Okay, so we're gonna get started here. Sorry, we're starting two minutes late. My apologies. So my name is, David Risinger. If you don't know me, I cover diversified biopharmaceuticals for Leerink Partners, and it's very much my pleasure to welcome the CFO of J&J, Joe Wolk, who was kind enough to take the time to be with us here today, and also the Senior Director of IR, Raychel Kruper, who focuses on biopharma for the J&J team. So I figured I would start it off, Joe, by you know, first of all, complimenting you on, you know, the strong performance over the last several years since you were named the CFO back in 2018 through the pandemic and beyond.
I was interested in, you know, obviously, J&J is a strong and very powerful company with a lot of levers, but you know, the company's ability to manage through the difficult times and you know, if you could reflect on that a little bit and also the application of lessons learned, i.e., how to operate much more efficiently and differently.
Mm.
Which has enabled you to also, you know, put forward plans to continue to drive margin strength despite, you know, aggressive reinvestment in the business.
Yeah. So, first off, Dave, thanks for having us, and thanks to all of you for your interest in Johnson & Johnson. Thank you for the kind words. I would say, I've been fortunate. It's really the team that's done a tremendous job with respect to the business performance over the last few years, which, by any accounts, has probably been some of the most turbulent in the history of business. But, you know, as we've gone through those turbulent times, I would say the one thing that really resonated with me is it's really important to know who you are.
If I go back to the days of the pandemic, it was almost about this time in 2020 where folks were pulling guidance, they were removing their dividend, or at least reducing it, and I remember sitting with Alex Gorsky, debating, like, "Well, what do we do? Do we, as the world's largest healthcare company at the time, show up and say, 'Boy, damned if we know,' and just pull guidance?" We thought that would be disconcerting on a number of fronts, not just for our company, but for the industry at large. We've paid dividends for s-- you know, at that time, high fifties years, with Dividend King, and we thought it was important to lean into who we were. So with that first quarter earnings in April, we did provide guidance.
We said: "This is gonna be 100% precisely wrong, but here's the ranges of what we know. Here's what we don't know." We did increase our dividend at a disproportionate rate at that time, and I think that reassured investors that J&J is gonna continue to manage, as they always have, and that's for the long term, and our long-term success is gonna be premised on innovation. It's no different in good times or bad times as to having the capability and the desire, quite frankly, to, wanna make sure that whether it's innovative medicines, pharmaceuticals, or MedTech, that we're bringing offerings to the marketplace in healthcare that are differentiated from the current standards of care. That's been our formula for success for quite some time.
So while it may have coincided with some turbulent years, my appointment, I think I'm just the benefactor of really what's been part and parcel to Johnson & Johnson for decades. Now, I do think those turbulent times has accelerated things, and the acceleration serves our business well. If I think about during the pandemic, you know, as a simple example in finance, we were closing the books almost remotely at the time. That would've been very nerve-wracking had I known about that on March tenth, twenty twenty. Wouldn't have signed up for it, but we had to get through it.
I take the skill sets that we developed, and that's a small example, but I take the skill sets of doing things that we hadn't done before and doing them quickly with the right people in the room to the Kenvue separation, right? That was a business that was really part of Johnson & Johnson's heritage for decades. It was intertwined for many reasons throughout all parts of our business. We were able to separate a $40 billion company within about 15 months in total. The team did a fantastic job without a playbook, right? Forging ahead, getting the right people to make the decision, and then course-correcting when something went wrong.
And here we are, by all accounts, whether you talk to some of the, the big banks that assisted us or some of the consultants, that it's become the gold standard for those types of separations. We're very proud of what the team was able to accomplish. I think that sets us up very well for what we see in terms of acceleration of where we go tomorrow. Joaquin Duato, our CEO, has said, "The next 10 years of healthcare innovation will be much more profound than the last 100 years." And that's probably a true statement when you just think of the convergence of tech with healthcare, right? There's major tech players wanting to get into the space of healthcare, and we see it in our own business, where MedTech applications are now being combined with therapeutics for a better result down the road.
