Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Great. So I think we're live. Thanks, everyone, for joining us. We are very, very pleased to have with us today a team from Johnson & Johnson, Joaquin Duato, Vice Chairman, Chairman of Executive Committee; and Thibaut Mongon, who's EVP of Worldwide, Chairman of Consumer. So plenty to talk about in pharma and research, plenty to talk about in consumer.

We're going to sort of jump right into some broad topics, since most of the folks, I think, joining us have some familiarity with J&J. But maybe to get it out of the way early, there's been a lot of news this week on vaccines. So maybe, Joaquin, if you could take a minute to sort of give us your overview, updated thoughts or next steps, and sort of a rough time line of where your program stands. Thoughts, if you have any, on the results and progress that others are making, I'm sure everyone would be interested in that type of update.

Thank you, [ Matt ], and hello, everyone. So glad to be here with you in the conference. Let me start by saying that if I anchor the beginning of my comments on the third quarter, Johnson & Johnson has had a year-to-date very solid performance overall on the results, showcasing the strength of our business and our business model, but also in our pipeline, and in particular, on our vaccine, COVID-19 vaccine candidate. And let me give you some comments on our COVID-19 vaccine candidate. First, it's great that we have seen that the Pfizer vaccine, the [ 5 C BNT] vaccine has this level of efficacy, and it bodes well for all the vaccines, our vaccine, but the other competitive vaccines, to the extent they are all targeting the spike protein. So that's good news. For the vaccine development. And we now know that COVID-19, it's here to stay until we have a vaccine. So it's good news for society overall. So we welcome those news, and we celebrate that. From the beginning, the effort that we were having in developing a COVID-19 vaccine was one that we wanted to do as a contribution and one that we wanted to showcase as the value that the biopharmaceutical industry brings to society. So for us, to the extent the vaccines are going to work and that they're going to work well, as it seems, it's really an achievement for the biopharmaceutical industry and something that is going to validate what we bring to society. In our case, we have worked tirelessly in the discovery and development of the vaccine. As you know, we are now in Phase III, and we are recruiting patients. We have worked to create a supply chain that is going to enable us to deliver 1 billion doses in 2021 and beyond. And at the same time, we have said the [ baked] in our effort to make a contribution to society, that we are going to be utilizing a not-for-profit pricing during the pandemic period. So that's the way that we plan to do it, and we feel confident about how things are progressing, and we will wait to see the data and the results as they come. But overall, the news from earlier this week are positive news for everybody. It bodes well for everybody. This is not, in our view, a competitive race. This is a race against the virus in being able to address a situation that is paralyzing the entire society and economy. So happy to see that things are going on the right direction.

That's a great point. And I think, as you've commented on before, and the team has commented on, if it were only J&J reaching the finish line here, you'd be I think concerned that you need a team of successful programs to really address the demand globally over the next couple of years. If you could -- I don't know if you're able to, but give any sense as to -- I know everyone is very much focused on when we're going to get results, when we're going to have a vaccine. Anything in terms of next steps on the time line? Is it just the next few months or the next couple of months or by the end of the year? Any color would be helpful, of course.

Those are event-driven trials, so it's difficult to give you a time line, as you know. I mean what we have communicated is that we expect to have results early in 2021, and that's our expectation. Then from there, we'll have to go through the regulatory process and eventually achieve an emergency use authorization. We are going to learn more from the process when we see what is going to go on with the Pfizer vaccine now. So that will give us more color on the time lines, right? But I mean, everything is progressing as expected, and we are confident that our recruitment and the process that we have in place, it's going to ensure a high-quality development process and a high-quality submission, once we have the information. And to your point, I mean, the world does need more than one vaccine. And the world, it's going to need the Pfizer vaccine, the Moderna vaccine, the AstraZeneca vaccine, the Johnson & Johnson vaccine. It's good for the world to have multiple options, and it's good for the world to be able to have different companies investing here. And every time I talk about that, I think it reinforces the value of the industry we are in. I mean it's really a great vindication of the value of the industry we are in, because we know that the speed of development and the fact that you have multiple vaccines now in play, it's due to the fact that we had invested in R&D during long periods of time. So my hope is that this is a demonstration to continue to maintain a system, an ecosystem that enables and rewards innovation.

