Pfizer Inc. (PFE) Earnings Call Transcript & Summary

Good afternoon and evening, everybody. I'm Chris Schott, pharma analyst here at JPMorgan. And it's my pleasure today to be hosting a fireside chat with Albert Bourla, the Chairman and CEO of Pfizer. First of all, Albert, thanks so much for joining us today.

Thank you for having us, Chris. It's a great opportunity for me to talk to the investors.

Great. Well, maybe just to kick off. I know we're coming off a 2-day analyst meeting the company hosted earlier this week. And to me, that really highlighted both the growth in the core portfolio as well as the company's emerging pipeline. So maybe just as an opening question. What were the key takeaways you'd like to highlight to investors coming out of that event?

I think what we try to do and likely we did successfully was to demonstrate that the Pfizer that will emerge, the new Pfizer as we call it, post the separation of Upjohn and following also the already separation of our Consumer Business, will be a very, very different Pfizer. We are moving what used to be a conglomerate of businesses. We will be singularly focused on innovation company, biopharma. From what we used to do, growing EPS through mainly M&As and repurchases, to being a company that have organic growth at its core. And also from being known for a fast follower in science into being known as a first-in-class science. So I think this was the message that we wanted to communicate. And in order to do that, we spoke about a very long journey that started in 2010, back when Ian Read realized that we need to fix the innovation core. And we were able to achieve during this decade a significant, dramatic, I would say, turnaround of the R&D we have seen, which allowed me to move fast to transform the company to what I'm just saying. And also, we were able to demonstrate not only our pipeline and focusing on assets that we are very excited but with which maybe some of the investors were not very familiar, because they're focusing on some very well-known only assets. But also, we're able to demonstrate a company that it is having tremendous R&D matching productivity restored, from 17% success rate in [ Phase II 53 ] with reduced sales cycle times. And also a very different culture, a culture that is required in the 21st century for a company, but it is having innovation in its core. What I heard back from most of the investors was that you gave us a lot of food for thought. And now they're going to do their homework, and hopefully, they will see what we see clear.

Yes, absolutely. You mentioned the progress the company has made on its finance pipeline, and these improved success rates. And I think that's a really critical point, given some of the challenges all industry had faced over the last few decades. Can you just elaborate a little bit more in terms of what has enabled you to really make that pivot and get that higher R&D productivity? And a lot of changes have gone in the organization. But is there any -- as we think about what's different about Pfizer today versus the past, what are the key variables you think that you've kind of changed to enable that?

There are so, so many things that have to be done to have that dramatic productivity. Let me start, we were having -- operating in 13 therapeutic areas we were seeing. And I would say that in most of them, likely mediocre, and as a result, attracting mediocre talent. We focused down to 5 core therapeutic areas, scientific areas, and we doubled down research wise over there. And that allowed us to attract really the top talent that exists out there, so that we will be able to be successful. We have our research centers, not really where the science was happening. And we created, right now, our core centers are in Massachusetts, in La Jolla, in Pearl River, or places, hubs of innovation. We had a very styled R&D machine that had nothing to do with commercial and had nothing to do actually also with manufacturing. We created this structure that we are vertically integrated. So we have 6 biotechs, as we call them. It is the oncology biotech, where early science, clinical development and commercial, they are all in one unit, right? And they are competing for capital. They are competing for resources, and they are bringing their ideas to a group of executives at Pfizer, that we have a committee. And they're allocating lots of resources based on which ideas we think is the most novel, will have the best return on investment. We created distinct development organization. We were spread into thin pieces before. We put it all together, and that also increased dramatically the way we -- so I can go on and on, on things that we did. We were only in small molecules. We intensively went and created significant expertise in biologics so that we can combine small molecules and large molecules. And also Pfizer was traditionally very strong in chemistry, in our ability to make drugs. And that, of course, we doubled down. So that's why I said, if you see the productivity that we have in Phase II success rates, it was 17% on a 3 years average now, I'm telling you. So it takes a lot of it, right? In '17 -- in '15, it was 17%. Now it's -- we are running at 53% on a 3 years average, and it is more than triple, right? So it's amazing how we were able to do that.

Yes, absolutely. One other big picture question. In your, I guess roughly 2 years as CEO now, I mean, you've really pivoted the company towards this innovative core. We've had the consumer JV announcement, we've had the Upjohn divestiture. Can you just talk about the pros and cons you see of really committing the company to innovation and kind of, for better or for worse, kind of living at dying by this innovation engine that you're creating?

