Pfizer, Inc.

Good day, everyone, and welcome to Pfizer's second quarter 2025 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Francesca DiMartino, Chief Investor Relations Officer and Senior Vice President. Please go ahead, ma'am.

Good morning, and welcome to Pfizer's earnings call. I'm Francesca DiMartino, 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 2025 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. Members of our leadership team will be available for the Q&A session. 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.

Thank you, Francesca. Good morning, everyone. Thank you for joining our call. Our business is performing well, and I'm pleased with the progress we achieved in the second quarter. We advanced and strengthened our R&D pipeline We worked to maximize the value of our commercial portfolio and made further strides to expand our margins. We continue to be actively engaged with policymakers as we navigate a complicated and rapidly evolving geopolitical environment, while also remaining focused on advancing our business. With our strong year to date performance, we are raising our adjusted diluted EPS guidance for full year 2025 and remain committed to our dividend. Our programs to expand margins through focus, technology and simplification are working very well. We are driving productivity gains by leveraging technology such as AI and automation. and we are also realizing the benefit of continued streamlining across our company. We believe Pfizer is well positioned to continue creating meaningful value for patients and our shareholders. Our top strategic priority this year is, of course, improving R&D productivity. I'm proud of the outcomes we are driving and the meaningful milestones achieved during the quarter. Looking ahead, We believe key programs in our R&D portfolio offer significant opportunities to help address substantial patient need and drive Pfizer's growth in the coming years. I will mention some highlights. Elrexium is a medicine that is performing very well with rapid growth and encouraging progress in claiming leading class SER in new markets, such as Japan, United Kingdom, and Spain. The clinical data in an erection initially heavily treated, triple class exposed multiple myeloma indication continued to be encouraged with median overall survival of greater than two years, which is more than double the historical median overall survival in this population. Moreover, the majority of responding patients are maintaining their response at 30 months LREXFU has the potential to be a leading standard of care with a differentiated clinical profile. It is a convenient, subcutaneous, fixed-dosing regimen, the only one, that now includes a once-every-four-week option for select patients. New data presented at the American Society of Clinical Oncology annual meeting in newly diagnosed patients demonstrate a righteous potential to move to earlier multiple myeloma treatment settings. This data from part one of the Magnetis MM6 study saw a confirmed response rate greater than 97%. and the manageable safety profile in combination with TARATUMU-PAP and LELALINO-D. The randomized portion of this Phase III study is now enrolling very well. By executing on Magnetis MM6 and L-REXFUS, other ongoing Phase III trials, we aim to achieve label expansion that, if approved, would collectively increase the addressable population approximately five-fold in the growing multiple myeloma market, expected to reach approximately 44 billion by year 2030. Sigvotatov-Vedoti, or SV, is our first-in-class integrin beta-6 ADC that could be a driver of growth later this decade. we are executing a robust development program with this investigational compound in non-small cell lung cancer. This includes our fully enrolled phase three study of SV monotherapy versus Tocetaxel in previously treated non-squamous patients that we expect data from next year. In the second line plus population, we have observed a durable 31% confirmed response rate which is favorable versus historical data with docetaxel monotherapy. We are also enrolling a phase 3 study of SSV in combination with a PD-1 checkpoint inhibitor in first-line non-small cell lung cancer with high PD-1 expression based on encouraging phase 1 data for this combination, recently presented at ASCO. These results showed a 57% response rate and greater than 90% disease control, including responses in all patients in the tumor proportion score greater than 50%. Which compares favorably to historical anti-PD-1 monotherapy. These results support an ambition to change standards of care to conventional chemotherapy sparing regimens by leveraging the potential synergy between the DOTIM ADCs and PD-1 checkpoint inhibitors. With our ongoing and planned trials in non-small cell lung cancer, SV has the potential to impact large patient populations. with a non-small cell lung cancer market expected to reach over $60 billion by year 2030. Our strategy is intended to deliver a first approval in previously treated patients before moving into the first-line setting, which is a non-small cell lung cancer, includes more than half a million global patients. In hematology, we continue to promote the differentiated profile of hematosis. In the quarter, we saw positive top-line data from the Phase III-based study evaluating Hempavzi for adults and adolescents with hemophilia A or B. The study's cohort of patients with inhibitors met its primary employment, demonstrating a statistically significant and clinically meaningful 93% reduction in annualized bleeding rate compared to on-demand treatment in patients 12 years or older, which compares favorably to recent approved products for hemophilia A and hemophilia B. These results further strengthen Hempavz's differentiated profile as the first once-weekly fixed-dome subcutaneous treatment for hemophilia A or B administered in a convenient pre-filled autoinjector bed. They also support the potential to expand its label to patients with hemophilia who develop inhibitors to factor replacement as we continue to execute on its launch in the previously approved non-inhibitor population. We have seen considerable quarter-over-quarter growth, particularly in the hemophilia B market, where subcutaneous treatments are only recently available. and follows EU and Japan approvals at the end of last year, we are seeking reimbursement on pursuing early access pathways in other international markets as we grow our presence in the hemophilia market projected to reach nearly 10 billion by year 2030. Moving to our vaccine portfolio, we are enthusiastic about our potential to deliver the first approved vaccine for C. difficile infection. Our second-generation investigational vaccine candidate builds upon encouraging results from the prior Phase III global trial of our first-generation candidate. This trial demonstrated 100% efficacy against medically-attended C. diff infection despite not achieving the study's primary endpoint. With our second-generation C. diff vaccine formulation, we have the potential to simplify the dosing schedule from three to two weeks. This candidate, now in phase two, increased the strength of the immune response fourfold compared to the first generation vaccine. Based on this newly announced phase two data, we are preparing for a phase three start before the end of this year. We will incorporate learnings from the previous Clover study to develop new primary endpoints focused on the prevention of severe disease outcomes rather than primary infection. If approved, the vaccine could significantly reduce the healthcare burden of the nearly 500,000 annual sea death infections and approximately 30,000 annual deaths in the US alone. In another one of our phased-in products, we finished dosing the last patient in our study of a vaccine candidate for Lyme