Johnson & Johnson executives reiterated confidence in the company’s pharmaceutical sales outlook as it completes the final steps to divest a consumer health business that’s long provided a buffer for the ups and downs of drug development.
The company on Thursday raised its forecast for both full-year sales and earnings per share by 1%, following second quarter performance that beat Wall Street’s expectations. J&J now expects adjusted operational sales to grow between 6% and 7% for business overall, and “above market” gains for its pharmaceutical division specifically.
J&J shares jumped by nearly 6% in mid-morning trading Thursday, lifting the company’s market valuation close to that of Eli Lilly, which earlier this year replaced J&J as the world’s most valuable drugmaker.
Executives also laid out the next steps for separating its consumer health business, which in May raised $3.8 billion via an initial public offering. J&J still owns about 90% of the newly listed business, branded as Kenvue, but plans to allow its shareholders to exchange all or some of their J&J stock for shares in Kenvue.
“We believe a split-off is the most advantageous form of separation for Johnson & Johnson, Kenvue and our shareholders,” said Joe Wolk, J&J’s CFO, on a conference call with analysts Thursday.
“Specifically, an exchange offer provides Johnson & Johnson the potential opportunity to acquire a large number of outstanding Johnson & Johnson common stock in a tax-free manner ... without reducing overall cash or future financial flexibility,” he added.
The timing of the exchange offer will depend on market conditions, but Wolk said it could be launched as soon as the “coming days."
Separation of Kenvue will hive off a unit that accounted for about 16% of J&J’s $25.5 billion in sales during the second quarter.
In the past, large drugmakers like J&J relied on consumer health businesses to balance some of the cyclical declines in prescription drug sales that often follow loss of patent protection on top-selling medicines. But in recent years many companies, including Pfizer, GSK, Novartis and Merck & Co. have moved away from that conglomerate model, favoring instead a narrower focus on high-margin pharmaceuticals.
J&J also operates a large medical device business that it will retain alongside pharmaceuticals.
Drug sales in the second quarter were boosted by growth from J&J’s multiple myeloma drugs Darzalex and Carvykti, as well as its immune disease medicine Tremfya and antidepressant Spravato.
"We have increased confidence based on our portfolio, in our new product launches and how we’re executing our pipeline,” company CEO Joaquin Duato said on Thursday’s call. “What you’re seeing with this renewal of our portfolio is a very strong Johnson & Johnson in pharmaceuticals beyond 2025.”
Duato highlighted the company’s multiple myeloma drugs in particular, calling them the company’s “number one growth driver.”
One challenge to its long-term outlook is legislation enacted last year in the U.S. that sets up a process for the federal government to negotiate prices on certain top-selling drugs. J&J filed suit to block the program earlier this week, claiming it to be unconstitutional.
J&J is the second large pharma to announce second quarter earnings. Novartis, which reported Tuesday, also raised its sales guidance.