GlaxoSmithKline PLC

NYSE:GSK

Earnings Call Transcript 2019-Q4

[Operator]

Good afternoon, ladies and gentlemen. And welcome to the Analyst Call on the GSK Fourth Quarter 2019 Results. I will now hand you over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session.

[Sarah Elton-Farr]

Thank you. Good morning and good afternoon. Thank you for joining us for our full year 2019 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's website. For those not able to view the webcast, slides that accompany today's call are located on the Investors section of the GSK website. Before we begin, please refer to Slide 2 of our presentation for our cautionary statements. Our speakers today are Chief Executive Officer, Emma Walmsley; Iain Mackay, Chief Financial Officer; and Dr. Hal Barron, Chief Scientific Officer and President of R&D; and we have a broader team for Q&A. [Operator Instructions] Our presentation will last for approximately 45 minutes, slightly longer than usual, to give Hal time to update you on our R&D progress. And with that, I will hand the call over to Emma.

[Emma N. Walmsley, CEO & Director]

Thank you, Stef. When I became CEO of GSK in 2017, I laid out my 3 long-term priorities for the company: innovation, performance and trust, all to be powered by a necessary change in culture. In 2019, we made significant progress across all 3 of these priorities as we begin to work towards setting ourselves up as 2 new companies, and I'll talk more about that in a moment. Our strategy is continuing to deliver results. You'll hear from Hal on innovation. And under his leadership, we've strengthened our pipeline, focusing and increasing our investment in R&D with exciting new developments in oncology and a significant number of positive results across the portfolio. And with strengthened commercial and supply chain delivery, we're showing progress in launch execution in Pharma and Vaccines. In performance, we've delivered growth across the company with improvements in operational execution as we reshape the group's portfolio. In Pharma, we continue to invest in our specialty capabilities, with talented leaders ready to support the launches we anticipate this year. In Consumer Healthcare, we completed the transaction we announced at the end of 2018, our joint venture with Pfizer, to create a new leading consumer health care company. And on trust, we're also making good progress. We've continued to pioneer innovations in global health in TB, malaria and HIV. And we were delighted to see our performance on our trust commitments reflected in the Dow Jones Sustainability Index, where GSK was listed for the first time as a top-ranked company in the sector. I said that cultural change at GSK is very important. We're also making good progress on this to develop a more performance-focused culture with a strong emphasis on ethics and values. And we're seeing this reflected in 2019 achievements and our latest employee engagement surveys. In terms of financial results, I'm happy that in the year of generic Advair, we saw group sales growth of 8% in CER terms or 4% on a pro forma basis and have delivered adjusted earnings growth of 1%. Sales benefited from a particularly strong performance in Vaccines. Our new products in Pharma continue to do well, and pro forma consumer sales were driven by a strong performance in oral health. Group operating margins decreased 2.1% on a CER basis to 26.6% as we invested behind our priority pipeline programs, with Pharma R&D spend up 16%. The Pharma margin also reflects both investing in new products and launch preparation and absorbing the price impact of generic competition in the ICS/LABA class. We were pleased to see margin improvement in Vaccines and consumer. On a total basis, earnings per share were up 23% to 93.9p, and adjusted earnings per share were up 1%. Free cash flow for the year was strong at GBP 5.1 billion, although down versus last year as anticipated. And today, we declared a dividend for the fourth quarter of 23p, resulting in a total dividend for 2019 of 80p, and we expect to pay 80p in 2020. Turning to our new launches. I'm pleased to see sales are being driven by new data, further approvals and our improving commercial capabilities under new leadership. In Respiratory, Trelegy continues to do well, driven primarily by an increase in U.S. market share. Globally, launches are also doing well, and we now have the only once-daily triple therapy for COPD in 44 countries. We met the primary end point of the CAPTAIN study in asthma patients and anticipate U.S. approval in the second half of the year. In asthma biologics, Nucala remains the market leader in total sales and continues to grow well, up 33%, benefiting from the introduction of self-administration. The opportunity in this market remains significant. In oncology, we were delighted to see positive data on all 3 of our pivotal readouts: Zejula in first-line maintenance therapy of ovarian cancer, belantamab mafodotin in the fourth-line treatment of multiple myeloma and dostarlimab in second-line treatment of recurrent endometrial cancer. Hal is going to take you through much more of the detail in a moment, and I'm pleased we submitted these data to regulators and look forward to potential approvals later this year. 2019 was also an important year for HIV with a strong flow of positive data that further supports the transition we're leading to 2 drug regimens. Our new regimens are now growing at a rate that is offsetting the decline in our 3 drug regimens, and we were pleased to see Dovato included in both the U.S. and European treatment guidelines at the end of the year. We continue to lead in HI innovation and are working to bring new therapies to market. Following the complete response letter related to CMC matters for our long-acting 2-drug regimen, cabotegravir+rilpivirine, we're working with the FDA to determine next steps and bring this important treatment option to patients. Later this year, we also anticipate U.S. approval for fostemsavir, our first-in-class attachment inhibitor for heavily treatment-experienced patients. And finally, in Vaccines, Shingrix continues to be a major driver of our growth. We estimate that 14 million patients now have been vaccinated in the U.S. with at least a dose since launch. And plenty of opportunity remains. Our capacity expansion plans for this transformative product in our portfolio are making good progress. We continue to see high levels of demand in the U.S., and we're pleased to receive approval in China, where we're planning a phased introduction later this year. We're very focused on building the pipeline for our next wave of growth and have made significant progress. We've reported positive data on a number of our programs. And this year, we have the potential for at least 6 new approvals, including in oncology, HIV and Respiratory. Last year, we closed transactions with TESARO and Merck KGaA, strengthening our position in oncology further. To help improve our R&D productivity over the longer term, we also initiated alliances to build out our platform technologies in genomics with the University of California and in cell therapy with Lyell. The overall shape of our pipeline is changing, and Hal will talk more to this. But given the positive data we're generating, we're confident in investing behind the opportunities we see to support longer-term growth. Also key to the reshaping of the group is the delivery of a successful integration of the Pfizer consumer health business, delivery of synergies from the JV and investing in its future growth. We have a major opportunity to create a new leader in consumer health and to deliver material value to consumers and shareholders. Since closing the JV at the end of July, we've made rapid initial progress announcing 500 critical leadership roles, completing closes in all major markets and colocating employees in 31 locations globally so far. Over the next 2 years, the integration will continue at speed, with the majority of systems and process alignment work to be completed over the next 12 to 18 months. We're building best-in-class capabilities in innovation, digital and retail, benefiting from the complementary strengths of businesses. And we're building an efficient and effective model to deliver synergy targets and operating margin improvement with a particular focus on overlapping commercial infrastructure and also streamlining the supply chain. In addition, we see considerable opportunity in procurement, logistics, media spend and marketing costs. Of the GBP 500 million synergies we're targeting, we will reinvest up to 25% in our capabilities and portfolio behind the brands and markets with the most promise to generate long-term sustainable top line growth. So our first priority remains, as I said many times, to invest in R&D and future growth drivers. Today, we are also announcing the start of a new 2-year program to prepare GSK for separation into 2 new leading companies: 1 in biopharma, and 1 in consumer health care. Our intention remains to separate the company in around 3 years from the close of the transaction. This program will use this unique catalyst to reset the capabilities and cost base for both companies and help support delivery of the significant value-creation opportunities we see in both New GSK and new Consumer Healthcare. Internally, we're calling the program Future Ready. For new GSK, the program will set up a leading biopharma company with an R&D approach focused on science relating to the immune system, use of genetics and new technologies by driving a common approach to R&D, which will help us be more effective in how we allocate our budget and share technical and scientific expertise and deliver the pipeline regardless of modality. We will also improve our capabilities and efficiencies in global support functions, continuing to simplify processes and systems and considering where our teams are based to deliver a cost base comparing favorably with industry benchmark.We'll continue to simplify and refocus our manufacturing network, ensuring our supply chain is specialty-ready and continue to improve working capital management, productivity and procurement with a relentless focus on quality, safety and service. And we'll further rationalize our portfolio through divestments to align with our strategic priorities. A number of assets are under review, including our prescription derms business. For the new Consumer Healthcare company, this program will support the build of the key technology infrastructure and of course, in due course, the corporate functions necessary to operate as a stand-alone company. While simultaneously, we'll continue our work to fully integrate the Pfizer brands and business, deliver our planned synergies and invest in driving future growth. Using the catalyst of separation, we believe our investment priorities, together with our 2 -- new 2-year program, will set each new company up with strong foundations for future performance. And Iain is now going to take you through some of the financial details behind this. Iain?

