Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Hello, and welcome to the Johnson & Johnson investor update conference call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Executive Vice President and Chief Financial Officer, Joe Wolk. Please go ahead, sir.

Thank you, Kevin, and welcome, everyone. This is Joe Wolk, Chief Financial Officer of Johnson & Johnson. We appreciate everyone joining us on such short notice this morning. On the call with me today are Alex Gorsky, Chairman and Chief Executive Officer; and Joaquin Duato, Vice Chairman of the Executive Committee and incoming Chief Executive Officer. This call is being made available via webcast, accessible through the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. There, you can find additional materials, including the slides that will accompany this call. Please note that today's presentation includes forward-looking statements. We encourage you to review the cautionary statement included in today's presentation, which identifies certain risks and factors that may cause Johnson & Johnson's actual results to differ materially from those projected. In particular, there is uncertainty about the anticipated separation of Johnson & Johnson's consumers' health business and other related risks. A further description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs. I am now pleased to turn the call over to Alex.

Well, thank you, Joe, and good morning, everyone, and thanks to all of you on the call for joining us this morning on such short notice. As you know, earlier today, we announced our intent to separate our Consumer Health business into a stand-alone publicly traded company, which we think is a bold action to evolve our business and provide value to all of our stakeholders today, tomorrow and really for decades ahead; by pursuing a more targeted business strategies that will allow each stand-alone company to accelerate growth. The new Consumer Health company and the new Johnson & Johnson, we believe we'll be better positioned to deliver improved health outcomes for both patients and consumers and ultimately deliver greater value to shareholders. They will remain mission-driven organizations with exceptional brands, commitments to innovation, safety and quality, and remarkable talent. Each will carry on the Johnson & Johnson legacy of putting the needs and well-being of the people we serve first. And we believe the new consumer health company will be a global leader across important and attractive consumer health categories, and then a streamlined and targeted corporate structure will provide it with the agility and flexibility to continue to grow its iconic portfolio of brands and innovate new products. With the new Johnson & Johnson, the planned separation underscores our focus, our relentless focus on delivering industry-leading biopharmaceutical and medical device innovation and technology with the goal of bringing new solutions to market for patients as we continue to work in partnership with doctors, health care systems, payers, and all others across the health care ecosystem. Now I'd like to share some more of my personal perspective on why we believe this is the right step for the future. And Joaquin and Joe will provide additional details on the opportunities for the new consumer health company and the new Johnson & Johnson as well as our path to complete the planned separation. Now what we've announced today is a momentous event in the evolution of Johnson & Johnson, and it would not be right to talk about this milestone without putting it into perspective with Our Credo. Over more than a century of change, our company has thrived and continue to deliver for our stakeholders by honoring Our Credo. Our remarkable success for more than 135 years has been achieved by prioritizing the needs and well-being of the people we serve and by staying true to our mission to deliver for the patients, the doctors, the nurses, and mothers and fathers, and all others who use our products and services. However, it is absolutely incumbent on us to look to the future and ask ourselves, how can we ensure that our businesses will flourish and that we will be able to continue to serve our stakeholders for another century and beyond? Now we must recognize and act upon the fact that strategies that are successful today may not and often do not ensure success tomorrow. Now our Board and executive team have regularly evaluated Johnson & Johnson's portfolio of businesses over the years, asking whether our broad-based approach best meets the needs of our stakeholders. And while this approach has historically served us well, addressing the complexity of today's global health care and consumer environments, now demands unprecedented focus, innovation and agility. And the steps we are initiating today will help position each business to win, deliver for our stakeholders, and continue advancing our mission for years to come. Now when I joined Johnson & Johnson as a sales representative almost 32 years ago, and even as I stepped into the role of CEO a decade ago, I could never have imagined all the recent changes in the world of health care. But one thing has remained constant. Health care continues to be the biggest challenge facing society and good health is the foundation of everything we value [indiscernible]. In fact, this has become even clear through the COVID pandemic, once-in-a-generation convergence of challenges, opportunities and capabilities, which really crystallize the importance of our mission. In these past 20 months, they've shown us that we can manage and lead through uncertainty. As we look ahead to the future, we know that we will need to navigate new levels of complexity. So as we look around the world, the trends that driving our businesses, we're first seeing the need for even more personalized care and solutions, an accelerated pace of scientific innovation, continued digitization of care delivery as well as the impacts of AI and cybersecurity. Around the world and across all aspects of health care, we see demand to deliver life-enhancing health innovations at speed and scale as well as the need for cutting-edge technology. And just as critically, personal health and wellness is center stage. And there's a growing need for consumer product innovation. There's more individualized and increased focus on sustainability, along with the need to lead with digital to meet continued demand for omnichannel access. Now the planned separation presents an opportunity to create an even more dynamic global company focused exclusively on consumers. And for the new Johnson & Johnson, well, there's a tremendous opportunity to bring together treatment spanning therapeutics, robotics, artificial intelligence and more to change the way diseases are prevented, intercepted and eventually cured. Ultimately, we are confident the creation of 2 companies, the new Consumer Health company and the new Johnson & Johnson, is the best way to deliver on our commitment to accelerate efforts to improve health care outcomes, serve consumers, patients and health care professionals, create opportunities for our talented global team, and unlock value and drive profitable growth. So I'll now turn the call over to Joaquin to take you through the specifics of each business. Joaquin?

