J&J CFO on Q1 Earnings, Forecast and Product Pipeline

Let’s start with that guidance, that adjusted profit guidance for the year, narrowing to a range of $10.57 to $10.72 a share. Your earlier forecast had been for $10.55 to $10.75 a share. Why the narrow range? Good morning, Katie. It’s great to be here with you and thanks for your interest in Johnson and Johnson. We had a really strong first quarter, very encouraged that we’ll be able to meet the guidance that we outlined in January. Really with the passage of 1/4, we see less risk. So what we did from an operational perspective is really just take out and raise the floor on our earnings per share as well as our sales guidance. From that perspective, there is a little bit of a FX headwind that’s we’re encountering now. So we kind of end up pretty much at the same midpoint for each piece. But the the parts that we can control with respect to our business is very much in hand and we’re very comfortable with where we’re at. For the full year, we saw 7.6% growth for the enterprise, really bolstered by pharmaceuticals growing at 8.3%, Medtech growing at 6.3%. So as well as that has progressed for the near term, we’re really emboldened by just the number of clinical milestones that we hit throughout the quarter. Specifically in pharmaceuticals, we had five approvals, regulatory approvals, 3 more filings for approval and a number of data readouts in very important areas like multiple myeloma, lung cancer, ulcerative colitis, as well as psoriasis. And on the Medtech side, we did receive CE Mark approval for Pulse Field ablation in our market leading electrophysiology category. So we’re very active deploying capital. As you might have read a few days ago, we did announce a plan to acquire Shockwave Medical that complements the Amber X acquisition we closed earlier this quarter. We increased our dividend for the 62nd consecutive year and we maintained our commitment to a level of R&D investment above the pier set at 16.6% of sales, right. So a lot to get into there, but it’s a fairpoint when it comes to guidance. If you raise the floor but you also lower the ceiling, you end up in kind of the same place. But when it comes to the guidance, just to meditate on that a little bit longer, I believe last year this time you called out the guidance as being characteristically conservative. How would you describe the current guidance that you delivered today? Yeah, I I would say it’s comfortable right now, Katie, if you think about what we delivered in the first quarter relative to consensus on the street, we beat by six or seven cents depending on what source you use and we’re supplying about three cents with the raise in the operational performance. The reason we’re hedging our bets a little bit to say is just because of the clinical advancements I mentioned that happened in the first quarter being so early in the year, I want to give our scientists every opportunity to advance the pipeline even further, find new molecules, new therapies that could impact patients and therefore improve the long term performance profile of Johnson and Johnson. So that’s how we’re thinking about it. There’s no concerns from our end. So I would say if last year was responsibly cautious, I would say this year we’re we’re comfortable with where we’re at right now. Well, let’s talk a little bit about the pipeline and the portfolio because I want to talk about Stelara. So revenue there, it came in below estimates that of course is your best selling psoriasis drug. It’s expected to decline further this year as biosimilar competition enters the mix. One in your portfolio, one in your pipeline has the best chance of replacing that revenue. Well, Katie, the, you know the good news is it’s already been replaced. So DARZALEX for multiple myeloma this quarter became the largest Johnson and Johnson product replacing Stelara. So Stelara is an important product. About 75% of our sales actually are for patients who experience inflammatory bowel disease and only about 25% are related to psoriasis at this point. We have Tremfya that grew at 28% in the quarter. We had our leader for prostate cancer that grew in in the 20% plus category. So we’re very comfortable that the assets that will really carry us through the balance of this decade are already in place to really make up for the loss of exclusivity that you referenced. With respect to Stelara, the pipeline is burgeoning as I mentioned non small cell lung cancer. We have a Riborvent compound there which is off to a good start. Tech Valley, which is a bispecific antibody for multiple myeloma really blew away expectations in the quarter. So we have a number of assets in the stable if you will, that are already on track and approved and on market to replace Stelara once the loss of exclusivity starts to hit. And I will remind folks to the loss of exclusivity on Stelara is not a drop off a Cliff type of an event. If you look at some of the competitors out there who had similar biologics and went generic or biosimilar, they did not experience a dramatic drop in in revenue. And we expect pretty much the same with Stelara. These are really critical diseases when you think about ulcerative colitis, Crohn’s disease. Patients and physicians are kind of reluctant to jump off those therapies when they’re working so well for such severe disease. I also want to talk about cardiology because you mentioned, of course that acquisition, acquisition of Shockwave for about $13 billion earlier this month. How do you see that fitting into the cardiology portfolio? And also, I do want to talk about the dilution because there’s a 10 cent dilution in 20/24/17 cents in 2025. What made you comfortable with that? Yeah. So in terms of the Shockwave opportunity, we’re really excited about it. We think it it goes very nicely and it’s complementary to the presence and market leadership that we have in electrophysiology through our Biosense Webster unit and then an acquisition we made and completed at the end of 2022 known as Abiomed for a heart failure world’s smallest pump. Shockwave is a is a different space within interventional cardiology, but it really complements the portfolio. It’s in a high growth market, good margins. So it fits very nicely into as an asset that Johnson and Johnson can use our global footprint as well as our expertise in other areas of cardiology to hopefully expand that platform even further. With respect to the dilution, it really comes down to financing. If you think about, as you were just with your prior guest talking about higher for longer. With respect to rates, well, we have significant cash balances and there’s an opportunity cost to using cash that we thought maybe going the debt route would be a little bit more advantageous from that perspective given our AAA credit rating, the cash flow that we generate year in, year out. So we’re currently evaluating that. We have to hear from the regulators first on the Shockwave acquisition and then we’ll go out to the capital markets to determine the best way to finance that. And Joe, we only have about a minute left with you, but let’s talk about the future here because in the notes you sent over to my producers, you write that our strong balance sheet will continue to enable flexible investment of capital into a combination of organic and inorganic growth. Are there more M&A type deals in your future? Possibly Katie, you know we’re always looking. Somebody asked me earlier this morning, you know are you guys done? And I I we really can’t commit to being done or not done. What we can commit to is that we’re always looking, if you look over Johnson and Johnson’s history over the last 25 years, about 40% of our growth comes from inorganic means. So we’re always looking, we look through the lens of having that strategic fit. So a scientific capability, commercial expertise perhaps it is the global footprint. And then layering on obviously the financial returns, are we earning enough to compensate shareholders for the risk that we’re bearing on their behalf And if it fits into the long term for Johnson and Johnson, that’s how we view it. We don’t say that we’re done or we’re just getting started. We’re always constantly looking.