Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

All right. Hi, everybody. I'm Lee Hambright, U.S. medical devices analyst at Bernstein. We're thrilled to host Alex Gorsky today from Johnson & Johnson. These are certainly unusual times. I'd like to thank everybody for joining over video conference. Just a couple of housekeeping items. First, in lieu of question cards in the room, you'll see a pigeon hole link available on the left side of your screen. [Operator Instructions] I'll keep an eye on those questions to make sure we're focusing the conversation on what interests you. Second, at the end of the session, you'll have access to a very short investor poll through Procensus. All right. Alex, thanks so much for joining. Before we jump into Q&A, would you please kick us off with some opening remarks.

Sure, Lee. Well, first of all, thank you very much for having us on today, and I appreciate everybody being able to join through Zoom. Who would have thought, even 12 weeks ago, that we would be in a situation where the world is facing likely one of its most significant pandemic challenges ever and that we would be having this kind of an engagement vis-à-vis Zoom and seeing the economy here in the U.S. but let alone around the world in the situation where it is. So look, against that backdrop, I'm always excited and somewhat humbled to be able to talk about Johnson & Johnson. Before I jump into the comments about the company, I do think it's important to acknowledge all of those who have been directly impacted. I know for me personally, I lost a very close colleague at Johnson & Johnson several weeks ago. That was completely unexpected. And so while we'll be talking about a lot of numbers and facts and figures and statistics, I'm sure through this talk, it's very personal for us, but for family members. And I think it's always important for us to remember that. And I think secondly, I think it -- and we'll talk -- we can talk about this more as we go through it, it just does demonstrate the importance of innovative, vital and working health care systems around the world more than ever. Because I think what this is showing us is that without health care, without strong public health care systems, that, frankly, it puts not only our economy at risk, but it puts our societies at risk, it puts national security at risk in a very fundamental way. And I believe that in this challenging time that our industry, the broader health care industry, certainly pharmaceuticals, devices and consumer, but also even more broadly, the providers, the front line workers who have really been the heroes working out there, that not only is it an important opportunity, but in many ways, it's a responsibility for us to be able to step in and make a major difference that can literally have an impact on billions of people around the world. What I would tell you about Johnson & Johnson is that, in many ways, our company is at its best. It's really built for times like this. I think if you look at our diverse model, if you look at the long-term manner that we think about capital allocation, the way that we invest in research and development, if you think about the way, frankly, that we hire and inspire our employees with our credo, but then also we reward them for -- over the long term, it's times like this that we believe we can really step up and make a difference. And I believe that you saw that in our first quarter results, where our Pharmaceutical business and our Consumer businesses came in, literally, right at double-digit growth. Our Medical Device business obviously impacted in a significant way by the shutdowns of elective surgeries around the world. Nonetheless, I think, fundamentally, we showed the resiliency of our businesses and our people with the results that were produced. And I also want to commend our finance team because I think the job that they did in trying to be very transparent and articulate the facts and the specifics behind our assumptions and being able to chart out our targets for the year was also, I think, important for our credibility, but also more broadly even for the market to be able to do so at that particular point in time. And look, we're tracking it very closely. And what I would say is where we sit today, we're very consistent, if not probably slightly better than some of our early statements, but these are early days. And I think one thing that we've learned for certain is that almost everybody has been wrong with projections about the virus and whether it's the actual health care or the economic implications. And we would always much prefer to under-promise and over-deliver than the other. And then last but not least, what I would say is we are working 24/7, 365 on our vaccine program at the same time. I'll get into that in more detail, but at a high level, what I would say is the commitments and the statements that we made back in March, we stand by them today. We've made a significant amount of progress, both in terms of the data that we're collecting, about our candidate, our approach, our vaccine approach and also about the scalability of that. And I look forward to talking to you about all those issues. But look, none of that would be possible without the commitment, the loyalty and the credo-based actions of our 140,000 employees every day. And about 40,000 of those are going into our factories every day or going into our laboratories to continue, many times, God's work. And we couldn't be here having this conversation without them. So thank you.