Thank you, Alex. The steps we are taking today will create 2 businesses that are each financially strong leaders in their respective industries. The new Johnson & Johnson will remain the world's largest and most diverse health care company and will continue its commitment to lead in global health care, R&D and innovation. We'll maintain a portfolio that blends our strong pharmaceutical and medical device capabilities, focused on materially advancing the standard of care through biopharmaceutical and medical device innovation and technology. We expect to achieve superior performance in all segments with a goal of delivery at or above the market in the categories that we compete in. The new Consumer Health company will maintain all of our portfolio of iconic brands that include those beloved and trusted for decades by consumers such as NEUTROGENA, AVEENO, TYLENOL, LISTERINE, Johnson's Baby and BAND-AID. And as a stand-alone company, the new Consumer Health company will advance its legacy driven by world-class innovation capabilities and ongoing business momentum to accelerate growth and to improve people's health at every age and stage of life. Now turning to the next few slides with spotlight the new Johnson & Johnson. The pharmaceutical business, which will make approximately 2/3 of Johnson & Johnson to post-separation, will continue progressing its strong portfolio and industry-leading pipeline to advance the next wave of innovation. By accelerating key therapeutic areas, such as oncology and immunology and expanding treatment into new patient populations and new therapeutic modalities, such as cell and gene therapies, we are confident in our ability to continue to deliver transformational medical innovation that enables sustainable long-term above-market growth. You are going to be hearing more about this at our upcoming Pharmaceutical Business Review next week. Medical devices will comprise the remainder of the new Johnson & Johnson. We expect to accelerate its momentum across orthopedics, interventional solutions, surgery and vision, with an increased cadence of meaningful innovation, enabled by a strong pipeline, including robotics, complemented by external innovation and a focus on excellence in execution across all geographies. By capitalizing on our long-standing strength in core areas of science, technology, regulatory supply chain and global commercial reach, the new Johnson & Johnson will continue to build on its offering of life-saving treatments and medical device solutions to address the most challenging diseases in health care with novel solutions and accelerated growth. Our Pharmaceutical and Medical Device segments are united by their share and complementary focus on scientific research and development to serve similar end users, patients, and health care providers. These businesses also operate in similar regulatory and competitive environments, and we fully expect synergies across these segments in the way we approach our business. For example, in the way we leverage data science and incorporate digital technologies into our products. The new Johnson & Johnson will be better positioned to combine skills, expertise and approaches to bring together integrated, comprehensive and more impactful care to patients. And it will be better positioned to enter health care spaces that require a combination of pharmaceutical, interventional, surgical, robotics and digital solutions to deliver for patients in high-science, high-tech areas, where the greatest amount of clinical unmet need still exists. We see great potential for cross-enterprise collaboration opportunities, being our pharmaceutical and medical device business. Take, for example, our work in interventional oncology. We can use our robotic system, Monarch diagnostic bronchoscopy system for early diagnosis of lung cancer, combined with local delivery of energy or therapeutics. We are also using our TARIS drug-eluting device to treat early-stage bladder cancer, maximizing local exposure while limiting systemic side effects. Both approaches are already been studied in patients, and we see potential for multiple other applications in other tumors. By leveraging our unique combination of solutions across disease spaces and treatments, we are developing novel approaches to solve one of the greatest challenges in health care. Other examples of collaboration will include retinal eye health and cardiovascular diseases. The collaboration between our pharmaceutical and medical device businesses has always given our company the ability to uniquely address all major diseases. And as a more focused organization, we believe we will be able to accomplish even more together to transform the patient journey. Now let's turn to provide more detail on the new Consumer Health company. In recent years, we have been laser focused on strengthening our leadership position, making our model more agile to drive more innovation and going after efficiencies to drive sustainable growth. As part of this, we have also increased our digital presence and capabilities and have dramatically grown e-commerce. This increased focus has enabled our Consumer Health business to reach more consumers with products that truly make a difference in people's lives across self-care, OTC, skin health and beauty, and essential health. At the same time, these actions have expanded margins and delivered healthy financial results. Today, we have a balanced and resilient portfolio that is delivering top quartile profitability driven by world-class teams and world-class capabilities. We expect that the new Consumer Health company will benefit from the businesses, many key strengths, including its world-class brand building capabilities and best-in-class innovation. Turning to Slide 13, you can see an overview of the attractive consumer categories, the new Consumer Health company serves. The first category is OTC or self-care, which makes up about 1/3 of the business and consists of brands like TYLENOL, the #1 recommended brand for pain relief and fever reduction in the U.S., the ZYRTEC, the #1 allergies recommended brand among OTC oral antihistamines in the U.S., and NICORETTE, the #1 smoking cessation brand globally. Next is the skin health and beauty, which represents another 1/3 of the business and which includes iconic brands like NEUTROGENA, AVEENO that whole leading positions. And finally, there is the essential health or specialty business category, which includes baby care, feminine care, wound care and oral health. These are smaller categories by where with the products we have had very strong leadership positions globally, including the #1 mouthwash globally, LISTERINE, and the #1 global brand Johnson's Baby. We expect that the new Consumer Health company will be better able to realize its tremendous potential in under penetrated markets, enhance its position in fast-growing attractive categories and unlock long-term growth. As an independent organization, the new Consumer Health company will have greater flexibility and focus with which to enhance its portfolio, while at the same time, expanding its scales in key geographies, growing more effectively and efficiently. As an independent entity, the new Consumer Health company will be able to invest in and acquire new business models. Leveraging the business' existing strength with increased focus on flexibility, we believe the new Consumer Health company will be a global leader in the expanding space of personal health. Now let me turn it over to Joe to wrap up before we go into Q&A. Joe?

