Pfizer Inc (PFE) — Q2 2025 Earnings Call Transcript

Good morning, and welcome to Pfizer's earnings call. I'm Francesca DeMartino, Chief Investor Relations Officer. On behalf of the Pfizer team, thank you for joining us. This call is being made available via audio webcast at pfizer.com. Earlier this morning, we released our results for the second quarter of 2025 via a press release that is available on our website at pfizer.com. I'm joined today by Dr. Albert Bourla, our Chairman and CEO; and David Denton, our CFO. Albert and Dave have some prepared remarks, and we will then open the call for questions. Members of our leadership team will be available for the Q&A session. Before we get started, I want to remind you that we will be making forward-looking statements and discussing certain non-GAAP financial measures. I encourage you to read the disclaimers in our slide presentation, the press release we issued this morning, and the disclosures in our SEC filings, which are all available on the IR website at pfizer.com. 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, Francesca. Good morning, everyone. Thank you for joining our call. Our business is performing well, and I'm pleased with the progress we achieved in the second quarter. We advanced and strengthened our R&D pipeline, we work to maximize the value of our commercial portfolio, and made further strides to expand our margins. We continue to be actively engaged with policymakers as we navigate the complicated and rapidly evolving geopolitical environment while also remaining focused on advancing our business. With our strong year-to-date performance, we are raising our adjusted diluted EPS guidance for full year 2025 and remain committed to our dividend. Our programs to expand margins through focus, technology, and simplification are working very well. We are driving productivity gains by leveraging technologies such as AI and automation, and we are also realizing the benefit of continued streamlining across our company. We believe Pfizer is well positioned to continue creating meaningful value for patients and our shareholders. Our top strategic priority this year is, of course, improving R&D productivity. I'm proud of the outcomes we are driving and the meaningful milestones achieved during the quarter. Looking ahead, we believe key programs in our R&D portfolio offer significant opportunities to help address substantial patient needs and drive Pfizer's growth in the coming years. I will mention some highlights. Elrexfio is a medicine that is performing very well with rapid growth and encouraging progress in claiming leading class share in new markets, such as Japan, United Kingdom, and Spain. The clinical data in Elrexfio initially heavily treated, triple class-exposed multiple myeloma indications continue to be encouraged with median overall survival of greater than 2 years, which is more than double the historical median overall survival in this population. Moreover, the majority of responding patients are maintaining their response at 30 months. Elrexfio has the potential to be a leading standard of care with a differentiated clinical profile. It is a convenient subcutaneous fixed dosing regimen, the only one that now includes a once every 4-week option for select patients. New data presented at the American Society of Clinical Oncology Annual Meeting in newly diagnosed patients demonstrate Elrexfio's potential to move to earlier multiple myeloma treatment settings. This data from Part 1 of the MagnetisMM-6 study, so a confirmed response rate greater than 97% and the manageable safety profile in combination with daratumumab and lorlatinib. The randomized portion of this Phase III study is now enrolling very well. By executing on MagnetisMM-6 and Elrexfio, other ongoing Phase III trials, we aim to achieve label expansion that if approved would collectively increase the addressable population of approximately fivefold in the growing multiple myeloma market expected to reach approximately $44 billion by year 2030. Sigvotatug Vedotin or SV is our first-in-class integrin-beta 6 (IB6) that could be a driver of growth later this decade. We are executing a robust development program for this investigational compound in non-small cell lung cancer. This includes our fully enrolled Phase III study of SV monotherapy versus docetaxel in previously treated non-squamous patients that we expect data from next year. In the second line plus population, we have observed a durable 31% confirmed response rate, which is favorable versus historical data with docetaxel monotherapy. We are also enrolling a Phase III study of SV in combination with a PD-1 checkpoint inhibitor in first-line non-small cell lung cancer with high PD-L1 expression based on encouraging Phase I data for this combination recently presented at ASCO. These results saw a 57% response rate and greater than 90% disease control, including responses in all patients in the tumor proportion score greater than 50% cohort, which compares favorably to historical PD and the PD-1 monotherapy. These results support an ambition to change standards of care to conventional chemotherapies sparing regimens by leveraging the potential synergy between vedotin ADC and PD-1 checkpoint inhibitor. With our ongoing and planned trials in non-small cell lung cancer, SV has the potential to impact large patient populations with a non-small cell lung cancer market expected to reach over $60 billion by year 2030. Our strategy is intended to deliver a first approval in previously treated patients before moving into the first-line setting, which is a non-small cell lung cancer that includes more than 0.5 million global patients. In hematology, we continue to promote the differentiated profile of Hympavzi. In the quarter, we saw positive top line data from the Phase III BASIS study evaluating Hympavzi for adults and adolescents with hemophilia A or B. The study's cohort of patients with inhibitors met its primary endpoint, demonstrating a statistically significant and clinically meaningful 93% reduction in annualized bleeding rate compared to on-demand treatment in patients 12 years older, which compares favorably to recent approved products for hemophilia A and hemophilia B. These results further strengthened Hympavzi's differentiated profile as the first once-weekly, fixed dose, subcutaneous treatment for hemophilia A or B, administered in a convenient prefilled auto-injector pen. They also support the potential to expand its label to patients with hemophilia who develop inhibitors to factor replacement as we continue to execute on its launch in the previously approved noninhibitor population. We have seen considerable quarter-over-quarter growth, particularly in the hemophilia B market where subcutaneous treatments are only recently available. And follows EU and Japan approvals at the end of last year, we are seeking reimbursement on pursuing early access pathways in other international markets as we grow our presence in the hemophilia market projected to reach nearly $10 billion by year 2030. Moving to our vaccine portfolio. We are enthusiastic about our potential to deliver the first approved vaccine for C. difficile infection. Our second-generation investigational vaccine candidate builds upon encouraging results from the prior Phase III CLOVER trial of our first-generation candidate. This trial demonstrated 100% efficacy against medically attended C. diff infection, despite not achieving the study's primary endpoint. With our second-generation C. diff vaccine formulation, we have the potential to simplify the dosing schedule from 3 to 2 weeks. This candidate now in Phase II increased the strength of the immune response fourfold compared to the first-generation vaccine. Based on these newly announced Phase II data, we are preparing for a Phase III start before the end of this year. We will incorporate learnings from the previous CLOVER study to develop new primary endpoints focused on the prevention of severe disease outcomes rather than primary infection. If approved, the vaccine could significantly