Johnson & Johnson CFO on Q2 earnings beat, unintended consequences of COVID-19

Johnson & Johnson CFO Joe Wolk joins Yahoo Finance's On the Move to discuss his company's second quarter earnings results.

Video Transcript

ADAM SHAPIRO: Johnson & Johnson reported before the bell this morning. They raised their full-year adjusted profit forecast, as we told you at the beginning of the program. But one of the things we're also watching is that worldwide sales were $18.3 billion. That was down 10.8% year over year from what had been $20.6 billion. So we're going to talk about that and a great many other headlines which crossed during their earnings call with their CFO Joe Wolk. It's good to have you here, Joe.

JOE WOLK: Thanks for having me, Adam. A pleasure to see you.

ADAM SHAPIRO: It's good to see you. I got to start with this, though, before we jump into the numbers for the quarter-- Dr. Stoeffels-- Paul Stoeffels, chief scientific officer, talked about vaccine candidate-- the second phase trials will begin next week in Europe on the 22nd and then more than 1,000 people in these tests in the United States the following week. What do you know about where you stand on the success of this vaccine candidate? And then there's the news out of the intelligence community here in the United States that Russian hackers have been targeting those working on vaccines. Have you gotten a phone call from intelligence saying, hey, J&J, Russia has been coming after you?

JOE WOLK: Well, again, Adam, it's a pleasure to be here. And we've made great success with respect to our vaccine development. Dr. Stoeffels and his team just continue to beat every timeline out there. So we will be publishing the preclinical data in the next couple of weeks in a prominent scientific journal. But we've got enough conviction around that data to start the human testing next week-- Wednesday, to be specific-- for phase 1, 2a.

We're also talking with the National Institute of Health to see if we can begin our phase 3 clinical trials at the end of September-- so again, moving the timeline up. The population of 1,000 will include adults from the ages of 18 to well beyond 65-- so addressing the most vulnerable patients. There is a lot of interest in the vaccine, clearly. In terms of cybersecurity, it's something that the management team takes seriously if you think about really what is the lifeblood of our company. It's innovation. And protecting that innovation through intellectual property is of prime importance to us. So it's a topic-- not incident specific, it's something management takes very seriously. And we have regular reviews with our board of directors on cybersecurity, specifically.

ADAM SHAPIRO: But just to confirm-- you haven't gotten a call from US security officers that you had been targeted about this, did you?

JOE WOLK: That's correct-- not to my knowledge.

ADAM SHAPIRO: Anjalee.

ANJALEE KHEMLANI: Yes, hey, Joe. I wanted to ask you about the vaccine trials. I know that when we saw the review of Moderna's data yesterday, there was some concern about the diversity involved in that clinical trial. And while, obviously, Johnson & Johnson is a much bigger entity, are you taking steps to ensure that you don't face the same criticism?

JOE WOLK: So you know, when I think about the vaccine, Anjalee, I think about it in terms of the science, the scale of Johnson & Johnson, and then access. And the scale of Johnson & Johnson-- and you touched upon this in your question-- is really what's an advantage for us. So our trial will be more than 1,000 patients for phase 1 and 2a, we have made assurances that there'll be a very good cross-section, not only in terms of the age ranges that I spoke about, but in terms of all ethnicities.

So we feel very good on that front. And then the last piece-- clearly with access, I shouldn't leave that hanging, is we have come out and stood by our pledge to do this at a not for profit price. And so we're continuing to work through that and stand by that pledge.

JULIE HYMAN: Joe, speaking of Johnson & Johnson's scale as well-- it's Julie here-- you've said that you all would be prepared to produce 600 to 900 million doses by April if the vaccine is, indeed, effective. So talk to me about funding for that production, especially as the company is seeing a decline in profit. Is it-- presumably, it's personally government funded, but what does the breakdown look like?

JOE WOLK: Yeah, so it's about a 50-50 split. Right now, the current estimates-- and these are somewhat fluid, Julie, as we look at in terms of the input we receive from not just the US, but countries around the globe in terms of what their true demand assessment is going to be. But we're looking at roughly about $1.4 billion in total investment.

Thus far BARDA, from the US, has come up with about $450 million. And again, that split of $1.4 billion is equally between R&D, the science, if you will, and then manufacturing capacity. We have a great facility in the Netherlands, which has a few bio-reactors. We're adding to that capacity there. But we've also contracted with a few contract manufacturing organizations that we feel really good about here in the United States.

ADAM SHAPIRO: Joe, in the consumer health segment, skin and health beauty, that was down 14.3%. And that's a large revenue generator. Do you have any concern about that? Or is that just one of these one-offs-- because of the pandemic, people really aren't going out like we used to?

JOE WOLK: You know, Adam, that's spot on. It continues to be a priority area for our leadership team in the consumer segment. But if you just think about the protocols that probably all of us have adopted-- we're going out less, therefore we may cut a corner or two on beauty products. In terms of vacations, they were curtailed somewhat. The spring could be a very busy season in terms of sunscreen and sun care products.

So those are the types of impact. But in terms of the long term potential for brands like Neutrogena and Aveeno, we feel very, very good.

JULIE HYMAN: And, Joe, you all raised your forecast for the remainder of the year here. One of the weak spots during last quarter was medical sales-- medical device sales, excuse me. So is a rebound there what accounts for the increase in the forecast? And is there some kind of ceiling on medical device sales, because surgeries are going to catch back up, right-- elective surgeries-- but isn't that sort of capped by hospital and staff capacity?

JOE WOLK: You're spot on, Julie. So the change in our guidance is really solely due to the medical device performance and what we saw specifically in the second quarter. So when we came out with guidance in April after the first quarter closed, we were looking to be down roughly 40% to 60% year on year. That number actually came in around 30% to 35%-- so much better than we anticipated.

We do think that there'll be a steady cadence of improvement. We're calling for a lower decline, but still a decline, in the second half of the year. And as we have isolated cases of hotspots and case rises in certain select areas, we'll be monitoring that very, very carefully. But we're in a much different position as a society and as a health care system in terms of just the protocols we have from where we were at the end of March and early April.

Isolation techniques are being employed, but they're being employed selectively versus universally. Hospitals are very much understanding of the pandemic-- how they can treat COVID patients better and how elective surgeries need to go on. Quite frankly, one of our biggest concerns as the world's largest health care company is the unintended consequences to some of the measures we put in place to address COVID-19. We know that office visits are down. We know that about 20%, based on a Harris poll, of patients are foregoing chronic therapy. That's not good for the patients, but it's also not good for the health care system when you're looking at cost containment. The sicker a patient gets, the more financially burdensome it is.

ADAM SHAPIRO: A lot of us are counting on Johnson & Johnson and the other pharmaceutical companies to come up with that vaccine. And we don't even have time to talk about the fact that you got regulatory approval, first in the world, for the Ebola vaccine. So congratulations on that. CFO from J&J Joe Wolk, we appreciate your being here. When we come back, we're going to take a look at retail sales.