Pfizer (PFE) at Morgan Stanley Notes

According to a fund comparison with the S&P 500 that PFE performed, spinoffs may be just as unlikely to create value as they are likely to create value

“The key point I was trying to make on the earnings call was that spin-offs, in and of themselves, don’t automatically create value. And we’ve actually looked historically over the last 10 years or so, and quite frankly, in many instances they have created value, and in many instances, they have not created value. There’s actually a fund that we looked at, compared it to the S&P 500, and if you looked at it on a one-year, a five-year, and 10-year return basis, after one year, the S&P performed better. After five years, it was roughly a push and a little bit favorable towards spin-offs. And after 10 years, I forget – 100 basis points – it wasn’t material either way. But if you look at all of them individually, many did and many didn’t in terms of creating incremental value.”  Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer


Thus, PFE asks four questions when considering spinoffs or splits

“The same four questions that we talk about all the time in terms of are the companies performing well inside the Company? Would they continue to perform well outside the Company? Is there a trapped value, and can we unlock that trapped value in a tax-efficient way? The answer to all four questions needs to be yes.” Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer


Transparency regarding pricing would benefit the pharmaceutical industry, and progress may be made in 2017

“We believe improved transparency into the entire system is a good thing… And we actually believe that that conversation, those discussions, are going to start taking place in the coming months in 2017. We think all players in the industry, whether it’s the providers, the managed care companies, the product manufacturers like ourselves, will benefit from increased transparency. And most importantly, we think patients will benefit as they better understand relative value for the healthcare services that they’re receiving.” Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer


PFE has $20-something billion in cash held outside of the United States that is potentially subject to repatriation charges. You can get an estimate for fees by examining the footnotes of their financial statements. It is a big number.

So at the end of the second quarter, we had $34 billion, I believe, in cash and investments. So up to $10 billion of that would be in the U.S., which means the remainder of that would be outside the U.S. If there was a repatriation, how much cash would we bring back? A lot. I’d bring back a whole lot… So you’ve got to read off footnotes. We give information on that. The other thing is you could look at the balance sheet, look at deferred tax liabilities, and you can engineer a number. We don’t give a number, but you can make assumptions about how much of that would be a gross number, basically, that we would bring back, where the liability’s been recorded but the cash hasn’t been paid… So you can make assumptions about what tax rate would be charged that gets you to that, whatever, $20-something billion deferred tax liability and gross that up, and that would give you an estimate of that plus existing cash overseas, gives you a feel for what the number would be. It’s a big number. Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer


PFE has been very consistent with the social contract put forth by Allergan regarding pricing and the impact on patients

So obviously, I read the social contract in terms of what was committed to in that. From my perspective, that’s what we do. If you look at Pfizer in terms of what we’ve done over the last several years, very consistent with what Allergan said. But we’ve always done that. I think we’ve always been very good actors in this space. We’ve been very responsible. And it doesn’t just happen by accident. We are very prudent, very diligent in terms of sensitivities to price increases and the impact that that will have on individuals and patients. Frank D’Amelio – Executive Vice President, Business Operations and Chief Financial Officer

Johnson & Johnson (JNJ) at Morgan Stanley Notes

JNJ’s 24 billion dollar brands–and its diverse portfolio in general–gives it insight and connections with large customers that are increasingly consolidating.

“You take we’ve got 24 brands that are billion dollar platforms at Johnson & Johnson, the first and best in many different areas. And we think that that provides a certain financial stability as we think about the long-term future and really investing for the long-term. We think that that diversified portfolio, however, provides us a number of other benefits. It provides us certain insights… We think it gives us breadth and depth with large customers that are increasingly consolidating, whether it’s large independent healthcare systems, whether it’s governments outside of the United States, particularly in emerging markets where the diversified and even consumer branded Johnson & Johnson is very important. It’s a philosophy and it’s a strategy that’s also grounded in competitiveness.” Alex Gorsky – Chief Executive Officer


Growth is split about 50-50 between organic and inorganic.

“In about slightly over 50% of the time, depending on the timeframe, it can range from 55% to 60% of the time, we tend to benefit from organic growth opportunities, things that we develop within our labs. About 40% to 45% of the time it’s been through inorganic growth.” Alex Gorsky – Chief Executive Officer


Over the next 30 years, 350 million people worldwide are aging past 65. This will create opportunity for the healthcare industry, but will also create pricing pressure.

“I think absolutely we should be expecting ongoing pricing pressures in the industry. It’s just the fact that if you look at the macroeconomic issues around the world, given aging populations, the fact that each of us are getting there faster by the minute. But about 12% of the population is over the age of 65, that number is probably going to go to 25% certainly here in the United States. If you’re in Japan, you’re already at 25%, but if you’re in Germany and places like that, you’re rapidly approaching that same number. When you consider the fact that once you turn 65 you tend to consume about 5 to 7 times the amount of healthcare you consumed before you were 65. And then if we go to emerging markets, China, Brazil, India, Russia, other areas, you’ve got two dynamics. One, you have an aging population in many of those places. I think there’s about 150 million people over the age of 65 in China. That number will go to 350 million over the next 30 years.

So imagine a population the size of the United States. And then you combine that with an increasing middle class and once people get shelter, food, what’s the third thing they want to consumer more of as they move up the economic ladder? Healthcare. So we think all of those are going to being a lot of pressure on payers and healthcare systems and therein lies the opportunity I think for us. But I think clearly that will result in pricing pressure” Alex Gorsky – Chief Executive Officer


Large acquisitions focus on synergy, smaller acquisitions focus on innovation

“Large acquisitions by definition are more complex, they’re messier. Rather than focusing on innovation, they frequently focus on synergies. And so that’s what we would prefer.” Alex Gorsky – Chief Executive Officer


As the hospital and pharmaceutical ecosystems evolve, they prefer to deal on a broader basis.

“We see that as systems get larger in the United States that there’s a preference to talk across category. Now it’s fair to say that hospital systems are still evolving in this area. There’s some of them that still need to mature, that need to build their systems to deal on that kind of basis. But we’re seeing a greater and greater appetite for that as we speak. We certainly see it outside the United States in dealing with places like the UK, Germany and in emerging markets where they want to deal on a broader basis.” Alex Gorsky – Chief Executive Officer


The JNJ brand is associated with the smell of baby shampoo.

“We believe the consumer business at J&J is an absolute integral part of our company. And it starts with what you just said. I mean wherever I go around the world, if you say what do you think of with Johnson & Johnson, I mean people smell baby shampoo. And it brings an affinity to the brand of Johnson & Johnson, it makes us different.” Alex Gorsky – Chief Executive Officer

Pfizer (PFE) at Wells Fargo Conference Notes

CEO Ian Read prefers a more transparent market system over a one-payer system

“So I prefer not a one-payer system, but a graded system where you individually have enough transparency and understand your healthcare policy. So that you can make choices on what type of drug coverage, what type of health coverage you want and what’s your skin in the game on accountability, you’re health, your exercise.” Ian Read – Chief Executive Officer


Hillary Clinton’s policies are a step in the direction of a one-payer system

“Well I think in this totality, it will be very negative for innovation. In the totality, now you can always pick out one thing like — that would appeal particularly to your industry like limited co-pays. But you know you can’t just pick one thing, it’s a whole system you can’t pull out one string without pulling the whole jersey undone. So I think overall, I think the Clinton approach to healthcare drives you to a one-payer system, it drives you to rationing, drives you to a place where most consumers don’t want to be.” Ian Read – Chief Executive Officer


Tax reform is needed to give US companies a level playing field, and Ian Reads a new President and Congress will be able to tackle the issue

“when you compete against companies that are not in your tax system, it gives them a huge advantage to either report higher profits or to take those profits and invest in research, which is why you need a level playing field…

making tax reform is essentially to allow U.S. companies have a level playing field. Hopefully when a new congress is formed and we have a new President, I think there is a lot of appetite to understand how to try and fix that. Ian Read – Chief Executive Officer


PFE is launching a dozen biosimilars, some of which are aimed at Johnson & Johnson

