But we will certainly be very open to share data from several of these new important data sets that could help ACIP to understand the planning of the various RSV products. And we think that would be very helpful for ACIP as Abrysvo data set are robust and in some sense, unique in a positive way. Thank you.
Albert Bourla: In general, a couple of comments for both of these questions. On the ACIP, we always don’t speak for ACIP, so it’s not appropriate. So ACIP will do what they can to do. Of course, typically, as we say, they wait to see FDA approvals, and we hope that they will ask us to present the data in June, but it’s something that we don’t know. What we know is that whatever they decide, whenever they decide we have prepared our marketing and commercial plans in the U.S., as we do, of course, in other countries so that we can maximize the approvals or the recommendations or the data that we have available. So that’s one thing. The other thing, David explained that we are cautiously optimistic, of course, that comes through the entire line of guidance that we gave.
We are cautiously optimistic on revenues, we are cautiously optimistic on margins, and of course, we improve again cautiously that we think the EPS. You need to see all of that in the context of guys, we have been there last year with a big misalignment between what we were expecting to come for COVID and eventually what came. And that is something that makes us to be double cautious when we speak about projections. We know credibility is extremely important for us. So everything we say, we feel rocket solid, but we will achieve and we don’t say anything more than that, we prefer to achieve rather than say. So that as a context to all the guidance that we have provided this time. So with that, let’s go to the next question, please.
Operator: We’ll take our next question from Umer Raffat with Evercore ISI. Your line is open.
Umer Raffat: A couple of financial focused questions, if I may. First, on gross margin. Dave, I remember last time you mentioned two specific things: in-sourcing of recently acquired products as well as new launches as being a drag on gross margin. Considering both those things were presumably baked into 1Q, and 1Q looked more like what the historic margin build would have implied, wouldn’t that suggest full year margin is tracking meaningfully north of the full year guidance of 70%? Or were there one-offs like some inventory work down from recent acquisitions in 1Q that helped it? And secondly, and maybe this is for you and Albert both. Is there a potential for a significant monetization for some of your excess manufacturing capacity from over the years, be it fill finish or beyond, just considering what the broader environment is and some of the questions on dividend? Thank you very much.
Albert Bourla: I think David can take both of them. Dave?
David Denton: Yes. On the gross margin side, as I said, there is a couple of things that impacted favorably our performance in Q1. The items that you listed of both new product launches and in-sourcing, the in-sourcing is probably a longer-term implication to us because those don’t happen in an immediate quarter. So as you think about Seagen, it’s probably a multiyear phenomenon that we have here. But I don’t think that was an outsized impact to that. And obviously, the new launches, we plan for those to be compressing our gross margin rates, of which they did. I think we’re off to a very solid start. But keep in mind what I said earlier, in the back half of the year, Comirnaty sales will begin to ramp up. They compress our gross margin rate fairly significantly, given the partner contribution and payment that we have to our partners.
So I would expect that to dampen our gross margin performance in the back half of the year. Umer, as you well know, we’re focused on over delivery we can. So I think we will do everything we can to continue to improve our performance there. And then finally, as we think about the balance sheet, first and foremost, I just want to reiterate that our number one priority from a capital allocation perspective is both supporting and growing our dividend over time, and that is not at risk. Secondly, yes, we always look at the assets that we have across our platform and understand what’s the best way to capitalize on those assets and some of that may be monetizing some of that. Some of that may be operating more effectively. So everything is on the table from that perspective.
Albert Bourla: Thank you, David. And although your answer was very complete, I will just reiterate something that you said because it seems like that some people, they want to hear it again. The dividend is a sacred cow for us. Dividend, it is secured and we will continue our policy on dividend as we have promised repeating. And we don’t have to monetize things to be able to achieve that. The reason why we are looking at all our assets is because we want to maximize return on the capital. And of course, we will see opportunities, when it makes sense, like the ones that we described, there is serious now issue with the sterile capacity that people are looking to apply. We will look at everything, but it’s not that we are looking right now on this on that because we need to support the dividend or we need to support the delivering opportunities or need to support the investments in the business, right?
We can do that without doing any of that. Thank you very much. Let’s go to the next question.
Operator: We’ll take our next question from Geoff Meacham with Bank of America. Your line is now open.
Geoff Meacham: Just have two quick ones. The first is now that Seagen has been fully integrated, and you’ll see some commercial leverage from the deal, would you expect to see more of a gradual impact on the Padcev and et cetera, trajectories looking out a few years? Or could you have a more near-term inflection? And then the second question, Dave or Albert, the capital allocation commitment to the dividend is super clear. What we view on Slide 12 as dividend and deleveraging as the 2 highest priorities, or is bolt-on BD still in the mix for this year or next? Thank you.
