Good morning and welcome to Johnson & Johnson's Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session. This call is being recorded. I will now turn the conference call over to Johnson & Johnson. You may begin.

Please note that today's meeting may include forward-looking statements relating to, among other things, the company's future financial performance, product development, market position, and business strategy and the anticipated separation of the company's Consumer Health business. You're cautioned not to rely on these statements, which are based on current expectations of future events, using the information available as of today's date, and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. These clients acknowledge those relationships.

Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. 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. In addition to today's presentation and associated schedules, we will be posting the transcript of today's call as well as an Excel version of key financial schedules. I will now review the third quarter sales and P&L results for the corporation and highlights related to the three segments. Joe will then provide additional business and financial commentary before sharing an overview of our cash position, our capital allocation priorities, and updated guidance for 2022. The remaining time will be available for your questions. We anticipate the webcast will last approximately 60 minutes. Now, let's move to the third quarter results. Worldwide sales were $23.8 billion for the third quarter of 2022, an increase of 1.9% versus the third quarter of 2021. Operational sales growth, which excludes the effect of translational currency, increased 8.1% as currency had a negative impact of 6.2 points. In the U.S., sales increased 4.1%. In regions outside the U.S., our reported sales declined 0.3%. Operational sales growth outside the U.S. was 12.3%, with currency negatively impacting our reported OUS results by 12.6 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 8.2% worldwide, 4.2% in the U.S., and 12.4% outside the U.S. Turning now to earnings. For the quarter, net earnings were $4.5 billion and diluted earnings per share was $1.68 versus diluted earnings per share of $1.37 one year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.8 billion and adjusted diluted earnings per share was $2.55, representing decreases of 2.7% and 1.9%, respectively, compared to the third quarter of 2021. On an operational basis, adjusted diluted earnings per share increased 5.8%. I will now comment on business segment sales performance highlights. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the third quarter of 2021 and therefore exclude the impact of currency translation. Continuing with the streamlined remarks shared in the prior two quarters, we plan to keep our comments brief to leave more time for Q&A. Please refer to the slides for additional segment and franchise commentary. Beginning with Consumer Health. Worldwide Consumer Health sales of $3.8 billion decreased 0.4%, with an increase of 2.1% in the U.S. and a decline of 2.3% outside the U.S. Excluding translational currency, worldwide operational sales growth increased 4.7%. And outside the U.S., operational sales growth increased 6.7%. Excluding the impact of acquisitions and divestitures, worldwide growth was 4.8%. Results were primarily driven by strategic price increases; growth in OTC due to a strong cold, cough, and flu season; and OUS growth in NEUTROGENA and AVEENO due to market growth and new product launches. This growth was partially offset by supply constraints in the U.S. and suspension of sales of personal care products in Russia. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13.2 billion increased 2.6%, with growth of 3% in the U.S. and 2% outside the U.S. Excluding translational currency, worldwide operational sales growth increased 9%; and outside the U.S., operational sales growth increased 16.7%. Excluding the impact of acquisitions and divestitures, worldwide growth was 9.2%. Excluding COVID-19 vaccine sales, worldwide operational sales growth increased 8.9%; U.S. operational sales growth increased to 7%; and outside the U.S., operational sales growth increased 11.3%. Pharmaceutical growth was driven by strong commercial access and execution, enabling us to continue to deliver above-market adjusted operational sales growth, including five assets with double-digit growth. Growth was driven by DARZALEX, TREMFYA, STELARA, and ERLEADA as well as our paliperidone long-acting portfolio and was partially offset by biosimilar competition for REMICADE along with a decrease in IMBRUVICA sales. Within our Oncology business, DARZALEX and ERLEADA continued to drive strong sales growth with increases of 38.7% and 51.2%, respectively. IMBRUVICA sales declined 7.2% worldwide due to increased competitive pressures. In the U.S., the CLL market remains below pre-COVID levels, while in the EU results were negatively impacted by government clawbacks. Overall, IMBRUVICA maintains its market leadership position worldwide. In our Immunology business, TREMFYA grew 41.9%, driven by share gains in psoriasis and psoriatic arthritis, with gains of 3.2 points and 1.7 points in the U.S. respectively, along with market growth. STELARA growth of 8% was driven by strong market growth and share gains in Crohn's disease and ulcerative colitis, with gains of 5.2 points and 6.9 points in the U.S., respectively. Results in the quarter were partially offset by a net unfavorable prior period adjustment of approximately 600 basis points on worldwide growth. We remain confident in our ability to deliver our 11th consecutive year of above-market adjusted operational sales growth in 2022. I'll now turn your attention to the MedTech segment. Worldwide MedTech sales of $6.8 billion increased by 2.1%, with growth of 7.7% in the U.S. and a decline of 2.9% outside of the U.S. Excluding translational currency, worldwide operational sales growth increased 8.1%, and outside the U.S. operational sales growth increased 8.5%. Excluding the impact of acquisitions and divestitures, worldwide growth was 8.1%. Drivers for growth across MedTech include procedure recovery as well as focused commercial strategies and differentiated new products such as ENSEAL X1 devices in energy; VELYS digital solutions across our orthopedic platforms; and additional solutions, enhancing our industry-leading electrophysiology portfolio. Based on our most recent share data, we continue to enhance or sustain market share positions in the large majority of our 11 priority platforms. As a reminder, these 11 platforms each generate over $1 billion in annual sales. Partially offsetting growth in the quarter is the impact of volume-based procurement in China and timing of international tenders, primarily in orthopedics and supply challenges, primarily in surgical vision. Aligned with our previously communicated expectations, MedTech operational sales grew sequentially versus the prior quarter. And for additional context, selling days had an immaterial impact on results in the quarter. Now turning to our consolidated statement of earnings for the third quarter of 2022. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold deleveraged by 170 basis points, primarily driven by unfavorable currency impact in the pharmaceutical business and commodity inflation, partially offset by supply chain efficiencies in the MedTech and the Consumer Health businesses. We continue to invest strategically in research and development at competitive levels, investing 15.1% of sales this quarter. The $3.6 billion invested was a 5% increase versus the prior year, primarily due to portfolio progression in the pharmaceutical business and increased investment across multiple franchises in the MedTech business. The other income and expense line was an expense of approximately $500 million in the third quarter of 2022 compared to an expense of $1.9 billion in the third quarter of 2021. This was primarily driven by lower litigation expense, partially offset by losses on securities, Consumer Health separation related costs and COVID-19 vaccine related costs in the current quarter. Regarding taxes in the quarter, our effective tax rate was 23.4% versus 4.7% in the same period last year. This increase was primarily driven by 2022 tax costs incurred as part of the planned separation of the company's Consumer Health business due to the reorganization of certain international subsidiaries, a one-time special item in Q3 2021 that reduced taxable income in the quarter and unfavorable income mix. Excluding special items, the effective tax rate was 16% versus 13.5% in the same period last year. I encourage you to review our upcoming third quarter 10-Q filing for additional details on specific tax 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 third quarter of 2022, our adjusted income before tax for the enterprise as a percentage of sales decreased from 34.5% to 33.9%, primarily driven by unfavorable currency and commodity inflation impact on cost of products sold. Pharmaceutical margins declined from 43.8% to 41.9%, primarily driven by unfavorable currency and cost of products sold. MedTech margins remained flat at 25.5%. Commodity inflation and increased investment in research and development were offset by supply chain efficiencies in sales, marketing and administrative leveraging. Finally, Consumer Health margins improved from 24.2% to 24.3%, despite inflationary pressures, driven by price actions and investment prioritization. This concludes the sales and earnings portion of the Johnson & Johnson third quarter results. I'm now pleased to turn the call over to Joe Wolk. Joe?

