Q4 2022 Johnson & Johnson Earnings Call
Good morning, and welcome to Johnson, <unk> Johnson's fourth 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 would now like to turn the conference call over to Johnson <unk> Johnson you may begin.
Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson <unk> Johnson welcome to our company's review of business results for the fourth quarter and full year of 2022 and our financial outlook for 2023.
Joining me on today's call are Joaquin Duato Chairman of the Board and Chief Executive Officer, and Joe Locke Executive Vice President Chief Financial Officer.
Few logistics before we get into the details.
As a reminder, you can find additional materials, including today's presentation and associated schedules on the Investor Relations section of the Johnson and Johnson website at Investor got J&J Dotcom.
Please note that today's meeting May include forward looking statements related to among other things the company's future financial performance product development market position and 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 company's actual results to differ materially from those projected in particular there is.
I cant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks uncertainties and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor Dot J&J dotcom.
And on the S T CS website.
Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships.
Moving to today's agenda Joaquin will open with a few comments highlighting his first year as CEO and his priorities for 2023.
I will then review the fourth quarter sales and P&L results for the corporation and highlights related to the three segments as well as full year 2022 results for the enterprise.
Joe will then close with additional business commentary before sharing an overview of our cash position, our capital allocation priorities and our guidance for 2023.
The remaining time will be available for your questions.
We anticipate the webcast will last approximately 75 minutes.
I'm now pleased to turn the call over to Joaquin.
Thanks, Jess good morning, everyone I'm pleased to be here today to review our 2022 results I highlight my priorities for the business IMAX.
I'm excited for the future of Johnson <unk> Johnson.
For over 155 years people have counted on Johnson and Johnson to be at the forefront of healthcare innovation.
This remains as through today as to date, we were founded and I'm honored to continue this legacy.
In 2022, despite macroeconomic challenges, we delivered full year operational growth of over 6%.
This is the result of the dedication and focus of our employees around the world as well.
But it's on diversification of our business.
There were many business achievements last year let.
Let me share some highlights.
Our pharmaceutical team achieved its 11th consecutive year of above market adjusted operational sales growth, excluding the COVID-19 vaccine. They live betting me at least 7% growth as we continued to advance our innovation pipeline.
I'm, particularly excited about the progress made across our multiple myeloma portfolio.
This includes the launches of <unk> got a big T. Our first cell therapy, and the Bailey, our B C. M. A C D C D bio specific antibody.
Long with the recent filing of I'll get them up our G. P. R. C. Five D C D C bispecific.
The metric, we generated about 6% food year operational growth and D. C based in our second consecutive year outperforming our competitive composite.
In terms of innovation, we accelerated the cadence of new product launches and significantly enhanced the quality of our domestic pipeline, including more than doubling the number of programs, we sobered $100 million of net present value potential.
Notably we completed the acquisition of a b, humid which positions us as the global leader in a heartbeat globally.
Immediately enhances MIT take the revenue growth.
Transaction will become accretive to earnings in 'twenty 'twenty four.
Finally, we made significant progress towards the separation of <unk>, we have begun obeyed eating our consumer business as a company within a company and we filed our form S. One with the FCC, giving us the option to pursue an IPO.
Potential steps in the separation.
Looking ahead, while we expect some of the headwinds that impacted 2022 to continue we have proven that Johnson <unk> Johnson is resilient in times of macroeconomic challenges in D C and vitamin <unk> our approach to 'twenty to 'twenty three can be best described.
As prudent and our priorities for the year are clear and remain consistent.
First we are finalizing our plans for Johnson <unk> Johnson tool, but eight I sought to sector company dedicated to competitive performance both in pharmaceutical on mystic.
This change will enable us to become simpler faster and more focused.
Your pharmaceutical will continue delivering topline growth annually, while driving towards 60 billion dollar seemed revenue by 2025.
We believe we will be able to achieve above market growth in 'twenty two 'twenty three for the 12th consecutive year, even in the face of this there are a lot of loss of exclusivity a macro economic challenges.
It always will be driven primarily by our existing portfolio, including Dr. Alex rimfire, yet it really that big a sustained that Ravi.
And also continued uptake from new launches, including the spread a lot, though got a big T and big biotech.
In Med Tech with the acquisition of IBM and we now have 12 platforms with all but $1 billion in annual sales. We expect to continue to build on 2022 some momentum we will do this by maximizing the commercial opportunity for recently launching.
<unk> continuing to advance our pipeline and prioritizing investment in higher growth segments of our markets.
This will be a transformational year for Johnson, and Johnson, which brings me to my next priority completing the successful creation of a new consumer health company came to you.
We remain on track to complete the separation in 'twenty two 'twenty three as indicated in our initial announcement in November of 2021.
How should we look for our track record gives us the confidence that we can grow ahead of our peers and cement the foundation for long term success.
Halloween 2021 a year, where we substantially increased R&D investment we continue our commitment to organic innovation, we invested nearly $15 billion in R&D. During 2022 also we increased our dividend for the 16th consecutive year.
We instituted a share repurchase and we deployed over $17 billion in the money, including the acquisition of albumin.
Very few companies have the capability and the balance sheet to take such significant actions concurrently, especially in a year like 2022.
I'm confident that we are well positioned for 'twenty to 'twenty three and beyond.
In closing I am energized about what is to come.
The largest and most diversified healthcare brothers company in the World will continue to use our scale and breadth to drive innovations deliver for patients and shape the future of health care around the World now, let me turn it back to Jess.
So I can.
Starting with Q4 2022 sales result.
Worldwide sales were $23 $7 billion for the fourth quarter of 2022 a decrease of 4.4% versus the fourth quarter of 2021 operational sales growth, which excludes the effect of translational currency increased 2.9% as currency had a negative impact of <unk>.
