Pfizer Inc. (PFE) Earnings Call Transcript & Summary

[Audio Gap] who's the company's CEO and Chairman. I'm very happy to be here with you, Albert. And maybe I'll turn it over to you just make some opening remarks before we launch into Q&A. But again, thanks for taking time out of your day.

Thank you for the invitation. Good morning, everyone. I mean very few comments in the beginning. I think that Pfizer is in a good place right now. We had 3 serious headwinds in 2025, but I think we resolved all of them in a quite satisfactory way. The first one was affecting the entire industry. We led industry in creating agreements that I think put that behind us, and it was a very good compromise and settlement. I told my peers, the other CEOs that they don't have to send me part of their check bonus. It's fine if they send me thank your notes. Then the other 2 were specific to Pfizer. That's how lens. One was the COVID uncertainty and the fact that the COVID was going down and what does this mean if disease subsides for we, I think, put also that to rest. This is the year of the smallest COVID season, we could even imagine and there is nothing happening in our peers because actually, what is happening is that we are beating expectations because everything else is performing very well. So I think already, I can see that COVID is not a concern of investors anymore. Nobody is asking me about it, and they all see it more like an upside versus the guidance that we are giving. And the third was, of course, the alloy period that starts and it is ahead of us. And that's something that, together with COVID, that was taking the attention of our pipeline completely off. So everybody was focusing what is your growth and what happens in the LOEs. For that, I think we were preparing for a long time. We did a significant amount of business development acquisitions and we launched a significant amount of new products. During that period, all of them are doing extremely well. In addition to that, we're very successful in reducing our cost base. And I think a testament to the ability of Pfizer to execute it is that we did that without affecting the top line. We were able to take $7.2 billion within 3 years out of our cost base. And in the last earnings, so '24, '25 and the 2 earnings of '26. We beat expectations for revenue 9 out of 10. And for EPS, 10 out of 10 and all of that while we were reducing our cost base. And we announced now another cost initiative, but also will help us in the next couple of years to offset the alloys. But the fundamental for setting the alloys, it is that the new products and the business development products, they are running at around $13 billion annualized rate if you make the math, and they are growing at the 20%. So I think that's something that is very important. And I will finish my comments with now because all of VAP is very clear, I think, to investors, if you see our earnings calls, also my meetings with investors, most of the attention now it is nothing of it, not in MS, not in alloys, pipeline. And the pipeline is doing extremely well. During all these years, we refocused our R&D and we had significant readouts. We are having significant catalysts ahead of us in 2027. But I think could help investors realize the depth and breadth of this pipeline because clearly, there is a disconnect between what The Street is projecting for our longer-term growth and what we are certain that we will achieve vis-a-vis our long-term growth.

Great. Perfect. We'll get to a lot of the pipeline questions soon. But the first one I wanted to ask you, I'm not going to ask you on MFN or who sent you thank you notes of all the other companies. But what I do want to ask is just you guys are obviously very plugged into Washington, D.C. And so a question we get a lot ahead of the midterms. Is there any other policy area that you're focused on or that you're watching ahead of the midterms or given that the MFN agreements have been signed, that's kind of all behind us now at a sector level.

I think in summary, I don't expect much to happen until the midterm, of course, they are in a couple of weeks, but also for the midterms because probably they will be -- we will see how that goes, if there is a split government or not. And so you should expect in cases like that, only things that they have bipartisan support to move in the legislation way. So one, of course, it is the PBM reform, that there is bipartisan reform. There are already 3 significant steps that have been taken on with a regulatory act and to with 2 actually with regulatory act into 1 with legislation. I think that will continue. In 340B, it remains a major issue. I think there is by parties an appreciation of the issue, but I'm less optimistic that we will find a way to resolve it because it involves hospitals that creates a lot of political sensitivities around that. On the vaccines front, I think it's pretty much now -- it's a little bit behind us and vaccines policy. I think we went through a period of FDA and CDC having a leadership that did not align with the medical community, the medical guidelines out there. But now I think that's fixed. I think now both in CDC and in FDA, we have normal people, but they are scientists, and they are focusing now in doing their job, and I'm very pleased about that. So pretty much that's it in the policy front. There are some things here and there, but also in the U.S. are affecting international pricing, for example, that has moved the goal post to the U.S. trade representative ambassador Greer, who is an excellent ambassador and he is very knowledgeable about the issues of our industry, and he's highly sensitized in trying to fix them. And he does the negotiations with all these German, France, U.K., et cetera, et cetera. So I think that's also I can expect something positive there.