reduce the health care burden of nearly 500,000 annual C. diff infections and approximately 30,000 annual deaths in the U.S. alone. In another one of our phased programs, we finished dosing the last patient in our study of a vaccine candidate for Lyme disease. If successful, we expect to submit for approval next year. We also continue to strengthen our portfolio by harnessing external innovation through strategic business development. The recent closing of our global ex-China in-licensing agreement with 3SBio grants exclusive rights to develop, manufacture, and commercialize SSGJ-707, a bispecific antibody. Targeting PD-1 and VEGF has the potential to deliver breakthroughs for patients in the next wave in PD-1 immunotherapy, which is an established $55 billion market. With comparing monotherapy data in advanced non-small cell lung cancer presented recently at ASCO. We view this promising cancer immunotherapy candidate as a seamless fit within Pfizer's oncology strategy. Given our deep experience in the development of antibody therapeutics and our differentiated industry-leading portfolio of ADCs. We intend to serve details later this year for our plans for a Phase III program. With Pfizer's established presence and global reach, we believe 707 has the potential to become a backbone therapy for multiple solid tumor types where the PD-L1/VEGF mechanism could have a significant impact. Across our pipeline, we continue to sharpen our focus on programs where the strength of our capabilities give us the greatest opportunities to address substantial patient needs. We look forward to sharing future updates about our progress. Now let's move to commercial. Our commercial strategy is unlocking higher productivity and performance across both our U.S. and international divisions. With several of our established brands, we are pleased with our continued market leadership and growth. We delivered another solid quarter for our Vyndaqel family, with 21% year-over-year operational growth. These products are the foundation of care for patients with a serious heart condition of ATTR cardiomyopathy, and we continue to see strong progress in diagnosing patients and providing broad access. While we continue to closely monitor the competitive impact of new entrants, we believe the Vyndaqel family is differentiated with a strong clinical profile contributing to continued volume growth. With Eliquis, we are the clear leader with robust demand in a growing anticoagulant market. Our international commercial teams are driving higher growth versus the market in our key countries with effective engagement with healthcare professionals to reinforce the favorable profile of this medicine. In the U.S., the BMS-Pfizer alliance recently announced a new direct-to-patient option for purchasing Eliquis via the alliance's patient resource Eliquis 360 Support. This option offers uninsured, underinsured, or self-pay patients an opportunity to significantly lower out-of-pocket costs for Eliquis. Among some of our recently launched acquired brands, we are seeing strong underlying demand in competitive classes as we work to build expanded access and greater awareness and loyalty, of course, among healthcare professionals. With Nurtec, we continue driving strong commercial execution. We are pleased with the performance of new consumer campaigns and greater precision and effectiveness in sharing compelling clinical data with healthcare professionals. In the U.S., we achieved strong growth in total prescriptions and, with 47% market share, maintained leadership in the oral CGRP class, offset by pressures on net revenues from the impact of the IRA medical Part D redesign and the 340B program. Internationally, we are achieving strong performance in several key markets where we already have access and are encouraged by the potential to unlock additional opportunities by continuing to expand access. Padcev, a new key product in our oncology portfolio is demonstrating strong performance and we see multiple avenues for future growth. Our ADC for the treatment of adult patients with locally advanced metastatic urothelial cancer achieved high year-over-year operational growth of 38% in the quarter with growing demand and the onetime favorable impact from a transition to a wholesale distribution model for Seagen products. Padcev in combination with pembrolizumab has secured market share greater than 50% in first-line LA metastatic UC and is the standard of care for first-line treatment. Additionally, we continue to anticipate Phase III readouts for Padcev in muscle invasive bladder cancer in two ongoing studies. If successful and approved, we expect a significant expanded opportunity to treat patients with bladder cancer focused on the approximately 28,000 in the U.S. with MIBC, approximately 80% of whom undergo cystectomy. Cibinqo had strong 46% year-over-year operational growth with the quarter, driven by higher demand in the U.S. and growth in key international markets where we have decided to focus. We believe there is additional market opportunities for Cibinqo in responding to the need among patients with atopic dermatitis. We are seeing the clear impact of recent positive data released for several of our oncology products. It is contributing to strong growth in helping to establish these products as standard of care. LORBRENA saw 48% year-over-year operational growth in the quarter, and we expect continued strength through 2025. It has a compelling efficacy profile supported by the CROWN study where the median progression-free survival was not reached after 5 years of follow-up. LORBRENA is emerging as a standard of care for patients with first-line ALK positive metastatic non-small cell lung cancer. We saw continued momentum with Braftovi and Mektovi with 23% year-over-year operational growth in the second quarter. Results for the Phase III BREAKWATER trial showed the Braftovi combination regimen doubled median overall survival versus standard of care for treatment-naive patients with metastatic colorectal cancer with BRAF V600E mutation. This represents a significant advancement for the approximately 4,000 patients diagnosed annually in the U.S. with metastatic colorectal cancer with this mutation. They face a more than twofold greater mortality risk compared to patients with no known BRAF mutation. XTANDI contributed strong 14% operational growth during this quarter. Demand is growing for patients with castration-sensitive prostate cancer, and it is the top prescribed branded androgen receptor pathway inhibitor. With the presentation at ASCO of long-term overall survival data from the ARCHES trial, XTANDI is now the first and only androgen receptor pathway inhibitor to demonstrate an overall survival benefit at 5 years in men with metastatic hormone-sensitive prostate cancer. We also recently served positive top line results from the Phase III EMBARK study, making XTANDI the first and only androgen receptor inhibitor-based regimen to demonstrate an overall survival benefit in non-metastatic hormone-sensitive prostate cancer with high-risk biochemical recurrence. This contributed to demand growth for XTANDI, and we achieved 27% share in new-to-brand prescription. This is a positive indication of how we are continuing to invest and focus in areas where we have leadership and expertise, contributing to ongoing progress with our oncology portfolio. The strong performance in the U.S. and the international divisions shows why we remain confident in the commercial strategy we refined more than a year ago. In the quarter, for example, the key market and brand combinations that we prioritized in our international divisions are outperforming with strong mid- to high single-digit growth across all regions. We will continue to advance this commercial strategy and expect to drive further progress through precision targeting engagement with patients and healthcare professionals. With that, I'll turn it over to Dave, who will walk through our additional strategic priorities and progress with expanding margins and optimizing capital allocation.

