Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Good morning. I'm Chris Schott at JPMorgan, and it's my pleasure to be hosting a fireside chat this morning with Joaquin Duato, who's assuming the CEO role at J&J earlier this year. So Joaquin, Happy New Year, and great to be speaking with you today. Maybe just to kick off the conversation, and I know this is your first presentation to The Street as CEO, would love to hear about your top priorities as you move into the role.

Thank you, Chris, and thank you, everybody, for joining. As you can imagine, I am deeply honored to be the eighth CEO of this remarkable company, Johnson & Johnson. And I am very excited about taking the role now in what I think is a moment of opportunity for health care in which Johnson & Johnson, it's in a very good position to continue to create value and accelerate growth by focusing mainly on what has made us great, differentiation based on science and technology. Obviously, Chris, when people ask me about what do you think about the CEO role and what this change of leadership means, that's a question that I get all the time now. I say, look, there are things that are going to remain the same, like our focus on the patient and the consumer, our mission to change the trajectory of health for humanity and especially the values of our credo, focusing on putting the patient at the center of everything we do. So those things are not going to change. But at the same time, we have to continue to evolve. Johnson & Johnson has to continue to ask the tough questions, to make the bold decision. So every single day, we earn the right to be the iconic and respected organization that we are today, and we build upon that legacy. So one of the things I use as an example of what remains the same and what needs to evolve is our decision of creating the new consumer company on one hand and then having Johnson & Johnson, the new Johnson & Johnson, focus on medical innovation through Pharmaceutical and Medical Devices. That decision of creating these two companies, it's a way that I would like investors to think that we are evolving to make sure that we sustain and will build upon our legacy to be able to be the great company that you have come to recognize us this decade and beyond. So that's the framing and the type of mindset I would bring to the CEO job of Johnson & Johnson. Then when I think about 2022 -- and I'm sure investors are thinking, "What are your priorities for 2022? First, in 2022, we will continue to manage Johnson & Johnson as a three-sector company. The time frame, as you know, of the consumer separation will be in 18 to 24 months or more towards the end of 2023. So we will continue to manage Johnson & Johnson as a three-sector company in 2022. And I have two priorities that I want to underline, do not go into any particular order, so nobody reads to the way I verbalize my priority. So I have three priorities. Number one, obviously, I want to make sure that we successfully separate and create our new Consumer Health company and we build a thriving, stand-alone leader that has the possibility to both improve performance, accelerate growth and also unlock value for shareholders. During the last few years, the performance of our Consumer Health business has been better in top line. And also, we have had significant improvements in our operating margins. So from that position of strength, we thought it was the right moment to create this new Consumer Health company. And that's going to be a priority. And you should expect news from us as we progress during 2022 of how we are making decisions as far as the separation. The second thing and the next two priorities are going to be related with the new Johnson & Johnson. And the new Johnson & Johnson is going to remain the largest and more diversified health care company with $80 billion of sales. So we will retain the benefits of scale and diversification. But we'll be able to be more targeted and more streamlined by focusing exclusively on medical innovation and focusing on the patients. So when it comes to pharmaceuticals, which has been the growth engine of Johnson & Johnson, my priority is to continue to deliver on the promise of our pipeline, to continue to generate long-term above-market growth rates. I think you attended our Pharmaceutical business review earlier in November. And we lay out there a path forward to be able to overcome some significant patent expirations that we have mid-decade. So by now, I think we're reading all the reports from you guys coming back from the business review day, I think we have laid out a plan. We have to deliver on it, but we already have a plan in order to be able to do that. So our goal there is to continue to deliver compounded average growth of 5%, to grow every single year and to reach to a level of $60 billion by 2025. So we wanted to be specific on our goals. And I'm sure I'll have more questions later on how we are going to achieve that. But that's my second priority. The third priority is going to continue in the improved performance of med tech to make our med tech sector a best-in-class performance. And as I said during the review day that we had, that's going to be a key element of my tenure. I know many of you know that I come from the pharmaceutical side. I also worked in Medical Devices here at Johnson & Johnson. And a key element of my tenure would be to make our med tech sector a best-in-class performer. They're already working through that. We have had improved execution. We have positive evolution in our top line. As a matter of fact, through the third quarter of 2021, we delivered 5% adjusted operational growth versus a more normalized 2019. And we have gained or maintained share in most of our 11 more than $1 billion platforms. And also, we have improved cadence of innovation with 17 new product launches during the first half of 2021. This is the highest number of new product launches. And I plan, as I have said previously, to continue to focus on organic and inorganic opportunities so as to move our med tech sector into higher growth markets and market segments. So those are the three priorities and the areas of focus for me in 2022. And they are going to be enveloped in a strong financial profile that is going to give us the latitude to be able to invest for the short-term expectations that The Street has about us but also to build for the long term. As you know, and importantly, we are about to turn from a net debt to a net cash position for the first time in 4 years. And we're going to have the flexibility and the muscle to continue to grow our dividend. And I want to make that clear, it's in 59 consecutive years. And I plan to continue to do that. So we will continue to grow our dividend. I don't plan to be the first one changing that. So we'll continue to grow our dividend. But at the same time, we plan to be bolder with the strategic acquisitions that will enhance the profile of the new Johnson & Johnson in higher-growth markets, and if warranted, too, consider even a share repurchase program. I believe that these priorities will position Johnson & Johnson to remain the largest and most impactful health care company. And I could not be more excited to get to work into that in 2022.