Okay. Great. One more just on the policy side. You mentioned 340B is a major issue. I know the industry has been focused on this for a long time. I think a number of companies saw a benefit from a tailwind in 2Q. And so as you think about -- or how are you thinking about it for the impact on your business, I guess.

I wouldn't count much on that. I think our experience was that we had some positive headwinds but also had some tail excuse positive tailwinds, but also had some headwinds. And probably it was a net marginally positive. And I think we'll continue like that. I don't think that it's still premature to say that, okay, now we should assume that the industry will have a major 340B benefit going forward. Actually, connected to 340B in the previous question that you asked me, one of the important things to watch out, it is the pilot. But the HHS is launching for 340B. That has a starting day in September -- in January of '27. So in '27 will be applied affects to significant products of Pfizer, liquids and Ibrance, but they are part of this program. And so there will be what we can see for the impact, but also the long-term consequences of that.

Okay. Great.

Actually, that was something that Pfizer worked very hard to make sure that happens.

Great. We'll stay tuned for next year. The other areas, you mentioned this in your opening remarks, Albert, just Pfizer has been very active on the business development front. Over the last several years. I looked at your leverage, it looks about 2.7x now, and hence, your capacity is at the lower end of the spectrum, about $6 billion is what you guys have guided to. So as you think about kind of the activity levels, is it fair to assume you're going to be fairly subdued until that leverage comes back down and the capacity increases? Or is it going to be more opportunistic if there are assets that you guys want, you think you can still lean in?

Yes, I think it actually would be quite strategic because usually, you are much more careful in strategic when you spend your last $10 billion, then your first $1 billion. We know that very well. I also want to make sure that if you see the 6, 7, 8, whatever is the number that we are mentioning that we have in front of us. If you sit in isolation, yes, that looks less than other companies that they have maybe 20 or 25. But if you see in the last 3 years how much the companies have invested, nobody has invested as much as Pfizer in business development. We have invested close to $80 billion, of which 80%. It is 3 business deals that they are doing very well. [indiscernible] seen, but it is doing very well ahead of our expectations right now every quarter. The other 1 is Biohaven with Nortech, again, is doing very, very well, and this is contributing to the growth significantly. And I would say that Nortech is a product where there is a disconnect between our projections and the street, and I think it's doing very well. And [indiscernible] right. So we invested significant amounts. And no one has invested even half the second one than that. So right now, going forward, all the focus and deficits, it is on maximizing the value of these investments. unlocking the value. Those products need to do well, needs to deliver their pipeline because 1 of them was not -- we didn't buy a product. We bought a platform set, right, which was the most expensive of that. So it is a host of intellectual properties, know-how, people, labs projects or reserve projects, all of that. And that is, I think, doing quite well. So yes, if you put it into perspective, I think we are very good in the business development and very act. Now going forward, clearly, we'll be very strategic, very careful. We will -- I expect that we'll do a lot in time as we are doing this tremendous opportunities there. And I expect that we'll be more on the earlier states both Perin Phase I, Phase II.

Great. That's a good segue. I mean next question is you have look to China for some innovation. I think 3SBio is 1 of those examples of the deals you guys have done. I guess just talk about the opportunity set there. maybe outside of oncology, it's a question we get a lot. But also, is there a risk do you think that the U.S. government does step in and try to limit these deals? Because I know that's been a question some investors have raised to us as well.

I think China has impressed all of us. They are a tremendous source of innovation right now. They are doing things 3x faster, half the cost and they are investing significant amounts. So they have a lot of productivity. And they can utilize it themselves. They are not in a position, neither to do global development or global commercialization right now. So the only way to utilize this innovation is through out-licensing. And there is a lot of offer right now. You need to be very careful in time. You need to know what you select. I'll give you an example in Pfizer in all the activities that we do if it is a company in Seattle or in Boston or in Copenhagen, we do due diligence in the data room. We go here, if you look at the numbers, if they fit, it's fine. For China, we send people on the ground that they spend, Wickes, and they go patient-by-patient record. They will go to the hospitals that the studies were done. They will take the X race, and they will make sure that they raise before and after the treatment are matching. So that's the level. of due diligence what we do. We can because in China, we are probably among the biggest multinationals and clearly, the most famous and the most [indiscernible]. We have 1,500 R&D people in time, R&D, 15. So it's a significant amount of resources that we have that allows us with the local resources and with the people that we send to do due diligence. So I expect that Chinese will become better and better and better in providing innovation, and I think that we will see a lot of opportunities there. Now is there a political risk there? I think yes. And the political risk is from both sides. It's from the U.S., but there are some voices that they are wrong. But they are saying we should stop licensing, getting, let's say, a biotech in China is becoming a very big problem, right? I think they overlook the fact that we are getting their technologies, not like NVIDIA is that the U.S. is trying to avoid that items to get their hands around our technology. It's the opposite what is happening right now. So I don't think that, that justifies the concern, why you get their technology because they give it to us. Also, it's a very different topic if it is nuclear capacity or, let's say, technologies that can be used for national security and different things now for came medicines. -- forgot tech, right? This is not the same sensitivity of national security. But there is -- there are voices nevertheless on that, that we try to explain and the most reasonable people are quite influence in this administration, they understand and they listen. The same is I spend a lot of time in Congress to explain that. But I am also concerned on the other side. because the Chinese government, they already in July, they started the first measures, and they are having the opposite concern, why you give our technology to Americans. And I want to make sure that you develop it in-house all the way to the end rather than make a quick buck by giving the technology to the Americans. So also, they are on -- and also, I'm trying to explain to the Chinese government, but they should stay the course and to the U.S. politicians that the -- the name of the game is not to slow down time. The name of the game is to become better than them. So they should focus on policies that they are allowing the U.S. biotech ecosystem and biopharmaceutical ecosystem to thrive. And right now, they do the obvious. They create constant sales.

What -- as you think about that the likelihood that you see the rise of a Chinese multinational large-cap pharma company, what's the time frame, something -- I mean you mentioned China is going fast. They're investing a lot of innovation. They have government support. What's the time frame that something like that could could happen over. If you had to use a crystal ball to look out.

I am preparing for that. I don't know if that will happen, but it is a likely scenario. And that will bring a new competitive situation. where my competitor will not be Lilly or AstraZeneca or Merck, but we are pretty much 1 league, the same league. Someone is better in R&D, some of it is better in cost, some one is better in marketing, some I mean are, as I said, 3x the speed, half the cost, right? So -- and when you bring this new league, if they bring global players, you better be 3x the speed, half the cost. And that's what I'm preparing the Pfizer too. I think by the end of the decade, I would be surprised if we don't have global Chinese layers. And the biggest lever that we have to do something as these what I'm speaking, half the cost and 3x the speed is the deployment of AI, successful deployment of AI in addition to many other things, it is what can allow us to become faster and productive in [indiscernible].

What -- they'll go out of order here, but that was 1 of my questions is AI, and I want to get to the pipeline, too, because it's important. But just maybe just one near-term nonobvious use case of AI at Pfizer. So again, we've seen a lot of the obvious ones, which is like regulatory correspondence or identification of clinical trial sites that maybe are better at enrolling patient identification based on some genetic data. But what is like one nonobvious case, maybe we wouldn't be aware of that you're like, wow, this is really exciting. This is something that gives me confidence that we're going to be able to do things quicker for less money.