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. I would now like to turn the conference call over to Johnson & Johnson. You may begin.

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 risks 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 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. 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 a 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 MedTech 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 one-time 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 one-time 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.

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 include 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 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 do not 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.

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

Great. Thanks so much for taking the question. Maybe just a two-part on myeloma. First, on CARVYKTI, I was just wondering if you could elaborate on the phasing comments that impacted sales in the quarter? And then secondly, on TECVAYLI, how should we think about growth for this product, it looks like it's been somewhat flattish over the last couple of quarters, but just wondering if TALVEY had an impact there, so as we think about those franchises back half of this year, maybe you could provide high-level commentary? Thank you.

Thank you, Terence, for your question. And before we go into the specifics of your question on CARVYKTI and TECVAYLI and TALVEY, our multiple myeloma franchise, let me share with all of you some reflections on this quarter. We are entering 2024 in a position of strength, and I'm particularly encouraged on the performance of our strategic platforms, the ones that are going to drive growth in the second half of the decade. In Innovative Medicines, DARZALEX, TREMFYA, ERLEADA all grew over 20% and specifically on TREMFYA, now we have more sales in our psoriasis and psoriatic arthritic indications than we do with STELARA and we have high expectations for the brand with ulcerative colitis data to be presented at the Digestive Disease Week just a few weeks from now and also data on Crohn's Disease to be presented also this year. We continue to see increased demand from our new product launches, SPRAVATO, TECVAYLI, TALVEY, CARVYKTI with CARVYKTI just a few weeks ago receiving FDA approval to move into the second line setting. Now let me move into MedTech. We have demonstrated a strong performance across cardiovascular, in electrophysiology and Abiomed and we have made significant progress with our PSA portfolio. We also have delivered several important capital allocation milestones in Q1, investing heavily in R&D, raising our dividend for the 62nd consecutive year closing the Ambrx acquisition and announcing the planned acquisition of Shockwave Medical. As you have heard from Joe in his prepared remarks, we continue to make progress on achieving a responsible final and comprehensive resolution of the talc litigation. Overall, I'm proud of the performance in the quarter, both in terms of the solid financial but also the numerous pipeline advancements. It is a solid start of the year that puts us in a position of strength for 2024. And it also the sustained progress gives me great confidence in achieving our long-term growth goals of operational sales compounded annual growth rate of 5% to 7% from 2025 to 2030. Overall, it gives me great confidence in the future of Johnson & Johnson, now to Jennifer on your question, Terence, on CARVYKTI, TECVAYLI and TALVEY.

Thank you, Joaquin. Hello Terence, and good morning everyone. I want to extend a big thanks to our Innovative Medicine team worldwide for delivering an 8.3% adjusted operational growth, which is well above market growth for the quarter. We saw strong performance across our core and launch brands, with ten brands achieving double-digit growth, including TALVEY. We made substantial progress in our pipeline, and we also announced and completed our acquisition of Ambrx, which adds another key asset and technology for us in ADCs. This was a very strong quarter overall. Regarding your question about multiple myeloma as well as CARVYKTI and TALVEY, multiple myeloma remains a solid area for us, with significant growth across our assets during this quarter. Starting with DARZALEX, we saw 21% growth, primarily in the frontline setting and we have filed data that will allow for further expansion in frontline. CARVYKTI experienced over 100% growth compared to the first quarter of 2023, indicating very strong demand. We received a unanimous recommendation for approval from the ADCOM in the U.S., leading to CARVYKTI's approval for the second-line treatment following the quarter. I am pleased to report that we have doubled our manufacturing capacity for cell processing since the start of 2023. We are also working on our Gant facility to provide a secondary supply source and have onboarded contract manufacturers, making substantial improvements in antivirus production, ensuring that this won’t be a limiting factor. We experienced a quarter-to-quarter plateau from Q4 to Q1 due to timing of orders and deliveries rather than any underlying issues. We expect continued growth for this asset, particularly in the second half of the year as we add more slots and expand capacity. Based on the data we have, we remain optimistic about CARVYKTI's performance. As for TECVAYLI, the launch is progressing well globally, with strong uptake and rapid adoption in major markets such as the U.S., Germany, Austria, and France. We believe it sets a new standard as a leading off-the-shelf BCMA bispecific therapy, providing deep and durable responses, and we are optimistic about continuing the launch momentum. Additionally, TALVEY has shown significant growth as well, making it our tenth product with double-digit growth, even though it is grouped within other oncology categories for now. Overall, we have remarkable opportunities across various therapy lines with what we believe are best-in-class agents, many of which have potential for combination therapies as we aim to cure multiple myeloma. This represents a significant business for us, and I have a very positive outlook for the remainder of the year and beyond.

