JOHNSON & JOHNSON Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Joaquin Duato highlighted strong Q3 results with 6.3% operational sales growth, emphasizing the company's breadth and commitment to innovation. Recent acquisitions in MedTech and Innovative Medicine were mentioned as part of the pipeline and portfolio shift.
• Jessica Moore discussed financial results, noting net earnings and adjusted earnings per share. She detailed sales performance in Innovative Medicine and MedTech, including growth drivers and impacts of factors like talc litigation and acquisitions.
• Joe Wolk talked about cash position, capital allocation, full-year guidance, and qualitative commentary for 2025. He mentioned pipeline advancements, expectations for MedTech performance, and considerations for 2025 such as biosimilar entries and regulatory approvals.

Segment Performance

• Innovative Medicine: Worldwide sales were $14.6 billion, increasing 6.3%. Growth was driven by 11 key brands with double-digit growth, including DARZALEX reaching $3 billion in a quarter. Pipeline advancements included 5 major U.S. and EU approvals. Revenue contribution was significant, with 11 brands showing strong performance.
• MedTech: Worldwide sales were $7.9 billion, up 6.4%. Growth was due to commercial execution and new product introductions, but Asia Pacific (especially China) had headwinds. Cardiovascular, Contact lenses, Surgical Vision, and Orthopaedics had varying growth rates, with Cardiovascular showing double-digit growth and Contact lenses improving due to strategic price actions.

Guidance

• Adjusted operational sales guidance increased to a range of 5.7% to 6.2% with a midpoint of 6%.
• Adjusted pre-tax operating margin is expected to decline by approximately 200 basis points due to the V-Wave transaction.
• EPS guidance was updated, considering acquisition activity, with an updated 2024 adjusted operational EPS guidance at the midpoint of $9.91, basically flat year-on-year despite acquisition activity.

Risks

• Talc litigation progress is ongoing, with a pre-packaged bankruptcy plan but timing uncertain.
• Asia Pacific region, particularly China, poses headwinds for MedTech due to volume-based pricing and other dynamics.
• IV saline shortages could impact surgical procedures across the portfolio.
• Biosimilar competition affecting STELARA sales in the U.S. and EMEA.

Question and Answer

Q: Maybe just one on talc here. I know this is still limited comments, but it seems though the company has obviously made some advancements here into getting this behind the organization. Maybe just can you help us a little bit in terms of, from your perspective, next key steps to watch from here? And what is J&J's overall level of confidence that you have a path to resolve this in the relative near term for the story?

A: Yeah, thank you, Chris. And as you have heard me before, our intention with respect to the talc litigation is to bring a responsible, final and comprehensive resolution to these claims. And we are making meaningful progress to do just that. We have filed our pre-packaged reorganization plan with the support of 83% of the claimants. And also, we have had a decision of the court to keep the filing in Houston. So, as I said, we are making progress in this resolution that I refer. As far as next steps, Erik?

Q: Good morning. Thanks for taking the question. Tim, on MedTech, maybe help us understand the impact of the one-time items in Q3, such as the ortho SKU rationalization. How you're thinking about the impact from the hurricanes in Q4? And what gives you confidence you can deliver the high end of that 5% to 7% next year?

A: Larry, thank you for the question. And we're proud of the 6.4% operational growth for the quarter -- sorry, 5.7% for full year. And I think the results really talked about the success of our deliberate move into higher-growth, higher-margin categories, especially in the cardiovascular space. You'll recall, and you'll see that from our results, almost $300 million has been added from the Shockwave acquisition, which continues to perform to expectations as does Abiomed. And we've also added to the portfolio acquisition of Laminar in the fourth quarter of last year, and then more recently, the announced closure of the acquisition of V-Wave, which, once again, takes us into even more exciting high-growth, high-margin opportunities within Cardiovascular. Specifically to Orthopaedics, we believe this is going to be another solid year for Orthopaedics, 3.2% growth for the year. We did have a slightly softer third quarter, which was a result, to your point, of the restructure within Orthopaedics. And as we look to the full year, we expect a return to a significantly better performance, especially in Orthopaedics, which typically has a stronger fourth quarter. And we are seeing tremendous performance specifically within the hips and knees categories growing 6% and 7%. And I think that's really been enabled by the success of our enabling technologies in VELYS in knees, which also, by the way, we've added indication of the [Uni Knee] (ph), as well as our KINCISE and Hip Navigation systems within hips. I'd also add to the Orthopaedics performance, we are significantly addressing portfolio gaps within our trauma portfolio with the launch of TriLeap, [indiscernible] and VOLT in the back half of the year. And I think you know our spine portfolio has been challenged, and we're addressing that with the launch of TELIGEN, our new TriALTIS thoracal lumbar system and the new spine robot, which we just received approval for. As it relates the hurricanes, we did see the impact, certainly of Hurricane Helene, in the final weeks of the third quarter and continue to see the impact of Milton over the last coming days especially in the areas most impacted by those storms. I do think the watch out that we all need to watch carefully is certainly the impact of the recently announced IV saline shortages, which if they do persist, could potentially impact surgical procedures across our portfolio.