Oral evidence: The Future of AstraZeneca, HC 1286-iTuesday 13 May 2014

Oral evidence, 13 May 2014.

Witnesses

Ian Read, Chairman and Chief Executive, Pfizer Inc., Frank D’Amelio, Executive Vice-President, Business Operations and Chief Financial Officer, Pfizer Inc., and Jonathan Emms, UK Managing Director, Pfizer Inc., gave evidence.

Chair

Good morning and can I thank you for agreeing to assist with our inquiry? I would like to put on record the Committee’s appreciation of your willingness to engage, with both the Government and the Committee, on these issues in contrast with a previous American corporation that we have had to deal with. First, could you just introduce yourselves for voice‑transcription purposes?

Frank D’Amelio

I am Frank D’Amelio. I am the Chief Financial Officer of Pfizer.

Ian Read

My name is Ian Read. I am CEO of Pfizer.

Jonathan Emms

Good morning. Jonathan Emms, Managing Director of Pfizer UK Limited.

Chair

Thanks very much. I would just like to start. Mr Read, your company has been described by the former Chief Executive of AstraZeneca as a “praying mantis”. A former employee of Pfizer, I think the Chief Scientific Officer, has described your company as “a shark that needs feeding”. If I can extend the zoological analogies, what can you say that can assure this Committee that this particular leopard is about to change its spots?

Ian Read

I would like to start by thanking you for the opportunity to talk to you today. Secondly, I am very proud of Pfizer. I have worked for Pfizer for 35 years in total. There are 80,000 employees in Pfizer. If the Committee had a chance to talk to those colleagues, they would see a company of high integrity and a company that is focussed on patients and delivering drugs to patients. We have produced, in the last three or four years post the Wyeth acquisition, 13 approved products that have come to market, 13 products in phase III and 13 products in what we call our proof of concept. The majority of those have come from our own science; they have not been bought in or licensed in. I am very proud of Pfizer’s record of focusing on research. In fact, on becoming CEO, I laid out four principles under which the company would operate. The first is what I call a fixed innovative core. I am acutely aware that the future of the company depends on science and innovation, so the first priority was to get our science productive. That is what counts; that is our future. That gets products to patients. The second was to treat the company’s money as our own. Let us make sure we get good capital allocation. Let us make sure we are good stewards of the resources we have. The third priority was to re‑establish our reputation with the general public or gain trust, as we call it. The fourth priority was to build a culture of ownership. We call it ownership and we say, “Own the business. Win in the business.” This next one may surprise. “N” stands for “no jerks”. Let us discuss behaviours. “I” is for “impact” and “T” is for “trust”. I feel very proud of our company and very proud of our colleagues.

Chair

Warm words, and all very good, but over the last few years you have acquired a number of companies and, during that time, I think you have spent something like $240 billion on acquisitions. Your company now is valued at $185 billion, so you have lost a lot of value from those takeovers. You have slashed the workforce by over 60,000 and you have nearly halved the amount spent on research and development. I understand the joint budget for research and development of Pfizer and AstraZeneca would be, if sustained, somewhere in the region of $12 billion. Are you prepared, amongst all your other assurances, to say that you will sustain research and development to at least that level?

Ian Read

If I may address some of the comments you have made, the company is extremely focussed on making science productive. This industry, as the previous gentleman commented from the labour unions, has gone through a series of consolidations. I do not think Pfizer is alone in having reduced employment in the industry. AstraZeneca itself has reduced its UK employment by 40% over the last several years, so we are focussed on trying to make the company more productive. Society is asking for more medicines and better value medicines. There are several ways of doing that. One is making R and D work better, making the science work better, which we are trying to do. We are working both inside our laboratories and outside, with extensive partnerships. The other is to reduce the costs of bringing a product to market.

Chair

Mr Read, I understand all this, but I asked a simple question. Could you give a yes or a no answer?

Ian Read

I will get there, I assure you, sir.

Chair

Could you get there quickly?

Ian Read

I will do. Frank, would you like to discuss the issue of the $240 billion/$190 billion please?

Frank D’Amelio

You mentioned that we used to be valued at $240 billion and you mentioned the number now of $185 billion to $190 billion. It does not include a few things. First, during that same period, we have returned $165 billion of cash to our shareholders.

Chair

I know they have done very well, when others have not.

Frank D’Amelio

We have done that through a combination of dividends and share repurchases. We have also sold some businesses that were valued for over $50 billion. The $240 billion to $190 billion is a partial story.

Chair

My question was: are you prepared to sustain the level of research and development budget at the level at which it is jointly, between Pfizer and AstraZeneca, at this moment? You sketched around it.

Ian Read

We believe the most important thing on that is not the percentage of sales we spend on research; it is how productive it is. I do not expect that the combined total will remain the same. I expect it will be lower. As to how much lower, at this stage I cannot give a figure on that.

Chair

You expect it to be lower. Okay, thank you for that. That is very straightforward. Can I just conclude by saying that you do not appear to have had any consultations with the trade unions? We know that you have had consultations with the City institutional investors. We know that you have communicated with the Government. Have you had any communication with, if you like, the scientific community in this country?

Ian Read

We have a dialogue with the scientific community. We have approximately 300 partnerships in the UK with the scientific community and we are beginning to discuss our proposal to them.

Chair

Is that with organisations like the Royal Society, the Wellcome Trust and so on?

Ian Read

I think it is more individual scientists, not those types of organisations. I would like to make a point on the labour unions. We are in an extraordinary situation here. We have a proposal to AstraZeneca. We do not have an offer; we do not have a deal. We are here talking to you in front of a deal; it is just a proposal. We have had limited conversations with AstraZeneca, although we have tried to approach them. I thought it was inappropriate for me to go behind AstraZeneca’s management and talk to their labour unions when we do not have a deal. In time, we will talk if this deal progresses. We will talk to the labour unions and we will be talking extensively to the scientific community. That is why we are here this week and that is why we will remain here this week: to do so.

Chair

It would appear that you have had extensive consultations with your investors. You have had consultation with the Government. You have highlighted the tax advantages for Pfizer of this. Are those your priorities, as opposed to science and the scientific community?

Ian Read

We have made it clear that there are three reasons for wanting to do this acquisition. One is to merge the pipelines. Research is very risky. We have a good pipeline. We believe AstraZeneca’s pipeline is substantial, but we believe it will be far better if combined with our pipeline. Part of the industrial logic is that they are successful and strong in inflammation and the CV/metabolic. So are we. We have oncology products and they have some earlier oncology products that could combine very well with our oncology products. Overall, we feel there is a very strong industrial rationale on the products. The second part of the value creation is this push to become more efficient—to be able to produce more medicines faster. We have an expression at Pfizer, “The patients are waiting.” The quicker we can get medicines to patients, the more productive we can be and the more successful the industry will be. Then the third part of the value equation is a lower tax rate and a more flexible use of our financial assets.

Chair

Would you not agree that your strategy so far seems to have been concentrated on those areas that you have traditionally been known for? That is, value to the investor, rather than underpinning and developing the scientific base.

