Johnson & Johnson

Good morning. Welcome to Johnson & Johnson's first quarter 2020 earnings conference call. All participants will be in listen-only mode until the question and answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. If you experience technical difficulties during the conference, you may press star zero to reach the operator. I would now like to turn the conference call over to Johnson & Johnson. You may begin.

Good morning. This is Chris DeLorphis. Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of business results for the first quarter of 2020. I hope everyone is healthy and remaining safe during these times. With safety in mind, we're utilizing a more virtual approach and exercising social distancing while conducting this call. Joining me on the call today to address Johnson & Johnson's response to the coronavirus global pandemic, along with our first quarter results, are Alex Gorski, Chairman of the Board of Directors and Chief Executive Officer, Dr. Paul Stoffels, Vice Chairman of the Executive Committee and Chief Scientific Officer, and Joe Wolk, Executive Vice President, Chief Financial Officer. During the Q&A portion of the call, Joaquin Duado, Vice Chairman of the Executive Committee, will also join Alex, Paul, Joe, and myself. A few logistics before we get into the details. This review is being made available via webcast, accessible through the investor relations section of the Johnson & Johnson website at investor.jnj.com, where you can also find additional materials, including today's presentation and associated schedules. We would like to draw your attention to the fact that there are slight changes to the sales reporting for the medical devices and pharmaceutical businesses, which I will comment to as I review the segment commentary. Additionally, those changes are noted and reconciliations are available on the website. We appreciate you joining us on the call today. In order for us to provide insights related to the COVID-19 pandemic and to allow for ample time for Q&A, the call will last around 90 minutes. Please note that today's presentation includes forward-looking statements. We encourage you to review the cautionary statement included in today's presentation which identifies certain factors that may cause the company's actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. This means that results could change at any time, and the contemplated impact of COVID-19 on the company's business results and outlook is a best estimate based on the information available as of today's date. Our SEC filings, including our 2019 Form 10-K, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures, are also available at investor.jnj.com. Several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Moving to today's agenda, Alex will start with his perspectives related to the COVID-19 pandemic and J&J's response. Paul will then update you on our efforts to develop a vaccine for the COVID-19 virus, along with J&J's therapeutic development efforts. Next, I will cover consolidated and segment sales information, along with some operational highlights from the P&L with the estimated COVID-19 impact framed where applicable. Joe will conclude by providing insights on the status of our operations, including actions we are taking to maintain business continuity, how we think about our capital allocation during this time, and will provide an update on our full-year guidance. The remaining time will be available for your questions. I am now pleased to turn the call over to Alex Gorski.

