Johnson & Johnson (J&J) announced strong third-quarter results, with both earnings and revenue surpassing Wall Street’s projections. The pharmaceutical giant’s report is noteworthy as it’s the first since the company’s separation from its consumer health spinoff, Kenvue, in August. This separation marks the most significant transformation in J&J’s 137-year history. Notably:
- Adjusted earnings per share: $2.66 against an expected $2.52
- Revenue: $21.35 billion, better than the $21.04 billion anticipated
- Pharmaceutical sales amounted to $13.89 billion, a 5% YoY increase
- Medical devices business recorded sales of nearly $7.46 billion, a 10% YoY rise.
Pharmaceutical Business Flourishes
The company reported significant growth in its pharmaceutical division, thanks to the sale of Darzalex, Erleada, and other oncology treatments. Their blockbuster drug, Stelara, also contributed to the growth, although it is slated to lose patent protection later this year. However, a decline in sales of other drugs, like Zytiga and Imbruvica, and the absence of U.S. sales for J&J’s COVID-19 vaccine impacted the overall growth. J&J CFO, Joseph Wolk, emphasized on CNBC’s “Squawk Box” that their success never hinged on the COVID-19 vaccine.
Medical Devices Business and Restructuring
The revenue for J&J’s medical devices segment rose 10% from Q3 2022, although slightly below Wall Street’s forecast. The company attributes the rise in part to its acquisition of Abiomed, a cardiovascular medical technology firm, the previous December. Notably:
- Interventional solutions generated $1.55 billion, marking a 47% increase from the same period in 2022
- Surgery recorded sales of $2.48 billion, encompassing end cutters, biosurgery, energy devices, and more
- J&J Vision’s contact lenses and eye surgery equipment secured $1.26 billion.
However, Johnson & Johnson MedTech announced a restructuring of its orthopedics segment, intending to retract from less profitable markets and product lines within the next two years. This move is expected to cost between $700 million and $800 million by 2025’s end.
Legal and Regulatory Concerns
The quarter’s results arrive amidst investor concerns over numerous lawsuits. These lawsuits claim that J&J’s talc-based products were tainted with carcinogenic asbestos, leading to ovarian cancer and multiple fatalities. While these products now fall under Kenvue, J&J will bear all talc-related liabilities arising in the U.S. and Canada. In a separate event, Abiomed’s Impella catheter-based heart pumps received a warning from the FDA concerning its use without appropriate premarket approval.
Medicare Drug Price Negotiations
The results also coincide with J&J’s price discussions with the federal Medicare program regarding its Xarelto drug, aimed at preventing blood clotting. J&J joined the negotiation process last month, following President Joe Biden’s Inflation Reduction Act’s enactment in 2022, which allowed Medicare to discuss drug prices for the first time. However, despite complying with the negotiation process, J&J remains opposed, emphasizing their belief that the price-setting provisions of the IRA could stifle innovation and obstruct the delivery of groundbreaking therapies.
While the company’s recent results reflect a positive trajectory, it’s crucial to acknowledge the hurdles ahead. The ongoing lawsuits related to talc-based products, FDA warnings concerning specific medical devices, and potential regulatory shifts, especially around drug pricing, could impact the company’s future profitability and reputation. However, Johnson & Johnson’s proactive approach to these challenges, coupled with its robust corporate governance, suggests that they are well-prepared to navigate these complexities.
Despite facing legal challenges and the global pandemic’s repercussions, Johnson & Johnson continues to showcase resilience and growth in its core business areas. The company’s commitment to innovation, combined with strategic restructuring, places it in a strong position to navigate future challenges and remain a dominant force in the global healthcare sector.
Furthermore, as Johnson & Johnson adapts to the evolving global healthcare landscape, it is evident that their strategic maneuvers are not just reactive but also proactive. The company’s decision to separate from its consumer health spinoff, Kenvue, and its subsequent restructuring of its orthopedics businesses demonstrates a willingness to transform and optimize operations based on market demands and internal assessments.