JNJ | Q1 2017

Geoff Meacham: Good morning. Welcome to the first morning session for the Barclays Global Healthcare Conference. My name is Geoff Meacham. I'm the Senior Biopharma Analyst here, and also Paul is here with my team on the stage with me as well. And today we have Johnson & Johnson, and speaking on behalf of Johnson & Johnson is Group Chairman for Pharmaceuticals for the Americas, Jennifer Taubert, welcome; and also Joe Wolk from the Investor Relations teams. So, he will kick it off with high a level discussion on -- you want to talk about just opening remarks on the pharma business. We'll get into some questions, but Joe if you want to first do this for us here.

Joseph Wolk: Thanks, Jeff. Thanks, Paul. We’re very happy to be here today. Before we begin, please be aware that some statements made maybe considered forward-looking statements, our SEC filings, in particular our 10-K discuss risks and uncertainties that could cause results to differ materially from those projected today. Additionally, we may refer to non-GAAP measures. Please see our Web site at investor.jnj.com for reconciliations to comparable GAAP measures. And finally remarks regarding actual financial performance represent results through the fourth quarter of 2016. Jennifer?

Jennifer Taubert: Terrific, well, thanks. Good morning, everybody. We’re particularly delighted to be here today, especially given the snow and everything that’s been occurring bank New Jersey. So much appreciate being here with you rather than at home shallowly. Right now is very exciting time for Johnson & Johnson and the pharmaceutical business as we really look to and lead into our next wave and cycle of growth for the business. And so I know we’ll go through some Q&A here. But we’re very excited over the course between now and 2019. We’ve got about 10 NMEs that we plan to be filing. This is consistent with the message that we gave back at our Pharmaceuticals Day back at about two years ago. Three of those compounds to have since then filed for instance so for a total of 10, with the ones that have being DARZALEX, guselkumab and sirukumab. Additionally, across our base of business, we plan to file 40 line extensions, at least 10 of which have very significant incremental potential of up to 0.5 billion each. So, we’re looking very forward to the next few years and entering into our next cycle of growth for the business, both with new pharmaceutical assets that really need our transformational and renovation hurdle, as well as being able to expand our current assets into significant new population for us.

Q - Geoff Meacham: Thanks a lot. Let's kick it off with an high level question on drug pricing. So, you guys published the first ever transparency report, which is a real very well received from investors and it’s a real testament to the practices at JNJ. I want to get your perspective Jenn on just the political environment. Do you think drug placing, it's gone from front-front issue perhaps to back burner with respect to the repeal and replace being the top priority. But I want to get your perspective as to what do you think, from an industry and for JNJ in particular. How does drug pricing fit into the expected changes that we're going to get, what dialogue have you had with politicians? I know Alex obviously met President Trump earlier this year.

Jennifer Taubert: Yes, that's right. My boss was down there in Washington as well. So, we are really pleased to have published our transparency report back at the end of last month; that we believe gives visibility and line of sight into what we believe are very responsible approaches that we take to running our business; our businesses practices, including pricing. And so all of this is available at our Web site if you’d like to go and take a look. But what it does show is that we've been a responsible party in, as it pertains to drug pricing; over the past few years, five-years, with our lift in our drug price increases being in the single-digit range; and realized pricing being in the low to mid single-digits. Really importantly for us, our business is really trying to reach patients. And so, our growth has really come from volume, not something that's been based on pricing. So, we believe the transparency report lays that out, as well as giving insight into additional practices. Notably, as a transformational medical innovator, we disproportionately spend on R&D to be able to bring new products to market, and products that have on the right datasets. And so you will see in the transparency report, we actually spent 55% more in 2016 on R&D than we did all of our global sales and marketing. And I think that is something that distinguishes us and separates us from the rest of the pack. We price our products based on the value that they bring to the marketplace and to patients. I think as we’re working with government officials as we’re working with payers, what we're really trying to do is help move the market to more of a value based system. Right now, it’s still remains a volume based system and we truly believe that overtime moving it to one that is more value based is going to be the right way to go. We believe our products perform very well. We believe we do all of the right work, both before launch and after launch to be able to document that value. And that we believe we’ll be able to have a very, very strong position going forward because of that. And so that's a lot of the discussions that have also been taking place both payer landscape, as well as government.

Geoff Meacham: One of the successes certainly from last year was DARZALEX in multiple myeloma. I want to get your perspective on -- obviously, it's moving further upstream in the paradigm perhaps in combination with Celgene’s Revlimid. But could you give your perspective on how does this asset fit overall within JNJ strategy, what's the long-term expectations? And do you feel like we're in an environment where the data to support say two to three to maybe even multiyear duration up there?

