Earnings Call Transcript - JNJ Q3 2024

Operator, Operator

Good morning, and welcome to Johnson & Johnson's Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session. 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.

Jessica Moore, Vice President of Investor Relations

Hello, everyone. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the third quarter 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. Joaquin Duato, our Chairman and CEO, will kick us off with opening remarks and highlight key catalysts within the segments. I will review the third quarter sales and P&L results for the enterprise, as well as highlights related to our two businesses. Joe Wolk, our CFO, will then provide an overview of our pipeline advancements, cash position, capital allocation priorities and guidance for 2024, as well as qualitative considerations for 2025. 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. I will now turn the call over to Joaquin.

Joaquin Duato, Chairman and CEO

Thank you, Jess, and hello, everyone. As you will hear, we delivered strong results in the third quarter with 6.3% operational sales growth. Our performance, once again, reflects the unique breadth of our business and our commitment to delivering the next wave of healthcare innovation to patients around the world. It also reflects the work we have done to shift our pipeline and portfolio to high innovation and high growth markets. That work continues, which you saw with the recently completed acquisitions of Shockwave and V-Wave in MedTech and Ambrx, Proteologix and NM26 bispecific antibody in Innovative Medicine. And we are pleased with the progress we are making. In Innovative Medicine, we reported a second consecutive quarter of sales exceeding $14 billion with 11 key brands growing double-digits. DARZALEX became the first product in our portfolio to reach $3 billion in sales in a single quarter. And as you will hear, our pipeline of high innovation, high growth potential assets is advancing rapidly with five major U.S. and EC approvals in the quarter. This includes FDA approval of RYBREVANT plus LAZCLUZE as first line treatment for EGFR-mutated advanced lung cancer, a transformational step forward for patients, and FDA approval of TREMFYA for active ulcerative colitis, which represents a significant opportunity for Johnson & Johnson, given 75% of STELARA sales today come from inflammatory bowel disease. And with filings and reviews underway for many of our innovative medicines that have the potential to generate $5 billion in peak year sales, we are increasingly confident in our near- and long-term growth trajectory. In MedTech, you can see the impact of our portfolio shift to high innovation, high growth markets, particularly in Cardiovascular. With the recent acquisitions of Shockwave and Abiomed, we are now category leaders in four of the largest and highest growth cardiovascular intervention medtech markets, which in Q3 translated to another quarter of double-digit growth across the Cardiovascular portfolio. And with the full market launch of Shockwave E8 peripheral IVL catheter, we are seeing an immediate impact of the Shockwave acquisition. In Vision, growth is accelerating, and we expect that to continue with the recent full market release of TECNIS Odyssey in the U.S. and ACUVUE OASYS MAX 1-Day contact lenses. We are also excited about the future of our surgery business. As you will recall, in November 2023, we committed to submitting the OTTAVA robotic surgical system for an investigational device exemption, or IDE, to the U.S. FDA in the second half of 2024 to initiate clinical trials. I'm pleased to announce that we have met that milestone with the IDE application submitted in Q3. Looking across the enterprise, our high innovation, high growth strategy is working and our progress this quarter speaks to the strength of our commercial and innovation capabilities. We have increased adjusted operational EPS guidance pre-M&A for the third quarter in a row. We have invested $18 billion in high innovation, high growth M&A this year. Based on this quarter's results, we are confident in our expectations for 2025 through the end of the decade and beyond. And with that, I will turn the call back to Jess.