Yes. No, it's impressive that you and others are having results so fast. I think people on the ground and in the street and my neighbors and everyone would like to have something last month. But there's -- it's obviously an immensely complex process with all kinds of considerations. If you could just maybe -- and we've talked about this at length before, but just remind folks, the protocol that you have for the U.S. trial, without going into great detail, and then sort of the second sort of booster trial that you're evaluating, and sort of the, I guess, understanding of -- because there's obviously going to be 2-dose vaccines out there. There's going to be potential for dose and then a booster, depending on the duration of immunity. And so just some context as to where you stand and how you're progressing.

We did a Phase I/IIa trial, which the results have published. And based on that Phase I/IIa trial, we decided to go with a single-dose vaccine in our large Phase III trial. So now we are in the middle of recruiting patients in our large Phase III trial, which is called ENSEMBLE, and that trial is taking place mainly in the U.S., but also in certain countries in South America. So that is our trial with which we plan to be submitting to the FDA when appropriate, right? In the meantime, we also have an agreement with -- to do another trial having 2 doses. That trial has not yet started, but the idea is to see to what extent 2 doses protect versus having a single dose. So it's more about understanding whether having 2 doses may give you longer-lasting protection. And you only will know that when you do it, right? But we are very convinced that the existing single dose, based on our Phase I/IIa trial, is the right dose to provide immunity as it is today.

Excellent. Okay, so I just have one more here for you, Joaquin, and I want to make sure we spend some time on consumer as well, Thibaut. But just at a high level, you've had some great performance, as you mentioned in your -- in the rest of your pipeline in pharma. You've got some abstracts and sessions coming up at ASH, which we recently commented on, so that progress and pipeline continues. Maybe at a high level, just -- and we can come back to this, but you have been delivering above-market growth in pharma for some time. It's a combination of things, I guess. If you could talk at a high level, what is the strategy? How -- what do you focus on? What do you think is critical to sort of maintain these above-market growth rates over time as you have in the past?

Thank you. So you're right -- I mean, I was having a meeting before, and some of the investors was highlighting the fact that we have had a decade of compound, above-market growth. And typically, when you think about the pharmaceutical business, you think about cycles, which are driven by loss of exclusivity. So our trajectory over the last decade shows that we have been able to deliver sustainable growth, despite of having had major loss of exclusivity in the meantime. So our projections, as we discussed in our previous Investor Day, is that we are going to maintain that above-market growth through 2023, which is the period that we were discussing at the time, and that we will comfortably be above $50 billion by that time. So we continue to see in the future, in the horizon, our market growth for the pharmaceutical group. What are the foundational tenets of how we achieve that growth? I would see -- I would say 3 basic foundational tenets. One is that we are focused in areas of unmet medical need where we think science, it's advancing and can yield significant therapeutic innovations. And when we do that, we are ready to partner with companies in many different ways. And that strategy of being open to external innovation in areas of unmet medical need has been very successful for us because -- and I go to the second pillar -- it has enabled us to have a very diversified portfolio. So the combination of open innovation and diversification within the pharmaceutical group has made our business more robust. At this point, we have 11 products of more than $1 billion. So our sales, our revenues are not dependent on any single product. They are broadly based, and that enables us to manage the logical ups and downs and loss of exclusivity that occur in the meantime. The third component, it's also connected with innovation, is that we, as a group, we are focusing on investing in R&D. And we are most likely the most efficient company when it comes to SG&A, and we are at the high end when it comes to R&D. So we disproportionately believe on innovation as a way to be able to have this portfolio that I described. So that is our recipe for success, being very focused on innovation, investing in innovation, being open to external innovation and being able to have a broad portfolio that, in this case, has 11 medicines on the market that have more than $1 billion. And that is the bulk of the growth that you will see from Johnson & Johnson in pharmaceuticals in the next year. It's going to come for this part of our portfolio, which I think is [ the risk]. At the same time, and I'm sure we'll have time to discuss, we do have a very exciting pipeline filing before that time period that I would like to have an opportunity to discuss later. But that is the real secret sauce for us is that focus on innovation and that diversification of our portfolio.