Thanks, Joaquin. I will now briefly touch on the specifics of the contemplated transaction as well as capital allocation and expected dividend policy following the planned separation. Our intent is to affect the separation through the capital markets, and for the transaction to qualify as a tax-free separation for U.S. federal income tax purposes. We anticipate the new Consumer Health company would benefit from a strong balance sheet, yielding a strong investment-grade credit profile. As for the new Johnson & Johnson, the company will remain committed to maintaining a superior credit profile, supported by a strong and healthy balance sheet and robust free cash flow. Our capital allocation priorities remain intact; investment in innovation, competitive dividends, pursuit of strategic and value-creating acquisitions and share repurchases when appropriate. Our company has maintained a disciplined and balanced approach to capital allocation. And the quarterly dividend is an important component of how we deliver value to our shareholders. Based on what we know today, we expect that the overall shareholder dividend will remain at least at the same level following the completion of the transaction. We expect to complete the separation in 18 to 24 months, subject to the satisfaction of certain conditions as outlined here and in our press release. Before we take some questions, I'll conclude by summarizing the key goals of the planned separation and how it creates value for all stakeholders. First, we expect to unlock value by increasing management focus, resources, agility and speed so that each stand-alone company can effectively address different industry trends to better meet the needs of patients and consumers. Second, we intend to ensure that each company has a compelling financial profile that reflects the strengths and opportunities of each business. As I just mentioned, we intend to further focus capital allocation based on the objectives of each independent company. And finally, we plan to align the corporate and operational structures so that each company can better drive growth. We hope that you share our excitement about this transaction that will result in 2 great companies. We are as confident as ever about the future of the new Johnson & Johnson and the new Consumer Health company. With that, we will now open the line to begin the Q&A session. Kevin, can you please provide instructions once again for those on the line wishing to ask a question?

