Good day, everyone and welcome to Pfizer's Fourth 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 fourth 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, our General Counsel.

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

Before we start, I’d like to remind you that our discussion during this 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 January 27, 2015. We will now make prepared remarks and then we will move to the Question-and-Answer session. With that, I’ll now turn the call over to Ian Read.

Ian?.

Thank you, Chuck and good morning everyone. We finished 2014 with another quarter of good performance, and met or exceeded every element of our financial guidance for the year.

Frank will take you through the numbers, but before he does I want to reemphasize how our four key imperatives have guided the actions we’ve taken, and the decisions we’ve made and will continue to guide us going forward.

These imperatives are about the steps we're taking to create a sustainable, high-value pipeline; effectively and in a disciplined way deploy our capital and ways to create shareholder value; create a culture where colleagues take appropriate risks and accept accountability for their actions and own the respect of society.

My remarks today will primarily focus on two of these imperatives; the evolution of our pipeline; and how we're creating shareholder value. When we started this journey at the start of 2011, we said improving the performance of our innovative core will be a multi-year endeavor.

Over this time we’ve significantly changed the composition of our pipeline to have a clearer focus on the therapeutic areas that have strong commercial and scientific potential. We’ve improved progress in the pipeline. Since undertaking this effort, we’ve received 16 approvals as of the end of last year, 10 of which were new molecular entities.

Today we’ve a total of 86 programs in clinical development with 29 programs in late-stage development or registration. We continue to grow in key areas most notably in some of our recently launched new products.

Eliquis is winning share amongst cardiologists and moving towards the leading position in the new-to-brand share and several markets including the US and Japan.

We grew our Xeljanz market share so that it is now ranks number three in new-to-brand prescription share with rheumatologists and we are seeing good uptake of our Prevnar 13 Adult vaccines following the CDC’s Advisory Committee on immunization practices recommendation.

This is good progress and over the course of the next four years we expect to have more than 20 Phase 2 and Phase 3 registration starts and hope to have more than 15 potential approvals, many of them new molecular entities. These numbers do not include study starts and approvals as a result of our Merck KGaA partnership in immuno-oncology.

Many of the new molecular entities have the potential to be first-in-class assets that give us growth platforms. These include the CDK 4/6 platform in oncology with [Ibrance] or the generic name palbociclib.

And its potential for indication is being studied in the broad spectrum of breast cancer as well as lung, prostate, head and neck, melanoma, ovarian, renal and brain tumors in young children. We expect to have a competitive immuno-oncology program. We believe we’ve a comprehensive program with all the elements to be an industry leader.

Through our partnership with Merck KGaA and their anti-PD-L1 Avelumab, we're able to accelerate our participation in the immuno-oncology space enabling both companies to participate in the first wave of potential single-agent monotherapy treatment regimens of several tumor types, some of which we expect to be first or second to market.

Additionally through this partnership, we're positioned to be a potential leader in the next wave of I/O combination therapies. We expect to be amongst the first three companies in certain cancer indications with monotherapy and a leader with combinations of PDL-1 Avelumab with targeted agents.

For example Inlyta, Xalkori and second generation ALK; or dual I/O combinations for example for 4-1BB,OX40, ADCs etcetera and in various cancer indications. This year we’ll be collaborating on up to 20 studies with Merck KGaA with registrational intent on up to six of these studies.

In addition through the collaboration, we expect to have five different I/O drugs in the clinic this year and up to 10 by 2016. This strategy includes checkpoint inhibitor maps, small molecule immunomodulators, cancer vaccines, bifunctional anti-bodies, CAR-T cell-based therapy and anti-body drug conjugates.

Our partner expects to present data from their PDL-1 study at ASCO in June. To the best of our knowledge, it is one of the most comprehensive I/O platforms in development in the pharma industry today.

We also have leading research on [indiscernible] biology with potential new indications with Xeljanz in psoriasis and psoriatic arthritis with our old product. Atopic dermatitis with a topical formulation, new GA indications and Ulcerative Colitis and Crohn’s disease and [ankylosing] spondylitis.

We’ve what we believe is a differentiated approach within the PCSK9 area for hyperlipidemia. Our lead asset bococizumab has a differentiated clinical [indiscernible] design which includes high-risk patients and also assesses primary prevention for patients.

In addition to this large module approach, we’ve both a small molecule and a vaccine in development nearing first in human. We’ve made progress with anezumab and plan to submit preclinical data to the FDA this quarter in a complete response to potentially lift the clinical hold on that program.

In the rare disease area we're seeing good progress with enrolment in cardiomyopathy Phase 3 programs with Tafamidis, and are advancing towards Phase 3 with Rivipansel, pending our discussion with the FDA on the final optimization of the formulation.

We’ve just announced a collaboration with OPKO for a long-acting growth hormone product that we believe could also be first in class if we were to expend that market. We’ve a broad biosimilars portfolio of complex monoclonals.

Of the current pipeline of five assets, three are ongoing, we're enrolling Phase 3 trials and include potential biosimilars to Herceptin, Rituxan and Remicade. We’ve completed the Phase I trial for Avastin and expect to initiate our Phase 3 study later this year. And we've an ongoing Phase I proof-of-concept for [indiscernible].

We believe, we can become one of the world’s pre-eminent biosimilar companies. We’ve also several potential acceleration opportunities in the pipeline and that includes a next-generation ALK ROS1 inhibitor that holds the potential to significantly extend the lives of the patients who no longer respond to Xalkori.

We expect to start a pivotal study this year. As you know our Staph aureus vaccine is currently in Phase 2 clinical trials and was granted Fast Track Designation by U.S. Food and Drug Administration in February 2014. A Phase 2b study that could be registrational is scheduled to start around the middle of this year.

I am pleased with the progress we’ve made in a relatively short period of time in terms of the quality of the assets in our pipeline and the potential for delivering breakthrough products starting in late 2017 and 18. Turning next to how the prudent deployment of capital has yielded significant returns to our shareholders.

Over the last four years, we’ve maintained our operating margins and have taken approximately $5.5 billion out of our operating expenses. During a period where we lost significant revenue to LOEs and co-promote expiries from several high margin products like Lipitor Enbrel in Canada and US and the loss of Spiriva.

