Johnson & Johnson (JNJ) Management Presents at Citi's 2018 Global Healthcare Conference (Transcript)

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About: Johnson & Johnson (JNJ)
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Johnson & Johnson (NYSE:JNJ) Citi's 2018 Global Healthcare Conference December 5, 2018 10:15 AM ET

Executives

Matt Stuckley - IR

Joe Wolk - EVP and CFO

Analysts

Amit Hazan - Citi

Andrew Baum - Citi

Amit Hazan

For those of you that don't know me, this is the J&J Presentation. I've got all the way to the far left of me, Andrew Baum, who's the Pharma Analyst who co-covers J&J with me. We got Joe Wolk, the newly minted CFO here to have a discussion.

Before we do that, we're going to have a Safe Harbor statement to be read by Matt Stuckley from IR. Go ahead.

Matt Stuckley

Thanks Amit. Good morning everyone. Please be aware that some statements made today may be considered forward-looking or utilize non-GAAP measures. Please refer to our SEC filings, in particular, our 10-K, which discuss the risk and uncertainties around forward-looking statements as well as our website at investor.jnj.com for reconciliations to comparable GAAP measures. Finally, any performance measures made today represent results through and including the third quarter of 2018. Thank you. Amit?

Question-and-Answer Session

Q - Amit Hazan

Great. So, Joe, I think this is -- if I'm not mistaken, this is your first fireside chat as a CFO. You've probably done one or two of these in your prior role. Joe, you took over about five months ago. And so I thought, obviously, the first question should be how everything's been these first five months. Every CFO has got their own fingerprint and you're going to have yours. We're sure about that. So, what's the experience been like for the first five months? And what is that fingerprint for you? What are you seeing and changing at J&J?

Joe Wolk

Yes. Thanks Amit. Pleasure to be here with you and Andrew today. It's been a great five months -- exhausting, exhilarating, all the adjectives you could possibly imagine. The nice thing about Johnson & Johnson, clearly though, is the financial principles are not really dependent upon one individual.

Many of you in the room are probably very familiar with we want to be number one or number two in the marketplace. You kind of know our capital allocation priorities and so those permeate the entire organization. So, it's just not a financial discipline within our company. So, the transition from that perspective has gone fairly smooth.

I would say if we're -- I may be looking to make a little bit more of an imprint or improve upon some of the things that Dominic did would be around the areas of cash flow. While we generate a lot of cash on an annual basis, I think it was close to $18 billion last year, that does present a big opportunity with just a little bit of movement of the dial and coming much more up to speed and up-to-date with some of the technologies that's out there where we can manage our working capital a little bit better. And that will free up some space and some capital, obviously, for things that we've done really well in terms of licensing or smaller acquisitions or tuck-in acquisitions that have really catapulted our growth over the last number of years.

Amit Hazan

Good, good. So I thought what we could do is we would start with Devices, the part that I cover. And then we'll throw it over to Andrew for the part that everyone cares about. So, let's do Devices first.

I want to frame the discussion this way. So, we look at the numbers, this is kind of the five-year look back, J&J basically growing under 2% since 2014. It looks like, organically, that is on the device side, it may be 2% or so this year. But med tech, at the same time, at least kind of the publicly-traded companies, if I look at all of them together, you're about 3% growth to five-plus percent growth over that same period of time.

Recently, you guys came out at the Analyst Day earlier this year; you talked about getting to market growth north of 5% basically by 2020. That's basically the setup. So, the question is what's J&J doing differently now versus these last five years that's going to get investors' confidence that you can get to that 5% number?

Joe Wolk

Yes, great question. And as we said in May, we do plan to be at or above market in 2020. It's an objective we have for all three of our segments quite frankly and we have underperformed. But I would say it's somewhat misleading to characterize all of Medical Devices within J&J as underperforming.

If you look at how Ashley McAvoy, our new leader within Medical Devices is approaching the business, we have eye health, which has been a market leader and we expanded that market leadership by moving into the surgical space and that's been off to a great start. We've got a great cadence of innovation there.

