the BD..

Yes, so I think we’re very pleased with the progress we’re making with Xeljanz we see continued adoption by rheumatology community, we have about a 10% now share of new to brand patients from rheumatology which is a nice leading indicator of where that business is going.

Obviously the rheumatology community is getting more and more comfortable with Xeljanz, a majority that uses Xeljanz is used in what I call methotrexate free regiments where patients who have difficulty with methotrexate are finding adequate therapy with Xeljanz which is great.

So it's becoming entrenched, it's becoming established and we think that's going to speak well for its competitive position in the future and we are still on-track for our first half filing for the once a day..

On our immuno-oncology BD activity, I agree with you that I think the value is in combinations.

You've all seen the results of PD-1s, there are some durable responses in monotherapy but our belief is that the true power of the immuno-oncology will be from combinations, perhaps on two or three combinations and so we are focused in developing our second wave in oncology and our vaccines and the CART technology and are clearly open to any type of business development which would give us access earlier to a PD-1 type portfolio that we could more easily integrate and combine with our second wave..

Thanks, Ian. Next question please operator..

Your next question comes from David Risinger from Morgan Stanley. David Risinger - Morgan Stanley Thanks very much. So I have two questions, first, regarding the net cost outlook.

Frank, could you just talk about how investors should think about cost trends going forward? And maybe you could weave in some comments about the potential for some increased cost if you are building up two business segments from the one that currently exists globally? And then with respect to palbo, I'm just curious, what should investors focus on in terms of timing of next key palbociclib readouts in case the FDA does not improve palbociclib on the first cycle review next spring? Thank you..

Okay. Frank do you want to go into the net cost and then Albert can look at the….

So, Dave the way I think about cost trends going forward is kind of by starting with where are we, and I think where we are now and I've said this before as we are in the late innings I think on cost reduction that there is always more opportunity to be more efficient in everything that we do, but I think the big ticket items are behind us.

We've basically gotten those identified, we've gotten those implemented and we've gotten those executed and they are obviously in our results. So I think going forward, there will be some opportunities but the big ticket opportunities in my perspective are behind us.

The one thing I would say though about just kind of managing cost is, I am making every statement based on the hand we currently have. To the extent that we expand that hand through whatever collaborations, partnerships, business development and that gives us opportunities once again to be more efficient on a going forward basis.

So I think late innings, we've taken a bunch out still some more we can take out but the big ticket item is primarily behind us. In terms of frankly increased cost going forward, I think the way I will answer that is if you look at this year to last year, so '14 to '13. The one area where you see a fairly sizeable increase is in our R&D spend.

If you look at our guidance for the year now, we just tightened it to 6.9 to 7.2. You take midpoint of that range just for analytical purposes compared to last year, our R&D spend year-over-year is up $0.5 billion. So the late-stage assets that we talked about plus the business transactions we did with Cellectis and MedGenesis.

So you see some pressure on the R&D spend at least in '14 versus '13. Beyond '14 going into '15, we will obviously give the guidance on every line item when we get on our next earnings call where we close out '14 to provide guidance for 2015..

Thanks Frank I think you want to comment on the -- I think the comment was, is there any ongoing expenses of setting up the two businesses….

Oh, yes. So -- thanks Ian. So in terms of optionality, the short answer is there are and they haven't been material on a year-to-date basis but we are clearly incurring expenses give or take about 50 million this quarter, roughly twice that year-to-date that will ramp-up as we go into 2015 and obviously I will call that out on a go forward basis..

Yes, and there were two types of expenses of course one is just the ongoing which I think are very modest structural expenses of running and collecting information for two businesses and the other which is more one-off and one-time as you set up your structures and your tax planning et cetera, et cetera..

Okay, Albert, on the….

Oh, yes Albert on….

Palbociclib..

Yes..

Right now we are focused on getting in U.S. registration based on our Phase 2 submission. FDA has accepted this submission has given us priority review, and a PDUFA date of April 2015, we are looking forward to bring the product to U.S. based on this submission to the U.S. patients as soon as possible.

In Europe as we have said we also plan to submit in 2015 with a similar packet. I can tell you that there are several studies that are moving on and we have PALOMA-2 which is a Phase 3 study but it is expected to come to completion at the end of 2016 so the report sometime in the March 2016. This is a replica of our Phase 3 study.

We have two additional studies that will give us additional registration indications which are in recurrent and one of them is expected to come to completion again next year. And then we have one registration study, that one Phase 3 study which is in the recurrent advance in early-stage with high risk of recurrence.

And this is expected to come into completion sometime in the ’19 timeframe. So as I said our focus right now it is to bring the first indication which is first line advance metastatic in U.S. based on our submission in -- that happened this August and has a PDUFA date of April 13..

I suppose David you know to your question that while we are working with the FDA to get approval in the April timeframe of palbo if they decide not to approve on that then we have the replica which we’ll report out towards the end of the year with interim look at some point in the year if they hit the number of events.

