Johnson & Johnson’s Mixed Bag: Beating Expectations but Facing Headwinds
Strong Revenue Growth, but Talc Lawsuit Looms
Johnson & Johnson’s (JNJ) fourth-quarter and full-year 2024 results exceeded expectations, but the company’s stock took a hit, trading down to around $143 per share on Wednesday morning. Despite beating Wall Street revenue estimates by $70 million and reporting earnings per share in line with estimates, several negative factors weighed on investor sentiment.
Slowing COVID-19 Vaccine Sales and Foreign Exchange Woes
J&J reported total sales of $88.8 billion for 2024, a 4.3% increase from 2023. However, COVID-19 vaccine sales slowed, a trend expected to continue among vaccine makers as the respiratory virus season gets off to a slower start this year. The company also anticipates a negative impact from foreign exchange rates in 2025.
Talc Lawsuit Casts a Shadow
The ongoing talc lawsuit, set to begin hearings on February 18, continues to weigh on J&J’s growth potential. Analysts expect the plaintiff lawyers to appeal any positive decision to the 5th circuit in Texas, which could potentially lead to a more favorable outcome for the company.
Medical Device Sales Slowdown and Generics Competition
J&J’s medical device sales are expected to slow, partly due to China’s slowdown in procedures. Additionally, the company faces increased competition as generics launch for its blockbuster anti-inflammatory arthritis drug Stelara, which is also facing pricing pressures from a newly negotiated price with Medicare.
Bright Spots: Darzalex and Cancer Drugs
The company’s growth in the fourth quarter was driven by its multiple myeloma drug, Darzalex, and several cancer drugs. The combined sales of the top six drugs totaled roughly $4.5 billion, or about 20% of revenues for the quarter.
Acquisition of Intra-Cellular and Future M&A Plans
J&J announced its acquisition of mental health disorder drugmaker Intra-Cellular (ITCI) for $14.6 billion, which is expected to be financed mainly through debt. The company plans to accelerate penetration of Intra-Cellular’s drug, Caplyta, in existing markets and explore additional geographies. Experts believe J&J has the capacity to add to its pharmaceutical and medical technology portfolios through further acquisitions.
CEO Duato Hints at Future Deals
CEO Joaquin Duato emphasized the importance of external innovation in J&J’s capital allocation strategy, suggesting that the company is always looking for opportunities to enhance its portfolio and pipeline. With a strong cash flow of $20 billion for the full year, J&J is well-positioned to make strategic moves in the biotech space.
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