[Iain James Mackay, CFO & Executive Director]

Thanks, Emma. All the comments I make today will be on a constant currency basis, except where I specify otherwise. And I'll cover both total and adjusted results. On Slide 12, a summary of the group's results for 2019, which overall were at the upper end of our guidance and demonstrate continued execution on our strategic objectives. Reported turnover growth was 8%, reflecting the closure of the consumer joint venture with Pfizer, with group revenue growth of 4% on a pro forma basis. Total operating profit was up 23% with total earnings per share up 23% also, primarily reflecting reduced remeasurement charges on the contingent consideration liabilities and put options compared with the previous year. On an adjusted basis, operating profit was flat on a reported basis and declined 3% pro forma, while adjusted earnings per share was up 1%. I'll go through the drivers behind these in more detail in a moment. We made good progress in the year with free cash flow, generating GBP 5.1 billion, reflecting a number of factors, most importantly improved working capital management. On currency, a weaker sterling, particularly against the U.S. dollar and Japanese yen, resulted in a tailwind of 2% on sales and 3% to adjusted earnings per share. Slide 13 summarizes the reconciliation of our total to adjusted results. Main adjusting items in the year were intangible amortization with higher charges as a result of the TESARO acquisition, major restructuring focused on improving efficiency of the supply chain, with also some initial charges for the integration of the Consumer Healthcare JV with Pfizer. Within transaction-related, the main contributor was the unwind of the fair value uplift and inventory taken on as part of the Consumer Healthcare JV. And finally, the disposals column includes the proceeds from the divestment of the travel vaccines as well as a gain from the revaluation of the embedded derivative in respect of GSK's exposure to movements in Hindustan Unilever's share price. My comments from here onwards are on adjusted results unless stated otherwise. Slide 14 summarizes the Pharmaceuticals business, where revenues were flat in 2019. Emma has taken you through the performance of some of our key products, so I'll just point out a couple of important considerations. Starting with Respiratory. Sales were up 15% with continued growth from Trelegy and Nucala across all regions. This was partly offset by Relvar/Breo, which declined 13% globally driven by a 37% decline in the U.S., reflecting the impact of generic Advair on pricing in the ICS/LABA class. We continue to have good growth expectations outside the U.S., where sales grew 12% in Europe and 19% in international. In HIV, revenues were up 1%, with the dolutegravir franchise up 2% globally. The dynamics in this market reflect the impact of competition as well as a shift within our portfolios towards our 2-drug regimens, with growth in Juluca and Dovato offsetting a decline in Triumeq. To regional level, dolutegravir grew in international and was flat in the U.S. and Europe. We continue to build momentum with the 2-drug regimens as access and physician acceptance increases. As the transition in our portfolio continues this year, we expect 2020 revenues for HIV to be broadly flat excluding any material contribution from cabotegravir+rilpivirine. Our Established Pharmaceuticals portfolio declined 8% overall, driven by U.S. adverse sales, which were down 57 -- 56%, as expected, given generic competition. We expect pricing pressure in the ICS/LABA class to continue. This was offset by continued upside in Ventolin from the authorized generic launched in the U.S. in -- early in the year, which you remember, is an in-year benefit ahead of the introduction of substitutable generics expected in 2020. We also saw favorable RAR true-ups in the U.S. primarily on Flovent. Outside Respiratory, the remainder of the Established Pharma portfolio declined by 6% in 2019, in line with our expectation of mid- to high single-digit decline for the longer term for this part for Established Products portfolio excluding Respiratory. Overall, we expect to see Pharma sales decline slightly in 2020, excluding divestments, as the growth for our new products is offset by a decline in Established Pharma. Turning to operating margin. We saw a decline in the year, informed by an anticipated unfavorable product mix and price impacts, including notably, the impact of generic Advair as well as a nonrestructuring-related manufacturing facility improvements and a number of legal settlements and importantly, by strategic choices we made to invest in R&D behind priority assets, promotional activity for new launches as well as building specialty capability. Slide 15 gives you an overview of Vaccines performance with sales up 19%, driven mainly by Shingrix but also by our meningitis vaccines. Shingrix continues to benefit from our actions to increase our supply capacity, with revenues in Q4 of GBP 532 million, driven by continued strong uptake in the U.S. as well as in Germany and Canada. We've been successful in expanding our supply capacity in 2019. Annualizing the Q4 performance with some slight improvements is, we believe, a reasonable run rate outlook for 2020. With supply capacity acceleration achieved in 2019, at this time, we see limited opportunity for further growth beyond 2020 until we bring our new facility online, which we don't expect before 2024. In our meningitis portfolio, which had revenues of over GBP 1 billion in 2019, Bexsero continued to perform well, growing 16% with share gains in the U.S. and strong demand across all regions. The operating margin of 41.4% in 2019 is higher than our medium-term expectation due to enhanced operating leverage from Shingrix, positive inventory adjustments and higher royalties. In the longer term, we continue to anticipate a margin in the mid-30s as we increase investments in SG&A as we expansion rigs geographically and in R&D as we invest behind priority assets. Note that we completed the divestment of travel vaccines Rabipur and Encepur in December, and this will have a slight drag on sales growth this year. Turning to Slide 16. Revenues of the new Consumer Healthcare JV were up 2% on a pro forma basis despite a drag of around 1% from the combined impact of divestments and the phasing out of low-margin contract manufacturing. We saw good performance from our power brands, particularly in the U.S. and international, although we saw some adverse impact in international during Q4 due to alignment of inventory market levels of some Pfizer brands. In oral health, Sensodyne grew double digits. While in wellness, Panadol performed strongly, and Advil saw continued recovery from historical supply issues. Respiratory overall had a weaker performance, reflecting a milder cold and flu season earlier in the year. We expect the divestment of the India Nutrition business to Hindustan Unilever to close around the end of Q1, subject to legal and regulatory approvals. We're moving forward with other divestments, which will continue through the year and as previously announced, are expected to generate net proceeds of GBP 1 billion from these tail brand disposals, which will fund integration and restructuring activities within Consumer Healthcare. These disposals, along with the India Nutrition business, represented 2019 revenues of approximately GBP 1 billion. We expect our revised external category reporting structure in place from Q1 2020 to appropriately reflect the key drivers of the combined businesses, and we'll provide you with more details of this ahead of Q1 results. We're pleased with the progress of the integration, with further milestones to be achieved over the next 24 months, and we're