Jennifer Taubert: So, we’re really pleased with the DARZALEX launch thus far. I don’t know if everyone knows, but we actually received two breakthrough designations from the FDA on DARZALEX. We're able to bring it to market in totally record time. My teams are having to get used to launching products very -- at least to have years to get ready to launch a product, now it's a very, very short window. And so we launched it initially for relapse refractory. We’ve got approval late last year for use in line-two plus in combination with VELCADE or in combination with Revlimid and it is performing extraordinarily well. We are also studying it in front line therapy and our goal is really that DARZALEX, based on how its mechanism of action, what it's doing for patients with multiple myeloma that it truly become the backbone of therapy. And so we anticipate patients will be able to get long duration of therapy with that based on the effect that they’re having and also the effects that they’re having when used earlier and in combination with other agents. So, it's a big growth driver for us now, as well as one that we anticipate to be very, very significant for us going forward, and one where we’re investing a lot of resources. I believe we’ve got five Phase 3 studies going on as well as a number of other areas, both in multiple myeloma as well as exploring it in other disease states that have high expression of Anti-CD38.

Geoff Meacham: And then moving up the pharma P&L to REMICADE being the biggest contributor. Maybe just talk about your assumptions for this year, it's only been less than a few quarters. But what have you seen so far with respect to the biosimilar adoption for Inflectra. And then looking out, say a couple of years, how do you think about the REMICADE biosimilar threat to the franchise?

Jennifer Taubert: So, our immunology business, we anticipate to continue to grow in total this year, even despite REMICADE and potential intrusion to Inflectra. To-date I am really proud that the team has done a great job from an access and a contracting perspective to help make sure that patients who are currently on REMICADE can stay on REMICADE, and also where physicians want to prescribe it as the first choice that they’ve got access to do so. We’ve done a really nice job from that account. We do anticipate over the course of the year, probably to have erosion on REMICADE in total, in the 10% to 15% range. That’s what we’ve talked about that being a combination of price concession to make sure that we hold on to our strong asset; also, coupled with some relatively speaking modest loss at the actual patient level. To-date we’ve seen small numbers of units snigger away throughout the distribution system. We’re hard pressed to find out many patients that actually have any experience with the biosimilar agent in the U.S. I think really importantly as we look going forward we do continue to remain the leader in immunology, and have terrific assets that are either newly launched or coming in the space. So, Stelara continues to perform very, very well for psoriasis. It's still number one in terms of new to brand share in the psoriasis market, and the asset grew over 30% last year in 2016, even in the space of competition from the IL-17. So, market response to that product, both with its strong efficacy as well as terrific safety profile has been very good. We also launched Stelara in Crohn's disease where we believe that we’re inducing remission for patients with Crohn's disease very, very rapidly with our IV induction dose and then we’re able to treat the patients very conveniently over time, every week eight weeks with the subcue dose. I think we’ve got over 4,000 patients already on Stelara in Crohn's, and so response from providers as well as patients has been really good. And so we think that that’s going to be an important driver for us going forward. So Stelara will continue to grow. We’re excited and optimistic later this year for guselkumab, which we have filed and filed for psoriasis. We have got two head-to-head studies versus Humira that demonstrate superiority and clearance and with very high bars, including PASI 90 and PASI 100, 100 being complete skin clearance. And so we believe with guselkumab and IL-23 mechanism that we’re in the right place to both drive that rapid clearance, but also have the product persist overtime, o very, very great potential for guselkumab. And then last but not least also sirukumab, which is an IL-6 which we’re developing in partnership with GlaxoSmithKline. And we believe there is a huge base of patients that are on anti-TNF and have been those don’t work forever for everyone. And so we believe that there is an untapped pull and definitely an opportunity for IL-6 in the market given there is a significant number of patients with RA and ongoing need for treatment overtime. So, in total, we feel real good about our immunology portfolio.

Geoff Meacham: Jen, maybe we can talk a little bit more about the line extension strategy as part of this question, and you’ve just recently had from personal outlook or positive study called COMPASS, which will be -- data will be coming out later this year at the major medical meeting. And then within the SGLT2 category, you have the important CD study coming out in the near-term as well. Can you maybe just talk about how these studies figure for accelerating or maybe capturing share in these two categories, and then in few categories? And what it could maybe potentially do as we think about JNJ's pharma top line, going forward?

