Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Good morning. I'm Josh Jennings from the Cowen medical devices research team, representing my colleagues, Brian Kennedy, Eric Anderson, [ Michael Jackson ] and [ Ajay Suman ]. We are pleased to kick off our track with Mathai Mammen, the Executive Vice President of Pharmaceuticals Research & Development of the Janssen franchise within Johnson & Johnson. Mathai, great to see you this morning. Thanks so much for participating in our conference this year.

Wonderful to be here. And thank you, Josh.

So I know you and your team had a big event back in November, and wanted to dig a little bit deeper into the pharma R&D strategy and pipeline. And I'd like to start off with just -- and Janssen has had quite a run, a multiyear run outpacing the pharma market growth. You've been a big part of that success being the Global Head of R&D for the last 5 years. But you're also a veteran in this space and held positions in Merck and Theravance. Wanted to just get your high-level views on what sets -- what do you think sets Janssen apart from competitors. Over the years, you've learned about the innovation-based strategy, power of the internal R&D teams, deep scientific expertise and source-agnostic approach. But wanted to just hear some of your thoughts to just set a foundation for this discussion and then we'll move on to some other questions.

Sure thing, Josh. It's a really good question. Yes, my role is to run our R&D organization in Pharmaceuticals. But I've also been a long-term student of our industry and really had given a great deal of thought to how we are differentiated. And so what I see is several things that make us quite different. First and foremost, I have to emphasize is our senior team. The hardest thing to do is to pick a project, to be disciplined about not continuing a project. You need people that can see around corners. And I'm really proud of the team, the senior team that we've been able to assemble that are our therapeutic area leaders and our heads of our major global functions. And so they are the ones that largely make the difference. Then in terms of strategy, we are organized quite distinctly from other companies. We allow our therapeutic area heads to cover the full span, from IV on a piece of paper, like what project to start, all the way through the last labeled indication prior to loss of exclusivity. So that scope, that continuity is critical. And I've seen it elsewhere done in different ways. And that makes a profound difference. There's no throwing over any walls. Second, our -- there are a couple of pieces of science. So one that's central to me is the employment of data science. So this is more than just layering in a technology but rather a fundamental change in the culture and the ways of working. And we've been successful over the past couple of years of implementing data science and changing the ways of working throughout numerous parts of research and development and are seeing tangible results in increasing the likelihood that we're going to be successful defining the right patient population, finding the right patients for that particular drug and just overall efficiency in time and resources. So that will continue in the coming years, and I hope we're a leader there. And the last piece of science is immunology. And so immunology right now has really flowered as a discipline. And it shows up in a major way in every single one of the therapeutic areas that we're invested in. So we've formed and we want to be an immunology powerhouse. And we've done that through key elements of connectivity among the therapeutic areas. And then finally, we recognize that some of the challenges of new modalities like gene therapy and cell therapy are all around manufacturing. And we recognize that this is not an engineering feat, but rather they're genuine scientific problems to understand and be creative around in the manufacturing space. And so we've invested with the right kinds of people and the right level of resource so that, that's not a hangup for us as we go forward in this next-generation products. So all of the above together constitute, I think, a pretty special organization that I'm proud of.

Excellent. And then wanted to ask about the leadership change. Joaquin Duato is now in the CEO seat. He has a -- one hand, he has a deep history as a worldwide Chairman of Janssen between, I think, 2011 and 2018. And on the other hand, he stated in the early days of his tenure, he wants the success of the Medical Devices business to be part of his legacy. But how do you think this leadership transition could impact the pharma franchise?

I think Joaquin is a global leader. He's a dual citizen of Spain and the United States. He sees the globe that we have to serve. He's strongly credo-driven, every aspect of the credo, our mission towards patients, very important to him. And so -- as was Alex Gorsky, all of the above. So to me, like the transition has been outstanding. Joaquin is an outstanding leader and will lead us now through this next chapter. For the Pharmaceutical business and Pharmaceutical R&D, it's -- there are no surprises. So we continue using the same strategy that we've laid out in the past and most recently at this business review last year. And so no changes, full support for what we're doing. Yes. And he has said clearly that success here is success being best-in-class as each of the sectors that we operate in. And that's still our plan within Pharmaceuticals.

