Pfizer, Inc.

Good day, everyone, and welcome to Pfizer's first quarter 2020 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.

Thank you, Operator. Good morning, everyone, and thanks for joining us today to review Pfizer's first quarter 2020 financial results, our reaffirmed full year 2020 financial guidance, Pfizer's role in helping find solutions for the COVID-19 pandemic, as well as other relevant business topics. As usual, I'm joined today by our Chairman and 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, our 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 on this slide that covers our legal disclosures. Albert and Frank will now make prepared remarks and then we'll move to a question and answer session. With that, I'll now turn the call over to Albert Borla. Albert?

Thank you, Chuck, and good morning, everyone. During my remarks, I will discuss the first quarter business performance, as well as recent milestones from our pipeline. However, I want to start with a few thoughts about the COVID-19 pandemic and Pfizer's role in helping find solutions. It goes without saying that this is an extraordinary, difficult, and unprecedented time for everyone. The public health challenges posed by COVID-19 have impacted almost every aspect of our lives. As one of the world's largest biopharmaceutical companies, our role in this crisis is dual. On the one hand, we are focused on maintaining the continued supply of our medicines and vaccines to patients around the globe, while protecting the safety and well-being of all our colleagues, of course. On the other hand, we are working with experts, both within and outside Pfizer, to bring our expertise capital, and resources to help contribute potential medical solutions to this pandemic. Let me share a few examples of what we are doing on this front. With the burden on hospitals happening around the globe and expected to increase, the continued supply of our medicines and vaccines is now more critical than ever. I am pleased to say that the Pfizer global supply team has done an outstanding job keeping our manufacturing sites and related distribution channels operational without significant supply disruptions. In terms of finding medical solutions for the pandemic, we are collaborating with industry partners and academic institutions to develop potential novel approaches to prevent and treat COVID-19. We aim to relieve no stone unturned and we have made advances on multiple fronts. Regarding prevention. We recently announced that Pfizer and the German biotech company BioNTech have entered into a global collaboration agreement to co-develop the potential first-in-class mRNA-based coronavirus vaccine program aimed at preventing COVID-19 infection. Last week, we received regulatory approval from German authority Paul Ehrlich Institute to commence the first clinical trial for our COVID-19 vaccine candidates in Germany, and the first patient has already been dosed. We also plan to conduct trials in the U.S. upon regulatory approval, which is expected shortly. BioNTech and Pfizer will also work jointly to bring the vaccine to market worldwide, excluding China, which is already covered through a separate BioNTech collaboration, subject, of course, to successful development and regulatory approvals. We plan to manufacture millions of doses of the potential vaccine at risk by the end of 2020 to accelerate availability in the event the development program is successful and we obtain regulatory approval and then to rapidly scale up capacity to produce potentially hundreds of millions of doses in 2021. I want to thank everyone in both companies working on this project. Regarding the potential treatment, We now know our lead molecule is a very potent inhibitor of the SARS-CoV-2 3C-like protease with confirmed antiviral activity against SARS-CoV-2. We are accelerating towards the clinic and commencing regulatory discussions while also undertaking additional antiviral testing and working on the formulation for IV administration. We invested in clinical materials over a month ago ahead of understanding antiviral activity to accelerate the potential clinical studies earliest August or September of this year. We also continue to provide our clinical and regulatory experience to small biotech companies working on promising COVID-19 therapies. And we have several Pfizer medicines that they are the subject of novel research projects for investigation in patients with COVID-19. I want to publicly thank all our R&D colleagues who are working tirelessly and often late into the night to find potential vaccines and treatments that could bring an end to this pandemic. At the end, I'm confident that science will win the battle against COVID-19. Now let me turn to our results for the first quarter. Obviously, we experienced both headwinds and tailwinds related to COVID-19 during this quarter. On the one hand, Our sales representatives in many regions were not