very optimistic about the combination of these 2 portfolios. The operating margin for the year was 20.8%, reflecting the strong ongoing focus on cost control and benefits from restructuring and manufacturing while we continue to increase investments in key brands. On Slide 17, we summarize sales and adjusted operating margins. Note that in royalties, these were higher than 2019 driven by Gardasil. We expect royalties for 2020 to be around GBP 300 million due to a reduction in some of the other royalty streams. I've already covered the drivers behind the other cost lines in some detail. And to be clear, we'll continue to prioritize investments in R&D to develop our pipeline and customer-facing SG&A, building specialty teams and launching new products. Moving to the bottom half of the P&L, I would highlight the following. In interest expense, we continue to see the benefit of our refinancing activities with interest of GBP 810 million, which also included a fair value gain on interest rate swaps. We expect an interest expense of between GBP 850 million and GBP 900 million for 2020. Effective tax rate of 16%, which was slightly better than expected, reflects our ongoing progress in settling historic tax matters in key jurisdictions. We continue to expect to see an average effective tax rate of 19% over the medium term, although this will be slightly lower in the near term, with our expectation for 2020 of around 17%. On noncontrolling interests, Q4 saw the first full quarter of Pfizer share of profits of the new Consumer Healthcare JV. This will continue through 2020. On free cash flow, we remain focused on driving greater cash discipline across the group and generated GBP 5.1 billion of free cash flow in the year, reflecting good progress. Also, as expected, it was a step-down versus 2018 given the impact of Advair genericization. Key drivers of free cash flow were improved operating cash flow and working capital management as well as the benefit from FX and proceeds from the sale of the travel vaccine, offset by the launch of generic Advair and related phasing of rebates and the upfront payment of EUR 300 million to Merck KGaA. We expect a step-down in 2020 as we pay out higher distributions to noncontrolling interests as we see the continued flow-through of rebates relating to Advair and as a result of the separation preparation program we've announced today. However, we've made great progress on cash flow and working capital management in 2019, and our focus here will continue into 2020. As in 2019, we expect cash flows to be weighted to the second half of the year. As Emma outlined earlier, we are today announcing a program over the next 2 years which will help deliver the value-creation opportunities we see within both New GSK and new Consumer Healthcare. As we look towards New GSK, we'll drive a common approach in Pharma and Vaccines R&D, further improve our capabilities and efficiencies and support functions and continue simplification of our manufacturing network. In R&D, our focus is more about building capabilities and a common approach, improving capital allocation across R&D and less about realizing cost savings. And the support functions will drive a leaner organization, leveraging recent and ongoing technology investments to improve efficiency, deploy consistent operating models globally and pursue a location strategy to ensure functions are best placed to support our footprint. In these areas, we will compare favorably within industry benchmarks. In the Pharma supply chain, we've made significant progress to simplify our manufacturing network. We've reduced our manufacturing footprint by 25% over the last 3 years. Under this program, we'll maintain momentum, continuing to review our network to ensure it's competitive and adapted to our portfolio. Taken together, these actions will deliver GBP 800 million of annual savings through a new major restructuring program, which has estimated total costs of GBP 2.4 billion comprising cash costs of GBP 1.6 billion and noncash costs of GBP 800 million. This program will be substantially complete by 2022. We'll continue to prioritize allocation of capital within the portfolio through the divestment of noncore assets. And a number of assets, including our prescription derms portfolio, are under review. We expect the proceeds of divestments to broadly cover the cash costs of delivering New GSK. This is an important aspect of capital allocation discipline to fund future growth and profitability with clear alignment to our strategic priorities. To set the new Consumer Healthcare company up for success, we need to build the key technology infrastructure and corporate functions necessary to operate as a stand-alone company. We expect to complete the majority of this work in the next 2 years, and our initial estimate of the onetime costs to establish these capabilities is in the range of GBP 600 million to GBP 700 million and will be incurred by the JV. These will be included in our total results, and there's no change to our adjusted operating margin outlook of mid- to high 20s in 2022 for the consumer business, as we've outlined previously. Delivering this 2-year program will set solid foundations for the future competitive growth and operating performance of New GSK and new consumer health. Moving to 2020 guidance. On revenues, Shingrix will continue to be a growth driver, with some slight improvements on the Q4 run rate being a reasonable guide for our full year 2020 expectation. Pharma is expected to decline slightly driven by the Established Pharma portfolio, while our new products continue to make good progress. And in consumer, the divestments we are targeting will be a drag to top line growth. Our investment priorities remain clear. Given our positive data readouts, we expect to continue to grow our R&D investment at a rate similar to that delivered in 2019. And we'll continue to invest in our new launches and building our specialty capability. Taking these factors into account, we expect adjusted earnings per share in 2020 to be between minus 1% and minus 4% at CER compared to 2019, excluding the impact of any further material divestments. Our guidance today excludes any potential impact of coronavirus, which is yet to be seen. Whilst we're not providing guidance on '21 and '22 at this stage, there are several points I would highlight as you think about the next few years. For Shingrix, at this time, we see limited opportunity for further growth in supply capacity until we bring our new facility online, which we don't expect before 2024. In Pharma, we do expect an increasing revenue contribution from our new launches. We'll continue to grow our R&D investment in 2021 at a similar rate to that in 2019, and we'll also continue to invest behind our new launches. Therefore, overall, we would expect a slight incremental pressure in group adjusted operating margins in 2020 to stabilize in 2021 as we begin to see benefits from the program we've announced today. From 2022 onwards, we expect to see most of the savings from the program flow through, offsetting the increased investment and leading to meaningfully improved operating performance. Our intent to separate the company in around 3 years from close of the transaction remains unchanged. As I said, we'll be pursuing divestments on which we'll keep you informed as we progress. In summary, I'm pleased with our performance in 2019, and we'll be building on this progress over the next 2 years. I'm confident that we're taking the right steps to prepare for a successful separation, optimizing our operating model to ensure we have the right capabilities and cost bases in place to support investment in future growth and value creation within both new companies. And with that, I'll hand over to Hal.

