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CNBC Transcript: Johnson & Johnson CEO Joaquin Duato Speaks with CNBC’s Meg Tirrell Live During CNBC’s Healthy Returns Summit Today

CNBC

WHEN: Today, Wednesday, March 30, 2022 

WHERE: CNBC’s “Healthy Returns Summit: Reality, Recovery and Opportunity”

Following is the unofficial transcript of a CNBC interview with Johnson & Johnson CEO Joaquin Duato and CNBC’s Senior Health & Science Reporter Meg Tirrell live during CNBC’s “Healthy Returns Summit: Reality, Recovery and Opportunity” today, Wednesday, March 30th.

All references must be sourced to CNBC’s Healthy Returns Summit.

MEG TIRRELL: I want to bring in now our first guest Joaquin Duato, the CEO of Johnson & Johnson. J&J of course was instrumental in the vaccine race for COVID-19. We’re going to talk about that but Joaquin first I just want to welcome you. You know first time we’ve gotten to chat since you’ve taken the CEO role in January. Thanks so much for being part of “Healthy Returns.”

JOAQUIN DUATO: Thank you Meg. So happy to be with you here today in this my first interview, and so proud to be the 8th CEO of Johnson & Johnson in its 135 years of history, and also the first one who is not US born for a company with such a rich global history, a legacy.

TIRRELL: Well, absolutely. So, having taken the role in January, but of course, you’ve been with Johnson & Johnson for 33 years, I believe, what’s priority number one in the top job?

DUATO: Priority number one Meg is to be able to step up to the moment that we have in front of us in healthcare. I think we are in a moment of opportunity, where the combination that we are having of society recognizing the value of health, and science and technology bringing new therapies, it’s gonna create more progress in health in this decade that we have seen in the last 100 years. So I’m very optimistic about the future and how Johnson & Johnson is going to step up to the moment. Now I also understand that we live in, in a difficult situation in volatile conditions. My heart goes to everybody affected by the war in Ukraine and at the same time, as you guys were discussing earlier, COVID-19 is still moving in certain regions of the world and we are monitoring the situation but overall, in taking the job, I’m convinced and filled of hope of the potential of science and technology to continue to deliver progress and how Johnson & Johnson is going to step up to the moment.

TIRRELL: And you’re also coming into the role at a time when J&J is embarking on a big transformation. You announced last November the plans to separate out your consumer healthcare business into its own publicly traded company. Those are of course the iconic brands that a lot of folks know J&J for, your Tylenol, Band-Aids, Listerine, things like that. So as you prepare to do that, what is the new J&J going to look like without those iconic brands?

DUATO: Thank you and as you refer, that’s what we do at Johnson & Johnson. We need to be able to evolve to meet the demands of our customers and patients around the globe. And we believe strongly in the rationale of creating two companies. One, our global consumer health company, which is going to be scaled to compete globally with the iconic brands that you described, like Tylenol, Aveeno, Neutrogena, Listerine, and then a new Johnson & Johnson around medtech and pharmaceuticals that is going to be focused in the patient and by combining medicines and surgical techniques is going to be at the forefront of the transformation in healthcare. So, we are very optimistic about what we are doing there. For the consumer health company, it’s going to be an opportunity to deepen the relationships with consumers, to attract new investors, to inspire employees, and to be able to have a fit for purpose model, their own capital location priorities to thrive, and then for the new Johnson & Johnson is going to be an opportunity to be more focused, more competitive and to deliver increased growth.

TIRRELL: Well, let’s talk about some of those business units. You know, one area of focus for investors but also for other people in the healthcare world just trying to get a sense of what’s happening with the pandemic. People have been looking at your medical devices business. You’re always the first in the space to report earnings every quarter. And so folks look to J&J is kind of this bellwether for the health of folks going to the hospital and having surgeries and procedures. How predictable do you see that business being in the recovery of that business as we move through the pandemic and people are getting these kinds of procedures done again?

