So that’s why so far, we maintain all this capacity although the revenues are down. So there’s a significant. The second thing that David said, keep in mind, all basically our new acquisitions that brought so many new products, they were from smaller relative companies. They didn’t really have their own manufacturing. So these were all outsourced and outsourced, of course, is way more expensive than when you are able to bring it. There are plans for everything, in-source, but in manufacturing, that takes three years, right, to be able to reduce the margin. And the last but not least, we have disproportional amount of new loans. And those new loans are coming with a very big cost when you build infrastructure or something new to be developed, but of course, you build it for your PIK revenues.
But of course, you start with very low revenues and then those are going up. So as the infrastructure is there, but then higher revenue for these new products are coming, it’s always the case with new products, but margins are expected. So it’s not something about gross margins. You can see it in months. You see it in years the improvement. But clearly, this is an area that we know why it’s happening what’s happening and how we can improve it.
Operator: Our next question comes from Chris Schott with JPMorgan.
Chris Schott: And maybe just for Dave and Albert, just kind of building on mid- to longer-term margin piece of the equation. It sounds like we should think about margin recovery as a gradual process versus a snapback? Is that fair? And I guess, the bigger picture question I was asking is just how do we think about reasonable longer-term margins, maybe not giving specific time lines, but can we think about kind of like mid- to high 30% operating margins as still a reasonable target for Pfizer? Or just kind of factoring in some of the dynamics we’re seeing now, do we need to kind of rethink where margins can go over time?
David Denton: No, I think you’re absolutely correct. Mid- to high 30s is a reasonable target for us, with a slight caveat in the sense that the vaccine program, Comirnaty, has a shared, as you know, gross margin level with our partner. And so that’s dampening to gross margins and operating profit. So I’ll say, slightly mix adjusted for that product. And then from a progression standpoint, yes, you can think about this as a gradual steady improvement story over the next several periods.
Operator: Our next question comes from Rajesh Kumar with HSBC.
Rajesh Kumar: Just on the medium-term margin profile. Thank you for the color you’ve provided. If you think about the growth aspirations you have, does that require you sacrificing some of the margins? So if you were to say, at the top end of your growth profile would we be looking at mid-30s gross margin or lower? Or what is the balance there? And the second one, you briefly touched on your capital allocation priorities earlier. Obviously, cost cutting and deleveraging is a priority for 2024. In the medium term, which are the therapy areas where you would deploy more capital after 2024 deleveraging exercise done?
Albert Bourla: David, why don’t you take that?
David Denton: Yes. So maybe on the margin discussion, obviously, what we’ve said is we have invested pretty substantially in our business over the past couple of years. So largely, the investment phase at least from a business development standpoint is behind us. We have work to invest to improve performance going forward, but the big dollars are already invested now. It’s an execution story and a continued improvement story. So you should expect that to occur over the next several periods. Obviously, the higher the revenue, the better performance because you get to leverage your fixed costs. So clearly, the higher those revenue targets and achievements happen, the better improvement from a margin perspective you should expect from us.
And then from a capital allocation perspective, I think you said it right. We are, at the moment, focused on executing our plan, focused on supporting our dividend growth over time, but importantly, beginning to delever as we cycle into an integration of assets. And then from a priority standpoint, clearly, we’ve made a significant investment in oncology. You should expect us to put the investment thesis behind that franchise going forward. Clearly, that’s number one at this point.
Albert Bourla: And I would add that following the oncology, where clearly, we have right now the biggest part of our R&D expenses and we have a significant also part of our SI&A expenses. The other areas that we are putting a lot of emphasis when it comes to reserve, clearly, vaccines, it’s vaccines and we plan to have significant productivity. In internal medicines, our metabolic franchise, it is an area that we are very excited. Obesity is part of that. We do believe that obesity is a big market and it’s growing. And we do believe that Pfizer has the capabilities that allows us to play and win in that area. So that’s an area that we will continue investing. Immune inflammation, we have significant investments is the other area.
And of course, we have — we are among the few that they have antiviral and on the effective still investments. So those are the areas that we will put money in, oncology, number one, then vaccines, metabolic diseases, immuno-inflammation antivirals are the ones that we are continuing to invest in.
Operator: Next, we have Kerry Holford with Berenberg.
Kerry Holford : Just a couple of pipeline questions for me, please. Firstly, on RSV. Can we expect you to announce the date for Abrysvo following that third season in Q2? And then also on the two Phase 3 starts, you’ve highlighted today B6A in lung and CDK4 in breast. When can we expect Phase 3 data readouts for these two products?
Albert Bourla: I’m not sure — what was your question on RSV?
Kerry Holford : To understand when are you going to publish the data from the following the third season, third winter season of RSV?
Albert Bourla: Yes. Yes, I got it. Thank you. Why don’t you take that, Mikael, on the Abrysvo? And then, Chris.
Mikael Dolsten: We continue to accumulate important RSV data and expansion of how the — this important vaccine can be used. So you should expect this first half of the year, likely Q2, that we share more from our clinical trials, including full second season but also expansion in traditional age groups, as you can know, on clintrial.gov, we have active trials, and we think that will very nicely allow high-risk groups across a large age span to be addressed.
Albert Bourla: Thank you, Mikael. And then, Chris?
Chris Boshoff: Thank you very much for the question. So the immediate readouts for this year, second half 2024 will be the [indiscernible] in second-line hormone receptor positive metastatic breast cancer, the VERITAC-2 study, also second half 2024. We expect to anticipate results from BREAKWATER, very important indication, up to 12% of colorectal cancer with BRAFTOVI in first-line BRAF CRC. The new study starting right now is CDK4, B6A and dasitumab in Phase 3 programs and then also later this year for ECH2. Those will appear in clinicaltrials.gov and primary completion dates beyond 2025 and 2026, but obviously, there could be interim results with earlier results.
Operator: Our next question comes from Chris Shibutani with Goldman Sachs.