Excellent. And just thinking about the planned consumer spin and any positive impacts we should be thinking about for the pharma franchise, I think when we hear a bit the spin strategy rationale from major pharma and med tech players, it usually includes an increased focus on the remaining business units as well as the spin unit. But it's challenging for us to imagine the focus on Janssen intensifying any further. Like you just spent $9.6 billion in R&D in 2020 alone. But any kind of incremental positive elements to the consumer spin as it relates to your franchise?

I think it's -- as you said, the rationale is pretty clear for why the consumer spin is happening, to create two powerful independent companies. The environment we're in is just increasingly challenging for our sectors. And it helps right now to have individual companies follow, in as unconstrained manner, their own strategies. And so they can optimize for their own sectors in a way that was harder -- increasingly harder to do as one, large, all-encompassing company. And so -- and then investor groups that are most interested in those particular two companies can supercharge and go forward. So we believe that both companies are going to be really strong. So the remainco, the one that is Janssen Pharmaceuticals and tech, to me, share a common vision. It's a high level of innovation around patient unmet need multiyear programs to anticipate where unmet need is moving and new science and new engineering. And so in a sense, that's more thematic and allow a greater degree of energy and focus. And resources alone, money alone is not the incremental that I'd look forward to. It's the totality of the company and its utter focus on driving innovations in these areas of unmet need both in med tech and pharmaceuticals. So that's where I see the incremental is that degree of intellectual bandwidth and focus.

And just thinking about any downside -- a downside scenario of the spin. And I think historically, as kind of the spin potential was proposed to the J&J team -- executive team, they talked about just the balance of the three silos. And I think it was when pharma spin many years now was under pressure, the consumer business kind of lifted more weight. But there's also this brand recognition element of having the consumer business underneath the same roof as med device and pharma. But is there any downside? And then maybe did the success of the pharma unit and the sustained success over the last 5-plus years allow this kind of unlocking of value with the consumer spin because the confidence in the pharma business' trajectory going forward?

Yes. I mean, there was -- it's a complex analysis as you've alluded to. There are pros and cons to remaining as an organization. The company leadership has laid out the rationale pretty clearly. I don't see any meaningful downside to Pharmaceuticals. If anything, it will be this improved focus and energy, like I said, that thematically ties the remaining two sectors together in a powerful way. There are elements, if I can mention for just a minute, that are true synergies between the med tech and pharmaceutical sector that I look forward to working on. As an example of that, there's a technology called oncolytic viruses, where the virus is engineered to contain particular cytokines that might induce death of cancer in a particularly immunogenic way so that it -- [indiscernible] vaccine. Great idea, very tough to implement, except in these golf ball-like tumors on the surface of your skin with melanoma. But with the med tech surgical device sector and the MONARCH device, we have now found a way to access deep lung. And we'll pursue that kind of technology in a way that's unique to Johnson & Johnson. There is no other company that could pull that off. And if you could manage percutaneous delivery and access even other parts of the body outside the lung, this has got tremendous transformational potential in cancer that one couldn't get to if the two sectors weren't together. And there are other examples of that in Vision contact lenses. We just launched a drug-eluting -- ketotifen-eluting contact lens. We have our bladder device drug combination for treating early-stage cancers. I'd imagine the mindset of the company, if these two sectors could collaborate freely, could create some pretty unique solutions that greatly benefit patients in addition to being strong sectors in their own right.

Great. Interesting. And just to think about -- just to follow up on your answer there, I mean, should investors be thinking that there will be an increased focus on cross-collaborations between pharma and the med device unit? And are there other drug device combos in the pipeline that you will expand outside of the TARIS asset that you just described?

I think it's not -- we won't force it, of course. Like the sectors do need to be very strong and unconstrained in their own. Like I want us to be -- continue to be gloriously successful as a Pharmaceutical business, and we're driving that pretty hard. But because we're together in the same company and we mix all the time, engineering ideas and scientific ideas do naturally come together. And I think the investors and patients in the health care system can anticipate more collaborative efforts that provide these, like I said before, unique solutions, unique solutions that you can't imagine coming from elsewhere.

