Johnson & Johnson : JNJ-Q2 2023 Transcript Final

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EDITED TRANSCRIPT

JNJ.N - Q2 2023 Johnson & Johnson Earnings Call

EVENT DATE/TIME: JULY 20, 2023 / 12:30PM GMT

OVERVIEW:

Company reported diluted earnings per share of $1.96, cash and marketable securities of $29 billion, debt of $46 billion, net debt of $17 billion, Free cash flow of $5.4 billion, sales of $57 billion.

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JULY 20, 2023 / 12:30PM, JNJ.N - Q2 2023 Johnson & Johnson Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Erik Haas Johnson & Johnson - Worldwide Vice President of Litigation

Jessica Moore Johnson & Johnson - VP of IR

Joaquin Duato Johnson & Johnson - CEO & Chairman

Joseph J. Wolk Johnson & Johnson - Executive VP & CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Christopher Thomas Schott JPMorgan Chase & Co, Research Division - Senior Analyst

Danielle Joy Antalffy UBS Investment Bank, Research Division - Analyst

Joanne Karen Wuensch Citigroup Inc., Research Division - MD

Lawrence H. Biegelsen Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst Louise Alesandra Chen Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD

Terence C. Flynn Morgan Stanley, Research Division - Equity Analyst

Trung Chuong Huynh Crédit Suisse AG, Research Division - Research Analyst

Vamil Kishore Divan Guggenheim Securities, LLC, Research Division - Research Analyst

P R E S E N T A T I O N

Operator

Good morning, and welcome to Johnson & Johnson's Second Quarter 2023 Earnings Conference Call. (Operator Instructions) This call is being recorded. If anyone has any objections, you may disconnect at this time. (Operator Instructions)

I would now like to turn the conference call over to Johnson & Johnson. You may begin.

Jessica Moore - Johnson & Johnson - VP of IR

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & 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 Duato, Chairman of the Board and Chief Executive Officer; Joe Wolk, Executive Vice President, Chief Financial Officer; and Erik Haas, Worldwide Vice President of Litigation.

A few logistics before we get into the details. As a reminder, you can find additional materials, including today's presentation and associated schedules, on the Investor Relations section of the Johnson & Johnson website at investor.jnj.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 using the information available as of today's date and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2022 Form 10-K, which is available at investor.jnj.com and on the SEC website.

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JULY 20, 2023 / 12:30PM, JNJ.N - Q2 2023 Johnson & Johnson Earnings Call

Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships.

Moving to today's agenda. 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 second quarter sales and P&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, Erik will provide comments regarding the talc litigation. The remaining time will be available for your questions. 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.

Joaquin Duato - Johnson & Johnson - CEO & Chairman

Thank you, Jess, and good morning, everyone. This was a strong quarter for Johnson & Johnson with market-leading performance, important advances across our innovative Pharmaceutical and MedTech pipelines and a successful initial public offering of Kenvue. We delivered solid sales and earnings growth for the second quarter of 2023, reporting operational sales of 7.5% and adjusted operational EPS growth of 9.7%. These strong results contributed to our confidence in raising our expectations for this year.

You may have seen this morning the announcement that we intend to split off Kenvue shares through an exchange offer as the next step in the separation of Kenvue. Joe will provide additional information later in the call.

We're excited about entering a new era for Johnson & Johnson, one built around science, innovation and technology and strategically focused on Pharmaceutical and MedTech while maintaining our position as the world's largest, most diversified health care products company with 25 platforms over $1 billion in annual sales. And on today's call, I would like to share recent highlights and achievements from across the business that have contributed to our year-to-date results as well as upcoming catalysts that give me great confidence in our near- and long-term future performance.

Starting with MedTech. For the second quarter of 2023, we generated 14.7% operational and 9.9% adjusted operational growth, which excludes the impact of the Abiomed acquisition. On a pro forma basis, using sales publicly reported by Abiomed 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 of QDOT, our newest ablation catheter for atrial fibrillation. In fact, this study demonstrated a clinical success rate of 86% as well as achieving shorter procedure and fluoroscopy times than ablation with conventional catheters.

I'm also happy to share that this month, we completed enrollment in the third clinical study evaluating our pulsed field ablation solutions. The SmartfIRE study evaluates our dual-energy catheter, which enables physicians to instantly switch energy source, whether radio frequency or pulsed field, based on patient needs.

The Abiomed integration continues to deliver against planned milestones and is on track across all areas and regions with no disruption to commercial activities or pipeline progression. Second quarter sales of $331 million, compared to Abiomed's publicly reported sales in the same period last year as a standalone 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 & Johnson.

In Orthopaedics, the VELYS Robotic-Assisted Solution is poised for further acceleration, having recently received CE and CA Mark international approvals.

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JULY 20, 2023 / 12:30PM, JNJ.N - Q2 2023 Johnson & Johnson Earnings Call

In Surgery, we are pleased with our progression on Ottava, our next-generation soft tissue surgical robotic system. And we look forward to providing an investor update later in the year.

In Vision, we recently launched products, such as ACUVUE OASYS MAX and TECNIS Eyhance. And we are performing very well across both contact lenses and surgical vision.