5.3 points.
In the U S sales increased two 9% in regions outside the U S. Our reported sales declined 11.5% operational sales outside the U S declined 1.1% with currency negatively impacting our reported O U S results by 10.4.
Excluding sales from the COVID-19 vaccine operational sales growth was 4.6% worldwide.
Four 7% in the U S and 4.4% outside the U S.
As you will find in our supplemental sales schedules acquisitions and divestitures had an immaterial impact on our results in the quarter.
Turning now to earnings for the quarter net earnings were $3 $5 billion and diluted earnings per share was one dollar and 33 cents versus diluted earnings per share of $1.77 one year ago excuse.
Excluding after tax intangible asset amortization expense and special items for both periods adjusted net earnings for the quarter were $6 $2 billion and adjusted diluted earnings per share was $2.35.
Representing increases of nine, 5% and 10, 3%, respectively compared to the fourth quarter of 2021.
On an operational basis adjusted diluted earnings per share increased 15.5%.
For the full year 2022 consolidated sales were $94 $9 billion, an increase of one 3% compared to the full year of 2021.
Operationally full year sales grew six 1% with currency, having a negative impact of 4.8 points sales growth in the U S was 3% in regions outside the U S. Our reported year over year sales declined <unk>, 6%.
Operational sales growth outside the U S grew by 9.1% with currency negatively impacting our reported Oh, you asked results by 9.7 points.
As you will find in our supplemental sales schedules acquisition and divestitures as well as sales from our COVID-19 vaccine had an immaterial impact on our results for the full year.
Net earnings for the full year 2022 were $17 $9 billion and diluted earnings per share was $6.73 versus diluted earnings per share of $7.81. A year ago 2022, adjusted net earnings were $27 billion and adjusted diluted.
Earnings per share was $10.15.
Renting increases of 3.2% and three 6% respectively versus full year 2021 on an operational basis adjusted diluted earnings per share increased by nine 2%.
While not part of our prepared remarks for today's call. We have provided additional information in backup for our full year 'twenty 'twenty to sales by segment consolidated statement of earnings and adjusted income before tax by segment, which can be downloaded from our website.
I will now comment on business segment sales performance highlights for the quarter unless otherwise stated percentages quoted represent the operational sales change in comparison to the fourth quarter of 2021 and therefore exclude the impact of currency translation.
Beginning with consumer house worldwide consumer health sales of $3 $8 billion increased 1% with an increase of 10, 9% in the U S and a decline of 5.8% outside the U S. Excluding translational currency worldwide operational sales growth increased six point.
4% and outside the U S operational sales growth increased 3.2%.
Results were primarily driven by strategic price increases growth in OTC due to our strong cough cold and flu season and growth in neutrogena as well as strong new product introduction in Asia Pacific and Latin America.
Neutrogena growth contributed to the second consecutive quarter, a 5% operational growth for skin health beauty.
Growth across the portfolio was partially offset by continued although reduced supply constraints in the U S. COVID-19 impacts in China portfolio simplification and the suspension of personal care products sales in Russia.
Moving onto our pharmaceutical segment.
Worldwide pharmaceutical sales of $13 $2 billion decreased seven 4% with declines of 0.6% in the U S and 14.9% outside of the U S. Excluding translational currency worldwide operational sales declined 2.5% and outside the U S operation.
Sales declined 4.5%.
Excluding the COVID-19 vaccine sales worldwide operational sales growth increased 3.9% U S operational sales growth increased 2.4% and outside the U S operational sales growth increased 6%.
Pharmaceutical growth, excluding the COVID-19 vaccine was driven by our key brands and continued uptake and our recently launched products, enabling us to continue to deliver above market adjusted operational sales growth for the 11th consecutive year, including seven assets with double digit growth.
Growth was driven by dark slacks or leader, the Lora and Trumpf via and was partially offset by Remicade and thank tiga due to loss of exclusivity along with a decrease and improve our cost sales.
Within our oncology business. So that's an early that continue to drive strong sales growth with increases of 33, 9% and 48, 6% respectively.
<unk> sales declined 43, 6% worldwide predominantly due to loss of exclusivity in Europe in September .
<unk> sales declined 12.3% worldwide due to competitive pressures and a suppress C O L market due to COVID-19, despite competitive pressures and prove it maintains its market leadership position worldwide.
And our immunology business still Ara grew 6.2% driven by market growth and share gains in crohn's disease, and ulcerative colitis with gains of four points and five four points in the U S respectively, as well as a favorable prior period adjustment impacting worldwide results by approximately 406.
The basis points results in the quarter were partially offset by unfavorable patient mix and rebating in the U S as well as austerity measures in Europe and shipment timing in Asia Pacific.
Fire grew 12.5% driven by share gains in psoriasis, and Psoriatic arthritis with gains of 1.4 points and 2.9 points in the U S respectively, along with market growth.
Q4 growth was partially offset by a net unfavorable prior period adjustment impacting worldwide results by approximately 1100, and 50 basis points unfavorable patient mix and a challenging prior year comparison.
Beginning in Q1, 2023 we anticipate that Kovykta currently reported in other oncology and to provide O. Currently reported in other neuroscience will meet the threshold to be separately disclosed.
Now I'll turn your attention to the Med Tech segment.
Worldwide Med tech sales of $6 $8 billion decreased by 1.2% with growth of seven 1% in the U S and a decline of 8.6% outside of the U S. Excluding translational currency worldwide operational sales growth increased four 9% and outside the U S.
<unk> sales growth increased 2.9%, excluding the impact of acquisition and divestitures worldwide adjusted operational sales growth was four 4%.
