Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

BCIS. Okay. That was in the first quarter. I think that was American College of Cardiology, if I'm not mistaken. And -- but do you expect that business to improve. So my question is, what are you doing to turn that business around?

Yes, it's a really good question. And Larry, firstly, we believe strongly in the future of heart recovery and hemodynamic support as a major opportunity for patients who, in many cases, don't have any options and we believe it's going to be a significant growth driver for J&J, MedTech and Johnson & Johnson. As you mentioned, a study came out -- a study out of the U.S. -- sorry, out of the U.K. and it resulted in a number of significant conversations within the interventional community about appropriate patient selection, especially as it relates to complex or high-risk patients. And without a doubt, it has had an impact on some of the treatment choices that our customers, both here in the U.S. but also internationally have had relative to that patient pool. Now we believe strongly that hemodynamic support is an absolutely critical option for those high-risk complex patients. And what we're doing about it is, number one, we are looking at the totality of evidence, not just the BCIS3 trial, but the totality of evidence available across the world focused on that patient pool. We're also investing more than any other company in additional data, and I'm sure we'll talk in a second about PROTECT IV, which is a specific study focused on this particular pool of patients. We're focusing also a lot on educating people around appropriate patient selection, which we think is at the heart of one of the challenges with that study. And we're also doubling down on education to ensure that our physicians are best positioned to make the appropriate treatment options. And we're already starting to see some green shoots. And what I would say, Larry, is that this should not be a major surprise. There's a reason why we are the only company in the heart recovery space with Impella today. It's because it's hard. And it's also because it is an increasingly -- it's a growing area of science and medicine. And we've seen this in the past. As evidence continues to grow, we've seen this in the past, and we have no doubt that we will demonstrate the benefits of the technology specifically to those high-risk complex patients.

PROTECT IV, big study, an important study. You talked about it on the Q2 call, I think coming out in 2027. Maybe just at a high level, what are the differences between -- it is a similar population, high-risk PCI. But what are the differences in the studies that could lead to a more favorable outcome in PROTECT IV?

Yes, Larry, I think there's a couple of things. And the first thing I would reiterate is the importance of not drawing a straight line between the BCIS3 study and PROTECT IV. There are some significant differences that need to be understood. Now we don't want to take away from the learnings from this. But when we look at PROTECT IV, to your point, yes, it is focused on a similar cohort of patients. But BCIS3 was a 300-patient study, PROTECT IV will be just over 1,250. So 4x the sample size, which we think is a more highly powered trial, which should deliver better outcomes, given the nature of how it's powered. The other consideration is really around patient selection. And in the -- with the investigators we've spoken to, we believe that there's a different interpretation of patient selection as it relates to the full cohort of complex high-risk PCI patients in PROTECT IV relative to BCIS. And the final one is really around best practices. We've learned, especially in high usage markets like the U.S. that best practice really matters. And what I mean by that is around pre-call landing, the appropriate time for how much you keep the device in, et cetera, et cetera. And so we have embedded those practices into our PROTECT IV study and can confidently say that they were not considered in the BCIS study, which we think calls out some of the variability we experienced there. And so we're working hard within the community. We once again remain very committed to this business. We've seen these ups and downs before and believe that Impella is an absolutely critical offering for these patients and will continue to be a strong driver of growth for J&J and J&J MedTech.

That's helpful. Let's switch gears. Tim, anyone who knows you knows you're excited about OTTAVA. So I guess my question is what's been the early feedback? I know you were at the Society of Robotic Surgery, what's the early feedback? And when can this start to be a growth accelerator for today's surgical business?

