Johnson & Johnson’s stock surged on Tuesday after the company released its earnings, surpassing wall street's estimates amid the coronavirus. Johnson & Johnson CFO Joe Wolk joins Yahoo Finance’s On The Move to break down the latest earnings report and development of the company's coronavirus vaccine.
ADAM SHAPIRO: Cases worldwide of COVID-19 almost 2 million, 1.9 million, dead, 120,926. In the United States, 587,815 of our country people have the disease, dead, 23,654 souls. That's how many people we have lost as we fight this.
On the front lines of fighting this is Johnson & Johnson, which reported earnings this morning. Among their earnings, first quarter sales worldwide, $20.7 billion. Consumer health was up 11%. Pharmaceutical division up 10.2%. Medical devices took a hit.
We're going to talk about all of this. But to break all of it down for us is Joe Wolk. He is the Executive Vice President and Chief Financial Officer at Johnson & Johnson. It's good to have you here, Joe. And we appreciate your spending time with us.
JOE WOLK: Thanks for having me, Adam. It certainly is my pleasure to be here with you.
ADAM SHAPIRO: Before we jump into these numbers, I want to get right to the vaccine development. And one of the things that I kept hearing in the earnings call-- I heard it from Alex Gorsky, I heard it from Paul Stoffels-- was that production of the vaccine is imminent. Now is that the vaccine? Because the trials don't begin till September.
And then they also talked about being able to produce in an annual basis 1 billion doses. What does all of that mean?
JOE WOLK: Yeah, so Adam, even before we get into the vaccine, certainly the numbers that you quoted at the top, they are certainly staggering. On behalf of Johnson & Johnson and myself, our thoughts and our hearts go out to those people who know someone, or have suffered from COVID-19. And that's why Johnson & Johnson exists, for many times like this.
The vaccine is tracking, just as you heard from Alex and Paul, about a week and a half ago when we announced our lead candidate for a vaccine. We are manufacturing at-risk, which means we're scaling up capacity to make sure that we have production in place and ready to go. The timeline still is pretty certain.
We plan to be first in human testing sometime in early September. Should things progress, we would have data read out in December. And that would hopefully lead to an approval in the early part of 2021.
We'll have about 600 to 800 million vaccines available in that part of the year. And then by the end of the year, we'll get to an annual run rate of about a billion per annum. So we're manufacturing at-risk to ensure that should the clinical development and the trials be successful, we are in a position to kind of flip the switch, and ready to go to create great access across the globe.
ADAM SHAPIRO: And to follow up on vaccine, the facility you're building in, I think it's Maryland, to produce this vaccine in conjunction with, what is it? It's BARDA-- the Biomedical Advanced Research and Development Authority. When will that be online, ready to go?
JOE WOLK: That will probably be on later on this year or early next year. Again, it's not necessarily a greenfield site. We are utilizing an existing site, and refitting it for the capabilities that we have in our Netherlands facility.
JULIE HYMAN: Joe, it's Julie here. It's good to see you. You all announced today as part of your earnings report that you're raising your dividend by 6.3%. And, of course, there has been pushback against the idea of things like stock buybacks at a time like this, especially for companies that are receiving government aid. You all are not directly receiving government aid.
But do you worry at all about the tone that that sets? Especially when you are in partnership, for example, on this vaccine development with the government. I mean, what did that debate look like inside Johnson & Johnson about spending this on a dividend rather than R&D, or rather than trying to develop some of these treatment or vaccine options?
JOE WOLK: Yeah, so that's a great question. And it is one that we did have significant discussion about. You know, it's-- for all of us, it's anything but business as usual. But at certain aspects of Johnson & Johnson, we have a business-as-usual focus. That is about advancing research and development.
We will invest at least to what we did last year with respect to R&D, absent any delay and kind of timing or patient enrollment. Last year, we invested $11 billion in innovation. That put us well within the top 10 companies across all industries for innovation. We continue to take care of our employees.
We also consider our financial stakeholders. And we've done significant surveys, and information gathered with respect to why do people invest in Johnson & Johnson? Almost 50% of the time, out of our top 100 shareholders, they prioritize the dividend in their investment criteria.