Great. I want to just focus on Janssen here and just ask about the decision to add the retina division in 2019 and just piggyback on the med device and pharma collaboration work that you guys envision. Did you -- did the positioning of J&J Vision franchise in the ophtha market play a part in the strategic rationale? Was it a way to enter into gene therapy space? I'm sure there was a number of great elements to the strategy, but would love to just go back in time and hear about the drivers between that expansion and the retina therapies.

It's a great question and maybe an opportunity to talk about how we enter any new field. It fundamentally isn't about some existing infrastructure or some know-how within the organization. It's not about that. It's really about purely do we anticipate that the diseases that we're trying to tackle, in this case, retinal diseases, are going to be or are well-enough understood to practically interfere with and ameliorate. Like it really comes down to that. The unmet need is unquestionable in retinal diseases from the obvious, like genetically driven causes of blindness that affect retinal cells and retinal function, to AMD, wet and dry AMD, geographic atrophy, diabetic macular edema. Glaucoma ultimately is a retinal disease as this applies pressure to the back of the eye and causes cell -- the retinal cell death. So we -- I've been following this area for close to a decade and felt a few years back, as you said, that the science and understanding of the diseases have matured sufficiently to allow a multi-disease strategy. So it's not a one-off. The ophthalmology has gone through various phases, where there were glaucoma treatments with beta agonists and prostanoids. And then that died out in that they were genericized -- it was a genericized market. Then VEGF came forward as a singular mechanism to treat AMD. And that will continue. But what I saw is that there's a broad-based approach with multiple biological pathways now to tackle all of the diseases that I just mentioned. And so that's what Johnson & Johnson or Janssen needs to actually initiate a new space. Gene therapy is a modality that makes sense for the inherited retinal diseases that we're going after there. And that's a separate factor in a sense. It isn't because of gene therapy that we're in the retinal space. It's what I said before around unmet need and understanding of science. But it helps that we have a modality that we can put into a small, relatively immuno-privileged space so as to circumvent some of the many challenges that gene therapy has in general. And so this is an entry point for us to get our feet wet, so to speak, in gene therapy that's been really effective. So in our RPGR program, which is a defective gene in X-linked retinitis pigmentosa, we've been able to generate Phase II data -- wonderful Phase II data that really, per the measurements in Phase II and all the anecdotal comments coming back from the patients in the trial, has made a terrific difference to people whose lives were getting worse and worse through loss of vision that have X-linked retinitis pigmentosa. And then we have follow-on gene therapies with achromatopsia. We have a broad-based approach to macular edema. And so this is exciting and coming along. We are in Phase III with the program I mentioned, fixing RPGR for X-linked retinitis pigmentosa now. So it's an emerging therapeutic area. I believe strongly that the science does support it being a disease area stronghold rather within the broader set of therapy -- therapeutic areas that we're in. And then over the next few years, we hope to continue to augment that, both with the gene therapy modality but other more traditional modalities of proteins and small molecules.

Excellent. And thinking about just from a high level, I mean, you just laid out the strategy how to get into a new space. But now in the post-spin area, do you Janssen will be more willing to expand outside the six core verticals? And you have CV, cardiovascular, TAVRs and retina in one, immunology, IV, vaccines, neuroscience, oncology and pulmonary hypertension. And I guess, would the appetite be stronger to add a new division in the post-consumer spin era?

I don't think it's either stronger or weaker. It's our strategy that we -- I mean, I told the team before that every 10 or 12 years, we need to reinvent the entire portfolio, which is a daunting task. And so it's always the case that we're looking across broadly all of medicine and science to understand where we can make a difference, where there's enough science that's brewing that we believe will mature in the right time frame, and let's jump -- let's be one of the leaders and dig in deep and be one of the best in whatever areas we commit to. The reasons that we would exit a space is that the science is either not cooperative, like the data are not what we were hoping, or the unmet need like in the case, for example, of injectables for psoriasis. After the terrific data we have with TREMFYA right now, we don't have a large R&D effort for additional biologics injectables in psoriasis. We will turn, of course, to oral modulators to access the broader swath of the population. But it's the unmet need there in that case. It can be the science in other cases. And then that disciplined exit is what creates a space and resources to go into new spaces. So I think part of our secret sauce is that we're particularly strong at evaluating new spaces in a disciplined way, not getting ourselves but really in a disciplined way. And we're particularly strong at exiting spaces where we think that we don't have as much to add as compared to entering something new.

Great. I wanted to -- there's some investor focus on STELARA loss of exclusivity that's upcoming in the next 24 months. And Janssen was able to weather the REMICADE biosimilar storm very effectively, still delivered market-leading growth in the face of those headwinds. But can you talk about how the team has planned for the STELARA LOE? And you just had some recent solid TREMFYA data in Crohn's and UC. But maybe talk about how big of a deal that line extension plan is for TREMFYA in terms of defending your turf in IBD.

Yes. No, it's another great question. Of course, loss of exclusivity or potential loss of exclusivity, it shouldn't be ever a surprise, like these are known years and years ahead of time. And so we've known this is coming for a very long time. And as you mentioned, the company did a terrific job, not only weathering but driving through REMICADE. And I think you're going to see a repeat here or I know you're going to see a repeat here. We gave some of the reasons to believe in the business review at the end of last year with our leading products, including DARZALEX FASPRO, the subcutaneous version of DARZALEX. TREMFYA is a rapidly growing product that hits purely IL-23. And we're building just a terrific set of evidence sets right now for why TREMFYA is going to be a very important product. But then we don't think of TREMFYA needing to solve the STELARA LOE alone. We have an entire portfolio. And we take a portfolio mindset with this. We have a number of new products. As we detailed in the Pharmaceutical business review, we've committed between 2021 and 2025 14 new filings of not just small products, big products with average peak year sales of several billion dollars-plus with 5 of them having peak year sales of $5 billion or more. And so it's the totality of these that allow us to feel confident that we're going to ride right through this particular LOE, and there will be more LOEs to come in the future, as they always do, with great confidence of continued above-market growth. We have -- you saw this, but we just had an approval of CARVYKTI. And this product is very special to us, for the team that's been trying to benefit patients with multiple myeloma now for a long time from VELCADE to DARZALEX to more recent entries. It's super exciting to be able to launch what I think is a product where I've never seen such good data in any cancer indication ever. And then we have more good news that's coming. Actually, we just disclosed for the first time, we have a BCMA CD3 redirector called teclistimab. And we filed that at the end of the year, and we just heard the good news in the last couple of days that we have priority review. So we're looking forward to an enthusiastic review from FDA and hopefully an approval later this year. So that's going to help us -- all of the above, it's not just TREMFYA, but all of the above help us feel confident of above-market growth.

Yes. So there was impressive download back in November in terms of all the drivers and the road map in the plan out to 2025. And thank you for the update on teclistamab. And maybe just a follow-up there. What sort of label do you anticipate? And where is it likely to be positioned relative to CARVYKTI?

Yes. So teclistamab will -- the label will reflect the trial we did. So it's late-line therapy. We're going to figure out how -- like the full totality of the data and what that teaches us for coexistence of multiple kinds of therapies for multiple myeloma. Multiple myeloma, just to state the obvious, is still a deadly condition. And there hasn't been, so far, any magical total cure. And there's a really good story as an example of how all of these products are critical to patients as a whole population. In one of the patients in the initial trial for CARVYKTI was a gentleman from the United States in what was the earlier version of CARVYKTI run in China. And he was a complete response, a stringent complete response. And he was good for multiple years but recently relapsed, sadly. But he was entered on our talquetamab. This is the GPRC5D CD3 redirector program and had a complete response. So he's good again. And so it just says that even with powerful therapies out there, we need to work as an industry, as a pharmaceutical company to continue innovating, to continue handling what are very challenging diseases. So we see as data evolve, as populations evolve, as we learn more and more about these various therapies how they will coexist and help patients going forward.

Great. And then just a follow-up on CARVYKTI as well, I know you've talked about this topic and -- but just now with the approval in hand just to readdress it. And sorry to make you -- but just thinking about the volume and supply you anticipate initially and how supply could increase over time into 2023 and beyond.

Yes. So we're taking a very disciplined -- this is a powerful cell therapy, right? And there's a lot of good that can be done. But that power comes from the potency of that cell, the CAR-transfected T-cell. And so we're taking this disciplined approach, where we're going to cautiously go out in a staged way. We're going to watch every patient. And we're confident that we can supply what we need in our staged approach. And so through the end of 2022, we plan on opening up more and more centers as we continue to learn and gain confidence. So it's 100% at the end of the day about the patients. We want them to have effective and safe therapy. And so we'll take that as our center of strategy and our approach. And so we're confident that supply will keep up with demand as the years go on. CAR T-cell manufacturing is not a finished product. It gets -- there's lots of due science in there that we're still learning: which cells to transfect, how to grow them, what to measure that makes them particularly effective. So all of this, over time, we've set up the systems to learn. And so we'll be able to not just handle the increased demand as we go to earlier lines with CARVYKTI. But also as we look at other CD3 redirector programs and other CAR T programs that are in our pipeline, we'll be prepared more and more with the advances in science applied to manufacturing.

Excellent. And then one more -- or another question on one of the drivers that you mentioned in your answer about growing through the STELARA LOE. But just DARZALEX and GEN3014, HexaBody-CD38, and maybe just a high-level question, how is GEN3014 differentiated from DARZALEX? And then when can we expect initial data?

Yes. So this study with the HexaBody is being run by Genmab in close collaboration with us. And it's a next-generation even more effective CD38 blocker, deep activity on CD38-positive cells. And we'll see data towards the end of this year that will help us understand whether there's a path forward both in multiple myeloma, by the way, and diffused large cell B-cell lymphoma. And so this is exciting for us. But we're also really proud of DARZALEX FASPRO. And we see that as a big difference maker that we continue to build on. So this is a potential bet on something that could be next generation.

Great. We -- Cowen health care colleagues hosted a COVID-19 vaccine panel to kick off one of the kickoff panels of the conference. I just wanted to just ask you about Janssen's COVID-19 vaccine program. And is there anything to share on the manufacturing hold that was recently announced and whether this was baked into the 2022 guidance range of roughly $3 billion in revenue? And just how much further development does your team plan on for the COVID vaccine asset?

Yes. No, it's a really good question. We're proud of the efforts that we've made on this vaccine. Our whole company is -- we've -- the features of the vaccine are we've been saying. And we'll continue to provide evidence and data around both the absolute level of protection, the breadth of protection against both Omicron and potential future variants. And the underlying scientific reason for that and its durability is the very strong T-cell response that it induces. So I mentioned that -- in an earlier question our real strength in immunology, and that's helping us understand that vaccines and vaccine technology need to measure antibody, protective antibody levels, but also need to measure the breadth of cell-mediated immunity responses to the vaccine. So that's point one. Point two, you asked specifically about the focus in the world. And we've shifted our focus in the world to lower- and middle-income regions of the world that need our vaccine. It continues to be very important to particular regions because it's a single dose, followed variably by a booster at some point well after the first dose. It's easily transported and moved around, which is extremely helpful in the last mile, which we see as an issue globally right now. Even if vaccines are sitting in freezers somewhere, to be able to deliver them and put them into arms is a nontrivial task in many parts of the world. So we'll see further distribution of the vaccine through the year. And we'll be -- we'll continue to be proud of protecting citizens across the world.

Mathai, thanks so much for spending time with us this morning. And that 0.5 hour went by quickly. We didn't get through our entire list of questions, but we didn't expect to. But can't thank you enough for participating in the Cowen Healthcare Conference this year. Great to see you virtually and then looking forward to more updates as we move through 2022.

Thanks for the opportunity to talk, Josh.

Absolutely. Have a great rest of the day.

You, too.