Yahoo Finance Johnson & Johnson (NYSE:JNJ) Q1 2024 Earnings Call Transcript
Johnson & Johnson (NYSE:JNJ) Q1 2024 Earnings Call Transcript April 16, 2024
Johnson & Johnson isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Johnson & Johnson's First Quarter 2024 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. [Operator Instructions]. I would now like to turn the conference call over to Johnson & Johnson. You may begin.
Jessica Moore: Hello everyone. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the first quarter business results and our full year financial outlook for 2024. A 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 & Johnson website at investor.jnj.com. Please note that this presentation contains forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. You are cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using the information available as of the date of this recording, and are subject to certain risk and uncertainties that may cause the company's actual results to differ materially from those projected.
A description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2023 Form 10-K, which is available at investor.jnj.com and on the SECs 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 I will start by reviewing the first quarter sales and P&L results for the corporation as well as highlights related to our two businesses. Joe Wolk our CFO will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and guidance for 2024. The remaining time will be available for your questions.
Joaquin Duato our Chairman and CEO as well as Jennifer Taubert, John Reed, and Tim Schmid, our Innovative Medicine and MedTech leaders will be joining us for Q&A. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 60 minutes. Unless otherwise stated the financial results and guidance highlighted today reflect the continuing operations of Johnson & Johnson. Furthermore, the percentages quoted represent operational results and therefore exclude the impact of currency translation. Turning to our first quarter sales results. Worldwide sales were $21.4 billion for the first quarter of 2024. Sales increased 3.9% with growth of 7.8% in the U.S. and a decline of 0.3% outside of the U.S. Excluding the impact of the COVID-19 vaccine, operational sales growth was 7.6% worldwide and 7.4% outside of the U.S. Sales growth in Europe excluding the COVID-19 vaccine was 6%.
Turning now to earnings. For the quarter net earnings were $5.4 billion and diluted earnings per share was $2.20 versus basic loss per share of $0.19 a year ago. Excluding after tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.6 billion, and adjusted diluted earnings per share was $2.71, representing increases of 3.8% and 12.4%, respectively compared to the first quarter of 2023. On an operational basis, adjusted diluted earnings per share increased 12.8%. I will now comment on business sales performance in the quarter. Beginning with Innovative Medicine, worldwide Innovative Medicine sales of $13.6 billion increased 2.5%, with growth of 8.4% in the U.S. and a decline of 4% outside of the U.S. Excluding the impact of the COVID-19 vaccine, operational sales growth was 8.3%, both worldwide and outside of the U.S. Innovative Medicine growth was driven by our key brands and continued uptake from recently launched products, with nine assets delivering double-digit growth.
We continued to drive strong sales growth across our multiple myeloma portfolio. DARZALEX growth was 21%, primarily driven by share gains of six points across all lines of therapy and ten points in the front line setting. As of this quarter, we are now disclosing TECVAYLI sales, which were previously reported in other oncology. Sales achieved $133 million in the quarter, compared to $63 million in the first quarter of last year, reflecting a strong launch in the relapsed refractory setting. CARVYKTI achieved sales of $157 million, compared to $72 million in the first quarter of last year, driven by continued capacity expansion, manufacturing efficiencies, and strong demand. While sequential growth was roughly flat due to phasing, we continued to anticipate quarter-over-quarter growth with acceleration in the back half of the year.
Other oncology growth was driven by continuing strong uptake of TALVEY, our GPRC5D bispecific, and RYBREVANT our bispecific antibody for non-small cell lung cancer. Also in oncology, ERLEADA continues to deliver strong growth of 28.4%, primarily driven by share gains. Growth of 22.4% in pulmonary hypertension was driven by favorable patient mix, share gains, and market growth for both OPSUMIT and UPTRAVI. As a reminder, favorable patient mix was a driver in Q2 2023 through Q1 2024. Therefore, while we still anticipate growth, we expect to lap this dynamic beginning in Q2 2024. Within immunology, we saw sales growth in TREMFYA of 27.6%, driven by market growth and share gains. STELARA growth of 1.1% was driven by market growth and share gains in IBD, partially offset by unfavorable patient mix in the U.S. and as expected, share loss in PSO and PSA.
