The operator introduces the Johnson & Johnson Third Quarter 2023 Earnings Conference Call and reminds participants that the call is being recorded. Jessica Moore, Vice President of Investor Relations, then presents the company's business results and financial outlook for the third quarter of 2023. She cautions listeners about relying on forward-looking statements and mentions potential risks and uncertainties. Moore also acknowledges partnerships and collaborations with other companies. The agenda for the call is then outlined.

The CFO will provide business and financial commentary, followed by an overview of cash position, capital allocation priorities, and updated guidance for 2023. The webcast will last approximately 60 minutes and will include a Q&A session with the CEO, R&D leaders, and VP of Litigation. The financial results and guidance will reflect the continuing operations of Johnson & Johnson, with consumer health results reported as discontinued operations. In Q3 2023, worldwide sales increased by 6.8%, with operational sales growth of 6.4%. In the U.S., sales increased by 11.1%, while outside the U.S., sales grew by 1.6%. Operational sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA. Adjusted operational sales growth, excluding acquisitions and divestitures, was 4.9% worldwide, 8.9% in the U.S., and 0.3% outside the U.S. The paragraph also mentions the completion of the separation of Kenvue Inc. and the change in terminology for the pharmaceutical segment to innovative medicine.

In the third quarter of 2022, the company reported a net earnings of $4.3 billion and diluted earnings per share of $1.69, representing increases compared to the same period last year. Adjusted net earnings and diluted earnings per share also showed significant growth. The sales performance for innovative medicine was strong, with a 5.1% increase in worldwide sales, driven by key brands and recently launched products. The company saw double-digit growth in 11 assets, including DARZALEX and ERLEADA, and also made progress on the launches of CARVYKTI and SPRAVATO. Sales in the U.S. and outside of the U.S. were impacted by the loss of exclusivity for ZYTIGA in Europe, but overall sales growth was strong.

In the fourth paragraph, the company discusses their success with the launches of TECVAYLI and TALVEY, which are driving growth in oncology. They also mention a decrease in sales of IMBRUVICA due to competition. In terms of MedTech, sales increased by 10%, with a 4.6% contribution from Abiomed. However, there was a negative impact from international sanctions and procurement in China. The Interventional Solutions franchise saw strong growth, particularly in Electrophysiology, driven by their global market leading portfolio.

The operational growth of 3.2% in surgery was mainly due to procedure recovery and the strength of biosurgery and wound closure portfolios. Vision saw global growth of 5.4%, driven by price actions and new products, but was negatively impacted by the divestiture of Blink. Orthopedics saw operational growth of 2.6%, driven by procedure growth and new products, but was partially offset by volume-based procurement in China. The consolidated statement of earnings for the third quarter of 2023 showed flat cost of product sold margin, but deleveraged selling, marketing, and administrative margins due to increased expenses. The company continues to invest in research and development, with $3.4 billion invested this quarter. R&D was leveraged by 120 basis points, primarily due to portfolio prioritization.

In the third quarter of 2023, Johnson & Johnson reported impairments of $206 million for IPR&D and interest income of $182 million, driven by higher interest rates earned on cash balances. Other income and expense was an expense of $499 million, primarily due to unrealized mark-to-market losses on public securities. The company also incurred restructuring costs of $158 million, mainly related to the innovative medicine restructuring program. The effective tax rate was 17.4%, higher than the same period last year due to a non-deductible, non-recurring charge. Excluding special items, the effective tax rate was 15.6%. Johnson & Johnson completed an exchange offer, resulting in the consumer health business being presented as discontinuing operations with a gain of approximately $21 billion. The company also provided adjusted income before tax, net earnings, and earnings per share figures, excluding intangible amortization expense and special items.

In the third quarter of 2023, Johnson & Johnson's adjusted income before tax for the enterprise increased from 35.3% to 37.6%, driven by favorable patient mix and innovative medicine. However, MedTech margins declined due to commodity inflation and unfavorable product mix. The company remains committed to its Credo and helping patients with serious health needs. The Kenvue separation was completed within the targeted timeframe and generated significant cash and value for shareholders. $13.2 billion in cash proceeds were raised and the company's outstanding share count was reduced by 7%.

In the third quarter, the company maintained their current dividend and retained shares of Kenvue stock for future flexibility. They believe the Inflation Reduction Act will hinder innovation and have submitted all requested information to comply with CMS' drug price setting scheme. The company's innovative medicine business achieved two important regulatory milestones and will present seven late breaking abstracts at the European Society of Medical Oncology meeting. Highlights include results from Phase III studies of RYBREVANT and data on TAR-200 and TAR-210.

In the upcoming months, Johnson & Johnson plans to present data for Nipocalimab and rheumatoid arthritis, launch a Phase II combination study for NRA, and initiate multiple clinical development programs for their targeted oral peptide JNJ-2113. They have also received FDA clearance for their cardiac ablation products to be used without fluoroscopy, and are advancing clinical studies for pulse field ablation catheters. Additionally, they have completed enrollment in a pivotal trial for the Impella ECP for high-risk PCI procedures.

