Executive Summary / Key Takeaways

• Resilient Growth Amidst Headwinds: Johnson & Johnson demonstrated remarkable resilience in Q2 2025, achieving 4.6% operational sales growth despite a significant 11.7% headwind from STELARA's loss of exclusivity. This performance underscores the strength of its diversified portfolio and strategic focus on high-growth segments.
• Innovation-Driven Pipeline & Portfolio: The company's robust pipeline, particularly in Oncology (e.g., CARVYKTI, RYBREVANT/LAZCLUZE, TAR-200) and Immunology (TREMFYA, Icotrokinra), is delivering game-changing therapies and driving substantial growth, with several assets projected for multi-billion dollar peak sales.
• MedTech Momentum & Strategic Acquisitions: MedTech is accelerating, with 6.1% operational growth in Q2 2025, fueled by strong performance in Cardiovascular (Abiomed, Shockwave) and Vision. Strategic acquisitions are expanding market leadership and enhancing the portfolio's growth trajectory.
• Strong Financial Position & Outlook: J&J raised its full-year 2025 operational sales guidance to 4.5%-5.0% and adjusted EPS to $10.80-$10.90, reflecting confidence in its operational execution and pipeline. The company maintains a strong balance sheet, supporting continued investment and shareholder returns.
• Managing Complex Risks: While facing ongoing talc litigation and macroeconomic pressures, J&J is actively managing these challenges. Its commitment to U.S. investment and manufacturing aims to mitigate supply chain risks and reinforce long-term stability.

The Enduring Strength of a Diversified Healthcare Leader

Johnson & Johnson, founded in 1886, has cultivated a profound legacy in healthcare, evolving into a uniquely diversified titan spanning both Innovative Medicine and MedTech. This dual-segment structure is not merely an organizational chart; it is the bedrock of a strategic philosophy centered on delivering end-to-end solutions across the full spectrum of disease. This approach, honed over more than a century, allows J&J to leverage expertise from drug discovery to medical device innovation, creating a formidable competitive moat.

The company's strategic evolution, particularly the 2023 spin-off of its Consumer Health business (Kenvue (KVUE)), sharpened its focus on high unmet need, high growth, and high innovation segments. This deliberate shift has positioned J&J to lead where medicine is going, emphasizing disease-centric strategies that aim to move from treatment to cure. Broad industry trends, such as an aging global population, increasing prevalence of chronic diseases, and the relentless pursuit of advanced therapies, underscore the vast market opportunities J&J is targeting. However, these trends are accompanied by pressures like healthcare cost containment, evolving regulatory landscapes, and geopolitical complexities, which J&J's diversified model is designed to absorb.

Technological Bedrock: Fueling Innovation and Competitive Moats

J&J's core competitive advantage is deeply rooted in its differentiated technological platforms across both Innovative Medicine and MedTech. These technologies are not just incremental improvements; they are designed to redefine standards of care and offer tangible, often quantifiable, benefits.

In Innovative Medicine, J&J is at the forefront of several cutting-edge therapeutic modalities:

• Oncology: The company's leadership in multiple myeloma is exemplified by its CAR-T therapy, CARVYKTI. This dual-targeting CD19/CD20 CAR T-cell therapy has achieved remarkable results, with new 5-year data showing the potential for long-term remission from a single infusion. Over 5,000 patients have been infused globally, marking it as the most successful cell therapy launch in the industry. J&J's bispecific T-cell engagers, TECVAYLI and TALVEY, are considered best-in-class, demonstrating complete response rates approaching 50% and overall response rates of 100% in heavily pretreated patients for an investigational tri-specific antibody. These molecules offer a duration of response of nearly two years and very low discontinuation rates, providing significant advantages over traditional therapies.
• Lung Cancer: RYBREVANT/LAZCLUZE represents a significant leap forward in first-line EGFR-mutated non-small cell lung cancer. Phase 3 data showed this regimen extended overall survival by more than one year compared to the current standard of care (osimertinib). The subcutaneous formulation, for which an FDA response has been submitted, reduces administration time from hours to minutes, a critical operational benefit for patients and healthcare systems. It is rapidly becoming the #1 regimen providers intend to prescribe for frontline patients.
• Bladder Cancer: TAR-200, an intravesical gemcitabine releasing system, is a transformational product leveraging J&J's unique expertise across both segments. It has received FDA Priority Review for high-risk non-muscle invasive bladder cancer and is anticipated to launch later in 2025. Clinical data show over 80% disease-free survival and 94% bladder preservation, offering a meaningful alternative to radical cystectomy. This asset is expected to generate at least $1 billion in annual peak sales, representing a significant disconnect from current analyst expectations.
• Immunology: TREMFYA, a dual-acting IL-23 inhibitor, blocks both IL-23 and the CD64 receptor cells, providing a differentiated mechanism. It demonstrated superiority versus STELARA in pooled endoscopic endpoints in Crohn's disease, and its subcutaneous induction and maintenance dosing offer unrivaled flexibility. TREMFYA is expected to generate at least $10 billion annually in peak sales. The investigational oral IL-23 receptor blocker, Icotrokinra, aims to redefine plaque psoriasis treatment with a once-daily pill offering efficacy comparable to biologics and a favorable safety profile. J&J is planning head-to-head studies against injectable biologics and TYK2 inhibitors, signaling its confidence in this market-expanding asset.