Great. Thank you, Alex, for that. Maybe I'll pick up right where you left off, which is these are really unusual times. People are working really hard. In many cases, you mentioned dealing with loss, trying to homeschool kids and take care of their families at the same time. Just can you give us a little bit of a sense for how morale looks at J&J right now?

Yes. Well, you're right. These are very challenging times. I mean I'll start with myself. My wife has not spent 12 straight weeks with me since we were first married, where I wasn't traveling. And we have a niece nearby, who is an executive in New York City, who's now working remote with her 2 children, age 2 and 4, trying to figure out how they do Zoom classes remotely, and yet her husband is dislocated, really representative of many of our employees who are trying professionally to stay engaged, but personally to do their very best as well. And I couldn't be more proud of our employees. In fact, just about a week after we decided to work remotely on a global basis, Peter Fasolo, our Head of HR, commenced a weekly survey where we were interviewing about 3,000 of our employees on a weekly basis. And again, this were first-line factory workers on the floor, all the way to senior executives, asking them a wide array of questions about how they were doing, how they were feeling about their work, how they were feeling about their home work situation, their anxiety levels, the benefits, the support that was being provided, the technology that we're trying to provide them. And interestingly enough, over the course of the past 12 weeks, we have seen a steady increase in the levels of commitment and engagement across our organization. And look, it started by the fact that we allowed them the latitude to work from home in many cases, that we provided them the kind of IT support and other things and allowances for them to be able to do their job, that we guaranteed some of our sales representatives. For example, our medical device group, a fair amount of their over salary compensation, recognizing that we are going to depend on them to be working closely with surgeons and hospitals and suppliers as elective surgeries kick back in. And in fact, just last Friday, on a company-wide basis, one of the things that we did is that I decided to give the entire company the day off. You might say, "But aren't you working on the vaccine?" Clearly, we had some people that were working. I don't want to -- but we also said that I know everybody has been working at breakneck speed, trying to do their best, and we had the -- Memorial Day is a time to honor all those who have served so that we can do our jobs. And frankly, it was our way of saying thank you to our employees because we couldn't be doing without -- what we're doing without them doing their jobs. And I got to tell you, it was a huge hit. And our engagement, I think, is higher than it's ever been. And it just speaks tons about our employees.

That's great. That's great. Let's jump in on the vaccine. You've been aggressive about moving fast on the vaccine. You hope to be ready for EUA approval by early 2021, and you're spending money to ramp up and manufacture at risk right now, so you can distribute 1 billion doses next year. But if you look at history, all of the vaccines that enter human trials, fewer than a quarter succeed. And the adenovirus platform remains relatively new compared to traditional vaccine technologies. Many vaccine experts would say it's still fairly untested. What makes you confident that the vaccine will work?