“We have, I think 12 Biosimilars, we have the big five under development, we are preparing to launch in fact this — the Biosimilars to J&J’s product this year.” Ian Read – Chief Executive Officer


Ian Read advocates for intellectual property protection through trade agreements. Ironically, the Trans-Pacific Partnership is criticized for this

“what’s so paradoxical about what went on with the Pacific trade agreement that you have one part of the pool spectrum saying that the U.S. government is negotiating too hard on the intellectual property, but that same group is saying, why are we letting them free ride on our innovation. So strong patent protection, strong intellectual property through trade agreements allows more of the burden of innovation we borne globally and not just by the U.S. consumer. So I think the solution is through very strong trade agreements where the U.S. uses its marketplace to say, it’s not acceptable for you to free ride on our innovation” Ian Read – Chief Executive Officer

Medtronic (MDT) 1Q17 Earnings Call Notes

Product pipeline remains strong in all business segments

“Across all four of our groups, CVG, MITG, RTG and Diabetes, our new product pipeline is robust and we’re confident we can drive sustainable growth of our new therapies growth vector within our 200 to 350 basis point goal.” Omar Ishrak – Chairman & CEO


Emerging markets are a the biggest long-term opportunity for med tech

“Overall however, the consistency of our emerging market performance benefits strongly from increased geographic diversification reducing dependence on any single market. We continue to believe strongly that the penetration of existing therapies into emerging markets represents the single largest opportunity in med tech over the long term.” Omar Ishrak – Chairman & CEO


Heartware acquisition offers a better return on investment than R&D

“we had a number investments internally going on in R&D programs directed specifically at heart failure… we basically are reallocating resources and people to support the activities within HeartWare and backing off on some of those because we actually think HeartWare return on investment will be even better.” Mike Coyle – President, Cardiac and Vascular Group


Diversity of MDT portfolio allows for even organic growth despite geographic or categorical weaknesses

“one of our main strength is the diversity of not only our portfolio but our geographic presence as well as the nature of the sources of revenue that we have from emerging markets from services solutions and new therapies. And that by definition means that there will be areas which are strong one quarter and week in others but overall we’re pretty confident, very confident that we can maintain even just organically the mid-single-digit range within the full range of mid single-digits. We expect acquisition to supplement that” Kevin Miller


MDT takes advantage of interest rate environment to fund acquisitions and R&D, while staying committed to dividend and share repurchase policy

“obviously one of the key things that we had been doing in an ultra-low rate environment was focused on efficiency and driving strong bottom-line. And so that’s exactly what we’ll be doing here. In terms of capital deployment, I think the highest and best use of our capital is to grow the intrinsic value of the company through reinvestment first and foremost, but beyond that I think it’s very important to have a dividend that is strong and… pay back to our shareholders through share repurchase and that’s exactly what we’re doing with our commitment to deliver a minimum of 50% of our free cash flow to our shareholders” Karen Parkhill – CFO


CEO Omar Ishrak is very optimistic on healthcare and med-tech industry

“If you look at it both from a medical innovation perspectives, the number of problems that have to be solved that patients will value, that create a real difference in people’s lives driving equity in healthcare around the world. The opportunities there are again limitless and we’re just scratching the surface and then on top of that you know like we’ve talked about the challenge of addressing wastage in healthcare where we’re literally wasting across the world hundreds of billions of dollars in total healthcare spend… not one that should ever be a down market if we as players and stakeholders in the healthcare market can get our heads around this”. Omar Ishrak – Chairman & CEO

What is the Lifetime Cost of Health Insurance?

Just for fun, below is an analysis of how much an average hypothetical person would spend on health insurance over the course of his/her lifetime.  The analysis is based on the average rate for health insurance for a single covered as reported by eHealth broken down by age group.  For years 65+ the cost is based on a senior paying full premiums for medicare part A and B.  It should be noted that this analysis doesn’t factor in adjustments for inflation or group coverage, and probably misses some others too.  Still, I thought it might be interesting to think about the cost to insure a person over one’s lifespan.  In 2009, aggregate US Healthcare consumption expenditures were $2.3T or about $7,750 per capita.  Over a 78 year life span, that works out to about $600,000 per person.