Yes. It's not that dramatic, living or dying, but I would call it, it is a higher risk, higher reward product, right? And the reason why I did it was because I felt comfortable that I can do it. And I felt that now is the right time. Why I say now is the right time? We have a business of -- the innovative business, what we are -- that will remain post the innovation is growing 8% last year, 9% in the first half of the year, and we are projecting that will grow at 6% all the way to 2025. So we have a very strong growth momentum. We have the benefit in the next 6 years we don't have to be tested by OH because most of them have gone to -- this year, we have the last one with [indiscernible]. We have the benefit of having a machine -- R&D machine, but the productivities, the day and the night with what we had before. So our ability to create results by pouring resources over there, it is 3, 4x better than what used to be. That is a very important note coming from me. And then I have a substrate. The substrate, which means the clinical programs and the scientists that they can progress them. It's very recent. It's very diverse. It's not that I say we're going to have 6% CAGR on the top line, double-digit on the bottom line, because I have these 2 mega blockbusters that if they are successful, I will make it. It's all over the place. From multiple therapeutic areas for many, many, many products. And that gives me confidence that the statistics should work. It's very different. So when I risk adjust these projections, it's very, very clear that you have high probability to achieve this risk adjustment because exactly it's based in a very, very big base.

Yes. I think you touched on this, but on that 6% revenue CAGR, I know there's been some disconnect between that guidance and Street expectations. But I guess what I'm hearing from you and what I heard at the analyst meeting was a very, very confident tone from the company in terms of the ability to hit that number. So I guess, how much of that is just -- it's not like one piece is the breadth of the pipeline and the risk adjustments. On the other half of it is kind of some confidence in the core business. But maybe just elaborate a little bit on what you see as the disconnect versus The Street with regards to that near-term CAGR?

Yes. Let me speak why I'm confident, and then we will speak about the disconnect. It's around math, because I think what was good about our 2 days that we just had was we didn't speak generally. We gave projections, so people can go and test them, challenge them and look at this company. Let's start with the base. $41.6 billion is the mid of our guidance for this year. Everybody believes that it's likely a probable number, right? Then let's do the math, 6% for 5 years. That tells us that we should be ending around $55.6 billion in -- to achieve this 6% growth in 2025. This is $14 billion, right? So we need to add from now until 2025, $14 billion of revenue. We presented that we are going to grow our -- only our organic pipeline -- excuse me, our current in-line products will grow 8% of this forecast, right? And by the way, reading all the analysts, likely we sent back a little bit on the 8, right? Most of the analysts, they are believing that it's much higher number of the organic. So -- but if we take our number of $8 billion, okay? That remains 4 -- excuse me, $6 billion to add from pipeline from now until. And we presented a pipeline that its peak revenues will do $35 billion to $40 billion. But we said that in year 2025, we'll do $15 billion in non-risk-adjusted. And then from $15 billion to go to $6 billion, this is 40% sans. So even if we discuss that, I don't think this is [indiscernible] $3 billion. So we can discuss it if it is or not, because we believe it is, right? But even if we discuss that maybe it's not this, the risk adjustment is so dramatic, particularly if you feel that the in-line portfolio will perform better. But I feel you can be very, very comfortable about the 6% growth. Now 6% growth in our business is going to be certainly double digit the EPS. Certainly, double digit the EPS. So that's -- now what is the disconnect? I think, it's very clear because you can go and see investor and analysts modeling, and you can find that a lot of the pipeline assets that we're having, they're not model at all. It's not that -- the big disconnect, it's not we're having $3 billion and they have $2 billion, okay? The big disconnect is they have no vaccines. They have no rare disease, no gene therapy, no any of that. Although they are in pivotal studies. These are not things in early science. They are in pivotal Phase III studies with successful Phase II, of course, go to Phase III. So this is why I believe that we feel comfortable, and I believe that by providing those assumptions and by providing this granularity, a lot of the investors will do their math right now, and hopefully, they will see what we see. I don't disagree that we need to deliver also. So obviously, we need to execute on that. But that's the case for everything in life.

Yes. Yes. Yes. That makes a lot of sense, though. So I think it seems like we were all kind of focused on a handful of assets, and I certainly came away from the meeting with 5 or 6 products on my like to-do list of things to dig into a little more detail. So it was very helpful on that front. Maybe last kind of bigger picture one before we kind of jump into COVID and in the core business. Just the longer-term outlook. So we look beyond 2026, you had this LOE cycle, which I think you were talking about high teens billion-dollar of LOEs in that, let's call it, 2026 through 2029 period. I guess, it's about 35% or so of that target 2025 revenue. So you've got a lot in the pipeline, you've talked about some high unadjusted peak sales opportunities. But just how do you think about, over the next few years, positioning Pfizer to get ready for that next kind of big cycle of LOEs? Do you think you've got the internal assets you need or should we be also thinking about the company looking externally more to just get ready for that period of time, wherever you're facing, later part of the decade.

I think our internal pipeline, the current internal clinical pipeline is coming also, but I don't speak about it. [We've put ] in place. We also set the numbers accurate, okay? We will have over 5, 6 years' period. 6 years from now, an LOE that will give us, gradually, not in 1 year, right, [indiscernible]. Keep in mind that we spoke that our current pipeline, it is $35 billion to $40 billion at peak sales. Almost none of them will have the peak in 2025 where I just discussed that will be $15 billion. So basically, you should see the $35 million to $40 million and then risk-adjusted, if you take again the 50% risk adjustment, it is $20 billion. So if you take 40% risk adjustment, okay, it is in the range that we are losing. So that's why I say that we are going to replace. And of course, we have -- we are speaking about 10 years from now, right? So just to...

Nothing can possibly change in that time line.

A little bit of context in what you have [ here ]. A tremendous investments in early science right now. That's why we have attracted some of the best scientists that also I was very happy to showcase yesterday. And they will deliver. But it's very clear that now, all our business development strategy is focused on this period. We want to have Phase II, Phase III-ready assets, but once they are coming under our machine, we'll deliver launches in this time frame, '24, '25, '26, '27, '28 and -- to complement our pipeline. And those assets, again, we are looking Phase II, Phase III and in the 5 areas that we are very, very good now, 6 areas because we have also the hospital business unit that also is having some great opportunities right now, particularly with the COVID and all the importance of antibiotic resistance. But those are the answers that we are focusing right now. So we will make fewer mistakes in selecting them, we will make fewer mistakes in developing them, and we will complement our current pipeline. My goal is to present towards the end of the decade, not towards 2025.

Yes. Excellent. Why don't we pivot now over to COVID. And before I do that, I just want to mention, for anyone in the audience who wants to ask questions, I think there's a little box you can enter your questions and it will filter over to me, and I'll make sure we either weave those in or ask them towards the end. But maybe with that, just shifting gears to the COVID vaccine. It's obviously something incredibly important topic for everybody on this webcast everywhere in the world, I guess. But just to set the stage, remind us of your current expectations of when you'll be able to communicate efficacy results here? When we should think about a full data set being submitted? Just trying to figure the latest on time line just so we're all on the same page in terms of the latest communication. I know this is evolving quickly.

Yes. I will be then repeating what I just said 2 days ago, 1 week ago.

I figure it'd just be better safe than sorry.

Everybody who understand it. We have a model right now. The study has been already -- we are done. Today, we are done with 30,000, and we continue with the 44,000, but we have already recruited the 30,000 patients. This is an event-based study. So we have to make some calculations when we expect enough events so that we can have interim analysis that could provide efficacy. And of course, to have your study at interim analysis readout, you need to have very strong reference, right? So we are taking our best case -- excuse me, we are taking in our base case of efficacy. Not very high efficacy, not very low also, in the middle. And then we are taking the current range of events of what is the disease burden, right? And we calculate that we should be able to have a conclusive readout of the efficacy before the end of October. A lot of people are focusing because end of October is 3 days before the election. For me, this is completely artificial date, right? I couldn't care less when we are speaking about the COVID-19. Can it be a week earlier? If we have more events, yes. Can it be a week later? If we get -- but this is basically what I'm saying. This is when we will have events. I don't say this is the day that we will be able to submit to FDA or to other authorities, although we will try to be able to be ready to submit with the speed of light once we have the results ready. And then it is up to regulators to see if they have enough. What we plan to submit is what they have asked us in terms of -- we feel that we will be able to submit what they have asked in terms of the guidelines that they put out there. And then of course comes the supplies. We are not going to have -- I told multiple times. We are going to have approximately 100 million doses globally in 2020. We will make it 1.3 billion doses globally in 2021. The doses are gone, already are sold with the binding. I mean, the doses of -- the first of 2020 and the first 6 months of 2021 is already gone, and they represented already $500 million binding agreements. If we are successful, the governments will have to buy this amount, right? Which means that it's not going to be, I think, publicly available for everyone, right? It's going to be available for those that the government, the health authorities will decide to distribute the product. If they decide they give to first -- they will have -- let's say, the U.S. government, they're part of the 100 million doses that we'll produce globally in 2020.

