Johnson & Johnson (JNJ) Earnings Call Transcript & Summary

Good morning, and welcome to Johnson & Johnson's OTTAVA Investor Conference Call. [Operator Instructions] This call is being recorded. If anyone has any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the conference call over to Johnson & Johnson.

Good morning, and thank you for joining us. This is Ryan Koors, Vice President of Investor Relations for Johnson & Johnson. Welcome to our OTTAVA investor call following the recent FDA approval. Following prepared remarks, we will have time for open Q&A. We anticipate this webcast will last approximately 45 minutes. Please note that we will only be taking questions on OTTAVA during today's call. Please be advised that this presentation contains forward-looking statements related to the OTTAVA Robotic Surgical System. The viewer is cautioned not to rely on these forward-looking statements, which are based on the current expectations of future events using information as of the date of this recording. They are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. The description of these risks, uncertainties and other factors can be found in our SEC filings, including our 2025 Form 10-K, which is available at investor.jnj.com and on the SEC's website. Today's call is intended to provide additional insights on the OTTAVA platform and the long-term opportunity we see ahead. With that, I will turn over to Rocco and Neda.

Good morning, everyone. My name is Rocco De Bernardis, and I'm the President of the OTTAVA program at Johnson & Johnson. Thank you for joining us today to talk about our most recent milestone with OTTAVA, receiving de novo authorization in the U.S. We announced this news at the society of Robotic Surgery Annual Meeting, and it was an incredible opportunity to celebrate with the many surgeons who have been instrumental to the OTTAVA program and who are leading experts and practitioners in robotic surgery. OTTAVA is not simply a new system. It is something we have built with purpose, persistence and in partnership with surgeons and hospitals. With this launch, we are bringing hospitals and surgical teams a competitive system designed to adapt to their clinical approach while unlocking new potential in operating rooms starting in the U.S. and then around the world. I've been leading OTTAVA program for nearly 5 years. And during this time, the program has truly accelerated, meaning each of its clinical and regulatory milestones, to bring us to this first market approval. Today, I will share more about what makes OTTAVA truly differentiated and why this is a purpose-built foundation to open new possibilities in surgery. Before we get into the details, I also want to introduce my colleague, Neda Cvijetic, Head of R&D for Robotics and Digital, who will provide more context today on engineering and design of OTTAVA. But first, I would like to share a short video that introduces OTTAVA. [Presentation]

As you could see right away in the video, OTTAVA is the first of its kind in soft tissue robotics. And as Neda will explain, we engineered that way from the ground up. . Today, we will highlight a few key elements that differentiate OTTAVA, our novel architecture, twin motion, which is a synchronized motion of the table and arms, automation from day 1, our next-generation instruments and polyphonic our open and secure digital ecosystem. Let's look at each one of these in detail. First of all, our novel architecture. While you might have heard us talk about this before, I hope that today, it is clear just how different disease and how this can open capacity, workflow, collaboration and innovation for clinical teams and hospitals. The regulatory pathway we took for OTTAVA is further evidence of the system's unique design. We could not take a 510(k) pathway because there is a predicate device like OTTAVA. We like to say that with OTTAVA, we are breaking the mall. There are no booms and no cards. Instead, intelligent surgical arms are integrated in the standard size operating table. Because of this, OTTAVA occupies 30% to 50% less space than leading boom and card mounted systems. This can fundamentally change how we -- the operating room works and allows OTTAVA to fit seamlessly into almost any operating room. This design opens possibilities like improved patient access and open flexible environment, better visibility across the room and more space for staff to move and work. This also opens -- this also means opening capacity for hospitals. Let me explain what we mean by that. Today, hospitals want to build the robotics programs to meet surgeons and patient demand, offering a multi-pattern system with demonstrating reach and access for complex procedures, but in a significant reduced footprint offers hospitals the potential to grow the capacity of the programs without updating infrastructure, because there is no need for a sizable dedicated operating rooms with OTTAVA. Feedback from our clinical trials has validated why this matters. In our first clinical trials, in five of the six trial sites OTTAVA was used in operating rooms that previously could not accommodate a robot, including room that was only 243 square feet in size. We heard from hospital leaders, we couldn't fit another robot in that room. We heard from anesthesiologist how pleased they were with their ability to access the patient. We heard from nursing staff who commented several times when getting to the OR to set up for a case, when does the rubber arrive? And we heard from surgeons that increased line of sight around the OR made communication with bedside stuff easier for how the team functioned. Now let me turn it over to Neda to tell you more about the impact of our other unique features.

