Johnson & Johnson (JNJ) Q2 2024 Earnings Name Transcript

Johnson & Johnson (NYSE:JNJ) Q2 2024 Earnings Convention Name July 17, 2024 8:30 AM ET

Firm Individuals

Jessica Moore – Vice President, Investor Relations
Joe Wolk – Government Vice President, Chief Monetary Officer
Joaquin Duato – Chairman and Chief Government Officer
Jennifer Taubert – Government Vice President, Worldwide Chairman, Prescribed drugs
Tim Schmid – Government Vice President, Worldwide Chairman, MedTech
John Reed – Government Vice President, Revolutionary Drugs, R&D

Convention Name Individuals

Chris Schott – JPMorgan
Larry Biegelsen – Wells Fargo
Louise Chen – Cantor Fitzgerald
Rick Sensible – Stifel
Terence Flynn – Morgan Stanley
Josh Jennings – TD Cowen
Dave Risinger – Leerink Companions
Danielle Antalffy – UBS
Chris Shibutani – Goldman Sachs
Joanne Wuensch – Citibank

Operator

Good morning, and welcome to Johnson & Johnson’s Second Quarter 2024 Earnings Convention Name. All individuals can be in a listen-only mode till the question-and-answer session of the convention. This name is being recorded. If anybody has any objections, you could disconnect right now. [Operator Instructions]

I might now like to show the convention to Johnson & Johnson. Please go forward.

Jessica Moore

Hey, everybody. That is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our firm’s overview of the second quarter enterprise outcomes and our full-year monetary outlook for 2024. Just a few logistics earlier than we get into the small print. As a reminder you’ll find further supplies together with at this time’s presentation and related schedules on the investor relations part of the Johnson & Johnson web site at investor.jnj.com.

Please be aware that this presentation incorporates forward-looking statements concerning amongst different issues, the corporate’s future working and monetary efficiency, market place, and enterprise technique. You’re cautioned to not depend on these forward-looking statements, that are based mostly on the present expectations of future occasions utilizing the data obtainable as of the date of this recording and are topic to sure danger and uncertainties which will trigger the corporate’s precise outcomes to vary materially from these projected. An outline of those dangers, uncertainties, and different components will be present in our SEC filings, together with our 2023 Kind 10-Ok, which is offered at investor.jnj.com and on the SEC’s web site.

Moreover, a number of of the merchandise and compounds mentioned at this time are being developed in collaboration with strategic companions or licensed from different firms. This slide acknowledges these relationships.

Transferring to at this time’s agenda, I’ll begin by reviewing the second quarter gross sales and P&L outcomes for the company, in addition to highlights associated to our two companies. Joe Wolk, our CFO, will then present further enterprise and monetary commentary earlier than sharing an summary of our money place, capital allocation priorities, and steering for 2024. Joaquin Duato, our Chairman and CEO, will then present some closing remarks earlier than we open it up for questions. Jennifer Taubert, John Reed, and Tim Schmid, our revolutionary medication and MedTech leaders can be becoming a member of us for Q&A.

To make sure we offer sufficient time to deal with your questions, we anticipate the webcast will final roughly 60 minutes. Except in any other case said, the monetary outcomes and steering highlighted at this time replicate the persevering with operations of Johnson & Johnson. Moreover, the chances quoted symbolize operational outcomes and subsequently exclude the impression of foreign money translation.

Turning to our second quarter gross sales outcomes. Worldwide gross sales had been $22.4 billion for the second quarter of 2024. Gross sales elevated 6.6% with progress of seven.8% within the U.S. and 5.1% outdoors of the U.S. Excluding the impression of the COVID-19 vaccine, gross sales progress was 7.2% worldwide and progress of 6.4% outdoors of the U.S. Gross sales progress in Europe, excluding the COVID-19 vaccine was 6%.

Turning now to earnings, for the quarter internet earnings had been $4.7 billion and diluted earnings per share was $1.93 versus diluted earnings per share of $2.05 a 12 months in the past. Excluding after-tax intangible asset amortization expense and particular gadgets for each intervals, adjusted internet earnings for the quarter had been $6.8 billion and adjusted diluted earnings per share was $2.82, representing will increase of 1.6% and 10.2% respectively, in comparison with the second quarter of 2023.

I will now touch upon enterprise gross sales efficiency within the quarter. Starting with Revolutionary Drugs, worldwide Revolutionary Drugs gross sales of $14.5 billion elevated 7.8% with progress of 8.9% within the U.S. and 6.4% outdoors of the U.S. Excluding the impression of the COVID-19 vaccine, operational gross sales progress was 8.8% worldwide and eight.7% outdoors of the U.S. Revolutionary Drugs progress was pushed by our key manufacturers and continued uptake from lately launched merchandise with 10 property delivering double-digit progress. We proceed to drive robust gross sales progress throughout our a number of myeloma portfolio.

DARZALEX progress was 21.3%, primarily pushed by share features of 4.6 factors throughout all strains of remedy and 9.4 factors within the frontline setting, in addition to market progress. CARVYKTI achieved gross sales of $186 million with progress of 59.9%, pushed by continued capability enlargement, manufacturing efficiencies, and powerful demand. TECVAYLI gross sales achieved $135 million within the quarter with progress of 43.5%, reflecting a robust launch within the relapsed-refractory setting. Demand remained robust whereas sequential progress slowed as a consequence of adoption of lately authorized longer-duration dosing intervals.

ERLEADA continues to ship robust progress of 32.5%, primarily pushed by share features and market progress in metastatic castrate-sensitive prostate most cancers. Different oncology progress was pushed by continued robust uptake of TALVEY, our GPRC5D bispecific, and RYBREVANT, our bispecific antibody for non-small cell lung most cancers. Inside immunology, we noticed gross sales progress in TREMFYA of 30.7%, pushed by market progress, share features in PSO and PSA, and favorable affected person combine.

STELARA progress of 4.9% was pushed by market progress, partially offset by internet unfavorable affected person combine. We proceed to anticipate biosimilar entry in Europe later this month, whereas within the U.S., we count on continued quantity progress largely offset by value declines as we transfer in direction of biosimilar entry in 2025.

