Johnson & Johnson Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2023

There are 12 speakers on the call.

Operator

Good morning, and welcome to Johnson and Johnson's Second Quarter 2023 Earnings Conference Call. This call is being recorded. I would now like to turn the conference call over to Johnson and Johnson. You may begin.

Speaker 1

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson and Johnson. Welcome to our company's review of the 2023 Second Quarter Business Results and Full Year Financial Outlook. Joining me on today's call are Joaquin Duado, Chairman of the Board and Chief Executive Officer Joe Walk, Executive Vice President, Chief Financial Officer and Eric Haas, Worldwide Vice President of Litigation. A few logistics before we get into the details.

Speaker 1

As a reminder, you can find additional materials, including today's presentation and associated schedules on the Investor Relations section of the Johnson and Johnson website at investor.jandj.com. Please note that today's meeting contains forward looking statements regarding, among other things, the company's future operating and financial performance, Product development, market position and business strategy and the anticipated separation of the company's consumer health business. You are cautioned not to rely on these forward looking statements, which are based on current expectations of future events Including our 2022 Form 10 ks, which is available at investor. Jandj.com and on the SEC website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners Moving to today's agenda.

Speaker 1

Joaquin will open with a few comments highlighting business performance achievements in the quarter and outlook for the remainder of the year. I will then review the 2nd quarter sales and P and L results for the corporation and highlights related to the 3 segments. Joe will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities and updated guidance for 2023. Finally, Eric will provide comments regarding the talc litigation. The remaining time will be available for your questions.

Speaker 1

To ensure we provide enough time to address your questions, we anticipate the webcast will last Approximately 75 minutes. I am now pleased to turn the call over to Joaquin.

Speaker 2

Thank you, Jess, and good morning, everyone. This was a strong quarter for Johnson and Johnson with market leading performance, important advances across our innovative Pharmaceutical and Medtech pipelines and a successful initial public offering of ChemView. We delivered Solid sales and earnings growth for the Q2 of 2023 reporting operational sales of 7.5% And adjusted operational EPS growth of 9.7%. These strong results You may have seen this morning the announcement that we intend to split off Canvue shares through an exchange offer as the next step in the separation of Canvue. Joe will provide additional information later in the call.

Speaker 2

We're excited about entering a new era for Johnson and Johnson, And on today's call, I would like to share recent highlights and achievements comes from across the business that have contributed to our year to date results as well as upcoming catalysts that give me great confidence Starting with Medtech. For the Q2 of 2023, We generated 14.7 percent operational and 9.9% adjusted operational growth, Which excludes the impact of the Abiomed acquisition. On a pro form a basis, using sales Publicly reported by Abeomit prior to our acquisition, MedTech grew 10.2%. These strong results continue to show that our efforts to improve the growth of the MedTech business are working. Q2 highlights in electrophysiology include the publication of clinical data supporting the safety and effectiveness I'm also happy to share that this month we completed enrollment in the 3rd clinical study evaluating Our pulsed field ablation solutions.

Speaker 2

The SmartFyre study evaluates our dual energy catheter, The AbeoMID integration continues to deliver against planned milestones And it's on track across all areas and regions with no disruption to commercial activities or pipeline progression. 2nd quarter sales of $331,000,000 compared to Biomet's public reported sales in the same period last year as a Panel company reflects approximately 20% growth. We also continue to see strong enrollment in the ongoing pivotal clinical trials, which aim to expand the use of our products into new patient populations. We anticipate that Heart Recovery will become a significant multiyear growth platform for Johnson and Johnson. In Orthopaedics, the Velis Robotic Assisted Solution is poised for further acceleration.

Speaker 2

Having recently received CE and CA Mark international approvals. In surgery, we are pleased With our progression on Otava, our next generation soft tissue surgical robotic system, we look forward Products such as Acivu, Oasis Max and Technis Eye Hands, and we are performing very well across both Now turning to Pharmaceuticals. In the Q2 of the year, we delivered above market operational growth of 6.2%, excluding the COVID-nineteen vaccine. Of note, our multiple myeloma portfolio has grown more than 30% year on year, which includes the acceleration And are expected to be important contributors to achieving our 2025 sales target. We also achieved important regulatory and operational milestones, including multiple readouts from our pipeline.

Speaker 2

A few things I'm particularly excited by include: 1st, the receipt of fast track designation from the U. S. FDA For all three prospective indications for Milvexian, our Factor XI oral anticoagulant in partnership with Bristol Myers Squibb, 2nd, the recent submission of a supplemental BLA for CARVICTI to the FDA and European Commission supported by data From the CARTTITUDE-four study, seeking approval for a new earlier indication in treating relapsed or refractory multiple myeloma. 3rd, the presentation of initial TAR-two hundred data from the SUNRISE-one study in bladder cancer At the American Urological Association meeting. And finally, we announced positive top line results From the Phase 3 PAPION study evaluating rivrevant in combination with chemotherapy in patients with newly diagnosed lung cancer This is the first of several ongoing pivotal Phase 3 studies In addition, I want to highlight the Phase 2 study data that we presented earlier this month at the World Congress of Dermatology for G and J-two thousand one hundred and thirteen, Our novel oral IL-twenty three receptor antagonist peptide in short iasis.

