Q3 2022 Johnson & Johnson Earnings Call

Good morning, and welcome to Johnson <unk> Johnson's third quarter 2022 earnings Conference call. All participants will be in a listen only mode until the question and answer session of the conference. This call is being recorded if anyone has any objections you may disconnect. At this time, if you experience technical difficulties during the conference you May Press Star.

Zero to reach the operator, I will now turn the conference call over to Johnson <unk> Johnson you may begin.

Please note that today's meeting May include forward looking statements relating to among other things the company's future financial performance product development market position business strategy and the anticipated separation of the company's consumer health business.

Cautions not to rely on these statements, which are based on current expectations of future events using the information available as of today's date and are subject to certain risks and uncertainties that may cause the companys actual results to differ materially from those projected.

In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic.

With a description of these risks uncertainties and other factors can be found in our SEC filings, including our 2021 and Form 10-K, which is available at investors don't J&J Dot com.

The SEC's website. Additionally, separate of the product and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. These tonight acknowledge those relationships.

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson and Johnson as a reminder, you can find additional material, including today's presentation and associated schedules on the Investor Relations section of the Johnson <unk> Johnson website at Investor Dot J&J dotcom.

In addition to today's presentation and associated schedules, we will be posting in the transcript of today's call as well as an excel version of key financial schedules.

I will now review the third quarter sales and P&L results for the corporation and highlights related to the three segments.

Joe will then provide additional business and financial commentary before sharing an overview of our cash position our capital allocation priorities and updated guidance for 2022.

The remaining time will be available for your questions.

We anticipate the webcast will last approximately 60 minutes.

Let's move to the third quarter results.

Worldwide sales were $23 $8 billion for the third quarter of 2022, an increase of one 9% versus the third quarter of 2021.

Operational sales growth, which excludes the effect of translational currency increased eight 1% as currency had a negative impact of 6.2 points in the U S sales increase of 4.1% in regions outside the U S. Our reported sales declined.

3%.

Operational sales growth outside the U S was 12, 3% with currency negatively impacting our reported O U S results by 12 six points, excluding the net impact of acquisitions and divestitures adjusted operational sales growth was eight 2% worldwide four 2%.

The U S and 12, 4% outside the U S.

Turning now to earnings for the quarter net earnings were $4 $5 billion and diluted earnings per share was $1.68 versus diluted earnings per share of one dollar and 37 cents one year ago.

Excluding after tax intangible asset amortization expense and special items for both periods adjusted net earnings for the quarter were $6 $8 billion and adjusted diluted earnings per shares was $2.55 representing decreases of two 7% and one.

9%, respectively compared to the third quarter of 2021 on.

On an operational basis adjusted diluted earnings per share increased five 8%.

I will now comment on business segment sales performance highlights unless otherwise stated percentages quoted represent the operational sales change in comparison to the third quarter of 2021 and therefore exclude the impact of currency translation.

With the streamline remarks shared in the prior two quarters, we plan to keep our comments brief to leave more time for Q&A.

Please refer to the slides for additional segment and franchise commentary.

Beginning with consumer health worldwide consumer health sales of $3 $8 billion decreased <unk>, 4% with an increase of two 1% in the U S and a decline of two 3% outside the U S. Excluding translational currency worldwide operational sales growth increased 4.7.

Per cent and outside the U S operational sales growth increased six 7%.

Excluding the impact of acquisitions and divestitures worldwide growth was four 8% results were primarily driven by strategic price increases.

And O T C. Due to a strong cold cough and flu season, and O U S growth and neutrogena and Aveeno due to market growth and new product launches. This growth was partially offset by supply constraints in the U S and suspension of sales of personal care products in Russia.

Moving onto our pharmaceutical segment worldwide pharmaceutical sales of $13 $2 billion increased two 6% with growth of 3% in the U S and 2% outside of the U S. Excluding translational currency worldwide operational sales growth increased nine.

And outside the U S operational sales growth increased 16.7% exclude.

Excluding the impact of acquisitions and divestitures worldwide growth was nine 2% exclude.

Excluding COVID-19 vaccine sales worldwide operational sales growth increased eight 9% U S operational sales growth increased to 7% and outside the U S operational sales growth increased 11, 3%.

Pharmaceutical growth was driven by strong commercial access and execution, enabling us to continue to deliver above market adjusted operational sales growth, including five assets with double digit gross.

Growth was driven by doors, all ex Trumpf via still Lora, and our leader as well as our poly paradigm <unk> long acting portfolio and was partially offset by Biosimilar competition for Remicade, along with a decrease in improve our cross sales within our oncology business. So like center leader continue to drive strong sale.

<unk> growth with increases of 38, 7% and 51, 2% respectively.

Improved sales declined seven 2% worldwide due to increased competitive pressures in the U S. The CLO market remains below pre COVID-19 levels. While any you results were negatively impacted by government Clawbacks overall, and Rubicon maintains its market leadership position worldwide.

Our immunology business term fire grew 41, 9% driven by share gains in psoriasis and Psoriatic arthritis with gains of 3.2 points and one seven points in the U S respectively, along with market growth.

Still our growth of 8% was driven by strong market growth and share gains in crohn's disease, and ulcerative colitis with gains of 5.2 points and six nine points in the U S. Respectively results in the quarter were partially offset by a net unfavorable prior period adjustment of approximately 600 basis.