Great. Great opening remarks there. So maybe just digging into maybe, first, the kind of big news from late last year of the consumer separation. Can you just elaborate a bit more on what drove the decision to spin? And I guess, one of the questions we get from investors is, was this more about unlocking value in the stock? Or do you think there's an opportunity that the business units themselves can perform better separated from each other versus the structure you're currently operating in?

I would tell you it's about both. It's about unlocking value and it's also about accelerating growth and better performance. So we had -- as you can imagine, we had a long and very thoughtful and deliberate discussion about the separation of the Consumer Health company both with the Executive Committee and the Board of Directors, right? So this was a very thoughtful and deliberate process. And our goal was both, accelerating performance that we think we can accomplish through a fit-for-purpose model and at the same time, unlocking value for shareholders as most of these transactions have done in the past. So this is important to recognize. So we think that our broad-based business has historically served as well, but that the businesses now of medical innovation and consumer are becoming distinct and more complex and they require more focus, more agility and unprecedented innovation. And that, that's going to be better accomplished by creating two independent companies. I have worked very closely with our Consumer Health business during the last 3 years. And I have seen how much the Consumer Health business has changed at the speed of social media and same-day delivery. And that has been accentuated by the pandemic. So I think that once consumer is a stand-alone company, it's going to have greater investor visibility and greater flexibility to accelerate innovation and to have targeted capital allocation strategies to drive growth in the areas that we are today. I want to remark, we are doing this from a position of strength. This is the best moment of our Consumer Health sector at least in the last 5 years. And we have presented competitive growth through the third quarter with 5.7% adjusted growth in the third quarter with a top quartile margin profile. So we are in a good place with our Consumer Health sector with a 5.7% growth in the third quarter plus the top quartile margin profile. And we have the conviction that this $15 billion Consumer Health company, it's going to be a global leader able to compete in the consumer health industry. And we are very, very well persuaded that this planned separation is going to accomplish these two goals that you mentioned before, accelerate performance in the consumer area through a fit-for-purpose model and also dedicated capital allocation strategies. And at the same time, as most of these transactions can do and especially this one, create value shareholders and give us the opportunity on the other side to create a new Johnson & Johnson that is also going to be more targeted and more streamlined in pursuing medical innovation.

Yes. And another point of the new Johnson & Johnson, can we think about this transaction accelerating strategic priorities both within pharma and devices, given the more focused business? And I guess -- so I guess from -- on one hand, it's an acceleration. And I guess, the question I have is does the separation slow down anything within the existing business as we think about just the next 12 to 18 months, you're actually physically separating the business out?

