PFIZER Earningcall Transcript Of Q2 of 2024

Francesca DeMartino -- Senior Vice President, Chief Investor Relations Officer

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 second quarter of 2024 via a 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  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 want 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 obligation to update or revise any of the statements. With that, I will turn the call over

to Albert. 

Albert Bourla -- Chairman and Chief Executive Officer

Thank you, Francesca. Good morning, everyone. We are pleased to report that we've had a strong

first half of the year, and our business is performing well. We drove progress in the second quarter

with solid execution as we continue making a difference in the lives of patients around the world.

Through the first 6 months of 2024, we reached more than 192 million patients with our medicines

and  vaccines.  Today,  I  will  provide  updates  about  how  we  continue  advancing  our  key  strategic

priorities in the second quarter. I will also mention examples from just the past few weeks when we

have achieved a series of regulatory approvals, pipeline advances and other positive developments

that  we  expect  to  fuel  our  progress  through  the  rest  of  the  year.  We  are  pleased  with  the  strong

financial results coming from our disciplined execution.

In  the  second  quarter,  for  example,  we  achieved  year-over-year  revenue  growth  for  the  first  time

since the fourth quarter of 2022 when our COVID revenues had reached -- had peaked. Dave will

talk about this additional aspect of our financial performance as well, of course, our outlook and then

we will take questions. Before we go further, I will touch on some recent announcements about our

leadership team and Board of Directors. I'll start with Mikael Dolsten's coming departure.

It's  hard  to  find  words  that  do  justice  to  the  substantial  impact  Mikael  has  had  during  his  15-year

tenure  at  Pfizer.  Mikael  transformed  our  R&D  engine,  ultimately  delivering  35  approvals  that  have

been  meaningful  for  millions  of  patients  globally.  I  thank  my  colleague  and  my  friend  for  these

tremendous  contributions  to  human  health.  I  look  forward  to  working  closely  with  him  over  the

coming months as we search for his successor.

Until  then,  Mikael  will  continue  to  lead  as  our  Chief  Scientific  Officer  and  President  of  Pfizer

Research  and  Development.  I  want  to  welcome  Andrew  Baum,  our  new  chief  strategy  and

innovation  officer.  Andrew  brings  deep  clinical,  scientific  and  biopharmaceutical  sector  expertise.

And we are fortunate to have him to help save and guide our strategies.

While  Andrew  is  not  able  to  join  us  today  because  he's  relocating  with  his  family  to  the  United

States,  he  will  be  with  us  for  future  quarterly  calls.  I  also  want  to  mention  the  recent  addition  of

Cyrus Taraporevala to our Board. We are committed to strong government supported by directors

with  a  breadth  of  unique  experiences  skills,  exactly  like  Cyrus.  Cyrus  was  president  and  CEO  at

State Street Global Advisors until he retired 2 years ago.

And he brings vast experience in investment management and financial markets. We are thrilled to

have  him  joining  our  Board.  Now  I  will  turn  to  our  performance.  The  five  strategic  priorities  we

served at the beginning of the year remain unchanged.

With our focus on the most important opportunities for advancing and strengthening our company,

we  are  confident  we  remain  on  track  in  2024.  In  the  second  quarter,  our  colleagues  moved  our

business forward in each key strategic area. As a reminder, they are achieving world-class oncology

leadership,  delivering  the  next  wave  of  pipeline  innovation,  maximizing  performance  of  our  new

products,  expanding  margins  by  realigning  our  cost  base  and  allocating  capital  in  ways  that  will

enhance  shareholder  value.  We  believe  we  are  well  positioned  to  continue  creating  value  for  our

shareholders.

I want to reinforce our commitment to maintaining and growing our dividend over time. And as Dave

will discuss in more detail, we are raising our full-year '24 guidance ranges for revenue and adjusted

diluted earnings per share. Now I'll turn to our progress toward achieving the first one, world-class

oncology leadership. Last year, we acted on our bold vision of combining Seagen's transformative

ADC medicines with Pfizer's expertise, innovation and scale.

We believe we could help people with cancer live better and longer lives and capture a differentiated

opportunity to drive long-term sustainable growth for our company. At the halfway mark in 2024, we

are  on  track  to  make  this  vision  a  reality,  and  we  are  pleased  with  the  continued  success  of  our

integration.  We've  had  high  rates  of  colleague  retention,  and  acquired  Seagen  products  are

contributing  meaningfully  to  our  revenue.  In  particular,  PADCEV  is  rapidly  progressing  toward

becoming  the  standard  of  care  for  patients  with  frontline  locally  advanced  or  metastatic  urothelial

cancer.