Q4 growth was driven by commercial execution strong new product introduction performance as well as COVID-19 procedure recovery in many parts of the world partially offsetting growth in the quarter was the impact of value based procurement COVID-19 resurgence in China as well as supply constraints predominantly envision.
Strong growth continued in the U S with dollar sales sequentially, improving each quarter throughout 2022.
U S performance was adversely impacted by dynamics related to COVID-19, especially given our strong position in China.
The intervention solutions franchise delivered another quarter of worldwide double digit growth at 15.1% driven primarily by strong new product introductions performance commercial execution and continued market growth in electrophysiology.
I'm Ed sales are also reported an intervention solutions and financial results were reflected as of December 22nd to date the acquisition closed.
Contact lens global growth of seven 7% reflects strong performance of our Accu view Oasis, one day family of products, including the recent launch of Ackee view Oasis Max One day strong commercial execution and market appropriate price actions growth was tempered by continued supply challenges.
In the orthopedics franchise digital and enabling technologies reported in spine sports and the other continue to accelerate and drive pull through sales in areas like hips and knees for additional context selling days had approximately a 60 basis point positive impact on results in the quarter.
Now turning to our consolidated statement of earnings for the fourth 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 70 basis points, primarily driven by one time, COVID-19 vaccine manufacturing related cost and favorable currency impact in the pharmaceutical business inflationary pressures as well as the unfavorable mix with the enterprise with a lower portion of sales coming from.
The pharmaceutical business.
Selling marketing and administrative margins leveraged by 150 basis points. This represents a 9% reduction versus the prior year driven by phasing with higher spend earlier in the year as well as proactive management of costs given the current inflationary environment.
We continue to invest strategically in research and development at competitive levels investing 16.2% of sales this quarter. The $3 $8 billion invested was an 18.6% reduction versus the prior year, driven primarily by phasing with higher spend earlier in the year.
Interest income was favorable to prior year by just over $100 million driven by higher rates of interest earned on cash balances.
The other income and expense line was an expense of $1.2 billion in the fourth quarter of 2022 compared to an expense of $9 million in the fourth quarter of 'twenty 'twenty. One. This was primarily driven by onetime COVID-19 vaccine manufacturing related exit costs higher consumer health CEP.
Serration related costs higher costs related to the AB Nomad acquisition and lower gains on securities.
As we announced in Q2 2022 we continue to have commitments and obligations related to the COVID-19 vaccine, including external manufacturing network extra cost and required clinical trial expenses associated with the company's modification of its COVID-19 vaccine research program and man.
The factoring capacity to levels that meet all remaining customer contractual requirements.
Regarding taxes in the quarter, our effective tax rate was 16.2% versus 2.1% in the same period last year. The increase was primarily driven by more income in higher tax jurisdictions versus the prior year. Additionally, the company benefited from onetime tax items in the fourth quarter of 'twenty.
'twenty, one that did not repeat in the current year.
Excluding special items, the effective tax rate was 16, 2% versus 10, 4% in the same period last year I encourage you to review our upcoming 2022 10-K filing for additional details on specific tax matters.
Lastly, I'll direct your attention to the box section of the side, where we have also provided our income before tax net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items.
Now, let's look at adjusted income before tax by segment.
In the fourth quarter of 2022 our adjusted income before tax for the enterprise as a percentage of sales increased from 25, 6% to 31, 3%.
Pharmaceutical margins improved from 33, 9% to 38.2%, primarily driven by SG&A and R&D phasing with higher spend earlier in the year, partially offset by the negative impact of currency and cost of products sold.
Med Tech margins improved from 18, 1% to 25, 3%, primarily driven by SG&A and R&D phasing with higher spend earlier in the year favorable portfolio mix and supply chain efficiencies, partially offset by inflationary pressures.
Finally, consumer health margins improved from 18.6% to 22% driven by brand marketing phasing with higher spend earlier in the year and supply chain efficiencies, partially offset by inflationary pressures.
This concludes the sales and earnings portion of the Johnson <unk> Johnson fourth quarter and full year 2022 results I'm now pleased to turn the call over to Joe Walk Joe. Thanks.
Thank you, Jeff and thanks, everyone for joining us today.
As just shared we reported solid results with competitive growth across our business segments in 2022.
While macroeconomic challenges and lingering COVID-19 related impacts tempered our fourth quarter sales growth, we prioritized our top investments, while managing costs to yield slightly better margin performance than guided in October to meet our earnings expectations. The business is resilient and we should be positioned well entering 2020.
Three.
We are particularly proud of the advancements in our pipeline and portfolio to solidify the long term, including the launch of texts daily the filing of tell can't imagine the U S and Europe FDA clearance for our intelligent digital spine solution. The closing of the Abbey, a med acquisition and the tremendous progress made on separating our consumer health business.
Yeah.
Let's delve into the financials, beginning with our 2022 year end cash position and execution against our capital allocation priorities.
We generated free cash flow for the year of approximately $17 billion and at the end of 'twenty 'twenty. Two we had approximately $24 billion of cash and marketable securities and approximately $40 billion of debt for a net debt position of $16 billion. Despite.
Despite macroeconomic uncertainty with a strong year deploying capital against all of our capital allocation priorities. These priorities remain unchanged.
This past year, we invested more than 15% of sales for a total of nearly $15 billion in research and development.
This investment has enabled the advancement of important programs, including strengthening our med tech pipeline and progression of our multiple myeloma portfolio, which joaquin referenced.
Investment in R&D remains a top priority to support long term growth and value creation.
Our second priority is our commitment to dividends 20 twenty-two marked the sixth consecutive year in which we increased our annual dividend.