[Hal V. Barron]

Thank you, Iain. It has been approximately 2 years since I took over as Head of R&D, and I'm very pleased with the progress we have made so far. Today, I will be focusing on progress we've made over the last 12 months and 2 key medicines that we feel have great potential to transform how we treat patients: Zejula for ovarian cancer and belantamab mafodotin for multiple myeloma. In addition, I will briefly discuss other assets that have made important progress in our pipeline and share key milestones for the year ahead. Before I get into my presentation, I want to take a moment to say that I'm very excited about the R&D changes Emma mentioned earlier. I believe that taking a common approach to how we conduct R&D at GSK will help us be more effective in how we discover and develop transformational therapies for patients. With that, let me begin my presentation. I'd like to start with a brief reminder of our approach to R&D at GSK, which is to leverage science, technology and culture. Specifically, we're strengthening our R&D pipeline through a focus on the science related to the immune system, the use of human genetics and other advanced technologies, such as functional genomics and machine learning, while creating a culture that fosters an innovative mindset. We made significant progress on the strategy in 2019 and substantially strengthened our pipeline. In the last 12 months, we achieved 3 major approvals, made 8 submissions, had 6 positive readouts from pivotal studies and progressed 4 new assets into pivotal studies. Towards the end of my presentation, I will share a brief update on our use of human genetics, functional genomics and machine learning to discover new targets. I'm also pleased with the progress we're making in transforming our culture and R&D, but I'll not be focusing on that in today's presentation. This slide shows the 39 medicines and 15 vaccines currently being developed. It's been a busy year with 20 assets progressing or being added, 14 terminations and 3 medicines being approved. As I mentioned, we have also strengthened our late-stage pipeline with 4 new assets progressing into pivotal studies, including otilimab for patients with rheumatoid arthritis, bintrafusp alfa for patients with biliary tract cancer, gepotidacin for patients with uncomplicated urinary tract infections and gonorrhea and our ICOS agonist for patients with head and neck cancer. Notably, 3 of these 4 potential medicines are biologics. I previously said that we intend to be transparent about the decisions we are taking related to the pipeline. This slide shows our 2019 milestones. And as you can see, it was a very successful year for R&D, with 23 pipeline milestones having positive readouts, including all 6 pivotal studies. I now want to talk to you about Zejula and belantamab mafodotin, which both had positive pivotal data in 2019 and are expected to bring significant benefits to patients. In July 2018, I shared how powerful I thought the combination of functional genomics and machine learning could be for R&D, particularly in identifying gene-gene interactions and exploring the concept of synthetic lethality to discover novel targets and improve R&D productivity, including identifying which patients are likely to benefit from a given drug. It was in part based on data generated from this approach that we predicted that PARP inhibitors should work in a much broader population of women with ovarian cancer than those who have the BRCA mutation. In July 2019, the results of the PRIMA study validated our thinking. While we were confident Zejula would benefit patients with a BRCA mutation, as you can see in the middle panel, Zejula also had a dramatic benefit in BRCA wild-type patients whose tumor had evidence of a homologous recombination defect. In fact, the benefit in progression-free survival was similar to that seen in patients with a BRCA mutation, 11.4 months in wild-type patients versus 11.2 months in patients with a BRCA mutation. In addition, we observed a clinically meaningful and statistically significant benefit in the homologous recombination proficient, so-called HRP, patients who represent approximately 50% of the overall population. As you can see from the New England Journal publication of the PAOLA-1 study data, this was not observed with olaparib, where the hazard ratio for this population of patients was 1.0. The PAOLA-1 study hypothesis -- hypothesized that combining Avastin with olaparib would result in a synergistic effect, essentially converting HRP patients to HRD patients. Not only was that not the case, there was no incremental benefit of olaparib when given with Avastin to HRP patients. So why is Zejula demonstrating this differentiated benefit in homologous recombination proficient patients? Well one possibility is Zejula's unique PK profile, which is highlighted in this paper by Sun, et al. The article compares the plasma PK and the tumor PK of both Zejula and olaparib in preclinical models. What they found was that at steady state, there is a 3.3x greater exposure of Zejula in the tumor xenograft compared to plasma. Whereas with olaparib, the tumor exposure is less than plasma. So where might this manifest? If you look preclinically in the BRCA-mutant TNBC model, which you see on the top left here, the 2 drugs look very similar in terms of their efficacy, and both are profound. When you look at the BRCA wild-type ovarian model on the right, you can see that while Zejula has a statistically significant benefit in terms of tumor growth, this is not observed with olaparib, and that may be related to the concentration of drug in the tumor. In addition, we had a poster at ESMO which provided clinical confirmation that there was higher exposure to Zejula in tumor tissue versus plasma in patients with breast cancer. In fact, the data showed that the concentration of Zejula was around 36-fold greater in tumor tissue compared to plasma. So to summarize, the PRIMA data demonstrates the value of monotherapy for -- of Zejula for all women with ovarian cancer when given in the frontline setting as maintenance therapy. We have submitted these data in the U.S., having been chosen to participate in the FDA's real-time oncology review pilot program. In 2019, we also received approval for Zejula as treatment in late-stage ovarian cancer based on the QUADRA data. And enrollment started for the pivotal MOONSTONE study investigating Zejula plus dostarlimab for platinum-resistant ovarian cancer patients, which will actually read out in 2021. Together, we believe these data will help establish Zejula as the most compelling PARP inhibitor for women with ovarian cancer. In addition, given Zejula's unique PK profile, including its ability to penetrate the blood-brain barrier, we plan to initiate 1 or 2 pivotal studies in patients with lung and/or breast cancer by year-end. Now moving on to belantamab mafodotin, another molecule with a successful 2019. bela-maf was one of the first assets I highlighted to you back in July 2018. This is our BCMA immunoconjugate for patients with multiple myeloma. Based on data from a relatively small number of patients, we decided to aggressively accelerate development. 18 months later, we've treated over 550 patients and completed and submitted the pivotal study data in patients with relapsed/refractory multiple myeloma, who have failed a proteasome inhibitor, an IMiD and a CD38 antibody, a group of patients who have limited treatment option. In this patient population, bela-maf demonstrated a clinically meaningful overall response rate of 31% with a 2.5 mg per kg dose and 34% in the 3.4 mg per kg dose. As you can see, the median duration of response has not been reached in either arm at the time of the primary end point. Now DREAMM-2 is the first of our pivotal studies for bela-maf and demonstrates the benefit this treatment could bring to patients with multiple myeloma. As I said, we've successfully filed these data in the U.S. and Europe. And as with Zejula, we are participating in the FDA's real-time oncology review pilot program and anticipate approval in the first half of 2020. As you can see in this slide, a robust development program is in place for bela-maf that will enable us to quickly move into earlier lines of treatment. We have recently started our frontline pivotal study, DREAMM-9, in combination with VELCADE, REVLIMID and dexamethasone. This study has an initial safety assessment phase to determine the appropriate dose. DREAMM-7 and DREAMM-8 are our second-line pivotal combination studies, which we expect to start this year based on data from the ongoing DREAMM-6 study and the investigator-sponsored 418 study. We hope to share data from these 2 studies at medical meetings later this year. We're also exploring novel combinations of bela-maf, including with pembrolizumab in DREAMM-4 and with our ICOS agonist and gamma secretase inhibitor in DREAMM-5. I want to spend a couple of minutes discussing the corneal events that we have seen in the bela-maf program, specifically in the DREAMM-2 study. We take patient safety very seriously, and helping clinicians understand and manage this unique adverse event will be important. Here are some facts. 