U.S. inflation is taking a toll on many industries, and although healthcare tends to be a resilient enclave from the winds of economic turmoil, even the biggest pharma companies in the world need to be ready for the financial repercussions.
Johnson & Johnson is the largest healthcare company by market cap and each quarter takes on the role of bellwether for the industry's performance as one of the first to report earnings. The pharma, medtech and consumer giant held an investor call Tuesday where executives like CFO Joseph Wolk and executive vice president and worldwide chair of pharmaceuticals Jennifer Taubert discussed the financial ins and outs of the third quarter.
Here's what Wolk and Taubert had to say about the harrowing economic landscape, market growth in the pharmaceutical sector, dealmaking potential and corporate restructuring at the healthcare behemoth.
"Clearly, the macroeconomic pressures that all industries and all companies are facing is something that we have to address — while healthcare is a very, very good business and more resilient than most, it's not as if we're immune to some of those dynamics."
Joseph Wolk
CFO, J&J
Inflation in the U.S. has hit levels not seen in decades, Wolk said, and this has brought down operating margins at J&J due to currency demands and higher costs of doing business. Still, overall sales reached $23.8 billion this quarter across all of the company's businesses — almost 2% higher than the year before. And as J&J looks forward to 2023, when these economic factors are expected to persist, Wolk said the company needs to "prioritize our resource deployment to those initiatives, those projects, those services that deliver the most value for patients."
Part of that resource deployment will be the finalization of separating the consumer business — think Band-Aids and Tylenol among many more products — by the end of next year into a new entity it's calling Kenvue. This will involve "right sizing" the infrastructure into a two-segment company, Wolk said.
That language has sparked reports the company is looking to cut jobs despite their relatively stable performance during the economic downturn. He assured analysts on the call that R&D will remain a priority, noting that through three quarters of 2022, investment there grew 8%.
"While we do anticipate (the) Stelara (patent cliff) in that late September timeframe, or toward the end of the year, we believe that we've got a lot of tailwind with our existing portfolio and our new launches, to continue to have another year of above market growth in 2023."
Jennifer Taubert
Executive vice president, worldwide chair of pharmaceuticals, J&J
The immunology drug Stelara remained J&J's top selling drug with almost $2.5 billion in third quarter sales, and the company is well aware the heyday is soon to be over as biosimilars are expected to enter the market by late next year. But the company has a deep bench of rising pharma stars ready to take up the mantle, Taubert said. Cancer treatments Darzalex and Erleada, immunology drug Tremfya, neuroscience medicine Invega Sustenna and the pulmonary hypertension treatment Uptravi are all expected to gain market share through 2023 to carry the business forward, Taubert said.
The influx of biosimilars of AbbVie's Humira set for 2023 will be a "significant event" also for J&J's immunology program — with several incoming competitors likely at a lower price point, that could push both market share and sales volume downward for Stelara, Tremfya and other drugs in that space. Taubert said the changes in the market would likely cause some disruption overall.
"We still hold $34 billion of cash, which positions us extremely well to continue exercising that lever of capital allocation around acquisitions or significant collaborations going forward. So our priorities have not changed. … We don't have to do anything out of desperation."
Joseph Wolk
CFO, J&J
J&J is always looking to bolster its own ranks with deals and partnerships using its deep pockets and wide range of expertise. But right now, the prospects for M&A aren't conducive to a whole lot of dealmaking, Wolk said on the call. Although valuations in biotech have fallen from their pinnacle last year, that doesn't mean smaller companies are ready to sell — on the contrary, they likely want to wait for those better valuations to return, leaving the table a little empty from the perspective of a prospective buyer like J&J. To Wolk, the vast amounts of cash in the company's coffers means J&J can hold out until the markets are less volatile and the right suitor comes along.
"We're not going to do anything haphazardly," Wolk said.
"The projections that we gave you about the $60 billion in revenue by 2025 really is all based on our current portfolio and our current pipeline."
Jennifer Taubert
Executive vice president, worldwide chair of pharmaceuticals, J&J
Even without M&A, Taubert sees a bright future for the pharmaceutical division based on current and upcoming products. A target of $60 billion in annual pharmaceutical revenue by 2025 would be based on 5% growth each year, which is something she believes will happen despite the Stelara patent cliff — she said that eight key brands "will be able to post double-digit growth through 2025."
And the innovation engine is also running strong with 14 new therapies ready to be filed for approval between now and then with potential to exceed $1 billion in sales each, Taubert said. Five of those could exceed $5 billion in annual sales, she added.
