Pfizer Inc (PFE) — Q2 2023 Earnings Call Transcript

Thank you, Chelsea. Good morning. Welcome to Pfizer’s second quarter earnings call. I’m joined today by Dr. Albert Bourla, our Chairman and CEO; Dave Denton, our CFO; Dr. Mikael Dolsten, Chief Scientific Officer and President of Pfizer Research & Development. 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. Chris Boshoff, our Chief Oncology Research & 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. And of course, my favorite, our forward-looking statements, please see our forward-looking statements disclaimer on slide 3 and additional information regarding these statements and our non-GAAP financial measures is available on earnings release and our SEC forms 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 these statements. With that, I will turn the call over to Albert.

Thank you, Chris. Hello, everyone, and thank you for joining us today. Our second quarter financial results were solid and in line with our expectations. Non-COVID-19 revenues grew 5% operationally compared with the year-ago quarter. Total revenues declined 53% operationally, primarily due to the anticipated revenue declines in both Paxlovid and Comirnaty. Even with these declines, our COVID-19 portfolio remained a significant contributor to the business with more than $1.6 billion in combined revenues during this quarter. Of course, our patient impact data are equally important because patients are the reason we exist. Through the first six months of the year, more than 356 million patients around the world were treated with our medicines and vaccines. We continue to make progress towards our goal of executing an unprecedented number of launches of new products or indications. In fact, Pfizer is more than halfway to its goal of launching 19 new products or indications in an 18-month span. In addition to the six approvals and five launches that occurred prior to 2023, we had six approvals and four launches in the first six months of 2023. For the second half of 2023, we expect six additional approvals and six additional launches, including the two launches that occurred in July. Then in 2024, we expect one approval and four launches, which, if approved and recommended, would raise the total to 19 new launches in approximately 18 months. As you can see in this chart, for this year’s launches, we expect the revenue contribution to occur largely in the second half of 2023 because the first-half launches occurred late in the second quarter. And then in 2024, with the additional impact of next year’s expected launches, we anticipate an even greater total contribution for our 19 launches. It’s important to note that 18 of the 19 potential launches have been largely de-risked from a technical perspective at this point, with the only one remaining being our RNA flu candidate. Equally encouraging is that our pipeline is expected to continue generating breakthrough treatments and vaccines long after the 19 we have been discussing. We recently reported milestones from several exciting pipeline candidates with the potential to be significant future value drivers. These include: Phase 3 data from marstacimab, a novel antibody being studied for the treatment of hemophilia A and B; regulatory filing acceptance for our hemophilia B gene therapy candidate; the publication in the New England Journal of Medicine of Phase 2 results for our vaccine candidate for maternal immunization against Group B Streptococcus; and first-in-human data from our pipeline of potential next-generation breast cancer treatments, including our novel CDK4, CDK2, and KAT6 inhibitors. Now, I would like to provide some commentary on our COVID-19 portfolio. As you all know, during the pandemic, Pfizer demonstrated impressively the power of our research and manufacturing capabilities by bringing to the world the first and most widely used vaccine and oral treatment for COVID-19. These scientific breakthroughs have played a significant role in bringing the global health crisis under control, and we are very proud of our contributions. The profits these products have generated to date have enabled us to invest in acquiring Arena, ReViral, Biohaven and Global Blood Therapeutics, which together we expect to contribute approximately $10 billion of revenues in 2030. In fact, the acquisitions of Biohaven and Global Blood Therapeutics are already contributing to our operational growth, while the acquisition of Arena is expected to start generating revenues toward the end of this year. We also remain very excited about our planned acquisition of Seagen, which, if approved, is expected to contribute more than $10 billion in 2030 revenues. As a result of the positive momentum of our non-COVID-19 revenues and, more importantly, the success of our COVID-19 portfolio, Pfizer’s overall revenues have increased exponentially compared with our 2019 revenues, pro forma for the divestitures of Upjohn and our consumer business. This allowed us to increase investments in R&D and SI&A to support this new revenue base and our expected new product launches. The increased investments we are making in R&D and SI&A this year were sized based on certain revenue assumptions we made in January for both our COVID-19 and non-COVID-19 products. These assumptions also were incorporated in our 2023 financial guidance. Clearly, there is a higher level of uncertainty regarding the demand projections for our COVID-19 products than for the rest of the business. For example, in January, we shared our expectation that approximately 100 million doses of COVID-19 vaccines would be administered in the U.S. this year, of which we estimated Pfizer would capture 60% market share. In the first six months of 2023, 12.4 million doses were administered in the U.S. While the 12.4 million doses are behind our earlier projections, our market share for COVID-19 is ahead of our previous expectations at 65%. However, the vast majority of respiratory vaccinations happen during the fall and winter respiratory disease season, which starts in September, and we expect COVID-19 vaccinations to follow this pattern going forward. The uncertainty of the exact