Thank you, Albert, and good morning. To begin this morning, let me emphasize that our solid financial results are a clear reflection of our disciplined execution and strategic priorities. We remain focused on improving patient outcomes and meeting our financial goals while managing the complexities of the external environment. Our cost improvement initiatives have contributed to greater organizational efficiencies as demonstrated by our robust operating margins achieved this quarter. Going forward, we expect to improve our cash flow, reduce our debt leverage over time and increase flexibility across our three capital allocation pillars. Our focus remains on creating long-term shareholder value. We will continue to invest in our business for the long term while prudently returning capital to our shareholders. Now let me start with our second quarter results, then I'll touch on our capital allocation priorities and then move to our cost improvement initiatives. I'll finish with a few comments on the macro environment as well as our 2025 guidance. For the second quarter 2025, we recorded revenues of $14.7 billion, an increase of 10% operationally. This increase was largely due to overall growth, both in the U.S. and internationally. Partially offsetting the increase was an $825 million year-over-year unfavorable impact of higher manufacturer discounts resulting from the IRA Medicare Part D redesign, which took effect in the first quarter of '25, and overall is largely in line with our expectations. On the bottom line, second quarter 2025 reported diluted earnings per share was $0.51, and adjusted diluted earnings per share was $0.78, ahead of our expectations, primarily due to strong top-line performance and our cost management execution. Our results demonstrate the effectiveness of our refined commercial strategy. We remain committed to prioritizing key products and markets, optimizing the global allocation of our commercial field resources, and concentrating our marketing efforts on high-priority areas. We saw strong contributions across our product portfolio, primarily driven by the Vyndaqel family, Comirnaty, PAXLOVID, Padcev, and Eliquis, partially offset by declines in IBRANCE. Also, I'd like to highlight a significant trend within our portfolio that we expect to fuel the company's top line for the next several years. Year-to-date, Pfizer's recently launched and acquired products delivered $4.7 billion in revenue while growing approximately 15% operationally versus last year. We plan to continue to invest behind these two product groups to drive their future performance and help enable the company to largely offset our LOEs over the next several years. Adjusted gross margin for the second quarter was approximately 76%, primarily reflecting the product mix within the quarter. Looking at our adjusted gross margin performance over the last 2 years, we have largely achieved percentages in the mid to upper 70s when adjusting for Comirnaty, which, as you know, has a 50-50 gross profit split with our partner, BioNTech. In addition, we believe the expected $1.5 billion savings from our Phase I of our manufacturing optimization program by the end of '27 will help bolster gross margins as we transition through the LOE period. Maintaining a strong emphasis on cost management throughout our manufacturing network will continue to be a key priority. Total adjusted operating expenses were $5.8 billion for the second quarter, an 8% decline operationally versus last year. Now looking at the components, adjusted SI&A expenses decreased 8% operationally, primarily reflecting a decrease in marketing and promotional spend for various products as a result of our focused investments and ongoing productivity improvements. Adjusted R&D expenses decreased 9% operationally, driven primarily by a decline in spending due to pipeline optimization expected to be reinvested later this year and into next year. We continue to be disciplined with our operational expense management. Q2 reported diluted earnings per share was $0.51 and our adjusted diluted earnings per share was $0.78, which benefited from our efficient operating structure in addition to our effective tax rate primarily driven by a favorable change in jurisdictional mix of earnings. Now let me quickly touch on our capital allocation strategy, which is designed to enhance long-term shareholder value. Our strategy consists of maintaining and growing our dividend over time, reinvesting in our business at an appropriate level of financial return, and making value-enhancing share repurchases. In the first half of 2025, we returned $4.9 billion to shareholders via our quarterly dividend, and we invested $4.7 billion in internal R&D. As previously mentioned, maintaining our gross leverage at an appropriate level is a key priority towards improving our capacity for business development. Our gross leverage at the end of the second quarter was approximately 2.7x, which we are now setting as our new target, down from 3.25x. During Q2, we announced the licensing agreement with 3SBio, which closed in July of 2025. Our business development capacity is now approximately $13 billion following the 3SBio deal. Lastly, first half 2025 operating cash flows at $1.8 billion was tempered primarily by large expected payments in the second quarter, including an approximately $2.1 billion TCJA repatriating tax payment and our payment to BioNTech for our gross profit split. We expect to see improved cash flows in the back half of this year. Overall, we are focused on maintaining leverage at or below our new target to support a balanced allocation of capital between reinvestment and direct return to our shareholders. We continue to be disciplined with our operational expense management, progressing multiple improvement programs as we remain focused on driving operating margin expansion over the coming years. We expect to begin realizing initial savings from the Phase 1 manufacturing optimization program in the latter part of this year. As part of our goal to return to pre-pandemic operating margin, we remain on track to deliver on our goal of at least $4.5 billion in cumulative net cost savings from our ongoing cost realignment program by the end of this year. As a reminder, in total, we expect approximately $7.7 billion in savings by the end of '27 to drive operating efficiencies, strengthening our business with the potential of contributing significantly to our bottom line over the period. Of these savings, approximately $500 million identified in R&D will be reinvested in the pipeline, which we expect by the end of '26. Now with that, let me turn to our full year '25 guidance. The pharmaceutical industry continues to navigate a complex global landscape influenced by rapidly changing proposed trade and tariff policies. Strategies to help mitigate the potential impact on our business in the short term have been implemented. And we continue to evaluate opportunities and develop plans, which will help mitigate the potential long-term impact of tariffs on our business and our operations. That said, the company's guidance absorbs the impact of the currently imposed tariffs from China, Canada, and Mexico as well as potential price changes this year based on the letter received on July 31 from President Trump. Our non-COVID revenues continued to perform very well operationally and ahead of our plan. In addition, our guidance assumes favorable revenues due to foreign exchange rates. As a reminder, our plan assumes that a large majority of our COVID revenues are forecasted in both Q3 and Q4. Given this fact, we believe it is prudent to maintain our full year revenue outlook as we enter the second half of the year. We continue to expect full year '25 revenues to be in the range of $61 billion to $64 billion. In addition, we now expect adjusted SI&A to be in the range of $13.1 billion to $14.1 billion, adjusted R&D to be in the range of $10.4 billion to $11.4 billion and our adjusted effective tax rate of approximately 13%. Now given our strong performance to date as well as our outlook including a favorable impact on foreign exchange, our more efficient cost structure as well as improvements in our adjusted effective tax rate, we are raising our full year '25 adjusted diluted earnings per share guidance by $0.10. This includes absorbing a $0.20 charge for acquired in-process R&D associated with the upfront payment for the 3SBio transaction. So just to clarify, without the 3SBio deal, we would have raised our adjusted diluted earnings per share guidance by $0.30. Of this our adjusted diluted earnings per share guidance, we are partially derisking the expected COVID performance in the second half of this year. As a result, our revised full year '25 adjusted diluted earnings per share range is now $2.90 to $3.10 a share. In closing, we will continue to focus on maximizing our product portfolio's value and driving innovation to strengthen our pipeline. With a stronger balance sheet, we plan to deploy capital more effectively. We will focus on increasing our R&D productivity by deploying AI and digital capabilities, reinvest appropriately to accelerate high-value R&D programs and pursue new growth opportunities through business development. Additionally, our cost improvement initiatives are beginning to expand operating margins through productivity gains and streamline processes. And so with that, I thank you for your attention. I will now open up for Q&A.