In neuroscience, SPRAVATO progress of 60.8% continues to be pushed by elevated doctor and affected person confidence. In pulmonary hypertension, OPSUMIT grew 9.1% as a consequence of share features and market progress, partially offset by unfavorable combine. UPTRAVI progress of 8.1% was pushed by market progress and share features, partially offset by stock dynamics. Whole Revolutionary Drugs gross sales progress was partially offset by a decline in different neuroscience, unfavorable affected person combine in Xarelto and aggressive pressures in IMBRUVICA.

I will now flip your consideration to MedTech. Worldwide MedTech gross sales of $8 billion elevated 4.4% with progress within the U.S. of 5.7% and three.2% outdoors of the U.S. Acquisitions and divestitures had a optimistic impression of 40 foundation factors on gross sales progress within the quarter. Progress was pushed by industrial execution, energy of latest product introductions, and continued robust process quantity, partially offset by efficiency in China and aggressive pressures in US distributor stocking dynamics and imaginative and prescient.

In cardiovascular, electrophysiology delivered a double-digit progress of 13.4% with robust progress throughout all areas. The efficiency was pushed by world process progress, new product uptake, and industrial execution, partially offset by the earlier one-time stock construct in Asia-Pacific from the prior quarter. As well as, Abiomed delivered progress of 15.4%, pushed by double-digit progress in all areas and continued robust adoption of Impella 5.5 and Impella RP know-how.

Outcomes embrace $77 million related to the acquisition of Shockwave, which closed on Might 31. Contact lenses adjusted operational gross sales progress, excluding the Blink divestiture was 2.1%. Progress was pushed by robust efficiency within the ACUVUE OASYS 1-Day household of merchandise, partially offset by U.S. distributor stocking dynamics and aggressive pressures, and Japan macroeconomic pressures. The Blink divestiture negatively impacted progress by roughly 130 foundation factors.

Surgical imaginative and prescient grew 1.2%, pushed by TECNIS Eyhance, our monofocal interocular lens, partially offset by China VBP and refractive softness within the U.S. Surgical procedure adjusted operational gross sales progress, excluding the Acclarent divestiture was roughly flat. Efficiency was pushed primarily by aggressive pressures in vitality and endocutters, China VBP, prior 12 months China restoration, EMEA tender timing throughout superior surgical procedure and provide constraints, and wound closure. This was partially offset by energy of latest merchandise.

The Acclarent divestiture negatively impacted progress by roughly 110 foundation factors. Orthopedics progress of three.3% was pushed by robust efficiency in hips and knees, as a consequence of process progress, energy of latest merchandise, and EMEA tender timing in knees. This progress was partially offset by aggressive pressures and impacts of China VBP in backbone and sports activities.

Now, turning to our consolidated assertion of earnings for the second quarter of 2024. I would like to spotlight just a few noteworthy gadgets which have modified, in comparison with the identical quarter of final 12 months. Value of product offered margin deleveraged by 60 foundation factors, primarily pushed by product combine inside revolutionary medication and macroeconomic components throughout each sectors. We proceed to speculate strategically in analysis and growth at aggressive ranges, investing $3.4 billion or 15.3% of gross sales this quarter. We invested $2.7 billion or 18.8% of gross sales in revolutionary medication, in comparison with 22.2% of gross sales in 2023.

As a reminder, final 12 months included an upfront cost of $245 million related to the AbelZeta partnership. In MedTech, R&D funding was $0.7 billion or 9% of gross sales, a rise pushed by continued funding in strategic platforms. Different revenue and expense was a internet expense of $653 million within the second quarter of 2024, in comparison with revenue of $384 million within the second quarter of 2023.

The rise in expense was primarily pushed by prices associated to the closing of the Shockwave acquisition, the loss on the completion of the debt for fairness alternate of the retained stake in Kenvue and prior 12 months favorable mental property litigation settlements in MedTech. This was partially offset by the achieve on the Acclarent divestiture.

Relating to taxes within the quarter, our efficient tax charge was 18.5% versus 14.7% in the identical interval final 12 months. This improve was primarily pushed by unfavorable one-time worldwide audit settlements and the continued impression from Pillar 2. Excluding particular gadgets, the efficient tax charge was 18.6% versus 15.9% in the identical interval final 12 months. I encourage you to overview our upcoming second-quarter 10-Q submitting for extra particulars on particular tax-related issues.

Lastly, I will direct your consideration to the field part of the slide, the place we now have additionally supplied our revenue earlier than tax, internet earnings, and earnings per share adjusted to exclude the impression of intangible amortization expense and particular gadgets.

Now let’s take a look at adjusted revenue earlier than tax by phase. Within the second quarter of 2024, our adjusted revenue earlier than tax for the enterprise as a proportion of gross sales elevated from 37.2% to 37.4%. Revolutionary Drugs margin improved from 42.3% to 44.6%, primarily pushed by an upfront cost of $245 million related to the AbelZeta partnership in 2023, partially offset by product combine and value of merchandise offered. MedTech margin declined from 28.2% to 25.7%, pushed by prior 12 months favorable mental property litigation settlements value roughly 300 foundation factors.

This concludes the gross sales and earnings portion of the decision. I am now happy to show it over to Joe.

Joe Wolk

Thanks, Jessica, and hi there, everybody. Thanks for becoming a member of at this time’s name. General, Johnson & Johnson delivered strong prime and bottom-line, in addition to free money stream progress within the quarter. Our Revolutionary Drugs enterprise made nice progress within the second quarter. We now have robust momentum with key end-market merchandise and proceed to advance our pipeline with important scientific and regulatory milestones being attained.

Our MedTech enterprise delivered progress that fell under our expectations of rising within the higher vary of our markets, which as you recall correlates to a weighted-average market progress charge of 5% to 7% from 2022 by way of 2027. We got here into the 12 months considering 2024 can be within the higher finish of that vary. With acceleration deliberate within the second-half, given a few of the first-half dynamics Jessica outlined, we now count on progress nearer to six% for 2024. To me, this displays the ability and breadth of our firm, the place we are able to greater than offset quarterly volatility in a single half with overperformance from one other a part of our enterprise.