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

Good morning, thanks for taking the question. A question for Tim. Your MedTech business grew 6.5% on an adjusted operational basis in Q1, but there were a number of onetime items. What was the net impact from those onetime items in your view and what are you seeing around the world from a procedure standpoint and what are your expectations for the rest of the year? Thank you.

Well, thank you for the question, Larry. And let me maybe just reflect a little on the journey that we've been on. As you know, we surpassed $30 billion last year with adjusted operational growth of 7.8%. And I think it's important to note that when we compare ourselves against the majority of the competitors within our competitive composite, we are double their size. So that is performance that we are particularly proud of. We've now followed that up with another solid quarter of 6.3% growth in the first quarter. Now Larry, to your point, there has been some noise in that. We are particularly proud of the tremendous double-digit growth within our Electrophysiology business. And to put that in context, this is a business that is nearing on $5 billion, growing north of 20%. And I think that really calls out the leadership position which we're continuing to build on and couldn't be more excited about the progress we're making in PFA, which we believe also will continue to drive that performance. There has been some noise specifically in relation to our Vision business. But please rest assured, we are extremely confident in the underlying health of our Vision portfolio. This is a business that grew 6.6% last year, and we expect it to grow in high single-digit performance this year. There has been some stocking issues related to distributor inventory, which was the predominant driver of the performance you see this year. But once again, very confident that we'll see that return to strong single-digit performance for the remainder of the year. There have been a couple of one-timers both in terms of selling days, as we mentioned earlier, about 80 basis points of selling days and then a revenue recognition change within our orthopedics business, which impacted that business by about 300 basis points. But all in all, a strong quarter Larry, and we remain very committed to strong high single-digit growth for the remainder of the year for 2024. Thank you.

Larry, I just want to maybe add on to Tim's good comments there. The one-timers, there were tailwinds and headwinds in that number. So the 6.3% that you're seeing is 6.5% is pretty much a true number when you consider both sides of the equation.

Thank you. Our next question is coming from Chris Schott from J.P. Morgan. Your line is now live.

Great, thanks so much for the question. I think BD type question here. I guess following the Shockwave acquisition, what's the appetite, I guess, for further away, maybe talk about like larger tuck-in type transactions either in your MedTech or Pharma business. It just seems like the portfolio and the pipeline at J&J has evolved pretty nicely over the past few years and I'm interested if you think the business is now at a point where we can think about maybe smaller earlier-stage assets as the primary focus for BD or do you still have a greater sense of urgency either in MedTech or pharma to add some of these kind of bolt-on type transactions going forward? Thanks so much.

Thank you, Chris. I'm pleased that you acknowledge the strategic consistency of our M&A approach. Our M&A strategy is focused on the long term and will remain unchanged. We will continue to have a disciplined capital allocation strategy, with M&A being a vital part. With our strong cash flow and balance sheet, we have considerable flexibility to explore various types of transactions. Our actions so far, including the acquisitions of Abiomed, Laminar, Ambrx, and the planned acquisition of Shockwave, exemplify our consistent approach and the principles we've shared with you. This strategy will not alter. We will keep assessing opportunities regardless of sector or size, focusing on several key aspects. First, we evaluate whether the technology improves the current standard of care—this is essential for us. Second, we consider the positive patient impact. Third, we look for consistency with our existing capabilities and expertise, as we find a correlation between this and successful acquisitions. Fourth, we assess whether it opens doors to higher growth markets that we can develop. Lastly, and very importantly, we ensure it provides compelling financial returns for our shareholders. This M&A strategy has been fundamental to our value creation, and I appreciate your recognition of our consistent approach, which will remain unchanged as we look to the future. We consider M&A opportunities over the long term, not just opportunistically.

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

Good morning and thank you for taking the questions. Can you maybe circle back to Vision Care, please and can we unpack the different parts that are positive and negatives on the IO and the contact lens business? Thank you.