In interventional, our electrophysiology business now moving into stroke, it's nine years plus, double-digit growth from that business, again, another strong cadence of innovation. Surgery has done pretty well in the last, I would say, few quarters. If you look at our electrophysiology business, our energy business, biosurgery, again, performing 7% to 10% range. It's really in Orthopaedics and because of the waving within our portfolio, our $27 billion of revenue, that's had a drag on our entire overall reported performance.

What I would say we're doing differently there is a few things, primarily around execution. So, there's execution commercially. A few years back, we looked to restructure and downsize. We probably did that a little bit too fast and not in the appropriate way. We're putting resources back to high areas of growth. We had gaps in our portfolio, if you look at Spine and if you look at the cadence of innovation, we were a little bit behind with our ATTUNE Revision platform. Cementless will be in next year. So, I would say that's what's going to really catalyze the growth.

And then we have, as I'd say, sustained commitment to innovation. So, this year, we plan to have 15 to 20 new product launches across the entire portfolio. We've already met that. There will be 20 to 25 next year; if you look at things like EMBOTRAP for stroke, again the Cementless that I talked about, transition lenses in Vision Care. So, I think it's just that same model that we had in pharmaceuticals at the beginning of this decade, where we've become very focused on the innovation, where we have rights -- right to win, whether it's through commercial capability or scientific expertise that will make the difference going forward.

Amit Hazan

Okay. So, I want to maybe ask a question a little bit different way. There's a few things that we want to touch on specifically, but if we think about -- so I acknowledge it. I mean you really did have some markets are growing well and those markets are growing as well or better than med tech.

But at the same time, if I look at -- if I held up a table of the top 10 or 15 markets in med tech today, it is the case that you guys are just not in a good amount of those, so the question becomes, for J&J, how important is that? How important is it for you, as the biggest device company out there essentially, to be broader and to be participating in these other markets that you're not participating in that are also part of the reason you're growing slower than med tech?

Joe Wolk

Yes, it's a great question. And I think we do believe longer term horizon that the hospital payer will become much more interested in having a broad-based portfolio offering. It does provide an advantage for us today.

A few years back at our 2016 Analyst Day, we actually thought that, that was much more near-term and that led to some of the restructuring, we put more resources into strategic customer groups versus the salesforce let's say.

Payers aren't quite there yet with respect to their procurement practices. And so I think it does become important. I think it does evolve that way. It may be a little bit of time from today before we see it. It's not imminent let's say.

There are areas and we know them well, right. It’s -- if you look at structural heart, so we've got a great electrophysiology business in cardiovascular that would be a nice complement. But we're not in a position where we've got to do anything out of desperation nor would we do anything out of desperation, right. The valuations today, I would say, across the med tech landscape are a little bit pricey.

You and your peers do a great job of valuing those companies. Good management teams. So, it's hard to extract something above our hurdle rate that carries with it a 30%-plus premium and make it work. And we're going to be very disciplined in whatever business we're in about discounted cash flow models, understanding the risks and opportunities that tornado analysis to make sure that we -- not just cover our cost of capital, but cover our hurdle rate, which incorporates the risk we're bearing on behalf of shareholders.

Amit Hazan

So, you kind of went there so let's get it out of the way because the people -- always want to ask this question and you'll find a way to answer it like you usually always do I think. But the capital allocation question in med tech, which you just referenced, I mean if I go back, these are your comments from just the 3Q call just not too long ago. We're not satisfied with performance in Medical Devices. We're seeing improvements. Whether that's going to take a transformational deal or a tuck-in deal, we're looking at all of them across all segments of our business. So, the question is does J&J need inorganic growth in med tech?

Joe Wolk

Well, inorganic growth, I won't say specifically within med tech, but across our three segments has been a part of the growth equation. So, if you look over the last five years, I think 40% of our growth is come inorganically. So, that's part of our model.

