Johnson & Johnson (NYSE:JNJ ) Bernstein 38th Annual Strategic Decisions Conference June 1, 2022 10:00 AM ET

All right. Excellent. Well, thanks, everyone, for coming. I'm Lee Hambright, are U.S. Medical Devices Analyst at Bernstein. We are thrilled to have Joaquin Duato, CEO of Johnson & Johnson. We're scheduled for a 50-minute fireside chat. Just a reminder, you can submit questions via the Pigeonhole link.

So Joaquin, first of all, thanks so much for joining us.

Thanks for being here. You've stepped into the CEO role in January. So it's been about five months now. I know you've had the opportunity to travel around, spend time with the J&J team and customers around the world. Maybe you could just kick us off with some opening remarks about the state of the business at J&J.

So thank you. Thanks for having us here today. And yes, I mean it's been already five months since I became CEO. I've been working in Johnson & Johnson for more than 30 years. So it's not that the company is unknown to me. I've worked in the three sectors in Pharmaceuticals, MedTech and medical devices. I ran business, both in Europe and in the U.S. And it's been a great opportunity for me now to be able to travel, especially after COVID. In many places, I had not been for at least two years. So I've been in Asia, I've been in Europe. Here, traveling around the U.S., and it's been great to be able to meet our employees and see how energized they are coming back out of COVID, most of the places, and seeing what passion they have about the future.

At the same time, when I travel, I also visit customers, government officials, hospital systems, and I see a lot of opportunities for Johnson & Johnson, a lot of confidence on our customers and other stakeholders on us. They want us to be able to fulfill the higher standard like our investors and they have high expectations on Johnson & Johnson. But overall, what I see around the world is that employees love to work for Johnson & Johnson and our customers have a strong level of confidence in Johnson & Johnson and our ability to do well for humanity and to bring new products and medical devices that are going to change lives.

So I see the company in great shape, and I see the company especially strong coming out of the pandemic, and part of that is being demonstrated by our results in the first quarter that very well received by the state in the middle of all this situation of geopolitical tensions, the unfortunate and painful war in Ukraine, supply chain challenges, inflation, we've been able to deliver a very solid result in the first quarter that has been well recognized across our three businesses. So I see the company in a great shape. I am very, very enthusiastic about the future of Johnson & Johnson.

Very good. Thank you for that. So maybe let's start with your priorities. I think at the end of last year, you laid out your top three priorities as CEO. Number one, to make MedTech best-in-class performer; number two, to deliver on long-term growth goals in pharma; and number three, to ensure a successful creation of new consumer health company. Wonder if you could maybe just reflect a little bit on how your thinking might have evolved in your first six months on the job?

Thank you. So I continue to have a sharp focus on these three priorities. So my focus remains on these three priorities. First one, as you mentioned, the creation of the new Consumer Health Company. This is a historical opportunity for us to create a global consumer champion, which is going to be global scale, close to $15 billion of sales. And we believe that we are in the path for the creation of the new company, and we just announced who is going to be the CEO of the segment and the CFO of the segment. So we are well on our path there.

That is also going to give us an opportunity to reinforce the new Johnson & Johnson around Medtech and Pharma, make leaner, make it more focused and make it more competitive. So that's number 1 priority for me.

The second priority is connected with the new Johnson & Johnson, is continue in our journey of improved performance in MedTech. We'll discuss more about that. You've seen an improved performance. We grew 1.5% in 2017, and the last quarter, the growth of MedTech was 8.6%. It's a combination of improved execution both in the commercial side and very much on the pipeline. So that's a very important goal for me that I have underscore in every single opportunity they have. What a focus for me is to improve our performance in MedTech.

And then the third performance is to continue with our trajectory of above market growth in Pharmaceuticals. It's been a track record of a decade of our market growth. Now what we stated in our R&D Day back in November is that we plan to continue to grow above market until 2025, growing every single year and reaching $60 billion by the end. So those are the three priorities that I have.

I believe that we are well in our way in the three of them, and that's going to be a source of focus for investors and stakeholders of our performance moving forward.

Great. So some investors have wondered why not break up all three businesses. You've talked about bringing kind of the best of software, the best of MedTech and the best of pharma together to solve important health care problems. And you've offered lung cancer as a priority area to that end. But we haven't seen a whole lot of drug device synergies so far. Just wondered, do you expect drug device combinations to become a more material driver of growth during your tenure?