MedTech has made advancements in their Impella ECP heart pump and is implementing a restructuring program in their orthopedic business to improve profitability. This may cause some short-term revenue disruption, but is expected to result in accelerated growth. The company has a strong cash position and will continue to prioritize strategic investments, dividends, business development, and share repurchases. Based on strong results, they have raised their full-year sales and EPS guidance.

The company has revised their operational sales growth and adjusted operational sales growth expectations for the full-year 2023, with a projected increase in adjusted operational earnings per share. They also maintain their net other income and adjusted pre-tax operating margin estimates, while expecting a negative currency impact and higher net interest income. The effective tax rate for 2023 is estimated to be between 15.0% and 15.5%. The company has been able to increase their guidance throughout the year, and is currently finalizing plans for 2024.

Johnson & Johnson is confident in its ability to deliver growth from key brands and advance its pipeline in innovative medicine. They anticipate data readouts and regulatory submissions for various products, and do not expect STELARA biosimilars to enter the US market until 2024. In MedTech, they expect continued growth and competitiveness from recently launched products and pipeline programs. They also expect a potential 1% tax rate increase in 2024 due to the EU's Pillar 2 Directive, and the full benefit of the share reduction from the Kenvue separation will be reflected in their 2024 financials.

The paragraph discusses Johnson & Johnson's strong performance in the first nine months of the year and their positive momentum moving into 2024. They will be sharing more about their business, innovative medicine and MedTech pipelines, and long-term strategy at an upcoming event. The company thanks their teams for their hard work and commitment to excellence and is confident in their strategy to deliver long-term growth and create value for shareholders. The question from David Risinger is about benchmarking MARIPOSA results and the consideration of AstraZeneca's recent FLAURA2 results.

The speaker is impressed with the culture, talent, and performance of J&J, and is excited about the robust pipeline. They cannot reveal data until ESMO, but the RYBREVANT Lazertinib combo performed well. The speaker addresses the softer-than-expected orthopedic results and mentions seasonality and a plan for improvement in the segment.

The company is confident in their ability to make improvements and invest in high growth segments. They have made improvements in their portfolio, such as in knee surgery, and are launching a new robotic system in Europe. They are also increasing their presence in the fast-growing ASC market. However, they have been impacted by value-based procurement in China and Russia sanctions. The company has a plan to improve margins in orthopedics and has announced a restructuring program to exit less profitable markets and product lines. This may result in some inventory write-downs and revenue disruption, but is expected to improve profitability. The question asked for updates on the TALC litigation process.

The company is pursuing a four-pronged strategy to address the TALC litigation matter, including appealing the dismissal of LTL's bankruptcy case. The appeal has been joined by the majority of TALC claimants and has been certified for a direct appeal to the third circuit. The appeal challenges the validity and application of the "immediate financial distress" standard imposed by the third circuit, which the company believes is not in line with other circuits and has been established through the large volume of TALC claims against LTL.

The third circuit is expected to rule on the direct appeal soon and if they affirm their standards, the company plans to request the Supreme Court to resolve the circuit split. They are also working with the majority of TALC claimants to reach a consensual resolution through bankruptcy, which has been recommended by the New Jersey bankruptcy court. This process is expected to take six months. In the meantime, they will continue to defend against TALC claims in the tort system and recently had a favorable ruling in the Barden case.

The appellate court reversed the decision due to the unsound and unscientific opinions of the plaintiff's experts. This has led to a majority of the cases being won by the company. Two more mesothelioma cases are expected to be tried this year and more in 2024. The ultimate resolution of these cases is often determined at the appellate level. The company plans to aggressively challenge the abuses of the judicial system by the plaintiff's bar and their experts. They have brought two actions against the lead experts for defaming their products, and these cases are moving forward. The company's strategy is to focus on the second definition of "voracious" which means having a very eager approach to an activity.

The speaker discusses the company's approach to potential deals and acquisitions, emphasizing the importance of strategic fit and financial discipline. They also mention their strong financial position and success with smaller deals. The next question is about CARVYKTI, and the speaker is asked about the commercial landscape and any updates on manufacturing constraints.

Joaquin Duato and John Reed discuss the strong demand and progress in manufacturing for CARVYKTI, a medicine used for early absence of therapy. They mention adding more capacity and building new factories to increase production, as well as expanding the number of qualified centers and countries where the medicine will be available. They expect to see continued improvement in production in the coming years.

The speaker discusses the success of the CARTITUDE-4 therapy in treating multiple myeloma and its potential to become a preferred second-line treatment. They also mention the positive progress of TECVAYLI and TALVEY in the market. In regards to STELARA, the speaker notes that the expected biosimilar competition in 2025 will not affect their confidence in reaching their revenue target for the pharma unit.

