Katie Perry (00:00):
Ann we got a big show today with a big name company that really broke out in Covid and after, and we're talking to them about a lot of topics, mostly how they plan to take that momentum and move forward.
Ann Berry (00:12):
So Pfizer coming in to talk to us and to your point, Katie, we've seen whether it be Zoom, whether it be Moderna, real concerns that these were one trick ponies that were set up to succeed during the pandemic, but with not a lot of clarity as to how they fare afterwards. We are going to be focusing on what the strategy is for the next phase.
Katie Perry (00:27):
Estimates. Say Pfizer made over 80 billion on their covid vaccine. What are they doing with that financial windfall and where are they placing their chips moving forward? These are topics we're about to explore with Pfizer's CFO,
Ann Berry (00:40):
Including how they might be using AI to try and get ahead.
Katie Perry (00:43):
And with that, let's get into it with Pfizer, CFO, David Denton. Wow. Dave Denton, CFO of Pfizer. Welcome to After earnings.
David Denton (00:52):
Thanks for having me here. Really excited to be with you today.
Katie Perry (00:54):
Great to have you. And we would love to start with a level set on Pfizer. A lot of people know the name, a lot of it due to the triumphs of the Covid vaccine. Give us a sense of where Pfizer's at today.
David Denton (01:06):
Yeah, what's interesting about Pfizer, we've actually just celebrated our hundred and 75th anniversary.
(01:12)
So think about that. We've been around for 175 years and really founded in Brooklyn. So we've really stayed here within New York. This year we'll be about a 70 or 60 billion company from a revenue perspective. And sure, everybody talks about the advances that Pfizer made in the fight against CO, which was spectacular. But we've actually are fighting a lot of diseases. Our business is relatively small in covid of that $60 billion in revenue, about eight and a half of that will be covid this year. The rest is we're fighting chronic diseases like cancer. We're fighting respiratory viruses, we're fighting immunology, making sure that people have antibiotics. So Pfizer is a really big powerful company that's really taking the fight of diseases to patients. During Covid, we touched over a billion patients. Our objective is to get back to touching a billion patients. So we're excited about our business. It not been for the faint of heart. Covid really boosted the revenues of this business up pretty high, over a hundred billion dollars. We're now settling back down to 60. So we're working through that transition, but it's an exciting time for our business.
Ann Berry (02:23):
And you're doing that organically,
David Denton (02:25):
Dave,
Ann Berry (02:25):
But you are also doing it through a big m and a bat that you made at the end of last year, 43 billion acquisition of cgen. Talk to us about that.
David Denton (02:35):
So just even before I get to that, specifically over the last two and a half years, we've actually did business transactions to the tune of about 70 billion. So what we did is the dividends that we earned through the Covid period, we took all of that cash and we reinvested that into our business in acquisitions, really with an eye to growing our revenue base and product base by 2030. So we were really focused on the back half of the decade, and the biggest bet we made was in Cgen, which is a company that was based in Seattle, relatively small company, about 3 billion in revenue, so 43 billion for a $3 billion business top line. But they had a really extensive pipeline in oncology products. And so with our base in historical base in fighting cancer with now the platform of cgen, it's really going to enable us to touch a lot more patients in their battle with cancer.
Ann Berry (03:33):
And so much so that you now have a chief oncology officer.
David Denton (03:36):
We do. That's
Ann Berry (03:37):
The focus you have on it.
David Denton (03:38):
Yeah, if you think about it, so much of our business now is going to pivot into oncology. We felt really important that we segment that out specifically and make sure we had a really tight eye and close eye on what we're doing for patients each and every day. Every year we invest between let's say 11 and 13 billion in research and development with a proportion of that going into the fight against cancer. So we have a huge investment that we're making and that we want to make sure that that investment long-term financially pays off for.
Katie Perry (04:13):
And I want to ask you about being, you're known for paying out healthy dividends consistently over the past few decades. You have a much higher yield than a lot of other pharma companies. And I'm curious as CFO, how you look at that and think about putting money, for example, the financial windfall from covid back into innovation versus perhaps growing that dividend and how do you make those decisions in your seat?