Now turning to Pharmaceuticals. In the second quarter of the year, we delivered above-market operational growth of 6.2%, excluding the COVID-19 vaccine. Of note, our multiple myeloma portfolio has grown more than 30% year-on-year, which includes the acceleration of our newly launched products, CARVYKTI and TECVAYLI. These new launches, along with SPRAVATO, are performing very well 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. A few things I'm particularly excited by include, first, the receipt of fast-track designation from the U.S. FDA for all 3 prospective indications for milvexian, our Factor XI oral anticoagulant in partnership with Bristol-Myers Squibb, which has the potential to treat a broader set of patients, such as those who currently have limited therapeutic options due to bleeding risk.

Second, recent submission of a supplemental BLA for CARVYKTI to the FDA and European Commission, supported by data from the CARTITUDE-4 study, seeking approval for a new earlier indication in treating relapsed or refractory multiple myeloma.

Third, the presentation of initial TAR-200 data from the SunRISe-1 study in bladder cancer at the American Urological Association Meeting.

And finally, we announced positive top line results from the Phase III PAPILLON study evaluating RYBREVANT in combination with chemotherapy in patients with newly diagnosed lung cancer with exon 20 insertion mutations. This is the first of several ongoing pivotal Phase III studies to read out for RYBREVANT-based regimens in EGFR-mutated lung cancer.

In addition, I want to highlight the Phase II study data that we presented earlier this month at the World Congress of Dermatology for JNJ-2113, our novel oral IL-23 receptor antagonist peptide in psoriasis. The finding suggests that JNJ-2113 has broad potential across the spectrum of IL-23-mediated diseases, including inflammatory bowel disease. We are already advancing into Phase III in moderate to severe plaque psoriasis and initiating a Phase IIb in ulcerative colitis. And we will continue to assess additional opportunities. We are very excited about the potential of this asset and believe it represents a $1 billion-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 STELARA IP with both Amgen and Alvotech. We expect Amgen to launch in the U.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. Our pipeline is progressing well, and we continue to be confident in meeting our 2025 sales target of $57 billion. We are excited to enter the back half of the year from a position of strength, and we have high expectations as we evolve to a 2-sector Johnson & Johnson with a higher growth profile.

I am now pleased to turn the call over to Jess to review our financial results in more detail. Jess?

Jessica Moore - Johnson & Johnson - VP of IR

Thanks, Joaquin. As a reminder, on May 8, 2023, Kenvue Inc. closed its initial public offering. Johnson & Johnson continues to own 89.6% of total outstanding shares of Kenvue's common stock and remains the majority shareholder. Therefore, the following financial results continue to include the Consumer Health business, with the 10.4% of Consumer Health net earnings no longer attributed to Johnson & Johnson being adjusted for in other income and expense from the date of the IPO through the end of the quarter.

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JULY 20, 2023 / 12:30PM, JNJ.N - Q2 2023 Johnson & Johnson Earnings Call

Starting with Q2 2023 sales results. Worldwide sales were $25.5 billion for the second quarter of 2023, an increase of 6.3% versus the second quarter of 2022. Operational sales growth, which excludes the effect of translational currency, 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.S., our reported growth was 2.2%. Operational sales growth outside the U.S. was 4.7% with currency negatively impacting our reported OUS results by 2.5 points. Operational sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 6.2% worldwide, 8% in the U.S. and 4.4% outside the U.S.

Turning now to earnings. For the quarter, net earnings were $5.1 billion, and diluted earnings per share was $1.96 versus diluted earnings per share of $1.80 a year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7.4 billion, and adjusted diluted earnings per share was $2.80, representing increases of 6.5% and 8.1%, respectively, compared to the second quarter of 2022. 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 second quarter of 2022 and therefore exclude the impact of currency translation.

Beginning with the Pharmaceutical segment. Worldwide Pharmaceutical sales of $13.7 billion increased 3.1% with growth of 9.2% in the U.S. and a decline of 4% outside the U.S. Operational sales growth increased 3.8% as currency had a negative impact of 0.7 points. Excluding COVID-19 vaccine sales, worldwide operational sales growth was 6.2% with growth of 9.9% in the U.S. and growth of 1.5% outside the U.S. Sales outside the U.S., excluding the COVID-19 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. We continue to drive strong sales growth for both DARZALEX and ERLEADA, with increases of 23.4% and 26.9%, respectively. STELARA 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. Growth of 16.5% in pulmonary hypertension was driven by favorable patient mix, share gains in the U.S. and market growth.

Turning to newly launched products. We continue to make progress on our launch of CARVYKTI and continue to expand access and reimbursement for SPRAVATO. We are also encouraged by the early success of our launch of TECVAYLI, sales of which are included in other oncology.

Total Pharmaceutical sales growth was partially offset by the loss of exclusivity in 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 $7.8 billion increased 12.9% with growth of 14.6% in the U.S. and 11.3% outside of the U.S. Operational sales growth increased 14.7% as currency had a negative impact of 1.8 points. Abiomed contributed 4.8% to operational growth. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 9.9%.

Sales in the second 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 was the impact of volume-based procurement in China as well as supply constraints.

The Interventional Solutions franchise delivered operational growth of 56.9%, which includes $331 million 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 QDOT RS Catheter.

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