We anticipate continued volume growth largely offset by price declines as we move towards biosimilar entry. In neuroscience SPRAVATO growth of 72% continues to be driven by share gains and additional market launches. Total Innovative Medicine sales growth was partially offset by unfavorable patient mix in XARELTO, which we anticipate continuing throughout the year, as well as a decrease in IMBRUVICA due to competitive pressures, partially offset by stocking dynamics in the U.S. Finally, it is worth noting distribution rights for REMICADE and SIMPONI in Europe will be returned in Q4. I'll now turn your attention to MedTech. Worldwide Med1ech sales of $7.8 billion increased 6.3%, with growth in the U.S. of 6.6% and 6.1% outside of the U.S. In the quarter, worldwide MedTech growth was negatively impacted by approximately 80 basis points due to fewer selling days, disproportionately impacting orthopedics.
In cardiovascular previously referred to as Interventional Solutions, electrophysiology delivered double-digit growth of 25.9%, with strong growth in all regions. Performance was driven by global procedure growth, new product uptake, commercial execution, and a onetime inventory build in Asia-Pacific, impacting worldwide growth by approximately 370 basis points. In addition, Abiomed delivered growth of 15%, driven by continued strong adoption of Impella 5.5 and Impella RP technology. Orthopedics growth of 4.8% includes a onetime revenue recognition timing change related to certain products across all platforms in the U.S. positively impacting worldwide growth by approximately 300 basis points. As a reminder, orthopedics was over indexed by the impact of reduced selling days in the quarter.
Strong performance in hips and knees was driven by procedure recovery, growth of new products, and commercial execution. While trauma and spine were negatively impacted by competitive pressures and core trauma was further impacted by weather related softness in the U.S. Growth of 1.9% in surgery was driven primarily by procedure recovery and strength of our bio surgery and wound closure portfolios, partially offset by competitive pressures in China volume based procurement and energy and endo cutters. Contact lenses declined 2.3%, driven by U.S. stocking dynamics, partially offset by strong performance in ACUVUE OASYS 1-day family of products. Worldwide growth was negatively impacted by 120 basis points due to the Blink divestiture in Q3 2023.
Surgical Vision grew 1.1%, driven by CNIS EYHANCE, a monofocal intraocular lens partially offset by China's VBP. Now turning to our consolidated statement of earnings for the first quarter of 2024. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of product sold margin leveraged by 160 basis points, primarily driven by lower COVID-19 supply network related exit cost. Selling, marketing, and administrative margins deleveraged 110 basis points, driven primarily by timing of marketing investment in the Innovative Medicine business. We continued to invest strategically in research and development at competitive levels investing $3.5 billion, or 16.6% of sales this quarter. We invested $2.9 billion, or 21.4% of sales in Innovative Medicine, with the increase in investment being driven by continued pipeline progression.
In MedTech, R&D investment was $0.6 billion, or 8.3% of sales, a slight decrease driven by phasing. Interest income was $209 million in the first quarter of 2024, as compared to $14 million of expense in the first quarter of 2023. The increase in income was driven by a lower average debt balance and higher interest rates earned on cash balances. Other income and expense was income of $322 million in the first quarter of 2024, compared to an expense of $6.9 billion in the first quarter of 2023. This change was primarily due to the $6.9 billion charge related to the talc settlement proposal recorded in the first quarter of 2023. Regarding taxes in the quarter, our effective tax rate was 16.9% versus 61.8% in the same period last year, which was primarily driven by the tax benefit on the talc settlement proposal recorded in the first quarter of 2023.
Excluding special items, the effective tax rate was 16.5% versus 15.9% in the same period last year. I encourage you to review our upcoming first quarter 10-Q filing for additional details on specific tax related matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the first quarter of 2024 our adjusted income before tax for the enterprise, as a percentage of sales increased from 36.1% to 36.8%, primarily driven by an increase in non-allocated interest income with both Innovative Medicine and MedTech margins remaining relatively flat year-over-year.
When comparing against the fourth quarter and full year 2023, Innovative Medicine and MedTech adjusted income before tax margins have improved. This concludes the sales and earnings portion of the call. I am now pleased to turn it over to Joe.
Joseph J. Wolk: Thank you, Jessica. Hello, everyone. As you just heard, we are off to a solid financial start in 2024, complemented by sustained momentum within our Innovative Medicine and MedTech pipelines, marked by significant regulatory and clinical milestones. Before we delve into segment highlights from the quarter, I want to touch upon some important announcements that we made that will further enhance our competitive positioning. Earlier this month, we announced a definitive agreement to acquire Shockwave Medical. Johnson & Johnson has a long history of addressing cardiovascular disease through both our Innovative Medicine and MedTech businesses. The acquisition of Shockwave with its leading intravascular lithotripsy or IVL technology will provide us with a unique opportunity to impact coronary artery and peripheral artery disease, two of the highest growth innovation oriented segments within cardiovascular intervention.