Speaker 2

The findings suggest The GNG-two thousand one hundred and thirteen has broad potential across the spectrum of IL-twenty three mediated diseases, including question to be in ulcerative colitis and we'll continue to assess additional opportunities. We are very excited about the potential of this asset and believe it represents a $1,000,000,000 plus commercial opportunity. We also continue to defend the intellectual property associated with our medicines, including Stelara. In fact, we have reached settlements regarding our stellar IP with both Amgen and Alvotech. We expect Amgen to launch in the U.

Speaker 2

S. On January 1, 2025 and Alvotech to launch in the U. S. On February 21, 2025. In all, our pharmaceutical business delivered very strong results.

Speaker 2

Our Pipeline is progressing well and we continue to be confident in meeting our 2025 sales target of 57,000,000,000 We are excited to enter the backup of the year from a position of strength, and we have high expectations As we evolve to a 2 sector, Johnson and Johnson, with a higher growth profile. I am now pleased to turn the call over to Jess

Speaker 1

Thanks, Joaquin. As a reminder, on May 8, 2023, KenView Inc. Closed its initial public offering. Johnson and Johnson continues to own 89 point question comes from the line of KenView's common stock and remains the majority shareholder. Therefore, the following financial results continue to include the Consumer Health business.

Speaker 1

With the 10.4% of Consumer Health Net earnings no longer attributed to Johnson and Johnson being adjusted for and other income and expense Starting with Q2 2023 sales results. Worldwide sales were $25,500,000,000 for the Q2 of 2023, an increase of 6.3% increased 7.5% as currency had a negative impact of 1.2 points. In the U. S, Sales increased 10.2%. In regions outside the U.

Speaker 1

S, our reported growth was 2.2%. Operational sales growth outside the U. S. Was 4.7% with currency negatively impacting our reported And loss of exclusivity of ZYTIGA. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth With 6.2% worldwide, 8% in the U.

Speaker 1

S. And 4.4% outside the U. S. Turning now to earnings. For the quarter, net earnings were $5,100,000,000 and diluted earnings per share Excluding after tax intangible asset amortization expense and special items for both periods, Adjusted net earnings for the quarter were $7,400,000,000 and adjusted diluted earnings per share Compared to the Q2 of 2022.

Speaker 1

On an operational basis, adjusted diluted earnings per share increased 9.7%. I will now comment on business segment sales performance highlights. Unless otherwise stated, percentages quoted represent the operational sales change In comparison to the Q2 of 2022 and therefore exclude the impact of currency translation. Beginning with the Pharmaceutical segment. Worldwide Pharmaceutical sales of $13,700,000,000 increased 3.1% With growth of 9.2% in the U.

Speaker 1

S. And a decline of 4% outside the U. S. Operational sales growth increased 3.8% Sales growth was 6.2 percent with growth of 9.9% in the U. S.

Speaker 1

And growth of 1.5% outside the U. S. Sales outside the U. S, excluding the COVID-nineteen vaccine, were negatively impacted by approximately 500 basis points Due to the loss of exclusivity of ZYTIGA in Europe. Pharmaceutical growth was driven by our key brands And continued uptake in our recently launched products, with 9 assets delivering double digit growth.

Speaker 1

We continue to drive strong sales growth for both DARZALEX and ARLYTA with increases of 23.4% and 26.9%, respectively. XELARA grew 8%, driven by market growth and IBD share gains in the U. S, partially offset by unfavorable patient mix and increased rebates. Tremfya grew 18.9%, driven by market growth and share gains in the U. S, partially offset by unfavorable patient mix.

Speaker 1

Growth of 16.5 percent in pulmonary hypertension was driven by favorable patient mix, share gains in the U. S. Turning to newly launched products. We continue to make progress on our launch of CARVICTI And continue to expand access and reimbursement for SPRAVATO. We are also encouraged by the early success of our launch of TEGVAILI, Sales of which are included in other oncology.

Speaker 1

Total Pharmaceutical sales growth was partially offset question comes from the line of the line of the line of the line of REMICADE and ZYTIGA, along with a decrease in IMBRUVICA sales due to competitive pressures. IMBRUVICA maintains its market leadership position worldwide. I will now turn your attention to the Medtech segment. Worldwide MedTech sales of $7,800,000,000 increased 12.9 percent with growth of 14.6% in the U. S.

Speaker 1

And 11.3% outside of the U. S. Operational sales growth increased 14.7% As currency had a negative impact of 1.8 points. Aviomed contributed 4.8% to operational growth. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 9.9%.

Speaker 1

Sales in the 2nd quarter accelerated sequentially from Q1 for all MedTech businesses driven by global procedure growth, Recovery in China, continued uptake of recently launched products and commercial execution. Partially offsetting growth in the quarter With the impact of volume based procurement in China as well as supply constraints. The Interventional Solutions franchise Delivered operational growth of 56.9 percent, which includes $331,000,000 related to Abiomed. Electrophysiology is a major contributor to the growth with a double digit increase of 25.9%. This reflects strong growth in all regions, including Europe, driven by our comprehensive portfolio, including the most recently launched Q Dot RF Orthopaedics' operational growth of 5.7% reflects strong procedure recovery, Success of recently launched products, such as the enhanced shorter portfolio as well as global expansion of our digital solutions, such as Velas Robotic Assisted Solutions.

