Pfizer Inc. (PFE) Earnings Call Transcript & Summary

Thank you for joining us for the next session. I'm Matthew Harrison, one of the biopharma analysts here at Morgan Stanley. I'm very pleased to have Pfizer with us. Before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/research disclosures. And with us from Pfizer, we have Frank D'Amelio, who's the CFO; and Chris Stevo, who runs IR. I'm going to turn it over to Chris and Frank to get us started.

Thank you, Matthew. So favorite forward-looking statement from us as well. Before we begin, just a quick reminder on forward-looking statements. We'll be making some forward-looking commentary and statements here. And as you're all familiar, actual results could be different from those. Additional information regarding forward-looking statements is available under risk factors, and forward-looking information and factors that may affect future results in our SEC filings on Forms 10-K and 10-Q. And with that out of the way, Frank, off to you.

Thank you, Chris. And Matt, thank you for having me, and it's a pleasure to be here with everybody today. I hope everyone is well. So let me make some opening comments about Pfizer. Obviously, I think we've been on a nice roll. We've had a real nice rhythm to the business. So I thought what I'd cover very quickly is a little bit about Q2, just very quickly; a little bit about our guidance for the year; a little bit about our capital allocation; and then finally, just a little bit about kind of going forward. So let me just hit each one of those, and I'll do this relatively quickly so we have plenty of time for Q&A. So first for the quarter, we had a really solid quarter. We had $19 billion in revenue. That was up 86% operationally. If you exclude COVID, $11.1 billion. That was up 10% operationally. Adjusted diluted EPS was $1.07, up 68% operationally. So really, really strong numbers at the total company level. And many of our franchises performed very well. Eliquis performed well. IBRANCE performed well outside the U.S. Prevnar performed well. Biosimilars, VYNDAQEL, XTANDI, Inlyta all performed very well in the quarter. All had very nice growth rates. If you go to the guidance for the year, we updated our revenue guidance to $78 billion to $80 billion from $70.5 billion to $72.5 billion. By the way, that's $78 billion to $80 billion is by far and away the largest revenue number that we've talked about printing since I've been at Pfizer. It's a number that's very hot. On our total company EPS, we increased the total company EPS from $3.55 to $3.65 to $3.95 to $4.05. So at the midpoint, a $0.40 increase. If you go to COVID, we took our guidance on revenue to $33.5 million from $26 million. We look the income before tax as a percentage of revenue number at the same level. If you look at the business, once again, excluding COVID, we took the revenues to $45 billion -- $45 billion to $47 billion from $44.6 billion to $46.6 billion, and we increased the EPS a $0.05, $2.50 to $2.60 to $2.55 to $2.65. By the way, those guidance points of the total company year-over-year, that represents 85% operational revenue growth and 73% EPS growth. For the business, excluding COVID in terms of the revenue guidance and the EPS guidance versus the prior year, that represents 7% operational revenue growth on the top side on the top line, 11% operational revenue growth on the bottom line. So really, really strong performance on a year-over-year basis. And obviously, COVID is helping in a major way. The business, excluding COVID, is also performing very well, which is that 7% and that 11%. Let's go to capital allocation. And maybe what I'll do here is let me hit on the dividend for a minute or 2. So we increased our dividend at the beginning of the year from $0.38 to $0.39. A couple of interesting statistics on that dividend. It's the 12th consecutive year of a dividend increase. It's the 330th consecutive quarter paying dividend. And in my mind, we had the dividend increase, and then if you held on to your shares, when Viatris announced their dividend, it's kind of, I'll call it, a second increase because we did not adjust our dividend for the Viatris dividend payment, although we have signaled that we would. So I view that as a second increase to our shareholders that -- at least to our shareholders that [ hold on ] dividend to Viatris for the year. A few other statistics on the dividend. We -- through the second half of the year, we paid $4.4 billion in the dividend. And then if you look at the dividend and buybacks from 2010 to 2020, we paid $155 billion, returned that to shareholders through our buybacks and our dividend. $78 billion through dividends -- and the $78 billion for dividends and $77 billion -- $76.7 billion, $77 billion through share buybacks. And the average price on those share buybacks was $29.49. So I thought a little bit of commentary on our capital allocation. And just a little bit in terms of going forward, maybe just a couple of numbers in terms of global supply in our vaccine. We've committed to delivering up to 3 billion doses in 2021 this year, up to 4 billion doses in 2022 next year. We continue to remain committed to, I'll call it, our 6% revenue CAGR through 2025 and then leveraging that to the bottom line so that the EPS CAGR is double digits. And in terms of our 25 breakthroughs through 2025, we've had 7 launches to date. So I think on a nice path to delivering on that commitment as well. So just to wrap it up, very exciting times for Pfizer. I think we've been on a nice roll. We had a really nice rhythm. And obviously, our job is to continue to execute and continue to deliver on our results, and delivering breakthroughs to patients. And Matt, with that, I will turn it back to you.

Great. Great. No, perfect. Frank, thanks for the comments. Thanks for the intro. Maybe we could touch on 2 macro topics. You talked about capital allocation. As part of that discussion, you didn't talk about business development/M&A. So maybe just give us your thoughts, your outlook there for Pfizer, the kinds of deals you might be looking at.

Sure. So let me hit on that. And you're right, Matt, I didn't mention and in my opening comments. I was trying to keep them as compressed as I possibly could.

You gave me a question to ask.

All right. Well, thank you. So at a macro level, let me always start with how I always start when it comes to capital allocation, which is we will always remain disciplined in terms of how we deploy our shareholders' money. So we always like to start with, we have been, we are, we'll continue to be disciplined with how we deploy our shareholders' capital. Now in terms of capital allocation, I'm going to broaden it a little bit. You asked me about M&A, but I want to expand it just a pinch, but I'll include M&A in my answer. From our perspective, from my perspective, our priorities are the dividend, and that's a key part of our investment thesis, I believe; investing in the business; M&A, which is the question you asked me and I'll drill down on that in a minute; and we haven't done buybacks. We didn't do any buybacks last year. We didn't do any buybacks to date this year. I guess you could say we've deprioritized them not because we don't believe there's good returns there, but we believe there's better returns in terms of M&A and investing in the business. I think a perfect example of that is BioNTech, right? We did a partnership with BioNTech. We did some significant investment. And look at the returns we've been generating as a result of that partnership, as a result of that M&A transaction, relative to the revenues and the returns that we're generating on that on a year-to-date basis. Now let me drill down a little bit on this. And one of the neat things about being the CFO of Pfizer, I always say one of the privileges of having my role is we generate enough capital, we have a strong balance sheet, a very strong credit rating, it enables us to do all of those. We've never had to choose. We've always been able to do all of them, pay a healthy dividend, invest in the business, do M&A and when we've chosen to, to buy back shares as well. Now on M&A specific, which is your question, Matt, but I did want to frame it a little bit. Now we never say never to any size deal, right? It's never good to kind of exclude anything. But our focus right now is not large deals. Hopefully, you've seen by our actions, our focus is really on, I'll call it, these Phase IIb, Phase III, late-stage deals that have the potential to generate revenues, I'll call it, in the '26 to '30 time frame when we have some LOEs kicking in over that same time frame. If you look at some of the recent deals we've done, the recent acquisition of Trillium, the blood cancer opportunity. If you look at the partnership that we did with or Arvinas, which was a breast cancer opportunity. The Myovant collaboration. If you look at all of those, in my mind, all of those are very focused on kind of that post '25, that '26 to '30 time frame, where hopefully these have the ability to impact revenue and, obviously, earnings and cash flow in a positive way. And then if you look at our -- if you look at our pipeline, I've been in this industry now for a while, from my perspective, our pipeline is the strongest it's been since I've been here. So when I look at what we're doing on the M&A front, when I look at what we're doing on the pipeline front, I think we're in a very good position on a going-forward basis.

Great. Great. Good. And then I guess second question, we can just touch on this briefly. But there's, I guess, potentially stuff happening in D.C. on drug pricing. We don't really have a lot of clarity, but maybe you could just give people a little bit of your thoughts on the process and what's happening.

Yes. So I'd say, I don't want to try to predict what's going to happen in Washington, D.C. I think trying to do that is just not a prudent thing to do. But whenever I think about drug prices, let me kind of tell you how I think about it, how I believe Pfizer thinks about it, which is always all about patients and patients. And so to me, we are very supportive of initiatives, of actions that will, one, improve patient access; two, reduce patient out-of-pocket expense. As a company, as an individual, we are very supportive of that. And so you've heard us say before, we believe that there are several actions that can be taken, all of which can achieve those 2 objectives. One is clearly rebate reform and getting the rebates to the patients that are buying the medicines, that are utilizing the medicines. Two is capping senior out-of-pocket expenses. Three is value-based outcomes. And then four is creating a more competitive marketplace for biosimilars. By the way, this past quarter on biosimilars, we did $550 million in revenue, 88% operational revenue growth. And I think there's still significant opportunity there as that marketplace opens up more competitively. So on drug pricing, I don't want to make predictions because I just don't think that's a prudent thing to do. Obviously, I'm reading all of the material and all the potential proposals, Matt, that you and I'm sure everyone in the audience is reading. Clearly, that's something that stays with the industry. And I think clarity is always a good thing, although I want it to be positive clarity, not negative clarity. But at a macro level, our focus on this is improve patient access and reduce patient out-of-pocket expense. And we believe there are very effective ways that, that can be achieved.

Okay. Great. Good. Why don't we turn to some of the products and the business. So I guess first question is just on JAKs broadly, right? You've gotten some at least clarity on what the FDA wants to do with Xeljanz but we haven't seen the final label. So maybe give us some sense of how you think that's going to play out and the potential impact that could have to Xeljanz. And then, I guess, more broadly, your other investments in JAKs, especially in atopic dermatitis.

All right. So why don't I talk about Xeljanz first. I'll do my best to answer that question. And then from Xeljanz, I'll go to abrocitinib on atopic derm, which is what I think you asked me to do, all right? So let me try to hit on both of those. So first on Xeljanz. We continue to believe that there is a nice market opportunity for our Xeljanz portfolio. Let me see if I can explain why, if I can level set on this. If you look across our 4 improved indications for Xeljanz, more than 80% of the Xeljanz usage was post-TNF inhibitors. And the post methotrexate usage was declining. All of that happening prior to any of the recent FDA guidance on a class label update. So we want to make sure all of that was happening before any of this recent guidance from the FDA. And obviously, I don't want to comment on what the FDA is going to do and not do. But I think once we get a final approved label, which will provide clarity, which will remove uncertainty and then obviously, physicians will adjust, I'll call it, prescribing patterns based on that final label, we think that provides an opportunity for us to begin to grow again come 2022. And why is that? I told you about the trend already in the prescriptions. And the way I think about this is Xeljanz is a workhorse. It's been around for many, many years. It's got multiple approved indications. Doctors know how it works. They're very familiar with the medicine. They know the benefits it provides to patients. So we think clarity will be a catalyst for us to potentially return to growth come 2022. Now let me pivot to other investments and the one you were really asking about was abrocitinib. So let me talk about that a little bit. So first, obviously, we're very pleased with the recent approval in the U.K., right? They approved what was it, 100-milligram and the 200-milligram dose for individuals 12 years of age and above. So obviously, we were pleased with that outcome. And yes, we're looking forward to decisions from the FDA and the EMA. Now the way we think about abro is abro is a disease with a very, very large worldwide population. We believe there's millions of people today, millions more growing over the next decade, most of whom -- many of whom are not treated. And we look at it as a -- I think the term we use is a heterogeneous disease, so that there's no single medicine that's going to be a solution for all patients, which clearly shows that there's a critical need for, I'll call, new additional systemic treatments, which abro, by the way, brings to the table. So once again, we think there's a significant market opportunity here. It's a large area of unmet medical need. And solutions for patients, new solutions for patients critical in this space, we think abro has the potential to do that. And then maybe 2 other comments, if I may, on abro. If I talk about the 100-milligram dose for a second. We believe that as a competitive -- delivers competitive efficacy, has a favorable risk benefit profile. And I should just also mention, if I go back to our November Investor Day, we had that bridge that kind of showed our 6% revenue CAGR, where we ended up in 2020, then another $8 million coming from the in-line pipeline. We showed a potential $15 million in the -- $15 million from the -- $8 million from the in-line portfolio, potentially $15 million from the pipeline. We only needed 40% of that to deliver on our 6%. So 40% of $15 million, 6 -- $14 billion -- $15 billion, $6 billion, we had abro in there of $3 billion, and that included the 100- and the 200-milligram dose. So to make sure I call that out proactively. But once again, regardless of the outcome of abro, we're still confident in our ability to deliver on that 6% revenue CAGR. So that's how we think about abro. And I think very large opportunity. We're delighted with the U.K. approval that we got. Waiting to see what we get from the FDA and from the EMA, and more to come.