Jessica Moore, Vice President of Investor Relations

Thank you, Joaquin. Moving to our financial results for the quarter. 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 exclude the impact of currency translation. Worldwide sales were $22.5 billion for the third quarter of 2024. Sales increased 6.3%, with growth of 7.6% in the U.S. and 4.6% outside of the U.S. Acquisitions and divestitures positively impacted worldwide growth by 90 basis points. Turning now to earnings. For the quarter, net earnings were $2.7 billion and diluted earnings per share was $1.11 versus diluted earnings per share of $1.69 a year ago. Results in the quarter were impacted by the updated talc litigation settlement proposal, as well as acquired IPR&D expense associated with the NM26 bispecific antibody. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $5.9 billion and adjusted diluted earnings per share was $2.42, representing decreases of 13.3% and 9%, respectively, compared to the third quarter of 2023. Results were impacted by the acquired IPR&D expense of $1.25 billion or approximately 1,900 basis points associated with the NM26 bispecific antibody. I will now comment on business sales performance in the quarter. Beginning with Innovative Medicine, worldwide sales of $14.6 billion increased 6.3%, with growth of 7.5% in the U.S. and 4.4% outside of the U.S. Innovative Medicine growth was driven by our key brands and continued uptake from recently launched products, with 11 assets delivering double-digit growth. Results across the portfolio continue to be positively impacted by price increases associated with Argentina hyperinflation, consistent with market practice. We continue to drive strong sales growth across our multiple myeloma portfolio. DARZALEX growth was 22.9%, primarily driven by share gains of 4 points across all lines of therapy, with 7.7 points of growth in the front line setting as well as market growth. CARVYKTI achieved sales of $286 million, with growth of 87.6%, driven by share gains, continued capacity expansion and manufacturing efficiencies. This reflects sequential growth of 53.2% aligned with our expectations of accelerating growth in the back half of the year. TECVAYLI sales were $135 million in the quarter with growth of 21.4%, reflecting a strong launch in the relapsed refractory setting. Demand remained strong, while sequential growth was flat due to continued adoption of longer duration dosing intervals. Finally, within our multiple myeloma portfolio, TALVEY continued its launch trajectory with another quarter of strong growth. We anticipate disclosing TALVEY sales in the first quarter of 2025, which are currently reported in other oncology. ERLEADA continues to deliver strong growth of 26.3%, primarily driven by share gains in metastatic castrate sensitive prostate cancer and favorable inventory dynamics. RYBREVANT, our bispecific antibody for non-small cell lung cancer, contributed to growth in other oncology as we expand approved indications. We also anticipate disclosing RYBREVANT sales in the first quarter of 2025. Within immunology, we saw sales growth in TREMFYA of 14.3%, driven by strong market growth and share gains in PsO and PsA, partially offset by unfavorable patient mix. STELARA declined 5.7%, driven by unfavorable net patient mix and share loss, partially offset by market growth. As a reminder, biosimilar competition has entered Europe as of July, and we anticipate U.S. biosimilar entry in January 2025. In neuroscience, SPRAVATO growth of 55.3% continues to be driven by increased physician and patient confidence. In pulmonary hypertension, OPSUMIT and UPTRAVI grew 17.4% and 15.2%, respectively, driven by market growth, share gains and patient mix. As mentioned last quarter, REMICADE and SIMPONI realized limited sales in Europe as we prepare for the return of distribution rights in Q4. I'll now turn your attention to MedTech. Worldwide sales of $7.9 billion increased 6.4% with growth in the U.S. of 7.8% and 5% outside of the U.S. Acquisitions and divestitures had a net positive impact of 270 basis points on worldwide growth, 360 basis points in the U.S. and 180 basis points outside of the U.S. Overall, MedTech growth was driven by commercial execution and strength of new product introductions, partially offset by continued headwinds in Asia Pacific, specifically in China. In Cardiovascular, electrophysiology delivered double-digit growth of 10.7%. Performance was driven by global procedure growth, new product uptake and commercial execution, partially offset by competitive PFA ablation catheter uptake in the U.S., as well as prior year trade inventory dynamics and VBP in China. Abiomed delivered growth of 16.3%, driven by strong growth in all regions and continued adoption of Impella 5.5 and Impella RP technology. Cardiovascular results also included $229 million associated with the acquisition of Shockwave. Contact lenses and other performance improved to 4.7%, driven by continued strategic price actions, strong performance in ACUVUE OASYS 1-Day family of products, a one-time benefit from a change in U.S. contract shipping terms worth approximately 150 basis points, as well as lapping prior year impacts from Russia sanctions. Surgical Vision grew 1.9%, driven by TECNIS PureSee and TECNIS Eyhance, partially offset by China VBP and softness in the U.S. Surgery declined 0.7%, with the Acclarent divestiture negatively impacting results by approximately 110 basis points. Performance was driven primarily by competitive pressures in energy and endocutters, as well as VBP and the anticorruption campaign in China. This was partially offset by commercial execution, strength of new products across wound closure and biosurgery and continued price increases associated with Argentina hyperinflation consistent with market practice. Orthopaedics growth of 1.3% was primarily driven by success of recent product launches and commercial execution, partially offset by competitive pressures, impacts of China VBP and revenue disruption from the previously announced Orthopaedics transformation. Now, turning to our consolidated statement of earnings for the third quarter of 2024. I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. We continue to invest strategically in research and development at competitive levels, investing nearly $5 billion or 22% of sales, which includes a $1.25 billion payment to secure the global rights to NM26 bispecific antibody. Even when excluding this investment, R&D as a percent of sales increased 30 basis points. Selling, marketing and administrative expense as a percent of sales was leveraged 100 basis points, driven by the realization of optimization efforts following the Kenvue separation. Interest income was $99 million as compared to $182 million of income last year, driven by a higher net debt position primarily related to the financing impacts of the Shockwave acquisition. Other income and expense was a net expense of $1.8 billion compared to an expense of $0.5 billion in the prior year. The increase in expense was driven by a $1.75 billion charge related to the talc litigation settlement proposal, partially offset by prior year higher unrealized mark to market losses on public securities, as well as the monetization of royalty rights. Regarding taxes in the quarter, our effective tax rate was 19.3% versus 17.4% in the same period last year. This increase was primarily driven by the tax treatment of the NM26 bispecific antibody acquisition and OECD Pillar 2. Excluding special items, the effective tax rate was 19.3% versus 15.6% in the same period last year. I encourage you to review our upcoming third 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. Innovative Medicine margin declined from 45.4% to 37.9%, primarily driven by the $1.25 billion acquired IPR&D expense to secure the global rights for NM26 bispecific antibody, partially offset by the monetization of royalty rights. MedTech margin declined from 24.7% to 24.1%, driven by increased R&D investment and lapping of a prior year divestiture gain, partially offset by supply chain efficiencies. As a result, adjusted income before tax for the enterprise as a percentage of sales decreased from 37.6% to 32.4%, with acquired IPR&D expense impacting results by 560 basis points. Starting in 2025, aligned with recent FASB reporting disclosure requirements, we will begin providing additional P&L details by segment. This concludes the sales and earnings portion of the call. I'm now pleased to turn it over to Joe.