We know investors value, our dividend and as a part of the consumer health separation, we intend at a minimum to maintain that dividend.
As you can appreciate we will need more clarity on the type of separation to determine how that is best achieved.
Our third priority is strategic acquisitions, which is intended to complement our organic activities. In 2022, we closed the acquisition of abiomed strengthening med techs presence in higher growth segments as well as more than 100 smaller early stage acquisitions licensing deals and partnerships.
Finally, our board authorized a $5 billion share repurchase program in the third quarter and as of the end of the year, we've completed approximately 50% of that program.
In combination with our dividend, we returned over $14 billion to shareholders in 2022.
I'll now provide our full year 2023 guidance.
We are still in the process of the can view separation our guidance represents the current Johnson and Johnson businesses inclusive of Pharmaceuticals, Med Tech and consumer health segments.
We expect operational sales growth for the full year 2023 in the range of four 5% to five 5% or $96 $9 billion to 97.9 billion. This guidance is provided on a constant currency basis, reflecting how we manage the business performance.
We estimate a favorable impact from net acquisitions and divestitures associated primarily with the Abbvie a med acquisition and thus are comfortable with your models, reflecting adjusted operational sales growth in the range of three 5% to four 5%.
Our sales guidance continues to exclude contribution from the COVID-19 vaccine, which as your models already correctly anticipate will decline in 2023.
As you know, we don't speculate on future currency movements, but utilizing the euro spot rate relative to the U S. Dollar as of last week at 1.08 as well as other currencies. We estimate there would be no impact from foreign currency translation on reported sales for the year.
Regarding other items on our P&L, we expect 'twenty to 'twenty three adjusted pretax operating margin to be flat driven by continued inflationary pressures and cost of goods sold offset by continued operating expense leverage.
Regarding other income and expense line on the P&L, where we record royalty income the return on assets and actuarial costs associated with certain employee benefit programs as well as gains and losses related to items such as investments by Johnson <unk> Johnson Development Corp litigation and balance sheet write offs.
On an adjusted basis, we expect this to be $1.9 billion to $2 $1 billion for 2023.
The majority of this income is associated with our employee benefits programs aligned with accounting disclosure requirements rising interest rates return on assets and program actions. The team has implemented to derisk. The plans have lowered our projected future benefit obligations and based on current trends we expect this.
Benefit to continue through the next couple of years.
We are comfortable with you modeling net interest expense between $250 million and $350 million. These figures include increased financing charges versus 2022 associate it with the Abiomed acquisition.
Finally, we are projecting an effective tax rate for 2023 in the range of 15, 5% to 16.5% based on current tax laws and anticipated geographic income mix across our businesses.
Considering all these factors we are guiding adjusted earnings per share in the range of $10.40 to $10.60 on a constant currency basis, reflecting operational or constant currency growth of approximately two 5% to four 5% or three 5% at the midpoint.
While not predicting the impact of currency movements, assuming recent exchange rates I previously referenced our reported adjusted operational earnings per share for the year would be favorably impacted by approximately five cents per share, resulting in adjusted reported earnings per share in a range of $10.45 to $10 64.
Five cents or $10.55 at the midpoint growth of 4% versus the prior year.
While we do not provide guidance by segment or on a quarterly basis I'd like to provide some qualitative considerations for your modeling.
Some segment remarks, starting with pharmaceuticals.
We expect to again deliver above market growth in 2023, driven by key assets, such as doors legs or leader from fire and Vegas, as Stena and up Trabi as well as continued uptake of recently launched products such as car Viki <unk> and Teck daily.
This growth is despite lower pharmaceutical market growth than experienced in recent years and considers this to Laura loss of exclusivity, which we anticipate occurring in late 2023 in the U S.
While we continue to expect volume growth for still are in the U S up to the L. O date, we expect this growth to be offset by pricing pressure.
Further we continue to expect 2023 impact from other post L O products as well as potential increased austerity measures across Europe .
In Med Tech, we expect continued competitive growth fueled by market recovery and continued commercial uptake of recently launched products.
We anticipate a relatively stable recovery in procedure volumes with health care staffing constraints remaining the most significant limitation on the pace of recovery.
Specific to China, we anticipate continued pressure into 2023 related to the easing of the zero COVID-19 policies as well as impacts from volume based procurement.
As we've said we're excited about the abiomed acquisition, which accelerates our sales growth in 2023.
Consumer health, we anticipate continued growth in line with the markets that we compete in we also expect to continue to utilize strategic price increases across the portfolio to minimize the impact of ongoing inflationary pressures within the supply chain.
Regarding quarterly phasing, it's best summed up with a general theme that we expect the second half to be stronger than the first half and likely the second quarter stronger than the first quarter. We are assuming the following to support these statements.
In pharmaceuticals, the first half of the year will be impacted by continued declines from L. O E products in Europe that impacted Q4, 2022 results, namely <unk> and Invega cisterna as well as continued pricing pressure.
So we expect the ramp of new product launches will occur more prominently in the second half of the year.
In Med Tech, we expect second half operational sales growth to be higher than the first half of the year.
As we anticipate ongoing procedure recovery to improve as the year progresses.
We also believe that some of the Covid impact felt in China in Q4 will carry over into early 2023 and.
And similar to pharmaceuticals uptake of new product launches is assumed to be more pronounced in the second half.
Given we are in the registration process regulations limit what we can currently discussed around the planned consumer health company.
On the P&L, we also anticipate operating margin to be better in the second half than the first half.
This is attributable to inventory built in 2022 at higher costs, driven by inflation that will flow through the P&L in the first half of 2023 and a second half that accounts for cost leverage driven by mitigation efforts and higher sales reflected in the comments I just made.