able to detail with physicians in their offices. In addition, patient visits to doctor offices declined significantly beginning at the end of March, which is expected to negatively impact new diagnosis of conditions requiring physician-administered diagnostic tests beginning in the second quarter of 2020. On the other hand, we saw an uptick in our hospital business unit the first quarter of due in large part to stronger than usual demand for some of our anti-infective medicines, as well as other sterile injectable products utilized in the incubation and ongoing treatment of mechanically ventilated COVID-19 patients. In total, we estimate that these puts and takes resulted in a net benefit of only 1% to our first quarter 2020 biopharma revenues, primarily reflecting increased demand for certain products in Pfizer's hospital portfolio and an increase in the wholesale inventory levels for Eliquis. In the face of these factors, we delivered a strong quarterly performance overall, highlighted by 12% operational revenue growth in our Pfizer biopharmaceuticals group, which will be the business that remains following the anticipated closing of the abjunt transaction in the second half of 2020. We also saw total company revenue negatively impacted by three expected events. The July 19 loss of exclusivity in the U.S. for Lyrica, the July 31 completion of the consumer healthcare joint venture transaction with GSK, which removed our recording of revenue and expenses from this business, and declines in China due to the volume-based procurement program which was initially implemented in March 2019 and expanded nationwide in December of 2019. The Lyrica and consumer impacts will both begin to annualize in the third quarter. The biopharmaceutical group's outstanding growth was again driven primarily by strong performances from our key growth drivers. These include Eliquis, Vintakel Vintamax, iBrands, Enlighta, and Xtendi, as well as 15% operational growth in emerging markets. Our oncology business was particularly strong, up 25% operationally compared with the year-ago quarter. Global iBrands revenues increased 11% operationally to $1.2 billion during this quarter. In the U.S., iBrands revenues grew 15%, and it retained its strong leadership position in the CDK class due to increased volumes and continued CDK class market share gains. The international market delivered strong 25% volume growth in the quarter, led by emerging markets. This volume growth was offset by pricing pressures in the EU5 markets. As a result, operational revenue growth outside the US was 5%. For Xtendi, Alliance revenues in the U.S. were up 25% for the quarter, and when combined with our royalty income on ex-U.S. sales, total $256 million. XMD is the market leader with 38% market share in total prescriptions in advanced prostate cancer. Demand reached an all-time high during the quarter due to solid growth in castrate-resistant prostate cancer, expansion into metastatic castration-sensitive prostate cancer, and overall novel hormone therapy class growth. We are pleased with the early impact of the launch of Xtendi for metastatic castration-sensitive prostate cancer in the US. Xtendi is the first and only oral treatment approved by the FDA in three distinct types of prostate cancer. And related to our acquisition of RA biopharma, we are pleased by the FDA's approval of the lead RA acid, BRAFTOVI, in combination with cetuximab for the treatment of adult patients with metastatic colorectal cancer with a BRAF mutation after prior therapy. We believe the BRAFTOVI tablet has the potential to make a meaningful impact on the lives of those living with this disease. Beyond oncology, we had several other strong product performances. Eliquis continued to perform well. Pfizer's surge of the global revenue was up 29% operationally to $1.3 billion. This growth was driven primarily by continued increased adoption in non-valvular arterial fibrillation, as well as oral anticoagulant market share gains. Additionally, U.S. growth was favorably impacted by COVID-19-related wholesaler buying patterns, partially offset by a lower net price. Looking at our rare diseases business, Ventacle and Ventamax continue to show strong U.S. performance. Overall, these breakthrough medicines contributed $127 million in revenue in the U.S. in the first quarter. our disease awareness efforts helped drive the estimated diagnosis rate to 13% in the first quarter, compared with only 1-2% prior to launch. At the end of the quarter, more than 13,000 patients have been diagnosed, more than 8,500 patients have received a prescription, and more than 5,000 patients have received the drug. For the quarter, we estimate the average number of patients in the U.S. taking Vinterquel was approximately 4,600. These numbers include patients who are receiving the drug at no cost through our patient assistance programs. In Europe, we received approval of Vinterquel for the treatment of ATTR cardiomyopathy in February, and we have already launched in two markets, including Germany. That said, as a result of stay-at-home orders, we are seeing a slowdown in new diagnosis in April, as fewer patients are visiting doctors' offices for consultations or scintigraphy tests. Global Zeldon's revenue were up 8% operationally in the quarter to $451 million. Revenues outside the U.S. were up 38% operationally primarily reflecting continued uptake in rheumatoid arthritis, as well as from the recent launch of the ulcerative colitis indication in certain developed markets. In the US, Zeldjan's revenues were down 4%. This reflected continued strong demand across all approved indications, more than offset by a lower net price due to higher rebating from commercial contracts signed in 2019. as well as temporary lowering of wholesaler inventory levels in first quarter 2020. Wholesaler inventory levels for Zeldens were restored to normal levels in early April 2020, during Pfizer's second quarter, as underlying volume demand has remained consistently strong. Global Prevenor 13 revenues were down 1% operationally, to $1.45 billion, with 11% operational growth internationally, primarily reflecting continued pediatric uptake in China and the overall favorable impact of timing associated with government purchases for the pediatric indication in certain emerging markets, including Russia and Turkey. In the U.S., revenues were down 10%, primarily reflecting the unfavorable impact of timing associated with government purchases for the pediatric indication compared with the previous year quarter. Looking at our sterile injectables portfolio, our manufacturing recovery is having a positive impact on the top line in the U.S. We have completed most of our supply remediation and continue to invest in modernization necessary to sustain performance. In response to increasing demand due to the COVID-19 pandemic, In March, Pfizer shipped more than 30 critical medicines to 150% of baseline demand from this portfolio, and more than 10 of these exceeded 200. In certain cases, Pfizer supported up to 600 of baseline demand. Of note, our global revenue from a sterile injectable portfolio grew 15% operationally in the first quarter and increased 6% sequentially compared to fourth quarter of 2019. Additionally, more than 90% of our injectables portfolio is in stock today. Our global biosimilars portfolio grew 63% operationally to $288 million in the quarter. The increase was driven largely by steady growth in the U.S., thanks to a strong performance of Retacrit and continued progress with Inflectra, which was up 46% due to increased demand in open systems. partially offset by price erosion. We also have launched three therapeutic monoclonal antibody oncology biosimilars in the U.S. over the past few months, and we are encouraged by our initial engagements with payers and providers where we have not seen the negative impact of exclusionary contracting by the innovator companies that we had seen with the Inflectra launch. Revenues for our AppZone business were down 37% operationally in the quarter to $2 billion. The decline was primarily driven by the expected significant volume declines for Lyrica in the U.S. due to multi-shore generic competition that began in July 2019. AppZone revenues in China declined 41% operationally, primarily driven by undisputed declines for Lipitor and Norvac, primarily resulting from the value-based procurement program, which was initially implemented in March 2019 and expanded nationwide beginning in December of 2019. These declines were consistent with our previous guidance for the Abzon business. Regarding Abzon's combination with Mylan, the industrial logic continues to be very attractive. While we pushed out the expected timing of the deal close to the second half of 2020, mostly due to administrative delays related to COVID-19, there is no change in our commitment to the transaction and we continue to move forward with all pre-closing activities and initiatives. Last week, the European Commission approved the proposed transaction, subject to divestment of certain of Milan's generic medicines. Turning now to R&D, we continue to be excited with the progress we are making with our pipeline and the potential it has to deliver significant benefits to patients across a range of therapeutic areas. Since our last earnings call on January 28th, we have seen some exciting milestones. We announced top line results from a phase three study of Pfizer's 20-valent pneumococcal conjugate vaccine in adults 18 years of age or older. The vaccine candidate demonstrated a safety and immunogenicity profile comparable to licensed pneumococcal vaccines, and we expect to file the adult 20-valent pneumococcal indication with the FDA in early fourth quarter of 2020. We are announced, we are encouraged about our potential maternal RSV vaccine, which had a recent Phase II redoubt with preliminary positive data