Ian Read

No, I would not. Since we did the Wyeth acquisition, which is really what I can talk to as I was in senior management, we have brought 13 products to market. We have advanced 13 products into phase III. We have been very productive in our science. We have enlarged our commitment to vaccines. It is now our second or third largest segment; we have increased our spending in vaccines. Frankly, investors are pension funds. Investors are insurance companies.

Chair

I think we are well aware of the market there. We do not need a lecture on that. The point is that you have halved your research and development, and one of the acquisitions that has been levelled at you is that you concentrate more on development and marketing than research. Can I bring in Brian Binley now?

Mr Binley

I am sorry; I thought Rob had a supplementary that he wanted to make, Chairman.

Mr Walker

You have talked a lot about the importance of synergies from this deal, the potential for research and growth going forward, but a lot of well-informed commentators are looking at this and they are seeing it not so much as about research and growth in the development of products but as the last hurrah of a business model that is fundamentally breaking down, based on big blockbuster drugs, as the industry is becoming more tailored and smaller nimbler companies will do better in the future. What do you say to the argument that this drive to consolidation amongst big pharma is just a reaction to the fact that the big pharma business model is no longer sustainable?

Ian Read

I see it in totally different terms. I do believe there is consolidation going on in the industry, and these are pressures that have been brought by society demanding more productivity. The way Pfizer is organised is with a focus on science. We have five or six therapeutic areas that we have great expertise in. We have chief scientific officers for those areas, and the portfolio of AstraZeneca fits with those areas. In fact, the way we run Pfizer is one of accountability and having groups of people who have responsibility for certain areas. It is like small companies within a large company, but with a lot of accountability. The way we are going is the way modern pharmaceuticals are going: small units accountable, lots of work outside, lots of contacts with universities. In fact, in the US, I believe we have about 23 substantial agreements with universities in the US to do early research. We asked for proposals from these universities. They had to have both a clinician and a scientist. We got 300 proposals. We funded 16 of them. We have very a vibrant science outside of our walls, as well as inside.

Frank D’Amelio

Mr Walker, if I may, we will spend almost $7 billion this year in R and D. Small start‑up companies cannot spend $7 billion on R and D. I should also mention that is an increase over how much we spent on R and D last year.

Ian Read

I am proud that a lot of our development is internal. We have not taken the option of going out and continually buying products from early‑stage companies, bringing it in and only being a development company. Over 50% of our late‑stage is developed in-house and, in our earlier stage, it is more like 70%, so I am very proud of the science and the commitment to science of our company, as distinct from just going out and buying up products from all around the world.

Mr Walker

You are talking about here potentially buying a company partly because of its science base and partly because of the products.

Ian Read

Absolutely, and integrating that into our scientific commitment.

Chair

Before I bring Brian in, could I just ask for a comment? You commented about the $7 billion that you are spending on research and development. Actually, before you took over Wyeth in the USA, I believe the combined research was in the region of $12 billion. They are very similar figures to those of Pfizer and AstraZeneca. Would you anticipate it being reduced to $7 billion in the future?

Frank D’Amelio

When we purchased Wyeth, the combined spend of the two companies’ R and D was $11 billion. Pfizer’s was approximately $7 billion at the time.

Chair

The figure I have been given is $12 billion, but alright. What is $1 billion?

Frank D’Amelio

$1 billion is a significant amount of money. Of the $11 billion to $7 billion, I have a couple of comments: first, the $11 billion goes to about $10 billion because of some of the divestments we have recently made. If you take in the separation of our animal health business and the sale of the nutrition business, that reduces the $11 billion to about $10 billion, so think of it as $10 billion to $7 billion. Quite frankly, we looked at those therapeutic areas where we believed we could bring the most value to patients. We exited certain therapeutic areas where we did not believe we would be able to bring value to patients and we focussed on those areas where we could. To Ian’s point, the $7 billion of R and D that we are investing today is much more productive and will bring much more in terms of new medicines to patients than how we were spending that $10 billion, or $11 billion to your number. To Ian’s point before, we have produced 13 new drugs since the Wyeth acquisition.

Chair

Okay, if it has been said before, we do not need to say it again. Can I bring in Brian Binley now?

Mr Binley

You have said, Mr Read, that you have been with the company 35 years—a very proud record. Were you a salesman?

Ian Read

No, I started in the accounting area.

Mr Binley

You would have made an excellent salesman, because your talk so far has been a lot of sales talk, but very short on fact, and it is that that I want to get to. Can I quote the Swedish experience to you? You told us how you invest in other companies that you purchase and merge with. The Swedish experience is rather concerning, and you can understand why people feel concerned, I am sure, Mr Read, when the Prime Minister of Sweden said that, following the purchase of Pharmacia, they have had a negative experience: “There were promises that it would mean jobs and operations in Sweden that we don’t think were honoured. It makes us feel great concern for jobs and resources for research.” Does that bother you?

Ian Read

Let me try to put that into context.

Mr Binley

No, you answer my question, sir, not answer yours. “Does that bother you?” was my question.

Ian Read

I am worried the facts are incorrect and the Prime Minister does not have the right facts.

Mr Binley

The Prime Minister is wrong.

Ian Read

The Prime Minister does not have the right facts. There were only 45 researchers actually in Pharmacia in Sweden when we bought the company. They had already spun off their research into Biovitrum, so that is number one.

Mr Binley

Should I repeat what he said? Stop, sir. Should I repeat the promises from the statement that he made? “There were promises that it would mean jobs and operations in Sweden that we don’t think were honoured.”

Ian Read

May I address that, sir?

Mr Binley

Yes, now address that, because you were not addressing that before, sir.

Ian Read

There was a factory we were going to build that was conditional on a product being approved. It was a syringe factory. The product never got market approval; we did not build the factory. The other half of manufacturing we spun off to a separate company. Another 30% of the reduction in Pharmacia was already decided by Pharmacia management before we bought them. I feel, having set the facts right, that we can be proud of what happened in Sweden.

Mr Binley

I am sure there are reasons why you broke your promise. I am just concerned about whether you are concerned that you broke your promise.

Ian Read

I do not believe that we broke our promises. When we did not have the product, we could not build the factory. That is just force majeure. I am very sorry about that.

Mr Binley

Your offer statement included as a precondition, and I quote, “the unanimous recommendations by the board of directors of AstraZeneca to vote in favour of the combination”. Does it mean that, if you do not get that unanimous recommendation, you will walk away from this deal?

Ian Read

We have not decided our final strategy yet.

Mr Binley

Come on. You do not talk about spending this much money and not know what your options are, Mr Read. You are a businessman, 35 years in the business. Now tell me the truth.

Ian Read

It would be very remiss of me, when I am trying to buy a company, to lay out my negotiating strategy.

Mr Binley

That is a different answer, so you do know.

Ian Read

I have options. I do not know. I have not made any decision, as yet.

Mr Binley

The question was: if you did not get your precondition, your stated precondition, will you walk away from the deal, if that is not met?

