Good day, everyone, and welcome to Pfizer's Third Quarter 2015 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..

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 [VOC]; Geno Germano, President of Global Innovative Pharma; John Young, President of Established Pharma [GEP]; and Doug Lankler, General Counsel.

The slides that will be presented on the call can be viewed at our home page, Pfizer.com, by clicking on the link for Pfizer Quarterly Corporate Performance – Third Quarter 2015, which is located in the Investor Presentation section on 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.

The factors that could cause actual results to differ are discussed in Pfizer's 2014 Annual Report as well as on Forms 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 our Current Report on Form 8-K dated today, October 27, 2015. We will now make prepared remarks, and then we will move to a question-and-answer session. With that, I'll turn the call over to Ian Read.

Ian?.

the strong performance of in-line brands such as LYRICA in the U.S., ENBREL, and CHANTIX; the uptake from our new products that are early in their life cycle, including PREVNAR 13 adult, IBRANCE, and ELIQUIS; and growth in emerging markets.

We remain focused on continuing to generate this type of performance, where a greater proportion of our EPS growth is generated from top line revenue growth. Just a brief word regarding PREVNAR 13, we continue to see a very attractive worldwide opportunity for the adult indication.

In the U.S., we have done an excellent job finding and protecting 25% to 30% of the eligible population older than 65, and we did this more quickly than anticipated.

As a reminder, on our last quarter's earnings call, we said we expect to continue to focus on the remaining population over 65 in the U.S., although this will require sustained effort as this group is more difficult to reach. Also of note, during the quarter, we closed the Hospira acquisition.

And I'm pleased to report that the integration is progressing smoothly, and we're beginning to see the expected value contribution to our GEP business. In terms of revenue, we are now the leading global player in the fast growing sterile injectable business, and we're the number two biosimilars company in the world.

Through the acquisition, we now have three marketed products and more than seven years of in-market experience with one of these products. Our biosimilars pipeline is now one of the largest pipelines globally, with seven additional molecules in our portfolio under development.

We recently received a Complete Response Letter from the FDA for Retacrit, a biosimilar epoetin. We are working closely with the FDA to address the concerns of the letter and, at this time, we do not believe any further clinical trials are needed.

We are confident that the additional evidence we provide will support approval and remain committed to bringing this important medicine to patients in the U.S. as quickly as possible.

A few comments about the pipeline, I see our pipeline momentum continuing to build and remain particularly encouraged by our growing strength and presence in immuno-oncology.

Regarding the anti-PD-L1, avelumab, partnered with Merck KGaA, the FDA recently granted Orphan Drug and Fast Track designations for the treatment of metastatic Merkel cell carcinoma, a rare and aggressive type of skin cancer.

If successful, the first potential commercial launch of avelumab is anticipated in 2017, and our goal is to have at least one or more additional launches each year through 2022. Beyond avelumab, we have a broad immuno-oncology portfolio across numerous mechanisms, including 4-1BB, OX40, a vaccine-based immuno-oncology regime, and CCR2.

All of these assets are already in the clinic, 4-1BB, OX40, CCR2, and avelumab. And we expect to have up to 10 different I-O drugs in the clinic by 2016. We continue to see combination therapy as having the greatest potential within immuno-oncology.

And our broad portfolio of I-O, small molecule, and ADC oncology assets will afford us the opportunity to test a wide range of combination regimes on our own and with our partner, Merck KGaA. We continue to grow our footprint in I-O through other collaborations such as CAR-T with Cellectis and in IDO with iTeos.

And we entered into a collaboration with Kirin to combine our 4-1BB with their anti-CCR4 antibody and started a Phase 1 study in May. We believe this portfolio along with our skilled scientists should enable Pfizer to be a formidable player in this high opportunity area. Turning to vaccines.

In early July, we announced the first patient was enrolled in a Phase 2 clinical trial of our investigational Staphylococcus aureus vaccine. We anticipate this study will complete in late 2017, with an interim analysis planned for late in 2016.

Also in clinic (6:51) with the FDA, we restarted the Phase 2 trial for our Clostridium difficile vaccine, which has previously received Fast Track designation in August 2014. Enrollment in this program is now complete, and we expect to review data from it by the end of the year.

In chronic pain there remains a significant unmet need, with nearly one in five adults affected. To address that opportunity, Pfizer and Lilly have resumed the Phase 3 chronic pain program for tanezumab. This program consists of six studies in approximately 7,000 patients across osteoarthritis, chronic lower back pain, and cancer pain.

The study results projected to begin reporting out in 2017 and 2018. Of note, in the prior clinical studies of more than 11,000 patients, tanezumab demonstrated clinically meaningful efficacy versus placebo and other commonly used pain medicines.

In inflammation and immunology, we are focusing our future investments in development programs on indications for XELJANZ in rheumatoid arthritis, psoriatic arthritis, and ulcerative colitis, while deprioritizing further development in Crohn's disease and ankylosing spondylitis.

Additionally, we received a Complete Response Letter from the FDA on psoriasis. While we have yet to meet with the agency to discuss their concerns, we recognize that overcoming the issues raised may be difficult, especially in light of the evolving marketplace.

We will reconsider our investment in the psoriasis indication for XELJANZ following this discussion with the FDA. I would note that a new generation of potential therapies, including oral selected JAK inhibitors and IRAK4 are planned to enter Phase 2 studies in 2016 for inflammatory bowel disease, atopic dermatitis, and rheumatic diseases.

We have a once-daily filing for XELJANZ under review at the FDA with a PDUFA date in February for the treatment of moderate to severe RA in patients who have had inadequate response or intolerance of methotrexate. And if approved, we believe once-daily dosing will add to its competitive profile.

In addition, we intend to resubmit a Marketing Authorization Application to the European Medicines Agency by the first quarter of 2016 for the treatment of moderate to severe RA.