Of course, Joanne, and thank you for bringing this up because it does look odd and certainly isn't consistent with our expectations or the performance that we expect going forward from that business. As I mentioned earlier, this is a business that grew 6.6% in 2023 and actually consistently grows in high single-digit. We absolutely believe in the underlying health of our Vision business and that it remains strong and continues to perform above market. As I mentioned earlier, the Q1 performance was predominantly driven by a contraction of U.S. distributor inventory in contact lens. As we have mentioned in the past, we had some variability in terms of our supply, which resulted in changes within distributor inventory. We've now started to see that as our supply for contact lenses has stabilized, we've started to see a normalization of the inventory that our distributors are carrying on hand. And so that is the big driver in the results that you see today. As you know, in contact lens, this is an annuity business where it's all about how you gain your fair share of new users, while at the same time, protecting the base. We are incredibly pleased with the ongoing performance of our premium ACUVUE OASYS 1-Day family and we are seeing unprecedented share gains in multifocal. I will also say that if we look at sequential share gains across the contact lens business, we are seeing sequential gains, which should bode well for continued performance for the remainder of the year. Specifically to IOLs, as you know, we are not currently a market leader, but we are expecting to deliver the fourth consecutive year of global share gains driven primarily by tremendous performances of our IOL business in Asia Pac and in EMEA. We're also excited, as you heard from Jess earlier by the limited market release of our TECNIS PURE C and Odyssey next-gen multifocals and we'll see a full release occurred through the remainder of the year. So once again, very confident that you will see tremendous improvement in the performance of that business, and we expect high single-digit growth for Vision for 2024. Thank you, Joanne.

Thank you. Your next question is coming from Chris Shibutani from Goldman Sachs. Your line is now live.

Thank you very much. Good morning. I’d like to ask about the Pulmonary Hypertension business. This quarter has been quite strong. You mentioned share gains and a favorable patient mix; could you elaborate on that? Additionally, with the introduction of the recently approved product, there may be some disruption in the pulmonary arterial hypertension segment. What is your outlook for the portfolio's performance and the market's response to this expected shift? Thank you.

Hi Chris, it's Jennifer. So yes, we're really pleased with our Pulmonary Hypertension results for the first quarter with both OPSUMIT and UPTRAVI, delivering strong growth that was both volume and share gains in the market as well as some favorable patient mix and really rounding out a year of favorable patient mix. That last piece we don't see continuing to go forward to the same degree. But the products are performing very well for patients with PAH. Importantly, in the quarter, we got approval for OPSYNVI, which is the first combination tablet of PDE5 and an ERA. This is in line with guidelines. It's really once a patient is diagnosed really the right first choice for them is to start them on combination therapy. And so we think that this is an important introduction. And as we take a look at our portfolio and even despite other new competitors that are coming in, we do believe with OPSUMIT and UPTRAVI, they have got very strong usage and both with the launch of OPSYNVI as well as what we have, that these will continue to be really productive assets and a good therapeutic area for us.

Thank you. Next question is coming from Danielle Antalffy from UBS. Your line is now live.

Good morning everyone. Thank you for taking my question. Tim, I’d like to follow up on MedTech, particularly in orthopedics. I appreciate the onetime revenue recognition, but I'm not sure if you can elaborate on what has changed there. You mentioned steady growth in MedTech moving forward. If we set that aside, it seems to indicate about 3% growth in U.S. orthopedic sales. Is that the right way to assess that segment's future, or am I overlooking some onetime advantages? Could you discuss the outlook for orthopedics based on this quarter's performance? Thank you.

Thank you, Danielle. Firstly, we are operating in a very robust market. As we communicated in the fourth quarter of last year, we still see some remnants of procedural backlog that are benefiting primarily our Orthopedics business, and we expect that to continue at least to the first half of 2024. As you mentioned, our overall performance in Orthopedics of 4.8% was impacted by a one-time change in revenue recognition timing. And this is only related to our U.S. business, but it did impact that business by about 300 basis points. Now keep in mind, we also had the impact of the fewer selling days, which disproportionately impacted our ortho business by 80 basis points. We are proud of the ongoing progress we're making, specifically in areas where we needed to compete better and specifically in hips and knees, we saw high single-digit growth in the first quarter and specifically in knees driven by the tremendous performance of our VELYS platform. We're now within two years in 18 markets, 50,000 procedures and are seeing that as a constant tailwind as we now expand the provision of VELYS into EMEA and Asia Pacific through the remainder of the year. And so I think you can expect continued improvement in our Orthopedics business for the remainder of the year as we continue to build our portfolio and drive further expansion across the globe. Thank you.