Albert Bourla: Let’s go to Chris to understand the commercial impact on Seagen and how that will take time.
Chris Boshoff: Thank you very much. So as you know, we had a number of months planning prior to close to ensure we had a seamless integration and we completed cross-training of our commercial field force teams in January, especially for breast cancer between to Kaiser and Ibrance but also for hematology between Adcetris and Orexo. We should start seeing that further playing out now over the coming months. As we’ve mentioned, we’re obviously very pleased that there’s been tremendous colleague retention, so we haven’t had an issue with colleague retention, both from the legacy Pfizer and the legacy Seagen organization as we build a new business. We expect that to continue to do well. There’s significant enthusiasm from health care providers, from patients, from patient advocacy groups because of the groundbreaking data, double the overall survival.
So we are confident that we’ll continue to see Padcev growth. We’ve also seen to Kaiser, for instance, 21% year-over-year pro forma basis growth. And in fact, the last quarter was the highest performance of Kaiser. So overall, great confidence, and we started the first new Phase 3 study with an NME from the Seagen portfolio with [indiscernible] and we hope to update you on other Phase 3 studies from the legacy Seagen portfolio.
Albert Bourla: From my perspective, of course, we have invested so much into this business, and we think that this is an area that we can make a huge difference to the world. I’m monitoring that very closely. I’m very impressed actually, I would say, nicely surprised on the positive side, how well both on the Pfizer impact of day 1 plus 1 equals 3 rather than 2. But already, we’ll start seeing it both in the research organization because we are putting now a lot of Phase 3 on starts. And you don’t see but I have high visibility on what’s going on in earlier stages where we put a lot of stuff in the clinic. And then also in the commercial, that you can see now stabilization for Ibrance on the Pfizer side, and then high growth of the Seagen assets despite the fact that, as I said, you should expect a decline in the first 6 months.
When you have an integration always we have a demand, I haven’t seen a single integration that we have done, but it didn’t face challenges because people are changing territories, people are changing let’s say, jobs, marketers are moving around. All of that creates, let’s say, a disruption here. We have very, very strong growth on both sides. So I’m really, really pleased. Now, of course, cautiously optimistic, will take time to see the full benefit. But certainly, under Chris’ leadership, and he has formed a terrific team, we are off to a very good start. Now Dave, why don’t you take out the next question?
David Denton: So as it relates to your question regarding capital allocation, clearly, our first priority, our number one priority is supporting both the dividend as well as delevering our balance sheet. So that is job one from my perspective. As it relates to bolt-on acquisitions, in the near term, you would not expect us to do much there. That is a lower priority in the near term until we get ourselves. I hope that helps.
Operator: We’ll take our next question from Srikripa Devarakonda with Truist. Your line is open.
Srikripa Devarakonda: Congrats on the progress. I have a question about your breast cancer franchise from the Ibrance perspective. You have pivotal data from the estrogen receptor PROTAC, the collaboration with partnership with Arvinas expected later this year. One is, what are your expectations for these data? And how important are these data for you to make decisions around either continuing or initiating such a combo Phase 3 trials, like whether it’s CDK4/6 combo or CDK4 combo or both of them? Thank you.
Albert Bourla: Thank you very much. Chris?
Chris Boshoff: Yes. Thank you very much for the question. Just a reminder to point out with Ibrance that over 773,000 patients have now been treated globally with Ibrance. So it is currently still the CDK4/6 leader. We’re very excited about 2 programs: Vebdegastrand, which we believe to be best-in-class next-generation estrogen receptor degrader and also Atirmociclib next-generation CDK4 specific inhibitor. For Vebdegastrand, as you point out, we’ll get the data later this year for VERITAC-2. But we are planning additional studies at risk. So you can expect to see first-line studies, both first-line study with Atirmociclib and standard of care endocrine therapy as well as Atirmociclib plus Vebdegastrand. And for Atirmociclib as you’ve seen in a heavily pretreated population, we’ve seen an overall response rate of 32% with medium progressive survival of 8.1 months, we’re therefore highly encouraged.
I’m definitely very encouraged by the safety profile, and we see more continuous dosing, very good compliance and more complete coverage of CDK4 and that’s why we’re confident to accelerate CDK4 into registration strategy and the first study has already started, as you know, the second line of study.
Operator: We’ll take our next question from Carter Gould with Barclays. Your line is open.
