Pfizer Inc. (NYSE:PFE) Q4 2023 Earnings Call Transcript

Pfizer Inc. (NYSE:PFE) Q4 2023 Earnings Call Transcript January 30, 2024

Pfizer Inc. beats earnings expectations. Reported EPS is $0.1, expectations were $-0.19. Pfizer Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to Pfizer’s Fourth Quarter 2023 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to 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 fourth quarter and full-year 2023 via press release that is available on our website at pfizer.com. I’m joined today by Dr. Albert Bourla, our Chairman and CEO; and Dave Denton, our CFO. Albert and Dave have some prepared remarks and we will then open the call for questions. Joining for the Q&A session, we will also have Dr. Chris Boshoff, EVP and Chief Oncology Officer; Alexandre de Germay, EVP and Chief International Commercial Officer; Dr. Mikael Dolsten, Chief Scientific Officer and President of R&D; Doug Lankler, EVP and General Counsel; and Aamir Malik, EVP and Chief U.S. Commercial Officer.

Before we get started, I wanted to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning and the disclosures in our SEC filings which are all available on the IR website on pfizer.com. 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 obligations to update or revise any of these statements. With that, I will turn the call over to Albert.

Albert Bourla: Thank you, Francesca. Good morning, everyone and thank you for joining us. I’m pleased to discuss some of the highlights from the fourth quarter and full-year 2023, and of course, a compelling year we have ahead. I’d like to begin with a few reflections on 2023. As you know, we missed our initial internal projections and Street expectations predominantly related to our COVID products, which affected our stock price performance. Despite however this challenging year, there were a few great things that happened in 2023 that may have gotten lost amidst the mixed expectations. First, in 2023, Pfizer impacted the lives of more than 620 million people approximately around the world. We believe there is no other company that can reach as many people and patients as Pfizer.

If you multiply this with our brand equity and awareness, it creates a connection with consumers that can be a very strong asset for us. Second, despite the decline in revenue from our COVID products, as of the reported results for the first nine months of 2023, we were the number 1 pharmaceutical company in terms of revenues from pharma-only products, a marked improvement from our fourth position in 2019. Next, 2023 was a record year for FDA approvals with nine new molecular entity approvals on Pfizer and many more approvals for new indications in already approved products, marking a very productive year of pipeline execution for Pfizer. Finally, we closed the Seagen acquisition. In the current regulatory environment, being able to close such a large acquisition demonstrates our ability to successfully engage with regulatory bodies.

Our deliberate and strategic efforts throughout 2023 created a strong foundation to support us. We are now focused on maximizing the opportunities that have positioned us for success and our team is driving confidently as we start 2024. From the advent of penicillin to the development of the COVID-19 vaccine, Pfizer has been at the forefront of medical and pharmaceutical breakthroughs for the past 175 years. This year is our 175th anniversary. That can not only change patient lives but has changed history. Our strategy to continue to build on our proud history of innovation and commercial excellence is supported by the power and strength of our unmatched global scale and footprint, spanning commercial, financial, medical, regulatory, manufacturing and government relations.

We have a clear view on how we will deliver operational, commercial and financial success across our business. Our confidence stems from the opportunity we have to bring additional focus to our business by executing five strategic priorities. We will get into each in more detail but the five key priorities for Pfizer this year is here are: First of all, to achieve world-class oncology leadership, to deliver the next wave of pipeline innovation, to maximize the performance of our new products, expand margins by realigning our cost base, allocate capital to enhance shareholder value. I’m confident that Pfizer is well positioned to execute and that we can deliver meaningful value for our patients and our shareholders. Let’s start with our first priority which is to achieve a world-class oncology leadership, which I believe we are in a strong position to do.

As a reminder, one in three people will be diagnosed with cancer in their lifetime. Oncology represents one of the largest and fastest growing therapeutic areas. Completing the acquisition of Seagen doubled our oncology research and resources overnight, and meaningfully extended the reach and medical impact of our U.S. commercial and medical footprint, with a range of portfolio expansion opportunities boosted by Seagen’s broad and deep pipeline. Seagen’s in-line medicines are expected to immediately enhance Pfizer’s top-line growth, and our combined portfolio provides the opportunity to lead genitourinary cancers and be a leader in breast cancer and deliver at least eight potential blockbuster products by 2030. We look forward to providing more information about our oncology platform at our Pfizer Oncology Innovation Day on February 29.