Joe Wolk, CFO

Thank you, Jessica. In the third quarter, Johnson & Johnson delivered results that illustrate not only the breadth of the business, but our ability to consistently beat financial expectations. Innovative Medicine continued to build on strong first-half revenue momentum. We are advancing our pharmaceutical pipeline, achieving significant clinical and regulatory milestones across key therapeutic areas. Our MedTech business, with the addition of Shockwave, delivered operational growth of 6.4% in the quarter, but did experience headwinds in the Asia Pacific region. We continue to fortify our future advancing the OTTAVA robotic surgery system to IDE, expanding VELYS use and launching new intraocular lenses. Due to dynamics in the Asia Pacific region, specifically in China, we are taking a responsibly conservative approach by assuming no material improvement in that part of the business for the remainder of this year. And as such, we expect MedTech adjusted operational sales growth for the full year 2024 to be closer to 5% versus the 6% we referenced last quarter. The strength of a diversified business enables us to more than offset volatility in one part of our business, but yet be in a position to once again increase 2024 guidance for the enterprise. Before diving into the results, I'll take a moment to touch on some enterprise-wide updates from the quarter. We are making progress towards resolving talc litigation. Our pre-packaged bankruptcy plan received overwhelming support from the current claimants of roughly 83% as well as the future claimants representative. As announced last Thursday, the case will be heard in the Texas Bankruptcy Court. And while we remain committed to bringing this matter to a resolution, it would be premature to speculate on timing. In addition to the pipeline highlights Joaquin mentioned, there are some additional notable advancements throughout the quarter. In oncology, we received U.S. and EU regulatory approval for RYBREVANT in combination with chemotherapy as a second line treatment for adults with advanced EGFR-mutated non-small cell lung cancer. With FDA priority review underway for a subcutaneous formulation of RYBREVANT, along with data supporting a treatment regimen to reduce adverse events, we are building a best-in-class EGFR portfolio. We also presented Phase 1 data for RYBREVANT with chemotherapy in metastatic colorectal cancer patients, extending the asset's potential beyond lung cancer. In multiple myeloma, we advanced our leadership position with FDA approval and filing of two DARZALEX FASPRO quad-based regimens for newly diagnosed patients. With CARVYKTI, we announced three-year follow-up data showing significantly extended overall survival and gained approval for commercial production at our Ghent facility, further expanding supply capacity. Finally, in oncology, we added to the growing evidence base for our TARIS platform with positive Phase 2b data in patients with high-risk non-muscle invasive bladder cancer and positive interim to Phase 2 data in patients with muscle invasive bladder cancer. In neuroscience, we submitted to the U.S. and European regulatory bodies for what would be the first global approval of nipocalimab for the treatment of people living with generalized myasthenia gravis. For the remainder of the year, we expect approval of TREMFYA subcu for Crohn's disease and data readouts on JNJ-2113, our targeted oral peptide for psoriasis and ulcerative colitis, JNJ-4804, our co-antibody therapeutic for inflammatory bowel disease, aticaprant for adjunctive major depressive disorder and nipocalimab for rheumatoid arthritis. In MedTech, we completed enrollment of the Omny-IRE clinical trial to evaluate safety and effectiveness in mapping and treating symptomatic paroxysmal atrial fibrillation during standard ablation procedures. Also in Cardiovascular, we are preparing for the anticipated approval of VARIPULSE in the U.S. and the submission of Impella ECP for regulatory approval. In Orthopaedics, we launched several exciting new products in the U.S., including our VELYS SPINE robot and VOLT Plating System. The plentiful pipeline progress across our businesses will ensure continued success. Let's now turn to cash and capital allocation. Free cash flow year-to-date was approximately $14 billion compared to $12 billion last year, which included eight months contribution from the Consumer Health business. We ended the third quarter with $20 billion of cash and marketable securities and $36 billion of debt for a net debt position of approximately $16 billion. Our capital allocation priorities remain unchanged. Our strong balance sheet enables us to strategically invest to grow our business while simultaneously returning capital to our shareholders. Innovation remains core to our strategy. During the quarter, we invested nearly $5 billion in research and development. This is an increase over 2023 levels even after excluding acquired in-process R&D expense. Thus far in 2024, Johnson & Johnson has deployed approximately $18 billion for strategic acquisitions and licensing agreements, which includes the recent acquisition of V-Wave, another innovative treatment in heart failure, which closed last week. Turning to our full-year 2024 guidance. Excluding the impact from acquisitions and divestitures, we are increasing our adjusted operational sales guidance. We now expect growth in the range of 5.7% to 6.2% with a midpoint of 6%. We are also increasing operational sales growth by $200 million to a range of 6.3% to 6.8% with a midpoint of $89.6 billion or 6.6%. As you know, we don't speculate on future currency movements. For today's call, we are utilizing a euro spot rate relative to the U.S. dollar of $1.10, slightly above last quarter's guidance. This results in an estimated incremental positive foreign