Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Thanks so much, everybody. Good afternoon. I'm Terence Flynn, Morgan Stanley's U.S. biopharma analyst. For important disclosures, please see Morgan Stanley's research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So I'm very pleased to be hosting Johnson & Johnson this afternoon. Joining us from the company, we have Joaquin Duato, the company's CEO and Chairman; and John Reed, Executive Vice President, Innovative Medicine and R&D. But thank you both so much for taking time out of your busy schedules to join us, really appreciate it.

Maybe we'd start, I thought high level, Joaquin. The company laid out some long-term growth targets at the December 2023 enterprise business review meeting. And so maybe you could just level set us in terms of the progress you've made there, but also the rationale for providing those targets when you did?

Yes. Thank you. So there's been a lot of progress in Johnson & Johnson since 2023. First, we have a more focused portfolio today. We have 3 focus areas in innovative medicine, oncology, immunology and neuroscience and then 3 focus areas also medical technology, vision surgery and cardiovascular. So I think we have a very well-balanced portfolio that has a mix of innovation and growth that is driving a new cycle of accelerating the growth for Johnson & Johnson. Since 2023, we have done what we said we were going to do. We said we were going to be able to grow through the STELARA biosimilar entry, and that's what we are doing, we did in June '25, and we are also doing it in '26. In both quarters, in Q1, in Q2, we were able to beat analyst expectations in top and bottom line and also to raise our guidance. Our guidance today for '26 is 6.5% adjusted operational sales growth and 7.3% adjusted EPS growth. And for the first time for the company, we're going to be ahead of $100 billion in total revenue. We also have said -- and we said that in '23 that this was going to be the beginning of a cycle of growth. And we see 2027 being a better year than 2026, and we have line of sight to double-digit growth by the end of the decade for total Johnson & Johnson. So together, combined due to our existing portfolio, the new product launches, our pipeline, I believe today, Johnson & Jonson has one of the cleanest growth stories in our sector.

Great. Perfect place to start the conversation. You're hosting another enterprise business review here in early December. And so I know you're not going to get into a lot of the specifics because you want to save that for the day, but maybe just high-level preview of some of the themes that you guys are focused on as we look ahead to December?

Thank you. So we're looking forward to that. We do it every 3 years. So it's an important event. And there's 2 main topics that we plan to cover there. One is providing more granularity to double-digit growth by the end of the decade, which is a frequent question that we get from investors. And we'll provide more granularity on the state of our portfolio, our new product launches and also our pipeline. And the second one, it's going to be -- give you more confidence on the durability of our growth beyond 2030. So we'll provide more information on our earlier-stage pipeline in order to be able to give you more confidence that this cycle of growth is going to continue, is going to be durable into the next decade.

Okay.

Looking at maybe a preview on that. If you just look at our pipeline with molecules that have achieved POC, they're now in Phase III, derisked. And moving forward, there are 12 molecules that have those criteria in the pipeline today. So we'll give some insights into what we see as the opportunities there. On top of right now, in addition to DARZALEX, our top medicine right now, we have 10 in-market medicines that are still pretty early in their life cycle journeys and growing robustly.

Okay. Great. Looking forward to it. The other area I wanted to talk about at a high level is the policy front. Just anything that's on your radar as we head into the midterm here, Joaquin? I know you guys are very plugged into DC.

Yes. So compared to 2025, 2026 has been a more stable year from a policy perspective. I think we will agree all in that. It's likely that things may up before or after the midterms, although I don't see pharmaceutical pricing as the core theme of this election. I mean, I think all of you know that there are other topics that are more discussed than pharmaceutical pricing. I believe the things connected with affordability and medicines have been well addressed with some of the changes that have been done in Medicare Part D that have addressed some of the tension that existed before. So I don't anticipate that the midterms are going to create significant noise from a policy perspective, although there's always something going on in this space. But I don't think there's going to be anything that is going to constitute a major change. Things may change again into 2028 as we may have different changes there. But as far as the midterms go, I think that you may see some different ideas, but I don't believe that pharmaceutical pricing and affordability is going to be one of the main topics [ we need to ] this election.