David Denton (04:37):
Yeah, fortunately we're able to do a little bit of both of that. So that's the good news about it. I would say the other thing too is that from a capital allocation perspective, actually investing strategically in the business will allow us to grow top line and bottom line over time. And if I do that correctly, that actually accelerates my cashflow generation long term. So then I can turn around and reinvest that a bit in dividends as an example or share repurchases. So I'm trying to balance both strategically. I know that I need to invest to make sure that from a business perspective, I'm winning the marketplace and I touch a lot of patients. At the same time, I know I have shareholders and shareholders expect a return on the investments they make with Pfizer. And so I'm also conscious of the fact that I need to maintain and grow my dividend. I need to think about other ways to creatively improve returns for them. And part of that is with share repurchase as an example,
Ann Berry (05:33):
Which have tamped down this year, right?
David Denton (05:35):
Yeah. Not only have they tamped down, they've been eliminated. So we're kind of out of the share repurchase market until we get our leverage back in order in the next couple of years. And then I do think it's an important tool that we as CFOs have to enhance shareholder returns, and it is a tool that I can kind of turn on and turn off, whereas the dividend is a little bit more constant. It's hard sticky, it's kind of hard to turn that on and off
Ann Berry (06:04):
Sticky. Let's talk a little bit about organic growth. We'll come back to m and a, it's a big part of your story, but let's start with something you touched on, which is investing into creating portfolios, new drugs internally. One thing I read in your earnings report recently, Dave was using artificial intelligence to build an oncology dashboard to combine data sets. Talk to us about how you're using AI in the drug development process.
David Denton (06:27):
Yeah. What's interesting is first what we've done even before layering AI on top of our business model, we've gone back into our data sets and reorganized our data because we have, being a company of 175 years of history, we have a lot of data that we've created over time about how proteins work or how molecules might interact with different molecules. So we've reorganized that data sets such that now we put AI on top of it. And so what we're doing, and it kind of came through when we developed our antiviral treatment called Paxlovid for covid, we were able to use a model with AI to understand how proteins might attack the Covid virus. And we ran hundreds of thousands of models digitally. And then out of that we said, wow, here are a handful that show a lot of promise. Let's now take those and put those in the clinic.
Ann Berry (07:22):
Such a classic application, isn't it, where AI has
David Denton (07:24):
Gone? Exactly. So we've taken what would have taken probably three or four years and made it happen in three or four months. Now that's not applicable at the moment to all science, but there's a clear pathway to unlock a lot of value, just not within Pfizer, but actually across the industry.
Katie Perry (07:43):
And on the earnings, you talked about cost reduction in a few key areas, and one of those was digital transformation. Is this AI a piece of that or are we talking about something else? When you talk about digital transformation,
David Denton (07:54):
It is a piece of it. I would say at the moment, it's a small piece of it because what I'm saying is we're trying to use AI more on the development side, on how can we create something as opposed to using ai, which it can also to make something more efficient. I think at the moment, if we can get more products more quickly into the marketplace, that's a huge win for us and that's priority one. So let's tackle that first, and then secondly, we can come back and say, okay, how can AI make, let's say the financial process is more efficient or more productive, and that's kind of a second generation application that we have for ourselves.
Katie Perry (08:33):
So Dave, on the subject of new product development, let's talk about the oral semi glide GLP one receptor that you guys are developing. Tell us about what this is, how it works, and where it's at in development currently.
David Denton (08:47):
Yeah, so as you well might have heard is the obesity weight management market is just a really hot market right now. There's two incumbent competitors in the market that have injectable GLP ones that have shown really good effectiveness in managing diabetes, improving cardiovascular outcomes, managing weight. We actually have, and they're all, again, injectables. We have a product that just finished phase two that is an oral tablet at the moment, twice a day. We're working to make it once a day. We feel that we have good scientific basis that we see a pathway to make that happen. We're actually doing a study, we call it a dose optimization study that's being conducted now, we'll read out in the first quarter of next year. With that, we'll inform us of how to take this into phase three. So we still have a big investment behind us to get this potential product to market, and it's probably going to be multiple years before it's there, but we think it's going to be a really interesting and productive application of this product.
