Pfizer Q2 2023 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to Pfizer's Second Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Chris Stevo, Senior Vice-President and Chief Investor Relations Officer. Please go ahead, sir.

[Christopher Stevo, Senior Vice President and Chief Investor Relations Officer at Pfizer]

Thank you, Chelsea. Good morning. Welcome to Pfizer's Second Quarter Earnings Call. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; Dave Denton, our CFO; Dr. Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development.

Joining for the Q&A session, we also have Angela Hwang, Chief Commercial Officer and President Global Biopharmaceuticals Business; Aamir Malik, our Chief Business Innovation Officer; Dr. Chris Boshoff, our Chief Oncology Research and Development Officer; and Doug Lankler, our General Counsel.

Before we begin the call, I want to remind you of some logistical items. The materials for this call and other earnings related materials on the Investor Relations section of pfizer.com, and of course, my favorite, our forward-looking statements, please see our forward-looking statements disclaimer on Slide three. Additional information regarding these statements and our non-GAAP financial measures is available on our earnings release and in our SEC forms 10-K and 10-Q under Risk Factors, and forward-looking Information and factors that may affect future results.

Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the calls original date and we undertake no obligation to update or revise any of these statements.

With that, I will turn the call over to Albert.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Chris. Hello, everyone, and thank you for joining us today. Our second quarter financial results were solid and in line with our expectations. Non COVID-19 revenues grew 5% operationally compared with the year-ago quarter. Total revenues declined 53% operationally, primarily due to the anticipated revenue declines in both Paxlovid and Comirnaty. Even with these declines, our COVID-19 portfolio remained a significant contributor to the business with more than $1.6 billion in combined revenues during this quarter. Of course, our patient impact data equally important because patients are the reason we exist. Through the first six months of the year, more than 356 million patients around the world were treated with our medicines and vaccines.

We continue to make progress towards our goal of executing an unprecedented number of launches of new products or indications. In fact, Pfizer is more than halfway of its goal of launching 19 new products or indications in an 18-month span. In addition to the six approvals and five launches that occurred prior to 2023, we had six approvals and four launches in the first six months of 2023. For the second half of 2023, we expect six additional approvals and six additional launches, including the two launches that occurred in July. Then, in 2024, we expect one approval and four launches, which, if approved and recommended, would raise the total to 19 new launches in approximately 18 months.

As you can see in this chart, for this year's launches, we expect the revenue contribution to occur largely in the second half of 2023 because the first-half launches occurred late in the second quarter. And then, in 2024, with the additional impact of next year's expected launches, we anticipate an even greater total contribution for our 19 launches. It's important to note that 18 of the 19 potential launches have been largely derisked from a technical perspective at this point, with the only one remaining being our RNA flu candidate.

Equally encouraging is that our pipeline is expected to continue generating breakthrough treatments and vaccines long after the 19 we have been discussing. We recently reported milestones from several exciting pipeline candidates with the potential to be significant future value drivers. These include; Phase-III data from marstacimab, a novel antibody being studied for the treatment of hemophilia A and B; regulatory filing acceptance for our hemophilia B gene therapy candidate; the publication in the New England Journal of Medicine of Phase-II results for our vaccine candidate for maternal immunization against Group B Streptococcus; and first-in-human data from our pipeline of potential next-generation breast cancer treatments, including our novel CDK4, CDK2, and KAT6 inhibitors.

Now, I would like to provide some commentary on our COVID-19 portfolio. As you all know, during the pandemic, Pfizer demonstrated impressively the power of our research and manufacturing capabilities by bringing to the world the first and most widely used vaccine and oral treatment for COVID-19. These scientific breakthroughs have played a significant role in bringing the global health crisis under control, and we are very proud of our contributions. The profits that these products have generated to date have enabled us to invest in acquiring Arena, ReViral, Biohaven and Global Blood Therapeutics, which together we expect to contribute approximately $10 billion of revenues in 2030.

In fact, the acquisitions of Biohaven and Global Blood Therapeutics are already contributing to our operational growth, while the acquisition of Arena is expected to start generating revenues toward the end of this year. We also remain very excited about our planned acquisition of Seagen, which, if approved, is expected to contribute more than $10 billion in 2030 revenues.

As a result of the positive momentum of our non COVID-19 revenues and, more importantly, the success of our COVID-19 portfolio, Pfizer's overall revenues have increased exponentially compared with our 2019 revenues, pro forma for the divestitures of Upjohn and our consumer business. This allowed us to increase investments in R&D and SI&A to support this new revenue base and our expected new product launches. The increased investments we are making in R&D and SI&A this year were sized based on certain revenue assumptions we made in January for both our COVID-19 and non COVID-19 products. These assumptions also were incorporated in our 2023 financial guidance.

Clearly, there is a higher level of uncertainty regarding the demand projections for our COVID-19 products than for the rest of our business. For example, in January, we shared our expectation that approximately 100 million doses of COVID-19 vaccines would be administered in the US this year, of which we estimated Pfizer to capture 60% market share. In the first six months of 2023, 12.4 million doses were administered in the US While the 12.4 million doses are behind our earlier projections, our market share for COVID-19 is ahead of our previous expectations at 65%. However, the vast majority of respiratory vaccinations happen during the fall and winter respiratory disease season, which starts in September, and we expect COVID-19 vaccinations to follow this pattern going forward.

The uncertainty of the exact timing of Comirnaty commercialization was largely removed with the decision by the FDA and CDC to request a change in the composition of the vaccine to address the Omicron XBB 1.5 strain. We believe this will allow us to commercialize the vaccine in September, assuming the updated vaccines are approved and available by the end of August. In the European Union, the uncertainty regarding the vaccine's revenue contributions for 2023 and beyond was removed when we renegotiated successfully our long-term agreement. This agreement spreads the agreed volumes over four years, and while it puts pressure on this year's volumes, we believe it also provides longer-term revenue certainty in this important market.

Similar to what we are experiencing with the vaccine, the second half of the year will play a bigger role in informing our expectations for the long-term demand for Paxlovid, the utilization of which follows very closely the COVID-19 infection rates. We expect a new COVID-19 wave to start in the US this fall, and this expectation is supported by the increase in infection rates we are already seeing. Obviously, the severity of disease and people's desire for treatment also will be factors, as will the ongoing dialogue with the US government regarding when we will transition to a commercial model for Paxlovid. These are the uncertainties.

We are acutely aware that all these uncertainties are making it difficult to project the future revenues of Pfizer in this area, and at large at Pfizer, and also affecting our stock price, as a result. The good news is we will have much more clarity and certainty regarding how our COVID-19 products will perform in a commercial market, by the time we report our third-quarter financial results, and we expect the uncertainties to be largely eliminated by the end of the year. This is because we expect the vaccination and treatment rates from the upcoming respiratory disease season to be a reliable predictor of trends in subsequent years, with some potential upside of course, if a combination flu and COVID-19 vaccine is brought to market in the future. Additionally, by that point the timing of transitioning to full commercialization of both Comirnaty and Paxlovid should become clear.

Despite this uncertainty, we will continue to invest in our COVID-19 portfolio this year in advance of the upcoming respiratory disease season. This is very important. But given this uncertainty, we are also preparing to have the ability to adjust our 2024 total cost base to align with various future COVID-19 disease revenue scenarios. In fact, we have already identified specific areas where we can make adjustments, primarily within our COVID-19 cost base, if demand comes in lower than expected. Dave will provide more details during his remarks.

Next, I wanted to share a few quick updates of our planned acquisition of Seagen, which we believe will be a major driver of our future success. Seagen's shareholders recently overwhelmingly approved the planned acquisition, and we have already raised most of the external financing needed to fund the transaction. We also continue to work closely with the regulators, including the Federal Trade Commission and the European Commission. In the meantime, our integration planning continues, which will allow us to hit the ground running following an anticipated close later in 2023 or early in 2024, subject to the satisfaction of customary closing conditions.

Last week, we announced that Chris Boshoff has joined Pfizer's Executive Leadership Team as Chief Oncology Research and Development Officer and Executive Vice President, reporting directly to me. In this role, Chris will lead a new, end-to-end Oncology R&D organization and be the single point of accountability for the entire oncology pipeline, from discovery to early- and late-phase clinical development. This is similar to the structure we currently have in place for our vaccines R&D organization, which has proven to be very productive.