Well, Lee, you're right, this is a moon shot. This is something that ordinarily takes 5 to 7 years. And we're literally trying to do this in 5 to 7 months. And what I can tell you is that we are fully committed to doing everything we can to make the commitments that we talked about back in March possible. And look, this -- first of all, this goes back several years. And when I say that is, for about the last 8 or 9 years, we've been working very hard in the areas, for example, of an Ebola vaccine, an HIV vaccine. Our scientists were working on both SARS and MERS. And so we have learned a lot of data and information along the way. And I want to caveat everything, just as I did at the beginning, is that I think we need to be very thoughtful as an industry to not overpromise in this case because there's a lot of inherent risk. There's risk in the fundamental science. There's risk in the manufacturing. And as we all know, everything in Phase 1 is promising. It's not until we get data over large bodies that we get the certainty and the confidence in the efficacy and the safety and the scalability, certainly the 3 most important requirements around the vaccine, before we can make firm commitments. But fortunately, as we were watching things evolve in China, when we got the genomic sequencing in early January, very quickly, our scientists began working with our AdVac technology. And what's really important is the carrier that we're talking about here is something that has been proven to be quite safe. And this was the same carrier that we utilized with our Ebola vaccine. And again, this has been used in approximately 60,000 patients, older patients, younger patients in a condition there that is less than optimal in all cases. And we've had actually, again, very good results in terms of safety and our ability to deliver the vaccine. I think the second component is we've seen very low cases of VRD. And we know some of it, again, our experiences in SARS and MERS and the similarity of this, recognizing some of the differences that, that reinforces our belief in the safety. We've done a number of rounds of preclinical tests thus far. And in many of these cases, the predictability of your preclinical models, particularly your nonhuman primate models, tend to be a good indicator for how you're going to do in humans. And what we're encouraged by is the production rate of neutralizing antibodies, which are very important in this. And so look, the next step is moving into humans but also thinking about the scalability of our manufacturing process and our capacity. We mentioned that we can make several hundred million doses in our current facility in the Netherlands. We have done partnerships here in the U.S. We're working on partnerships in Asia and other areas. So we will be in a position to do 1 billion doses over the course of 2021. And then we could literally be in a position in early 2021 to have several hundred million doses available. And in that interim -- and what we have to make sure is that the tech transfer, the quality processes required to be able to move at that scale are identical throughout our entire development and testing process as well. And so those are some of the gating items for us. We mentioned that we should be in the clinic by September. And we're seeing what can we do? How can we work with regulators to move that up, if possible, without compromising safety and efficacy? And just as we said back in late March, today, we would say that we hope to be in a position that in very early '21, that we could potentially be in a position working with regulators to have emergency approval, depending on our data and depending on where the pandemic is at that time. But I think those are some of the factors that give us confidence. And what I would -- the last thing I'd say here, Lee, is every additional piece of data that Paul Stoffels and his team have collected through the process, they've only reinforced our confidence in our original statements, but we have a lot more testing, a lot more work that needs to be done.

That's great. How does your AdVac platform compare to the mRNA approaches? What are the pros and cons? And which do you think can get to market faster?

Well, you know what, we -- first of all, we don't look at this as a race just against everybody else. I hope that we have 7 vaccines over the course of 2021 because things will happen, and we still don't know exactly how this virus is going to respond. So I think it's great that industry is rallying in this way. And look, it's also critical for all of us in the industry to make sure that we can get access on a global basis. This isn't -- well, clearly, we have a sense of urgency about the United States and the G20. This is about the world. And so we need to make sure that we show up in a big way, that we can scale in a big way with multiple different approaches. What I would say gives us confidence -- and again, I think it's fantastic that we've got multiple approaches being taken by different companies. Each are going to have their pros and cons. I think in our case, we're encouraged by the fact that this is a platform that has worked. This is a platform that's been delivered. This is a platform that we know we can scale in a significant way. And this is a platform that, again, if we look at safety in terms of VRD, if we take a look at the temperature that's required for actual distribution because as we all know, that last mile in the vaccine distribution trail can be very challenging if it's required to be kept at minus 50 degrees centigrade. We know -- and again, we still have to understand the exact dosing, but some early indicators are that it would be -- the dosing would be right, and that could contribute not only to a single dose but also potentially to a greater yield in our manufacturing process. So all those things, thus far, have moved in the right direction for us. And again, versus a lot of these other platforms that, frankly, they may be first-in-class, first time done at any significant scale or have other significant issues around temperature control or potential multiple combinations of doses that could be required.

Great. Could you say just a couple of words on your ambitions in vaccines beyond COVID because it would be a bigger business for J&J down the road?

As I mentioned earlier, I think as we think about the health care industry and the health care sector going forward, I do believe one of the more secular shifts will be an increased emphasis on public health overall relative to health care. And I think that's going to be necessary. I think governments are going to have to think about how do you resource that with money, with workers, what are the kind of systems you put in use so that you can handle these massive boluses that you could face in situations like this? Because, look, one thing I know for certain is there will be something else in the future, whether it's 100 years from now or 50 years from now, and we need to make sure that we are better prepared for that. And so I think a part of that will be having a viable and a vibrant vaccine platform and industry in this country and in the world. And again, we've been very encouraged by some of the progress that we've been able to make, again, in something like Ebola with what we're seeing now. We've been very open about our work with HIV, with RSV. And so yes, we do see this as an exciting opportunity going forward. And look, wouldn't all of us want to live in a world where we can actually prevent disease from happening in the first place? And some of the insights that we're gathering, whether it's in areas like oncology and certainly in immunology, there could be approaches in the future where vaccines could be a part of a broader therapeutic approach in these areas as well. And so we're happy and, in fact, proud to be a participant in that.

