Yahoo Finance

Welcome back to Yahoo Finance. I'm your senior health reporter, Angelica LaVito. Shares of Johnson and Johnson rising after beating analyst expectations in its second quarter. The company also lowered its full year guidance, citing impact from recent acquisitions. Joining me now for a deeper dive into this report is Joe Wolk, Johnson and Johnson CFO and executive vice president. Joe, thank you so much for joining us today and you kind of reversed the stock there after the call. What did you whisper to investors that made them change their mind?

Well, nice to see you again, Angelica. It's been quite a while since we've had a chance to discuss our business, which I'm certainly proud to do on the results of the second quarter. Um, we didn't whisper anything that we didn't say in our press release, quite frankly. I think investors have seen the strength of Johnson and Johnson, the diversity of our portfolio. We were real pleased with the top line growth of better than 7% across the business, pharmaceuticals almost growing 9% with really outperformance in 11 of our 13 key brands products. About 10 products overall growing better than 10%. We would have hoped that MedTech was a little bit stronger, but we've got great growth acceleration plans in the back half of this year, which should complement the business going forward, and we had strong free cash flow. As well as the results are for the quarter, as you know, Angelica, we manage for years, not quarters. And I couldn't be more proud of what the R&D teams have really established with respect to data readouts to fortify not just the balance of this year, but really the balance of this decade with respect to new products, new indications coming online, that will not only help patients, but certainly lead to much better business results.

Yeah, want to talk about that MedTech, because I know that was one of the focuses on the call. You've seen with the acquisition of Shockwave and the anticipated boost it's going to give that sector, I noticed that over the quarters, and I looked back as far as about 10 years, MedTech has kind of been flat over the years. It hasn't necessarily been a growth driver for the company, but it's been stable. There are a lot of things that influence that volatility from, uh, you know, surgery volume, headwinds when it comes to production and when it comes to as well reimbursement. All of these things play a role. Inflation, I know you mentioned was the other thing that you're running into. So talk to me about that and sort of what you really anticipate as this growth. What are you teasing here?

Yeah. So with respect to that chart, there's probably a lot of moving parts. If you think about seven to eight years ago under Alex Gorsky's leadership, we really grew by pruning. Uh, so we got rid of businesses that weren't a strategic fit or were a drain on growth. And since 2018, where we held had only one and a half percent growth, we've been able to consistently move that needle upwards about one point per year. Last year was almost 8%. Um, we are looking forward to the Shockwave, uh, results really only reflect one month of that business. It's a nice complement to the Abiomed acquisition that we made at the end of 2022. That is a business that grew better than 15% this quarter. Uh, really elevates our presence in cardiovascular and it's performing ahead of deal model expectations at the time. Um, you know, I, I think we're very well positioned to play in these higher growth markets. We were disappointed with the quarter, but we're still very enthusiastic about the business. You may recall, Angelica, at our Enterprise business review in December, we conveyed to the investment community that we intend to grow five to 7% between the periods of 2022 to 2027. Uh, we still think we're on track. We came into the year thinking that we might be close to 7% this year. There were some first half dynamics, uh, specifically related to contact lenses and supplier inventory levels that were bled down through the first four months of this year. We saw much improved performance in May and June, so very good coming out of the quarter. And then the other piece was China where, um, we had a 40% growth rate in the second quarter of last year. So it was a tough comp to begin with, as they came out of some lockdown measures related to COVID. Um, and we have plans in place to really improve that business with better healthcare provider interactions going forward, where some new regulations are impacting volume.

Absolutely. On the innovative medicine side, I know you're looking forward to the impact from Stelara, for example, the biosimilars coming up in Europe. In addition, you also have, um, the different, you know, movement that you have in this sector with the investment you've made in R&D as well. So that's an area of strength. You're also pulling away from the COVID vaccine sales. So a lot of little moving parts there. Talk to me about that and what you anticipate for the second half of the year.

Yeah. So if you look at our innovative medicine business and it's really a complement to what they've been able to achieve, uh, in terms of strengthening, uh, the R&D stable, if you will. I just look at the back half of this year. We plan to launch Tremfya for new indications in IBD, so ulcerative colitis and Crohn's disease. Uh, there are folks that are, I guess, I'd say concerned or interested in what the Stelara erosion curve may look like. We have many assets in place to cover that and Tremfya is going to be a big piece of that solution. Um, we'll also plan to launch and get approval for Rybrevant in lung cancer, uh, the second half of this year. That's a an area that we think we can have a profound impact. We have some really solid data with respect to overall survival, uh, and another offering for patients going forward. And Angelica, I, I go back to 2018 when people had similar concerns about our loss of exclusivity on Remicade. It was the first biologic to face biosimilar competition. We held up much better than people anticipated. I think the biosimilar market has evolved a little bit, but at that time, we had maybe two products in our pipeline or in our portfolio that were going to be $5 billion peak year sales. Uh, as we shared our enterprise business review in December, we now have at least 10 products or platforms that will be $5 billion in peak year sales over the coming near term. So we feel very good about how we've been able to fortify that. Again, it speaks to really the breadth of Johnson and Johnson having 25, soon to be 26, $1 billion platforms, many of them growing either above consensus or double digits.

Yeah, I know you mentioned Shockwave is going to add to that too. Uh, when I think about the second half of the year, there's sort of three big things that come to mind, especially in light of the fact that you're lowered guidance, one being the settlements both for opioid, for talc and mesothelioma, as well as inflation, as well as this biosimilar competition, as well as the IRA. So, sorry, four of those things. Am I missing anything in there, anything that we should be paying attention to that could contribute?

No, those are, I would say, the things that we think about that we've planned for. We've been planning for years, certainly with the Stelara biosimilar coming on board. Uh, the IRA, I would say, it's really a complement to our innovative medicine team, how they've been able to really attain stellar results, you know, industry leading results on the premise of innovation, elevating the standard of care with new therapies that are meaningful for patients. We've had year to date, um, price decline in that business of about 3%. Uh, that's not uncommon. We've experienced that each of the last six years of 4 to 3% of erosion, um, annually. And so continuing to come up with new innovative medicines that raise the standard of care is really what is the formula for our success. And so whether it's IRA or part D redesign, things of that nature, uh, we, we certainly can digest those because of the investments we make all along in R&D.

Well, as always, we'll be watching. Thank you so much, Joe Wolk, Johnson and Johnson Chief Financial Officer.

Thank you, Angelica.