And finally, while we don't speculate on future currency movements utilizing the euro spot rate relative to the U S. Dollar as of last week at 1.08 as well as other currencies foreign exchange would have a negative impact on our results in the first half of the year, but potentially a favorable impact in the second half.
Turning to key events in 2023 as mentioned we are limited in the information we can provide around the planned consumer health separation, we publicly filed a form S. One on January 4th with the Securities and Exchange Commission, giving us the option to pursue an initial public offering as a potential first step.
And the planned separation and we have started to operate can view as a company within a company.
Consistent with our initial announcement in November of 2021, we continue to expect to complete the separation in 2023, and we expect that any interim steps such as an IPO would be consistent with that timing subject to market conditions.
We are estimating $1 $8 billion to $2 $1 billion in after tax can view standup costs with $1.2 billion, having already been incurred through the end of 2022.
These estimates are in line with industry average for transactions such as this one given Johnson <unk> Johnson's market cap.
In terms of dis synergies to be incurred following the completion of the separation, we are estimating between $500 million and $750 million of annual after tax impact.
Are already executing on plans to address these dis synergies and expect to have them fully mitigated by the end of 2024.
As we separate the new Johnson and Johnson will also continue to reevaluate the level of ongoing financial information provided based on discussions with investors.
Well, our financials will become simpler as we moved from a three segment company to a two segment company.
We will continue to look for ways to enhance our disclosures such as providing quarterly R&D by segment and a patent expiry table in our Form 10-K.
We also expect 2023 to be an important year of scientific innovation and readouts across our segments.
Pharmaceutical business. Some examples include the potential approval of tell kept them out of our G. P. R. C. Five D. C D. Three by specific antibody in relapsed refractory multiple myeloma.
Central clinical data from part a tooth for a trial studying court victory RBC I'm a car T in patients with one to three lines of prior therapy.
Potential for an interim analysis of the Mariposa study of Reiber event, plus certain hub in frontline non small cell lung cancer with Egfr mutations versus took russo as well as potential clinical data from the Patheon study in frontline non small cell lung cancer in combination with chemotherapy.
Early clinical data from the phase two Sunrise one study of Tar 200, our drug eluting device in non muscle invasive bladder cancer.
Starting phase III clinical program for a mill vaccine a factor 11 anti coagulant in partnership with Bristol Myers Squibb.
Potential phase two clinical data from Nip Ocala map R. F. C. R N antagonist in rheumatoid arthritis in hemolytic disease of the fetus and newborn.
Potential phase III clinical data from Trump flyer in Crohn's disease, and ulcerative colitis.
And finally Trumpf via our IL 23 inhibitor was recently added to the national reimbursement drug list in China, which will take effect later this year.
In Med Tech, we look forward to providing information on significant innovation programs across the business, including expansion of our digital solutions in orthopedics or digital robotics solution ottava, our pulsed field ablation solutions for cardiac ablation.
And advancements in our pipeline and clinical studies for heart recovery associated with Abby a minute.
Overall, our approach to 'twenty to 'twenty three financial guidance should be viewed as responsibly cautious given the many external uncertainties. We are focused on delivering competitive growth for the new Johnson and Johnson, while also completing a successful consumer health separation.
We are confident that our current plans position us for long term growth and value creation for shareholders.
That concludes our prepared remarks I'm now pleased to open the line for your questions.
Kevin will you. Please provide the listeners with instructions if they'd like to ask a question.
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 Press Star then two please limit your questions to one question only our first question today is coming from Terence Flynn from Morgan Stanley . Your line is now live.
Great. Thanks, so much I appreciate the time. This morning, maybe a two part question for me I guess, Joe first on the guidance you mentioned that should be viewed as responsibly cautious just wondering any areas you'd call out in terms of conservatism as we think about the year and then on the pipeline side, obviously miles.
Sorry, excuse me myeloma, an important area for you guys. Just wondering if you can confirm the timing of the card a tool for study and what you're hoping to see from that that readout. Thank you.
Oh, good morning parents I'll handle the first question and then I'll kick the question of cart of food over to Joaquin with respect to guidance I would say just given all the macro economic uncertainty geopolitical uncertainty. We thought this was the right approach at this point in time.
To come out with guidance in the ranges that we did I wouldn't classify it as conservative per se, what I would say in terms of our outlook for the P&L is that we're assuming a lot of carryover quite frankly of the inflationary impact that we had in 2022 as you can imagine the way the accounting would work.
We built inventory at higher costs in 2022 that sat on the balance sheet at year end and will flow through mostly the first half of 2023 are if there's any element of conservatism I would say it probably resides in the fact that we're not assuming any deflationary relief as we go throughout the year. So we do think these.
Costs will be at a higher level for some time, but as you saw with our fourth quarter results and really the outlook for 2023, we're doing everything we can responsibly to prioritize our top investments for the long term as well as manage costs in the interim.
Thank you I'm with respect to constitute forward on kind of E. T. Our multiple myeloma portfolio tendency is the most important that I better growth for our pharmaceutical group moving forward. It's about not Feliks continued progression in first line E T. Our best in class.
B C amazing set up be there.
Recently approved take Bailey, our B C. M. A C. D E bike specific unusual we're excited about the filing of talcott them of our G. P. R. C. Five D. C. D C. Biospecifics. So all in all these portfolio enables us to do something very significant which is changing the treatment paradigm.
From treating to progression to trip into cure and we will see these maybe seams are being used in combination and independent sequences in order to achieve these these street into curious specifically what you mention.
Florida, which is the study that evaluates kind of empty <unk> in patients who have received one.
Prior lines of therapy deep is very important in achieving that goal constitute 40 signed they've been that even in the study.