Great. So let's shift to medical devices, which has seen more negative impact from COVID than some of your other segments. On your recent earnings call, as you mentioned, the finance team did a great job of providing some real transparency in their thought process. You talked about deferrable procedures in major markets declining by 65% to 85% in Q2 and by 20% to 60% in Q3. Have you seen anything in recent weeks that would shift your thinking either to the higher or lower end of those ranges?

Yes. So look, what I would say overall is when hospitals around the world shut down in just a uniform way, the way that they did back in March, we knew that, that was going to have, obviously, a very significant effect. And we also knew, however, that the surgeries and the procedures that had been delayed were also going to have a health care effect because those patients were going to continue to suffer. Disease was going to continue to progress. And then thirdly, we also knew that delays in those kind of procedures have economic consequences in terms of workers health -- productivity, but also certainly on health care systems, particularly in the United States, where the majority of hospital systems were in this Faustian position where their income had been reduced by 85%. And outside of New York City and North Jersey and maybe a few other select areas, they had prepared for the worse, as they rightfully should, expecting and making sure they were prepared, so their costs went up by a factor of 2 or 3, and that math just doesn't work long term. And that's been described, I think, by many of the hospital systems and many of you as analysts and the challenge they face. So what we've seen is clearly a desire on the part of health care systems around the world to get back up and running. And they want to do so in a thoughtful way that: one, protects patient safety; and that two, protects health care worker safety as well. And so I think what we're seeing is, again, around the world, a focus and a premium placed on protocols to ensure that it is done for both those populations. In China, we have seen a very nice return, over 50% in almost all areas. Interestingly enough, more so in the rural areas than in some of the larger cities like Beijing and Shanghai. But -- and again, because of -- our sutures are probably used in 80% to 85% of procedures in some way. But whether you look at electrophysiology, whether you look at our endocutters, our energy business, our hemostat business or certainly our orthopedics business, gives me -- us a pretty good eye into what's happening. What I can say is Asia, it's over 50%. And Japan is coming on better than we had anticipated and stronger. We -- in Europe, we're starting to see, particularly some of the more developed countries like Germany, come on, Italy, France, the U.K., also now coming back. And in the U.S., too, it varies by region, but we're encouraged by the early signs that we're seeing. I think it's slower in the northeast. It's stronger in the southeast and in the west. And again, we are also working with other companies, but also other health care organizations to ensure that even the way that we reengage is done in a safe way, for example, with our representatives and our supply teams, working hand-in-hand and make sure that they can handle this bolus. Most hospitals are going to implement either additional shifts or do procedures perhaps on the weekend, assuming that they're not overtaxing their health care workers because they understand the financial and the human health implications of some of these delayed procedures. It's -- as people start driving again, we're starting to see trauma back up to probably about 75% or 80% of where it was because unfortunately, when people drive more, you have more accidents. And so look, I think that sitting here today now, what are we, about 6 weeks post our earnings? If anything, I would say, we think that the projections that we made were very solid. And look, we're cautiously optimistic that as we move through this, we -- again, we'll work with hospitals to do everything we can to accelerate that on the other side and ultimately for patients. But what we have to watch out for, frankly, are what could be these pop-up areas of concern where people let down their guard, if we see the virus come back in a second wave, which, again, overall, I don't think a second wave will be what the first wave was, I'm happy to talk about that more, but that, that doesn't result in other closures or frankly, a psychology of concern that would inhibit patients' willingness to go in.

Great. You touched a little bit on some of the supply constraints and demand constraints in a sense for ramping up elective procedures on the supply side. A fixed number of operating rooms, physician capacity, nurse capacity, et cetera, though efforts to scale up on that end, adding more days working over the weekends, et cetera. On the demand side, patient psychology is a limiting factor. People are anxious. They're anxious about waiting for deferred procedures. They're also anxious about going back into the hospital. How do you think the demand side will look over the next few months as people reengage?