Earlier than I get into the numbers, I would like to offer some qualitative enterprise highlights from the quarter. Beginning with revolutionary Drugs, in oncology, we proceed to make significant progress throughout our illness areas of focus. Of be aware, we obtained FDA approval for CARVYKTI in earlier strains of remedy and reported optimistic top-line general survival outcomes from the CARTITUDE-4 research. We additionally submitted a submitting with the FDA for our subcutaneous formulation of RYBREVANT. We introduced up to date outcomes for TAR-200 and TAR-210 and we met main endpoints for 2 DARZALEX research, Cepheus and Aquila, the place outcomes can be introduced at an upcoming main medical assembly.

Turning to immunology, we achieved key milestones for TREMFYA in inflammatory bowel illness, together with the presentation and submitting of Part III research in ulcerative colitis and Crohn’s illness, in addition to the submitting of our subcutaneous formulation, which might make TREMFYA the one IL-23 inhibitor with a completely subcutaneous routine.

We additionally expanded our immunology portfolio with the acquisitions of Proteologix and NM26. These bispecific antibodies will additional strengthen our portfolio and improve our capacity to deal with important unmet want in atopic dermatitis.

Lastly, spanning immunology and neuroscience, we introduced optimistic outcomes for nipocalimab in Sjogren’s illness and myasthenia gravis. However it would not cease with the second quarter. We’re excited for what awaits within the second half of this 12 months with the anticipated approval and launch of each RYBREVANT plus Lazertinib in frontline EGFR optimistic lung most cancers and TREMFYA in IBD.

We additionally count on knowledge from JNJ-2113, our focused oral peptide in psoriasis and ulcerative colitis, JNJ 4804, our co-antibody therapeutic in IBD and nipocalimab in rheumatoid arthritis. As we proceed to carry new improvements to market and execute towards scientific and regulatory milestones, Revolutionary Drugs is well-positioned to attain sustainable progress in each the close to and long-term.

Turning to MedTech, we proceed to advance our pipeline, launch new industrial merchandise and combine strategic acquisitions that broaden and additional differentiate our portfolio. In cardiovascular, we’re enhancing our portfolio and shifting into increased progress markets by way of strategic acquisitions corresponding to Shockwave Medical.

In Might, we introduced the launch of our CARTO 3 Model 8 electroanatomical mapping system. That is the newest model of our 3D coronary heart mapping system, which has machine studying capabilities that improve effectivity, reproducibility, and accuracy in maps electrophysiologists use to deal with atrial fibrillation and different arrhythmias.

In pulsed area ablation, we initiated the industrial launch of the VARIPULSE platform within the EU and Japan receiving early optimistic doctor suggestions within the exterior analysis interval. We additionally delivered outcomes from the pivotal part of the admIRE trial, the place the VARIPULSE platform demonstrated 85% peak main effectiveness with minimal hostile occasions, brief PFA utility instances and low fluoroscopy publicity.

In orthopedics, we obtained 510(ok) FDA clearance for the scientific utility of the VELYS Robotic-Assisted Answer in unicompartmental knee arthroplasty. That is designed for each medial and lateral procedures enabling surgeons to information exact implant placement with out a CT scan.

In surgical procedure, we launched the ECHELON 3000 within the U.S., which mixes 3D stapling and gripping floor know-how to allow better staple line safety. This has been proven to ship 47% fewer leaks, scale back surgical dangers and enhance surgical outcomes. In surgical imaginative and prescient, we launched TECNIS Odyssey within the U.S., and head right into a full market launch within the second-half of 2024.

For the rest of the 12 months, we are going to proceed to advance our electrophysiology and cardiovascular pipelines as we put together for the anticipated U.S. approval of VARIPULSE, in addition to the submission of Impella ECP for regulatory approval. Inside robotic surgical procedure, we’re on observe to submit an investigational system exemption to the FDA for OTTAVA within the second-half of the 12 months.

Earlier than turning to money stream and steering, I needed to offer an replace on the talc litigation. As introduced on Might 1, the corporate has dedicated to pay ovarian claimants a gift worth of roughly $6.5 billion or $8 billion nominally over 25-years, ensuing 99.75% of all pending talc lawsuits towards the corporate and its associates in the US. We’re at present in a voting interval for the plan, the place for the primary time, claimants are in a position to vote for themselves for or towards the plan.

The final day of voting is scheduled for July 26. It is going to then take just a few weeks for the vote administrator to vet and tally the votes. As soon as that course of concludes, we plan to make a public announcement on the following steps concerning a pre-packaged chapter submitting. Our confidence that we’ll attain the requisite 75% vote is bolstered by the continued assist of council representing the overwhelming majority of claimants with whom the plan was developed, in addition to the announcement of assist by further distinguished plaintiff regulation companies lately, together with Ailstock, Keller Postman, and Miller.

Moreover, in furtherance of our aim of reaching a complete answer, we finalized the beforehand introduced agreements reached with all states that superior talc claims within the Imerys and Cyprus entities, homeowners of the mines that provided talc to the corporate. Within the second quarter, we continued to make progress with mesothelioma claimants with 95% of claimants now settled.

Turning to money and capital allocation. We ended the second quarter with roughly $25 billion of money and marketable securities and roughly $41 billion of debt for a internet debt place of $16 billion. Free money stream year-to-date was roughly $7.5 billion, in comparison with $5.5 billion within the prior 12 months interval, which included money stream from the Shopper Well being enterprise.

Through the quarter, we exited our retained stake in Kenvue, bringing the separation to an in depth. The web proceeds from the secondary providing had been $3.6 billion. Our capital allocation priorities stay unchanged. We keep a robust stability sheet, which continues to allow us to strategically put money into and develop our enterprise, whereas returning capital to our shareholders. Innovation stays core to our technique. Within the second quarter, we invested greater than $3.4 billion or 15.3% of gross sales in analysis and growth.