In assessing the current profile of our pipeline, I believe we have a competitive mix of compounds and modalities across the therapeutic areas I just spoke about in addition to cardiovascular diseases, rare diseases, and neuroscience where our expertise matches the potential we see. I'm pleased with our rate of progress.

Before turning the call over to Frank, I would like to offer a few thoughts regarding drug pricing. There has been a lot of attention on the issue of drug pricing. And given the upcoming U.S. elections, it will continue to be discussed and debated.

Ultimately, I believe good public policy will prevail, ensuring the best outcome for patients while preserving a market-based system that enables the industry to continue developing new treatments and cures. However, that policy discussion must take into account the role of medicines and the value they deliver to the overall healthcare system.

Medicines are among the most effective and efficient use of private and public healthcare dollars. They represent around 10% of total healthcare costs and are expected to remain the same percentage over the next several years. This is because the price of medicines drop significantly once the patent expires.

Today about nine out of 10 prescriptions in the U.S. offer generic drugs, which lead to significantly reduced costs in the healthcare system. For example, 12 million people take atorvastatin, and the cost has declined around 90% since 2005. So given the high use of generics, many patients have access to medicines with low copays.

What's difficult is when individuals cannot afford the increases in their copays when their treatment is on a specialty tier. No individual should have to bear the full cost of their treatment when they become sick. The increase in copay stems from healthcare policies that have a short-term focus with limited incentives to pay for treatments or cures.

Having an efficient and an affordable healthcare system requires incentives where insurance plans can be successful when they invest in long-term outcomes and provide for that success by ensuring wellness and prevention rather than treating the sickness.

And to sustain the most vibrant, innovative biopharma community in the world, we must preserve the market-based system in the U.S. that enables us to continue to develop breakthrough treatments and cures for the benefit of patients.

In summary, we had another quarter of solid execution on all fronts, product launches, cost and expense management, and the continued successful integration of Hospira into our business. We are on track to have a solid finish to the year.

We remain focused on creating value for our shareholders and continuing to research and develop new treatments to help patients live longer, healthier lives. Now I will turn it over to Frank, who will take you through the numbers for the quarter..

standalone Pfizer strong performance to date coupled with an improved operational business outlook for the remainder of the year; the anticipated impact of legacy Hospira operations from September 3, 2015 through fiscal year end 2015 on components other than reported revenues and adjusted diluted EPS; and the minimal favorable impact from foreign exchange rates since mid-July.

Consequently, we now expect reported revenues to be in the range of $47.5 billion to $48.5 billion, mainly driven by performance of PREVNAR 13 adult and IBRANCE in the U.S. as well as ELIQUIS globally.

I want to point out that this range continues to absorb an anticipated $3.3 billion negative impact from product loss of exclusivity and losses of alliance revenue this year and a $3.1 billion negative impact from foreign exchange versus 2014.

We also anticipate adjusted cost of sales as a percentage of revenue to be in the range of 18.7% to 19.2%, adjusted SI&A to be in the range of $13.6 billion to $14.1 billion, and adjusted R&D expenses to be in the range of $7.5 billion to $7.8 billion.

Finally, we expect reported diluted EPS to be in the range of $1.37 to $1.43 and adjusted diluted EPS to be in the range of $2.16 to $2.20. Now I'd like to walk you through the 2015 guidance ranges for reported revenues, reported diluted EPS, and adjusted diluted EPS.

Specifically what I'm pointing out on the chart is impact of standalone Pfizer's operations on these three guidance ranges. With respect to reported revenues, we're raising the midpoint of the previous guidance range provided on September 30 by $1 billion, and we're increasing the midpoint of our adjusted diluted EPS guidance range by $0.11.

With respect to reported diluted EPS as a result of Pfizer's standalone operations, we've increased the midpoint of the range by $0.09. This increase includes a $0.02 negative impact from restructuring charges associated with the Hospira acquisition that are incremental to our previous guidance provided on September 30.

Moving on to key takeaways, we achieved another quarter of strong financial performance despite product LOEs. I want to point out that this is the fourth consecutive quarter that standalone Pfizer achieved operational revenue growth which are driven by products early in life cycles, including PREVNAR 13 results, IBRANCE, and ELIQUIS.

We raised the midpoints of our 2015 reported revenue and adjusted diluted EPS guidance ranges by $1 billion and $0.11 respectively to reflect both our year-to-date strong operational performance as well as our improved operational outlook for the remainder of the year.

We closed our Hospira acquisition on September 3, which was immediately accretive to adjusted diluted EPS upon closing and expect it to be accretive by $0.10 to $0.12 in first full year after the close, with additional accretion anticipated thereafter. And we continue to expect the transaction to deliver $800 million in cost savings by 2018.

We continue to create shareholder value through prudent capital allocation. To date in 2015, we've returned $11.4 billion to shareholders through dividends and share repurchases. And we continue to expect to return approximately $13 billion to shareholders in 2015 through a combination of dividends and share repurchases.

Finally, we remain committed to delivering attractive shareholder returns in 2015 and beyond. Now I'll turn it back to Chuck..

Thank you, Frank and Ian, for the commentary.

Operator, can we please poll for questions?.

Your first question comes from David Risinger of Morgan Stanley..

I have two questions. The first is on IBRANCE. Ian, could you just talk about the first-mover advantage for IBRANCE and how you see that playing out in the marketplace? And also, if you could, comment on expectations for breast cancer survival data, and then any comments on the timing of readouts in other cancers.

And then separately with respect to your pursuit of M&A in Innovative Pharma, maybe both you, Ian and Frank, can comment on your current focus and how you want to set expectations for investors.

