Pfizer's (PFE) CEO Ian Read on Q4 2015 Results - Earnings Call Transcript

| About: Pfizer Inc. (PFE)

Pfizer Inc. (NYSE:PFE)

Q4 2015 Earnings Conference Call

February 2, 2016 10:00 a.m. ET

Executives

Chuck Triano - SVP, IR

Ian Read - Chairman and CEO

Frank D'Amelio - CFO

Mikael Dolsten - President of Worldwide Research and Development

Albert Bourla - President of Vaccines, Oncology and Consumer

Geno Germano - President of Global Innovative Pharma

John Young - President of Established Pharma

Doug Lankler - General Counsel

Analysts

Colin Bristow - Bank of America

Alex Arfaei - BMO Capital Markets

Jami Rubin - Goldman Sachs

Andrew Baum - Citi

Vamil Divan - Credit Suisse

Steve Scala - Cowen

Mark Schoenebaum - Evercore ISI

Marc Goodman - UBS

John Boris - SunTrust

Tim Anderson - Bernstein

Richard Purkiss - Piper Jaffray

Geoff Meacham - Barclays

David Risinger - Morgan Stanley

Gregg Gilbert - Deutsche Bank

Chris Schott - JPMorgan

Manoj Garg - HealthCo

Operator

Good day everyone, and welcome to Pfizer's Fourth Quarter 2015 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.

Chuck Triano

Good morning, and thanks for joining us today to review Pfizer's fourth quarter and full year 2015 performance, as well as 2016 financial guidance.

I am joined here today as usual by our Chairman and CEO, Ian Read; Frank D'Amelio, our CFO; Mikael Dolsten, President of Worldwide Research and Development; Albert Bourla, President of Vaccines, Oncology and Consumer; Geno Germano, President of Global Innovative Pharma; John Young, President of Established Pharma; and Doug Lankler, General Counsel.

The slides that will be presented on this call can be viewed on our homepage, pfizer.com by clicking on the link for Pfizer Quarterly Corporate Performance Fourth Quarter 2015, which is located in the For Investors Section in the lower right hand corner of the page.

Before we start, I'd like to remind you that our discussion during the call will include forward-looking statements and that actual results could differ materially from those projected in the statements. Factor that could cause actual results to differ are discussed in Pfizer's 2014 Annual Report on Form 10-K, as well as on our reports in Forms 10-Q and 8-K.

Discussions during the call will also include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of the 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.

Also, today's call is not intended to, and does not constitute an offer to sell or the solicitation of an offer to subscribe for, or buy securities of Pfizer or Allergan.

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

Thank you Chuck, and good morning everyone. We finished 2015 with strong financial and operational performance. For the full year, we exceeded our 2015 revenue guidance and met the top-end of our adjusted diluted EPS guidance. Excuse me; and we achieved our first year of operational revenue growth in five years.

Frank will take you through the numbers. Before he does, I have a few brief comments about what is driving our performance, some thoughts regarding where we expect to see pipeline advancements during the year, and I will close with a few comments about Allergan.

Throughout the year and especially in the fourth quarter, our business executed flawlessly despite a challenging operational environment. We ended 2015 with solid momentum in both developed and emerging markets.

Specifically in developed markets, during the year we gained incremental market penetration driven by continued success of products that are early in their life cycles, including Prevnar 13 adults, Ibrance, Eliquis, Xeljanz, and we still saw steady growth from key inline products in 2015, specifically Lyrica in markets where it remains patent protected.

And during the year in emerging markets we saw operational revenue growth primarily due to the performance of Prevnar, Lipitor, and Enbrel, as well as from the addition of legacy Hospira products. The integration of the Hospira business into Pfizer Global Established pharma businesses is on track, and we look forward to this business being an attractive potential growth driver. This acquisition is indeed proving to be an excellent strategic fit, and we are seeing the expected value contribution to our GAAP business that we anticipated.

Frank will speak to our 2016 guidance in a moment. We expect to deliver operational revenue growth in 2016. Our key growth drivers will continue to be Ibrance, Eliquis, and Xeljanz. And we believe that Prevnar adult global revenues will be comparable to the strong results we achieved in 2015. Additionally, we believe our near-term pipeline will help accelerate this ongoing growth forward.

In looking at the year ahead, we expect our businesses will continue to execute well. They are competitively positioned to win their markets and are performing strongly against their competitors' set.

Regarding the pipeline, we anticipate advancing many of our Phase III programs during the year. For Bococizumab, we reported today that the first of our six Phase III efficacy studies achieved its primary endpoint, and we expect readouts of the remaining five Bococizumab lipid-lowering studies [technical difficulty] during 2016.

For [indiscernible], this year, we and our partners Merck will begin to deliver results from our comprehensive Phase III clinical program. In 2016, the alliance expects to submit applications to regulatory approval in the U.S. for both monotherapy and two fixed dose combination tablets using data from eight clinical trials.

For Dacomitinib, we expect results in the second half of the year for a Phase III study in first-line EGFR mutant non-small-cell lung cancer, and we'll discuss our regulatory strategy with the FDA. So Xeljanz in the first half of this year we expect top line results for our Phase III program in psoriatic arthritis. We believe Xeljanz can potentially fill a significant unmet need in the psoriatic arthritis when non-biologic DMARDS do not have proven success, and where there are currently few alternatives for patients who have inadequate responses to anti-TNF therapy.

In addition, in the first half of the year we anticipate the decisions from the FDA for a once-a-day daily Xeljanz formulation for rheumatoid arthritis, and we remain on track to re-file our application for RA in the EU.

For Ibrance, we expect to see the top line PALOMA-2 study results in first-line advanced breast cancer in combination with letrozole, and we have an April PDUFA date for second and third-line treatment for advanced breast cancer based on the PALOMA-3 data. We could also see a regulatory decision for Ibrance in the E.U. by year end.

Additionally, in the oncology business, we have a PDUFA date this year in the U.S. with Xalkori in ROS 1 non-small-cell lung cancer, and we expect to file for approval of Inotuzumab for acute lymphoblastic leukemia in the U.S. And in immuno-oncology we now have a broad portfolio of compounds that we believe has the potential to support the development of a strong, deep competitive market position. We now have five immuno-oncology assets in the clinic, and expect to have up to 10 in the clinic by the end of 2016. As a result of our partnership with Merck KGaA, as of the end of 2015, we had 28 ongoing clinical development programs for Avelumab, with seven of them being pivotal registrational studies.

We anticipate some of these studies will give us potential registrations in areas like Merkel cell, ovarian, bladder, gastric, and lung cancer. Of these seven studies, we expect to present data in Merkel cell this year, and to see data from the other tumor types in the following two years. And we continue to believe that the winners in this space will be those that have a breadth of portfolio assets to support rational combinations. We have a range of assets to combine with Avelumab when compared to other companies' assets, and we have already initiated six combination studies with Avelumab.

In 2016, we expect to see data from 4-1BB in combination with Keytruda and in combination with Avelumab in various tumors, 4-1BB in combination with Rituximab in lymphoma, a combination of Lorlatinib, our next generation ALK inhibitor with Avelumab and ALK-positive non-small-cell lung cancer, and data from [indiscernible] with Avelumab in renal cell carcinoma. Finally, we may see data from OX40 as a single agent this year. Taking of all of this into account, we believe we are well on our way to being a leading player in this space.

And now a few comments about our proposed combination with Allergan. We're excited about bringing two great companies together that have a strong strategic fit. The transaction is about acceleration growth potential in our innovative businesses and strengthening our established business, and more efficiently allocating our capital around the world. We are confident that we are taking appropriate steps so that we can achieve the key milestones needed to complete the transaction and continue to expect close in the second half of 2016.