Great question. I would say right off the bat, I will tell you the separation is not going to slow down us at all in any of the strategic priorities, both in consumer pharmaceuticals or Medical Devices. In 2022, as I mentioned before, we're going to run the business as we always have done with three divisions and we will continue to maximize opportunities of each sector individually. And our goal is that each sector individually, it's a top performer. And then there could be also opportunities for collaboration, especially between Pharmaceutical and Medical Devices. So there's not going to be any slowdown of priorities. As a matter of fact, as I mentioned before, the new Johnson & Johnson, the one focused around Pharmaceutical and Medical Devices, will still remain the largest and more diversified health care company with sales around $80 billion. And we will retain the benefits of scale but also the ability to streamline our operations. Consumer added complexity to Johnson & Johnson. And now being focused only in Medical Devices and Pharmaceuticals businesses that share many things as far as the focus on science and technology and similar regulatory environments is going to enable us to streamline operations. And we expect that the new Johnson & Johnson will also be more focused in targeted investments, both organic and inorganic. And we expect to execute the creation of these two companies with sense of urgency. We have laid out a timeline, as you know, of 18 to 24 months for the separation. And in the meantime, we will continue to run the two businesses effectively with sense of urgency as we have done during our 135 years of history. And that includes, as you mentioned at the beginning, continue to deploy cash for both organic and inorganic opportunities. So if we find opportunities, the separation work stream is not going to prevent us from forging ahead.

Okay. Great. So there's no kind of pause on other strategic priorities as this goes through?

Absolutely. And I see this only as a catalyst and acceleration of our strategic priorities in med tech and pharmaceuticals because of the streamline and additional focus but also eventually an opportunity for our Consumer Health company to fly solo and to be able to reach the potential that it has. There's been not enough investors' visibility to our Consumer Health business. Now by creating this separate Consumer Health business, our investors are going to see the strength of our Consumer Health business, the number of iconic brands, the global scale and our penetration, the unique relationship that consumers have with our brands. I do believe that this is going to be a very important moment for our Consumer Health business also to take off.

Okay. Great. Maybe pivoting into the divisions a little bit more, first, on pharma. You obviously just hosted a pretty broad portfolio update, a lot of focus on pipeline. Help us just put some perspective on the business as I maybe think about the pipeline you laid out relative to the patent cycle the company is facing. Just what gives you confidence in the ability to be able to grow through that patent cycle?

Thank you. So I mean I know all investors know that patent expiries and loss of exclusivity, it's a fact of the pharmaceutical business life cycle. So we know that. Part of my goal has been, while I was Chairman of the Pharmaceutical Group, to create a model that was going to be able to deliver sustained above-market growth based on diversification and based on very thoughtful preparation for the inevitable patent expires. And I trust that you have seen that we've been able to do that through the REMICADE patent expiration that, by the way, was very impactful for Johnson & Johnson during this period. And as a matter of fact, during the last 5 years, despite of REMICADE patent expiration and thanks to the thoughtful preparation, we were able to double the market growth. So that's the type of preparation that we are having now. First, we are focused in continue to identify the best science and the best partnership opportunities to onboard more products into our portfolio and into our pipeline. There's never enough. That's my motto here. There's never enough. So we always look for more. So we are constantly focused in trying to identify more partnership opportunities as we have done very successfully over time. And I think that The Street recognizes that we have a skill in being able to identify, especially in pharmaceuticals, these earlier-on opportunities. But nevertheless, we don't trust on that. We focus on two things, too. One is continue to maximize the value of our currently marketed medicines. And I will expand in a second. I think that's the area where The Street maybe has areas of underestimation of our existing portfolio. And second, continue to strengthen our pipeline with the new product launches that we have in store that we presented in our Pharmaceutical R&D Day. So in that sense, we have had record levels of investment in R&D in 2020. And through the first 3 quarters of 2021, we are on pace to exceed the 2020 level. So we are very focused on investing in R&D in order to continue to drive our pipeline. So let me now take a step back and go into our existing portfolio of products, which I believe, as I said, is the area in which The Street may underestimate us. First, our 13 -- we have 13 currently marketed medicines across 6 therapeutic areas that are anticipated to deliver all exceed $1 billion in annual revenues by 2025. So that is a very diverse set of products. I don't think there's any other pharmaceutical company with 13 $1 billion platforms. And that includes some of our key brands such as DARZALEX, ERLEADA, TREMFYA or IMBRUVICA, all growth drivers for us. But importantly, we expect to file 36 significant line expansions for these 13 $1 billion products through 2025. This includes additional lines of therapy, combination regimens, new formulations, things that are going to enable us to reach more patients. So this is the perspective of our product. And I can expand more into the what I believe is the underestimation of The Street later. But the important thing of our existing portfolio to drive growth through 2025 is it's largely derisked. So we are betting on something that we already have in-house and it's mostly through reaching new patients and gaining share through our line extensions. At the same time, we have -- we are complementing this expansion of our existing portfolio with a robust pipeline of 14 novel therapy filings anticipated through 2025, all these 14 with peak sales potential of more than $1 billion. In fact, there are 5 that I'm going to mention that have the ability to exceed $5 billion. And we can discuss those 5 more later. So combined, between the 36 line extension and the 14 new product filings, that is 50 approvals of filings by 2025 that are going to give us the ability to drive through our patent expiries in mid-decade. We have a high level of confidence that we are going to be able to continue to deliver above-market growth. And that was reflected by the fact that we put a number out there. And we said, "Look, by 2025, we expect to generate $60 billion in revenue from our Pharmaceutical business. And also, the pipeline that we are putting forward with these 14 new filings, it's going to be a great predictor for you guys to have belief on our growth potential in the second half of the decade, too. So we are interested not only to show what we can do through 2025, but also be able to show you that from 2025 to 2030, we also will have an enhanced growth profile. So this is the way that we see our pharmaceutical trajectory moving forward. I can go more into the details into the existing products or the new product pipeline. But I want to tell you something, if you want to believe in this, it's based on our ability that we have done over the last decade to deliver constant above-market growth. And that is why we were confident to put a number out there, which is significantly higher than the one The Street has, right? And we feel good that we have a plan. We have to deliver every year, Chris, but we feel good that we have a plan.

