JNJ Earnings: Pharma Strength, MedTech Trouble & a Potential Spinoff

SPEAKER_1 (0:01)

Time now for our watchlist panel. We're breaking down today's earnings report from Johnson & Johnson. The shares have been under pressure. In fact, it's the worst day since April of 2025 with a miss in part here. I wanna go over some of the details in this Johnson & Johnson report. Christine Short, head of research at TMX Wall Street, and William Soliman, founder, CIO, White Mountain Capital Partners. I'm so glad that you are both with us. So, Christine, our start with you, you know, we talk about some of the great results, but at the same time, this is noting the big sell-off that we're having. Why the push and pull?

Christine Short (0:38)

Yeah, you're right. I mean, there was a lot to like in the report. To me, it was, you know, a pretty clean beat and raise on one end because they beat both revenue expectations and EPS expectations from Wall Street. They raised guidance both on the top and the bottom line, and by quite a bit, you know, they raised EPS guidance for the full year by about 10 cents on the lower end of the range. So now they're expecting $11.05 to $11.10 for the full year. And then revenues, they raised by about 200 million on the lower end of the prior range. So now putting them firmly at 101 billion to just slightly over that for annual revenue. So they will, it seems, surpass that 100 billion in revenue for the first time in their 140 year history. Of course, we know the bright spot in this was their innovative medicine, or their pharma business grew by almost 8%.

And it really is the majority of their revenues. That makes up about two thirds of overall company revenues. And there was strength within everything from their oncology drugs to getting a little assist from immunotherapy, drugs like Tremfya, and their neuroscience drugs as well.

And really the downside is really MedTech, right? Medical devices, and that's why I think you see the shares reacting as they are. Investors were a little bit disappointed because for the second quarter in a row, MedTech missed expectations. It grew by about two and a half percent, but there are some headwinds in that business that I think investors are really focused on today.

SPEAKER_1 (2:07)

Yeah, and that's the point, you know, as you talk about the profit beating and some of the full year numbers being raised, and that looks pretty good, the forecasts. It was really this MedTech miss that people are looking at and causing the steepest one day drop for the stock since April of 2025

How do we digest this, William? I mean, when you look at this, I know the company has been working on acquisitions and things like that, but how do you digest that part of the story when the rest of it is looking pretty good? What does that make you say about a name like Johnson & Johnson?

William Soliman (2:42)

Well, I think if you look at Johnson & Johnson's strategy in terms of looking to fill their pipeline with other products, they're being smart about it, right? They're looking at oncology, looking at neuroscience. I think the biggest thing is that pharmaceuticals is where they're getting their growth, right? And Tremfya is the main driver of that growth.

I think where investors have to look at what I would focus on from my perspective is how are they fairing compared to the other pharma companies in this space? Because remember, Tremfya, it's a big player in IBD, inflammatory bowel disease. But you have AbbVie, right? It's Sky Rizzi. You have AbbVie with RenVoke. So AbbVie has two approaches to deal with this therapeutic area. So I would be interested to see how Tremfya is going to fare against some of those bigger players. You also got Eli Lilly, you got Takeda, so forth and so on. So that's the first thing is, you know, pharma is really where they're getting growth. I agree with what Christine said. The second thing though is what are going to be some of those access barriers for a drug like Tremfya? It has a lot of opportunity, but again, it faces a lot of competition. And on top of that, the payers are pushing back. Why? Because remember, you have some of the older injectables that are now biosimilars. They've gone generic. So it's going to be interesting to see how they can continue to sustain that growth with Tremfya in a market that's crowded, right, with other branded competitors, but also with other biosimilars that are options for physicians as well.

SPEAKER_1 (4:16)

Yeah, and I know you said that the sell-off is not necessarily a bad thing that we've seen for this stock. Maybe you like the opportunity to buy it when it's dipping. At the same time, we did hear from the Wall Street Journal that Johnson & Johnson is leaning towards spinning out its hips and knees business. That would sort of maybe answer the MedTech problem overall. Would you buy the stock, William? You just noted that you did talk about the stock in your notes. So is this a buying opportunity today or not yet?