In summary, there are several key factors contributing to our growth, including the success of our key assets and potential approvals for new treatments in various diseases. We are also encouraged by the progress of our TARIS drug delivery platform and upcoming data presentations at ESMO. Additionally, the entrance of biosimilars in 2025 in the U.S. is a factor that gives us confidence in meeting our $57 billion goal.

The speaker discusses the company's growth drivers and pipeline in the fields of immunology, oncology, and neuroscience, which will contribute to a strong growth profile in the second half of the decade. They also mention upcoming discussions about the company's growth profile in the second half of the decade. The question and answer session includes a question about the company's margins in 2024, to which the speaker responds with positive comments about margin progress in 2023. They attribute this progress to efforts made to adjust the company's infrastructure after the separation of Kenvue.

The company does not expect any significant impact from the separation in 2024 and is finalizing their business plans for that year. They are looking at potential efficiencies and investments in their clinical development pipeline. They cannot give margin guidance at this time, but expect it to be similar to this year. The next question is about the impact of GLP-1s on the company's device business, specifically in bariatrics. The company clarifies that they are not expecting a flat market in MedTech next year, but rather an elevated level of 5-7% growth. The question is then passed to Joaquin Duato, who answers about the potential impact of GLP-1s.

The speaker reflects on the positive growth of the MedTech business and their goal to become a top tier grower in the industry. They mention a 6.4% growth in the quarter and a 7.9% growth year-to-date. They expect this growth to continue in 2024, driven by procedural growth and new product launches. They also mention the launch of a new PFA catheter in Europe and the importance of providing new treatment options for patients with obesity. While there may be a short-term impact on their bariatric business, they believe that GLP-1s can complement surgery and potentially lead to an increase in patients seeking treatment. Overall, they anticipate continued robust procedure growth in their MedTech business. A question is then asked about this growth by an analyst from Morgan Stanley.

In response to a question from Terence Flynn, John Reed elaborates on the potential of Nipocalimab in treating rheumatoid arthritis (RA). He explains that the drug could potentially work for a broad population or for a biomarker subset group, and the company is planning Phase 3 trials to test both options. They are also looking at combining Nipocalimab with an anti-TNF agent to target different mechanisms. In regards to headwinds from VBP, the company cannot quantify it but believes it is similar to previous quarters. A question from Joanne Wuensch asks for more detail on the VBP headwinds.

In the paragraph, Joaquin Duato, a representative from a company, is responding to a question about the company's operations in China. He mentions that China is a key market for them and they are expecting strong growth in the future. He also talks about the impact of VBP, an anti-corruption policy, on their business and how they have a strong culture of compliance. He concludes by saying that they see China as a key driver of their growth and a source of innovation in the future. Another question is asked about the company's performance in the immunology sector, to which Duato responds that it was strong for the quarter.

Joaquin Duato, CEO of J&J, discusses the company's strong performance in the immunology business, particularly with the growth of TREMFYA. He mentions that TREMFYA is now indicated for psoriatic arthritis and psoriasis, and upcoming readouts and potential approvals for ulcerative colitis and Chron's disease are expected to drive further growth. Duato also mentions a prior period adjustment for STELARA, which should be taken into consideration when looking at its growth. Overall, the immunology portfolio grew 12.4% despite headwinds from REMICADE biosimilars, and J&J remains excited about its potential, including improvements in IBD with TREMFYA and data for a target oral peptide in psoriasis.

The speaker discusses the combination of [Technical Difficulty] and golimumab in IBD, which has shown groundbreaking results and is expected to drive growth in the second half of the decade. They also mention an upcoming Ottava Day event where they will reveal more about their progress in MedTech and how Ottava fits into the robotics landscape. The speaker, Ahmet Tezel, is excited to be leading a team focused on developing smarter, less invasive, and more personalized solutions for patients. They believe their differentiated architecture and instruments will provide high value from day one. Despite the current low penetration of robotic-assisted surgery, there is still a lot of potential for growth in this segment.

The speaker discusses the potential for growth in the Ottava segment and how surgeons are eager for Johnson & Johnson to enter the robotic surgical space. They also mention that the FLORA 2 results do not impact their market opportunity for MARIPOSA, as overall survival and progression-free survival are more important factors to consider.

The speaker believes that the combination of RYBREVANT and Lazertinib will become the new standard of care for EGF receptor mutant lung cancer, offering patients durable remissions without the need for chemotherapy. They are proud of the company's performance in the first quarter as a new J&J, with 7.5% adjusted operational growth and a strong finish expected for 2023 and 2024. The team is dedicated and well-positioned for success, and they look forward to engaging with investors at the Enterprise Business Review on December 5th.

The paragraph concludes the conference call for Johnson & Johnson's third quarter 2023 earnings and instructs participants to disconnect.

This summary was generated with AI and may contain some inaccuracies.