DUATO: Thank you. So, we have seen a good performance, a strong performance of our medical device business in 2021, with close to 16% growth, so good performance there. Certainly, our medtech business is been affected by COVID and the reduction in elective procedures that COVID has brought. Now as we continue to move out of the pandemic and we are optimistic as you mentioned before that it will become a manageable condition as we continue to move out of the pandemic, what we see is that our medtech business is in a stronger competitive position. We have now we are now gaining share in all our priority platforms and we are poised to deliver also a good 2022 as the year continues to evolve. So, we are optimistic about the future of our medtech business. We think that the fundamentals of medtech are always there, that medtech is crucial to continue to deliver innovation for patients, improve surgical outcomes and our medtech is going to become increasing increasingly more digital, increasingly more connected, increasingly more smarter, and that’s going to help surgeons to be able to deliver better surgical outcomes so very bullish about the future overall of our medtech business and our ability to become more competitive as we come out of this pandemic.

TIRRELL: Well, let’s talk also about your pharma business and where growth is coming from there. You know, what are the areas that you see the most exciting technologies in either inside the company or outside the company and how do you look at external opportunities like M&A, especially at a time when there’s so much technology being developed? There’s also so many biotech companies, it’s really hard to keep track of all of these we hear from a lot of people in this space. How does J&J stay on top of all of that and how do you sort of plan for growth?

DUATO: Absolutely. For us, innovation is the lifeblood of our business in everywhere in medtech, in consumer health, and in pharmaceuticals, and we invest in innovation. We increase our investment in innovation in 2021 by 23%, more than 2 billion in the middle of the pandemic. That’s a sign of how much we believe in the opportunity that I was describing before of combined science and technology to deliver improvements in patient care. Focusing on our pharmaceutical business, what we have seen is a step change in our R&D productivity. In November, we had an R&D day in which we presented a lineup, a pipeline of 14 new medicines to be filed before 2025. All of them providing significant improvements in the standard of care and at the same time, all of them with more than a billion-dollar potential. What type of things are we seeing there that makes us hopeful about the future different treatment modalities make. For example, we just had the approval of CARVYKTI, which is our first cell therapy for the treatment of a type of cancer called multiple myeloma. CARVYKTI utilizes our immune system to attack the cancer cells and in the clinical trials, we were treating patients that had already had multiple lines of therapy and they were on their way to hospice and we have seen 98% responses there. So, we are very optimistic about the treatment modalities that we are bringing like cell therapy that are going to enable us, have an aspiration to be able to cure some diseases that were thought to be incurable.

TIRRELL: Well, that’s a great goal to have. And then just to follow up, how much are you looking externally for innovation to potentially partner or to acquire and how is the environment for acquisitions in the biotech space right now?

DUATO: Thank you. External innovation has always been very important for Johnson & Johnson. Our company, as broad and as ambitious as we are, needs to look not only inside, but also outside. The best science is not always going to be inside of Johnson & Johnson and historically, our growth has come at least half, 50%, of that from external innovation. So every time we see cutting edge innovation out there, or even programs out there that may be better than our programs, we jump into action. We have a very sophisticated ecosystem to be able to identify and onboard external innovation. It can take different shapes, it can be, be partnerships, it can be, be collaborations, it can be via sometimes acquisitions. We also have, have created over time a network of incubators in which we have had more than 700 companies. We do hundreds of deals every year so external innovation is very important for Johnson & Johnson overall. Now, for the most part, our deals are things that are emerging technologies, areas in which we can create more value by utilizing our scale in discovery, in development, in manufacturing, in commercialization and many of them have translated into significant innovations. For example, we have done that with one of our largest medicines DARZALEX in multiple myeloma. Sometimes we also look at bigger M&A. We did it five years ago when we acquired Actelion. When we look at bigger acquisitions, it’s more complex, and obviously, they always have to clear a higher financial barrier and more steep financial metrics. Overall, external innovation will remain a core focus for Johnson & Johnson and the important thing is to have the capability to understand where the pack is going, to understand where science is going, to be the first ones in onboarding new technologies like like cell therapy, gene therapy, that are going to transform the future of medicine and as I said before, Johnson & Johnson is going to be ready to step up to the moment.

TIRRELL: Well, we’re getting some great viewer questions, one of which dovetails with what the next thing I was going to ask you about, we know that you served as the Interim Chief Information Officer for J&J in 2019 and so you’ve got to focus on data science. Eric asks, “How are you starting to use artificial intelligence in your medtech devices and also pharmaceutical business” and I’d expand that, are artificial intelligence, data science in general, tell us about J&J’s strategy here.

