Johnson & Johnson’s Q3 results beat expectations; plans to spin off orthopedics business to counter Trump’s drug price pressure.

Johnson & Johnson’s Q3 results beat expectations; plans to spin off orthopedics business to counter Trump’s drug price pressure.

Thanks to the momentum from the medical technology division and new drugs, Johnson & Johnson delivered a third-quarter report card that exceeded market expectations. The company plans to separate its slower-growing orthopedics business from the rest of its operations within 18 to 24 months, aiming to give its innovative drug and device divisions more breathing room in light of price-cutting pressure on U.S. pharmaceutical companies from the Trump administration.

Before the U.S. market opened on Tuesday, Johnson & Johnson released a strong earnings report.

Revenue: Q3 revenue rose 6.8% year-on-year to $23.99 billion.

Net Profit: Q3 net profit surged 91.2% year-on-year to $5.1 billion.

EPS: Adjusted earnings per share in Q3 grew 91% year-on-year to $2.12.

Guidance:

The company raised its full-year revenue guidance to $93.7 billion, with the midpoint reflecting 5.7% growth.

Business breakdown:

Global innovative pharmaceuticals sales rose 5.3% year-on-year to $15.6 billion, mainly driven by oncology products DARZALEX, CARVYKTI, ERLEADA, and RYBREVANT/LAZCLUZE; immunology products TREMFYA and SIMPONI/SIMPONI ARIA; and neuroscience product SPRAVATO.Global medical technology sales grew 5.6% year-on-year to $8.4 billion, boosted by electrophysiology products, cardiovascular products Abiomed and Shockwave, wound closure products in surgical care, and surgical visualization products.

Johnson & Johnson's stock rose as much as 2.4% in pre-market trading.

Tariff Issues Remain Unresolved

The healthcare industry is facing tariff threats from Trump. Trump has threatened to impose tariffs on companies that do not take steps to reduce U.S. healthcare costs. Pfizer and AstraZeneca have already agreed to supply some drugs to the U.S. market at steep discounts, even at parity with other wealthy countries, in exchange for three years of tariff exemptions.

Johnson & Johnson CFO Joseph Wolk said negotiations with the Trump administration are ongoing and he is "fully confident" that the company can find consensus on pricing issues. He previously said in an interview:

"We are very pleased to be engaged with the government."

Orthopedics Business Spin-Off Plan Underway

Johnson & Johnson is planning to spin off its orthopedics business, which is slower-growing and less profitable than its other divisions.

CFO Joseph Wolk said the company is still evaluating how to divest the orthopedics segment, which focuses on hip and knee replacements and spinal devices, with 2024 sales of about $9.2 billion.

Johnson & Johnson said the orthopedics company, named DePuy Synthes, will become the world’s largest orthopedics company. Wolk said that while it "remains a great business," its growth and profitability are lower than other Johnson & Johnson divisions, so operating independently may deliver greater benefits.

This spin-off will also benefit Johnson & Johnson, enabling it to shift its product portfolio toward faster-growing, higher-margin markets.

Breakthroughs in Innovative Drugs Drive New Growth Momentum

This quarter, Johnson & Johnson achieved important breakthroughs in innovative drugs, which could expand the company's growth outlook for years to come.

TREMFYA received FDA approval for a subcutaneous formulation for inflammatory bowel disease, becoming the first and only all-subcutaneous IL-23 therapy. This differentiator is expected to help the product gain a larger share of the highly competitive inflammatory bowel disease market. TREMFYA’s sales this quarter reached $1.42 billion, up 41.3% year-on-year.

INLEXZO was approved for high-risk non-muscle invasive bladder vaginal cancer, a relatively niche but high-value indication. More importantly, Johnson & Johnson has submitted an application for icotrokinra for psoriasis treatment. Clinical data show icotrokinra outperforms deucravacitinib in head-to-head trials. If approved, the product would provide an important new tool for Johnson & Johnson in dermatology.

Risk Warning and DisclaimerThe market has risks, and investment should be undertaken with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions made herein are appropriate for their particular circumstances. Investing based on this information is at your own risk.