Pfizer Inc Q4 FY2022 Earnings Call

Good day, everyone, and welcome to Pfizer’s Fourth Quarter 2022 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Mr. Chris Stevo, Senior Vice President and Chief Investor Relations Officer. Please go ahead, sir.

Good morning. Welcome to Pfizer’s fourth quarter earnings call. I’m joined today by Dr. Albert Bourla, our Chairman and CEO; Dave Denton, our CFO; Dr. Mikael Dolsten, President of Worldwide Research and Development and Medical. Joining for the Q&A session, we also have Angela Hwang, Chief Commercial Officer and President, Global Biopharmaceuticals Business; Aamir Malik, our Chief Business Innovation Officer; Dr. William Pao, our Chief Development Officer; and Doug Lankler, our General Counsel. Before we begin the call, I wanted to remind you of some logistical items. Materials for this call and other earnings related materials are on the Investor Relations section of pfizer.com. You see our forward-looking statements disclaimer on slide 3. Additional information regarding these statements and our non-GAAP financial measures is available in the 10-K and 10-Q under Risk Factors and Forward-Looking Information and factors that may affect future results. 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, Chris. Hello, everyone, and thank you for joining us today. During this morning’s call, I will touch on some of our highlights from 2022, and share some thoughts regarding Pfizer’s exciting near and long-term growth plans. 2022 was an outstanding year for Pfizer on multiple fronts. We exceeded $100 billion in revenues for the first time in our 174-year history. We maintained our industry-leading clinical success rates and further improved our cycle times, which already were among the industry’s best. We were named to 10 different “best employer” lists, including those published by Forbes, LinkedIn, Glassdoor and others. And most important, more than 1.3 billion patients around the world were treated with our medicines and vaccines. A truly humbling achievement. Our key growth drivers for the full year 2022 included: global sales of Paxlovid, strong growth for Comirnaty in developed markets, the launch of Prevnar 20 for the adult population in the U.S., the continued strong growth of Eliquis globally, the strength of our Vyndaqel family globally, and the addition of newly acquired products Nurtec ODT/Vydura and Oxbryta. Looking ahead, we foresee strong operational revenue growth of 7% to 9% in 2023, excluding revenues from our COVID-19 products and the impact of foreign exchange. We expect our potential new launches, newly acquired products and inline products will all contribute to this growth. These projections include our forecasts for several important potential product launches, including our RSV vaccine for older adults, potential Prevnar 20 pediatric indication, and products and candidates that came to us through recent business development activities, including etrasimod for ulcerative colitis, Nurtec and zavegepant for migraine, and Oxbryta for sickle cell disease. We’re in the midst of an 18-month period during which we expect to have up to an unprecedented 19 new products or indications in the market. Fifteen of these 19 are from our internal pipeline, with the remaining four coming to Pfizer, as just explained, via the recent business development deals. Recognizing the importance of these potential launches, as well as those expected in 2024, to both Pfizer and the patients who rely on our innovations, we are increasing the support we are putting behind them by investing an incremental $1.3 billion in SI&A expenses in 2023. Dave will provide more details on these investments during the presentation. One example of a product that is already benefiting from this additional support is Cibinqo, which recently has seen an improving growth trajectory that we expect to continue through the course of 2023. In the fourth quarter of 2022, Cibinqo’s new-to-brand prescriptions grew 84% sequentially, the fastest growth rate in the class. We have started 2023 with 55% commercial formulary access, and we expect that access to continue to improve during the year, especially with the upcoming expected expansion of the U.S. indication to include adolescents, 12 to 18 year-olds, if approved. We also introduced a new direct-to-consumer campaign in November, which has increased patient awareness of Cibinqo and led to more patients asking their doctors about it. We look forward to the expected U.S. launches of etrasimod in ulcerative colitis and ritlecitinib in alopecia areata, if approved, as well as the expected launch of Abrilada, our biosimilar to Humira, to further expand our franchise in immunology this year. However, we recognize that investors are not only interested to hear this year’s guidance, but also to understand the long-term growth prospects of the Company. Particular questions are focused on our plans to offset the expected $17 billion impact of the losses of exclusivity between 2025 and 2030, and our long-term projections for our COVID-19 products. We will try to address both, starting with this slide regarding our business, excluding COVID. As you can see in this chart, we expect the 15 of the 19 potential launches that are coming from our internal pipeline to generate 2030 revenues that will more than offset the expected LOE losses forecast for 2025 to 2030. The potential $20 billion in this chart is a risk-adjusted number. I would also point out that some of the potential launches are expected to be bigger contributors to our growth than others. And if all 15 were to achieve their full potential, this figure could go even higher. In addition, we believe we have the ability, if successful, to add at least $25 billion of risk-adjusted revenues to our 2030 topline expectations through business-development activity. As we have said previously, we believe the deals we have already done for Arena, Biohaven, Global Blood Therapeutics and ReViral have the potential to get us more than 40% of the way there with approximately $10.5 billion in expected 2030 revenues. I am very pleased to see that the analysts’ consensus expectations for the same revenues have already reached $9.5 billion, closing materially the gap that previously existed between internal and external expectations. Four of these products have already launched or are expected to launch, subject to regulatory approval, in 2023. We also have more than enough capital to invest in the additional opportunities needed to meet or exceed this target. And, of course, we have many more potential vaccines and medicines in our pipeline, with numerous launches expected in the 2024 to 2030 timeframe, if successful in clinical trials and approved. Some of the most promising assets include: our oral GLP-1 candidate for diabetes and obesity; potential combo vaccines for flu, COVID-19 and RSV; our potential vaccines for Lyme disease and