What changed in this filing

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Item 1A. Risk Factors

2023-02-16 compared with 2022-02-17 · 59 added, 34 removed, 211 unchanged (31% of the section changed)

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Similar competition can be triggered by the loss of exclusivity for a biological product.

For the Company’s Medical Devices businesses, technological innovation, product quality, reputation and customer service are especially important to competitiveness.

For the Company’s MedTech businesses, technological innovation, product quality, reputation and customer service are especially important to competitiveness.

Development by other companies of new or improved products, processes and technologies could threaten to make the Company’s products or technologies less desirable, less economical or obsolete.

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In addition, diversion of our products from their authorized market into other channels may result in reduced revenues and negatively affect our profitability.

The COVID-19 pandemic has adversely impacted certain aspects of the Company’s business and could cause disruptions or future impact to the Company’s business, results of operations and financial condition.

We are subject to risks associated with global health crises, epidemics and pandemics, including the global outbreak of coronavirus and its variants (COVID-19).

The COVID-19 pandemic has adversely impacted, and is expected to continue to adversely impact, certain aspects of the Company’s business, results of operations and financial condition, including lower sales and reduced customer demand and usage of certain of our products.

The spread of COVID-19 has caused the Company to modify its business practices (including instituting remote work for many of the Company’s employees), and the Company may take further actions as may be required by government authorities or as the Company determines are in the best interests of our patients, customers, employees and business partners.

The Company continues to monitor the situation and while we have robust business continuity plans in place across our global supply chain network to help mitigate the impact of COVID-19, these efforts may not completely prevent our business from being adversely affected and future impacts remain uncertain.

Global health crises, pandemics, epidemics, or other outbreaks could adversely disrupt or impact certain aspects of the Company’s business, results of operations and financial condition.

We are subject to risks associated with global health crises, epidemics, pandemics and other outbreaks (such incident(s), a health crisis or health crises), including the global outbreak of coronavirus and its variants (COVID-19).

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, certain aspects of the Company’s business, results of operations and financial condition, including lower sales and reduced customer demand and usage of certain of our products.

The continued spread of COVID-19 or other health crises may cause the Company to modify its business practices, and take further actions as may be required by government authorities or as the Company determines are in the best interests of our patients, customers, employees and business partners.

While the Company has robust business continuity plans in place across our global supply chain network to help mitigate the impact of health crises, these efforts may not completely prevent our business from being adversely affected and future impacts remain uncertain.

While the U.S.

and other countries have begun or will begin to reopen their economies, the extent to which COVID-19 will impact the Company’s future operations will depend on many factors which cannot be predicted with confidence, including the duration of the outbreak and impact of variants.

Any resurgence in COVID-19 could result in the imposition of new mandates and prolonged restrictive measures implemented in order to control the spread of the disease.

The continued global spread of COVID-19 could adversely impact the Company’s operations, including, among other things, our manufacturing operations, supply chain, including third-party suppliers, sales and marketing and clinical trial operations.

and other countries have substantially reopened their economies, the extent to which COVID-19, or other health crises, could impact the Company’s future operations will depend on many factors which cannot be predicted with confidence, including the duration of an outbreak and impact of variants.

A surge in COVID-19 or other health crises could result in the imposition of new mandates and prolonged restrictive measures implemented in order to control the spread of disease.

The global spread of COVID-19 or other health crises could adversely impact the Company’s operations, including, among other things, our manufacturing operations, supply chain, third-party suppliers, sales and marketing, and clinical trial operations.

Any of these factors could adversely affect the Company’s business, financial results, and global economic conditions generally.

