Johnson & Johnson (JNJ) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates strong growth in key areas like Immunology, Neuroscience, and MedTech, with positive guidance and strategic focus on high-growth markets. The Q&A reveals management's confidence in future growth, despite some ambiguity in policy discussions. The spinoff of the Orthopaedics division is seen positively, enhancing focus on core areas. Overall, the positive growth projections, increased guidance, and strategic initiatives suggest a positive sentiment, likely leading to a stock price increase.

Key Financial Performance

Operational Sales Growth 5.4% year-over-year growth. This growth was achieved despite a 640 basis point headwind from STELARA, driven by strong performance across Innovative Medicine and MedTech.

Innovative Medicine Sales $15.6 billion, a 5.3% increase year-over-year. Growth was achieved despite a 1,070 basis point headwind from STELARA, driven by strong performance in oncology, immunology, and neuroscience.

MedTech Sales $8.4 billion, a 5.6% increase year-over-year. Growth was driven by strong performance in cardiovascular, surgery, and vision segments.

Net Earnings $5.2 billion, with diluted earnings per share of $2.12, compared to $1.11 a year ago. Adjusted net earnings were $6.8 billion, with adjusted diluted earnings per share of $2.80, representing a 15.7% increase year-over-year. The increase was driven by strong operational performance and reduced IPR&D expenses compared to the prior year.

Oncology Sales Nearly 20% operational sales growth. DARZALEX grew by 19.9%, CARVYKTI by 81.4%, and TECVAYLI and TALVEY by 29.9% and 59.1%, respectively. Growth was driven by strong share gains, site expansion, and market growth.

Immunology Sales TREMFYA grew by 40.1%, driven by share gains across all indications and momentum from the IBD launch. STELARA declined by 42% due to biosimilar competition and Part D redesign.

Neuroscience Sales SPRAVATO grew by 60.8%, driven by strong demand from physicians and patients. CAPLYTA delivered $240 million in sales, reflecting 13.4% sequential growth.

Cardiovascular Sales Approximately 12% operational sales growth. Shockwave grew by 20.9%, driven by double-digit growth globally in coronary and peripheral segments. Abiomed grew by 15.6%, driven by strong adoption of Impella technology.

Surgical Vision Sales 13.8% growth, driven by new product innovations such as TECNIS PureSee, Odyssey, and Eyhance, as well as robust demand and strong commercial execution.

Orthopaedics Sales 2.4% growth, with hips and knees returning to growth at 5.1% and 5.6%, respectively. Growth was driven by market recovery and strong product performance.

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Operating Highlights

DARZALEX: Achieved 20% operational sales growth in Q3, with over 50% market share in multiple myeloma therapy.

CARVYKTI: Operational sales grew by over 80%, with a $5 billion peak year sales potential.

INLEXZO: FDA-approved bladder cancer treatment with a $5 billion annual peak sales projection.

TREMFYA: Achieved 40% operational sales growth, driven by new indications in inflammatory bowel disease, with a $10 billion asset potential.

SPRAVATO: Operational sales grew 61%, treating over 180,000 patients for treatment-resistant depression.

CAPLYTA: Projected to reach $5 billion annually, with FDA approval for major depressive disorder anticipated soon.

Orthopaedics Business Separation: Planned separation of the Orthopaedics business to operate as DePuy Synthes, targeting a $50 billion market opportunity.

MedTech Cardiovascular Portfolio: Operational sales increased by 12%, with Shockwave technology projected to become a $13 billion platform by year-end.

Operational Sales Growth: Achieved 5.4% operational sales growth across the business in Q3.

Innovative Medicine: Reported 5.3% operational sales growth, despite a 10.7% headwind from STELARA.

MedTech: Operational sales growth of 5.6%, driven by cardiovascular, surgery, and vision segments.

Focus on High-Growth Areas: Shifted MedTech portfolio focus to cardiovascular and robotic surgery for higher growth.

Pipeline Investments: Invested $3.7 billion in R&D in Q3, focusing on oncology, immunology, and neuroscience.

Orthopaedics Business Strategy: Separation to enhance focus on core growth areas and improve margins.

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Risk or Challenges

STELARA Loss of Exclusivity: The loss of exclusivity for STELARA has created a significant headwind, impacting sales by approximately 640 basis points in Q3 and 1,070 basis points in the Innovative Medicine segment. This decline is driven by biosimilar competition and changes in Part D redesign.

Orthopaedics Business Separation: The planned separation of the Orthopaedics business introduces potential risks related to operational disruptions, stranded costs, and the ability of the new entity to maintain market leadership and profitability.

Macroeconomic Factors in MedTech: MedTech margins have been negatively impacted by macroeconomic factors, including unfavorable product mix and cost pressures, which could affect profitability.

Talc Litigation: Ongoing talc litigation poses legal and financial risks, with potential unfavorable rulings or settlements impacting the company's financial position.

Regulatory and Approval Risks: The company faces risks related to regulatory approvals for new products, such as icotrokinra and OTTAVA robotic surgical system, which are critical for future growth.

Competitive Pressures in MedTech: Competitive pressures in the MedTech segment, particularly in energy and other product lines, could impact market share and revenue growth.

China VBP Impact: The negative impact of China's Volume-Based Procurement (VBP) policy on the MedTech portfolio could constrain growth in this key market.

