What Does Pfizer’s Read Have To Say About It? A Lot, Actually

Pfizer CEO Ian Read voiced his opinions on some of industry’s hottest topics – everything from the pricing of Sovaldi to M&A to the latest innovations, like gene therapy – during a far-ranging discussion at the BIO CEO & Investor conference Feb. 10.

It’s not all that often that Pfizer Inc. CEO Ian Read takes questions in a public forum about the company and some of the industry’s most challenging issues. At the BIO CEO & Investor conference in New York Feb. 10, the chief executive opened up about a wide-range of topics, voicing his opinions on everything from the controversy surrounding the price of Gilead Sciences Inc.’s hepatitis C treatment Sovaldi to U.S. corporate taxes and the potential breakup of his own firm.

“The problem is the affordability issue. The problem is that insurance models are not set up to pay for cures. Insurance models are set up to pay for chronic disease.” – Ian Read

Read took over the top spot at Pfizer in December 2010 amid a sudden management shakeup and with the big pharma facing billions in patent losses, including the loss of the mega blockbuster Lipitor (atorvastatin) in 2011. In the face of enormous challenges, Read reshaped the business in an effort to unlock shareholder value, spinning out the company’s animal health business and selling its nutritionals business to Nestle SA for nearly $12 billion (Also see "Pfizer Sells Nutrition Portfolio To Nestle For Nearly $12B" - Pink Sheet, 23 Apr, 2012.).

From his first presentation to investors as CEO, he talked about Pfizer as two businesses, an innovative core and a cash-generating established products business made up of mature drugs or those that have lost exclusivity. The division of the business has since become more defined. In 2014, Read restructured Pfizer into three units to further differentiate the two core businesses on the P&L – Global Innovative Pharmaceutical (GIP), Vaccines, Oncology and Consumer Healthcare (VOC) and Global Established Pharmaceuticals (GEP) (Also see "Pfizer Reorganizes Internally As It Moves Closer To Decision On Splitting Business" - Pink Sheet, 30 Jul, 2013.).

The new structure could help prepare the company for a split should management decide a divided company would be more valuable to shareholders.

A breakup aside, investors are keen for news on how Pfizer will drive near-term growth now that it has circled through some of its most challenging patent losses. The expectation has been that Pfizer will make a large-scale M&A move, especially after news leaked last year that it was interested in buying AstraZeneca PLC. The U.K. pharma fought off the takeover attempt, leaving investors and the industry wondering where Pfizer might strike next.

It turns out it is the generic sterile injectable specialist Hospira Inc. that Pfizer will acquire; the company announced plans to buy Hospira for $17 billion, including debt, Feb. 5 (Also see "Hospira Bulks Up Pfizer’s Established Products Unit, But Won’t Speed A Split" - Pink Sheet, 9 Feb, 2015.).

The company’s stock has experienced a nice bump following the acquisition announcement and on the heels of the FDA approval of Ibrance (palbociclib) for metastatic breast cancer Feb. 3, reaching a 52-week high of $34.60 Feb. 12, a stock price Pfizer hasn’t seen previously during Read’s tenure as CEO.

The Hospira acquisition will strengthen the GEP side of the business, but it doesn’t prohibit Pfizer from doing more deals. The expectation is that more M&A could be on the way for Pfizer, and that the addition of the Hospira businesses could bolster the case for a spin out. Read discussed that possibility, and a variety of other topics, at the BIO meeting.

Read On Splitting Pfizer

No decision has been made. I keep on saying that on the analyst calls. I think we are organizationally a long way along. We have separate management structures in place. We reorganized globally. … The teams are operating independently in the sense that they need to for their businesses, the platforms are having dedicated support, we are generating separate P&Ls. … But we still have to get through 2016 so we can have three years of audited separated statements, and we also have to make our mind up, is there value in a split? So we haven’t made our mind up on that. We will be guided by [whether] both of our businesses [would] be self-sustainable if they were independent and what are our shareholders telling us. We will look at the sum of the parts and see what it is compared to the whole.

On Hospira

We have always said we wanted to strengthen our businesses, both businesses. The established products business has a great business in emerging markets. … It has a small generics business called Greenstone, and we were in biosimilars, but not as large as we wanted to be, and we had a large sterile injectables business but it was outside of the U.S. and not inside of the U.S. And, we wanted a research engine for both of those businesses. In many ways Hospira was an ideal fit, giving us both the culture of a generics company in sterile injectable generics, giving us the research engine ongoing for Paragraph IV and sterile injectables. It gave us a presence in the U.S. we don’t have, and it gave us an ability to leverage their assets internationally and also strengthened our position in biosimilars.

On U.S. Tax Policy

It puts all American companies at a huge disadvantage. The tax code in the United States right now stimulates foreign investment and stimulates American companies investing abroad. To put it simply, if we make $1 in the United Kingdom and we bring it back to the United States to invest in the United States, we only have 65 cents to invest. If a foreign company [from a low tax domicile] makes money in the U.K. and takes it [to] the U.S., they get 80 cents. Foreign companies have a huge competitive advantage because they are taking U.S. earnings and they are taking it out of the U.S. tax system at 35%. It is something that needs to be fixed. There are various ways of fixing it. Congress is looking at it but it is a huge incentive to remove businesses from the U.S.

On Why Pfizer Hasn’t Made A Big Biotech Acquisition

I think the problem has been when we look at opportunities, other companies are willing to pay more either because of their tax situation or because they feel the need to fill in their pipeline in a different way. … It really comes down to value, and we haven’t had value. We didn’t get involved in one acquisition we looked at in the diabetes sector and we didn’t pay. The two companies who did buy it wrote half of it off two years later, so we sort of felt vindicated by saying we were very value focused.

On Pfizer’s Position In Oncology

I have had a lot of people say ‘you know the immune-oncology asset was an expensive asset with Merck [KGAA].’ The market doesn’t see that the value isn’t in the first wave. The value is in the combination products that are going to follow. … I think the huge value comes in second and third generation. We feel that having a dedicated team of top-notch scientists and commercial people dedicated to oncology will enable us to become a first echelon company in oncology.

On Controversy Around The Price Of Gilead’s Sovaldi

I’m not here to defend Sovaldi, but in general, the intellectual property and the product exists because somebody took a risk. They took a risk with their capital to produce this product. I think in a society such as the United States, the owner of that intellectual property has a right to recuperate their investment risk.

The issue is not one of being expensive. I don’t think it is expensive. In fact, the cost to society of hepatitis C over the life of the patient sometimes can exceed half a million dollars, and this product cures it for $80,000. I think it is a hugely, highly valuable product. The problem is the affordability issue. The problem is that insurance models are not set up to pay for cures. Insurance models are set up to pay for chronic disease.

What are they going to do with gene therapy? You have a one-time therapy that will save the public one million, two million dollars, save insurance, but the innovator wants to be paid once and they want that net present value at the time of the cure. Our systems aren’t set up for that. I don’t think it is a matter of them being expensive. I think the [problem] is how does society make them affordable. How do you spread the costs over a period of time?

On Industry’s Shift Toward Specialized Franchises

[GIP Business President Geno Germano] has done some interesting work on this actually in his business, looking at the value of creating a franchise in a certain area and being in deep in that area. It would certainly appear that the market rewards companies with franchises more than they reward companies that have a peanut butter approach to their innovation.

On Industry’s Most Exciting Technology Advancements

Certainly gene therapy is an exciting area and is going to mature a lot faster than people think. It will certainly present a challenge to the normal model of delivering pharmaceuticals. Certainly oncology continues to be a hot area – both CAR-T technology and all the innovations you have there. The problem for us is that the innovation is so massive and, given the early stage of much of the innovation, it is so difficult to be able to pick winners, to pick people you want to invest with.

On Digital Technology And Pharma

How many people have bought one of these ‘Fit’ things? Do you have it on still? You buy it and you use it for about a month and then you find out there is no more utility to it. It doesn’t really tell you a lot. It tells you if you sleep and it tells you how many hours you sleep and if you sleep light or heavy and how many steps you take. What do you do with that? Once diagnostics tell you what is the drug level in your bloodstream on a continuous basis, and measure the side effects and could be useful in clinical trials I think they will take off. Before they become a lot more useful in doing clinical trials and using the medicine, I think they are nice to have.

On Google’s Venture Into Health Care

I can see them becoming partners with organizations that help run clinical trials. I can see us talking to them about having devices that would help us monitor patients better and things like that. But I don’t see them becoming direct competitors in drug development. It is a totally different skill over a different timeline. I’ve heard Google believes you can put 26 bright people in a room and give them six months, they can solve anything. Well, go try it in pharmaceuticals.

On Compassionate Use Of Investigational Medicines

I would like every patient that has no real alternative to get access to medicines that can save their lives, but I don’t want that to happen and have it destroy the development of the medicine. So while the FDA insists that anyone who uses an experimental medicine that the adverse events and the profile goes into the label, there is going to be a huge reluctance to allow people into early use because they are not necessarily the target patient. … If there is a right to use and the physician believes it is an appropriate use and the medical staff of the company believes there is a medical reason this medicine could help this patient, then we are more than willing to stand ready to deliver it, but I need the regulator to say that what happens to that patient is not included in my database. Otherwise, you potentially destroy drug development.