Look, I think that's an important point. And what I would say is look, on the supply side, I think we are seeing it come back. And the watchouts on that, before I get into demand, are hospitals who have furloughed or laid off employees because of their economic situation, to make sure that they can get that back up and running. Two, is the requirement around maintaining idle ICU, CCU beds. And look, I think, again, hospitals are making extraordinary issues to address that, as we speak. On the demand side, we just recently ourselves, and I think there were some other organizations that have conducted some surveys, and it demonstrates that probably about 25% of patients are what I would call concerned, concerned to the point where they say, "I'm not going to go back into the hospital or I'm certainly going to be very cautious and thoughtful before I do." And I think the best thing that we can do is demonstrate that hospitals can perform elective surgeries in a safe and effective way. And that the longer that -- again, through institutional protocols. And let me explain maybe for a moment why -- and I'm not an epidemiologist, and there's more talking heads on television right now about this, but even in some of my conversations with Dr. Fauci and others, I believe that later waves are not likely to be as severe as the early wave. I think there will be later waves that break out. So let's be clear on that. I think this is going to be more endemic than just pandemic as we move forward. But the reason I believe in that is, one, more people are going to have antibodies. And it's going to depend. If you live in Utah, it's probably under 1%. If you live in New York City, I've seen numbers between 20% and 50%. And so math would tell you that there will be more people who are protected. It's interesting because in some cases, New York might actually do better later than some of the other places. But let me circle back to that. Number two, I think hospitals have learned a really important lesson about PPE, about ventilators and frankly, about protocols and processes that they're putting in place to treat these patients. Remember, they went from 0 to 150 miles an hour, unfortunately, in the month of March. And I think, now, they have much more experience in dealing with these patients and putting good protocols into place. I think the third factor for me is that we will likely have some medicines and therapeutics that are going to make a difference. I think some of the more promising approaches right now certainly starts with the antivirals, remdesivir data. I think some of the antibody data could be encouraging. And I understand the limit -- inherent limitation on that because of scale, but nonetheless, I think some of those could be very promising. Working with some of the immune modulating agents to help cytokine response syndrome and the body from overresponding or under-responding could be very helpful. And last but not least, I also think the testing protocols are in a much better place. If we can do 0.5 million tests a day, about 3.5 million over the course of the week versus what were we doing, 50,000 at the beginning? All those things would suggest that we should do a better job of managing it. Now I think the watchout is, what I alluded to earlier, is that if people don't follow social distancing, good hygiene and aren't careful, that we could see, let's call them, pop-up fires in rural areas that may not be as prepared, for example, as the more metropolitan or urban areas that could lead to a psychology. But I think all these things should lead to greater confidence in the health care system on the part of patients going forward. And look, where we want to be 8 weeks from now is for the majority of the hospitals in this country to be saying, we have now been doing elective surgery successfully for 2 months. Our rates of -- our success rate is this. Our infection rate is this. And if they can do that credibly, I think that's certainly going to, again, give greater confidence and reinforcement to that patient who might be thinking, "Do I want to go in there at this point in time?"

Great. Great. That's very helpful. Let's talk a little bit about digital surgery. This is an area, obviously, you've been investing a lot. I wonder if you could provide an update regarding the time line here. How do you think the pandemic will affect competitive dynamics as you enter robotic surgery? And could it get more difficult to break in as hospitals work to recover from COVID?