We employ 6,000 data scientists within our company, something that would have been unheard of prior to 2020, and we're teaching our organization to be kinda bilingual with respect to being technologically savvy. Knowing the science, knowing your specific functional expertise, but also how technology can help you become not just more efficient, but more effective in that decision making. So we're very excited about what lays ahead for Johnson & Johnson, and I think the last couple of years have, quite frankly, formed us to be a much better organization for what are seemingly faster times.
Excellent. And so turning to the numbers, at your Analyst Day in December, management targeted 2025-2030 organic growth of about 5%-7%. I mean, you didn't give specifically 2029 and 2030 for medical devices, but I would, you know, call out that I think the current consensus projects about 3.6% by our last cut of the numbers. So could you discuss what you think the sell side is underappreciating, and I guess, what you would specifically point to?
Yeah. So, it's funny, I kind of look at this as somewhat of a good story. Because if you go back to this time last year, the analyst consensus for our MedT ech business was about 5.2%, and our pharm business was 1.6%. Today, that same consensus stands at about 6.6% for MedT ech and about 3.2% for our pharmaceutical business.
So that tells me folks are starting to come along for the ride, but it also provides me, I think, with a perspective that there's still tremendous opportunity that as some of the data matriculates and comes out, which, you know, based on what we committed to and expected at the December Enterprise Business Review, I would say we're at least on schedule, if not ahead, in many cases with some of those data readouts. We feel pretty good. There's still an opportunity for investors to kind of capitalize on going from that 3.5% growth to something that's going to be closer to 6% growth over that horizon. I think in MedTech, what's changed the game there is there's a belief in the sustainability of performance.
We've gone from 1.5% in 2017 as a growth rate to 7.8% last year. That's without the acquisition of Abiomed. In pharmaceuticals, I think there was a slide that we put up that identified about 6 products that we thought the Street was severely underestimating by different degrees. So in the category of being about 25% off the forecast, where we saw it higher, we had CARVYKTI as well as TECVAYLI. So the bispecific for multiple myeloma, CARVYKTI being the CAR- T BCMA for multiple myeloma as well. The data there continues to progress. TECVAYLI is off to a very strong start.
Another bispecific in multiple myeloma, TALVEY, we think is 50% higher than what the Street is currently calling for, as we think the same with SPRAVATO for depression. So we're very well positioned. And then probably the biggest product that has a disconnect would be the combination of RYBREVANT and lazertinib for small cell lung cancer with EGFR mutation. We've got some data in Mariposa One, Mariposa Two, as well as Papillon, that we'll read out later this year. We expect approval for Mariposa One likely this year, hopefully soon, as well as the Paloma study, which is a study that should read out later this year for sub-Q formulation and administration. So I think that's very bright. So folks have changed their perception a little bit on some of those products.
I think the 25% category is now closer to 20% understated. The one product I didn't mention there was for bladder cancer, the intravesical device that we have to address bladder cancer, known as TARIS. So, we think that's an underappreciated opportunity, particularly in the longer term, when some of the bigger trials read out. So those are some of the disconnects that we see from the Street, but again, all the data that we expected to come through is either on track, enrollments are on track or slightly ahead of what we committed to in December.
Excellent. And just on the... You know, you mentioned the current year in terms of expectations. Just, you know, when you reported the fourth quarter, there was some noise from medical device analysts. I focus less on that area. Obviously, I have a lot of biopharma companies to cover, but, you know, I think there were some initial margin concerns.
Yeah.
But, I think you were emphasizing the full year perspective. So could you just provide a little more color on that?
Yeah. So, in candor, I didn't do a good job of explaining that very well during the fourth quarter call.
I'm sorry to bring that up, I realize.
That's all right. I'm glad we have a chance to clarify the record here and give me a second shot at this. So if you look on the year-on-year change, about more than 75% of the change related to an acquisition we made towards the end of last year, booked in the fourth quarter, about $400 million, known as Laminar. So it's for a left atrial appendage closure. It's somewhat unique in the MedT ech world to have an IP R&D charge of that size, that magnitude. We took that charge. I could have explained it better during the call. We did have some headwinds in terms of margin. As you can imagine, there's a little longer inventory lead times on our balance sheet that flowed through.
So some of the inflationary impact you saw from 2022 came off through the P&L in 2023. Some of it's even still coming off in 2024. There's no new inflation that we have to be concerned about. What was maybe a little puzzling at the time is we gave guidance for the full year in 2024, and I think people projected that poorly explained fourth quarter would somehow translate into fourth quarter performance. But we're very comfortable, as we sit three months in, with the guidance that we provided at the beginning of the year. We provided that same guidance back in December at the EBR. So our margin profile remains very much intact, despite what might have been a noisy fourth quarter because of that IP R&D charge.
There is an opportunity to improve our margins in MedTech. Tim Schmid and his leadership team are doing a fantastic job getting after that. Some of you may have noticed that we did take a restructuring charge in the third quarter, specific to our orthopedics business, to improve margins there, exiting some less profitable markets, looking at our footprint from a manufacturing perspective, getting much more efficient. We think we're very well positioned to meet the margin commitments going forward.
Got it. Thank you. Well, that's very nice of you to take responsibility for sell side misinterpretation.
No, no, no, I didn't say that.
Most CFOs would just blame the sell side. But, anyway, so, in terms of, of the pipeline, you frame, you know, obviously, what are going to be several, multibillion-dollar blockbusters. But I'm sure there are probably some other, you know, interesting pipeline candidates that are maybe not quite as large of an opportunity as the ones that you mentioned, that are interesting and exciting for you to see how they play out. Could you comment on those, please?
Yeah, and maybe I'll ask. I'm sure I'm going to leave one or two out. They may be as large. They may be bigger. I think about JNJ-2113, so our targeted oral peptide, that provides tremendous opportunity in some of the spaces that we play today, specifically psoriasis and IBD. If you think about, kind of patients' aversion to needles, about 30% of patients today do not get treatment because they have an aversion to a needle. We also did some studies that suggest that those who do receive injections, 75% of them are willing to switch, and actually prefer to switch to an oral if given the opportunity.
So you're talking about millions of patients who, if the efficacy proves out, which, again, another readout over the weekend suggests that, we're very happy with some of the efficacy rates we're seeing, will be, could be a major player within the IBD psoriasis space. We have the partnership for a Factor XI with Bristol-Myers Squibb. Obviously, the Factor Xa’s are effective. They've been great for patients, but there's still about 25%-30% that can't avail themselves to that because of the bleeding profile. We think the Factor XI could be a remedy to that. It's a fast-track designation, so we'll continue to pursue that. I would say the TREMFYA is one that you may have seen yesterday, that we've made a filing for the UC indication.
I think that's critically important, as STELARA is going to be subject to biosimilar competition here in the U.S., beginning of next year, later this year for outside the U.S. 75% of STELARA sales today are in IBD, so we think this provides a nice transition, by having TREMFYA stepping into UC with Crohn's data being read out later this year. Rachel, you want to pick one or two maybe that I'm missing?
I think you captured a good majority of them. I think nipocalimab is another big one that we're excited about. We top-lined myasthenia gravis data earlier this year, as well as Sjögren's disease. So that would be another large opportunity for us, as well.
Excellent. That's very helpful. And so in terms of I&I and, you know, formulary placement, clearly AbbVie has been dominant and, you know, constrained the growth, obviously, of TREMFYA. And PBMs, you know, have ever-increasing demands for rebates. So I'm hoping that you could just talk about sort of lessons learned about access pressures, however you'd like to comment on that, and how you're incorporating those lessons learned, as you continue to develop additional I&I candidates-
Mm-hmm
But also other, you know, other candidates outside of oncology.
Yeah, no, I think the access question is a good one today. Obviously, very timely, particularly with the rhetoric that you hear during a presidential campaign year. I would say, if you think about the payers, PBMs, it's 80% of commercial lives are now covered by three players. The good news is, Johnson & Johnson has been at this a while, has been competitive for a while, and we have good relationships with those payers. You know, the point of leverage that we have is coming out with products that are truly differentiated. Just like I said in my first response, having that innovation that elevates the current standard of care, puts you in a very good position to have negotiations with some of the payers.
