Pfizer Inc

NYSE:PFE

Earnings Call Transcript 2017-Q4

[Operator]

Good day, everyone, and welcome to Pfizer's Fourth Quarter 2017 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Chuck Triano, Senior Vice President of Investor Relations. Please go ahead, sir.

[Charles Triano, Senior Vice President of Investor Relations.]

Good morning and thank you for joining us today to review Pfizer's fourth quarter 2017 performance and 2018 financial guidance. I'm joined today by our Chairman and CEO, Ian Read; Albert Bourla our Chief Operating Officer; Frank D'Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development, John Young, Group President of Pfizer Innovative Health and Doug Lankler, our General Counsel.

The slides that will be presented on this call can be viewed on our website, pfizer.com/investors. Before we start, I'd like to remind you that our discussions during this conference call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially.

Additional information regarding these factors is discussed under the disclosure notice section in the earnings release we issued this morning, as well as in Pfizer's 2016 annual report on Form 10-K, including in part one, item 1A, that is filed with the SEC and available at their website sec.gov and on our website at pfizer.com

Forward-looking statements during this conference call speak only as of the original date of this call, and we undertake no obligation to update or revise any of those statements.

Discussions during the call will also include certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer's current report on Form 8-K, dated today, January 30, 2018. You may obtain a copy of the Form 8-K on our website at pfizer.com/investors.

Any non-GAAP measures presented are not, and should not be viewed as, substitutes for financial measures required by U.S. GAAP, have no standardized meaning prescribed by U.S. GAAP and may not be comparable to the calculations of similar measures at other companies.

We will now make prepared remarks, and then we will move to a question-and-answer session.

With that, I'll now turn the call over to Ian Read. Ian?

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Chuck, and good morning, everyone. During my remarks, I will speak about our performance for the year; the continued advancement of our pipeline which we believe is more robust and productive than it has been in more than a decade and the expected impact of U.S. tax reform on Pfizer. Frank will provide details regarding the quarter and our 2018 financial guidance.

Pfizer had another solid year in 2017, despite having just over a $3 billion negative revenue impact due to LOEs and the divestment of Hospira Infusion Systems, we were able to offset this impact and report flat operational revenue as we saw growth in many of our anchor brands.

We also saw continued growth in emerging markets, which was up 11% operationally compared with the previous year. I’ll begin with a few words regarding the performance of each of our business starting with Pfizer Innovative Health.

This business had another strong year, growing its topline 8% operationally, thanks to the continued strength of several of our best-selling medicines. Ibrance revenues grew 47% operationally to $3.1 billion for the year.

To date, Ibrance has been prescribed to more than 100,000 patients around the world and received regulatory approval in more than 80 countries; however, revenues in certain developed European markets were negatively impacted by a onetime price adjustment to full year 2017 revenues.

This adjustment was the result of agreements to establish pricing levels comparable to historical European pricing analogs for oncology products ensure patient access and drive expected future growth in these markets. We see this as a positive for the future of the brand.

We remain confident in the profile of Ibrance based on a number of factors including safety and efficacy. We are working to build on Ibrance’s initial success with trials in the early breast cancer setting and the HER2 positive metastatic setting and move our novel next-generation investigational CDK inhibitor, which may be effective for patients as they become resistant to Ibrance. We expect to have this asset in the clinic this year.

Eliquis alliance and direct sales revenue grew 47% operationally to $2.5 billion, and is the number one new two brand oral anticoagulant prescribed by cardiologists in 21 markets. Xeljanz experienced 45% year-over-year operational growth and achieved its first year of blockbuster status.

We expect our information immunology franchises to continue to strengthen over the recent U.S. approval of Xeljanz’ s for psoriatic arthritis, and we are hopeful that we will receive U.S. approval for a further indication ulcerative colitis this year.

Chantix revenue grew 18% operationally to nearly $1 billion for the year. Lyrica revenues within [ph] Pfizer’s Innovative Health grew 9% operationally the $4.5 billion for the year. Lyrica continued to be a strong contributor to the Innovative Health and we anticipate that Lyrica will maintain its market exclusivity in the United States until the end of 2018 or through June 2019 if the FDA grants approval for the paediatric extension exclusivity.

Pfizer’s share of Xtandi’s U.S. net sales was $590 million for the year. In the fourth quarter 2017, Pfizer’s share of net sales was $168 million up 12% from the third quarter 2017 and 22% from the fourth quarter of 2016.

A number of urologists actively prescribing Xtandi continues to grow and reach an all-time high of more than 1,700 in the fourth quarter of 2017 compared with approximately 500 for ZYTIGA.

In terms of potentially expanding Xtandi’s benefit to men with non-metastatic prostate cancer, in September we announced that the Phase 3 PROSPER trial in non-metastatic castration-resistant prostate cancer met its primary endpoint. And we look forward to presenting detailed results at the ASCO GU Congress on February 8.

We also pleased that in partnership with Astellas we have submitted the PROSPER data to the FDA seeking to expand the label to the non-metastatic CRPC setting. We are awaiting the FDA’s acceptance of the application for review.

Finally, we continue to review strategic options for our consumer healthcare business. This could include anything from a full or partial separation business to ultimately deciding to retain the business and we continue and expect to make decisions during 2018.

Turning now to Pfizer Essential Health. While revenues for the year declined, due in large part to expected products LOEs, we once again saw strong operational growth both in emerging markets in our biosimilars portfolio.

Emerging markets revenue grew 7% operationally for the year to 7 billion. China led the way growing 16% operationally. Our biosimilars business grew 66% operationally in 2017 to 531 million, and we remain the number one biosimilars company globally. We also advanced six biosimilars pipeline products during the year through various regulatory and data milestones.

EH’s growth in emerging markets and biosimilars were offset by product supply shortages in the sterile injectable business. Our sterile injectable shortages are primary for products from the legacy Hospira portfolio, and are largely driven by capacity constraints and technical issues.

As we stated previously, we have a robust action plan in place and we believe we will make substantial progress in 2019 towards reducing these shortages.

Turning to Inflectra. At the end of December each share increased to 5.6% of overall U.S. infliximab volume, up from 4.9% at the end of September. This increase was primarily due to the products continued strong performance in closed systems, such as the VA where the insurer and provider are the same entity. Despite J&J’s exclusionary contracting with regard to Remicade, we continue to see increased coverage for Inflectra amongst commercial payors.

And just last week, the appellate court ruled that a key patent that J&J is asserted to block access to Inflectra is invalid.

Last quarter, I talked about the expected decline in the number and revenue impact of LOEs facing our business. And the further strengthening of R&D pipeline, we expect these trends to continue.

In terms of LOEs, we expect the full year year-over-year impact to be about $2 billion in 2018, which remain significantly lower than our recent past. We expect the impact of LOEs will remain in the $2 billion range through 2020 before improving to $1 billion in 2021 and then $500 million or less from 2022 through 2025.

At the same time, our pipeline continues to generate exciting new opportunities for our company and for the patients who benefit from our innovative therapies. In 2017, we received 10 approvals from the FDA. This is significantly more than we achieved in any year in the past decade.

Let me touch on some of our most recent advances. In oncology, we recently presented positive results from the Phase 3 EMBRACA trial, which showed that our PARP inhibitor, talazoparib significantly extended progression free survival versus standard-of-care chemotherapy in patients with BRCA-positive metastatic breast cancer.

In partnership with Merck KGaA, we look forward to continued progress with Bavencio, our PD-L1 inhibitor. We have upcoming data readouts in second line non small cell lung cancer and first line renal cell carcinoma in combination with INLYTA.

In addition, the triplet study exploring the combination Bavencio, our 4-1BB agent, and our OX40 monoclonal antibody in solid tumors ended the clinic in the first half of 2017. We will continue to evaluate this combination throughout 2018.

In 2018, we expect to advance multiple oncology filings in the registration process including talazoparib in EMBRACA positive metastatic breast cancer, Xtandi for non metastatic castration resistant prostate cancer, for which we have submitted an sNDA based on the Phase 3 PROSPER data.

Lorlatinib which has shown activity in almost all known clinically acquired ALK mutations and health positive non-small cell lung cancer. Dacomitinib in EGFR mutated non small cell lung cancer based on the positive ARCHER 1050 findings published in September and our SMO inhibitor, glasdegib, for acute myeloid leukemia based on Phase 2 results.

