Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. It's my pleasure to host this session with Johnson & Johnson. With us, we have Mathai Mammen, who is the Global Head of R&D for the Pharmaceuticals business. In terms of format, it's going to be a fireside chat for 30 minutes. We're going to try to do a polling question here. Worked well this morning, so we're going to do another one. So Mathai, welcome, and thanks so much for joining us virtually this morning. Can you hear me okay?

I can, Larry. Thanks for having me. It's a pleasure.

Great. Mathai, I thought we'd start with big picture -- a couple of big picture questions on J&J's Pharmaceutical business, which has been so successful in the recent few years. So it's -- J&J's diversified business model has helped you to weather the current pandemic, and the Pharma business is holding up really well. If we look at the first half of 2020, Pharma sales grew about 7% on an underlying basis. How is the pandemic impacting J&J's Pharma business? And what's assumed in your full year outlook?

Yes. It's a great question. Thanks, Larry. I do want to just start out by saying -- I have to acknowledge the many people, the 130,000 people in J&J, its employees and the many, many people in the world that are on the suffering side of this global pandemic. So it's been a tremendous challenge. And it's needed us to dig deep and remember like why we're doing what we're doing to continue thriving in this era. And I understand that, that's true for many, many people. So I just want to acknowledge that before I begin. Really excited to be here representing J&J's pharmaceutical business. We know, as I've just alluded to, that sickness doesn't stop because of COVID-19, [ others ]. So people have cancer, people face mental health challenges, have autoimmune diseases. And all these people, all these patients depend on our medicines every day. So it's in recognition of that, that we have pulled out all the stops. I can speak confidently for the R&D organization, the supply chain organization, commercial organization to say that's true. There's such a commitment here that we pulled out literally all the stops to keep things going and growing. And I'm happy to report that the growth that we have comes exclusively from growth in volume, from the number of medicines that are prescribed, not by raising price. So any sales growth that we're seeing makes us happy because it means that we're increasing the number of patients that we're reaching. And that, when that happens, it has a direct feedback on us to try even harder and keep going. So we have strong second quarter results. It's the ninth quarter in a row where we've had sales exceeding $10 billion. In Q1, you'll remember that we did see a roughly 100 basis points net positive impact globally, and we think this is due to longer scripts being written. So these are 90-day versus 30- or 60-day scripts. We're really happy to see that. In Q2, as we shared in our July 16 earnings call, we did see roughly a 300, 350 basis point negative impact due to COVID on 6 products: DARZALEX, IMBRUVICA, INVEGA SUSTENNA, TREMFYA, the Pulmonary Hypertension portfolio and STELARA. And this was the result of destocking from Q1 or a delay in certain new patient starts, just particularly in certain areas where they needed to go see a physician in a health care center and they had worries about doing that given the pandemic. So as we shared, we've seen significant improvements now in office visits since the peak of the pandemic. We're not quite back to where we were pre-COVID, but the recovery is going well, even though it's not expected to be quite linear. We should see some level of remaining impact, I think, on the second half of the year, but we're doing really well. And I feel very confident that our portfolio will continue to grow above market in 2020. So in R&D, specifically, despite COVID-19, as I've said, we've tried many things that were in the hopper to try, but we -- to me, it's a positive in that COVID-19 was a catalyst. It made something go from nice-to-have, very nice-to-have to must-have. So we changed our tactics on how to collect evidence remotely, to deliver drugs that normally would need to be received with patients coming into a clinic. We've got them to the patient directly. We did iPad interviews instead of live interviews. So lots of good stuff has happened, much of which we'll retain going forward. No regulatory bodies have indicated anything but support, and we have no known delays in the 2020 time frame. In fact, we had a number of approvals in the first half of the year. And several were ahead of the PDUFA dates that we've been communicating. So these include TREMFYA for psoriatic arthritis in the U.S.; DARZALEX subcutaneous, this is FASPRO. We're super excited about that, and that's come through in the U.S. and Europe. IMBRUVICA, so frontline for CLL, combo with rituximab, both in the U.S. and Europe. Really happy about that. So following the Q2 earnings call, we also received approval in the U.S. for our second indication of SPRAVATO to treat depressive symptoms in adults with depression, major depressive disorder, that have acute suicidal ideation. This is an extremely, extremely important medical need right now that has basically nothing. So we're honored to provide that indication to the world. We also saw in -- since the earnings call, DARZALEX in combination with KYPROLIS, carfilzomib, and dexamethasone. This is DKD for the treatment of patients with relapsed and refractory multiple myeloma. So -- and finally, we expect to file our BCMA CAR-T in multiple myeloma in the U.S. We also expect to file our EGFR cMET product for non-small cell lung cancer in the U.S. and the paliperidone palmitate 6 months formulation for schizophrenia in the U.S. and Europe before the end of the year. So as you can see, we're very much on track. We've changed our tactics in order to remain on track, and we're -- I'm really happy with how the business is doing overall.