This year and for the next couple of years ongoing expense reductions will result from continuous improvement efforts. However given that the largest opportunities have already been realized, the amount of potential reductions is more limited. Also there are certain areas where we’ll continue to invest in such as R&D and new product launches.

Further we have returned just over 64 billion to shareholders with share repurchases and dividends over the last four years. And we’ve worked to -- as we have worked to transform Pfizer, business development has been an important enabler of our strategy.

We’ve entered into a series of partnerships and license agreements and made some acquisitions that bolstered our vaccines portfolio, enhanced our established products portfolio, strengthened our oncology pipeline, expanded our consumer portfolio, and fortified the set of actions we’ve across our key therapeutic areas.

Given the strength of our late and mid-stage pipeline, we’ll evaluate business development opportunities biased towards deals with a potential for creating value in the near term. Beyond business development, here is what you can expect to see from us in terms of additional actions we plan to take in 2015 to create shareholder value.

We’ll continue to invest in the launch of new products. We're excited about the potential revenue and continued growth prospects primarily for Eliquis, Xeljanz, Prevnar 13 Adult, Trumenba, Inlyta, Xalkori and Nexium 24HR.

We expect these products along with a few others Vyndaqel, [indiscernible] and vaccines acquired from Baxter including pipeline’s pending approval will generate nearly $2 billion in incremental operational revenue growth this year compared to last.

So while we expect product launch costs will increase approximately 25% year-over-year, we're seeing good leverage from the investment we are making in these products.

In addition to new products, in new launch products the Innovative business will be focused on growing market share in inline brands like Lyrica, Enbrel outside the US, [indiscernible] in the US, Chantix and the Prevnar franchise. In our consumer business we are focused on growing its core brands Advil and Centrum.

Growing Nexium OTC market share and continuing to pursue our Rx OTC switch opportunities. For our established business we’ll build on our success in 2014 in providing high-value, high-quality, low-cost treatments in emerging markets.

We expect to see operational revenue growth of mid to high-single digits in the emerging markets this year by focusing on opportunities in key growth markets which is China, Brazil, India, Russia and Turkey.

In 2015, we will continue our efforts to reach the groundwork required to be in a position to operationalize a potential to the company, and we’ve made good progress on this work. For 2015, we anticipate the efforts that will be required for this work will result from approximately 400 million of one-time cost on a pre-tax basis.

Let me remind you at this point in time we’ve not yet made a decision with the company. We’ve said the final decision will depend upon how our businesses perform in their markets, having a high degree of confidence that the businesses will be successful as stand-alone entities.

And how our shareholders value these businesses if the sum of the parts is greater and whole. And in 2015, we’ll again be in a position to reduce our adjusted effective tax rate. We expect it will decrease from 26.5% in 14 to approximately 25% this year.

We’ll continue to manage our tax line as we do any of our expense line and look to be as efficient as possible. I would note that foreign exchange is one of those items that can either work for us or against us. Most importantly, it is not indicative of how the business is performing in a fundamental manner.

As always all of our decisions will be rooted in how best to strike the right balance in terms of capital deployment, dividends, buybacks and business development.

One of the reasons I'm confident that we can accomplish all of this is because we’ve an employee body that is motivated and engaged in the successful execution of the initiatives we’ve undertaken to drive results. Over the past four years, we’ve created a culture engrained in a strong ownership environment.

In summary, we'll build on a performance of the past four years to create sustainable, high-value pipeline; to have market-leading, strong commercial businesses; to manage our cost structure; and continue to be disciplined in how we deploy our capital.

Collectively these elements of our strategy, it will allow us to generate results that continue to create value, shareholder value. And it will enable us to bring the patients innovative medicines that best meet their needs. Now I’ll turn over to Frank for additional details in the quarter, the year and our financial guidance for 2015. Thank you..

Thanks Ian, and good day everyone. As always the charts I am reviewing today are included in our webast.

I want to remind everybody that as a result on 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 twelve months ended December 31st 2013.

Fourth quarter 2014 reported revenues of approximately $13.1 billion which reflects a slight operational increase of $9 million year-over-year. It was mainly driven by the strong performance of Lyrica, Prevnar and Eliquis in developed markets, and Xeljanz which grew primarily in the US.

And 7% operational growth in emerging markets driven by Lipitor mainly in China as well as Prevnar and Enbrel which were offset mainly by the unfavorable impact of foreign exchange of approximately $249 million or 3%, the loss of exclusivity for Celebrex in the US, desperation of the co-promotion term, the collaboration agreement for Enbrel in the US and Canada, determination of the Spiriva collaboration in certain countries and other product losses of exclusivity in certain markets.

Adjusted diluted EPS was $0.54 versus $0.56 in the year-ago quarter.

The decrease is primarily due to a $0.01 negative impact in the foreign exchange, a 4% aggregate operational increase of adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses driven by an unfavorable change in product mix and increased R&D expenses due to incremental expenses for the ongoing Phase 3 program of bococizumab, of palbociclib, ertugliflozin and certain other new drug candidates as well as potential new indications for previously approved products especially for Xeljanz.

Adjusted SI&A expenses however decreased by 2% operationally because of continued benefits from cost reduction of productivity initiatives partially offset by investment to support several recent product launches and other inline brands.

Adjusted diluted EPS is favorably impacted by a lower effective tax rate and few diluted weighted average shares outstanding, which declined by 159 million shares versus the year-ago quarter due to ongoing share purchases.

Reported diluted EPS was $0.19 compared with $0.39 in the year-ago quarter due to the previously mentioned factors and the unfavorable impact of the charge for the 850 million upfront payments associated with the Global Strategic Alliance formed with Merck KGaA in November of 2014, and an additional amount of approximately $300 million reflecting the fair value of certain co-promotional rights for Xalkori granted to Merck KGaA.

Higher charges related to certain legal matters as well as the higher effective tax rate, all of which were partially offset by lower restructuring charges, and purchase accounting adjustments in the fourth quarter of 14 versus the prior year quarter.