Speaker 1

Growth was partially offset by the impact of volume based procurement in China And continued supply challenges primarily in hips. Operational growth of 8.4% in surgery was driven primarily by procedure Global growth of 6.9% in Vision was driven by price actions and contact lenses and other As well as strength of new products, including Accuvue Oasis 1 day family of products and contact lenses And Technis Eye Hands are monofocal intraocular lens and surgical vision. Growth of contact lenses was partially offset by strategic portfolio choices and supply challenges, although these continue to improve. Moving to the Consumer Health segment. Worldwide Consumer Health sales of $4,000,000,000 increased 5.4% With growth of 6% in the U.

Speaker 1

S. And 5% outside the U. S. Operational sales growth increased 7.7% As currency had a negative impact of 2.3 points. Sales in the 2nd quarter accelerated sequentially from Q1 for all consumer health franchises, primarily driven by strategic price increases and growth in OTC globally Due to strong pain performance and cold, cough and flu season.

Speaker 1

Excluding the impact of strategic portfolio decisions In sales of personal care products in Russia, volume across all consumer franchises was relatively flat on strong price actions. For more detailed information, please visit investors. Kenview.com. Now turning to our consolidated statement of earnings for the Q2 of 2023, I'd like to highlight a few noteworthy items questions that have changed compared to the same quarter of last year. Cost of products sold leveraged by 80 basis points, primarily driven by favorable patient mix And lower COVID-nineteen vaccine supply network related costs in the Pharmaceutical business, partially offset by commodity inflation Selling, marketing and administrative margins deleveraged 20 basis points, Driven by incremental costs to support the stand alone consumer health business, partially offset by proactive management of costs.

Speaker 1

We continue to invest strategically in research and development at competitive levels, investing 15% of sales this quarter. The $3,800,000,000 invested was a 3.4% increase versus the prior year. Lower litigation expense and lower unrealized losses on securities, partially offset by higher COVID-nineteen vaccine And as previously mentioned, the 10.4% of Consumer Health earnings that are no longer attributable To Johnson and Johnson, which resulted in a $37,000,000 reduction in consolidated earnings. Regarding taxes in the quarter, our effective tax rate was 23.9% versus 17.6% in the same period last year. This increase was primarily driven by 2023 tax cost incurred as part of the planned separation of the Consumer Health business Due to the internal reorganization of certain international subsidiaries.

Speaker 1

Excluding special items, the effective tax rate was question comes from the line of John Q2 10 Q filing for additional details on specific tax matters. Lastly, I'll direct your attention to the Box section of the slide, Where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense Now let's look at adjusted income before tax by segment. In the Q2 of 2023, our adjusted income before tax for the enterprise as a percentage of sales increased from 34% to 34.6%, primarily driven by favorable product and patient mix, Partially offset by unfavorable segment mix and commodity inflation. Pharmaceutical margins improved from 42%

Speaker 2

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Speaker 1

McLeod to 42.7%, primarily driven by favorable patient mix, sales, marketing and administrative expense leverage question comes from 25 question comes from

Speaker 2

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Speaker 1

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Speaker 2

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Speaker 1

line of the line of Foreign exchange impacts and commodity inflation, partially offset by supply chain efficiencies. It is important to highlight that the Income before tax for the consumer health business as reported by Johnson and Johnson differs from the financial results question is recorded by Canvue Inc. This morning. The difference is primarily driven by incremental costs required to run Canvue as an independent company. Additional differences also exist on an after tax basis due to the application of different tax rates.

Speaker 1

This concludes the sales and earnings portion of the Johnson and Johnson Second Quarter Results. I'm now pleased to turn the call over to Joe Walk. Joe?

Speaker 3

Thank you, Jessica, and thanks everyone for joining us today. As previously shared, we reported particularly strong results across all segments for the 2nd quarter the first half of twenty twenty three. During the second quarter, adjusted operational sales growth by Pharmaceuticals, Excluding COVID-nineteen revenue, accelerated 6.2% over the Q1 of 2023. Similarly, on a sequential basis, MedTech operational sales increased to 4.5% over an already strong first quarter. During the first half of the year, we executed against our long term business strategy and achieved key clinical and regulatory milestones.

Speaker 3

These advancements provide a strong foundation for long term growth and are a testament to the hard work and dedication On May 8, as partial consideration for the transfer of the consumer health business, Canvue paid $13,200,000,000 to Johnson and Johnson from the net proceeds of the initial public offering and debt financing transactions in connection with the separation. Today, we were pleased to announce an update on our next step toward the separation of Canvue. Subject to market conditions, Our intention is to split off Canvue shares through an exchange offer as our next step in the separation. As part of the proposed exchange offer, Johnson and Johnson shareholders will have the choice to exchange all, Some or none of their shares of Johnson and Johnson common stock for shares of Kenview common stock subject to the terms of an offer. We believe a split off is the most advantageous form of separation for Johnson and Johnson, CanVue and our shareholders.