Yes. Our diversified structure has served us well during a long period of time, and it's been a source of value creation for investors during a long period of time. And it does come with advantages of size. You have the advantage of being more consistent in the delivery of the result. You have the advantage of having a strong balance sheet. So our setup has served us well.

We have reached the conclusion after a thoughtful deliberation that we would be better served for the future by creating a company squarely focused on the consumer and creating another company focused on the patient. Why creating a focused company on the consumer? Because the capabilities, the market dynamics of the consumer market are quite different from the ones a med tech and pharmaceutical company face.

And as a consequence, that we would benefit from having a fit-for-purpose organization, a dedicated capital allocation priorities and a specific set of capabilities to be successful in the consumer area, and we are well on our way for that separation that we plan to complete in the second half of next year. So I think that's clear and that's the result of a deep conviction that we are going to be able to provide better returns and more visibility for investors if we create a separate consumer company.

It also comes with a conviction that both MedTech and pharmaceuticals share the same mission of addressing the same diseases, the same patients, the same customers, both on the physician side, on the payer side, and on the regulatory side and that we can not only coexist, but also do important things together. So why keeping the two groups together? First, because we're going to retain the value of being a broadly diversified company, which is something that investors normally appreciate.

We'll be a company with sales of more than $80 billion. Within this $80 billion, we'll have -- we have already 25 platforms of more than $1 billion. So talking about diversification, I think that's diversified enough. And we'll be able to provide the benefits of having a very strong balance sheet, which helps us having more flexibility and optionality and providing better consistency in our returns for shareholders. So we are going to retain the benefits of size and diversification. But at the same time, we're going to be more focused on making sure that both MedTech and pharma are best-in-class performers on their own right, and that will be my priority, that MedTech and pharma are best-in-class performers on their own right.

And then, and only then, we'll earn the right of doing what you mentioned, which is let's do things together. We are going to be able to do things together in many different areas. One is in products, but there are other areas that we can do things together. For example, I get a lot of questions about technology and how technology is impacting both MedTech and pharmaceuticals. We are going to be able to have a stronger technology capability by leveraging our scale across MedTech and pharmaceuticals and by being able to be a better partner by having both groups together.

We're going to be able to have a stronger depth of talent by levering our strength of having two large sectors. So there's going to be some benefits from a capability and talent perspective of having a more broadly diversified company between MedTech and pharmaceuticals because many of these skills are transferable between the two groups as we have demonstrated, not only in commercial, but in supply chain or even in R&D, we see transferable skills speed with two groups.

The other element is what you mentioned about products, and products and services. Is there a possibility of having meaningful contribution of product and services that combine medical devices and pharmaceutical? There is. There is, and we have some examples of that. We just had the approval of our first drug-eluting contact lens, which is our ACUVUE contact lens coated with ketotifen for patients or individuals that need vision correction and also have allergy, which is a large percentage of them.

We are working with our robotic bronchoscopy system, Monarch, in order to be able to diagnose early lung cancer lesions as Monarch is able to reach distal parts of the lung and then in the same procedure been able to eventually treat them either with ablation or with drugs and we're already in both cases in patients testing that hypothesis.

We commented in our latest R&D review daily pharmaceuticals that we have a drug-eluting device platform that we can implant with a cytoscope in the bladder that is going to be able to have a very controlled release of medications locally in the bladder that is going to open a platform for us that we told you that it's going to be a more than $5 billion platform in early stage bladder cancer, starting with gemcitabine and going into also with Balversa with our FGFR inhibitor. So we believe that we're going to open a new disease area, as we did in prostate or in multiple myeloma in bladder, which is going to be focused in treating early stage cancer. So yes, there are possibilities.

And I think that in the future and even today, when you think about diseases, they normally have pharmaceutical and surgical intervention. Any solid tumor, when you think about the treatment plan, it does carry some pharmaceutical intervention and some surgical intervention. So the future of medicine, it's going to have a combination of both surgical and biopharmaceutical interventions. And we are going to be better positioned than anybody else by combining the skills and the capabilities of having both MedTech and Pharmaceutical business with underpinning the financial profile of a company as a strong as Johnson & Johnson and the capabilities that size is going to bring us.

Amazing, thanks. I'd like to circle back to some of those therapy areas in a little bit, but maybe first diving in on MedTech. You talk about making MedTech a strong performer in its own right. I wonder, and you also spoken about success in MedTech as being a defining element of your tenure as CEO. I wondered now that you've been in the role for about six months, how do you think about defining success in MedTech?