Our growth over the last several years, at least the last six years, as we published in our transparency report, has come from volume, right? Because we've got innovative products. We've lost on price almost each of those years by an average of, let's call it 3%-5%. So that's critically important. I think if you think about where we've got strongholds, you mentioned immunology. We can certainly get more competitive there as there's more products at play, but we think we've got some of these products down the pike that will meet and address some of those needs. But we've been in that space for more than 25 years. We've had 5 market-leading candidates.
We're excited about JNJ-2113, as well as JNJ-4804, and an oral IL-17, so we'll have the full portfolio. Neuroscience is another area where we've really were the pioneers over 40 years ago, 40 years of experience, largely in schizophrenia, but now moving into multiple aspects of depression, as well as, you know, Alzheimer's disease with a Phase II, monoclonal antibody for the tau, targeting the tau protein, as well as a tau vaccine. So there's promise there. And then obviously, the oncology portfolio, which we've alluded to earlier, really, a number of options available to us with multiple myeloma. We're prevalent and have had leadership positions in prostate cancer, moving now into solid tumors with bladder cancer and lung cancer, as well as new modalities.
So the Ambrx acquisition late last year just closed the other day for ADCs, trispecific combinations, as well as cell therapy. So we think we're very well positioned, and I think, you know, in terms of creating leverage with the payers, it really comes down to having differentiated products.
That's great. Yeah, you have a lot of cards to turn over in coming years, so, it's a great position to be in. Maybe we could turn to talc litigation.
Sure.
I know that you can't litigate at this session, but would love to have you frame for us the key developments to watch over the next year or so.
Yeah. So I think it's interesting now, and as you heard at our enterprise business review from our General Counsel, Liz Forminard and Erik Haas, it's really a four-pronged strategy. The first is to appeal the bankruptcy. I think there's been some recent developments that are somewhat interesting in terms of what the Fourth Circuit ruled, and kind of saying that you didn't need an imminent financial distress standard, that that was something that the Third Circuit kind of interpreted into or read into the law, which didn't exist previously. So you could see that kind of coming to a head. We'll continue to appeal the Third Circuit Appellate Court's decision.
You know, we are continuing to speak with the other side in terms of a broad global resolution, as Judge Kaplan at the lower level in the Third Circuit encouraged both sides to do. We'll see how that plays out. We'll continue to litigate where necessary. We've won about 75% of these cases. And then the last aspect is, quite frankly, exposing some of the tactics of the plaintiffs bar in some of these court proceedings, how these cases are financed. I think shedding some light on just the questionable data that expert witnesses for the other side puts up will be illuminating. This is a problem for Johnson & Johnson, certainly, but it's also a problem, I think, for industry and American business at large.
We've got a great legal system, but the tort system I think needs some refining. What I do want to make clear to folks in the audience, though, is, despite the matter of talc, if you just look over the last couple of years where this has been resident, we've been able to deploy capital in many different ways. Actually, over the last two years, we've pulled on every lever of capital allocation priorities that we articulate. So that starts with differentiating investment in our organic pipelines. Last year was over $15 billion in research and development that hit the P&L. We continue to increase our dividend for 61 years now, overall dividend king status. We'll make smart acquisitions. Like I said earlier, we're really thrilled with the Abiomed acquisition.
It was a great fit from the perspective of culture, business. It ties nicely, but not directly to our EP business in MedTech, so that positions us very well to broaden out the interventional solutions portfolio. And then we'll do share repurchases when we have the opportunity and it makes sense. And if you think about a global resolution around talc, which, you know, whether you talk to Joaquin Duato, whether you talk to our board, we wanna put this behind us in a reasonable, responsible way. So we're not oblivious to the fact that that does provide an overhang. So we're motivated to do that. We would just want to do it in a responsible way.
But in the interim, it doesn't preclude us from doing anything that we hope to do to either return capital back to shareholders or strengthen our business for the future of any scale.