Operator, please assemble the queue.

Just there in your prepared remarks, you noted your guidance absorbs the potential price changes this year based on the letter you received from President Trump on July 31. That talks about impacting Medicaid with MFN. Does that imply you think something is going to happen this year? And if so, what's your broad assumption so we can kind of quantify that hit on your revenues and EPS? And then can you perhaps just give us your state of the union on the recent developments with MFN and tariffs? And then just on the CDC recommendations for the vaccines. There was a reduced recommendation in May. The payer pullback or broader adult COVID vaccinations. So just how are you sizing the '25 to '26 U.S. fall season versus last year? And can you comment on any progress with state mandates or payer negotiations to stabilize that coverage?

Thank you, Trung. Let me start. I know many people would like to get clarity on the MFN situations on the tariff situations. And I'm not in a position to provide much clarity, not because we are not discussing. Right now, we are in very active discussions. I discussed at the highest levels of this government. I discussed myself with the President after he sent the letter, and we discussed a lot with the Secretary of Health and Human Services and others who are responsible for implementing a lot of these things. And I would say only that these discussions are extremely productive. I think we understand where the President comes from, and we are engaging in a productive way to find a solution. But because we are in active discussions, it's inappropriate for me to start providing more details because I don't want to say things while we're discussing with them. So I understand that many others may have questions about that. And I am not sure I can give more information than what I just told you that we have a letter that sets a base of what the President wants. The letter asks a lot from us, but we are engaged in productive discussions with them. And in general, I'm happy with the way that they listen to us and the way that we are trying collectively to find solutions that on one hand could make medicines affordable in the U.S., while on the other hand, we will make our industry even more competitive compared to China, which is progressing very rapidly. On the tariffs also, I don't have much news to add. We are waiting for the 232 report, and once we have that, we will see how these discussions unfold. Again, on the tariffs, I had good discussions with the Secretary of Commerce, with the U.S. Trade Representative, and of course with the President, as we have a special relationship through the times of COVID. So that's all I can say. I don't know if, Dave, you want to add something on what is included and how we think about it.

Yes. I would like to emphasize that the solid foundation of our business is enabling us to increase our guidance for the latter half of the year. Additionally, in line with Albert's observations, the ongoing efforts throughout the industry allow us to consider a variety of potential scenarios. We believe that these scenarios, along with the expected timing, will help us manage any impacts this year, based on the robust performance and strength of our business at present.

And maybe, Amit, you can comment on the CDC.