Thank you. So first, let me reemphasize the strength of our MedTech business. We have in our MedTech business, 11 platforms of more than $1 billion. Of these 11 platforms, the vast majority of them, they are either maintaining or gaining share. And they are -- most of them are growing and they grew strongly in our first quarter, as I commented earlier. So we have a strong MedTech business as it is today. And it also has been, as you have noted, too, Lee, in a journey of improved performance.

I mean we went from 1.5% growth in 2017 to 8.6% growth in the first quarter of 2022 and also good growth in 2020 and in 2021 despite of COVID. So we're in a journey of improved performance. And I believe that, that improved performance, while it's been noted by many analysts has not been yet recognized in our stock. So the fact that we are doing better in MedTech, I don't think it's been yet recognized in the price of our stock.

So it is important for me. It is important for me because I strongly believe in the future of Johnson & Johnson in MedTech. And I do believe that there are important areas of improvement in standard of care in MedTech that can be achieved by combining our prowess in engineering with our expertise in digital technologies. Every single area of medical devices is going to be made smarter, connected, able to provide data to give real-time insights to the surgeon to improve its practice, to reduce complications and readmissions that unfortunately still exists today in surgery.

So how are we improving? And why are we improving? There's a component of being able to have better commercial execution on the ground, blocking and tackling as simple as that. And very importantly, there's another component of improving in our pipeline and in our cadence of new product launches. And many of you have noted that in the last 24 months, we have upped the number of new product launches that we have had in all our areas, making us more competitive there.

It starts, for example, in vision surgery with the launch of our intraocular lenses. When we go to orthopedics, we have launched our Bellis new robotic system and our cementless knee. If you go to the area of electrophysiology, in which we continue to have very strong growth and share gains, we have launched both a new diagnostic and a new treatment catheter, and we continue to work in the area of field pulse ablation where we're already in patients. And in surgery, we continue to innovate in our instrument portfolio, both in staplers and energy devices. And we are being quite successful with the launch of our 3 plus uncoated sutures, which are providing us additional value.

So in every single area that we are competing in MedTech, we are increasing the bar of innovation and we are becoming more competitive in those markets than we were before based on our better commercial execution and improving pipeline. 2021 was our record year in terms of new product launches in MedTech, and we expect that cadence to continue into the future.

Great. So in addition to organic means, you've talked about getting more acquisitive, particularly in MedTech to get access to higher growth segments. I think you must have had nine different questions about the same topic in your first earnings call. When you look at all the sub-segments in MedTech, where you do play and where you don't play, can you maybe just reflect a little bit on the types of MedTech markets that you find particularly interesting?

So in order to caveat that question, the majority of our growth will continue to come through our organic improvements, let's be clear. I mean we are a very large MedTech business. In order to move the needle for our MedTech business, it's going to be difficult only through M&A. The majority of our growth, it's going to come from the improvement in our commercial execution and in our organic growth. So let's that put important for investors to understand.

Then as in any other area, M&A is an important component of growth and has been historically also in MedTech. In the last years, we've invested about $10 billion in MedTech in M&A to highlight acquisitions that investors recognize are all is that we did it in robotic surgery and also about medical vision, which is the base of our surgical vision business. And we continue to do small acquisitions all the time that are less known. For example, very recently, we bought a company called Crossroads Extremities that is going to give us the opportunity to get into the Bunions, Hammertoes market. So M&A, it is and will continue to be an important factor for us in MedTech as it is also in pharmaceuticals.

And I would underline that we do have, comparatively speaking, more flexibility of M&A than other companies based on our size and our position today as far as our cash flow generation and debt.

Now where do we look, and I have to be careful here not to, as you can imagine, initiate the speculations. Our success in the past has always been, if we're able to look in areas where we have capabilities. So normally, we're going to continue to look in our areas that we have good understanding and this are vision, cardiovascular, surgery and orthopedics. And those are broad markets on their own, but those are the spaces where we normally are going to look either in our core areas or in close adjacencies. So that -- those will be the fields where we would continue to look.

Now in that context, we believe that we can create value if we go earlier on and historically, we have been able to create value more when we went to, let's call, what you guys would call small to midsized type of transactions. Those small to midsized type of transactions have a number of advantages. One is that you can create more value by adding the capabilities and the scale of a company like Johnson & Johnson. Sometimes because we can improve manufacturing. Sometimes it's because we can improve the development. Sometimes, it's because we can improve the global commercialization of that.

