J&J CFO Wolk on Orthopedics Spinoff, Earnings, Drug Pricing

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00:00Let me ask first about the orthopedics business. I would have thought because of the demographics

00:05in this country, in this world, that the orthopedics business would have some pretty

00:10sweet growth. Why are you spinning it off? Yeah, good morning, Matt. It's a pleasure to be here

00:15and thank you for your interest in Johnson & Johnson. Yeah, the orthopedics business is a

00:19very strong business. It's a slower growth, lower margin business than what is in the rest of our

00:24portfolio. And as you know, Matt, having covered Johnson & Johnson over the past few years, we've

00:29made a conscious effort to move to the higher growth markets, the higher margin products

00:33with the acquisitions of Abumet and Shockwave. If you think at what Johnson & Johnson has been

00:39successful at for decades now, it's really being rigorous managers of the portfolio. And so we go

00:46to those areas and we thrive in those areas where there's significant unmet need. While demographics

00:51are helping the orthopedics business and it plays in a large $50 billion market for the industry,

00:57the higher growth levels that unmet need isn't there as prevalent as it is in other parts of

01:03our business, specifically in med tech and cardiovascular surgery and eye health. Again,

01:08this is a profitable business, has strong cash flow, but it's a business that often goes up

01:13against singularly focused orthopedic companies. So we think this will actually make them more

01:17competitive. It's the most comprehensive orthopedics portfolio day one after separation.

01:24In terms of when you're going to get it done, how shareholders are going to experience this

01:30spinoff, what should we expect?

01:32Yeah, so it's going to take 18 to 24 months based on our projections. We are going down the path of

01:38a spinoff. It's the most resource intensive for us internally. It's also probably the most time

01:44consuming or the longest duration to do a separation. But we're going to explore every avenue that comes

01:49our way with respect to increasing shareholder value and really setting up to diffuse Synthi's

01:55business for future success.

01:57All right, let's talk about then the earnings now. You beat expectations and you raised your

02:04guidance. What were the biggest drivers to that?

02:07Yeah, you know, Matt, it was evenly distributed across the board. So if you look at the top line

02:12beat, it really was attributable to kind of how our lines of business break out. Roughly two thirds of

02:18the beat was innovative medicines. Strong product performance in Tremphaya, which is a product for

02:25psoriasis as well as inflammatory bowel disease. Spravato for severe depression. New products coming

02:32to market like Inlexo for bladder cancer and Ribrovamp plus Last Clues for lung cancer. On the

02:38medtech side, equal beat there. We did better in cardiovascular across most of our areas. Eye health

02:44continues to perform. Interocular lenses have once again hit a double digit quarter in growth

02:51after the introduction of new products late last year and into this year. And then surgery continues

02:55to do well. And we're looking forward to having our own digital robotic platform sometime next year

03:01for product launch. So we're kind of making the announcement on orthopedics today, really from a

03:07position of strength. And while this quarter was great, it's another it's it's become less of a data

03:12point and more of a trend. And it sets us up not to just close out 2025, but really gives us a strong

03:18backdrop for 26 and the balance of the decade, given some products that are coming through in the pipeline.

03:23Joe, as we look forward, I know that the picture will change depending on what you announce

03:29following your talks with the administration. How are those negotiations going after we saw

03:35announcements from Pfizer, from AstraZeneca? Yeah, it's a it's a great question. Matt, obviously,

03:42very timely. I could say that Joaquin DeWato, our CEO, as well as our government affairs teams,

03:47have been highly engaged with the administration even prior to the inauguration, I would say since

03:51election. They want to hear from the most comprehensive health care provider, quite frankly, in the globe.

03:57And they've been very open to what we had to suggest around tax policy. We're all looking for the same

04:04type of common ground, I would say. And I think there's common ground to be had in providing incentive

04:10based innovation for health care, as well as providing access and affordability to patients

04:18for these great innovations that are coming about. What effects do you expect the deals negotiated so far

04:25with your competitors to have on the industry? What does drug pricing look like in 26, 27?

04:31Yeah, it's hard to say, because really, from what I can tell, and there's very scant details at this point

04:37from the two agreements that have been reached, but it seems like it impacts the Medicaid population. And each

04:44manufacturer, quite frankly, has different drugs for different populations with it that impact Medicaid. So it's

04:51kind of hard to generalize, if you will, for the industry. But I think we'll be very well positioned

04:56here at Johnson & Johnson, just given the cadence of innovation of new product launches that we have.

05:01Remember, Matt, we came into this year with a product known as Stellar that treats psoriasis and

05:06inflammatory bowel disease that was facing loss of exclusivity. That product last year for Johnson & Johnson

05:11approached $11 billion. In fact, our portfolio, if you take out Stellar this quarter in pharmaceuticals,

05:18grew about 16%. And we think about these things, you know, years in advance. We plant seeds so that

05:24big oaks can grow. And so you look at some of the newer product launches that we expect to have next

05:29year. Icoach Rikindra is another product for psoriasis, inflammatory bowel disease, biological

05:34efficacy in the form of a pill. We acquired that for hundreds of millions of dollars in 2017.

05:41That will likely be a multi-billion dollar platform for us going forward. So we're very

05:46pleased with just the position of our pipeline, the new products that are coming. And it's really

05:50about the strategic intent of going after unmet medical need and elevating the current standards

05:56of care. Nothing to fight food noise, Joe? To food noise? No GLP-1 similars on the horizon?

06:05No, no. Well, you know, it seems like there's some really good companies that are advocating that.

06:11But it really speaks to what I think the healthcare industry does for society. You know, we think about

06:17it in terms of our investment of $55 billion here in the U.S. The Trump administration is very focused

06:23on providing jobs. The industry has more than five million jobs related to life sciences,

06:28and we think that is healthy for society, but also healthy for economic growth here in the U.S.

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