We  are  pleased  with  the  strength  of  other  key  products  across  our  oncology  portfolio.  Xtandi,

LORBRENA, BRAFTOVI-MEKTOVI combination, for example, continue as significant growth drivers

during this quarter. Our robust oncology commercial performance in the first half of 2024 included

full  FDA  approval  for  tivdak  and  European  Medicines  Agency  approval  for  the  TALZENNA  plus

Xtandi  combination.  We  also  received  positive  CHMP  opinion  for  the  BRAFTOVI-MEKTOVI

combination and for PADCEV.

The last one is a notable development because Pfizer receives royalty revenues for these products

marketed  in  Europe  by  our  partners.  These  highlights  illustrate  how  we  are  already  delivering

breakthroughs  that  dramatically  improve  the  lives  of  people  with  cancer.  Of  course,  we  are  also

working  to  develop  future  breakthroughs  where  we  have  the  opportunities  to  bring  the  most

important new therapies to patients in need. I will review several recent pipeline highlights, starting

with obesity.

Earlier this month, we announced our plans to move forward with development of danuglipron, our

oral GLP-1 receptor agonist that is the most advanced candidate in a robust clinical and preclinical

obesity  pipeline.  In  previously  reported  results  from  the  phase  2b  study  in  obesity,  danuglipron

demonstrated  what  we  believe  is  good  efficacy  in  its  twice  daily  formulation.  For  tolerability,  we

previously reported the maximum rate of GI adverse events across all doses investigated. Looking

at  individual  dose  levels  in  our  phase  2b  study,  however,  we  observed  tolerability  profiles  that  are

competitive for the class.

Our  efforts  are  now  focused  on  developing  the  once-daily  formulation  essential  to  delivering  a

competitive  oral  product.  We  were  encouraged  by  a  pharmacokinetic  study  evaluating  multiple

modified  release  technologies  and  formulations.  This  strengthened  our  confidence  in  potentially

delivering a competitive once-daily pill at those level expected to be efficacious. We plan to conduct

dose  optimization  studies  in  this  second  half  of  this  year  that  are  intended  to  inform  our

registration-enabling studies.

Obesity represents a growing area of patients in need, and it is a key area of focus for Pfizer's R&D

programs.  We  believe  these  study  results  along  with  learnings  from  our  previous  phase  2  studies

and  data  that  we  have  accumulated  from  more  than  1,400  participant  patients  leave  us  well

positioned to execute on a registration-enabling study as we work to deliver a competitive product in

a rapidly growing market. When we hosted our Oncology Innovation Day in February, we shared the

pipeline  milestones  that  would  mark  our  success  over  the  next  year,  and  we  are  already

demonstrating  progress.  A  highlight  was  our  strong  presence  at  the  American  Society  of  Clinical

Oncology Annual Meeting last month, which was anchored by 3 positive phase 3 readouts: follow-up

data  from  the  phase  3  CROWN  study  of  LORBRENA  in  patients  with  ALK-positive  metastatic

non-cell  lung  cancer  showed  60%  of  patients  on  LORBRENA  were  living  beyond  5  years  without

disease progression.

This  strengthens  LORBRENA's  position  as  an  emerging  standard  of  care  in  the  frontline  setting.

Data from the phase 3 ECHELON-3 study of ADCETRIS in combination with lenalidomide mid and

rituximab  demonstrated  a  clinically  meaningful  improvement  in  overall  survival  for  patients  with

relapsed  or  refractory  diffuse  large  B-cell  lymphoma.  And  data  from  phase  3  study  evaluating  an

additional  ADCETRIS  combination  regimen  showed  progression-free  data  in  patients  with  newly

diagnosed  classical  Hodgkin  lymphoma  while  significantly  reducing  side  effects  compared  to  a

standard  of  care  regimen  used  in  Europe  in  this  setting.  We  have  advanced  our  oncology  clinical

pipeline  in  2024  with  phase  3  studies  for  sigvotatug  vedotin,  our  integrin  beta-6  directed  ADC;

atirmociclib,  our  selective  CDK4  inhibitor;  Elrexfio  in  the  second-line  setting  in  relapsed  refractory

multiple myeloma; and mevrometostat, our EZH2 inhibitor, which we are now moving to phase 3 and

anticipate enrollment beginning in August.