The second one is that it provides you with more optionality because you can have a portfolio of opportunities rather than a single one. And as a consequence, your financial risk is comparatively speaking, lower.

And the third one is that they are significantly easier to integrate. And integration is something that can create complication in itself, not only to the company that you are integrating, but also to your existing business. So I also would privilege simplification in the integration as a factor. So that's why for the most part, what we think is going to create more value is those type of acquisitions in which we can add something, development, manufacturing or commercialization that enables us, based on our cash position to be able to have a portfolio of opportunities and that they are relatively straightforward from an integration standpoint. So that will be the sweet spot for us.

Got it. Very clear. Thank you. China seems to be maybe starting to emerge from this latest wave of COVID lockdowns. You've got a leading MedTech business in China. Wonder if you could just share a little bit what you're seeing on the ground there recently?

First, look, I mean, let me look at the glass half full. I mean the news that we are hearing now is that things are starting to improve in Shanghai and other parts and lockdowns are starting to live. That's what we know today. I don't want to make a forward-looking projection there because COVID has surprised us in many different ways. So I'm talking strictly for what I know now.

So certainly, I mean, our results in the first quarter with 8.6% were good overall. We saw some impact in China, but it didn't impact the overall results of our MedTech business. And certainly, at a Johnson & Johnson level, China is an important component, but 5% of total Johnson & Johnson. So you have to contextualize that, right? So from where I am today, and from what I know today, we'll be able to manage the situation in China in the context of the guidance that we have provided.

Now our belief is that the COVID situation in China and in other places, well, we may have some ups and downs is in a direction of improvement. And that's how we are planning that things are in a direction of improvement. We may have some hiccups in the way potentially. But again, from what we know today, we'll be able to manage in the context of the guidance that we have already provided. And that's a benefit of the scale and diversification of investing a company like Johnson & Johnson.

We provide more consistency and we can manage multiple headwinds in a way that other companies can do. So in the current situation of volatility that we are living through, company like ours has more degrees to be able to navigate and operate those challenges.

Great. Thank you. Your VELYS platform for robotic total knee replacement is just ramping up now. And you mentioned a minute ago, approval of your cementless knee. You're launching VELYS now into a crowded market. All four big knee players have a robot. What's the early feedback? And what kind of expectations have you set for the knee franchise?

First, I mean we are very pleased with the launch of VELYS. We have already performed more than 2,000 procedures. But most importantly than the number of procedures is two things. One, the feedback that we are getting is great. I mean, surgeons, and I'm sure if you guys are doing market checks, you're going to hear that they like the VELYS system. It's easy to use. It has a reduced footprint. It's particularly suited for ASCs. So we are getting very good feedback from our VELYS knee system launch from our customers in different types of settings. So that's very positive for us.

So we believe that the combination of having VELYS plus the improvements that we have done in our knee portfolio not only with the cementless knee, but also with our medial stabilizer, it's going to help us continue to improve our competitive position in knees and continue to grow in knee. So that's what we would expect.

So I would think about VELYS as part of our total packaging needs. What I see is that our competitive position in knees based on that is improving. And the feedback we are hearing is that we have a best-in-class overall package in the knees area. It will take some time to materialize, but we are working towards improving our performance in knees, and we are seeing improved performance.

That's great. So another robot, your Monarch endoscopic surgery platform has now done over 40,000 bronchoscopies and just got a couple of new regulatory experiences for kidney stones. I wonder if you can give us a little bit of an update on your expectations for Monarch in these and maybe future indications.

Yes. So you mentioned that correctly. I mean, we have had an extensive use of Monarch in bronchoscopy. We just got 510(k) clearance for an application in rolling and kidney stones, and we continue to work in the GI tract for potential other applications in the GI tract.

Overall, when you think about Monarch, you have to think about the fact that we are building a robotic system for endoluminal surgery for the future. So don't think only about what we're in bronchoscopy or what we've made in GI or what we are doing in kidney stones which I think is going to be quite successful, and I will go into that in a second.

But think about a platform that is going to be important in this decade and in the following decade in having an endoluminal surgery platform for the future that eventually may combine with other robotic platforms, too. So it's important for us, irrespective of what we are doing now in the market, it's important for us to build this capability early on to be innovators in endoluminal surgery, which is going to be one of the components of surgery for the future.