DUATO: Thank you. So, I had the pleasure to be the Interim CIO of Johnson & Johnson for almost a year so that gave me a great appreciation of how the combination of our increased insights into human genetics combined with artificial intelligence and machine learning can accelerate discovery and development of new medicines and I will give you some examples in a moment. But importantly, also how automation, optical recognition, machine learning, artificial intelligence can make surgeries smarter, and can help us through robotics. So, I believe that technology is going to be foundational in being able to deliver these new therapies that I was talking to you before. Let me give you some examples for, in understanding the origins of the disease. Now we can we can do genomic sequencing, and at the same time with large data sets, utilize AI and machine learning to create patterns in which we can correlate diseases with genomic profiling to identify where are going to be the underpinnings of diseases that are going to be the triggers. the targets that we are going to be able to utilize in our discovery. In our discovery now for example, we are using also machine learning and data science and optical recognition to transform we, the way we analyze new medicine. So now we use a cell, a single cell and we drop that test compound and through imaging, we can identify much faster than before what is going to be the pharmacological activity of this profile, what is going to be the expected toxicities and that accelerates the development on discovery of new medicines. Going into development, we can plan much better our clinical trials, we are able to create synthetic control groups instead of having placebo groups and we are also able to stratify and identify patients that are difficult to find in rare diseases utilizing algorithms that enable us to identify them. So, I’m very bullish about the potential of technology in accelerating discovery and developing new medicines but at the same time, I’m equally bullish about the potential of technology, medtech in improving surgical outcomes. I see a future in which all medical devices would be smarter connected to the cloud, being able to provide data to the surgeons for them to be able to in real time improve surgical outcomes and you are seeing that already, through the digitalization of medtech and through robotics, so very bullish on the potential of technology to accelerate progress in human health.

TIRRELL: Well, this is fascinating. I could ask you about a half an hour’s worth more of questions. We can do a whole conference just on this topic. But I will move on, you know, curious also, how is J&J adjusting to what you’re seeing in terms of inflationary pressures? Are you passing those along to consumers at all? What can we expect from J&J there?

DUATO: Thank you. As I said before, this is a volatile situation and we’re seeing headwinds in different areas, for example, in inflation, in supply chain, in availability of important raw materials and components. We continue to be vigilant in monitoring all those things. And we believe that we are able to manage these things better than, better than most. Our scale, our size enable us to be able to navigate these circumstances better better than most. And most of it is already included in the guidance that we provided earlier in the year which which conveys a healthy growth rate, both in revenues and in EPS. We are optimistic about the future. Some of these trends are going to be mitigated as the year goes by. Some of them as inflation may take longer. But overall, we are very optimistic about the fundamentals of healthcare and the ability that we are going to have to continue to deliver new therapies, new medical devices that step up to the moment and create progress in addressing diseases in completely different ways.

TIRRELL: And in the consumer business specifically because that’s the one that most directly you’re selling right to consumers, will they be feeling that that bite of inflation at all will Band-Aids cost more, you know, will Neutrogena, Aveeno products cost more?

DUATO: The consumer business, as you mentioned, is one that obviously is more affected by the inflationary pressures. Overall, we’ve seen volatility in the consumer demand, but we continue to see a very solid consumer business coming through and we continue to try to deliver what is best for consumers and we continue to try to mitigate our cost increases by improving our own efficiency and in some cases also having price increases but overall, we are bullish about the potential of our consumer health business, and about our ability to navigate the inflationary pressures in a way that is optimal for consumers.

TIRRELL: We’re just about out of time, but I can’t let you go without asking you about your COVID-19 vaccine and the efforts that you’ve put in there. What do you see is the future for J&J’s COVID vaccine, where you have the CDC having made a preferential recommendation for the mRNA vaccines over J&J’s vaccine? What role will it play going forward, both in the US and around the world?