We also took into consideration those retirees. You know, the baby boom generation, a lot of the Johnson & Johnson the ownership is in the retail segment. Those are people who are dependent upon the dividend income that we deliver.
So we did want to come out with a responsible, not arrogant, display of strength, to reflect the long-term prospects of Johnson & Johnson. It's the 58th consecutive year we've increased the dividend. I think it's less a statement about the historical perspective, and more underscoring the positive optimism that we have, and the outlook for the future.
ADAM SHAPIRO: Joe, I'm glad you used the word optimism. Look, the stock is up about 5% today. In the earnings report-- US is your largest market-- pharmaceutical alone was about $6 billion in the last quarter, with a B-- $6 billion.
And then in the earnings call you talked about a prediction that as you see the models, you expect elective surgeries, elective procedures at hospitals to resume in the second half of 2020. Why are you optimistic about that? And where would we see that reflected in your earnings? Would that be in pharmaceutical or medical devices?
JOE WOLK: Yes, so pharmaceuticals and consumers, to be clear, Adam, we expect that to be pretty much on par with what we expected in our original guidance in January, before COVID-19 was even a topic of discussion. Where we are taking down guidance is really medical devices, and those elective procedures. That makes up about 70% of our medical device portfolio.
Quite frankly, hospitals have been repurposed for COVID-19 treatment, making sure that they're ready to go should a surge hit their location. But elective surgeries are very important to the financial viability of these hospitals. Right now, we're here from a number of large hospital systems, the Mayo Clinic being the most recent, that they only are utilized about 25% of their capacity in elective surgery. We think they'll have a desire to get these surgeries back into their portfolio. And they'll look to make some of those up.
So we see some recovery, stabilization in the third quarter. And then recovery, which may actually make up for some of the lost procedures in the fourth quarter of this year, based on what we know today.
JULIE HYMAN: And Joe, specifically that medical device revenue was down 8.2% last quarter. That even before this pandemic, the medical device unit at J&J had some issues. So I wonder, when you talk about stability or increase, are you talking about a flat out increase in revenue by the end of the year, for example?
JOE WOLK: Sequentially, I think you're certainly going to see that. Our plans coming into this year for medical device was to continue to see growth acceleration. So we had about 1.5% growth in 2017, almost 3% in 2018, and almost 4% last year. We expect it to continue that trend upward, riding our portfolio, before the advent and the introduction of digital robotic surgery, which we're very excited about.
So I think sequentially, you'll see some growth, clearly just because of what's happening and what we expect to happen in the second and third quarters. But we also predicted and projected in our guidance that we would see sequential annual growth before COVID-19 hit. So we think we're very much on that cadence, and we look forward to whenever the pandemic abates to be back on same trajectory.
ADAM SHAPIRO: Joe, let me wrap up with one last question to you. And I'm going to quote from the credo, the original credo from the late '40s for Johnson & Johnson. Quote, we believe that our first responsibility is to the doctors, nurses, hospitals mothers, and all others who use our products.
But you've also got a responsibility, we've discussed to the shareholders with the dividend, but to your employees. Can you share with us the steps that you've gone to help people stay at home to care for those who are ill, by continuing to pay their salaries, and how much longer that will last?
JOE WOLK: So Adam, it's really two-fold. So because we're in an essential business, if you think about some of the medicines and products we produce for times like this, about a third of our workforce is still coming into work for manufacturing and clinical trials. We're making sure first and foremost that they are maintaining safety levels. We're putting in social distancing protocols, making sure that they've got the protective-- personal protective equipment available to them.
As you can imagine, being in health care, we already have high bars for sanitation. We're now taking a belt and suspenders approach to making sure that it's extra sanitized, if you will. And then with respect for those folks who now have to work from home, we've expanded leave practices. We have guaranteed pay, as you mentioned, for a period of time.
And we continue to make sure that we have an understanding as a management team that people are working under very, very different conditions going forward, and making sure that we are empathetic to that.
ADAM SHAPIRO: All right, well, your Chairman and CEO Alex Gorsky said that Johnson & Johnson is built for times like this. And we appreciate the insight from you. The Chief Financial Officer at J&J, Joe Wolk. Good to see you, and all the best to your team at J&J.
JOE WOLK: Thank you, Adam. Stay safe.