currency impact of $200 million, reducing our previous full-year negative impact to $1 billion. As such, we expect reported sales growth between 5.1% to 5.6% with a midpoint of $88.6 billion or 5.4%. Regarding the rest of the P&L, with the addition of the V-Wave transaction, we now anticipate our 2024 adjusted pre-tax operating margin to decline by approximately 200 basis points. Excluding the impact of asset acquisition accounting and related R&D investment, we would be on track to improve operating margins by 50 basis points, which is consistent with what we guided to at the beginning of the year. As we strive to advance and accelerate our pipeline, you can anticipate elevated levels of investment in the fourth quarter. Net interest income is now projected to be between $450 million and $550 million, $150 million greater than our previous guidance. Other income is anticipated to be in the range of $1.9 billion to $2.1 billion, an increase versus previous guidance, driven by the one-time monetization of royalty rights, which Jessica referenced, that will be utilized for that higher Q4 investment I referenced a moment ago. Our effective tax rate, consistent with previous guidance, is expected to be between 17.5% and 18.5% for the full year. Similar to last quarter, we have provided an EPS bridge to outline the impact from acquisition activity throughout the year. Before the impact of the V-Wave acquisition, our outlook for adjusted operational EPS performance is once again increasing. As the schedule reflects, we are expecting an incremental $0.10 per share increase on our operational performance for a total increase of $0.18 per share for the year. On this basis, when excluding acquisition activity throughout the year, EPS growth is 9.2%. To account for the completion of the V-Wave transaction, as previously disclosed, our adjusted operational EPS guidance now includes dilution of $0.24 per share in the fourth quarter and $0.06 per share in 2025. Combined, this yields an updated 2024 adjusted operational EPS guidance of $9.91 at the midpoint of the range, basically flat year-on-year despite absorbing approximately $0.92 of acquisition activity. While not predicting the impact of currency movements utilizing the recent exchange rates just referenced, our reported adjusted earnings per share for the year now estimates a full year positive impact of $0.02 per share. As such, we expect reported adjusted earnings per share of $9.93 at the midpoint. We are still finalizing our plans for next year, but let me provide you some preliminary qualitative commentary to inform your modeling for 2025. For Innovative Medicine, we remain very confident in our ability to deliver growth despite a significant LOE resulting in sales above the $57 billion commitment we stated in 2021. This will be driven by our end market brands and continued progress from our recently launched products, including TREMFYA in IBD and RYBREVANT in non-small cell lung cancer. Regarding the STELARA LOE, we are planning for biosimilar entries in the U.S. in January, assuming that HUMIRA's erosion curve is a relatively good proxy for your models. We continue to expect a negative impact associated with the Part D redesign. In our pipeline, we anticipate data readouts across all our priority platforms: anticipated approvals of TREMFYA subcu in Crohn's disease, RYBREVANT subcu for lung cancer and nipocalimab in generalized myasthenia gravis, as well as potential filings for TARIS in bladder cancer and aticaprant in major depressive disorder. As a reminder, TREMFYA, RYBREVANT and TARIS continue to be the three largest underappreciated assets in terms of our revenue projections versus what analysts are estimating for the back half of this decade. For MedTech, we continue to expect to deliver on our long-term objective identified at last year's Enterprise Business Review of growing operational sales in the upper end of the 2022 through 2027 weighted average market growth rate of 5% to 7%. We also expect continued adoption of newer products across all MedTech businesses, such as VARIPULSE in electrophysiology, VELYS enabling technology across Orthopaedics, Odyssey and PureSee in Surgical Vision and contributions from our Abiomed and Shockwave integration. Specific to volume-based pricing in China, we expect continued impacts from the rollout of the 2024 tenders in Orthopaedics sports and intraocular lenses and anticipate VBP to continue expanding across provinces and products. Moving to the rest of the P&L. When thinking about operating margin, there are pluses and minuses. Tailwinds include an anticipated reduction of acquired IPR&D expense year-over-year, continued focus on MedTech margin improvement and continued OpEx optimization benefits post the separation. Working against us is unfavorable product mix driven by STELARA biosimilar entrants and Part D redesign. With a brief look at your models last week, the consensus margin does not appear unreasonable, and we'll provide further clarity in January once we complete our 2025 plan. We do not expect to maintain the heightened levels of interest income due to a reduction in interest rates and impact from debt experienced in 2024 related to acquisition activity. Regarding other income and expense, we expect lower net other income due to the non-recurring nature of the monetization of royalty rights experienced in Q3, a lower benefit related to employee benefit programs based on discount rate assumptions, as well as income lost on the Kenvue dividend. Lastly, based on what we know today, under current tax law, we anticipate our 2025 tax rate to be slightly lower than our anticipated 2024 tax rate. To wrap up prior to Q&A, we are pleased with our underlying 2024 performance that simultaneously fortified a strong foundation for continued success heading into 2025.

Operator, Operator

Thank you. We'll now begin the question-and-answer session. Our first question is from Chris Schott from JPMorgan. Your line is now live.

Chris Schott, Analyst

Great. Thanks so much for the question. Maybe just one on talc here. I know this is still limited comments, but it seems though the company has obviously made some advancements here into getting this behind the organization. Maybe just can you help us a little bit in terms of, from your perspective, next key steps to watch from here? And what is J&J's overall level of confidence that you have a path to resolve this in the relative near term for the story? Thanks so much.

Joaquin Duato, Chairman and CEO

Yeah, thank you, Chris. And as you have heard me before, our intention with respect to the talc litigation is to bring a responsible, final and comprehensive resolution to these claims. And we are making meaningful progress to do just that. We have filed our pre-packaged reorganization plan with the support of 83% of the claimants. And also, we have had a decision of the court to keep the filing in Houston. So, as I said, we are making progress in this resolution that I refer.

Erik Haas, Head of Worldwide Litigation

Hi. Thanks, Chris. This is Erik Haas, Head of Worldwide Litigation. Judge Lopez last week on Thursday, after ruling that the case properly and appropriately should remain in Texas, ordered the parties to meet and confer and agree to a schedule for the expeditious resolution of the case. And by that, it means setting forth a schedule to get through to the confirmation procedure, addressing any ancillary motions, whether the motions to dismiss or issues relating to the votes. And the parties are in that process. We contemplate putting forth a schedule that resolves those issues through the end of the year for a confirmation hearing sometime at the beginning of next year. So that's the schedule we're on.

Operator, Operator

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

Larry Biegelsen, Analyst

Good morning. Thanks for taking the question. Tim, on MedTech, maybe help us understand the impact of the one-time items in Q3, such as the ortho SKU rationalization. How you're thinking about the impact from the hurricanes in Q4? And what gives you confidence you can deliver the high end of that 5% to 7% next year? Thanks for taking the questions.

Tim Schmid, MedTech Leader

Larry, thank you for your question. We're pleased with the 6.4% operational growth for the quarter and 5.7% for the full year. Our results highlight the success of our strategic shift into higher-growth, higher-margin categories, particularly in cardiovascular. Almost $300 million was contributed from the Shockwave acquisition, which continues to meet expectations, along with Abiomed. Moreover, we expanded our portfolio with the acquisition of Laminar in the fourth quarter of last year and recently announced the closure of the acquisition of V-Wave, which opens up more exciting high-growth, high-margin opportunities in Cardiovascular. Regarding Orthopaedics, we anticipate another strong year with 3.2% growth, despite a slightly weaker third quarter due to structural changes in the sector. We expect a significant rebound in the full year, especially in the typically stronger fourth quarter for Orthopaedics. We are seeing impressive growth of 6% and 7% specifically in the hips and knees categories, largely driven by our enabling technologies in VELYS for knees. Additionally, we've added the Uni Knee indication, along with our KINCISE and Hip Navigation systems for hips. In terms of Orthopaedics performance, we are addressing portfolio gaps within our trauma line with the launch of TriLeap, and VOLT in the second half of the year. Our spine portfolio has faced challenges, which we aim to overcome with the introduction of TELIGEN, our new TriALTIS thoracic lumbar system, and a new spine robot that has just received approval. Concerning the hurricanes, we felt the effects of Hurricane Helene in the final weeks of the third quarter and continue to experience impacts from Milton, particularly in the most affected areas. We need to be cautious about the potential impacts of the recent IV saline shortages, which could affect surgical procedures across our portfolio. Thank you, Larry.

Operator, Operator

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

Louise Chen, Analyst

Hi. Thank you for taking my question here. I wanted to ask you how you see TREMFYA, JNJ-2113 and some of your other pipeline products coming together to replace sales lost to STELARA and then take share from entrenched competitors? Thank you.

Jennifer Taubert, Innovative Medicine Leader

Hi everyone, this is Jennifer. I want to start by acknowledging and thanking my colleagues in Innovative Medicine for an outstanding third quarter. We've made significant progress with our strategy, achieving double-digit growth in 11 key brands and notable milestones, including the approval and launch of TREMFYA for ulcerative colitis, as well as RYBREVANT and LAZCLUZE for first-line non-small cell lung cancer. We've also completed the acquisition of NM26, a promising Phase 2 asset for atopic dermatitis. Looking at our immunology portfolio, we're particularly excited about TREMFYA and its prospects. We received approval for TREMFYA in ulcerative colitis during the quarter, and we believe it has a strong position in inflammatory bowel disease. The product has had a great start and received positive feedback from the medical community. TREMFYA stands out as the only dual-action IL-23 inhibitor, targeting both IL-23 and the CD64 receptor cells, setting a new standard in efficacy with the highest rate of endoscopic normalization. Our robust head-to-head data against STELARA demonstrates its superiority in Crohn's disease, and we envision unmatched flexibility with its subcutaneous induction and maintenance dosing. For the quarter, TREMFYA generated $4 billion in sales from psoriasis and psoriatic arthritis alone. Given what we've seen from STELARA regarding its strength in inflammatory bowel disease, we believe TREMFYA is a comparable, if not superior, asset. Looking forward, we are also excited about our oral asset, 2113. I'll hand it over to my colleague John Reed to share more about why we are enthusiastic about this development and the upcoming data, as we see it offering advanced efficacy and a known safety profile in a convenient oral tablet, which is excellent for appropriate patients currently on biologics and presents a significant market expansion opportunity into earlier lines of therapy. John?