Thank you, Jess. Good morning, everyone. We appreciate you joining us today. As Jess just shared, we are pleased to report solid results across our business segments in the third quarter. We accelerated operational sales growth across all three segments, and we're able to meet earnings expectations despite significant inflationary impacts to input costs. This performance reflects the strength of our business and the versatility of our operations despite persistent global macroeconomic challenges. Given Johnson & Johnson's 136-year history, we are no stranger to periods of unfavorable macroeconomic conditions, but we have a proven track record of navigating through periods of challenge and volatility. With a diversified portfolio and strong balance sheet, we've repeatedly demonstrated our ability to deliver results in the short-term while executing against our long-term strategy, focused on improving health outcomes and access to care. Let me share a few enterprise highlights from the quarter. We continue to deploy effective strategies to provide the products, medicines, and treatments that consumers and patients rely on in the face of supply chain pressures. Our teams have been working tirelessly to help mitigate the impact of these challenges by working with our partners to make sure we're meeting demand. We continue to invest for growth, driven by innovation, as demonstrated by the recent opening of our R&D campus in San Francisco, which will expand our R&D presence in the Bay Area. I had the pleasure of being at the opening for this campus. Seeing it in person only reinforces for me that the combination of science, technology, and data analytics will be the future of medicine. We also made further progress in the separation of Kenvue, the name of the planned new Consumer Health company. In addition to announcing the name, brand, visual identity, and purpose, Larry Merlo was named as the Non-Executive Chair Designate. Congratulations, Larry. Thibaut, Ashley, and Jennifer will provide updates on notable events for their segments later in the call. Turning now to cash and capital allocation. Year-to-date, we generated free cash flow in excess of $13 billion. At the end of the third quarter, we had approximately $34 billion of cash and marketable securities and approximately $32 billion of debt for a net cash position of approximately $2 billion. Our capital allocation priorities remain unchanged, and our strong balance sheet affords us the flexibility to pursue multiple capital allocation priorities concurrently. Investing in innovation and R&D is our top priority. And through three quarters, we have increased our R&D investment by approximately 8% over the same period last year. In addition to investing in organic growth opportunities, our team continues to evaluate strategic acquisitions and other external collaborations that would enhance our current portfolio, build upon our capabilities and enable us to play in higher-growth markets, while delivering strong financial returns. In mid-September, our Board of Directors authorized a share repurchase of up to $5 billion of Johnson & Johnson common stock. This program underscores our confidence in the business and our pipeline, while also delivering returns for our shareholders. This program, combined with our dividends, has yielded nearly $11 billion being returned to shareholders already in 2022. Moving on to full year 2022 guidance. As evidenced by the third quarter, operational sales growth across all three businesses, healthcare, as well as our business continues to be rooted in strong fundamentals, despite various macroeconomic pressures. We continue to see a strengthening US dollar relative to other currencies. And as seen on this slide, inflation in the US remains at levels not experienced in decades and is not unique to the US. You saw some of this impact reflected in this quarter's gross margin eroding in comparison to Q3 2021, attributable to both currency and higher input cost. Despite these pressures, we are reaffirming our operational sales and reported adjusted earnings per share midpoints and tightening the ranges. On sales, we are narrowing our base business operational sales range to $97.5 billion to $98 billion or a growth rate of 7% at the midpoint. While this full year operational sales guidance is an acceleration to our year-to-date growth, it does imply a slight deceleration when comparing to the third quarter growth, driven by the loss of exclusivity of ZYTIGA in EMEA and during the month of September. We don't speculate on currency impacts. However, using the euro spot rate relative to the U.S. dollar as of last week at 0.97, there is an estimated negative impact of foreign currency translation of approximately 490 basis points, resulting in an estimated reported sales growth between 1.8% to 2.3% compared to 2021 or $93 billion to $93.5 billion. Regarding other lines on the P&L. While we were able to absorb some of the inflationary pressures this year, we are lowering our full year operating margin projection due to the impacts of inflation across most spend categories to a decline of approximately 50 basis points. Given year-to-date trends on favorable employee benefit-related items, we are increasing our other income estimates to a range of $1.7 billion to $1.8 billion. Regarding interest income and expense, again, based on our year-to-date experience, whereby we have a higher cash balance earning at rates higher than previously anticipated, we are increasing the range of our estimate to $175 million to $200 million of income. And finally, we are maintaining our effective tax rate estimate, which is reflective of current law, to a range of 15.0% and to 15.5%. Considering these revised estimates, we are increasing our adjusted earnings per share on a constant currency basis of $0.03 at the midpoint. The updated range is $10.70 to $10.75 or a midpoint of $10.73, reflecting a growth rate over 2021 of 9.5%. While not predicting currency movements, but to provide some insights on the potential impact on EPS, our reported adjusted EPS is expected to be negatively impacted by approximately $0.68 per share. As a result, and by tightening the range, our reported adjusted earnings per share is $10.02 to $10.07, which maintains the previous midpoint of $10.05. I appreciate that many of you are turning some of your attention to 2023. We are actively finalizing our plans for next year, but allow me to provide some preliminary qualitative perspectives to consider as you develop your models. We remain confident that we'll continue to grow our pharmaceutical business every year towards our goal of $60 billion in Pharmaceutical sales by 2025, despite the STELARA LOE, which is anticipated to occur in the second half of 2023 in the US. For MedTech, we expect our investments in innovation and commercial capabilities to continue to enhance our competitiveness. At this time, we anticipate positive procedure trends with the caveats that COVID-19 continues to be a dynamic situation regionally, lingering headwinds from hospital staffing and some impact from volume-based pricing in China. For Consumer Health, we are seeing the benefits of our strategic price increases, and a reduction in supply chain disruptions, although some challenges are expected to continue into 2023. We expect inflationary pressures and higher input costs to persist, and we are continuing to take actions to offset these challenges. While some inflationary pressures are improving, keep in mind that certain products we manufacture in 2022 will be sold and flow through our P&L in 2023. As far as standing up Kenvue as an independent company, we expect to announce further details on the type of separation, as well as stand-up cost estimates, and how we are addressing stranded costs later this year or early in 2023. We remain on track to complete the separation in mid to late 2023 as indicated in the initial announcement we made in November of 2021. Finally, as previously mentioned, we don't speculate on currency movement, but utilizing the euro spot rate of last week, we estimate an unfavorable currency impact on 2023's adjusted earnings per share of approximately $0.40 to $0.45 or $0.10 more than the $0.30 to $0.35 impact I referenced in July's call. 2022 has proven to be an active and unpredictable year, yet Johnson & Johnson continues to reliably meet the needs of patients while navigating the volatile global economic and operating environment. The executive committee could not be prouder of our team members across the globe for their commitment to excellence. We are continuously inspired by their dedication and unwavering focus on delivering growth for our stakeholders while staying true to our credo. I am now pleased to welcome our worldwide chairs, starting with Thibaut for Consumer Health, soon to be officially Kenvue.