So as far as the bronchoscopy application, I have been in hospitals looking directly how they do bronchoscopy with our robotic system and talking to customers about our bronchoscopy system. It enables you to do the procedure in a much faster way, you can reach to vital parts of the lungs. But they are excited about the potential application of in situ diagnosis. And down the road, potential to be able to treat some lesions either with energy and ablation or with some form of biopharmaceutical therapy like an oncolytic values. So that is differentiating for us.

So when I talk to customers that are using a bronchoscopy system, they think, oh, I would work with Johnson & Johnson because you are the only company that is not only going to help me doing bronchoscopy, which is fine. It's always -- it's going to help me advancing the standard of care in being able to diagnose in treating in the same procedure. And that is a super exciting vision for the practitioners that are doing bronchoscopy today, which is unique to Johnson & Johnson.

Kidney stones is a large market and we are excited about the potential that this may have. We are about to -- we have the approval. We're about to launch into the market, and we'll see how it goes. And then we are developing other applications in the GI tract. Overall, I see Monarch as a foundational platform for us in endoluminal surgery and how this is going to project us in this decade, but also 10 years from now.

Great. One more robot not to be forgotten, Ottava in the soft tissue surgery space. Ottawa has got a unique table-mounted arm design. You introduced it at your Investor Day 18 months ago. Wonder if you can give us an update on Ottawa and maybe share your thoughts on how J&J will compete in that market for soft tissue surgery?

Yes. So robotics overall is important everywhere. I mean, we discussed it in VELYS, in orthopedics. We discussed it in bronchoscopy, in the luminal surgery. I mean if you want to be even broader all our MedTech business is going to be impacted by some type of connectivity, sensors, visual recognition that is going to improve surgery and it's going to help surgeon have real-time insights and in certain instances, like in VELYS, assist them in some of the actual task of surgery.

So that's going to apply everywhere. And as a matter of fact, I could argue that our CARTO system in electrophysiology has robotic components to today or we just launched a new energy device that has a sensor that enables the surgeon to have real-time insights when they are performing laparoscopic surgery.

So robotics, or assisting the surgeon in performing surgery, it's going to be widespread and you are going to be using these techniques of sensors, visual recognition, capturing data and providing real-time insight to the surgeon, so we can improve outcomes. Then when it goes to soft tissue robotics, which is the one system of Ottawa, we continue to work there. It's an area which is still very underpenetrated. So we'll be able to get there and have a competitive offering.

And we continue to do working in advancing and progressing. And at this point, we have a very strong team in California, which is working there. Ashley McEvoy, who leads our MedTech segment is now in California also today working with them, and we are putting a lot of resources and energy and time in being able to come to the market with a soft tissue robotic system that would complement our overall robotics offering.

Excellent Okay. Let's shift to pharma. So you've got a few important products facing patent expiration soon, most notably, STELARA next year. But at your Pharma Day in November, you committed to a 5% CAGR through 2025 with growth every year and $60 billion revenue by 2025. Consensus is about $5 billion short of that target in 2025. Wonder if you could comment a little bit on what the Street might be missing about your Pharma business?

Thank you. So I get that question very frequently because there's a disconnect between what we say and the Street says, right, which obviously is something that investors have to think when they think about our stock, who is right? That would be the issue. We have a 10-year track record of our market growth in pharma. And the last time we made a projection about forward-looking sales was in 2019. And we said that we're going to get to $50 billion in 2023. We achieved that mark in 2021, so two years earlier. So I think that the best predictor of the future is our track record in the past. And in the pharma side, we have a strong track record.

That said, where is the disconnect? Mainly in one area. The disconnect is more in how the Street is forecasting mainly our existing portfolio of products, especially the ones that are what we think are going to be blockbuster or fast-growing products moving into 2025, namely DARZALEX in multiple myeloma, ERLEADA in prostate cancer, TREMFYA in psoriasis, erratic arthritis, Crohn's disease and ulcerative colitis and our long-acting therapy in antipsychotics, and our pulmonary hypertension franchise that has been impacted from COVID because there were less diagnosis because the ones that are doing the diagnosis of pulmonary RT hypertension are pulmonologists and it's a right heart categorization and that has been impacted for COVID.

So all these five groups have been -- are areas where we have a disconnect. Perhaps the most significant one is DARZALEX, which is going to be our biggest product there, and that's one that every time we have combined DARZALEX with any type of therapy, the clinical cells have improved the previous standard of care. So that's one area of disconnect and we can go more into details into every product. But the area of disconnect is our existing portfolio.