Since the announcement, we have been working closely with Brent Saunders and his team at Allergan, and have been delighted by the engagement and rapport that is occurring. We see a number of potential opportunities after closing as we continue to learn more about each other's portfolio. For example, we see complementarity in information in gastroenterology, and we have a -- when we will have a broader presence in cardiovascular disease with Eliquis and Bystolic.

In neuroscience, Allergan's work in Alzheimer's, schizophrenia, and major depressive orders will be highly complementary to Pfizer's promising early work in such areas as Parkinson's, Alzheimer's, and Duchenne muscular dystrophy.

When you look at over the next few years we expect both companies will continue -- contribute, sorry, several potential new drugs to launch. We'll also continue to be excited about the international potential. And by coming together, we are enhancing category leadership throughout our complementary inline portfolio, and a combined pipeline with great late-stage and mid-stage assets across each of our key therapeutic areas. Both companies bring a great deal of scientific and product expertise to the provost combination and a shared philosophy in our approach to research and development.

Upon the close of the transaction, the combined company will be an influential player in the industry with a competitive product portfolio with several leadership positions, robust pipeline, compelling capital structure, and financial position, and aligned cultures that are based on ownership and entrepreneurial spirit creating shareholder value and meeting patients' needs. This combination is about investing in our business. It's about accelerating our existing strategy, while preserving our options as putting the company into an innovative business and an established business. If we determine that is the best way to unlock the most value for our shareholders.

By the end of the current quarter our integration teams will be fully engaged, and we anticipate announcing post-closing leadership positions. Throughout the year we will continue to keep you updated on our progress. In summary, we're looking at a year ahead we have a sound strategy, and a strong business. Our outlook and financial guidance for the year takes into the account the benefit of anticipated positive organic growth from key products, as well as the impact from foreign exchange. We have a solid portfolio of market-leading inline products, a healthy pipeline. We expect to further strengthen the growth potential of the business with the pending addition of Allergan. We will continue to have the means by which we can create value for our shareholders and bring innovative medicines to patients by producing expected top line growth, progressing key pipeline assets, pursuing strategic business development, and returning capital to shareholders through dividends and buybacks.

Now I'll turn it over to Frank for additional details on the quarter and our 2016 financial guidance.

Frank D'Amelio

Thanks, Ian. Good day everyone. As always, the charts that we're viewing today are included in our webcast. As a reminder, because we completed the acquisition of Hospira on September 3, 2015, Pfizer's full year financial results for the year ended December 31, 2015 include four months of legacy Hospira U.S. operations and three months of legacy Hospira international operations.

Financial results for the fourth quarter 2015 include three months of legacy Hospira Global operations. By comparison, financial results for full year and fourth quarter 2014 do not include any contribution from legacy Hospira operations.

Now, moving on to the financials; fourth quarter 2015 reported revenues were approximately $14 billion, and reflect year-over-year operational growth of 1.9 billion or 14%, mainly driven by the addition of legacy Hospira operations. The continued strong performance of products that are early in their lifecycles such as Prevnar 13 adult, Ibrance, Eliquis, and Xeljanz, Lyrica primarily in the U.S. and 5% operational growth in emerging markets, mainly from legacy Hospira operations, Prevnar 13, and certain other products.

Reported revenues continued to be unfavorably impacted by foreign exchange of 934 million or 7%. Excluding the inclusion of legacy Hospira operations of 1.2 billion, the negative impact of foreign exchange and to a much lesser extent the inclusion of 35 million of revenues associated with vaccines acquired from Baxter, Pfizer-standalone achieved operational growth of 646 million or 5% while at the same time absorbing a 720 million negative operational impact from product losses of exclusivity.

Fourth quarter adjusted diluted EPS was $0.53 versus $0.54 in the year ago quarter. The decrease is primarily due to an aggregate operational increase and adjusted cost of sales, adjusted SI&A expenses, and adjusted R&D expenses or 1.8 billion or 21%, $0.07 due to foreign exchange and the continued product losses of exclusivity in certain geographies. These were partially offset by revenue growth of certain new, in-line, and acquired products, lower effective tax rate, and few diluted weighted average shares outstanding which declined by 125 million shares versus the year ago quarter due to our share repurchase program which includes the impact of $5 billion accelerated share repurchase agreement executed in February 2015 and completed in July.

Reported diluted EPS was $0.10 compared with $0.19 in the year ago quarter due to the previously mentioned factors and the unfavorable impact of foreign currency losses related to Venezuela, increased purchase accounting adjustments, acquisition related cost, restructuring charges, and asset impairment charges versus the prior year quarter, and non-recurring charges related to pension settlements, which were partially offset by the non-recurrence of a charge associated with the global strategic alliance formed with Merck KGaA in November 2014 to jointly develop and commercialize Avelumab, lower charges for certain legal matters, and a lower effective tax rate.

Foreign exchange negatively impacted fourth quarter reported revenues by approximately $934 million or 7% and positively impacted adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses in the aggregate by $435 million or 5%. As a result, foreign exchange negatively impacted fourth quarter adjusted diluted EPS by approximately $0.07 compared with the year ago quarter.

Now, moving on to the financial highlights of our business segments; in the fourth quarter, Global Innovative Pharmaceutical revenues increased 10% operational year-over-year due to the strong performance of recently launched products including Eliquis globally and Xeljanz in the U.S. and the strong performance of Lyrica in the U.S. and Japan.

Income before taxes increased 17% operationally due to the increase of revenues and a 5% operational decrease in cost of sales. Cost of sales as a percentage of revenue decreased 1.7 percentage points operationally because of low royalty expenses and increased alliance revenues with no associated cost of sales.

IBT was unfavorably impacted by a 4% operational increase and SI&A expenses as a result of additional investment in Eliquis, Xeljanz, and Chantix, and 11% operational increase in R&D reflecting investments in our late-stage pipeline primarily for Bococizumab and Tanezumab.

Fourth quarter VOC revenues increased 38% operationally, reflecting operational revenue growth in each business. Global vaccine revenues grew 53% operationally driven by 102% increase of Prevnar 13 U.S. revenues to the strong uptake among adults.

Global oncology revenues grew 61% operationally driven by Ibrance in the U.S. and to a lesser extent by Sutent and Xalkori globally. And consumer healthcare revenues grew 4% operationally due to Nexium 24HR in the U.S.

Income before taxes increased 33% operationally, mainly due to increased revenues and associated improvement in gross margin, which were partially offset by a 66% operational increase and SI&A expenses as a result of higher promotional expenses in the U.S. for newly launched consumer healthcare products, Ibrance, and Prevnar 13 adult. And the 46% operational increase in R&D expenses due to increased cost associated with oncology oncology programs, primarily our alliance with Merck KGaA and Ibrance.

Fourth quarter, Global Established Pharmaceutical revenues increased 5% operationally, mainly due to the previously mentioned inclusion of legacy Hospira revenues contributing $1.2 billion, which was partially offset by loss of exclusivity and generic competition for Celebrex in the U.S. and certain other developed markets, Lyrica in most developed markets in Europe and Zyvox in the U.S.

Emerging market revenues were flat operationally, which reflected the positive impact of the inclusion of legacy Hospira operations and continued strong growth in China offset by declines in certain markets in the Middle East.

Income before taxes declined 12% operationally reflecting the unfavorable impact of a 4.7 percentage point operational increase in cost of sales as a percentage of revenues due to the inclusion of Hospira operations and the impact of losses of exclusivity, a 24% operational increase in SI&A expenses driven in part by the addition of Hospira operations and the 53% operational increase in R&D expenses due to increased legacy Hospira development programs.

We exceeded the top of our guidance range of expectations for 2015 reported revenues by approximately $400 million. Adjusted cost of sales as a percentage of revenues was 18.5% versus 18.7% at the low-end of our guidance range due to increased Alliance revenues and sales volumes, and we exceeded our expectation for our effective tax rate on adjusted income as a result of the favorable change in our jurisdictional mix of earnings.