We  will  continue  working  toward  our  2030  oncology  strategy  goals  of  delivering  8  or  more

blockbuster  medicines  and  doubling  the  number  of  patients  treated  with  our  innovative  cancer

medicines. We also have momentum with our vaccine programs. In our next gen PCV candidate, for

example,  we  have  advanced  to  a  phase  2  program  in  both  adults  and  pediatrics,  based  on

encouraging  clinical  data  that  we  receive  that  highlights  our  industry-leading  capabilities  and

expanding valency beyond 20 serotypes. We expect to be highly competitive by offering the largest

serotype  coverage  in  a  single  vaccine  while  strategically  addressing  the  persistent  medical  need

across invasive disease, antibiotic resistance, and challenging serotypes.

In  RSV  with  ABRYSVO,  I'm  pleased  to  report  that  yesterday,  we  received  an  approval  for

ABRYSVO's  Act-O-Vial  presentation  in  the  United  States,  a  presentation  that  offers  significant

advantage such as never frozen, unique system-enabling one-step reconstitution, highly valued by

pharmacies.  Additionally,  we  have  submitted  for  label  expansion  in  both  the  United  States  and

Europe  for  adults  18  to  59.  In  our  malignant  hematology  programs,  we  are  also  driving  progress.

Last week, we reported positive results from a phase 3 study demonstrating the safety and efficacy

of our onetime gene therapy candidates for people with hemophilia A.

As  we  continue  to  advance  our  pipeline,  additional  milestones  include  expected  updates  later  this

year  about  our  COVID/flu  combination  vaccine,  about  marstacimab  for  hemophilia  A  and  B  and

ponsegromab for cachexia, a wasting disorder associated with chronic diseases. Now I'll turn to our

strength with the commercial execution of our business. Another strategic area of focus is protecting

and  growing  our  core  product  portfolio,  while  we  also  maximize  the  performance  of  our  new

products. We continue to see encouraging progress with our team's execution.

Nurtec is an example where we are rising to meet substantial demand. This product delivered strong

results in the quarter with 44% year-over-year global operational revenue growth. We see additional

opportunities  for  expanding  share  in  both  acute  and  prevention  usage  as  well  as  growth

opportunities  in  international  markets,  where  we  are  making  progress  with  our  launches.  I  hope

Alexandre will be able to touch base on this during the Q&A session.

Now I will touch on a few additional product portfolio highlights. In the pediatric segment, Prevnar 20

continues  to  demonstrate  strong  performance  that  reinforces  a  leadership  position  among

pneumococcal  vaccines  in  the  United  States,  where  our  market  share  grew  to  greater  than  80%.

During  this  quarter,  the  performance  of  ABRYSVO  was  in  line  with  seasonal  vaccine  trends.  We

remain confident in our full-year performance as we believe we are well positioned to help address

the expected rising need later in the year among all the adults at increased risk for RSV.

Litfulo is a product we launched last year, and we are encouraged by strong demand. Approximately

one out of every 2 new patients on advanced systemic therapies is receiving a Litfulo prescription, a

position we expect to grow as we continue focusing on execution. We view Velsipity as a promising

and  much-needed  option  for  adults  with  moderate  to  severe  active  ulcerative  colitis.  We  are

encouraged by recently securing preferred coverage for Velsipity at our first large national payer.

We expect to see the impact of this in 2025. And now we are working to build on this with additional

payers.  When  we  consider  core  products  in  our  portfolio,  we  are  also  seeing  positive  impact  from

strong execution. The Vyndaqel family of products offers a good example of how we are making a

difference for patients in our business.

We  are  accelerating  growth  by  working  with  physicians  to  drive  improvement  in  identifying

appropriate  patients  with  ATTR  cardiomyopathy  and  helping  patients  to  access  and  stay  on  the

therapy  once  it  is  prescribed.  With  strong  growth  through  the  second  quarter,  we  believe  there  is

additional  opportunity  to  identify  more  patients  who  could  benefit  from  our  Vyndaqel  products

because  of  high  unmet  need.  It  is  estimated  that  nearly  half  of  those  with  this  progressive  and

deadly disease have yet to be diagnosed. Eliquis was another significant contributor to our results

as we continue to claim greater share in a growing oral anticoagulant market.

Now  let  me  briefly  wrap  up.  First,  I  would  like  to  thank  my  more  than  80,000  colleagues  for  the

dedication  they  are  showing  each  day  to  our  purpose  of  delivering  breakthroughs  that  change

patients' lives. We are confident in our business. With our focus and execution along with our deep

expertise in driving innovation and advancing our pipeline, we believe we are on track to deliver on

our full-year financial commitments in 2024.