That's great to hear. Let's spend some time on the vaccine. Obviously, a lot of interest in that, for obvious reasons, I think. Mathai, maybe just -- could you remind us about the key development milestones and data releases? I think we expect to see initial Phase I human data in September, October and maybe Phase II data in late 2020. What are the time lines here?

Yes. No, thank you for that. I speak as both a developer of this vaccine and as a citizen, right? We're all awaiting this vaccine. We're super motivated. And here, too, we have a very proud vaccine team that's been working constantly for the last 6 months to make this happen. So just as a reminder, we took a very disciplined, very scientific approach to this vaccine. We've made a number of antigen constructs, variants, and we went through a series of studies, including sophisticated animal models where we winnowed down to one antigen, and we took this forward through a very good, rigorous but fast time line to get into Phase I in July 21. And as you said, it's around now, like it's imminent that we should be looking very shortly at Phase I data. The main thing we look at in those data are immunogenicity. So both the antibody side of things, looking at neutralization of naturally occurring coronavirus in an in vitro assay. So wild-type neutralizing titer, so to speak. As well, we look at aspects of the T cell response. So one important aspect is the Th1, the Th2 lean. We want it to be Th1. And second is that we have good levels of both CD4 and CD8-positive T cells. So all of this is what we're looking for today. And if we see all of that and we don't see too much influence over other subsets of the population like age and other demographics, then we would go forward into Phase III. We've said September. I'm hoping it is September, but we'll take the time that we need to get this exactly right. But I'm still remaining hopeful that we'll start a Phase III study in September. This is a registrational program that's aimed at both potential for emergency use authorization if the data are really -- very compelling, but full approval and a submission of a BLA for full approval. And we don't know -- to directly answer your question around time lines, we and other companies have far more uncertainty on the finish date of this trial in COVID-19 than probably any other trial I've ever been involved with professionally, and that's because it's an event-driven trial. And the number of events are driven by the local incidence rate in the place we're doing the trial. And this pandemic is moving around like crazy, like it pops up. It lasts like a couple of months, disappears, pops up again, sometimes in a second wave, pops up somewhere else. So we are doing our very best using data and predictive analytics to try to predict where it will come. But there are so many human elements to this as well, like behavior, policy changes that's really challenging. So we've done our very best by covering our bases, and we're hopeful that, hopefully, early next year, something like that, we should have enough events to have confidence that we have a safe and effective vaccine.

That's helpful. So it sounds like Phase I human data, we could see that in September. Is that a press release, publication? What's the venue?

Yes. So for me, as a rigorous person, I do want us to publish the bulk of our data through scientific channels. So this would be like a rapidly reviewed but nevertheless rigorously reviewed publication. Now we will say something about the top line that we're confident around the dimensions that I just named around cellular and humoral immunity and safety, of course. But we probably won't release a lot of details through press releases, but we'll wait for a publication.

