CEO Chat: Pfizer's Albert Bourla

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Everything we did, we didn't even think the return on investment. We thought, how can we create value for patients? Because I had always the belief that once you do that, the return will come. And there's no better way than creating return for your shareholders. Then don't worry too much about it. Worry about what is your purpose. Deliver on this purpose and the money will come.

Hello and welcome to the Barron's StreetWise Podcast. I'm Jack Howe. The voice you just heard, that's Albert Bourla. He's the CEO of Pfizer. We spoke recently about the future for cancer treatments and gene therapies. Plus rising drug prices and when we'll all need a vaccine booster shot. More on that in a moment. This episode is the start of a little series. I've been keeping busy with calls for the Top CEOs issue of Barron's Magazine, and I wanted to bring you some of those conversations in the weeks ahead. So over the next couple of weeks, we'll post 2 episodes a week instead of our usual 1, and our audio producer Jackson will just play the conversations. I will mostly keep my big yapper out of it, right, Jackson?

We might need some yapper.

Fair enough. On to Pfizer. A year ago, we were barely leaving our homes, and now we're booking summertime trips, and I'm hoping I won't be the only fat dad at the water slide parks. Pfizer deserves a share of the credit. Under Albert Bourla, chief executive since 2019. He once oversaw the company's vaccines business and has now delivered the fastest vaccine in history by far. The previous record was 4 years for a mumps vaccine. Pfizer's COVID shot took a year. Its German partner BioNTech was able to quickly identify vaccine candidates using a novel messenger RNA, or mRNA, platform, and Pfizer spent its own money to scale production of these vaccine candidates while coordinating trials and eventually securing regulatory regulatory approval. So how did all of that happen so quickly? I asked Albert right after a little oversharing about my vacation plans.

No, first of all, I'm very glad to hear that your life is turning nicely, to be able to socialize again. And I can see it all over. And actually, the thing that speaks to, to my heart is when you're receiving notes of people that say, you know, I couldn't see for a year my grandkids and now I can. It's a great feeling. Now, how this happened, it happened because we were fully dedicated to the cause. We knew the importance of being able to be successful at the moment. We knew that a negative outcome would not affect Pfizer or BioNTech, it would affect the world. I mean, we just gave it our best shot and we were successful.

How long do you expect to continue to sell the vaccine? Which is, I guess, another way of asking, How long do you expect the world to continue to need it?

Look, I think that we will get COVID under control despite the fact that COVID is everywhere, so we need to control it everywhere. And despite the fact that there are a lot of mutations that are happening, which is something very natural for viral infections, I think we have discovered some tools, but they're very good and they will keep it under control. But I think we will have to use them. We will have to use a third booster 8 to 12 months when it comes to our vaccine to be able to maintain good levels of protection. And after that, we will have to see what does this mean for long-term protection. If it means annual vaccinations or more frequent or less frequent, that remains to be seen. But my guess is that we will be using vaccines to keep the disease under control in the long term.

Vaccines, even during the busy first quarter of this year, made up only about a third of Pfizer's revenue. It makes much of its money from treatments for chronic diseases like cancer and metabolic and cardiovascular disorders. We've talked in this podcast before about patent cliffs. That's when companies lose sales exclusivity for key drugs. Pfizer has 5 years with no cliffs coming up. But then a few key drugs go off patent in 2026 and 2027. So I asked Albert how the company plans to offset the potential hit to revenue after that.

Yeah, it's to stay true to our purpose, to bring more breakthroughs that change patients' lives. This is what is fueling growth, and this is why we exist as an organization. That's our role in society. That's our role in the investment market. So we are having right now 100 approximately research projects in the clinic, and that is across 6 different therapeutic areas. Vaccines is one of them, but of course oncology is a very big one. Rare diseases, infectious diseases, internal medicine, metabolic diseases. Each one of them, they have significant pipeline advancements that will deliver new innovations starting from this year. And the new products are coming and coming and coming and coming. And I'm very confident that what we promised to the street, at least 6% top-line growth, excluding COVID vaccine, and at least double-digit bottom-line growth, excluding vaccines. And also with a new pipeline that is coming, we are aiming to maintain this type of growth in the longer term for the decade.