That's excellent. Thank you, Joaquin. So maybe changing gears for a minute to Thibaut in terms of consumer. So I know it's a bit of a disparate business, at least from an investor's perspective, markets that we might not dive deep into very often. But there's clearly business lines that are sort of in a growth mode. There's business lines that are recovering. You have a SKU rationalization program that's been driving some benefits. So maybe take a minute, if you could, just sort of tick off whatever the 2 or 3 of these items that I mentioned that you see as the biggest opportunity over the next sort of 3 to 6 to 12 months.

Yes. Sure. Thank you, [ Matt ]. When you think about the consumer health sector of Johnson & Johnson, it really echoes what you heard from Joaquin. What this year and the COVID pandemic did show is how resilient our business model is, our focus on science-based solutions, and those by professionals with a diversified portfolio of iconic brands that are loved and recognized all around the world, is a successful formula that we have boosted over the past 2 years, and it did really serve us well this year. What we see with the pandemic that consumers around the world are, more than ever, obsessed with their health. They are looking for efficacious solutions coming from trusted brands, and that's exactly what Johnson & Johnson offers. So if you think about approximately $14 billion in revenue in consumer health, you should look at it in 3 different buckets. We have a self-care business, our OTC business with iconic brands like Tylenol, Pepcid, and others. We have our skin health business, really focused on -- in beauty, really focused on dermatologist-recommended products. And then we have our specialty businesses, with baby, oral care, women's health, and wound care. So if you look at these 3 franchises, clearly, our self-care business is doing very, very well this year. Some of it is supported by demand created by the pandemic and speaking about Tylenol, where we have seen increased demand, and we continue to see it as we speak. But across the portfolio, we see a very, very strong performance across our different need states in OTC, so a very, very strong story there. If I look on the other side at skin health and beauty, this is more a tale to see it here. On one hand, we see some subcategories really doing very, very well, like body wash, body lotion, but other categories have suffered from the pandemic, like sun care or makeup removal, because the usage occasions disappeared almost overnight when you had lockdown. Getting ready for work, getting ready for school, are occasions that disappeared in many markets. What's good to see is that the underlying strength of our brands like Neutrogena, Aveeno, and others, remains very strong. And while we have seen a sharp decline at the beginning of the year, we see continued recovery in the second half of the year, and Q3 was a good illustration of that. If you look at our specialty business, same thing. Depending on where the category you're talking about, you see more or less resilience, but overall, positive growth. And here, the hero is our Oral Care business, with Listerine mouthwash, where we have a very good year. So I would say, a very resilient model linked to a portfolio of iconic brands, squarely focused on what consumers are looking for, really, these days, and we expect this to continue moving forward. And a strong focus on execution, which is driving normally the top line growth, 3.4% growth year-to-date, which we believe is slightly ahead of the markets in which we compete, but also a significant improvement in operating margins.

That's helpful. And I guess, my own perspective on this is that being a medtech analyst and covering J&J for a long time, I think we don't appreciate the -- I mean, there's obviously global brands, and we know many of those -- but the sort of value of sort of diverse and geographic brands and assets that you've acquired. I think someone asked me years ago, what would you buy in consumer? And my answer for a long time used to be, well, probably something we've never heard of, meaning that it was a brand in an overseas market that we might not be familiar with, but that was strategic and important to your global business in growing in various geographies around the world. And I guess how much of your growth strategy is that still? And what opportunities do you see for not only driving your existing brands, but extending into these local branded opportunities around the world?