We also face uncertainties related to our COVID-19 vaccine, including uncertainties related to the risk that our continued development programs may not be successful, commercially viable or receive approval from regulatory authorities;

We also face uncertainties related to our vaccine development programs, including uncertainties related to the risk that our continued development programs may not be successful, commercially viable or receive approval from regulatory authorities;

risks associated with clinical trial and real-world data, including further analyses of its efficacy, safety and durability;

the risk that continued evolution and mutation of disease and the duration of a particular outbreak may impede our ability to conduct trials within a specified time frame;

the risk that data are subject to differing interpretations and assessments, including during the peer review/publication process, in the scientific community generally, and by national immunization technical advisory groups (NITAGs) and regulatory authorities;

disruptions in the relationships between us, our third-party suppliers and external manufacturers;

disruptions in the relationships between us, our third-party suppliers, external manufacturers, and other third parties with whom we engage;

the risk that other companies may produce superior or competitive products;

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risks related to the availability of raw materials to manufacture any such products;

the risk that we may not be able to recoup costs associated with our R&D and manufacturing efforts and risks associated with any changes in the way we approach or provide additional research funding for potential drug development related to COVID-19;

the risk that we may not be able to create or scale up manufacturing capacity on a timely basis, that we may continue to experience manufacturing delays once a manufacturing site is activated, or have access to logistics or supply channels commensurate with global demand for any potential approved vaccine or product candidate, which would negatively impact our ability to supply the estimated numbers of doses of our vaccine within the projected time periods indicated, and other challenges and risks associated with the pace of our vaccine development program;

and pricing and access challenges for such products, including in the U.S.

In addition, to the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and those incorporated by reference herein, i ncluding risks relating to the Company’s effective tax rate as a result of changes in consumption as well as changes in laws relating to supply of the Company’s products .

Given that developments concerning the COVID-19 pandemic have been constantly evolving, additional impacts and risks may arise, including litigation, that are not presently known to the Company.

Risks Related to Government Regulation and Legal Proceedings

Global sales in the Company’s Pharmaceutical and Medical Devices segments may be negatively impacted by healthcare reforms and increasing pricing pressures.

Sales of the Company’s Pharmaceutical and Medical Devices products are significantly affected by reimbursements by third-party payers such as government healthcare programs, private insurance plans and managed care organizations.

Global sales in the Company’s Pharmaceutical and MedTech segments may be negatively impacted by healthcare reforms and increasing pricing pressures.

Sales of the Company’s Pharmaceutical and MedTech products are significantly affected by reimbursements by third-party payers such as government healthcare programs, private insurance plans and managed care organizations.

As part of various efforts to contain healthcare costs, these payers are putting downward pressure on prices at which products will be reimbursed.

In the U.S., increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, in part due to continued consolidation among healthcare providers, could result in further pricing pressures.

In addition, increased political scrutiny could result in additional pricing pressures.

In addition, recent legislation and ongoing political scrutiny or pricing, coverage and reimbursement could result in additional pricing pressures.

Specifically, the Inflation Reduction Act of 2022 (IRA) may subject certain products to government-established pricing, potentially impose rebates, and subject manufacturers who fail to adhere to the government's interpretations of the law to penalties.

Outside the U.S., numerous major markets, including the EU, United Kingdom, Japan and China, have pervasive government involvement in funding healthcare and, in that regard, directly or indirectly impose price controls, limit access to, or reimbursement for, the Company’s products, or reduce the value of its intellectual property protection.

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Changes in tax laws or regulations around the world, including in the U.S.

and as led by the Organization for Economic Cooperation and Development, could negatively impact the Company’s effective tax rate and results of operations.

and as led by the Organization for Economic Cooperation and Development, such as the recent adoption by the EU, enactment by South Korea and the anticipated enactment

by additional countries of a global minimum tax, could negatively impact the Company’s effective tax rate and results of operations.

A change in statutory tax rate or certain international tax provisions 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.

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The Company’s continued growth and success depends on its ability to innovate and develop new and differentiated products and services that address the evolving healthcare needs of patients, providers and consumers.

Development of successful

products and technologies is also necessary to offset revenue losses when the Company’s existing products lose market share due to various factors such as competition and loss of patent exclusivity.

New products introduced within the past five years accounted for approximately 25% of 2021 sales.

Development of successful products and technologies is also necessary to offset revenue losses when the Company’s existing products lose market share due to various factors such as competition and loss of patent exclusivity.

New products introduced within the past five years

accounted for approximately 25% of 2022 sales.

The Company cannot be certain when or whether it will be able to develop, license or otherwise acquire companies, products and technologies, whether particular product candidates will be granted regulatory approval, and, if approved, whether the products will be commercially successful.