timing of Comirnaty commercialization was largely removed with the decision by the FDA and CDC to request a change in the composition of the vaccine to address the Omicron XBB 1.5 strain. We believe this will allow us to commercialize the vaccine in September, assuming the updated vaccines are approved and available by the end of August. In the European Union, the uncertainty regarding the vaccine’s revenue contributions for 2023 and beyond was removed when we successfully renegotiated our long-term agreement. This agreement spreads the agreed volumes over four years, and while it puts pressure on this year’s volumes, we believe it also provides longer-term revenue certainty in this important market. Similar to what we are experiencing with the vaccine, the second half of the year will play a bigger role in informing our expectations for the long-term demand for Paxlovid, the utilization of which closely follows COVID-19 infection rates. We expect a new COVID-19 wave to start in the U.S. this fall, and this expectation is supported by the increase in infection rates we are already seeing. Obviously, the severity of disease and people’s desire for treatment also will be factors, as will the ongoing dialogue with the U.S. government regarding when we will transition to a commercial model for Paxlovid. These are the uncertainties. We are acutely aware that all these uncertainties are making it difficult to project the future revenues of Pfizer in this area and at large at Pfizer and also affecting our stock price, as a result. The good news is we will have much more clarity and certainty regarding how our COVID-19 products will perform in a commercial market by the time we report our third-quarter financial results, and we expect the uncertainties to be largely eliminated by the end of the year. This is because we expect the vaccination and treatment rates from the upcoming respiratory disease season to be a reliable predictor of trends in subsequent years, with some potential upside, of course, if a combination flu and COVID-19 vaccine is brought to market in the future. Additionally, by that point the timing of transitioning to full commercialization of both Comirnaty and Paxlovid should become clear. Despite this uncertainty, we will continue to invest in our COVID-19 portfolio this year in advance of the upcoming respiratory disease season. This is very important. But given the uncertainty, we are also preparing to have the ability to adjust our 2024 total cost base to align with various future COVID-19 revenue scenarios. In fact, we have already identified specific areas where we can make adjustments, primarily within our COVID-19 cost base, if demand comes in lower than expected. Dave will provide more details during his remarks. Next, I wanted to share a few quick updates of our planned acquisition of Seagen, which we believe will be a major driver of our future success. Seagen’s shareholders recently overwhelmingly approved the planned acquisition, and we have already raised most of the external financing needed to fund the transaction. We also continue to work closely with regulators, including the Federal Trade Commission and the European Commission. In the meantime, our integration planning continues, which will allow us to hit the ground running following an anticipated close later in 2023 or early in 2024, subject to the satisfaction of customary closing conditions. Last week, we announced that Chris Boshoff has joined Pfizer’s Executive Leadership Team as Chief Oncology Research and Development Officer and Executive Vice President, reporting directly to me. In this role, Chris will lead a new, end-to-end Oncology R&D organization and be the single point of accountability for the entire oncology pipeline, from discovery to early- and late-phase clinical development. This is similar to the structure we currently have in place for our Vaccines R&D organization, which has proven to be very productive. Pfizer and Seagen share a common vision to deliver life-saving treatments for people living with cancer, which is why I am so pleased that, after closing, Chris’s Oncology leadership team will include talented, purpose-driven and highly productive leaders from both companies. We believe this new structure will help further accelerate the delivery of cancer therapies, which is critical because in the battle against cancer, time is life. At Pfizer, one of our core business principles is the belief that 'Trust is Everything.' I’m proud to share that in recent months, we have received some wonderful accolades that speak to the trust we are building with external stakeholders. We were named one of the 2023-2024 'Best Companies to Work For' by U.S. News & World Report. We were listed in Newsweek’s list of 'America’s Greatest Workplaces 2023.' For the third year in a row, Pfizer has earned a top 100 score in the 2023 'Disability Equality Index.' And our own Rady Johnson received the Disability:IN 2023 Executive Sponsor of the Year Award at the National Conference in July. Lastly, our PGS site in Ascoli, Italy is being recognized by the United Nations for the 'Welcome Award - Working for Refugee Integration.' These recognitions are very important because they strengthen the unprecedented brand equity that Pfizer built during the COVID-19 pandemic. Before I hand it over to Dave, I want to quickly comment on the situation at our facility in Rocky Mount, North Carolina. First, all of us at Pfizer were relieved that no colleagues were seriously injured when the tornado struck. That said, our facility sustained substantial damage, as did the neighborhoods where many of our colleagues live, unfortunately. The local leadership team has done an incredible job responding to this devastating event, and we are proceeding with both urgency and caution to determine the best way to get the site back online as quickly as possible to minimize any impact on patients. Of course, we are also taking steps to ensure the continued safety of our colleagues and contractors, which remains our top priority. And with that, I will turn it over to Dave. And after Dave, Mikael will provide an update on our R&D pipeline.