Pfizer and Seagen share a common vision to deliver life-saving treatments for people living with cancer, which is why I am so pleased that, after closing, Chris's Oncology leadership team will include talented, purpose-driven and highly productive leaders from both companies, and we made already announcements the people that are joining Chris's leadership team. We believe this new structure will help further accelerate the delivery of cancer therapies, which is critical because in the battle against cancer, time is life.

At Pfizer, one of our core business principles is the belief that trust is Everything. I'm proud to share that in recent months, we have received some wonderful accolades that speak to the trust we are building with external stakeholders. We were named one of the '23-'24 Best Companies to Work For by US News & World Report. We were listed in Newsweek's list of America's Greatest Workplaces 2023. For the third year in a row, Pfizer has earned a top 100 score in the 2023 Disability Equality Index. And our own Rady Johnson received the Disability in '23 Executive Sponsor of the Year Award at the National Conference in July. And lastly, our PGS site in Ascoli, Italy is being recognized by the United Nations for the Welcome Award Working for Refugee Integration. These recognitions are very important because they strengthen the unprecedented brand equity that Pfizer built during the COVID-19 pandemic.

Before now I hand it over to Dave, I want to quickly comment on the situation at our facility in Rocky Mount, North Carolina. First, all of us at Pfizer were relieved that no colleagues were seriously injured when the tornado struck. That said, our facility sustained substantial damage, as did the neighborhoods where many of our colleagues live, unfortunately. The local leadership team has done an incredible job responding to this devastating event, and we are proceeding with both, urgency and caution to determine the best way to get the site back online as quickly as possible, so as to minimize any impact on patients. Of course, we are also taking steps to ensure the continued safety of our colleagues and contractors, which remains our top priority.

And with that, I will turn it over to Dave. After Dave, Mikael will provide an update on our R&D pipeline. Dave?

[Dave M. Denton, Chief Financial Officer at Pfizer]

Thank you, Albert. And good morning to everyone. Over the past 24 months, Pfizer has made important investments to position it squarely on track to achieve profitable and sustainable growth, particularly in the back-half of this decade. We have strategically invested to expand our commercial portfolio and our late-stage pipeline, strengthen our market launch capabilities and enhanced innovation through internal R&D and business development actions. These deliberate efforts continue to solidify Pfizer's ability to overcome upcoming LOEs and drive sustainable revenue growth, all while enhancing long-term shareholder value.

To further support our long-term growth objectives, we are executing a capital allocation strategy designed to effectively deploy our cash. Our strategy is focused on three main pillars. First, is reinvesting in our business. Second, is growing our dividends over-time. And finally, making value-enhancing share repurchases. In the first-half of 2023 alone, we've invested $5.2 billion in internal R&D, returned $4.6 billion to shareholders via our quarterly dividend, and allocated approximately $43 billion towards the proposed acquisition of Seagen.

During the second-quarter, Pfizer successfully completed a $31 billion unsecured debt offering across eight tranches. The net proceeds of this debt offering will be used to substantially fund the Seagen acquisition. The new debt carries a weighted-average yield of 4.93% and a weighted-average maturity of 16.3 years consistent with our expectations.

On a full-year run-rate basis, the annual financing costs associated with the acquisition is expected to be nearly $2 billion. With the completion now of this debt offering, the company is positioned to close the Seagen acquisition immediately upon post regulatory approvals. While we plan to continue investing in our business, we expect to delever our capital structure following the closing of the Seagen transaction. As we delever, it is our expectation to return to a more balanced capital allocation strategy, inclusive of share repurchases.

Now with that, let me briefly cover a few highlights of our quarterly financial performance. As Albert said, our Q2 results were solid and in-line with our expectations from both the top and a bottom-line perspective, albeit slightly better than EPS consensus. As expected in our guidance, our overall Q2 revenues declined 53% operationally. The contraction in revenue was driven by the anticipated decline in both Paxlovid and Comirnaty sales. We expect these products to transition to a commercial -- to a commercial market in the second-half of this year. Our operational revenue growth, excluding our COVID products, was in-line with expectations at 5% versus Q2 of LY, with strong contributions from inclusion of both Nurtec and Oxbryta, as well as the continued growth from the Vyndaqel family.

During Q2, adjusted SI&A expenses were $3.4 billion and grew 20% operationally versus LY. We continue to invest in support of our upcoming launches and grow our recently acquired products. While it's clear that these near-term investments are dampening our current profitability levels, we are laser-focused on maximizing the longer-term performance of these products.

Now, moving to the bottom-line. Reported diluted earnings per share this quarter declined by 77% to $0.41, while adjusted diluted earnings per share of $0.67 declined 65% on an operational basis. Earnings compressed at a greater rate than revenues, primarily due to the steep and anticipated contraction in Paxlovid sales during the quarter. Once again, foreign-exchange movements continue to unfavorably impact our results, reducing second-quarter revenues by approximately $280 million or 1% and adjusted diluted earnings per share by $0.05 or 2% compared to last year.

Now that we are at the halfway point of our 2023 financial plan, I'd like to take a moment to reflect on how we are executing across our business while navigating within an incredibly unique and dynamic environment. As a management team, we remain committed to transparency and ensuring our assessment of the evolving marketplace given the magnitude of launches, the ongoing shift in nature of the COVID landscape and the continued integration of acquired assets.

Let me begin by elaborating on our full-year '23 financial guidance. We are nearing our expectations for revenues to between $67 billion and $70 billion, and maintaining guidance for adjusted diluted earnings per share of $3.25 to $3.45 for the full-year. For our more durable and predictable non COVID revenues, we are updating our guidance range to 6% to 8% operational revenue growth.

From a launch timing standpoint, I'll point out that the majority of our 2023 launches are anticipated to occur in the second-half of 2023 and our commercialization schedule remains materially unchanged. As a company, we always strive to achieve the highest revenue level possible while maintaining a realistic view of the key inputs that inform our outlook. Regarding RSV for older adults, the shared decision-making recommendation by ACIP is likely to slow its near-term uptake in the US.

In addition, the recent approval of Talzenna in the US, results in a more narrow patient population than originally planned. These factors, coupled with the impact of the damage Rocky Mountain manufacturing facility, presents near-term revenue challenges. However, we expect positive revenue momentum as we exit 2023 and head into 2024. And importantly, the long-term outlook for our non COVID business remains intact relative to our 2030 ambitions.

Turning now to our less predictable and more variable COVID portfolio. Year-to-date, we have booked slightly over 40% of the $21.5 billion full-year revenue forecast for both Comirnaty and Paxlovid with the important fall vaccination and respiratory infection season ahead of us. We are acutely aware that COVID demand depends on many evolving market variables making a range of potential revenue outcomes increasingly large and difficult to predict with certainty. These variables include the overall level of vaccination and infection rates, the speed of draw-down of government inventory levels and the mutating nature of the virus itself, just to name a few.

In the interest of public health and with the important fall season ahead of us, we are maintaining our COVID revenue outlook for the year while continuing to invest largely on a variable expense basis to support our COVID products in 2023. These variable investments are important to support our efforts to reach as many patients as possible, helping to ensure that the most at-risk individuals are both vaccinated and treated while maintaining our leading market-share. We are proud of what we have achieved through the COVID portfolio and this has allowed the company to invest in support of its growth agenda for the back-half of this decade. Our visibility into future COVID revenues and demands should improve throughout the remainder of 2023 as we gain clarity on a more typical annual run-rate. We are well aware that our 2023 profit outlook is currently being dampened by incremental cost in support of our launches, as well as higher R&D investments aligned with the company's current revenue base. We remain committed to both defending and growing our overall level of profitability.

As Albert mentioned earlier, we expect this fall's performance of our COVID-19 products to help us more effectively forecast future sales performance. To that end, if our COVID-19 revenues are less than what we have assumed, we are prepared to launch an enterprise-wide cost-improvement program, with the -- aligned with the longer-term revenue projections for our business. This program will be designed to support our objective of growing our operating profit margin and we'd expect it to begin to yield results in 2024. And we look-forward to sharing the specific details of this program in our upcoming earnings call.

In closing, this is an extraordinary time for Pfizer. Our confidence and our commitment to our strategy into achieving our 2030 goals is unwavering. We will continue to focus our efforts to drive growth, while enhancing long-term shareholder value.

And with that, let me now turn it over to Mikael.