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The Company faces challenges in maintaining profitability of operations in economies experiencing high inflation rates.

The Company has accounted for operations in Argentina and Venezuela as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%.

Specifically, the Company has accounted for operations in Argentina, Turkey and Venezuela as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%.

While the Company strives to maintain profit margins in these areas through cost reduction programs, productivity improvements and periodic price increases, it might experience operating losses as a result of continued inflation.

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In addition to the U.S.

application and enforcement of the FCPA, various jurisdictions in which the Company operates have laws and regulations, including the U.K.

application and enforcement of the FCPA, various jurisdictions in which the Company operates have laws

and regulations, including the U.K.

Bribery Act 2010, aimed at preventing and penalizing corrupt and anticompetitive behavior.

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There can be no assurance that we will be able to maintain our credit ratings, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to capital markets.

The Russia-Ukraine War, and actions taken in response to the Russia-Ukraine War, could adversely affect our business, results of operations or financial condition.

In February 2022, Russia launched a military invasion of Ukraine.

The ongoing Russia-Ukraine War has provoked strong reactions from the United States, the United Kingdom, the European Union and various other countries and economic and political organizations around the world.

We have been monitoring the geopolitical situation in Russia since the start of the Russia-Ukraine War and have suspended additional investment, enrollment of clinical trials, and supply of our personal care products in Russia.

We continue to monitor the need for humanitarian relief in the region and continue to supply our medicines, medical devices and equipment in the region in compliance with the applicable sanctions.

We will continue to monitor the geopolitical situation in Russia and to evaluate our activities and future operations in Russia.

Actions taken in response to the Russia-Ukraine War include the imposition of export controls and broad financial and economic sanctions against Russia, Belarus and specific areas of Ukraine.

Additional sanctions or other measures may be imposed by the global community, including but not limited to limitations on our ability to file, prosecute and maintain patents, trademarks and other intellectual property rights.

Furthermore, the Russian government has already taken action allowing Russian companies and individuals to exploit inventions owned by patent holders from the United States and many other countries without consent or compensation and we may not be able to prevent third parties from practicing our inventions in Russia or from selling or importing products in and into Russia.

We have experienced, and expect to continue to experience, other risks related to the broad economic consequences of the Russia-Ukraine War, including foreign currency volatility, decreased demand for our products in countries affected by the Russia-Ukraine War and challenges to our global supply chain related to increased costs of materials and other inputs for our products and suppliers operating in Russia and Ukraine.

We also continue to monitor the various sanctions and export controls imposed in response to the Russia-Ukraine War.

The full impact of the Russia-Ukraine War, and actions taken in response to the ongoing conflict, on the global economy and geopolitical relations, in general, and on our business in particular, remain uncertain.

Any or all of the foregoing risks could

have an adverse effect on our business, results of operations or financial condition, particularly as the conflict continues for an indefinite period of time.

Given that developments concerning the Russia-Ukraine War are ongoing and have been constantly evolving, additional impacts and risks may arise that are not presently known to us.

The Russia-Ukraine War may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

Risks Related to the Planned Separation of our Consumer Health Business

The planned separation of the Company’s Consumer Health business may not be completed on the terms or timeline currently contemplated, if at all, and may not achieve the expected results.

In November 2021, the Company announced its intention to separate the Company’s Consumer Health business, with the intention to create a new, publicly traded company.

In November 2021, the Company announced its intention to separate the Company’s Consumer Health business, with the intention to create a standalone publicly traded company, which was subsequently named Kenvue, Inc.

The planned separation is intended to qualify as a tax-free transaction for U.S.

federal income tax purposes.

The Company is targeting completion of the planned separation in 18 to 24 months after initial announcement.

Completion of the planned separation will be subject to the satisfaction of certain conditions, including, among others, consultations with works councils and other employee representative bodies, as required, final approval of the Company’s Board of Directors, receipt of a favorable opinion and Internal Revenue Service (“IRS”) ruling with respect to the tax-free nature of the transaction, and the receipt of other regulatory approvals.

