Good morning. Welcome to Johnson & Johnson's Third Quarter 2021 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 you have any objections, you may disconnect at this time.

If you experience technical difficulties during the conference, [Operator Instructions]. I would now like to turn the call over to Johnson & Johnson. You may now begin..

Good morning. This is Sarah Wood, Senior Director, Investor Relations, for Johnson & Johnson. Welcome to our Company's review of business results for the third quarter and our updated financial outlook for 2021.

On today's call is Joe Wolk, Executive Vice President, Chief Financial Officer; and So, during the Q and A portion of the call, Joe will be joined by Ashley McEvoy, Executive Vice President, and Worldwide Chair, Medical Devices.

Thibaut Mongon, Executive Vice President and Worldwide Chair, Consumer Health, and Jennifer Taubert, Executive Vice President and Worldwide Chair Pharmaceuticals. 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. Please note that today's presentation includes forward-looking statements.

We encourage you to review the cautionary statements included in today's presentation, which identifies certain risks and factors that may cause the Company's actual results to differ materially from those projected. In particular, there is uncertainty about the duration and contemplated impact of the COVID-19 pandemic and other marketplace dynamics.

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.

A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs, along with reconciliations of the non-GAAP financial measures utilized for today's discussion to the most comparable GAAP measures. These materials 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, I will review the third quarter sales and P&L results for the corporation and the three segments.

Joe will provide some additional business and financial commentary before providing an overview of our cash position and capital allocation, and then conclude with updated guidance on 2021 results. The remaining time will be available for your questions. We anticipate the webcast to last up to 60 minutes. Now let's move to the third quarter results.

Worldwide sales were $23.3 billion for the third quarter of 2021, an increase of 10.7% versus the third quarter of 2020. Operational sales growth, which excludes the effect of translational currency, increased 9.9% as currency had a positive impact of 0.8 points In the U.S., sales increased 7.9%.

In regions outside the U.S., our reported growth was 13.8%. Operational sales growth outside the U.S. was 12.1% with currency positively impacting our reported OUS results by 1.7 points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 10.6% worldwide, 8% in the U.S. and 13.5% outside the U.S.

Turning now to earnings, for the quarter, net earnings were $3.7 billion and diluted earnings per share was $1.37 versus diluted earnings per share of $1.33 a year ago.

Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7 billion and adjusted diluted earnings per share was $2.60, representing increases of 18.7% and 18.2% respectively compared to the third quarter of 2020.

On an operational basis, adjusted diluted earnings per share increased 16.4%.

I will now comment on business segment sales performance, highlighting items that build upon the side you have in front of you, unless otherwise stated, percentage is quoted, represent the operational sales change in comparison to the third quarter of 2020 and therefore, exclude the impact of currency translation.

Beginning with consumer health, worldwide consumer health sales of $3.7 billion increased 4.1% with growth of 4.5% in the U.S. and growth of 3.7% outside of the U.S. Excluding the impact of divestitures, worldwide growth was 5.7%.

Although there is variability across the franchises due to the impact of COVID-19, the overall portfolio is performing well. When comparing to 2019, the consumer health business grew approximately 8% operationally in the quarter.

Over-the-counter medicines saw strong growth of 18.2% globally due to share gains in the U.S., along with an increase of pediatric fever incidences and demand for vaccination symptom relief that drove increased sales of Tylenol and Motrin globally.

Additionally, category recovery increased demand for cough, cold, flu, and Digestive Health brand such as IMODIUM. Sales outside the U.S. benefited from prior-year comparisons, specifically prior-year reduction in consumption in China.

Our skin health beauty franchise declined by 3% globally, largely due to the 330 basis point impact of the divestiture of Sedona, the salon-based portion of [Indiscernible] in Asia Pacific.

Excluding this impact, the franchise experienced modest growth driven by strong performance in AVEENO and NEUTROGENA facial moisturizing and body care driven by COVID-19 market recovery and e-commerce growth, partially offset by external supply constraints and lost sales from the sun aerosol recall.

Oral Care declined 4.5% globally, largely due to the impact of divestitures worth approximately 300 basis points. Excluding this impact, the franchise declined due to external supply constraints for Listerine in the U.S.

and negative comparisons to prior-year COVID-19 related impacts in EMEA, partially offset by strong performance in Asia-Pacific, driven by strong promotions and brand building behind Listerine's germ fighting ability.

The baby care franchise declined 1.2% globally, resulting from Asia-Pacific COVID-19 lockdowns and competitive pressure, mostly offset by strong Aveeno performance, along with category and e-commerce growth in the U.S. Our Women's Health franchise grew 0.8% globally, primarily due to lapping prior-year COVID-19 impacts.

And finally, our Wound Care franchise declined 4.8% globally, driven by unfavorable comparisons to prior-year stocking in the U.S. and competitive pressure in Asia-Pacific. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13 billion increased 13.2% with growth of 12.2% in the U.S. and growth of 14.6% outside of the U.S.

Excluding the net impact of acquisitions and divestitures, worldwide growth was 13.8%. Additionally, as a reminder, for comparison purposes, Q3 of 2020 was negatively impacted by access-related constraints due to COVID-19, resulting in a decrease of roughly 200 basis points in total across key brands.