John Reed, Colleague

Yeah, thanks. The 2113 is really moving along nicely. As you know, this is our targeted oral peptide, a very exquisite, elegantly designed molecule that binds to and blocks the IL-23 receptor, and it is orally available with once-daily dosing. The psoriasis indication is fully enrolled now, four Phase 3 studies, which are quite broad and include head-to-heads against TYK2 inhibitors as well as both adult and adolescent patients as well as a study in patients that have disease affecting hard-to-treat areas, scalp and other parts of the anatomy that can be very difficult to clear typically. So, we're really looking quite comprehensively there, and the data will be rolling out in the next few months. So, we look forward to sharing those at the appropriate time. In inflammatory bowel disease, we're in a signal-seeking Phase 2 study in ulcerative colitis where we're exploring different doses before moving into more advanced studies, given that the IL-23 pathway is well validated in inflammatory bowel disease. Thanks to STELARA and TREMFYA, we're quite confident that those studies will come through for us, but we'll wait for those data later this year to see how that oral medication is faring there. The other thing I'd maybe mention just in case it's not on your radar is we also have a co-antibody approach, we call it 4804, where gus and gol, TREMFYA and our TNF inhibitor are combined for patients who tend to be on the more refractory side. And we're in the middle of inflammatory bowel disease studies there that will read out next year. So, really excited about that antibody combination as well. So, altogether, the immunology portfolio is really quite robust and particularly in inflammatory bowel disease in the areas of dermatology where we've had traditional strengths.

Jennifer Taubert, Innovative Medicine Leader

We really do think that we've got a winning portfolio for inflammatory bowel diseases. And maybe just one addition because I know we've had questions on this in the past on 2113, we're going to be developing that really across the spectrum, so both ulcerative colitis as well as Crohn's disease. So, we're starting off in ulcerative colitis, but absolutely have plans to develop it in Crohn's as well.

Operator, Operator

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

Terence Flynn, Analyst

Thank you for taking my question. Regarding the multiple myeloma portfolio, there has been significant growth in CARVYKTI this quarter. You mentioned some drivers, but I would appreciate it if you could provide more details on what you're observing in the second-line setting right now. Additionally, as we look at TECVAYLI for the remainder of this year and into next year, what will be needed to achieve greater growth for this product? Do we need to wait until we reach earlier lines of treatment to see further growth in that franchise? Thank you.

Jennifer Taubert, Innovative Medicine Leader

Hi, Terence, thank you for your question about multiple myeloma. I won't provide too much detail on DARZALEX, but it's important to mention that we achieved $3 billion in sales, reflecting over 20% growth. DARZALEX continues to perform very well as we gain market share, especially in frontline treatment for both transplant-eligible and ineligible patients. I truly appreciate your inquiry about CARVYKTI. We reported $286 million in sales with year-over-year growth of 88% and quarter-over-quarter growth of 53%. This strong momentum is attributed to several factors. First, there's significant demand following the CARTITUDE-4 approval for second-line and beyond patients. Additionally, new overall survival data for CARVYKTI has been presented, which is quite substantial and highlights the importance of this treatment for patients with multiple myeloma. Furthermore, we are making excellent progress in expanding our capacity, increasing the number of slots available daily in Raritan. Our Ghent manufacturing site in Europe is now approved for commercial production and is actively serving patients. Our contract manufacturing organization in the U.S. is also producing for clinical needs. Overall, considering the product's performance, new data, and ongoing capacity expansion, CARVYKTI continues to show robust performance. As we've noted before, growth may not be perfectly linear quarter-to-quarter due to the nature of capacity expansion, which resembles a stair-step pattern. However, the second quarter was more robust than the first half, which aligns with our discussion. We have now treated over 4,200 patients with CARVYKTI, making it the most successful CAR-T launch in the industry. Regarding TECVAYLI and talquetamab, let's start with TEC. TEC sales stood at $135 million, showing 21% growth for the quarter, though it remained flat sequentially. We're seeing strong market uptake and longer treatment durations from physicians, suggesting ongoing growth potential for the product. It's performing well for patients not only in its current therapy lines but also in combination studies with DARZALEX and TAL. We believe there's significant growth potential ahead. For TALVEY, we have not yet reported sales, but we anticipate starting that next year. Both TAL and TEC are expanding, not just in academic settings but also in community settings, and we see substantial growth prospects for the future.

