Hello, everyone. I am Shagan Singh, Senior Research Analyst at RBC, and I'm very happy to host the next session with Johnson & Johnson. Joining us from the company is Joe Wolk, Chief Financial Officer of the company. Joe, thank you so much for being here today. We really appreciate your time.
Oh, my pleasure, Shagun. Pleasure to be here.
Great. I thought we could open it up with a brief state-of-health care discussion, given the current environment. Maybe start off with tariffs. We are in an unprecedented time with respect to tariffs and all the policy rhetoric that has been going on.
Of the year so far with respect to tariffs. I do think it's important to. As well as Part D redesign, which is another $2 billion in discounts. Most companies would be looking to contract or at least moderate their growth expectations on both the top and bottom line. We're looking to grow through that. I call it kind of a gutting it out type of year, and I'm really pleased with what happened in the first quarter, specifically how the overall business performed. In our first quarter results, we did talk about tariffs. About $400 million based on what we knew back at that date in April. That considered a 90-day pause. That considered China retaliatory tariffs. At that point in time, we were able to absorb that additional impact in our 2025 outlook of about $400 million.
That was mostly on the medtech side impacting our business. Since that time, there has been a little bit of retrenchment in terms of the Chinese tariffs, both retaliatory as well as what the U.S. is levying. I would estimate that that impact, as it currently stands today, is probably half of the $400 million. I am reticent to kind of give that number or say that is where we can go from here, because, as you know, on the pharmaceutical side, there is still the Section 232 reviews that are occurring, and it seems to be very much a moving target. I think what I would like all of you to take away, though, is that our business is strong enough to absorb impacts like that and still continue to perform to meet expectations. We will have to see where the tariff landscape goes.
Obviously, what we've had discussions with the administration, and I'd like to actually compliment the administration in terms of the level of engagement. I can't think of a time, certainly in my career, and I think many executives would say this across pharmaceuticals, trying to understand the landscape, not only on tariffs, but also pricing. There is obviously a sense of renewed optimism from the industry with respect to investments. Johnson & Johnson stood up about two months ago, committed to $55 billion over the next four years, which is a 25% increase. That's really related to tax policy, though. If you look at the biopharmaceutical industry, before the passage of 2017 TCJA, there was about 1,000 biopharma manufacturing factory facilities in the U.S. Today, there's 1,600, and that's the result of having tax policy that's not necessarily advantaged, but it's not so disproportionately disadvantaged the way it was.
That is where we try to have the administration, when we have discussions with them, focus on the next dollar invested. We cannot disrupt supply chains to a significant degree because that is going to impact patients. Quite frankly, because it takes so long to build a manufacturing facility, by the time you get some of these products over, they will be end of life anyway. Let us focus on the next new cell therapy, gene therapy. We have a facility for drug supply in North Carolina that we announced on that same day. Focusing on those newer therapies, I think, will continue to enable the U.S. to be a leader in life sciences.
No, fair enough. Good point. Can you maybe talk to us about, you mentioned the $55 billion investment in the U.S. Can you talk to us about how you are looking at your global manufacturing footprint as well as the supplier side of the equation, and where does pricing fit in?
Yeah. That's a good question. Where does pricing fit in? Let's talk about manufacturing first. I think the key there is because of the products that we supply, they're so instrumental to critical health issues. We always had to have that contingency plan in place. We have more manufacturing facilities in the U.S. than any other country in the world, and we're very well positioned. I think the whole industry, maybe industry at large, took a look at that when COVID hit and we had supply shortages. Where are we getting some of our key components from? I would say we're largely well covered no matter where we are in the globe. If you think about Asia, China specifically, we manufacture there kind of for the Chinese market or at least for the Asian market. We do not have a lot of risk in that regard.
Our ability to put new facilities here in the U.S. is really tethered to the tax reform and a rate of 21% versus the 35-plus state tax that we were looking at a few years earlier, and tapping into the innovation ecosystem, the university system, the labor force here in the U.S., that's enough to kind of have that middle-of-the-road tax rate, which, again, is truly middle-of-the-road based on OECD, and make a really good business decision. In terms of pricing, it seems like the conversation these days is all over the place. We had an announcement this morning about MFN kind of building on the executive order, I believe, of last week. We hear a lot from the administration about middlemen, which, again, too, I do want to compliment because we had not heard that before. We take our opportunities to educate.
