Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Good morning. I'm Louise Chen, the large-cap and biopharma analyst here at Cantor. Thank you for joining us today for our virtual fireside chat with Johnson & Johnson. Johnson & Johnson is a leading global health care company with a diversified business model that includes Pharmaceuticals, Medical Devices and Consumer. The company's Pharmaceutical business has been a top performer in the industry. 2021 could be in Johnson & Johnson's 10th consecutive year of above-market growth. Therefore, we are thrilled to have with us today, Mathai Mammen, Global Head of R&D for the Janssen Pharmaceutical Companies of Johnson & Johnson; and Scott White, company group Chairman of North America Pharmaceuticals, to discuss the potential of Johnson & Johnson's commercial products and pipeline of its first-in-class and best-in-class drugs. So before we start the Q&A, Mathai and Scott, would you like to make any opening remarks?

Sure. First, good morning, Louise, and thanks a lot for inviting us. As you mentioned, with me today is Dr. Mathai Mammen who's our Global Head of Janssen's Research and Development Organization. And we're both really thrilled to be here today. Despite the many challenges that COVID-19 has presented to the health care industry, in the pharmaceutical industry, specifically, Janssen and J&J has continued to perform exceptionally well, both in 2020 as well as in 2021. Within 3 weeks of the national lockdown, we were able to convert all of our customer-facing activities and patient-support activities to our virtual format in order to support our customers and our patients in this new virtual environment. Today, we continue to learn and adapt as a business. We apply these learnings to our commercial business and to, in fact, every aspect of our operations. And we remain confident that whatever challenges COVID would present to us in the future, we're going to continue to drive growth, continue with our pipeline efforts and ensure we continue to serve the interest of the patients and physicians. So thanks again for having us. We're looking forward to today's conversation.

This has clearly been a very strong year for Johnson & Johnson's Pharmaceutical business. You received approvals for RYBREVANT, PONVORY, and you're looking a potential approval of your BCMA, CAR-T Cilta-cel. You have market leading drugs, which include IMBRUVICA, DARZALEX, ERLEADA, TREMFYA and STELARA. What is your vision for Johnson & Johnson's Pharmaceutical business over the next 3 to 5 years?

Yes. So when you look at our business, especially the headwinds that we faced in 2020 and even in 2021 due to COVID-19 as well as some relatively recent LOEs, we continue to post above-market growth in both 2020. We expect to do something similar in 2021. As you recall at our Analyst Day back in 2019, we suggested that our business was going to have a compounded annual growth rate of approximately 5%. And we believe this is an important measure of our -- for the growth of our business, and we do believe that this could generate potentially $11 billion of incremental revenue, comfortably putting J&J or Janssen above the $50 billion mark. Now we believe this is largely de-risked or de-risked rather about 3/4 because 3/4 of our business -- 3/4 of that growth is going to be coming from our in-market assets. Additionally, we have the opportunity for 10 additional line extensions with those end market assets in the 2019 to 2023 period, each with the potential of having over $0.5 billion globally. And finally, we are continuing to invest heavily in developing new medicines, and we have the potential of having 10 new medicines that have the opportunity to achieve blockbuster status or above $1 billion on a global basis. And so whether you look at our in-market assets and products, which we have 11 blockbusters currently, the line extensions associated with those products, in addition to our new medicines, we feel that we're in a strong position to drive growth through the 2019 to 2023 period.

Okay. So you're building an impressive heme malignancy franchise with IMBRUVICA, DARZALEX and the potential approval of Cilta-cel this year. You also have teclistamab and talquetamab, which are advancing through clinical trials. Where is this franchise today in your view? And where do you want it to go? And how do you think about building a leading business here in heme malignancies?

Yes. So my name is Mathai Mammen. Thank you for having us, Louise. So heme malignancies right now, multiple myeloma, in particular, to begin with, our goal as an organization is to cure disease. And so patients present themselves at various stages. They are often very advanced. And for those advanced therapies, we're looking really forward to introducing Cilta-cel. This is a product that is unlike any product I've ever seen before in its clinical data. The patients that were part of the first trials were far along in their disease, metastatic disease, and they had failed all lines of therapy. And it's incredibly pleasing to know that they are -- right now a large majority of them are cancer-free. And this is now more than 18 months out from the time they received their one shot. So this is a big deal, and we're looking at that, as you said, the 2 CD3 redirectors, teclistamab and talquetamab. They're a little bit earlier along, and they have different ways that will position them in the marketplace for those with earlier stages of disease. And we're also looking at premalignancy in multiple myeloma, smoldering multiple myeloma as an example where it's got the potential for becoming a really bad cancer. And we're looking at our medicines and different mechanisms for treating disease at that stage. So we intercept it and get it under control at its -- in its earlier stages. So we will not stop, and we will not stop with heme malignancies in multiple myeloma until the majority of these patients are curable, and we don't want people to die of these malignancies.