In Inflammation & Immunology, we have seven ongoing JAK clinical programs providing us with the strongest immuno kinase franchise in the industry. The Phase 2 data for our oral once daily JAK1 in atopic dermatitis was presented in September and this asset is the first and only JAK1 to enter Phase 3 in 2017.

In Vaccines we began Phase 3 trials with our C. difficile vaccine. The studies have been enrolling well and our recent competitive decision has positioned us as a potential first-in-vaccine.

Leveraging the success of Prevnar, we also moved into Phase 2 of our next-generation pneumococcal vaccine candidate with the potential to cover 20 serotypes. In addition, we are advancing a Phase 2 tetravalent Staphylococcus aureus vaccine with fast-track designation.

In 2017 we also continue to take important steps towards becoming an industry leader in gene therapy. We see gene therapies as a field that holds tremendous promise for patients in areas of devastating need, particularly in rare, monogenic diseases with loss of function.

We finished the year with two assets in the clinic that are potential therapies for Hemophilia B and Hemophilia A.

In 2018, we expect readouts from multiple pivotal studies in rare diseases, including Rivipansel for Sickle cell disease and Vyndaqe in Cardiomyopathy. We also have begun screening patients for our potential gene therapy for Duchenne Muscular Dystrophy.

We also broke ground on $100 million commercial gene therapy manufacturing facility in Sanford, North Carolina and when complete we’ll have end-to-end capabilities from manufacturing to commercialization.

Before closing my remarks today, I’d like to spend a few moments discussing the new U.S. tax code, and its expected impact on our business. As you know, Pfizer has been advocating for many years for comprehensive tax reform.

That’s because the system that had been in place for U.S. based multinational companies that are competitive disadvantage vis-à-vis foreign competitors with regard to the tax rate and international access to capital. The new tax code addresses these issues and helps level the playing field to make U.S. companies more competitive.

After evaluating the expected positive net impact, the new tax code will have on Pfizer; we have decided to take several actions. Over the next five years, we plan to invest approximately 5 billion in capital projects in the U.S. including the strengthening of our manufacturing presence in the U.S.

We also expect these reforms to favourably influence future investments. We plan to make a $500 million contribution to our U.S. pension plan in 2018. In the fourth quarter of 2017, we made a $200 million charitable contribution to the Pfizer foundation. This organization provides grants and investment funding to support organizations and social entrepreneurs in an effort to improve healthcare delivery.

We have also earmarked approximately 100 million for a special one-time bonus to be paid to all non-executive Pfizer colleagues. Given the more favorable repatriation provision, we are continuing reviewing our capital allocation opportunities under the new tax code. We will remain disciplined in our approach with value creation for shareholders remaining our compass.

In summary, we continue to deliver our strategy in 2017. As a result, we saw continued growth of new brands, achieved a record number of product approvals, further advanced our pipeline, which we believe will be a significant competitive advantage and growth driver going forward. And we entered 2018 even better positioned to deliver new medicines for patients and increase value for our investors going forward.

All of these achievements have been made possible by the strength of our leadership team, which we further strengthened recently with Albert Bourla taking on the role of Chief Operating officer, John Young, leading Pfizer Innovative Health and Angela Wong becoming the head of Pfizer Essential Health. These appointments are testament to the depth and breadth of our leadership talent, which has positioned us very well for continued success.

Now we’ll turn it over to Frank to provide details on the quarter and our outlook for 2018.

[Frank D'Amelio, Chief Financial Officer.]

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

Now moving onto the financials, fourth quarter 2017 revenues were approximately $13.7 billion, which include the favorable impact of foreign exchange of $114 million, partially offset by slight operational decline of $39 million.

If you exclude both the prior year quarter revenues for Hospira Infusion Systems, or HIS, and the positive impact of foreign exchange, fourth quarter 2017 revenues increased $240 million or 2%.

Our Innovative Health business recorded 5% operational revenue growth in the fourth quarter of 2017, driven primarily by Eliquis globally, Xeljanz in the U.S., Prevenar 13 in emerging markets, and Lyrica, Ibrance and Chantix in the U.S. all of which were partially offset by lower revenues for Viagra in the U.S. because of generic competition beginning in December of 2017 and Enbrel in most developed Europe markets due to continued biosimilar competition.

Revenues for our Essential Health business in the fourth quarter decreased 8% operationally, of which 5% was attributable to the divestiture of the HIS business in February of 2017. The remainder of the decrease was due to an 18% operational decrease from Peri-LOE Products, including the expected declines in Pristiq in the U.S. and Lyrica in developed Europe markets, as well as a 10% operational decline in the Sterile Injectable portfolio, primarily due to continued legacy Hospira product shortages in the U.S. all of which were partially offset by operational growth 72% from biosimilars, mainly driven by Inflectra in the U.S. and developed Europe.

In Emerging Markets, Pfizer's overall Essential Health revenues grew 10% operationally, in the fourth quarter primarily due to 10% growth from the legacy established products portfolio and 23% growth from the sterile injectables portfolio.

Fourth quarter reported diluted EPS was $2.02 compared with $0.13 in the year-ago quarter, primarily due to a lower effective tax rate due to the enactment of the Tax Cuts and Jobs Acts over the TCJA in late 2017.

As a result, Pfizer’s fourth quarter full year 2017 provision for taxes on reported income was favourably impacted by approximately $10.7 billion, primarily reflecting the re-measurement of U.S. deferred tax liabilities which includes the repatriation tax on deemed repatriated accumulated earnings of foreign subsidiaries.

Our fourth quarter reported diluted EPS was also favourably impacted by lower restructuring and implementation cost and unfavourably impacted by higher losses on debt retirement.

Adjusted diluted EPS for the fourth quarter was $0.62 versus $0.47 in the year-ago quarter. The increase was primarily due to a lower effective tax rate, lower adjusted total cost and expenses and fewer shares outstanding.

I want to point out that diluted weighted average shares outstanding declined by 80 million shares versus the year-ago quarter due to our share repurchase program, reflecting the impact of our $5 billion accelerated share repurchase agreement executed in February 2017 and completed in May of 2017.

In addition, the full year 2017 weighted average shares used to calculate EPS was 6,058 million shares, a reduction of 100 million shares compared versus full year 2016.

As I previously mentioned, foreign exchange positively impacted fourth quarter 2017 revenues by approximately $114 million and negatively impacted adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses in the aggregate by $127million.

As a result, foreign exchange favorably impacted fourth quarter 2017 adjusted diluted EPS by approximately $0.01 versus the year-ago quarter

As you can see on the chart, we have met or exceeded all components of our 2017 financial guidance. Moving onto full year 2018 financial guidance, it’s important to note that this guidance includes a full year contribution from consumer healthcare and assumes no generic competition for Lyrica in the U.S. during 2018.

We currently expect generic competition in June of 2019 contingent upon a six month term extension for paediatric exclusivity, which we are currently pursuing. We expect 2018 revenues to be in the range of $53.5 billion to $55.5 billion.

This range incorporates an anticipated 900 million favorable impact of foreign-exchange. I want to point out that beginning in the first quarter of 2018 forward, total Viagra worldwide revenue will be reported in essential health, due to generic competition that began in the U.S. in December of 2017.

Previously revenues for Viagra in the U.S. and Canada have been recorded in our innovative health business through December of 2017.

We expect the effective tax rate on adjusted income to be approximately 17% in 2018 and sustainable for the foreseeable future, which is significantly lower than the approximately 23% that we previously anticipated for full year 2017 and reflects the enactment of the TCJA.

Because of the significant changes in complexities to the tax law, this financial impact on 2018 guidance is provisional only and therefore subject to further analysis, interpretation and clarification of the tax reform legislation.

I want to point out for modeling purposes that based on 2017 results a 1% reduction in the effective tax rate on adjusted income results in an approximate $0.03 increase to adjusted diluted EPS.

Finally, as a result of the enactment of the recent legislation, we expect to repatriate the majority of our cash held internationally in 2018. As a reminder, as of the third quarter 2017 Pfizer had approximately $24.2 billion of cash and investments.

Finally, we expect adjusted diluted EPS will be in the range of $2.90 to $3, which incorporates $0.06 favorable impact from foreign exchange and $5 billion of anticipated share repurchases in 2018, the impact of which we expect to be offset by about half from dilution related to share-based employee compensation programs.