Our strong portfolio of products and commercial capabilities continue to enable us to deliver adjusted operational growth at above-market levels. The immunology portfolio delivered strong global sales growth of 11.7%, driven by double-digit performance of STELARA and TREMFYA, offset by declines in REMICADE due to biosimilar competition.

STELARA continued to show strength in all regions, growing at 21.7% driven by market growth and share gains of roughly 4 points in Crohn's disease and nearly seven points in all sort of colitis in the U.S.

TREMFYA was up 63.5% with strong double-digit growth worldwide due to continued positive share growth and additional penetration into the psoriatic arthritis indication. U.S. share increased over 2 points in psoriasis and over 3 points in psoriatic arthritis. Oncology also delivered another strong quarter with global sales growth of 16.5%.

DARZALEX continued its double-digit performance with 42.9% growth in the quarter, driven by share gains, increased penetration of the subcutaneous formulation in the U.S. and EU, and continued launches globally. DARZALEX grew share across all lines of therapy with nearly 5 points of share growth in the U.S. this quarter, as an example.

ERLEADA also continued its global uptake with growth of 65.8% in the quarter, driven by global market share gains, which increased in the U.S. alone by nearly 2 points across all indications led by the metastatic indication.

IMBRUVICA grew 2.5% globally due to the brand's market leading share position, but was partially offset by modest share losses in the U.S. and a market that remains constrained due to temporary COVID-19 impact on new patient starts. In addition, growth was negatively impacted by a prior period adjustment in the U.S.

that was worth nearly 350 basis points on worldwide IMBRUVICA growth. Neuroscience grew 4.6% globally, driven by paliperidone long-acting portfolio, posting market and share growth due to increased new patient starts and strong persistency in the U.S.

The cardiovascular, metabolism, and other business declined 12.4% globally due to competitive pressures and INVOKANA and biosimilar competition for PROCRIT. Pulmonary hypertension achieved strong growth of 16.1% driven by OPSUMIT growth of 17.1% and UPTRAVI growth of 18.8%, both driven by market penetration and share gains.

And lastly, global sales in the quarter included a $502 million contribution from the COVID-19 vaccine, bringing the year-to-date total to 766 million. Through the first 9 months of the year, revenue has been recorded at a not-for-profit price of $7.50. I'll now turn your attention to the medical devices segment.

Worldwide medical devices sales of $6.6 billion increased 7% with growth of 0.8% in the U.S. and growth of 13.3% outside of the U.S. Excluding the impact of divestitures, worldwide growth was 7.6%.

In the medical devices segment, we have seen mixed marketplace recovery as the COVID-19 Delta variant and related factors impacted our sales across most of the categories in which we participate within the quarter with certain procedures such as spine and knees within Orthopedics deemed to be more elective in nature, continuing to lag in terms of recovery.

The Interventional Solutions franchise delivered another quarter of worldwide double-digit growth at 13.2% driven by market recovery, success of new products in both electrophysiology and neurovascular, and strong commercial execution. Worldwide surgery grew 10.2%, primarily driven by recovering procedure volumes and market expansion in Asia Pacific.

Advanced Surgery grew 12.6% globally, driven by the positive impact of procedure recovery, new product introductions, and China Tier 2 and 3 hospital market expansion across Endo cutters, biosurgicals, and energy, partially offset by continued competitive pressure in Endo cutters and energy in the U.S.

Building on the MONARCH robotic milestone communicated last quarter, we reached another significant commercial achievement, now enabling over 10,000 bronchoscopy procedures. General Surgery grew 8.1% globally.

Wound Closure is the largest contributor with growth driven by procedure recovery, China Tier 2 and 3 hospital market expansion, and continued competitive growth in both traditional and barbed suture markets. The Worldwide Orthopedics franchise declined 0.3% with U.S.

declines of 4.5% reflecting the impact of COVID-19 on procedures within the quarter, partially offset by 6.8% OUS growth. Trauma grew 3.7% globally, 5.3% increase in the U.S., and a 0.9% increase outside the U.S.

Results reflect global market recovery dynamics and success of recent product introductions like our cannulated compression headless screws, advanced nailing systems and FIBULINK. Hips grew 2.3% globally, driven by recovery and procedures primarily outside the U.S.

and continued leadership in the anterior approach supported by our robust portfolio of new products, such as ACTIS femoral stem, PINNACLE dual mobility and VELYS hip navigation. In Q3, we introduced new image guidance capability for VELYS hip navigation, which support surgeons who prefer the posterior approach in addition to the anterior approach.

Needs grew 2.1% this quarter, reflecting recovery of procedures, especially in markets outside of the U.S. Growth in the U.S. outpatient surgery channel and continued momentum from recently launched products, including the VELYS Robotic-Assisted Solution and our ATTUNE portfolio.

Results in the quarter also benefited from the timing of international tender orders worth approximately 350 basis points of global growth. Lastly, within Orthopedics, Spine declined 11% globally, driven primarily by a deceleration in procedure volume related to COVID-19.

The Worldwide Vision franchise grew 10% this quarter, primarily driven by market recovery, commercial initiatives, and new products driving enhanced competitiveness.