And also, Frank, if you could, just talk through the difference between the benefits of a 60:40 inversion versus an 80:20 inversion, and just characterize how the economics would differ in those two different scenarios. Thank you very much..

Thank you.

Albert, could you answer the IBRANCE questions please?.

Yes, certainly. Let me start with the competitive environment and the first-mover advantage. I believe, speaking about our program, we have the most advanced and a much broader program than any other competitor so far.

And I say the most advanced because we are the first one and the only one that have registration right now in the U.S., a product that has been prescribed with over 4,000 physicians and has been received by more than 15,000 patients so far. And we have also filed in Europe, and our file has been validated by the European authorities.

Also, I say that we have a much broader program because we do have right now already two studies in first-line. We have two studies in recurrent metastatic breast cancer, and we have three studies clinical running in earlier phases of breast cancer.

And in addition, beyond breast cancer, we have already 30 studies that are – excuse me – 22 studies that are running in other indications of solid tumors. So we have a clear – not first-mover advantage, but we have a much broader program, as we see palbociclib as a major franchise going forward.

In terms of timing on readouts, that depends on the studies. The two studies we have already reading out, the PALOMA-2 study, which is a confirmatory study, will read out next year. We have the early breast cancer studies. That pilot will read around 2017 or will come in completion in 2017.

And the other two, PENELOPE-B and PALLAS, will come around 2020. And as regards to the survival data, we don't have any news on survival data, which is expected because the median survival in this type of population is approximately four years. So it will take some time until all these events will be accumulated..

Thank you, Albert. On Innovative Pharma and BD, I think I'll limit my comments to something similar to the previous quarter, where we looked at BD as a way of accelerating value to shareholders.

We feel that if all things are equal on returns, strengthening the Innovative part of the company will give a more balanced business between both Established and Innovative, especially in a potential split scenario if we were to split the company.

And we continue to be active looking at BD and looking at sources of value, which are both pipeline which are operational synergies and potential financial synergies. And certainly I'll ask Frank to expand upon and talk about the 60:40 or 80:20 space and about how potentially wide the targets are for this type of innovation..

And so, Dave, the way to think about this is less than 60% full inversion, less than 80% but call it greater than 60% kind of an in-betweener, a tweener inversion. The way we think about this is there's four buckets of cash in a hypothetical transaction like this.

So there's our existing overseas cash and then there's our going-forward operating cash flow. And then there's the targets existing overseas cash and then their going-forward operating cash flow. The targets existing overseas cash and going-forward operating cash flow would be unencumbered.

Our existing overseas cash and going-forward operating cash flow would be encumbered. And then the question becomes in a tweener situation how much of our encumbered existing overseas cash and how much of our encumbered going-forward operating cash can become unencumbered, and that's based on tax planning and those kinds of actions.

And that is really, I'll call it, on a case-by-case, situation-by-situation, company-by-company basis. But we think of it in those four buckets..

Thank you, Frank. So when you look at doing BD, you have to trade off what's the price, what's the value, what's the pipeline, and what's the risks you see in a case-by-case basis of sitting in the 80:20 space or the 60:40 space, so thank you..

Thank you.

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

Yes, your next question is from Jami Rubin of Goldman Sachs..

Can you hear me all right?.

Yes, loud and clear, Jami..

All right, great. Ian, just to follow up on that question on M&A, the last time we met, you had highlighted the attractiveness of a tax inversion deal. In fact, you signaled a preference for a tax inversion deal over an outright, say, U.S.-based acquisition.

And now with Congress looking less and less likely to act on tax reform and your stock holding up exceedingly well in this volatile healthcare space, particularly given how much specialty pharma has pulled back, where are you in your quest to deploy capital? Can you give us a sense of timeline? It just seems to me like a phenomenal time to use your stock.

Thanks..

Thank you, Jami. I'd have to check the transcripts. I'm not quite sure that I expressed a preference either way.

I think I expressed a preference for an Innovative deal, and I think I expressed a preference for any deal that creates greater shareholder value, which would have to be a combination of, as I said, pipeline, operational synergies, and financial synergies. I do think there has been an adjustment in the price of some of the specialty companies.

There has been an adjustment in their price. I'm not so sure there has been an adjustment in their expectations of what they want to sell the company. But I do agree with you that BD is – we do have the ability to do BD. It can be an important way of adding value.

This management team is not afraid of taking bold steps, and we're looking at opportunities. And when we make our decision as to what is the best way of enhancing value, we will move..

Thanks, Ian.

Can we move on to the next question, please, operator?.

Your next question is from Gregg Gilbert of Deutsche Bank..

Good morning, Gregg..

Good morning. I've heard the two CEOs use the word bold in the last couple of months, so we'll see how telling that is, but a quick three-parter. First is the PREVNAR franchise.

How big could that become and how durable do you think that could be? Secondly, Merck seems pretty excited about the SGLT2 program they licensed from you, especially in light of Lilly's outcomes benefits.

So can you remind us what the economics are there and anything you said about the profile of that product? And lastly on Retacrit, on that CRL, Ian, are there any signs that the FDA is grappling with policy or legal or precedent issues there, or is it simply just about the application and some data they want, non-clinical data? Thanks..

I'll ask Albert to talk about PREVNAR, and then Frank will give you an idea of the contractual relationship on SGLT2, which I think is an underappreciated asset and a huge opportunity for us and Merck in that marketplace. And then perhaps John could talk about what we're experiencing with the FDA on the biosimilars approval..

Thank you, Ian. Gregg, thanks for the question. We are obviously very pleased with the results so far, and we continue to be excited with the opportunity. In the U.S., let me start. Two things stand out. The first is that we were able to make pneumonia vaccinations innate-based rather than a seasonal event that used to be until now.

And the second, of course, is that we were very successful catching up adults previously vaccinated with the old technology product. For 2016, we continue to believe that the catch-up opportunity will still be robust, although it may not grow versus 2015.