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Thank you, Dave. Today, I will provide updates from a few different therapeutic focus areas, starting with breast cancer. We are working to deliver the next wave of innovative therapies for estrogen receptor-positive breast cancer. The pillars of this strategy are three-fold; establishing our investigational CDK4 inhibitor as a next-generation cell cycle therapy backbone, establishing vepdegestrant as a next-generation endocrine therapy backbone and establishing novel mechanisms like our investigational CDK2 inhibitor and KAT6 inhibitor candidates as next-gen combination partners to enhance efficacy.

Our clinical strategy entails, first, developing assets for the metastatic setting in which Ibrance is currently the leader and unmet need is high, followed by an opportunity to expand to earlier-stage breast cancer, including the CDK4/6 naive population and adjuvant or neoadjuvant settings. Data presented at ASCO from three key investigational medicines from our next-gen portfolio demonstrated anti-tumor activity in heavily pre-treated populations of patients with breast cancer.

As a reminder, the majority of hormone receptor positive breast cancers express low CDK6, while CDK4 is likely to be a major cell cycle driver. We have seen that CDK4/6 inhibition can lead to neutropenia, which requires more frequent blood test monitoring, mostly driven by CDK6 inhibition. Across the CDK4/6 inhibitor class, approximately 30% to 60% of patients experience severe neutropenia.

On the left, in a Phase-I dose escalation study in patients with hormone receptor-positive, HER 2-negative breast cancer, all of whom had previously received a CDK4 and 6 inhibitor, treatment with our CDK4 inhibitor, in combination with endocrine therapy resulted in a confirmed objective response rate of 29%, clinical benefit response rate of 52% and median progression free survival of nearly 25 weeks. The combination was well-tolerated, which may enable maximal CDK4 inhibition. We are actively planning the Phase-III randomized study.

In addition, I'd like to highlight encouraging data from the Phase-I dose escalation study of our novel CDK2 inhibitor which showed monotherapy activity, including confirmed partial responses in breast cancer patients who had previously received a CDK4/6 inhibitor. Also, durable confirmed clinical responses were observed in a Phase-I trial of our novel KAT6 inhibitor as a monotherapy and in combination with endocrine therapy in heavily pretreated patients with breast cancer.

Turning now to blood cancer. Elrexfio, also known as elranatamab, subject to regulatory approval, is expected to be the anchor of an anticipated multi-billion dollar franchise. An FDA decision for the potential first indication in the triple-class relapsed or refractory multiple myeloma population is expected this year and we continue to advance the MagnetisMM clinical programs to expand into earlier lines of treatment. In addition, the development of maplirpacept, also known as TTI-622, is underway, including in combination with Elrexfio, to support potential indications in myeloma and acute myeloid leukemia.

Here, we show Elrexfio data presented at EHA from the MagnetisMM-III trial in patients with triple-class refractory multiple myeloma who had no prior exposure to BCMA-directed therapy.

On the left, we observed highly meaningful survival with Elrexfio monotherapy, with a 15-month overall survival of 57%. In patients who achieved a complete response, 15-month survival was remarkably 93%, underscoring the potential for deep and durable responses.

We can see evidence of broad activity in multiple myeloma on the right, with the graph showing a single agent complete response rate of 35%, which rises to 46% in the subset of patients with two to three prior lines of therapy. Our ongoing randomized trials are in less pretreated to newly diagnosed populations. Subject to approval, Elrexfio may have key differentiators such as 50% lower hospitalization time during the step-up dosing period per protocol and an extended dosing interval that moves from once weekly to once every other week dosing beyond week 24.

Turning now to hemophilia A and B, the pivotal trial of marstacimab met its primary endpoints, with statistically significant and clinically meaningful effect on annualized bleeding rate, or ABR. There was a 35% reduction in ABR compared to prophylactic factor replacement and 92% reduction in ABR versus ondemand factor replacement.

Marstacimab offers a differentiated mechanism of action and dosing regimen compared to standard of care therapy. If approved, it has the potential to be the first once-weekly subcutaneous hemophilia B treatment for patients without inhibitors, and the first hemophilia A or B treatment administered in a patient-friendly pen as a flat dose. Regulatory submission is expected in the second half of 2023.

Next, Litfulo, also known as ritlecitinib, is the first medicine to receive FDA approval to treat severe alopecia areata in both adults and adolescents 12 years and older. It also recently received a positive opinion from the European Medicines Agency's CHMP recommending body, but is not yet approved. It has the potential to redefine the standard of care for alopecia areata. Litfulo is the first of its kind kinase inhibitor with a unique mechanism that inhibits both the TEC kinase family and transiently JAK3 pathways that have been implicated in the alopecia areata pathophysiology. In addition, we are exploring how its unique mechanism of action could potentially be applied across immune disorders including vitiligo, in which a Phase-III study is ongoing and other potential indications. Finally, we are making excellent progress on the milestones we had set out through the first half of 2024.

As Albert noted, we recently received FDA approval for Prevnar 20 in the pediatric population. We have robust strategies in place to potentially improve the protection provided by current pneumococcal vaccines. I look forward to sharing more about this in the coming quarters.

In addition, we recently published Phase-II data in the New England Journal of Medicine showing our Group B Streptococcus maternal vaccine candidate was generally well-tolerated and generated robust antibody levels. The journal also published a natural history study which was used to determine protective antibody levels at birth. These two studies indicated that the vaccine candidate may offer meaningful protection to infants born to immunized mothers. We were highly encouraged that Dr. Carol Baker, an infectious disease expert from the University of Texas Health Science Center, wrote an independent NEJM editorial, highlighting the important future prospects of our GBS vaccine candidate.

The progress of the GBS vaccine candidate dovetails nicely with the positive results and anticipated upcoming regulatory decisions for our RSV vaccine Abrysvo for administration to pregnant women. Abrysvo recently received a positive opinion from the European Medicines Agency's CHMP for both older adults and maternal immunization to help protect infants. Abrysvo is approved for older adults in the US and under regulatory review for the maternal indication. In addition, we remain excited to see Phase-II data from danuglipron by end of 2023, which we expect will enable us to finalize our Phase-III plans.

Finally, I'll call out the Phase-II trial start of our anti-interferon Beta candidate for the treatment of inflammatory muscle myopathies, which has received a Fast Track Designation from FDA.

Thank you. Let me turn it over to Chris to start the Q&A session.

[Christopher Stevo, Senior Vice President and Chief Investor Relations Officer at Pfizer]

Thank you, Mikael. Chelsea, if you could please queue up the callers. We have at least 30 minutes for our Q&A session now.

Questions and Answers

[Operator]

Yes, sir. [Operator Instructions] Our first question will come from Robyn Karnauskas with Truist Securities. Your line is open.

[Nicole, Analyst at]

Hi, good morning. This is Nicole on for Robyn. So just a quick question first. Can you -- on RSV, can you share what you expect the share decision making to slow the uptake in the US would be? What we want to know, if they can elaborate -- if you guys can elaborate on why you think this is the case since the peak in annual sales is slower than previously expected? And how do you think ex-US sales might be impacted, if at all, given the ACIP decision?

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. Maybe Angela can answer that. The question was, do you expect the share decision to have a big impact on RSV and also do we expect in the US, and also do we expect any impact, excluding the US?

[Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business at Pfizer]

Sure. So first of all, we're really excited about the approval for our RSV older adult vaccine. And the way I would see this shared clinical decision-making is just that it is a step towards the full routine recommendation that we anticipate. So -- and I think that there is -- the way to look at it is that it's a short-term effect. We do expect that with more data that will emerge -- be emerging out of our clinical program that will have an additional opportunity to go back to the ACIP and actually get the routine recommendation that we hope for. So, over the next year or so, as we collect and finalize our data, that is really the anticipation of it.

So, it doesn't change the full opportunity for this particular vaccine. It doesn't change the peak. It just means that it takes us a little bit longer to get to the peak because of the shared clinical decision-making that -- that extra step that we have to take right now.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

And what about the ex-US? Ex-US, actually, we have a different filing. We were able to get both maternal and older adult at the same time. So, I think you see slightly different dynamics there and that here in the US, our maternal vaccine will be launching later. But in ex-US and in Europe, they will be launching at the same time. And those vaccine technical committees have not opined yet on those recommendations, in particular in terms of the utilization, and so, we'll await that. But I think what you have that's different and that's really a great upside is the fact that we have both indications at once. Thank you very much, Angela. I hope we gave what you asked Robyn. Operator, the next question please.