[Operator Instructions] Our first question today is coming from Larry Biegelsen from Wells Fargo.

Congratulations. Can you hear me okay?

Yes.

So Alex, what's changed? You've always said J&J's diversified business model helps offset downturns in other segments like we saw with devices in 2020. Pharmaceuticals is facing significant patent expirations this decade. So why now? And why not just split into 3 businesses? Joaquin, I heard the examples you gave, the synergies between drugs and devices. But in all due respect, so far, we really haven't seen a lot of successful examples of synergies between the 2 segments. So why will things be different going forward?

Larry, thank you very much for the comprehensive question as always. Look, first of all, I think we have consistently had the belief that our diversified portfolio is rooted in strategy. However, it's not anchored in strategy. And as we watch the health care landscape continue to evolve, we think that it's only incumbent upon us to think about what kind of an impact that should have on our portfolio, how we allocate resources and, frankly, how we execute our strategies and operationalize those things each and every day with customers around the world. Now in this particular case, we've seen a significant evolution in these markets, particularly on the consumer side, whether it's the innovation being sought by consumers, whether it's the evolving nature of the channels, the distribution, the shift to e-commerce. And as we observe that, and I must say, I think it was accelerated quite significantly with COVID-19, where we're seeing greater interest in personal care and taking care of the families. We felt that this, in fact, was the right time to recognize the differences between the consumer-facing business versus that in our medical device and pharmaceuticals. What I would reflect on is that we think these have evolved as fundamentally different businesses. If you look at, for example, the rate and pace of innovation, the level of science and technology involved in pharmaceutical and medical devices. If you look at the investment required for clinical development plans, if you look at the regulatory pathways, if you take a look at the distribution channels where you shift through intermediaries versus a more business to consumer interface that we're seeing on consumer as well as the actual sales and marketing and contracting and working to ensure access around the world. These 2 businesses share many more common themes versus our consumer business. And we think that it makes strategic sense for these 2 businesses to continue to work together. Now as always, Larry, we've said that it starts with superlative business and execution in each one of these segments. We think we've demonstrated, particularly over the last several years as we've seen our pharmaceutical business now grow at consistently above market growth rates with a very promising pipeline. We've seen the return to growth and competitive market share and even better pipeline on our medical device side, that these 2 businesses, again, each within their own segment will drive growth at an accelerated rate. But as Joaquin also mentioned, we think health care has the promise to continue to evolve. And by taking targeted yet more comprehensive approaches, where we can look at new ways of treating cancer via some of the approaches that we mentioned regarding lung cancer, regarding bladder cancer, whether -- or back-of-the-eye disease and other conditions, we think these represent opportunities for Johnson & Johnson. And also, being the world's largest healthcare products and services company, the global footprint, the unique position that it provides us, we think, also offers a significant opportunity. So again, we're excited about that promise for the future. And last but not least, what I would say, Larry, is our Board of Directors, our senior leadership team has consistently and on an ongoing basis, been involved in deep discussions around our strategy. And I think it's represented by this kind of big bold move that positions both companies for even more success in the future.