with favorable tolerability and safety. A Phase III start is projected within a few months, and we look forward to discussing this data with regulators. We announced positive top-line results from a third Phase III trial of abracitinib. The study, which evaluated the safety and efficacy of abrocitinib in adults with moderate to severe atopic dermatitis who were also on background topical therapy and included an active control arm treated with dupilumab plus background topical therapy, met both of its co-primary efficacy endpoints. In a key secondary endpoint, the proportion of patients in the abrocitinib 200 milligram arm let's see, the clinically significant reduction in each by week two was statistically superior to the dupilumab ARB, while the 100 milligram abracitinib ARB was numerically higher but not statistically significantly higher than the dupilumab ARB at week two. These data, along with the results from other positive monotherapy pivotal trials, will support regulatory filings, starting with the FDA plan for later this year. Our filing for Tanizumab was accepted for review in March at both the FDA and EMA. We are pursuing approval for the 2.5 milligram dose administered subcutaneously in patients with chronic pain due to moderate to severe osteoarthritis who have failed prior analysis. In the U.S., we expect an advisory committee meeting later this year and a decision from the FDA in December. A decision from the EU regulators is expected next year. Our ACC DGAT2 inhibitor combination has achieved positive results in a phase two proof of concept study for NASH. Data from that study will be shared at an upcoming Congress. The licensed ANG PTL3 NDSEN's oligonucleotide project successfully concluded the phase 1 to A part of the program, meeting its primary endpoint and multiple secondary endpoints. The program has advanced towards phase 2B with a focus on two indications, severe hypertriglycemia and cardiovascular risk reduction. Preliminary results in our Phase 1b Duchenne muscular dystrophy gene therapy study support the continuation of the trial and the start of a Phase 3 program, which is anticipated to begin dosing patients in the second half of 2020, subject to regulatory approvals, of course. The Phase 1b trial continues despite the current COVID-19 pandemic because of the urgent need of these patients and their families. We will be sharing more results from this trial on May 15th at the American Society for Gene and Cell Therapy Conference. Despite a brief pause in clinical trial recruitment, most of our key pipeline programs continue to move forward. The anticipated timing for top-line data from the Phase III Ibram's PALACE study remains early 2021, for example. because the study was already fully enrolled before the post. To end, Devel and Yuma Koka adult studies also have completed, and we are just waiting on the results. We look forward to rescheduling our investor day, previously scheduled for March 31st, once we have a clearer picture of the evolving guidelines regarding COVID-19. So now, before I turn it over to Frank, I would like to give you a broad view of our reaffirmed 2020 financial guidance for Total Pfizer. Pfizer and Abzan combined, which I see as a strong message regarding the strength and resilience of our business. I will speak to Total Pfizer and Frank will provide more specifics in his comments. Since our initial 2020 guidance was provided in January, we have seen three incremental factors that we have incorporated into our guidance. R&D investments we have made and plan to make during 2020 to combat COVID-19. The projected COVID-19 impact and other operational impact items on our operations in terms of the P&L and changes in foreign exchange rates. In terms of the first factor, as you have seen us announced already, we see promising science-based opportunity in terms of combating COVID-19. In support of this highly important initiative, we are increasing our projected R&D investment for 2020 by $500 million. This predominantly reflects the investment in our COVID-19 vaccine development collaboration with BioNTech, which is rapidly moving forward. Regarding the second factor, we have analyzed the changing dynamics within our markets and believe that we are likely to see more negative impacts during the second quarter, driven primarily by reductions in new patient starts due to reduced office visits and diagnostic testing and lower levels of elective subjects. we are modeling an overall economic recovery beginning in the second half of this year with an expectation that healthcare activity will approach pre-COVID-19 levels later in the year. Obviously, there are still uncertainties, but we believe we do have a resilient business model and a clearer line of sight for our business as compared with those in many other sectors of the economy. Our portfolio comprises medicines where we see potential different types of impact from the COVID-19 pandemic. Some