Johnson & Johnson 10-Q 2023-04-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

for the quarterly period ended April 2, 2023

or

Commission file number 1-3215

Johnson & Johnson

(Exact name of registrant as specified in its charter)

One Johnson & Johnson Plaza

New Brunswick, New Jersey 08933

(Address of principal executive offices)

Registrant’s telephone number, including area code (732) 524-0400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On April 21, 2023, 2,598,734,075 shares of Common Stock, $1.00 par value, were outstanding.

JOHNSON & JOHNSON AND SUBSIDIARIES

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and Johnson & Johnson’s other publicly available documents contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Management and representatives of Johnson & Johnson and its subsidiaries (the Company) also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates,” and other words of similar meaning in conjunction with, among other things: discussions of future operations, expected operating results, financial performance; impact of planned acquisitions and dispositions; impact and timing of restructuring initiatives including associated cost savings and other benefits; the Company’s strategy for growth; product development activities; regulatory approvals; market position and expenditures.

Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company’s control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements. Risks and uncertainties include, but are not limited to:

Risks Related to Product Development, Market Success and Competition

• Challenges and uncertainties inherent in innovation and development of new and improved products and technologies on which the Company’s continued growth and success depend, including uncertainty of clinical outcomes, additional analysis of existing clinical data, obtaining regulatory approvals, health plan coverage and customer access, and initial and continued commercial success;

• Challenges to the Company’s ability to obtain and protect adequate patent and other intellectual property rights for new and existing products and technologies in the United States and other important markets;

• The impact of patent expirations, typically followed by the introduction of competing generic, biosimilar or other products and resulting revenue and market share losses;

• Increasingly aggressive and frequent challenges to the Company’s patents by competitors and others seeking to launch competing generic, biosimilar or other products and increased receptivity of courts, the United States Patent and Trademark Office and other decision makers to such challenges, potentially resulting in loss of market exclusivity and rapid decline in sales for the relevant product sooner than expected;

• Competition in research and development of new and improved products, processes and technologies, which can result in product and process obsolescence;

• Competition to reach agreement with third parties for collaboration, licensing, development and marketing agreements for products and technologies;

• Competition based on cost-effectiveness, product performance, technological advances and patents attained by competitors; and

• Allegations that the Company’s products infringe the patents and other intellectual property rights of third parties, which could adversely affect the Company’s ability to sell the products in question and require the payment of money damages and future royalties.

Risks Related to Product Liability, Litigation and Regulatory Activity

• Product efficacy or safety concerns, whether or not based on scientific evidence, potentially resulting in product withdrawals, recalls, regulatory action on the part of the United States Food and Drug Administration (or international counterparts), declining sales, reputational damage, increased litigation expense and share price impact;

• The impact, including declining sales and reputational damage, of significant litigation or government action adverse to the Company, including product liability claims and allegations related to pharmaceutical marketing practices and contracting strategies;

• The impact of an adverse judgment or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, product liability, personal injury claims, securities class actions, government investigations, employment and other legal proceedings;

• Increased scrutiny of the healthcare industry by government agencies and state attorneys general resulting in investigations and prosecutions, which carry the risk of significant civil and criminal penalties, including, but not limited to, debarment from government business;

• Failure to meet compliance obligations in compliance agreements with governments or government agencies, which could result in significant sanctions;

• Potential changes to applicable laws and regulations affecting United States and international operations, including relating to: approval of new products; licensing and patent rights; sales and promotion of healthcare products; access to, and reimbursement and pricing for, healthcare products and services; environmental protection; and sourcing of raw materials;

• Compliance with local regulations and laws that may restrict the Company’s ability to manufacture or sell its products in relevant markets, including requirements to comply with medical device reporting regulations and other requirements such as the European Union’s Medical Devices Regulation;

• Changes in domestic and international tax laws and regulations, increasing audit scrutiny by tax authorities around the world and exposures to additional tax liabilities potentially in excess of existing reserves; and

• The issuance of new or revised accounting standards by the Financial Accounting Standards Board and regulations by the Securities and Exchange Commission.

