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COVID vaccine 'on track' after blood clot scare: Johnson & Johnson CFO

Yahoo Finance's Adam Shapiro caught up with Johnson & Johnson CFO Joe Wolk to discuss JNJ's earnings, vaccine concerns and what the future holds for the pharmeceutical company.

Video transcript

JULIE HYMAN: Well, let's turn to another company where the narrative is not necessarily rising costs, at least not the main one. I'm talking about Johnson & Johnson. Sales were up about 8% at the company. Pharmaceutical sales up even more. But overshadowing that is what's going on with vaccines at the company. And our Adam Shapiro talked to the CFO of Johnson & Johnson about the company's quarter and about the vaccine situation.

Adam, this is overshadowing things for a lot of the drug makers right now.

ADAM SHAPIRO: They are. But with Johnson & Johnson, when we spoke with Joe Wolk this morning, the CFO, he pointed out that their vaccine is on track. And everybody's looking at Friday as a day when the US government is going to make its recommendation whether to proceed or continue to halt the J&J vaccine inoculations. Here's what he told us.

JOE WOLK: Yeah, Adam. You know, I think it's really a testament to the strength of Johnson & Johnson's diverse portfolio. Some of this is favorable comps. If you look at our medical device business, we're very pleased with the 9% growth, because there's still some elective procedures across the globe that are on pause.

But pharmaceuticals continues to lead the way in terms of market performance. Consumer, we did have a, I'd say, a choppy comparison. But recall, first quarter of 2020, we had many consumers loading up for some of the trusted iconic brands, like Tylenol, and we had 11% growth. If I go to a more normal first quarter of 2019, we're up about 7.5% from that mark. So we think it's a sign of a healthy business across all three of our segments.

What I'm really pleased about is we will continue to invest disproportionately in innovation. So our R&D is up year-on-year $600 million. That really bodes well for the future of Johnson & Johnson. And I would say that as a as a company, the investment thesis for us, we're stronger as a company today than before we went into the pandemic.

ADAM SHAPIRO: I want to talk about the turnaround in medical devices and what's happening with consumer health. But before I go there, I've got to ask you the headlines. I mean, Dr. Fauci said that the vaccine should be back on track by this Friday. Yet, we had the FDA reporting another person, although extremely rare, these blood clot situations, and they're still studying what possible link there may be.

What does the company want consumers to know about the J&J vaccine? More than seven million in the arms of Americans right now.

JOE WOLK: Yeah. So Adam, you know, I think what we do know is that safety is the utmost importance for all of our products. Not just for the vaccine, but for every product that we issue in any of our segments. Here, the process worked. We identified a situation that gave us reason for a concern. We brought that to the regulators in the FDA here in the US, as well as those in Europe. We're evaluating the data now. I think we are very much on track to have the pause remedied over the next coming days. You probably saw in South Africa, that pause was lifted.

Again, our vaccine has probably the most robust data package around some of these newer variants. And so we feel very confident and are hopeful that the benefit risk profile of this product will continue to be a solution to help fight the global pandemic.

ADAM SHAPIRO: One follow up on that, because so many of us are counting on a one-shot vaccine from J&J to get through this pandemic. The Emergent plant delay, the federal government pausing operations there, what is that doing to J&J's commitment to fulfill its vaccine obligation to the US?

JOE WOLK: Yeah. So again, here too, quality is important. We brought the issue to the FDA. We are going to remediate what needs to be remediated. Assuming the regulatory process goes well and the regulators get comfortable, we'll be in very good position, not just to meet our commitments contractually here in the US but across the globe.

ADAM SHAPIRO: So let's get back to these numbers, though. The medical device unit, I remember you all took a hit during the worst of the pandemic. Obviously, hospitals were shutting down elective surgeries. But now that's turned around. What is the trajectory for medical devices, especially with full-year guidance now anywhere from 8.7% to 9.9%, where it had been up from 8.8% to 9.5%? How's medical devices going to play a role in that going forward?

JOE WOLK: Yeah. So Adam, you may recall in the beginning of the year, we walked into really an uncertain situation. You had a rising case count here in the US and other parts of the world, and we were just unsure. As the first quarter kind of came to fruition, we saw some of that risk diminish. The medical device team has done an outstanding job in terms of their competitiveness. They've got a better cadence of innovation than they did one or two years ago.

So we think we're very well suited for substantial growth. If you think about the second quarter, which we're currently in, last year that segment was down about 33%. So we're going to see a favorable comp. But I would actually point your audience more to just the execution and the competitiveness of the unit as well. Our 9% growth, we're very pleased with for the first quarter. But again, recall, there's still parts of the world that are pausing elective procedures at this point. So we expect robust performance for the balance of this year and we're well suited for 2022 and beyond.

ADAM SHAPIRO: And the consumer health unit, that was the one place where you were down, 2.9%. Is that still pandemic related?

JOE WOLK: Yeah. That's more of a-- that's an unfavorable comparator, right. So if you think about last year in the first quarter, there was elevated consumer demand for pantry loading, products like Listerine and Tylenol. We grew 11% first quarter of 2020. So we were walking into a pretty tough comparison.

If you just take maybe a better barometer and look at the first quarter of 2019, we're up about 7.5% from that mark. And we think that's a better apples-to-apples comparison than maybe 2020 to 2021 for the first quarter. But that unit's doing a nice job in terms of their margin profile, and we'll be competitive and grow in line with the market for those areas in which we compete.

ADAM SHAPIRO: Joe, one last question for you. You're the world's third largest pharmaceutical company, largest in the United States, and you're a target, at times. But there's that lawsuit in California, the opioid lawsuit. There are four major pharmaceutical companies which are part of that. Any concern that this would have an impact, depending on the verdict, on the company's growth?

JOE WOLK: No, Adam. You may recall that we reserved a significant amount last year and the year before for the opioid settlement. We intended that to be a final agreement in principle. We think that will play out. We're working collaboratively with the state attorney generals to see that through. And so that's where we would stand with that. We're not envisioning more risk or less risk at this point in time.

ADAM SHAPIRO: Anything you want to add before we wrap up?

JOE WOLK: No. Again, just, I think, the dividend declaration of 5% approved by the board, it just underscores, for the 59th year in a row of increases, just the conviction that we have as a management team, that the board has, in terms of the prospects. We're performing today and meeting the expectations, or exceeding the expectations, but I'm actually very proud that we're well suited for growth in 2022 and beyond.

ADAM SHAPIRO: And Julie, they like to point out that the board raise the dividend 5%. They've raised the dividend now every time, something going back almost 60 years. Julie.

JULIE HYMAN: Yeah. And I'm looking at that dividend yield at about 2.5%. So if you're looking at fixed income or you're looking at J&J, you're getting a higher yield definitely, and then some, from J&J at this point.

Adam, thanks so much. Appreciate it. Interesting story there with J&J.