Moving on to key takeaways; we delivered solid financial results in the fourth quarter of 2017 excluding HIS revenues for the prior quarter and the impact of foreign exchange, revenues increased 2% operational year-over-year driven by the strong growth from Eliquis and Xeljanz.

We issue 2018 financial guidance ranges reflecting 4% revenue growth and 11% adjusted diluted EPS growth at their respective midpoints compared with 2017 actual results. We accomplish several key product and pipeline milestones and we returned $12.7 billion to shareholders in 2017 through dividends and share purchases including a $5 billion accelerated share repurchase agreement. Finally, we remain committed to delivering attractive shareholder returns in 2018 and beyond.

Now, I’ll turn it back to Chuck.

[Charles Triano, Senior Vice President of Investor Relations.]

And again, for the prepared remarks, operator, can we please poll for Q&A now.

[Operator]

[Operator Instructions] Your first question comes from Alex Arfaei from BMO Capital Markets.

[Alex Arfaei, BMO Capital Markets]

Great. Thank you. Good morning and thanks for talking the questions. I guess the first one for Ian, how should we think about the European pricing adjustment longer-term. Are these established contracts or should we expect more step downs, and could it have implications for U.S. pricing and pricing in general?

And then follow-up for Frank, I appreciate that you’re still reviewing your capital allocation opportunities, but your 5 billion share buyback seem conservative given all the options available to you if we think about the potential divestiture of the consumer business more efficient access to ex U.S. cash, how should we think about potential upside there?

And finally Mikael, the tanezumab Phase 3 pivotal trials are coming up, how should we think about some of the previous safety issues that have delayed the seemingly promising asset? Thank you very much.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Alex. So, I’m going to let Albert answer European price question, but I would like to point out ahead on that these negotiations were not related to competitive pressure. And I see the establishment of pricing for Ibrance in Europe as a major positive for the business going forward at prices that are consistent with the European oncology analogs. Albert, do you want to add any more context?

[Albert Bourla, Chief Operating Officer.]

Yes. First of all, as you said, the MBC something most of you said now, and you said it your remarks. And let’s clarify the demand in Europe, continuous to throw [ph] very strong growth. We had 20% this quarter compared to previous quarter. And we had 29,000 Ibrance patients in Europe this year. To point that in context in the first year of the U.S. launch we had 20,000.

Now the negative on this quarter as Ian said, it is due to one-time price adjustment with the full-year revenues, and these were part of finalizing broader reinvestment negotiations that will establish pricing levels to the historical, very comparable to historical European pricing analogs. And at the same time ensure broad patient access to drive potential future volume and more importantly revenue growth in these places.

I'm very satisfied with these agreements. Overall we recognize the value that Ibrance brings to patients, and at the same time they offer an attractive cost-benefit to the payers. So in conclusion, in 2018 we expect to see strong volume and revenues growth in Europe and other international markets as a result of these deals.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you. Frank, do you want to talk about the capital allocation?

[Frank D'Amelio, Chief Financial Officer.]

Sure. So, Alex, you mentioned the 5 billion in buyback. Let me just run the numbers and then I'm going bump this up to a capital allocation conversation. So we’ve announced 5 billion in buybacks. We also announced we’re increasing our dividend to $0.34 a quarter, the combination of dividends and buybacks to 2018 we’ll return more than 13 billion directly to shareholders.

Now let me pump it up to more of a capital allocation conversation. The four priority areas that we've had in the past continue to be our four priority areas; those are obviously investing in our business, dividends, buybacks and M&A. So those were the areas, they remain the areas. And the nice thing about Pfizer is we have the ability to play in all four areas as we’ve demonstrated in the past.

Now, given tax reform and given, we’re exploring strategic options for a consumer business, we will continue to review what our value – what our options our. We’ll continue to evaluate our options in all these areas on a going forward basis.

[Ian Read, Chairman and Chief Executive Officer.]

The answer to tanezumab please, Mikael.

[Mikael Dolsten, President of Worldwide Research and Development.]

Thank you. You know, Alex, thank you for shading attention on tanezumab. We are very excited about the trial of six different studies, 7000 patients that are starting to read out early fall this year and then each of the trials further on into 2019. We have a unique position in the space as we gathered tremendous experience and insight in how to manage our NGF antibody and deal with rare events recorded as rapidly progressing away. We have been able to design the trial to minimize the risk for such to cure [ph] that includes reducing concomitant chronic use of insights. It includes lowering the dose of tanezumab in OA where some of these rare cases were seen in our trials while keeping higher doses in chronic low back pain where this is for worst not really reported.

We've introduced risk management program and stopping criteria for individual patients. So overall we think we have really learned uniquely and been able to design a study that should minimize the risk of such events. I also want to take a step back and say that macro environment for the need of new pain medications have really changed. Perspective a number of years ago was that unmet medical need was rather satisfied. Unfortunate we have learned that the current pain medications particularly opioids have severe issues no just when it comes to the impact on G.I. respiratory but also the great addiction crisis that we’re battling with.

In contrast of course, monoclonal antibody like this that can be given conveniently sub-cute every eight weeks. We believe have a very attractive profile and we look forward very much to the readouts of the trials and report those. Thank you.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks Mikael. Next question please.

[Operator]

Your next question comes from Vamil Divan from Credit Suisse.

[Vamil Divan, Credit Suisse]

Hi, great. Thanks so much for taking the questions. So just one that there’s been lot of discussion around the potential new entrants entering direct distribution; we had a news today around Amazon, Berkshire and JPMorgan. The quote and the commentary around -- they’re obviously talking lot about healthcare costs and the impact it’s having on the economy. You guys generated 26 million of sales in the U.S. last year. Just if you can kind of comment on how you see these impacting things maybe near-term and also longer-term? And how is it not ultimately a bad thing for larger companies such as Pfizer and that have generate so much of their sales from the U.S.

And then my second question just quickly around guidance, totally different topic, with Xtandi you mentioned sort of positive news you have there, but just if you can talk about how you’re thinking about that product. We obviously make ZYTIGA generics in the market later this year. And I’m wondering how you think might impact ZYTIGA business? Thanks so much.

[Ian Read, Chairman and Chief Executive Officer.]

Vamil, thank you for the question. You know, vis-a-vis Amazon I think we’ve discuss this before. We welcome any entrance to the distribution system like an improve efficiencies and ensure that patient state their medication at the appropriate cost and in the appropriate time. So all in all I would say that, the distribution system not necessarily the way that the rebates and price that handle, but the distributed system is already highly efficient.

Now with regard to the announcement today, I really surprise with your comments, don’t really know how to react to it. There’s very little detail in the announcement. Nevertheless, I would see it as totally positive for our industry. Any attempt to lower healthcare costs, I going to have to involve -- my belief using medicines to ensure adherence, make sure the management, that the appropriate management of diseases. We represent two points or we represent 10% to 14% healthcare costs.

So I would hope that private actors have come into this space with low cap. We’ve initially seen more opportunity through a whole distribution chain of cost. And so – and we look at that as a positive way in controlling costs. So I think it’s encouraging that private actors enter in this and it’s encouraging for the use of modern pharmaceuticals. And Xtandi, would you deal with please, Albert.

[Albert Bourla, Chief Operating Officer.]

Of course, and first let me start by saying how please we are to see total demand outstanding, growing 26% compared to the fourth quarter of 2016, particularly the number of urologists actively prescribing Xtandi continues to grow and reached an all time higher 1700 in this quarter, which is more than three times the number of urologists that are prescribing ZYTIGA for example.

Urologists, right now, represent 41% growth in 2017 compared to 2016. And of course not to mention what we had – not to miss mentioning that we had another quarter with sequential sales growth. The sales of this quarter were 12% higher than the sales of the previous quarter. As regards to patient assistance program, as a person of total demand, it was generally stable compared to the third quarter of this year, which is what we were expecting, knowing that the people out there are enrolling ourselves in this program. They are enrolled for the full calendar year.

We believe that the demand for patient assistant programs as a percentage of total demand will decrease in 2018 as compared what we saw in 2017. As regards ZYTIGA generics, they are difference between Xtandi and ZYTIGA safety, they are differences in terms of closing frequency, they are differences in terms of requirements for steroid core administration, and they are also very different monitoring acquirements. And as you know in the future we hope to have different indications also based on potential approval of the PROSPER study in non-metastatic castration-resistant prostate cancer and more studies that are coming in the earlier setting. So, of course, we will continue monitoring the market but we are not right now concern about ZYTIGA generics.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks, Albert, can we move to our next question please.