Speaker 3

Specifically, An exchange offer provides Johnson and Johnson the potential opportunity to acquire a large number of outstanding shares of Johnson and Johnson common stock at one time Further, following the completion of the exchange offer, Canvue would most likely have a shareholder base that would have made the election to own its shares. The exact timing of our decision to launch an exchange offer will, as stated earlier, Offer terms for the exchange inclusive of applicable discounts as well as the duration of the exchange tender period We understand that you may have questions on this process. At this point, there are no additional details Let's now turn to cash and capital allocation. We ended the 2nd quarter with approximately $29,000,000,000 of cash and marketable securities question and approximately $46,000,000,000 of debt for a net debt position of $17,000,000,000 Inclusive of approximately $7,000,000,000 of Canvue net debt. Free cash flow through the 2nd quarter was approximately $5,400,000,000 compared to $8,100,000,000 in the prior year.

Speaker 3

The 2nd quarter question reflects elevated tax payments of approximately $2,000,000,000 related to TCJA and past audit related matters. Our capital allocation priorities remain unchanged with continued investment in our business being the highest priority question and share repurchases when attractive. Our R and D investment in the first half of twenty twenty three was $7,400,000,000 or approximately 15% of sales. This includes external investments such as our recently announced partnership with Cellular Biomedicine Group on 2 next generation CAR Ts for the treatment of B cell malignancies, further broadening our cell therapy portfolio. In April, we announced our 61st consecutive year of dividend increases and in combination with the completion of our $5,000,000,000 share repurchase program Authorized by the Board in September of 2022 and completed earlier this year, we returned $8,500,000,000 to shareholders in the first half of 2023.

Speaker 3

Let's discuss our outlook for the balance of 2023. Before I get into the specifics of guidance, In light of the potential Canvue split off transaction, I will remind you that our updated full year guidance today continues to include results comes from the consumer health business given Johnson and Johnson remains the majority shareholder of KenView. I suspect you already know this, But it would not be accurate to subtract any guidance provided separately by Canvue from total Johnson and Johnson guidance and assume that the resulting total question reflects guidance for the new Johnson and Johnson. When Johnson and Johnson is no longer the majority shareholder of Canvue, we will provide timely As well as any updates to Johnson and Johnson's outstanding share count. So with that context, moving on to our full year guidance.

Speaker 3

Based on the strong results delivered in the quarter, like we did in April, we are again raising full year operational sales and EPS guidance Despite some strategic items not accretive to EPS as detailed on the schedule, specifically the lost income related to 10% non controlling interest in Canvue and the acquired in process research and development costs related to our investment in cellular biomedicine group. We now expect operational sales growth for the full year 2023 to be in the range of 7% to 8% And adjusted operational sales growth in the range of 6% to 7%. As you know, we don't speculate on future currency movements. Last quarter, we noted that we utilized the euro spot rate relative to the U. S.

Speaker 3

Dollar at 1.10. The euro spot rate as of mid last week remains at 1.10. However, the U. S. Dollar has strengthened versus other select currencies Such as the yuan and the yen.

Speaker 3

As such, we now estimate a negative impact of foreign currency translation of approximately 500 basis points, Q2 with a midpoint of $99,300,000,000 Regarding other lines on the P and L, We now anticipate a slight improvement to our adjusted pre tax operating margin driven by expense management. We have reduced our other income estimate to be in the range of $1,600,000,000 to $1,800,000,000 primarily related to the company's 10.4% non controlling interest in Canvue. Regarding interest income and expense, We now anticipate a reduction of net interest expense to the range of $150,000,000 to $250,000,000 Q3 due to interest income on the net proceeds linked to the KenView separation. And finally, based on current tax law, We are maintaining our effective tax rate estimate in the range of 15.5% to 16.5%. These changes result in us increasing our adjusted operational earnings per share guidance by $0.10 per share to a range of $10.60 comes from the line of John.

Speaker 3

To 10 $0.70 or $10.65 at the midpoint on a constant currency basis. Constant currency growth of 5 question comes from the line

Speaker 4

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Speaker 2

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Speaker 3

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Speaker 2

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Speaker 3

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of the line of the line of Our reported adjusted earnings per share for the year assumes no additional foreign exchange impact. As such, our reported Adjusted earnings per share for the year increases by $0.10 per share to a range of $10.70 to 10 point comes from the line of John's call. While we do not provide guidance by segment or on a quarterly basis, let me offer some qualitative considerations to support your modeling. In MedTech, we continue to anticipate stable procedure volumes and healthcare staffing levels in the back half of the year with normal seasonality. We expect continued competitive performance attributable to commercial execution, recently launched products and improvement in supply.

Speaker 3

Headwinds from volume based procurement in China as well as potential impacts from international sanctions in Russia are expected to be higher in the second half the first half of the year. In Pharmaceuticals, we continue to expect to deliver our 12th consecutive year of above market growth in 2023, driven by key assets and continued uptake of our newly launched products. We expect continued strong growth in the back half of the year, slightly higher than the first half. When modeling consumer health growth rates in 2023, it's important to take into consideration prior year comparisons with lapping price increases in the back half of the year. Given the strong momentum in our pharmaceutical business and the upcoming clinical milestones mentioned earlier, we remain very confident in our ability for the remainder of the year that can drive meaningful near and long term value.