We met our expectations for adjusted R&D expenses and achieved the top-end of our adjusted diluted EPS. Adjusted SI&A expenses are $14.3 billion, or higher than our guidance range due to increased expenses for recently launched products such as Prevnar 13 adult and Ibrance, other inline products, and certain Consumer Healthcare brands.

We recorded adjusted other income of $409 million versus our expectation of approximately $500 million. Finally, reported diluted EPS was a $1.24 versus our expected range of a $1.37 to a $1.43, mainly as a result of increased purchase accounting adjustments, acquisition-related costs and restructuring charges primarily related to the acquisition of Hospira, the negative impact of foreign currency losses related to Venezuela, and non-recurring charges related to pension settlements.

Now I'd like to walk you through the 2016 guidance ranges for reported revenues, reported diluted EPS, and adjusted diluted EPS relative to our 2015 actual results. First, it's important to note that our 2016 financial guidance excludes the impact of our pending combination with Allergan.

Our 2016 reported revenue guidance range reflects anticipated strong growth of certain new inline and acquired product that is partially offset by an anticipated $2.3 billion negative impact due to continuing product losses of exclusivity. I want to point out that that would be in this range and consistent with our previous comments we expect full year Prevnar 13 adult global revenues to be comparable with its full year 2015 global revenue level.

We expect adverse changes in foreign exchange based on mid-January 2016 rates relative to the U.S. dollar compared with actual foreign exchange rates in 2015 to have an additional $2.3 billion negative impact on the reported revenues, including an estimated $800 million negative currency impact related to Venezuela. Consequently, we expect 2016 reported revenues to be in the range of $49 billion to $51 billion.

Reported diluted EPS and adjusted diluted EPS guidance also include the negative impact from product losses of exclusivity, as well as an expected $0.09 negative impact from foreign exchange rates and the $0.07 negative currency impact related to Venezuela. As a result, we expect reported diluted EPS to be in the range of a $1.54 to a $1.67, and adjusted diluted EPS to be in the range $2.20 to $2.30.

In addition, I want to remind everyone that guidance ranges for both reported and adjusted diluted EPS incorporate $5 billion of anticipated share repurchases in 2016, which consists of our previously announced intention to execute a $5 billion accelerated share repurchase program in the first half of 2016. These repurchases are expected to more than offset the potential dilution related to employee compensation programs.

In summary, to exclude anticipated foreign exchange impacts, including the negative currency impact related to Venezuela, full year 2016 revenue and adjusted EPS guidance midpoints are 7% and 10% greater than actual full year 2015 levels respectively. The remaining elements of our 2016 financial guidance are set forth on this chart.

Now moving on to key takeaways, we had a very strong financial performance in 2015 and we achieved operational revenue growth every quarter, including 14% operational growth in the fourth quarter. For the full year 2015, we achieved 6% operational revenue growth that was mainly driven by new products that are early in their lifecycles and we achieved this growth despite a 3.2 billion negative impact from product losses of exclusivity.

Our full year 2016 reported revenue guidance range of 49 billion to 51 billion absorbs a 4.6 billion combined negative impact of product losses of exclusivity, adverse changes in foreign exchange rates, and the negative currency impact related to Venezuela. And the adjusted diluted EPS guidance range includes an anticipated $0.16 negative impact from foreign exchange, including Venezuela.

We announced our proposed combination with Allergan, and continue to expect the transaction to close the second half of 2016. And we continue to create shareholder value through prudent capital allocation. In 2015, we returned $13.1 billion to our shareholders through dividends and share repurchases. And we expect to execute a $5 billion accelerated share repurchase program in the first half of 2016. Finally, we remain committed to delivering attractive shareholder returns in 2016, and beyond.

Now I'll turn it back to Chuck.

Chuck Triano

Thanks, Ian and Frank. Operator, can we please poll for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Colin Bristow from Bank of America.

Colin Bristow

Good morning, and congrats on the solid finish for the year. So a couple of product-specific questions if I may, on the Prevnar franchise, you've posted strong 4Q numbers. Could you just talk about your expectations for the trajectory going forward? On Ibrance there's been a lot of discussion around [indiscernible], and the potential there for a threat to Ibrance. What's your view here?

And then just lastly on Biosimilars, can you update us on the status of your Biosimilar candidates, and when we should expect any data readouts? Thanks.

Ian Read

Thank you, Colin. I'll ask Albert to manage the Prevnar and Ibrance, and then pass it over to John for Biosimilars.

Albert Bourla

Thank you very much for the question, Colin. Let me provide some insight to help you understand the situation moving forward. In the U.S., obviously we have done an excellent job with the catch-up opportunity. We have achieved 86% markets there, 92% at retailers. We have 90% awareness of the recommendation at healthcare practitioner. And as a result, over the 45 million adults eligible at the time of recommendation for vaccination, we have already captured about a third [ph] of them.

Now while many adults remain, this cohort is more difficult to capture, as the low-hanging fruit is gone. It will require more innovative strategies that we all have in place, but even if we assume a similar or higher penetration rate this year, it will be on a much smaller pool of adults. However, we expect this will be mitigated by Europe, which has a very different growth profile. Even with prices lower than U.S., the demographics are very favorable, with much larger eligible population, and who have already received pneumonia in our label in 2015, and we are working to obtain broad recommendations, and following that reimbursement from the authorities.

Now this will be phased likely over a two-years window period, because in Europe this is done country-by-country, and sometimes region-by-region within the same country. But all in all, we expect very strong growth in Europe next year.

Now let me move on Ibrance, and your question about competition or particularly [indiscernible] drug. Look, [indiscernible] drug, while in the same class, is for any [ph] indication. The refractory patient population, what we have received breakthrough designation, is a very small population with few options available. In fact the average refractory patient undergoes seven lines of treatment. So it's -- they are in high-mid.

Now speaking generally on competition, there is only limited clinical data on the public domain, and we need to see more efficacy and safety data to make comparisons. What I can tell you is about our strategic position. We are the only company with a registered product in U.S., and six other countries, and an accepted filing in Europe, where we may obtain registration as early as next year. We have very good clinical experience with the product. Ibrance has been prescribed by 5,000 physicians in more than 20,000 patients. And so far feedback is very positive, particularly on patients' quality of life.

We are having a very heavy clinical program. We have two pivotal studies in first-line metastatic breast cancer, two studies in recurrent metastatic breast cancer, and three in early breast cancer, PENELOPE-B, PALLAS, and PEARL [ph]. Ibrance is part of 88 investigational initiated trials, approximately 50 in breast cancer and 38 in other tumor types. So as you can see, we are investing heavily to stay ahead of the competition.

Ian Read

Thank you, Albert. I think just on Ibrance, you mentioned next year for Europe, you meant this year, late this year we may be able to get registration…

Albert Bourla

Correct in '16, I mean. Sorry. I apologize.

Ian Read

Yes, thank you. Go ahead.

John Young

Okay. So thanks for the question on Biosimilars, Colin. So I think we're obviously very excited to being able to bring together the combination of Hospira's current inline biosimiliars which are already in the market. So we have three assets, as you know, which are already in the market in Europe, Nivestim, Retacrit, and Inflectra. And to bring that together along with the legacy Pfizer monoclonal antibody pipeline, plus some additional assets that Hospira have. So in total, when you look at the pipeline, we have nine distinct biosimilar molecules in different stages of development. Infliximab, outside of the E.U., Adalimumab, Trastuzumab, Bevacizumab, Rituximab, Pegfilgrastim, Ranibizumab, Denosumab, and Ustekinumab.