To give you some greater context, there were 45 million eligible adults when the recommendation was issued. We estimate that we have penetrated approximately 25% to 30% of this population so far, and that were mostly previously vaccinated with the other product, with PNEUMOVAX.

Why there are still many adults remaining, this cohort, as Ian said, is much harder to capture and will take more work to reach. But we do have programs to reach them and also have programs to reach the population below 65 that is immuno-compromised and that can benefit from PREVNAR 13.

Now in Europe, we received approval for pneumonia, and we continue to work with technical committees country by country to obtain recommendations and reimbursement. These will be phased over the next two-year period, depending on the country. But in general, I expect Europe to demonstrate strong growth..

Thank you. So in summary, we think it's a durable franchise, and we're very, very enthusiastic by continuing to invest in it and develop that marketplace.

Frank, would you like to talk about the economics of the SGLT2 contract with Merck?.

Yes, so I think just a summary is think about it as a 60:40 split on profit. We get the 40% of the profit..

Okay.

And then on the biosimilars?.

Retacrit, thanks for your question, Gregg. Just as you heard in Ian's opening comments, we received a Complete Response Letter for the epoetin Hospira BLA from the FDA on October 16 of this year. I think importantly, our initial assessment indicates no additional clinical studies are required at this point.

So obviously, we come to your wider question comment on what the FDA or the position they're taking with other companies' biosimilars. We don't have any insight into that. What we can say is that we are currently reviewing our CRL, preparing our responses.

We expect submission of our response sometime during the first half of 2016, with an expected six-month review under the BsUFA, Biosimilars User Fee Act..

Thank you, John..

Thanks, John.

Can we move on to the next question, please?.

Your next question is from Mark Schoenebaum of Evercore ISI..

Good morning, Mark. Operator, we seem to be getting a lag on the questions coming in..

Is this better? This is Mark..

Yes, I can hear you now, Mark..

Okay, I'm sorry about that. First of all, congratulations on all the great share performance and fantastic shareholder communication over the last year. So a lot of my questions have been answered, but I thought I'd ask for a couple clarifications. Number one, Ian, I think – and again, please correct me if I'm wrong.

I think you've said before that if you were to do – if you were to find a value enhancing deal that wasn't an inversion that you would like that deal to close before the end of 2016 because after the end of 2016, risks of policy changes, legal statutory changes increase. I'd just like to know if you still feel that way.

And then on the R&D side, I heard a remarkable number and I wanted to make sure I understood the number. The number was 16. What was that number? I heard it as you will have 16 immuno-oncology drugs in the clinic next year. Or is it something else? And if that's really true....

We'll have 10 novel drugs in the clinic next year, Mark, that are different, and we can ask Mikael to run through those in a moment. There are just too many for me to remember now.

And on the comment on taxes, given the proposed rule by the Treasury, which has not yet been implemented but has a retroactive date, clearly anything around this area, you need to be – one needs to be very careful on legislative changes.

So if there was a deal to be done, I'd prefer it to be done under the present Congress, and then you're at a risk for the new Congress coming in and making changes in the rules.

And of course, you don't know what the conformation of the new Congress will be, so you'd rather do it in a Congress what you do know who are setting the rules and what the rules are.

So if we could go to the 10 products, Mikael?.

Yes. So, Mark, we have said that we'll have up to 10 by next year, and they include already in the clinic avelumab, 4-1BB, OX40, CCR2. We're just now starting to enroll for our first triplet based on the vaccine, VBIR-1. We are moving swiftly with an additional PD-1.

We have started to file an IND that we'll be dosing next year for our first bi-functional against P-keratinin (37:50), another small molecule immunomodulator IDO-1. We have an M-CSF antibody, which brings it to nine.

And then we have a couple of programs that are running towards likely end of 2016 or early 2017, which include platforms such as additional bi-functional CAR-T additional vaccines and further checkpoint inhibitors. So I think you've got the sense it's very robust. It touches multiple modalities and gives us unprecedented opportunity for combinations..

Thank you, Mikael..

Next question, please, operator..

Your next question is from Marc Goodman of UBS..

I guess on IBRANCE, I think I heard the metric that there are 50,000 patients on the drug.

Can you just confirm that and tell us how that's changed over the past quarter? Second maybe, Frank, you can talk about the gross margin and just some of the underlying dynamics and movements in the gross margin, so we can understand how to think about it going forward.

What's sustainable and what's one-time? And then third, maybe some of the pipeline Phase 2 assets that you haven't talked about before but something that we should be keeping an eye on as we move into 2016. Thanks..

Okay. I'll ask Albert to clarify the number of patients on IBRANCE..

Yes, the number that I mentioned was 15,000, one-five, not 50,000. And compared to the previous number in Q2, we've had 9,000. So it's 15,000, up from 9,000 in Q2. And also to give you another statistic, it is 4,000 healthcare practitioners, up from 3,000 at the end of Q2..

Thank you, Albert.

Frank?.

On the gross margins, so the way I'll answer it is just I'll do cost of goods sold, just the reciprocal. So last year Q3, 18.3%; this year Q3, 17.4%, so down 90 bps. What really drove that was operational improvement. There's a lot going on there, Marc.

So think about foreign exchange in terms of cost of goods sold as a percentage is a good guy, it lowers the cost of goods sold. Our LOEs, particularly Celebrex, are a bad guy, so it hurts our cost of goods sold in terms of it will be increasing it. Those mitigate each other. And then for quarter, operational improvements really drove the number.

Our guidance for the year, 18.7% to 19.2%, so what's really going on there if you compare that to the year-to-date number, the 17.3% year-to-date cost of goods sold, is foreign exchange. If you adjust for foreign exchange, that 17.3% becomes almost 18.5%, which is close to the guidance range.