So we could get top line results in a -- from a press release. It's quickly followed by a period with publication.

Yes. I think that's right.

And one other question on your program. I think you've said you're going to study 60,000 patients in the Phase III study. The competitors, Pfizer and Moderna, are doing 30,000 patients. Why did you -- why are you doing 60,000?

Yes. No, that's a fantastic question. We are a little bit behind AstraZeneca, Pfizer, Moderna. They've been collecting events now. And as you -- both of us read in the news and see in media, the event rates are pretty high right now. The incidence rates are pretty high right now. Our predictive analytics has a couple of different factors that are very important that make us need a larger number of subjects just to ensure that we have timely delivery of the right number of events to have confidence that the vaccine works. One is that the seroprevalence is going up. So a larger number of subjects in the world have had COVID-19. And that's more true in late Q4 than it is true in Q3. The other is that people are finding ways, right, through policy and behavior, of controlling this infection more, protecting their vulnerable populations like the elderly. The use of masks right now is no longer seen as like not useful but useful. So a lot of behaviors have improved. So we just think the incidence rates, at least for moderate to severe consequences of the infection, which is what we're measuring, will drop a little bit in Q4 relative to Q3. So in order to finish in the same amount of time, given it's an event-based study, we need more subjects. We never said that we'll do all 60,000, but up to 60,000. It gives us the latitude to go to the number we need in order to have a timely completion.

That's helpful. And of course, I wanted to ask you about the AstraZeneca trial pause that was announced last night. Any comments on that, confidence in your safety profile?

Yes. So AstraZeneca, great company, Mene Pangalos, a fantastic leader, did exactly what we would do. If you see something in a trial, in any phase of trial, with an abundance of caution, you always look, make sure that there's nothing untoward going on, put new instructions, new precautions in the trial potentially, if warranted, and you continue. This in fact -- I don't think -- normally, trials are not paid this close attention to. Pauses like this or self-folds, which is what I understand this is, happens all the time with good companies, with cautious companies that are always looking and learning from their trials. We don't see anything like this in our own product right now. We're happy that our platform, Ad26, has been in over 90,000 people in the world. And so far, it's a really good profile, really good safety profile. And so -- but we will, like everyone else right now, move forward with great care and caution and look carefully at all the subjects that will begin to enroll in our own Phase III study. In our Phase I study, we haven't seen anything untoward like this.

That's helpful. And Paul Stoffels at J&J had said that the company is aiming for 70% efficacy with its vaccine. Where did that number come from? And what's your confidence in being able to produce, let's say, an effective vaccine today?

So I would characterize the 70% as more an assumption than an aspiration. We're not aiming for 70%. We're assuming a 70% efficacy when thinking of how to power our study. So if we assumed 50%, we would have to enroll a much larger number of subjects. If we enrolled -- if we assumed 100%, we would enroll a fewer number of subjects. So we aimed for this because that's a reasonable assumption based on everyone's data. So everyone's assumed something in and around that at the moment in order to power their study. Everyone, including us, we're hoping for as good as we could possibly do. And there are clear -- very clear guidelines from FDA for what the efficacy and the variance and that efficacy estimate needs to be for an approval.

And your confidence level today?

So based on all the nonhuman primate data, which is what we're looking at right now, the optimization we've done, the great science we've applied, it's really good. Now I will sleep better once we look at the full load of Phase I/IIa data that I alluded to a few minutes ago. That's coming in now.

Okay. Let's go to the first -- or the second polling question here, Josh, which is on the COVID vaccine. Curious to get the audience's take on that. Josh? All right. So when do you expect a safe and effective -- and effective, we mean greater than 50% efficacy because that's the bar that the FDA has set on COVID vaccine to be widely available in the U.S. And so you have some of the dates here. Curious to get the audience's response. We'll give people about 30 seconds -- 20 seconds, we'll see. Josh, let us know when things stop coming in.