Okay. Great. The other one I want to touch on is just capital allocation, business development. And so I think high level, again, the company has become more streamlined, spun off the consumer business several years ago. Orthopedics, we saw some headlines over the weekend there. So maybe just talk to us about the shape of the business and as you think about divesting assets, but also layering in additional assets where we are in that journey on that front.

So a number of factors there. First, we have a strong balance sheet. We are only 1 or 2 companies that have AAA credit rating. And we are proud of that because it's a reflection of our financial discipline. We are not married to that, but it's a reflection of the standard of our balance sheet and our financial discipline. Our cash flow generation is strong, and we foresee that cash flow generation even becoming stronger as we accelerate growth into the rest of the decade because that will come with also improved margins. So we are optimistic at our cash flow generation. We set at the basis of us being able to do M&A. When it comes to our capital allocation priorities, number one now is to fund our new product launches. We are at the early innings of a number of new product launches, both in MedTech and in innovative medicines. Some of them, I'm sure we will discuss, some of them are ICOTYDE, our oral [ ION 23 ] peptide. We are launching also INLEXZO, our intravesical drug release system for bladder cancer. We're launching RYBREVANT in lung cancer and pretty soon in head and neck cancer. We are planning to launch IMAAVY, our FcRn inhibitor also in some hematological indications. We just had the approval of our soft tissue robotics system, OTTAVA. We have a number of new catheters in electroficogy that we plan to launch in the U.S. and globally. So the #1 goal is to actually resource our new product launches, which are core to the cycle of growth that we want to deliver. Number two is to resource our pipeline. John will talk about our pilot, but we have a number -- a large number of assets in Phase III. And as you know, most of the expense in R&D is when you get into later stage. So we have a number of things that we have to fund in our pipeline, and we are trying to do also parallel development, multiple indications. At the same time, multiple Phase IIIs, so we are in the better position when we launch the product to maximize that opportunity. So the second one is to identify opportunities in -- external opportunities. The weakest spot for us is to identify opportunities that are earlier on, so we can create significant value using our scale in R&D, in manufacturing and commercialization. Best examples of that are ICOTYDE or INLEXZO, which were opportunities that we identified earlier on that were very capital sparing, if you want, right? So we'll continue to look into these opportunities. And the priority there in BD is to fortify our position vis-a-vis the next decade. We can achieve double-digit growth this decade without M&A. So our goal with M&A is to fortify our position to provide the confidence that our growth is durable into the next decade. So that's the second priority, and that's what guides our M&A approach. And then finally, return cash to our shareholders via dividends. And that's our goal to continue to deliver a strong dividend to our shareholders. And we have been, I think, decades of continuous dividend growth. We are a dividend aristocrat, and we plan to continue to give that to our shareholders. We've done a number of transactions this year which some of them are very, very promising. We acquired Halda Therapeutics with a new platform called RIPTAC that I would like John to talk about it. We acquired Firefly Bio, which an antibody degrader conjugate, which is a platform that we think has a lot of legs. And we also did a deal with sale in nonintegrated in vivo CAR-T, which is a platform that we think that could have a lot of expansion into [ automitization ]. But I will let John talk about these new ideas that we have in our pipeline.