Foreign exchange negatively impacted fourth quarter adjusted revenues by $453 million or 3% and positively impacted adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses and the aggregate by $351 million or 4%.

As a result foreign exchange negatively impacted fourth quarter adjusted diluted EPS by approximately $0.01 compared with the year-ago quarter. Now moving on to the financial highlights of our business segments.

In the fourth quarter, Global Innovative Pharmaceutical revenues increased 6% operationally year-over-year due to the strong operational growth from Lyrica, primarily in the US and Japan; and the performance from recently launched products including Eliquis globally and Xeljanz primarily in the US, all of which was somewhat offset by the previously mentioned expiration of the co-promotion term for Enbrel in the US and Canada.

Income before taxes declined 5% operationally due to a 5% operational increase in cost of sales; a 25% operational increase in SI&A expenses due to increased investment in new products such as Eliquis and Xeljanz and certain inline brands; and a 25% operational increase in R&D expenses due to incremental investments in late-stage pipeline products namely bococizumab, ertugliflozin and additional Xeljanz indications.

Fourth Quarter VOC revenues increased 14% operationally due primarily to strong performance of Prevnar 13 Adult in the US and Xalkori globally, Inlyta in most markets and [indiscernible] in emerging markets as well as Nexium 24HR in the US.

Income before taxes increased 13% operationally mainly due to increased revenues which were partially offset by a 12% operational increase in cost of sales driven by increased sales volumes. As a percentage of revenue, cost of sales decreased by thirty basis points due to a favorable change in product mix.

A 13% operational increase in SI&A expenses due to investment in Prevnar Adult as well as launch and pre-launch expenses for Trumenba and Ibrance, and a 17% operational increase in R&D expenses due to increased investment in the Ibrance and Trumenba development programs, and the global alliance with Merck KGaA.

In the fourth quarter, Global Established Pharmaceutical revenues decreased 7% operationally year-over-year due to loss of exclusivity of Celebrex in the US, Detrol LA in the US and Aricept in Canada as well as determination of the co-promotion agreement for Spiriva in most countries including the US.

All of these were partially offset by a 7% operational growth in the emerging markets and the strong performance of Lyrica in Europe.

Income before taxes declined operationally 9% due to the decrease in revenues, a 5% operational increase or a 2.3 percentage point increase as percentage of revenues and cost of sales due to LOEs and unfavorable changes in product mix; and a 5% operational increase in R&D expenses primarily due to our biosimilars development program partially offset by lower clinical trial expenses.

All of which were partially offset by a 17% operational decrease in SI&A expenses driven by cost reduction and productivity initiatives. As you can see in 2014 we met or exceeded all components of our annual financial guidance.

Now I would like to walk you through the 2015 guidance ranges for reported revenues, reported diluted EPS and adjusted diluted EPS relative to our 2014 actual results.

First, it's important to note that the 2015 reporting revenues incorporate an anticipated 3.5 billion, negative impacts due to continuing product losses of exclusivity and declining Alliance revenues which will be partially offset by expected operational growth in certain other products.

In addition we expect foreign exchange to have an additional $2.8 billion negative impact on reported revenues. Consequently, we expect 2015 reported revenues to be in the range of $44.5 billion to $46.5 billion.

Before moving on, I want to point out that the actual mid-January 2015 rates used to determine our 2015 guidance do not include the impact of a potential devaluation of the Venezuelan bolivar or any other currency.

Reported diluted EPS and adjusted diluted EPS also include the negative impact from product losses of exclusivity, a $0.17 negative impact from foreign-exchange rates, and a negative $0.03 impact from the pending transaction of OPKO.

As a result, we expect reported diluted EPS to be in the range of a $1.37 to a $1.52 and adjusted diluted EPS to be in the range of $2 to $2.10.

In addition I want to remind everyone that guidance ranges for both reported and adjusted diluted EPS incorporates $6 million of anticipated share repurchases in 2015, including 715 million of our shares repurchased to date. These repurchases were more than offset by the potential dilution related to employee compensation programs.

In summary, if you exclude the FX impacts and the impact of the pending OPKO transaction, our fiscal year 2015, adjusted diluted EPS guidance midpoint is in line with full-year 2014 actual results despite the $3.5 billion negative impact from expected product LOEs and declining alliance revenues.

Now I’ll review the remaining elements of our 2015 financial guidance. We expect cost of sales and percentage of revenue to be in the range of 18.5% to 19.5%. We expect adjusted SI&A expenses to be in the range of $12.8 billion to $13.8 billion.

We expect adjusted R&D expenses to be in the range of $6.9 billion to $7.4 billion which includes a planned upfront payment of $295 million to OPKO expected in the first quarter of 2015 upon completion of the transaction announced in December of 2014. We also expect adjusted income to be approximately $500 million.

And we expect our tax rates on adjusted income to be approximately 25%. Moving on to key takeaways, we achieved or exceeded all elements of our full-year 2014 financial in an environment that continues to be challenging. We advanced our strategy through pipeline advancement and business development.

The FDA approved Trumenba, our meningitis B vaccine and we announced that we are in labeling discussions with the FDA for Ibrance. And we entered into a collaboration with Merck KGaA which positions us well to potentially compete in the first wave of immuno-oncology therapies and be a leader in the second wave of combination therapies.

Our full-year 2015 reported revenue guidance range includes the anticipated negative impact of $3.5 billion with the product losses of exclusivity of $2.8 billion due to adverse changes in foreign exchange, partially offset by nearly $2 billion of anticipated operational revenue growth in certain products.

And the adjusted diluted EPS guidance range includes a $0.17 negative impact from foreign exchange and a $0.03 negative impact from the planned upfront payment to OPKO. We continue to create shareholder value through prudent capital allocation. Overall in 2014 we returned nearly 12 billion to shareholders through dividends and share repurchases.

From 2011 through 2014 we returned more than 64 billion to shareholders through dividends and share repurchases. In addition in 2015, we anticipate returning approximately $13 billion to shareholders through dividends and share repurchases. And finally we remain committed to delivering attractive shareholder returns in 2015 and beyond.

Now I will turn it back to Chuck..

Thank you sir. Operator can we please poll for questions. Thanks..