Yes, Lee, let me start at a high level, and then I'll try to dive right in. I think at high level, after this kind of secular theme of the importance of public health, I think the next major theme that I would see is a more rapid uptake of technology. And we're seeing it in every area, whether it's how we engage with physicians regarding our pharmaceutical products, whether it's how they're doing telemedicine, whether it's how they're trying to manage their supply chain now in a world where there's likely to be greater variability, I think all those factors point towards the importance of technology, of digital, of employing all these great new tools that we have today around AI, ML and other critical capabilities in new and exciting ways for health care. And I think digital surgery is certainly one of those. We know, for example, that less than 5% of surgeries on a global basis are done with a robot or digitally. Now certainly in the United States, you could have a hospital that might do 70% of prostatectomies or certain procedures utilizing a robot or surgery. But on a global basis, I think we are in the very early days of that uptake. And we couldn't be more excited about the technologies that we have and the progress that we've made, particularly with our acquisition of Auris. I think it brought us a couple of things: one, some great technology with both Monarch, which is already being used. And I think we had about 2,500 procedures done, and we think that's a not only a great way of seeing robotic and digital surgery in action, but we also think it's a great augmentation to some of our thinking around oncology and treating it in new and exciting ways in the future, where it may go and involve a biopsy or it may go and involve a local delivery of an onco-therapeutic or an immunomodulating approach going forward, which could be really exciting. The eye platform, they have, of course -- we're looking at it now, how do we bring together what we did with Verb and Verily and bringing the best-in-class of those -- of that technology and those teams together, so we're literally in that process. And we're very encouraged by what we're seeing in terms of our ability to get into procedures and to have not only a platform that works, but it's also distinct and very competitive as well, recognizing that, look, I think Intuitive has done a great job. But the technology world, and even the health care world, is filled with examples where first movers can certainly go out and do very, very well. But given the penetration rate, given the potential to continue to advance technology, particularly when we're thinking not just robotics but digital, particularly when we're thinking how do we reduce the footprint in the operating room, how do we help physicians do better pre, intra, post-op planning, how do we coordinate that with other systems in the hospital, and how do we do that in a unique way, where it's not only technology that enables you to get into tighter spaces, but it allows you to do that on a more cost-effective basis. So if anything, I think we're more excited today than we were before. We're being thoughtful about it. This is something that's going to affect our Medical Device group and Johnson & Johnson for the next decade plus. And I would much rather say, look, if it's going to take us another couple of months or whatever time to get this right, and by the way, the FDA is still evolving some of their requirements regarding data that they're going to need, it's important for us to get this right. We'll be timely. We have an incredibly high sense of urgency, but it's about getting it right, making sure we're differentiated to the point where we can really make a difference for patients and for surgeons and hospital systems.

Very clear. So you've shown some progress recently in your efforts to get the med device business back up to market growth rates. It's no easy task to ratchet your med tech growth rate back up in a largely organic fashion with some smaller deals to reposition the portfolio. Can you get there without a larger transformational deal?

Yes. Look, I've been pleased to see some of the projects. We still have room to go, let me be clear, because we're competitive. But if you go back to 2017, I think our growth rate was down around 1.6. I think, in '18, we went up to around 2.6. We got up to almost 4% over the past. So we've seen good steps of improvement while we pruned our portfolio, some slower performing areas, and we'd also be the first to admit that there were areas where we weren't as competitive as we needed to be, and we needed to get the right technology, the right teams in place to address that. And I think that Ashley and others have done a very nice job in making progress. And so as I look -- as we finished last year and started this year, some of our core areas like our EP business just continue to do a remarkable job of double-digit growth now, I think, for over 10 years and introducing an ongoing series of new indications, new technology like our CARTO devices and others. I think we've seen very good progress, continued progress in our contact lens vision business as well with new product introductions, particularly in astigs and presbyopia and in our entire lens line. I think biosurgery, other than the slight interruption we had with supply last year, has continued to perform well. And I think there are green shoots in our orthopedics business, particularly as it relates to our knee platform with ATTUNE. I think physicians' confidence in that platform has been increasing significantly now over the last 1.5 years to 2 years. And I think the new product introductions there as well, cementless revision have been particularly important. And that group is really excited about the VELYS robotic digital platform that we intend to roll out in 2021. And our R&D team continues to make very good progress as far as the development of that as well. So look, there are areas that we know we have to do better in. Our Vision Care surgery business over the last few quarters has not been where we wanted. But we've got a new lens that we'll be introducing soon. I think our energy business is also on the cusp of leading to even better performance, particularly in the U.S. So overall, I'm confident that we've got the right formula. We've got the right team in place to continue our trajectory of improving growth so that we'll be growing at and above the market growth rate going forward. Look, we also want to look at this even as hospitals come back online. Are there opportunities, because of the way that we've been able to continue to engage for not only assisting them ramp back up, but also are there opportunities for share gains as well.