Yes, absolutely. I guess one other question I would have on the pharma business, and I think about business development within the segment, you've had a ton of success with kind of post proof-of-concept partnerships or acquisitions. Is that still the focus for the organization? Or do we think about an opportunity to maybe look at more near market assets as we think about the STELARA LOE? I'm just trying to get a sense of is it kind of business as usual as we think about the type of deals? Or do you pivot a little bit just because you are facing a large expiration looking out 3 or 4 years?

So let me tell you one thing that is important of all this, when we talk about the $60 billion by 2025, this is excluding inorganic growth. So whatever we do inorganically would be additive to our plan. That enables us to be able to be very choosy in what are the type of opportunities we are looking in order to make sure that we create value for shareholders when we do a transaction. So it's important for investors to realize that when we say $60 billion, this is all what we already have in-house. Anything that we would do inorganically, it's additive to what we have today. So it would be what I like to call a belt-and-suspenders strategy. But we already have a plan in-house in order to be able to do that. We are constantly, as I said before, trying to identify what is the best science and the best opportunities out there. In Pharmaceuticals for the most part, we have gone to earlier on opportunities. Many of them are partnership or collaborations. And we have multiple examples of that. Some of them extremely successful, like our partnership with Legend in which is going to hopefully lead to the launch of CARVYKTI, our BCMA CAR-T. And we are also open to go to opportunities which are post proof of concept and go to what you would call mid-sized or small-sized acquisitions as we did with Momenta. So we are looking forward to be able to identify more of these earlier-stage opportunities, which typically result into a partnership or collaboration or even post proof-of-concept opportunities, like nipocalimab, that we go into acquisitions that normally are in the $10 billion, $15 billion range. We have the financial muscle to be able to do that. And we are constantly looking for that. Are we ready to go bigger? Look, typically, we have had a trajectory of delivering in this type of post proof-of-concept or earlier-on opportunities. And we plan to continue to do that. But we do not exclude, if the opportunity presents itself, to go bigger than that as we have done in the past with Actelion. So do we scan the market for bigger opportunities than our normal, let's say, post proof-of-concept ideas? Absolutely, we do. We just find it more straightforward to be able to create value for shareholders in the earlier-on or post proof-of-concept opportunities, and at the same time, frankly, increase that gives us the latitude to create more optionality and to have what you would call more shots on goal, which have been at the basis of our success. So it's a combination of being confident with what we have in-house. And that confidence gives us the opportunity to bet more on the future and create a wider range of optionality that gives us the opportunity to have hits that creates significant value. But if there are opportunities out there, which are medium-sized as we did with Actelion, we certainly would take a look at it and we will hesitate to act if the opportunity is there.