Contact lens global growth of 6.4% reflects continued positive momentum for our market-leading ACUVUE portfolio, success of commercial initiatives, and recently launched products such as ACUVUE OASYS MULTIFOCAL, and ACUVUE DEFINE FRESH. The decline of 4.3% in the U.S. includes a negative impact of prior year stocking worth about 10 points.

Surgical vision delivered global growth of 22.1% driven by market recovery across all regions and success of recently launched products continuing to enhance competitiveness, including TECNIS Eyhance and TECNIS Synergy.

Now, regarding our consolidated statement of earnings for the third quarter of 2021, I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year.

Cost of products sold improved by 200 basis points, driven by recovery from prior-year COVID-19 related impacts and favorable enterprise mix from growth in Pharmaceuticals. We continue to invest strategically in Research and Development at competitive levels, investing 14.7% of sales this quarter.

This $3.4 billion investment was a 20.5% increase versus the prior year due to portfolio progression. In process research and development reflects a partial impairment expense of $900 million for assets associated with the acquisition of Auris.

The other income and expense line changed from a net expense of $1.2 billion in the third quarter of 2022 to net expense of $1.9 billion in the third quarter of 2021, primarily due to an increase in litigation-related charges. Joe will provide more details on both the IP R&D and litigation-related charges.

Regarding taxes in the quarter, on a GAAP basis, our effective tax rate was 4.7% in the third quarter of 2021 compared to 19.2% in the third quarter of 2020, mostly driven by unfavorable tax reserves and positions from the prior year, which did not reoccur.

Along with lower income and higher tax jurisdictions driven by one-time current quarter special items. excluding special items, the effective tax rate was 13.5% versus 19% in the same period last year. I encourage you to review our upcoming third quarter 10-Q filing For additional details on specific tax matters.

Lastly, I'll direct your attention to the boxed section of the slide, where we have also provided our income before tax, net earnings, and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment.

In the third quarter of 2021, our adjusted income before tax for the enterprise as a percentage of sales remained fairly consistent to the prior year with some changes between our 3 segments. Pharmaceutical margins declined from 46.4% to 43.9% driven by research and development investment to enable portfolio progression.

Medical Devices margin improved from 21.6% to 25.5%, driven by recovery from prior-year COVID-19 related impacts and overall expense leveraging resulting from sales recovery. Finally, consumer health margins declined from 24.4% to 23.3%, driven by a 2020 one-time item and increased brand marketing expenses partially offset by COGS improvement.

That concludes the sales and earnings portion of the Johnson & Johnson Third Quarter results. I'm now pleased to turn the call over to Joe Wolk..

Thank you, Sarah, and good morning, everyone. We appreciate you joining us to discuss our third quarter results, which reflected continued strength in our Pharmaceutical and Consumer Health businesses, and solid growth in Medical Devices despite COVID-19 variability across geographies.

How do we see the current medical device landscape? In the U.S., surgical procedures across most specialties in which we compete decelerated in late July and August with the highest impacts consistently in those procedures deemed to be more elective, such as knees and spine.

Globally, new cases of COVID-19 and hospitalizations related to the Delta variant have gradually declined in recent weeks, and we are encouraged by more positive procedure trends in many Western European markets where restrictions are beginning to ease.

Some hotspots still remain in parts of the U.S., the UK, Eastern Europe, and Southeast Asia, and the growing impact from reduced medical staffing are constraining procedure volumes.

We continue to believe these variables are more short-term in nature and the Medical Devices market remains attractive as the long-term factors leading to the need for medical and surgical intervention have not changed due to COVID-19.

The segment leaders on the call will provide more insights into each of their businesses during the Q&A, but let me briefly touch upon some pipeline updates for the quarter. We continue to advance our strong pipeline of innovative medicines and products.

This progress is supported by our commitment to investment in R&D that have increased $1.9 billion or 23% on a year-to-date basis. In the quarter, we received U.S.

approval for INVEGA HAFYERA, the first and only twice yearly treatment for adults with schizophrenia, and we announced the start of a Phase 3 study of our investigational RSV vaccine in older adults.

Subsequent to the quarter, the FDA granted [Indiscernible] drug designation for nipocalimab in Chronic Inflammatory Demyelinating Polyneuropathy or CIDP, a rare neurological disorder of the peripheral nerves, characterized by gradually increasing sensory loss and weakness associated with loss of reflexes.

This represents nipocalimab 's fourth orphan drug designation. We also anticipate U.S. approval for our BCMA CAR-T later this year, which will represent a third new product approval in 2021.

However, we are stopping further investigation in the Fontan-palliated population of macitentan 10 milligram in pulmonary hypertension as results from the RUBATO Phase 3 trial did not yield sufficient clinical benefit.

Regarding our COVID-19 vaccine, we are pleased that on Friday the FDA 's vaccines and related biological products advisory committee voted unanimously to recommend emergency-use authorization for a booster dose of the Johnson & Johnson COVID-19 vaccine for adults aged 18 and older, at least 2 months following initial single-shot vaccine.

The recommendation is based on the totality of evidence with clinical and real-world data showing that while a single-shot offers strong and lasting protection, a booster increases protection, particularly against symptomatic COVID-19.

We are very excited to share more about the entirety of our robust pharmaceutical pipeline and long-term growth outlook at our business review on November 18th.