In MedTech, J&J's technological prowess is equally impactful:

• Cardiovascular: The VARIPULSE Pulsed Field Ablation (PFA) platform has completed over 10,000 cases globally with a reported neurovascular event rate of less than 0.5%, consistent with other PFA platforms. The dual energy Thermocool SmartTouch SF catheter and Omni pulse further expand J&J's portfolio. The acquisition of Shockwave Medical brings unique intravascular lithotripsy (IVL) technology, driving significant growth and expected to be a $1 billion+ MedTech platform by year-end. Abiomed's Impella heart pumps, now upgraded to Class IIa in ACC/AHA guidelines based on the DANGER shock trial (showing a 12.7% mortality improvement), continue to see strong adoption. The planned Impella ECP submission to the FDA promises the world's smallest heart pump, reducing barriers to adoption.
• Surgery: The OTTAVA robotic surgical system is progressing, with clinical trials underway and an FDA de novo approval submission planned for next year. Its sophisticated architecture, including "twin motion" and integration with Ethicon's advanced instrumentation, aims to minimize surgical complications. The new Ethicon 4000 surgical stapler with 3D reloads is designed to minimize surgical leaks and bleeding, common and costly complications.
• Vision: The ACUVUE OASYS MAX 1-Day family of contact lenses and TECNIS intraocular lenses (Odyssey, PureSee, Eyhance) are driving robust growth. The recent Q2 2025 release of the first disposable multifocal lenses for astigmatism further expands market reach.

These technological differentiators are critical to J&J's competitive moat. They enable J&J to command premium pricing, achieve higher market share in specialized segments, and improve operational efficiency through advanced manufacturing and integrated solutions. This translates directly into stronger financial performance and a more resilient business model.

Competitive Landscape: A Differentiated Edge

Johnson & Johnson operates in a highly competitive healthcare landscape, facing formidable rivals in both its Innovative Medicine and MedTech segments. Key direct competitors include pharmaceutical giants like Pfizer (PFE), Merck (MRK), and AbbVie (ABBV), as well as medical device leaders. J&J's unique diversification across these two major sectors provides a distinct strategic advantage.

In Innovative Medicine, J&J's oncology portfolio, particularly DARZALEX, CARVYKTI, and the emerging bispecifics, directly competes with offerings from Merck (e.g., Keytruda) and Pfizer (e.g., Ibrance). While Merck's Keytruda has demonstrated faster time-to-market in some oncology indications, J&J's DARZALEX offers quantifiable advantages like 25-30% higher efficacy in certain blood cancers. J&J's strategy of developing a comprehensive suite of therapies across the multiple myeloma treatment continuum aims to capture and retain market share by offering solutions for nearly 80% of patients at some point in their journey.

In immunology, J&J's TREMFYA is positioned to take significant share from competitors like AbbVie's Humira and J&J's own STELARA as it faces biosimilar erosion. TREMFYA's demonstrated superiority over STELARA in Crohn's endoscopic endpoints and its unique dual-acting mechanism provide a strong competitive profile. J&J's foray into oral peptides with Icotrokinra also aims to expand the market by attracting patients averse to injectables, directly competing with new oral therapies from rivals.