This addition is not only adjacent to our other cardiovascular businesses but also consistent with our strategy of becoming a best-in-class MedTech company. During the first quarter, we also expanded our Innovative Medicine portfolio with the completion of the Ambrx acquisition. With its promising pipeline and ADC platform, Ambrx will further strengthen our oncology portfolio and ability to deliver enhanced precision biologics that treat cancer. Now I'll move to segment highlights from the quarter. As Jessica previously shared, our growth in Innovative Medicine continues to be driven by momentum from key brands and the adoption of new products. During the quarter, we hit several regulatory and clinical targets that are key to delivering longer-term growth.
Starting with oncology, in multiple myeloma, we received FDA approval and a positive CHMP opinion for CARVYKTI for patients who have received at least one prior therapy, making it the only BCMA targeting treatment available for patients in the second-line setting. We also received biweekly dosing approval from the FDA for TECVAYLI, the only approved BCMA targeting bispecific antibody that provides patients with dosing flexibility. And finally, we submitted an application to the EMA for regulatory approval for DARZALEX-based quadruplet therapy and were granted U.S. priority review by the FDA. In addition, we made significant steps forward in the treatment of patients with EGFR-mutated non-small cell lung cancer. During the quarter, we received FDA approval for RYBREVANT in combination with chemotherapy for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer with EGFR Exon 20 Insertion Mutations.
The approval was based on data from the Phase III PAPILLON Study. We also received priority review from the FDA and submitted a filing to the EMA for RYBREVANT in combination with lazertinib as a first-line treatment option for adult patients with locally advanced or metastatic EGFR mutation non-small cell lung cancer. The priority review and filing to the EMA are supported by data from the landmark Phase 3 Mariposa Study. Turning to our immunology portfolio, we submitted a supplemental Biologics License Application to the FDA seeking approval for TREMFYA in the treatment of adults with moderate to severe ulcerative colitis. We are looking forward to presenting data from the Phase 3 QUASAR Study evaluating TREMFYA in patients with ulcerative colitis at Digestive Disease Week in May.
We also significantly advanced our pipeline with important data readouts including positive top-line results from the Frontier 2 study demonstrating JNJ2113 as the first and only investigational targeted oral peptide that maintains skin clearance in moderate to severe plaque psoriasis through one year. Nipocalimab also delivered positive topline results in Phase 2 and Phase 3 studies in adults with Sjögren’s Disease and Myasthenia Gravis, respectively. We also received FDA breakthrough designation in the treatment of HDFN, hemolytic disease of the fetus and newborn, and fast-track designation for FNAIT, a rare and potentially fatal blood disorder in infants. Looking ahead, we expect upcoming data readouts for ERLEADA in localized prostate cancer as well as aticaprant and seltorexant in major depressive disorder.
We also expect Phase 2 results for our combination therapy JNJ4804 in psoriatic arthritis as well as pivotal data from TAR-200 in non-muscle invasive bladder cancer which will be presented at the American Urological Association Annual Meeting in May. Lastly, we're excited to present our Phase 3 TREMFYA Crohn's disease data as well as our Sub-Q data for RYBREVANT at upcoming medical meetings. In MedTech, notable highlights in the first quarter includes significant advancements across our cardiovascular portfolio. In Pulsed Field Ablation, we received CE Mark approval for VARIPULSE based on the 12-month INSPIRE Study which demonstrated 80% of patients achieved freedom from recurrence and zero primary adverse events. We filed for U.S. approval of VARIPULSE based on the ADMIRE Study which showed all pilot phase patients achieved acute success and 80% remaining free from atrial arrhythmia recurrence after one year.
We also submitted a CE Mark filing for our Dual Energy Smart Touch SF Catheter, which will provide physicians the optionality for RF and PFA energy sources in one catheter. We began enrollment of patients in a pivotal trial evaluating Laminar's left atrial appendage elimination device to reduce the risk of stroke in patients with non-valvular atrial fibrillation and the late-breaking DanGer Shock Study presented at the American College of Cardiology Conference and simultaneously published in the New England Journal of Medicine, confirmed routine use of Abiomed’s Impella CP in patients who have had a heart attack with STEMI cardiogenic shock reduced 180-day mortality by 12.7%. In vision we launched TECNIS PURE C, a next-generation presbyopia-correcting lens for cataract patients in EMEA.
We also presented new data for our presbyope correcting IOL, TECNIS Odyssey at the 2024 American Society of Cataract and Refractive Surgery in April. Looking ahead, we will continue to advance our electrophysiology pipeline with the full U.S. market release of the QDOT microcatheter, the U.S. commercial launch of Abiomed Impella RP Flex with SmartAssist as well as the submission of Impella ECP. Within our robotic surgery pipeline, we are on track to submit an investigational device exemption to the FDA for Otava [ph] in the second half of 2024. Turning to financials, starting with cash and capital allocation. We ended the first quarter with $26.2 billion of cash and marketable securities and $33.6 billion of debt for a net debt position of $7.4 billion.
We are pleased with our free cash flow generation in the first quarter of approximately $3 billion. This was above the first quarter of 2023, which included the consumer health business cash flow. Also in the first quarter of 2024, we incurred elevated payment levels made in furtherance of achieving a responsible, final, and comprehensive resolution of the talc litigation. We continue to maintain a healthy balance sheet and strong credit rating, underscoring the strength of Johnson & Johnson's financial position and ability to execute against our capital allocation priorities. Innovation continues to be a main priority for the company, as demonstrated by our industry-leading R&D spend. During the first quarter, we invested more than $3.5 billion in research and development or 16.6% of sales.
We also remain committed to returning capital directly to shareholders through our dividend. We appreciate the value our investors place on the dividend, and we were pleased to announce this morning that our Board of Directors has authorized a 4.2% increase marking our 62nd consecutive year of dividend increases. As we stated previously, we are disciplined in our approach to inorganic growth and prioritize acquisitions that strategically fit and present meaningful long-term growth opportunities. This is evidenced by the pending transaction in which we are adding a profitable commercialized portfolio of Shockwave Technologies in high-growth markets as well as a robust pipeline. I'll now discuss our full year 2024 guidance, which excludes the recently announced acquisition of Shockwave.
As previously communicated, we assume the closing of the transaction will take place by midyear 2024 at which time we will update our guidance to reflect the expected dilution to adjusted earnings per share in 2024 of approximately $0.10 per share driven by financing costs. Based on the results delivered in the first quarter, we are tightening our ranges and increasing the midpoint for our full year operational sales and adjusted operational EPS guidance. As such, we expect operational sales growth for the full year to be in the range of 5.5% to 6.0% or $88.7 billion to $89.1 billion increasing the midpoint by $300 million or 0.3%. As a reminder, our sales guidance continues to exclude any impact from COVID-19 vaccine sales. As you know, we don't speculate on future currency movements.
Last quarter, we utilized the Euro spot rate relative to the U.S. dollar of 1.09. As of last week, the Euro spot rate was 1.08, a modest strengthening of the U.S. dollar also experienced by a handful of other currencies. As a result, we now estimate a negative full year foreign currency impact of $700 million resulting in an estimated reported sales growth between 4.7% to 5.2% compared to 2023 with a midpoint of $88.2 billion or 5% at the midpoint, consistent with last quarter's guidance. We are maintaining other elements of our guidance provided on January's earnings call, with the exception of two items, we are increasing interest income to a range of $550 million to $650 million. We are also tightening the range of our adjusted operational earnings per share guidance from $10.60 to $10.75, increasing the midpoint by $0.03 to $10.68, reflecting year-on-year growth of 7.7%.
While not predicting the impact of currency movements, utilizing the recent exchange rates I previously referenced, our reported adjusted earnings per share for the year estimates a negative foreign exchange impact of $0.03 per share. As a result, the reported adjusted earnings per share remains unchanged at $10.65, reflecting 7.4% growth versus 2023. While we do not provide guidance by segment or on a quarterly basis, we continue to expect that the same qualitative considerations provided during January's earnings call to remain intact. We anticipate Innovative Medicine sales growth to be slightly stronger in the first half of the year compared to the second half given the anticipated entry of STELARA Biosimilars in Europe midyear. For MedTech we expect operational sales growth to be relatively consistent throughout the year.
Looking ahead, we have many important catalysts in the pipeline that will drive meaningful near and long-term growth across both Innovative Medicine and MedTech. We look forward to advancing our pipelines in both segments to deliver innovative treatments, solving some of the most complex health challenges. This wouldn't be possible without our employees around the world, so it's only appropriate before turning to your questions that we recognize and thank our colleagues for their continued hard work, commitment, and dedication to patients. I'm pleased to be joined by Joaquin, Jennifer, John and Tim for the Q&A and kindly ask Kevin to provide instructions to initiate that portion of the call.
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