Johnson & Johnson (JNJ) Earnings

Management highlights

- Overall Business Performance * The company delivered strong top and bottom-line results in Q2 2026, raising full-year guidance and confirming its trajectory to exceed $100 billion in annual revenue in 2026 for the first time in company history. * Johnson & Johnson has 28 products/platforms each generating over $1 billion in annual sales, providing a broad, durable foundation for long-term growth, with management targeting double-digit overall growth by the end of the decade. * New product launches are outperforming expectations: Nicotide (Icotide) for psoriasis has reached 11,000 treated patients and 6,000 unique prescribers in the U.S., with 50% commercial formulary coverage achieved within 90 days of launch, outpacing competitor launches at comparable stages. - Innovative Medicine Pipeline & Launches * The company is on track to become the number one oncology company by 2030, with projected oncology sales exceeding $50 billion. Key pipeline progress includes new positive phase 3 data for Erlida in high-risk localized prostate cancer and Ribramant in head and neck cancer, with an FDA filing submitted to expand existing lung cancer indications. * Inlexo for bladder cancer has strong early launch momentum: one in three eligible U.S. patients now start on Inlexo, up from one in four in Q1, with new patient initiations growing 75% quarter-over-quarter and sales doubling sequentially in Q2. * New acquisitions are strengthening the oncology pipeline: the planned acquisition of Firefly Bio, expected to close in Q3 2026, adds a proprietary KRAS-targeting antibody platform for hard-to-treat solid tumors. * Trenfaya for IBD is the current share leader in new patient inductions for both ulcerative colitis and Crohn's disease, with new positive data in perianal fistulizing Crohn's disease, a severe underserved indication, supporting further growth. - MedTech Innovation & Progress * The VariPulse pulsed field ablation platform for AFib has now treated over 85,000 patients globally, with new AI-powered mapping platforms and dual-energy ablation systems receiving FDA clearance in Q2. * The Otava integrated robotic surgical system is progressing toward potential FDA approval, with CE Mark already received for the new Ethicon 4000 stapler. Management expects Otava and Monarch for Urology to become a meaningful contributor to MedTech growth by the end of the decade. * MedTech plans to spin off its orthopedics business (DePuy Synthes) in mid-2027, with on-track progress and preparation for separation ongoing. - Capital Allocation * The company ended Q2 with $21 billion in cash and marketable securities and $49 billion in total debt, for a net debt position of $28 billion. Full-year 2026 free cash flow is still projected to approach $21 billion, in line with prior guidance, after a strong sequential improvement in Q2. * Capital priorities remain: internal investment in new product launches and R&D, bolt-on acquisitions that accelerate innovation, and returning capital to shareholders primarily via dividends.

Guidance

- Full-year 2026 operational sales growth guidance is raised, with the new range of 6.5% to 7.1% and a midpoint of $100.6 billion, representing a $400 million increase from prior guidance. The 2026 53rd fiscal year provides a 100 basis point growth benefit. - After accounting for a $100 million negative foreign exchange impact relative to prior guidance, reported sales growth is projected to be 7.0% to 7.6%, with a midpoint of $101.1 billion (7.3% year-over-year growth). - Management expects operational sales growth to accelerate in the second half of 2026 relative to the first half, with fourth quarter growth boosted further by the 53rd week. - Adjusted pre-tax operating margin is now expected to improve approximately 75 basis points full-year, up from the prior guidance of more than 50 basis points, driven by operating efficiencies and expected recoupment of certain tariff-related costs following recent regulatory rulings. - Adjusted operational diluted EPS guidance is raised to $11.50 to $11.65, an increase of 18 cents at the midpoint, representing 7.3% year-over-year growth. Reported EPS is projected to be $11.60 to $11.75, representing 8.2% year-over-year growth. - The full-year effective tax rate is projected to be 17.0% to 18.0%, lower than prior guidance, based on year-to-date results. - Net interest expense is projected to be $250 million to $300 million, slightly lower than prior guidance.