Then there is also -- but I would consider that more normal, some lack of recognition of the strength of our pipeline. We highlighted 13 NMEs to be filed from now to 2025. And with these 13, we focus on 5. These five, we said that each of them was going to have a potential of more than $5 million of peak sales. Let me go one by one, and then you can ask me questions of any of them if you want me to focus on them.

The first one is CARVYKTI, which is our BCMA CAR-T for multiple myeloma. It's already approved. It's already launched in the U.S. It's been just approved by the EMEA. And it has unprecedented results in multiple myeloma with 98% overall response rate and 87% complete response rate. There's no other therapy comparable to CARVYKTI.

The second one is nipocalimab, which is our own anti-FcRn for autoantibody-mediated diseases that we are developing in a number of indications, up to 10. In many of them, we're going to be first-in-class. In some of them, we may be second. So that's the second one. It's going to open a new category in autoantibody-mediated diseases. So I can understand that this may be a little bit more difficult for the Street to calculate until they don't see on the ground.

The third one is Milbexion, which is our factory lemon medicine for an oral anticoagulant, which we are developing in collaboration with BMS. You will have some important read in Milbexion in the second half of the year. And you can look at how big the market for oral anticoagulant is going to be. We're going to be developing Milbexion in areas where Factor Xa liquid Xarelto are not used today. So that's an important potential too. And I'm sure BMS, when they come here, they will talk about Milbexion. Remember that they are working 50-50 with us there.

The fourth one, it's the combination of our SME EGFR bispecific antibody, amivantamab, which is already approved that we are developing in a combination with an oral Egfr called lazertinib in EGFR-mutated non-small cell lung cancer, also in comparison with TARIS, which is the standard of care there. So that's another area in which we think we have significant opportunities.

And finally, and you mentioned that before, our drug-eluting device for bladder cancer that is implanted through cytoscopy that we already are in Phase III with gemcitabine and in combination with our own PD-1 setilimab in early stages of bladder cancer. So those are five products that are going to be launched, and they will have some contribution.

Since we had the November date, we have two products that have come to the forefront that we did not highlight as much in that November date, but I would like to mention them today. One is telkistamab, which is our BCMA CD3 bispecific antibody, which has breakthrough designation by the FDA. And other than CARVYKTI, has the highest efficacy rates in multiple myeloma and is an of the cell therapy that we have a potential approval in the fall of this year. So that's a positive surprise that was not discounted when we were discussing back in November. And the other one is our RSV vaccine that we may have a final read by the end of the year and a potential approval thereafter.

So those are seven products that I just initiated that are all in late stage or approved that could contribute for us to deliver on the $60 billion goal by 2025. And they also portend to significant growth acceleration in the second half of -- of the second half of the decade once we digest the patent expiration of STELARA.

Amazing. Those two actually you mentioned, could they potentially be in that $5 billion bucket as well? Or maybe in the...

It's early for me to say. It's early for me to say. I mean, it depends on the competitive environment in RSV and the results that we have. I have to see what is the market reaction to a bispecific antibody and of the bispecific antibody in multiple myeloma, because it would be better than we expected.

Yes. Great. One question from the audience before we get into some of these assets that you mentioned. A question about modalities. Does J&J have the necessary tools in the toolkit for new treatment modalities such as mRNA, gene editing, gene silencing, et cetera? Can those be addressed or accessed via licensing deals? Or do you really need to have those skills in-house in order to be successful monitoring?

I hate to go to a common place, but it's always a combination of having some expertise in-house, which enables you to do the right partnerships outside. So on one hand, if we don't have the right expertise in-house, and we have it, we cannot identify who are the high-quality partners. And if we don't have the high-quality partners, then we cannot be able to be present in all these areas. And we are partnering with multiple companies in all these modalities that you mentioned. For example, we are partnering with multiple companies in cell therapy. I mean the most known partnership is with Legend. But as you know, we also have partnered with Faith. We are partnering in gene therapy, for example, with MEDA GTX in inherited retinal diseases, which we are also in Phase III.

And we are partnering in RNA with Arrowhead in which we are also working in hepatitis B. And we have multiple smaller partnerships in other areas. So for us, it's always going to be a combination of having good internal expertise. We've been able to strike the right external partnerships, an area in which we historically have excel.

And doing that gives us, especially in these areas that, that is still, let me use the expression for in. I mean we don't know what are going to be the winning technologies in cell therapy or in mRNA or in gene therapy. It provides us optionality, so we don't get wedded to a single technology. We have more optionality of being able to work with different companies and participate in different platform technologies.