When it comes to acquisitions and licensing, in the course of the first half of 2024, Johnson & Johnson has deployed roughly $17 billion in strategic worth creating inorganic progress alternatives. This contains Shockwave, Proteologix and the NM26 bispecific antibody transaction introduced final week, in addition to greater than 20 different smaller complementary enterprise growth transactions. Whereas we are going to at all times discover strategic offers of any dimension that may create worth, we foresee modest tuck-in offers as the popular route over the near-term.

Now turning to our full-year 2024 steering. Given the transferring elements related to the acquisitions this quarter, I will begin the place I normally finish with earnings per share. Earlier than the impression of latest acquisitions, our outlook for adjusted operational EPS efficiency is as soon as once more being elevated. As this schedule displays, we predict a $0.05 per share improve in our operational efficiency. This could end in year-over-year EPS progress of 8.2% on the midpoint.

To account for the completion of Shockwave, Proteologix, and the NM26 bispecific antibody transactions, and as beforehand disclosed, our adjusted operational EPS steering now contains dilution of $0.68 per share. Mixed, all of this yields an up to date adjusted operational EPS steering within the vary of $10 to $10.10 per share. Along with help together with your future fashions, these transactions are anticipated to have a smaller impression of $0.33 to adjusted operational EPS in 2025.

Now to deal with all parts of P&L steering for 2024. As a reminder, our gross sales steering continues to exclude any impression from COVID-19 vaccine gross sales. We’re rising our operational gross sales steering for the full-year by $500 million to replicate the completion of the Shockwave acquisition.

We now count on progress within the vary of 6.1% to six.6% in comparison with 2023 with a midpoint of $89.4 billion or 6.4% on the midpoint. Excluding the impression from acquisitions and divestitures, we’re sustaining our adjusted operational gross sales progress to the vary of 5.5% to six.0% in comparison with 2023.

As you recognize, we do not speculate on future foreign money actions. We’re using a euro spot charge relative to the U.S. greenback of 1.08, in line with final quarter. Nevertheless, there have been notable strengthening of the U.S. greenback versus different currencies, particularly the Japanese yen and Chinese language yuan.

In consequence, we estimate an incremental detrimental international foreign money impression of $500 million, leading to a full-year impression of $1.2 billion. As such, mixed with the Shockwave acquisition, we count on reported gross sales progress between 4.7% to five.2%, in comparison with 2023 with a midpoint of $88.2 billion or 5% progress.

Turning to the remainder of the P&L. Primarily based solely on the dilution from the transactions, we now anticipate our 2024 adjusted pre-tax working margin to say no by 120 foundation factors, greater than offsetting the beforehand communicated 50 foundation level enchancment. We projected internet curiosity revenue between $300 million and $400 million, decrease than earlier steering pushed by curiosity expense related to financing of our latest acquisitions. Different revenue is anticipated to be within the vary of $1.5 billion to $1.7 billion, a rise versus earlier steering pushed by year-to-date efficiency.

Our efficient tax charge is now anticipated to be between 17.5% and 18.5% for the full-year, a lot increased than 2023, largely as a result of impression of OECD Pillar 2, in addition to the non-deductible nature of the lately introduced NM26 bispecific antibody acquisition. Whereas we don’t present steering by phase or on a quarterly foundation, I would like to offer some qualitative issues to assist your modeling.

We proceed to count on Revolutionary Drugs gross sales progress to be decrease within the second half of the 12 months in comparison with the primary half, given the anticipated entry of STELARA biosimilars in Europe starting the final week of July. This headwind can be partially offset by continued uptake from our lately launched merchandise. Whereas we had COVID-19 vaccine gross sales within the second quarter, we don’t anticipate any future gross sales.

Lastly, it’s value noting that distribution rights for REMICADE and SIMPONI in Europe can be returned within the fourth quarter. In preparation for this switch, we count on restricted third-quarter gross sales in Europe.

Turning to MedTech, as beforehand said, we count on progress to speed up again according to our long-term expectations within the second-half of the 12 months. This can be pushed by restoration in touch lenses, evidenced by sequential month-to-month enchancment inside Q2. Additional enlargement into high-growth segments, together with the combination of Shockwave and continued progress of latest merchandise and industrial execution throughout the portfolio.

As you consider our adjusted working margin, we proceed to count on it to be increased within the first-half of the 12 months, in comparison with the second-half. Once more, that is as a result of IP R&D cost for the NM26 bispecific antibody transaction in Q3 in addition to the anticipated entry of STELARA biosimilars in Europe later this month.

Lastly, as a reminder on share rely, we solely count on a partial profit within the third quarter ensuing from the share rely discount following the Kenvue alternate supply in August of 2023 with the fourth quarter being impartial. As we transfer ahead, we stay targeted on advancing our differentiated portfolio and reaching key scientific and regulatory milestones throughout Revolutionary Drugs and MedTech. We stay assured in our capacity to ship sustained progress and long-term worth for sufferers, prospects, and shareholders.

With that, I’m now happy to show the decision over to Joaquin for concluding remarks earlier than taking your questions.

Joaquin Duato

Thanks, Joe, and hi there, everybody. With a robust second quarter, I am enthusiastic about the remainder of 2024. Our Revolutionary Drugs enterprise is on observe for a thirteenth consecutive 12 months of above-market progress. Our success is pushed by a portfolio of revolutionary greatest and first-in-class medicines, lots of which have the potential to alter the apply of medication. Throughout the board, oncology, immunology, neuroscience, we’re reinventing therapy paradigms and reworking lives.

As Joe talked about, we now have made important progress throughout our pipeline. Particularly, I wish to spotlight two main milestones on the horizon that can assist drive sustained progress by way of 2025 and past. First, the approval and launch of RYBREVANT plus Lazertinib for first-line therapy of EGFR-positive non-small cell lung most cancers. And second, the approval and launch of TREMFYA in Inflammatory Bowel Illness or IBD, which follows the latest presentation of information that demonstrated superiority versus STELARA.

