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.”

Express Scripts 4Q16 Earnings Call Notes

Timothy C. Wentworth

We exist to keep drug costs down

“Let me first say that in my nearly 20 years in the PBM business, I have never been prouder of the results we create, but I’ve never seen more misinformation and absence of facts in the dialog about our role. So let me start with the facts. Drug companies set drug prices and over the last eight years those list prices have increased by more than 200%. If not for us, our clients and patients would be left to pay those costs. Drug makers set prices and we exist to bring those prices down to ensure patients can access the drugs they need and the payers can afford them. We use every tool in our arsenal to do it and are constantly innovating new ways to bring costs in line and create greater patient access.”

We are advocating for key policy changes

“In addition to being ready and able to help our clients adapt, we are also advocating for key policy changes at the state and federal level, including accelerating the introduction of biosimilars, allowing the FDA to prioritize applications based on market need, prohibiting pay for delay, prohibiting coupons from drug manufacturers and eliminating the tax deduction for DTC advertising among others.”

Trying not to get into finger pointing

the way that we continue to evolve the conversation is to be engaged, as I said, that we’ve been in. It’s also to – try to not appear to be finger pointing, but rather to defining solutions which is why we are working in concert with legislators but also to, again, try to work with manufacturers to go beyond just rebates to value-based care ”

Integration of out of pocket maximums had unintended consequences

“there is something that hasn’t been discussed a lot which was an unintended consequence of the ACA and that was that in 2015 for a great number of patients, out of pocket maximums were integrated between pharmacy and medical creating one single large out of pocket max. And for patients, as you can imagine, high deductible plans have been in existence for quite some time, back in the early 2000s. The big change was they typically had out of pocket maxes for pharmacy or other things that didn’t cause pharmacy patients who were not using the medical benefit extensively to have to encounter thousands of dollars of out of pocket maximums. But by integrating these things, we’ve seen more patients and we are beginning to study this and help our plans look at ways to put some guardrails for those patients on those unintended consequences. ”

We’re in a very competitive business, I don’t think we over-earn

“We are in one of the most competitive businesses I know. And so our clients have great choices besides just us. We’re in a competitive business. They have terrific choices. They have consultants a lot of the times that sort of add to the mix of evaluating us and ensuring that we make and keep meaningful promises to them. And so the market does work here. And I think the satisfaction with PBMs is high. If you look at the patients in Med D, satisfaction with PBMs is high and it saved a fortune. So I think there’s a lot of stuff that you could point to. I point to our operating margin versus a – or our net income versus a pharma company’s net income kind of stands on its own. No one writes about that. But again, I don’t think our business over-earns as it relates to that.”

GlaxoSmithKline’s (GSK) Q3 2016 Earnings Call

Sir Andrew Witty – Chief Executive Officer

On the challenge of generics

“I think the fact that we’ve absorbed so much pain on pricing over the last three years actually puts us in a more interesting zone going into the generic cycle. Of course it would have an impact on us. Of course generics would lead to a reduction in sales and profitability from Advair. The question really is to what degree and that is very much determined by just exactly when, what the profile of the generic entry is, and that is not within my control to predict, I am afraid..”

On pricing in US markets

“I think it is important to be conscious of the dynamics around U.S. pricing and it’s not just political dynamics although of course that is what drives a lot of headlines. There are tremendous market forces at work in terms of the way in which the U.S. market is changing, who is making the decisions, who is controlling the lives, that has changed dramatically.”

Good dialogue post-brexit between the industry and the government

“…in terms of the UK government position, I think first of all there is a very good dialogue going on between the industry and government. Of course, the overall strategic framework of the UK’s exit from Europe is not clear or defined, so inevitably there is an absence of black and white decisions and clarity if I can put it that way. But I would say that the number one most important thing that has definitively been confirmed since June 23 is life sciences is one of the top three industrial sectors that Britain wants to swing behind.”

Significant currency tailwinds going forward

“it’s highly likely we will retain a significant currency tailwind into and through much of next year if everything stays as it is today. There was no guarantee of that of course but it’s hard to remember almost that the pound is at 1.50 as recently as June 22. And so for the first of next year, you’re likely to see a very significant currency tailwind.”

M&A is tricky to get done

“I think from the kind of mega cap M&A dimension, I think the possibility of – the economic rationale for that type of thing must be rising if you believe the environment becomes more pressurized from a price perspective. But we are now – certainly when I started in this industry, I think there was 65 companies global drug companies, we’re down to a reasonably small number. These are very big companies typically, but they are complex and we’ve obviously seen a variety of potential or putative transactions launched and then canceled in the last two or three years always for slightly different reasons, but nonetheless they’ve been tricky to get done. And I think that is an issue.”

Simon Dingemans – Chief Financial Officer

The weaker sterling is having an impact

“The impact of a weaker sterling on the reported operating margin varies in the quarter by business with pharma positively affected given its relatively higher proportion of sterling costs while it’s more of a drag for vaccines and consumer.”

In sum

“…another strong quarter execution across the business, reflected in delivery of sales growth, integration and restructuring benefits, improved cash flow, and earnings. And as a result, we are confident in delivering the full-year guidance.”

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 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”

McKesson FY 3Q16 Earnings Call Notes

McKesson’s (MCK) CEO John Hammergren on Q3 2016 Results

Generic price inflation is modest

“I would emphasize our view around a generic price inflation was normal, so not zero, but certainly modest – certainly significantly down from when we came into this fiscal year with much higher expectations.’

Fluctuation in valuations does make some opportunities more attractive

“I would say that, the fluctuation in valuations does make some opportunities more attractive than others and clearly even some of the private companies have might have dreamed of IPOs et cetera may be more available to a conversation with us than they might have been otherwise.”

Generic inflation has been driven by a small number of molecules

“we talked about generic inflation in the past, we talked about the fact that is driven by a small number of molecules from a small number of manufactures that have inflated to very high degree and I’d say that our current experiences at some of those out layer increases have diminished significantly. But overall if you think about the portfolio overtime it has been in more of a deflationary mode”

We think we’ll retain the Rite Aid business

“I’d remind folks that on early January I’ve made a comment about this business we believe will be retained by McKesson in its current form through late in our fiscal 17 numbers. ‘

People are probably thinking twice about raising prices with the current political discourse

“I would say the political discourse that’s taking place and the congressional inquires relative to pricing practices, I think are obviously going to have people at least pausing perhaps to consider whether now is the right time to take price increase.”

Performance of branded pharma companies probably easier to forecast

“I believe the performance of branded pharmaceutical companies is probably easier to forecast give that it has been less volatile in the last decade than perhaps the generic industry we’ve seen more volatility. And that volatility certainly is partially driven by supply and disruption.”

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.”

McKesson FY 4Q15 Earnings Call Notes

29% EPS growth

“For the full year, revenues increased 30% to $179 billion and adjusted earnings per share from continuing operations increased 29% over the prior year to $11.11.”

Policy makers will support value based care in the US

“The policymakers have set meaningful direction to support a transition to value-based care in the United States. Recently Congress overwhelmingly passed H.R. 2 which permanently replaces Medicare’s sustainable growth rate system. The bill, which was signed by the President, provides needed reimbursement stability and predictability for providers in the near term while they transition to a more incentive-based payment system by the year 2019. The bill also contains provisions for healthcare data interoperability among other important provisions.”

Lots of considerations for biosimilars

“I want to acknowledge that there has been quite a lot of talk of late regarding biosimilars. We expect the biosimilar landscape to evolve over time and we believe this new category will play a growing role in the specialty market. The success of each biosimilar drug and drug class has many dependencies, including the channel of delivery, the disease which the drug addresses, physicians’ views on quality and efficacy and the value delivered by various participants in the supply chain.”