Ian Read

My answer is I have not yet made that decision, nor has our board of directors.

Mr Binley

You have already made the precondition. It was stated.

Ian Read

We have made a precondition and we would like it to be honoured. If it is not honoured, we have not made a decision about what we will do.

Mr Binley

Okay, thank you very much. I will come back to you later.

Mike Crockart

It has been reported that you would not pursue a takeover of AstraZeneca without the approval of the UK Government. Is that correct?

Ian Read

I do not think that is correct. We had discussions with the UK Government when we first decided to approach AstraZeneca and, during those discussions, the Government made clear its concerns. Because of those concerns, we made commitments that are unprecedented—that I do not think any company has ever made prior to an acquisition.

Mike Crockart

We are going to come to the detail of those undertakings in a minute but, just to clarify what you have just said, basically the UK Government’s view of the potential takeover does not matter; you would go ahead with it anyway if you managed to get the shareholders to agree to it.

Ian Read

It matters to me. We want to come where we are welcome, but we are going to operate within the appropriate laws of the United Kingdom.

Mike Crockart

I struggle to see, from what you have outlined so far today, why the UK Government should look favourably upon it. Aberdeen Asset Management’s Martin Gilbert has said, “Pfizer unfortunately has this reputation of being ruthless cost‑cutters,” which seems to be borne out by what you have said already. We would effectively be potentially looking at a 30% reduction in research and development, a major component of the science base in the UK. Why would the UK Government look favourably upon this?

Ian Read

It is an opportunity to domicile the largest pharmaceutical company in the world, to bring the strength of combined portfolios and to bring our financial strength into the UK and globally. It would strengthen and will strengthen the scientific base in the UK to have a company of our size making those types of commitments.

Mike Crockart

You are saying it would strengthen it by reducing its research and development spend.

Ian Read

I said globally we would probably reduce the combined budget. I have not said in which countries and where we would reduce that, because a lot of programmes are duplicated. What I have said is that 20% of our global R and D headcount will be in the UK. Has any other company of our size made that promise?

Chair

Can I just intervene at that point? My earlier question, whether I made it explicit but it was certainly implicit, was whether the combined budgets of AstraZeneca and Pfizer would be reduced as a result of this takeover. I of course meant in this country. Can you just clarify that?

Ian Read

Yes. Our commitment is that 20% of our global R and D numbers worldwide will be in the UK.

Chair

You are not making that commitment in this country.

Ian Read

I am making a commitment putting 20% of the headcount of Pfizer R and D in the UK.

Chair

We will explore that more in a minute. What I wanted was figures of investment in R and D in this country, but you are not making that commitment.

Ian Read

I cannot make any commitment about spending country by country right now. I am not even really aware of what the forward‑going plans of AstraZeneca are to spend on R and D in the UK. I do not have a baseline; we have had no conversations with them. Once the deal is completed, we will then look at the total spend and decide where it is best placed for science. The UK has a great science infrastructure.

Mike Crockart

You paint a picture of a very cuddly company that is absolutely focussed on making science more productive and concentrating on the areas in which you can do the greatest good for humanity. This is all about tax really, isn’t it? It is all about limiting the tax that you have to give to any Government and making the business model of your company work.

Ian Read

This is about a great company of 80,000 people that has produced an innumerable number of great products. Our purpose is to bring life‑changing products to patients.

Mike Crockart

That was not my question.

Ian Read

Please let me finish.

Mike Crockart

Make it relevant to the question.

Ian Read

Our purpose is to bring life‑changing products to patients. The way we will do that is by putting together the pipelines and the scientists of both companies, being more efficient and gaining tax advantages.

Mike Crockart

I can understand why you want to put the pipelines of both companies together, because that is the way you will get the value and be able to then meet the earnings expectations of your shareholders, but that was not actually my question.

Ian Read

Sorry, will you repeat your question again then?

Mike Crockart

I think I am finished.

Ann McKechin

Mr Read, I wonder if you could just clarify something. When you said that you have a commitment to employ a minimum of 20% of your R and D workforce in the United Kingdom, I take it that is not equivalent to 20% of the spend globally on R and D. They are two different figures.

Ian Read

No, because a lot of the R and D spend is done globally.

Ann McKechin

Can I just ask globally how much of your total $7 billion in R and D is currently spent in the United States of America?

Ian Read

I do not have that number. We would have to get back to you on that.

Ann McKechin

Is it over 80% or over 90%?

Ian Read

I do not have the number, but I would doubt it approaches that. The vast majority of spend in research is in phase III trials.

Ann McKechin

Is that in America?

Ian Read

They are done globally. They are done in the UK. How many patients in the UK are in clinical trials?

Ann McKechin

I just find it odd that you do not know where your global spend of R and D is. I wonder if you could perhaps come back to us today with that figure. Would that be possible?

Ian Read

We will submit it in writing to you. I have no problem with that. It is just that the vast majority of spend is in phase III trials, which are done in China, Europe, England, the United States and South America. I just do not have that number.

Frank D’Amelio

These are clinical trials of multiple patients.

Ann McKechin

I am looking for the value—what the value is and where it is located—because that is a key issue that we would want to consider.

Ian Read

Thank you. We will come back to you with that.

Chair

Just before I bring in Robin, this 20% commitment is part of the global workforce, I believe. Given your record of basically slashing the workforce, obviously if you slash your workforce worldwide, then 20% of that in this country would be a lower figure than is currently employed. Is that potentially going to happen?

Ian Read

I really cannot give you final numbers. We have not sat down with AstraZeneca yet or even discussed their total research effort and our total research effort. The commitment of 20% of a global company’s R and D in the UK is an unprecedented commitment.

Chair

Yes, but in terms of numbers, that is no hard commitment to either sustain or increase the numbers employed in this country.

Ian Read

It is a hard commitment of how many employees a successful growing company is prepared to put in the UK. We are doing this so the company can be stronger, can bring more medicines to patients and can be a growing company. As it grows, we have a commitment to keep 20% of our R and D headcount in the UK. That is a substantial commitment, sir.

Chair

It may not be an increase in numbers.

Ian Read

I cannot talk to that, because I do not know the numbers right now in the UK.

Mr Walker

I just want to ask about the consistency of this. You have said that the UK is an attractive place in which to carry out research and development. Clearly, you are looking to make this long‑term commitment, but you have reduced Pfizer’s footprint in UK R and D through the reductions in Sandwich in Kent. That was something that was announced as a complete exit and then it became a reduction. I think you have a number of hundreds of employees still in that location at the moment. What is the impact from whether this deal happens or not on the employment prospects of those people in Sandwich in Kent?

Ian Read

We have made a commitment to the country as a whole. We have not gone down and actually got an offer yet. We have a proposal. We have not looked at asset‑specific allocations, as yet, whether in the UK or anywhere in the world. We are looking at a global deal. Once we go further down the deal, we will be able to make those decisions. I would like Mr Emms to talk about the situation in Sandwich. The reason we reduced the science in Sandwich was that those areas were no longer strategic research areas for Pfizer, but would you like to talk about Sandwich?