[Operator]

Your next question comes from David Risinger from Morgan Stanley.

[David Risinger, Morgan Stanley]

Thanks very much and congrats Ian and Frank on all of your efforts to educate Washington having finally paid off. With respect to my questions I wanted to ask for a little bit more color and perspective on Ibrance in Europe. I think it would just be helpful if you explain which countries agreed. How it all came together, so quickly to result in a price reset in a given quarter since obviously many countries negotiate pricing independently. So that’s my first question.

Second, with respect to Inflectra has J&J's contract language changed such that Inflectra will have greater commercial access and commercial uptake in 2018? And then my third question is for Frank. How should we think about the tax rate beyond 2018? Should we expect it to a decline below 17%? Thanks very much.

[Ian Read, Chairman and Chief Executive Officer.]

So David, thank you for the congratulations. I do believe that Pfizer was to play a major role in putting a spotlight on the disadvantageous corporate tax situation for U.S. multinationals, so appreciate the comments.

Now on an Ibrance, I would like to number one, we’re not getting into discussion of which countries. This is all proprietary information that’s important for us that we don't discuss in the public. Two, it was not quick. It was a result of ongoing negotiations over substantial part of 2017. And I think this is what you need to be focused on, if you don’t mind we’re saying so is, what is this set up for the future Ibrance. And we have managed to establish wide reimbursement and pricing.

What we believe the European market is comparable analogs. We don't see there’s any spill over to other markets in Asheville or in the European context. So we see this agreement as setting a strong baseline for patient access in Europe and continued growth of the franchise. So I think this is extremely positive for Ibrance. It comes in an unusual way as the negotiations reflected the full impact in one quarter rather than spread over the whole year or spread over a period of years. So, to my point of view it's very, very positive going forward for Ibrance and for patients in Europe. Would like to do with Inflectra, please John.

[John Young, Group President of Pfizer Innovative Health.]

So thanks for the question, David. So I’m obviously not aware of any changes that J&J have made to their contracting status. And I think we’ve commented on that previously and Ian mentioned this in his call. And let me just say that we obviously continue to work towards minimizing the impact in 2018 of their exclusionary contracting practices by growing include systems and continue to seek increased coverage amongst commercial players.

As Ian mentioned in his prepared remarks in quarter four approximately half of Inflectra’s volume comes from closed system such as the VA where the insurer and provider are the same entity. And in those close systems where which prioritize healthcare savings over short-term rebating. As of quarter four we’ve now reached to 50% share of infliximab. But we’re obviously very conscious that those closed systems represents only a small proportion of the market round about 5%, but we really believe that our performance in those closed systems demonstrates that where payers, providers and patients have access to Inflectra that it can offer significant value to the healthcare system. And we’ll continue progressing that aggressively.

[Ian Read, Chairman and Chief Executive Officer.]

And then on the tax rate question, Dave, we set for this year approximately 17% and then in terms of going forward I would continue to use approximately 17%. We believe that rate is sustainable. If anything were to change obviously I will let you and everyone else know.

[Charles Triano, Senior Vice President of Investor Relations.]

Thank you. Next question please operator.

[Operator]

Your next question comes from Geoff Meacham from Barclays.

[Geoff Meacham, Barclays]

Good morning guys, and thanks for the question. Ian or Frank, just on the topic of repatriation, in the past you guys have talked about tapping into un-invested foreign earnings not just U.S. cash, so should we view the $24 billion you mentioned Frank is the ceiling for repatriation or you still evaluating? And then more on the pipeline; when you think about Pfizer's IO strategy in moving beyond avelumab and 4-1BB, what’s the capacity or should say the priority to expand the number of IO combinations, I know you guys are looking at OX40, but obviously room for many more combos and maybe what’s the rate limiting step for that tap? Thanks.

[Frank D'Amelio, Chief Financial Officer.]

Yes. On the 24 billion is the ceiling on the repatriation, of course, it does mean that all future cash flows can come back to the U.S. without restriction, which I think is the really important point rather than the 24 billion we’re bringing back. It’s unfreezing [ph] permanently of our access to our global capital cash flows.

[Ian Read, Chairman and Chief Executive Officer.]

And it’s up 24 billion.

[Frank D'Amelio, Chief Financial Officer.]

And it’s up 24 billion. IO strategy, Mikael please.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. Thank you. We look at IO field development into three buckets as part of your question. Initial monotherapy with PD-1, PD-L1 including our Bavencio combinations of those agents with chemo-targeted agents or IO agents and three longer-term aiming [Indiscernible]. In the first bucket we are present mainly as a minor player with Bavencio approvals in Merkel cell, bladder cancer and plan readout lung cancer. We didn't really plan to be a leader in the space.

However we’re really aim to grow impactful leadership with Bavencio in segments of combinations, which are near and mid-term promising opportunity. We have now five pivotal studies over the next 18 to 24 months with various Bavencio combinations that we think will be really interesting to watch. Ovarian second-line and third-line with chemo, renal first-line in lighten Bavencio, gastric first-line on maintenance of Bavencio after chemo bladder first-line, maintenance of Bavencio of the chemo ovarian, Bavencio combined with various chemo combinations.

In addition to those pivotal readout in the more near-term, we mid-term see more than 20 Bavencio combinations whether radio immunotherapy pivotal studies in head and neck or with our vast number of targeted agents which is really unique aspect of Pfizer compared to many other place in this space that includes for lung, [Indiscernible] XALKORI, for breast with Ibrance for breast trend, for leukemias and myeloid corrected with glasdegib, and of course we are conducting additional IO studies with 4-1BB combined with OX40 where we have encouragement that this may from an immune point of view will be a real interesting combination.

And finally, I want to say that we are really one of the few that have both an IO agent Bavencio and a PARP inhibitor talazoparib and we do think that will be a very powerful combination and we’re running broad basket studies over many solid tumors and expect opportunities to take from those dataset into pivotal studies in the near term. The longer term bucket was aim to turn cold tumors hot and we have invested in numerous platforms that which combined with PD-1 or avelumab such as cancer vaccines, oncolytic viruses, antibody drug conjugate where we have Phase 1, 2 studies with PTK7 were non-particles loaded with various immune targeted agents and finally bifunctional antibodies.

[Ian Read, Chairman and Chief Executive Officer.]

Thanks Mikael. That’s a comprehensive review. And of course you know immuno-oncology is one stool of our oncology platform because we’re both in breast, we’re in targeted agents, we’re in prostate cancer, and so I think we have a very robust overall strategy. I would like to point out that while we are behind in lung now our expectations are we have two important readouts; one this year and one later on which is in – we have very creative design and let’s see what results are in lung and how positive it can be. We haven't anyway given up and our attempt to participate in that large market. Thank you very much.

[Charles Triano, Senior Vice President of Investor Relations.]

Well, thank you, Ian and Mikael. Next question please operator.

[Operator]

Your next question comes from Jeff Holford from Jefferies.

[Jeff Holford, Jefferies]

Thanks very much. My first question is just on the second generation Ibrance product that you have. And there’s specific resistance mechanisms that you’re identifying within Ibrance’s patients. And I wonder if you can talk a little bit about those and how this convinced them? And then the second big picture question, obviously you guys have look to the potential separation of the essential health business in the past. You did talk about a number of factors that influence that decision not to do before. I am just wondering if now we have a tax reform in place whether that potentially influences that decision going forward and when you might next look at that again. Thank you very much.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Jeff. I’ll ask Albert to – sorry, Mikael to discuss the second generation as you’ve named it for Ibrance’s agents.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. Thank you. We have two current approaches to deal with resistance to CDK and breast cancer. We are starting this quarter as our plans with a second generation CDK drug and that’s based on unique proprietary science that we have performed to identify resistance mechanisms that can occur related to the cell cycle. And we look forward very much to start it up in breast and it also application outside of breast as a resistance mechanism.

And second resistance we have noted is related to targeted phosphate PS3K and we have a phase 1B study with a unique inhibit to get a policy and I’ve seen so far encouraging data and are expanding those studies.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you. Why don’t we go to Frank for the discussion of the separation?

[Frank D'Amelio, Chief Financial Officer.]