In our Medical Device business, we built upon a record number of 17 significant product introductions in the first half of 2021 by introducing the enhanced shoulder system in the third quarter, a first to market fully integrated shoulder arthroplasty system designed to treat a broad range of cases in hospital or outpatient settings where economic value and operational efficiency are important considerations.

We also announced results from a real-world study showing that the ECHELON Circular powered stapler is associated with a major reduction in serious complications following colorectal surgery when compared with manual staplers, reinforcing clinical evidence as a meaningful differentiator in product selection.

Let's transition to financials starting with commentary on special items for the quarter. Other income and expense in the third quarter includes a $2.1 billion charge of litigation expenses, primarily driven by an incremental $1.4 billion charge associated with a recently announced qualified settlement fund for current and future Talc claims.

The qualified settlement fund is intended to facilitate a final equitable resolution of all Talc litigation in a structured manner through established bankruptcy law precedent. Additionally, there is another $800 million legal expense in the quarter representing final resolution of outstanding claims related to RISPERDAL.

Another special item worth noting is on the in-process research and development line. We have a broad offering across the digital robotic surgery landscape and continue to make meaningful progress in advancing differentiated solutions across our portfolio.

We are very pleased with the adoption of our MONARCH platform for lung bronchoscopy, and are well on our way to expanding MONARCH indications, including initiating a clinical trial exploring the potential for localized drug delivery for the treatment of lung cancer, and submitting an application to the FDA for MONARCH to be used in the treatment of kidney stones.

Our VELYS Robotic-Assisted Solution for total knee replacement is commercialized in the U.S. has received several OUS approvals and we are experiencing higher utilization on the systems place to date than we projected. We continue to be committed to the development of a general surgery offering with Ottava.

But as Sarah mentioned, we recorded a partial in-process R&D charge for $900 million in the third quarter.

The accounting for this charge contemplates a first-in-human delay of approximately two years from our earlier projections of the second half of 2022, reflecting technical development challenges and COVID-19 related disruptions, including supply chain constraints being experienced broadly across all industries.

Clearly, we realize the importance that a differentiated digital robotic platform can have for patient outcomes and the market. We continue to invest in and be committed to the platform and will provide updates to the external community as warranted. Let's transition to a few comments on our cash position.

We continue to generate strong free cash flow with $15 billion year-to-date. We ended the third quarter with $31 billion of cash and marketable securities, and approximately $34 billion of debt, resulting in $3 billion of net debt.

Our financial position and balance sheet remains strong, and we are well-positioned to continue to deploy capital in a strategic, value-creating way consistent with our priorities that will benefit stakeholders over the long term. Moving to our full-year 2021 guidance.

Given where we are in the year, our current assumptions around continued recovery in medical device markets and confidence in the business, we are tightening our adjusted operational sales range to 12.9% to 13.5%. This adjusted operational sales growth is on a constant currency basis, consistent with how we assess our business performance.

This guidance also incorporates the estimated $2.5 billion of COVID-19 vaccine sales consistent with our July guidance.

We are maintaining our estimate for the net impact of acquisitions and divestitures of approximately 50 basis points, resulting in an operational sales range of 12.4% to 13%, or $92.8 billion to $93.3 billion for a midpoint of 12.7% or 93.1 billion. As you know, we do not predict the impact of currency movements.

But utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.16, there's an estimated positive impact of foreign currency translation of approximately 150 basis points consistent with our July guidance, resulting in estimated reported sales growth between 13.9% and 14.5% compared to 2020 where $94.1 billion to $94.6 billion.

Moving to other items of the P&L, consistent with our previous guidance, you can expect our operating margins to be nearly a 200 basis point improvement over last year. Given year-to-date trends, we are modestly increasing and tightening our other income estimate to be a range of $900 million to $950 million.

Regarding interest expense, again, based on our year-to-date experience, we are also tightening the range of our estimate to $100 million to $150 million. And finally, we are lowering our effective tax rate estimate to a range of 14.5% to 15.5% based on the occurrence of certain one time favorable tax positions and settlements both in the U.S.

and abroad. Considering those updates, we are comfortable with adjusted earnings per share guidance ranging from $9.65 to $9.70 on a constant currency basis, a guidance increase of $0.13 at the midpoint.

Well, not predicting currency movements, but to provide some insights on the potential impact on EPS, our reported adjusted EPS would be positively impacted by approximately $0.12 per share.

Accounting for that, we would be comfortable with your models reflecting reported adjusted EPS ranging from $9.77 to $9.82, an increase versus 2020 of 22% at the midpoint.

Consistent with what we shared before, given the not-for-profit nature of the vaccine, there is no significant EPS contribution in 2021, and therefore, the EPS guidance I provided is inclusive of the vaccine revenue.

As always, none of our achievements are possible without the hard work of our world-class team of employees around the globe, whose dedication ensures that we deliver for all our stakeholders.

We continue to make significant strides towards our mission of improving human health and well-being of everyone everywhere, and I am grateful for their efforts and commitment. I'd like to close my prepared remarks by briefly commenting on the CEO transition that was announced earlier in the third quarter.

First, I want to acknowledge Alex for his leadership and contributions to Johnson & Johnson during his tenure. It has been my pleasure to work alongside him, particularly over the increases last three years, and to observe and to learn from him both professionally and personally.