And then when you add in Hospira, some of our projected sales for the remainder of the year, you get a little bit of a lift in the number, which gets you to the 18.7% to 19.2%..

Okay. So I'd ask Mikael if he'd run through some of our near-term opportunities and then take that and extend it a bit to the third of our Phase 2 opportunities..

Thank you very much. So nearer term, maybe a way to look upon it is we have really a few really exciting oncology platforms. You're well aware and we discussed IBRANCE in breast but also moving into head and neck and pancreatic adenocarcinoma.

The second platform, oncology, obviously avelumab with I-O combination, 4-1BB, OX40, and we'll actually soon share date on 4-1BB in various combinations, and also INLYTA that's used in I-O combination. In this case we have Merck KEYTRUDA.

We have two breakthrough drug designations that are moving towards registration planning, elotuzumab for ALL, and XALKORI for ROS-positive lung cancer, an indication where you have long duration of treatment. Now these were four oncology platforms.

In non-oncology in near term are ertugliflozins that we briefly touched upon today, tanezumab in pain, bococizumab PCSK9 in cardiovascular, and XELJANZ in UC psoriatic arthritis.

Coming towards the earlier pipeline, we have – let's touch upon we have a real exciting rare disease pipeline starting to emerge with recently Phase 3 for rivipansel in sickle cell disease. We have another PD-9 inhibitor for prevention of sickle cell disease.

And we have studies ongoing in Duchenne's and Huntington's with drugs that are touching these orphan diseases. And if these stay very strong, there are potential to consider path for accelerated approval. We heard from Ian mentioning that our C. difficile Phase 2 study is now completely enrolled.

We're really looking forward to see that data come next year. And then coming back to oncology, we have a new ADC PTK-7 that showed interesting data in Phase 1 going towards Phase 1b/2. We have the (42:50) rights to XALKORI 392 (42:52) that have shown real robust (42:58) in this part of the pipeline.

And we're starting next year multiple Phase 2 for our emerging immuno-kinase platform with IRAK-4, where we think we may be industry-leading, highly selective JAK-3, dual-acting JAK-1 to JAK-2, and also JAK-1 inhibitor.

It will touch carefully selected indications where we think each profile has a unique purpose and fit to feel for the needs of patients. I hope that gave you a little bit of flavor of an exciting both near and midterm pipeline..

Thank you for that..

Thanks, Mikael; next question, please, operator..

Your next question is from Tim Anderson of Bernstein..

Thank you, a pipeline question, a non-market question, and then a strategy question. Earlier in the year when we talked to you, you mentioned you have an oral PCSK9 in development. And if I remember right, you said we might see data in 2016, human data. I'm wondering if that's still the plan. Second question goes back to PREVNAR in adults.

When we've I think looked in the past at benchmarks, healthy penetration into the adult population might be something like 60%. I'm wondering if you can say what you think realistic penetration of PREVNAR in adults is likely to be in U.S. and Europe. And then last question is on potentially splitting up.

Investors are obviously assuming that you'll do this at some point in 2017 or maybe later.

But looking at it from the other end, what would be the counter-arguments to splitting up? In other words, why might it make sense that Pfizer would not want to go down the route of splitting up? What are some of the biggest hurdles to overcome?.

On the split, as we've said before, we haven't made a decision. We said we'll make a decision. The latest we'll make it is in the fourth quarter of 2016.

And the four criteria we've set up is are the businesses doing well inside Pfizer? Are they likely to be successful outside of Pfizer? Is there trapped value, and do we believe we can realize that trapped value? From the other end of not doing a split, if we were to do a major acquisition in the intervening time period, then it would certainly change the timelines of a split.

It wouldn't necessarily change the logic of it to the extent that that logic proves out. It would certainly – it may even strengthen the logic for it. But that would be a decision that would be taken post any type of acquisition and post understanding the timelines that involves..

And the answer to all four of the questions that Ian summarized needs to be yes. In terms of if we were to go down a split path, the answer to all four questions needs to be yes..

So on the pipeline question, Mikael?.

So thank you for remembering our exciting small molecule program against the PCSK9 target. And obviously, we are increasingly excited about that space as we have seen some of the struggle around the CETP drugs. And we are on track for dosing patients end of this year, and we have collected our IND documents, so it's perfectly on track.

And I should say it's a novel mechanism that we have identified in our discovery work to intervene with the PCSK9 function, and we're very excited to get it into humans and see its impact..

Thank you, Mikael.

And, Albert, on the PREVNAR 13 adult penetration question?.

Yes, it's a very interesting question. Let me say that it seems that previous benchmarks or analogs of adult penetration have become somehow irrelevant after the very successful introduction of PREVNAR adult. And this was – I will give you just some data to support my statement. But right now we have achieved a market share of 87%.

That's extremely high, as you can understand. In pharmacies right now we are having a market share of 90%. And keep in mind that pharmacies also, their overall share of participating in vaccinating and catching up patients has increased dramatically. I would say that we have disrupted this channel with our introductions.

Also, our consumer activation and information campaigns have become very successful, and our commercials have run very, very high. As a result, the awareness among healthcare practitioners, for example in the U.S., has exceeded 90% according to market research that we have run, which of course is exceptionally high.

So I cannot predict what eventually will be the overall penetration of adults in this country. But I would say that we are very optimistic with the success of this first year as to how much we can achieve for the benefit of the patients in the U.S..

Thank you, Albert..

Next question, please, operator..

Your next question is from Seamus Fernandez of Leerink..

Thanks very much for the question, so just a couple quick ones. Historically you guys have provided some numbers around your thoughts on the size of the biosimilars market.