<unk> on worldwide growth, we remain confident in our ability to deliver our 11th consecutive year of above market adjusted operational sales growth in 'twenty to 'twenty two.

I'll now turn your attention to the Med Tech segment.

Worldwide Med Tech sales of $6 $8 billion increased by two 1% with growth of 7.7% in the U S and a decline of two 9% outside of the U S. Excluding translational currency worldwide operational sales growth increased eight 1% and outside the U S.

The operational sales growth increased eight 5%, excluding the impact of acquisitions and divestitures worldwide growth was eight 1%.

Drivers for growth across Med Tech include procedure recovery as well as focused commercial strategies and differentiated new products, such as NCL X one devices and energy.

<unk> digital solutions across our orthopedic platforms and additional solutions enhancing our industry, leading electrophysiology portfolio.

Just on our most recent share data, we continue to enhance or sustained market share positions in the large majority of our 11 priority platforms. As a reminder, these 11 platforms each generate over $1 billion in annual sales.

Partially offsetting growth in the quarter is the impact of volume based procurement in China and timing of international tenders, primarily in orthopedics and supply challenges primarily in surgical vision.

And with our previously communicated expectations Med Tech operational sales grew sequentially versus the prior quarter and for additional context selling days had an immaterial impact on results in the quarter.

Now turning to our consolidated statement of earnings for the third quarter of 2022, I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year.

Cost of products sold Deleveraged by 170 basis points, primarily driven by unfavorable currency impact and the pharmaceutical business and commodity inflation, partially offset by supply chain efficiencies in the med Tech and consumer health businesses.

We continue to invest strategically in research and development at competitive levels.

<unk> 15, 1% of sales this quarter.

The $3 $6 billion invested was a 5% increase versus the prior year, primarily due to portfolio progression in the pharmaceutical business and increased investment across multiple franchises in the med Tech business.

Other income and expense line was an expense of approximately $500 million in the third quarter of 2022 compared to an expense of $1 $9 billion in the third quarter of 2021. This was primarily driven by lower litigation expense, partially offset by losses on securities.

Our house separation related costs, and COVID-19 vaccine related cost in the current quarter rigor.

Regarding taxes in the quarter, our effective tax rate was 23.4% versus four 7% in the same period last year. This increase was primarily driven by 2022 tax costs incurred as part of the planned separation of the company's consumer health business due to the reorganization of certain international.

<unk> subsidiaries, a onetime special items in Q3, 2021 that reduced taxable income in the quarter and unfavorable income ex exclude.

Excluding special items, the effective tax rate was 16% versus 13, 5% in the same period last year.

I encourage you to review our upcoming third quarter 10-Q filing for additional details on specific tax matters Lastly, I'll direct your attention to the box section of the slide where we have also provided our income before tax net earnings and earnings per share adjusted to exclude the impact of intangible amortization.

Spence and special items.

Now, let's look at adjusted income before tax by segment.

In the third quarter of 2022, our adjusted income before tax for the enterprise as a percentage of sales decreased from 34, 5% to 33, 9%, primarily driven by unfavorable currency and commodity inflation impact on cost of products sold.

Pharmaceutical margins declined from 43, 8% to 41, 9%, primarily driven by unfavorable currency and cost of products sold med.

Med Tech margins remained flat at 25, 5% commodity inflation and increased investment in research and development were offset by supply chain efficiencies and sales marketing and administrative leveraging finally consumer health margins improved from 24.2% to $24 three.

Despite inflationary pressures driven by price actions and investment prioritization.

This concludes the sales and earnings portion of the Johnson <unk> Johnson third quarter results I'm now pleased to turn the call over to Joe Walk Joe.

Jess Good morning, everyone. We appreciate you joining us today.

As Jeff just shared we are pleased to report solid results across our business segments in the third quarter, we accelerated operational sales growth across all three segments and we're able to meet earnings expectations, Despite significant inflationary impacts to input cost.

This performance reflects the strength of our business and versatility of our operations despite persistent global macroeconomic challenges.

Given Johnson and Johnson is 136 year history, we are no stranger to periods of unfavorable macroeconomic conditions, but we have a proven track record of navigating through periods of challenge and volatility.

With a diversified portfolio and strong balance sheet, we have repeatedly demonstrated our ability to deliver results in the short term, while executing against our long term strategy focused on improving health outcomes and access to care.

Let me share a few enterprise highlights from the quarter.

We continued to deploy effective strategies to provide the products medicines and treatments that consumers and patients rely on in the face of supply chain pressures.

Our teams have been working tirelessly to help mitigate the impact of these challenges by working with our partners to make sure we're meeting demand.

We continue to invest for growth driven by innovation as demonstrated by the recent opening of our R&D campus in San Francisco, which will expand our R&D presence in the Bay area I had the pleasure of being at the opening for this campus seeing it in person only reinforces for me that the combination of science technology.

And data analytics will be the future of medicine.

We also made further progress on the separation of can view the name of the planned new consumer Health Company. In addition to announcing the name brand visual identity and purpose, Larry Merlo was named as the Nonexecutive chair designate congratulations Larry.

Tebow, Ashley and Jennifer will provide updates on notable events for their segments later in the call.

Turning now to cash and capital allocation.

Year to date, we generated free cash flow in excess of $13 billion at the end of the third quarter, we had approximately $34 billion of cash and marketable securities and approximately $32 billion of debt for a net cash position of approximately $2 billion.

Our capital allocation priorities remain unchanged and our strong balance sheet affords us the flexibility to pursue multiple capital allocation priorities concurrently.

Investing in innovation and R&D is our top priority and through three quarters, we have increased our R&D investment by approximately 8% over the same period last year in.

In addition to investing in organic growth opportunities. Our team continues to evaluate strategic acquisitions and other external collaborations that would enhance our current portfolio built upon our capabilities and enable us to play in higher growth markets, while delivering strong financial returns.

In mid September our board of directors authorized a share repurchase of up to $5 billion of Johnson <unk> Johnson common stock. This program underscores our confidence in the business and our pipeline. While also delivering returns for our shareholders. This program combined with our dividends has yielded nearly 11.

Billion being returned to shareholders already in 2022.

Moving on to full year of 2022 guidance.

Evidenced by the third quarter operational sales growth across all three businesses health care as well as our business continues to be rooted in strong fundamentals. Despite various macroeconomic pressures we continue to see a strengthening U S dollar relative to other currencies and as seen on this slide.

Inflation in the U S remains at levels not experienced in decades, and not unique to the U S.

You saw some of this impact reflected in this quarter's gross margin.

Loading in comparison to Q3 2021 attributable to both currency and higher input cost.

Despite these pressures we are reaffirming our operational sales and reported adjusted earnings per share mid points and tightening the ranges.

On sales, we are narrowing our base business operational sales range to $97 $5 billion to $98 billion or a growth rate of 7% at the midpoint.

While this full year operational sales guidance is an acceleration to our year to date growth. It does imply a slight deceleration when comparing to the third quarter growth driven by the loss of exclusivity of like Tigger in EMEA during the month of September .

We don't speculate on currency impacts however, using the euro spot rate relative to the U S. Dollar as of last week at point 97.

There is an estimated negative impact of foreign currency translation of approximately 490 basis points, resulting in an estimated reported sales growth between one 8% to two 3% compared to 2021 or <unk> $93 billion to $93 5 billion.

Regarding other lines on the P&L well.

While we were able to absorb some of the inflationary pressures. This year, we are lowering our full year operating margin projection due to the impacts of inflation across most spend categories to a decline of approximately 50 basis points.

Given year to date trends on favorable employee benefit related items, we are increasing our other income estimates to a range of $1 $7 billion to $1 8 billion.

Regarding interest income and expense again based on our year to date experience, whereby we have a higher cash balance earning at rates higher than previously anticipated. We are increasing the range of our estimate to $175 million to $200 million of income.

And finally, we are maintaining our effective tax rate estimate, which is reflective of current law to a range of 15.0% to 15, 5%.

Considering these revised estimates we are increasing our adjusted earnings per share on a constant currency basis of three cents at the midpoint.

The updated range is $10.70 to $10.75 or a midpoint of $10.73, reflecting a growth rate over 2021 of nine 5%.

While not predicting currency movements, but to provide some insights on the potential impact on EPS. Our reported adjusted EPS is expected to be negatively impacted by approximately 68 cents per share as a result and by tightening the range. Our reported adjusted earnings per share is 10.

In dollars and two cents to $10.07, which maintains the previous midpoint of $10.05.

I appreciate that many of you are turning some of your attention to 2023.

We are actively finalizing our plans for next year, but allow me to provide some preliminary qualitative perspectives to consider as you develop your models.

We remain confident that we'll continue to grow our pharmaceutical business every year towards our goal of $60 billion in pharmaceutical sales by 2025, despite the still Lora L. O E, which is anticipated to occur in the second half of 'twenty twenty-three in the U S.

For Med Tech, we expect our investments in innovation and commercial capabilities to continue to enhance our competitiveness.

At this time, we anticipate positive procedure trends with the caveat that COVID-19 continues to be a dynamic situation regionally.

<unk> headwinds from hospital staffing and some impact from volume based pricing in China.

For consumer health, we are seeing the benefits of our strategic price increases and a reduction in supply chain disruptions. Although some challenges are expected to continue into 2023.

We expect inflationary pressures and higher input costs to persist and we are continuing to take actions to offset these challenges while some inflationary pressures are improving keep in mind that certain products. We manufacture in 2022 will be sold and flow through our P&L in 2023.

As far as standing up can view as an independent company, we expect to announce further details on the type of separation as well as standup cost estimates and how we are addressing stranded costs. Later this year or early in 2023, we remain on track to complete the separation in mid to late 2023.

As indicated in the initial announcement, we made in November of 2021.

Finally, as previously mentioned, we don't speculate on currency movements, but utilizing the euro spot rate of last week, we estimate an unfavorable currency impact on 2020 Three's adjusted earnings per share of approximately 40 to 45 cents or 10 cents more.

In the 30 to 35 cents impact I referenced in July call.

2022 has proven to be inactive and unpredictable year, yet Johnson <unk> Johnson continues to reliably meet the needs of patients while navigating the volatile global economic and operating environment the executive.

Committee could not be prouder of our team members across the globe for their commitment to excellence.

We are continuously inspired by their dedication and unwavering focus on delivering growth for our stakeholders, while staying true to our credo.

I am now pleased to welcome our worldwide chairs, starting with Tivo for consumer health soon to be officially can view.

Thank you Joe and good morning to all of you. We are indeed very proud of the achievements we have completed so far in 2022.

As we shared with you throughout the year. We told you that consumables will deliver improved performance starting into second half of the year and that is exactly what you saw with a good performance in the third quarter.

Our strategy is working our pricing actions were realized supply chain constraints eased and we are also against easier prior year Comparables.

Our third quarter results reflect those dynamics and really demonstrate our ability to achieve results. Despite the microeconomic environment that Joe referenced and that continues to be volatile with and all of these things to the strength of our brands and the quality of our teams.

So looking towards 2023 and in line with our results to date, we do anticipate that the strength and resilience of our well balanced portfolio together with a consumer loyalty to our brands.

We'll continue to position our business to perform competitively with the market.

Now regarding all future as you just heard from Joe we are making great strides toward the planned separation of the consumer health business, including our recent announcement of a new name can view.

So as you can imagine a lot of thought and care was taken to ensure that the name was memorable distinctive easy to pronounce in multiple languages.

We then applied all expect brand building skills to create a brand identity that reflects our new name, but also leave space for iconic brands.

Helps the lives of more than a billion people around the world every day.

Every element was chosen to truly represent to us are the future Standalone company.

With the core attributes demonstrating an institution with trust care science.

And positioning can view at the modem digital first company.

We also unveiled our purpose this quarter, which is realize the extraordinary power of everyday care.

And in these seven worlds, we reflect all heritage of carrying but also play back what the world expects of us in the room, we need to fulfill in society.

We indeed believe that daily self care equals add up over time.

And have a profound cumulative impact on the wellbeing and all workup can view would be to put the power into the hands of consumers around the world. So we're excited for the journey ahead now with Larry Merlo named as all designated Nonexecutive Chair and all teams are all focused on continuing to deliver results while progressing towards realizing as a fleet.

Tension of Ken view, and now let me hand over to Ashley. Thank you Tivo well good morning.

So last year was clearly a banner year of our new product innovation and we are continuing that momentum in 2022 with four new new products launched first in kind new products launched just in third quarter alone and clearly these launches are really contributing to our enhanced competitiveness.

So in quarter three we launched our next generation Technip Symphony off the Blue, It's our latest presbyopia correcting inter ocular lens are active you Oasis Max contact lens, the Healy istar, a balloon ablation catheter and the actor a mapping catheter so.

You just have a quick refresh on active you Oasis one day Max all of US know we live digitally intense lives in this lens was custom designed to really meet those digitally intensive lifestyles. It builds upon our industry leading portfolio of Oasis is ranked number one it's the largest brand in the category and its unbeaten and comfort across there.

31 clinical trials.

Moving over to our Biosense Webster business, we have on our launch of our helium balloon ablation catheter. This catheter is unique it's a one shot balloon technology and it enables P V isolation, and 12 seconds with customized energy delivery and our one integrated three D mapping solution. So we.

<unk> already seen the impact Healy of Star has resulted in an 86% freedom from documented atrial arrhythmia at 12 months. So this is our entry into the single shot ablation.

Is it really just a couple of the ways that our team is delivering differentiated solutions really through a focus on breakthrough science.

And our consistent focus on doctors critical needs. So I'm very encouraged by the strong innovation to date and even more excited about the potential of our pipeline to come.

And when I start to think about 2023, and we are very focused on our mission to make the future of health care smarter less invasive and more personalized you've heard me consistently say this is how we can show up in health care and we will continue particularly in today's times the live in uncertain times to prior.

Our ties programs that are strengthening our core that are really getting us on the forefront of shaping the new frontiers and medical intervention and a consistent drumbeat of always improving our competitiveness.

Now, we know that health care has unbelievable amount of humility, but also amazing purpose and as Joe has mentioned we are it's very clearly in a dynamic time, we're going to continue to manage through the macroeconomic factors like hospital staffing like inflation like cause like supply constraints and some of the overhang of the pandemic.

But we are encouraged with procedure volumes on in many parts of the world and they are recovering quite nicely. Some parts of the world are still a little bit below pre COVID-19 levels, but we are confident in the resiliency and agility of the med tech industry and our anticipated continued recovery across the world. So thank you Anna.

Please to turn it over to Jennifer.

Thank you Ashley and Hello, everyone. Good morning.

I'd like to start off by thanking my pharmaceutical colleagues for another strong quarter with operational growth of 9% that was broadly based across our portfolio and our regions. As just noted we continue to maximize the value of our diverse leading portfolio delivering above market growth with a number of.

Key drivers Darvill ex Trumpf <unk> tomorrow, or later also up Trabi Sorel tow and our long acting pallet paradigm portfolio, So really great performance across the portfolio and throughout the Globe. In addition to our strong performance in our pharmaceutical business achieved some important milestones during the quarter.

Both in terms of approvals and and new data Readouts. So first we're really pleased to announce our first approval globally for Tech Daily. This is our first in class off the shelf by specific antibody for patients with relapsed and refractory multiple myeloma and this approval was from the European Commission and we are on track to receive.

The approval from the U S F D a before year end.

Daily is really important addition to our multiple myeloma portfolio, particularly for this difficult to treat patient population.

Also in multiple myeloma the final analysis from our phase II Griffin study Darvill X based investigational quadruplet regimen was presented really highlighting the potential benefit of adding doors of legs to this frontline treatment regimen in multiple myeloma in newly diagnosed transplant eligible patients.

Separately, we received two approvals for <unk>. So the European Commission approved an all oral fixed duration treatment combination with venetic lax and frontline C. L L and the U S. FDA granted approval for pediatric patients with chronic graft versus host disease marketing the first pediatric approval for <unk>.

And making them really kind of the only be teekay I would 12 FDA approvals across seven indications.

If we turn to solid tumors and data from our early stage trials from our combination of the animals antenna plus lizardman were presented at WC L. C. Importantly, these data demonstrated a benefit in frontline treatment of Egfr mutant non small cell lung cancer, and we look forward to data from our phase II.

Mayor opposed to study in the future.

And last in immunology, we presented new data for Trump fire from the Phase III B Guide study, which demonstrated even higher rates of complete skin clearance and adult patients with moderate to severe plaque psoriasis, who were started earlier in the course of their disease, So bodes well for earlier treatment for interim fire.

And continued growth.

As I said I I'm real proud of our pharmaceuticals team and what we accomplished in the third quarter and I look forward to finishing the year strong.

As we look ahead with our focus on transformational medical innovation or.

Our pipeline of current medicines, our robust pipeline of new medicines and World class capabilities, we remain really confident in our growth expectation the ones that we outlined at our pharmaceutical business review last November including the fact that we expect to be a 60 billion dollar pharmaceutical company by 2025. So thank you very.

And Jeff I'll turn it back over to you.

Thanks, Jennifer Tebow and Ashley. This concludes the prepared remarks portion of our earnings call. Kevin could you. Please provide instructions and open the line for Q&A.

Certainly ladies and gentlemen, if you'd like to ask a question at this time. Please press Star then one on your telephone keypad, if you'd like to withdraw your question. Please press Star then two please limit your questions to one question only our first question is coming from Chris Schott from JP Morgan. Your line is now live.

Great. Thanks, so much just a couple of just two parter for Mitt for Joe appears to elaborate a little bit more on 2023 operating margin dynamics are it seems like you're seeing some modest operating margin erosion. This year due to inflation should we be thinking about a similar step down in 2020 three or is there a better ability to manage some of these inflation pressure.

As they start to use as you go through the year.

And maybe a second question just as we think about 'twenty three just trying some of the segment comments together and when you think about top line is there any reason to assume a meaningful deviation from the operational growth trends, you're seeing in 2020 two as we look out to 'twenty 'twenty, three and I guess, maybe specifically and that is the story of L. O.

Enough of a headwind next year that we need to start thinking about that impacting growth or is that more like a 'twenty 'twenty four and beyond issue. Thanks, so much.

Hey, good morning, Chris Thanks for your questions. What I'll do is I'll give you some insights around 2023 op margin and then maybe I think it might be productive to turn it over to each of the segment heads to talk about what the outlook is for 2023 in a qualitative way at this point. So for 2023 op margins I think you have a couple of dynamics that were facing.

Clearly the macroeconomic pressures that all industries and all companies are facing is something that we have to address as well while health care is a very very good business and more resilient than most it's not as if we're immune to some of those dynamics. So as we finalize our plans for 2020 three we will be looking at Pryor.

<unk>, our resource deployment to those initiatives those projects those services that deliver the most value for patients, which in turn has been healthy for our business. The other dynamic that's at play Chris and maybe one of them a little bit hesitant to give you specific guidance at this point in time is the separation of the consumer health business.

So we're going through some of our plans now we have the opportunity as we said on prior calls to rightsize our infrastructure for a two segment company versus a three segment company that we've had historically and so we're looking at opportunities there as well I think you know given the.

The pressures from both of those fronts we.

We take it as our responsibility here at Johnson <unk> Johnson's management to ensure that we mitigate those we prioritize every dollar that we have that goes to securing our long term future specifically in innovation and R&D and that's what we'll continue to focus we know that that has a proven track record of.

When we do that specifically when we focus on those precious few projects that matter. The most and that's what we'll continue to do in 2023, so more to come on op margins, but we will were not oblivious, obviously to the world around us and we're going to manage those very very effectively why don't I turn it over to Jennifer to maybe give an outlook on pharmaceuticals and specifically.

Dress the impact first of all our next year, Yeah, Hi, Chris Good morning. So for 2023, we anticipate another year of above market growth for the Pharmaceuticals group.

These results, we anticipate to be driven by continued growth of our key brands like dark relaxed from fire or leader in Vegas, a stunner and end up Trabi and that's really coming from a combination of increased penetration as well as continued market share gains and then we also continue to expect continued uptake of <unk>.

New launches so products like <unk> CAD volley that I, just mentioned products likes to provide Doe et cetera, and so while we do anticipate us to Lora L O.

Really in that late September timeframe or towards the end of the year. We believe that we've got a lot of tailwind with our existing portfolio and our new launches to.

To continue to have another year of above market growth in 2023.

Hey, Bill you might want to say a few words on consumers outlook. Yeah, absolutely 2023, we expect that the world. We continue to be extremely volatile inflationary pressure supply chain disruption due to political environment.

And continued impact from the Covid pandemic in southern parts of the World. So we stopped in mind, we are certainly.

Prepared to navigate this environment, thanks to the quality of our brands the strength of NIE of execution capabilities around the world and as you referenced to innovation, we continue to play a big part in our results moving forward, we see that the innovation that we bring to them all.

Nishu I extremely well received by consumers around the world.

And we expect this to continue in 2023.

