Pfizer Inc. (PFE) Q1 2014 Earnings Conference Call May 5, 2014 10:00 AM ET
Chuck Triano - SVP of 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
Mark Schoenebaum - ISI Group
David Risinger - Morgan Stanley
Chris Schott - JPMorgan
Jami Rubin - Goldman Sachs
Jeff Holford - Jefferies
Seamus Fernandez - Leerink
John Boris - Suntrust
Tim Anderson - Sanford Bernstein
Marc Goodman - UBS
Steve Scala - Cowen
Vamil Divan - Credit Suisse
Alex Arfaei - BMO Capital Markets
Good day, everyone and welcome to Pfizer's First Quarter 2014 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.
Thank you, operator. Good morning and thank you for joining us today to review Pfizer's first quarter 2014 performance. I am joined today in New York 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 home page pfizer.com, by clicking on the link for Pfizer Quarterly Corporate Performance First Quarter 2014 located in the Investor Presentations section in the lower right hand corner of this page.
Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements and that actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in Pfizer's 2013 Annual Report on Form 10-K and in our reports on Forms 10-Q and 8-K. Discussions during this call will also include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer's current report on Form 8-K dated today.
We will now make prepared remarks and then we will move to a question and answer session. As we expect there will be questions related to our proposal to AstraZeneca and I would also note that there are limitations to place on our responses by the U.K. Takeover Code and to such there will be some questions we are not in a position to answer at this time.
With that, I will now turn the call over to Ian Read. Ian?
Thank you Chuck, and good morning everyone. During my remarks this morning, we will briefly recap the highlights from the quarter and provide some observations on how our strategy is progressing. Before discussing the quarter, I’ll begin with a few words about the proposal we made to AstraZeneca to combine our two companies, and the rejection of our proposal by AstraZeneca’s Board.
The proposal we announced publicly last Friday represented a substantial premium of 32% to AstraZeneca’s shareholders based on AstraZeneca’s closing price of £37.82 on the day before speculation began regarding a potential proposal at 39% premium to the closing price of £35.86 on the day before our January proposal, and a 22% premium to the unaffected all-time high closing price since the formation of the company in 1999. This is an opportunity for AstraZeneca’s shareholders to realize near-term value creation well in excess of its standalone prospects as well as the opportunity to effectively trade up their AstraZeneca position for equity in the new combined company with far greater potential for value creation.
Up to this point, we’ve only had access to publicly available information of AstraZeneca. Based on what we have learned through their information, we believe our revised proposal is compelling and responds to what we’ve heard from their shareholders. We are very disappointed with their unwillingness to engage in conversations and believe it is in the best interest of both companies and AstraZeneca and Pfizer’s shareholders that we pursue a friendly negotiated transaction that can be recommended by both our Boards. We would like to engage with AstraZeneca to gain a better understanding of their business and prospects. We believe they are an excellent strategic fit to Pfizer, and they have a strong and complementary alignment across and within our product portfolio and research platform.
That said, we remain very confident in our go-forward strategy regardless of a combination. We see this as further enhancing our strategy and consistent with creating shareholder value. Regardless of whether we complete this transaction, the main pillars of our strategy remain in place; namely focusing on innovation and advancing our pipeline, maximizing the productivity and returns generated within our commercial businesses, and remaining good stewards of our shareholders’ capital. We believe that our formidable proposal merits serious consideration. Given our position and strength, we will remain disciplined as we move through this process.
Turning to our performance for the quarter, overall we continue to perform well in a challenging operating environment. Our financial performance was in line with our expectations. Revenues for the quarter reflected the continuing impact of product loss of exclusivity and the expiration or near-term termination of some collaborations, a disproportionate amount of about one third of the anticipated full-year impact was recorded in the first quarter. If you exclude that impact, we had 1% operational growth. We saw growth from many of our key revenue drivers including Lyrica, Xalkori, and Inlyta globally, Enbrel outside of the U.S. and Canada, recently launched products, Eliquis and Xeljanz in the U.S., and from our collaboration with Mylan to market generic drugs in Japan.