I'm also pleased to congratulate Joaquin on his new role starting this January. I know firsthand that he shares the same commitment to patients, employees, and society that Alex considered core. Joaquin similarly values innovation that underscores our strategy for long-term success.

Both gentlemen will be featured at the previously mentioned November 18th Analyst Day, sharing their thoughts on our business and plans for the future. I am pleased our Worldwide Chairs, Ashley McEvoy, Thibaut Mongon, and Jennifer Taubert are here with me today to address your questions.

Jen McIntyre, from our Investor Relations team, will facilitate the Q&A portion of the call. So I will now turn it over to her to begin the Q&A. Jen..

Thank you, Joe. Good morning, everyone.

Rob, can you please provide instructions for those on the line wishing to ask a question?.

Sure. Ladies and gentlemen, if you'd like to ask a question at this time, [Operator Instructions]. Please limit your questions to 1 question only. Your first question comes from Chris Schott with JP Morgan. Please proceed with your question..

Great. Thanks so much for the question. I guess just first, can you just quantify or elaborate on the impact that the Delta variant head on 3Q results in your guidance.

I guess I'm trying to get to was the impact you saw in the third quarter basically in line with what you had contemplated in guidance, or did we have upside elsewhere in the portfolio that offset some of those slowdowns that you mentioned that hit part of the businesses? And then just maybe building on that as we think out to 2022, I know you're not giving guidance yet, but is there more in the way of COVID recovery that can aid growth next year as you think about the portfolio as a whole? I guess I'm trying to get to this base pharma growth sustainable at these levels.

And should we think about still Device growth, maybe above historic levels as we get COVID more in the rearview mirror a bit? Thanks so much..

Yes, Chris. So this is Joe Wolk. Let me answer some of it quantitatively and then maybe I'll hand it over to Ashley and Jennifer to discuss their outlook for their particular segments.

In terms of the guidance for the balance of the year as it relates to where we ended the third quarter, if you look at what I guess has been labeled early morning here as a miss, I would say, I think about it in two categories. The vaccine, quite frankly. And as you saw, we did not change the full-year guidance. So that is simply timing.

We expect that to be fulfilled in the fourth quarter and we're still very much committed to the 2.5 billion of revenue and the supply that is correlated to that. With respect to medical devices, I think we're very pleased that we had above 7% growth in the quarter, given the different dynamics of Delta variant and hospital shortages.

And we do anticipate that those procedures will be recovered. It's hard to say whether they'll be recovered in the fourth quarter or early next year, so that could provide some tailwind as you think about 2022. But let me turn it over first to Ashley to comment on medical devices and then to Jennifer to discuss pharmaceuticals..

Sure. Thanks, Joe. And thanks for the question, Chris. When I look at quarter three as we share, procedures across most categories in which we participated did decelerate through the quarter, primarily due to obviously the Delta. So if I take you a little bit around the world, Asia-Pacific in aggregate continues to operate above pre - COVID levels.

However, COVID does continue to be a challenge with like mobility restrictions being reinstated or remaining in places like Japan, Australia, Southeast Asia. China clearly is setting a new pace for the world. When we look in the United States, we saw procedure trends decelerate in quarter 3.

You'll recall on our quarter 2 call, we were feeling pretty good around 5% growth procedures in May. We saw a stabilization in June and July. In August, we saw the numbers of procedures dip around mid-single digit, and we saw that continue into the early part of September.

We are starting to see, qualitatively, recovery from hospital systems the past four weeks, where we look at early indicators of really filling the patient funnel. We look at diagnostic procedures and the past four weeks we're seeing diagnostic procedures in the United States flat relative to pre-COVID numbers.

And as we talked about, we do expect some micro-surges in areas like the Northwest as well as the Midwest.

And then, in EMEA, rounding it out, we are encouraged that countries are beginning to ease its strict mobility restrictions and are really starting to resume procedures, given the vaccine deployment accelerations, the decrease in rates of new cases and hospitalizations, and overall, procedure volumes are gradually improving, like Spain, Italy, Germany are all above pre -COVID.

The UK, where I was just there 2 weeks ago, clearly below 2019, long waiting list, really working to go, make progress on that patient funnel. I'll turn you to Jennifer for any other commentary..

Thanks, Ashley. And hi, Chris. So we've got a real positive outlook on the pharmaceutical business, and if you take a look at our third quarter results, we had clear double-digit growth across a number of our key brands, including DARZALEX and ERLEADA in oncology, TREMFYA and STELARA in immunology, and OPSUMIT and UPTRAVI in pulmonary hypertension.

Those areas we have seen strong recovery and we believe that the trajectory on those assets is really going to continue, so continued trajectory in '21 and into '22.

The area part of the market where we're still seeing a bit of a slower recovery, but we're starting to see it tick back, is really in chronic lymphocytic leukemia and mantle cell lymphoma, the market where IMBRUVICA is right now for IMBRUVICA, we just achieved double-digit growth ex-U.S.

but in the U.S., it's actually been a little bit lower than that. And so I think that's one that, as you take a look and we move into 2022, we're anticipating to see some positive recovery there, but really strong results in 3Q and we anticipate continued strong trajectory through the rest of the year and into '22..