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

This is Charlie Yang for Geoff. I have two questions, please. I know there's recent news regarding the INVEGA SUSTENNA Calpal litigation. Can you just tell us about kind of what we should kind of think about in terms of the potential kind of impact or in terms of the timing of the next steps? And then second, can you just talk about the TAR bladder cancer data expectation in terms of what kind of benchmark we should expect in terms of the 1-year CR rate? Thank you.

Perfect. I'll take the INVEGA SUSTENNA question, and I'll pass it over to my colleague, John to take the next one. So if we think about our LAI portfolio, our long-acting injectable just as a reminder for everybody, we really are leading therapies in this space with our INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA products. And we're really excited about the latest data that we have, particularly for HAFYERA, which a recent study shows that at two years, 96% patients on HAFYERA are relapse free, which is really, really striking. So as we get to the legal question, we really don't speculate on the impact of ongoing litigation. But that being said, we remain really confident about the strength of our INVEGA SUSTENNA patents, and we're going to continue to defend the intellectual property that's associated with these patents. If we're clear to go a little bit deeper, the Federal Circuit’s April 1st decision did not invalidate our patent. It just remanded the case back to the New Jersey District Court, the one that had ruled in our favor originally. Likewise, there was another ruling and another case on this patent against a different company that also did go in our favor. So it's going back to the original judge that ruled in favor of the patents, and we'll have to see what comes. We don't speculate on that, but we remain really confident on the strength of our patents.

Thank you for your interest in our platform for the drug-device combination targeting early bladder cancer. There is a significant unmet need, as over 600,000 people are diagnosed with early bladder cancer each year, and many of these patients end up having their bladders removed, which severely impacts their quality of life. Our drug-device system exemplifies how MedTech and pharmaceuticals can effectively collaborate. We have presented some exciting early data, including results from the ESMO conference last September. For example, our TAR200 product, which contains gemcitabine, demonstrated a complete response rate exceeding 75% and durable results, as indicated by 21 out of 23 patients who have not progressed to radical cystectomy. While I can't disclose specific data ahead of the AUA presentation, I can say you can expect similar outcomes with longer follow-up and a larger patient cohort. We are on track to deliver pivotal data for the first indication concerning BCG nonresponsive patients in early non-muscle invasive bladder cancer. The standard treatment, the attenuated microbacteria BCG, unfortunately results in less than half of patients achieving a complete response and has significant tolerability issues, resembling symptoms of a chronic urinary tract infection. In contrast, TAR200 has shown a very low discontinuation rate and excellent tolerability, alongside strong and lasting efficacy. We are eager for the AUA presentation and anticipate filing early next year based on these pivotal data, looking forward to sharing the results at that congress.

Thank you. Next question is coming from Matt Miksic from Barclays. Your line is now live.

Hi, thanks so much for taking the question. So a follow-up maybe on some of the device trends, in particular, cardio and EP very strong in the quarter. Wondering if you could provide some color kind of geographically as to how some of the product launches have either driven overseas or competitive environment in the U.S. has affected U.S. performance so far? And then just one quick one on Ortho, if I could.

Sure, Matt. Firstly, let me start on cardio. As Joaquin mentioned, we've made a lot of progress in building out our portfolio. And until recently, we only participated in one high-growth category within cardiovascular and that being electrophysiology, which I will touch on performance in a second. We are and have had a 20-year lead in electrophysiology and now have built on that position in cardiovascular with the acquisition of Abiomed. We're now over a year into integrating that business and couldn't be more proud of the progress we've made. We continue to perform ahead of the deal model. And once again, this quarter did so with growth in excess of 15%. That gives us now two leadership positions within cardiovascular care. Once we close the acquisition of Shockwave, that will be our third very thoughtful and deliberate move to only participate in high-growth, high-margin cardiovascular areas where there is significant unmet need and tremendous opportunity for us to grow. And so we're very excited by the fact that we will be one of the only strategics with only high growth, high-margin businesses in the largest category within MedTech, $60 billion market, growing roughly 8%, incremental $5 billion of growth coming out of that category each and every year. So very excited by those moves. Specifically, to your questions on EP, we've seen growth across the board in excess of 20%, both in the U.S. and ex U.S. And I think it really talks to the trust that our customers have in our technology today. RF and our portfolio of RF products are the most trusted and tested products with 20 years of experience. And by the way, we're not going to miss PFA, the progress we've made on ensuring that we can build our presence in that category with the approval in the EU as well as in Japan. We've also submitted for FDA approval. And while we don't control the timing, we expect that approval to come through by the end of this year or early next year. And so very confident in our ability to build on our leadership position in EP. Was there a specific question to Ortho?