Thank you, Albert, and good morning to everyone. Over the past 24 months, Pfizer has made important investments to position it squarely on track to achieve profitable and sustainable growth, particularly in the back half of this decade. We have strategically invested to expand our commercial portfolio and our late-stage pipeline, strengthen our market launch capabilities, and enhance innovation through internal R&D and business development actions. These deliberate efforts continue to solidify Pfizer’s ability to overcome upcoming LOEs and drive sustainable revenue growth all while enhancing long-term shareholder value. To further support our long-term growth objectives, we are executing a capital allocation strategy designed to effectively deploy our cash. Our strategy is focused on three main pillars: first is reinvesting in our business; second is growing our dividends over time; and finally, making value-enhancing share repurchases. In the first half of 2023 alone, we’ve invested $5.2 billion in internal R&D; returned $4.6 billion to shareholders via our quarterly dividend; and allocated approximately $43 billion towards the proposed acquisition of Seagen. During the second quarter, Pfizer successfully completed a $31 billion unsecured debt offering across eight tranches. The net proceeds of this debt offering will be used to substantially fund the Seagen acquisition. The new debt carries a weighted average yield of 4.93% and a weighted average maturity of 16.3 years, consistent with our expectations. On a full-year run rate basis, the annual financing cost associated with the acquisition is expected to be nearly $2 billion. With the completion now of this debt offering, the company is now positioned to close the Seagen acquisition immediately upon post regulatory approvals. While we plan to continue investing in our business, we expect to de-lever our capital structure following the closing of the Seagen transaction. As we de-lever, it is our expectation to return to a more balanced capital allocation strategy inclusive of share repurchases. Now, with that, let me briefly cover a few highlights of our quarterly financial performance. As Albert said, our Q2 results were solid and in line with our expectations from both a top and bottom-line perspective, albeit slightly better than EPS consensus. As expected in our guidance, our overall Q2 revenues declined 53% operationally. The contraction of revenues was driven by the anticipated decline in Paxlovid and Comirnaty sales. We expect these products to transition to a commercial market in the second half of this year. Our operational revenue growth excluding our COVID products was in line with expectations at 5% versus Q2 of last year, with strong contributions from the inclusion of Nurtec and Oxbryta, as well as the continued growth from the Vyndaqel family. During Q2, adjusted SI&A expenses were $3.4 billion and grew 20% operationally versus last year. We continue to invest in support of our upcoming launches and grow our recently acquired products. While it’s clear that these near-term investments are dampening our current profitability levels, we are laser-focused on maximizing the longer-term performance of these products. Now, moving to the bottom line, reported diluted EPS this quarter declined by 77% to $0.41, while adjusted diluted earnings per share of $0.67 declined 65% on an operational basis. Earnings compressed at a greater rate than revenues, primarily due to the steep and anticipated contraction in Paxlovid sales during the quarter. Once again, foreign exchange movements continued to unfavorably impact our results, reducing second quarter revenues by approximately $280 million, or 1%, and adjusted diluted earnings per share by $0.05, or 2%, compared to last year. Now that we are at the halfway point of our 2023 financial plan, I’d like to take a moment to reflect on how we are executing across our business while navigating within an incredibly unique and dynamic environment. As a management team, we remain committed to transparency and sharing our assessment of the evolving marketplace given the magnitude of launches, the ongoing shifting nature of the COVID landscape, and the continued integration of acquired assets. Let me begin by elaborating on our full-year 2023 financial guidance. We are narrowing our expectations for revenues to between $67 billion to $70 billion and maintaining guidance for adjusted diluted earnings per share of $3.25 to $3.45 for the full year. For our more durable and predictable non-COVID revenues, we are updating our guidance range to 6% to 8% operational revenue growth. From a launch timing standpoint, I’ll point out that the majority of our 2023 launches are anticipated to occur in the second half of 2023 and our commercialization schedule remains materially unchanged. As a company, we always strive to achieve the highest revenue level possible while maintaining a realistic view of key inputs that inform our outlook. Regarding RSV for older adults, the shared decision-making recommendation by ACIP is likely to slow its uptake in the U.S. In addition, the recent approval of Talzenna in the U.S. results in a more narrow patient population than originally planned. These factors coupled with the impact of the damaged Rocky Mount manufacturing facility presents near-term revenue challenges. However, we expect positive revenue momentum as we exit 2023 and head into 2024. Importantly, the long-term outlook for our non-COVID business remains intact relative to our 2030 ambitions. Turning now to our less predictable and more variable COVID portfolio. Year-to-date we have booked slightly over 40% of the $21.5 billion full-year revenue forecast for both Comirnaty and Paxlovid with the important fall vaccination and respiratory infection season ahead of us. We are acutely aware that COVID demand depends on many evolving market variables making the range of potential revenue outcomes increasingly large and difficult to predict with certainty. These variables include overall levels of vaccination and infection rates; the speed of draw-down of government inventory levels; and the mutating nature of the virus itself, just to name a few. In the interest of public health and with the important fall season ahead of us, we are maintaining our COVID revenue outlook for the year while continuing to invest, largely on a variable expense basis, to support our COVID products in 2023. These variable investments are important to support our efforts to reach as many patients as possible, helping to ensure the most at-risk individuals are both vaccinated and treated while maintaining our leading market share. We are proud of what we have achieved through the COVID portfolio, and this has allowed the Company to invest in support of its growth agenda for the back half of this decade. Our visibility into future COVID revenues and demands should improve through the remainder of 2023, as we gain clarity on a more typical annual revenue run-rate. We are well aware that our 2023 profit outlook is currently being dampened by incremental costs in support of our launches, as well as higher R&D investments aligned with the Company’s current revenue base. We remain committed to both defending and growing our overall level of profitability. As Albert mentioned earlier, we expect this fall’s performance of our COVID-19 products to help us more effectively forecast future sales performance. To that end, if our COVID-19 revenues are less than what we have assumed, we are prepared to launch an enterprise-wide cost improvement program aligned with the longer-term revenue projections for our business. This program would be designed to support our objective of growing our operating profit margin and we would expect it to begin to yield results in 2024. We look forward to sharing specific details of this program in our upcoming earnings calls. In closing, this is an extraordinary time for Pfizer. Our confidence and our commitment to our strategy and to achieving our 2030 goals are unwavering. We will continue to focus our efforts to drive growth while enhancing long-term shareholder value. And with that, let me now turn it over to Mikael.