71% of patients were diagnosed with keratopathy. That is a change in the corneal epithelium as seen on an eye exam, of whom about 1/4 were asymptomatic. 27% of patients experienced a Grade 3 keratopathy, and no patients had Grade 4 or Grade 5 keratopathy. 22% of patients experienced blurred vision and 14 experienced -- 14% experienced dry eyes. Among the 95 treated patients, 42 or 44% had no eye symptoms nor clinically significant worsening in their vision. 41 or 43% experienced significant worsening of their visual acuity at some point during the trial. But most of these patients either fully recovered or had meaningful improvement in their visual acuity during the study or during the follow-up period. Importantly, only 1% of patients in discussions with their doctor decided to discontinue the treatment. Thus, keratopathy, although occurring in a little over 2/3 of patients, was well managed by the DREAMM-2 investigators in collaboration with their ophtha colleagues. We have developed educational materials and programs to help ensure that upon launch, patients treated with bela-maf are managed optimally. While I spent the majority of this call discussing Zejula and bela-maf, we also continue to make good progress across our broad portfolio pipeline of innovative medicines. In November, we presented promising data from a Phase IIa study with our novel antisense oligonucleotide for patients with chronic hepatitis B. And we are on track to move this asset into Phase IIb before the end of the year. In October, we announced the start of our Phase III program for gepotidacin, potential first-in-class antibiotic for patients with gonorrhoea and uncomplicated urinary tract infections. We expect these Phase III data to read out in 2021. At ESMO in September, we presented data from the INDUCE-1 study showing promising antitumor activity with GSK'609, an ICOS receptor agonist in combination with pembrolizumab in head and neck squamous cell carcinoma. These data supported initiation of a Phase II/III trial called INDUCE-3 to investigate the potential survival benefit of GSK'609 with pembrolizumab in frontline recurrent metastatic head and neck squamous cell carcinoma. INDUCE-3 is designed to have a registrational component should it pass the Phase II interim gate. And finally, towards the end of the year, the Phase III ASCEND program investigating daprodustat for patients with renal anemia was endorsed for continuation by an independent Data Monitoring Committee, increasing our confidence in this program. Daprodustat was filed with the Japanese FDA earlier in the year, and we feel increasingly confident about the science behind this potential new medicine and the very robust trials we have designed. In addition to strengthening the Pharma pipeline, we continue to make good progress in Vaccines, and we anticipate key data this year for 2 vaccine candidates: one for RSV and one for COPD. In children, respiratory syncytial virus, RSV, causes acute bronchiolitis, which can lead to respiratory distress and hospitalization. In older adults, the infection can cause pneumonia, which can also lead to hospitalization. We have 3 candidate RSV vaccines: a maternal vaccine, which aims to achieve protection during the first 6 months of life covering half of the burden of RSV; a pediatric vaccine that will expand that protection for up to 2 years; and lastly, a vaccine for older adults. All 3 RSV vaccines have Fast Track designation from the FDA, and we anticipate having key data in-house later this year. In addition to RSV, we're also progressing a therapeutic vaccine for patients with COPD. We know that 2 bacteria, haemophilus influenzae and moraxella catarrhalis, are associated with COPD exacerbations. So we extracted the functional antigens from these bacteria and combined them with our ASO adjuvant, the same adjuvant used for Shingrix. Initial studies showed that the vaccine is safe, highly immunogenic and induces very high functional antibodies against these bacteria. GSK is the only company moving ahead with a vaccine for COPD patients, and we should see proof-of-concept data by the end of this year. Turning to our approved medicines. Luke Miels; Chris Corsico, our Head of Development, and I, are all working together to strengthen the collaboration between our commercial and development organizations to make sure we are maximizing the full potential of our medicines for patients. Benlysta is a great example of this. In late December, we announced headline data from a Phase III study in patients with lupus nephritis. Lupus nephritis is an inflammation of the kidneys that occurs in up to 60% of patients with systemic lupus erythematosus and can lead to end-stage kidney disease. This pivotal study met its primary end point and all secondary end points. We expect to file these data in the first half of the year, and Benlysta could be the first therapy for lupus nephritis to be approved in the United States. Nucala has a growing number of additional indications beyond severe eosinophilic asthma. We received approval for eosinophilic granulomatosis with polyangiitis at the end of 2017 and now also have positive data in patients with hypereosinophilic syndrome, which we expect to file in the first half of this year. We are also expecting to report data from a pivotal study in patients with nasal polyps in the first half of 2020, which we hope will add a fourth indication to Nucala. And importantly, at the end of December, we dosed the first patient in our pivotal COPD study. Lastly, results from the Phase III CAPTAIN study supported the use of Trelegy for the 30% of patients with asthma who are on an ICS/LABA but continue to experience symptoms. These data were filed with the FDA in October, and we anticipate a decision this year. As I mentioned at the start of my presentation, I want to spend a few minutes updating you on the progress of our efforts to use human genetics, functional genomics and machine learning to find novel and compelling drug targets. We announced our collaboration with 23andMe in July of 2018 and have now identified 8 new targets, including programs in oncology, immunology, neurology and cardiovascular disease, and anticipate one of these projects will enter the clinic later this year. We've also seen the benefit this collaboration can bring to clinical trials recruitment by successfully identifying and enrolling patients with primary biliary cirrhosis and cholestatic pruritus for a Phase II study of our IBAT inhibitor, linerixibat. The Laboratory for Genomics Research was announced in June with the University of California and is led by the CRISPR pioneers, Jennifer Doudna and Jonathan Weissman. We expect to have the first of our collaborative projects underway in the next few months. In addition, we continue to attract extremely talented individuals to work in GSK R&D, including Erik Ingelsson, previously Professor of Medicine and Genetics at Stanford, who recently joined us as our Head of Human Genetics. We also now have 50 outstanding scientists across the globe in our AI/ML group and expect this number to grow to about 80 by year-end. I'd like to conclude my presentation with a summary of key upcoming pipeline milestones for 2020. We have a number of potential approvals this year, including Zejula in frontline ovarian cancer, bela-maf in fourth-line multiple myeloma, dostarlimab in second-line endometrial cancer, fostemsavir for patients with HIV, Trelegy for patients with asthma, daprodustat for patients with anemia from chronic disease and cabotegravir+rilpivirine for our long-acting treatment for patients with HIV. Pivotal data is anticipated for new colon patients with nasal polyps and from the BLISS-BELIEVE study investigating the combination of Benlysta with Rituxan and SLE. In 2020, we also expect a substantial amount of proof-of-concept data throughout the year, demonstrating the progress of our earlier-stage pipeline, including data on combination studies with various IO agents. As I mentioned earlier, we're also looking forward to data on our potential RSV and COPD vaccine. In summary, I'm pleased with the progress we are making to prioritize and strengthen our pipeline, fueled by the increased investment in R&D that Iain mentioned earlier. I look forward to sharing my next update on R&D with you in July. And with that, I'll now hand it over to Emma.

[Emma N. Walmsley, CEO & Director]

Thanks, Hal. So to summarize, in 2019, we delivered a good performance with growth in sales and earnings and strong cash generation. We also made significant progress on all our IPT priorities: strengthening the pipeline, improving operational execution and reshaping the company. In 2020, our first priority remains innovation and to progress our pipeline and support our new product launches. Recent data readouts underpin our decision to further increase investment in R&D and our long-term growth drivers. At the same time, we're again focused on operational performance and execution, including delivering a successful integration in consumer health. And as we've outlined today, with the unique catalyst of the separation, we're starting a new program to prepare GSK to become 2 new companies. And in trust, we will continue to pursue actions to deliver the public commitments we've set out. These support our business and ESG performance and mean that GSK continues to provide a broader contribution to society, in addition, of course, to financial return. All of this aims to support future growth and significant value creation with the formation of 2 new leading companies in Biopharm and consumer, each with the opportunity to improve the health of hundreds of millions of people. And finally, and most importantly, I want to say a big thank you to all our employees and those who've worked with us in 2019 for their enormous contribution. Without them, we would not succeed. And we count on them now as we prepare GSK for this exciting future. With that, operator, this team is ready to take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of James Gordon from JPMorgan.

[James Daniel Gordon, Senior Analyst]

It's James Gordon from JPMorgan. Two questions, please. The first question is about consumer because that's -- the separation was the theme today. My questions are at the top line outlook. So pro forma, there wasn't actually any consumer top line growth this quarter. And more generally, I think the market for consumer health is meant to be something like 2% to 3% growth, and the big players have underperformed that a bit. And more generally, in consumer, there's been some debate from some investors asking whether the consumer companies need to sacrifice some of the increasingly high profitability they've been achieving to invest more to actually get faster growth. So is that a value question for the consumer health business? Is it possible to have high-20s margins and also an exciting top line growth rate? And then the second question was just on SG&A but for the group. So I know there's these various cost-saving initiatives and the plan to shift some of SG&A to R&D, but SG&A was actually still up about 3% in local currency and pro forma. So is there anything exceptional in Q4? Or do we extrapolate that forward for the next few years? That you're not just an investment mode for R&D, but that SG&A is going to grow quite a lot as well and that's why no operating margin expansion until '22?

[Emma N. Walmsley, CEO & Director]

Thanks, James. I'll ask Iain in a moment to comment on SG&A. I think you covered a few of those points previously, particularly on our investment in the future growth drivers, but it's worth coming back on the details on noncustomer-facing. And on consumer, Brian is also on the call, so I'll ask him to comment on the outlook. Just to reiterate, though, that there were -- in terms of Q4 top line, there were a couple of points, one point from divestments and one from alignment of stock levels across the Pfizer portfolio. And fundamentally, we are still very confident both on extracting the synergies, but also on the value that's going to be created by the combination of these 2 businesses and our investment in growth there. But Brian, would you like to give a bit more commentary on consumer? And then we'll come back to Iain on SG&A.

[Brian McNamara]

Yes. Yes. Thanks, Emma, and thanks, James. When you look at full year growth for the business, we grew 2%. And we did have a 1% drag from divestments and phasing out a low-margin contract manufacturer, as we've previously communicated. In Q4, we were flat. And as Emma said, we had 1 point of drag from that and also some alignment of inventory levels. If you look across the portfolio, we still grew healthy on our power brands. We have a very clear strategic resource allocation. We saw mid-single-digit growth and double-digit growth on brands like Sensodyne, Panadol and our gum health brand, Parodontax. Now the integration continues to go well. We're on track, and we're confident in delivering the GBP 500 million synergies. And if you remember, when we communicated that, we communicated we would invest 25% back of those synergies into innovation and growth. So as I look at the makeup of the business, I still am incredibly excited and optimistic about the combination of the 2 portfolios, our ability to grow, obviously, ex divestments, as Iain laid out. And we look at the mid- to high-20 margin commitment by 2022. Given where we're on in integration and our confidence in the synergies, I believe we can also deliver that.

[Emma N. Walmsley, CEO & Director]

Thanks, Brian. Next question, please?

[Iain James Mackay, CFO & Executive Director]

No, didn't answer the SG&A...

[Emma N. Walmsley, CEO & Director]

Sorry. No, I wasn't. Iain? Let's go back to SG&A.

[Iain James Mackay, CFO & Executive Director]

Yes. Absolutely. James, thanks for your question. I'll give just a view in both the fourth quarter as well as for the full year in SG&A. In terms of the fourth quarter, it was very much a consistent story around investing around customer-facing activities, whether it's continuing to build out around specialty care capabilities, but also ensuring the right support behind new product launches and commercial activities. And that was true across both Pharma and the Consumer Healthcare businesses in the fourth quarter. That's a consistent theme across the whole year. If you look at SG&A for the whole year, that was also influenced by a number of legal settlements that we had. And that was reflected, most importantly, in the third quarter. But when you look at customer-facing versus noncustomer-facing SG&A both in the fourth quarter and across the year, we've kept noncustomer-facing SG&A very flat over the course of the year and the quarter and put our, if you like, our eggs behind making sure we've done the right decisions and investments around supporting new product launches and capability in the market.

[Operator]

Your next question comes from Matthew Weston from Crédit Suisse.

[Matthew Weston, Managing Director and Co]

Two questions, if I can, please. For 2019, I think exactly 50% of Pharma business revenue is now Established Products. It declined 8%. Could you give us some indication of what we should expect going forward in 2020 and the midterm for that large product segment? And then secondly, Hal, there's been a great deal of investor focus on bintrafusp alfa. I noticed that on Slide 47, your catalyst that will inform progress, there's no mention of anything in 2021 in terms of readout. There has been some suggestion of the trial being upsized in frontline lung versus Keytruda. Could you just let us know what could drive any decision to upsize the study and whether it really is planned?

[Emma N. Walmsley, CEO & Director]

Thanks. So we'll come back to Hal on that in a second and then just ask Iain to comment on Established Products. But just as a reminder, this is the business when -- or the parts of the business when we are considering the divestments review and wanting to focus on our core priorities that will be impacted. And obviously, we'll update you on that as we go through its execution. Iain?

[Iain James Mackay, CFO & Executive Director]

Yes, Matthew. In terms of -- you're absolutely right. In 2019, we saw about 6% reduction in the Established Pharma portfolio over the prior year. And going forward, we would expect a mid- to high single-digit decline for that portfolio. That, I think, is very consistent with how we've guided and actual fact how this portfolio has performed. And just as an aide-mémoire, we obviously moved Advair/Seretide into the Established Pharma portfolio at the beginning of the year as genericization, loss of exclusivity took place. But broadly speaking, mid- to high single-digit decline in the Established Pharma portfolio.

[Emma N. Walmsley, CEO & Director]

Thank you. Hal on bintrafusp, please?

[Hal V. Barron]

Yes. No, thank you, Matthew, for the question. We're pleased with the ongoing collaboration with our partners at Merck KGaA on the development of bintrafusp and have been deferring to them on much of the disclosure time lines related to the program. That said, the study is on track for the estimated primary completion at the end of 2021. We'll hopefully be able to have the data read out after that. But remember, that's an event-driven trial. And there could be an interim analysis in 2020, which could lead to expansion of the study depending on what's evaluated. No interim data, as we've mentioned before, will be shared externally to protect the integrity of the study. The data will only be provided once the study is completed and the end points are analyzed.

[Operator]

Your next question comes from Andrew Baum from Citi.

[Andrew Simon Baum]

Just one question.

[Emma N. Walmsley, CEO & Director]

Andrew, we can't hear you.

[Andrew Simon Baum]

Can you hear me?

[Emma N. Walmsley, CEO & Director]

No.

[Iain James Mackay, CFO & Executive Director]

No.

[Hal V. Barron]

A little louder.

[Andrew Simon Baum]

Hello? Can you hear me?

[Emma N. Walmsley, CEO & Director]

Marginally. Try. We'll see.

[Andrew Simon Baum]

Okay. So what's the appetite, financial capacity and bandwidth for further BD on the pipeline given the existing upward pressure required for expansion of the existing program, which you -- Iain alluded to in his presentation. Continued growth at the same levels as last year, and I assume the same is true for 2021. Does that allow for additional pipeline products to come in? Or is there still the capacity to do such.

[Emma N. Walmsley, CEO & Director]

Thanks, Andrew. So heard loud and clear. And the answer on this is there's absolutely no change to what we've said previously in terms of the prioritization of our capital allocation. Our #1 priority is to continue to strengthen the pipeline, be that organically or inorganically. Obviously, we're particularly pleased with the positive data that's read out more recently and also pleased with the quality of the execution of the business development that we've done to date. So we will continue to keep an eye out for that with due alignment to the R&D strategy that Hal laid out and obviously, the discipline in terms of allocation of capital.

[Operator]

Your next question comes from Mark Purcell from Morgan Stanley.