John Reed, Colleague

There are a few important points to note. TEC is not only the first-in-class BCMA-targeting T-cell engager, but the data also indicate it is best-in-class compared to other similar molecules. The complete response rates are approaching 50%, with about half of the patients achieving deep responses. The duration of response is nearly two years, and the discontinuation rates are very low, under 5%. This reflects our weight-adjusted dosing strategy, which is effectively benefiting patients. We're excited about the early data combining TEC with dara, which shows very high response rates in patients who have undergone multiple treatments, and we are currently in Phase 3 studies involving patients with one to three prior lines of therapy. A similar narrative applies to TAL, which targets B-cells and poses fewer risks of severe infections. In late-line treatment, it has demonstrated the highest overall response rates of any T-cell engager bispecific for myeloma. We see significant upside potential here as well. Additionally, the combination data with dara are quite impressive. We are progressing with this combination, leveraging the advantages of both the T-cell engager and the CD38 class, and J&J is uniquely positioned for this.

Operator, Operator

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

Danielle Antalffy, Analyst

Good morning, everyone. Thank you for taking my question. I have a quick inquiry about the EP business. It seems very relevant right now, and there hasn't been much of a slowdown noticed. I understand that Q3 was likely the first quarter where we experienced a full launch of PFA. I'm interested in your thoughts on the underlying market growth and how PFA compares to RF. Additionally, as we look towards 2025 and VARIPULSE, how do you see that affecting J&J's EP business? Thank you.

Tim Schmid, MedTech Leader

Thank you, Danielle. And as you said, it is a really exciting time to be in electrophysiology. And we couldn't be more proud of the significant leadership position we've held in this category for more than 20 years. And just to put our performance in context, our EP business is a $5 billion business, which grew 11% in the third quarter and 17% year-to-date. We are actively progressing our launch of VARIPULSE in EMEA and in Japan, where we still are executing against our soft launches. We've had over 800 successful cases. We shared the data from our admIRE study at the recent HRS meeting showing 85% primary effectiveness in that portfolio and that product. And we believe we've got a product that really will hunt. As it relates to the U.S., you're right, we're seeing continued competition, especially in the ablation space, given that we don't currently have a PFA product. But having spent a lot of time in EP labs over the last couple of weeks, I can tell you that we are incredibly excited for the availability of VARIPULSE, which we expect to have approval sometime later this quarter or in Q1 of next year. We are still, by the way, mapping the majority of those cases, Danielle. That's what most people don't see is that while we may not have that product in the portfolio, we are mapping more than 50% of competitive cases. In fact, we've updated our market-leading CARTO software to actually reflect better visualization for competitive products. And what we've seen in the market, and I can't give you specific data, but a significant increase in procedures on the time it's taking EPs to perform ablation procedures with PFA. And by the way, today, we're benefiting from the volume increase from PFA even though we don't have that catheter. And so, that combination of the 5,500 installed base of CARTO system's best-in-class mapping and highly trained mappers, we believe, is a significant advantage and positions us extremely well when PFA comes to market. I will also say that similar to RF, which by the way, we still believe has a play within the portfolio, we have the best-in-class RF catheter with QDOT, 86% primary effectiveness, this winning strategy in RF has been a full portfolio. And similarly, in PFA, beyond our first launch with VARIPULSE, you will see a full portfolio of focal, large focal single shot and dual energy catheters. By the way, we already applied for CE marking for our dual energy catheter. And so, we're confident in our leadership position in EP and our sources of differentiation for the future. Thank you, Danielle.

Operator, Operator

Thank you. Next question today is coming from Shagun Singh from RBC Capital Markets. Your line is now live.

Shagun Singh, Analyst

Good. Thank you so much. I was hoping you could elaborate on the dynamics that you're seeing in the Asia Pacific region in MedTech, specifically China. Could you quantify the headwind? When do you expect it to normalize? And you did talk about China VBP, and that has expanded into additional provinces and products. So, could you just elaborate on the impact there, and how we should think about it in '25? Thank you.

Tim Schmid, MedTech Leader

Thank you, Shagun. And yes, we've had a myriad of issues hitting us in the Asia Pacific region of late. And let me just highlight a couple, and I'll certainly get to your question on China. Firstly, you may know that in February of this year in Korea, the government initiated or at least a strike was initiated among the healthcare professional community. Unfortunately, we don't see any end in sight to that. And so that certainly has been a headwind. We're seeing macroeconomic pressures in Japan. And then, more importantly, to your question, the ongoing impact of volume-based procurement, which has also been exacerbated by the anti-corruption campaign. And by the way, while we believe this is absolutely the right thing to do and we support it for the long term, it is impacting procedures and the engagement by healthcare professionals with companies like ours, especially on premium products. We have a leadership position. We have the largest medtech company in China. And given the high leadership positions, we are seeing a disproportionate impact from VBP. We have five major categories impacted through tenders in 2023 in electrophysiology, trauma, spine, endocutters and energy, and more recently, IOLs and sports in our Orthopaedics business. We do believe that this will be a headwind through the remainder of '24 and into '25. That said, we are absolutely confident that China continues and will continue to be an important part of our portfolio. Even with the impact of VBP, we believe we can deliver tremendous growth and returns for our shareholders. And I think this really talks to the strength of our global portfolio across medtech, the fact that we can offset headwinds in one geography with better performance in places like Europe and the U.S. Please rest assured, we also believe that this part of the world, especially in Asia Pacific, will continue to be a growth opportunity. And let me tell you why. 60% of the world's patients live in that part of the world. And we're proud of the fact that we've been in many of these markets many, many years and expect to continue to do so. The final point I'll make is, let's remember, while, this is a headwind for MedTech, this is not material to Johnson & Johnson. When we look at our global sales across Johnson & Johnson, less than 5% of our business is in China. Thank you again.