Thank you, Dave. Today, I will provide updates from a few different therapeutic focus areas, starting with breast cancer. We are working to deliver the next wave of innovative therapies for estrogen receptor-positive breast cancer. The pillars of this strategy are threefold: establishing our investigational CDK4 inhibitor as a next-generation cell cycle therapy backbone, establishing vepdegestrant as a next-generation endocrine therapy backbone and establishing novel mechanisms like our investigational CDK2 inhibitor and KAT6 inhibitor candidates as next-gen combination partners to enhance efficacy. Our clinical strategy entails first developing assets for the metastatic setting in which Ibrance is currently the leader and unmet need is high, followed by an opportunity to expand to earlier-stage breast cancer including the CDK4/6-naïve population and adjuvant/neoadjuvant settings. Data presented at ASCO from three key investigational medicines from our next-gen portfolio demonstrated anti-tumor activity in heavily pre-treated populations of patients with breast cancer. As a reminder, 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 which requires more frequent blood test monitoring, mostly driven by CDK6 inhibition. Across the CDK4/6 inhibitor class, approximately 30% to 60% of patients experience severe neutropenia. On the left: In a Phase 1 dose escalation study in patients with hormone receptor-positive, HER 2-negative breast cancer, all of whom had previously received a CDK4/6 inhibitor, treatment with our CDK4 inhibitor in combination with endocrine therapy resulted in a confirmed objective response rate of 29%, clinical benefit response rate of 52% and median progression-free survival of nearly 25 weeks. The combination was well-tolerated, which may enable maximal CDK4 inhibition. We are actively planning the Phase 3 randomized study. In addition, I’d like to highlight encouraging data from the Phase 1 dose escalation study of our novel CDK2 inhibitor which showed monotherapy activity, including confirmed partial responses, in breast cancer patients who had previously received a CDK4/6 inhibitor. Also, durable confirmed clinical responses were observed in a Phase 1 trial of our novel KAT6 inhibitor as a monotherapy and in combination with endocrine therapy in heavily pretreated patients with breast cancer. Turning now to blood cancers, Elrexfio, also known as elranatamab, subject to regulatory approval, is expected to be the anchor of an anticipated multi-billion-dollar franchise. An FDA decision for the potential first indication in the triple-class relapsed or refractory multiple myeloma population is expected this year, and we continue to advance the MagnetisMM clinical programs to expand into earlier lines of treatment. Here, we show Elrexfio data presented at EHA from the MagnetisMM-3 trial in patients with triple-class refractory multiple myeloma who had no prior exposure to BCMA-directed therapy. On the left, we observed highly meaningful survival with Elrexfio monotherapy, with a 15-month overall survival of 57%. In patients who achieved a complete response, 15-month survival was remarkably 93%, underscoring the potential for deep and durable responses. We can see evidence of broad activity in multiple myeloma on the right, with the graph showing a single-agent complete response rate of 35%, which rises to 46% in the subset of patients with two to three prior lines of therapy. Our ongoing randomized trials are in less pretreated to newly diagnosed populations. Subject to approval, Elrexfio may have key differentiators such as 50% lower hospitalization time during the step-up dosing period per protocol and an extended dosing interval that moves from once weekly to once every other week dosing beyond week 24. Turning now to hemophilia A and B, the pivotal trial of marstacimab met its primary endpoints, with statistically significant and clinically meaningful effect on annualized bleeding rate, or ABR. There was a 35% reduction in ABR compared to prophylactic factor replacement and 92% reduction in ABR versus on-demand factor replacement. Marstacimab offers a differentiated mechanism of action and dosing regimen compared to standard-of-care therapy. If approved, it has the potential to be the first once-weekly subcutaneous hemophilia B treatment for patients without inhibitors, and the first hemophilia A or B treatment administered in a patient-friendly pen as a flat dose. Regulatory submission is expected in the second half of 2023. Next, Litfulo, also known as ritlecitinib, is the first medicine to receive FDA approval to treat severe alopecia areata in both adults and adolescents 12 years and older. It also recently received a positive opinion from the European Medicines Agency’s CHMP recommending body but is not yet approved. It has the potential to redefine the standard of care for alopecia areata. Litfulo is a first-of-its-kind kinase inhibitor with a unique mechanism that inhibits both the TEC kinase family and transiently JAK3 pathways that have been implicated in the alopecia areata pathophysiology. In addition, we are exploring how its unique mechanism of action could potentially be applied across immune disorders including vitiligo, in which a Phase 3 study is ongoing, and other potential indications. Finally, we are making excellent progress on the milestones we had set out through the first half of 2024. As Albert noted, we recently received FDA approval for Prevnar 20 in the pediatric population. We have robust strategies in place to potentially improve the protection provided by current pneumococcal vaccines. I look forward to sharing more about this in the coming quarters. In addition, we recently published Phase 2 data in the New England Journal of Medicine showing our Group B Streptococcus maternal vaccine candidate was generally well-tolerated and generated robust antibody levels. The journal also published a natural history study which was used to determine protective antibody levels at birth. These two studies indicated that the vaccine candidate may offer meaningful protection to infants born to immunized mothers. We were highly encouraged that Dr. Carol Baker, an infectious disease expert from the University of Texas Health Science Center, wrote an independent NEJM editorial highlighting the important future prospects of our GBS vaccine candidate. The progress of the GBS vaccine candidate dovetails nicely with the positive results and anticipated upcoming regulatory decisions for our RSV vaccine Abrysvo for administration to pregnant women. Abrysvo recently received a positive opinion from the European Medicines Agency’s CHMP for both older adults and maternal immunization to help protect infants. Abrysvo is approved for older adults in the U.S. and under regulatory review for the maternal indication. In addition, we remain excited to see Phase 2 data from danuglipron by the end of 2023, which we expect will enable us to finalize our Phase 3 plans. Finally, I’ll call out the Phase 3 trial start of our anti-interferon Beta candidate for the treatment of inflammatory muscle myopathies. Thank you. Let me turn it over to Chris to start the Q&A session.