As we build our leadership position, we have multiple potential key oncology catalysts in 2024 that we are acutely focused on. On the commercial side, the PADCEV launch in locally advanced/metastatic bladder cancer in combination with pembrolizumab and XTANDI launch in nonmetastic castration-sensitive prostate cancer. We are excited by the strength of the PADCEV EV-302 data and recent FDA approval, as it represents an opportunity to broaden the reach of this potentially practice-changing, platinum-free regimen to even more patients in the frontline metastatic urothelial cancer setting. Essentially, the recent approval doubles the addressable population, which had already doubled this past spring. We are also looking forward to Phase 3 Data readouts from Vepdegestrant in second line HR+ metastatic breast cancer and Braftovi in first line BRAF colorectal cancer.

We also plan to advance our late-stage pipeline with Phase 3 starts of CDK4i in post-CDK4/6 metastatic breast cancer and B6A in non-small cell lung cancer. Building on Pfizer’s potential medicines, the pipeline across breast cancer, genitourinary cancer, hematology and CRC, our CDK4 inhibitor could be a compelling follow-on to IBRANCE. And finally, in the early-stage pipeline, we look forward to initiating first-in-patient studies of four new ADC candidates this year, where we believe we have acquired the expertise to be a leader. Our second priority is to deliver the next wave of pipeline innovation with discovery and development across our therapeutic areas outside of Oncology in Vaccines, Anti-Infectives, Internal Medicine Metabolic Diseases, and Inflammation and Immunology.

In 2024, we plan to continue to make meaningful investments in R&D. In fact, Pfizer’s R&D budget is one of the highest in the industry, and supports our robust pipeline. We are pursuing cutting-edge science across modalities and platforms to deliver the next generation of potential breakthroughs. We are also leveraging AI and other digital tools across the value chain to increase speed and success rates. Starting first with our 4th-generation PCV vaccine candidate, which recently entered the clinic and received FDA Fast Track designation. Building on our deep heritage with PREVNAR, we aim to solidify our leadership in the pneumococcal vaccine space by increasing valency and serotype immunogenicity while maintaining our unique FDA label, which includes both IPD and pneumococcal pneumonia in adults.

Respiratory vaccine combinations are another area where we are poised to lead, building upon our successful COVID vaccine. With the first-generation standalone mRNA flu vaccine, data demonstrated superior relatively efficacy versus a recommended flu vaccine in 18-to-64-year-olds, but did not meet success criteria for immunogenicity for the B strains. Our second-generation flu vaccine was tested in a Phase 2 COVID/Flu combination study for 18–64-year-olds and has shown encouraging results in both the A and the B strains. This new construct has now moved already into a Phase 3 COVID/Flu combination trial. Moving next to GBT-601. Our next-generation and potentially best-in-class HbS polymerization inhibitor represents a potential step-wise evolution over Oxbryta for sickle cell disease.

Recent data presented at ASH 2023 demonstrated multiple blood parameters approaching normal ranges with treatment, suggesting GBT-601 may have the potential to deliver strong efficacy with the convenience of a once-daily pill. We have reaffirmed our commitment to our emerging cardiometabolic programs, with several early clinical development compounds. On the other end of the weight management spectrum, we have Ponsegromab, our GDF15 neutralizing antibody for cancer cachexia with Phase 2 data expected later this year. Ponsegromab has the potential to be first-in-class and the first FDA-approved treatment for cancer cachexia, which accounts for 20%, 30% of all cancer deaths significantly. Our third priority is of course to maximize the performance of our new products and core franchises through a relentless focus on execution, to continue growing our top-line.

To do this, we are prioritizing and focusing, while leveraging data to make changes quickly and adapt. Our Pfizer U.S. Commercial and our Pfizer International Commercial organizations will leverage a more focused, efficient structure to drive executional excellence in their respective markets and expand reach to drive growth over the next several years. To discuss a few examples, we continue to be very enthusiastic about the potential of Nurtec to help the more than one billion people living with migraines worldwide. As access and prescriptions in the U.S. and globally continue to increase, we will continue to focus on direct-to-consumer marketing and reducing barriers to access and affordability for healthcare practitioners and patients. With Oxbryta, we will continue to educate healthcare practitioners and patients on the importance of proactively treating the underlying cause of sickle cell disease by reframing treatment goals to chronic/proactive treatment.