Yes. What is -- I know you've expanded the study or looking to expand the study to add some kind of additional patient groups, higher-risk patient groups in. Does that do anything in terms of time lines or powering assumptions for the overall study? Or is that almost for you just kind of like just incremental as you're looking to kind of look at the broadest possible population as you've seen more safety on the vaccine?

It does affect the time line, but it was not done for this. And also let me be clear. It does not affect the October time line because the October time line will come from the already enrolled. So it will not make any difference. It could make a difference on the back end if we have to go into November, for example. That could help us having more events because now, we have, let's say, bigger population. So that it is, let's say, kind of an insurance policy in case that the events, because of the disease burden is slowing down, will not be enough. So that's the case. But the reason why we did it was really because after 30,000, and we also presented the safety profile of the product, which is very benign. Out of 30,000, let's say, people, 15,000 on the vaccine already being vaccinated, we feel much more comfortable about the safety. So we go to very vulnerable populations now. We go to 16 years old we were not going before. We are going to HIV patients to hepatitis C or B. So patients that have chronic conditions, but you need to feel that they are -- yes, you have a safe product before you go to them. And this is what we're doing. Also, we will increase diversity in the course of that.

Makes sense. In terms of -- I don't know if you can comment at all on this, but on that October time line, have you commented at all in terms of how much alpha you're putting on the various interims versus the final analysis? I guess I'm trying to still get my hands around October, is there a lot of the powering of the study based on these interims? Or is this when you look at the profile that's shaping up, is this something you're pretty confident that you can hit on those interims, but still leave enough powering that if something goes off, that you're going to get to where you need to be at the end?

No. We have -- I think what Kathrin said yesterday that maybe some didn't maybe catch a lot, is that we have a low [ result ] of 60% efficacy. FDA has asked 50%, we're a bar higher because we are very confident, right? So when I say that will come in October, I'm using sampling and efficacy in between, right, of what we have. Okay. If -- and also an event rate that it is, let's say, is coming. But if the event rate would bring us the events, obviously, in interim to stop, you need to have higher than 60% efficacy, right, because you need to go [ into the ] final to have it -- to stop with a 60% efficacy.

Okay. On the market evolution over time, I think you've talked a lot, and we've seen, obviously, a tremendous amount of demand from governments for product in this kind of pandemic phase. But just latest thoughts about how the market evolves, I guess, both first in the pandemic phase, but then as we think about the longer-term role a COVID vaccine will play in the market. Just how are you thinking about the longer term opportunity, I guess, for the product for generations?

We are preparing and investing for a longer opportunity. If not 100% that this will be the case, but we're preparing for that. It will depend on multiple fronts. Are we going to have a vaccine that provides for life immunity or a vaccine that will need to be repeated with 1 dose, of course, with a booster every, let's say, a year or every 2 years. So remains to be seen. We are looking here. Also, is the virus going to stay the same or is it going to start changing like the flu virus is changing every year. Also that it is another reason why, for example, we would like -- we would have to have more repeated vaccinations. From ours, the good news is that in both cases, because we have the mRNA technology, we can -- it's ideal for both scenarios because, one, you can boost it. The like -- with the RNA of the COVID, it doesn't inject any protein in your body, right? You only create the proteins yourself above the virus. So it's very easy to boost, and you have good results from boosting. The other one, the mRNA technology, you can change your vaccine just by someone sending you a file, a digital file with the sequence of the new strain, and then you create a template that has the new sequence and then you -- chemically, you produce the new vaccine and you just change one component of your vaccine and there you go. You have your -- as we are doing in flu. But in flu, because of the older technologies, takes months to be able to produce. That will take weeks. So that's why I feel that we are very confident. And we are preparing for that manufacturing-wise, particularly.

That makes a lot of sense. On the differentiation among vaccines, that's very clear in terms of the longer-term dynamics, do you think that we'll see significant differences between the efficacy levels or the profiles of the vaccines based on the initial Phase III studies? Or do you see the differentiation coming more as we think about the longer-term dynamics, who can adapt, I guess, fastest to the evolving landscape that we'll see with COVID?

I can't say with certainty. But what I can say is that we test it for vaccines, which were the same technology, not different. And they were very different in both efficacy and safety, their profiles, okay? So as a result, I don't think it would be unthinkable that you will see differences between different vaccines in terms of efficacy. But of course, the study needs to be completed so that you can really say with certainty, but that's the case.