Yes. You're right. It's a big part of our growth model. On one hand, we are hyper-focused on strengthening our iconic brands because they have a lot to offer. A good example is BAND-AID. We are celebrating the 100-year anniversary of BAND-AID this year, and the brand is doing very, very well, growing very fast globally. So we are very focused on making sure that we continuously nurture the strength of our iconic brands, but we complement this by the regular additions of local, smaller brands that complement our portfolio. So if you think about the DABAO brand in China that we acquired some time ago now and continues to do very well, or the OGX acquisition in the U.S., that's an area where we were not present. We have decided to disrupt the premium hair care market a couple of years ago. And since the acquisition by Johnson & Johnson, you see this brand continue to do -- to grow double digits. It's a little-known fact that now we own the fourth largest hair care brand in the U.S., and we continue to do it very well and growing profitably. So it's a balance between nurturing your portfolio of iconic brands, but making sure that you add smaller brands, but that that grow very quickly, to complement areas of our portfolio where we see an opportunity for growth.

Sure, yes, brands tied to a large-growing developing in emerging markets are great. So maybe switching gears back to you, Joaquin, it's an interesting juxtaposition to maybe defines the wonder of J&J, that we're talking about the 100-year anniversary of BAND-AIDs, and on the other hand, your pipeline and the lineup for abstracts and sessions at ASH. So I won't drag you through a series of mispronunciations of all the sessions and data that you're expecting, but you, I'm sure, have a few filings and presentations that you're most excited about, so we'll start with those.

Look, this is, as I said, one of the focus on innovation and the emphasis that we put there, it's one of the reasons of our success. And that is translated in the submissions that we do to hematology, which is one of our most important areas. I'm going to just talk about the assets in hematology, and I will comment somehow the late breakers that we have there. So in hematology, which is one of our most important areas, we have an important asset like IMBRUVICA that is the market share leader, close to 60% percent share and first-line in CLL. In multiple myeloma, we have DARZALEX. And recently, with the approval of DARZALEX FASPRO, we have DARZALEX subcu indication, which is our fastest-growing asset in our portfolio. And then we have a number of assets in late-stage clinical development that you are going to be hearing about. One is our BCMA CAR-T, which we are about to file this end of the year that has received breakthrough designation. And then we are also presenting data in 2 new medicines that are CD3 redirectors. One is a GPRC5D redirector for multiple myeloma; and the other one is a BCMA CD3 redirector, also for multiple myeloma. It shows you the breadth of our portfolio in hematology. If I go into every asset, we have multiple studies in -- late breakers in IMBRUVICA, in mantle cell lymphoma, in marginal zone lymphoma, in different settings in [ lymphocytic] leukemia, also a representation of a combination IMBRUVICA and Venetoclax, depicting the fact that IMBRUVICA continued to expand its leadership in first-line multiple myeloma covering -- excuse first-line CLL covering different populations and different combinations. Similar thing we are doing with DARZALEX FASPRO, we are continually increasing the combination with different medicines. There is a combination study with VRD now. There's a combination study with pomalidomide, with carfilzomib, that shows that every time we add DARZALEX to a combination regimen in multiple myeloma, the results improved. And in particular, we are also presenting the data on DARZALEX FASPRO in light chain amyloidosis, which would be another filing and another indication for DARZALEX to continue to expand its leadership. With our BCMA CAR-T, we're presenting our CARTITUDE study, which is going to be the basis of our filing that all of you have heard about the good results. They continue to be very good, and we are very confident on our BCMA CAR-T, which has received breakthrough designation. And then we present different studies with our new modality, the T-cell redirectors in 2 different antigens, as I described, which are going to be a different modality that we think it's going to be important in the future for the treatment of multiple myeloma, as we start to differentiate different regimens for different patients and different lines of therapy. So those are the major things that we are doing in ASH. At the same time, we are also presenting data on XARELTO, our anticoagulant, in some hematological indications and some data on our recently acquired anti-FcRN antibody in some hematological indications, so a very complete ASH for us. Every year, we say this is our best ASH. In this case, I think we have very, very solid reasons to be very pleased on what we are presenting there.