Yes. Larry, maybe if I can just add on. I think Alex hit exactly what the strategic reasons for this decision were and that is paramount to the decision made by the Board. But also from a financial perspective, we are doing this from a position of strength. If you just look at the businesses, Alex mentioned the Pharmaceutical segment. We believe that you're going to hear a very compelling story next week at our Analyst Day, featuring that business where whatever fear you may have about mid-term, mid-decade patent expirations will be quickly allayed. So we're looking forward to presenting that material with Jennifer, Mathai and the rest of the team. I would also say the Consumer Health business specifically, if you look maybe 4 or 5 years ago, we had trouble on a quarterly basis hitting market growth. Now we do that routinely and often exceed it. And the operating margins, which were significantly below the peer set are now at peer set. So even still a little bit of room to run there. Going to medical devices, as we come out of the pandemic, we are stronger than when we entered it. We had a good cadence of improved growth rates going into 2020. We believe that's going to continue as we come into 2022. So I think from a financial position, in addition to all the strategic reasons Alex mentioned, this is the right time.

Our next question today is coming from Louise Chen from Cantor Fitzgerald.

Congratulations on the news. So my question for you is, will the consumer separation enhance your above-market growth profile that you have anticipated for pharma and med devices? And how will it impact the margins?

Louise, thank you very much for your question. Look, our goal here is to accelerate the growth and enhance innovation and improve execution across all of our businesses following the separation. And we think, again, by having improved focus in these 2 business entities, by being able to better focus our capital allocation and, frankly, to add more agility, more flexibility as well. So we do believe that this move will allow us to even accelerate further the progress that you've seen in our pharmaceutical and our medical device space. Regarding our bottom line, look, our goals remain the same. In all of our businesses, we expect our businesses to strive, to grow at or above the market growth rates and where they compete. We expect them to grow their bottom line at or slightly above the top line. Now again, there could be annual deviations from that based upon specific investments that we're making for the future. But over the long run, we think that, that approach has served us well. It keeps a certain discipline and drive a sense of urgency in the organization. But at the same time, it allows us to continue to invest in the long run. If you look, for example, how we've invested in research and development and the increase we've seen, we've shown that we can continue to invest for the future and improve profitability over the long term and what we believe is an appropriate and balanced way.

The remaining Johnson & Johnson, the combination of the pharmaceutical and medical device companies will remain the world largest health care company and would be highly diversifying itself. That's to address the diversification question. And our belief is that both on the new Consumer Health company and the Johnson & Johnson, the fact that we will be able to have more simplified and fit for purpose operating models and corporate structures is going to give you advantages operationally, that will help us being able to be better in serving consumers and patients and ultimately accelerate growth in both sides. So that's the purpose behind it. It's a long-term view of how we can better serve our patients and consumers. And we believe that with these fit for purpose operating models and corporate structures, we're going to be in a much better position to do that.

Our next question is coming from Chris Schott from JPMorgan.

I just had a 2-part kind of financial question. I guess my first part of that is, how much is there in terms of dissynergies we should be thinking about here? So I'm just trying to get a sense of how independently resourced are these organizations. And do we have to think about some sort of step-up in OpEx as you get ready for these to be independent companies? And the second was that there is any future liability around talc? Will that reside in the consumer company? Or is that going to stay with the larger organizations as we think about that potential balance sheet item over time?

Chris, this is Joe. Thanks for the questions. In terms of dissynergies, so as you've heard this morning, these are very early days. And we have done some deep analysis but with a limited team at this point as to what those costs could potentially be. I would range it anywhere from, let's say, $0.5 billion to $1 billion. But that's something that the team is going to work diligently at making sure that we remediate those as quickly as possible, very; early in the cycle over the first couple of years. I do think, though, I would hang on to Joaquin's comment about the fit for purpose. So we see great opportunities with a company that has to support 2 segments to actually become more efficient, rightsize the infrastructure for services that are needed for a regulated environment. And we think we are well positioned to capitalize on some of those. Similarly, for the new Consumer Health company, they will have an operating model that is consistent with their peers and competitively balanced for them to pursue opportunities as well. In terms of any future talc liability, I think it's important to state upfront that today's announcement is separate and distinct from the talc liability and bankruptcy proceedings that were announced a few weeks ago. We've taken that step-in hopes of resolving that for all stakeholders with some certainty. We will let the bankruptcy court determine the appropriate adjudication of those liabilities. Again, it's important to state that based on decades of scientific experts both internally and externally, we believe the product is safe. We did set up a qualified settlement fund in the hopes of resolving these in a fair and just way. And we'll let the bankruptcy court determine the path forward on those matters.