Larry, I am super excited about OTTAVA. I spent more than 33 years at Johnson & Johnson, a lot of that time within our Surgery business. And I do think that we are on the precipice of an absolute breakthrough. And you mentioned that we received FDA approval while we were at the SRS conference. And for those of you who don't know, SRS is the largest gathering of roboticists and physicians focused on surgical robotics, and it was a particularly proud moment for us to show our confidence and the confidence with the FDA with the approval at that event. I think the feedback, firstly, has been resoundingly positive. There is no doubt that it is time for competition. And there's a recognition that we have something that is truly differentiated from the other competitors who have entered this market. I'd say the 2 insights that are resonating the most specifically with surgeon who, by the way, many of those surgeons at SRS participated in helping us design and bring OTTAVA to market. The piece that they're really hitting on to is the benefits of our differentiation, which are the unique architecture. The fact that it drives automation from day 1, the advanced instruments as well as the digital infrastructure. What it really calls upon and does, it create a more seamless workflow. Collaboration within the operating room is absolutely critical. It isn't just about the surgeon, it's about the anesthetist. It's about the nursing staff. And those benefits of OTTAVA really allow for a more collaborative workflow in the operating room, both in terms of during clinical practice as well as shift over between procedures. And so that is really resonating workflow with physicians. With the health system community who, as I mentioned earlier, cannot wait for the entrance of a new competitor and are especially excited about it being J&J, given that we have presence in almost every single operating room around the world given our global leadership in both open and laparoscopic procedures. And with that community, what's really resonating is the architecture. And why it's important for a hospital system is that because OTTAVA is a different format and considerably smaller than the incumbent system. It can be placed naturally in any operating room today and doesn't require an entirely new investment in capital to build out an operating room with the size to accommodate the incumbents' robot. And so that is really resonating. And so we look forward to providing more feedback in short order. Right now, our focus is on a careful selection of our pilot launch sites, making sure that they have a positive experience and what you can expect to see is a constant drumbeat of increased indications, new products as we continue to scale that portfolio. I know your next question at some point is going to be, well, when exactly will we see that material impact? We will share more details about that at EBR on the 8th of December. But we remain very confident that OTTAVA will be a significant growth contributor to Surgery. In fact, our Surgery business is the largest today. It is the most profitable. And we believe with the investments in OTTAVA and our fleet of surgical robots, which is inclusive of Monarch, which will be the first system used for in the urology space for the treatment of kidney stones. We believe that those innovations alone will be a significant contributor to J&J's performance, in fact, a material contributor by the end of the decade.

December 8.

December 8.

We'd have to wait.

You got to wait, Larry, sorry.

Okay. We'll be there. All right, Vision. Let me just -- I'll ask about contact lenses first. Q2 was actually was strong, especially outside the U.S. There's been concerns that Asia Pac has been weak. Have you seen kind of a turnaround? And what's the outlook for the consequences?

Yes, we hope so. And certainly, we've seen that continue throughout the quarter. And to build on your point, Larry, we've seen a really nice inflection within our contact lens business. We did have some supply issues a couple of years ago, which we've addressed. We're back to actually gaining share. We are, by far and away, the market leader with our ACUVUE premium portfolio. To your point, outside of the U.S. and specifically Asia Pac was a bit soft for a number of quarters, and we've seen that turn around nicely. And we expect that to continue on the back of an incredible unmet need aging population, which is going through the roof, greater awareness of health care needs and the demand for some of the premium innovations that we have. And so our expectation is that will continue, and we're confident that our contact lens business will be a strong contributor to Vision growth for the foreseeable future.

Within Vision. The one area I was actually surprised about was the U.S. surgical business was a little soft, and I was surprised because you're launching PureSee. Feedback is good on PureSee, new premium IOL. So how should we think about the Surgical business, Vision, Surgical and U.S. in particular going forward?

Yes. And Larry, just to call it as it is, that was a dark mark on our Vision, Surgery performance in the last quarter, tremendous performance outside of the U.S., but lackluster performance here in the U.S. Now we had just started the launch of PureSee. And to put this in context, this is the only FDA-approved premium IOL with extended depth of focus. And what that actually means it makes this premium IOL more applicable to more patients. The reason why we've enjoyed such success outside of the U.S. is we've implanted that device in 0.5 million eyes over the last couple of years. We're now complementing our portfolio with Odyssey in the U.S. with PureSee and I can confidently communicate that we are seeing a tremendous pickup. And so I look forward to providing the results of that acceleration when we come together for Q3 earnings. And I can also confidently say that the second quarter performance here in the U.S. and globally for our surgical business will be significantly better.

Got it. That's helpful. I guess just one on Orthopaedics. How are you thinking about the pros and cons of a sale versus spin?

Yes, it's a question we get all of the time. This was a notable decision we took for J&J. It's one of the largest divestitures. Now keep in mind, divestitures are not a new sport for J&J. We believe it's a part of just strong portfolio management. In fact, prior to the decision to sell off our Ortho business, we generated about $5 billion of cash over the last 7 years through moving businesses, whether it be LifeScan [indiscernible] more recently, our E&P business on. And so we will continue to do it where it makes sense. But to answer your question deliberately, the -- we are not looking to optimize for structure in that decision to separate Ortho. We're optimizing for value creation. And so we are prepared to entertain a multitude of options to separate that business, which we're still considering. And in due course, we will share chosen course of action. But once again, it is all about maximizing for value creation. The last thing I'll say is I would not look into this as the beginning of a program of divestitures at J&J. It's a big one. It's one of the market-leading businesses in Orthopaedics. It just comes down to the fact that we believe both the [indiscernible], which will be called and J&J will perform better once we separate. It is not the beginning of a program to divest of any other significant businesses within Innovative Medicine or within MedTech.