shingles; multiple new oncology product candidates, including ARV-471 and our CDK4 inhibitor for endocrine receptor-positive breast cancer; our gene therapy candidates for hemophilia A, hemophilia B and Duchenne muscular dystrophy; our pan-hemophilia A&B antibody treatment; and many more. If approved, we expect each of these to be key incremental contributors to our growth aspirations through 2025 and beyond. Even without any of these additional potential products, we expect our 2025 to 2030 revenue CAGR to be approximately 6%. And if some of them are successful, the CAGR could exceed 10%. Now, let me turn my attention to our COVID-19 portfolio. At the JP Morgan Conference earlier this month, I spoke about expecting 2023 to be a transition year, representing a low point in our COVID-related revenues. Let me provide a little bit more color on that. I will start with Comirnaty in the U.S. as an example. In 2022, 31% of the population, or 104 million Americans, received on average 1.4 doses of COVID-19 vaccines for a total of 144 million doses. Comirnaty’s share was 64%, or 92 of these 144 million doses. In 2023, we expect about 24% of the population, or 79 million people, to receive vaccine doses for COVID during this year. This drop is due to expected fewer primary vaccinations and reduced compliance with recommendations. We expect they will receive about 1.3 doses per person on average in 2023. The drop is because fewer people are expected to receive their primary doses and, for the most part, only those who are older or at higher risk are expected to continue receiving more than one booster per year. This should result in about 102 million total vaccine doses administered in 2023. We believe Pfizer will maintain at least its 64% market share and therefore expect about 65 million doses of the Pfizer-BioNTech vaccine to be administered in 2023. In 2024, we expect the utilization rates and market share figures to stabilize and come in roughly the same as in 2023. Then starting in 2025, and continuing in 2026 and beyond, we expect to see an increase in COVID-19 vaccination rates, assuming the successful development and approval of a COVID/flu combination product. A successful introduction of a COVID/flu combo could over time bring the percentage of Americans receiving the COVID-19 vaccine closer to the portion of people getting flu shots, which is currently about 50%. Outside the U.S., we expect these general trends to be similar with some variations from country to country. So, what does this mean for revenues? We expect 2023 to be a transition year in the U.S. In 2022, we sold at pandemic prices more doses than were eventually used. This resulted in a government inventory build that we expect to be absorbed sometime in 2023, probably the second half. Around that time, we expect to start selling Comirnaty through commercial channels at commercial prices. We expect that in years 2024 and beyond, the doses sold and doses used in a year will more closely align together and the commercial price to remain relatively stable with only inflation-like price increases. Now, let me briefly run through Paxlovid. In 2022, we estimate that 110 million COVID-19 symptomatic infections were reported in the world, excluding China. Approximately 12% of them were treated with approximately 14 million oral therapy courses and Paxlovid had the lion’s share of them with approximately 90% market share. The average was 86%, but in the second half of the year it exceeded 90%. Keep in mind that this reflects a full year of reported infections, but only a partial year of Paxlovid availability due to supply constraints in the first quarter of 2022. In 2023 and beyond, we expect infections to increase slightly at 2% annually, due to waning immune protection of the population resulting from reduced vaccination rates. Similarly, we expect treatment rates to increase as awareness, education and additional oral entries will grow the oral antiviral market. Finally, we expect Paxlovid to maintain very high share despite additional competitive entries, given its strong benefit-risk profile and brand recognition. So, what does this mean for revenue? As with Comirnaty, we expect 2023 to be a transition year for Paxlovid as well. In 2022, we sold at pandemic prices more treatment courses than were eventually used. This resulted in a government inventory build that we expect to be absorbed sometime in 2023, probably the second half. Around that time, we expect to start selling Paxlovid through the commercial channels at commercial prices. We expect in years 2024 and beyond that the courses sold and used will align closely together within every year. There has been a great deal of speculation regarding the new but uncertain market opportunity for Paxlovid in China, so let me share what we are seeing. We have an agreement with one company to import and distribute Paxlovid in China, a local company, and we have a manufacturing agreement with another local Chinese company for local manufacturing. Pfizer shipped only tens of thousands of courses to China in fiscal year 2022. From December, which is the first month of our non-U.S. fiscal year, through March, we expect to ship millions of courses to meet local demand. We expect we will be able to sell effectively under government reimbursement through end of March. And despite China’s recent decision not to include Paxlovid on the country’s National Drug Reimbursement List, we expect to offer the product on the private market after April 1st unless, of course, a listing opportunity opens up before then. Lastly, I want to point out that while we are expecting increased utilization in all regions of the world as infections increase, we are not including any major new non-U.S. or non-China contracts in our 2023 forecasts. Let me close with a few thoughts regarding our scientific engine. R&D continues to be the lifeblood that fuels us as a company, which is why we plan to increase our R&D spend by at least 8.7% in 2023 to the $12.4 billion to $13.4 billion range. In addition to the increased investments, we are taking steps not only to further improve our industry-leading success rates and cycle times, but also to increase overall return on investment and R&D productivity. As you have seen in the last year, we continuously prioritize our pipeline to focus on the assets that represent potential breakthroughs and have the potential for generating higher returns, putting more capital behind larger opportunities like GLP-1, flu, elranatamab, and others. We are at an inflection point to act from a position of strength with our best-in-class R&D productivity, a robust pipeline of innovative assets and one of the highest R&D budgets in the industry. With that, I will turn it over to Dave to provide details on our fourth-quarter performance and our outlook for 2023. After Dave, Mikael will provide an update on our R&D pipeline. Take it over, Dave.