[Operator]

Next, we have Umer Raffat with Evercore. Your line is open.

[Umer Raffat, Analyst at Evercore ISI]

Hi, guys. Thanks for taking my question. I know I heard two different things on the cost cut just now. One was that it would be enterprise-wide, while, Albert, I think, you used the word, within the COVID cost base. So I was just trying to reconcile the two. And also on danuglipron, is it reasonable to expect that if it's below mid-teens weight loss, you wouldn't move forward? Thank you very much.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Let me clarify. Of course, it would be enterprise-wide, but what I said it is that the COVID part is going to be the biggest one. Right now, you need to know that R&D and SI&A cost of COVID is billions, it's not a small amount. So, it's -- there's a lot over there. Mikael, can you speak a little bit about the prospects to move ahead at danu?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Well, we really look forward to get the data. And as you know, we have in parallel developed activities also for modified leads. I think we really need to look at the totality of data, its performance on important metabolic parameters in diabetes, its ability to deliver weight loss as you alluded to, and also, of course, its tolerability in general. These three implicate how well the drug can perform. And I remain optimistic that oral drugs in this class can have a profound effect on weight loss.

Of course, one needs to be maybe a little bit caution to drive weight loss too far, as you have seen also some concerns in public media about side effects that may arise from that. So we will really integrate all of that data and make a decision, and we really look forward to that moment.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Mikael. May we have the next question please.

[Operator]

Our next question will come from. Evan Seigerman with BMO. Your line is open.

[Evan Seigerman, Analyst at BMO Capital Markets]

Hey, all. Thank you for taking my question. And kind of a follow-up from Umer's, I want to focus on the GLP-1 franchise. Can you talk about the competitive profile of danuglipron in its current form, considering safety, twice-daily dosing and efficacy? And maybe remind us on the timelines to potentially get more on a once-daily formulation of this asset? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Mikael?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Yes. As I said in my prepared remarks, we expect data at the later part of this year. We are absolutely encouraged and confident that it has a different profile when it comes to adverse events as the danuglipron that we sold. So we don't see that as an issue. And I spoke to that we will put together the totality of data to pending readout, prepare a potential Phase-III program. And it's a very big sector, diabetes and obesity. We have considerable expertise in treating cardiometabolic patients. So, we really look forward to share more data and more plans with you as we move to further quarter. Thank you for your great interest in this important space.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much, Mikael. May we move to the next question please.

[Operator]

Next, we have Terence Flynn with Morgan Stanley. Your line is open.

[Terence Flynn, Analyst at Morgan Stanley]

Great. Thanks so much for taking my questions. Maybe, two for me. Dave, I was just wondering how we should think about steady-state operating margin here? Looking back pre-COVID, the company was around mid-to-high 30% range. So, is that how we should think about this, when you gave us some of the parameters, but just maybe how to think about steady state? And then, on the messenger RNA Phase-III seasonal flu vaccine program, it looks like that trial was upsized based on clinicaltrials.gov. So just wondering, Mikael, if you can talk through timing of data and help frame expectations there. Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Terence. Let's start with Dave.

[Dave M. Denton, Chief Financial Officer at Pfizer]

Yes. So, great question. As we think about our operating margin long term, clearly, our objective is to expand that over time. Clearly, it is our expectation to get back to, at a minimum, pre-COVID levels with one caveat is that we -- as we go forward, we do have a different mix of products within our portfolio, particularly the vaccine related to COVID. As you know that the vaccine, given the cost share that we have or profit share that we have with our partner, does dilute that product from an operating margin perspective. So a mix adjusted, you should see us back to those levels over time.

But obviously, as we cycle into '24, we'll give you a lot more clarity on all the puts and takes as we integrate Seagen, as we roll forward from a COVID franchise perspective, how that looks, as well as all the developments that we have coming out the pipeline at this point in time.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Dave. Mikael, mRNA, flu.

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Yes. First, the totality of experience we have with mRNA for flu makes me very encouraged that this will be a new modality as it was for COVID but now for flu, that engages two mechanisms, the B-cells and the T-cell, that we should aspire for, having better efficacy than what we have seen with the old flu. We are continuing with the study because we just wanted to have more events and particularly have additional flu B type of events, which were scarce in the US part of the trial. And we look forward to update you, hopefully, be able to conclude the study later this year, but we also are putting mitigations as adding immunogenicity studies that can be supplementary for getting a total good data package of activity against flu A and flu B. But as I said, I remain very optimistic that the mRNA is going to be the next important platform to deal with flu. Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. And may we have the next question please.

[Operator]

Next, we have Chris Shibutani with Goldman Sachs. Your line is open.

[Chris Shibutani, Analyst at The Goldman Sachs Group]

Thank you. Two questions, if I may. On the potential enterprise-wide cost program, you would have some opportunity outside of the COVID programs to consider. Can you help us with the relative weighting potentially of R&D versus SG&A or some other component of that? And I ask that in part because you've announced some changes, for instance, in kind of the structure at the top tier of management of the R&D, with the anticipation of the oncology in Seattle Genetics.

And then, secondly, if I could, on the Rocky Mount facility, it's reassuring to hear in terms of your own staff, but I think folks are looking to get a sense for the scale of the damage and perhaps what potential gating factors for getting more information on the timing? I know that you guys have communicated with some of your hospital-based customers, but any additional insights in terms of magnitude of the impact and timing of the recovery and what that could look like from a progress standpoint would be helpful? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Let me say a few words about the Rocky Mount, and then I'll ask Dave to answer the question about the cost adjustment program in case we have a significant reduction on our revenues because of the COVID. The Rocky Mount, it was severe the damage of the hurricane, but the damage was mainly concentrated on the warehouse, which means that we lost a lot of inventory that was about to be sent to the markets. The facilities per se, the production facilities were not impacted by the hurricane. So, the buildings are standing there. However, because the utilities were discontinued, the facilities had to stop operating. And in this highly sensitive, sterile environment, when you are losing power, it's not easy to switch on and switch off. It takes time and a lot of processes so that you can start. And the additional challenge will be some of the inventories of materials that were also destroyed, particularly glass and other stuff. We need to make sure that we will replace in time.

So, what I want to say is that we feel very confident that the whole thing will go back to life, but still we are assessing how long that will take. And we are doing anything we can to make sure that we will minimize the shortages in the marketplace because of that.

Now, let's move to some more color on the cost adjustment program.

[Dave M. Denton, Chief Financial Officer at Pfizer]

Yes. So, thank you for the question. Clearly, as we develop this program in the back half of '23, we look forward to sharing a lot more details as we cycle into '24 and give you a lot of, I'll say, milestones as you think about both our cost and investment structure going forward. Importantly, as you know, we're extremely excited about the Seagen acquisition that's upcoming here. Upon approval, this will allow the company to refocus its efforts and its investments to make sure that we're squarely focused on battling cancer going forward. And we think there's a big opportunity as we align our resources against that franchise in that battle to fight cancer and an opportunity for patients, and importantly, an opportunity long term for Pfizer.

Having said that, we will be informed in the back half of the year of our revenue performance, specifically as it relates to COVID, that will inform us the level of opportunity we have to expand our margins into '24 and '25 and beyond, that will allow us to step back and make sure that all of our costs, all our investments are aligned with those Seagen objectives, as well as aligned to maximizing the performance of our in-line portfolio, as well as the launches that are occurring as we speak in the back half of this year.

So, again, we look forward to sharing a lot more to this from this. This will be balanced, as you well know between SI&A and R&D, and we'll give you that specific breakdown and that specific information later this year and into next year.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. Let's move to the next question please.

[Operator]

Next, we have Louise Chen with Cantor. Your line is open.

[Louise Chen, Analyst at Cantor Fitzgerald]

I wanted to ask you first on these COVID scenarios that you think could unfold in the second half '23. Any way you could share some of the big ones that you anticipate could potentially happen? And then, secondly, seeing a lot of headlines in the ATTR-CM space. I'm just curious if you anticipate any potential competition or meaningful competition to Vyndaqel and Vyndamax? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

All right. So, on the COVID, I will say a few words and then I will ask Angela to comment on both. Look, the COVID scenario, it depends what are the uncertainties? I think I articulated. Let's start with the vaccine. The biggest uncertainty is vaccination rates. I think market share is pretty much, I think, well established. Vaccination rate is what we are going to see in the fall that is coming. So, that will be a big uncertainty.