Thank you, Rocco. As Rocco mentioned, I lead the R&D teams across our robotics and digital programs within our surgery business. This is a group of fantastically talented individuals across engineering disciplines, including hardware and software development, human factors and design, systems integration and with deep expertise in the science and technology behind our surgical instrumentation. These teams have created OTTAVA as a completely integrated hardware and software architecture. This architecture has unlocked a lot of potential. It is a great example of how engineering and human-centered technology design can remove friction. I'd like to say that our design quite literally means that the patient is at the center. We heard from experienced surgeons that when moving from handheld laparoscopic to robotic surgery, they had gained a lot but also lost some things. One of the things that they had lost is the ability to move the operating table seamlessly during surgery, using gravity to shift organs naturally instead of using retraction. With OTTAVA, the integrated table and arms can move together. This feature, Twin motion is the synchronized motion of the table and the arms and it's activated by the push of a button. The table and bed move together and maintained the remote center of motion fixed, which means the instruments can remain unaffected and the procedure can go on uninterrupted.

This capability is about uninterrupted workflows for clinical teams. Surgeons have told us that they have had to adapt the way they operate to a robotic system. And it should be the other way around. Twin motion means not interrupting the procedure. There is no stopping, undocking and repositioning. With OTTAVA, movement is continuous and native to the system because that's how we created it.

Next, I'd like to talk about the automation capabilities on OTTAVA. OTTAVA will deliver automation from day 1, starting with what we called automated procedure poses. With the push of a button, the system automatically deploys the arms from beneath the table into procedure position. This is possible because of our intelligent surgical arms. With OTTAVA, every joint on every arm is motorized and software-controlled. Precise spatial awareness allows highly precise information about where each arm joint is in space, both relative to each other, relative to the table and relative to the patient. Today, this engineering unlocks automation for setup and tear down. But we also know that surgeons are looking for automation to play a role in other tasks in surgery, always with surgeons and clinical staff in control. We will continue to listen to where these capabilities can provide the greatest clinical and economic value. And because of how we built the system, we believe OTTAVA is uniquely able to deliver on this future.

Thank you, Neda. I think we'll continue to see demand for these kinds of features because of the potential benefits before, during and after surgery. We believe automated procedure poses offer potential for improved workflow, benefiting clinical teams and hospitals. We hear from surgeons today that setup of robotic procedures can be cumbersome and requires movement of large equipment. Also in any OR setting, pressures on surgical staffing and scheduling mean that predictable, repeatable setup requirements can ease a real burden. This is what OTTAVA offers. Again, because the intelligent arms are fully integrated and motorized, and because we have trained the system to deploy to the optimal position, bedside staff, select the post and deploy the arms with a push of a button. And it also works in reverse, one button to store the arms out of the way for patient prep or transfer. One of the surgeons in our clinical trial mentioned not just the potential to streamline this part of surgery for improved capacity and easier workflow, but he also said that we changed the way the team worked together. Previously, they would send staff to set up and then he would come in a later to begin. With Ottava, they had this new experience of all coming together to start the procedure. Here, I also want to highlight the role that surgeon hospital feedback plays in our flywheel of innovation. During the clinical trial, a team gave feedback that they would prefer for the arms to be positioned a certain way around the table in part of the setup. We took that feedback created the solution and now that automated pose will be available to our first commercial users to further streamline and improve the setup experience. I would also like to share some of our early data, which reflects how OTTAVA is designed to meet the needs of surgeons and their teams. In a [ porta ] trial, we demonstrated that the OTTAVA system, one, met its primary safety and effectiveness points; two, achieved 100% procedural completion without conversion to a nonrobotic approach across all 30 patients; and three, five of the six sites used operating rooms that previously were not robotics ORs, including rooms considered unsuitable for robotic surgery due to space constraints. In a survey of early experience conducted among surgeons and surgical staff revealed that 100% agree that OTTAVA unlocks opportunities to free up space or convert ORs into robotic ORs, 95% agree that OTTAVA creates efficiencies and 90% agree that OTTAVA increases visibility in the OR. These findings are promising and point to real benefits and solutions OTTAVA can provide for hospitals and surgical teams. Given J&J's outstanding leadership in surgical instruments, we are looking forward to launching OTTAVA with next-generation instrumentation purpose built for robotics. With these instruments, we listen to surgeons and the most common challenges they have within serving today. One of those challenges is unintended cutting of futures. 83% of surgeons experienced at least one inadvertent suture cut per month in their body surgeries. This can interrupt procedure law. It means starting that portion of the procedure over again. Another is dulling scissors, 90% of surgeons have experienced dull or poorly cutting monopoly scissors, with 30% experiencing these all or most of the time. Scissors are one of the most commonly used surgical instruments. So imagine the impact this can have on experience.