This represents a significant alternative for TREMFYA as roughly 75% of STELARA gross sales at this time come from IBD. We even have regulatory and knowledge milestones for lots of the property that we count on to generate greater than $5 billion in peak 12 months gross sales. Because the pipeline and portfolio progress, so too does our confidence in our close to and long-term progress trajectory. We’re assured in our capacity to develop by way of the upcoming STELARA biosimilar entry and see accelerating momentum by way of the again half of the last decade.

In MedTech, year-to-date adjusted operational gross sales progress of 5.2% displays continued progress with the portfolio as we transfer into increased progress markets. As you heard from Joe, we count on MedTech progress to speed up within the second-half of the 12 months. Progress will speed up by way of continued enlargement of latest merchandise, together with ACUVUE OASYS Max 1-Day Contact Lenses, TECNIS Odyssey within the U.S., and VARIPULSE in Europe and Japan.

Our confidence within the enterprise outlook stays unchanged. With significant outcomes from the hazard shock trial in Abiomed and the second quarter shut of the shockwave acquisition, we look ahead to proceed the enlargement into high-growth MedTech markets. As you recognize, Johnson & Johnson is laser-focused on advancing the following wave of medical innovation. We’re constructing on a robust basis to unlock accelerated progress with a wholesome stability sheet and industry-leading investments in the most effective science and innovation. This allows us to maneuver into the second-half of 2024 from a place of energy.

With that, let’s open the road for questions.

Query-and-Reply Session

Operator

Thanks. [Operator Instructions] Our first query at this time is coming from Chris Schott from JPMorgan. Your line is now stay.

Chris Schott

Nice. Thanks a lot [Technical Difficulty] query. Possibly only a query on RYBREVANT. I do know, Joaquin, you talked about that as one of many key upcoming milestones for the corporate, however this does seem to be a product the place there is a disconnect between J&J’s enthusiasm within the Road. So, possibly simply enlighten us with a few of the knowledge we lately noticed at ASCO on subcutaneous dosing, et cetera, the upcoming label enlargement? Are you able to simply speak about the way you see RYBREVANT evolving time beyond regulation and your confidence that this product can take share within the frontline setting? Thanks.

Jennifer Taubert

Hello, Chris, it is Jennifer and thanks a lot for the query. Actual fast earlier than I get into that one, I simply needed to offer a fast shout-out to all my inside Revolutionary Drugs colleagues world wide for a terrific quarter. Our first $14 billion-plus quarter that we hit in over 10 merchandise with double-digit progress. So, actually, actually an incredible quarter and looking-forward to an awesome half of the 12 months as nicely. So, we’re very enthusiastic about RYBREVANT plus Lazertinib and the information that we’re seeing and actually consider that it will have a major place in frontline non-small cell lung most cancers.

As we have mentioned earlier than, there’s a important unmet want in frontline non-small cell lung most cancers with a few quarter of sufferers by no means even making it to second-line remedy. So, lots of sufferers which are there with excessive unmet medical want. After we check out the information that we have been in a position to generate by way of PFS and whenever you add to that, the brand new knowledge that we introduced ahead on our subcu dosing, we predict collectively, we’ll have a very profitable mixture for sufferers in that frontline setting. So, excessive unmet want, actually spectacular outcomes that we’re seeing and the subcu dosing we predict goes to be an awesome mixture.

Operator

Thanks. Subsequent query is coming from Larry Biegelsen from Wells Fargo. Your line is now stay.

Larry Biegelsen

Good morning. Thanks for taking the query. Tim, possibly we are able to do a deeper dive into MedTech. Simply speak about what drove the discount within the anticipated progress for MedTech in 2024? And the way are you excited about the Medtech end-markets within the second half and which J&J companies do you see enhancing within the second-half and why? Thanks.

Tim Schmid

Larry, thanks for the query. Let me be very clear, we stay completely dedicated to delivering strong progress within the full-year for 2024. And Larry, whenever you really take a look at ‘24 Q2, it was a harder quarter for us. And we knew this, given the truth that right now final 12 months across the second quarter, we noticed the opening up of the China market, which as you recognize is a crucial marketplace for us and that was anticipated. That was really by the best way, final 12 months our fastest-growing quarter.

Now in all transparency, as you heard initially within the feedback earlier, there have been two companies which have or two areas of our enterprise which have carried out under expectations. Primary is Imaginative and prescient and secondly, our efficiency in China, which proper now could be a really risky market. Now in Imaginative and prescient, we initially introduced within the first quarter some challenges with distributor stocking dynamics right here within the U.S., some aggressive pressures, in addition to some macroeconomic challenges in Japan.

What provides me confidence within the turnaround of that enterprise is that we really noticed sequential enchancment by way of the second quarter. A few of these stocking dynamic dynamics I discussed bled into April, however month-on-month, we noticed robust rebound of that enterprise, in reality, to the top of the quarter again to historic ranges.

And in order we glance to the again half of the 12 months, whereas it has been a slower begin there, we’re very assured that we’re going to have the ability to carry that enterprise again to historic norms, pushed primarily by innovation. Our ACUVUE OASYS 1-Day MAX portfolio and that world launch in addition to the addition of our premium IOLs with TECNIS PureSee in Asia-Pac and EMEA in addition to Odyssey right here within the U.S., and so we consider we have that below management.

After I look to the again half onto reply your query extra instantly, the rationale we’re assured is firstly, not solely the return to extra normalized progress inside Imaginative and prescient, however in surgical procedure, by the best way, that — all that enterprise additionally was impacted by a slower begin, particularly in China. We see that beginning to normalize. And in addition bear in mind in our surgical procedure enterprise, the outcomes had been impacted by the divestiture of a Acclarent final 12 months. And so normalized progress — our adjusted operational progress was really nearer to flat. We see that persevering with to develop at low-single-digit by way of the again half of the 12 months. We’re happy with the strong ends in ortho and see that persevering with to be pushed by robust outcomes inside hip 6%, in knees, nearly 10%, pushed by great innovation, particularly in VELYS.