DUATO: Thank you. That’s a great question and let me start by saying that we are so proud of Johnson & Johnson being able to develop a COVID-19 vaccine. Back in 2020, our scientists, our researchers, and thousands of people around the company jump in and develop a COVID-19 vaccine that was, that showed easy to distribute, a low-cost platform that is having a significant impact in addressing the pandemic there where it’s most needed in places where have low resources, in places where they are still going through the first vaccination. And we are very proud about the role that our vaccine is playing and will continue to play in addressing the pandemic. For example, now in Africa, we just signed an agreement with a South African company in order to be able to manufacture and distribute our vaccine in Africa. So overall, we feel very proud about the role that our vaccine is playing, and we continue to see that important role in addressing the pandemic there where it’s most needed.

TIRRELL: All right, and I think we’re just about out of time, but we did get one more audience question we want to put to you and then I want to bring in Tyler who I think has a question for you. But Mark from the audience asked, “What’s the limiting factor for innovation right now? Is it money, talent, regulation, something else? All of the above.” What is it?

DUATO: There’s, there’s, I said before, rather than the limitations, I prefer to focus on the opportunity. As I said, I believe strongly that we can make more progress in this decade than we made in the last 100 years. And there’s a combination of factors which are fostering that. One is, on one hand, society has understood the value of having strong healthcare ecosystem. I think that what we have seen with the vaccines and the progress on how vaccines have supported others in the pandemic has reconfirmed society’s belief on the importance of healthcare. On the other hand, we’re seeing a great explosion on better understanding of the underpinnings of the disease, the genetic basis of the disease that helps us identify in the right targets to affect combined with new treatment modalities and the use of technology in surgery, which is going to improve outcome. So I want to look at the opportunities, opportunities to be able to address suffering globally, to address diseases that remain incurable and that’s what I think you’re going to see in this decade. Great progress in human health.

TIRRELL: Tyler?

TYLER MATHISEN: It’s great to see you again. And I want to ask a question that that bears on some things that have happened at the company in the past years. You know, Johnson & Johnson, it’s no surprise perennially one of the most respected admired corporations in the country in your DNA I think every every employee lives by a pledge I can’t remember exactly the the term that you use to to describe it. And yet in recent years, and there’s no company that’s probably done more to help more people live better than than your own, but in recent years, there have either been judgments or settlements or payments in at least three areas. One is talc, the other is hip replacement under the pinnacle subsidiary and the third is opioids that have amounted to in some cases, billions of dollars paid out and in others, hundreds of millions and some others that are still under litigation. The company has not under those terms they’ve not admitted any responsibility. I wonder whether those payments are material to the company’s performance financially and have they been material to the company’s otherwise sterling reputation? Could you talk me through that just a little bit in light of what’s been going on?

DUATO: So Tyler, what the plates do refer, it’s what we call our credo, which is a statement of principles that dates backs already 75 years that puts the patients and consumer first, then our employees, then the communities and then if we do a good job for all these three stakeholders, then shareholders are going to have their return. So that’s what we call our credo which is the DNA of Johnson & Johnson, what guides our decisions and the connective tissue that makes our organization a cohesive group and we understand that we have a reputation. We understand that we have a high bar and a high expectation from society overall and we are ready to step up to the moment as we have done during our more than 135 years of history. Yes, we have some challenges and when you refer to the litigation, we are always trying to have the same principle. We always try to do what is fair and equitable in finding a resolution that is good for all stakeholders. That has been our position in every situation regarding with the litigation. Ultimately, we want to always reach a fair and equitable resolution in order to be able to focus on what we do best and what we do best is to continue to develop medicines, medical devices, consumer products that improve consumer lives, and also are able to address patient’s needs in multiple ways to alleviate suffering and to, as I said before, to get diseases that are incurable curable. So that’s our mission. Our mission is to continue to affect the trajectory of health for humanity and that’s where the 135 employees of Johnson & Johnson are focused every single day.

MATHISEN: Forgive me for not remembering the word credo because it was, it was such a, in our last conversation, it was such a central part of it. I appreciate your reminding me. I appreciate your taking my question and the answer, and we’re very, congratulations by the way, on your appointment as CEO.

DUATO: Thank you.

MATHISEN: It’s wonderful to see you again Joaquin and Meg thank you so much for your participation as well. Very grateful to both of you and we appreciate it. Thanks, guys.

DUATO: Thank you.

TIRRELL: Thanks Tyler.