Speaker 3

Beyond the separation, in the near term, we are Many of the solutions mentioned are early in their commercialization, Which means there is still significant opportunity ahead. For example, in electrophysiology, we are excited to begin the commercialization Recently received regulatory approvals in Europe and we plan to launch it in key European countries by the end of this year. And Envision, we are seeing the benefits of our recently launched innovations such as AccuView, OASIS Max, 1 Day Multifocal, continued growth from this and other recent vision launches. Related to our Pharmaceutical business, we are excited about upcoming advancements in our pipeline with a number of important regulatory and clinical milestones for our key future assets, including on the regulatory front, There is expected approval of talketamab in relapsed or refractory multiple myeloma. Clinically, we expect Phase 3 data for Tremfya for Crohn's disease and ulcerative colitis.

Speaker 3

The results of the mariposa study of ribrevant Phase 1 data for TAR-two ten in non muscle invasive bladder cancer and Phase 2 data for nipocalumab A couple of other items to highlight. In case you missed them, we recently published our Health for Humanity report, our U. S. Pharmaceutical Pricing Transparency report and our U. S.

Speaker 3

Patent table, all of which can be found on our website. Also a reminder that we will be hosting an enterprise business review featuring both Pharmaceutical and Medtech at the New York Stock Exchange on December 5. I'll conclude my prepared remarks by reiterating that we have had a strong first half of the year, both financially and operationally, And we expect to continue to build upon that momentum in the second half of this year. With that, I will now turn the call over to Eric Haas.

Speaker 5

Thank you, Joe. On Tuesday, July 18, in the case of Valadaz v. Johnson and Johnson, a jury in Alameda County, California ruled in favor of the plaintiff on its talc product liability claims. We intend to pursue an appeal Based on the erroneous rulings by the trial judge that prevented us from sharing with the jury critical facts that demonstrate that Planis' question comes from the line of John's Baby Powder. Call experts around the world continue to support the safety of our cosmetic talc.

Speaker 5

The verdict award will not be paid While the bankruptcy proceeding continues and this decision has absolutely no impact on that process, which has the support Looking ahead with respect to the bankruptcy refiling by LTL, the bankruptcy judge is expected to rule by August 2nd, proposed reorganization plan and voting procedures process in the path forward is scheduled for August 22nd. As we previously stated, Johnson and Johnson stands by its position that its talcum powder products are safe as confirmed through decades of numerous I would now like to hand the call back over to Jess.

Speaker 1

Thanks, Eric. This concludes the prepared remarks section of our call. I will now turn the discussion over to the Q and A portion of the call. Kevin, can you please provide instructions for those wishing to ask a question?

Operator

Question please limit your questions to one question only. Our first question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Speaker 4

Good morning. Thanks for taking the question and congratulations on another strong quarter here. For Eric, if Judge Chaplin dismisses the bankruptcy proposal. What's the backup settlement in mind that would proceed outside of bankruptcy that could ring fence the cost? And Joe or Joaquin, in MedTech, how are you thinking about the sustainability of the first half strength where you grew 8% organic?

Speaker 4

Do you still expect the MedTech market to grow 5 question is 7% this year, we change it in that range. It seems conservative. Thanks for taking the question.

Speaker 5

Larry, hi, it's Eric. Thanks for the question. If Judge Kaplan dismisses the bankruptcy, We will be back in the TORCH system. And in that scenario, we intend to fight the claims aggressively. And indeed based upon the indicated decades of scientific support for the safety The fact that our tau products do not contain asbestos and the fact that Our TAUG products do not cause cancer.

Speaker 5

We feel very confident in our ability to continue to

Speaker 2

Thank you, and thank you, Lardia, and thank you for complementing us on the results on the Q1 and also on the MedTech ones. When it comes to the MedTech results, the growth in the first half of the year was north of 8%. So this is a continuation of the sustained improvement in our performance that we have had in the last couple of years in which we have grown at or above our competitive composite. When we think about the dynamics that are driving our growth, which are multiple, one is the recovery in the overall market procedures, which is helping Our improved commercial execution and very especially, the cadence and flow of new product launches that we are having in the market. We see our trajectory in MedTech in the first half of the year continuing in the second half of the year.

Speaker 2

So we expect A similar trajectory for me taking the second half of the year.

Speaker 3

Yes, Larry, maybe I might just add to Joaquin's comments. The only The thing that is limiting the growth, I would say, in the back half of the year is China volume based pricing as well as some question comes from the line of the line of the line of 2023. So we feel we have those well in hand. If there is a little bit of abatement on either of those fronts, it portends well for the future.

Operator

Thank you. Our next question is coming from Vamil Divan from Guggenheim Securities. Your line is now live.

Speaker 4

Great. Thank you so much for taking my question. So maybe just one on the guidance commentary. So I appreciate what you said around the Canvue and Cellular Biomedicine Dynamics. But I'm curious about Stelara, because you have the 2 settlements now.

Speaker 4

I don't think there's any chance for having a biosimilar enter this year. And I think before you had So I'm curious what your expectations are now in terms of biosimilar entry before Amgen and how does that impact question comes from your guidance expectations for this year and if you want to comment on sort of next year or sort of how it might impact 2025 with the 57 question and then one other one if I could just on Miraposa, we've been getting a lot of questions on just sort of what's changed there. I know Before the study is supposed to end next year, we obviously heard about the interim on your last earnings call. But then in the last few weeks, it sounds like There's a chance we'll get the data sooner this year and you may be able to present it. So kind of what's changed from April to now to give you a sense that the data may come a a little bit earlier and give you a chance to present it this year.