Our next question today is coming from Matt Miksic from Credit Suisse.

Congrats on this transaction. Just one follow-up question on the sort of financial positioning of the new consumer business. Maybe if I could, just around the assets and capitalization that they'll have and the sort of strategy that you see is sort of front and center for them with the -- on the back of building out the standup organization. Is this an investment in distribution? Is this an investment in other assets? Is it a focus on brands as you have in recent years? Maybe give us a sense of what that strategy will look like.

Yes, Matt. Listen, it's, again, early days in terms of what the management structure may look like. And so we're going to let that play out over the course of the next couple of months, name the management team and then let them chart the course forward. I think in terms of investment opportunities, it does free them up to go where the trends have evolved. As Alex indicated, it's much more of a personalized cell in the consumer space these days. If you think about 5 or 10 years ago, when 9 out of 10 dermatologists or 9 out of 10 dentists that as a marketing campaign mattered, it's a little less so today and it's much more about the individual personalization of a product. So you need to build up distribution, technology capabilities to take advantage of some of those market trends. And that's what the new management team will surely do. I can assure you that the new management team will be making bold decisions to capitalize and accelerate growth moving forward.

Matt, if I can just add a couple of things. And really, this builds on the excitement that we have for this new consumer business. It's important to put it in perspective, this business will have more than $4 billion brands, more than 20 brands over $150 million. So it's a very diverse portfolio. Number two, if you take a look at the recent performance quarter-on-quarter through COVID in spite of significant shifts and variability in demand, they've been able to grow share, in fact, our market share in brands like TYLENOL, adult and children's TYLENOL are all time highs. Our competitive share across all the major categories is moving in a positive direction. And by the way, that's also being done around the world. Our regional performance has also been strong. And they've been doing this while making very consistent and significant improvements in their overall profitability. So we think this business is really positioned well. Again, this is from a position of strength. And we combine that with even more improved focus and strategy and execution and capital allocation, let allow some streamlining other corporate versus the operating organizational structure, we think this should accelerate growth and reach even more consumers around the world.

It's going to be also capitalizing on the increased trend of focusing on personal health and wellness, which has been strengthened by the pandemic. And we think that trend is going to be focusing 2 of the fastest-growing areas, which are self-care or OTC and skin health. So even from the markets that we are going to be competing at the markets that are more attractive, where more innovation and consumer demand exists today. So those are high growth, highly attractive markets that are ripe for more innovation. And the new Consumer Health company will have the opportunity to set its own priorities as far as innovation and capital allocation to better capitalize on those trends.

Our next question today is coming from Joanne Wuensch from Citibank.

Historically, in addition to the sort of the 3 legs of the stool for Johnson & Johnson, the other sort of cornerstone has been the AAA rating. Does this spinout change your view on how important that is?

Yes. Thanks for the question, Joanne. So we had a very good dialogue with both of the rating agencies coming into today's announcement. We'll let them see how they assess this overall. But we take great pride in the fact that we're one of the very few AAA-rated companies. It's a reflection of just the financial discipline and the strength of our business overall. So we intend to have as strong a credit profile that we are earning through our free cash flow generation.

Our next question is coming from Matthew Harrison from Morgan Stanley.

I was wondering if you could just comment how this maybe specifically changed some of the capital allocation priorities for the pharma business? Are you going to be more willing to invest in a broader range of assets or be more aggressive in terms of external innovation?

Matt, Alex here. Look, at a very high level, I would expect there to be consistency in our over approach to capital allocation into how we think about M&A with our pharmaceutical and our device space. And it starts with, first, making sure that we're investing in competitive levels with our organic opportunities. And if you take a look, for example, at R&D, S&M in those areas, we think they're very well positioned. Two, if you look over the last 20 years, 10 years, 5 years, what you see is a really balanced approach in terms of what portion of our pipeline is sourced internally versus externally. We definitely tend to have an appetite for smaller tuck-in acquisitions versus large acquisitions. And over 90%, for example, of the 50 -- I believe it's $55 billion we've invested over the last 5 years has been in those kinds of deals. And look, we would expect that to continue. At the same time, though, we do think that this improved focus on both sides in our Johnson & Johnson, the remaining company and exciting areas, whether it's oncology, immunology, digital robotic surgery, eye care, there's a lot of emerging areas of science that we'll continue to watch closely and ultimately source that kind of innovation in value-creating ways. And we expect to continue that trend.