Great. Great. Shifting over to pharma, in-person interactions between pharma sales reps and physicians are way down during the pandemic. Physician surveys suggest many of those reps are never going to be allowed back into doctor's offices. What kind of long-term impact do you expect the pandemic to have on pharma's traditional sales model?

Look, I think it will have an impact. I think it will accelerate, as I mentioned earlier, some of the transitions to technology that, frankly, can't be more effective and more efficient. They still involve a representative, but it's just a different model and mode of interaction. I also believe, however, that supporting the physician office and the staff by a physical presence of a representative will continue to be important over the long term. Having been in this industry for probably 3 decades, the number of times that I read headlines about this will no longer be important. And look, I think that again, things will evolve, but it will be more evolutionary rather than revolutionary. And I couldn't be more proud of the way that our team has responded here, switching our activities to online education programs with physicians, their willingness to engage, particularly, in many cases, in the evening hours and wanting to be informed about the products. But also, how do we ensure we can continue to sample appropriately in this kind of environment so that's seamless for the patient? How do we make sure that patients and physicians are getting the kind of reimbursement support that they need? How are they are ensuring that they're getting medical science liaison, more technical information that they would require, particularly around the new product launch? So I think those are all opportunities, when used in the right way is actually going to improve some of our customers and some of our physicians and staff satisfaction with the way that we service them and patients.

That's great. Maybe we could touch on litigation really briefly on opioids and talc. On opioids, from one standpoint, I could see how those affected by the opioid crisis might be more motivated than ever to close this out, given the economic effects of the pandemic. And then on talc, just curious to hear your thoughts on the recent Daubert decision, sort of better or worse than your internal base case.

Sure. Look, we're continuing to work with the team in Ohio. We were very public about our position as well as the potential to bring an agreement to bear. And we remain hopeful that we can navigate that in the coming weeks and months. So that remains our objective, certainly in Ohio with the case that they have there. Regarding the Daubert hearing, look, there's still a lot of moving parts. We think that the fact that the judge is going to allow us to maintain a very large number of our experts and some of the limitations that she put on, the plaintiffs will certainly be helpful. But it really gets back to some of our fundamental strategy regarding talc, and we would expect to continue the course that we put into place.

Great. Maybe a bigger picture question. Your per capita spend on U.S. health care is materially above international peers and appears to be unsustainable. What changes do you expect to the U.S. health care system over the next 5 years? And how might those impact J&J?

Look, I think there are going to be some competing forces, Lee. I think on one hand, we have this increasing demand on so many levels. I don't care whether it's because of an aging population and demographics, the occurrence of a pandemic, as we just experienced, or frankly, the introduction of new technologies that people are saying, "Why do I want to suffer from not getting my hip or my knee replaced? Or why should I suffer from this kind of psoriatic arthritis condition?" in recognition that, in many cases now, we can add meaningful years of life to people suffering from cancer in ways that we couldn't have imagined before will, I think, clearly be an incentive to say that as a world, as a society, we should be investing in health care because of the significant impact as it does. And at the same time, I think the economic realities are that as we see the potential for significant deficits around the world that it could bring pressure on health care systems and costs because that's certainly one area that government authorities can go to, sometimes in more dramatic ways. So I think there will be a tension between those offsetting events. And again, I think that we'll see change. And look, there -- we need to make better change to go into more of an outcomes-based approach rather than a per pill, per procedure-only approach. We need to do a better job of keeping people healthy in the first place, staying away from some of these conditions. And we as an industry need to act responsibly about the way that we price our therapies and ensure access. And look, I think in our case, we have certainly seen that. I mean for the past several years, we've seen a net decrease in net price, even last year. But if you look over the last several years, it's been in the mid-single digits. We have been very responsible about any of the increases that we've taken along the way. And we try to employ a very transparent approach, and that's certainly something that we're going to want to do. One -- another area that does concern us from time to time is out of patient -- or out-of-pocket costs. And what we -- some of the shifting that we've seen from insurers and other payers putting more of a responsibility on the patient. And I think that's an area that we also spend a lot of time talking to legislators about to ensure that those costs just aren't being transferred in other areas around the system as well. So again, that's the way I would think about it.