After which extra broadly, I will finish with our actual confidence within the progress of our cardiovascular portfolio. And bear in mind, Larry, that we have got an EP enterprise that is $5 billion at this time, grew 21% final 12 months, 19% for the first-half of the 12 months. In reality, within the second quarter, within the face of competitors, right here within the U.S. we grew that enterprise 16%. And so we’re very assured in our capacity to develop that management place.

After which lastly, the addition of Abiomed nonetheless persevering with to develop forward of our deal expectations, 15.4%. I believe that is going to be bolstered by the landmark outcomes, the primary time in 25-years, the place we now have the DanGer Shock research displaying survivability advantages of Impella, which can proceed to open new markets for that portfolio.

After which lastly, I will finish with how delighted we’re to inch very, very brief order, welcome Shockwave to Johnson & Johnson. We closed that transaction in file timing and are actually excited by the truth that we are going to shortly announce that they would be the thirteenth enterprise with gross sales in extra of $1 billion yearly. And so for all these causes, Larry, whereas a harder second 12 months — second quarter primarily as a consequence of comps, we stay very assured in a strong 2024.

Operator

Thanks. Our subsequent query is coming from Louise Chen from Cantor Fitzgerald. Your line is now stay.

Louise Chen

Hello, thanks for taking my query. Wished to ask you about your Part III nipocalimab knowledge that you simply introduced lately. And the way do you evaluate and distinction the efficacy and sturdiness of your product versus different FcRns and mechanisms of actions in the marketplace? Thanks.

John Reed

Sure, John Reed right here. Thanks for that query. Effectively, we’re actually excited in regards to the knowledge in Sjogren’s with nipocalimab. It is the information we delivered exhibits actually sustained illness management, which is so vital by our dosing routine as in comparison with a few of the intermittent dosing regimens utilized by others. And the constant efficacy we have seen throughout all main, secondary endpoints, et cetera is actually compelling as a guess that we could also be on the primary superior remedy for Sjogren’s that illness has ever seen.

As you recognize, that is a really prevalent dysfunction affecting its estimated 4 million individuals world wide, maybe 1 million in the US, 90% of the individuals impacted are ladies proper within the prime of life. So, we’re actually enthusiastic about the potential for bringing ahead the primary superior remedy for that dysfunction.

Jessica Moore

Possibly I can add-in a few issues on as nicely as a result of we’re actually excited by what we’re seeing from all the information that is popping out. And during the last 18 months, we have demonstrated scientific impact in really 4 auto-antibody pushed ailments and we’re the one FcRn blocker that is in growth the place we have proof-of-concept in all three segments of auto-antibody pushed ailments from uncommon auto-antibody to prevalent room to maternal fetal. In order we check out all the information that is coming ahead as we’re bringing this to market, we’re much more assured — by way of confidence that this can be a $5 billion-plus asset for us.

Operator

Our subsequent query at this time is coming from Rick Sensible from Stifel. Your line is now stay.

Rick Sensible

Good morning, all people. If I may speak slightly bit in regards to the EP enterprise. Clearly, that is the primary full quarter the place we’re actually seeing a broader launch of a aggressive PFA system. You up to date us in your system. However possibly in the event you may give us extra shade broadly on the impression you are seeing on EP progress and the outlook for the second-half, and assist us higher perceive how this launch and the lot of CARTO 3 model 8 launch is being affected right here. I’m assuming mapping progress was robust, however possibly — I do not know, possibly the catheter enterprise was pressured by the aggressive system. Are you able to assist give us that macro shade and possibly the precise impression on Biosense Webster. Thanks.

Tim Schmid

After all, Rick and thanks for the query. And Rick, I would begin with firstly, recognizing that we consider that PFA is actually good for electrophysiology and actually good for sufferers. It’s a tailwind for the whole market. And as I discussed earlier, that is a $5 billion marketplace for us at this time, rising 19% year-to-date. And let me be clear, we clearly see some competitors, particularly right here within the U.S., particularly between now and the time that we carry our PFA know-how to market, we’re assured. Whereas we do not management the timing, we count on to have that by the top of the 12 months or early subsequent 12 months. As you recognize, we have already got and are commercializing our PFA know-how in EMEA and in Japan, and we’re very lucky to really profit from a really world EP enterprise.

What provides us confidence sooner or later, Larry, is that we consider that whereas PFA has a task to play within the portfolio, so does RF. From every part we’re listening to from EPs world wide, what they like about PFA is the relative security of the know-how, however in addition they like about RF, which by the best way, we now have 20-years of management in security and scientific efficacy, is the sturdiness of that product. In reality, even at this time, Rick, right here within the U.S., for each 5 procedures the place PFA is used, RF is utilized in conjunction.

And so we consider that leisure place that we constructed during the last 20-years will proceed, each in RF after which clearly, we’re excited by the launch of our PFA know-how. You will know that on the HRS convention in Might, we introduced the outcomes of our admIRE research, which confirmed the 86% relative effectiveness — main effectiveness of our PFA know-how. And we’re going to proceed to make use of the identical technique we did in RF, which is constructing out a broad portfolio of PFA choices, each in twin vitality, focal, giant focal and single shot.

Do you know that at this time, the primary used catheter in the marketplace is our SPF catheter inside RF. And we’re — and you may know that within the second — first quarter of this 12 months, we introduced a utility for a CE mark for our twin vitality catheter. This can be one catheter used, each for RF and PFA know-how. And so we have lots of causes to consider.

And I believe to the touch in your level on CARTO, one of many advantage of our portfolios, not simply our vitality source and catheters, it truly is the put in base of 5,500 CARTO techniques world wide. We simply model 8 of that software program. It’s best-in-class available in the market. And that is additionally complemented by extremely skilled scientific specialists in each cath lab world wide who’re supporting EPs each day. And so as soon as once more, PFA is an efficient factor for {the marketplace}, it is a tailwind and we count on to proceed to profit on that. Thanks.

Operator

Thanks. The following query is coming from Terence Flynn from Morgan Stanley. Your line is now stay.