Risks Related to the Company’s Strategic Initiatives, Healthcare Market Trends and the Planned Separation of the Company’s Consumer Health Business

• Pricing pressures resulting from trends toward healthcare cost containment, including the continued consolidation among healthcare providers and other market participants, trends toward managed care, the shift toward governments increasingly becoming the primary payers of healthcare expenses, significant new entrants to the healthcare markets seeking to reduce costs and government pressure on companies to voluntarily reduce costs and price increases;

• Restricted spending patterns of individual, institutional and governmental purchasers of healthcare products and services due to economic hardship and budgetary constraints;

• Challenges to the Company’s ability to realize its strategy for growth including through externally sourced innovations, such as development collaborations, strategic acquisitions, licensing and marketing agreements, and the potential heightened costs of any such external arrangements due to competitive pressures;

• The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected;

• The potential that the expected benefits and opportunities related to past and ongoing restructuring actions may not be realized or may take longer to realize than expected;

• The Company’s ability to consummate the planned separation of the Company’s Consumer Health business on a timely basis or at all;

• The Company’s ability to successfully separate the Company’s Consumer Health business and realize the anticipated benefits from the planned separation; and

• The New Consumer Health Company’s ability to succeed as a standalone publicly traded company.

Risks Related to Economic Conditions, Financial Markets and Operating Internationally

• The risks associated with global operations on the Company and its customers and suppliers, including foreign governments in countries in which the Company operates;

• The impact of inflation and fluctuations in interest rates and currency exchange rates and the potential effect of such fluctuations on revenues, expenses and resulting margins;

• Potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade restrictions or tariffs and potential drug reimportation legislation;

• The impact on international operations from financial instability in international economies, sovereign risk, possible imposition of governmental controls and restrictive economic policies, and unstable international governments and legal systems;

• The impact of global public health crises and pandemics;

• Changes to global climate, extreme weather and natural disasters that could affect demand for the Company’s products and services, cause disruptions in manufacturing and distribution networks, alter the availability of goods and services within the supply chain, and affect the overall design and integrity of the Company’s products and operations; and

• The impact of armed conflicts and terrorist attacks in the United States and other parts of the world, including social and economic disruptions and instability of financial and other markets.

Risks Related to Supply Chain and Operations

• Difficulties and delays in manufacturing, internally, through third-party providers or otherwise within the supply chain, that may lead to voluntary or involuntary business interruptions or shutdowns, product shortages, withdrawals or suspensions of products from the market, and potential regulatory action;

• Interruptions and breaches of the Company’s information technology systems or those of the Company’s vendors, which could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action;

• Reliance on global supply chains and production and distribution processes that are complex and subject to increasing regulatory requirements that may adversely affect supply, sourcing and pricing of materials used in the Company’s products; and

• The potential that the expected benefits and opportunities related to restructuring actions contemplated for the global supply chain may not be realized or may take longer to realize than expected, including due to any required approvals from applicable regulatory authorities.

Investors also should carefully read the Risk Factors described in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2023, for a description of certain risks that could, among other things, cause the Company’s actual results to differ materially from those expressed in its forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.

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Part I — FINANCIAL INFORMATION

JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; Dollars in Millions Except Share and Per Share Data)

See Notes to Consolidated Financial Statements

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JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)

See Notes to Consolidated Financial Statements

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JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; Dollars in Millions)

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RESULTS OF OPERATIONS

Sales to Customers

Analysis of Consolidated Sales

For the fiscal first quarter of 2023, worldwide sales were $24.7 billion, a total increase of 5.6%, which included operational growth of 9.0% and a negative currency impact of 3.4% as compared to 2022 fiscal first quarter sales of $23.4 billion. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.4%.

Sales by U.S. companies were $12.5 billion in the fiscal first quarter of 2023, which represented an increase of 9.7% as compared to the prior year. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 2.3%. Sales by international companies were $12.2 billion, a total increase of 1.8%, which included operational growth of 8.3% and a negative currency impact of 6.5%. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 0.4%.