Another uncertainty was the time of commercialization in the US because, of course, you go with new inventories, new sales to the market and with higher prices. That has been resolved. We know that it's very likely that we launch in September because FDA and CDC, they asked us to change the inventories basically by creating a new vaccine. So, that will happen.

And also, the other uncertainty that existed about the COVID vaccine was the European contract. That was a very long -- very big contract, and now we have the certainty that it has been negotiated, a little bit less for the year because it's spread over four years, but let's say, renegotiated.

So all of that are [indecipherable] a key, of course, there is how much Japan, Latin America and other countries will purchase, it's not the only ones, but let's say, those are the fundamentals. And we will know pretty much the trend in the third quarter. And we will know pretty much -- quite accurate, what is the situation in the end of the year, that I think will be a very good predictor of what we should expect going forward, with the only upside, if we have a combined vaccine with flu or with RSV, but that will increase the vaccination rate.

On Paxlovid, a little bit more uncertainty because, of course, we are having the uncertainty of both treatment rates and infection rates, and we don't know how that would behave. We don't have any benchmark to see how that goes. We know that the treatment rates are following very close the infection rates, and the infection rates are rising right now, but that remains to be seen how that will go. Of course, also the sales of Paxlovid are rising as we see in the market, the scripts, on a weekly basis, as always do when the infection rates are going up. But we have some more uncertainty, which is the timing of launch, which would depend on how we will agree for the interest of public health to transition this launch with the US government.

So, all of that remains to be seen. And these are the scenarios that we see for COVID. And the key message it is the uncertainty will go away at the end of the year. We will know what COVID will contribute on a stable basis in Pfizer's revenue and we will go from there.

Now, Angela, maybe if you want anything to add to that and also about the next question -- the other question.

[Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business at Pfizer]

Louise, I think when you talk about Vyndamax or Vyndaqel, the biggest and our biggest differentiator that we're extremely confident about is just the totality of our data, really along four dimensions. And whether that's clinical data or real-world data, we have all-cause mortality and CV-related hospitalization data. Our data is also relevant in both hereditary and wild-type ATTR-CM, so that's unique. We've also demonstrated significant survival benefit at five years through our real-world data. So, whichever way you look at it and you compare that with any competitor program, I think that we have a highly differentiated and an extremely valuable molecule that stacks up well against any competition.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Angela. And may we have the next question please.

[Operator]

Next, we have Mohit Bansal with Wells Fargo. Your line is open.

[Mohit Bansal, Analyst at Wells Fargo & Company]

Hey, thank you very much. And maybe a follow-up to this one a little bit. So, thank you for all the transparency by the way. So, is it fair to say that in COVID trends that you have seen so far, at least sales trend that have been below your expectations, and you want to see one more quarter before you adjust expectations. I'm asking this because if I look at the -- it seems like you still expect 88 million or so vaccinations in the second half of the year in the US and the number was actually, by our calculation, 44 million or so in terms of administration, 111 million in terms of shipments. So, just trying to understand, is it like -- is it something where you are -- where we could get better update in third quarter on the COVID numbers? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. Thank you for the question. I think the answer is yes, we should get way better feeling. It's not that we just want to see another quarter. We want to see the big quarter of good respiratory season. COVID, we always said and everybody, I think, thinks that that is a common sense that will follow going forward the seasonality of the other respiratory vaccines, thus becoming more and more and more clear, right? And the majority of these vaccinations are happening in the third and fourth quarter for the year.

So it's not that we are just another quarter, we're awaiting the main quarter. If COVID vaccinations go anywhere close to the flu vaccination rates, then we have a very big bit of what we expect to have. If they are a small fraction of what will happen for flu, then of course, we have a mix. So, that's why we are going to see how that will evolve. So it's a very, very important quarter.

The rest, although for the first half of the year, we have quite significant contribution towards the total growth. So, we don't need that much of inventory if we get the utilization over there to make sure that we know how big the COVID franchise will become. And as I said, in the EU, we have adjusted very well. We will have high certainty, Paxlovid also. [Indecipherable] It's a very, very good market. We don't know how in the next wave the Paxlovid will be used.

We have the rest of the world, but the inventories, they were also last year. So we are now expecting that products will start being going -- either expiring or product will start more reordering from many more countries. So that's why the infection rates on the Paxlovid will be extremely, extremely important. And all of that are happening now. So, once we know them, we can predict way more accurate.

Thank you very much. Please go to the next question.

[Operator]

Next, we have strong win with Credit Suisse. Your line is open.

[Trung Huynh, Analyst at Credit Suisse Group]

Hi, guys. Thanks for taking my question. You commented the long-term outlook for your non-COVID business remains intact relative to the 2030 ambitions, how are you thinking about the midterm 2025 guide? Because if you assume the midpoint of your ex-COVID '23 guide at 7%, in order to achieve the 6% 2020 to 2025 guidance ex-COVID, on our calculations, you need to do high single-digit growth for that base business for '24 and '25. That looks tough especially as you will have more LOEs. So, do you remain confident in that midterm guide?

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. Thank you. The LOEs are coming basically from year '26, right? So, all the way to '25, I think the impact will not be that high. Also, the guidance that we gave was 6%, yes, we feel quite confident that we will be there. So, we'll continue and we are at 6% right now, all these years, right, year-to-date.

So, yes, the non-COVID business, I think, clearly, the success of the launches is very important. So we'll see a lot of things coming ahead of us, but it is a way better predictable. And I think we are there. So, I don't think there will be any variability.

Thank you for the question by the way. And let's go to the next question please.

[Operator]

Next, we have Colin Bristow with UBS. Your line is open.

[Colin Bristow, Analyst at UBS Group]

Hey, good morning and thank for taking the question. Another follow-up on danuglipron. I don't think I heard the answer in terms of when we'll hear about the once-daily formulation. And I'd just like to understand your level of confidence here that you can make this a once-daily formulation without negatively impacting the AE profile, presumably given an increase in Cmax?

And then, more broadly, can you just talk more about how you're going to compete here, given, I think, it was previously referenced you're behind the competition, the clinical differentiation, the potentially less convenient dosing and essentially a therapeutic category in which you don't have a major presence?

And then, just maybe one other quick one on the pipeline item on DMD gene therapy, it's a late-stage asset that doesn't seem to get much air time. Is your enthusiasm waning on this program or is it just that others are sort of a bigger priority? Thanks.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. Thank you. So, Mikael, again, clearly the obesity market and the size of it is creating a lot of interest in danuglipron. And so the question was about the one day formulation. And then also tell us a little bit about where we are with DMD.

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

I hear your interest in a once-daily product, and I would say I don't see any technical barrier for us in creating that. We have tremendous experience in modified release formulations. And our early data, as we now have initiated a while ago, tells us we should be encouraged that when it relates to once-a-day modified release for danuglipron, I believe we will have such a formulation in a reasonable future in our hands.

When could it come to the market if the drug continues and makes a great Phase-III? Well, I think we can have it at launch or shortly after launch. So I wouldn't worry about that. But I agree with you that once-daily modified release can sometimes actually improve the tolerability profile by a slew than the variability and exposure, which typically reduce GI side effects that have been seen as limiting the destruction [Phonetic]. So that's why I can see a potential twofold advantage of MR goes from twice a day to once a day and may also help uniquely to create a tolerability profile within the structure of GLPs.

DMD gene therapy, I'm encouraged that FDA took a very positive angle on that drug when it comes to its urgency to get into the market. Chris, you and I have worked very closely on that, and we expect today we'll look relatively soon to conclude the trial. I'll also ask Chris to pitch in on it.

[Chris Boshoff, Chief Oncology Research and Development Officer at Pfizer]

Thank you, Mikael. So the DMD program is obviously very important for us, not just for the importance of gene therapy but for patients and families with this absolutely devastating disease. And we do have an interim analysis later this year for the CIFFREO trial. The CIFFREO trial, all patients have now been enrolled in the study. The interim analysis will be based not on a surrogate biomarker end point but on truly functional end point. So, we believe that's the best way to measure the benefit of gene therapy in this disease is with a functional end point. And that should come later this year, and we'll update you with the final analysis for the study then in 2024.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

That was terrific. I just wanted to add that we have, like you heard Sarepta, ample biomarker to date that look very robust in our hand. But as Chris said, we want to provide patients with even more experience about the potential benefit. Thank you both. May we have the next question please.

