Pfizer at Barclays Conference Notes

Frank D’Amelio – Executive Vice President of Business Operations and Chief Financial Officer

If a deal works today it will probably work even more in the next tax regime

“And the way I think about this just philosophically is if deals work in the current tax environment, if there were a tax reform then based on everything I just currently understand today and I could spend a few minutes on this if you like, but I think they would work even more. But if you look wait is a bad for little work. My reaction is if there is an opportunity to do something today, works in the current environment with the current tax regime, like we’ve done before we will go ahead and do it.”

Valuations will change

“So there is one thing I know with certainty about valuations, they will change right. They will go up, they will go down and they will float but the only thing I know with certainty about valuations and when you look at biotech deals and once again, one of the issues with I go with the acquisition math on biotech deals and I’ll get to the reset question on that.”

A capital market event would be interesting

” I think one of the thing that’s always kind of an interesting event is the capital market event, because obviously capital market events can very much all of a sudden reset, with the valuation of the company. So that will happen over time.”

Pfizer at JP Morgan Conference Notes

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

Pfizer (PFE) at Guggenheim Conference Notes

Ian C. Read – Chairman and CEO


Delegation is a necessary evil, and the reason company culture is important

“they told at business schools we have delegations great, and I say it is not, it is the worst thing in the world. The only reason I delegate it is because I can’t do everything. So, you suddenly realize that the only way you are going to move the company is through the culture.”


In fact, company culture is the determinant of success in the pharmaceutical industry

“I have always finished by saying the only thing that in the end will make a difference is our culture. We all in the pharmaceutical industry most of us have capital, most have bright people, we all have the tools we need to be successful but we will make the difference if our culture is better than the culture of the other companies. And so when I took over I wanted to instill a culture.”


Mechanisms and procedures for deciding when to end product development are crucial

“you don’t want to spend money on something that is going to fail so you really want to be very critical as you put things into Phase 2. You don’t certainly want to get what we got to in Phase 3 with our PCSK9 and have it fail. That’s a very expensive failure. Now that’s a drug that started this development eight years ago, nine years ago so, you really want to make sure that you have made very hard and critical decisions in Phase 1. And you don’t let this sort of lingering syndrome of repurposing or staying around…  we need to know the mechanism…  we are not going to bring a product for development unless it’s first in class or best in class and within two years of the first in class. Because that’s the competitor dynamic you need to force yourself to”


95% of research is done outside the company

“research is driven by you believe you need experts inside the company and you need the most brilliant scientists. But you certainly — we certainly have forced ourselves to understand that 95% of the research is outside of the company. And the trick is to get the scientist focused early on, on outside opportunities. So we have a partnership with about 19 universities. We get some 300 submissions on things that our clinicians and our research scientists wants to develop. We go through them, we pick about 16, we put our scientists in their labs, they come to our labs. We are trying to cut out that five to six period where it sort of swims around in universities and doesn’t really go anywhere in the Academy. And then some VC picks it up. What we’re trying to do is get ahead of the VC”


Current US tax policy allows foreign companies to buy US assets at zero tax, putting PFE at a disadvantage

“I think for the US companies there are multinationals, that is the biggest competitive reset against our European competitors if we get an effective tax policy. Suddenly they can’t buy U.S. assets at a zero tax rate because they have no profit in the U.S. and they take it away outside. So your ability to buy U.S. assets compared to Europeans become equalized and all of a sudden they’ll end up paying at least the corporate tax rate or the import tariff on everything they sell in the United States. So I think it’s the biggest level there for us in that sense competitively.”


Responsibility for long-term healthcare costs is best handled by providers

“So I think the long-term risk needs to be with the providers. The providers, the hospitals have formed chains, they’ve formed semi monopolies in geographic areas. So they hold the patient for the patient’s life other than people who leave the area to go to another area. But 90% of their population is theirs for their whole life. So these are the individuals, these are the institutions that you should be able to incentivate to look after long-term healthcare costs. Work on smoking, work on lipids, work on diabetes, work on obesity. Work on smoking cessation where you can pay these institutions to lower and bend the cost curve and they are the natural holders of that. You need to be able to have rewards and incentivate them to hold those risks.”