Great. Thanks, Ashley and Jennifer and Chris, I know you asked about medical devices and pharmaceuticals.

But to be complete, Thibaut I know you had great success in the quarter, 6%, almost 9% when you compare to Q3 of 2019, maybe give a little bit of an outlook as to what you're seeing for the balance of the year and into next?.

Yes, certainly, Joe. As you just said, consumer segment continues to experience very strong momentum. So we are very pleased with how the portfolio continues to perform around the world.

Clearly this quarter, the star is our OTC segment growing double-digit with a continued strong demand for trusted brands in allergenics, but also Digestive Health, continued demand in smoking cessation as well. So across all categories and around the world, continued strong demand for our product.

As we get into Q4 and into 2022, we expect our portfolio of brands to continue to be very well positioned in the markets and categories in which we compete. Our brand -- many of our brands iconic, and we would expect continued growth for this brand around the world..

Great. Thanks, Thibaut. Jen, back to you..

Thank you for your question, Chris. Rob, next question, please..

Your next question comes from Josh Jennings with Cowen and Company..

Hi. Good morning. Thanks so much for taking the questions. I wanted to just circle up on the announcements around the tax litigation and the process that J&J is undergoing.

Is there any way -- I know you're not going to talk about -- deeply about the strategy, but just thinking about milestones for this process and any way you can help us understand when this strategy will be fully cleared and in play, and I guess stamp of approval by the bankruptcy courts or how should we thinking about this process through the rest of this year and into 2022?.

Yeah, thanks for the question, Josh. Let me start this response by underscoring just our conviction in the safety based on decades of science that these products are safe. What we've done is acknowledge that there's an established process that allows companies facing abuse of toward systems to resolve claims in an efficient and equitable manner.

We initiated this process specifically for our cosmetic talc claims, both for current and future. And while we believe the cases lack merit, and by the way, an overwhelming number of courts, juries, and judges who have opined on this to full adjudication ultimately agree with us. We did establish a $2 billion qualified settlement fund.

But as you note in your question Josh, it's really the bankruptcy courts that will ultimately decide this. It's not plaintiff's attorneys. It's not Johnson & Johnson. But we do know that based on prior experience precedent, that claimants are far better off and clarity and resolution is in the best interest of all stakeholders.

So we'll continue to monitor the process, but we're really beholden to how the bankruptcy court decides to proceed and their timeline..

Thanks, Josh. Rob, next question, please..

Next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed with your question..

Good morning. Thanks for taking the question. Just one for Ashley. Just Ashley, it looks like Q3 growth in devices relative to 2019 was about 4%. Could you confirm that? And what are your expectations for Q4 relative to that metric -- relative to Q4, 2019 after adjusting for one less week.

I think people are trying to understand if Q4 growth could be better than Q3 on an underlying basis versus 2019. And how are you thinking about the staffing shortages and supply constraints that I think Joe alluded to and inflation.

How are you thinking about those factors that people are concerned about in the device industry? Thanks for taking the question..

Thanks for the question, Larry. And before I get to quarter 4, let me just give a quick frame for quarter 3 just at a macro level. First is really the market.

And while COVID-19 has temporarily disrupted the MedTech markets, we absolutely believe that the underlining foundation of these end-state markets continue to remain attractive really due to what we say are oodles of clinical unmet need and quite frankly, the overall state of the technology on the S-curve.

Quick refresh is our standing and our competitiveness as the second largest MedTech Company with 11 platforms delivering at least a billion in annual sales, we are very much focused on competitiveness and innovation. In quarter 2, almost all of our priority platforms held or gained share.

Some notables include continuing to enhance our global market position in electrophysiology. Biosurgery gaining share and hips seeing the impact of recent innovation in surgical vision. Now seeing several sequential quarters of share gains and even seen stabilization in knees year-to-date.

So this is really about our focus on commercial effectiveness and our ability to deliver innovation. As Joe mentioned earlier, in 2021, we had 17 new product launches year-to-date. And this is a significant amount over last year. So year-to-date through 2021, Larry, we are tracking to 5% growth versus 2019. We did achieve 4% growth in quarter 3.

Obviously, that's an improvement of how we exited 2019 the full year. And then last, I would just say, you heard us talk a lot about digital surgery. We're absolutely committed to leading in the future of surgery and making our medical innovation smarter, less invasive, and more personalized.

Joe talked a little bit about our MONARCH reaching 10,000 patients this year, has a very rich pipeline. VELYS Knees is now approved in 5 countries. Our smart digital tools continue to scale. And lastly, Ottava, our soft tissue offering, you heard us share we're experiencing a temporary setback in its development.

Transformational innovation is all kinds of fun, I will tell you. It's highly complex, but sometimes we do experience technical challenges, but we are absolutely committed to resolving our challenges, continuing to invest and bringing to market a competitive differentiated offering as soon as possible.

When we look at quarter 4, we do expect to see continued improvement. We do expect hospitals are going to have to continue to continue to manage through labor shortages. I don't expect that to get better in quarter 4 nor in 2022, but they've been quite master rolling how to manage patient flows.

