By Anjalee Khemlani

Johnson & Johnson (JNJ) beat on fourth quarter and full-year 2024 results, but its stock traded down on Wednesday morning to about $143 per share.

Several negative impacts were highlighted in the look-back and look-ahead on an earnings call, despite the company beating Wall Street expectations on revenue by $70 million and reporting results on earnings per share in line with estimates.

J&J reported total sales of $88.8 billion for 2024, up 4.3% compared to 2023. That includes slowing COVID-19 vaccine sales — a theme other vaccine makers are expected to see with a slower start to the respiratory virus season this year.

The company reported earnings per share of $5.79 for 2024, up 11% year over year.

Meanwhile, fourth quarter earnings were mixed, with $22 billion in sales, up 5.3% year over year, and earnings per share down 17% from the prior year at $1.41.

But the good news is somewhat tempered by the ongoing talc case, which has weighed on its growth potential. A lawsuit in Texas is set to begin hearings on Feb. 18 and last up to a month thereafter.

"From there, the company anticipates the plaintiff lawyers to appeal this decision (if positive) to the 5th circuit in Texas, which was noted as being potentially more favorable on the requirement of bankruptcy (with the added difference of this being a pre-packaged bankruptcy)," JPMorgan analysts wrote in a recent note to clients.

Ahead of earnings, Bank of America Securities analysts lowered their price target for the company for 2025 from $166 per share to $160 over ongoing concerns from the talc lawsuit.

In addition to the lawsuit, J&J anticipates some negative impact from foreign exchange for the year as well as slower medical device sales, with China's slowdown in procedures weighing on the company's potential revenues.

The company is transitioning into a competitive market, as generics launch for its blockbuster anti-inflammatory arthritis drug Stelara. The drug is also now facing pricing pressures from a newly negotiated price with Medicare, one of its largest customer bases.

Meanwhile, its growth in the fourth quarter came from its multiple myeloma drug, Darzalex, and several cancer drugs. The combined sales of the top six drugs totaled roughly $4.5 billion, or about 20% of revenues for the quarter.

The big deal

J&J announced it would acquire mental health disorder drugmaker Intra-Cellular (ITCI) for $14.6 billion at the annual JPMorgan Healthcare conference earlier this month.

The company boasted cash flow of $20 billion for the full year last year, up $1.6 billion from 2023.

Intra-Cellular has a drug, Caplyta, that J&J expects to capitalize on for newly approved mental health disorders in the near future. But the company largely expects the deal to be financed through debt.

"We plan to finance mainly with debt. We are not planning for material near-term cost synergies. Rather, we expect to accelerate penetration of Caplyta in existing markets, explore additional geographies to commercialize the portfolio, potentially accelerate research and development to expand into new indications," CFO Joe Wolk said on an earnings call.

Experts believe that though Intra-Cellular was a large deal and set the baseline for M&A in biotech for the year, J&J isn't through. It has been slowly acquiring smaller biotechs in recent years.

"Company has capacity to add to either Pharma or Medtech and has been very acquisitive over the past several years in both spaces. Net debt now stands around $12bn which will be paid down with FCF over the next several quarters. Did not get sense business development done," Mizuho's healthcare expert Jared Holz wrote in a note to clients Wednesday.

CEO Joaquin Duato hinted as much on the earnings call.

"External innovation has always been a very important part of our capital allocation strategy for Johnson and Johnson ... and in fact, we are one of the top investors not only in M&A but also in R&D. We are always looking for opportunities to be able to enhance our portfolio and our pipeline," Duato said.

BofA analysts said in a recent report that J&J spends about 17% of its revenue on R&D, slightly lower than its US peer group average of 19%.

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Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee on social media platforms X (Twitter), LinkedIn Bluesky @AnjKhem.

Source: Yahoo finance