[Operator Instructions]. Your first question comes from Jami Rubin from Goldman Sachs..

Thank you very much. Ian, just a question for you sort of high-level. Based on all of the press reports that we are all reading everyday, it sounds like you're intensely focused on landing a large target and these articles are all saying those companies are rebuffing you.

I think this is a great opportunity for you to sort of remind us what are your strategic objectives? Do you have to make a large transaction and if so, is it -- I mean it would seem to me that it's the GEP business that would need the biggest growth drivers, or is it the other areas of the business? If you could just sort of prioritize for us, which of the areas of the business make most sense for you for a large transaction if indeed that's what you believe you need? And then just a second question, and may be this is for Frank.

On the GEP business is it permissible for you guys to buy a foreign company and use it as a new address when you potentially go to spin out if you decide to do so in your GEP business, is that actually an option? Thanks very much..

Thank you Jami for the question. You know rumors are rumors. We don’t comment on rumors or speculation or what they write in the press. I will go back to my comment on BD and neighbors strategy. Our strategy is to deploy our capital the way that is shareholder friendly. We’ve been doing that, we’ve done some buybacks and we have been doing BD.

You know I would look at BD as a potential always to accelerate incremental value to shareholders. That's the purpose of deploying that capital, strengthening our businesses and we look at all opportunities to do that. But we do that in a disciplined manner. You know we did not push, we only did what was reasonable to do the AZ deal.

I don't feel that we need to do a large deal. I do believe though that we can deploy capital in a way that it can improve return to shareholders..

And then Jami on the second question where you were specific to the GEP business and I think the question was buying a foreign company and potentially changing the address. Now my answer is it’s kind of one of those things that's almost impossible to speculate upon. You know it's very situational.

It depends on lots of things, valuations, markets and the like, and tax reforms is an ongoing area where I think that's still subject to change. So I don't want to speculate on that, you know it may or may not happen as a result of some hypothetical acquisition I would say..

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

Your next question comes from Chris Schott from JPMorgan..

Great, thanks very much, just a couple of questions here. It’s first for Ian. I believe you mentioned that your business development is now focused on creating value in the near-term given the way of stage pipeline.

I guess if it’s a shift from the prior focus of what we are thinking about in 2014? And then the second question on business development, when you look at valuations resetting kind of across the biopharma space, is that reducing the opportunity set as you look at these targets given the valuation discipline you piloted for Pfizer?.

Well I think you know if we would have seen -- we would have been concerned about the state of our research and if we hadn’t strengthened our research as we did with the deal with Merck on the immuno-oncology asset, then we may have felt we needed to do more business development in acquiring assets in our research.

But I feel our research pipeline middle-stage, late-stage is strong and I would rather take our capital right now and direct it to opportunities to accelerate the EPS growth as I think we’ve got the right balance of capital allocation in the medium to long-term and on the innovative side.

So it’s just with your balance of where you are deploying your capital and where you think you’ve areas you want to strengthen. That been said, if there was a piece of intellectual property that added huge value we thought, we could develop it and we would not be shy in acquiring that intellectual property.

I do think that the values are high at the moment in many sectors. We're disciplined, but you know when we find an appropriate deal that will meet our strategies of strengthening our businesses and accelerating shareholder value, we feel very comfortable that we’ve the ability to do those deals..

Operator, next question please..

The next question comes from Mark Schoenebaum from Evercore ISI..

Thank you very much for taking the question. First of all congrats to Frank, great P&L management this quarter and also for the guidance. If I may ask some R&D questions on the PCSK-9 program, could you just update us if you would be willing to do so on the timelines and the enrolment status for the outcomes trials on the PCSK-9 program.

Number two, I was intrigued by your comments during the prepared remarks on immuno-oncology where you -- I think you mentioned that how you thought you would be among the first three companies to launch in several or a few tumor types. I’ve been wondering if you would be willing to tell us what tumor types you think that could be.

And then finally on palbo and I suppose this is more of a commercial question. And just as we all contemplate a near-term launch as a clear possibility, can you help us frame the initial market opportunities. Do you expect this to be a very rapid cancer watch or something with a little bit more tempered since these women have a standard of care today.

Thank you..

Thank you Mark, good questions. Perhaps Geno can address the PCSK-9 status and then I’ll ask that we -- we’ll then move to answer your questions on palbo and which products that we can give you first or second in from Albert.

Geno?.

Sure, thanks Mark. Regarding the PCSK-9 program, our outcomes trial, we're in the process of ramping up you know site initiation, enrolment. This is something we monitor frankly on a daily and weekly basis. So we are making good progress there.

We expect to be competitive with the other programs from Amgen and Sanofi in terms of timing for a completion of those outcomes trials, you know which we currently see occurring in late 17 or 18 timeframe..

Thank you, Geno.

Albert?.

Yes on the question on the initial Ibrance launch update, we're very excited about this initial launch for two main reasons. First we have not seen an approval of a new therapy in the first line advanced cancer in more than ten years, so there is a great unmet need.

And secondly Ibrance has demonstrated not only a statistical significant improvement, but more importantly a clinically meaningful benefit to patients. Because that would be our first and added 10 months to respond to [indiscernible]. As a result we expect the uptake to be robust.

Having said that, as with [indiscernible] there will be some oncology, but it will [indiscernible] adapter. But while others will wait for additional data or more experience in the field. But for this group we already have four Phase 3 trials ongoing, two of which are expected to complete this year.

When you say that we're working to build a broad franchise on breast cancer. We're starting with first line metastatic breast cancer. But then we're moving fast to the current breast cancer and then to early breast cancer.

And we would like to remind everyone what we're currently running Phase 3 pivotal registration enabling studies for all of these indications. Now to your question on immuno-oncology. As Ian said, the deal is transformational for our immuno-oncology program for two reasons.

And the first it is that they enable us to quickly move into the first wave of potential monotherapy treatments. You asked for some examples of that, the examples would be ovarian or gastric for example. And this is where we're going to see to put our emphasis rather than on indications that are more crowded as melanoma for example.

But then for the second also benefit which enable us to accelerate our combinations program by more than 2.5 years.