Okay. Very interesting. Maybe one last one on the pharma side, you mentioned the pipeline, there's a lot of assets. I think it's $14 billion kind of peak sales programs. What are -- if you were to point out maybe 2 or 3 that you're most excited about or where you think The Street's not appreciating the opportunity, what would be the ones you'd cite to us?

Thank you. And before I go to the assets, let me reinforce something for the investors here. I do think that the investors underestimate and I do believe our existing portfolio, which is the one which mainly for the most part, Chris, is going to drive to the $60 billion in 2025. It's not going to be the launches that I'm going to comment, it's mainly our existing portfolio. And look, when I think about examples of this underestimation, DARZALEX is an example of this underestimation. And our new indications with DARZALEX, the launch of our new formulation of DARZALEX FASPRO, which is already 60% of our global sales, it's accelerating our growth in DARZALEX. And that's a good idea of that. I do think when investors think about TREMFYA and our potential expansion down the road into IBD, especially in Crohn's and in UC, that's another example of underestimation. So I think that there is potential in our existing portfolio beyond what The Street sees today. And that is...

And those [indiscernible]

Yes. That's going to be the major driver of the growth through 2025. Just most of it, I would say, 2/3 or 80% of it is going to come from that. Now when it comes to the new product launches, I would highlight 5 and then I can go into whichever you prefer. The first one is CARVYKTI, which we plan to launch hopefully in 2022. We are very impressed with CARVYKTI, our first BCMA CAR-T therapy. And CARVYKTI, combined with DARZALEX and our biospecifics, has the potential to change the paradigm of treatment in multiple myeloma. Patients with multiple myeloma still today face a poor prognosis. So having more options, it's important to drive towards potentially getting to a cure and changing the treatment paradigm from treating to progression that we are doing today and successfully because we're extending lives to treat into cure. So the combination there of CARVYKTI with DARZALEX and also our biospecific antibodies that, by the way, we just filed for teclistimab, our biospecific BCMA, will help us change the paradigm of treatment in multiple myeloma and will be highlighted by the opportunity that CARVYKTI as a best-in-class BCMA CAR-T can have. We have seen 80% stringent complete responses in the clinical trial, and we are super excited about CARVYKTI. And oh, by the way, we are also doing clinical trials of CARVYKTI in first line, showing that we will change the treatment paradigm there. And I think that's a product that we are very confident on. The second area that we are confident is in nipocalimab. We see a number of opportunities on nipocalimab in auto antibody-driven diseases that create the possibility of a pipeline in a product. In many of these opportunities, we are going to be first. In some of them, we'll be second. And we're going to use our strength in clinical development and in commercialization to be able to be highly competitive in this area. And I think we laid out a plan during our Pharmaceutical Business Review Day to show you how we're going to be developing a large number of indications in order to capitalize in this pipeline product in nipocalimab. The second -- the third super exciting opportunity is RYBREVANT, our biospecific cMET EGFR antibody. We already have an approval for RYBREVANT. It's going to be the first biospecific approved in our pipeline, the first antibody for lung cancer. And we believe that the combination with lazertinib, which is an EGFR [ tyrosine kinase ] inhibitor, can create a new standard of care for EGFR-positive non-small cell lung cancer. And that's an opportunity that The Street is going to be able to evaluate pretty well because there are analogs there for you to understand what the opportunity is, right? If I continue with -- those are three exciting opportunities that I think are relatively straightforward to capture. Then I have another one, which is our new -- our TARIS platform, which is a device for drug delivery, local drug delivery. Our first indication is going to be in bladder cancer. We plan to use it in combination with BALVERSA. And that's a platform that we plan to use in other solid tumors that we are very excited about that would be a good demonstration of combining our expertise in Medical Devices and Pharmaceuticals. And then finally, I'm sure you will hear us more about this opportunity with our partners of BMS, we have milvexian, our factor XI, which we're going to have some interesting reads on Phase II data in 2022 that, I mean, when looking at ELIQUIS and XARELTO, could be a very big product for us. So those are 5 opportunities that we consider that each of them has the potential of peak year sales of more than $5 billion that are going to have an impact in 2025 but most importantly, post 2025. And it's a reflection of the strength of our pipeline. And it's a reflection of how we have progressed in delivering not only in different therapeutic areas but also new treatment modalities like cell therapy, in which through partnering, we've been able to have a very important new products like CARVYKTI. So those are the elements that I feel more excited. In summary, please pay attention to our existing portfolio. And we do have important new launches that will have an impact in 2025 but most importantly, in the second half of the decade.