In the fiscal first quarter of 2023, sales by companies in Europe achieved growth of 5.1%, which included operational growth of 10.0% and a negative currency impact of 4.9%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 7.1%, including operational growth of 14.3% and a negative currency impact of 7.2%. Sales by companies in the Asia-Pacific, Africa region experienced a decline of 4.3%, including operational growth of 4.1% offset by a negative currency impact of 8.4%.

Note: values may have been rounded

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Analysis of Sales by Business Segments

Consumer Health

Consumer Health segment sales in the fiscal first quarter of 2023 were $3.9 billion, an increase of 7.4% as compared to the same period a year ago, including operational growth of 11.3% and a negative currency impact of 3.9%. U.S. Consumer Health segment sales increased by 11.4%. International Consumer Health segment sales increased by 4.4% including operational growth of 11.3% and a negative currency impact of 6.9%. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on the Consumer Health segment operational sales growth was negligible.

Major Consumer Health Franchise Sales — Fiscal First Quarter Ended

The OTC franchise achieved operational growth of 15.8% as compared to the prior year fiscal first quarter. The growth was driven by price actions, exceptionally high Cough/Cold/Flu incidences primarily in Europe, and one-time supply replenishment reflected in TYLENOL, MOTRIN, NICORETTE and IMODIUM.

The Skin Health/Beauty franchise achieved operational growth of 13.1% as compared to the prior year fiscal first quarter. The growth was driven by price actions, one-time supply replenishment and sun season pipeline fill, and e-commerce and club channel performance driven by new product innovations in NEUTROGENA and AVEENO. The growth was partially offset by U.S. portfolio simplification and competitive pressures.

The Oral Care franchise achieved operational growth of 2.1% as compared to the prior year fiscal first quarter. The growth was driven by U.S. price actions, partially offset by category deceleration outside the U.S. and the negative impact from suspension of personal care sales in Russia.

The Baby Care franchise achieved operational growth of 6.5% as compared to the prior year fiscal first quarter. The growth was driven by price actions, one-time supply replenishment and lapping of a prior year reserve true-up outside the U.S. The growth was partially offset by the negative impact from suspension of personal care sales in Russia.

The Women’s Health franchise achieved operational growth of 4.1% as compared to the prior year fiscal first quarter primarily driven by price actions and strong performance in India partially offset by the negative impact from suspension of personal care sales in Russia.

The Wound Care/Other franchise achieved operational growth of 2.5% as compared to the prior year fiscal first quarter primarily driven by price actions and strong demand in Canada.

In November 2021, the Company announced its intention to separate the Company’s Consumer Health business (Kenvue as the name for the planned New Consumer Health Company), with the intention to create a new, publicly traded company by the end of the fiscal year 2023, pending market conditions.

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Pharmaceutical

Pharmaceutical segment sales in the fiscal first quarter of 2023 were $13.4 billion, an increase of 4.2% as compared to the same period a year ago, including an operational increase of 7.2% and a negative currency impact of 3.0%. U.S. Pharmaceutical sales increased 5.9% as compared to the same period a year ago. International Pharmaceutical sales increased by 2.4%, including operational growth of 8.6% and a negative currency impact of 6.2%. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was negligible.

Major Pharmaceutical Therapeutic Area Sales** — Fiscal First Quarter Ended

• Percentage greater than 100% or not meaningful

**Certain prior year amounts have been reclassified to conform to current year presentation

(1) Inclusive of RISPERDAL CONSTA which was previously disclosed separately

(2) Inclusive of INVOKANA which was previously disclosed separately

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Immunology products achieved operational growth of 2.5% as compared to the same period a year ago driven by market growth and share growth of STELARA (ustekinumab) in Crohn’s disease and Ulcerative Colitis partially offset by unfavorable patient mix and price. Additionally, strong growth of TREMFYA (guselkumab) was due to share gains in Psoriasis and Psoriatic Arthritis partially offset by unfavorable patient mix. Lower sales of REMICADE (infliximab) were due to biosimilar competition.

Biosimilar versions of REMICADE have been introduced in the United States and certain markets outside the United States and additional competitors continue to enter the market. Continued infliximab biosimilar competition will result in a further reduction in sales of REMICADE.

