Pfizer at JP Morgan Conference Notes

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Frank D’Amelio – EVP, Business Operations and CFO

I don’t think we’ll have to make changes to pricing

“So, let me start, I’ll start and end with the same sense, which is we don’t anticipate any major changes in how we do drug pricing, maybe that’s how I’ll start. Now, let me go through why we, why I believe that. And I am going to do it, I am going to start with running some numbers. So, if you look at total healthcares spend, and you look at prescription drugs, pharmaceuticals as a percentage of that, it’s about 10% to 12%. It’s been that for the last few decades. All projections are it will continue to be that for the next few decades, kind of fact one. Fact two, if you look at healthcare as a percentage of GDP, in the U.S. it’s about 17%. Of that 17%, about 2% is prescription drugs. If you compare that to the OECD countries, healthcare as a percentage of their GDP is about 6% to 7%, 1.5% of that is prescription drugs. There is not some big disconnect or big difference between what we spend on prescription drugs as a percentage of healthcare — as a percentage of GDP and what the OECD countries do. Third point, if you look at the average consumer out of pocket, out of pocket for prescription drugs in the U.S. for the average consumer 15% for prescription drugs, for a treatment from physician is 9%; hospitals 3%. Just in terms of some of the statistics.”

There will continue to be consolidation

” I’ve been in this industry now almost a decade, and it’s been an industry that has been consolidating I think still is consolidating and will continue to consolidate. I mean, all the deals I just mentioned in a sense are forms of consolidation. So, I think there will continue to be consolidation.”

If a deal makes sense it makes sense

“Now, one of the things I get asked the questions about, Frank, all of the proposals now around tax reform, does that give you pause, should you wait before you would do anything on the deal front? And my answer is obviously we play the cards, we’ve been dumped. So, if we see a deal that we think works today and with the cards we’ve been dealt, [ph] I don’t know why we will wait. I think we would pursue that deal as long as it will create value for our shareholders. But the short answer is yes, I think we will continue to see consolidation in the industry. We’ve seen it, we still it, and we’ll continue to see it.”

Lower corporate tax rate and repatriation relief are two big helps for us

“I am sensitive to time; on this one, I could spend all day on tax reform. Maybe I’ll hit two of the things that obviously we find very, very positive in terms of some the items being proposed now. And then, if there’s anything you want me to hit on, Chris, let me know. So, obviously, the lowering of the corporate tax rate would be a good thing. I’ve seen a proposal now, I think President-elect Trump’s proposal is 15%, I think Paul Ryan’s proposal was 20%. Our current book rate is 24%; and obviously, it’s not just book rate but cash rate too. But both of those would be good. And then the other one is obviously what they’re talking about relative to overseas earnings and repatriation. So, President-elect Trump’s proposal is 10% I believe, Paul Ryan’s is I think 8.75% on one and 3.5% on the other. For us, this is potentially a really big positive. ”

It gives us huge potential firepower as a corporation to return capital to shareholders, business dev, etc

“we have a deferred tax liability on the books of 23.6 billion. Now that 23.6 billion or the taxes we would pay on overseas earnings that have been designated for repatriation. So, you’d have to gross that number up to what the real total number is based on an assumption between what the local taxes were that were paid and then that number minus the 35% we’d have to pay to bring it back to the U.S. Now, we don’t provide that rate, but just hypothetically, if you gross that number up to 75-80 million, just hypothetically, I’m not saying that’s the number but if you did, you take the first 80 plus the 80, you get a 160 billion. Now, let’s use Paul Ryan’s plan, but use 10% because it makes the math easier for me. 10% on a 160 billion is 16 billion, you pay that over eight years in the Ryan plan; it’s 2 billion a year. Now, what do I have, what does Pfizer have? We have a 160 billion previously taxed income account. So, now, year one, we generate 20 billion of operating cash flow. I bring it all back to the U.S. tax free. My 160 became 140. Year two, I generated another 20 billion of operating cash flow, I bring it all back to the U.S. tax free. My 140 billion became a 120 billion so forth and so on. It gives us huge capital firepower as a corporation for all of the things that we talked about, to return capital to shareholders; to do strategic business development; to invest in our business. It’s a huge potential positive for us.”

Border adjustability would be a challenge for a whole bunch of industries

“So, some of the items we’re discussing that are being discussed, so obviously there’s the border adjustability tax, which on anything that would be sent into the U.S. or imported by the U.S. to be this — I guess this 20% is being discussed now, which would be a challenge for whole bunch of industries. But then, we talk about possibility of a patent box, where you create IP in U.S., you manufacture it in the U.S. and then for that you get a tax rate that’s an incentive to whatever the actual corporate tax rate is. That would obviously I think be a real positive for job creation in the U.S. and that would deal with I think a lot of the job items that we’re trying to deal with as a Company.”

Albert Bourla – Group President, Pfizer Innovative Health

Marketplace has embraced biosimilars

“Well, I think the market has replied very positive, has responded very positively in the introduction of biosimilars. And I think biosimilars will have place in the treatment tool that physicians are having in their disposal to treat diseases. And this is why we have embraced into a very aggressive strategy in building biosimilars.”

Mikael Dolsten – President, Worldwide R&D