I walked through our progress with three of our strategic priorities. And now Dave will cover our work

to expand margins by realigning our cost base and allocate capital to enhance shareholder value as

he discusses our financial performance and outlook. With that, I turn it to you, Dave.

David M. Denton -- Executive Vice President, Chief Financial Officer

Thank you, Albert, and good morning to everyone. As we close out the first half of this year, I'm very

pleased  by  our  second-quarter  results.  We  continue  our  relentless 

focus  on  execution,

demonstrating our ability to both protect and grow our core brands while also continuing to advance

our science-led transformation by investing in key TAs to build durable franchises. Our initiatives to

rightsize  opex  and  to  reduce  cost  of  goods  will  result  in  a  more  efficient  organization,  setting  the

stage for strong capital returns and long-term improved shareholder value, enabling our commitment

to both maintain and to grow our dividend.

This  morning,  I  will  briefly  review  our  second-quarter  results,  including  some  onetime  items,  touch

on our capital allocation priorities and wrap up with an update on our '24 financial guidance, our key

priorities, and expectations for the remainder of this year. Turning first to Q2 performance versus the

same  period  of  last  year,  let's  walk  down  the  P&L.  Total  company  revenues  for  the  quarter  were

$13.3  billion,  reflecting  operational  growth  of  3%.  Our  revenue  and  cash  flow  continue  to  be

impacted by the post-pandemic COVID environment on a global basis, but to a much lesser extent

than prior quarters.

Looking  at  our  business  excluding  our  COVID  products,  we've  demonstrated  strong  commercial

execution  across  the  enterprise,  resulting  in  14%  operational  revenue  growth  in  the  quarter.

Performance  was  positively  impacted  by  our  continued  focus  on  key  products  and  geographies,

refined  allocation  of  commercial  field  resources  globally  and  further  optimization  of  our  marketing

resources into key priority areas. Contributing to this performance was our acquired products from

Seagen  as  well  as  Nurtec  alongside  in-line  products,  Vyndaqel,  Eliquis  and  Xtandi.  As  expected,

dampening our growth in the quarter were Xeljanz and Ibrance.

Adjusted  gross  margin  for  the  quarter  was  79%  compared  to  76%  last  year  and  was  primarily  the

result  of  favorable  sales  mix  from  our  non-COVID  products  as  well  as  continued  strong  cost

management  across  our  manufacturing  network.  Improvements  in  our  gross  margin  rate  will

continue  to  be  a  focus  for  the  company  over  the  next  few  years  as  we  execute  on  our  recently

announced  Manufacturing  Optimization  Program.  This  new  program,  and  together  with  our  cost

realignment program, is focused on returning the company to pre-pandemic operating margins on a

mixed  adjusted  basis,  excluding  Comirnaty.  Phase  1  of  the  Manufacturing  Optimization  Program,

which focuses on operational efficiencies, is well underway now.

The first phase is expected to deliver approximately $1.5 billion in savings by the end of 2027, some

of  which  is  anticipated  to  be  realized  beginning  in  2025.  Total  adjusted  operating  expenses

increased 5% operationally to $6.3 billion and includes spending from our legacy Seagen business.

Looking  at  the  components,  adjusted  SI&A  expenses  increased  8%  driven  primarily  by  marketing

and  promotional  expenses  for  recently  launched  as  well  as  acquired  products.  Adjusted  R&D

expenses  increased  2%  operationally  driven  primarily  by  increased  spending  related  to  the

acquisition of Seagen, partially offset by lower spending primarily the result of our cost realignment

program.

Q2 reported diluted earnings per share was $0.01, and our adjusted diluted earnings per share was

$0.60. Unique onetime items included in our GAAP results and excluded from our adjusted results

this  quarter  include  a  $1.3  billion  charge  related  to  our  Manufacturing  Optimization  Program

primarily  for  severance  and  a  $230  million  charge  for  IPR&D  asset  impairment  and  other  related

costs associated with the discontinuation of our DMD program. Additionally, we expect to record a

charge of approximately $400 million in the third quarter of '24 after a decision was made in July to

sell one of our facilities as a result of the discontinuation of the DMD effort. Now let me quickly touch

upon our capital allocation strategy, which is designed to enhance long-term shareholder value.