Jennifer Taubert: Absolutely. So as I mentioned, we've got 40 line extensions that we plan to file between now and 2019, at least 10 of which have $500 million potential or greater. And so, you just mentioned the COMPASS Study. So, if we start with XARELTO, we've got the largest lifecycle management program going on for XARELTO currently of all of the NOAC. And has potential to take the available patient tool from about 7 million patients in the U.S. now up to as much as 40 million patients, by going into different disease states and basically having the opportunity to change the treatment paradigm. So we issued a press release recently on the COMPASS data, which is the use of XARELTO in coronary artery disease and in PAD, of which there is at least 10 million patients and where this data has potential to currently change the treatment paradigm for the reduction of heart attack, stroke and death in patients with those diseases. We anticipate for that data to be presented this summer, hopefully at ESDP. And we've developed that with our partner Bayer. For XARELTO, there are number of additional big outcome studies underway as well in new populations, including heart failure, medically ill, some oncology applications, and large stroke of unknown source, not sure if I’m missing any, but a number of additional areas to go into to expand the population for XARELTO. So, we think that this data are going to be an important catalyst for us for growth for XARELTO in the future. Next one that you mentioned was Kansas, and we are in the process of closing out the Kansas trial right now and analyzing the data. And its schedule to be presented at ADA in June and we're optimistic for this data. I have not seeing anything yet, so I don’t know anything on the data. But if it proves out similar with our hypothesis, we should end up with strong results there. We think that very strong cardiovascular results for INVOKANA will be an important catalyst for growth, as well as to help further differentiate it within the SGLT2 class. So in INVOKANA right now is the only SGLT2 that actually has two head-to-head studies demonstrating superiority versus to do it, the other one to not. Additionally, our outcomes trial looks at a broader population than Lilly's Jardiance does. So, Jardiance look at a fairly sick population with preexisting cardiovascular, indication is about 16% of the total population, ours actually covers a much broader range. So, if we’re able to be successful with INVOKANA in this study, it actually will cover an even broader range both primary and secondary outcomes in patients for cardiovascular disease. But that’s really just a start. So, we’ve got additional indications and things that we’re developing with Pharmacyclics on improve the cost, going additional places with Pharmacyclics, and so on and so forth across the portfolio. So we think there is going to be a number of big catalysts for growth there.

Geoff Meacham: Looking more broadly across the cardiovascular field. Maybe can you talk a little bit about your approach or your future approach in the pulmonary hypertension field?

Jennifer Taubert: Absolutely. So, we are very excited about the opportunity that it presented with the Actelion acquisition. And do believe that we’ll be able to drive even greater growth out of that company than they would have been able to do it alone. First of all, we believe that our Opsumit and Uptravi are really terrific assets that meet our strategy of transformational medical innovation and really best-in-class, and also best data. Opsumit is the only agent right now that has true outcome data across all of those agents. We think that there is a number of things that we’ll be able to do with the Actelion folks to further expand the patient pull to drive greater growth. So, if we take a look across JNJ, we truly have global reach. And so we believe that we can drive geographic expansions, which is going to lead to growth. We believe that we’re going to be able to help them make significant investments and lifecycle management that can modify and expand the patient pool beyond just PAH but into other indications, such as D Test chronic thromboembolic pulmonary hypertension market that will at least double the size of what they are with PAH alone. We believe that we’ve got very, very strong contracting and access capabilities, which we think will come to bear here and that overall we’re very, very positive about that acquisition. And it's one that’s truly being made for growth reasons. It's an acquisition being made out of strength in line with our strategy. It's not one that’s being made for synergy purposes or something that’s being made out of weakness. It's truly one-based on strength and growth.

Geoff Meacham: Let's talk the prostate cancer opportunity with 509, and maybe just give us JNJ strategy for as ZYTIGA subsets with LOEs. How do you see 509 moving potentially upstream? What's then the adoption rate, I think for one of your competitors for Xtandi, it's been slow going, still positive move. But the adaption among urologists really upstream, and if you can paradigm, hasn’t really been as quick as someone have expected?

Jennifer Taubert: So, first, if I start off with ZYTIGA, ZYTIGA retains right now the number one share in terms of metastatic chemo resistant prostate cancer. So, whether you're looking at patients or prescriptions, or however you want to measure it, ZYTIGA actually has the number share over Xtandi and that actually continues. We don’t know exactly when we will move exclusivity in the U.S. We’ve got a number of core cases that are underway on that. But what I will say, in Europe, based on regulatory exclusivity as we have the asset through 2022. So ZYTIGA isn’t just -- soon to be gone in Europe, which I believe may even be a larger market than a U.S. in total, just in terms of prevalence of prostate cancer, we actually have ZYTIGA out till 2022. Prostate cancer is an area that we have designated that we really want to be, both in R&D and a commercial stronghold. So, we've been making a lot of investments in this space to make sure that we've got a robust portfolio, and to really go build it out overtime. So Jeff, you mentioned Apalutamide, which is currently in Phase 3 which we plan to take even earlier in treatment, as well as out through the later of lines of treatment as well. And so, we've got Phase 3 studies that are going on to demonstrate that. We also have work underway on Apalutamide ZYTIGA combination, which we believe will create even greater strength to the business. Apalutamide, we believe is very well differentiated, or that it will that it's well differentiated versus Xtandi. And so, we have enough similar mechanism, we believe, that we will be able to compete there. We also have an asset Niraparib that we've brought in that will be a single agent, as well as potentially use in combination with these assets. So, we believe that we’ll be able to really spend most of the spectrum of prostate cancer with these agents, so that it will be a good stronghold for us in the future.