[Operator]

Next, we have Kerry Holford with Berenberg. Your line is open.

[Kerry Holford, Analyst at Berenberg Bank]

Thank you. A couple of questions about savings. It's clear that demand for your COVID assets will influence whether or not you go down this route. But given the potential you've highlighted previously for a COVID flu combination vaccine, I'm interested to understand whether the upcoming Phase-III data from your mRNA flu vaccine trial will influence your decisions on that cost saving program in any way?

And then, secondly, on hemophilia, your anti-TFPI, so you're filing second half of the year for non-inhibitor patients. Should we assume you would seek to launch in that patient group only next year, or would you wait for the data in the inhibitor patient group before you proceed to market? And perhaps you can just discuss how big an opportunity you see in that drug. Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Let me start with the COVID and then Mikael also can comment. But for example, we are very excited about the combinations, right? But -- and the combinations will be flu and COVID, and then, hopefully, also flu, COVID and RSV, and we are working on that. And we believe actually that the fact that if we have a combination with the non-mRNA included over there, we'll have likely that we expect to have the benefit of better safety profile because we don't have to load three products RNA into a single injection, but we will be using only two, COVID and flu, and then we'll use the protein-based vaccine, which has a very benign profile in RSVs. All of that are working very well.

Now, the question is what will happen if the COVID market is seen to be very -- as monovalent as very, very low. I think that will play a key role in our decision about controlling the cost. Because if it is very, very low, although we expect an upside in the combination, we will assume, at this stage, that the medical need for COVID is not that high. And as a result, we will reduce our investments in the area and also will temper our expectations for sales. And then, if the combinations come and we are way more successful, that's a different story.

You want also -- what was your second question? Yes, about marstacimab. Mikael?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

I'm very excited about marstacimab. I followed this projects for a long time. And as you know, we reported our very encouraging data. We had 92% reduction in annual bleeding rate versus on demand. We had really no safety events as had been associated with other products, including Hemlibra. It's active against both in A and B. It's administrated with a pre-fill pen. I think it can be, from a medical point of view, a very large product, a single option for hemophilia A and B. Of course, when I think about how Hemlibra has been such a promise for in A patients and I see this profile that it's so good, I'm optimistic that it can do well in both segments.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. Let's move to the next question, please. And we are a little bit -- the time is flying, so a lot of interest. So let's try to be more -- one question, please, each one.

[Operator]

Our next question will come from Geoff Meacham with Bank of America. Your line is open.

[Geoff Meacham, Analyst at Bank of America]

Morning, guys. Thanks so much for the questions. Just had two real quick ones. Angela, on Prevnar, what does long-term growth look like? Clearly, you may have a tougher competitive environment. Just if you lose share, what do you think the TAM growth could look like to offset that?

And then, Mikael, you talked a little bit about next-gen CDK. I know it's super early in development. But is there a risk-benefit hurdle you have in mind? I'm just thinking about cost benefit post the Ibrance LOE and also considering the competitive landscape. Thank you very much.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

So, Angela, how concerned you are with the competitive environment? I know with respect to our competitors, but we have some realities that maybe you want to discuss. And also, I would ask actually Chris Boshoff to answer the question of CDK4 since we have him here in his new capacity. Angela?

[Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business at Pfizer]

Well, I mean, I want to begin by just saying how I'm incredibly proud we are of the performance of the entire Prevnar franchise. If you look at the adult, the adult indication, we have grown -- not only have we grown 23% since last year this time, we are doing all of this growth prior to the fall vaccination season, which is what you typically see. So the fact that we've been able to bring these vaccinations will tell us a lot about the work that we've done in pneumococcal disease, how well appreciated it is, but also how well our machinery is working, not to mention the fact that we have 96% share of the adult indication.

In peds also, of course, being that we went from 100% of the market, today, we share some of that market share with PCV15. But I just want to remind everyone that that is to be expected, and we are exactly where we thought we would be. And so, from that perspective, we're also really proud of how Prevnar 13 has competed with Prevnar -- PCV15.

I think the important thing here to realize is that given the ACIP recommendation that we've just got for Prevnar peds, what we are beginning to see now is a sort of reversal of that decline and the reclaiming of market share. And so, we have -- the fact that we've seen some accounts purchasing PCV20 peds now, we've seen some account switching from PCV15 to our own Prevnar 20, the fact that our federal contracts had added Prevnar 20 to their register, which means that public vaccinations can begin.

And then, maybe, the one thing I will mention about Prevnar peds, which is unique compared to any other pneumococcal vaccine, which is that we were given the recommendations to vaccinate adults -- well, kids, two to 18 immunocompromised. So that is a whole new population that we've never had before.

So, when you kind of bring all of this together and you factor that this quarter alone, Prevnar franchise generated $1.3 billion in revenue, just this one quarter, I think that order of magnitude gives you a sense of the scale and the competitiveness of our portfolio, and we're really excited about what Prevnar can do over the next coming quarters.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

And that is under the competition also of PCV15, which I think was around 150 million, if I'm not mistaken. Chris, can you please speak about the CDK4 and the franchise in general over there?

[Chris Boshoff, Chief Oncology Research and Development Officer at Pfizer]

Thank you for the question. So, as you know, ER-positive breast cancer is the most common cancer globally for women, and we were very proud that we can build on our leadership in cell cycle inhibition with Ibrance, and with three first-in-class potential assets, CDK4-specific inhibitor, CDK2-specific inhibitor and a KAT6-specific inhibitor, all through the significant potential to transform treatment in the future for ER-positive breast cancer.

For CDK4, we have seen more complete and continuous CDK4 target coverage and potentially improved tolerability due to reduced CDK6 inhibition. And as Mikael has pointed out, CDK6 leads to the hematological vulnerability. We know that epithelial cell specifically highly expressed CDK4, and that's why it's so important to specifically target CDK4. And what we've seen, as Mikael has pointed out, is a Grade-III neutropenia are 15% of our CDK4 inhibitor, and that's versus 60% as expected with other CDK4/6 inhibitors. We've also not noted any Grade-III diarrhea. And again, that's very different from what you know from some of the other CDK4/6 inhibitors. We're accelerating our registration strategy with the first study in second-line post CDK4/6, where we've recently shown 30% overall response rate in a heavy pretreated population, and we're also starting populations with CDK4 plus CDK2, as well as CDK4 with our potential next-generation backbone, ARV-471 or vepdegestrant, which we are codeveloping with Arvinas.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. Let's have the next question please.

[Operator]

All right. Next, we have Tim Anderson with Wolfe Research. Your line is open.

[Tim Anderson, Analyst at Wolfe Research]

Thank you. If I could go back to the COVID guidance, investors have been cautious, not only on the level of your prior guidance for '23, but also the shape of the future revenue curves beyond '23. So, my question is on the latter shape of the future curve. Are you confident still in saying that 2023 should be the trough? And then, you'll rebound to some higher level of sales in 2024 and beyond and see kind of continued growth from that point forward, or is that now more uncertain, too? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. Thank you. Yes, I think that this year's utilization at the marketplace will form the basis that we can predict reliably for the next years. I don't think it will be any much different because there will be no different categories in the marketplace. Vaccination rates will settle and then the treatment and infection rates also would be, after new year, indicate what we should expect periodically.

Clearly, we will have to deal with some inventories movements, and this year was a transitioning year because we are going to give prices, and we are going to absorb some of inventories, et cetera. So that should be for the accurate number for '24 and beyond, but should be the base and likely should be higher than what we should see this year. But that, provided that we have a reasonable vaccination and treatment range of Paxlovid.

So that's why I say that let's wait to see what would be the actual in this year. And clearly, what will be the utilization, as I said. Because next year, all these inventories and price adjustment things will all be very clear, what it will be.

So, thank you very much for the question. Let's move to the next question, please.

[Operator]

Our next question will come from Carter Gould with Barclays. Your line is open.