Great. Great. Two sort of direct follow-ups just on that, which I get asked a lot, which is on the -- or what the FDA has proposed where, in RA, only patients who are post TNF inhibitors. Is that clear if that's a blanket inhibition across all patients or if there are certain patients maybe that were studied in ORAL Surveillance that had high-risk criteria? And then the second question is do you have any view on how the AD label might play out if they're going to look at post the biologic or they might try and do something similar like they've talked about in RA?

Yes. So on the second one -- on the second question, I don't want to make predictions on what they're going to do and not to do with the label. I just -- I don't think that's a prudent thing to do. On the first question, if I understand it correctly, one way to look at it is, it looks like the FDA's approach is going to be more restrictive to what the EMA's approach was relative to the label. I think the EMA's approach on the label in terms of our ORAL Surveillance study, which is what I think you alluded to, would be less restrictive than what could potentially come out of the FDA. But once again, I think time will tell. We're waiting to see what comes out of that. And once again, I think the most important thing on this is clarity. Really what we want is we want to final approved label, we want clarity, we want to remove the uncertainty and I come back to, we're bullish on Xeljanz. It's been a workhorse. I think it can continue to be a workhorse once this cloud of uncertainty is removed from the class and then obviously from our medicine within that class.

Perfect. Perfect. Thank you. So maybe we can move on to the second key topic that people ask about, no surprise to you, COVID. And I guess maybe we can take a couple of small questions here. So the first question I get a lot is pediatric vaccinations. What's the time line there? What should people be watching?

So on the pediatric, clearly, we want to expand the availability of the vaccine, and that would include children that are 11 years of age and younger, because today, the vaccine is only approved for those that are 12 years of age and above. We're conducting Phase III studies for children between the ages of 6 months and 11 years old. Now we expect to have safety and immunogenicity data for children between ages of 5 and 11, we expect to have that data by the end of September, and then we would expect to file that with the FDA in early October for a potential EUA. So that's kind of, I think, the time lines that you and everyone on the call should think about. And that was only for the 5 to the 11-year-olds. So now let me go further. We would expect to have similar data for children between the ages of 6 months and 5 years old that we would file with the FDA, I'll call it, in the weeks shortly thereafter the filing of the data for the 5 to the 11 year-olds. And then obviously, all of that depends on having a positive outcome on the data, right? I'm assuming that in terms of all the dates I'm giving you. But I think 5 to 11, we have data end of September. We expect to file -- we expect to have data in September. We expect to file early October. The 6 months to the 5-year old, we would hope to file similar data, I'll call it, in a month shortly thereafter that original filing. Once again, assuming all of the data is positive.

Okay. Okay. Perfect. And then the second question is outlook for boosters, third dose, whatever we want to call it. There's -- you obviously have an advisory committee on that at the end of this week. There was a publication in The Lancet yesterday, which involves some FDA officials as well as other officials. So what's the company's outlook on third dose?

Yes. And if I may, Matt, can I -- let me -- can I run some numbers first in terms of just the vaccine '21, '22, and then I promise I'll pivot to the booster question. Because one of the other questions I get asked a lot about the vaccine is what about beyond '21. So if I may, let me run some numbers and then I'll pivot and I'll answer the booster question specifically. So first, let me run the numbers. So a little bit on '21, then I'll pivot beyond '21. So for 2021, on our last call, as of mid-July, we had agreements with 2.1 billion doses. And if you kind of did some subledger detail on that 2.1 billion doses, 300 million was with the U.S., 600 million was with the EU, 144 million was with Japan, 80 million was with the U.K. and 40 million was with Canada. And that did not include another 200 million dose agreement we signed with the U.S. after the middle of July. So think about that as basically '21. Now let's pivot to beyond 2021, which is what I get asked about. So we have a 1.8 billion dose agreement with the EU, split evenly between '22 and '23, 900 million doses firm, 900 million doses they have an option. We also have an agreement with Israel in 2022. We have an agreement with Canada to deliver doses in '22 and '23, with an option for '24. By the way, I'm not mentioning the doses because they weren't in the releases. And then on the U.K., we have an agreement to deliver 35 million doses in 2022. We've also committed to deliver 1 billion doses to low- and middle-income countries in '21 and another 1 billion doses -- 1 billion in '21, another 1 billion in 2022 to low- and middle-income countries. And by the way, one of the ways that we enable this is through our pricing approach, because we clearly want to make sure that the vaccine is available to patients everywhere. So what we've done with the pricing structure on the vaccine is we have a 3-tiered structure: high income countries, middle income countries, low-income countries. And for example, high income country would be the U.S. and then the one price we published was $19.50 for a single dose. And then obviously, you get that tiered for the middle and low-income countries. The low-income country price is at a not-for-profit price just in terms of running all the numbers. Now let me pivot to the booster, Matt, which is specifically what you asked me about. So a couple of maybe general statements and then I'll dig in on the booster. So first, we, Pfizer, by architect, we're confident that the current 2-dose regimen provides strong protection against the virus and has a favorable safety profile. And to date, no variant, including Delta, has escaped the protection that's provided by our vaccine. Now what we have seen in Phase III studies is that the protection -- the efficacy provided by the vaccine, it wanes over time. So if you look at some of the numbers, after the second dose -- 2 months after the second dose, you get about 95% efficacy. But when you get to 4 to 6 months after the second dose, the efficacy is, call it, low to mid-80s. So still really, really strong, but not 95%. So what we've done is we completed a rolling submission for a supplemental biologics license application to the FDA. We did that in early August. Obviously, we're waiting to hear about that. We plan on filing that same information with EMA and other regulatory authorities in the coming weeks. And quite frankly, we believe that a third dose can clearly provide benefit to patients for maintaining a very high level of protection. And I obviously read the article that you've alluded to, it was in The Lancet yesterday. I read that. But we believe that there's clearly benefit -- potential benefit to patients and -- relative to maintaining high levels of protection with a third dose. But that's the way to think about it. And like I said, we completed this rolling submission, submitted it to the FDA in August. And obviously, now we're waiting to see where we go.

Okay. Okay. Perfect. You also have an oral in development for COVID. Maybe you could -- and I think you've talked about data before the end of the year. Maybe just talk about prospects for that oral and how you think about the bar for that data.

So we're developing a potential oral anti-therapy -- antiviral therapy as we believe treatment options will be critical in our continued work to attempt to quell the pandemic. So clearly, we think an oral is a critical piece of the solution to the pandemic. If successful, our protease inhibitor has the potential to provide patients infected with the COVID-19 with a new oral therapy. It could be prescribed for a 5-day treatment course at the first sign of infection before patients are hospitalized for critical care. So we see this clearly as something that could be very proactive, very -- sorry, prophylactic maybe is a better word for the therapy. For individuals who are in close contact with someone who contracts COVID-19, we will study both [ 5-day ] post-exposure prevention courses. We've started a Phase II/III development program. First of these studies will enroll up to 3,000 participants. On September 1, we announced that the first participant had been dosed in a pivotal Phase II/III clinical trial to evaluate the safety and efficacy of our oral protease inhibitor in nonhospitalized adults who are at low risk of severe illness. And if successful, we believe this has the potential EUA authorization submission in the fourth quarter -- potential for submission in the fourth quarter. So that's the timing of it. That's the way we think about it. But we think this could be another really nice tool in the arsenal relative to our fight against this virus and this pandemic.