Thank you, Chris, and thanks to all of you for joining us today. I also want to thank Joaquin DeWato and Dr. Paul Stoffels for joining our first quarter webcast. As the vice chairs of Johnson & Johnson, and given the leadership role they are playing as we mobilize our efforts and resources across the company to address COVID-19, I thought it would be helpful to have both of them available to answer potential questions and convey key information. Paul will also share a more detailed perspective in his prepared commentary, which will follow my remarks. Clearly, COVID-19 is at the forefront of everyone's mind, which is why we plan to spend a fair amount of time during the earnings webcast discussing this unprecedented global pandemic, the profound impact it is having on global public health, and our unwavering commitment to create and deliver value to all of our stakeholders. Johnson & Johnson was built for times like this, and our strong first quarter results are just one reflection of our sustainable business model. Our Johnson & Johnson colleagues remain focused on delivering on the commitments and responsibilities to our patients, doctors, nurses, employees, parents, children, communities, and shareholders as defined in our credo. As we announced this morning, we increased our quarterly dividend by 6.3% to $1.01, which is another reflection of our stability and further underscores our commitment to delivering value to our shareholders. This marks the 58th consecutive year of dividend increases for Johnson & Johnson, and we believe that taking this action is the right thing to do for our shareholders at this time and, importantly, a strong example of the confidence we have in our business now and in the future. Given Chris and Joe will discuss our first quarter performance and outlook in greater detail, I'd like to take just a few minutes to highlight the four pillars of strength that reinforce why Johnson & Johnson is built for times like this. These pillars serve as the foundation of our resiliency and response to the current COVID-19 crisis and provide the dynamic foundation for Johnson & Johnson to continue to build a stronger, healthier, and successful future for all of our stakeholders. Now, we recognize the challenges that individuals, companies, and the world are facing right now, but as we look forward, we are confident that together we will win this fight against the COVID-19 pandemic, and we are maintaining a long-term view of optimism. The first pillar is our longstanding belief in driving both performance and purpose with equal commitment. Across Johnson & Johnson, we operate with the belief there is a tightly linked connection between our company's purpose, which is to advance health for humanity, and our financial performance, which has helped us deliver lifesaving medicines and lifesaving products, as well as invest and support communities around the world. We recognize the challenges that families and their loved ones are facing in these volatile and unpredictable times, and this is exactly why, across our enterprise, we've been working so hard to help those in need and to accelerate our collective efforts towards ending this pandemic. Some examples of note include... we are applying all of our capabilities to support nurses, doctors, midwives, and community health workers. Recently, it was announced that Johnson & Johnson Family of Companies and the Johnson & Johnson Foundation are increasing our previous $250 million commitment over 10 years by an additional $50 million for immediate COVID-19 response. This contribution will primarily focus on supporting frontline health workers who are truly modern-day heroes and the backbone of the healthcare system. We are also working diligently to convert manufacturing lines in several facilities around the world for products most in need during the pandemic so we can continue to provide important medicines and products to patients. The second pillar I want to highlight is our strategic advantage of being the most broadly-based healthcare company in the industry. Leading across the pharmaceutical, consumer, and medical devices segments, provides us with a unique and powerful perspective that enables us to see more, reach more, learn more, and do more across the full spectrum of health, as well as throughout every age and stage of our patients' and consumers' lives. In fact, in our pharmaceutical business, we are thrilled to have identified a lead candidate for a potential vaccine. In consumer, Tylenol is one of our most iconic and trusted brands by consumers and healthcare professionals, for reducing fever, and we have increased production running our Tylenol manufacturing plant 24-7 to maximize supply. We've also refocused our manufacturing lines to make our easiest-to-produce pills, which are the white Tylenol caplets, so we can increase production and throughput. In medical devices, we are experiencing a near-term negative impact and expect this to continue while elective procedures are deferred and hospital resources are redeployed to address patients impacted by this pandemic. That said, medical devices has historically been a strong market, and we believe the underlying fundamentals of the market remain intact. We continue to see tremendous potential over the long term to serve our patients and customers. And at this time, and in this time of need, we are utilizing our supply chain delivery and 3D printing expertise in collaboration with Prisma Health to manufacture and distribute the Vesper Ventilator Expansion Splitter Device, which addresses the acute ventilator shortage during the COVID-19 pandemic and at no cost to healthcare providers. Additionally, we continue to support and ensure product availability to healthcare workers, hospital systems, and surgeons, in critical need areas such as trauma, stroke, and other life-saving surgeries that cannot be deferred. The third pillar is our unparalleled scientific expertise. Innovation is integral to our ability to deliver breakthrough healthcare solutions and the remarkable and ambitious work that we have underway to eradicate COVID-19 is a true testament to this fact. Based on 134 years of experience, we know that the power of our science, the scale of our business, and the dedication of our employees is critical in driving innovative solutions that can change people's lives for the better and change the face of healthcare. In collaboration with scientists from various external institutions, we have been able to identify a lead COVID-19 vaccine candidate. We will leverage the scientific expertise of our internal teams with a decade of work spent developing vaccines for HIV, Zika, and Ebola to apply the groundbreaking science and scalable manufacturing platform that we already have in place. This is monumental and is much needed. We are accelerating timelines and plan to begin production at risk imminently, and we are committed to bringing an affordable vaccine to the public on a not-for-profit basis for emergency pandemic use. The fourth and last pillar is the world-class talent, capabilities, and dedication of our 132,000 colleagues worldwide. We always take actions and employ tactics that support our Johnson & Johnson colleagues both professionally and personally to ensure they are safe and well-equipped. And today is no different. We are ensuring employees are able to play their part in helping to fight the COVID-19 outbreak at home and at work. Some examples include we've implemented significantly enhanced sanitizing procedures and appropriate distancing to ensure we maintain safe, clean, and well-functioning facilities across our manufacturing, distribution centers, and research and development sites. We're rolling out a one-time award of $1,000 per essential employee with cost of living adjustments globally whose presence is required on site to recognize the extraordinary work these employees are doing to advance our science and ensure supply of our most essential products and medicines. We're providing 100% of base salary and benefits through April 30th to employees who are primary caregivers and are unable to work remotely due to COVID-related family care responsibilities, underlying health issues, connectivity issues, or other unique circumstances. And we're granting up to 14 weeks of paid leave to employees around the world with medical training, who volunteer, or who are called to serve their communities in diagnosing, treating, and providing health support related to COVID-19. And underpinning each of these four pillars is our credo. Our credo has been a source of both inspiration and confidence for me and my Johnson & Johnson colleagues, especially in times like these. For more than 75 years, our credo has been the moral compass that guides our business decisions, and it's the blueprint that outlines how we operate and care for the world. Guided by our credo and a yielding sense of purpose, we have created a powerful legacy of improving the health and well-being of people worldwide while delivering sustainable long-term value to all of our stakeholders. We have a century-plus history of leading in times of great challenge. We've done it before, and we can do it again. This is what the world expects of us, and this is what we are all committed to and prepared to do. Now, as the world continues to face the significant and urgent public health crisis, I want to emphasize that across Johnson & Johnson, we are leveraging our broad base, size, and scale to think, lead, and operate with the same level of incredible urgency, relying on the same courage, conviction, and core strengths that set us apart and empower us to make a positive impact on society and healthcare. I am both proud and amazed at the level of dedication that I have witnessed from every Johnson & Johnson business, function, team, and person over the last several weeks. Now, we certainly don't have all the answers today, but we'll find the ones needed to ensure our success for tomorrow. And we won't take shortcuts to compromise our standards or our values as we move with speed and determination. As I said earlier, Johnson & Johnson is built for times like this. We take a long-term strategic view, which means we're in this for the long haul, delivering value to all of our stakeholders. I look forward to addressing your questions during the upcoming Q&A, but I'll now turn it over to Paul, who will provide an update on the progress we're making with the COVID-19 vaccine development. Thank you.