The MedTech segment faces intense competition from specialized device manufacturers. In electrophysiology, J&J's market-leading position is challenged by new pulsed field ablation (PFA) technologies. However, J&J's entrenched footprint with over 5,000 CARTO systems and highly trained mappers allows it to retain leadership in mapping U.S. PFA cases, even when competitive ablation catheters are used. The company's strategy is to offer an "end-to-end solution" rather than just a single device, leveraging its comprehensive portfolio. The acquisitions of Shockwave and Abiomed have significantly bolstered J&J's competitive standing in cardiovascular intervention, where it is now a leader in four of the largest and highest-growth segments.

Financially, J&J's diversified model provides a buffer against the revenue volatility often seen in pure-play pharmaceutical companies facing patent cliffs. While some competitors like Merck and AbbVie may exhibit higher revenue growth rates in specific blockbuster areas (e.g., Merck's 8-10% vs. J&J's 4-5% operational growth), J&J's consistent profitability (TTM Net Profit Margin of 25.00% vs. Pfizer's 13% and Merck's 27% but with higher volatility) and robust cash flow generation ($19.84 billion in free cash flow in 2024) provide superior financial stability. J&J's return on invested capital (ROIC) of 18% (as estimated in competitive analysis) generally surpasses that of many peers, reflecting efficient capital deployment. Its lower debt-to-equity ratio (0.65) compared to some rivals further enhances its financial health and flexibility.

J&J's commitment to investing $55 billion in U.S. manufacturing, R&D, and technology over the next four years is a strategic response to potential supply chain vulnerabilities and trade policy shifts, aiming to manufacture all U.S.-consumed advanced medicines domestically. This proactive investment in domestic capacity provides a long-term competitive advantage by enhancing supply chain resilience and potentially mitigating future tariff impacts, which are expected to be approximately $200 million for its MedTech business in 2025.

Financial Strength & Operational Resilience

Johnson & Johnson's financial performance in the first half of 2025 underscores its operational resilience and the strategic benefits of its diversified portfolio. For the fiscal six months ended June 29, 2025, worldwide sales reached $45.636 billion, marking a 4.1% total increase and a 4.4% operational growth compared to the prior year. The second quarter alone saw worldwide sales of $23.743 billion, a 5.8% total increase and 4.6% operational growth. This performance is particularly notable given the approximate 11.7% headwind from STELARA's loss of exclusivity in Q2 2025.

The Innovative Medicine segment achieved its first quarter with over $15 billion in sales, growing 3.8% operationally in Q2 2025. This growth was driven by strong performance in Oncology, which saw a 22.3% operational sales increase, and Neuroscience, with a 14.4% operational increase, significantly offsetting the 16.0% decline in Immunology due to STELARA. The MedTech segment delivered 6.1% operational sales growth in Q2 2025, with Cardiovascular leading the way at 22.3% operational growth, boosted by recent acquisitions like Shockwave and Abiomed.

Profitability metrics reflect the ongoing strategic shifts and investments. For the six months ended June 29, 2025, earnings before provision for taxes on income surged to $20.122 billion (44.1% of sales), a substantial increase from $9.462 billion in the prior year. This jump was primarily due to the reversal of approximately $7.00 billion of previously accrued talc reserves. Adjusted diluted EPS for Q2 2025 was $2.77. While cost of products sold increased as a percentage of sales due to product mix and acquisition-related amortization, selling, marketing, and administrative expenses leveraged due to corporate rationalization, and R&D expenses leveraged due to portfolio rationalization and phasing.

J&J maintains a robust liquidity position. As of June 29, 2025, cash and cash equivalents stood at $18.577 billion. Net cash flows from operating activities for the six months ended June 29, 2025, were $8.052 billion. While net cash used in investing activities was $18.561 billion, primarily driven by the $14.458 billion Intra-Cellular Therapies (ITCI) acquisition, the company's net debt position increased to $31.9 billion. However, J&J has substantial access to funds globally, including a new $10.00 billion credit facility, ensuring ample resources to fund operations, including remaining litigation obligations.

Outlook & Future Trajectory

Johnson & Johnson has raised its full-year 2025 guidance, signaling strong confidence in its operational execution and pipeline momentum. The company now anticipates operational sales growth in the range of 4.5% to 5.0%, with a midpoint of $92.9 billion. This represents a significant increase of approximately $900 million from previous guidance. Adjusted operational sales growth, excluding M&A, is projected between 3.2% and 3.7%. Including an estimated $1.1 billion positive foreign currency impact, reported sales growth is expected to be between 5.1% and 5.6%, with a midpoint of $93.4 billion.

