Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Good morning, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be hosting a fireside chat with Joaquin Duato, Chairman and CEO of J&J today. So Joaquin, happy new year.

Thank you.

And thanks for joining us. I thought I might just kick off the conversation. You're about a year into the CEO role, and I'd love to just hear some of your top priorities for the company as we think about 2023 and beyond and kind of what you're most focused on in the role right now.

Thank you, Chris, and thank you for inviting us, Johnson & Johnson, to participate once again in the conference. So the overarching goal for Johnson & Johnson, it's to be able to deliver sustained growth for patients and shareholders. And that's something that we do while being squarely focused on the patient in everything we do and also working with the values of our credo as we have done during a long period of time. So when I think about that, and I think about Johnson & Johnson, being 1 year in the role of CEO, I always wonder how can we sustain the success and the reputation of Johnson & Johnson during a long period of time, not only in 2022 or 2023, but in this decade and beyond. And I always think Johnson & Johnson has to evolve. So when you think about our decision to separate our Consumer business and create 2 new companies, the new Consumer Health company and the new Johnson & Johnson around Pharmaceuticals and Medical Technology, you have to think about that in the context of the evolution of Johnson & Johnson to be able to deliver more value and to be more competitive. So that's what we are trying to do, deliver more value and be more competitive. So my 2 priorities that I stated back in '22 were how are we going to drive more competitiveness in the new Johnson & Johnson, in MedTech and Pharmaceuticals, and how we are going to be progressing towards the separation, the successful separation of the -- our Consumer Health business. And I believe, as I'm going to describe, that we are well on our way for both. When it comes to the new Johnson & Johnson and our intent to be market leaders and to deliver above-market growth, we are doing it both from a commercial perspective and also from an innovation perspective. When I look at MedTech, year-to-date September, our MedTech business is growing about 6%. That is above its competitive composite. And I think it's particularly remarkable for a franchise the size of our MedTech business with $27 billion. Most of the companies that are growing in that ZIP code of 6%, they are half or 1/3 of the size of Johnson & Johnson. So I think it's remarkable the evolution of our MedTech business and the type of our market growth that our MedTech business is delivering. When it comes to Pharmaceuticals, the year-to-date growth in September was 8%. Clearly, our market growth is the 11 consecutive year that our Pharmaceutical group is delivering above market growth, and it's a remarkable performance that has driven consistency around time. So from that perspective, competitively, we are doing it in 2022. So if I move to how we are executing in our pipeline to continue to sustain this growth into the future, 2 comments there. One, we have had some interesting approvals lately in Pharmaceuticals with TECVAYLI, our BCMA CD3 bispecific which is already approved. And also the filing of talquetamab, which is our GPRC5D CD3 bispecific, also in relapse/refractory multiple myeloma, which is going to create -- which I believe is the best multiple myeloma portfolio that we -- I'm sure we'll have an opportunity to discuss later. So we are executing well in our pipeline in Pharmaceuticals in 2022. And then when I go to MedTech, we've been able to continue to advance our pipeline. As a matter of fact, the -- it's not only the number of new product launches in MedTech that we have, but also how we have increased our pipeline value in MedTech. When it comes to the number of projects in our pipeline that have more than $100 million of net present value, we have more than doubled during this period. And obviously, in 2022, we also completed the acquisition of Abiomed, which is going to create a new leg of growth for Johnson & Johnson, a new platform. So we are proud of what we accomplished or we are accomplishing in 2022, both competitively and in our pipeline, so being through to the priorities that I stated. And the second priority, which is the separation of our consumer health company, which we have announced that we're going to call Kenvue, by the way, we've made a lot of progress in 2022. We have appointed CEO and CFO designees; a Chairman for the company, Larry Merlo, that used to be the CEO and Chairman of CVS. And since January, we're starting to operate our Consumer business as a company within a company at Johnson & Johnson. And also, we have filed with the SEC our S-1 form in which we indicate that our preferred form of separation, it's an IPO. So we've made a lot of progress. There's not much I can talk about the Consumer separation, as you know, because of the moment we are, but we remain on track for completing the separation and a public market exit in 2023. And we have really met all the milestones that we told The Street that we were going to accomplish in 2022.

Right. Great. One question I get with J&J creating a more focused portfolio with the spin, does that help or can we expect an acceleration in some of your strategic priorities as I think about either Pharma or the MedTech business?

Thank you. That's a great question, and I normally say that the biggest opportunity for Johnson & Johnson is taking advantage of creating a more focused company around MedTech and Pharmaceuticals. Moving from a 3-sector company to a 2-sector company has advantages. It makes Johnson & Johnson a simpler company. It helps us simplifying the company. And when you simplify the company, you make it nimbler, you make it faster, you make it more competitive. And for us, it's only an acceleration of the strategic priorities that we have in Pharmaceuticals and in MedTech that we have outlined. In Pharmaceuticals, we have clearly outlined our goal to be able to continue to grow our market. And we have stated that we plan to grow every single year from until 2025 with positive growth even in the face of the loss of exclusivity of STELARA and that we plan to land $60 billion by 2025 in Pharmaceuticals. This is going to be accomplished mainly through the strength of our existing portfolio, and I'm sure we'll have opportunities to discuss about that later, but also through the new product launches that I described, like SPRAVATO, CARVYKTI, TECVAYLI and then the pipeline that we announced that we have 5 products that will be launched in this period, which all of them have a peak year sales potential of more than $5 billion. And to enumerate those products, CARVYKTI, our BCMA CAR-T is one of them, followed by the combination of RYBREVANT and lazertinib in EGFR mutant non-small cell lung cancer. RYBREVANT is a bispecific EGFR cMET antibody, and lazertinib is an oral EGFR inhibitor. Then the next product it's our Factor XI milvexian that I will have the opportunity to talk to about that later. Then nipocalimab, our FcRn antagonist in autoantibody-mediated diseases. And finally, our bladder cancer platform TARIS. TARIS is a drug-eluting device, which is implanted in the bladder by cystoscopy, that we believe it's going to be able to create a new option for treatment in bladder cancer, which is a very frequent cancer. More than 0.5 million people has bladder cancer, unfortunately, and it's one that is clearly an underserved area. So those are areas of excitement for us in our portfolio in Pharmaceuticals. When it comes to MedTech, we'll continue with our stated goal of being able to go into higher-growth segments, and that applies to higher-growth segments within our existing markets of surgery, orthopedics, vision and cardiology and also higher adjacencies as we have done with Abiomed entering in the high-recovery area. Our focus now in R&D organically is in those areas. We are trying to identify those areas within our existing markets that are faster-growing. For example, if we are talking about orthopedics, we are going into cementless knees, into extremities, into robotics, into areas of the orthopedics market that are faster-growing. If we are talking about vision, we're going to presbyopia. We have a new line of techniques, intraocular lenses for cataracts that provide better quality of vision. When we are talking about cardiac ablation, we are launching new treatment and diagnostic catheters. And when we are talking about our surgery portfolio, we're trying to digitally enable our stapling and our energy group. So that is the type of focus that we are putting in our MedTech business. And as I said, I'm very pleased of the cadence of innovation that we have in our MedTech business and also on how much we have increased the value of our pipeline in our MedTech business. It's really changing the profile of our MedTech business. We continue to have our strength in surgery and in orthopedics and our global leadership position there, but we are moving into faster growth areas in cardiology and in vision, too.

Yes, absolutely. Maybe digging into the Pharmaceutical business first. I guess a little over a year ago, you put out this $60 billion target by 2025. Can you maybe -- just sitting here today, how confident are you in J&J's ability to kind of hit that target? So think about what's been derisked, so think about what the commercial profile programs have been doing.

Thank you and thank you for the question because it's one that I get frequently asked. We continue to drive towards our $60 billion goal in Pharmaceuticals by 2025. And we are confident that we're going to be able to exceed current Street expectations when it comes to our 2025 sales. I mean we'll have an opportunity now if you want to talk about the disconnect.

Yes, I'd love to hear it. Yes, yes.

But let me start with the excitement of the growth areas that I see, right? Let me start with the positives first. So I mean where is that growth going to come from? I have said many times that the growth is going to come from -- mainly through our existing portfolio, through the one that is already derisked, as you mentioned, and that's the key area of growth for us. So our existing portfolio, what products are we talking about? We're talking about DARZALEX, continue to grow in first-line multiple myeloma. We are talking about TREMFYA, which continued to grow share in psoriatic arthritis and in psoriasis. And we are well in our way in our clinical development of TREMFYA in Crohn's disease and in ulcerative colitis with completion dates of our studies in 2023 and '24, respectively. We are talking about our pulmonary arterial hypertension portfolio with UPTRAVI and OPSUMIT that have been affected by the pandemic, but they are going to continue to come back. And we are talking about ERLEADA, which is our androgen receptor antagonist for prostate cancer. So those products are going to be carrying the bulk of our growth into 2025, mainly through indication expansions that we can discuss later and also through -- continue to gain share. We're also talking about our new product launches, SPRAVATO, our medicine, our NMDA agonist for treatment-resistant depression; CARVYKTI, our BCMA CAR-T; and TECVAYLI, which it's been already approved, our BCMA CD3 bispecific; and most likely the addition of talquetamab, our other BCMA bispecific. And then more in the later part of this period, we'll have the launches of our -- some of our [ $5 million ] portfolio products like nipocalimab, the combination of lazertinib and RYBREVANT and the TARIS platform. So those are the reasons to believe on the fact that we will be able to get into this stated goal of $60 billion. Now if you want, I can go more in detail into the -- into every area.

I guess I just -- really, one quick one follow up on that. When I think about the disconnect you see versus '25, it sounds like from the comments, it's maybe more about the expansion of indications for already approved drugs as compared to -- the pipeline seems like it's maybe beyond '25 is where that becomes...

Yes, I mean, let me start with the growth areas. I mean the biggest area of growth, clearly, is our multiple myeloma portfolio. I think we have a best-in-class multiple myeloma portfolio. What we're trying to do with our multiple myeloma portfolio is to change the paradigm from treating to progression to treating to cure. And that is going to encompass being able to create combinations and treatment sequences that are going to drive into cure. That's exactly what we are doing now with CARVYKTI, with our [ CAR-T 2 studies. And one of these studies, CAR-T 2 to 4 ], which is treating patients with 1 to 3 prior lines of therapy, it's going to read soon. So that's going to give you an idea of how a medicine like CARVYKTI could move into earlier lines of therapy and could become a mainstay of treatment of multiple myeloma. So that's a clear area of growth that I think The Street needs to think about, how our entire portfolio in multiple myeloma or DARZALEX in first line, CARVYKTI, TECVAYLI and talquetamab cannot be something that is cannibalizing each other, but creating the treatment paradigms, which are different by combining and sequencing different medicines there. So that's a growth factor that we have to take into consideration. If I continue on the growth side that I think the -- is exciting for me, RYBREVANT plus lazertinib, that's an exciting area for us. It's a large area, a first-line EGFR mutant non-small cell lung cancer. We have a Phase III study, which is called MARIPOSA, which is comparing lazertinib plus RYBREVANT versus TAGRISSO in first-line EGFR mutant non-small cell lung cancer patients. The study will read in 2024. We -- since it's an event in study, there's a potential for an interim analysis in 2023. And that is a very large market, as you can imagine, and we believe that could be a very significant opportunity for us from a growth perspective. If I continue with nipocalimab, our FcRn antagonist in autoantibody-mediated diseases, again, a large area of opportunity. There's more than 200 million people globally affected by autoantibody-mediated diseases. We are now in Phase III in warm autoimmune hemolytic anemia. It may read in 2023, too. We may see results of our rheumatoid arthritis study Phase II in 2023, too. And we'll see results of our myasthenia gravis study of Phase III in 2024. So that's another area of excitement that I believe it's going to be important for us. If I continue in this area, TARIS, the TARIS platform, that's an area that The Street doesn't even have in consideration, right? Bladder cancer is a big problem, more than 0.5 million people with bladder cancer. We are already in Phase III with TARIS with gemcitabine. And also, we have a study that will read in 2023, a [ Phase II, I ] in patients that are undergoing radical cystectomy. So you're going to see more about TARIS, and that's going to help you profile our TARIS platform in bladder cancer, which is a clear area of underserved patients. And then finally, milvexian. We believe that milvexian is going to be a big opportunity. We are developing milvexian in partnership with BMS. We are going to be moving into Phase III in 3 indications: atrial fibrillation, acute coronary syndrome and at the same time, stroke. And look, coronary disease is one of the major causes of data and hospitalization. I do not need to explain to you what the potential of an oral anticoagulant is. And we see there in milvexian, in our Factor XI, the potential of how a medicine that is going to have same or better efficacy than Factor Xa is with a better bleeding profile, which will enable us to expand into multiple indications. So clearly, a very important product for us, milvexian. So those are exciting areas for growth that I think we need to consider. Now let me tell you what I think The Street is missing, too, because some of these things were known. So what do I think The Street is missing? Number one, it's missing the potential of our multiple myeloma portfolio. And I think it's because The Street is thinking cannibalization, and we are seeing treat into cure and combinations of different products there, and that's the type of clinical data you're going to see. You were at ASH this year. You saw the type of clinical studies we have with CARVYKTI, with TECVAYLI, with talquetamab. They are creating new lines of therapy in this area, and I think that will be recognized as time goes by. What is The Street missing, too? The Street is missing the potential of ERLEADA, our androgen receptor antagonist. ERLEADA is approved in metastatic castrate-sensitive prostate cancer and in nonmetastatic castrate-sensitive resistant prostate cancer. But the next level of growth of ERLEADA it's going to be in high-risk, localized or locally advanced prostate cancer. And we have 2 Phase III studies there, one of them is going to be reading in 2023, the next one in 2024 in patients that are undergoing radiation or prostatectomy. And this is going to create a new leg of growth for ERLEADA that is not yet recognized by The Street. The Street is also missing SPRAVATO. SPRAVATO is the -- one of the only medications approved for treatment-resistant depression. It has shown significant efficacy very quickly in the first 24 hours and long term. So far, we have not disclosed the sales of SPRAVATO. And you could expect us disclosing sales of SPRAVATO this year, which is going to increase the confidence on SPRAVATO. So SPRAVATO is another product that The Street is missing. I think The Street is missing the strength of our pulmonary arterial hypertension portfolio, specifically both UPTRAVI and OPSUMIT, they were clearly affected by the pandemic because there were less new patients because pulmonologists were occupied diagnosing and treating COVID. But now you're going to see that changing, and you're going to see a new leg of growth in our pulmonary arterial hypertension portfolio. And then finally, there's another disconnect, an easy one, which is with XARELTO, our Factor Xa. I mean The Street is modeling a loss of exclusivity in the short term, and we see the loss of exclusivity of XARELTO more like second half of the decade event. So there's a number of things that The Street is missing that we hope we'll see more in 2023 as we will start to disclose sales of SPRAVATO, most likely sales of CARVYKTI, too, that are going to increase the conviction of The Street on the potential opportunities that we have to be able to drive towards this $60 billion stated goal in 2025.

It seems like a lot of healthy drivers to offset that.

I hope so, yes.

It's a lot of exposure. Just a couple more in Pharma before going to MedTech. I guess one of the questions I have is on business development priorities. It seems like J&J has had a tremendous amount of success, I think, kind of identifying either partnerships or acquisitions of -- kind of like right after proof of concept and really developing them. Is that still the focus of the organization? Or I guess as we get closer to STELARA, is there maybe more of a focus on looking at things that are closer to market or even in market assets to acquire?