Jonathan Emms

Thank you for the opportunity just to update the Committee, really briefly, on where we are at with the situation with Sandwich. We have 700 Pfizer colleagues employed at Sandwich in pharma sciences, and we have also worked very closely with Government and the local council. We established an Enterprise Zone and we sold the sites for a nominal fee. We subsidised that to try to kick start the enterprise park. There are an additional 600 people now employed at the enterprise park, so 1,300 in total, and the vision is that there will be 3,000 there by 2017, so it is on a good track. Pfizer supported four spin‑out companies, so these were colleagues who were previously employed by Pfizer. You have to remember we employ really skilled, highly knowledgeable, dedicated people and we enabled those spin‑outs. We also sold some of our legacy assets, and what I mean by that is equipment and plant, to a company called Mylan. 30 Pfizer employees transferred to that company and that has now grown to 150 employees on the same site. As good citizens and as part of the ongoing commitment, Pfizer funded the flood defence scheme in Sandwich, which obviously was instrumental in protecting that area during the recent floods as well. Thanks for the opportunity just to provide that update.

Mr Walker

I am grateful for that, but there was a strategic decision taken by Pfizer to reduce its focus on that site, for all that you are saying about the attractions of pursuing R and D in the UK.

Ian Read

We do not make decisions lightly on jobs. We understand the importance of jobs and families. As a CEO, my responsibility is to the totality of the company and to make sure the company remains sound and the 80,000, 90,000 or 70,000 employees have a future. We took that decision after really careful consideration. We talked to the Government before we did it. We made commitments that we honoured. Basically, we reduced the size here, because it was in areas of men’s health, viral research and respiratory that we were no longer going to continue in Pfizer.

Mr Walker

Just to return to my original question, does the outcome of this offer, if it becomes an offer, have a bearing on the continued presence of Pfizer in that site? Initially it was announced that you are exiting it completely. Clearly, that has changed and clearly you have a substantial number of employees still in that site. Would the offer happening make it more or less likely that those employees would continue there?

Ian Read

All I can say is that we are very pleased with the productivity of the site. The pharm sci work that has been done there has been instrumental in us being able to accelerate the launch of Xalkori and other products that we have. We are extremely pleased with the performance of the site but, at this stage, when I do not even have an offer and I do not have any conversations with AstraZeneca, I cannot make commitments on a site‑by‑site basis.

Nadhim Zahawi

Just before I tackle the tax issue, both Frank and Ian have mentioned patients, quite rightly. Over here we care about the National Health Service. What do you think the impact of this deal would be to the National Health Service? Would you become just too big to negotiate with?

Ian Read

Our market share may be around 4% or less in the UK and AstraZeneca’s is 4%. I do not think 8% is in any way too big to negotiate with. The UK Government is a very strong government and drives a hard bargain.

Jonathan Emms

Under UK law, the PPRS is what governs the pricing of pharmaceuticals. That is negotiated by the ABPI, the Association of the British Pharmaceutical Industry, on behalf of the whole industry. It is a deal that is done between the ABPI and the Department of Health, so it is not one‑company‑dependent. That is a deal that lasts for five years. It was signed in January this year and lasts for five years. In effect, this deal or this proposal does not have any substantive impact on the PPRS.

Nadhim Zahawi

You have mentioned again today, Mr Read, that you would commit to establishing the new company’s corporate and tax residence in England. What does that mean in terms of headquarter function and staff?

Ian Read

We have committed to putting in substantial management talent, both in science and in European regulatory. We have committed to having a substantial presence in Cambridge. We are going to complete the proposed construction by AZ. We are going to put 20% of our research headcount in the UK.

Nadhim Zahawi

And headquarters?

Ian Read

We have said that our headquarters will stay in New York. We have a big commitment in the US as well. It is 40% of our total sales. I felt that was an important commitment to make to our New‑York‑headquartered staff, as we were re‑domiciling to the UK, for balance and labour considerations.

Nadhim Zahawi

When you are tax‑domiciled in the UK, what is the tax saving on that?

Ian Read

Frank, would you like to talk to that?

Frank D’Amelio

If I may, there are several aspects of the UK environment that are attractive to us from a tax perspective. Clearly, the statutory rate this year is 21%. Next year it goes down to 20%. The territorial tax system, the permanent R and D tax credit and finally the Patent Box, which I know started being phased in in 2013 and I think is completed in 2017, are all important to us.

Nadhim Zahawi

In your modelling, what is the total tax saving?

Frank D’Amelio

Given we are early in the process with AstraZeneca—

Nadhim Zahawi

I get that.

Frank D’Amelio

—that information is very sensitive. In a sense, disclosing our synergies would be working against us, relative to the process. I have obviously made lots of assumptions on strategic benefits, operational benefits and financial benefits. I have run numbers but, clearly, that is sensitive information and it is premature to disclose anything like that while we are this early in the process.

Nadhim Zahawi

You cannot just give us an estimate. We know the caveats; you are not yet into the detail. There must be in your mind a band of what you think you can save.

Frank D’Amelio

Maybe I can answer the question this way: over the last several years, our consolidated tax rate has been about 27% to 30%. This year, we have provided annual guidance that says our tax rate will be around 27%. Clearly, in the event of a combined company, that tax rate would be less. We would clearly have a lower tax rate.

Nadhim Zahawi

You would see that coming down to 21%.

Frank D’Amelio

I did not say that. I said it would be less. The only reason I do not want to give a specific number is I have not had a chance to talk with AstraZeneca. We have not had a chance to look at their financials. It is just premature, but I think I can safely say it would be less.

Nadhim Zahawi

Senator Carl Levin is reported as wanting to bring in legislation to stop companies like Pfizer from moving its tax domicile out of the US. If that does happen, how will that impact your future decision‑making for the combined group?

Ian Read

It is difficult to deal with a hypothetical of that nature. Mr Levin is one senator.

Nadhim Zahawi

A very powerful senator.

Ian Read

The US Congress needs to decide on its tax strategy. The US Congress has a lot of work to do and has been considering changes in tax strategy for many years now. It is a very remote possibility, in the timeline of this deal, that the US would change its tax laws.

Frank D’Amelio

We have not made an offer, but everything that we have proposed so far is fully compliant with existing US tax laws. Any kind of a change relative to re‑domiciling would require legislative change by Congress.

Nadhim Zahawi

Finally, Chairman, we touched upon the issue of China. What would happen if the Chinese Government decides that this combined group makes it very difficult for them?

Ian Read

On anti‑trust, in Australia, Canada and the US, before the deal can be closed, you need to have remedies put in place. China is post‑close remedy, so we do not see any substantial anti‑trust issues on this deal, anywhere in the world.

Rebecca Harris

Just on the tax, given how attractive you say that the British tax regime is to you as a company, would you not be considering re‑domiciling here even if you were not to go forward with the bid for a combination with AstraZeneca? Would the logic not be that that would make sense for you?

Frank D’Amelio

Given US tax laws, if you try to exit a country without a re‑domicile, based on some sort of business development combination, the exit costs become punitive.