Remind me of the time line you guys laid out for Orthopaedics, the spin?

We expect that to happen sometime in '27, most likely around the midpoint.

Okay. Of '27. So any milestones between now and then?

I suspect that we will have line of sight to the mode of separation before the end of the year, and we'll share that as soon as we have it.

Got it. So I guess you answered my next question, which was last year at this conference, I asked if we could see more divestitures and shortly thereafter you announced the spin of Orthopaedics. How are you feeling about the portfolio today? It sounds like no more big divestitures. What about additions?

Well, we have been very deliberate. And what gives us confidence in what I shared earlier about delivering against our 2026 commitments for J&J as well as a faster '27 as we believe that by deliberately focusing on the 6 areas of focus we've chosen in our Innovative Medicine business, it is the neuroscience business, it's immunology and oncology. And in MedTech, it is CV -- sorry, Cardiovascular, Surgery and Vision. We believe that focus is really what is setting ourselves up for success. Of course, I think -- and we do not mean this arrogantly at all, but what does set us apart is the strength of our balance sheet. And it allows us to be in a position to go after truly meaningful innovation that will deliver returns. We're more able to do that than many of our competitors. And so we are right now focusing on how we really build out the portfolios that we have today. When we think about M&A, we take a very disciplined process. We look at number one, is there a scientific reason a real unmet need that we're looking to address and a technology that truly addresses it? That's number two -- number one. Number two, it's strategic. Do we have a right to win? Is it adjacent to one of our businesses? Do we have established presence or scale that we can bring to bear to make that business performed better in J&J versus the outside? And then finally, no surprise to all of you, it's going to be financial. Does it meet the commitments of our P&L and our responsibility to all of you as shareholders? And that's the philosophy we will continue to focus on, Larry. And I think Shockwave is a wonderful example of that, right? Going after a space where there's a significant unmet need for people with cardiovascular disease, IVL technology that makes it so much easier for physicians to treat and better outcomes for patients. It was very strategic because it allowed us to build our initial presence in interventional cardiology with the acquisition of Abiomed, moving deeper into coronary artery disease and peripheral artery disease with Shockwave. And of course, from a financial position, Shockwave was accretive to both our top and bottom line performance from day 1. And so it's a wonderful example and a great way of how we think about innovation.

I heard your earlier comments at the beginning of our conversation about cardiovascular devices, largest, fastest-growing. You're a leader in 3 different areas. Do you see building that portfolio out further? Because there's a lot of other areas that you could be in?

Yes. And you know them as well as we do, Larry, we'll certainly keep our eyes open. But I think what really stands out -- not I think, I know, what really stands out relative to other players in the cardiovascular space is that we are only participating in truly high-growth areas, both in electrophysiology, heart failure and IVL with truly differentiated innovation. And so that always will be, in our view, a recipe for success. We're not looking at any of those commodity businesses. We are looking for truly differentiated innovation, which makes a big difference for patients and delivers the returns that we owe you as shareholders.

All right. That's great. So we've got about a minute left. Tim, if you want to make any closing remarks or any -- touch on any areas we didn't, please feel free.

Yes. I'll just close out with a couple of comments. Firstly, we're confident with the progress we've made. This is a time of significant transformation for Johnson & Johnson, especially on our portfolio as we shift our business into higher-growth markets like cardiovascular, as we move out slower-growing market businesses like Orthopaedics. And so very confident in the ongoing transformation of the portfolio. And that's a good reason for why we feel so confident in what we're going to share at the EBR later in the year and what we expect to be the contribution that MedTech makes to Johnson & Johnson more broadly over the next 5 to 7 years. We're happy with the ongoing changes in our operating model. And while I haven't talked a lot about that, that is foundational to winning in MedTech, being highly specialized, highly focused, able to move with speed and intensity with the market. And finally, we just feel really confident in the future, and I'll end with the point I made earlier. We are very confident in Johnson & Johnson's ability to deliver on our 2026 commitments and the guidance we raised in July, and we believe that '27 will be stronger than '26.

Perfect. Thanks so much for being here.

Thank you.