Excellent. That's, that's super helpful. Yeah, it's, I'm sure, very difficult for you to balance, given that no one knows what causes cancer, and a lot of the claims are questionable and the data is questionable. So, you know, I'm, I'm sure it's difficult to part with any money at all, but-
As a CFO, I'd much rather be putting it towards, you know, novel cancer treatments or Alzheimer's disease or exciting opportunities in MedTech. But we also... Again, we're not oblivious to the fact that it is providing an overhang now, and, you know, a responsible, reasonable path forward is something that we're looking to affect as quickly as we can.
Excellent. So turning to M&A, you know, the company's balance sheet is really in an exceptional position, and you've obviously pursued select M&A, but how are you thinking about additional activity in biopharmaceuticals? The number of deals you've done in medical devices-
Yeah
In the last three years has been more than biopharma. And, obviously, biopharma is a bigger part of the company overall.
Mm-hmm.
So, how would you characterize future M&A for your biopharma business?
Yes, we're going to continue to be as active as we have been. While actually the number of deals that we've done in biopharm has been much more plentiful than MedT ech. It's just there's been higher price tags with some of the MedT ech ones. So the pharm team, I think, takes great pride in maybe not having a headline at the time the deal is signed, but having a headline when the product is about to be launched. Last year, we deployed about $3.3 billion of capital across 50 opportunities.
Where you've seen our success over the last 15 years is really getting in early, being able to influence the development, construct as well and program, as well as the timeline around that, and that's where we've been able to create some great value for shareholders. That doesn't mean we're adverse to doing a larger size deal. The nice thing about it, certainly as CFO, is we're not doing that out of desperation, right? And it's kind of a unique time now, where there are some companies and players that are facing patent expirations and maybe trying to fill that gap. We feel very comfortable with what Jennifer Taubert and John Reed and Joaquin Duato outlined for 2025 through 2030, right? That 5-7 is what we have in-house today.
If there's a nice opportunity to fortify that, certainly we're gonna look at that, but it's gotta meet that criteria of having strategic merit, which means we either have a scientific expertise or a global footprint that's gonna add to the value of that asset, and then making sure we pay a price for that asset that compensates the risk that we're bearing on behalf of shareholders, and that's how we look at really all opportunities. So, I would say we're still very, very active. You just might be – they might be more under the radar than what you're used to seeing.
Got it.
The nice thing is, we don't have to do it out of desperation. We have, obviously, the STELARA biosimilar competition coming in, but we love the pipeline that's gonna fill in right after that.
Yes. Very, very helpful. And then just to follow on, on one of the points you made earlier about having 6,000 data scientists at the company, I'm just curious, how would you paint the picture of AI, you know, considering the AI hype that's out there? How, how is J&J actually implementing AI? And I'm most interested in the, in the pharmaceutical business-
Yep.
but also interested on the medical device side as well.
Yeah. So right now, I'd say, David, we're probably pretty good at harnessing the efficiencies that AI can deliver. So looking at some of the back office functions, maybe doing some medical writing or a clinical trial design. I don't know that we've gotten to the point, I don't know that anybody in the industry has, of really the insights that AI can generate for us. So taking, you know, countless volumes, reams of data and saying, "Boy, there's a specific biomarker that we wouldn't have captured otherwise, or a disease state that is subject to this type of biological, genetic, or molecular action." We haven't gotten there yet. So, again, I don't think that's unique to Johnson & Johnson. I think that's really pervasive across the industry. We're trying to get...
We're trying to build the capabilities to where it's a muscle for us.
Mm-hmm.
And so the 6,000, I can't say whether that's the beginning or the end, but I do know that it's having impact in terms of how we do recruit for trials and, how we're conducting business at large. So I'd say it's much more of an efficiency play than an effectiveness or insight play at this point.
That makes a lot of sense. The complexity of human biology and disease-
Yeah
And the actual appropriate inputs and whether you have enough of them, with the right datasets, makes it very tough.
Yeah. Yeah, exactly, and then just capturing that data with real-world evidence, right? I think that will be probably the most significant attribute in terms of enhancing what kind of insights we're able to derive.
Excellent. Well, I think we are out of time. The clock has just reset, so-
Okay.
Thank you so much for being here.
Thank you, David.
Really appreciate it.
Thank you.