More dollar value of generics in FY 2016, but economics not quite as good

“I think we actually expect more dollar value of generic launches, or I should say branded generic launches – launches of branded drugs in fiscal 2016 than there were in 2015. So you’re right, there’s more dollar value of product going generic. I think as we look at our portfolio of generic estimates, we frankly see the character and characteristics of some of those generics being not quite as favorable for us as the launches that took place in FY 2015.

So an example would be a generic that might have many, many participants, and the value back to the supply chain as a result of that competitive activity wouldn’t be as great.”

If the Sup Ct. rules out of favor of subsidy, congress will probably act

“I think the end result or even if something were to come from the Supreme Court ruling that may put a question mark on the subsidy or support for these patients I think that there’ll be a quick reaction on the Hill to try to find another way to provide low-cost quality care to patients so they don’t fall through the crack and end up in the emergency rooms in America.”

Plug for our industry: Pharmaceuticals are the best way to treat patients

“I would remind also to the listeners that know this well that pharmaceutical use and the appropriate use of pharmaceuticals and primary care physicians is the best way to treat patients as opposed to letting them their situations falter and having them end up in an acute situation in one of our Great American hospitals and that I think needs to be avoided.”

Justification for focusing on Europe over Brazil:

“I think the way we think about Europe is the way I think about McKesson 16 years ago when I landed in this seat. How do we – how can we optimize the performance of the businesses we have and focus on those businesses and then how do we branch from those businesses to adjacencies that we know how to operate in markets where we can compete. And I think the situation with Brazil, it was not obvious that we could create a market-leading strategy there particularly given the vertical nature of some of the retailers in that market. And nuances associated with the business models down there and clearly whether it was scaled properly, et cetera, that I think the conclusion was reached that we should have our focus on Europe and in those markets where we currently have a strong beachhead.”

Rite Aid FY 4Q15 Earnings Call Notes

Medicaid expansion, good cold/flu season drive good script count growth

“Same-store sales increased 4.5% which was driven by a 3.5% increase in same-store prescription count. As in past quarters, we continue to see script count growth in states with expanded Medicaid and also benefited from our prescription file buy initiative and an increase in cold and flu related incidents compared to the prior year fourth quarter.”

Rapid medicaid growth from last year provides a headwind to this year’s comps

“Well I think we’re, John we’re in a cycle, gradually over the next few months we are going to cycle some rapid growth last year in Medicaid expansion so that’s, it builds through the first couple of quarters, we could grow and I think we’re going to work our way through that over the next couple of quarters so I think that’ll, that’s a little bit of a headwind we have to work through so I think that’s part of what you’re seeing there.’

Synergies with clinics

“I guess there is a couple of parts to that, first of all we’re seeing some net new customers which we think is a real positive in those and there are scripts coming out of those that are getting filled at our stores. So, I think from a revenue synergy perspective it is kind of two things going on there that seem positive to us and in terms of the square footage of the merchandising impact.”

Reimbursement rate is biggest pressure on EBITDA

“So it’s probably, it’s more reimbursement rate than it is those other investments but it is all of them combined that is impacting guidance that we are giving.”

It’s a cost reduction environment though

“it’s hard for me to parse to take McKesson out of that equation and say without McKesson generic inflation is X or Y because we do buy through McKesson on everything. And overall it’s our expectation that our net generic drug cost is going to come down. So we think it’s to us a net deflationary market. We do know that there will be individual drugs that there will be instances where we’ll see some cost increases throughout the year that’s a constant battle that we fight every year. But our overall our guidance reflects the fact that we think we’re going to be overall in a cost reduction environment versus a cost increase environment.”

We’re going to see cost savings from McKesson relationship

“I probably can’t I will again tell you that you that we think there is substantial value from the McKesson relationship, again we expect that we’re going to reduce our overall drug spend and unfortunately we still are digesting some rate pressures through this fiscal year and that’s eating up a lot of those savings.”

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.”