This accelerates in conjunction with our broad range of combination assets Xeljanz, Inlyta, Ibrance, our gross inhibitor OX40, 4-1BB would enable us to be the leading player in the second wave where we see also a much greater portion of the bite..

Operator next question please..

The next question comes from Gregg Gilbert from Deutsche Bank..

Thanks good morning and a couple of unrelated questions. Firstly and to slice the M&A question a different way. It's clear you have a sense of urgency to find deals that could be if there is shareholder enhancing.

Can you care to comment on the sense of urgency that supplement the innovative versus the established products? You’ve made it clear that you’ve got near-term sort of accretion or value accretion versus long term. But I want to make sure we understand that you are so committed to both or is one taking precedence.

Secondly can you comment on Lyrica CR, obviously a large product that gets almost no focus? Are you planning to attempt the filing there to protect some of that franchise longer term. And lastly Albert, can you comment on Prevnar Adult versus pediatric in progress there? And maybe share some color around the split between those two important buckets.

Thank you..

Okay, Geno do you want to talk about Lyrica first and then Albert can talk about the vaccine and I will come back on our BD preferences or priorities..

Yeah so Gregg on the Lyrica program we continue to advance the CR program for Lyrica. We’ve completed several trials and seen positive outcomes. So we will continue to move towards a registration and we expect to see registration potentially ahead of the expiration of the exclusivity in the United States..

Yes, Gregg on the adult, although early we're very pleased with the launch. And we believe this is potentially a very large and doable opportunity given current demographics and the aging trends.

The adult sales in US were around $250 million which was driven by higher penetration during the high flu season and of course also some inventory stocking with new customers. Our market share down to almost four times to 45% from 12 originally. Growth, moving forward we still expect to be strong throughout the year.

Of course keep in mind, but this quarter is influenced by seasonality and some inventory build and that can vary quarter by quarter. On the pediatric that you asked, pediatric in fact was down this quarter due to the timing of the CDC purchase, but last year occurred in the third quarter and in the fourth quarter and the [indiscernible]..

Thank you on the urgency to do business development, let me stress. The urgency I’ve is to create shareholder value and if business development can do that, then we will move on business development with urgency. I don't really have a preference between strengthening either of our businesses.

I think we can use this development to improve and strengthen both of them and we will look at the deals and if the deals make sense we’ll attempt to execute them..

Thank you. Operator next question please..

The next question comes from Tim Anderson from Bernstein..

Hi I am sorry. It’s the same line of questioning but on inversion.

So is that in your view pretty much off the table at this point for Pfizer? Is that still something that you think you can pursue and then also on inversion, any visibility on when or whether Treasury might come out with a second round of regulations? And then on the pipeline, apart from palbo if you had to take two compounds that excite you the most, what would those be?.

Okay so on the inversion, Tim. You know inversions have not been stopped. So what the potential rules of the government have done is delayed the value or potentially delayed the value realization of the inversion. So you know inversions I think are being tempered by the ability to pay the target price given the slow realization of the inversion values.

You know I think it's an area that will remain fertile while there is no change in the US tax laws. I think it's -- we are in a very uncompetitive situation with our tax code. And inversions will continue to be important as an instrument increasing shareholder value just depending on the price you need to pay to the inversion.

And the exact conditions of the inversion which are very technical depending on how you can manage your subsequent cash flows. So it’s a very -- it's not an easy general answer to what type of inversion you would want to do. And apart from palbo you know I think we’ve a lot of exciting products.

I would probably talk about the ability to bring the staph aureus vaccine to market as quickly as possible. I think you know bococizumab clearly has a huge potential. I think we are well placed with the clinical trial design. [indiscernible] is well positioned. Adult vaccine which we’ve just launched has a huge potential.

So I find it difficult to really take just two assets. I think we have a lot of assets that we can create value from and especially the total life cycle of palbociclib. So the new Treasury regulations, you know I don't know. I mean I'm not in Washington, I can't comment. They have published a rule, they haven't finalized a rule.

And you know clearly there is an intent to do that. There is an intent to make it somewhat more problematic or for people to plan inversions and we will just have to work around that. Thank you..

Thank you. Operator moving on please..

Your next question comes from Vamil Divan from Credit Suisse..

Yeah thanks for taking the questions. So I have two, one I guess, the first one is more for Ian. Obviously a lot of discussion around the M&A and what you guys are looking to do. I guess just strategically you know some comments earlier about valuations and people you're approaching and maybe not you know wanting to go ahead with the deal.

I think strategically isn’t it tougher for you to consummate a deal when you are being so public talking about the need to do something and the near-term focus that you are mentioning. Now doesn’t that make it tougher to get a deal done and doesn’t it just raise the prices higher. And then second one is more on the pipeline.

If you could talk about I/O, I appreciate the comments you gave earlier and thanks for all that. Can you talk a little bit about kind on the biomarker side and if there’s anything you can share but how you are planning to incorporate biomarkers at least into the first wave of study that you’ve outlined for this year? Thanks..

Yeah Vamil, I am sort of intrigued by your comments. I don't think I’ve ever said, we’ve to do a deal. I think you are reading the press rather than what I've been saying. If I felt there was a pressure to do the deal, we would have done the deal and we're trying to do it last year. We're very disciplined. We don't feel we need to do a big deal.

I do feel we have the ability and we have the balance sheet that we can use if business development can further our basic strategies which is to strengthen either one of our businesses or to acquire in an area like immuno-oncology which we did to strengthen where we see we can create synergy and values.

So you know I am a little mystified about this -- your comment about you know that Pfizer sort of needs to do a deal. I think there’s a lot of rumors running around. We as like any management team look at opportunities. We have the capital and the wherewithal to do the deal should we so decide.

I don’t think it’s a matter of is there a value and if there is value we can get the deal done. So I'm a little you know, I hope that puts in perspective for all of where we fit on business development deals. Good to do, if they create shareholder value, disciplined, if they don't we are not doing them. Yeah, Biomarkers..

Yeah so you know that's a great question on how you bring immuno quality to the next level.

And first as you know we’ve considerable experience in selecting and developing biomarkers from Xalkori we’ve obviously linked that to the drug’s efficacy and we’ve also learnt how to drive uptake of that diagnostic to very high rates in the marketplace, specifically for immuno-oncology.