Did we need it? I would say yes, just based on what I told you. It's funny that you pointed that out, that quote, because I think it actually made some media headlines and things like that. And what's funny was I was repeating the question that was asked. So, I've got to be a little more careful. It's a newbie mistake, right? But what I would say is it doesn't need to be transformational. Again, we've got to have a strategic reason to be in that spot and then we've got to make sure that we're returning an appropriate return.

Amit Hazan

Okay. So, one of the things I did want to ask just to get an idea of the deal size and where you would go, you're coming in as a new CFO and there had been comments from you guys publicly on this before but your AAA rating. So, is this - how significant of a status is that for the company? Obviously, you're one of two companies left with AAA rating. So, how important is that to J&J today? Would you cross that line if you found the right deal?

Joe Wolk

Yes. So, we take great pride in the AAA rating. We think its outstanding recognition by diligent agencies that suggest that we manage the company in a very financially responsible way.

That being said, it's not a goal of our Board of Directors or Executive Committee to maintain that AAA rating. It's not as if we want to go to B status. Certainly, we're cognizant of that.

But if the right value-creating opportunity that would yield significant cash flow that would enable us to get back to AAA in a reasonable period of time, that's something that we would certainly embark upon and look at. And to be truthful, we do look at that, those types of scenarios all the time.

Amit Hazan

Okay. So, we kind of just think about this kind of last big picture question in med tech. Just last five or 10 years, we can sit here now with perfect hindsight and say, okay, here were the really good markets in med tech over the last five or 10 years, TAVR, all these other ones that we all know. But you guys have been pretty active, you kind of alluded to, I think you've done 30 small deals last year, like 30 or so this year, if not more by now, 15 to 20 new products this year, another 20 or so next year. This is the pipeline and what you guys are talking about. So, you have been active.

So, the question is we're seeing here, 10 years from now, little bit more gray hair for me or no hair, however it looks what is it that we're going to be looking at? Where are you invested today that you feel are going to be stronger markets in med tech that you already putting your feet in the water?

Joe Wolk

Yes, I would say the most probably significant play we have that I think has a lot of runway, both in the short-term as well as in the much longer term is the Robotics platform. We actually like to think of it more as a digital platform with Robotics capabilities.

So, we have a partnership with Google's Health unit, Verily, in this regard. We think that while the Robotics platforms out there today are impressive, they -- there's a lot more that can be derived for patient outcomes.

So, if you look at what's out there, it enables a surgery, but I don't know that it leads to a better outcome. There's no data that suggests that. We want to have platforms that generate data that suggests it's a better outcome for the patient. There's better visual acuity. It becomes part of an integrated network. So, each surgery that's performed learns and informs the next surgery in that network. We think it could be a lower footprint within the hospital and potentially a lower cost alternative to what's out there today.

Amit Hazan

Okay.

Joe Wolk

And if you look at just the penetration rates, while there is a lot of talk about Robotics, it's still, I believe, less than 5% or 10% of overall surgeries -- general surgeries, here in the U.S. So, there's a lot of runway and if we can come out with something that's Phase II or Gen 2, we think we'll be much better positioned.

Amit Hazan

Okay. And I want to come back to Robotics in a second, but just to give you -- allow you to finish your thoughts, other than Robotics; is there anything else you would like to highlight?

Joe Wolk

Yes, EMBOTRAP, specifically within -- it's marketed now, but making a play in stroke, we think there's some nice innovation there. And then we continue to fortify the rest of the Surgery and Vision platforms that we have as well.

Amit Hazan

Okay. So, let's come to back Robotics. Interesting one, just a few weeks ago, personal note, I mean, went out -- spent some time with them, which was great. This is for those that don't know, I mean that's the JV for you guys with Google for the surgical platform. And I want to get just kind of the a couple of small things out of the way, which is basically what they said is they are not going to speak to your timelines of 2020 is when you're planning to launch that. What they did say though was that they're going to, basically, get approval by indication. So, it's kind of like intuitive where you get -- whether it's urology or gynecology or general surgery. And it would take them something like 24 to 30 months to get all of the indications approved. Is that the right way to think about the cadence of approvals for the robot?