Rebecca Harris

It would require the deal.

Frank D’Amelio

It would be punitive, yes.

Mr Bain

Mr Read, the fundamental problem this Committee has is trusting what you are saying here. You are telling us you are engaging on a proposed deal of this sort, and yet you are seriously telling this Committee you have no idea how much you are proposing to save in tax. Is not the big problem with this whole process the lack of trust that your former Chief Scientist, Dr LaMattina, has when he says that this deal would be devastating to R and D? The workers in Wyeth trusted you when you said that the takeover of that company would be different? It was not. You slashed investment in R and D and you substantially cut jobs. Why on earth should we believe you?

Ian Read

We have made a commitment to the UK. We have stated those commitments; we have published them. Before we made those commitments, we took legal counsel. Those commitments are legally binding, not just for one year but for five. I understand that the Takeover Panel has stated that those are legally binding commitments. Let us put aside the legally binding; I am here today to make those commitments. I intend to honour those commitments. The Pfizer board voted on those commitments. We will honour those commitments.

Katy Clark

If it was not for the ability to take advantage of tax inversion, would you be trying to take over this company, yes or no?

Ian Read

As I have said, it is three parts. I do not think it is one part.

Katy Clark

Could I have a yes or no answer?

Ian Read

There is no yes or no.

Katy Clark

If you took that part out, would it be yes or no?

Ian Read

If you took that part out, it would change the price we are willing pay.

Katy Clark

Would you go ahead?

Ian Read

It depends on the price.

Katy Clark

Is that a yes or a no?

Ian Read

We would change the price we would be offering if we did not have the advantage of the tax.

Frank D’Amelio

At the right price, yes; at the wrong price, no.

Mr Binley

Mr Read, I am really trying to get under your skin. You have had some pretty good coaching before coming before us and I have noticed that. I do not blame you. Let me ask you a very straight question. You say you will make the merged company more efficient. In order to make that statement, you need to know how you will make it more efficient, other than your blind belief in yourself. Where would you cut costs?

Ian Read

It is not a blind belief.

Mr Binley

Okay, let us not talk about you. Let us talk about where you would cut costs.

Ian Read

You would take costs out where there are duplicated activities. For instance, it may be in our research portfolio we have two or three programmes that are in the same area with the same types of molecules. The scientists would make an assessment of which of the two projects has the best probability of success, and you would probably stop the development of one of the products. You would look at other areas of overlap. Do you need more for your force or do you need less for your force? Do you need more development scientists? Where are your administrative costs?

Mr Binley

I run a company too, and I do this every year when some finance director presents his budget to me. I want to know what you have actually thought you would cut to support that view of greater efficiency. Of course, you know and I know, because we are both businessmen, that it normally means jobs going somewhere. Is there any way that you can tell us, in overall terms, what that means, because your two previous sizeable increases in company size have meant a sizeable reduction each time in the number of jobs. That is the major area of cut, is it?

Ian Read

I am not sitting here saying that we can become more efficient without some reduction in jobs. We will be efficient by some reduction in jobs. What I cannot tell you is how much, how many or where. We have looked at this as a global enterprise; we will look at it as our global combined footprint and then we will make decisions regarding how to get those efficiencies. From experience, I have some idea of the percentage of efficiencies we would look for, but those really are very premature to talk about when we are negotiating with AstraZeneca and we do not have a price or an offer agreed upon.

Mr Binley

It would in general terms mean jobs being cut somewhere.

Ian Read

There will be some jobs cut somewhere. That is part of being more efficient. Whereabouts in the world, I cannot say.

Mr Binley

You can become more productive as well, but never mind.

Ian Read

We can and we would attempt to do so.

Mr Binley

Good. I am glad you have mentioned productivity.

Ian Read

I think I have mentioned it a couple of times.

Chair

Can I just pursue one or two points? You have been unwilling to give detailed figures of tax savings that you will make. The figure that I have seen reported, and I would not pretend to know whether it is accurate or not, is that you will make £1.4 billion. Is that in the right sort of area?

Frank D’Amelio

I do not want to comment on someone else’s amount and, quite frankly, I tried to answer the question as best I could before, which is, when we look at the transaction, there are three areas of value. One is clearly strategic; one is operational; and one is financial. In the financial piece, there is clearly a significant tax element to that. That is all part of our thought process on how we get to a price that we think is a fair value—that works for our shareholders and that will work for AstraZeneca’s shareholders.

Chair

I would have assumed that, given the significance of this takeover, you would have done detailed analysis of the potential tax benefits from it. You are unwilling to divulge them to us today, but would you agree that there are substantial tax benefits to your company and their shareholders, if this merger goes ahead?

Frank D’Amelio

Yes, there are.

Chair

Thank you. In terms of your taxation for the existing British operations of Pfizer, I have seen reports that you did not pay any tax whatsoever in 2012. Another report I have seen indicates that you made more out of research and development tax credits than you paid in tax. Is this correct?

Frank D’Amelio

I believe the correct numbers are, over the last three years, we have paid over £400 million in UK taxes, although that includes employee withholding taxes. We have paid taxes in 2013, 2012 and 2011.

Chair

I have seen other reports, but you have given that and no doubt this will be tested. Is that a net contribution to the Government after the receipt of research and development tax credit?

Frank D’Amelio

I believe that that is what we have paid in terms of cash. That is a cash payment.

Chair

Overall, you may have benefited more from R and D tax credits.

Frank D’Amelio

By the way, we spend a lot in R and D in the UK. That will clearly result in a reduction in the overall tax bill, because of just the sheer amount of R and D we spend. I believe the numbers I gave are actually cash payments to the UK Government.

Chair

Are those net?

Frank D’Amelio

When you say “net”, just to make sure—

Chair

Just adding up the R and D that you have received and taxation that you have paid.

Frank D’Amelio

Yes, it is net of R and D expenses, if that is what you are asking.

Chair

We may do further analysis on that. Could you just outline, and I do accept that it is probably difficult to give the exact figures here, where the tax benefits to the British economy would come from this merger?

Ian Read

The tax benefits are in two parts. Firstly, combining the companies will be more successful. We will have more products that we will sell to the UK Government. That will generate tax revenue in the UK. Of course, you will have all the employee tax of the combined tax base of the 20% of our research scientists in the UK. Then, as we utilise the Patent Box, which is very attractive from the point of view of wanting to manufacture in the UK, the revenue through the Patent Box would accrue to the Treasury as well.

Chair

If I can interpret that, you expect profits to rise as a result and presumably the corporation tax to go up. I do not want to put words into your mouth.

Ian Read

That is correct. I would also expect that we would take advantage of what I see as a very clever strategy on the part of the UK Government to say that, if you invent in the UK—as I understand the rules—or have intellectual property in the UK and you manufacture in the UK, the profitability on that is subject to a Patent Box tax of 10%, which of course is attractive to a global company.

Chair

Albeit there should be an expansion in profitability and therefore corporation tax, but that would be, at least in part, mitigated by the fact that through the Patent Box procedure you would pay a reduced level of corporation tax.

Ian Read

It is chicken and egg. We are manufacturing there because of the Patent Box so, from my point of view, that is all incremental tax to the UK Exchequer, because it is bringing in manufacturing that would not have come here without the Patent Box.

Chair

Yes, except of course it might be done under AstraZeneca independently.

Ian Read

They would also be using the Patent Box.

Chair

It might happen. It is not incremental to the merger.

Ian Read

It is incremental in the sense that there will be far more products in the Patent Box. There will be two companies’ pipelines going through the Patent Box.

Chair

We are back to the level of expenditure on research and development.

Ian Read

We are back to productivity in research and development—13 products in the last four years.

Chair

The number of products is likely to depend, at least in part, on the level of research and development.

Ian Read

There is very little evidence of that. There is very little evidence that the amount of money spent correlates to productivity. What correlates to productivity is having your research in really good scientific centres, like we actually have in La Jolla and in Cambridge, Massachusetts, and would want to have in the UK in those areas as well. Not all science is done in Cambridge and London.

Chair

To a certain extent, I am straying into the area that the Science and Technology Committee will no doubt want to address tomorrow, but my understanding is that you have research, your R and D, and you have had a reduction in the number of new products coming into the pipeline.

Ian Read

No, we have had incredible expansion. We have got 300 products in our pipeline. I do not want to bore the Committee by repeating it again, but we have been very productive post the acquisition of Wyeth. We have increased research in areas like vaccines. For instance in vaccines, we have a vaccine for meningitis B. We have a potential vaccine for Staph aureus, meticillin‑resistant. This is a scourge that kills 19,000 people.

Chair

I do not want to go into the scientific boundaries of everything that you are doing. Nadhim, you wanted to come in.

Nadhim Zahawi

Mr Read, you talked about the acquisition of Wyeth. Since your tenure, which acquisition do you think you have done well and has worked, and which ones have not worked so well?

Ian Read

Since I have been in senior management, the only acquisition has been the Wyeth acquisition and I think that has been very successful. We brought in a lot of Wyeth talent. As Pfizer before the acquisition, we were basically a small‑molecule company. Now 50% of our research is in large molecules and a lot more in oncology. It has also given us the ability to get into biosimilars. That combination, and that enrichment of the two companies and the two scientific bases, has been incredibly successful.

Frank D’Amelio

That is the very large acquisition that we have done. We have done some smaller acquisitions too.

Nadhim Zahawi

That is my point. It is not a 100% track record, right?

Ian Read

I would like to have a 100% track record.

Nadhim Zahawi

It would not be credible, right? Let us hear about where you think they have gone wrong.

Ian Read

Which ones have gone wrong? I do not think there has been any material acquisition. We have bought some assets in consumer goods that have gone well. We tried to do a joint venture with an Indian company that did not go very well. They could not in the end meet their technical promises. We are trying to do a deal in Brazil, and we have done a very good deal in China—a joint venture with a local Chinese company.

Nadhim Zahawi

No acquisitions have gone badly. There was a joint venture in India; that is not an acquisition.

Ian Read

The joint venture in India went very badly and the one in Brazil we are still to see. There have been no really material acquisitions since Wyeth.

Frank D’Amelio

On the whole, the Wyeth acquisition went extremely well, as did some of the other acquisitions we have done, like the King acquisition, Alacer, which sells consumer products for emergencies, and our Ferrosan acquisition. We bought the global over‑the‑counter rights to Nexium from AstraZeneca. That has been approved and we will launch that at the end of this month. Our track record over the last several years on business development, on M&A, has been very good.

Nadhim Zahawi

Which ones have gone wrong in your opinion?

Frank D’Amelio

The ones I just mentioned are all the ones that I think went right.

Nadhim Zahawi

Which ones went wrong? That is what I am asking you.

Chair

Can we just re‑focus on the issue of taxation here? I am conscious that we are short of time. Could I just ask you, in taxation terms, who will gain more from a merger, the British taxpayer or the Pfizer shareholder?

Ian Read

The benefit long term from this will be the ability to invest in research and grow the company. As we are domiciled in the UK, it will be both; it will be the taxpayer and the shareholders.

Chair

You think that the contribution in tax to the British Exchequer will exceed that of the benefit that the Pfizer shareholder will have.

Ian Read

I do not have relative sizes, but I would put it this way. Over the long term as the Patent Box begins to become important, the investment and the multiplier effect that our labour leaders talked about, of having 22% of research in the UK, heads and all that investment, will make a substantial contribution to the UK Exchequer.

Paul Blomfield

I wonder if I could explore those commitments in a little more detail and a bit more specifically. You have said that you are committed, Mr Read, to the completion of AstraZeneca’s Cambridge campus. What are the projections for AstraZeneca’s staffing levels at that campus? Let me finish my question. What are the projections for your staffing levels post any possible takeover?

Ian Read

Because we have not had a lot of conversations with AstraZeneca, I am not sure of their total commitment to staffing there in Cambridge. I think they have committed to spending £330 billion on constructing the site. We will spend a similar amount of money and then we will fully utilise the site. We are not going to build a site, put assets into it and make it a world‑class facility and not fully utilise it.

Paul Blomfield

You are making very specific commitments in terms of your percentage of workforce in the UK. You are making a very careful calculation about the benefits of a prospective takeover. It seems difficult to believe that you do not know what AstraZeneca’s plans for the workforce in Cambridge are or indeed what your own plans would be.

Ian Read

I take commitments on workforce seriously. We do not make them lightly. We do not put out numbers and then retract from them. This affects families. It affects people’s lives very deeply. I am very careful about making specific site commitments because, when we make the commitments, we keep them. You need to understand that we are at a very early stage on this and the commitments we have made on a macro level are substantial and we will honour them.

Paul Blomfield

Obviously, you will appreciate that we understand the impact of commitments on staffing levels, which is why we are asking those questions. Let me approach it from a different point of view in relation to your 20% commitment. You described a moment ago the Wyeth takeover as a success but, post Wyeth, you cut your R and D spend by around 40% as a global operation. If that was reflected in staffing numbers, that might mean a very significant staffing cut in R and D activity in the UK, from the combined AstraZeneca/Pfizer operation. Is that right?

Ian Read

I do not think you can use Wyeth as a cookie cutter for AstraZeneca. It depends on the assets, the quality of the assets, where they are in their development, and what level of duplication exists or not. You cannot project from one acquisition to the other.

Paul Blomfield

You described it to Mr Zahawi a moment ago as a great success, but it did involve a very substantial cut subsequently in your R and D commitment.

Ian Read

I believe it represented, on R and D headcount, roughly an 18% reduction on the global headcount of the two companies.

Paul Blomfield

If a success involves a 20% cut, I am not sure what a less successful story might look like. You will understand that we are concerned to get some sense of what your R and D commitment to the UK might be in absolute terms, either in terms of R and D spend or in terms of R and D workforce. Can you give us an absolute commitment? Otherwise, all the talk about legally binding and having your word does not mean very much.

Ian Read

The legally binding commitment is we will have a global workforce in R and D that we report, and we will put 20% of that workforce in the UK. You are looking at a highly successful company—a company that is committed to research and has really good productivity in research. You are looking at having the largest pharmaceutical company in the world and that company making a commitment of 20%. I believe that is a firmer commitment and a better deal than anything else that is on offer.

Paul Blomfield

In your forward plans that have led you to put this proposed takeover together, you have no sense of what those numbers might be, or you are just not willing to share them with us.

Ian Read

We have made projections, as we have said, in dollar terms across global spending. We have not done it country by country. Certainly, you must understand it would not be responsible of me to lay out specific numbers that could then be used by AstraZeneca to say, “Well, this should be the price,” or “This should be the price.” It would be really irresponsible on my part to do that.

Frank D’Amelio

We have clearly done lots of analytics, but we have not done it on a country‑by‑country basis. We do business in 150 countries, so we have done enterprise‑wide analytics on this. We have obviously made assumptions about potential areas of savings, but we have not done it on a country‑by‑country basis.

Paul Blomfield

If you have done a corporate assessment of what those total numbers are, which you say you have, and you have given a commitment that 20% of that will be in the UK, I would have thought it would be quite easy to do the arithmetic and tell us what that 20% meant.

Frank D’Amelio

On the 20%, we have used precedent transactions. We obviously looked at Wyeth, which was something you mentioned before. We looked at other precedent transactions that we have done. We looked at industry transactions. We have done all kinds of analytics on that. That does not necessarily mean it will be a perfect proxy for AstraZeneca. We have tried to make assumptions on where that will be, once again, enterprise‑wide at a high level. How much would be selling, general and administrative expenses? How much would be in manufacturing? We have done the best we could on that. To try to get into the level of commitment that you are asking for, the problem is we do not make commitments we cannot keep. It is early in the process and we do not want to be in the position that we cannot keep our commitments. We honour our commitments.

Paul Blomfield

We are simply trying to understand what that commitment means.

Ian Read

Let me try to put it another way. The commitment is to have the most successful pharmaceutical company domiciled in the UK and that company committing to putting 20% of its R and D headcount in the UK. If you are running a business, you want to have successful companies—companies that will be here for the future. We think our business model is right for the future. We believe we are going to be successful in the future, and that is a very strong commitment.

Mr Bain

The real difficulty this Committee and people outside will have, Mr Read, is that there are no commitments of any substance being made whatsoever. You are telling us you do not know how many R and D staff you are employing. You cannot tell us next year how many R and D staff you are employing. Is this really credible? We are going to look in terms of what this is going to mean in Macclesfield, but you must have some indication and forward planning about the number of such staff you are going to employ. How many?

Ian Read

What I said to you is I am trying to run this business to be a successful business, which gives confidence to our employers that their jobs are going to be there.

Mr Bain

How many?

Ian Read

I will get to that. I cannot tell you today how many people are going to be in research and development in the combined company. I have not even seen the books of AstraZeneca. I do not know how many people they have today in the UK. I do not know how many people they have globally. I do not know how many of them are working on projects that are duplicate to our projects. Once I get in, once the acquisition is complete, we will know how many people we need in R and D and we will put in the right amount for this company to be successful, in the same way as we have done with Pfizer post Wyeth. I just want to repeat it: 13 products approved; 13 in phase III. We will staff the R and D post the acquisition to the level that will make it a successful company.

Mr Bain

But you cannot tell us how many.

Ian Read

No, I cannot.

Mr Bain

Why not?

Ian Read

Because I do not have the books of AZ.

Mr Bain

Why in your written evidence did you purport to make a commitment to retaining substantial commercial manufacturing facilities at Macclesfield? Define “substantial” then.

Ian Read

“Substantial” means that, as the word defines, if somebody looks at it, they will see that we have maintained—

Mr Bain

How many?

Ian Read

I do not know how many people are there today. It will be a substantial commitment. Furthermore, if I may point out, we have also promised to look to source further manufacturing in the UK, as the Patent Box takes over. From my point of view, do you not think it is reasonable? I have had no access to the books of AstraZeneca. I have had no access to their employment. I do not even know what products go through that plant. Blind, because I am aware of how important it is to Macclesfield, I have committed that we will maintain a substantial presence. I am a man of my word; Pfizer is a company of its word. If we say substantial, it will be substantial.

Mr Bain

The 51,000 people who lost their jobs after Wyeth was taken over might have a different view about that. There are 2,000 people who earn their livelihoods at Macclesfield. How many of them will still be employed there five years from now?

Ian Read

I will come back once we complete the acquisition and I will tell you.

Mr Bain

Two years from now, how many?

Ian Read

Once we have completed the acquisition, I can tell you.

Mr Bain

One year from now, how many?

Ian Read

A substantial number will be employed. We do not take these decisions lightly.

Mr Bain

These are not guarantees then, are they?

Ian Read

They are guaranteed to have a substantial number in employment.

Mr Bain

This is the whole problem with the evidence that you have been giving today. You have purported to offer assurances but, when we probe into what those assurances actually mean, there is very little sitting behind them, and that is the problem that people in this country have with the potential harm this could cause to our science base.

Ian Read

I do not understand that.

Mr Bain

Really?

Ian Read

No, I do not. We are talking about having the largest pharmaceutical company in the world that will staff its scientific R and D to a level where it can be successful and robust. I am not putting a company together to fail, so I will put together a company with the scientists we need, and then that successful company will have 20% of its global numbers in the UK. That is an unprecedented commitment by any company and, on top of that, sight‑unseen, not knowing what is being produced in Macclesfield, I am willing to say “substantial”. I am not going to put a percentage on it. When I say “substantial”, you know what substantial means. We all know what substantial means.

Mr Bain

No, I do not.

Ian Read

I cannot give you a number, but you will know what substantial is when you see it.

Chair

I do not think we are going to get any further on that.

Ann McKechin

I wonder, for the benefit of the Committee, Mr Read, if you could assist us with the clause in the offer that you make about your undertaking that is saying, consistent with your fiduciary duty, you will adjust these obligations should circumstances significantly change. Can you explain to us what a significant change would amount to?

Ian Read

I see this as a very high bar. That significant change would be a dramatic change to which the famous person on the Clapham bus would say, “This is a significant change in the industry,” i.e. the UK has radically changed its incentives or tax regime, or there has been a disaster in the productivity of the research area. This would be clearly evident and you would be able to call me back and say, “Are these significant changes, Mr Read?”

Ann McKechin

I think we would probably like to do that before you make the takeover bid, rather than after. Would you provide on a risk register what the actual criteria would be that would amount to a significant change? I am sure you would be able to describe it in somewhat a greater degree of specification than you have indicated already.

Ian Read

I believe that what is more important is that you understand that we are a highly ethical company. We keep our promises. To try to detail envelopes, which afterwards will not be worth—

Ann McKechin

Mr Read, you will have a whole team of lawyers who will be defining that envelope for you. As with regard to any contract or any undertaking, it is the ability to enforce it that is utterly key. For that we require specification, which a court, tribunal or takeover panel can actually define. You are saying that there will be a very high bar. Presumably it can be defined in advance, based on for example your risk register, at what point the bar would be reached.