Terence Flynn

Nice. Thanks for taking the query. Two elements for me on IRA. Was simply questioning in the event you can supply any perspective on the impression of IRA negotiation STELARA and XARELTO as we’re getting near the disclosure of the pricing resolution? After which additionally Half D redesign in 2025, just a few high-level ideas?

And the second a part of the query pertains to your confidence that DARZALEX FASPRO can be checked out individually than DARZALEX simply given the Hyaluronidase part there. Thanks.

Jennifer Taubert

Thanks a lot for the query. I will reply the second half first. We do have excellent confidence that DARZALEX FASPRO is handled individually than DARZALEX IV. And so sure, we proceed ahead with that perspective on that. When it comes to IRA and sort of what’s been happening, if we check out Half D redesign, whereas we’re not externally quantifying the impression right now, what we are able to say is that we do anticipate a internet unfavorable impression in 2025. Nevertheless, as outlined at our enterprise enterprise overview final November, we do anticipate, as a enterprise, rising 3% plus subsequent 12 months after which 5% to 7% out by way of 2030.

And these numbers are literally already included in that steering that we supplied. Similar factor because it pertains to the federal government value setting course of, we’re nonetheless in that. We now have obtained the ultimate numbers from the federal government, we’re not disclosing that right now. That can be disclosed within the September timeframe. And whereas we’re not in alignment with IRA and the value setting course of, these numbers have been included within the steering that we supplied final 12 months at EBR, that also appears excellent to us at this time. It is very constant at this time.

John Reed

Because you talked about, DARZALEX. John Reed right here, I assumed possibly I might simply remind you that truly, on this quarter, we delivered 4 further optimistic Part III research with DARZALEX throughout numerous indications, together with transplant ineligible frontline, together with within the upkeep setting, after transplant, together with smoldering situation that’s as giant because the entirety of diagnostically defying myeloma and in amyloidosis. So the momentum continues with DARZALEX.

Jennifer Taubert

And we had 21% progress. $2.9 billion in gross sales and 21% progress. So sure, DARZALEX is our single largest asset now for the company.

Operator

Thanks. Our subsequent query is coming from Josh Jennings from TD Cowen. Your line is now stay.

Josh Jennings

Hello, good morning. Thanks for taking the questions. I hoped to simply contact on MedTech and outlook for process quantity tendencies within the again half. There have been some issues that there is some robust comps on the utilization facet and significantly for [Technical Difficulty] half? After which possibly additionally, in the event you may simply contact on the pricing surroundings and your outlook for system pricing and the place pricing stands for the MedTech portfolio? Thanks for taking the query.

Joe Wolk

Certain, Josh. And I believe my reply to your form of quantity query can be very transient and in line with what we have shared earlier than. For essentially the most half, throughout the portfolio, we have seen volumes normalize. We did point out that we anticipated to see a few of the — some tailwinds from the backlog inside Orthopedics within the first-half of the 12 months. And we have seen that, however we count on that to normalize within the again half. We stay constant in our perception within the 5% to 7% progress for our finish markets and that we’ll carry out nicely inside that.

Because it pertains to pricing, inflation has not been a good friend to our {industry}, and we now have put lots of effort into actually guaranteeing that we are able to safe preferential pricing the world over. I do assume we profit from the worldwide nature of our enterprise. Whereas there are pockets price containment efforts that we’re managing, like VBP in China, we see great alternative to actually safe a premium pricing, particularly the place we now have differentiated innovation.

And particularly now that we’re coming into or are coming into is like cardiovascular of serious unmet want, there may be great alternatives for us to make sure that we safe premium pricing for really differentiated improvements, particularly in areas like electrophysiology, in coronary heart restoration with Abiomed, and extra lately with Shockwave. Thanks.

Operator

Thanks. Our subsequent query at this time is coming from Dave Risinger from Leerink Companions. Your line is now stay.

Dave Risinger

Sure, thanks very a lot. Might you please touch upon the J&J U.S. pharma publicity to efforts by plans to extract better rebates in 2025 than in typical years as a way to offset Half D plan losses in 2025? Thanks very a lot.

Jennifer Taubert

Thanks for the query on that. We’re nonetheless within the strategy of working with all payers for the deliberate formularies and every part for 2025 and 2026. I believe what’s actually most vital is to return to the steering we supplied on the EBR final 12 months in November. And as we check out the company, we now have factored in and anticipated what we predict will occur. And as a company, we really feel very assured within the steering of three% plus progress in 2025, and actually, importantly, that accelerating progress out by way of the top of the last decade, the 5% to 7% progress.

Joe Wolk

Dave, I would additionally remind you too that during the last six years, and definitely a praise to John, Jennifer and the workforce, that innovation actually underscores the success that we have had with quarter in, quarter out efficiency in our Revolutionary Medicines enterprise. Reductions and rebates six years in the past, as in comparison with record value was solely about 25% of that record value. Right now, that quantity — and this isn’t simply the J&J quantity, however an {industry} quantity, gravitates in direction of 60%. So what we need to guarantee that occurs is that this nice innovation will get to sufferers and makes a distinction of their lives and get them — they’ve entry by way of the discounting that we already present.

Operator

Thanks. Subsequent query is coming from Danielle Antalffy from UBS. Your line is now stay.

Danielle Antalffy

Hey, good morning, everybody. Thanks a lot for taking the query. Only a fast MedTech query on China. So China, it feels like issues are evolving in China. I imply that is no shock to anybody. However simply interested by the way you guys are excited about China as a contributor going ahead given all of the evolution in that market and a few of the points, VBP, issues like that. How significant? I imply, it has been a giant progress driver for you guys traditionally. How can we take into consideration China going ahead? And is the technique for J&J, does it have to alter to adapt to the evolving market there? Thanks a lot.

Joaquin Duato

Thanks, Danielle, it is Joaquin. So we had been one of many first firms that began to function in China, and we have been in China for many years. So we now have a historical past of getting constructive engagements with China, and we’re trying ahead for that to proceed. Now we acknowledge the state of affairs and we now have sturdy enterprise continuity planning practices in place, and we’re in a position to mitigate any potential publicity. However we proceed to see China as an vital progress driver, each for our Revolutionary Drugs enterprise and likewise for our MedTech enterprise. Particularly, you had some questions that Tim can deal with on MedTech and the way we see our MedTech enterprise in China transferring ahead.