So in our partnership on avelumab we certainly are looking at PDL-1 high versus low tumors. And the data we see really correlates as expected with high response in the PDL-1 high. But we also see responses in the PDL low. We had a second wave as you heard from Albert on the 4-1BB and OX40 for combination.

We’ve seen that the 4-1BB is unique in amplifying cytotoxic cells, CD8 cells. So we certainly will look for expression of those cells in the tumor. Similarly for OX40 we think it’s more under CD4 side and that will be another marker to monitor.

But we also have programs coming on board for T-regulatory cells that may limit the overall immuno-oncology response and tumor suppressing macrophages. And we’ve assets coming within the next year or so on each of those particular subset of immuno-oncology. And of course our ADC portfolio is very much supported by diagnostics.

We’ve now two ADC in Phase 1 that show interesting responses and we stocked enriched pile of diagnostic for those. So I hope you get the sense that we go from standard diagnostic to more next-generation diagnostic.

And we will also deal with the kind of future diagnostic looking at circulating tumor cells to make it even more easy to integrate in medical practice. So we really see us being a driver of this change and the pioneer in this area. Thank you..

Next question please..

Your next question comes from John Boris from SunTrust..

Thanks for taking the questions. The first question, just going back to business development as an enabling strategy. Ian, I think you indicated that one of the primary reasons for the AstraZeneca transaction was the tax considerations obviously around the inversion and being able to unleash the value of the cash that you have trapped offshore.

If you go back and look at the last transaction, your tax rate around that time was around 22%. You know it's gone as high as 27% not enabling you to bring that cash back.

How much consideration is there that when you do a transaction how much impact on the tax rate are you willing to absorb if it is an US asset that you're looking to acquire? The second question is for Frank, you’ve disclosed what the impact of foreign exchange is, can you articulate or quantify what the impact is on volume and price on growth in 2014.

And then the last question on R&D and Xeljanz in EU, any update on your ability to file Xeljanz in Europe and then the implications for the Enbrel field force over there? Especially in light of Samsung filing their SB4 and anticipating to be commercializing at least [indiscernible] commercializing Enbrel in the back half and how are you going to be adjusting for that resource if you don't have Xeljanz there? Thanks..

John thank you. As always good questions. Why don’t you, Geno deal with the issue of Xeljanz in Europe and Frank can look at the volume question and I’ll come back to your rather complicated question on inversions and tax rates and in that Frank will also help me out there a bit..

Yeah so John regarding Xeljanz and the Enbrel inflammation business in Europe. You know we remain committed to resubmitting for approval an RA for Xeljanz in Europe. We’ve had recent interactions with regulators there and a discussion on our chance for resubmission. We were encouraged by those discussions.

We continue to collect additional clinical data to support that resubmission and our expectations are that we will resubmit by the end of the year in 2015. Regarding Enbrel and potential competition, you know we see the introduction of biosimilars into the marketplace in Europe as something that's more evolutionary than transitionary.

And we expect to continue to support Enbrel through the near term and realize you know continued support from that franchise. So I don't see a disruption at this point with the timing that we are anticipating and the impact that we see projected for biosimilars..

And of course that market in Europe is very under-penetrated given their reluctance. So you know there is a lot of volume there that can be accessed via biosimilars as well as the original.

Frank?.

So John for the quarter and this is companywide, so price is +1% volume was -1%, foreign exchange was -3%, FX drove the -3% for the quarter at. And as I mentioned on my comments, we are actually up operationally by 9 million excluding foreign exchange for the quarter. For the full year price was +2%, volume was -4%, FX was -2%.

You put that together and you get the -4% I reported for the year..

Thank you and on the BD you know I think my comments on AV have always been that we looked at three components of value. One was the pipeline; two was the amount of operational energies that could be achieved; and third was the financial synergies.

And you know we were disciplined in our approach, because the financial synergies were the most risky part of the equation, and in fact were made eventually more difficult to achieve by the proposals. I think the net-net answer to your question about tax rates is it all goes into the value.

What is the value of the acquisition we're trying to achieve? What’s the value we create to shareholders? And the tax rate just like the synergies, just like expenses, just like everything else is part of that value equation. If it works, the value works we will do the deal. If the value doesn't work we won't do the deal.

But of course undeniably the foreign companies as you seen for most of the acquisitions that have occurred in the last year, foreign companies do have an advantage given their tax rate. And this is something that you know should be of a concern to the US economy..

I think the only thing I would add Ian is, John in your question you mentioned before we announced live it was 22% and we took it up to 27%. We actually took it up to 30%. When we announced live we took the tax rate from 22% to 30%.

And we’ve been you know, I think in an effective way being able to step it down through a combination of changes and jurisdictional mix and tax planning. We’ve gone from 30 to 29 to 28. This past year, we’ve had said approximately 27, we printed 26.5 on adjusted results. And now we’ve got it for 2015 to approximately 25%..

Thank you. Next question please operator..

Your next question comes from David Risinger from Morgan Stanley..

Yes thanks very much. I have two questions. Frank in the context of a potential split up in the future, you have obviously set up the financials but could you please discuss the dissynergies and the risk of pro forma total cost being higher due to step-up cost if a separation were pursued in the future.

And then second for Mikael, could you please discuss the top three or four pipeline readouts to watch in 2015 so specifically what clinical trial readouts are most important to focus on? Thank you..

Please, Frank..

So Dave, the way I think about the split question you asked me is, in my mind there will be basically three key determinants to obviously whether or not we separate the company. One is the performance of the businesses. The second one would be our confidence level and as businesses continue to perform successfully on a standalone basis.

And then three would be how the market values of those businesses and quite frankly is there an opportunity to create a tax efficient way of incremental value. So is the sum of the parts creating the whole, is there an ability to unlock that value? That value part of the answer in my mind would factor in the items you raised like the synergies.

That's all part of the value of the question that we would have to factor in to get to a net-net positive along with the aforementioned standalone performances..