Operator, Operator

Thank you. Next question is coming from Vamil Divan from Guggenheim Securities. Your line is now live.

Vamil Divan, Analyst

Great. Thanks for taking my question. I have a question on the immunology side, just on TREMFYA and STELARA. So, you mentioned the U.S. sales for both those products were a little bit lighter. And we were expecting and you mentioned this unfavorable patient mix impact in the quarter. So, I'm just curious if you can just go in a little more detail on what you're seeing for those products in the U.S. specifically. And is this patient mix issue sort of this quarter? Is it adjustments from prior quarters? And is it something specific to Johnson & Johnson, or is it maybe something broader to the immunology market? Thank you.

Jessica Moore, Vice President of Investor Relations

Yeah, Vamil. If you talk about with patient mix, this would be something that is specific to some of the true-ups that we do. As you are all aware, we end up having to make an assessment on our gross to net reduction. And as we get final bills in, there always are some true-ups. Sometimes they're for the positive, sometimes it is a negative reduction. So, when we refer to patient mix, this is different patients coming through different channels as well as some of the accounting true-ups for the final payments that we make. Then, I will hand it over to Jennifer to specifically talk about the performance and the commercial perspective of TREMFYA and STELARA in the U.S.

Jennifer Taubert, Innovative Medicine Leader

And I think if we look at TREMFYA, outside the U.S., we saw impressive growth at 27%. In the U.S., it grew a little over 9%, mainly due to the patient mix issue that Jess mentioned. We believe the outlook for continued TREMFYA growth is strong, especially with the launches in ulcerative colitis and the upcoming launches planned for Crohn's disease. Regarding STELARA, we experienced a decline, again related to the patient mix issue in the U.S. Additionally, we noted a decline outside the U.S., particularly in EMEA because of biosimilar competition. We recognize that STELARA is approaching the end of its lifecycle, but TREMFYA and the rest of our portfolio remain robust with significant growth potential.

Operator, Operator

Thank you. Our final question today is coming from Jayson Bedford from Raymond James. Your line is now live.

Jayson Bedford, Analyst

Good morning. Maybe just a question for either Tim or Joe. Appreciate the color on MedTech, but the 5% bogey for the year still implies a decent acceleration in 4Q off a tougher comp. What gets better in 4Q? And then, just a quick clarification. The IV solutions dynamic from Helene, are you seeing an impact on volumes outside of Western North Carolina and Florida? Thanks.

Tim Schmid, MedTech Leader

Thank you for the question. Let me address the last point first. We have observed the most significant impact in the regions affected by that storm. As I noted earlier, we are particularly cautious about any potential effects from a further shortage of IV fluid, which could impact elective procedures, and we are closely monitoring that situation. As Joe mentioned, we now expect to achieve adjusted operational growth of about 5% and more than 6% on an operational basis for the year, despite the challenges we previously discussed in Asia Pacific. We believe the momentum we are experiencing heading into the fourth quarter, especially in our Cardiovascular divisions with our successful portfolio in electrophysiology and robust double-digit growth in Shockwave and Abiomed, indicates significant progress. The performance from these areas has been outstanding. Additionally, as we indicated in the first and second quarters, we anticipate improvements in our Vision business, which has historically shown solid mid-single-digit growth. We had an exceptional third quarter, reinforcing our confidence for an even stronger fourth quarter, particularly driven by enhanced performance in our contact lens segment. In the U.S., our key market, we saw double-digit growth for contact lenses in the quarter, thanks to a stabilization of our distributor inventory, allowing us to regain new wearer share now that we can sell without limitations, especially in our astigmatism portfolio. We strongly believe Vision will have a particularly strong quarter ahead. Furthermore, across our entire portfolio, we are seeing the benefits of remarkable new product launches, particularly in Cardiovascular with the E8 peripheral catheter, and continued success in Abiomed with our extensive range of pumps. There are also significant new products in our surgery and orthopaedics divisions, which I mentioned earlier, adding differentiation to our portfolio. Typically, the fourth quarter is a stronger period for us, so I remain very optimistic about achieving around 5% growth on an adjusted basis and exceeding 6% operationally. Thank you.

Jessica Moore, Vice President of Investor Relations

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

Joaquin Duato, Chairman and CEO

Thank you, everyone, for joining the call today. As you have heard, we delivered strong results in the third quarter. Our high-innovation and high-growth portfolio and pipelines are advancing rapidly, and we are increasingly confident in our expectations for 2025 and beyond. Enjoy the rest of your day.

Operator, Operator

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