Pfizer Inc. (PFE) Earnings Call Transcript & Summary

Good morning, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be hosting this fireside chat with Albert Bourla, Chairman and CEO of Pfizer. Albert, happy new year. Thanks for joining us.

Happy new year, and happy new year to everyone.

I know you're going to make some opening comments, and then we'll jump into the questions.

Yes, if I may. So a year ago in the same stage, you and me, we're sitting here, and I expressed my dissatisfaction and my disappointment for Pfizer's performance in 2023. And then also, I articulated the plan that we have built with 5 priorities that I projected on the screen, but we are going to execute so that we can turn around the situation. A year later in the same stage, I'm very pleased that all the goals that we had said in all 5 priorities were achieved and exceeding, in most of the case. I remind you the 5 priorities that was about oncology and particularly, Seagen, that was a major for us, acquisition. It was about turning around our commercial lending. It was -- and maximizing the new products. It was about reducing the cost, and we announced that we're going to take $4 billion out of our cost. It was about boosting our pipeline. And of course, it was about capital allocation that will be shareholder flat. We achieved all of that. And at the same time, I think we did significant transformative changes in Pfizer. We, of course, integrated Seagen but doubled the size of our R&D capabilities in oncology, make us the #3 oncology company in terms of sales in the U.S., behind the ones with the PD-1s. And we are very satisfied with the way that this evolved. In commercial, we changed our commercial model, we changed leadership, and we were able to significantly exceed expectations and market shares gains. On the cost base, we're able to take all $4 billion. And at the same time, we announced an additional EUR 1.5 billion of margin improvements. In the R&D, we changed the leadership of R&D after 15 years of successful Mikael Dolsten's service. And also we restructured our R&D organization, and I can talk about it a little bit later. We returned significant amounts to shareholders. We returned in the first 9 months, $7-plus billion in dividend. EUR 4.5 billion, we paid down our debt. And of course, we invested in R&D. And then we changed also 2 members of the Board, we refreshed our Board with 2 members that they are very shareholder value creation. So all in all, I have to say that as I was dissatisfied with '23 performance, I'm quite satisfied with the performance of 2024. But moving ahead, I want to honor the tradition and introduce what are the priorities of Pfizer for the new year, for year '25. And they are pretty much the same, but you will see some important announces. If 2024 was a year where commercial execution was the forefront and the most important thing for the company, clearly for us, in 2025, R&D and the advance of our pipeline is taking #1 priority. So it is number one, -- we need to improve our R&D productivity and efficiency. We will continue expanding margins. It is a significant part of our thesis. We will do that by using simplification in our business processes and a lot of technology. We have implemented already in 2024, a lot of AI applications that significantly reduce the G&A, cost base and also improve the manufacturing yields. The third one, of course, it is to achieve commercial extents in our key categories. And we all know where it's our strength, oncology, vaccines, cardiovascular, migraine and, of course, immuno-inflammation. And then we will continue optimizing the capital allocation. Things will not change. We will continue our dividend, growing dividend. We will pay down even more of the debt. We want to improve to [ 3.25% ]. And we will, of course, invest in our business. So all in all, I think as a year of execution, '25 will remain a year of execution and creation through that of shareholder value with an emphasis of R&D, margins expansion, continue the commercial successes and continue capital allocation strategy that will be shareholder-friendly. And with that, I'm at your disposal.

Yes, a lot to dig into. So maybe I'll start with some bigger picture kind of new administration questions. I know that's top of mind for a lot of people as we head into this year. So maybe just would love to hear your thoughts. New administration coming on board, what are you most focused on in terms of potential changes in the health care environment and what that could mean for Pfizer?

Yes. I think the new administration will bring radical change. There is no doubt about it. So when you have radical change, there are all risks coming with risks and opportunities. There are several people that think for our industry, the risks outweigh the opportunities. There are other people among them, myself, who they think that the opportunities are where there is. I guess we will see. But the important thing is not to speculate if things will go well right. The important thing is what are you doing to influence the environment? What are you doing to make sure that the opportunities are the ones that will come up? And what we do as an industry and as Pfizer, it is engaged with the new administration. We have very productive engagements and to try to explain the positions, I think they are well understood so that we can implement policies that is very clear. Pro patient, patient's out-of-pocket is extremely expensive in the U.S. We need change on that. Pro innovation policies, China is growing faster and faster, and we should not let them take the lead. So we need to invest in innovation, in bio-innovation. And those are the 2 fundamental things, innovation and patient access of our medicines.

To your focus. On the topic of vaccines, I know it's been particularly controversial. How do you think about any early reads from the administration and what could change for vaccines, or if anything, will change on the vaccine front?

Look, I don't know. I've spoken a lot about it. It was written with the President, but also with President-elect, but also with Mr. Kennedy. Clearly, the things that he has said for the vaccines in the past are in complete contradiction with what we believe and what the medical community believes, and what the scientific community believes and what regulators are over the world believe. And vaccines are the most effective, cost-effective health care intervention that [ existing ] have since clean water. So again, my philosophy is that we should try to engage not only on the things that we disagree, but try to find the opportunities on things that we can agree. On the vaccines, if he does some of the things that we had spoken in the past, I think he will find in front of him, not us, but the entire medical community, the entire scientific community, the entire health care -- in terms of insurance.

Yes.

Let's say, companies community because they know that this is very cost effective. And also the employers we are really believing that by using vaccination, they are reducing their health care costs rather than increasing it. And even worse, it does some of the things because already, we have some -- we are losing some vaccinations in [ vox ] and other type of polio, in terms of how many people are vaccinating. If we go below a specific threshold, we will start having an epidemic, and that will be detrimental for him and for the administration. So I think we made that very clear. But things that we can work together are things like cancer. He is very much -- the President-elect is very much focused on the cancer. He has seen a lot of his friends and people that he knew dying from cancer, and he keeps asking every time I may -- what are we doing with cancer, and can we cure it. And I think that's an opportunity to try to build programs but will accelerate the development.

Excellent. Pivoting to maybe the 2025 outlook for Pfizer, we're fresh off your guidance call. Can you just talk a little bit about the company's approach to setting expectations for this year? And maybe as part of that, just the visibility you have into the business as maybe the COVID piece of the franchise has become a bit less volatile than we've seen in the last 4 or 5 years?

I think that's the biggest change between '24 and '25. The COVID in '24, when we gave guidance, we were coming out of a major -- let's say, miscalculation of what the COVID revenues would be. There was a lot of uncertainty because we are coming commercial with PAXLOVID, which is half of our COVID business more or less. And going commercial was a very big step. And we had also renegotiated the contracts with Europe. So there was a lot of uncertainty. So we were more -- let's say, cautious with the way that we gave guidance, particularly in the COVID business. Eventually, in 3 quarters, we exceeded COVID and non-COVID business, and we beat in all 3 fronts. This year is more of a normal guidance. We feel quite confident for the numbers that we are putting out there. We reconfirm our guidance on '24 just in December. And within the '24 guidance, we reconfirm also our COVID revenues of approximately $5 million and $5.5 million, PAXLOVID and COMIRNATY. And we feel very comfortable that we will achieve the goals in '24. And we feel very comfortable about the projections that we gave in '25. That includes COVID, we didn't separate it. But we said that COVID be stable in terms of utilization.

Yes, just maybe more broadly, just talk about the key pushes and pulls for this year. What should we be most focused on in terms of those opportunities and anything balanced against that?

There are a lot as always. I think let's start with the COVID stability. We expect that vaccination rates will remain as they are in '24, which were very low, right? So everything that we were able to achieve in '24, we expect to reachieve in '25, I don't think that there is downside in a all. When it comes to PAXLOVID, it's highly, highly correlated with the waves of COVID, and we made one of the most accurate measures of that. It is the wastewater viral -- let's say, concentration, which CDC has a very wonderful side, but you can see how it evolves, is identical in the last 3 years. It's 2 waves every year. And our sales of PAXLOVID is identical, two waves of sales in PAXLOVID every year. So COVID, we expect stability. Key IRA is another important variant there. We did say that we expect a EUR 1 billion negative impact because of the IRA. In reality, it is more or less EUR 1.5 billion reduction of our sales because of higher rebates that we are asked to pay. And there is $500 million higher sales because of volume. So the net is EUR 1 billion. So that is already calculated. The new product -- the acquisition products will continue growing. Seagen, we expect to have strong performance will continue growing. NURTEC, we expect to continue growing. We expect challenges in -- to continue with IBRANCE, so we calculated that over there. On PCV, on PREVNAR, our assumptions were that we'll see a modest decline when we gave the guidance. This is constant in the pediatric, but let's say, decline because of competition in the adults. So those are more or less the puts and takes on the revenues. On the cost, continuous improvement. We gave a $500 million reduction of the SI&A so I think that we will achieve that with, as I said, without waves of restructuring is technology that enables us to do that and efficiencies, and the margin expansion.

Can I just looking past 25, just how are you thinking about the overall growth profile for Pfizer shaping up both top line and from a margin perspective?

Yes. I have been burned by giving long-term projections in the past, and I keep some distance from doing that.

Sure, sure.

We gave guidance for '25 and we will give guidance for '26. But I can repeat some conceptual, how to think about '25 to '30. There is clearly a LOE wave that is coming, that will cost us $17 billion, $18 billion and it's coming in gradually '26, '27, '28. So those will reduce revenues by $17 billion, $18 billion. Our products that we acquired, we expect that will deliver $20 billion of revenues by 2030. And we feel comfortable that this will happen. So more or less, I can say the product that we acquire will offset and provide a little bit of head in growth, the alloy products. And then we have the products that we launched so far and the pipeline that is coming. And that, I think, it is where most of the -- also difference and the gap comes between our expectations and The Street expectations on some of these new product launches. which admittable in; 23 were not very impressive, but in '24, they progressed dramatically up. And so that's the puts and takes.

And on the margin front, I know you've articulated an opportunity for the gross margins to improve over time. What needs to be done to get that margin improvement? Is that just -- do you have a lot of line of sight on that?

I have a lot of line of sight. It's a very specific program that we implement and we have time lines and costs. And we do feel that we will come to pre-COVID margins over time. For this year, we said that it will be mid-70s, right? And coming to pre-COVID, it means to go closer to 80, as high as 70%, close to 80s. Why the margin deteriorated were for several reasons. One was the vaccine had low margin because we were sharing half of that with BioNTech. Also, the vaccine and PAXLOVID created a tremendous manufacturing infrastructure that was built to support billion doses of the world, right? That reduced, of course, increased the cost of manufacturing. Then we had a lot of new products that are growing proportionally. And the new products are having always lower margin because you do all the investment, but the investment is absorbed with smaller volumes until the volumes pick up. And then fourth, we had a lot of acquisitions. Seagen is a good example that most of their manufacturing was outsourced. So they were coming with modest lower margins than what we have in Pfizer. All of that, we are tackling. We have taken down most of the COVID infrastructure, and we continue doing that so we can scale it up if we want. But right now, we have it down. So that creates a lot of momentum. We are in-sourcing a lot of the products, and we have a program to do that as they are coming in. And we hope that as the volumes increase with the new products, also will go up. But the most important things will come from a $1.5 billion efficiencies program that we announced between '25 and '27. And we have a very clear line of sight, which is basically a reduction of overhead costs and with implementation of AI already, the implementations that we did in '24 resulted significant yield improvement. And so it's very clear. Last but not least, the biggest part is when you reconfigure your manufacturing network. We have almost 40 manufacturing sites. Some of them, they operate in very high capacity, some of them not. We could -- we have a plan to consolidate that and then bring the margin. So it's very clear to me, we have a path to go there, and to see constant improvement.

Maybe pivoting to the pipeline that seems like the critical piece of the story over the next few years. What are you most excited about and most focused on at this point as we think about over the next 12 or 24 months in terms of the pipeline reporting out?

It's -- this year, we expect to start 13 Phase III studies. And we expect also critical readouts for 8 of them that will happen this year more or less, right? But because we may get lost in big numbers, let me be more specific. I'll tell you what things excite me the most. Oncology, I will speak about CDK4. It's something that really excites. We have 2 ADCs from Seagen but they have very high -- we have plenty ADCs from Seagen, but 2 -- but I will separate, it is the SV, which is basically the IB6, vedotin ADC and the PD-L1 ADC, and we can speak later if you have an interest in all of these products. And the last in Oncology, we mean ELREXFIO. ELREXFIO is probably where we have the highest gap between what -- The Street is projecting and what we believe that we will do. We based our beliefs on data -- when we can discuss a little later. But those are the 4 products, I think, that are very important in oncology. Going to vaccines, I will emphasize 2. The next generation Prevnar, we are starting a 25 Valent this year. And we hope to start probably next year pivotal on -- we are developing a 30-plus. So that's a very important piece. And the C. diff, clostridium difficile, we think we have a very good path to success for a vaccine. For a disease that is devastated, there are no vaccines out there, and they are causing 6,000 hospitalizations and 50,000-60,000 deaths according to CDC every year. So it's an important health care issue without prevention. So those 2, I would mention. In, let's say, metabolic or internal medicine, I would mention the new PAXLOVID. I think that's a very important product because of -- we will expand the utilization of antiviral for COVID in eligible population because it doesn't have the DDIs, which is the problem that PAXLOVID is perceived by some physicians. Of course, DANUBE, we will see how that will go -- and to the other end of the spectrum, ponsegromab, which is our cachexia. And in I&Is, the assets that I will emphasize are more younger, earlier in the pipeline, but there are 2 tri-specifics. So those are things pretty broad across the board, but those that I mentioned, I mentioned it because they are mega-blockbusters according to us. So it's not $1 billion. It is -- it's a big $3 billion-plus products.

And it seems like your comments today and some of your recent comments have pointed to maybe more prioritization towards these kind of mega products within the pipeline. I guess what does that process look like as we think about a new Head of R&D coming on board? Should we think about the pipeline maybe being a little more focused going forward or prioritized more than we've seen over the past few years? Just talk a bit about what we should expect with Chris stepping into the new role.

Absolutely. You should expect that exactly. When I try to understand Pfizer's productivity, when I see the productivity of Pfizer in terms of volume, how many products, and technically challenging products, not easy product, we were able to get through the finish line. Actually, we are top quartile. We had 13 approvals in 13 approvals, and we have equal number, I think, bigger in 2023. So we have tremendous volume of things. And also, when I see productivity in terms of success rates, time that it takes to complete the study, all of that, we are taking. However, when I see the dollars that are coming out from new launches that came out from our pipeline, I see that we could have done way better. So why this is happening, and what are the good news here? It is that we are not having any capabilities in Pfizer. Our machine in development is really stellar. Our early is stellar, our farm science, the medicinal science, the chemist probably the best in the world, particularly in the small molecules. So in terms of capabilities, we are there, oncology, vaccines, superpowers, right? But we put all these capabilities to work to products that they didn't deliver. Gene therapy is a good example. We announced that we exited them, right? Cost us a lot of money, took a lot of attention from management, from R&D. They were technically very challenging to develop, but they are selling nothing. So that was the challenge. So for us, I think we went to multiple things without really being very focused on where we should turn, let me put it, the guns, right, so that we can -- of these capabilities. And this is something that the only division that did extremely well on that was oncology, all right? And when Chris Boshoff is taking over my expectation from him, it is one under his leadership to continue that with oncology but also repeated with all 3 other therapeutic areas that we could do a lot better. So as I said, the good news is if it was a question of capabilities, that will take years to reshuffle. But when it is a question of prioritization and selecting the right assets, this is way easier to achieve. And it's not only Chris, that is helping on that but also we have Andrew Baum, that came with that mandate, to help us prioritize our pipeline and select really the assets that will deliver value for patients and shareholders. We won't get it correct all the time, like nobody will. But I think we have room for significant improvement there.

When I just think about the absolute R&D spend, are you happy with the amount of dollars spent now? I'm trying a sense of like, does that -- as you are focusing on some assets deprioritizing others, is that cost savings we should think about? Or is this more freeing up resources to put into those [indiscernible] ?

It's more the second. I think the overall size of our R&D, which is around $11 billion or whatever, it is on the 18% of our revenues, which is on the low end of the industry. So if anything, I would like to see that going up, but I don't think I have the conviction right now that we will take that up but we will maintain that $11 billion. However, we have identified significant opportunities with Chris to take a lot of efficiencies in R&D and to reduce cost in several areas of our R&D. But we will reinvest all of that back in R&D, right? In -- for example, in manufacturing, every efficiencies that we are gaining, they fall to the bottom line, 100%. In SI&A, big part of the efficiencies that we are accomplishing are going down to the bottom line. And part of that is reinvested to an A&P. So we are invested 2 of the synergies that we are generating and the savings into promoting the business. For R&D, 100% will go back to R&D.

Okay. Excellent. Maybe pivoting to some of the individual pipeline assets. Starting with Dan. I know it's still a big area of focus for folks. Just as we think about the upcoming PK studies that you'll be looking at data, what are you looking for in those studies to inform a Phase III decision? And maybe just characterize the overall level of excitement around DANUBE at this point.

I'm very cautious with DANUBE because I have been burned and I don't want to create neither false expectations or positive or negative. It is exactly as we have said it. In DANUBE, we are working now on once-a-day formulation. This is about pharmacokinetics. We think we found the right ones after we did a lot of experiments and now, we are in dose optimization of those formulations. So we'll have the data in a few months. And then we will see if really we can basically replicate the results that we had in Phase IIB study because DANUBE has been tested in more than 1,600 people. So it's not -- let's say, something that it is a few hundred people. It's a lot of people. Then we will feel comfortable that we can go with once a day. And this is when? Probably, as I said, we succeed that, we will start the Phase III in the second part of the year. With DANUBE, we expect that we'll have a competitive profile and probably will be second, if we stick to our time lines and if the others, they don't accelerate or they don't delay, I expect that Lilly will come with an oral before us, if they are successful. Then I think we'll be us that will come with an oral, if we are successful. And then there are other 2 that will come 2 years intervals, more or less, one from the other. So big opportunity. It's not going to be like Mounjaro, DANUBE, but it's going to be second oral in a market that has a lot of potential for growth.

If you do move to Phase III, just talk a little bit about the breadth of the Phase III you would envision. Is this something that you would need to run kind of a full spectrum of studies with outcomes, et cetera? Or is there a way to kind of maybe just look at weight loss, or HbA1c, in a way that maybe is a little bit [indiscernible] ?

We are analyzing all scenarios. Now is with the full blown with outcomes. We have a scenario that it is focused on weight loss, and we are seeing what creates higher value. And also, of course, we see that in connection with other products in our pipeline or things that we are thinking from the outside. So it is something that we will see. We are still working on it, and we will make decisions when time is appropriate.