Yeah and let me mention a couple of readouts. So obviously from [indiscernible] we are you know excited to also get to readout from our recurring study combining with [indiscernible] that Albert spoke about. Avelumab, our partnership with Merck Serono around ASCO will be the first time we start to share and update the data set.

And I think there will be opportunity also later to hear about how combinations are progressing. And possibly late in the year that we will also share some date on the 4-1BB, our own trial as we're running in lymphoma. We also have the readouts in ulcerative colitis and mid of the year or so we’ve topline results from induction study with Xeljanz.

And please remember in Phase 2 Xeljanz has very strong induction data among the best that has been really presented in the field. And at the JPMorgan I also shared very robust and really interesting data from our MAdCAM antibody in UC. So you could really look upon UC as a space where we’ve multiple interesting data sets.

More near term you also have an opportunity to look at Inotuzumab in [ALL] which we’ll have an analysis for complete respond or complete response with the incomplete hemitological recovery..

Our next question please operator..

Your next question comes from Seamus Fernandez from Leerink..

Oh, thanks very much for the questions. You know first off, maybe Frank, can you just walk us through when we’ve an increased spending coming in -- well maybe not increased spending, but you know good cost controls overall.

But is there a more to achieve or be taken out of the business from here where you can be opportunistic as we’ve towards you know the potential loss of Lyrica, and some incremental pressures? Are we off an overall growth of trajectory on the business including the expense base as we think about 2015 plus? And then separately as we think the PCSK-9 opportunity, I think there has been a real emphasis on the outcomes from Pfizer.

But Pfizer has also demonstrated an ability to succeed in the statin space without outcomes.

So just wondering despite being third to market, how you would anticipate completing before perhaps outcomes are available, and could you be as a third to market product -- how would you expect to compete without outcomes, you know versus other competitors who likely won’t have outcomes data, either? Thanks..

Okay Frank on spending..

So our spending Seamus, I’ve said this before. Clearly we're in the late innings in terms of having cost reduction. There is still opportunities. I think there’s always opportunities. I think there continues to be opportunities and G&A for example continues to be opportunities with our portfolio as the portfolio ebbs and flows.

So there’s clearly opportunities related to the portfolio. And that said, it’s hard. You know Ian mentioned in his comments that we’ve taken out 5.5 billion in expenses, in operating expenses over the last four years. There’s not another $5.5 billion for example to take, and so it’s getting harder.

And then if you look at our results for 2014, I’ll give you the full-year numbers operationally. COGS was up 2%, SI&A was down 2%, R&D was up 9%. You know clearly that upward pressure in R&D, we printed 7.2 billion in that 2014 as an actual number we got it to $6.9 billion to $7.4 billion for 2015. That includes the 300 million upfront to OPKO.

But I think R&D, you know OPKO aside is going to be in the low 7s, kind of you know going forward. So that's good upward pressure in my mind in terms of the late stage portfolio progressing in a good way. So I think I am probably more than you need, but I think the short answer is there is always opportunities.

But you know we don’t have the same opportunities we had several years ago, from the base we’ve done a much better job I think in managing the base..

I’ll just add to Frank’s comments. You know that -- that what we're looking is sort of transition from dealing with some $26 billion of LOEs from 2010 through 2015. And the need to rationalize our cost base to one of the investing in the future growth which I think is basically the most desirable state to be in as the topline growth.

And we're investing in our Phase 3 pipeline and our innovative products. But this management team is very good at managing our P&L and our investment and where we invest. And you know are prepared to do what’s necessary if business circumstances change on our expense base. With that the other question was for Geno on [indiscernible]..

So Seamus, just to respond you know clearly we -- you know Pfizer has a long history and heritage in the cardiovascular space. And I think that you know we can leverage that knowledge and obviously the data from our clinical trials to determine the best approach in the marketplace.

Frankly we really expect the PCSK-9 market to you know emerge as a large and attractive market with the occurrence of the outcomes data and we're kind of most focused on that. We’ve obviously put our best thinking forward in our protocol designs.

And should we have you know stronger data then the other companies in the cholesterol management and we will leverage that. But at this point, we’ll have to wait and see how the data turns out. And again our focus is mainly on the outcomes, on our trails..

Next question, please..

Your next question comes from Steve Scala from Cowen..

Thank you, I have two questions.

First for Frank, is the 400 million in spend for a potential company split in non-GAAP guidance and what happens to this number in 2016? Is it the same, is it higher or is it lower? And then the second question is on pablociclib, has the FDA taken a look or do you expect it to take a look prior to April 13 at the Phase 3 trial which is underway? Thank you..

So on the 400 million Steve, it’s in GAAP, it’s not in adjusted. We actually called that out in the release. It’s in the bridge we give you all, that bridge is from adjusted EPS to GAAP EPS. I think the bridge shows, it starts at the top. It shows $2 to $2.10 and then we’ve three takeaways from that. There is purchase accounting adjustments for $0.41.

There is restructuring and implementation cost that has a range of $0.13 to $0.18. And then there is a business and legal entity alignment cost which is the $400 million you allude to, which is $0.04. And that's the bridge from $2.10 $to 2.20, the 137 to 152. So in GAAP, not an adjustment.

And we give you a bridge that breaks out how we get from point A to point B. In terms of 2016 quite frankly as we get towards the end of the year early next year, we will call that number out to you because a lot of that depends on how we will progress through the year, how the businesses perform.

And so that's something that we will call out obviously later in this year or early in 2016..

Albert on pablociclib [indiscernible]?.

Yes for Ibrance I don’t want to speak [indiscernible] what the FDA would like to do but from a timing perspective we don't expect to have the results of even if the interim review of Phase 3 before the PDUFA date. And as you know we're already in the late-stage discussions for [indiscernible]..

Next question please, operator..

Your next question comes from Jeff Holford from Jefferies..

Hi thanks for taking my question. The first one is for Ian which is really what do you think about business development the way you used the US cash on US targets.

There is one inversion just straight M&A type deal as a potential pragmatic way to deal with the tax situation on those overseas cash assets? Do you see potential opportunities to do that and then just a few financial questions.

As you want to be able to allow investors to see the value in the two separate pieces what do you think about giving mid-term guidance on the true potential separate pieces for investors to help them reach that decision and how you reach that decision.