And we look forward to have somebody sells of CAD two four in 'twenty to 'twenty three we cannot give you the specific timing because he's kind of been that even a study and it will be a very important in our ambition to move into earlier lines of therapy.
Thank you. Your next question today is coming from David <unk> from Seb Securities. Your line is now live.
Yes, thanks very much so first.
First of all congratulations on the performance.
I was hoping that you could please discuss the longer term prospects for the pharmaceutical business in the past J&J has targeted $60 billion in pharmaceutical revenue in 2025, I'm wondering if that's still the target and if so what you believe concern.
This is under modeling because consensus is projecting sales below the 60 billion dollar figure for 2025.
Do you.
Thank you for the question on turning to what you mentioned, our 'twenty 'twenty five targets, we continue to work towards accomplishing. Our previously stated goal so far on one hand, they leave it in growth every single year in our pharmaceutical group through 'twenty.
25, despite of the loss of exclusivity of Este Lauder August same time continue to advance our differentiated pipeline and achieving a $60 billion in revenue by 20 to 25. So we continue to works doors doors. These goals as we have discussed multiple times a day.
It grows by 2025, it's gonna be did you been mainly through the strength of our currently marketed portfolio as well as new indications of nice marketed portfolio are some examples continuous growth of that Alex in first line five yeah.
She is gaining share both in in Psoriatic arthritis, and ensure yahtzee and we expect that readout of our water our IBD studies in which a lot of colitis and crohn's disease in 2020, If you will.
While a significant additional leg of growth for it but in fire and a leader which is now in a in different indications in metastatic and no metastatic prostate cancer.
Have some readouts of establishing in highly localized prostate cancer in 2023, providing an additional leg of growth.
Invega sustain our franchise in the U S as well as I would've put them more idea of hypertension franchise, grabby and Sami that hasn't been affected by COVID-19, but we expect that will continue to deliver growth. So that is the mainstay of our growth prospects. The worst 2025 and I wouldn't go later about that.
Disconnect them connected with that we are also excited about our new product launches specifically our growth, obviously, but I don't.
Growth in car T that I, just mentioned before and also take by Lee, which we got the approval very recently on a side comment that the filing of Talcott.
<unk> seen it.
At the same time, we continued to make significant progress in some of the key products in our in our pipeline. Some of them. We commented that were opportunities of more than $5 billion a sample of them, you'll see in our oral anticoagulant the combination of Liberty umbrella.
Do you need in non small cell lung cancer.
That is platform in bladder cancer, finally, nipple Cali mob in outdoor antibody mediated diseases. So those are the key drivers Oh fawad.
Moving into 2025.
If I think about.
The main disconnect between our forecast on the street forecast our eats our multiple myeloma portfolio as I commented earlier, we see our myeloma portfolio are helping treat into core, but how about a bang cannibalizing each other and as a matter of fact Osama.
The studies that we have now in place showed that ambition of combining our therapies I mentioned, Florida moving into earlier lines of therapy.
Julien I'll get them off of our two bispecific antibodies are being studied in combination with one another on a vial or they'll get them up I would also be in a study in combination with diastolic. So I see that as a major source of disconnect with this three then you know further to that I continue to see this.
Connecting this broad, though our treatment for three minutes than depression significant disconnect between the lead up because of the indications in high risk patients with localized prostate cancer that will read in 'twenty to 'twenty three we see a disconnect I say come in do you know, what when where ideal hypertension franchise with the Derby and Oaks, Amit which had been impacted.
The pandemic, but we see a strong growth moving forward and then finally in the expectations for Sarnia to loss of exclusivity, which we see that in the back half of these decade. So those are the elements that I I have reflected a disconnect. So as I said, we continue to drive towards tower.
Our 2025 goal of $60 billion I'm posting good OS every year I think it's a reflection of the strength of our current portfolio on how well we are executing in our pipeline.
Thank you. Your next question today is coming from Larry B Olsen from Wells Fargo. Your line is now live.
Good morning, guys. Thanks for taking the question just a two part one for me Joe can you provide a little more color on the cadence of operational sales growth in pharma and devices, how much lower do you expect the first half to be versus the second half and what are you assuming for market growth in each of the segments in 'twenty, three and Joaquin just a follow up.
To David's question, there on the 60 billion it it implies a 6% CAGR between 'twenty to 'twenty, two and 'twenty 'twenty five.
How do you how should we think about the ramp to $60 billion mm, 6% do you expect a euro to be more back end loaded.
Thanks for taking the questions.
Good morning, Larry So let me start by as you know, we don't provide guidance by quarter, but let me talk a little bit about market growth with respect to our med Tech, we anticipate pretty much what we typically see in any given year, 4% to 6% as some of my earlier comments in the prepared remarks.
Reflect we anticipate that there will be a little bit of a I'll call a carryover from some of the Covid searches that we saw in the Asia Pacific region in the fourth quarter, but other than that a normal cadence of Ah study procedure recovery the biggest challenge that hospital administrators.
Are facing right now is really the staffing concern, but they've done a wonderful job in getting some sense of normalcy to that with respect to pharmaceuticals again, we enjoyed our 11th consecutive year of above market growth. We anticipate 2023 will be a 12th year, but it is off a lower base if you happen.
To see some of the IQ via data from last week, they're calling a global and actually U S growth somewhere in that.
2.5% to 4% range, depending on what region, you're looking at so while we will beat the market. We think it'll be a lower number just by the dynamic of the market overall and that's kind of how we're thinking of it in terms of some of the cadence maybe to <unk>.
Right on the comments that I had prepared earlier, we will see some of that generic erosion that we experienced in the fourth quarter in Europe with the long acting injectables as well as <unk>, having a much more pronounced impact in the in the first and second quarter bleeding over from the fourth quarter a M.