Joe Wolk

Yes, I think that's probably the appropriate way. We're looking at those specific areas. And that team is, obviously, much more intimate with the details, so I would rely on what they've told you that day.

Amit Hazan

Are you able to say or willing to say when does the robotic platform become material to Devices? You guys have huge platforms, so materiality is a tough word to ask you about, but you know what I mean, significant enough, is it immediately? Does it take several years? What's the right timeframe for investors to be thinking about where this actually becomes a material growth driver for the device business at J&J?

Joe Wolk

Yes, again, materiality is tough within a $27 billion business, probably can’t give you a specific date when we can have or have not – I think what we're doing is we're playing for the long game. So, we see this at the end of the next decade, not that it's going to take that long to be material to J&J, but that's how we're thinking about this. How can you have an integrated network that's much more impactful on the healthcare system overall that leads to better efficacy, lower cost.

So, I won't comment specifically on materiality or what level of sales we might hit at a certain point in time, but we believe we're on the track to make it a very significant platform within Johnson & Johnson, not just within Medical Devices of Johnson & Johnson.

Amit Hazan

Okay. Okay. Let’s spend just one minute on orthopedics, you touched on it already, but I thought I go back to the Knee segment. This is the segment that if we kind of do a look back, you've had a little bit of a share loss, maybe another point this year by our numbers. I don't know if you agree with that.

And what I'm curious about is how you guys are thinking about why you lost the share. Obviously, a lot of talk about Robotics, Mako and Cementless, but you've got a very big competitor, the largest one in the field that's struggling right now, which should offer some opportunity for you yet you haven't been able to materialize or capitalize on that.

So, maybe talk to what you guys at J&J think has been going on and why you're losing share? And maybe that's a setup for what's coming and whether that's going to be enough for you guys to get back to market growth or above?

Joe Wolk

Yes, good question, Amit. What I would say is actually, I'd point to the first half of the year where I think it really emerged this time last year with respect to concerns over tibia loosening around the ATTUNE Knee platform. At that point in time, we did not have the Revision platform available for patients and there was, I believe, unfounded chatter that our Knees were experiencing a higher rate of tibia loosening.

If you actually look at four independent registries, our tibia loosening rates are at or better than the competition, right. But when we didn't have a revision platform out there, it did give people a reason to pause.

The other thing I would say -- so now we've got the revision platform out there, we have educated or reeducated the physician community that with this data that we have. And then the other thing I would say, in terms of share loss, probably if you look at Cementless, where we plan to have an entry in 2019, that's the fastest-growing segment of the market, so that didn't help not having an offering there.

So, we think we're well-positioned to continue what we saw in the third quarter of a little bit of improvement and will continue to work our way through with some new product introduction, the revision platform being more widely available worldwide.

Amit Hazan

The Cementless come in enough time to help in 2019 or is that more of a 2020?

Joe Wolk

I think we're looking at mid-year, so it will have some help.

Amit Hazan

Okay. So, last question from me and then I will transition this over to Andrew in Pharma. So, if we put all that together right, and grow about 2% organically this year in Devices, you've talked about 5% by 20%, that gives us -- even I can do that math and say it's going to be somewhere in between there next year.

So, tell me if that's fair. Consumer, I think you guys were positioning at the Analyst Day to be positive next year as well, meaning like incrementally better. So, is a takeaway here, you guys are confident that these two businesses, Devices and Consumer, will do better next year than they did this year?

Joe Wolk

Yes, that is -- that was our statement in May. It was founded based on the way we saw the innovation kicking in for both of those segments. If you look, we haven't talked much about Consumer, but the relaunch of our baby brands, which were iconic, we had lost significant share over the last two to three years. That's now has been revamped across the entire line, from new product formulation, new packaging, new ways which we go to millennial moms and dads that we weren't as nimble as we should've been with.

OTCs continues to perform well. We also have, would say, significant acquisition in the premium skin space, with Dr. Ci Labo. We had a 20% equity interest and we've announced that we're going to acquire the entire company, probably close very early next year.