Geoff Meacham: Jen, so maybe I stay on the topic of oncology. JNJ has a very well established franchise in hematology with regards to CLL and myeloma now, and obviously a very strong presence in prostate. But one area where you don’t currently participate in the market is immunoncology. And it's obviously a very big focus for pharma and biotech investors. So can you maybe comment on when we might start to see some material data start to come out of JNJ, and how you think about maybe developing an immunoncology franchise internally versus looking externally?

Jennifer Taubert: Got it. So, our efforts and our work in immunoncology are probably underappreciated right now. We haven’t talked as much about what we actually have in the works. But oncology is a major area of focus for us right now, as you see by the portfolio that we have and what we’re launching. But then specifically, immunoncology is also a very, very active area for us. So what you know with the PD-1s and PD-L1, they are not everything to all patients. And so there is still, across many, many cancers, is significant unmet medical need in the immunoncology space. We actually have 15 different compound right now that are in development in the immunooncology space, the latest one actually being Phase 2 and DARZALEX, which we’re studying. We also have one in Phase 1. We have some in Phase 1, and then also a number that are in the preclinical stages. They actually stand a variety of different mechanisms, four or five different mechanisms, that we think will end up being very, very complimentary. So, we think that this is a very important area for us to go after and solve very different cancer states. And so we are making a very big investment in it. I also think, I don’t know that we're building out or looking at it as immunoncology per se. I think we're taking a look at what is the specific type of cancer, how can we best go as to that and try to treat or even potentially even be able to cure it overtime, based on what are the right assets. So, I think we're looking at that within our various disease strongholds that we have and that we have intentions to build in the oncology space. I'm looking at it that way rather than just building out immunoncology, but more to come on that.

Geoff Meacham: And in the virology category, I mean obviously OLYSIO had a really robust launch to Hep C market as clearly let's say contracting with respect to new patients. But there is still a lot of innovations to come. Want to get your perspective; A on, where we are with respect to triple-combination by JNJ; and then looking probably outside of Hep C, how do you guys view, say other opportunities across virology and Hepatitis C or RSV, or things of that nature?

Jennifer Taubert: Yeah. So, if we take a start off with Hepatitis C, the pricing, as you know, has come down as there have been more competitors in the market. And the untapped patient pool has been tapped into. However, there is still our very, very significant numbers of patients with hepatitis C, some diagnosed, many undiagnosed, that we’re in treatment. So, we still do believe that there is a very nice commercial opportunity there; although, the bar continues to get higher in terms of bringing new products forward. So, we do have a 3DA regimen that is in the clinic with our own assets, ones that we’ve acquired from Actelion and then others that we have in licensed in with hope that we can get to a more pangenotypic type regiment or covering more genotypes; and also being able to get to secure in a much more rapid timeframe, so shorter duration of treatment. And so if this 3DA ends up meeting the types of hurdles that we’ve set for it, we do believe that there is still a compelling market opportunity. Looking more broadly, we’ve also made big investments in Hepatitis B which to-date is essentially untapped. You can look at that as similar shoe or maybe even larger than the Hepatitis C opportunities that we saw before, there really aren't any good treatments now. So, we’ve got investments and are working to develop assets for Hepatitis C for the same thing to ultimately cheer with the acquisition of Alios. We also have potential to have the first treatment for RFV. Right now, there are not any treatments in the markets for it. And unfortunately, because of that, there is still are unacceptable rates of instant mortality and elderly mortality due to RFV infections. So, we believe we’ve got an asset that has shown rapid antiviral activity. And we’re in the middle of Phase 3, right now with hopes to show that has demonstrates very, very terrific outcomes there. And one of them meaningful for customers as well such as reductions in hospitalization, reduction in overall cost, as well as mortality benefits as well.

Geoff Meacham: Jen and Joe thank you.

A - Joseph Wolk: Great, thank you, Geoff.

A - Jennifer Taubert: Thank you very much.