Joaquin Duato, the new CEO of Johnson & Johnson, is comfortable enough in his new position at the 135-year-old company to issue a bold claim just a few months into the job and during his first interview: he predicts the next decade will see more health-care transformation than occurred during the past century.
Duato, the first non-U.S. born CEO for the company, and first to hold dual citizenship (Spain and U.S.), has been with J&J for three decades and was the chief information officer of its pharmaceuticals business, giving him key insights into the role of technology in health care.
Priority No. 1, Duato told CNBC’s Meg Tirrell at Healthy Returns on Wednesday, is the opportunity “to create more progress in health in this decade than we have seen in the last 100 years.”
As J&J prepares to split into two companies, Duato said that separating the consumer brands like Band-Aids, Tylenol, Neutrogena and Listerine from medical technology and pharmaceuticals will help the company be at the forefront of surgical techniques that transform health care.
“For the consumer health company, it’s going to be an opportunity to deepen the relationships with consumers to attract new investors, to inspire employees, and to be able to have a fit-for-purpose model with their own capital location priorities … and then for the new Johnson and Johnson it is going to be an opportunity to be more focused, more competitive and to deliver increased growth.”
Johnson & Johnson, which is a bellwether in the health-care sector for hospital surgeries and procedures, has seen Covid pressure the overall business, but the CEO noted ahead of the upcoming earnings season that it did see good performance in its medical device business in 2021, with close to 16% growth, even as Covid weighed on activity and in particular, elective procedures.
Duato said the company is gaining share in its priority medtech platforms and expects “good” performance this year.
One particular area of focus is innovation for patients in improving surgical outcomes. Duato said as medical technology becomes increasingly digital and cloud-connected, AI will make it increasingly smarter. “And that’s going to help surgeons to be able to deliver better surgical outcomes,” he said.
In 2021, the company invested more than $2 billion in innovation, an increase of 23% in the middle of the pandemic. “That’s a sign of how much we believe in the opportunity that I was describing … of combining science and technology to deliver improvements in patient care,” Duato said.
Research and development on the drug side is accelerating as well, he said, with a pipeline of 14 new medicines to be filed before 2025. “All of them are providing significant improvements in the standard of care, and at the same time, all of them with more than a billion dollar potential,” he said.
He cited the recent approval of CARVYKTI, an antigen receptor T-cell therapy for the treatment of multiple myeloma, which helped 98% of patients who were otherwise likely to be headed for hospice care. “We are very optimistic about the treatment modalities that we are bringing, like cell therapy that are going to enable us have an aspiration to be able to cure some diseases that were thought to be incurable,” Duato said.
AI and real-time surgical data
Duato, who served as interim CIO of Johnson and Johnson for almost a year in 2019, said that role gave him insights into how artificial intelligence and automation can make surgery smarter. “I see a future in which all medical devices would be smarter, connected to the cloud, being able to provide data to the surgeons for them to be able to in real time.”
Machine learning, when combined with genetics, is also accelerating the discovery and development of new medicines.
“We can do genomic sequencing, and at the same time with large data sets, utilize AI and machine learning to create patterns in which we can correlate diseases with genomic profiling, to identify what are going to be the underpinnings of diseases that are going to be the triggers, the targets that we are going to be able to utilize in our discovery,” Duato said.
New compounds can be measured against a single cell to more rapidly identify pharmacological activity, such as expected toxicities, and accelerate the development of new medicines. “We can plan much better our clinical trials, we are able to create synthetic control groups instead of having placebo groups and we are also able to stratify and identify patients that are difficult to find in rare diseases utilizing algorithms that enable us to identify them,” he said. “I’m very bullish about the potential of technology in accelerating discovery and developing new medicines.”
Inflation and consumer demand
The current economic situation is “volatile,” Duato said, with inflationary headwinds in the supply chain and availability of important raw materials and components, though he said the company’s scale as the largest health-care firm helps, and the guidance has already provided to the market earlier in the year showed a healthy growth rate in revenue and in earnings per share.
Inflation will remain a factor, as some pressures alleviate this year but others remain longer, Duato said. The consumer business is more affected by inflationary pressures and there is more concern throughout the market and economy that consumers will begin to buy “off brand” products when they have the option.
“Overall, we’ve seen volatility in the consumer demand,” Duato said, “but we continue to see very solid consumer business coming through and we continue to try to deliver what is best for consumers and we continue to try to mitigate our cost increases by improving our own efficiency, and in some cases also having price increases but overall, we are bullish about the potential of our consumer health business and about our ability to navigate the inflationary pressures in a way that is optimal for consumers,” he said.
Johnson & Johnson has faced multiple lawsuits over products and medical devices, from talc to hip replacement and opioids, which have resulted in significant financial settlements, without any admission of wrongdoing, as well as ongoing litigation.
Duato declined to go into legal specifics. “We understand that we have a reputation. We understand that we have a high bar and a high expectation from society overall….Yes, we have some challenges when you refer to the litigation. … Ultimately, we want to always reach a fair and equitable resolution in order to be able to focus on what we do best. And what we do best is to continue to develop medicines, medical devices, consumer products that improve consumer lives and also are able to address patients’ needs.”