Pfizer, Inc.

Good day everyone and welcome to Pfizer's second quarter 2019 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Chuck Triano, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning and thank you for joining us today to review Pfizer's second quarter 2019 performance and our updated 2019 financial guidance. We appreciate your flexibility today. I know it's been a busy morning for everyone. I'm joined today by our CEO, Albert Borla, Frank D'Amelio, our CFO, Michael Dolston, President of Worldwide Research and Development, Angela Wong, Group President, Pfizer Biopharmaceuticals Group, John Young, our Chief Business Officer, and Doug Lankler, General Counsel. The slides that will be presented on this call were posted to our website earlier this morning and are available at Pfizer.com forward slash investors. You'll see here that slide three covers our legal disclosures. Also, any discussion related to our recently announced proposed transaction with Mylan to combine Upjohn and Mylan to create a new global pharmaceutical company is subject to certain risks and uncertainties that are discussed under the forward-looking statement section in the press release we issued this morning. Today's call is not intended and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any securities. With that, I'll now turn the call over to Albert Bourla. Albert.

Thank you, Chuck, and good morning, everyone. During my remarks, I will discuss the progress we are making in the business, the latest advancements within our R&D pipeline, and our ongoing work to advocate for policies that support affordable access for patients. But before I address these topics, I would like to make a few comments regarding our recent activities to reshape our company, including the agreement we announced this morning. We have been very busy. We recently completed the Theracon acquisition. We expect to close the Ari acquisition very soon. We are about to create the Jane Venture with GSK for our consumer business. And we just announced the proposed agreement with Milan for our option business. When all these actions are complete, Pfizer will be a smaller, more focused, science-based company with a singular focus on innovative pharma. We believe we will be in a position where our pipeline will be able to move the needle even more dramatically in terms of our long-term growth prospects. In fact, we see our growth profile improving in three ways. We expect our five-year revenue CAGR to be higher than it otherwise would have been. We see the growth starting earlier because the Lyrica-Iloi cliff will go away. And given our smaller size, we believe the growth will be more sustainable. We also will still have the financial flexibility to continue to invest in growth while returning capital to our investors. These are deliberate steps. we are taking to make Pfizer a very different company, and one that is even better equipped to fulfill our purpose, breakthroughs that change patients' lives. Now let me talk about the quarter. I am pleased to report that our performance for both the quarter and the first half of the year has been solid. In the second quarter, revenues were up 2% operationally, company-wide. Our growth was driven again by volume increases partially offset by price declines. If we look at our biopharmaceuticals group, which represented 72% of our revenue base this quarter, the volume increases had an even bigger impact on the growth, despite a net pricing decline in the quarter. Overall, we saw volume growth in several key brands, emerging markets, and biosimilars. These growth drivers were partially offset primarily by the continued impact of the loss of exclusivity of Viagra, in the U.S. in December 2017, a 20% operational decline in absence revenues in China, declines in Embraer internationally and Lyrica in the U.S. and EU, and also product supply shortages and LOEs in the hospital business. Let's begin with the results from the biopharmaceuticals group. We continue to be very pleased with the performance of this business, which grew its top line 6% operationally in the quarter. Our oncology business was particularly strong, up 23% operationally, driven by Ibrans, Xtandi, Inglita, and Retacrit. Global revenues for Ibrans were up 27% operationally in the quarter to $1.3 billion. While most of Ibrans' growth continues to come from international markets, we did see 12% growth in the U.S. during the second quarter. We believe this accelerated growth rate is the result of our effort to target specific physicians who had not been prescribing CDK inhibitors or had prescribed them to only a small set of patients. Overall, the CDK class appears to have gained additional ground in the U.S., which is good news for patients. For extending, Alliance revenues in the U.S. grew 18% operationally to $201 million. Xtandi is the leading branded novel hormonal therapy to treat castrate-resistant prostate cancer. We continue to see increased Xtandi prescriptions for new patients. Enlighta revenues increased 34% operationally to $104 million. This included 82% growth in the U.S. Enlighta has benefited from recent FDA approvals for the combination of Enlighta plus Baventio, and in Lyta plus Tremblizumab in first-line treatment of advanced renal cell