Thank you, Albert, and good morning, everyone. Albert has already taken you through many of the key drivers of our full-year performance, so I will focus my opening remarks on some key highlights from the fourth quarter. Revenues grew 13% operationally, primarily driven by Comirnaty’s strong growth in developed markets following the slowdown in deliveries that we discussed in the third quarter ahead of the rollout of the bivalent booster. We also saw very strong performances from Paxlovid outside the U.S. and the ongoing launch of Prevnar 20 for adults within the U.S. Excluding direct sales and alliance revenues related to our COVID-19 products, Pfizer’s revenues grew 5% operationally in the quarter, and if recently acquired products from Biohaven and GBT are also excluded, revenues were up approximately 3% in Q4. Reported diluted EPS this quarter grew by 48% to $0.87, while adjusted diluted earnings per share of $1.14 grew 69% on an operational basis in the quarter. Both EPS figures include a $0.32 benefit from lower acquired IPR&D expenses compared to last year’s fourth quarter. Once again in the quarter, foreign exchange movements significantly impacted our results, reducing fourth quarter revenues by approximately $2.5 billion, or 11%, and adjusted diluted earnings per share by $0.19, or 24%, compared to last year. On a full-year basis, foreign exchange negatively impacted revenues by $5.5 billion, or 7%, and adjusted diluted earnings per share by $0.36, or 9%. Turning now to 2023 and the financial outlook for the Company. Let me first point out that our approach to guidance in 2023 is fundamentally different than prior years. Given the expected transition to commercial markets for our COVID franchise, and away from an Advanced Purchase Agreement environment, our guidance reflects our best estimates for revenues and profits for these products for the full year, not just what has been contractually secured. On a total company basis, we expect revenues of between $67 billion to $71 billion, reflecting an operational decline of 31% at the midpoint. Importantly, we expect that revenues from our business excluding COVID will grow between 7% and 9% on an operational basis in 2023. That growth is projected to be split between contributions from our new product launches, our recently acquired products, as well as our in-line portfolio. The total company revenue declines are entirely driven by our COVID products, which are expected to go from their peak in 2022 to their low point in 2023 before potentially returning to growth in 2024 and beyond. While patient demand for our COVID products is expected to remain strong throughout 2023, much of that demand is expected to be fulfilled by products that were delivered to governments in 2022 and recorded as revenues last year. I want to point out that our total company revenue guidance range is wider than what is implied by the 7% to 9% operational growth rate range for the business excluding COVID. The wider guidance range reflects the potential volatility that we see in our COVID product revenues, given that they can be significantly impacted by factors outside of our control, such as the infection rates and the severity of the virus, as well as the timing for transitioning to a traditional commercial model here in the U.S. Now, you can see on this slide our cost and expense guidance for 2023. As I mentioned in my remarks at our investor event in December, both SI&A and R&D expenses are expected to be significantly higher in 2023 versus 2022, despite the fact that our overall revenues are coming down. Higher investments in SI&A are significantly focused on the successful launches of the large number of potential new products that Albert highlighted, as well as recently acquired assets. Additionally, the expected commercial launch of both Comirnaty and Paxlovid in the U.S. will require additional investments as we transition away from the government market. These investments are squarely focused on supporting the Company’s 2025 to 2030 growth aspirations. We also intend to invest significantly into our research efforts this year, with multiple exciting and potentially high-value programs receiving additional funding, including our oral GLP-1 programs, elranatamab, and respiratory combination vaccines. All of this spending to support our commercial and research activities, we believe, will not only yield an attractive return, but will also contribute toward setting us on a path to achieve our long-term growth goals. I’ll point out that when you exclude revenues and expenses related to COVID products, our expected operating margin profile this year is largely consistent with the prior year. This reflects incremental investments in SI&A related to launch products and R&D, as well as lower acquired IPR&D. In 2023, we are investing in both R&D and SI&A in advance of revenue contributions from new products. Looking longer-term, we expect this spending will be maintained, with the P&L growing into this cost base as new product revenues begin to be fully realized, with margins improving as a result. Given that 2023 is both a year of investment and transition, I thought it would be helpful to outline many of our key assumptions built into our guidance. I don’t intend to walk you through all the elements here, but both slides 19 and 20 outline many of the details. In summary, these assumptions include: strong revenue growth of 7 to 9% in our business excluding COVID products; additional investments in SI&A and R&D to support Pfizer’s near- and longer-term growth plans; continued patient demand for our COVID-related products worldwide, with vaccination rates declining slightly and utilization of treatments slightly increasing; rephasing of the European Commission Comirnaty contract over multiple years versus full delivery in 2023; and, finally, U.S. commercialization of the COVID products in the second half of 2023. In summary, as we enter a new year, our business is extremely strong, with many in-line, acquired and expected launch products capable of driving strong growth with an attractive pipeline of potential products coming in the future. We believe 2023 will be an important year for Pfizer, and that is why we are deploying our resources into quality execution in order to fully realize the growth opportunities we see within our portfolio and pipeline, which have the potential to impact our growth outlook through 2030 and beyond. So, with that, let me turn it over to Mikael.