We are when I talk to hospital systems over the past three weeks and particularly in United States, they are ramping up again and resuming elective procedures. We're keeping our eye on vaccination rates, patients sentiment, the cold weather. But we do -- we are planning for a strong recovery in quarter 4 versus how we exited quarter 3..

Thanks for your question, Larry. Rob, next question, please..

Next question is from Louise Chen with Cantor..

Hi, thanks for taking my question. So I wanted to ask you about some of the management changes that were announced and how we should think about what could change or what could stay the same under a new CEO and CSO. And then, any anticipated changes to business mix between Pharma Med Device and consumer as a result of new leadership? Thank you..

Thanks, Louise, for the question. I'll try to address that one. What I would say is, first off, I'd probably repeat the words I had both to congratulate Alex, as well as Joaquin. Alex clearly on a stellar career, a great run as his tenure as CEO. And he'll be a very active Executive Chairman, I suspect.

It's not as if he's riding completely off into the sunset. Joaquin values the same principles that have made Johnson & Johnson successful. That's investing in innovation and making sure that we've got differentiated products and solutions to improve the standard of healthcare across the globe.

The nice thing about the transition is, I don't expect any significant bumps. They've worked together for a number of years. The strategies that they have talked about and that you'll probably see in the early part of Joaquin 's tenure have been contemplated with Alex in mind and they've collaborated as Chair and Vice Chair over a number of years.

So I would expect as the organization does a very smooth transition. With respect to CSO, we have not had a chance to acknowledge just really the impact that Paul has had on the scientific community not just here at Johnson & Johnson, but across the globe. He was a pioneer in infectious diseases.

When nobody had an answer for HID, Paul emerged as clearly a leader there. And then just most recently his notable leadership on the COVID-19 vaccine, again here at J&J but also on the global stage.

I think the -- probably the greatest testament to Paul's legacy is the fact that our R&D investment this year is 23% higher through nine months than what it was last year, and last year was a record-setting year in terms of what we've invest in innovation.

We've got a great team of scientists that Paul has assembled over the years across all of our therapeutic areas, across all of our franchises. And I just look forward to the success that they will continue to carry on that Paul has really, I guess, cemented in terms of how we approach our business..

Louise, thanks for your question. Rob, next question, please..

Next question is from Matthew Harrison with Morgan Stanley..

Great. Good morning, thanks for taking the question. I guess I was hoping you could focus a little bit on the upcoming BCMA CAR-T launch and just talk a little bit about how you think about your capacity to supply that market and your preparations for that launch. Thanks..

Sure. Hi, it's Jennifer. So we are really looking forward to our upcoming PDUFA date in the 4th quarter for our BCMA CAR-T. This is going to be our first entry into cell therapy, and so the total team from R&D to supply chain to commercial has been really, really invested in this asset over the past couple of years preparing to launch.

I think the results that you've all seen, and they're really deep and durable responses that have been proven through our clinical programs really highlight that this is going to be a really meaningful and transformational asset for patients.

As we have been planning the launch, we're really taking a thoughtful approach to scaling our global manufacturing, making sure that we're learning from those who come before us, and that we're really going to plan to deliver an optimal patient experience and patient treatment or provider treatment center experience as well as we scale up.

So the team has been working very heavily on this and we're gearing up for what we believe will be a very successful launch for patients hopefully later this year.

I also want to call out the very strong partnership that we have with Legend Biotech, where we've been attached at the hip throughout and we're so excited to be working in partnership with them to be bringing that to market. I'm looking forward to a good launch later this year..

Thanks, Jennifer. Bob, thanks for your question, Rob, next question, please..

Your next question comes from Matt Miksic with Credit Suisse..

Hi. Thanks so much for taking the questions. So I had one for Ashley, just on the knee business in the U.S. and one quick follow-up if I could on COVID vaccines. So Ashley, I think one of the things that was mentioned was sort of continued growth and expansion around the knee business, if I'm not mistaken and in ASCs, and obviously the VELY's launch.

If you could talk, maybe ASC, I guess, needs or something that we [Indiscernible] regional fluctuation around the U.S. is to uptake some areas stronger than others and love to get your sense of how that's progressing, where it's stronger and why, and how you see that playing out and as I mentioned, one follow-up on vaccines..

Thank you for the question, Matt. As Sarah shared in quarter 3, knees grew 2% versus 2020, and a lot of that was due to really two-folds. One is the state of innovation, so the VELYS knee robot is obviously getting some nice traction.

As Joe shared earlier, the utilization rates are very encouraging from hospital systems that have adopted this new technology. That coupled with a very proven differentiated ATTUNE knee implant, with a revision offering, as well as the cementless rotating platform have all really helped [Indiscernible] up, I would say, our portfolio in knees.

And then you mentioned the channel and we are seeing really healthy growth in the ASC channel. We continue to be encouraged by our market share gains predominantly enjoined in ASC.

And really we started to deploy what we call an advanced case management, which is really how you simplify the pre -op planning in ASC and that new advanced case management service is starting to really take effect.

And we expect to have these new sites of care start to really improve not just in [Indiscernible], not just in the U.S., but even in areas of Europe and really moving joints to more of a day surgery. Thank you for the question..

Thanks, Ashley. Matt, you want to ask your vaccine follow-up..