I would point out that our business has historically demonstrated seasonality of revenues, and this quarter was no different. In terms of product developments we reported positive results from Prevnar 13 CapiTA study in older adults, and announced FDA approvals including supplementary new drug applications for Xeljanz to include radiographic data in the label, and for Eliquis for the prophylaxis of deep vein thrombosis, as well as FDA approval of Nexium 24-hour for over-the-counter use for the treatment of frequent heartburn in adults 18 and over. And there were several positive elements in our pipeline, including positive results from a randomized Phase II study of palbociclib in combination with letrozole in first line treatment of ER+ HER2- advanced breast cancer. Positive results from a randomized Phase II study of bococizumab in the reduction of LDL cholesterol, and a breakthrough therapy designation from the FDA for our meningitis B vaccine for the prevention of invasive meningococcal disease in adolescents and young adults.
For the full year revenue outlook, we anticipate key products will continue exhibiting growth, and that operational growth in emerging markets will be in the mid-single digit range rather than in the 3% range we saw in this quarter. Typically, our sequential annual product revenue pattern exhibits relative strength in the late quarters compared to our first quarter. For the balance of 2014, we anticipate incremental revenue contributions from Eliquis, Xeljanz, Prevnar 13 adult, Duavee and the expected launch of over-the-counter Nexium. As you know, at the beginning of this year, we implemented the new commercial operating structure to position the company for the future and to focus on maximizing growth.
We have three global operating segments; global innovative pharma, global vaccines, oncology and consumer healthcare and global established product pharma. These segments are fully functioning and are increasing the focus of management in providing greater transparency to shareholders and enhancing our ability to drive the business. As we previously committed to you, in today’s earnings announcement, we provided the revenues and costs associated with each of these operating segments. In a few minutes, the leaders of each segment Geno Germano, Albert Bourla, and John Young, will provide you with additional context regarding the performance of their particular segment. While we have moved to this new operating structure, our overall focus and priorities have not changed. We remain focused on driving future value creation for shareholders by delivering innovative new products, maximizing the potential of our existing products, remaining diligent in terms of capital allocation, and driving a culture that continues to foster strong ownership environment.
Reflecting on the state of our business, I am pleased with our pipeline progress. We are continuing to see the benefit of the decisions we took over three years ago when we decided to focus our research and development in the areas where we have the most expertise and where the greatest unmet medical need exists. Looking at the compounds we have across all stages of our pipeline, I can confidently say that this part of our strategy is on track and gaining momentum. Similarly, our past and current steadfast focus on the prudent management of our capital is enhancing the overall competitiveness of our businesses. This quarter, once again we operationally reduced our adjusted cost of sales, adjusted S&I expenses, and adjusted R&D expense in total.
We will continue to build on our solid track record of realizing benefits from cost reductions and productivity initiatives, and as we’ve done in the past we will use business development opportunities as an enabler of strategies for creating shareholder value. Overall, I believe we are performing well in a challenging operating environment. Our pipeline is advancing. We have a strong track record when it comes to using capital to generate value, and we have an engaged and motivated work force that has embraced the culture of ownership. Collectively, these are the elements of our strategy that are helping to drive our overall business results. Throughout this year, you will see us taking actions that execute on our plans to advance new therapies of patients, strengthen our commercial businesses, manage our cost structure, and deploy our capital in ways that yield the greatest value to our shareholders.
Now I’ll turn over to Frank.
Thanks Ian and good day everyone. As always the charts we are reviewing today are included in our Web cast. Before I begin I wanted to remind everyone that at the beginning of this year we began operating under our new commercial structure consisting of three operating segments, global innovative pharmaceuticals, global vaccines oncology and consumer healthcare, and global established pharmaceuticals. Consequently, we are now reporting our quarterly and the annual P&L and the quarters with structure for all periods presented. I also want to remind everyone that as a result of the full disposition of Zoetis on June 24, 2013 the financial results of the Animal Health business are reported as a discontinued operation in the consolidated statements of income for the first quarter 2013.
Now let’s move on to the financials. First quarter 2014 revenues of approximately 11.4 billion decreased 9% year over year reflecting a 3% negative impact from foreign exchange and operational decline of approximately 6% driven mainly by the expiration on October 31, 2013 of the co-promotion term of the collaboration agreements for Enbrel in the U.S. and Canada, the ongoing expiration of the Spiriva collaboration in certain countries continued erosion for branded Lipitor in the U.S. and most other developed markets, the loss of exclusivity in subsequent multi-source generic competition for Detrol LA in the U.S. and other product losses of exclusivity in certain markets. These were partially offset by the strong operational growth of Lyrica, Xalkori and Inlyta globally, Enbrel, outside of the U.S. and Canada, Eliquis and Xeljanz primarily in the U.S. the contribution from the collaboration to market generic medicine in Japan with Mylan. In addition reported revenue included 57 million from transitional manufacturing and supply agreements with Zoetis.