Thank you, Joe and good morning to all of you. We are indeed very proud of the achievements we have completed so far in 2022. As we shared with you throughout the year, we told you that Consumer Health would deliver improved performance starting in the second half of the year and that is exactly what you saw with our good performance in the third quarter. Our strategy is working. Our pricing actions were realized, supply chain constraints eased, and we are also against easier prior year comparables. Our third quarter results reflect those dynamics and really demonstrate our ability to achieve results despite the macroeconomic environment that Joe referenced, and that continues to be volatile. And all of this, thanks to the strength of our brands and the quality of our teams. So, looking towards 2023 and in line with our results to-date, we do anticipate that the strength and resilience of our well-balanced portfolio, together with the consumer loyalty to our brands, will continue to position our business to perform competitively with the market. Now, regarding our future, as you just heard from Joe, we are making great strides towards the planned separation of the Consumer Health business, including our recent announcement of our new name, Kenvue. So, as you can imagine, a lot of thought and care was taken to ensure that the name was memorable, distinctive, and easy to pronounce in multiple languages. We then applied our expert brand-building skills to create a brand identity that reflects our new name, but also leave space for iconic brands that touch the lives of more than a billion people around the world every day. Every element was chosen to truly represent us as a future stand-alone company with the core attributes demonstrating an association with trust, care, science, and positioning Kenvue as a modern digital-first company. We also unveiled our purpose this quarter, which is realize the extraordinary power of everyday care. And in these seven words, we reflect our heritage of caring, but also play back what the world expects of us and the role we need to fulfill in society. We indeed believe that daily self-care rituals add up over time and have a profound cumulative impact on well-being. And our work at Kenvue will be to put that power into the hands of consumers around the world. So, we're excited for the journey ahead. Now, with Larry Merlo, named as our designated nonexecutive Chair, our teams are all focused on continuing to deliver results while progressing towards realizing the full potential of Kenvue. And now let me hand over to Ashley.