Yes, which I think is important, just given the longer and longer-term focus people are taking about ongoing patent cycles. Maybe just to pivot a little bit, I know your background is more on the pharma side. But I guess it seems like some of the maybe more pressing challenges that J&J could face could be coming from the device side. So just would love to -- I know you touched on this in the opening remarks. But just some of your broader thoughts on the device business. And what are you most focused on within that part of the portfolio?

So as I mentioned earlier, clearly one of my strategic priorities is to drive our med tech business to be a best-in-class performer. So I repeat it again, so it's clear for everybody. It's going to be a defining moment in my tenuous year. So I mean, please think about that. Don't think about the fact that I have been -- most of my career in pharma, I also worked in Medical Devices. But there's going to be a particular focus in making sure that we are a best-in-class performer in Medical Devices. I have to say that over the past 3 years, the med tech team, under the leadership of Ashley McEvoy, has been in a journey of improving competitiveness already. We went from growing 1.5% in 2017 to nearly 4% in 2019 prior to the COVID impacts. And we have accelerated further in 2021 with 5% growth through Q3 versus a more normalized 2019. So they are already in a journey of accelerated performance. And while COVID impacts have disrupted the entire med tech market and will show more of that disruption in Q4 with the Omicron variant, as I'm sure many of the medical device companies are going to comment on, we have been steadfast that even in the COVID circumstances, our goal has been to be able to continue to enhance our competitiveness. So that's the message we give our teams. Look, COVID will be what it will be. It's not going to be linear. It's very difficult to predict. We need to improve our competitiveness and gain share. So we have 11 platforms in med tech, which are more than $1 billion. And as Ashley shared in our Q3 earnings call, we are gaining share or holding share in almost all of our priority platforms. This includes very significant enhancement in our global market-leading positions in areas like electrophysiology, wound closure, biosurgicals, contact lenses, surgical vision. So in many categories, we are improving our share position. This improvement has not happened by chance. There is a strong focus on the fundamentals, execution, shaping our portfolio, building a world-class engaged team and also continue to advance our innovation agenda. In the first half of 2021, despite of the challenges of COVID-19, our team launched 17 significant new products, which is more than we have done in the past 5 years. So we are already beginning to see our improved performance in Medical Devices. And we plan to continue to see further progress in 2022, barring the volatility that COVID-19 and Omicron are bringing into the market. Let me say that upfront, right? As everybody, we've seen a slowdown in procedures in December due to Omicron. And we don't think that, that will change versus pre-COVID levels until we go through the Omicron surge. And I'm not going to predict how long it's going to take. But barring that, we are on a journey of improvement. Now do we have gaps in our portfolio? And I'm sure you can go there. We do. And we are going to continue to work internally to enhance our digital and robotic capabilities. And we are going to use our financial strength to increase our investment in R&D in organic opportunities but also to look for inorganic opportunities that will bring complementary capabilities and products to our core areas and looking for adjacencies that are higher market growth than where we are today. So we plan to continue to invest in organic opportunities but also to use M&A and to use the strength of our balance sheet to look for inorganic opportunities to continue to build our portfolio.

On that M&A point, is there a sweet spot in terms of deal size? Like in the pharma discussion, you talked about a lot of success you've had post proof of concept, but you'd look at anything from small deals through large deals. Do larger transactions play a role on the Medical Device side in your view? Or are these more likely kind of smaller tuck-in acquisitions?