disease. If successful, we expect to submit for approval next year. We also continue to strengthen our portfolio by harnessing external innovation through strategic business development. The recent closing of our global ex-China in-licensing agreement with three Aspire grants has exclusive rights to develop, manufacture, and commercialize SSGD707, a bispecific antibody. Targeting PD-1 and VEGF has the potential to deliver breakthroughs for patients in the next wave in PD-1 immunotherapy, which is an established 55 billion mark. With compelling monotherapy data in advanced non-small cell lung cancer presented recently at Aspen, we view this promising cancer immunotherapy candidate as a seamless fit within Pfizer's oncology strategy. Given our deep experience in the development of antibody therapeutics and our differentiated industry-leading portfolio of ADCs, We intend to share detail later this year for our plans for a phase 3 program. With Pfizer's established presence and global reach, we believe 707 has the potential to become a backbone therapy for multiple solid tumor types where the PD-L1 VETS mechanism could have significant impact. Across our pipeline, we continue to sharpen our focus on programs where the strength of our capabilities give us the greatest opportunities to address substantial base on it. We look forward to sharing future updates about our programs. Now let's move to commercial. Our commercial strategy is unlocking higher productivity and performance across both our U.S. and international divisions. With several of our established brands, we are pleased with our continued market leadership and growth. We deliver another solid product for our Vintagel family with 21% year-over-year operational growth. These products are the foundation of care for patients with a serious heart condition of ATTR cardiomyopathy, and we continue to see strong progress in diagnosing patients and providing broad access. While we continue to closely monitor the competitive impact of new entrants, we believe the ventricle family is differentiated with a strong clinical profile contributed to continued growth. With Eliquis, we are the clear leader with robust demand in a growing anticoagulant market. Our international commercial teams are driving higher growth versus the market in our key countries with effective engagement with healthcare professionals to reinforce the favorable profile of these medics. In the U.S., the BMS-Pfizer Alliance recently announced a new direct-to-patient option for purchasing Eliquis via the Alliance's patient resource, Eliquis 360-some-more. This option offers an insured, underinsured, or self-pay patient an opportunity to significantly lower out-of-pocket costs for aliens. Among some of our recently launched acquired brands, we are seeing strong underlying demand in competitive classes as we work to build expanded access and greater awareness and loyalty, of course, among healthcare professionals. With Nortec, we continue driving strong commercial execution. We are pleased with the performance of new consumer campaigns and greater precision and effectiveness in sharing compelling clinical data with healthcare professionals. In the US, we achieved strong growth in total prescriptions and with 47% market share, maintain leadership in the oral CGRP class offset by pressures on net revenues from the impact of the IRA, medical part D redesign, and the 340B program. Unfortunately, internationally, we are achieving strong performance in several key markets where we already have access and are encouraged by the potential to unlock additional opportunities by continuing to expand access. Part C. A key product in our oncology portfolio is demonstrating strong performance and we see multiple avenues for future growth. ADC for the treatment of adult patients with locally advanced metastatic urothelial cancer. PACEV achieved high year-over-year operational growth of 38% in the quarter with growing demand and the one-time favorable impact from a transition to a wholesaler distribution model for citizen products. PatCern, in combination with Pembrolizumab, has secured market share greater than 50% in first-line LA metastatic UC and is the standard of care first-line treatment. Additionally, we continue to anticipate phase 3 readouts for PatCern in muscle-invasive bladder cancer in two ongoing studies. If successful and approved, you expect a significant expanded opportunity to treat patients with bladder cancer, focused on the approximately 28,000 in the U.S. with MIBC, approximately 80% of whom undergo cystectomy. Sibinkona. had strong 46% year-over-year operational growth with a quarter, driven by higher demand in the U.S. and growth in key international markets where we have decided to focus. We believe there is additional market opportunities for Sibinco in responding to the need among patients with atopic dermatitis. We are seeing the clear impact of recent positive data released for several of our oncology projects. It has contributed to strong growth in helping to establish these products as standards of care. From renats in 48% year-over-year operational growth in the quarter and to expect continued strength through 2025. It has a compelling efficacy profile supported by the CRAM study, where the median progress on free survival was not reached after five years of follow-up. Lobrena is emerging as a standard of care for patients with first-line R-positive metastatic non-small cell plaque cancer. We saw continued momentum with BRACTOVI and MECTOVI, with 23% year-over-year operational growth in the second part. Result for the phase 3 breakwater trial saw the BRACTOVI combination regimen double. medium overall survival versus standard of care for treatment in naive patients with metastatic colorectal cancer with a BRFV600E mutation. This represents a significant advancement of the approximately 4,000 patients diagnosed annually in the U.S. with metastatic colorectal cancer with this mutation. They face a more than two-fold greater mortality risk compared to patients with no known graft mutation. Xtandi contributed strong 14% operational growth during this quarter. Demand is growing for patients with castration-sensitive prostate cancer, and it is the top-prescribed branded androgen receptor pathway inhibitor. With the presentation of ASCO long-term overall survival data from the ARTSIS trial, Xtandi is now the first and only androgen receptor pathway inhibitor to demonstrate an overall survival benefit at five years in men with metastatic hormone-sensitive prostate cancer. We also recently served positive top-line results from the Phase III EMBARQ study, making Xtandi the first and only androgen receptor inhibitor-based regimen to demonstrate overall survival benefit in non-metastatic hormone-sensitive prostate cancer with high-risk biochemical occurrence. This contributed to demand growth for Xtandi, and we achieved 27% share in new-to-brand prescriptions. These positive readouts indicate how we are continuing to invest and focus in areas where we have leadership and expertise, contributing to ongoing progress with our ongoing portfolio. The strong performance in the US and international divisions show why we remain confident in the commercial strategy we refined more than a year ago. In the quarter, for example, The key market and brand combination that we prioritized in our international divisions are outperforming with strong meet to high single-digit growth across all regions. We will continue to advance this commercial strategy and expect to drive further progress through precision targeting engagement with patients and healthcare professionals. With that, I'll turn over to Dave, who will walk through our additional strategic priorities and progress with expanding margins and optimizing capital allocation. Dave.

Thank you, Albert, and good morning. To begin this morning, let me emphasize that our solid financial results are a clear reflection of our disciplined execution and strategic priorities. We remain focused on improving patient outcomes and meeting our financial goals while managing the complexities of the external environment. Our cost improvement initiatives have contributed to greater organizational efficiencies as demonstrated by our robust operating margins achieved this quarter. Going forward, we expect to improve our cash flow, reduce our debt leverage over time, and increase flexibility across our three capital allocation pillars. our focus remains on creating long-term shareholder value. We will continue to invest in our business for the long term while prudently returning capital to our shareholders. Now, let me start with our second quarter results, then I'll touch on our capital allocation priorities, and then move to our cost improvement initiatives. I'll finish with a few comments on the macro environment, as well as our 2025 guidance. For the second quarter 2025, we recorded revenues of $14.7 billion, an increase of 10% operationally. This increase was largely due to overall growth, both in the US and internationally. Partially offsetting the increase was an $825 million year-over-year unfavorable impact of higher manufacturer discounts resulting from the IRA Medicare Part D redesign, which took effect in the first quarter of 25 and overall is largely in line with our expectations. On the bottom line, second quarter 2025 reported diluted earnings per share was 51 cents and adjusted diluted earnings per share was 78 cents, ahead of our expectations, primarily due to strong top line performance and our cost management execution. Our results demonstrate the effectiveness of our refined commercial strategy. We remain committed to prioritizing key products and markets, optimizing the global allocation of our commercial field resources, and concentrating our marketing efforts on high priority areas. we saw strong contributions across our product portfolio, primarily driven by the Vindickel family, Comirity, Paxlovid, PatSav, Eloquist, partially offset by declines in iBrands. Also, I'd like to highlight a significant trend within our portfolio that we expect to fuel the company's top line for the next several years. Year-to-date, Pfizer's recently launched and acquired products delivered $4.7 billion in revenue while growing approximately 15% operationally versus last year. We plan to continue to invest behind these two product groups to drive their future performance and help enable the company to largely offset our LOEs over the next several years. Adjusted gross margin for the second quarter was approximately 76%. primarily reflecting the product mix within the quarter. Looking at our adjusted gross margin performance over the last two years, we have largely achieved percentages in the mid to upper 70s when adjusting for Comirnaty, which as you know, has a 50-50 gross profit split with our partner BioNTech. In addition, we believe the expected $1.5 billion savings from our phase one of our manufacturing optimization program by the end of 27 will help bolster gross margins as we transition through the LOE period. Maintaining a strong emphasis on cost management throughout our manufacturing network will continue to be a key priority. Total adjusted operating expenses were $5.8 billion for the second quarter and 8% decline operationally versus last year. Now looking at the components, adjusted S&A expenses decreased 8% operationally, primarily reflecting a decrease in marketing and promotional spend for various products as a result of our focus investments and ongoing productivity improvements. Adjusted R&D expenses decreased 9% operationally, driven primarily by a decline in spending due to pipeline optimization expected to be reinvested later this year and into next year. We continue to be disciplined with our operational expense management. Q2 reported diluted earnings per share was 51 cents and our adjusted diluted earnings per share was 78 cents, which benefited from our efficient operating structure in addition to our effective tax rate, primarily driven by favorable change in jurisdictional mix of earnings. Now, let me quickly touch on 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 in an appropriate level of financial return, and making value-enhancing share with purchases. In the first half of 2025, we returned $4.9 billion to shareholders via our quarterly dividend, and we invested $4.7 billion in internal R&D. As previously mentioned, maintaining our gross leverage at an appropriate level is a key priority towards improving our capacity for business development. Our gross leverage at the end of the second quarter was approximately 2.7 times which we are now setting as our new target down from three and a quarter times. During Q2, we announced the licensing agreement with 3S Bio, which closed in July of 2025. Our business development capacity is now approximately $13 billion following the 3S Bio deal. Lastly, First half 2025 operating cash flows at $1.8 billion was tempered primarily by large expected payments in the second quarter, including an approximately $2.1 billion TCJA repatriation tax payment and our payment to BioNTech for our gross profit split. We expect to see improved cash flows in the back half of this year. Overall, we are focused on maintaining leverage at or below our new target to support a balanced allocation of capital between reinvestment and direct return to our shareholders. We continue to be disciplined with our operational expense management, progressing multiple improvement programs as we remain focused on driving operating margin expansion over the coming years. We expect to begin realizing initial savings from the phase one manufacturing optimization program in the latter part of this year. As part of our goal to return to pre-pandemic operating margin, we remain on track to deliver on our goal of at least $4.5 billion in cumulative net cost savings from our ongoing cost realignment program by the end of this year. As a reminder, in total, we expect approximately $7.7 billion in savings by the end of 27 to drive operating efficiencies, strengthening our business with the potential of contributing significantly to our bottom line over the period. Of these savings, approximately $500 million identified in R&D will be reinvested in the pipeline, which we expect by the end of 26. Now with that, let me turn to our full year 25 guidance. The pharmaceutical industry continues to navigate a complex global landscape influenced by rapidly changing proposed trade and tariff policies. Strategies to help mitigate the potential impact on our business in the short term have been implemented, and we continue to evaluate opportunities and develop plans which will help mitigate the potential long-term impact of tariffs on our business and our operations. That said, the company's guidance absorbs the impact of the currently imposed tariffs from China, Canada, and Mexico, as well as potential price changes this year based on the letter received on July 31st from President Trump. Our non-COVID revenues continue to perform very well operationally and ahead of our plan. In addition, our guidance assumes favorability to revenues due to foreign exchange rates. As a reminder, our plan assumes that a large majority of our COVID revenues are forecasted in both Q3 and Q4. Given this fact, we believe it is prudent to maintain our full-year revenue outlook as we enter the second half of the year. We continue to expect full-year 25 revenues to be in the range of $61 to $64 billion. In addition, we now expect adjusted SINA to be in the range of $13.1 to $14.1 billion, adjusted R&D to be in the range of $10.4 to $11.4 billion, and our adjusted effective tax rate of approximately 13%. Now, given our strong performance to date, as well as our outlook, including a favorable impact on foreign exchange, our more efficient cost structure, as well as improvements in our adjusted effective tax rate, we are raising our full year 25 adjusted diluted earnings per share guidance by $0.10. This includes absorbing a $0.20 charge for acquired in-process R&D associated with the upfront payment for the 3S biotransactions. So just to clarify, without the 3S Bio Deal, we would have raised our adjusted diluted earnings per share guidance by 30 cents. Of this amount, approximately two-thirds is due to our strong operational performance and our outlook. I will also point out that while we are raising our adjusted diluted earnings per share guidance, we are partially de-risking the expected COVID performance in the second half of this year. As a result, a revised full year 25 adjusted diluted earnings per share range is now $2.90 to $3.10 a share. In closing, we will continue to focus on maximizing our product portfolio's value and driving innovation to strengthen our pipeline. With a stronger balance sheet, we plan to deploy capital more effectively. We will focus on increasing our R&D productivity by deploying AI and digital capabilities reinvest appropriately to accelerate high-value R&D programs, and pursue new growth opportunities through business development. Additionally, our cost-improving initiatives are beginning to expand operating margins through productivity gains and streamlined processes. And so with that, I thank you for your attention. I will now open up for Q&A.

Operator, please assemble the queue.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll take our first question from Truong Nguyen with UBS. Your line is open. Please go ahead.

Hi, guys. Just there in your prepared remarks, you notice your guidance absorbs the potential price changes this year based on the letter you received from President Trump on July 31st. That talks about impacting Medicaid with MFN. Does that imply you think something's going to happen this year? And if so, what's your broad assumption so we can kind of quantify that hit on your revenues and EPS? And then you perhaps just give us your state of the union on the recent developments with MSN and tariffs. And then just on the CDC recommendations for the vaccines, there was a reduced recommendation in May. a payer pullback for broader adult COVID vaccinations. So just how are you sizing the 25-26 U.S. fall season versus last year? And can you comment on any progress with state mandates or payer negotiations to stabilize that coverage? Thank you.

Thank you, Grant. Let me say I know many people would like to get clarity on the MFM situations, on the tariff situations. And I'm not in a position to provide much clarity, not because we are not discussing. Right now, we are in very active discussions. I discussed at the highest levels of this government. I discussed myself with the president after he sent me. the latter me and all the others. We discuss a lot with the Secretary Kennedy, we discuss a lot with Dr. Oz, who is responsible for implementing a lot of these things. And I would say only that these discussions are extremely productive. I think we understand where the President comes from, and we are engaging in a productive way to find a solution. But because we are in active discussions, it's inappropriate for me to start providing more details because I don't want to say things while we're discussing with them. So I understand that many others may have questions about that. And I'm not sure I can give more information than what I just told you, that we have a letter that sets a base of what the president wants. The letter asks a lot from us, but we are engaged in productive discussions with them. And in general, I'm happy the way that they listen to us and the way that we are trying collectively to find solutions that from one hand would make made it affordable in the US. On the other hand, will make our industry even more competitive compared to China, which is progressing very rapidly to us. On the tariffs, also, I don't have much news to add. We are waiting for the 232 report. And once we have that, we will see how this discussion, again, on the tariffs, I had a good discussion with Secretary Latny, with the U.S. Trade Representative, with Secretary Besson, and of course, with the President, but we have a special relation through the times of COVID. So that's all I can say. I don't know if, Dave, you want to add something on what is included and how we think about it.

Yeah, I would just say that the underlying strength of our business is allowing us to raise our guidance in the back half of the year. And to Albert's point, with the work that's going on across the industry, we're able to come up with a range of scenarios. And we believe that those range of scenarios associated with potential timing of all this would allow us to absorb any impact this year based, again, on the underlying strength of our business today and performance today.

And maybe, Amir, you can comment on the CDC.

Yeah, so I think your question was largely around community, so I'll mention the quarter and then our expectations for the season. Community had a very strong quarter in Q2, and I think that's driven partially by gross net favorability. We've just become much more efficient and managing inventory in the marketplace. And we also saw a continued increase in our market share in the quarter. So that's the quarter. Now, as it relates to the season, we don't have a crystal ball, but what we are planning for is we anticipate an indication for the 65 plus population. as well as those under 64 with underlying medical conditions. And that largely reflects the dynamic of how people vaccinate in the U.S. today. We also don't anticipate any major changes in coverage by pairs for this season. So this could have a modest effect on our vaccination rates, but we anticipate having a very strong season. In addition, I think we're very ready to execute against that. We have our supply and distribution capabilities, which are genuinely unmatched. We have a very robust plan for both physician as well as patient activation, and we monitor sentiment very closely. We've not seen dramatic changes in intent to vaccinate. And we also have very strong contract positions, both in retail and non-retail. So we look forward to the community season for the fall.

Thank you, Amit. Next question, please.

We'll go next to Chris Schott with JP Morgan.

Great. Thanks so much for the questions and congrats on the quarter. Just two for me. First on BD and capital allocation, just what's driving the slightly lower target leverage for the company going forward? I think you lowered it by about a half turn or so, and I was just looking for any color there. And just on the BD approach, is the approach here still to target a couple of smaller deals with that 10 to 15 billion of capacity you've previously talked about, or is a thought maybe looking at one larger one? Last really quick one just to slip in was just the recent PD-1 VEGF deal. I know you're going to think about doing combos with some of your ADCs. Will we need to see the phase three data from those ADCs before you move forward, or should we start to think about Pfizer starting development of those programs prior to those readouts? Thank you.

Chris, as usual, excellent question, but David can take the first two, and then I think Chris can talk about video on that.

So, Chris, yes, we've actually improved our target from a leverage perspective down to 2.7 from three and a quarter times. That's largely because we've improved our cash generation capability a little faster than we anticipated previously. post-closing of the siege and acquisition. So we're now sitting at 2.7 times. We will continue to delever over time. If we were to do a BD transaction, we might tick back up over that 2.7 times, but our objective is to still get down and continue to delever the balance sheet in the long term. Secondly, yes, most likely we would attend to do, I'll say, a smaller deal, given the fact that our capacity is in the $13 billion zip code at this moment. And so I would expect us more from a smaller perspective from a transaction.

Yeah, and it is $13 billion.

It is $13 billion only because we have essentially allocated some of 3S Bio transaction funds against our BDA targets.

Thank you, Dave. And Chris, how do you think about developing the PD-L1 with ZEV that I know we closed and we are very rapidly executed on a plan even before we could close?

Thank you very much. As you know, we do have ongoing programs with the ADCs, SV, PD-L1V and PADSIF all in phase three. We're not going to wait for readout from these studies. And we'll start earlier with phase one, two combinations this year, in fact, with those ADCs in combination with 3S-Bio 707. How we look at 707, it's really to be a potential backbone to replace single agent PD-1, PD-L1. It's got a unique structure and the preclinical data suggests potential base in class regarding high affinity for PD-1 inhibition and also potentially increased anti-angiogenic activity. You've seen the overall response rate in the first line setting of 65%. We're confident in this molecule across the cancer areas or tumor areas where we have significant capability, including thoracic, GU, and GI. And we'll later this year announce a phase three program for 707.

Thank you, Chris. My team got me very excited about this molecule, and they have presented to me a very aggressive development plan that they plan to execute starting this year. We will share more news about the plan later in the year when we kick off the execution. Next question, please.

We'll go next to Alex Hammond with Wolf Research.

Thanks for taking our question. I guess one on MSN, just given your recently announced DTC patient option for purchasing Eliquis, how should we consider the applicability of this program to the remainder of your portfolio?

Thank you, Alexandra. I think it's a very much will help. I can tell you that the direct to consumer was one of the four things that the letter of President Trump requested from me. from me and everybody else. We think it is a fantastic way to go ahead, so we will work collaboratively to do it. Clearly, Pfizer has good experience from the Pfizer for All, where we have a direct-to-consumer website that has very, very high traffic. And also now we launched together with our partner, BMS, the Eloquence 360, which exactly does what basically President Trump is asking us to do. Actually, I'm sure you've noticed that he tweeted himself. He retweeted actually my tweet about the Eloquence 360. And also, we have serious discussions in the industry. So I have connected, of course, we had the board of all the CEOs that we discussed it. And also myself, I'm connecting very often individually with all the major companies. And they are all ready to roll up the sleeves and execute something like that. So it remains to be seen. I don't want to speak more, as I said, because we are in active discussions.

Next question.

We'll go next to Mohit Bansal with Wells Fargo. Your line is open.

Great. Thank you very much for taking my question. Dave, I have a question regarding guidance. It does seem like you had quite a good quarter this quarter, and there is effects tailoring as well as operational reasons here. So wondering what is driving the intact guidance or even like not even like upping it to the higher end of the range. It's just would love to know your thought process in setting this guidance at this point. Thank you.

Yeah, thank you. I think as we looked at guidance, as I said, we are essentially raising bottom end by 30 cents and then absorbing the 20 cent charge for 3S biotransaction. At the same time, We are looking at our future Q3 and Q4, and we're essentially de-risking some of that. So this underlying strength of our business would have us increasing guidance even further from a profit perspective. But we, at this point in time, given the volatility that's potentially ahead of us in COVID, we think it's prudent to wait, hold, see how Q3 and Q4 come about, and then update as appropriate from that perspective.

Thank you, Dave. Next question.

We'll go next to Courtney Breen with Bernstein.

Hi, all. Thank you so much for taking the question. A couple from me. The first is on the efficiencies that we're seeing kind of in your operating model, and particularly around SG&A. It'd be great if you're able to kind of give us some extra context around kind of where you are kind of reallocating and investing versus where you're able to pull back and kind of some more context and detail and color around that, both within the US and ex-US. And then secondarily, you've given us some more detail in terms of M&A and the $13 billion range, but can you give us a little bit more insight on the priorities? I know you've talked about kind of the obesity opportunity or cardiometabolic opportunity and immunology being areas of interest. Can you talk about kind of whether they still rank near the top or how you're seeing kind of opportunities out there that you might be interested in? Thanks so much.

No, thank you, Courtney. Let's start with Alexander to speak about the efficiency in international and then Amir can chime in on the US.

Thanks for the questions. You remember about 18 months ago when we started this journey at the International Division, we said we will pick our growth driver both from an inline standpoint and the new product. And that combination will be different country by country based on the environment, the potential and the population to treat. That's what we did. So we've identified in our top 16 market those combinations. And then we invest to win in the sense that we look at the share of voice that we need, and then we reduce our investment everywhere else so that we can win in this area. And clearly, the growth that we are seeing coming out of that portfolio of assets where we focus is really remarkable because it's not just that we grew 6% at the international level overall, but it's also the quality of the growth. You see that we grew 9% in emerging markets. 9% in China, 7% in Europe. So it's kind of across the geography. And it's also across the different category area, right? So specialty care grew 9% driven by Vinla. Primary care grew 4%, 6% including COVID, driven by Eliquis and our vaccines. And oncology grew 6% driven by Lebrun and others. So clearly, It's really how we reduce the costs around the non-core asset and the non-key country that help us level down on the area where we wanted to grow.

Thank you, Alexander. Amir?

Courtney, I'll give you a couple of different examples. When we implemented our new commercial model at the beginning of last year, we put in place a few fundamentals. One was having everything in one place and the benefit of scale. So, for instance, we consolidated to a single agency partner and that drove major efficiencies across the business. Second thing is we undertook a major resource reallocation exercise, both in terms of the products where we're investing as well as the channels that we're investing into. And thirdly, we've just embraced technology and the way that technology can drive efficiency across every aspect of our consumer campaigns. our physician targeting, and also Albert referred to our use of Pfizer for all and investment in the Pfizer brand, which, for instance, in the categories where we've deployed that, that model has resulted in about a 20% decrease in the cost per new NBRX. So these are just examples of how we're driving efficiency across the commercials.

Thank you. And it is, I think for me, what really pleased me about it is that we are able to reduce our cost and at the same time continue growing the top line, which is the key here. And Pfizer was always good in commercial. I do think that we lost a little bit our way during the COVID because the priorities, you can understand. We're 100% devotion of the whole company to do something like that. But I'm very proud and pleased that we got up to our feet and we now have developed a commercial machine, but it is really honoring the Pfizer tradition and taking to the next level. And I will finish with some questions from the M&A. You asked what will be the range in terms of priorities. And in terms of dollars, Dave, talk to you. Clearly, with those dollars, probably will be in fewer smaller transactions rather than one transaction or the remaining capital allocation. Clearly, it would be in the four areas. But we are now active, which is the oncology, the vaccines, the internal medicine with cardiometabolic and obesity, and with the IMI. On obesity, which is your specific question, clearly we have interest in this area because this is an area that is very big. Science is breaking. A lot of new things are coming out. And we have tremendous development capabilities in obesity. the primary care type of business. And we have also tremendous commercial opportunities. And by the way, there is plenty of offering right now. I mean, in China, China is booming in terms of how many opportunities we have our Chief Strategy Officer Andrew Boehm, that is responsible for PD, just came back from a week-long trip to China. And the opportunities are really, really very big. So also there are here opportunities in the US. So there is a good substrate that we can choose. But we will be very disciplined with our capital. We will not overpay. We will pay the real value that the assets deserve. With that, let's go to the next question.

We'll go next to Dave Reisinger with Learing.

Yes, thanks very much. So Albert, thank you for helping lead discussions with the administration to ensure the future success of U.S. biopharmaceutical innovation. Since you briefly mentioned competition from China, has Pfizer been helping the administration understand the very strong support that the Chinese government provides to local biotech companies based in China? I ask the question given significant pressures on biotech companies in the United States. Thank you.

Thank you, Dave, and also thank you for your kind words. And I'm very vocal and I speak at all levels and not only in the administration, but also in the Senate and the House. This is something that unites, I would say, one of the very few things that unites both Democrats and Republicans is their concern about China emerging superiority. in several technological areas, but where it is very impressive, it is in the biotech. And I very clearly indicate that this is happening, it's real. I'll give you just some examples. In May, for the first time, Axios reported that the clinical studies in the world right now, China has the leading share, surpassed the US. I did research myself on publications that are happening. from Chinese scientists right now. And in CRISPR, for example, just to give one area, 42% of the global publications coming from China. Actually, in structural biology, which always was their fault, 62% came from China. And to end up, they are not doing, they're not stealing patents. They have filed more patents than US this year. And so they are protecting very well intellectual property, and they are enhancing access to their local markets, and they are giving tremendous support, monetary support, to their biotech ecosystem, which encourages a lot of private money going there. I explained all of that to the administration, and I think they listen. And that's why I said before, we will all look to find ways that, from one hand, affordability and access of the American patients. On the other hand, to the crown jewel, which is the biotech industry, needs to be supported by the government, by the Congress, so that we can, there's so much you can do to slow down time. You won't slow them down. They are very good. What we can do is to focus to be better than them. And that should be our goal. With that, next question.

We'll go next to Kerry Hallford with Berenberg.

Thank you. A couple questions for me, please. Firstly, looking at Aceptris to Kaiser, Q2 performance was a little weaker than anticipated. I understand these drugs are perhaps facing increased competitive pressures, but would be interested to hear your strategy for reinvigorating that growth. of those season assets ex-PADSERV. And then secondly, a question on the guidance, specifically tax, and I apologize if I missed this earlier, but Dave, what has changed with regard to the tax outlook for this year and how sustainable is this underlying 13% tax rate going forward? Thank you.

Dan, you want to start with that, and then I'll make it.

Yeah, just on the tax side, there were some one-time discrete items that allowed us to improve our tax position this year. I would expect going forward with the new tax regs globally that we would be largely closer to the 15% level from a global tax perspective in the long term. Mm-hmm.

Terry, thanks for the question. I think your question is largely around the CGEN portfolio and the products. So we feel very good about how we integrated those products. As an example, we were able to cross-train all of our field forces, and now we're seeing the benefit of that come through in commercial performance. So if I look at Q2 and the entirety of our CGEN commercial portfolio, we grew 15% year over year. And that was while managing some of the competitive headwinds that you alluded to on its efforts, which we are starting to see now settle. In particular, we feel very good about the growth in passive. We have greater than 50 percent market share in the in the first line and we see headroom to continue to expand that share, especially in the cisplatinum eligible population where we are very focused. And it's also important to note that as part of the CGEN transaction, it was not only the inline products, but the portfolio that came with it, which continues to perform very well. Thank you. Next question, please.

We'll go next to Evan Sigerman with BMO Capital Markets.

Thank you so much for taking my question. Kind of a follow-up to the prior question. You know, a year and a half into the integration of CGEN, And really aside from PADSEV, what do you believe are the two or three assets that have the potential to really drive a positive IRR for the 42 billion or so that you spent? And kind of a follow-up there is, what part of the market could SV capture in non-small cell lung cancer if it went eventually approved? Thank you.

Yeah, I was curious to comment. Let's start that there is four main assets that when we acquired the company, they were around $2 billion worth. even less of revenues, but they will grow by year 2030 to 10 billion. Now, of course, the value was not only on that. The value was mainly on the platform of the ADC, that we got together with the intellectual property, the capability, the people, and the assets. And I will ask Chris to comment on the most important things that are coming out in the short term, medium term, and long term from CISI. Thank you very much.

So in the short term, Pat said, And the readouts for the muscle invasive bladder cancer studies, as you recall, the current indications, 18,000 patients, the new indications will be up to 28,000. So this both platinum eligible and platinum ineligible. And we expect those readouts in the next six months and potentially they could change the standard of care for this population. This next wave of studies we started by three trials in SV support attack for dotan. The second line study is now fully recruited. In fact, it recruited much quicker than we expected in the second line space. What we've seen so far in the phase one study in the late line population with a 31 percent overall response rate. And a medium overall survival, albeit a single experience of 16.3 months. So that gives us confidence in SV. It's a podotin payload. So what we've seen with the other studies with podotin payloads, including with TIFTAC and PATSE, was this potentially synergistic activity when we combine it with an anti-P1. So SV plus TIFTAC. Pembrolizumab has now been combined. As you know, overall, we've seen a response rate of approximately 60%, but in the population specifically, that's TPS high or PD-L1 high expression. All patients so far in the phase one trial have responded, and that obviously is very favorable to what you would expect from pembrolizumab alone. The next molecule, PD-L1V, that's again another first-in-class molecule. We're accelerating that into a phase 3 program for hit and neck cancer, where we've seen a response rate just shy of 60% in the combination with pembrolizumab. And then there's a whole new group of ADCs coming with a TOPA1 payload, including a follow-up to Eccentris. They're currently two or three of these molecules showing highly encouraging data in phase one, and we'll update you in the future about those.

Thank you. So as I said, we are confident that not only will we recuperate the investment with a good return in the season, but I think this is transforming our oncology portfolio and business. Next question, please.

We'll go next to Carter Gould with Cantor.

Good morning. Thanks for taking the question. I'm going to go back to the policy side. I guess, Albert, should investors have any expectation around a comprehensive deal that addresses the president's objectives across MFN and tariffs, but also addresses the industry's concerns around enforcing IP protection, compounding, pill parity, IRA implementation? And then separately, Vindickel put up a solid quarter year on year, but this is sort of the fourth quarter in a row where sequential growth was more muted or meager. Is vindical US growth behind us? And I guess in answering that, can you help frame the push-pull between price and competition? Thank you.

Yes. Let me give a brief answer to the policy. Look, I don't know. We are in very active discussions. You know that the president is impatient, so he wants results quickly. We also want to come to a resolution quickly, because I want to offer certainty to all of us and all of you. As much as we can have in this period of time. Are we discussing, in addition to all the things that are related with MFN and tariffs, also things that are related with PBM reform, with 340B, with the pill penalty? Absolutely. And you know that the PBM reform is universally accepted that needs to happen. There was a bipartisan bill and there is clear indication that the president has spoken so many times about the middleman. Also with the pill penalty, he has spoken about it, and also the Secretary Kennedy spoke about it, and also we are working on it. And of course, the 340B has become a major, major problem. Right now, the 340B is expected to exceed $62 billion this year. It's a program that has become bigger than Medicare and Medicaid combined. So that's all at broad prices. that all of that is valuable goes from us out there to, let's say, hospitals. And this value is not passed to the patients because they mark up those products in tremendous amounts, way more than you see in hard data. And, you know, we can't afford that. So we are discussing, we are explaining. It's more complicated than it's supposed to be because it involves hospitals. But the program is very good for the small hospitals that was intended. This is not about not having 340B. It's about not having an abuse in the system. So, Amir, you want to state the next question?

I'll speak quickly about Bindamax in the US and then touch on international too. In the US, yes, we had a very strong quarter. We had 15% year-over-year growth. We maintained momentum and performance versus Q1. And there's a lot that's going on in this market right now. So that performance is a function of improving diagnosis as well as improving favorability dynamics. So we continue to lead in the face of two competitors coming into that market, both in terms of total market share, but also importantly, lead in terms of first-line treatment naive patient share. So we've got good TRX momentum, and that's influenced the growth. Atruvi is taking some first-line share, and it's a little too early to tell about the dynamics of Ambucha, and we'll keep a close eye on that for the second half of the year. Now, we do expect continued TRX volume growth. But there will be GTN pressure on U.S. performance, and that's a function of both the Medicare Part D design, but also a result of contracting to maintain access for VINDA, both in Medicare and commercial, where we've maintained 90% access for the brand. So we do expect those dynamics to impact our sequential growth in the back half of this year.

Yes, for international, so we have a very strong dynamic. So we have grown 30% of the quarter, but actually since the beginning of the year, we have grown our patient treated by 50%. So it's clearly what I was describing at the beginning in terms of focus on the key assets where we think we can have an impact. This one is clearly the demonstration of our focus on execution. Moving forward, we think we're going to continue to grow on this product for three reasons. First, the diagnosis rate in international in most of our key markets is still significantly below what we have in the US and we normally see in this type of disease. The access, access takes a lot of time in international. You need to negotiate price and access in every single country. And it took us five years just to get to where we are. And competition will have to follow the same timeline to get to the type of access that we get. Just to illustrate my point is we just unlocked UK and Australia at the end of last year. And we just unlocked South Korea at the beginning of this quarter. So just give you a sense of it takes time. And now we're Now we have access, we are unlocking the potential of those patients being untreated. And then finally, we think that the profile of our product and the experience of our key centers will help us establish and continue to establish the standard of care that we have developed with these assets. So we are very confident with the potential future growth of Intercom.

Yeah, and I'm very impressed with the performance of Intercom International and the way that we were not counting on that product before, and now suddenly we see a very big... Thrive, we're not counting in international, and it was mainly U.S. And let's go to the next question, please.

We'll go next to Asad Haider with Goldman Sachs.

Great. Thanks for taking the question. Albert, just one more, if I may, on the policy front. Just given the comments you just made, and then triangulating those back to your comments on MFN, that it's now quantified and reflected into guidance to some extent. Maybe just talk about what could cause large swings to those expectations from here, or is your high-level view that we are now getting more granular around a central and potentially narrower range of outcomes, directionally speaking? Thank you.

Yes. Our team is all over modeling several scenarios. There is no scenario that we have not assessed. There is no scenario that we have not built mitigation plans. And there is no scenario to have an assigned probability of success. But the truth is, but we don't know what will be. Because all of that are right now under active discussion. So, and, you know, even if I have some ideas where we should increase probabilities of happening and where we should decrease probabilities of happening, it's not appropriate now in the middle of the discussions and negotiations. We don't open the cards, right? So I can't really do that. Thank you. Next question.

We'll go next to Uma Raphat with Evercore.

Hi, guys. Thanks for taking my question. So I'll spare the MFN question, but I did want to ask Albert, I feel like some of the points you're making on this call regarding the China biotech ecosystem could possibly resonate with the administration, but I guess how's... And I'm not even talking Pfizer specifically, but the industry broadly has been very active with a lot of out-licensing transactions to find the next layer of innovation. So I guess is the administration pushing back with sort of balancing those two? And then separately, on your oncology side... I feel like this B6A trial in lung will obviously be very, very important. And I was very intrigued to see that you shrunk the sample size from 670 down to 470, which presumably signals increased confidence. And my question is, did you take any interim look to see how the effect size is tracking? Thank you very much.