Absolutely you know.

I would just say on consistent you know really building on the momentum in 2022. So for the first three quarters of the year, we're looking at near 7% growth and so our eyes around keeping that momentum from a demand generation on revenue next year and having a revenue number that beats the market clearly in today's environment that the cost of doing.

The business has gone up and so you know we are doing everything we can to manage and mitigate that to remain competitive from a typically we have one or two points of price erosion and we've actually been commanding price mix realization in today's environment through supply chain efficiencies admin efficiencies and some price mix realization.

We do see some of the downsides.

In China from D V P that we're weathering through those and earning some of those tenders going forward.

But we'd like to very much keep the investment going in R&D because as you can see the past couple of years, that's really benefited from accelerating our growth curve.

So Chris hopefully that answers your question, but I think what you should take away is clearly the breadth of our portfolio are the reach of our geographic presence positions us very very well when whilst the law is certainly a big product I think it is Johnson <unk> Johnson's largest product ever we're not dependent on one product alone and so the breadth of the portfolio that.

Today as well as that which is on the come Ah I think bodes extremely well for continued growth that investors have come to expect.

Thank you. Our next question today is coming from Larry <unk> from Wells Fargo. Your line is now live.

Good morning, Thanks for taking the question and congratulations on a nice quarter here one for Ashley one for Joe just actually I'd love to hear your thoughts just on the macro trends impacting med tech a little bit more color on what you're seeing in China. Some of the supply constraints and staffing shortages and how you see those playing out in Q.

For 2023, and Joe you've been talking about picking bolder steps in M&A why haven't we seen more M&A from J&J so far in.

<unk> 2022, and has anything changed with regard to your priorities. Thank you.

Alright. Thank you I guess I have to first by giving a shout out to the med Tech team. It was a really strong quarter of 8% and 7% year to date and I just have really a maniacal focus is what I would say on competitiveness and customer centricity.

You know when we and Joe alluded to this Larry if you look at our I'll go around the world a little bit you know we are seeing procedures recovering I think we're benefiting not posting very strong September but also a quarter end of 8% in the United States. We started to see surgical procedures pick up predominantly at that at the latter part of the quarter, we do see diagnostic procedures.

More in the mid single digits. So colonoscopy is as an example.

And in quarter three so we're expecting that to continue now you'll recall that we're anniversarying omicron heading kind of in the Thanksgiving timeframe in December so that should be a healthy comp, but we also expect in a very focused you know microsurgery and the and the winter surge Europe is recovering nicely August was a little bit of a slowdown given the holiday season, but really.

September picked up Asia isn't it in fast recovery, I would say in India, and Japan and.

And China is still quarter, three recovered nicely versus quarter, two but they're still below pre COVID-19 levels. So we expect that bolus to continue we are moving forward, we have a strong position in China, we have a very diversified position in China and we are moving through some of the V. P actions. That's why you saw.

And our and our joint business, we were actually up 10% and our knees or hips in the United States, but we had negative growth in the quarter really due to the volume based procurement wins on pricing actions that will will come through that for next year. So thank you for the question Larry.

Yeah, Larry regarding our M&A well first off let me start with just the reiterating the strong free cash flow that we have year to date are over $13 billion also very proud of the fact that we've been able to distribute nearly $11 billion to shareholders through the form of our dividend program as well as the repair.

This program that was announced just mid last month. So we feel really good on that front, but as you likely noticed in today's comments, we still a whole $34 billion of cash which positions us extremely well to.

To continue exercising that lever of capital allocation around acquisitions or significant collaborations going forward. So our priorities have not changed in fact, maybe we're even a little bit more.

More bullish and eager to do something but as folks come to know us we're not going to do anything haphazardly, we're not the the aspect of this company that is really enjoyable as being the CFO as we don't have to do anything out of desperation, we're going to find those assets that have a great strategic fit.

And then makes sense from a financial perspective with respect to returning to shareholders something that compensates them for the risk that we're bearing on their behalf the markets a little bit funny, the volatility actually doesn't help for a conducive M&A environment right now because you have sellers.

<unk> sellers holding on to 52 week highs are all time highs, which quite frankly arent too distant in the rearview mirror, we're going to approach it with a very fundamental discounted cash flow analysis to make sure we're bringing value forward.

But the short answer to your question is our priorities have not changed we're looking to complement the already strong portfolio you heard in the first round of responses.

Thank you. Your next question is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Hi, Thanks for taking my question and congratulations on the quarter. So I wanted to ask do you have any updated thoughts on getting to that $60 billion of farmer sales by 2025, and this is all organic growth and it's not worth of sales go with M&A and what areas or anything like that.

And M&A. Thank you.

Hi, Louise Thanks, so much for the question. So the projections that we gave you about the the $60 billion in revenue by 2025 really is all based on our current portfolio and our current pipeline. So that doesn't have anything factored in right now in terms of M&A anything that we did there we would look.

That to be additive when we take a look at and how we're going to get there. We really believe we're going to have a compound annual growth rate of at least 5% with growth in every year and that includes through the Vista Lara L O.

We think we've got eight key brands that we'll be able to post double digit growth through 2025, and as we take a look through our pipeline and portfolio. You know between now and then you know 14 novel therapies filed with potential to exceed $1 billion.

And we've got five of which we think actually have potential to exceed 5 billion. So that's products like no vaccine, which is in our partnership with Bristol Myers Squibb, and Byzantium, Mab and lizard Nib combination, which I mentioned for non small cell lung cancer that we've got good data coming through nipper, calomel, which is progressing really.

Nicely through the various stages of clinical development, that's the auto antibody asset that we brought in from the momentum acquisition. We have our terrorist platform that is progressing nicely for bladder cancer and we have car victory, while we're still in the early stages of launching and ramping that asset based on the strength.

Of the data and the clinical trials, we remain really bullish on what <unk> is going to mean for patients with multiple myeloma around the world and so I think based on on our existing assets and the continued growth I mean, you take a look at at <unk> and the results that we just posted for the quarter.

39% growth consistent with what we've been seeing as well as growth in assets like Trumpf fire or leader et cetera, you take a look at the strength of the existing portfolio you layer in on top of that what's coming through the pipeline and that's what gives us the confidence to hit that $60 billion organically.

That being said in line with what Joe we're constantly looking for ways that we can continue to augment and further build our pipeline and to do so out of a position of strength and so predominantly yeah. We keep our innovation engine going bringing in things into earlier stages, which is usually our sweet spot because.

We can put our R&D machinery against it.

You know as well as our terrific regulatory and commercial and market access capabilities to really build things out but that doesn't rule out later stage acquisitions or end market acquisitions as well.

Thanks, Jordan was question today is coming from Joshua Jennings from Cowen. Your line is now live.

Hi, good morning, Thanks for taking the questions.

Wanted to just ask Ashley and that may be true as well just to comment on your thoughts on the resiliency of the medical device industry.

A recession.

Particularly.

Jobs, instead of enterprise business, and maybe parse out which device franchises or it could be more resilient, which could be less and then a quick follow up just totally related with cardiology procedures start to be more resilient during recession being most of them being life saving any updated thoughts just on.

The strategic rationale build out your cardiology franchise.

The bio since Webster Division.

Thanks for taking the questions.

Yeah. Thank you Josh I mean, I think let me start with the macro I think the health of the end state market in Med Tech are quite vibrant.

Now as we've talked there's been bumping us because of Covid that we're still having some not but there is patient demand and that is still yet to be met and that's really what where we're experiencing in quarter three and we still think and that will continue into 2023, and you're seeing procedures that are more insulated like that cath lab is more protected in a hurry.

Hospital environment volumes have been that's been going quite nicely I have to give a huge shout out to the BWI team in the U S grew near 24% growth in in quarter, three so and we're continuing to invest to your point and in Cardiology. You know we are we have a very active program and pulse failed.

Ablation and we have a clinical trial in Europe that just completed in quarter, two and we're looking at at 12 month read out of that on safety and efficacy and to file this year and we're also in clinical trial in the United States for our pulsed field ablation, we enrolled in May 2022, and we actually think the combos are gonna be quite complementary radiofrequency.

Coupled with pulse field ablation, but and so that's a bit about the cath lab I you know, we're seeing bariatric procedures, which are more elective in nature really clearing through the backlog and the ones that tend to be laggards are things like spine.

And we're seeing you know cataract surgery at a certain point becomes less elective and you know the pace centers. If you will are areas like stroke like and trauma that are much more or less elective in nature and and then I would just say from a you know creating patient demand there's been a huge.

Initiative on behalf of Johnson, <unk> Johnson and the interest rates you kind of move to sites of care that patients are really preferring and those areas like ambulatory surgery centers in the United States, our team predominantly and in joints as well as sports they've they've grown market share 20% over the past two years and there's emerging channels.

In areas like tier two and tier three cities in China with a population of $1 4 billion patience continue to grow and expand so we're going to see some of those shifts that happened during the pandemic really start to I think pick up where patients can get a sense of comfort and and hopefully we can kind of diffuse some of that the the.

Scarcity of label and enter into the right sites of care.

Thank you. Our next question is coming from Joanne Wuensch from Citi. Your line is now live.

Oh, good morning, and thank you for taking the question nice quarter.

Quickly to follow up on your comments on the electrophysiology. There were some bids were particularly strong could we can pull that growth apart and discuss maybe how much of it is market growth market share stocking, maybe or possibly price and then my big picture question.

Let's take a JV with ashley's comments appealing with I'm going to get the right word here.

Usually you have one to two points of mix erosion heavier outcome.

Price I want to make sure I heard that right and then understand it a bit better.

Yeah No no. Thank you Joanne yeah, we.

We always talk about BWI, because it is a market leader and yet the category is still has very low penetration of less than 12% of eligible patients are actually getting cardiac ablation and we love. This example, because we think when we think of health care, we'd love to kind of intercept disease before it sets in and if he can go manage cardiac arrhythmia to credit completion, you can really prevent us.

Broke so I'm just a huge acknowledgment of how close that team as to customers really around the world how how the innovation cadence. They really have many first in kind and if it's not first in kind there their second generation will ultimately become the standard of care is what they've shown.

And just a true sense of competitiveness. So in you know in quarter. Three you know BWI was up about 19% Joanne and I as I mentioned about 24% the U S, but 13% you know.

U S and a very healthy growth in Europe , and very healthy growth in Asia and you know that is a category that like joint is going to go through a bit of a V. P. P impact and in some quarters to come but we have very differentiated innovation.