Yes. So I think your question was largely around Comirnaty. So I'll mention the quarter and then our expectations for the season. Comirnaty had a very strong quarter in Q2, and I think that's driven partially by gross to net capability. We've just become much more efficient and managing inventory in the marketplace, and we also saw a continued increase in our market share in the quarter. So that's the quarter. Now as it relates to the season, we don't have a crystal ball, but what we are planning for is we anticipate an indication for the 65-plus population as well as those under 64 with underlying medical conditions. And that largely reflects the dynamic of how people vaccinate in the U.S. today. We also don't anticipate any major changes in coverage by payers for this season. So this could have a modest effect on our vaccination rates, but we anticipate having a very strong season. In addition, I think we're very ready to execute against that. We have our supply and distribution capabilities, which are genuinely unmatched. We have a very robust plan for both physician as well as patient activation, and we monitor sentiment very closely. We've not seen dramatic changes in intent to vaccinate. And we also have very strong contract positions, both in retail and non-retail. So we look forward to the Comirnaty season for the fall.

Just two for me. First on BD and capital allocation. Just what's driving the slightly lower target leverage for the company going forward? I think you lowered it by about a 0.5 turn or so. I just was looking for any color there. And just on the BD approach, is the approach here still to target a couple of smaller deals with that $10 billion to $15 billion of capacity you've previously talked about? Or is the thought maybe looking at one larger one? Last really quick one just to slip in was just the recent PD-1 VEGF deal. I know you're going to think about doing combos with some of your ADCs. Will we need to see the Phase III data from those ADCs before you move forward? Or should we start to think about Pfizer starting development of those programs prior to those readouts?

Chris, as usual, excellent question, but David can take the first two and then I think Chris can talk about PD-L1 back then.

So Chris, yes, we've actually improved our target from a leverage perspective down to 2.7 from 3.25x. That's largely because we've improved our cash generation capability over the last little faster than we anticipated post-closing of the Seagen acquisition. So we're now sitting at 2.7x. We will continue to delever over time. If we were to do a BD transaction, we might tick back up over that 2.7x, but our objectives are still to get down and continue to delever the balance sheet in the long-term. Secondly, yes, most likely, we would attend to do a smaller deal given the fact that our capacity is in the $13 billion range at this moment. And so I would expect this more from a smaller perspective from a transaction.

Yes. And I think it's important to note that we are moving rather swiftly on this.

It's $13 billion only because we have essentially allocated some of the 3SBio transaction funds against our BD target.

Thank you, Dave. And Chris, how do you think about developing the PD-L1 VEGF that I know we closed, and we are very rapidly executing on the plan even before we could close.

Thank you very much. We have ongoing programs with the IDCs SV PD-L1V and Padcev, both in Phase III. We won't wait for the readout from these studies and will begin Phase I/II combinations this year. Specifically, we're looking at combining those ADCs with 3SBio 707. Our goal with 707 is for it to serve as a potential backbone to replace single-agent PD-1 and PD-L1 therapies. It has a unique structure, and preclinical data indicates it could be best in class for high affinity PD-1 inhibition and possibly enhanced anti-angiogenic activity. The overall response rate in the first-line setting is 65%. We are confident in this molecule across the cancers where we have significant expertise, including thoracic, GU, and GI, and we plan to announce a Phase III program for 707 later this year.

Thank you, Chris. I am very excited about this molecule, and my team has presented me with a very ambitious development plan that they intend to start executing this year. We will share more details about the plan later in the year when we begin implementation. Next question please.

I guess one on MSN, just given your recently announced DTC patient option for purchasing Eliquis, how should we consider the applicability of this program to the remainder of your portfolio?

Thank you, Alexander. I believe this will be very beneficial. The direct-to-consumer approach was one of the four initiatives requested by President Trump. We view it as an excellent opportunity moving forward, and we will collaborate to make it happen. Pfizer has valuable experience from Pfizer 4.0, which includes a high-traffic direct-to-consumer website. Additionally, we've recently launched Eliquis 360 with our partner BMS, aligning with what President Trump is advocating. You may have noticed that he even retweeted my tweet about Eliquis. We've been engaged in serious discussions within the industry, connecting with the CEOs of major companies and frequently having individual conversations with them. They are all eager to get involved and take action on this. We will see how this develops, but I don't want to elaborate further as we are in active discussions. Next question, please.

Dave, I have a question about your guidance. It seems you had a strong quarter, and there are both foreign exchange benefits and operational factors at play. I'm curious about what is influencing your decision to maintain guidance or not adjust it to the higher end of the range. I would appreciate your insights on how you arrived at this guidance at this time.

Yes. Thank you. I think as we looked at guidance, as I said, we are essentially raising the bottom by $0.30 and then absorbing the $0.20 charge for the 3SBio transaction. At the same time, we are looking at our future Q3 and Q4, and we're essentially derisking some of that. So this underlying strength of our business would have us increasing guidance even further from a profit perspective. But we, at this point in time, given the volatility that's potentially ahead of us in COVID, we think it's prudent to wait, hold, see how Q3 and Q4 come about and then update as appropriate from that perspective.

Thank you, Dave.

A couple for me. The first is on the efficiency that we're seeing kind of in your operating model and particularly around SG&A. It would be great if you're able to kind of give us some extra context around kind of where you are kind of reallocating and investing versus where you're able to pull back and kind of some more context and detail and color around that, both within the U.S. and ex U.S.? And then secondarily, you've given us somewhat detail in terms of M&A and the $13 billion range, but can you give us a little bit more insight on the priorities? I know you've talked about kind of the obesity opportunity or cardiometabolic opportunity and immunology being areas of interest. Can you talk about kind of whether they still rank near the top or how you're seeing kind of opportunities out there that you might be interested in?

Thank you, Courtney. Let's start with Alexander to speak about the efficiency in international, and then Aamir can chime in on the U.S.

