J&J JNJ stock has plunged 6.1% in a month, losing almost $24 billion of its market value.
Though slowing sales in its MedTech segment, the upcoming patent expiration of its blockbuster drug, Stelara, and talc-related legal issues are hurting J&J, a lot of this stock price decline could be due to the broader drug/biotech sector decline in the past month. Lower-than-expected sales of Lilly LLY and Novo Nordisk’s NVO popular diabetes and obesity drugs in the third quarter, guidance cuts, pipeline setbacks and appointment of Robert F. Kennedy Jr., a vaccine skeptic, as head of Health and Human Services (HHS) have taken a toll on stocks in the large-cap pharma sector.
The decline in J&J’s share price and the drug/biotech sector’s downturn in the past month have left investors wondering if they should sell J&J stock. Let’s understand the company’s strengths and weaknesses to better analyze how to play J&J stock following the latest dip.
JNJ’s Innovative Medicine Unit Showing Consistent Strength
J&J’s Innovative Medicine unit is performing at above-market levels. Its growth is being driven by existing products like Darzalex, Stelara, Tremfya, Uptraviand Erleada and the continued uptake of new launches, including Spravato, Carvykti and Tecvayli. The segment’s sales rose 6.8% in 2022, 9% in 2023 and 5.6% in the first nine months of 2024 on an organic basis. In 2025, J&J expects to record positive growth in the Innovative Medicine segment despite the loss of exclusivity of its key blockbuster drug, Stelara, in January. J&J expects the Innovative Medicine business to grow 5-7% from 2025 to 2030.
Moreover, J&J believes 10 of its new Innovative Medicine products, including new cancer drugs like Talvey and Tecvayli and pipeline candidates like nipocalimab and JNJ-2113, have the potential to deliver peak non-risk-adjusted operational sales of $5 billion.
J&J’s Talc Suits and Bankruptcy Attempts
J&J faces more than 62,000 lawsuits for its talc-based products, primarily baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. J&J insists that its talc-based products are safe and do not cause cancer. The company permanently discontinued the sale of its talc-based Johnson’s Baby Powder.
J&J failed twice in its attempts to seek bankruptcy to fully resolve these thousands of lawsuits related to its talc products. In May 2024, the company proposed a new plan committing to pay claimants approximately $6.5 billion nominally over 25 years, which could resolve 99.75% of all pending talc lawsuits against it.
In September, J&J, via another subsidiary called Red River Talc, filed for voluntary bankruptcy (in Texas) for the third time after it received the support of around 83% of current claimants for the proposed bankruptcy plan. Red River also increased its settlement commitment by $1.75 billion to approximately $8 billion. The talc bankruptcy confirmation hearing is expected to take place in early 2025.
Upcoming Patent Expiration of J&J’s Blockbuster Drug Stelara
J&J will face the patent expiration of its blockbuster drug, Stelara, in 2025. Stelara generated sales of $8.0 billion in the first nine months of 2024. The launch of generics could significantly erode the drug’s sales and hurt J&J’s sales and profits. While a biosimilar version of Stelara was launched in some European markets for certain indications in July 2024, in the United States, biosimilars are expected to be launched in January 2025.
Slowing Sales in J&J’s MedTech Segment
Sales in J&J’s MedTech business are facing continued headwinds in Asia Pacific, specifically in China. Sales in China are being hurt by the impact of the volume-based procurement (VBP) program and the anti-corruption campaign. VBP is a government-driven cost containment effort in China. Competitive pressure is also hurting sales growth in some MedTech businesses.
J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, for the rest of this year. Accordingly, along with the third-quarter results, J&J lowered its expectations for 2024 adjusted operational sales growth in the MedTech segment to closer to 5% versus the prior expectation of closer to 6%.
It expects continued impacts from VBP issues in China in 2025 as VBP continues to expand across provinces and products.
J&J Stock’s Price, Valuation and Estimates
J&J’s stock has underperformed the industry this year. The stock fell 2.4% year to date against 2.6% growth of the industry.
JNJ Stock Underperforms Industry
Image Source: Zacks Investment Research
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its 5-year mean. Going by the price/earnings ratio, the company’s shares currently trade at 14.61 forward earnings, lower than 16.08 for the industry and the stock’s mean of 16.07.
JNJ Stock Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 as well as 2025 earnings has gone down in the past 60 days, as seen in the chart below.
JNJ Estimate Movement
Image Source: Zacks Investment Research
Stay Invested in J&J Stock
J&J’s biggest strength is its diversified business model. With last year’s complete separation of the Consumer Health segment into a newly listed company called Kenvue KVUE, J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
J&J’s Innovative Medicines segment is showing a growth trend. The company has an interesting R&D pipeline that can generate innovative products and drive its growth further. It recently completed acquisitions of Shockwave and V-Wave in MedTech and Ambrx, Proteologix and NM26 bispecific antibody in Innovative Medicine, thus boosting its pipeline.
However, the softness in the MedTech unit is a concern. It remains to be seen if the trends improve in 2025.
Overall, J&J’s outlook for 2025 looks positive. In 2025, the company expects sales to be more than its guidance of $57 billion, which it issued in 2021. In its Innovative Medicine segment, growth is expected to be driven by its key products such as Darzalex, Tremfya, Erleada and others, as well as new drugs and new indications for Tremfya and Rybrevant. In MedTech, J&J expects growing operational sales growth to be at the upper end of its long-term (2022-2027) guided range of 5-7%, driven by the launch of new products and contributions from Abiomed and Shockwave acquisitions.
Those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested for some time as the visibility for a potential resolution of the talc lawsuits has improved, and J&J looks optimistic for a better performance in 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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