[Carter Gould, Analyst at Barclays]

Good morning. And thank you for taking the question and for all the transparency on your thought process on the COVID side. Plenty of good -- great questions asked this morning. I guess, one, I wanted -- didn't get addressed is, you out-licensed TL1A late last year, your partner, then turns around and sells it for quite substantially more. I guess, so to be a bit provocative, Albert, were Pfizer shareholders well served by this course of events? I would love to give you the opportunity to address that publicly. Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Carter, for giving us this opportunity. And also thank you for recognizing the transparency. I think that's very important, particularly when there's uncertainty. We should all know what the scenarios and the parameters are and what the actions that could be potentially triggered for different scenarios. Now, let's go to TL1A and let's see what is the situation, Aamir. Have we served the shareholders the best of our knowledge or not?

[Aamir Malik, Chief Business Innovation Officer at Pfizer]

Thanks for the question, Carter. And obviously, I'm not going to comment on the rumors and speculation or the potential prices attached to different transactions. What I will say is we're very pleased with our TL1A Telavant partnership with Roivant and we do think shareholders were well served. So, as a reminder, why we entered this? We entered this as an R&D portfolio prioritization decision.

So from time to time, we make decisions as part of our disciplined process to our partner R&D programs, so where we think it is better to share the risk or the cost with a partner. And in this case, Telavant covers all of the R&D costs going forward and that frees up significant R&D capacity for Pfizer to invest in high priority programs. But we still retained value in this program in three different ways. We had a 25% equity stake in Telavant. We have full ex-US and ex-Japan rights and we earned royalties on the US and Japan sales. So, taken together, this collaboration allows us to keep more than 50% of the total value of TL1A with zero incremental R&D spend. And for our Phase-II program, we feel this is a very sound move for Pfizer shareholders.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes, Mikael, anything to add here?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Aamir, said it well. And I just wanted to punctuate among the very many options, we have a strong platform in bispecific in many therapeutic, including in immunology and we do have TL1A fibrotic antibody, that would be very interesting, where we own an even greater share. We have triple specifics that are going into atopic dermatitis. So it just punctuates. Even in the very same therapeutic area, we have so many things going on. And near term, we expect soon approval for etrasimod and another readout for [Indecipherable]. So, a lot of stuff there.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you, Mikael. Don't tip competition too much about what we have in our pocket. So let's go to the next question.

[Operator]

Next, we have Steve Scala with Cowen. Your line is open.

[Steve Scala, Analyst at Cowen]

Thank you very much. I just have an observation than a question, but the observation is that it's still not clear what has changed in your long-term COVID expectations versus when you first gave the $30 billion guidance six months ago, since in the prior six months, nothing really has changed other than FDA action, which doesn't impact the long term. So, that's just an observation.

But my question is on Vyndaqel. Vyndaqel has become a very important franchise, yet its exclusivity is not long in either the US or the EU. Are there any strategies to get around the LOEs? Or is it simply similar to Eliquis where post-LOEs, Pfizer tends to move on to other products? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. So, why don't you take the question, Angela?

[Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business at Pfizer]

Yes. Well, it is, as you say, an incredibly important product, and we're just so proud of the fact that it's still growing 40-something percent this quarter. I think when it comes to LOEs, just from the perspective of how we see it, our composition of matter at patent expires in 2024, but we are -- patent term extensions that get us through December of 2028. In the EU, it's 2026. In Japan, it goes right up to 2029. So, actually, I feel like we still have a good runway as it pertains to this product, more diagnoses that we need to do and more patients that we can capture on to Vyndaqel, especially with the incredibly competitive and differentiated profile that we have. As you say, we're always, and working with Aamir, looking at opportunities as to what might be good fit into what might fit well into this franchise in this portfolio. But I guess from my perspective, with or without it, we see an incredibly strong opportunity for us to continue to capture growth.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much, Angela. May we go to the next question.

[Operator]

Next question comes from David Risinger with Leerink Partners. Your line is open.

[David Risinger, Analyst at Leerink Partners]

Yes, thanks very much. So, my question is on Pfizer's mRNA flu vaccine candidate, please. And Sanofi had stated at its recent Vaccines Analyst Day that first-generation mRNAs against flu will not deliver sufficient strain B efficacy, given mRNA technical issues in targeting strain B. So, could you just comment on that and your expectations for your vaccine's southern hemisphere strain B efficacy results later this year? I know that there wasn't the emergence of strain B in the northern hemisphere, but I'm curious about your expectations for demonstrating that strain B efficacy in the southern hemisphere.

And then, in addition, if you could just comment on your expected reactogenicity profile for mRNA flu versus Comirnaty's reactogenicity profile? Thank you very much.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much, David. Very good questions. Mikael, so the technical issues that Sanofi is having, are we experiencing as well?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

Well, I think the difference between maybe the pioneering mRNA companies Pfizer, and of course, there is Moderna, that have worked on this technology in many years. We have ourselves been five years into it and make ample improvement across the entire mRNA chain. And I think it just gives us a big leg up and one experience we had with COVID vaccines. So, I can't really comment on the issues that Sanofi are facing. I share a much more positive -- I have a much more positive outlook that we have in our capability to design mRNA vaccines that will be powerful against flu A and also against flu B. And let's wait as we accumulate data and see the outcome, but I'm optimistic about that and realize it's a field that requires a lot of capability to enter.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

What about the reactogenicity?

[Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development at Pfizer]

The flu reactogenicity has actually been moderate, been really good. So, that's not an issue at all in any of the doses that we have been testing in young or older patients.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you for clarifying, Mikael. Let's go to the next question please.

[Operator]

Next, we have Andrew Baum with Citi. Your line is open.

[Andrew Baum, Analyst at Smith Barney Citigroup]

Thank you. Could you talk about the impact of price negotiation under the IRA? Expressly, could you talk to whether you'll be able to collapse the rebate to PBMs in order to offset the impact of, let's say, Eliquis price reduction, following the price negotiations and therefore, protect your earnings? Or do you think you'll have to still pay the PBMs their pound of flesh, even though they're being able to buy the drug at a much reduced price or fund the drug at a much reduced price?

And then, separately, for Mikael, given the recent acquisition of Seagen, to what extent -- or planned acquisition of Seagen, to what extent do you believe that there is a potential to review your existing pipeline in order to make room or further optimize your R&D spend to put behind Seagen's additional assets?

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. So, why don't we go first to answer about what IRA will mean in terms of changing the rebates, et cetera, which it's quite a new situation. So, we have to see how it plays. But if you want to speak a little bit about it, Angela?

[Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business at Pfizer]

Yes, sure. So, that's exactly right, Albert. I think there's just -- it's a new policy and lots to understand in terms of how it's going to play out. As you say, there will be price negotiations, but at the same time, I think that what we also have to remember, Andrew, is that there's a mitigating factor of the fact that more patients likely will be able to get on Eliquis because of the co-pay threshold and that sort of cap we're going to have as a function of IRA.

And so, I think it's a dynamic situation. There's a lot for us to consider as it pertains to pricing, rebates, but also patient utilization of the drug and all of this will play out. I guess, as it pertains specifically also to Eliquis, just to remind everyone, that though it's obviously one of our largest drugs, its LOE will be around that '26 time frame. So, whatever the impact is, will not be long lasting on our portfolio because it's losing patent anyway around that time.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much, Angela. It 's an evolving environment, so we need to really see. Also, Andrew, very quickly on the pipeline issue, we have made very clear about the Seagen acquisition will mean nothing to the pipeline assets. So, no pipeline assets will be eliminated or reduced or increased as a result of -- actually, would be increased because of the combination but will not be any reductions on pipeline assets as a result of this acquisition.

Can we get the next question please?

[Operator]

Next, we have Chris Schott with JPMorgan. Your line is open.

[Chris Schott, Analyst at JPMorgan Chase & Co.]

Great. Thanks very much. Just a two-parter on Comirnaty. Can you just help me a little bit in terms of, I guess, with the updated vaccine being commercialized in September, how much of your remaining COVID revenue should we think about in 3Q versus 4Q? And I'm just trying to get my sense of when we get this 3Q update, will that be based on the sales we're seeing in the quarter or more your interpretation of the trend we're seeing for vaccinations, so just setting expectations?

And the second part was on the EU contract renegotiation. Just any additional color you can provide on how different, I guess, the terms end up being for 2023 relative to what was reflected in the 2023 guidance? Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes, thank you very much. I can take it very quickly. Look, if you see, we will have basically July, August, September in the third quarter. So the vaccinations, with the new, we'll start in September, hopefully. Of course, what we expect it is that we will have approval by the end of the August. And we are ready with product already now. So we have -- so the production will not be an issue.