Segment performance

Johnson & Johnson reported total worldwide Q2 2026 sales of $25.3 billion, representing 5.6% operational sales growth. Excluding the impact of biosimilar competition on Stellara, the company achieved double-digit overall growth in the quarter. 1. Innovative Medicine: Total worldwide sales of $16.4 billion, representing 6.8% operational growth, accounting for 64.8% of total Q2 revenue. The segment faced a 760 basis point headwind from Stellara's biosimilar competition; excluding Stellara, the remaining 96% of the segment grew over 14%. Key sub-segment performance: - Oncology: Darzalex grew 17.6% to over $4 billion; Carvicti grew 47.7%; Tecvaili grew 56.1% with 29.2% worldwide sequential growth; Talve grew 62.6%; RibroVant grew 61.6%; Erleada grew 7.6%. - Immunology: Trenfaya grew 71%; Stellara declined 55.7% due to biosimilar competition; new launches Icotide and Amave drove additional growth. - Neuroscience: Bravado grew 40%; Kaplaita grew 70.9% driven by launch momentum and new indication approval. Adjusted pre-tax margin for Innovative Medicine declined slightly from 42.7% to 42.5% due to unfavorable product mix and new product launch investments. 2. MedTech: Total worldwide sales of $8.9 billion, representing 3.6% operational growth, accounting for 35.2% of total Q2 revenue. Key sub-segment performance: - Cardiovascular: Grew 3.1%, with a 400 basis point drag from China inventory dynamics and a 2% decline in Abiomed (heart recovery) due to temporary physician caution following an external clinical trial; Shockwave grew 14.7% (double-digit). - Surgery: Grew 2.3%, with strength in biosurgery and wound closure partially offset by competitive pressures and pricing headwinds in China. - Vision: Grew 5.6%, with contact lenses growing 6% driven by the AccuView portfolio, and Surgical Vision growing 4.7% driven by premium IOL demand. - Orthopedics: Grew 4.2% driven by new product launches and strong commercial execution. Adjusted pre-tax margin for MedTech declined slightly from 22.2% to 22% due to commercial investments, R&D increases, and tariff impacts.

Risks & headwinds

- Biosimilar competition for Stellara continues to create a material headwind for Innovative Medicine growth, resulting in a 55.7% year-over-year decline in Stellara sales in Q2. - Temporary physician caution following a small neutral external clinical trial for Impella (Abiomed/heart recovery) led to a 2% decline in the segment in Q2, with a slower than expected recovery expected through the end of 2026, with full recovery not anticipated until 2027 pending the readout of the larger PROTECT4 clinical trial. - Inventory dynamics in China created a 400 basis point headwind to MedTech cardiovascular segment growth in Q2. Pricing pressure (Value-Based Procurement) in China also continues to create headwinds for MedTech's surgery segment. - Foreign exchange rate movements relative to prior guidance created a $100 million negative impact to projected full-year sales. - The company's forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from projections, with key risks detailed in the company's annual SEC 10-K filing. - Pending clinical trial readouts for major pipeline assets carry inherent uncertainty; trial outcomes may differ from management expectations and could impact commercial launch prospects.

Analyst Q&A

• Q: The $400 million increase in full-year operational sales guidance is split how between pharma and MedTech, and are MedTech growth expectations lower offsetting higher pharma growth? /

  A: This characterization is broadly correct. Stronger-than-expected performance from newer Innovative Medicine products including Icotide and Trenfaya drove the upward revision, with these products still in early launch stages with expected continued growth through the second half. MedTech overall is still expected to grow faster in the second half than the first half, but Abiomed growth expectations have been tempered, with recovery pushed out to 2027 until the PROTECT4 trial readout.

• Q: Can you provide an update on Icotide launch metrics, payer progress, and co-positioning with Tremfya in psoriasis? /

  A: As of Q2, over 11,000 patients have initiated Icotide, with 6,000 unique prescribers and over 50% commercial payer coverage, ahead of internal projections. Icotide is positioned as the first-line systemic treatment for patients stepping up from topicals, while Tremfya is positioned as the first-line biologic, especially for patients with or at risk of psoriatic arthritis. Both products are growing well with no crowd-out, and Tremfya recently received approval for inhibiting structural damage in psoriatic arthritis. Pivotal data for Icotide in psoriatic arthritis is expected later this year.

• Q: What was Q2 U.S. procedure growth, is there a broad slowdown, and will MedTech grow faster full-year 2026 excluding the extra 53rd week? /

  A: Three out of four MedTech sub-segments (surgery, vision, orthopedics) accelerated in Q2 and performed above expectations, with no evidence of a broad-based systemic slowdown in procedure volumes across the portfolio. The muted overall Q2 growth stemmed from isolated headwinds: Chinese inventory dynamics in electrophysiology and temporary physician caution in Abiomed heart recovery. Management expects MedTech growth to accelerate in the second half, with long-term growth conviction for the segment unchanged. No material impact from ACA subsidy expiration has been observed to date.

• Q: What is the update on the Otava surgical robotics program, and when will more details be shared? /

  A: FDA approval submission for Otava was completed in late 2025, with the company actively completing a second required clinical trial for inguinal hernia. Management remains confident in approval, and expects Otava and the new Monarch Urology platform to launch this year, with both becoming a meaningful contributor to MedTech growth by the end of the decade. More details on launch plans will be shared immediately after regulatory approval, with an update expected at the upcoming industry conference next week.

• Q: What is driving the slowdown in the Abiomed business, what actions are being taken, and what is the revised growth outlook? /

  A: The Q2 slowdown is purely behavioral, driven by temporary physician caution after a small neutral UK clinical trial focused on high-risk PCI, not a structural change to the market or product profile. The company is actively engaging with physicians to reinforce the existing deep evidence base (over 2,600 publications supporting use in appropriately selected patients) and highlight appropriate patient selection. Growth is expected to gradually improve in the second half of 2026, with full recovery after the PROTECT4 trial readout in 2027. The long-term growth outlook for the business remains intact.