Let me take the China one, and then I ask Chris, of course, to comment on the oncology. Look, I mean, there is a lot of sensitivity in the Senate and in the House about everything that is happening in China. But I have to say the sensitivity is way more on things that we transfer there. technology that we transfer, then vice versa, things that we take from them to develop them and manufacture them in the US. For example, our deal, I'm sure, and I discussed the Chinese deal that we did with members of the Congress, many members of the Congress, and I explained that we didn't give anything, we took their science and the license to develop it, we will do it globally, not in China. To manufacture it, we will do it in the US, not in China. And to commercialize it, we will do it in the whole world, and actually not in China yet, because we don't have the rights yet. So I think less sensitivity on these two ways. But don't take me wrong. China is something that is very high in the radar of the political life of the US, and we need to be careful with that. Now let's go, Chris.

Thanks for the question, Oumar. So usually for studies, we recalculate effect size or study size based on emerging data from ongoing phase one, two trials. We did not unblind, and there's no unblinding of ongoing phase three programs.

Thank you. Enough. I knew that you would not say much. So let's go to the next question, please.

We'll go next to Rajesh Kumar with HSBC.

Hi, thank you for taking my questions. The first one is on, you know, you said you'll absorb the potential impact from the letters this year. Can you confirm that, you know, If there were tariffs etc, you can say the same about the next year as well, I know you don't have a guidance, but in terms of how prepared, you are with inventory etc, and you know the pricing dynamics, do you think current consensus sort of captures the effect for the next year. The second one is on the balance sheet. Clearly, you are going with a lower financial carrying target. And in effect, that gives you a bit more leeway on a lot of things. When you think of capital allocation, do you think you need to add more types of assets in oncology, or would most of the balance sheet capacity be deployed in obesity, immunology, other areas? That is, if you have to deploy capital in oncology or different indications or different mechanisms you still need to add, then would you be comfortable going over the 2.7 times leverage?

Thank you. Let's start with Dave. And then we will move to Andrew also.

Yeah, so as it relates to future years, 26 and 27, no, we can't, we're not confirming or discussing the implication of tariffs or MFN on those out years. Once we have definitive information and knowledge, we'll come back and share that with everyone. Secondly, just from a BD perspective, and others can comment on this as well, we have lowered our target or improved our target to 2.7 times because we are already at 2.7 times. So it's hard to have a target that we've exceeded so dramatically because our business has done so well. And if an opportunity were to come along that made sense for us from a BD perspective, Ouch, we would outstrip the target, be higher, just like we did with CJEN, and we'd work to get us back down to 2.7 over time. And maybe to Albert's point earlier, from a BD perspective, we're interested across the four areas in which we focus today, and we'll continue to evaluate assets on the market in all of those four areas.

Andrew? Yeah, I'd just add to Dave's comments. Look, I think every potential licensing deal or acquisition is value-driven. although there is obviously some value in diversification. We've historically been very active through C-Gen and more recently through S-Bio and oncology. However, as you know, Pfizer has a strong commercial heritage with significant strength in areas such as internal medicine, I&I, and obviously we've got landmark drugs in those areas. So we believe we have a right to will, and if the right opportunity comes up at the right price, you can be sure that we're going to pursue it. Thank you, Andy. Next question, please.

We'll go next to Tim Anderson with Bank of America.

Thank you. I have a question on IRA. So you guys have two drugs where prices are being negotiated in the current year for implementation in 27. That's iBrands and Xtendi. One fear that at least we've had is that the new administration may press harder for bigger discounts versus last year, potentially just to make a point. in general, not just for Pfizer products. So you're in the midst of those negotiations. Any color you can provide, such as how those discussions are lining up with what you expected before those negotiations began?

Look, as we said, we're in the middle of this negotiation, again, for the same reason. Actually, it's not allowed by law to disclose. aspects of the negotiation. But I would say something. We have two products, as you said, for 27. Both of them are losing patents on 27. So for us, of course, we try to achieve the best we can in the negotiations of the prices. But the hit on us is very small. The MVV is very small because it's really a few months of exclusivity. It depends on the product. So next question, please.

We'll go next to Steve Scala with TD Cowan.

Thank you very much. Two questions. The first one, I apologize, is on MFN. But you have quantified the assumed impact of MFN in 2025, but you won't share your estimate. But I assume it's a big number, well above 500 million for Q4 alone, and maybe several times that, which implies a strikingly high number for 2026. And I'm just wondering whether you would walk that number down. Second for Dave, you noted the positive underlying operational performance year to date. You also noted the positive inflection in FX year to date. Curious how the COVID expectations have changed. It seems they must have come down since revenue guidance is flat or unchanged or something else in the business turned in a little bit light. Thank you.

Yeah, maybe on the COVID side, I don't know that our expectations at this moment have changed, but we still have a lot yet to go in Q3 and Q4. So as I think about our future projections, we're still internally working to achieve our number. But as my guidance reflects, we've now de-risked some of that delivery in Q3 and Q4. So I don't think anything's changed. We just know that COVID by itself, because of the nature of that business, will always be a little bit more sensitive and a little bit more fluid and harder to predict quarter over quarter. So this is just allowing us to de-risk that a bit. And then on the MFN perspective, we're not going to comment on those numbers at this point. Thank you, though. And the final question.

Our final question comes from Terrence Flynn with Morgan Stanley.

Great. Thanks for taking the questions. Maybe just two on the pipeline. Just for Atirma Cyclib, was wondering if we'll get an update from the phase two study on PFS potentially at San Antonio later this year. I know you've already committed moving into phase three, but I don't think we've seen anything on durability there. And then on Lobrena, any thoughts about exploring that in the adjuvant setting? Thank you.

Bruce? Thank you for the question. So at Termocyclib, you're correct. As we stated, we're focusing now on the first-line space and focusing with CAT6 for second-line. We remain very confident at Termocyclib on all the data we've seen. And the study, the first-line trial on ER-positive HER2-negative breast cancer, the study is recruiting extremely well. In fact, four times faster than we actually planned or predicted. We've not disclosed the date when we will show the data on the second line, but we'll keep you posted on that. For Lorlatinop, there's no current plan for an adjuvant study.

Thank you very much. Thank you for your attention. Just I want to say that I'm very pleased with the execution of this team in terms of the targets that we have set. I would describe Pfizer right now as a company with a very strong floor and no ceiling and we plan to to maintain the prudent way of allocating capital the focus on execution the relentless focus on our pipeline productivity and big assets and improving our margins by the use of technology focus and simplification of our business process thank you very much and Enjoy your summer to those that they didn't take vacation, like me.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.