So, normally, we should have also in Q3, most of it in Q4. But what really will clarify us at the end of Q3, plus also the month that takes after Q3 until we give -- we present our Q3 results. It is really the vaccination rate, right? That is what will inform, then the net price, right? Because everything -- after all, we'll know way better what's the net price. Also very big part of this uncertainty for Comirnaty will go away.

On the EU contract renegotiation, I don't know if you noticed, I did say that when we gave our guidance, we were expecting that we will have incorporated assumptions that we will renegotiate the EU contract. And our assumptions were assuming that we will do over three years. Now, we did over four years, which that creates a pressure to our guidance, but then we had some contracts that we didn't expect, guidance in Latin America, particularly, that offset very big part of that. So that's why there's no -- that by itself is not a reason to change the guidance one way or another. Really, as I said, vaccination rates, it is what will define what is the potential of these vaccines for the years to come.

Thank you very much, Chris. And then, we'll go to the next question, please.

[Operator]

Next, we have Rajesh Kumar with HSBC. Your line is open.

[Rajesh Kumar, Analyst at HSBC]

Hi, good morning. Thanks for taking the question. Just one for me. You're doing a lot of acquisitions. You've done a large one, Seagen, recently, it's not completed. But as we look forward, how do you think the -- what are the sort of integration challenges you see, both on the execution, commercial side but also on the scientific side? What are the things that get you excited versus worried?

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

For the Seagen acquisition, right? Yes. Let me start

[Rajesh Kumar, Analyst at HSBC]

Multiple acquisitions before that as well. So just you've got multi integrations going on sort of, that's why I asked the question.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Exactly. Exactly. Yes. So, let me start with what excites us with Seagen. And I think there's the science behind this company. The ADCs are playing a key role right now, more and more in our research and in our fight against cancer. And Seagen has one of the two leading platforms and we believe it's actually a better one. So, I think that excites me a lot.

Also what excites me a lot is that Seagen was able to achieve all this greatness with limited resources relatively compared to what we are bringing on the table. And what we are bringing on the table on the research front, of course, is not only the capital but also a significant expertise in designing the molecules. And particularly in the small molecules, we are very, very, very good. So when it speaks about payloads, I think we can contribute significantly into that.

Secondly, we are thinking that there is such a nice way of being able to commercialize those products of Seagen that are already in the market where we can because as we look at global presence, that Seagen is lucky. And also in the US, we will almost triple our resources, once the whole thing is integrated. So, there is a lot of things to be excited.

Now, as you rightly pointed out, things happen in integration that we need to be very aware. And not only we -- and we do have our fair share of things that we did wrong in the past and we have our fair share of things that we did right in the past. So, I know that what is extremely, extremely important is to make sure that, first of all, there will be no cultural clash as we are putting together the two organizations. To that end, we are very, very lucky because oncology companies tend to have very, very similar cultures, irrelevant they are small or big, they're oncology companies. And that was evident in the chemistry of our scientists compared to the Seagen scientists. Actually, where it is really evident, it is how many of the great scientists of Seagen raised their hand to join Chris's leadership team as we're going forward. And those scientists have published this information, who will be coming from Seagen. Actually, many of them will lead the global oncology business, not only our first acquisition, not only the Pfizer one but they will lead the global -- not only the Seagen one but the global, which is Seagen plus global.

The second thing that we need to be very careful is that we don't slow down things, and we don't increase cost of things. This is something that we have seen when big companies are acquiring small, that many times cost goes double and the timelines goes also double. So that's something that we must avoid. And in order to avoid, we are doing tremendous pre-integration planning to make sure that innovation will be enhanced dramatically after we are putting the two together. And I have full trust on, of course, Chris, that is leading this integration and this planning for months now.

And last but not least, many times, when you have an integration, it could go wrong and it's good if the CEO, which is the one who can resolve conflicts in a corporation and make decisions fast, has very high visibility in what is happening. So I think very fast. This is our biggest investment for many decades. That's clearly the biggest investment under my watch. And we take it very seriously as one of the most potential exciting opportunities to grow but also, we are very cognizant that we should make sure that nothing goes wrong. So I'm personally on it and Seagen is going to be one of our biggest bets as you can see going forward.

So we are using all our experience and the best people and are very, very pleased. I'm very, very pleased because chemistry of the two teams is unbeatable right now. And they are working like one and they are all coming to see the new Seagen plus Pfizer oncology portfolio growing faster than when we were alone.

And with that, we will move to our last question.

[Operator]

Our last question will come from Michelle Rivera with inThought Research. Your line is open.

[Michelle Rivera, Analyst at inThought Research]

Good morning. Thank you for taking my question. What's the status of the DMD gene therapy program? Have you finalized dosing patients? I read a statement at a recent conference that you finalized screening patients. So, I was not sure whether that meant that the trial had been paused. Just some clarity around that and when we should expect data would be helpful. Thank you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Yes. Chris, you were running DMD until recently. Now, you, of course, provided to Mikael the responsibility. So, can you give us a little bit very quickly what is the status of DMD?

[Chris Boshoff, Chief Oncology Research and Development Officer at Pfizer]

Yes. Thank you. So the -- as I mentioned earlier, the clinical trial has now completed enrollment. And as you pointed out, we halt dosing for the last couple of patients due to a protocol amendment, but we're very confident that we will go ahead and have the interim analysis later this year based on the functional end point which will be substituted also or -- which will be -- yes, with the biomarker data, so we'll have both functional data, as well as biomarker data later this year, and then the final analysis for the full study in 2024. We've also fully enrolled now, an earlier age group patients between the ages of two and three years old, 10 patients enrolled in that trial. So yes, we're looking forward to share the data later this year for you.

[Albert Bourla, Chairman and Chief Executive Officer at Pfizer]

Thank you very much. In summary, I think we had a solid quarter. We continue to invest to support our unprecedented 19 potential launches in an 18 month period. These are doing very well. The plan is executed as the time lines, in our pipeline and in value-creating revenue-generating business development opportunities like Seagen, which, as I articulated just in the question before that, it is clearly our big bet and our very, very big opportunity moving forward.

Over the next three months, we look forward to moving beyond the current uncertainty related to our COVID-19-related revenue. So, we'll have better clarity. And by the end of the year, we'll have -- the uncertain will be removed almost largely. To that extent, but any adjustments into our cost base for '24 and beyond, we are ready to make. I want to reemphasize that the biggest uncertainty in terms of the long term is vaccination rate, some shorter uncertainties like when commercialization will be, I think it's just a question of time. But the vaccination and treatment rates that we are going to see, I think, will inform what is -- what we should expect for the years to come, with only upside if we have the combination vaccines.

Putting all these factors together, we remain confident in our ability to deliver a robust operational growth and deliver meaningful shareholder value through the end of the decade and beyond. And now, we will bring our call to a close. Thank you for joining us, and have a great rest of your day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Christopher Stevo, Senior Vice President and Chief Investor Relations Officer
• Albert Bourla, Chairman and Chief Executive Officer
• Dave M. Denton, Chief Financial Officer
• Mikael Dolsten, Chief Scientific Officer and President, Pfizer Research and Development
• Angela Hwang, Chief Commercial Officer and President of the Global Biopharmaceuticals Business
• Chris Boshoff, Chief Oncology Research and Development Officer
• Aamir Malik, Chief Business Innovation Officer

Analysts

• Nicole
• Umer Raffat, Evercore ISI
• Evan Seigerman, BMO Capital Markets
• Terence Flynn, Morgan Stanley
• Chris Shibutani, The Goldman Sachs Group, Inc.
• Louise Chen, Cantor Fitzgerald
• Mohit Bansal, Wells Fargo & Company
• Trung Huynh, Credit Suisse Group AG
• Colin Bristow, UBS Group AG
• Kerry Holford, Berenberg Bank
• Geoff Meacham, Bank of America Co.
• Tim Anderson, Wolfe Research
• Carter Gould, Barclays PLC
• Steve Scala, Cowen Inc
• David Risinger, Leerink Partners
• Andrew Baum, Smith Barney Citigroup
• Chris Schott, JPMorgan Chase & Co.
• Rajesh Kumar, HSBC Holdings plc
• Michelle Rivera, inThought Research