The latest expiring United States composition of matter patent for STELARA (ustekinumab) expires in September 2023. STELARA (ustekinumab) U.S. sales in fiscal 2022 were approximately $6.4 billion. Third parties have filed abbreviated Biologics License Applications with the FDA seeking approval to market biosimilar versions of STELARA. In the event the Company is not successful in defending its patent claims in related lawsuits, biosimilar versions of STELARA may be introduced to the market, potentially resulting in substantial market share and revenue losses. There is also risk that one or more competitors could launch a biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.

Infectious disease products achieved operational growth of 26.4% as compared to the same period a year ago. Growth was primarily driven by COVID-19 vaccine revenue (which is now substantially complete) and EDURANT (rilpivirine) sales. This was partially offset by lower sales of PREZISTA and PREZCOBIX/REZOLSTA (darunavir/cobicistat) due to increased competition outside the U.S.

Neuroscience products achieved operational sales growth of 6.1% as compared to the same period a year ago. Growth of SPRAVATO (esketamine) was driven by ongoing launches in the U.S. and Europe as well as increased patient demand. Paliperidone long-acting injectables growth was due to the strength of INVEGA SUSTENNA/XEPLION (paliperidone palmitate) and INVEGA TRINZA/TREVICTA driven by new patient starts and persistence of treatment as well as the launch of INVEGA HAFYERA/BYANNLI. This was partially offset by the XEPLION loss of exclusivity in the European Union.

Oncology products achieved operational sales growth of 7.7% as compared to the same period a year ago. Strong sales of DARZALEX (daratumumab) were driven by share gains in all regions, continued market growth, and strong FASPRO adoption. Growth of ERLEADA (apalutamide) was due to continued strong share gains, market growth, and increased penetration from new launches. Sales of CARVYKTI (ciltacabtagene autoleucel) were driven by continued market share gains and the ongoing phased launch. Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) due to global competitive pressures.

Pulmonary Hypertension achieved operational sales growth of 5.0% as compared to the same period a year ago. Sales growth was due to market and volume growth from UPTRAVI (selexipag) and OPSUMIT (macitentan) partially offset by declines in Other Pulmonary Hypertension.

Cardiovascular / Metabolism / Other products achieved operational growth of 3.0% as compared to the same period a year ago. The growth of XARELTO (rivaroxaban) was primarily driven by favorable patient mix and market growth partially offset by share loss.

The Company maintains a policy that no end customer will be permitted direct delivery of product to a location other than the billing location. This policy impacts contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company’s drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain certain contract pharmacy arrangements under policy exceptions. The Company has been and will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is a U.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities. This policy had discount implications which positively impacted sales to customers in the fiscal first quarter of 2023.

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MedTech

The MedTech segment sales in the fiscal first quarter of 2023 were $7.5 billion, an increase of 7.3% as compared to the same period a year ago, which included operational growth of 11.0% and a negative currency impact of 3.7%. U.S. MedTech sales increased 16.6%. International MedTech sales decreased by 0.6%, including operational growth of 6.2% offset by a negative currency impact of 6.8%. In the fiscal first quarter of 2023, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 4.6%, related to the Abiomed acquisition.

Major MedTech Franchise Sales** — Fiscal First Quarter Ended

• Percentage greater than 100% or not meaningful

**Certain prior year amounts have been reclassified to conform to current year presentation

The Surgery franchise achieved operational sales growth of 4.1% as compared to the prior year fiscal first quarter. The operational growth in Advanced Surgery was primarily driven by the following: Biosurgery global procedure recovery, the strength from new products and a differentiated portfolio; and Energy products double digit growth in the U.S. with improved procedure volumes and strength of new products partially offset by volume-based procurement in China and product supply challenges; partially offset by Endocutter decline primarily due to volume-based procurement in China, competitive pressures predominately in the U.S. and supply challenges partially offset by positive uptake from recently launched products. The operational growth in General Surgery was primarily driven by improved procedure volumes coupled with technology penetration and benefits from differentiated Wound Closure portfolio.