Yes, the -- maybe starting with the RIPTAC. So these are oral drugs that they stimulate what's called induced proximity where you bring 2 proteins together where 1 face of the molecule binds a target of interest. And then in this configuration, the other binds to an essential protein that the cell must have to survive. And the compound then sequesters that protein in this complex and as a result of it, the cell perishes because it doesn't have access. So the first iteration of this is a molecule targeting the androgen receptor in prostate cancer. And prostate cancers have very high levels of androgen receptors. So with these compounds, you're able to sequester to scarp up this essential protein, it happens to be an epigenetic protein [ BRD4 ]. And as a result of it, the cell dies. And what we've seen in the early going is that the molecules are extremely active and selective at killing prostate cancer cells regardless of what their genomic profile is, if they have PV3 mutations, RB mutations, EV mutations, the anti-receptor doesn't matter. And with this efficacy, including visceral lesions, which are sometimes hard to treat in prostate cancer, very well tolerated. So extremely well tolerated. So that's moving into Phase III. We think it could be a real practice changing new mechanism for prostate cancer. Early in [ clinical valve ], we have the same thing with the estrogen receptor, trying to do the same thing for breast cancer. And then behind that, a pipeline of 14 more projects at various stages of lead optimization. We're starting in oncology, we hope to tackle a number of ways of a new approach to how you can selectively kill cancer cells, but then moving from there into certain immunological applications too, where that might make sense. So that's a great new platform, both a product and a platform for us. With the Firefly acquisition, that's a new concept, the greater antibody conjugates. So you've all heard of ADCs where you put a chemotherapy drug conjugated on to an antibody. In this case, it's a targeted therapy that is -- it brought into the cancer cells by the antibody sparing normal cells. And our lead program there is a [ pan-KRastegrader ]. Everyone's been hearing a lot about KRAS these days. That's the most common genetic mutation in all of human cancers are KRAS mutations that activate that oncogenic driver. So with a small molecule delivered through the antibody selectively in the cancer cells, we hope we'll get a much better therapeutic index. So that's the first iterations, but there are lots of other things we can do with that platform down the road.

And is that in the clinical?

That 1 is not in the clinic. That was preclinical, should be in the clinic early next year. And then another preclinical 1 was as we're getting in the in vivo CAR-T, we were interested in both viral and nonviral approaches. So we have a collaboration with [ Colonia ] in viral antivirus, but then since then have created our own lentivirus platform kind of leveraging our know-how from the CARVYKTI days where we make the lentivirus for CARVYKTI. And in that case, we're infecting the cells ex vivo in the factory. But now we've engineered that so we can infect them in vivo and have selective infection of T cells. So that's -- we'll be in the clinic early next year. And then with [ sale ], where we have an option -- we have a collaboration with an option to buy at a prenegotiated rate. That's an mRNA platform using an engineered lipid nanoparticle that only enters into T cells, and that will be in the clinic later this year.

Great. And just to clarify, the in vivo, that was the [ colonial ] approach you were talking about?

Well, that in [ sales ], they're both -- there are different ways to do it, 1 viral, 1 nonviral. And we're biasing viral towards oncology and nonviral towards immunology, but we have to generate clinical data and we'll end up seeing whether both of those platforms work or do we end up pivoting and using 1 of the platforms for both applications to be determined.

Great. I want to focus on your myeloma franchise. I feel like every year I host, you walk in, and you guys have some new data that's very exciting to talk about, and I know you guys have been focused on kind of the functional cure for some time now in myeloma. And congratulations on all the progress here. Before we talk about some of the newer targets, maybe just 1 question I had just on DARZALEX FASPRO. I know you guys have had a lot of success with that launch and converting people over to the new subcutaneous formulation. How should we think about the shape of that business when you have IV biosimilars coming in? Because that's a question we get from investors sometime. And then we'll talk about some of the newer drugs that you're bringing to market too.