You know pricing measures are likely will be consistent throughout the year. So hopefully that helps give you a better sense of how we're looking at it but again the general theme of second half stronger than first half and probably second quarter stronger than the first quarter seems to hold intact based on our top line as well as bottom line performance.
Our expectations. Thank you on and regarding to your question a lot of as we have discussed uncommitted, we see above market growth in 'twenty to 'twenty three.
For our pharmaceutical group, which would be the 12th consecutive year of above market growth and.
We continue to see positive growth in 'twenty 'twenty, four and despite of the loss of exclusivity on Este Lauder and then we would see again pick up what growth above market. In 2025, that's the sequence that we will see certainly you know the actual growth rate will be impacted.
Good bye the ethics, and we don't anticipate and we don't predict effects on when we were when we were establishing our 60 billion. A goal we were thinking about the ethics at the moment, we don't change the 60 billion because we don't know what the effects would be by 'twenty to 'twenty five but for the purposes of you understanding how.
We see that you know, we see above market growth in 'twenty to 'twenty three we see positive growth in 2024, and then we see a pick up growth a significant one in 2025 public market.
Thank you next question today is coming from Chris Schott from Jpmorgan. Your line is now live great.
Great. Thanks, So much just one question and one quick clarification I guess on operating margins and this is a question maybe beyond 'twenty three I'm just trying to think through the balance of I guess on one hand, some of the inflation headwinds potentially decreasing as you worked through some of this inventory balance.
Balanced against the swap Euro L O E and some of the dis synergies from the spin. So I guess, there's something kind of bigger picture, but operating margins is 2023 is that a decent proxy going forward or could we see either modest erosion of margins or expansion or it's just too early to call them trying to get a just some sense of how that plays out and then my second question was just maybe a clarification.
On some of the immunology comments you made regarding for Q I think you mentioned unfavorable mix and rebate dynamics as headwinds.
Should we expect those dynamics to continue in 2020 three and I guess are they getting worse or is this more just a continuation of what you've seen in the last few years that the rebates are just kind of like gradually going up for the franchise. So thanks so much.
Good morning, Chris I'll tackle the operating margin question, and then I'll turn it over to Joaquin for somebody immunology references so with respect to operating margin I think while we don't give multiyear guidance I think this year does portend to have considerable achievement and in terms of managing cost by the organization in.
Addition to inflationary pressures are and again, that's not combat it with an assumption that we'll see deflationary relief. We also have the dis synergies that come along with the consumer separation itself.
Has the comments indicated we plan to address all of those and we've already started in mid 2022 to mitigate some of those will they'll be fully mitigated by 2024. So I would think just looking out now qualitatively 23, and 24 may look similar because you've got some different.
Dynamics, playing out and we'll certainly have to see how inflation plays out over the course of this year and then you know getting back on a more normal cadence.
I would say you would expect from Johnson <unk> Johnson, you know that we like to grow income a little bit faster than sales growth and you do that by improving your margin profile, we have $60 billion of resources in a given year. So we've got a responsibility we think to continue looking at our prioritization.
And our processes and technology to make sure that we are being not only as effective as we can be but also as efficient as we can be.
Thank you I'm curious regarding the dynamics in the immunology market overall, what we see is that the patient mix is changing are putting more pressure in our overall net price by having a higher participation of oh of some channels, we had lower priced.
We see those those situations continuing into 'twenty, two 'twenty, three but not getting worse. It simply you know the situation that we are now.
We'll continue into 'twenty, two 'twenty, three but will stabilize from from where we are.
Thank you. Our next question is coming from Matt makes it from Barclays. Your line is now live.
Hi, Thanks, so much for taking the question so I had.
Just one on a follow up on guidance.
Yeah, Joe if you could talk a little bit about it.
So the conservatism or maybe the bright spots are.
The China assumptions that you've made for Cedar disruption and maybe you could give us a sense of how long into 'twenty. Three you expect that to go and then what do you assume or there still are a L. L E.
And then on that sort of thing.
You haven't decided on the bright spots I think if you just kind of covered I guess the ortho.
The trends I understand you aim at this mid single digit range for performance, but you had a very very strong back half.
The U S I'm just wondering.
Does that kind of strength in ortho and there's five for example, which is kind of well above sort of historical ranges is that kind of continue institute twenty-three or are we assuming that we wanted to get some comp challenges, there or or or how what is.
What sort of elements are contemplated in your guidance that'd be helpful. Thanks.
Sure. Good morning, Matt first of all I guess, let me follow up to a terence's question with respect to the you know how he positioned at conservatism.
I, probably did miss an opportunity to speak about some of the things that maybe could go better on our behalf and some of that could be a quicker rebound in China, whether that be in both med tech or pharmaceuticals right. Now we're assuming there is some carryover effect from the Covid surge as we saw in the fourth quarter.
The teams on the ground seemed to indicate that it's still persistent but if that rebounded a little bit quicker I think also looking at the multiple myeloma portfolio and the performance of car victory or Tech valley could be significant and opportunities are pockets for upside well, obviously excited by the audio med acquisition and what that.
Could possibly mean and bringing the capabilities of Johnson <unk> Johnson, both in terms of scale and reach our presents some some opportunities that maybe isn't in the current projections are so there are some opportunities for outperformance right now, we like where the numbers at with respect to that China.
N V B piece, specifically I would say that is a dynamic that is not really a new phenomenon for us. We had won a number of tenders at the end of 'twenty 'twenty. One that were persistent throughout 2022, and we continue to win tenders and we think over time that the volume.
And the opportunity to help many more patients are will be persistent with that so we are it's part of the guidance that we see today and that we've offered today, but it's not really much more pronounced in terms of the impact it has to the business versus what we've experienced already.