But I think the more important thing is that we have already started the trials to expand beyond advance breast cancer and intermediate and early. And that lead is not a lead that will be eroded by the decision on when we get approval for advanced breast cancer.

Because the fact that we started those trials now that and our competitors are not in a position to start those trials because they don’t have the data. So if you look at it from a competitive point of view, there is a competition for advanced breast cancer which may become more intense if our approval is delayed until the end of our Phase 3 trial.

But I don’t see that having any implications on the competitive position on the intermediate or early breast cancer which is far larger percentage of the market longer term. So I hope that explains how we see the dynamics of that market..

Next question please..

Your next question comes from Jami Rubin from Goldman Sachs. Jami Rubin - Goldman Sachs Ian, just I want to go back to capital allocation.

I think the market is saying that you need to do something bold and just wondering if you agree with that? And if so, how would you -- what would you define as bold? And what is your timeline? We've been talking about capital allocation and doing something bold now for several quarters.

How we thinking, in terms of timing? Thirdly, I think that the AstraZeneca deal was thought of as a potential carve out opportunity. Would you consider -- I think the GEP business as a business that really has limited longer-term growth visibility whereas the innovative business, we see pipeline assets that would drive future growth.

Can you describe your options, options available to you in the GEP business? I think you've described incremental options. But is there something you could do in that business that's on the bolder side? Thanks very much..

Well your characterization of something bold, going back to the issue, we have a great sense of urgency inside Pfizer to continue to accelerate returns to shareholders. So to the extent that BD will allow us to do that then I am willing to take bold actions. And I believe that the initial approach to AZ was a bold action.

One that we went, one that we couldn’t get to the right value equation and so the deal didn’t progress. But certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the Innovative space.

And we’re looking at all alternatives and we’re aggressively looking at all alternatives.

Now in the GEP space I think we said that, I think the GEP business is somewhat difficult to analyze, I understand that but it’s made up of what is really a great emerging markets business which today represents about 30% to 35% of the total GEP business and is growing.

That business is based on brands and quality and out of pocket and I would model it more like I would model a consumer business frankly. And then the rest of it is around clearly LOEs which are highly profitable and managing a pipeline that’s mature in the developed markets.

So we’re looking at ways to add additional growth levers to that business such as biosimilars which we’re investing in and we’re also looking at other types of acquisitions where we can use offshore cash so it’s highly efficient or even where we would do acquisitions that are in specific areas such as sterile injectables but I believe there are lots of opportunities to do BD in that area so is to add growth.

So I thank you for your encouragement to be bold, we’re looking at bold ideas, we’re looking aggressively at using BD and we have a sense of urgency. Thank you for the question..

Thanks, Ian. Next question please operator..

Your next question comes from Alex Arfaei from BMO Capital Markets. Alex Arfaei - BMO Capital Markets Good morning and thank you for taking my question. Just a follow-up on the biosimilar comments earlier.

Just at a higher level, could you comment more specifically at the commercial opportunity? I think it's fair to say that expectations for biosimilars have come down recently. How should we think about the process, the commercial process for your meningitis B vaccine? Thank you..

I’ll ask John to talk about biosimilars and then Albert can talk about the mening B. Thank you..

So thanks for the question Alex. So I mean the first thing to say is obviously the biosimilars market is really one that is still evolving. We’re still seeing regulators around the world put into place their guidance around biosimilarity and the development pathway for biosimilars.

And so must that is the first comment to make is that marketplace is still an evolution that said it’s estimated by independent analysts as being a market that is around about $100 billion globally. Their biotherapeutics marketplace overall that biotherapeutics marketplace is going to grow to about $250 billion by 2020.

And so the market for biosimilars in that context potentially could grow as a market opportunity from around about $1 billion today to about $18 billion by 2020. And those are the sort of general ranges that you actually see from independent analysts about the potential for this marketplace.

So I think beyond saying that we see it as being a significant opportunity and saying that we believe we’re well-placed with our first wave of biosimilar assets which is commented already we’re progressing as expeditiously as we can, and we believe we’ll be well-placed in that marketplace.

I think the general comment would be that clearly there is much water to flow under that bridge, but we’re continuing to be very actively engaged in both monitoring and also engaging with regulators in this space..

Albert?.

Yes, mening B vaccine, mening B disease is as stated is characterized by rapid onset, has very high rates of fatality up to 20% of the people that mening B die from it usually within 24 hours, mainly who have survived will have permanent long-term sequelae.

So this introduction it is an important product for the patients to start with and addresses a high unmet medical need. On the commercial front we believe that will give us a modest contribution to our revenue plan given the magnitude of our Vaccines business..

Thanks, Albert. Next question please..

Your next question comes from Jeff Holford from Jefferies. Jeff Holford - Jefferies Hi. Thanks for taking my question.