Thank you, Dave. Today, I want to set the stage for an anticipated catalyst-rich 18 months. As Albert mentioned, we are in a position of unprecedented strength in our history and I’m excited to share a high-level overview of an evolved strategy for Pfizer R&D to focus our resources on transformative programs which could be most impactful for patients, drive improved return on R&D investment and create the most value. We will leverage and continue to innovate our powerhouse capabilities in medicine design, and continue to innovate light-speed drug development to further improve our industry-leading success rates and cycle times. We have rethought our approach to rare disease and will move from having a standalone research unit to aligning key programs with other therapeutic areas. We plan to externally advance rare disease programs that do not fit into a core therapeutic area of focus. At the same time, we plan to tap into the expanding external innovation ecosystem by actively pursuing biotech innovation and emerging innovation that fits strategically and accessing external assets that are differentiated. Taken together we believe these actions will help position us to lead the industry in reaching more patients with the most impactful near-term blockbuster breakthroughs while driving forward the next wave of innovations. I’m pleased to share some examples with you today. We are pursuing potentially transformative efficacy in our inflammation & immunology franchise, with the potential launches of etrasimod in ulcerative colitis and ritlecitinib in alopecia areata, which both have the potential to be blockbusters, and a planned Phase 3 study start of anti-interferon beta in dermatomyositis and other idiopathic inflammatory myopathies. Our next wave of innovation includes two monoclonal antibody candidates for atopic dermatitis which exemplify our multispecific platform and in-house biomedicine design expertise. Two assets currently in Phase 1 clinical trials each target three cytokines in a single therapeutic, so we refer to them as trispecifics. On the right are Phase 1 pharmacokinetic profiles of the average plasma concentration. For both molecules, the profiles suggest that once-a-month, or even less frequent, subcutaneous dosing may be supported. There is potential for improved efficacy with more potent interleukin-4 and interleukin-13 neutralization plus an expanded breadth of efficacy by blocking thymic stromal lymphopoietin to potentially cover more endotypes, or by blocking interleukin-33 to potentially enhance itch reduction. The Phase 1 studies continue. We aim to bolster our 30-year experience in hematology with a strong pipeline that complements our in-line portfolio and collectively has blockbuster potential. I will talk more about elranatamab and GBT-601 in a moment, so will highlight here that we expect multiple data readouts for TTI-622 in hematological malignancies, two Phase 3 readouts for inclacumab in sickle cell disease in the second half of 2024 and a Phase 3 readout for marstacimab in patients with hemophilia A or B in the second quarter of 2023. Marstacimab has FDA Fast Track designation for both hemophilia A and B with inhibitors. If successful, we project submitting for the non-inhibitor indication in both A and B hemophilia in the third quarter of 2023. We recently announced positive top-line results from a Phase 3 study of our hemophilia B gene therapy candidate and expect a pivotal readout for our hemophilia A gene therapy in the first half of 2024. We recently presented strong updated Phase 2 data on elranatamab, our investigational B-cell maturation antigen, or BCMA, CD3-targeted bispecific antibody, for relapsed or refractory multiple myeloma in heavily pre-treated patients who had received at least three classes of prior therapies. This candidate, which has the potential to be a leader in the BCMA bispecific class, demonstrated a high objective response rate of 61% in patients with no prior BCMA-targeted treatment, early and deep responses, and a manageable safety profile. Given factors currently limiting the availability of novel therapies in the triple-class exposed setting, elranatamab has the potential to reach a broader and greater number of patients as an off-the-shelf option with reduced dosing frequency that is administered subcutaneously, offering more convenience than intravenous administration. With FDA Breakthrough Therapy Designation granted last year, elranatamab could potentially be approved this year. As there is blockbuster potential and patient value beyond the triple-class refractory population, our clinical strategy aims to move to earlier lines of therapy and combination approaches with the potential, if successful, for multiple approvals to expand eligibility and duration of therapy. Now, to our next generation oral, once-daily, hemoglobin S polymerization inhibitor candidate that’s in a unique class and has the potential to expand the prophylactic treatment of people with sickle cell disease. Standard-of-care treatment rates have typically been low due to side effects, poor efficacy, or both. While Oxbryta made substantial progress in preventing hemoglobin polymerization, or sickling, GBT-601 is a potentially best-in-class candidate which may improve both hemolysis and frequency of vaso-occlusive crises. The most recent data from our Phase 1 multiple ascending dose study showed improvements in hematocrit and hemoglobin levels over time, mean hemoglobin occupancy of more than 32% for the 100 milligram maintenance dose and more than 41% for the 150 milligram maintenance dose, and improvements in red blood cell health with the higher maintenance doses. The maintenance doses were well tolerated. We believe these results may be transformative for patients, with a potential to achieve 35% to 45% hemoglobin occupancy, which is considered optimal for both hemoglobin oxygen affinity and preventing sickling, and approaches levels seen with gene therapies. This asset is also being studied in an ongoing Phase 2 study with a seamless Phase 2/3 design. We plan to start the Phase 3 part in the second half of 2023. Next, we aim to expand our leadership in breast cancer with a pipeline of complementary next-wave candidates. Our CDK4 inhibitor targets improving on CDK4/6 inhibition standard of care by maximizing CDK4 coverage. We are studying it in Phase 1 in hormone receptor positive/HER2 negative metastatic breast cancer as a single agent and in combination with endocrine therapy. The majority of hormone receptor positive breast cancers express low CDK6, while CDK4 is likely to be a major cell cycle driver. We have seen that CDK4/6 inhibition can lead to neutropenia that requires more frequent blood test monitoring, mostly driven by CDK6 inhibition, and that complete CDK4 inhibition by CDK4/6 inhibitors is challenging due to dose-limiting hematological adverse events. In the Phase 1 combination study, the confirmed objective response rate in combination with fulvestrant or letrozole reached nearly 30% and the clinical benefit rate was approximately 50% in 21 patients with measurable disease. The median progression-free survival was more than 24 weeks in 26 patients including five without measurable disease. All participants were heavily pre-treated with a median of four lines of prior treatment. All patients received prior CDK4/6 inhibitor treatment and 67% received prior fulvestrant. The asset was well tolerated with the CDK4 drug showing only 15% Grade 3 neutropenia and no Grade 4. Here, we show a scan of a patient who achieved partial response and was on treatment for 47 weeks. She had received six lines of prior treatment, including CDK4/6 inhibition and fulvestrant. We are currently engaged in dose optimization, enrolling CDK4/6-naïve cohorts, and planning to start a randomized study in second-line treatment of estrogen receptor positive/HER2 negative metastatic breast cancer this year. Additional data readouts from our next wave of breast cancer candidates are anticipated in the first half of 2023. In addition to the assets I spoke about today, we anticipate multiple milestones over the next 18 months. We expect a pivotal IBRANCE readout in hormone receptor positive/HER2 positive metastatic breast cancer, a pivotal study start for ARV-471 and a Phase 2 readout for our KAT6 inhibitor. We have achieved incredible advancement in our vaccines portfolio, including candidates that harness our leadership in mRNA, with an unprecedented number of milestones expected. In addition to the expected launches shown here, we expect a Phase 3 data readout from our modRNA flu candidate vaccine, and a potential respiratory combination vaccine study start. A Phase 1/2 study of our shingles candidate, the first mRNA-based shingles vaccine program, began last week. In inflammation & immunology as well as internal medicine, key catalysts include potential launches of potential blockbusters, a planned pivotal study start with anti-interferon beta and data readouts in metabolic disease. We’re also making good progress in our anti-infectives portfolio, including anticipating full approval for Paxlovid, and planned study starts for both our second-generation COVID-19 antiviral candidate, which may have no or limited drug-drug interactions, and our RSV antiviral candidate. In closing, we are very optimistic about the many transformative catalysts emerging from the pipeline. Pfizer scientists are working with urgency and commitment to help the most patients as quickly as we can. Thank you. Let me turn it over to Chris to start the Q&A session.