With Abrysvo, we are focused on increasing overall RSV market growth and market share by establishing RSV vaccination as a year-round discussion and expanding our retail contracting and offerings. With Elrexfio, we are focused on educating healthcare practitioners in both academic institutions and in the community, awareness building and new patient trialists. Coming off the initial launch of Velsipity, we are focused on helping ensure patient access to Velsipity as a first-line advanced therapy oral option. With Litfulo, we continue to accelerate the consideration of advanced systemic treatments for appropriate alopecia areata patients and further unlock access to Litfulo. In addition, of course, we continue to protect and grow our core franchises and key blockbusters, including Prevnar, Vyndaqel and Eliquis, while exploring further opportunities to advance a number of innovative combination regimens.

We believe we are well positioned to bring our global commercial manufacturing and supply capabilities to accelerate current and future marketed products. We believe all these components support our growth potential through 2024 and drive growth potential into 2025. We plan to provide updates throughout the year on how we are advancing these strategic priorities. And with that, I will turn the call over to Dave, who will discuss our financial performance, our initiative to realign our cost base, and our capital allocation strategy to enhance shareholder value. Dave?

David Denton : Thank you, Albert, and good morning, everyone. As we enter 2024, we are clearly focused on a small number of critical priorities. These priorities include building a world-class oncology organization, ensuring the next wave of pipeline innovations, maximizing our new product portfolio performance with a more efficient commercial structure, and finally right-sizing our cost base. With that said, I’ll start this morning with our full-year and our fourth quarter results, then I’ll touch on our capital allocation priorities. I’ll finish this morning with a few comments on our 2024 guidance and the near-term expectations that set this year as a foundational year to drive our growth potential in the latter half of the decade.

For the full-year 2023, we recorded revenues of $58.5 billion, achieving 7% operational growth, solidly in line with our expectations when excluding contributions from both Comirnaty and Paxlovid. The significant sales decline in our COVID products, including a $3.5 billion revenue reversal for Paxlovid, were the primary drivers of an overall 41% operational decrease year-over-year. And with the expectation that Seagen will be a substantial growth contributor in 2024 and beyond, our full-year and fourth quarter results include approximately $120 million in Seagen product revenue after the close of the acquisition on December 14. On the bottom line, we reported full-year 2023 diluted EPS of $0.37 a share, a 93% year-over-year decline, and adjusted diluted earnings per share of $1.84, down 72% versus year-over-year.

This decline is primarily due to a significant decrease in sales for both Comirnaty and Paxlovid; the impact of the $3.5 billion revenue reversal for Paxlovid revenues in the fourth quarter related to an expected return of an estimated 6.5 million unused EUA-labeled treatment courses from the U.S. government; and finally a non-cash inventory write-off and other charges of $5.6 billion recorded in the third quarter for Paxlovid and to a lesser extent Comirnaty. Now turning to the quarter, I’d like to highlight that we delivered a solid 8% year-over-year operational revenue growth, again, excluding Comirnaty and Paxlovid. Contributing to this strong performance were our newly approved RSV vaccine as well as Vyndaqel and Eliquis; partially offset by lower revenues for Ibrance and the Prevnar Family.

However, our Q4 results, both top and bottom-line, continued to be significantly, and negatively, impacted by our COVID products on a year-on-year basis. Revenues declined 42% operationally, the results were significant decrease in both Comirnaty and Paxlovid sales. Adjusted cost of sales as a percentage of revenues increased by 12 percentage points driven primarily by the $3.5 billion non-cash Paxlovid revenue reversal, and to a much lesser extent, unfavorable changes in sales mix. Overall, our adjusted operating expenses declined 10%, compared to Q4 of last year. Adjusted SI&A expenses increased 1% operationally in the quarter, primarily driven by the timing of marketing and promotional activities, including those related to recently launched and acquired products.

