The operator welcomes participants to Johnson & Johnson's Fourth Quarter 2023 Earnings Conference Call and introduces the company's Vice President of Investor Relations, Jessica Moore. Moore reminds participants that the call is being recorded and contains forward-looking statements. She also provides information on where to find additional materials and cautions about potential risks and uncertainties. The agenda for the call is also mentioned.

Joaquin will open the call with a brief overview of the company's performance in 2023 and key milestones, followed by a review of the fourth quarter and full year results for the Enterprise. Joe will then discuss the company's cash position, capital allocation priorities, and guidance for 2024. The call will last approximately 60 minutes. Joaquin highlights the company's transition to a two-sector company focused on innovative medicine and MedTech, and the company's strong growth margin and agility. He is proud of the Q4 results, with operational sales growth of 9.5% for innovative medicine and 9.1% for MedTech. For the full year, the company achieved 9% operational sales growth and 10.8% adjusted operational earnings per share growth. Joaquin is confident in the company's 2024 guidance and attributes their success to their competitive portfolio and promising pipeline. Specifically, for innovative medicine, the company achieved above-market operational sales growth of 7.2%, excluding the COVID-19 vaccine.

The Innovative Medicine business of the company has seen growth from key brands and new products, with positive results from multiple Phase III trials. The company also received FDA breakthrough and fast track designations for some of its medicines. In 2023, the company expects high expectations with 19 U.S. and EU filings. The acquisition of Ambrx will further strengthen the company's oncology pipeline. Additionally, the MedTech business delivered a 12.4% operational sales growth and achieved over $30 billion in sales for the first time.

The company is focused on accelerating growth through commercial execution and entering higher growth markets. They have successfully integrated Abiomed and acquired Laminar to expand their product offerings. The company is also making progress in their pipeline, with advancements in Ottava surgical robot, MONARCH approval in China, and market expansion for VELYS. In electrophysiology, they have received approvals and made progress in post-field ablation. In Vision, they are seeing strong performance in their products. The company is also excited about the future, with plans for clinical trials and new product developments.

The company expects their Innovative Medicine business to grow significantly by 2030, with over 10 potential assets generating over $5 billion in sales. They also anticipate growth in their MedTech sector, with one-third of revenue coming from new products by 2027. In 2024, they expect progress in electrophysiology and the launch of new products in Abiomed. The company is confident in their ability to lead in health innovation and thanks their teams for their contributions.

Johnson & Johnson reported its financial results for the fourth quarter of 2023, with worldwide sales increasing by 7.2%. Excluding the impact of currency translation, operational sales grew by 5.7%. Net earnings were $4.1 billion, and diluted earnings per share was $1.70. For the full year 2023, sales were $85.2 billion, with sales growing by 7.4%. Excluding the impact of acquisitions and divestitures, operational sales grew by 5.9%. Net earnings for the full year were $13.3 billion, and diluted earnings per share was $5.20. Sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA.

In 2023, the company's adjusted net earnings and diluted earnings per share showed increases of 6.8% and 11.1%, respectively. Sales for Innovative Medicine also increased by 4%, driven by key brands and recently launched products. However, sales outside the U.S. were negatively impacted by the loss of exclusivity for ZYTIGA in Europe. The company also saw growth in newly launched products and in areas such as immunology and pulmonary hypertension. On the other hand, sales for XARELTO and IMBRUVICA decreased due to competitive pressures and loss of exclusivity for certain products.

In the fourth quarter of 2023, Worldwide MedTech sales increased by 13.4%, with Abiomed contributing 4.5% to the growth. The U.S. saw a growth of 14.1%, while international sales grew by 12.8%. However, international sanctions in Russia had a negative impact on MedTech sales. Electrophysiology had a double-digit growth of 25.2% due to strong adoption of their products. Abiomed also contributed $340 million in sales. Surgery and Orthopaedics saw growth driven by procedure recovery and successful product launches. Vision had a growth of 6.6%, driven by price actions and new products, but was negatively impacted by the Blink divestiture.

The cost of products sold margin decreased due to inflation and unfavorable product mix in MedTech, but was partially offset by favorable patient mix and lower COVID-19 vaccine supply network costs in Innovative Medicine. The company invested $4.5 billion in research and development, with a higher focus on Innovative Medicine. Interest income increased due to higher interest rates and lower debt balance, and other income and expense was positive due to unrealized gains on securities and lower COVID-19 related costs. The effective tax rate decreased due to a decrease in tax liabilities and excluding special items, the effective tax rate was even lower. The company also provided adjusted income and earnings per share figures, excluding intangible amortization expense and special items.

In summary, Johnson & Johnson had a strong year in 2023, with notable performance beats in both sales and income. They made significant investments in innovation and portfolio expansion, setting a strong foundation for 2024. Their free cash flow was over $18 billion and they maintained a healthy balance sheet and credit rating. They successfully executed their capital allocation priorities, demonstrating their ability to strategically invest and deploy capital to create value.

In 2023, the company invested $15 billion in research and development, increased their dividend for the 61st consecutive year, and deployed over $3 billion in strategic growth opportunities. They also completed a $5 billion share repurchase program and reduced their outstanding share count by 7%. Looking ahead to 2024, the company expects operational sales growth of 5-6%, or $88.2 billion to $89 billion. This guidance does not include any impact from COVID-19 vaccine sales.

In 2024, Innovative Medicine expects to see above-market growth for the 13th year in a row, driven by market share gains and adoption of newer products. In MedTech, the focus is on advancing the pipeline, expanding globally, and building operational resilience. The estimated currency impact on sales growth is unfavorable, but the adjusted pretax operating margin is expected to improve by 50 basis points due to efficiency programs. This improvement is partially offset by expected biosimilar entrants and inflation impact. Other income and expense is expected to be lower than in 2023 due to actuarial assumptions on employee benefit programs.

The company is comfortable with modeling net interest income between $450 million and $550 million for 2024, and projects an effective tax rate of 16% to 17%. They believe the U.S. Treasury's perspective on Pillar 2 is harmful and anticipate growth in adjusted operational earnings per share of 7.4%. Quarterly phasing is expected to have stronger sales growth in the first half of the year for Innovative Medicine, while MedTech operational sales growth will remain consistent throughout the year. The first half of the year will also have a modest impact from Russia sanctions.

The speaker discusses the company's anticipated China VBP pricing for surgical IOLs and orthopedic sports in 2024, as well as the impacts of VBP in other areas. They also mention the EPS phasing and the company's confidence in achieving financial targets. The speaker thanks their colleagues for their dedication and commitment to benefit patients and create value for shareholders. A question is asked about the company's expectations for procedure volumes in 2024. The speaker then highlights the strong performance of the MedTech business in 2023.

The company expects their results in 2023 to align with their competitors, but to be ahead in the fourth quarter due to a surge in patients after COVID-19. This trend is expected to continue into 2024, along with other factors such as the growth of their heart recovery and robotic-assisted surgery products, expansion into new markets, and new product launches in their Vision and electrophysiology businesses. These factors are expected to be positive for the company's MedTech business in 2024.

The company is seeing strong growth in their MedTech business and expects to become a top competitor in the market. They are confident in the success of their CARVYKTI product, with over 2,000 patients treated and potential for $5 billion in sales. They are also confident in the data supporting the efficacy and safety of CARVYKTI, and look forward to discussing it with the FDA in an upcoming meeting. The company is committed to bringing this treatment to more patients in earlier stages of multiple myeloma.

The company is confident about the risk-benefit profile and future of CARVYKTI in the CARTITUDE-4 indication. They have made significant progress in their manufacturing capacity, including doubling cell processing capacity in their Raritan facility and expanding lentivirus production in Switzerland and the US. They have also contracted external capacity and received approval to expand lentivirus production in the US. The company is optimistic about continued growth and transforming the treatment paradigm in multiple myeloma with CARVYKTI.

Joseph Wolk and Joaquin Duato discuss the company's M&A appetite and recent acquisition of Abiomed. They mention their criteria for potential deals and their success with smaller licensing partnerships. They state their interest in expanding into new sectors and their lack of preference for deal size.

Joe commented on the company's preference to focus on areas where they have internal capabilities and can make significant progress in improving standard of care. The recent deals with Laminar and Ambrx are examples of this strategy, with Laminar targeting atrial fibrillation and Ambrx addressing metastatic cut-resistant prostate cancer. The company also sees opportunities in neuroscience and immunology for Innovative Medicine and in other cardiology areas for MedTech, such as robotic surgery and orthopedics. Overall, the company aims to deliver value for patients and shareholders. In terms of gross margins, Joe did not provide specific guidance for 2024 and beyond, but mentioned a focus on operating margins. Adjusted gross margins did decrease in the fourth quarter.

The speaker, Joseph Wolk, is responding to a question about the company's P&L and the potential impact of Novo's osteoarthritis data on orthopedic utilization. He mentions the Laminar transaction and inflationary impact as factors affecting the P&L, and notes that osteoarthritis is a contributor to knee surgery.

The company is optimistic about their orthopedics business, seeing an increase in procedures and positive feedback for their VELYS robotic system. They are also seeing a recovery in their hip business and are working to improve profitability by being selective in their geographic markets and product offerings.

The company's PAH franchise has been performing well and is expected to continue to do so in the short-term. They are also looking at potential opportunities to improve the standard of care in the pulmonary space and are happy with their current trajectory. The combination of macitentan and Tadalafil is expected to receive approval in 2024.

The speaker, Joaquin Duato, responds to a question about the company's oncology franchise and discusses their progress in different areas, including prostate cancer, lung cancer, bladder cancer, and multiple myeloma. He mentions their excitement about RYBREVANT and the combination of RYBREVANT plus lazertinib, as well as their plans for CAR-T therapy in autoimmune diseases. He also notes their interest in radiopharmaceuticals and their success with antibody drug conjugates.

The company has made a deal with Nanobiotics for a radio enhancer for head and neck cancer. They plan to expand their rights and combine their expertise in medical devices, technology, and pharmaceuticals. The company is pleased with the progress in their oncology franchise and it remains a core strength. During a recent conference call, the company mentioned headwinds in patient mix affecting margins in their MedTech business. They anticipate these pressures to continue throughout 2023 and 2024, but the team is working to find efficiencies.

The company is working to improve the profitability of its MedTech portfolio through the use of artificial intelligence and infrastructure. They aim to be in the upper end of their peer set in terms of margin. The decline in XARELTO sales in the fourth quarter was due to a one-time entry and patient mix, but it is expected to decline in the future. The decline in MedTech margins in the fourth quarter was mainly due to inflationary impact and the acquisition of Laminar.

In response to a question about J&J's recent focus on MedTech M&A over pharma M&A, Joaquin Duato explains that the company is open to acquisitions in any sector and that M&A has been a core part of their growth strategy in pharma. However, they tend to focus on smaller deals or partnerships for assets that are still in the proof of concept stage. In 2020, J&J completed over 50 deals overall.

The company's pharmaceutical side has been making headlines due to multiple M&A deals, with a focus on creating value through leveraging their clinical development, manufacturing, and commercial capabilities. While they are also looking at broader opportunities, they have found more value in earlier stage deals. Some recent deals, such as one in CAR-T and another in antibody drug conjugates, have not received as much attention but have been sources of significant value creation. The company also had a strong quarter in electrophysiology, with new products likely contributing to this success. The negative impact of China VBP on this sector was not specified.

The speaker discusses the strong performance of the EP franchise in 2023 and predicts another year of growth in 2024. The growth has been driven by procedure recovery, new product performance, and strong commercial execution. The company's CARTO mapping system is a key strategy for cardiac ablation and has been crucial in supporting procedural efficiency and reducing the need for fluoroscopy. The speaker also mentions new products, such as the QDOT MICRO Catheter, which has shown high efficacy in radio frequency ablation. Overall, the company has a strong leadership position in electrophysiology and a deep understanding of the field.

The CARTO system provides real-time feedback and important parameters for electrophysiologists during procedures, allowing for a more efficient workflow and better outcomes. The company has a full portfolio of catheter options and is actively conducting clinical trials. They plan to submit their VARIPULSE catheter for approval in both Japan and the US, and believe that having both PFA and RF options will be important for future adoption of PFA. Overall, the company is positive about the outlook for their ablation business.

Joaquin Duato, CEO of Johnson & Johnson, expresses confidence in the company's strong performance in the fourth quarter of 2023 and its position for growth in 2024. He believes that Johnson & Johnson is well positioned to lead the next wave of health care innovation and looks forward to sharing their progress in the upcoming year. The call concludes with thanks to participants and an invitation to disconnect.

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