I hope you've never had a loved one get sick and then learn that there are no cures available and maybe even few treatments. And if you have, you certainly know what it's like to feel frustrated with the pace of innovation. More than a decade ago, comedian Chris Rock delivered a stand-up set on the subject that got big laughs while summing up real exasperation.

They don't cure nothing. Same disease has been hanging out since I was a kid, man. What's the last shit a doctor cured?

Polio.

You know how long ago polio was? That's like the first season of Lucy.

Fred had an afro. I love that bit, even if it overstates the case. Doctors have cured things— hepatitis C, for example. But I've heard for many years that we're entering a golden age of drug discovery, spurred on by two technological developments. First, a better understanding of the human genome, and second, rapid gains in computing power and artificial intelligence. I asked Albert, are we there yet? When will this golden age happen? What will it look like?

I think we are there. I think we are about to see what I call a scientific renaissance, which is driven exactly from the two main drivers that you're saying. The fact that we have unlocked a lot of the mysteries of the immune system and of the human genomic And the fact that we are having now the collusion of all of that with significant computational powers and artificial intelligence, we have started seeing already the fruits of that, but most of that is ahead of us.

Can you tell me about Pfizer's focus in terms of specific diseases or therapeutic areas, areas where you feel like you should specialize more, focus more going forward? And are there areas that get you particularly excited about how close you think drug companies might be to better treatments.

I think cancer is a very obvious example because the world is very sensitive to cancer because cancer affects all of us. I think we have seen tremendous improvements in the cancer standards of care, but we are about to see even greater as we speak. A big step up in the cancer research was the use your immune system to treat cancer. But now way more powerful technologies can facilitate something like that and many others way more powerfully. So cancer is an area that certainly we will see a lot of progress. In the vaccines area, there was a stagnation, I would say. So there were a lot of good vaccines for several diseases, and then there were a group of diseases that so far no one was able to develop. A vaccine. Even flu, that we have so many flu vaccines, we all know that the efficacy of the flu vaccines is very limited right now. It is from 20% if you are not lucky in a year to maybe 60% if you're extremely lucky in a year. So average is less than 50%. So I think right now we should expect to see many powerful vaccines coming out in the next few years of diseases that they didn't have before. In rare diseases, it's affecting fewer parts of the population, but the impact is dramatic. So these are serious diseases. And those diseases are typically inherited diseases because there is a mistake in your genetic code. So we'll see powerful solutions for hemophilia, for example. People that they had to go every week to do an infusion or make an injection, and they were suffering despite that with significant bleedings on their joints. I think with one injection they could secure. So I think so many areas will deliver and all of them, we are very active.

Let's say there's an investor out there who says, I want to own a big pharma stock. What sets your company apart? What's different about Pfizer that you'd like for that investor to know about?

I think Pfizer is combining two things. It has the size of the big pharma, and we have built a culture that has the agility of many small biotechs. I think what sets us apart, it is a culture in this company, but it is very innovative, science-driven, very patient-centric driven, and that drives all the decisions that we are making. The COVID for me was just a test, a test of can we move faster than a small biotech? Yes. Can we be more agile than a small biotech? Yes. And can We bring these resources so that we can have, for example, 3 billion doses manufactured rather than a few hundred million like someone else would do, which is indicative of the size. That was the test. And I think we passed with flying colors.

Tell me about some things that you learned during the pandemic that have validated the approach that you've taken at Pfizer. Is there anything that you learned that changed your mind on something that Pfizer's been doing? And how much of what you learned during the COVID pandemic can you translate into continued fast results on future pandemics?