[Mark Douglas Purcell, Equity Analyst]

I have 2. The first one, Zejula, how breast and lung cancer are starting a new set of trials towards the end of the year. Can I just ask, I mean, we discussed PARP is potentially the new platinum in the summer after the first half results. Just why is it taking 18 months before you move into pivotal? So in these new indications given the sort of [ exciting data ] you presented today, is this a case of waiting for internal and additional competitive external data points? Or is this a case of just managing the overall R&D spend? And then secondly, on the COPD vaccine, clearly, multi-blockbuster potential. But I hope could you -- well, hoping, could you provide us a little bit of an idea in terms of the risk-reward here? When we sort of dig into this, clearly, 35%, 45% of patients are persistently colonized by H influenzae and M catarrhalis. But if you look at acute infective exacerbations, you see the involvement of these 2 bacteria at around about 15%. So clearly, a very exciting program. But given that the acute exacerbations, you don't see much in terms of overcolonization of these bacteria. Could you help us understand sort of what kind of signal we could see as we gauge the potentially enormous potential in the latter part of this decade?

[Emma N. Walmsley, CEO & Director]

Thanks so much. So I'm going to ask, actually, Roger Connor to talk about the COPD vaccine because I think he's on the line with us as well. And then we'll ask Hal, though, first of all, to comment on the PARP program.

[Hal V. Barron]

Well, thanks for the question on the PARP. And we agree with you. It's a very exciting class. And we think Zejula is very unique, both in its PK and its ability to cross the blood-brain barrier. One of the -- and our decision with regard to which indications and the design of the trials was actually not driven really in any meaningful way by competitor data or budgetary constraints. One of the interesting observations that came out of the PRIMA study, which we think we have an explanation for and I went over it, is regarding the 50% of patients who had no evidence of a homologous recombination defect, the HRP patients who benefited so substantially, not only with their improvement in PFS. But -- and it's very early days and limited data, but there appeared to be suggestions of maybe even potential survival advantage in an early analysis. That led us to rethink exactly how to design the trials, which populations to pursue, whether it's treatment, whether it's maintenance and what indications, leading us to conclude in lung and breast. But the populations within them and how to apply diagnostic was something that we were taking time to digest after PRIMA. Having said that, we also are trying to take advantage of the potential unique feature of Zejula to cross the blood-brain barrier. So designing trials that might enable us to confirm the preclinical data that suggest it does cross and it is active was important. So we're excited about getting those programs off the ground and being able to demonstrate significant benefit for those types of patients.

[Emma N. Walmsley, CEO & Director]

Thanks, Hal. Roger, do you want to comment on the COPD vaccine?

[Roger G. Connor, President of Global Vaccines]

Yes. Certainly. Listen, thanks very much for the question. I would just echo the -- I think the excitement that we have around the development of the COPD vaccine that we have. We are the only company really working in this space. A couple of things just in terms of illustrating the opportunity. First of all, I'd say third-largest cause of mortality globally in COPD. So we think the opportunity is definitely there. In the U.S. alone, we estimate there's around 16 million people suffering from COPD. Obviously, in GSK and the development, we are, in Vaccines, working very closely with our Respiratory colleagues and Pharmaceuticals because obviously, the huge experience that we have as well there will be key. The readout as a proof of concept, as you mentioned, is going to be in the second half of this year. We're looking at a reduction in acute exacerbation linked to the bacterial types. I think in terms of what we expect from the data, I think we'll have to see. What I would point out is that this vaccine does include the same adjuvant technology, our AS01 technology, that we have within Shingrix as well. We're expecting to see efficacy data linked to that reduction in moderate to severe exacerbation. And we're studying in a population of 40 to 80-year-olds. So let's see, but we're excited about the opportunity.

[Operator]

Your next question comes from Graham Parry of Bank of America.

[Graham Glyn Charles Parry]

So first one is just to clarify the scale and quantity of divestment. So I think you said the amount of revenues that you envisage divesting would be GBP 1 billion in -- related to Horlicks and other consumer divestments. So can you just confirm that the derms and other pharma divestments would be needed in order to cover the GBP 2 billion cash restructuring costs and quantify what you expect the loss revenues there to be and perhaps any EPS dilution on top of your guidance in 2020 that you might envisage from that? And then secondly, when you talk about building R&D capabilities going forward, do you envisage that's more weighted towards technologies or products? And how do you intend to fund those acquisitions if external M&A?

[Emma N. Walmsley, CEO & Director]

So thanks, Graham. I'm going to ask Iain to pick up, first of all, on the shape of the divestments. But just to be clear, the GBP 1 billion was referring to the consumer part of it in terms of net sales, including Horlicks. And remember, we previously announced a program of consumer divestments. But I'll let Iain take on that. And then I'll come back to Hal on what we mean in terms of building the R&D capabilities through the program -- the new program we've announced today. So...

[Iain James Mackay, CFO & Executive Director]

Yes. Okay. Sure, Graham. So divestments. So 2 buckets here, broadly speaking. As Emma described, we've announced earlier at the time that we announced the formation of the JV with Pfizer that we would generate about GBP 1 billion of net proceeds from disposals of tail brands within the Consumer Healthcare company. We'd obviously announced separately that we would dispose of our Horlicks and certain other brands to Hindustan Unilever, which, as I mentioned earlier, are likely to close. We expect to close sometime around the end of this quarter. Now taking those -- the consumer deals together in 2019, that generated about GBP 1 billion worth of revenue for the top line of Consumer Healthcare. And from the tail brands, excluding Hindustan, we'd expect to generate about GBP 1 billion in net proceeds. That's bucket one. Bucket two is divestments are assets that are under review across the broader Pharma portfolio. We mentioned -- or we announced today the fact that the prescription derms business is under consideration. That's a business, the portion of which we're considering has got revenues between GBP 200 million and GBP 300 million. It's a good business. It's not a priority business for us, but we certainly believe it's a good prospect in terms of interest for other people. In terms of the proceeds we would expect to generate from that portfolio reprioritization, we'd expect to cover the cash costs of the restructuring program, the readiness for separation of GBP 1.6 billion. So just for clarity on that, the program we talked about has total costs of GBP 2.4 billion. GBP 1.6 billion cash, GBP 0.8 billion of impairments coming through that. And we would expect to generate proceeds that would cover that cash cost. Now within that, also, we mentioned derms is one of the business. One of the areas we're looking at are also a number of equity holdings that we have, which clearly, there aren't revenues or operating margins partially attached to. And that again represents an interesting opportunity for us to reprioritize capital allocation towards the growth drivers within the organization. So hopefully, that helps clarify what we're doing. And obviously, as we proceed with these divestments, we'll get information to the market about what we're doing and the impacts that have -- that has on the ongoing financials of the group.

[Emma N. Walmsley, CEO & Director]

Thanks, Iain. Hal?

[Hal V. Barron]

Yes. Thanks, Graham. So by R&D capabilities, I think I would think about that in 3 different buckets. The first one you mentioned, which is technologies such as AI/ML, functional genomics, human genetics and our cell therapy programs. I think we've made terrific progress there. And advancements further will probably be focused on identifying new synthetic lethal combinations and some new targets that are already emerging from some of the preliminary functional screens. And that combined with -- we've already had 8 targets from 23andMe, and we're just going to have a lot of stuff coming out of the technology that we need to execute on. So that would be the second bucket, sort of executing on all the emerging data from the technologies. And lastly, capabilities to actually build up the ability to actually get the trials done and filed. The pipeline's very robust now, a lot of successes, and we need the people and tools to actually turn all these medicines into approved drugs. So capabilities in all 3 of those are where we're focused.