Tax Rate Changes: The enactment of the One Big Beautiful Bill Act has increased the effective tax rate, which could impact net earnings and financial flexibility.

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Guidance & Outlook

Revenue Growth: The company has increased its operational sales guidance for 2025 by approximately $300 million, resulting in operational sales growth for the full year in the range of 4.8% to 5.3%, with a midpoint of $93.2 billion or 5.1%. Excluding the impact from acquisitions and divestitures, adjusted operational sales growth is expected to be in the range of 3.5% to 4.0% compared to 2024.

Currency Impact: Reported sales growth is expected to be between 5.4% to 5.9%, with a midpoint of $93.7 billion or 5.7%, assuming the U.S. dollar remains relatively flat to the euro spot rate.

Operating Margin: The company is reiterating its operating margin guidance of an approximate 300 basis point improvement for the full year.

Tax Rate: The effective tax rate for the full year is expected to be in the range of 17.5% to 18%, reflecting the impact of the recently enacted One Big Beautiful Bill Act.

Earnings Per Share (EPS): Adjusted EPS guidance for 2025 remains $10.85 or 8.7% at the midpoint, with a range of $10.80 to $10.90. Adjusted operational EPS guidance is $10.68 or 7% at the midpoint.

Capital Expenditures: The company plans to invest $55 billion in U.S.-based innovation and manufacturing over the next 4 years, including new advanced manufacturing facilities and expansions.

2026 Preliminary Guidance: For 2026, the company anticipates revenue growth exceeding 5%, driven by in-market brands, new product launches, and pipeline progress. Adjusted EPS is expected to grow commensurate with sales, with potential upside to the current consensus of $11.39.

MedTech Growth: MedTech growth is expected to accelerate in 2026, driven by focus on higher-growth markets and adoption of newer products across all platforms.

Innovative Medicine Growth: Innovative Medicine is expected to deliver accelerated growth in 2026, driven by in-market brands, new launches, and pipeline progress, despite the STELARA loss of exclusivity.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Why is Johnson & Johnson spinning off its Orthopaedics division now, and could there be similar separations for other divisions in the future?

A:J&J is spinning off its Orthopaedics division to focus on high-growth markets with significant unmet medical needs and to create a stand-alone company better positioned for growth and innovation. The new company, DePuy Synthes, will be led by Namal Nawana. This move is not a precursor to other separations, as J&J is satisfied with its current portfolio.

Q:How should investors think about J&J's long-term guidance in light of the Orthopaedics separation?

A:The separation process will take 18 to 24 months, and guidance for 2026 will likely include the Orthopaedics business. Material updates may occur by mid-next year, and J&J will keep investors informed.

Q:Why is the margin improvement post-Ortho spin estimated at 75 basis points, and could it be higher?

A:The 75 bps improvement is an early target and depends on the time period measured. By 2025, it could be closer to 100 bps due to higher growth profiles and ongoing margin improvement initiatives. Over time, the impact will be more muted as other businesses grow.

Q:What is J&J's approach to MFN agreements and policy dynamics with the administration?

A:J&J is in open dialogue with the administration, focusing on shared priorities like affordable innovation, preventing foreign free-riding on American innovation, and investing in U.S. manufacturing. Discussions are ongoing, and J&J is optimistic about finding common ground.

Q:Will J&J's sales growth accelerate next year, and how does the extra week impact growth?

A:Sales growth is expected to accelerate next year on a reported basis, including the extra week and FX tailwinds. Growth will also accelerate on an adjusted operational basis, excluding the extra week.

Q:How is J&J balancing capital allocation priorities to sustain growth in Innovative Medicines and MedTech?

A:J&J prioritizes investing in its pipeline and portfolio, with a focus on launching blockbuster products in Innovative Medicines and advancing MedTech initiatives like robotic surgery and cardiovascular technologies. Large M&A is not required to achieve high-end growth targets.

Q:What are the expectations for J&J's anti-tau antibody in Alzheimer's disease?

A:Phase II data for the anti-tau antibody will be available this year, with results shared at a medical congress in the first half of next year. The study includes cognitive endpoints and neuroimaging data. A go/no-go decision will follow based on the data quality.

Q:What is the underlying growth in MedTech, and how did reserve adjustments impact it?

A:MedTech growth was 5.7% adjusted operationally, with no significant material impact from reserve adjustments or go-to-market changes in energy.

Q:What is the outlook for INLEXZO in bladder cancer, and what updates are expected?

A:INLEXZO has shown strong initial uptake and is expected to be a $5 billion-plus asset. A J-code for reimbursement is anticipated in April next year. Clinical updates include Phase III studies for broader bladder cancer indications and the next-generation TAR-210 device.

Q:How will J&J position icotrokinra relative to TREMFYA?

A:Icotrokinra will target plaque psoriasis with biologic-like efficacy and safety in an oral pill, aiming to expand the market for advanced treatments. TREMFYA will continue to grow in its established indications, with both assets addressing distinct patient needs.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the ongoing discussions with the administration regarding MFN agreements and policy dynamics, stating only that they are optimistic about finding common ground. Additionally, they did not provide precise figures for the expected growth acceleration in 2026, leaving some ambiguity about the disconnect with consensus models.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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