And consistent with our strategy, we have been focused on re-prioritizing our R&D spending to enhance overall returns. Adjusted R&D expenses decreased 24% operationally, driven primarily by lower spending across both vaccine programs and certain acquired assets, as well as lower compensation-related expenses. Both our reported diluted loss per share of $0.60 and our adjusted diluted earnings per share of $0.10 for the quarter were negatively impacted by the $3.5 billion Paxlovid revenue reversal, which dampened EPS by approximately $0.54. Continued declines in both Comirnaty and Paxlovid sales also negatively affected our performance in the quarter. Foreign exchange movements had an immaterial impact compared to last year’s fourth quarter. As we are increasingly focused on prioritizing our investments to drive forward-looking growth, our GAAP results include a $1.4 billion intangible asset impairment charge associated with etrasimod, based on changes in development plans for additional indications and overall revenue expectations.

But I will point out that this product is still projected to contribute over a $1 billion in peak annual sales. Additionally, we recorded a nearly $1 billion intangible asset impairment for Prevnar 13 reflecting a transition to vaccines with higher sero-type coverage. As discussed in prior quarters, our capital allocation strategy is designed to enhance shareholder value and is based on three core pillars. First is growing our dividend. Second is reinvesting in the business. And finally is making share repurchases after de-levering our balance sheet. For 2023, we returned $9.2 billion to shareholders via our quarterly dividend, we have invested $10.7 billion in internal R&D and finally, we have invested approximately $44 billion in completed business development transactions, net of cash acquired, essentially all for the acquisition of Seagen.

Our expectation is to maintain and grow our dividend while de-levering our capital structure, with a gross leverage target of 3.25x and a goal to preserve our credit rating and access to Tier 1 commercial paper. Upon achieving our de-levering goals, we anticipate returning to a more balanced capital allocation strategy, inclusive of share repurchases. Now given that we issued our full-year 2024 revenue and adjusted diluted EPS guidance on December 13, let me just hit a few of the highlights. We expect total company full-year ’24 revenues to be in the range of $58.5 billion to $61.5 billion, which reflects our expectation of strong contributions across our product portfolio. Importantly, excluding Comirnaty and Paxlovid, we anticipate operational revenue growth of 8%-10%.

We remain confident on delivering at least $4 billion of net savings from our cost-realignment program by the end of the year. We believe right sizing the cost base will put us on a strong footing towards margin expansion and increased operational efficiency moving forward. We expect adjusted diluted earnings per share to be in the range of $2.05 to $2.25 a share for the full-year 2024 and as a reminder, this range is inclusive of an anticipated $0.40 of earnings dilution from the Seagen acquisition, and again with the vast majority of this dilution resulting from the financing costs associated with the deal. Cycling into 2024, we have significantly invested in our business to fuel our longer-term growth, and the foundation is set to deliver on our commitments to enhance long-term shareholder value.

We are acutely focused on driving near-term performance while solidifying our growth expectations for the back half of the decade. And with that, I’d like to turn it back over to Albert to begin our Q&A session.

Albert Bourla: Thank you. With that, let’s start the Q&A session. Operator, please assemble the queue.

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Q&A Session

Operator: [Operator Instructions] And our first question comes from Robyn Karnauskas with Truist Securities.

Robyn Karnauskas: So maybe I’m stupid on this question, but if I’m doing your math for your guidance of margins in low-70s for fiscal year ’24. By my math, the margins for other biopharma would have to drop to about 60% in order to balance out the other margins. Can you just help me understand your guidance and triangulate that with your top-line and bottom-line guidance and triangulating that with your margin guidance?

David Denton: This is Dave. Correct. Our guidance for gross margin, although we don’t provide it specifically, we give us some color around the fact that it’s approximately 70%. Obviously, our focus going forward is to improve our margin rate and more importantly, improve our operating margin rate to the bottom-line. As we look here at 2024, there’s a few things that have compressed our margin rate. First is, as COVID has declined year-over-year, that has served to, I’ll say, delever, if you will, the P&L as COVID takes up and cover some fixed overhead. But importantly, what’s happening is we are in sourcing products that we’ve recently acquired. That in sourcing requires time before we get up to peak yield and performance so that in the short-term, dampens gross margin rate, but has a trajectory to improve gross margin rate over time.

And then secondly, we have new launches that are coming online late in Q3 — late in the second half of 2023 and moving into ’24. Again, those are not at peak performance yet. That will ultimately improve gross margin rate as we cycle into later years. And then finally, I will say that over the last several years, we have absorbed some amount of inflation within our cost of goods sold. That is an area of opportunity for us as we think about improving performance longer term. So I hope that gives you some color.