Thank you, Thibaut. Good morning. Last year was a remarkable year for our new product innovation, and we are maintaining that momentum in 2022 with four new products launched in the third quarter alone. These launches are contributing to our enhanced competitiveness. In the third quarter, we introduced our next-generation TECNIS Symfony OptiBlue, the latest presbyopia-correcting intraocular lens; the ACUVUE OASYS MAX contact lens; the HELIOSTAR balloon ablation catheter; and the OCTARAY Mapping Catheter. To briefly touch on ACUVUE OASYS 1-Day MAX, we recognize that our lives are digitally intense, and this lens was specifically designed to suit those lifestyles. It builds on our industry-leading portfolio, as OASYS is ranked number one, the largest brand in the category, and unparalleled in comfort across 31 clinical trials. Shifting to our Biosense Webster division, we have launched our HELIOSTAR balloon ablation catheter, which features a unique one-shop balloon technology that allows for PV isolation in 12 seconds with customized energy delivery and our integrated 3D mapping solution. We are already observing the impact of HELIOSTAR, which has achieved an 86% freedom from documented atrial arrhythmia after 12 months. This marks our entry into single-shot ablation and highlights how our team is providing differentiated solutions through innovative science and a focus on doctors' essential needs. I am very encouraged by our strong innovation thus far and even more excited about the potential of our upcoming pipeline. As we look ahead to 2023, we remain committed to our mission of making healthcare smarter, less invasive, and more personalized. I have often stated that this is how we aim to contribute to healthcare. In these somewhat uncertain times, we will prioritize programs that strengthen our core and push us to the forefront of medical interventions while continuously improving our competitiveness. We understand that the healthcare sector demands both humility and purpose. As Joe has indicated, we are indeed in a dynamic period. We will continue to navigate macroeconomic challenges such as hospital staffing shortages, inflation, supply constraints, and the lingering effects of the pandemic. However, we are optimistic about the recovery of procedural volumes in many regions, even though some areas remain slightly below pre-COVID levels. We have confidence in the resilience and adaptability of the MedTech industry and look forward to a sustained recovery worldwide. Thank you, and now I will turn it over to Jennifer.