(09:56)
I think if individuals can effectively manage their weight, there's clearly a tag on effect benefit into improving their healthcare and their health status. And so we're excited about it. We have a lot of work to do behind it. This market is a really competitive market. There's a lot of people working to try to get it into the space, but Pfizer, we have a long history in cardiovascular. This is essentially a cardiovascular application of a medicine. We have a long history in that. So we have the right to win here. The question is now can we develop this into the next level? We also have a couple other products that are much earlier stages that could also be potential products in the future as well.
Ann Berry (10:37):
Let's talk about that, Dave, and let's talk about the pressure
David Denton (10:40):
That
Ann Berry (10:40):
Pfizer and companies like Pfizer feel when it comes to the development cycle. So if we go back in history, Pfizer I'D associated prior to Covid with Viagra sexual wellness, Zoloft mental
David Denton (10:54):
Wellness,
Ann Berry (10:55):
Lipitor. So you've really been on the cutting edge as a company of creating drugs that tackle in some cases afflictions that were not really well talked about. And I feel as though obesity is the next version of that. But with all of those, you came off patent at some point, generics could come in and take the place. Where do you see that happening with obesity?
David Denton (11:18):
Well, it's interesting. Maybe step, taking a step back, if you just look between 2025 and 2030, we have about 17 billion worth of products that are coming off patent. Okay. We've also done, to my point earlier, we've done business development that should generate over 20 billion in revenue, essentially replacing the patent loss that,
Ann Berry (11:39):
And that's against your 60 billion revenue basis today?
David Denton (11:41):
That's correct. That's correct.
(11:43)
That's the third. So it's the third and then we have new products that we're developing and introducing in the marketplace. So I feel like we're really working hard to solidify our growth in the back half of the decade, but clearly we have a strong legacy in working with healthcare professionals, particularly in primary care, in pediatric care. And I think that basis from a commercial lens perspective really helps us educate the market on how best to use prescription medication. At the same time, we have just a long history in segmentation of work in some of these areas that we can draw upon as we think about development. So we understand a little bit of the pitfalls that we have or have experienced in the past, and you learn from those. And so I feel like our productivity of our pipeline's been pretty good. In fact, it's actually been very good in the amount of products that we've come out of our RD pipeline. I think what the whole industry has struggled with in us too is developing products that have really a large market share. The tam, the total addressable market is large. And I think we are struggling to make sure that now as we think about the next phase of r and d investments, we're pivoting and focused really in areas where there's a big unmet patient need.
Ann Berry (13:04):
And what are those? Well,
David Denton (13:05):
I think obesity is a great one. I think that's almost, and I was with investors last week, think about that as population health management. I mean, that's a term that's used a bunch, but this is an application that theoretically might touch a significant percentage of the population, really change dramatically health outcomes. So we'll see how it plays out.
Katie Perry (13:30):
Yeah. Sizing up that opportunity for investors, it seems like the estimations of how big this GLP one weight loss market really is can vary. I saw one that said 80 billion by 2032. I know some of the competing products are already bringing in 10, 12 billion a year. How do you size that tam up? Do you think it's going to continue to expand and how do you plan to capture market share there when there's incumbents that are already established?
David Denton (13:58):
Correct. I think what we've said is our best estimate of the market by 2030 is roughly $90 billion. Now, I've seen, to your point, I've seen people estimate it at twice that level. So I think the more we learn about the potential uses and effects of the GLP, weight loss, weight management market, the more expansive it can become. And so I think what's really incumbent upon us is make sure that we understand what is on the market today, those incumbents, what their products deliver from an outcomes perspective, and then as we design our phase three clinical trial, that we design it in a way that with the lens that we'll have something different or unique and that we can, because that market, while it's really large, is going to have segments and which segment theoretically could our product be disproportionately advantaged and let's make sure our clinical trial supports that advantage and therefore we can, when we do go to market, we actually have the right to win. What's happening today is the incumbents are building competitive walls around their product, whether it's clinical outcomes data, which is great, which is really helpful to patients. They're also locking in rebate agreements with payers that also protect their franchise. And so we have to figure out how we can compete differently there.