carcinoma. Finally, Ritacrit, our biosimilar for Epogen Procrit, is off to a good start in the U.S. with $30 million of revenues in its second full quarter following loans. Beyond oncology, we had several other strong product performances. Zelzans continued to perform well, Global revenues were up 36% operationally to $613 million. We saw continued volume growth in the rheumatoid arthritis in the case. And the recent launches of ulcerative colitis and psoriatic arthritis also contributed to the growth. Regarding the update to Zeldin's prescribing information in the U.S., we remain confident in the benefit-risk profile of the drug. which has been studied in more than 20 clinical trials and prescribed to more than 208,000 adult patients worldwide. At this stage, we do expect some impact to prescribing, but based on our initial commercial assessment, we believe that on an enterprise level, the 2019 impact will be offset by strengths in other parts of the business. Zergens remains an important treatment option for rheumatoid arthritis, psoriatic arthritis, and ulcerative colitis. Inappropriate patients who are suffering from these debilitating autoimmune conditions. Eliquis continues to perform well. Global revenues were up 26% operationally to $1.1 billion. Eliquis is now the number one oral anticoagulant in 10 countries, the US, and the UK. Our recent launch of Tafamidis, with the brand name of Vintacle, has been in line with our expectations. As the first and only FDA-approved treatment for patients suffering from ATTR cardiomyopathy, Vintacle meets a previously unmet need. We have in place programs to help support affordable access for patients, and we are working to facilitate early detection and diagnosis through the use of scintigraphy and by developing innovative AI solutions. AI, I mean artificial intelligence solutions. In fact, we have already seen a significant increase in diagnosis rates. And since the launch, we have added approximately 500 commercial patients to the approximately 900 clinical trial and compassionate use patients. that were already on the drug for ATTR cardiomyopathy in the U.S. We expect these numbers to grow as awareness and diagnosis rates increase. Preventive pediatric revenues were negatively impacted by some government purchasing patterns in the year-ago quarter, as well as during the first quarter of this year. However, here today, it is performing in line. It is important to note that even with a recent change in its recommendation, ACIP maintains a recommendation for the vaccine for adults 65 and older. However, now it is under a new classification called shared clinical decision-making, wherein the decision to vaccinate should be made at the individual level between healthcare providers and their patients. also maintains its reimbursement status with payers. While the updated recommendation is not effective until the publication of the morbidity and mortality weekly report, we will assess any impact based on the customer feedback after the language is posted. At this stage, we anticipate some reduction in demand, but we believe that on an enterprise level, the 2019 impact will be offset by strengths in other parts of the business. In sterile injectables, manufacturing supply constraints continue to impact our top line in the US. We continue to make steady progress toward remediation, and we expect these issues to be significantly improved by the end of 2019. Once we are back on track, we continue to expect this business to be a solid growth contributor in the future. Now let me speak about ABZON. Revenues for our ABZON business were down 7% operationally. The main driver was China, where we saw a 20% operational decline, driven primarily by volume-based procurement reforms that were implemented in March 2019. These reforms unfavorably impacted Lipitor and Novartis. This impact has been anticipated since the beginning of the year and was already included in our 2019 financial guidance. Given first half 2019 operational growth of 13% and the outlook for the remainder of the year, revenues for Abjon in China for the full year are expected to grow by low to mid-single digits operationally. In cities where our products did not win the tender in the second quarter, we expect continued volume growth, although of a lower base. In addition, we continue to see growth opportunities in non-tender products. We also saw a 9% decline in the U.S. The primary drivers were continued generic competition for Viagra and wholesaler destocking for Lyrica, in anticipation of multi-sort generic competition, as well as continued industry-wide pricing challenges. For our consumer healthcare, Pfizer's consumer healthcare revenues were up 1% operationally in the quarter. This reflected 4% operational growth in international markets, partially offset by a 2% decline in the U.S. We anticipate the formation of our joint venture with GSK to occur by August 1st, and we expect the newly created business to unlock meaningful value for Pfizer, our customers, and our shareholders. Turning to R&D, we continue to be excited with the progress we are making with our pipeline, both in terms of the breadth of opportunities and the depth of our science. Since our last earnings call on April 30, we have received seven approvals for new medicines or indications. In the U.S., the FDA has approved Vintakel and Vintamax for the treatment of ATTR cardiomyopathy, Xerabeth, a biosimilar to Avastin, for the treatment of five different types of cancer, a new indication for Inflectra, a biosimilar for Remicade, which is now approved for pediatric patients six years of age and older, with moderately to severely active ulcerative colitis. Raxions, a biosimilar to rituxim for the treatment of certain cancers and autoimmune conditions. And Baventio in combination with Enlita for the first-line treatment of patients with advanced renal cell carcinoma. In Europe, the European Commission has approved Talzena for patients with inherited, raca-mutated, locally advanced or metastatic breast cancer, and Lorviqua for treatment of adult patients with ALK-positive advanced non-small cell-length cancer. We are working hard to ensure patients have access to these important medicines as soon as we can. In addition to the approvals, we continue to make progress with other candidates in our pipeline. In vaccines, we expect a proof-of-concept data redoubt in the coming months from the infant phase 2 study of our next-gen 20-valent pneumococcal vaccine candidate. Our multivalent group B streptococcus vaccine candidate started phase 2 trials in pregnant women, with a study being conducted in South Africa, a region with one of the highest burdens of this potentially devastated infection. In rare disease, we presented initial Phase Ib clinical data on our investigational gene therapy to potentially treat the same muscular dystrophy. Data from the Phase Ib study are providing the basis for an informed decision on dose selection and the design of a currently planned Phase III pivotal study that could begin in the first half of 2020. With our partner, Sangamo Therapeutics, we announced updated results from the Phase I-II ALTA study, evaluating investigational SB525 gene therapy for severe hemophilia A. The FDA recently granted a regenerative medicine advanced therapy designation for this potential therapy. The tissue factor pathway inhibitor, TFPI monochloric antibody, for subcutaneous weekly treatment of hemophilia A and B, met the preset criteria for proof of concept. It is advancing toward pivotal studies. We expect pivotal redoubts during the third quarter for rivapencil in sickle cell. In inflammation and immunology, we saw positive top-line results from a phase 3 pivotal study of our JAK1 inhibitor, abracitinib, in patients aged 12 and older. with moderate to severe atopic dermatitis. Additional data from another study in the JATE program will be available later this year. In internal medicine, based on our assessment of the Tanizumab subcutaneous data and the initial discussion with the FDA, we will prioritize Tanizumab 2.5 milligram for moderate to severe osteoarthritis. We are targeting a U.S. regulatory submission in late Q4 2019 or early 2020 to be followed by EU and Japan. At this time, regulatory submissions are not planned for the five milligram dose for osteoarthritis or in chronic lower back pain. But we are continuing to assess and will maintain an open dialogue with regulatory authorities on future potential pathways for tenesumab. Lastly, in oncology, We are excited about the pending acquisition of ARAE Biopharma. We believe ARAE's assets fit neatly into our business, and we expect the three key drivers of the acquisition, the colorectal cancer opportunity, the existing royalty stream, and ARAE's research platform to become solid contributors to Pfizer's growth potential as we move into the next decade. We expect the deal to close in the near term. As we have said in the past, none of our breakthroughs will do patients any good if patients can't afford them. Pfizer remains committed to working with policymakers at both the federal and state levels and on both sides of the aisle on common sense solutions to improve patients' affordability. We continue to work on the policy solutions I laid out in testimony before the Senate Finance Committee in February. These include capping seniors out of pocket costs in Part D, incentivizing value-based arrangements, and establishing a robust biosimilars market to lower health care costs. In summary, we deliver a solid second quarter and first half of the year. Our pipeline is producing new medicines. Our commercial strategy is helping us reach millions of patients around the world. And most important, we continue to see volume gains as opposed to pricing gains driving our business. Looking ahead, we expect the pending combination of Abzon and Mylan to allow both Pfizer and Abzon to have a singular focus on their respective parts of the business. We believe This will enable us to deliver enhanced value for patients, colleagues, and shareholders. I also want to congratulate Michael Gettler on being named CEO of the combined company. While I personally would be sorry to see him leave Pfizer, I know from having worked closely with him for many years that the new company is getting a strong leader and the right person to help it seize the tremendous opportunity that lies ahead. Now, I will turn it over to Frank to provide details on the quarter and our outlook for the remainder of 2019. Thanks, Albert. Good day, everyone.