Where do you see that? Can you just update us on your thoughts on the size of the overall biosimilars market and where and when you really see the acceleration in that market occurring? And then the second question, can you just give us a sense again of the level of penetration that we're at with 15,000 patients? What does the IBRANCE label currently approach? And then ultimately with the adjuvant setting in breast cancer, can you remind us again how much of the market that would open up? Thanks..

Thank you.

Size of the biosimilars opportunity, John, would you like to comment on that, please?.

Yes, sure, so thanks for the question, Seamus. Obviously, as you know, the biosimilars market is still in the process of forming in different regions of the world.

We're very excited to be playing a leading role in the formation of that market with the portfolio that we now have, both of our own legacy Pfizer pipeline of biosimilars but also the in-market portfolio of products from Hospira.

Overall, the market opportunity that we see is around about $100 billion worth of revenues from currently patented branded biologics that will lose patent protection over the next five years.

The global market for biosimilars, looking at many analysts, is expected to grow from around about $1 billion today to somewhere on the order of $17 billion to $20 billion by 2020.

Clearly, there are a number of factors that will drive and influence the evolution of that marketplace such as substitutions, such as the labels that – extrapolation of labels that products that come to market will have.

Overall, I would just say that we believe that we're really well placed to draw on the heritage as a really strong biologics company in R&D and in manufacturing, which we believe will leave us to be very well placed in that market as it forms around the world..

Okay. So, Albert, perhaps you can take us through a little bit the layers of opportunities we see in number of patients, or potential patients, probably talking about the U.S. for IBRANCE..

Yeah, and I will also speak a little bit more generally. Let me start by saying how excited we are, of course, with this opportunity. Breast cancer is the most common cancer among women worldwide. There's 1.7 million diagnosed every year with breast cancer.

And approximately 60% of them, which means approximately 1 million, are ER-positive HER2-negative, an area that IBRANCE has demonstrated efficacy so far. Now with IBRANCE, we are working to build a broad franchise, and this is how you succeed around breast cancer and beyond.

Speaking about breast cancer, we are starting with the first-line, and then we move to recurrent and then to early breast cancer. In the U.S., we expect to expand, first of all, as the opportunity goes, our market share in the first-line. Right now we have a market share of approximately 27%.

And moving to next quarter, next year, we expect to expand that even further. We also expect to have an accepted filing by FDA of our PALOMA-3 data this year. We expect it will give us registration for later lines of therapy in the metastatic setting. In Europe, we have filed and our filing was validated.

The filing in Europe was based on both PALOMA-1 and PALOMA-3 data, which means that covers the entire metastatic population, not only the first-line, as was our submission and current label in the U.S.

We are also working to expand our label to earlier phases of breast cancer, as I have indicated earlier, with currently three major Phase 3 studies running. That includes basically thousands of patients. The PENELOPE-B is a study that includes more than 1,000 patients.

With the PALLAS, it is a study that will include almost 5,000 patients, 4,600 patients. And the pilot (52:36) study, which is the first one that was introduced in that setting, is expected to come into primary completion around 2017..

Thank you, Albert..

Thanks, Albert. We'll move on to the next question, please..

The next question is from Chris Schott of JPMorgan..

Great, thanks for the questions. I just had two here. The first, if we think about business development, potentially addressing three broad areas of your business. It seems like you're talking about improving top line growth, driving operating synergies, and/or improving your tax rate or financial synergies. I know these are all important.

But how would you rank order those three in terms of importance? Are some of those must-haves and some of those nice-to-haves? I'm trying to understand as you're looking at the landscape of what you can go after, how you're weighting those three broad categories. My second question was on inversion, which has been talked about a lot.

But just in the current political environment where there's a lot of negative headlines around pharma already out there, how do you think about political risk of inversion just in this election season and with a lot of noise around the drug industry already out there? Thanks so much..

So I think, Chris, the best way to think about this is that we want to target the maximum return on investment. And this is a mix-and-match combination of, as you said, financial, pipeline, growth, financial synergies, cost synergies.

And the puzzle is to find the target company whose price and those three combinations allows us the highest rate of return on the disposition of precious capital. So I won't – and then on the negative issues of pharma, I'm a little – I'd like to hear a few words about that.

I think there has been some negative press on particular pharmaceutical companies. I don't see that society is saying they don't want innovation and society is not looking for cures for Alzheimer's and Parkinson's and cancer.

And so I think our industry continues to remain firmly in good stead in the sense that we remain a low percentage of the healthcare cost. We are, I believe, the most efficient way of dealing with costs in the healthcare system. And so I think public policy is squarely behind having an innovative industry.

Certainly I think we can make the case that this industry risk-adjusted is appropriately profitable. Its P/E and its return on capital and return on investments are I think appropriate inside the averages of the stock market. So I think the returns of pharmaceutical companies are reasonable in that context.

So I do believe that we have a lot of positive arguments to make when having this dialogue with society. So around the political ramifications, the shareholders of Pfizer expect us to maximize their return, and the employees of Pfizer want to have a robust successful company in the future. Their jobs and their careers depend upon it.

So part of the leadership of this is to ensure this company can be successful in the future. To be successful in the future, we need to have a competitive tax rate. So that is why it's an important issue for us. Thank you..

Thanks, Ian. Next question, please, operator..

Your next question comes from Colin Bristow of Bank of America Merrill Lynch..

...questions. I think a lot's been covered, but a couple more on the SGLT2. How should we think about your positioning here given you'll be fourth to market and you won't have any CV data until the 2019 – 2020 timeframe? The feedback we've been getting is it's largely a JARDIANCE-specific benefit until proven otherwise.

And so to what extent do you rely on a competitor showing CV outcomes data to confer class effect given you'll potentially be the last to have a CV readout? And then just second question, last quarter you stated that you see biotech valuations as priced to perfection in many ways. Clearly there has been a significant adjustment since then.

In light of this, it would be great to get your current thoughts on valuations. And how is this changing how you're thinking about your strategy with regards to M&A and the potential geography of targets? Thank you..

Colin, on the biotech, I think there has been a readjustment in pricing. As I said, I think it's been a readjustment in the stock price. I'm not sure yet there's been a readjustment in what investors and the leaders of these companies believe their company may be worth in a transactional situation.

So I think we'd have to wait a little while to see if the new stock valuations settle in, in the reality of management's belief in the value of the companies. And then the second question was on....

SGLT2..

SGLT2. So I think Geno can take us through some of the logic on that..

Sure. Colin, we're very pleased about the SGLT program and the recent findings from the BI-Lilly program on cardiovascular outcomes. We have a cardiovascular outcome trial underway. In fact, it's fully enrolled already with our SGLT partnership with Merck & Co.

In light of the new findings from BI and Lilly, we are considering additional work that we may do to further augment the package that we're pursuing with our program. We have, in addition to the single entity development program, a fixed-dose combination with JANUVIA and with metformin.

And of course, with the market position of JANUVIA in the diabetes market, we think that we'll be very competitive with our data package, and we look forward to entering that market..

I'd like to say I'm extremely pleased that Pfizer is doing a partnership with Merck & Co., two great companies with great heritage in this space, and we look forward to being very successful with this combination product..

Thanks, Ian and Geno; next question, please..

Your next question is from Steve Scala of Cowen..

Thank you, I have three. The JAVELIN trial of avelumab in second-line non-small-cell lung cancer has a primary completion of 2021. So I imagine there are interim looks between now and then. Maybe you could tell us when those interim looks are or when the first one is perhaps.

Secondly on the CDK-4/6 inhibitor landscape, I think the general view is that the Novartis agent is not differentiated, but the Lilly drug does look quite unique and potentially a threat to palbociclib. I think the recent Breakthrough designation was notable. I would like your view.

And then lastly, thoughts on the recent baricitinib versus HUMIRA study and its potential impact on XELJANZ. Why isn't this a risk to XELJANZ? Thank you very much..

Okay. Perhaps we'll ask Mikael to talk a little bit about the CDK-4/6 competitive space and what we know and don't know..

Yes, thank you. So I think I will start and a little bit punctuate what Albert said that palbociclib IBRANCE is the only CDK-4/6 inhibitor studied in multiple randomized control studies and has such a profound program for advanced recurrent early breast and multiple indications also beyond breast. It's a highly selective drug for CDK-4 and CDK-6.

We do think hitting both CDK-4 and CDK-6 is preferable. And it's very tolerable, which is important for a drug that is playing in patients from first-line up to early breast cancer. What we have seen from the edema type of (01:00:58) drug is data from an analog (1:01:00) in very advanced patients to multiple chemo, almost a salvage line.

And that's obviously positive for patients being at that very difficult advanced stage. We know that it's a drug that is much broader than the CDK-4 and CDK-6 that characterizes, as you're right, fully said palbociclib and rebociclib.

So for me it's a different drug class, broader, less specific, and may play very well in this more advanced setting where the data has been currently. And obviously, there have been some tolerability issues reported which may reflect this broader profile. It's very difficult to comment on competitor drugs.

So like always, we say let's have data over the next few years and experience from patients guide us. But I thought that maybe gave you an opportunity for us to summarize the status today..

I think one of the competitive positions we're taking is to accelerate a very broad in-depth clinical trial program behind IBRANCE to ensure that physicians have a broad experience with multiple indications and get in early and establish the standard of care there.

So I think that's our answer to if there is a competitive threat, that's how we are dealing with it.

Would you, Geno, talk about XELJANZ?.

Sure. So, Steve, the baricitinib data that was recently released showed superiority on ACR20 and the DAS28 endpoints. In our own program, as you know, we had a trial including HUMIRA where we showed strong numerical separation not only on ACR20 but on ACR50 and ACR70, more difficult endpoints to demonstrate a difference.

Now that trial was not designed as a superiority trial. It's more of a comparative trial. But that led us to initiate a head-to-head superiority study with XELJANZ in RA compared to HUMIRA, where we're testing both monotherapy and XELJANZ with methotrexate against HUMIRA with methotrexate. So it's a robust study.

We'll be reading out in the first quarter of 2017. We think that that will help shed more light on the performance of this drug in this setting, this clinical setting. The endpoint for our head-to-head is ACR50. As you know, Ian mentioned before we have the once-a-day dossier filed with the FDA now, with a PDUFA date of February 2016.

And then we have our post-marketing safety study that also has arms with ENBREL and HUMIRA in. So we'll have really good comparative data over the short and medium term to put these drugs into perspective.

Frankly, I think that the JAK pathway is a powerful pathway that offers the potential for strong efficacy, and we think that that will play out with both baricitinib and XELJANZ in the long run..

Thank you, Geno. We like our position of having the opportunity to look at it with and without methotrexate as well, which if any of you have ever had to take methotrexate, they'll understand why people don't like to take it.

Albert, would you like to discuss the JAVELIN question?.

Yes, I do not have handy the date of when the interim analysis will happen in this study. And anyway, as you know, these are event-driven, so you never know what eventually will happen. What also I can tell you, this is as you know, a second-line lung cancer study. We are planning to initiate a first-line study this year hopefully.

That will have an expected readout much earlier, so around 2017..

Thank you very much..

Next question, please, operator..

Your next question is from Vamil Divan of Credit Suisse. Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker) Great, thanks so much for taking my questions. I just had a couple, one building on what you were just talking about with the JAK inhibitors and XELJANZ.

Can you just give a little more detail on the decision you made to focus your priorities? You said you're stopping development in Crohn's, ankylosing spondylitis, focusing on other indications.