are medically necessary, such as eliquids and eye brands, but also more reliant on continuing patients. Some are generally more reliant on new patient sites, such as vindical or chandix, or used in certain surgeries. and still other medicines that have been identified as medically necessary in the pandemic, such as some of our hospital sterile injectable products, and are seeing increased utilization because of the COVID-19 crisis. Also remember that a large proportion of our portfolio is made up of oral or self-injected medicines and that do not require a visit to an infusion center or doctor's office. In addition, a majority of revenue for our portfolio is derived from specialty pharmacy channels, which enables direct delivery of these medicines to patients. Both are positive factors in the current environment. Given that, we anticipated a blended impact of COVID-19. Let me offer a few specifics regarding how we are projecting the COVID-19 pandemic to impact our larger revenue growth drivers. Medicines such as Ibrans and Eliquis, both are expected to continue to generate new patient starts, but they are also more mature and therefore more dependent on maintenance therapy with continuing patients. Both are oral medicines, leaders in their categories, and very well known to physicians. Attributes such as Eliquis noted safety profile, which does not require regular monitoring. may provide an opportunity for appropriate patients with an alternative treatment option during this time. As for Ibrans, while we would expect to see some minimal impact in new patient starts for Ibrans in second quarter, we also expect to see a catch-up in the second half of the year. Vintacor is a good example of a recently launched product that not only is highly dependent on new patient starts, but the diagnosis process also requires a doctor's office visit and subsequent diagnostic testing through additional office visits. We anticipate a drop in new patient starts and are seeing that currently, and we are seeing that currently, but we believe the strong momentum behind this workbook will resume in the second half of the year in terms of diagnosis, prescribing, and patient access. Regarding Prevna, While we anticipated temporary slowdown in vaccinations in the second quarter, we believe that a resurgence in infant vaccinations to catch up could take place in the second half of the year. And for adults, we anticipate there will be heightened awareness of the importance of getting vaccinated prior to the next flu season. As of Zeldans, in a category where many other products are infusions, Zeldzans provide a number of options for patients which should be well suited to the current environment. Because Zeldzans has been in the market for more than eight years, a large proportion of its revenues is driven by continuing patients. It also has broad payer access and patient co-pay support. We expect to see temporary impact to new patient starts for Zeldzans in the second quarter. But again, we expect to see recovery in the second half of the year. Where we are seeing a more pronounced negative impact is with medicines that might not seem as obvious. Xandix, for example, which is generally prescribed during a well visit with a physician. And BMP, which is used in elective surgeries, would be two products I would highlight here in this category. When looking across the portfolio, we don't see this as revenue that will be lost forever, but mainly as deferred revenue to be slowly recouped as the pandemic eases and we see a normalization of interactions between our sales force and physicians and between physicians and patients. As a result, we believe that the anticipated net impact of these factors in combination with some non-COVID related operational improvements should be negligible in terms of our total company revenue rate projections for 2020. We have also reduced our SINA guidance for the year. This reflects reduced spending on both direct and indirect SINA during the first quarter, as well as some additional efficiencies identified for the remainder of 2020 in our indirect SINA reduction initiative. Lastly, regarding foreign exchange, Since our initial guidance in January, the U.S. dollar has strengthened, which drives an expected reduction of our revenues of approximately $600 million and negatively impacts adjusted earnings per share by approximately 4 cents. Bringing this all together now, our current view of the underlying strength, breadth, and projected resilience of our business in these uncertain times allow us to absorb both the incremental $500 million in projected R&D investment this year and the incrementally negative foreign exchange impact to maintain our initial guidance ranges on both the top and bottom lines. In addition, I see the long-term fundamentals of our business remaining strong and following the completion of the abjunct transaction, I expect our business to be positioned to generate