Great. Question on China. The U.S.-China relationship seems increasingly uncertain. There's a growing focus on nationalized supply chains. How do you think about J&J's outlook in China? And are you considering any adjustments to your supply chain?

Yes. Look, overall, China is critical to the global economy. I mean just given the sheer number of people that they have, 1.4 billion, and in fact, now they'll be the second largest economy. And frankly, if you look at some of the technology that's now being discovered and developed and actually implemented in China, they are and they will continue to be a world power. And I think it's going to be important for us to have a good relationship and a good understanding with them. I think at the same time, with that kind of position of world power comes certain responsibilities. And I think making sure that whether it -- as it relates to trade, whether it relates to the pandemic or other areas, that the more transparency, the more engagement that we have, the better. I think both sides have demonstrated that there's a fair amount of posturing taking place, and that ultimately, it's in both countries' best interest to find pragmatic, thoughtful solutions on these big issues that are going to be important for both the economies of both countries, but frankly, also for the national security of not only both those countries in the world. And I think that will ultimately prevail. I think that there will be ups and downs along the way as we're in a very political season right now or certainly entering that. China has its own politics to deal with in Hong Kong and other areas. But it's certainly my hope that we both take a long-term thoughtful approach and recog -- and look, will there be shifts in the global supply chain? There will be some. I think that's -- and I think that will be a good thing. But are we still going to have integrated global supply chains? I think absolutely. To not have that in place would be a disaster for almost every major company. And -- but it's about achieving that with the right kind of balance.

Great. There's a question we're asking to every one of your CEO peers this week. As you think through and beyond the pandemic, how do you expect your priorities to shift, especially as it relates to cutting costs or increasing levels of investment?

A few ways. One is I believe this will actually be a great opportunity for Johnson & Johnson because I do think one of the other secular shifts that we may see in the market is a greater appreciation for dependability, resiliency, consistency and persistence versus just what is the next cool thing or shiny toy that may grow at this rate for 1 or 2 years versus what we've been doing for over 130 years. And I think if you look at the way that we run our business that's strategically operating across health care with a very broad base that gives us a very unique insight into what's happening at health care at a global level, if you think about our capital allocation strategy in terms of dividends, look at the increase that we just did in our dividend in the midst of this, think about -- and that's after investing over $12 billion in R&D, which puts us among the 5 top companies in the U.S., the top 10 in the world in terms of our R&D investment and in a manner where we have a AAA credit rating and have continued to perform, and so -- and one that's, frankly, based on a value system of our credo that while -- look, I think most, certainly large companies, but most companies these days have some type of corporate social responsibility statement. This isn't new to Johnson & Johnson. It's been in place for over 75 years. And so as an investor or as an economy, and we think, okay, who, 75 years from now, will continue to be in a position where you're relevant, where you're making a difference where you're serving customers, taking care of your employees, responsibly engaging with your communities and delivering a long-term, sustainable but also consistent return to the shareholders? I think Johnson & Johnson is that kind of company. And certainly, we're going to have to adapt certain areas of our business. As I said, how will public health change some of our emphasis in various areas, how are we going to adapt the way we engage with physicians and hospital systems, how will it accelerate potentially what we're doing in digital and some of the changes that we're currently making in our consumer model, the way our employees come to work or participate and work differently. Those will evolve, and we've got to make sure that we're current and progressive in those areas, but always are taking a long-term approach.

Excellent. Unfortunately, we're out of time. Thanks so much, Alex, for joining us today over video. And I'd just remind investors to click on the Procensus link on the left side of your screen for a very short poll on J&J. It just takes a couple of minutes and should provide some valuable insights. But thanks, Alex, very much for joining. Really appreciate the time.

Well, thank you. And again, I just want to thank all of you for your continued trust and support of Johnson & Johnson. Just know that we are working around the clock to do everything we can to bring an end to this pandemic in the right and responsible way, and we won't stop until we got it done. So thank you very much, everybody.

Excellent. Thank you.

Bye-bye.