Our strategy consists of maintaining and growing our dividend over time, reinvesting in our business

at  an  appropriate  level  of  financial  return;  and  finally,  making  value-enhancing  share  repurchases

after delevering our balance sheet. In the first half of 2024, we returned $4.8 billion to shareholders

via  our  dividend,  invested  $5.2  billion  in  internal  R&D  and  as  expected,  the  completed  business

development  activity  was  minimal.  Our  commitment  to  delevering  our  capital  structure  to  a  gross

leverage target of 3.25 times remains a key priority. In support of that goal, year-to-date, we have

paid  down  approximately  $2.25  billion  in  maturing  debt,  including  $1  billion  in  May  of  outstanding

notes.

And though we did not monetize any Haleon shares in Q2, we expect to resume monetization of our

23% Haleon stake in the future. I would also note that once our Haleon ownership is less than 20%,

our  accounting  will  transition  from  recording  equity  income  and  will  no  longer  be  included  in  our

adjusted  results.  This  change  is  factored  into  our  long-term  financial  planning  as  well  as  our

guidance. As we've previously stated, we expect operating cash flow to be significantly below typical

levels this year and particularly during the first half of '24 due to the timing of certain payments and

onetime expenses.

We  expect  heavily  weighting  of  revenues  to  the  fourth  quarter  as  our  businesses  become  more

seasonal in nature with the potential that a high level of cash collections may carry over into Q1 of

'25.  Despite  this  near-term  pressure,  clearly,  our  objective  remains  to  return  to  a  more  balanced

capital  allocation  strategy  over  time.  Now  let  me  spend  just  a  few  minutes  on  our  outlook  for  the

remainder of the year. We entered 2024 focused on delivering on our financial commitments as well

as commercial performance.

With  a  successful  first  half  now  complete,  we  believe  it  is  appropriate  to  update  our  full-year

earnings  outlook  to  reflect  our  strong  business  performance.  I'll  remind  you  that  our  revised

guidance  assumes  the  seasonal  cadence  of  our  product  portfolio  and  that  we  expect  Paxlovid

results to trend with infection rates. With that said, we are raising our full-year revenue range by $1

billion and our adjusted diluted earnings per share by $0.30. We now expect revenues in the range

of  $59.5  billion  to  $62.5  billion  And  operational  revenue  growth,  excluding  COVID  project  --

products, is now projected to be 9% to 11%.

COVID product revenues are now expected to be $8.5 billion for the year, $5 billion for Comirnaty

and  $3.5  billion  for  Paxlovid.  Our  guidance  for  adjusted  SI&A  and  adjusted  R&D  remains

unchanged,  while  our  effective  tax  rate  on  adjusted  income  is  now  expected  to  be  approximately

13%. And lastly, we expect adjusted diluted earnings per share of $2.45 to $2.65, primarily reflecting

the  increase  to  the  top  line  and  the  revised  tax  rate  among  other  items.  As  a  reminder,  our  EPS

guidance includes an anticipated $0.40 of earnings dilution from the Seagen acquisition largely due

to financing cost.

In closing, we remain on track to deliver at least $4 billion of net savings from our cost realignment

program  by  the  end  of  this  year.  This  improvement  in  our  cost  base,  alongside  our  new  initiatives

focused  on  manufacturing,  is  expected  to  put  us  on  strong  footing  toward  margin  expansion  and

improved  financial  returns.  Additionally,  our  continued  focus  on  execution  and  our  recent

investments  have  positioned  the  company  for  continued  success  moving  forward.  This  quarter's

results are a testament to the performance of our commercial business and our prudent approach to

improving our cost base.

Though we've had a strong first half, we do not take lightly the continued focus needed to deliver in

the  second  half,  considering  the  seasonality  of  our  respiratory  products.  We  are  clearly  striving  to

bring  about  improved  performance  on  both  top  and  bottom  lines  through  focus,  execution  and

delivering  on  our  near-term  commercial  and  financial  goals.  2024  is  clearly  a  foundation  year  for

Pfizer. Our achievements to date set the stage for generating compelling shareholder value.

Through  our  science-led  transformation,  we  will  methodically  build  off  this  space  and  with

breakthroughs and innovation driving growth in the back half of this decade. And with that, I'd now

like to turn it back over to Albert to start our Q&A.

Albert Bourla -- Chairman and Chief Executive Officer

Yes. Thank you, Dave. Let's start the Q&A session, operator. Please assemble the queue.

Operator

Questions & Answers: