Johnson & Johnson stock falls despite strong earnings as investors focus on medtech unit

Johnson & Johnson (JNJ) stock is tumbling even after the healthcare giant raised its forecast again for full-year earnings and revenue. 

Investors are focused on the company’s medtech unit, which posted disappointing sales growth of 2.5%.

Johnson & Johnson stock was up more than 27% this year before Tuesday’s pullback. That trails only Merck (MRK) among the biggest stocks in the iShares US Pharmaceuticals ETF (IHE), which has gained almost 16%.

The stock was down nearly 7% on Tuesday afternoon.

Johnson & Johnson CFO Joe Wolk explained to Yahoo Finance (video above) that the business is facing a two-pronged challenge: a study earlier this year in the UK questioning the company’s heart pump benefits in some high-risk procedures, and geopolitical conflict affecting sales.

“If you think about the war in the Middle East, it’s not that the demand isn’t there,” Wolk said. “It’s just that budgets are now being allocated from some of the surrounding countries on defense versus healthcare. But because the demand is there, we think that passes over time, because we know these are countries that do prioritize top, premium healthcare. So we think that’ll remedy itself as we move into 2027.”

Part of Johnson and Johnson’s medtech unit is its orthopedics business. The company had been weighing options for that unit, and there were reports that J&J was in talks with Apollo Global Management to sell it. Wolk now says he prefers a spin-off, in part because J&J’s strong cash position gives it flexibility. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)

“As we moved forward and through the process, we do appreciate that medtech valuations are down,” Wolk said. “And so if you think about potential acquirers, they’re going to utilize those valuations to their advantage. That’s not optimal for the long-term J&J shareholder. We think that’s a stock that will trade as a premier orthopedics global player in the years to come. And so we’re going to take advantage of that.”

‘That has not slowed down in demand at all’

Sales at Johnson & Johnson’s much larger pharmaceutical unit rose 7.7% to about $16.8 billion, driven by double-digit gains in its multiple myeloma franchise and in newer drugs to treat psoriasis and schizophrenia. 

The biggest of those is Tremfya, an injectable biologic for psoriasis and inflammatory bowel disease, whose sales grew 68%. Wolk said he expects it to keep climbing.

“We think this is going to be better than a $10 billion product for us going forward,” he said, adding that “it’s still a very underpenetrated market when it comes to inflammatory bowel disease, both ulcerative colitis and Crohn’s.”

Wolk is also optimistic about the prospects for Icotyde, a new pill to treat psoriasis. Because Icotyde is new, it’s frequently being offered to patients in free samples and has racked up 20,000 prescriptions since it was introduced earlier this year.

Wolk said that Icotyde revenue “would probably be double if it wasn’t for the free goods, and it would probably be a reportable product for us at this point in time.” 

Unexpectedly, primary care physicians, nurse practitioners, and physician assistants — not just dermatologists — have been prescribing it, he said. The prescribing base is about 9,000 strong, which Wolk said “really speaks to the broad appeal.”

The pill hasn’t eaten into demand for Tremfya, either.

“That has not slowed down in demand at all,” Wolk said. “So what we’re really doing with this once-daily oral pill that’s easy to take is expanding the marketplace.”

Market research shows that only 30% to 40% of people who are eligible for treatment receive a biologic, Wolk said, “because there’s either a fear of needles or there’s a connotation that a biologic treatment suggests a disease much more serious than people want to admit to.”

Julie Hyman is the co-host of Market Domination on Yahoo Finance. You can find her on social media @juleshyman.

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