Absolutely. So I mean, DARZALEX is now standard of care and our backbone in first-line therapy. And it's the #1 drug used in any clinical trial, you always have DARZALEX as the backbone. So we continue to see DARZALEX as a backbone of multiple myeloma. And as John will explain later, I'm sure, it's been also combined with our bispecifics and multi-specifics in order to remain a backbone of therapy. The results with DARZALEX are spectacular. I mean, when you look at progression-free survival in treatment in transplant eligible patients is 17 years. So it's a fantastic medicine. 90% of the patients today are already in DARZALEX FASPRO. And it's simple because you go from hours of infusion to minutes, you have less infusion-related reactions, less time, it's much easier for the patient and ultimately save resources of the healthcare system because you don't have to go there and spend hours in the hospital, right? So we anticipate that by the time the IV biosimilars will come, close to 100% of the patients would be already in DARZALEX FASPRO. So we don't see that as a real challenge. It's very difficult to tell a patient going from a subcu to a 6-hour infusion. So I think that, that's going to be something that would be clearly not an issue for us down the road. As far as our multiple myeloma franchise and the different combinations and permutations that we are going, our goal now is to be able to bring our advanced therapies earlier on. And perhaps the area which is more important for us today that is already coming into fruition is second line. About half of the patients in multiple myeloma in second line, and we are bringing our multi-specifics and cell therapy, CARVYKTI, into second line. We have great data in second line, both with CARVYKTI and the biospecifics, and that's the strategy that we have today. We are not going to stop there, and we plan to bring advanced therapy to first line, but we already have approval to go into second line with both therapies. So John can talk about the data we have generated and how impressive that data is, and we are close to be able to achieve in multiple myeloma, what you would call a functional cure.

Yes. So the recent data in second line were -- first of all, about when patients begin to progress from a first-line [ legend ] regimen, about 70% have either in the current market have either not had [ dara ] or they've had it, but they're still sensitive to it. So in that population, we showed in our [ MAJESTIC 3 ] study that if you have dara plus TEC, TECVAYLI, that's our, BCMA first-in-class BCMA bispecific -- that compared to standard of care, which was often dara plus other things that we had unprecedented efficacy, progression-free survival hazard ratio, I think it was 0.11. So it's like a 90% reduction in progression. And so impressive were the data that when we published our abstract for the ASH meeting, the FDA called us and said, can we please give you a natural priority review voucher so we can get this new regimen to American patients as fast as possible. And from submission to approval was 56 days. So the FDA did a great job with that. Now for the patient, the roughly 30% that are truly dara refractory, we showed in our MAJESTIC 6 study that if you have TECVAYLI combined with TALVEY, that's our other first-in-class T cell engager, that 1 targeting [ DPR C5D ], a target that was discovered in our own labs. That again led to hazard ratios like 0.1 in the second-line setting showing that we have incredible solutions there for patients. Now thinking ahead to front line, where we're going there is with our trispecific, ramantamig. So that is -- got the features of TEC and TAL in 1 molecule, both BCMA and GPRC5D, plus a third arm that binds the T cell, the CD3, they get the T cell to attack. And what we've seen in the early going there in newly diagnosed patients, if you combine ramantamig, our trispecific, with dara, 100% MRD negativity. So [ mineral residual lease ] negativity. And MRD is even recognized by the FDA is [ about her get in ] myeloma because it correlates so well with progression-free survival and overall survival. So we feel that, that's where the front line will go. It will be ramantamig plus dara. And expect that with that -- and that's a steroid-free regimen, 2 drugs that you're going to get very high levels of progression-free survival that will last for 5 years plus probably. And then if the patient does relapse at that point, this is where then we have a CAR-T solution for them. And we've got in hand, CARVYKTI, obviously. But down the road, probably if things go well, some in vivo CAR-T solutions as well.

So I mean even today, physicians have the option in second line to go an interval feed treatment like CARVYKTI with exceptional data in second line or going into one of our bispecifics, TECVAYLI or TALVEY with great data. So in order to have an off-the-shelf option. So I think that's great for the patients, and it's great for doctors that have this optionality today.

Yes. And CARVYKTI is the only CAR-T that has overall survival data. So really strong data, showing about half the patients many years out, alive, well, no further treatment, right? It's a 1 and done. So some patients opt for that, right? So they're, okay, I can be several years on therapies or I can do a 1 and done, and it's been very effective. So -- and now we are trying to bring CARVYKTI into the front line to in replacing bone marrow transplant. So those data will start to flow next year, I think, if I'm not mistaken, that or maybe the year after my colleagues are guiding me. But that's after patients have had the traditional induction and maintenance and then [ rather ] going on to an autologous stem cell transplant, seeing if CARVYKTI could be the solution for them.