Congratulations on your approval for RYBREVANT in May. What is your go-to-market strategy for this franchise? And what additional indications do you plan to expand into? And maybe if you could talk about also the unmet needs, what does it address here?

So with the -- with non-small cell lung cancer patients with exon 20 insertion mutations, they were largely an underserved population. There really hasn't been any products approved until the time RYBREVANT was approved. RYBREVANT is approved for non-small cell lung cancer patients with exon 20 insertion mutations. It's a bispecific fully human antibody that really targets 2 different mechanisms, cancer driving mechanism as well as a resistance mechanism. We believe this is a differentiated MOA that really does support this unique patient population and in a very targeted way. Our ability to launch this product -- I mean we've already launched some product, but we have strong commercial capabilities to launch monoclonal antibodies. We have a lot of depth and expertise in the space, and feedback from the marketplace in RYBREVANT have been extremely positive.

Let me add a little bit to that. I think that what we also look forward to is a combination product. So the combination product is RYBREVANT plus lazertinib. Lazertinib is an EGFR inhibitor that's a next-gen EGFR inhibitor that got outstanding activity on its own and a CNS penetrant, which is a distinguishing feature of it. But together, they offer multiple mechanisms -- 3, in fact, mechanisms against an EGFR-driven tumor. So a tumor right now that's treated by, say, TAGRISSO, that's a tyrosine kinase inhibitor, it would need to avoid the drug by either mutating parts of it inside -- around the binding pocket or up regulating cMET. So what our combination regimen would do in this case, RYBREVANT plus lazertinib, is to inhibit the -- both the EGFR mechanism in 2 distinct ways that are hard for the tumor to get around and get in front of any cMET up regulation by right upfront inhibiting cMET. So we believe that outside the exon 20 go-to-market strategy in our first indication will be broadly useful in time for patients that have non-small cell lung cancer driven by EGFR.

Okay. So given your leadership in Pharmaceuticals, I know everyone is very interested on your latest thinking on business development and M&A for your pharmaceutical franchise. So I wanted to ask you a few questions on this. My first question for you is, are there any particular areas or geographies that you're most interested in with respect to business development or M&A?

Well, our M&A strategy has been largely unchanged. When we -- we definitely want to look at -- we have a rigorous and detailed process to ensure that whatever acquisition opportunity exists that is aligned with our strategy, it's something that's complementary to our efforts. And we recognize that M&A is an important part of the growth strategy -- our growth strategy long term. With that being said, any kind of acquisition has to be a really good strategic fit. It has to have something that provides platforms to help us deliver against unmet medical needs. It has to give us new science, technology and capabilities. And it's something that we have to be able to generate more value with the asset in our hands. And perhaps the best example -- a more recent example we have is the Momenta acquisition. Momenta has great new technology for antibody-mediated immune disorders. Janssen has a great R&D capability in immunology, strong global supply chain capabilities as well as a global commercial footprint where the 2 combined together becomes a very complementary effort for our immune strategy longer term, but it's also something we could generate more value. So that's really our overall strategy. And whatever we target has to be consistent with what we're doing today in terms of our commercial as well as our research strategies.

Okay. Also, are there any new areas that look promising to you that you haven't been involved with before? And then where do you see the best opportunities? Is it early, mid- or late-stage development?

Yes. So let me take a first shot at that. A new area for us right now that we are investing in is the retinal space. So vision, but especially diseases of the back of the eye, the retina. And we've, through partnerships and acquisitions and internal build-out, built quite a nice portfolio that addresses first. The first product up will be an X-linked retinitis pigmentosa. It's a rare disease where people progressively lose their central vision. There are other inherited retinal diseases that we will address, and then the big diseases of the back of the eye, the AMDs, and including dry AMD or geographic atrophy and it's -- in most severe form, we have a really promising program. So this is an area where we've built momentum over the last 2, 3 years and where we hope will be a future area of growth. Second is in vaccines. And so we've been nurturing a vaccine organization and growing a portfolio over time. As you know, we were one of the contributors to the COVID-19 vaccine -- set of vaccines in the world. And we have right now initiated a large and robust Phase III program for RSV senior and on the heels of really nice data from a Phase II study that we have enhanced -- a large and robust Phase II study. So -- and then behind that, we have vaccines that are really first-in-class, only-in-class for E.coli disease, E.coli sepsis and earlier-stage programs in other really problematic organisms today where there's no vaccine at all. So those are 2 examples of areas where we've really weighted in and where we see it as complementary to what we do now, yet using some of the great work that the company has already done. For example, in vaccines, it leverages a tremendous amount of knowledge of immunology that's within the organization is arguably among the very best organizations out there in immunology.