Adjusted diluted EPS of $0.57 increased 12% primarily due to an aggregate operational decrease of 3% and adjusted cost of adjusted SI&A expenses and adjusted R&D expenses primarily resulting from cost reduction and productivity initiatives, a lower effective tax rate and a few diluted weighted average share outstanding due to our ongoing share repurchase program and the impact of Zoetic exchange offer. Reported diluted EPS of $0.36 compared with $0.38 in the year ago quarter was positively impacted by the abovementioned items and lower restructuring and assets impairment charges compared at the year ago quarter.
Reported results were negatively impacted by the previously mentioned year-over-year decrease in revenues and the non-recurrence of income from discontinued operations associated with our Animal Business and the gain associated with the transfer of certain product rights to Pfizer’s JV with Hisun in China in the year-ago and finally higher legal charges compared with the year ago quarter. And foreign exchange negatively impacted first quarter revenues by 3% or $364 million and had a net positive impact of $195 million on the aggregate of logistic cost of sales adjusted SI&A expense and adjusted R&D expenses. As a result, foreign exchange negatively impacted first quarter adjusted diluted EPS by approximately $0.01 compared the year ago quarter.
Now moving onto our 2014 financial guidance, historically our business has demonstrated seasonality of revenues and this quarter is no different. That said we’re confirming all components of our adjusted 2014 financial guidance ranges and as such continue to expect our adjusted revenue to be in the range of $49.2 billion to $51.2 billion. We expect that the continued momentum from our new products including Prevnar 13 Adult, Xeljanz, Eliquis, Inlyta, and Xalkori. The expected launch of over-the-counter Nexium and the accelerating operational growth in emerging markets will help to mitigate the impact of product LOEs and losses of alliance revenue.
It’s important to note that our adjusted financial guidance continues to reflect a full year contribution from Celebrex in the U.S. If necessary, we’ll update our financial guidance when we’re in a better position to make an informed judgment about the market exclusivity of Celebrex in the U.S. from May 30 through the end of this year. We’d report to reported diluted EPS due to the applicability of the UK Takeover Code to our proposed combination with AstraZeneca, we’re not currently permitted to confirm or update our 2014 reported diluted EPS guidance which is our customary quarterly practice.
Preparation of certain reports by our reporting accounts financial advisors in accordance with the UK Takeover Code are currently underway. Because Pfizer recorded a number of charges during first quarter 2014 relating primarily to the resolution of litigation-related matters, Pfizer's previously-issued 2014 reported diluted EPS guidance is no longer valid. Updated reported diluted EPS guidance will be provided as soon as practicable.
As required by the UK Takeover Code, the Pfizer Responsible Officers including Ian, Doug Lankler, our General Counsel in May confirmed that the adjusted financial guidance provided has been properly compiled based on the same assumptions set out in the adjusted financial guidance issued on January 28, 2014 and prepared in accordance with the accounting policies of Pfizer.
Now I’ll turn it over to the business leads Geno Germano, Albert Bourla, and John Young for the respective commentary and results for the Global Innovative Pharmaceutical’s Global Vaccines and Oncology and Consumer Healthcare and Global Established Pharmaceutical, Geno?
Thanks, Frank, and hello everyone. On the Global Innovative Pharma is our research driven biopharmaceutical business focused on developing and commercializing innovative new medicines. Our current portfolio consist of newly launched products including Eliquis and Xeljanz key in line brands including Lyrica outside of Europe and Enbrel outside of United States and Canada. In addition to the other products that we generally anticipate will maintain market exclusivity beyond 2015.
Our strategy involves making targeted investments to help grow our recently launched brands and other leading medicines in order to generate sustainable revenue growth overtime as well as making investments in R&D to support our next wave of innovative products. Well, some of these near term investment objectives include continuing to build on a momentum with Eliquis among cardiologist focusing on its differentiated clinical profile building on the efficacy profile of Xeljanz in the United States through promotion of the data regarding inhibition of structural damage that’s now included in our labeling and also our mono-therapy indication.
Leveraging our presence in the women’s health category to launch DUAVEE in the United States as a potential new standard of care from moderate to severe vasomotor symptoms associated with menopause and prevention of postmenopausal osteoporosis. Continuing investment in direct to consumer advertising for Lyrica, Chantix and Viagra in the United States plus investment in growth market such as Japan. In supporting ongoing Phase III clinical studies for bococizumab, ertugliflozin and Xeljanz.