Ann Berry (15:28):
They're also Dave starting to look at how they can control some of their distribution channels as well. Right. Eli Lilly started Lilly Direct and Pfizer at end of August announced a new website, Pfizer for all. Talk to us a little bit about that.
David Denton (15:39):
Yeah, I think what you're seeing across not just healthcare but across a lot of industries is really a direct consumer application of channels. And so what I think we're trying to do is we're not trying to disintermediate the market per se, from a drugstore perspective or distribution channel perspective, but we're trying to add to the market and make sure that patients, particularly in rural areas who have hard time getting to healthcare, they can actually use this tool to get connected to a physician who can help diagnose their condition and ultimately get them treatment for their chronic disease, whether it be weight management, whether it be migraines in the case that we're focused on most directly right now. And we think that's a real innovative way in which we can improve and touch a lot of patients and improve their healthcare.
Ann Berry (16:29):
How long are you going to give this Dave to see if that yields a return on investment? Amazon, for example, has tried multiple different ways to do telehealth, patient connectivity, pretty much what Pfizer for is trying to do. It hasn't always worked as planned. What's your patience
David Denton (16:43):
Level? Yeah, we're pretty patient. And I think the reason why we're like that, if you went back a decade ago, making a direct to consumer application and platform was really expensive. The technology was really high cost, and the technology application of it was difficult to do. Today, the cost of technology and innovation have really come down in the space. So we actually have developed this without a huge amount of capital outlay, so we can kind of move along at a reasonable pace and be able to be very patient from the returns from that perspective.
Katie Perry (17:19):
Are there any advantages on the data side to that of getting that first party patient data, perhaps seeing crossover selling opportunities or even data that could help go to market strategy or product development elsewhere?
David Denton (17:33):
Yes, but careful, and what I mean by that is you have to be careful in the sense that patient data and information from a healthcare perspective, you can't really leverage to market. So there's an application of that data to work with the patient and their healthcare provider to improve their health outcomes. Some of that's pretty limited on how you can use that to expand, if you will say a marketing potential. So I think we're extremely careful that we don't cross that boundary.
Katie Perry (18:02):
And the potential is personalization, though that would be at the benefit of the consumer, but it seems like a fine line to walk.
David Denton (18:10):
And I think that there's a lot of discussion around, I'll say personalized medicine in general, like creating medicines for me. And I think we're probably on the early phases of that. And I think the reality is no one's been able to crack the code on how might I take that and expand the reach to is somewhat, I'll say easy in quotes, to do it for one patient is really hard to do it for a million patients. Scaling is very hard. Scaling is very difficult.
Ann Berry (18:38):
So talk to us a little bit, Dave, about how this might tie in with your m and a strategy. You've just, you said at the beginning, 70 billion reinvested into your m and a efforts, Pfizer's a long history of m and a. Talk to us about whether your strategy might shift a little towards building that direct to consumer franchise using acquisition.
David Denton (18:56):
Yeah, probably not too much in the near term. I think we'll see long term at the end of the decade that we may think differently, but I think we have a lot of partners today from a distribution channel perspective that we feel like we haven't even fully tapped the ability to partner with them more directly. So I think we have more near term better return investments that we can make as opposed to leaning too deeply into that space, if you will.
Ann Berry (19:23):
And how much does it, again, focus on your m and a, how much of that going forward is likely to be focused on building out, for example, your oncology focus versus continuing to diversify your portfolio base?
David Denton (19:36):
Yeah, our expectation is that we're probably not going to diversify too much out of the therapeutic areas that we currently compete in. And we have a handful of those oncology being the primary, my sense is we will likely just layer in technologies or products or science within those spaces. It'll be interesting because like in cancer, we have a breast cancer product called Ibrance that's been around for a very long time. It's going to lose patent protection. We have a potential candidate in the clinic that can replace and enhanced Ibrance. So we're working not only within our pipeline of how can we potentially improve, accelerate that product into the market and at the same time what's on the marketplace that we might be able to externally focus and bring into our pipeline as well.
Katie Perry (20:31):
Dave, zooming out a bit, obviously we have a lot of investors who listen to this show, retail side, institutional side. How do you think about storytelling to that audience, given this perception of big pharma, your association with the Covid vaccine, which great brand awareness there, but to your point, there's key strategic points of diversification. What are the biggest challenges in getting that message across to different audiences?
David Denton (20:56):
Yeah, I think storytelling can be a really powerful tool because I think if you can tell the story about what you're doing to touch the lives of patients, it really comes to life around what we're doing day in and day out. It has been a challenge. I think people, when they think of Pfizer, they immediately think of Covid and we're so much more than that. And so I think telling the story around what we're doing to now help a patient who has lung cancer and the journey that they're going through and their fight against that lung cancer, and we're optimistic over time that lung cancer can be a chronic disease, not a fatal disease. And so I think we're investing very deliberately, very aggressively in areas like that. And I think telling the story of patients, we always start, we have on a quarterly basis have a town hall kind of application where you get a bunch of our colleagues together, we talk about how we're doing and what's important for us. We always start with a short video talking to a patient
Ann Berry (21:59):
And
David Denton (21:59):
What our medicines have done for them and their family.
Ann Berry (22:02):
But are you and your colleagues frustrated, Dave? Because I looked at your share price. If you go back over the past five years, your share price is down 14%. You're below where the share price was pre covid, yet look at all the things you are doing, accretive acquisitions, product portfolio, diversification. Is this frustrating to you and your team?
David Denton (22:22):
Oh, sure. It is very frustrating, but I think the reality is what we have to do is we have to create a business plan that is grounded in science that can help patients back that up with the fact that if you do that correctly and effectively, you can create a financial algorithm that can truly generate top line performance and also deliver to the bottom line. It's not lost on us that over the last couple of years we disappointed. Covid came from roughly a $15 billion business to an 8 billion business, and it happened much more rapidly than anybody thought, and we were surprised by it. Listen, the fact that it went from 50 to eight is actually a testament that the company did a really great job of fighting it, so that's great. The reality is shareholders had a hard time swallowing that, and it's hard for a company to make those kinds of adjustments that quickly. And so we were caught a bit by surprise, and the market doesn't like surprises. So I think what's incumbent upon us is to create a pathway forward that gives some stability in our business model. We really articulate how we're going to grow and improve our top line and bottom line. And we're a bit of a show me story from that perspective. And we're having a very nice year this year, and we consider this year the year of execution, and it's really delivering upon our financial promises.
Ann Berry (23:43):
And you have been getting some upgrades, analysts on the street post your loss earnings,
David Denton (23:47):
So it feels
Ann Berry (23:47):
Like some folks are starting to hear them.
David Denton (23:49):
Yeah, we're getting some momentum from that perspective. I'm encouraged by it. This doesn't change overnight. This is going to take a constant drumbeat of performance and that's what we're committed to doing.
Katie Perry (24:00):
Okay. Dave, thank you so much for joining us. Learned a lot from you today. Really appreciate it.
David Denton (24:05):
Well, thank you for having me. It was my pleasure being here, and I'm really excited about the future at Pfizer. Wow.
Ann Berry (24:09):
I'm Katie Perry. And I'm Ann Barry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies.
Katie Perry (24:19):
And if you learn something today, don't forget to like, subscribe, share with your friends. Upcoming episodes will feature CEOs and CFOs from a major semiconductor player and one of the world's largest travel companies. So stay tuned for more.