In my case, most of the learnings of the pandemic, they didn't change my perceptions, but clearly reinforced them. For example, I always believed in my life that there is nothing impossible. If you try and if you aim high, you can accomplish things that you didn't think you can accomplish. But what happened during the pandemic really made me a strong believer, and more importantly for me, made the biggest part of my organization a strong believer. Keep in mind that we have 6 business units in Pfizer. Vaccines is only one of them. The other 5 units were watching vaccines doing the impossible possible. They believe now that can be done. All 5 of them are trying to make their own COVID story. I always think that the companies that they are staying true to a purpose deliver better than companies that don't. But again, COVID was a great example that reinforces this belief on me. Everything we did, we didn't even think the return on investment. We thought, how can we create value for patients? Because I had always the belief that once you do that, the return will come. And there's no better way than creating return for your shareholders, then don't worry too much about it. Worry about what is your purpose. Deliver on this purpose and the money will come.

Let me ask you a question on pricing. It's always, you know, if I go to the drug counter to pick up, you know, pills for something, I never know if it's going to be $6 or $600. It's always, you know, there's such variation in prices. Realizing, of course, that drug companies have to be rewarded for their investments, do you think drug prices in America are too high? And if they are, who's at fault? Where would you put the blame for drug prices being what they are?

When you speak about drug pricing, there are two distinct issues, but they are both pricing. One, it is what is the cost of the drugs to the healthcare system? How much the government, Medicare, will pay Pfizer or Lilly for a drug that is given? There is another element, which is how much is the cost to a person like you that goes to the pharmacy, and sometimes it's $600. That's another issue. When you speak about the first, the cost of medicines to the overall healthcare system, to the overall Medicare is 12.5%. So by definition, that cannot be the big problem. And by the way, the trend is that this is going down, not up. I will tell you, for example, our audited results of the first quarter of this year, Pfizer had -5% in price. We had 8% growth excluding COVID, right? 8% growth excluding COVID. But that was because we have +13% in volume, -5% in price. The problem is that on the second one, you, I'm sure you didn't experience -5% in any of our Pfizer product. Because how much you pay has to do with what was your insurance design. And there's a very big problem there, which explains why although medicines is 12.5% of the total healthcare cost system, they are 80% of headlines of the newspapers. Because with medicines, unlike with any other intervention, you have to pay almost all from your pocket. And this is wrong. The Americans right now are paying for their medicines like if they don't have insurance, although they do have. There is a significant need to do a reform on that. And I'm sure that doing a reform on that likely will have a cost. And the pharma industry is willing to contribute to this cost. But what I don't want to see is that anything that we give, for example, it goes to the black hole of the federal budget rather than going to reduce your out-of-pocket.

I don't know if predicting politics is more difficult or less difficult than drug discovery, but if I asked you to just think about where we might get to in 5 or 10 years, there does seem to be momentum and desire among broad groups of people for some sort of more coherent system. You mentioned drug deflation. Are we going to get to a place 5 or 10 years from now in the US specifically, where we have better design on some of these plans? And something that will allow your company to continue to earn good returns from investors?

What would you guess? We must. And as a result, I guess that we will, because the current system is unsustainable. As you said, it's politics, right? And if you listen to the two extremes, likely we will go nowhere. But there's a significant majority that it is the middle. And I think all of them, including citizens, but also members of Congress, in Senate or in the House, And the administrations, they want to find a solution. And I think a solution that will aim to reducing the out-of-pocket for patients for medicines, that will have a cost that will be shared in a fair way among all stakeholders, insurance companies, pharma companies, government, then I think will give us the right results.

Thank you for listening. Jackson, when are we going to publish the extra episodes over the next few weeks? Wednesday? Tuesday it is. Jackson Cantrell is our producer. Subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts. If you listen on Apple, write us a review. If you want to find out about new stories and new podcast episodes, you can follow me on Twitter. That's @JackHough, H-O-U-G-H. See you next week. At Janus Henderson Investors, we believe working together is the way to work better. Like combining your portfolio plans and our in-depth strategy. Your valued assets and our valuable insights. Your vision and our mission. Working in harmony to seek the right investment opportunities. Janus Henderson Investors. Investing in a brighter future together.