Now moving to the first quarter results for the Global Innovative Pharma segment. In the first quarter, revenue declined 4% operationally versus first quarter 2013 and this was largely due to the expiration of the Enbrel co-promotion term in the United States and Canada. Revenues were also negatively impacted by the loss of exclusivity of Lyrica in Canada in February 2013 as well as some other smaller LOEs from prior periods. We excluded the impact of Enbrel in these LOEs underlying operational revenue growth was 10% driven primarily by continued growth of Xeljanz’s Eliquis Enbrel outside of the United States and Canada and Lyrica outside of Europe.
Now I’d like to review selected financial highlights for the Global Innovation Pharma segment. As a reminder, the revenues and expenses presented are those that were directly attributable to the GIP segment. First quarter 2014 income before taxes declined 5% operationally to $1.8 billion versus first quarter 2013. IBT as a percent of revenues on an operational basis declined modestly to 57.4%. Increased investment in recently launched brands and key in line products partially offset by benefits from cost reduction and productivity initiatives resulted in a 12% operational increase SI&A expenses compared to prior year quarter.
Our first quarter 2014 R&D expense grew 29% operationally compared to last year as we initiated Phase III programs for bococizumab and ertugliflozin and continued investment in our expensive clinical development program for potential new Xeljanz indications. Additionally IBT in the first quarter 2014 benefited from a significant increase and other income primarily due to trailing royalties earned on sales of Enbrel in the United States and Canada after October 31, 2013. On that date the co-promotion term of the collaboration agreement for Enbrel in the United States and Canada expired and we became entitle to royalties for 36 month period. In conclusion we are excited about the GIP portfolio and our pipeline. We believe our focused investment strategy this year will drive sustained future revenue growth.
And now I’d like to turn it over to Albert Bourla to discuss the Global Vaccines, Oncology and Consumer Healthcare segment.
Thank you very much Geno and hello everybody. Both these comprised of three separate distinct businesses, vaccines, oncology and consumer healthcare, each poised for organic growth over time. We’ve had an eventful year so far and have several significant milestones. First with vaccines, we presented positive results from Prevnar 13’s CAPiTA trial at the major conference which clearly demonstrated that Prevnar 13 can prevent a significant portion of pneumococcal community acquire pneumonia in adults’ age 65 and old. Evidence from this study is important for population in which age related decline of the immune system makes it difficult to prevent disease.
Hospitalizations due to pneumococcal pneumonia in adults represent a growing burden to public health systems. For example, the annual cost of adult hospitalization in the U.S. alone is estimated at $8 billion. We look forward to further discussing this data with regulatory authorities and vaccine technical committees to help inform decisions regarding Prevnar 13 label and recommendation of the age. Regarding ACIP we have had productive interim discussion with pneumococcal working group. We are prepared for more formal ACIP presentation in June should the CDC confirm that topic in their agenda. Second, in vaccines again, the FDA granted breakthrough therapy designation of our vaccine for meningitis B, a disease that is characterized by rapid onset with high rates of fatality. We intend to a BLA with the FDA by mid-2014.
Moving to oncology, we presented positive results palbociclib’s PALOMA-1 trial at the major conference. We are very pleased with the results which highlight the potential for palbociclib to become a new standard of care for women with ER+ HER2- advanced breast cancer. This is encouraging information for these women who represent approximately 60% of the advanced breast cancer population. We’ve continued to have productive and ongoing discussions with the FDA about this data as well as the other necessary supporting data for a new drug application. We continue to envision its potential by way to filing an NDA based on the PALOMA-1 data. Although, no decision has been made. Once one has been made we will communicate it public.
We also begun those in patients in two additional Phase III trials one in recurrent advanced breast cancer and one in early breast cancer and next we reported positive results for the Xalkori compare to chemotherapy in the first line setting for all positive non-small cell lung cancer. Final with consumer health care, we receive FDA approval for Nexium 24HR for over-the-counter use. This approval represents the first significant milestone in executing our Rx to OTC strategy. The U.S. launch is set for May 27. We also continue to advance promising candidates to position the next wave of potential innovative launches including the C. difficile and staph oral vaccines as well as our small inhibitor for hematologic cancers.
