Q1 2025 Earnings Summary
- Robust Innovative Medicine Portfolio: Executives highlighted that despite biosimilar headwinds for STELARA, the diversified portfolio—with 11 key brands growing in double digits and assets such as CARVYKTI and TREMFYA posting strong operational growth—supports sustained revenue expansion.
- Promising Pipeline and Regulatory Milestones: Management emphasized upcoming approvals and positive clinical data for assets like CAPLYTA, TREMFYA (in ulcerative colitis and Crohn’s disease), and icotrokinra for psoriasis, which are expected to drive future earnings and market share gains.
- Resilient MedTech and Operational Recovery: In the Q&A, executives expressed confidence in underlying recovery in orthopedics and MedTech through new product launches, differentiated innovation, and a significant U.S. manufacturing investment plan of $55 billion, which together will bolster future margins.
- STELARA Biosimilar Pressure: The erosion of STELARA sales due to biosimilar competition, with reported declines (e.g., 32.3% drop in Q1 results) and an expected accelerated erosion similar to HUMIRA’s historic 2‐year curve, could significantly weaken overall innovative medicine performance.
- Tariff Headwinds: Uncertainty surrounding approximately $400 million in Medtech tariffs—especially from products shipped into China—poses risks by increasing cost pressures and negatively impacting margins, with only limited strategies to fully mitigate these effects.
- Operational Weakness in Orthopedics: The Orthopedics business was notably impacted by onetime events including revenue recognition changes and fewer selling days, leading to underlying growth of only about 2% after adjustments, while competitive pressures in areas like Spine and Sports also raise concerns about sustainable performance recovery.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +2.4% (from $21,383m in Q1 2024 to $21,893m in Q1 2025) | Modest revenue growth reflects a continuation of underlying operational improvements—such as solid segment performance and product pipeline momentum—that were already evident in previous periods, although growth was partly offset by currency headwinds. |
U.S. Revenue | +5.9% (from $11,620m in Q1 2024 to $12,305m in Q1 2025) | U.S. revenue improved notably as key segments (for instance, Oncology and Cardiovascular) continued delivering strong results, building on the trends seen in FY 2024; this localized strength helped lift overall revenue performance in the current period. |
European Revenue | Approximately -1% change (nearly flat: from $5,163m in Q1 2024 to $5,110m in Q1 2025) | European revenue remained essentially flat as modest operational gains were counterbalanced by a negative currency impact and competitive pressures (e.g., biosimilar competition affecting STELARA sales), a pattern aligned with previous period pressures in the region. |
Net Earnings | +238% (from $3,255m in Q1 2024 to $10,999m in Q1 2025) | Net earnings saw a dramatic surge primarily due to the one-time $7.0 billion reversal of the previously accrued talc reserve—contrasted with $2.7 billion in talc-related charges in Q1 2024—along with lower selling, marketing, and R&D expenses; adjusted earnings showed only a modest improvement, highlighting the significant impact of this non-recurring event compared to prior period figures. |
Cash and Cash Equivalents | +51% (from $25,473m in Q1 2024 to $38,474m in Q1 2025) | A substantial increase in liquidity was driven by robust cash inflows from financing activities (net debt proceeds totalled over $17.9 billion) and healthy operating cash generation, which built on the previous period’s adjustments and contributed to a stronger cash position in Q1 2025. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Reported Sales Growth (%) | FY 2025 | 1% growth | 3.1% | raised |
Operational Sales Growth (%) | FY 2025 | no prior guidance | 3.8% (midpoint of 3.3%-4.3%) | no prior guidance |
Adjusted Operational Sales Growth (%) | FY 2025 | no prior guidance | 2%-3% | no prior guidance |
Adjusted Reported EPS ($USD) | FY 2025 | $10.60 | $10.50 to $10.70 (midpoint 10.60) | no change |
Operating Margin Improvement (bps) | FY 2025 | Increase of 300 basis points | 300 basis points | no change |
Net Interest Expense ($USD) | FY 2025 | no prior guidance | $100 million to $200 million | no prior guidance |
Other Income ($USD) | FY 2025 | $900 million to $1.1 billion | $1 billion to $1.2 billion | raised |
Tariffs Impact ($USD) | FY 2025 | no prior guidance | $400 million | no prior guidance |
Foreign Currency Impact ($USD) | FY 2025 | no prior guidance | Full‐year headwind of $600 million | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Sales Growth (yoy) | Q1 2025 | 1% growth for FY 2025 | 2.4% yoy growth (21,893Vs. 21,383) | Beat |
Effective Tax Rate | Q1 2025 | 16.5% to 17.0% | 19.3% (2,632÷ 13,631) | Missed |
Net Other Income | Q1 2025 | $900 million to $1.1 billion for FY 2025 | $7,321 million (Other (income) expense, net, shown as -7,321) | Beat |
Net Interest Income | Q1 2025 | $0 to $100 million for FY 2025 | $128 million (Interest expense, net of portion capitalized: -128) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
STELARA Biosimilar Competition | Consistently cited from Q2 through Q4 2024, with growing sales declines (e.g., 13.6% in Q4, 5.7% in Q3, and anticipated European biosimilar entry in Q2) and use of HUMIRA’s erosion curve for modeling | Q1 2025 reported a steeper decline (32.3% drop) with a two‐year erosion model and strategic patient transition to products like TREMFYA | Continued negative impact with worsened erosion and a strategic shift away from STELARA over time |
Innovative Medicine Portfolio Expansion | Across Q2–Q4 2024, CARVYKTI, TREMFYA, and DARZALEX delivered robust growth with strong share gains, capacity expansion, and new indications (e.g., ulcerative colitis for TREMFYA) | Q1 2025 maintained momentum with CARVYKTI growing over 100%, TREMFYA posting 20.1% growth, and DARZALEX remaining a flagship with over 20% growth | Consistent bullish sentiment with sustained and even accelerated portfolio expansion, reinforcing long‐term growth prospects |
Pharmaceutical Pipeline & Regulatory Milestones | In Q2–Q4 2024, updates on CAPLYTA (filings and acquisition benefits), RYBREVANT (regulatory approvals) were prominent; Q3 had limited mention on CAPLYTA/icotrokinra | Q1 2025 provided robust updates: CAPLYTA’s supplemental NDA for MDD, positive Phase III data for icotrokinra, and strong survival data for RYBREVANT reinforcing its potential | Continued momentum with enhanced regulatory focus; slight emergence in emphasis on icotrokinra and expanded indications |
MedTech Growth & Operational Recovery | Q2–Q4 2024 discussions centered on steady MedTech growth, effective integration of Shockwave and Abiomed ramp-ups, and early steps in restructuring without major US manufacturing announcements | Q1 2025 underscored both an ongoing integration of Shockwave (with clear sales contributions) and a major US manufacturing investment of $55 billion over four years | Consistently positive with an additional significant commitment to U.S. capacity, signaling stronger long-term operational recovery |
Orthopedics Performance Variability | Q2–Q4 2024 showed mixed performance: Q4 reported modest growth (2.5%) driven by product launches while Q3 noted restructuring impacts; growth in hips and knees was positive but offset by transformation challenges | Q1 2025 reported a 3.1% decline due to onetime events, although management expects recovery based on innovation and upcoming approvals | Persistent variability with short-term negative results offset by a cautiously optimistic future outlook |
Electrophysiology Market Dynamics & VARIPULSE Challenges | Q2–Q4 2024 featured discussions on strong global EP growth, soft launches of VARIPULSE outside the U.S., and a temporary pause in U.S. applications in Q4 due to neurovascular event investigations | Q1 2025 described flat year-over-year EP growth with resumed U.S. VARIPULSE cases, though competitive pressures and product-specific challenges remain | Mixed sentiment: outside the U.S. momentum is intact, but U.S. challenges persist with cautious steps to restart VARIPULSE usage |
Asia Pacific/China Market Headwinds & Tariff Pressures | In Q2–Q4 2024, persistent headwinds from China were noted due to VBP and anticorruption campaigns; tariff/price pressures were less emphasized in Q2 and Q3, with Q4 mentioning hyperinflation‐related adjustments | Q1 2025 emphasized headwinds in China across multiple segments (e.g., MedTech, surgery) and detailed tariff pressures (e.g., $400 million cost impact) | Consistent operational headwinds remain, with tariff pressures now more explicitly cited as an increasing cost burden |
Litigation & Settlement Expense Impacts | Q2 referenced significant talc settlement proposals (a $6.5 billion present value) and Q3 described a $1.75 billion charge for talc litigation, while Q4 reported progress on prepackaged bankruptcy plans with scheduled hearings | Q1 2025 reported a reversal of a $7 billion reserve related to bankruptcy and a shift toward litigating meritless claims, positively impacting net income and tax rates | Litigation remains a long-term challenge, but recent actions (reserve reversal, proactive strategy) hint at a slightly more positive management stance |
U.S. Pharmaceutical Margin & Rebate Pressures | Q2 2024 discussions highlighted upward trends in discounts and rebates (from 25% to 60%) and challenges from Part D plans; Q3 and Q4 had limited focus on this topic | Q1 2025 detailed continued margin erosion driven by Part D redesign and product mix issues, with explicit reference to declining margins on certain products | Ongoing and persistent pressure on margins, with consistent challenges that are being factored into future guidance |
Product Safety & Regulatory Pause Concerns | Q4 2024 included explicit discussion of a temporary pause in U.S. Farapulse cases due to neurovascular events (emphasizing patient safety) while Q2 and Q3 had no significant mentions | Q1 2025 did not bring up product safety or regulatory pause concerns, suggesting either temporary resolution or lower prioritization in the narrative | Previously critical in Q4, the absence in Q1 may indicate resolution of acute safety concerns or a strategic shift away from the topic |
Vision Business Challenges in MedTech | Q2 2024 noted inventory destocking, competitive pressures, and macroeconomic issues (especially in Japan and China), while Q3 saw recovery through new launches and Q4 reported operational gains (9.1% growth) | Q1 2025 reported moderate growth in Surgical Vision (6.2%) and contact lenses (2.7%), though competitive pressures, particularly in the U.S., remain | Gradual improvement is evident over successive quarters, yet competitive and market headwinds persist, keeping sentiment cautiously optimistic |
Multiple Myeloma Franchise Growth | Q2–Q4 2024 consistently showcased strong franchise growth with DARZALEX, CARVYKTI, and TECVAYLI delivering robust double-digit growth and advancing pipeline developments (including combination approaches) | Q1 2025 maintained strong performance with DARZALEX over 20% growth, CARVYKTI exceeding 100% growth, and supportive trends from other products, confirming a robust franchise | Steady and bullish outlook with consistently strong growth metrics, underscoring its role as a flagship therapeutic area with significant long‐term potential |
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Tariff Impact
Q: What is annualized impact of $400M tariffs?
A: Management explained that the $400 million tariffs mainly stem from medtech products—including significant US-China components—and while the impact is phased over a partial year, the full-year effect remains somewhat speculative as it will gradually be released through the P&L ( ). -
Gross Margins
Q: Why were margins below expectations?
A: Management attributed the lower gross margins to a combination of last year’s high-margin STELARA sales, Part D redesign pressures, and adverse currency headwinds, while anticipating a recovery of roughly 300 basis points over time ( ). -
STELARA Erosion
Q: How will STELARA loss be offset?
A: Management noted that despite an 810 basis point negative impact from STELARA biosimilars, the remaining innovative medicine portfolio is growing strongly—nearly 12% on core products—fuelling a smooth transition to brands like TREMFYA ( ). -
Orthopedic Recovery
Q: What drove ortho revenue disruption and outlook?
A: Management explained that one-timer effects such as altered revenue recognition and fewer selling days caused a 480 basis point drag, yet when adjusted, underlying ortho growth reached about 2%, with promising new product launches expected to drive recovery later ( ). -
Recession Resilience
Q: Is J&J recession-proof and resilient?
A: Management emphasized that robust U.S. jobs reports and sustained demand for both pharmaceuticals and procedures illustrate the sector’s inherent resilience, suggesting that while no business is immune, healthcare demand remains stable even in a recession ( ). -
Pipeline Adjustments
Q: Why remove CavitiTAve/Dec Vale from the slide?
A: Management clarified that those products were removed because earlier estimates showed only a modest disconnect with consensus expectations, while emphasis has shifted to higher-growth pipeline assets like CARVYKTI that now exceed expectations ( ). -
Transfer Pricing
Q: Can you detail transfer pricing structures?
A: Management stated that for competitive reasons no detailed commentary on transfer pricing could be provided, underscoring instead the broader commitment to U.S. manufacturing and investment ( ). -
Section 232 Tariffs
Q: Are Section 232 tariffs affecting branded biologics?
A: Management indicated that Section 232 measures are expected to target generic APIs rather than complex branded biologics, and they are actively partnering with the administration to ensure supply chain stability ( ).
Research analysts covering JOHNSON & JOHNSON.