Johnson & Johnson (JNJ) is one of the largest pharmaceutical and medical equipment manufacturers in the U.S. In the pharmaceuticals segment (Innovative Medicine), the company commercializes a diversified portfolio of drugs in the fields of immunology, infectious diseases, neurology, oncology, cardiovascular diseases, metabolism, and pulmonary hypertension. The MedTech segment includes a portfolio of devices used in interventional procedures, orthopedics, surgery, and vision care.
The MedTech segment will be the main driver of J&J's revenue growth in 2025, and the segment's growth could accelerate. In Q3 2024, the MedTech segment (+5.8% YoY) showed revenue growth, which was supported by the acquisition of a new asset, Shockwave, in the cardiovascular disease area. Excluding M&A and exchange rate fluctuations, the segment's growth was 3.7% YoY. Shockwave will strengthen the revenue dynamics of the fastest-growing sub-segment of MedTech, particularly due to the recent commercial launch of the E8 Peripheral IVL catheter.
The growth drivers for the MedTech segment that worked in 2024 will remain relevant in 2025. These include high demand for Impella heart pumps from the acquired company Abiomed, as well as growth in procedure volumes and the launch of new products in electrophysiology, orthopedics, and vision care. A growth constraint for international MedTech revenue remains the anti-corruption campaign in China, which creates bureaucratic barriers for sales growth in the region. However, strong dynamics in other regions, particularly in the U.S., compensate for this pressure. These factors could accelerate segment revenue growth in 2025, helping to achieve the strategic goal of an average revenue growth of 5-7% from 2022 to 2027.
External regulatory pressures have so far not affected the MedTech segment. The new leadership in the U.S. healthcare system is focused on tightening regulations for the pharmaceutical industry, pharmacy chains, and healthcare providers. In this context, J&J's product portfolio is well-diversified: the temporary weakness in the pharmaceutical segment is offset by the continued growth of the MedTech segment. A slowdown in inflation will have a positive impact on the segment's profitability. Additionally, new products and cost optimization measures taken after the spin-off of Kenvue will support the profitability growth of MedTech and the entire J&J holding.
The pharmaceutical segment has entered a renewal phase and is currently facing pressure from the expiration of exclusivity for major drugs. In Q3 2024, the immunology division (−4.7% YoY) was predictably under pressure due to the expiration of STELARA's exclusivity. The appearance of STELARA biosimilars in the EU market (−6.6% YoY) in the summer is expected to start the decline in revenue from this drug. We expect this effect to intensify in Q4 2024 and Q1 2025, mainly due to the anticipated arrival of biosimilars in the U.S. market in January. However, growing brands and new products will compensate for the decline in revenue from STELARA in 2025 – management expects near-zero dynamics for the segment.
JNJ shares are trading at attractive valuations. The current P/E LTM multiple of 13.6 is below the company's 5-year historical average of 15.8 and the industry benchmark of 15.3. We expect that, due to improved profitability, EPS growth in 2025 will outpace the company's revenue growth. Additionally, the impact of declining revenue from STELARA will diminish over the course of the year, potentially indicating the prospect of accelerated revenue growth in 2026.
JNJ target price – $176.