Pfizer (PFE) at Citi Global Health Conference

Mikael Dolsten – President, R&D


Pipeline has a balanced distribution among phases

“When you look at the pipeline that deliver this flow of Phase 3 and approvals, we have about 90 projects. Slightly more than 40% in Phase 3 registration, slightly less than 40% in Phase 1, and about 20% in Phase 2”


PFE wants a “networked R&D organization” that utilizes both internal and external product development

“Very briefly when it comes to internal versus external, we really have our strategic ambition to be a networked R&D organization, some strong capabilities internally welcoming biotech and pharma partners and you can see three example of that approach. Product acquisitions through M&A, Medivation, access to Xtandi, Talazoparib… Next to that we have strategic acquisition of technology and early product. Bamboo is a company engaged in gene therapy… And then a partnership with Western Oncolytics that provides us with an oncolytic virus particularly interesting for cancer therapy of what we call cold tumors with moderate to low immune activity”


Strategic investments will likely continue into 2017

“I would say we will continue to have appetite for our strategic investment areas. Right now I think we have a very comprehensive immune-oncology portfolio but we would always built and if there is a new agent appearing, you may have seen that we have invested recently in — novel — see, there are four construct that are aimed to be local active in the tumor to circumvent that systemic talks…”


PFE’s Christmas wish list includes finding solutions for Duchene’s Muscular Dystrophy and diseases like Parkinson’s and Alzheimer’s

“And we’re going to Duchene’s Muscular Dystrophy, it would love to see us being able to change fatal outcomes for boys with that disease and we’ll certainly keep our eyes open if there is another gene therapist as we have one of the — I think best manufacturing facilities for clinical studies…One of the few areas of metabolic disease where you could come to market without big outcome studies and I think it would be a disappointment if I didn’t mention that you will always be open on your eyes for breakthroughs in neurological diseases like Parkinson’s and Alzheimer’s and then it’s going to be a combination therapy. Maybe, new agents that deal with newer inflammation which seems to be a major culprit, that would be nice New Year’s gifts”

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

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

Pfizer at Bernstein Conference Notes

Ian Read – Chairman and Chief Executive Officer

Insurance companies can’t deny access so they are raising co-pays to avoid adverse selection

“I mean we are in a political season, we are in the election season, there is a lot of rhetoric around drug pricing, it has been exacerbated I believe by the ObamaCare and the changes made in the marketplace, so you are seeing insurance companies avoiding adverse selection. They can’t do it by not covering, so now they are trying to do it by applying large co-pays and all coinsurance to avoid adverse selection in the risk pool. This has been bringing up a lot of questions around the cost to the consumer of their drug benefits. So it is not a really pharmaceutical pricing, it is rarely a change in the way the insurance industry is dealing with access.”

Macro is the largest risk for Pfizer

“for Pfizer, the macro, I think the macro environment is the largest risk”

Very optimistic in industry pipeline

“I am very optimistic. I think, certainly in oncology and in vaccines the biology is broken we’re really beginning to understand the science becoming more profound. I think you’re going to see a sustained uptick in both rare diseases and oncology and in vaccines, and I think the neuroscience is potentially the next oncology area, but probably not a near term opportunity in neuroscience because there is a lot of research going into that and I think it will break the same way as oncology.”

Pricing is more severe because insurance companies can no longer adjust risk pools by selecting patients

“Yeah, I do think it’s more intense and it’s more intense because of ObamaCare because the insurance companies can no longer adjust their risk pools by the way they select patients. And so I think you are going to have to see some type of reform of ObamaCare in the next presidential cycle.”

Medicines are the most efficient way of dealing with healthcare costs

“The pressure on – increasing in the increases of the premiums, people pulling out of the marketplace, there is going to have to be some change. And when there is some change, there is always a possibility of society looking around and saying we want to reorganize how we pay, who pays for healthcare, but the reality is that, from a public policy point of view, medicines are the most efficient way of dealing with healthcare costs.”

Most focused on who will control congress

” I’m not sure that I can, at this moment, distinguish between the policies that the Donald Trump may support or those that Hillary Clinton may support, so I’m sort of more focused really on understanding where the house control is going to be, where the senate control is going to be.”

An inversion would probably be impossible in this environment

“I think the administration has made it clear they will do whatever it takes to stop an inversion. So it would have be to – I mean, I said, nothing is off the table, but the inversion would have to be so clean and to be – probably impossible on the present environment.”

The prices of biotech have realigned but I’m not sure that management have readjusted yet

” the prices of biotech have realigned to somewhat. I’m not sure that even now management and shareholder expectations in biotech have readjusted to the alignment.”

Cancer is not a significant healthcare cost in the US

“I think total cancer costs 1% of the healthcare cost in the United States. If you get the numbers 1% or 4%, I never remember, it’s 1%. So cancer is not a major driver of cost”

Pfizer at JP Morgan Healthcare Conference Notes

Ian Read

We run Pfizer in business units

“I don’t think there is issue. We both – I mean, I acknowledge that Allergan is a smaller company in terms of its colleagues and that always helps to create a sense of purpose and focus, but Pfizer, we run Pfizer in business units. Each business unit has its own passion, its own focus. I think we are very entrepreneurial, we are very agile. We are very focused on creating shareholder value.”

Mikael Dolsten

Evolved into organization balancing internal and external innovation

“Pfizer come from a history of a strong internal R&D that has developed tremendous skills in how you design small molecules, large molecules and vaccines and as you know from our current pipeline, there is actually from recent launches over the last handful of years, a significant contribution from that organization. But, around 2010 or so, we started to evolve in creating an organization that would be equally key in to mix internal and external innovation. We built of centers that have huge innovation that was a new disruptive model to work with academia. We started to use seed capital to simulate start-up biotech that had unique ideas and as you know in our pipeline, there is a mix of molecules that we have partnered that others own like Eliquis, from BMS.”

Pfizer at Goldman Sachs Conference Notes

Diem Nguyen – Diem Nguyen, Regional President, Global Established Pharma

Biosimilars market still in nascency

“biosimilars market is still in its nascency today…It was less than a $1 billion in 2012 and it is growing to $20 billion by 2020.”

Evolution of regulatory pathways

“For the last two or three years, you have seen an evolution in the regulatory pathways, so before 2012, the only to get a biologic copy into the marketplace was to go through an innovative pathway.

With the recent guidelines established with the EMA and then with the draft guidelines with the FDA, what we have seen is more clarity into what expectations of the regulatory guidelines are.”

Between 2015-2020 will see more biologics going off patent

“in 2015 to 2020 is this perspective of innovative biologics going off patent. If you look at those two peaks of loss of patent expiry, the first is in the 2015 to 2017 time horizon, which is primarily dominated by the recombinant protein. Then you move to the 2018 to 2020 time horizon, where a lot of the monoclonals start losing their patent expiry.”

Biosimilars are not generics

“biosimilars are not generic. Reason for that is you are talking about generics as small molecules that are chemical entities, so what drives the development of generics are, one, demonstrating proof quality, two, PK data, and then being able to rely on existing clinical data from the label.’

Biosimilars are proteins that are developed on live cells or viral platform

“Biosimilars on contrast are proteins and these are proteins that are developed live cell lines or viral platform, so what you have here is the requirement is one proof of quality and similarity. You can’t have an identical biosimilar or they would be called bio identical. Those do not exist. You have the requirement of PK data, as well as clinical data to demonstrate comparability from a safety and efficacy perspective.”

Biosimilars demand trials

The contrast here in terms of the development of a biosimilar is we are looking at a Phase I as well as a robust Phase III clinical trial based most likely one or a few indications with some level of extrapolation. When I say robust, in general what we have seen from an FDA and an EMA expectations as you are looking at patient numbers ranging from the 600 to 800 patient trials.”

An analogy

” a way to explain it just like in common layman term is, if you have two-by-two piece of wood, you can cut that two-by-two and it looks identical, and I think of that as a generic, but then you have a tree, which is your biosimilar, the proteins. If you look afar, all those trees looked the same, but their branches are actually quite different.”

Black swan biosimilar with adverse event

“I think one black swan that you might have is if there is one biosimilar that ends up having an adverse event and what does that do to the class effect of biosimilars and I think that is a component, we are having dialogues with regulatory agencies to be able to have a productive discussion on what we believe is necessary to develop a save biosimilar, I think will be not good to supply there, but for the industry in general.”

Biosimilars are mimicking assets that were developed 10-20 years ago

“When you look at the profitability of biosimilars, and if you take on many components, the first one is the price, but the second one is your cost of goods. If you think just about innovative assets, they were developed, 10 years, 20 years ago, with the [ph] platform that may not be as robust as the new state of technology that many are using today.

One of the clear components that we have is our eyes are, while we do think it is a hybrid branded model, we do understand it is multi-source. With that, we developed our biosimilars to have a very strong cost of good structure to allow us to effectively compete on price.’

Oncologists may be particularly receptive to biosimilars

“if you look at the oncology space, I think oncologists are generally comfortable with using a cocktail of medicines and the cocktail medicines includes older established products with innovative products to then be able to comprehensively treat patients.

If you think about biosimilars, that actually makes a lot of sense, so the ease of using a biosimilar in combination with other innovative medicines, I think, is something that oncologist maybe more receptive to.”