So overall we have a very strong pipeline. A number of those assets are in Phase III, late-phase development. And the first dataset there you'd be seeing from our Phase III studies would come from the legacy Pfizer Infliximab program where we would expect to produce data from our Phase III towards the end of this year.

Ian Read

Thank you, John.

Frank D'Amelio

Thanks, John.

Chuck Triano

Operator, can we please move to the next question.

Operator

Your next question comes from Jami Rubin from Goldman Sachs.

Chuck Triano

Jami? Okay, Jami. We may come back to Jami if she's -- if we can correct the technical issues. If not, let's go to Alex.

Operator

Your next question comes from Alex Arfaei from BMO Capital Markets.

Alex Arfaei

Good morning and thank you for taking the questions. Frank, your gross margin for 2016 is better than we expected, considering you're integrating a lower margin business in Hospira and losing exclusivity on some high-margin products. Can you help us understand what's driving that, and how we should think about -- and should we expect traditional margin expansion going forward, given that your Innovative business is growing at a faster rate?

And then on Hospira's contribution this quarter, it doesn't seem to reflect much revenue synergies. Obviously it's too early, but how should we think about Hospira's contribution next year and possible revenue synergies going forward? Thank you.

Frank D'Amelio

So Alex, on the gross margin, let me run the numbers and then I'll answer the question. So we ended the full year at 18.5% in terms of cost of sale. So I'll do the cost of sale. The reciprocal obviously is gross margin. We got it for next year across the sales number of 21% to 22%. So if you take the midpoint of that 21 to 22, just to make the math easy, that's 21.5% from our 18.5%. That's a 3%, 300 basis point increase in our cost of sales as a percentage of revenues. By the way, that's being driven by a few factors, but one of which clearly is Hospira.

In terms of -- I think your question, which was why wasn't even more, I think the answer is our ongoing productivity and cost reduction initiatives. When you think about our factories, our manufacturing capabilities, we really manage that from a cost perspective. First of all, we focus that on quality, service, and cost. If you think about that as a triangle, quality is at the top of the triangle. But there's four major buckets, right? There's the number of facilities, there's the numerous quality initiatives we have within each facility. There's the purchasing that we can get from a leverage perspective, and then finally, there's the center cost that resides outside of the factories. We manage all four of those very aggressively to basically -- to manage our cost structure in manufacturing, but that gives you a feel for what the numbers were, and why they are what they are.

Ian Read

Please, John.

John Young

So thanks, Alex. So obviously, again, we are very excited by the opportunities afforded us by the combination of our two businesses. And I think I've talked about biosimilars already, and the opportunities we see in that marketplace. So let me just touch briefly on sterile injectables. Obviously it's a very -- it's a large, it's a growing market. It's somewhere between $50 billion to $70 billion currently globally, and one of the sort of features of that market is it's very concentrated, particularly in the U.S., but also in a few ex-U.S. markets, such as Western Europe, and particularly China.

So, one of the things that we are very focused on is going to be revenue synergy. We obviously have a strong commercial presence in China, and also in the hospital segment in developed Europe and emerging Europe. So essentially the lag time since September when we closed this transaction we've been focused really on making sure that we have our blocking and tackling in place to be very systematic with our highest value molecules that really sort of meet market needs most appropriately. To be very focused on registering and brining those molecules to market.

So in the biggest opportunity that we have in China, that is going to take time, as you are very well aware. Drug lag in China is a significant issue, but we're very encouraged by the progress that the CFDA are making to accelerate access to important new medicines in China. But that will take time. But we do see opportunities both in the short-term, as well as medium and long-term to deliver significant growth ex-U.S. through the sterile injectable business and the combination of Hospira's portfolio into our commercial footprint.

Chuck Triano

Thanks, John. And operator, see if we can get Jami Rubin back.

Operator

The next question comes from Jami Rubin from Goldman Sachs.

Jami Rubin

Thank you. Sorry about that. Don't really know what happened on my end, but anyway, just a few questions. Frank, can you tell us what the Venezuela revenues are? I guess we are in consensus, we're surprised by the size of the hit; can you all hear me?

Frank D'Amelio

Yes, we can hear you. You're a little static, but we can hear you.

Jami Rubin

Okay, sorry about that. Anyway, so Frank, if you could just provide more color on Venezuela? And why such a big hit?

And then Ian, just a couple of questions for you, just back on this whole breakup thesis and the timing, I think investors initially were disappointed by the timing that you laid out at the time that you were announcing Allergan deal. I think you said you would make a decision by the end of 2018. I just want to put out there that the stock has pulled back quite a bit since you announced the Allergan deal, and I would think despite clearly the market is excited about this, but I would think that that would -- that the difference in -- even growing gap in valuation between where your stock is in an SOTP should help you to accelerate your decision to move in that direction, and if you could just comment on that please.

And then just, thirdly, on revenue growth. I mean, clearly there have been tons of pushes and pulls in your numbers, mostly currency, and patent expirations. Can you remind us when you expect, and this excludes the acquisition from Allergan, but when you expect your reported revenue growth -- or just talk about operationally revenue growth, when we should start to see a positive inflection point, because it has, when I look at my models, revenues have been in decline for many years and some of that's divestitures, and spins, but really since 2013, we've had revenues sort of flat to down. When is that going to change, and what's going to drive that change, just talking from Pfizer's standpoint? Thanks very much.

Frank D'Amelio

Let me just do the revenue growth first. Well, you know, as I said, '15 was the first year when we saw revenue growth; '16, we expect it to be around operationally narrow. We expect it to be Hospira and Allergan, we expect it to be flat and that's because we had a huge growth from adult vaccine in '15, and we'll hold that franchise. We won't grow it again. We'll have good growth from our inline products and our newly launched products, but we'll still deal with a couple of billion of LOEs. So I think you can begin to see, as we launch -- as we begin to get more traction with more clinical trial in Ibrance as we begin to see the launch, as we begin to see our next wave of products get approved, you'll see us returning to a very robust growth. But obviously, Jami, one of the reasons for doing the Allergan deal was in fact to ensure that we had robust growth in our innovative business. So we're aware of that issue.

Now this is the breakup timing. Number one, I point out that while the stock is down, I don't think it's specifically down more than a DRG. In fact I think it's roughly the same as a DRG, and in fact, given the our pressure that one would expect in a stock, I'm actually -- well, never like to see the stock go down. It certainly was expected to come under pressure from the odd community.

Now the breakup timing is an issue of -- we are focused on integrating this company and the two companies together, and we have laid out the full questions that we need to answer. And I think shareholder would want those questions answered. So, can we run the businesses successfully insider Pfizer? And we bought Hospira. You are seeing the sterile injectables. You have got the Biosimilars. You're beginning to see if you strip out the LOEs and stabilization of the core business, which we expect to return to growth, but that being said, we can run it well inside Pfizer. Can it be run better outside Pfizer? Is there trade value and can we unlock trade value in tax efficient manner? And these are the very serious questions. These are very large companies. And I think that by innovating we will be well positioned to make that decision in the best interest of our shareholders. And frankly, don't particularly see a way of short-circuiting that just because of the amount of work that has to be done and integration and getting the transaction of Allergan right. I do understand your wish for more speedy decision, but I think we are taking the right approach for shareholder value here.

Ian Read

Venezuela?

Frank D'Amelio

Yes.

Ian Read

So, Jami, the Venezuela revenues for -- I'll call it initially projected for 2016 were about $800 million, roughly the same size as 2015. If you look at the adjustments, we took -- we changed the exchange rate from 6.3 Bolivar to a dollar to 200 Bolivar to dollar. We went to the SIMADI rate for Venezuela. That change in the translation is what causes the adjustment that we made for 2016, and we thought that the timing of that adjustment was appropriate, given oil prices, given what's going on in Venezuela economically, given the dollars that are coming out of Venezuela, we thought the timing for this was appropriate. But it's really the 6.3 to 200 to the dollar conversion that's really causing the adjustment to 2016.