Thank you, Mikael. Chelsea, why don’t you poll for questions, please? We’ll take as many questions as time permits and Investor Relations will be available after the call to answer any detailed questions that we’re not able to address on the call itself.

Yes, sir. The operator provided instructions on how to ask questions. And we’ll take our first question from Louise Chen with Cantor.

So first question I have for you is do you expect your COVID/flu combo to be on an mRNA platform? And then, I wanted to ask you on this RSV vaccine, there’s a few players in the space. And just wondering if you think anybody could potentially get a preferential recommendation from ACIP or is that really hard to achieve? And the last question is on your trispecific monoclonal antibodies. Is atopic dermatitis still a key focus for you? And if so, are you moving the focus to this monoclonal antibody, or are you still focused on etrasimod for atopic dermatitis and also you had an oral PD—sorry, a topical PDE4 that was in development? Thank you.

Thank you, Louise. Clearly, for the ACIP, it will depend on the data and it’s difficult now to say if a preferential recommendation could be achieved or not. But for both questions, COVID/flu is mRNA, RSV is not. Mikael, and then also what about the trispecific antibodies?

So, as Albert spoke about Cibinqo’s expansion, we think there’s room for many opportunities in atopic dermatitis. We wanted to highlight this as a really novel pioneering approach to go beyond the current antibodies in atopic dermatitis with potentially many other allergic diseases. But there is room for several products in our pipeline in both oral and topical segments, as you mentioned. So, this is an area, I think, we will excel in.

And also to reiterate — we are mastering multiple technologies in vaccines. So, we are using fit for purpose here. Every time we feel that the technology is appropriate for the problem we’re trying to solve, we apply this technology. Flu and COVID, speed is of the essence because there are variants that are coming. So mRNA is ideally positioned to address this challenge. With RSV, the virus is not changing that often. So, a protein approach that has a strong tolerability profile, in our case, showed very high efficacy and was well tolerated. I think it’s the best way to move forward. That’s the benefit of having multiple approaches and multiple technologies. Next question, please.

Our next question will come from Terence Flynn with Morgan Stanley.

Maybe two-part for me. I was just wondering if you can provide any more details on European vaccine contracts that were extended. Just wondering if you were able to secure a higher average price, given some of the headlines in the press earlier this week. And then, latest thinking on Paxlovid commercial pricing in the U.S. as well, was wondering if you could weigh in on that. And then the second question relates to economics with BioNTech on a combo vaccine. Just wondering how that will work in the event that you do go forward with a combined COVID and seasonal flu messenger RNA vaccine. Thank you.

I’ll take the last one and then Angela will answer the European vaccine and the Paxlovid. As you know, the flu vaccine that we are developing, BioNTech also have an economic position in it. And of course, the COVID vaccine, it is a vaccine that we are sharing with them. So, we are not ready to make any comments regarding the economics about the potential COVID and flu vaccine. Angela, what about the European situation and Paxlovid pricing?

So, for Comirnaty in Europe, as you know, this was a multiyear contract that we entered into with the Commission and the member states. And so I think the pricing there is what it is for the contract. And we’re in discussions with the European Commission regarding 2023 and what the deliveries will look like. Specifically for Paxlovid, that is going commercial only later in this year. So, we are now preparing what those pricing scenarios could look like, and we’ll share more at the right time.

Thank you, Angela. And also to repeat, as Dave mentioned, in our guidance for this year, we factor only a portion of the European contract. So, we spread the volumes into multiple years, although no agreement has been reached yet. Next question, please.

Our next question will come from Robyn Karnauskas with Truist.

So just to drill down a little bit on Paxlovid. It looks like IQVIA numbers are implying about 9.3 million versus say the 12 million that you mentioned for 2022. So, I was wondering if you think about the split going forward ex U.S., could it be somewhat similar? Do you think it’ll be more skewed, be more even to the U.S. and ex U.S.? And then my second question is, it also could imply that about half of your 20 million contracts were used in 2022. So, how do you think about — could it be very minimal revenue as you draw down that Paxlovid and will that go into a stockpile? Thanks.

Angela?

Well, let’s start with the U.S. Paxlovid. So, in 2022, when we launched Paxlovid, in the first quarter post launch, we did not really have sufficient supply because we were still ramping up. So, the total number of doses that were used in the U.S. for Paxlovid is actually less than the demand. So, that’s why you see — we used about 8.6 million to 8.9 million doses in the U.S. when actually demand was much more than that. Then you asked a question about IQVIA, the difference. As you know, IQVIA doesn’t capture all the channels, so you’re not going to see an exact match. But I think that in general for 2023, the number of doses that you will see for the U.S. and for ex U.S. is just going to be a function of the contracts that were made, the deliveries that we have to make in each of the countries and also the timing of the commercialization. And it just looks different in every single country.

Thank you, Angela. And also to emphasize that the 12 million calculation is a global number, not a U.S. number. I believe the 9 million of IQVIA is approximately in the U.S. Next question, please.

Our next question will come from Geoff Meacham with Bank of America.

Just have two. The first one is on COVID. When you look at the 2023 demand and beyond really for both products, I guess, I’m trying to better understand the volume side of the equation. Are you guys baking in the emergence of, say, a new variant or maybe a change in behavior towards boosters? That’s the first question. The second one is, from a BD perspective, Albert, you have a lot of cash to deploy. If your COVID assumptions don’t quite play out, does that inform the number of deals or the size of deals? I guess, I’m trying to get a view about where BD fits in your strategic priorities. Thank you.

Of course. First, what is the assumption about the disease because that’s a fundamental assumption behind all these projections that we are doing. It is that the disease will continue in the foreseeable future, manifesting clinically the same way that it has the last 6 to 9 months. So there will be mutations and there will be infections. But the vaccination rates will be coming down because of lack of compliance but will stabilize to a certain degree of people who believe in vaccinations and feel they are at high risk and want to get vaccinated. At the same time, infections are expected to increase slightly because when you have waning immune protection for the population, you will see more infections and more severe infections. So, these are the assumptions that we are using. We are not using assumptions that all the variants will escape the protection of the vaccine. But we are using the assumptions that people will be getting 1.3 doses in the beginning and then moving toward 1.1 to 1.2 doses per year as a normal booster. What was the second question? On BD, yes, clearly, business development is, by far, one of our biggest priorities, something that I personally take care of and something that we have a very big team screening all the opportunities. I would like to ask Aamir, who is responsible for that area, to make some comments about our priorities.

So, Geoff, specifically to your question, you heard Albert describe we set this aspiration goal of $25 billion in 2030 from BD. We’re over 40% of the way there with approximately $10.5 billion of that number through the deals that we’ve done. And we feel very confident that we’ve got the financial flexibility on the balance sheet and the firepower to complete what we need to, to achieve that goal. And we’re going to continue to be disciplined about how we pursue that.

I think we can move to the next question.

Our next question will come from Steve Scala with Cowen.

Thank you. I have a couple of questions. On page 4 of the release, Pfizer reiterated that non-COVID revenue growth in 2023 will be 7% to 9% and anticipates it will be split between launch, acquired and in-line products. That implies about $3.5 billion in incremental revenue growth. But in 2022, Prevnar alone grew $1 billion, and Eliquis and Vyndaqel together added another $1 billion. So with the launch in acquired products growing well, what does this guidance imply for the base business in 2023? It seems like a substantial slowdown is implied in the base business in the current year. Second question, has Pfizer learned anything from the Zeposia performance to date that would either increase or decrease its confidence in etrasimod? Thank you very much.

I would say, Dave, do you want to say how the growth is allocated between in-line, new products and acquired products?

Yes, a really good question. I think if you look at each one of those three buckets, we see growth from acquired products, we see growth from new products and importantly, we see growth in our in-line portfolio as well. We do not anticipate nor do we see a slowdown in that perspective.

It’s approximately one-third, one-third, one-third. And Angela, what about etrasimod?

I think we’re really excited about etrasimod as a new entry. It’s a market that has been heavily dominated by biologics and then followed by JAKs after the biologics. But really, in the earlier treatment positions, there really hasn’t been much innovation, and that’s where we see etrasimod fitting in. I think the safety profile of etrasimod and its efficacy allows it to be used very well as an agent prior to the use of biologics. And that’s where we see the ability to tap into a new segment and to grow.

Yes. I would just say we’re excited about the best-in-class profile with the study that we did, had a treat-through design. We hope and anticipate that we’ll have no black-box warning. We don’t anticipate any required titration, the once-daily oral dosing, 100% of our patients were in complete remission after a year and that we’re in complete remission after one year with steroid-free. And we also have quick lymphocyte recovery after discontinuation. So, we feel all of these features potentially make etrasimod a best-in-class profile.

Sure. That’s exactly the point. Best-in-class in an area that is poorly served right now with current solutions, so we see a lot of opportunity. Let’s go to the next question, please.

Our next question will come from Colin Bristow with UBS.

I guess, first question on COVID and to sort of piggyback on what Geoff was asking. Some of your slides and comments, you’re clearly expecting a sort of stable vaccine utilization rate, when in the last 12 months we’ve seen this number decline on a backdrop of a virus that is evolving to less clinically severe variants. And so, what underpins your confidence in these longer-term assumptions? And then also in terms of your COVID ’23 guidance, you mentioned you’d guided to a sufficient range of variations in infection rates, et cetera. I was just wondering how much an allowance you’ve made for the potential timing or reduction in contractual orders that is the current situation with the Brussels negotiation? And then, maybe just a quick one on the pipeline DMD, this feels noticeably in the background versus other assets at the similar stage. Just, could you update us on your level of enthusiasm and commitment to this program, especially in light of the potential competitor approval in May of this year? Thanks so much.

We continue to be enthusiastic about gene therapy in Duchenne muscular dystrophy (DMD). I think we have actually published the strongest data on the two drugs with efficacy as well as a lot of biomarkers from our Phase 1 across a much broader age group than anyone else. And I can’t comment when possibly someone else will get it registered. But we expect data readouts within possibly less than a year. And we think that this could be a very important drug. And we will have randomized data, which is not the case for any other application currently to have at that size and scope.

As regards the assumptions of our COVID vaccine projections, for example, we are reducing the numbers compared to 2022. In 2022, 31% of people received a vaccine; we are modeling lower uptake in 2023 and stabilization thereafter among people who are diligent about vaccination. We are also modeling fewer doses per person on average. Keep in mind that to get averages like 1.2 doses, you only need a small percentage of the population to receive a second dose. So we believe the assumptions are reasonable with the expectation that COVID will remain as it is now — nothing dramatically more severe and nothing that causes it to disappear. The pivotal moment will be the introduction of combination vaccines because the convenience of a single injection that protects against flu and COVID, and potentially zero co-pay, would likely make it the choice for many people. So, we have quite a bit of confidence in these assumptions. On the Europe negotiations, there are rumors, but it isn’t appropriate for us to comment while we are in negotiations with the Commission and member states. We only said that we factored part of the deliveries into this year instead of all the deliveries because we are in the middle of negotiations. Next question, please.

Our next question will come from Trung Huynh with Credit Suisse.

Hi, guys. Good morning. It’s Trung Huynh from Credit Suisse. I have a quick clarification on COVID and then my question. So just on the clarification in those long-term COVID vaccine and Pax slides. Do you expect any U.S. government sales in ’24 and ’26? It just looks like commercial sales on your slides. So, does that mean Medicaid, Medicare populations are bought at a commercial price? And can you comment on the margin change for the vaccine and Pax as you step up to that commercial price? And secondly, just following on from the base business question from Steve, we saw lower revenues ex U.S. for some important base business drugs. So, Eliquis was down 19% ex U.S., IBRANCE minus 22% ex U.S., Prevnar, there was also a decline there. You’ve noted some product-product related issues. But are you seeing anything more broadly in the U.S., which is making it a more difficult environment? And going forward, should we expect more normal levels ex U.S. for these products?

A quick one because that’s easy: we do not expect U.S. government purchases in 2024 and beyond as we transition these products to commercial channels. We expect to sell through normal commercial channels and coverage mechanisms like Medicaid or Medicare would follow market and reimbursement practices accordingly. Regarding margins, we haven’t provided specific margin guidance for individual products. You can consider that vaccine economics are shared with BioNTech for Comirnaty, which reduces Pfizer’s gross margin on the vaccine compared to a fully owned product, whereas Paxlovid economics are more fully retained by Pfizer and have a different margin profile. Angela, would you like to comment on the ex-U.S. revenue dynamics?

Sure. As you said, there were some specific reasons for why we saw what we saw for Eliquis, IBRANCE and Prevnar. For Eliquis specifically, there were patent challenges that led to some generic at-risk launches in both the U.K. and Netherlands. IBRANCE is a mature product and goes through the typical reimbursement and pricing dynamics in Europe. And for Prevnar, on the pediatric side, vaccinations have not yet fully returned to pre-pandemic levels. In all three cases, there were product- or market-specific reasons. We don’t anticipate anything extraordinary or different in 2023; more business-as-usual dynamics.

Next question will come from Tim Anderson with Wolfe Research.

Thank you. I think one of the challenges for analysts modeling Pfizer is to try to understand what the flow-through to profitability is from Paxlovid and Comirnaty. So, I’m hoping directionally you can tell us how that looks going forward once you get past this transitional year of ’23. So, in ’24 and beyond, is the profitability of that combined franchise likely to be higher, less or the same as what it was in 2021 and 2022? And then, a second question is on SG&A. How much of that increase was driven by inflation in 2023? And just any quick comments on your European austerity measures on pricing.

So on the COVID franchise, obviously, we don’t give profitability for each product. But you can imagine, as we stated before, on the vaccine, we split our gross margin with BioNTech. So therefore, that would carry a lower profitability mix compared to a typical sole-owned product. Paxlovid is different; we retain more of the economics on that product, so it would have a higher relative margin profile. On SG&A and OpEx broadly, 2023 includes a step-up in SI&A and R&D for launches and pipeline investment. Some of the increase reflects investments in launches rather than being purely inflation-driven. Going forward, we view 2023 as the big year of step-up. Post-2023, those expenses are expected to grow more moderately as revenues from new products ramp and the P&L grows into that cost base.

You can expect margins to evolve with these dynamics: more commercial pricing and higher promotional investment in 2023 as we relaunch Comirnaty and Paxlovid into commercial channels, and over time, the new products and margins should improve as revenues scale. Next question, please.

Our next question will come from Mohit Bansal with Wells Fargo.

Maybe one question, if I can ask. So regarding the expenses for the COVID business, Dave, you mentioned that you will be essentially relaunching these products with the commercial scale and everything. So is there — how much cost, given that your COVID business is declining significantly this year? Are you modeling any kind of cost cuts in that business or are dollar basis costs still the same? And is there any synergies you can achieve, especially for vaccine with your existing Prevnar business because the channels are similar or not? And last part is, do you think you can do more share buybacks, given the stock price at this point? Thank you.

Let me take the first two quickly. As you saw, the COVID product revenues are declining from peak, but expenses are increasing because we are investing to support launches, including for COVID as they transition to commercial markets. We will be treating these products like normal promotional launches, with TV, field forces and educational measures. Regarding synergies, yes, there are synergies across commercial teams: our primary care and vaccines field forces overlap with physicians who will prescribe or administer these products, so there are efficiencies. Dave, do you want to say a word on buybacks?

As we look at capital allocation, we see many opportunities to invest back into the business, both in research and to support launches and BD to achieve our growth goals. So our best and highest use of capital right now is investing in the business. I would say never say never to incremental share repurchases, but that’s not high on the priority list at this point.

Thank you. Let’s go to the next question, please.

From Chris Schott with JPMorgan.

Just building on some of the OpEx discussion here. I just want to make sure I’m understanding the OpEx dynamic properly over time. So, should we think about 2023 as more of a one-time step-up in OpEx and then much slower growth in ’24 and beyond? Or should we be thinking about this as a couple of year process as you really get the pipeline and new products ramped, and then it’s maybe more second half of the decade before we think even about bigger margin expansion, or is that OpEx slowing? I just want to make sure I’m understanding those dynamics properly. And then the second one was on the COVID/flu combination. I guess, is your expectation that the tolerability of that will be similar to what we see with Comirnaty, or is there some trade-off of perhaps slightly higher side effects for the six components you mentioned but that’s offset by the convenience? I’m just trying to make sure I understand what your expectations are for that program. Thanks so much.

We think that the tolerability will be well on par with vaccines used in the target population and be perceived as tolerable and convenient. As you described, the combination will attract the large number of people who get flu shots to also receive COVID protection in the same visit, particularly as variants continue to circulate. We’re very positive and think we’re right in the balance for opportunity there.

Importantly, 2023 is a step-up year in SI&A as we support launches and acquired products. We expect 2023 to be the big year of step-up and then post-2023 those expenses will grow more moderately. The intention is to invest now so that revenues and margins improve as the launches take hold in later years.

Our next question will come from David Risinger with SVB Securities.

Thanks very much. It seems like the 2023 guidance is conservative, which is encouraging. But looking to Paxlovid longer term on slide 11, I guess I’m surprised that the percentage of symptomatic patients that you expect to be treated with an oral therapy would almost double from 12% to 22% between ’22 and ’26, even though the pandemic is being viewed as being over. So, I’m hoping that you could talk a little bit about those assumptions and what the denominator is. So, when you say symptomatic patients, is that high-risk/elderly that you’re calculating the 12% on going to ’22, et cetera? And then, in terms of the Paxlovid share, it was approaching 91% at the year-end of ’22, according to this slide but only declining to 80% in ’26 when there are several companies, both large and small, ranging from Gilead to smaller companies that are planning to develop agents to compete aggressively and that could have implications for both, volume and pricing longer term. So wanted to understand that.

David, very good questions. First, to clarify, the 12% referenced a partial year calculation; the full-year effective treatment rate is closer to 17% for 2022 when accounting for availability. The increase over time to the mid-20s is driven by two factors: modestly higher infections due to waning population immunity and higher treatment rates as awareness grows and oral antivirals become more established. Regarding competitive entries, we expect some share erosion over time but also expect Paxlovid to maintain a very strong share due to its strong benefit-risk profile, clinical evidence and brand recognition. Given these advantages and the uptake dynamics, maintaining a high market share is reasonable in our modeling, although these are assumptions and we will monitor competitive dynamics.

Our next question will come from Chris Shibutani with Goldman Sachs.

Two questions, one on Paxlovid cross-currents there between China in terms of the million doses that you described for your first fiscal quarter and a potential transition into a private market in China, and then, U.S. where a similar transition will occur to the commercial. Can you help at all frame what you think the relative contributions could look like in ’23 and how that could progress? And then in particular for the COVID franchise products, can you share any early color on the discussions or engagement that you’re having with payers? What kind of dynamics? Any color there would be helpful, particularly in the broader context of a global pharmaceutical opportunity with many different therapeutics that will be on their list of budget items, obesity, Alzheimer’s, et cetera. So, any color on the discussions with payers would be helpful.

So I think for Paxlovid, think of the time period in two segments: from now until April in China, where the market will be reimbursed and gives us access to both public and private channels, and then after April private channels only unless a listing or reimbursement opportunity opens. We have included in our guidance the volumes and revenues we believe we can achieve in the first three months of our fiscal year. The back half of the year remains dynamic and uncertain. For the U.S., similarly, we will transition this year: some revenues will come from completion of 2022 government contracts and part of the year from commercialization. On payers more broadly, it’s still early days in the U.S. for commercial discussions, but we have already had discussions with reimbursement agencies outside the U.S. and received constructive feedback. For example, in the U.K., we had favorable feedback on the cost-effectiveness of Paxlovid. We’ll be taking those value arguments to multiple countries as we move to commercial pricing.

Our next question will come from Carter Gould with Barclays.

Thanks for taking the questions. David, thank you for all the transparency on the underlying assumptions. I guess, two for me. First off, just in terms of the upcoming messaging around the end of the public health emergency. Can you talk about the potential impact you see on your EUAs, access as well, specifically thinking about Paxlovid populations in this period before we switch to a commercial market where you’re still working through the inventory governments have in hand? And then, going to the COVID/flu combination, just trying to better understand some of your assumptions here. Because I guess when we think about that 2026 40% adoption number, what does that imply about how you think the underlying flu market will change? I guess, that could imply a 30% to 80% share within two years, but just wanted to understand the underlying drivers there and how you think about that market evolving.

If there is an end to the public health emergency, we don’t think that will materially impact existing EUAs or access for already authorized uses. It’s unlikely to affect patient access to treatments in the short term. Regarding the combination vaccine adoption, the convenience of a combined product given at the same visit with no co-pay for many patients and clinicians recommending it could shift more people who already get flu shots to choose a combo product that also provides COVID protection. Our modeling assumes a gradual increase in uptake of the COVID vaccine as a combo option among people who receive flu shots, moving from the mid-20s toward a higher percentage over several years, which is the basis for the 40% projection in 2026. Those are our working assumptions and they depend on clinical and regulatory outcomes.

Our next question will come from Kerry Holford with Berenberg.

A couple of questions on vaccines please. Firstly, on RSV, can you confirm you’re on track to provide that second season of data ahead of approval and reimbursement discussions in May-June for the older adult vaccine? And can you confirm whether you’ve now filed your maternal RSV vaccine with the regulator? If not, are you waiting for the approval in the older adult setting first? And then just on the flu/COVID combo, if we assume you have positive flu Phase 3 data in the second half of the year, positive Phase 1 combo data in the first half, would you expect to move the combo into Phase 3, or is it possible you will not need a full Phase 3 combo study to proceed to filing an approval?

We always follow multi-seasonal vaccine data and we’ll share the second season data as soon as it’s available. Of course, there are many ways this can play out with combination vaccines which could lead to more regular vaccination rather than protracted schedules. On the combo development path, if we proceed with a flu and COVID combination, we expect the pivotal combination study to be based on immunogenicity and safety rather than a large event-driven efficacy trial, so it can be completed relatively quickly. We aim to move at speed once we have the supportive data.

Will we need a full Phase 3 trial or…

We expect the Phase 3 to be immunogenicity and safety-driven and not a large event trial. If anyone can do it first, it’s us, and we are prepared to move with light speed pending data.

Regarding RSV and ACIP, the advisory recommendations will be key to reimbursement and formulary access which influence co-pay and uptake. We will share data as it becomes available and engage with agencies accordingly. Next question, please.

Our next question will come from Andrew Baum with Citigroup.

On Paxlovid, following commercial approval and the withdrawal of the EUA, will pharmacist prescribing remain intact? And then a couple for Mikael. Could you just explain the reasons for the out-licensing of the TL1A inhibitor to Roivant? I apologize if I missed it. And then second, in relation to your multispecific antibodies, your trispecifics, this has been tried previously, I think AbbVie and J&J previously tried in RA, and I think in psoriasis with TNF and IL-17s but they ran into an issue with binding affinity and they didn’t have efficacy. Do you think you’ve managed to solve the issue here?

Andrew, on pharmacist prescribing, it’s unlikely pharmacist prescribing authority would continue unchanged at broad scale post-EUA, and we have not assumed that in our planning. Mikael, on TL1A and the trispecifics?

Andrew, great question. On the trispecifics, we believe we have engineered candidates with strong pharmacokinetics and high potency, effectively creating a 3-in-1 molecule that maintains the desirable properties of a single antibody while delivering multi-cytokine targeting. Early Phase 1 data suggests promising PK and potency profiles. Regarding TL1A, we structured a partnership with Roivant to share cost, risk and capabilities. We retain commercialization rights ex-U.S. and Japan and a meaningful share of value. This allows us to prioritize resources while maximizing patient reach and value creation through a strong partner.

The only quick thing I will add, Andrew, is if you look at how prolific our R&D engine has been, the total funding demand from all of the R&D programs that were generated would significantly exceed what we guided to as our R&D spending in ’22 and ’23. So, in that context, we are going to be very thoughtful about how we prioritize. We have a robust process for that. And consequently, from time to time, you’re going to see programs like the TL1A that have very clear scientific merit, but we think sharing the cost, the risk and capabilities with a partner is the best way to create value. And that’s what we did in that situation. And we’ve had a long history of doing that in a number of other situations as well.

Thank you. Now, let’s move to the last question.

Our last question will come from Evan Seigerman with BMO.

Thank you for squeezing me in. And I’m not going to ask a COVID question because I think they were all asked. So, just looking at business development, when you hit Biohaven, what were some of the characteristics of the deal that you want to bring forward in kind of your go-forward approach for BD? How should we think about potential holes in your pipeline that you could fill with external deals? Thank you.

The Biohaven deal represented an excellent opportunity to leverage our capabilities, particularly our global commercial footprint which Biohaven alone could not maximize. The transaction structure began with an ex-U.S. partnership, which we then expanded to take on the full global CGRP franchise while excluding some assets less relevant to us strategically, creating a new company for those assets. The takeaways are that we will continue to look for scientific breakthroughs where we can add capabilities and be creative and disciplined about deal structure. That approach is how we intend to deliver against our $25 billion BD aspiration.

Thank you, Aamir. So, thank you, operator. In summary, let me close by saying, first of all, I feel extremely proud for the team at Pfizer that was able to deliver and break all records in 2022: the highest-ever revenue, the highest-ever profits, and most importantly the highest number of patients treated with our medicines. The best-ever reputation for our company, the most productive wave of R&D with up to 19 products launching in the next 18 months, and a best-in-class R&D machine are all achievements of 2022. I believe that the best years of Pfizer are ahead because we are building on a significant capital position that we know how to deploy to create growth. We are building on an R&D engine that is more productive than ever, a manufacturing engine that is the envy of the industry, a commercial engine that is among the best in the industry, and a mindset in Pfizer that is characterized by ambition and commitment to deliver for patients. With that in mind, I think that we are moving ahead toward an even more successful 2023. Thank you very much for your attention, your interest in us and your support as shareholders. Thank you.

Thank you, ladies and gentlemen. This does conclude Pfizer’s fourth quarter 2022 earnings conference call. We appreciate your participation, and you may disconnect your line at any time.