And we're building kind of local on the ground capability to endure through those and when I think about the state of innovation, It's just making sure that we can from an industry penetration and take that from 12% penetration and double that and that really is the single minded focus of all of the innovation is to locate better lesions deliver.

Better lesion and make it a safer less fluoro in the procedure and make it safer for electro physiologists and quite frankly scale. It there's a shortage of electrophysiologist and we invest a lot of money on on market creation.

Thank you Julien.

Thank you. Your next question today is coming from just Meacham from Bank of America. Your line is now live.

Hey, guys. Thanks, so much the question instead.

Just had a few pharma one on.

In the iodine market I know you guys, obviously have this tomorrow.

Sure.

But would you expect there to be a lot of market disruption from the flood of Humira Biosimilars lodging before I'm, just trying to think of the indirect impact on your business.

And then the second question is on yourself therapy portfolio, you guys called out.

Any qualitative comments you have on the commercial rollout one more quarter and then.

Is there an update on the current Q4 timing that you could provide for us. Thank you.

Got it. Thanks, so much for the question, Jeff. So we start off with immunology, yes, I mean, if the market will be experiencing a significant event at least in the U S. With some competitive Biosimilars I you know coming in against other assets, we do anticipate that that will.

Cause a bit of disruption, but when we take a look at our business and trumpf fires of focusing on Trumpf fire for psoriasis and Psoriatic arthritis.

Based on what this says as really the first IL 23 is delivering and delivering for patients. We can anticipate that there will still be strong continued growth for that asset. We're very very confident in our access positions, there and being able to retain that even in the face of a biosimilar.

<unk> to other products that are launching I'll also put in a plug while we're at it and I'm talking about Trump fire that we also feel really good about how our product from players on working through the phase III clinical trials for Crohn's disease, and ulcerative colitis and look forward to hopefully getting that data.

And through the regulatory process and launching to bring even more benefit to patients with that so what we do can.

I anticipate continued growth there and then on car victory, but we're really pleased with how the product is performing for patients and the data that we're continuing to see maybe if I start off on constitute four and then I'll come back on the launch we do anticipate card attuned for.

You know hopefully reporting by year end, it's an event driven trial. So we have to wait until we have all of the events, but that's currently what we're planning for now and so that everyone knows cargo tool for US are studied that takes a look at car victory in one to three prior lines of therapy, we're really interested.

And looking forward to seeing those results. So if we take a look at at the early launch for car victory. We've always talked about this being a really you know planned and thoughtful approach to scaling it and so we're in the process right now we've really been working closely with the centers, where we had done the clinical trials to work through the.

You'll phases I know everyone knows about the worldwide Lindsay virus shortage, we've made really good progress on that and have good line of sight to that not being something that we're dependent that not being a rate limiting factor in the future. We're also working towards really being able to scale. This at a broad level to be able to.

To accommodate what we're seeing is both great demand for the product right now, but also what we anticipate with Carter to four as well as hopefully with Carter's two to five which would be in frontline therapy. So we reconfirm. This is really a big asset with a lot of growth potential and one of our potentially 5 billion.

Plus brands.

Thank you, Jeff Kevin we have time for one last question.

Thank you. Our final question today is coming from Terence Flynn from Morgan Stanley . Your line is now live.

Hi, Thanks, so much maybe a couple of pharma ones for me as well I was just wondering as you think about the combined franchise first store in term for next year can cannot grow versus this year and then based on clinical trials Gov. It looks like the nipper Calmat phase two or a trial recently completed so just wondering if you can.

Provide any color if you're going to advance that into a phase III trial for alright. Thank you.

Thanks, Terry So first question, so so still Laura and Trumpf fire, we're not we don't provide sort of.

<unk> guidance by product.

Or or combinations of that what I can say is that we do anticipate continued robust growth for trend fire next year as I indicated from fire in psoriasis and Psoriatic arthritis is really start showing very strong market share gains and penetration in that market still.

Really competes in and its strong growth has been in Crohn's disease, and ulcerative colitis and so when you take a look at those two markets. We do anticipate both of those continuing to show really good growth at least through the first three quarters of next year with just a Lora then post set.

Timber being impacted by by Biosimilars.

And then on Nipper calomel, so I don't have really anything to share there yet for an epic Allomap at you know consistent with all of our.

Processes, when we finish our studies, we go ahead and submit them to a major medical meetings and get them published I remain really confident and nipper calum app as as an asset and we've really taken a look at at building that out across 10 or 11 different indications, including the <unk>.

Cancel for our E, which we think could be a big one so I'm definitely more to come on that as we can share it.

Thank you Terrence and thanks to everyone for your questions and your continued interest in our company, we apologize to those that we couldn't get to because of time, but don't hesitate to reach out to the investor relations team with any remaining questions. You may have I would now like to hand, it over to Joe for some closing remarks great.

Great. Thanks, Jess Thank you T Bo Ashley Jennifer Ingests for participating in today's call and as just said thanks to all of you for your time today, hopefully you saw with our third quarter performance the strength of Johnson <unk> Johnson across all of our segments and our collective ability to manage macroeconomic headwinds as well as the unfavorable impact.

<unk> from a stronger U S. Dollar, we certainly take seriously our responsibility to be a reliable strong investment are in many ways for shareholders, even though uncertainty maybe hi, I have a great day, and we look forward to our next conversation.

Thank you. This concludes today's Johnson <unk> Johnson's third quarter 2022 earnings Conference call you may now disconnect.

Okay.