But we see that this is going to be a significant source of progress for the industry. We are excited about the possibilities. And the reality is that they have, as I was describing with cell therapy and CARVYKTI or with telkistimab and bispecific antibodies. And we definitely plan to be there, and we have the skills and the breadth of expertise in our R&D in order to be able to do that. Our R&D budget in 2021 was close to $12 billion. So we have the cloud and the ability to do that. And we have a very well-honed system to partner with companies through our Johnson & Johnson Innovation Group. And we have a lot of results and track record of being able to do it very effectively.

Our best introduction when we are talking to potential partners is not what we will do. It's what we have done already, and what they see and the reference they can take from us when they talk to other companies that have partnered with us in the past.

Very helpful. Thanks, Joaquin. So CARVYKTI, let's dive in there a little bit. It's an exciting approval came in February. It's a really complex supply chain with manufacturing that's actually customized for each patient. I wonder if you can just give us a sense for how the ramp is going so far and talk about what kind of capacity you hope to bring online this year.

Yes. We are synchronizing our certification of new sites with CARVYKTI with our ability to be able to supply to them. So we are going hand in hand. And we are working to expand our capacity in CARVYKTI and we think that by next year, we're going to be at -- let's call it, at regime to be able to supply and to be able to expand the numbers of certified centers. So things are going well. What we are hearing from our -- both physicians that are using CARVYKTI and patients that have received CARVYKTI is extremely positive. We are working to certify centers and we are able to synchronize our supply with the center certification. And we'll sequence our launches globally in order to be able to meet the demands of our customers. So we are positive about how things are going, and we plan to be at, let's say, capacity during 2023.

Great. Thank you. Vaccines. You mentioned your RSV vaccine. You mobilized resources during the pandemic to deploy a COVID vaccine with impressive speed and you've worked on this potential first-in-class RSV vaccine. You -- I wonder if you could talk about the lessons you learned from the COVID vaccine and maybe reflect a little bit on your broader aspirations in vaccines?

So first, we are proud of having been able to be in the U.S., one of the three companies that was able to develop a vaccine in record time, especially given the fact that we are not one of the traditional vaccine manufacturers as other were. So we are proud of our accomplishment.

And we have many learnings in different areas, we have learning clinical development, the scale and the speed of our clinical development with a vaccine was unparalleled. And we will use those learnings for the future. We use extensively data science in order to identify the right centers and we have to hone in our clinical operations machine in order to be able to develop our COVID-19 vaccine in such a record time.

There are certain learnings on the supply side. I mean we were talking -- when people were talking about vaccines in the past, we were talking about millions. And here, we started to talk about billions in a very short period of time. So there are limits on the manufacturing side and on the quality side that we will carry.

So overall, we believe that this has been an experience for the company, and we are particularly proud of the contribution that we have done to address the pandemic and our vaccine continues to have a role in lower resource settings like in Africa, and we are proud of that too.

As far as our future in the vaccine business, right, because it has to be clear that we did our COVID-19 vaccine as a contribution to addressing the pandemic, and we've been clear that we were not looking to make a profit there. So where is, let's say, the business counterpart of what we are doing? It's in our vaccine portfolio. The two best examples of our vaccine portfolio, it's our RSV vaccine, which is already in Phase III. It did have breakthrough designation by the FDA, and we may have a read by the end of the year. So you may expect an approval thereafter.

Doing an RSV vaccine is particularly complex. And no matter who gets first, it will be the first RSV vaccine. So because of the complexity of the RSV vaccines. And we shall see. I mean, what our actual results would be would depend on our clinical data and also about the number of other competitors that will be on the market when we get there. So that's on our RSV vaccine.

And then we have another vaccine, a bacteria vaccine, an e-coli vaccine for prophylaxis of e-coli infection systemic e-coli infection, but we are also in Phase III that we think could be a significant commercial opportunity. So those are our late-stage Phase III vaccines that I can talk about.

Do we see a future in vaccines beyond our existing vaccine platform, which is a cell-based vaccine platform at 26.1? We do and we are exploring the possibility of entering in different technologies as we do in many different areas. So yes, we see that there's a potential for us to explore different platform technologies in vaccines in the future. But I prefer to concentrate on what we have today in Phase III, which is our RSV vaccine and our e-coli vaccine.

