Pfizer Inc. (NYSE:PFE) Q3 2023 Earnings Call Transcript

Pfizer Inc. (NYSE:PFE) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good day, everyone, and welcome to Pfizer’s Third Quarter 2023 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Mr. Francesca DeMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma’am.

Francesca DeMartino: Good morning. And welcome to Pfizer’s earnings call. I’m Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the third quarter of 2023. Our earnings materials can be accessed on the IR website at investors.pfizer.com. I’m joined today by Dr. Albert Bourla, our Chairman and CEO; Dave Denton, our CFO; and Dr. Mikael Dolsten, President, Pfizer Research & Development. Joining for the Q&A session, we will also have Angela Hwang, Chief Commercial Officer and President, Global Biopharmaceuticals Business; Aamir Malik, our Chief Business Innovation Officer; Dr. Chris Boshoff, our Chief Oncology Research & Development Officer; and Doug Lankler, our General Counsel.

Before we get started, I wanted to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer on slide 3. Additional information regarding these statements and our non-GAAP financial measures is available on earnings release and in our SEC Forms 10-K and 10-Q under Risk Factors and Forward-Looking Information and factors that may affect future results. Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call’s original date, and we undertake no obligation to update or revise any of these statements. With that, I will turn the call over to Albert.

Albert Bourla: Thank you, Francesca. Hello, everyone. And thank you for joining us today. Pfizer continues to have a far-reaching and positive impact on human health. Through the first nine months of the year, more than 457 million patients around the world were treated with our medicines and vaccines. Compared with the first nine months of 2022, we have reached more patients in several key therapeutic areas, including oncology, cardiovascular disease and anti-infectives. Patients will always be our North Star, and these figures serve as a testament to our leadership in innovation and our commitment to understanding and serving patients’ needs. During the third quarter, we were encouraged by the continued strong performance of Pfizer’s non-COVID products, with revenue from these products growing 10% operationally compared with the year-ago quarter.

We saw significant contributions from new launches and robust year-over-year growth for several key in-line brands. Our recently launched respiratory syncytial virus, the RSV, vaccine – it’s called ABRYSVO – contributed $375 million in US revenues. With the recent approval of the maternal indication, Pfizer is the only company with an RSV vaccine approved for preventing RSV in older adults and in infants via maternal immunization. We believe ABRYSVO will be a significant and growing contributor to revenue as many customers have indicated to us that protecting both populations with one vaccine is desirable and a competitive advantage for ABRYSVO. In the US alone, there are approximately 80 million adults over age 60 who are eligible for RSV vaccination, and an estimated 1.5 million pregnant women are eligible for maternal immunization with our RSV vaccine between September 2023 and January 2024.

Nurtec, Vydura and Oxbryta, which were acquired in the fourth quarter of 2022, contributed $233 million and $85 million in global revenues, respectively. For Nurtec, in the US, oral CGRPs represent about 17% of the migraine market, and the unmet need is high. We believe oral CGRPs can ultimately be the first-line therapy for migraine and could eventually account for as much as 40% of the overall migraine market. Primary care is a clear source of potential growth in the migraine marketplace. Year to date, primary care healthcare providers wrote more than 6.1 million prescriptions for Triptans compared with approximately 1 million for oral CGRPs, which highlights a significant potential opportunity for growth. Regarding Oxbryta, there is significant burden of illness and unmet need for patients suffering from sickle cell disease.

An estimated 12 million people around the world have SCD, sickle cell disease, with the highest prevalence in countries with the lowest resources. While in the US, 95% of children survive to adulthood, 99% of children in other regions will die before they reach their 5th birthday, many without ever being diagnosed. Our Vyndaqel family of products, including Vyndaqel, Vyndamax and Vynmac, recorded 47% operational growth globally compared with the third quarter of 2022. This growth was driven largely by continued strong uptake of the transthyretin amyloid cardiomyopathy indication, primarily in the US and developed Europe. We estimate there are between 120,000 and 150,000 people suffering from ATTR cardiomyopathy, with the majority still not yet diagnosed.