Thank you, Ashley, and hello, everyone. Good morning. I'd really like to start off by thanking my pharmaceutical colleagues for another strong quarter with operational growth of 9%. That was broadly based across our portfolio and our regions. As Jess noted, we continue to maximize the value of our diverse leading portfolio, delivering above-market growth with a number of key drivers: DARZALEX, TREMFYA, STELARA, ERLEADA, also UPTRAVI, XARELTO, and our long-acting paliperidone portfolio. So, really great performance across the portfolio and throughout the globe. In addition to our strong performance, the Pharmaceutical business achieved some important milestones during the quarter, both in terms of approvals and new data readouts. So first, we're really pleased to announce our first approval globally for TECVAYLI. This is our first-in-class off-the-shelf bispecific antibody for patients with relapsed and refractory multiple myeloma, and this approval was from the European Commission. And we are on track to receive approval from the US FDA before year-end. TECVAYLI is a really important addition to our multiple myeloma portfolio, particularly for this difficult to treat patient population. Also in multiple myeloma, the final analysis from our Phase 2 GRIFFIN study of a DARZALEX based investigational quadruplet regimen was presented, really highlighting the potential benefit of adding DARZALEX to this front-line treatment regimen in multiple myeloma in newly diagnosed transplant-eligible patients. Separately, we received two approvals for IMBRUVICA. So the European Commission approved an all-oral fixed duration treatment combination with venetoclax in frontline CLL. And the US FDA granted approval for pediatric patients with chronic graft versus host disease, marking the first pediatric approval for IMBRUVICA and making IMBRUVICA the only BTKi with 12 FDA approvals across seven indications. If we turn to solid tumors, data from our early-stage trials from our combination of amivantamab plus lazertinib were presented at WCLC. Importantly, these data demonstrated a benefit in frontline treatment of EGFR mutant non-small cell lung cancer, and we look forward to data from our Phase 3 MARIPOSA study in the future. And last, in immunology, we presented new data for TREMFYA from the Phase 3b GUIDE study, which demonstrated even higher rates of complete skin clearance in adult patients with moderate to severe plaque psoriasis who were started earlier in the course of their disease. So it bodes well for earlier treatment for TREMFYA and continued growth. As I said, I'm really proud of our pharmaceuticals team and what we accomplished in the third quarter, and I look forward to finishing the year strong.

Thanks, Jennifer, Thibaut, and Ashley. This concludes the prepared remarks portion of our earnings call. Kevin, could you please provide instructions and open the line for Q&A.

Our first question is from Chris Schott from JPMorgan. Your line is now live.

Thank you very much. I have a couple of questions for Joe. Could you explain a bit more about the operating margin dynamics for 2023? It appears that there's some slight erosion in operating margins this year due to inflation. Should we expect a similar decline in 2023, or do you have a better capacity to manage these inflation pressures as they begin to ease throughout the year? Also, thinking about 2023 and connecting some of the comments from different segments, is there any reason to anticipate a significant deviation from the operational growth trends we're seeing in 2022 as we look ahead to 2023? Specifically, is the loss of exclusivity for STELARA a significant enough challenge next year that we should be concerned about its impact on growth, or is that more of an issue for 2024 and beyond? Thank you.

Good morning Chris. Thanks for your questions. What I'll do is I'll give you some insights around 2023 op margin. And then maybe I think it might be productive to turn it over to each of the segment heads to talk about what their outlook is for 2023 in a qualitative way at this point. So for 2023 op margins, I think you have a couple of dynamics that we're facing. Clearly, the macroeconomic pressures that all industries and all companies are facing is something that we have to address as well. 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. So as we finalize our plans for 2023, we will be looking at prioritizing our resource deployment to those initiatives, those projects, those services that deliver the most value for patients, which in turn is then healthy for our business. The other dynamic that's at play, Chris, and maybe why I'm a little bit hesitant to give you specific guidance at this point in time, is the separation of the Consumer Health business, so we're going through some of our plans now. We have the opportunity, as we said on prior calls, to rightsize our infrastructure for a two-segment company versus a three-segment company that we've had historically. And so we're looking at opportunities there as well. I believe that given the challenges we are facing, it is our responsibility at Johnson & Johnson's management to address these concerns. We are committed to prioritizing every dollar that contributes to securing our long-term future, particularly in innovation and R&D, which will remain our focus. We understand that this approach has historically led to success, especially when concentrating on a select few important projects. This will continue to be our strategy in 2023. While we will provide more information on operating margins, we are certainly aware of the surrounding environment and will manage those challenges effectively. Now, I'll pass it to Jennifer for her insights on Pharmaceuticals and the anticipated impact of STELARA next year.

Hi, Chris. Good morning. For 2023, we expect another year of growth in the Pharmaceuticals group that exceeds market standards. This growth will be fueled by ongoing success of our key brands such as DARZALEX, TREMFYA, ERLEADA, INVEGA, SUSTENNA, and UPTRAVI, driven by both increased market penetration and gaining market share. We also anticipate continued acceptance of our new product launches, including CARVYKTI and TECVAYLI, as well as Spravato, among others. Although we expect STELARA's loss of exclusivity around late September or the end of the year, we feel confident that our existing portfolio and new launches will support another year of above-market growth in 2023.

Thibaut, you may want to say a few words on consumers' outlook?

Yes, absolutely. In 2023, we expect the world to remain extremely volatile due to inflationary pressure, supply chain disruptions, geopolitical issues, and the ongoing impact of the COVID pandemic in certain regions. With that in mind, we are well-prepared to navigate this environment thanks to the quality of our brands and the enhancement of our execution capabilities worldwide. Regarding innovation, we continue to play a significant role in our results. Looking ahead, we find that the innovations we are introducing this year are being very well received by consumers globally, and we anticipate this trend to persist in 2023.

Ashley?