So I mean, as you can imagine, we -- external innovation or M&A is a key element of our growth moving forward in every segment, Pharmaceuticals and Medical Devices. In Medical Devices, [ you can see two ], and we are constantly looking into that. Over the past 5 years, we've invested about $10 billion in M&A Medical Devices. Transactions like Abbott Medical Optics or Auris are examples of that. Now I realize, to your point earlier, that most of our transactions have been, let's say, in the small or medium size, which is not atypical also in Medical Devices, too. And that's the case because that's where we think we can create more value. We are always driving towards trying to be #1 or #2 in the areas that we are in. And we have done some pruning of our portfolio in order to be able to focus on those areas. Given the recent pruning, our focus is going to be more on the acquisitive side. So let me make that clear. Our focus is going to be more in the acquisitive side, identifying products that will complement our portfolio or will put us in higher-growth market segments that we are not in today. So that's the focus that we are. Now I mean, do we evaluate larger deals? We do know that larger deals are harder to make work financially and operationally. And we know that. But if we were to found one that would work, we could use our balance sheet and our strong credit rating to pursue such an opportunity. But I want to caveat that we all know that those larger deals are more difficult to be able to make it work financial operationally. But if they were to work, we do have the financial flexibility and the credit rating to be able to deliver on that. We are always open to mid-sized and larger deals. And we have demonstrated our ability to be able to do them in the past. Now that said, I think investors can understand that we tend to prefer small deals, medium-sized deals in which we can apply more of our own capabilities, both on the science and the commercial and the manufacturing side. And that's how we have been able to build 25, between med tech and pharma, $1 billion platform businesses. And that has been the secret sauce of Johnson & Johnson. But are we open to them? Yes. Do we have the financial muscle to be able to perform then? Absolutely yes.

Okay. Excellent. And I think we've got about 1 minute left here. Just the last question I might have is just when I look at the growth profile of J&J, it seems like you've got a broad pipeline of assets within both your franchises. Can we continue to think about there being operating margin expansion and kind of leveraged up the P&L over the next few years? Or do we think about the company go into a period where there's maybe a bit more investment in the pipeline and kind of reinvigorating top line growth, where there's maybe a bit less on the margin expansion front? Just any kind of high-level thoughts on that play.

So I mean, in general, we have many times explained our algorithm, right, which is we want to grow sales above market. And at the same time, we want to grow our earnings faster than sales. And we want to have each sector, consumer, Pharmaceutical and Medical Devices, to be competitive in its margin profile towards their competitive set. So that's very important for us. I mean every sector has to be competitive against its competitive set. Then that algorithm remains true over the medium term. We are going to have some variability, as you can imagine, due to the COVID volatility. But that's our algorithm of being able to grow sales faster than the market and then earnings faster than the sales, that will remain. Allow also some variability due to the external factors that you see with COVID that will be reflected also in our competitive set. Now I want to highlight that all our three sectors are now top quartile profitability. We have also been in a journey in consumer to bring consumer at top quartile profitability. We were already in Medical Devices. And clearly, we are in the Pharmaceutical side. So given that all the segments are at the top of the peer set in margin profile, I would like to be more focused on top line growth and in investments. In other words, to move into more of a growth mindset, into a growth company. And the recent levels of investments, especially in R&D, highlight the level of focus that we have in order to be able to do that. We have record levels of investments in 2020 and we're in the same pace in 2021. So please don't understand this like I would like to erode margins. That's not the purpose. But we're already top quartile profitability in each of our sector. My focus -- our focus is going to be in top line growth. And we believe that top line growth is the best way to improve margins. So that's what you should expect with us, that type of algorithm that has enabled us to be able to be a very successful company, continue to generate very strong cash flows as we did in 2020 with $20 billion of cash flows that we can reinvest in the business, continue to pay our growing dividend. We've been growing our dividends for 59 years, I plan to be there. I don't plan to be the one changing that and then utilize what remains for value creation acquisitions, and if granted also, share repurchases.

All right. Well, that's a great way to wrap up. Joaquin, really enjoyed the conversation. Obviously, exciting times ahead for the company. But thanks again for joining us today.

Thank you, Chris, and thank you for everyone for listening. Excited to take the helm at this very important moment for everybody.