The Orthopaedics franchise achieved operational sales growth of 5.1% as compared to the prior year fiscal first quarter. The operational growth in hips reflects global procedure recovery and strength across the portfolio. This was partially offset by impacts of volume-based procurement in China and supply challenges. The operational growth in knees was primarily driven by global procedure recovery, strength of the ATTUNE portfolio and pull through related to the VELYS Robotic assisted solution. This was partially offset by impacts of volume-based procurement in China. The operational growth in Trauma was driven by the adoption of recently launched products. This was partially offset by softer procedure volumes compared to the prior year and impacts of volume-based procurement in China. The operational growth in Spine, Sports & Other was primarily driven by market growth and positive new product performance in Digital Solutions, shoulders and spine. This was partially offset by impacts of volume-based procurement in China and continued competitive pressures in Spine.

The Interventional Solutions franchise achieved operational sales growth of 41.9% as compared to the prior year fiscal first quarter which includes sales from Abiomed acquired on December 22, 2022. Electrophysiology grew by double digits in all regions except Asia Pacific which reflects the impacts of COVID-19 procedure disruption and volume-based procurement in China.

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The Vision franchise achieved operational sales growth of 7.6% as compared to the prior year fiscal first quarter. The Contact Lenses/Other operational growth was primarily driven by the market recovery, continued strong performance in the ACUVUE OASYS 1-Day family (including recent launches) and effective commercial execution. This was partially offset by supply challenges. The Surgical operational growth was primarily driven by the strength in Monofocal IOLs partially offset by softer refractive and premium IOL markets and supply challenges.

ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME

Consolidated earnings/loss before provision for taxes on income for the fiscal first quarter of 2023 was a loss of $0.7 billion representing (3.0)% of sales as compared to earnings of $5.9 billion in the fiscal first quarter of 2022, representing 25.0% of sales primarily driven by the $6.9 billion charge related to the talc settlement proposal.

Cost of Products Sold

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2023 versus Q1 2022

Cost of products sold increased as a percent to sales primarily driven by:

• one-time COVID-19 vaccine manufacturing related exit costs and mix in the Pharmaceutical business

• Commodity inflation and Abiomed amortization in the MedTech business

The intangible asset amortization expense included in cost of products sold for the fiscal first quarters of 2023 and 2022 was $1.2 billion and $1.1 billion, respectively.

Selling, Marketing and Administrative Expenses

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2023 versus Q1 2022

Selling, Marketing and Administrative Expenses decreased as a percent to sales primarily driven by:

• A reduction in brand marketing expenses in the Pharmaceutical business

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Research and Development Expense

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2023 versus Q1 2022

Research and Development decreased as a percent to sales driven by:

• a reduction in COVID-19 Vaccine related expenses

partially offset by

• portfolio progression in the Pharmaceutical business

In-Process Research and Development (IPR&D)

In the fiscal first quarter of 2023, the Company recorded a charge of approximately $0.1 billion associated with the IPR&D acquired with Pulsar Vascular in 2016. In the fiscal first quarter of 2022, the Company recorded an intangible asset impairment charge of approximately $0.6 billion related to an in-process research and development asset, bermekimab (JnJ-77474462), an investigational drug for the treatment of Atopic Dermatitis (AD) and Hidradenitis Suppurativa (HS). The Company acquired all rights to bermekimab from XBiotech, Inc. in the fiscal year 2020.

Interest (Income) Expense

Interest income in the fiscal first quarter of 2023 was $235 million as compared to $22 million in the fiscal first quarter of 2022 primarily due to higher rates of interest earned on cash balances. Interest expense in the fiscal first quarter of 2023 was $215 million as compared to interest expense of $10 million in the same period a year ago primarily due to a higher debt balance at higher interest rates. The balance of cash, cash equivalents, restricted cash and current marketable securities was $32.3 billion ($24.6 billion unrestricted and $7.7 billion restricted) at the end of the fiscal first quarter of 2023 as compared to $30.4 billion at the end of the fiscal first quarter of 2022. The Company’s debt position was $52.9 billion ($7.7 billion related to Kenvue debt) as of April 2, 2023, as compared to $33.1 billion the same period a year ago.