Carter Gould: I wanted to ask a follow-up as I think it’s important, and I fully respect the focus on ’24 and Albert’s commentary on conservatism around guidance. But to come back to the IRA impact for thinking about ’25. When do you think you’ll be in a better position to comment a little bit on, your contracting discussions are underway pretty late in the earnings season here, and most of your peers have already made comments and your Part D exposure isn’t exactly a surprise. So any color there on timeline would be helpful. And I guess for David, you talked about the operating margin improvement being sort of a multiyear process. Is there a risk that the IRA sort of presents a little bit of a hiccup to that in ’25? Thank you.
Albert Bourla: Thank you. Aamir, do you have any comments on that?
Aamir Malik: Sure. So Carter, I think you heard us describe the dynamics. And later this year, we will have more clarity on what that means. And so we can certainly share that. I think there’s also a specific question that comes up often about Eliquis, so let me just address that now because we are clearly in a live negotiation on that. BMS, our alliance partner, is leading that process. You’ve heard them describe and we also described that there will be transparency around the outcome of that for impact in ’26 in the September time frame. And so at that point, we’ll be in a position to share more.
David Denton: Yes. And I guess as it relates to 2025 and the impact of the IRA from a margin expansion perspective, I would say without giving any specifics on that is, as we look forward, we obviously run multiple scenarios around how our business might perform. And in those scenarios, we would model different impacts to the IRA because it’s still unclear because it’s still a lot of moving parts, specifically as we just spoke about. Under those scenarios, we will work hard to offset any implication we might have through improving our cost structure.
Albert Bourla: And I want on the IRA also to set something that clearly, in 2025, we will have two events that are happening, we will have to contribute to a pharmaceutical industry so that will put pressure on the pricing, let’s say. But also because of the significant pains in the out-of-pocket dynamics and which I hope that will be implemented, as the law says, immediately because I’m hearing efforts to try to play with that. But if that is the case, which we are certain because that’s the law, we will see significant work uptake, right, for everyone, not for us, of course, for everyone because there is a huge number of abandonment that is happening at the pharmacy level when people are asked to pay this very high out-of-pocket, particularly the first one quarter and maybe two when they need to exhaust their, let’s say, the co-pays or the deductible.
So that, I think, dynamic that the industry always asks that we contribute to the out-of-pocket payments as long as the patients are paying less because there is a significant benefit for all, for healthcare systems, for patients, for us. And so I’m not that concerned about that for the industry as a whole. I’m very concerned for the industry as a whole with the mandatory cost reduction. There is no negotiation there. They are just cutting prices but are occurring for biologics and for more volumes, particularly. One good thing for us, it is, first of all, that we have good exposure on vaccines, that they are a part of that, actually, they are benefiting from the IRA because there is no co-sharing. So we can see that in the volumes again. But on the small molecules where we do have exposure, I would say that we were lucky only one product that was selected for ’26, we could have three or four and only one was selected.
So Eliquis, as Aamir said, we will wait to see. We know, of course, but we can’t discuss in the middle of negotiations about anything that’s happening. And so we’ll see the impact of whatever about this in 2026. Then if next year, they bring some of the other products that they’ve been included and they were not in this year, that will be the Ibrance of the world, that will be the XTANDIs, those are products that anyway, they are approaching their LOE. So even if they come into the IRA, the MPV risk that we have in place is not that big because really, we cut the price for something, but it will not be for a very lengthy period of time but will be for smaller than others period of time. This doesn’t mean that this is not very bad for the industry and for innovation and we clearly opposing and he will try whatever we can to defend it.
Let’s go to the next question because we are running our time.
Operator: We’ll take our next question from Rajesh Kumar with HSBC. Your line is open.
Rajesh Kumar: First question is you very helpfully provided some color on the gross margin. What are the takes and puts there? If we look at your early 70s guidance and the gross margin you’ve achieved in Q1, do we see below 70s gross margin some point in some quarter this year? Or you sort of will get to early 70 with throughout the year, maintaining over 70% margin? And then the bit which is quite difficult to work out from the disclosures is, how did the Paxlovid number impact the gross margin. So any help there so that we can model that right would be much appreciated.
Albert Bourla: Dave?
David Denton: Great. So yes, I think we just gave some color around gross margin being closer to 70% versus closer to 80%, when we entered 2024. We are maintaining that color at this point in time. I would say that it’s unlikely for our gross margin rate to fall below 70% in any given quarter. But I want to just emphasize the gross margin rate will fluctuate a bit primarily given the mix of sales, specifically within the vaccine portfolio, which carries a lower gross margin, number one. Number two, when you look at our performance for gross margin in Q1, a dominant effect of that versus last year is the mix, the lower sales volume of Comirnaty in the quarter in Q1 versus last year’s Q1. Obviously, the final adjustment of the Paxlovid reserve actually did also have a one-time positive impact on the gross margin rate in Q1, but that was less of an impact compared to the mix. So I hope that helps.