Frank D'Amelio

Now, Jami, ongoing, when Venezuela passes through this crisis and they re-establish a normal economy, we would expect Venezuela to grow back to be in the -- between 200 and 400 million a year. So the actual delta medium-term is for the 400 million between what was an overvalued currency.

Jami Rubin

Thank you.

Chuck Triano

Thanks, Ian and Frank. Can we move to the next question please?

Operator

Your next question comes from Andrew Baum from Citi.

Andrew Baum

Hi. Three questions please, two of them of very short. Firstly, perhaps you could just outline sequential growth for China, say, [technical difficulty] last quarter? Second, do you anticipate extra notice from Treasury on conversion, and obviously [technical difficulty] how restricted do you see any measures to impact the Allergan transaction? And then finally, just returning to [indiscernible], the patients in the ongoing Phase 2 trial, which accelerates approval that have not seen Palbociclib in early line of therapy, is that an approval possessing given the design of that trial, given the fact you are approved for indication or does that include any regulatory approval for the drug? Thank you.

Ian Read

Okay. I am going to do the notice first. We at the moment understand that the Treasury are working on formalizing and regulating the first two notices they issued, which are not in many ways applicable to our transaction as we're at the below 50% ownership.

I really can't speculate if there is going to be a third notice or not. We feel confident the transaction is fully within the U.S. law and fully within accepted interpretation of that law and expect the transaction to close in the second half of next year.

With that, I'll go to growth to Frank, and I would ask Mikael to talk about Palbociclib.

Andrew Baum

And with China.

Frank D'Amelio

On China, for the quarter, China grew 10%. Full year, China grew about 10%. Nice numbers. Somewhat moderated from 2014. In 2014, China grew to about 15%. So, we saw some moderation in the growth in China.

That said, Andrew, we remain very bullish on China. Has an increasing population, increasing personal wealth, government is committed to healthcare. We see increased spending in the government and the GDP rate is still very healthy. Not as high as it has been the past, but still quite healthy. So, we remain very bullish on the China market on going forward basis.

Ian Read

Mikael?

Mikael Dolsten

Yes. Thank you, Andrew, for a good question here. Two things; first, I want to just to point out that Abemaciclib is somewhat different from Palbo and Novartis drug in that it seems to be less selective and has a different resident profile likely due to hitting multiple CDKs particularly been reported significant GI issues. So it's a different profile, and we, as Albert very well pointed out, have been extremely pleased with the favorable profile that allow patients to benefit from Ibrance with very good reliability.

Now you asked about this late stage population studies Abema [ph], and how that population in the future will evolve. We anticipate as Ibrance is having a very nice uptake in the marketplace in first line metastatic and some also more advanced lines, and hopefully with Prevnar 3 approval, Ibrance is likely to be used in multiple lines.

Hence, monotherapy with another CDK will of course have the potential to face patient population that have seen CDK inhibitor, and that's why we are developing a strategy for how we can see patients benefit from drug like Ibrance at various stages with different anti-hormonals. And we are also now studying Ibrance in triple therapy. So I think you can see that multiple drugs is likely to be the preferred as patients become more advanced.

Andrew Baum

Thank you, Mikael.

Chuck Triano

Thank you. Next question please.

Operator

Your next question comes from Vamil Divan from Credit Suisse.

Vamil Divan

Great. Good morning everyone. Thanks for taking the questions. So…

Ian Read

Good morning.

Vamil Divan

Hi, good morning. Just again on Biosimilars front, I know there has been a couple of questions, but just a couple of more if I could. One is specifically on Enbrel, and if you can discuss in terms of 2016 how you are viewing the impact of Biosimiliars to your performance for that product?

And then second, now that Hospira has closed, I am just wondering, I guess this is a question for John or whoever wants to jump in, in terms of the value having a Biosimilar business under the same broad umbrella as your innovative business so you can leverage that commercial infrastructure areas like oncology and autoimmune disorders. Is there any way sort of maybe make more sense than to keep Pfizer as a single entity as opposed to splitting up and then needing to rebuild the commercial infrastructure for your Biosimilars in those similar areas where you do have innovative products? Thanks.

Ian Read

Vamil, I'll ask Geno to talk about Enbrel and the impact of Biosimilars in Europe.

Geno Germano

Sure. So, the first Biosimilar for Etanercept has been approved in Europe. And we've watching the situation very closely and evaluating adoption of Biosimilars across each of the countries throughout Europe for awhile now.

Our overall expectation is that there will be somewhat modest impact in 2016. The Biosimilar landscape is clearly still developing. There are different approaches taken by different countries. And we have a very clear detailed roadmap for how to address each of the dynamics that exist in these different countries.

So we are fairly confident that we are going to continue to have a strong Enbrel business throughout Europe. We think that the new patients would be probably most at risk of being exposed to the Biosimilars and hope that the availability of lower cost biologics will expand the market. So overall, we see this as again a modest impact to our business in the initial period of time.

Ian Read

And Vamil, maybe a very interesting question on the connectivity between the Biosimilars and the other space. I would say that that would be taken into account if there was any such linkage that was positive in our TSAs, the setup the separate companies to ensure that that as overall we maximize value of that between both companies in the contracts we would sign if we decided to split. Thank you.

Vamil Divan

Thanks, Ian.

Chuck Triano

Next question please.

Operator

Your next question comes from Steve Scala from Cowen.

Steve Scala

Couple of questions. First, apologizes if I missed the explanation, but the 2016 guidance includes roughly an incremental 4 billion in revenue and $0.08 in earnings from Hospira implying down to significantly down underlying sales for the legacy Pfizer and flattish to down EPS, and it seems that generic exposure in currency cannot be the explanation because the predicted 4.6 billion hurdle in 2016 from these factors is well less than the 6 billion plus predicted in 2015 at this time last year.

So actually the comparison on generic exposure in currency is improving and more than offsets the year-over-year increase in Prevnar. So, any thoughts on that would be appreciated.

And one more, how should we think about the long-term outlook for Sutent particularly given the competition from immuno-oncology agent. You think Sutent will soon become a defining asset or do you see growth in the future? Thanks.

Ian Read

I'll ask Albert to talk about Sutent and its possible combinations and the other studies we have already had on Sutent. And then, I'll ask Frank to come back on your questions about growth rates.

Albert Bourla

We remain very confident in our position in the RCC space and that includes both, Sutent and Inlyta, because they are very well known by physicians and other stakeholders. The recent approval in RCC for immunotherapy but this does not affect Sutent. It is in the second line. Sutent is used primarily in first line. And s we have previously disclosed we are studying Inlyta, and Inlyta plus other PD-1 inhibitors pretty aggressively so that we can achieve better result in monotherapy in RCC second line.

Ian Read

Frank?

Frank D'Amelio

Yes. Let's see if I can answer the question. Just first, we don't give a specific number for Hospira revenues for 2016. But that said, I believe I could still answer the question. So, the way I think about this is if you enter the midpoint of the guidance prior to foreign exchange in Venezuela, which is part of the basis of your question, the midpoint for guidance would be 52.3 just to use midpoint. We take 50.3 compare that to the 48.9 that we printed in 2015 are all now at the same foreign exchange, so, clearly operational. That's an increase of about $3.5 billion. We said -- Ian said when he answered Jami's question that revenue excluding Hospira on a year-over-year basis was essentially flat operationally while absorbing 2.3 billion in LOEs for 2016.

The other data point I think to help you answer the question is, remember, we did 1.5 billion in Hospira sales this year. So, when we say that the bulk of the growth is from Hospira, you understand it's incremental growth on top of the 1.5 billion that we printed in 2015. So that's how I think -- that's how you get to numbers we said and why we said operationally the numbers were essentially flat if you left Hospira out of the equation.