Adjusted EPS guidance has also been raised by $0.25, now projected to be between $10.80 and $10.90, with a midpoint of $10.85 (8.7% growth). Adjusted operational EPS is expected to reach $10.68 at the midpoint, representing 7% growth. Management reiterates its commitment to a 300 basis point improvement in operating margin for the full year, driven by efficiency programs and a reduction in non-recurring R&D charges. Net interest expense is projected to be between $0 and $100 million, an improvement from prior guidance. The effective tax rate is anticipated to be between 17.0% and 17.5%, though a one-time re-measurement cost of approximately $1.00 billion related to deferred tax balances is expected in Q3 2025 due to new tax legislation.

Qualitatively, J&J expects operational sales growth for both Innovative Medicine and MedTech to be higher in the second half of 2025. This acceleration is predicated on the continued ramp-up of newly launched products and increased adoption of new technologies in MedTech. Key pipeline catalysts for the remainder of 2025 include anticipated FDA approvals for TAR-200 in bladder cancer, subcutaneous RYBREVANT in lung cancer, TREMFYA subcutaneous induction for ulcerative colitis, and CAPLYTA for adjunctive major depressive disorder. Regulatory filings for Icotrokinra in psoriasis and TREMFYA in psoriatic arthritis are also expected. In MedTech, regulatory submissions for the dual energy Thermocool SmartTouch SF catheter and Impella ECP, alongside launches of new orthopedic and surgical products, are set to drive growth. Management explicitly states confidence that 2026 will see even better growth rates than 2025, with key assets expected to achieve peak year sales beyond 2028.

Risks & Challenges

Despite its strong position, Johnson & Johnson faces several pertinent risks. The ongoing talc litigation remains a significant overhang. Following the dismissal of its bankruptcy filings, J&J has returned to the tort system, with bellwether trials scheduled for late 2025 and early 2026. While the company reversed $7.00 billion of its talc reserve in Q1 2025, a total present value of approximately $4.00 billion remains accrued, and further adverse judgments or settlements could materially impact financial results. The opioid litigation is largely settled, with 80% of the $5.00 billion agreement paid, but a few remaining cases persist.

The loss of exclusivity for STELARA is a major revenue headwind, with biosimilar competition expected to accelerate throughout 2025, mirroring HUMIRA's erosion curve. This, coupled with the Medicare Part D redesign, will continue to impact product profitability. J&J is also exposed to intellectual property challenges from generic and biosimilar manufacturers, which could lead to market share and revenue losses for key products if patent defenses are unsuccessful.

Macroeconomic factors and geopolitical tensions present additional challenges. While the financial impact of the Russia-Ukraine war and Middle East conflict has not been material, global inflation and currency fluctuations continue to affect operations. The imposition of tariffs, particularly on MedTech products (estimated $200 million impact in 2025), could affect costs, though J&J's strategic U.S. manufacturing investments aim to mitigate long-term impacts. Continued headwinds in China, driven by volume-based procurement (VBP) and anti-corruption campaigns, are expected to persist through 2025, disproportionately affecting J&J's premium MedTech products in that market. Lastly, supply chain vulnerabilities, including potential IV saline shortages, could disrupt surgical procedures.

Conclusion

Johnson & Johnson stands as a testament to the power of diversification and relentless innovation in the complex healthcare landscape. Despite significant headwinds from STELARA's loss of exclusivity, ongoing litigation, and macroeconomic pressures, the company's Q2 2025 performance and raised full-year guidance underscore its profound operational resilience. Its strategic focus on high-growth, high-innovation segments within Innovative Medicine and MedTech, underpinned by a robust pipeline of differentiated technologies, positions J&J for sustained growth.

The company's commitment to transforming patient care through cutting-edge therapies and devices, coupled with disciplined capital allocation and substantial investments in U.S. manufacturing, reinforces its competitive moat. While challenges persist, J&J's ability to consistently deliver strong financial results and advance its pipeline provides a compelling long-term investment thesis. The path ahead is clear: J&J is leveraging its unique strengths to not only weather current storms but to emerge stronger, driving value for both patients and shareholders for decades to come.