For us, M&A has always been a source of strength, both in our pharmaceutical and medical device business, is an area that we recognize that we could create value and that we are going to be looking for opportunities that could complement our existing portfolio or allow us to get into the adjacencies. It will remain a central focus of our activity and a keyway in which we will create value, both in medical devices and pharmaceuticals.

Matt, maybe just one other point I would make is that I think what -- hopefully, you've also been able to observe is the disciplined approach that we've also taken with divestitures. And we have put a lot of effort into making sure that we're maximizing the value creation opportunities with our existing businesses. And we evaluate them strategically to look at the potential in the markets that they compete, on our ability to execute on the quality of our pipeline and/or the complementary nature of other portions of our business. And we've been quite consistent over the last decade in saying, if we don't meet those criteria, then perhaps those businesses are better suited either as independent entities or as part of a different company. We don't do that lightly. We put a lot of thought into it. But I think that what we've been able to do as a result of that is allocate capital and, again, continue to provide fuel for growth in other areas of our business where we think we can better meet patient consumer need and also accelerate growth.

I think we've got time for one more question.

Our final question today is coming from Danielle Antalffy from SVB Leerink.

Congrats on the big news. I have one question and one follow-up. I'll ask the follow-up first. The follow-up is actually, does this mean we no longer get swag when we visit J&J headquarters because that will be a real bummer? But the real question here is whether you think -- so you're still going to have very large franchises list of pharma and medical device business. And I'm just curious about how much this improved J&J's ability to be very nimble when it comes to M&A and/or organic investment, and whether we should think about J&J being incrementally more active in selling the product pipelines and things like that.

Danielle, we'll make sure that we give you the right kind of swag going forward on that. But look what we would say is, absolutely, we believe this will -- part of our goal here is to make this a more agile organization. And I'm proud of the agility that we've been able to demonstrate even at the size and scale and diversity of our business up into this point. As I mentioned earlier, our goal here is to continue to drive great performance within each of the sectors that Johnson & Johnson will continue to compete in as well as to acquire where we see significant unmet need or significant growth opportunities into our business. And we think, certainly, the consumer business, given its singular focus now on those particular markets, it should increase its ability to do that as well. So again, we've given a lot of thought. We understand the historical significance of this. We do think it is a big and bold initiative. But ultimately, we think this is about increasing innovation, accelerating growth and ultimately reaching more patients and consumers around the world.

And Danielle, just to maybe underscore some of the prepared remarks. As we intend to enable both organizations to separate with a very strong balance sheet supported by strong free cash flow. So both organizations will certainly have the financial capacity and muscle to pursue those inorganic opportunities that strategically fit in their business.

And the way we organized, I mean, in our medical device and pharmaceutical business when it comes to external innovation, we are organized by therapeutic area by franchise. So each therapeutic area in pharmaceuticals and its franchise in medical devices has its own distinct strategy in pursuing external innovation as a core part of the way we grow our portfolio. And we have common areas like our innovation centers in which we try to capitalize on the strength, financial and scientific of Johnson & Johnson to be able to identify opportunities early on and to onboard them. And we have a strong track record of delivering value through external innovation, both in our pharmaceutical and medical device business. It will continue to be clearly one of the key areas that we were open for business and continue to have a significant focus there.

Thank you, Danielle, and thanks to everyone for your questions and your continued interest in Johnson & Johnson. Apologies to those who we couldn't get to because of time. But please don't hesitate to reach out to our Investor Relations team as needed. We look forward to having the opportunity to speak with all of you in the near future and answer more of your questions during a lunchtime panel at next week's Pharmaceutical Business Review scheduled for November 18. Have a great day. We'll talk to you soon.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.