Other (Income) Expense, Net*

Q1 2023 versus Q1 2022

Other (income) expense, net for the fiscal first quarter of 2023 was unfavorable by $7.3 billion as compared to the prior year primarily due to the following:

(1) Related to the talc settlement proposal

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*Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, gains and losses on divestitures, gains and losses on sale of assets, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income.

EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT

Income (loss) before tax by segment of business for the fiscal first quarters were as follows:

(1)Amounts not allocated to segments include interest (income) expense and general corporate (income) expense. The fiscal first quarter of 2023 includes the incremental $6.9 billion charge related to the talc settlement proposal.

Consumer Health Segment

The Consumer Health segment income before tax as a percent of sales in the fiscal first quarter of 2023 was 20.1% versus 19.1% for the same period a year ago. The increase in the income before tax as a percent of sales in the fiscal first quarter of 2023 as compared to the prior year was primarily driven by the following:

• pricing actions

partially offset by

• commodity inflation

Pharmaceutical Segment

The Pharmaceutical segment income before tax as a percent of sales in the fiscal first quarter of 2023 was 33.1% versus 30.5% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal first quarter as compared to the prior year was primarily driven by the following:

• An IPR&D charge of $0.6 billion in 2022 related to bermekimab (JnJ-77474462), an investigational drug for the treatment of AD and Hidradenitis Suppurativa (HS)

• Unfavorable changes in the fair value of securities in 2022 of $0.4 billion

• Leveraging in selling and marketing expenses

partially offset by

• COVID-19 Vaccine related exit costs of $0.4 billion in 2023

• Restructuring charges of $0.1 billion in 2023

• Unfavorable product mix

MedTech Segment

The MedTech segment income before tax as a percent of sales in the fiscal first quarter of 2023 was 19.3% versus 21.2% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter was primarily driven by the following:

• Higher amortization expense of $0.1 billion in 2023 related to Abiomed

• An IPR&D charge in 2023 of approximately $0.1 billion related to the Pulsar Vascular acquisition

• Acquisition costs related to Abiomed

• Commodity inflation in 2023

partially offset by

• No Restructuring charges in 2023 versus $0.1 billion in 2022

• Proactive management of costs

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Restructuring

In the first quarter of 2023, the Company completed a prioritization of its research and development (R&D) investment within the Pharmaceutical segment to focus on the most promising medicines with the greatest benefit to patients. This resulted in the exit of certain programs including the discontinuation of its respiratory syncytial virus (RSV) adult vaccine program, HIV and hepatitis. The pre-tax restructuring charge of approximately $0.1 billion in the fiscal first quarter of 2023 includes the termination of partnered and non-partnered program costs and asset impairments. In the fiscal first quarter of 2022, the Company recorded a pre-tax charge of $0.1 billion related to a restructuring program of its Global Supply Chain. The Global Supply Chain program was announced in the second quarter of 2018 and was completed in the fiscal fourth quarter of 2022.

Provision for Taxes on Income

The worldwide effective income tax rate for the first fiscal three months of 2023 was 90.8% in 2023 and 12.2% in 2022.

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are also implementing similar legislation. The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries, including those within the European Union.

Subsequent to April 2, 2023, as part of the planned separation of the Company’s Consumer Health business the Company anticipates the recognition of approximately $0.5 billion in incremental international tax costs due to the reorganization of certain international subsidiaries in the fiscal second quarter of 2023. During the fiscal year 2023, the Company is expected to incur additional tax costs related to the legal separation of the Consumer Health business.

For discussion related to the 2023 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash, cash equivalents and restricted cash were $26.9 billion at the end of the fiscal first quarter of 2023 as compared with $14.1 billion at the end of fiscal year 2022. The primary sources and uses of cash that contributed to the $12.8 billion increase were:

In addition, the Company had $5.4 billion in marketable securities at the end of the fiscal first quarter of 2023 and $9.4 billion at the end of fiscal year 2022.