The Company is targeting completion of the planned separation in 2023.

Completion of the planned separation will be subject to the satisfaction of certain conditions, including, among others, consultations with works councils and other employee representative bodies, as required, final approval by the Company’s Board of Directors, the continuing effectiveness and validity of the Company's private letter ruling from the Internal Revenue Service (“IRS”) and receipt of favorable opinions of the Company's U.S.

tax advisors with respect to the tax-free nature of the transaction, and the receipt of other regulatory approvals.

There can be no assurance regarding the ultimate timing of the planned separation or that such separation will be completed.

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In addition, the Company may be unable to achieve some or all of the strategic and financial benefits that it expects to achieve from the planned separation of the Company’s Consumer Health business.

The Company will incur significant expenses in connection with the planned separation.

The Company has incurred, and is expected to incur, significant expenses in connection with the planned separation.

In addition, the Company may not be able to achieve the full strategic and financial benefits that are expected to result from the planned separation.

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The planned separation could result in substantial tax liability.

The Company intends to obtain an opinion from its U.S.

tax advisors and a ruling from the IRS as to the tax-free nature of the planned separation under the U.S.

The Company has received a private letter ruling from the IRS as to the tax-free nature of the planned separation under the U.S.

Internal Revenue Code of 1986, as amended.

The opinion and ruling will be based on, among other things, various factual assumptions and representations that the Company and the New Consumer Health Company will make regarding the past and future conduct of the companies’ respective businesses and other matters.

If any of these assumptions or representations are, or become, inaccurate or incomplete, reliance on the opinion and ruling may be jeopardized.

If subsequent to the planned separation it is determined that the transaction does not qualify for tax-free treatment for U.S.

The planned separation is conditioned on, among other things, the continuing effectiveness and validity of the Company's private letter ruling from the IRS and receipt of favorable opinions of the Company's U.S.

tax advisors.

The private letter ruling and opinions will be based on, among other things, various facts, assumptions, representations and undertakings from the Company and Kenvue regarding the past and future conduct of the companies’ respective businesses and other matters.

If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, the Company and its shareholders may not be able to rely on the ruling or the opinions of tax advisors.

Notwithstanding the private letter ruling and opinions of tax advisors, if subsequent to the planned separation the IRS determines that certain steps of the transaction do not qualify for tax-free treatment for U.S.

federal income tax purposes, the resulting tax liability to the Company and its shareholders could be substantial.

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In addition, effective succession planning is important to our long-term success.

Any unsuccessful implementation of our succession plans or failure to ensure effective transfer of knowledge and smooth transitions involving key employees could adversely affect our business, financial condition, or results of operations.

Any unsuccessful implementation of our succession plans or failure to ensure effective transfer of

knowledge and smooth transitions involving key employees could adversely affect our business, financial condition, or results of operations.

Climate change or legal, regulatory or market measures to address climate change may negatively affect our business and results of operations.

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To date, the Company has not experienced any material impact to the business or operations resulting from information or cybersecurity attacks;

however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely

however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely impacted.

This impact could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action.

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however, the coverage may not be sufficient to cover all financial, legal, business or reputational losses.

As a result of the Russia-Ukraine War, there has been, and we expect there will continue to be, an increased risk of information security or cybersecurity incidents, including cyberattacks perpetrated by Russia or others at its direction.

Although we have taken steps to enhance our protections against these attacks, we may not be able to address the threat of information security or cybersecurity incidents proactively or implement adequate preventative measures and we may not be able to detect and address any such disruption or security breach promptly, or at all, which could adversely affect our business, results of operations or financial condition.

Moreover, we are aware of incidents in which our third-party partners have been the target of information security or cybersecurity incidents as a result of the Russia-Ukraine War.

Although, to date, our IT Systems have not been compromised by these incidents, it is possible that future information security or cybersecurity incidents involving our customers, manufacturers, suppliers or other third-party partners could successfully compromise our IT Systems, which could adversely affect our business, results of operations or financial condition.

A breach of privacy laws or unauthorized access, loss or misuse of personal data could have a negative impact to the Company’s business or reputation.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors