Pfizer Earnings Call Nuggets: Core Businesses and Zoetis

Pfizer (NYSE:PFE) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Core Businesses

Chris Schott – JPMorgan: Just two for you guys. First, Ian, you mentioned it’s going to take several years for you to full develop your innovative and value cores. Have you considered how the best realized value from these divisions for your shareholders? Should we think about the decision on that is something that could occur in the near term of do we really have to wait a couple of years to see how these businesses evolve before you have a better sense of the profiles of each? My second question was on palbociclib, just thoughts on what breakthrough designation means here, the potential of file up of Phase 2 data, and can you talk a little bit their early breast cancer opportunity when we should expect to hear more about that?

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Ian Read – Chairman and CEO: I’ll deal with the two core businesses, and ask Geno to do the palbo question. I think what we’re saying is that we believe the two core businesses, we’re going to – we look at this year as a year, as a decision year on how to structure those, how to indicate to you to give you further visibility and then simply the work involved in order to have those business as entities with enough financial information to make decisions when we’re ready to make them would take two to three years because of the complexity of separating out the business. So, what we would like to be – what we’d like to do at some point in time and we’ll take the decision this year is to start to operate more independently those business, give you more visibility as shareholders and then assess what are the advantages and disadvantages of having these two core business house in the same entity or not, and at that point as we see that happen, and frankly, as we see the innovative core’s pipeline mature, and as we take steps to continue to strengthen value core’s ability to have product growth inside certain segments of its product offering, that will inform our decision.

Geno Germano – President and GM, Specialty Care and Oncology: So, Chris, just a couple of comments on palbociclib. I think you’re probably familiar with the breakthrough decision now. This is a new device that the FDA has to increase or intensify their focus on programs where early clinical signals are compelling for conditions that are serious and life-threatening, and certainly, palbociclib falls into that category and it was encouraging to see FDA give the designation to palbociclib recently. So, we look forward to continued engagement with the FDA on the program. As you know the Phase 2 trial is still ongoing. We’re anticipating completion around the end of this year or sometime in the second half. It is an event-driven trial. So, in a way, the longer the takes that it’s possible that patients are actually surviving longer and without progressing in the palbociclib arm which could be a very good thing. So, we’re just going to have to wait until we achieve the required number of events and we’ll report out as soon as we have results ready for disclosure. With regard to the early-stage trial, we’re actually working on two additional Phase 3 trials now; one for earlier-stage high-risk patients as well as for advanced recurrent patients, and our expectation is that we’ll initiate those trials in the second half of this year as well. So we’ll provide more color once we reach that point.


Jami Rubin – Goldman Sachs: Frank, I have a question for you. I guess I’m still very confused about something related to the Zoetis IPO. Can you walk us through the dynamics of your 20% stake that you sold to the IPO and how the $6 billion in proceeds from that which were being allocated to share repurchases would not have allowed you to report accretion from your sale of Zoetis, instead you’re reporting $0.02 of dilution? So I’m just confused about that. I would just think with the IPO proceeds and given your market cap, or rather your P/E multiple that this would have been pretty meaningfully accretive. And then secondly, can you talk about your current plans for the 80% Zoetis stake? I understand as Ian said that you haven’t yet decided when or how, but if you could talk about maybe how you’re thinking about allocating those proceeds as well?

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Frank D’Amelio – EVP, Business Operations and CFO: So, on the first question, let me walk through this in a couple of steps, Jami. So, first, on the last earnings call, I mentioned that our current year guidance, the 2013 guidance assumed mid-teens in the billions share buybacks. So that was already factored into the guidance. That mid-teens billions in buybacks made assumptions about the Nutri cash proceeds as well as the Animal Health IPO and debt offering proceeds, point one. Point two, remember, when we are buying back shares, we don’t get the full year benefit of those shares from the EPS calculation in a year. It’s a weighted-average calculation. So the full year benefit of those buybacks will actually take place in 2014. Point three, if we were to do something with the second step on Zoetis, and you assume that there was share reduction from that, it would clearly be – when you net it all out accretive, the reason you’re seeing that $0.02 decrease in earnings today is simply a timing issue. It’s the way that I think about it. So, hopefully, that explain the steps relative to why you saw the $0.02. It’s really timing, not getting the full year benefit of the shares we repurchased this year, and the fact that we had already planned for mid-teen billions in buybacks that – which have taken into account Nutri in the first step on Animal Health. In terms of current plans for Zoetis and our remaining 80.2%; couple of comments. First, we haven’t made any decisions to-date. Second, we have several alternatives available to us per the IRS ruling and we continue to monitor our market conditions. Third, there are no operational barriers that would prevent us from proceeding with a potential second step. And then lastly, our comp is, our goal remains the same which is to maximize after-tax return to our shareholders.