Now let’s go the VOC first quarter results. For this quarter VOC segment delivered revenues of $2.2 billion which represent an increase of 1% operationally versus Q1 2013. Please note that the revenues and expenses presented are those that were directly attributable to the VOC segment. Revenues for vaccines increased 2% operationally driven by the U.S. primarily reflecting government purchasing orders. Internationally, revenues were flat operational with emerging markets growing at 14% rate driven primarily by China and gavi (ph) purchases but essentially offset by declines in the UK and Canada.
Oncology revenues increased 10% due to growth for new products Xalkori and Inlyta partially offset primarily by changes in Sutent buying patterns in certain markets. Consumer health care revenues declined 3% operationally due to a soft cough, cold, flu season in the U.S. and Canada in comparison with the same period last year. Extreme winter weather negatively impacting retail traffic in the U.S. and increased competition for our group with the return of certain brands to the market; however, it is important to note that as the year progresses we anticipate revenues to be positively impacted as more healthcare providers appreciate the value of the Prevnar 13 adult indication. Of course the therefore potential will depend upon updated labels and recommendation of the seasons. Additionally we expect revenues to be positively impacted by the launch of Nexium 24HR and other consumer products the timing of certain national immunization programs and continued uptake of recently launched products in oncology among other factors.
I would like now to walk you through a few additional highlights from the VOC segment finance as typically regarding our income and our direct managed expenses. VOC segment income before taxes was 1.1 billion or 48.6% of our revenue. This represents an improvement of 2.8% points operationally. Our gross margin was 1.8 billion or 81.2% of revenue, an improvement of 0.8% points compared to the year ago quarter. Due to a greater percentage year coming from our Oncology and Vaccines business as well as further cost efficiencies in manufacturing.
SI&A expenses were $531 million, this represents a 2% increase operationally primarily due to prelaunch expenses for Nexium; however, as a percentage of revenues our SI&A expense has remained consistent year-over-year. The VOC R&D expenses were $184 million which represents an 18% decrease due to the completion of certain Phase III trials which more than offset incremental costs related to the expansion of the palbociclib clinical development program.
Thank you and I will now hand it over to John Young, Group President of the Global Established Pharmaceutical segment.
Thank you, Alert, and good morning everyone. Global Established Pharma is a large and highly diverse business with unique opportunities across portfolios and geographies. It’s a significant cash generator and its Pfizer’s largest business. For the first quarter of 2014 the GEP business accounted for just over half of Pfizer’s total revenue and about two thirds of Pfizer’s total revenue from the emerging markets comes from GEP. Notably during the first quarter, emerging markets comprised nearly 30% of the GEP segment revenues. Contributed to some perceptions of this business traditional commodity generic products in develop markets are actually very small part of the GEP portfolio. And it came through in May by 5% of GEP revenues.
We see our GEP strategic priorities as two fold, one is optimized the financial performance of the decline in components in the developed markets. And two focus on the current and future areas of growth and reversing the decline in trend. I am not optimizing the business margins over the mid to longer term.
Before I get into the details of the GEP performance of quarter one, I’d like to give a quick overview of the business and have it structured. GEP is comprised of three components I have different market dynamics. Two of these components are in the developed markets. First, Peri-LOE includes major brands have recently aloft or are approaching a lots of exclusivity. Such as, Celebrex, Lyrica in Europe, Zyvox, Pristiq and Detrol.
Secondly legacy established products include mature off pattern products such as Lipitor and Novex and we also have targeted opportunities that exist in this product grouping. We expect to see a decline in both of these areas, featuring tense erosion from generic competition. However, we will continue to focus on growing the patterned brands prior to the loss of market exclusivity, as well as to optimize the transactions of brands to the off pattern stage and extend their life beyond LOE.
The third component is the emerging markets including the BRIC-MT markets. This includes all GEP product sold in emerging countries and growth opportunities in emerging markets including the BRIC-MT’s. This component is expected to grow steadily driven by favorable macro-economic and improving social-economic conditions in these countries.
Growth opportunities represents fourth dynamic of the GEP business, that includes organic and inorganic initiatives such as partnerships product enhancements and are by similar portfolio spanning both developed and emerging markets. We anticipate these opportunities will drive revenue growth and legacy EP developed and emerging markets portfolios overtime.
Now let’s go to the GEP first quarter results. For this quarter GEP delivered revenues of $6 billion which represents of 10% decline operationally, the Peri-LOE products in developed markets experienced an overall decline of 17% operationally. Due to lots of exclusivity and subsequent multi store generic competition for Detrol LA in the U.S. and for Viagra in most European markets, as well as the determination of the co-promotion agreement for Aricept in Japan and the decline in our share of revenues resulting from the winder determination of this three our co-promotion agreement for certain markets.