That is where our worlds intersect, Rocco, because we design for what surgeons need, we are addressing these issues with OTTAVA. Our two-in-one needle driver has discrete surgeon activated cutting and suturing only modes and we engineered our monopolar curb scissors for consistent and complete cuts.

That's right. Beyond the initial release, it is also our intention to offer a portfolio of advanced surgical instruments exclusively on OTTAVA. This is something surgeons are asking for, a consistent, trusted experience across open, laparoscopic and robotic surgery. We've been working on the signs of tissue management for many years with decades of clinical evidence behind our technology. And it is our goal to bring the same level of science to OTTAVA. So you can expect the cadence of 510(k) submissions to advance the portfolio of instruments on OTTAVA. This will be a key element of our commercial expansion.

Let's talk about digital. OTTAVA is a digitally enabled system connected to our open digital ecosystem for surgery. Polyphonic for OTTAVA is a secure digital solution designed to support surgical teams throughout the OTTAVA experience. Through Polyphonic, we are bringing learning, media and data-driven insights to OTTAVA users and their teams. And as we continue to advance our open digital ecosystem, this will bring even more value back to OTTAVA with greater insights and applications. Polyphonic for OTTAVA empowers the surgical robotics program to securely capture data that can fuel research and innovation with privacy by design and security at its core.

Surgeons want data to play a more significant role in surgery. As I mentioned, we were most recently at the Society of Robotic Territory Annual Meeting and the topic of data insights has made its way into every part of this event. At the end of the day, surgeons are asking for access to data and insights from it. They want data to fuel research and innovate and they want data to drive a more collective intelligence across surgery so that in the future, every plus surgery informs the next. Our approach to digital takes into account that unmet need and will support surgeons as they shape this future. With all this, I hope you can see why we're so excited to have reached this milestone and can begin to bring OTTAVA to surgical teams and hospitals. OTTAVA is more than just a new surgical system. It presents a new approach to robotic surgery with the potential to create meaningful advances in capacity, workflow, collaboration and innovation across the operating room. As we look ahead to what's next from a launch perspective, we're entering one of the most mature robotic surgery markets in the world, alongside surgeons and teams with deep experience in robotics. And frankly, that's a reflection of our confidence in OTTAVA. We'll take a thoughtful approach, starting with innovative early adopters, learning quickly, generating clinical evidence, listening closely to feedback and providing the level of partnership and support expected from Johnson & Johnson. As we learn, we will move with speed, expanding capabilities, expanding indications and bringing OTTAVA to more surgeons in more markets around the world. Our second [ IDE ] study in England hernia repair is ongoing, and we're planning a regular cadence of evidence generation, innovation and indication and expansion. Make no mistake, OTTAVA is designed to be a global multi-specialty system. Today, we have a strong starting point and a purpose-built foundation for the future. To close, a quick thank you for joining and for your interest in OTTAVA. We believe OTTAVA represents the start of a new chapter in robotic surgery, and we're excited about the opportunities ahead. We look forward to updating you on our continued progress, innovation and expansion in the months to come.

For today, we believe OTTAVA represents much more than a new surgical robot. It's a platform that we expect to build on for years to come. With that, we are pleased to now open the line for Q&A. Tim Schmid, Executive Vice President, Worldwide Chairman, MedTech; Hani Abouhalka, Company Group Chair Surgery; Neda Cvijetic, Global Head of R&D, Robotics and Digital; and Dr. Dominic Papandria Global Head of Medical Affairs for OTTAVA will be joining us for Q&A.

[Operator Instructions] Our first question today is coming from Larry Biegelsen from Wells Fargo.

So you're starting with the U.S. soft tissue robotic market, which, as you mentioned earlier, it's more penetrated and more mature than the U.S. -- the international market. My question for you is, do you think OTTAVA will expand the market to new robotic users, new settings, new procedures? Or do you think it will take share from existing robotic users? I'm trying to understand if this is more of a zero-sum game or a rising tide that will lift all boats?

[ Tony ], maybe if you could take a start at that one.

As you can tell when you saw each other, our excitement is about today and the future, and it's really driven by two things. First, the U.S. in the largest market, and that's also a sign of confidence in our program, but the penetration in the U.S. is still in the high 20s. So we believe OTTAVA is going to be incredibly important to expand the market in the U.S. But also, as we mentioned earlier, we plan to have subsequent indications and geographic expansion to take this global. I do believe competition is great and healthy for everyone, for patients, for surgeons, but our aim is to bring a new category-defining robot to the market. And we know surgical robotics isn't new. But as you've seen us and heard from us, we believe OTTAVA will.

Our next question today is coming from Joanne Wuensch from Citibank.

I'm curious if you can outline your commercial plans and how to think about pricing, things like placement versus sale of the robot? And then how you think about wrapping the J&J, Ethicon tools around it. .

Couple of things you covered there. First, in terms of our pricing philosophy, when it comes to innovation, it's always pricing it based on the value it brings to hospitals to surgical teams and we'll do this here. In terms of also our commercial approach, we also understand and based on our experience in surgery and ORs across the world, we need to also be collaborative and work with different systems to offer different commercial options to really make sure that it's frictionless, and we can work together also to do that. In terms of our intent, as we mentioned earlier, our intent is to lead in terms of robotics. And when we're launching a big program like this, a thoughtful loss at the beginning is important. So as Rocco mentioned, we'll work with early adopters, big and academic centers, develop the data, make sure we get the feedback and the experiences together. And after that, we plan to rapidly expand indications. And after the U.S., we're planning to go to key markets in Europe and Japan.

Our next question today is coming from Rick Wise with Stifel.

Maybe talk about your manufacturing and go-to-market capabilities here. Clearly, OTTAVA is highly sophisticated system. Talk about your capabilities to build, manufacture to meet demand. I know that the bed is [ OEMed ] by another company. But already are you to sell this in volume? And maybe as part of that, talk about the need, Hani to build out a specialist robotic sales team? Or is this going to be through the Ethicon rep structure that exists today?

A few things you covered. First, you heard from Neda how incur proud we are of the engineering and R&D teams that we have who are best in class in the world. But I can tell you, leading the largest surgery company in the world, our supply chain organization is one of the most resilient incredible folks in any company, in my opinion. And they've been brought in early to make sure that we're ready at the scale when we're at scale. But as I said, the first phase will be the total launch. As you know, from the robotic system, there's a robot, but there's also the instruments. Today, we are the global leader in things like stapling. So we have deep expertise in manufacturing, and we have incredible partnerships with our suppliers. In terms of the commercial model, as we in the coming weeks, we'll turn more [indiscernible] to use our experience. We're in every or in the world. Our teams are incredibly experienced in surgery. At the same time, we understand we need to build some differentiated capacities and service and capital selling but I would be remiss not to remind everyone that we are already selling in robotics in J&J, in Monarch. We have some capital experiences in cardiovascular and surgery. And we'll bring all these expertise to make sure that we deploy the best teams to support OTTAVA. And also one of the more thing I'll add is our global education capabilities, we play more surgeons than anybody in the world, and that will be a key factor and also scaling our program.

Your next question is coming from Jayson Bedford from Raymond James.

You talked about the benefit of Twin motion just removing the need to reposition the patient. Just curious, how often is a patient repositioned during procedure? And can you just frame what you think the potential time savings are on a procedure basis.