So, we feel very good about the Consumer business. As you saw in the third quarter, it was 6% growth. It was probably a little bit inflated because we had stocking due to the baby relaunch, but well north of where the market was.

And with Medical Devices, we expect the same thing. We're going to have better execution; we're going to have some of the innovation from this year kicking in a more pronounced way and new innovation as we go through 2020.

Amit Hazan

Okay, that's good stuff. So, that leaves the other small part of your business and I'll hand it over to Andrew for that.

Andrew Baum

I feel like a sort of wrestling tag team. So, maybe just to kick-off with some big picture questions on the reimbursement environment. So, you'll see I was probably closer to the current administration [Indiscernible] than maybe some of his peers. So, I'm assuming that there is a reasonable degree of understanding and directionally of the pace and likely direction of evolution and there's been a number of public proposals recently.

So, on that point, Pfizer, its current CEO, has indicated that the company intends to increase list prices, business as normal, I think he described it for next year. Is that J&J's strategy? Is this an industry strategy that Pfizer is basically coalescing a group around to say look, we're conducting business as is normal, mid-single-digit, these price increases think what Pfizer spoken to. Should we assume that J&J is part of that discussion or what has J&J contributed on that?

Joe Wolk

Yes, so, I won't speak specifically to Pfizer, but what I will say is the last few years have been business as normal for Johnson & Johnson. So, our growth over the last number of years has been largely based on innovation and volume, right. So, going to those areas of unmet need with clinical data that is far superior to anything that exists out there for treatment.

If you look at this year, I think our growth through the third quarter is about 8% adjusted. We're experiencing about a 4% to 5% negative price factor into that number. So, again, it's really about, for us, innovation.

If you look at last year with the transparency report that we issued, we had about a 4% price reduction, yet we grew well above the market. So, we're going to continue to go about that. We've priced responsibly for a number of years now and so it doesn't really change our formula.

Andrew Baum

So, what I take from that is you'll be taking list price increases commensurate historic activity on those products where the opportunity is appropriate?

Joe Wolk

Yes, I think that remains to be seen. So, we obviously, haven't made any public announcements, we haven't taken price increases -- list price increases in significant number of months here now.

Don't quote me on this, but I think I have to go back to the very beginning of the year before the rhetoric really amplified. But I would say, again, it's not a big component of how we look at our business and growth. We really focus on the net price. So, the discounting is getting much more -- continues to become, I would say, active and amplified. And that's why we think innovation is the key to make sure that we have a sustainable, above-market business going forward.

Andrew Baum

So, then on the same topic, it's a nice segue because you raised it. In anticipation of the move towards net price for government plans such as Medicare Part D, there's obviously been so many proposals about pharmacy concessions and patient benefiting from lower list prices if they're non -- co-pay -- they are non-list patients.

One of the strategies the industry has to steady themselves in anticipation of this is what is proactively reducing co-pays for patients as you lose the second brands. And is this something which would be relevant or of interest, in particular, for a drug like Xarelto where there's clearly a high level of mapping with the Part D population, given the demographic? Or indeed something like INVOKANA where basically you offer an alternative where patients could benefit from a co-pay net of rebates, which would be a substantial percentage lower than what they currently pay?

Joe Wolk

Yes. So, I'm not going to probably speak on specific proposals because there's a lot of, I'd say, dialogue going back and forth. What I will say that we understand why the administration has this as an agenda item.

If you think about the discount levels that innovators and manufacturers provide to payers, it's probably doubled in the last five years, yet patients are going to the pharmacy on a monthly basis for chronic treatment paying $50 a month versus what used to be maybe $10 a month.

So, we think in order for this system and our business to be sustainable, something needs to be done. We are a big component of outcomes-based type of reimbursement. So, we've had some pilots in smaller niche markets, I'd say, that have worked somewhat successfully.

Oftentimes, the payers aren't ready from a technology standpoint to adopt that type of model because you have questions about if a patient doesn't adhere to the prescription regimen, how does that get reimbursed? Where does that fall? But we think that's a nice way to go.