However it’s important to note that certain pattern protected products have shown positive operational growth including Lyrica in Europe, Pristiq in the U.S. and developed international as well as Inspira in developed international markets. Our legacy established product in developed markets experienced a 10% operational decline from early due to the continued share erosion by generic versions of Lipitor in the U.S. in most developed international markets.
The legacy emerging markets increased 1% operationally, growth was negatively impacted by certain onetime of shares under moving this operational growth would have been 4% driven by BRIC-MT markets. The growth opportunities increased 10% operationally driven primarily by contributions from the collaboration with Mylan to market generic drugs in Japan and Quillivant XR sales in the U.S.
These growth opportunities performance is reflected in the previously mentioned operational results of legacy established products in the emerging markets components. The revive one final metric for how we measure GEP’s underlying performance, expiring alliance product to LOE and Lipitor in developed markets. The operational revenue decline in the first quarter 2014 for the remaining 92% of GEP’s portfolio was 2%, other post to 10% for the segment overall.
I’ll now walk you through a few additional highlights from GEP financials and we’ll explains what it’s driving some of the rations and how I see them revolving. In terms of the ratios, obviously speaking to our direct managed expenses relative to our revenues, income before taxes that is directly attributable to GEP was $4 billion in the first quarter 2014 or almost 68% of GEP’s revenue.
This represents and improvements of 1.7 percentage points on an operational basis. Our gross margin as $5 billion, or 83% of revenue this is representative of the portfolio profile of the GEP business that is mainly composed to pushed LOE on Peri-LOE brands with a smaller contribution from generics. As large brands with market exclusivity this gross margin will come under pressure.
GEP, SINA expenses were $837 million in the quarter this represented a 20% operational decrease and it’s primarily driven by the increased sale force expenses in the both develop and emerging markets, as well as resource allocation favoring higher growth opportunities within the emerging markets. This 20% reduction also reflects a favorable onetime item this quarter related to administrative expenses. We will continue make SI&A expense discipline a focus of the management of our business. The GEP R&D expenses for the quarter are 2.3% revenue and represent a 23% operational decline. This is the result of focused reductions in operational expenses, partially offset by higher spending for clinical trials associated with the development of our biosimilars portfolio. Moving forward we expect to increase investment in those assets that have entered and will enter Phase III. In summary, while GEP is expected to go through a period of revenue decline over the next few years primarily due to the LOEs of major brands in developed markets. We are focused on building our revenue base and stabilizing margins over the mid to longer term and following the period of anticipated LOEs we expect revenue growth to return other growth opportunities become a more substantial piece of the GEP business in the future. Thank you and I’d now like to hand it back to Frank.
Thanks, John. Now moving on to key takeaways our first quarter 2014 results were in line with our expectations with effective loss of exclusivity of certain products, the expiration in near term terminations of certain collaboration agreements and a continued challenging operating environment. We confirmed all components of our 2014 adjusted financial guidance which continues to reflect the full year contribution with Celebrex in the US, we’re now operating under our new commercial structure and presentation of our financial results for the new structure provides transparency and to each of our global segments, with respect to our late stage R&D pipeline we achieved a statistically significant primary endpoint resulting in our PALOMA-1 Phase II breast cancer study of Palbociclib and began dosing patients for two Phase III breast cancer trials and we presented positive results of our CAPiTA trial which demonstrated Prevenar 13 prevented a first episode of vaccine type community acquired pneumonia in adults 65 years or older. We continue to create shareholder value through a prudent capital allocation. Today the 2014 we’ve repurchased $1.7 billion or approximately 54.3 million shares and we continue to expect to repurchase $5 billion of our common stock this year. Finally we remain committed to delivering attractive shareholder returns in 2014 and beyond. Now I’ll turn it back to Chuck.
Thanks, Frank and I want to thank the audience for listening, I know the prepared remarks were longer than typical but given it was the first quarter with the new financials for the segments we wanted to give our business leaders some time to walk through their segments and the financials. We’ll get ready for the Q&A session and I think I would just reiterate once more related to questions regarding AstraZeneca we will limitations placed on the responses by the UK takeover code. With that operator, if we could please poll for questions, thank you.
Earnings Call Part 2: