Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Okay. We are live. Great. Thank you. So everybody, I'm Lee Hambright, U.S. medical device analyst at Bernstein. We are thrilled to host Johnson & Johnson, Chairman and CEO, Joaquin Duato. Thanks so much for being here. We're scheduled for a 50-minute fireside chat. Just a reminder that you can submit questions through pigeon hole at any time. Joaquin, thanks so much for being here. It's been 1.5 years since you stepped into the CEO role. Maybe you could just start by reflecting a little bit on your experiences and talking about the state of the business at J&J.

Thank you, and thank you for coming to listen to this fireside chat. So let's start with the first quarter and see how Johnson & Johnson has been doing. We had a good first quarter with operational growth for Johnson & Johnson of 7.5%, which you have to put into context that the midpoint of our guidance in 2023 is $98.9 billion, so growing a company of close of $100 billion at 7.5%, it's a solid number. The other important fact is that we had sequential growth in our [ 50 ] sectors, in Consumer, in Pharmaceuticals and in MedTech, showing what I would call momentum when you have the sequential growth. And then finally, we also increased our guidance, both in top line and in bottom line. So we had a solid first quarter. What was behind that solid first quarter, good performance in pharmaceuticals of our core brands, good development of our recent new product launches like SPRAVATO, TECVAYLI or CARVYKTI. And then in the MedTech side, we had good growth in all our franchises with a good uptake of some of our new products like the VELYS robotic system in orthopedics, our ACUVUE OASYS MAX in vision and also our QDOT catheter in atrial fibrillation. So good progress, driven by our existing portfolio and also the new product launches. Also, in the quarter, we had the first quarter with the results of Abiomed as part of the family of Johnson & Johnson companies. And Abiomed growth in the quarter was 22% when you look apples-to-apples. So solid growth of Abiomed, 22%, both in the U.S., in Europe and also in Japan. So overall, a good quarter for us. And what is more important is that we have a number of catalysts, upcoming catalysts, both in MedTech and Pharmaceuticals that make me optimistic about what we are going to face. I know we are going to be discussing about some of the catalysts, but just let me enumerate some of them that are upcoming. Let me start with the Pharmaceutical side, and let me focus in oncology first, especially given that this weekend, we are going to have the American Society of Clinical Oncology, which I plan to attend by the way, and that we are presenting a number of interesting data there. So what are you going to be seeing in the coming months in oncology, we are going to be presenting at ASCO the CARTITUDE-4 data. CARTITUDE-4 is CARVYKTI, our BCMA CAR-T in patients with 1 to 3 prior lines, so earlier in the continuum. And many of you may already know that the data is very solid, very significant with CARTITUDE-4, so that's going to be a catalyst for CARVYKTI. We are also going to -- you're going to be seeing some data on the combination of lazertinib plus RYBREVANT, in -- specifically the CHRYSALIS study, which is in a newly diagnosed non-small cell lung cancer patients with EGFR mutations. The study has a small number of patients but has been already 33.5 months ongoing, and we have not reached yet median PFS. And in a very similar patient population, TAGRISSO's PFS was 18 months. So this is a small study that makes us think that we are in a good position with our larger study, the MARIPOSA study, that will read by the end of the year, in which we are comparing in first line in EGFR-mutated non-small cell lung cancer, amivantamab plus lazertinib versus TAGRISSO, and we'll see that information by the end of the year. Keeping in oncology, other upcoming catalysts that we have is the potential approval of talquetamab later in the year. Talquetamab is our new bispecific GPRC5D -- targeting GPRC5D in multiple myeloma. And it's going to be a new mechanism of action that we are potentially approving by the end of the year. And we are presenting data at ASCO, both the basis of the filing and also a combination study of TECVAYLI BCMA with talquetamab and data of combining talquetamab also with DARZALEX. So that's data that we will present there. To complement that, during this year and in 2024, we may see data of ERLEADA in highly localized -- in high-risk, localized prostate cancer. So that's some of the catalysts that we have in oncology, I would say it's a rich number of catalysts. Moving into immunology, we have already seen the results of our FRONTIER 1 study with our collaboration with Protagonist with an oral IL-23, which have shown biologic-like efficacy with the safety profile of a biologic. We are going to be seeing, in the course of 2023 and 2024, data from nipocalimab in hemolytic disease of the fetus and the newborn, in myasthenia gravis and also in rheumatoid arthritis, and those are highly expected information. And then moving into cardiovascular, we have started already three Phase III studies in stroke, acute coronary syndrome and atrial fibrillation with milvexian in collaboration with our partner, BMS, trying to set up a new standard of care in anti-coagulation. So a very rich number of catalysts that are in front of us in the pharmaceutical side, many of them impacting in the next couple of years. When it comes to MedTech, I commented earlier on the progress that we are making with VELYS, our orthopedic total knee replacement system, which is now the fastest-growing system in the U.S. We are also encouraged by the progress we are doing in atrial fibrillation, both in the radio frequency ablation with the launch of QDOT, which is in the Q-FFICIENCY study has shown significant improvements in efficacy in reducing procedure time without compromising safety. But also, we have shown data on pulsed-field ablation with our inspIRE study and our VARIPULSE catheter in Europe, meeting both primary and secondary endpoints, and we are now studying a dual-energy source catheter with both pulsed-field ablation and radio frequency. Continuing in MedTech, we are progressing with the important studies that we are doing with Abiomed, specifically the ones to expand the use of our percutaneous heart pump, both PROTECT IV and STEMI DTU. And we are having record enrollment in the last quarter in the study. So a number of catalysts too that make us very confident about the progress of these Johnson & Johnson focus in pharmaceuticals and MedTech. So I think that we have made a lot of progress in driving the agenda and in preparing the new Johnson & Johnson once we have completed the IPO of our consumer company to be focused in shaping the future of medicine through MedTech and pharma.

Excellent. I think we should just leave it there. That was amazing, thank you. I'm just kidding. So there's a lot to unpack there. We'll hit a lot of those points that you mentioned. But maybe starting broad, when you became CEO 1.5 years ago, you laid out your top 3 priorities, and that was to make MedTech a best-in-class performer, to deliver on long-term growth goals in pharma, and to ensure a successful creation of the new consumer health company. Of course, can you -- IPO was completed recently. Maybe you can just reflect a little bit on your priorities and how they've evolved, if at all?

Yes. Thank you. And those priorities remain valid today. The overarching priority for a company like Johnson & Johnson is to be able to deliver long-term success. Our orientation is to the long term and what we are aiming is to have a multi-decade success. It's not about the next 3 years, but the overarching priority is to have a multi-decade success, which is based on our ability to deliver medical devices and pharmaceuticals and combinations of both that improve the standard of care with a company that -- it's grounded on solid principles and values. This is the 80th anniversary of our credo. It was written in 1943. Today, it may seem something relatively common for companies. But when you think that it was written in 1943, and it remains relevant today, it's important. And also based on the incredible talent that we have at Johnson & Johnson, one of the advantages of having a diversified company is that you are able to provide more opportunities for development for the talent that is in Johnson & Johnson. So based on these 3 elements, we want to create a multi-decade success. What I think are the priorities that I stated there, we are well in our way. We have completed the Kenvue separation, which has taken us 1.5 years since we made the announcement, and we have already executed a successful IPO that all of you know by now. I think, Kenvue yesterday started to be covered by multiple analysts. So there's more visibility for Kenvue as a company than it had within Johnson & Johnson, and that is a benefit of having the company separated. And we are convinced that Kenvue is going to be a global consumer health champion that has significant opportunities to spread their wings as an independent company that were more complex within Johnson & Johnson. So that's going on the right trajectory. And at the same time, we have -- now what is going to remain the largest and more diversified health care company, which is going to be Johnson & Johnson. It's going to be a company focus on MedTech and pharma with the opportunity to focus on innovative R&D but also in areas of convergence between pharmaceuticals and MedTech. Largest one, it would be north of $80 billion. It would remain the largest health care company. And we will have 26 platforms, 12 in MedTech and 14 in pharmaceuticals, of more than $1 billion. So investors will continue to enjoy the benefits of the scale and diversification and strength from a financial perspective that Johnson & Johnson offers and they are used to. So that's something that will continue to be there. So we are well on our way. When I think about our pharmaceutical business, I'm sure we'll discuss about that, we are a best-in-class franchise. The results are there. I explained some of the catalyst before. We are very confident in our core products today: TREMFYA, ERLEADA, INVEGA SUSTENNA, UPTRAVI and even STELARA. And in MedTech, we have leadership positions in orthopedics and surgery, very strong leadership position in electrophysiology, a strong #2 in vision and coming up. And also with the acquisition of Abiomed, we have a large play in heart recovery that we think is going to be a multiyear platform for growth for Johnson & Johnson and enables us to move into higher-growth markets. So I'm confident that these are the right priorities. And I'm also confident that we are in a situation that is bringing momentum both in our pharmaceutical side and also in MedTech.

Great, great. Just quickly on the spin, J&J maintains around 90% ownership of Kenvue, which you intend to distribute to shareholders over time following a 6-month lockup. Can you say anything more at this point about distribution strategy?

I can't, just to be clear. So I can't. There are different paths now, and we plan to complete the separation by the end of the year. So that I can tell you. And there are 2 different paths, and we have not made a decision about that. One is a spin. The other one is a split, or a combination of the two depending on the circumstances. So we'll keep investors informed once we are able to make the decision. We are confident that we will be able to complete the entire separation before the end of the year. And we are also confident that Kenvue is going to be a global consumer champion. And the reaction that you have seen on the IPO and the reports that have come out give us increased confidence that it's going to be a very competitive company with global iconic brands, with a very strong management team that is being seasoned and experienced in managing a consumer company, because they were relatively independent already as part of Johnson & Johnson.

Yes, good. I think some investors were a little bit surprised to hear about the plans of the consumer separation. And now that, that is completed, I think many investors have wondered why keep pharma and MedTech together. Can you talk a little bit about some of the strategy behind those two businesses under the same roof?

Thank you, I appreciate that question. MedTech and pharma share the same purpose and the same customers. MedTech and pharma operate in the same diseases, oncology, cardiovascular, eye health that I referred before, trauma. So we are trying to solve exactly the same tough diseases on both sides. Sometimes, you use a medical device. Sometimes, you use pharmaceuticals. And oftentimes, like in a solid tumor, you use both surgery and pharmaceuticals. So they share a common purpose. And in that sense, they can coexist within the same roof. They share a common set of customers, hospitals, physicians. They share a common set of payers, the same insurance companies or national health systems are the ones that pay for the medical devices and the pharmaceuticals. So they have very strong commonalities, very strong commonalities. With that in mind, I think there are additional advantages of keeping them together. And the first one is that when you think about the future of medicine, we're going to see combination of technologies in order to prevent, treat or cure diseases. And a company that has the capabilities and the insights on a broader set of technologies, like we do because of having MedTech and pharmaceuticals, is going to be in a better position to be at the forefront of the future of medicine. So the ability to come up with, let's call it, converging products, as the future of medicine will demand, is amplified by having both MedTech and pharmaceuticals together. So do you have examples of that? Yes, I do. Let me give you two. One is our TARIS platform, which is a drug-eluting device in bladder cancer that is implanted via cytoscopy in the bladder for local delivery of drugs, which has shown very important results in our SunRISe-1 study in non-muscle-invasive bladder cancer, in patients that were resistant to BCG. So clearly, local delivery is something that it's going to matter in cancer. And our ability to combine drug and devices is going to help us being at the forefront. Another example is what we are doing with our MONARCH system, which is a robotic-assisted multi-specialty device that we are using both in bronchoscopy and now also it's been approved in endo-urology for kidney stones. So we are using MONARCH in order to do local delivery in lung cancer of drugs or energy. And we are already in first in humans with MONARCH and our NeuWave micro ablation system. So those are two examples. The ability of having a focused company in MedTech and pharma most likely will help us expanding these opportunities and also bring new insights into areas of oncology, cardiovascular and eye health. As a matter of fact, as time goes by, I see even more opportunities to combine technologies or to bring new insights into eye health, cardiovascular or oncology. Think about the fact that we are now in eye health in surgery, vision correction, but also we are working in gene therapy and in retinal diseases. And think about the fact that we are now in atrial fibrillation and in heart failure, and there are also opportunities from a pharmaceutical perspective that are based on our understanding of the disease that we drive from our connection with the interventional cardiologists or the surgical cardiologist. So I think that's an opportunity. But now, I mean, there's more things to that. Having a larger company means that we are financially more solid. We are a AAA company today. We have more optionality from a financial perspective than other companies who have been larger. And investors like the fact that you can provide a more consistent result. Being a MedTech and a pharma company enables us to have stronger capabilities because we have more scale in some of the areas that are going to be determinant in order to drive medical progress, like technology. The fact that you are a larger company means you can have a stronger capability in data science, in intelligent automation, and we are bringing that where both in discovery and development of medicines and also in our intent to make all our medical devices smarter. Also, being a larger company means that we can scale up the administrative backbone of the company to be more efficient. And that's one of the reasons that our margins are at or better than our competitor composite. And frankly, being a larger company brings you a stronger voice with payers, with governments. And Johnson & Johnson is often required to express his opinion in every setting. And finally, and not unimportantly, brings more opportunities of talent to develop within Johnson & Johnson. And ultimately, talent is at the root of our success. So I do see many advantages of keeping MedTech and pharma together, being the same purpose, the same diseases, the same payers and also giving us the opportunity to be at the forefront of the future of medicine. Now we will remain best-in-class both in MedTech and in pharmaceuticals, but we need to show you that we are able to develop solutions that combine both technologies.

Very good. Very good. So on that point, maybe let's dive in on MedTech a little bit. You talked about being a best-in-class performer in MedTech, and you've called that goal a defining element of your tenure as CEO. MedTech had a really strong start to the year, as you mentioned, with Q1 sales acceleration sequentially across all 4 businesses. What does success look like in MedTech, both in 2023 and beyond?

Yes. So MedTech, as you mentioned, had a good start of the year, with over 6% growth in the first quarter. Again, when you think about our MedTech growth, you also have to think that we are the second largest MedTech company, and we are growing faster than the largest one. And we are about 2 times bigger than the next ones, right? So you have to put our growth into that context. And when you think about the size of our MedTech business and growing 6%, I would consider it a good result. At the same time, we are moving into higher-growth markets, and that's part of my stated intent that I refer when I started as a CEO. And we have delivered on that clearly with the acquisition of Abiomed, which is doing well, with the 22% growth. And that opens a multiyear platform of growth in heart recovery. Abiomed has a strong pipeline of new entries. For example, we are being quite successful now with the launch of Impella 5.5. We are working on having Impella ECP, which is a 9-French version of the existing Impella pump, which is going to make it easier, the implant. And I just commented on some of the PMA studies that we are doing, like PROTECT I and also STEMI DTU. PROTECT I will enable us to generalize the use of Impella in high-risk PCI procedures. And also, STEMI DTU would enable us to generalize the use of Impella in acute myocardial infarction without cardiogenic shock, which is the majority of the myocardial infarctions. So we are moving into higher-growth markets, as I described. But if I look at our existing portfolio, we are also moving into higher-growth markets. We are moving into -- if I think about orthopedics, I described robotics before with our VELYS platform. We are moving into cementless. We are moving into shoulder with our INHANCE shoulder, and we are moving into extremities with the acquisition of CrossRoads. If I think about atrial fibrillation, I mentioned before, we launched the QDOT microcatheter, and we are moving into PFA aggressively. I was last week in the Heart Rhythm meeting in New Orleans, and we presented there some of the data of our inspIRE study using our VARIPULSE PFA catheter that met both primary and secondary endpoints. And I was encouraged by the comments of the clinicians that I met there about the strength of our future offering in PFA, but also about the future role that radio frequency ablation will continue to play in certain procedures too. So I was encouraged by listening to the clinicians and the experts about our leadership position in atrial fibrillation. If I move to surgery, we're also progressing in our traditional energy and mechanical devices. We just launched ECHELON 3000, which is a new stapler, which is going -- is having a very good demand from the market, which is also a connected device. And we just launched ENSEAL X1 curved jaw which is going to be another option in our energy portfolio. So we are also moving into higher-growth markets there, and we continue to grow in our suture business with our Plus sutures. And finally, in vision, I mentioned that we launched our ACUVUE OASYS MAX, which is doing really well. And we continue to expand our offering in intraocular lenses with TECNIS Eyhance, which is having very strong demand. So overall, our MedTech business is performing really well from a commercial perspective. And we continue to increase the number of new product launches, which is driving part of our growth.