Speaker 4

Thank you.

Speaker 3

Thanks for the questions, Vamil. I'll start with This year, there won't be a significant impact. As you can imagine, most of that business was contracted for the full year about this time last year. So there really wasn't any material impact. And our current assumption, based on some of the agreements you read about, similar to what we've said previously, is that we wouldn't expect anything I don't know, Eric, from a legal perspective, anything to add?

Speaker 5

Yes. Thanks, Joe. From a litigation perspective, I could say that no other biosimilar is better positioned in our view than Amgen or Alphatec would be. So we would not anticipate Any other biosimilar having the opportunity or ability to enter the market before those 2?

Speaker 2

Thank you. And with respect to Mariposa, nothing has changed. We this is an event driven study with a final analysis expected, as we said, by the end of 2023, With the potential to be presented at a major medical meeting in 2023, We remain excited about the potential of vibrivent in combination will assertive to become a new standard of care in first line non small cell lung cancer with EGFR mutations.

Operator

Thank you. Next question today is coming from Joanne Wuensch from Citibank. Your line is now live.

Speaker 6

Good morning and thank you for taking the questions. I'm trying to think about 2 things as I look forward to. Given the strength in the first half of the year in MedTech. Does this create in your opinion a new base from which we grow from or are we going to be writing about difficult comps next year? And second of all, with Canvue split off by within days or by the end of this year, I anticipate, How do we think about different investments in the MedTech and Pharmaceutical franchises either through pure R and D internally or externally?

Speaker 6

Thank you.

Speaker 2

So as I commented in the earlier question, we are pleased with the strength of our Mette business in the first half of the year with 8% growth. This is driven And at the same time, as I commented to our improved commercial execution and the introduction of new products of note, of our question is successful in introducing some important new products in all segments of our business. For example, if I start with electrophysiology And also our new treatment catheter QDOT, which as you know, Joanne, we presented results about QDOT. So we increased efficacy and procedure efficiency too. If we move into Vision, we are in the middle of the launch of Acuvue Oasismax, Progressing also very well.

Speaker 2

Moving into Orthopaedics. The good news is that we have received CE Mark and CE Mark We've hit navigation and the recent addition of Optimize, and we see our market position there also progressing And moving forward, we will continue to see good evolution also in Orthopaedics. Finally, in Surgery, we continue to enhance our Endocatera and our energy portfolio with the launch of Enseal, Joe, Corp. And also with the launch of HCLN question comes from the

Speaker 5

line of Carlos. 3,000 in

Speaker 2

the stapler side. So overall, good reception of our new products That portend well for a continuation of growth, as I said before, in the second half of the year. And we look forward also To the different readouts of our PSA pipeline, which we have announced, we have completed enrollment of our dual energy catheter, which is going to be offering the physicians the comfort And then on the robotics side, we will provide you more updates on our progress on OTAVA, our Monarch system that has already started with the first patient treated in removal of kidney stones. So overall, Good progress during the year. Clearly, our MedTech business is doing well, delivering competitive growth, And we have good news in innovation as the year moves forward.

Speaker 3

And Joanne, with respect to your second question and completing the consumer health separation, Our capital allocation priorities aren't changing. So we're going to continue to invest organically in our own pipeline. You saw that we pretty much Have kept our percent to sales, which is leads across industries as a top 10 investor in R and D on an annual basis. We prioritize that. We realize that, that is underpinning our future success as we have demonstrated.

Speaker 3

The dividends and the share repurchases that we've done this year has already returned a significant amount back to shareholders. And then we'll always be on the question comes from the line of John. We have a question and

Speaker 2

answer session for real

Speaker 3

good strategic opportunities that fit with either the clinical or scientific expertise we have or commercial capabilities that we can offer question that drive more value out of a potential asset in our hands than where it currently resides. So we are looking feverishly as we always do across both MedTech and Pharm.

Operator

Thank you. Next question is coming from Chris Schott from JPMorgan. Your line is now live.

Speaker 7

Great. Thanks so much for the questions. Just the first one is, I would love just some additional views on the $57,000,000,000 pharma target by of 2025. It seems like between the pipeline progress we've seen this year and the Stellaris settlements, you've had some clear positive updates over the past few months. And I'm just wondering Just level of confidence that target and has that increased as we've gone through this year?

Speaker 7

And then my second question was just for Eric on talc. Is there any update in terms of the number of plaintiffs where you have an agreement on the settlement terms relative to where we stood with the comments in April? And just where you stand right now relative to that 75% threshold you ultimately need? Thanks so much.

Speaker 2

Thank you, Chris. And let me As we announced back in 2021, and certainly what we are seeing now increases and reinforces and enhances our confidence. On one hand, you're seeing the progression of our pharmaceutical portfolio and our existing products with excellent results Injectable antipsychotic franchise, which are key products in this period. We are very pleased with the trajectory of our New product launches including CARVICTI, TEGFAYLI and SPRAVATO. If I focus on CARVICTI, you see a clear improvement Quarter over quarter in CARVICTI would reflect improvements in supply.