Thank you next question today is coming from Trung Nguyen from Credit Suisse. Your line is now live.
Hi, guys. Thanks for the question Trung Nguyen from Credit Suisse. Just a question on the Lora erosion expectations. So.
I was hoping you can give us some thoughts about the cadence of biosimilar products that cannot be coming along this year.
None of our approved yet but can we expect the first company to answer with exclusivity for six months something we've seen with Humira and then the rest coming in 'twenty four or should we expect all the players to come at once.
So any color on this person songs would be helpful. Thanks.
Thank you for the question on it's difficult for us to comment on on some of the euro topics. They are there's no approved biosimilars at this time and we are going to continue to monitor the situation as we have commented we expect the you don't see them.
Curb of Este Lauder to be likely steeper than Dod Doe Fad Amy gate, given the evolution of the Biosimilar market and then the fact that they stay later east to self administer the product as well as potentially to euro point potentially interchange ability in the label. So that's how we see.
The Este Lauder LASA physical CBD in 'twenty two 'twenty three when we think about the still are in the U S. We see the sales office the latter a flat to declining obviously given the even the price pressures that will be offset also by continued volume growth that we see initiative.
So that's the perspective that we have Wednesday later in 'twenty two 'twenty three all of it all we have a very strong immunology franchise I commented on the rim fire before.
The continuous progression in psoriasis and Psoriatic arthritis, the readout of our you thought of colitis, and Crohn's disease studies, which is which is exciting and also in 'twenty. Two 'twenty. Three we may have some data from our phase two study Oh far while all our IL 23, which we think it's a very exciting ended up.
There's opportunity in our pipeline too.
Thank you next question today is coming from Christian we're tiny from Goldman Sachs. Your line is now live.
Thank you very much the multiple myeloma franchise, obviously very central to your objective for 2025 between the car T a sort of a.
Gradual launch that you have based upon supply and the bi specifics can you talk about what that interplay has been since the approval and launch and what you're expecting through the year in 2023. Thank you.
As far as they did the mine for kind of V. D. We see very strong demand.
For the car T and also for take Violet Theres, a significant need for new therapies in these relapsed refractory patient population. So the the demand for the products are the physicians and patient adoption or has it been has been really strong so that is really encouraging and in port.
Since the mid medical need for these type of patients.
We've got a big T. We continue to scale, our production capacity unexplained our network of providers and we are doing that in a phased approach. We think finally, we out of our success.
Successful start on the early indications for these <unk>.
The self option are very very positive to Ah connected with the high unmet medical need that we see there are moving to a 2023 key elements of that would be from a data perspective, they're reading attitude for which would give us the opportunity to move into earlier lines of therapy also.
Filing of Oh, if they'll get them up.
Will give us another line of therapy, because some of the studies of they'll get them about alone in patients who have failed be CMA either since it up be or by your specifics in the continuous data that will continue to provide to guide how to use these incredible portfolio.
Multiple myeloma.
Thank you next question, sorry, sorry, Kevin we have time for one last question.
Perfect. Our final question today is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.
Hi, Thank you for taking my question here. So I wanted to ask you about the timing of data readout first half or second half and your expectations. A few products. A first one is nipper Taliban in rheumatoid arthritis, and then you're all IL 23, I thought that a trial is finished and what your next steps are here and when you might have to do that and then lastly.
Just on your right right prevent Amazon are you still expecting a pensioner interim readout force lung cancer. Thank you.
Yeah.
So regarding the the main data Readouts that you could expect them in 2023.
I mean I commented already on constitute forward, which is a key one for US again, because it's an event that even in the study so it's difficult for us to give you an exact timing Louise.
Importantly, we have the potential.
For an interim analysis or the Pulsar study, which is the study of the write your broadband plasma therapy need in frontline Nunez small cell lung cancer with Egfr mutations in this study a very huge Tigris. So and this is an important study for us and also we have.
The potential clinical data from the Piper study, which is in frontline known as small cell lung cancer in combination with chemotherapy. So those are those are the important ones. He known as small cell lung cancer and then staying in oncology. We also have did either for this from the phase II Sundries, one study of our.
200, it platform, our drug eluting device in non muscle invasive bladder cancer and ER.
And on a and we continue to work on our high risk localized prostate cancer with a leader. So that's key elements in our in our oncology side as far as nipple Colima, we're expecting data from our phase II studies in our <unk>.
<unk> in rheumatoid arthritis, which I know has created significant attention from you and also in hemolytic disease of the few do Sunday newborn it would be towards the later part of the year. That's when you can expect those data to come up and then keeping with important data Readouts next year are we lost.
The data between our two IBD study superlative colitis, and Crohn's disease are within Empire.
Finally, our important progress in our pipeline that we will be starting our phase III clinical program with Ms. Becky Sheehan, our factory Libyan anti coagulant with our partners at Bristol Myers Squibb. So I would say a very important a very important year for us in terms of date that'll be.
That will also include our phase two study of our IL 23, it's difficult for us to give you I'm excited timeline, but we fully expect that to happen in 2023. So many important data for us that will showcase the good execution that we're having in our pipeline.
Thank you Luis 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 questions that you may have I would now like to turn it over to Joaquin for some brief closing remarks so.
You every one for your questions on our interesting Johnson and Johnson, a while what we have highlighted some of the challenges that we have in the microenvironment. We we think that 2023 it's going to be another exciting year for innovation for.
For patients on you can rely on us on the leave it in the strong financial performance for both the near and the long term. Thank you very much.
Thank you. This concludes today's Johnson <unk> Johnson's fourth quarter 2022 earnings Conference call you may now disconnect.