On some of the specific proposals, we are advocates of a co-pay cap. We do think that does harm the overall viability of the healthcare system. If patients are squeezed out because they can't afford on a monthly basis their prescription medicines, that leads to higher costs for the system.

We do have some concerns, I would say, around some of the Part D plans where infused centers will not receive reimbursement for some of the administrative functions that can be costly in their particular practices.

So, overall, we think it's an important topic, it's one that we want to be part of the solution on and we're pro some and against some others. But it really is about making sure we've got access for patients who are in needs of medicine.

Andrew Baum

So, additional questions on reimbursement, but maybe I might come back later. Just specifically on J&J, so the first area that it would be great to talk about is the ongoing ECLIPSE trial with TREMFYA versus Novartis' Cosentyx, where the timelines have been shifted and it's an important trial, given the fact that Cosentyx has a substantial plan in that category and looking at history controls that we've seen in IL-23 has greater activity than IL-17.

So, if you could outline your -- given the timelines have slipped a bit, your level of confidence in reaching the PASI 70 endpoint and assuming that is the case, to what extent that you can affect a change in market share capture. I'm assuming those patients on Cosentyx are happy probably to come off, so it's basically new patient capture.

Novartis obviously have their own spin as to even in a negative scenario, why they would continue to maintain market share. But I wanted to give you the advantage of talking to the probability and how comfortable you're feeling with the trial as well as the commercial impact?

Joe Wolk

Yes, what I will say about that trial specifically, we'll see how the results come out. But we think it's important to look at week 48. So, not only do psoriasis patients want clearance, but they want a clearance that lasts. And we feel very comfortable with the profile of TREMFYA and how that will eventually stack up against Cosentyx.

Andrew Baum

And the -- Lilly's running a head-to-head trial also against you. It's TREMFYA looking at 12-week endpoint, which placed the point, I guess they feel they have a faster onset of action, but your marketing strategy is the focus on long-term.

Joe Wolk

Okay.

Andrew Baum

Okay. And then just on business development in oncology and obviously, J&J's legacy in oncology business development has been superlative. In fact, in BD generally, it's been superlative.

More recently, there's been somewhat atypical transactions and I would count activity was one of that because it was a effectively, financial transaction, different from the rationale of some the other deals.

And then in oncology, there's been a number of, albeit, relatively early, but string of terminated deals. And part of that is half the course for early BDM in oncology. But I wonder to what extent given the new dynamic of immunotherapy, which is a far broader platform then the more silo-based approach, which J&J follows, in particular organ disease, be it lung or prostate or myeloma, for example. Whether there's been any iteration in the BD strategy as a function of these failures and to incorporate the impact of in a slightly different -- it's a horizontal rather than vertically if you see where I'm coming from.

Joe Wolk

Yes, I would say the one thing that's underappreciated within our pipeline is the number of I/O candidates that we have. So, we have about 17 -- actually, with the announcement from the other day, it's probably 18 now. But I would say they're wave two.

So, if you think about the analogy would like to use in Hep C, where we had are very quick onset of better responses with wave two and wave three, that's how we are thinking about I/O. I/O seems to be very much -- lends itself to combination therapy. And by having that many in our stable, if you will, we think that we can own the entire combination.

So, we feel confident that we're ready for that next wave. I would say we had some real good news at ASH, with our CAR-T partnership with Legend and we're very excited about the argenx deal that we just signed on Monday.

Andrew Baum

Another deal, which you've done which has got less profile than the argenx deal because it's much smaller is a deal you struck with Yuhan for a Tagrisso competitor. And obviously, you have some other assets already with your specifically.

You're, obviously, a number of years behind Tagrisso in terms of the drugs, maybe pivotal trial but Tagrisso is obviously on the market and doing very well. How are you thinking about investments in the space and the fact that you have those two assets already at hand to build the lung vertical that's going to compete against established assets with a strong profile? How much of that is strategic priority for you?