Speaker 2

In TechValley, you see also a clear improvement. Of note, When we look at the Tagvali launch, align data that should reflect in the addressable patient population, Finally, it's coming a faster introduction. And finally, Espravato, which is doing well. And now we see Espravato If we look at our pipeline and the products of the pipeline that are going to impact in We are expecting the PDUFA date of talketamab, our GPRC5D, CD3 bispecific antibody, which is going to give another option in the treatment of multiple myeloma. And we continue to progress and execute well in some of the key products in our pipeline.

Speaker 2

I commented on Libervant And the combination of lacerdiniva, as you know, we received fast track designation for the 3 key indications of Milvexion, our Very positive data about TARIS200 in non muscle invasive bladder cancer in meeting in the American Urological Association. And we also when it comes to CARVICTI, we were very pleased to show The data on CARTITUDE 4, we are filing the BLA now, both in Europe and in the U. S. And we are expecting to show you some data On nipocalimab in rheumatoid arthritis, we also have already presented in hemolytic disease of the fetus of the newborn. So in every angle of the products that we highlighted as the core products of our pipeline, we are executing well.

Speaker 2

Plus, We recently presented in the World Congress of Dermatology our data in our oral IL-twenty three receptor antagonist peptide, We show great efficacy in psoriasis and we have announced plans to continue developing question comes from the line of Achal. So overall, when I look at the picture for 2025, We have increased confidence based on our portfolio, in our new product launches and how we are executing of our pipeline. But now, I would like to look even beyond 2025, if you allow me, Chris, because 2025 is very close. It's only 3 years from now. So what I think is what you are seeing with this renewal of our portfolio is a very strong position for Johnson and Johnson in Pharmaceuticals Beyond 2025.

Speaker 2

And that's something that we need to highlight and I think it's important for everybody to recognize this is going to put us in a great position

Operator

Thank you. Next

Speaker 5

question So turning to the question with respect to the number of claimants, Good and important question. The most recent update comes from the hearing on the motions to dismiss that finished We are now looking at approximately 60,000 claimants in support or lawyers who represent 60,000 claimants questions in support of the plan and lawyers who represent about 40,000 claimants in opposition. The numbers right now show that the vast majority of claimants support the proposed plan. Based upon the testimony, during that hearing from the lawyers that support those claimants, we are confident that, that

Operator

question. Thank you. Our next question is coming from Trung Huynh from Credit Suisse. Your line is now live.

Speaker 8

Thanks for your thoughts on the talc outcome. Should we just expect any more similar suits like the one in Alameda And then secondly, do you know just a clarification on Mariposa if another interim passed for Mariposa? Thanks very much.

Speaker 2

So let me start with the Maripos. I know, I mean, we are as we communicated, we are moving into

Speaker 5

And with respect to the talc suits, we don't anticipate additional individual actions to go up for it outside the bankruptcy. Judge Kaplan lifted the stay only with respect to that one particular case, the Valadez case. Indeed, Subsequent to that, he denied a request from the same counsel to lift the stay on another case. So currently, I would not anticipate Any other case to go forward in advance of a ruling on the motion to dismiss.

Operator

Thank you. Next question is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Speaker 9

Great. Congrats on the quarter. Thanks for all the color. I had 2. I was wondering, Joaquin, we've talked a lot about of the myeloma market and evolution over the last decade or so.

Speaker 9

J and J has been a leader there. This is a $20,000,000,000 market. You obviously have a number of different questions now for patients, including TEGVALI most recently and tellequitamab with upcoming PDUFA date. So I guess my question is just top down, question. What prevents you from capturing a majority share of that $20,000,000,000 market?

Speaker 9

And then, Joe, a question for you on margins post can view. Any early idea you can give us in terms of how that structure could evolve post the full separation? Thank you.

Speaker 2

Yes. So thank you for the question. And the answer is nothing prevents us from doing that. As a matter of fact, Our aspiration in myeloma is that with the portfolio that we have today with DARZALEX, We would be in a position to have 3 out of every 4 patients starting question is that there is a Janssen regimen for every line of therapy and a Janssen treatment for every patient irrespective of 1st line and also in combination with multiple agents and then sequencing into CARVICTI and Talquetamat and Teckviley, which we are studying in combination with DARTHALEX and also in combination among each other question and sequencing among them. So ultimately, our goal when it comes to multiple myeloma is to be able to sequence Our medicines combine them in a way that we are changing the treatment paradigm from treating to progression to treating to cure.

Speaker 2

And that is a big, big, big plus in our portfolio. And as I have commented often, multi myeloma is And as we sequence treatments, the treatment duration itself is going to be significantly increased. So we overall foresee Great patient and growth opportunity as we look to combine all these modalities,

Speaker 3

And Terence, thanks for the question regarding margins and specifically, I think you're getting at the heart of the potential deleverage that could occur with the separation Once, KenView is on its own entirely. You may recall a couple of quarters ago on one of these calls, we said that there was potentially question $500,000,000 to $750,000,000 of deleverage in SG and A. We embarked on an initiative and I guess the benchmarks would suggest Companies usually take about 2 to 3 years to get those costs out of their system. Last $100,000,000 to $750,000,000 There's a small fraction that may remain and we're still working to eliminate that. So you should expect, As you're modeling, no deleveraging or very, very little deleveraging from the KenView separation.