Just going back to the capital allocation, timing of business development, for Ian, really, just wondering around what your thoughts are about a potential for tax reform now that this has become such a focus for everybody do you potentially get paid to wait on doing business development? It depends on what your view is around the likelihood of that happening into next year.

Just wondering of you could talk about some of that. Thank you..

Jeff, I think it’s an interesting question. I mean clearly there is a dynamic going on about what’s you’re willing to pay for inversions vis-à-vis what you believe is the opportunity for fundamental reform in the U.S.

I think we’ll know a little bit more after the midterm elections, but in historically you don’t get tax reform unless the President of the United States puts a lot of his credibility and ways behind it they are just too many fractions and too many ways of dividing the cake and the need the -- you really need the White House to take a lead in that.

And so if you were betting man, you would suspect that fundamental tax reform would not occur until post the 16 Presidential elections. But in politics you never know it’s day-to-day, so we’ll look at that after the November 4th and continue to factor in the elements you comment in what we think the value of an inversion is worth.

Thank you for the question..

Thanks Ian. Next question please..

Your next question comes from Vamil Divan from Credit Suisse. Vamil Divan - Credit Suisse My first question is on the BD side. You touched on a couple of things like sterile injectables and maybe immuno-oncology.

Are there any other areas that you highlight in terms of where you are looking to do more investing in? Do you really have a preference between investing on the innovative side of your business as opposed to the more established side? My second question, just following up on your comments around Xeljanz, earlier, you mentioned as being using more now in methotrexate-free regimens, I believe, so, have these patients actually tried TNFs, or is it before TNFs? And anything you can update on your latest timelines around resubmitting into EU? Thanks..

Okay so, on the business development I think in the GEP business there is a wide range of opportunities that stem from local investments using offshore cash to larger type of investments to have capabilities and how to make generics, we just did a small acquisition in that area, on InnoPharma.

So there are multitude of opportunities and that’s what John is looking at and going through and trying to isolate what the best opportunities would be from a point of view of do we have a preference between GEP or Innovative, everything is driven by value and portfolio balance and you would expect a larger scale acquisition to potentially cover both businesses it may not do, so those are all the things we factor in.

And then there was a question on Xeljanz..

And so on Xeljanz about half the patients on Xeljanz have gone from methotrexate to Xeljanz and about half of them have been on a biologic, one or more biologics, so it's a mix and then in terms of resubmitting in Europe we intend to resubmit late in 2015 to the Europeans..

Thank you, Geno. In interest of everybody’s time operator if you can take one more question please..

Your final question comes from Seamus Fernandez from Leerink. Seamus Fernandez - Leerink Partners Thanks for the question.

So just wondering if Mikael could talk to us a little bit about the differences in the bococizumab clinical trial design versus competitors and your views on the -- on how that is differentiated from competitors and why you think bococizumab is going to be a competitive offering in that space..

Okay. Seamus we -- Geno tried to do it so I’ll give Mikael a chance to make it clearer this right around. And Geno should feel free to add anything, if he thinks Mikael hasn’t covered it..

I’ll build on Geno’s excellent description why we think that the way we are developing bococizumab and importantly the learnings we did in Phase 2b to be that was very extensive that allowed us to design what we think is a very comprehensive broad Phase 3 program, so a couple of key takeaway messages.

One, our Phase 3 program includes population for both primary and secondary prevention.

We think there will be a growing opportunity for patients that are at high risk in primary prevention such as diabetics with a high risk equivalent for cardiovascular disease and to the best of our knowledge, we had only see outcome trial program that includes primary prevention.

Number two restructured it in two different trials one addressing individuals that cannot get down to 100 or below and that allow us to show most likely a substantial risk reduction in cardiovascular disease since this is the segment where we expect a strong correlation between lowering cholesterol and lowering risk for CV events.

The second trial really focusing on bringing patients in the 70 to 100 segment with high risk, both primary and secondary prevention patients down really low in cholesterol and we think that will allow us to open up unmet need in that area further by generating data.

I should say that the dose regimens that we developed in Phase 2b is really crucial for the study design and we developed the dosing regimen that allow us to start with a high dose and get immediately down patients to low levels. And only if necessary do a dose titration with lower dose of bococizumab.

We do think bococizumab is one of the most potent antibodies that showed really pronounced lowering of cholesterol that performs well in every two weeks and we have said earlier that through a partnership with Halozyme we have in our longer life cycle management plan exploration of once a month after first ensuring generating good data in the current regimen..

Yes that Halozyme to us I think the exclusivity on that technology..

Thank you, John..

Thank you, Mikael and John so thank you and everybody this morning for your time..

Thanks for your time everybody. Bye, bye..

Ladies and gentlemen, thank you for participating in today’s Pfizer’s third quarter 2014 earnings conference call. This does conclude the call. You may now disconnect..