Joe Wolk

Well, that's a strategic priority, obviously. We think -- as we think about the space of lung cancer, we think that's a real nice opportunity for Johnson & Johnson on a broader scale. So, if you think about the consumer unit with some of our smoking cessation products as well as in-surgery for capabilities there, not only with respect to dissection, but also with potential of surgical treatment going forward, we think that it plays really well. These are early assets, as you noted, so we'll see how that plays out. But lung cancer is one of our priority areas within the pharmaceutical R&D group.

Andrew Baum

And before passing back to Amit, one of the areas that we had been more conservatively historically was the size in Imbruvica in the hematologic setting, given the emerging competition from Calquence, Astra's acalabrutinib as well as other molecules.

The preclinical and indeed, some of the -- well, the preclinical data seems to suggest the fact that the bleeding differentiation between these molecules may not be so significant as anticipated. So, I'm interested in the internal view and whether there is relevance and you can make the same extrapolation to some of the other BTKs.

And then separately, on the nature of the atrial fibrillation profile, which is another one of the Achilles heels, if you like of Imbruvica, where do you see any mechanistic explanations which may mean that the other BTKs may not be encumbered with this issue compared to what you've seen in clinical experience with Imbruvica?

Joe Wolk

Yes, I think I would say within Imbruvica, we've always been fairly confident, just given the considerable leeway we had being on the market. We've got real-world evidence. The -- even [Indiscernible] it was I believe it was only approved for MCO, which was the smallest part of our business.

So, we've always been very confident and continue to expand label with Imbruvica and we're going to continue to do that as we have. So, in terms of the other agents, we'll see what materializes, but we feel very comfortable with our position in Imbruvica.

Amit Hazan

So, the only thing I would add one Pharma, just kind of close the loop on the last question that I had is we're talking about two improving businesses, what's kind of the outlook that you guys have laid out for Pharma similarly?

Joe Wolk

Yes, so it's a business that has been very strong, obviously. If you look at the last probably seven years, we've been 2x to 3x the market growth each and every year. We are facing some challenges as we go forward.

What I would say is we're emboldened by how we're able to counter those challenges. So. we will still grow. We'll still grow probably pretty consistent with the market despite billions of dollars in -- let's call it, just patent expiration or biosimilar headwinds.

So, if you look next year, ZYTIGA in the U.S.; while there's another court hearing planned for January, we're kind of taking that out of our plans at this point. There's four generics on the market as of last week. Remicade will continue to see some erosion, albeit mostly in the form of price where we've been able to compete.

And then you have a collection of smaller assets that will also face generic competition like Procrit, Tracleer, and Velcade. So, most companies would phase into one of those and say, we're going to contract. We're actually going to grow around the market next year and then have a real solid platform for 2020 to get back to that well above market status. We're very excited about Esketamine that could launch next year for treatment-resistant depression. We think that offers patients, who really haven't had a novel therapy in decades, a real alternative with a much better clinical profile than what's out there today with some of the SSRIs.

So that's kind of how we're looking at it. Again, still growing probably at or above market, maybe just not in the same as pronounced way, but sets us up really well for the next few years beyond that.

Amit Hazan

Go ahead, Andrew.

Andrew Baum

And just thinking about how those LOEs impact your future business, particularly in prostate cancer. So, the proposals from the administration, from the HHS, in relation to protected class were seemingly new to many of the barriers, which currently preclude prior authorization step edits. So, how do you think about the risk to establishing apalutamide, given there may well be plan pressure to fail first on ZYTIGA?

Joe Wolk

Yes, that's a proposal probably one I left out that I don't know that I with say we're fans of. Clearly, it limits access in choice and that's one of the things that I think are foundational to the U.S. healthcare system. It distinguishes us and it enables innovation going forward.

Andrew Baum

So, this is -- you're hoping that there'll be enough pushback in order to prevent it becoming rural?

Joe Wolk

That's right.

Andrew Baum

Okay. And then the other thing was just in relation to Remicade. And obviously, J&J has stemmed the erosion to a much greater degree, much to the frustration of Pfizer, as they've been not shy in saying. As you have 340B proposals come into play, and I know that Medicare is only a part of Remicade, how does that impact what the future trajectory as well as any additional incentives that may be put into place to try and accelerate the -- or remove friction in order to accelerate adoption of biosimilar Remicade?

Joe Wolk

Yes, well, as -- related to specific pricing policies that we may put out for specific alliances, I'm not going to do that for competitive reasons. What I will say, though, with respect to the biosimilar environment is I think the market-based system work, right? We have reduced prices.

Patients are getting Remicade and the payers are getting Remicade at a cheaper price with the entry of biosimilars. It didn't mean that biosimilars had to be the preferred choice. If they're not willing to compete on price, that's up to their -- that's their decision. But we feel really good about meeting the needs of patients and physicians who are very comfortable with the product and are now getting it at a much lower cost than what they had experienced years ago.

Amit Hazan

So, let me move to margins for a second and see what would get you to comment on -- or if you'd like to comment, so -- if you'd like to comment. So, The Street's modeling something like 70 basis point improvement next year, a little bit less, I think, than what you'll end up doing this year, you can correct me on that if need be. And so at a very high level, what should we be thinking about in terms of kind of the positives and the challenges that you're looking at for your margin line?

Joe Wolk

With respect to margins?

Amit Hazan

Yes.

Joe Wolk

So, this year, we've guided to at least 150 basis points. So, as we look out next year, with some of the -- Pharma is probably our most profitable business. So, you would expect to see maybe not as much margin improvement. But our basic philosophy is beyond being number one or number two in the markets in which we play and growing faster than the competitive peer set in those respective markets, we look to grow earnings a little bit faster than sales, which obviously implies margin improvement. We're not going to do that, though, at the risk of investing smartly for the longer term.

If you look at our margin profile, overall, I would say our pharmaceutical unit is at the top of the class. Our med device unit is also at the top of the class, but we probably have room to improve as competitors have gained some ground on us there. And then Consumer is where we have some work to do, so we're probably below the median of that peer set. And that's where we would look to improve margins in a significant way.

Again, we're always going to try to improve margins across all three of our segments. It's just part of our business principles. And then overall, from an enterprise standpoint, there's the enabling functions like finance, HR, IT, where given the size of our business, we should be expecting better productivity going forward.

Amit Hazan

All right. So, we've got about a minute left, so I thought I'd ask the last question. I feel like you guys are uniquely positioned, just given you have the Consumer side as well to talk a little bit about tech's entrance into healthcare.

You saw it with Amazon and the like already and then -- and had experienced that. And here we are and Amazon is positioning to get into health care distribution and supplies of drugs. We don't know everything yet, obviously; it's still early days.

But I'm curious what your thoughts are on that entry, Amazon in particular, whether you see them as kind of a friend or a foe. And generally, how you're thinking about these bigger tech companies coming into healthcare relative to what J&J does? [Indiscernible] question.

Joe Wolk

Yes. So, Amazon, for us, it's a friend right now. So, we've got a great partnership with them through our Consumer business. And if they can actually provide medical supplies or drugs that are cheaper to the overall cost of the health care system, that's a good thing for us overall, right, the Pharmaceutical and the Medical Device industry.

In terms of broader technology plays like an Apple and Google, I mentioned the partnership with Google. I think there's a nice marriage to be had with the information that these companies can deliver us and getting much more personalized on how we provide Medical Solutions, Pharmaceutical solutions to patients going forward. So, what I would expect to see is much more in the space of collaboration between companies where we can bring the healthcare expertise, they can bring the technological data analytics expertise for a better outcome for the system, a cheaper outcome for the system.

Amit Hazan

Andrew, you're good?

Andrew Baum

That's great. Everything is [Indiscernible]

Joe Wolk

Thank you. Appreciate it.

Amit Hazan

We'll be hosting the lunchtime keynote with [Indiscernible], who is a leading reimbursement speaker. So, please do stay. There'll be food at the back. It will be a very valuable experience. Thank you for joining us today.