Just a comment on Ortho generally was sort of low to mid-single digits, but in hips and knees, sounded like 9%-ish, we added back the selling day and you're at double digits is just kind of really off the chart growth, I think, in that category. And I'm just wondering should we see like some sustainability of that rate or ramping down of that rate, how can you help us think about the rest of the year, in particular, in hips and knees?

Well, Matt, I think it's a testament to the progress of our team but then also in building out our portfolio. We had some gaps in the past and now filling those gaps both in hips and then even more notably in knees with the launch of our VELYS robot is really what is creating the tailwind that we're enjoying today, and we do expect that to continue. Now this was a strong quarter. Can we see that sort of growth every single quarter? Not absolutely sure, but we do expect high single-digit growth out of both of those categories going forward. I will also say that the work we've done in the orthopedics areas hasn't been just about growth. It's also about improving our margin profile. And you know that in the second quarter of 2023, we announced a major restructuring, which is focused on really simplifying our portfolio and focusing our business on where we could drive the greatest impact for patients and for shareholders. That effort is resulting in a 20% reduction in our implants. And just to put that in context, we have 100,000 implants today within our orthopedics business. And so a real testament to the effort of group to not only drive top line performance but also evolve the portfolio to improve margins. Thank you again, Matt.

Thanks, Matt. Kevin, we have time for one more question.

Thank you. Our final question today is coming from Vamil Divan from Guggenheim Securities. Your line is now live.

Great, thanks so much for taking my questions. Maybe if no one is after me I will just lead into it. One, I just was curious on SPRAVATO and sort of where like very strong growth again this quarter. If you can just provide a little more context there on where the growth is coming from, what sort of practices, what that the patients are given that product to be hopefully get a sense of that trend? And then just the other question we get a lot from investors is on the drug price negotiations with Medicare on the 10 drugs that are selected for this year's program through IRA. I know you probably won’t get too much into the specifics, but I’m curious if you can just share some high-level thoughts on how the progress of those discussions are going and is it sort of in line with what you expected, is there anything sort of very different from what you expected as the process plays out? Thank you.

Thank you for your question about SPRAVATO. We are very pleased with its growth as we expand its global launch. This quarter, we experienced over 70% growth, particularly benefiting patients with treatment-resistant depression. We have a strong outlook for SPRAVATO as we continue to enter new markets and deepen our presence in existing ones. Neuroscience is an important focus for us, alongside oncology and immunology. SPRAVATO is a key platform, and we also have new products like aticaprant and seltorexant in the pipeline, as well as long-acting therapies related to INVEGA SUSTENNA. Regarding the IRA's drug pricing negotiations, we believe that these provisions are harmful to healthcare innovation and do not support our extensive investments in research and development for future treatments. Despite this, we are committed to ensuring patient access and are engaging with the government on pricing discussions. We're still in the negotiation process and can't disclose further details at this time. The products involved are not expected to drive our future growth, as they are nearing the end of their life cycle. However, we remain confident in our ability to achieve our $57 billion commitment made in December during our Enterprise Business Review, targeting a 5% to 7% compounded annual growth rate from 2025 to 2030, with consistent growth each year, including 2025 and beyond. Despite the IRA, we feel optimistic about our growth drivers and pipeline.

Thank you, Vamil, 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 will now turn the call over to Joaquin for some brief closing remarks.

Thank you, Jess, and Johnson & Johnson's solid first quarter performance reflects our sharpened focus and the progress in our portfolio and pipeline. Our impact across the full spectrum of healthcare is unique in our industry and the commercial, clinical, and capital allocation milestones achieved in Q1 reinforce our position as an innovation powerhouse. One of the most significant milestones this quarter was the announcement of our planned acquisition of Shockwave that will further strengthen our leadership position in cardiovascular. We continue to make strong progress towards the goals that we set out at our December Enterprise Business Review, and I'm looking forward to all that we will achieve through the remainder of 2024.

Thank you. This concludes today's Johnson & Johnson's first quarter 2024 earnings conference call. You may now disconnect.