Great. So in MedTech, from the start of your tenure, you've talked about getting more acquisitive, particularly in MedTech. And you followed through on that promise pretty quickly with Abiomed. What should investors expect going forward on the M&A front?

So I mean you're talking about MedTech or in general for Johnson & Johnson?

Maybe MedTech in general but...

Okay. So yes, we continue to look for opportunities in MedTech. And our focus is in the areas that we have described in the past. Our first goal is to identify opportunities that represent a significant improvement in the standard of care, that are in high-growth markets and that are adjacent to positions that we have today. Because our probability of success increases if we go to adjacencies or areas that we have background knowledge. So what are those areas? I'm going to be very general, but cardiovascular continues to be an area of interest for us. Eye health is an area of interest for us. Surgery and robotics is an area of interest for us. And we also continue to look for high-growth markets in orthopedics, and we'll continue to be acquisitive in that area. Obviously, depending on the opportunity, the criteria will be different. And the bigger the opportunity like in the Abiomed case, we will have a high bar from a financial returns perspective, too.

Great. You mentioned the atrial fibrillation ablation business. With PFA products getting closer to market, there's been a lot of excitement in this area. You have the #1 position in that business by a long shot, and you've driven really strong growth with the Biosense Webster business. But there's going to be a couple of PFA technologies to the market before yours. So what's the outlook for that Biosense Webster business?

Thank you. That's a great question. And as I said, I was in the Heart Rhythm Society in New Orleans earlier this month. What -- and we made different presentations to analysts also on our pipeline. So I already commented on the fact that we have a full suite of PFA offerings, which include a single-shot catheter, VARIPULSE, and also a dual-energy catheter that would be able to have in the same catheter both radio frequency and PFA, and it's already been tested in humans as we speak. The results of our inspIRE study met both primary and secondary endpoints, and we have other studies ongoing that are enrolling as we speak. So when I talked to clinicians there, our PFA offer is going to be compelling, and it's going to enable the possibility of seamlessly using both radio frequency and PFA. And if you talk to electrophysiologists, everybody believes that PFA is going to have a very important role, but also that radio frequency will continue to have a very important role. And I received very positive comments also about our latest microcatheter QDOT, and the results that we have had in the Q-FFICIENCY study, both in terms of reducing procedure time, efficacy levels without compromising safety. Now -- so that is PFA. But what they all told me why they really have driven with their demand Biosense Webster as the leading company, it's because of a number of factors. One is the great clinical support that we provide to electrophysiologists. And the second one and very importantly is the integration of the CARTO System. That's really the secret sauce here is the integration of the CARTO System. The ability to have 3D imaging of the heart and being able to drive real-time insights to guide ablation, it's very important for the electrophysiologist. It gives them a feedback on the Contact Force. It gives them tagging of the lesions. So they are all very, very much in agreement and you can do your own market test that there's nothing like the CARTO System in the market as far as imaging and aiding and guiding the procedure. So what they tell me is the competitive advantage of Johnson & Johnson here is the integration of our radio frequency and PFA offerings with the CARTO System. So we feel confident that, that integration plus the strong clinical support that our field specialist provide, it's going to give us the strength to continue to be the preferred options for electrophysiologists today and in the future. And I don't have any reason to believe that, that is going to substantially change with PFA.