Perfect. Maybe we could talk more broadly about mRNA. Obviously, you have a partnership with BioNTech. Talk about how that partnership evolves post the COVID vaccine? And you've obviously talked about flu as an area of investment. So just give us an outlook broadly on mRNA and the partnership with BioNTech?

Sure. So obviously, we have the existing agreement with BioNTech. We intend to continue our collaboration with BioNTech on COVID-19 -- on the COVID-19 vaccine. And then let me talk a little bit about flu, we have another agreement with BioNTech. So the current vaccines for flu provide 40% to 60% protection. And it can be lower than that in vaccine years where there's a poor matching of the strains, right, because it's all about the matching of the strains when it comes to flu. And we've been working on a flu vaccine with BioNTech since, I believe, 2018. So we think if we can provide a vaccine that provides much more protection, and when we can do more timely manufacturing of the known strains, that combination of that better manufacturing, or I call it that -- what is it, kind of more close to the strain knowledge manufacturing combined with greater protection, we think that could provide much greater protection to patients relative to the flu. So we think there's a significant opportunity here for patients and obviously for ourselves. We are planning. We expect to begin a phase -- to begin a first-in-human trial of a modified RNA quadrivalent flu vaccine, I believe, by the end of September, by the end of this month. So clearly, we see this as an opportunity. We think it could be a breakthrough for patients. Obviously, things that are good for patients are good for our company and for our shareholders. So that's kind of how we think about the flu vaccine. And maybe a little bit of mRNA in general, because you asked a little about mRNA. I think one thing that's clear is the swift delivery and approval of the COVID vaccine, the COVID-19 vaccine, validated the scientific opportunity for mRNA technology. I think that at this point, that's fairly indisputable. And so now we're focusing on a few areas now in this space, right? One, we want to continue to strengthen our COVID-19 vaccine franchise, all right? One is we're going to keep doubling down there, continue to strengthen that franchise. Two, we want to grow an infectious disease vaccine pipeline in this space. And then three is we'll explore other therapeutic areas like rare disease and oncology to see if there's some opportunities there. And we think there could be opportunities there relative to leveraging our mRNA technology expertise. So hopefully, that answers your question.

It does. It does. Perfect. And Frank, maybe just, I guess, last question here in the last couple of minutes. We're expecting data from your oral GLP-1 sometime in the near term. Obviously, diabetes is a crowded market, but many of the drugs are injectable. So just talk about the prospects for that? And how you think about investing in an oral program?

So on the oral, to your point, right, obesity is a very prevalent worldwide disease. And if you looked at our Phase I results, they were promising. And obviously, we're now expecting to see some Phase II results. I think based on the Phase I results, and obviously those Phase I results were promising, we think our oral GLP could have a meaningful impact on blood sugar and weight loss, could have a competitive safety and tolerability profile, and could actually allow patients to not have food restrictions. But still, it's early in the game, but we think those characteristics I just alluded to would allow us to very effectively compete assuming, obviously, that the results of our trials as we go forward, and we'll see what the Phase II trial provides to us. We'll see what happens. But that's how we think about it. It really has the potential, at least based on some of the promise we saw in the Phase I trials, to meaningfully provide a breakthrough to patients.

Okay. Well, great. Frank, Chris, thanks for being here. Thanks for the comments. We very much appreciate it.

Matt, thank you for your time. Thank you for giving us the opportunity. Thank you to everybody in the audience. Everybody stay well. Bye-bye.

Thank you, Matt.