Got it. Thank you. You mentioned the TARIS platform, which is very interesting and different and exciting. It's an innovative drug delivery platform, and you're studying it right now for bladder cancer. I wonder how you're thinking about that opportunity more broadly. Could the technology be applicable to lots of other local drug delivery?

Could potentially be in all other areas of genitourinary and renal. So it could potentially have other applications. Overall, we think that bladder cancer is an underserved area. Bladder cancer is a very frequent cancer. It has a very poor prognosis. And when we are thinking about bladder cancer, we're thinking in a similar way that we thought about prostate cancer in the past and also about multiple myeloma. So what we are trying to build is expertise in the disease area, in this case, bladder cancer and then utilize that expertise and that focus on the disease area to bring new treatments.

We are working, as I mentioned before, with combinations of our local delivery of gemcitabine through the TARIS platform with a PD-1 antibody that is our Cetrelimab and also we are also working on a combination of our FGFR inhibitor, erdafitinib, Balversa, which is already marketed through the TARIS platform also with trilimab in later stages of bladder cancer. So we think we can have a significant impact in the outcomes of bladder cancer today, and that in itself is a very significant platform.

Overall, when I think about what is the area in which to your earlier point, the combinations of medical devices and pharmaceutical interventions is more ripe for more breakthrough innovation. I clearly think that, that is the broad area of interventional oncology. So the ability to utilize combinations of medical devices and pharmaceuticals to address particularly solid tumors, it's an area where we may see potential in the future, and we plan to continue to invest. And we are uniquely positioned to do that in interventional oncology overall as a field that we plan to have a dedicated attention.

Excellent. Just a couple of minutes left. I think we can sneak in two. We've heard a lot about pressure on margins this year from inflation, supply chain pressures, higher input costs, rising wages, et cetera. You talked about these headwinds as being very manageable on your Q1 call. I wonder if you could just give us an update on how you're managing through all those pressures.

Thank you for the question. Actually, I think I responded earlier. From -- look, we are, as a company, we have best-in-class margins in our three divisions today. So oftentimes, when people are asking me, what do you think about the margin? Sometimes I say, look, I am more focused on revenue growth than I am our margins because I have potential for improvement in revenue growth. Our monies are already at a best-in-class, including medical devices, as best-in-class margins, right? So that's to frame our discussion about margins.

The fact that we are a large company helps us navigating different margin pressures as the ones you have described. And what I can tell you is from where we are today with what we know today, and I underline what we know today, we believe we're going to be able to manage these headwinds in the context of our guidance.

I mean could things get worse? I mean, I don't know. And COVID has handle all of us, right? I don't think that in 2020, you would have thought that in 2022, we were still talking about COVID. But the important thing for investors to consider is that from what we know today, given all the pressures that are going on, we still believe that we can manage that in the context of our guidance. And that is very unique of Johnson & Johnson. That is one of the advantages of investing in Johnson & Johnson that there's not a single thing that is material. We can manage multiple headwinds at the same time and still deliver a consistent result.

Great. Last one. This is the Strategic Decisions Conference after all. So you're six months into the role as you look out over the next three to five years what are the one or two most important strategic decisions that the new J&J will face?

So we already made a big one, which is the integration of the two companies. So I started already with a big one. So I hope you appreciate how important this is for us in the context of neuroscience because the consumer division is in the DNA of Johnson & Johnson. I mean when people think about Johnson & Johnson and I tell people I work in Johnson & Johnson, they don't think about our VELYS robotic system. They think about Johnson's Baby or they think about Tylenol or so. So that was an important decision, which is going to enable the new Johnson & Johnson to be squarely focused on the patient.

And I'm particularly excited about the combination of science and technology and how this could take us to be able to address diseases in a way that some of them we may be able to alleviate and elevate significant suffering. And some of them, we may be able to cure.

It's super exciting to look at what we are doing in multiple myeloma now. When you think about the 97% response rates with cell therapy, and you think about the potential of combining cell therapy with DARZALEX and with our bispecific antibody and sequence these therapies, you could think about the day in which this incurable disease could become chronically managed. So that is the most exciting piece for me, how we can turn some diseases that are incurable into chronic diseases and how we can vastly improve as we discussed before, the outcomes of surgery.

Still, we have too many readmissions; two, still we have too many complications. There's significant potential to do that. So our goal and the way we're going to continue to create value is to the extent we are able to impact health care and to impact medical practice, improving and alleviated suffering around the world.

Very good. Thanks so much, Joaquin. We really appreciate you being here. Thanks.