Tim Schmid

Certain. And Danielle, we’re lucky to have a worldwide enterprise with greater than 50% of our income already out of the U.S. And I believe that offers us the pliability to actually handle numerous challenges that happen on a quarterly and yearly foundation the world over. To Joaquin’s level, we have been in China for 37-years. One of many explanation why we have been profitable is our ongoing dedication in navigating a number of headwinds and alternatives. And after we take a look at our efficiency in China, bear in mind, we had the top of COVID after we got here out of lockdown, and in order that has impacted the ends in the second quarter.

However whenever you take a look at on the bottom, what’s actually occurring is there’s two components. Firstly, you take a look at the impression of VBP, which is a government-driven price containment effort. And given our management place in China, we’re seeing that as a short-term tailwind. We do consider the amount alternative will far offset over time the impression we’re seeing on value, however that definitely is a short-term ache that we’re enduring. That has additionally been exacerbated by the anticorruption marketing campaign. You might know that in July of final 12 months, the federal government initiated an anticorruption marketing campaign, which really has had an impression on each procedural volumes and engagement from well being care professionals.

Now I have to reiterate that we see this as a very good factor. We consider that any effort on behalf of any authorities to actually construct integrity and compliance into the well being system is an efficient factor for extra honest competitors and aligns with our credo and our dedication to compliance throughout all the markets during which we take part in. So it is a short-term headwind, however long-term, actually good for our {industry} and actually good for J&J. We stay completely dedicated to China. And we are going to proceed, as we at all times have, to navigate a few of the challenges we now have on the bottom with pricing and geopolitical challenges, and we stay dedicated to the 1.4 billion sufferers who depend on us each day. Thanks.

Operator

Thanks. Subsequent query at this time is coming from Chris Shibutani from Goldman Sachs. Your line is now stay.

Chris Shibutani

Thanks. Good morning. Along with my colleague, David Roman, a real query that we had associated to the MedTech market dynamics and outlook. Are you able to assist us higher perceive feedback that had been made a few honest quantity of stock destocking that is been occurring and juxtapose that and maybe reconcile together with your expectation that the demand outlook would strengthen. We’re simply making an attempt to place collectively this notion of stock stocking, destocking forward of an anticipated acceleration versus a possible deceleration or a harder demand surroundings going ahead? That will be useful. Thanks.

Joe Wolk

Thanks. It is a good query and the one space throughout the huge companies that we now have, the place we now have seen a destocking is actually in our contact lens enterprise. And you may recall within the first quarter, we talked about that on the again of some historic provide chain challenges, the distributor stock was lowered right here within the U.S., and we have now seen that bleed into the second quarter as talked about earlier. And so that’s the solely space of serious stocking that has had a short-term impression on our enterprise.

As I discussed earlier, what provides us confidence is that as we glance by way of the complete second quarter, we noticed sequential enchancment throughout that portfolio. Keep in mind that we really serve the wants of 40 million sufferers. We now have, by far and away, a market management place right here within the U.S. and globally with contact lenses. And so we see this as a blip and not at all an extended impression on our capacity to proceed to be leaders in touch lens. Thanks.

Jessica Moore

Thanks, Chris. Kevin, we now have time for one final query.

Operator

Thanks. Our closing query at this time is coming from Joanne Wuensch from Citibank. Your line is now stay.

Joanne Wuensch

Thanks very a lot for taking the query. I would prefer to wrap up with the orthopedics query. Hips and knees are rising sooner than the historic charges, may you form of unpack that slightly bit and provides us an concept of how a lot of that’s affected person quantity, value, new merchandise or possibly one thing else? And have an awesome day.

Tim Schmid

You too, Joanne, thanks. We’re so happy with, , frankly the resurgence of orthopedics, and I could not be extra grateful for the unbelievable effort the world over to actually return as to excessive strong progress throughout the 2 platforms that you simply referenced. Particularly inside hips, and I discussed this within the first quarter, for the primary time ever, we had been in a position to declare market management place in hips right here within the U.S. And to be direct in answering your query, it’s all innovation based mostly. It is not solely persevering with to drive our best-in-class implants, but it surely’s additionally how we have surrounded these with enabling like our VELYS Hip Navigation and Kenzie. That 6% progress you noticed within the second quarter is actually indicative our innovation working for sufferers.

On knees, one other shout out to the workforce, nearly 10% progress. We have not seen that traditionally and as soon as once more pushed by innovation. In a brief roughly 2.5-year interval, we now have launched our VELYS system for knees into greater than 20 markets. We now have greater than 70,000 procedures, and that’s driver of our efficiency. And what provides us confidence is that we’re persevering with to construct indications. You might know within the second quarter, we obtained 510(ok) approval for our VELYS Uniknee. And we additionally need to construct out that portfolio.

And in brief order, you will notice information about our dedication to actually bringing robotics to different elements of the orthopedic portfolio, particularly in backbone. And so as soon as once more, it is all innovation pushed, and we count on it to proceed. Thanks.

Jessica Moore

Thanks, Joanne, and due to everybody on your questions and your continued curiosity in our firm. We apologize to those who we could not get to due to time, however do not hesitate to achieve out to the Investor Relations workforce with any remaining questions you’ll have.

I’ll now flip the decision over to Joaquin for some transient closing remarks.

Joaquin Duato

Thanks, everybody, for becoming a member of the decision at this time. I am happy with the progress we made by way of the first-half of the 12 months. And I am additionally energized as we glance in direction of the rest of 2024 and heading to 2025. As the one firm devoted to each medical know-how and prescribed drugs, we’re uniquely positioned to guide the following wave of well being care innovation. We’re coming into the second-half of the 12 months from a place of energy, advancing our numerous portfolio and pipeline to proceed bringing innovation into the sufferers we serve. Thanks.

Operator

Thanks. This concludes at this time’s Johnson & Johnson second quarter 2024 earnings convention name. You might now disconnect.