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Cash flow from operations of $3.3 billion was the result of:

Cash flow from investing activities of $3.3 billion was primarily from:

Cash flow from financing activities of $6.1 billion was primarily from:

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2022, the Company secured a new 364-day Credit Facility of $10 billion, which expires on September 7, 2023. In November 2022, the Company secured an additional 364-day revolving Credit Facility of $10 billion, which has an expiration of November 21, 2023. Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material.

In March 2023, Kenvue, a wholly owned subsidiary of the Company, priced an offering of senior unsecured notes in an aggregate principal amount of $7.75 billion (See Note 4 to the Consolidated Financial Statements for additional details). The senior unsecured notes (the Notes) will be senior unsecured obligations of Kenvue and will initially be fully and unconditionally guaranteed (the Guarantees) on a senior unsecured basis by the Company. The Guarantees will terminate upon (1) the completion in all material respects of the transfer of the assets and liabilities of Johnson & Johnson’s Consumer Health Business to Kenvue and (2) Kenvue having registered equity securities. The Notes were issued in connection with Johnson & Johnson’s separation of its Consumer Health Business. Kenvue intends to use the proceeds from the offering of the Notes as partial consideration to Johnson & Johnson for the Consumer Health Business that Johnson & Johnson will transfer to Kenvue. The proceeds of the Notes offering were placed in a segregated escrow account pending the transfer of the assets and liabilities of the Consumer Health Business to Kenvue and as such, classified as restricted cash as of the balance sheet date. On April 5, 2023, the net proceeds of the Notes were released from escrow upon completion of the Consumer Health Business transfer.

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Further, in March 2023, Kenvue entered into a credit agreement providing for a five-year senior unsecured revolving credit facility (the Revolving Credit Facility) in an aggregate principal amount of $4.0 billion to be made available in U.S. dollars and Euros. The Revolving Credit Facility contains representations and warranties, covenants and events of default that are customary for this type of financing, including covenants restricting the incurrence of liens and the entry into certain merger transactions. In addition, Kenvue entered into a commercial paper program (the Commercial Paper Program) of up to $4.0 billion in aggregate principal amount of commercial paper under the Commercial Paper Program. The Commercial Paper Program contains representations and warranties, covenants and default that are customary for this type of financing.

Subsequent to the fiscal first quarter, on April 24, 2023, the Company announced that Kenvue has launched a roadshow for the initial public offering (“IPO”) of 151,204,000 shares of its common stock. Kenvue expects to grant the underwriters a 30-day option to purchase up to an additional 22,680,600 shares of its common stock to cover over-allotments, if any. The IPO price is currently expected to be between $20.00 and $23.00 per share. Kenvue has applied to list its common stock on the New York Stock Exchange under the symbol “KVUE.” After the completion of the IPO, Johnson & Johnson will own 1,716,160,000 shares of Kenvue’s common stock, representing 91.9% of the total outstanding shares of Kenvue’s common stock (or 90.8% if the underwriters exercise in full their over-allotment option).

As of April 2, 2023, the Company's cash, cash equivalents, restricted cash ($7.7 billion related to Kenvue) and marketable securities was approximately $32.3 billion and had approximately $52.9 billion of notes payable and long-term debt ($7.7 billion related to Kenvue) for a net debt position of $20.6 billion as compared to the prior year net debt position of $2.8 billion. Considering recent market conditions, the Company has re-evaluated its operating cash flows and liquidity profile and does not foresee any significant incremental risk. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access to the commercial paper markets will continue to provide sufficient resources to fund operating needs, including the Company’s remaining balance to be paid on the agreement to settle opioid litigation for approximately $2.5 billion and the establishment of the $8.9 billion reserve (present value) for the talc settlement proposal. (See Note 11 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable.

Subsequent to April 2, 2023, the Company paid approximately $3.5 billion to the U.S. Treasury including $1.5 billion related to the current installment due on foreign undistributed earnings as part of the TCJA charge (see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2023), $1.4 billion in advance payments to resolve certain items under examination in its 2013 through 2016 U.S. IRS audit, and $0.6 billion primarily related to the normal estimated payment for the fiscal first quarter of 2023.