Yes. Jeff, one optionality, if you’ll recall we had laid out four questions. So, was the business performing well inside the company? We’re continued to perform well on a standalone basis. Was there trap value? Can we unlock that trap value in a tax efficient way. So let's focus on questions three and four. With tax reform, now the question four is yes, to the extent that there is trapped value we believe we would be able to analyze that trapped value in tax efficient way. But let's really zoom in on question three which is their trap value? When we announced we look at optionality, specialty form of valuations have price-earnings multiples that were 20-ish. If you look today that we’ve cut roughly in half, so we really don't see any trap value. So our current view is for the foreseeable future where the key for our essential business is execution. That’s to really get that business right to do.

Now deal with our sterile injectables, continue to grow biosimilars, continue to grow an emerging markets and continue to manage our peri-LOE products as effectively as possible. So that's our view for the foreseeable future.

[Ian Read, Chairman and Chief Executive Officer.]

Great. Thank you, Frank. Next question please operator.

[Operator]

Your next question comes from Jason Gerberry from Bank of America.

[Jason Gerberry, Bank of America]

Hi. Good morning, and thanks for taking my questions. First I just want you to get your guys perspective on 2018 M&A evaluations that are getting paid. And I think investors and even company management teams have been vocal that these evaluations have been pretty lofty. So just kind of curious to get your perspective on evaluation, certainly seems like a seller’s market.

And then secondly on Xtandi, can you comment a little bit year-to-date 2018 the dynamic between the PIP and the co-pay foundation, I realize you have no line of sight into the co-pay foundation, but potentially you have a line of sight in to the PIP. So just kind of wondering if the patients are being funnelled in a way that will improve revenue recognition or revenue generation with Xtandi patient in 2018? Thanks.

[Ian Read, Chairman and Chief Executive Officer.]

Well, vis-à-vis the evaluations, I mean, every deal is a deal by deal. So it's very difficult for us to assess the value transactions on deals because it's not clear what the opportunities that with the specific assets and researching capabilities companies have when they pay for these assets. They would appear to be in terms P [ph] and multiples, lofty prices, but once again everybody does their own deals and every deal is specific.

So we will continue to look for value in the BD space and when we find it we have the capability and the capability to operate on it. With that I’ll ask Albert to discuss the issues around and the dynamic.

[Albert Bourla, Chief Operating Officer.]

Jason, look, I have no visibility in what is going on with in terms of co-pay foundations. I know because they have made publicly available, but we are contributing, but I'm aware of the amount that we’re giving by quarter by month, because we have established very strong -- let me call it, Chinese wall between our commercial operations and the groups that they are contributing to this foundations.

What I know, it is only -- how many are enrolling in the commercial free goods, which is the patient assistance program. And this is what I said before, but in the fourth quarter it was the same more or less amount percentage wise as we had in the third quarter. And from the first indications that they can see how many are enrolling in 2018, I expect this number to the lower in [Indiscernible] even 2017 [ph].

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks, Albert. Our next question please.

[Operator]

Your next question comes from John Boris from SunTrust.

[John Boris, SunTrust]

Thanks for taking the questions and congratulations on the solid results. So Ian just going back to the question on M&A going forward, I think you previously mentioned that you essentially want to take a pause on large-scale type of M&A until tax reform within the rear view mirror and how things shook out on repatriation. I think you’ve also provided some commentary that there were some significant binary events that would have to occur going forward to also for consideration on larger scale M&A. Just wondering how the tax outlook shapes that view going forward?

Second question for on tax, tax rate goes down by 500 basis points. Can you just walk us through the pushes and pulls of what's going on with the international subsidiaries that cause that 500 basis point contraction? And then why the tax rate wouldn’t continue to go down as you do and certainly how does that influence your tax planning going forward? And then that last question just on tafamidis. Cardiomyopathy and the trial of potential readout, what do you potentially expect out of that? Is there are potentially mortality outcome out of that? And you can you contrast the drug with myeloma [ph] and Ioannis drugs that are being studied in that area? Thanks.

[Ian Read, Chairman and Chief Executive Officer.]

Okay. So on M&A, I think we’ve been recently consistent over the years when we discussed M&A to say that we had the capacity before tax reform to do M&A, in fact we attempt to do two large ones, which was thwarted by government interventions. So the tax reform was really more important in -- from the point of view M&A or the point of view of how you would finance the deal or what the relative values of companies would be. And I expect to see some changes in that as some premiums for previously established tax advantages for certain companies disappear, but it doesn't really change the underlying focus of how we look at M&A and how we look at that the disposition of our capital that Frank talked about earlier.

So we’ll continue to look at M&A for the point of view of value for our shareholders. And we’ll be directed by the science and the opportunities. And we’re also look at opportunities across the other spectrums, which is the dividends and the buybacks and investment in the business. So I think which is really a continuation of a very thoughtful I believe from the part of you at Pfizer of deployment of capital. Frank, do you want to answer the tax rate please.

[Frank D'Amelio, Chief Financial Officer.]

Yes. John, let me run the numbers just to grant everybody. So we had guided this year to approximately 23%. Now obviously we’re giving guidance for next year is 17%, so approximately 600 basis point decrease in the tax rate year-over-year. Now in terms of the going forward rate, I had answer really that for modeling purposes we should assume that that 17% -- approximately 17% was sustainable. And you asked me about kind of the international impact with our subsidiaries. I mean, at a macro level the way to think about this is we do business in over 150 countries. Every country obviously has their own tax structure, their own tax rates.

Some of our business is outside the U.S., the major part of business is inside the U.S. The new corporate tax rate going forward is 21%. On overseas earnings we have now territorial system, but with the minimum tax of 10.5 %. When you do all the work and all the tax planning and we work through everything, the blended rate gets us to that approximately 70% diluted too. So going forward you all should expect us to sustain give or take a 70% tax rate.

[Charles Triano, Senior Vice President of Investor Relations.]

Mikael, do you want to take on the tafamidis please.

[Mikael Dolsten, President of Worldwide Research and Development.]

Sure. We have tafamidis study for cardiomyopathy. As you know the drug is registered in Europe to deal what’s call TTR amyloid polyneuropathy. This study in cardiac condition is 400 subjects and the first and largest study in this important segment including both patient limitation and the large population with excess of amulet but no mutation, we expect readout first half of this year and pending the data we will then consider further potential regulatory action.

It's of course the first of its kind in this rare disease. So, there is high-risk but also very high upside given that this is a much larger population than neuropathy and a very few treatment. This is Polaroid drug and deferred from injectables such as oligonucleotides that you referred to. We look really forward to do readout and to review it.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks, Mikael. Next question please.

[Operator]

Your next question comes from Greg Gilbert from Deutsche Bank.

[Greg Gilbert, Deutsche Bank]

Thank you. First on the innovative side, for you new JAK, can you talk in some more detail about how you’ll develop it and differentiate versus Xeljanz over the longer term, and versus other JAKs in the space? And then shifting over to the essential side, Just questioning whether you are manufacturing and supply chain network that’s where it needs to be there. It sounds like you describe that is more of fixing legacy problem versus sort of investing new capital. Can you shed some more light on the strategy there? Is it sort of a set of expensive bandage or it’s there a fundamentally new approach to have success on the essential side? And lastly what your plan to do with your own biosimilar version of remicade which would presumably be more profitable then the Celltrion version? Thanks.

[Ian Read, Chairman and Chief Executive Officer.]

Hi. You know, Greg, thanks for the questions. Just good to see lot of questions on our pipeline as it becomes into focus. Mikael, would you like to talk about the JAK1 and JAKs?

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. Thank you. So we have six next generation immunokinases including five oral and they have been uniquely design to go into areas where we think the first generation of JAKs such as the Xeljanz is less optimal. And while we’re very excite about Xeljanz’s strong performance in array and if possible further expansion into ulcerative colitis. We have JAK1 as you noted went to into Phase 3 for atopic dermatitis and have a unique profile for that. We have a two JAK1 that is targeted to the mechanism between psoriasis and Crohn's, which is colitis, where JAK3 selective into RA and in term we look at interesting conditions such as alopecia where two of these JAKs again, uniquely targeted.

So the whole story is to going to other areas were Xeljanz may not be fully optimized while we think we can grow Xeljanz rheumatology and select segment of G.I. but now we target broader diseases within arm G.I. but then beyond Xeljanz. So we hope to expand the opportunity for JAK and obviously, also plan for live cycle management on Xeljanz.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Mikael. So, in reality we belief from the Science of the Jack who been investing in for over 10 years, we can bring significant relief to specific patients segments with this specificity of the JAKs that we’ve developed and this would be the sort of backbone of our strategy and our competitive advantage. So that’s very good.