And do you think it’s reasonable to assume that this is now the flow and in 2015 another flow inside the revenues and EPS going forward? And then lastly are you happy that we just extrapolate this year’s tax rate going forward, are there any of the factors that we should consider?.

Okay you know I’ll let Frank answer your modeling questions. On the BD in using offshore cash for offshore deals, once again it comes down to value, it comes down to you know the offshore deals often price in the fact that there is offshore cash. So you have to look at the price tag on the deals and see if they make sense.

But certainly conceptually you know you have a point that it just comes down to the quality of the asset and the deals you're trying to do.

And Frank on the other question?.

Yeah so let me let me hit the -- Jeff, let me hit the extrapolation of the tax rates first. I think the way I will answer your question is, we step it down this year to approximately 25%. That's down from 26.5% in 14.

So a nice decrease and please know that when we reduce the rate, like we do in for 2015, our intention is that that rate is sustainable for the foreseeable future. You know so that, that's how I would answer your question. In terms to trying to provide guidance beyond 2015, for tax rates.

Given all the uncertainty in the tax environment, you know I think that wouldn’t be a prudent thing to do. In terms of your question on BUs and providing midterm type of guidance -- I think we are getting more and more transparent I think relative to our business units. This year we started providing a very detailed income state information.

Come 2015, we are going to start to provide -- you know so then we’ll start to provide some balance sheet information, so we are providing more and more information. And I think it enables a lot of good extrapolation work.

In terms of you know taking our guidance and peeling it down to another level, I just -- I think it's hard enough to provide annual guidance total company. You then start taking and slicing it by sub ledger detail I think. It just really creates a level of complexity that I don't think we are inclined to do..

Next question please operator..

Next question from Marc Goodman from UBS..

Good morning. First of all can you give us an update on China? How did it perform in the quarter and how you are expecting it to perform in 2015, you know give us some trends there? Second just update on palbo overseas and what the timing is there. And then on the MAdCAM, you did provide some data.

And I was curious if you could comment on the dose response. And on why it would take some while to move into Phase 3? I think you said you're going to move into Phase 3 in 2016. And then I think the Phase 2s are done, so I was curious about that.

And then lastly just on Lipitor over-the-counter? I know there was one study that remains before you can go back and talk to FDA. I was curious where we stand on that and when you think you’ll talking to FDA again? Thanks..

Okay let's try and put it together.

So if Albert can answer the palbo one and the Lipitor questions?.

Yes, we’ve had discussions with European regulatory [indiscernible] on the clinical data. And it is our intention to file in the EU this year. The anticipated filing packets will build off of what was submitted to the FDA, but it’s too early to provide more details on that. Coming to Lipitor, you are right.

The actual use trial was completed in December of 2014 and the results are expected in the second quarter. So once we see the results, then we’ll define our next steps in our efforts to being [indiscernible]..

Okay, John China..

So thanks for the question, Marc. So we continue to perform strongly in China. I’ll comment on the GEP segment which is the largest segment of our business in China. Overall for the quarter, we had a growth of 13%. Overall for the year we’ve had a growth of roundabout 18%.

You know we continue to see as we always do in the American markets quarter to quarter fluctuation and we continue to be very satisfied by our performance in China. The segments that are you know strong for us are particularly our cardiovascular franchise with Lipitor and Norvasc performing strongly.

And also a very strong performance our anti-infective business..

Thank you, now MAdCAM..

Yeah so thank you for noticing the very interesting dose response that we shared with you. We do think it represents possibly through human biology that at the mid-doses, 22 to 75 milligram. And in that range we possibly inhibit the autoimmune cells causing disease.

While at the higher doses you may also start to interfere with -- T-cells that have a protective effect. So it is very important to have done a very thorough dose response that can allow you to select the optimal dose.

And we think it may distinguish our opportunity MAdCAM versus other endocrine antibodies that may not have been able to do such a thorough dose response and pick the sweet spot. And that actually if you look at our remission dates, they really perform well versus either other published comparison, although it’s historical comparison.

Concerning the timelines, so we certainly see if we can accelerate it, but that relates to production of clinical trial manufacturing for potential registration study.

And also to really understand how to design a study where you could best develop a drug that has this really, unique tolerability profile, both for induction and maintenance therapy and how it could play as an anchor drug across many IBD like conditions. And that's why we gave a little bit of a extended time period.

And we maybe able to shorten that as we go forward..

Thank you Mikael, and operator if we could take our last question, please..

Your final question comes from Alex Arfaei from BMO Capital..

Good morning and I apologize if I ask redundant questions. I got disconnected briefly.

Ian, from your perspective could you comment on the M&A landscape in general? Based on your conversations with management teams, are you finding willing sellers out there and is it just a matter of price? The follow up for Frank and just following up on your earlier comments, how should we think about your margins for the next couple of years? You are losing some high margin products.

You’ve said most of the cost cutting is done, and you are investing in launches. So is it fair to expect somewhat stable or perhaps slightly declining margins going forward? Thank you..

So you know Alex on the price, you know willing sellers. Price always determines whether you’ve a willing seller or not normally. It’s just a matter of what value you want to transfer. And what I would say is I think the starting point of the prices are somewhat buoyant shall we say, given where the market place is.

So that does give you some concern when you look at paying the type of prices, there are premiums you need off what we see as high valuations to begin with.

So we're being disciplined in how we look at that and then would you like to answer the margin question?.

Yeah, so Alex I think a very good question in terms of -- I’ll call it the rhythm of the margins. There is some -- I’ll call it some downward pressure on our operating margins. So we’ve got $3.5 billion LOEs next year and some high margin products clearly putting some downward pressure in the operating margins.

And we’ve given guidance where you can obviously go through the line items and compute the numbers. That said, all of that’s factored into our EPS guidance.

And I want to reiterate what I said before, if you exclude foreign exchange in the outcomes transaction, the midpoint of our guidance for the next year is roughly what we printed in 2014 despite that $3.5 billion in LOEs. So we’ll continue to manage our cost structure, obviously the opportunities aren’t what they used to be.

But there is some slight -- [Abrupt End].