If you think about the pricing problem in the U.S., patients go to the pharmacy counter, and they're experiencing not only higher insurance premiums, but a copay of $100 on a chronic monthly med that maybe five years ago was $10 or $15. Right? Our average discount is somewhere between 55%-60% off of list price here in the U.S. at Johnson & Johnson. That's pretty emblematic of what we see across the industry. We publish these in a transparency report. We need to get those discounts and rebates into the hands of the patients to ensure good access. If you think about some of the systems that are out there that are probably co-mingled with most favored nation status and lower prices, often the disparity in price uses the list price here in the U.S., not net, and the net price overseas.
There is a disparity, but it creates greater access here in the U.S., specifically. If you think about, let's go with oncology drugs in the G20. Since 2014, I believe there's been 130 oncology drugs approved. U.S. citizens have access to about 96% of those drugs. In the G20, so developed countries, that access rate was only about 46%. We certainly don't want to limit access for good medicines. I heard about, we were traveling last week as an Executive Committee to Canada last week, cataract surgery. You could be diagnosed today here in the U.S. and have your cataract lens by Tuesday. What's today? Today is Tuesday. You probably could have it this afternoon or at least by Thursday. In Canada, they wait 18 months. What could happen there is blindness. We were just in the conference here at RBC listening to Alex Azar.
As an executive at Lilly, he never launched a product in the U.K. first or Germany first because it was just not a good business proposition. That's not the kind of healthcare system we want in the U.S. Does the pharmaceutical industry need to do their part? I believe so, and I think we have done that throughout time. I do think focusing on the middleman who puts no capital at risk in terms of discovery or manufacturing facilities is a good place to start and actually more impactful on the American voter's wallet.
Great. No, that's really helpful. I guess just sticking to the topic and thinking about your innovative medicine franchise. It looks like there could be opportunities as well as some risks. You think about tariffs. You discussed MFN. There is IRA. How should we think about, I guess, J&J's pricing power specifically on innovative medicine as well as the margin structure as we move forward?
Yeah, that's a good question. Our growth over the last decade plus has been built on innovative medicine that transformed the standard of care. That's what's the promise going forward if you think about some really interesting areas that I'll get to in a second. If you look at our average price, net price over the last six years, we've gone down on average 3%-4% each and every year. We don't have the ability to take price, certainly within our segment of the portfolio. I'm very excited about what the promise is for not only our core products. If you think about Tremfya, it's been a $4 billion drug for psoriasis. We launched UC in the fourth quarter, ulcerative colitis of 2024. We just received approval about a month and a half ago for Crohn's disease, subcutaneous formulation.
Seems like that's going to be very, very promising. For Johnson & Johnson, where the street has that projected at approximately, I think it's $4 billion in 2027, 2028, we see that probably at least 25% higher. Let's go to lung cancer, where we've recently had an approval probably about a year ago now, Rybrevant plus Lazcluze. We see that as something that the street is calling 2027, 2028, around a $2 billion drug. We see that two times higher in that same time period with higher peak sales down the road. You think about why do we think that? It's changing the standard of care. Lung cancer patients usually have on average a three-year survival rate. 80% of those patients don't get a second line of therapy because they don't make it in time.
Our data with subQ formulation that we presented recently has the proposed potential of having one year plus of mortality. That could build from here. If you think about Icotrakins, or something that's not yet launched, but in the pipeline, that's an oral formulation for psoriasis. We expect to file that for approval later this year. We see that as about, I think you guys have it for roughly about $700 million in the 2027, 2028 timeframe. We see that much higher as well, two times higher, two to three times higher. PAR 200, bladder cancer. Bladder cancer impacts newly diagnosed patients, 600,000 per year. It's a horrible disease. Usually leads to the removal of the bladder. Current treatments aren't sufficient. This is a very simple procedure that has a device that provides the drug exactly to the tumor. We don't have all the systemic side effects.
It's, I think, a two or three-minute insertion, a one-minute removal a few weeks later. That has great promise for folks with bladder cancer. We see that three times higher than where the analyst models are. There is a lot of reasons to be optimistic. Again, we had roughly 4% growth in the first quarter. That was despite losing about 40% on Stelara, more than a $10 billion drug, and a quarterly apportionment of about $2 billion impact for Part D redesign discounts. Most companies on the pharma side, when they lose a major product to patent, are looking to contract for a year. There has only been one other company that we know of that has done that to scale. That was Johnson & Johnson in 2018 with Remicade. We are going to grow through this, both top and bottom line.
No, thank you so much for that color. In fact, I think all the products that you called out on the innovative medicine side, I think it adds up to almost $7 billion that you are ahead versus where the street is. I guess I should ask you, what level of conviction do you have that you can actually hit those?