Just we hadn't touched on it this call, but the sort of pivot to commercial, would love to get your sense of how we should think about timing and the sort of catalysts for that product becoming a commercial product, whether next year or the year after..

Yeah. So we're really proud of the role that our vaccine's playing and really helping address the global COVID pandemic throughout the world. And hopefully, you saw last week that the FDA advisory panel unanimously recommended a booster for our COVID vaccine.

We are in the process right now of continuing under emergency use authorization to roll-out our vaccine across the globe in both in developed markets, as well as developing markets.

I think as the pandemic, as we continue to work through and fulfill our existing contracts that we have throughout the globe, and as we move into more of a booster market in later '22, potentially into 2023, we'd be looking at moving into a more of a commercial market. I know our R&D team is gearing up and getting ready to file for full approval.

I think we want to be moving into a full approval market for that switchover to commercial..

Matt, this is Joe. Thanks for raising the point because I do think that underscores in that question just the strength of our core business, right? So vaccines in and of itself this year is not for profit. As Jennifer said, we'll rely on the science and the data to guide us how we proceed commercially.

But you should all consider that as upside to our base plan. We're so proud of the results that we've been able to accomplish, the investment in R&D, and just the strength of the portfolio not just this year, but how it really sets up for the balance of this decade, I think is something that people should take away from the call.

I always smile a little bit whenever there's vaccine news because it seems to be overly pronounced impact on our stock, good or bad. And it always just makes me chuckle a little bit because of the strength of our business is really in our pharmaceutical medical device and consumer strength these days..

And if I can jump in as well and just put in a commercial for our upcoming pharmaceutical business review. On November 18th, we're really looking forward to having a comprehensive overview of the business, our robust pipeline, our -- featuring our therapeutic area leaders and also really outlining our long-term growth outlook. So we're really excited.

I think at that meeting, we're planning for a great day and we'll be highlighting a number not only our key therapeutic areas and delving deep in the pipelines, but also having a chance to feature a number of the key assets that folks, I know, have really, really interest in the learning more about.

So everything from [Indiscernible], our BCMA CAR-T to nipocalimab that we got through our MOMENTA acquisition last year, Our new treatment for lung cancer, and what we hope will be expanding into a much broader market, RYBREVANT plus lazertinib. Our Retina portfolio.

Also, things like our RSV vaccine, and our TARIS Drug Delivery platform for bladder cancer, and then, I could go on and on. But nonetheless, we're really planning for a very exciting day on November 18th and look forward to having you all join us..

That was a 60-second spot, Jennifer. Thibaut is going to tell you about the rates on that one, if you say. Jen..

We're really looking forward to a great day. I couldn't pass on this opportunity to not highlight it. Thanks, Matt, for your question. Rob, last question please..

Your last question comes from Danielle Antalffy with SVB Leerink..

Hi, good morning, everyone. Thank you so much for taking the question. I just had a quick question, a follow-up to Ashley on the Medical Device business, and I'm just curious, it feels like now there might be a little bit more uncertainty around the pace of recovery. I just want to be sure I'm getting that message correct.

And you did mention that you didn't expect the hospital labor shortages to necessarily improve as we go through Q4, so I was just curious about how to reconcile that with the strong recovery. Thanks so much..

Thanks for the question, Danielle. I think what we're planning for quarter four is I think we'll still continue to see micro-surges in cases. There will always be little hot spots. Hospitals are still going to experience some labor challenges. We don't see that getting better in the near-term immediately.

I will qualify that so to say that they have been quite frankly masters at understanding how to manage patient flow and procedure flow.

When we look at diagnostic and routine screenings and surgical procedures, we expect the trends will continue to recover globally, similar to the trends we saw in quarter two where surgical procedures grew low single-digit above 2019 baselines.

As we've referenced, there are more procedural backlogs in the highly elective procedures like knees and spine. And we expect those to recover, although maybe not as in terms of hospital capacity, at levels significantly above 2019 in the near-term.

But I would just say going into November, relative to where we were entering November last year, we are encouraged to look at the worldwide case data, to look at the worldwide hospitalization data and the freeing up of mobility restrictions. So we are encouraged by quarter [Indiscernible] performance from 2021 Q4 versus last year.

You'll recall we ended around 1.5% Medical Devices did in revenue versus 2019. So we are anticipating a healthier recovery..

And Danielle, maybe just to clarify too. It's a recovery no matter what. It's just the intensity of the recovery so I would not expect, based on what we know today, any backward step with respect to Medical Devices performance going forward across the industry..

Thanks, Danielle, for your question and thanks to everyone for your questions and your continued interest in our Company. Our apologies to those we couldn't get to today because of time, but please don't hesitate to reach out to Investor Relations as needed. I will now turn the call back to Joe for some brief closing remarks..

Great. Thanks, Jen. So I hope you take away from the third quarter results, as well as this call, just how broad our financial strength is. Setting us up very well to close out 2021. But more importantly, 2022 and beyond.

We certainly do look forward to seeing many of you in New Brunswick on November 18th, where Jennifer McIntyre and a number of the pharmaceutical leaders will be featuring our product portfolio and just how optimistic we are about the future. With that, I'll close the call and wish everyone a great day..

Thank you. This concludes today's Johnson & Johnson Third Quarter 2021 earnings conference call. You may now disconnect..