Now I’ll go to, we can ask the biosimilars and also…

[Mikael Dolsten, President of Worldwide Research and Development.]

And manufacturing.

[Ian Read, Chairman and Chief Executive Officer.]

Please, Mikael, please go ahead.

[John Young, Group President of Pfizer Innovative Health.]

So thanks for the questions, Greg. So look, as Ian mentioned in his comments, the essential healthy portfolio we’ve obviously been an experiencing some supply shortage with some products. The shortage is of primarily for products from the legacy Hospira portfolio. And as Ian said there are largely driven by capacity constraints and technical issues.

Let me just make a comment and say there obviously as we said before during the Hospira acquisition we were aware that there are manufacturing issues that were confirm during the due-diligent process, but we have a robust action plan in place and we believe that we’ll make progress during 2018 towards reducing sterile injectable shortages and that will include investing capital in those specific plans.

Turing now to our own infliximab by biosimilar. As you know in Inflectra’s existing marketed infliximab biosimilar is currently available in the U.S. and it will continue to be available to patients and physicians. Although we’re very pleased with the U.S. FDA approval of IXIFI as the first Pfizer developed biosimilar in the U.S. Pfizer doesn’t currently plan on launching IXIFI in the U.S. and we’re evaluating our strategic options for this product.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, John. Next question please.

[Operator]

Your next question comes from Jami Rubin from Goldman Sachs.

[Jami Rubin, Goldman Sachs]

Thank you. Ian, I think in the past you have as an industry leader have spoken about the inevitability about industry consolidation. Today’s news about the Amazon partnership, consistent pricing pressure, the Hillary tweet, I think that’s when you started talking about it, but we really haven’t seen it in the last wave of large scale deals was back in 2009. And today on the call you’re saying that there is less reason to do a tax deal obviously because of tax reform. And the spin is probably off the table now, because you don’t see trapped value. I’m just wondering if you still see value and industry consolidation from synergies and scale. That is something you really haven’t touched upon.

And if you do, do you see Pfizer as a consolidator as you been in the past. Or do you think you will continue down the path of smaller scale BD activity? Thanks very much.

[John Young, Group President of Pfizer Innovative Health.]

Thanks Jami. I do believe that given the pressures being applied by the consolidation in the payer network and the pressure there exists on governments to find ways of curtailing overall health care costs, while I'm optimistic that actually drugs will play a bigger part in that as being very cost effective, I do believe there'll be a need to further consolidation to deal with the size of our customers and the size of the opportunities.

I think these things come in waves. I think everybody is looking at potential combinations and consolidations. I can't tell you when it will start, but I believe there will be moments when there is a key detonator to initiation of further consolidation.

But we are -- I would say, we have a core competency in consolidation of large companies into Pfizer. We will -- if there is an opportunity for shareholder additional value consolidation, I expect that Pfizer would be at the forefront of it. At the same time, we'd also be looking at deals of a different size.

We never say never to big deals, but we also say we can -- we think we have the capacity to do both the small deals and the big deal when the moment arises. And we know we also -- by the way, I'm just getting some flags here from Frank. I think that we don't feel any pressure to immediately do any type of deal in the sense that we've just had a very good year in 2017. We're going to have a good year in 2018. We have very good franchises with -- focused on developing our own pipeline.

That being said, we are opportunistic in looking for intellectual property that we can buy and do better than the present owners. We continue to look at that. And so I'm very optimistic about our hand and all the arrows that we have to fire in our arsenal. Thank you, Jami.

[Charles Triano, Senior Vice President of Investor Relations.]

Next question please.

[Operator]

Your next question comes from Andrew Baum from Citi.

[Andrew Baum, Citi]

Thank you. A couple of questions please. First to Ian and Albert, despite the rhetoric which [Indiscernible] could have done to the industry given the last question on 340B hospitals, the proposal for PMBs to part from new base and you made the right action on drug pricing. The -- together with the new Head of HSS, reiterated his comments. And I'm just interested how you quantify the risk or whether you think it's more naïve? Does it impact how you look at M&A valuation? In such that you believe there is risk, are you more concerned of drugs under pharmacy versus medical benefit? So, that's my first question.

The second question is whether you could comment on the market pricing dynamic for new molecule oncology given the density in this area to parts of CDK 4/6, that when you're seeing net pricing is going to come under much more pressure than maybe we should be thinking about?

And then finally, for Mikael, could you talk to Pfizer's biomarker adoption beyond PD-L1, particularly human mutational burden and how you're implementing that within your oncology take [ph] and would you might like to comment on your foundation recent relationship? Thank you.

[Ian Read, Chairman and Chief Executive Officer.]

So Andrew, thank you for those three questions, all very powerful and all very extensive. I think on the question of the pricing risk, this industry has, for decades, had a pricing risk present in its commercial business. And in fact, we've highlighted that in our -- on our 10-Qs and things like that.

So, I don't see that the pricing risk has dramatically changed from where it was 10 years ago or five years ago. I believe that we need to be in a constant dialogue with society and with payers and the government over the value of pharmaceuticals.

I think that dialogue is ongoing with both the administration and Congress. And I think the dialogue is being informed by facts. And we are looking for ways, as you've mentioned, to lower the cost, the out-of-pocket cost of patients. The fundamental problem is not, I believe, the pricing of products. The fundamental -- because to be able to fund and run a modern innovative pharmaceutical company, there's a certain level of resources necessary. And unless we see a breakthrough in innovation and a breakthrough in the process, this is the cost of bringing products to market.

The question is does society want to continue to support that innovation? I think the answer is absolutely yes. The next question is how will society ensure access to those products? So, this is really about how you ensure people, do rebates, get to the point-of-sale, where we think they ought to be. How do you make drugs affordable? Right now the system is set up adversely to transfer the costs of lowering premiums to healthy people on the sick people. I don't think that's a good policy and we're in discussions with the government to change that. So, I think this pricing risk is reversed. I think it remains reversed, and it's a constant issue that the industry needs to deal with given the nature of the marketplace.

On your question about the density of small molecules, to a certain extent I would apply that to the density of PD-L1s. I don't think it's specific to small molecules, I think the pricing always rests on the value of the products bring to the society. And we will continue to develop innovative products that have differences compared to this and we will expect to earn a reasonable return on those products. So, there was one other question on the PD-L1. Mikael, do you want to talk to that?

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes, I'll be brief. We started with PD-L1 as what was the initial most frequent used. And for some tumors, like lung useful biomarker, we are now assessing tumor mutation burden, clearly you have good insight into this field. And our innovation that we will see in the future studies to start, maybe even a combination of PD-L1 and TMB. Exploratory markers include immune cell subset, T-cell repertoire sequencing, and then combination drug-specific choices.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks Mikael. Next question please.

[Operator]

Your next question comes from Tony Butler from Guggenheim Partners.

[Tony Butler, Guggenheim Partners]

Yes, thanks very much. Two questions, please. One, Mikael, in first-line renal cell carcinoma, you've got very interesting trial with Inlyta. Obviously, there will be an IO/IO combination, I suspect, in the market by the time your trial reads out, but I'm most interested in whether or not you think that Inlyta or tyrosine kinase inhibitor actually improves the synergy with Bavencio?

And then second, still within oncology, if I might ask, clearly you're in a little bit euphoria around the CAR-T space and I recognize you all have an interest in and off-the-shelf first once selected and I'm just curious if you might comment, yet again, on whether you're ramping up some efforts there.

And then, finally, Frank, once again, on taxes, if I may. LOEs are diminishing. You've clearly stated that your U.S. business is doing extremely well, disproportionately I might add. So, the U.S. percentage of your total business increases. And again, I have to ask, given those, unless there's something which we totally miss, why doesn't again tax change, certainly out in the future beyond 2017. Sorry for that, but thanks.

[Ian Read, Chairman and Chief Executive Officer.]

Okay, I'll ask Mikael to address your first question.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes, we do think that combining Inlyta with Bavencio is really a unique combination for renal cell carcinoma, and that data as reported were really impressive and, at least to me, I believe it stands out among the absolutely best seen this far.