No, I would just say that we are consistently building on the momentum from 2022. For the first three quarters of the year, we are experiencing nearly 7% growth. Our focus is on maintaining that momentum in revenue generation for next year and achieving a revenue figure that surpasses market expectations. Clearly, the cost of doing business has increased in today's environment, and we are doing everything possible to manage and mitigate that in order to remain competitive. Typically, we experience one or two points of price erosion, but we have been able to achieve price/mix realization through supply chain efficiencies, administrative efficiencies, and some price/mix improvements. We are also navigating some challenges in China from value-based pricing but are managing to secure some tenders moving forward. We intend to continue investing in R&D because, as evidenced in the past couple of years, it has significantly contributed to accelerating our growth trajectory.

So, Chris, hopefully, that answers your question. But I think what you should take away is, clearly, the breadth of our portfolio, the reach of our geographic presence positions us very, very well. While STELARA is certainly a big product. I think it is Johnson & Johnson's largest product ever, we're not dependent on one product alone. And so the breadth of the portfolio that exists today as well as that which is on the come, I think, bodes extremely well for continued growth that investors have come to expect.

Thank you. Our next question today is coming from Larry Biegelsen from Wells Fargo. Your line is now live.

Good morning. Thanks for taking the question and congratulations on a nice quarter here. I have one for Ashley, one for Joe. Just Ashley, I'd love to hear your thoughts just on the macro trends impacting MedTech, a little bit more color on what you're seeing in China, some of the supply constraints and staffing shortages and how you see those playing out in Q4 and 2023? And, Joe, you've been talking about taking bolder steps in M&A. Why haven't we seen more M&A from J&J so far in 2022? And has anything changed with regard to your priorities? Thank you.

Thank you, Larry. I want to acknowledge the MedTech team for a strong quarter with an 8% growth and a 7% increase year-to-date. Their intense focus on competitiveness and customer satisfaction is impressive. As Joe mentioned, if we look globally, we are seeing a recovery in procedures, particularly a strong September that contributed to an 8% quarter-end. In the United States, surgical procedures have begun to rise, especially towards the end of the quarter, while diagnostic procedures are growing in the mid-single digits, with colonoscopies being a notable example in the third quarter. We anticipate this trend to continue. It's important to note that we will be comparing our performance to the impact of Omicron during the Thanksgiving and December period, which should provide a favorable comparison. We also expect focused growth from micro-surgeons during the winter. In Europe, there was a slight slowdown in August due to the holiday season, but September showed improvement. Asia is recovering quickly, particularly in India and Japan, and while China has improved in the third quarter compared to the second, it remains below pre-COVID levels. We expect this upward trajectory to persist. We are moving forward. We have a strong position in China. We have a very diversified position in China. We are moving through some of the VBP actions. That's what you saw in our Joints business, we were actually up 10% in our knees and our hips in the United States, but we had negative growth in the quarter, really due to the volume-based procurement wins on pricing actions that will come through that for next year. So thank you for the question, Larry.

Yes, Larry, regarding M&A. Well, first of all, let me start with just reiterating the strong free cash flow that we have year-to-date, over $13 billion, also very proud of the fact that we've been able to distribute nearly $11 billion to shareholders through the form of our dividend program as well as the repurchase program that was announced just mid last month. So we feel really good on that front. But as you likely noticed in today's comments, we still hold $34 billion of cash, which positions us extremely well to continue exercising that level of capital allocation around acquisitions or significant collaborations going forward. So our priorities have not changed. In fact, maybe we're even a little bit more bullish and eager to do something. But as folks come to know us, we're not going to do anything haphazardly. We're not – the aspect of this company that is really enjoyable as being the CFO is we don't have to do anything out of desperation. We're going to find those assets that have a great strategic fit and then make sense from a financial perspective with respect to returning to shareholders something that compensates them for the risk that we're bearing on their behalf. The market is a little bit funny. The volatility actually doesn't help for a conducive M&A environment right now because you have sellers – potential sellers holding on to 52-week highs, or all-time highs, which, quite frankly, aren't too distant in the rearview mirror. We're going to approach it with a very fundamental discounted cash flow analysis to make sure we're bringing value forward. But the short answer to your question is our priorities have not changed. We're looking to complement the already strong portfolio you heard in the first round of responses.

Thank you. Our next question is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.

Hi. Thanks for taking my question, and congratulations on the quarter. So, I wanted to ask you, if you any updated thoughts on getting to that $60 billion of pharma sales by 2025. And this is all organic growth. And if it's not, where could sales go with M&A? And what areas are you seeing the best opportunities in M&A? Thank you.