How do you think about health care reform? There's been a lot of headlines in the news on it, a lot of discussions. And whether or not that anything might actually impact your existing business model or R&D or any products that you have that could be at risk if some of these headlines that we see actually take hold?

Well, as you know, this -- the entire debate on health care reform is still intense, and we're still in the middle of the debate phase. Additionally, we haven't seen any really concrete proposals. So there's a lot of options that are being presented, but nothing specific or specific rules that allows us to do that kind of assessment. And with that being said, the Janssen position and J&J's position has been focused on a patient-centered approach, an approach that targets patient access, patient safety as well as patient choice is an important component of whatever policies that get proposed. Now if you look at the Part D system currently, it's been a great system in ensuring that seniors have access to pharmacy benefit medicines. Additionally, it's been a very effective cost containment strategy that has really helped or provide access as well as lower cost for the health care system. However, there needs to be an out-of-pocket cap for seniors that makes medicines more affordable, especially for those seniors that are on multiple medicines at the same time to treat multitudes of diseases and disorders. And the Part B health care systems are really critical health care policy because it allows medical benefit products to be accessible to seniors. Now as you know, Part B or medical benefit medicines are typically medicines used for rare diseases, life-threatening illnesses or chronic illnesses. And these are diseases where patients have to flow through typically a variety of medicines to find the medicine that's right for them and for their disease. And so their patient choice and access becomes ever more critical, especially as we continue the debate. We really do believe that there needs to be a patient-centered component of this entire debate and that looking at patient access, choice and safety are really critical components. And from a Janssen perspective, we're going to continue advocating for patient-centered proposals and continue engaging policymakers through our industry colleagues as well as a company.

Just one thing to add there from a scientific or medical perspective is that we're -- we have a level of diversity in our portfolio. We, of course, go after heavy unmet need and look at where the science is moving to get to that unmet need, fill it. But we also have an eye to the nature of the product, so as not to have an undue amount of dependent risk in the portfolio. So it's not all one category of medicine. So we span from the oncology products, immunology products to milvexian, which is a Factor XI inhibitor for thrombosis, to vaccines to rare diseases. And that mix is helpful as we navigate a future that is never going to be completely known.

So one of the things that I have found very impressive about Johnson & Johnson is that despite competition for REMICADE, you continue to grow through your patent cliff and that Pharmaceutical business continue to be strong. So what did you learn from this? And how will that help you through your expected generic competition for STELARA?

Well, we recognize that patent expiry is a normal part of life cycle of any pharmaceutical product. And as a result, it's important to make sure you anticipate and continue to invest strategically in the right kind of opportunities within your pipeline. At Janssen, if you look back in the period of, say, 2019 through where we are today in '21, we faced some LOEs for products like REMICADE and ZYTIGA, in addition to the extra weight that COVID-19 placed on the market. And despite those challenges, we're able to post above-market growth because we still had the opportunity to launch new products, continue with line extensions and continue to focus growth of our in-market assets. And so by making sure that we stay disciplined to our strategy, we're going to have the opportunity to make sure that we can continue to drive growth and maintain above-market growth in the future.

Just to add a little bit to that, right, loss of exclusivity or LOEs are a sure thing and -- like debt and taxes. And like taxes, you have timing that's also relatively a sure thing. You know when -- approximately when this will occur years and years back. So we've been planning for STELARA and other products for many, many years. So our pipeline and our confidence comes from this having not snuck up on us. So the momentum of the pipeline is actually extremely good right now. We'll have a chance to talk a lot more about that on November 17 and 18 during the Pharmaceutical Business Review. But that is reflecting years of planning for the various LOEs that are inevitable in the pipeline.

Great. So I wanted to talk to you about vaccines, which seems to be something that's often discussed these days. First, we are very grateful for your contributions on the vaccine front to help fight this ongoing pandemic. What is your outlook for how things will shape up in the fall and winter with COVID and flu together for the first time as people go back to school and children go back to -- sorry, people go back to work and children go back to school? And any views on booster advance and when things could improve? Or are we living with COVID for the foreseeable future?