Inlyta targets the micro environment as the BDF inhibitor, so I think it has unique position, and we view it currently as really promising, and the preference for us then adding more immuno-oncology agent as we see a very high responsive. And we look really forward to the readout that will come within the next 12 months or so from this study.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you. On the question of CAR-T, we have seen the explosion of interest. We do have an off-the-shelf version as you say it, which we're developing with Cellectis. We are currently looking at our strategy of how to ensure that those -- that product can get to patients in the most rapid and effective way and we'll be looking at our strategy around CAR-Ts. And then the last question -- okay.

[Frank D'Amelio, Chief Financial Officer.]

Yes, on the tax rate. Yes, so Tony, in terms of the overall business, if you look at last year, 2016, roughly 50% of our revenues were in the U.S. 50% of our revenues were outside of the U.S. If you look at 2017 about 49% of our revenues were in the U.S. about 51% were outside the U.S. So not a lot of change, but not – be a little bit more pointed towards the international part of the business.

When we put all that together, when we look at where the mix of our business is, when we look at the countries we do business in, where we manufacture our products, where we ship from, I’m currently comfortable with the 17% and my statement about sustaining that 17% beyond 2018.

[Charles Triano, Senior Vice President of Investor Relations.]

Thank you Frank for covering that. Next question, please?

[Operator]

Your next question comes from Chris Schott from JPMorgan.

[Chris Schott, JPMorgan]

Great. Thanks very much. Just two questions here. Maybe coming back to business development, I know the return seemed to be there, you’ve highlighted you are agnostic to size, but given where the business in the pipeline stands today, I guess ideally what are you trying to achieve? Is it focused on enhancing near term growth? Is it more of a long term growth? Do you want to stay using verticals? Do you want to add verticals? Try and understand a little bit more what the strategic priorities are as you consider deals before you think about the financial terms associated with them?

And my second question was on the Prevnar outlook for 2018, are we still expecting the U.S. adult business to be under pressure and can growth elsewhere in the franchise start to offset that erosion as we think about the 2018 outlook? Thanks very much.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you Chris. On BD, I mean we look at across the spectrum with BD from near term to long term. Clearly if assets were available at appropriate valuations, we would have a preference for short-term acceleration in our revenue growth and our EPS growth. On the other hand if there is availability of different deal which also produces value or it may take longer i.e. through consolidation and things like that we would also be interested in that and continue to look across that spectrum.

I think we are well positioned. We can be considerate any options we look at and we do have a certain sense of urgency to find deals that would accelerate our revenue and EPS growth. You know with that, we’ll go to Prevnar.

[Albert Bourla, Chief Operating Officer.]

Chris, you're right. We do expect that there will be a pressure in the adult sales in the U.S. which will be less as the product is coming more to a stable state. But this will be offset by higher paediatric sales globally. And we do not provide guidance or specific products because this is already incorporated in the guidance that Frank gave. But I can tell you in general terms that Prevnar will be roughly flat in 2018 compared to 2017.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks Albert. Next question, please operator

[Operator]

Your next question comes from Tim Anderson from Bernstein

[Tim Anderson, Bernstein]

Thank you. A couple of questions. Can you talk about how you see your international sales of Enbrel; evolving from here as we move into 2018 relative to what we saw in 2017, further the levels of price erosion, volume loss and that sort of thing. In 2017 sales were down about 15% versus the prior year, is that the sort of contraction that you expect we’ll see in 2018 as well as future years beyond that so maybe 15% per year. I’m trying to understand what your long term modeling shows in setting the path somewhere?

And then second question there is continued or I should say renewed interest recently on the topic of whether PD-1s and PD-L1 ones are the same, the argument being that PD-1s might offer better efficacy because of mechanistic differences. Wondering what Pfizer’s current view of this debate is?

[Ian Read, Chairman and Chief Executive Officer.]

Okay, Tim on Enbrel thanks for the question as you know we don’t give product specific forecast but I think the range as you described in your opening commentary is aligned within internal channel thinking about the way that franchise will be managed over the future.

PD-1, PD-L1 might not...

[Frank D'Amelio, Chief Financial Officer.]

Yes, I would start to say that we have a unique situation that we actually have one PD-L1 Bavencio and one PD-1 and the PD-1 is right now in studies with our cancer vaccines, very well behaving. It has potential for subcute monthly administration. On the other hand we are very pleased with our PD-L1 that is more advanced and we monitor carefully what you said, where did our any new date that would indicate under certain specialized setting that one would be better than the other. But in the big picture, I think they look pretty similar overall within these two classes.

[Ian Read, Chairman and Chief Executive Officer.]

Thanks, Mikael. Next question, please.

[Operator]

Your next question comes from Marc Goodman from UBS.

[Marc Goodman, UBS]

Yes, morning. I got a couple of questions. First, Albert in the past we've talked about there's a new competition will come in with CDK is whether you had to take any price and I was curious whether you've had to take any price, now that there are three in order to maintain the dominant share you have.

Second question is consumer, if you could just refer to the U.S. business and handle a little week in the quarter. And then third question to Newsome. Have you talked about six phase III studies? Can you tell us how many you're expecting to actually report out this year? Thanks.

[Ian Read, Chairman and Chief Executive Officer.]

Okay. Albert, if you want to take the Ibrance and the consumer?

[Albert Bourla, Chief Operating Officer.]

Yes. Marc, so far despite the press over, they need incumbant product phase is when multiple compared to center of the market. We have not seen any material importance on my branch performance. We believe that positive results from the other CDK inhibitor, that must try the significance of CDK inhibition and will benefit a class overall.

It's important to remember that almost 60% of newly diagnosed patients were assuming a CDK but only 50% of the total with relation. So, that they must raise the potential to grow the class. Within this class, we remain very confident, in high branch leadership based on the strength of free data, efficasy safety profile and that can go on and one.

Importantly, you know that there is no clinic available in [indiscernible] that was observed across the along the trials. There is no requirement for ACC or GAT IOP and CCT monitoring in the current prescribing information. There is no requirement for monitoring the signs and symptoms of thrombotic events or precautions of.

We feel that three years in the market with this as we said very large market's there. 11,000 prescribers, more than 100,000 patients, we feel we are very strong with that.

[Marc Goodman, UBS]

And I believe on the value we're receiving it remains consistent with our previous years' experience and I'm not seeing any undue pressure due to the competition on our pricing, given the profile Albert just described for the except for Ibrance consumers performance.

[Albert Bourla, Chief Operating Officer.]

Consumer area, Frank has spoke about that. We had a 2% growth and this was affected mainly by the U.S. the U.S. was declining 2% and in the fourth quarter we're decling 2%. And then the U.S. that will drove this decline was my mistake. And the reasons or such the negative of impact of hurricane Maria, in Portorico but also the U.S. were impacted by maximum how to see LOE about to happen in this quarter.

As Frank emphasized, this business is performing at 5% every year, that was in the last three years and we are hoping to see it coming back to this level of performace this year.

[Ian Read, Chairman and Chief Executive Officer.]

Okay, Mikael.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. So, we'll have the first shot the 16 week efficasy trial reading out these all followed by the slightly longer 24, 56, week and safety trials in a way and turn it lower back pain for the U.S. and newer markets reading out the first few months of 2019. And that will really constitute the data package for potential filing consideration pending data for the major markets.

And then we have other smaller studies for Japan and cancer pain later on.

[Ian Read, Chairman and Chief Executive Officer.]

Right, thank you. Next question, please.

[Operator]

Your next question comes from Steve Scala from Cowen.

[Steve Scala, Cowen]

Thank you. I have a few questions on Ibrance's EU price. Could you give us examples of the pricing analogs to which you're referring? Secondly, Pfizer had been saying that essential health would return to growth in a couple of years, now that via the U.S. is an essential health and presumably Lyrica U.S. will be moving over in the future.

How does this affect this essential health's return to growth timing? And then lastly, Inflectra U.S. increased 10 million quarter-over-quarter or a bit less than 1% of market share increase. Is that a trajectory we should be expecting going forward or should we anticipate some sort of inflection? Thank you.

[Frank D'Amelio, Chief Financial Officer.]

Thank you, Steve. I dont really for proprietory reasons on pricing, I dont want to get into analogs. I would say that we are satisfied in the European context of the reimbursement price we got. It was very hard negotiations but in the end in old patient access was important as well as the reimbursement price.

We think we arrived at a fair compromise on that. And we think we have a basis for vibrant growth at an appropriate price for Ibrance in Europe. And I think that's the most important thing to look at there.

The, could John, would you take the other questions?

[John Young, Group President of Pfizer Innovative Health.]

Yes. So, thanks for the questions, Steve. So, we have consistently said over the last two to three years that we expect the essential health business to return to growth in the medium term. And actually, that remains our view, that actually as the head wins from major LOEs and the portfolio that are currently sits with MP EH begin to lessen.

And we're seeing for example in 2017, the impact of LOEs were something like 1.4 billion in this business. Expected that would kind of shrink to around about 900 million in 2018, given the portfolio. Combined with the continued growth of emerging markets, combined with the continued growth of biosimilar.

So, when you put all those things together, we continue to expect that actually in the near term that actually essential health is poised to deliver modest single-digit growth. We still feel that that is a sustainable pattern of growth for this business.

In relation to Inflectra in the U.S. let me just sort of say first of all Inflectra globally had revenues of a $135 million the quarter. That was a 110% increase or $70 million or $68 million growth. Actually a $41 million increase in the U.S. so, once we commented in answers to some other questions about some of the challenges in terms of access due to J&J's exclusion contracting, we expect to continue to make progress in the U.S. with Inflectra in the course of 2018.

[Ian Read, Chairman and Chief Executive Officer.]

Right. Thank you, John. Next question, please.

[Operator]

Your next question comes from Umer Raffat from Evercore.

[Unidentified Analyst]

Hi guys, this is John Miller [ph] on for Umer. A couple of questions, at JP Morgan, you showed an interesting slide titled step change and further R&D productivity and everyone think on that was LOE on combination.

So, how do you think your internal IOIO portfolio measures up against external and hove your thoughts changed based on the early results from JAVELIN Medley. Secondly, Frank, the 17% rate tax going forward, is the if your efficacy's a non-GAAP tax rate is going to be consistent with the cash tax rate.

And last, I noticed you guys have an oral GLP-1 in Phase 1. Are you looking at that more in diabetes or in that?

[Ian Read, Chairman and Chief Executive Officer.]

Okay. We'll as Mikael to answer the question research and then Frank will answer the tax question.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. Thank you for noting our up to 15 and five subject to attrition. That's typical in development blockbuster projections for the next five years. As you noted, it contained actually a five oppertunities in oncology. And the first one included Bavencio mono and combos for IOIO.

And we clearly continue to be positive about Bavencio's quality tier 1 and then eluded to certain trials coming up soon. And we follow we had a significant interest the triplet combo we do 4-1BB. We also as I spoke earlier to have numerous pivotal study readouts with combinations of chemo and targeted agent and actually more than 20 of such combinations overall in the portfolio.

So, I think there is ample opportunity for us to make very valuable contribution and in this field through IOIO targeted and chemo combinations. And that's a very important part of our strategy.

[Frank D'Amelio, Chief Financial Officer.]

Yes. And then on the GAAP tax rate versus the 17%. 17% obviously is an adjusted results tax rate. The GAAP rate versus the adjusted, we'll see first relations quarter-to-quarter based on the counting that we're doing for various items. That we quarter to have significant items, some positive, some negative. Example this port there are 2+ significant items to the reversal 10.7 billion in primarily U.S. deffered tax liabilities which cause incredibly negative tax rate.

So, it will be volatile, every fluctuations for quarter-to-quarter, differences between GAAP and the adjusted results as there has been in the past.

[Ian Read, Chairman and Chief Executive Officer.]

And Mikael, just on the GLP-1.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes, thank you for noting that. We are really excited about this oral GLP-1. Small molecule we think maybe the first real small molecule nature to the newer studies. And we look upon initial opportunity, NASH and joint reflect such as obesity.

But certainly we look at this profile also for treating diabetes where these drug class has been so successful as injectable and of course and oral drug with a unique profile seems very attractive across entire metabolic spectrum.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Mikael. And we'll take our last question now, please.

[Operator]

Your final question comes from Seamus Fernandez from Leerink.

[Seamus Fernandez, Leerink]

Thanks very much for squeezing me in here. Just a couple of quick ones. Ian, can you just give us your big picture thoughts on Eliquis and its overall opportunity growth continues to be pretty spectacular given where this product is in its life cycle.

Just wondering if you think given where we are in the developed world in terms of global markets overall, if this could possibly exceed LIPITOR sales at peak. The second question, as we think about your pricing analogs in the discussion around international pricing of Ibrance.

Is it wrong to think that this may in fact anticipate success in the augment setting so that there wouldn’t be another step down in pricing as that patient population grows substantially? And then the last question is on the PARP as we think about the opportunity for talazoparib.

What is Pfizer doing in prostate cancer, given some early data there for a combination of talazoparib with Xtandi? Thanks so much for the question.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you. I'm going let Albert in his capacity to take over so the Eliquis questions and the pricing on Ibrance and then Mikael can also tell the questions. Thank you.

[Albert Bourla, Chief Operating Officer.]

So, let's start with Eliquis. Yes, we are very optimistic for Eliquis. We expect the growth will continue. The next leg of growth will be driven by increased knock penetration of the market and increase Eliquis surgain of the class of non-flus. And this, so again it's expected to be at two by increasing focus on the following strategic intiatives.

We are going to accelerate markets are gaining with the market. In those markets who have achieved the leadershiop position in the risk reduction already of stroke systemic embolis. We're going to generate and utilize local readable data to see preferencial access for Eliquis.

And we have very good demonstration of this value so far with the first studies that do that that for. That they're getting the attention of peers. And of course we're going to increase diagnosis of the NVIF patients in those markets who have achieved already a leadership poasition in the risk reduction of stroke.

And you saw are very positive.

[Mikael Dolsten, President of Worldwide Research and Development.]

Yes. Concerning tell us a period. We are very excited about that drug profile. Did our report of the EMBRACA trial in breast cancer while we had a nice superiority to chemo therapy and at the end of very favorable profile.

So, we are looking forward to additional readouts for talazoparib and investment in a drug and we've two prostate cancer studies. One, that was recently initiated in combination when salute are made or Xtandi in a selected subset of prostate cancer and we also have a more advanced posted cancer in open sing-along trial that could be of potential feel about the character.

And then where we invest this significantly in combination with Bavencio for what we think will be a number of different holotypes. So, I look forward to continue the dialogue as we advanced. What I think is the potential best-in-class popping EBITDA.

Thanks, Mikael. We'll just now go back to Albert for another comment.

[Albert Bourla, Chief Operating Officer.]

Yes, because i forgot to mention to answer your question about Ibrance. First of all, I cannot say if it would be bigger. When Lipitor what I can say it is going to be. And then wish about what I want to say. Then early whisper what I want to say it is that this is an extremely appealing opportunity for us.

And a big part of the opportunities as we alluded comes from advancement or five brands into the early settings of treatment. We have three studies that are related with [Indiscernible] two are Phase 3 studies. And is PENELOPE [ph] but it is in high risk breast cancer and that will become very good towards the end of 2020.

And the other one it is the PALLAS, that it is with intermediate risk early breast cancer and that will come a little bit earlier in the third quarter of 2020. Of course also we had pallet. The – in totality the early breast cancer represents very big opportunity because they will show you the number of patients is more than double and also the economy, the financial opportunities are just because you have much longer duration of treatments. I don’t think that its early to speak about pricing as you eluded because those are coming in the 21 timeframe for negotiations with payers.

[Ian Read, Chairman and Chief Executive Officer.]

Thank you, Albert. So the pricing analog of your question of whether the overall survival data that matures in Ibrance will influence the pricing in Europe is a good question, the one that really is relatively remote. It’s going to take three years to get that data and assuming the data is positive I would expect us to relocate the value of Ibrance and if it was negative which is a very – it’s very difficult in this type of long, long, long disease progression to get any really accurate information I would expect that the use of Ibrance will be very well entrenched in the patterns of treatment by physicians by that time. Thank you.

[Charles Triano, Senior Vice President of Investor Relations.]

Thanks. And thanks everybody for your attention today.

[Ian Read, Chairman and Chief Executive Officer.]

Thanks everybody. Thanks for your time.

[Operator]

Ladies and gentlemen, this does conclude Pfizer’s fourth quarter 2017 earnings conference call. Thank you for your participation. You may now disconnect.