Ian Read

We are coming to invest here and our intention is to honour those commitments. These wordings of substantial change are actually in the Takeover Panel’s code—that they expect these commitments to be kept unless there is substantial change. We actually took that wording from the Takeover Panel.

Ann McKechin

That would be following precedents of other definitions.

Ian Read

No, I think the Takeover Panel has had its power substantially increased over the last three years. These are promises made by a serious pharmaceutical company, which has a reputation that it needs to conserve. People take our medicines and they buy our medicines because they believe we do what we say.

Ann McKechin

I want to make sure that the Takeover Panel’s definition and your definition are aligned.

Ian Read

The Takeover Panel actually would be the panel that would be the final arbiter. They would come in and say, “There has not been a substantial change and hence we are taking legal action.” I do not conceive of that happening, but they would be the final arbiter.

Ann McKechin

You reported that you are intending to split Pfizer into three distinct units—two on innovative drugs and one on your value business. To what extent and where would AstraZeneca’s current holdings be split? Would that be split amongst those three groups or would they be contained in one group alone?

Ian Read

I am glad you asked that question, because “split” means we are going to manage them separately. “Split” means I believe the way we are going to be successful as a company is to have business units with accountable leadership. We have taken our business and divided it to have what we would call an innovative general practitioner area, innovative oncology, innovative vaccines, innovative consumer and then established products. Each one of those units has a dedicated management focus. This is the way you achieve and succeed in business, I believe: by having accountability.

Ann McKechin

It also makes it easier to sell them off, I presume.

Ian Read

It will be easier for us to give our shareholders transparency on the performance of those business units, which is why we are doing it. Our shareholders will look at that, and our intention is to run those businesses as efficiently and as profitably as we can. AstraZeneca would fit into those businesses.

Ann McKechin

It would be split amongst those units then, so it would not be contained in one unit.

Ian Read

It would be split amongst those units.

Ann McKechin

Would it be amongst all three units?

Ian Read

It would be amongst the innovative and established.

Ann McKechin

We have mentioned the Macclesfield site today and the Cambridge site, but there are other sites that AstraZeneca has control of in the United Kingdom, as mentioned today by the trade unions. To what extent are there any undertakings about those other sites?

Ian Read

It is too early to make asset‑specific or site‑specific commitments. I have been able to make global commitments—unprecedented commitments—to the UK Government. As we go through the process, we will look at those assets. Let us be very firm on this issue: we do not make decisions lightly about changing assets, closing assets or asking people to leave the company. We understand the impact, both on the company and the people leaving. We try to create a company that can be successful, succeed and get products to patients.

Ann McKechin

I have one other question, if I could just ask you to clarify: presumably the Cambridge site would be in an innovation part of the company; where would the Macclesfield site be?

Ian Read

Macclesfield would sit inside global manufacturing, which sits outside all of those. We manage manufacturing as a global division, which is not part of the commercial businesses.

Ann McKechin

This would not be impacted by the proposed split into the units that you have just described.

Ian Read

No, it would be managed by global manufacturing.

Frank D’Amelio

We have made no decision regarding the split, just to be crystal clear. No decision has been made in terms of splitting up the company. We have organised the company within the way Ian described it, but there has been no decision on any kind of external split.

Ann McKechin

Obviously the concern would be that, once you start to do this, it becomes much easier for you to sell off chunks of it, if your profit level dips for example. That would be one advantage for you.

Ian Read

We see it as good governance. We see it as giving our shareholders transparency into what management doing, and the ability to ask us questions and hold us responsible at shareholder meetings. We see it as very good governance.

Frank D’Amelio

We have actually started reporting the company in this way in this past quarter—the first quarter.

Chair

Mr D’Amelio, earlier when I talked about the reduction in value of the company, you said that was in part because of divestments, effectively. Can you give a categorical assurance that, if the company is divided into three units, no one of those units will be sold off?

Frank D’Amelio

No, I cannot give that kind of an assurance. Quite frankly, we have organised into these three different segments. Ian talked about them: there is the global innovative pharmaceutical segment; the vaccines, oncology and consumer segment; and the global established products segment. We are running each of those internally as a separate segment with focus specific to each of those businesses. In terms of what we may or may not do with those businesses in the future, I cannot commit to that. What we want to do is maximise the effectiveness of how those businesses run today.

Ian Read

What we will commit to is that these legally binding commitments we have made will follow, if that ever happened, the companies that were split up.

Chair

I am grateful for your honesty on that. Brian, I think you wanted to come in.

Mr Binley

I was slightly disturbed by your remark that you are a very honourable company, when so many people have argued that that was not the case—people who have been at the receiving end of your business machinations in the past. I understand you have a coin in your pocket, Mr Read, which you spin. On the one side it says “straight talk” and on the other side it is embossed with the words “own it”. I assume that “own it” is different from “straight talk”. With which did you come here today, having looked at your coin this morning?

Ian Read

Both. Thank you for the opportunity to discuss this. This is part of our cultural change. I believe strongly that everybody in the company needs to have a sense of ownership, hence “own it”. To own it, you need to have the ability to do straight talk. In our company, if somebody is in a team meeting or confronted with his supervisor and wants to have a conversation that is hierarchically very difficult to have, this empowers that individual to take the coin out, put it on the table and say, “I want to have a straight talk with you.”

Mr Binley

Can I tell you that I believe you spun it this morning and got “own it” and we have not had the level of straight talk that we needed?

Ian Read

I am looking at straight talk right now, right in front of me.

Chair

We are running slightly over time, but we need to explore one very important area, and I want Katy Clark to lead on that.

Katy Clark

We heard evidence earlier on that, in the pharmaceutical industry, timescales are more like 25 years. There has been a lot of talk about what commitments you might or might not be willing to make. In terms of any commitments that you would make, would you be willing to consider a longer time period, whether that is 15 years, 20 years or 25 years?

Ian Read

Let me address that. Part of the reason that the pharmaceutical industry has got itself into trouble has been these long periods where research is not measured or held accountable. Mr Dolsten is our Chief Scientific Officer. He has an accountability period of five years to show progress. His compensation is tied to him showing progress in those five years. I feel this is good business. It strengthens the company that people are held to account over a five‑year period.

Katy Clark

The commitments we are asking for are overall commitments. They are not focusing necessarily on specific drugs but the overall commitment to the UK. Would you not accept that, in terms of the UK, it would represent a far deeper commitment to UK science if you were willing to make more long‑term commitments?

Ian Read

No, actually I think it is negative. In an organisation, if you want to be productive, if you want to get medicines to patients quickly, you have to have a sense of urgency. Part of the reason that we measure at five years is that sense of urgency, and we do that across Pfizer. I fully expect that, at the end of five years, given the quality of science, we will have substantial evidence of quality work being done, but having those five years there is an important management tool.