Operator: Next, we have Carter Gould with Barclays.

Carter Gould : Maybe another kind of finance question here. Certainly, R&D in 4Q was meaningfully below kind of where you guys had set the guide there. How should we think about that? Does it just reflect sort of faster cost cutting? Is it just more an artifact of the later integration of SGen? And clearly, you’re reaffirming your guide but just maybe if you can just sort of check that box for us, that would be helpful.

David Denton: Sure. Probably not much to read into that. Obviously, R&D came in a little favorable than our expectations previously. Part of this is the fact that we are very focused on our — realigning our cost base so consistent with the program. And then secondly, there probably is some timing that’s dampening R&D in the fourth quarter that will slide into 2024 and into 2025. So there is some timing implications to that performance level. But I think importantly, back to my prepared remarks is our focus is on delivering net savings of $4 billion. And if you look through the end of 2023, about half of that we’ve achieved already. We’re now focused on achieving the additional $2 billion or so as we cycle into 2024, and all eyes are on that objective.

Albert Bourla: Thank you, Dave. We have high confidence on the number that we gave.

Operator: Our next question will come from Louise Chen with Cantor.

Louise Chen : Sorry, I was muted. Wanted to ask you on your Prevnar franchise. First of all, for the fourth-generation PCV, could you give more color on how it compares in contrast with Prevnar 20? And then just on the Prevnar order timing issue, was that U.S. or ex U.S.?

Albert Bourla: Aamir, why don’t you take the Prevnar question? And then maybe Alexandre, you can add a little bit color on the situation in the U.S. So what is the situation in Prevnar with the orders?

Aamir Malik: Yes. So Louise, with regards to Prevnar, with the pediatric business, we often see some lumpiness in quarterly revenues, given the timing and impact of CDC orders, so it’s difficult to kind of map that all out quarter by quarter. So you should expect that on the pediatric business. But the pediatric business, otherwise, we’re very happy with how our launch is progressing and the growth momentum that we see there. On the adult business, I think it’s different in the sense that we have a 96% market share that we closed the adult business with at the end of the year. But it’s really important to keep in mind that we are operating in a market where the patient pool is steadily decreasing. There was a big catch-up opportunity versus the prior recommendation, and we’ve worked through that catch-up opportunity already.

So the remaining patients are generally those that are aging into the 65-plus population as well as those with underlying medical conditions, and those are harder to activate patients. So we expect that business to continue to face that smaller patient population going forward. And we also expect competition with V116 emerging that will make the adult market more competitive, but we see a lot of growth potential in the pediatric market.

Albert Bourla : Thank you. Alexandre, how was the Prevnar situation in the last quarter or in the year in international markets?

Alexandre de Germay: Yes. Louise, good question. As you know, the majority of our ex-U.S. business is driven by tender. And of course, we book the sales when we ship the product. It doesn’t reflect utilization. And then the government schedule their campaign in their respective markets. The reality is that we continue to have an IP exclusivity in 130 markets around the world. And at the same time, we continue to progress both on the pediatric, as you saw last week, the CHMP positive opinion, and now we’re going to go into the final approval and then vaccine technical committees and pricing in all those markets, so that will take a bit of time. But at the same time, we see some positive traction on the adult franchise, where we have launched in over 30 markets.

And we see some very good developments with the recommendation of the Vaccine Technical Committee. To give you an example, we used to have very limited access on our Prevnar 13 in country like Germany or France and UK. And we just received a recommendation from the VTC in Germany that actually recommended usage of Prevnar 20 in old adults over 60 as well as at-risk population from 18 to 59, which we believe we have a significant growth opportunity in increasing vaccination in the adult population ex-U.S.

Albert Bourla: And Mikael, to conclude what about the fourth-generation Prevnar?

Mikael Dolsten : Yes, I’m very pleased that the fourth generation has entered clinical studies. It has a Fast Track designation from U.S. FDA, indicating a unique product offering. And it includes some of the new technology we have developed that gives us a really cutting-edge tool box, whether it’s chemistry carriers or reformulations. And of course, it relies on the unique Pfizer platform to have potential prevention of both invasive disease, which is the smaller disease burden and pneumococcal disease, which causes more than 150,000 hospitalizations. And to the best of my knowledge, we are the only one that can address both of them. So we feel very good about that entry.