Yeah. In 2023, in December, we had the opportunity to host many of you at our analyst day here in New York City. Jennifer and the team committed to 5%-7% growth in 2025. That's the CAGR to 2030. When you consider we've just added a really nice asset with the Intra-Cellular Therapies acquisition, Caplyta, we think that's a high-growth asset. Our conviction is very high. Matter of fact, I'd almost be disappointed if we don't get to at least the upper range of that guidance that we gave. Jennifer won't like that I just said that publicly, but we'll put a little bit of pressure on her.
If you just think about the products we have, what we said in 2023, we did put up a similar slide, right, and said, "Here's the disconnects." At the time, I think the analyst community saw our growth rate over that period of time about 1.5% in pharma. They've come up to about 3.3%. We still think there's a way to go. That is why we felt compelled to show that slide in the first quarter earnings, just to remind everybody that we've got more conviction now. Some of those things were speculative back in 2023. We've gotten approvals that make those much more, I'd say the technical risk is now.
Yeah. No, absolutely. Thank you for clarifying that. As we think about the innovative medicine versus the medtech franchise, it feels like there's a bit of a disconnect. I think there are a few factors at play. On the medtech side, there is increased competition on the EP segment. You guys are working to get Otava out into the market. There is also a restructuring underway on the orthopedic as well as now surgery segment. Can you parse that out for us and talk to us about what the underlying growth is within medtech and how do you see the underlying growth for both your franchises, innovative medicine and medtech?
Yeah. Innovative medicine, I would stand by the commitment of that 5%-7%. I think it is very much well in hand for 2025- 2030. I think that is what investors should expect from us because these drugs are truly transformational. In terms of medtech, Tim coincidentally came out with a similar, I think it was from 2023- 2028, a 5%-7% CAGR. Right now, our franchise, that portfolio is not where we want it to be. I think if you look at on the surgery side, we had a good first quarter with respect to wound closure. Biosurgery was good. We are making advancements, and we are pleased to announce at that first quarter earnings call the completion and the initiation of IDE for Otava, a soft tissue robotic surgical solution.
We will continue to put that out there and hopefully have a filing in due course. There is obviously a very formidable competitor there. When I think about a few things, one, our unified architecture that allows the arms to move kind of with the bed, making it easier for surgeons, the smaller footprint. Quite frankly, the market research we have done with hospital administrators and surgeons looking for another option, that bodes very well in a marketplace that globally only has had about 6% penetration. When I think about orthopedics, we need to do better there as well. We have some really good uptake with our VELYS knee solution. That is a robotic solution there. We just completed a case yesterday for the VELYS spine solution.
Hopefully, that new technology will propel that to the mid-single-digit growth that we should expect in orthopedics given the demographic landscape across the globe. In terms of vision care, I would say we are still the market leader in contact lenses. We need to recatalyze that growth. We had some supply chain issues at the end of 2023 that impacted our 2024 performance. The team assures us those are largely behind us. We will put some funding behind the commercial efforts to reinvigorate that top-line growth. Again, we are the market leader. The second-place competitor is somewhat distant, but we want to get back to not just maintaining share, but acquiring more share.
On the vision surgical side of things, I was really pleased with what we saw out of the intraocular lenses, Tecnis Odyssey, Tecnis PureC in the first quarter. I think high single-digit growth in the U.S., which we have not seen for some time. Those newer product launches are starting to take effect. EP is the big one. It is one that I think folks like you should have come to rely on Johnson & Johnson for being a steady performer over the last decade. We were behind with PFA. We were the third to launch. In the first quarter, I would say there is a little bit of an inventory dynamic from prior year that maybe would have made that growth look a little bit better, but that is not really the issue. We had the Varipulse pause from the FDA.
It resulted in an instruction for use labeling change. There was no product defect. It was just how the physicians were using it. We are now back on the market, having success in, I would say, Japan, Europe, Canada, 7,000 cases globally. It seems like the data is starting to build that that is going to be a formidable competitor. We are also working on a dual energy catheter, hopefully for launch in the second half in Europe of 2025. We continue to work on the OmniPulse. We are committed to PFA. The other thing I would mention too is that while the PFA market has exploded, we are still in about more than 50% of those cases because of the cardio mapping presence. I think it is pretty generally accepted that cardio mapping is the benchmark, the gold standard.
We do have the opportunity with our clinical account specialists to be in the room while the procedure is going on so that when these other, when Varipulse has a little bit more conviction behind it from the community, as well as some of these newer technologies on catheters, we will be well positioned to do what we did with the RF technologies.