Steve Scala

Thank you, Frank.

Chuck Triano

Thanks, Frank. Next question please.

Operator

Your next question is from Mark Schoenebaum from Evercore ISI.

Mark Schoenebaum

Hey, guys. How are you doing? Thanks for being so clear on the communications in the quarter. I have one question that's been danced around but maybe let me just ask you it again and hope so I won't annoy you, but I'll try again.

So first is do you believe that there is anything, Ian, under the current U.S. statute that would allow treasury to block and/or materially delay the closing of the AGN deal? So I am asking you if there will be third proposed notice. I am asking you under the current law, are you very -- do you remain I guess very comfortable there is nothing that treasury legally could do to block the deal or to materially delay it like in the 2017 when there will be a new a congress and a new president.

And then I would also just for Frank perhaps just like you talked a little about your leverage ratio, if my math is right, the leverage ratio of the combined company the NewCo should closer to be around 1? By my math, you could take that to maybe 3 without affecting credit ratings in a big way, I would like to hear -- that's my math and I am not very good at math, so I would love to hear your general thoughts around leverage ratio of the NewCo where you might be willing to take that should the deal close. Thank you.

Ian Read

Thank you, Mark. And thank you for the compliment on the clarity to communications. We strive to make them clear. So on your question which I don't think on the current law, I do not believe there is any reason why this deal will not close; full stop.

Frank D'Amelio

Mark, let me run some numbers. So on leverage let me run the Pfizer numbers based on third quarter. We haven't issued a balance sheet yet for the fourth quarter. We will do that when we file the K. We had about 37 billion of cash in investments. We had about 39 billion of debt, short and long term debt. So to your point call that one to one essentially, and what we said when we announced the Allergan deal, what I said was we could take the leverage ratio at yield point up to about 2.5 to 3.

And then, obviously, once took it there, we would want to see what kind of rhythm that created relative to the company, the operation supporting the company in that we take it there, but that we still want access to commercial paper. We would be willing take a one notch downgrade but we would still want to have access to commercial paper. But in terms of your math and your calculation 2.5 to 3, that's right. That's basically what I talked about when we announced the Allergan deal. So, your math was good.

Chuck Triano

Thanks, Frank. Next question please.

Operator

Our next question comes from Marc Goodman from UBS.

Marc Goodman

Yes, few things. One is can you tell us what the key products are in Venezuela, if there are any massive ones that we need to be hitting the model on? Second, Frank, maybe you can go through some of the push-pulls on SG&A and how you are thinking about the spending this year? And then, third, can you just give us an update on the IL-6? Thanks.

Ian Read

So key products, I don't think there's any outstanding product, but the Enbrel is the biggest product that contributes. John, would you want to add anything to that?

John Young

Yes, I think the Enbrel is the biggest product. I think in addition to that we have a portfolio of matured established product, Lipitor and Norvasc would be other key products for us in Venezuela. So really just think about the basket of established products and the fit in that marketplace.

Ian Read

Okay. The SG&A? Yes.

Frank D'Amelio

So, Marc, on SG&A, let me just talk to the quarter and then I'll talk to the rhythm of the numbers. So if you look at the quarter, we had a big spend in SG&A. It's 4.6 billion all in. Three major factors there, right, one, obviously the inclusion of Hospira, which added a couple of hundred million. Two, sequentially, if you think about the fourth quarter compared to the third quarter, we had a lot more selling days in the quarter. So, internationally, we had six more selling days. Domestically, we had two more selling days.

So, sequentially, Q3 of '15 to Q4 of '15, we had more selling days. So obviously it helps revenue, but also increases the spend on our line items. And then, we had obviously I alluded to in my comments increased promotional spend in many areas of the business.

Now, if you take that 4.6 and you annualize it, times 2 is what? 9.2 times 2 is 18.4. If you look at the guidance we gave for next year on SI&A, it's 13.2 to 14.2 billion. So you can't take that Q4 number and annualize it. You get to a number that's nothing close to what our guidance is for 2016, which is a combination of Hospira numbers, the selling days, and then the increased spend in the quarter. But we look at it for next year, we get a number that our annual basis is significantly lower than what that annualized number would be.

Ian Read

And, Mikael, do you want to discuss IL-6?

Mikael Dolsten

Yes. Thank you for your question. So we tested IL-6 antibody in Lupus and [indiscernible], and while antibody did show some activity, we found that overall profile did not compete as well as many other real interesting immunology agents and other opportunities we have in our very rich pipeline of 90 clinical programs. So this is part of prudent portfolio prioritization within Pfizer.

Marc Goodman

Thank you, Mikael.

Chuck Triano

Can we move to the next question please?

Operator

Your next question comes from John Boris from SunTrust.

John Boris

Thanks for taking the questions and for all the clarity that you've given on the '16 guidance. Ian, first question on the timing around the breakup, I think you've indicated that integration of Allergan is very important. You've also indicated that you had time to look even deeper into the Allergan portfolio.

As you think about integration, can you give us some more commentary around how you are thinking about mapping out integration? Some look at Wyeth and look at the massive amount of synergies that you are able to extract out of Wyeth transaction and are somewhat puzzled as to why you can't do that here. So, any commentary around that?

Two additional questions; one on CDK 4/6, this one is for Mikael. Mikael, when you look at preclinical models, is there any argument or hypothesis around a drug that has to be given intermittently that it might have less efficacy than one that's given on a continuous dosing? And is that supported by any preclinical models?

And then, the last question just has to do with Xeljanz. Obviously, a very important asset for you not only in the U.S. but on the EU timing for filing, I think you indicated you wanted to have that filed before the end of the year. Just any update on what Europe is looking for within that filing to secure approval in Europe?

And then, on psoriasis in the U.S., any developments there on the modified release from a regulatory standpoint and then obviously with Enbrel seeing generic competition what have you done with your infrastructure in Europe to still keep some infrastructure in place to support Xeljanz if and when it gets approved?

Ian Read

Okay. So let me just -- quickly the last one first, we still have very strong expectations from Enbrel in Europe as Geno was discussing. We are not removing our support from Enbrel. So we expect to have full support for Xeljanz when it launches in Europe. There was a somewhat of a slippage from -- as you say, the end of the year to the beginning of this year on the Xeljanz application in Europe. We wanted to get it right and make sure that it was in the best shape we could, and these things happened. So there was a slight slippage on time on that. Mikael, do you want to deal with this hypothetical on CDK 4/6?

Mikael Dolsten

Yes, thank you for the questions. Of course, always we would caution you can speculate on things that haven't been studied in humans in comparative aspects, but you know, we think it's important to hit CDK 4/6 hard for breast cancer, and when you do that with high doses you will get efficacy on the tumor, but also see some neutropenia and that's we why chose the intermittent schedules. Particularly it seems very effective for combination therapy with multiple agents such as [indiscernible] in breast cancer.

For other tumor types, we may explore various schedules for various combination of drugs, but for breast cancer we think to show some schedule with the combinations we have studied is very effective and works well.

Ian Read

Thank you. Geno, you want to deal with the other questions that John asked on Xeljanz?

Geno Germano

Yes. John, I think the question -- as Ian had already alluded to, we are now expecting our filing to be in the first quarter of this year. We're actually meeting with [indiscernible] at this point. We did generate additional data on immune function as a result of the discussions that we had with the regulators in the first submission. So we feel that we have a strong package that we have responded to the information requests that they had, and we're just tidying up the kind of last few details and expect to put that filing in imminently.

Ian Read

And psoriasis and -- so, question on psoriasis? In the U.S…

Geno Germano

So psoriasis -- well, as you probably know we have a -- we received a complete response letter from the FDA on psoriasis. We have provided a backgrounder to the FDA, and we expect to meet with them also this quarter to follow-up on the components of the complete response letter, and once we know in more detail what their issues and concerns are, then we'll determine best way forward from there.

Ian Read

Thank you. Frank, do you want to deal with the…

Frank D'Amelio

Synergy number?

Ian Read

Yes.

Frank D'Amelio

Yes. So we have certainly announced the deal more than $2 billion. We gave you the timing in terms of when we would get that. A couple of comments, John, to your question, I think first why more than $2 billion, why not a higher number? I think these are two companies that have done a lot on the cost reduction front; significant reductions at both companies, I think efficiently run companies. Two, not a lot of therapeutic area overlap, which is always seeing a kind of a trigger for synergy opportunities. Third, if you look at the Allergan cost of goods sold, two-thirds of that from my perspective, from a synergy perspective was unaddressable. It's their end of business and then royalties. So really not a lot we could do there, but all that said and done, we're working now with the Allergan teams with Brent, with Bob Steward, with Tessa. Ian and myself, our leadership team here at Pfizer, we've already launched a couple of operational teams, and we're starting to dig into this in much more detail. If there is more there, please know we're going to get it, and we'll tell you about it. So I think on a synergy front just more to come.

Ian Read

Yes. And you know, John, the process from this deal was not huge cost synergies, it was about driving revenue growth in the innovative business, driving reasonably young portfolios, taking the products internationally, and then getting excellent capital allocation over the world. So we will get the synergies we can get, but our focus is on growth, and a lot of the questions on the call have been about growth. So this is part of the solution to that, and also really a good capital allocation.

Frank D'Amelio

Thank you for the questions.

John Boris

Thanks, Ian.

Chuck Triano

Next question please.

Operator

Your next question comes from Tim Anderson from Bernstein.

Tim Anderson

Thank you. If I could go back to the revenue guidance, the midpoint is about $2.5 billion below consensus, you flagged FX was a major headwind. I know that we spend a lot of time trying to incorporate FX, and I imagine consensus does too, yet that's still a very big delta. So my question on this is when you look at analyst models, are there particular revenue line items for products or divisions where you think consensus is too high unrelated to foreign exchange?

Second question, you mentioned the 4-1BB with Merck, and I'm showing foundation data with Keytruda. That's Phase I data, so as such I'm blinded -- I'm wondering if you can give us a preview of the tumor types here you think are most promising and also any preliminary safety findings?

And then last pipeline question, last year you mentioned having an oral PCSK9 approaching human development, and I'm wondering if that is now in the clinic when I look at your pipeline chart I see a new compound has been advanced on the Phase I?

Ian Read

Okay. Frank, if you could deal with the first question, and Mikael will have remaining two.

Frank D'Amelio

Sure. So Tim, let me run the numbers in, then I'll answer the questions. So your numbers are right. So consensus numbers give or take on revenue for 2016 about 52.4 billion the midpoint of all guidance $50 billion, the net there is roughly 2.5 billion that you alluded to, just to kind of nail the numbers.

I think two major pieces in terms of the GAAP; one is, clearly the Venezuela adjustment we made in 2016 wouldn't have been at the 52.4. So that's an $800 million adjustment. That would take a 52.4 to 51.6, and then I think when you look at the line items, I think the big difference [technical difficulty] if you ask me to point out one single place, it's Prevnar 13. Significant results, and the growth expectations in Prevnar 13 -- '16 versus our modeling for '16 where I said in my comments, and Albert punctuated in some of his detailed remarks about we're expecting that to be essentially comparable to 2015 levels. Those are the two things that I would point out that will make up the majority big piece of the difference in terms of your 2.5 billion.

Ian Read

Thank you. Mikael?

Mikael Dolsten

So thank you for asking about 4-1BB, and as you know, we believe that the combination therapy moved immuno-oncology feel to the next level. We are very pleased with the 4-1BB, one of tumor antibody that we have. We have started eating combination with Rituximab in lymphoma and with PD-1 Keytruda in a small study across various tumor types, and have also initiated combination study with Avelumab.

The 4-1BB antibody, the Pfizer antibody shows very good tolerability when combined with other biological agents, and it's clinical performance suggest also very interesting favorable clinical activity on top of other biologicals, such as Rituximab and PD-1 Keytruda. We will share the date from this first cohort this year likely at ASCO. We are quite excited about 4-1BB and also OX40 that's in our pipeline, and you will see 4-1BB Avelumab data likely late this year as well OX40 monodata, and early next year several doublets and triplets, which makes me very enthusiastic as I look forward how we advanced the strategy of combinations therapy.

We have an oral PCSK9 in Phase I. It's too early to have any definitive interpretation of that data, and we also have a PCSK9 vaccine in late preclinical development.

Chuck Triano

Thanks, Mikael. Next question please.

Operator

Your next question comes from Richard Purkiss from Piper Jaffray.

Richard Purkiss

Oh, thanks. I have a couple of questions for Mikael, just on Ibrance, can you flag any upcoming data for tumor types outside of breast cancer that we should look out for? Also, can you update on how well the Adjuvant breast cancer studies are enrolling? Thanks.

Ian Read

Mikae, would you like to…

Mikeal Dolsten

Yes. I could say a few words, so as Albert alluded to, there is a large number of Ibrance study, the great majority by investing in initiative research. So we will have to see as these studies result report emerging. I can say that we also have sponsor-led studies outside breasts, that includes pancreatic cancer, and head and neck, and we're also looking at triple therapy in breast cancer. I remain optimistic and excited about Ibrance performance, and think we will see interesting datasets coming from several of these new tumor types.

Ian Read

Enrollment? It's going well?

Albert Bourla

Yes, actually I can only add here. But likely the Mantel cell lymphoma, and the neck we may see data even this year. And then many of the areas that Mikael discussed, including small-cell-lung, we may see next year.

Chuck Triano

Okay, thanks Albert and Mikael. Next question please.

Operator

Your next question comes from Geoff Meacham from Barclays.

Geoff Meacham

Good morning guys. And thanks for taking my question, just a couple of quick ones. On Bevacizumab, given Pfizer's experience in cardiovascular I was just curious what your thoughts on the demand trends were, looking peripherally at the PCSK9 class today. I know a lot looking forward depends on outcomes data, but just curious about whether there's a tipping point, and the position adoption.

And then just on Biosimilars in the U.S., just wanted to get you guys to view on where you think the FDA is with respect to extrapolation when we're looking at the upcoming senior panel next week. Thanks.

Ian Read

Geno, any comments on that?

Geno Germano

Yes, I mean I think I would just reinforce the comment that you made. I mean, it's been our contention all along that this class becomes a real class in managing these patients with the cardiovascular outcome data, that we'll be seeing either late this year or starting next year. Our program is advancing nicely. We have, as you know, two cardiovascular trials. And the SPIRE-2 trial, which is in the high-risk patient population, we've now reached the point where we've discontinued screening. We're almost completely enrolled. And that trial is moving along very rapidly. And the SPIRE-1 trial will be completely enrolled by the end of this year or early next year.

So we're looking forward to these data, and the impact that we think they're going to have on the marketplace.

John Young

So, on the Inflectra AdCom, as you know it's scheduled for February 9, next week. I think it would probably be premature to speculate on the view that the FDA will take. We certainly think that this will be extremely informative as to the FDA's views and perspectives on extrapolation. I think obviously their product is being filed by Xeljanz. So specific questions about the AdCom really should be directed to Xeljanz, but I would say is that while we obviously await the resolution of the advisory committee and certain other factors. We're certainly moving ahead with the preparation for launch plans in 2016.

Chuck Triano

Thanks Geno, and John. Next question please.

Operator

Your next question comes from David Risinger from Morgan Stanley.

David Risinger

Yes, thanks very much. I have three questions. First, Ian, besides the likelihood of closing, what do think investors most under-appreciate about the Allergan merger? Second, I guess these are two financial questions. One is with respect to Enbrel ex-U.S. Could you just give us a sense for the percentage of revenue that is in countries where Biosimilars are launching in 2016, so that we have a sense for the percentage of Enbrel revenue that's exposed to Biosimilar threat?

And then finally, Frank, if you could just run through the cash flow outlook for 2016, the operating cash flow, and then the planned use of funds. Thank you.

Ian Read

David, again on your question on Allergan, our interactions with the shareholders, both sell side and buy side have been very positive. I don't think in reality there's anything underappreciated, other than the Street's perception of risk around the close. I would direct you back of course to the excitement I have about the products that Allergan have that they just launched, about their phase III products, both in depression, and in diabetic gastroparesis. And they just got breakthrough status, so -- and the combination of our information knowledge and RTAs with Xeljanz around their area. Our jacks around their expertise net area. I think perhaps the Street is just -- is right now hung up on this close issue. So bio, John?

John Young

Yes, David on the question regarding percentage of Enbrel business potentially exposed to Biosimilar competition, I don't have a figure on the top of my head. I would say more than 50% of the ex-U.S. business would be in the European Union, where we expect to see biosimilars. We won't -- we're not expecting to see it in Japan, Australia, and several of the Latin American countries. But I would say it's more than 50% of the business.

Frank D'Amelio

And then the last question was on '16 operating cash flow. The way I'll answer this David, is if you look at our operating cash flow through three quarters, it was about $10 billion. We expect the fourth quarter to be healthy in terms of the operating cash flow for the year. And then obviously 2016, we expect -- we want to obviously continue to grow that operating cash flow number. And then in terms of the uses, from my perspective, the uses of how we deploy our capital haven't changed, obviously investing in our business, returning capital to shareholders. I mentioned in my remarks we returned 13.1 billion to our shareholders in 2015 through a combination of dividends and share buybacks, and obviously looking at some bolt-on acquisitions if those make sense. So -- but no change. It would be how I'd answer the question on capital allocation.

Chuck Triano

Thanks, Frank. Next question please.

Operator

Your next question comes from Gregg Gilbert from Deutsche Bank.

Gregg Gilbert

Thanks, also a three-parter. First Frank, what level of detail should we expect in the proxy in terms of your long-term projections, similar to the Pfizer Wyeth documents or any difference and any caveats you'd like to order to let us know about before folks start slapping accretion percentages on those numbers?

Secondly, going back to something you said earlier. Taking your leverage to two-and-a-half to three times for Newco, and if you were to apply that capital to buybacks that would create EPS accretion that's far beyond what you've suggested. So just would like your thoughts on what you'd be doing with that leverage or is that just kind of a hypothetical.

And third, for John, do you still see the benefit of the Hospira device business alongside the drug business as you originally thought? Thank you.

Ian Read

Okay, John, could you deal with Hospira first please?

John Young

Yes, sure. I think we would say that in the Hospira infusion systems business, which comprises pumps, consumables, large volume solutions. We believe we acquired a very valuable asset. It provides novel capabilities in an adjacent area. And that adds significant value to customers, and their patients. And we are committed to ensuring its success in the short, medium, and longer term.

Ian Read

Okay, Frank, on the leverage and then the loan level of detail.

Frank D'Amelio

Level of detail, and the proxy.

Ian Read

Yes.

Frank D'Amelio

So I think on level of detail, we'll be providing revenue details, EPS details. It would be directed out, I believe, it's several years, five years. So there'll be information out there relative to projections on the company; on the leverage number, the 2.5 to 3, in my mind that's what's possible. In terms of what we did on buybacks, we tried to provide information when we announced the deal to give you all the data you needed. So that when you connected the dots you could model what at buyback numbers would be, right.

So we started out with the accretion dilution. We said neutral in year one, modestly accretive in year one, more than 10% in year three, and then high teens in year four. We gave what the beginning share count number of the combined company would be. It was 10.6 billion shares. We said we'd have 5.5 billion, and Allergan would have 4.7 billion. And then we gave the tax rate, which was 17% to 18%. So with those data points, we felt we provided the information that you needed in order to model what the buybacks would be. And then just to the two-and-a-half to three, now clearly there could be some extra juice if we took the leverage ratio up to that level.

Chuck Triano

Thanks, Frank. Next question please.

Operator

Your next question comes from Chris Schott from JPMorgan.

Chris Schott

Great, thanks, just two quick ones here. First, just more broadly on emerging markets, can you talk about the growth outlook here maybe beyond China, just given the current economic environment we're seeing? Has there been any change in your growth expectations there?

And then the second question for Ian. I know you've obviously had a very large deal pending right now. But how are you thinking of business development given the recent volatility and kind of valuation reset we see in the market. I guess what's the size and scope of assets that you could be interested at this point, given the upcoming Allergan transaction. And maybe how quickly post the Allergan transaction could this company start considering larger deals if there was an attractive opportunity in the market.

Ian Read

Thank you. John, you want to talk about China?

John Young

Yes, sure. So I mean, I think as we always say, Chris, on the emerging markets. We're always going to see courses and course of volatility. But at the same time we continue to expect to see growth numbers in the mid-single digit mid to high single-digit range. Frank's already talked about China. We continue to be very positive about the prospects in the short, medium, and longer term in China. It's obviously not just the world's largest country, with 1.3, 1.4 billion population, but we continue to see a strong government commitment to expanding access to to quality healthcare. We are very encouraged by steps that we see the government taking in the regulatory environment to really enhance quality standards in the marketplace.

And whilst there are few headwinds, GDP growth is slowly but still positive, still mid single-digit percentage. We are seeing some pressure on pricing. But overall when you put all of those factors together, we can continue to see China being a very positive growth driver.

Ian Read

Thank you, John. On BD, Chris, we see we would be more focused to smaller deals than larger deals right now. But once we close, we'll look at the opportunities. And we know we still have substantial flexibility and of course it will be measured against the alternative usage of that cash which right now are scheduled for buybacks and the accretion equation. So we'll make the decisions that we believe are best for shareholders and we will take it into account the -- what the asset priced at the time when we close.

Frank D'Amelio

And Chris, the only thing I would add is we, Pfizer-standalone today generate a lot of operating cash flow. The combine new company we said by 2018 would be generating in excess of $25 billion a year in operating cash flow. So, new company will generate significant amounts of operating cash flow. Thank you.

Chris Schott

All right.

Chuck Triano

And can we take our last question please, operator?

Operator

Your final question comes from Manoj Garg from HealthCo.

Manoj Garg

Hi, it's Manoj. Thanks for taking the question. A couple on the pending Allergan transaction and one on next Tuesday, on Allergan, one, I guess if maybe just if you can highlight, what are some of the levers that would dictate whether the deal would close in early second half of '16 versus later in the second half?

Two is, for Frank, on the $2 billion synergy number if you can just quantify as we fine-tune our pro forma model, if that's a gross number or an net number?

Ian Read

Okay. On the lever, Doug Lankler, would you indicate what you see the levers are for the close?

Doug Lankler

Sure. So, Manoj, we're working closely with regulators. We are pleased with the profits that we are making. We like the standpoint from the complementary nature of the businesses. And as a result, we continue to expect to close the transaction during the second half.

Manoj Garg

Thank you.

Doug Lankler

It's a net number.

Manoj Garg

Synergy number is a net number?

Doug Lankler

Right. Yes, you asked whether it was gross or net. And the answer is it's a net number.

Manoj Garg

Okay.

Ian Read

That should do it.

Chuck Triano

That should do it. Thank you very much for your questions.

Ian Read

Thanks for your time everybody.

Operator

Ladies and gentlemen, this does conclude today's fourth quarter 2015 earnings conference call. Thank you for participating. You may now disconnect.

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