On September 14, 2022, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company’s Common Stock. Any shares acquired will be available for general corporate purposes. As of April 2, 2023, $5.0 billion has been repurchased and the repurchase program was completed.

Dividends

On January 3, 2023, the Board of Directors declared a regular cash dividend of $1.13 per share, payable on March 7, 2023, to shareholders of record as of February 21, 2023.

On April 18, 2023, the Board of Directors declared a regular cash dividend of $1.19 per share, payable on June 6, 2023, to shareholders of record as of May 23, 2023. The Company expects to continue the practice of paying regular quarterly cash dividends.

OTHER INFORMATION

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.

Economic and Market Factors

Russia-Ukraine War

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal first quarter of 2023, including accounts receivable or inventory reserves, was not material. As of both the fiscal first quarter ending April 2, 2023, and the 2022 fiscal year ending January 1, 2023, the business of the Company’s Ukraine subsidiaries represented less than 1% of the Company’s consolidated assets and revenues. As of both the fiscal first quarter ending April 2, 2023, and the 2022 fiscal year ending January 1, 2023, the business of the Company’s Russian subsidiaries represented less than 1% of the Company’s consolidated assets and represented 1% of revenues.

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In early March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. Additionally, at the end of March 2022, the Company made the decision to suspend supply of personal care products in Russia. The Company continues to supply its other products as patients rely on many of the products for healthcare purposes.

The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela, Argentina and Turkey (beginning in the fiscal second quarter of 2022) as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.

The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.

Changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing healthcare insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s businesses.

The Company faces regular intellectual property challenges from third parties, including generic and biosimilar manufacturers, seeking to manufacture and market generic and biosimilar versions of key pharmaceutical products prior to the expiration of the applicable patents. These challengers file Abbreviated New Drug Applications or abbreviated Biologics License Applications with the FDA or otherwise challenged the coverage and/or validity of the Company’s patents. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue may be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in its Annual Report on Form 10-K for the fiscal year ended January 1, 2023.

Disclosure controls and procedures. At the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Joaquin Duato, Chief Executive Officer; Chairman, Executive Committee and Joseph J. Wolk, Executive Vice President, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Duato and Wolk concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

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Internal control. During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company continues to monitor and assess the effectiveness of the design and operation of its disclosure controls and procedures.

Part II — OTHER INFORMATION

Item 1 — LEGAL PROCEEDINGS

The information called for by this item is incorporated herein by reference to Note 11 included in Part I, Item 1, Financial Statements (unaudited) — Notes to Consolidated Financial Statements.

Item 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

On September 14, 2022, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company's Common Stock. Share repurchases may be made at management’s discretion from time to time on the open market or through privately negotiated transactions. The repurchase program was completed during the fiscal first quarter of 2023.

The following table provides information with respect to Common Stock purchases by the Company during the fiscal first quarter of 2023. Common stock purchases on the open market are made as part of a systematic plan to meet the needs of the Company's compensation programs. The repurchases below also include the stock-for-stock option exercises that settled in the fiscal first quarter.

(1) During the fiscal first quarter of 2023, the Company repurchased an aggregate of 21,647,317 shares of Johnson & Johnson Common Stock in open-market transactions, of which 15,134,442 shares were purchased pursuant to the repurchase program that was publicly announced on September 14, 2022, and of which 6,512,875 shares were purchased as part of a systematic plan to meet the needs of the Company’s compensation programs.

(2) As of April 2, 2023, an aggregate of 30,546,218 shares were purchased for a total of $5.0 billion since the inception of the repurchase program announced on September 14, 2022.

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Exhibit 10.1 Global Performance Share Unit Award Agreement

Exhibit 10.2 Global Restricted Share Unit Award Agreement

Exhibit 10.3 Global Nonqualified Stock Option Award Agreement

Exhibit 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Filed with this document.

Exhibit 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Filed with this document.

Exhibit 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Furnished with this document.

Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Furnished with this document.

Exhibit 101:

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.