EP is a big investor focus. I'm just curious, do you think the market has now shifted from the procedure being led by the mapping system of choice versus the catheter system of choice? Does that put you at a disadvantage? How do you feel about that number one position in the U.S.?
Yeah. We're not giving up the number one position easily, right? We're going to continue to work on that. We'll have to see how it plays out. The other competitive catheters have been pretty popular to date. We think that the Varipulse catheter, once used with the mapping system, will be able to ensure that we retain or recoup the number one position should we ever lose it. The other thing I didn't mention is the significant investments we made in capital deployment around Abiomed and Shockwave. Those acquisitions continue to perform at or above the deal model. Those are obviously within the top five of J&J's highest cost for acquisitions. Abiomed continues to do well. We had the Danish-German shock study, which improved mortality in the first study to do that. We've got the Protect4 study, which will show that Impella has cardiovascular benefits.
We're completing that enrollment as we speak. On the Shockwave side, we've just about anniversary that acquisition. The closing was about May of last year. Two new launches there. E8, which is for below the knee PAD, as well as chronic limb threatening ischemia, as well as Javelin, which is a non-balloon catheter that gets those hard-to-reach peripheral lesions.
Got it. Just, I guess, given the time, I wanted to get your thoughts on M&A. You have reiterated commitment on both sides of the business, innovative medicine as well as medtech. I guess more specifically on the medtech side, I was curious, what are your thoughts on TAVR, TMTD markets that you're not currently participating in? RDN is an area that is really picking up as well in terms of pipeline projects. How are you thinking about some of these medtech areas to further boost the growth rate?
Yeah. I think if I just go back to when Joaquin started his tenure, he wants to focus medtech on high-growth areas. I think right now, from what we've seen from the TAVR market, it's high single-digit growth. I don't know that it's double-digit growth. If you look at Abiomed and Shockwave's profile, they were not just double-digit, but 20-plus at the time of acquisition. As far as RDN, there's one prominent name out there. We have an investment with respect to our Johnson & Johnson Development facility. I probably best not to say anything that given there were some of the rumors out there. That could be exciting technology, probably something for the next decade.
Got it. With respect to the Talc litigation, how should we handicap the risk around you going back to the tort system and now you'll have to fight case by case? What about the headline risk? I think in a lot of circumstances, you've gone back, appealed, and then won the case. How should we think about the risk related to Talc litigation going forward?
Yeah. As the CFO, I certainly would have liked to have that uncertainty behind us. Also, as a CFO, we were able to reverse $7 billion of an accrual. I have a hard time thinking, just based on the track record, based on the heightened standard for Daubert going forward, that we will pay out $7 billion. That was our best and final offer to the plaintiff's attorneys. We had a bankruptcy proceeding where 86% of the claimants said, "Yep, that's what we want to go down." The judge, in his infinite wisdom, decided otherwise. It was basically one holdout. We're going to continue to expose some of the tactics of plaintiff's attorneys in this case. It's based on junk science.
are decades of independent research, including some from the FDA a couple of decades ago, that suggests that talc was safe in this use. We are going to continue to stand by that. I have a hard time just from a financial perspective thinking we are going to pay out $7 billion going forward.
That's helpful. I just want to.
Any risk that we have, I think it's important to know we generated $20 billion in free cash flow. This is not easily manageable because I'd much rather spend the money on innovation and R&D and other things that bring novel solutions to patients. It hasn't stopped us from making acquisitions like Abiomed and Shockwave, now Intra-Cellular. It hasn't stopped us from increasing our dividend. It hasn't stopped us from reaching record levels of internal R&D investment. I would hope investors would take that away. This is a risk. It's a nuisance. It's not something that's going to stop the company.
Fair point. I guess just in the last 15 seconds or so, any key messages for investors? J&J has actually held okay so far in the market. Just what is underappreciated? We talked about innovative medicine, but any other areas you'd like to call out for investors?
Yeah. I just think that we are in a time of uncertainty. Johnson & Johnson is a reliable investment. I think there's a ton of growth that awaits in the second half of the decade. I talked extensively about the innovative medicine portfolio, but I also think some of the execution that needs to get better in medtech is it's not only possible, it's very, very likely. I would encourage investors to look at the second half of the decade. We're going through right now absorbing some multi-billion dollar headwinds. Again, not many companies can do that. We're doing that while still growing. I think that bodes really, really well that we'll continue to bring new sophisticated treatments and procedures to the marketplace and also continue to return to investors what they expect from us.
Great. Joe, thank you so much for your time. Really appreciate it.
Appreciate it.