Operator

Thank you. Next question today is coming from Danielle Antalffy from UBS. Your line is now live.

Speaker 10

Good morning, everyone. Thank you so much for taking the question. Just to follow-up on some of the question comes from the line of John. Joe, I appreciate what you're saying that things haven't changed. But I'm just curious now that you guys have integrated Abiomed, you're question How your appetite for specifically within Medical Devices and MedTech?

Speaker 10

How your appetite question comes from the line of Alex. And are there any specific areas you would call out Within cardiology now that you do have Abiomed or just with throughout medical devices as areas of interest or where you feel under

Speaker 3

the question to me and I'll answer it with one word. I would say our appetite is pretty voracious at this point, but I'll leave it to Joaquin with Back to the size of the deals, I don't think it unequivocally doesn't change whether it's big or small. It has to be a really good strategic fit Utilizing the expertise and capabilities that we have and has to provide financial value. Joaquin, maybe you want to comment on any specific areas that are of interest?

Speaker 2

Yes. Thank you, Daniel. And before I go there, let me say that the AbeoMID integration is progressing really well. The growth of Abiomed, it's been 20% on the quarter, and we continue to move forward With the enrollment in the key PMA studies, PROTECT and STEMI DTU as well as the Impella ECP. So everything is moving well according to plan in the Abiomed integration, and we are increasingly convinced that this is going to be a key component of our MedTech strategy in becoming a leader in heart recovery.

Speaker 2

So when it comes to M and A, we continue to look for opportunities. And our number one criteria in looking for opportunities is the medical innovation, How they improve patient care? How do we see the science behind the product? So we are agnostic in that sense to Medtica Pharmaceuticals. Question is all about identifying areas that are going to have a significant impact in patient care.

Speaker 2

When it comes to MedTech, certainly, as we have commented, we are continuing to look forward for Surgery 2 and also opportunities in certain high growth segments of orthopedics. And We normally will continue to look for these opportunities, trying to have a Our history in tuck ins, in license and collaborations has been very successful. As a matter of fact, external innovation represents about 50% of our pipeline. And while we continue to look for opportunities like we have done now with Cellular biomedicines and the agreement that we have doing CAR T, we are not averse to other transactions of larger Evidently, both in MedTech and in Pharma, we are very disciplined with our capital allocation and all our transactions will have to clear question. Certain financial milestones for us to be able to move on.

Speaker 2

But M and A and also line sensing acquisition collaborations remains a

Speaker 1

We have time for one more question.

Operator

Thank you. Our final question today is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Speaker 11

Hi, congratulations on the quarter and thank you for taking my questions here. So I wanted to ask you what your latest thoughts question on IRAR and the potential impact to the drug industry and also to J and J. And second question was just on CARVICTI. Just curious How you expect to expand into earlier lines of treatment and then more widely into the community? Thank you.

Speaker 2

Yes. So let me start with the IRA. Obviously, we remain very concerned About the government price setting environment that the IRA creates, which we believe Create a significant disincentive to innovation without addressing the core problem, which is patient access. So it is A significant concern for us, and that's one of the reasons, as Eric commented earlier, that we have filed a lawsuit So that's important for us. Then when it comes to the actual business impact, I think it's still early to be able to question is calculated given the fact that many of the rules and procedures are still in flux.

Speaker 2

So It would be too much to be able to try to anticipate that. In our case, when we look at Johnson and Johnson, relatively speaking, towards the Speaking towards the industry based on our diversification between medtech and pharma and also the diversification of our Pharma portfolio, we feel that we are well positioned competitively to continue to grow well beyond the second half The second question was about CARBTI. As I commented, Javier, we are working to improve CARBTI supply, which is very important. You've seen that improvement in our sales in the second quarter. We are working in different ways.

Speaker 2

One is we are increasing Capacity, we have internalized the production of lentivirus now and also we are in the process of increasing the number of slots Internally and also we have reached agreements with other companies like Novartis to continue to increase capacity. So we are going to be In that trajectory of increasing capacity gradually in order to be able to eventually meet the demand that exists in CARBICTI. As far as Reaching to other patients' populations, the CARBICTI-four, it's already been filed And it's moving CARBICTI into earlier lines of therapy. And we are also working in first line with CARBICTI5 CARBITY through CARTITUDE 4, CARTITUDE 5 and CARTITUDE 6 into earlier lines of therapy. And we are Increasingly, convinced of the potential of CARBITDA to be one of our more than $5,000,000,000 assets that we announced back in 2021.

Speaker 1

Question comes from the line of the operator. I will now turn the call back over to Joaquin for some brief closing remarks.

Speaker 2

Thank you, Jess, and thank you to all of you Thank you for joining this call today. I'm extremely proud of the performance that we have achieved on the first half of twenty twenty three. We are entering the back half of the year from a position of strength with numerous catalysts, including the fact that we are going to be a 2 sector company focused on pharmaceutical and Medtech Research and Development and Innovation. We look forward to having future engagements with you to update you on our continued progress. Thank you very much and enjoy the rest of your day.

Operator

Thank you. This concludes today's Johnson and Johnson Second Quarter 2023 Earnings Conference Call. You may now disconnect.

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Earnings Conference Call
Johnson & Johnson Q2 2023
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