[Operator]

Your next question comes from the line of Emmanuel Papadakis from Barclays.

[Emmanuel Douglas Papadakis, MD & Head of European Pharmaceuticals Research]

Emmanuel Papadakis from Barclays. Maybe just a couple on the Pharma side in terms of potential moving parts for 2020. Congratulations on the PRIMA real-time oncology review. Could you just share your thoughts in terms of what that might potentially imply in terms of commercial inflection in the second half of the year and indeed, what is embedded in your current guidance for the Pharma business in 2020? And the second one is just on the cabotegravir CRL. CMC, I don't think, typically implies huge delays historically, but you've been rather elusive about clarifying when you expect to refile and the potential ranges around that. So any guidance you can provide would be helpful.

[Emma N. Walmsley, CEO & Director]

Thanks so much, Emmanuel. So we'll come to Luke first on commercial outlook for Zejula, and then we'll come to David, although I'm not sure we're going to have a definitive answer for you on the progress around the filing for the cab. Luke?

[Luke V. Miels, President of Global Pharmaceuticals]

Sure. Thanks, Emmanuel. Thanks for the question. So as we've communicated in the past, I mean, PRIMA really is the critical readout in the near term for this product. We would expect it in the first half. And then linked to that, we would expect some changes in the NCCN guidelines, which, of course, would then ideally place pressure on this persistent election by some physicians to watch and wait. We're well advanced and prepared for that. We reconfigured the sales force in October. It had historically been [ full prudent-based ] on VARUBI, which is the product that TESARO had for chemo-induced nausea and vomiting. So we were -- we took the decision to bite the bullet at that point and reframe the sales force. That's important because around 50% of scripts come from Tier 3 physicians. It's quite dispersed for oncology, but we would expect to see that flowing through in the second half of next year once we get the label and the guidelines. Of course, if it comes sooner, we would then update you.

[Emma N. Walmsley, CEO & Director]

Thanks, Luke.

[David Simon Redfern, Chief Strategy Officer]

Yes. Thanks, Emmanuel. So on cab, the CRL, as we've said, was entirely related to CMC, not efficacy or safety or the clinical data. We do think it is definitely resolvable. I'm not going to commit right now on time frames. I think we need to meet with the FDA. There's a process for that. It's called a Type 2 meeting, and you have to apply and so forth. But that meeting is likely to happen very soon, certainly during quarter 1. And I think when we've had that meeting, we'll be in a much better position to be clearer on the way forward.

[Operator]

Your next question comes from the line of Geoffrey Porges from Leerink.

[Geoffrey Craig Porges]

Just a couple of growth drivers questions. First, on Shingrix. Could you talk a little bit more about the slight supply increase, particularly in the context of the 2 flat quarter -- or sequentially flat quarters? And then could you also discuss what the pricing trend you would expect over the next couple of years is, given the fact that you're moving out of the U.S. concentrated portfolio into markets such as China?

[Emma N. Walmsley, CEO & Director]

Thanks. Well, I'll ask Luke to comment on the sort of pricing dynamic, although we're obviously thoughtful about that with any geographic expansion, not least because the demand is not showing signs of slowing down. Just in terms of capacity increases, though, I would say I'm not sure I agree that we've had 2 flat quarters on Shingrix. But with the guidance that we gave today was that we would expect a roll-forward of Q4 with a potential slight improvement through 2020. I'm incredibly pleased with the progress that Roger's team has made in terms of capacity expansion, particularly in terms of bulk yield. And obviously, we're constantly seeing what further opportunities could be possible, but we don't expect much further improvement beyond that until we get into the step-change of a new site [ in '24 ]. But we'll keep you updated as the year progresses. Do you want to comment on...

[Luke V. Miels, President of Global Pharmaceuticals]

Sure. Yes. So I mean we're very focused in terms of next markets to introduce. You know we're in Canada and Germany, and we've seen quite striking uptakes there, which are limited by volume like in the U.S. Our approach globally is going to be to introduce this into the private market, at least for a considerable time. We think there's significant opportunity there in the out-of-pocket segment, and that's certainly consistent with what we've seen in Germany, and China is the next one [ off the bank ]. What we're trying to do is align a price in these new markets with the U.S. price.

[Operator]

Your next question comes from the line of Laura Sutcliffe from UBS.

[Laura Sutcliffe, Equity Research Analyst]

Firstly, on the prescription dermatology business. You mentioned just now that it's a GBP 200 million to GBP 300 million business in terms of sales. Could you maybe tell us if you're looking at that as one block as part of the review? Or whether we might see products sold off piecemeal? And then secondly, on '916, do you anticipate any patient monitoring requirements for the combination being studied in the DREAMM-9 line?

[Emma N. Walmsley, CEO & Director]

Thanks. So David, anything to add? I mean I'm not sure what...

[David Simon Redfern, Chief Strategy Officer]

Well, it's early in the review, Laura. So I'm not going to get too much in it. I mean, obviously, we will do whatever we think is in the best interest of the company and the shareholders as that review goes on and all options are on the table.

[Emma N. Walmsley, CEO & Director]

Hal, '916?

[Hal V. Barron]

Yes. Thanks, Laura, for the question. First, as I said in the presentation, we take patient safety very seriously and helping clinicians understand and manage this unique adverse event will be important. We have not -- we're not disclosing any discussions we're having with regulators, but we think that it's going to be important that the keratopathy that we think was well managed by the DREAM-2 investigators in collaboration with their ophtha colleagues is sort of replicated in the real world. We're developing educational materials and programs to help ensure that happens upon launch so that these patients get treated optimally. As we get more clarity with regulatory authorities, we can update you further.

[Operator]

Your next question comes from the line of Naresh Chouhan from Intron Health.

[Naresh Chouhan;Intron Health;Founder]

One on dividend cover. I remember a while ago, you set some targets around dividend cover. But with free cash flow falling in '19, expected to be lower again in '20, can you just give us an update on how you're thinking about those targets? And then on the consumer health margin targets, can you help us to understand whether or not you need to have those divestments of potentially -- or likely lower-margin products to help you get to the higher end of that range or whether you can hit those targets organically?

[Emma N. Walmsley, CEO & Director]

So I'll ask Iain to comment on the consumer margin redivestments. I'm sorry, I've forgotten what the first question was.

[Iain James Mackay, CFO & Executive Director]

The divi cover.

[Naresh Chouhan;Intron Health;Founder]

The divi cover.

[Emma N. Walmsley, CEO & Director]

Oh, the dividend cover. Yes, sorry. Well, the basic answer to that is we have absolutely no change to our policy around divi cover, which is as a function of free cash flow from 1.25 to 1.5. I'm actually pleased with the cash flow delivery this year. And we're clear on the policy and clear on where it sits in our capital allocation priorities. Iain, anything on the...

[Iain James Mackay, CFO & Executive Director]

No change on that front. I'm sorry, Naresh. I'm not entirely sure I followed your question on Consumer Healthcare disposals. Could you just run that one past me again? Have we lost him?

[Emma N. Walmsley, CEO & Director]

Maybe we can come -- okay. Well, maybe we'll go to the next question unless...

[Iain James Mackay, CFO & Executive Director]

Has Naresh gone, has he? Okay.

[Operator]

That was your last question.

[Emma N. Walmsley, CEO & Director]

All right. Well, thank you, everybody. We look forward to updating you again soon. Thanks very much.

[Operator]

Thank you, Emma. Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining. And enjoy the rest of your day.