Thank you, Mikael. Chelsea, if you could please queue up the callers. We have at least 30 minutes for our Q&A session now.

This is Nicole speaking for Robyn. I have a quick question regarding RSV. Can you share your expectations on how the share decision-making might slow the uptake in the U.S.? We would like to understand your thoughts on why you believe the peak in annual sales will be slower than previously expected, and how you think sales outside the U.S. may be affected, if at all, considering the ACIP decision.

Maybe Angela can answer that. The question was, do you expect the share decision to have a big impact on RSV and also do we expect in the U.S. and also do we expect any impact, excluding the U.S.?

We’re really excited about the approval for our RSV older adult vaccine. I see shared clinical decision-making as a step toward the full routine recommendation we anticipate. It’s important to view this as a short-term effect. We expect that as more data emerges from our clinical program, we’ll have an opportunity to return to the ACIP and seek the routine recommendation we hope for. Over the next year as we collect and finalize our data, that’s our expectation. This doesn’t alter the overall opportunity for this vaccine or change the peak; it simply means it will take a bit longer to reach the peak due to the shared clinical decision-making process we need to follow.

And what about the ex-U.S.?

Ex-U.S., actually, we had a different filing. We were able to get both maternal and older adult at the same time. So I think you see slightly different dynamics there and that here in the U.S., our maternal vaccine will be launching later. But in ex-U.S. and in Europe, they will be launching at the same time. And those vaccine technical committees have not opined yet on those recommendations, in particular in terms of the utilization. And so, we’ll await that. But I think what you have that’s different and that’s really a great upside is the fact that we have both indications at once.

Thank you very much, Angela. I hope we gave what you asked, Robyn. Operator, the next question please.

I know I heard two different things on the cost cut just now. One was that it would be enterprise-wide, while Albert, I think, used the word within the COVID cost base. So I was just trying to reconcile the two. And also on danuglipron, is it reasonable to expect that if it’s below mid-teens weight loss, you wouldn’t move forward?

Let me clarify. Of course, it would be enterprise-wide, but what I said is that the COVID part is going to be the biggest one. Right now, you need to know that R&D and SI&A cost of COVID is billions; it’s not a small amount. So, there’s a lot over there. Mikael, can you speak a little bit about the prospects to move ahead at danuglipron?

Well, we really look forward to getting the data. And as you know, we have in parallel developed activities also for modified leads. I think we really need to look at the totality of data, its performance on important metabolic parameters in diabetes, its ability to deliver weight loss as you alluded to, and also, of course, its tolerability in general. These three implicate how well the drug can perform. And I remain optimistic that oral drugs in this class can have a profound effect on weight loss. Of course, one needs to be maybe a little bit caution to drive weight loss too far, as you have seen also some concerns in public media about side effects that may arise from that. So we will really integrate all of that data and make a decision, and we really look forward to that moment.

Kind of a follow-up from Umer’s, I want to focus on the GLP-1 franchise. Can you talk about the competitive profile of danuglipron in its current form, considering safety, twice-daily dosing and efficacy? And maybe remind us on the time lines to potentially get more on a once-daily formulation of this asset?

Mikael?

Yes. As I said in my prepared remarks, we expect data at the later part of this year. We are absolutely encouraged and confident that it has a different profile when it comes to adverse events as the danuglipron that we sold. So we don’t see that as an issue. And I spoke to that we will put together the totality of data to pending readout, prepare a potential Phase 3 program. And it’s a very big sector, diabetes and obesity. We have considerable expertise in treating cardiometabolic patients. So, we look forward to share more data and more plans with you as we move to further quarters. Thank you for your great interest in this important space.

Maybe two for me. Dave, I was just wondering how we should think about steady-state operating margin here. Looking back pre-COVID, the Company was around mid- to high-30% range. So, is that how we should think about this when you gave us some of the parameters but just maybe how to think about steady state? And then, on the messenger RNA Phase 3 seasonal flu vaccine program, it looks like that trial was upsized based on clinicaltrials.gov. So just wondering, Mikael, if you can talk through timing of data and help frame expectations there. Thank you.

Thank you, Terence. Let’s start with Dave.

Yes, that's a great question. As we consider our long-term operating margin, our goal is certainly to increase it over time. We expect to return to at least pre-COVID levels, with one important note: the product mix in our portfolio has changed, especially with respect to the COVID vaccine. Because of the profit-sharing agreement we have with our partner for the vaccine, it affects our operating margin for that product. Adjusting for this mix, we should gradually return to those pre-COVID levels. However, as we move into 2024, we'll provide further clarity on the various factors at play as we integrate Seagen and assess our COVID-related business and other pipeline developments.

Thank you, David. Mikael mRNA flu.

Yes. First, the totality of experience we have with mRNA for flu makes me very encouraged that this will be new modality as it was for COVID but now for flu, that engages two mechanisms, the B-cells and the T-cell that we should aspire for, having better efficacy than what we have seen with the old flu. We are continuing with the study because we just wanted to have more events and particularly have additional flu B type of events, which were scarce in the U.S. part of the trial. And we look forward to update you, hopefully, be able to conclude the study later this year. But we also are putting mitigations as adding immunogenicity studies that can be supplementary for getting a total good data package of activity against flu A and flu B. But as I said, I remain very optimistic that the mRNA is going to be the next important platform to deal with flu.

Two questions, if I may. On the potential enterprise-wide cost program, you would have some opportunity outside of the COVID programs to consider. Can you help us with the relative weighting potentially of R&D versus SG&A or some other component of that? And I ask that in part because you’ve announced some changes, for instance, in kind of the structure at the top tier of management of the R&D with the anticipation of the oncology in Seattle Genetics. And then secondly, if I could, on the Rocky Mount facility, it’s reassuring to hear in terms of your own staff. But I think folks are looking to get a sense for the scale of the damage and perhaps what potential gating factors for getting more information on the timing? I know that you guys have communicated with some of your hospital-based customers, but any additional insights in terms of magnitude of the impact and timing of the recovery, and what that could look like from a progress standpoint would be helpful.

Let me say a few words about the Rocky Mount, and then I’ll ask Dave to answer the question about the cost adjustment program in case we have a significant reduction in our revenues because of the COVID. The Rocky Mount, it was severe, the damage of the hurricane, but the damage was mainly concentrated on the warehouse, which means that we lost a lot of inventory that was about to be sent to the markets. The facilities per se, the production facilities were not impacted by the hurricane. So, the buildings are standing there. However, because the utilities were discontinued, the facilities had to stop operating. And in this highly sensitive, sterile environment, when you are losing power, it’s not easy to switch on and switch off. It takes time and a lot of processes so that you can start. And the additional challenge will be some of the inventories of materials that were also destroyed, particularly glass and other stuff. We need to make sure that we will replace in time. So, what I want to say is that we feel very confident that the whole thing will go back to life. But still, we are assessing how long that will take. And we are doing anything we can to make sure that we will minimize the shortages in the marketplace because of that. Now, let’s move to some more color on the cost adjustment program.

Yes. So, thank you for the question. Clearly, as we develop this program in the back half of ‘23, we look forward to sharing a lot more details as we cycle into ‘24 and give you a lot of, I’ll say, milestones as you think about both our cost and investment structure going forward. Importantly, as you know, we’re extremely excited about the Seagen acquisition that’s upcoming here. Upon approval, this will allow the Company to refocus its efforts and its investments to make sure that we’re squarely focused on battling cancer going forward. And we think there’s a big opportunity as we align our resources against that franchise in that battle to fight cancer and an opportunity for patients and importantly, an opportunity long term for Pfizer. Having said that, we will be informed in the back half of the year of our revenue performance, specifically as it relates to COVID. That will inform us the level of opportunity we have to expand our margins into ‘24 and ‘25 and beyond. That will allow us to step back and make sure that all of our costs, all our investments are aligned with those Seagen objectives as well as aligned to maximizing the performance of our in-line portfolio as well as the launches that are occurring as we speak in the back half of this year. So, again, we look forward to sharing a lot more on this. This will be balanced, as you well know, between SI&A and R&D, and we’ll give you that specific breakdown and that specific information later this year and into next year.

I wanted to ask you first on these COVID scenarios that you think could unfold in the second half ‘23. Any way you could share some of the big ones that you anticipate could potentially happen? And then, secondly, seeing a lot of headlines in the ATTR-CM space. I’m just curious if you anticipate any potential competition or meaningful competition to Vyndaqel and Vyndamax.

On the COVID situation, I will share a few insights before asking Angela to provide her thoughts. The uncertainties revolve mainly around vaccination rates, which I believe are fairly well established in terms of market share. The key factor we will be observing in the upcoming fall is the vaccination rate, which remains uncertain. Another area of uncertainty relates to the timing of commercialization in the U.S. due to the introduction of new inventories and sales at potentially higher prices. However, we anticipate a likely launch in September, as the FDA and CDC have instructed us to adjust our inventories by developing a new vaccine. Additionally, there was uncertainty regarding the European contract, which is substantial but has now been negotiated. Although the sales are spread over four years, we have clarity on this now. Ultimately, the critical factor will be how much Japan, Latin America, and other countries will procure, with these being fundamental aspects. We expect to have a clearer trend by the third quarter, with a more accurate understanding of the situation by the end of the year. This will help us predict future expectations, especially if a combined vaccine for flu or RSV is developed, which could boost vaccination rates. Regarding Paxlovid, there is greater uncertainty tied to treatment and infection rates, which we haven't benchmarked. Treatment rates closely follow infection rates, which are currently rising, but we still need to assess how these will develop. Sales of Paxlovid are increasing as we observe weekly prescription counts going up alongside rising infection rates. However, there remains uncertainty about the timing of its launch, as it will depend on our discussions with the U.S. government regarding public health interests. All these aspects are still unfolding, and we expect the uncertainties to diminish by the end of the year, allowing us to understand COVID's stable contribution to Pfizer's revenue moving forward. Angela, would you like to add anything to that, or address the next question?

Louise, I think when you talk about Vyndamax or Vyndaqel, the biggest and our biggest differentiator that we’re extremely confident about is just the totality of our data really along four dimensions. And whether that’s clinical data or real-world data, we have all-cause mortality and CV-related hospitalization data. Our data is also relevant in both hereditary and wild-type ATTR-CM, so that’s unique. We’ve also demonstrated significant survival benefit at five years through our real-world data. So whichever way you look at it and you compare that with any competitor program, I think that we have a highly differentiated and extremely valuable molecule that stacks up well against any competition.

Thank you for your transparency. Is it correct to say that the sales trends related to COVID have been below your expectations, and that you would like to wait for one more quarter before adjusting your projections? I'm asking this because your expectation for vaccinations in the U.S. for the second half of the year appears to be around 88 million, while our calculations show only about 44 million administered and 111 million shipped. Can we expect a more updated outlook on the COVID numbers in the third quarter? Thank you.

Yes, thank you for the question. I believe the answer is yes; we should gain a clearer perspective soon. It's not just about seeing another quarter; we want to witness a significant quarter during the main respiratory season. We've always mentioned that the COVID vaccine's uptake will align with the seasonal patterns of other respiratory vaccines, which is becoming increasingly evident. Most vaccinations are expected to occur in the third and fourth quarters of the year. We are looking forward to that main quarter. If COVID vaccination rates approach those of the flu, we will see a substantial part of what we anticipate. However, if they turn out to be only a small fraction of flu vaccination rates, it will lead to a mixed outcome. Hence, we need to observe how this develops, making it a crucial quarter. For the first half of the year, we have seen significant contributions to overall growth. We don't require much inventory if we effectively utilize what we have to gauge the potential size of the COVID franchise. In the EU, we have adjusted well for this as well. We have high confidence in Paxlovid, which remains a strong market. We are uncertain how Paxlovid will be deployed during the next wave, and while we have data from other regions, the inventories were also built last year. We anticipate that products will start being reordered from many more countries. Therefore, the infection rates associated with Paxlovid will be critically important. All of this is developing now, and once we have a clearer understanding, we can make much more accurate predictions. Thank you very much.

You commented the long-term outlook for your non-COVID business remains intact relative to the 2030 ambitions. How are you thinking about the midterm 2025 guide because if you assume the midpoint of your ex-COVID ‘23 guide at 7%, in order to achieve the 6% 2020 to 2025 guidance ex-COVID, on our calculations, you need to do high single-digit growth for that base business for ‘24 and ‘25. That looks tough especially as you’ll have more LOEs. So, do you remain confident in that midterm guide?

Yes. Thank you. The LOEs are coming basically from the year ‘26, right? So, all the way to ‘25, I think the impact will not be that high. Also, the guidance that we gave was 6%, yes, we feel quite confident that we will be there. So, we’ll continue and we are at 6% right now all these years, right, year-to-date. So yes, the non-COVID business, I think, clearly, the success of the launches is very important. So we’ll see a lot of things coming ahead of us. But it is a way better predictable. And I think we are there. So, I don’t think there will be any variability.

Another follow-up on danuglipron. I don’t think I heard the answer in terms of when we’ll hear about the once-daily formulation. And I’d just like to understand your level of confidence here that you can make this a once-daily formulation without negatively impacting the AE profile, presumably given an increase in Cmax? And then more broadly, can you just talk more about how you’re going to compete here, given I think it was previously referenced you’re behind the competition, the clinical differentiation, the potentially less convenient dosing and essentially a therapeutic category in which you don’t have a major presence. And then just maybe one other quick one on the pipeline item on DMD gene therapy, it’s a late-stage asset that doesn’t seem to get much air time. Is your enthusiasm waning on this program or is it just that others are sort of a bigger priority?

Yes. Thank you. So, Mikael, again, clearly the obesity market and the size of it is creating a lot of interest in danuglipron. And so the question was about the one day formulation. And then also tell us a little bit about where we are with DMD.

I understand your interest in a once-daily product, and I believe there are no technical barriers preventing us from developing it. We have significant experience with modified release formulations. Our early data, which we initiated some time ago, suggests we should be optimistic about a once-a-day modified release for danuglipron. I believe we'll have that formulation available in the near future. If the drug progresses successfully through Phase 3, it could be ready for the market at launch or shortly thereafter. So, I wouldn't be concerned about that. Additionally, I agree that a once-daily modified release can improve the tolerability profile more than what we typically see with variability and exposure, which often lead to gastrointestinal side effects that have limited this drug. This is why I see a potential dual benefit in moving from a twice-a-day to a once-a-day regimen, which may also help create a better tolerability profile within GLPs. Regarding DMD gene therapy, I'm encouraged by the FDA's positive stance on the urgency of bringing that drug to market. Chris and I have been closely collaborating on this, and we expect to conclude the trial relatively soon. I'll also have Chris provide more details on this.

Thank you, Mikael. So the DMD program is obviously very important for us, not just for the importance of gene therapy but for patients and families with this absolutely devastating disease. And we do have an interim analysis later this year for the CIFFREO trial. The CIFFREO trial, all patients have now been enrolled in the study. The interim analysis will be based not on a surrogate biomarker endpoint but on truly functional endpoint. So, we believe that’s the best way to measure the benefit of gene therapy in this disease is with a functional endpoint. And that should come later this year, and we’ll update you with the final analysis for the study then in 2024.

That was terrific. I just wanted to add that we have, like you heard, Sarepta, ample biomarker that look very robust in our hand. But as Chris said, we want to provide patients with even more experience about the potential benefit.

I have a couple of questions regarding savings. It's evident that the demand for your COVID assets will affect whether you pursue this route. However, considering the potential you've mentioned before for a COVID flu combination vaccine, I'm curious to know if the upcoming Phase 3 data from your mRNA flu vaccine trial will impact your decisions on that cost-saving program in any way. Additionally, regarding hemophilia, you plan to file for your anti-TFPI treatment for non-inhibitor patients in the second half of the year. Should we assume that you would aim to launch in that patient group only next year, or will you wait for data from the inhibitor patient group before moving to market? Could you also discuss the size of the opportunity you see for that drug?

Let me start with the COVID situation, and then Mikael can add his thoughts. We are very enthusiastic about our combination vaccines. Specifically, we are looking at combinations for flu and COVID, and hopefully also including RSV. We are actively working on this, and we believe that incorporating a non-mRNA component will likely provide a better safety profile. This approach means we would only need to combine two vaccines, COVID and flu, alongside a protein-based vaccine for RSV, which has a strong safety record. All of this is progressing well. However, we need to consider that if the COVID market is perceived to be very limited, this will significantly influence our decisions regarding cost management. If the market demand is low, we will adjust our investments and lower our sales expectations, even as we remain hopeful about the potential of combined vaccines. If the combinations prove successful, that would change the outlook. Now, regarding your second question about marstacimab, Mikael?

I’m very excited about marstacimab. I followed this project for a long time. And as you know, we reported our very encouraging data. We had a 92% reduction in annual bleeding rate versus on demand. We had really no safety events as had been associated with other products, including Hemlibra. It’s active against both in A and B. It’s administered with a pre-fill pen. I think it can be, from a medical point of view, a very large product, a single option for hemophilia A and B. Of course, when I think about how Hemlibra has been such a promise for in A patients and I see this profile that it’s so good, I’m optimistic that it can do well in both segments.

Thank you very much. Let’s move to the next question, please. Time is flying, and there's a lot of interest, so let's try to limit it to one question each.

What’s the status of the DMD gene therapy program? Have you finalized dosing patients? I read a statement at a recent conference that you finalized screening patients. So, I was not sure whether that meant that the trial had been paused. Just some clarity around that and when we should expect data would be helpful. Thank you.

Yes. Chris, you were running DMD until recently. Now, of course, you provided to Mikael the responsibility. So, can you give us a little bit very quickly what is the status of DMD?

Yes, thank you. The CIFFREO trial has completed enrollment. We paused dosing for the last few patients due to a protocol amendment, but we are confident that we will proceed with the interim analysis later this year based on the functional endpoint, which will also include biomarker data. We will have both functional and biomarker data later this year, with the final analysis of the full study expected in 2024.

Thank you very much. In summary, we had a solid quarter. We continue to invest to support our unprecedented 19 potential launches in an 18-month period, which are performing well. The plan is on track with our timelines and value-creating revenue-generating business development opportunities like Seagen, which is clearly our big bet and significant opportunity moving forward. Over the next three months, we look forward to gaining clarity beyond the current uncertainty related to our COVID-19-related revenue, and by the end of the year, much of the uncertainty will be resolved. We are prepared to make any necessary adjustments to our cost base for 2024 and beyond. I want to emphasize that the biggest long-term uncertainty is vaccination rates, while shorter uncertainties, like the timing of commercialization, are just a matter of time. The vaccination and treatment rates we will observe will inform our expectations for the coming years, with potential upside from combination vaccines. Considering all these factors, we remain confident in our ability to achieve strong operational growth and deliver meaningful shareholder value through the end of the decade and beyond. Now, we will bring our call to a close. Thank you for joining us, and have a great rest of your day.