Thanks for the questions. You remember about 18 months ago, when we started this journey at the International division, we said we will pick our growth driver, both from an in-line standpoint and the new product. And that combination will be different country by country based on the environment, the potential, and the population to treat. That's what we did. So we've identified in our top 16 markets, those combinations. And then we invested to win in the sense that we look at the share of voice that we need, and then we reduce our investment everywhere else so that we can win in this area. And clearly, the growth that we are seeing coming out of that portfolio of assets where we focused is really remarkable because it's not just that we grew 6% at the international level overall, but it's also the quality of the growth. You see that we grew 9% in emerging markets, 9% in China, and 7% in Europe. So it's kind of across the geography. And it's also across the different category areas, right? Specialty Care grew 9% driven by our brands. Primary care grew 4%, 6% excluding COVID, driven by Eliquis and our vaccines. And oncology grew 6%, driven by our assets and others. So clearly, it's really how we reduce the cost around the noncore assets and the non-key countries that help us double down on the area where we wanted to grow.

Thank you, Alexander. Aamir?

Courtney, I'll give you a couple of different examples. When we implemented our new commercial model at the beginning of last year, we put in place a few fundamentals. One was having everything in one place and the benefit of scale. So for instance, we consolidated to a single agency partner and that drove major efficiencies across the business. Second thing is we undertook a major resource reallocation exercise, both in terms of the products where we're investing as well as the channels that we're investing into. And thirdly, we've just embraced technology and the way that technology can drive efficiency across every aspect of our consumer campaigns, our physician targeting, and also Albert referred to our use of Pfizer for all and investment in the Pfizer brand, which, for instance, in the categories where we've deployed that, that model has resulted in about a 20% decrease in the cost per new NBRx. So these are just examples of how we're driving efficiency across the commercial business.

I am really pleased that we have been able to reduce costs while continuing to grow our revenue, which is crucial. Pfizer has always excelled in commercial efforts. However, I believe we lost some direction during COVID as the entire company was focused on pandemic-related priorities. I am very proud that we have regained our footing and developed a strong commercial operation that honors Pfizer's tradition while elevating it further. Regarding M&A priorities, we expect to pursue smaller transactions rather than one large deal, as Dave has mentioned. We are focused on four key areas: oncology, vaccines, internal medicine with a focus on cardiometabolic and obesity, and immunology. In the area of obesity, which was your specific question, we see significant potential due to rapid advancements in science and our strong capabilities in primary care. There are substantial commercial opportunities, especially in China where the market is thriving. Our Chief Strategy Officer, Andrew Baum, just returned from a trip to China, and the prospects there are quite promising. We also see opportunities in the U.S. market. We will be careful with our capital expenditures and ensure that we only pay what the assets are genuinely worth. Now, let's move on to the next question.

Yes. So Albert, thank you for helping lead discussions with the administration to ensure the future success of U.S. biopharmaceutical innovation. Since you briefly mentioned competition from China, has Pfizer been helping the administration understand the very strong support that the Chinese government provides to local biotech companies based in China? I asked the question given significant pressures on biotech companies in the United States.

Thank you, David, for your kind words. I'm very vocal and speak at all levels, not just within the administration but also in the Senate and House. One of the few things uniting both Democrats and Republicans is the concern regarding China's growing superiority in several technological areas, particularly in biotech. This is happening and it’s very real. For instance, in May, Axios reported that China now leads in global clinical studies, surpassing the U.S. I conducted my own research on current publications from Chinese scientists, finding that in CRISPR, 42% of global publications are from China, and in structural biology, which has traditionally been a stronghold for the U.S., 62% are from China. Furthermore, they are filing more patents than the U.S. this year, showing they are effectively protecting their intellectual property, enhancing access to local markets, and providing substantial monetary support to their biotech ecosystem, which attracts private investment. I conveyed all of this to the administration, and I believe they are listening. We need to find ways to ensure American patients have affordable access while simultaneously supporting the biotech industry. There is only so much we can do to slow down China; instead, we should focus on becoming better, which should be our main goal. With that, I will take the next question.

A couple of questions from me, please. Firstly, looking at ADCETRIS, TUKYSA, Q2 performance was a little weaker than anticipated. I understand these drugs are perhaps facing increased competitive pressures, but would be interested in your strategy for reinvigorating that growth of those Seagen assets ex Padcev? And then secondly, a question on the guidance, specifically tax. And apologies if I missed this earlier. But Dave, what has changed with regard to the tax outlook for this year? And how sustainable is this underlying 13% tax rate going forward?

Yes. Just on the tax side, there were some one-time discrete items that allowed us to improve our tax position this year. I would expect going forward with the new tax regulations globally that we would be largely closer to the 15% level from a global tax perspective in the long term.

Kerry, thanks for the question. I think your question is largely around the Seagen portfolio and the products. So we feel very good about how we integrated those products. As an example, we were able to cross-train all of our field forces. And now we're seeing the benefit of that come through in commercial performance. So if I look at Q2 and the entirety of our Seagen commercial portfolio, we grew 15% year-over-year. And that was while managing some of the competitive headwinds that you alluded to on ADCETRIS, which we are starting to see settle. In particular, we feel very good about the growth in Padcev. We have greater than 50% market share in the first line, and we see headroom to continue to expand that share, especially in the cisplatin-eligible population where we are very focused. And it's also important to note that as part of the Seagen transaction, it was not only the in-line products, but the portfolio that came with it, which continues to perform very well. Thank you, Aamir. Next question, please.

Kind of a follow-up to the prior question. 1.5 years into the integration of Seagen, and really aside from Padcev, what do you believe are the 2 or 3 assets that have the potential to really drive a positive IRR for the $42 billion or so that you spent? And kind of a follow-up there is what part of the market could SV capture in non-small cell lung cancer if and when eventually approved?

Yes. I'll ask Chris to comment. Let's talk that there are four main assets that when we acquired the company, they were around $2 billion, even less of revenues that they will grow by year 2030 to $10 billion. Now of course, the value was not only on that. The value was mainly on the platform of the ADC that we got together with the intellectual property, the capability, the people and the assets. And I will ask Chris to comment on the most important things that are coming out in the short term, medium term and long-term process.

Thank you very much. In the short term, we are focusing on Padcev and the results from our studies on muscle-invasive bladder cancer. Currently, we have an indication for 18,000 patients, but the new indications could expand that to 28,000, which includes both platinum-eligible and platinum-ineligible patients. We anticipate these results within the next six months and believe they could redefine the standard of care for this patient population. Additionally, we have initiated Phase III trials for SV, sigvotatug vedotin, and the second-line study has been fully recruited, faster than we had anticipated. In early studies for this second-line treatment, we observed a 31% overall response rate and a median survival of 16.3 months in a late-line patient group, which strengthens our confidence in SV. The vedotin payload has shown promising results in conjunction with other studies, including TIVDAK and Padcev, indicating potential synergistic effects when combined with anti-PD-1 therapies. We have now paired SV with pembrolizumab, achieving an overall response rate of around 60%. Notably, in patients with high PD-L1 expression, all participants in the Phase I trial have shown positive responses, which is significantly better than using pembrolizumab alone. Our next molecule, PDL1V, is also a first-in-class product that we are fast-tracking into a Phase III program for head and neck cancer, where we've recorded a response rate close to 60% in combination with pembrolizumab. Furthermore, we are developing a new series of antibody-drug conjugates (ADCs) utilizing a TOPO1 payload, including follow-ups to ADCETRIS. Preliminary Phase I data for two or three of these molecules is very encouraging, and we will provide updates on them in the future.

Thank you. So as I said, we are confident that not only we will recuperate the investment with a good return in the season, but I think it's transforming our oncology portfolio and business. Next question, please.

I'm going to go back to the policy side. I guess, Albert, should investors have any expectation around a comprehensive deal that addresses the President's objectives across MFN and tariffs, but also addresses the industry's concerns around enforcing IP protection, compounding, pill parity, IRA implementation? And then separately, Vyndaqel put up a solid quarter year-on-year, but this is sort of the fourth quarter in a row where sequential growth was more muted or meager. Is Vyndaqel U.S. growth behind us? And I guess in answering that, can you help frame the push-pull between price and competition?

Yes, let me provide a brief response regarding the policy. We're currently engaged in active discussions. The President is eager for quick results, and so are we, as we want to bring certainty to everyone involved during this time. In addition to topics related to MFN and tariffs, we are also addressing issues with PBM reform, the 340B program, and the pill penalty. There is a strong consensus that PBM reform is necessary, supported by a bipartisan bill, and the President has frequently mentioned concerns about middlemen in this field. He has also discussed the pill penalty, along with the Secretary of Health and Human Services. Furthermore, the 340B program has become a significant issue, expected to exceed $62 billion this year, surpassing Medicare and Medicaid combined. Unfortunately, the value intended for patients is often lost as hospitals mark up products significantly beyond typical margins, which is unsustainable for us. We are working through these discussions, recognizing the complexities involved with hospitals. The 340B program serves small hospitals well, but we need to address the abuses within the system. Aamir, do you want to take the next question?

I will quickly discuss Vyndaqel in the U.S. and then touch on international aspects as well. In the U.S., we experienced a very strong quarter with a 15% year-over-year growth. We maintained momentum and performance compared to Q1, and there’s a lot happening in this market right now. This performance results from improved diagnosis and positive dynamics in our favor. Despite facing two competitors entering the market, we continue to lead in total market share and notably in first-line treatment-naive patient share. We have strong TRx momentum, which has driven this growth. Attruby is capturing some first-line share, and it’s still early to evaluate the impact of AMVUTTRA, though we will monitor that closely for the second half of the year. We do expect ongoing TRx volume growth; however, there will be go-to-market pressure on our U.S. performance due to both the Medicare Part D design and the need for contracting to maintain access for Vyndaqel in Medicare and commercial markets, where we have sustained 90% access for the brand. We anticipate these factors will affect our sequential growth in the latter half of this year.

Yes. For international, we have a very strong dynamic. So we have grown 32% for the quarter. But actually, since the beginning of the year, we have grown our patient treated by 50%. So it's clearly what I was describing at the beginning in terms of focus on the key assets where we think we can have an impact. This one is clearly the demonstration of our focus on execution. Moving forward, we think we're going to continue to grow on this product for three reasons. First, the WCS rate in international in most of our key markets is still significantly below what we have in the U.S. and we normally see in this type of disease. Two, access takes a lot of time in international. You need to negotiate price and access in every single country, and it took us 5 years just to get to where we are, and competition will have to follow the same timeline to get to the type of access that we get. Just to give you a sense of it takes time, and now we have access, we are unlocking the potential of those patients being treated. And then finally, we think that the profile of our product and the experience of our key centers will help us continue to establish the standard of care that we have developed with these assets. So we are very confident with the potential future growth of Vyndaqel internationally.

Yes. And I'm very impressed with the performance of Vyndaqel internationally in the way that we were not counting on that product before and now suddenly, we see a very big thrive. We're not counting international, I mean it was mainly U.S. And let's go to the next question, please.

Albert, just one more, if I may, on the policy front. Just given the comments you just made and then triangulating those back to your comments on MFN that it's now quantified and reflected into guidance to some extent, maybe just talk about what could cause large swings to those expectations from here? Or is your high-level view that we are now getting more granular around the central and potentially narrow range of outcomes directionally speaking?

Our team is thoroughly evaluating several scenarios. We have assessed every possible situation and developed mitigation plans for each. We have also assigned probabilities of success to these scenarios. However, the reality is that we cannot predict what will happen since everything is currently under active discussion. Even though I have some ideas about where to raise or lower those probabilities, it's not appropriate to share them at this stage of the discussions and negotiations. Thank you. Next question.

I want to ask Albert about the points you're making on this call regarding the China biotech ecosystem, as they might resonate with the administration. How is the administration balancing that with the industry's active out-licensing transactions seeking the next layer of innovation? Separately, regarding your oncology side, the B6A trial in lung cancer will be very important. I noticed you reduced the sample size from 670 to 470, which may indicate increased confidence. Did you conduct any interim analysis to see how the effect size is tracking?

Let me address the situation in China first, and then I'll ask Chris to provide insights on oncology. There is considerable sensitivity among lawmakers regarding occurrences in China. However, I must emphasize that the focus is primarily on the technology we transfer to China rather than what we take from them for development and manufacturing in the U.S. For instance, I have discussed our Chinese deal with several members of Congress. I clarified that we are not giving anything; rather, we are taking their science and licensing it for global development—not for manufacturing in China, but in the U.S. for commercialization worldwide. In fact, we currently do not have the rights to operate in China. While the sensitivity is lower in these regards, I want to stress that China remains a significant concern in U.S. political discussions, and we must be mindful of that. Now, Chris, over to you.

Thanks for the question, Umer. So usually for studies, we recalculate effect size or study size based on emerging data from ongoing Phase I/II trials. And we did not unblind and there's no unblinding of ongoing Phase III programs.

Thank you. I knew that you will not sell much. So let's go to the next question, please.

First, you mentioned that you'll absorb the potential impact from the letters this year. Can you confirm that if there are tariffs, you would be able to do the same next year? I understand that you don't have guidance, but regarding your preparedness with inventory and pricing dynamics, do you think the current consensus reflects the potential effects for next year? Secondly, regarding your balance sheet, it's clear you are targeting lower financial gearing, which provides more flexibility. In terms of capital allocation, do you think you need to invest more in oncology, or will most of your balance sheet capacity be focused on obesity, immunology, and other areas? If you do need to allocate capital to oncology or other indications, would you be comfortable exceeding the 2.7x leverage?

We are not confirming or discussing the implications of tariffs or MFN for the years '26 and '27 at this time. Once we have definite information, we will share it. Additionally, we have adjusted our business development target to 2.7x because we are already achieving that level. It's challenging to set a target that we have significantly exceeded due to our strong performance. If a suitable opportunity arises from a business development perspective, we would exceed that target, similar to what we did with Seagen, and we worked to return to a 2.7x over time. As for business development, we are interested in all four areas we focus on today and will continue to evaluate assets in those areas.

Thank you, Andrew. Next question, please.

I have a question on IRA. So you guys have two drugs where prices are being negotiated in the current year for implementation in '27, that's Ibrance, XTANDI. One fear that at least we've had is that the new administration may press harder for bigger discounts versus last year, potentially just to make a point. In general, not just for Pfizer products. So you're in the midst of those negotiations. Any color you can provide such as how those discussions are lining up with what you expected before those negotiations begin?

We are currently in the midst of negotiations, so I cannot disclose specific details due to legal constraints. However, I can mention that we have two products scheduled for 2027, both of which will lose patent protection that year. Therefore, we are working to achieve the best possible prices in these negotiations. The impact on us will be minimal, as the net present value is quite small due to the limited duration of exclusivity. It varies by product. Please move on to the next question.

Two questions. The first one, I apologize, is on MFN. But you have quantified the assumed impact of MFN in 2025, but you won't share your estimate. But I assume it's a big number, well above $500 million for Q4 alone, and maybe several times that, which implies a strikingly high number for 2026. And I'm just wondering whether you would walk that number down? Second for Dave, you noted the positive underlying operational performance year-to-date. You also noted the positive inflection in FX year-to-date. Curious how the COVID expectations have changed. It seems they must have come down since revenue guidance is flat or unchanged, or something else in the business turned in a little bit light.

Yes. Maybe on the COVID side, I don't know that our expectations at this moment have changed, but we still have a lot yet to go in Q3 and Q4. So as I think about our future projections, we're still internally working to achieve our number. But as my guidance reflects, we've now derisked some of that delivery in Q3, Q4. So I don't think anything has changed. We just know that COVID by itself because of the nature of that business will always be a little bit more sensitive and a little bit more fluid and harder to predict quarter-over-quarter. So this is just allowing us to derisk that a bit. And then on the MFN perspective, we're not going to comment on those numbers at this point. Thank you, though.

And the final question.

Great. Maybe just two on the pipeline. Just for atirmociclib, I was wondering if we'll get an update from the Phase II study on PFS potentially at San Antonio later this year? I know you've already committed to moving into Phase III, but I don't think we've seen anything on durability there. And then on LORBRENA, any thoughts about exploring that in the adjuvant setting?

Chris.

Thank you for the question. So atirmociclib, you're correct. As we stated, we're focusing now on the first-line space and working with KAT6 6 for second line. We remain very confident in atirmociclib on all the data we've seen and the study, the first-line trial in ER-positive, HER2-negative breast cancer. The study is recruiting extremely well. In fact, both times faster than we actually planned or predicted. We've not disclosed the date when we will show the data on the second line, but we'll keep you posted on that. For lorlatinib, there's no current plan for an adjuvant study.

Thank you very much. And thank you for your attention. Just I want to say that I'm very pleased with the execution of this team in terms of the targets that we have set. I will describe Pfizer right now as a company with a very strong floor and no ceiling. And we plan to maintain the prudent way of allocating capital, the focus on execution, the relentless focus on our pipeline, productivity and big assets, and improving our margins by the use of technology, focus, and simplification of our business processes. Thank you very much, and enjoy your summer to those that they didn't take vacation, like me.