Was that something specific to the product? Was it safety or efficacy of the product in those indications, or was it more of a view of the commercial competitive dynamics in those other indications? And then second, just one if I could on ELIQUIS. I just wondered if you can give a little more color on what you've been seeing there.

We haven't really touched on that on this call yet. And I'm wondering if you expect any negative impact given the approval of PRAXBIND, the reversal agent for PRADAXA, recently. I'm just wondering.

Do you think that might impact physician-prescribed here over the next year or so prior to having an antidote for ELIQUIS in the Factor Xa available? Thanks..

Geno, first two questions, please..

Sure, so let me start with XELJANZ. As we continue to see the studies read out, obviously we become more informed about how this agent is working in these various patient populations and various disease states.

Our decisions on prioritization are made on the basis of the data that we're seeing, the emerging profile of the drug, again, across different patient populations, and also the timing of and the amount of work that's required to continue these programs. So it's a number of factors that has led to the decisions that we've made.

We are very excited about continuing in the RA and the psoriatic arthritis and the ulcerative colitis areas. We're very encouraged with what we've seen so far. And these are very large, robust market opportunities. So we're looking forward to a bright future for XELJANZ.

With regard to ELIQUIS, frankly, we're continuing to see ELIQUIS take share in the NOAC market around the world. We're a leading product now in a number of countries. We're a leader with cardiologists in many more countries. We established our foothold in the stroke prevention market and now in the thrombo-embolism market.

We're continuing to make inroads in primary care. So that engine just keeps rolling. With regard to the antidote, the feedback that we've gotten from the physicians in the marketplace is that it's a nice-to-have and they welcome it. We don't expect it to have a major disruptive effect on the marketplace..

Thank you, Geno..

Thanks, Geno, next question, operator..

Your next question is from Andrew Baum of CRTI (sic) [Citi]..

It's Andrew Baum from Citi actually, three questions, short ones. First, Mikael, do you have a SERD anywhere near the clinic? Second, with regard to biosimilars, I'm interested in Pfizer's view on interchangeability. Is it economically desirable within the U.S.

landscape given the much likely rapid erosion of revenue as a consequence? And then finally for Ian in relation to inversion, I note that Medtronic after inverting inside Covidien seemingly have had to import $10 billion worth of offshore cash with only a $500 million tax bill.

Given this did not fall at the 60% level, does this mean that there's still a surprising amount you can do despite being higher than that threshold?.

Let's answer the questions in the order they were taken..

So I assume you're considering what else in our pipeline could combine with IBRANCE. And we do have, as you know, the PALOMA-3 with a SERD, fulvestrant. We have some internal activities on porel SERD (1:09:04), but nothing that allow me to give you a date when it could or could not get to the clinic.

I wanted though to say that we have exploration in the clinic with a PI3K/mTOR inhibitor that we have ourselves that have a unique tolerability profile because it's given intermittently. So we do explore with internal and potential partner drugs how you could combine.

But I would probably be more keen to go beyond the estrogen receptor blockade and look for a mechanist that could be more much additive, synergistic when we develop the CDK-4/6 franchise further..

Thank you, Mikael.

John, could you discuss the interchangeability issue?.

Thank you. So first of all, let's just say that we view biosimilars as playing a key role in the future of healthcare, and they can address the evolving needs of patients, physicians, and payers.

On the interchangeability question specifically, I think our view as a company is that interchangeability should be based on science and under physician supervision.

Since biosimilars are not the same as the reference products, the traditional paradigms that you might see in a small molecule of interchangeability and automatic substitution just don't apply. So we believe that regulators and also payers should and will look at the data specific to each individual biologic molecule.

That's why we have comprehensive development programs for our biosimilars so that we can actually help physicians and patients to be able to make informed decisions about how to appropriately use those molecules.

And so our key point here is that there really is a need for more scientific progress to make interchangeability feasible and for that to really be driven by the data for individual molecules..

Thank you.

Frank, on the various flavors of inversion?.

I think the best way I'll answer this, Andrew, is your question I think is actually a good example of what I said before, which is it's really target-to-target specific in terms of how much of the benefit you can preserve of an inversion if you're an in-betweener in terms of less than 80%, then greater than 60%.

And the example you gave is I think a good example of where benefit is being preserved. But it just punctuates my point before about it's really target-by-target, company-by-company specific..

And I'd like to point out that these rules are proposed rules. They have not been triggered..

Operator, if we could, take our last question, please..

Yes, your final question comes from Alex Arfaei of BMO Capital Markets..

Good morning and thank you for taking the questions and congratulations on the strong quarter.

Ian, just building up on your earlier comments on trapped value and the split decision, is it fair to say that the ongoing strong performance of your Innovative business strengthens the split argument since there does appear to be significant trapped value there? So in terms of a go/no-go decision, I guess is it fair to say that the split argument is strengthened from your perspective? And then on immuno-oncology, given your focus on combinations, how are you thinking about pricing in the current environment given how the first-generation products are priced? Thank you..

So I think on the split, to the extent that both businesses are doing well and can command premium P/E ratios, if those P/E ratios aren't being seen in the combined stock, then it would be an argument to say that this tracked value could be released via split. So I think we'll look at that and look at how the market is pricing the Pfizer Inc.

stock compared to what the individual stock should trade at if their P/Es were unfettered, so to speak, by being on their own. And then I do think you're right that I believe that one of the competitive advantages will be if a company owns the sequence of treatments and the combination products.

So I really see in oncology, it's becoming a chronic disease where you move from one combination to the next, to the next, to the next.

And so the ability to both price those combinations individually and price if you have enough in your portfolio while also price a longer period of different treatments is going be extremely important as a competitive ability..

Thanks, Ian, and thank you, everybody, for your attention on the call..

This concludes today's third quarter 2015 earnings conference call. You may all disconnect..