The largest unmet need continues to be the lack of general understanding and ability to diagnose this deadly disease, which is why we are focused on educational activities to expedite diagnosis and get appropriate patients on to treatment with the product as the proven standard of care. Such efforts significantly contributed to this quarter’s revenue increase in the US. And our Prevnar family of products, Prevnar 13 and Prevnar 20, saw global revenue rise 15% operationally compared with the year-ago quarter. This increase was driven primarily by strong patient demand for Prevnar 20 Adult in the US, the US approval of Prevnar 20 Pediatric and associated stocking, and growth of Prevenar 13 Pediatric in certain emerging markets. These were partially offset by anticipated lower market share in the US for Prevnar Pediatric due to competitive entry.

Of note, Prevnar 20 Adult remains the category-leading pneumococcal vaccine for adults in the US with a 95% market share in the third quarter. Year-to-date, revenues for our non-COVID products have grown 7% operationally, and we remain on track to deliver 6% to 8% operational revenue growth for these products for the full year. We continue to progress toward our goal of executing an unprecedented number of launches of new products or indications. Recent milestones include US and EU approvals and launch of ABRYSVO in pregnant individuals; US approval and launch of Elrexfio in relapsed refractory multiple myeloma; US approval of our Braftovi+Mektovi combination in BRAF-mutated metastatic non-small cell lung cancer; US approval of VELSIPITY for moderate to severe ulcerative colitis; EC approval of Litfulo for severe alopecia areata; and US approval of PENBRAYA, the first and only pentavalent vaccine that provides coverage against the five most common serogroups causing meningococcal disease in adolescents and young adults 10 through 25 years of age.

To date, we have now executed 13 of the 19 originally identified potential launches, with four other products approved and preparations being made for their launch. In fact, five of the six remaining potential launches have been largely de-risked from a technical perspective. The only one remaining would be our mRNA flu candidate. Given our recent positive results from our next-generation mRNA flu/COVID combination candidate and pending results for our 65-and-older first-generation Phase 3 standalone mRNA flu study, timing for our standalone mRNA flu is now expected after 2024. If successful, our next-generation mRNA flu/COVID combination candidate is expected to market in 2025. Mikael will share more about these programs shortly. We remain excited about our proposed acquisition of Seagen and the dramatic impact we think this combination can have on human health.

One in three people will be diagnosed with cancer in their lifetime. So, conquering cancer would have an almost unimaginable impact on humanity. We recently gained unconditional antitrust clearance from the EC, and we continue to expect the transaction to close in late 2023 or early 2024, subject to customary closing conditions, including clearance by the US FTC. We have raised $31 billion in acquisition financing so far and continue to expect incremental 2030 risk-adjusted revenues in excess of $10 billion and expected cost efficiencies of $1 billion to be realized by the end of year three post-closing without impacting any R&D programs. With that, I will turn it over to Dave. After Dave, Mikael will provide an update on our R&D pipeline. So Dave?

Dave Denton: Thank you, Albert. And good morning. Before I review this quarter’s results, I will address a couple of topics that have been top of mind with investors since our announcement on October 13th. These topics relate to our future US government Paxlovid revenue forecasts, as well as our multi-year cost realignment program. With respect to revenue recognition associated with the amended agreement, the US government is expected to return an estimated 7.9 million EUA-labeled treatment courses and, in return, will receive a volume-based credit at an approximate value of $4.2 billion at the end of 2023 for future treatment courses. Pfizer will also provide an additional 1 million treatment courses into the US strategic national stockpile.

As a result of all that, Pfizer has an obligation to deliver an estimated 8.9 million treatment courses for which we will record approximately $4.2 billion of revenue beginning in 2024 as we deliver treatment courses. It is important to note that there is no cash compensation for the estimated 8.9 million treatment courses delivered. Regarding our cost realignment program, I want to reiterate that we expect to achieve at least $3.5 billion of net cost savings by the end of 2024 versus the mid-point of our August 1, 2023 SI&A and R&D guidance. We expect $1 billion of targeted savings in 2023 and expect an additional savings of at least $2.5 billion in 2024. In a moment, when I review the components of our full-year 2023 guidance, you will see that we have lowered the midpoints of both our SI&A and R&D guidance ranges by $500 million, respectively.

Now, turning to the quarter, our Q3 results, both top and bottom line, were significantly and negatively impacted by our COVID products. Revenues declined 41% operationally, the result of the decrease in both Paxlovid and Comirnaty sales, while adjusted diluted loss per share was also significantly impacted by $5.6 billion of non-cash inventory write-offs of COVID related inventories. I want to emphasize, as Albert stated previously, that the operational revenue growth of our products in Q3, excluding both Paxlovid and Comirnaty were strong at 10%. Contributing to this strong performance was our newly approved RSV vaccine and the families of products associated with both Prevnar and Vyndaqel. Additionally, our recently acquired products, Nurtec and Oxbryta, also contributed to this strong growth.

Our reported diluted loss per share of $0.42 and adjusted diluted loss per share of $0.17 in the quarter are primarily the result of the decline in Paxlovid and Comirnaty sales and the non-cash charge related to write-offs of COVID-related inventories. The inventory write-off of $4.7 billion for Paxlovid and $900 million for Comirnaty negatively affected adjusted loss per share by $0.84. Foreign exchange movements had a de minimis unfavorable impact on third quarter revenues and increased adjusted diluted loss per share by $0.04 or 2% compared to LY. Now, let me briefly touch on our full-year guidance. Given we updated our full-year revenue and EPS guidance on October 13th, I am just going to hit a few of the highlights. Total company full-year 2023 revenues are expected to be in the range of $58 billion to $61 billion versus previous range of $67 billion to $70 billion.

Importantly, we continue to expect 6% to 8% full- year operational revenue growth for non-COVID products year-over-year. As anticipated, the majority of this growth is occurring in the second half of the year, given the timing of new product and indicated launches. I want to remind you that, beginning in Q4, we will overlap the acquisitions of Biohaven and GBT last year, which we completed on October of 2022. Adjusted cost of sales as a percentage of revenue is expected to be in the range of 41% to 43%, primarily the result of the $5.6 billion non-cash charge related to inventory write-offs for our COVID products. Adjusted SI&A expenses are expected to be in the range of $13.3 billion to $14.3 billion, and adjusted R&D expenses to be within a range of $11.9 billion to $12.9 billion.

The mid-points of both ranges are now $500 million lower than our original guidance. As a result of all these, the company now expects full-year adjusted diluted earnings per share to be in the range of $1.45 to $1.65 versus the original guidance range of $3.25 to $3.45. All additional components of our guidance are included in our press release that was issued earlier today. As discussed in prior quarters, our capital strategy is based on three core pillars. First is reinvesting in our business. Second is growing our dividends over time. And third is making value-enhancing share repurchases. In the first nine months of 2023, we invested $7.9 billion in internal R&D, returned $6.9 billion to shareholders via our quarterly dividend, and allocated approximately $43 billion towards the proposed Seagen acquisition.

Lastly, in addition to our completing a $31 billion unsecured debt offering in Q2 of this year, we are ready to execute the remaining short-term financing to complete the proposed Seagen acquisition upon fulfillment of the required closing conditions. We expect to de-lever our capital structure following the completion of this transaction, and as we de-lever, we anticipate returning to a more balanced capital allocation strategy, inclusive of share repurchases. In closing, I want to reiterate that our product portfolio remains very strong. We continue to be encouraged by the momentum of our non-COVID products in Q3 and are committed to the successful execution of our new product and indication launches. We expect that the cost realignment program will improve our operating margins, enhancing long-term shareholder value.

And with that, let me turn it over to Mikael.