Yes. Let me take a crack at answering that, and this is again predicting the future to a degree. We are seeing a downward slope right now as more and more people in the United States become vaccinated to hospitalizations and death. And so we're seeing infections still at a fairly high clip, but the serious disease is on a downward slope. Now as the winter approaches and as infections are not at sufficiently a low point, the fear is that the modest immunosuppression in the context of high viral application could give rise to a new variant. That would be the negative scenario that through the winter, we take a little bit of a hit again. However, I think to counter that, even if that's -- I don't think of that as a likely scenario, by the way, but it's a possible negative scenario. But to counter that, we are seeing all the companies in the U.S. So Pfizer, Moderna and us, J&J, have booster data. So my expectation is that in the coming weeks and months, we will see recommended in the U.S. boosting. And all the vaccines right now, if used appropriately as boosters as a homologous boost, like if you get one vaccine, you have same vaccine again, we're seeing pretty high levels of protection. We reported, for example, that if you boost out at multiple months after your first dose, you have 94% protection against infection and kind of amazingly durability that is not yet seen among the vaccines out there today. So we're seeing real promise as the boosters come forward. Outside the United States, outside certain other countries, it's a different story. And we are contributing to that story as well, providing as much vaccine as possible to get part of the population and, hopefully, most of the population over next year vaccinated. So long as there are in the world, large swaths of unvaccinated people, we are at some risk for a variant that's problematic coming back into the United States, even if the U.S. population is fairly vaccinated. So our goal is to help with boosters in countries where they're mostly vaccinated like the U.S. and help with primary vaccinations with a single shot, easily stored vaccine that can be used readily in all parts of the world. And so that's our dual strategy.

So we're all very excited for your upcoming Pharmaceutical Business Review in November. What new information do you plan to discuss at this upcoming event? And when do you want -- or what do you want The Street to take away from this presentation?

Yes. So this is going to be a really exciting event for us, and I think that those that are listening will learn a lot about what we've been up to. I think we haven't held it as a secret that there are various products in our pipeline, but I don't think they necessarily have yet received the full attention that we plan on giving them and hopefully being able to talk about them in full over 2 full days in November 17 and 18. You'll hear from each of the therapeutic area heads about the latest products that we're very enthusiastic about introducing to the marketplace, the latest expansions in depth and breadth of the marketed products in new indications that are really exciting. And you'll hear about the strength of the engine, the R&D engine. Especially with the advances that we've made internally in data science, there's a robustness to our engine to have an indefinite productivity that's actually really impressive, and I can't wait for us to be able to talk about them. Just a couple of products that are not out there and discussed in the depth that we would think should be our -- we talked about it before, RYBREVANT and lazertinib. Another one is the RSV senior vaccine. Another one is our really robust comprehensive efforts in bladder cancer. We think of bladder cancer like multiple myeloma before we really got started in a major way as a company where, unfortunately, if you have late-stage bladder cancer, it's a much less than 5% chance of 5-year survival. So there's so much room for improvement. And what we're doing, especially with localized treatment of localized disease, bladder cancer, is going to be really effective. What we're doing -- that's with a device. What we're doing with other mechanisms there that can interfere with different ways the tumor can evolve like we're doing with multiple myeloma, that, too, is largely unknown to the broad community. So we look forward across all our therapeutic areas of talking about some of these products. Scott mentioned that we'll anticipate from '21 to '25 10 new entrants to the market that are potentially really impactful for patients and very important for our business. And we'll be talking about all of them in addition to the engine.

Okay. So before we close, I wanted to ask you what the key data readouts, data presentations and any other important catalysts or events you see for the Pharmaceutical business that you think that we should be focused on.

Well, if you look across the base of our business, we have our CAR-T that we're anticipating approval by the end of this year. We have a really -- lazertinib is another product, our second product that we're looking into, lung cancer. We continue to build out our pipeline across all therapeutic areas, and we have a lot of line extensions coming. So I think it's really hard to call out any one specific opportunity, but we do have several. And again, we're going to cover that in more detail in November.

Yes. It's a rich set of data. Just another example is we will be releasing the RSV Phase II vaccine data at an upcoming scientific medical meeting, and we will see lazertinib data as well in combination with RYBREVANT. And those are just 2 small examples of data sets that you can look forward to.

Well, those are all the questions that we actually have time for today. Thank you, Mathai, and thank you, Scott, for hosting this fireside chat with us. And to the audience, thank you for your participation, and we'll end the presentation there.

Thank you.

Thanks for having us.