J&J beats earnings estimates, eyes mid-2027 hip and knee unit spinoff

Johnson & Johnson reported a slightly higher-than-expected profit on Tuesday driven by strong sales of immune disease treatment Tremfya, and said it plans to spin off its hips and knees business next year. The company late last year said it intended to separate ‌its orthopedics unit, DePuy Synthes, into a standalone company, marking its second major spinoff as it sharpens focus on higher-growth healthcare segments.

Chief Financial Officer Joe Wolk on a conference call to discuss company results said J&J remains on track for a mid-2027 separation for DePuy Synthes. "Given the way DePuy Synthes is performing... we are leaning towards a spin as being the best option to create long-term value for ‌Johnson & Johnson shareholders. That has always been our base plan, and we are confident that it can be successfully executed," he said.

Apollo Global Management is in talks to acquire the orthopedics ‌unit in a deal that could value it at close to $20 billion, Bloomberg News reported in September. J&J shares were off about 2% before the bell.

MIDDLE EAST CONFLICT WEIGHS ON MEDTECH Wolk, in an interview, told Reuters the Mideast conflict, austerity measures in Europe and pricing in China continued to weigh on results internationally, "but maybe in a little bit more pronounced way."

He said the Mideast conflict, which has led to soaring fuel costs, has yet to impact the company's ⁠costs, but ​has hurt sales in the region. "These are countries that ⁠still value and actually want premium healthcare systems, think Kuwait, UAE, Saudi Arabia. They pride themselves on having solid healthcare, very good healthcare," Wolk said. "But their budgets now are being resourced and allocated towards defense."

Medical technology division sales rose 2.5% ⁠to $8.6 billion overall, missing analysts' estimates of $8.71 billion, according to LSEG data. Outside the US, sales in the division were basically flat. The company raised its full-year forecast for reported sales to about $101.2 billion at the midpoint, from $101.1 ​billion previously. It increased its adjusted earnings forecast range with a new midpoint of $11.10 per share, up from $11.04.

Sales at J&J's Abiomed heart pump business remained slow after a UK ⁠study earlier this year raised questions about the use of Impella pumps during certain high-risk coronary procedures. The miss in the MedTech business was largely in cardio and surgery, said J.P. Morgan analyst Chris Schott.

Quarterly pharmaceutical sales jumped 7.7% to $16.76 billion. "While the ⁠results ​overall are generally in line with expectations, we believe investors will be disappointed in some of the details within the results," said Guggenheim analyst Vamil Divan, noting that the MedTech results were "somewhat disappointing."

Divan pointed to some strong sales from older products such as Stelara and Simponi, adding that Tremfya and multiple myeloma treatment Tecvayli were the only newer, strategically important products that appear to have ⁠meaningfully beat expectations. Sales of Tremfya for Crohn's disease and other autoimmune conditions rose 68% to $2.4 billion, exceeding analyst estimates of about $2.2 billion, while sales of Stelara, which is facing generic competition, ⁠fell 54% to $716 million, still well above diminished Wall ⁠Street expectations of $591 million. Tremfya has increasingly replaced lost Stelara revenue following recent approvals in inflammatory bowel diseases.

Sales of blood cancer treatment Darzalex rose about 16% to $4.24 billion, short of analyst expectations of $4.4 billion. The company posted third-quarter revenue of $25.4 billion, above estimates of $25.28 billion, and adjusted earnings ‌of $2.59 per share, topping Wall ‌Street expectations by 5 cents.