Hi, Louise, thanks so much for the question. So, 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, so that doesn't have anything factored in right now in terms of M&A. Anything that we did there, we would look at to be additive. When we take a look at how we're going to get there, we really believe we're going to have a compound annual growth rate of at least 5%, with growth in every year, and that includes through the STELARA LOE. We think we've got eight key brands that we'll be able to post double-digit growth through 2025. And as we take a look through our pipeline and portfolio between now and then 14 novel therapies filed with potential to exceed $1 billion, and we've got five of which we think actually have potential to exceed $5 billion, so that's products like Novavax vaccine, which is in our partnership with Bristol-Myers Squibb; amivantamab and lazertinib combination, which I mentioned for non-small cell lung cancer that we've got good data coming through; nipocalimab, which is progressing really nicely through the various stages of clinical development. That's the auto antibody asset that we brought in from the Momenta acquisition. We have our TARIS platform that is progressing nicely for bladder cancer, and we have CARVYKTI. While we're still in the early stages of launching and ramping that asset, based on the strength of the data and the clinical trials, we remain really bullish on what CARVYKTI is going to mean for patients with multiple myeloma around the world. And so I think based on our existing assets and the continued growth, I mean if you take a look at DARZALEX and the results that we just posted quarter, 39% growth, consistent with what we've been seeing as well as growth in assets like TREMFYA, ERLEADA, et cetera. You take a look at the existing portfolio, you layer in on top of that what's coming through with the pipeline, and that's what gives us the confidence to hit that $60 billion organically. That being said, in line with Joe, we're constantly looking for ways that we can continue to augment and further build our pipeline and to do so out of a position of strength. And so predominantly, we keep our innovation engine going, bringing in things in the earlier stages, which is usually our sweet spot because we can put our R&D machinery against it as well as our terrific regulatory and commercial and market access capabilities to really build things out. But that doesn't rule out later-stage acquisitions or in-market acquisitions as well.

Thank you. Our next question today is coming from Joshua Jennings from Cowen. Your line is now live.

Good morning. Thank you for taking my questions. I would like to hear Ashley and possibly Joe's views on the resilience of the medical device industry during a recession, particularly regarding Johnson & Johnson's medical device business. Can you identify which device franchises might be more or less resilient? Additionally, as a follow-up, I am curious about your updated thoughts on the strategic rationale for expanding your cardiology franchise and enhancing the Biosense Webster division, especially since cardiology procedures are generally considered more resilient during recessions as many are life-saving. Thank you for addressing my questions.

Thank you, Josh. Let me start with the macro perspective. The end-state markets in MedTech remain quite vibrant. Although we've encountered some disruptions due to COVID, there is still unmet patient demand. We're witnessing this in quarter three, and we anticipate it will persist into 2023. Procedures such as those in the cath lab are more insulated within a hospital setting and volumes have been performing well. I want to acknowledge the BWI team in the US, which achieved nearly 24% growth in quarter three. We are continuing to invest in cardiology. We have an active program focused on pulse field ablation, and a clinical trial in Europe that finished in quarter two will provide a 12-month readout on safety and efficacy, with plans to file this year. Additionally, we initiated a clinical trial in the US for our pulse field ablation in May 2022, and we believe that the combination of radio frequency and pulse field ablation will be very complementary. Regarding cath lab developments, bariatric procedures, being more elective, are clearing through the backlog, while spine procedures tend to lag. Cataract surgery is also becoming less selective over time. The leaders in this space are areas such as stroke and trauma, which are less elective. Moreover, there has been significant effort from Johnson & Johnson and the industry to transition care sites toward those preferred by patients. For example, our team primarily focused on joints and sports has increased market share by 20% over the last two years in ambulatory surgery centers in the US. In Tier 2 and Tier 3 cities in China, with a large population, we are witnessing continuous growth. We expect to see some of the shifts that occurred during the pandemic accelerate, as patients find comfort and better access to the appropriate care sites.

Thank you. Our next question is coming from Joanne Wuensch from Citi. Your line is now live.

Good morning, and thank you for taking the question. Nice quarter. Quickly to follow-up on your comments on electrophysiology, those numbers were particularly strong. Could we pull that growth apart and discuss maybe how much of it is market growth, market share stocking maybe or possibly price? And then my big picture question has to do with Ashley's comments of dealing with, I want to get the right words here. Usually, you have one to two points of mix erosion, and you're now commanding price. I want to make sure I heard that right and then understand it a bit better. Thank you.

Yes, thank you, Joanne. We often highlight BWI as a market leader, even though the category has low penetration, with less than 12% of eligible patients receiving cardiac ablation. This example is significant to us because we aim to intercept diseases before they develop. By managing cardiac arrhythmia through cardiac completion, we can effectively prevent strokes. The BWI team is closely connected with customers worldwide, consistently demonstrating a strong pace of innovation. They have introduced many first-in-kind products, and even if they aren’t the first, their second-generation offerings tend to set the standard of care, showcasing their competitiveness. In the third quarter, BWI's growth was approximately 19%, with around 24% growth in the US and 13% outside the US, along with robust growth in Europe and Asia. This category, similar to joints, may face some value-based pricing impacts in the future. However, we have distinct innovations and are developing local capabilities to withstand these changes. Our goal is to increase industry penetration from 12% and focus our innovation efforts on identifying and delivering better lesions, making procedures safer with reduced fluoroscopy, and scaling our efforts effectively. We also recognize the shortage of electrophysiologists, which drives our substantial investment in market creation. Thank you, Joanne.

Thank you. Our next question today is coming from Geoff Meacham from Bank of America. Your line is now live.

Hey, guys. Thanks so much for the question. Just had a few pharma ones. On the I&I market, I know you guys obviously have the STELARA LOE next year. But would you expect there to be a lot of market disruption from the flood of HUMIRA biosimilars launching before? I'm just trying to think of the indirect impact on your business. And then the second question is on your cell therapy portfolio. You guys called out CARVYKTI. Any qualitative comments you have on the commercial rollout, one more quarter in? And is there an update on the CAR-T for timing that you could provide for us? Thank you.

Got it. Thanks so much for the question, Jeff. So if we start off with immunology. Yes, I mean the market will be experiencing a significant event, at least in the US with some competitive biosimilars coming in against other assets. We do anticipate that that will cause a bit of disruption. But when we take a look at our business and TREMFYA, so focusing on TREMFYA for psoriasis and psoriatic arthritis, I think based on what this has really the first IL-23 is delivering and delivering for patients. We can anticipate that there will still be strong continued growth for that asset. We're very, very confident in our excess positions there and being able to retain that even in the face of biosimilars to other products that are launching. Also put in a plug while we're at it. I'm talking about TREMFYA that we also feel really good about how our product TREMFYA is working through the Phase 3 clinical trials for Crohn's disease and ulcerative colitis, and look forward to hopefully getting that data in through the regulatory process and launching to bring even more benefit to patients with that. So we do anticipate continued growth there. And then on CARVYKTI, we're really pleased with how the product is performing for patients and the data that we're continuing to see, maybe if I start off on CARTITUDE-4 and then I'll come back on the launch. We do anticipate CARTITUDE-4 hopefully reporting by year-end. It's an event-driven trial. So we have to wait until we have all of the events. But that’s currently what we're planning for now, so that everyone knows CARTITUDE-4 is our study that takes a look at CARVYKTI in one to three prior lines of therapy. We're really interested and looking forward to seeing those results. So if we take a look at the early launch for CARVYKTI, we've always talked about this being really planned and thoughtful approach to scaling it. And so we're in the process right now. We've really been working closely with the centers where we had done the clinical trials to work through the initial phases. I know everyone knows about the worldwide lentivirus shortage. We've made really good progress on that and have good line of sight to that not being something that we're dependent, that not being a rate-limiting factor in the future. We're also working towards really being able to scale this at a broad level to be able to accommodate what we're seeing as both great demand for the product right now, but also what we anticipate with CARTITUDE-4, as well as hopefully with CARTITUDE-5, which would be in frontline therapy. So we reconfirm this as really a big asset with a lot of growth potential and one of our potentially $5 billion-plus brands.

Thank you, Geoff. Kevin, we have time for one last question.

Thank you. Our final question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.

Hi. Thanks so much. Maybe a couple of pharma ones for me as well. I was just wondering, as you think about the combined franchise for STELARA and TREMFYA next year, can that grow versus this year? And then based on clinicaltrials.gov, it looks like the nipocalimab Phase 2 RA trial recently completed. So just wondering if you can provide any color if you're going to advance that into a Phase 3 trial for RA? Thank you.

Thank you, Terry. Regarding your question, we don't provide guidance on individual products or their combinations. However, we expect continued strong growth for TREMFYA next year. TREMFYA is gaining significant market share in psoriasis and psoriatic arthritis. STELARA has been performing well in Crohn's disease and ulcerative colitis. We anticipate both markets will continue to experience good growth through at least the first three quarters of next year with STELARA, although we expect its performance to be affected by biosimilars after September. And then on nipocalimab, so I don't have really to share there yet for nipocalimab. Consistent with all of our processes when we finish our studies, we go ahead and submit them to major medical meetings and get them published. I remain really confident in nipocalimab as an asset, and we've really taken a look at building that out across 10 or 11 different indications, including the potential for RA, which we think could be a big one. So definitely more to come on that as we can share it.

Thank you, Terence, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any remaining questions you may have. I would now like to hand it over to Joe for some closing remarks.

Great. Thanks, Jess. Thank you, Thibaut, Ashley, Jennifer, and Jess, for participating in today's call. And as Jess said, thanks to all of you for your time today. Hopefully, you saw with our third quarter performance, the strength of Johnson & Johnson across all of our segments and our collective ability to manage macroeconomic headwinds as well as the unfavorable impact from a stronger US dollar. We certainly take seriously our responsibility to be a reliable, strong investment in many ways for shareholders even though uncertainty may be high. Have a great day, and we look forward to our next conversation.

Thank you. This concludes today's Johnson & Johnson's third quarter 2022 earnings conference call. You may now disconnect.