Mikael Dolsten: Thank you, Dave. Today, I will share important updates from our robust respiratory vaccine portfolio. Our respiratory vaccines are built upon three cutting-edge platforms that enable us to bring the right science to the right pathogen. These include our mRNA platform in partnership with BioNTech targeting highly variant viruses, our subunit platform targeting viruses that remain relatively consistent season to season, and our conjugate vaccine platform designed to help prevent bacterial infections. We have achieved FDA approvals of vaccines derived from each platform within the last year and aim to further expand our leadership with additional vaccine candidates in development. Today, I will provide information on our standalone flu vaccine candidate, flu-COVID combination vaccine candidates and next gen pneumococcal vaccine candidate.

We are pleased to announce that we achieved both primary endpoints in the 18 to 64-year-old cohort of our ongoing Phase 3 flu trial. In the trial, our first-gen mRNA flu vaccine candidate demonstrated non-inferiority and superiority to a licensed flu vaccine at the time of the primary analysis. This represents the first and only demonstration of efficacy and superiority for an mRNA-based flu vaccine candidate. In this age cohort, efficacy was maintained through the trial’s end of season analysis, with our candidate remaining non-inferior to the licensed comparator. Safety was similar to standard flu vaccine. The primary and end of season efficacy analyses considered both influenza A and B cases collectively. The vast majority of cases recorded in our trial, and during the 2022/2023 flu season overall, were flu A cases.

Immunogenicity data showed robust antibody responses against influenza A compared to licensed flu vaccine. Humoral responses against influenza B were lower than those achieved with the comparator. Recall that our standalone flu vaccine Phase 3 study also includes a 65 and older cohort that we previously shared encouraging T cell data for all four strains from the Phase 2 study in this cohort. Our belief is that the ability of the vaccine candidate to induce T cell responses may contribute to the improved efficacy over current seasonal flu vaccines, particularly in those 65 and older. We expect a readout from this age group later this year. To address the lower B responses seen with our first-gen standalone flu candidate, Pfizer created next-generation reformulations.

These were incorporated into our mRNA flu candidates in combination with the Pfizer-BioNTech COVID-19 vaccine, which I will review now. In positive Phase 1/2 topline data announced last week, we observed that reformulation of the lead flu candidates resulted in improved immunogenicity against influenza B, allowing us to meet all criteria for advancement to Phase 3. In the trial, our lead candidate formulations induced robust immune responses, with point estimates for Geometric Mean Titer ratios that were consistent with criteria applied to approved vaccines for all matched flu and SARS-CoV-2 strains. Notably, point estimates for Geometric Mean Titer ratios with selected candidate formulations were greater than one relative to the licensed comparator for all matched flu vaccine strains.

The safety profiles of evaluated candidates were consistent with Pfizer and BioNTech’s COVID-19 vaccine. Following these positive immunogenicity data, we plan to initiate a Phase 3 study in the coming months. Successfully developing a broad seasonal vaccine franchise anchored around a modFlu mRNA vaccine is a key priority, as it may allow us to tap into the nearly 50% annual flu vaccination rate in US adults. We are taking a differentiated approach in pursuit of this goal, leveraging both mRNA and protein subunit technologies. Our development program includes double and triple combination vaccines to potentially help protect against flu, COVID-19, and RSV. Now, turning to PREVNAR, I’ll start by reminding you that this is the only PCV business with an FDA indication for pneumonia in adults.

Providing protection specifically against pneumococcal pneumonia is critical. It’s the most common form of pneumococcal disease in adults, leading to 150,000 US hospitalizations each year. The prevalence of nonbacteremic pneumococcal pneumonia is more than 15-fold greater than that of invasive pneumococcal disease in US adults 50 and older. PREVNAR’s pneumonia indication is supported by the CAPiTA trial, which was enabled by a pneumococcal vaccine-naïve population and proprietary assay. These innovative characteristics make it challenging for others to conduct a similar study, given the high level of pneumococcal vaccine coverage that exists today. CAPiTA’s innovative design and landmark results helped establish our leading and differentiated position in the PCV space.

To solidify this position, we are committed to pursuing continued innovation. Our goal is to potentially maximize valency and improve immunogenicity while maintaining coverage of the serotypes clinically demonstrated to protect against pneumonia. In line with this commitment, we have been developing a fourth-generation PCV candidate that builds on the PREVNAR business’ 20-year-plus of innovation. Our next-generation technology leverages cutting-edge conjugation chemistry, carriers, and reformulations. Using these new proprietary vaccine technologies, we observed a several fold improvement in select serotype immunogenicity in a monovalent Phase 1 study. Based on these data, we are confident that when we move this technology into our multivalent 4th generation candidate, we have the potential to achieve increased valency with improved serotype immunogenicity.

We are now advancing our fourth-generation candidate into a first-in-human trial, which is expected to begin in the fourth quarter of 2023. Finally, I will leave you with our list of milestones and call out the recent approvals of VELSIPITY for ulcerative colitis and PENBRAYA, the first pentavalent meningococcal vaccine. Pfizer has delivered more than a dozen regulatory approvals this year alone. I’ll also note the recent launches of ABRYSVO for maternal immunization and ELREXFIO in multiple myeloma. Thank you. Let me turn it over to Francesca to start the Q&A session. Francesca DeMartino Thanks, Michael. With that, let’s start the Q&A session. We will answer as many questions as time permits. And I will be available after the call to answer any follow-up questions.

Operator, please assemble the queue.

Operator: [Operator Instructions]. Our first question will come from Robyn Karnauskas with Truist Securities.

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Q&A Session

Robyn Karnauskas: I think I have a big picture question on your new launches, which is extremely important for your growth. Are you seeing any impact given, I think, vaccine fatigue that we’ve seen with COVID impacting RSV and pneumococcal vaccines? And how do you think about that impact as you think about 2023 and 2024? Do you think that will dissipate?

Albert Bourla: First of all, I think it’s good when you have a portfolio. And we have a quite strong portfolio because we have RSV, we have COVID and we have pneumococcal in the respiratory front. But I think the biggest impact will be when and if we have combination products. We think that combination products will – because of their convenience, because of vaccines are preferred by payers with zero copay will increase basically the volumes and vaccination rates of all vaccines because of the convenience of one injection. And I think this is why you saw from Mikael all our efforts right now are in developing multiple combinations, so that consumers and physicians will have choice which ones to administer, always with the same convenience.

Operator: Our next question will come from Huynh Trung with UBS.

Trung Huynh: I have one on flu and then just one on danu. So on flu, can you confirm the comparator in the 18 to 64 and also the 64 age groups was the low dose flu vaccines? Is there a risk FDA is going to need data against high dose flu vaccines? And from a commercial perspective, do you think you still need high dose flu data, the comparator against high dose flu data given that’s what’s recommended by CDC in the older population? And then on danu, should we just – just on the data that we expect before year-end, what do you need to show in that in order to move it into Phase 3 trials? Is something similar to the Phase 2 we saw earlier this year enough to move it to Phase 3.

Albert Bourla: On the flu comparator, I can confirm that it is the low dose on the younger population because that’s the only one that’s allowed. So on the older population, we are having studies now with a very low dose, but we will do also with the higher dose. So we have both. On danu, it’s not much to say. We need to wait to see the data. Clearly, when you are moving ahead with a program like that, you need to see the totality of the data and we are working now intensively to be able to have those data presented before year-end.

Operator: Our next question will come from Umer Raffat with Evercore.

Umer Raffat: I wanted to continue on the oral obesity theme for a second. I noticed there’s a new molecule, 522, that you moved into Phase 1. And my question is, is the chemical structure and the chemical series akin to the danu GLP-1 programs? And also, Albert, you mentioned you want to wait to see the danu GLP-1 Phase 2 data, but I realized the trial has been wrapped up for a few weeks now. Have you not seen it yet?

Albert Bourla: Michael, would you like to take the question about the new molecule and the danu?

Mikael Dolsten: We are building a platform around the GLP-1 area and also obesity in general with multiple different mechanisms and compounds. We remain focused on the danuglipron readout, as Albert mentioned, as our main opportunity here for getting data to review for obesity and Type 2 diabetes. But there are many indications where GLP may play a role outside the typical metabolic. So this one gives us just more options to explore and have interesting data. And you will see more new mechanism also coming from Pfizer. We have a pretty strong effort here.

Operator: Next we have Terence Flynn with Morgan Stanley.

Terence Flynn: Maybe two for me. I was just wondering, on your RSV launch, how we should think about the potential for revaccination in 2024. And then, on your DMD gene therapy program, I think you’ve previously talked about having interim data by year-end. Is that still the case and does the recent competitor data make you more or less optimistic in your program?

Albert Bourla: First of all, let me make a comment that the recent data that we saw about the DMD failures is a very, very bad news for patients. We are really [indiscernible]. I hope there will be a solution for them with the discussion with the FDA, although I can’t comment. Now, on our DMD program, I will ask Mikael to comment on that. And then, on the RSV, Angela. Mikael, why don’t you start with the DMD? Then Angela, go through RSV?

Mikael Dolsten: [indiscernible] we also always said and when someone fails a study. We are very encouraged about getting to the readout. You are right, there is an opportunity for an interim analysis around year-end with final analysis second half of next year. And overall, I think our interim read for DMD have shown a very consistent effect across biomarkers and functional endpoint. And what has been differentiated it so far is that when you look at the functional data we have reported, it has been giving encouraging signals in both the younger and the slightly older boys. And that has not been seen with the other company you referred to. So, in a way, I remain, as earlier, very positive about looking forward to the readout and let the data tell the story. But of course, this makes our gene therapy, in a way, the main game to us.

Albert Bourla: Then there was a question, Angela, on the RSV.

Angela Hwang: Well, as you heard, during the HCIP discussions, our recommendation for ABRYSVO today is really one around shared clinical decision making. But we also were – we were asked to bring additional data when they are ready. And so, just to confirm that we will have additional data in vaccine effectiveness in broader populations, we will have safety data also in broader populations, we will also have immunogenicity data in younger populations. All of this will be, I think, available in the next year when we plan to bring this back to the CDC. In addition to that, actually omitted to mention that we’ll also have second season efficacy data. So, we’ll be able to bring this totality of data together to determine whether the recommendations will change, but also what the vaccination schedule will be. So that’s to come in 2024.

Operator: Next, we have Steve Scala with TD Cowen.

Steve Scala: As was just noted a couple of minutes ago, the danu data has reached its primary completion. It was a while ago. Albert, when you were asked, you stressed the words totality of the data, implying that you could have seen some part of the data. Mikael, when you were asked, you talked about different indications. These are not confidence building statements. So, I’m curious, what have you seen? And, Mikael, you’ve said in the past, you were absolutely encouraged and confident in the profile of danu? Are you still absolutely encouraged and confident? So that’s the first question. Secondly, a competitor spoke to potentially COVID derived decrease in diagnosis of inflammatory diseases, such as UC, and I’m wondering if you’ve seen any of that.

Albert Bourla: I think you likely misunderstood my comments on the totality. It has nothing to do with any data that I have seen because I haven’t, right? So, the data have not been presented to – I don’t think [indiscernible] has been completed yet. So, I will ask also Mikael to comment on that, but don’t bridge with anything on the totality of the data. What I meant it is that we are doing this, we are doing the release formulation, which will make it once a day. There are multiple things, but we need to wait and see. We see how competitors are doing before deciding what we will do. But the most important thing is to see what is the efficacy and safety of the study that will read out. So, nothing to read in my comment on historical data. So, Mikael, you want to add…